diff --git a/raw/filings/0001933359/2025/0001683168-25-004268/filing.txt b/raw/filings/0001933359/2025/0001683168-25-004268/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4d3430bcd707396c04f75fc02cb09236bf9da8f6 --- /dev/null +++ b/raw/filings/0001933359/2025/0001683168-25-004268/filing.txt @@ -0,0 +1,1405 @@ +NATICS CORP. 10-K +false +2025 +FY +0001933359 +P5Y +0001933359 +2024-05-01 +2025-04-30 +0001933359 +2024-10-31 +0001933359 +2025-04-30 +0001933359 +2025-01-01 +2025-12-31 +0001933359 +2025-02-01 +2025-04-30 +0001933359 +2024-04-30 +0001933359 +2023-05-01 +2024-04-30 +0001933359 +us-gaap:CommonStockMember +2022-02-20 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2022-02-20 +0001933359 +us-gaap:RetainedEarningsMember +2022-02-20 +0001933359 +2022-02-20 +0001933359 +us-gaap:CommonStockMember +2022-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2022-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2022-04-30 +0001933359 +2022-04-30 +0001933359 +us-gaap:CommonStockMember +2023-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2023-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2023-04-30 +0001933359 +2023-04-30 +0001933359 +us-gaap:CommonStockMember +2024-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2024-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2024-04-30 +0001933359 +us-gaap:CommonStockMember +2022-02-21 +2022-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2022-02-21 +2022-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2022-02-21 +2022-04-30 +0001933359 +2022-02-21 +2022-04-30 +0001933359 +us-gaap:CommonStockMember +2022-05-01 +2023-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2022-05-01 +2023-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2022-05-01 +2023-04-30 +0001933359 +2022-05-01 +2023-04-30 +0001933359 +us-gaap:CommonStockMember +2023-05-01 +2024-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2023-05-01 +2024-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2023-05-01 +2024-04-30 +0001933359 +us-gaap:CommonStockMember +2024-05-01 +2025-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2024-05-01 +2025-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2024-05-01 +2025-04-30 +0001933359 +us-gaap:CommonStockMember +2025-04-30 +0001933359 +us-gaap:AdditionalPaidInCapitalMember +2025-04-30 +0001933359 +us-gaap:RetainedEarningsMember +2025-04-30 +0001933359 +srt:DirectorMember +2022-02-21 +2022-02-22 +0001933359 +NONE:Shareholders27Member +2022-11-01 +2023-01-31 +0001933359 +2023-01-31 +0001933359 +NONE:AFewIndividualsMember +2023-02-01 +2023-04-30 +0001933359 +NONE:AFewIndividualsMember +2023-05-01 +2023-07-31 +0001933359 +NONE:GuyPirotskyMember +2024-05-01 +2025-04-30 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +Table of Contents +U.S. SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +Form 10-K +Mark One +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR +15(d) OF THE SECURITIES EXCHANGE +ACT OF 1934 +For the fiscal year ended April 30 , 2025 +☐ TRANSITION REPORT +PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ______ to _______ +Commission File No. 000-56732 +NATICS CORP. +(Exact name of registrant as specified in its charter) +Wyoming +(State or Other Jurisdiction of +Incorporation or Organization) +7200 +(Primary Standard Industrial +Classification Number) +EIN 98-1660105 +(IRS Employer +Identification Number) +App 6, Yehuda Gorodiski 1 +Rehovot , Israel 7623101 +Telephone: +1 307 2220096 +Email: natics.corp@zohomail.eu +natics.corp@yahoo.com +(Address, including zip code, and telephone number, +including area code, of registrant’s principal +executive offices ) +Registered Agents Inc. +30 N Gould St Ste R +Sheridan, WY 82801 +(307) 200-2803 +(Name, address, including zip code, and telephone +number, +including area code, of agent for service) +Securities registered pursuant to Section 12(b) of the Act: None +Securities registered pursuant to section 12(g) of the Act: +ordinary shares, par value $0.0001 per share +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by checkmark whether the issuer: (1) +has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period +that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes +☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes +☒ No ☐ +Indicate by check mark whether +the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging +growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting +company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. Yes ☐ No ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by checkmark whether the registrant is +a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +Indicate by checkmark whether the issuer has filed +all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution +of securities under a plan confirmed by a court. +Yes ☐ No ☒ +The aggregate market value of the voting and non-voting +common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and +asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter +was $ 0 . +Class +Outstanding as of April 30, 2025 +Common Stock: $0.0001 +5,495,300 +TABLE OF CONTENTS +PART I +ITEM 1 +Description of Business +1 +ITEM 1A +Risk Factors +1 +ITEM 1B +Unresolved Staff comments +1 +ITEM 1C +Cybersecurity +1 +ITEM 2 +Properties +2 +ITEM 3 +Legal Proceedings +2 +ITEM 4 +Mine Safety Disclosures +2 +PART II +ITEM 5 +Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities +3 +ITEM 6 +[Reserved] +3 +ITEM 7 +Management’s Discussion and Analysis of Financial Condition and Results of Operations +3 +ITEM 7A +Quantitative and Qualitative Disclosures about Market Risk +5 +ITEM 8 +Financial Statements and Supplementary Data +5 +ITEM 9 +Changes In and Disagreements with Accountants on Accounting and Financial Disclosure +5 +ITEM 9A +Controls and Procedures +7 +ITEM 9B +Other Information +7 +ITEM 9C +Disclosure Regarding foreign Jurisdictions that Prevent Inspections +PART III +ITEM 10 +Directors, Executive Officers, Promoters and Control Persons of the Company +8 +ITEM 11 +Executive Compensation +9 +ITEM 12 +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +10 +ITEM 13 +Certain Relationships and Related Transactions +11 +ITEM 14 +Principal Accountant Fees and Services +12 +PART IV +ITEM 15 +Exhibits +13 +ITEM 16 +Form 10-K Summary +13 +i +FORWARD-LOOKING STATEMENTS +This annual report contains forward-looking statements. +These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms +such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” +“approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject +to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, +which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in +the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could +cause actual results and events to differ materially from historical results of operations and events and those presently anticipated +or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after +the date of such statement or to reflect the occurrence of anticipated or unanticipated events. +ii +PART I +Item 1. Description of Business +GENERAL INFORMATION ABOUT OUR COMPANY +Natics Corp. is a development stage company formed +to commence operations concerned with online workouts. We were incorporated under the laws of the state of Wyoming on February 21, 2022. +We are providing the useful healthy and effective type of online sport service, for adolescents and adults, for men and women available +from anywhere using the phone and internet connection. Our online service provides a high quality sport trainings, through our mobile +application “Sport Natics” for Android and iOS mobile OS. Our sport app offers a free trial and a paid one (depending on the +content). +The paid version of the app will include: +– online video lesson with a trainer (where +the trainer shows how to properly perform the exercises) - 1 hour +– online video lesson with a trainer (where +the trainer checks the correctness of the exercises through video communication) - 1 hour +– personalized monthly program (depending +on the client’s requirement) +– personal Nutrition diet plan (depending +on the client’s requirement) +The links for the “Sport Natics” application: +In Google Play - https://play.google.com/store/apps/details?id=com.sport.natics +In App Store - https://apps.apple.com/ua/app/sport-natics/id1619622287 +Our website address is https://sport-natics.com/ +Our principal offices are located at App 6, Yehuda +Gorodiski 1, Rehovot, Israel 7623101. Our telephone number is +13072220096. +Item 1A. Risk Factors. +Not required for Smaller reporting companies. +Item 1B. Unresolved Staff Comments. +Not required for Smaller reporting companies. +Item 1C. Cybersecurity . +We use, store, and process limited data related +to our operations. As of the date of this filing, we have not yet implemented a formal cybersecurity risk management program designed +to identify, assess, and mitigate risks from cybersecurity threats. We intend to implement a cybersecurity risk management program as +our business operations and technology infrastructure evolve. +1 +Cyber Risk Management and Strategy +We plan to implement and maintain a cybersecurity +risk management program under the oversight of our Board of Directors. Once implemented, this program will include systematic processes +for identifying, assessing, and mitigating cybersecurity risks and will be integrated into our overall risk management processes. We +intend to adopt a risk-based approach to managing cyber threats, supported by commonly used cybersecurity technologies, such as cloud-based +monitoring and threat detection tools. +We expect to utilize third parties and consultants +to assist in the identification and assessment of risks, including to support tabletop exercises and to conduct security testing. +As part of this effort, we also intend to implement +controls to assess and manage risks associated with third-party service providers who may have access to our systems or data. This may +include review process for such providers’ cybersecurity practices, risk assessments, contractual requirement and system monitoring. +We expect to regularly evaluate and enhance our +cybersecurity policies and procedures in response to emerging threats or developments affecting our industry. +In 2025, we did not identify any cybersecurity +threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial +condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have +not experienced undetected cybersecurity incidents. +Item 2. Properties. +Currently we don’t own any properties. Our +business office is located at App 6, Yehuda Gorodiski 1, Rehovot, Israel 7623101. This address was provided by sole officer and president, +Guy Pirotsky. Our telephone number is +13072220096. +Item 3. Legal Proceedings. +We are not currently a party to any legal proceedings, +and we are not aware of any pending or potential legal actions. +Item 4. Mine Safety Disclosures. +Not Applicable. +2 +PART II +Item 5. Market for Registrant’s Common +Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities. +The company stock is not trading at the moment. +Registered Holders of our Common Stock +As of April 30, 2025, there were approximately +37 record owners of our common stock including director. +Dividends +The Company has never declared or paid cash dividends +on its common stock and does not anticipate paying cash dividends in the foreseeable future. +Recent Sales of Unregistered Securities +During our fiscal years ended April 30, 2025 and +2024, we had no sales of unregistered shares. +Issuer Purchases of Equity Securities +During the fiscal year ended April 30, 2025, and +2024 the Company did not repurchase any shares of its Common Stock. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis +of Financial Condition and Results of Operations +We are a development stage corporation with limited +operations and revenues from our business operations. Our auditors have issued a going concern opinion. This means that our auditors believe +there is substantial doubt that we can continue as an on-going business for the next twelve months. We do not anticipate that we will +generate significant revenues until we have raised the funds necessary to conduct a marketing program. +PLAN OF OPERATION +FISCAL YEAR ENDED APRIL 30, 2025 COMPARED TO FISCAL +YEAR ENDED APRIL 30, 2024. +Our net loss for the fiscal year ended April 30, +2025 was $41,049 compared to a net loss of $12,160 during the fiscal year ended April 30, 2024. In April 30, 2025 we generated total revenue +of $16,200 and in April 30, 2024 the Company generated total revenue of $21,920. +Expenses incurred were $57,249 during fiscal year +ended April 30, 2025 compared to $34,080 during fiscal year ended April 30, 2024. +The number of shares outstanding was 5,495,300 +for the fiscal years ended April 30, 2025 and April 30, 2024. +3 +LIQUIDITY AND CAPITAL RESOURCES +FISCAL YEAR ENDED April 30, 2025 and 2024. +As of April 30, 2025, our total assets were $23,823 +consisting of Mobile Application and Website Development and Issuances of Common Shares. +As of April 30, 2024, our total assets were $49,518. +Cash Flows from Operating Activities +We have not generated positive cash flows from +operating activities. For the fiscal year ended April 30, 2025, net cash flows used in operating activities was $36,749. For the fiscal +year ended April 30, 2024, net cash flows used in operating activities was $7,860. +Cash Flows from Investing Activities +We have generated positive cash flows from investing +activities. For the fiscal year ended April 30, 2025, net cash flows used in investing activities was $8,604. +Cash Flows from Financing Activities +We have financed our operations primarily from +either advances from our sole executive or the issuance of equity. For the fiscal year ended April 30, 2025, net cash provided by financing +activities was $11,055. For the fiscal year ended April 30, 2024, net cash from financing activities was $2,362. +OFF-BALANCE SHEET ARRANGEMENTS +We have no off-balance sheet arrangements that +have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues +or expenses, results of operations, liquidity, capital expenditures or capital resources. +GOING CONCERN +There is no historical financial information about +us upon which to base an evaluation of our performance. We are in start-up stage operations and have generated limited revenues. We cannot +guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business +enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products. +We have no assurance that future financing will +be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or +expand our operations. Equity financing could result in additional dilution to existing shareholders. +The extent of the impact of the coronavirus (“COVID-19”) +outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak +and related advisories and restrictions and the impact of COVID-19 on the overall economy, all of which are highly uncertain and cannot +be predicted. If the overall economy is impacted for an extended period, the Company’s future operating results may be materially +adversely affected. +4 +Critical Accounting Policies +The discussion and analysis of our financial condition +and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles +generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions +that affect the reported amounts of assets, liabilities, and expenses. These estimates and assumptions are affected by management’s +application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with +the following aspects of our financial statements is critical to an understanding of our financial statements. +Use of Estimates +The preparation of financial statements in conformity +with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that +affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial +statements. The estimates and judgments will also affect the reported amounts for certain expenses during the reporting period. Actual +results could differ from these good faith estimates and judgments. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +Not applicable to smaller reporting companies. +Item 8. Financial Statements and Supplementary Data +The Company’s Financial Statements required +by Item 8, together with the reports thereon of the Independent Registered Public Accounting Firm are set forth on pages F-1 through F-11 +of this report and are incorporated by reference in this Item 8. +Item 9. Changes in and Disagreements with Accounting +and Financial Disclosures. +None. +Item 9A. Controls and Procedures. +Disclosure Controls and Procedures +Disclosure controls and procedures are designed +to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized +and reported, within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated +to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Our management necessarily +applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable +assurance regarding management’s control objectives. +Our management, with the participation of our +CEO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered +by this Report. Based upon this evaluation, our CEO concluded that our disclosure controls and procedures were not effective because of +the identification of a material weakness in our internal control over financial reporting which is described below. +5 +Management’s Report on Internal Control +Over Financial Reporting +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control +over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the +reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. GAAP. +Our internal control over financial reporting +includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly +reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary +to permit preparation of financial statements in accordance with U.S. GAAP and our receipts and expenditures are being made only in accordance +with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of +unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. +Because of its inherent limitations, internal +control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have +inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective +internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, +projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of +changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Our management assessed the effectiveness of our +internal control over financial reporting as of April 30, 2025. In making this assessment, it used the criteria set forth by the Committee +of Sponsoring Organizations of the Tread way Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on +this evaluation, management concluded that that our internal control over financial reporting was not effective as of April 30, 2025. +Our CEO concluded we have a material weakness due to lack of segregation of duties, a limited corporate governance structure, and a lack +of a formal management review process over preparation of financial information. A material weakness is a deficiency, or a combination +of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement +of our annual or interim financial statements will not be prevented or detected on a timely basis. +Our size has prevented us from being able to employ +sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our system of internal control. +Therefore, while there are some compensating controls in place, it is difficult to ensure effective segregation of accounting and financial +reporting duties. Management reported the following material weaknesses: +· +Lack of segregation of duties in certain accounting and financial reporting processes including the initiation, processing, recording and approval of disbursements; +· +Our corporate governance responsibilities are performed by the Board of Directors, none of whom are independent under applicable standards; we do not have an audit committee or compensation committee. Our Board of Directors acts primarily by written consent without meetings which results in several of our corporate governance functions not being performed concurrent (or timely) with the underlying transactions, including evaluation of the application of accounting principles and disclosures. +· +Certain reports that we prepare, and accounting and reporting conclusions reached in connection with the financial statement preparation process are not subjected to a formal review process that includes multiple levels of review and are not submitted timely to the Board of Directors for review or approval; and +While we strive to segregate duties as much as +practicable, there is an insufficient volume of transactions at this point in time to justify additional full-time staff. We believe that +this is typical in many development stage companies. We may not be able to fully remediate the material weakness until we commence operations +at which time, we would expect to hire more staff. We will continue to monitor and assess the costs and benefits of additional staffing. +This Annual Report does not include an attestation +report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not +subject to attestation by our registered public accounting firm pursuant to the SEC rules that permit us to provide only management’s +report in this Annual Report. +6 +Changes in Internal Control Over Financial +Reporting +There were no changes in our internal control +over financial reporting that occurred during the quarter ended April 30, 2025, that has materially affected, or is reasonably likely +to materially affect, our internal control over financial reporting. +Item 9B. Other Information. +During the year ended April 30, 2025, no director +or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” +as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosures Regarding Foreign Jurisdictions +that Prevent Inspections. +Not Applicable. +7 +PART III +Item 10. Directors, Executive Officers, and +Corporate Governance. +Directors of the corporation are elected by the +stockholders to a term of 1 (one) year and serve until a successor is elected and qualified. Officers of the corporation are appointed +by the Board of Directors to a term of one year and serves until a successor is duly appointed and qualified, or until he or she is removed +from office. The Board of Directors has no nominating, auditing or compensation committees. +Our executive officer and director, his name, +age, and his positions as of the date of this prospectus are as follows: +Name and Address of Executive +Officer and/or Director +Age +Position +Guy Pirotsky +App 6, Yehuda Gorodiski 1, Rehovot, Israel 7623101 +53 +President, Secretary, Treasurer, Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer and Sole Director +Resume +Guy Pirotsky, Age 53 +Guy Pirotsky has acted as our President, Secretary, +Treasurer and sole Director since our incorporation on February 21, 2022. +From September 2013, Mr. Pirotsky has been working +as a self-employed Inventor and Project manager. +From 2001 to 2011, he worked at Israel Strategy +Runner as a Director, Product manager and GUI developer, Manager, SAS, SVM, Admin. +From 2007 to present Mr. Pirotsky has been a successful +investor in start-ups and public companies. +He got the Bachelor degree of Computer Science +and Statistics with honors in Bar-IIan University, Israel. +Committees of the Board +Our Company currently does not have nominating, +compensation or audit committees or committees performing similar functions, nor does our Company have a written nominating, compensation +or audit committee charter. Our director believes that it is not necessary to have such committees, at this time, because the functions +of such committees can be adequately performed by the sole director. +Our Company does not have any defined policy or +procedural requirements for shareholders to submit recommendations or nominations for Directors. The sole director believes that, given +the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop +to a more advanced level. Our Company does not currently have any specific or minimum criteria for the election of nominees to the sole +director and we do not have any specific process or procedure for evaluating such nominees. The sole director, will assess all candidates, +whether submitted by management or shareholders, and make recommendations for election or appointment. +A shareholder who wishes to communicate with our +sole director may do so by directing a written request addressed to our president and director, at the address appearing on the first +page of this Prospectus. +8 +Corporate Governance +The Company promotes accountability for adherence +to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents +that the Company files with the Securities and Exchange Commission (the “SEC”) and in other public communications made by +the Company; and strives to be compliant with applicable governmental laws, rules and regulations. The Company has not formally adopted +a written code of business conduct and ethics that governs the Company’s employees, officers and directors as the Company is not +required to do so. +In lieu of an Audit Committee, the Company’s +sole director is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, +results and effectiveness of the annual audit of the Company’s financial statements and other services provided by the Company’s +independent public accountants. The sole director reviews the Company’s internal accounting controls, practices and policies. +Insider Trading Policy +We have not yet adopted insider trading +policies and procedures, inasmuch as there is currently no trading in our common stock. At such time as trading in our common stock +commences, we intend to adopt insider trading policies governing the purchase, sale and other dispositions of the our +company’s securities by directors, officers and employees that are reasonably designed to promote compliance with insider +trading laws, rules and regulations. +Section 16(a) Beneficial Ownership Reporting Compliance +In the event that we register under the Securities +Exchange Act of 1934 (the “Exchange Act” or “1934 Act”), Section 16(a) of that act will require our directors +and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission +initial reports of ownership and reports of changes of ownership of our common stock. Officers, directors and greater than ten percent +stockholders will be required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. +We intend to ensure to the best of our ability +that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners are complied +with in a timely fashion. +Code of Business Conduct +We have not adopted a Code of Business Conduct +within the meaning of Item 406(b) of Regulation S-K. +Board Committees +We do not have any Board Committees. +Item 11. Executive Compensation. +The table below summarizes the total compensation +earned by each of our named executive Officers (“NEOs”) for each of the fiscal years listed. +9 +SUMMARY COMPENSATION TABLE +Management Compensation +The following tables set forth certain information +about compensation paid, earned or accrued for services by our sole officer and director from April 30, 2024 until April 30, 2025: +Name and +Principal +Position +Years +Salary +($) +Bonus +($) +Stock +Awards +($) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($) +Nonqualified +Deferred +Compensation +($) +All Other +Compensation +($) +Total +($) +Guy Pirotsky, President, +2024 +-0- +-0- +-0- +-0- +-0- +-0- +-0- +-0- +Treasurer, Secretary +2025 +-0- +-0- +-0- +-0- +-0- +-0- +-0- +-0- +Securities Authorized for Issuance Under Equity Compensation +Plans +The Company does no t have any policies or practices on the timing +of awards of options in relation to the disclosure of material nonpublic information by the Company. The Company did not issue any options +in 2025. +Compensation of Directors +Directors are permitted to receive fixed fees +and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. +No amounts have been paid to, or accrued to, our director in such capacity. +Stock Plan +We have not adopted a stock plan but may do so +in the future. +Director Independence +Our securities are not currently traded on any +public exchange and as such, we are not currently subject to corporate governance standards of listed companies, which require, among +other things, that the majority of the board of directors be independent. We are not currently subject to corporate governance standards +defining the independence of our directors, and we have chosen to define an “independent” director in accordance with the +NASDAQ Global Market’s requirements for independent directors. +Under the NASDAQ rules, our current director does +not qualify as an independent director. +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matter. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Directors and Executive Officers +The following table sets forth the beneficial +ownership (and the percentages of outstanding shares represented by such beneficial ownership) as of April 30, 2025, of (i) each director, +(ii) the current NEOs named in the “Summary Compensation Table” contained in this Form 10-K and (iii) all current directors +and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, +based on information provided by such owners, have sole investment and voting power with respect to such shares, subject to community +property laws where applicable. Persons, who have the power to vote or dispose of common stock of the Company, either alone or jointly +with others, are deemed to be beneficial owners of such common stock. +Guy Pirotsky, President, CEO, CFO and Chairman of the Board. +3,000,000 shares +10 +Certain Stockholders +The following table sets forth certain information +with respect to each person known by us to be the beneficial owner of five percent or more of either class of the Company’s outstanding +common stock. The content of this table is based upon the most current information contained in Schedules 13D or 13G filings with the +SEC, unless more recent information was obtained. +Guy Pirotsky, President, CEO, CFO and Chairman of the Board. +55% +This percentage is calculated based on the outstanding +shares of 5,495,300 as of April 30, 2025. +Item 13. Certain Relationships and Related +Transactions, and Director Independence. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +The following table sets forth certain information +concerning the number of shares of our common stock owned beneficially as of April 30, 2025 by: (i) each person (including any group) +known to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless +otherwise indicated, the stockholder listed possesses sole voting and investment power with respect to the shares shown. +Title of Class +Name and Address +of +Beneficial Owner +Amount and +Nature of +Beneficial +Ownership +Percentage +of +Common Stock +Common +Guy Pirotsky +3,000,000 +55% +Common +All Officers and Directors as a Group (1 person) +3,000,000 +55% +Future Sales by Existing Shareholders +A total of 3,000,000 common shares at $0.0001 +per share have been issued to our sole stockholder. They are restricted securities, as that term is defined in Rule 144 of the Rules and +Regulations of the SEC promulgated under the Act. Under Rule 144, such shares can be publicly sold, subject to volume restrictions and +certain restrictions on the manner of sale, commencing six months after their acquisition. +Any sale of shares held by the existing stockholder +(after applicable restrictions expire) and/or the sale of shares purchased in this offering (which would be immediately resalable after +the offering), may have a depressive effect on the price of our common stock in any market that may develop, of which there can be no +assurance. +11 +Item 14. Principal Accountant Fees and Services. +FEES TO THE COMPANY’S AUDITORS +Set forth below is a summary of certain fees paid +to our independent audit DylanFloyd Accounting & Consulting, Independent registered public accountants for services for the fiscal +years 2025 and 2024, respectively. +Fee Category +Fiscal Year +2025 +Fiscal Year +2024 +Audit Fees +$ 17,000 +$ 13,600 +Tax Fees +– +– +All Other Fees +– +– +Total +$ 17,000 +$ 13,600 +Audit Fees +Audit fees were for professional services rendered +in connection with the audit of our annual financial statements set forth in our Annual Reports on Form 10-K, the review of our quarterly +financial statements set forth in our Quarterly Reports on Form 10-Q and consents for other SEC filings. +Audit-Related Fees +Audit-related fees consist of fees billed for +professional services for consultation on accounting matters. +Approval of Services Provided by Independent +Registered Public Accounting Firm +The Board of Directors has considered whether +the services provided under other non-audit services are compatible with maintaining the auditor’s independence and has determined +that such services are compatible. The Board of Directors has adopted policies and procedures for pre-approving all non-audit work performed +by the external auditors. The Board of Directors will annually pre-approve services in specified accounting areas. The Board of Directors +also annually approves the budget for the annual generally accepted accounting principles (GAAP) audit. +12 +PART IV +Item 15. Exhibit and Financial Statement Schedules. +(a) +(1) +Financial Statements +The following documents are filed as part of this report: +The Financial Statements of Natics Corp. at April 30, 2025 and 2024, and for each of the two fiscal years in the period ended April 30, 2025, together with the reports of the Independent Registered Public Accounting Firms, are set forth on pages F-1 through F-11 of this Report. +(2) +Not applicable. +(3) +Exhibits +Exhibit No. +Description +# +31.1 +Certification of the +Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002. +# +32.1 +Certification of the Principal Executive Officer and Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. +101.INS +Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) +101.SCH +Inline XBRL Taxonomy Extension Schema Document +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +# filed/furnished with this document. +Item 16. Form 10-K Summary . +None. +13 +SIGNATURES +Pursuant to the requirements of Section 13 or +15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, +thereunto duly authorized on June 06, 2025. +NATICS CORP. +By: +/s/ Guy Pirotsky +Guy Pirotsky +President and Chief Executive Officer +Pursuant to the requirements of the Securities +Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated +on June 06, 2025. +Signature +Title +/s/ Guy Pirotsky +President, Secretary, Treasurer, Principal Executive Officer, +Guy Pirotsky +Principal Financial Officer and Principal Accounting Officer and +Sole Director +14 +INDEX TO FINANCIAL STATEMENTS +NATICS CORP. +TABLE OF CONTENTS +Report of +Independent Registered Accounting Firm ( DylanFloyd +Accounting & Consulting PCAOB ID 6235 ) +F-2 +Balance Sheets as of April 30, 2025 and April 30, 2024 +F-4 +Statements of Operations for the Years ended April 30, 2025 and 2024 +F-5 +Statements of Stockholders’ Deficit for the Years ended April 30, 2025 and 2024 +F-6 +Statements of Cash Flows for the Years ended April 30, 2025 and 2024 +F-7 +Notes to the Financial Statements +F-8 +F- 1 +Report of Independent Registered Public Accounting +Firm +To the Shareholders and the Board of Directors +Natics Corp. +Opinion on the Financial Statements +We have audited the accompanying balance +sheet of Natics Corp. (the "Company") as of April 30, 2025 and 2024, the related statements of operations, changes in +stockholders' equity, from inception to the period ended April 30, 2025, and the related notes (collectively referred to as the "financial +statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company +as of April 30, 2025 and 2024, and the results of its operations and its cash flows from inception to the period ended April 30, 2025, +in conformity with accounting principles generally accepted in the United States of America. +Going Concern Uncertainty +The Company's financial statements +are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets +and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $82,736 and a negative cash +flow from operations amounting to $41,049 from inception to the period ended April 30, 2025. These factors as discussed in Note 2 of the +financial statements raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard +to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome +of these uncertainties. +Basis for Opinion +These financial statements are the +responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on +our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance +with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether +the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were +we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal +control over financial reporting. Accordingly, we express no such opinion. +F- 2 +Our audits included performing procedures +to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that +respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as +evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +Critical audit matters arising from +the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and +that (1) relate to accounts or disclosure that are material to the financial statements and (2) involve especially challenging, subjective, +or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, +taken as a whole, and we are not, by communicating the critical audit maters below, providing separate opinions on the critical audit +matters or on the accounts or disclosures to which they relate. +There are no Critical Audit Matters existed as of April 30, 2025. +We have served as the Company's auditor since 2024. +Newhall, +California +June 03, 2025 +F- 3 +NATICS CORP. +BALANCE SHEETS +April 30, +2025 +April 30, +2024 +ASSETS +Current Assets +Cash on hand +$ 6,635 +$ 23,726 +Total Current Assets +6,635 +23,726 +Non- Current Intangible Assets +Mobile Application and Website Development +17,188 +25,792 +Total Non-Current Intangible Assets +17,188 +25,792 +Total Assets +$ 23,823 +$ 49,518 +LIABILITIES +Current Liabilities +Interest Payable +$ 12,900 +$ 8,600 +Total Current Liabilities +12,900 +8,600 +Long term Liabilities +Director Loan +25,406 +14,352 +Promissory Note +43,000 +43,000 +Total Long term Liabilities +68,406 +57,352 +Total Liabilities +81,306 +65,952 +STOCKHOLDERS’ EQUITY +Common stock, $ 0.0001 par value, 75,000,000 shares authorized; 5,495,300 shares issued and outstanding respectively; +550 +550 +Additional paid-in-capital +24,704 +24,704 +Accumulated deficit +( 82,736 ) +( 41,687 ) +Total Stockholders’ Equity +( 57,483 ) +( 16,434 ) +Total Liabilities and Stockholders’ Equity +$ 23,823 +$ 49,518 +See accompanying notes, which are an integral part +of these financial statements +F- 4 +NATICS CORP. +STATEMENTS OF OPERATIONS +For the year ended +April 30, +2025 +For the year ended +April 30, +2024 +REVENUES +$ 16,200 +$ 21,920 +OPERATING EXPENSES +General and Administrative Expenses +57,249 +34,080 +TOTAL OPERATING EXPENSES +57,249 +34,080 +NET INCOME (LOSS) FROM OPERATIONS +( 41,049 ) +( 12,160 ) +PROVISION FOR INCOME TAXES +– +– +NET INCOME (LOSS) +$ ( 41,049 ) +$ ( 12,160 ) +NET LOSS PER SHARE: BASIC AND DILUTED +$ ( 0.00 ) +$ ( 0.00 ) +WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED +5,495,300 +5,461,884 +See accompanying notes, which are an integral part +of these financial statements +F- 5 +NATICS CORP. +STATEMENT OF STOCKHOLDERS’ DEFICIT +FOR THE YEARS ENDED APRIL 30, 2025 & APRIL +30, 2024 +Common Stock +Additional +Paid-in +Deficit +Accumulated +during the +Development +Total +Stockholders’ +Shares +Amount +Capital +Stage +Equity +Inception, February 21, 2022 +– +$ – +$ – +$ – +$ – +Shares issued for cash at $0.0001 per share on February 21, 2022 +3,000,000 +300 +– +– +300 +Net loss for the year ended April 30, 2022 +– +– +– +( 200 ) +( 200 ) +Balance, April 30, 2022 +3,000,000 +$ 300 +$ – +$ ( 200 ) +$ 100 +Sale of common stock at $0.01 per share as of January 31, 2023 +1,840,300 +184 +18,219 +– +18,403 +Sale of common stock at $0.01 per share as of April 30, 2023 +440,000 +44 +4,356 +– +4,400 +Net loss for the period ending April 30, 2023 +– +– +– +( 29,327 ) +( 29,327 ) +Balance, April 30, 2023 +5,280,300 +$ 528 +$ 22,575 +$ ( 29,527 ) +$ ( 6,424 ) +Sale of common stock at $0.01 per share as of July 31, 2023 +215,000 +22 +2,129 +– +2,151 +Net loss for the period ending April 30, 2024 +– +– +– +( 12,160 ) +( 12,160 ) +Balance, April 30, 2024 +5,495,300 +$ 550 +$ 24,704 +$ ( 41,687 ) +$ ( 16,434 ) +Net loss for the period ending April 30, 2025 +– +– +– +( 41,049 ) +( 41,049 ) +Balance, April 30, 2025 +5,495,300 +$ 550 +$ 24,704 +$ ( 82,736 ) +$ ( 57,483 ) +See accompanying notes, which are an integral part +of these financial statements +F- 6 +NATICS CORP. +STATEMENTS OF CASH FLOWS +For the year ended +April 30, +2025 +For the year ended +April 30, +2024 +CASH FLOWS FROM OPERATING ACTIVITIES +Net income (loss) +$ ( 41,049 ) +$ ( 12,160 ) +Interest Payable +4,300 +4,300 +CASH FLOWS USED IN OPERATING ACTIVITIES +( 36,749 ) +( 7,860 ) +CASH FLOWS FROM INVESTING ACTIVITIES +Mobile Application and Website Development +8,604 +8,604 +CASH FLOWS PROVIDED BY INVESTING ACTIVITIES +8,604 +8,604 +CASH FLOWS FROM FINANCING ACTIVITIES +Related Party Loans +11,055 +212 +Capital Stock +– +2,150 +CASH FLOWS PROVIDED BY FINANCING ACTIVITIES +11,055 +2,362 +Net decrease in cash and equivalents +( 17,090 ) +3,106 +Cash and equivalents at beginning of the period +23,726 +20,620 +Cash and equivalents at end of the period +$ 6,635 +$ 23,726 +Supplemental cash flow information: +Cash paid for: +Interest +$ – +$ – +Taxes +$ – +$ – +See accompanying notes, which are an integral part +of these financial statements +F- 7 +NATICS CORP. +NOTES TO THE AUDITED FINANCIAL STATEMENTS +FOR THE YEARS ENDED APRIL 30, 2025 AND 2024 +NOTE 1 – ORGANIZATION AND NATURE OF +BUSINESS +NATICS CORP. (referred as the “Company”, +“we”, “our”) is a development stage company formed to commence operations concerned with online workouts. We were +incorporated under the laws of the state of Wyoming on February 21, 2022. From our formation we were engaged in the business of namely +the development, marketing and business process analysis, problem solving and general business services by our CEO, sole Officer and Director +Mr. Pirotsky. +Our executive and business office is located at +App 6, Yehuda Gorodiski 1, Rehovot, Israel 7623101, and our telephone number is +13072220096. +NOTE 2 – GOING CONCERN +The accompanying financial statements have been +prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), which contemplate +continuation of the Company as a going concern. The Company has an accumulated deficit of $ 82,736 as of April 30, 2025. The Company currently +has losses and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an +extended period of time. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. Management +anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The +Company intends to position itself so that it will be able to raise additional funds through the capital markets. In light of management’s +efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and +continue as a going concern. +NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING +POLICIES +Basis of presentation +The accompanying financial statements have been +prepared in accordance with generally accepted accounting principles in the United States of America. The Company’s year-end is +April 30. +Revenue +In accordance with ASC 606, revenue is measured +based on a consideration specified with a customer and recognized when we satisfy the performance obligation specified with a customer. +During the year ended April 30, 2025, we generated total revenue of +$ 16,200 . +Use of Estimates +The preparation of financial statements in conformity +with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure +of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the +reporting period. Actual results could differ from those estimates. +F- 8 +Fair Value of Financial Instruments +FASB ASC Topic 820, “Fair Value Measurement,” +defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most +advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standards +apply to recurring and nonrecurring fair value measurements of financial and non-financial assets and liabilities. The Company determines +the fair values of its assets and liabilities based on a fair value hierarchy that includes three levels of inputs that may be used to +measure fair value. +The three levels are defined as follows: +Level 1: +defined as observable inputs such as quoted prices in active markets; +Level 2: +defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and +Level 3: +defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. +Due to its short-term nature, the carrying value +of cash, director loans and issuance of common stock approximated fair value at April 30, 2025. +Income Taxes +The Company is a C Corporation under the Internal +Revenue Code and a similar section of the state code. +All income tax amounts reflect the use of the +liability method under accounting for income taxes. Income taxes are provided for the tax effects of transactions reported in the financial +statements and consist of taxes currently due plus deferred taxes arising primarily from differences between financial and tax reporting +purposes. Current year expense represents the amount of income taxes paid, payable or refundable for the period. +Deferred income taxes, net of appropriate valuation +allowances, are determined using the tax rates expected to be in effect when the taxes are actually paid. Valuation allowances are recorded +against deferred tax assets when it is more likely than not that such assets will not be realized. When an uncertain tax position meets +the more likely than not recognition threshold, the position is measured to determine the amount of benefit or expense to recognize in +the financial statements. +The Company’s income tax returns are subject +to review and examination by federal, state and local governmental authorities. As of April 30, 2025, our April 30, 2024 tax return was +open to examination with federal, state and local governmental authorities. To the extent penalties and interest are incurred through +an examination, they would be included as part of operations in the statement of operations. +Long-Lived Assets – Intangible Assets +We account for our intangible assets in accordance +with ASC Subtopic 350-30, General Intangibles Other Than Goodwill, and ASC Subtopic 360-10-05, Accounting for the Impairment or Disposal +of Long-Lived Assets. ASC Subtopic 350-30 requires assets to be measured based on the fair value of the consideration given or the fair +value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. Further, ASC Subtopic +350-30 requires an intangible asset to be amortized over its useful life and for the useful life to be evaluated every reporting period +to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of useful life +is changed the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. Costs +of internally developing, maintaining, or restoring intangible assets are recognized as an expense when incurred. +F- 9 +Basic Income (Loss) Per Share +The Company computes income (loss) per share in +accordance with FASB ASC 260 “Earnings per Share”. Basic loss per share is computed by dividing net income (loss) available +to common shareholders by the weighted average number of outstanding common shares during the period. Diluted income (loss) per share +gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common +shares if their effect is anti-dilutive. As of April 30, 2025 there were no potentially dilutive debt or equity instruments issued or +outstanding. +Comprehensive Income +Comprehensive income is defined as all changes +in stockholders’ equity, exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income +or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments +in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. As of April 30, 2025 were no differences between +our comprehensive loss and net loss. +Recent Accounting Pronouncements +We have reviewed all the recently issued, but +not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material impact on the Company. +Risks and Uncertainties +The ultimate impact of the COVID-19 pandemic on +the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with +confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 +pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an +extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot +be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results +of operations. +Management expects that its business will be impacted +to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which +it may have an impact cannot be determined at this time. +NOTE 4 – COMMON STOCK +The Company has 75,000,000 , $ 0.0001 par value +shares of common stock authorized. +On February 22, 2022 the Company issued 3,000,000 +shares of common stock to a director for services rendered estimated to be $ 300 at $0.0001 per share. +During the quarter ended January 31, 2023 the +Company issued 1,840,300 common shares at $0.01 per share to 27 shareholders in consideration of $ 18,403 . +There were 4,840,300 shares of common stock issued +and outstanding as of January 31, 2023. +During the quarter ended April 30, 2023, the Company +issued 440,000 common shares to few individuals at $0.01 per share in consideration of $ 4,400 . +There were 5,280,300 shares of +common stock issued and outstanding as of April 30, 2023. +F- 10 +During the quarter ended July 31, 2023, the Company +issued 215,000 common shares to few individuals at $0.01 per share in consideration of $ 2,150 . +There were 5,495,300 shares of common stock issued +and outstanding as of April 30, 2025. +Voting Common Stock +All shares of common stock have voting rights +and are identical. All holders of shares of voting common stock shall at every meeting of the stockholders be entitled to one vote for +each share of the capital stock held by such stockholder. +Non-voting Common Stock +All of the other terms of the Non-Voting Common +Stock shall be identical to the Voting Common Stock, except for the right of first refusal that attaches to the Non-Voting Common Stock, +as explained in the Company’s Bylaws. +NOTE 5 – COMMITMENTS AND CONTINGENCIES +In the normal course of business, the Company +may become a party to litigation matters involving claims against it. At April 30, 2025, there are no current matters that would have +a material effect on the Company’s financial position or results of operations. +The extent of the impact of the coronavirus (“COVID-19”) +outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak +and related advisories and restrictions and the impact of COVID-19 on the overall economy, all of which are highly uncertain and cannot +be predicted. If the overall economy is impacted for an extended period, the Company’s future operating results may be materially +and adversely affected. +NOTE 6 – INTANGIBLE ASSETS +The Company purchased and possesses an asset in +a form of the website and mobile application concerned with online workouts. The Company purchased the website and mobile application +for $ 43,000 and is amortizing the asset straight-line over its five year useful life or $8,600 per year. +Balances as of April 30, 2025 and April 30, 2024 +are as follows: +April 30, 2025 +April 30, 2024 +Intangible Assets Purchased +$ 25,792 +$ 34,396 +Accumulated Amortization +( 8,604 ) +( 8,604 ) +Net Book Value +$ 17,188 +$ 25,792 +F- 11 +NOTE 7 – RELATED PARTY TRANSACTIONS +Mr. Pirotsky currently devotes approximately thirty hours per week +to manage our affairs. +The sole officer and director, Guy Pirotsky, is +the only related party with whom the Company had transactions with during the period from inception on February 21, 2022 through April +30, 2025. During the year ended April 30, 2025, Mr. Pirotsky paid $ 25,406 for operating expenses on behalf of the Company. The amounts +due to the related party are unsecured and non-interest bearing with no set terms of repayment. +NOTE 8 – INCOME TAXES +As of April 30, 2025, the Company had net operating +loss carry forwards of approximately $ 17,375 that may be available to reduce future years’ taxable income in varying amounts through +2041. +Future tax benefits which arise as a result of +these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, +the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. +The 21% tax rate provision for Federal income tax consists of the following: +April 30, +2025 +April 30, +2024 +Federal income tax benefit attributable to: +Current operations +$ ( 17,375 ) +$ ( 8,754 ) +Related party accruals +– +– +Less: change in valuation allowance +17,375 +8,754 +Net provision for Federal income taxes +$ – +$ – +The cumulative tax effect at the expected rate of 21% of significant +items comprising our net deferred tax amount is as follows: +April 30, +2025 +April 30, +2024 +Deferred tax asset attributable to: +Net operating loss carry over +$ 8,620 +$ 2,554 +Related party accruals +– +– +Less: valuation allowance +( 8,620 ) +( 2,554 ) +Net deferred tax asset +$ – +$ – +NOTE 9 – SUBSEQUENT EVENTS +In accordance with SFAS 165 (ASC 855-10) the Company +has analyzed its operations subsequent to April 30, 2025 to the date these financial statements were issued and has determined that it +does not have any material subsequent events to disclose in these financial statements. +Management expects that its business will be impacted +to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which +it may have an impact cannot be determined at this time. +F- 12 \ No newline at end of file diff --git a/raw/filings/0001933359/2025/0001683168-25-004268/filing_metadata.csv b/raw/filings/0001933359/2025/0001683168-25-004268/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..54c3beed5243a0b160d41be9ea1751906945f78f --- /dev/null +++ b/raw/filings/0001933359/2025/0001683168-25-004268/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001933359,NTCS,Natics Corp.,2025,10-K,2025-06-06,2025-04-30,2025-06-06T07:46:36.000Z,0001683168-25-004268,natics_i10k-043025.htm,FORM 10-K FOR APRIL 2025,2218906,1,1,https://www.sec.gov/Archives/edgar/data/1933359/000168316825004268/natics_i10k-043025.htm,https://www.sec.gov/Archives/edgar/data/1933359/000168316825004268/ diff --git a/raw/filings/0001933359/2025/0001683168-25-004268/item1.txt b/raw/filings/0001933359/2025/0001683168-25-004268/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..e3a3c2971f7c513bc476b7fec2847878410f68e3 --- /dev/null +++ b/raw/filings/0001933359/2025/0001683168-25-004268/item1.txt @@ -0,0 +1,23 @@ +Item 1. Description of Business +GENERAL INFORMATION ABOUT OUR COMPANY +Natics Corp. is a development stage company formed +to commence operations concerned with online workouts. We were incorporated under the laws of the state of Wyoming on February 21, 2022. +We are providing the useful healthy and effective type of online sport service, for adolescents and adults, for men and women available +from anywhere using the phone and internet connection. Our online service provides a high quality sport trainings, through our mobile +application “Sport Natics” for Android and iOS mobile OS. Our sport app offers a free trial and a paid one (depending on the +content). +The paid version of the app will include: +– online video lesson with a trainer (where +the trainer shows how to properly perform the exercises) - 1 hour +– online video lesson with a trainer (where +the trainer checks the correctness of the exercises through video communication) - 1 hour +– personalized monthly program (depending +on the client’s requirement) +– personal Nutrition diet plan (depending +on the client’s requirement) +The links for the “Sport Natics” application: +In Google Play - https://play.google.com/store/apps/details?id=com.sport.natics +In App Store - https://apps.apple.com/ua/app/sport-natics/id1619622287 +Our website address is https://sport-natics.com/ +Our principal offices are located at App 6, Yehuda +Gorodiski 1, Rehovot, Israel 7623101. Our telephone number is +13072220096. \ No newline at end of file diff --git a/raw/filings/0001933359/2025/0001683168-25-004268/item13.txt b/raw/filings/0001933359/2025/0001683168-25-004268/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f5bfd80974db8ecd604eaf48c3ab7471796e4289 --- /dev/null +++ b/raw/filings/0001933359/2025/0001683168-25-004268/item13.txt @@ -0,0 +1,36 @@ +Item 13. Certain Relationships and Related +Transactions, and Director Independence. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +The following table sets forth certain information +concerning the number of shares of our common stock owned beneficially as of April 30, 2025 by: (i) each person (including any group) +known to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless +otherwise indicated, the stockholder listed possesses sole voting and investment power with respect to the shares shown. +Title of Class +Name and Address +of +Beneficial Owner +Amount and +Nature of +Beneficial +Ownership +Percentage +of +Common Stock +Common +Guy Pirotsky +3,000,000 +55% +Common +All Officers and Directors as a Group (1 person) +3,000,000 +55% +Future Sales by Existing Shareholders +A total of 3,000,000 common shares at $0.0001 +per share have been issued to our sole stockholder. They are restricted securities, as that term is defined in Rule 144 of the Rules and +Regulations of the SEC promulgated under the Act. Under Rule 144, such shares can be publicly sold, subject to volume restrictions and +certain restrictions on the manner of sale, commencing six months after their acquisition. +Any sale of shares held by the existing stockholder +(after applicable restrictions expire) and/or the sale of shares purchased in this offering (which would be immediately resalable after +the offering), may have a depressive effect on the price of our common stock in any market that may develop, of which there can be no +assurance. +11 \ No newline at end of file diff --git a/raw/filings/0001933414/2024/0001933414-25-000009/filing.txt b/raw/filings/0001933414/2024/0001933414-25-000009/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..6abc93cc7f3d2d2273c452700febe5ee4d0b24e2 --- /dev/null +++ b/raw/filings/0001933414/2024/0001933414-25-000009/filing.txt @@ -0,0 +1,1810 @@ +mlys-20241231 +0001933414 2024 FY False 0.0926 274 iso4217:USD xbrli:shares iso4217:USD xbrli:shares 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SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________. +Commission file number 001-41614 +MINERALYS THERAPEUTICS , INC . +(Exact name of registrant as specified in its charter) +Delaware +2834 +84-1966887 +(State or other jurisdiction of incorporation or organization) +(Primary Standard Industrial +Classification Code Number) +(I.R.S. Employer Identification No.) +150 N. Radnor Chester Rd , Suite F200 Radnor , PA +19087 +(Address of Principal Executive Offices) +(Zip Code) +888 - 378-6240 +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which registered +Common stock, $ 0.0001 par value per share +MLYS +The Nasdaq Stock Market LLC +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +¨ +Accelerated filer +¨ +Non-accelerated filer +x +Smaller reporting company +x +Emerging growth company +x +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x +The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common stock on June 28, 2024, as reported on The Nasdaq Global Select Market, was $ 399.7 million. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +The registrant had 49,835,637 shares of common stock outstanding as of February 7, 2025. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement relating to its 2025 annual meeting of stockholders (the 2025 Proxy Statement) are incorporated by reference into Part III of this Annual Report on Form 10-K (Annual Report) where indicated. +TABLE OF CONTENTS +Page No. +Part I +1 +Item 1. Business +1 +Item 1A. Risk Factors +31 +Item 1B. Unresolved Staff Comments +91 +Item 1C. Cybersecurity +91 +Item 2. Properties +91 +Item 3. Legal Proceedings +92 +Item 4. Mine Safety Disclosures +92 +Part II +93 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +93 +Item 6. [Reserved] +93 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +93 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +105 +Item 8. Financial Statements and Supplementary Data +F -1 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +106 +Item 9A. Controls and Procedures +106 +Item 9B. Other Information +107 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +107 +Part III +108 +Item 10. Directors, Executive Officers and Corporate Governance +108 +Item 11. Executive Compensation +108 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +108 +Item 13. Certain Relationships and Related Transactions, and Director Independence +108 +Item 14. Principal Accountant Fees and Services +108 +Part IV +109 +Item 15. Exhibit and Financial Statement Schedules +109 +Item 16. Form 10-K Summary +109 +Signatures +111 +RISK FACTORS SUMMARY +Our business, results of operations, financial condition, and growth prospects may be affected by a number of factors, whether currently known or unknown. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, let alone combined with any of the others, could materially and adversely affect our business, financial condition, results of operations, and stock price. We have provided a summary of some of these risks below, with a more detailed explanation of those and other risks applicable to the Company in Part I, Item 1A. “ Risk Factors ” in this Annual Report. +Summary of Risks Related to Our Business +The principal risks and uncertainties affecting our business include the following: +• We have a limited operating history and none of lorundrostat or any future product candidates have been approved for commercial sale. We have a history of significant net losses since our inception and expect to continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it. +• We will need substantial additional funds to pursue our business objectives, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce, or terminate our product development programs, commercialization efforts, or other operations. +• Our future performance at this time is entirely dependent on the success of our only product candidate, lorundrostat, which is currently in clinical development and has not completed a pivotal trial. If we are unable to advance lorundrostat in clinical development, obtain regulatory approval, and ultimately commercialize lorundrostat, or experience significant delays in doing so, our business will be materially harmed. +• Clinical and preclinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of prior clinical trials and studies of lorundrostat are not necessarily predictive of future results. Lorundrostat may not achieve favorable results in our clinical trials or receive regulatory approval on a timely basis, if at all. +• Use of lorundrostat or any future product candidates could be associated with adverse side effects, adverse events, or other properties or safety risks, which could delay or preclude regulatory approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label, or result in other significant negative consequences that could severely harm our business, prospects, operating results, and financial condition. +• We heavily rely on our exclusive license agreement entered into in July 2020 (Mitsubishi License) with Mitsubishi Tanabe Pharma Corporation (Mitsubishi Tanabe) to provide us with intellectual property rights to develop and commercialize lorundrostat. If the Mitsubishi License is terminated, we would lose our rights to develop and commercialize lorundrostat, which in turn would have a material adverse effect on our business, financial condition, results of operations, and prospects, including, but not limited to, cessation of our operations to the extent we are unable to develop other product candidates at the time of such termination. +• We face significant competition, and if our competitors develop and commercialize technologies or product candidates more rapidly than we do, or their technologies or product candidates are more effective, safer, or less expensive than lorundrostat and any future product candidates we develop, our business and our ability to develop and successfully commercialize products will be adversely affected. +• We rely on and intend to continue to rely on third parties to conduct, supervise, and monitor our clinical trials and preclinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements, or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize lorundrostat and any future product candidates may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects. +• If we are unable to obtain, maintain, and enforce patent or other intellectual property protection for lorundrostat or any future product candidates or technology, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize lorundrostat or any future product candidates may be adversely affected. +• The trading pri ce of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses. +FORWARD-LOOKING STATEMENTS AND MARKET DATA +This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position, business strategy, research and development plans, the anticipated timing, costs, design, and conduct of our ongoing and planned preclinical studies and planned clinical trials for lorundrostat and any future product candidates, the timing and likelihood of regulatory filings and approvals for lorundrostat and any future product candidates, our ability to commercialize our product candidates, if approved, the potential to develop future product candidates, the potential benefits of strategic collaborations and our intent to enter into any strategic arrangements, the timing and likelihood of success, and plans and objectives of management for future operations and future results of anticipated product development efforts, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. This Annual Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions, and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. +In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these terms or other similar expressions. The forward-looking statements in this Annual Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Annual Report and are subject to a number of risks, uncertainties, and assumptions, including, without limitation, the risk factors described in Part I, Item 1A, “ Risk Factors ” and under a similar heading in any other periodic or current report we may file with the U.S. Securities and Exchange Commission (the SEC) in the future. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. +This Annual Report includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Annual Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames. +Part I +Item 1. Business +Business Overview +We are a clinical-stage biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our clinical-stage product candidate, lorundrostat, is a proprietary, orally administered, highly selective aldosterone synthase inhibitor (ASI) that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension, chronic kidney disease (CKD), and obstructive sleep apnea (OSA). In the United States, approximately 120 million patients have sustained elevated blood pressure (BP), or hypertension, and more than half of this population fails to achieve their BP goals, defined as BP below 130/80 mmHg, with currently available medications. There are over 30 million treated patients who do not achieve their BP goal, of whom approximately 20 million have systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. In a Phase 2 proof-of-concept clinical trial evaluating 200 subjects (Target-HTN) with uncontrolled hypertension (uHTN), defined as individuals who are unable to achieve BP of below 130/80 mmHg despite taking two to five lines of antihypertensive medication, or resistant hypertension (rHTN), defined as individuals who are unable to achieve BP of below 130/80 mmHg despite taking three or more antihypertensive medications typically including a diuretic, lorundrostat demonstrated a clinically meaningful and statistically significant reduction in BP with once-daily (QD) dosing and was well tolerated. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. In addition to hypertension, we are investigating the benefits of lorundrostat in subjects with hypertension and CKD and in subjects with hypertension and OSA. We believe that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. +Hypertension is one of the most common medical conditions globally, afflicting approximately 1.3 billion people. In the United States, hypertension was associated with $219 billion in health care expenditures. Despite the availability of multiple treatment options, including thiazide diuretics, angiotensin-converting enzyme (ACE)-inhibitors, angiotensin II receptor blockers (ARBs), calcium channel blockers, beta blockers, and mineralocorticoid receptor antagonists (MRAs), the prevalence of uHTN continues to grow, further exacerbated by the rapidly rising rate of obesity. Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment. Within this population, there are approximately 10.3 million patients suffering from rHTN. Multiple large-scale studies have demonstrated that patients who fail to achieve their BP goal have a significantly elevated risk of developing heart disease, stroke, and kidney disease (Wright JT Jr, et al. A randomized trial of intensive versus standard blood-pressure control. N Engl J Med. 2015;373(22):2103-2116; and Zhou, et al., Uncontrolled Hypertension Increases Risk of All-Cause and Cardiovascular Disease Mortality in US Adults: the NHANES III Linked Mortality Study. Scientific Reports, 2018;8(1):1-7). Patients with rHTN have a 1.5 and 2.3 times higher risk than normotensive patients for composite cardiovascular events and end-stage renal disease, respectively. Notwithstanding this significant and growing unmet need, there has been a lack of U.S. Food and Drug Administration (FDA)-approved novel therapies targeting hypertension, with no new class of antihypertensive treatment approved within the last fifteen years. +Our Product Candidate, Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that is designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We licensed lorundrostat from Mitsubishi Tanabe Pharmaceutical Company (Mitsubishi Tanabe), who discovered the compound and provided the early foundational work, including demonstrating the selectivity of lorundrostat, and progressing the asset through Phase 1 clinical development. We completed the Target-HTN trial, a Phase 2 proof-of-concept trial for lorundrostat in the treatment of uHTN and rHTN in 2022. +-1- +Given that hypertension and abnormal aldosterone biology can lead to cardiorenal disease, we are further investigating the benefits of lorundrostat in hypertensive subjects with comorbidities such as CKD or OSA. +Summary of Historical and Current Clinical Trials of Lorundrostat +Phase 1: The first-in-human Phase 1 clinical trial of lorundrostat was conducted by Mitsubishi Tanabe. See “ Phase 1 Clinical Trial Results ” beginning on page 15 for additional details regarding this trial. +Phase 2: We conducted the Target-HTN Phase 2 trial of 200 subjects with uHTN and rHTN to evaluate the efficacy of lorundrostat at various doses either once or twice a day. The results of Target-HTN led to the advancement of our pivotal program of lorundrostat outlined below. See “ Target-HTN Phase 2 Clinical Trial ” beginning on page 8 for additional details regarding this trial. +Pivotal Program: In 2023 we initiated our pivotal program of lorundrostat. See “ Lorundrostat as a Potential Treatment for Hypertension ” beginning on page 6 for additional details regarding these clinical trials. +• Advance-HTN is our Phase 2 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to a standardized background treatment of two or three antihypertensive medications. Randomization of 285 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in March 2025. +• Launch-HTN is our Phase 3 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to their existing, prescribed background treatment of two to five antihypertensive medications. Randomization of 1,083 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in mid first half of 2025. +• Explore-CKD is our crossover trial designed to evaluate the safety and efficacy of 25 mg QD lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in subjects with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an ACE inhibitor or ARB. Randomization of 60 subjects was completed in the first quarter of 2025, and topline data from this trial is anticipated in the second quarter of 2025. +-2- +• Transform-HTN is an open-label extension trial allowing subjects to continue to receive lorundrostat and to obtain long-term efficacy and safety data. This trial is ongoing. +Other indications: We anticipate initiating our Phase 2 clinical trial (Explore-OSA) in the first quarter of 2025, which is planned to evaluate the safety and efficacy of lorundrostat 50 mg QD in approximately 40 subjects with moderate-to-severe OSA. See “ Lorundrostat as a Potential Treatment for Hypertension ” beginning on page 6 for additional details regarding this clinical trial. +Background of Hypertension +In healthy individuals, normal BP, also known as peripheral blood pressure, is below 130 over 80, meaning the pressure measurement is lower than 130 mmHg when the heart is contracting (systolic BP) and at or below 80 mmHg when the heart is relaxed (diastolic BP). Sustained, elevated BP, or hypertension, can result in increased chances of life-threatening complications such as heart disease, stroke, or kidney disease, among others. +The prevalence of hypertension has been increasing in recent decades. A comprehensive study published in The Lancet journal shows that in patients aged 30 to 79, total hypertension cases nearly doubled worldwide from 1990 to 2019. Furthermore, obesity, especially when associated with increased visceral adiposity, is a major cause of hypertension, accounting for 65% to 75% of the risk for developing human primary (essential) hypertension. Despite hypertension being one of the most common preventable risk factors for premature death, approximately 1.3 billion people worldwide have hypertension, with hypertension as a primary or contributing cause of 685,875 deaths in the United States in 2022 alone. The costs of hypertension and related health issues are a major burden on already strained healthcare systems, with an estimated cost of $219 billion in the United States in 2019. While there are multiple therapeutic options available, most of which are generic and accessible, more than half of all treated hypertensive patients fail to achieve their BP goal. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. +The current standard-of-care for patients newly diagnosed with hypertension is based on a set of guidelines set forth by the American College of Cardiology and the American Heart Association. A hypertensive patient’s target BP is defined as below 130/80 mmHg. Depending on baseline BP levels, these guidelines recommend the patient typically begin with lifestyle modifications and then, assuming BP does not achieve the desired target, initiate treatment with antihypertensive agents selected primarily from the following five drug classes, which may later be combined with each other if the patient’s target BP is not successfully achieved with the initial therapy: +• Thiazide diuretics, which increase fluid excretion from the kidney by blocking reabsorption of sodium and chloride in the nephron; +• ACE inhibitors, which inhibit the renin-angiotensin aldosterone system (RAAS) axis by blocking the action of ACE in the lungs, which converts angiotensin I to angiotensin II; +• ARBs, which block the effects of angiotensin II at the level of the angiotensin receptor; +• Calcium channel blockers, which slow cardiac contractions and relax arteries by preventing calcium from entering the cells of the heart and arteries; and +• Beta blockers, which cause the heart to beat more slowly and with less force, which lowers BP. +Despite numerous available treatment options, the majority of hypertensive patients require multiple therapies to achieve their target BP. Evidence demonstrates that adding a second- or third-line antihypertensive agent typically provides an additional 6 to 7 mmHg reduction in systolic BP. However, the incremental reduction in systolic BP provided by successive lines of treatment does not always adequately enable patients to reach their BP goal. Therefore, many patients require three, four, or more antihypertensive agents in an attempt +-3- +to achieve their target BP. In addition, while hypertension is an asymptomatic disease, many of the currently available treatments have side effects and tolerability issues, which may limit their use. For example, patients taking ACE inhibitors often develop a chronic cough and those taking beta blockers often experience lethargy. +In a meta-analysis of 147 randomized trials, a 10 mmHg reduction in systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The Systolic BP Intervention Trial (SPRINT) study further demonstrated that in adults with hypertension but without diabetes, lowering systolic BP below 120 mmHg reduced cardiovascular events by 25% and reduced the overall risk of death by 27% compared to those with a systolic BP of 140 mmHg or higher. The importance of nighttime BP as a predictor of cardiovascular risk is increasingly recognized. Evidence has demonstrated that higher nighttime systolic BP has a strong association with increased cardiovascular risk. The study’s findings stress the importance of targeting a reduction in nighttime systolic BP when considering treatment approaches. +Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment, and within this population, 10.3 million suffer from rHTN. Treatment options are limited for rHTN patients, and the current standard-of-care is to introduce an MRA agent, which blocks the effect of aldosterone, to their existing antihypertensive regimen. +Background of Chronic Kidney Disease (CKD) +CKD, which is characterized by the gradual loss of kidney function, is estimated to affect more than 10% of the global population and is one of the leading causes of mortality worldwide. According to the U.S. Centers for Disease Control and Prevention, an estimated 1-in-7 (15%) of U.S. adults have CKD. Diabetes and hypertension are responsible for approximately two-thirds of CKD cases. Early detection and treatment can often keep CKD from getting worse. When CKD progresses, it may eventually lead to kidney failure, which requires dialysis or a kidney transplant to maintain life. +Background of Obstructive Sleep Apnea (OSA) +OSA is characterized by repetitive overnight hypoxic episodes and subsequent sleep fragmentation due to a complete or partial collapse of the upper airway. Moderate OSA is defined as having between 15 and 30 breathing pauses (apnea or hypopnea events) per hour of sleep, while severe OSA indicates more than 30 breathing pauses per hour. OSA impacts over 54 million people in the United States, including 24 million moderate-to-severe cases. Around 80% of adults with OSA are undiagnosed. As of 2015, undiagnosed OSA is estimated to cost the United States approximately $149.6 billion annually from comorbid disease, workplace accidents, motor vehicle accidents, and loss of workplace productivity. +Between 30-50% of adults with hypertension have OSA, and this number increases to between 70-80% in adults with resistant hypertension. Additionally, untreated moderate-to-severe OSA increases the risk of resistant hypertension. Along with hypertension, OSA is a major risk factor for cardiovascular disease, type-2 diabetes mellitus, and stroke. +Background of Aldosterone and its Role in Hypertension +Aldosterone is a mineralocorticoid steroid hormone primarily made in the outer layer of the adrenal gland called the adrenal cortex, which plays an important role in controlling the balance of water and salts by keeping sodium in and releasing potassium from the body. This maintenance of homeostasis ensures the body can maintain normal BP. +In a healthy person, homeostatic balance is maintained via a feedback loop called the RAAS. Renin is a key enzyme that is released by the kidneys when they sense changes in BP to control the production of aldosterone, in order to help the kidneys regulate water and salt levels in the body. In a normal physiological state, aldosterone production increases when BP is too low and decreases when BP is too high. This is considered renin-dependent hypertension due to the linkage of renin levels to aldosterone production. +-4- +In addition to the self-regulated RAAS, there are other pathways that drive aldosterone production. Evolving information about hormone regulation of visceral adipocytes and the adrenal gland supports the hypothesis that adipokines, specifically elevated leptin and reduced adiponectin, can affect aldosterone and renin, respectively. The net result is an increase in aldosterone and prevention of the normal feedback inhibition of renin. This is considered renin-independent aldosterone production and is due to dysregulated systems biology, which is often prevalent in an obese population. +Overview of Renin-Dependent and Renin-Independent Aldosterone Production +Elevated aldosterone also causes insulin resistance, inflammation and fibrosis of the heart, fibrosis and remodeling of blood vessels, and tubulointerstitial fibrosis and glomerular injury in the kidney. Aldosterone excess is believed to lead to a higher risk of stroke, kidney damage, congestive heart failure, and heart attack, compared to high BP alone. Many of these symptoms are often comorbidities in an obese population. +Many of the therapies designed to address hypertension, such as ACE inhibitors, ARBs, beta blockers, calcium channel blockers, and diuretics, were developed and introduced several decades ago when the incidence of obesity was below 20% and abnormal aldosterone production affected less than 10% of the U.S. population. The increasing prevalence of obesity and hypertension, driven by the renin-independent axis, has resulted in higher incidences of uHTN and rHTN. Currently available therapies are generally effective in managing renin-dependent hypertension; however, they fail to adequately address the shifting biology of hypertension today. For example, ACE inhibitors and ARBs indirectly reduce aldosterone levels, but up to 40% of treated patients experience “aldosterone breakthrough,” whereby their aldosterone levels return to normal or higher levels and result in elevated BP. +-5- +Growing Epidemic of Obesity Correlated to Rise in Hyperaldosteronism +MRAs, which were initially introduced in the 1950s, are designed to work by blocking the effect of aldosterone, whether renin-dependent or renin-independent, from the mineralocorticoid receptor (MR) but do not inhibit aldosterone production. There are two well-known MRAs available in the United States for the treatment of hypertension, spironolactone and eplerenone, which are both available as generic medicines. MRAs are known to be effective in lowering BP; however, they have demonstrated side effects that have limited their use. Specifically, spironolactone, the most commonly prescribed MRA, is known for inducing hyperkalemia as well as gynecomastia in men and fertility issues in women. Additionally, when aldosterone is blocked from binding to the MR, circulating aldosterone levels increase two- to three-fold and may cause other harmful non-MR-related effects in the body. +The approach of blocking the synthesis of aldosterone and reducing plasma aldosterone levels is thought to be a preferable approach versus the use of MRAs that block the action of aldosterone at the MR. The task of creating a safe and effective ASI can be technically challenging because the major enzymes in the synthesis of aldosterone and cortisol share a high degree of amino acid sequence similarity. While challenging to develop, there are currently four ASIs (including lorundrostat) in advanced clinical development in conditions including hypertension, OSA, primary aldosteronism, heart failure, and CKD. +Lorundrostat as a Potential Treatment for Hypertension +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We are initially developing lorundrostat for the treatment of hypertension and have completed Target-HTN, our initial Phase 2 proof-of-concept clinical trial. In this trial, lorundrostat was well tolerated and demonstrated compelling clinical results, and once-daily dosing flexibility. The observed 10 to 12 hour pharmacokinetic half-life of lorundrostat has the potential to normalize aldosterone levels to provide a clinically meaningful reduction in BP and to flexibly manage the challenges of elevated serum potassium. We believe that lorundrostat’s profile may be compelling based on the following attributes: +• Compelling Clinical Results: Target-HTN demonstrated a statistically significant 9.6 mmHg and 7.8 mmHg reduction in systolic BP in the 50 mg and 100 mg QD cohorts, respectively, which we believe to be clinically meaningful. The reduction in systolic BP was validated and confirmed by +-6- +24-hour mean ambulatory blood pressure monitoring (ABPM), which further demonstrated that lorundrostat provides both central and nighttime BP reduction; +• High Selectivity: Phase 1 and Phase 2 clinical data demonstrated high aldosterone selectivity with no cortisol suppression and no incidence of adrenal insufficiency, as anticipated by the 374 to 1 inhibitory effect on the CYP11B2 enzyme compared to the CYP11B1 enzyme, which is responsible for synthesizing cortisol; +• Optimal Half-Life: A majority of our clinical trial subjects maintained a serum potassium in the normal range. There were modest incidences of hyperkalemia requiring dose adjustment or discontinuation. Six subjects experienced transient elevated serum potassium greater than 6.0 mmol/L, none of which were considered a serious adverse effect (SAE) and all rapidly resolved after discontinuation or dose adjustment. One of the events was assessed as erroneous due to sample misprocessing. Lorundrostat’s observed 10 to 12 hour half-life may be viewed more favorably by physicians compared to compounds with longer half-lives, which may have greater risk of sustained potassium elevation; and +• Convenient Dosing and Well Tolerated: Target-HTN demonstrated clinically meaningful results on a once-daily dosing regimen. Furthermore, lorundrostat was well-tolerated. +Based on the results of the Phase 1 and Target-HTN clinical trials, we initiated our pivotal program in 2023 for lorundrostat in the following trials: +Advance-HTN is a randomized, double-blind, placebo-controlled Phase 2 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to a standardized background treatment of two or three antihypertensive medications. Subjects who met screening criteria discontinued their existing hypertension medications and started on a standard regimen of an ARB and a diuretic, if previously on two medications, or a standard regimen of ARB, diuretic and calcium channel blocker if previously on three to five medications. Subjects who remained hypertensive despite the standardized regimen were then randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week four based on defined criteria or placebo. The primary endpoint of Advance-HTN is change in 24-hour ambulatory systolic BP at week twelve from baseline for each active cohort versus placebo. Randomization of 285 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in March 2025. +Launch-HTN is a global, randomized, double-blind, placebo-controlled Phase 3 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to their existing, prescribed background treatment of two to five antihypertensive medications. Subjects were randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week six based on defined criteria or placebo. The primary endpoint of the trial is the assessment of automated office measured systolic BP from baseline for active cohorts versus placebo at six weeks, with the results pooled for all subjects on 50 mg QD. Randomization of 1,083 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in mid first half of 2025. +Explore-CKD is a randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover trial designed to evaluate the safety and efficacy of 25 mg QD lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in subjects with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an ACE inhibitor or ARB. The primary endpoint is placebo-adjusted change from baseline in systolic BP at week four and an exploratory endpoint is placebo-adjusted percent change from baseline in urine albumin-to-creatinine ratio at week four. Randomization of 60 subjects was completed in the first quarter of 2025, and topline data from this trial is anticipated in the second quarter of 2025. +-7- +Transform-HTN is an open-label extension trial allowing subjects to continue to receive lorundrostat and to obtain long-term efficacy and safety data. All subjects in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, will be given the opportunity to participate in the extension trial. +Lorundrostat has been developed to address dysregulated aldosterone, and we believe this mechanism may be applicable to other indications where dysregulated aldosterone biology plays a role. Most recently, we have begun to explore lorundrostat for patients with OSA and hypertension. +In January 2025, we announced that the FDA cleared our investigational new drug application (IND) for Explore-OSA to evaluate the effect of lorundrostat in the treatment of subjects with moderate-to-severe OSA and hypertension. We anticipate initiating Explore-OSA in the first quarter of 2025. Explore-OSA is planned to be a placebo-controlled, crossover trial to evaluate the safety and efficacy of lorundrostat 50 mg QD in the evening in approximately 40 subjects with moderate-to-severe OSA. Subjects will be at least 18 years old, with a BMI ≥27 kg/m 2 , and the trial will be conducted across approximately 40 sites. The key objective of this trial is to evaluate the hypothesis that lorundrostat both alleviates the severity of upper airway obstruction and reduces nocturnal hypertension. The primary outcome measure is absolute change in the frequency of apnea-hypopnea episodes compared to placebo. The key secondary objective is to quantify BP throughout the night using continuous BP monitoring during performance of a standard sleep study without the use of CPAP. Standard patient reported outcomes specific to OSA will also be assessed. +Target-HTN Phase 2 Clinical Trial +Target-HTN was a two-part Phase 2 randomized, double-blind, placebo-controlled, dose-ranging, multi-center trial designed to evaluate the safety, efficacy, and tolerability of orally administered lorundrostat for the treatment of uHTN and rHTN when used as an add-on therapy to stable background treatment of two or more antihypertensive medications in 200 males and females. The trial was conducted in the United States. The following table illustrates the key clinical results of Target-HTN: +*Mixed effects model with repeated measures (MMRM) results for 100mg QD Part1 and 50mg QD were -7.8 mmHg and -9.6 mmHg, respectively. The observed means include only those subjects with observations at visit eight with no imputation for missing values, while MMRM imputes missing values. The values for observed and MMRM means may differ slightly. +**Results from post-hoc sensitivity analysis reflecting subjects who passed Quality Control criteria and in whom both baseline AOBP and ABPM > 130mmHg. +The results of the Target-HTN trial demonstrated a clinically meaningful and statistically significant placebo-adjusted reduction in systolic BP, as measured by automated office blood pressure (AOBP), of 9.6 mmHg (p<0.01) and 7.8 mmHg (p<0.04) in the 50 mg and 100 mg QD cohorts, respectively. A p-value is the +-8- +probability that the reported result was achieved purely by chance, such that a p-value of less than or equal to 0.05 means that there is a less than or equal to 5% probability that the difference between the control group and the treatment group is purely due to chance. A p-value of 0.05 or less typically represents a statistically significant result. The FDA’s evidentiary standard when evaluating the results of a clinical trial generally relies on a p-value of less than or equal to 0.05. In a meta-analysis of 147 randomized trials, a 10 mmHg reduction of systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The reduction in systolic BP in Target-HTN, as measured by AOBP, was validated and confirmed by comparable reductions in systolic BP with lorundrostat, as measured by 24-hour mean ABPM. The ABPM data further demonstrated the benefits of lorundrostat on both central and nighttime BP reduction, which have been strongly linked to cardiovascular health risk. In the trial, patients with a body mass index (BMI) greater than 30, or obese patients, who are at an elevated risk of cardiorenal diseases, exhibited a 12.3 or 16.7 mmHg placebo-adjusted reduction in systolic BP with a 100 mg QD or 50 mg QD dose, respectively. Treatment-emergent SAEs were reported in three subjects, one of which was deemed to be possibly related to lorundrostat in a subject with worsening of preexisting hyponatremia, which reversed after discontinuation. The two active, once-daily doses saw modest increases in potassium levels across the cohorts of 0.25 mmol/L with the 50 mg QD and 0.29 mmol/L with the 100 mg QD dose. Six subjects experienced transient elevated serum potassium greater than 6.0 mmol/L, none of which were considered an SAE, and all rapidly resolved after discontinuation or dose adjustment, which is consistent with the half-life of lorundrostat. One of the events was assessed as erroneous due to sample misprocessing. As anticipated, and in a manner similar to ACE inhibitors and ARBs, the BP lowering effect of lorundrostat led to a beneficial, reversible dose-dependent reduction in estimated glomerular filtration rate (eGFR), a measure of kidney function. Finally, the selectivity of lorundrostat for aldosterone inhibition was confirmed as cortisol levels were not observed to be inhibited across the range of doses. +The trial was conducted in two parts. In Part 1, subjects were initially pre-screened for a period of up to two weeks with a requirement for their systolic/diastolic BP to be over 130/80 mmHg with the use of two or more background medications indicated for hypertension such as ACE inhibitors, ARBs, calcium channel blockers, or diuretics. Subjects in Part 1 were also required to have low-renin hypertension defined as hypertension with a plasma renin activity level of 1.0 ng/mL/h or less. Subjects were excluded if they were taking an MRA or sodium channel blocker. Once subjects met the prescreening criteria, they were followed for two weeks during a blinded, placebo run-in period where their elevated BP was reconfirmed while compliant on background medication and placebo. If patients were compliant on their background medication and continued to have BP above 130/80 mmHg, subjects were randomized into five active cohorts and one placebo cohort. Subjects were dosed for eight weeks, then, upon withdrawal of study medication, followed for another four weeks. +-9- +Baseline Demographics of the Patients Enrolled in Target-HTN Part 1 — Full Analysis Set (FAS) +We conducted a pre-planned interim analysis for Part 1 of the trial when approximately one-third (65 subjects) of the planned enrollment had completed a minimum of four weeks of treatment, representing approximately 10-12 subjects per cohort. To preserve the blinding of the trial, the interim analysis was conducted by a small team that was not involved in operational aspects of the trial and no results of the analysis were shared with the operational team at clinical trial sites. The primary purpose of the interim analysis was to assess whether the chosen dose range appeared to adequately span the range from sub-therapeutic to maximum therapeutic response determined by change in systolic BP at week four relative to baseline. As a result of the interim analysis, we discontinued further enrollment in two of the lower dose cohorts (12.5 mg QD and 12.5 mg BID) due to the modest efficacy and projected benefit/risk ratio and initiated Part 2 of the trial. +Part 2 was designed to study the effect of lorundrostat in subjects with normal-to-high renin levels, and we selected 100 mg QD as the dose to study based on its efficacy and safety as demonstrated in the interim analysis. Subjects enrolled in Part 2 were randomized to either 100 mg of lorundrostat once-daily (n=31) or placebo (n=6) to preserve the blinded randomization of the trial. The Part 2 subjects followed the same study conduct as Part 1 subjects, with the exception of the follow-up period, which was shortened from four weeks to two weeks. +The primary endpoint of Target-HTN was change in seated, pre-dose morning systolic BP at week 8 versus baseline reading as measured by AOBP. The pre-planned analysis of the primary endpoint was an MMRM. Between Part 1 and Part 2, 100 mg QD, the pre-planned comparison of the primary endpoint was an unpaired, two-tailed T-test, using the observed change from baseline to week 8. Secondary endpoints included +-10- +24-hour ABPM change at week 8 versus baseline, diastolic BP change at week 8 versus baseline, and proportion of subjects achieving BP goal at week 8. For the purpose of evaluating safety, findings from the 100 mg QD cohorts from Parts 1 and 2 were pooled. +Phase 2 Target-HTN Clinical Trial Design +BID = twice-daily; EOT = end of treatment; FU = follow up; PRA = plasma renin activity; QD = once-daily +Efficacy +The outcomes of the Phase 2 proof-of-concept study of lorundrostat, as shown in the chart below, demonstrated efficacy across defined endpoints and was well tolerated in once-daily dosing. +The primary endpoint for Part 1 of Target-HTN was the change in systolic BP at week 8 relative to baseline. As indicated in the table below, in an intent-to-treat analysis, lorundrostat showed a statistically significant reduction in systolic BP, which we believe to be clinically meaningful, in a dose-dependent manner. The once-daily doses of 50 mg and 100 mg of lorundrostat demonstrated comparable reduction in systolic BP, as compared to the twice-daily dosing of lorundrostat with either 12.5 mg or 25 mg of lorundrostat. The higher doses of both once-daily and twice-daily lorundrostat also generated a reduction in diastolic BP over the course of the trial, which we believe to be clinically meaningful. +Target-HTN Efficacy Data, as Measured by AOBP +In Part 2, 31 subjects with normal or elevated renin were treated with once-daily lorundrostat at 100 mg QD and assessed similarly to those in Part 1. The reduction in systolic BP in Part 2 of this trial was not +-11- +statistically different from the reduction seen in Part 1 (see figure below). As a result, we believe that lorundrostat has the potential to be effective across the entire range of renin levels. +Individual Change in BP at Week 8 +*N = subjects with baseline and week 8 data, modeled mean using FAS. +A further predefined objective of this trial was to evaluate potential predictors of clinical response to lorundrostat. There was no consistent difference in clinical response to lorundrostat observed based on gender, race, age, or number of baseline antihypertensive medicines. Our analysis of the clinical results demonstrated the following determinants to be positively correlated to clinical response: +• Obesity. Hypertensive subjects with a BMI ≥30 kg/m2 demonstrated a significant reduction of systolic BP with a placebo-adjusted reduction of 16.7 mmHg with 50 mg QD and a reduction of 12.3 mmHg with 100 mg QD in Part 1 of the study. The obesity finding, in particular, lends support to our hypothesis of the linkage between obesity-leptin-aldosterone axis and hypertension; and +• Use of diuretics. Subjects taking a diuretic as a part of their background regimen demonstrated a significant reduction of systolic BP with a placebo-adjusted reduction of 12.9 mmHg with 50 mg QD and 10.0 mmHg with 100 mg QD in Part 1 of the study. +-12- +Placebo-Adjusted Improvement in Systolic BP by Responder Determinant +During two periods of time in the study, the week prior to randomization and the last week of study drug treatment, subjects were required to wear a device that captures BP readings multiple times per hour over a 24-hour period. This measurement provides a more complete picture of the patient’s hypertension status than in-office measurements and eliminates the impact of the phenomenon known as “white coat” hypertension, which occurs when BP readings at a healthcare provider’s office are higher than in other settings such as at home. The change in 24-hour systolic ABPM from baseline to week 7 or 8 for the Part 1 100 mg QD cohort, demonstrated an 8.1 mmHg observed mean placebo-adjusted reduction in systolic BP. The ABPM response in the 50 mg QD was complicated by evidence of “white coat” hypertension, but after eliminating data from individuals who were not hypertensive, as measured by ABPM, there was evidence of a 10.5 mmHg observed mean placebo-adjusted reduction in systolic BP in individuals who were hypertensive as measured by ABPM (the 50mg QD hypertensive ABPM set). The average overnight BP reduction in the 100 mg QD cohort was an observed mean placebo-adjusted reduction of 8.0 mmHg and in the 50 mg QD hypertensive ABPM set there was an observed mean placebo-adjusted reduction of 4.1 mmHg. +The reduction in overnight BP and restoration of dipping that was also observed are of potential importance to the objective of reducing morbidity and mortality from uHTN, as the link between elevated nighttime BP and cardiovascular risk has been long established in the medical literature. +The eGFR measures how well an individual’s kidneys are filtering waste and extra water from the body via the urine. In hypertensive patients, the eGFR will progressively decline and individuals may begin to exhibit signs and symptoms of CKD at eGFR levels below 45mL/min/1.73m 2 . As demonstrated in previous studies with antihypertensives, such as ACE inhibitors and ARBs, an initial reduction of eGFR in treated hypertensive patients may represent a positive benefit as it indicates an alleviation of pressure on the glomerulus and potentially slows or arrests the progression to CKD. In this trial, a dose-dependent reduction in eGFR was demonstrated, which we believe is clinically meaningful and has the potential to provide a renal protection benefit that we intend to further assess in future clinical trials. +Safety +Lorundrostat has been observed to be well-tolerated, specifically in four key measures that we believe to be of special interest when evaluating the safety of lorundrostat: +• Cortisol Inhibition: There was no clinically relevant suppression of cortisol production in serum cortisol testing as well as adrenocorticotropic hormone (ACTH)-stimulation testing. A slight increase in cortisol was observed in all cohorts, including placebo, but did not demonstrate a trend above normal physiological levels; +-13- +• Hypotension (sitting systolic BP < 100 mmHg): Each of hypotension and orthostatic hypotension was seen in three subjects and was reversible, likely related to study medication and expected based on lorundrostat’s mechanism of action; +• Hyponatremia (serum sodium < 135 mmol/L): Severe hyponatremia, possibly related to study medication, was seen in one subject with preexisting hyponatremia, and was reversible after drug discontinuation; and +• Hyperkalemia (serum potassium > 5.1 mmol/L): There was an expected, dose-dependent increase in serum potassium, though the majority of subjects maintained a serum potassium in the normal range. The two active, once-daily doses saw modest increases in potassium levels across the cohorts of 0.25 mmol/L with the 50 mg QD and 0.29 mmol/L with the 100 mg QD dose. Six subjects across the five active dose cohorts experienced an isolated instance of elevated potassium above 6 mmol/L (two were deemed to be a factitious reading, three worsening of pre-existing hyperkalemia and one was a confirmed de-novo episode of hyperkalemia). Consistent with the short terminal elimination half-life of lorundrostat, all episodes were rapidly reversible after per protocol dose reduction, temporarily holding study medication, or treatment discontinuation. An independent data safety monitoring board expressed no concerns about the effect of lorundrostat on serum potassium in the Target-HTN trial. +Based on the totality of available data, there were no safety concerns that prompted changes to the Investigator’s Brochure or protocol. Three SAEs, including one event of chest pain, one event of metastases to peritoneum, and one event of hyponatremia, were reported and treatment was discontinued. Hyponatremia was assessed as possibly related to the study drug. The other two events were assessed as unrelated to the study drug. The most frequent non-serious AEs reported, defined as events with five or more affected subjects, including the placebo group, were related to hyperkalemia – all determinations above the upper limit of normal of 5.1 mmol/L (23.3%), decreased glomerular filtration (6.8%), urinary tract infections (5.3%) and hypertension (3.8%). In some of the hyperkalemia events, study treatment was dose adjusted temporarily or permanently discontinued according to safety guidelines in the protocol. +Pharmacokinetics +The 24-hour exposure/response relationship for systolic BP at week 8 across treatment groups suggests QD dosing up to 100 mg. The trial results suggest a minimal effective dose between 12.5 mg/24 hours and 25 mg/24 hours (12.5mg BID) and a maximum efficacious dose of 50 mg to 100 mg QD for lorundrostat. All doses in excess of 12.5 mg QD are active doses, which is to be expected. Given the relatively short half-life of lorundrostat, the group mean exposure in the 25 mg BID and 50 mg QD cohorts was similar, suggesting little +-14- +drug accumulation. The comparable efficacy of the 25 mg BID and 50 mg QD cohorts suggests that once-daily dosing is sufficient to achieve maximum BP reduction. +Exposure Versus Change in Systolic BP +Phase 1 Clinical Trial Results +The Phase 1 program of lorundrostat consisted of a randomized, double-blind, placebo-controlled, first-in-human trial to determine the safety, tolerability, pharmacokinetics, and pharmacodynamics of single and multiple ascending doses (MAD) of lorundrostat in healthy subjects, including the effect of gender and age on the pharmacokinetics of a single dose of lorundrostat in healthy subjects. This trial was conducted by Mitsubishi Tanabe in the Netherlands and the trial data was used to support our open IND, under which our current lorundrostat development program is being conducted. We submitted the IND in February 2021, which was allowed to proceed by the FDA in March 2021. +Lorundrostat was well-tolerated at single and multiple doses in the first-in-human trial. No deaths or other SAEs were observed. One subject in the Part 2 MAD trial, 360 mg dose group discontinued treatment due to a treatment-emergent AE of sinus tachycardia. Across all cohorts, dizziness/dizziness postural was reported by 9 out of 87 (10.3%) lorundrostat-treated subjects compared to 1 out of 29 (3.4%) placebo subjects. +The high selectivity of lorundrostat was demonstrated in both the single ascending dose (SAD) and MAD parts of this trial. It was shown that lorundrostat decreased plasma aldosterone concentration in a dose-dependent manner in the SAD portion of the trial with a 36-77% reduction in 24-hour serum aldosterone at doses ranging from 5 mg to 800 mg. This finding was further validated in the MAD part of the trial with 40 mg, 120 mg, and 360 mg reducing 24-hour serum aldosterone in a dose-dependent manner. In the SAD trial, lorundrostat did not inhibit cortisol production across the range of doses and in the MAD study cortisol was not inhibited even with ACTH cortisol stimulation challenge on day six. The results of this trial demonstrated the selectivity for aldosterone synthase with lorundrostat. +This study also assessed the effect of single and multiple doses of lorundrostat on QT prolongation and lorundrostat did not have a clinically relevant, dose-dependent effect. The FDA has accepted this data and granted a thorough QT study waiver. +-15- +The impact on age and gender was also evaluated in the Phase 1 program for lorundrostat. It was demonstrated that neither of these sub-groups exhibited differentiated exposure levels to lorundrostat. +A Phase 1, open-label, randomized, 2-sequence study to evaluate the effect of food on the pharmacokinetics of lorundrostat in healthy subjects has been completed. Based on the results of this trial, lorundrostat can be administered without regard to meals in all ongoing and future clinical trials as well as upon approval in hypertensive patients. +We have also completed drug interaction studies with lorundrostat with metformin, esomeprazole, itraconazole, carbamazepine, digoxin, and rosuvastatin. The metformin study was completed based on the possible inhibition of the MATE1 transporter by lorundrostat. This trial demonstrated that lorundrostat has little effect on plasma exposure of metformin. The DDI study with esomeprazole was conducted to evaluate the effect of varying gastric pH levels on the absorption and availability of lorundrostat. As anticipated for lorundrostat, which is a weak base, there was reduced absorption in the alkaline gastric environment produced by the proton pump inhibitor (PPI). The DDI study with itraconazole was conducted to evaluate the effect of strong cytochrome P450 (CYP450) 3A4 inhibition on the exposure of lorundrostat. As anticipated, there was a minimal increase in lorundrostat exposure when co-administered with a strong CYP3A4 inhibitor. The DDI study with carbamazepine was conducted to evaluate the effect of strong CYP3A4 induction on the exposure of lorundrostat. As anticipated, the plasma exposure of lorundrostat was decreased when co-administered with a strong CYP3A4 inducer. A DDI study was conducted to evaluate the effects of lorundrostat on the p-glycoprotein substrate digoxin. This study revealed that in the presence of lorundrostat, digoxin exposure was increased by 67%. A DDI study was conducted to evaluate the effects of lorundrostat on the breast cancer resistant protein rosuvastatin. This study revealed that in the presence of lorundrostat, rosuvastatin exposure was increased by 23%. +A Phase 1, open-label, parallel design study to evaluate the pharmacokinetics of lorundrostat in subjects with normal renal function (eGFR ≥ 90 mL/min/1.73 m2) and subjects with severe renal impairment (eGFR < 30 mL/min/1.73 m2) has been completed. Based on the results of this trial, there was no statistically significant effect of severe renal impairment on the pharmacokinetics of lorundrostat. +A Phase 1, open-label, parallel design study to evaluate the pharmacokinetics of lorundrostat in subjects with normal liver function and subjects with mild, moderate, and severe hepatic impairment has been completed. The results from this indicate that lorundrostat exposure was minimally increased in subjects with mild and moderate, and larger increases were seen in subjects with severe hepatic impairment compared to subjects with normal liver function. +Preclinical Data +The pharmacological profile for lorundrostat was assessed via in vitro pharmacology studies that demonstrated a selectivity ratio of 374 times more selective for aldosterone inhibition over cortisol inhibition. Lorundrostat inhibited hCYP11B2, the synthetic pathway for aldosterone, and hCYP11B1, the synthetic pathway of cortisol with inhibition constant values of 1.27 nmol/L and 475 nmol/L, respectively. +Single-dose oral administration of lorundrostat significantly decreased plasma aldosterone concentration (PAC) in a sodium-depleted non-human primate model. However, single-dose oral administration of lorundrostat did not affect cortisol in ACTH-loaded non-human primates even at a dose 100-fold higher than those required to reduce PAC. These results indicate that lorundrostat inhibits CYP11B2 with higher selectivity over CYP11B1, an enzyme responsible for cortisol production. +Our Team and Investors +Founded by Catalys Pacific in 2019, we are led by an experienced management team with diverse backgrounds and significant experience in drug discovery, development, and company building. Our management team consists of industry veterans with extensive experience at pharmaceutical companies such as +-16- +Amgen, Novartis, ProQR, Sanifit, Teva, and Vertex. Together, our team has a proven track record in the discovery, development, and commercialization of numerous approved therapeutics. +Since inception, we have raised approximately $498.8 million of capital from various investors, which includes $220.8 million raised in our initial public offering that occurred on February 14, 2023 from the sale of 13,800,000 shares of our common stock at $16.00 per share initial public offering (IPO) and $120.0 million raised in a private offering in February 2024 from the sale of 8,888,924 aggregate shares of our common stock and pre-funded warrants at an aggregate price of $13.50 per share. +License Agreement with Mitsubishi Tanabe +In July 2020, we entered into the Mitsubishi License with Mitsubishi Tanabe, pursuant to which Mitsubishi Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Mitsubishi Tanabe’s patent and other intellectual property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring or predisposition testing with respect to indications, diseases and conditions in humans (the Field). Pursuant to the Mitsubishi License, we paid Mitsubishi Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Mitsubishi Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Mitsubishi Tanabe tiered royalties at percentages ranging from the mid-single digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Mitsubishi Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith to develop at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Mitsubishi License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, Mitsubishi Tanabe has a right of first negotiation, for a specified period of time. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Mitsubishi Tanabe’s prior consent. +Unless terminated earlier, the Mitsubishi License will continue until the expiration of all of our royalty obligations to Mitsubishi Tanabe. We may terminate the Mitsubishi License for any or no reason upon 90 or 180 days’ prior written notice to Mitsubishi Tanabe depending on whether the Lorundrostat Product has received regulatory approval. Mitsubishi Tanabe may terminate the Mitsubishi License if we have not initiated regulatory consultation for the first global clinical trials of lorundrostat in at least one major market country within a specified amount of time or if we or our affiliates or sublicensees initiate a challenge to the patent rights licensed to us by Mitsubishi Tanabe. In addition, either party may terminate the Mitsubishi License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +Manufacturing +We do not own or operate manufacturing facilities for the production of lorundrostat, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for our required raw materials, active pharmaceutical ingredients, and finished product candidates for our clinical trials. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. +-17- +Sales and Marketing +We have not yet defined our sales, marketing, or product distribution strategy for lorundrostat because it is still in clinical development. Our commercial strategy may include the use of strategic partners, distributors, a contract sales force, or the establishment of our own commercial sales force. We plan to further evaluate these alternatives as we approach approval for lorundrostat, if any. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Lorundrostat, if approved, may address multiple markets. Ultimately, the disease(s) lorundrostat targets and for which it may receive marketing authorization will determine our competition. There are competing programs under development by other companies for our initially targeted indication of hypertension. Lorundrostat, if approved, will have to compete with existing therapies and new therapies that may become available in the future. We face potential competition from many different sources, including larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. In many cases, the companies with competing programs will have access to greater financial, technical, manufacturing, marketing, sales, and supply resources, will have more expertise and experience than us, and may be more advanced in those programs. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma and CORXEL; +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +If we successfully obtain approval for lorundrostat or any future product candidate, we believe that the key competitive factors that will affect the success of lorundrostat will be efficacy, safety, tolerability, convenience, price, and the availability of reimbursement from government and other third-party payors relative to such competing products. Our commercial opportunity could be reduced or eliminated if its competitors have products that are superior in one or more of these categories. +Intellectual Property +Intellectual property, including patents, trade secrets, know-how, trademarks, and copyrights, is important to our business. Our commercial success depends in part on our ability to obtain and maintain proprietary intellectual property protection for our clinical-stage product candidate, lorundrostat, as well as for future product candidates and novel discoveries, product development technologies, and know-how. Our commercial success also depends in part on our ability to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to develop and maintain protection of our proprietary position by, among other methods, licensing or filing U.S. and foreign patents and applications relating to our product candidates, technology, inventions, and improvements that are important to the development and implementation of our business. +-18- +Our patent portfolio is built with the goal of establishing broad protection that generally includes, for the product candidate compound, claims directed to composition of matter, pharmaceutical compositions or formulations, methods of synthesis, and methods of treatment using such pharmaceutical compositions or formulations. We are seeking and maintaining patent protection in the United States and key foreign jurisdictions where we intend to market lorundrostat. Our patent portfolio includes a combination of patents and pending patent applications solely owned by us, patents and pending patent applications licensed from Mitsubishi Tanabe, and pending patent applications jointly owned with Mitsubishi Tanabe. As of February 16, 2023, our patent portfolio comprises 14 distinct patent families protecting our technology relating to lorundrostat and its synthetic intermediates, methods of synthesizing lorundrostat and related compounds, various formulations of lorundrostat products, as well as methods of treating diseases with lorundrostat and related compounds. As of January 16, 2025, our portfolio of exclusively licensed patents and pending patent applications consists of four granted U.S. patents; one pending U.S. patent application; one granted European patent that has been validated in Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Turkey, and the United Kingdom; one granted European patent that has been validated in France, Germany, Italy, Spain, and the United Kingdom; two pending European patent applications; four granted Japanese patents; one pending Japanese patent application; one granted Canadian patent; one pending Canadian patent application; one granted Australian patent; one granted Brazilian patent; two pending Brazilian applications; one granted Chinese patent; one pending Chinese patent application; one pending Israeli patent application; one granted Indian patent; one granted Indonesian patent; one granted Korean patent; one pending Korean patent application; one granted Malaysian patent; one granted Mexican patent; two granted Russian patents; one granted Singaporean patent; one granted Taiwanese patent; one pending Thai application; and one granted Vietnamese patent. +Our portfolio of wholly owned pending patent applications consists of one pending European patent application; one pending Japanese patent application, one pending U.S. patent application; four pending PCT International Applications; four pending Taiwanese patent applications; and four pending U.S. provisional patent applications. +Our portfolio of jointly owned pending patent applications consists of one pending Chinese patent application; two pending European patent applications; two pending Indonesian patent applications; two pending Japanese patent applications; two pending Malaysian patent applications; one pending Chinese patent application; two pending Korean patent applications; two pending Philippines patent applications; two pending Singaporean patent applications; two pending U.S. patent applications; two pending Vietnamese patent applications; and one pending PCT International Application. +Granted patents and pending applications in our portfolio of exclusively licensed patents and pending patent applications, if granted, have nominal expiration dates ranging from 2035 to about 2042, without accounting for any available patent term adjustments or extensions. Pending applications in our portfolio of wholly and jointly owned pending patent applications have nominal expiration dates ranging from 2041 to about 2044, without accounting for any available patent term adjustments or extensions. If filed and subsequently granted, patent applications claiming priority to pending U.S. Provisional Applications in our portfolio of wholly and jointly owned pending patent applications will have expiration dates ranging from 2042 to about 2046, without accounting for any available patent term adjustments or extensions. +The term of individual patents in our portfolio depends upon the legal term of patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the term of a patent may be eligible for patent term adjustment, which permits patent term restoration as compensation for delays incurred at the United States Patent and Trademark Office (USPTO) during the patent prosecution process. In addition, for patents that cover an FDA-approved drug, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. While the length of the patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a +-19- +total of 14 years from the date of product approval, and only one patent per approved drug may be extended under the Hatch-Waxman Act. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek any available patent term extension to any granted patents we may be granted in any jurisdiction where such extensions are available; however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. +The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. We cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use or manufacture of those products. Moreover, granted patents do not guarantee the right to practice our technology in relation to the commercialization of our products. Granted patents only allow us to block potential competitors from practicing the claimed inventions of the granted patents. +Further, patents and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and our granted patents may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any granted patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any granted patents. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides. +We may also rely on trade secrets relating to our discovery programs and product candidates, and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us, and for employees and consultants to enter into invention assignment agreements with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Where applicable, the agreements provide that all inventions to which the individual contributed as an inventor shall be assigned to us, and as such, will become our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information. +Further, we have and will continue to pursue trademark protection for our company name and brand. Since December 2022, we have owned four registered trademarks in the United States and foreign jurisdictions relating to the registered trademark “MINERALYS.” +-20- +Government Regulation +Government authorities in the United States, at the federal, state, and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application (NDA) process before it may be legally marketed in the United States. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA), the Public Health Service (PHS) Act, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with Good Laboratory Practice regulations (GLPs) and other applicable regulations; +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an independent institutional review board (IRB), or ethics committee (EC) at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice regulations (GCPs) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of an NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational drug product (including biological products) to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical trials or non-compliance with specific +-21- +FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated checkpoints based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases, and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +-22- +During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. Generally, these points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, preclinical and other nonclinical studies, and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry, strength and purity of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, safety and efficacy for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s quality, and purity. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. +The FDA may refer an application for a novel drug or therapeutic biological product to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates a marketing application and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional clinical trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies, or manufacturing. If a CRL is issued, the applicant must resubmit the NDA to address all of the deficiencies identified in the letter or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +-23- +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy (REMS), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the applicant of the NDA must submit a proposed REMS. The FDA will not approve the marketing application without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription, or dispensing of products. +In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs, and supplements to them, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or submit a request for approval of a pediatric formulation. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. +If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. However, competitors may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of a competing product for seven years if a competitor obtains approval of the “same drug,” as defined by the FDA, or if a product candidate is determined to be contained within the competitor’s product for the same disease or condition. In addition, if an orphan-designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. +-24- +Expedited Development and Review Programs +The FDA has a number of programs intended to expedite the development or review of a marketing application for a new drug. For example, the fast track designation program is intended to expedite or facilitate the process of developing and reviewing product candidates that meet certain criteria. Specifically, investigational drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. The sponsor of a fast track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. With regard to a fast track product candidate, the FDA may review sections of a marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon first submission of the section(s) of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +Any product candidate submitted to the FDA for approval, including a product candidate with a fast track designation or breakthrough designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. An NDA is eligible for priority review if the product candidate is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for standard review under its current PDUFA review goals. +In addition, a product candidate may be eligible for accelerated approval. Drug products (including biologics) intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled confirmatory clinical trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory trials in a timely manner or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition of accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. +Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +-25- +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, supply chain security, reporting of permanent discontinuance or interruptions in supply, other periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes, and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for +-26- +many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. In the context of smaller molecule new drugs, the FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA), or an NDA submitted under Section 505(b)(2) (505(b)(2) NDA) submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. +Other Healthcare Laws +Pharmaceutical companies and developers and manufacturers of therapeutic biological products are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research as well as sell, market, and distribute any products for which we obtain marketing approval. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, false claims, data privacy and security, and physician and other healthcare provider transparency laws and regulations. If our significant operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment. +Coverage and Reimbursement +Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions +-27- +regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. These third-party payors are increasingly reducing reimbursements for medical products, drugs, and services. In addition, the U.S. government, state legislatures, and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales. +Healthcare Reform +In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended, collectively known as the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments, and changes to fraud and abuse laws. By way of example, the ACA: +• increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price; +• required collection of rebates for drugs paid by Medicaid managed care organizations; +• required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and +• imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. +Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, or AMP, beginning January 1, 2024. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated. +Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation, and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, +-28- +discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +Employees +As of December 31, 2024, we had 51 full-time employees, of whom 39 were primarily engaged in research and development. None of our employees are represented by a labor union, and we consider our employee relations to be good. +Legal Proceedings +We are not currently a party to any material proceeding. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. +Corporate Information +We were incorporated under the laws of the State of Delaware in May 2019 as Catalys SC1, Inc. and we subsequently changed our name to Mineralys Therapeutics, Inc. Our mailing address is 150 N. Radnor Chester Rd, Suite F200, Radnor, PA 19087 and our telephone number is 888-378-6240. +Available Information +Our website address is www.mineralystx.com. Our investor relations website is located at https://ir.mineralystx.com. We make available free of charge on our investor relations website under “SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our directors’ and officers’ Section 16 reports, and any amendments to those reports as soon as reasonably practicable after filing or furnishing such materials to the SEC. They are also available for free on the SEC’s website at www.sec.gov. +We use our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should monitor such website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. Information relating to our corporate governance is also included on our investor relations website. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. +Information about our Executive Officers +The following table sets forth information concerning our executive officers. +Name Age Position +Jon Congleton 61 Chief Executive Officer and Director +Adam Levy 46 Chief Financial Officer and Secretary +David Rodman, M.D. 69 Chief Medical Officer +Jon Congleton has served as our Chief Executive Officer and as a member of our board of directors since November 2020. Prior to joining us, Mr. Congleton was the Chief Executive Officer of Impel NeuroPharma, Inc. from September 2017 to May 2020. Prior to that, he served as the Chief Executive Officer and as a director of Nivalis Therapeutics, Inc. from January 2015 to February 2017. Mr. Congleton was previously at Teva Pharmaceutical Industries, Ltd. (Teva) where over 18 years he held positions in general management and global strategic marketing, including Senior Vice President of Teva’s Global Central Nervous System Disorders from April 2013 to December 2014, Senior Vice President of the Global Medicine Group from November 2011 to April 2013, and General Manager of Teva Neuroscience, Inc. in the United States. Prior to joining Teva, Mr. Congleton spent ten years in a variety of commercial roles with predecessor companies of Sanofi. Mr. Congleton earned a B.S. in marketing from Kansas State University. Mr. Congleton’s +-29- +knowledge of our business and his extensive executive experience at multiple biopharmaceutical companies contributed to our board of directors’ conclusion that he should serve as a director of our company. +Adam Levy has served as our Chief Financial Officer since March 2022 and as our Chief Business Officer from March 2022 through January 4, 2024. Mr. Levy also serves as a member of the board of directors of Praxis Bioresearch. Prior to joining Mineralys, he was the Chief Financial Officer at Sanifit Therapeutics until the company was acquired by Vifor Pharma in 2022. Previously, Adam served as the Chief Business Officer at Brickell Biotech from 2019 to 2020 and led the organization’s financial operations transition as it became a publicly listed company on Nasdaq. Prior to that, he served as the Chief Business Officer at miRagen Therapeutics from 2016 to 2019, where he was responsible for a variety of functions including financial strategy, investor relations, business development, legal affairs, intellectual property, project and program management, and human resources. Between 2000 and 2016, Mr. Levy held multiple investment banking positions at Merrill Lynch, Jefferies Group, and Wedbush Securities. Mr. Levy received a B.S. in Business Management and Marketing from Cornell University. +David Rodman, M.D. has served as our Chief Medical Officer since January 2021. Previously, Dr. Rodman served in various roles at miRagen, Vertex Pharmaceuticals Inc., and Novartis Institutes for BioMedical Research. Dr. Rodman was elected to the American Society for Clinical Investigation and named an Established Investigator and Fellow of the American Heart Association. Dr. Rodman received his medical degree from the University of Pennsylvania and was subsequently Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care Medicine at the University of Colorado. +-30- +Item 1A. Risk Factors +You should carefully consider the following risk factors, together with the other information contained in this Annual Report, including our financial statements and the related notes and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” before making a decision to purchase or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition, and growth prospects. If that were to happen, the trading price of our common stock could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations or financial condition. +Risks Related to Our Limited Operating History, Financial Position, and Capital Requirements +We have a limited operating history, have incurred significant operating losses since our inception, and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it. +Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We commenced operations in 2019 and, to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, in-licensing our product candidate, lorundrostat, establishing our intellectual property portfolio, and conducting research, preclinical studies, and clinical trials. We have not yet completed any pivotal clinical trials, obtained regulatory approvals, manufactured products at commercial scale or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products. +We have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We do not have any products approved for sale and have not generated any revenue since our inception. If lorundrostat is not successfully developed, approved, and commercialized, we may never generate significant revenue, if we generate any revenue at all. Our net losses were $177.8 million and $71.9 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $302.5 million. Substantially all of our losses have resulted from expenses incurred in connection with in-licensing intellectual property related to, and developing, lorundrostat and from general and administrative costs associated with our operations. Lorundrostat and any future product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for, and potentially commercialize lorundrostat, seek to identify, assess, acquire, in-license intellectual property related to or develop additional product candidates, and operate as a public company. +To become and remain profitable, we must succeed in developing, obtaining regulatory approvals for, and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials and preclinical studies of lorundrostat and any future product candidates, acquiring additional product candidates, obtaining regulatory approval for lorundrostat and any future product candidates, and manufacturing, marketing, and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. In addition, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased +-31- +expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable may have an adverse effect on the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates, achieve our strategic objectives, or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +We will require substantial additional capital to finance our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our development programs, commercialization efforts, or other operations. +The development of biopharmaceutical product candidates is capital-intensive. We expect our expenses to substantially increase in connection with our ongoing activities, particularly as we conduct our ongoing and planned clinical trials for lorundrostat and potentially seek regulatory approval for lorundrostat and any future product candidates we may develop. In addition, if we are able to progress lorundrostat through development and commercialization, we will be required to make commercial milestone and royalty payments to Mitsubishi Tanabe from whom we have in-licensed intellectual property related to lorundrostat. If we obtain regulatory approval for lorundrostat or any future product candidates, we also expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. Because the outcome of any clinical trial or preclinical study is highly uncertain, we cannot reliably estimate the actual amount of financing necessary to successfully complete the development and commercialization of lorundrostat or any future product candidates. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts. +Based on our current operating plan, we believe that our existing cash, cash equivalents, and investments will enable us to fund our operations for at least the next 12 months. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned. Our existing capital may not be sufficient to complete development of lorundrostat, or any future product candidate, and we will require substantial capital in order to advance lorundrostat and any future product candidates through clinical trials, regulatory approval, and commercialization. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from factors that include but are not limited to, geopolitical conflict in and around Ukraine, Israel, and other areas of the world, inflation, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts, or even cease operations. We expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop lorundrostat and any future product candidates. +-32- +Our future capital requirements will depend on many factors, including, but not limited to: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing for lorundrostat, or any future product candidate, including commercial manufacture at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and the timing of seeking approval in such jurisdictions; +• the costs, timing, and outcome of regulatory meetings and reviews of lorundrostat or any future product candidates; +• the costs of obtaining, maintaining, enforcing, and protecting our patents and other intellectual property and proprietary rights; +• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting; +• the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, manufacturing, quality, and commercial personnel; +• the timing and amount of the milestone, royalty, or other payments we must make to Mitsubishi Tanabe, from whom we have in-licensed lorundrostat, or any future licensors; +• the costs and timing of establishing or securing sales and marketing capabilities if lorundrostat or any future product candidate is approved; +• our ability to achieve sufficient market acceptance, coverage, and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; +• patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; +• the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements +• costs associated with any products or technologies that we may in-license or acquire; and +• any delays and cost increases that may result from any pandemic or other healthcare emergency. +Conducting clinical trials and preclinical studies and potentially identifying future product candidates is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and commercialize lorundrostat or any future +-33- +product candidates. If approved, lorundrostat and any future product candidates may not achieve commercial success. Our commercial revenue, if any, will initially be derived from sales of lorundrostat, which we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. +Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Such restrictions could adversely impact our ability to conduct our operations and execute our business plan. +If we raise additional funds through future collaborations, licenses, and other similar arrangements, we may be required to relinquish valuable rights to our future revenue streams, product candidates, research programs, intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we would be required to delay, limit, reduce, or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we might otherwise prefer to develop and market ourselves, or on less favorable terms than we would otherwise choose. +Risks Related to the Development and Regulatory Approval of Our Product Candidates +We currently depend entirely on the success of lorundrostat, which is our only product candidate. If we are unable to advance lorundrostat in clinical development, obtain regulatory approval, and ultimately commercialize lorundrostat, or experience significant delays in doing so, our business will be materially harmed. +We currently only have one product candidate, lorundrostat, the intellectual property for which we have in-licensed and which is in clinical development. Our business presently depends entirely on our ability to successfully develop, obtain regulatory approval for, and commercialize lorundrostat in a timely manner. This may make an investment in our company riskier than similar companies that have multiple product candidates in active development and may be able to better sustain the delay or failure of a lead product candidate. In addition, our assumptions about lorundrostat’s development potential are partially based on the data generated from preclinical studies and clinical trials conducted by our licensor, and we may observe materially and adversely different results as we continue to conduct our clinical trials. The success of lorundrostat will depend on several factors, including the following: +• successful initiation and enrollment of clinical trials and completion of clinical trials with favorable results; +• acceptance of regulatory submissions by the FDA or comparable foreign regulatory authorities for the conduct of preclinical studies and clinical trials of lorundrostat, including any proposed designs of any planned clinical studies and clinical trials of lorundrostat; +• the frequency and severity of adverse events in preclinical and clinical trials; +-34- +• maintaining relationships with preclinical vendors to ensure successful completion of preclinical studies with favorable results, including toxicology and other studies designed to be compliant with GLPs; +• maintaining and establishing relationships with contract research organizations (CROs) and clinical sites for the clinical development of lorundrostat, and ability of such CROs and clinical sites to comply with clinical trial protocols, current Good Clinical Practices (cGCPs), and other applicable requirements; +• demonstrating the safety and efficacy of lorundrostat to the satisfaction of applicable regulatory authorities, including by establishing a safety database of a size satisfactory to regulatory authorities; +• receipt and maintenance of marketing approvals from applicable regulatory authorities for the initial and any additional indications; +• maintain relationships with our third-party manufacturers and their ability to comply with cGMPs as well as making arrangements with our third-party manufacturers for, or establishing our own, commercial manufacturing capabilities at a cost and scale sufficient to support commercialization; +• establishing sales, marketing, and distribution capabilities and launching commercial sales of lorundrostat, if and when approved, whether alone or in collaboration with others; +• obtaining, establishing, maintaining, and enforcing patent and any potential trade secret protection or regulatory exclusivity for lorundrostat; +• maintaining an acceptable safety profile of lorundrostat following regulatory approval, if any; +• maintaining and growing an organization of people who can develop and, if approved, commercialize, market, and sell lorundrostat; and +• acceptance of our products, if approved, by patients, the medical community, and third-party payors. +If we are unable to develop, receive marketing approval for, and successfully commercialize lorundrostat, or if we experience delays as a result of any of the above factors or otherwise, our business would be significantly harmed. +Clinical and preclinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of prior clinical trials and studies of lorundrostat are not necessarily predictive of future results. Lorundrostat may not achieve favorable results in our nonclinical studies or clinical trials or receive regulatory approval on a timely basis, if at all. +Clinical and preclinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any clinical trials or preclinical studies will be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the trial or study process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of clinical development. The historical failure rate for product candidates in our industry is high, particularly in the earlier stages of development. +The results from preclinical studies or clinical trials of a product candidate or a competitor’s product candidate in the same class may not predict the results of later clinical trials of our product candidate, and interim, topline, or preliminary results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. For example, while we have completed +-35- +the Target-HTN Phase 2 clinical trial of lorundrostat with 200 patients who had either completed eight weeks of treatment or withdrew from the trial, this population represents a small sample size relative to our currently ongoing or future planned clinical trials. As a result, we do not know how lorundrostat will perform in currently ongoing or future clinical trials. It is not uncommon to observe results in clinical trials that are unexpected based on earlier clinical trials and preclinical studies, and many product candidates fail in clinical trials despite very promising early results. A number of companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies. Such setbacks have occurred and may occur for many reasons, including, but not limited to: clinical sites and investigators may deviate from clinical trial protocols, whether due to lack of training or otherwise, and we may fail to detect any such deviations in a timely manner; patients may fail to adhere to any required clinical trial procedures, including any requirements for post-treatment follow-up; our product candidates may fail to demonstrate effectiveness or safety in certain patient subpopulations, which has not been observed in earlier trials due to limited sample size, lack of analysis, or otherwise; or our clinical trials may not adequately represent the patient populations we intend to treat, whether due to limitations in our trial designs or otherwise, such as where one patient subgroup is overrepresented in the clinical trial. There can be no assurance that we will not suffer similar setbacks despite the data we observed in earlier or ongoing studies. Based on negative or inconclusive results, we or any future collaborator may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials, which would cause us to incur additional operating expenses and delays and may not be sufficient to support regulatory approval on a timely basis or at all. +As a result, we cannot be certain that our currently ongoing or future planned clinical trials and preclinical studies will be successful. Any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of lorundrostat in those and other indications, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Any difficulties or delays in the commencement or completion, or the termination or suspension, of our current or future clinical trials or preclinical studies could result in increased costs to us, delay or limit our ability to generate revenue, or adversely affect our commercial prospects. +Before obtaining marketing approval from regulatory authorities for the sale of lorundrostat or any future product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Before we can initiate clinical trials for any future product candidates, we must submit the results of preclinical studies to the FDA or comparable foreign regulatory authorities along with other information, including information about product candidate chemistry, manufacturing and controls, and our proposed clinical trial protocol, as part of an IND or similar regulatory submission. The FDA or comparable foreign regulatory authorities may require us to conduct additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND or similar regulatory submission, which may lead to delays and increase the costs of our preclinical development programs. Moreover, even if we commence clinical trials, issues may arise that could cause regulatory authorities to suspend or terminate such clinical trials. Any such delays in the commencement or completion, or the termination or suspension, of our ongoing and planned clinical trials or preclinical studies for lorundrostat and any future product candidate could significantly affect our product development timelines and product development costs. +We do not know whether our current or future clinical trials and preclinical studies will begin on time or be completed on schedule, if at all. The commencement, data readouts, and completion of clinical trials, and preclinical studies can be delayed for a number of reasons, including delays related to: +• inability to obtain animals or materials to initiate and generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; +• obtaining allowance from regulatory authorities to commence a trial or reaching a consensus with regulatory authorities on trial design; +-36- +• the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials; +• any failure or delay in reaching an agreement with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; +• delays in identifying, recruiting, and training suitable clinical investigators; +• obtaining approval from one or more IRBs or ECs at clinical trial sites; +• IRBs/ECs refusing to approve, suspending, or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial; +• major changes or amendments to the clinical trial protocol; +• clinical sites deviating from the trial protocol or dropping out of a trial; +• failure by our CROs to perform in accordance with cGCP requirements or applicable regulatory guidelines in other countries; +• obtaining raw materials for manufacturing sufficient quantities of lorundrostat or obtaining sufficient quantities of combination therapies or other materials needed for use in clinical trials and preclinical trials; +• obtaining adequate materials for packaging clinical trial material; +• expiration of the shelf life of clinical material for use in clinical trials prior to the enrollment of any of our clinical trials; +• subjects failing to enroll or remain in our trials at the rate we expect, or failing to return for post-treatment follow-up, including subjects failing to remain in our trials due to movement restrictions, health reasons, or otherwise resulting from any pandemic or public health concerns; +• individuals choosing an alternative product for the indications for which we are developing lorundrostat or any future product candidates, or participating in competing clinical trials; +• lack of adequate funding to continue the clinical trials, preclinical trials, manufacturing, or incurring greater costs than we anticipate; +• subjects experiencing severe or serious unexpected drug-related adverse effects; +• occurrence of serious adverse events in trials of the same class of agents conducted by other companies that could be considered similar to lorundrostat or any future product candidates; +• selection of clinical endpoints that require prolonged periods of clinical observation or extended analysis of the resulting data; +• transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization (CMO), delays or failure by our CMOs or us to make any necessary changes to such manufacturing process, or failure of our CMOs to produce clinical trial materials in accordance with cGMP regulations or other applicable requirements; and +• third parties being unwilling or unable to satisfy their contractual obligations to us in a timely manner. +-37- +In addition, disruptions caused by any pandemic or geopolitical conflicts may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting, or completing our currently ongoing or future clinical trials. +Clinical trials must be conducted in accordance with the FDA and other applicable regulatory authorities’ legal requirements, regulations, or guidelines, and are subject to oversight by these governmental agencies and ECs or IRBs at the medical institutions where the clinical trials are conducted. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a data safety monitoring board for such trial, or by the FDA or comparable foreign regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with GCP and other regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial. For example, the IRB for the lorundrostat Phase 2 clinical trial terminated one of the clinical sites due to failure to comply with the study protocol and GCP. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing, or successful completion of a clinical trial. +Further, conducting clinical trials in foreign countries, as has been done for lorundrostat and intended to be done in the future for lorundrostat or any future product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled subjects in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, and political and economic risks, including war, relevant to such foreign countries. +Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or a comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or a comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or a comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates. +In addition, many of the factors that cause, or lead to, the termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. We may make formulation or manufacturing changes to lorundrostat or any future product candidates, in which case we may need to conduct additional preclinical studies or clinical trials to bridge our modified product candidates to earlier versions. Any resulting delays to our clinical trials could shorten any period during which we may have the exclusive right to commercialize our product candidates. In such cases, our competitors may be able to bring products to market before we do, and the commercial viability of lorundrostat or any future product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition, and prospects. +-38- +We may find it difficult to enroll patients in our clinical trials. If we encounter difficulties or delays enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected. +Successful and timely completion of clinical trials will require that we identify and enroll a specified number of patients for each of our clinical trials. We may not be able to initiate or continue clinical trials for lorundrostat or any future product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Subject enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and characteristics of the patient population, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the ability to obtain and maintain informed consents, the risk that enrolled patients will not complete a clinical trial, our ability to recruit clinical trial investigators with the appropriate competencies and experience, and competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating as well as any product candidates under development. We will be required to identify and enroll a sufficient number of patients for each of our clinical trials and monitor such patients adequately during and after treatment. Potential patients for any planned clinical trials may not be adequately diagnosed or identified with the diseases that we are targeting, which could adversely impact the outcomes of our trials and could have safety concerns for the potential patients. Potential patients for any planned clinical trials may also not meet the entry criteria for such trials. +Additionally, other pharmaceutical companies targeting these same diseases are recruiting clinical trial patients from these patient populations, which may make it more difficult to fully enroll our clinical trials. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by the FDA or comparable foreign regulatory authorities. In addition, the process of finding and recruiting patients may prove costly. The timing of our clinical trials depends, in part, on the speed at which we can recruit patients to participate in our trials, as well as completion of required follow-up periods. The eligibility criteria of our clinical trials, once established, may further limit the pool of available trial participants. If patients are unwilling or unable to participate in our trials for any reason, including the existence of concurrent clinical trials for similar target populations, the availability of approved or authorized therapies, or the fact that enrolling in our trials may prevent patients from taking a different product, or we otherwise have difficulty enrolling a sufficient number of patients, the timeline for recruiting patients, conducting trials, and obtaining regulatory approval of our product candidates may be delayed. Our inability to enroll a specified number of patients for any of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. In addition, we rely on, and will continue to rely on, CROs and clinical trial sites to ensure proper and timely conduct of our clinical trials and preclinical studies. Though we have entered into agreements governing their services, we will have limited influence over their actual performance. +We cannot assure you that our assumptions used in determining expected clinical trial timelines are correct or that we will not experience delays or difficulties in enrollment, or be required by the FDA or other regulatory authorities to increase our enrollment, which would result in the delay of completion of such trials beyond our expected timelines. +Use of lorundrostat or any future product candidates could be associated with adverse side effects, adverse events, or other properties or safety risks, which could delay or preclude regulatory approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label, or result in other significant negative consequences that could severely harm our business, prospects, operating results, and financial condition. +As is the case with biopharmaceuticals generally, it is likely that there may be adverse side effects associated with lorundrostat or any future product candidates’ use. Results of our clinical trials could reveal a +-39- +high and unacceptable severity and prevalence of expected or unexpected side effects or unexpected characteristics. Undesirable side effects caused by our product candidates when used alone or in combination with approved or investigational drugs could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label, or lead to the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences could severely harm our business, prospects, operating results, and financial condition. +Moreover, if lorundrostat or any future product candidates are associated with undesirable side effects in clinical trials or demonstrate characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate if approved. We may also be required to modify our development and clinical trial plans based on findings in our ongoing clinical trials. Many compounds that initially showed promise in early-stage testing have later been found to cause side effects that prevented further development of the compounds. +It is possible that as we test lorundrostat or any future product candidates in larger, longer, and more extensive clinical trials, including with different dosing regimens, or as the use of these product candidates becomes more widespread following any regulatory approval, more illnesses, injuries, discomforts, and other adverse events than were observed in earlier trials, as well as new conditions that did not occur or went undetected in previous trials, may be discovered. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition, and prospects significantly. +In addition, if lorundrostat or any future product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including: +• regulatory authorities may withdraw, suspend, or limit approvals of such product, or seek an injunction against its manufacture or distribution; +• we may be required to recall a product or change the way such product is administered to patients; +• regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication; +• we may be required to change the way a product is distributed or administered, conduct additional clinical trials, change the labeling of a product, or be required to conduct additional post-marketing studies or surveillance; +• we could be sued and held liable for harm caused to patients; +• sales of the product may decrease significantly or the product could become less competitive; and +• our reputation may suffer. +Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects. +-40- +We may not be successful in our efforts to investigate lorundrostat in additional indications. We may expend our limited resources to pursue, acquire, or license a new product candidate or a particular indication for lorundrostat and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +Because we have limited financial and managerial resources, we focus on specific indications for lorundrostat. We may fail to generate additional clinical development opportunities for lorundrostat for a number of reasons, including that lorundrostat may in indications we are seeking or may seek in the future, on further study, be shown to have harmful side effects, limited to no efficacy, or other characteristics that suggest it is unlikely to receive marketing approval and achieve market acceptance in such additional potential indications. Our resource allocation and other decisions may cause us to fail to identify and capitalize on viable potential product candidates or additional indications for lorundrostat. Our spending on current and future research and development programs for new product candidates or additional indications for existing product candidates may not yield any commercially viable product candidates or indications. If we do not accurately evaluate the commercial potential or target market for a particular indication or product candidate, we may fail to develop such product candidate or indication, or relinquish valuable rights to that product candidate through collaborations, license agreements, and other similar arrangements in cases where it would have been more advantageous for us to retain sole development and commercialization rights to such indication or product candidate, or negotiate less advantageous terms for any such arrangements than is optimal. +Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk to us. Identifying, selecting, and acquiring promising product candidates requires substantial technical, financial, and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved products, we may spend material amounts of our capital and other resources evaluating, acquiring, and developing products that ultimately do not provide a return on our investment. +We are conducting and intend to conduct some of our clinical trials for lorundrostat outside of the United States. However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our business. +We are conducting and intend to conduct one or more of our clinical trials for our lorundrostat product candidate outside the United States. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authorities may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. We are currently conducting and plan to conduct part of our future clinical program for lorundrostat in the European Union. While data from clinical trial sites in such countries will not serve as the sole basis for FDA approval, any foreign data we use as part of any NDA submission will be subject to the foregoing FDA requirements and standards. Many foreign regulatory authorities have similar approval requirements. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, +-41- +and which may result in current or future product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted, which may increase costs or time required to complete the clinical trial. +Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with: +• additional foreign regulatory requirements; +• foreign exchange fluctuations; +• compliance with foreign manufacturing, customs, shipment, and storage requirements; +• inconsistent standards for reporting and evaluating clinical data and adverse events; +• diminished protection of intellectual property in some countries; +• political instability, civil unrest, war, or similar events that may jeopardize our ability to commence, conduct, or complete a clinical trial and evaluate resulting data; and +• any future pandemics or public health concerns. +Interim, topline, and preliminary data from our clinical trials and preclinical studies that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publicly disclose interim, topline, or preliminary data from our clinical trials and preclinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline, or preliminary results that we report may differ from future results of the same studies or trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the topline or preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available. +Interim data from clinical trials that we may complete are further subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between interim, topline, or preliminary data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. +In addition, others, including regulatory authorities, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability, or commercialization of the particular product candidate or product and our company in general. Moreover, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular drug, product candidate, or our business. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval +-42- +for, and commercialize, lorundrostat and any future product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. +Changes in methods of product candidate manufacturing or formulation may result in additional costs or delays. +As product candidates progress through clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize safety, efficacy, yield, and manufacturing batch size, minimize costs and achieve consistent quality and results. For example, the manufacturing process being used to produce clinical material for our ongoing or future clinical trials is different than that used in prior trials of lorundrostat. There can be no assurance that such changes will achieve these intended objectives. These changes and any future changes we may make to lorundrostat or any future product candidates may also cause such candidates to perform differently and affect the results of future clinical trials conducted with the altered materials. Such changes or related unfavorable clinical trial results could delay initiation or completion of additional clinical trials, require the conduct of bridging studies or clinical trials or the repetition of one or more studies or clinical trials, increase development costs, delay or prevent potential marketing approval, and jeopardize our ability to commercialize lorundrostat or any future product candidates, if approved, and generate revenue. +Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA and other government agencies to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, a government agency’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the government agency’s ability to perform routine functions. Average review times at the FDA and other government agencies have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities. +Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. While the COVID-19 pandemic is no longer having a significant disruptive impact on the FDA’s standard inspection operations of domestic and foreign manufacturing facilities, it is possible another global pandemic could result in similar issues faced during the COVID-19 pandemic. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in the future. If a prolonged government shutdown occurs, or if future global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. +Risks Related to Our Reliance on Third Parties +We heavily rely on our exclusive Mitsubishi License with Mitsubishi Tanabe to provide us with intellectual property rights to develop and commercialize lorundrostat. If the Mitsubishi License is terminated, we would lose our rights to develop and commercialize lorundrostat. +Pursuant to the Mitsubishi License with Mitsubishi Tanabe, we have, among other things, secured an exclusive, royalty-bearing license from Mitsubishi Tanabe under certain patents and know-how relating to +-43- +lorundrostat to commercialize lorundrostat globally for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to the Field. The Mitsubishi License expires on a country-by-country basis and Lorundrostat Product-by-Lorundrostat Product basis upon the expiration of the applicable royalty term with respect to each Lorundrostat Product in each country, as applicable, or in its entirety upon the expiration of the royalty term with respect to the last Lorundrostat Product commercialized in the last country, unless terminated earlier. We may terminate the Mitsubishi License in its entirety or on a Lorundrostat Product-by-Lorundrostat Product or country-by-country basis at our discretion upon (i) ninety days prior written notice to Mitsubishi Tanabe with respect to any country for which there is not a Lorundrostat Product approved by the regulatory authority; and (ii) one hundred and eighty days prior written notice to Mitsubishi Tanabe with respect to any country for which there is a Lorundrostat Product approved by the regulatory authority. We and Mitsubishi Tanabe may terminate the Mitsubishi License in the case of the other party’s insolvency, or upon prior written notice within a specified time period for the other party’s material uncured breach. Mitsubishi Tanabe may terminate the Mitsubishi License in its entirety if (i) we challenge the licensed patents, or assist any third party in challenging such patents; or (ii) have not initiated regulatory consultation for the first global clinical trials of lorundrostat in at least one major market country within a specified amount of time. In addition, if any of the regulatory milestones or other cash payments become due under the terms of the Mitsubishi License, and we do not have sufficient funds available to meet our obligations, Mitsubishi Tanabe has the right to terminate the Mitsubishi License upon our uncured failure to pay Mitsubishi Tanabe. If the Mitsubishi License is terminated, we would lose our rights to develop and commercialize lorundrostat, which in turn would have a material adverse effect on our business, financial condition, results of operations, and prospects, including, but not limited to, cessation of our operations to the extent we are unable to develop other product candidates at the time of such termination. +Additionally, pursuant to the Mitsubishi License, if we elect to sublicense our rights under the Mitsubishi License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we agreed to negotiate such a sublicense first, for a specified period of time, with Mitsubishi Tanabe, if Mitsubishi Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Mitsubishi Tanabe’s prior consent. Lastly, if Mitsubishi Tanabe is interested in obtaining rights to any product or compound other than a Lorundrostat Product, in the Field, which we may develop in the future, we are obligated to negotiate with Mitsubishi Tanabe in good faith for a certain period of time to provide it a non-exclusive, royalty-bearing license under certain of our know-how and patents to exploit such product or compound on terms and conditions to be mutually agreed to by the parties in their discretion. Accordingly, we may be obligated to enter into collaborations with Mitsubishi Tanabe in the future, even if we prefer another counterparty for strategic or other reasons, we are obligated to license certain of our future product candidates (if any) even if we would prefer to retain the use of such intellectual property, and we may not commercialize competing products for a certain period of time, even if we believe this presents a commercial opportunity. For additional information on the Mitsubishi License, see “ Business—License Agreement with Mitsubishi Tanabe .” +We rely on and intend to continue to rely on third parties to conduct, supervise, and monitor our clinical trials and preclinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements, or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize lorundrostat and any future product candidates may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects. +We are dependent on third parties to conduct our clinical trials and preclinical studies. Specifically, we rely on, and intend to continue to rely on, medical institutions, clinical investigators, CROs, and consultants to conduct preclinical studies and clinical trials, in each case in accordance with our clinical protocols and regulatory requirements. These CROs, investigators, and other third parties play a significant role in the conduct and timing of these trials and subsequent collection and analysis of data. Though we expect to carefully manage our relationships with our CROs, investigators, and other third parties, there can be no assurance that we will +-44- +not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects. Further, while we have and will have agreements governing the activities of our third-party contractors, we have limited influence over their actual performance. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol and legal, regulatory, and scientific standards and requirements, and our reliance on our CROs and other third parties does not relieve us of our regulatory responsibilities. In addition, we and our CROs are required to comply with GLP and GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for lorundrostat and any future product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of our CROs or trial sites fail to comply with applicable GLP or GCP or other requirements, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. For example, the conduct of the lorundrostat Phase 2 clinical trial at one of our clinical sites was terminated by the IRB following our report to the IRB regarding such site’s failure to comply with GCP, which we observed during one of our routine clinical site inspections. Furthermore, our clinical trials must be conducted with products produced under cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. +There is no guarantee that any of our CROs, investigators, or other third parties will devote adequate time and resources to such trials or studies or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols, or meet regulatory requirements, or otherwise perform in a substandard manner, our clinical trials may be extended, delayed, or terminated. In addition, many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other development activities that could harm our competitive position. In addition, principal investigators for our clinical trials are expected to serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA of any NDA we submit. Any such delay or rejection could prevent us from receiving regulatory approval for, or commercializing lorundrostat and any future product candidates. +Our CROs have the right to terminate their agreements with us in the event of an uncured material breach and under other specified circumstances. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, in a timely manner or at all. Switching or adding additional CROs, investigators, and other third parties involves additional cost and requires our management’s time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we work to carefully manage our relationships with our CROs, investigators, and other third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects. +We currently rely on a third party for the manufacture of lorundrostat for clinical development and expect to continue to rely on third parties for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of lorundrostat or such quantities at an acceptable cost, which could delay, prevent, or impair our development or potential commercialization efforts. +We do not own or operate manufacturing facilities and have no plans to develop our own clinical or commercial-scale manufacturing capabilities. We rely on a third party and expect to continue to rely on third parties for the manufacture of lorundrostat and related raw materials for clinical development, as well as for +-45- +commercial manufacture if lorundrostat or any future product candidates receive marketing approval. The facilities used by third-party manufacturers to manufacture lorundrostat must be approved by the FDA and any comparable foreign regulatory authority pursuant to inspections that will be conducted after we submit an NDA to the FDA or any comparable submission to a foreign regulatory authority. We do not control the manufacturing process of, and are completely dependent on, third-party manufacturers for compliance with cGMP requirements for manufacture of products. If these third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or any comparable foreign regulatory authority, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance, and qualified personnel. If the FDA or any comparable foreign regulatory authority does not approve these facilities for the manufacture of lorundrostat or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for, or market lorundrostat, if approved. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension, or withdrawal of approvals, seizures or recalls of lorundrostat or products, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of our products. +Our or a third party’s failure to execute on our manufacturing requirements on commercially reasonable terms, in a timely manner, and in compliance with cGMP or other regulatory requirements could adversely affect our business in a number of ways, including: +• an inability to initiate or continue clinical trials of lorundrostat or any future product candidates; +• delay in submitting regulatory applications, or receiving marketing approvals, for lorundrostat or any future product candidates; +• subjecting third-party manufacturing facilities or our potential future manufacturing facilities to additional inspections by regulatory authorities; +• requirements to cease development or to recall batches of lorundrostat or any future product candidates; and +• in the event of approval to market and commercialize lorundrostat or any future product candidates, an inability to meet commercial demands for lorundrostat or any future product candidates. +In addition, we do not have any long-term commitments or supply agreements with any third-party manufacturers. We may be unable to establish any long-term supply agreements with third-party manufacturers or to do so on acceptable terms, which increases the risk of failing to timely obtain sufficient quantities of lorundrostat or such quantities at an acceptable cost. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: +• failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance; +• breach of the manufacturing agreement by the third party; +• failure to manufacture our product according to our specifications; +• failure to obtain adequate raw materials and other materials required for manufacturing; +• failure to manufacture our product according to our schedule or at all; +• failure to successfully scale up manufacturing capacity, if required; +-46- +• misappropriation of our proprietary information, including any potential trade secrets and know-how; and +• termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. +Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval, or jeopardize our ability to commence or continue commercialization of lorundrostat or any future product candidates, and any related remedial measures may be costly or time-consuming to implement. We do not currently have arrangements in place for redundant supply or a second source for all required raw materials used in the manufacture of our product candidates. If our existing or future third-party manufacturers cannot perform as agreed, we may be required to replace such manufacturers and we may be unable to replace them on a timely basis or at all. Without additional suppliers of required raw materials, we may also be unable to meet the commercial needs of a commercial launch of any future product candidates. +In addition, our current and anticipated future dependence upon others for the manufacture of lorundrostat and any future product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. +Our reliance on third parties requires us to share potential trade secrets, which increases the possibility that a competitor or other third party will discover them or that potential trade secrets will be misappropriated or disclosed. +Because we currently rely on a third party to manufacture lorundrostat and to perform quality testing, we must, at times, share our proprietary technology and confidential information, including potential trade secrets, with them. We seek to protect our proprietary technology, in part, by entering into confidentiality agreements, and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employees, and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third party to use or disclose our confidential information, including any potential trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors or other third parties, are intentionally or inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and despite our efforts to protect any potential trade secrets, a competitor’s or other third party’s discovery of our proprietary technology and confidential information or other unauthorized use or disclosure of such technology or information would impair our competitive position and may have a material adverse effect on our business, financial condition, results of operations, and prospects. +We may seek to enter into collaborations, license agreements, and other similar arrangements and may not be successful in doing so, and even if we are, we may relinquish valuable rights and may not realize the benefits of such relationships, and our collaborations would be subject to other risks attendant to third party relationships, including inability to prevent or control actions taken or not taken by such third parties which may adversely impact us. +We may seek to enter into collaborations, joint ventures, license agreements, and other similar arrangements for the development or commercialization of lorundrostat and any future product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints. We may not be successful in our efforts to establish or maintain such collaborations because our research and development pipeline may be insufficient, lorundrostat or any future product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time-consuming and complex. Even if we are successful in our efforts to establish such collaborations, +-47- +the terms that we agree upon may not be favorable to us. For example, we may need to relinquish valuable rights to our future revenue streams, research programs, intellectual property, or product candidates, or grant licenses on terms that may not be favorable to us, as part of any such arrangement, and such arrangements may restrict us from entering into additional agreements with other potential collaborators. In addition, if we enter into such collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on any future collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot be certain that, following a collaboration, license, or strategic transaction, we will achieve an economic benefit that justifies such transaction. +Furthermore, we may not be able to maintain such collaborations if, for example, the development or approval of a product candidate is delayed, the safety of a product candidate is questioned, or the sales of an approved product candidate are unsatisfactory. +Collaborations involving lorundrostat or any future product candidates would pose significant risks to us, including the following: +• collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; +• collaborators may not perform their obligations as expected or at all; +• we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; +• collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing; +• collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; +• product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or drugs, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; +• a collaborator with marketing and distribution rights to any product candidate that achieves regulatory approval may not commit sufficient resources to the marketing and distribution of such products; +• a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws, resulting in civil or criminal proceedings; +• disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development, might cause delays in or termination of the research, development, or commercialization of product candidates, might lead to additional +-48- +responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; +• collaborators may not properly enforce, maintain, or defend our or their intellectual property rights or may use our or their proprietary information in such a way as to invite litigation that could jeopardize or invalidate such intellectual property or proprietary information or expose us to potential litigation; +• collaborators may infringe, misappropriate, or otherwise violate the intellectual property rights of third parties, which may expose us to litigation and potential liability; +• collaborators may not provide us with timely and accurate information regarding development, regulatory, or commercialization status or results, which could adversely impact our ability to manage our own development efforts, accurately forecast financial results, or provide timely information to our stockholders regarding our out-licensed product candidates; +• we may be required to invest resources and attention into such collaboration, which could distract from other business objectives; +• disputes may arise between the collaborators and us regarding ownership of or other rights in the intellectual property generated in the course of the collaborations; +• collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all; +• if a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished, or terminated; and +• collaborations may be terminated, including for the convenience of the collaborator, prior to or upon the expiration of the agreed-upon terms and, if terminated, we may find it more difficult to enter into future collaborations or be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. +Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to lorundrostat or any future product candidates, could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Risks Related to Commercialization of Lorundrostat and any Future Product Candidates +Even if we receive regulatory approval for lorundrostat or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, lorundrostat and any future product candidates, if approved, could be subject to labeling and other restrictions on marketing or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved. +Any regulatory approvals that we may receive for lorundrostat or any future product candidates will require the submission of reports to regulatory authorities, subject us to surveillance to monitor the safety and efficacy of the product, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions, or contraindications, and may include burdensome post-approval study or risk management requirements. For example, the FDA may require a REMS as a condition of approval of lorundrostat or any future product candidates, which could include requirements for a medication guide, physician communication plans, or additional elements to ensure safe use, such as restricted distribution +-49- +methods, patient registries, and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves lorundrostat or any future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs requirements for any clinical trials that we conduct post-approval. Manufacturers of approved products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and standards. Failure to comply with regulatory requirements or later discovery of previously unknown problems with our products, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, may result in, among other things: +• restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market, or voluntary or mandatory product recalls; +• restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials; +• restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials; +• fines, restitutions, disgorgement of profits or revenue, warning letters, untitled letters, adverse publicity requirements, or holds on clinical trials; +• refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications submitted by us or suspension or revocation of approvals; +• product seizure or detention, or refusal to permit the import or export of our products; and +• injunctions and the imposition of civil or criminal penalties. +The occurrence of any event or penalty described above may inhibit our ability to commercialize lorundrostat or any future product candidates and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity. +The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit, or delay marketing authorization of any product candidates we develop. We also cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability. +The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. +The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as lorundrostat or any future product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for lorundrostat or any future product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The government has also required companies to enter into consent decrees or imposed permanent injunctions +-50- +under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of lorundrostat or any future product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition. +The commercial success of lorundrostat or any future product candidates will depend upon the degree of market acceptance of such product candidates by healthcare providers, product recipients, healthcare payors, and others in the medical community. If lorundrostat or any future product candidates fail to achieve the broad degree of adoption by the medical community necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent, or limit our ability to generate revenue and continue our business. +Lorundrostat and any future product candidates may not be commercially successful. Even if lorundrostat or any future product candidates receive regulatory approval, they may not gain market acceptance among healthcare providers, individuals within our target population, healthcare payors, and others in the medical community. The commercial success of lorundrostat or any future product candidates will depend significantly on the broad adoption and use of the resulting product by these individuals and organizations for approved indications. The degree of market acceptance of our products will depend on a number of factors, including: +• demonstration of clinical efficacy and safety, including as compared to any more-established products; +• the indications for which our product candidates are approved; +• the limitation of our targeted patient population and other limitations or warnings contained in any FDA-approved labeling; +• acceptance of a new drug for the relevant indication by healthcare providers and their patients; +• the pricing and cost-effectiveness of our products, as well as the cost of treatment with our products in relation to alternative treatments and therapies; +• our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government healthcare programs, including Medicare and Medicaid, private health insurers, and other third-party payors; +• the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient third-party coverage and adequate reimbursement; +• any restrictions on the use of our products, and the prevalence and severity of any adverse effects; +• potential product liability claims; +• the timing of market introduction of our products as well as availability, safety, and efficacy of competitive drugs; +• the effectiveness of our or any potential future collaborators’ sales and marketing strategies; and +• unfavorable publicity relating to the product. +If lorundrostat or any future product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors, or patients, we may not generate sufficient revenue from that product and may not become or remain profitable. Our efforts to educate the medical community and third-party payors regarding the benefits of our products may require significant resources and may never be successful. +-51- +The successful commercialization of lorundrostat or any future product candidates, if approved, will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels, and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our products could limit our ability to market those products and decrease our ability to generate revenue. +The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers, and other third-party payors are essential for most patients to be able to afford prescription medications such as lorundrostat and any future product candidates, if approved. Our ability to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an effect on our ability to successfully commercialize those products. Accordingly, we will need to successfully implement a coverage and reimbursement strategy for any approved product candidate. Even if we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. +If we participate in the Medicaid Drug Rebate Program or other governmental pricing programs, in certain circumstances, our products would be subject to ceiling prices set by such programs, which could reduce the revenue we may generate from any such products. Participation in such programs would also expose us to the risk of significant civil monetary penalties, sanctions, and fines should we be found to be in violation of any applicable obligations thereunder. +For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. We cannot be sure that coverage and reimbursement in the United States, the European Union, or elsewhere will be available, or at an acceptable level, for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future. +Third-party payors increasingly are challenging prices charged for biopharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our products as substitutable and only offer to reimburse patients for the less expensive product. Even if we are successful in demonstrating improved efficacy or improved convenience of administration with our products, pricing of existing drugs may limit the amount we will be able to charge for our products. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our products and may not be able to obtain a satisfactory financial return on products that we may develop. +There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for lorundrostat and any future product candidates. +Obtaining and maintaining reimbursement status is time-consuming, costly, and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage +-52- +determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently and, in some cases, at short notice, and we believe that changes in these rules and regulations are likely. +Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing and usage of our products candidates, if approved in these jurisdictions. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products. Accordingly, in markets outside the United States, if any, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our products. We expect to experience pricing pressures in connection with the sale of any of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, and prescription drugs, surgical procedures, and other treatments in particular, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. +We face significant competition, and if our competitors develop and commercialize technologies or product candidates more rapidly than we do, or their technologies or product candidates are more effective, safer, or less expensive than lorundrostat and any future product candidates we develop, our business and our ability to develop and successfully commercialize products will be adversely affected. +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Our competitors have developed, are developing, or may develop products, product candidates, and processes competitive with lorundrostat. Lorundrostat and any future product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Our competitors include larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. We also compete with these organizations to recruit management, scientists, and clinical development personnel, and our inability to compete successfully could negatively affect our level of expertise and our ability to execute our business plan. We will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials, and identifying and in-licensing intellectual property related to new product candidates, as well as entering into collaborations, joint ventures, license agreements, and other similar arrangements. For example, Boehringer Ingelheim International and AstraZeneca have recently initiated large-scale clinical trials for the treatment of hypertension and CKD, which could impact our ability to enroll patients in our clinical trials for the same indications. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma and CORXEL; +-53- +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than we do. If we successfully obtain approval for lorundrostat or any future product candidate, we will face competition based on many different factors, including the safety and effectiveness of our products, the ease with which our products can be administered, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage, and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, more convenient, less expensive, or marketed and sold more effectively than any products we may develop. Competing products may render lorundrostat or any future product candidates we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. If we are unable to compete effectively, our opportunity to generate revenue from the sale of the products we may develop, if approved, could be adversely affected. +We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may need to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue. +We have no internal sales, marketing, or distribution capabilities, nor have we commercialized a product. If lorundrostat or any future product candidate ultimately receives regulatory approval, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize each such product in major markets, which will be expensive and time-consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We have no prior experience as a company with the marketing, sale, or distribution of biopharmaceutical products and there are significant risks involved in the building and managing of a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing, and distribution functions on acceptable financial terms, or at all. In addition, our product revenue and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell, and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing our products, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses. +If the market opportunities for lorundrostat and any future product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer. +The precise incidence and prevalence for all the conditions we aim to address with lorundrostat or any future product candidates are unknown. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on a number of internal and third-party estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations, or +-54- +market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of these indications. While we believe our assumptions and the data underlying our estimates are reasonable, we have not independently verified the accuracy of the third-party data on which we have based our assumptions and estimates, and these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, including as a result of factors outside our control, thereby reducing the predictive accuracy of these underlying factors. The total addressable market across all of the potential indications for lorundrostat and any future product candidates will ultimately depend upon, among other things, the diagnosis criteria included in the final label for each such product candidate which receives marketing approval for these indications, the availability of alternative treatments and the safety, convenience, cost, and efficacy of such product candidates relative to such alternative treatments, acceptance by the medical community and patient access, drug pricing, and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with lorundrostat or any future product candidates, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our business, financial condition, and results of operations. +Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. +Our future growth may depend, in part, on our ability to develop and commercialize lorundrostat and any future product candidates in foreign markets. We are not permitted to market or promote any product candidate before we receive regulatory approval from applicable regulatory authorities in foreign markets, and we may never receive such regulatory approvals for lorundrostat or any future product candidates. To obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, pricing, and distribution of lorundrostat and any future product candidates. Approval procedures may be more onerous than those in the United States and may require that we conduct additional preclinical studies or clinical trials. If we obtain regulatory approval of product candidates and ultimately commercialize our products in foreign markets, we would be subject to additional risks and uncertainties, including: +• different regulatory requirements for approval of drugs in foreign countries; +• reduced protection for intellectual property rights; +• the existence of additional third-party patent rights of potential relevance to our business; +• unexpected changes in tariffs, trade barriers, and regulatory requirements; +• economic weakness, including inflation, or political instability in particular foreign economies and markets; +• compliance with export control and import laws and regulations; +• compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; +• foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; +• foreign reimbursement, pricing, and insurance regimes; +• workforce uncertainty in countries where labor unrest is common; +• differing regulatory requirements with respect to manufacturing of products; +-55- +• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; +• business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, and fires; and +• disruptions resulting from the impact of public health pandemics, epidemics, or other public health concerns. +Risks Related to Our Business Operations and Industry +Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide. +Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: +• the timing and cost of, and level of investment in, research, development, regulatory approval, and commercialization activities relating to lorundrostat or any future product candidates, which may change from time to time; +• the timing and success or failure of preclinical studies or clinical trials for lorundrostat or any future product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; +• coverage and reimbursement policies with respect to lorundrostat or any future product candidates, if approved, and potential future drugs that compete with our products; +• expenditures that we may incur to acquire, develop, or commercialize additional product candidates and technologies; +• the level of demand for any approved products, which may vary significantly; +• future accounting pronouncements or changes in our accounting policies; +• the timing and amount of any milestone, royalty, or other payments payable by us or due to us under any collaboration, licensing, or other similar agreement; and +• changes in general market and economic conditions. +The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. +This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide. +-56- +We are dependent on the services of our management and other clinical and scientific personnel, and if we are not able to retain these individuals or recruit additional management or clinical and scientific personnel, our business will suffer. +Our success depends in part on our continued ability to attract, retain, and motivate highly qualified management, clinical, and scientific personnel. We are highly dependent upon our senior management, as well as our senior scientists and other members of our management team. The loss of services of any of these individuals could delay or prevent the successful development of lorundrostat or any future product candidates, initiation or completion of our clinical trials and preclinical studies, regulatory approvals, or the commercialization of lorundrostat or any of our product candidates. Although we have executed employment letters with each member of our senior management team, these agreements are terminable at will with or without notice and, therefore, we may not be able to retain their services as expected. We do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals. +In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived benefits of our stock awards decline, it may harm our ability to recruit and retain highly skilled employees. Our employees may be more likely to leave us if the shares they own have significantly appreciated in value relative to the original purchase prices of the shares, or if the exercise prices of the options that they hold are significantly below the market price of our common stock. +We will need to expand and effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts. We may not be successful in maintaining our unique company culture and continuing to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biopharmaceutical, biotechnology, and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, integrate, retain, and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital, and our ability to implement our business strategy. +We will need to develop and expand our organization, and we may encounter difficulties in managing our growth and expanding our operations successfully, which could disrupt our operations. +As of December 31, 2024, we had 51 full-time employees, of whom 39 were primarily engaged in research and development. As we continue development and pursue the potential commercialization of lorundrostat and any future product candidates, and as we continue operating as a public company, we will need to continue to expand our financial, accounting, development, regulatory, manufacturing, information technology, marketing, and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers, and other third parties, and we may not be successful in doing so. Our future financial performance and our ability to develop and commercialize lorundrostat and any future product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. +We are subject to various U.S. federal, state, and foreign healthcare laws and regulations, which could increase compliance costs, and our failure to comply with these laws and regulations could harm our results of operations and financial condition. +Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers expose us to broadly applicable foreign, federal, and state fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, +-57- +including how we research, market, sell, and distribute any products for which we obtain marketing approval. Such laws include: +• the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item, or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; +• the federal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; +• the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items, or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (CMS), information related to payments and other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants, and certified nurse-midwives), and teaching hospitals and other healthcare providers, as well as ownership and investment interests held by such healthcare professionals and their immediate family members; and +• analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; some state laws that require biotechnology companies to report information on the pricing of certain drug products; and some state and local laws that require the registration or pharmaceutical sales representatives. +-58- +Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare and privacy laws and regulations will involve ongoing substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government-funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits, and future earnings and the curtailment or restructuring of our operations. Defending against any such actions can be costly and time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with applicable laws or regulations, they may be subject to significant criminal, civil, or administrative sanctions, including exclusions from government-funded healthcare programs. +Recently enacted legislation, future legislation, and healthcare reform measures may increase the difficulty and cost for us to obtain marketing approval for and commercialize lorundrostat and any future product candidates and may affect the prices we may set. +In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. +For example, in March 2010, the ACA was enacted in the United States. The ACA established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; expanded eligibility criteria for Medicaid programs; expanded the entities eligible for discounts under the 340B drug pricing program; increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and establishes a Center for Medicare & Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending. +Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA, and on June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden had issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the healthcare reform measures will impact our business. +In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory cap on the Medicaid drug rebate, currently set at 100% of a drug’s AMP, beginning January 1, 2024. Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of +-59- +the rising cost of prescription drugs. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for products. Most recently, the IRA included a number of significant drug pricing reforms, which include the establishment of a drug price negotiation program within HHS (beginning in 2026) that requires manufacturers to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers under Medicare Parts B and D to penalize price increases that outpace inflation (first due in 2023), and a redesign of the Part D benefit, as part of which manufacturers are required to provide discounts on Part D drugs (beginning in 2025). The IRA permits the HHS Secretary to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Additional drug pricing proposals could appear in future legislation. +At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition, and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for lorundrostat and any future product candidates, if approved, or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition, and prospects. +We expect that these new laws and other healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies, and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize lorundrostat and any future product candidates, if approved. +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit, delay, or cease commercialization of our products. +We face an inherent risk of product liability as a result of the clinical trials of lorundrostat and any future product candidates and will face an even greater risk if we commercialize our product candidates, especially if our products are prescribed for off-label uses (even if we do not promote such uses). For example, we may be sued if our product candidates allegedly cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing, or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability, and a breach of warranties. Claims may be brought against us by clinical trial participants, patients, or others using, administering, or selling products that may be approved in the future. Claims could also be asserted under state consumer protection acts. +If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit, delay, or cease the commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: +• decreased demand for our products; +• injury to our reputation and significant negative media attention; +-60- +• withdrawal of clinical trial participants; +• costs to defend the related litigation; +• a diversion of our management’s time and our resources; +• substantial monetary awards to trial participants or product recipients; +• product recalls, withdrawals, or labeling, marketing, or promotional restrictions; +• significant negative financial impact; +• the inability to commercialize lorundrostat or any future product candidates; and +• a decline in our stock price. +We currently hold approximately $10.0 million in product liability insurance coverage in the aggregate. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of lorundrostat or any future product candidates. Insurance coverage is increasingly expensive. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of lorundrostat or any future product candidates. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. +Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities. +We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include property, general liability, employment benefits liability, business automobile, workers’ compensation, products liability, malicious invasion of our electronic systems, directors’ and officers’, and employment practices insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. No assurance can be given that an insurance carrier will not seek to cancel or deny coverage after a claim has occurred. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations. +We and any of our potential future collaborators will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business. +If we or any of our potential future collaborators are successful in commercializing our products, the FDA and foreign regulatory authorities would require that we and such collaborators report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any of our potential future collaborators or CROs may fail to report adverse events within the prescribed timeframe. If we or any of our potential future collaborators or CROs fail to comply with such reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products. +-61- +We and our service providers may be subject to a variety of privacy and data security laws and contractual obligations, which could increase compliance costs, and our actual or perceived failure to comply with such laws and obligations could subject us to potentially significant liability, fines, or penalties and otherwise harm our business. +We and our service providers maintain and will maintain a large quantity of sensitive information, including confidential business and patient health information, in connection with our preclinical studies and clinical trials, and are subject to laws and regulations governing the privacy and security of such information. The global data protection landscape is rapidly evolving, and we and our service providers may be affected by or subject to new, amended, or existing laws and regulations in the future, including as our operations continue to expand or if we operate in foreign jurisdictions. These laws and regulations may be subject to differing interpretations, which adds to the complexity of processing personal data. Guidance on implementation and compliance practices is often updated or otherwise revised. This may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use, share, and otherwise process personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability, or impose additional costs on us. The cost of compliance with these laws, regulations, and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state, or foreign laws or regulation, our internal policies and procedures, or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties, and damage to our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, numerous federal and state laws and regulations, including health information privacy laws, data breach notification laws, and consumer protection laws (e.g., Section 5 of the Federal Trade Commission (FTC) Act), govern the collection, use, storage, transfer, disclosure, protection, and other processing of health-related and other personal information could apply to our operations or the operations of our collaborators and third-party providers. Depending on the facts and circumstances, we could be subject to significant penalties if we violate HIPAA. +In addition, certain state laws govern the processing, collection, use, disclosure, transfer, storage, disposal, and protection of health-related and other personal information in certain circumstances. These state law protections are different and, in some cases, may be more stringent, broader in scope, or offer greater individual rights with respect to protected health information than HIPAA. These laws are evolving rapidly and may differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. By way of example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (CCPA), gives California residents individual privacy rights to access and delete their personal information, opt out of certain personal information sharing, limit the use of their sensitive personal information, and receive detailed information about how their personal information is used. Of particular relevance to our business, the CCPA imposes detailed obligations regarding collection, use, and disclosure of personal information of employees, job applicants, and business contacts in addition to consumers. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches. The CCPA also established a new California agency, the California Privacy Protection Agency, which is authorized to issue new substantive regulations and has independent enforcement power alongside the California Attorney General. These additional rights and the establishment of an agency with independent enforcement powers are expected to increase data breach litigation and government enforcement activity in California. Comprehensive privacy legislation similar to the CCPA has been adopted in other U.S. states including Colorado, Connecticut, Kentucky, Maryland, Minnesota, Montana, New Jersey, New Hampshire, Nevada, Oregon, Rhode Island, Tennessee, Texas, Utah, and Virginia. In the event that we are subject to or +-62- +affected by HIPAA, the CCPA, or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. +In addition to the state comprehensive data privacy laws, recent years have brought substantial changes to the federal and state treatment of non-HIPAA consumer health information. At the federal level, the FTC brought three enforcement actions in 2023 against a range of companies that handle electronic health information relating to collection and disclosure of non-HIPAA covered consumer health information under Section 5 of the FTC Act, two of which included allegations made under the FTC’s Health Breach Notification Rule (HBNR). The FTC’s focus on health information continued in 2024 with changes to the HBNR that clarified its scope and emphasized applicability to non-HIPAA health care providers as well as three additional enforcement actions against companies for their use of health information for advertising purposes. At the state level, Washington and Nevada have adopted significant new legislation addressing businesses treatment of consumer health information, and Connecticut added more stringent protections for health information to its existing comprehensive state privacy law. In both Washington’s and Nevada’s laws, there are restrictive provisions limiting collection and disclosure of consumer health information, and Washington’s law provides a separate private right of action for violations. +There also are a wide variety of privacy laws in other countries that may impact our operations, now or in the future. For example, in Europe, the General Data Protection Regulation (GDPR) imposes stringent requirements regarding the collection, use, disclosure, storage, transfer, or other processing of personal data of individuals within the European Economic Area (EEA), including providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenue of the noncompliant company, whichever is greater. The GDPR also confers a private right of action in some circumstances on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Among other things, the GDPR requires the establishment of a lawful basis for the processing of data, imposes requirements relating to the consent of the individuals to whom the personal data relates, including detailed notices for clinical trial subjects and investigators, as well as requirements regarding the security of personal data and notification of data processing obligations to the competent national data processing authorities. In addition, the GDPR increases the scrutiny of transfers of personal data from the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. For example, on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-US Privacy Shield Framework (Privacy Shield) under which personal data could be transferred from the EEA to United States entities that had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on the standard contractual clauses alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals, and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The European Commission issued revised standard contractual clauses on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised standard contractual clauses must be used for relevant new data transfers beginning on September 27, 2021 and existing standard contractual clauses arrangements were required to be migrated to the revised clauses by December 27, 2022. The new standard contractual clauses apply only to the transfer of personal data outside of the EEA and not the United Kingdom; the United Kingdom’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021 and the United Kingdom standard contractual clauses came +-63- +into force in March 2022, with a two-year grace period. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints, and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location, or segregation of our relevant systems and operations, and could adversely affect our financial results. +Further, following the withdrawal of the United Kingdom from the European Union and the EEA and the end of the transition period, from January 1, 2021, we have to comply with the GDPR and separately the GDPR as implemented in the United Kingdom, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR and has the ability to fine up to the greater of €20 million/£17 million or 4% of global turnover. The relationship between the United Kingdom and the European Union and the EEA in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term. The European Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from European Union member states to the United Kingdom without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews or extends that decision, which could have implications for our transfer of personal data. +In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these security standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security, and data breaches. Laws in all U.S. states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. +Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, store, use, transfer, disclose, and otherwise process data, update our data privacy and security policies and procedures, or in some cases, impact our ability to operate in certain jurisdictions. Failure by us or our collaborators and our service providers to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose such information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend, could result in adverse publicity and adversely affect our business, financial condition, results of operations, and prospects. Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects. +-64- +Our internal information technology systems, or those of any of our service providers, may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption of our product development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business. +We are increasingly dependent upon information technology systems, infrastructure, and data to operate our business. In the ordinary course of business, we collect, store, and transmit confidential information (including but not limited to intellectual property, proprietary business information, and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. +Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. These attacks can present meaningful risks to our operations, data, and commercial information. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence. It is not possible to prevent all cybersecurity threats to our information technology systems and information and those of our third-party service providers, over which we exert less control, and any controls we implement to do so may prove to be ineffective. +Any security breach or other incident, whether actual or perceived, could impact our reputation and/or operations, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers. For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We also rely on a third party to manufacture lorundrostat, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any actual or perceived disruption or security breach affects our systems (or those of our third-party collaborators, service providers, contractors, or consultants) or were to result in a loss of or accidental, unlawful, or unauthorized access to, use of, release of, or other processing of personally identifiable information, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development and commercialization of lorundrostat or any future product candidates could be delayed, and we could be subject to significant fines, penalties, or liabilities for any noncompliance to certain privacy and security laws. +Further, despite the implementation of security measures, our internal technology systems (including infrastructure) and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, computer viruses, cybersecurity threats (such as ransomware attacks, denial-of-service attacks, cyber-attacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks), unauthorized access or use, natural disasters, terrorism, war, and telecommunication and electrical failures. Such information technology systems are additionally vulnerable to security incidents from inadvertent or intentional actions by our employees, contractors, consultants, or other third parties. We and certain of our service providers are from time to time subject to cyberattacks and security incidents and we experienced security incidents in the past and may experience security incidents in the future. If a significant system failure, accident, or security breach were to occur, it may cause interruptions in our operations or result in the unauthorized disclosure of or access to personally identifiable information or individually identifiable health information, and +-65- +result in a material disruption of our development programs and our business operations, whether due to a loss of any potential trade secrets or other similar disruptions. Although we currently hold cybersecurity insurance, the costs related to significant security breaches or disruptions could be material and cause us to incur significant expenses. +We have also outsourced elements of our information technology infrastructure, and as a result, a number of third-party vendors may or could have access to our confidential information. If our third-party vendors fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage. If the information technology systems of our third-party vendors and other contractors and consultants become subject to disruptions or security breaches, we may have insufficient recourse against such third parties, and we may have to expend significant resources to mitigate the impact of such an event and develop and implement protections to prevent future events of this nature from occurring. Some of the federal, state, and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular categories of personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. +Our business could be affected by litigation, government investigations, and enforcement actions. +We currently operate in a number of jurisdictions in a highly regulated industry and we could be subject to litigation, government investigation, and enforcement actions on a variety of matters in the United States or foreign jurisdictions, including, without limitation, intellectual property, regulatory, product liability, environmental, whistleblower, false claims, privacy, anti-kickback, anti-bribery, securities, commercial, employment, and other claims and legal proceedings which may arise from conducting our business. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief, and/or other sanctions against us, and remediation of any such findings could have an adverse effect on our business operations. +Legal proceedings, government investigations, and enforcement actions can be expensive and time-consuming. An adverse outcome resulting from any such proceedings, investigations, or enforcement actions could result in significant damages awards, fines, penalties, exclusion from the federal healthcare programs, healthcare debarment, injunctive relief, product recalls, reputational damage, and modifications of our business practices, which could have a material adverse effect on our business and results of operations. Even if such a proceeding, investigation, or enforcement action is ultimately decided in our favor, the investigation and defense thereof could require substantial financial and management resources. +Our employees and independent contractors, including principal investigators, CROs, consultants, and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could harm our business, financial condition, and results of operations. +We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs, consultants, and vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct, or disclosure of unauthorized activities to us that violate: (i) the laws and regulations of the FDA and other similar regulatory requirements, including those laws that require the reporting of true, complete, and accurate information to such authorities, (ii) manufacturing standards, including cGMP requirements, (iii) federal and state data privacy, security, fraud, and abuse and other healthcare laws and regulations in the United States and abroad, (iv) laws that require the true, complete, and accurate reporting of financial information or data, or (v) laws that prohibit insider trading. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our +-66- +reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal, and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements, and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. +We may engage in strategic transactions that could increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, subject us to other risks, adversely affect our liquidity, increase our expenses, and present significant distractions to our management. +Although we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so, from time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases, and out-licensing or in-licensing of intellectual property, products, or technologies. Additional potential transactions that we may consider in the future include a variety of business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations, and investments. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. Any future transactions could increase our near and long-term expenditures, result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses, or acquired in-process research and development expenses, any of which could affect our financial condition, liquidity, and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. These transactions may never be successful and may require significant time and attention of our management. In addition, the integration of any business that we may acquire in the future may disrupt our existing business and may be a complex, risky, and costly endeavor for which we may never realize the full benefits. Furthermore, we may experience losses related to investments in other companies, including as a result of failure to realize expected benefits or the materialization of unexpected liabilities or risks, which could have a material negative effect on our results of operations and financial condition. Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature described above, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition, and prospects. +Our ability to use net operating loss carryforwards and other tax attributes may be limited. +We have incurred substantial losses during our history, do not expect to become profitable in the near future, and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any (subject to limitations), until such unused losses expire (if at all). As of December 31, 2024, we had net operating loss (NOL) carryforwards of approximately $69.0 million for federal income tax purposes and $17.2 million for state income tax purposes. Our federal NOL carryforwards will not expire but may generally only be used to offset 80% of taxable income, which may require us to pay federal income taxes in future years despite generating federal NOL carryforwards in prior years. Our state NOL carryforwards begin to expire in various amounts in 2041. +In addition, our NOL carryforwards and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Furthermore, in general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, our federal NOL carryforwards may become subject to +-67- +an annual limitation in the event we have in the future an “ownership change.” For these purposes, an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. We have recorded a full valuation allowance related to our NOL carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. +Inflation could adversely affect our business and results of operations. +While inflation in the United States has been relatively low in recent years, the economy in the United States encountered a material level of inflation since 2021. Although inflation eased somewhat in 2024, it has raised our costs for commodities, labor, materials, and services and other costs required to grow and operate our business, and failure to secure these on reasonable terms may adversely impact our financial condition. Additionally, increases in inflation, along with public health concerns, geopolitical developments, and global supply chain disruptions, have caused, and may in the future cause, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly, or dilutive for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse impact on our financial condition, results of operations, or cash flows. +Risks Related to Our Intellectual Property +If we are unable to obtain, maintain, and enforce patent or other intellectual property protection for lorundrostat or any future product candidates or technology, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize lorundrostat or any future product candidates may be adversely affected. +We rely upon a combination of patents, trademarks, and in-licenses of intellectual property rights to protect the intellectual property related to lorundrostat and any future product candidates and technologies to prevent third parties from copying and surpassing our achievements, thus eroding our competitive position in our market. These legal measures afford only limited protection, and competitors or others may gain access to or use our intellectual property and proprietary information. Our success depends in large part on our ability to obtain, maintain, expand, enforce, and defend the scope of our intellectual property protection in the United States and other countries with respect to our product candidates and other proprietary technologies we may develop. We generally seek to protect our proprietary position, in part, by filing patent applications in the United States and abroad relating to lorundrostat and any future product candidates, manufacturing processes, and methods of use. We have in-licensed from Mitsubishi Tanabe a number of patents and patent applications relating to lorundrostat and structurally related compounds, the manufacture of lorundrostat and structurally related compounds, and methods of use of lorundrostat. In addition to the patents and patent applications in-licensed from Mitsubishi Tanabe, our portfolio includes pending patent applications solely owned by us and pending patent applications jointly owned with Mitsubishi Tanabe. If we or Mitsubishi Tanabe are unable to obtain, maintain, or enforce patent protection, our business, financial condition, results of operations, and prospects could be materially harmed. +Changes in either the patent laws or their interpretation in the United States and other jurisdictions may diminish our or our licensor’s ability to protect our intellectual property, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our protection. We cannot predict whether the patent applications we currently or may in the future pursue or in-license will issue as patents in any particular jurisdiction, will provide sufficient protection against competitors or other third parties, or if these patents are challenged by our competitors, will be found to be invalid, unenforceable, or not infringed. +The patent prosecution process is expensive, time-consuming, and complex, and we or our licensors may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications or +-68- +reissue applications at a reasonable cost or in a timely manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection before public disclosures are made. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, third-party collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our or our licensors’ ability to seek patent protection. Consequently, we may not be able to prevent any third party from using any of our technology that is in the public domain to compete with lorundrostat and any future product candidates or technologies. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable in light of the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to invent the inventions claimed in any of our licensed patents or pending patent applications, or that we or our licensors were the first to make the inventions claimed in those owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. If a third party can establish that we or our licensors were not the first to make or the first to file for patent protection of such inventions, our owned or licensed patents and patent applications may not issue as patents and even if issued, may be challenged and invalidated or rendered unenforceable. +Composition of matter patents for pharmaceutical product candidates often provide a strong form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications covering compositions of matter of our lorundrostat or any future product candidates will be considered patentable by the USPTO, or by patent offices in foreign countries, or that the claims in any of our issued or reissued patents will be considered valid and enforceable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common, and such infringement is difficult to prevent or prosecute. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued. Any issued patents may not afford sufficient protection of our product candidates or their intended uses against competitors, nor can there be any assurance that the patents issued will not be infringed, designed around, invalidated by third parties, or effectively prevent others from commercializing competitive technologies, products or product candidates. Further, even if these patents are granted, they may be difficult to enforce. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements. In the event we experience noncompliance events that cannot be corrected and we lose our patent rights, competitors could enter the market, which would have a material adverse effect on our business. Further, any issued patents that we may license or own covering our lorundrostat or any future product candidates could be narrowed or found invalid or unenforceable if challenged in court or before administrative bodies in the United States or other countries, including the USPTO. Also, patent terms, including any extensions or adjustments that may or may not be available to us, may be inadequate to protect our competitive position on our product candidates for an adequate amount of time, and we may be subject to claims challenging the inventorship, validity, enforceability of our patents and/or other intellectual property. Changes in U.S. patent law, or laws in other countries, could diminish the value of +-69- +patents in general, thereby impairing our ability to protect our product candidates. Further, if we encounter delays in our clinical trials or delays in obtaining regulatory approval, the period of time during which we could market our product candidates under patent protection would be reduced. Thus, the patents that we own and license may not afford us any meaningful competitive advantage. +Moreover, the claim coverage in a patent application can be significantly reduced before the corresponding patent is granted. Even if our owned or in-licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. Any patents issuing from our patent applications may be challenged, narrowed, circumvented, or invalidated by third parties. Our competitors or other third parties may avail themselves of safe harbors under the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Amendments) to conduct research and clinical trials. Consequently, we do not know whether lorundrostat or any of our future product candidates and other proprietary technology will be protectable or remain protected by valid and enforceable patents. Even if a patent is granted, our competitors or other third parties may be able to circumvent the patent by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations, and prospects. In addition, given the amount of time required for the development, testing, and regulatory review of our future product candidates, patents protecting the product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patent rights may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party post-issuance submission of prior art to the USPTO challenging the validity of one or more claims of our in-licensed patents or patents we may own in the future. Such submissions may also be made prior to a patent’s issuance, precluding the granting of a patent based on one of our owned or licensed pending patent applications. A third party may also claim that our patent rights are invalid or unenforceable in litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In addition, we may become involved in opposition, derivation, revocation, reexamination, reissue, post-grant and inter partes review, or interference proceedings and other similar proceedings in foreign jurisdictions challenging the validity, priority, or other features of patentability of our patent rights. An adverse determination in any such submission, proceeding, or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our product candidates and other proprietary technologies we may develop and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize our products without infringing third-party patent rights. Such adverse determinations may also require us to cease using the related technology or to attempt to license rights from the prevailing party. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Moreover, some of our patent rights are, and may in the future be, co-owned with third parties, including Mitsubishi Tanabe. In the United States, each co-owner has the freedom to license and exploit the technology. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patent rights, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of such patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects. +-70- +We may not be able to protect our intellectual property and proprietary rights throughout the world. +Filing, prosecuting, maintaining, enforcing, and defending patents on lorundrostat and any future product candidates in all countries throughout the world is expensive, and the laws of foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. Prosecution of patent applications is often a longer process and patents may grant at a later date, and with a shorter term, than in the United States. The requirements for patentability differ in certain jurisdictions and countries. Additionally, the patent laws of some countries do not afford intellectual property protection to the same extent as U.S. laws. For example, unlike patent law in the United States, patent law in most European countries and many other jurisdictions precludes the patentability of methods of treatment and diagnosis of the human body. Other countries may impose substantial restrictions on the scope of claims, limiting patent protection to specifically disclosed embodiments. Consequently, we may not be able to prevent third parties from practicing our or our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our intellectual property in and into the United States or other jurisdictions. Competitors may use our or our licensors’ intellectual property in jurisdictions where we or our licensors have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our owned and in-licensed patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. In addition, some jurisdictions, such as Europe, Japan, and China, may have a higher standard for patentability than in the United States, including, for example, the requirement of claims having literal support in the original patent filing and the limitation on using supporting data that is not in the original patent filing. Under those heightened patentability requirements, we may not be able to obtain sufficient patent protection in certain jurisdictions even though the same or similar patent protection can be secured in the United States and other jurisdictions. +Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We or our licensors may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. +Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. In some circumstances, we are dependent on our licensors to take the necessary action to comply with these +-71- +requirements with respect to our licensed intellectual property. For example, periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications or any patents and applications we may own in the future. In certain circumstances, we rely on our licensors to pay these fees due to U.S. and non-U.S. patent agencies. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +The USPTO and various non-U.S. government agencies require compliance with certain foreign filing requirements during the patent application process. For example, in some countries, including the United States, China, India, and some European countries, a foreign filing license is required before certain patent applications are filed. The foreign filing license requirements vary by country and depend on various factors, including where the inventive activity occurred, the citizenship status of the inventors, the residency of the inventors and the invention owner, the place of business for the invention owner, and the nature of the subject matter to be disclosed (e.g., items related to national security or national defense). In some cases, a foreign filing license may be obtained retroactively in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment of a pending patent application or can be grounds for revoking or invalidating an issued patent, resulting in the loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the relevant markets with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. We are also dependent on our licensors to take the necessary actions to comply with these requirements with respect to our licensed intellectual property. +Changes in patent laws or their interpretations could diminish the value of patents in general, thereby impairing our ability to protect our products. +Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (the America Invents Act) enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us or our licensors could therefore be awarded a patent covering an invention of ours or our licensors even if we had made the invention before it was made by such third party. This requires us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to lorundrostat or any of our product candidates and other proprietary technologies we may develop or (ii) invent any of the inventions claimed in our patents or patent applications. +The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party protests and submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party +-72- +could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of patents issuing from those patent applications, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. We cannot predict how decisions by the courts, the U.S. Congress, or the USPTO may impact the value of our patent rights. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. +Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad. +Our patent rights may be subject to priority, validity, inventorship, and enforceability disputes. Legal proceedings relating to intellectual property claims, with or without merit, are unpredictable and generally expensive and time-consuming and likely to divert significant resources from our core business, including distracting our management and scientific personnel from their normal responsibilities and generally harm our business. If we or our licensors are unsuccessful in any of these proceedings, such patents and patent applications may be narrowed, invalidated, or held unenforceable, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or we may be required to cease the development, manufacture, and commercialization of lorundrostat or future product candidates. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +If we or our licensors initiate legal proceedings against a third party to enforce a patent covering lorundrostat or any of our future product candidates, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement, lack of sufficient written description, failure to claim patent-eligible subject matter, or obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of a patent before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patent rights in such a way that they no longer cover our product candidates or prevent third parties from competing with our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensing partners and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of +-73- +invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on lorundrostat and any future product candidates. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects. +We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable. +We have pending U.S. and foreign patent applications in our portfolio; however, we cannot predict: +• if and when patents may issue based on our patent applications; +• the scope of protection of any patent issuing based on our patent applications; +• whether the claims of any patent issuing based on our patent applications will provide protection against competitors; +• whether or not third parties will find ways to invalidate or circumvent our patent rights; +• whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; +• whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or +• whether the patent applications that we own or in-license will result in issued patents with claims that cover lorundrostat or any of our future product candidates or uses thereof in the United States or in other foreign countries. +The claims in our pending patent applications directed to lorundrostat and any of our future product candidates and/or technologies may not be considered patentable by the USPTO or by patent offices in foreign countries. Any such patent applications may not issue as granted patents. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability, or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our product candidates. In the event of litigation or administrative proceedings, the claims in any of our issued patents may not be considered valid by courts in the United States or foreign countries. +Patent terms may be inadequate to protect the competitive position of our product candidates for an adequate amount of time. +Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent has expired, we may be vulnerable to competition from competitive products, including generics. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, +-74- +our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. If we do not have sufficient patent life to protect our products, our business, financial condition, results of operations, and prospects will be adversely affected. +If we do not obtain patent term extension and equivalent extensions outside of the United States for our product candidates, our business may be materially harmed. +Depending upon the timing, duration, and specifics of any FDA marketing approval of lorundrostat or any future product candidate we may develop, one or more of our in-licensed issued U.S. patents or issued U.S. patents we may own in the future may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to 5 years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of fourteen (14) years from the date of product approval, only one patent may be extended, and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar patent term restoration provisions to compensate for commercialization delay caused by regulatory review are also available in certain foreign jurisdictions, such as in Europe under Supplemental Protection Certificate. However, we may not be granted an extension for various reasons, including failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or failing to satisfy other applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we may need the cooperation of that third party. If we are unable to obtain patent term extension, or the foreign equivalent, or if the term of any such extension is less than we request, our competitors may obtain approval for competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed. +We may be subject to claims challenging the inventorship of our patents and other intellectual property. +We or our licensors may be subject to claims that former employees, consultants, collaborators, or other third parties have an interest in our patent rights, any potential trade secrets, or other intellectual property as an inventor, co-inventor, or owner of any potential trade secrets. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates and other proprietary technologies we may develop. Litigation may be necessary to defend against these and other claims challenging inventorship or our patent rights, any potential trade secrets, or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates and other proprietary technologies we may develop. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +If we are unable to protect the confidentiality of any potential trade secrets, our business and competitive position would be harmed. +In addition to seeking patent protection for our product candidates and proprietary technologies, we may also rely on trade secret protection and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information and to maintain our competitive position. We seek to protect any potential trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, third-party collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Trade secrets and know-how can be difficult to protect. We cannot guarantee that we have entered into applicable agreements with each party that may have or have had access to any potential trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose +-75- +our proprietary information, including any potential trade secrets, and we may not be able to obtain adequate remedies for such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. We cannot guarantee that any potential trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to any potential trade secrets. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our potential trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. +Furthermore, others may independently discover any potential trade secrets and proprietary information. If any of our potential trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our potential trade secrets were to be disclosed or misappropriated or if any such information were to be independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed. +We may be subject to claims that third parties have an ownership interest in any potential trade secrets. For example, we may have disputes arise from conflicting obligations of our employees, consultants, or others who are involved in developing our product candidate. Litigation may be necessary to defend against these and other claims challenging ownership of any potential trade secrets. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable trade secret rights, such as exclusive ownership of, or right to use, trade secrets that are important to our product candidates and other proprietary technologies we may develop. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope, or expiration of a third-party patent, which might adversely affect our ability to develop and market our products and product candidates. +We cannot guarantee that any of our or our licensors’ patent searches or analyses, including the identification of relevant patents, the scope of patent claims, or the expiration of relevant patents, are complete or thorough, nor can we be certain that we or our licensors have identified each and every third-party patent and pending patent application in the United States and abroad that is relevant to or necessary for the commercialization of our current and future products and product candidates in any jurisdiction. Patent applications in the United States and elsewhere are not published until approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover product candidates or the use of our product candidates. The scope of a patent claim is determined by the interpretation of the law, the words of a patent claim, the written disclosure in a patent, and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending patent application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products or product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, and we may incorrectly conclude that a third-party patent is invalid and unenforceable. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products and product candidates. If we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. Also, because the claims of +-76- +published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. As the number of competitors in the market grows and the number of patents issued in this area increases, the possibility of patent infringement claims escalates. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters, notices, or “invitations to license,” or may be the subject of claims that our products and business operations infringe or violate the intellectual property rights of others. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates or services so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. +We may be subject to claims asserting that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. +Some of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management. +In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Third-party claims of intellectual property infringement, misappropriation, or other violations against us or our collaborators could be expensive and time-consuming and may prevent or delay the development and commercialization of our product candidates. +Our commercial success depends in part on our ability to avoid infringing, misappropriating, and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products and techniques without payment or limit the duration of the patent protection of our technology. As discussed above, due to changes in U.S. law referred to as patent reform, procedures including inter partes review and post-grant review have also been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patent rights in the future. +-77- +Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are commercializing or plan to commercialize lorundrostat. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that lorundrostat or any future product candidates, and commercializing activities may give rise to claims of infringement of the patent rights of others. We cannot assure you that lorundrostat or any future product candidates we develop will not infringe existing or future patents owned by third parties. We may not be aware of patents that have already been issued for which a third party, such as a competitor in the fields in which we are developing lorundrostat or our future product candidates, might accuse us of infringing. It is also possible that patents owned by third parties of which we are aware, but which we do not believe we infringe or that we believe we have valid defenses to any claims of patent infringement, could be found to be infringed by us. It is not unusual that corresponding patents issued in different countries have different scopes of coverage, such that in one country a third-party patent does not pose a material risk, but in another country, the corresponding third-party patent may pose a material risk to lorundrostat and any future product candidates. As such, we monitor third-party patents in the relevant pharmaceutical markets. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that we may infringe. +In the event that any third-party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by us. Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing products or technologies. In addition, we may be required to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, and/or redesign our infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. Such licenses may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms or at all, we may be unable to commercialize the infringing products or technologies or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. In addition, we may in the future pursue patent challenges with respect to third-party patents, including as a defense against the foregoing infringement claims. The outcome of such challenges is unpredictable. +Even if resolved in our favor, the foregoing proceedings could be very expensive, particularly for a company of our size, and time-consuming. Such proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such proceedings adequately. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Such proceedings may also absorb significant time from our technical and management personnel and distract them from their normal responsibilities. Uncertainties resulting from such proceedings could impair our ability to compete in the marketplace. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, or results of operations. +-78- +We may become involved in lawsuits to protect or enforce our patent and other intellectual property rights, which could be expensive, time-consuming, and unsuccessful. +Third parties, such as a competitor, may infringe our patent rights. In an infringement proceeding, a court may decide that a patent owned by us or licensed to us is invalid or unenforceable or may refuse to stop the other party from using the invention at issue on the grounds that the patent does not cover the technology in question. In addition, our or our licensors’ patent rights may become involved in inventorship, priority, or validity disputes. To counter or defend against such claims can be expensive and time-consuming. An adverse result in any litigation proceeding could put our patent rights at risk of being invalidated, held unenforceable, or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation and proceedings, there is a risk that some of our confidential information could be compromised by disclosure during such litigation and proceedings. +Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. +If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. +Our registered or unregistered trademarks or trade names may be challenged, infringed, diluted, circumvented, or declared generic or determined to be infringing, misappropriating, or violating other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in the markets of interest. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we are given an opportunity to respond to such rejections, we may be unable to overcome them. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, which may not survive such proceedings. Moreover, any name we may propose to use with lorundrostat or any future product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA or an equivalent administrative body in a foreign jurisdiction objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe, misappropriate or otherwise violate the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. +We may not be able to obtain, protect, or enforce our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At +-79- +times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement, misappropriation, dilution, or other claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to obtain, enforce, or protect our proprietary rights related to trademarks, trade names, domain names, or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations, and prospects. +Intellectual property rights do not necessarily address all potential threats. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example: +• others may be able to make products that are similar to lorundrostat or any future product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own; +• we or our licensors might not have been the first to make the inventions covered by our or our licensors’ current or future patent applications; +• we or our licensors might not have been the first to file patent applications covering our or their inventions; +• others may independently develop similar or alternative technologies or duplicate any of our or our licensors’ technologies without infringing our intellectual property rights; +• it is possible that our or our licensors’ current or future patent applications will not lead to issued patents; +• any patent issuing from our or our licensors’ current or future patent applications may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; +• others may have access to the same intellectual property rights licensed to use in the future on a non-exclusive basis; +• our competitors or other third parties might conduct research and development activities in countries where we or our licensors do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we may not develop additional proprietary technologies that are patentable; +• the patents or other intellectual property rights of others may harm our business; and +• we may choose not to file for patent protection in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such intellectual property. +Should any of the foregoing occur, it could adversely affect our business, financial condition, results of operations, and prospects. +-80- +We partially depend on intellectual property licensed from third parties, and our licensors may not always act in our best interest. If we fail to comply with our obligations under our intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, we could lose significant rights that are important to our business. +We are a party to the Mitsubishi License under which we are granted rights to intellectual property that are important to lorundrostat and our business, and we may enter into additional license agreements in the future with other third parties. The Mitsubishi License imposes, and we expect that any future license agreements where we in-license intellectual property, will impose on us, various development, regulatory, and/or commercial diligence obligations, payment of milestones, and/or royalties and other obligations. We may need to devote substantial time and attention to ensuring that we are compliant with our obligations under such agreements, which may divert management’s time and attention away from our research and development programs or other day-to-day activities. If we fail to comply with our obligations under these agreements, or we are subject to bankruptcy-related proceedings, the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license, or we may be subject to litigation for breach of these agreements. +If we or our licensors fail to adequately protect our licensed intellectual property, our ability to commercialize lorundrostat or any future product candidates could suffer. We do not have complete control over the maintenance, prosecution, and litigation of our in-licensed patents and patent applications and may have limited control over future intellectual property that may be in-licensed. For example, we cannot be certain that activities such as the maintenance and prosecution by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. It is possible that our licensors’ infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves or may not be conducted in accordance with our best interests. +In addition, the agreements under which we license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant patents, know-how, and proprietary technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Disputes that may arise between us and our licensors regarding intellectual property subject to a license agreement could include disputes regarding: +• the scope of rights granted under the license agreement and other interpretation-related issues; +• whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• our right to sublicense patent and other rights to third parties under collaborative development relationships; +• our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of lorundrostat or any future product candidates and what activities satisfy those diligence obligations; and +• the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us. +If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected technology or lorundrostat or any future product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize lorundrostat or any future product candidates, or we could lose other significant rights, any +-81- +of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +For example, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship may be owned solely by either us or our third-party research partner, or jointly between us and the third party. If we determine that rights to such improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize lorundrostat or any future product candidates or maintain our competitive advantage, we may need to obtain a license from such third party in order to use the improvements and continue developing, manufacturing, or marketing lorundrostat or any future product candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing lorundrostat or any future product candidates or allow our competitors or others the chance to access technology that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such intellectual property against third parties, and such cooperation may not be provided to us. +We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses. +The growth of our business may depend in part on our ability to acquire, in-license, or use third-party intellectual property and proprietary rights. For example, lorundrostat or any future product candidates may require specific formulations to work effectively and efficiently, we may develop product candidates containing our compounds and pre-existing pharmaceutical compounds, or we may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates, any of which could require us to obtain rights to use intellectual property held by third parties. In addition, with respect to any patent or other intellectual property rights we may co-own with third parties, we may require licenses to such co-owners’ interest to such patents. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary or important to our business operations. In addition, we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. Were that to happen, we may need to cease use of the compositions or methods covered by those third-party intellectual property rights and may need to seek to develop alternative approaches that do not infringe, misappropriate, or otherwise violate those intellectual property rights, which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, which means that our competitors may also receive access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. +Additionally, we may collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program. +The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have greater resources than we do may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize lorundrostat or any future product candidates. More established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. There can be no assurance that we will be able to successfully complete these types of negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to develop or market. If we are unable to successfully obtain rights to +-82- +required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of certain programs, and our business financial condition, results of operations, and prospects could suffer. +Our intellectual property licensed from third parties may be subject to retained rights. +Our current or future licensors may retain certain rights under their agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors will limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse. +Government agencies may provide funding, facilities, personnel, or other assistance in connection with the development of the intellectual property rights owned by or licensed to us. Such government agencies may have retained rights in such intellectual property. For example, the U.S. federal government retains certain rights in inventions produced with its financial assistance under the Patent and Trademark Law Amendments Act, or the Bayh-Dole Act; these include the right to grant or require us to grant mandatory licenses or sublicenses to such intellectual property to third parties under certain specified circumstances, including if it is necessary to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified by federal regulations, or to manufacture products in the United States. Any exercise of such rights, including with respect to any such required sublicense of these licenses, could result in the loss of significant rights and could harm our ability to commercialize licensed products. While it is our policy to avoid engaging our university partners in projects in which there is a risk that government funds may be commingled, we cannot be sure that any such co-developed intellectual property will be free from government rights. If, in the future, we co-own or license in technology that is critical to our business that is developed in whole or in part with government funds subject to certain government rights, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected. +Risks Related to Our Common Stock +The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses. +Our stock price is likely to be volatile. The stock market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price at which they paid. The market price for our common stock may be influenced by those factors discussed in this “Risk Factors” section and many others, including: +• results of our clinical trials and preclinical studies, and the results of trials of our competitors or those of other companies in our market sector; +• our ability to enroll subjects in our future clinical trials; +• our ability to obtain and maintain regulatory approval of lorundrostat or any future product candidates or additional indications thereof, or limitations to specific label indications or patient populations for its use, or changes or delays in the regulatory review process; +• regulatory or legal developments in the United States and foreign countries; +• changes in the structure of healthcare payment systems; +• the success or failure of our efforts to identify, develop, acquire, or license additional product candidates; +-83- +• innovations, clinical trial results, product approvals, and other developments by our competitors; +• announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; +• the degree and rate of physician and market adoption of any of our current and future product candidates; +• manufacturing, supply, or distribution delays or shortages, including our inability to obtain adequate product supply, at acceptable prices or at all; +• any changes to our relationship with any manufacturers, suppliers, collaborators, or other strategic partners; +• achievement of expected product sales and profitability; +• variations in our financial results or those of companies that are perceived to be similar to us, including variations from expectations of securities analysts or investors; +• market conditions in the biopharmaceutical sector and issuance of securities analysts’ reports or recommendations; +• trading volume of our common stock; +• an inability to obtain additional funding or obtaining funding on unattractive terms; +• sales of our stock by us, our insiders, or our stockholders, as well as the anticipation of lock-up releases; +• general economic, industry, and market conditions, other events or factors, many of which are beyond our control; +• actual or anticipated fluctuations in our financial condition and results of operations; +• publication of news releases by other companies in our industry, and especially direct competitors, including about adverse developments related to safety, effectiveness, accuracy, and usability of their products, reputational concerns, reimbursement coverage, regulatory compliance, and product recalls; +• announcement or progression of geopolitical events and conflicts; +• additions or departures of senior management or key personnel; +• intellectual property, product liability, or other litigation against us or our inability to enforce our intellectual property; +• changes in our capital structure, such as future issuances of securities and the incurrence of additional debt; and +• changes in accounting standards, policies, guidelines, interpretations, or principles. +In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs, divert our management’s attention and resources, and damage our reputation, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +-84- +Our executive officers, directors, and principal stockholders, if they choose to act together, will have the ability to significantly influence all matters submitted to stockholders for approval and may prevent new investors from influencing significant corporate decisions. +As of February 7, 2025, our executive officers, directors, and greater than 5% stockholders, in the aggregate, owned approximately 45.6% of our outstanding common stock. As a result, such persons, acting together, have the ability to significantly influence all matters submitted to our board of directors or stockholders for approval, including the appointment of our management, the election and removal of directors, and approval of any significant transactions, as well as our management and business affairs, which may prevent new investors from influencing some or all of the foregoing. This concentration of ownership may have the effect of delaying, deferring, or preventing a change in control, impeding a merger, consolidation, takeover, or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders. +We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common stock. +We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, any future debt agreements may preclude us from paying dividends. For the foreseeable future, any return to stockholders will therefore be limited to the appreciation of their stock. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares. +We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors. +We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act), and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” as defined under the Exchange Act, our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: +• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in connection with registered securities offerings; +• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, unless the SEC determines the new rules are necessary for protecting the public; +• reduced disclosure obligations regarding executive compensation; and +-85- +• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this exemption and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. +We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. +Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents include the following: +• a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; +• no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +• the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; +• the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; +• the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; +• the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; +-86- +• the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend, or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; +• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; +• an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; +• the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and +• advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us. +We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided, that, this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, our amended and restated certificate of incorporation also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees and result in increased costs for investors to bring a claim. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. +-87- +General Risk Factors +We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We could face criminal liability and other serious consequences for violations, which could harm our business. +We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls and anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, CROs, contractors, and other collaborators and partners from authorizing, promising, offering, providing, soliciting, or receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad if and when we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, CROs, contractors, and other collaborators and partners, even if we do not explicitly authorize or have actual knowledge of such activities, and any training or compliance programs or other initiatives we undertake to prevent such activities may not be effective. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. +Furthermore, U.S. export control laws and economic sanctions prohibit the provision of certain products and services to countries, governments, and persons targeted by U.S. sanctions. U.S. sanctions that have been or may be imposed as a result of military conflicts in other countries may impact our ability to continue activities at future clinical trial sites within regions covered by such sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. These export and import controls and economic sanctions could also adversely affect our supply chain. +Our third-party manufacturers or suppliers may use potent chemical agents and hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could be time-consuming or costly. +Our third-party manufacturers or suppliers use, and potential future collaborators will use, biological materials and potent chemical agents and may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety of the environment. The operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, our third-party manufacturers and suppliers cannot eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. In the event of contamination or injury at our manufacturers’ or suppliers’ sites, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended. Although we maintain workers’ compensation insurance for certain costs and expenses we may incur due to injuries to +-88- +our employees resulting from work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for toxic tort claims that may be asserted against us in connection with our third-party manufacturers’ and suppliers' storage or disposal of biologic, hazardous, or radioactive materials. +In addition, our third-party manufacturers and suppliers may need to incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations, which have tended to become more stringent over time, which may increase the cost of their services to us. These current or future laws and regulations may impair our research, development, or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties, or other sanctions or liabilities for our third-party manufacturers and suppliers, which could in turn materially adversely affect our business, financial condition, results of operations, and prospects. To the extent we develop our own manufacturing operations in the future, we may similarly incur substantial costs to ensure compliance with these laws, and all the foregoing risks will further apply to us, as well. +Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. +Our operations and the operations of our suppliers, CROs, CMOs, and clinical sites could be subject to earthquakes, power shortages, telecommunications or infrastructure failures, cybersecurity incidents, physical security breaches, water shortages, floods, hurricanes, typhoons, blizzards, and other extreme weather conditions, fires, public health pandemics or epidemics, and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. We rely on third-party manufacturers or suppliers to produce lorundrostat and its components and on CROs and clinical sites to conduct our clinical trials and do not have a redundant source of supply for all components of our product candidate. Our ability to obtain clinical or, if approved, commercial, supplies of lorundrostat or any future product candidates could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption, and our ability to commence, conduct, or complete our clinical trials in a timely manner could be similarly adversely affected by any of the foregoing. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. +Unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and stock price. +The global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including geopolitical conflict in and around Ukraine, Israel, and other areas of the world, terrorism, or other events. Sanctions imposed by the United States and other countries in response to such conflicts may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and stock price and could require us to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves, or on less favorable terms than we would otherwise choose. In addition, one or more of our current service providers, manufacturers, and other partners may not survive an economic +-89- +downturn, which could directly affect our ability to attain our clinical development goals on schedule and on budget. +Changes in tax law may materially adversely affect our financial condition, results of operations, and cash flows, or adversely impact the value of an investment in our common stock. +New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time, or interpreted, changed, modified, or applied adversely to us, any of which could adversely affect our business operations and financial performance. We urge our investors to consult with their legal and tax advisors with respect to any changes in tax law and the potential tax consequences of investing in our common stock. +If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could decline. +The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market, or our competitors. If one or more of the analysts who cover us downgrade our stock, or if we fail to meet the expectations of one or more of these analysts, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline. +If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline. +Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report upon the effectiveness of our internal control over financial reporting beginning with this Annual Report. When we lose our status as an “emerging growth company” and do not otherwise qualify as a “smaller reporting company” with less than $100 million in annual revenue, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline. +We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We could be subject to securities class action litigation. +In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such +-90- +litigation, even if ultimately decided in our favor, it could result in substantial costs and a diversion of our management’s attention and resources, which could harm our business. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We employ processes incorporated into our overall risk management system for assessing, identifying, and managing material risks from cybersecurity threats. These items are designed to help protect our information assets from internal and external threats and protect the integrity and confidentiality of our data. Our system includes procedural and technical safeguards, response plans, and reviews of our policies. We engage various external entities, including consultants, to improve and enhance our cybersecurity oversight. We provide all employees and consultants with cybersecurity and prevention training including timely and relevant topics covering social engineering, phishing, mobile security, and data protection and the need for reporting incidents and suspicious events immediately. +Although we develop and maintain systems and controls designed to prevent cybersecurity threats from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely. As we outsource more of our information systems to vendors, engage in more electronic transactions with service providers and patients, and rely more on cloud-based information systems, the related security risks will increase, and we will need to expend additional resources to protect our technology and information systems. In addition, there can be no assurance that our internal information technology systems or those of our third-party contractors, or our consultants’ efforts to implement adequate security and control measures, will be sufficient to protect us against breakdowns, service disruption, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyberattack, security breach, industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm. +As of the date of this Annual Report, we are not aware of any risks from cybersecurity threats, including because of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. +Governance +Our senior management team conducts the regular assessment and management of material risks from cybersecurity threats, including review with our IT team and third-party service providers, while our board of directors has responsibility for the oversight of risk management. All employees and consultants are directed to report to our senior management any irregular or suspicious activity that could indicate a cybersecurity threat or incident. The Audit Committee of our board of directors evaluates our cybersecurity assessment and management policies, including quarterly interviews with our senior officers and independent registered accounting firm. +Item 2. Properties +We maintain our corporate offices at 150 N. Radnor Chester Road, Suite F200, Radnor, PA 19087 under a virtual office lease. We lease our corporate and other office premises under monthly rental agreements at a nominal cost. We consider our current office space adequate for our current operations. +-91- +Item 3. Legal Proceedings +We are not currently a party to any material proceeding. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. +Item 4. Mine Safety Disclosures +Not Applicable. +-92- +Part II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock has been listed on the Nasdaq Global Select Market under the symbol “MLYS” since our IPO on February 14, 2023, which was completed at a price to the public of $16.00 per share. Prior to our IPO, there was no public market for our common stock. +Holders of Common Stock +As of February 7, 2025, we had approximately 8 stockholders of record. This number was derived from our stockholder records and does not include beneficial owners of our common stock whose shares are held in the name of various dealers, clearing agencies, banks, brokers, and other fiduciaries. +Securities Authorized for Issuance Under Equity Compensation Plans +Information about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report. +Dividend Policy +We have never declared or paid any cash dividends on our capital stock. We currently intend to retain future earnings, if any, to finance the operation of our business and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, current and anticipated capital requirements, business prospects, and other factors our board of directors deems relevant, and subject to applicable laws and the restrictions contained in any future financing instruments. +Recent Sales of Unregistered Securities +None. +Repurchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item 6. [Reserved] +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section entitled “ Forward-Looking Statements and Market Data .” As a result of many factors, including those factors set forth in the “ Risk Factors ” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We are a clinical-stage biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our clinical-stage product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension, CKD, and OSA. In the United States, there are approximately +-93- +120 million patients have sustained elevated BP, or hypertension, and more than half of this population fails to achieve their BP goals, defined as BP below 130/80 mmHg, with currently available medications. There are over 30 million treated patients who do not achieve their BP goal, of whom approximately 20 million have systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. In a Phase 2 proof-of-concept clinical trial evaluating 200 subjects (Target-HTN) with uHTN or rHTN, lorundrostat demonstrated a clinically meaningful and statistically significant reduction in BP with once-daily dosing and was well tolerated. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. In addition to hypertension, we are investigating the benefits of lorundrostat in subjects with hypertension and CKD and in subjects with hypertension and OSA. We believe that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. +Clinical Highlights +Advance-HTN is a randomized, double-blind, placebo-controlled Phase 2 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to a standardized background treatment of two or three antihypertensive medications. Subjects who met screening criteria discontinued their existing hypertension medications and started on a standard regimen of an ARB and a diuretic, if previously on two medications, or a standard regimen of ARB, diuretic and calcium channel blocker if previously on three to five medications. Subjects who remained hypertensive despite the standardized regimen were then randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week four based on defined criteria or placebo. The primary endpoint of Advance-HTN is change in 24-hour ambulatory systolic BP at week twelve from baseline for each active cohort versus placebo. Randomization of 285 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in March 2025. +Our second pivotal trial, Launch-HTN, is a global, randomized, double-blind, placebo-controlled Phase 3 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to their existing, prescribed background treatment of two to five antihypertensive medications. Subjects were randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week six based on defined criteria or placebo. The primary endpoint of the trial is the assessment of automated office measured systolic BP from baseline for active cohorts versus placebo at six weeks, with the results pooled for all subjects on 50 mg QD. Randomization of 1,083 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in mid first half of 2025. +Explore-CKD is a randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover trial designed to evaluate the safety and efficacy of 25 mg QD lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in subjects with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an ACE inhibitor or ARB. The primary endpoint is placebo-adjusted change from baseline in systolic BP at week four and an exploratory endpoint is placebo-adjusted percent change from baseline in urine albumin-to-creatinine ratio at week four. Randomization of 60 subjects was completed in the first quarter of 2025, and topline data from this trial is anticipated in the second quarter of 2025. +Transform-HTN is an open-label extension trial allowing subjects to continue to receive lorundrostat and to obtain long-term efficacy and safety data. All subjects in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, will be given the opportunity to participate in the extension trial. +Lorundrostat has been developed to address dysregulated aldosterone, and we believe this mechanism may be applicable to other indications where dysregulated aldosterone biology plays a role. Most recently, we have begun to explore lorundrostat for patients with OSA and hypertension. +-94- +In January 2025, we announced that the FDA cleared our IND for Explore-OSA to evaluate the effect of lorundrostat in the treatment of subjects with moderate-to-severe OSA and hypertension. We anticipate initiating Explore-OSA in the first quarter of 2025. Explore-OSA is planned to be a placebo-controlled, crossover trial to evaluate the safety and efficacy of lorundrostat 50 mg taken once daily in the evening in approximately 40 subjects with moderate-to-severe OSA. Subjects will be at least 18 years old, with a BMI ≥27 kg/m 2 , and the trial will be conducted across approximately 40 sites. The key objective of this trial is to evaluate the hypothesis that lorundrostat both alleviates the severity of upper airway obstruction and reduces nocturnal hypertension. The primary outcome measure is absolute change in the frequency of apnea-hypopnea episodes compared to placebo. The key secondary objective is to quantify BP throughout the night using continuous BP monitoring during performance of a standard sleep study without the use of CPAP. Standard patient reported outcomes specific to OSA will also be assessed. +Financial Overview +We commenced our operations in May 2019 and have devoted substantially all of our resources to date to organizing and staffing our company, business planning, raising capital, in-licensing our product candidate, lorundrostat, establishing our intellectual property portfolio, conducting research, preclinical studies, and clinical trials, and providing other general and administrative support for our operations. As of December 31, 2024, we had cash, cash equivalents, and investments of $198.2 million. From inception through the date of this Annual Report, we raised aggregate gross proceeds of approximately $498.8 million from the sale of common stock, convertible preferred stock, convertible notes, and pre-funded warrants. In February 2023, we completed our IPO of 13,800,000 shares of our common stock at a price to the public of $16.00 per share, including the exercise in full by the underwriters of their option to purchase 1,800,000 additional shares of our common stock. Including the option exercise, our aggregate net proceeds from the IPO were approximately $201.4 million, net of underwriting discounts, commissions, and offering costs. In February 2024, we sold 8,339,169 shares of common stock and, to certain purchasers, 549,755 pre-funded warrants to purchase common stock for aggregate net proceeds of approximately $116.1 million, net of offering expenses, in a private placement offering (the Private Placement). +We do not have any products approved for sale, have not generated any revenue, and have incurred net losses since our inception. Our operations to date have been limited to business planning, raising capital, in-licensing and developing lorundrostat, conducting clinical trials, and other research and development activities. Our net losses for the years ended December 31, 2024 and 2023 were $177.8 million and $71.9 million, respectively. As of December 31, 2024 and 2023, we had an accumulated deficit of $302.5 million and $124.7 million, respectively. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical development activities and other research and development activities. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials for lorundrostat, potentially seek regulatory approval for lorundrostat and any future product candidates we may develop, expand our clinical, regulatory, quality, manufacturing, and commercialization capabilities, obtain, maintain, protect and enforce our intellectual property, expand our general and administrative support functions, including hiring additional personnel, and incur additional costs associated with operating as a public company. +Based on our current operating plan, we believe that our cash, cash equivalents, and investments will be sufficient to allow us to fund our operations for at least twelve months. We have never generated any revenue and do not expect to generate any revenue from product sales unless and until we successfully complete the development of, and obtain regulatory approval for, lorundrostat, which will not be for several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of lorundrostat, if ever, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce, or terminate our product development or future +-95- +commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. For more information, see “ Liquidity and Capital Resources . ” +License Agreement with Mitsubishi Tanabe +In July 2020, we entered into the Mitsubishi License with Mitsubishi Tanabe, pursuant to which Mitsubishi Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Mitsubishi Tanabe’s patent and other intellectual property rights to exploit Lorundrostat Products for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans. Pursuant to the Mitsubishi License, we paid Mitsubishi Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Mitsubishi Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Mitsubishi Tanabe tiered royalties at percentages ranging from the mid-single digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Mitsubishi Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. We incurred $0 and $9.0 million of research and development expenses pursuant to the Mitsubishi License during the years ended December 31, 2024 and 2023, respectively, that related to the initiation of our pivotal clinical program of lorundrostat in 2023. As of December 31, 2024, we have paid an aggregate of $9.0 million in development milestone payments and have no remaining development milestone obligations under the Mitsubishi License. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith developing at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Mitsubishi License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we have agreed to negotiate such a sublicense first, for a specified period of time, with Mitsubishi Tanabe, if Mitsubishi Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Mitsubishi Tanabe’s prior consent. For additional information regarding the Mitsubishi License, including termination provisions, see “ Business—License Agreement with Mitsubishi Tanabe .” +Private Placement Offering +On February 7, 2024, we entered into a securities purchase agreement (the Purchase Agreement) with the purchasers named therein (the Purchasers), for the Private Placement of (i) 8,339,169 shares (the Shares) of our common stock at a price of $13.50 per Share, and (ii) with respect to certain Purchasers, Pre-Funded Warrants to purchase an aggregate of 549,755 shares of common stock (the Pre-Funded Warrants) in lieu of shares of common stock, at a purchase price of $13.499 per Pre-Funded Warrant (the shares of common stock issuable upon exercise of the Pre-Funded Warrants, the Warrant Shares) for aggregate net proceeds of approximately $116.1 million. We are using the net proceeds from the Private Placement to fund the research and development of lorundrostat and for working capital and general corporate purposes. +Each Pre-Funded Warrant has an exercise price of $0.001 per share of common stock, is immediately exercisable on the date of issuance, and will not expire. Under the terms of the Pre-Funded Warrants, we may not effect the exercise of any portion of any Pre-Funded Warrant, and a holder will not have the right to exercise any portion of any Pre-Funded Warrant, which, upon giving effect to such exercise, would cause a holder (together with its affiliates) to own more than a specified beneficial ownership limitation of either 4.99%, 9.99%, or 19.99% (as selected by such holder prior to the issuance of the Pre-Funded Warrant) of the number of shares of common stock outstanding immediately after giving effect to such exercise, as such percentage +-96- +ownership is determined in accordance with the terms of the Pre-Funded Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 19.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice is delivered to us. +We registered the resale of the Shares and the Warrant Shares on a shelf registration statement on Form S-3 (Registration No. 333-278122), which was declared effective by the SEC on April 11, 2024 (the Registration Statement). Pursuant to the Purchase Agreement, we agreed to use our reasonable best efforts to keep the Registration Statement effective until the earliest of (i) the time as all of the Shares and Warrant Shares purchased by the Purchasers pursuant to the terms of the Purchase Agreement have been sold pursuant to the Registration Statement, or (ii) such time as the Shares and Warrant Shares become eligible for resale by non-affiliates without any volume limitations or other restrictions pursuant to Rule 144 under the Securities Act or any other rule of similar effect. +At Market Equity Offering Sales Agreement +On March 21, 2024, we entered into an ATM Equity Offering Sales Agreement (the ATM Agreement) with BofA Securities, Inc. and Evercore Group L.L.C. as our sales agents (the Agents) and/or principals. Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agents shares of our common stock having an aggregate offering price of up to $100,000,000 (the ATM Shares). Any ATM Shares will be issued pursuant to the Registration Statement. Sales of the ATM Shares, if any, will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market or as otherwise agreed by us and the Agents. Under the terms of the ATM Agreement, we may also sell the ATM Shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the ATM Shares to an Agent as principal would be pursuant to the terms of a separate terms agreement between us and such Agent. We have not yet sold any ATM Shares as of December 31, 2024. +Key Components of Results of Operations +Operating Expenses +Research and Development +Research and development expenses consist primarily of external and internal costs related to the development of lorundrostat. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or when the services are performed. +Research and development expenses include: +• salaries, bonuses, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts; +• external research and development expenses incurred under agreements with CROs and consultants to conduct and support our clinical trials of lorundrostat, and payments made under the Mitsubishi License; and +• costs related to manufacturing lorundrostat for our clinical trials. +We have and plan to continue to substantially increase our research and development expenses for the foreseeable future as we continue the development of lorundrostat. We cannot determine with certainty the timing of initiation, the duration, or the completion costs of current or future clinical trials and preclinical studies of lorundrostat or any future product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast whether lorundrostat or any future product candidates may be subject to future collaborations, when such arrangements will be +-97- +secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. +Our future development costs may vary significantly based on factors such as: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing lorundrostat or any future product candidates for use in our trials, including as a result of inflation, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and timing of seeking approval in such jurisdictions; +• the drop-out or discontinuation rates of clinical trial patients; +• potential additional safety monitoring requested by regulatory agencies; +• the duration of patient participation in the trials and follow-up; +• the phase of development of the product candidate; +• the efficacy and safety profile of the relevant product candidate; and +• the extent to which we establish strategic collaborations or other arrangements. +General and Administrative Expenses +General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-based compensation charges, for personnel in executive and administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, and insurance costs. We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities, manufacturing activities, and the increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to the hiring of additional personnel, audit, legal, regulatory, and tax-related services associated with maintaining compliance with the exchange listing and the SEC requirements and requirements of the Sarbanes-Oxley Act of 2002, director and officer insurance costs, investor and public relations costs, business development, and medical affairs. +Other Income, Net +Interest Income, Net +Interest income reported in each period is associated with our investments in money market funds and U.S. treasuries, net of fees, or other related expenses. +-98- +Comparison of the Years Ended December 31, 2024 and 2023 +Year Ended, +December 31, +2024 2023 Change +(in thousands) +Research and development expenses $ (168,581) $ (70,361) $ (98,220) +General and administrative expenses (23,822) (14,296) (9,526) +Total other income, net 14,593 12,759 1,834 +Net loss $ (177,810) $ (71,898) $ (105,912) +Research and Development Expenses +Research and development expenses increased by $98.2 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, which was primarily due to increases of $88.7 million in preclinical and clinical costs, driven by the initiation of the lorundrostat pivotal program in the second quarter of 2023, $10.6 million in clinical supply, manufacturing, and regulatory costs, $7.0 million in higher compensation expense resulting from additions to headcount, increases in salaries and accrued bonuses, and increased stock-based compensation, and $0.9 million in other research and development expenses, partially offset by a decrease of $9.0 million in license fees associated with development milestone payments in 2023 that did not recur in 2024. +General and Administrative Expenses +General and administrative expenses increased by $9.5 million for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to $6.6 million in higher compensation expense resulting from additions to headcount, increases in salaries and accrued bonuses, and increased stock-based compensation, $2.6 million in higher professional fees, and $0.3 million in higher other administrative expenses. +Total Other Income, Net +Total other income, net increased by $1.8 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, which was primarily attributable to increased interest earned on our investments in money market funds and U.S. treasuries. +Liquidity and Capital Resources +We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses and have negative cash flows from operations for the foreseeable future as we continue the development of, seek regulatory approval for, and potentially commercialize lorundrostat, seek to identify, assess, acquire, and in-license intellectual property related to or develop additional product candidates and operate as a public company. From inception through the date of this Annual Report, we raised aggregate gross proceeds of approximately $498.8 million from the sale of common stock, convertible preferred stock, convertible notes, and pre-funded warrants. As of December 31, 2024, we had cash, cash equivalents, and investments of $198.2 million. In February 2023, we completed our IPO of 13,800,000 shares of our common stock sold at a price to the public of $16.00 per share, including the exercise in full by the underwriters of their option to purchase 1,800,000 additional shares of our common stock, for net proceeds of approximately $201.4 million, net of underwriting discounts, commissions, and offering costs. In February 2024, we sold 8,339,169 Shares and, to certain Purchasers, 549,755 Pre-Funded Warrants for aggregate net proceeds of approximately $116.1 million in the Private Placement. +-99- +Our primary uses of cash to date have been to fund our research and development activities, including with respect to lorundrostat, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. +Funding Requirements +Based on our current operating plan, we believe that our cash, cash equivalents, and investments as of December 31, 2024 will be sufficient to allow us to fund our operations for at least twelve months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. +Our future capital requirements will depend on many factors, including, but not limited to: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing for lorundrostat, or any future product candidate, including commercial manufacture at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and timing of seeking approval in such jurisdictions; +• the costs, timing, and outcome of regulatory meetings and reviews of lorundrostat or any future product candidates; +• the costs of obtaining, maintaining, enforcing, and protecting our patents and other intellectual property and proprietary rights; +• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting; +• the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, manufacturing, quality, and commercial personnel; +• the timing and amount of the milestone, royalty, or other payments we must make to Mitsubishi Tanabe, from whom we have in-licensed lorundrostat, or any future licensors; +• the costs and timing of establishing or securing sales and marketing capabilities if lorundrostat or any future product candidate is approved; +• our ability to achieve sufficient market acceptance, coverage, and adequate reimbursement from third-party payors, and adequate market share and revenue for any approved products; +-100- +• patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; +• the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements; +• costs associated with any products or technologies that we may in-license or acquire; +• any delays and cost increases that may result from any pandemic or other healthcare emergency; and +• the other risks and uncertainties described under the heading “ Risk Factor s ,” “ Forward-Looking Statements and Market Data , ” and elsewhere in this Annual Report. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from factors that include but are not limited to, geopolitical conflict in and around Ukraine, Israel, and other areas of the world, inflation, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. If we raise additional funds through future collaborations, licenses, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, product candidates, research programs, intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves, or on less favorable terms than we would otherwise choose. +Cash Flows +Comparison of the Years Ended December 31, 2024 and 2023 +Since our inception, we have primarily used our available cash to fund expenditures related to the in-license and development of lorundrostat. The following table sets forth a summary of cash flows for the years presented (in thousands): +Year Ended +December 31, +2024 2023 +Change +Net cash provided by (used in): +Operating activities $ (166,314) $ (81,173) $ (85,141) +Investing activities 114,959 (160,472) 275,431 +Financing activities 116,142 203,248 (87,106) +Net $ 64,787 $ (38,397) $ 103,184 +-101- +Operating Activities +Net cash used in operating activities was $166.3 million during the year ended December 31, 2024, compared to $81.2 million during the year ended December 31, 2023, which was primarily attributable to an increase in cash used to support our operating activities, including but not limited to, the development of lorundrostat and related clinical trial expenses, personnel and compensation expense, legal and professional fees to support our operations, and general working capital requirements. The $85.1 million increase in cash used consisted of an increase in net loss, adjusted for non-cash expenses, of approximately $102.1 million, and the net effect of changes in working capital of $17.0 million. +Investing Activities +Net cash provided by investing activities was $115.0 million during the year ended December 31, 2024, compared to net cash used of $160.5 million during the year ended December 31, 2023. The change in cash provided by investing activities was primarily attributable to the timing and amount of purchases and maturities of marketable securities in each year. During the year ended December 31, 2024 compared to the year ended December 31, 2023, an increase in maturities of prior purchases of $301.0 million and a decrease in purchases of $25.5 million occurred. +Financing Activities +Net cash provided by financing activities of $116.1 million during the year ended December 31, 2024 decreased, compared to $203.2 million during the year ended December 31, 2023. During the year ended December 31, 2024, we received net proceeds of $116.1 million from the sale of Shares and Pre-Funded Warrants in the Private Placement, and during the year ended December 31, 2023, we received aggregate net proceeds of $203.0 million from the sale of our common stock in our IPO in February 2023. +Contractual Obligations and Commitments +Under the Mitsubishi License, we have milestone payment obligations that are contingent upon the achievement of specified levels of product sales and are required to make certain royalty payments in connection with the sale of products developed under the agreement. We are currently unable to estimate the timing or likelihood of achieving other future milestones or making future product sales. See above and Note 4. “ Commitments and Contingencies ” to our financial statements included elsewhere in this Annual Report for additional information regarding the Mitsubishi License. +We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services, and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts. +Critical Accounting Estimates +We have prepared the financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its critical estimates, including those related to prepaid and accrued research and development expenses. We base our estimates on our historical experience and on assumptions that we believe are reasonable; however, actual results may differ materially from these estimates under different assumptions or conditions. +While our significant accounting policies are described in more detail in Note 2. “ Summary of Significant Accounting Policies ” to our financial statements included elsewhere in this Annual Report, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements. +-102- +Prepaid and Accrued Research and Development Expenses +As part of the process of preparing our financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers provide us invoices monthly in arrears for services performed. We make estimates of our prepaid and accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at the time. We confirm the accuracy of estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include expenses for: +• CROs in connection with clinical trials; +• investigative sites in connection with clinical trials; +• vendors in connection with preclinical development activities; and +• vendors related to product manufacturing, development, and distribution of clinical materials. +Prepaid and expense accruals related to clinical trials are based on our estimates of services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the enrollment of patients and the completion of clinical trial milestones. In accruing costs, we estimate the period over which services will be performed and the level of effort to be expended in each period based on patient enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred. Any estimates of the level of services performed or the costs of these services could differ from actual results. +To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, we cannot assure that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities. +Determination of the Fair Value of our Common Stock +Historically for all periods prior to the IPO, since there had been no public market for our common stock, we had been required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. The fair value of the common stock underlying our equity awards was determined on each grant date by our board of directors, taking into consideration input from management and independent third-party valuation analyses. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. Prior to obtaining the Mitsubishi License in July 2020, the fair value of our common stock was nominal because we were not sufficiently capitalized and held no assets that could be used to generate future revenues. Subsequent to obtaining the Mitsubishi License, we considered various objective and subjective factors to determine the fair value of our common stock, including: +• valuations of our common stock performed with the assistance of independent third-party valuation specialists; +• our stage of development and business strategy, including the status of research and development efforts of lorundrostat, and the material risks related to our business and industry; +-103- +• our results of operations and financial position, including our levels of available capital resources; +• the valuation of publicly-traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; +• the lack of marketability of our common stock as a private company; +• the prices of our convertible preferred stock sold to investors in arm’s length transactions and the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock; and +• the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions. +Prior to the IPO, there were significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates included assumptions regarding our future operating performance, the time estimated to complete an initial public offering or other liquidity event, and the determination of the appropriate valuation methods. If we had made different assumptions, our net loss and net loss per common share could have been significantly different. +Since the completion of our IPO, the fair value of our common stock is based on the closing price as reported on the date of grant by the Nasdaq Global Select Market on which our common stock is traded. +Stock-Based Compensation Expense +Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (generally the vesting period) on a straight-line basis with forfeitures recognized as they occur. +We estimate the fair value of option grants using the Black-Scholes option pricing model. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 2. “ Summary of Significant Accounting Policies ” of the notes to our financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during 2024 and 2023. +JOBS Act and Smaller Reporting Company Status +As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. +We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur +-104- +if, among other factors, the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year (subject to certain conditions), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Recently Issued Accounting Pronouncements +We have reviewed all recently issued accounting pronouncements and have determined that, other than as disclosed elsewhere in this Annual Report, such standards do not have a material impact on our financial statements or do not otherwise apply to our operations. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and investments. As of December 31, 2024, our cash equivalents and investments consisted of money market funds and U.S. treasury securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The fair value of our short-term cash equivalents and investments is subject to change as a result of potential changes in market interest rates. Due to the nature of our cash equivalents and investments, we believe an immediate hypothetical 10% change in interest rates would not have had a material effect on our results of operations during the years presented. +Foreign Currency Exchange Risk +We are exposed to market risk related to changes in foreign currency exchange rates. We contract with vendors that are located outside the United States and certain invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. To date, these fluctuations have not been significant, and we have not had a formal hedging program with respect to foreign currency. We believe an immediate hypothetical 10% change in exchange rates would not have had a material effect on our results of operations during the years presented. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development contract costs. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the future due to an impact on the costs to conduct clinical trials, labor costs we incur to attract and retain qualified personnel, and other operational costs. Inflationary costs could adversely affect our business, financial condition, and results of operations. +-105- +Item 8. Financial Statements and Supplementary Data +Mineralys Therapeutics, Inc. +Financial Statements +Index +Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) +F- 2 +Balance Sheets as of December 31, 2024 and 2023 +F- 3 +Statements of Operations for the Years Ended December 31, 2024 and 2023 +F- 4 +Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2024 and 2023 +F- 5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F- 6 +Notes to Financial Statements +F- 7 +F-1 +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors of Mineralys Therapeutics, Inc. +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Mineralys Therapeutics, Inc. (the Company) as of December 31, 2024 and 2023, the related statements of operations, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2022. +Denver, Colorado +February 12, 2025 +F-2 +Mineralys Therapeutics, Inc. +Balance Sheets +(in thousands, except share and per share amounts) +December 31, +2024 2023 +Assets +Current assets: +Cash and cash equivalents $ 114,091 $ 49,304 +Investments 84,096 187,263 +Prepaid and other current assets 7,164 12,536 +Total current assets 205,351 249,103 +Investments, noncurrent — 2,482 +Property and equipment, net 53 — +Other assets 499 51 +Total assets $ 205,903 $ 251,636 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable $ 479 $ 601 +Accrued liabilities 14,167 9,881 +Total current liabilities 14,646 10,482 +Commitments and contingencies (Note 4) +Stockholders’ equity: +Common stock, $ 0.0001 par value; 500,000,000 shares authorized as of December 31, 2024 and 2023; 49,821,915 and 41,133,916 shares issued and outstanding as of December 31, 2024 and 2023, respectively +5 4 +Additional paid-in capital 493,770 365,858 +Accumulated deficit ( 302,518 ) ( 124,708 ) +Total stockholders’ equity 191,257 241,154 +Total liabilities and stockholders’ equity $ 205,903 $ 251,636 +The accompanying notes are an integral part of these financial statements. +F-3 +Mineralys Therapeutics, Inc. +Statements of Operations +(in thousands, except share and per share data) +Year Ended +December 31, +2024 2023 +Operating expenses: +Research and development $ 168,581 $ 70,361 +General and administrative 23,822 14,296 +Total operating expenses 192,403 84,657 +Loss from operations ( 192,403 ) ( 84,657 ) +Interest income, net 14,588 12,756 +Other income 5 3 +Total other income, net 14,593 12,759 +Net loss $ ( 177,810 ) $ ( 71,898 ) +Net loss per share attributable to common stockholders, basic and diluted $ ( 3.66 ) $ ( 1.99 ) +Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 48,539,795 36,188,254 +The accompanying notes are an integral part of these financial statements. +F-4 +Mineralys Therapeutics, Inc. +Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) +(in thousands, except share data) +Series A +Convertible Preferred Stock Series B +Convertible Preferred Stock Common Stock Additional +Paid-In-Capital Accumulated +Deficit Total +Stockholders’ Equity (Deficit) +Shares Amount Shares Amount Shares Amount +Balance as of December 31, 2022 86,332,216 $ 40,987 136,510,868 $ 117,657 6,419,238 $ 1 $ 540 $ ( 52,810 ) $ ( 52,269 ) +Conversion of preferred stock to common stock upon closing of initial public offering ( 86,332,216 ) ( 40,987 ) ( 136,510,868 ) ( 117,657 ) 20,637,415 2 158,642 — 158,644 +Issuance of common stock from initial public offering, net of issuance costs of $ 19,441 +— — — — 13,800,000 1 201,358 — 201,359 +Issuance of common stock from stock option exercises — — — — 268,534 — 194 — 194 +Issuance of common stock for cash under employee stock purchase plan — — — — 8,729 — 64 — 64 +Stock-based compensation — — — — — — 5,060 — 5,060 +Net loss — — — — — — — ( 71,898 ) ( 71,898 ) +Balance as of December 31, 2023 — — — — 41,133,916 4 365,858 ( 124,708 ) 241,154 +Issuance of common stock and pre-funded warrants in a private placement offering, net of offering costs of $ 3,941 +— — — — 8,339,169 1 116,058 — 116,059 +Issuance of common stock from stock option exercises — — — — 321,942 — 297 — 297 +Issuance of common stock for cash under employee stock purchase plan — — — — 26,888 — 221 — 221 +Stock-based compensation — — — — — — 11,336 — 11,336 +Net loss — — — — — — — ( 177,810 ) ( 177,810 ) +Balance as of December 31, 2024 — $ — — $ — 49,821,915 $ 5 $ 493,770 $ ( 302,518 ) $ 191,257 +The accompanying notes are an integral part of these financial statements. +F-5 +Mineralys Therapeutics, Inc. +Statements of Cash Flows +(in thousands) +Year Ended +December 31, +2024 2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss $ ( 177,810 ) $ ( 71,898 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Accretion of discount on held-to-maturity securities ( 9,405 ) ( 6,865 ) +Stock-based compensation 11,336 5,060 +Depreciation and amortization 43 — +Changes in operating assets and liabilities: +Accrued interest receivable 424 ( 355 ) +Prepaid and other current assets 4,935 ( 9,530 ) +Accounts payable and accrued liabilities 4,163 2,415 +Net cash used in operating activities ( 166,314 ) ( 81,173 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchase of marketable securities ( 373,445 ) ( 347,972 ) +Maturity of marketable securities 488,500 187,500 +Purchases of property and equipment ( 96 ) — +Net cash provided by (used in) investing activities 114,959 ( 160,472 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from issuance of common stock and pre-funded warrants in a private placement offering, net of paid offering costs 116,059 — +Proceeds from stock option exercises 297 194 +Proceeds from the issuance of common stock for cash under employee stock purchase plan 221 64 +Offering costs paid ( 435 ) — +Proceeds from issuance of common stock in initial public offering, net of offering costs +— 202,990 +Net cash provided by financing activities 116,142 203,248 +Net increase (decrease) in cash and cash equivalents 64,787 ( 38,397 ) +Cash and cash equivalents - beginning 49,304 87,701 +Cash and cash equivalents - ending (1) +$ 114,091 $ 49,304 +Supplement Disclosure of Non-Cash Financing Activities: +Conversion of convertible preferred stock to common stock upon closing of initial public offering $ — $ 159,180 +(1) Cash and cash equivalents as of December 31, 2024 exclude investments of $ 84.1 million. Cash, cash equivalents, and investments amounted to $ 198.2 million as of December 31, 2024. +The accompanying notes are an integral part of these financial statements. +F-6 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 1. Nature of Business +Mineralys Therapeutics, Inc. (the Company) is a clinical-stage biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. The Company’s clinical-stage product candidate, lorundrostat, is a proprietary, orally administered, aldosterone synthase inhibitor that the Company is developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension, chronic kidney disease, and obstructive sleep apnea. The Company has initiated a pivotal clinical program of lorundrostat for the treatment of uncontrolled or resistant hypertension and a Phase 2 trial for lorundrostat in hypertensive patients with Stage 2 to 3b chronic kidney disease. Additionally, the Company is investigating the benefits of lorundrostat in subjects with hypotension and obstructive sleep apnea. The Company was incorporated as a Delaware corporation in May 2019, and it is headquartered in Radnor, Pennsylvania. The Company’s operations to date have been limited to business planning, raising capital, in-licensing, conducting preclinical and clinical trials, and other research and development. +Initial Public Offering +On February 14, 2023, the Company completed an initial public offering (IPO) of 13,800,000 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase 1,800,000 additional shares, at a public offering price of $ 16.00 per share. The net proceeds to the Company from the IPO were $ 201.4 million, net of underwriting discounts, commissions, and offering costs. +Reverse Stock Split +On February 1, 2023, the Company effected a one-for-10.798 reverse stock split of its issued and outstanding shares of common stock, par value $ 0.0001 per share, and a proportional adjustment to the existing conversion ratio of the Company’s preferred stock (the Reverse Stock Split). Accordingly, all share and per-share amounts for all years presented in the accompanying financial statements and notes thereto have been adjusted to reflect this Reverse Stock Split. +Liquidity and Capital Resources +Since its inception, the Company has not generated any revenue from product sales or other sources and has incurred significant operating losses and negative cash flows from operations. The Company’s primary uses of cash to date have been to fund research and development activities, business planning, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. As of December 31, 2024, the Company had an accumulated deficit of $ 302.5 million and cash, cash equivalents, and investments of $ 198.2 million. For the year ended December 31, 2024, the Company had a net loss of $ 177.8 million and net cash used in operating activities of $ 166.3 million. +From inception to December 31, 2024, the Company has funded its operations by raising aggregate gross proceeds of approximately $ 498.8 million from the sale of the Company’s common stock, convertible preferred stock, convertible notes, and pre-funded warrants. The Company has a limited operating history, and the sales and income potential of its business is unproven. The Company expects to continue to incur substantial losses in the foreseeable future as a result of the Company’s research and development activities. Additional funding will be required in the future to continue with the Company’s planned research and development and other activities. The Company expects to finance its operations through equity offerings, debt financings, and other capital sources, including potential strategic collaborations, licensing, and other similar arrangements. The Company believes that its cash, cash equivalents, and investments as of December 31, 2024 will be sufficient to allow the Company to fund operations for at least twelve months from the issuance date of these financial statements. +F-7 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), which include all adjustments necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows for the years presented. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates of the Financial Accounting Standards Board (FASB). The Company’s management performed an evaluation of its activities through the date of filing of these financial statements and concluded that there are no subsequent events requiring disclosure, other than as disclosed. +Emerging Growth Company Status +The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of its initial public offering or such earlier time as the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering or such earlier time that it is no longer an “emerging growth company.” +Segment Information +The Company operates in one operating segment for the purposes of assessing performance, making operating decisions, and allocating Company resources. The Company’s chief operating decision maker (CODM) is its chief executive officer, who considers net loss to evaluate overall expenses associated with conducting research and development activities, which includes evaluating the progress of ongoing clinical trials and the planning and execution of current and future research and development activities. Further, the CODM reviews and utilizes functional expenses (research and development and general and administrative) as reported in the statements of operations to manage the Company’s operations. Other segment items included in net loss are interest income, net and other income. The measure of performance, significant expenses, and other items are each reflected in the statements of operations. The accounting policies of the segment are the same as those described below. The measure of segment assets is reported on the balance sheets as total assets. All assets are held in the United States. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Estimates have been used in the following areas, among others: research and development accruals, fair value of the Company’s common stock prior to the closing of the Company’s IPO, and income taxes. +Cash and Cash Equivalents +All highly liquid investments that have maturities of 90 days or less at the date of purchase are classified as cash equivalents. As of December 31, 2024 and 2023, the Company did not have any restricted +F-8 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +cash balances. The Company’s cash and cash equivalents balances as of December 31, 2024 include cash balances and amounts held primarily in interest-bearing money market accounts and U.S. Treasury bills with original maturities of less than three months. The Company’s cash and cash equivalents balances as of December 31, 2023 include cash balances and amounts held primarily in interest-bearing money market accounts. The following table provides a reconciliation of cash and cash equivalents as reported in the statements of cash flows to the balance sheets (in thousands): +December 31, +2024 2023 +Cash $ 664 $ 643 +Cash equivalents 113,427 48,661 +Total cash and cash equivalents $ 114,091 $ 49,304 +Concentration of Credit Risk +The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash balances in several accounts with three financial institutions which, from time to time, are in excess of federally insured limits. +Risks and Uncertainties +The Company has not yet generated any revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biopharmaceutical companies that devote substantially all of their efforts to research and development and clinical trials and do not yet have commercial products. The Company expects to continue incurring losses for the foreseeable future. +Fair Value Measurements +The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820, Fair Value Measurement, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. +Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: +• Level 1 – quoted prices in active markets for identical assets and liabilities +• Level 2 – other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.) +• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities) +For certain financial instruments, including cash and cash equivalents, prepaid expenses, accounts payable, and certain accrued liabilities, the recorded amount approximates estimated fair value due to their relatively short maturity period. Refer to Note 3. “ Fair Value of Financial Instruments ” for additional details of the Company’s financial instruments. +F-9 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Investments +The Company generally invests its excess cash in money market funds and investment-grade short- and long-term fixed-income debt securities, such as U.S. Treasury bills. Such investments are included in cash and cash equivalents, current investments, and investments - noncurrent in the balance sheets. +The Company determines the appropriate classification of short-term and long-term securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost, adjusted for the accretion of discounts using the interest method. +The Company invested in marketable securities during the years ended December 31, 2024 and 2023, and no impairment charges were recorded. For held-to-maturity investments, the Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If the Company believes an impairment of a security position is other than temporary, based on available quantitative and qualitative information as of the report date, the loss will be recognized within other income, net in the Company’s statements of operations and a new cost basis in the investment is established. +Deferred Offering Costs +The Company capitalizes certain legal, professional, accounting, and other third-party fees that are directly associated with in-process equity issuances as deferred offering costs until such equity issuances are consummated. After consummation of the equity issuance, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance. Should the equity issuance be abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the statements of operations. Deferred offering costs as of December 31, 2024 and 2023 were $ 0.4 million and $ 0 , respectively. Such costs are classified in other assets on the balance sheets. +Convertible Preferred Stock +The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Company’s control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. Therefore, the convertible preferred stock is classified outside of stockholders’ deficit on the balance sheets as events triggering the redemption for cash were not solely within the Company’s control. The carrying values of the convertible preferred stock are adjusted to their liquidation preferences if and when it becomes probable that such a liquidation event will occur. In February 2023, the Company’s convertible preferred stock converted into shares of the Company’s common stock of which carrying value at the date of conversion was converted to permanent equity, which is described in more detail in Note 6. “ Capital Stock .” +Research and Development Expenses +Research and development costs, both internal and external, are expensed as incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company. The Company’s research and development expenses consist primarily of clinical trial expenses, consulting and employee-related costs, and costs associated with required regulatory filings, licenses, and fees. +Non-refundable advance payments for goods and services that will be used in future research and development activities are capitalized and recorded as expense in the period that the Company receives the +F-10 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +goods or when services are performed. Assets acquired (or in-licensed) that are utilized in research and development that have no alternative future use are expensed as incurred. +Commitments and Contingencies +From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and can be reasonably estimated. The Company expects that contingencies related to regulatory approval milestones will only become probable once such regulatory outcome is achieved. +Stock-Based Compensation +The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. The Company’s stock-based awards are subject only to service-based vesting conditions. The Company measures restricted common stock awards using the difference, if any, between the purchase price per share of the award and the fair value of the Company’s common stock at the date of the grant or modification. The Company estimates the fair value of its stock option awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. +Volatility — Due to the Company’s limited operating history and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar publicly-traded companies. The Company believes that the companies in the group were most representative of the Company and had characteristics similar to its own, including stage of product development, a focus on the life sciences industry, and other economic and industry characteristics. +Expected Term — The Company uses the simplified method to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted, and utilizes the contractual term for options granted. +Risk-Free Interest Rate — The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. +Expected Dividends — To date, the Company has not issued any dividends and does not expect to issue dividends over the life of the options and therefore has estimated the dividend yield to be zero. +Subsequent to the closing of the Company’s IPO, the Company determines the fair market value of its common stock using the closing price of its common stock as reported on the Nasdaq Global Select Market. Prior to the closing of the Company’s IPO, there was no public market for the Company’s common stock, and the Company determined the fair value of the shares of its common stock underlying its share-based awards by considering a number of objective and subjective factors, including third-party valuations of the Company’s common stock, the valuation of comparable companies, the Company’s operating and financial performance, and general and industry-specific economic outlook, among other factors. The assumptions underlying these valuations represented management’s best estimate, with the assistance of a third-party valuation specialist, which involved inherent uncertainties and the application of management’s judgment. As a result, if the Company had used different assumptions or estimates, the fair value of the Company’s common stock and its stock-based compensation expense could have been materially different. +Compensation expense related to awards is recognized on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term. Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. The Company accounts for forfeitures as they occur. +F-11 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Defined Contribution Plan +The Company sponsors a qualified 401(k) plan that allows eligible employees to make contributions, subject to certain limitations. The Company provides a matching contribution of up to 4 % of an employee’s compensation. For the years ended December 31, 2024 and 2023, the Company made matching contributions of $ 0.4 million and $ 0.2 million, respectively. +Net Loss Per Share +The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the year. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the year determined using the treasury stock method. For purposes of this calculation, unvested restricted stock awards and stock options to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive. The weighted-average number of common shares used in the basic and diluted net loss per common stockholders calculations includes the weighted-average pre-funded warrants outstanding during the period as they are exercisable at any time for nominal cash consideration. The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive: +Year Ended +December 31, +2024 2023 +Outstanding options 4,560,292 2,540,279 +Unvested restricted stock awards 370,106 1,007,930 +Total 4,930,398 3,548,209 +Income Taxes +Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. +The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that some or all of the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based on the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of December 31, 2024 and 2023, the Company does not have any significant uncertain tax positions. If the Company were to incur interest and penalties on uncertain tax positions, it would classify them as income tax expense. +Recently Issued Accounting Pronouncements +From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. +F-12 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, including public entities with a single reportable segment, primarily through enhanced disclosures about significant segment expenses. The Company adopted this standard for the Company’s fiscal year 2024 annual reporting period. +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company beginning in fiscal year 2026, with early adoption permitted. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures. +Note 3. Fair Value of Financial Instruments +The following table presents financial instruments measured at fair value on a recurring basis based on the fair value hierarchy as of December 31, 2024 and 2023 (in thousands): +December 31, +2024 2023 +Level 1 +Assets +Cash equivalents +Money market funds $ 83,602 $ 48,661 +There were no transfers within the fair value hierarchy during the years presented. +The following methods and assumptions were used by the Company in estimating the fair values of each class of financial instrument disclosed herein: +Money Market Funds —The carrying amounts of money market funds reported as cash and cash equivalents in the balance sheets approximate their fair values due to their short-term nature. The fair values of money market funds are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets. +U.S. Treasury Bills—As of December 31, 2024 and 2023, the Company had short- and long-term U.S. Treasury bills. Fair values of these securities are determined by Level 2 inputs utilizing quoted prices (unadjusted) in active markets for similar assets . The following table presents information about the Company’s investments in held-to-maturity U.S. Treasury bills as of each reported date (in thousands): +As of December 31, 2024 +Balance Sheet Location Original Maturities Amortized +Cost Estimated +Fair Value +Cash and cash equivalents less than 3 months $ 29,825 $ 29,829 +Investments between 3 and 12 months 84,096 84,123 +Total $ 113,921 $ 113,952 +F-13 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +As of December 31, 2023 +Balance Sheet Location Original Maturities Amortized +Cost Estimated +Fair Value +Investments between 3 and 12 months $ 187,263 $ 187,293 +Investments, noncurrent greater than 1 year 2,482 2,486 +Total $ 189,745 $ 189,779 +Note 4. Commitments and Contingencies +License Agreement with Mitsubishi Tanabe +In July 2020, the Company entered into a license agreement (the Mitsubishi License) with Mitsubishi Tanabe Pharmaceutical Company (Mitsubishi Tanabe), pursuant to which Mitsubishi Tanabe granted the Company an exclusive, worldwide, royalty-bearing, sublicensable license under Mitsubishi Tanabe’s patent and other intellectual property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans. Pursuant to the Mitsubishi License, the Company paid Mitsubishi Tanabe a $ 1.0 million upfront fee and development milestone payments of $ 9.0 million in the aggregate. The Company has remaining obligations to pay Mitsubishi Tanabe commercial milestone payments of up to $ 155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $ 10.0 million for a second indication. Additionally, the Company is obligated to pay Mitsubishi Tanabe tiered royalties at percentages ranging from the mid-single-digits to ten percent ( 10 %) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Mitsubishi Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +The Company is obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith developing at least one Lorundrostat Product in a non-major market country. If the Company elects to sublicense its rights under the Mitsubishi License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, the Company has agreed to negotiate such a sublicense first, for a specified period of time, with Mitsubishi Tanabe, if Mitsubishi Tanabe notifies the Company that it would like to obtain such a sublicense. The Company also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Mitsubishi Tanabe’s prior consent. +Unless terminated earlier, the Mitsubishi License will continue until the expiration of all of the Company’s royalty obligations to Mitsubishi Tanabe. The Company may terminate the Mitsubishi License for any or no reason upon 90 or 180 days’ prior written notice to Mitsubishi Tanabe depending on whether the Lorundrostat Product has received regulatory approval. Mitsubishi Tanabe may terminate the Mitsubishi License if the Company has not initiated regulatory consultation for the first global clinical trials of lorundrostat in at least one major market country within a specified amount of time or if the Company or its affiliates or sublicensees initiate a challenge to the patent rights licensed to the Company by Mitsubishi Tanabe. In addition, either party may terminate the Mitsubishi License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +The Company incurred $ 0 and $ 9.0 million of research and development expenses pursuant to the Mitsubishi License during the years ended December 31, 2024 and 2023, respectively, that related to the Company’s initiation of its pivotal clinical program of lorundrostat in 2023. As of December 31, 2024, the +F-14 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Company has paid an aggregate of $ 9.0 million in development milestone payments and has no remaining development milestone obligations under the Mitsubishi License. +Litigation +Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the years ended December 31, 2024 and 2023, and no material legal proceedings are currently pending or threatened. +Indemnification Agreements +In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with officers of the Company and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2024 and 2023. +Note 5. Accrued Liabilities +Accrued liabilities consisted of the following (in thousands): +December 31, +2024 2023 +Research and development expenses $ 8,614 $ 7,122 +Compensation and benefits 3,582 1,599 +Professional fees and other 1,971 1,160 +Total $ 14,167 $ 9,881 +Note 6. Capital Stock +As of December 31, 2024, the Company had reserved authorized shares of common stock for future issuance as follows: +Common stock options outstanding 4,560,292 +Shares available for grant under the 2023 Plan 2,510,030 +Shares available for grant under the ESPP 775,722 +Pre-funded warrants issued and outstanding 549,755 +Total 8,395,799 +In connection with the closing of the IPO in February 2023, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation (the Restated Certificate). The Restated Certificate amended and restated the Company’s amended and restated certificate of incorporation, in its entirety to, among other things, increase the authorized number of shares of common stock +F-15 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +to 500,000,000 shares and authorize 50,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series. +Preferred Stock Offerings +In February 2021, the Company entered into a Series A redeemable convertible preferred stock agreement (the Series A Purchase Agreement). From February 2021 to April 2021, the Company issued 50,311,827 shares of Series A Preferred Stock at $ 0.477 per share for net proceeds of $ 23.8 million. Additionally, in February 2021, the Company’s convertible notes and related accrued interest converted into 10,868,432 shares of Series A Preferred Stock. The Series A Purchase Agreement provided for an additional closing for the Series A purchasers for the issuance of up to 25,151,957 shares of Series A Preferred Stock, at a purchase price of $ 0.477 per share for aggregate cash proceeds of $ 12.0 million, upon the achievement of the Milestone (as defined in the Series A Purchase Agreement) or a waiver of the Milestone by the requisite holders. In January 2022, the Company achieved the Milestone under the Series A Purchase Agreement and sold an aggregate of 25,151,957 shares of Series A Preferred Stock under the Series A Purchase Agreement to certain existing investors, members of the Company’s board of directors, and affiliates of members of its board of directors, at a purchase price of $ 0.477 per share for aggregate net proceeds of approximately $ 12.0 million. +In June 2022, the Company entered into a Series B convertible preferred stock agreement with certain investors, including members of the Company’s board of directors and affiliates of members of its board of directors, pursuant to which the Company issued and sold to such investors an aggregate of 136,510,868 shares of Series B Preferred Stock at a purchase price of $ 0.8644 per share for aggregate net proceeds of approximately $ 117.7 million. +Immediately prior to the closing of the IPO, 86,332,216 shares of Series A Preferred Stock and 136,510,868 shares of Series B Preferred Stock converted into 20,637,415 shares of the Company’s common stock, and the carrying value of Series A Preferred Stock and Series B Preferred Stock was converted to permanent equity. +Private Placement Offering +On February 7, 2024, the Company entered into a securities purchase agreement (the Purchase Agreement) with the purchasers named therein (the Purchasers), for the private placement (the Private Placement) of (i) 8,339,169 shares (the Shares) of the Company’s common stock at a price of $ 13.50 per Share, and (ii) with respect to certain Purchasers, pre-funded warrants to purchase an aggregate of 549,755 shares of common stock (the Pre-Funded Warrants) in lieu of shares of common stock, at a purchase price of $ 13.499 per Pre-Funded Warrant (the shares of common stock issuable upon exercise of the Pre-Funded Warrants, the Warrant Shares) for aggregate net proceeds of approximately $ 116.1 million. The Company is using the net proceeds from the Private Placement to fund the research and development of lorundrostat and for working capital and general corporate purposes. +Each Pre-Funded Warrant has an exercise price of $ 0.001 per share of common stock, is immediately exercisable on the date of issuance, and will not expire. Under the terms of the Pre-Funded Warrants, the Company may not effect the exercise of any portion of any Pre-Funded Warrant, and a holder will not have the right to exercise any portion of any Pre-Funded Warrant, which, upon giving effect to such exercise, would cause a holder (together with its affiliates) to own more than a specified beneficial ownership limitation of either 4.99 %, 9.99 %, or 19.99 % (as selected by such holder prior to the issuance of the Pre-Funded Warrant) of the number of shares of common stock outstanding immediately after giving effect to such exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 19.99 %, provided that any increase in such percentage shall not be effective until 61 days after such notice is delivered to the Company. +F-16 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +The Company registered the resale of the Shares and the Warrant Shares on a shelf registration statement on Form S-3 (Registration No. 333-278122), which was declared effective by the SEC on April 11, 2024 (the Registration Statement). Pursuant to the Purchase Agreement, the Company agreed to use its reasonable best efforts to keep the Registration Statement effective until the earliest of (i) the time as all of the Shares and Warrant Shares purchased by the Purchasers pursuant to the terms of the Purchase Agreement have been sold pursuant to the Registration Statement, or (ii) such time as the Shares and Warrant Shares become eligible for resale by non-affiliates without any volume limitations or other restrictions pursuant to Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. +At Market Equity Offering Sales Agreement +On March 21, 2024, the Company entered into an ATM Equity Offering Sales Agreement (the ATM Agreement) with BofA Securities, Inc. and Evercore Group L.L.C. as the Company’s sales agents (the Agents) and/or principals. Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agents shares of the Company’s common stock having an aggregate offering price of up to $ 100,000,000 (the ATM Shares). Any ATM Shares will be issued pursuant to the Registration Statement. Sales of the ATM Shares, if any, will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market or as otherwise agreed by the Company and the Agents. Under the terms of the ATM Agreement, the Company may also sell the ATM Shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the ATM Shares to an Agent as principal would be pursuant to the terms of a separate terms agreement between the Company and such Agent. The Company has not yet sold any ATM Shares as of December 31, 2024. +Note 7. Stock-Based Compensation +2023 Incentive Award Plan +In February 2023, the Company’s board of directors adopted and stockholders approved the 2023 Incentive Award Plan that became effective upon the closing of the IPO (2023 Plan), under which the Company may grant stock options, restricted stock awards (RSAs), dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to its employees, consultants, and directors. The number of shares of the Company’s common stock initially available for issuance under awards granted pursuant to the 2023 Plan was the sum of (i) 4,650,000 shares of the Company’s common stock, plus (ii) any shares subject to outstanding awards under the 2020 Plan described below as of the effective date of the 2023 Plan that become available for issuance under the 2023 Plan thereafter in accordance with its terms. +The number of shares initially available for issuance will be increased on January 1 of each calendar year beginning in 2024 and ending in 2033, by an amount equal to the lesser of (i) 4 % of the shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as determined by the Company’s board of directors. No more than 100,000,000 shares of the Company’s common stock may be issued upon the exercise of incentive stock options under the 2023 Plan. Shares issued under the 2023 Plan may be authorized but unissued shares, shares purchased on the open market, or treasury shares. +2020 Equity Incentive Plan +On July 7, 2020, the board of directors adopted, and the Company’s stockholders approved, the 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan, as amended and restated (the 2020 Plan), provided for the grant of incentive stock options to employees of the Company, and for the grant of non-statutory stock options, RSAs, restricted stock unit awards, and other forms of stock awards to employees, directors, and consultants of the Company. +Subsequent to the closing of the IPO, no additional awards will be granted under the 2020 Plan. However, the 2020 Plan will continue to govern the terms and conditions of the outstanding awards granted +F-17 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +under it. Shares of the Company’s common stock subject to awards granted under the 2020 Plan that expire, lapse, or are terminated, exchanged for cash, surrendered, repurchased, or forfeited following the effective date of the 2020 Plan will be available for issuance under the 2023 Plan in accordance with its terms. +The board of directors or a designated committee of the board of directors is responsible for the administration of the 2023 Plan, and previously the 2020 Plan, and determines the term, exercise price, and vesting terms of each award. Under the terms of existing awards, all stock option grants expire ten years from the grant date. New option grants could not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date and generally vested over a period of four years . The Company issues new shares of common stock upon exercise of stock options or issuance of RSAs. +As of December 31, 2024, the Company had the following balances by plan: +Options +Outstanding Unvested +RSAs Shares Available +for Grant +2023 Plan 3,793,940 — 2,510,030 +2020 Plan 766,352 370,106 — +Total 4,560,292 370,106 2,510,030 +Stock Options +The following is a summary of the Company’s stock option activity under its 2023 Plan and 2020 Plan: +Shares Weighted-Average Exercise Price Total Intrinsic Value +(in thousands) Weighted-Average Remaining Contractual Life (Years) +Options outstanding as of December 31, 2023 2,540,279 $ 9.10 $ 8,291 8.8 +Options granted 2,709,800 $ 12.83 +Options exercised ( 321,942 ) $ 0.92 +Options forfeited or expired ( 367,845 ) $ 10.77 +Options outstanding as of December 31, 2024 4,560,292 $ 11.76 $ 9,756 8.6 +Options vested and exercisable as of December 31, 2024 1,221,180 $ 9.64 $ 5,217 8.0 +As of December 31, 2024, the Company had $ 27.2 million of unrecognized share-based compensation expense related to stock option awards that is expected to be recognized over a weighted-average period of approximately 1.5 years. For the years ended December 31, 2024 and 2023, the total fair value of options vested was $ 8.9 million and $ 1.5 million, respectively. The aggregate intrinsic value of options exercised for the years ended December 31, 2024 and 2023 was $ 4.2 million and $ 3.2 million, respectively. +The weighted-average grant date fair value per share for options granted during the years ended December 31, 2024 and 2023 was $ 9.55 and $ 12.41 , respectively. The following table presents the weighted- +F-18 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted during the following periods: +Year Ended +December 31, +2024 2023 +Exercise price $ 12.83 $ 15.19 +Expected term (years) 6.04 years 6.01 years +Expected stock price volatility 87.0 % 104.6 % +Risk-free rate of interest 4.2 % 3.9 % +Expected dividend yield — % — % +Restricted Stock Awards +RSAs granted by the Company have varying vesting terms depending on the terms of the grant. Holders of unvested RSAs have the same rights as those of common stockholders including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot be transferred until vested. Upon a participant’s termination of continuous service for any reason, any shares subject to RSAs held by the participant that have not vested as of such termination date may be forfeited to or repurchased by the Company. +The following is a summary of the Company’s RSA activity under its 2023 Plan and 2020 Plan: +Shares Weighted-Average Grant Date Fair Value +Unvested as of December 31, 2023 1,007,930 $ 1.6338 +Vested ( 637,824 ) $ 1.5466 +Unvested as of December 31, 2024 370,106 $ 1.7842 +As of December 31, 2024, the Company had $ 0.6 million of unrecognized share-based compensation expense related to RSAs that is expected to be recognized over a weighted-average period of approximately 0.8 years. For the years ended December 31, 2024 and 2023, the total fair value of RSAs vested was $ 1.0 million and $ 0.1 million, respectively. +2023 Employee Stock Purchase Plan +In February 2023, the Company’s board of directors and stockholders approved the 2023 Employee Stock Purchase Plan (ESPP), which became effective upon the closing of the Company’s IPO. The ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to a specified percentage of their eligible compensation withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. A total of 400,000 shares of the Company’s common stock was initially reserved for issuance under the ESPP. The first ESPP offering period commenced on July 1, 2023, with each new six-month offering period beginning each January 1 and July 1. ESPP purchases of common stock occur at a price equal to 85 % of the lower of (i) the closing price on the first trading day of the offering period or (ii) the closing price on the last trading day of the offering period. As of December 31, 2024, the Company had 775,722 shares available for issuance and 35,617 cumulative shares had been issued under the ESPP. +In addition, the number of shares available for issuance under the ESPP will be annually increased on January 1 of each calendar year beginning in 2024 and ending in and including 2033, by an amount equal to the lesser of (i) 1 % of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the Company’s board of directors, provided that no more than 15,000,000 shares of the Company’s common stock may be issued under the ESPP. +F-19 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Total stock-based compensation expense reported in the statements of operations was allocated as follows (in thousands): +Year Ended +December 31, +2024 2023 +Research and development $ 5,008 $ 2,263 +General and administrative 6,328 2,797 +Total +$ 11,336 $ 5,060 +Note 8. Income Taxes +There was no current or deferred income tax expense or benefit for the years ended December 31, 2024 and 2023, due to the Company’s net loss and increases in its deferred tax asset valuation allowance. The components of the Company’s deferred tax assets are as follows (in thousands): +December 31, +2024 2023 +Net operating loss carryforwards $ 15,580 $ 7,890 +Research and development credit carryforwards 15,380 5,671 +Capitalized research and development costs 44,981 15,037 +Intangible assets 1,976 2,048 +Other 2,012 857 +Total deferred tax assets 79,929 31,503 +Valuation allowance ( 79,929 ) ( 31,503 ) +Deferred tax assets, net of valuation allowance $ — $ — +The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets, which are dependent on future earnings, if any, the timing and amount of which are uncertain. The Company periodically evaluates the recoverability of the deferred tax assets. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. The Company’s valuation allowance increased by approximately $ 48.4 million and $ 18.6 million for the years ended December 31, 2024 and 2023, respectively. +As of December 31, 2024 and 2023, the Company had federal net operating loss (NOL) carryforwards of $ 69.0 million and $ 35.0 million available to reduce future taxable income, respectively. The federal NOL carryforward has no expiration as a result of the Tax Cuts and Jobs Act of 2017. As of December 31, 2024 and 2023, the Company had $ 17.2 million and $ 8.6 million, respectively, of state NOL carryforwards that begin expiring in 2041. +As of December 31, 2024 and 2023, the Company had federal and state research and development tax credit carryforwards of $ 15.6 million and $ 5.7 million, respectively, to reduce future taxable income. The federal research and development tax credit carryforwards begin to expire in 2041. Research and development tax credit carryforwards associated with California carry forward indefinitely. Research and development tax credit carryforwards associated with other states begin expiring in 2038. +The Internal Revenue Code (IRC) Sections 382 and 383 limit annual use of NOL and research and development credit carryforwards in the event a cumulative change in ownership of more than 50% occurs +F-20 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +within a three-year period. The Company completed an ownership change analysis pursuant to IRC Section 382 through December 31, 2024 and determined that the Company experienced ownership changes on February 16, 2021 and June 1, 2022. Since all of the Company’s federal NOLs have an indefinite carryover period, none of the federal NOLs generated prior to the ownership changes will expire prior to utilization, but will be subject to the annual limitations on future utilization. As a result of the annual limitation, approximately $ 0.2 million of federal research and development credits will expire prior to utilization due to the ownership change occurring on February 16, 2021. The remaining federal research and development credits are available to offset federal tax liability within their respective federal research and development credit carryover periods (20 years), subject to the annual limitations on future utilization. State NOLs and state research and development credits may be similarly limited. The Company’s use of federal and state NOLs and research and development credits could be further limited by ownership changes that occur subsequent to December 31, 2024. If eliminated, the related asset would be removed from the deferred tax asset with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. +The Company’s effective tax rate for the years ended December 31, 2024 and 2023 was 0 %. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended: +December 31, +2024 2023 +Statutory federal income tax rate 21.00 % 21.00 % +State income taxes, net of federal tax benefits 1.76 ( 0.29 ) +Research and development credits 5.19 5.74 +Permanent items and other ( 0.70 ) ( 0.60 ) +Change in valuation allowance ( 27.25 ) ( 25.85 ) +Total provision for income taxes — % — % +The Company files income tax returns in the U.S. Federal jurisdiction and various state and local jurisdictions. As of December 31, 2024, all years remained subject to examination by tax authorities. +Uncertain tax positions are evaluated based on the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based on new information may lead to changes in recognition, derecognition, and measurement. Adjustment may result, for example, upon resolution of an issue with the taxing authorities or expiration of a statute of limitations barring an assessment for an issue. The Company recognizes a tax benefit from an uncertain tax position when it is more-likely-than-not that it will be sustained upon examination by tax authorities. +As of December 31, 2024 and 2023, the Company had $ 4.5 million and $ 1.1 million, respectively, in unrecognized tax benefits, which would not affect the effective tax rate if recognized due to the valuation allowance against deferred tax assets. The Company does not anticipate any significant changes in its unrecognized tax benefits over the next 12 months. The Company’s policy is to recognize interest expense and penalties related to income tax matters in income tax expense. As of December 31, 2024 and 2023, the Company had no accrued interest or penalties related to uncertain tax positions. +F-21 +Mineralys Therapeutics, Inc. +Notes to Financial Statements +The following table summarizes the changes to the Company’s unrecognized tax benefits for the years ended December 31, 2024 and 2023 (in thousands): +Year Ended +December 31, +2024 2023 +Beginning balance $ 1,076 $ 261 +Additions related to current year positions 2,921 781 +Additions related to prior year positions 508 34 +Ending balance $ 4,505 $ 1,076 +On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more significant provisions include the removal of certain limitations on the utilization of net operating losses, an increase in the loss carryback period for certain losses to five years, and an increase in the ability to deduct interest expense. Additionally, the CARES Act amends certain provisions of the previously enacted Tax Cuts and Jobs Act of 2017. +Note 9. Subsequent Events +On February 10, 2025, the board of directors adopted and approved the Company’s 2025 Employment Inducement Incentive Award Plan (the 2025 Inducement Plan), which became effective on February 10, 2025. In accordance with Rule 5635(c)(4) of the Nasdaq Stock Market listing rules, equity awards under the 2025 Inducement Plan may only be made to an employee if he or she is granted such awards in connection with the commencement of his or her employment with the Company and such grant is a material inducement to his or her entering into employment with the Company. +The Company has reserved 1,000,000 shares of common stock for issuance pursuant to non-qualified stock options and restricted stock units under the 2025 Inducement Plan. As of February 12, 2025, no shares had been issued under the 2025 Inducement Plan. +F-22 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures +We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. +Management’s Annual Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act. Management assessed our internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. +Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the audit committee of our board of directors. +Our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act. +Changes in Internal Control Over Financial Reporting +There have been no changes in our internal control over financial reporting during the three months ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +– 106 – +Item 9B. Other Information +2025 Employment Inducement Incentive Award Plan +On February 10, 2025, the Compensation Committee (the Committee) of the Company approved the Mineralys Therapeutics, Inc. 2025 Employment Inducement Incentive Award Plan (the 2025 Inducement Plan). The terms of the 2025 Inducement Plan are substantially similar to the terms of the Company’s 2023 Incentive Award Plan with the exception that incentive stock options may not be issued under the 2025 Inducement Plan and awards under the 2025 Inducement Plan may only be issued to eligible recipients under the applicable Nasdaq Listing Rules. The 2025 Inducement Plan was adopted by the Committee without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. +There are initially 1,000,000 shares of the Company’s common stock reserved for issuance pursuant to awards granted under the 2025 Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the 2025 Inducement Plan may only be made to an employee who is commencing employment with the Company or any of its affiliates or who is being rehired following a bona fide interruption of employment by the Company or any of its affiliates, in any case if he or she is granted such award in connection with his or her commencement of employment with the Company or any of its affiliates and such grant is an inducement material to his or her entering into employment with the Company or any of its affiliates, as applicable. +The foregoing description of the 2025 Inducement Plan is a summary only and does not describe all terms and conditions applicable to the 2025 Inducement Plan. The description is subject to and qualified in its entirety by the terms of the 2025 Inducement Plan and the forms of stock option and restricted stock unit agreements, copies of which are filed hereto within exhibit 10.12. +Rule 10b5-1 Trading Plans +During the three months ended December 31, 2024, one of our officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules). The material terms of these Rule 10b5-1 trading arrangements are described below: +Name and Title Action Taken Type of Trading Arrangement Nature of Trading Arrangement Duration of Trading Arrangement Number of Securities +David Rodman, M.D. , Chief Medical Officer +Adoption 10/25/2024 +Trading plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) Sale of the Company’s common stock pursuant to the terms of the plan +4/1/2025 - 12/31/2025 +(1) +________ +(1) The executive’s Rule 10b5-1 trading arrangement provides for the sale of up to (i) 132,730 shares of common stock that are currently outstanding and (ii) 31,118 shares of common stock subject to a stock option award granted to Dr. Rodman that vests ratably over time. +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +Not Applicable. +– 107 – +Part III +Item 10. Directors, Executive Officers and Corporate Governance +Information regarding our executive officers is included in Part I, Item 1 of this Annual Report under the caption “ Information About Our Executive Officers .” +Our board of directors has adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.mineralystx.com . In addition, we intend to post on our website all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from, any provision of the code. We have included our website address in this Annual Report solely as an inactive textual reference. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report. +The additional information required by this item is incorporated by reference from our 2025 Proxy Statement under the captions “ Proposal 1: Election of Directors ” and “ Delinquent Section 16(a) Reports .” +Item 11. Executive Compensation +The information required by this item is incorporated by reference from our 2025 Proxy Statement under the caption “ Executive Compensation and Director Compensation .” +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item is incorporated by reference from our 2025 Proxy Statement under the caption “ Security Ownership of Certain Beneficial Owners and Management .” +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this item is incorporated by reference from our 2025 Proxy Statement under the captions “ Proposal 1: Election of Directors ” and “ Certain Relationships and Related Person Transactions .” +Item 14. Principal Accountant Fees and Services +The information required by this item is incorporated by reference from our 2025 Proxy Statement under the caption “ Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm .” +– 108 – +Part IV +Item 15. Exhibit and Financial Statement Schedules +1. Financial Statements +The financial statements of Mineralys Therapeutics, Inc., together with the report thereon of Ernst & Young LLP, an independent registered public accounting firm (PCAOB ID No. 42), are included in this Annual Report contained in Part II, Item 8. Financial Statements and Supplementary Data. +2. Finance Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. +3. Exhibits +A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this Annual Report and is incorporated herein by reference. +Item 16. Form 10-K Summary +None. +EXHIBIT INDEX +Exhibit +Number Incorporated by Reference Filed Herewith +Exhibit Description Form Date Number +3.1 +Amended and Restated Certificate of Incorporation +8-K 2/14/23 3.1 +3.2 +Amended and Restated Bylaws +8-K 2/14/23 3.2 +4.1 +Specimen stock certificate evidencing the shares of common stock +S-1/A 2/2/23 4.1 +4.2 +Amended and Restated Investors’ Rights Agreement, dated June 1, 2022, by and among the Registrant and certain of its stockholders +S-1/A 2/2/23 4.2 +4.3 +F orm of Pre -Funded Warrant +8-K +2/8/24 +4.1 +4.4 +Description of Registered Securities +10-K +3/21/24 +4.4 +10.1# +Mineralys Therapeutics, Inc. Amended and Restated 2020 Equity Incentive Plan and form of stock option agreement and form of restricted stock agreement thereunder +S-1/A 2/2/23 10.1 +10.2# +Mineralys Therapeutics, Inc. 2023 Incentive Award Plan and form of stock option agreement and form of restricted stock unit agreement thereunder +S-1/A 2/2/23 10.2 +10.3# +Mineralys Therapeutics, Inc. 2023 Employee Stock Purchase Plan +S-1/A 2/2/23 10.3 +10.4# +Non-Employee Director Compensation Policy +S-1/A 2/2/23 10.4 +10.5#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between Jon Congleton and the Registrant +S-1/A 2/2/23 10.5 +10.6#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between David Rodman, M.D. and the Registrant +S-1/A 2/2/23 10.6 +10.7#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between Adam Levy and the Registrant +S-1/A 2/2/23 10.7 +– 109 – +10.8# +Form of Indemnification Agreement for Directors and Officers +S-1 1/18/23 10.8 +10.9† +License Agreement, dated July 9, 2020, between the Registrant and Mitsubishi Tanabe Pharmaceutical Corporation +S-1 1/18/23 10.9 +10.10 +Securities Purchase Agreement, dated February 7, 2024, by and between the Registrant and each of the purchasers party thereto +8-K +2/8/24 +10.1 +10.11 +ATM Equity Offering Sales Agreement, dated March 21, 2024, by and among the Registrant, BofA Securities, Inc. and Evercore Group L.L.C. +S-3 3/21/24 +1.2 +10.12 +Mineralys Therapeutics, Inc. 2025 Employment Inducement Incentive Award Plan and form of stock option agreement and form of restricted stock unit agreement thereunder +x +19.1 +M ineralys Therapeutics, In c. Insider Trading Compliance Policy and Procedures +x +23.1 +Consent of Ernst & Young LLP, independent registered public accounting firm +x +31.1 +Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +x +31.2 +Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +x +32.1* +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +x +32.2* +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +x +97.1 +Mineralys Therapeutics, Inc. Policy for Recovery of Erroneously Awarded Compensation +10-K +3/21/24 +97.1 +101.INS XBRL Instance Document x +101.SCH XBRL Taxonomy Extension Schema Document x +101.CAL XBRL Taxonomy Extension Calculation Linkbase Document x +101.DEF XBRL Taxonomy Extension Definition Linkbase Document x +101.LAB XBRL Taxonomy Extension Label Linkbase Document x +101.PRE XBRL Taxonomy Extension Presentation Linkbase Document x +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) x +__________________ +# Indicates management contract or compensatory plan. +† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601 of Regulation S-K because it is both not material and is the type that the registrant treats as private or confidential. +* This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. +– 110 – +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +MINERALYS THERAPEUTICS, INC. +Date: February 12, 2025 By: /s/ Jon Congleton +Jon Congleton +Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities held on the dates indicated. +Signature Title Date +/s/ Jon Congleton +Chief Executive Officer +(Principal Executive Officer) +February 12, 2025 +Jon Congleton +/s/ Adam Levy +Chief Financial Officer and Secretary +(Principal Financial and Accounting Officer) +February 12, 2025 +Adam Levy +/s/ Glenn Sblendorio +Chairman +February 12, 2025 +Glenn Sblendorio +/s/ Srinivas Akkaraju +Director +February 12, 2025 +Srinivas Akkaraju, M.D., Ph.D. +/s/ Derek DiRocco +Director +February 12, 2025 +Derek DiRocco, Ph.D. +/s/ Alexander M. Gold +Director +February 12, 2025 +Alexander M. Gold, M.D. +/s/ Daphne Karydas +Director +February 12, 2025 +Daphne Karydas +/s/ Brian Taylor Slingsby +Director +February 12, 2025 +Brian Taylor Slingsby, M.D., Ph.D., M.P.H. +– 111 – \ No newline at end of file diff --git a/raw/filings/0001933414/2024/0001933414-25-000009/filing_metadata.csv b/raw/filings/0001933414/2024/0001933414-25-000009/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..7f5b7821a8af9d96ab0e159b91cc7996b4a5e1f1 --- /dev/null +++ b/raw/filings/0001933414/2024/0001933414-25-000009/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001933414,MLYS,"Mineralys Therapeutics, Inc.",2024,10-K,2025-02-12,2024-12-31,2025-02-12T14:22:29.000Z,0001933414-25-000009,mlys-20241231.htm,10-K,22205035,1,1,https://www.sec.gov/Archives/edgar/data/1933414/000193341425000009/mlys-20241231.htm,https://www.sec.gov/Archives/edgar/data/1933414/000193341425000009/ diff --git a/raw/filings/0001933414/2024/0001933414-25-000009/item1.txt b/raw/filings/0001933414/2024/0001933414-25-000009/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..cb29816525484b77c0431f6c9946714623873ace --- /dev/null +++ b/raw/filings/0001933414/2024/0001933414-25-000009/item1.txt @@ -0,0 +1,262 @@ +Item 1. Business +Business Overview +We are a clinical-stage biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our clinical-stage product candidate, lorundrostat, is a proprietary, orally administered, highly selective aldosterone synthase inhibitor (ASI) that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension, chronic kidney disease (CKD), and obstructive sleep apnea (OSA). In the United States, approximately 120 million patients have sustained elevated blood pressure (BP), or hypertension, and more than half of this population fails to achieve their BP goals, defined as BP below 130/80 mmHg, with currently available medications. There are over 30 million treated patients who do not achieve their BP goal, of whom approximately 20 million have systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. In a Phase 2 proof-of-concept clinical trial evaluating 200 subjects (Target-HTN) with uncontrolled hypertension (uHTN), defined as individuals who are unable to achieve BP of below 130/80 mmHg despite taking two to five lines of antihypertensive medication, or resistant hypertension (rHTN), defined as individuals who are unable to achieve BP of below 130/80 mmHg despite taking three or more antihypertensive medications typically including a diuretic, lorundrostat demonstrated a clinically meaningful and statistically significant reduction in BP with once-daily (QD) dosing and was well tolerated. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. In addition to hypertension, we are investigating the benefits of lorundrostat in subjects with hypertension and CKD and in subjects with hypertension and OSA. We believe that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. +Hypertension is one of the most common medical conditions globally, afflicting approximately 1.3 billion people. In the United States, hypertension was associated with $219 billion in health care expenditures. Despite the availability of multiple treatment options, including thiazide diuretics, angiotensin-converting enzyme (ACE)-inhibitors, angiotensin II receptor blockers (ARBs), calcium channel blockers, beta blockers, and mineralocorticoid receptor antagonists (MRAs), the prevalence of uHTN continues to grow, further exacerbated by the rapidly rising rate of obesity. Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment. Within this population, there are approximately 10.3 million patients suffering from rHTN. Multiple large-scale studies have demonstrated that patients who fail to achieve their BP goal have a significantly elevated risk of developing heart disease, stroke, and kidney disease (Wright JT Jr, et al. A randomized trial of intensive versus standard blood-pressure control. N Engl J Med. 2015;373(22):2103-2116; and Zhou, et al., Uncontrolled Hypertension Increases Risk of All-Cause and Cardiovascular Disease Mortality in US Adults: the NHANES III Linked Mortality Study. Scientific Reports, 2018;8(1):1-7). Patients with rHTN have a 1.5 and 2.3 times higher risk than normotensive patients for composite cardiovascular events and end-stage renal disease, respectively. Notwithstanding this significant and growing unmet need, there has been a lack of U.S. Food and Drug Administration (FDA)-approved novel therapies targeting hypertension, with no new class of antihypertensive treatment approved within the last fifteen years. +Our Product Candidate, Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that is designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We licensed lorundrostat from Mitsubishi Tanabe Pharmaceutical Company (Mitsubishi Tanabe), who discovered the compound and provided the early foundational work, including demonstrating the selectivity of lorundrostat, and progressing the asset through Phase 1 clinical development. We completed the Target-HTN trial, a Phase 2 proof-of-concept trial for lorundrostat in the treatment of uHTN and rHTN in 2022. +-1- +Given that hypertension and abnormal aldosterone biology can lead to cardiorenal disease, we are further investigating the benefits of lorundrostat in hypertensive subjects with comorbidities such as CKD or OSA. +Summary of Historical and Current Clinical Trials of Lorundrostat +Phase 1: The first-in-human Phase 1 clinical trial of lorundrostat was conducted by Mitsubishi Tanabe. See “ Phase 1 Clinical Trial Results ” beginning on page 15 for additional details regarding this trial. +Phase 2: We conducted the Target-HTN Phase 2 trial of 200 subjects with uHTN and rHTN to evaluate the efficacy of lorundrostat at various doses either once or twice a day. The results of Target-HTN led to the advancement of our pivotal program of lorundrostat outlined below. See “ Target-HTN Phase 2 Clinical Trial ” beginning on page 8 for additional details regarding this trial. +Pivotal Program: In 2023 we initiated our pivotal program of lorundrostat. See “ Lorundrostat as a Potential Treatment for Hypertension ” beginning on page 6 for additional details regarding these clinical trials. +• Advance-HTN is our Phase 2 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to a standardized background treatment of two or three antihypertensive medications. Randomization of 285 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in March 2025. +• Launch-HTN is our Phase 3 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to their existing, prescribed background treatment of two to five antihypertensive medications. Randomization of 1,083 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in mid first half of 2025. +• Explore-CKD is our crossover trial designed to evaluate the safety and efficacy of 25 mg QD lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in subjects with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an ACE inhibitor or ARB. Randomization of 60 subjects was completed in the first quarter of 2025, and topline data from this trial is anticipated in the second quarter of 2025. +-2- +• Transform-HTN is an open-label extension trial allowing subjects to continue to receive lorundrostat and to obtain long-term efficacy and safety data. This trial is ongoing. +Other indications: We anticipate initiating our Phase 2 clinical trial (Explore-OSA) in the first quarter of 2025, which is planned to evaluate the safety and efficacy of lorundrostat 50 mg QD in approximately 40 subjects with moderate-to-severe OSA. See “ Lorundrostat as a Potential Treatment for Hypertension ” beginning on page 6 for additional details regarding this clinical trial. +Background of Hypertension +In healthy individuals, normal BP, also known as peripheral blood pressure, is below 130 over 80, meaning the pressure measurement is lower than 130 mmHg when the heart is contracting (systolic BP) and at or below 80 mmHg when the heart is relaxed (diastolic BP). Sustained, elevated BP, or hypertension, can result in increased chances of life-threatening complications such as heart disease, stroke, or kidney disease, among others. +The prevalence of hypertension has been increasing in recent decades. A comprehensive study published in The Lancet journal shows that in patients aged 30 to 79, total hypertension cases nearly doubled worldwide from 1990 to 2019. Furthermore, obesity, especially when associated with increased visceral adiposity, is a major cause of hypertension, accounting for 65% to 75% of the risk for developing human primary (essential) hypertension. Despite hypertension being one of the most common preventable risk factors for premature death, approximately 1.3 billion people worldwide have hypertension, with hypertension as a primary or contributing cause of 685,875 deaths in the United States in 2022 alone. The costs of hypertension and related health issues are a major burden on already strained healthcare systems, with an estimated cost of $219 billion in the United States in 2019. While there are multiple therapeutic options available, most of which are generic and accessible, more than half of all treated hypertensive patients fail to achieve their BP goal. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. +The current standard-of-care for patients newly diagnosed with hypertension is based on a set of guidelines set forth by the American College of Cardiology and the American Heart Association. A hypertensive patient’s target BP is defined as below 130/80 mmHg. Depending on baseline BP levels, these guidelines recommend the patient typically begin with lifestyle modifications and then, assuming BP does not achieve the desired target, initiate treatment with antihypertensive agents selected primarily from the following five drug classes, which may later be combined with each other if the patient’s target BP is not successfully achieved with the initial therapy: +• Thiazide diuretics, which increase fluid excretion from the kidney by blocking reabsorption of sodium and chloride in the nephron; +• ACE inhibitors, which inhibit the renin-angiotensin aldosterone system (RAAS) axis by blocking the action of ACE in the lungs, which converts angiotensin I to angiotensin II; +• ARBs, which block the effects of angiotensin II at the level of the angiotensin receptor; +• Calcium channel blockers, which slow cardiac contractions and relax arteries by preventing calcium from entering the cells of the heart and arteries; and +• Beta blockers, which cause the heart to beat more slowly and with less force, which lowers BP. +Despite numerous available treatment options, the majority of hypertensive patients require multiple therapies to achieve their target BP. Evidence demonstrates that adding a second- or third-line antihypertensive agent typically provides an additional 6 to 7 mmHg reduction in systolic BP. However, the incremental reduction in systolic BP provided by successive lines of treatment does not always adequately enable patients to reach their BP goal. Therefore, many patients require three, four, or more antihypertensive agents in an attempt +-3- +to achieve their target BP. In addition, while hypertension is an asymptomatic disease, many of the currently available treatments have side effects and tolerability issues, which may limit their use. For example, patients taking ACE inhibitors often develop a chronic cough and those taking beta blockers often experience lethargy. +In a meta-analysis of 147 randomized trials, a 10 mmHg reduction in systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The Systolic BP Intervention Trial (SPRINT) study further demonstrated that in adults with hypertension but without diabetes, lowering systolic BP below 120 mmHg reduced cardiovascular events by 25% and reduced the overall risk of death by 27% compared to those with a systolic BP of 140 mmHg or higher. The importance of nighttime BP as a predictor of cardiovascular risk is increasingly recognized. Evidence has demonstrated that higher nighttime systolic BP has a strong association with increased cardiovascular risk. The study’s findings stress the importance of targeting a reduction in nighttime systolic BP when considering treatment approaches. +Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment, and within this population, 10.3 million suffer from rHTN. Treatment options are limited for rHTN patients, and the current standard-of-care is to introduce an MRA agent, which blocks the effect of aldosterone, to their existing antihypertensive regimen. +Background of Chronic Kidney Disease (CKD) +CKD, which is characterized by the gradual loss of kidney function, is estimated to affect more than 10% of the global population and is one of the leading causes of mortality worldwide. According to the U.S. Centers for Disease Control and Prevention, an estimated 1-in-7 (15%) of U.S. adults have CKD. Diabetes and hypertension are responsible for approximately two-thirds of CKD cases. Early detection and treatment can often keep CKD from getting worse. When CKD progresses, it may eventually lead to kidney failure, which requires dialysis or a kidney transplant to maintain life. +Background of Obstructive Sleep Apnea (OSA) +OSA is characterized by repetitive overnight hypoxic episodes and subsequent sleep fragmentation due to a complete or partial collapse of the upper airway. Moderate OSA is defined as having between 15 and 30 breathing pauses (apnea or hypopnea events) per hour of sleep, while severe OSA indicates more than 30 breathing pauses per hour. OSA impacts over 54 million people in the United States, including 24 million moderate-to-severe cases. Around 80% of adults with OSA are undiagnosed. As of 2015, undiagnosed OSA is estimated to cost the United States approximately $149.6 billion annually from comorbid disease, workplace accidents, motor vehicle accidents, and loss of workplace productivity. +Between 30-50% of adults with hypertension have OSA, and this number increases to between 70-80% in adults with resistant hypertension. Additionally, untreated moderate-to-severe OSA increases the risk of resistant hypertension. Along with hypertension, OSA is a major risk factor for cardiovascular disease, type-2 diabetes mellitus, and stroke. +Background of Aldosterone and its Role in Hypertension +Aldosterone is a mineralocorticoid steroid hormone primarily made in the outer layer of the adrenal gland called the adrenal cortex, which plays an important role in controlling the balance of water and salts by keeping sodium in and releasing potassium from the body. This maintenance of homeostasis ensures the body can maintain normal BP. +In a healthy person, homeostatic balance is maintained via a feedback loop called the RAAS. Renin is a key enzyme that is released by the kidneys when they sense changes in BP to control the production of aldosterone, in order to help the kidneys regulate water and salt levels in the body. In a normal physiological state, aldosterone production increases when BP is too low and decreases when BP is too high. This is considered renin-dependent hypertension due to the linkage of renin levels to aldosterone production. +-4- +In addition to the self-regulated RAAS, there are other pathways that drive aldosterone production. Evolving information about hormone regulation of visceral adipocytes and the adrenal gland supports the hypothesis that adipokines, specifically elevated leptin and reduced adiponectin, can affect aldosterone and renin, respectively. The net result is an increase in aldosterone and prevention of the normal feedback inhibition of renin. This is considered renin-independent aldosterone production and is due to dysregulated systems biology, which is often prevalent in an obese population. +Overview of Renin-Dependent and Renin-Independent Aldosterone Production +Elevated aldosterone also causes insulin resistance, inflammation and fibrosis of the heart, fibrosis and remodeling of blood vessels, and tubulointerstitial fibrosis and glomerular injury in the kidney. Aldosterone excess is believed to lead to a higher risk of stroke, kidney damage, congestive heart failure, and heart attack, compared to high BP alone. Many of these symptoms are often comorbidities in an obese population. +Many of the therapies designed to address hypertension, such as ACE inhibitors, ARBs, beta blockers, calcium channel blockers, and diuretics, were developed and introduced several decades ago when the incidence of obesity was below 20% and abnormal aldosterone production affected less than 10% of the U.S. population. The increasing prevalence of obesity and hypertension, driven by the renin-independent axis, has resulted in higher incidences of uHTN and rHTN. Currently available therapies are generally effective in managing renin-dependent hypertension; however, they fail to adequately address the shifting biology of hypertension today. For example, ACE inhibitors and ARBs indirectly reduce aldosterone levels, but up to 40% of treated patients experience “aldosterone breakthrough,” whereby their aldosterone levels return to normal or higher levels and result in elevated BP. +-5- +Growing Epidemic of Obesity Correlated to Rise in Hyperaldosteronism +MRAs, which were initially introduced in the 1950s, are designed to work by blocking the effect of aldosterone, whether renin-dependent or renin-independent, from the mineralocorticoid receptor (MR) but do not inhibit aldosterone production. There are two well-known MRAs available in the United States for the treatment of hypertension, spironolactone and eplerenone, which are both available as generic medicines. MRAs are known to be effective in lowering BP; however, they have demonstrated side effects that have limited their use. Specifically, spironolactone, the most commonly prescribed MRA, is known for inducing hyperkalemia as well as gynecomastia in men and fertility issues in women. Additionally, when aldosterone is blocked from binding to the MR, circulating aldosterone levels increase two- to three-fold and may cause other harmful non-MR-related effects in the body. +The approach of blocking the synthesis of aldosterone and reducing plasma aldosterone levels is thought to be a preferable approach versus the use of MRAs that block the action of aldosterone at the MR. The task of creating a safe and effective ASI can be technically challenging because the major enzymes in the synthesis of aldosterone and cortisol share a high degree of amino acid sequence similarity. While challenging to develop, there are currently four ASIs (including lorundrostat) in advanced clinical development in conditions including hypertension, OSA, primary aldosteronism, heart failure, and CKD. +Lorundrostat as a Potential Treatment for Hypertension +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We are initially developing lorundrostat for the treatment of hypertension and have completed Target-HTN, our initial Phase 2 proof-of-concept clinical trial. In this trial, lorundrostat was well tolerated and demonstrated compelling clinical results, and once-daily dosing flexibility. The observed 10 to 12 hour pharmacokinetic half-life of lorundrostat has the potential to normalize aldosterone levels to provide a clinically meaningful reduction in BP and to flexibly manage the challenges of elevated serum potassium. We believe that lorundrostat’s profile may be compelling based on the following attributes: +• Compelling Clinical Results: Target-HTN demonstrated a statistically significant 9.6 mmHg and 7.8 mmHg reduction in systolic BP in the 50 mg and 100 mg QD cohorts, respectively, which we believe to be clinically meaningful. The reduction in systolic BP was validated and confirmed by +-6- +24-hour mean ambulatory blood pressure monitoring (ABPM), which further demonstrated that lorundrostat provides both central and nighttime BP reduction; +• High Selectivity: Phase 1 and Phase 2 clinical data demonstrated high aldosterone selectivity with no cortisol suppression and no incidence of adrenal insufficiency, as anticipated by the 374 to 1 inhibitory effect on the CYP11B2 enzyme compared to the CYP11B1 enzyme, which is responsible for synthesizing cortisol; +• Optimal Half-Life: A majority of our clinical trial subjects maintained a serum potassium in the normal range. There were modest incidences of hyperkalemia requiring dose adjustment or discontinuation. Six subjects experienced transient elevated serum potassium greater than 6.0 mmol/L, none of which were considered a serious adverse effect (SAE) and all rapidly resolved after discontinuation or dose adjustment. One of the events was assessed as erroneous due to sample misprocessing. Lorundrostat’s observed 10 to 12 hour half-life may be viewed more favorably by physicians compared to compounds with longer half-lives, which may have greater risk of sustained potassium elevation; and +• Convenient Dosing and Well Tolerated: Target-HTN demonstrated clinically meaningful results on a once-daily dosing regimen. Furthermore, lorundrostat was well-tolerated. +Based on the results of the Phase 1 and Target-HTN clinical trials, we initiated our pivotal program in 2023 for lorundrostat in the following trials: +Advance-HTN is a randomized, double-blind, placebo-controlled Phase 2 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to a standardized background treatment of two or three antihypertensive medications. Subjects who met screening criteria discontinued their existing hypertension medications and started on a standard regimen of an ARB and a diuretic, if previously on two medications, or a standard regimen of ARB, diuretic and calcium channel blocker if previously on three to five medications. Subjects who remained hypertensive despite the standardized regimen were then randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week four based on defined criteria or placebo. The primary endpoint of Advance-HTN is change in 24-hour ambulatory systolic BP at week twelve from baseline for each active cohort versus placebo. Randomization of 285 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in March 2025. +Launch-HTN is a global, randomized, double-blind, placebo-controlled Phase 3 clinical trial to evaluate the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN, when used as an add-on therapy to their existing, prescribed background treatment of two to five antihypertensive medications. Subjects were randomized into three cohorts for twelve weeks receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week six based on defined criteria or placebo. The primary endpoint of the trial is the assessment of automated office measured systolic BP from baseline for active cohorts versus placebo at six weeks, with the results pooled for all subjects on 50 mg QD. Randomization of 1,083 subjects was completed in the fourth quarter of 2024, and topline data from this trial is anticipated in mid first half of 2025. +Explore-CKD is a randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover trial designed to evaluate the safety and efficacy of 25 mg QD lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in subjects with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an ACE inhibitor or ARB. The primary endpoint is placebo-adjusted change from baseline in systolic BP at week four and an exploratory endpoint is placebo-adjusted percent change from baseline in urine albumin-to-creatinine ratio at week four. Randomization of 60 subjects was completed in the first quarter of 2025, and topline data from this trial is anticipated in the second quarter of 2025. +-7- +Transform-HTN is an open-label extension trial allowing subjects to continue to receive lorundrostat and to obtain long-term efficacy and safety data. All subjects in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, will be given the opportunity to participate in the extension trial. +Lorundrostat has been developed to address dysregulated aldosterone, and we believe this mechanism may be applicable to other indications where dysregulated aldosterone biology plays a role. Most recently, we have begun to explore lorundrostat for patients with OSA and hypertension. +In January 2025, we announced that the FDA cleared our investigational new drug application (IND) for Explore-OSA to evaluate the effect of lorundrostat in the treatment of subjects with moderate-to-severe OSA and hypertension. We anticipate initiating Explore-OSA in the first quarter of 2025. Explore-OSA is planned to be a placebo-controlled, crossover trial to evaluate the safety and efficacy of lorundrostat 50 mg QD in the evening in approximately 40 subjects with moderate-to-severe OSA. Subjects will be at least 18 years old, with a BMI ≥27 kg/m 2 , and the trial will be conducted across approximately 40 sites. The key objective of this trial is to evaluate the hypothesis that lorundrostat both alleviates the severity of upper airway obstruction and reduces nocturnal hypertension. The primary outcome measure is absolute change in the frequency of apnea-hypopnea episodes compared to placebo. The key secondary objective is to quantify BP throughout the night using continuous BP monitoring during performance of a standard sleep study without the use of CPAP. Standard patient reported outcomes specific to OSA will also be assessed. +Target-HTN Phase 2 Clinical Trial +Target-HTN was a two-part Phase 2 randomized, double-blind, placebo-controlled, dose-ranging, multi-center trial designed to evaluate the safety, efficacy, and tolerability of orally administered lorundrostat for the treatment of uHTN and rHTN when used as an add-on therapy to stable background treatment of two or more antihypertensive medications in 200 males and females. The trial was conducted in the United States. The following table illustrates the key clinical results of Target-HTN: +*Mixed effects model with repeated measures (MMRM) results for 100mg QD Part1 and 50mg QD were -7.8 mmHg and -9.6 mmHg, respectively. The observed means include only those subjects with observations at visit eight with no imputation for missing values, while MMRM imputes missing values. The values for observed and MMRM means may differ slightly. +**Results from post-hoc sensitivity analysis reflecting subjects who passed Quality Control criteria and in whom both baseline AOBP and ABPM > 130mmHg. +The results of the Target-HTN trial demonstrated a clinically meaningful and statistically significant placebo-adjusted reduction in systolic BP, as measured by automated office blood pressure (AOBP), of 9.6 mmHg (p<0.01) and 7.8 mmHg (p<0.04) in the 50 mg and 100 mg QD cohorts, respectively. A p-value is the +-8- +probability that the reported result was achieved purely by chance, such that a p-value of less than or equal to 0.05 means that there is a less than or equal to 5% probability that the difference between the control group and the treatment group is purely due to chance. A p-value of 0.05 or less typically represents a statistically significant result. The FDA’s evidentiary standard when evaluating the results of a clinical trial generally relies on a p-value of less than or equal to 0.05. In a meta-analysis of 147 randomized trials, a 10 mmHg reduction of systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The reduction in systolic BP in Target-HTN, as measured by AOBP, was validated and confirmed by comparable reductions in systolic BP with lorundrostat, as measured by 24-hour mean ABPM. The ABPM data further demonstrated the benefits of lorundrostat on both central and nighttime BP reduction, which have been strongly linked to cardiovascular health risk. In the trial, patients with a body mass index (BMI) greater than 30, or obese patients, who are at an elevated risk of cardiorenal diseases, exhibited a 12.3 or 16.7 mmHg placebo-adjusted reduction in systolic BP with a 100 mg QD or 50 mg QD dose, respectively. Treatment-emergent SAEs were reported in three subjects, one of which was deemed to be possibly related to lorundrostat in a subject with worsening of preexisting hyponatremia, which reversed after discontinuation. The two active, once-daily doses saw modest increases in potassium levels across the cohorts of 0.25 mmol/L with the 50 mg QD and 0.29 mmol/L with the 100 mg QD dose. Six subjects experienced transient elevated serum potassium greater than 6.0 mmol/L, none of which were considered an SAE, and all rapidly resolved after discontinuation or dose adjustment, which is consistent with the half-life of lorundrostat. One of the events was assessed as erroneous due to sample misprocessing. As anticipated, and in a manner similar to ACE inhibitors and ARBs, the BP lowering effect of lorundrostat led to a beneficial, reversible dose-dependent reduction in estimated glomerular filtration rate (eGFR), a measure of kidney function. Finally, the selectivity of lorundrostat for aldosterone inhibition was confirmed as cortisol levels were not observed to be inhibited across the range of doses. +The trial was conducted in two parts. In Part 1, subjects were initially pre-screened for a period of up to two weeks with a requirement for their systolic/diastolic BP to be over 130/80 mmHg with the use of two or more background medications indicated for hypertension such as ACE inhibitors, ARBs, calcium channel blockers, or diuretics. Subjects in Part 1 were also required to have low-renin hypertension defined as hypertension with a plasma renin activity level of 1.0 ng/mL/h or less. Subjects were excluded if they were taking an MRA or sodium channel blocker. Once subjects met the prescreening criteria, they were followed for two weeks during a blinded, placebo run-in period where their elevated BP was reconfirmed while compliant on background medication and placebo. If patients were compliant on their background medication and continued to have BP above 130/80 mmHg, subjects were randomized into five active cohorts and one placebo cohort. Subjects were dosed for eight weeks, then, upon withdrawal of study medication, followed for another four weeks. +-9- +Baseline Demographics of the Patients Enrolled in Target-HTN Part 1 — Full Analysis Set (FAS) +We conducted a pre-planned interim analysis for Part 1 of the trial when approximately one-third (65 subjects) of the planned enrollment had completed a minimum of four weeks of treatment, representing approximately 10-12 subjects per cohort. To preserve the blinding of the trial, the interim analysis was conducted by a small team that was not involved in operational aspects of the trial and no results of the analysis were shared with the operational team at clinical trial sites. The primary purpose of the interim analysis was to assess whether the chosen dose range appeared to adequately span the range from sub-therapeutic to maximum therapeutic response determined by change in systolic BP at week four relative to baseline. As a result of the interim analysis, we discontinued further enrollment in two of the lower dose cohorts (12.5 mg QD and 12.5 mg BID) due to the modest efficacy and projected benefit/risk ratio and initiated Part 2 of the trial. +Part 2 was designed to study the effect of lorundrostat in subjects with normal-to-high renin levels, and we selected 100 mg QD as the dose to study based on its efficacy and safety as demonstrated in the interim analysis. Subjects enrolled in Part 2 were randomized to either 100 mg of lorundrostat once-daily (n=31) or placebo (n=6) to preserve the blinded randomization of the trial. The Part 2 subjects followed the same study conduct as Part 1 subjects, with the exception of the follow-up period, which was shortened from four weeks to two weeks. +The primary endpoint of Target-HTN was change in seated, pre-dose morning systolic BP at week 8 versus baseline reading as measured by AOBP. The pre-planned analysis of the primary endpoint was an MMRM. Between Part 1 and Part 2, 100 mg QD, the pre-planned comparison of the primary endpoint was an unpaired, two-tailed T-test, using the observed change from baseline to week 8. Secondary endpoints included +-10- +24-hour ABPM change at week 8 versus baseline, diastolic BP change at week 8 versus baseline, and proportion of subjects achieving BP goal at week 8. For the purpose of evaluating safety, findings from the 100 mg QD cohorts from Parts 1 and 2 were pooled. +Phase 2 Target-HTN Clinical Trial Design +BID = twice-daily; EOT = end of treatment; FU = follow up; PRA = plasma renin activity; QD = once-daily +Efficacy +The outcomes of the Phase 2 proof-of-concept study of lorundrostat, as shown in the chart below, demonstrated efficacy across defined endpoints and was well tolerated in once-daily dosing. +The primary endpoint for Part 1 of Target-HTN was the change in systolic BP at week 8 relative to baseline. As indicated in the table below, in an intent-to-treat analysis, lorundrostat showed a statistically significant reduction in systolic BP, which we believe to be clinically meaningful, in a dose-dependent manner. The once-daily doses of 50 mg and 100 mg of lorundrostat demonstrated comparable reduction in systolic BP, as compared to the twice-daily dosing of lorundrostat with either 12.5 mg or 25 mg of lorundrostat. The higher doses of both once-daily and twice-daily lorundrostat also generated a reduction in diastolic BP over the course of the trial, which we believe to be clinically meaningful. +Target-HTN Efficacy Data, as Measured by AOBP +In Part 2, 31 subjects with normal or elevated renin were treated with once-daily lorundrostat at 100 mg QD and assessed similarly to those in Part 1. The reduction in systolic BP in Part 2 of this trial was not +-11- +statistically different from the reduction seen in Part 1 (see figure below). As a result, we believe that lorundrostat has the potential to be effective across the entire range of renin levels. +Individual Change in BP at Week 8 +*N = subjects with baseline and week 8 data, modeled mean using FAS. +A further predefined objective of this trial was to evaluate potential predictors of clinical response to lorundrostat. There was no consistent difference in clinical response to lorundrostat observed based on gender, race, age, or number of baseline antihypertensive medicines. Our analysis of the clinical results demonstrated the following determinants to be positively correlated to clinical response: +• Obesity. Hypertensive subjects with a BMI ≥30 kg/m2 demonstrated a significant reduction of systolic BP with a placebo-adjusted reduction of 16.7 mmHg with 50 mg QD and a reduction of 12.3 mmHg with 100 mg QD in Part 1 of the study. The obesity finding, in particular, lends support to our hypothesis of the linkage between obesity-leptin-aldosterone axis and hypertension; and +• Use of diuretics. Subjects taking a diuretic as a part of their background regimen demonstrated a significant reduction of systolic BP with a placebo-adjusted reduction of 12.9 mmHg with 50 mg QD and 10.0 mmHg with 100 mg QD in Part 1 of the study. +-12- +Placebo-Adjusted Improvement in Systolic BP by Responder Determinant +During two periods of time in the study, the week prior to randomization and the last week of study drug treatment, subjects were required to wear a device that captures BP readings multiple times per hour over a 24-hour period. This measurement provides a more complete picture of the patient’s hypertension status than in-office measurements and eliminates the impact of the phenomenon known as “white coat” hypertension, which occurs when BP readings at a healthcare provider’s office are higher than in other settings such as at home. The change in 24-hour systolic ABPM from baseline to week 7 or 8 for the Part 1 100 mg QD cohort, demonstrated an 8.1 mmHg observed mean placebo-adjusted reduction in systolic BP. The ABPM response in the 50 mg QD was complicated by evidence of “white coat” hypertension, but after eliminating data from individuals who were not hypertensive, as measured by ABPM, there was evidence of a 10.5 mmHg observed mean placebo-adjusted reduction in systolic BP in individuals who were hypertensive as measured by ABPM (the 50mg QD hypertensive ABPM set). The average overnight BP reduction in the 100 mg QD cohort was an observed mean placebo-adjusted reduction of 8.0 mmHg and in the 50 mg QD hypertensive ABPM set there was an observed mean placebo-adjusted reduction of 4.1 mmHg. +The reduction in overnight BP and restoration of dipping that was also observed are of potential importance to the objective of reducing morbidity and mortality from uHTN, as the link between elevated nighttime BP and cardiovascular risk has been long established in the medical literature. +The eGFR measures how well an individual’s kidneys are filtering waste and extra water from the body via the urine. In hypertensive patients, the eGFR will progressively decline and individuals may begin to exhibit signs and symptoms of CKD at eGFR levels below 45mL/min/1.73m 2 . As demonstrated in previous studies with antihypertensives, such as ACE inhibitors and ARBs, an initial reduction of eGFR in treated hypertensive patients may represent a positive benefit as it indicates an alleviation of pressure on the glomerulus and potentially slows or arrests the progression to CKD. In this trial, a dose-dependent reduction in eGFR was demonstrated, which we believe is clinically meaningful and has the potential to provide a renal protection benefit that we intend to further assess in future clinical trials. +Safety +Lorundrostat has been observed to be well-tolerated, specifically in four key measures that we believe to be of special interest when evaluating the safety of lorundrostat: +• Cortisol Inhibition: There was no clinically relevant suppression of cortisol production in serum cortisol testing as well as adrenocorticotropic hormone (ACTH)-stimulation testing. A slight increase in cortisol was observed in all cohorts, including placebo, but did not demonstrate a trend above normal physiological levels; +-13- +• Hypotension (sitting systolic BP < 100 mmHg): Each of hypotension and orthostatic hypotension was seen in three subjects and was reversible, likely related to study medication and expected based on lorundrostat’s mechanism of action; +• Hyponatremia (serum sodium < 135 mmol/L): Severe hyponatremia, possibly related to study medication, was seen in one subject with preexisting hyponatremia, and was reversible after drug discontinuation; and +• Hyperkalemia (serum potassium > 5.1 mmol/L): There was an expected, dose-dependent increase in serum potassium, though the majority of subjects maintained a serum potassium in the normal range. The two active, once-daily doses saw modest increases in potassium levels across the cohorts of 0.25 mmol/L with the 50 mg QD and 0.29 mmol/L with the 100 mg QD dose. Six subjects across the five active dose cohorts experienced an isolated instance of elevated potassium above 6 mmol/L (two were deemed to be a factitious reading, three worsening of pre-existing hyperkalemia and one was a confirmed de-novo episode of hyperkalemia). Consistent with the short terminal elimination half-life of lorundrostat, all episodes were rapidly reversible after per protocol dose reduction, temporarily holding study medication, or treatment discontinuation. An independent data safety monitoring board expressed no concerns about the effect of lorundrostat on serum potassium in the Target-HTN trial. +Based on the totality of available data, there were no safety concerns that prompted changes to the Investigator’s Brochure or protocol. Three SAEs, including one event of chest pain, one event of metastases to peritoneum, and one event of hyponatremia, were reported and treatment was discontinued. Hyponatremia was assessed as possibly related to the study drug. The other two events were assessed as unrelated to the study drug. The most frequent non-serious AEs reported, defined as events with five or more affected subjects, including the placebo group, were related to hyperkalemia – all determinations above the upper limit of normal of 5.1 mmol/L (23.3%), decreased glomerular filtration (6.8%), urinary tract infections (5.3%) and hypertension (3.8%). In some of the hyperkalemia events, study treatment was dose adjusted temporarily or permanently discontinued according to safety guidelines in the protocol. +Pharmacokinetics +The 24-hour exposure/response relationship for systolic BP at week 8 across treatment groups suggests QD dosing up to 100 mg. The trial results suggest a minimal effective dose between 12.5 mg/24 hours and 25 mg/24 hours (12.5mg BID) and a maximum efficacious dose of 50 mg to 100 mg QD for lorundrostat. All doses in excess of 12.5 mg QD are active doses, which is to be expected. Given the relatively short half-life of lorundrostat, the group mean exposure in the 25 mg BID and 50 mg QD cohorts was similar, suggesting little +-14- +drug accumulation. The comparable efficacy of the 25 mg BID and 50 mg QD cohorts suggests that once-daily dosing is sufficient to achieve maximum BP reduction. +Exposure Versus Change in Systolic BP +Phase 1 Clinical Trial Results +The Phase 1 program of lorundrostat consisted of a randomized, double-blind, placebo-controlled, first-in-human trial to determine the safety, tolerability, pharmacokinetics, and pharmacodynamics of single and multiple ascending doses (MAD) of lorundrostat in healthy subjects, including the effect of gender and age on the pharmacokinetics of a single dose of lorundrostat in healthy subjects. This trial was conducted by Mitsubishi Tanabe in the Netherlands and the trial data was used to support our open IND, under which our current lorundrostat development program is being conducted. We submitted the IND in February 2021, which was allowed to proceed by the FDA in March 2021. +Lorundrostat was well-tolerated at single and multiple doses in the first-in-human trial. No deaths or other SAEs were observed. One subject in the Part 2 MAD trial, 360 mg dose group discontinued treatment due to a treatment-emergent AE of sinus tachycardia. Across all cohorts, dizziness/dizziness postural was reported by 9 out of 87 (10.3%) lorundrostat-treated subjects compared to 1 out of 29 (3.4%) placebo subjects. +The high selectivity of lorundrostat was demonstrated in both the single ascending dose (SAD) and MAD parts of this trial. It was shown that lorundrostat decreased plasma aldosterone concentration in a dose-dependent manner in the SAD portion of the trial with a 36-77% reduction in 24-hour serum aldosterone at doses ranging from 5 mg to 800 mg. This finding was further validated in the MAD part of the trial with 40 mg, 120 mg, and 360 mg reducing 24-hour serum aldosterone in a dose-dependent manner. In the SAD trial, lorundrostat did not inhibit cortisol production across the range of doses and in the MAD study cortisol was not inhibited even with ACTH cortisol stimulation challenge on day six. The results of this trial demonstrated the selectivity for aldosterone synthase with lorundrostat. +This study also assessed the effect of single and multiple doses of lorundrostat on QT prolongation and lorundrostat did not have a clinically relevant, dose-dependent effect. The FDA has accepted this data and granted a thorough QT study waiver. +-15- +The impact on age and gender was also evaluated in the Phase 1 program for lorundrostat. It was demonstrated that neither of these sub-groups exhibited differentiated exposure levels to lorundrostat. +A Phase 1, open-label, randomized, 2-sequence study to evaluate the effect of food on the pharmacokinetics of lorundrostat in healthy subjects has been completed. Based on the results of this trial, lorundrostat can be administered without regard to meals in all ongoing and future clinical trials as well as upon approval in hypertensive patients. +We have also completed drug interaction studies with lorundrostat with metformin, esomeprazole, itraconazole, carbamazepine, digoxin, and rosuvastatin. The metformin study was completed based on the possible inhibition of the MATE1 transporter by lorundrostat. This trial demonstrated that lorundrostat has little effect on plasma exposure of metformin. The DDI study with esomeprazole was conducted to evaluate the effect of varying gastric pH levels on the absorption and availability of lorundrostat. As anticipated for lorundrostat, which is a weak base, there was reduced absorption in the alkaline gastric environment produced by the proton pump inhibitor (PPI). The DDI study with itraconazole was conducted to evaluate the effect of strong cytochrome P450 (CYP450) 3A4 inhibition on the exposure of lorundrostat. As anticipated, there was a minimal increase in lorundrostat exposure when co-administered with a strong CYP3A4 inhibitor. The DDI study with carbamazepine was conducted to evaluate the effect of strong CYP3A4 induction on the exposure of lorundrostat. As anticipated, the plasma exposure of lorundrostat was decreased when co-administered with a strong CYP3A4 inducer. A DDI study was conducted to evaluate the effects of lorundrostat on the p-glycoprotein substrate digoxin. This study revealed that in the presence of lorundrostat, digoxin exposure was increased by 67%. A DDI study was conducted to evaluate the effects of lorundrostat on the breast cancer resistant protein rosuvastatin. This study revealed that in the presence of lorundrostat, rosuvastatin exposure was increased by 23%. +A Phase 1, open-label, parallel design study to evaluate the pharmacokinetics of lorundrostat in subjects with normal renal function (eGFR ≥ 90 mL/min/1.73 m2) and subjects with severe renal impairment (eGFR < 30 mL/min/1.73 m2) has been completed. Based on the results of this trial, there was no statistically significant effect of severe renal impairment on the pharmacokinetics of lorundrostat. +A Phase 1, open-label, parallel design study to evaluate the pharmacokinetics of lorundrostat in subjects with normal liver function and subjects with mild, moderate, and severe hepatic impairment has been completed. The results from this indicate that lorundrostat exposure was minimally increased in subjects with mild and moderate, and larger increases were seen in subjects with severe hepatic impairment compared to subjects with normal liver function. +Preclinical Data +The pharmacological profile for lorundrostat was assessed via in vitro pharmacology studies that demonstrated a selectivity ratio of 374 times more selective for aldosterone inhibition over cortisol inhibition. Lorundrostat inhibited hCYP11B2, the synthetic pathway for aldosterone, and hCYP11B1, the synthetic pathway of cortisol with inhibition constant values of 1.27 nmol/L and 475 nmol/L, respectively. +Single-dose oral administration of lorundrostat significantly decreased plasma aldosterone concentration (PAC) in a sodium-depleted non-human primate model. However, single-dose oral administration of lorundrostat did not affect cortisol in ACTH-loaded non-human primates even at a dose 100-fold higher than those required to reduce PAC. These results indicate that lorundrostat inhibits CYP11B2 with higher selectivity over CYP11B1, an enzyme responsible for cortisol production. +Our Team and Investors +Founded by Catalys Pacific in 2019, we are led by an experienced management team with diverse backgrounds and significant experience in drug discovery, development, and company building. Our management team consists of industry veterans with extensive experience at pharmaceutical companies such as +-16- +Amgen, Novartis, ProQR, Sanifit, Teva, and Vertex. Together, our team has a proven track record in the discovery, development, and commercialization of numerous approved therapeutics. +Since inception, we have raised approximately $498.8 million of capital from various investors, which includes $220.8 million raised in our initial public offering that occurred on February 14, 2023 from the sale of 13,800,000 shares of our common stock at $16.00 per share initial public offering (IPO) and $120.0 million raised in a private offering in February 2024 from the sale of 8,888,924 aggregate shares of our common stock and pre-funded warrants at an aggregate price of $13.50 per share. +License Agreement with Mitsubishi Tanabe +In July 2020, we entered into the Mitsubishi License with Mitsubishi Tanabe, pursuant to which Mitsubishi Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Mitsubishi Tanabe’s patent and other intellectual property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring or predisposition testing with respect to indications, diseases and conditions in humans (the Field). Pursuant to the Mitsubishi License, we paid Mitsubishi Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Mitsubishi Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Mitsubishi Tanabe tiered royalties at percentages ranging from the mid-single digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Mitsubishi Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith to develop at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Mitsubishi License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, Mitsubishi Tanabe has a right of first negotiation, for a specified period of time. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Mitsubishi Tanabe’s prior consent. +Unless terminated earlier, the Mitsubishi License will continue until the expiration of all of our royalty obligations to Mitsubishi Tanabe. We may terminate the Mitsubishi License for any or no reason upon 90 or 180 days’ prior written notice to Mitsubishi Tanabe depending on whether the Lorundrostat Product has received regulatory approval. Mitsubishi Tanabe may terminate the Mitsubishi License if we have not initiated regulatory consultation for the first global clinical trials of lorundrostat in at least one major market country within a specified amount of time or if we or our affiliates or sublicensees initiate a challenge to the patent rights licensed to us by Mitsubishi Tanabe. In addition, either party may terminate the Mitsubishi License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +Manufacturing +We do not own or operate manufacturing facilities for the production of lorundrostat, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for our required raw materials, active pharmaceutical ingredients, and finished product candidates for our clinical trials. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. +-17- +Sales and Marketing +We have not yet defined our sales, marketing, or product distribution strategy for lorundrostat because it is still in clinical development. Our commercial strategy may include the use of strategic partners, distributors, a contract sales force, or the establishment of our own commercial sales force. We plan to further evaluate these alternatives as we approach approval for lorundrostat, if any. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Lorundrostat, if approved, may address multiple markets. Ultimately, the disease(s) lorundrostat targets and for which it may receive marketing authorization will determine our competition. There are competing programs under development by other companies for our initially targeted indication of hypertension. Lorundrostat, if approved, will have to compete with existing therapies and new therapies that may become available in the future. We face potential competition from many different sources, including larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. In many cases, the companies with competing programs will have access to greater financial, technical, manufacturing, marketing, sales, and supply resources, will have more expertise and experience than us, and may be more advanced in those programs. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma and CORXEL; +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +If we successfully obtain approval for lorundrostat or any future product candidate, we believe that the key competitive factors that will affect the success of lorundrostat will be efficacy, safety, tolerability, convenience, price, and the availability of reimbursement from government and other third-party payors relative to such competing products. Our commercial opportunity could be reduced or eliminated if its competitors have products that are superior in one or more of these categories. +Intellectual Property +Intellectual property, including patents, trade secrets, know-how, trademarks, and copyrights, is important to our business. Our commercial success depends in part on our ability to obtain and maintain proprietary intellectual property protection for our clinical-stage product candidate, lorundrostat, as well as for future product candidates and novel discoveries, product development technologies, and know-how. Our commercial success also depends in part on our ability to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to develop and maintain protection of our proprietary position by, among other methods, licensing or filing U.S. and foreign patents and applications relating to our product candidates, technology, inventions, and improvements that are important to the development and implementation of our business. +-18- +Our patent portfolio is built with the goal of establishing broad protection that generally includes, for the product candidate compound, claims directed to composition of matter, pharmaceutical compositions or formulations, methods of synthesis, and methods of treatment using such pharmaceutical compositions or formulations. We are seeking and maintaining patent protection in the United States and key foreign jurisdictions where we intend to market lorundrostat. Our patent portfolio includes a combination of patents and pending patent applications solely owned by us, patents and pending patent applications licensed from Mitsubishi Tanabe, and pending patent applications jointly owned with Mitsubishi Tanabe. As of February 16, 2023, our patent portfolio comprises 14 distinct patent families protecting our technology relating to lorundrostat and its synthetic intermediates, methods of synthesizing lorundrostat and related compounds, various formulations of lorundrostat products, as well as methods of treating diseases with lorundrostat and related compounds. As of January 16, 2025, our portfolio of exclusively licensed patents and pending patent applications consists of four granted U.S. patents; one pending U.S. patent application; one granted European patent that has been validated in Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Turkey, and the United Kingdom; one granted European patent that has been validated in France, Germany, Italy, Spain, and the United Kingdom; two pending European patent applications; four granted Japanese patents; one pending Japanese patent application; one granted Canadian patent; one pending Canadian patent application; one granted Australian patent; one granted Brazilian patent; two pending Brazilian applications; one granted Chinese patent; one pending Chinese patent application; one pending Israeli patent application; one granted Indian patent; one granted Indonesian patent; one granted Korean patent; one pending Korean patent application; one granted Malaysian patent; one granted Mexican patent; two granted Russian patents; one granted Singaporean patent; one granted Taiwanese patent; one pending Thai application; and one granted Vietnamese patent. +Our portfolio of wholly owned pending patent applications consists of one pending European patent application; one pending Japanese patent application, one pending U.S. patent application; four pending PCT International Applications; four pending Taiwanese patent applications; and four pending U.S. provisional patent applications. +Our portfolio of jointly owned pending patent applications consists of one pending Chinese patent application; two pending European patent applications; two pending Indonesian patent applications; two pending Japanese patent applications; two pending Malaysian patent applications; one pending Chinese patent application; two pending Korean patent applications; two pending Philippines patent applications; two pending Singaporean patent applications; two pending U.S. patent applications; two pending Vietnamese patent applications; and one pending PCT International Application. +Granted patents and pending applications in our portfolio of exclusively licensed patents and pending patent applications, if granted, have nominal expiration dates ranging from 2035 to about 2042, without accounting for any available patent term adjustments or extensions. Pending applications in our portfolio of wholly and jointly owned pending patent applications have nominal expiration dates ranging from 2041 to about 2044, without accounting for any available patent term adjustments or extensions. If filed and subsequently granted, patent applications claiming priority to pending U.S. Provisional Applications in our portfolio of wholly and jointly owned pending patent applications will have expiration dates ranging from 2042 to about 2046, without accounting for any available patent term adjustments or extensions. +The term of individual patents in our portfolio depends upon the legal term of patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the term of a patent may be eligible for patent term adjustment, which permits patent term restoration as compensation for delays incurred at the United States Patent and Trademark Office (USPTO) during the patent prosecution process. In addition, for patents that cover an FDA-approved drug, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. While the length of the patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a +-19- +total of 14 years from the date of product approval, and only one patent per approved drug may be extended under the Hatch-Waxman Act. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek any available patent term extension to any granted patents we may be granted in any jurisdiction where such extensions are available; however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. +The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. We cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use or manufacture of those products. Moreover, granted patents do not guarantee the right to practice our technology in relation to the commercialization of our products. Granted patents only allow us to block potential competitors from practicing the claimed inventions of the granted patents. +Further, patents and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and our granted patents may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any granted patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any granted patents. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides. +We may also rely on trade secrets relating to our discovery programs and product candidates, and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us, and for employees and consultants to enter into invention assignment agreements with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Where applicable, the agreements provide that all inventions to which the individual contributed as an inventor shall be assigned to us, and as such, will become our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information. +Further, we have and will continue to pursue trademark protection for our company name and brand. Since December 2022, we have owned four registered trademarks in the United States and foreign jurisdictions relating to the registered trademark “MINERALYS.” +-20- +Government Regulation +Government authorities in the United States, at the federal, state, and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application (NDA) process before it may be legally marketed in the United States. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA), the Public Health Service (PHS) Act, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with Good Laboratory Practice regulations (GLPs) and other applicable regulations; +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an independent institutional review board (IRB), or ethics committee (EC) at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice regulations (GCPs) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of an NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational drug product (including biological products) to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical trials or non-compliance with specific +-21- +FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated checkpoints based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases, and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +-22- +During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. Generally, these points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, preclinical and other nonclinical studies, and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry, strength and purity of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, safety and efficacy for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s quality, and purity. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. +The FDA may refer an application for a novel drug or therapeutic biological product to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates a marketing application and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional clinical trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies, or manufacturing. If a CRL is issued, the applicant must resubmit the NDA to address all of the deficiencies identified in the letter or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +-23- +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy (REMS), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the applicant of the NDA must submit a proposed REMS. The FDA will not approve the marketing application without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription, or dispensing of products. +In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs, and supplements to them, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or submit a request for approval of a pediatric formulation. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. +If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. However, competitors may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of a competing product for seven years if a competitor obtains approval of the “same drug,” as defined by the FDA, or if a product candidate is determined to be contained within the competitor’s product for the same disease or condition. In addition, if an orphan-designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. +-24- +Expedited Development and Review Programs +The FDA has a number of programs intended to expedite the development or review of a marketing application for a new drug. For example, the fast track designation program is intended to expedite or facilitate the process of developing and reviewing product candidates that meet certain criteria. Specifically, investigational drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. The sponsor of a fast track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. With regard to a fast track product candidate, the FDA may review sections of a marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon first submission of the section(s) of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +Any product candidate submitted to the FDA for approval, including a product candidate with a fast track designation or breakthrough designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. An NDA is eligible for priority review if the product candidate is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for standard review under its current PDUFA review goals. +In addition, a product candidate may be eligible for accelerated approval. Drug products (including biologics) intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled confirmatory clinical trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory trials in a timely manner or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition of accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. +Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +-25- +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, supply chain security, reporting of permanent discontinuance or interruptions in supply, other periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes, and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for +-26- +many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. In the context of smaller molecule new drugs, the FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA), or an NDA submitted under Section 505(b)(2) (505(b)(2) NDA) submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. +Other Healthcare Laws +Pharmaceutical companies and developers and manufacturers of therapeutic biological products are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research as well as sell, market, and distribute any products for which we obtain marketing approval. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, false claims, data privacy and security, and physician and other healthcare provider transparency laws and regulations. If our significant operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment. +Coverage and Reimbursement +Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions +-27- +regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. These third-party payors are increasingly reducing reimbursements for medical products, drugs, and services. In addition, the U.S. government, state legislatures, and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales. +Healthcare Reform +In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended, collectively known as the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments, and changes to fraud and abuse laws. By way of example, the ACA: +• increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price; +• required collection of rebates for drugs paid by Medicaid managed care organizations; +• required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and +• imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. +Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, or AMP, beginning January 1, 2024. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. For that and other reasons, it is currently unclear how the IRA will be effectuated. +Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation, and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, +-28- +discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +Employees +As of December 31, 2024, we had 51 full-time employees, of whom 39 were primarily engaged in research and development. None of our employees are represented by a labor union, and we consider our employee relations to be good. +Legal Proceedings +We are not currently a party to any material proceeding. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. +Corporate Information +We were incorporated under the laws of the State of Delaware in May 2019 as Catalys SC1, Inc. and we subsequently changed our name to Mineralys Therapeutics, Inc. Our mailing address is 150 N. Radnor Chester Rd, Suite F200, Radnor, PA 19087 and our telephone number is 888-378-6240. +Available Information +Our website address is www.mineralystx.com. Our investor relations website is located at https://ir.mineralystx.com. We make available free of charge on our investor relations website under “SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our directors’ and officers’ Section 16 reports, and any amendments to those reports as soon as reasonably practicable after filing or furnishing such materials to the SEC. They are also available for free on the SEC’s website at www.sec.gov. +We use our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should monitor such website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. Information relating to our corporate governance is also included on our investor relations website. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. +Information about our Executive Officers +The following table sets forth information concerning our executive officers. +Name Age Position +Jon Congleton 61 Chief Executive Officer and Director +Adam Levy 46 Chief Financial Officer and Secretary +David Rodman, M.D. 69 Chief Medical Officer +Jon Congleton has served as our Chief Executive Officer and as a member of our board of directors since November 2020. Prior to joining us, Mr. Congleton was the Chief Executive Officer of Impel NeuroPharma, Inc. from September 2017 to May 2020. Prior to that, he served as the Chief Executive Officer and as a director of Nivalis Therapeutics, Inc. from January 2015 to February 2017. Mr. Congleton was previously at Teva Pharmaceutical Industries, Ltd. (Teva) where over 18 years he held positions in general management and global strategic marketing, including Senior Vice President of Teva’s Global Central Nervous System Disorders from April 2013 to December 2014, Senior Vice President of the Global Medicine Group from November 2011 to April 2013, and General Manager of Teva Neuroscience, Inc. in the United States. Prior to joining Teva, Mr. Congleton spent ten years in a variety of commercial roles with predecessor companies of Sanofi. Mr. Congleton earned a B.S. in marketing from Kansas State University. Mr. Congleton’s +-29- +knowledge of our business and his extensive executive experience at multiple biopharmaceutical companies contributed to our board of directors’ conclusion that he should serve as a director of our company. +Adam Levy has served as our Chief Financial Officer since March 2022 and as our Chief Business Officer from March 2022 through January 4, 2024. Mr. Levy also serves as a member of the board of directors of Praxis Bioresearch. Prior to joining Mineralys, he was the Chief Financial Officer at Sanifit Therapeutics until the company was acquired by Vifor Pharma in 2022. Previously, Adam served as the Chief Business Officer at Brickell Biotech from 2019 to 2020 and led the organization’s financial operations transition as it became a publicly listed company on Nasdaq. Prior to that, he served as the Chief Business Officer at miRagen Therapeutics from 2016 to 2019, where he was responsible for a variety of functions including financial strategy, investor relations, business development, legal affairs, intellectual property, project and program management, and human resources. Between 2000 and 2016, Mr. Levy held multiple investment banking positions at Merrill Lynch, Jefferies Group, and Wedbush Securities. Mr. Levy received a B.S. in Business Management and Marketing from Cornell University. +David Rodman, M.D. has served as our Chief Medical Officer since January 2021. Previously, Dr. Rodman served in various roles at miRagen, Vertex Pharmaceuticals Inc., and Novartis Institutes for BioMedical Research. Dr. Rodman was elected to the American Society for Clinical Investigation and named an Established Investigator and Fellow of the American Heart Association. Dr. Rodman received his medical degree from the University of Pennsylvania and was subsequently Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care Medicine at the University of Colorado. +-30- \ No newline at end of file diff --git a/raw/filings/0001933414/2024/0001933414-25-000009/item13.txt b/raw/filings/0001933414/2024/0001933414-25-000009/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..71066130be5d1797931a5c1458010aa2b2b557fe --- /dev/null +++ b/raw/filings/0001933414/2024/0001933414-25-000009/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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mlys:AlexanderGoldM.D.Member 2025-12-31 0001933414 mlys:JonCongletonMember 2025-12-31 0001933414 mlys:DaphneKarydasMember 2025-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +x +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +o +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ________ to ________. +Commission file number 001-41614 +MINERALYS THERAPEUTICS , INC . +(Exact name of registrant as specified in its charter) +Delaware +84-1966887 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +150 N. Radnor Chester Rd , Suite F200 Radnor , PA 19087 +(Address of Principal Executive Offices) (Zip Code) +888 - 378-6240 +Registrant’s telephone number, including area code +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which registered +Common stock, $ 0.0001 par value per share +MLYS +The Nasdaq Stock Market LLC +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +¨ +Accelerated filer +¨ +Non-accelerated filer +x +Smaller reporting company +x +Emerging growth company +x +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x +The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common stock on June 30, 2025, as reported on The Nasdaq Global Select Market, was $ 676.0 million. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. +The registrant had 82,399,478 shares of common stock outstanding as of March 5, 2026. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement relating to its 2026 annual meeting of stockholders (the 2026 Proxy Statement) are incorporated by reference into Part III of this Annual Report on Form 10-K (Annual Report) where indicated. +TABLE OF CONTENTS +Page No. +Part I +1 +Item 1. Business +1 +Item 1A. Risk Factors +25 +Item 1B. Unresolved Staff Comments +84 +Item 1C. Cybersecurity +84 +Item 2. Properties +85 +Item 3. Legal Proceedings +85 +Item 4. Mine Safety Disclosures +85 +Part II +86 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +86 +Item 6. [Reserved] +86 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +86 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +99 +Item 8. Financial Statements and Supplementary Data +F-1 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +100 +Item 9A. Controls and Procedures +100 +Item 9B. Other Information +101 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +101 +Part III +102 +Item 10. Directors, Executive Officers and Corporate Governance +102 +Item 11. Executive Compensation +102 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +102 +Item 13. Certain Relationships and Related Transactions, and Director Independence +102 +Item 14. Principal Accountant Fees and Services +102 +Part IV +103 +Item 15. Exhibit and Financial Statement Schedules +103 +Item 16. Form 10-K Summary +104 +Signatures +105 +RISK FACTORS SUMMARY +Our business, results of operations, financial condition, and growth prospects may be affected by a number of factors, whether currently known or unknown. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, let alone combined with any of the others, could materially and adversely affect our business, financial condition, results of operations, and stock price. We have provided a summary of some of these risks below, with a more detailed explanation of those and other risks applicable to the Company in Part I, Item 1A. “ Risk Factors ” in this Annual Report. +Summary of Risks Related to Our Business +The principal risks and uncertainties affecting our business include the following: +• We have a limited operating history and none of lorundrostat or any future product candidates have been approved for commercial sale. We have a history of significant net losses since our inception and expect to continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it. +• We will need substantial additional funds to pursue our business objectives, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit, reduce, or terminate our product development programs, commercialization efforts, or other operations. +• Our future performance at this time is entirely dependent on the success of our only product candidate, lorundrostat. If we are unable to obtain regulatory approval, and ultimately commercialize lorundrostat, or experience significant delays in doing so, our business will be materially harmed. +• Clinical and preclinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of prior clinical trials and studies of lorundrostat are not necessarily predictive of future results. Lorundrostat may not achieve favorable results in our clinical trials or receive regulatory approval on a timely basis, if at all. +• Use of lorundrostat or any future product candidates could be associated with adverse side effects, adverse events, or other properties or safety risks, which could delay or preclude regulatory approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label, or result in other significant negative consequences that could severely harm our business, prospects, operating results, and financial condition. +• We heavily rely on our exclusive license agreement entered into in July 2020 (the Tanabe License) with Tanabe Pharma Corporation (Tanabe) to provide us with intellectual property rights to develop and commercialize lorundrostat. If the Tanabe License is terminated, we would lose our rights to develop and commercialize lorundrostat, which in turn would have a material adverse effect on our business, financial condition, results of operations, and prospects, including, but not limited to, cessation of our operations to the extent we are unable to develop other product candidates at the time of such termination. +• We face significant competition, and if our competitors develop and commercialize technologies or product candidates more rapidly than we do, or their technologies or product candidates are more effective, safer, or less expensive than lorundrostat and any future product candidates we develop, our business and our ability to develop and successfully commercialize products will be adversely affected. +• We rely on and intend to continue to rely on third parties to conduct, supervise, and monitor our clinical trials and preclinical studies. We also depend on third‑party manufacturers for the production +of lorundrostat. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements, or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize lorundrostat and any future product candidates may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects. +• If we are unable to obtain, maintain, and enforce patent or other intellectual property protection for lorundrostat or any future product candidates or technology, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize lorundrostat or any future product candidates may be adversely affected. +• The trading pri ce of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses. +FORWARD-LOOKING STATEMENTS AND MARKET DATA +This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position, business strategy, research and development plans, the anticipated timing, costs, design, and conduct of our ongoing and planned preclinical studies and planned clinical trials for lorundrostat and any future product candidates, the timing and likelihood of regulatory filings and approvals for lorundrostat (including the anticipated timing of any U.S. Food and Drug Administration’s (FDA) approval of our new drug application (NDA) that was submitted to the FDA for lorundrostat for the treatment of hypertension when used in combination with other antihypertensive drugs in December 2025) and any future product candidates, our ability to commercialize our product candidates, if approved, the potential to develop future product candidates, the potential benefits of strategic collaborations and our intent to enter into any strategic arrangements, the timing and likelihood of success, and plans and objectives of management for future operations and future results of anticipated product development efforts, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements, including the timing, volume and nature of feedback or requests from the FDA in connection with our NDA submission, macroeconomic trends and uncertainty with regard to high interest rates, elevated inflation, tariffs and other trade policies, geopolitical conflict, and the potential for a local and/or global economic recession. This Annual Report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions, and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. +In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these terms or other similar expressions. The forward-looking statements in this Annual Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Annual Report and are subject to a number of risks, uncertainties, and assumptions, including, without limitation, the risk factors described in Part I, Item 1A, “ Risk Factors ” and under a similar heading in any other periodic or current report we may file with the U.S. Securities and Exchange Commission (the SEC) in the future. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. +This Annual Report includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Annual Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames. +Part I +Item 1. Business +Business Overview +We are a biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective aldosterone synthase inhibitor (ASI) that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension and related comorbidities such as chronic kidney disease (CKD) and obstructive sleep apnea (OSA). +In the United States, there are approximately 120 million patients with sustained elevated blood pressure (BP), or hypertension. Approximately 60 million patients are treated and over 30 million do not achieve their BP goal, with approximately 20 million having systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. Dysregulated aldosterone levels are a key factor in uncontrolled hypertension (uHTN) or resistant hypertension (rHTN) in approximately 30% of patients. +Ahead of the NDA submission in December 2025, we completed five successful clinical trials of lorundrostat supporting the efficacy and safety profile while also validating aldosterone as an integral therapeutic target in uHTN or rHTN. This includes two pivotal, registrational trials, the Phase 3 Launch-HTN trial and Phase 2 Advance-HTN trial, which support the robust, durable, and clinically meaningful reductions in systolic BP by lorundrostat. Lorundrostat was well tolerated in both trials with a favorable safety profile. Based on the positive results from our pivotal program, we submitted an NDA in December 2025 for lorundrostat for the treatment of hypertension in combination with other antihypertensive drugs. The FDA accepted the NDA submission and provided us with a Prescription Drug User Fee Act (PDUFA) target action date of December 22, 2026. +We believe, based on available clinical data, that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. In addition to hypertension, we have been investigating the potential benefits of lorundrostat in participants with hypertension and CKD and in participants with hypertension and OSA. In June 2025, we announced that the result of our Phase 2 Explore-CKD trial, which evaluated the safety and efficacy of lorundrostat in participants with hypertension and comorbid CKD, was highly statistically significant and clinically meaningful in reducing systolic BP and in reducing urinary albumin creatinine ratio (UACR), a marker of kidney disease progression, as well as demonstrating a favorable safety and tolerability profile. On March 9, 2026, we announced topline data from our Phase 2 Explore-OSA trial that evaluated the effect of lorundrostat in the treatment of overweight and obese participants with moderate-to-severe OSA and hypertension. While the Explore-OSA trial did not demonstrate a reduction in apnea-hypopnea index (AHI), the BP reductions were clinically meaningful and the safety profile was favorable, especially for this population with difficult to control hypertension. +Our Product Candidate, Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that is designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We licensed lorundrostat from Tanabe Pharma Corporation (Tanabe), which discovered the compound and provided the early foundational work, including demonstrating the selectivity of lorundrostat, and progressing the asset through Phase 1 clinical development. +-1- +We have completed six clinical trials of lorundrostat in uHTN or rHTN as well as hypertension in uHTN or rHTN with comorbidities such as CKD or OSA. A summary of our clinical development is outlined below. +Summary of Historical and Current Clinical Trials of Lorundrostat +Phase 1: The first-in-human Phase 1 clinical trial of lorundrostat was conducted by Tanabe and showed that lorundrostat was well tolerated and did not inhibit cortisol following single dose and once-daily dosing over multiple days. +Phase 2: We conducted the Target-HTN Phase 2 proof-of-concept trial in participants with uHTN and rHTN to evaluate the efficacy of lorundrostat at various doses either once or twice a day. The results of Target-HTN led to the advancement of our pivotal program of lorundrostat. +Pivotal Program: In 2023, we initiated our pivotal program of lorundrostat, and we reported the results of Launch-HTN and Advance-HTN in March 2025. See “ Pivotal Program Clinical Trial Results ” beginning on page 7 for additional details regarding the results of these clinical trials. +• Launch-HTN evaluated the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN when used as an add-on therapy to participants’ existing, prescribed background treatment of two to five antihypertensive medications. +• Advance-HTN evaluated the efficacy and safety of lorundrostat for the treatment of confirmed uHTN or rHTN when used as add-on therapy to a standardized, optimized, and adherent background treatment of two or three antihypertensive medications. +• Transform-HTN is an ongoing open-label extension trial enabling participants to continue to receive lorundrostat and allows us to obtain long-term efficacy and safety data. All participants in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, were given the opportunity to participate in the extension trial. +• Explore-CKD evaluated the safety and efficacy of 25 mg once daily (QD) lorundrostat in addition to a sodium-glucose cotransporter 2 (SGLT2) inhibitor for the treatment of hypertension in participants with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an angiotensin-converting enzyme (ACE) inhibitor or angiotensin II receptor blocker (ARB). We reported the results of this trial in June 2025. See “ Explore-CKD Clinical Trial Results ” beginning on page 9 for additional details regarding the results of this clinical trial. +-2- +• Explore-OSA evaluated the safety and efficacy of lorundrostat 50 mg QD with moderate-to-severe OSA. See “ Explore-OSA Clinical Trial Results ” beginning on page 10 for additional details regarding this clinical trial. +Background of Hypertension +In healthy individuals, normal BP, also known as peripheral blood pressure, is below 130 over 80, meaning the pressure measurement is lower than or at 130 mmHg when the heart is contracting (systolic BP) and at or below 80 mmHg when the heart is relaxed (diastolic BP). Sustained, elevated BP, or hypertension, can result in increased chances of life-threatening complications such as heart disease, stroke, or kidney disease, among others. +The prevalence of hypertension has been increasing in recent decades. A comprehensive study published in The Lancet journal shows that in patients aged 30 to 79, total hypertension cases nearly doubled worldwide from 1990 to 2019. Furthermore, obesity, especially when associated with increased visceral adiposity, is a major cause of hypertension, accounting for 65% to 75% of the risk for developing human primary (essential) hypertension. Despite hypertension being one of the most common preventable risk factors for premature death, approximately 1.3 billion people worldwide have hypertension, with hypertension as a primary or contributing cause of more than 685,000 deaths in the United States in 2022 alone. The costs of hypertension and related health issues are a major burden on already strained healthcare systems, with an estimated cost of $219 billion in the United States in 2019. While there are multiple therapeutic options available, most of which are generic and accessible, more than half of all treated hypertensive patients fail to achieve their BP goal. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. +The current standard-of-care for patients newly diagnosed with hypertension is based on a set of guidelines set forth by the American College of Cardiology (ACC) and the American Heart Association (AHA). A hypertensive patient’s target BP is defined as below 130/80 mmHg. Depending on baseline BP levels, these guidelines recommend that the patient typically begin with lifestyle modifications and then, assuming BP does not achieve the desired target, initiate treatment with antihypertensive agents selected primarily from the following five drug classes, which may later be combined with each other if the patient’s target BP is not successfully achieved with the initial therapy: +• Thiazide diuretics, which increase fluid excretion from the kidney by blocking reabsorption of sodium and chloride in the nephron; +• ACE inhibitors, which inhibit the renin-angiotensin aldosterone system (RAAS) axis by blocking the action of ACE in the lungs, which converts angiotensin I to angiotensin II; +• ARBs, which block the effects of angiotensin II at the level of the angiotensin receptor; +• Calcium channel blockers, which slow cardiac contractions and relax arteries by preventing calcium from entering the cells of the heart and arteries; and +• Beta blockers, which cause the heart to beat more slowly and with less force, which lower BP. +Despite numerous available treatment options, the majority of hypertensive patients require multiple therapies to achieve their target BP. Evidence demonstrates that adding a second- or third-line antihypertensive agent typically provides an additional 6 to 7 mmHg reduction in systolic BP. However, the incremental reduction in systolic BP provided by successive lines of treatment does not always adequately enable patients to reach their BP goal. Therefore, many patients require three, four, or more antihypertensive agents in an attempt to achieve their target BP. ACE inhibitors and ARBs are standard-of-care in the majority of all treated patients. Approximately 30-40% of patients receiving long-term ACE inhibitor or ARB therapy experience aldosterone breakthrough, which is associated with volume expansion and adverse cardiorenal effects that can undermine BP control. In addition, while hypertension is an asymptomatic disease, many of the currently available +-3- +treatments have side effects and tolerability issues, which may limit their use. For example, patients taking ACE inhibitors often develop a chronic cough, and those taking beta blockers often experience lethargy. +In a meta-analysis of 147 randomized trials, a 10 mmHg reduction in systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The Systolic BP Intervention Trial (SPRINT) study further demonstrated that in adults with hypertension but without diabetes, lowering systolic BP below 120 mmHg reduced cardiovascular events by 25% and reduced the overall risk of death by 27% compared to those with a systolic BP of 140 mmHg or higher. The importance of nighttime BP as a predictor of cardiovascular risk is increasingly recognized. Evidence has demonstrated that higher nighttime systolic BP has a strong association with increased cardiovascular risk. The study’s findings stress the importance of targeting a reduction in nighttime systolic BP when considering treatment approaches. +Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment, and within this population, 10 million suffer from rHTN. Treatment options are limited for rHTN patients, and the current ACC and AHA guidelines recommend introducing a mineralocorticoid receptor antagonist (MRA) agent, which blocks the effect of aldosterone, to the patient’s existing antihypertensive regimen. +Background of Chronic Kidney Disease (CKD) +CKD, which is characterized by the gradual loss of kidney function, is estimated to affect more than 10% of the global population and is one of the leading causes of mortality worldwide. According to the U.S. Centers for Disease Control and Prevention, an estimated 1-in-7 (approximately 37 million) U.S. adults have CKD, and approximately 22 million people in the United States are living with both hypertension and CKD. The relationship between these conditions is tightly linked: sustained hypertension may contribute to impaired kidney function, and progressive decrease in kidney function may lead to worsening BP control. Achieving BP control in these complex patients is the number one goal in slowing the progression of CKD. When CKD is present in patients with hypertension, the risk of cardiovascular disease and mortality rises significantly. +Emerging evidence points to dysregulated aldosterone as a key driver of both diseases. Excess aldosterone promotes sodium retention, vascular inflammation, and fibrosis, contributing to both uncontrolled BP and kidney injury. Despite the availability of existing therapies, a significant proportion of patients remain uncontrolled or undertreated. Early detection and targeted interventions that address underlying mechanisms, such as aldosterone dysregulation, may offer the potential to slow CKD progression, reduce cardiovascular risk, and improve long-term outcomes. Without effective management, CKD can advance to kidney failure, requiring dialysis or transplantation. +Background of Obstructive Sleep Apnea (OSA) +OSA is characterized by repetitive overnight hypoxic episodes and subsequent sleep fragmentation related to many factors, including volume overload and a complete or partial collapse of the upper airway. Moderate to severe OSA is associated with increased production of aldosterone and increased nighttime BP; standard treatment with positive airway pressure is not sufficient for BP reduction. OSA impacts almost one billion people globally, including 425 million moderate-to-severe cases. Around 80% of adults with OSA are undiagnosed. As of 2025, untreated OSA is estimated to cost the United States more than $150 billion annually when considering direct medical expenses, productivity losses, and accident-related costs. +Between 30-50% of adults with hypertension have OSA, and this number increases to between 70-80% in adults with rHTN. Additionally, untreated moderate-to-severe OSA increases the risk of rHTN. Along with hypertension, OSA is a major risk factor for cardiovascular disease, type-2 diabetes mellitus, and stroke. +-4- +Background of Aldosterone and its Role in Hypertension +Aldosterone is a mineralocorticoid steroid hormone primarily made in the outer layer of the adrenal gland called the adrenal cortex, which plays an important role in controlling the balance of water and salts by regulating the exchange of sodium and potassium in the body. This maintenance of fluid homeostasis ensures the body can maintain normal BP. +In a healthy person, homeostatic balance is maintained via a feedback loop called the RAAS. Renin is a key enzyme that is released by the kidneys when they sense changes in BP to control the production of aldosterone, in order to help the kidneys regulate water and salt levels in the body. In a normal physiological state, aldosterone production increases when BP is too low and decreases when BP is too high. This is considered renin-dependent hypertension due to the linkage of renin levels to aldosterone production. +In addition to the self-regulated RAAS, there are other pathways that drive aldosterone production. Evolving information about hormone regulation of visceral adipocytes and the adrenal gland supports the hypothesis that adipokines, specifically elevated leptin and reduced adiponectin, can affect aldosterone and renin, respectively. The net result is an increase in aldosterone and prevention of the normal feedback inhibition of renin. This is considered renin-independent aldosterone production and is due to dysregulated systems biology, which is often prevalent in an obese population. +Overview of Renin-Dependent and Renin-Independent Aldosterone Production +Elevated aldosterone also causes insulin resistance, inflammation and fibrosis of the heart, fibrosis and remodeling of blood vessels, and tubulointerstitial fibrosis and glomerular injury in the kidney. Aldosterone excess is believed to lead to a higher risk of stroke, kidney damage, congestive heart failure, and heart attack, compared to high BP alone. Many of these symptoms are often comorbidities in an obese population. +Many of the therapies designed to address hypertension, such as ACE inhibitors, ARBs, beta blockers, calcium channel blockers, and diuretics, were developed and introduced several decades ago when the incidence of obesity was below 20% and abnormal aldosterone production affected less than 10% of the U.S. population. The increasing prevalence of obesity and hypertension, driven by the renin-independent axis, has resulted in higher incidences of uHTN and rHTN. Currently available therapies are generally effective in managing renin-dependent hypertension; however, they fail to adequately address the shifting biology of hypertension today. For example, ACE inhibitors and ARBs indirectly reduce aldosterone levels, but up to 40% of treated patients experience “aldosterone breakthrough,” whereby their aldosterone levels return to normal or higher levels and result in elevated BP. +-5- +Growing Epidemic of Obesity Correlated to Rise in Hyperaldosteronism +MRAs, which were initially introduced in the 1950s, are designed to work by blocking the effect of aldosterone, whether renin-dependent or renin-independent, from the mineralocorticoid receptor (MR) but do not inhibit aldosterone production. There are two well-known MRAs available in the United States for the treatment of hypertension, spironolactone and eplerenone, which are both available as generic medicines. MRAs are known to be effective in lowering BP; however, they have demonstrated side effects that have limited their use. Specifically, spironolactone, the most commonly prescribed MRA, is known for inducing hyperkalemia as well as gynecomastia in men and fertility issues in women. Additionally, when aldosterone is blocked from binding to the MR, circulating aldosterone levels increase two- to three-fold and may cause other harmful non-MR-related effects in the body. +The approach of blocking the synthesis of aldosterone and reducing plasma aldosterone levels is thought to be a preferable approach versus the use of MRAs that block the action of aldosterone at the MR. The task of creating a safe and effective ASI can be technically challenging because the major enzymes in the synthesis of aldosterone and cortisol share a high degree of amino acid sequence similarity. While challenging to develop, there are currently three ASIs (including lorundrostat) in advanced clinical development and one in early clinical development in conditions including hypertension, OSA, primary aldosteronism, heart failure, and CKD. +Clinical Development of Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We are initially developing lorundrostat for the treatment of hypertension and have completed six clinical trials. In our trials, lorundrostat was well tolerated and demonstrated compelling clinical results, and once-daily dosing flexibility. The observed 10 to 12 hour pharmacokinetic half-life of lorundrostat has the potential to normalize aldosterone levels to provide a clinically meaningful reduction in BP and to flexibly manage the challenges of elevated serum potassium. We believe that lorundrostat’s profile may be compelling based on the following attributes: +• Compelling Clinical Results in Hypertension: The Launch-HTN global Phase 3 trial demonstrated a statistically significant and clinically meaningful 11.6 mmHg placebo-adjusted +-6- +reduction in systolic BP in the 50 mg 12-week cohort. This clinical benefit was consistent across patient subtypes and specifically in high-risk populations such as women and Black or African Americans. Furthermore, a low rate of hyperkalemia was observed, with 0.6% of participants exceeding 6.0 mmol/L potassium. +• Distinct Benefit in Hypertension and Related Comorbidities: Explore-CKD demonstrated a statistically significant and clinically meaningful reduction in systolic BP and UACR in participants with hypertension and comorbid CKD. In Explore-OSA, lorundrostat demonstrated a clinically meaningful reduction in systolic BP in participants with hypertension and comorbid OSA. +• High Selectivity: Lorundrostat is highly selective for aldosterone and shows no cortisol suppression and no incidence of adrenal insufficiency, as anticipated by the 374-to-1 inhibitory effect on the CYP11B2 enzyme compared to the CYP11B1 enzyme, which is responsible for synthesizing cortisol. +• Optimal Half-Life: The half-life of lorundrostat (10-12 hours) is ideally suited for once-daily dosing. Our clinical trials validated the 24-hour efficacy achieved with once-daily dosing. A majority of our clinical trial participants maintained a serum potassium in the normal range. There have been modest incidences of hyperkalemia requiring dose adjustment or discontinuation. Lorundrostat’s observed 10 to 12 hour half-life may be viewed more favorably by physicians compared to compounds with longer half-lives, which may have a greater risk of sustained potassium elevation. +• Convenient Dosing and Well Tolerated: Our clinical trials demonstrated clinically meaningful results on a once-daily dosing regimen. Furthermore, lorundrostat was well-tolerated. In Launch-HTN, serious adverse events (SAEs) were reported in 2.4% of participants receiving 50 mg lorundrostat and in 3.3% of participants receiving placebo. +Pivotal Program Clinical Trial Results +Efficacy Results +Launch-HTN was a large, global, randomized, double-blinded, placebo-controlled Phase 3 clinical trial, which enrolled eligible adult participants who failed to achieve their BP goal despite being on two to five antihypertensive medications. Launch-HTN reflects the real-world setting for clinicians by utilizing automated office blood pressure measurement (AOBP) and allowing participants to stay on their existing medications. Participants were randomized into three cohorts for twelve weeks, receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week six based on defined criteria or placebo. The primary endpoint of the trial was the assessment of automated office measured systolic BP from baseline for active cohorts versus placebo at six weeks, with the results pooled for all participants on 50 mg QD. The trial met its endpoints, demonstrating clinically meaningful, statistically significant mean reduction from baseline in placebo-adjusted systolic BP at week six, and the benefit was sustained with further reduction through week 12. +-7- +Launch-HTN Phase 3 Trial +(automated office systolic BP measure, n=1,083 randomized) +Week 6 (50 mg pooled) +Week 12 +Absolute +Reduction +Placebo-Adjusted +Reduction +Absolute +Reduction +Placebo-Adjusted +Reduction +50 mg -16.9 mmHg -9.1 mmHg +(p<0.0001)* +-19.0 mmHg +-11.6 mmHg +(p<0.0001) +50 to100 mg +-15.7 mmHg +-8.4 mmHg +(p=0.0016) +* Primary endpoint +Key characteristics of participants enrolled in the Launch-HTN trial include: approximately 63% had a BMI greater than or equal to 30kg/m 2 , approximately 47% were women, and approximately 29% were Black or African American. +The Advance-HTN trial was a randomized, double-blind, placebo-controlled Phase 2 pivotal trial that evaluated the efficacy and safety of lorundrostat for the treatment of confirmed uHTN or rHTN, when used as add-on therapy to a standardized, optimized, and adherent background treatment of two or three antihypertensive medications in adult participants. Participants who met screening criteria discontinued their existing hypertension medications and started on a standard regimen of an ARB and a diuretic, if previously on two medications, or a standard regimen of ARB, diuretic, and calcium channel blocker if previously on three to five medications. Participants who remained hypertensive despite the standardized regimen were then randomized into three cohorts for twelve weeks, receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week four based on defined criteria or placebo. The primary endpoint of Advance-HTN was change in 24-hour ambulatory systolic BP at week twelve from baseline for each active cohort versus placebo. +The trial was designed to evaluate lorundrostat in a uHTN or rHTN population at the highest risk, which would normally be treated by a specialist, given the severity of their condition. The trial met its primary endpoint as well as additional prespecified outcome measures, including safety, and tolerability, and were consistent with those observed in the Launch-HTN trial. +Advance-HTN Phase 2 Trial +(24-hour ambulatory systolic BP, n=285 randomized) +Week 4 (50 mg pooled) +Week 12 +Absolute +Reduction +Placebo-Adjusted +Reduction +Absolute +Reduction +Placebo-Adjusted +Reduction* +50 mg +-11.5 mmHg +-5.3 mmHg +(p=0.0006) +-15.4 mmHg +-7.9 mmHg +(p=0.001) +50 to100 mg +-13.9 mmHg +-6.5 mmHg +(p=0.006) +* Primary endpoint +Key characteristics of participants enrolled in the Advance-HTN trial include: approximately 66% had a BMI greater than or equal to 30kg/m 2 , approximately 40% were women, and approximately 53% were Black or African American. +Safety and Tolerability Results +We believe clinical safety findings in the two pivotal trials, including adrenocorticotropic hormone-stimulated and serum cortisol, change in serum potassium, serum sodium, and estimated glomerular filtration rate (eGFR), as well as incidence of hypotension, support a favorable benefit-risk profile. +-8- +In the two active treatment arms of the Launch-HTN trial, 50 mg and 50 mg with optional dose escalation to 100 mg, the incidence of treatment-emergent SAEs was twelve participants (2.2%) and two participants (0.7%), respectively, compared with eight participants (3.0%) in the placebo arm. There was only one participant (0.2%) in the trial with a treatment-related SAE that occurred in the 50 mg arm. The incidence of hyperkalemia (serum potassium >6.0 mmol/L) at the scheduled study visit was 1.1% and 1.5% in the 50 mg and 50 to 100 mg arms, respectively. The per-protocol procedure for validation of suspected factitious hyperkalemia (most often due to phlebotomy-related hemolysis and release of potassium from red blood cells) specified a repeat potassium measurement within 72 hours while still taking study medication to confirm validity and provide an accurate determination of the true incidence of hyperkalemia. After exclusion of the spurious results, the incidence of confirmed hyperkalemia was 0.6% and 1.1% in the 50 mg and 50 to 100 mg arms, respectively. +In the Advance-HTN trial, there were six participants (6.4%) and eight participants (8.4%) with treatment-emergent SAEs in the lorundrostat 50 mg and lorundrostat 50 to 100 mg arms, respectively, compared to two participants (2.1%) in the placebo arm. Treatment-related SAEs occurred in 2%, 1%, and 0% of participants in the lorundrostat 50 mg, lorundrostat 50 to 100 mg, and placebo arms, respectively. The incidence of hyperkalemia (serum potassium >6.0 mmol/L) at the scheduled study visit was 5.3% and 7.4% in the 50 mg and 50 to 100 mg arms, respectively. The per-protocol procedure for validation of suspected factitious hyperkalemia (most often due to phlebotomy-related hemolysis and release of potassium from red blood cells) specified a repeat potassium measurement within 72 hours while still taking study medication to confirm validity and provide an accurate determination of the true incidence of hyperkalemia. After exclusion of the spurious results, the incidence of confirmed hyperkalemia was 2.1% and 3.2% in the 50 mg and 50 to 100 mg arms, respectively. +Explore-CKD Clinical Trial Results +Efficacy, Safety, and Tolerability Results +The Explore-CKD trial was a randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover trial. This phase 2 trial was designed to evaluate efficacy in terms of systolic BP and UACR reduction, and safety of 25 mg QD lorundrostat added to a background treatment that included an SGLT2 inhibitor and an ACE inhibitor or an ARB in participants with uHTN or rHTN and CKD with an eGFR ≥ 30 mL/min/1.73m 2 and albuminuria (UACR of 200-5,000 mg/g) during a four-week treatment period. The primary endpoint was placebo-adjusted change from baseline in systolic BP at week four, and an exploratory endpoint was placebo-adjusted percent change from baseline in UACR at week four. The trial was highly statistically significant and was clinically meaningful in both of these endpoints and demonstrated a favorable safety and tolerability profile. +Explore-CKD Phase 2 Trial (N=59) +Placebo +Lorundrostat 25 mg +Placebo-Adjusted +Change in systolic BP (mmHg)* -1.76 -9.25 -7.5 (p=0.0024) +Change in spot UACR (mg/g) -6.60% -30.51% -25.60% (p=0.0015) +Change in eGFR** (mL/min/1.73m 2 ) +-2.20% -6.78% +-4.58% (p=0.0362) +Treatment Emergent Adverse Events (TEAEs) leading to discontinuation of study drug +1/57 (2%) +2/58 (3%) +Confirmed hyperkalemia (K + >6.0 mmol/L) +0/57 (0%) +3/58 (5%) +BP, blood pressure; UACR, Urine albumin-to-creatinine ratio; TEAE, Treatment-emergent adverse event +* Primary endpoint. +** Cystatin-C formula, a surrogate biomarker of renal function not subject to MATE1 transport and elimination in the glomeruli of the kidney. +-9- +Per protocol Systolic BP, UACR, and eGFR estimates and p values from Mixed Effects Model for a crossover trial with multiple baselines. +SAEs were reported in two participants (3%) during the lorundrostat treatment period and none during the placebo treatment period. TEAEs leading to discontinuation occurred in one participant (2%) during the placebo treatment period and in two participants (3%) during the lorundrostat treatment period. +During lorundrostat treatment, one participant discontinued treatment due to elevation of potassium associated with reduced eGFR, and one participant discontinued treatment due to reduction in eGFR alone. During the lorundrostat treatment period, an anticipated, modest decrease in mean eGFR was observed (-6.8% lorundrostat, -4.6% mL/min/1.73m 2 placebo-adjusted). Reduction in eGFR is also seen with other renin-angiotensin-aldosterone pathway inhibitors, including ACE inhibitors, ARBs, and MRAs. This is the result of a reduction in the deleterious over-perfusion of glomeruli due, in part, to reduced BP. +These findings add to a growing body of evidence supporting the efficacy and safety of ASIs in addressing the underlying mechanisms of hypertension, including in individuals with reduced kidney function and albuminuria. The reduction in UACR observed in this trial is consistent with the potential of lorundrostat to have renal protective effects. +Explore-OSA Clinical Trial Results +Efficacy, Safety, and Tolerability Results +The Explore-OSA trial was a Phase 2, randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover, exploratory trial that evaluated the safety and efficacy of lorundrostat 50 mg QD administered in the evening in 48 participants with hypertension and moderate-to-severe OSA. Participants were at least 18 years old, with a systolic BP ≥ 130 mmHg and ≤ 180 mmHg, with a body mass index (BMI) ≥27 kg/m 2 . +The primary endpoint of the trial was absolute change from baseline in AHI after four weeks of active treatment compared to placebo. After four weeks of treatment, lorundrostat 50 mg dosed in the evening did not demonstrate a clinically meaningful difference relative to placebo on the AHI, the primary endpoint. The trial demonstrated a clinically meaningful reduction in BP at week four, with an 11.1 mmHg (p < 0.0001) and a 1.0 mmHg (p = NS) BP reduction with lorundrostat and placebo, respectively, in the pre-planned parallel arm analysis of the first period. There was a 6.2 mmHg placebo-adjusted reduction (p < 0.0003) in BP in the crossover analysis. +Lorundrostat demonstrated a favorable safety profile and was well tolerated, with no serum potassium excursions above 5.5 mmol/L. Analysis is ongoing for other endpoints in the trial and may be reported in future publications or medical meetings. +Our Team and Investors +Founded by Catalys Pacific in 2019, we are led by an experienced management team with diverse backgrounds and significant experience in drug discovery, development, and company building. Our management team consists of industry veterans with extensive experience at pharmaceutical companies such as Merck, Novartis, ProQR, Sanifit, Teva, and Vertex. Together, our team has a proven track record in the discovery, development, and commercialization of numerous approved therapeutics. Since inception, we have raised aggregate gross proceeds of approximately $1.1 billion from the sale of the Company’s common stock, convertible preferred stock, pre-funded warrants, and convertible notes. +License Agreement with Tanabe +In July 2020, we entered into the Tanabe License with Tanabe, pursuant to which Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Tanabe’s patent and other intellectual +-10- +property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans (the Field). Pursuant to the Tanabe License, we paid Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Tanabe tiered royalties at percentages ranging from the mid-single-digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith developing at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Tanabe License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we have agreed to negotiate such a sublicense first, for a specified period of time, with Tanabe, if Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Tanabe’s prior consent. +Unless terminated earlier, the Tanabe License will continue until the expiration of all of our royalty obligations to Tanabe. We may terminate the Tanabe License for any or no reason upon 90 or 180 days’ prior written notice to Tanabe, depending on whether the Lorundrostat Product has received regulatory approval. Tanabe may terminate the Tanabe License if we or our affiliates or sublicensees initiate a challenge to the patent rights licensed to us by Tanabe. In addition, either party may terminate the Tanabe License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +Manufacturing +We do not own or operate manufacturing facilities for the production of lorundrostat, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for our required raw materials, active pharmaceutical ingredients, and finished product candidates for our clinical trials. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. +Sales and Marketing +We have not yet defined our sales, marketing, or product distribution strategy for lorundrostat because it is still in clinical development and pending regulatory approval. Our commercial strategy may include the use of strategic partners, distributors, a contract sales force, or the establishment of our own commercial sales force. We plan to further evaluate these alternatives as we approach approval for lorundrostat, if any. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Lorundrostat, if approved, may address multiple markets. Ultimately, the disease(s) lorundrostat targets and for which it may receive marketing authorization will determine our competition. There are competing programs under development by other companies for our initially targeted indication of hypertension. Lorundrostat, if approved, will have to compete with existing therapies and new therapies that may become available in the future. We face +-11- +potential competition from many different sources, including larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. In many cases, the companies with competing programs will have access to greater financial, technical, manufacturing, marketing, sales, and supply resources, will have more expertise and experience than us, and may be more advanced in those programs. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma, and CORXEL; +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen-directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +If we successfully obtain approval for lorundrostat or any future product candidate, we believe that the key competitive factors that will affect the success of lorundrostat will be efficacy, safety, tolerability, convenience, price, and the availability of reimbursement from government and other third-party payors relative to such competing products. Our commercial opportunity could be reduced or eliminated if its competitors have products that are superior in one or more of these categories. +Intellectual Property +Intellectual property, including patents, trade secrets, know-how, trademarks, and copyrights, is important to our business. Our commercial success depends in part on our ability to obtain and maintain proprietary intellectual property protection for our product candidate, lorundrostat, as well as for future product candidates and novel discoveries, product development technologies, and know-how. Our commercial success also depends in part on our ability to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to develop and maintain protection of our proprietary position by, among other methods, licensing or filing U.S. and foreign patents and applications relating to our product candidates, technology, inventions, and improvements that are important to the development and implementation of our business. +Our patent portfolio is built with the goal of establishing broad protection that generally includes, for the product candidate compound, claims directed to composition of matter, pharmaceutical compositions or formulations, methods of synthesis, and methods of treatment using such pharmaceutical compositions or formulations. We are seeking and maintaining patent protection in the United States and key foreign jurisdictions where we intend to market lorundrostat. Our patent portfolio includes a combination of patents and pending patent applications solely owned by us, patents and pending patent applications licensed from Tanabe, and pending patent applications jointly owned with Tanabe. As of February 26, 2026, our patent portfolio comprises 16 distinct patent families protecting our technology relating to lorundrostat and its synthetic intermediates, methods of synthesizing lorundrostat and related compounds, various formulations of lorundrostat products, as well as methods of treating diseases with lorundrostat and related compounds. As of February 26, 2026, our portfolio of exclusively licensed patents and pending patent applications consists of four granted U.S. patents; one pending U.S. reissue application; two pending U.S. patent applications; one granted European patent that has been validated in Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Turkey, and the United Kingdom; one granted European patent that has been validated in France, Germany, Italy, Spain, +-12- +and the United Kingdom; three pending European patent applications; four granted Japanese patents; two pending Japanese patent applications; one granted Canadian patent; one pending Canadian patent application; one granted Australian patent; one granted Brazilian patent; two pending Brazilian applications; one granted Chinese patent; two pending Chinese patent applications; one pending Israeli patent application; one granted Indian patent; one granted Indonesian patent; one granted Korean patent; one pending Korean patent application; one granted Malaysian patent; one granted Mexican patent; one pending Philippines patent application; two granted Russian patents; one granted Singaporean patent; one granted Taiwanese patent; one pending Thai application; and one granted Vietnamese patent. +Our portfolio of wholly owned pending patent applications consists of two pending Australian patent applications; one pending Brazilian patent application; four pending Canadian patent applications; one pending Chinese patent application; five pending European patent applications; five pending Japanese patent applications; three pending Korean patent applications; three pending Malaysian patent applications; two pending New Zealand patent applications; three pending Singaporean patent applications; six pending U.S. patent applications; one pending Vietnamese patent application; four pending PCT International Applications; five pending Taiwanese patent applications; three pending Thai patent applications; and five pending U.S. provisional patent applications. +Our portfolio of jointly owned pending patent applications consists of one pending Canadian patent application; one pending Chinese patent application; two pending European patent applications; two pending Indonesian patent applications; two pending Japanese patent applications; two pending Malaysian patent applications; two pending Korean patent applications; two pending Philippines patent applications; two pending Singaporean patent applications; one pending Taiwanese patent application; two pending Thai patent applications; two pending U.S. patent applications; two pending Vietnamese patent applications; and one pending PCT International Application. +Granted patents and pending applications in our portfolio of exclusively licensed patents and pending patent applications, if granted, have nominal expiration dates ranging from 2035 to about 2042, without accounting for any available patent term adjustments or extensions. Pending applications in our portfolio of wholly and jointly owned pending patent applications have nominal expiration dates ranging from 2041 to about 2046, without accounting for any available patent term adjustments or extensions. If filed and subsequently granted, patent applications claiming priority to pending U.S. Provisional Applications in our portfolio of wholly and jointly owned pending patent applications will have expiration dates ranging from 2045 to about 2046, without accounting for any available patent term adjustments or extensions. +The term of individual patents in our portfolio depends upon the legal term of patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the term of a patent may be eligible for patent term adjustment, which permits patent term restoration as compensation for delays incurred at the United States Patent and Trademark Office (USPTO) during the patent prosecution process. In addition, for patents that cover an FDA-approved drug, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. While the length of the patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only one patent per approved drug may be extended under the Hatch-Waxman Act. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek any available patent term extension to any granted patents we may be granted in any jurisdiction where such extensions are available; however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. +-13- +The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. We cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use or manufacture of those products. Moreover, granted patents do not guarantee the right to practice our technology in relation to the commercialization of our products. Granted patents only allow us to block potential competitors from practicing the claimed inventions of the granted patents. +Further, patents and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and our granted patents may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any granted patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any granted patents. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides. +We may also rely on trade secrets relating to our discovery programs and product candidates, and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us, and for employees and consultants to enter into invention assignment agreements with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Where applicable, the agreements provide that all inventions to which the individual contributed as an inventor shall be assigned to us, and as such, will become our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information. +Further, we have and will continue to pursue trademark protection for our company name and brand. Since December 2022, we have owned four registered trademarks in the United States and foreign jurisdictions relating to the registered trademark “MINERALYS.” +Government Regulation +Government authorities in the United States, at the federal, state, and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States. +-14- +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA), the Public Health Service (PHS) Act, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with Good Laboratory Practice regulations (GLPs) and other applicable regulations; +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an independent institutional review board (IRB), or ethics committee (EC) at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice regulations (GCPs) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of an NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational drug product (including biological products) to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include the requirement that all research participants provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during +-15- +product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research participants or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to participants. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated checkpoints based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human participants and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases, and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. Generally, these points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing +-16- +process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, preclinical and other nonclinical studies, and clinical trials, along with descriptions of the manufacturing process, analytical testing performed on the chemistry, strength and purity of the drug, proposed labeling, and other relevant information, are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees, although waivers or reductions may be available in certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. In certain cases, such as when additional administrative components or user‑fee‑related materials are included, the FDA may operate under an extended timeline and issue its filing decision and related communication within 74 days of submission. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, safety and efficacy for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s quality and purity. Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. +The FDA may refer an application for a novel drug or therapeutic biological product to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates a marketing application and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional clinical trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies, or manufacturing. If a CRL is issued, the applicant must resubmit the NDA to address all of the deficiencies identified in the letter or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approval, including the requirement for a risk evaluation and mitigation strategy (REMS), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the applicant of the NDA must submit a proposed REMS. The FDA will not approve the marketing application without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or +-17- +elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription, or dispensing of products. +In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs, and supplements to them, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or submit a request for approval of a pediatric formulation. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. +If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. However, competitors may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of a competing product for seven years if a competitor obtains approval of the “same drug,” as defined by the FDA, or if a product candidate is determined to be contained within the competitor’s product for the same disease or condition. In addition, if an orphan-designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. +Expedited Development and Review Programs +The FDA has a number of programs intended to expedite the development or review of a marketing application for a new drug. For example, the fast-track designation program is intended to expedite or facilitate the process of developing and reviewing product candidates that meet certain criteria. Specifically, investigational drugs are eligible for fast-track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. The sponsor of a fast-track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. With regard to a fast-track product candidate, the FDA may review sections of a marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept +-18- +sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon first submission of the section(s) of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast-track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +Any product candidate submitted to the FDA for approval, including a product candidate with a fast-track designation or breakthrough designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. An NDA is eligible for priority review if the product candidate is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for standard review under its current PDUFA review goals. +In addition, a product candidate may be eligible for accelerated approval. Drug products (including biologics) intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled confirmatory clinical trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory trials in a timely manner or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition of accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. +Fast-track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, supply chain security, reporting of permanent discontinuance or interruptions in supply, other periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes, and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, +-19- +may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. In the context of smaller molecule new drugs, the FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug +-20- +application (ANDA), or an NDA submitted under Section 505(b)(2) (505(b)(2) NDA) submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. +Other Healthcare Laws +Pharmaceutical companies and developers and manufacturers of therapeutic biological products are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research as well as sell, market, and distribute any products for which we obtain marketing approval. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, false claims, data privacy and security, and physician and other healthcare provider transparency laws and regulations. If our significant operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment. +Coverage and Reimbursement +Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. These third-party payors are increasingly reducing reimbursements for medical products, drugs, and services. In addition, the U.S. government, state legislatures, and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales. +-21- +Healthcare Reform +In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended, collectively known as the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments, and changes to fraud and abuse laws. By way of example, the ACA: +• increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price; +• required collection of rebates for drugs paid by Medicaid managed care organizations; +• required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and +• imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. +Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, or AMP, beginning January 1, 2024. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. While HHS has released guidance on a number of key provisions of the IRA (including Medicare drug rebates, Medicare drug pricing negotiation, and Part B and Part D prescription drug plans), it remains unclear how agencies will choose to implement the IRA and whether more formal rulemaking is forthcoming. +Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation, and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +Employees +As of December 31, 2025, we had 76 full-time employees, of whom 39 were primarily engaged in research and development. None of our employees are represented by a labor union, and we consider our employee relations to be good. +-22- +Corporate Information +We were incorporated under the laws of the State of Delaware in May 2019 as Catalys SC1, Inc. and we subsequently changed our name to Mineralys Therapeutics, Inc. Our mailing address is 150 N. Radnor Chester Rd, Suite F200, Radnor, PA 19087 and our telephone number is 888-378-6240. +Available Information +Our website address is www.mineralystx.com. Our investor relations website is located at https://www.ir.mineralystx.com. We make available free of charge on our investor relations website under “SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our directors’ and officers’ Section 16 reports, and any amendments to those reports as soon as reasonably practicable after filing or furnishing such materials to the SEC. They are also available for free on the SEC’s website at www.sec.gov. +We use our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should monitor such website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. Information relating to our corporate governance is also included on our investor relations website. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. +Information about our Executive Officers +The following table sets forth information concerning our executive officers. +Name Age Position +Jon Congleton 62 President, Chief Executive Officer, and Director +Adam Levy 47 Chief Financial Officer and Secretary +David Rodman, M.D. 70 Chief Medical Officer +Eric Warren, R.Ph. 53 Chief Commercial Officer +Jon Congleton has served as our President and Chief Executive Officer and as a member of our board of directors since November 2020. Previously, Mr. Congleton was the Chief Executive Officer of Impel NeuroPharma, Inc. from September 2017 to May 2020. Prior to that, he served as the Chief Executive Officer and as a director of Nivalis Therapeutics, Inc. from January 2015 to February 2017. Mr. Congleton was previously at Teva Pharmaceutical Industries, Ltd. (Teva) from November 1996 to December 2014, where over 18 years he held positions in general management and global strategic marketing, including Senior Vice President of Teva’s Global Central Nervous System Disorders from April 2013 to December 2014, Senior Vice President of the Global Medicine Group from November 2011 to April 2013, and General Manager of Teva Neuroscience, Inc. in the United States. Prior to joining Teva, Mr. Congleton spent ten years in a variety of commercial roles with predecessor companies of Sanofi. Mr. Congleton earned a B.S. in marketing from Kansas State University. Mr. Congleton’s knowledge of our business and his extensive executive experience at multiple biopharmaceutical companies contributed to our board of directors’ conclusion that he should serve as a director of our company. +Adam Levy has served as our Chief Financial Officer since March 2022 and as our Chief Business Officer from March 2022 through January 4, 2024. Mr. Levy also serves as a member of the board of directors of Praxis Bioresearch. Previously, he was the Chief Financial Officer at Sanifit Therapeutics until the company was acquired by Vifor Pharma in 2022. Previously, Adam served as the Chief Business Officer at Brickell Biotech from 2019 to 2020 and led the organization’s financial operations transition as it became a publicly listed company on Nasdaq. Prior to that, he served as the Chief Business Officer at miRagen Therapeutics from 2016 to 2019, where he was responsible for a variety of functions including financial strategy, investor relations, business development, legal affairs, intellectual property, project and program management, and +-23- +human resources. Between 2000 and 2016, Mr. Levy held multiple investment banking positions at Merrill Lynch, Jefferies Group, and Wedbush Securities. Mr. Levy received a B.S. in Business Management and Marketing from Cornell University. +David Rodman, M.D. has served as our Chief Medical Officer since January 2021. Previously, Dr. Rodman served in various roles at miRagen, Vertex Pharmaceuticals Inc., and Novartis Institutes for BioMedical Research. Dr. Rodman was elected to the American Society for Clinical Investigation and named an Established Investigator and Fellow of the American Heart Association. Dr. Rodman received his medical degree from the University of Pennsylvania and was subsequently Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care Medicine at the University of Colorado. +Eric Warren, R.Ph. has served as our Chief Commercial Officer since April 2025. Previously, Mr. Warren was at Esperion Therapeutics, Inc., a commercial-stage biopharmaceutical company, where he most recently served as its Chief Commercial Officer from March 2022 to April 2025, and previously in roles as Vice President, US Sales and Marketing from January 2021 to March 2022. From August 2020 to January 2021, Mr. Warren was Vice President, Head of Sales and Marketing at Nabriva Therapeutics plc, a commercial-stage biopharmaceutical company. From April 2018 to August 2020, Mr. Warren held Vice President roles in marketing at Sanofi S.A., a pharmaceutical and healthcare company, in their cardiovascular franchise. Additionally, from May 2006 to April 2018, Mr. Warren held roles of increasing responsibility at Merck & Co., a pharmaceutical company. Mr. Warren holds a Bachelor of Science in Pharmacy and is a licensed pharmacist in New York State. +-24- +Item 1A. Risk Factors +You should carefully consider the following risk factors, together with the other information contained in this Annual Report, including our financial statements and the related notes and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” before making a decision to purchase or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition, and growth prospects. If that were to happen, the trading price of our common stock could decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations or financial condition. +Risks Related to Our Limited Operating History, Financial Position, and Capital Requirements +We have a limited operating history, have incurred significant operating losses since our inception, and expect to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it. +Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We commenced operations in 2019 and, to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, in-licensing our product candidate, lorundrostat, establishing our intellectual property portfolio, and conducting research, preclinical studies, and clinical trials. We have not yet obtained regulatory approvals, manufactured products at commercial scale or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products. +We have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We do not have any products approved for sale and have not generated any revenue since our inception. If lorundrostat is not successfully developed, approved, and commercialized, we may never generate significant revenue, if we generate any revenue at all. Our net losses were $154.7 million and $177.8 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $457.2 million. Substantially all of our losses have resulted from expenses incurred in connection with in-licensing intellectual property related to, and developing, lorundrostat and from general and administrative costs associated with our operations. We submitted our NDA for lorundrostat to the FDA on December 22, 2025, and we have not yet received regulatory approval from the FDA or from other regulatory jurisdictions. Any future product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals. and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially until such time, if ever, as we obtain regulatory approval for, and potentially commercialize lorundrostat. +To become and remain profitable, we must succeed in developing, obtaining regulatory approvals for, and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials and preclinical studies of lorundrostat and any future product candidates, acquiring additional product candidates, obtaining regulatory approval for lorundrostat and any future product candidates, and manufacturing, marketing, and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. In addition, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased +-25- +expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable may have an adverse effect on the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates, achieve our strategic objectives, or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +We will require substantial additional capital to finance our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our development programs, commercialization efforts, or other operations. +The development of biopharmaceutical product candidates is capital-intensive. We expect our expenses to substantially increase in connection with our ongoing activities, particularly as we seek regulatory approval for, and potentially commercialize, lorundrostat and any future product candidates we may seek to develop. In addition, if we are able to progress lorundrostat through development and commercialization, we will be required to make commercial milestone and royalty payments to Tanabe from whom we have in-licensed intellectual property related to lorundrostat. If we obtain regulatory approval for lorundrostat or any future product candidates, we also expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. Because the outcome of any clinical trial or preclinical study is highly uncertain, we cannot reliably estimate the actual amount of financing necessary to successfully complete the development and commercialization of lorundrostat or any future product candidates. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts. +Based on our current operating plan, we believe that our existing cash, cash equivalents, and investments will enable us to fund our operations for at least the next 12 months. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on our cash resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned. Our existing capital may not be sufficient to complete development of lorundrostat, or any future product candidate, and we will require substantial capital in order to advance lorundrostat and any future product candidates through clinical trials, regulatory approval, and commercialization. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from factors that include but are not limited to, geopolitical conflict in and around Ukraine, Israel, Venezuela, and other areas of the world, inflation, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts, or even cease operations. We expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Attempting to secure additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop lorundrostat and any future product candidates. +-26- +Our future capital requirements will depend on many factors, including, but not limited to: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing for lorundrostat, or any future product candidate, including commercial manufacture at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and the timing of seeking approval in such jurisdictions; +• the costs, timing, and outcome of regulatory meetings and reviews of lorundrostat or any future product candidates; +• the costs of obtaining, maintaining, enforcing, and protecting our patents and other intellectual property and proprietary rights; +• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting; +• the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, manufacturing, quality, and commercial personnel; +• the timing and amount of the milestone, royalty, or other payments we must make to Tanabe, from whom we have in-licensed lorundrostat, or any future licensors; +• the costs and timing of establishing or securing sales and marketing capabilities if lorundrostat or any future product candidate is approved; +• our ability to achieve sufficient market acceptance, coverage, and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; +• patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; +• the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements; +• costs associated with any products or technologies that we may in-license or acquire; and +• any delays and cost increases that may result from any pandemic or other healthcare emergency. +Conducting clinical trials and preclinical studies and potentially identifying future product candidates is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and commercialize lorundrostat or any future +-27- +product candidates. If approved, lorundrostat and any future product candidates may not achieve commercial success. Our commercial revenue, if any, will initially be derived from sales of lorundrostat, which we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. +Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Such restrictions could adversely impact our ability to conduct our operations and execute our business plan. +If we raise additional funds through future collaborations, licenses, and other similar arrangements, we may be required to relinquish valuable rights to our future revenue streams, product candidates, research programs, intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we might otherwise prefer to develop and market ourselves, or on less favorable terms than we would otherwise choose. +Risks Related to the Development and Regulatory Approval of Our Product Candidates +We currently depend entirely on the success of lorundrostat, which is our only product candidate. If we are unable to obtain regulatory approval for, and ultimately commercialize, lorundrostat, or experience significant delays in doing so, our business will be materially harmed. +We currently only have one product candidate, lorundrostat, the intellectual property for which we have in-licensed and which is in clinical development. Our business presently depends entirely on our ability to successfully obtain regulatory approval for, and commercialize, lorundrostat in a timely manner. This may make an investment in our company riskier than similar companies that have multiple product candidates in active development and may be able to better sustain the delay or failure of a lead product candidate. The success of lorundrostat will depend on several factors, including the following: +• acceptance of our regulatory submissions by the FDA or comparable foreign regulatory authorities for the conduct of future preclinical studies and clinical trials of lorundrostat, including any proposed designs of any planned clinical studies and clinical trials of lorundrostat; +• the frequency and severity of adverse events in preclinical and clinical trials; +• maintaining relationships with preclinical vendors to ensure successful completion of preclinical studies with favorable results, including toxicology and other studies designed to be compliant with GLPs; +• maintaining and establishing relationships with contract research organizations (CROs) and clinical sites for the clinical development of lorundrostat, and ability of such CROs and clinical sites to comply with clinical trial protocols, current Good Clinical Practices (cGCPs), and other applicable requirements; +-28- +• demonstrating the safety and efficacy of lorundrostat to the satisfaction of applicable regulatory authorities, including by establishing a safety database of a size satisfactory to regulatory authorities; +• receipt and maintenance of marketing approvals from applicable regulatory authorities for the initial and any additional indications; +• successful initiation and enrollment of clinical trials and completion of clinical trials with favorable results; +• maintaining relationships with our third-party manufacturers and their ability to comply with cGMPs as well as making arrangements with our third-party manufacturers for, or establishing our own, commercial manufacturing capabilities at a cost and scale sufficient to support commercialization; +• establishing sales, marketing, and distribution capabilities and launching commercial sales of lorundrostat, if and when approved, whether alone or in collaboration with others; +• obtaining, establishing, maintaining, and enforcing patent and any potential trade secret protection or regulatory exclusivity for lorundrostat; +• maintaining an acceptable safety profile of lorundrostat following regulatory approval, if any; +• maintaining and growing an organization of people who can develop and, if approved, commercialize, market, and sell lorundrostat; and +• acceptance of our products, if approved, by patients, the medical community, and third-party payors. +If we are unable to develop, receive marketing approval for, and successfully commercialize lorundrostat, or if we experience delays as a result of any of the above factors or otherwise, our business would be significantly harmed. +Clinical and preclinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of prior clinical trials and studies of lorundrostat are not necessarily predictive of future results. Lorundrostat may not achieve favorable results in our ongoing or future nonclinical studies or clinical trials or receive regulatory approval on a timely basis, if at all. +Clinical and preclinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any clinical trials or preclinical studies will be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the trial or study process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of clinical development. The historical failure rate for product candidates in our industry is high, particularly in the earlier stages of development. +The results from preclinical studies or clinical trials of a product candidate or a competitor’s product candidate in the same class may not predict the results of later clinical trials of our product candidate, and interim, topline, or preliminary results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. It is not uncommon to observe results in clinical trials that are unexpected based on earlier clinical trials and preclinical studies, and many product candidates fail in clinical trials despite very promising early results. A number of companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies. Such setbacks have occurred and may occur for many reasons, including, but not limited to: clinical sites and investigators may deviate from clinical trial protocols, +-29- +whether due to lack of training or otherwise, and we may fail to detect any such deviations in a timely manner; participants may fail to adhere to any required clinical trial procedures, including any requirements for post-treatment follow-up; our product candidates may fail to demonstrate effectiveness or safety in certain participant subpopulations, which has not been observed in earlier trials due to limited sample size, lack of analysis, or otherwise; or our clinical trials may not adequately represent the patient populations we intend to treat, whether due to limitations in our trial designs or otherwise, such as where one patient subgroup is overrepresented in the clinical trial. There can be no assurance that we will not suffer similar setbacks despite the data we observed in earlier or ongoing studies. Based on negative or inconclusive results, we or any future collaborator may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials, which would cause us to incur additional operating expenses and delays and may not be sufficient to support regulatory approval on a timely basis or at all. +As a result, we cannot be certain that our currently ongoing or future planned clinical trials and preclinical studies will be successful. Any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of lorundrostat in those and other indications, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Any difficulties or delays in the commencement or completion, or the termination or suspension, of our current or future clinical trials or preclinical studies could result in increased costs to us, delay or limit our ability to generate revenue, or adversely affect our commercial prospects. +Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidate in humans. Before we can initiate clinical trials for any future product candidates, we must submit the results of preclinical studies to the FDA or comparable foreign regulatory authorities along with other information, including information about product candidate chemistry, manufacturing and controls, and our proposed clinical trial protocol, as part of an IND or similar regulatory submission. The FDA or comparable foreign regulatory authorities may require us to conduct additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND or similar regulatory submission, which may lead to delays and increase the costs of our preclinical development programs. Moreover, even if we commence clinical trials, issues may arise that could cause regulatory authorities to suspend or terminate such clinical trials. Any such delays in the commencement or completion, or the termination or suspension, of our ongoing and planned clinical trials or preclinical studies for lorundrostat and any future product candidate could significantly affect our product development timelines and product development costs. +We do not know whether our current or future clinical trials and preclinical studies will begin on time or be completed on schedule, if at all. The commencement, data readouts, and completion of clinical trials, and preclinical studies can be delayed for a number of reasons, including delays related to: +• inability to obtain animals or materials to initiate and generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; +• obtaining allowance from regulatory authorities to commence a trial or reaching a consensus with regulatory authorities on trial design; +• the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials; +• any failure or delay in reaching an agreement with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; +• delays in identifying, recruiting, and training suitable clinical investigators; +-30- +• obtaining approval from one or more IRBs or ECs at clinical trial sites; +• IRBs/ECs refusing to approve, suspending, or terminating the trial at an investigational site, precluding enrollment of additional participants, or withdrawing their approval of the trial; +• major changes or amendments to the clinical trial protocol; +• clinical sites deviating from the trial protocol or dropping out of a trial; +• failure by our CROs to perform in accordance with cGCP requirements or applicable regulatory guidelines in other countries; +• obtaining raw materials for manufacturing sufficient quantities of lorundrostat or obtaining sufficient quantities of combination therapies or other materials needed for use in clinical trials and preclinical trials; +• obtaining adequate materials for packaging clinical trial material; +• expiration of the shelf life of clinical material for use in clinical trials prior to the enrollment of any of our clinical trials; +• participants failing to enroll or remain in our trials at the rate we expect, or failing to return for post-treatment follow-up, including participants failing to remain in our trials due to movement restrictions, health reasons, or otherwise resulting from any pandemic or public health concerns; +• individuals choosing an alternative product for the indications for which we are developing lorundrostat or any future product candidates, or participating in competing clinical trials; +• lack of adequate funding to continue the clinical trials, preclinical trials, manufacturing, or incurring greater costs than we anticipate; +• participants experiencing severe or serious unexpected drug-related adverse effects; +• occurrence of SAEs in trials of the same class of agents conducted by other companies that could be considered similar to lorundrostat or any future product candidates; +• selection of clinical endpoints that require prolonged periods of clinical observation or extended analysis of the resulting data; +• transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization (CMO), delays or failure by our CMOs or us to make any necessary changes to such manufacturing process, or failure of our CMOs to produce clinical trial materials in accordance with cGMP regulations or other applicable requirements; and +• third parties being unwilling or unable to satisfy their contractual obligations to us in a timely manner. +In addition, disruptions caused by any pandemic or geopolitical conflicts may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting, or completing our currently ongoing or future clinical trials. +Clinical trials must be conducted in accordance with the FDA and other applicable regulatory authorities’ legal requirements, regulations, or guidelines, and are subject to oversight by these governmental agencies and ECs or IRBs at the medical institutions where the clinical trials are conducted. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a data safety monitoring board for such trial, or by the FDA or comparable +-31- +foreign regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with GCP and other regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial. For example, the IRB for the lorundrostat Phase 2 clinical trial terminated one of the clinical sites due to failure to comply with the study protocol and GCP. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing, or successful completion of a clinical trial. +Further, conducting clinical trials in foreign countries, as has been done for lorundrostat and intended to be done in the future for lorundrostat or any future product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled participants in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, and political and economic risks, including war, relevant to such foreign countries. +Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or a comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or a comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or a comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates. +In addition, many of the factors that cause, or lead to, the termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. We may make formulation or manufacturing changes to lorundrostat or any future product candidates, in which case we may need to conduct additional preclinical studies or clinical trials to bridge our modified product candidates to earlier versions. Any resulting delays to our clinical trials could shorten any period during which we may have the exclusive right to commercialize our product candidates. In such cases, our competitors may be able to bring products to market before we do, and the commercial viability of lorundrostat or any future product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition, and prospects. +We may find it difficult to enroll participants in our future clinical trials. If we encounter difficulties or delays enrolling participants in our future clinical trials, our clinical development activities could be delayed or otherwise adversely affected. +Successful and timely completion of future clinical trials will require that we identify and enroll a specified number of participants for each clinical trial. We may not be able to initiate clinical trials for lorundrostat or any future product candidates if we are unable to identify and enroll a sufficient number of eligible participants to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Participant enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and characteristics of the participant population, the proximity of participants to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the ability to obtain and maintain informed consents, the risk that enrolled participants will not complete a clinical trial, our ability to recruit clinical trial investigators with the appropriate competencies and experience, and competing clinical +-32- +trials and clinicians’ and participants’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating as well as any product candidates under development. We will be required to identify and enroll a sufficient number of participants for each of our clinical trials and monitor such participants adequately during and after treatment. Potential participants for any planned clinical trials may not be adequately diagnosed or identified with the diseases that we are targeting, which could adversely impact the outcomes of our trials and could have safety concerns for the potential participants. Potential participants for any planned clinical trials may also not meet the entry criteria for such trials. +Additionally, other pharmaceutical companies targeting these same diseases are recruiting clinical trial participants from these patient populations, which may make it more difficult to fully enroll our clinical trials. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible participants to participate in the clinical trials required by the FDA or comparable foreign regulatory authorities. In addition, the process of finding and recruiting participants may prove costly. The timing of our clinical trials depends, in part, on the speed at which we can recruit participants to participate in our trials, as well as completion of required follow-up periods. The eligibility criteria of our clinical trials, once established, may further limit the pool of available trial participants. If participants are unwilling or unable to participate in our trials for any reason, including the existence of concurrent clinical trials for similar target populations, the availability of approved or authorized therapies, or the fact that enrolling in our trials may prevent participants from taking a different product, or we otherwise have difficulty enrolling a sufficient number of participants, the timeline for recruiting participants, conducting trials, and obtaining regulatory approval of our product candidates may be delayed. Our inability to enroll a specified number of participants for any of our future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. In addition, we rely on, and will continue to rely on, CROs and clinical trial sites to ensure proper and timely conduct of our clinical trials and preclinical studies. Though we have entered into agreements governing their services, we will have limited influence over their actual performance. +We cannot assure you that our assumptions used in determining expected clinical trial timelines are correct or that we will not experience delays or difficulties in enrollment, or be required by the FDA or other regulatory authorities to increase our enrollment, which would result in the delay of completion of such trials beyond our expected timelines. +Use of lorundrostat or any future product candidates could be associated with adverse side effects, adverse events, or other properties or safety risks, which could delay or preclude regulatory approval, cause us to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of an approved label, or result in other significant negative consequences that could severely harm our business, prospects, operating results, and financial condition. +As is the case with biopharmaceuticals generally, it is likely that there may be adverse side effects associated with lorundrostat or any future product candidates’ use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of expected or unexpected side effects or unexpected characteristics. Undesirable side effects caused by our product candidates when used alone or in combination with approved or investigational drugs could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label, or lead to the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. The drug-related side effects could affect participant recruitment or the ability of enrolled participants to complete the trial or result in potential product liability claims. Any of these occurrences could severely harm our business, prospects, operating results, and financial condition. +Moreover, if lorundrostat or any future product candidates are associated with undesirable side effects in clinical trials or demonstrate characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective, which may +-33- +limit the commercial expectations for the product candidate if approved. We may also be required to modify our development and clinical trial plans based on findings in our ongoing clinical trials. +It is possible that as we test lorundrostat or any future product candidates in larger, longer, and more extensive clinical trials, including with different dosing regimens, or as the use of these product candidates becomes more widespread following any regulatory approval, more illnesses, injuries, discomforts, and other adverse events than were observed in earlier trials, as well as new conditions that did not occur or went undetected in previous trials, may be discovered. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition, and prospects significantly. +In addition, if lorundrostat or any future product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including: +• regulatory authorities may withdraw, suspend, or limit approvals of such product, or seek an injunction against its manufacture or distribution; +• we may be required to recall a product or change the way such product is administered to patients; +• regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication; +• we may be required to change the way a product is distributed or administered, conduct additional clinical trials, change the labeling of a product, or be required to conduct additional post-marketing studies or surveillance; +• we could be sued and held liable for harm caused to patients; +• sales of the product may decrease significantly or the product could become less competitive; and +• our reputation may suffer. +Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects. +We may not be successful in our efforts to investigate lorundrostat in additional indications. We may expend our limited resources to pursue, acquire, or license a new product candidate or a particular indication for lorundrostat and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +Because we have limited financial and managerial resources, we focus on specific indications for lorundrostat. We may fail to generate additional clinical development opportunities for lorundrostat for a number of reasons, including that lorundrostat may in indications we are seeking or may seek in the future, on further study, be shown to have harmful side effects, limited to no efficacy, or other characteristics that suggest it is unlikely to receive marketing approval and achieve market acceptance in such additional potential indications. Our resource allocation and other decisions may cause us to fail to identify and capitalize on viable potential product candidates or additional indications for lorundrostat. Our spending on current and future research and development programs for new product candidates or additional indications for existing product candidates may not yield any commercially viable product candidates or indications. If we do not accurately evaluate the commercial potential or target market for a particular indication or product candidate, we may fail to develop such product candidate or indication, or relinquish valuable rights to that product candidate through collaborations, license agreements, and other similar arrangements in cases where it would have been more advantageous for us to retain sole development and commercialization rights to such indication or product candidate, or negotiate less advantageous terms for any such arrangements than is optimal. +-34- +Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk to us. Identifying, selecting, and acquiring promising product candidates requires substantial technical, financial, and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a particular product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved products, we may spend material amounts of our capital and other resources evaluating, acquiring, and developing products that ultimately do not provide a return on our investment. +We are conducting and intend to conduct some of our clinical trials for lorundrostat outside of the United States. However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our business. +We are conducting and intend to conduct one or more of our clinical trials for our lorundrostat product candidate outside the United States. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authorities may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. We are currently conducting and plan to conduct part of our future clinical program for lorundrostat in the European Union. While data from clinical trial sites in such countries have not served as the sole basis for FDA approval, any foreign data that we have used for the NDA submission of lorundrostat or any foreign data we use as part of any other NDA submission will be subject to the foregoing FDA requirements and standards. Many foreign regulatory authorities have similar approval requirements. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in current or future product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted, which may increase costs or time required to complete the clinical trial. +Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with: +• additional foreign regulatory requirements; +• foreign exchange fluctuations; +• compliance with foreign manufacturing, customs, shipment, and storage requirements; +• inconsistent standards for reporting and evaluating clinical data and adverse events; +• diminished protection of intellectual property in some countries; +• political instability, civil unrest, war, or similar events that may jeopardize our ability to commence, conduct, or complete a clinical trial and evaluate resulting data; and +-35- +• any future pandemics or public health concerns. +Interim, topline, and preliminary data from our clinical trials and preclinical studies that we announce or publish from time to time may change as more participant data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publicly disclose interim, topline, or preliminary data from our clinical trials and preclinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline, or preliminary results that we report may differ from future results of the same studies or trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the topline or preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available. +Interim data from clinical trials that we may complete are further subject to the risk that one or more of the clinical outcomes may materially change as participant enrollment continues and more participant data become available. Adverse differences between interim, topline, or preliminary data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. +In addition, others, including regulatory authorities, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability, or commercialization of the particular product candidate and our company in general. Moreover, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular drug, product candidate, or our business. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, lorundrostat and any future product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. +Changes in methods of product candidate manufacturing or formulation may result in additional costs or delays. +As product candidates progress through clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize safety, efficacy, yield, and manufacturing batch size, minimize costs and achieve consistent quality and results. For example, the manufacturing process being used to produce clinical material for our ongoing or future clinical trials is different than that used in prior trials of lorundrostat. There can be no assurance that such changes will achieve these intended objectives. These changes and any future changes we may make to lorundrostat or any future product candidates may also cause such candidates to perform differently and affect the results of future clinical trials conducted with the altered materials. Such changes or related unfavorable clinical trial results could delay initiation or completion of additional clinical trials, require the conduct of bridging studies or clinical trials or the repetition of one or more studies or clinical trials, increase development costs, delay or prevent potential marketing approval, and jeopardize our ability to commercialize lorundrostat or any future product candidates, if approved, and generate revenue. +-36- +Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA and other government agencies to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, a government agency’s ability to hire and retain key personnel and accept the payment of user fees, government shutdowns, and other events that may otherwise affect the government agency’s ability to perform routine functions. Average review times at the FDA and other government agencies have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times, including the extended shutdown that began on October 1, 2025 and ended on November 12, 2025, and certain regulatory agencies, such as the FDA, had to furlough critical employees and stop critical activities. +Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. While the COVID-19 pandemic is no longer having a disruptive impact on the FDA’s standard inspection operations of domestic and foreign manufacturing facilities, it is possible that another global pandemic could result in similar issues faced during the COVID-19 pandemic. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in the future. If a government shutdown occurs, or if future global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, including our NDA for lorundrostat, which could have a material adverse effect on our business. +Risks Related to Our Reliance on Third Parties +We heavily rely on our exclusive Tanabe License with Tanabe to provide us with intellectual property rights to develop and commercialize lorundrostat. If the Tanabe License is terminated, we would lose our rights to develop and commercialize lorundrostat. +Pursuant to the Tanabe License with Tanabe, we have, among other things, secured an exclusive, royalty-bearing license from Tanabe under certain patents and know-how relating to lorundrostat to commercialize lorundrostat globally for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to the Field. The Tanabe License expires on a country-by-country basis and Lorundrostat Product-by-Lorundrostat Product basis upon the expiration of the applicable royalty term with respect to each Lorundrostat Product in each country, as applicable, or in its entirety upon the expiration of the royalty term with respect to the last Lorundrostat Product commercialized in the last country, unless terminated earlier. We may terminate the Tanabe License in its entirety or on a Lorundrostat Product-by-Lorundrostat Product or country-by-country basis at our discretion upon (i) ninety days prior written notice to Tanabe with respect to any country for which there is not a Lorundrostat Product approved by the regulatory authority; and (ii) one hundred and eighty days prior written notice to Tanabe with respect to any country for which there is a Lorundrostat Product approved by the regulatory authority. We and Tanabe may terminate the Tanabe License in the case of the other party’s insolvency, or upon prior written notice within a specified time period for the other party’s material uncured breach. Tanabe may terminate the Tanabe License in its entirety if we challenge the licensed patents, or assist any third party in challenging such patents. In addition, if any of the regulatory milestones or other cash payments become due under the terms of the Tanabe License, and we do not have sufficient funds available to meet our obligations, Tanabe has the right to terminate the Tanabe License upon our uncured failure to pay Tanabe. If the Tanabe License is terminated, we would lose our rights to develop and +-37- +commercialize lorundrostat, which in turn would have a material adverse effect on our business, financial condition, results of operations, and prospects, including, but not limited to, cessation of our operations to the extent we are unable to develop other product candidates at the time of such termination. +Additionally, pursuant to the Tanabe License, if we elect to sublicense our rights under the Tanabe License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we agreed to negotiate such a sublicense first, for a specified period of time, with Tanabe, if Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Tanabe’s prior consent. Lastly, if Tanabe is interested in obtaining rights to any product or compound other than a Lorundrostat Product, in the Field, which we may develop in the future, we are obligated to negotiate with Tanabe in good faith for a certain period of time to provide it a non-exclusive, royalty-bearing license under certain of our know-how and patents to exploit such product or compound on terms and conditions to be mutually agreed to by the parties in their discretion. Accordingly, we may be obligated to enter into collaborations with Tanabe in the future, even if we prefer another counterparty for strategic or other reasons, we are obligated to license certain of our future product candidates (if any) even if we would prefer to retain the use of such intellectual property, and we may not commercialize competing products for a certain period of time, even if we believe this presents a commercial opportunity. For additional information on the Tanabe License, see “ Business—License Agreement with Tanabe .” +We rely on and intend to continue to rely on third parties to conduct, supervise, and monitor our clinical trials and preclinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements, or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize lorundrostat and any future product candidates may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects. +We are dependent on third parties to conduct our clinical trials and preclinical studies. Specifically, we rely on, and intend to continue to rely on, medical institutions, clinical investigators, CROs, and consultants to conduct preclinical studies and clinical trials, in each case in accordance with our clinical protocols and regulatory requirements. These CROs, investigators, and other third parties play a significant role in the conduct and timing of these trials and subsequent collection and analysis of data. Though we expect to carefully manage our relationships with our CROs, investigators, and other third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects. Further, while we have and will have agreements governing the activities of our third-party contractors, we have limited influence over their actual performance. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol and legal, regulatory, and scientific standards and requirements, and our reliance on our CROs and other third parties does not relieve us of our regulatory responsibilities. In addition, we and our CROs are required to comply with GLP and GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for lorundrostat and any future product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of our CROs or trial sites fail to comply with applicable GLP or GCP or other requirements, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. For example, the conduct of the lorundrostat Phase 2 clinical trial at one of our clinical sites was terminated by the IRB following our report to the IRB regarding such site’s failure to comply with GCP, which we observed during one of our routine clinical site inspections. Furthermore, our clinical trials must be conducted with products produced under cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. +-38- +There is no guarantee that any of our CROs, investigators, or other third parties will devote adequate time and resources to such trials or studies or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols, or meet regulatory requirements, or otherwise perform in a substandard manner, our clinical trials may be extended, delayed, or terminated. In addition, many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other development activities that could harm our competitive position. In addition, principal investigators for our clinical trials are expected to serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA of any NDA we submit or have submitted. Any such delay or rejection could prevent us from receiving regulatory approval for, or commercializing, lorundrostat and any future product candidates. +Our CROs have the right to terminate their agreements with us in the event of an uncured material breach and under other specified circumstances. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, in a timely manner or at all. Switching or adding additional CROs, investigators, and other third parties involves additional cost and requires our management’s time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we work to carefully manage our relationships with our CROs, investigators, and other third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects. +We currently rely on a third party for the manufacture of lorundrostat and expect to continue to rely on third parties for the foreseeable future. This reliance on third parties increases the risk that we will not have sufficient quantities of lorundrostat or such quantities at an acceptable cost, which could delay, prevent, or impair our development or potential commercialization efforts. +We do not own or operate manufacturing facilities and have no plans to develop our own clinical or commercial-scale manufacturing capabilities. We rely on a third party and expect to continue to rely on third parties for the manufacture of lorundrostat and related raw materials for clinical development, as well as for commercial manufacture if lorundrostat or any future product candidates receive marketing approval. The facilities used by third-party manufacturers to manufacture lorundrostat must be approved by the FDA and any comparable foreign regulatory authority pursuant to inspections that will be conducted after we submit an NDA to the FDA or any comparable submission to a foreign regulatory authority. We do not control the manufacturing process of, and are completely dependent on, third-party manufacturers for compliance with cGMP requirements for manufacture of products. If these third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or any comparable foreign regulatory authority, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance, and qualified personnel. If the FDA or any comparable foreign regulatory authority does not approve these facilities for the manufacture of lorundrostat or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for, or market lorundrostat, if approved. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension, or withdrawal of approvals, seizures or recalls of lorundrostat or products, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of our products. +-39- +Our or a third party’s failure to execute on our manufacturing requirements on commercially reasonable terms, in a timely manner, and in compliance with cGMP or other regulatory requirements could adversely affect our business in a number of ways, including: +• an inability to initiate or continue clinical trials of lorundrostat or any future product candidates; +• delay in submitting regulatory applications, or receiving marketing approvals, for lorundrostat or any future product candidates; +• subjecting third-party manufacturing facilities or our potential future manufacturing facilities to additional inspections by regulatory authorities; +• requirements to cease development or to recall batches of lorundrostat or any future product candidates; and +• in the event of approval to market and commercialize lorundrostat or any future product candidates, an inability to meet commercial demands for lorundrostat or any future product candidates. +In addition, we do not have any long-term commitments or supply agreements with any third-party manufacturers. We may be unable to establish any long-term supply agreements with third-party manufacturers or to do so on acceptable terms, which increases the risk of failing to timely obtain sufficient quantities of lorundrostat or such quantities at an acceptable cost. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: +• failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance; +• breach of the manufacturing agreement by the third party; +• failure to manufacture our product according to our specifications; +• failure to obtain adequate raw materials and other materials required for manufacturing; +• failure to manufacture our product according to our schedule or at all; +• failure to successfully scale up manufacturing capacity, if required; +• misappropriation of our proprietary information, including any potential trade secrets and know-how; and +• termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. +Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval, or jeopardize our ability to commence or continue commercialization of lorundrostat or any future product candidates, and any related remedial measures may be costly or time-consuming to implement. We do not currently have arrangements in place for redundant supply or a second source for all required raw materials used in the manufacture of our product candidates. If our existing or future third-party manufacturers cannot perform as agreed, we may be required to replace such manufacturers and we may be unable to replace them on a timely basis or at all. Without additional suppliers of required raw materials, we may also be unable to meet the commercial needs of a commercial launch of any future product candidates. +In addition, our current and anticipated future dependence upon others for the manufacture of lorundrostat and any future product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. +-40- +Our reliance on third parties requires us to share potential trade secrets, which increases the possibility that a competitor or other third party will discover them or that potential trade secrets will be misappropriated or disclosed. +Because we currently rely on a third party to manufacture lorundrostat and to perform quality testing, we must, at times, share our proprietary technology and confidential information, including potential trade secrets, with them. We seek to protect our proprietary technology, in part, by entering into confidentiality agreements, and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employees, and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third party to use or disclose our confidential information, including any potential trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors or other third parties, are intentionally or inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and despite our efforts to protect any potential trade secrets, a competitor’s or other third party’s discovery of our proprietary technology and confidential information or other unauthorized use or disclosure of such technology or information would impair our competitive position and may have a material adverse effect on our business, financial condition, results of operations, and prospects. +We may seek to enter into collaborations, license agreements, and other similar arrangements and may not be successful in doing so, and even if we are, we may relinquish valuable rights and may not realize the benefits of such relationships, and our collaborations would be subject to other risks attendant to third party relationships, including inability to prevent or control actions taken or not taken by such third parties which may adversely impact us. +We may seek to enter into collaborations, joint ventures, license agreements, and other similar arrangements for the development or commercialization of lorundrostat and any future product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints. We may not be successful in our efforts to establish or maintain such collaborations because our research and development pipeline may be insufficient, any future product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time-consuming and complex. Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us. For example, we may need to relinquish valuable rights to our future revenue streams, research programs, intellectual property, or product candidates, or grant licenses on terms that may not be favorable to us, as part of any such arrangement, and such arrangements may restrict us from entering into additional agreements with other potential collaborators. In addition, if we enter into such collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on any future collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot be certain that, following a collaboration, license, or strategic transaction, we will achieve an economic benefit that justifies such transaction. +Furthermore, we may not be able to maintain such collaborations if, for example, the development or approval of a product candidate is delayed, the safety of a product candidate is questioned, or the sales of an approved product candidate are unsatisfactory. +Collaborations involving lorundrostat or any future product candidates would pose significant risks to us, including the following: +• collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; +-41- +• collaborators may not perform their obligations as expected or at all; +• we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; +• collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing; +• collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; +• product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or drugs, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; +• a collaborator with marketing and distribution rights to any product candidate that achieves regulatory approval may not commit sufficient resources to the marketing and distribution of such products; +• a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws, resulting in civil or criminal proceedings; +• disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development, might cause delays in or termination of the research, development, or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; +• collaborators may not properly enforce, maintain, or defend our or their intellectual property rights or may use our or their proprietary information in such a way as to invite litigation that could jeopardize or invalidate such intellectual property or proprietary information or expose us to potential litigation; +• collaborators may infringe, misappropriate, or otherwise violate the intellectual property rights of third parties, which may expose us to litigation and potential liability; +• collaborators may not provide us with timely and accurate information regarding development, regulatory, or commercialization status or results, which could adversely impact our ability to manage our own development efforts, accurately forecast financial results, or provide timely information to our stockholders regarding our out-licensed product candidates; +• we may be required to invest resources and attention into such collaboration, which could distract from other business objectives; +• disputes may arise between the collaborators and us regarding ownership of or other rights in the intellectual property generated in the course of the collaborations; +-42- +• collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all; +• if a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished, or terminated; and +• collaborations may be terminated, including for the convenience of the collaborator, prior to or upon the expiration of the agreed-upon terms and, if terminated, we may find it more difficult to enter into future collaborations or be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. +Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to lorundrostat or any future product candidates, could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Risks Related to Commercialization of Lorundrostat and any Future Product Candidates +Even if we receive regulatory approval for lorundrostat or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, lorundrostat and any future product candidates, if approved, could be subject to labeling and other restrictions on marketing or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved. +Any regulatory approvals that we may receive for lorundrostat or any future product candidates will require the submission of reports to regulatory authorities, subject us to surveillance to monitor the safety and efficacy of the product, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions, or contraindications, and may include burdensome post-approval study or risk management requirements. For example, the FDA may require a REMS as a condition of approval of lorundrostat or any future product candidates, which could include requirements for a medication guide, physician communication plans, or additional elements to ensure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves lorundrostat or any future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs requirements for any clinical trials that we conduct post-approval. Manufacturers of approved products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and standards. Failure to comply with regulatory requirements or later discovery of previously unknown problems with our products, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, may result in, among other things: +• restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market, or voluntary or mandatory product recalls; +• restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials; +• restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials; +-43- +• fines, restitutions, disgorgement of profits or revenue, warning letters, untitled letters, adverse publicity requirements, or holds on clinical trials; +• refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications submitted by us or suspension or revocation of approvals; +• product seizure or detention, or refusal to permit the import or export of our products; and +• injunctions and the imposition of civil or criminal penalties. +The occurrence of any event or penalty described above may inhibit our ability to commercialize lorundrostat or any future product candidates and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity. +The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit, or delay marketing authorization of any product candidates we develop. We also cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability. +The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. +The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as lorundrostat or any future product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for lorundrostat or any future product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The government has also required companies to enter into consent decrees or imposed permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of lorundrostat or any future product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition. +The commercial success of lorundrostat or any future product candidates will depend upon the degree of market acceptance of such product candidates by healthcare providers, product recipients, healthcare payors, and others in the medical community. If lorundrostat or any future product candidates fail to achieve the broad degree of adoption by the medical community necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent, or limit our ability to generate revenue and continue our business. +Lorundrostat and any future product candidates may not be commercially successful. Even if lorundrostat or any future product candidates receive regulatory approval, they may not gain market acceptance among healthcare providers, individuals within our target population, healthcare payors, and others in the medical community. The commercial success of lorundrostat or any future product candidates will depend significantly on the broad adoption and use of the resulting product by these individuals and organizations for approved indications. The degree of market acceptance of our products will depend on a number of factors, including: +• demonstration of clinical efficacy and safety, including as compared to any more-established products; +-44- +• the indications for which our product candidates are approved; +• the limitation of our targeted patient population and other limitations or warnings contained in any FDA-approved labeling; +• acceptance of a new drug for the relevant indication by healthcare providers and their patients; +• the pricing and cost-effectiveness of our products, as well as the cost of treatment with our products in relation to alternative treatments and therapies; +• our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government healthcare programs, including Medicare and Medicaid, private health insurers, and other third-party payors; +• the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient third-party coverage and adequate reimbursement; +• any restrictions on the use of our products, and the prevalence and severity of any adverse effects; +• potential product liability claims; +• the timing of market introduction of our products as well as availability, safety, and efficacy of competitive drugs; +• the effectiveness of our or any potential future collaborators’ sales and marketing strategies; and +• unfavorable publicity relating to the product. +If lorundrostat or any future product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors, or patients, we may not generate sufficient revenue from that product and may not become or remain profitable. Our efforts to educate the medical community and third-party payors regarding the benefits of our products may require significant resources and may never be successful. +The successful commercialization of lorundrostat or any future product candidates, if approved, will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels, and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our products could limit our ability to market those products and decrease our ability to generate revenue. +The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers, and other third-party payors are essential for most patients to be able to afford prescription medications such as lorundrostat and any future product candidates, if approved. Our ability to achieve coverage and acceptable levels of reimbursement for our products by third-party payors will have an effect on our ability to successfully commercialize those products. Accordingly, we will need to successfully implement a coverage and reimbursement strategy for any approved product candidate. Even if we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. +If we participate in the Medicaid Drug Rebate Program or other governmental pricing programs, in certain circumstances, our products would be subject to ceiling prices set by such programs, which could reduce the revenue we may generate from any such products. Participation in such programs would also expose us to the risk of significant civil monetary penalties, sanctions, and fines should we be found to be in violation of any applicable obligations thereunder. +-45- +For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. We cannot be sure that coverage and reimbursement in the United States, the European Union, or elsewhere will be available, or at an acceptable level, for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future. +Third-party payors increasingly are challenging prices charged for biopharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our products as substitutable and only offer to reimburse patients for the less expensive product. Even if we are successful in demonstrating improved efficacy or improved convenience of administration with our products, pricing of existing drugs may limit the amount we will be able to charge for our products. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our products and may not be able to obtain a satisfactory financial return on products that we may develop. +There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for lorundrostat and any future product candidates. +Obtaining and maintaining reimbursement status is time-consuming, costly, and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently and, in some cases, at short notice, and we believe that changes in these rules and regulations are likely. +Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing and usage of our products candidates, if approved in these jurisdictions. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products. Accordingly, in markets outside the United States, if any, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment +-46- +for our products. We expect to experience pricing pressures in connection with the sale of any of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, and prescription drugs, surgical procedures, and other treatments in particular, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. +We face significant competition, and if our competitors develop and commercialize technologies or product candidates more rapidly than we do, or their technologies or product candidates are more effective, safer, or less expensive than lorundrostat and any future product candidates we develop, our business and our ability to develop and successfully commercialize products will be adversely affected. +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Our competitors have developed, are developing, or may develop products, product candidates, and processes competitive with lorundrostat. Lorundrostat and any future product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Our competitors include larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. We also compete with these organizations to recruit management, scientists, and clinical development personnel, and our inability to compete successfully could negatively affect our level of expertise and our ability to execute our business plan. We also face competition in establishing clinical trial sites, enrolling participants for clinical trials, and identifying and in-licensing intellectual property related to new product candidates, as well as entering into collaborations, joint ventures, license agreements, and other similar arrangements. For example, Boehringer Ingelheim International and AstraZeneca have recently initiated large-scale clinical trials for the treatment of hypertension and CKD, which could impact our ability to enroll participants in our clinical trials for the same indications. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma, and CORXEL; +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen-directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than we do. If we successfully obtain approval for lorundrostat or any future product candidate, we will face competition based on many different factors, including the safety and effectiveness of our products, the ease with which our products can be administered, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage, and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, more convenient, less expensive, or marketed and sold more effectively than any products we may develop. Competing products may render lorundrostat or any future product candidates we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. If we are unable to compete effectively, our opportunity to generate revenue from the sale of the products we may develop, if approved, could be adversely affected. +-47- +We currently have a limited marketing and sales organization and have no experience as a company in commercializing products, and we may need to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue. +We have limited internal sales, marketing, or distribution capabilities, and we have not yet commercialized a product. If lorundrostat or any future product candidate ultimately receives regulatory approval, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize each such product in major markets, which will be expensive and time-consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We have no prior experience as a company with the marketing, sale, or distribution of biopharmaceutical products and there are significant risks involved in the building and managing of a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing, and distribution functions on acceptable financial terms, or at all. In addition, our product revenue and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell, and distribute any products that we develop ourselves. We will likely have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing our products, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue, and we would incur significant additional losses. +If the market opportunities for lorundrostat and any future product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer. +The precise incidence and prevalence for all the conditions we aim to address with lorundrostat or any future product candidates are unknown. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on a number of internal and third-party estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of these indications. We have not independently verified the accuracy of the third-party data on which we have based our assumptions and estimates, and these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, including as a result of factors outside our control, thereby reducing the predictive accuracy of these underlying factors. The total addressable market across all of the potential indications for lorundrostat and any future product candidates will ultimately depend upon, among other things, the diagnosis criteria included in the final label for each such product candidate which receives marketing approval for these indications, the availability of alternative treatments and the safety, convenience, cost, and efficacy of such product candidates relative to such alternative treatments, acceptance by the medical community and patient access, drug pricing, and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with lorundrostat or any future product candidates, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our business, financial condition, and results of operations. +-48- +Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. +Our future growth may depend, in part, on our ability to develop and commercialize lorundrostat and any future product candidates in foreign markets. We are not permitted to market or promote any product candidate before we receive regulatory approval from applicable regulatory authorities in foreign markets, and we may never receive such regulatory approvals for lorundrostat or any future product candidates. To obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, pricing, and distribution of lorundrostat and any future product candidates. Approval procedures may be more onerous than those in the United States and may require that we conduct additional preclinical studies or clinical trials. If we obtain regulatory approval of product candidates and ultimately commercialize our products in foreign markets, we would be subject to additional risks and uncertainties, including: +• different regulatory requirements for approval of drugs in foreign countries; +• reduced protection for intellectual property rights; +• the existence of additional third-party patent rights of potential relevance to our business; +• unexpected changes in tariffs, trade barriers, and regulatory requirements; +• economic weakness, including inflation, or political instability in particular foreign economies and markets; +• compliance with export control and import laws and regulations; +• compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; +• foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; +• foreign reimbursement, pricing, and insurance regimes; +• workforce uncertainty in countries where labor unrest is common; +• differing regulatory requirements with respect to manufacturing of products; +• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; +• business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods, and fires; and +• disruptions resulting from the impact of public health pandemics, epidemics, or other public health concerns. +-49- +Risks Related to Our Business Operations and Industry +Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide. +Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: +• the timing and cost of, and level of investment in, research, development, regulatory approval, and commercialization activities relating to lorundrostat or any future product candidates, which may change from time to time; +• the timing and success or failure of preclinical studies or clinical trials for any future product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; +• coverage and reimbursement policies with respect to lorundrostat or any future product candidates, if approved, and potential future drugs that compete with our products; +• expenditures that we may incur to acquire, develop, or commercialize additional product candidates and technologies; +• the level of demand for any approved products, which may vary significantly; +• future accounting pronouncements or changes in our accounting policies; +• the timing and amount of any milestone, royalty, or other payments payable by us or due to us under any collaboration, licensing, or other similar agreement; and +• changes in general market and economic conditions. +The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. +This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide. +We are dependent on the services of our management and other clinical and scientific personnel, and if we are not able to retain these individuals or recruit additional management or clinical and scientific personnel, our business will suffer. +Our success depends in part on our continued ability to attract, retain, and motivate highly qualified management, clinical, and scientific personnel. We are highly dependent upon our senior management, as well as our senior scientists and other members of our management team. The loss of services of any of these individuals could delay or prevent the successful development of lorundrostat or any future product candidates, initiation or completion of our clinical trials and preclinical studies, regulatory approvals, or the commercialization of lorundrostat or any of our product candidates. Although we have executed employment letters with each member of our senior management team, these agreements are terminable at will with or without notice and, therefore, we may not be able to retain their services as expected. We do not currently +-50- +maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals. +In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived benefits of our stock awards decline, it may harm our ability to recruit and retain highly skilled employees. Our employees may be more likely to leave us if the shares they own have significantly appreciated in value relative to the original purchase prices of the shares, or if the exercise prices of the options that they hold are significantly below the market price of our common stock. +We will need to expand and effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts. We may not be successful in maintaining our unique company culture and continuing to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biopharmaceutical, biotechnology, and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, integrate, retain, and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital, and our ability to implement our business strategy. +We will need to develop and expand our organization, and we may encounter difficulties in managing our growth and expanding our operations successfully, which could disrupt our operations. +As of December 31, 2025, we had 76 full-time employees, of whom 39 were primarily engaged in research and development. As we continue development and pursue the potential commercialization of lorundrostat and any future product candidates, and as we continue operating as a public company, we will need to continue to expand our financial, accounting, development, regulatory, manufacturing, information technology, marketing, and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers, and other third parties, and we may not be successful in doing so. Our future financial performance and our ability to develop and commercialize lorundrostat and any future product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. +We are subject to various U.S. federal, state, and foreign healthcare laws and regulations, which could increase compliance costs, and our failure to comply with these laws and regulations could harm our results of operations and financial condition. +Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers expose us to broadly applicable foreign, federal, and state fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell, and distribute any products for which we obtain marketing approval. Such laws include: +• the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item, or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; +• the federal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or +-51- +causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; +• the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items, or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (CMS), information related to payments and other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants, and certified nurse-midwives), and teaching hospitals and other healthcare providers, as well as ownership and investment interests held by such healthcare professionals and their immediate family members; and +• analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; some state laws that require biotechnology companies to report information on the pricing of certain drug products; and some state and local laws that require the registration or pharmaceutical sales representatives. +Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare and privacy laws and regulations will involve ongoing substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government-funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits, and future earnings and the curtailment or restructuring of our operations. Defending against any such actions can be costly and time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with +-52- +applicable laws or regulations, they may be subject to significant criminal, civil, or administrative sanctions, including exclusions from government-funded healthcare programs. +Recently enacted legislation, future legislation, and healthcare reform measures may increase the difficulty and cost for us to obtain marketing approval for and commercialize lorundrostat and any future product candidates and may affect the prices we may set. +In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. +For example, in March 2010, the ACA was enacted in the United States. The ACA established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; expanded eligibility criteria for Medicaid programs; expanded the entities eligible for discounts under the 340B drug pricing program; increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare & Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending. +Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA, and on June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Most recently, the One Big Beautiful Bill Act (the OBBBA), signed on July 4th 2025, reduced ACA subsidies, limited eligibility for both the ACA and Medicaid, and cut Medicaid spending by over $800 billion. It is unclear how the healthcare reform measures will impact our business. +In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory cap on the Medicaid drug rebate, currently set at 100% of a drug’s AMP, beginning January 1, 2024. Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for products. The IRA included a number of significant drug pricing reforms, which include the establishment of a drug price negotiation program within HHS (beginning in 2026) that requires manufacturers to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers under Medicare Parts B and D to penalize price increases that outpace inflation (first due in 2023), and a redesign of the Part D benefit, as part of which manufacturers are required to provide discounts on Part D drugs (beginning in 2025). The IRA permits the HHS Secretary to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Additional drug pricing proposals could appear in future legislation. Most recently, the OBBBA included incentives for domestic manufacturing of drug products. such as a retroactive expense option for small business covering domestic research and development expenditures in the last three years and price negotiation exemptions for drugs with one or more orphan designations. +At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or reimbursement +-53- +constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition, and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for lorundrostat and any future product candidates, if approved, or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition, and prospects. +We expect that these new laws and other healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies, and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize lorundrostat and any future product candidates, if approved. +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit, delay, or cease commercialization of our products. +We face an inherent risk of product liability as a result of the clinical trials of lorundrostat and any future product candidates and will face an even greater risk if we commercialize our product candidates, especially if our products are prescribed for off-label uses (even if we do not promote such uses). For example, we may be sued if our product candidates allegedly cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing, or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability, and a breach of warranties. Claims may be brought against us by clinical trial participants, patients, or others using, administering, or selling products that may be approved in the future. Claims could also be asserted under state consumer protection acts. +If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit, delay, or cease the commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: +• decreased demand for our products; +• injury to our reputation and significant negative media attention; +• withdrawal of clinical trial participants; +• costs to defend the related litigation; +• a diversion of our management’s time and our resources; +• substantial monetary awards to trial participants or product recipients; +• product recalls, withdrawals, or labeling, marketing, or promotional restrictions; +• significant negative financial impact; +• the inability to commercialize lorundrostat or any future product candidates; and +• a decline in our stock price. +-54- +We currently hold approximately $10.0 million in product liability insurance coverage in the aggregate. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of lorundrostat or any future product candidates. Insurance coverage is increasingly expensive. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of lorundrostat or any future product candidates. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. +Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities. +We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include property, general liability, employment benefits liability, business automobile, workers’ compensation, products liability, malicious invasion of our electronic systems, directors’ and officers’, and employment practices insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. No assurance can be given that an insurance carrier will not seek to cancel or deny coverage after a claim has occurred. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations. +We and any of our potential future collaborators will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business. +If we or any of our potential future collaborators are successful in commercializing our products, the FDA and foreign regulatory authorities would require that we and such collaborators report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any of our potential future collaborators or CROs may fail to report adverse events within the prescribed timeframe. If we or any of our potential future collaborators or CROs fail to comply with such reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products. +We and our service providers may be subject to a variety of privacy and data security laws and contractual obligations, which could increase compliance costs, and our actual or perceived failure to comply with such laws and obligations could subject us to potentially significant liability, fines, or penalties and otherwise harm our business. +We and our service providers maintain and will maintain a large quantity of sensitive information, including confidential business and patient health information, in connection with our preclinical studies and clinical trials, and are subject to laws and regulations governing the privacy and security of such information. The global data protection landscape is rapidly evolving, and we and our service providers may be affected by or subject to new, amended, or existing laws and regulations in the future, including as our operations continue to expand or if we operate in foreign jurisdictions. These laws and regulations may be subject to differing interpretations, which adds to the complexity of processing personal data. Guidance on implementation and compliance practices is often updated or otherwise revised. This may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use, share, and otherwise process personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability, or impose additional costs on us. The cost of compliance with these laws, regulations, and standards is high and +-55- +is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state, or foreign laws or regulation, our internal policies and procedures, or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties, and damage to our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, numerous federal and state laws and regulations, including health information privacy laws, data breach notification laws, and consumer protection laws (e.g., Section 5 of the Federal Trade Commission (FTC) Act), govern the collection, use, storage, transfer, disclosure, protection, and other processing of health-related and other personal information could apply to our operations or the operations of our collaborators and third-party providers. Depending on the facts and circumstances, we could be subject to significant penalties if we violate HIPAA. +In addition, certain state laws govern the processing, collection, use, disclosure, transfer, storage, disposal, and protection of health-related and other personal information in certain circumstances. These state law protections are different and, in some cases, may be more stringent, broader in scope, or offer greater individual rights with respect to protected health information than HIPAA. These laws are evolving rapidly and may differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. By way of example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (CCPA), gives California residents individual privacy rights to access and delete their personal information, opt out of certain personal information sharing, limit the use of their sensitive personal information, and receive detailed information about how their personal information is used. Of particular relevance to our business, the CCPA imposes detailed obligations regarding collection, use, and disclosure of personal information of employees, job applicants, and business contacts in addition to consumers. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches. The CCPA also established a new California agency, the California Privacy Protection Agency, which is authorized to issue new substantive regulations and has independent enforcement power alongside the California Attorney General. These additional rights and the establishment of an agency with independent enforcement powers are expected to increase data breach litigation and government enforcement activity in California. Comprehensive privacy legislation similar to the CCPA has been adopted in many other U.S. states. In the event that we are subject to or affected by HIPAA, the CCPA, or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. +In addition to the state comprehensive data privacy laws, recent years have brought substantial changes to the federal and state treatment of non-HIPAA consumer health information. At the federal level, the FTC brought three enforcement actions in 2023 against a range of companies that handle electronic health information relating to collection and disclosure of non-HIPAA covered consumer health information under Section 5 of the FTC Act, two of which included allegations made under the FTC’s Health Breach Notification Rule (HBNR). The FTC’s focus on health information continued in 2024 with changes to the HBNR that clarified its scope and emphasized applicability to non-HIPAA health care providers as well as three additional enforcement actions against companies for their use of health information for advertising purposes. At the state level, Washington and Nevada have adopted significant new legislation addressing businesses treatment of consumer health information, and Connecticut added more stringent protections for health information to its existing comprehensive state privacy law. In both Washington’s and Nevada’s laws, there are restrictive provisions limiting collection and disclosure of consumer health information, and Washington’s law provides a separate private right of action for violations. +-56- +There also are a wide variety of privacy laws in other countries that may impact our operations, now or in the future. For example, in Europe, the General Data Protection Regulation (GDPR) imposes stringent requirements regarding the collection, use, disclosure, storage, transfer, or other processing of personal data of individuals within the European Economic Area (EEA), including providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenue of the noncompliant company, whichever is greater. The GDPR also confers a private right of action in some circumstances on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Among other things, the GDPR requires the establishment of a lawful basis for the processing of data, imposes requirements relating to the consent of the individuals to whom the personal data relates, including detailed notices for clinical trial participants and investigators, as well as requirements regarding the security of personal data and notification of data processing obligations to the competent national data processing authorities. In addition, the GDPR increases the scrutiny of transfers of personal data from the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. For example, on July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-US Privacy Shield Framework (Privacy Shield) under which personal data could be transferred from the EEA to United States entities that had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on the standard contractual clauses alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals, and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The European Commission issued revised standard contractual clauses on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised standard contractual clauses must be used for relevant new data transfers beginning on September 27, 2021 and existing standard contractual clauses arrangements were required to be migrated to the revised clauses by December 27, 2022. The United Kingdom’s standard contractual clauses came into force in March 2022 for transfers of UK personal data. +Further, following the withdrawal of the United Kingdom from the European Union and the EEA and the end of the transition period, we have to comply with the GDPR and separately the GDPR as implemented in the United Kingdom, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR and has the ability to fine up to the greater of €20 million/£17 million or 4% of global turnover. The relationship between the United Kingdom and the European Union and the EEA in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term. The European Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from European Union member states to the United Kingdom without additional safeguards. +In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these security standards, even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security, and data breaches. Laws in all U.S. states require +-57- +businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. +Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, store, use, transfer, disclose, and otherwise process data, update our data privacy and security policies and procedures, or in some cases, impact our ability to operate in certain jurisdictions. Failure by us or our collaborators and our service providers to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose such information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend, could result in adverse publicity and adversely affect our business, financial condition, results of operations, and prospects. Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Our internal information technology systems, or those of any of our service providers, may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption of our product development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business. +We are increasingly dependent upon information technology systems, infrastructure, and data to operate our business. In the ordinary course of business, we collect, store, and transmit confidential information (including but not limited to intellectual property, proprietary business information, and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. +Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. These attacks can present meaningful risks to our operations, data, and commercial information. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence. It is not possible to prevent all cybersecurity threats to our information technology systems and information and those of our third-party service providers, over which we exert less control, and any controls we implement to do so may prove to be ineffective. +Any security breach or other incident, whether actual or perceived, could impact our reputation and/or operations, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers. For example, the loss of clinical trial data from clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We also rely on a third party to manufacture lorundrostat, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any actual or perceived disruption or security breach affects +-58- +our systems (or those of our third-party collaborators, service providers, contractors, or consultants) or were to result in a loss of or accidental, unlawful, or unauthorized access to, use of, release of, or other processing of personally identifiable information, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development and commercialization of lorundrostat or any future product candidates could be delayed, and we could be subject to significant fines, penalties, or liabilities for any noncompliance to certain privacy and security laws. +Further, despite the implementation of security measures, our internal technology systems (including infrastructure) and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, computer viruses, cybersecurity threats (such as ransomware attacks, denial-of-service attacks, cyberattacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks), unauthorized access or use, natural disasters, terrorism, war, and telecommunication and electrical failures. Such information technology systems are additionally vulnerable to security incidents from inadvertent or intentional actions by our employees, contractors, consultants, or other third parties. We and certain of our service providers are from time to time subject to cyberattacks and security incidents and we experienced security incidents in the past and may experience security incidents in the future. If a significant system failure, accident, or security breach were to occur, it may cause interruptions in our operations or result in the unauthorized disclosure of or access to personally identifiable information or individually identifiable health information, and result in a material disruption of our development programs and our business operations, whether due to a loss of any potential trade secrets or other similar disruptions. Although we currently hold cybersecurity insurance, the costs related to significant security breaches or disruptions could be material and cause us to incur significant expenses. +We have also outsourced elements of our information technology infrastructure, and as a result, a number of third-party vendors may or could have access to our confidential information. If our third-party vendors fail to protect their information technology systems and our confidential and proprietary information, we may be vulnerable to disruptions in service and unauthorized access to our confidential or proprietary information and we could incur liability and reputational damage. If the information technology systems of our third-party vendors and other contractors and consultants become subject to disruptions or security breaches, we may have insufficient recourse against such third parties, and we may have to expend significant resources to mitigate the impact of such an event and develop and implement protections to prevent future events of this nature from occurring. Some of the federal, state, and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular categories of personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. +Our business could be affected by litigation, government investigations, and enforcement actions. +We currently operate in a number of jurisdictions in a highly regulated industry and we could be subject to litigation, government investigation, and enforcement actions on a variety of matters in the United States or foreign jurisdictions, including, without limitation, intellectual property, regulatory, product liability, environmental, whistleblower, false claims, privacy, anti-kickback, anti-bribery, securities, commercial, employment, and other claims and legal proceedings which may arise from conducting our business. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief, and/or other sanctions against us, and remediation of any such findings could have an adverse effect on our business operations. +Legal proceedings, government investigations, and enforcement actions can be expensive and time-consuming. An adverse outcome resulting from any such proceedings, investigations, or enforcement actions could result in significant damages awards, fines, penalties, exclusion from the federal healthcare programs, healthcare debarment, injunctive relief, product recalls, reputational damage, and modifications of our business +-59- +practices, which could have a material adverse effect on our business and results of operations. Even if such a proceeding, investigation, or enforcement action is ultimately decided in our favor, the investigation and defense thereof could require substantial financial and management resources. +Our employees and independent contractors, including principal investigators, CROs, consultants, and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could harm our business, financial condition, and results of operations. +We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs, consultants, and vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct, or disclosure of unauthorized activities to us that violate: (i) the laws and regulations of the FDA and other similar regulatory requirements, including those laws that require the reporting of true, complete, and accurate information to such authorities, (ii) manufacturing standards, including cGMP requirements, (iii) federal and state data privacy, security, fraud, and abuse and other healthcare laws and regulations in the United States and abroad, (iv) laws that require the true, complete, and accurate reporting of financial information or data, or (v) laws that prohibit insider trading. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal, and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements, and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. +We may engage in strategic transactions that could increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, subject us to other risks, adversely affect our liquidity, increase our expenses, and present significant distractions to our management. +Although we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so, from time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases, and out-licensing or in-licensing of intellectual property, products, or technologies. Additional potential transactions that we may consider in the future include a variety of business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations, and investments. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. Any future transactions could increase our near and long-term expenditures, result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses, or acquired in-process research and development expenses, any of which could affect our financial condition, liquidity, and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. These transactions may never be successful and may require significant time and attention of our management. In addition, the integration of any business that we may acquire in the future may disrupt our existing business and may be a complex, risky, and costly endeavor for which we may never realize the full benefits. Furthermore, we may experience losses related to investments in other +-60- +companies, including as a result of failure to realize expected benefits or the materialization of unexpected liabilities or risks, which could have a material negative effect on our results of operations and financial condition. Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature described above, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition, and prospects. +Our ability to use net operating loss carryforwards and other tax attributes may be limited. +We have incurred substantial losses during our history, do not expect to become profitable in the near future, and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any (subject to limitations), until such unused losses expire (if at all). As of December 31, 2025, we had net operating loss (NOL) carryforwards of approximately $244.6 million for federal income tax purposes and $59.5 million for state income tax purposes. Our federal NOL carryforwards will not expire but may generally only be used to offset 80% of taxable income, which may require us to pay federal income taxes in future years despite generating federal NOL carryforwards in prior years. Our state NOL carryforwards begin to expire in various amounts in 2041. +In addition, our NOL carryforwards and other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Furthermore, in general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, our federal NOL carryforwards may become subject to an annual limitation in the event we have in the future an “ownership change.” For these purposes, an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. We have recorded a full valuation allowance related to our NOL carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. +Changes in trade policy and inflation could adversely affect our business and results of operations. +The U.S. government has adopted new approaches to trade policy, and in some cases has renegotiated or terminated certain existing bilateral or multilateral trade agreements. The U.S. government has also imposed tariffs on most foreign goods and has raised the possibility of imposing significant tariff increases or expanding the tariffs to capture other countries and types of goods. In particular, tariffs are likely to make procuring materials for producing active pharmaceutical ingredients more difficult or costly or require us to incur significant costs to transition to alternative suppliers. Future tariff increases, expanding the tariffs to cover other countries, or other changes in U.S. trade policy could exacerbate these challenges. In response to these tariffs, other countries have threatened, announced, or implemented retaliatory tariffs on U.S. goods, and such retaliatory actions are likely to continue for at least as long as U.S. tariffs remain elevated. +While inflation in the United States has been relatively low in recent years, the economy in the United States has encountered a material level of inflation since 2021. Although inflation has eased somewhat in 2024 and 2025, it has raised our costs for commodities, labor, materials, services, and other costs required to grow and operate our business, and failure to secure these on reasonable terms may adversely impact our financial condition. +Elevated inflation, along with public health concerns, domestic and international elections and other political developments, and domestic and global supply chain disruptions, have caused, and may in the future cause, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly, or dilutive for us to secure additional financing. In addition, p olitical tensions and uncertainty as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. A failure to adequately respond to these risks could have a material adverse impact on our financial position. +-61- +Risks Related to Our Intellectual Property +If we are unable to obtain, maintain, and enforce patent or other intellectual property protection for lorundrostat or any future product candidates or technology, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize lorundrostat or any future product candidates may be adversely affected. +We rely upon a combination of patents, trademarks, and in-licenses of intellectual property rights to protect the intellectual property related to lorundrostat and any future product candidates and technologies to prevent third parties from copying and surpassing our achievements, thus eroding our competitive position in our market. These legal measures afford only limited protection, and competitors or others may gain access to or use our intellectual property and proprietary information. Our success depends in large part on our ability to obtain, maintain, expand, enforce, and defend the scope of our intellectual property protection in the United States and other countries with respect to our product candidates and other proprietary technologies we may develop. We generally seek to protect our proprietary position, in part, by filing patent applications in the United States and abroad relating to lorundrostat and any future product candidates, manufacturing processes, and methods of use. We have in-licensed from Tanabe a number of patents and patent applications relating to lorundrostat and structurally related compounds, the manufacture of lorundrostat and structurally related compounds, and methods of use of lorundrostat. In addition to the patents and patent applications in-licensed from Tanabe, our portfolio includes pending patent applications solely owned by us and pending patent applications jointly owned with Tanabe. If we or Tanabe are unable to obtain, maintain, or enforce patent protection, our business, financial condition, results of operations, and prospects could be materially harmed. +Changes in either the patent laws or their interpretation in the United States and other jurisdictions may diminish our or our licensor’s ability to protect our intellectual property, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our protection. We cannot predict whether the patent applications we currently or may in the future pursue or in-license will issue as patents in any particular jurisdiction, will provide sufficient protection against competitors or other third parties, or if these patents are challenged by our competitors, will be found to be invalid, unenforceable, or not infringed. +The patent prosecution process is expensive, time-consuming, and complex, and we or our licensors may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications or reissue applications at a reasonable cost or in a timely manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection before public disclosures are made. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, third-party collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our or our licensors’ ability to seek patent protection. Consequently, we may not be able to prevent any third party from using any of our technology that is in the public domain to compete with lorundrostat and any future product candidates or technologies. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable in light of the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to invent the inventions claimed in any of our licensed patents or pending patent applications, or that we or our licensors were the first to make the inventions claimed in those owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. If a third party can establish that we or our licensors were not the first to make or the first to file for patent protection of such inventions, our owned or licensed patents and patent +-62- +applications may not issue as patents and even if issued, may be challenged and invalidated or rendered unenforceable. +Composition of matter patents for pharmaceutical product candidates often provide a strong form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications covering compositions of matter of our lorundrostat or any future product candidates will be considered patentable by the USPTO, or by patent offices in foreign countries, or that the claims in any of our issued or reissued patents will be considered valid and enforceable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common, and such infringement is difficult to prevent or prosecute. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued. Any issued patents may not afford sufficient protection of our product candidates or their intended uses against competitors, nor can there be any assurance that the patents issued will not be infringed, designed around, invalidated by third parties, or effectively prevent others from commercializing competitive technologies, products or product candidates. Further, even if these patents are granted, they may be difficult to enforce. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated if we fail to comply with these requirements. In the event we experience noncompliance events that cannot be corrected and we lose our patent rights, competitors could enter the market, which would have a material adverse effect on our business. Further, any issued patents that we may license or own covering our lorundrostat or any future product candidates could be narrowed or found invalid or unenforceable if challenged in court or before administrative bodies in the United States or other countries, including the USPTO. Also, patent terms, including any extensions or adjustments that may or may not be available to us, may be inadequate to protect our competitive position on our product candidates for an adequate amount of time, and we may be subject to claims challenging the inventorship, validity, enforceability of our patents and/or other intellectual property. Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. Further, if we encounter delays in our clinical trials or delays in obtaining regulatory approval, the period of time during which we could market our product candidates under patent protection would be reduced. Thus, the patents that we own and license may not afford us any meaningful competitive advantage. +Moreover, the claim coverage in a patent application can be significantly reduced before the corresponding patent is granted. Even if our owned or in-licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. Any patents issuing from our patent applications may be challenged, narrowed, circumvented, or invalidated by third parties. Our competitors or other third parties may avail themselves of safe harbors under the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Amendments) to conduct research and clinical trials. Consequently, we do not know whether lorundrostat or any of our future product candidates and other proprietary technology will be protectable or remain protected by valid and enforceable patents. Even if a patent is granted, our competitors or other third parties may be able to circumvent the patent by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations, and prospects. In addition, given the amount of time required for the development, testing, and regulatory review of our future product candidates, patents protecting the +-63- +product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patent rights may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third-party post-issuance submission of prior art to the USPTO challenging the validity of one or more claims of our in-licensed patents or patents we may own in the future. Such submissions may also be made prior to a patent’s issuance, precluding the granting of a patent based on one of our owned or licensed pending patent applications. A third party may also claim that our patent rights are invalid or unenforceable in litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In addition, we may become involved in opposition, derivation, revocation, reexamination, additional reissue, post-grant and inter partes review, or interference proceedings and other similar proceedings in foreign jurisdictions challenging the validity, priority, or other features of patentability of our patent rights. An adverse determination in any such submission, proceeding, or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third parties to commercialize our product candidates and other proprietary technologies we may develop and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize our products without infringing third-party patent rights. Such adverse determinations may also require us to cease using the related technology or to attempt to license rights from the prevailing party. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Moreover, some of our patent rights are, and may in the future be, co-owned with third parties, including Tanabe. In the United States, each co-owner has the freedom to license and exploit the technology. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patent rights, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of such patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects. +We may not be able to protect our intellectual property and proprietary rights throughout the world. +Filing, prosecuting, maintaining, enforcing, and defending patents on lorundrostat and any future product candidates in all countries throughout the world is expensive, and the laws of foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. Prosecution of patent applications is often a longer process and patents may grant at a later date, and with a shorter term, than in the United States. The requirements for patentability differ in certain jurisdictions and countries. Additionally, the patent laws of some countries do not afford intellectual property protection to the same extent as U.S. laws. For example, unlike patent law in the United States, patent law in most European countries and many other jurisdictions precludes the patentability of methods of treatment and diagnosis of the human body. Other countries may impose substantial restrictions on the scope of claims, limiting patent protection to specifically disclosed embodiments. Consequently, we may not be able to prevent third parties from practicing our or our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our intellectual property in and into the United States or other jurisdictions. Competitors may use our or our licensors’ intellectual property in jurisdictions where we or our licensors have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our owned and in-licensed patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade +-64- +secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. In addition, some jurisdictions, such as Europe, Japan, and China, may have a higher standard for patentability than in the United States, including, for example, the requirement of claims having literal support in the original patent filing and the limitation on using supporting data that is not in the original patent filing. Under those heightened patentability requirements, we may not be able to obtain sufficient patent protection in certain jurisdictions even though the same or similar patent protection can be secured in the United States and other jurisdictions. +Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We or our licensors may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. +Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. In some circumstances, we are dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. For example, periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications or any patents and applications we may own in the future. In certain circumstances, we rely on our licensors to pay these fees due to U.S. and non-U.S. patent agencies. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +The USPTO and various non-U.S. government agencies require compliance with certain foreign filing requirements during the patent application process. For example, in some countries, including the United States, China, India, and some European countries, a foreign filing license is required before certain patent applications are filed. The foreign filing license requirements vary by country and depend on various factors, including where the inventive activity occurred, the citizenship status of the inventors, the residency of the inventors and the invention owner, the place of business for the invention owner, and the nature of the subject matter to be disclosed (e.g., items related to national security or national defense). In some cases, a foreign filing license may be obtained retroactively in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment of a pending patent application or can be grounds for revoking or +-65- +invalidating an issued patent, resulting in the loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the relevant markets with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. We are also dependent on our licensors to take the necessary actions to comply with these requirements with respect to our licensed intellectual property. +Changes in patent laws or their interpretations could diminish the value of patents in general, thereby impairing our ability to protect our products. +Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (the America Invents Act) enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us or our licensors could therefore be awarded a patent covering an invention of ours or our licensors even if we had made the invention before it was made by such third party. This requires us to be cognizant of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to lorundrostat or any of our product candidates and other proprietary technologies we may develop or (ii) invent any of the inventions claimed in our patents or patent applications. +The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party protests and submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of patents issuing from those patent applications, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. We cannot predict how decisions by the courts, the U.S. Congress, or the USPTO may impact the value of our patent rights. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. +-66- +Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad. +Our patent rights may be subject to priority, validity, inventorship, and enforceability disputes. Legal proceedings relating to intellectual property claims, with or without merit, are unpredictable and generally expensive and time-consuming and likely to divert significant resources from our core business, including distracting our management and scientific personnel from their normal responsibilities and generally harm our business. If we or our licensors are unsuccessful in any of these proceedings, such patents and patent applications may be narrowed, invalidated, or held unenforceable, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or we may be required to cease the development, manufacture, and commercialization of lorundrostat or future product candidates. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +If we or our licensors initiate legal proceedings against a third party to enforce a patent covering lorundrostat or any of our future product candidates, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement, lack of sufficient written description, failure to claim patent-eligible subject matter, or obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of a patent before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patent rights in such a way that they no longer cover our product candidates or prevent third parties from competing with our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensing partners and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on lorundrostat and any future product candidates. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations, and prospects. +We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable. +We have pending U.S. and foreign patent applications in our portfolio; however, we cannot predict: +• if and when patents may issue based on our patent applications; +• the scope of protection of any patent issuing based on our patent applications; +• whether the claims of any patent issuing based on our patent applications will provide protection against competitors; +• whether or not third parties will find ways to invalidate or circumvent our patent rights; +• whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; +• whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or +-67- +• whether the patent applications that we own or in-license will result in issued patents with claims that cover lorundrostat or any of our future product candidates or uses thereof in the United States or in other foreign countries. +The claims in our pending patent applications directed to lorundrostat and any of our future product candidates and/or technologies may not be considered patentable by the USPTO or by patent offices in foreign countries. Any such patent applications may not issue as granted patents. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability, or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our product candidates. In the event of litigation or administrative proceedings, the claims in any of our issued patents may not be considered valid by courts in the United States or foreign countries. +Patent terms may be inadequate to protect the competitive position of our product candidates for an adequate amount of time. +Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent has expired, we may be vulnerable to competition from competitive products, including generics. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. If we do not have sufficient patent life to protect our products, our business, financial condition, results of operations, and prospects will be adversely affected. +If we do not obtain patent term extension and equivalent extensions outside of the United States for our product candidates, our business may be materially harmed. +Depending upon the timing, duration, and specifics of any FDA marketing approval of lorundrostat or any future product candidate we may develop, one or more of our in-licensed issued U.S. patents or issued U.S. patents we may own in the future may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to 5 years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of fourteen (14) years from the date of product approval, only one patent may be extended, and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar patent term restoration provisions to compensate for commercialization delay caused by regulatory review are also available in certain foreign jurisdictions, such as in Europe under Supplemental Protection Certificate. However, we may not be granted an extension for various reasons, including failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or failing to satisfy other applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we may need the cooperation of that third party. If we are unable to obtain patent term extension, or the foreign equivalent, or if the term of any such extension is less than we +-68- +request, our competitors may obtain approval for competing products following our patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed. +We may be subject to claims challenging the inventorship of our patents and other intellectual property. +We or our licensors may be subject to claims that former employees, consultants, collaborators, or other third parties have an interest in our patent rights, any potential trade secrets, or other intellectual property as an inventor, co-inventor, or owner of any potential trade secrets. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates and other proprietary technologies we may develop. Litigation may be necessary to defend against these and other claims challenging inventorship or our patent rights, any potential trade secrets, or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates and other proprietary technologies we may develop. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +If we are unable to protect the confidentiality of any potential trade secrets, our business and competitive position would be harmed. +In addition to seeking patent protection for our product candidates and proprietary technologies, we may also rely on trade secret protection and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information and to maintain our competitive position. We seek to protect any potential trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, third-party collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Trade secrets and know-how can be difficult to protect. We cannot guarantee that we have entered into applicable agreements with each party that may have or have had access to any potential trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including any potential trade secrets, and we may not be able to obtain adequate remedies for such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. We cannot guarantee that any potential trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to any potential trade secrets. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our potential trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. +Furthermore, others may independently discover any potential trade secrets and proprietary information. If any of our potential trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our potential trade secrets were to be disclosed or misappropriated or if any such information were to be independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed. +We may be subject to claims that third parties have an ownership interest in any potential trade secrets. For example, we may have disputes arise from conflicting obligations of our employees, consultants, or others who are involved in developing our product candidate. Litigation may be necessary to defend against these and other claims challenging ownership of any potential trade secrets. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable trade secret rights, such as exclusive ownership of, +-69- +or right to use, trade secrets that are important to our product candidates and other proprietary technologies we may develop. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects. +We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope, or expiration of a third-party patent, which might adversely affect our ability to develop and market our products and product candidates. +We cannot guarantee that any of our or our licensors’ patent searches or analyses, including the identification of relevant patents, the scope of patent claims, or the expiration of relevant patents, are complete or thorough, nor can we be certain that we or our licensors have identified each and every third-party patent and pending patent application in the United States and abroad that is relevant to or necessary for the commercialization of our current and future products and product candidates in any jurisdiction. Patent applications in the United States and elsewhere are not published until approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover product candidates or the use of our product candidates. The scope of a patent claim is determined by the interpretation of the law, the words of a patent claim, the written disclosure in a patent, and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending patent application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products or product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, and we may incorrectly conclude that a third-party patent is invalid and unenforceable. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products and product candidates. If we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. As the number of competitors in the market grows and the number of patents issued in this area increases, the possibility of patent infringement claims escalates. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters, notices, or “invitations to license,” or may be the subject of claims that our products and business operations infringe or violate the intellectual property rights of others. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates or services so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. +We may be subject to claims asserting that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. +Some of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these +-70- +individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management. +In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Third-party claims of intellectual property infringement, misappropriation, or other violations against us or our collaborators could be expensive and time-consuming and may prevent or delay the development and commercialization of our product candidates. +Our commercial success depends in part on our ability to avoid infringing, misappropriating, and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products and techniques without payment or limit the duration of the patent protection of our technology. As discussed above, due to changes in U.S. law referred to as patent reform, procedures including inter partes review and post-grant review have also been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patent rights in the future. +Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are commercializing or plan to commercialize lorundrostat. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that lorundrostat or any future product candidates, and commercializing activities may give rise to claims of infringement of the patent rights of others. We cannot assure you that lorundrostat or any future product candidates we develop will not infringe existing or future patents owned by third parties. We may not be aware of patents that have already been issued for which a third party, such as a competitor in the fields in which we are developing lorundrostat or our future product candidates, might accuse us of infringing. It is also possible that patents owned by third parties of which we are aware, but which we do not believe we infringe or that we believe we have valid defenses to any claims of patent infringement, could be found to be infringed by us. It is not unusual that corresponding patents issued in different countries have different scopes of coverage, such that in one country a third-party patent does not pose a material risk, but in another country, the corresponding third-party patent may pose a material risk to lorundrostat and any future product candidates. As such, we monitor third-party patents in the relevant pharmaceutical markets. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that we may infringe. +In the event that any third-party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by us. Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee +-71- +resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing the infringing products or technologies. In addition, we may be required to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, and/or redesign our infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. Such licenses may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms or at all, we may be unable to commercialize the infringing products or technologies or such commercialization efforts may be significantly delayed, which could in turn significantly harm our business. In addition, we may in the future pursue patent challenges with respect to third-party patents, including as a defense against the foregoing infringement claims. The outcome of such challenges is unpredictable. +Even if resolved in our favor, the foregoing proceedings could be very expensive, particularly for a company of our size, and time-consuming. Such proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such proceedings adequately. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Such proceedings may also absorb significant time from our technical and management personnel and distract them from their normal responsibilities. Uncertainties resulting from such proceedings could impair our ability to compete in the marketplace. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, or results of operations. +We may become involved in lawsuits to protect or enforce our patent and other intellectual property rights, which could be expensive, time-consuming, and unsuccessful. +Third parties, such as a competitor, may infringe our patent rights. In an infringement proceeding, a court may decide that a patent owned by us or licensed to us is invalid or unenforceable or may refuse to stop the other party from using the invention at issue on the grounds that the patent does not cover the technology in question. In addition, our or our licensors’ patent rights may become involved in inventorship, priority, or validity disputes. To counter or defend against such claims can be expensive and time-consuming. An adverse result in any litigation proceeding could put our patent rights at risk of being invalidated, held unenforceable, or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation and proceedings, there is a risk that some of our confidential information could be compromised by disclosure during such litigation and proceedings. +Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. +-72- +If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. +Our registered or unregistered trademarks or trade names may be challenged, infringed, diluted, circumvented, or declared generic or determined to be infringing, misappropriating, or violating other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in the markets of interest. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we are given an opportunity to respond to such rejections, we may be unable to overcome them. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, which may not survive such proceedings. Moreover, any name we may propose to use with lorundrostat or any future product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA or an equivalent administrative body in a foreign jurisdiction objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe, misappropriate or otherwise violate the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. +We may not be able to obtain, protect, or enforce our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement, misappropriation, dilution, or other claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to obtain, enforce, or protect our proprietary rights related to trademarks, trade names, domain names, or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations, and prospects. +Intellectual property rights do not necessarily address all potential threats. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example: +• others may be able to make products that are similar to lorundrostat or any future product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own; +• we or our licensors might not have been the first to make the inventions covered by our or our licensors’ current or future patent applications; +• we or our licensors might not have been the first to file patent applications covering our or their inventions; +-73- +• others may independently develop similar or alternative technologies or duplicate any of our or our licensors’ technologies without infringing our intellectual property rights; +• it is possible that our or our licensors’ current or future patent applications will not lead to issued patents; +• any patent issuing from our or our licensors’ current or future patent applications may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; +• others may have access to the same intellectual property rights licensed to use in the future on a non-exclusive basis; +• our competitors or other third parties might conduct research and development activities in countries where we or our licensors do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we may not develop additional proprietary technologies that are patentable; +• the patents or other intellectual property rights of others may harm our business; and +• we may choose not to file for patent protection in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such intellectual property. +Should any of the foregoing occur, it could adversely affect our business, financial condition, results of operations, and prospects. +We partially depend on intellectual property licensed from third parties, and our licensors may not always act in our best interest. If we fail to comply with our obligations under our intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, we could lose significant rights that are important to our business. +We are a party to the Tanabe License under which we are granted rights to intellectual property that are important to lorundrostat and our business, and we may enter into additional license agreements in the future with other third parties. The Tanabe License imposes, and we expect that any future license agreements where we in-license intellectual property, will impose on us, various development, regulatory, and/or commercial diligence obligations, payment of milestones, and/or royalties and other obligations. We may need to devote substantial time and attention to ensuring that we are compliant with our obligations under such agreements, which may divert management’s time and attention away from our research and development programs or other day-to-day activities. If we fail to comply with our obligations under these agreements, or we are subject to bankruptcy-related proceedings, the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license, or we may be subject to litigation for breach of these agreements. +If we or our licensors fail to adequately protect our licensed intellectual property, our ability to commercialize lorundrostat or any future product candidates could suffer. We do not have complete control over the maintenance, prosecution, and litigation of our in-licensed patents and patent applications and may have limited control over future intellectual property that may be in-licensed. For example, we cannot be certain that activities such as the maintenance and prosecution by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. It is possible that our licensors’ infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves or may not be conducted in accordance with our best interests. +In addition, the agreements under which we license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. +-74- +The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant patents, know-how, and proprietary technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Disputes that may arise between us and our licensors regarding intellectual property subject to a license agreement could include disputes regarding: +• the scope of rights granted under the license agreement and other interpretation-related issues; +• whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• our right to sublicense patent and other rights to third parties under collaborative development relationships; +• our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of lorundrostat or any future product candidates and what activities satisfy those diligence obligations; and +• the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us. +If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected technology or lorundrostat or any future product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize lorundrostat or any future product candidates, or we could lose other significant rights, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +For example, our agreements with certain of our third-party research partners provide that improvements developed in the course of our relationship may be owned solely by either us or our third-party research partner, or jointly between us and the third party. If we determine that rights to such improvements owned solely by a research partner or other third party with whom we collaborate are necessary to commercialize lorundrostat or any future product candidates or maintain our competitive advantage, we may need to obtain a license from such third party in order to use the improvements and continue developing, manufacturing, or marketing lorundrostat or any future product candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing lorundrostat or any future product candidates or allow our competitors or others the chance to access technology that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to enforce such intellectual property against third parties, and such cooperation may not be provided to us. +We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses. +The growth of our business may depend in part on our ability to acquire, in-license, or use third-party intellectual property and proprietary rights. For example, lorundrostat or any future product candidates may require specific formulations to work effectively and efficiently, we may develop product candidates containing our compounds and pre-existing pharmaceutical compounds, or we may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates, any of which could require us to obtain rights to use intellectual property held by third parties. In addition, with respect to any patent or other intellectual property rights we may co-own with third parties, we may require licenses to such co-owners’ interest to such patents. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary or important to our business operations. In addition, we may fail to obtain any of these licenses at a reasonable +-75- +cost or on reasonable terms, if at all. Were that to happen, we may need to cease use of the compositions or methods covered by those third-party intellectual property rights and may need to seek to develop alternative approaches that do not infringe, misappropriate, or otherwise violate those intellectual property rights, which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, which means that our competitors may also receive access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. +Additionally, we may collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if we hold such an option, we may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentially blocking our ability to pursue our program. +The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have greater resources than we do may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize lorundrostat or any future product candidates. More established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. There can be no assurance that we will be able to successfully complete these types of negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to develop or market. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of certain programs, and our business financial condition, results of operations, and prospects could suffer. +Our intellectual property licensed from third parties may be subject to retained rights. +Our current or future licensors may retain certain rights under their agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors will limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse. +Government agencies may provide funding, facilities, personnel, or other assistance in connection with the development of the intellectual property rights owned by or licensed to us. Such government agencies may have retained rights in such intellectual property. For example, the U.S. federal government retains certain rights in inventions produced with its financial assistance under the Patent and Trademark Law Amendments Act, or the Bayh-Dole Act; these include the right to grant or require us to grant mandatory licenses or sublicenses to such intellectual property to third parties under certain specified circumstances, including if it is necessary to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified by federal regulations, or to manufacture products in the United States. Any exercise of such rights, including with respect to any such required sublicense of these licenses, could result in the loss of significant rights and could harm our ability to commercialize licensed products. While it is our policy to avoid engaging our university partners in projects in which there is a risk that government funds may be commingled, we cannot be sure that any such co-developed intellectual property will be free from government rights. If, in the future, we co-own or license in technology that is critical to our business that is developed in whole or in part with government funds subject to certain government rights, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected. +-76- +Risks Related to Our Common Stock +The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses. +Our stock price is likely to be volatile. The stock market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price at which they paid. The market price for our common stock may be influenced by those factors discussed in this “ Risk Factors ” section and many others, including: +• results of our clinical trials and preclinical studies, and the results of trials of our competitors or those of other companies in our market sector; +• our ability to enroll participants in our future clinical trials; +• our ability to obtain and maintain regulatory approval of lorundrostat or any future product candidates or additional indications thereof, or limitations to specific label indications or patient populations for its use, or changes or delays in the regulatory review process; +• regulatory or legal developments in the United States and foreign countries; +• changes in the structure of healthcare payment systems; +• the success or failure of our efforts to identify, develop, acquire, or license additional product candidates; +• innovations, clinical trial results, product approvals, and other developments by our competitors; +• announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; +• the degree and rate of physician and market adoption of any of our current and future product candidates; +• manufacturing, supply, or distribution delays or shortages, including our inability to obtain adequate product supply, at acceptable prices or at all; +• any changes to our relationship with any manufacturers, suppliers, collaborators, or other strategic partners; +• achievement of expected product sales and profitability; +• variations in our financial results or those of companies that are perceived to be similar to us, including variations from expectations of securities analysts or investors; +• market conditions in the biopharmaceutical sector and issuance of securities analysts’ reports or recommendations; +• trading volume of our common stock; +• an inability to obtain additional funding or obtaining funding on unattractive terms; +• sales of our stock by us, our insiders, or our stockholders; +• general economic, industry, and market conditions, other events or factors, many of which are beyond our control; +-77- +• actual or anticipated fluctuations in our financial condition and results of operations; +• publication of news releases by other companies in our industry, and especially direct competitors, including about adverse developments related to safety, effectiveness, accuracy, and usability of their products, reputational concerns, reimbursement coverage, regulatory compliance, and product recalls; +• announcement or progression of geopolitical events and conflicts; +• additions or departures of senior management or key personnel; +• intellectual property, product liability, or other litigation against us or our inability to enforce our intellectual property; +• changes in our capital structure, such as future issuances of securities and the incurrence of debt; and +• changes in accounting standards, policies, guidelines, interpretations, or principles. +In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs, divert our management’s attention and resources, and damage our reputation, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. +Our executive officers, directors, and principal stockholders, if they choose to act together, will have the ability to significantly influence all matters submitted to stockholders for approval and may prevent new investors from influencing significant corporate decisions. +As of March 5, 2026, our executive officers, directors, and greater than 5% stockholders, in the aggregate, owned approximately 32.5% of our outstanding common stock. As a result, such persons, acting together, have the ability to significantly influence all matters submitted to our board of directors or stockholders for approval, including the appointment of our management, the election and removal of directors, and approval of any significant transactions, as well as our management and business affairs, which may prevent new investors from influencing some or all of the foregoing. This concentration of ownership may have the effect of delaying, deferring, or preventing a change in control, impeding a merger, consolidation, takeover, or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders. +We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors. +We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act), and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering on February 14, 2023 (IPO). However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” as defined under the Exchange Act, our annual gross revenue exceeds $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth +-78- +company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: +• being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in connection with registered securities offerings; +• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +• not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, unless the SEC determines the new rules are necessary for protecting the public; +• reduced disclosure obligations regarding executive compensation; and +• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this exemption and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. +We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. +Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce the value of our shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents include the following: +• a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; +• no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +-79- +• the exclusive right of our board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; +• the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; +• the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; +• the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; +• the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend, or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; +• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; +• an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; +• the requirement that a special meeting of stockholders may be called only by the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and +• advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us. +We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided, that, this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, our amended and restated certificate of incorporation also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. +-80- +These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees and result in increased costs for investors to bring a claim. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. +General Risk Factors +We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We could face criminal liability and other serious consequences for violations, which could harm our business. +We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls and anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, CROs, contractors, and other collaborators and partners from authorizing, promising, offering, providing, soliciting, or receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our products abroad if and when we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, CROs, contractors, and other collaborators and partners, even if we do not explicitly authorize or have actual knowledge of such activities, and any training or compliance programs or other initiatives we undertake to prevent such activities may not be effective. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. +Furthermore, U.S. export control laws and economic sanctions prohibit the provision of certain products and services to countries, governments, and persons targeted by U.S. sanctions. U.S. sanctions that have been or may be imposed as a result of military conflicts in other countries may impact our ability to continue activities at future clinical trial sites within regions covered by such sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. These export and import controls and economic sanctions could also adversely affect our supply chain. +Our third-party manufacturers or suppliers may use potent chemical agents and hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could be time-consuming or costly. +Our third-party manufacturers or suppliers use, and potential future collaborators will use, biological materials and potent chemical agents and may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety of the environment. The operations +-81- +of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, our third-party manufacturers and suppliers cannot eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. In the event of contamination or injury at our manufacturers’ or suppliers’ sites, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended. Although we maintain workers’ compensation insurance for certain costs and expenses we may incur due to injuries to our employees resulting from work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for toxic tort claims that may be asserted against us in connection with our third-party manufacturers’ and suppliers' storage or disposal of biologic, hazardous, or radioactive materials. +In addition, our third-party manufacturers and suppliers may need to incur substantial costs in order to comply with current or future environmental, health, and safety laws and regulations, which have tended to become more stringent over time, which may increase the cost of their services to us. These current or future laws and regulations may impair our research, development, or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties, or other sanctions or liabilities for our third-party manufacturers and suppliers, which could in turn materially adversely affect our business, financial condition, results of operations, and prospects. To the extent we develop our own manufacturing operations in the future, we may similarly incur substantial costs to ensure compliance with these laws, and all the foregoing risks will further apply to us, as well. +Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. +Our operations and the operations of our suppliers, CROs, CMOs, and clinical sites could be subject to earthquakes, power shortages, telecommunications or infrastructure failures, cybersecurity incidents, physical security breaches, water shortages, floods, hurricanes, typhoons, blizzards, and other extreme weather conditions, fires, public health pandemics or epidemics, and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. We rely on third-party manufacturers or suppliers to produce lorundrostat and its components and on CROs and clinical sites to conduct our clinical trials and do not have a redundant source of supply for all components of our product candidate. Our ability to obtain clinical or, if approved, commercial, supplies of lorundrostat or any future product candidates could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption, and our ability to commence, conduct, or complete our clinical trials in a timely manner could be similarly adversely affected by any of the foregoing. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. +Unstable market and economic conditions may have serious adverse consequences on our business, financial condition, and stock price. +The global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including geopolitical conflict in and around Ukraine, Israel, Venezuela, and other areas of the world, terrorism, or other events. Sanctions imposed by the United States and other countries in response to such conflicts may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. There can be no assurance that +-82- +further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and stock price and could require us to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves, or on less favorable terms than we would otherwise choose. In addition, one or more of our current service providers, manufacturers, and other partners may not survive an economic downturn, which could directly affect our ability to attain our clinical development goals on schedule and on budget. +Changes in tax laws or in their implementation or interpretation may materially adversely affect our financial condition, results of operations, and cash flows, or adversely impact the value of an investment in our common stock. +New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted or amended at any time, or interpreted, changed, modified, or applied adversely to us, any of which could adversely affect our business operations and financial performance. For example, the Inflation Reduction Act (IRA) was signed into law in August 2022, and the OBBBA was signed into law in July 2025. The OBBBA contains numerous tax provisions that we are currently in the process of evaluating and implementing, and which may affect our business or financial condition. Regulatory guidance under the IRA, the OBBBA, and other tax-related legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen the impact of these laws on our business and financial condition. In addition, it is uncertain if and to what extent various states will conform to changes to federal tax legislation. We urge our investors to consult with their legal and tax advisors with respect to any changes in tax law and the potential tax consequences of investing in our common stock. +If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline. +Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report upon the effectiveness of our internal control over financial reporting. When we lose our status as an “emerging growth company” and do not otherwise qualify as a “smaller reporting company” with less than $100 million in annual revenue, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline. +We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to +-83- +implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We could be subject to securities class action litigation. +In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, even if ultimately decided in our favor, it could result in substantial costs and a diversion of our management’s attention and resources, which could harm our business. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We employ processes incorporated into our overall risk management system for assessing, identifying, and managing material risks from cybersecurity threats. These items are designed to help protect our information assets from internal and external threats and protect the integrity and confidentiality of our data. Our system includes procedural and technical safeguards, response plans, and reviews of our policies. We engage various external entities, including consultants, to improve and enhance our cybersecurity oversight. We provide all employees and consultants with cybersecurity and prevention training, including timely and relevant topics covering social engineering, phishing, mobile security, and data protection and the need for reporting incidents and suspicious events immediately. +Although we develop and maintain systems and controls designed to prevent cybersecurity threats from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls, and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely. As we outsource more of our information systems to vendors, engage in more electronic transactions with service providers and patients, and rely more on cloud-based information systems, the related security risks will increase, and we will need to expend additional resources to protect our technology and information systems. In addition, there can be no assurance that our internal information technology systems or those of our third-party contractors, or our consultants’ efforts to implement adequate security and control measures, will be sufficient to protect us against breakdowns, service disruption, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyberattack, security breach, industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm. +As of the date of this Annual Report, we are not aware of any risks from cybersecurity threats, including because of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. +Governance +Our senior management team conducts regular assessments and management of material risks from cybersecurity threats, including review with our IT team and third-party service providers, while our board of directors has responsibility for the oversight of risk management. All employees and consultants are directed to report to our senior management any irregular or suspicious activity that could indicate a cybersecurity threat or incident. The Audit Committee of our board of directors evaluates our cybersecurity assessment and management policies, including quarterly interviews with our senior officers and our independent registered accounting firm. +-84- +Item 2. Properties +We maintain our corporate offices at 150 N. Radnor Chester Road, Suite F200, Radnor, PA 19087 under a virtual office lease. We lease our corporate and other office premises under monthly rental agreements with terms of twelve months or less at a nominal cost. We consider our current office space adequate for our current operations. +Item 3. Legal Proceedings +We are not currently a party to any material proceeding. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. +Item 4. Mine Safety Disclosures +Not Applicable. +-85- +Part II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock has been listed on the Nasdaq Global Select Market under the symbol “MLYS” since our IPO, which was completed at a price to the public of $16.00 per share. Prior to our IPO, there was no public market for our common stock. +Holders of Common Stock +As of March 5, 2026, we had approximately 5 stockholders of record. This number was derived from our stockholder records and does not include beneficial owners of our common stock whose shares are held in the name of various dealers, clearing agencies, banks, brokers, and other fiduciaries. +Securities Authorized for Issuance Under Equity Compensation Plans +Information about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report. +Dividend Policy +We have never declared or paid any cash dividends on our capital stock. We currently intend to retain future earnings, if any, to finance the operation of our business and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, current and anticipated capital requirements, business prospects, and other factors our board of directors deems relevant, and subject to applicable laws and the restrictions contained in any future financing instruments. +Recent Sales of Unregistered Securities +None. +Repurchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item 6. [Reserved] +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section entitled “ Forward-Looking Statements and Market Data .” As a result of many factors, including those factors set forth in the “ Risk Factors ” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We are a biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension and related comorbidities such as CKD and OSA. +-86- +Table of Contents +In the United States, there are approximately 120 million patients with sustained elevated BP, or hypertension. Approximately 60 million patients are treated and over 30 million do not achieve their BP goal, with approximately 20 million having systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. Dysregulated aldosterone levels are a key factor in uHTN or rHTN in approximately 30% of patients. +We submitted our NDA to the FDA in December 2025 for lorundrostat for the treatment of hypertension in combination with other antihypertensive drugs. The FDA accepted the NDA submission and provided us with a PDUFA target action date of December 22, 2026. +Clinical Program Highlights +Ahead of the NDA submission in December 2025, we completed five successful clinical trials of lorundrostat supporting the efficacy and safety profile while also validating aldosterone as an integral therapeutic target in uHTN or rHTN. This includes two pivotal, registrational trials, the Phase 3 Launch-HTN trial and Phase 2 Advance-HTN trial, which support the robust, durable, and clinically meaningful reductions in systolic BP by lorundrostat. Lorundrostat was well tolerated in both trials with a favorable safety profile. Based on the positive results from our pivotal program, we submitted an NDA in December 2025 for lorundrostat for the treatment of hypertension in combination with other antihypertensive drugs. We believe, based on available clinical data, that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. +The image below summarizes the status of recently completed and ongoing clinical trials: +We believe the Launch-HTN and Advance-HTN trial results demonstrate the opportunity for lorundrostat in third-line or later treatment of patients with hypertension. Detailed results of these trials are set forth in the “ Business ” section of this Annual Report. Our pivotal program was highlighted in several publications in 2025: +• The Launch-HTN trial results were presented in a late-breaking presentation at the 2025 European Society of Hypertension Meeting on Hypertension and Cardiovascular Protection in May 2025 and published in the June 30, 2025 issue of the Journal of the American Medical Association (JAMA, DOI:10.1001/jama.9413). +• The Launch-HTN clinical trial and results were featured in JAMA’s inaugural “Research of the Year Roundup,” a curated collection of the most impactful studies published between October 2024 and September 2025, including recognition of Launch-HTN as one of the top-nine manuscripts by the editors of JAMA. +-87- +Table of Contents +• The Advance-HTN trial results were presented in a late-breaking presentation at the American College of Cardiology’s Annual Scientific Session & Expo (ACC.25) held in March 2025 and published in the April 23, 2025 issue of the New England Journal of Medicine (NEJM, DOI: 10.1056/NEJMoa2501440). +• The Explore-CKD clinical trial results were presented at the American Society of Nephrology (ASN) Kidney Week 2025, featuring a late-breaking oral presentation of the Phase 2 Explore-CKD trial. +Transform-HTN is an open-label extension trial allowing participants to continue to receive lorundrostat and for us to obtain ongoing long-term efficacy and safety data. All participants in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, were given the opportunity to participate in the extension trial. +Research to date has demonstrated the opportunities for lorundrostat as a solution for patients in the treatment of hypertension, including hypertensive patients with CKD and OSA. In June 2025, we announced positive topline data from our Phase 2 Explore-CKD trial evaluating the safety and efficacy of 25 mg of lorundrostat in addition to an SGLT2 inhibitor for the treatment of hypertension in participants with hypertension and comorbid CKD. The trial was highly statistically significant and was clinically meaningful in reducing UACR, a marker of kidney disease progression, as well as demonstrating a favorable safety and tolerability profile. Detailed results of this trial are set forth in the “ Business ” section of this Annual Report. +Lorundrostat has been developed to address dysregulated aldosterone, and we believe this mechanism may be applicable to other indications where dysregulated aldosterone biology plays a role. Most recently, we have begun to explore lorundrostat for patients with OSA and hypertension. +On March 9, 2026, we announced topline data from our exploratory Phase 2 Explore-OSA trial that evaluated the effect of lorundrostat in the treatment of overweight and obese participants with moderate-to-severe OSA and hypertension. After four weeks of treatment, lorundrostat 50 mg dosed in the evening did not demonstrate a clinically meaningful difference relative to placebo on the AHI, the primary endpoint. The trial demonstrated a clinically meaningful reduction in BP at week four, with an 11.1 mmHg (p < 0.0001) and a 1.0 mmHg (p = NS) BP reduction with lorundrostat and placebo, respectively, in the pre-planned parallel arm analysis of the first period. There was a 6.2 mmHg placebo-adjusted reduction (p < 0.0003) in BP in the crossover analysis. +Lorundrostat demonstrated a favorable safety profile and was well tolerated, with no serum potassium excursions above 5.5 mmol/L. Analysis is ongoing for other endpoints in the trial and may be reported in future publications or medical meetings. Detailed results of this trial are set forth in the “ Business ” section of this Annual Report. +Financial Overview +We commenced our operations in May 2019 and have devoted substantially all of our resources to date to organizing and staffing our company, business planning, raising capital, in-licensing our product candidate, lorundrostat, establishing our intellectual property portfolio, conducting research, preclinical studies, and clinical trials, and providing other general and administrative support for our operations. As of December 31, 2025, we had cash, cash equivalents, and investments of $656.6 million. Since inception, we have raised aggregate gross proceeds of approximately $1.1 billion from the sale of common stock, convertible preferred stock, pre-funded warrants, and convertible notes. In September 2025, we sold 11,274,509 shares of common stock for net proceeds of approximately $269.6 million after deducting an underwriting discount of 6% and other offering expenses. In March 2025, we sold 14,907,406 shares of common stock for net proceeds of approximately $188.7 million after deducting an underwriting discount of 6% and other offering expenses. Beginning in April 2025 and through March 12, 2026, we have sold an aggregate of 4,634,548 ATM Shares (as defined below) for aggregate net proceeds of approximately $139.6 million after deducting commission to the Sales Agents and Prior Sales Agents (each as defined below) and other offering expenses. In February 2024, we +-88- +Table of Contents +sold 8,339,169 shares of common stock and, to certain purchasers, 549,755 pre-funded warrants to purchase common stock for aggregate net proceeds of approximately $116.1 million, net of offering expenses, in a private placement offering (the Private Placement). +We do not have any products approved for sale, have not generated any revenue, and have incurred net losses since our inception. Our operations to date have been limited to business planning, raising capital, in-licensing and developing lorundrostat, conducting clinical trials, research and development and other activities. Our net losses for the years ended December 31, 2025 and 2024 were $154.7 million and $177.8 million, respectively. As of December 31, 2025 and 2024, we had an accumulated deficit of $457.2 million and $302.5 million, respectively. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical development activities and other research and development activities. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and future clinical trials for lorundrostat, seek regulatory approval for lorundrostat and potentially any future product candidates we may develop, expand our clinical, regulatory, quality, manufacturing, and commercialization capabilities, obtain, maintain, protect and enforce our intellectual property, expand our general and administrative support functions, including hiring additional personnel, and incur additional costs associated with operating as a public company. +Based on our current operating plan, we believe that our cash, cash equivalents, and investments will be sufficient to allow us to fund our operations for at least twelve months. We have never generated any revenue and do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for lorundrostat, if ever. Accordingly, until such time as we can generate significant revenue from sales of lorundrostat, if ever, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. For more information, see “ Liquidity and Capital Resources .” +License Agreement with Tanabe +In July 2020, we entered into the Tanabe License with Tanabe, pursuant to which Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Tanabe’s patent and other intellectual property rights to exploit products incorporating Lorundrostat Products for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans. Pursuant to the Tanabe License, we paid Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Tanabe tiered royalties at percentages ranging from the mid-single digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. We have no remaining development milestone obligations under the Tanabe License and did not incur any development or commercial expenses pursuant to the Tanabe License during the years ended December 31, 2025 and 2024. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and +-89- +Table of Contents +consider in good faith developing at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Tanabe License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we have agreed to negotiate such a sublicense first, for a specified period of time, with Tanabe, if Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Tanabe’s prior consent. +Public Offerings +On September 2, 2025, we entered into an underwriting agreement with BofA Securities, Inc., Evercore Group L.L.C. and Goldman Sachs & Co. LLC as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,274,509 shares of our common stock at a price of $25.50 per share for net proceeds of approximately $269.6 million after deducting an underwriting discount of 6% and other offering expenses. The offering was made pursuant to our registration statements on Form S-3 and Form S-3MEF (Registration Statement Nos. 333-278122 and 333-289998, respectively) previously filed with and declared effective by the SEC, and a prospectus supplement and accompanying prospectus filed with the SEC. We are using the net proceeds from this offering to fund clinical development of lorundrostat, including research and development and manufacturing, and pre-commercialization activities, as well as for working capital and general corporate purposes. +On March 11, 2025, we entered into an underwriting agreement with the Underwriters, relating to the issuance and sale of 14,907,406 shares of our common stock at a price of $13.50 per share for net proceeds of approximately $188.7 million after deducting an underwriting discount of 6% and other offering expenses. The offering was made pursuant to our shelf registration statement on Form S-3 (Registration Statement No. 333-278122) previously filed with and declared effective by the SEC (the Registration Statement), and a prospectus supplement and accompanying prospectus filed with the SEC. We are using the net proceeds from this offering to fund the clinical development of lorundrostat, including research and development, manufacturing, and pre-commercialization activities, as well as for working capital and general corporate purposes. +At Market Equity Offering Sales Agreements +On November 10, 2025, we entered into an ATM Equity Offering Sales Agreement (the New ATM Agreement) with BofA Securities, Inc., Evercore Group L.L.C., and Goldman Sachs & Co. LLC (each, a Sales Agent, and collectively, the Sales Agents), relating to the sale of shares of our common stock, having an aggregate offering price of up to $300.0 million from time to time to or through the Sales Agents (New ATM Shares). The New ATM Shares will be issued pursuant to a registration statement on Form S-3ASR (File No. 333-291435), effective on November 10, 2025. Sales of the New ATM Shares will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market or as otherwise agreed by us and the Sales Agents. Under the terms of the New ATM Agreement, we may also sell the New ATM Shares from time to time to a Sales Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the New ATM Shares to a Sales Agent as principal would be pursuant to the terms of a separate terms agreement between us and such Sales Agent. +On March 21, 2024, we entered into an ATM Equity Offering Sales Agreement (the Prior ATM Agreement, and together with the New ATM Agreement, the ATM Agreements) with BofA Securities, Inc. and Evercore Group L.L.C. (the Prior Sales Agents). Pursuant to the terms of the Prior ATM Agreement, we were permitted to sell from time to time through the Prior Sales Agents shares of our common stock having an aggregate offering price of up to $100.0 million (the Prior ATM Shares, and together with the New ATM Shares, the ATM Shares) pursuant to which we sold approximately $27.4 million of Prior ATM Shares. Effective November 9, 2025, the Prior ATM Agreement was terminated in connection with the execution of the New ATM Agreement. +-90- +Table of Contents +Beginning in April 2025 and through December 31, 2025, we sold an aggregate of 4,066,228 ATM Shares at a weighted-average price of $29.49 per share for aggregate net proceeds of approximately $119.4 million after deducting commissions to the Agents and other offering expenses. As of December 31, 2025, we had approximately $207.5 million of New ATM Shares remaining available for sale pursuant to the New ATM Agreement. Subsequent to December 31, 2025 and through March 12, 2026, we sold an aggregate of 568,320 New ATM Shares, at a weighted-average price of $35.66 per share, for aggregate net proceeds of approximately $20.2 million after deducting commissions to the Sales Agents and other related costs. +Private Placement Offering +On February 7, 2024, we entered into a securities purchase agreement (the Purchase Agreement) with the purchasers named therein (the Purchasers), for the Private Placement of (i) 8,339,169 shares (the Shares) of our common stock at a price of $13.50 per Share, and (ii) with respect to certain Purchasers, pre-funded warrants to purchase an aggregate of 549,755 shares of common stock (the Pre-Funded Warrants) in lieu of shares of common stock, at a purchase price of $13.499 per Pre-Funded Warrant (the shares of common stock issuable upon exercise of the Pre-Funded Warrants, the Warrant Shares) for aggregate net proceeds of approximately $116.1 million after deducting offering expenses. Each Pre-Funded Warrant has an exercise price of $0.001 per share of common stock, is immediately exercisable on the date of issuance, and will not expire. We are using the net proceeds from the Private Placement to fund the research and development of lorundrostat and for working capital and general corporate purposes. +We registered the resale of the Shares and the Warrant Shares on a registration statement on Form S-3 (Registration Statement No. 333-278122). Pursuant to the Purchase Agreement, we agreed to use our reasonable best efforts to keep such registration statement effective until the earliest of (i) the time as all of the Shares and Warrant Shares purchased by the Purchasers pursuant to the terms of the Purchase Agreement have been sold pursuant to such registration statement, or (ii) such time as the Shares and Warrant Shares become eligible for resale by non-affiliates without any volume limitations or other restrictions pursuant to Rule 144 under the Securities Act or any other rule of similar effect. +Key Components of Results of Operations +Operating Expenses +Research and Development +Research and development expenses consist primarily of external and internal costs related to the development of lorundrostat. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or the services are performed. +Research and development expenses include: +• salaries, bonuses, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts; +• external research and development expenses incurred under agreements with CROs and consultants to conduct and support our clinical trials of lorundrostat; +• costs related to manufacturing lorundrostat for our clinical trials; and +• costs related to advancing our commercial readiness activities in preparation for a potential launch of lorundrostat for patients with hypertension, if approved by the FDA. +Our research and development expenses are primarily driven by the timing and phase of our clinical trials, including the initiation and completion of studies, the number of trials in progress, and the size and +-91- +Table of Contents +complexity of each trial. We expect certain research and development expenses related to our clinical trial activities to decline in the upcoming periods as certain trials have been completed relative to prior periods. We cannot determine with certainty the timing of initiation, the duration, or the completion costs of current or future clinical trials and preclinical studies of lorundrostat or any future product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast whether lorundrostat or any future product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. +Our future development costs may vary significantly based on factors such as: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing lorundrostat or any future product candidates for use in our trials, including as a result of inflation, changes in international trade policies and tariffs, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and the timing of seeking approval in such jurisdictions; +• the drop-out or discontinuation rates of clinical trial participants; +• potential additional safety monitoring requested by regulatory agencies; +• the duration of participant participation in the trials and follow-up; +• the phase of development of the product candidate; +• the efficacy and safety profile of the relevant product candidate; and +• the extent to which we establish strategic collaborations or other arrangements. +General and Administrative Expenses +General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-based compensation charges, for personnel in executive and administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, and insurance costs. We expect our general and administrative expenses to increase for the foreseeable future to support our research and development activities, manufacturing activities, commercial readiness, and the increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to the hiring of additional personnel, audit, legal, regulatory, and tax-related services associated with maintaining compliance with the exchange listing and the SEC requirements and requirements of the Sarbanes-Oxley Act of 2002, director and officer insurance costs, investor and public relations costs, business development, commercial expenses, and medical affairs. +-92- +Table of Contents +Other Income, Net +Interest Income, Net +Interest income reported in each period is associated with our investments in money market funds and U.S. treasuries, net of fees, or other related expenses. +Comparison of the Years Ended December 31, 2025 and 2024 +Year Ended, +December 31, +2025 2024 Change +(in thousands) +Research and development expenses $ (132,009) $ (168,581) $ 36,572 +General and administrative expenses (38,595) (23,822) (14,773) +Total other income, net 15,953 14,593 1,360 +Net loss $ (154,651) $ (177,810) $ 23,159 +Research and Development Expenses +Research and development expenses decreased by $36.6 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. This decrease was primarily driven by a $49.3 million reduction in preclinical and clinical costs, largely attributable to the conclusion of the lorundrostat pivotal program in the second quarter of 2025. The decrease was partially offset by increases of $9.9 million in compensation expense resulting from headcount growth, higher salaries and accrued bonuses, and increased stock-based compensation, as well as $3.0 million in clinical supply, manufacturing, and regulatory costs. +General and Administrative Expenses +General and administrative expenses increased by $14.8 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase was primarily attributable to $8.9 million in higher compensation expense, driven by headcount growth, higher salaries and accrued bonuses, and increased stock-based compensation. The increase was further attributable to $5.3 million in higher professional fees and $0.6 million in other general and administrative expenses. +Total Other Income, Net +Total other income, net increased by $1.4 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, which was primarily attributable to higher interest earned on investments in money market funds and U.S. treasuries, resulting from higher average cash balances invested during the year ended December 31, 2025. +Liquidity and Capital Resources +We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses and have negative cash flows from operations for the foreseeable future as we continue the development of, seek regulatory approval for, and potentially commercialize lorundrostat, seek to identify, assess, acquire, and in-license intellectual property related to or develop additional product candidates and operate as a public company. Since inception, we have raised aggregate gross proceeds of approximately $1.1 billion from the sale of common stock, convertible preferred stock, pre-funded warrants, and convertible notes. As of December 31, 2025, we had cash, cash equivalents, and investments of $656.6 million. In September 2025, we sold 11,274,509 shares of common stock for net proceeds of approximately $269.6 million after deducting an underwriting discount of 6% and other offering expenses. In March 2025, we sold 14,907,406 shares of common stock for net proceeds of approximately $188.7 million +-93- +Table of Contents +after deducting an underwriting discount of 6% and other offering expenses. Beginning in April 2025 and through March 12, 2026, we sold an aggregate of 4,634,548 ATM Shares for aggregate net proceeds of approximately $139.6 million after deducting commission to the Agents and other offering expenses. In February 2024, we sold 8,339,169 Shares and, to certain Purchasers, 549,755 Pre-Funded Warrants for aggregate net proceeds of approximately $116.1 million in the Private Placement. +Our primary uses of cash to date have been to fund our research and development and other activities, including with respect to lorundrostat, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. +Funding Requirements +Based on our current operating plan, we believe that our cash, cash equivalents, and investments as of December 31, 2025 will be sufficient to allow us to fund our operations for at least twelve months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. +Our future capital requirements will depend on many factors, including, but not limited to: +• the initiation, type, number, scope, progress, expansions, results, costs, and timing of clinical trials and preclinical studies of lorundrostat and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities; +• our ability and strategic decision to develop future product candidates other than lorundrostat, and the timing of such development, if any; +• our ability to receive timely regulatory approvals for lorundrostat, any future product candidates, and additional indications of lorundrostat and any future product candidates, in the jurisdictions in which we or any future partners apply for such approvals; +• the costs and timing of manufacturing for lorundrostat, or any future product candidate, including commercial manufacture at sufficient scale, if any product candidate is approved, including as a result of inflation, changes in international trade policies and tariffs, any supply chain issues, or component shortages; +• any additional jurisdictions in which we may seek approval for lorundrostat and any future product candidates and timing of seeking approval in such jurisdictions; +• the costs, timing, and outcome of regulatory approval of lorundrostat or any future product candidates; +• the costs of obtaining, maintaining, enforcing, and protecting our patents and other intellectual property and proprietary rights; +• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting; +• the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, manufacturing, quality, and commercial personnel; +-94- +Table of Contents +• the timing and amount of the milestone, royalty, or other payments we must make to Tanabe, from whom we have in-licensed lorundrostat, or any future licensors; +• the costs and timing of establishing or securing sales and marketing capabilities if lorundrostat or any future product candidate is approved; +• our ability to achieve sufficient market acceptance, coverage, and adequate reimbursement from third-party payors, and adequate market share and revenue for any approved products; +• patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; +• the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements; +• costs associated with any products or technologies that we may in-license or acquire; +• any delays and cost increases that may result from any pandemic or other healthcare emergency; and +• the other risks and uncertainties described under the heading “ Risk Factor s ,” “ Special Note Regarding Forward-Looking Statements , ” and elsewhere in this Annual Report. +Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from factors that include but are not limited to, geopolitical conflict in and around Ukraine, Israel, Venezuela, and other areas of the world, inflation, changes in international trade policies and tariffs, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. If we raise additional funds through future collaborations, licenses, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, product candidates, research programs, intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves, or on less favorable terms than we would otherwise choose. +-95- +Table of Contents +Cash Flows +Comparison of the Years Ended December 31, 2025 and 2024 +Since our inception, we have primarily used our available cash to fund expenditures related to the in-license and development of lorundrostat. The following table sets forth a summary of cash flows for the years presented (in thousands): +Year Ended +December 31, +2025 2024 +Change +Net cash provided by (used in): +Operating activities $ (142,416) $ (166,314) $ 23,898 +Investing activities (389,753) 114,959 (504,712) +Financing activities 590,999 116,142 474,857 +Net $ 58,830 $ 64,787 $ (5,957) +Operating Activities +Net cash used in operating activities was $142.4 million during the year ended December 31, 2025, compared to $166.3 million during the year ended December 31, 2024, resulting in a decrease that was primarily attributable to a decrease in cash used to support our operating activities, including but not limited to, the development of lorundrostat and related clinical trial expenses, personnel and compensation expense, legal and professional fees to support our operations, and general working capital requirements. The $23.9 million decrease in cash used consisted of the net effect of a decrease in net loss, adjusted for non-cash expenses, of approximately $30.7 million and changes in working capital of $6.8 million. +Investing Activities +Net cash used in investing activities was $389.8 million for the year ended December 31, 2025, compared to net cash provided by investing activities of $115.0 million for the year ended December 31, 2024. Net cash (used in) provided by investing activities during the years ended December 31, 2025 and 2024 was primarily driven by the timing and volume of purchases and maturities of marketable securities in each year. During the year ended December 31, 2025, there was a $441.3 million increase in purchases of marketable securities and a $63.5 million decrease in maturities of previously purchased marketable securities, compared to the year ended December 31, 2024. +Financing Activities +Net cash provided by financing activities of $591.0 million during the year ended December 31, 2025, increased compared to $116.1 million during the year ended December 31, 2024. During the year ended December 31, 2025, we received net proceeds of $269.9 million from the sale of common stock in our September 2025 public offering, $188.9 million from the sale of common stock in our March 2025 public offering, and $119.6 million from the sale of ATM Shares, and during the year ended December 31, 2024, we received net proceeds of $116.1 million from the sale of Shares and Pre-Funded Warrants in the Private Placement. Additionally, during the year ended December 31, 2025, we received increased proceeds of $12.5 million from stock option exercises as compared to the year ended December 31, 2024. +Contractual Obligations and Commitments +Under the Tanabe License, we have milestone payment obligations that are contingent upon the achievement of specified levels of product sales and are required to make certain royalty payments in connection with the sale of products developed under the agreement. We are currently unable to estimate the timing or likelihood of achieving other future milestones or making future product sales. See above and Note 4. +-96- +Table of Contents +“ Commitments and Contingencies ” to our financial statements included elsewhere in this Annual Report for additional information regarding the Tanabe License. +We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services, and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts. +Critical Accounting Estimates +We have prepared the financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its critical estimates. We base our estimates on our historical experience and on assumptions that we believe are reasonable; however, actual results may differ materially from these estimates under different assumptions or conditions. +While our significant accounting policies are described in more detail in Note 2. “ Summary of Significant Accounting Policies ” to our financial statements included elsewhere in this Annual Report, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements. +Prepaid and Accrued Research and Development Expenses +As part of the process of preparing our financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers provide us with invoices monthly in arrears for services performed. We make estimates of our prepaid and accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at the time. We confirm the accuracy of estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include expenses for: +• CROs in connection with clinical trials; +• investigative sites in connection with clinical trials; +• vendors in connection with preclinical development activities; and +• vendors related to product manufacturing, development, and distribution of clinical materials. +Prepaid and expense accruals related to clinical trials are based on our estimates of services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the enrollment of participants and the completion of clinical trial milestones. In accruing costs, we estimate the period over which services will be performed and the level of effort to be expended in each period based on participant enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred. Any estimates of the level of services performed or the costs of these services could differ from actual results. +To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, we cannot assure that +-97- +Table of Contents +we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities. +Stock-Based Compensation Expense +Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (generally the vesting period) on a straight-line basis with forfeitures recognized as they occur. +We estimate the fair value of option grants using the Black-Scholes option pricing model. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 2. “ Summary of Significant Accounting Policies ” of the notes to our financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during 2025 and 2024. +JOBS Act and Smaller Reporting Company Status +As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, our financial statements may not be comparable to those of companies that comply with public company effective dates. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. +We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our initial public offering in February 2023, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if, among other factors, the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year (subject to certain conditions), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. +We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Recently Issued Accounting Pronouncements +We have reviewed all recently issued accounting pronouncements and have determined that, other than as disclosed elsewhere in this Annual Report, such standards do not have a material impact on our financial statements or do not otherwise apply to our operations. +-98- +Table of Contents +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to market risk related to changes in interest rates of our investment portfolio of cash equivalents and investments. As of December 31, 2025, our cash equivalents and investments consisted of money market funds and U.S. treasury securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. The fair value of our short-term cash equivalents and investments is subject to change as a result of potential changes in market interest rates. Due to the nature of our cash equivalents and investments, we believe an immediate hypothetical 10% change in interest rates would not have had a material effect on our results of operations during the years presented. +Foreign Currency Exchange Risk +We are exposed to market risk related to changes in foreign currency exchange rates. We contract with vendors that are located outside the United States, and certain invoices are denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. To date, these fluctuations have not been significant, and we have not had a formal hedging program with respect to foreign currency. We believe an immediate hypothetical 10% change in exchange rates would not have had a material effect on our results of operations during the years presented. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development contract costs. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the future due to an impact on the costs to conduct clinical trials, labor costs we incur to attract and retain qualified personnel, and other operational costs. Inflationary costs could adversely affect our business, financial condition, and results of operations. +-99- +Table of Contents +Item 8. Financial Statements and Supplementary Data +Mineralys Therapeutics, Inc. +Financial Statements +Index +Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) +F- 2 +Balance Sheets as of December 31, 2025 and 2024 +F- 3 +Statements of Operations for the Years Ended December 31, 2025 and 2024 +F- 4 +Statements of Stockholders’ Equity for the Years Ended December 31, 2025 and 2024 +F- 5 +Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +F- 6 +Notes to Financial Statements +F- 7 +F-1 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors of Mineralys Therapeutics, Inc. +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Mineralys Therapeutics, Inc. (the Company) as of December 31, 2025 and 2024, the related statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2022. +Denver, Colorado +March 12, 2026 +F-2 +Table of Contents +Mineralys Therapeutics, Inc. +Balance Sheets +(in thousands, except share and per share amounts) +December 31, +2025 2024 +Assets +Current assets: +Cash and cash equivalents $ 172,921 $ 114,091 +Investments 483,714 84,096 +Prepaid and other current assets 4,751 7,164 +Total current assets 661,386 205,351 +Property and equipment, net 38 53 +Other assets 382 499 +Total assets $ 661,806 $ 205,903 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable $ 2,017 $ 479 +Accrued liabilities 13,096 14,167 +Total current liabilities 15,113 14,646 +Commitments and contingencies (Note 4) +Stockholders’ equity: +Common stock, $ 0.0001 par value; 500,000,000 shares authorized as of December 31, 2025 and 2024; 81,536,557 and 49,821,915 shares issued and outstanding as of December 31, 2025 and 2024, respectively +8 5 +Additional paid-in capital 1,103,854 493,770 +Accumulated deficit ( 457,169 ) ( 302,518 ) +Total stockholders’ equity 646,693 191,257 +Total liabilities and stockholders’ equity $ 661,806 $ 205,903 +The accompanying notes are an integral part of these financial statements. +F-3 +Table of Contents +Mineralys Therapeutics, Inc. +Statements of Operations +(in thousands, except share and per share data) +Year Ended +December 31, +2025 2024 +Operating expenses: +Research and development $ 132,009 $ 168,581 +General and administrative 38,595 23,822 +Total operating expenses 170,604 192,403 +Loss from operations ( 170,604 ) ( 192,403 ) +Interest income, net 15,953 14,588 +Other income — 5 +Total other income, net 15,953 14,593 +Net loss $ ( 154,651 ) $ ( 177,810 ) +Net loss per share attributable to common stockholders, basic and diluted $ ( 2.29 ) $ ( 3.66 ) +Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 67,656,355 48,539,795 +The accompanying notes are an integral part of these financial statements. +F-4 +Table of Contents +Mineralys Therapeutics, Inc. +Statements of Stockholders’ Equity +(in thousands, except share data) +Common Stock Additional +Paid-In-Capital Accumulated +Deficit +Total +Stockholders’ Equity +Shares Amount +Balance as of December 31, 2023 41,133,916 $ 4 $ 365,858 $ ( 124,708 ) $ 241,154 +Issuance of common stock and pre-funded warrants in a private placement offering, net of offering costs of $ 3,941 +8,339,169 1 116,058 — 116,059 +Issuance of common stock from stock option exercises 321,942 — 297 — 297 +Issuance of common stock for cash under employee stock purchase plan 26,888 — 221 — 221 +Stock-based compensation — — 11,336 — 11,336 +Net loss — — — ( 177,810 ) ( 177,810 ) +Balance as of December 31, 2024 49,821,915 5 493,770 ( 302,518 ) 191,257 +Issuance of common stock pursuant to public offering, net of offering costs of $ 12,509 +14,907,406 1 188,740 — 188,741 +Issuance of common stock pursuant to public offering, net of offering costs of $ 17,932 +11,274,509 2 269,566 — 269,568 +Issuance of common stock pursuant to ATM Agreements, net of issuance costs of $ 473 +4,066,228 — 119,425 — 119,425 +Issuance of common stock from stock option exercises 1,444,277 — 12,786 — 12,786 +Issuance of common stock for cash under employee stock purchase plan 22,222 — 243 — 243 +Stock-based compensation — — 19,324 — 19,324 +Net loss — — — ( 154,651 ) ( 154,651 ) +Balance as of December 31, 2025 81,536,557 $ 8 $ 1,103,854 $ ( 457,169 ) $ 646,693 +The accompanying notes are an integral part of these financial statements. +F-5 +Table of Contents +Mineralys Therapeutics, Inc. +Statements of Cash Flows +(in thousands) +Year Ended +December 31, +2025 2024 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss $ ( 154,651 ) $ ( 177,810 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Accretion of discount on held-to-maturity securities ( 9,879 ) ( 9,405 ) +Stock-based compensation 19,324 11,336 +Depreciation and amortization 59 43 +Changes in operating assets and liabilities: +Accrued interest receivable ( 166 ) 424 +Prepaid, other current assets, and other assets +2,470 4,935 +Accounts payable and accrued liabilities 427 4,163 +Net cash used in operating activities ( 142,416 ) ( 166,314 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchases of marketable securities ( 814,738 ) ( 373,445 ) +Maturities of marketable securities 425,000 488,500 +Purchases of property and equipment ( 15 ) ( 96 ) +Net cash provided by (used in) investing activities ( 389,753 ) 114,959 +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from issuance of common stock in September 2025 public offering, net of offering costs 269,883 — +Proceeds from issuance of common stock in March 2025 public offering, net of offering costs 188,880 — +Proceeds from issuance of common stock pursuant to ATM Agreements, net of issuance costs +119,598 — +Proceeds from stock option exercises 12,786 297 +Proceeds from issuance of common stock for cash under employee stock purchase plan 243 221 +Payment of shelf offering costs ( 391 ) ( 435 ) +Proceeds from issuance of common stock and pre-funded warrants in a private placement offering, net of offering costs — 116,059 +Net cash provided by financing activities 590,999 116,142 +Net increase in cash and cash equivalents 58,830 64,787 +Cash and cash equivalents - beginning 114,091 49,304 +Cash and cash equivalents - ending (1) +$ 172,921 $ 114,091 +Supplemental Disclosure of Non-Cash Financing Activities: +Offering costs included in accounts payable and accrued liabilities $ 41 $ — +(1) Cash and cash equivalents as of December 31, 2025 exclude investments of $ 483.7 million. Cash, cash equivalents, and investments amounted to $ 656.6 million as of December 31, 2025. +The accompanying notes are an integral part of these financial statements. +F-6 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 1. Nature of Business +Mineralys Therapeutics, Inc. (the Company) is a biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. The Company’s product candidate, lorundrostat, is a proprietary, orally administered, aldosterone synthase inhibitor that the Company is developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension and related comorbidities, such as chronic kidney disease and obstructive sleep apnea. During 2025, the Company completed two pivotal clinical trials related to its primary drug candidate for hypertension and completed two Phase 2 clinical trials of lorundrostat in hypertensive patients with chronic kidney disease and obstructive sleep apnea. The Company submitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) in December 2025 for lorundrostat for the treatment of hypertension in combination with other antihypertensive drugs. The FDA accepted the NDA submission and provided the Company with a Prescription Drug User Fee Act target action date of December 22, 2026. The Company was incorporated as a Delaware corporation in May 2019, and it is headquartered in Radnor, Pennsylvania. The Company’s operations to date have been limited to business planning, raising capital, in-licensing, conducting preclinical and clinical trials, and other research and development. +Liquidity and Capital Resources +Since its inception, the Company has not generated any revenue from product sales or other sources and has incurred significant operating losses and negative cash flows from operations. The Company’s primary uses of cash to date have been to fund research and development activities, business planning, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. As of December 31, 2025, the Company had an accumulated deficit of $ 457.2 million and cash, cash equivalents, and investments of $ 656.6 million. For the year ended December 31, 2025, the Company had a net loss of $ 154.7 million and net cash used in operating activities of $ 142.4 million. +Since inception, the Company has funded its operations by raising aggregate gross proceeds of approximately $ 1.1 billion from the sale of the Company’s common stock, convertible preferred stock, pre-funded warrants, and convertible notes. The Company has a limited operating history, and the sales and income potential of its business is unproven. The Company expects to continue to incur substantial losses in the foreseeable future as a result of the Company’s research and development and other activities. Additional funding will be required in the future to continue with the Company’s planned research and development and other activities. The Company expects to finance its operations through equity offerings, debt financings, and other capital sources, including potential strategic collaborations, licensing, and other similar arrangements. The Company believes that its cash, cash equivalents, and investments as of December 31, 2025 will be sufficient to allow the Company to fund operations for at least twelve months from the issuance date of these financial statements. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), which include all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the years presented. +Any reference in these notes to applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASUs) of the Financial Accounting Standards Board (FASB). The Company’s management performed an evaluation of its activities through the date of filing of these financial statements and concluded that there are no subsequent events requiring disclosure, other than as disclosed. +F-7 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Emerging Growth Company Status +The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of its initial public offering or such earlier time as the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, its financial statements may not be comparable to those of companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering or such earlier time that it is no longer an “emerging growth company.” +Segment Information +The Company operates in one operating segment for the purposes of assessing performance, making operating decisions, and allocating Company resources. The Company’s chief operating decision maker (CODM) is its chief executive officer, who considers net loss to evaluate overall expenses associated with conducting research and development activities, which includes evaluating the progress of ongoing clinical trials and the planning and execution of current and future research and development and other activities. Further, the CODM reviews and utilizes functional expenses (research and development and general and administrative) as reported in the statements of operations to manage the Company’s operations. Other segment items included in net loss are interest income, net and other income. These measures of performance, significant expenses, and other items are each reflected in the statements of operations. The accounting policies of the segment are the same as those described below. The measure of segment assets is reported on the balance sheets as total assets. All assets are held in the United States. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Estimates have been used in the following areas, among others: research and development accruals and income taxes. +Cash and Cash Equivalents +All highly liquid investments that have maturities of 90 days or less at the date of purchase are classified as cash equivalents. The Company’s cash and cash equivalents balances as of December 31, 2025 and 2024 include cash balances and amounts held primarily in interest-bearing money market accounts and U.S. Treasury bills. As of December 31, 2025 and 2024, the Company did no t have any restricted cash balances. The following table provides a reconciliation of cash and cash equivalents as reported in the statements of cash flows to the balance sheets (in thousands): +December 31, +2025 2024 +Cash $ 1,030 $ 664 +Cash equivalents 171,891 113,427 +Total cash and cash equivalents $ 172,921 $ 114,091 +F-8 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Concentration of Credit Risk +The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash balances in several accounts with three financial institutions that, from time to time, are in excess of federally insured limits. +Risks and Uncertainties +The Company has not yet generated any revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biopharmaceutical companies that devote substantially all of their efforts to research and development and clinical trials and do not yet have commercial products. The Company expects to continue incurring losses for the foreseeable future. +Fair Value Measurements +The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820, Fair Value Measurement, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. +Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: +• Level 1 – quoted prices in active markets for identical assets and liabilities +• Level 2 – other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.) +• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities) +For certain financial instruments, including cash and cash equivalents, prepaid expenses, accounts payable, and certain accrued liabilities, the recorded amount approximates estimated fair value due to their relatively short maturity period. Refer to Note 3. “ Fair Value of Financial Instruments ” for additional details of the Company’s financial instruments. +Investments +The Company generally invests its excess cash in money market funds and investment-grade short- and long-term fixed-income debt securities, such as U.S. Treasury bills. Such investments are included in cash and cash equivalents and investments in the balance sheets. +The Company determines the appropriate classification of securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost, adjusted for the accretion of discounts using the interest method. +The Company invested in marketable securities during the years ended December 31, 2025 and 2024, and no impairment charges were recorded. For held-to-maturity investments, the Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is +F-9 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +other-than-temporary. If the Company believes an impairment of a security position is other than temporary, based on available quantitative and qualitative information as of the report date, the loss will be recognized within total other income, net in the Company’s statements of operations, and a new cost basis in the investment will be established. +Deferred Offering Costs +The Company capitalizes certain legal, professional, accounting, and other third-party fees that are directly associated with in-process equity issuances as deferred offering costs until such equity issuances are consummated. After consummation of the equity issuance, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance. Should the equity issuance be abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the statements of operations. Deferred offering costs as of December 31, 2025 and 2024 were $ 0.2 million and $ 0.4 million, respectively. Such costs are classified in other assets on the balance sheets. +Research and Development Expenses +Research and development costs, both internal and external, are expensed as incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided to the Company by its clinical sites and vendors. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company. The Company’s research and development expenses consist primarily of clinical trial expenses, consulting and employee-related costs, and costs associated with required regulatory filings, licenses, and fees. +Non-refundable advance payments for goods and services that will be used in future research and development activities are capitalized and recorded as expense in the period that the Company receives the goods or when services are performed. Assets acquired (or in-licensed) that are utilized in research and development that have no alternative future use are expensed as incurred. +Commitments and Contingencies +From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and can be reasonably estimated. The Company expects that contingencies related to regulatory approval milestones will only become probable once such regulatory outcome is achieved. +Stock-Based Compensation +The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values. The Company’s stock-based awards are subject only to service-based vesting conditions. The Company measures restricted common stock awards using the difference, if any, between the purchase price per share of the award and the fair value of the Company’s common stock at the date of the grant or modification. The Company estimates the fair value of its stock option awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (i) the expected stock price volatility, (ii) the calculation of the expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. +Volatility — Due to the Company’s limited operating history and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar publicly-traded companies. The Company believes that the companies in the group were most representative of the Company and had characteristics similar to its own, including stage of product development, a focus on the life sciences industry, and other economic and industry characteristics. +F-10 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Expected Term — The Company uses the simplified method to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted, and utilizes the contractual term for options granted. +Risk-Free Interest Rate — The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. +Expected Dividends — To date, the Company has not issued any dividends and does not expect to issue dividends over the life of the options and therefore has estimated the dividend yield to be zero. +Subsequent to the closing of the Company’s initial public offering of its common stock in February 2023 (IPO), the Company determines the fair market value of its common stock using the closing price of its common stock as reported on the Nasdaq Global Select Market. +Compensation expense related to awards is recognized on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term. Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. The Company accounts for forfeitures as they occur. +Defined Contribution Plan +The Company sponsors a qualified defined contribution 401(k) plan for eligible employees. Employees may contribute a portion of their compensation, subject to statutory limitations. The Company provides a matching contribution of up to 4 % of eligible compensation. For the years ended December 31, 2025 and 2024, the Company recognized expense related to the defined contribution 401(k) plan of $ 0.6 million and $ 0.4 million, respectively. +Net Loss Per Share +The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the year. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential common stock equivalents outstanding for the year, determined using the treasury stock method. For purposes of this calculation, unvested restricted stock awards and stock options to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive. The weighted-average number of common shares used in the basic and diluted net loss per share attributable to common stockholders calculations includes the weighted-average pre-funded warrants outstanding during the period, as they are exercisable at any time for nominal cash consideration. The following table sets forth the potential common shares excluded from the calculation of net loss per share attributable to common stockholders because their inclusion would be anti-dilutive: +Year Ended +December 31, +2025 2024 +Outstanding options 6,577,499 4,560,292 +Unvested restricted stock awards 125,793 370,106 +Total 6,703,292 4,930,398 +Income Taxes +Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial +F-11 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and for loss and credit carryforwards using enacted tax rates anticipated to be in effect for the year in which the differences are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. +The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that some or all of the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based on the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of December 31, 2025 and 2024, the Company does not have any significant uncertain tax positions. If the Company were to incur interest and penalties on uncertain tax positions, it would classify them as income tax expense. +Recently Issued Accounting Pronouncements +From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. +In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, including public entities with a single reportable segment, primarily through enhanced disclosures about significant segment expenses. The Company adopted this standard for the Company’s fiscal year 2024 annual reporting period, and it is applicable to interim periods thereafter. +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The Company adopted this new accounting standard in the year ended 2025 and applied it prospectively as disclosed in Note 8. “ Income Taxes. ” The adoption did not have an impact on the Company’s financial statements, as the amendments relate solely to expanded disclosures and do not affect the recognition, measurement, or presentation of income taxes. The Company has updated its income tax disclosures in accordance with the new requirements beginning in the period of adoption. +In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03), and in January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 will require the Company to disclose additional information about specific expense categories in the notes to the financial statements on an annual and interim basis. ASU 2024-03 is effective for the Company's fiscal year 2027 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of ASU 2024-03 on its financial statements and related disclosures. +F-12 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 3. Fair Value of Financial Instruments +The following table presents financial instruments measured at fair value on a recurring basis based on the fair value hierarchy as of December 31, 2025 and 2024 (in thousands): +December 31, +2025 2024 +Level 1 +Assets +Cash equivalents +Money market funds $ 161,943 $ 83,602 +There were no transfers within the fair value hierarchy during the years presented. +The following methods and assumptions were used by the Company in estimating the fair values of each class of financial instrument disclosed herein: +Money Market Funds —The carrying amounts of money market funds reported as cash and cash equivalents in the balance sheets approximate their fair values due to their short-term nature. The fair values of money market funds are determined by Level 1 inputs utilizing quoted prices (unadjusted) in active markets for identical assets. +U.S. Treasury Bills—As of December 31, 2025 and 2024, the Company had short-term U.S. Treasury bills. Fair values of these securities are determined by Level 2 inputs utilizing quoted prices (unadjusted) in active markets for similar assets. The following table presents information about the Company’s investments in held-to-maturity U.S. Treasury bills as of each reported date (in thousands): +As of December 31, 2025 +Balance Sheet Location Original Maturities Amortized +Cost Estimated +Fair Value +Cash and cash equivalents less than 3 months $ 9,948 $ 9,948 +Investments between 3 and 12 months 483,714 483,891 +Total $ 493,662 $ 493,839 +As of December 31, 2024 +Balance Sheet Location Original Maturities Amortized +Cost Estimated +Fair Value +Cash and cash equivalents less than 3 months $ 29,825 $ 29,829 +Investments between 3 and 12 months 84,096 84,123 +Total $ 113,921 $ 113,952 +Note 4. Commitments and Contingencies +License Agreement with Tanabe +In July 2020, the Company entered into a license agreement (the Tanabe License) with Tanabe Pharma Corporation (Tanabe)(formerly Mitsubishi Tanabe Pharma Corporation), pursuant to which Tanabe granted the Company an exclusive, worldwide, royalty-bearing, sublicensable license under Tanabe’s patent and other intellectual property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans. Pursuant to the Tanabe License, the Company paid Tanabe a $ 1.0 million upfront fee and development milestone payments of $ 9.0 million in the aggregate. The Company +F-13 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +has remaining obligations to pay Tanabe commercial milestone payments of up to $ 155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $ 10.0 million for a second indication. Additionally, the Company is obligated to pay Tanabe tiered royalties at percentages ranging from the mid-single-digits to ten percent ( 10 %) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +The Company has no remaining development milestone obligations under the Tanabe License and did not incur any development or commercial expenses pursuant to the Tanabe License during the years ended December 31, 2025 and 2024. +The Company is obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith developing at least one Lorundrostat Product in a non-major market country. If the Company elects to sublicense its rights under the Tanabe License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, the Company has agreed to negotiate such a sublicense first, for a specified period of time, with Tanabe, if Tanabe notifies the Company that it would like to obtain such a sublicense. The Company also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Tanabe’s prior consent. +Unless terminated earlier, the Tanabe License will continue until the expiration of all of the Company’s royalty obligations to Tanabe. The Company may terminate the Tanabe License for any or no reason upon 90 or 180 days’ prior written notice to Tanabe, depending on whether the Lorundrostat Product has received regulatory approval. Tanabe may terminate the Tanabe License if the Company or its affiliates or sublicensees initiate a challenge to the patent rights licensed to the Company by Tanabe. In addition, either party may terminate the Tanabe License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +Litigation +Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the years ended December 31, 2025 and 2024, and no material legal proceedings are currently pending or threatened. +Indemnification Agreements +In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising from breach of such agreements or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with officers of the Company and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any material liabilities related to such obligations in its financial statements as of December 31, 2025 and 2024. +F-14 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 5. Accrued Liabilities +Accrued liabilities consisted of the following (in thousands): +December 31, +2025 2024 +Compensation and benefits $ 5,540 $ 3,582 +Research and development expenses 3,460 8,614 +Professional fees and other 4,096 1,971 +Total $ 13,096 $ 14,167 +Note 6. Capital Stock +As of December 31, 2025, the Company had reserved authorized shares of common stock for future issuance as follows: +Common stock options outstanding 6,577,499 +Shares available for grant under the 2023 Plan 1,187,422 +Shares available for grant under the ESPP 1,251,719 +Shares available for grant under the 2025 Inducement Plan 854,000 +Pre-funded warrants issued and outstanding 549,755 +Total 10,420,395 +In connection with the closing of the IPO in February 2023, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation (the Restated Certificate). The Restated Certificate amended and restated the Company’s amended and restated certificate of incorporation, in its entirety to, among other things, increase the authorized number of shares of common stock to 500,000,000 shares and authorize 50,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series. +Public Offerings +On September 2, 2025, the Company entered into an underwriting agreement with BofA Securities, Inc., Evercore Group L.L.C. and Goldman Sachs & Co. LLC as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,274,509 shares of the Company’s common stock at a price of $ 25.50 per share for net proceeds of approximately $ 269.6 million after deducting an underwriting discount of 6 % and other offering expenses. The offering was made pursuant to the Company’s registration statements on Form S-3 and Form S-3MEF (Registration Statement Nos. 333-278122 and 333-289998, respectively) previously filed with and declared effective by the SEC, and a prospectus supplement and accompanying prospectus filed with the SEC. The Company is using the net proceeds from this offering to fund clinical development of lorundrostat, including research and development and manufacturing, and pre-commercialization activities, as well as for working capital and general corporate purposes. +On March 11, 2025, the Company entered into an underwriting agreement with the Underwriters, relating to the issuance and sale of 14,907,406 shares of the Company’s common stock at a price of $ 13.50 per share for net proceeds of approximately $ 188.7 million after deducting an underwriting discount of 6 % and other offering expenses. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 (Registration Statement No. 333-278122) previously filed with and declared effective by the SEC (the Registration Statement), and a prospectus supplement and accompanying prospectus filed with the SEC. The Company is using the net proceeds from this offering to fund the clinical development of lorundrostat, including research and development, manufacturing, and pre-commercialization activities, as well as for working capital and general corporate purposes. +F-15 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +At Market Equity Offering Sales Agreements +On November 10, 2025, the Company entered into an ATM Equity Offering Sales Agreement (the New ATM Agreement) with BofA Securities, Inc., Evercore Group L.L.C., and Goldman Sachs & Co. LLC (each, a Sales Agent, and collectively, the Sales Agents), relating to the sale of shares of the Company’s common stock, having an aggregate offering price of up to $ 300.0 million from time to time to or through the Sales Agents (New ATM Shares). The New ATM Shares will be issued pursuant to the Company’s registration statement on Form S-3ASR (File No. 333-291435), effective on November 10, 2025. Sales of the New ATM Shares will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market or as otherwise agreed by the Company and the Sales Agents. Under the terms of the New ATM Agreement, the Company may also sell the New ATM Shares from time to time to a Sales Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the New ATM Shares to a Sales Agent as principal would be pursuant to the terms of a separate terms agreement between the Company and such Sales Agent. +On March 21, 2024, the Company entered into an ATM Equity Offering Sales Agreement (the Prior ATM Agreement, and together with the New ATM Agreement, the ATM Agreements) with BofA Securities, Inc. and Evercore Group L.L.C. (the Prior Sales Agents). Pursuant to the terms of the Prior ATM Agreement, the Company was permitted to sell from time to time through the Prior Sales Agents shares of the Company’s common stock having an aggregate offering price of up to $ 100.0 million (the Prior ATM Shares, and together with the New ATM Shares, the ATM Shares), pursuant to which the Company sold approximately $ 27.4 million of Prior ATM Shares. Effective November 9, 2025, the Prior ATM Agreement was terminated in connection with the execution of the New ATM Agreement. +Beginning in April 2025 and through December 31, 2025, the Company sold an aggregate of 4,066,228 ATM Shares at a weighted-average price of $ 29.49 per share for aggregate net proceeds of approximately $ 119.4 million after deducting commissions to the Agents and other offering expenses. As of December 31, 2025, the Company had approximately $ 207.5 million of New ATM Shares remaining available for sale pursuant to the New ATM Agreement. Subsequent to December 31, 2025 and through March 12, 2026, the Company sold an aggregate of 568,320 New ATM Shares, at a weighted-average price of $ 35.66 per share, for aggregate net proceeds of approximately $ 20.2 million after deducting commissions to the Sales Agents and other related costs. +Private Placement Offering +On February 7, 2024, the Company entered into a securities purchase agreement (the Purchase Agreement) with the purchasers named therein (the Purchasers), for the private placement (the Private Placement) of (i) 8,339,169 shares (the Shares) of the Company’s common stock at a price of $ 13.50 per Share, and (ii) with respect to certain Purchasers, pre-funded warrants to purchase an aggregate of 549,755 shares of common stock (the Pre-Funded Warrants) in lieu of shares of common stock, at a purchase price of $ 13.499 per Pre-Funded Warrant (the shares of common stock issuable upon exercise of the Pre-Funded Warrants, the Warrant Shares) for aggregate net proceeds of approximately $ 116.1 million, after deducting offering expenses. Each Pre-Funded Warrant has an exercise price of $ 0.001 per share of common stock, is immediately exercisable on the date of issuance, and will not expire. The Company is using the net proceeds from the Private Placement to fund the research and development of lorundrostat and for working capital and general corporate purposes. +The Company registered the resale of the Shares and the Warrant Shares on the Registration Statement. Pursuant to the Purchase Agreement, the Company agreed to use its reasonable best efforts to keep the Registration Statement effective until the earliest of (i) the time as all of the Shares and Warrant Shares purchased by the Purchasers pursuant to the terms of the Purchase Agreement have been sold pursuant to the Registration Statement, or (ii) such time as the Shares and Warrant Shares become eligible for resale by non-affiliates without any volume limitations or other restrictions pursuant to Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. +F-16 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 7. Stock-Based Compensation +2023 Incentive Award Plan +In February 2023, the Company’s board of directors adopted and stockholders approved the 2023 Incentive Award Plan that became effective upon the closing of the IPO (the 2023 Plan), under which the Company may grant stock options, restricted stock awards (RSAs), dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to its employees, consultants, and directors. The number of shares of the Company’s common stock initially available for issuance under awards granted pursuant to the 2023 Plan was the sum of (i) 4,650,000 shares of the Company’s common stock, plus (ii) any shares subject to outstanding awards under the 2020 Plan described and defined below as of the effective date of the 2023 Plan that become available for issuance under the 2023 Plan thereafter in accordance with its terms. +The number of shares initially available for issuance will be increased on January 1 of each calendar year beginning in 2024 and ending in and including 2033, by an amount equal to the lesser of (i) 4 % of the shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as determined by the Company’s board of directors. No more than 100,000,000 shares of the Company’s common stock may be issued upon the exercise of incentive stock options under the 2023 Plan. Shares issued under the 2023 Plan may be authorized but unissued shares, shares purchased on the open market, or treasury shares. +2025 Employment Inducement Incentive Award Plan +On February 10, 2025, the Company’s board of directors adopted and approved the 2025 Employment Inducement Incentive Award Plan (the 2025 Inducement Plan), which became effective on February 10, 2025. In accordance with Rule 5635(c)(4) of the Nasdaq Stock Market listing rules, equity awards under the 2025 Inducement Plan may only be made to an employee if he or she is granted such awards in connection with the commencement of his or her employment with the Company and such grant is a material inducement to his or her entering into employment with the Company. The Company initially reserved 1,000,000 shares of common stock for issuance pursuant to non-qualified stock options and restricted stock units under the 2025 Inducement Plan. +2020 Equity Incentive Plan +On July 7, 2020, the board of directors adopted, and the Company’s stockholders approved, the 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan, as amended and restated (the 2020 Plan), provided for the grant of incentive stock options to employees of the Company, and for the grant of non-statutory stock options, RSAs, restricted stock unit awards, and other forms of stock awards to employees, directors, and consultants of the Company. +Subsequent to the closing of the IPO, no additional awards will be granted under the 2020 Plan. However, the 2020 Plan will continue to govern the terms and conditions of the outstanding awards granted under it. Shares of the Company’s common stock subject to awards granted under the 2020 Plan that expire, lapse, or are terminated, exchanged for cash, surrendered, repurchased, or forfeited following the effective date of the 2020 Plan will be available for issuance under the 2023 Plan in accordance with its terms. +The board of directors or a designated committee of the board of directors is responsible for the administration of the 2023 Plan, the 2025 Inducement Plan, and previously the 2020 Plan, and determines the term, exercise price, and vesting terms of each award. Under the terms of existing awards, all stock option grants expire ten years from the grant date. New option grants could not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date and generally vest over a period of four years . The Company issues new shares of common stock upon exercise of stock options or issuance of RSAs. +F-17 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +As of December 31, 2025, the Company had the following balances by plan: +Options +Outstanding Unvested +RSAs Shares Available +for Grant +2023 Plan 6,120,716 — 1,187,422 +2020 Plan 310,783 125,793 — +2025 Inducement Plan +146,000 — 854,000 +Total 6,577,499 125,793 2,041,422 +Stock Options +The following is a summary of the Company’s stock option activity under its 2023 Plan and 2020 Plan: +Shares Weighted-Average Exercise Price Total Intrinsic Value +(in thousands) Weighted-Average Remaining Contractual Life (Years) +Options outstanding as of December 31, 2024 4,560,292 $ 11.76 $ 9,756 8.6 +Options granted 3,798,400 $ 15.18 +Options exercised ( 1,444,277 ) $ 8.87 +Options forfeited or expired ( 336,916 ) $ 11.26 +Options outstanding as of December 31, 2025 6,577,499 $ 14.40 $ 146,321 8.6 +Options vested and exercisable as of December 31, 2025 1,958,710 $ 12.31 $ 46,979 7.9 +As of December 31, 2025, the Company had $ 48.7 million of unrecognized share-based compensation expense related to stock option awards that is expected to be recognized over a weighted-average period of approximately 1.6 years. For the years ended December 31, 2025 and 2024, the total fair value of options vested was $ 19.3 million and $ 8.9 million, respectively. The aggregate intrinsic value of options exercised for the years ended December 31, 2025 and 2024 was $ 32.3 million and $ 4.2 million, respectively. +The weighted-average grant date fair value per share for options granted during the years ended December 31, 2025 and 2024 was $ 11.38 and $ 9.55 , respectively. The following table presents the weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted during the following periods: +Year Ended +December 31, +2025 2024 +Exercise price $ 15.18 $ 12.83 +Expected term (years) 6.01 years 6.04 years +Expected stock price volatility 89.1 % 87.0 % +Risk-free rate of interest 4.2 % 4.2 % +Expected dividend yield — % — % +Restricted Stock Awards +RSAs granted by the Company have varying vesting terms depending on the terms of the grant. Holders of unvested RSAs have the same rights as those of common stockholders, including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot be transferred until vested. Upon +F-18 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +a participant’s termination of continuous service for any reason, any shares subject to RSAs held by the participant that have not vested as of such termination date may be forfeited to or repurchased by the Company. +The following is a summary of the Company’s RSA activity under its 2023 Plan and 2020 Plan: +Shares Weighted-Average Grant Date Fair Value +Unvested as of December 31, 2024 370,106 $ 1.7842 +Vested ( 244,313 ) $ 1.7512 +Unvested as of December 31, 2025 125,793 $ 1.8483 +As of December 31, 2025, the Company had $ 0.1 million of unrecognized share-based compensation expense related to RSAs that is expected to be recognized over a weighted-average period of approximately 0.3 years. For the years ended December 31, 2025 and 2024, the total fair value of RSAs vested was $ 0.4 million and $ 1.0 million, respectively. +2023 Employee Stock Purchase Plan +In February 2023, the Company’s board of directors and stockholders approved the 2023 Employee Stock Purchase Plan (the ESPP), which became effective in February 2023. The ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to a specified percentage of their eligible compensation withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. A total of 400,000 shares of the Company’s common stock was initially reserved for issuance under the ESPP. The first ESPP offering period commenced on July 1, 2023, with each new six-month offering period beginning each January 1 and July 1. ESPP purchases of common stock occur at a price equal to 85 % of the lower of (i) the closing price on the first trading day of the offering period or (ii) the closing price on the last trading day of the offering period. As of December 31, 2025, the Company had 1,251,719 shares available for issuance, and 57,839 cumulative shares had been issued under the ESPP. +In addition, the number of shares available for issuance under the ESPP will be annually increased on January 1 of each calendar year beginning in 2024 and ending in and including 2033, by an amount equal to the lesser of (i) 1 % of the shares outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the Company’s board of directors, provided that no more than 15,000,000 shares of the Company’s common stock may be issued under the ESPP. +Total stock-based compensation expense reported in the statements of operations was allocated as follows (in thousands): +Year Ended +December 31, +2025 2024 +Research and development $ 8,636 $ 5,008 +General and administrative 10,688 6,328 +Total +$ 19,324 $ 11,336 +F-19 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +Note 8. Income Taxes +There was no current or deferred income tax expense or benefit for the years ended December 31, 2025 and 2024, due to the Company’s net loss and increases in its deferred tax asset valuation allowance. The components of the Company’s deferred tax assets are as follows (in thousands): +December 31, +2025 2024 +Net operating loss carryforwards $ 55,102 $ 15,580 +Research and development credit carryforwards 21,169 15,380 +Capitalized research and development costs 39,935 44,981 +Intangible assets 1,823 1,976 +Other 3,219 2,012 +Total deferred tax assets 121,248 79,929 +Valuation allowance ( 121,248 ) ( 79,929 ) +Deferred tax assets, net of valuation allowance $ — $ — +The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets, which are dependent on future earnings, if any, the timing and amount of which are uncertain. The Company periodically evaluates the recoverability of the deferred tax assets. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. The Company’s valuation allowance increased by approximately $ 41.3 million and $ 48.4 million for the years ended December 31, 2025 and 2024, respectively. +As of December 31, 2025 and 2024, the Company had federal net operating loss (NOL) carryforwards of $ 244.6 million and $ 69.0 million available to reduce future taxable income, respectively. The federal NOL carryforward has no expiration as a result of the Tax Cuts and Jobs Act of 2017. As of December 31, 2025 and 2024, the Company had $ 59.5 million and $ 17.2 million, respectively, of state NOL carryforwards that begin expiring in 2041. +As of December 31, 2025 and 2024, the Company had federal and state research and development tax credit carryforwards of $ 21.6 million and $ 15.6 million, respectively, to reduce future taxable income. The federal research and development tax credit carryforwards begin to expire in 2041. Research and development tax credit carryforwards associated with California carry forward indefinitely. Research and development tax credit carryforwards associated with other states begin expiring in 2039. +The Internal Revenue Code (IRC) Sections 382 and 383 limit annual use of NOL and research and development credit carryforwards in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company completed an ownership change analysis pursuant to IRC Section 382 through December 31, 2025 and determined that the Company experienced ownership changes on February 16, 2021, June 1, 2022, and September 4, 2025. Since all of the Company’s federal NOLs have an indefinite carryover period, none of the federal NOLs generated prior to the ownership changes will expire prior to utilization, but will be subject to the annual limitations on future utilization. As a result of the annual limitation, approximately $ 0.2 million of federal research and development credits will expire prior to utilization due to the ownership change occurring on February 16, 2021. The remaining federal research and development credits are available to offset federal tax liability within their respective federal research and development credit carryover periods (20 years), subject to the annual limitations on future utilization. State NOLs and state research and development credits may be similarly limited. The Company’s use of federal and state NOLs and research and development credits could be further limited by ownership changes that occur subsequent to December 31, +F-20 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +2025. If eliminated, the related asset would be removed from the deferred tax asset with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. +The Company’s effective tax rate for the years ended December 31, 2025 and 2024 was 0 %. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows (after the adoption of ASU 2023-09; amounts in thousands): +Year Ended +December 31, 2025 +Amount Rate +Statutory federal tax rate $ ( 32,497 ) 21.00 % +State and local income tax, net of federal income tax effect (1) +( 339 ) 2.17 +Tax credits +Research and development tax credits ( 7,279 ) 5.32 +Change in valuation allowance 37,466 ( 26.70 ) +Nontaxable or nondeductible items +Permanent differences 15 ( 0.01 ) +Stock-based compensation ( 4,651 ) 3.01 +Executive compensation 4,835 ( 3.12 ) +Other +Other 557 ( 0.45 ) +Changes in unrecognized tax benefits 1,893 ( 1.22 ) +Total provision for income taxes $ — — % +________ +(1) State tax expense in California comprises the majority (greater than 50 percent) of the tax effect in this category. +A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows (prior to the adoption of ASU 2023-09): +Year Ended +December 31, +2024 +Statutory federal income tax rate 21.00 % +State income taxes, net of federal tax benefits 1.76 +Research and development credits 5.19 +Permanent items and other ( 0.70 ) +Change in valuation allowance ( 27.25 ) +Total provision for income taxes — % +The Company files income tax returns in the U.S. Federal jurisdiction and various state and local jurisdictions. As of December 31, 2025, all years remained subject to examination by tax authorities. There were no federal or state income tax payments or refunds paid or received for the tax year ended December 31, 2025. +Uncertain tax positions are evaluated based on the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based on new information may lead to changes in recognition, derecognition, and measurement. Adjustment may result, for example, upon resolution of an issue with the taxing authorities or expiration of a statute of limitations barring an assessment for an issue. The Company +F-21 +Table of Contents +Mineralys Therapeutics, Inc. +Notes to Financial Statements +recognizes a tax benefit from an uncertain tax position when it is more-likely-than-not that it will be sustained upon examination by tax authorities. +As of December 31, 2025 and 2024, the Company had $ 6.5 million and $ 4.5 million, respectively, in unrecognized tax benefits, which would not affect the effective tax rate if recognized due to the valuation allowance against deferred tax assets. The Company’s policy is to recognize interest expense and penalties related to income tax matters in income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions. +The following table summarizes the changes to the Company’s unrecognized tax benefits for the years ended December 31, 2025 and 2024 (in thousands): +Year Ended +December 31, +2025 2024 +Beginning balance $ 4,505 $ 1,076 +Additions related to current year positions 2,540 2,921 +Additions (reductions) related to prior year positions ( 557 ) 508 +Ending balance $ 6,488 $ 4,505 +On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. economy and fund a nationwide effort to curtail the effects of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more significant provisions include the removal of certain limitations on the utilization of net operating losses, an increase in the loss carryback period for certain losses to five years, and an increase in the ability to deduct interest expense. Additionally, the CARES Act amends certain provisions of the previously enacted Tax Cuts and Jobs Act of 2017. +On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, which enacted significant changes to U.S. tax and related laws, including the immediate expensing of domestic research and development costs, while foreign expenditures will continue to be capitalized and amortized over 15 years. The impact of the tax law changes from the OBBBA is included in the Company’s income tax provision beginning in the year ended December 31, 2025. +F-22 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures +We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. +Management’s Annual Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act. Management assessed our internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. +Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the audit committee of our board of directors. +Our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act. +Changes in Internal Control Over Financial Reporting +There have been no changes in our internal control over financial reporting during the three months ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +– 100 – +Item 9B. Other Information +During the three months ended December 31, 2025, four of our directors and officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules). The material terms of these Rule 10b5-1 trading arrangements are described below: +Name and Title +Action Taken +Type of Trading Arrangement +Nature of Trading Arrangement +Duration of Trading Arrangement +Number of Securities +David Rodman, M.D. , Chief Medical Officer +Adoption October 6, 2025 +Trading plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) Sale of the Company’s common stock pursuant to the terms of the plan +January 2, 2026 to December 21, 2026 +(1) +Alexander Gold, M.D. , Director +Adoption October 14, 2025 +Trading plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) Sale of the Company’s common stock pursuant to the terms of the plan +January 8, 2026 to December 31, 2026 +(2) +Jon Congleton , Chief Executive Officer and Director +Adoption December 30, 2025 +Trading plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) Sale of the Company’s common stock pursuant to the terms of the plan +March 31, 2026 to March 31, 2027 +(3) +Daphne Karydas , Director +Adoption December 30, 2025 +Trading plan intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) Sale of the Company’s common stock pursuant to the terms of the plan +March 13, 2026 to March 12, 2027 +(4) +________ +(1) Dr. Rodman’s Rule 10b5-1 trading arrangement provides for the sale of up to (i) 65,838 shares of common stock that are currently outstanding and (ii) 420,707 shares of common stock subject to a stock option award granted to Dr. Rodman that vests ratably over time. +(2) Dr. Gold’s Rule 10b5-1 trading arrangement provides for the sale of up to 18,333 shares of common stock subject to a stock option award granted to Dr. Gold that vests ratably over time. +(3) Mr. Congleton’s Rule 10b5-1 trading arrangement provides for the sale of up to 300,000 shares of common stock that are currently outstanding. +(4) Mr. Karydas’ Rule 10b5-1 trading arrangement provides for the sale of up to 36,000 shares of common stock subject to a stock option award granted to Ms. Karydas that vests ratably over time. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not Applicable. +– 101 – +Part III +Item 10. Directors, Executive Officers and Corporate Governance +Information regarding our executive officers is included in Part I, Item 1 of this Annual Report under the caption “ Information About Our Executive Officers .” +Our board of directors has adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.mineralystx.com . In addition, we intend to post on our website all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from, any provision of the code. We have included our website address in this Annual Report solely as an inactive textual reference. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report. +The additional information required by this item is incorporated by reference from our 2026 Proxy Statement under the captions “ Proposal 1: Election of Directors ” and “ Delinquent Section 16(a) Reports .” +Item 11. Executive Compensation +The information required by this item is incorporated by reference from our 2026 Proxy Statement under the caption “ Executive and Director Compensation .” +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item is incorporated by reference from our 2026 Proxy Statement under the captions “ Security Ownership of Certain Beneficial Owners and Management ” and “ Equity Compensation Plan Information. ” +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this item is incorporated by reference from our 2026 Proxy Statement under the captions “ Proposal 1: Election of Directors ” and “ Certain Relationships and Related Person Transactions .” +Item 14. Principal Accountant Fees and Services +The information required by this item is incorporated by reference from our 2026 Proxy Statement under the caption “ Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm .” +– 102 – +Part IV +Item 15. Exhibit and Financial Statement Schedules +1. Financial Statements +The financial statements of Mineralys Therapeutics, Inc., together with the report thereon of Ernst & Young LLP, an independent registered public accounting firm (PCAOB ID No. 42), are included in this Annual Report contained in Part II, Item 8. Financial Statements and Supplementary Data. +2. Financial Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. +3. Exhibits +A list of exhibits is set forth on the Exhibit Index below. +Exhibit +Number +Incorporated by Reference Filed Herewith +Exhibit Description Form Date Number +3.1 +Amended and Restated Certificate of Incorporation +8-K 2/14/23 3.1 +3.2 +Amended and Restated Bylaws +8-K 2/14/23 3.2 +4.1 +Specimen stock certificate evidencing the shares of common stock +S-1/A 2/2/23 4.1 +4.2 +Amended and Restated Investors’ Rights Agreement, dated June 1, 2022, by and among the Registrant and certain of its stockholders +S-1/A 2/2/23 4.2 +4.3 +Form of Pre-Funded Warrant +8-K 2/8/24 4.1 +4.4 +Description of Registered Securities +10-K 3/21/24 4.4 +10.1# +Mineralys Therapeutics, Inc. Amended and Restated 2020 Equity Incentive Plan and form of stock option agreement and form of restricted stock agreement thereunder +S-1/A 2/2/23 10.1 +10.2# +Mineralys Therapeutics, Inc. 2023 Incentive Award Plan and form of stock option agreement, form of restricted stock unit agreement, form of restricted stock award, and form of early exercise stock option agreement thereunder +x +10.3# +Mineralys Therapeutics, Inc. 2025 Employment Inducement Incentive Award Plan and form of stock option agreement and form of restricted stock unit agreement thereunder +10-K +2/12/2025 +10.12 +10.4# +Mineralys Therapeutics, Inc. 2023 Employee Stock Purchase Plan +S-1/A 2/2/23 10.3 +10.5# +Non-Employee Director Compensation Policy +x +10.6#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between Jon Congleton and the Registrant +S-1/A 2/2/23 10.5 +10.7#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between David Rodman, M.D. and the Registrant +S-1/A 2/2/23 10.6 +10.8#† +Amended and Restated Employment Letter Agreement, dated February 1, 2023, by and between Adam Levy and the Registrant +S-1/A 2/2/23 10.7 +10.9# +Employment Offer Letter Agreement, dated April 3, 2025, by and between Eric Warren and the Registrant +x +– 103 – +10.10# +Form of Indemnification Agreement for Directors and Officers +S-1 1/18/23 10.8 +10.11† +License Agreement, dated July 9, 2020, between the Registrant and Tanabe Pharma Corporation +S-1 1/18/23 10.9 +10.12 +Securities Purchase Agreement, dated February 7, 2024, by and between the Registrant and each of the purchasers party thereto +8-K 2/8/24 10.1 +19.1 +Mineralys Therapeutics, Inc. Insider Trading Compliance Policy and Procedures +10-K +2/12/2025 +19.1 +23.1 +Consent of Ernst & Young LLP, independent registered public accounting firm +x +31.1 +Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +x +31.2 +Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +x +32.1* +Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +x +32.2* +Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +x +97.1 +Mineralys Therapeutics, Inc. Policy for Recovery of Erroneously Awarded Compensation +10-K 3/21/24 97.1 +101.INS XBRL Instance Document x +101.SCH XBRL Taxonomy Extension Schema Document x +101.CAL XBRL Taxonomy Extension Calculation Linkbase Document x +101.DEF XBRL Taxonomy Extension Definition Linkbase Document x +101.LAB XBRL Taxonomy Extension Label Linkbase Document x +101.PRE XBRL Taxonomy Extension Presentation Linkbase Document x +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) x +__________________ +# Indicates management contract or compensatory plan. +† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601 of Regulation S-K because it is both not material and is the type that the registrant treats as private or confidential. +* This certification is deemed not filed for the purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. +Item 16. Form 10-K Summary +None. +– 104 – +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +MINERALYS THERAPEUTICS, INC. +Date: March 12, 2026 By: /s/ Jon Congleton +Jon Congleton +Chief Executive Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Jon Congleton +Chief Executive Officer +(Principal Executive Officer) +March 12, 2026 +Jon Congleton +/s/ Adam Levy +Chief Financial Officer and Secretary +(Principal Financial and Accounting Officer) +March 12, 2026 +Adam Levy +/s/ Glenn Sblendorio +Chairman +March 12, 2026 +Glenn Sblendorio +/s/ Srinivas Akkaraju +Director +March 12, 2026 +Srinivas Akkaraju, M.D., Ph.D. +/s/ Derek DiRocco +Director +March 12, 2026 +Derek DiRocco, Ph.D. +/s/ Alexander M. Gold +Director +March 12, 2026 +Alexander M. Gold, M.D. +/s/ Daphne Karydas +Director +March 12, 2026 +Daphne Karydas +/s/ Brian Taylor Slingsby +Director +March 12, 2026 +Brian Taylor Slingsby, M.D., Ph.D., M.P.H. +– 105 – \ No newline at end of file diff --git a/raw/filings/0001933414/2025/0001933414-26-000056/filing_metadata.csv b/raw/filings/0001933414/2025/0001933414-26-000056/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..0ef82fc440d07714f3f309419a1b40d9df8df1e9 --- /dev/null +++ b/raw/filings/0001933414/2025/0001933414-26-000056/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001933414,MLYS,"Mineralys Therapeutics, Inc.",2025,10-K,2026-03-12,2025-12-31,2026-03-12T21:19:05.000Z,0001933414-26-000056,mlys-20251231.htm,10-K,10276402,1,1,https://www.sec.gov/Archives/edgar/data/1933414/000193341426000056/mlys-20251231.htm,https://www.sec.gov/Archives/edgar/data/1933414/000193341426000056/ diff --git a/raw/filings/0001933414/2025/0001933414-26-000056/item1.txt b/raw/filings/0001933414/2025/0001933414-26-000056/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..42051326bb8d9d7196ea5eafee43fc433d441380 --- /dev/null +++ b/raw/filings/0001933414/2025/0001933414-26-000056/item1.txt @@ -0,0 +1,289 @@ +Item 1. Business +Business Overview +We are a biopharmaceutical company focused on developing medicines to target diseases driven by dysregulated aldosterone. Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective aldosterone synthase inhibitor (ASI) that we are developing for the treatment of cardiorenal conditions affected by dysregulated aldosterone, including hypertension and related comorbidities such as chronic kidney disease (CKD) and obstructive sleep apnea (OSA). +In the United States, there are approximately 120 million patients with sustained elevated blood pressure (BP), or hypertension. Approximately 60 million patients are treated and over 30 million do not achieve their BP goal, with approximately 20 million having systolic BP levels greater than 140 mmHg. Patients with hypertension that persists despite taking two or more medications have 1.8 and 2.5 times greater mortality risk due to either cardiovascular disease or stroke, respectively. Dysregulated aldosterone levels are a key factor in uncontrolled hypertension (uHTN) or resistant hypertension (rHTN) in approximately 30% of patients. +Ahead of the NDA submission in December 2025, we completed five successful clinical trials of lorundrostat supporting the efficacy and safety profile while also validating aldosterone as an integral therapeutic target in uHTN or rHTN. This includes two pivotal, registrational trials, the Phase 3 Launch-HTN trial and Phase 2 Advance-HTN trial, which support the robust, durable, and clinically meaningful reductions in systolic BP by lorundrostat. Lorundrostat was well tolerated in both trials with a favorable safety profile. Based on the positive results from our pivotal program, we submitted an NDA in December 2025 for lorundrostat for the treatment of hypertension in combination with other antihypertensive drugs. The FDA accepted the NDA submission and provided us with a Prescription Drug User Fee Act (PDUFA) target action date of December 22, 2026. +We believe, based on available clinical data, that our product candidate holds promise to be an innovative solution for the rapidly growing unmet need in multiple cardiorenal metabolic disorders. In addition to hypertension, we have been investigating the potential benefits of lorundrostat in participants with hypertension and CKD and in participants with hypertension and OSA. In June 2025, we announced that the result of our Phase 2 Explore-CKD trial, which evaluated the safety and efficacy of lorundrostat in participants with hypertension and comorbid CKD, was highly statistically significant and clinically meaningful in reducing systolic BP and in reducing urinary albumin creatinine ratio (UACR), a marker of kidney disease progression, as well as demonstrating a favorable safety and tolerability profile. On March 9, 2026, we announced topline data from our Phase 2 Explore-OSA trial that evaluated the effect of lorundrostat in the treatment of overweight and obese participants with moderate-to-severe OSA and hypertension. While the Explore-OSA trial did not demonstrate a reduction in apnea-hypopnea index (AHI), the BP reductions were clinically meaningful and the safety profile was favorable, especially for this population with difficult to control hypertension. +Our Product Candidate, Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI that is designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We licensed lorundrostat from Tanabe Pharma Corporation (Tanabe), which discovered the compound and provided the early foundational work, including demonstrating the selectivity of lorundrostat, and progressing the asset through Phase 1 clinical development. +-1- +We have completed six clinical trials of lorundrostat in uHTN or rHTN as well as hypertension in uHTN or rHTN with comorbidities such as CKD or OSA. A summary of our clinical development is outlined below. +Summary of Historical and Current Clinical Trials of Lorundrostat +Phase 1: The first-in-human Phase 1 clinical trial of lorundrostat was conducted by Tanabe and showed that lorundrostat was well tolerated and did not inhibit cortisol following single dose and once-daily dosing over multiple days. +Phase 2: We conducted the Target-HTN Phase 2 proof-of-concept trial in participants with uHTN and rHTN to evaluate the efficacy of lorundrostat at various doses either once or twice a day. The results of Target-HTN led to the advancement of our pivotal program of lorundrostat. +Pivotal Program: In 2023, we initiated our pivotal program of lorundrostat, and we reported the results of Launch-HTN and Advance-HTN in March 2025. See “ Pivotal Program Clinical Trial Results ” beginning on page 7 for additional details regarding the results of these clinical trials. +• Launch-HTN evaluated the efficacy and safety of lorundrostat for the treatment of uHTN or rHTN when used as an add-on therapy to participants’ existing, prescribed background treatment of two to five antihypertensive medications. +• Advance-HTN evaluated the efficacy and safety of lorundrostat for the treatment of confirmed uHTN or rHTN when used as add-on therapy to a standardized, optimized, and adherent background treatment of two or three antihypertensive medications. +• Transform-HTN is an ongoing open-label extension trial enabling participants to continue to receive lorundrostat and allows us to obtain long-term efficacy and safety data. All participants in the pivotal hypertension program, including the Advance-HTN and Launch-HTN trials, as well as the Explore-CKD trial, were given the opportunity to participate in the extension trial. +• Explore-CKD evaluated the safety and efficacy of 25 mg once daily (QD) lorundrostat in addition to a sodium-glucose cotransporter 2 (SGLT2) inhibitor for the treatment of hypertension in participants with Stage 2 to 3b CKD and albuminuria despite receiving stable treatment with an angiotensin-converting enzyme (ACE) inhibitor or angiotensin II receptor blocker (ARB). We reported the results of this trial in June 2025. See “ Explore-CKD Clinical Trial Results ” beginning on page 9 for additional details regarding the results of this clinical trial. +-2- +• Explore-OSA evaluated the safety and efficacy of lorundrostat 50 mg QD with moderate-to-severe OSA. See “ Explore-OSA Clinical Trial Results ” beginning on page 10 for additional details regarding this clinical trial. +Background of Hypertension +In healthy individuals, normal BP, also known as peripheral blood pressure, is below 130 over 80, meaning the pressure measurement is lower than or at 130 mmHg when the heart is contracting (systolic BP) and at or below 80 mmHg when the heart is relaxed (diastolic BP). Sustained, elevated BP, or hypertension, can result in increased chances of life-threatening complications such as heart disease, stroke, or kidney disease, among others. +The prevalence of hypertension has been increasing in recent decades. A comprehensive study published in The Lancet journal shows that in patients aged 30 to 79, total hypertension cases nearly doubled worldwide from 1990 to 2019. Furthermore, obesity, especially when associated with increased visceral adiposity, is a major cause of hypertension, accounting for 65% to 75% of the risk for developing human primary (essential) hypertension. Despite hypertension being one of the most common preventable risk factors for premature death, approximately 1.3 billion people worldwide have hypertension, with hypertension as a primary or contributing cause of more than 685,000 deaths in the United States in 2022 alone. The costs of hypertension and related health issues are a major burden on already strained healthcare systems, with an estimated cost of $219 billion in the United States in 2019. While there are multiple therapeutic options available, most of which are generic and accessible, more than half of all treated hypertensive patients fail to achieve their BP goal. Dysregulated aldosterone levels are a key factor in driving hypertension in approximately 30% of hypertensive patients. +The current standard-of-care for patients newly diagnosed with hypertension is based on a set of guidelines set forth by the American College of Cardiology (ACC) and the American Heart Association (AHA). A hypertensive patient’s target BP is defined as below 130/80 mmHg. Depending on baseline BP levels, these guidelines recommend that the patient typically begin with lifestyle modifications and then, assuming BP does not achieve the desired target, initiate treatment with antihypertensive agents selected primarily from the following five drug classes, which may later be combined with each other if the patient’s target BP is not successfully achieved with the initial therapy: +• Thiazide diuretics, which increase fluid excretion from the kidney by blocking reabsorption of sodium and chloride in the nephron; +• ACE inhibitors, which inhibit the renin-angiotensin aldosterone system (RAAS) axis by blocking the action of ACE in the lungs, which converts angiotensin I to angiotensin II; +• ARBs, which block the effects of angiotensin II at the level of the angiotensin receptor; +• Calcium channel blockers, which slow cardiac contractions and relax arteries by preventing calcium from entering the cells of the heart and arteries; and +• Beta blockers, which cause the heart to beat more slowly and with less force, which lower BP. +Despite numerous available treatment options, the majority of hypertensive patients require multiple therapies to achieve their target BP. Evidence demonstrates that adding a second- or third-line antihypertensive agent typically provides an additional 6 to 7 mmHg reduction in systolic BP. However, the incremental reduction in systolic BP provided by successive lines of treatment does not always adequately enable patients to reach their BP goal. Therefore, many patients require three, four, or more antihypertensive agents in an attempt to achieve their target BP. ACE inhibitors and ARBs are standard-of-care in the majority of all treated patients. Approximately 30-40% of patients receiving long-term ACE inhibitor or ARB therapy experience aldosterone breakthrough, which is associated with volume expansion and adverse cardiorenal effects that can undermine BP control. In addition, while hypertension is an asymptomatic disease, many of the currently available +-3- +treatments have side effects and tolerability issues, which may limit their use. For example, patients taking ACE inhibitors often develop a chronic cough, and those taking beta blockers often experience lethargy. +In a meta-analysis of 147 randomized trials, a 10 mmHg reduction in systolic BP or a 5 mmHg reduction in diastolic BP has been shown to reduce the risk of stroke by 41% and coronary heart disease by 22%. The Systolic BP Intervention Trial (SPRINT) study further demonstrated that in adults with hypertension but without diabetes, lowering systolic BP below 120 mmHg reduced cardiovascular events by 25% and reduced the overall risk of death by 27% compared to those with a systolic BP of 140 mmHg or higher. The importance of nighttime BP as a predictor of cardiovascular risk is increasingly recognized. Evidence has demonstrated that higher nighttime systolic BP has a strong association with increased cardiovascular risk. The study’s findings stress the importance of targeting a reduction in nighttime systolic BP when considering treatment approaches. +Over 30 million hypertensive patients in the United States are unable to achieve their BP goal despite treatment, and within this population, 10 million suffer from rHTN. Treatment options are limited for rHTN patients, and the current ACC and AHA guidelines recommend introducing a mineralocorticoid receptor antagonist (MRA) agent, which blocks the effect of aldosterone, to the patient’s existing antihypertensive regimen. +Background of Chronic Kidney Disease (CKD) +CKD, which is characterized by the gradual loss of kidney function, is estimated to affect more than 10% of the global population and is one of the leading causes of mortality worldwide. According to the U.S. Centers for Disease Control and Prevention, an estimated 1-in-7 (approximately 37 million) U.S. adults have CKD, and approximately 22 million people in the United States are living with both hypertension and CKD. The relationship between these conditions is tightly linked: sustained hypertension may contribute to impaired kidney function, and progressive decrease in kidney function may lead to worsening BP control. Achieving BP control in these complex patients is the number one goal in slowing the progression of CKD. When CKD is present in patients with hypertension, the risk of cardiovascular disease and mortality rises significantly. +Emerging evidence points to dysregulated aldosterone as a key driver of both diseases. Excess aldosterone promotes sodium retention, vascular inflammation, and fibrosis, contributing to both uncontrolled BP and kidney injury. Despite the availability of existing therapies, a significant proportion of patients remain uncontrolled or undertreated. Early detection and targeted interventions that address underlying mechanisms, such as aldosterone dysregulation, may offer the potential to slow CKD progression, reduce cardiovascular risk, and improve long-term outcomes. Without effective management, CKD can advance to kidney failure, requiring dialysis or transplantation. +Background of Obstructive Sleep Apnea (OSA) +OSA is characterized by repetitive overnight hypoxic episodes and subsequent sleep fragmentation related to many factors, including volume overload and a complete or partial collapse of the upper airway. Moderate to severe OSA is associated with increased production of aldosterone and increased nighttime BP; standard treatment with positive airway pressure is not sufficient for BP reduction. OSA impacts almost one billion people globally, including 425 million moderate-to-severe cases. Around 80% of adults with OSA are undiagnosed. As of 2025, untreated OSA is estimated to cost the United States more than $150 billion annually when considering direct medical expenses, productivity losses, and accident-related costs. +Between 30-50% of adults with hypertension have OSA, and this number increases to between 70-80% in adults with rHTN. Additionally, untreated moderate-to-severe OSA increases the risk of rHTN. Along with hypertension, OSA is a major risk factor for cardiovascular disease, type-2 diabetes mellitus, and stroke. +-4- +Background of Aldosterone and its Role in Hypertension +Aldosterone is a mineralocorticoid steroid hormone primarily made in the outer layer of the adrenal gland called the adrenal cortex, which plays an important role in controlling the balance of water and salts by regulating the exchange of sodium and potassium in the body. This maintenance of fluid homeostasis ensures the body can maintain normal BP. +In a healthy person, homeostatic balance is maintained via a feedback loop called the RAAS. Renin is a key enzyme that is released by the kidneys when they sense changes in BP to control the production of aldosterone, in order to help the kidneys regulate water and salt levels in the body. In a normal physiological state, aldosterone production increases when BP is too low and decreases when BP is too high. This is considered renin-dependent hypertension due to the linkage of renin levels to aldosterone production. +In addition to the self-regulated RAAS, there are other pathways that drive aldosterone production. Evolving information about hormone regulation of visceral adipocytes and the adrenal gland supports the hypothesis that adipokines, specifically elevated leptin and reduced adiponectin, can affect aldosterone and renin, respectively. The net result is an increase in aldosterone and prevention of the normal feedback inhibition of renin. This is considered renin-independent aldosterone production and is due to dysregulated systems biology, which is often prevalent in an obese population. +Overview of Renin-Dependent and Renin-Independent Aldosterone Production +Elevated aldosterone also causes insulin resistance, inflammation and fibrosis of the heart, fibrosis and remodeling of blood vessels, and tubulointerstitial fibrosis and glomerular injury in the kidney. Aldosterone excess is believed to lead to a higher risk of stroke, kidney damage, congestive heart failure, and heart attack, compared to high BP alone. Many of these symptoms are often comorbidities in an obese population. +Many of the therapies designed to address hypertension, such as ACE inhibitors, ARBs, beta blockers, calcium channel blockers, and diuretics, were developed and introduced several decades ago when the incidence of obesity was below 20% and abnormal aldosterone production affected less than 10% of the U.S. population. The increasing prevalence of obesity and hypertension, driven by the renin-independent axis, has resulted in higher incidences of uHTN and rHTN. Currently available therapies are generally effective in managing renin-dependent hypertension; however, they fail to adequately address the shifting biology of hypertension today. For example, ACE inhibitors and ARBs indirectly reduce aldosterone levels, but up to 40% of treated patients experience “aldosterone breakthrough,” whereby their aldosterone levels return to normal or higher levels and result in elevated BP. +-5- +Growing Epidemic of Obesity Correlated to Rise in Hyperaldosteronism +MRAs, which were initially introduced in the 1950s, are designed to work by blocking the effect of aldosterone, whether renin-dependent or renin-independent, from the mineralocorticoid receptor (MR) but do not inhibit aldosterone production. There are two well-known MRAs available in the United States for the treatment of hypertension, spironolactone and eplerenone, which are both available as generic medicines. MRAs are known to be effective in lowering BP; however, they have demonstrated side effects that have limited their use. Specifically, spironolactone, the most commonly prescribed MRA, is known for inducing hyperkalemia as well as gynecomastia in men and fertility issues in women. Additionally, when aldosterone is blocked from binding to the MR, circulating aldosterone levels increase two- to three-fold and may cause other harmful non-MR-related effects in the body. +The approach of blocking the synthesis of aldosterone and reducing plasma aldosterone levels is thought to be a preferable approach versus the use of MRAs that block the action of aldosterone at the MR. The task of creating a safe and effective ASI can be technically challenging because the major enzymes in the synthesis of aldosterone and cortisol share a high degree of amino acid sequence similarity. While challenging to develop, there are currently three ASIs (including lorundrostat) in advanced clinical development and one in early clinical development in conditions including hypertension, OSA, primary aldosteronism, heart failure, and CKD. +Clinical Development of Lorundrostat +Our product candidate, lorundrostat, is a proprietary, orally administered, highly selective ASI designed to reduce aldosterone levels by inhibiting CYP11B2, the enzyme responsible for producing the hormone. We are initially developing lorundrostat for the treatment of hypertension and have completed six clinical trials. In our trials, lorundrostat was well tolerated and demonstrated compelling clinical results, and once-daily dosing flexibility. The observed 10 to 12 hour pharmacokinetic half-life of lorundrostat has the potential to normalize aldosterone levels to provide a clinically meaningful reduction in BP and to flexibly manage the challenges of elevated serum potassium. We believe that lorundrostat’s profile may be compelling based on the following attributes: +• Compelling Clinical Results in Hypertension: The Launch-HTN global Phase 3 trial demonstrated a statistically significant and clinically meaningful 11.6 mmHg placebo-adjusted +-6- +reduction in systolic BP in the 50 mg 12-week cohort. This clinical benefit was consistent across patient subtypes and specifically in high-risk populations such as women and Black or African Americans. Furthermore, a low rate of hyperkalemia was observed, with 0.6% of participants exceeding 6.0 mmol/L potassium. +• Distinct Benefit in Hypertension and Related Comorbidities: Explore-CKD demonstrated a statistically significant and clinically meaningful reduction in systolic BP and UACR in participants with hypertension and comorbid CKD. In Explore-OSA, lorundrostat demonstrated a clinically meaningful reduction in systolic BP in participants with hypertension and comorbid OSA. +• High Selectivity: Lorundrostat is highly selective for aldosterone and shows no cortisol suppression and no incidence of adrenal insufficiency, as anticipated by the 374-to-1 inhibitory effect on the CYP11B2 enzyme compared to the CYP11B1 enzyme, which is responsible for synthesizing cortisol. +• Optimal Half-Life: The half-life of lorundrostat (10-12 hours) is ideally suited for once-daily dosing. Our clinical trials validated the 24-hour efficacy achieved with once-daily dosing. A majority of our clinical trial participants maintained a serum potassium in the normal range. There have been modest incidences of hyperkalemia requiring dose adjustment or discontinuation. Lorundrostat’s observed 10 to 12 hour half-life may be viewed more favorably by physicians compared to compounds with longer half-lives, which may have a greater risk of sustained potassium elevation. +• Convenient Dosing and Well Tolerated: Our clinical trials demonstrated clinically meaningful results on a once-daily dosing regimen. Furthermore, lorundrostat was well-tolerated. In Launch-HTN, serious adverse events (SAEs) were reported in 2.4% of participants receiving 50 mg lorundrostat and in 3.3% of participants receiving placebo. +Pivotal Program Clinical Trial Results +Efficacy Results +Launch-HTN was a large, global, randomized, double-blinded, placebo-controlled Phase 3 clinical trial, which enrolled eligible adult participants who failed to achieve their BP goal despite being on two to five antihypertensive medications. Launch-HTN reflects the real-world setting for clinicians by utilizing automated office blood pressure measurement (AOBP) and allowing participants to stay on their existing medications. Participants were randomized into three cohorts for twelve weeks, receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week six based on defined criteria or placebo. The primary endpoint of the trial was the assessment of automated office measured systolic BP from baseline for active cohorts versus placebo at six weeks, with the results pooled for all participants on 50 mg QD. The trial met its endpoints, demonstrating clinically meaningful, statistically significant mean reduction from baseline in placebo-adjusted systolic BP at week six, and the benefit was sustained with further reduction through week 12. +-7- +Launch-HTN Phase 3 Trial +(automated office systolic BP measure, n=1,083 randomized) +Week 6 (50 mg pooled) +Week 12 +Absolute +Reduction +Placebo-Adjusted +Reduction +Absolute +Reduction +Placebo-Adjusted +Reduction +50 mg -16.9 mmHg -9.1 mmHg +(p<0.0001)* +-19.0 mmHg +-11.6 mmHg +(p<0.0001) +50 to100 mg +-15.7 mmHg +-8.4 mmHg +(p=0.0016) +* Primary endpoint +Key characteristics of participants enrolled in the Launch-HTN trial include: approximately 63% had a BMI greater than or equal to 30kg/m 2 , approximately 47% were women, and approximately 29% were Black or African American. +The Advance-HTN trial was a randomized, double-blind, placebo-controlled Phase 2 pivotal trial that evaluated the efficacy and safety of lorundrostat for the treatment of confirmed uHTN or rHTN, when used as add-on therapy to a standardized, optimized, and adherent background treatment of two or three antihypertensive medications in adult participants. Participants who met screening criteria discontinued their existing hypertension medications and started on a standard regimen of an ARB and a diuretic, if previously on two medications, or a standard regimen of ARB, diuretic, and calcium channel blocker if previously on three to five medications. Participants who remained hypertensive despite the standardized regimen were then randomized into three cohorts for twelve weeks, receiving one of the following treatments: lorundrostat 50 mg QD, lorundrostat 50 mg QD and an option to titrate to 100 mg QD at week four based on defined criteria or placebo. The primary endpoint of Advance-HTN was change in 24-hour ambulatory systolic BP at week twelve from baseline for each active cohort versus placebo. +The trial was designed to evaluate lorundrostat in a uHTN or rHTN population at the highest risk, which would normally be treated by a specialist, given the severity of their condition. The trial met its primary endpoint as well as additional prespecified outcome measures, including safety, and tolerability, and were consistent with those observed in the Launch-HTN trial. +Advance-HTN Phase 2 Trial +(24-hour ambulatory systolic BP, n=285 randomized) +Week 4 (50 mg pooled) +Week 12 +Absolute +Reduction +Placebo-Adjusted +Reduction +Absolute +Reduction +Placebo-Adjusted +Reduction* +50 mg +-11.5 mmHg +-5.3 mmHg +(p=0.0006) +-15.4 mmHg +-7.9 mmHg +(p=0.001) +50 to100 mg +-13.9 mmHg +-6.5 mmHg +(p=0.006) +* Primary endpoint +Key characteristics of participants enrolled in the Advance-HTN trial include: approximately 66% had a BMI greater than or equal to 30kg/m 2 , approximately 40% were women, and approximately 53% were Black or African American. +Safety and Tolerability Results +We believe clinical safety findings in the two pivotal trials, including adrenocorticotropic hormone-stimulated and serum cortisol, change in serum potassium, serum sodium, and estimated glomerular filtration rate (eGFR), as well as incidence of hypotension, support a favorable benefit-risk profile. +-8- +In the two active treatment arms of the Launch-HTN trial, 50 mg and 50 mg with optional dose escalation to 100 mg, the incidence of treatment-emergent SAEs was twelve participants (2.2%) and two participants (0.7%), respectively, compared with eight participants (3.0%) in the placebo arm. There was only one participant (0.2%) in the trial with a treatment-related SAE that occurred in the 50 mg arm. The incidence of hyperkalemia (serum potassium >6.0 mmol/L) at the scheduled study visit was 1.1% and 1.5% in the 50 mg and 50 to 100 mg arms, respectively. The per-protocol procedure for validation of suspected factitious hyperkalemia (most often due to phlebotomy-related hemolysis and release of potassium from red blood cells) specified a repeat potassium measurement within 72 hours while still taking study medication to confirm validity and provide an accurate determination of the true incidence of hyperkalemia. After exclusion of the spurious results, the incidence of confirmed hyperkalemia was 0.6% and 1.1% in the 50 mg and 50 to 100 mg arms, respectively. +In the Advance-HTN trial, there were six participants (6.4%) and eight participants (8.4%) with treatment-emergent SAEs in the lorundrostat 50 mg and lorundrostat 50 to 100 mg arms, respectively, compared to two participants (2.1%) in the placebo arm. Treatment-related SAEs occurred in 2%, 1%, and 0% of participants in the lorundrostat 50 mg, lorundrostat 50 to 100 mg, and placebo arms, respectively. The incidence of hyperkalemia (serum potassium >6.0 mmol/L) at the scheduled study visit was 5.3% and 7.4% in the 50 mg and 50 to 100 mg arms, respectively. The per-protocol procedure for validation of suspected factitious hyperkalemia (most often due to phlebotomy-related hemolysis and release of potassium from red blood cells) specified a repeat potassium measurement within 72 hours while still taking study medication to confirm validity and provide an accurate determination of the true incidence of hyperkalemia. After exclusion of the spurious results, the incidence of confirmed hyperkalemia was 2.1% and 3.2% in the 50 mg and 50 to 100 mg arms, respectively. +Explore-CKD Clinical Trial Results +Efficacy, Safety, and Tolerability Results +The Explore-CKD trial was a randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover trial. This phase 2 trial was designed to evaluate efficacy in terms of systolic BP and UACR reduction, and safety of 25 mg QD lorundrostat added to a background treatment that included an SGLT2 inhibitor and an ACE inhibitor or an ARB in participants with uHTN or rHTN and CKD with an eGFR ≥ 30 mL/min/1.73m 2 and albuminuria (UACR of 200-5,000 mg/g) during a four-week treatment period. The primary endpoint was placebo-adjusted change from baseline in systolic BP at week four, and an exploratory endpoint was placebo-adjusted percent change from baseline in UACR at week four. The trial was highly statistically significant and was clinically meaningful in both of these endpoints and demonstrated a favorable safety and tolerability profile. +Explore-CKD Phase 2 Trial (N=59) +Placebo +Lorundrostat 25 mg +Placebo-Adjusted +Change in systolic BP (mmHg)* -1.76 -9.25 -7.5 (p=0.0024) +Change in spot UACR (mg/g) -6.60% -30.51% -25.60% (p=0.0015) +Change in eGFR** (mL/min/1.73m 2 ) +-2.20% -6.78% +-4.58% (p=0.0362) +Treatment Emergent Adverse Events (TEAEs) leading to discontinuation of study drug +1/57 (2%) +2/58 (3%) +Confirmed hyperkalemia (K + >6.0 mmol/L) +0/57 (0%) +3/58 (5%) +BP, blood pressure; UACR, Urine albumin-to-creatinine ratio; TEAE, Treatment-emergent adverse event +* Primary endpoint. +** Cystatin-C formula, a surrogate biomarker of renal function not subject to MATE1 transport and elimination in the glomeruli of the kidney. +-9- +Per protocol Systolic BP, UACR, and eGFR estimates and p values from Mixed Effects Model for a crossover trial with multiple baselines. +SAEs were reported in two participants (3%) during the lorundrostat treatment period and none during the placebo treatment period. TEAEs leading to discontinuation occurred in one participant (2%) during the placebo treatment period and in two participants (3%) during the lorundrostat treatment period. +During lorundrostat treatment, one participant discontinued treatment due to elevation of potassium associated with reduced eGFR, and one participant discontinued treatment due to reduction in eGFR alone. During the lorundrostat treatment period, an anticipated, modest decrease in mean eGFR was observed (-6.8% lorundrostat, -4.6% mL/min/1.73m 2 placebo-adjusted). Reduction in eGFR is also seen with other renin-angiotensin-aldosterone pathway inhibitors, including ACE inhibitors, ARBs, and MRAs. This is the result of a reduction in the deleterious over-perfusion of glomeruli due, in part, to reduced BP. +These findings add to a growing body of evidence supporting the efficacy and safety of ASIs in addressing the underlying mechanisms of hypertension, including in individuals with reduced kidney function and albuminuria. The reduction in UACR observed in this trial is consistent with the potential of lorundrostat to have renal protective effects. +Explore-OSA Clinical Trial Results +Efficacy, Safety, and Tolerability Results +The Explore-OSA trial was a Phase 2, randomized, double-blind, placebo-controlled, two-period, two-sequence (2x2) crossover, exploratory trial that evaluated the safety and efficacy of lorundrostat 50 mg QD administered in the evening in 48 participants with hypertension and moderate-to-severe OSA. Participants were at least 18 years old, with a systolic BP ≥ 130 mmHg and ≤ 180 mmHg, with a body mass index (BMI) ≥27 kg/m 2 . +The primary endpoint of the trial was absolute change from baseline in AHI after four weeks of active treatment compared to placebo. After four weeks of treatment, lorundrostat 50 mg dosed in the evening did not demonstrate a clinically meaningful difference relative to placebo on the AHI, the primary endpoint. The trial demonstrated a clinically meaningful reduction in BP at week four, with an 11.1 mmHg (p < 0.0001) and a 1.0 mmHg (p = NS) BP reduction with lorundrostat and placebo, respectively, in the pre-planned parallel arm analysis of the first period. There was a 6.2 mmHg placebo-adjusted reduction (p < 0.0003) in BP in the crossover analysis. +Lorundrostat demonstrated a favorable safety profile and was well tolerated, with no serum potassium excursions above 5.5 mmol/L. Analysis is ongoing for other endpoints in the trial and may be reported in future publications or medical meetings. +Our Team and Investors +Founded by Catalys Pacific in 2019, we are led by an experienced management team with diverse backgrounds and significant experience in drug discovery, development, and company building. Our management team consists of industry veterans with extensive experience at pharmaceutical companies such as Merck, Novartis, ProQR, Sanifit, Teva, and Vertex. Together, our team has a proven track record in the discovery, development, and commercialization of numerous approved therapeutics. Since inception, we have raised aggregate gross proceeds of approximately $1.1 billion from the sale of the Company’s common stock, convertible preferred stock, pre-funded warrants, and convertible notes. +License Agreement with Tanabe +In July 2020, we entered into the Tanabe License with Tanabe, pursuant to which Tanabe granted us an exclusive, worldwide, royalty-bearing, sublicensable license under Tanabe’s patent and other intellectual +-10- +property rights to exploit products incorporating lorundrostat (formerly MT-4129) (Lorundrostat Products) for the prevention, treatment, diagnosis, detection, monitoring, or predisposition testing with respect to indications, diseases, and conditions in humans (the Field). Pursuant to the Tanabe License, we paid Tanabe a $1.0 million upfront fee and development milestone payments of $9.0 million in the aggregate. We have remaining obligations to pay Tanabe commercial milestone payments of up to $155.0 million in the aggregate upon first commercial sale and upon meeting certain annual sales targets, as well as additional commercial milestone payments of up to $10.0 million for a second indication. Additionally, we are obligated to pay Tanabe tiered royalties at percentages ranging from the mid-single-digits to ten percent (10%) of aggregate net sales of each Lorundrostat Product on a Lorundrostat Product-by-Lorundrostat Product and country-by-country basis, until the later of (i) the expiration of the last-to-expire valid Tanabe patent claim covering a Lorundrostat Product, (ii) ten years from the first commercial sale of a Lorundrostat Product, or (iii) the expiration of regulatory exclusivity in such country. Such royalties are subject to reduction under specified conditions, including lack of patent coverage and generic competition. +We are obligated to use commercially reasonable efforts to conduct and complete the development activities and to file for regulatory approval for at least one Lorundrostat Product in a major market country and consider in good faith developing at least one Lorundrostat Product in a non-major market country. If we elect to sublicense our rights under the Tanabe License to a third party with respect to exploitation of lorundrostat or any Lorundrostat Product in certain countries in Asia, we have agreed to negotiate such a sublicense first, for a specified period of time, with Tanabe, if Tanabe notifies us that it would like to obtain such a sublicense. We also agreed not to commercialize any competing product prior to three years following the first commercial sale of the first Lorundrostat Product in any country without Tanabe’s prior consent. +Unless terminated earlier, the Tanabe License will continue until the expiration of all of our royalty obligations to Tanabe. We may terminate the Tanabe License for any or no reason upon 90 or 180 days’ prior written notice to Tanabe, depending on whether the Lorundrostat Product has received regulatory approval. Tanabe may terminate the Tanabe License if we or our affiliates or sublicensees initiate a challenge to the patent rights licensed to us by Tanabe. In addition, either party may terminate the Tanabe License in the event of an uncured material breach by or bankruptcy of the other party, subject to certain notice and cure periods, or upon the other party’s bankruptcy or insolvency. +Manufacturing +We do not own or operate manufacturing facilities for the production of lorundrostat, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for our required raw materials, active pharmaceutical ingredients, and finished product candidates for our clinical trials. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. +Sales and Marketing +We have not yet defined our sales, marketing, or product distribution strategy for lorundrostat because it is still in clinical development and pending regulatory approval. Our commercial strategy may include the use of strategic partners, distributors, a contract sales force, or the establishment of our own commercial sales force. We plan to further evaluate these alternatives as we approach approval for lorundrostat, if any. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary and novel products and product candidates. Lorundrostat, if approved, may address multiple markets. Ultimately, the disease(s) lorundrostat targets and for which it may receive marketing authorization will determine our competition. There are competing programs under development by other companies for our initially targeted indication of hypertension. Lorundrostat, if approved, will have to compete with existing therapies and new therapies that may become available in the future. We face +-11- +potential competition from many different sources, including larger and better-funded pharmaceutical, biopharmaceutical, biotechnological, and therapeutics companies. In many cases, the companies with competing programs will have access to greater financial, technical, manufacturing, marketing, sales, and supply resources, will have more expertise and experience than us, and may be more advanced in those programs. Moreover, we may also compete with universities and other research institutions that may be active in research in our target indications and could be in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. +We believe our current and future competition can be grouped into three broad categories: +• companies working to develop ASIs, including AstraZeneca, Boehringer Ingelheim, Damian Pharma, and CORXEL; +• companies commercializing or developing branded products with other mechanisms of action, such as non-steroidal MRAs, endothelin receptor antagonists, and angiotensinogen-directed therapies, including Roche/Alnylam, Idorsia, Ionis, Bayer, Daiichi Sankyo, Azurity, and George Medicines; and +• companies selling low-cost generic standard of care drug classes such as ARBs, ACE inhibitors, diuretics, beta blockers, alpha blockers, vasodilators, and MRAs. +If we successfully obtain approval for lorundrostat or any future product candidate, we believe that the key competitive factors that will affect the success of lorundrostat will be efficacy, safety, tolerability, convenience, price, and the availability of reimbursement from government and other third-party payors relative to such competing products. Our commercial opportunity could be reduced or eliminated if its competitors have products that are superior in one or more of these categories. +Intellectual Property +Intellectual property, including patents, trade secrets, know-how, trademarks, and copyrights, is important to our business. Our commercial success depends in part on our ability to obtain and maintain proprietary intellectual property protection for our product candidate, lorundrostat, as well as for future product candidates and novel discoveries, product development technologies, and know-how. Our commercial success also depends in part on our ability to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to develop and maintain protection of our proprietary position by, among other methods, licensing or filing U.S. and foreign patents and applications relating to our product candidates, technology, inventions, and improvements that are important to the development and implementation of our business. +Our patent portfolio is built with the goal of establishing broad protection that generally includes, for the product candidate compound, claims directed to composition of matter, pharmaceutical compositions or formulations, methods of synthesis, and methods of treatment using such pharmaceutical compositions or formulations. We are seeking and maintaining patent protection in the United States and key foreign jurisdictions where we intend to market lorundrostat. Our patent portfolio includes a combination of patents and pending patent applications solely owned by us, patents and pending patent applications licensed from Tanabe, and pending patent applications jointly owned with Tanabe. As of February 26, 2026, our patent portfolio comprises 16 distinct patent families protecting our technology relating to lorundrostat and its synthetic intermediates, methods of synthesizing lorundrostat and related compounds, various formulations of lorundrostat products, as well as methods of treating diseases with lorundrostat and related compounds. As of February 26, 2026, our portfolio of exclusively licensed patents and pending patent applications consists of four granted U.S. patents; one pending U.S. reissue application; two pending U.S. patent applications; one granted European patent that has been validated in Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Turkey, and the United Kingdom; one granted European patent that has been validated in France, Germany, Italy, Spain, +-12- +and the United Kingdom; three pending European patent applications; four granted Japanese patents; two pending Japanese patent applications; one granted Canadian patent; one pending Canadian patent application; one granted Australian patent; one granted Brazilian patent; two pending Brazilian applications; one granted Chinese patent; two pending Chinese patent applications; one pending Israeli patent application; one granted Indian patent; one granted Indonesian patent; one granted Korean patent; one pending Korean patent application; one granted Malaysian patent; one granted Mexican patent; one pending Philippines patent application; two granted Russian patents; one granted Singaporean patent; one granted Taiwanese patent; one pending Thai application; and one granted Vietnamese patent. +Our portfolio of wholly owned pending patent applications consists of two pending Australian patent applications; one pending Brazilian patent application; four pending Canadian patent applications; one pending Chinese patent application; five pending European patent applications; five pending Japanese patent applications; three pending Korean patent applications; three pending Malaysian patent applications; two pending New Zealand patent applications; three pending Singaporean patent applications; six pending U.S. patent applications; one pending Vietnamese patent application; four pending PCT International Applications; five pending Taiwanese patent applications; three pending Thai patent applications; and five pending U.S. provisional patent applications. +Our portfolio of jointly owned pending patent applications consists of one pending Canadian patent application; one pending Chinese patent application; two pending European patent applications; two pending Indonesian patent applications; two pending Japanese patent applications; two pending Malaysian patent applications; two pending Korean patent applications; two pending Philippines patent applications; two pending Singaporean patent applications; one pending Taiwanese patent application; two pending Thai patent applications; two pending U.S. patent applications; two pending Vietnamese patent applications; and one pending PCT International Application. +Granted patents and pending applications in our portfolio of exclusively licensed patents and pending patent applications, if granted, have nominal expiration dates ranging from 2035 to about 2042, without accounting for any available patent term adjustments or extensions. Pending applications in our portfolio of wholly and jointly owned pending patent applications have nominal expiration dates ranging from 2041 to about 2046, without accounting for any available patent term adjustments or extensions. If filed and subsequently granted, patent applications claiming priority to pending U.S. Provisional Applications in our portfolio of wholly and jointly owned pending patent applications will have expiration dates ranging from 2045 to about 2046, without accounting for any available patent term adjustments or extensions. +The term of individual patents in our portfolio depends upon the legal term of patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the term of a patent may be eligible for patent term adjustment, which permits patent term restoration as compensation for delays incurred at the United States Patent and Trademark Office (USPTO) during the patent prosecution process. In addition, for patents that cover an FDA-approved drug, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. While the length of the patent term extension is related to the length of time the drug is under regulatory review, patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only one patent per approved drug may be extended under the Hatch-Waxman Act. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek any available patent term extension to any granted patents we may be granted in any jurisdiction where such extensions are available; however, there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. +-13- +The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. We cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use or manufacture of those products. Moreover, granted patents do not guarantee the right to practice our technology in relation to the commercialization of our products. Granted patents only allow us to block potential competitors from practicing the claimed inventions of the granted patents. +Further, patents and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and our granted patents may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any granted patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any granted patents. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides. +We may also rely on trade secrets relating to our discovery programs and product candidates, and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us, and for employees and consultants to enter into invention assignment agreements with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Where applicable, the agreements provide that all inventions to which the individual contributed as an inventor shall be assigned to us, and as such, will become our property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information. +Further, we have and will continue to pursue trademark protection for our company name and brand. Since December 2022, we have owned four registered trademarks in the United States and foreign jurisdictions relating to the registered trademark “MINERALYS.” +Government Regulation +Government authorities in the United States, at the federal, state, and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States. +-14- +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (FDCA), the Public Health Service (PHS) Act, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with Good Laboratory Practice regulations (GLPs) and other applicable regulations; +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an independent institutional review board (IRB), or ethics committee (EC) at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice regulations (GCPs) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of an NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational drug product (including biological products) to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about ongoing or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include the requirement that all research participants provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during +-15- +product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research participants or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to participants. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated checkpoints based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human participants and tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases, and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. Generally, these points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing +-16- +process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, preclinical and other nonclinical studies, and clinical trials, along with descriptions of the manufacturing process, analytical testing performed on the chemistry, strength and purity of the drug, proposed labeling, and other relevant information, are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees, although waivers or reductions may be available in certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. In certain cases, such as when additional administrative components or user‑fee‑related materials are included, the FDA may operate under an extended timeline and issue its filing decision and related communication within 74 days of submission. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, safety and efficacy for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s quality and purity. Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. +The FDA may refer an application for a novel drug or therapeutic biological product to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates a marketing application and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional clinical trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies, or manufacturing. If a CRL is issued, the applicant must resubmit the NDA to address all of the deficiencies identified in the letter or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approval, including the requirement for a risk evaluation and mitigation strategy (REMS), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the applicant of the NDA must submit a proposed REMS. The FDA will not approve the marketing application without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or +-17- +elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription, or dispensing of products. +In addition, the Pediatric Research Equity Act (PREA) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs, and supplements to them, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or submit a request for approval of a pediatric formulation. +Orphan Drug Designation +Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. +If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. However, competitors may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan exclusivity also could block the approval of a competing product for seven years if a competitor obtains approval of the “same drug,” as defined by the FDA, or if a product candidate is determined to be contained within the competitor’s product for the same disease or condition. In addition, if an orphan-designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. +Expedited Development and Review Programs +The FDA has a number of programs intended to expedite the development or review of a marketing application for a new drug. For example, the fast-track designation program is intended to expedite or facilitate the process of developing and reviewing product candidates that meet certain criteria. Specifically, investigational drugs are eligible for fast-track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. The sponsor of a fast-track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. With regard to a fast-track product candidate, the FDA may review sections of a marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept +-18- +sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon first submission of the section(s) of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast-track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +Any product candidate submitted to the FDA for approval, including a product candidate with a fast-track designation or breakthrough designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. An NDA is eligible for priority review if the product candidate is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for standard review under its current PDUFA review goals. +In addition, a product candidate may be eligible for accelerated approval. Drug products (including biologics) intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled confirmatory clinical trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory trials in a timely manner or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition of accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. +Fast-track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, supply chain security, reporting of permanent discontinuance or interruptions in supply, other periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes, and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, +-19- +may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. In the context of smaller molecule new drugs, the FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug +-20- +application (ANDA), or an NDA submitted under Section 505(b)(2) (505(b)(2) NDA) submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. +Other Healthcare Laws +Pharmaceutical companies and developers and manufacturers of therapeutic biological products are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research as well as sell, market, and distribute any products for which we obtain marketing approval. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, false claims, data privacy and security, and physician and other healthcare provider transparency laws and regulations. If our significant operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment. +Coverage and Reimbursement +Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. These third-party payors are increasingly reducing reimbursements for medical products, drugs, and services. In addition, the U.S. government, state legislatures, and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales. +-21- +Healthcare Reform +In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended, collectively known as the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments, and changes to fraud and abuse laws. By way of example, the ACA: +• increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price; +• required collection of rebates for drugs paid by Medicaid managed care organizations; +• required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and +• imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs. +Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, or AMP, beginning January 1, 2024. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. While HHS has released guidance on a number of key provisions of the IRA (including Medicare drug rebates, Medicare drug pricing negotiation, and Part B and Part D prescription drug plans), it remains unclear how agencies will choose to implement the IRA and whether more formal rulemaking is forthcoming. +Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation, and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient assistance programs, and reform government program reimbursement methodologies for drug products. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. +Employees +As of December 31, 2025, we had 76 full-time employees, of whom 39 were primarily engaged in research and development. None of our employees are represented by a labor union, and we consider our employee relations to be good. +-22- +Corporate Information +We were incorporated under the laws of the State of Delaware in May 2019 as Catalys SC1, Inc. and we subsequently changed our name to Mineralys Therapeutics, Inc. Our mailing address is 150 N. Radnor Chester Rd, Suite F200, Radnor, PA 19087 and our telephone number is 888-378-6240. +Available Information +Our website address is www.mineralystx.com. Our investor relations website is located at https://www.ir.mineralystx.com. We make available free of charge on our investor relations website under “SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, our directors’ and officers’ Section 16 reports, and any amendments to those reports as soon as reasonably practicable after filing or furnishing such materials to the SEC. They are also available for free on the SEC’s website at www.sec.gov. +We use our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Investors should monitor such website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. Information relating to our corporate governance is also included on our investor relations website. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. +Information about our Executive Officers +The following table sets forth information concerning our executive officers. +Name Age Position +Jon Congleton 62 President, Chief Executive Officer, and Director +Adam Levy 47 Chief Financial Officer and Secretary +David Rodman, M.D. 70 Chief Medical Officer +Eric Warren, R.Ph. 53 Chief Commercial Officer +Jon Congleton has served as our President and Chief Executive Officer and as a member of our board of directors since November 2020. Previously, Mr. Congleton was the Chief Executive Officer of Impel NeuroPharma, Inc. from September 2017 to May 2020. Prior to that, he served as the Chief Executive Officer and as a director of Nivalis Therapeutics, Inc. from January 2015 to February 2017. Mr. Congleton was previously at Teva Pharmaceutical Industries, Ltd. (Teva) from November 1996 to December 2014, where over 18 years he held positions in general management and global strategic marketing, including Senior Vice President of Teva’s Global Central Nervous System Disorders from April 2013 to December 2014, Senior Vice President of the Global Medicine Group from November 2011 to April 2013, and General Manager of Teva Neuroscience, Inc. in the United States. Prior to joining Teva, Mr. Congleton spent ten years in a variety of commercial roles with predecessor companies of Sanofi. Mr. Congleton earned a B.S. in marketing from Kansas State University. Mr. Congleton’s knowledge of our business and his extensive executive experience at multiple biopharmaceutical companies contributed to our board of directors’ conclusion that he should serve as a director of our company. +Adam Levy has served as our Chief Financial Officer since March 2022 and as our Chief Business Officer from March 2022 through January 4, 2024. Mr. Levy also serves as a member of the board of directors of Praxis Bioresearch. Previously, he was the Chief Financial Officer at Sanifit Therapeutics until the company was acquired by Vifor Pharma in 2022. Previously, Adam served as the Chief Business Officer at Brickell Biotech from 2019 to 2020 and led the organization’s financial operations transition as it became a publicly listed company on Nasdaq. Prior to that, he served as the Chief Business Officer at miRagen Therapeutics from 2016 to 2019, where he was responsible for a variety of functions including financial strategy, investor relations, business development, legal affairs, intellectual property, project and program management, and +-23- +human resources. Between 2000 and 2016, Mr. Levy held multiple investment banking positions at Merrill Lynch, Jefferies Group, and Wedbush Securities. Mr. Levy received a B.S. in Business Management and Marketing from Cornell University. +David Rodman, M.D. has served as our Chief Medical Officer since January 2021. Previously, Dr. Rodman served in various roles at miRagen, Vertex Pharmaceuticals Inc., and Novartis Institutes for BioMedical Research. Dr. Rodman was elected to the American Society for Clinical Investigation and named an Established Investigator and Fellow of the American Heart Association. Dr. Rodman received his medical degree from the University of Pennsylvania and was subsequently Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care Medicine at the University of Colorado. +Eric Warren, R.Ph. has served as our Chief Commercial Officer since April 2025. Previously, Mr. Warren was at Esperion Therapeutics, Inc., a commercial-stage biopharmaceutical company, where he most recently served as its Chief Commercial Officer from March 2022 to April 2025, and previously in roles as Vice President, US Sales and Marketing from January 2021 to March 2022. From August 2020 to January 2021, Mr. Warren was Vice President, Head of Sales and Marketing at Nabriva Therapeutics plc, a commercial-stage biopharmaceutical company. From April 2018 to August 2020, Mr. Warren held Vice President roles in marketing at Sanofi S.A., a pharmaceutical and healthcare company, in their cardiovascular franchise. Additionally, from May 2006 to April 2018, Mr. Warren held roles of increasing responsibility at Merck & Co., a pharmaceutical company. Mr. Warren holds a Bachelor of Science in Pharmacy and is a licensed pharmacist in New York State. +-24- \ No newline at end of file diff --git a/raw/filings/0001933414/2025/0001933414-26-000056/item13.txt b/raw/filings/0001933414/2025/0001933414-26-000056/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..52aa67c7534b27861166dc155f4f697339795c0c --- /dev/null +++ b/raw/filings/0001933414/2025/0001933414-26-000056/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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Suite 330 +Carmel , IN 46032 +(812) +689-0791 +(Address +of principal executive offices and zip code) +(Registrant’s +telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock +NRXS +NYSE +American LLC +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The +aggregate market value of the registrant’s outstanding common equity held by non-affiliates as of the last business day of the +registrant’s most recently completed second fiscal quarter, based upon the closing price for the registrant’s common stock +on that day as reported by the NYSE American, was approximately $ 16.4 million. +The +registrant had 7,215,864 shares of its common stock, par value $ 0.001 , issued and outstanding as of March 13, 2025. +TABLE +OF CONTENTS +Page +PART I +Item +1. +Business +5 +Item +1A. +Risk Factors +36 +Item +1B. +Unresolved Staff Comments +61 +Item +1C. +Cybersecurity +61 +Item +2. +Properties +62 +Item +3 +Legal Proceedings +63 +Item +4. +Mine Safety Disclosures +64 +PART II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +64 +Item +6. +Reserved +64 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +65 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +69 +Item +8. +Financial Statements and Supplementary Data +69 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +69 +Item +9A. +Controls and Procedures +69 +Item +9B. +Other Information +70 +Item +9C. +Disclosures Regarding Foreign Jurisdictions that Prevent Inspections +70 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +71 +Item +11. +Executive Compensation +76 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +86 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +87 +Item +14. +Principal Accounting Fees and Services +87 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +88 +Item +16 +Form 10-K Summary +90 +Signatures +92 +2 +FORWARD-LOOKING +STATEMENTS +This +Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the federal securities +laws. All statements contained in this Annual Report, other than statements of historical fact, including statements regarding our future +operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and +development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking +statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” +“continues,” “anticipates,” “intends,” “expects,” “could,” “would,” +“projects,” “plans,” “targets,” and variations of such words and similar expressions are intended +to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections +about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term +and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, +uncertainties and assumptions, including those described in the “Risk Factors” in this Annual Report. Readers are urged to +carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with +the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. Moreover, +we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict +all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, +may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, +uncertainties, and assumptions, the future events and circumstances discussed in this Annual Report may not occur and actual results +could differ materially and adversely from those anticipated or implied in the forward-looking statements. +You +should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking +statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, +we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Annual Report are +made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason +after the date of this Annual Report or to conform statements to actual results or revised expectations, except as required by law. +You +should read this Annual Report and the documents that we reference herein and have filed with the SEC as exhibits to this Annual Report +with the understanding that our actual future results, performance, and events and circumstances may be materially different from what +we expect. +This +Annual Report also contains or may contain estimates, projections and other information concerning our industry, our business and the +markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information +that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events +or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, +we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third +parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources +from which these data are derived. +3 +PART +I +ITEM +1. BUSINESS +Overview +Neuraxis, +Inc. (“we”, “us”, the “Company” or “Neuraxis”) is a medical technology company focused +on developing neuromodulation therapies to address chronic and debilitating conditions in children and adults. We are dedicated to advancing +science with our proprietary IB-Stim therapy, based on our Percutaneous Electrical Nerve Field Stimulation (PENFS) technology, which +was developed internally by the Company. We believe that superior science and evidence-based research, are necessary for adoption by +the medical and scientific community. With one FDA indication (functional abdominal pain associated with IBS in adolescents 8-21 years +old) on the market, additional clinical trials of PENFS in multiple pediatric conditions are underway focused on unmet healthcare needs +in children, see “ Our Pipeline ” for more information. +Our +first product, IB-Stim, is a PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated +with IBS. IB-Stim is a US FDA Class II medical device that has received one regulatory clearance: IB-Stim (DEN180057, 2019), under the +regulation name of “non-implanted nerve stimulator for functional abdominal pain relief.” +Our +second product, Rectal Expulsion Device (“RED”), is indicated to evaluate the neuromuscular function of a patient’s +ability to expel its contents from the rectum and as a qualitative test for rectal hypersensitivity. RED (K242304, 2024) helps identify +patients with rectal hypersensitivity who experience a desire or urge to defecate at lower volumes of distension. RED is intended to +be used in a clinical setting by trained health care providers in adult populations. +Our +Mission +Our +mission is to provide solutions that create value and provide better and safer patient outcomes. We believe in improving lives and minimizing +suffering; particularly in the pediatric population, where research and therapeutics are usually lacking. The Company already has market +clearance for its IB-Stim ® that targets functional abdominal pain associated with IBS, in children, with a total addressable market +of up to 6 million children. Through innovation and research, we are reimagining the future of patient care. +Our +Corporate History +Neuraxis, +Inc. was established in 2011 and incorporated in the state of Indiana on April 17, 2012, under the name of Innovative Health Solutions, +Inc. The name was changed to Neuraxis, Inc. in March of 2022. Additionally, the Company filed a Certificate of Conversion to become a +Delaware corporation on June 23, 2022. The authorized shares were increased, and a par value established. On September 7, 2021, the Company’s +board of directors authorized a 4-for-1 stock split. They also increased the number of authorized common stock shares from 2,700,000 +to 10,800,000. Furthermore, on September 9, 2021, the board authorized an increase of authorized shares of common stock from 10,800,000 +to 13,400,000 in anticipation of a capital offering. +As +part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation shall have +authority to issue was 101,120,000 shares, consisting of (i) 100,000,000 shares of common stock, par value $0.001 per share, and (ii) +1,120,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”), 1,000,000 of which was designated as +“Series A Preferred Stock” and 120,000 of which was designated as “Series Seed Preferred Stock”. +Furthermore, +on January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split. All per share information has been +adjusted for this reverse stock split. The reverse split became effective on January 12, 2023. +On +August 9, 2023, the Company consummated an initial public offering (“IPO”), conducted on a firm commitment basis, pursuant +to which it sold 1,098,667 +shares of its common stock at a price of $6.00 +per share, resulting in gross proceeds to the +Company of $6,592,002 . +Net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses paid by the Company, +were $4,110,721 . +All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), as amended, declared +effective by the SEC on August 9, 2023. +On +August 15, 2024, the Company’s shareholders (i) authorized 5,000,000 shares of preferred stock of which 4,000,000 were designated +at $0.001 par value “Series B Preferred Stock” inclusive of cumulative dividends, due and payable quarterly at the Company’s +discretion either in cash or common stock when declared, at a rate of 8.5% per annum through June 30, 2025, (ii) retired 1,000,000 shares +of Series A Preferred Stock and (iii) retired 120,000 shares of Series Seed Preferred Stock. On November 11, 2024, the holders of a majority of the then-outstanding shares of Series B Preferred +Stock authorized (i) an increase in the number of designated Series B Preferred Stock to 5,000,000 shares and (ii) an extension +of the 8.5% cumulative dividend period to December 31, 2026. The stated value of the Series B Preferred Stock is $2.38 per share. As of March 13, 2025, there are 4,280,939 shares of Series B Preferred +Stock issued and outstanding, which are convertible (based on the stated value of each share and the conversion price both equalling $2.38) +into 4,280,939 shares of common stock, subject to a maximum ownership cap of between 4.99% and 19.99% of the shares outstanding (following +conversion by the holder) set at the discretion of each holder of Series B Preferred Stock. +Each +holder of Series B Preferred Stock is entitled to cast the number of votes equal to the number of whole shares of common stock into +which the shares of Series B Preferred Stock held by such holder. Solely for purposes of voting rights, the conversion price is +$3.80 per share. The 4,280,939 shares of Series B Preferred Stock outstanding therefore represent 2,681,208 votes of common stock, +subject to a maximum voting percentage cap of between 4.99% and 19.99% of the votes outstanding (inclusive of all 2,681,208 votes plus the shares +outstanding on the record date for any particular shareholder meeting) set at the discretion of each holder of Series B Preferred +Stock. +We +have developed three FDA cleared products, the IB-Stim (DEN180057, 2019), the RED (K242304, 2024), the NSS-2 Bridge (DEN170018, 2017), +and the original 510(K) clearance (K140530, 2014), all of which were developed internally by the Company. +● +The +IB-Stim is a PENFS device that is indicated in patients 8-21 years of age with functional +abdominal pain associated with irritable bowel syndrome. IB-Stim currently is one of two +products marketed and sold by the Company. +● +RED +is indicated to evaluate the neuromuscular function and rectal hypersensitivity in patients with chronic constipation. RED is a point-of-care +test that helps determine why patients may not respond to conventional laxative therapy and helps identify patients that will respond +to pelvic floor therapy. +● +The +NSS-2 Bridge is a percutaneous nerve field stimulator, or PNFS, device indicated for use in the reduction of the symptoms of opioid +withdrawal. The NSS-2 Bridge device was licensed to Masimo in April 2020, and we received a one-time licensing fee of $250,000 from +Masimo. Masimo markets and sells this product as its Masimo Bridge , and we will not receive any further licensing payments +or other revenue from this product. +● +The +original 510(K) device was the electroacupuncture device (“EAD”), now called NeuroStim . The EAD is no longer being +manufactured, sold or distributed but reserved only for research purposes. +4 +Pediatrics +Industry Overview +Pediatric +providers, as a whole, had expressed concern about the lack of attention given to children with functional abdominal pain disorders (including +IBS) and the limited treatment options available for a population that suffers from significant disabilities. With 20% of the United +States population under age 18, our Company focus is on opportunities in pediatrics industry. The pediatrics industry has multi-billion-dollar +market opportunities. The following points clearly outline the unmet need in children: +● +Functional +abdominal pain in children is one of the most common conditions seen by pediatricians and pediatric gastroenterologists. +● +Children +with functional abdominal pain report lower quality of life compared with their healthy peers and equal to those with inflammatory +bowel disease. +● +Overall, +40-45% of children with functional abdominal pain disorders continue to have symptoms into adulthood, which impacts quality of life +and healthcare spending. +● +A +study published in 2021 demonstrates insufficient evidence for the use of medications in pediatric functional abdominal pain disorders. +This lack of evidence for drugs has been supported in by the American Academy of Pediatrics and NASPGHAN. +● +IB-Stim +is the only medical therapy that has shown to improve pain, global symptoms, and functional disability in children with FAP and IBS. +● +IB-Stim +is the only currently used medical therapy that is better than placebo in a randomized controlled trial and received FDA clearance +for pediatric IBS. +Our +Opportunity +For +years, physicians and qualified healthcare professionals have resorted to the use of off-label medications without proper evidence of +efficacy or safety. This is despite a technical report from the American Academy of Pediatrics and NASPGHAN which found very little evidence +to endorse the use of any drugs in the treatment of FAPDs in children. Medications including tricyclic antidepressants, SSRIs and gabapentinoids +continue to be used off-label despite lack of evidence to support efficacy or safety. Not only have the most commonly used medications +(amitriptyline and citalopram) failed to beat placebo in clinical trials, but new studies also suggest significant risks with the potential +for serious side effects with these drugs. The absence of conclusive data to support treatments based on scientific evidence, and the +fact no drug therapies have been approved by the FDA for the treatment of FAPDs or IBS in children, presents a unique market opportunity +for Neuraxis. Below are the current standard treatments in children with functional abdominal pain and IBS. +5 +Our +Solutions +We +entered the pediatric market with clinical evidence, key opinion leaders and society endorsement, including a signed letter from the +American Academy of Pediatrics and NASPGHAN supporting our request for insurers to pay for our IB-Stim device. Our IB-Stim® is a +non-drug alternative to reduce functional abdominal pain in patients with IBS. In June 2019, the FDA cleared IB-Stim, a non-surgical, +neuromodulation device for children and adolescents who suffer from IBS, through a de novo process (DEN180057, 2019). The FDA created +a new classification of PENFS for the IB-Stim device. This is based on pre-clinical and clinical studies demonstrating the mechanism +of action and efficacy. Based on this new class of devices, the IB-Stim falls under 21 CFR Part 876, Subpart F – Therapeutic Devices, +876.5340, Product Code QHH. As a PENFS device, it is non-implantable and provides field stimulation to cranial nerves V, VII, IX and +X in the ear to access the CNS. It stimulates remotely from the source of pain to modulate central pain regions, such as the limbic system, +and relieve functional abdominal pain associated with IBS. Studies have demonstrated long-term benefits in functional disability, psychological +co-morbidities, and pain. For example, the table below is from a recently published study of IB-Stim in a population of patients with +chronic functional abdominal pain. The follow-up was done at 6-12 months post-treatment and shows improvements in validated questionnaires +compared to baseline (API), functional disability index (FDI), pain catastrophizing scale (PCS), Screen for Childhood Anxiety Related +Disorders (SCARED) and the Promis Anxiety. +Santucci +NR, King C, El-Chammas KI, Wongteerasut A, Damrongmanee A, Graham K, Fei L, Sahay R, Jones C, Cunningham NR, Coghill RC. Effect of +percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents with functional +abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358. +We +have only submitted one FDA De Novo request and two 510(k) submissions and plan to submit additional 510(k) premarket notifications from +our pipeline indications in the future. +Compliance +with treatment so far has been outstanding with the four weeks of therapy required to sustain long-term benefits. Compliance has been +an issue with non-pharmacological treatment for children, particularly with some of the psychological approaches such as cognitive behavioral +therapy or guided imagery, which sometimes requires 8-12 weeks of treatment. In fact, 95% of adolescents who used IB-Stim said that they +would recommend this treatment to family and friends. Many children’s hospitals across the country are already treating children +with IB-Stim successfully since it provides a better alternative for therapy in children with IBS and disability and allows them to treat +them safely and effectively. +We +have concentrated our marketing focus on the 260 children’s hospitals within the United States. To date, we have sold our IB-Stim +product to approximately 77 children’s hospitals within our target market. +6 +Competition +The +competitive landscape for therapies includes off-label drugs and drugs with FDA approved only for adults with IBS while there is no FDA +indicated treatments for patients 8-21 years of age with functional abdominal pain associated with IBS and prescriptions often contain +FDA black box labels. Psychological treatments such as cognitive behavioral therapy (CBT) or guided imagery have been shown to be some +of the most effective treatments for these conditions, however, these are limited by access to trained therapists. It also includes devices +that could theoretically be used, but do not have supporting data or FDA clearance for functional bowel disorders or IBS. Digital therapeutics +that offer CBT for IBS have been developed for adults with IBS with limited success in terms of reaching large numbers of patients. Virtual +reality could potentially be used in the future to also deliver CBT to patients with IBS. Our method patents also limit other devices +from targeting IBS through stimulation of cranial nerve branches in the ear. +Approved +drugs for Adults with IBS +1. +Rifaximin: +an intraluminal antibiotic approved for IBS-diarrhea +2. +Amitiza: +a drug that stimulates fluid secretion from the intestine, approved for IBS-diarrhea +3. +Linzess : +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation +4. +Plecanatide: +a drug that stimulates fluid secretion from the intestine, approved IBS-constipation +5. +Eluxadoline: +a schedule IV-controlled substance that is a mixed opioid receptor agonist/antagonist in the intestine approved for IBS-diarrhea +7 +Devices +1. +gammaCore: +a transcutaneous, cervical vagal nerve stimulator cleared for cluster and migraine headaches. Recent studies using this device for +adults with gastroparesis. +2. +Transcranial +Magnetic Stimulation: Multiple devices cleared to treat major depressive disorder and obsessive-compulsive disorder. To date, no +known gastrointestinal indications. +3. +Roo +System and Sparrow therapy system: Transcutaneous auricular stimulation devices-cleared for neonatal and adult opioid withdrawal. +The +neurostimulation market is predominantly comprised of surgically implanted, invasive technologies that are not directly competitive with +our technology. Several neurostimulation companies are large, publicly traded companies that have a history in the market, have significantly +easier access to capital and other resources and have an established product pipeline. The combined clinical research and product development +done by the industry, including by us and all our competitors, is uncovering the beneficial effects of neurostimulation which now establishes +neuromodulation as a valid and scientifically supported approach to the treatment of neurological conditions, and accordingly, we expect +for competition in the non-implanted space to grow in the future. +While +many companies have joined the neuromodulation space, there are no companies targeting the CNS or the brain-gut axis through auricular +nerves for functional bowel disorders or IBS. Currently, the Neuraxis method patents protect access to the brain, particularly the limbic +systems through branches of cranial nerves in the ear. +Our +Competitive Strengths +We +believe that the following competitive strengths will enable us to compete effectively: +● +First +to market +● +Strong +portfolio of device and method patents +● +Large +Market Opportunities +● +Strong +pediatric pipeline +● +Academic +Society Support +● +Lower +capital expenditures in nurse, trainers, and representatives for first line therapy +● +Strong +clinical data carried out in leading academic institutions in the U.S. +Our +Growth Strategies +● +List +price of our product is $1,195 per device and $4,780 per patient +● +Strong +gross margin +● +Direct +sales force +● +Target +customers are children’s hospitals and pediatric clinics +Our +Pipeline +The +IB-Stim device is to be used for the indication of functional abdominal pain associated with IBS and functional nausea in children. The +same underlying technology will be used for the remaining pipeline indications, but we may use a name other than “IB-Stim” +for marketing and commercialization purposes. +With +one FDA indication—functional abdominal pain associated with IBS in adolescents 8-21 years old—on the market, additional +clinical trials of PENFS in multiple pediatric conditions are underway focused on unmet healthcare needs in children. These indications +consist of chronic nausea, post-concussion syndrome, chemotherapy-induced nausea and vomiting, cyclic vomiting syndrome. +The +chart below shows our status in the FDA review process for IB-Stim and each of the following pediatric indications: +1. +Functional dyspepsia ( nausea ): RCT completed, and data being analyzed. ClinicalTrials.gov Identifier: NCT03675321, Defining +Adolescent Nausea Through Brain-Gut Physiology and Non-Invasive Neurostimulation Response. A randomized, double blind, placebo-controlled +trial to evaluate the efficacy of IB-Stim in children with functional nausea. The primary endpoint was to measure improvements in nausea +using the Nausea Severity Scale after IB-Stim therapy compared to a placebo device. The study enrolled 110 participants and was conducted +at Children’s Wisconsin/Medical College of Wisconsin. +8 +2. +Post-concussion: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT04978571, A Prospective Study +on the Effect of Auricular Percutaneous Electrical Nerve Field Stimulation (PENFS) in Patients with Post-Concussion Syndrome (PCS). +A randomized, double blind, placebo-controlled trial to evaluate the efficacy of IB-Stim in children with post-concussion symptoms. The +primary endpoint will be to measure improvements in validated measures, including the Immediate Post-Concussion Assessment, Post-Concussion +Symptom Scale, and Balance Error Scoring Symptom compared to placebo. The study will enroll 100 participants and is being conducted at +Children’s Hospital of Orange County. +3. +Chemotherapy-induced nausea and vomiting: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT05143554, Efficacy +of Auricular Neurostimulation for Children Adolescents and Young Adults with Chemotherapy Induced Nausea and Vomiting. Subject will +be randomized to five days of active vs placebo device during administered chemotherapy known to cause moderate to severe nausea/vomiting. +With the next scheduled identical chemotherapy cycle, each subject will cross over to the other device (active vs placebo). The primary +endpoint will be to measure improvements in validated measures of nausea and vomiting including the Baxter Retching Faces Scale, Rhodes +Index of Nausea, Vomiting and Retching, and also assessment of rescue medication. The study will enroll 50 participants and is being +conducted at Children’s Wisconsin/Medical College of Wisconsin. +4. +Cyclic vomiting syndrome: Pilot study completed, see ClinicalTrials.gov Identifier: NCT03434652. Auricular Neurostimulation +for Children with Cyclic Vomiting Syndrome: A randomized, placebo-controlled trial. RCT anticipated to begin enrolling patients in +the second half of 2023. This will be a double blind, placebo-controlled trial to evaluate efficacy of IB-Stim in pediatric patients +with cyclic vomiting syndrome. The primary endpoint will be to measure decreases in the frequency and severity of cyclic vomiting episodes +compared to a placebo device. The study will include a minimum of 120 patients and the site is yet to be finalized. +Each +step in the FDA review process differs in duration and cannot be predicted with accuracy. Timing of FDA review and approval, if ever +received, cannot be assured and the process and any approval is within the sole control and discretion of the FDA. +9 +Products +The +IB-Stim is a percutaneous PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated with +IBS. IB-Stim already has market clearance from FDA for functional abdominal pain associated with IBS in children. FDA has classified +the non-implanted nerve stimulator for functional abdominal pain relief as Class II devices. +The +IB-Stim is intended to be used for 120 hours per week, using one (1) device per week, for four (4) consecutive weeks, through application +to branches of Cranial Nerves V, VII, IX and X, and the occipital nerves identified by transillumination, as an aid in the reduction +of pain when combined with other therapies for IBS (DEN180057, 2019). In published studies, patients treated with IB-Stim demonstrated +significant improvement in pain, disability and global symptoms with no serious adverse events, and minimal to no side effects, including +localized skin irritation. The following table presents a summary of IB-STIM studies performed to date: +Author +DGBI +N= +Ages +# +of devices +Outcomes +Major +adverse events +Karento +et al, 2023 +Cyclic +Vomiting Syndrome +30 +8-18 +years +6 +Abdominal +pain, nausea, FD +None +Santucci +et al., 2023 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain, nausea, anxiety, disability +None +Bora +et.al2,.2023 +Irritable +bowel syndrome +20 +11-18 +4 +IBS +severity scale, +Microbiome +diversity +None +Kovacic +et.al.,2017 +IBS, +FD, FAP, abdominal migraine +115 +11-18 +4 +Abdominal +pain, disability, global symptoms. +Syncope=1 +in sham group +Castillo +et.al., 2023 +Irritable +bowel syndrome +27 +11-18 +4 +Abdominal +pain, Microbiome Metabolism +None +Chogle +et.al., 2023 +Irritable +bowel syndrome, functional dyspepsia +31 +11-18 +4 +Quality +of life, disability, anxiety +None +Krasaelap, +et.al., 2020 +Irritable +bowel syndrome +51 +11-18 +4 +Abdominal +pain, global symptoms, disability +None +Santucci +et.al.,2021 +Functional +abdominal pain +20 +11-19 +4 +Abdominal +pain, sleep, nausea, anxiety +None +Chogle +et.al., 2023 (Registry) +Irritable +bowel syndrome, functional dyspepsia +292 +8-18 +4 +Abdominal +pain, nausea, disability +None +Santucci +et.al.,2023 +Irritable +bowel syndrome, functional dyspepsia, FAP +101 +11-21 +4 +Abdominal +pain, nausea, disability +None +The +ability of the IB-Stim to produce systemic effects by modulating the central nervous system has been demonstrated in a pre-clinical animal +model of IBS (see Business— Pre-Clinical Data ). In patients with IBS, the largest effect on all pain measures, including +composite pain scores, worst pain, disability and global symptoms, was seen after completing three consecutive weeks of treatment (see +Business— Clinical Data ). A fourth consecutive week of treatment was included in clinical testing; no safety concerns were +identified with this extra consecutive week of treatment. In the trial of 115 subjects, 10 patients reported side-effects and only three +discontinued the study because of side-effects. Of such 10 patients, six experienced ear discomfort (three in the PENFS group, three +in the sham group), three experienced adhesive allergies (one in the PENFS group, 2 in the sham group), and one experienced syncope due +to needle phobia (in the sham group). There were no serious adverse events. +Medical +providers are trained to place the IB-Stim through IB-Stim Training and Certification. Once the provider is trained, the device can be +placed in the outpatient clinic and can be removed by the provider in the clinic or the patient at home. IB-Stim stays on for a total +of five-days to allow delivery of gentle electrical pulses to nerves below the skin that access the central nervous system. A study in +adolescents showed greater improvement in functional abdominal pain and global symptom improvement with every week of treatment (up to +four weeks). At the end of the four-week study, 95% of adolescents stated they would recommend the treatment to family or friends. Safety +of percutaneous electrical nerve field stimulation has also been reported in a separate study of over 1200 adult patients with no serious +adverse events and minimal to no side-effects. +When +wearing our IB-Stim device and following an easy-to-learn and efficient procedure, patients can still attend school and extracurricular +activities, exercise or play non-contact sports, shower, wear ear buds or headphones, and travel. +Our +IB-Stim device costs $1,195 per device, and each patient will use four (4) devices. Potential patients with other indications are expected +to use six (6) or more devices per patient. +Technology +A +maladaptive central nervous system can process pain and emotions differently. This often occurs in children following a traumatic event, +viral infections, inflammation or trauma. Changes in brain pathways are known to be involved in the pathophysiology of functional bowel +disorders and IBS. The IB-Stim works by sending gentle electrical impulses into cranial nerve bundles located in the ear. This stimulation +targets brain areas that process pain and helps reduce functional abdominal pain associated with IBS. An animal model of IBS demonstrated +that the firing of neurons in the amygdala could be reduced by more than 50% in just 15 minutes of stimulation with the IB-Stim technology. +A recent human study in adults with pain related to fibromyalgia suggested that the IB-Stim technology exerts its effect by modulating +emotional and executive control centers related to pain processing, see Feasibility of Auricular Field Stimulation in Fibromyalgia: +Evaluation by Functional Magnetic Resonance Imaging, Randomized Trial , Woodbury et.al. , Pain Med. 2021;22:715-726. The field +of art pertains to an electrical stimulation device, including a stimulator containing a generator to deliver electrical pulses with +defined parameters, and a power supply for supplying the electrical energy through four separate needles, and at least one of which is +a needle array. +10 +Pre-Clinical +Data +In +an animal model of IBS, extracellular, electrophysiologic recordings were performed from neurons in the rat amygdala before and 15 +minutes after PENFS treatment. There was a 65% decrease in the spontaneous firing of these neurons after 15 minutes of PENFS. This +dampening of neurons in the CNS likely accounts for the modulation of pain responses in a model of post-inflammatory visceral and +somatic hyperalgesia. +11 +Clinical +Data +We +have over 700 published patients specific to our first FDA indication which is functional abdominal pain associated with irritable bowel +syndrome in patients 8-21 years of age. A published patient is defined as a patient who went through a study, the study was analyzed +and now the study has been published in a peer-reviewed journal. +A +randomized, controlled study in children 11-18 year of age used primary endpoint of improvements in abdominal pain. The Pain Frequency-Severity-Duration +(“PFSD”) questionnaires was completed at baseline by all subjects and after each week of treatment (weeks 1–3), as +well as at extended follow-up occurring in the 8–12 weeks following the end of treatment. The PFSD scale incorporates multiple +aspects of the pain experience and was administered weekly during treatment and at extended follow-up appointments. The PFSD scale validated +for chronic pain in children (aged 8–18 years). The PFSD was also used to rate weekly worst abdominal pain on a numerical rating +scale (0 for no pain, 10 for worst pain). Patients were followed up for a median of 9.2 weeks from the last week of treatment. +For +the active PENFS group, median worst pain at follow-up remained lower (baseline: 8.0 vs. follow-up: 6.0), whereas there was no difference +at follow-up in the control group (baseline: 7.5 vs. follow-up: 7.0). The between-group differences in worst pain ratings after 3 weeks +of treatment showed that the PENFS group improved to a greater extent, with the control group reporting significantly higher worst pain +(median 7.0) than the PENFS group (median 5.0). +At +long-term follow-up, median PFSD composite scores were 12.6 (IQR 3.6–22.5) in the PENFS group and 16.8 (4.8–33.6) in the +control group. A comparison of changes in PFSD composite scores (baseline to follow-up) showed that patients in the PENFS group reported +significantly greater improvement in pain (median –8.4) than those in the control group (median 0.0). This study was published +in the Lancet Gastroenterology Hepatology, (Kovacic K, et.al. Lancet Gastroenterol Hepatol. 2017;2:727-737). +12 +A +secondary endpoint in the same study used the functional disability index (FDI) to assess functional disability in those treated with +PENFS and compared to sham treatment. Those treated with PENFS changed from moderate disability to minimal at the 2–3-month follow-up +while the sham device group had no change. +A +separate published paper looked at 51 pediatric patients with IBS and used the symptoms response scale (SRS) to assess global symptoms +improvement following PENFS treatment compared to sham. Global symptom improvement was assessed with a validated pediatric questionnaire, +Symptom Response Scale (SRS). Symptoms were recorded as better, worse, or no change based on a 15-point scale across individual domains +for both improvement and deterioration of overall symptoms. Findings from several studies that used the SRS have shown that using 7-point +scale response options in disease-specific measures, a change score of 0.5 represents the minimal clinically important difference (Juniper +et.al. J Clin Epidemiol 1994; 47: 81–87 and Guyatt GH et.al.1987; 42: 773–78). As previously noted, a minimum change in score +of ≥ 2 was chosen for this study as a more stringent criterion for global improvement before and after PENFS treatment and to compare +between groups. Patients and providers were blinded in terms of those who received active PENFS or sham. At the end 3 weeks of therapy +using the change of ≥ 2, 81% of the PENFS group compared with 26% of the sham group (*p≤ 0.001, #p=0.002) reported overall symptom +improvement. When applying an even more stringent criteria with a change ≥ 3 on the SRS, 67% of the PENFS group compared with 22% +of the sham group reported symptoms improvement (p=0.002) (Krasaelap A et.al. Efficacy of Auricular Neurostimulation in Adolescents With +Irritable Bowel Syndrome in a Randomized, Double-Blind Trial. Clin Gastroenterol Hepatol. 2020;18:1987-1994). +13 +Recently, +the largest, prospective, multicenter registry for any drug or device in pediatric patients with pain associated DGBIs was published. +It evaluated outcomes of pediatric patients (8-18 years) following a 4-week course of IB-Stim in a real-world clinical setting. Overall, +292 patients met Rome IV Diagnostic criteria for any pain associated disorder of the gut-brain interaction (DGBIs). In this cohort, 92% +had failed medication therapy and 61% of patients had failed 4 or more medications when they entered the study. Patients were asked to +fill out several validated pediatric measures, including the abdominal pain index (API) and a validated questionnaire that assesses frequency, +duration, and intensity of abdominal pain episodes. Data were collected weekly for the first 3 weeks and at 3, 6, 9 and 12 months. Compared +to baseline scores, there were significant improvements in the API after 4 weeks of IB-Stim treatment at every time point, including +6 month (p<0.001) and 12 months (p<0.001). Although there were many dropouts by the end of the 12 months, the results were still +significant and sustained. No serious adverse effects were recorded during the entire 12 month follow-up. (Chogle, A. et. al. A multicenter +registry study on percutaneous electrical nerve field stimulation for pediatric disorders of gut-brain interaction. J Pediatr Gastroenterol +Nutr. 2024 Mar 7.). +Abdominal +Pain Index (API) +Time +point +n +Median +(IQR) +p +Value +Baseline +288 +2.68(1.84, +3.58) +N/A +3 +weeks +209 +1.99 +(1.13, 3.27) +<0.001 +3 +months +75 +1.81 +(0.85, 3.20) +<0.001 +6 +months +60 +1.70 +(0.93, 2.72) +<0.001 +9 +months +26 +1.90 +(1.33, 2.82) +0.002 +12 +months +22 +220(0.41, +3.21) +<0.001 +An +open-label study of 20 patients treated with PENFS in a “real-world” clinical setting at Cincinnati Children’s Hospital +demonstrated that after PENFS, abdominal pain (p < 0.0001), nausea (p=0.001), pain catastrophizing (p = 0.001), functional disability +(p<0.0001), and anxiety (p = 0.03) exhibited significant improvements, and were sustained 6-12 months after treatment (Santucci et.al. +Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). Validated questionnaires included the abdominal +pain index (API), nausea severity scale (NSS), functional disability index (FDI), as well as psychological measures of catastrophizing +(PCS-C) and anxiety (SCARED). The table below summarizes the results pre, during and post PENFS results at long-term follow-up (Santucci +et.al. Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). +A +clinically meaningful endpoint is the number needed to treat (NNT) used in treatment for abdominal pain-related functional gastrointestinal +disorders in adolescents. NNT means the number of patients that need to be treated for one patient to get the targeted improvement (≥30% +improvement). +14 +PENFS +Reimbursement +The +American Medical Association (AMA) assigned a procedure-specific Category III CPT Code (0720T) to PENFS, which was published on December +30, 2021 and became effective for utilization on July 1, 2022. Category III CPT Codes are temporary codes issued to define and track +the utilization of new procedural technology. To expand patient access to PENFS procedures and IB-Stim technology, we launched our internal +Prior Authorization team under our Guidance & Patient Support function in 2023. This continues to address the Prior Authorization +process barriers for providers and children’s hospitals and streamlines a patient’s access to our Patient Advocacy and Financial +Assistance offerings, if needed. In September of 2024, the AMA’s CPT Editorial Panel accepted addition of Category I CPT Code (placeholder +64X11) for PENFS and deletion of Category III CPT Code 0720T. The finalized Category I CPT Code for PENFS, and associated valuations, +will be announced publicly in Q4 of 2025. The new code will become effective for utilization on January 1, 2026. Sixteen (16) commercial +health insurers, including certain Blue Cross Blue Shield licensees, have instituted formal medical policy coverage for PENFS. The total +membership of these health insurers is approximately 45,000,000 covered lives. An additional health insurer, with approximately 6,000,000 +members, will institute formal medical policy coverage for PENFS beginning the second quarter of 2025, bringing the total number of covered +lives to approximately 51,000,000 across seventeen (17) commercial health insurers. Patients who are appropriate clinical candidates +may have policy-covered access to PENFS and IB-Stim technology under their specific health plan. We continue to actively leverage clinical +evidence and peer-reviewed publications to expand patient access to IB-Stim technology. In addition, we anticipate academic medical society +support in the form of a position paper and an update to treatment guidelines to support the use of PENFS as a potential standard of +care. +Marketing +We +market our products through search engine optimization, or SEO, internet channels and to physicians via the academic society. We plan +to extensively ramp-up our marketing efforts to patients and physicians as we gain additional indications. +Patients/Customers +Our +current patient base is children 8-21 years of age and suffering from functional abdominal pain. Our customers are primarily children’s +hospitals who serve these children. +Rectal +Expulsion Device (RED) +The +Rectal Expulsion Device (RED) enables comprehensive constipation care for every gastroenterology practice. The mission is to develop +the best tool for clinical decision making with the physician and patient in mind. RED was designed to be the most efficient, accurate, +and cost-effective diagnostic tool for patients with chronic constipation. The goal is for every Gastroenterologist practice to be able +to safely and confidently perform meaningful anorectal testing without it impacting clinical workflow or requiring a large capital expense. +Eight (8) million patients each year present with constipation. Of those eight million patients, 700,000 patients present to the Emergency +Room. +Clinical +Background +Constipation +is one of the most encountered gastrointestinal complaints in clinical practice. A recent systematic review reported that the prevalence +of chronic constipation (CC) in North America is between 10-15%. This condition causes significantly reduced quality of life, reduced +work-related productivity and billions of dollars in health expenditures. Clinical practice guidelines recommend empiric treatment of +chronically constipated patients with fiber supplements or laxative therapies. Approximately 40% of patients do not adequately respond +to empiric laxative therapy. In these patients, anorectal physiology testing is essential. +There +is a clinical need for an easy-to-use, office-based, point-of-care, anorectal function test that can measure rectal sensitivity and be +used as a rectal expulsion device to assess pelvic floor dysfunction. Current testing methods typically require elaborate volumetric +testing equipment to assess sensation and expulsion, which makes them not practical in the clinical setting. The current standard is +to refer patients to specialized motility centers for evaluation, resulting in sub-optimal number of patients with constipation undergoing +anal-rectal testing. In the current clinical setting, only about 2% of all patients with constipation are referred for anal-rectal testing +and thus, a large number with pelvic floor dysfunction and rectal hypersensitivity are missed and/or fail to get proper treatment. The +design of RED allows for it to be used as a self-inflating expulsion device and as a balloon to assess patients who experience rectal +hypersensitivity. When it is opened to atmospheric pressure, RED safely self inflates and contains a specially selected foam that mimics +the “feel” of stool. This provides an alternative to sensation and expulsion testing in the office without affecting clinical +workflow. +15 +Rectal +Sensation Testing +Rectal +sensation is an important metric to guide clinical care, particularly rectal hypersensitivity. For example, a patient that reports an +immediate perceived immediate need to defecate or discomfort (max tolerated) to low volumes of distension would have rectal hypersensitivity. +This diagnosis is important because it would impact how a patient is treated. Rectal hypersensitivity is addressed by pelvic floor physical +therapists who deliver education and re-training to help the patient align the desire to defecate according to the actual volume of stool +contained within the rectal vault. The basis of sensory re-training during physical therapy involves inflating a balloon in the rectum +until urge threshold is reached. With repeated inflations, the patient learns to associate a given sensory intensity with the inflated +volume. Over time, the balloon is inflated with decreasing volumes and the patient is asked to closely monitor and attend to sensations +experienced. Eventually, new sensory thresholds are established. Unfortunately, because of the difficulty in performing hypersensitivity +testing in routine clinical care, only a small percentage of all patients with constipation undergo anorectal testing in the clinical +setting. +In +a recent study, 60 adult patients (mean±standard deviation age of 46.4±17.6 years; 93.3% women) that underwent evaluation +with RED and answered the questions were included in the analysis. One patient did not undergo rectal sensation testing due to suspected +anal fissure and overall, 58 patients were included in the analysis. +As +outlined in the figure below, 18 of 58 patients, or 31.%, had rectal hypersensitivity on RED when defined on a single yes/no question +of “do you feel you have to poop right now” that evaluates the patient perception to defecate. +These +data suggest that approximately 31% of patients with chronic constipation reported urge to defecate with RED baseline distension volume, +thus meeting the London criteria for hypersensitivity. +Balloon +Expulsion Testing +RED +can be used as a rectal expulsion device and in a recent prospective trial of 60 adults with functional constipation (defined by Rome +IV criteria), it was demonstrated to be safe in a clinical setting. It can be quickly performed in the left lateral position (i.e., the +patient lying on their left side) immediately after a rectal examination. Further, it proved to be effective for patients who fail a +trial of laxative therapy. In those patients with constipation who failed laxative treatment, RED was able to reliably identify patients +for whom pelvic floor physical therapy was unlikely to provide substantial benefit (i.e, patients who might be more likely to benefit +from intensifying medical therapy). Patients with an abnormal RED in the left lateral position or commode were likely to respond to pelvic +floor therapy (48.8% to 71.4%, respectively). Also, RED showed very high sensitivity (>95%) to broadly detect evacuation disorders +as a simple screening tool as noted in the table below. +16 +RED +Benefits Over Predicates +1. Prompt +point of care test allows assessment of patients and potentially changes clinical management. +2. Identifies +those who would benefit from physical therapy or who would require optimization of laxatives +or addition of secretagogues. +3. Identifies +many patients with rectal hypersensitivity that otherwise would never get tested. +4. RED +finds people that are willing to try physical therapy but don’t need it. +5. Fits +clinical workflow. +There +is an urgent need to better identify patients with pelvic floor abnormalities and/or rectal hypersensitivity. Making the right diagnosis +can impact care and ensure that patients are properly assessed and treated. The figure below demonstrates how RED can impact clinical +decision making. +Overall, +RED is a point-of-care device designed to be used in the office. Rectal sensation is an important component of evaluating pelvic floor +function among patients with chronic constipation. Currently, 98% of clinically appropriate patients do not receive anorectal testing. +The study findings demonstrate that RED impacts clinical decision making by identifying patients who would benefit from physical therapy +or who would require optimization of laxatives. It is also sufficient to qualitatively assess for rectal hypersensitivity which was evident +in almost one-third of patients with chronic constipation failing a trial of fiber/laxatives. It is critical to assess rectal sensation +and balloon expulsion in patients with constipation and/or fecal incontinence. +RED +Safety +● The +tube for RED remains open to room air as the patient defecates. The pressure is therefore +never greater than room air. +● The +predicate device uses manual inflation with a syringe against resistance. The predicate device +is re-capped so that the patient must defecate an air-filled balloon with low compliance. +The resistance with defecating the predicate is therefore greater than RED, because RED is +more compliant than an air-filled balloon. The RED device is therefore safer with regard +to patients with decreased compliance. +● Not +only is RED safer by design, but there have not been any safety events related to compliance +in MAUDE with the predicate in the last 10 years. +● RED +is more compliant than air or water based on balloon compression data as demonstrated in +the graph below. +RED +Reimbursement +RED +is billable under CPT 91120. The documentation is Rectal Hypersensitivity at 52-60mL: present/absent. +Intellectual +Property +Our +intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research, and +development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual +property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered +trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws +to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our +executive officers and directors. +17 +Trademarks +The +Company has seven (7) registered trademarks, and two (2) allowed pending applications for registration: +Country +Trademark +Reg. +No. +Reg. +Date +Class/Goods +Status +US +NEURO-STIM +and Design +5105257 +20-Dec-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +THE NEUROSTIM SYSTEM and Design +4905470 +23-Feb-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +4852008 +10-Nov-2015 +10 +Int. Medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable neurological pain management +generator, with percutaneously-implantable needle arrays; medical system and apparatus consisting of a non-implantable modulating +frequency generator, providing neuromodulation therapy to cranial and peripheral nerves; medical system and apparatus consisting +of implantable arrays for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and +nerve field stimulation; medical system and apparatus consisting of a non-implantable modulating frequency generator and implantable +needle arrays for transmitting current into auricular and peri-auricular tissue for use in pain management, namely, patient stimulators +for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, appliances and instruments for +peripheral nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, headache control, +control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies and other types of sympathetically +mediated pain +Registered +US +IB-STIM +5926831 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +18 +US +IB-STIM +and Design +5926832 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR +5978411 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; Medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; Medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; Medical device for peripheral nerve and nerve field stimulation; +Medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR and Design +5978412 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +19 +Country +Trademark +App. No. +App. Date +Class/Goods +Status +US +NEURAXIS +97/327951 +04-Mar-2022 +10 +Int. Nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Filed: +Allowed +US +NEURAXIS +(STYLIZED) +97/356330 +11-Apr-2022 +10 +Int. Nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Filed: +Allowed +The +Company has no core trademarks that are currently unregistered. +Patents +The +Company has twelve (12) granted patents in the United States and seven (7) applied for patent applications in the United States and one +(1) granted foreign patent and two (2) applied for foreign patent applications. +Country +Owner +Serial +No. +Actual +Filing Date +Patent +No. +Issue +Date +Anticipated +Expiration Date +Title +Application +Status +Licensing +Status +CA +Neuraxis, +Inc. +3096494 +25-Apr-2019 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Applied +for +JP +Neuraxis, +Inc. +2021-509961 +23-Oct-2020 +7252319 +27-March-2023 +25-April-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/040766 +23-Sep-2020 +11369791 +28-Jun-2022 +21-Jun-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/715121 +07-Apr-2022 +12097371 +24-Sept-2024 +04-Jan-2040 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +16/014169 +21-Jun-2018 +10322062 +18-Jun-2019 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +16/408004 +09-May-2019 +11077019 +03-Aug-2021 +16-July-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +17/363620 +30-Jun-2021 +11654082 +23-May-2023 +29-July-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +17/830411 +02-Jun-2022 +DEVICE +AND METHOD FOR ERADICATING PATHOGENS IN NASAL PASSAGES +Applied +for +US +Neuraxis, +Inc. +17/589082 +31-Jan-2022 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION AND AUDIO THERAPY DEVICE +Applied +for +20 +US +Neuraxis, +Inc. +17/861646 +11-Jul-2022 +EXTERNAL +AUDITORY CANAL THERAPY DEVICE +Applied +for +US +Neuraxis, +Inc. +17/617364 +08-Dec-2021 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION DEVICE +Applied +for +US +Neuraxis, +Inc. +15/488416 +14-Apr-2017 +10413719 +17-Sep-2019 +14-April-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +16/534159 +07-Aug-2019 +11331473 +17-May-2022 +14-April-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/595185 +15-May-2017 +9839577 +12-Dec-2017 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +15/811278 +13-Nov-2017 +10010479 +03-Jul-2018 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +14/277158 +14-May-2014 +9662269 +30-May-2017 +14-May-2034 +SYSTEMS +AND METHODS FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +17/725,761 +21-Apr-2022 +11813448 +14-Nov-2023 +14-April-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/154,375 +13-Jan-2023 +12029701 +09-July-2024 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +18/736,834 +07-June-2024 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Applied +for +Out-licensed +US +Neuraxis, +Inc. +18/173,893 +24-Feb-2023 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +US +Neuraxis, +Inc. +18/377,968 +09-Oct-2023 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +CA +Neuraxis, +Inc. +3243826 +07-Aug-2024 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +21 +License +Agreements +TKBMN +Exclusive License Agreement +On +May 7, 2020, the Company entered into an exclusive license agreement with TKBMN, LLC to obtain an exclusive license under certain patent +rights (the “Patent Rights”) owned by TKBMN. Dr. Thomas Carrico, our Chief Regulatory Officer, is the manager of TKBMN. Brian +Carrico, our Chief Executive Officer, and Matt Carrico, our National Sales Director, are members of TKBMN. TKBMN owns the Patent Rights +set forth in the patents listed in the following table (the “TKBMN Patents”) by virtue of an assignment from Dr. Carrico, +who is the sole inventor listed on the TKBMN Patents. TKBMN has assigned the auricular portion of the TKBMN Patent Rights to the Company. +Licensed +TKBMN Patents +Country +Owner +Application +No. +Patent +No. +Issue +Date +Anticipated +Expiration +Date* +Title +US +TKBMN, +LLC +15/981,082 +10,792,500 +October +2, 2020 +October +18, 2037 +Systems +and methods for electro-therapy treatment +US +TKBMN, +LLC +17/014,450 +11,684,782 +June +7, 2023 +October +18, 2037 +Systems +and methods for electro-therapy treatment +* +If all maintenance fees remain paid +Pursuant +to the exclusive license agreement, TKBMN agreed to grant an exclusive, worldwide, non-transferable, royalty-free license under Patent +Rights, which including three patents applications filed by TKBMN in connection with systems and methods for elector-therapy treatment, +to the Company to develop, market, and sell licensed products, in the field of electro-therapy treatment by stimulation of cranial nerves, +cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles, and/or auricular anatomical structures in +human patients (the “Field”), in consideration of a one-time license fee of $1.00. The Company has the right to grant sublicenses +to the Patents Rights in the Field. The exclusive license agreement expires upon the expiration of the last to expire valid claim within +the Patent Rights and may be terminated by the Company upon 60 days prior written notice. Upon expiration or termination of the exclusive +license agreement, all rights in the Patent Rights will revert to TKBMN. There are no royalties or any other form of committed revenue +to TKBMN or any of its members Under the agreement, the Company has agreed to cover fees and expenses associated with maintenance, prosecution, +and additional associated/continuation patent filings for the TKBMN Patents. +Masimo +License and Collaboration Agreement +On +April 9, 2020, the Company entered into a license and collaboration agreement with Masimo. As consideration, in part, Masimo entered +into a Series A Preferred Stock purchase agreement with the Company. Under the license and collaboration agreement, the Company grants +an exclusive, fully paid-up, royalty-free license to specifically identified patents and trademarks in a limited Field of use. At all +times, the Company remains the owner of all licensed intellectual property rights, and there is a possibility of joint ownership of collaboratively +developed products and methods. The licensed patents are generally directed to a device and the treatment of opioid withdrawal symptoms. +The licensed trademarks are generally directed to the NSS-2 Bridge mark. The license agreement includes a collaboration component to +efficiently develop, obtain regulatory approval, and commercialize products for the limited field of use. The term of the agreement is +in effect until the expiration or lapse of the last intellectual property rights. Masimo paid a one-time fee of $250,000. The license +and collaboration agreement may not be terminated by the Company for any reason, and the sole remedy for any breach or default by Masimo +shall be to seek monetary damages and equitable remedies. The license and collaboration agreement may be terminated by Masimo if there +is material breach by the Company that remain uncured for thirty (30) days or without cause by providing thirty (30) days prior written +notice. See ”—Our Corporate History ” for more information. +Implications +of Being a Smaller Reporting Company +We +are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage +of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We +will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates +equals or exceeds $250 million as of the prior June 30 th , or (2) our annual revenues equaled or exceeded $100 million during +such completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June +30 th . Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our +results of operations and financial prospects. +For +additional information, see “ Risk Factors – Because the Company is a ‘smaller reporting company,’ we may take +advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than +they would receive from a public company that is not a smaller reporting company” and “As a smaller reporting company,” +we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse +effect on our public stockholders.” +22 +Implications +of Being an Emerging Growth Company +We +are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier +of (1) December 31, 2028, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, +(3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under +the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur on the date on which we have issued more than +$1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of +specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable +to public companies. As an emerging growth company, we may: +● +present +only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related +management’s discussion and analysis of financial condition and results of operations in this prospectus; +● +avail +ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal +control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +● +provide +reduced disclosure about our executive compensation arrangements; and +● +not +require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements. +In +addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards +would otherwise apply to private companies. We have elected not to take advantage of the extended transition period for complying with +new or revised accounting standards provided to emerging growth companies under the JOBS Act. +Government +Regulation +Our +products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, +state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject +to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. +United +States Regulation +The +FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness, +labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, +promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices in the United States +to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements +of the FDCA. +23 +FDA +Premarket Clearance and Approval Requirements +Unless +an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires FDA clearance +of a 510(k) premarket notification. The 510(k) clearance can be resource intensive, expensive, and lengthy. +Under +the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree +of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. +Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical +devices, which include compliance with the applicable portions of FDA’s current good manufacturing practices for devices, as reflected +in the Quality System Regulation, or QSR, establishment registration and device listing, reporting of adverse medical events, and truthful +and non-misleading labeling, advertising, and promotional materials. Some Class I devices, also called Class I reserved devices, also +require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I devices are exempt +from the premarket notification requirements. +Class +II devices are subject to the FDA’s general controls, and any other special controls deemed necessary by the FDA to ensure the +safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market +surveillance, patient registries and FDA guidance documents. +Most +Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to +commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification +is generally known as 510(k) clearance. +If +a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially +equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act +of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to +the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo +classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification +of its medical device into Class I or Class II on the basis that the device presents low or moderate risk. If the manufacturer seeks +reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable +assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a +legally marketed predicate device that would be appropriate for a 510(k) or that general controls would be inadequate to control the +risks and special controls cannot be developed. +Obtaining +FDA marketing authorization, de novo down-classification, or approval for medical devices is expensive and uncertain, and may take several +years, and generally requires significant scientific and clinical data. +Some +pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially +distributed. +Investigational +Device Process +Clinical +trials are sometimes required to support a 510(k) submission. In the United States, absent certain limited exceptions, human clinical +trials intended to support medical device clearance or approval or to determine safety and effectiveness of a device for an investigational +use must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational +device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities +of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the +FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human +clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that +it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in +advance by the FDA for a specified number of subjects. Generally, clinical trials for a significant risk device may begin once the IDE +application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards +at the clinical trial sites. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials, +and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not +bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial +meets its intended success criteria. +24 +If +the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an +IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting +such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient +and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating +disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application +must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans +and that the testing protocol is scientifically sound. The IDE will automatically become effective thirty (30) days after receipt by +the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or +other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. +Regardless +of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an +Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, +and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, +human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the +FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for +the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring +the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance +of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, +the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant +the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator +may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of +human subjects. +During +a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting +clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping +and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators +in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational +plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. +Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, +including the following: +● +The +FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold; +● +Patients +do not enroll in clinical trials at the rate expected; +● +Patients +do not comply with trial protocols; +● +Patient +follow-up is not at the rate expected; +● +Patients +experience serious adverse events; +● +Patients +die during a clinical trial, even though their death may not be related to the products that are part of the trial; +● +Device +malfunctions occur with unexpected frequency or potential adverse consequences; +● +Side +effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of result +in the imposition of new requirements or testing; +25 +● +Institutional +review boards and third-party clinical investigators may delay or reject the trial protocol; +● +Third-party +clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with +the clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other +FDA or IRB requirements; +● +Third-party +investigators are disqualified by the FDA; +● +We +or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent +with the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing +responsibilities, records, and reports of sponsors of clinical investigations; +● +Third-party +clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results +unreliable, or the company or investigators fail to disclose such interests; +● +Regulatory +inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective +action or suspend or terminate our clinical trials; +● +Changes +in government regulations or administrative actions; +● +The +interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or +● +The +FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness. +510(k) +Clearance Process +Under +the 510(k) process, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the proposed device +is “substantially equivalent,” as defined in the FDCA, to a legally marketed predicate device. +A +predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior +to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class +II or I, or a device that was found substantially equivalent through the 510(k) process. A device is considered to be substantially equivalent +if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics; or +(ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does +not raise different questions of safety or effectiveness than the predicate device. +Before +the FDA will accept a 510(k) premarket notification for substantive review, the FDA will first assess whether the submission satisfies +a minimum threshold of acceptability. If the FDA determines that the 510(k) submission lacks necessary information for substantive review, +the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to +permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information +before the FDA will proceed with additional review of the submission. If a 510(k) submission is accepted for substantive review, the +Medical Device User Fee Amendments sets a performance goal of 90 days for FDA review of a 510(k) submission, but the review time can +be delayed if FDA raises questions or requests additional information during the review process. As a practical matter, clearance often +takes longer, and clearance is never assured. Thus, as a practical matter, clearance often takes longer than 90 days. Although many 510(k) +premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make +a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device +is substantially equivalent, it will grant clearance to commercially market the device. +26 +If +the FDA determines that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to commercially +market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, +the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous requirements of the +PMA approval process, or can request a risk-based classification determination for the device in accordance with the “ de novo ” +process, which is a route to market for certain novel medical devices that are low to moderate risk and are not substantially equivalent +to a predicate device. +Medical +devices can only be marketed for the indications for use for which they are cleared or approved. After a device receives 510(k) clearance, +any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification +in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or de novo reclassification. +The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo request or +a PMA in the first instance, but the FDA may review this determination to evaluate the regulatory status of the modified product at any +time and may require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance +or PMA approval is obtained or a de novo request is granted. Also, in these circumstances, the manufacturer may be subject to +significant regulatory fines or penalties. +Over +the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements +for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process +for their products. For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket +notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to +drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset +certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that +have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. These proposals +have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. +More +recently, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” +premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence +under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, +thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices +in the clearance process. The FDA has developed and maintains a list device types appropriate for the “safety and performance based” +pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, +as well as recommended testing methods, where feasible. +PMA +Approval Process +Class +III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet +required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. +In a PMA, the manufacturer must demonstrate that the device is safe and effective for its intended use, and the PMA must be supported +by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of +the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. +Following receipt of a PMA, the FDA conducts an administrative review to determine whether the application is sufficiently complete to +permit a substantive review. If it is not, the agency will refuse to file the PMA. If FDA accepts the application for substantive review, +it has 180 days under the FDCA to complete its review of a filed PMA application, although in practice, the FDA’s review often +takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or +clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s +response to deficiencies communicated by the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an +applicant fails to respond to an FDA request for information (e.g., major deficiency letter) within a total of 360 days. Before approving +or denying a PMA application, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application +and provide recommendations to the FDA as to whether the FDA should approve the submission, approve it with specific conditions, or not +approve it. The FDA may or may not accept the panel’s recommendation. Prior to approval of a PMA, the FDA may conduct inspections +of the clinical trial data and clinical trial sites, as well as conduct inspections of the applicant or its third-party manufacturers’ +or suppliers’ manufacturing facility or facilities to, among other things, ensure compliance with the QSR. PMA applications are +also subject to the payment of user fees, which for fiscal year 2021 includes a standard application fee of $365,657. +27 +● +Overall, +the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, +limit or deny approval of a PMA application for many reasons, including: +● +The +device may not be shown safe or effective to the FDA’s satisfaction; +● +The +data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval; +● +The +manufacturing process or facilities may not meet applicable requirements; and +● +Changes +in FDA approval policies or adoption of new regulations may require additional data. +If +the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which +usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have +been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, +subject to the conditions of approval and the limitations established in the approval letter. The FDA may approve a PMA with post-approval +conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, +sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or +requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance +when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger +population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number +of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval +can result in material adverse enforcement action, including withdrawal of the approval. If the FDA’s evaluation of a PMA application +or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may +determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or +years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the +data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been +sought by other companies have never been approved by the FDA for marketing. +Certain +changes to an approved medical device, such as changes in manufacturing facilities, methods, quality control procedures, sterilization +(if applicable), packaging, expiration date, labeling, device specifications, materials, or design of a device, or other changes which +affect the safety or effectiveness of the device that has been approved through the PMA process require submission of a new PMA or PMA +supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited +to information needed to support any changes from the device covered by the original, approved PMA and may not require as extensive clinical +data or the convening of an advisory panel, depending on the nature of the proposed change. Certain other changes to an approved device +require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical +basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that +were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. +28 +Ongoing +Regulation by the FDA +Even +after the FDA permits a device to be marketed, numerous and pervasive regulatory requirements continue to apply. These include: +● +Establishment +registration and device listing with the FDA; +● +QSR +requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, supplier/contractor +selection, compliant handling, documentation and other quality assurance procedures during all aspects of the design and manufacturing +process; +● +Labeling +regulations, advertising and promotion requirements, restrictions on sale, distribution or sale of a device, each including the FDA +prohibition against the promotion of products for any uses other than those authorized by the FDA, which are commonly known as “off-label” +uses; +● +The +Medical Device Reporting, or MDR, regulations, which require that a manufacturer report to the FDA if a device it markets may have +caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would +be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; +● +Medical +device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals +if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; +● +Recall +requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health +consequences or death; +● +An +order of repair, replacement, or refund; +● +Device +tracking requirements; and +● +Post-market +study and surveillance requirements. +After +a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute +a major change in its intended use, will require a new 510(k). The FDA requires each manufacturer to make this determination initially, +but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s +determination not to seek a new 510(k) clearance, the FDA may retroactively require it to seek 510(k) clearance. The FDA could also require +the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance is obtained. Also, in these +circumstances, the manufacturer may be subject to significant regulatory fines and penalties. +FDA +regulations require us to register as a medical device manufacturer with the FDA. Additionally, some states also require medical device +manufacturers and/or distributors doing business within the state to register with the state or apply for a state license, which could +subject our facility to state inspection as well as FDA inspection on a routine basis for compliance with the QSR and any applicable +state requirements. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner +with respect to manufacturing, testing and control activities. +Manufacturing +processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities +and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, +installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device +master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections +by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing +operations and the recall or seizure of marketed products, which would have a material adverse effect on our business. The discovery +of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity +or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice +of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory +device recalls. +29 +The +FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable +regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: +● +Warning +letters, untitled letters, fines, injunctions, consent decrees and civil penalties; +● +Recalls, +withdrawals, or administrative detention or seizure of our products; +● +Operating +restrictions or partial suspension or total shutdown of production; +● +Refusing +or delays in processing, clearing, or approving submissions or applications for new products or modifications to existing products; +● +Suspension +or withdrawal of 510(k) clearances or PMA approvals that have already been granted; +● +FDA +refusal to issue certification to foreign governments needed to export our products for sale in other countries; or +● +Criminal +prosecution. +Our +facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Failure to comply with the +applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, +fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures +of products, operating restrictions, total or partial suspension of production, the FDA’s refusal to issue certificates to foreign +governments needed to export products for sale in other countries, the FDA’s refusal to grant future premarket clearances or approvals, +withdrawals or suspensions of current product clearances or approvals and criminal prosecution. +Regulation +of Medical Devices in the European Union +The +European Union, or EU, has adopted specific directives regulating the design, manufacture, clinical investigations, conformity assessment, +labeling and adverse event reporting for medical devices. EU directives must be implemented into the national laws of the EU member states +and national laws may vary from one member state to another. +In +the EU, there is currently no premarket government review of medical devices. However, the EU requires that all medical devices placed +on the market in the EU must meet the relevant essential requirements laid down in the Council Directive 93/42/EEC, or the Medical Devices +Directive, and the Council Directive 90/385/EEC, or the Active Implantable Medical Devices Directive. The most fundamental essential +requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition +or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by +the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards +applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical +equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. +While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical +matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device +satisfies that essential requirement. +To +demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers +must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Conformity +assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience +in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where +the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to +sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified Bodies are independent +organizations designated by EU countries to assess the conformity of devices before being placed on the market. A Notified Body would +typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (which must, in particular, +comply with ISO 13485:2016 related to Medical Devices Quality Management Systems). If satisfied that the relevant product conforms to +the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for +its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on +the market throughout the EU. +30 +Notified +Body certificates of conformity are valid for a fixed duration (which shall not exceed five years). Throughout the term of the certificate, +the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In +particular, there will be a new audit by the Notified Body before it will renew the relevant certificate(s). +As +a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, +among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions +of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, +that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended +performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers +placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, incidents +must be reported to the relevant authorities of the EU member states, and manufacturers are required to take Field Safety Corrective +Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device +that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance +of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might +have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include +the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its +legal representative to its customers and/or to the end users of the device through Field Safety Notices. +The +advertising and promotion of medical devices is subject to some general principles set forth by EU directives. According to the Medical +Devices Directive, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose. +Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while +not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example requiring +that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at national level. EU member states +laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising +and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals. +Many +EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular +vis-à -vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of +payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national +“Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements +in the United States, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs. +On +May 25, 2017, Regulation 2017/745, or the EU Medical Devices Regulation, entered into force, which repeals and replaces the Medical Devices +Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of +the EU member states, regulations are directly applicable, without the need for adoption of EU member state laws implementing them, in +all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The +Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory +framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. +The +Medical Devices Regulation was originally intended to become applicable three years after publication, but in April 2020 the transition +period was extended by the European Parliament and the Council of the EU by an additional year – until May 26, 2021. Devices lawfully +placed on the market pursuant to the Medical Devices Directive and the Active Implantable Medical Devices Directive prior to May 26, +2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once applicable, the new regulations +will among other things: +● +Strengthen +the rules on placing devices on the market and reinforce surveillance once they are available; +31 +● +Establish +explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices +placed on the market; +● +Improve +the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; +● +Set +up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available +in the European Union, or EU; and +● +Strengthen +the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are +placed on the market. +The +aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus +Norway, Liechtenstein and Iceland. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the +marketing of medical devices that meet EU requirements. +The +EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. +However, as a result of Brexit, the Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored +the Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be +based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the +Medical Devices Regulation going forward. CE markings will continue to be recognized in the UK, and certificates issued by EU recognized +Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity +Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized +on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including +market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated +product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, +the “rules of origin” criteria will need to be reviewed. Depending on which countries products will ultimately be sold in, +manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for +placing medical devices on the Northern Ireland market will differ from those in the UK. +Healthcare +Fraud and Abuse Laws +In +the United States, we are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the +healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, transparency and other +healthcare fraud and abuse laws. +The +U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, +soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, +leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, +in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly +interpreted to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Among other +things, the Anti-Kickback Statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand +and prescribers and purchasers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting +some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. The government can exercise enforcement +discretion in taking action against unprotected activities. Further, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws, +which establish similar prohibitions, and in some cases may apply to items or services reimbursed by any third-party payor, including +commercial insurers and self-pay patients. +The +federal false claims, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, +or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly +making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, +or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim +includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims +Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a +claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent +claim for purposes of the federal civil False Claims Act. In addition, various states have enacted false claim laws analogous to the +federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely +a federal healthcare program. +32 +The +federal Health Insurance Portability and Accountability Act of 1996 created additional federal criminal statutes that prohibit, among +other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including +private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a +criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or +making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, +items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. +The +federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually +to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, +podiatrists and chiropractors), and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to +report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such +obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, +including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants +and certified nurse midwives. +Violations +of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, +including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), +disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on +companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such +companies. +Coverage +and Reimbursement +In +the United States, our currently cleared products are not separately reimbursed by any third-party payors and if covered, are paid for +as part of the procedure in which the product is used. Outside of the United States, there are many reimbursement programs through private +payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and +hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other +third-party payors provide coverage for and establish adequate reimbursement levels for the procedures in which our products are used. +Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain coverage and adequate reimbursement +from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors’ +coverage and reimbursement policies, may adversely impact demand for our products. +Based +on our experience to date, third-party payors generally reimburse for the procedures in which our products are used if medical necessity +is met and a prior approval is completed with a favorable response. Some payors are moving toward a managed care system and control their +healthcare costs by establishing coverage policies that categorically restrict coverage of certain procedures, or by limiting authorization +for procedures, including elective procedures using our devices. No uniform policy of coverage and reimbursement among payors in the +United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor. Third-party payors are +increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using +inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative +devices or procedures before they will reimburse healthcare providers who use the products or therapies. Even though a new product may +have been cleared for commercial distribution by the FDA, we may find limited demand for our product unless reimbursement approval can +be obtained and/or maintained from governmental and private third-party payors. +33 +In +addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly +update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes +routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. +These updates could directly impact the demand for our products. +We +believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has +led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products +and services. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs through prospective +reimbursement and capitation programs, group purchasing, redesign of benefits, and exploration of more cost-effective methods of delivering +healthcare. In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval +of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts +the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member +per month and, consequently, may limit the willingness of these providers to use our products. +In +international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted +price ceilings on specific product lines and procedures. In the European Union, member states are facing increased pressure to limit +public healthcare spending. There can be no assurance that procedures using our products will be covered for a specific indication, that +our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that +the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. More and +more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional +layer of clearance requirement. +Healthcare +Reform +The +United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change +the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United +States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare +costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare +costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures +that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our +revenue from the sale of our products. +The +implementation of the Affordable Care Act (the “ACA”) in the United States, for example, has changed healthcare financing +and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, +among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, +and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and +other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, +the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, +identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment, +there have been judicial, executive and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court +dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality +of the ACA. It is unclear how healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or +replace the ACA will impact the law or our business. +34 +In +addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of +2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent +legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 +through March 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among +other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period +for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of +2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed +annual updates and a new system of incentive payments that began in 2019 that are based on various performance measures and physicians’ +participation in alternative payment models, such as accountable care organizations. +We +expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that +federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or +additional pricing pressure. +Data +Privacy and Security Laws +Numerous +state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access +to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal +and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, +and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, +and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, +certain state and non-U.S. laws, such as the CCPA, the CPRA and the GDPR, govern the privacy and security of personal information, including +health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other +in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where +applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and +can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data +processing. +In +Europe, the GDPR went into effect on May 25, 2018 and introduces strict requirements for processing the personal data of European Union +data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory +enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global +revenues of the preceding financial year of the noncompliant company, whichever is greater. +Among +other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to +provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms +between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework +for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 +by the Court of Justice of the European Union. +Further, +from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom General Data Protection Regulation, or the UK +GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines +under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover. The relationship between +the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is also unclear +how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from +the United Kingdom will be regulated in the long term. Currently there is a four- to six-month grace period agreed in the EU and United +Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, while the parties discuss an adequacy decision. The European +Commission published a draft adequacy decision on February 19, 2021. If adopted, the decision will enable data transfers from EU member +states to the United Kingdom for a four-year period, subject to subsequent extensions. +35 +Environmental +Matters +Based +on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital +expenditures, earnings and competitive position of our Company in the current financial year and are not expected to have a significant +effect in the reasonably foreseeable future. +Manufacturing +Services Agreement +On +August 21, 2020, the Company entered into a Manufacturing Services Agreement with GMI Corporation (“GMI”), dated as of August +21, 2020 (“MSA”), for the manufacture and supply of the Company’s IB-STIM device based upon the Company’s product +specifications as set forth in the MSA. +The +Company provides the necessary equipment to GMI and retains ownership. GMI bears the risk of loss of and damage to the equipment and +consigned materials. Performance under the MSA is initiated by orders issued by the Company and accepted by GMI. +The +initial term of the MSA was 24 months and automatically renews for terms of twelve months unless either party provides a written termination +notice to the other party within 180 days prior to the end of the then-current term. +GMI +was established in 1990 and manufactures our IB-Stim device in its 69,000 square foot facility that including offices, factory, environmentally +controlled room, warehouse, parts processing, assembly, quality control, of which approximately 1,000 square feet is dedicated to producing +our product, located in Indiana. +With +controlled, repeatable, monitored production process, GMI has kit production capacity that is sufficient for all our projected needs. +There is a new, dedicated, environmentally controlled build room built in 2022 for our equipment and production. All of our materials +are now maintained in this room. +GMI +has a quality management system that is ISO 13485:2016 certified, FDA registered, and ITAR registered. +In +connection with the MSA, the Company entered into a quality agreement with GMI, dated as of August 24, 2020, for GMI to test product +provided by the Company and perform quality assurance services. +Employees +As +of December 31, 2024, we had 21 full-time employees. +ITEM +1A. RISK FACTORS +Risks +Relating to Our Business and Our Product +Our +business and prospects depend entirely on our current products, IB-Stim and RED. Even though we have received FDA clearance for our products, +it will remain subject to ongoing regulatory review. If we are unable to maintain regulatory clearance and commercialize our product +or are significantly delayed or limited in our commercialization efforts, our business and prospects will be materially harmed. +Almost +all of our revenues have been derived from sales and royalties from sales of IB-Stim, and we expect to develop, market, and sell other +neuromodulation therapy devices for the treatment of chronic and debilitating conditions in children. The commercial success of our products +and our ability to generate and maintain revenues from the sale of our products will depend on a number of factors, including: +● +our +ability to develop and obtain additional regulatory clearances and further commercialize our products for additional indications; +● +our +ability to expand into new markets and future indications; +● +the +acceptance of our products by patients and the healthcare community, including physicians and third-party payers (both private and +governmental), as therapeutically effective and safe; +● +the +accomplishment of various scientific, engineering, clinical, regulatory and other goals, which we sometimes refer to as milestones, +on our anticipated timeline; +36 +● +the +relative cost, safety and efficacy of alternative therapies; +● +our +ability to obtain and maintain sufficient coverage or reimbursement by private and governmental third-party payers and to comply +with applicable health care laws and regulations; +● +the +ability of our third-party manufacturers to manufacture our products in sufficient quantities with acceptable quality; +● +our +ability to provide marketing, distribution and customer support for our products; +● +the +potential presence of competitive products in our active indications; +● +results +of future clinical studies relating to our products or other competitor products for similar indications; +● +compliance +with applicable laws and regulatory requirements; +● +the +maintenance of our existing regulatory clearance; and +● +the +consequences of any reportable adverse events involving our products. +In +addition, the promotion of our products is limited to approved indications, which vary by geography. The labelling for our device in +the U.S. is limited in certain respects, which may limit the number of patients to whom it is prescribed. +Our +ability to generate future revenues will also depend on achieving regulatory approval of, and eventual commercialization of, our products +for additional indications and in additional geographies, which is not guaranteed. Our near-term prospects are substantially dependent +on our ability to obtain regulatory approvals on the timetable we have anticipated, and thereafter to further successfully commercialize +our products for additional indications. Regulatory changes or actions in areas in which we operate or propose to operate may further +affect our ability to obtain regulatory clearances on our anticipated timetable. If we are not able to receive such approvals, meet other +anticipated milestones, or further commercialize our products, or are significantly delayed or limited in doing so, our business and +prospects will be materially harmed and we may need to reduce expenses by delaying, reducing or curtailing the development of our products +and we may need to raise additional capital to fund our operations, which we may not be able to obtain on favorable terms, if at all. +To +date, we have not generated any operating profits, and due to our long-term research and development efforts, we have a history of incurring +substantial operating losses. +We +were founded in 2011 and have a history of incurring substantial operating losses. We anticipate continuing to incur significant costs +associated with developing and commercializing our products for approved indications including signal development, device hardware and +software development, product sales, marketing, manufacturing, and distribution expenses. We expect our research, development, and clinical +study expenses to increase in connection with our ongoing activities and as additional indications enter clinical development and as +we advance our product development. Our expenses could increase beyond expectations if, for example, we are required by the FDA, or other +regulatory agencies or similar governing bodies, to change manufacturing processes for our products or to perform clinical, nonclinical +or other types of studies in addition to those that we currently anticipate. Our revenues are dependent, in part, upon the size of the +markets in the jurisdictions in which we receive regulatory approval, the accepted price for our products and the ability to obtain reimbursement +at the accepted applicable price. If the number of addressable patients is not as significant as we or our strategic partners and licensees +estimate, the indications approved by regulatory authorities are narrower than we expect or the eligible population for treatment is +narrowed by competition, regulatory approvals, physician choice or treatment guidelines, we may not generate significant revenues. If +we are not able to generate significant revenues, we may never be sustainably profitable. +Our +clinical studies could be delayed or otherwise adversely affected by many factors, including difficulties in enrolling patients. +Clinical +testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. Moreover, success +in pre-clinical and early clinical studies does not ensure that large-scale studies will be successful or predict final results. Acceptable +results in early studies may not be replicable in later studies. A number of companies in therapeutics industries have suffered significant +setbacks in advanced clinical studies, even after promising results in earlier studies. Negative or inconclusive results or adverse events +or incidents during a clinical study could cause the clinical study to be redone or terminated. In addition, failure to appropriately +construct clinical studies could result in high rates of adverse events or incidents, which could cause a clinical study to be suspended, +redone or terminated. Our failure or the failure of third-party participants in our studies to comply with their obligations to follow +protocols and/or legal requirements may also result in our inability to use the affected data in our submissions to regulatory authorities. +37 +The +timely completion of clinical studies depends, among other things, on our ability to enroll a sufficient number of patients who remain +in the study until its conclusion. We may experience difficulties in patient enrollment in our clinical studies for a variety of reasons, +including: +● +the +severity of the disease under investigation; +● +the +limited size and nature of the patient population; +● +the +patient eligibility criteria defined in our protocol and other clinical study protocols; +● +the +nature of the study protocol, including the attractiveness of, or the discomforts and risks associated with, the treatments received +by enrolled subjects; +● +difficulties +and delays in clinical studies that may occur as a result of the COVID-19 pandemic; +● +the +ability to obtain IRB approval at clinical study locations; +● +clinicians’ +and patients’ perceptions as to the potential advantages, disadvantages and side effects of our products in relation to other +available therapies, including any new drugs or treatments that may be approved for the indications we are pursuing; +● +availability +of other clinical studies that exclude use of our products; +● +the +possibility or perception that enrolling in a product’s clinical study may limit the patient’s ability to enroll in future +clinical studies for other therapies due to protocol restrictions; +● +the +possibility or perception that our software is not secure enough to maintain patient privacy; +● +patient +referral practices of physicians; +● +the +ability to monitor patients adequately during and after treatment; +● +the +availability of appropriate clinical study investigators, support staff, drugs and other therapeutic supplies and proximity of patients +to clinical sites; +● +physicians’ +or our ability to obtain and maintain patient consents; and +● +the +risk that when we collaborate with a third-party for research of a product in a particular institution, we can expect to relinquish +some or all of the control over the future success of that study to the third-party. +If +we have difficulty enrolling and retaining a sufficient number or diversity of patients to conduct our clinical studies as planned, or +encounter other difficulties, we may need to delay, terminate or modify ongoing or planned clinical studies, any of which would have +an adverse effect on our business. +If +we are unable to develop an adequate sales and marketing organization or contract with third parties to assist us, we may not be able +to successfully commercialize our products for current and future indications. +To +achieve commercial success for our products, we must compliantly develop and grow our sales and marketing organization and, as necessary, +enter into sales and distribution relationships with third parties to market and sell our products. Developing and managing a sales and +marketing organization is a difficult, expensive and time consuming process. We may not be able to successfully develop adequate sales +and marketing capabilities to achieve our growth objectives. We compete with other medical device, pharmaceutical and life sciences companies +to recruit, hire, train and retain the sales and marketing personnel that we anticipate we will need, and the nature of our products +may make it more difficult to compete for sales and marketing personnel. In addition, because our current products require, and we anticipate +our future products will require, physician training and education, our sales and marketing organization may need to grow substantially +as we expand our approved indications and markets. As a consequence, our expenses associated with building up and maintaining our sales +force and marketing capabilities may be disproportionate to the revenues we may be able to generate on sales of our products. +If +we are unable to establish adequate sales and marketing capabilities or successful sales and distribution relationships, we may fail +to realize the full revenue potential of our products for current and future indications, and we may not be able to achieve the necessary +growth in a cost-effective manner or realize a positive return on our investment. In our future sales and distribution agreements with +other companies, we generally may not have control over the resources or degree of effort that any of these third parties may devote +to our products, and if they fail to devote sufficient time and resources to the marketing of our products, or if their performance is +substandard, our revenues may be adversely affected. +38 +The +success of our business may be dependent on the actions of our collaborative partners. +Our +business strategy includes, in part, the consummation of collaborative arrangements with companies who will support the development and +commercialization of our products and technology. We may also enter into clinical collaborations with third parties to test our products +and technology together with other products and technologies. +When +we collaborate with a third party for commercialization of a product in a particular territory, we can expect to relinquish some or all +of the control over the future success of that product to the third party in that territory. In addition, our collaborative partners +may have the right to terminate applicable agreements, including payment obligations, prior to or upon the expiration of the agreed-upon +terms. We may not be successful in establishing or maintaining collaborative arrangements on acceptable terms or at all, collaborative +partners may terminate funding before completion of projects, our products may not achieve the criteria for milestone payments, our collaborative +arrangements may not result in successful product commercialization, our products may not receive acceptable pricing and we may not derive +any revenue from such arrangements. Additionally, our collaborators may not perform their obligations as expected or in compliance with +study protocols or applicable laws. Acts or omissions by collaborators may disqualify study data for use in regulatory submissions and/or +create liability for us in the jurisdictions in which we operate. Any disagreements with collaborators, including disagreements over +proprietary rights, contract interpretation or the preferred course of commercialization, might cause delays or termination of the commercialization +of products, might lead to additional responsibilities for us with respect to commercializing products, or might result in litigation +or arbitration, any of which would be time-consuming and expensive. To the extent that we are not able to develop and maintain collaborative +arrangements, we would need to devote substantial capital to undertake commercialization activities on our own in order to further expand +our reach, and we may be forced to limit the territories in which we commercialize our products. +We +may not be successful in achieving market acceptance of our products by healthcare professionals, patients and/or third-party payers +in the timeframes we anticipate, or at all, which could have a material adverse effect on our business, prospects, financial condition +and results of operations. +We +may not achieve market acceptance of our products for current or future indications within the timeframes we have anticipated, or at +all, for a number of different reasons, including the following factors: +● +it +may be difficult to gain broad acceptance of our products because they are new technologies and involve a novel or derivative mechanism +of action and, as such, physicians may be reluctant to prescribe our products without prior experience or additional data or training; +● +physicians +may be reluctant to prescribe our products due to their perception that the supporting clinical study designs have limitations, as +they are, for example, unblinded; +● +physicians +at large academic universities and medical centers may prefer to enroll patients into clinical studies instead of prescribing our +products; +● +it +may be difficult to gain broad acceptance at community hospitals where the number of patients seeking treatment may be more limited +than at larger medical centers, and such community hospitals may not be willing to invest in the resources necessary for their physicians +to become trained to use our products, which could lead to reluctance to prescribe our products; +● +patients +may be reluctant to use our products for various reasons, including a perception that the treatment is untested or difficult to use +or a perception that our software is not secure; +● +our +products may have side effects and our products cannot be worn in all circumstances; and +● +each +patient will use more than one device and therefore, as the duration of the treatment course increases, the overall price will increase +correspondingly and, when used in combination with other treatments, the overall cost of treatment will be greater than using a single +type of treatment. +In +particular, our products may not achieve market acceptance for current or future indications because of the following additional factors: +● +achieving +patient acceptance could be difficult because not all patients are willing to comply with requirements of treatment with our products, +and other patients may forego our products for financial, privacy, cosmetic, visibility or mobility reasons; +39 +● +achieving +patient compliance may be difficult because the recommended use of our products is 120 hours per week for three (3) consecutive weeks, +and not to exceed four (4) weeks, which to some extent restricts physical mobility because our products cannot be worn in all circumstances, +and the patient or a caregiver must ensure that it remains continuously operable and this may also impact the pool of patients to +whom physicians may be willing to prescribe our products; +● +there +may be certain perceived limitations to our study designs or data obtained from our clinical studies; +● +efficacy +may also be limited in instances where patients take a break from the device when experiencing skin rashes, or while bathing or swimming +(because our products should not be immersed in water); and +● +patients +may decline therapy or prescribers may be unwilling to prescribe our products due to certain adverse events attributable to the device +reported in clinical studies by patients treated with our products. +In +addition, even if we are successful in achieving market acceptance of our products for IBS or other indications, we may be unsuccessful +in achieving market acceptance of our products for other indications. +There +may be other factors that are presently unknown to us that also may negatively impact our ability to achieve market acceptance of our +products. If we do not achieve market acceptance of our products in the timeframes we anticipate, or are unable to achieve market acceptance +at all, our business, prospects, financial condition and results of operations could be materially adversely affected. +Failure +to secure and maintain adequate coverage and reimbursement from third-party payers could adversely affect acceptance of our products +and reduce our revenues. +We +expect that the majority of our revenues will come from third-party payers, primarily children’s hospitals, either directly to +us in markets where we provide our products or plan to provide our device candidates to patients or indirectly via payments made to hospitals +or other entities providing our products or which may in the future provide our device candidates to patients. +In +the U.S., private payers cover the largest segment of the population, with the remainder either uninsured or covered by governmental +payers. The majority of the third-party payers outside the U.S. are government agencies, government sponsored entities or other payers +operating under significant regulatory requirements from national or regional governments. +Third-party +payers may decline to cover and reimburse certain procedures, supplies or services. Additionally, some third-party payers may decline +to cover and reimburse our products for a particular patient even if the payer has a favorable coverage policy addressing our products +or previously approved reimbursement for our products. Additionally, private and government payers may consider the cost of a treatment +in approving coverage or in setting reimbursement for the treatment. +Private +and government payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment +of healthcare costs has become a priority of governments. Adoption of additional price controls and cost-containment measures, and adoption +of more restrictive policies in jurisdictions with existing controls and measures, could further limit our revenues and operating results. +If third-party payers do not consider our products or the combination of our products with additional treatments to be cost-justified +under a required cost-testing model, they may not cover our products for their populations or, if they do, the level of reimbursement +may not be sufficient to allow us to sell our products on a profitable basis. +Reimbursement +for the treatment of patients with medical devices is governed by complex mechanisms. These mechanisms vary widely among countries, can +be informal, somewhat unpredictable, and evolve constantly, reflecting the efforts of these countries to reduce public spending on healthcare. +As a result, obtaining and maintaining reimbursement for the treatment of patients with medical devices has become more challenging. +We cannot guarantee that the use of our products will receive reimbursement approvals and cannot guarantee that our existing reimbursement +approvals will be maintained in any country. +Our +failure to secure or maintain adequate coverage or reimbursement for our products by third-party payers in the U.S. or in the other jurisdictions +in which we market our products could have a material adverse effect on our business, revenues and results of operations and cause our +stock price to decline. +40 +We +may not be successful in maintaining reimbursement codes necessary to facilitate accurate and timely billing for our products or physician +services attendant to our products . +Third-party +payers, healthcare systems, government agencies or other groups often issue reimbursement codes to facilitate billing for products and +physician services used in the delivery of healthcare. Our IB-STIM technology specific CAT III CPT Code (0720T) was published on December +30, 2021 and effective on July 1, 2022. In September of 2024, the AMA’s CPT Editorial Panel accepted addition of Category I CPT +Code (placeholder 64X11) for PENFS and deletion of Category III CPT Code 0720T. The finalized Category I CPT Code for PENFS, and associated +valuations, will be announced publicly in Q4 of 2025. The new code will become effective for utilization on January 1, 2026. RED is billable +under Category I CPT Code 91120. We may not be able to maintain the CPT code for physician services related to our products. Our future +revenues and results may be affected by the absence of CPT codes, as physicians may be less likely to prescribe the therapy when there +is no certainty that adequate reimbursement will be available for the time, effort, skill, practice expense and malpractice costs required +to provide the therapy to patients. +Outside +the U.S., we have not secured codes to describe our products or to document physician services related to the delivery of therapy using +our products. The failure to obtain and maintain these codes could affect the future growth of our business. +We +may depend on single-source suppliers for some of our components. The loss of these suppliers could prevent or delay shipments of our +products, delay our clinical studies or otherwise adversely affect our business. +In +certain jurisdictions, we may source some of the components of our products from only a single vendor. If any one of these single-source +suppliers were to fail to continue to provide components to us on a timely basis, or at all, our business and reputation could be harmed. +We will seek and maintain second-source suppliers, but we can provide no assurance that we will secure or maintain such suppliers. We +have developed or are in the process of developing and obtaining regulatory approval for second sources for components in all jurisdictions. +Various steps must be taken before securing these suppliers, including qualifying these suppliers in accordance with regulatory requirements, +but we may never receive such approvals. The risks associated with the failure of our suppliers to comply with strictly enforced regulatory +requirements as described below are exacerbated by our dependence on single-source suppliers. +If +we experience any deficiency in the quality of, delay in or loss of availability of any components supplied to us by third-party suppliers, +or if we switch suppliers or components, we may face additional regulatory delays and the manufacture and delivery of our products would +be interrupted for an extended period of time, which could materially adversely affect our business, prospects, financial condition and +results of operations. If we are required to obtain prior regulatory approval from the FDA or regulatory authorities or similar governing +bodies in other jurisdictions or to conduct a new conformity assessment procedure for our products, regulatory approval for our products +may not be received on a timely basis, or at all, which would have a material adverse effect on our business, prospects, financial condition +and results of operations. +Quality +control problems with respect to devices and components supplied by third-party suppliers could have a material adverse effect on our +reputation, our clinical studies or the commercialization of our products and, as a result, a material adverse effect on our business, +prospects, financial condition and results of operations . +Our +products, which are manufactured by third parties, are highly technical and are required to meet exacting specifications. Any quality +control problems that we experience with respect to the devices and components supplied by third-party suppliers could have a material +adverse effect on our reputation, our attempts to complete our clinical studies, our operating expenses or the commercialization of our +products. The failure of our suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action, +including warning letters, product recalls, suspension or termination of distribution, product seizures or civil penalties. If we experience +any delay in the receipt or deficiency in the quality of products supplied to us by third-party suppliers, or if we have to switch to +replacement suppliers, we may face additional regulatory delays and the manufacture and delivery of our products would be interrupted +for an extended period of time, which would materially adversely affect our business, prospects, financial condition and results of operations. +41 +We +currently do not own a manufacturing facility and rely on a sole manufacturer for the production of our product . Any significant +disruption to the sole manufacturer’s operations or facilities could have a material adverse effect on our business, financial +condition and results of operations . +We +rely on a sole manufacturer for the production of our products. We do not have control over the operations of the facilities of the third-party +manufacturer that we use. A significant disruption to our manufacturer could have a material adverse effect on our business, financial +condition and results of operations. Our reliance on our manufacturer poses a number of risks, including lack of control over the manufacturing +process and ultimately over the quality and timing of delivery of our product. A change in our relationship with our manufacturer could +result in a material adverse effect on our business, financial condition and results of operations. A decision to change manufacturers +would result in longer times for design and production as we secure any necessary licenses or clearances, develop quality control measures, +and implement manufacturing processes. +Continued +testing of our products may not yield successful results and could reveal currently unknown aspects or safety hazards associated with +our products . +Our +research and development programs are designed to test the safety and efficacy of our products through extensive pre-clinical and clinical +testing. Even if our ongoing and future pre-clinical and clinical studies are completed as planned, we cannot be certain that their results +will support our claims or that the FDA and other regulatory authorities will agree with our conclusions. Success in pre-clinical studies +and early clinical studies does not ensure that later clinical studies will be successful, and we cannot be sure that the later studies +will replicate the results of prior studies and pre-clinical studies. The clinical study process may fail to demonstrate that our device +candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a device candidate and may delay development +of others. It is also possible that patients enrolled in clinical studies will experience adverse side effects that have not been previously +observed. In addition, our pre-clinical and clinical studies for our device candidates involve a relatively small patient population +and, as a result, these studies may not be indicative of future results. +We +may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent further commercialization +of our products, including the following: +● +pre-clinical +and clinical testing for our products may not produce the desired effect, may be inconclusive or may not be predictive of safety +or efficacy results obtained in future clinical studies, following long-term use or in much larger populations; +● +unanticipated +adverse events or other side effects that are not currently known may occur during our clinical studies that may preclude additional +regulatory approval or result in additional limitations to commercial use if approved; and +● +the +data collected from our clinical studies may not reach statistical significance or otherwise not be sufficient to support FDA or +other regulatory approval. +If +unacceptable side effects arise in the development of our products for future indications, we could suspend or terminate our clinical +studies or the FDA or other regulatory authorities could order us to cease clinical studies or deny approval of our device candidates +for any or all targeted indications, narrow the approved indications for use or otherwise require restrictive product labeling or marketing +or require further clinical studies, which may be time-consuming and expensive and may not produce results supporting FDA or other regulatory +approval of our products in a specific indication. Treatment-related side effects could also affect patient recruitment or the ability +of enrolled patients to complete the study or result in potential product liability claims. In addition, these side effects may not be +appropriately recognized or managed by the treating medical staff. We expect to have a need to train medical personnel using our devices +for clinical studies and upon any commercialization of our products for future indications. Inadequate training in recognizing or managing +the potential side effects of our products could result in patient injury or death. Any of these occurrences may harm our business, prospects +and financial condition significantly. +Any +delay or termination of our clinical studies will delay the filing of submissions for regulatory approvals of our products and ultimately +our ability to commercialize our products and generate revenues. Furthermore, we may abandon our products for indications that we previously +believed to be promising. Any of these events could have a material adverse effect on our business, prospects, financial condition and +results of operations and cause our stock price to decline. +42 +As +we expand, we may experience difficulties managing our growth . +Our +anticipated growth will place a significant strain on our management and on our operational and financial resources and systems. We could +face challenges inherent in efficiently managing a more complex business with an increased number of employees over large geographic +distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Failure to manage our growth +effectively could materially adversely affect our business. Additionally, our anticipated growth will increase the demands placed on +our third-party suppliers, resulting in an increased need to carefully monitor the available supply of components and services and to +scale up our quality assurance programs. There is no guarantee that our suppliers will be able to support our anticipated growth. Any +failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization +goals. +The +size and expected growth of our available market has not been established with precision and may be smaller than we estimate. +Our +data on the available market for our current products and future products is based on a number of internal and third-party research reports, +estimates and assumptions. While we believe that such research, our assumptions and the data underlying our estimates are reasonable, +these assumptions and estimates may not be correct. In addition, the statements in this prospectus relating to, among other things, the +expected growth in the market for our IB-Stim are based on a number of internal and third-party data, estimates and assumptions, and +may prove to be inaccurate. If the actual number of consumers who would benefit from our products, the price at which we can sell future +products or the available market for our products is smaller than we estimate, it could have a material adverse effect on our business, +financial condition and results of operations. +If +physicians and patients do not accept our current and future products or if the market for indications for which any product candidate +is approved is smaller than expected, we may be unable to generate significant revenue, if any. +Even +when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party +payers. Physicians may decide not to recommend our treatments for a variety of reasons including: +● +timing +of market introduction of competitive products; +● +demonstration +of clinical safety and efficacy compared to other products; +● +cost-effectiveness; +● +limited +or no coverage by third-party payers; +● +convenience +and ease of administration; +● +prevalence +and severity of adverse side effects; +● +restrictions +in the label of the device; +● +other +potential advantages of alternative treatment methods; and +● +ineffective +marketing and distribution support of its products. +If +any of our product candidates is approved but fails to achieve market acceptance or such market is smaller than anticipated, we may not +be able to generate significant revenue and our business would suffer. +Because +of the specialized nature of our business, the termination of relationships with our key employees, consultants and advisors may prevent +us from successfully operating our business, including developing our products, conducting clinical studies, commercializing our products +and obtaining any necessary financing . +We +are highly dependent on the members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. +While we have entered into employment agreements with each of our key executives, any of them could leave our employment at any time. +We do not have “key person” insurance on any of our employees. The loss of the services of one or more of our current employees +might impede the achievement of our business objectives. +The +competition for qualified personnel in the medical device fields is intense, and we rely heavily on our ability to attract and retain +qualified scientific, technical and managerial personnel. Our future success depends upon our ability to attract, retain and motivate +highly skilled employees. In order to commercialize our products successfully, we will be required to expand our workforce, particularly +in the areas of research and development and clinical studies, sales and marketing and supply chain management. These activities will +require the addition of new personnel and the development of additional expertise by existing management personnel. We face intense competition +for qualified individuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other +research institutions. We may not be able to attract and retain these individuals on acceptable terms or at all. Failure to do so could +materially harm our business. +43 +Customer +or third-party complaints or negative reviews or publicity about our company or our products could harm our reputation and brand. +We +are heavily dependent on customers who use our IB-Stim device to provide good reviews and word-of-mouth recommendations to contribute +to our growth. Customers who are dissatisfied with their experiences with our products or services may post negative reviews. We may +also be the subject of blog, forum or other media postings that include inaccurate statements and/or create negative publicity. In addition, +any negative news regarding similar products may adversely impact our business. Any negative reviews or publicity, whether real or perceived, +disseminated by word-of-mouth, by the general media, by electronic or social networking means or by other methods, could harm our reputation +and brand and could severely diminish consumer confidence in our products. +Adverse +global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity. +A +general slowdown in the global economy, including a recession, or in a particular region or industry, an increase in trade tensions with +U.S. trading partners, inflation or a tightening of the credit markets could negatively impact our business, financial condition and +liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and +markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty +also make it more difficult for us to accurately forecast revenue, gross profit and expenses, and may make it more difficult to raise +or refinance debt. Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions +between the U.S. and its trading partners, could result in a global economic slowdown and long-term changes to global trade. Such events +may also (i) cause our customers and consumers to reduce, delay or forgo spending, (ii) result in customers sourcing products from other +suppliers not subject to such restrictions or tariffs, (iii) lead to the insolvency or consolidation of key suppliers and customers, +and (iv) intensify pricing pressures. Any or all of these factors could negatively affect demand for our products and our business, financial +condition and results of operations. +Additionally, +economic conditions in certain regions may also be affected by natural disasters and public health emergencies, such as extreme weather +events, and could have a significant adverse effect on our business, including interruption of our commercial and clinical operations, +supply chain disruption, endangerment of our personnel, fewer patient visits, increased patient drop-out rates, delays in recruitment +of new patients, and other delays or losses of materials and results. +A pandemic could materially adversely impact our business . +A +pandemic could disruption and impact our business and clinical studies, which could include: +● +delays +and/or difficulties in onboarding active patients and enrolling patients in our clinical studies; +● +delays +and/or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site +staff; +● +declines +in prescriptions written due to a perception that our products are difficult to administer remotely or if patients are unwilling +to travel to treatment sites or receive in-home treatment assistance from us or other caregivers; +● +reductions +in third-party reimbursements, which could materially affect our revenue, as most of our patients rely on third-party payers to cover +the cost of our products and a material number of our patients could lose access to their private health insurance plan if they or +someone in their family lose their job; +● +diversion +of healthcare resources away from conducting clinical studies, including the diversion of hospitals serving as our clinical study +sites and hospital staff supporting the conduct of our clinical studies; +44 +● +interruption +of key clinical study activities, such as clinical study site monitoring, due to limitations on travel imposed or recommended by +federal or state governments, employers and others; +● +staff +disruptions and turnover internally and at treatment sites and third-party providers who provide support, either directly as a result +of illness or indirectly as a result of vaccine mandates and other changes in terms of employment; +● +delays +in receiving approval from local regulatory authorities or IRBs to initiate our planned clinical studies; +● +delays +in clinical sites receiving the supplies and materials needed to conduct our clinical studies; +● +interruption +in shipping that may affect the transport of active patient and clinical study materials; +● +changes +in local regulations as part of a response to a pandemic that may require us to change the ways in which our clinical +studies are conducted, which may result in unexpected costs, or to discontinue the clinical studies altogether; +● +delays +in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations +in employee resources or forced furlough of government employees; +● +disruption +of our supply chain as our suppliers and common carriers are unable to meet our requirements to provide us the materials we need +for clinical study and active patient care needs; +● +indirect +consequences of a pandemic on the economy in general, such as an increase in bankruptcies of our key suppliers, or the +inability of our third-party payers to meet their obligations reimburse us in a timely fashion or at all; +● +postponements +and cancellations of key conferences and meetings and travel restrictions could interfere with our ability to interact with key thought +leaders in the field, leading to a disruption in the rate of adoption of our technology; +● +access +restrictions at offices, hospitals, and treatment centers, and stakeholder illness could interfere with the ability of our sales +force to engage in face-to-face visits with providers, leading to a disruption in the rate of adoption of our technology; +● +increases +in expenditures for technology and other tools necessary to provide patient care in an environment where both patient and care-giver +travel is restricted and access to in-person interaction is limited; +● +refusal +of the FDA to accept data from clinical studies in affected geographies outside the United States; and +● +patient +delays in seeking or receiving treatment, either due to fear of infection or lack of access to treatment and study sites, leading +to fewer diagnoses of the indications our products are approved to treat or more advanced procession of the disease, which may contraindicate +the use of our products or disqualify the patient from participating in a given study. +The extent to which a pandemic may +impact our business and clinical studies will depend on future developments, which are highly uncertain and cannot be predicted with +confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing +guidelines, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease. The response +to a pandemic may result in permanent changes to the environment in which we operate as described above in ways we are unable to predict. +A pandemic may also have the effect of heightening many of the other risks described herein. +Developing +medical technology entails significant technical, regulatory and business risks . +We +may fail to adapt our technology to user requirements or emerging treatment standards. Neuromodulation therapies are not currently considered +standard of care for IBS and may not ever be considered standard of care. Treatment standards may not evolve to incorporate our product. +New industry standards for the development, manufacture and marketing of medical devices may evolve and we may not be able to conform +to the changes, meet new standards in a timely fashion or maintain a competitive position in the market. In particular, regulatory standards +for electrical treatments of medical conditions are evolving. If we face material delays in introducing our products and new technology, +we may fail to attract new customers. +Our +Company has an evolving business strategy and investors must be willing to accept a substantial degree of uncertainty. +The +Company’s strategic focus is on the development of developing neuromodulation therapies to address chronic and debilitating conditions +in children. The Company may engage in ongoing discussions with potential licensees, other strategic partners and institutional or private +financing sources, the result of which could add to or alter its current strategic focus, cash needs or ownership structure. Investors +must be willing to accept a substantial degree of uncertainty and must be willing to rely upon the Company’s board of directors +and management to complete an appropriate business strategy to commercially exploit targeted business opportunities. +45 +We +may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by +other companies. +Our +products will compete with existing and new therapies and treatments for chronic and debilitating conditions in children. We are aware +of a number of companies currently seeking to develop alternative therapies or treatment for such diseases and conditions at least in +part. Numerous pharmaceutical, biotechnology, drug delivery and medical device companies, hospitals, research organizations, individual +scientists, and nonprofit organizations are engaged in the development of alternatives to our technology. Some of these companies have +greater research and development capabilities, experience, manufacturing, marketing, financial, and managerial resources than we do. +Collaborations or mergers between large pharmaceutical or biotechnology companies with competing treatment technologies could enhance +our competitors’ financial, marketing, and other resources. Developments by other medical device companies could make our products +or technologies uncompetitive or obsolete. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA +clearances and/or approval for products or gaining market acceptance more rapidly than we can. +Due +in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially +promising or profitable indications or therapeutic areas for our product candidates, and/or we may be unable to pursue the clinical trials +that we would like to pursue. +We +have limited technical, managerial, and financial resources to determine the indications on which we should focus the development efforts +related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development programs +and activities that might otherwise have led to more rapid progress of our product candidates through the regulatory and development +processes. +We +may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that we +do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations and/or to accomplish +all of the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and financial resources +toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products +and may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs may also +cause us to miss valuable opportunities. +We +had material weaknesses in our internal control over financing reporting during the years ended December 31, 2024 and 2023, that are +unremediated as of December 31, 2024. If we fail to establish and maintain proper and effective internal control over financial +reporting, our operating results and our ability to operate our business could be harmed. +Ensuring +that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements +on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial +reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements in accordance with generally accepted accounting principles. +46 +We +document, review and improve our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which requires +annual management assessment of the effectiveness of our internal control over financial reporting. To comply with the requirements of +being a public company, the Company has undertaken various actions to implement internal controls and procedures. Testing and maintaining +internal controls can divert our management’s attention from other matters that are important to the operation of our business. +Additionally, when evaluating internal controls over financial reporting, the Company may identify material weaknesses that it may not +be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the +Sarbanes-Oxley Act. If the Company identifies any additional material weaknesses in its internal control over financial reporting or +is unable to remediate the material weakness described above or comply with the requirements of Section 404 of the Sarbanes-Oxley Act +in a timely manner or if the Company’s independent registered public accounting firm is unable to express an unqualified opinion +as to the effectiveness of our internal control over financial reporting once it is no longer an emerging growth company, or if the Company +is unable to conclude in our quarterly and annual reports that our disclosure controls and procedures are effective, investors may lose +confidence in the accuracy and completeness of the Company’s financial reports and the market price of our common stock could be +negatively affected, and the Company could become subject to investigations by the stock exchange on which our securities are listed, +the SEC or other regulatory authorities, which could require additional financial and management resources. +In +addition, if the Company fails to remediate any identified material weakness, our financial statements could be inaccurate and the Company +could face restricted access to capital markets. Our small size and internal control deficiencies may adversely affect our financial +condition, results of operation and access to capital. Moreover, our internal control over financial +reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide +only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations +in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur +or that all control issues and instances of fraud will be detected. If we cannot provide reliable financial reports or prevent +fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business +and reputation with investors may be harmed. +Risks +Related to Legal and Regulatory Matters +Product +liability suits, whether or not meritorious, could be brought against us due to alleged defective devices or for the misuse of our products, +which could result in expensive and time-consuming litigation, payment of substantial damages and/or expenses and an increase in our +insurance rates . +If +our current or future devices are defectively designed or manufactured, contain defective components or are misused, or if someone claims +any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. For example, we may be +sued if our products cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, +marketing or sale. This may occur if our products are misused or damaged, have a sudden failure or malfunction (including with respect +to safety features) or are otherwise impaired due to wear and tear. Even absent a product liability suit, malfunctions of our products +or misuse by physicians or patients would need to be remedied swiftly in order to maintain continuous use and ensure efficacy of our +products. +Any +product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent +in the device, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection +acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required +to limit commercialization of our products. Even successful defense may require significant financial and management resources. Regardless +of the merits or eventual outcome, liability claims may result in: +● +decreased +demand for our products; +● +injury +to our reputation; +● +withdrawal +of clinical study participants and inability to continue clinical studies; +● +initiation +of investigations by regulators; +47 +● +costs +to prepare for and defend the related litigation; +● +a +diversion of management’s time and our resources; +● +substantial +monetary awards to study participants or patients; +● +product +recalls, withdrawals or labeling, marketing or promotional restrictions; +● +loss +of revenues; +● +exhaustion +of any available insurance and our capital resources; +● +the +inability to commercialize any device candidate; and +● +a +decline in our share price. +Product +liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage +awards against us. We may not have sufficient insurance coverage for all claims. Any product liability claims brought against us, with +or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our +reputation in the industry and could reduce revenues. Product liability claims in excess of our insurance coverage would be paid out +of cash reserves, if any, which could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. Even if our agreements with our third-party manufacturers and suppliers entitle us to indemnification +against losses, such indemnification may not be available or adequate should any claim arise. +Other +future litigation and regulatory actions could have a material adverse impact on the Company . +From +time to time, we may be subject to litigation and other legal and regulatory proceedings relating to our business or investigations or +other actions by governmental agencies. No assurances can be given that the results of these or new matters will be favorable to us. +An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect +on our financial condition and results of operations, including as a result of non-monetary remedies. Defending ourselves in these matters +may be time-consuming, expensive and disruptive to normal business operations and may result in significant expense and a diversion of +management’s time and attention from the operation of our business, which could impede our ability to achieve our business objectives. +Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance. +Subject to the Delaware General Corporation Law, our certificate of incorporation permit us to indemnify any director against any liability, +to purchase and maintain insurance against any liability for any director and to provide any director with funds (whether by loan or +otherwise) to meet expenditures incurred or to be incurred by such director in defending any criminal, regulatory or civil proceedings +or in connection with an application for relief (or to enable any such director to avoid incurring such expenditure). In addition, under +our Articles of Incorporation and bylaws (the “Bylaws”) we are obligated to indemnify each of our directors and officers +against certain liabilities and expenses arising from their being a director or officer to the maximum extent permitted by Delaware law. +In the event we are required to make such payments to our directors and officers, there can be no assurance that any of these payments +will not be material. +We +are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our +actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require +us to modify our products or marketing or advertising efforts. +In +connection with the marketing or advertisement of our products, we could be the target of claims relating to false, misleading, deceptive +or otherwise noncompliant advertising or marketing practices, including under the auspices of the FTC and state consumer protection statutes. +If we rely on third parties to provide any marketing and advertising of our products, we could be liable for, or face reputational harm +as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements. +If +we are found to have breached any consumer protection, advertising, unfair competition or other laws or regulations, we may be subject +to enforcement actions that require us to change our marketing and business practices in a manner that may negatively impact us. This +could also result in litigation, fines, penalties and adverse publicity that could cause reputational harm and loss of customer trust, +which could have a material adverse effect on our business, financial condition and results of operations. +48 +We +are increasingly dependent on information technology systems and are subject to privacy and security laws. Our products and our systems +and infrastructure face certain risks, including cyber security breaches and data leakage . +We +increasingly rely upon technology systems and infrastructure. Our technology systems, including our products, are potentially vulnerable +to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events. Likewise, data privacy +breaches by employees and others with both permitted and unauthorized access to our products and our systems may pose a risk that protected +patient information (“PI”) may be exposed to unauthorized persons or to the public, or may be permanently lost. The increasing +use and evolution of technology, including cloud-based computing, creates additional opportunities for the unintentional dissemination +of information, intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage +devices. We could also experience a business interruption, information theft of confidential information, or reputational damage from +industrial espionage attacks, malware or other cyber incidents, which may compromise our system infrastructure or lead to data leakage, +either internally or at our third-party service providers or other business partners. +The +size and complexity of our computer systems, and scope of our geographic reach, make us potentially vulnerable to information technology +system breakdowns, internal and external malicious intrusion, cyberattacks and computer viruses. Because the techniques used to obtain +unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may +be unable to anticipate these techniques or to implement adequate preventative measures. If we do not allocate and effectively manage +the resources necessary to build and sustain the proper technology infrastructure or properly manage third-party contractors who perform +data management services on our behalf, then a security breach could subject us to, among other things, transaction errors, business +process inefficiencies, the loss of customers, damage to our reputation, business disruptions or the loss of or damage to intellectual +property. Such security breaches could expose us to a risk of loss of information, litigation, penalties, remediation costs and potentially +significant liability to customers, employees, business partners and regulatory authorities, including, for example, under the Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”) in the United States and Regulation 2016/679 on the protection +of natural persons with regard to the processing of personal data and on the free movement of such data under GDPR in the EU. If our +data management systems (including third party data management systems) do not effectively collect, secure, store, process and report +relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human +error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be +impaired. Any such impairment could materially and adversely affect our financial condition and results of operations. +While +we have invested heavily in the protection of data and information technology and in related training, there can be no assurance that +our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents or ensure compliance with all applicable +security and privacy laws, regulations, and standards, including with respect to third-party service providers that utilize sensitive +personal information, including PI, on our behalf. +A +security breach, whether of our products, systems or third-party hosting services we utilize, could disrupt treatments being provided +by our products, disrupt access to our customers’ stored information, such as patient treatment data and health information, and +could lead to the loss of, damage to or public disclosure of such data and information, including patient health information. Such an +event could have serious negative consequences, including possible patient injury, regulatory action, fines, penalties and damages, reduced +demand for our products, an unwillingness of customers to use our products, harm to our reputation and brand and time-consuming and expensive +litigation, any of which could have a material adverse effect on our financial results. We currently carry cyber and privacy liability +insurance with an aggregate limit of $1,000,000, but the amount of insurance coverage that we purchased and may purchase in the future +may be inadequate. In the future, our insurance coverage may be expensive or not be available on acceptable terms or in sufficient amounts, +if at all. +49 +We +may choose to, or may be required to, suspend, repeat or terminate our clinical studies if they are not conducted in accordance with +regulatory requirements, the results are negative or inconclusive or the studies are not well designed . +Clinical +studies must be conducted in accordance with the FDA’s cGCPs and the equivalent laws and regulations applicable in other jurisdictions +in which the clinical studies are conducted. The clinical studies are subject to oversight by the FDA, regulatory agencies in other jurisdictions, +ethics committees and institutional review boards at the medical institutions where the clinical studies are conducted. In addition, +clinical studies must be conducted with device candidates produced under the FDA’s QSR and in accordance with the applicable regulatory +requirements in the other jurisdictions in which the clinical studies are conducted. The conduct of clinical studies may require large +numbers of test patients. +The +FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical studies of a device candidate for various reasons, +including: +● +the +device candidate may have unforeseen adverse side effects or may not appear to be more effective than current therapies; +● +we +may not agree with the FDA, a regulatory authority in another jurisdiction or an ethics committee regarding the protocol for the +conduct of a clinical study; +● +new +therapies may become the standard of care while we are conducting our clinical studies, which may require us to revise or amend our +clinical study protocols or terminate a clinical study; or +● +fatalities +may occur during a clinical study due to medical problems that may or may not be related to clinical study treatments. +Furthermore, +the process of obtaining and maintaining regulatory approvals in the U.S. and other jurisdictions is lengthy, expensive and uncertain. +It can vary substantially, based on the type, complexity and novelty of the product involved. Accordingly, any of our device candidates +could take a significantly longer time than we expect to, or may never, gain regulatory approval, which could have a material adverse +effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. +Legislative +and regulatory changes in the U.S. and in other countries regarding healthcare insurance and government-sponsored reimbursement programs +(such as Medicare in the United States) may adversely affect our business and financial results . +We +rely to a material degree on highly regulated private and government-run health insurance programs for our revenue in most of the countries +in which we operate. The laws and regulations regarding health care programs, both public and private, are driven by public policy considerations +that may be unrelated to the direct provision of patient care, such as lowering costs or requiring or limiting access to healthcare options. +These laws and regulations are very complicated and there are many requirements we must satisfy in order for our products to become and +remain eligible for reimbursement under these programs. In many cases we may have limited negotiating power when negotiating reimbursement +rates for our products. +In +the future, lawmakers and regulators could also pass additional healthcare laws and implement other regulatory changes at both the national +and local levels. These laws and regulations could potentially affect coverage and reimbursement for our products. However, we cannot +predict the ultimate content, timing or effect of any future healthcare initiatives or the impact any future legislation or regulation +will have on us. +With +respect to countries outside the U.S., the national competent authorities in the EU member states, the UK, Switzerland, Israel, Japan, +and other jurisdictions are also increasingly active in their goal of reducing public spending on healthcare. We cannot, therefore, guarantee +that the treatment of patients with our products would be reimbursed in any particular country or, if successfully included on reimbursement +lists, whether we will remain on such lists. +We +are subject to extensive post-marketing regulation by the FDA and comparable authorities in other jurisdictions, which could impact the +sales and marketing of our products and could cause us to incur significant costs to maintain compliance. In addition, we may become +subject to additional regulation in other jurisdictions if we market and sell our products outside of the U.S . +We +market and sell our products subject to extensive regulation by the FDA and numerous other federal, state and governmental authorities +in other jurisdictions. These regulations are broad and relate to, among other things, the conduct of pre-clinical and clinical studies, +product design, development, manufacturing, labeling, testing, product storage and shipping, premarket clearance and approval, conformity +assessment procedures, premarket clearance and approval of modifications introduced in marketed products, post-market surveillance and +monitoring, reporting of adverse events and incidents, pricing and reimbursement, interactions with healthcare professionals, interactions +with patients, information security, advertising and promotion and product sales and distribution. Although IB-Stim already has market +clearance from FDA for functional abdominal pain associated with IBS in children, we will require additional FDA clearances to market +our products for treating other indications. +50 +In +addition, before our products can be marketed in the EU, our products must obtain a CE Certificate from a notified body. New intended +uses of CE marked medical devices falling outside the scope of the current CE Certificate require a completely new conformity assessment +before the device can be CE marked and marketed in the EU for the new intended use. The process required to gather necessary information +and draw up documentation in order to obtain CE Certification of a medical device in the EU can be expensive and lengthy and its outcome +can be uncertain. We may make modifications to our products in the future that we believe do not or will not require notifications to +our notified body or new conformity assessments to permit the maintenance of our current CE Certificate. If the competent authorities +of the EU member states or our notified body disagree and require the conduct of a new conformity assessment, the modification of the +existing CE Certificate or the issuance of a new CE Certificate, we may be required to recall or suspend the marketing of the modified +versions of our products. +In +Japan, new medical devices or new therapeutic uses of medical devices falling outside the scope of the existing approval by the MHLW +require a new assessment and approval for each such new device or use. Accordingly, we may be required to obtain a new approval from +MHLW before we launch a modified version of our products or the use of our products for additional indications. Approval time frames +from the MHLW vary from simple notifications to review periods of one or more years, depending on the complexity and risk level of the +device. In addition, importation into Japan of medical devices is subject to “Quality Management System (QMS) Ordinance,” +which includes the equivalent of “Good Import” regulations in the U.S. As with any highly regulated market, significant changes +in the regulatory environment could adversely affect our ability to commercialize our products in Japan. +In +the U.S. and other jurisdictions, we also are subject to numerous post-marketing regulatory requirements, which include regulations under +the QSR related to the manufacturing of our products, labeling regulations and medical device reporting regulations, which require us +to report to the FDA or comparable regulatory authorities in other jurisdictions and our notified body if our products cause or contributes +to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. In addition, +these regulatory requirements may in the future change in a way that adversely affects us. If we fail to comply with present or future +regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA or comparable regulatory authorities +in other jurisdictions and notified bodies, which may include any of the following sanctions: +● +untitled +letters, warning letters, fines, injunctions, consent decrees and civil penalties; +● +unanticipated +expenditures to address or defend such actions; +● +patient +notification, or orders for repair, replacement or refunds; +● +voluntary +or mandatory recall, withdrawal or seizure of our current or future devices; +● +administrative +detention by the FDA or other regulatory authority in another jurisdiction of medical devices believed to be adulterated or misbranded; +● +operating +restrictions, suspension or shutdown of production; +● +refusal +or delay of our requests for approval for new intended uses for or modifications to our products or for approval of new devices; +● +refusal +or delay in obtaining CE Certificates for new intended uses for or modifications to our products; +● +suspension, +variation or withdrawal of the CE Certificates granted by our notified body in the EU; +● +prohibition +or restriction of products being placed on the market; +● +operating +restrictions; +● +suspension +or withdrawal of approvals that have already been granted; +● +refusal +to grant export approval for our products or any device candidates; or +● +criminal +prosecution. +The +occurrence of any of these events could have a material adverse effect on our business, prospects, financial condition and results of +operations and cause our stock price to decline. +51 +Over +time, we expect to make modifications to our products that are designed to improve efficacy, reduce side effects, enhance the user experience +or for other purposes. Modifications to our products may require approvals, modified or new CE Certificates and analogous regulatory +approvals in other jurisdictions or even require us to cease promoting or to recall the modified versions of our products until such +clearances, approvals or modified or new CE Certificates are obtained, and the FDA, comparable regulatory authorities in other jurisdictions +or our notified body may not agree with our conclusions regarding whether new approvals are required . +In +addition, any substantial change introduced to a medical device or to the quality system certified by our notified body requires a new +conformity assessment of the device and can lead to changes to the CE Certificates or the preparation of a new CE Certificate of Conformity. +Substantial changes may include, among others, the introduction of a new intended use of the device, a change in its design or a change +in the Company’s suppliers. Responsibility for determination that a modification constitutes a substantial change lies with the +manufacturer of the medical device. We must inform the notified body that conducted the conformity assessment of the products we market +or sell in the EU of any planned substantial changes to our quality system or changes to our products that could, among other things, +affect compliance with the MDR or the devices’ intended use. The notified body will then assess the changes and verify whether +they affect the product’s conformity with the Essential Requirements laid down in Annex I to the MDD or the conditions for the +use of the device. If the assessment is favorable, the notified body will issue a new CE Certificate or an addendum to the existing CE +Certificate attesting compliance with the Essential Requirements laid down in Annex I to the MDD. There is a risk that the competent +authorities of the EU member states or our notified body may disagree with our assessment of the changes introduced to our products. +The competent authorities of the EU member states or our notified body also may come to a different conclusion than the FDA on any given +product modification. +In +addition, medical devices that have obtained a CE Certification under the MDD may in principle continue to be marketed under such CE +Certificate until the CE Certificate expires and at the latest until May 27, 2024, provided that the manufacturer complies with the MDR’s +additional requirements related to post-marketing surveillance, market surveillance, vigilance, and registration of economic operators +and of devices. However, if such medical devices undergo a significant change in their design or intended use, we would need to obtain +a new CE Certificate under the MDR for these devices. +If +the FDA disagrees with us and requires us to submit a new application for then-existing modifications and/or the competent authorities +of the EU member states or our notified body disagree with our assessment of the change introduced in a product, its design or its intended +use, we may be required to cease promoting or to recall the modified product until we obtain approval and/or until a new conformity assessment +has been conducted in relation to the product, as applicable. In addition, we could be subject to significant regulatory fines or other +penalties. Furthermore, our products could be subject to recall if the FDA, comparable regulatory authorities in other jurisdictions, +or our notified body determine, for any reason, that our products are not safe or effective or that appropriate regulatory submissions +were not made. Any recall or requirement that we seek additional approvals or clearances could result in significant delays, fines, increased +costs associated with modification of a product, loss of revenues and potential operating restrictions imposed by the FDA, comparable +foreign regulatory authorities in other jurisdictions, or our notified body. Delays in receipt or failure to receive approvals/certification, +or the failure to comply with any other existing or future regulatory requirements, could reduce our sales, profitability and future +growth prospects. +52 +In +addition to FDA requirements, we will spend considerable time and money complying with other federal, state, local and foreign rules, +regulations and guidance and, if we are unable to fully comply with such rules, regulations and guidance, we could face substantial penalties . +We +are subject to extensive regulation by the U.S. federal government and the states and other countries in which we conduct our business. +U.S. federal government healthcare laws apply when we submit a claim on behalf of a U.S. federal healthcare program beneficiary, or when +a customer submits a claim for an item or service that is reimbursed under a U.S. federal government-funded healthcare program, such +as Medicare or Medicaid. The laws that affect our ability to operate our business in addition to the Federal Food, Drug, and Cosmetic +Act and FDA regulations include, but are not limited to, the following: +● +the +U.S. federal Anti-Kickback Statute, an intent-based federal criminal statute which prohibits knowingly and willfully offering, providing, +soliciting or receiving remuneration of any kind to induce or reward, or in return for, referrals or the purchase, lease, order or +recommendation or arranging of any items or services reimbursable by a federal healthcare program; +● +the +Federal Civil False Claims Act, which imposes civil penalties, including through civil whistleblower or “qui tam” actions, +for knowingly submitting or causing the submission of false or fraudulent claims of payment to the federal government, knowingly +making, using or causing to be made or used a false statement or record material to payment of a false claim or avoiding, decreasing +or concealing an obligation to pay money to the federal government; +● +the +Federal Criminal False Claims Act, which is similar to the Federal Civil False Claims Act and imposes criminal liability on those +that make or present a false, fictitious or fraudulent claim to the federal government; +● +Medicare +laws and regulations that prescribe requirements for coverage and reimbursement, and laws prohibiting false claims or unduly influencing +selection of products for reimbursement under Medicare and Medicaid; +● +healthcare +fraud statutes that prohibit false statements and improper claims to any third-party payer; +● +the +Federal Physician Self-Referral Law, commonly known as the Stark law, which, absent an applicable exception, prohibits physicians +from referring Medicare and Medicaid patients to an entity for the provision of certain designated health services (“DHS”), +if the physician (or a member of the physician’s immediate family) has an impermissible financial relationship with that entity +and prohibits the DHS entity from billing for such improperly referred services; +● +the +Federal Beneficiary Anti-Inducement Statute, which prohibits the offering of any remuneration to a beneficiary of Medicare or Medicaid +that is likely to influence that beneficiary’s choice of provider or supplier. This can include, but is not limited to, inappropriate +provision of patient services including financial assistance. Recent government investigations have focused on this particular prohibition. +There are established exceptions from liability, but we cannot guarantee that all of our practices will fall squarely within those +exceptions; +● +the +U.S. Foreign Corrupt Practices Act, which can be used to prosecute companies in the U.S. for arrangements with physicians or other +parties outside the U.S. if the physician or party is a government official of another country and the arrangement violates the law +of that country; +● +the +Federal Trade Commission Act, the Lanham Act and similar federal and state laws regulating truthfulness in advertising and consumer +protection; and +● +the +Federal Physician Payments Sunshine Act, the French Sunshine Act and similar state and foreign laws, which require periodic reporting +of payments and other transfers of value made to U.S. and French-licensed physicians, teaching hospitals, and in the U.S., physician +assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives. +Similar +laws exist in the EU, individual EU member states and other countries. These laws are complemented by EU or national professional codes +of practices. +HIPAA +provides data privacy and security provisions for safeguarding medical information. Additionally, states in the U.S. are enacting local +privacy laws (e.g., California). In the EU, the GDPR harmonizes data privacy laws and rules on the processing of personal data, including +patient and employee data, across the EU. The GDPR has a number of strict data protection and security requirements for companies processing +data of EU residents, including when such data is transferred outside of the EU. Additionally, we need to comply with analogous privacy +laws in other jurisdictions in which we operate, such as the Israeli Privacy Protection Law, the Asia Pacific Economic Cooperation Privacy +Framework, and Japan’s Act on the Protection of Personal Information. +The +laws and codes of practices applicable to us are subject to evolving interpretations. Moreover, certain U.S. federal and state laws regarding +healthcare fraud and abuse and certain laws in other jurisdictions regarding interactions with healthcare professionals and patients +are broad and we may be required to restrict certain of our practices to be in compliance with these laws. Healthcare fraud and abuse +laws also are complex and even minor, inadvertent irregularities, or even the perception of impropriety, can potentially give rise to +claims that a statute has been violated. +53 +Any +violation of these laws could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. Similarly, if there is a change in law, regulation or administrative or judicial interpretations, +we may have to change our business practices or our existing business practices could be challenged as unlawful, which likewise could +have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to +decline. Fines and penalties for violations of these laws and regulations could include severe criminal and civil penalties, including, +for example, significant monetary damages, exclusion from participation in the federal healthcare programs and permanent disbarment of +key employees. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate +our business, our prospects and our financial results. In addition, any action against us for violation of these laws, even if we successfully +defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of +our business and damage our reputation. +In +addition, although we believe that we have the required licenses, permits and accreditation to dispense our products in the future, a +regulator could find that we need to obtain additional licenses or permits. We also may be subject to mandatory reaccreditation and other +requirements in order to maintain our billing privileges. Failure to satisfy those requirements could cause us to lose our privileges +to bill governmental and private payers. If we are required to obtain permits or licenses that we do not already possess, we also may +become subject to substantial additional regulation or incur significant expense. +To +ensure compliance with Medicare, Medicaid and other regulations, federal and state governmental agencies and their agents, including +MACs, may conduct audits of our operations to support our claims submitted for reimbursement of items furnished to beneficiaries and +health care providers. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered +systemic, the resolution of these audits could adversely impact our revenue, financial condition and results of operations. +If +we, our collaborative partners, our contract manufacturers or our component suppliers fail to comply with the FDA’s QSR or equivalent +regulations established in other countries, the manufacturing and distribution of our products could be interrupted, and our product +sales and results of operations could suffer. +We, +our collaborative partners, our contract manufacturers and our component suppliers are required to comply with the FDA’s QSR and +the equivalent quality system requirements imposed by the laws and regulations in other jurisdictions, which are a complex regulatory +framework that covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, +sterilization, storage and shipping of our products. We cannot assure you that our facilities or our contract manufacturers’ or +component suppliers’ facilities would pass any future quality system inspection. If our or any of our contract manufacturers’ +or component suppliers’ facilities fails a quality system inspection, the manufacturing or distribution of our products could be +interrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse quality system +inspection could force a suspension or shutdown of our packaging and labeling operations or the manufacturing operations of our contract +manufacturers, and lead to suspension, variation or withdrawal of our regulatory approvals or a recall of our products. If any of these +events occurs, we may not be able to provide our customers with our products on a timely basis, our reputation could be harmed and we +could lose customers, any or all of which could have a material adverse effect on our business, prospects, financial condition and results +of operations and cause our stock price to decline. +Our +products may in the future be subject to recalls that could harm our reputation, business and financial results . +The +FDA and similar governmental authorities in other jurisdictions have the authority to require the recall of commercialized products in +the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must +be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. In addition, governmental +bodies in other jurisdictions have the authority to require the recall of our products in the event of material deficiencies or defects +in design or manufacture. Distributors and manufacturers may, under their own initiative, recall a product if any material deficiency +in a device is found. A government-mandated or voluntary recall by us or one of our manufacturers could occur as a result of component +failures, manufacturing errors, design or labeling defects or other deficiencies and issues. The FDA requires that certain classifications +of recalls be reported to the FDA within ten working days after the recall is initiated. Requirements for the reporting of product recalls +to the competent authorities are imposed in other jurisdictions in which our products are or would be marketed in the future. Companies +are required to maintain certain records of recalls, even if they are not reportable to the FDA or to the competent authorities of other +countries. In the future, we may initiate voluntary recalls involving our products that we determine do not require notification of the +FDA or to other equivalent non-U.S. authorities. If the FDA or the equivalent non-U.S. authorities disagree with our determinations, +they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively +affect our sales. In addition, the FDA and the equivalent non-U.S. authorities could take enforcement action if we fail to report the +recalls when they were conducted. Recalls of our products would divert managerial and financial resources and could have a material adverse +effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. +54 +If +our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device +reporting regulations, which can result in voluntary corrective actions or agency enforcement actions . +Under +the FDA Medical Device Reporting regulations and the equivalent regulations applicable in other jurisdictions in which our products are +or may be marketed in the future, medical device manufacturers are required to report to the FDA and to the equivalent non-U.S. authorities +information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would +likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If +we fail to report these events to the FDA or to the equivalent authorities in other jurisdictions within the required time frames, or +at all, the FDA or the equivalent authorities in other jurisdictions could take enforcement action against us. Any such adverse event +involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency +action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves +in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our +reputation and financial results. +We +may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label +uses . +Medical +devices may be marketed only for the indications for which they are approved. Our promotional materials and training materials must comply +with FDA regulations and other applicable laws and regulations governing the promotion of our products in the U.S. and other jurisdictions. +If +the FDA or the competent authorities in other jurisdictions determine that our promotional materials or training constitutes promotion +of an unapproved use, they could request that we modify our training or promotional materials or subject us to regulatory or enforcement +actions, including the issuance of an untitled or warning letter, an injunction, seizure, civil fines and criminal penalties. It is also +possible that authorities in other federal, state or national enforcement in other jurisdictions might take action if they consider our +promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties +under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged +and the commercialization of our products could be impaired. +We +are affected by and subject to environmental laws and regulations that could be costly to comply with or that may result in costly liabilities . +We +are subject to environmental laws and regulations, including those that impose various environmental controls on the manufacturing, transportation, +storage, use and disposal of hazardous chemicals and other materials used in, and hazardous waste produced by, the manufacturing of our +products. We incur and expect to continue to incur costs to comply with these environmental laws and regulations. Additional or modified +environmental laws and regulations, including those relating to the manufacture, transportation, storage, use and disposal of materials +used to manufacture our products or restricting disposal or transportation of batteries, may be imposed that may result in higher costs. +In +addition, we cannot predict the effect that additional or modified environmental laws and regulations may have on us, our third-party +suppliers of equipment and our products or our customers. +The +pediatrics and medical device industries are characterized by patent and other intellectual property litigation and disputes, and any +litigation, dispute or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, +divert the attention of management from our business, harm our reputation and require us to remove certain devices from the market . +Whether +a product infringes a patent or violates other intellectual property rights involves complex legal and factual issues, the determination +of which is often uncertain. Any intellectual property dispute, even a meritless or unsuccessful one, would be time consuming and expensive +to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, the +disruption of research and development and marketing efforts, injury to our reputation and loss of revenues. Any of these events could +negatively affect our business, prospects, financial condition and results of operations. +55 +Third +parties may assert that our products, the methods employed in the use of our products or other activities infringe on their patents. +Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties, many of whom have significantly +larger intellectual property portfolios than we have. Additionally, in recent years, individuals and groups have begun purchasing intellectual +property assets for the purpose of making claims of infringement and attempting to extract settlements from companies like ours. With +respect to our current products, the risk of infringement claims is exacerbated by the fact that there are numerous issued and pending +patents relating to the treatment of cancer. Because patent applications can take many years to issue, and in many cases remain unpublished +for many months after filing, there may be applications now pending of which we are unaware that may later result in issued patents that +our products may infringe. +There +could also be existing patents that one or more components of our products or other device candidates may inadvertently infringe. As +the number of competitors in the market or other device candidates grows, the possibility of inadvertent patent infringement by us or +a patent infringement claim against us increases. To the extent we gain greater market visibility, our risk of being subject to such +claims is also likely to increase. If a third party’s patent was upheld as valid and enforceable and we were found to be infringing, +we could be prevented from making, using, selling, offering to sell or importing our products or other device candidates, unless we were +able to obtain a license under that patent or to redesign our systems to avoid infringement. A license may not be available at all or +on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of our products or +development of device candidates to avoid infringement could require us to conduct additional clinical studies and to revise our filings +with the FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license +or redesigning our devices, we may be unable to make, use, sell, offer to sell or import our devices and our business could suffer. We +may also be required to pay substantial damages and undertake remedial activities, which could cause our business to suffer. +We +may also be subject to claims alleging that we infringe or violate other intellectual property rights, such as copyrights or trademarks, +may have to defend against allegations that we misappropriated trade secrets, and may face claims based on competing claims of ownership +of our intellectual property. The confidentiality and assignment of inventions agreements that our employees, consultants and other third +parties sign may not in all cases be enforceable or sufficient to protect our intellectual property rights. In addition, we may face +claims from third parties based on competing claims to ownership of our intellectual property. +We +may employ individuals who were previously employed at other medical device companies, and as such we may be subject to claims that such +employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of their former +employers. Any such litigation, dispute or claim could be costly to defend and could subject us to substantial damages, injunctions or +other remedies, which could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. +Changes +in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our devices . +As +is the case with other medical device companies, our success is heavily dependent on our intellectual property rights, and particularly +on our patent rights. Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity, +and is therefore costly, time consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing +wide-ranging patent reform legislation. Certain U.S. Supreme Court rulings have narrowed the scope of patent protection available in +certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard +to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents +once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents +could change in unpredictable ways that could further negatively impact the value of our patents, narrow the scope of available patent +protection or weaken the rights of patent owners. +56 +Future +regulatory action remains uncertain. +We +operate in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be +time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable laws, +standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions +on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals +could materially affect our reputation, business and operations. +Our +product candidates will remain subject to ongoing regulatory review even after they receive marketing clearances, and if we fail to comply +with continuing regulations, we could lose these clearances and the sale of any of our approved commercial products could be suspended. +Even +as we received regulatory clearance to market the IB-Stim, the manufacturing, labeling, packaging, adverse event reporting, storage, +advertising, promotion, and record keeping related to IB-Stim will remain subject to extensive regulatory requirements. If we fail to +comply with the regulatory requirements of the FDA and other applicable domestic and foreign regulatory authorities or discover any previously +unknown problems with any approved product, manufacturer, or manufacturing process, we could be subject to administrative or judicially +imposed sanctions, including: +● +restrictions +on the products, manufacturers, or manufacturing processes; +● +warning +letters; +● +civil +or criminal penalties; +● +fines; +● +injunctions; +● +product +seizures or detentions; +● +pressure +to initiate voluntary product recalls; +● +suspension +or withdrawal of regulatory clearances and/or approvals; and +● +refusal +to approve pending applications for marketing clearances and/or approval of new products or supplements to approved applications. +Intellectual +property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products. +The +therapeutic medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time +to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to +defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual +property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact +our ability to sell current or future products in the affected category. +We +depend extensively on our patents and proprietary technology and the patents, and we must protect those assets in order to preserve our +business. +Although +we expect to seek patent protection for any devices, in silico products (if any), systems, and processes we discover and/or for +any specific use we discover for new or previously known compounds, devices, biologics, products, systems, or processes, any or all of +these may not be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may +find ways to avoid the claims in the patents. +Our +success will depend, in part, on our ability to obtain patents, protect our trade secrets and proprietary knowledge and operate without +infringing on the proprietary rights of others. We are the sole assignee of numerous granted United States patents, pending United States +patent applications and international patents. The patent position of pharmaceutical and biotechnology firms like us are generally highly +uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims +allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications +assigned to us may not result in patents being issued, any issued patents assigned to us may not provide us with competitive protection +or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business +and achieve profitability. +57 +Moreover, +others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as +a result of the assertion of rights by a third-party or otherwise, we may be required to obtain licenses to patents or other proprietary +rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made +available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions +during our attempts to design around such patents or could find that the development, manufacture or sale of products requiring such +licenses is foreclosed. In addition, we could incur substantial costs in defending suits brought against us or in connection with patents +to which we hold licenses or in bringing suit to protect our own patents against infringement. +Due +to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have +meaningful protection from competition. +Our +long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, +discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology +and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our pending +patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the future could +be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Due to our financial +uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already issued to us or our pending +applications may become subject to dispute, and any dispute could be resolved against us. Because a substantial number of patents have +been issued in the field of neuromodulation therapy and because patent positions can be highly uncertain and frequently involve complex +legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. +Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the +extent patents have been issued or will be issued, whether these patents will be subject to further proceedings limiting their scope, +will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated. +Also, +because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods in +the United States and other countries, even after reasonable investigation, we may not know with certainty whether any products that +we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. We believe that the +patents that we own or have applied for do not infringe any third-party patents; however, we cannot know for certain whether we could +successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property +in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing +of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license +to continue to manufacture or market the accused product or process. +If +the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in +accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize +our product candidates. +We +may use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of our +product candidates for the foreseeable future. +The +FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, +for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, +and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of +these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials +in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out +their obligations could delay or prevent the development, approval, and commercialization of our product candidates or result in enforcement +action against us. +58 +Risks +Related to Our Common Stock +We +may not be able to maintain a listing of our common stock on NYSE American. +Our +common stock is listed on NYSE American. We must meet certain financial and liquidity criteria to maintain such listing. If we violate +NYSE American’s listing requirements, or if we fail to meet any of NYSE American’s listing standards, our common stock may +be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange +outweighs the benefits of such listing. A delisting of our common stock from NYSE American may materially impair our stockholders’ +ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market +for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your +investment. +We +do not expect to declare or pay dividends in the foreseeable future. +We +do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development +and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their +securities, and holders may be unable to sell their securities on favorable terms or at all. +If +securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market +trading volume of our common stock could be negatively affected. +Any +trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about +us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts +commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we +are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues +coverage of us, the market price and market trading volume of our common stock could be negatively affected. +Future +issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration +of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market +price of our common stock to decline and would result in the dilution of your holdings. +Future +issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration +of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market +price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations +of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution +of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties +will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In addition to any +adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, +at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available for +resale, subject to applicable law, including without notice, which could reduce the market price for our common stock. +59 +Future +issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of +preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely +affect the level of return you may be able to achieve from an investment in our common stock. +In +the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of +our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior +to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred +stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating +distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend +in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any +such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings +we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock. +If +our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares. +The +SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally +equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized +for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions +in such securities is provided by the exchange or system. If we do not retain a listing on NYSE American or another national securities +exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules +require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk +disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction +in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock +is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure +statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability +statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common +stock, and therefore stockholders may have difficulty selling their shares. +We +are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging +growth companies, and our stockholders could receive less information than they might expect to receive from more mature public companies. +We +are required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the JOBS Act) under the +reporting rules set forth under the Exchange Act. For so long as we remain an emerging growth company, we may take advantage of certain +exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth +companies, including but not limited to: +● +not +being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; +● +being +permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; +and +● +being +exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden +parachute payments not previously approved. +We +expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an emerging +growth company for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million +as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31. +Because +we are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging +growth companies, our stockholders could receive less information than they might expect to receive from more mature public companies. +We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage +of these exemptions would result in less active trading or more volatility in the price of our common stock. +60 +Because +the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting +in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting +company. +We +are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of +certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures +for so long as (i) our common stock held by non-affiliates is less than $250 million measured on the last business day of our second +fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our common stock +held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take +advantage of any reduced disclosure obligations, it may make it harder for investors to analyze the Company’s results of operations +and financial prospectus in comparison with other public companies. +As +a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other +issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. +We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, +the scaled-back disclosure in our SEC filings will result in less information about our company being available than for other public +companies. +If +investors consider our common stock less attractive as a result of our election to use the scaled-back disclosure permitted for smaller +reporting companies, there may be a less active trading market for our common stock and our share price may be more volatile. +As +a “smaller reporting company,” we may at some time in the future choose to exempt our Company from certain corporate governance +requirements that could have an adverse effect on our public shareholders. +Under +NYSE American rules, a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, is not subject to certain +corporate governance requirements otherwise applicable to companies listed on NYSE American. For example, a smaller reporting company +is exempt from the requirement of having a compensation committee composed solely of directors meeting certain enhanced independence +standards, as long as the compensation committee has at least two members who do meet such standards. Although we have determined not +to avail ourselves of this or other exemptions from NYSE American requirements that are or may be afforded to smaller reporting companies +while we will seek to maintain our shares on NYSE American, in the future we may elect to rely on any or all of these exemptions. By +electing to utilize any such exemptions, our Company may be subject to greater risks of poor corporate governance, poorer management +decision-making processes, and reduced results of operations from problems in our corporate organization. Consequently, if we were to +avail ourselves of these exemptions, our stock price might suffer, and there is no assurance that we would be able to continue to meet +all continuing listing requirements of NYSE American from which we would not be exempt, including minimum stock price requirements. +ITEM +1B. UNRESOLVED STAFF COMMENTS +Not +applicable. +ITEM +1C. CYBERSECURITY +CYBERSECURITY +RISK MANAGEMENT AND STRATEGY. NeurAxis has developed and implemented a cybersecurity framework intended to assess, identify and manage +risks from threats to the security of our information, systems, products and network using a risk-based approach. The framework is informed +in part by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and International Organization for Standardization +27001 (ISO 27001) Framework, although this does not imply that we meet all technical standards, specifications, or requirements under +the NIST or ISO 27001. +Our +key cybersecurity processes include the following: +● +Risk-based +controls for information systems and information on NeurAxis’ networks: We seek to maintain an information technology infrastructure +that implements physical, administrative and technical controls that are calibrated based on risk and designed to protect the confidentiality, +integrity and availability of our information systems and information stored on NeurAxis’ networks, including customer information, +personal information, PHI/PII, intellectual property and proprietary information. NeurAxis added physical safeguards in the form +of biometric entry systems to access server rooms and 24/7 surveillance at both NeurAxis locations. +● +Cybersecurity +incident policies: We have cybersecurity incident policies, an incident response plan and a dedicated team to respond to cybersecurity +incidents, including experienced counsel. When a cybersecurity incident occurs or we identify a vulnerability, the dedicated team +is responsible for leading the initial assessment of priority and severity, including external experts that may also be engaged as +appropriate. NeurAxis’ response to incidents depends on the severity level and seeks to improve its cybersecurity incident +response plan. NeurAxis, through experienced cybersecurity and HIPAA/HITECH counsel, has developed a security manual and a privacy +policy. +61 +● +Training: +We provide security awareness training to help our employees understand their information protection and cybersecurity responsibilities +at NeurAxis. We also provide additional role-based training to some employees based on customer requirements, regulatory obligations, +and industry risks. +● +Supplier +risk assessments: We have participated in several third-party risk assessment processes that include expectations regarding information +and cybersecurity. NeurAxis also seeks contractual commitments from key suppliers to appropriately secure and maintain their information +technology systems and protect NeurAxis information that is processed or stored on their systems. This may or may not include business +associate agreements, downstream vendor agreements and vendor auditing in some cases. +● +Third-party +assessments of NeurAxis: We have third-party cybersecurity companies engaged to assess NeurAxis’ cybersecurity readiness +and to assist in identifying and remediating risks from cybersecurity threats. NeurAxis has a “real time” cybersecurity +partner that monitors our servers 24/7/365 for any attempted intrusions. +NeurAxis +routinely reviews the Office of Civil Right (OCR) audit requirements to assess any gaps within our cybersecurity, privacy and security +programs. We have not identified risks from known cybersecurity threats, that have materially affected us, including our operations, +business strategy, results of operations, cash flows or financial condition. We face certain ongoing risks from cybersecurity threats, +including active interactions with children’s hospitals while assisting with insurance prior approvals, that, if realized, are +reasonably likely to materially affect us, including our operations, business strategy, results +of operations, cash flows or financial condition. +As of the fiscal year ended December 31, 2024, the +Company had not experienced any material cybersecurity incidents that have had a significant impact on our operations, data integrity, +results of operations, or financial performance. +CYBERSECURITY +GOVERNANCE. NeurAxis’ Board of Directors is responsible for oversight of cybersecurity risk. The Board receives reporting about +NeurAxis’ practices, programs, notable threats or incidents and other developments related to cybersecurity throughout the year, +including through periodic updates from NeurAxis’ Chief Regulatory Officer/Privacy Officer and VP of IT/Security Officer. +NeurAxis’ +Security Officer reports to NeurAxis’ Chief Regulatory Officer and together, they lead the Company’s overall cybersecurity +function . The Security Officer has over 13 years of experience in managing and leading IT or cybersecurity teams and participates in +various cyber security trainings frequently. The Security Officer collaborates with NeurAxis personnel and our outside IT vendors to +identify and analyze cybersecurity risks to NeurAxis, considers industry trends, implement controls, as appropriate and feasible, to +mitigate these risks and enables business leaders to make risk-based business decisions that impact cybersecurity considerations. The +Security Officer meets with senior leadership to review and discuss NeurAxis’ cybersecurity program, including emerging cyber risks, +threats, and industry trends. The Security Officer also supervises efforts to prevent, detect, mitigate, and remediate cybersecurity +risks and incidents through various means, including by collaborating with external security personnel and business stakeholders, and +incorporating threat intelligence and other information obtained from governmental, public, or private sources to strengthen our cybersecurity +technologies and processes. +ITEM +2. PROPERTIES +Our +corporate headquarters are located in Carmel, Indiana, where we lease office space for employees, pursuant to a lease agreement with +Zeller-Carmel Property, LLC. The term of this lease commenced on January 1, 2024 and is scheduled to end on May 31, 2029. Over the term +of the lease, the monthly base rent is $6,721 with an annual 2.5% escalator. We received a 50% reduction in our monthly rent for the +first 10 months of the lease. +We +also lease office space in Versailles, Indiana, pursuant to an agreement that commenced January 1, 2022 for a term of one year with automatic +one year renewal options, unless 60 day notice of vacating is given. The monthly base rent is $1,800 with an annual 4% escalator upon +renewal. +62 +ITEM +3. LEGAL PROCEEDINGS +From +time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. +As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably +be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of +the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s +interest. +On +February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United +States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the +Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under +the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought +compensatory damages in excess of $5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation +of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing +and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures +could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim +to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims +against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint. +On +July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, +2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth +Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any +further review or appeal of that judgment. +Also +on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare +ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland. The plaintiffs +in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint +asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil +conspiracy and seeks compensatory damages in excess of $75,000, pre-judgment interest, punitive damages, attorney’s fees, and court +costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants +allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed +to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered +damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion +which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims are still pending, and no trial date has been +set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties could try to resolve +the disputes in both cases through an independent third-party mediator. Mediation has not yet resulted in a resolution of the case. +63 +In January 2024, Dr. Arturo Taca served notice to the Company that asserted +an interest in its U.S. Patent No. 10,413,719 valued at $2,000,000 based on his own work in neurostimulation. The Company denied +both the neurostimulation patent and compensation claims. The case remains unresolved. +While it is too early to predict +the ultimate outcome of these matters, we believe the Company has meritorious defenses and intends to defend these matters vigorously. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +PART +II +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market +Information and Holders of Common Stock +Our +common stock is listed on the NYSE American, under the symbol “NRXS”. +As +of March 13, 2025, there were approximately 682 record holders of our common stock. The number of record holders does not include beneficial +owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries and holders of unissued shares +common stock. +The +last reported sales price for our Common Stock as reported on the NYSE American on March 13, 2025 was $2.10. +Dividends +We +have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the +foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends +if the payment would render us insolvent. Any future determination as to the payment of cash dividends on our common stock will be at +the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements and other +factors that the board of directors considers to be relevant. +Recent +Sales of Unregistered Securities +On +November 14, 2024, the Company entered into security purchase agreements with five accredited investors for the issuance and purchase +of 45,653 shares of the Company’s Series B Preferred Stock, par value $0.001 per share, for an aggregate purchase price +of $108,664. +On +December 26, 2024, the Company issued 10,000 shares of common stock to an accredited investor for their services in bringing RED to +market. +On +January 3, 2025 and March 6, 2025, the Company granted 360,902 and 373,275 restricted stock units (RSUs), respectively, to certain +employees pursuant to the 2022 NeurAxis, Inc. Omnibus Securities and Incentive Plan, as amended on August 15, 2024. The RSUs +vest annually over a three-year cliff-vesting period and are payable in shares of the Company’s common stock. The RSUs fully +vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon +vesting. +On +January 17, 2025, the Company issued (i) 39,471 shares of common stock to its independent board members for their service from April +1, 2024 through December 31, 2024 and (ii) 186,166 shares of common stock to an accredited investor upon conversion of 502,647 +common stock warrants in a cash less exercise transaction. +ITEM +6. RESERVED +64 +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +Overview +We +are a growth stage company focused on developing neuromodulation therapies to address chronic and debilitating conditions in children. +Our mission is to provide solutions that create value and provide better and safer patient outcomes. Our IB-Stim device is a PENFS system +intended to be used in patients 8-21 years of age with functional abdominal pain associated with IBS. Our device already has market clearance +from FDA for functional abdominal pain associated with IBS in children. Other indications in our pipeline are comprised of functional +nausea in children, post-concussion syndrome in children, and cyclic vomiting syndrome in children. +Since +our inception, we have incurred significant operating losses. Our net loss was $8,241,501 and $14,626,683 for the years ended December +31, 2024 and 2023, respectively. Our auditors have expressed substantial doubt about our ability to continue as a going concern in their +audit opinion. We expect to incur significant expenses and operating losses for the foreseeable future as we continue to pursue widespread +insurance coverage of our IB-Stim and RED devices and seek FDA clearance of our device for other indications. There are a number of milestones +and conditions that we must satisfy before we will be able to generate sufficient revenue to fund our operations, including FDA clearance +of our IB-Stim device to treat future indications. +Factors +Affecting our Business and Results of Operations +Revenue +Our +revenue is derived from the sale of our IB-Stim device to healthcare companies, primarily hospitals and clinics. Sales generally are +not seasonal and only mildly correlated with economic cycles. Our IB-Stim device sells for $1,195 per device, and each child being treated +for functional abdominal pain associated with IBS will use four. +Our +sales typically are made on a purchase order basis rather than through long-term purchase commitments. We enter into sales agreements +with customers for IB-Stim devices based on purchase orders and standard terms, which vary slightly based on the customer’s form, +and conditions of sale. Standard payment terms generally are that payment is due within 30 days. Our largest sales were to three customers +representing approximately 40% and 45% of total sales for the years ended December 31, 2024 and 2023, respectively. +Inflation +did not have a material impact on our operations for any applicable period, and we do not expect inflation to have a material impact +on our operations for the foreseeable future. +Gross +profit and Gross Margin +Our +management uses gross profit and gross margin to evaluate the efficiency of operations and as a key component to determining the effectiveness +and allocation of resources. We calculate gross profit as net sales less cost of goods sold, and gross margin as gross profit divided +by net sales. Our gross margin has been and will continue to be affected by a variety of factors, primarily the average selling price +of our IB-Stim device, production volume, order flows, change in mix of customers, third-party manufacturing costs related to components +of our IB-Stim device, and cost-reduction strategies. We expect our gross profit to increase for the foreseeable future as our net sales +grows, both through broader insurer acceptance of our IB-Stim device in the near term and approval of our technology for the treatment +of other indications over the longer term. Our gross margin may fluctuate from quarter to quarter due to changes in average selling prices, +particularly as we introduce enhancements to our IB-Stim device and new products to address other indications, and as we adopt new manufacturing +processes and technologies. +Expenses +We +have four categories of expenses: cost of goods sold, selling, research and development (“R&D”), and general and administrative +(“G&A”). +Costs +of goods sold consist of costs paid for the IB-Stim device to our contract manufacturer along with shipping and handling costs and expired +inventory charges. Expired inventory expense is related to our FDA clearance for our device in the treatment of functional abdominal +pain associated with IBS in children. Specifically, a certain component of our IB-Stim device is cleared for a two-year period after +the date the device is manufactured, and if the device is not sold in such period, we must take the device out of inventory and write +it off. The cost of expired inventory was $25,008 for the year ended December 31, 2023, representing 8.2% of our costs of goods sold. +The Company did not have any expired inventory in the year ended December 31, 2024. We have a fixed-price contract with the manufacturer +of our IB-Stim device to produce the device. We expect production costs to remain relatively constant and only nominal inventory expirations +in the foreseeable future. +65 +Our +core selling expenses primarily consist of commissions. +Research +and development expense is attributable to our clinical trials and related efforts to have our IB-Stim device cleared by the FDA for +other indications. We expect future R&D expenses for other indications, such as functional nausea, post-concussion syndrome and cyclic +vomiting syndrome in children. +General +and administrative expense primarily consists of wages and benefits, professional fees including legal and audit, insurance, investor +relations, advertising, facility costs, utilities and travel. +Results +of Operations +Comparison +of Year Ended December 31, 2024, and Year Ended December 31, 2023 +The +following table presents our statements of operations for the years ended December 31, 2024 and 2023: +Years Ended December 31, +2024 +2023 +Net sales +$ 2,685,925 +$ 2,460,049 +Cost of goods sold +362,002 +303,345 +Gross profit +2,323,923 +2,156,704 +Selling expenses +324,708 +323,569 +Research and development +206,107 +169,315 +General and administrative +8,949,925 +8,328,315 +Operating loss +(7,156,817 ) +(6,664,495 ) +Other (expense) income, net: +Financing charges +(230,824 ) +(2,772 ) +Interest expense, net +(174,328 ) +(476,416 ) +Change in fair value of warrant liability +(941 ) +844,854 +Change in fair value of derivative financial instruments +— +198,551 +Amortization of debt discount and issuance costs +(126,387 ) +(4,881,622 ) +Extinguishment of debt liabilities +— +(3,649,561 ) +Other (expense) income, net +(552,204 ) +4,778 +Total other (expense) income, net +(1,084,684 ) +(7,962,188 ) +Net loss +$ (8,241,501 ) +$ (14,626,683 ) +66 +Net +Sales +Net +sales increased $225,876, or 9.2%, from $2,460,049 for the year ended December 31, 2023, to $2,685,925 for the year ended December 31, +2024, primarily due to volume growth from our financial assistance programs that provide discounts to patients without insurance coverage. +Gross +Profit and Gross Margin +Gross +profit increased $167,219, or 7.8%, from $2,156,704 for the year ended December 31, 2023, to $2,323,923 for the year ended December 31, +2024, due to higher sales volume. Despite the increase in sales volume, the decrease in gross margin from 87.7% for the year ended December +31, 2023, to 86.5% for the year ended December 31, 2024, was due to higher growth in the Company’s financial assistance programs +that are discounted to patients without insurance coverage compared to the Company’s undiscounted full reimbursement customers. +Selling +Expenses +Selling +expenses increased $1,139, or 0.4%, from $323,569 for the year ended December 31, 2023, to $324,708 for the year ended December 31, 2024, +due to higher sales volume. +Research +and Development +Research +and development expenses increased $36,792, or 21.7%, from $169,315 for the year ended December 31, 2023, to $206,107 for the year ended +December 31, 2024, due to costs to bring the RED product to market and higher costs on a medical research project. +General +and Administrative +General +and administrative expenses increased $621,610, or 7.5%, from $8,328,315 for the year ended December 31, 2023, to $8,949,925 for the year +ended December 31, 2024, due to (i) higher legal, insurance, investor relations, board of directors +and stock exchange listing costs as a publicly held entity that the Company did not incur prior to its 2023 IPO, (ii) incremental headcount +to build out the market access, sales and finance teams, (iii) severance charges related to the Company’s prior Chief Operating +Officer, (iv) one-time advisory costs, (v) expenses related to the introduction of an annual short-term incentive program +and (vi) higher advertising costs in order to expand market awareness, partially offset by the non-recurrence of 2023 post-IPO consulting +and recruiting services and the payment of incentive bonuses contingent upon the 2023 IPO. +Operating +Loss +Our +operating loss increased $492,322, or 7.4%, from $6,664,495 for the year ended December 31, 2023, to $7,156,817 for the year ended December +31, 2024, primarily due to higher general and administrative expenses partially offset by higher sales volume. +67 +Other +(Expense) Income +Other +expense decreased $6,877,504 or 86.4%, from $7,962,188 for the year ended December 31, 2023, to $1,084,684 for the year ended +December 31, 2024, due to the full conversion of the convertible notes upon the IPO on August +9, 2023, that eliminated any further debt discount, issuance cost, debt extinguishment and fair value derivative valuation net +charges and lower interest expense and issuance cost amortization from a lower debt burden in 2024, partially offset by financing +charges incurred to settle a 2023 convertible note dispute and other expense to settle certain claims of pre-IPO Series A Preferred +Stock shareholders. +Net +Loss +Our +net loss decreased $6,385,182, or 43.7%, from $14,626,683 for the year ended December 31, 2023, to $8,241,501 for the year ended December +31, 2024, primarily due to (i) higher sales volume, (ii) the elimination of debt discount, issuance +cost and fair value derivative valuation net charges as a result of the conversion of notes upon the 2023 IPO and (iii) lower interest +expense and issuance cost amortization from a lower debt burden in 2024, partially offset by (iv) financing charges incurred to settle +a 2023 convertible note dispute and other expense to settle certain claims of pre-IPO Series A Preferred Stock shareholders and (v) higher +general and administrative expenses due to the absence of 2023 post-IPO consulting and recruiting services and the payment of incentive +bonuses relating to the 2023 IPO. +Liquidity +and Capital Resources +We +had cash on hand of $3,696,870 and $78,560 as of December 31, 2024 and 2023, respectively. We maintained a working capital surplus of +$1,832,858 and negative working capital of $1,643,058 as of December 31, 2024 and 2023, respectively. The increase in working capital +was primarily due to the issuance of $5,000,000 of Convertible Series B Preferred Stock in November 2024 that significantly improved +the Company’s liquidity position. +We +have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital +stock. As of December 31, 2024, we had stockholders’ equity of $2,067,748, short-term outstanding borrowings of $154,152 and no +long-term debt. +Our +future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, +the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, +our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including +regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires +us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to +new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial +insurance carriers nationally, so this is a top priority of the Company. These activities, including our planned research and development +efforts, will require significant uses of working capital through the rest of 2025 and beyond. Based on our current operating plans, +we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs before the +end of 2025. +Additionally, +we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our +management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, +especially that of Section 404 of the Sarbanes-Oxley Act. This additional corporate governance time required of management could limit +the amount of time our management has to implement our business plan and may delay our anticipated growth plans. +68 +The +following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2024 and +2023: +Years Ended December 31, +2024 +2023 +Net cash used in operating activities +$ (6,098,264 ) +$ (6,693,978 ) +Net cash used in investing activities +(27,776 ) +(71,781 ) +Net cash provided by financing activities +9,744,350 +6,590,620 +Net increase (decrease) in cash and cash equivalents +3,618,310 +(175,139 ) +Cash and cash equivalents at beginning of period +78,560 +253,699 +Cash and cash equivalents at end of period +$ 3,696,870 +$ 78,560 +Operating +Activities – Net cash used in operating activities declined 595,714, or 8.9% from $6,693,978 for the year ended December +31, 2023, to $6,098,264 for the year ended December 31, 2024, primarily due to more issuances of common stock instead of cash for +certain services in 2024 than in 2023 and lower interest payments in 2024 due to the conversion of debt in the 2023 IPO, partially +offset by payments to past due vendors in 2024 for 2023 services. +Investing +Activities – Net cash used in investing activities decreased $44,005, or 61.3%, from $71,781 for the year ended December 31, +2023, to $27,776 for the year ended December 31, 2024, primarily due to the purchase of the Company’s trademark in 2023 that did +not recur in 2024. +Financing +Activities – Net cash provided by financing activities increased $3,153,730, or 47.9%, from $6,590,620 for the year ended +December 31, 2023, to $9,744,350 for the year ended December 31, 2024, primarily due to principal repayments on notes payable in +2023 that did not recur in 2024 and the Company subsequently raised capital from the IPO in 2023 to retire the notes payable and +issued Convertible Series B Preferred Stock in 2024. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +Not +applicable. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +See +Index to Financial Statements and Financial Statement Schedules from page F-1 of this annual report on Form 10-K, which are incorporated +herein by reference. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not +applicable. +ITEM +9A. CONTROLS AND PROCEDURES +Disclosure +Controls and Procedures +We +maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant +to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls +and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act +is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information +is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow +timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal +financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form +10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2024, +our disclosure controls and procedures were, is design and operation, not effective. +69 +Management’s +Annual Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) +of the Exchange Act. Under the supervision and with the participation of our principal executive officer and principal financial officer +and oversight of the Board of Directors, we conducted an evaluation of the effectiveness of our internal control over financial reporting +based on criteria established in the framework set forth in Internal Control—Integrated Framework (2013) issued by the Committee +of Sponsoring Organizations of the Treadway Commission. +Our +management, including our principal executive officer and principal financial officer, recognizes that disclosure controls and procedures +and internal controls over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving +the desired control objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute +assurance that all control issues and instances of fraud, if any, have been detected. Additionally, controls can be circumvented by the +individual acts of some persons, by collusion of two or more people, or by management override of the controls. +Based on our evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, +2024. +Material +Weaknesses +A +material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting +such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented +or detected. +The +following material weaknesses in our internal control over financial reporting were identified as of December 31, 2024: +● Ineffective +approval processes governing (i) timely Board of Directors authorization and (ii) segregation of duties +and roles and responsibilities configurations within the Company’s financial reporting +system; and +● Inadequate +contract management process to capture all executed agreements prior to the commencement +of services in order to ensure accuracy within the proper accounting period. +The +following material weaknesses in our internal control over financial reporting were previously disclosed in our Annual Report on Form +10-K for the year ended December 31, 2023: +● Misapplication +of U.S. GAAP as evidenced by the restatement of our unaudited financial statements as of and +for the three and nine months ended September 30, 2023; and +● Ineffective +disclosure controls and procedures a result of (i) lack of segregation of duties, (ii) lack +of internal control structure review and (iii) misapplication of U.S. GAAP. +In +order to remediate the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of +Directors, undertook measures to enhance the Company’s internal control environment, including the (i) hiring of a principal +financial officer and other accounting personnel, (ii) implementation of a documented internal control framework and program, (iii) +documentation and communication of business policies such as a delegation of authority over company transactions and invoice +approvals and (iv) completion of a formal monthly close process including account reconciliations with supporting documentation. +However, management has not fully implemented the remediation steps and expects remediation efforts to continue into fiscal year +2025. +While +these remediation efforts are subject to ongoing management evaluation and will require validation and testing of the design and operating +effectiveness of the Company’s internal controls over a sustained period of financial reporting cycles, management is committed +to maintaining a strong internal control program over financial reporting and will take further actions and implement additional enhancements +or improvements as necessary. +Changes +in Internal Control Over Financial Reporting +In +the most recent quarter as discussed above, there were changes to the design and operation of our internal control over financial reporting. +Other than those measures, there were no changes in the Company’s internal control over financial reporting (as defined in Rules +13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2024 that has materially affected, or is reasonably +likely to materially affect, the Company’s internal control over financial reporting. +Attestation +Report of the Independent Registered Public Accounting Firm +Our +independent registered public accounting firm is not required to provide an attestation report on the effectiveness of our internal control +over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act due to an exemption for “smaller reporting companies” +as defined by Rule 12b-2 under the Exchange Act. +ITEM +9B. OTHER INFORMATION +Not +applicable . +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not +applicable. +70 +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The +following table and biographical summaries set forth information, including principal occupation and business experience, about our directors +and executive officers as of March 13, 2025: +Name +Age +Position +Brian +Carrico +43 +President, +Chief Executive Officer, and Director +Timothy +Henrichs (1) +52 +Chief +Financial Officer +Dr. +Adrian Miranda +55 +Chief +Medical Officer, Senior Vice President of Science and Technology +Dr. +Thomas Carrico +68 +Chief +Regulatory Officer, Compliance Officer and Privacy Officer +Dr. +Christopher Robin Brown +71 +Director +Bradley +Mitch Watkins +50 +Director +and Chairman of the Board +Beth +Keyser +56 +Director +Kristin +Ferge +51 +Director +Gilad +Aharon +51 +Director +(1) +On +January 30, 2024, our former Chief Financial Officer John Seale resigned from his position, effective as of the close of business +on January 30 th . On the same day, Timothy R. Henrichs resigned as a member of the board of directors, effective February +2, 2024. On January 26, 2024, the board of directors appointed Mr. Henrichs to serve as the CFO, effective on February 5, 2024. +Brian +Carrico, President, Chief Executive Officer and Director +Brian +Carrico joined the Company in 2012. During his tenure, Mr. Carrico has held multiple leadership positions of increasing responsibility, +including Vice President of Sales and President before becoming CEO on January 1, 2018. As an early employee in the Company’s life +cycle, Mr. Carrico was instrumental in setting the strategic agenda for the Company, raising start-up capital, championing new product +development, and bringing the Company’s technology to market. Prior to joining Neuraxis, Mr. Carrico worked selling in the operating +room at Bard Medical and in the Cath lab at St. Jude Medical. He attended Indiana State University and holds a Bachelor of Science in +Business Marketing. +Timothy +Henrichs, Chief Financial Officer +Timothy +Henrichs currently serves as the Company’s Chief Financial Officer since February 5, 2024 and was a director of the Company from +August 9, 2023 to February 2, 2024. Mr. Henrichs’ global leadership experience spans over 20 years and across several industries, +including healthcare, home improvement, retail, software and education. Previously Mr. Henrichs served as the Chief Financial Officer +of Renovo Home Partners since 2022. He also served as the Executive Vice President and Chief Financial Officer of Follett Corporation +from 2008 to 2022 and Global Controller of General Electric Company’s Healthcare Clinical Systems division responsible for the +manufacture and distribution of medical devices to the ultrasound, patient monitoring and anesthesiology markets from 2005 to 2008 in +addition to leadership positions at Federal Signal Corporation and Ernst & Young LLP. Mr. Henrichs earned his bachelor’s degree +in accounting from the University of Notre Dame and is a Certified Public Accountant with an inactive license in the State of Illinois. +71 +Dr. +Adrian Miranda, Chief Medical Officer, Senior Vice President of Science and Technology +Dr. +Adrian Miranda has served as our Chief Medical Officer since 2018 and brings a unique background of research and clinical expertise to +his role. Prior to joining Neuraxis, Dr. Miranda was an Assistant professor at the Medical College of Wisconsin. He is a board-certified +pediatric gastroenterologist. He obtained his undergraduate degree in Biology from San Diego State University and obtained his medical +degree from the Medical College of Wisconsin. He completed his residency and subspecialty training in pediatric gastroenterology at Children’s +Hospital of Wisconsin. +As +a physician scientist, he has spent the past 20 years of his career investigating the pathophysiology of visceral and somatic pain, as +well as exploring new therapeutic options. His focus has been on studying the effects of adverse early life events, neuroplasticity and +the development of chronic pain. He has an extensive publication record and has lectured nationally and internationally. +Dr. +Thomas Carrico, Chief Regulatory Officer, Compliance Officer and Privacy Officer +Dr. +Thomas Carrico has served as our Chief Regulatory Officer since November 2017. He joined the Company in February 2012 as Director of +Regulatory Affairs. Prior to and during his early years with Neuraxis, he was President & Clinic Director at Spine and Neuromuscular +Associates in Lawrenceburg, Indiana from January 2002 to December 2018. He has over 40 years of experience in the healthcare field and +has been involved in the study and application of techniques and treatments that directly affect the autonomic nervous system, especially +regarding homeostasis and balance of the parasympathetic and the sympathetic nervous system. Dr. Carrico has a history of working with +attorneys while serving on state and national boards, which has positioned him to integrate into regulatory responsibilities at the Company. +Dr. Carrico received his undergraduate education from Indiana University and his Doctorate from Palmer College of Chiropractic. +Dr. +Christopher Robin Brown, Director +Dr. +Chirstopher Robin Brown is a co-founder of the Company. He developed clinical protocol, initial practice guidelines, designed and implemented +the practitioner certification program and personally financed the first two years of the Company. After developing the technique of +transillumination to isolate auricular neurovascular bundles, he authored and designed the initial studies establishing neurovascular +and tissue energy transfer theories upon which the devices’ use are based. Dr. Brown is listed as the sole or principal inventor +on all Neuraxis patents and is currently active in further device development working closely with compliance, product design and engineering. +Upon +graduation from the Indiana University School of Dentistry in 1982, while serving as clinic chief in the United States Army Reserve (USAR) +dental corps at Fort Benjamin Harrison in Indianapolis, Indiana, Dr. Brown started a private practice (current) concentrating in head, +neck, and facial pain developing the first hospital based facial pain clinic in Indiana. He received his master’s degree in Biomechanical +Trauma in 1996 from Lynn University, one of only 12 dentists in the United States to hold the combination of DDS and MPS degrees. Dr. +Brown has authored several textbook chapters, published peer reviewed articles on the physics of soft tissue trauma, pain, financial +management, was regional editor for a national facial pain management Journal, and has lectured extensively nationally and internationally. +He served on the Board of Directors of the American Academy of Pain Management for 15 years, helping grow the organization from 800 members +to over 5,000. Throughout his tenure, he developed educational tracks, served as Industry liaison, one term as treasurer and one term +as President. He served on the national board of The Alliance of TMD practitioners, serving one term as president. +Throughout +his career, Dr. Brown has been active in the purchasing and management of several destressed clinics and re-structuring them into profitable +enterprises. He has performed extensive volunteer work overseas providing surgical care in the Dominican Republic, local dental clinics +serving the underprivileged, and recently provided dental screenings for the deployment of soldiers in the USAR and National Guard. +72 +Bradley +Mitch Watkins, Director and Chairman of the Board +Bradley +Mitch Watkins has overseen four companies through their early commercialization periods within the medical device sector over the last +20 years. He has directly reported to the CEO or board of directors and operated as the lead for all field operations. Over his 20 years +in a multitude of medical device markets, Mr. Watkins has overseen $410 million in company acquisitions in an array of leadership roles. +He has thrived in early commercialization, recruitment, and strategic company direction. These duties have groomed Mr. Watkins with a +wide array of responsibilities beyond sales, including marketing, clinical study design, manufacturing, R&D, FDA submissions, and +fiscal oversight. Mr. Watkins has been the National Sales Manager of Terumo Interventional Systems since 2015, where he has led multiple +new technology sales teams within the peripheral IV and Electrophysiology markets. Mr. Watkins received his bachelor’s degree in +behavioral science from the University of Maryland. +Beth +Keyser, Director +With +more than 20 years of experience in executive roles in population health, Beth Keyser is skilled at understanding the unique, +complex needs of multiple market segments and devises solutions that meet their specific goals. Ms. Keyser is the President, BCBS of +Indiana at Anthem, Inc. since 2020. From 2018 to 2020, Ms. Keyser served as the President, Create at Brighton Health Plan Solutions. +From 2015 to 2020, Ms. Keyser served as the Senior Vice President, International and Hawaii Markets at Sharecare, Inc. Ms. Keyser +received her master’s degree in Executive Master of Science, Health Administration, from University of Alabama at +Birmingham. +Kristin +Ferge, Director +Kristin +Ferge has been President and Chief Financial Officer of Capri Communities and Bridges Home Healthcare, a Wisconsin-based privately held +senior living corporation, since 2016. Prior to joining Capri, Ms. Ferge was an executive for 18 years with Brookdale Senior Living Inc. +or one of its predecessors. Ms. Ferge ended her tenure at Brookdale, a publicly traded senior living company, as Executive Vice President, +Treasurer, and Chief Accounting Officer. Prior to Brookdale, Ms. Ferge was an auditor with KPMG. Ms. Ferge is a certified public accountant. +Gilad +Aharon, Ph.D. +Dr. +Aharon is a co-founder of and has served as a Portfolio Manager at Rosalind Advisors, Inc., since 2006. Dr. Aharon holds a Ph.D. in Biophysics +and Molecular Biology from the University of Toronto. Prior to co-founding Rosalind Advisors, Dr. Aharon worked as an equity analyst +at Infinium Securities Inc. +Family +Relationships +Brian +Carrico, our Chief Executive Officer and Director, is the son of Dr. Carrico, our Chief Regulatory Officer. There are no other family +relationships between or among any of our executive officers or other directors. +Role +of the Board +It +is the paramount duty of the board to oversee our management in the competent and ethical operation of the Company on a day-to-day basis +and to assure that the long-term interests of the stockholders are being served. To satisfy this duty, the directors take a proactive, +focused approach to their positions, and set standards to ensure that we are committed to business success through maintenance of ambitious +standards of responsibility and ethics. +Director +Terms; Qualifications +Our +directors are elected for a term of one year and until their successors qualified, nominated, and appointed or elected. +When +considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the board of directors +to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the board of directors +focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes +associated with a director. +Director +or Officer Involvement in Certain Legal Proceedings +There +are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse +to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or +executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy +petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is +the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any +order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement +in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court +to have violated a federal or state securities or commodities law during the past ten years. +73 +Directors +and Officers Liability Insurance +The +Company maintains directors’ and officers’ liability insurance insuring its directors and officers against liability for +acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance may also insure the Company +against losses, which it may incur in indemnifying its officers and directors. In addition, officers and directors also have indemnification +rights under applicable laws, and the Company’s Certificate of Incorporation and Bylaws. +Director +Independence +The +listing rules of NYSE American require that independent directors must comprise a majority of a listed company’s board of directors. +In addition, the rules of NYSE American require that, subject to specified exceptions, each member of a listed company’s audit, +compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria +set forth in Rule 10A-3 under the Exchange Act. Under the rules of NYSE American, a director will only qualify as an “independent +director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere +with the exercise of independent judgment in carrying out the responsibilities of a director. +Our +board of directors has undertaken a review of the independence of our directors and considered whether any director has a material relationship +with it that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based +upon information requested from and provided by each director concerning his background, employment and affiliations, including family +relationships, the board of directors has determined that three are “independent” as that term is defined under the applicable +rules and regulations of the SEC and the listing standards of NYSE American. In making these determinations, our board of directors considered +the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our board +of directors deemed relevant in determining their independence. +Board +Committees +As +of December 31, 2024, the following three standing committees have been established: Audit Committee; Compensation Committee; and +Nominating and Corporate Governance Committee. Each of our independent directors, Bradley Mitch Watkins, Beth Keyser, Kristin Ferge +and Dr. Gil Aharon, serve on certain committees. Our board has adopted written charters for each of these committees. Copies of the +charters are available on our website. Our board may establish other committees as it deems necessary or appropriate from time to +time. +Audit +Committee +The +Audit Committee, among other things, is responsible for: +● +appointing; +approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent +auditor; +● +reviewing +the internal audit function, including its independence, plans, and budget; +● +approving, +in advance, audit and any permissible non-audit services performed by our independent auditor; +● +reviewing +our internal controls with the independent auditor, the internal auditor, and management; +● +reviewing +the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; +● +overseeing +our financial compliance system; and +● +overseeing +our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal +audit function, and information technology. +74 +The +board of directors has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable +to audit committee members under SEC rules and listing standards of NYSE American All members of the Audit Committee are able to read +and understand fundamental financial statements, are familiar with finance and accounting practices and principles and are financially +literate. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee. +The board of directors has affirmatively determined that each member of the Audit Committee is financially literate, and that Kristin +Ferge meets the qualifications of an Audit Committee financial expert. +The +Audit Committee consists of Kristin Ferge, Bradley Mitch Watkins, and Beth Keyser and Ms. Ferge serves as chair of the Audit Committee. +The functioning of the Audit Committee complies with the applicable requirements of the rules and listing standards of NYSE American +and the SEC. +Compensation +Committee +The +Compensation Committee is responsible for: +● +reviewing +and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; +● +overseeing +and administering the Company’s executive compensation plans, including equity-based awards; +● +negotiating +and overseeing employment agreements with officers and directors; and +● +overseeing +how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking +incentives. +The +Compensation Committee consists of Dr. Gil Aharon, Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge, and Dr. Aharon serves as +chair of the Compensation Committee. The board of directors has affirmatively determined that each member of the Compensation +Committee meets the independence criteria applicable to compensation committee members under SEC rules and listing standards of NYSE +American. The Company believes that the composition of the Compensation Committee meets the requirements for independence under, and +the functioning of such Compensation Committee comply with, any applicable requirements of the rules and regulations of listing +standards of NYSE American and the SEC. +Nominating +and Corporate Governance Committee +The +Nominating and Corporate Governance Committee, among other things, is responsible for: +● +reviewing +and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion +and succession issues; +● +evaluating +and reporting to the Board on the performance and effectiveness of the directors, committees and the board of directors as a whole; +● +working +with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity +considerations, for the full Board and each committee; +● +annually +presenting to the Board a list of individuals recommended to be nominated for election to the board; +● +reviewing, +evaluating, and recommending changes to the Company’s committee charters; +● +recommending +to the Board individuals to be elected to fill vacancies and newly created directorships; +● +overseeing +the Company’s compliance program, including the Code of Conduct; and +● +overseeing +and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including +leadership, structure, and succession planning, that may affect the Company’s major risk exposures. +The +Nominating and Corporate Governance Committee consists of Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge and Ms. Keyser serves +as chair of the Nominating and Corporate Governance Committee. The Company’s board of directors has determined that each member +of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director requirements for independence +under the NYSE American listing standards and SEC rules and regulations. +75 +Compensation +Committee Interlocks and Insider Participation +None +of the Company’s executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, +or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of the +Company’s board of directors or its compensation committee. None of the members of the Company’s compensation committee is, +or has ever been, an officer or employee of the Company. +Code +of Business Conduct and Ethics +The +Company’s board of directors has adopted a code of business conduct and ethics (“Code of Conduct”) applicable to its +employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of NYSE +American. The Code of Conduct is effective and is publicly available on the Company’s website. Any substantive amendments or waivers +of the Code of Conduct may be made only by the Company’s board of directors and will be promptly disclosed as required by applicable +U.S. federal securities laws and the corporate governance rules of NYSE American. +Item +11. Executive Compensation +Summary +Compensation Table +The +following table sets forth information concerning all compensation earned by our Chief Executive Officer and three other persons who +served as executive officers as, at, or during the years ended December 31, 2024 and 2023, and who earned compensation exceeding $100,000 +during 2024 and 2023 (the “Named Executive Officers”), for services as executive officers for the last two years. +Name and Principal Position +Year +Salary ($) (1) +Bonus +($) (2) +Stock Awards ($) (3) +Benefits +($) (4) +Total +($) +Brian Carrico +2024 +352,973 +206,730 +— +18,673 +578,376 +Chief Executive Officer +2023 +375,000 +441,346 +— +23,052 +839,398 +Timothy Henrichs +2024 +274,077 +112,239 +227,000 +15,561 +628,877 +Chief Financial Officer +2023 +— +— +— +— +— +Dr. Thomas Carrico +2024 +288,307 +63,772 +— +16,835 +368,914 +Chief Regulatory Officer +2023 +278,837 +116,716 +— +15,544 +411,097 +Dr. Adrian Miranda +2024 +300,000 +63,772 +— +18,673 +382,445 +Chief Medical Officer +2023 +300,000 +— +— +23,052 +323,052 +(1) +Represents +W-2 Box 1 bi-weekly payments to our executive officers pursuant to their respective employment agreements. Mr. Henrichs began employment +on February 5, 2024. +(2) +Represents +bonus earned by our executive officers from the annual incentive plan adopted in 2024 upon achievement of certain targets. Mr. Carrico’s +bonus includes $62,222 related to the successful issuance of the 2024 Convertible Notes. Bonuses are expected to be paid in 2025. +(3) +Mr. Henrichs was granted 100,000 common stock awards as a hiring grant. +(4) +Represents +medical, dental and vision benefits. +76 +Outstanding +Equity Awards at Fiscal Year-End +The +following table sets forth information regarding equity awards held by the Named Executive Officers as of December 31, 2024. +Name +Number of Securities Underlying Unexercised Options, Exercisable (#) +Number of Securities Underlying Unexercised Options, Not Exercisable (#) +Option +Exercise +Price +($) +Option +Expiration +Date +Brian Carrico +320,000 +— +6.94 +09/13/29 +Timothy Henrichs +— +— +— +— +Dr. Thomas Carrico +306,236 +— +6.94 +09/13/29 +Dr. Adrian Miranda +337,204 +— +6.94 +09/13/29 +(1) +All +option awards were granted under the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan and vested fully upon grant. +Innovative +Health Solutions, Inc. 2017 Stock Compensation Plan, As Amended +On +October 12, 2017, the Company adopted the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as amended on September 13, +2019, September 9, 2021, and November 1, 2022 (collectively, the “2017 Plan”). The purpose of the 2017 Plan is to grant incentive +stock options, nonqualified stock options, or restricted stock awards to our officers, employees, directors, advisors, and consultants. +The maximum numbers of shares of common stock that may be issued pursuant to awards granted were 1,319,394. Cancelled and forfeited stock +options and stock awards may again become available for grant under the 2017 Plan. As of the date of December 31, 2024, options to purchase +all 1,319,394 shares of common stock have been granted under the 2017 Plan and remain outstanding, and no shares remain available for +issuance under the 2017 Plan. The following summary briefly describes the principal features of the 2017 Plan and is qualified in its +entirety by reference to the full text of the 2017 Plan, which is filed as an exhibit to the registration statement of which this prospectus +forms a part. +Purpose +of the 2017 Plan : The purposes of the 2017 Plan are to encourage ownership of shares by eligible employees and key non-employees +in order to attract and retain such eligible employees in the employ of the Company or an affiliated entity, or to attract such key non-employees +to provide services to the Company or an affiliated entity, and to provide additional incentive for such persons to promote the long-term +success of the Company or an affiliated entity. +Administration +of the Plan : The 2017 Plan is administered by the board of directors, or the committee to which the board of directors delegates +the power to act. Among other things, the administrator has the authority to select persons who will receive awards, determine the types +of awards and the number of shares to be covered by awards, and to establish the terms, conditions, restrictions and other provisions +of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the 2017 Plan. +Eligible +Recipients : Persons eligible to receive awards under the 2017 Plan are those officers, employees, directors, advisors, and consultants +of the Company or an affiliated entity who are selected by the administrator. +Shares +Available under the 2017 Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2017 +Plan is 1,319,394 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. No new grants +will be made under the 2017 Plan, and shares subject to an award under the 2017 Plan for which the award is canceled, forfeited or expires +will become available for grants under the 2022 Plan described below. Shares subject to an award that is settled in cash will not again +be made available for grants under the 2017 Plan. +77 +Stock +Options +General . +Subject to the provisions of the 2017 Plan, the administrator has the authority to determine all grants of stock options, although +there are currently no shares of common stock remaining reserved for grants under the 2017 Plan. +Option +Price . The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair +market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock +must have an exercise price of not less than 110% of the fair market value on the grant date. +Exercise +of Options . An option may be exercised only in accordance with the terms and conditions for the option agreement as established +by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. +Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to +the holder of the option based upon the fair market value of the shares on the date of exercise. +Expiration +or Termination . Options, if not previously exercised, will expire on the expiration date established by the administrator +at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders +of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date only if +the holder’s service with our Company or an affiliate terminates before the expiration date and the holder is terminated for cause. +The option may remain exercisable until the expiration date of the option after terminations of employment for any reason other than +for cause, including terminations as a result of death, disability or retirement. +Incentive +and Non-Qualified Options . An incentive stock option is an option that is intended to qualify under certain provisions of +the Internal Revenue Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify +as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. +For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date +and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will +or the laws of descent and distribution and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive +stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock +options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market +value in excess of $100,000, measured at the grant date. +Restricted +Stock Awards: Restricted stock awards could have also been granted under the 2017 Plan, although there are currently no shares of +common stock remaining reserved for grants under the 2017 Plan. A restricted stock award is a grant of shares of common stock or of a +right to receive shares in the future. +Other +Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In +the event of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, +an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise +price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes +in the award in the event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by +the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. +Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. +Our board of directors also has the authority, at any time, to discontinue the granting of awards. The Plan may be amended by the board +of directors and such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment +shall be subject to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company +if such stockholder approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under +the Plan can be made without the consent of the holder of such award. +No +new grants can be made under the 2017 Plan. The terms and conditions of awards granted under the 2017 Plan prior to the effective date +of the 2022 Plan will not be affected by the adoption or approval of the 2022 Plan, and the 2017 Plan will remain effective with respect +to such awards. +78 +Neuraxis, +Inc. 2022 Omnibus Securities and Incentive Plan, As Amended on August 15, 2024 +On +November 1, 2022, the Company adopted the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (as amended January 18, 2023, the +“2022 Plan”). The purpose of the 2022 Plan is to attract, retain and provide incentives to key management employees and non-employee +directors of, and non-employee consultants to, the Company and its affiliates, and to align the interests of such employees, non-employee +directors and non-employee consultants with those of the Company’s stockholders. The maximum number of shares of common stock that +may be issued pursuant to awards granted are 300,000. Cancelled and forfeited stock options and stock awards may again become available +for grant under the 2022 Plan. On August 15, 2024, the Company held an annual meeting of stockholders whereby an amendment was approved +such that the maximum number of shares of common stock (including shares of common stock underlying options designated as incentive stock +options) that may be issued under the Plan shall not exceed six hundred thousand (600,000) shares of Common Stock, plus an annual increase +on the first day of each calendar year beginning January 1, 2025 and ending on and including January 1, 2031 equal to the lesser of (i) +five percent (5%) of the shares of common stock outstanding on the final day of the immediately preceding calendar year, and (ii) such smaller +number of shares of common stock as determined by the Board or the Compensation Committee. +As +of the date of this Form 10-K, 896,028 awards have been granted under the 2022 Plan, and 62,791 shares of common stock +remain available for issuance under the 2022 Plan. The following summary briefly describes the principal features of the 2022 Plan and +is qualified in its entirety by reference to the full text of the 2022 Plan. +Purpose +of the 2022 Plan : The purposes of the 2022 Plan is to benefit the stockholders of the Company, by assisting the Company to attract, +retain and provide incentives to key management employees and non-employee directors of, and non-employee consultants to, the Company +and its affiliates, and to align the interests of such employees, non-employee directors and non-employee consultants with those of the +Company’s stockholders. +Administration +of the 2022 Plan : The 2022 Plan shall be administered by the board of directors or the committee designated by the board of directors. +Among other things, the administrator has the authority to select persons who will receive awards, determine the time or times when an +award shall be made, what type of award shall be granted, the term of an award, the date or dates on which an award vests (including +acceleration of vesting), the form of any payment to be made pursuant to an award, the terms and conditions of an award (including the +forfeiture of the award (and/or any financial gain) if the holder of the award violates any applicable restrictive covenant thereof), +the restrictions under a restricted stock award and the number of common stock which may be issued under an award, all as applicable. +In addition, subject to the express provisions of the 2022 Plan, the administrator is authorized to construe the 2022 Plan and the respective +award agreements executed thereunder, to prescribe such rules and regulations relating to the 2022 Plan as it may deem advisable to carry +out the intent of the 2022 Plan, to determine the terms, restrictions and provisions of each award, and to make all other determinations +necessary or advisable for administering the 2022 Plan. +Eligible +Recipients : Persons eligible to receive awards under the 2022 Plan will be those officers, employees, directors, advisors, and consultants +of the Company or an affiliated entity who are selected by the administrator. +Shares +Available under the Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2022 Plan +is 958,820 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to +an award under the 2022 Plan for which the award lapses, expires, is canceled, terminated, unexercised or ceases to be exercisable again +become available for grants under the 2022 Plan. +Stock +Options +General. +Subject to the provisions of the 2022 Plan, the administrator has the authority to determine all grants of stock options. +Option +Price. The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair +market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock +must have an exercise price of not less than 110% of the fair market value on the grant date. +Exercise +of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by +the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. +Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to +the holder of the option based upon the fair market value of the shares on the date of exercise. +79 +Expiration +or Termination. Options, if not previously exercised, will expire on the expiration date established by the administrator at the +time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more +than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s +service with our Company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods +after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period +during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award. +Incentive +and Non-Qualified Options. As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify +under certain provisions of the Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does +not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive +stock options. For example, generally, the exercise price for incentive stock options may not be less than the fair market value of the +shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, +other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. +In addition, to the extent that the aggregate fair market value of common stock with respect to which incentive stock options are exercisable +for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary +corporation thereof which provide for the grant of incentive stock options exceeds $100,000, the portion of such incentive stock options +that exceeds such threshold shall be treated as non-qualified stock options. Incentive stock options shall be granted to employees only. +Restricted +Stock Awards: Restricted stock awards can be granted under the 2022 Plan. A restricted stock award is a grant of shares of common +stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies +as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement +of specified performance goals. +Unrestricted +Stock Awards : Unrestricted stock awards can also be granted under the 2022 Plan. An unrestricted stock award is a grant of shares +of common stock which is not subject to restrictions, in consideration for past services rendered thereby to the Company or an affiliate +or for other valid consideration. +Restricted +Stock Unit Awards : Restricted stock unit awards (“RSUs”) can be granted under the 2022 Plan upon the satisfaction of +predetermined individual service related vesting requirements. The holder of a restricted stock unit shall be entitled to receive a cash +payment equal to the fair market value of shares of common stock, for each unit awarded to the holder. +Performance +Stock Unit Awards : Performance stock unit awards can be granted under the 2022 Plan. A holder of performance stock units shall be +entitled to receive a cash payment equal to the dollar value or number of shares of common stock assigned to such units if the holder +and/or the Company satisfy the predetermined performance goals and objectives. +Distribution +Equivalent Rights : Distribution equivalent right awards can be granted under the 2022 Plan. A distribution equivalent right award +entitles the holder to receive bookkeeping credits, cash payments and/or common stock distributions equal in amount to the distributions +that would have been made to the holder had the holder held a specified number of common stock during the period the holder held the +distribution equivalent right. +Stock +Appreciation Right s: Stock appreciation rights can also be granted under the 2022 Plan, which is a right, granted alone or in connection +with a related Option, to receive a payment on the date of exercise. The base value of the stock appreciation right shall be set forth +by the administrator and shall not be less than the fair market value of the common stock at the date of grant for the stock appreciation +right which is not a tandem stock appreciation right. No stock appreciation right shall be exercisable after the expiration of ten (10) +years from the date of its grant. Upon the exercise of some or all of the portion of a stock appreciation right, the holder shall receive +a payment from the Company, in cash or in the form of common stock having an equivalent fair market value or in a combination of both. +If the administrator grants a stock appreciation right which is intended to be a tandem stock appreciation right, the tandem stock appreciation +right shall be granted at the same time as the related option. +80 +Other +Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In the event +of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate +adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. +The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the +event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by the administrator at +the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, +we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board of directors +also has the authority, at any time, to discontinue the granting of awards. The 2022 Plan may be amended by the board of directors and +such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment shall be subject +to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company if such stockholder +approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under the 2022 Plan can +be made without the consent of the holder of such award. The 2022 Plan shall continue in effect, unless sooner terminated, until the +tenth (10th) anniversary of the date on which it is adopted by the board of directors. +Employment +Agreements +Brian +Carrico , our Chief Executive Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended on +May 4, 2023, which has a five-year initial term and provides for a base salary of $330,000, which shall be increased each year by not +less than 3% per annum. Mr. Carrico also will receive a one-time incentive payment in the amount of $435,577, which amount consists of +accrued and unpaid salary and a bonus to incentivize Mr. Carrico to remain with the Company for future service. Neither the accrued and +unpaid salary nor bonus was the subject of any contract or agreement between Mr. Carrico and the Company prior to the execution of the +employment agreement. The agreement contemplated that the incentive payment would be paid by December 15, 2022, but due to administrative +impracticability, payment was made with a portion of the proceeds from the IPO in August 2023. In addition, Mr. Carrico is entitled to +payment of a deferred bonus in an amount equal to (i) the aggregate of the strike price or exercise price of all 320,000 unexercised +options to purchase stock or shares of the Company held by Mr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up +payment on the Aggregate Strike Price reasonably calculated by the Company at the highest marginal rates so that after payment of all +ordinary income taxes on such Aggregate Strike Price, there remains an amount sufficient to pay such ordinary income taxes. The special +deferred bonus will be paid in substantially equal 20% installments (the “Annual Deferred Bonus Payment”) on January 2 on +each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled Payment Dates”), with a condition that on or before each Scheduled +Payment Date, Mr. Carrico shall exercise at least 64,000 of the stock option. None of stock options has been exercised, therefore, no +special deferred bonus has been paid as of the date of this prospectus. Mr. Carrico may exercise any portion of the stock options after +a Scheduled Payment Date; provided, however, an exercise after the applicable Scheduled Payment Date shall result in forfeiture of the +related Annual Deferred Bonus Payment. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Mr. Carrico will receive +any accrued compensation (as defined in the employment agreement) and is entitled to severance payments as follows: +● +If +termination occurs during the initial term, the severance payment shall be the amount equal to the greater of (a) three times Mr. +Carrico’s base salary as of the termination date; and (b) three times the total amount of Mr. Carrico’s bonus payments +the Company paid Mr. Carrico over the one year prior to the termination date, to be paid in substantially equal monthly installments +over the course of the three years. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to the greater of (a) one and one half +(1.5) times Mr. Carrico’s base salary as of the termination date; and (b) one and one half (1.5) times the total amount of +Mr. Carrico’s bonus payments the Company paid Mr. Carrico over the one (1) year prior to the termination date, to be paid in +substantially equal monthly installments over the course of 18 months following the termination date. +● +In +addition, as part of the severance payment, we agreed to pay Mr. Carrico monthly COBRA premiums for continuation of health coverage +for 18 months post termination. +81 +If +the employment agreement is terminated by the Company for cause, Mr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Mr. Carrico’s termination date; and accrued and unused paid time off (“PTO”), if any, in accordance with +the Company’s PTO policy in effect on Mr. Carrico’s termination date. +Mr. +Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the deferred bonus. +In +the event that Mr. Carrico is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments +over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred +bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Mr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) will not, +directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business +connection or business or employment relationship with any entity or person which competes with the Company during his employment and, +(v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, +management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, +sale or servicing of any service or product with which Mr. Carrico was involved during his last year of employment with the Company; +or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) +and about which Mr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months +after his separation from the Company. +Timothy +Henrichs , our Chief Financial Officer entered into an employment agreement with the Company, dated January 1, 2025 which has a five-year +initial term and provides for a base salary of $330,000, which shall be increased each year by not less than 3% per annum. Mr. Henrichs +also will receive a one-time hiring grant of 100,000 shares of common stock. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Mr. Henrichs will receive +any accrued compensation (as defined in the employment agreement) and is entitled to severance payments as follows: +● +If +termination occurs during the initial term, the severance payment shall be the amount equal to the greater of (a) one times Mr. Henrichs’ +base salary as of the termination date; and (b) one times the total amount of Mr. Henrichs’ bonus payments the Company paid +Mr. Henrichs over the one year prior to the termination date, to be paid in substantially equal monthly installments over the course +of one year. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to the greater of (a) one and times Mr. +Henrichs’ base salary as of the termination date; and (b) one times the total amount of Mr. Henrichs’ bonus payments +the Company paid Mr. Henrichs over the one (1) year prior to the termination date, to be paid in substantially equal monthly installments +over the course of 12 months following the termination date. +● +In +addition, as part of the severance payment, we agreed to pay Mr. Henrichs monthly COBRA premiums for continuation of health coverage +for 18 months post termination. +82 +If +the employment agreement is terminated by the Company for cause, Mr. Henrichs will forfeit any unpaid Annual Deferred Bonus Payment, +but will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly +incurred prior to the Mr. Henrichs’ termination date; and accrued and unused paid time off (“PTO”), if any, in accordance +with the Company’s PTO policy in effect on Mr. Henrichs’ termination date. +Mr. +Henrichs may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the deferred bonus. +Pursuant +to the employment agreement, Mr. Henrichs also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) will not, +directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business +connection or business or employment relationship with any entity or person which competes with the Company during his employment and, +(v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, +management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, +sale or servicing of any service or product with which Mr. Henrichs was involved during his last year of employment with the Company; +or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) +and about which Mr. Henrichs gained any confidential information in the course of his employment with the Company for a period of 24 +months after his separation from the Company. +Dr. +Adrian Miranda , our Chief Medical Officer and Senior Vice President of Science and Technology, entered into an employment agreement +with the Company, dated August 17, 2022, which has a two-year initial term and provides for a base salary of $300,000 with annual compensation +increase. In addition, Dr. Miranda shall be entitled to payment of a special deferred bonus in an amount equal to (i) the aggregate of +the strike price or exercise price of all 337,204 unexercised options to purchase stock or shares of the Company held by Dr. Miranda +(the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably calculated by the +Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, there remains +an amount sufficient to pay such ordinary income taxes. The deferred bonus will be paid in substantially equal 20% installments (the +“Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028, with a condition that on or before +each scheduled payment date, Dr. Miranda shall exercise at least 67,441 of the stock options. +83 +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement) occurs during the term of +the agreement, Dr. Miranda will receive any accrued compensation (as defined in the employment agreement) and is entitled to certain +amount of severance payments as follows: +● +If +termination occurs during the initial term, the Company shall provide Dr. Miranda with severance compensation in the form of salary +continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of +the initial term. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Miranda’s +Base Salary as of the termination date. +● +In +addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Miranda reimbursement +of his monthly COBRA premiums for continuation of health coverage for 18 months post termination. +If +the employment agreement is terminated by the Company for cause, Dr. Miranda will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Dr. Miranda’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO +policy in effect on Dr. Miranda’s termination date. +Dr. +Miranda may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the special deferred bonus. +In +the event that Dr. Miranda is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments +over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred +bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Dr. Miranda also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly +or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection +or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, +directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, +or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or +servicing of any service or product with which Dr. Miranda was involved during his last year of employment with the Company; or which +the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about +which Dr. Miranda gained any confidential information in the course of his employment with the Company for a period of 24 months after +his separation from the Company. +84 +Dr. +Thomas Carrico , Chief Regulatory Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended +on May 4, 2023, which has a two-year initial term and provides for a base salary of $275,000 with annual compensation increase. Dr. Carrico +will also receive a one-time incentive payment in the amount of $135,655, which amount includes accrued and unpaid salary and a bonus +to incentivize Dr. Carrico to remain with the Company for future service. Neither the accrued and unpaid salary nor bonus was the subject +of any contract or agreement between Dr. Carrico and the Company prior to the execution of the employment agreement. The agreement contemplated +that the incentive payment would be paid by December 15, 2022, but due to administrative impracticability, payment was made with a portion +of the proceeds from the IPO in August 2023. In addition, Dr. Carrico shall be entitled to payment of a deferred bonus in an amount equal +to (i) the aggregate of the strike price or exercise price of all 306,236 unexercised options to purchase stock or shares of the Company +held by Dr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably +calculated by the Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, +there remains an amount sufficient to pay such ordinary income taxes. The special deferred bonus will be paid in substantially equal +20% installments (the “Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled +Payment Dates”), with a condition that on or before each Scheduled Payment Date, Dr. Carrico shall exercise at least 61,274 of +the stock option. None of stock options has been exercised, therefore, no special deferred bonus has been paid as of the date of this +prospectus. Dr. Carrico may exercise any portion of the stock options after a Scheduled Payment Date; provided, however, an exercise +after the applicable Scheduled Payment Date shall result in forfeiture of the related Annual Deferred Bonus Payment. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Dr. Carrico will receive +any accrued compensation (as defined in the employment agreement) and is entitled to certain amount of severance payments as follows: +● +If +termination occurs during the initial term, the Company shall provide Dr. Carrico with severance compensation in the form of salary +continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of +the initial term. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Carrico’s +Base Salary as of the termination date. +● +In +addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Carrico reimbursement +of his Medicare, Medicare Supplement and prescription drug coverage insurance premiums for continuation of health coverage for 18 +months post termination. +If +the employment agreement is terminated by the Company for cause, Dr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Dr. Carrico’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO +policy in effect on Dr. Carrico’s termination date. +Dr. +Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the special deferred bonus. +In +the event that Dr. Carrico is terminated without cause after this offering, non-forfeited portions of the deferred bonus will be paid +in equal installments over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment +dates. A deferred bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Dr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly +or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection +or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, +directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, +or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or +servicing of any service or product with which Dr. Carrico was involved during his last year of employment with the Company; or which +the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about +which Dr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months after +his separation from the Company. +85 +Non-Employee +Director Compensation +The +following table presents the compensation awarded to or earned by or paid to all individuals who served as non-employee directors during +the years ended December 31, 2024 and 2023. We do not provide additional compensation to directors who are our employees for also serving +as a director. +Name +Year +Fees Earned ($) +Stock Awards Earned ($) +Total ($) +Bradley M. Watkins +2024 +60,000 +50,000 +110,000 +2023 +23,836 +19,863 +43,699 +Beth Keyser +2024 +60,000 +50,000 +110,000 +2023 +23,836 +19,863 +43,699 +Kristin Ferge (1) +2024 +49,151 +40,959 +90,110 +2023 +— +— +— +Timothy Henrichs (2) +2024 +5,260 +4,384 +9,644 +2023 +23,836 +19,863 +43,699 +(1) +Kristin Ferge was appointed to the board of directors on March 7, 2023. +(2) +On January 30, 2024, Timothy R. Henrichs resigned as a member of the board of directors, effective February 2, 2024 and became the Company’s +Chief Financial Officer. +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March +13, 2025 based on 7,215,864 shares of common stock outstanding. In addition, holders of Series B Preferred Stock are entitled to an +additional 2,681,208 votes (solely for purposes of voting rights, the conversion price is $3.80 per share). Therefore, the total +votes of the Company’s currently outstanding securities is 9,897,072 votes, subject to a maximum voting percentage cap of +between 4.99% and 19.99% of the votes outstanding set at the discretion of each holder of Series B Preferred Stock. +We +have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission, and the information is not +necessarily indicative of beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities +to persons who possess sole or shared voting power or investment power with respect to those securities as well as any common stock that +the person has the right to acquire within 60 days of March 13, 2025 through the exercise of stock options or other rights. These shares +are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership +of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless +otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares +shown as beneficially owned by them. +Beneficially Ownership Common Stock +Shares +Percentage +Percentage of +Voting +Power +Name of beneficial owner 5% shareholders: +Masimo Corporation (1) +821,327 +10.9 % +8.3 % +Brian P. Hannasch (2) +770,753 +10.7 % +7.8 % +Rosalind Master Fund LP (3) (8) +796,800 +9.9 % +9.9 % +Named executive officers and directors: +Brian Carrico (4) +340,118 +4.5 % +3.4 % +Timothy Henrichs +- +* +* +Adrian Miranda (5) +337,204 +4.5 % +3.4 % +Thomas Carrico (6) +311,236 +4.1 % +3.1 % +Christopher Robin Brown +792,837 +11.0 % +8.0 % +Bradley Mitch Watkins +24,737 +* +* +Beth Keyser +24,737 +* +* +Kristin Ferge +14,340 +* +* +Gil Aharon (7) +105,042 +1.4 % +* +All executive officers and directors as a group (nine (9) persons) +1,950,251 +26.4 % +19.3 % +* +Less +than 1%. +(1) The business address +for Masimo Corporation is 52 Discovery, Irvine, California 92618. Shares of common stock beneficially owned consist of (i) 531,548 shares +of common stock and (ii) warrants to purchase 289,779 shares of common stock. +(2) Shares of common stock +beneficially owned consist of (i) 757,901 shares of common stock and (ii) warrants to purchase 12,852 shares of common stock. +(3) The business +address for Rosalind Master Fund LP is c/o Rosalind Advisors, Inc., 15 Wellesley Street West, Suite 326, Toronto, ON, Canada M4Y +0G7. Shares of beneficially owned common stock consist of 1,890,756 shares of common stock issuable upon conversion of 1,890,756 shares +of Series B Preferred Stock, subject to an ownership cap of 9.99%, which equals 796,800 shares. 1,890,756 shares of Series B Preferred Stock entitle Rosalind Master Fund LP to 1,184,210 votes, subject to a maximum +percentage of 9.99%, or 988,717 votes. +(4) Shares of common stock +beneficially owned consist of (i) 20,118 shares of common stock and (ii) 320,000 stock options. +(5) Shares of common stock +beneficially owned consist of 337,204 stock options. +(6) Shares of common stock +beneficially owned consist of (i) 5,000 shares of common stock and (ii) 306,236 stock options. +(7) Shares of common +stock beneficially owned consist of 105,042 shares of common stock issuable upon conversion of 105,042 shares of Series B Preferred +Stock. 105,042 shares of Series B Preferred Stock entitle Gil +Aharon to 65,789 votes. +(8) Mr. Aharon has indirect +ownership over Rosalind Master Fund LP. +86 +Item +13. Certain Relationships and Related Transactions and Director Independence +The +following includes a summary of transactions since January 1, 2023, to which we have been a party in which the amount involved exceeded +or will exceed the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two +fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital +stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, +other than equity and other compensation, termination, change in control and other arrangements, which are described under “Item +11. Executive Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders. +The +Company has two demand notes receivable from its two founding shareholders, Christopher Robin Brown and Gary Peterson, related to the +sale of common stock on January 1, 2016. The initial balances of both notes were $506,400, with interest calculated monthly based on +applicable federal rates. No payments have been received on the notes. As of December 31, 2023, the balances of both notes were $506,400. +The entire $1,012,800 balance has been fully reserved as of December 31, 2024. +The +Company has loans payable to Christopher Robin Brown, one of our founders and a member of our board of directors, related to funding +needs for operations with original principal amounts of $55,000 and $50,000 each bearing interest at 15% per annum. In August 2023, the +Company used a portion of the proceeds from the IPO to repay these loans payable in full, including $37,103 in interest. +Mr. +Watkins, Director, provided certain sales, marketing and commercialization consulting services to the Company prior to his appointment +to the Board of Directors. For the fiscal years ended December 31, 2024 and 2023, the Company paid Mr. Watkins $0 and $11,083, respectively. +John +Seale, our former Chief Financial Officer, is also the managing partner of a third- party public accounting firm that provides contracted +services to the Company. Mr. Seale, through the third-party firm, has provided accounting services since 2017. For the fiscal years ended +December 31, 2024 and 2023, the Company paid the third-party accounting firm $207,103 and $312,803, respectively, for accounting services. +We +have adopted a formal policy that our executive officers, directors, holders of more than 5% of any class of our voting securities, and +any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a +related party transaction with us without the prior consent of our Audit Committee, or other independent members of our Board of Directors +if it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter +into a transaction with an executive officer, director, principal shareholder, or any of their immediate family members or affiliates, +in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed +fiscal years must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such +proposal, our Audit Committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, +including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated +third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. +Item +14. Principal Accounting Fees and Services +Fees +Billed for Audit and Non-Audit Services +The +following table presents for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial +statements and other professional services rendered by our independent registered public accounting firm Rosenberg Rich Baker Berman, +P.A. +2024 +2023 +Audit Fees (1) +$ 181,195 +$ 221,570 +(1) +Audit Fees . These are fees for professional services for the audit of our annual financial statements, and for the review of the +financial statements included in our filings on Form 10-K and Form 10-Q, and for services that are normally provided in connection with +statutory and regulatory filings or engagements. +87 +PART +IV +ITEM +15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) +1. +Financial Statements +The +financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements +and Schedules” on page F-1 and included from F-2 onwards. +2. +Financial Statement Schedules +All +schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) +are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures +are contained in the financial statements included herein. +3. +Exhibits (including those incorporated by reference). +(b) +Exhibits +Exhibit +Number +Exhibit +Description +3.1 +Certificate of Incorporation (incorporated by reference to exhibit 3.1 to Registration Statement on Form S-1, filed on January 10, 2023) +3.2 +Certificate of Amendment to Certificate of Incorporation (incorporated by reference to exhibit 3.2 to Registration Statement on Form S-1, filed on January 26, 2023) +3.3 +Certificate of Amendment to the Certificate of Incorporation of Neuraxis, Inc., dated August 22, 2024 (incorporated by reference to exhibit 3.1 to Quarterly Report on Form10-Q, filed on November 12, 2024) +3.4 +Certificate of Designation of Series B Preferred Stock, dated August 22, 2024 (incorporated by reference to exhibit 3.2 to Quarterly Report on Form10-Q, filed on November 12, 2024) +3.6 +Amendment No. 1 to Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (incorporated by reference to exhibit 3.1 to current report on Form 8-K, furnished to the SEC on November 21, 2024) +3.7 +Bylaws (incorporated by reference to exhibit 3.3 to Registration Statement on Form S-1, filed on January 10, 2023) +4.1* +Description of the Company’s Securities +4.2 +Second Amendment to Shareholders’ Agreement, dated January 8, 2023 (incorporated by reference to exhibit 4.21 to Registration Statement on Form S-1, filed on January 10, 2023) +10.1† +Employment Agreement between Neuraxis, Inc. and Brian Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.12 to Registration Statement on Form S-1, filed on January 10, 2023) +10.2† +First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Brian Carrico, dated as of May 4, 2023 (incorporated by reference to exhibit 10.13 to Registration Statement on Form S-1, filed on June 1, 2023) +10.3† +Employment Agreement between Neuraxis, Inc. and Adrian Miranda, dated as of August 17, 2022 (incorporated by reference to exhibit 10.13 to Registration Statement on Form S-1, filed on January 10, 2023) +10.4† +Employment Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.14 to Registration Statement on Form S-1, filed on January 10, 2023) +88 +10.5† +First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of May 4, 2023 (incorporated by reference to exhibit 10.16 to Registration Statement on Form S-1, filed on June 1, 2023) +10.6† +Employment Agreement between Neuraxis, Inc. and Dan Clarence, dated as of August 9, 2022 (incorporated by reference to exhibit 10.15 to Registration Statement on Form S-1, filed on January 10, 2023) +10.7† +First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Dan Clarence, dated as of May 4, 2023 (incorporated by reference to exhibit 10.18 to Registration Statement on Form S-1, filed on June 1, 2023) +10.8† +Employment Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of August 9, 2022 (incorporated by reference to exhibit 10.16 to Registration Statement on Form S-1, filed on January 10, 2023) +10.9† +First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of May 4, 2023 (incorporated by reference to exhibit 10.20 to Registration Statement on Form S-1, filed on June 1, 2023) +10.10† +Employment Agreement between Neuraxis, Inc. and Gary Peterson, dated as of August 9, 2022 (incorporated by reference to exhibit 10.17 to Registration Statement on Form S-1, filed on January 10, 2023) +10.11† +First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Gary Peterson, dated as of May 4, 2023 (incorporated by reference to exhibit 10.22 to Registration Statement on Form S-1, filed on June 1, 2023) +10.12† +Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as amended (incorporated by reference to exhibit 10.20 to Registration Statement on Form S-1, filed on January 10, 2023) +10.13† +Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.21 to Registration Statement on Form S-1, filed on January 10, 2023) +10.14† +First Amendment to Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.26 to Registration Statement on Form S-1, filed on January 26, 2023) +10.15 +Securities purchase agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on November 14, 2023) +10.16 +Registration rights agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on November 14, 2023) +10.21 +Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on February 15, 2024) +10.22 +Form of Convertible Promissory Note (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on February 15, 2024) +10.23 +Form of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on February 15, 2024) +10.24 +First Amendment to Securities Purchase Agreement, dated February 12, 2024, between the Company and Flagstaff International (incorporated by reference to exhibit 10.4 to current report on Form 8-K, furnished to the SEC on February 15, 2024) +10.25 +Third Amendment to Securities Purchase Agreement, dated March 22, 2024, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on March 28, 2024) +10.26 +Form of Convertible Promissory Note issued to Flagstaff International, LLC (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on March 28, 2024) +10.27 +Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on May 28, 2024) +10.28 +Form of Convertible Promissory Note (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on May 28, 2024) +10.29 +Form of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on May 28, 2024) +89 +10.30† +Form of Unrestricted Stock Award Agreement by and between NeurAxis, Inc. and Grantees dated on July 1, 2024 (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on July 5, 2024) +10.31 +Fourth Amendment to Securities Purchase Agreement, dated October 12, 2024, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on October 18, 2024) +10.32 +Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on October 18, 2024) +10.33 +Form of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on October 18, 2024) +10.34 +Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on November 15, 2024) +10.35 +Form of Registration Rights Agreement (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on November 15, 2024) +19.1* +Insider Trading Policy +21.1 +List of Subsidiaries of Neuraxis, Inc. (incorporated by reference to exhibit 21.1 to Registration Statement on Form S-1, filed on January 10, 2023) +23.1* +Consent of Rosenberg Rich Baker Berman, P.A. +31.1* +Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 +31.2* +Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 +32.1** +Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 +97.1 +NeurAxis, Inc. Compensation Recovery Policy (incorporated by reference to exhibit 97.1 to Annual Report on Form 10-K, filed on April 16, 2024) +101.INS* +Inline +XBRL Instance Document. +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document. +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document. +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document. +104* +Cover +Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +† +Executive compensation plan or arrangement. +* +Filed herewith. +** +Furnished herewith. +ITEM +16. FORM 10-K SUMMARY +Not +Applicable. +90 +Index +to Financial Statements +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Page(s) +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 0089 ) +F-1 +Balance Sheets as of December 31, 2024 and 2023 +F-2 +Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Statements +of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 +91 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and +Stockholders of Neuraxis, Inc. +Opinion +on the Financial Statements +We +have audited the accompanying balance sheets of Neuraxis, Inc. (the Company) as of December 31, 2024 and 2023, and the related +statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended +December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial +statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the +results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with +accounting principles generally accepted in the United States of America. +Emphasis +of Matter Regarding Going Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note +2 to the financial statements, the Company is not profitable, has recorded negative cash flows from operations, and will need substantial +capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s +plans in regard to these matters also are described in Note 2. The financial statements do not include any adjustments that might result +from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, +we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ +Rosenberg Rich Baker Berman, P.A. +We +have served as the Company’s auditor since 2022. +Somerset, +New Jersey +March +20, 2025 +F- 1 +Neuraxis, +Inc. +Balance +Sheets +December 31, 2024 +December 31, 2023 +Assets +Current Assets: +Cash and cash equivalents +$ 3,696,870 +$ 78,560 +Accounts receivable, net of credit losses of $ 5,000 and $ 11,993 as of December 31, 2024 and 2023, respectively +244,618 +73,167 +Inventories, net of reserves of $ 4,454 and $ 0 as of December 31, 2024 and 2023, respectively +44,328 +21,220 +Prepaids and other current assets +280,367 +69,663 +Total current assets +4,266,183 +242,610 +Property and Equipment, at cost: +464,402 +436,626 +Less - accumulated depreciation +( 374,420 ) +( 348,074 ) +Property and equipment, net +89,982 +88,552 +Other Assets: +Operating lease right of use asset, net +284,656 +70,263 +Intangible assets, net +96,588 +108,073 +Security deposit +20,163 +— +Total Assets +$ 4,757,572 +$ 509,498 +Notes +to financial statements are an integral part of these statements. +F- 2 +Neuraxis, +Inc. +Balance +Sheets +December 31, 2024 +December 31, 2023 +Liabilities +Current Liabilities: +Accounts payable +$ 596,946 +$ 1,204,219 +Accrued expenses +1,577,780 +401,088 +Notes payable +154,152 +148,062 +Current portion of operating lease payable +62,754 +49,127 +Customer deposits +32,527 +74,947 +Warrant liabilities +9,166 +8,225 +Total current liabilities +2,433,325 +1,885,668 +Non-current Liabilities: +Operating lease payable, net of current portion +256,499 +27,071 +Total non-current liabilities +256,499 +27,071 +Total liabilities +2,689,824 +1,912,739 +Commitments and contingencies (see note 16) +- +- +Stockholders’ Equity (Deficit) +Convertible Series B Preferred stock, $ 0.01 +par value; 5,000,000 +and 0 shares authorized, 4,280,939 +and 0 +shares issued and outstanding as of December 31, 2024 and 2023, respectively +4,281 +— +Common stock, $ 0.001 par value; 100,000,000 shares authorized; 6,990,227 and 6,508,897 issued and outstanding as of December 31, 2024 and 2023, respectively +6,990 +6,509 +Additional paid in capital +58,856,089 +47,148,361 +Accumulated deficit +( 56,799,612 ) +( 48,558,111 ) +Total stockholders’ equity (deficit) +2,067,748 +( 1,403,241 ) +Total Liabilities and Stockholders’ Equity (Deficit) +$ 4,757,572 +$ 509,498 +Notes +to financial statements are an integral part of these statements. +F- 3 +Neuraxis, +Inc. +Statements +of Operations +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Net sales +$ 2,685,925 +$ 2,460,049 +Cost of goods sold +362,002 +303,345 +Gross profit +2,323,923 +2,156,704 +Selling expenses +324,708 +323,569 +Research and development +206,107 +169,315 +General and administrative +8,949,925 +8,328,315 +Operating loss +( 7,156,817 ) +( 6,664,495 ) +Other (expense) income: +Financing charges +( 230,824 ) +( 2,772 ) +Interest expense +( 174,328 ) +( 476,416 ) +Change in fair value of warrant liability +( 941 ) +844,854 +Change in fair value of derivative liability +— +198,551 +Amortization of debt discount and issuance cost +( 126,387 ) +( 4,881,622 ) +Extinguishment of debt liabilities +— +( 3,649,561 ) +Other income +33,620 +15,133 +Other expense +( 585,824 ) +( 10,355 ) +Total other (expense) income, net +( 1,084,684 ) +( 7,962,188 ) +Net loss +$ ( 8,241,501 ) +$ ( 14,626,683 ) +Preferred stock dividends +( 211,268 ) +- +Net loss available to common stockholders +$ ( 8,452,769 ) +$ ( 14,626,683 ) +Per-share data +Basic and diluted loss per share +$ ( 1.22 ) +$ ( 4.50 ) +Weighted average shares outstanding +Basic and diluted +6,918,887 +3,252,328 +Notes +to financial statements are an integral part of these statements. +F- 4 +Neuraxis, +Inc. +Statements +of Stockholders’ Equity (Deficit) +Shares +Amount +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +(Deficit) +Convertible Series A Preferred Stock +Convertible Series Seed Preferred Stock +Convertible Series B Preferred Stock +Common Stock +Additional Paid In +Accumulated +Stockholder’s Equity +Shares +Amount +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +(Deficit) +Balance at January 1, 2023 +506,637 +$ 507 +115,477 +$ 115 +- +$ - +1,963,322 +$ 1,963 +$ 28,355,230 +$ ( 33,931,428 ) +$ ( 5,573,613 ) +Common stock issued upon initial public offering +- +- +- +- +- +- +1,098,667 +1,099 +4,109,578 +- +4,110,677 +Common stock issued upon preferred stock conversion +( 506,637 ) +( 507 ) +( 115,477 ) +( 115 ) +- +- +1,244,228 +1,244 +( 622 ) +- +- +Common stock issued upon debt conversion +- +- +- +- +- +- +1,649,900 +1,650 +9,897,833 +- +9,899,483 +Common stock issued from agreements +- +- +- +- +- +- +425,000 +425 +749,575 +- +750,000 +Reclassification of warrant liability to equity +- +- +- +- +- +- +- +- +3,720,997 +- +3,720,997 +Warrants exercised +- +- +- +- +- +- +127,780 +128 +315,770 +- +315,898 +Net loss +- +- +- +- +- +- +- +- +- +( 14,626,683 ) +( 14,626,683 ) +Balances at December 31, 2023 +- +- +- +- +- +- +6,508,897 +6,509 +47,148,361 +( 48,558,111 ) +( 1,403,241 ) +Balance +- +- +- +- +- +- +6,508,897 +6,509 +47,148,361 +( 48,558,111 ) +( 1,403,241 ) +Warrants exercised +- +- +- +- +- +- +11,000 +11 +26,169 +- +26,180 +Additional paid in capital from warrants issued under advisory agreement +- +- +- +- +- +- +- +- +157,745 +- +157,745 +Additional paid in capital from warrants issued as debt discount +- +- +- +- +- +- +- +- +97,465 +- +97,465 +Common stock issued from agreements +- +- +- +- +- +- +470,330 +470 +1,407,541 +- +1,408,011 +Debt discount on mandatory conversion of convertible promissory notes to Series B Preferred Stock +- +- +- +- +- +- +- +- +( 165,577 ) +- +( 165,577 ) +Conversion of convertible promissory notes to Series B Preferred Stock +- +- +- +- +2,073,524 +2,074 +- +- +4,932,929 +- +4,935,003 +Issuance of Series B Preferred Stock +- +- +- +- +2,207,415 +2,207 +- +- +5,251,456 +5,253,663 +Net loss +- +- +- +- +- +- +- +- +- +( 8,241,501 ) +( 8,241,501 ) +Balances at December 31, 2024 +- +$ - +- +$ - +4,280,939 +$ 4,281 +6,990,227 +$ 6,990 +$ 58,856,089 +$ ( 56,799,612 ) +$ 2,067,748 +Balance +- +$ - +- +$ - +4,280,939 +$ 4,281 +6,990,227 +$ 6,990 +$ 58,856,089 +$ ( 56,799,612 ) +$ 2,067,748 +Notes +to financial statements are an integral part of these statements. +F- 5 +Neuraxis, +Inc. +Statements +of Cash Flows +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Cash Flows from Operating Activities +Net Loss +$ ( 8,241,501 ) +$ ( 14,626,683 ) +Adjustments to reconcile net loss to net cash used by operating activities: +Amortization of debt discount and issuance cost +126,387 +4,881,622 +Depreciation and amortization +37,831 +40,725 +Provisions for losses on accounts receivable +7,395 +25,281 +Provision for losses on inventory +4,454 +— +Non-cash lease expense +32,075 +31,119 +Non-cash interest expense +— +260,777 +Stock based compensation +227,000 +— +Extinguishment of debt liabilities +— +3,649,561 +Issuance of common stock for non-cash consideration +1,177,187 +750,000 +Fair value of warrants issued for non-cash consideration +157,745 +— +Finance charges +230,824 +2,772 +Change in fair value of derivative liabilities +— +( 198,551 ) +Change in fair value of warrant liabilities +941 +( 844,854 ) +Changes in operating assets and liabilities: +Accounts receivable +( 178,845 ) +75,951 +Inventory +( 32,500 ) +26,913 +Prepaids and other current assets +56,157 +( 68,937 ) +Accounts payable +( 607,273 ) +( 387,897 ) +Accrued expenses +949,693 +( 294,154 ) +Customer deposits +( 42,420 ) +15,773 +Operating lease liability +( 3,414 ) +( 33,396 ) +Net cash used by operating activities +( 6,098,264 ) +( 6,693,978 ) +Cash Flows from Investing Activities +Additions to property and equipment +( 27,776 ) +( 30,781 ) +Additions to intangible assets +— +( 41,000 ) +Net cash used by investing activities +( 27,776 ) +( 71,781 ) +Cash Flows from Financing Activities +Proceeds from issuance of common stock, net of issuance costs +— +4,847,457 +Proceeds from issuance of Series B preferred stock +5,253,663 +— +Deferred offering costs paid +— +— +Proceeds from exercised warrants +26,180 +209,097 +Principal payments on notes payable +( 275,994 ) +( 3,553,765 ) +Proceeds from notes payable +— +159,831 +Proceeds from convertible notes +4,935,003 +5,460,000 +Financing fees paid +( 194,502 ) +( 552,000 ) +Net cash provided by financing activities +9,744,350 +6,590,620 +Net Increase (Decrease) in Cash and Cash Equivalents +3,618,310 +( 175,139 ) +Cash and Cash Equivalents at Beginning of Period +78,560 +253,699 +Cash and Cash Equivalents at End of Period +$ 3,696,870 +$ 78,560 +Supplemental Disclosure of Non-Cash Operating Activities +Cash paid for interest +$ 33,830 +$ 214,562 +Cash received for income taxes +10,164 +— +Supplemental Schedule of Non-Cash Investing and Financing Activities +Recognition of right of use asset +$ 284,339 +$ — +Conversion of convertible promissory notes to Series B preferred stock +4,935,000 +— +Fair value of warrants from debt discount in convertible notes classified as additional paid in capital +97,465 +— +Write-off of debt discount on convertible notes classified as additional paid in capital +165,577 +— +Issuance of note payable to financing company for insurance premiums +282,086 +— +Fair value of warrant liabilities of warrants from convertible notes +— +2,446,502 +Fair value of derivative liabilities of conversion feature from convertible notes +— +2,375,378 +Reclassification of warrant liability to equity +— +3,720,997 +Conversion of preferred stock to common stock +— +1,244 +Notes +to financial statements are an integral part of these statements. +F- 6 +Neuraxis, +Inc. +Notes +to Financial Statements +1. +Basis of Presentation, Organization and Other Matters +Neuraxis, +Inc. (“we,” “us,” the “Company,” or “Neuraxis”) was established in 2011 and incorporated +in the state of Indiana on April 17, 2012, under the name of Innovative Health Solutions, Inc. In 2022, the name was changed to Neuraxis, +Inc. and the Company filed a Certificate of Conversion to become a Delaware corporation that increased the number of authorized shares +and established a par value. +The +Company is headquartered in Carmel, Indiana, and specializes in the development, production, and sale of medical neuromodulation devices. +The Company has developed four FDA cleared products: (i) the IB-STIM (DEN180057, 2019), (ii) the Rectal Expulsion Device (“RED”) +(K242304, 2024), (iii) NSS-2 Bridge (DEN170018, 2017) and (iv) the original 510(K) clearance (K140530, 2014). +● +The +IB-STIM is a percutaneous electrical nerve field stimulator (PENFS) device that is indicated in patients 8-21 years of age with functional +abdominal pain associated with irritable bowel syndrome. The IB-STIM currently is one of two products marketed and sold by the Company. +● +RED +is indicated to evaluate the neuromuscular function of a patient’s ability to expel its contents from the rectum and as a qualitative +test for rectal hypersensitivity patients who experience desire or urge to defecate at lower volumes of distention. RED is intended to +be used in a clinical setting by trained health care providers in adult populations. +● +The +NSS-2 Bridge is a percutaneous nerve field stimulator (PNFS) device indicated for use in the reduction of the symptoms of opioid +withdrawal. The NSS-2 Bridge device was licensed to Masimo Corporation in April 2020, and the Company received a one-time licensing +fee of $250,000 from Masimo. Masimo markets and sells this product as its Masimo Bridge, and the Company will not receive any further +licensing payments or other revenue from this product. +● +The +original 510(K) device was the EAD, an electroacupuncture device, now called NeuroStim. The EAD is no longer being manufactured, +sold or distributed but reserved only for research purposes. +On +January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split . All per share information has been +adjusted for this reverse stock split. The reverse split became effective on January 12, 2023. All share and per share amounts for the +common stock have been retroactively restated to give effect to the splits. +As +part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation had authority +to issue was (1) 100,000,000 shares of Common Stock, par value $ 0.001 per share (“Common Stock”) and (ii) 1,120,000 shares +of Preferred Stock, par value $ 0.001 per share (“Preferred Stock”), 1,000,000 shares of which was designated as “Series +A Preferred Stock” and 120,000 shares of which were designated as “Series Seed Preferred Stock” with the rights, preferences, +powers, privileges and restrictions, qualifications and limitations set forth in this Article IV of the Delaware Certificate of Incorporation. +All share amounts have been retroactively restated to give effect to these changes. +On +August 9, 2023, the Company consummated an initial public offering (“IPO”), conducted on a firm commitment basis, pursuant +to which it sold 1,098,667 shares of its common stock at a price of $ 6.00 per share, resulting in gross proceeds to the Company of $ 6,592,002 . +Net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses paid by the Company, +were $ 4,110,721 . All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), +as amended, declared effective by the SEC on August 9, 2023. Alexander Capital L.P. (“Alexander”) acted as sole book-running +manager for the offering and Spartan Capital Securities, LLC acted as co-manager for the offering. The underwriters did not exercise +their option to purchase up to an additional 164,801 shares of common stock. The Company paid the underwriters an underwriting discount +of seven percent ( 7 %) of the amount raised in the offering. In addition, we also paid the underwriters a non-accountable expense allowance +in the amount of 1 % (such 8 % in commissions and fees amounted to a total of $ 527,000 ) at closing, as well as $ 175,000 for the reimbursement +of certain of the underwriters’ expenses. Additionally, as partial consideration for services rendered in connection with the offering, +the Company issued Alexander unregistered warrants to purchase an aggregate of 65,921 shares of Company common stock, representing 6.0 % +of the aggregate shares sold in the offering. The warrants had an initial exercise price of $ 7.20 per share (equal to 120 % of the offering +price per share), a term of five years from the commencement of sales in the offering, and are exercisable at any time. +On +August 15, 2024, the Company’s shareholders (i) authorized 5,000,000 shares of preferred stock of which 4,000,000 were designated +at $ 0.001 par value “Series B Preferred Stock” inclusive of cumulative dividends, due and payable quarterly at the Company’s +discretion either in cash or common stock when declared, at a rate of 8.5% per annum through June 30, 2025 , (ii) retired 1,000,000 shares +of Series A Preferred Stock and (iii) retired 120,000 shares of Series Seed Preferred Stock. On November 11, 2024, the Company’s +shareholders authorized (i) an increase in the number of designated Series B Preferred Stock to 5,000,000 shares and (ii) an extension +of the 8.5% cumulative dividend period to December 31, 2026 . +F- 7 +Neuraxis, +Inc. +Notes +to Financial Statements +2. +Summary of Significant Accounting Policies +The +summary of significant accounting policies of Neuraxis, Inc. is presented to assist in understanding the Company’s financial statements. +The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and +objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in +the preparation of the financial statements. +Preparing +the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America +(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities +and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and +expenses during the reporting period. +Use +of Estimates and Critical Accounting Estimates and Assumptions +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements +and the reported amounts of revenues and expenses during the reporting periods. +These +significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these +estimates or assumptions, and certain estimates or assumptions are difficult to measure or value. +Management +bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial +statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values +of assets and liabilities that are not readily apparent from other sources. +Management +regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes +in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates +are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for credit +losses, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of property and equipment, +and intellectual property. Actual results could differ from those estimates. +Cash +and Cash Equivalents +The +Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company +did not hold any cash equivalents as of December 31, 2024 and 2023. +Trade +Accounts Receivable and Allowance for Credit Losses +Trade +accounts receivable are stated at the amount management expects to collect from outstanding balances, net of an allowance for credit +losses. Management evaluates many factors when determining the collectability of specific customer accounts, including, but not +limited to, creditworthiness, past transaction and payment history, current economic industry trends and changes in payment terms. +Management used assumptions and judgment based on the best available facts and circumstances to estimate and record an allowance. +The allowance for credit losses was $ 5,000 +and $ 11,993 +as of December 31, 2024 and 2023, respectively. The Company recorded credit losses for the years ended December 31, 2024 and 2023 of +$ 7,395 and $ 25,281 , +respectively. +F- 8 +Neuraxis, +Inc. +Notes +to Financial Statements +Customer +Deposits +Customer +deposits consists of payments and returned devices from clients in advance of revenue recognition. The Company will recognize +the customer deposits over the next year. As of December 31, 2024, and 2023, the Company had customer deposits of $ 32,527 and $ 74,947 , +respectively. +Inventories +Inventories +are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The inventory is comprised +of finished medical devices on hand. Certain components within the devices have an expiration date that are removed from current inventory +and expensed at the date of expiration. For the years ended December 31, 2024 and 2023, $ 0 and $ 25,008 were expensed as expired inventory, +respectively. Inventory reserves totaled $ 4,454 and $ 0 as of December 31, 2024 and 2023, respectively. +Property +and Equipment +Property +and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated +useful lives of the assets. +Depreciation +is calculated using the following estimated useful lives: +Schedule of Estimated Useful Lives +Classification +Years +Machinery +and Equipment +7 - 10 +Furniture +and Fixtures +3 - 10 +Computer +Hardware +5 +Leasehold +Improvements +10 - 20 +Depreciation +expense was $ 26,346 and $ 30,240 during the years ended December 31, 2024 and 2023, respectively. +Research +and Development +Costs +for research and development are expensed as incurred. Research and development expenses consist primarily of clinical research studies +and new product development. +Intangible +Assets +Intangible +assets consist of software, patents, a trademark and a license. Intangible assets are stated at their historical cost and amortized on +a straight-line basis over their expected useful lives. Capitalized patent costs, net of accumulated amortization, includes legal costs +incurred for patent applications. In accordance with ASC 350, once a patent is granted, we amortize the capitalized patent costs over +the remaining life of the patent using the straight-line method. If the patent is not granted, we write off any capitalized patent costs +at that time. +The +Company purchased a trademark related to the Company’s name for $ 50,000 . +The trademark does not have a determinate life and therefore the cost is not being amortized. +The +Company entered into an option agreement on April 12, 2023 to bring an optionor’s invention to commercialization via a royalty-bearing +licensing agreement. The agreement required an initial payment of $ 1,000 and was fully amortized in the year ended December 31, 2024. +F- 9 +Neuraxis, +Inc. +Notes +to Financial Statements +We +review intangible assets for impairment annually or when events or circumstances indicate that their carrying amount may not be recoverable. +During the years ended December 31, 2024, and 2023, the Company recorded no impairment charges for intangible assets. +Amortization +expense was $ 11,485 and $ 10,485 during the years ended December 31, 2024 and 2023, respectively. +Income +Taxes +The +Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in +the Company’s financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences +between the financial statement carrying amounts, and the tax bases of existing assets and liabilities for the loss and credit carryforwards +using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax assets are +reduced by a valuation allowance if it is more likely than not that these assets may not be realized. The Company determines whether +a tax position will be sustained upon examination. If it is more likely than not that a position will be sustained, none of the benefit +attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely than not +recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency . +The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. +Management’s +evaluation of the Company’s deferred tax assets and liabilities did not have a material effect on the Company’s financial +statements. Furthermore, no interest or penalties have been accrued or charged to expense as of December 31, 2024 and 2023 and for the +years then ended. +Advertising +Cost +Advertising +costs are expensed as incurred and amounted to $ 232,125 +and $ 192,400 for +the years ended December 31, 2024 and 2023, respectively, and are classified as general and administrative expenses in the +statements of operations. +F- 10 +Neuraxis, +Inc. +Notes +to Financial Statements +Warrant +Liabilities +Management +evaluates all of the Company’s financial instruments, including issued warrants to purchase its common stock, to determine if such +instruments are liabilities pursuant to ASC 480 and ASC 815-15. The classification +of derivative financial instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed +at the end of each reporting period. +The +Company utilizes a Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value +of the derivative at each balance sheet date. The inputs utilized in the application of the Black-Scholes option-pricing model included +an exercise price, the stock price as of the valuation date, an expected remaining term of each warrant as of the valuation date, estimated +volatility, a dividend yield, and a risk-free rate. The Company records the change in the fair value of the warrant as other income or +expense in the statements of operations. +Fair +Value Measurements +The +Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). +ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and +the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described +below: +Level +1 – Quoted prices (unadjusted) for identical unrestricted assets or liabilities in active markets that the reporting entity has +the ability to access as of the measurement date. +Level +2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities: quoted +prices in markets that are not active; or financial instruments for which all significant inputs are observable or can be corroborated +by observable market date, either directly or indirectly. +Level +3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets +or liabilities. These unobservable inputs reflect that reporting entity’s own assumptions about assumptions that market participants +would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using +pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair +value require significant management judgment or estimation. +The +Company’s Level 1 assets/liabilities include cash, accounts receivable, accounts payable, prepaids, and other current assets. Management +believes the estimated fair value of these accounts on December 31, 2024 approximate their carrying value as reflected in the balance +sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments. +The +Company’s Level 3 assets/liabilities include warrant liabilities. Inputs to determine fair value are generally unobservable +and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. +The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. +The valuation techniques involve management’s estimates and judgment based on unobservable inputs. The fair value estimates may +not be indicative of the amounts that would be realized in a market exchange. Additionally, there may be inherent uncertainties or changes +in the underlying assumptions used, which could significantly affect the current or future fair value estimates. Unobservable inputs +used in the models are significant to the fair values of the assets and liabilities. +F- 11 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring +basis: +Schedule +of Fair Value of Assets and Liabilities measured on Recurring Basis +Total +Level 1 +Level 2 +Level 3 +Valuation Methodology +Unobservable +Inputs +Fair value of warrant liabilities as of +December 31, 2024 +$ 9,166 +$ — +$ — +$ 9,166 +Black-Scholes model +Project simulated cash flows +Fair value of warrant liabilities as of +December 31, 2023 +$ 8,225 +$ — +$ — +$ 8,225 +Black-Scholes model +Project simulated cash flows +There +were no transfers between any of the levels during the years ended December 31, 2024 and 2023. In addition to assets and liabilities +that are recorded at fair value on a recurring basis, the Company’s assets and liabilities are also subject to recurring fair +value measurements. As of December 31, 2024 and 2023, the Company had no assets that were measured on a recurring basis. +Basic +and Diluted Net Income (Loss) per Share +Basic +earnings or loss per share (“EPS”) is computed by dividing net income (loss), net of preferred stock dividends, by the +weighted average number of common shares outstanding during the period. Diluted EPS is determined using the weighted average number +of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents that were outstanding +for the periods presented. In periods when losses are reported, which is the case for December 31, 2024 and 2023 presented in these +financial statements, the weighted average number of common shares outstanding excludes common stock equivalents because their +inclusion would be anti-dilutive. Preferred stock dividends (neither declared nor paid) were $ 211,268 +and $ 0 +as of December 31, 2024 and 2023, respectively. +F- 12 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company had the following potentially dilutive common stock equivalents at December 31, 2024 and 2023: +Schedule of Dilutive Common Stock Equivalents +2024 +2023 +Options +1,319,394 +1,319,394 +Pre-Funded Warrants for Common Stock +289,779 +— +Warrants +2,352,751 +1,822,358 +Series B Preferred Stock +4,280,939 +— +Totals +8,242,863 +3,141,752 +The +following table shows the calculation of the basic and diluted net loss per share and the effect of preferred stock dividends. +Schedule of Basic and Diluted Net Loss Per Share +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Numerator +Net loss +$ ( 8,241,501 ) +( 14,626,683 ) +Preferred stock dividends +( 211,268 ) +— +Net loss available to common stockholders +( 8,452,769 ) +( 14,626,683 ) +Denominator +Weighted-average shares of common stock outstanding - basic and diluted +6,918,887 +3,252,328 +Basic and diluted net loss per share +$ ( 1.22 ) +$ ( 4.50 ) +Stock-Based +Compensation +The +Company accounts for all stock-based awards at fair value. The Company recognizes its stock-based compensation expense using the straight-line +method. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture. +The +Company accounts for the granting of stock options and restricted stock units to employees and non-employees using the fair value method +whereby all awards are measured at fair value on the date of the grant. The fair value of all employee stock options and restricted stock +units is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock +options, the consideration paid by the option holder is recorded in additional paid-in capital, while the par value of the shares received +is reclassified from additional paid-in-capital to common stock. Upon vesting of restricted stock units, the par value of the shares +issued are reclassified from additional paid-in-capital to common stock. +Stock-based +awards to non-employees are measured based on the fair value of the equity instrument issued. Compensation expense for non-employee stock +awards is recognized over the requisite service period following the measurement of the fair value on the grant date. +The +Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options. The use of the Black-Scholes option-pricing +model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common +stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend +yield of the common stock. Changes in these assumptions can materially affect the fair value estimate. +F- 13 +Neuraxis, +Inc. +Notes +to Financial Statements +Revenue +Recognition +In +accordance with FASB’s ASC 606, Revenue from Contracts with Customers , (“ASC 606”), the Company recognizes revenue +when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects +to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines +are within the scope of ASC 606, it performs the following five steps: +(i) +identify +the contract(s) with a customer; +(ii) +identify +the performance obligations in the contract; +(iii) +determine +the transaction price; +(iv) +allocate +the transaction price to the performance obligations in the contract; and +(v) +recognize +revenue when (or as) the entity satisfies a performance obligation. +The +Company applies the five-step model to contracts when it determines that it is probable it will collect substantially all the consideration +it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined +to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that +are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the +amount of the transaction price, after consideration of variability and constraints, if any, that is allocated to the respective performance +obligation when the performance obligation is satisfied. +The +Company estimates credit losses on accounts receivable by utilizing an aging schedule. +The +Company offers a Patient Assistance Program for patients without insurance coverage for IB-Stim. This program offers potential self-pay +discounts for IB-Stim devices, based upon household income and size. +Also, +the Company offers providers an opt-in program to address adequate insurance claim payments on IB-Stim devices. This program may extend +a rebate or invoice credit where the insurance payment and patient responsibility (i.e., deductible, co-payment, and/or co-insurance +amounts required by the Payer) are less than the acquisition cost of the IB-Stim device. The Company recognizes revenue at such a time +that collection of the amount due is assured. +The +following table disaggregates the Company’s revenue based on the customer’s location by state for the years ended December +31: +Schedule of Disaggregation of Revenue +2024 +2023 +California +$ 778,209 +$ 601,235 +Ohio +431,328 +407,632 +Illinois +246,217 +117,963 +Wisconsin +157,786 +292,601 +Massachusetts +154,407 +127,300 +Florida +149,985 +186,840 +All other states +767,993 +726,478 +$ 2,685,925 +$ 2,460,049 +Certain +economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows. All of the Company’s +products are sold to healthcare customers including hospitals and clinics. Sales to healthcare customers lack seasonality and have a +mild correlation with economic cycles. All of the Company’s sales are to customers located within the United States. Sales contracts +consist of purchase orders that are short-term (i.e., less than or equal to one year). +F- 14 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company typically satisfies its performance obligations for goods at a point in time as they are received at the customer’s +destination (rather than over time). Goods are shipped by common carrier to customers under FOB destination terms. As such, +ownership of goods in transit is transferred to the customer upon receipt as the Company bears the associated risks (e.g., loss, +damage, delay). Management typically relies on shipping information from common carriers to evaluate when the +customer has obtained control of the goods. Shipping and handling costs are recorded as Cost of Goods Sold in the Statements of +Operations. +The +Company’s contracts with customers typically do not involve variable consideration. The information that the Company uses to determine +the transaction price for a contract is similar to the information that the Company’s management uses in establishing the prices +of goods to be sold. +Orders +may not be cancelled after shipment. Customers may return devices within 10 days of delivery if the goods are found to be defective, +nonconforming, or otherwise do not meet the stated technical specifications. At the option of the customer, the Company shall either: +● +Refund +the price paid for any defective or nonconforming products. +● +Supply +and deliver to the customer replacement conforming products. +● +Reimburse +the customer for the cost of repairing any defective or nonconforming products. +At +the time revenue is recognized, the Company estimates expected returns and excludes those amounts from revenue. The Company also +maintains appropriate accounts to reflect the effects of expected returns on the Company’s financial position and periodically +adjusts those accounts to reflect its actual return experience. Estimated returns totaled $ 5,000 and $ 0 as of December 31, +2024 and 2023, respectively. +Payment +for goods sold by the Company is typically due after an invoice is sent to the customer, within 30 days. The Company does not offer discounts +if the customer pays some or all of an invoiced amount prior to the due date. None of the Company’s contracts have a significant +financing component. +Medical +devices that the Company contracts to sell and transfer to customers are manufactured by one specific third-party manufacturer located +within the state of Indiana. In no case does the Company act as an agent (i.e., the Company does not provide a service of arranging for +another party to transfer goods to the customer). +F- 15 +Neuraxis, +Inc. +Notes +to Financial Statements +Leases +In +accordance with Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or +“ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based +on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance +sheet as right-of-use assets and current and non-current lease liabilities, as applicable. +Operating +lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over +the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. +The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental +borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis +the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company +will adjust the right-of-use assets for straight-line rent expense, or any incentives received and remeasure the lease liability at the +net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date. The Company +has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes +an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment +unless there is reasonable certainty that the Company will renew. +Assumptions +made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease +modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original +lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification +results in a separate contract, it is accounted for in the same manner as a new lease. +Entities +may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together +as a single lease component for all underlying assets and allocate all the contract consideration to the lease component only. +F- 16 +Neuraxis, +Inc. +Notes +to Financial Statements +Impairment +of Long-Lived Assets +Long-lived +assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may +not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, +we compare the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated +by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment +to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. +Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. +Concentrations +of Credit Risk +The +Company’s business activity consists of the sale of medical neuromodulation devices to doctors, clinics, and hospitals across +the country. Receivables consist of unsecured amounts due from customers. The table below sets forth the Company’s customers +that accounted for greater than 10% of its net accounts receivable for the years ended December 31, 2024 and 2023, +respectively. +Schedule of Customer Accounts Receivable +Percentage +of Net Accounts +Percentage +of Net Accounts +2024 +Receivable +2023 +Receivable +Customer +A +$ 119,616 +49 % +$ - +0 % +Customer +B +- +0 % +23,900 +28 % +Customer +C +22,799 +9 % +14,401 +17 % +Customer +D +- +0 % +23,982 +28 % +Customer +E +- +0 % +9,599 +11 % +$ 142,415 +58 % +$ 71,882 +84 % +The +table below sets forth the Company’s customers that accounted for greater than 10% of its net sales for the years ended +December 31, 2024 and 2023, respectively. +Schedule of Customers Accounted Revenues +Percentage of +Percentage of +2024 +Net Sales +2023 +Net Sales +Customer A +$ 521,810 +20 % +$ 452,680 +18 % +Customer B +396,950 +15 % +382,082 +16 % +Customer C +142,270 +5 % +274,581 +11 % +$ 1,061,030 +40 % +$ 1,109,343 +45 % +From +time to time, the Company’s bank balances may exceed the FDIC limit of $ 250,000 . +As of December 31, 2024 and 2023, the Company had $ 3,263,618 +and $ 0 of its cash balance +uninsured, respectively. +Going +Concern +We +have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital +stock. As of December 31, 2024, we had stockholders’ equity of $ 2,067,748 , short-term outstanding borrowings of $ 154,152 , cash +of $ 3,696,870 and a working capital surplus of $ 1,832,858 . +F- 17 +Neuraxis, +Inc. +Notes +to Financial Statements +Our +future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, +the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, +our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including +regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires +us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to +new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial +insurance carriers nationally which is a top priority of the Company. These activities, including our planned research and development +efforts, will require significant uses of working capital through the rest of 2025 and beyond. Based on our current operating plans, +we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs before the +end of 2025. +Management +evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going +concern for a period of one year from the date the financial statements are issued. +To +date, the Company has experienced operating losses and negative cash flows from operations. Management believes that increased sales +and acceptance of their product by insurance providers will allow the Company to achieve profitability in the future. +While +the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in +its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance +that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent +upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by +way of a public or private offering. Neither future cash generated from operating activities, nor management’s contingency plans +to mitigate the risk and extend cash resources through the evaluation period, are considered probable. As a result, substantial doubt +is deemed to exist about the Company’s ability to continue as a going concern. As we continue to incur losses, our transition to +profitability is dependent upon achieving a level of revenues adequate to support its cost structure. We may never achieve profitability, +and unless and until doing so, we intend to fund future operations through additional dilutive or nondilutive financing. There can be +no assurances, however, that additional funding will be available on terms acceptable to us, if at all. +The +financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the +amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. +Recently +Adopted Accounting Pronouncements +In +November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements +to Reportable Segment Disclosures , which requires disclosure of (i) significant segment expenses, (ii) other segment items and (iii) +the title and position of the Chief Operating Decision Maker (“CODM”) on an annual and interim basis. Additionally, ASU 2023-07 +requires that a public entity that has a single reportable segment provide all the disclosures required by Topic 280. Public business +entities are required to adopt the standard for fiscal years beginning after December 15, 2023 and interim periods withing fiscal year +beginning after December 15, 2024. Disclosures are required for all prior periods presented in the financial statements. The Company +adopted the disclosure provisions of ASU 2023-07 as of December 31, 2024 as operations are managed through one reportable segment. +F- 18 +In +June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial +Instruments , which requires measurement and recognition of expected credit losses for financial assets held and enhanced disclosures +regarding significant estimates and judgments used in estimating credit losses. In November 2019, the FASB issued ASU 2019-10, Financial +Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which amended +the effective date of ASU 2016-13. Public business entities meeting the definition of an SEC filer, excluding entities eligible to be +a Smaller Reporting Company (“SRC”) as defined by the SEC, are required to adopt the standard for fiscal years beginning +after December 15, 2019, including interim periods within those fiscal years. All other entities are required to adopt the standard for +fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition +of an SRC and therefore the standard was adopted as of January 1, 2023. The adoption of this guidance did not have a material impact +on the Company’s financial statements. +Recently +Issued Accounting Pronouncements +In +November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures +(Subtopic (220-40): Disaggregation of Income Statement Expenses , which requires disclosures that disaggregate, in a tabular presentation, +each relevant expense caption on the face of the income statement that includes inventory purchases, employee compensation, depreciation +and intangible amortization expense. Additional disclosures are also required to provide a qualitative description of the amounts in +an expense caption that are not separately disaggregated quantitatively and the total amount of selling expenses including a definition. +Public business entities are required to adopt the standard for fiscal years beginning after December 15, 2026 and interim periods within +fiscal years beginning after December 15, 2027. Disclosures are required for all prior periods presented in the financial statements. +Although the standard requires enhanced disclosures, the adoption is not expected to have a material impact on the Company’s financial +statements. +In +December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires the +enhancement of income tax disclosures to provide better insight into how an entity’s operations and related tax risks, planning +and opportunities affect its tax rate and prospects for future cash flows. The enhanced disclosures require (i) specific categories in +a tabular rate reconciliation including both amounts and percentages and (ii) additional information for reconciling items and income +tax paid that meet a quantitative threshold. Public business entities are required to adopt the standard for annual periods beginning +after December 15, 2024. All other entities are required to adopt the standard for annual periods beginning after December 15, 2025. +The adoption of the standard is not expected to have a material impact on the Company’s financial statements. +F- 19 +Neuraxis, +Inc. +Notes +to Financial Statements +3. +Related Party Transactions +The +Company has two demand notes receivable from shareholders related to the sale of common stock on January 1, 2016. Both notes’ initial +balances were $ 506,400 , with interest calculated monthly based on applicable federal rates. No payments have been received on the notes. +Since repayment is not assured, the Company has fully reserved for the entire balance of principal and interest. The current allowance +is $ 1,201,367 as of December 31, 2024. The current loan balances are as follows: +Schedule of Related Party Transactions +Loan +Interest +Interest +December 31, 2024 +Receivable +Receivable +Income +Shareholder 1 +$ 506,400 +$ 94,351 +$ 23,413 +Shareholder 2 +506,400 +94,216 +23,413 +Principal Balance +1,012,800 +188,567 +46,826 +Allowance for Collection Risk +( 1,012,800 ) +( 188,567 ) +( 46,826 ) +Net Balance +$ — +$ — +$ — +Loan +Interest +Interest +December 31, 2023 +Receivable +Receivable +Income +Shareholder 1 +$ 506,400 +$ 70,938 +$ 23,867 +Shareholder 2 +506,400 +70,803 +23,867 +Principal Balance +1,012,800 +141,741 +47,734 +Allowance for Collection Risk +( 1,012,800 ) +( 141,741 ) +( 47,734 ) +Net Balance +$ — +$ — +$ — +The +Company has loans payable to shareholders related to funding needs for operations. The current loan details for all related party loans +are as follows: +Schedule of Related Party Loans payable to shareholder +Interest & +Interest +Loan +Service Fee +Interest +December 31, 2024 +Due Date +Rate +Balance +Accrued +Paid +Other Convertibles +Various +5.0 % +— +66,648 +— +Total +$ — +$ 66,648 +$ — +Interest & +Interest +Loan +Service Fee +Interest +December 31, 2023 +Due Date +Rate +Balance +Accrued +Paid +Shareholder 1 +June, 2019 +15.0 % +$ — +$ — +$ 10,047 +Shareholder 2 +June, 2019 +15.0 % +— +— +27,056 +Other Convertibles +Various +5.0 % +— +66,648 +— +Total +$ — +$ 66,648 +$ 37,103 +The +Company was granted an exclusive, worldwide non-transferable, royalty-free license for the auricular portion of certain patents owned +by a limited liability company in which the Company’s President and Chief Executive Officer and Chief Regulatory, Compliance and +Privacy Officer both maintain an ownership interest. The license allows for the development, marketing and sales of electro-therapy treatments +by stimulation of cranial nerves, cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles and auricular +anatomical structures in human patient. The exclusive license agreement expires on October 18, 2037, may be terminated by either party +upon 60 days prior written notice and requires the Company to pay costs associated with the maintenance, prosecution and continuation +of patent filings. For the year ended December 31, 2024, the Company paid the limited liability company $ 4,973 . No costs were incurred +during the year ended December 31, 2023. No amounts were owed to the limited liability company as of December 31, 2024 and 2023. +Mr. +Bradley Mitch Watkins, Director, provided certain sales, marketing and commercialization consulting services to the Company prior to +his appointment to the Board of Directors. For the years ended December 31, 2024 and 2023, the Company paid Mr. Watkins $ 0 and $ 11,083 , +respectively. No amounts were owed to Mr. Watkins as of December 31, 2024 and 2023. +The +Company’s former Chief Financial Officer provides certain accounting and tax services on a continuous basis through a +third-party public accounting firm. He is the third-party public accounting firm’s managing partner and majority shareholder. +Fees paid for services were $ 207,103 +and $ 312,803 +for the years ended December 31, 2024 and 2023, respectively. The Company owed the third-party accounting firm for open invoices of +$ 4,173 +and $ 84,279 +that are included in accounts payable as of December 31, 2024 and 2023, respectively. On June 28, 2024, the Company also issued 20,000 +common shares with a fair value $ 55,600 +to the former Chief Financial Officer for services rendered during the IPO process. +F- 20 +Neuraxis, +Inc. +Notes +to Financial Statements +4. +Property and Equipment +Property +and equipment, net consists of the following: +Schedule of Property And Equipment +December 31, 2024 +December 31, 2023 +Machinery and equipment +$ 282,181 +$ 282,181 +Furniture and fixtures +111,036 +96,768 +Computer hardware +50,121 +36,613 +Leasehold improvements +21,064 +21,064 +Total property and equipment +464,402 +436,626 +Less: accumulated depreciation +( 374,420 ) +( 348,074 ) +Property and equipment, net +$ 89,982 +$ 88,552 +Depreciation +expense was $ 26,346 and +$ 30,240 for +the years ended December 31, 2024 and 2023, respectively. The Company expects to record future depreciation expense totaling $ 13,438 , +$ 12,344 , $ 11,977 , $ 9,753 , $ 6,259 and $ 14,111 for the years ending December 31, 2025, 2026, 2027, 2028, 2029 and thereafter, respectively. +5. +Intangible Assets +Intangible +assets, net consists of the following: +Schedule of Intangible Assets +December 31, 2024 +December 31, 2023 +Software Implementation +$ 49,815 +$ 49,815 +Patents +32,463 +32,463 +Trademark +50,000 +50,000 +Licenses +1,000 +1,000 +Total intangible assets +133,278 +133,278 +Less: accumulated amortization +( 36,690 ) +( 25,205 ) +Intangible assets, net +$ 96,588 +$ 108,073 +Amortization +expense was $ 11,485 +and $ 10,485 +for the years ended December 31, 2024 and 2023, respectively. The Company expect to record future amortization expense totaling $ 10,485 , $ 10,485 , $ 10,485 , $ 4,760 , $ 1,941 and $ 8,432 for the years +ending December 31, 2025, 2026, 2027, 2028, 2029 and thereafter, respectively. The Company’s trademark does not have a determinate life +and therefore the cost is not being amortized. +6. +Accrued Expenses +Accrued +expenses consisted of the following: +Schedule of Accrued Expenses +December 31, 2024 +December 31, 2023 +Compensation and benefits +$ 1,261,317 +$ 333,477 +Advisory fees +176,750 +— +Interest +66,648 +66,648 +Other +73,065 +963 +Total accrued expenses +$ 1,577,780 +$ 401,088 +F- 21 +7. +Notes Payable +Neuraxis, +Inc. +Notes +to Financial Statements +Promissory +Notes +The +Company borrowed $ 250,000 on +December 16, 2021, from Channel Partners Capital (the “2021 Promissory Note”). The 2021 Promissory Note called for 65 +weekly payments of $ 4,923 with +the final payment scheduled for March 16, 2023. The principal outstanding at January 1, 2022 was $ 244,048 . +The Company borrowed $ 122,000 on +September 16, 2022, to bring the 2021 Promissory Note’s principal balance back to $ 250,000 . +After making scheduled payments, the Company borrowed another $ 107,231 on +May 24, 2023, to bring the 2021 Promissory Note’s principal balance back to $ 250,000 once +again. The terms of the incremental borrowings were the same as the 2021 Promissory Note with the final payment made on August 22, +2024. The principal outstanding as of December 31, 2024 and 2023 was $ 0 and +$ 148,062 , +respectively, with an effective interest rate of 55.9 %. The Company believes that the advancement of additional funds is a minor +modification to the terms of the existing promissory note since the difference in present value of the cash flows under the terms of +the new loan is less than 10% of the present value of the remaining cash flows under the terms of the original loan. As a result, +the modification was accounted for as a modification of debt. +The +lender was granted and assigned a continuing security interest in all the Company’s personal property assets including, but not +limited to, business equipment, inventory, accounts, accounts receivable, intellectual property, chattel paper, instruments, deposit +accounts, commercial tort claims, contract rights, licenses, claims, and general intangibles. +On +February 15, 2023, The Company signed a note with Exchange Listing, LLC in the amount of $ 52,600 (the “2023 Promissory Note”). +The 2023 Promissory Note carried an interest rate of 1 % and was to be paid on the earlier of (i) three months or (ii) the Company receiving +financing at the minimum of $ 3,000,000 . In August 2023, the Company used proceeds from the IPO to pay the 2023 Promissory Note back in +full, including interest, in the amount of $ 52,858 . +On +August 9, 2024, the Company entered into a $ 210,000 promissory note to finance the premiums of its annual directors and officers insurance +policy, bearing interest at a rate of 7.40 % per annum and maturing on June 9, 2025 . On November 1, 2024, the Company entered into +a second promissory note with a principal balance of $ 64,328 to finance premiums of its annual business insurance policies, bearing interest +at a rate of 7.65 % per annum and maturing on September 1, 2025 (collectively referred to as the “2024 Promissory Notes”). +The principal outstanding on 2024 Promissory Notes was $ 154,152 and $ 0 as of December 31, 2024 and 2023, respectively. +2022 +Convertible Notes +In +2022, the Company issued multiple convertible notes with aggregate gross principal amounts totaling $ 3,333,333 +and net proceeds of $ 2,870,000 +(the “2022 Convertible Notes”). The 2022 Convertible Notes consisted of an original +issue discount of 10% with an interest rate of the greater of (i) Prime rate plus 8.5% or (ii) 12% resulting in an effective +interest rate of 24.2 %. The 2022 Convertible Notes converted into common shares at the lower of (i) $ 9.44 +or (ii) a 30 % +discount to the price per share of any subsequent offering. The 2022 Convertible Notes matured on the one-year anniversary date from +issuance and contained a +five-year warrant to purchase common stock equal to one hundred percent (100%) of the shares into which the 2022 Convertible Notes +could be converted into at issuance. The warrants had an exercise price at the lower of (i) $ 11.80 +per share or (ii) a 12.5 % +discount to the price per share of any subsequent offering. +The +convertible notes signed on December 19, 2022 had aggregate gross principal amounts totaling $ 222,222 and net proceeds of $ 200,000 and +consisted of an original issue discount of 10 % of the principal amount with an interest rate of 12 % per annum. The notes matured at the +earlier of (i) twelve (12) months from the issue date or (ii) the date upon which the Company completes a registered public offering +of shares of the Company, which encompasses the closing of the IPO. The notes are convertible into shares of common stock at the higher +of (i) $ 9.44 per share or (ii) the price per share of common stock issued pursuant to the next registered public offering of shares of +the Company made prior to the conversion of any portion of the note. Interest accrues on the aggregate principal amount (which includes +original issue discount) and is payable on the maturity date, at the Company’s election, in cash or in-kind. The holders of the +notes are entitled to piggyback registration rights on any registration statement filed by the Company, other than any registration statement +filed on Form S-4 or Form S-8. The warrants and conversion shares are subject to anti-dilution provisions. +The +investors of the notes signed on December 19, 2022 above did not convert their notes and, as such the Company used proceeds from the +initial public offering to pay the remaining promissory notes back in full, including interest in the amount of $ 239,104 . +2023 +Convertible Notes +In +2023, the Company conducted multiple closings of a private placement offering to accredited investors for aggregate gross principal +amounts of $ 6,066,667 +and net proceeds of $ 4,908,000 +(the “2023 Convertible Notes”). The offering consisted of a convertible promissory note that accrued interest at 12 % +that could be paid in cash or PIK and had an original issue discount of 10 % +resulting in an effective interest rate of 27.5 %. The 2023 Convertible Notes automatically converted into common shares at a 30 % +discount to the IPO. The 2023 Convertible Notes matured on the sooner of the six-month anniversary date from issuance or a +successful IPO on primary exchange in the U.S. and included a +five-year warrant to purchase common stock equal to fifty percent (50%) of the shares into which the 2032 Convertible Notes could be +converted into at issuance. The warrants had a strike price at a 25 % +premium to the conversion price subject to anti-dilution, issuable on a pro rata basis at each funding. +F- 22 +The +Company used proceeds from the 2023 Convertible Notes to pay a portion of the principal balance of the 2022 Convertible Notes totaling +$ 2,650,000 which resulted in a $ 1,129,653 gain recorded as a benefit to Extinguishment of Debt Liabilities in the Statements of Operations. +Upon partial repayment, the terms of the remaining 2022 Convertible Notes were amended to accrue interest at 8 % per annum without maturity +or default rights. The remaining principal balance also automatically converted into shares of common stock at a 27.5 % discount to the +per share offering price in the Company’s IPO, or $ 4.35 per share. After the closing of the IPO on August 9, 2023, the Company +converted some of the remaining balance of the 2022 Convertible Notes and $ 173,205 of accrued interest into 107,509 shares of common +stock. The shares were issued at a discounted price of $ 4.35 per share resulting in a $ 663,991 loss to the Company recorded as a charge +to Extinguishment of Debt Liabilities in the Statements of Operations. As the remaining holders of the 2022 Convertible Notes did not +convert, the Company used proceeds from the IPO to pay the remaining balance in full, including interest in the amount of $ 445,544 . +As +facilitators to the 2023 Convertible Notes, Signature Bank received a $ 6,000 escrow fee and Alexander Capital, L.P. received (i) a $ 546,000 +cash commission representing nine percent (9%) of the proceeds raised in the offering from investors introduced to the Company and (ii) +120,235 warrants for the purchase of a number of shares of Common Stock equal to 6% of the number of underlying securities. +After +the closing of the IPO on August 9, 2023, the Company converted the 2023 Convertible Notes and $ 226,391 of accrued interest into 1,498,332 +shares of common stock. The shares were issued at a discounted price of $ 4.20 per share that resulted in a $ 4,115,223 loss to the Company +which was recorded as a charge to Extinguishment of Debt Liabilities in the Statements of Operations. +2024 +Convertible Notes +On +November 8, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with a shareholder for the +issuance 1,260,504 shares +of Series B Convertible Preferred Stock, par value $ 0.001 per +share (the “Series B Preferred Stock”), for an aggregate purchase price of $ 3,000,000 paid +in 15 monthly installments of $ 200,000 each, +commencing on the later of January 10, 2024 or a date after stockholder approval of an amendment to the Company’s Certificate +of Incorporation to authorize the creation of the Series B Preferred Stock. The Series B Preferred Stock was convertible at any time +into shares of common stock of the Company without any further consideration. Following the issuance of the Series B Preferred +Stock, it would rank senior to the common stock with respect to payments upon the liquidation, dissolution and winding up of the +Company. Due to a delay in the stockholder approval, the Company amended the SPA on February 12, 2024 to issue a promissory note, +due and payable on the earlier of 15 months or 12 months if the Series B Preferred Stock has not been authorized, convertible into +Series B Convertible Preferred Stock with identical funding amounts and terms (the “$ 3,000,000 +Convertible Promissory Note”). The shareholder funded $ 800,000 +of the $ 3,000,000 +commitment in 2024. +The +Company then proceeded to enter into a series of incremental convertible promissory notes with other investors totaling $ 1,135,000 with +terms identical to the $ 3,000,000 Convertible Promissory Note (collectively referred to as the “Original 2024 Convertible +Promissory Notes”) for an aggregate principal amount of $ 1,935,000 . +F- 23 +The +2024 Original Convertible Promissory Notes earned interest at 8.5 % per annum payable quarterly in either cash or common stock at the +election of the Company. At any time following the date of shareholder approval to authorize the creation of Series B Preferred Stock +prior to the maturity date, the investor may elect to convert all or part of the principal into the Company’s Series B Preferred +Stock at a conversion price per share equal to $ 2.38 . Without limiting the forgoing, all principal amounts outstanding on the maturity +date will automatically convert into the Company’s Series B Preferred Stock. The Series B Preferred Stock is entitled to cumulative +dividends at 8.5 % per annum (whether or not declared) payable quarterly in either cash or common stock at the $ 2.38 conversion +price at the election of the Company. Upon conversion to Series B Preferred Stock, the investor may elect, at its option at any time, +to convert all or part of the Series B Preferred Stock plus accrued but unpaid dividends into an equivalent amount of common stock at +the $ 2.38 conversion price. +Subsequently, +the Company entered into three convertible promissory notes with related institutional accredited investors with terms similar to +the Original 2024 Convertible Promissory Notes (collectively referred to as the “Amended 2024 Convertible Promissory +Notes”) for an additional principal amount of $ 3,000,000 . +Certain provisions to the SPA and Certificate of Designation previously issued on February 12, 2024 changed, including (i) the +number of shares of preferred stock to be designated as Series B Preferred Stock was increased to 4,000,000 shares, +(ii) the stated value of the Series B Preferred Stock was changed to $ 2.38 per +share, (iii) the right to receive dividends will expire automatically on June 30, 2025, (iv) the liquidation rights will +automatically expire on June 30, 2025, and (v) the number of shares of the common stock that a holder of Series B preferred stock is +entitled to receive shall not exceed the maximum percentage chosen by the holder, which is initially set at between 4.99 % +and 19.99 % +until shareholder approval is obtained, of the number of outstanding shares of the common stock at the time of the conversion of the +Series B Preferred Stock shares. +The +maturity date was on the earlier of (i) June 21, 2025, (ii) upon written demand occurring on or after March 21, 2025 in the event that +the Series B Preferred Stock has not been duly authorized on or before such date, or (iii) immediately upon the occurrence of an event +of default. Automatic conversion into shares of Series B preferred stock (at a conversion price of $ 2.38 per share) would occur +following the date of shareholder approval. In the event the Company failed to obtain shareholder approval before August 15, 2024, rights +existed to convert the outstanding amount into shares of the common stock, at a price per share of $ 2.38 . +As +of August 15, 2024, the Company received $ 4,935,000 of +the principal amount of the Amended 2024 Convertible Notes with the remainder due in monthly installments through March of 2025 +resulting in an effective interest rate of 12.5 %. On August 15, 2024, the Company’s shareholders authorized 5,000,000 shares +of preferred stock of which 4,000,000 shares +were designated as $ 0.001 par +value Series B preferred stock. Pursuant to the terms of the Amended 2024 Convertible Promissory Notes, the outstanding principal +balance of $ 4,935,000 was +mandatorily converted into 2,073,524 Series +B Preferred Shares at a conversion price of $ 2.38 . +Upon the mandatory conversion, the unamortized debt discount of $ 165,577 +was reclassified to Additional Paid-In-Capital in the Statements of Stockholders’ Equity (Deficit). +Interest +expense totaled $ 174,328 and $ 476,416 for the years ended December 31, 2024 and 2023, respectively. The Company’s accrued interest +total $ 66,648 as of December 31, 2024 and 2023. +F- 24 +Neuraxis, +Inc. +Notes +to Financial Statements +8. +Leases +The +Company’s leases are comprised of operating leases for office space. At the inception of the lease, the Company determines whether +the lease contract conveys the right to control the use of identified property for a period of time in exchange for consideration. Leases +are classified as operating or finance leases at the commencement date of the lease. Operating leases are recorded as operating lease +right-of-use assets, other current liabilities, and operating lease liabilities in the Balance Sheets. The Company did not have any finance +leases at December 31, 2024 and 2023. +The +Company has two leases primarily consisting of office space in Versailles and Carmel, Indiana. The lease in Versailles, Indiana +started January 1, 2022 and had a term of one year, with automatic one year renewal options, unless 60 day notice of vacating is given. +The current monthly lease payment for this lease is $ 1,800 with a 4 % per annum increase. A new lease in Carmel, Indiana commenced +January 1, 2024. The initial term is five years and five months. The monthly lease payment started at $ 6,721 with an annual increase +of 2.5 %. As long as the Company is not in default, it is only obligated to pay an amount equal to 50% of the monthly base rent for +months 1-10 . +Operating +lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the +lease term. As the implicit interest rate is generally not readily determinable, the Company uses an incremental borrowing rate based +on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate +reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar economic environment. +Lease expense for the operating lease is recognized on a straight-line basis over the lease term. +Leases +may include renewal options, and the renewal option is included in the lease term if the Company concludes that it is reasonably certain +that the option will be exercised. Certain leases may contain rent escalation clauses, either fixed or adjusted periodically for inflation +of market rates, that are factored into the calculation of lease payments to the extent they are fixed and determinable at lease inception. +The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance +and real estate taxes, which are recorded as expenses when incurred. +For +the years ended December 31, 2024 and 2023, the Company recognized $ 96,177 and $ 49,051 of operating lease expense, including short-term +lease expense and variable lease costs, which are immaterial. +The +following table presents information related to the Company’s operating leases: +Schedule of Operating Leases +December 31, 2024 +December 31, 2023 +Operating lease right-of-use assets +$ 284,656 +$ 70,263 +Other current liabilities +62,754 +49,127 +Operating lease liabilities +256,499 +27,071 +Total +$ 319,253 +$ 76,198 +Weighted-average remaining lease term (in years) +2.75 +3.75 +Weighted-average discount rate +15.0 % +15.0 % +As +of December 31, 2024, the maturities of the Company’s operating lease liabilities were as follows: +Schedule of Maturities Operating Lease Liabilities +2025 +$ 105,130 +2026 +108,106 +2027 +86,856 +2028 +89,027 +2029 +38,025 +Total lease payments +427,144 +Less: imputed interest +( 107,891 ) +Total present value of lease payments +$ 319,253 +9. +Common Stock and Warrants +The +Company authorized 100,000,000 shares of common stock, of which 6,990,227 and 6,508,897 shares were issued and outstanding as of December +31, 2024 and 2023, respectively. On January 10, 2023, the Company’s board of directors authorized a 2-for-1 reverse stock split. +All share information in these financial statements has been adjusted for this reverse stock split. +During +the year ended December 31, 2023, the Company issued (i) 1,098,667 common shares issued upon the completion of the IPO on August 9, 2023 +at a price of $ 6.00 per share resulting in net proceeds of $ 4,110,677 , (ii) 1,244,228 common shares upon conversion of 506,637 shares +of Convertible Series A Preferred Stock and 115,477 shares of Convertible Series Seed Preferred Stock, (iii) 1,649,900 common shares +upon conversion of the 2022 and 2023 Convertible Notes, (iv) 425,000 common shares as payment to vendors for services and (v) 127,780 +common shares upon the exercise of warrants. +During +the year ended December 31, 2024, the Company issued (i) 245,955 common shares to settle 2022 Convertible Note and Series A Preferred +Stock holder disputes, (ii) 11,000 common shares upon the exercise of warrants, (iii) 115,145 common shares as payment to vendors for +services, (iv) 59,055 common shares in lieu of interest on the 2024 Convertible Notes, (v) 25,832 shares pursuant to the severance provisions +of an employment agreement and (vi) 24,343 common shares for board service. +F- 25 +Neuraxis, +Inc. +Notes +to Financial Statements +During +the year ended December 31, 2023, the Company issued (i) 505,570 five-year warrants to purchase common stock equal to fifty percent (50%) +of the shares into which the 2023 Convertible Promissory Notes could be converted at issuance at an exercise price of $ 5.25 per share, +(ii) 122,202 five year warrants to purchase common stock pursuant an advisory agreement with a consulting firm upon closing of the Company’s +IPO at an exercise price of $ 5.25 per share and (iii) 186,156 five-year warrants to purchase common stock pursuant to an underwriting +agreement upon closing of the Company’s IPO at an exercise price of $ 5.25 per share. Additionally, investors converted (i) 87,856 +warrants into an equivalent number of common shares at an exercise price of $2.38 in exchange for $209,097 in cash proceeds and (ii) +40,000 warrants into 39,924 common shares in a cashless exercise transaction. +During +the year ended December 31, 2024, the Company issued (i) 38,697 five-year warrants to purchase common stock equal to six percent (6%) +of the aggregate number of Original 2024 Convertible Promissory Note common stock equivalents pursuant to an underwriting agreement at +an exercise price of $ 2.38 per share, (ii) 68,067 five-year warrants to purchase common stock pursuant to an advisory agreement at an +exercise price of $ 2.38 per share. The Common Stock Purchase Warrant Agreements attached to the 2023 Convertible Promissory Notes contained +anti-dilution provisions on both the exercise price and the number of warrants. These anti-dilution features were triggered when the +Company issued the Original 2024 Convertible Promissory Notes that contained a conversion price of $ 2.38 per share as compared to the +$ 5.25 per share exercise price in the 2023 Convertible Promissory Note Common Stock Purchase Warrant Agreements. As a result, the Company +issued 754,660 additional warrants in 2024 to the holders of the 2023 Convertible Promissory Note Common Stock Purchase Warrant Agreements. +Additionally, investors converted 11,000 warrants into an equivalent number of common shares at an exercise price of $2.38 in exchange +for $26,180 in cash proceeds. The Company also +canceled 30,252 warrants for no consideration in conjunction with an amendment to an advisory agreement. +The +following is a summary of warrant activity for common stock during the years ended December 31, 2024 and 2023: +Schedule of Warrant Activity for Common Stock +Number of Warrants for Common Stock +Weighted-Avg. Exercise Price +Weighted-Avg. Remaining Contractual Life +Outstanding as of January 1, 2023 +846,507 +$ 5.06 +4.72 +Granted +813,928 +5.81 +4.38 +Converted Prefunded Warrants +289,779 +0.01 +— +Cancelled +( 30,252 ) +2.38 +4.79 +Exercised +( 127,856 ) +— +— +Outstanding as of December 31, 2023 +1,822,358 +4.69 +3.05 +Granted +861,424 +2.38 +3.49 +Cancelled +( 30,252 ) +2.38 +4.79 +Exercised +( 11,000 ) +2.38 +3.61 +Outstanding as of December 31, 2024 +2,642,530 +$ 2.41 +2.93 +F- 26 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following is a summary of warrant activity for preferred stock during the year ended December 31, 2023: +Schedule of Warrant Activity for Preferred Stock +Number of +Weighted-Avg. +Warrants for +Exercise +Preferred Stock +Price +Outstanding as of December 31, 2022 +144,890 +$ 0.01 +Granted +— +— +Cancelled/Expired +— +— +Converted to Common Stock Warrant +( 144,890 ) +( 0.01 ) +Outstanding as of December 31, 2023 +— +$ — +There +was no preferred stock warrant activity during the year ended December 31, 2024. +The +following table summarizes the Company’s warrants outstanding and exercisable as of December 31, 2024: +Schedule of Warrants outstanding and Exercisable +Number of +Warrants +Exercise +Expiration +Outstanding +Price +Date +Investor Warrant +12,852 +$ 8.76 +September 18, 2028 +Investor Warrant +289,779 +$ 0.01 +None +2022 Convertible Notes +782,655 +$ 2.38 +Various in 2027 +2023 Convertible Notes +1,149,586 +$ 2.38 +Various in 2028 +Underwriter Warrants +331,146 +$ 2.38 +August 8, 2028 +Advisory Agreement Warrants +76,512 +$ 2.38 +Various in 2029 +2,642,530 +10. +Preferred Stock +As +of December 31, 2023, the Company had 1,000,000 and 120,000 shares authorized as Series A and Series Seed Preferred +Stock, respectively, of which zero shares are issued and outstanding for both classes of preferred stock. The Series A and +Series Seed Preferred Stock (i) voted together with common stock on an as-converted basis, and not as separate classes and (ii) converted +1:1 to common stock at any time at option of holder, subject to adjustments for stock dividends, splits, combinations, and similar events. +The Series A Preferred Stock carried an annual 8 % cumulative dividend, payable upon any liquidation, dissolution or winding up of +the Company. For any other dividends or distributions, the Series A Preferred Stock participated with common stock on an as-converted +basis. The Company’s 1,000,000 shares of Series A Preferred Stock and 120,000 shares of Series Seed Preferred +Stock were retired on August 15, 2024. +On +August 15, 2024, the Company’s shareholders authorized 5,000,000 shares of preferred stock of which 4,000,000 shares +were designated as $ 0.001 par value Series B Preferred Stock. Series B Preferred Stock shareholders vote with Common Stock shareholders +on an as-converted basis and not as a separate class. Cumulative dividends accrue at 8.5 % per annum and are due and payable in either +cash for common shares as the Company’s discretion on a quarterly basis through June 30, 2025. Series B Preferred Stock converts +to common stock on a 1:1 basis, subject to adjustments for stock dividends, splits, combinations and similar events as well as unpaid +dividends thereon, solely at the election of the holder at any time. +F- 27 +Pursuant +to the terms of the Amended 2024 Convertible Notes, the principal balance of $ 4,935,000 on August 15, 2024 was mandatorily converted +into 2,073,524 Series B Preferred Shares at a conversion price of $ 2.38 . Subsequently, the Company then proceeded to issue 64,913 shares +of Series B Preferred Stock to various investors for $ 154,500 . +On +November 11, 2024, the Company’s shareholders authorized (i) an increase in the number of designated Series B Preferred Stock +to 5,000,000 +shares and (ii) an extension of the 8.5 % +per annum cumulative dividend period to December 31, 2026. Subsequently, the Company issued 2,100,840 +shares of Series B Preferred Stock to a dedicated life sciences fund for $ 5,000,000 +and 41,662 shares of Series B Preferred Stock to various investors for $ 99,164 . +Upon +any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series B Preferred Stock +shareholders maintain priority preference over all other classes of capital stock. A merger or consolidation (other than one in +which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring +corporation) and a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the +Company will be treated as a liquidation event, thereby triggering payment of the liquidation preferences. +As +of December 31, 2024, there were 4,280,939 shares +of Series B Preferred Stock issued and outstanding. As of December 31, 2024 and 2023, there were no preferred +stock dividends declared or paid. Series B Preferred Stock undeclared cumulative dividends totaled $ 211,268 , +or $ 0.05 per share, as of December 31, 2024. Series B Preferred Stock did not exist during the year ended December 31, 2023. +11. +Stock-Based Compensation +On +October 12, 2017, the Company adopted the 2017 Stock Compensation Plan authorizing the issuance of 1,435,652 shares of common stock. +On September 13, 2019 the Company entered into a Stock Option Cancellation agreement with all holders of these stock options effective +on that date. +This +plan was then amended on September 13, 2019, to increase the share amount to 2,638,788 . This plan was enacted to enable the Company to +retain the services of certain key employees, officers, and directors of the Company. The Plan provides for the grant of stock options, +including incentive stock options, or ISOs, and nonqualified stock options, or NSOs and restricted stock, and they were estimated using +the Black-Scholes option-pricing model with the following weighted-average assumptions: +Schedule of Option-pricing Model with Following Weighted-average Assumptions +Assumptions as of December 31, 2023 +Fully Vested +Number of Shares +1,319,394 +Stock price +$ 2.67 +Exercise price +$ 6.94 +Expected term +5.75 years +Expected volatility +31.90 % +Risk-free interest rate +3.84 % +Dividend rate +0 % +F- 28 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following is a summary of the outstanding stock options as of December 31, 2024 and 2023: +Schedule of Stock Option Activity +Number of Options +Weighted Avg. Remaining Contractual Life (in years) +Weighted Avg. Exercise Price +Aggregate Intrinsic Value +Outstanding as of December 31, 2023 +1,319,394 +5.69 +$ 6.94 +$ — +Outstanding as of December 31, 2024 +1,319,394 +4.69 +$ 6.94 +$ — +Vested and Exercisable as of December 31, 2024 +1,319,394 +4.69 +$ 6.94 +$ — +Total stock-based compensation +expense is classified in the Company’s statements of operations as general and administrative expense totaling $ 227,000 +and $ 0 +for the years ended December 31, 2024 and 2023, respectively. The stock compensation incurred during the year ended December 31, +2024 related to a hiring grant of 100,000 common +shares to the Company’s Chief Financial Officer at a fair value of $ 2.27 per share. +12. +Warrant Liabilities +The +Company has evaluated financial instruments arising from warrants that are issued and outstanding as of December 31, 2024 and 2023. The +Company utilizes a Black-Scholes option-pricing model to compute the fair value of the liability and to mark to market the fair value +of the warrant at each balance sheet date. The inputs utilized in the application of the Black-Scholes option-pricing model included +(i) an exercise price of $ 8.76 per share, (ii) an expected remaining term of each warrant based on the remaining contractual maturity +of the each warrant, (iii) estimated volatility ranging from 75.0 % to 84.5 % based on historical stock prices of comparable companies +with a look back period commensurate with the period to maturity, (iv) a risk-free interest rate ranging from 3.84 % to 4.38 % based on +the interest rates of U.S. Treasury Notes consistent with the expected remaining contract term and (v) a 0 % expected dividend yield as +the Company has not paid dividends to date and does not anticipate declaring dividends in the near future. +F- 29 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following are the changes in the warrant liabilities during the years ended December 31, 2024 and 2023. +Schedule of Changes in Warrant Liabilities +Level 1 +Level 2 +Level 3 +Warrant liabilities as of January 1, 2023 +$ — +$ — +$ 2,234,384 +Addition +— +— +2,446,502 +Reclassified to equity +— +— +( 3,827,807 ) +Changes in fair value of warrant liabilities +— +— +( 844,854 ) +Warrant liabilities as of December 31, 2023 +— +— +8,225 +Changes in fair value of warrant liabilities +— +— +941 +Warrant liabilities as of December 31, 2024 +$ — +$ — +$ 9,166 +13. +Derivative Liabilities +The +Company has evaluated derivatives arising from convertible financial instruments as of December 31, 2024 and 2023. The Company utilized +a Monte Carlo simulation model for commitment shares that have an option to convert at a variable number of shares to compute the fair +value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the +application of the Monte Carlo model included a starting stock price of $ 7.91 per share, (ii) an expected remaining term of each derivative +based on the remaining contractual maturity of the each derivative, (iii) estimated volatility of 70.0 % based on historical stock prices +of comparable companies with a look back period commensurate with the period to maturity, (iv) a risk-free interest rate ranging from +3.46 % to 5.47 % based on the interest rates of U.S. Treasury Notes consistent with the expected remaining contract term and (v) a 0 % expected +dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future and (vi) +drift. +The +following are the changes in the derivative liabilities during the year ended December 31, 2023: +Schedule of Changes in Derivative Liabilities +Level 1 +Level 2 +Level 3 +Derivative liabilities as of December 31, 2022 +— +— +1,735,700 +Addition +— +— +2,375,378 +Changes in fair value of derivative liabilities +— +— +( 198,551 ) +Extinguishment of derivative liabilities +— +— +( 3,912,527 ) +Derivative liabilities as of December 31, 2023 +$ — +$ — +$ — +There +were no derivatives identified during the year ended December 31, 2024. +F- 30 +Neuraxis, +Inc. +Notes +to Financial Statements +14. +Retirement Plan +The +Company sponsors a 401(k)-retirement plan for its employees. Employees are eligible to participate in the elective deferral portion of +the plan after twelve months and 1,000 hours of service. The Company can also make a 3 % discretionary profit-sharing contribution on +an annual basis to employees with earnings under a certain threshold. Profit sharing expense totaled $ 20,868 and $ 6,980 for years ended +December 31, 2024 and 2023, respectively. +15. +Segment Information +The Company evaluates the following factors to identify its reportable segments: (i) nature of products and services, (ii) type of customer +for the products and services, (iii) sales, production and distribution methods of the products and services and (iv) the nature of the +regulatory environment, if applicable. Based on an evaluation of these factors, management concluded that the Company’s operations are managed through one reportable segment, IB-STIM, that derives its revenues in the United States from a +PENFS device that is used to treat patients 8-21 years of age with functional abdominal pain associated with irritable bowel syndrome. +IB-STIM currently is the only product marketed and sold by the Company. The accounting policies of the IB-STIM segment are the same as +those described in the Summary of Significant Accounting Policies (see Footnote 2). The CODM regularly evaluates the performance of the +IB-STIM segment for the purpose of allocating resources based on net sales and operating loss, both of which are reported in the Statements +of Operations. The CODM uses net sales to evaluate IB-STIM’s adoption and utilization by insurance carriers and physicians. As +Neuraxis is an emerging growth company, operating loss is used to monitor the Company’s cost structure in order to achieve future +segment profitability. Both net sales and operating loss are measured against the budget on a periodic basis to assess achievement toward +annual compensation incentive targets. The Company’s CODM is its Chief Executive Officer. +The +following reconciles the reportable segment net sales and operating loss to the Company’s reported net loss: +Schedule +of Reconciles the Company’s Net Sales and Operating Loss +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Net Sales +$ 2,685,925 +$ 2,460,049 +Cost of Goods Sold +362,002 +303,345 +Gross Profit +2,323,923 +2,156,704 +Selling Expenses (a) +324,708 +323,569 +Research and Development (a) +206,107 +169,315 +Wages and Benefits (a) +5,378,952 +4,367,486 +Professional Services (a) +1,945,331 +2,721,461 +Other Operating Expenses (a) (b) +1,625,642 +1,239,368 +Segment Operating Loss +( 7,156,817 ) +( 6,664,495 ) +Other (Expense) Income: +Financing charges +( 230,824 ) +( 2,772 ) +Interest expense +( 174,328 ) +( 476,416 ) +Change in fair value of warrant liability +( 941 ) +844,854 +Change in fair value of derivative liability +— +198,551 +Amortization of debt discount and issuance cost +( 126,387 ) +( 4,881,622 ) +Extinguishment of debt liabilities +— +( 3,649,561 ) +Other income +33,620 +15,133 +Other expense +( 585,824 ) +( 10,355 ) +Total other (expense) income, net +( 1,084,684 ) +( 7,962,188 ) +Net Loss +$ ( 8,241,501 ) +$ ( 14,626,683 ) +(a) The +significant expense categories and amounts align with the segment-level information provided +on a regular basis to the CODM. +(b) Other +operating expenses include advertising, rent and utilities, insurance, depreciation and +amortization, travel, software subscription fees, board fees and bad debt expense. +Total +segment assets for IB-STIM amounted to $ 4,757,572 +and $ 509,498 as of December 31, 2024 and 2023, +respectively. Total segment capital expenditures for IB-STIM amounted to $ 27,776 +and $ 71,781 +for the years ended December 31, 2024 and 2023, respectively. Total segment depreciation and amortization amounted to $ 37,831 and $ 40,725 for the years ended December 31, 2024 and 2023, respectively. +Significant segment non-cash charges settled in common stock +include (i) consulting and advisory fees totaling $ 754,685 and $ 750,000 for the years ended December 31, 2024 and 2023, respectively, +and (ii) hiring grants totaling $ 227,000 and $ 0 for the years ended December 31, 2024 and 2023, respectively. +F- 31 +16 . +Commitments and Contingencies +Manufacturing +Services Agreement +The +Company is party to a manufacturing services agreement for the manufacture and supply of the Company’s IB-STIM device based on +the Company’s product specifications that automatically renews annually unless either party provides a written termination notice +to the other party within 180 days prior to the end of the then-current term. The Company provides the necessary equipment to the manufacturer +and retains ownership. The manufacturer bears the risk of loss of and damage to the equipment and consigned materials. Performance under +the agreement is initiated by orders issued by the Company and accepted by the manufacturer. +Advisory +Agreement +On +March 18, 2024, the Company terminated its private placement services agreement and entered into an advisory agreement with a financial +advisor for debt, equity and public securities market services for one year. The advisory agreement included a monthly fee of $ 30,000 +and 7,563 common stock warrants to be issued monthly at an exercise price of $ 2.38 with a term of five years. On December 31, 2024, the +Company and the financial advisor terminated the advisory agreement subject to the cancelation of all common stock warrants issued after +July 2024 and the payment for services rendered in three equal installments of $ 60,000 by March 26, 2025. +Settlement +Agreements +The +Company issued 245,955 shares of common stock to various pre-IPO 2022 Convertible Note and Series A Preferred Stock holders to settle +certain claims. The Company recorded the fair value of the settlements as $ 230,824 of Finance Charges and $ 580,250 of Other Expense in +the Statements of Operations. +Furthermore, +the Company authorized the issuance of 1,518 shares of its common stock to settle remaining claims with one pre-IPO Series A Preferred +Stock shareholder classified as $ 4,220 of Other Expense for the year ended December 31, 2024 in the Statements of Operations and accrued +expenses in the Balance Sheets as of December 31, 2024. These common shares have not yet been issued as of the reporting date as the +Company awaits execution of the settlement agreements by the counterparties. +Executive +Employment Agreements +The +Company, as authorized by the board of directors, entered into employment agreements with nine key employees to provide incentives to +improve shareholder value and to contribute to the growth and financial success of the Company. The agreements had an employment start +date of October 1, 2022, with initial terms from 2 to 5 years and optional one-year renewals . +The +total base salaries for the nine key employees in the agreements are $ 1,920,000 per year with various provisions for annual increases. +In addition to base salaries, eight of the employees have a provision for a special one-time incentive payment to be paid in a lump sum +after the start date. The total amount of these special incentive payments is $ 1,100,000 . The special incentive payment amount includes +any accrued backpay wages for the employee. The amount for backpay of $ 417,390 was paid in the year ended December 31, 2023. +There +are seven key employees that have stock options of the Company totaling 1,238,712 shares. These key employees have a provision in their +agreements whereas the Company will pay a special bonus equal to the aggregate of the strike price or exercise price of all their stock +options plus a tax gross-up payment. The special bonus shall be paid in twenty percent ( 20 %) installments starting January 2, 2024, and +the same date each of the next four years. As a condition of the payment, the key employee must exercise at least 20 % of their stated +number of stock options. There are additional provisions to cover termination and change of control events. None of the key employees +exercised any of options as of January 2, 2025. +In +April 2023, the Company amended the employee agreements to, among other things, clarify that the special one-time incentive payment and +the deferred bonus are contingent upon the effective date of the planned initial public offering. The amendment also sets forth a process +for executives to exercise the stock options in accordance with the terms of the stock option agreement in effect as of the date of the +employment agreement and to clarify that there is no modification to the stock option agreements. +F- 32 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company recorded the backpay portion of the incentive bonus notes above. The balance of the incentive bonuses of $ 694,056 and the special +options bonuses of $ 14,821,830 were contingent upon a successful IPO. The incentive bonuses have been paid in full while the special +options bonuses will be recorded when paid. +On +April 10, 2024, the Company terminated the employment of the Company’s Chief Operating Officer. Pursuant to the employment agreement, +the Company made (i) make salary continuation payments for six months during the year ended December 31, 2024, (ii) issued 25,832 shares +of common stock at a fair value of $ 78,788 and (iii) made a $ 41,980 one-time payment in lieu of the exercise of 13,764 stock options +that expired on January 2, 2024. The Company is obligated to provide health care coverage through October 2025 and has accrued for that +obligation totaling $ 21,418 classified as Accrued Expenses in the Balance Sheets as of December 31, 2024. +Litigation +From +time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. +As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably +be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of +the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s +interest. Legal fees are expensed as incurred. +On +February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United +States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the +Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under +the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought +compensatory damages in excess of $ 5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation +of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing +and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures +could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim +to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims +against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint. +On +July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, +2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth +Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any +further review or appeal of that judgment. +Also +on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare +ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland. The plaintiffs +in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint +asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil +conspiracy and seeks compensatory damages in excess of $ 75,000 , pre-judgment interest, punitive damages, attorney’s fees, and court +costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants +allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed +to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered +damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum +Opinion which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims are still pending, and no trial +date has been set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties +could try to resolve the disputes in both cases through an independent third-party mediator. Mediation has not yet resulted in a +resolution of the case. +F- 33 +Neuraxis, +Inc. +Notes +to Financial Statements +In January 2024, Dr. Arturo Taca served notice to the Company that asserted +an interest in its U.S. Patent No. 10,413,719 valued at $ 2,000,000 based on his own work in neurostimulation. The Company denied +both the neurostimulation patent and compensation claims. The case remains unresolved. +While it is too early to predict +the ultimate outcome of these matters, we believe the Company has meritorious defenses and intends to defend these matters vigorously. +17. +Health Benefit Plan +The +Company participates in a self-funded employer program in conjunction with a group health plan for the benefit of eligible employees. +This plan is a level funded plan, and the services and products include: +● +A +self-funded employer health benefit plan. +● +Stop +loss insurance purchased from a stop loss insurance company. +● +Third +party administrator to provide administrative services with regard to the plan. +The +Company maintains a stop loss contract that reimburses the Company for claims paid under the plan if they exceed a predetermined level. +The Company makes contributions for health care costs and associated expenses that are expected during the plan year. The amount of contributions +is determined annually based on the Company’s maximum liability for expected claims, administrative expenses, and premiums for +the stop loss policy. The Company paid premiums of $ 257,642 and $ 255,715 for the years ended December 31, 2024 and 2023, respectively. +The +Company is responsible for the monthly premiums, as established, and nothing further. The stop loss policy covers the claims if they +exceed the claims funds. After a certain time, and if there is a surplus in the claims fund, the Company may be entitled to receive a +48.5 % refund from the fund. This amount is recognized by the Company when received. +18. +Income Taxes +The +income tax provision consists of: +Schedule +of Income Tax Provision +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Total current provision +$ - +$ - +Deferred: +Federal +( 1,721,242 ) +( 3,067,056 ) +State +124,823 +( 154,060 ) +Total deferred benefit +( 1,596,419 ) +( 3,221,116 ) +Valuation allowance +1,596,419 +3,221,116 +Total income tax provision +$ — +$ — +A +reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate is as follows: +Schedule of Federal Statutory Income Tax Rate and Effective Income Tax Rate +2024 +2023 +For the Years Ended December 31, +2024 +2023 +Federal statutory income tax rate +21.0 % +21.0 % +State tax rate, net of federal benefit +5.3 +4.9 +Change in valuation allowance +( 26.3 ) +( 25.9 ) +Effective income tax rate +— % +— % +The +Company did not recognize an income tax provision for the years ended December 31, 2024 and 2023 due to net operating losses reported +in both years. +Deferred +income taxes are provided for temporary differences between the financial and tax bases of the Company’s assets and liabilities. +The temporary differences that give rise to net deferred tax assets and liabilities were as follows: +Schedule +of Net Deferred Tax Assets and Liabilities +2024 +2023 +December 31, +2024 +2023 +Deferred tax assets: +Net operating losses +$ 8,019,218 +$ 6,573,406 +Stock based compensation +1,447,339 +1,366,391 +Notes receivable reserve +266,816 +251,893 +Accrued compensation +296,297 +57,763 +Accounts payable +143,484 +257,391 +Operating lease payable +84,105 +18,951 +Other +206,468 +175,904 +Total gross deferred tax assets +10,463,727 +8,701,699 +Valuation allowance +( 10,225,739 ) +( 8,629,320 ) +Total deferred tax assets +$ 237,988 +$ 72,379 +Deferred tax liabilities: +Operating lease right of use asset +$ 74,991 +$ 17,475 +Prepaid expenses +72,560 +7,337 +Accounts receivable +64,443 +18,197 +Other +25,994 +29,370 +Total deferred tax liabilities +237,988 +72,379 +Deferred tax assets, net +$ — +$ — +F- 34 +Neuraxis, +Inc. +Notes +to Financial Statements +Management +assessed the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize +the benefits of the net deferred tax assets due to a history of operating losses. As a result, the Company maintained a full valuation +allowance and does not reflect any deferred taxes in its Balance Sheets as of December 31, 2024 and 2023. +On +December 31, 2024, the Company’s federal and state net operating loss (NOL) carryforwards totaled $ 36,202,858 +and $34 ,748,524 respectively. These NOL carryforwards +may be offset against future taxable income. There is no limitation on the number of years to utilize the federal NOLs. The federal deduction +will be limited to 80% of modified taxable income. The state NOLs are allowed up to 100 % +of taxable income and generally can be carried forward no longer than 20 years after the year of the taxable loss. +Federal +and state tax laws impose limitations on the utilization of NOLs and credit carryforwards in the event of an ownership change for tax +purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards +may be limited as a result of an ownership change. Such an ownership change could result in a limitation in the use of the NOLs in future +years and possibly a reduction of the net operating losses available. +If +not used, the state NOL carryforwards will expire as follows: +Schedule of State Carryforwards +2037 +$ 72,216 +2038 +1,039,986 +2039 +2,033,565 +2040 +4,457,495 +2041 +2,406,225 +Thereafter +24,671,088 +No expiration +67,949 +Total state NOL carryforwards +$ 34,748,524 +The +Company believes it has made adequate provision for all income tax uncertainties. The assessment is subject to change based on the completion +of audits or statute of limitation expirations. +The +federal and state income tax returns have a three-year statute of limitations once filed with the appropriate jurisdiction. The Company’s +income tax returns are subject to examination by the federal and state taxing authorities in the United States for the years ended 2021 +through 2024 and 2021 through 2024, respectively. +F- 35 +19. +Subsequent Events +On January 3, 2025 and March 6, 2025, +the Company granted 360,902 +and 373,275 restricted stock units (“RSUs”), respectively, pursuant to the Neuraxis, Inc. 2022 Omnibus Securities and Incentive +Plan as amended on August 15, 2024. The RSUs cliff-vest at the end of a three year period and are payable in shares of the Company’s +common stock. The RSUs fully vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are +paid upon vesting; there were no accrued dividends on unvested RSUs as of the report date. +On +January 17, 2025, the Company issued 39,471 common +shares to its independent board members for their service from April 1, 2024 through December 31, 2024 and an investor converted +502,647 warrants into 186,166 common shares in a cashless exercise transaction. +The +Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and determined that there have been no +other events that have occurred that would require adjustments to our disclosures in the financial statements. +F- 36 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +NEURAXIS, +INC. +Dated: +March 20, 2025 +By: +/s/ +Brian Carrico +Brian +Carrico +Chief +Executive Officer +Dated: +March 20, 2025 +By: +/s/ +Timothy R. Henrichs +Timothy +R. Henrichs +Chief +Financial Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Brian Carrico +Chief +Executive Officer and Director +March 20, 2025 +Brian +Carrico +(Principal +Executive Officer) +/s/ +Timothy R. Henrichs +Chief +Financial Officer (Principal +March 20, 2025 +Timothy +R. Henrichs +Financial +Officer and Principal Accounting Officer) +/s/ +Christopher Robin Brown +Director +March 20, 2025 +Christopher +Robin Brown +/s/ +Bradley Mitch Watkins +Director +March 20, 2025 +Bradley +Mitch Watkins +/s/ +Beth Keyser +Director +March 20, 2025 +Beth +Keyser +/s/ +Kristin Ferge +Director +March 20, 2025 +Kristin +Ferge +/s/ +Gilad Aharon +Director +March 20, 2025 +Gilad +Aharon +92 \ No newline at end of file diff --git a/raw/filings/0001933567/2024/0001493152-25-010984/filing_metadata.csv b/raw/filings/0001933567/2024/0001493152-25-010984/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..4e12a27b65026ec9de2ed294ef328e4df25773d4 --- /dev/null +++ b/raw/filings/0001933567/2024/0001493152-25-010984/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001933567,NRXS,"Neuraxis, INC",2024,10-K,2025-03-20,2024-12-31,2025-03-20T12:00:36.000Z,0001493152-25-010984,form10-k.htm,,16227202,1,1,https://www.sec.gov/Archives/edgar/data/1933567/000149315225010984/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1933567/000149315225010984/ diff --git a/raw/filings/0001933567/2024/0001493152-25-010984/item1.txt b/raw/filings/0001933567/2024/0001493152-25-010984/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..0ccbd2e2bd7b4a0a187ab6c779cd90dfdec0aeff --- /dev/null +++ b/raw/filings/0001933567/2024/0001493152-25-010984/item1.txt @@ -0,0 +1,1954 @@ +ITEM +1. BUSINESS +Overview +Neuraxis, +Inc. (“we”, “us”, the “Company” or “Neuraxis”) is a medical technology company focused +on developing neuromodulation therapies to address chronic and debilitating conditions in children and adults. We are dedicated to advancing +science with our proprietary IB-Stim therapy, based on our Percutaneous Electrical Nerve Field Stimulation (PENFS) technology, which +was developed internally by the Company. We believe that superior science and evidence-based research, are necessary for adoption by +the medical and scientific community. With one FDA indication (functional abdominal pain associated with IBS in adolescents 8-21 years +old) on the market, additional clinical trials of PENFS in multiple pediatric conditions are underway focused on unmet healthcare needs +in children, see “ Our Pipeline ” for more information. +Our +first product, IB-Stim, is a PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated +with IBS. IB-Stim is a US FDA Class II medical device that has received one regulatory clearance: IB-Stim (DEN180057, 2019), under the +regulation name of “non-implanted nerve stimulator for functional abdominal pain relief.” +Our +second product, Rectal Expulsion Device (“RED”), is indicated to evaluate the neuromuscular function of a patient’s +ability to expel its contents from the rectum and as a qualitative test for rectal hypersensitivity. RED (K242304, 2024) helps identify +patients with rectal hypersensitivity who experience a desire or urge to defecate at lower volumes of distension. RED is intended to +be used in a clinical setting by trained health care providers in adult populations. +Our +Mission +Our +mission is to provide solutions that create value and provide better and safer patient outcomes. We believe in improving lives and minimizing +suffering; particularly in the pediatric population, where research and therapeutics are usually lacking. The Company already has market +clearance for its IB-Stim ® that targets functional abdominal pain associated with IBS, in children, with a total addressable market +of up to 6 million children. Through innovation and research, we are reimagining the future of patient care. +Our +Corporate History +Neuraxis, +Inc. was established in 2011 and incorporated in the state of Indiana on April 17, 2012, under the name of Innovative Health Solutions, +Inc. The name was changed to Neuraxis, Inc. in March of 2022. Additionally, the Company filed a Certificate of Conversion to become a +Delaware corporation on June 23, 2022. The authorized shares were increased, and a par value established. On September 7, 2021, the Company’s +board of directors authorized a 4-for-1 stock split. They also increased the number of authorized common stock shares from 2,700,000 +to 10,800,000. Furthermore, on September 9, 2021, the board authorized an increase of authorized shares of common stock from 10,800,000 +to 13,400,000 in anticipation of a capital offering. +As +part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation shall have +authority to issue was 101,120,000 shares, consisting of (i) 100,000,000 shares of common stock, par value $0.001 per share, and (ii) +1,120,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”), 1,000,000 of which was designated as +“Series A Preferred Stock” and 120,000 of which was designated as “Series Seed Preferred Stock”. +Furthermore, +on January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split. All per share information has been +adjusted for this reverse stock split. The reverse split became effective on January 12, 2023. +On +August 9, 2023, the Company consummated an initial public offering (“IPO”), conducted on a firm commitment basis, pursuant +to which it sold 1,098,667 +shares of its common stock at a price of $6.00 +per share, resulting in gross proceeds to the +Company of $6,592,002 . +Net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses paid by the Company, +were $4,110,721 . +All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), as amended, declared +effective by the SEC on August 9, 2023. +On +August 15, 2024, the Company’s shareholders (i) authorized 5,000,000 shares of preferred stock of which 4,000,000 were designated +at $0.001 par value “Series B Preferred Stock” inclusive of cumulative dividends, due and payable quarterly at the Company’s +discretion either in cash or common stock when declared, at a rate of 8.5% per annum through June 30, 2025, (ii) retired 1,000,000 shares +of Series A Preferred Stock and (iii) retired 120,000 shares of Series Seed Preferred Stock. On November 11, 2024, the holders of a majority of the then-outstanding shares of Series B Preferred +Stock authorized (i) an increase in the number of designated Series B Preferred Stock to 5,000,000 shares and (ii) an extension +of the 8.5% cumulative dividend period to December 31, 2026. The stated value of the Series B Preferred Stock is $2.38 per share. As of March 13, 2025, there are 4,280,939 shares of Series B Preferred +Stock issued and outstanding, which are convertible (based on the stated value of each share and the conversion price both equalling $2.38) +into 4,280,939 shares of common stock, subject to a maximum ownership cap of between 4.99% and 19.99% of the shares outstanding (following +conversion by the holder) set at the discretion of each holder of Series B Preferred Stock. +Each +holder of Series B Preferred Stock is entitled to cast the number of votes equal to the number of whole shares of common stock into +which the shares of Series B Preferred Stock held by such holder. Solely for purposes of voting rights, the conversion price is +$3.80 per share. The 4,280,939 shares of Series B Preferred Stock outstanding therefore represent 2,681,208 votes of common stock, +subject to a maximum voting percentage cap of between 4.99% and 19.99% of the votes outstanding (inclusive of all 2,681,208 votes plus the shares +outstanding on the record date for any particular shareholder meeting) set at the discretion of each holder of Series B Preferred +Stock. +We +have developed three FDA cleared products, the IB-Stim (DEN180057, 2019), the RED (K242304, 2024), the NSS-2 Bridge (DEN170018, 2017), +and the original 510(K) clearance (K140530, 2014), all of which were developed internally by the Company. +● +The +IB-Stim is a PENFS device that is indicated in patients 8-21 years of age with functional +abdominal pain associated with irritable bowel syndrome. IB-Stim currently is one of two +products marketed and sold by the Company. +● +RED +is indicated to evaluate the neuromuscular function and rectal hypersensitivity in patients with chronic constipation. RED is a point-of-care +test that helps determine why patients may not respond to conventional laxative therapy and helps identify patients that will respond +to pelvic floor therapy. +● +The +NSS-2 Bridge is a percutaneous nerve field stimulator, or PNFS, device indicated for use in the reduction of the symptoms of opioid +withdrawal. The NSS-2 Bridge device was licensed to Masimo in April 2020, and we received a one-time licensing fee of $250,000 from +Masimo. Masimo markets and sells this product as its Masimo Bridge , and we will not receive any further licensing payments +or other revenue from this product. +● +The +original 510(K) device was the electroacupuncture device (“EAD”), now called NeuroStim . The EAD is no longer being +manufactured, sold or distributed but reserved only for research purposes. +4 +Pediatrics +Industry Overview +Pediatric +providers, as a whole, had expressed concern about the lack of attention given to children with functional abdominal pain disorders (including +IBS) and the limited treatment options available for a population that suffers from significant disabilities. With 20% of the United +States population under age 18, our Company focus is on opportunities in pediatrics industry. The pediatrics industry has multi-billion-dollar +market opportunities. The following points clearly outline the unmet need in children: +● +Functional +abdominal pain in children is one of the most common conditions seen by pediatricians and pediatric gastroenterologists. +● +Children +with functional abdominal pain report lower quality of life compared with their healthy peers and equal to those with inflammatory +bowel disease. +● +Overall, +40-45% of children with functional abdominal pain disorders continue to have symptoms into adulthood, which impacts quality of life +and healthcare spending. +● +A +study published in 2021 demonstrates insufficient evidence for the use of medications in pediatric functional abdominal pain disorders. +This lack of evidence for drugs has been supported in by the American Academy of Pediatrics and NASPGHAN. +● +IB-Stim +is the only medical therapy that has shown to improve pain, global symptoms, and functional disability in children with FAP and IBS. +● +IB-Stim +is the only currently used medical therapy that is better than placebo in a randomized controlled trial and received FDA clearance +for pediatric IBS. +Our +Opportunity +For +years, physicians and qualified healthcare professionals have resorted to the use of off-label medications without proper evidence of +efficacy or safety. This is despite a technical report from the American Academy of Pediatrics and NASPGHAN which found very little evidence +to endorse the use of any drugs in the treatment of FAPDs in children. Medications including tricyclic antidepressants, SSRIs and gabapentinoids +continue to be used off-label despite lack of evidence to support efficacy or safety. Not only have the most commonly used medications +(amitriptyline and citalopram) failed to beat placebo in clinical trials, but new studies also suggest significant risks with the potential +for serious side effects with these drugs. The absence of conclusive data to support treatments based on scientific evidence, and the +fact no drug therapies have been approved by the FDA for the treatment of FAPDs or IBS in children, presents a unique market opportunity +for Neuraxis. Below are the current standard treatments in children with functional abdominal pain and IBS. +5 +Our +Solutions +We +entered the pediatric market with clinical evidence, key opinion leaders and society endorsement, including a signed letter from the +American Academy of Pediatrics and NASPGHAN supporting our request for insurers to pay for our IB-Stim device. Our IB-Stim® is a +non-drug alternative to reduce functional abdominal pain in patients with IBS. In June 2019, the FDA cleared IB-Stim, a non-surgical, +neuromodulation device for children and adolescents who suffer from IBS, through a de novo process (DEN180057, 2019). The FDA created +a new classification of PENFS for the IB-Stim device. This is based on pre-clinical and clinical studies demonstrating the mechanism +of action and efficacy. Based on this new class of devices, the IB-Stim falls under 21 CFR Part 876, Subpart F – Therapeutic Devices, +876.5340, Product Code QHH. As a PENFS device, it is non-implantable and provides field stimulation to cranial nerves V, VII, IX and +X in the ear to access the CNS. It stimulates remotely from the source of pain to modulate central pain regions, such as the limbic system, +and relieve functional abdominal pain associated with IBS. Studies have demonstrated long-term benefits in functional disability, psychological +co-morbidities, and pain. For example, the table below is from a recently published study of IB-Stim in a population of patients with +chronic functional abdominal pain. The follow-up was done at 6-12 months post-treatment and shows improvements in validated questionnaires +compared to baseline (API), functional disability index (FDI), pain catastrophizing scale (PCS), Screen for Childhood Anxiety Related +Disorders (SCARED) and the Promis Anxiety. +Santucci +NR, King C, El-Chammas KI, Wongteerasut A, Damrongmanee A, Graham K, Fei L, Sahay R, Jones C, Cunningham NR, Coghill RC. Effect of +percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents with functional +abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358. +We +have only submitted one FDA De Novo request and two 510(k) submissions and plan to submit additional 510(k) premarket notifications from +our pipeline indications in the future. +Compliance +with treatment so far has been outstanding with the four weeks of therapy required to sustain long-term benefits. Compliance has been +an issue with non-pharmacological treatment for children, particularly with some of the psychological approaches such as cognitive behavioral +therapy or guided imagery, which sometimes requires 8-12 weeks of treatment. In fact, 95% of adolescents who used IB-Stim said that they +would recommend this treatment to family and friends. Many children’s hospitals across the country are already treating children +with IB-Stim successfully since it provides a better alternative for therapy in children with IBS and disability and allows them to treat +them safely and effectively. +We +have concentrated our marketing focus on the 260 children’s hospitals within the United States. To date, we have sold our IB-Stim +product to approximately 77 children’s hospitals within our target market. +6 +Competition +The +competitive landscape for therapies includes off-label drugs and drugs with FDA approved only for adults with IBS while there is no FDA +indicated treatments for patients 8-21 years of age with functional abdominal pain associated with IBS and prescriptions often contain +FDA black box labels. Psychological treatments such as cognitive behavioral therapy (CBT) or guided imagery have been shown to be some +of the most effective treatments for these conditions, however, these are limited by access to trained therapists. It also includes devices +that could theoretically be used, but do not have supporting data or FDA clearance for functional bowel disorders or IBS. Digital therapeutics +that offer CBT for IBS have been developed for adults with IBS with limited success in terms of reaching large numbers of patients. Virtual +reality could potentially be used in the future to also deliver CBT to patients with IBS. Our method patents also limit other devices +from targeting IBS through stimulation of cranial nerve branches in the ear. +Approved +drugs for Adults with IBS +1. +Rifaximin: +an intraluminal antibiotic approved for IBS-diarrhea +2. +Amitiza: +a drug that stimulates fluid secretion from the intestine, approved for IBS-diarrhea +3. +Linzess : +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation +4. +Plecanatide: +a drug that stimulates fluid secretion from the intestine, approved IBS-constipation +5. +Eluxadoline: +a schedule IV-controlled substance that is a mixed opioid receptor agonist/antagonist in the intestine approved for IBS-diarrhea +7 +Devices +1. +gammaCore: +a transcutaneous, cervical vagal nerve stimulator cleared for cluster and migraine headaches. Recent studies using this device for +adults with gastroparesis. +2. +Transcranial +Magnetic Stimulation: Multiple devices cleared to treat major depressive disorder and obsessive-compulsive disorder. To date, no +known gastrointestinal indications. +3. +Roo +System and Sparrow therapy system: Transcutaneous auricular stimulation devices-cleared for neonatal and adult opioid withdrawal. +The +neurostimulation market is predominantly comprised of surgically implanted, invasive technologies that are not directly competitive with +our technology. Several neurostimulation companies are large, publicly traded companies that have a history in the market, have significantly +easier access to capital and other resources and have an established product pipeline. The combined clinical research and product development +done by the industry, including by us and all our competitors, is uncovering the beneficial effects of neurostimulation which now establishes +neuromodulation as a valid and scientifically supported approach to the treatment of neurological conditions, and accordingly, we expect +for competition in the non-implanted space to grow in the future. +While +many companies have joined the neuromodulation space, there are no companies targeting the CNS or the brain-gut axis through auricular +nerves for functional bowel disorders or IBS. Currently, the Neuraxis method patents protect access to the brain, particularly the limbic +systems through branches of cranial nerves in the ear. +Our +Competitive Strengths +We +believe that the following competitive strengths will enable us to compete effectively: +● +First +to market +● +Strong +portfolio of device and method patents +● +Large +Market Opportunities +● +Strong +pediatric pipeline +● +Academic +Society Support +● +Lower +capital expenditures in nurse, trainers, and representatives for first line therapy +● +Strong +clinical data carried out in leading academic institutions in the U.S. +Our +Growth Strategies +● +List +price of our product is $1,195 per device and $4,780 per patient +● +Strong +gross margin +● +Direct +sales force +● +Target +customers are children’s hospitals and pediatric clinics +Our +Pipeline +The +IB-Stim device is to be used for the indication of functional abdominal pain associated with IBS and functional nausea in children. The +same underlying technology will be used for the remaining pipeline indications, but we may use a name other than “IB-Stim” +for marketing and commercialization purposes. +With +one FDA indication—functional abdominal pain associated with IBS in adolescents 8-21 years old—on the market, additional +clinical trials of PENFS in multiple pediatric conditions are underway focused on unmet healthcare needs in children. These indications +consist of chronic nausea, post-concussion syndrome, chemotherapy-induced nausea and vomiting, cyclic vomiting syndrome. +The +chart below shows our status in the FDA review process for IB-Stim and each of the following pediatric indications: +1. +Functional dyspepsia ( nausea ): RCT completed, and data being analyzed. ClinicalTrials.gov Identifier: NCT03675321, Defining +Adolescent Nausea Through Brain-Gut Physiology and Non-Invasive Neurostimulation Response. A randomized, double blind, placebo-controlled +trial to evaluate the efficacy of IB-Stim in children with functional nausea. The primary endpoint was to measure improvements in nausea +using the Nausea Severity Scale after IB-Stim therapy compared to a placebo device. The study enrolled 110 participants and was conducted +at Children’s Wisconsin/Medical College of Wisconsin. +8 +2. +Post-concussion: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT04978571, A Prospective Study +on the Effect of Auricular Percutaneous Electrical Nerve Field Stimulation (PENFS) in Patients with Post-Concussion Syndrome (PCS). +A randomized, double blind, placebo-controlled trial to evaluate the efficacy of IB-Stim in children with post-concussion symptoms. The +primary endpoint will be to measure improvements in validated measures, including the Immediate Post-Concussion Assessment, Post-Concussion +Symptom Scale, and Balance Error Scoring Symptom compared to placebo. The study will enroll 100 participants and is being conducted at +Children’s Hospital of Orange County. +3. +Chemotherapy-induced nausea and vomiting: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT05143554, Efficacy +of Auricular Neurostimulation for Children Adolescents and Young Adults with Chemotherapy Induced Nausea and Vomiting. Subject will +be randomized to five days of active vs placebo device during administered chemotherapy known to cause moderate to severe nausea/vomiting. +With the next scheduled identical chemotherapy cycle, each subject will cross over to the other device (active vs placebo). The primary +endpoint will be to measure improvements in validated measures of nausea and vomiting including the Baxter Retching Faces Scale, Rhodes +Index of Nausea, Vomiting and Retching, and also assessment of rescue medication. The study will enroll 50 participants and is being +conducted at Children’s Wisconsin/Medical College of Wisconsin. +4. +Cyclic vomiting syndrome: Pilot study completed, see ClinicalTrials.gov Identifier: NCT03434652. Auricular Neurostimulation +for Children with Cyclic Vomiting Syndrome: A randomized, placebo-controlled trial. RCT anticipated to begin enrolling patients in +the second half of 2023. This will be a double blind, placebo-controlled trial to evaluate efficacy of IB-Stim in pediatric patients +with cyclic vomiting syndrome. The primary endpoint will be to measure decreases in the frequency and severity of cyclic vomiting episodes +compared to a placebo device. The study will include a minimum of 120 patients and the site is yet to be finalized. +Each +step in the FDA review process differs in duration and cannot be predicted with accuracy. Timing of FDA review and approval, if ever +received, cannot be assured and the process and any approval is within the sole control and discretion of the FDA. +9 +Products +The +IB-Stim is a percutaneous PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated with +IBS. IB-Stim already has market clearance from FDA for functional abdominal pain associated with IBS in children. FDA has classified +the non-implanted nerve stimulator for functional abdominal pain relief as Class II devices. +The +IB-Stim is intended to be used for 120 hours per week, using one (1) device per week, for four (4) consecutive weeks, through application +to branches of Cranial Nerves V, VII, IX and X, and the occipital nerves identified by transillumination, as an aid in the reduction +of pain when combined with other therapies for IBS (DEN180057, 2019). In published studies, patients treated with IB-Stim demonstrated +significant improvement in pain, disability and global symptoms with no serious adverse events, and minimal to no side effects, including +localized skin irritation. The following table presents a summary of IB-STIM studies performed to date: +Author +DGBI +N= +Ages +# +of devices +Outcomes +Major +adverse events +Karento +et al, 2023 +Cyclic +Vomiting Syndrome +30 +8-18 +years +6 +Abdominal +pain, nausea, FD +None +Santucci +et al., 2023 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain, nausea, anxiety, disability +None +Bora +et.al2,.2023 +Irritable +bowel syndrome +20 +11-18 +4 +IBS +severity scale, +Microbiome +diversity +None +Kovacic +et.al.,2017 +IBS, +FD, FAP, abdominal migraine +115 +11-18 +4 +Abdominal +pain, disability, global symptoms. +Syncope=1 +in sham group +Castillo +et.al., 2023 +Irritable +bowel syndrome +27 +11-18 +4 +Abdominal +pain, Microbiome Metabolism +None +Chogle +et.al., 2023 +Irritable +bowel syndrome, functional dyspepsia +31 +11-18 +4 +Quality +of life, disability, anxiety +None +Krasaelap, +et.al., 2020 +Irritable +bowel syndrome +51 +11-18 +4 +Abdominal +pain, global symptoms, disability +None +Santucci +et.al.,2021 +Functional +abdominal pain +20 +11-19 +4 +Abdominal +pain, sleep, nausea, anxiety +None +Chogle +et.al., 2023 (Registry) +Irritable +bowel syndrome, functional dyspepsia +292 +8-18 +4 +Abdominal +pain, nausea, disability +None +Santucci +et.al.,2023 +Irritable +bowel syndrome, functional dyspepsia, FAP +101 +11-21 +4 +Abdominal +pain, nausea, disability +None +The +ability of the IB-Stim to produce systemic effects by modulating the central nervous system has been demonstrated in a pre-clinical animal +model of IBS (see Business— Pre-Clinical Data ). In patients with IBS, the largest effect on all pain measures, including +composite pain scores, worst pain, disability and global symptoms, was seen after completing three consecutive weeks of treatment (see +Business— Clinical Data ). A fourth consecutive week of treatment was included in clinical testing; no safety concerns were +identified with this extra consecutive week of treatment. In the trial of 115 subjects, 10 patients reported side-effects and only three +discontinued the study because of side-effects. Of such 10 patients, six experienced ear discomfort (three in the PENFS group, three +in the sham group), three experienced adhesive allergies (one in the PENFS group, 2 in the sham group), and one experienced syncope due +to needle phobia (in the sham group). There were no serious adverse events. +Medical +providers are trained to place the IB-Stim through IB-Stim Training and Certification. Once the provider is trained, the device can be +placed in the outpatient clinic and can be removed by the provider in the clinic or the patient at home. IB-Stim stays on for a total +of five-days to allow delivery of gentle electrical pulses to nerves below the skin that access the central nervous system. A study in +adolescents showed greater improvement in functional abdominal pain and global symptom improvement with every week of treatment (up to +four weeks). At the end of the four-week study, 95% of adolescents stated they would recommend the treatment to family or friends. Safety +of percutaneous electrical nerve field stimulation has also been reported in a separate study of over 1200 adult patients with no serious +adverse events and minimal to no side-effects. +When +wearing our IB-Stim device and following an easy-to-learn and efficient procedure, patients can still attend school and extracurricular +activities, exercise or play non-contact sports, shower, wear ear buds or headphones, and travel. +Our +IB-Stim device costs $1,195 per device, and each patient will use four (4) devices. Potential patients with other indications are expected +to use six (6) or more devices per patient. +Technology +A +maladaptive central nervous system can process pain and emotions differently. This often occurs in children following a traumatic event, +viral infections, inflammation or trauma. Changes in brain pathways are known to be involved in the pathophysiology of functional bowel +disorders and IBS. The IB-Stim works by sending gentle electrical impulses into cranial nerve bundles located in the ear. This stimulation +targets brain areas that process pain and helps reduce functional abdominal pain associated with IBS. An animal model of IBS demonstrated +that the firing of neurons in the amygdala could be reduced by more than 50% in just 15 minutes of stimulation with the IB-Stim technology. +A recent human study in adults with pain related to fibromyalgia suggested that the IB-Stim technology exerts its effect by modulating +emotional and executive control centers related to pain processing, see Feasibility of Auricular Field Stimulation in Fibromyalgia: +Evaluation by Functional Magnetic Resonance Imaging, Randomized Trial , Woodbury et.al. , Pain Med. 2021;22:715-726. The field +of art pertains to an electrical stimulation device, including a stimulator containing a generator to deliver electrical pulses with +defined parameters, and a power supply for supplying the electrical energy through four separate needles, and at least one of which is +a needle array. +10 +Pre-Clinical +Data +In +an animal model of IBS, extracellular, electrophysiologic recordings were performed from neurons in the rat amygdala before and 15 +minutes after PENFS treatment. There was a 65% decrease in the spontaneous firing of these neurons after 15 minutes of PENFS. This +dampening of neurons in the CNS likely accounts for the modulation of pain responses in a model of post-inflammatory visceral and +somatic hyperalgesia. +11 +Clinical +Data +We +have over 700 published patients specific to our first FDA indication which is functional abdominal pain associated with irritable bowel +syndrome in patients 8-21 years of age. A published patient is defined as a patient who went through a study, the study was analyzed +and now the study has been published in a peer-reviewed journal. +A +randomized, controlled study in children 11-18 year of age used primary endpoint of improvements in abdominal pain. The Pain Frequency-Severity-Duration +(“PFSD”) questionnaires was completed at baseline by all subjects and after each week of treatment (weeks 1–3), as +well as at extended follow-up occurring in the 8–12 weeks following the end of treatment. The PFSD scale incorporates multiple +aspects of the pain experience and was administered weekly during treatment and at extended follow-up appointments. The PFSD scale validated +for chronic pain in children (aged 8–18 years). The PFSD was also used to rate weekly worst abdominal pain on a numerical rating +scale (0 for no pain, 10 for worst pain). Patients were followed up for a median of 9.2 weeks from the last week of treatment. +For +the active PENFS group, median worst pain at follow-up remained lower (baseline: 8.0 vs. follow-up: 6.0), whereas there was no difference +at follow-up in the control group (baseline: 7.5 vs. follow-up: 7.0). The between-group differences in worst pain ratings after 3 weeks +of treatment showed that the PENFS group improved to a greater extent, with the control group reporting significantly higher worst pain +(median 7.0) than the PENFS group (median 5.0). +At +long-term follow-up, median PFSD composite scores were 12.6 (IQR 3.6–22.5) in the PENFS group and 16.8 (4.8–33.6) in the +control group. A comparison of changes in PFSD composite scores (baseline to follow-up) showed that patients in the PENFS group reported +significantly greater improvement in pain (median –8.4) than those in the control group (median 0.0). This study was published +in the Lancet Gastroenterology Hepatology, (Kovacic K, et.al. Lancet Gastroenterol Hepatol. 2017;2:727-737). +12 +A +secondary endpoint in the same study used the functional disability index (FDI) to assess functional disability in those treated with +PENFS and compared to sham treatment. Those treated with PENFS changed from moderate disability to minimal at the 2–3-month follow-up +while the sham device group had no change. +A +separate published paper looked at 51 pediatric patients with IBS and used the symptoms response scale (SRS) to assess global symptoms +improvement following PENFS treatment compared to sham. Global symptom improvement was assessed with a validated pediatric questionnaire, +Symptom Response Scale (SRS). Symptoms were recorded as better, worse, or no change based on a 15-point scale across individual domains +for both improvement and deterioration of overall symptoms. Findings from several studies that used the SRS have shown that using 7-point +scale response options in disease-specific measures, a change score of 0.5 represents the minimal clinically important difference (Juniper +et.al. J Clin Epidemiol 1994; 47: 81–87 and Guyatt GH et.al.1987; 42: 773–78). As previously noted, a minimum change in score +of ≥ 2 was chosen for this study as a more stringent criterion for global improvement before and after PENFS treatment and to compare +between groups. Patients and providers were blinded in terms of those who received active PENFS or sham. At the end 3 weeks of therapy +using the change of ≥ 2, 81% of the PENFS group compared with 26% of the sham group (*p≤ 0.001, #p=0.002) reported overall symptom +improvement. When applying an even more stringent criteria with a change ≥ 3 on the SRS, 67% of the PENFS group compared with 22% +of the sham group reported symptoms improvement (p=0.002) (Krasaelap A et.al. Efficacy of Auricular Neurostimulation in Adolescents With +Irritable Bowel Syndrome in a Randomized, Double-Blind Trial. Clin Gastroenterol Hepatol. 2020;18:1987-1994). +13 +Recently, +the largest, prospective, multicenter registry for any drug or device in pediatric patients with pain associated DGBIs was published. +It evaluated outcomes of pediatric patients (8-18 years) following a 4-week course of IB-Stim in a real-world clinical setting. Overall, +292 patients met Rome IV Diagnostic criteria for any pain associated disorder of the gut-brain interaction (DGBIs). In this cohort, 92% +had failed medication therapy and 61% of patients had failed 4 or more medications when they entered the study. Patients were asked to +fill out several validated pediatric measures, including the abdominal pain index (API) and a validated questionnaire that assesses frequency, +duration, and intensity of abdominal pain episodes. Data were collected weekly for the first 3 weeks and at 3, 6, 9 and 12 months. Compared +to baseline scores, there were significant improvements in the API after 4 weeks of IB-Stim treatment at every time point, including +6 month (p<0.001) and 12 months (p<0.001). Although there were many dropouts by the end of the 12 months, the results were still +significant and sustained. No serious adverse effects were recorded during the entire 12 month follow-up. (Chogle, A. et. al. A multicenter +registry study on percutaneous electrical nerve field stimulation for pediatric disorders of gut-brain interaction. J Pediatr Gastroenterol +Nutr. 2024 Mar 7.). +Abdominal +Pain Index (API) +Time +point +n +Median +(IQR) +p +Value +Baseline +288 +2.68(1.84, +3.58) +N/A +3 +weeks +209 +1.99 +(1.13, 3.27) +<0.001 +3 +months +75 +1.81 +(0.85, 3.20) +<0.001 +6 +months +60 +1.70 +(0.93, 2.72) +<0.001 +9 +months +26 +1.90 +(1.33, 2.82) +0.002 +12 +months +22 +220(0.41, +3.21) +<0.001 +An +open-label study of 20 patients treated with PENFS in a “real-world” clinical setting at Cincinnati Children’s Hospital +demonstrated that after PENFS, abdominal pain (p < 0.0001), nausea (p=0.001), pain catastrophizing (p = 0.001), functional disability +(p<0.0001), and anxiety (p = 0.03) exhibited significant improvements, and were sustained 6-12 months after treatment (Santucci et.al. +Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). Validated questionnaires included the abdominal +pain index (API), nausea severity scale (NSS), functional disability index (FDI), as well as psychological measures of catastrophizing +(PCS-C) and anxiety (SCARED). The table below summarizes the results pre, during and post PENFS results at long-term follow-up (Santucci +et.al. Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). +A +clinically meaningful endpoint is the number needed to treat (NNT) used in treatment for abdominal pain-related functional gastrointestinal +disorders in adolescents. NNT means the number of patients that need to be treated for one patient to get the targeted improvement (≥30% +improvement). +14 +PENFS +Reimbursement +The +American Medical Association (AMA) assigned a procedure-specific Category III CPT Code (0720T) to PENFS, which was published on December +30, 2021 and became effective for utilization on July 1, 2022. Category III CPT Codes are temporary codes issued to define and track +the utilization of new procedural technology. To expand patient access to PENFS procedures and IB-Stim technology, we launched our internal +Prior Authorization team under our Guidance & Patient Support function in 2023. This continues to address the Prior Authorization +process barriers for providers and children’s hospitals and streamlines a patient’s access to our Patient Advocacy and Financial +Assistance offerings, if needed. In September of 2024, the AMA’s CPT Editorial Panel accepted addition of Category I CPT Code (placeholder +64X11) for PENFS and deletion of Category III CPT Code 0720T. The finalized Category I CPT Code for PENFS, and associated valuations, +will be announced publicly in Q4 of 2025. The new code will become effective for utilization on January 1, 2026. Sixteen (16) commercial +health insurers, including certain Blue Cross Blue Shield licensees, have instituted formal medical policy coverage for PENFS. The total +membership of these health insurers is approximately 45,000,000 covered lives. An additional health insurer, with approximately 6,000,000 +members, will institute formal medical policy coverage for PENFS beginning the second quarter of 2025, bringing the total number of covered +lives to approximately 51,000,000 across seventeen (17) commercial health insurers. Patients who are appropriate clinical candidates +may have policy-covered access to PENFS and IB-Stim technology under their specific health plan. We continue to actively leverage clinical +evidence and peer-reviewed publications to expand patient access to IB-Stim technology. In addition, we anticipate academic medical society +support in the form of a position paper and an update to treatment guidelines to support the use of PENFS as a potential standard of +care. +Marketing +We +market our products through search engine optimization, or SEO, internet channels and to physicians via the academic society. We plan +to extensively ramp-up our marketing efforts to patients and physicians as we gain additional indications. +Patients/Customers +Our +current patient base is children 8-21 years of age and suffering from functional abdominal pain. Our customers are primarily children’s +hospitals who serve these children. +Rectal +Expulsion Device (RED) +The +Rectal Expulsion Device (RED) enables comprehensive constipation care for every gastroenterology practice. The mission is to develop +the best tool for clinical decision making with the physician and patient in mind. RED was designed to be the most efficient, accurate, +and cost-effective diagnostic tool for patients with chronic constipation. The goal is for every Gastroenterologist practice to be able +to safely and confidently perform meaningful anorectal testing without it impacting clinical workflow or requiring a large capital expense. +Eight (8) million patients each year present with constipation. Of those eight million patients, 700,000 patients present to the Emergency +Room. +Clinical +Background +Constipation +is one of the most encountered gastrointestinal complaints in clinical practice. A recent systematic review reported that the prevalence +of chronic constipation (CC) in North America is between 10-15%. This condition causes significantly reduced quality of life, reduced +work-related productivity and billions of dollars in health expenditures. Clinical practice guidelines recommend empiric treatment of +chronically constipated patients with fiber supplements or laxative therapies. Approximately 40% of patients do not adequately respond +to empiric laxative therapy. In these patients, anorectal physiology testing is essential. +There +is a clinical need for an easy-to-use, office-based, point-of-care, anorectal function test that can measure rectal sensitivity and be +used as a rectal expulsion device to assess pelvic floor dysfunction. Current testing methods typically require elaborate volumetric +testing equipment to assess sensation and expulsion, which makes them not practical in the clinical setting. The current standard is +to refer patients to specialized motility centers for evaluation, resulting in sub-optimal number of patients with constipation undergoing +anal-rectal testing. In the current clinical setting, only about 2% of all patients with constipation are referred for anal-rectal testing +and thus, a large number with pelvic floor dysfunction and rectal hypersensitivity are missed and/or fail to get proper treatment. The +design of RED allows for it to be used as a self-inflating expulsion device and as a balloon to assess patients who experience rectal +hypersensitivity. When it is opened to atmospheric pressure, RED safely self inflates and contains a specially selected foam that mimics +the “feel” of stool. This provides an alternative to sensation and expulsion testing in the office without affecting clinical +workflow. +15 +Rectal +Sensation Testing +Rectal +sensation is an important metric to guide clinical care, particularly rectal hypersensitivity. For example, a patient that reports an +immediate perceived immediate need to defecate or discomfort (max tolerated) to low volumes of distension would have rectal hypersensitivity. +This diagnosis is important because it would impact how a patient is treated. Rectal hypersensitivity is addressed by pelvic floor physical +therapists who deliver education and re-training to help the patient align the desire to defecate according to the actual volume of stool +contained within the rectal vault. The basis of sensory re-training during physical therapy involves inflating a balloon in the rectum +until urge threshold is reached. With repeated inflations, the patient learns to associate a given sensory intensity with the inflated +volume. Over time, the balloon is inflated with decreasing volumes and the patient is asked to closely monitor and attend to sensations +experienced. Eventually, new sensory thresholds are established. Unfortunately, because of the difficulty in performing hypersensitivity +testing in routine clinical care, only a small percentage of all patients with constipation undergo anorectal testing in the clinical +setting. +In +a recent study, 60 adult patients (mean±standard deviation age of 46.4±17.6 years; 93.3% women) that underwent evaluation +with RED and answered the questions were included in the analysis. One patient did not undergo rectal sensation testing due to suspected +anal fissure and overall, 58 patients were included in the analysis. +As +outlined in the figure below, 18 of 58 patients, or 31.%, had rectal hypersensitivity on RED when defined on a single yes/no question +of “do you feel you have to poop right now” that evaluates the patient perception to defecate. +These +data suggest that approximately 31% of patients with chronic constipation reported urge to defecate with RED baseline distension volume, +thus meeting the London criteria for hypersensitivity. +Balloon +Expulsion Testing +RED +can be used as a rectal expulsion device and in a recent prospective trial of 60 adults with functional constipation (defined by Rome +IV criteria), it was demonstrated to be safe in a clinical setting. It can be quickly performed in the left lateral position (i.e., the +patient lying on their left side) immediately after a rectal examination. Further, it proved to be effective for patients who fail a +trial of laxative therapy. In those patients with constipation who failed laxative treatment, RED was able to reliably identify patients +for whom pelvic floor physical therapy was unlikely to provide substantial benefit (i.e, patients who might be more likely to benefit +from intensifying medical therapy). Patients with an abnormal RED in the left lateral position or commode were likely to respond to pelvic +floor therapy (48.8% to 71.4%, respectively). Also, RED showed very high sensitivity (>95%) to broadly detect evacuation disorders +as a simple screening tool as noted in the table below. +16 +RED +Benefits Over Predicates +1. Prompt +point of care test allows assessment of patients and potentially changes clinical management. +2. Identifies +those who would benefit from physical therapy or who would require optimization of laxatives +or addition of secretagogues. +3. Identifies +many patients with rectal hypersensitivity that otherwise would never get tested. +4. RED +finds people that are willing to try physical therapy but don’t need it. +5. Fits +clinical workflow. +There +is an urgent need to better identify patients with pelvic floor abnormalities and/or rectal hypersensitivity. Making the right diagnosis +can impact care and ensure that patients are properly assessed and treated. The figure below demonstrates how RED can impact clinical +decision making. +Overall, +RED is a point-of-care device designed to be used in the office. Rectal sensation is an important component of evaluating pelvic floor +function among patients with chronic constipation. Currently, 98% of clinically appropriate patients do not receive anorectal testing. +The study findings demonstrate that RED impacts clinical decision making by identifying patients who would benefit from physical therapy +or who would require optimization of laxatives. It is also sufficient to qualitatively assess for rectal hypersensitivity which was evident +in almost one-third of patients with chronic constipation failing a trial of fiber/laxatives. It is critical to assess rectal sensation +and balloon expulsion in patients with constipation and/or fecal incontinence. +RED +Safety +● The +tube for RED remains open to room air as the patient defecates. The pressure is therefore +never greater than room air. +● The +predicate device uses manual inflation with a syringe against resistance. The predicate device +is re-capped so that the patient must defecate an air-filled balloon with low compliance. +The resistance with defecating the predicate is therefore greater than RED, because RED is +more compliant than an air-filled balloon. The RED device is therefore safer with regard +to patients with decreased compliance. +● Not +only is RED safer by design, but there have not been any safety events related to compliance +in MAUDE with the predicate in the last 10 years. +● RED +is more compliant than air or water based on balloon compression data as demonstrated in +the graph below. +RED +Reimbursement +RED +is billable under CPT 91120. The documentation is Rectal Hypersensitivity at 52-60mL: present/absent. +Intellectual +Property +Our +intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research, and +development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual +property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered +trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws +to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our +executive officers and directors. +17 +Trademarks +The +Company has seven (7) registered trademarks, and two (2) allowed pending applications for registration: +Country +Trademark +Reg. +No. +Reg. +Date +Class/Goods +Status +US +NEURO-STIM +and Design +5105257 +20-Dec-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +THE NEUROSTIM SYSTEM and Design +4905470 +23-Feb-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +4852008 +10-Nov-2015 +10 +Int. Medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable neurological pain management +generator, with percutaneously-implantable needle arrays; medical system and apparatus consisting of a non-implantable modulating +frequency generator, providing neuromodulation therapy to cranial and peripheral nerves; medical system and apparatus consisting +of implantable arrays for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and +nerve field stimulation; medical system and apparatus consisting of a non-implantable modulating frequency generator and implantable +needle arrays for transmitting current into auricular and peri-auricular tissue for use in pain management, namely, patient stimulators +for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, appliances and instruments for +peripheral nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, headache control, +control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies and other types of sympathetically +mediated pain +Registered +US +IB-STIM +5926831 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +18 +US +IB-STIM +and Design +5926832 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR +5978411 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; Medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; Medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; Medical device for peripheral nerve and nerve field stimulation; +Medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR and Design +5978412 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +19 +Country +Trademark +App. No. +App. Date +Class/Goods +Status +US +NEURAXIS +97/327951 +04-Mar-2022 +10 +Int. Nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Filed: +Allowed +US +NEURAXIS +(STYLIZED) +97/356330 +11-Apr-2022 +10 +Int. Nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Filed: +Allowed +The +Company has no core trademarks that are currently unregistered. +Patents +The +Company has twelve (12) granted patents in the United States and seven (7) applied for patent applications in the United States and one +(1) granted foreign patent and two (2) applied for foreign patent applications. +Country +Owner +Serial +No. +Actual +Filing Date +Patent +No. +Issue +Date +Anticipated +Expiration Date +Title +Application +Status +Licensing +Status +CA +Neuraxis, +Inc. +3096494 +25-Apr-2019 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Applied +for +JP +Neuraxis, +Inc. +2021-509961 +23-Oct-2020 +7252319 +27-March-2023 +25-April-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/040766 +23-Sep-2020 +11369791 +28-Jun-2022 +21-Jun-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/715121 +07-Apr-2022 +12097371 +24-Sept-2024 +04-Jan-2040 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +16/014169 +21-Jun-2018 +10322062 +18-Jun-2019 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +16/408004 +09-May-2019 +11077019 +03-Aug-2021 +16-July-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +17/363620 +30-Jun-2021 +11654082 +23-May-2023 +29-July-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +17/830411 +02-Jun-2022 +DEVICE +AND METHOD FOR ERADICATING PATHOGENS IN NASAL PASSAGES +Applied +for +US +Neuraxis, +Inc. +17/589082 +31-Jan-2022 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION AND AUDIO THERAPY DEVICE +Applied +for +20 +US +Neuraxis, +Inc. +17/861646 +11-Jul-2022 +EXTERNAL +AUDITORY CANAL THERAPY DEVICE +Applied +for +US +Neuraxis, +Inc. +17/617364 +08-Dec-2021 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION DEVICE +Applied +for +US +Neuraxis, +Inc. +15/488416 +14-Apr-2017 +10413719 +17-Sep-2019 +14-April-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +16/534159 +07-Aug-2019 +11331473 +17-May-2022 +14-April-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/595185 +15-May-2017 +9839577 +12-Dec-2017 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +15/811278 +13-Nov-2017 +10010479 +03-Jul-2018 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +14/277158 +14-May-2014 +9662269 +30-May-2017 +14-May-2034 +SYSTEMS +AND METHODS FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +Out-licensed +US +Neuraxis, +Inc. +17/725,761 +21-Apr-2022 +11813448 +14-Nov-2023 +14-April-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/154,375 +13-Jan-2023 +12029701 +09-July-2024 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +Out-licensed +US +Neuraxis, +Inc. +18/736,834 +07-June-2024 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Applied +for +Out-licensed +US +Neuraxis, +Inc. +18/173,893 +24-Feb-2023 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +US +Neuraxis, +Inc. +18/377,968 +09-Oct-2023 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +CA +Neuraxis, +Inc. +3243826 +07-Aug-2024 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +21 +License +Agreements +TKBMN +Exclusive License Agreement +On +May 7, 2020, the Company entered into an exclusive license agreement with TKBMN, LLC to obtain an exclusive license under certain patent +rights (the “Patent Rights”) owned by TKBMN. Dr. Thomas Carrico, our Chief Regulatory Officer, is the manager of TKBMN. Brian +Carrico, our Chief Executive Officer, and Matt Carrico, our National Sales Director, are members of TKBMN. TKBMN owns the Patent Rights +set forth in the patents listed in the following table (the “TKBMN Patents”) by virtue of an assignment from Dr. Carrico, +who is the sole inventor listed on the TKBMN Patents. TKBMN has assigned the auricular portion of the TKBMN Patent Rights to the Company. +Licensed +TKBMN Patents +Country +Owner +Application +No. +Patent +No. +Issue +Date +Anticipated +Expiration +Date* +Title +US +TKBMN, +LLC +15/981,082 +10,792,500 +October +2, 2020 +October +18, 2037 +Systems +and methods for electro-therapy treatment +US +TKBMN, +LLC +17/014,450 +11,684,782 +June +7, 2023 +October +18, 2037 +Systems +and methods for electro-therapy treatment +* +If all maintenance fees remain paid +Pursuant +to the exclusive license agreement, TKBMN agreed to grant an exclusive, worldwide, non-transferable, royalty-free license under Patent +Rights, which including three patents applications filed by TKBMN in connection with systems and methods for elector-therapy treatment, +to the Company to develop, market, and sell licensed products, in the field of electro-therapy treatment by stimulation of cranial nerves, +cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles, and/or auricular anatomical structures in +human patients (the “Field”), in consideration of a one-time license fee of $1.00. The Company has the right to grant sublicenses +to the Patents Rights in the Field. The exclusive license agreement expires upon the expiration of the last to expire valid claim within +the Patent Rights and may be terminated by the Company upon 60 days prior written notice. Upon expiration or termination of the exclusive +license agreement, all rights in the Patent Rights will revert to TKBMN. There are no royalties or any other form of committed revenue +to TKBMN or any of its members Under the agreement, the Company has agreed to cover fees and expenses associated with maintenance, prosecution, +and additional associated/continuation patent filings for the TKBMN Patents. +Masimo +License and Collaboration Agreement +On +April 9, 2020, the Company entered into a license and collaboration agreement with Masimo. As consideration, in part, Masimo entered +into a Series A Preferred Stock purchase agreement with the Company. Under the license and collaboration agreement, the Company grants +an exclusive, fully paid-up, royalty-free license to specifically identified patents and trademarks in a limited Field of use. At all +times, the Company remains the owner of all licensed intellectual property rights, and there is a possibility of joint ownership of collaboratively +developed products and methods. The licensed patents are generally directed to a device and the treatment of opioid withdrawal symptoms. +The licensed trademarks are generally directed to the NSS-2 Bridge mark. The license agreement includes a collaboration component to +efficiently develop, obtain regulatory approval, and commercialize products for the limited field of use. The term of the agreement is +in effect until the expiration or lapse of the last intellectual property rights. Masimo paid a one-time fee of $250,000. The license +and collaboration agreement may not be terminated by the Company for any reason, and the sole remedy for any breach or default by Masimo +shall be to seek monetary damages and equitable remedies. The license and collaboration agreement may be terminated by Masimo if there +is material breach by the Company that remain uncured for thirty (30) days or without cause by providing thirty (30) days prior written +notice. See ”—Our Corporate History ” for more information. +Implications +of Being a Smaller Reporting Company +We +are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage +of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We +will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates +equals or exceeds $250 million as of the prior June 30 th , or (2) our annual revenues equaled or exceeded $100 million during +such completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June +30 th . Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our +results of operations and financial prospects. +For +additional information, see “ Risk Factors – Because the Company is a ‘smaller reporting company,’ we may take +advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than +they would receive from a public company that is not a smaller reporting company” and “As a smaller reporting company,” +we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse +effect on our public stockholders.” +22 +Implications +of Being an Emerging Growth Company +We +are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier +of (1) December 31, 2028, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, +(3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under +the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur on the date on which we have issued more than +$1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of +specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable +to public companies. As an emerging growth company, we may: +● +present +only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related +management’s discussion and analysis of financial condition and results of operations in this prospectus; +● +avail +ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal +control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +● +provide +reduced disclosure about our executive compensation arrangements; and +● +not +require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements. +In +addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards +would otherwise apply to private companies. We have elected not to take advantage of the extended transition period for complying with +new or revised accounting standards provided to emerging growth companies under the JOBS Act. +Government +Regulation +Our +products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, +state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject +to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. +United +States Regulation +The +FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness, +labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, +promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices in the United States +to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements +of the FDCA. +23 +FDA +Premarket Clearance and Approval Requirements +Unless +an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires FDA clearance +of a 510(k) premarket notification. The 510(k) clearance can be resource intensive, expensive, and lengthy. +Under +the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree +of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. +Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical +devices, which include compliance with the applicable portions of FDA’s current good manufacturing practices for devices, as reflected +in the Quality System Regulation, or QSR, establishment registration and device listing, reporting of adverse medical events, and truthful +and non-misleading labeling, advertising, and promotional materials. Some Class I devices, also called Class I reserved devices, also +require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I devices are exempt +from the premarket notification requirements. +Class +II devices are subject to the FDA’s general controls, and any other special controls deemed necessary by the FDA to ensure the +safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market +surveillance, patient registries and FDA guidance documents. +Most +Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to +commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification +is generally known as 510(k) clearance. +If +a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially +equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act +of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to +the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo +classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification +of its medical device into Class I or Class II on the basis that the device presents low or moderate risk. If the manufacturer seeks +reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable +assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a +legally marketed predicate device that would be appropriate for a 510(k) or that general controls would be inadequate to control the +risks and special controls cannot be developed. +Obtaining +FDA marketing authorization, de novo down-classification, or approval for medical devices is expensive and uncertain, and may take several +years, and generally requires significant scientific and clinical data. +Some +pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially +distributed. +Investigational +Device Process +Clinical +trials are sometimes required to support a 510(k) submission. In the United States, absent certain limited exceptions, human clinical +trials intended to support medical device clearance or approval or to determine safety and effectiveness of a device for an investigational +use must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational +device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities +of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the +FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human +clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that +it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in +advance by the FDA for a specified number of subjects. Generally, clinical trials for a significant risk device may begin once the IDE +application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards +at the clinical trial sites. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials, +and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not +bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial +meets its intended success criteria. +24 +If +the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an +IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting +such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient +and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating +disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application +must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans +and that the testing protocol is scientifically sound. The IDE will automatically become effective thirty (30) days after receipt by +the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or +other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. +Regardless +of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an +Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, +and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, +human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the +FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for +the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring +the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance +of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, +the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant +the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator +may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of +human subjects. +During +a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting +clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping +and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators +in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational +plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. +Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, +including the following: +● +The +FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold; +● +Patients +do not enroll in clinical trials at the rate expected; +● +Patients +do not comply with trial protocols; +● +Patient +follow-up is not at the rate expected; +● +Patients +experience serious adverse events; +● +Patients +die during a clinical trial, even though their death may not be related to the products that are part of the trial; +● +Device +malfunctions occur with unexpected frequency or potential adverse consequences; +● +Side +effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of result +in the imposition of new requirements or testing; +25 +● +Institutional +review boards and third-party clinical investigators may delay or reject the trial protocol; +● +Third-party +clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with +the clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other +FDA or IRB requirements; +● +Third-party +investigators are disqualified by the FDA; +● +We +or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent +with the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing +responsibilities, records, and reports of sponsors of clinical investigations; +● +Third-party +clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results +unreliable, or the company or investigators fail to disclose such interests; +● +Regulatory +inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective +action or suspend or terminate our clinical trials; +● +Changes +in government regulations or administrative actions; +● +The +interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or +● +The +FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness. +510(k) +Clearance Process +Under +the 510(k) process, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the proposed device +is “substantially equivalent,” as defined in the FDCA, to a legally marketed predicate device. +A +predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior +to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class +II or I, or a device that was found substantially equivalent through the 510(k) process. A device is considered to be substantially equivalent +if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics; or +(ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does +not raise different questions of safety or effectiveness than the predicate device. +Before +the FDA will accept a 510(k) premarket notification for substantive review, the FDA will first assess whether the submission satisfies +a minimum threshold of acceptability. If the FDA determines that the 510(k) submission lacks necessary information for substantive review, +the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to +permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information +before the FDA will proceed with additional review of the submission. If a 510(k) submission is accepted for substantive review, the +Medical Device User Fee Amendments sets a performance goal of 90 days for FDA review of a 510(k) submission, but the review time can +be delayed if FDA raises questions or requests additional information during the review process. As a practical matter, clearance often +takes longer, and clearance is never assured. Thus, as a practical matter, clearance often takes longer than 90 days. Although many 510(k) +premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make +a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device +is substantially equivalent, it will grant clearance to commercially market the device. +26 +If +the FDA determines that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to commercially +market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, +the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous requirements of the +PMA approval process, or can request a risk-based classification determination for the device in accordance with the “ de novo ” +process, which is a route to market for certain novel medical devices that are low to moderate risk and are not substantially equivalent +to a predicate device. +Medical +devices can only be marketed for the indications for use for which they are cleared or approved. After a device receives 510(k) clearance, +any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification +in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or de novo reclassification. +The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo request or +a PMA in the first instance, but the FDA may review this determination to evaluate the regulatory status of the modified product at any +time and may require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance +or PMA approval is obtained or a de novo request is granted. Also, in these circumstances, the manufacturer may be subject to +significant regulatory fines or penalties. +Over +the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements +for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process +for their products. For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket +notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to +drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset +certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that +have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. These proposals +have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. +More +recently, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” +premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence +under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, +thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices +in the clearance process. The FDA has developed and maintains a list device types appropriate for the “safety and performance based” +pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, +as well as recommended testing methods, where feasible. +PMA +Approval Process +Class +III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet +required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. +In a PMA, the manufacturer must demonstrate that the device is safe and effective for its intended use, and the PMA must be supported +by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of +the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. +Following receipt of a PMA, the FDA conducts an administrative review to determine whether the application is sufficiently complete to +permit a substantive review. If it is not, the agency will refuse to file the PMA. If FDA accepts the application for substantive review, +it has 180 days under the FDCA to complete its review of a filed PMA application, although in practice, the FDA’s review often +takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or +clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s +response to deficiencies communicated by the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an +applicant fails to respond to an FDA request for information (e.g., major deficiency letter) within a total of 360 days. Before approving +or denying a PMA application, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application +and provide recommendations to the FDA as to whether the FDA should approve the submission, approve it with specific conditions, or not +approve it. The FDA may or may not accept the panel’s recommendation. Prior to approval of a PMA, the FDA may conduct inspections +of the clinical trial data and clinical trial sites, as well as conduct inspections of the applicant or its third-party manufacturers’ +or suppliers’ manufacturing facility or facilities to, among other things, ensure compliance with the QSR. PMA applications are +also subject to the payment of user fees, which for fiscal year 2021 includes a standard application fee of $365,657. +27 +● +Overall, +the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, +limit or deny approval of a PMA application for many reasons, including: +● +The +device may not be shown safe or effective to the FDA’s satisfaction; +● +The +data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval; +● +The +manufacturing process or facilities may not meet applicable requirements; and +● +Changes +in FDA approval policies or adoption of new regulations may require additional data. +If +the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which +usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have +been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, +subject to the conditions of approval and the limitations established in the approval letter. The FDA may approve a PMA with post-approval +conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, +sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or +requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance +when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger +population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number +of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval +can result in material adverse enforcement action, including withdrawal of the approval. If the FDA’s evaluation of a PMA application +or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may +determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or +years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the +data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been +sought by other companies have never been approved by the FDA for marketing. +Certain +changes to an approved medical device, such as changes in manufacturing facilities, methods, quality control procedures, sterilization +(if applicable), packaging, expiration date, labeling, device specifications, materials, or design of a device, or other changes which +affect the safety or effectiveness of the device that has been approved through the PMA process require submission of a new PMA or PMA +supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited +to information needed to support any changes from the device covered by the original, approved PMA and may not require as extensive clinical +data or the convening of an advisory panel, depending on the nature of the proposed change. Certain other changes to an approved device +require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical +basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that +were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. +28 +Ongoing +Regulation by the FDA +Even +after the FDA permits a device to be marketed, numerous and pervasive regulatory requirements continue to apply. These include: +● +Establishment +registration and device listing with the FDA; +● +QSR +requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, supplier/contractor +selection, compliant handling, documentation and other quality assurance procedures during all aspects of the design and manufacturing +process; +● +Labeling +regulations, advertising and promotion requirements, restrictions on sale, distribution or sale of a device, each including the FDA +prohibition against the promotion of products for any uses other than those authorized by the FDA, which are commonly known as “off-label” +uses; +● +The +Medical Device Reporting, or MDR, regulations, which require that a manufacturer report to the FDA if a device it markets may have +caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would +be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; +● +Medical +device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals +if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; +● +Recall +requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health +consequences or death; +● +An +order of repair, replacement, or refund; +● +Device +tracking requirements; and +● +Post-market +study and surveillance requirements. +After +a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute +a major change in its intended use, will require a new 510(k). The FDA requires each manufacturer to make this determination initially, +but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s +determination not to seek a new 510(k) clearance, the FDA may retroactively require it to seek 510(k) clearance. The FDA could also require +the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance is obtained. Also, in these +circumstances, the manufacturer may be subject to significant regulatory fines and penalties. +FDA +regulations require us to register as a medical device manufacturer with the FDA. Additionally, some states also require medical device +manufacturers and/or distributors doing business within the state to register with the state or apply for a state license, which could +subject our facility to state inspection as well as FDA inspection on a routine basis for compliance with the QSR and any applicable +state requirements. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner +with respect to manufacturing, testing and control activities. +Manufacturing +processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities +and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, +installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device +master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections +by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing +operations and the recall or seizure of marketed products, which would have a material adverse effect on our business. The discovery +of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity +or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice +of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory +device recalls. +29 +The +FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable +regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: +● +Warning +letters, untitled letters, fines, injunctions, consent decrees and civil penalties; +● +Recalls, +withdrawals, or administrative detention or seizure of our products; +● +Operating +restrictions or partial suspension or total shutdown of production; +● +Refusing +or delays in processing, clearing, or approving submissions or applications for new products or modifications to existing products; +● +Suspension +or withdrawal of 510(k) clearances or PMA approvals that have already been granted; +● +FDA +refusal to issue certification to foreign governments needed to export our products for sale in other countries; or +● +Criminal +prosecution. +Our +facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Failure to comply with the +applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, +fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures +of products, operating restrictions, total or partial suspension of production, the FDA’s refusal to issue certificates to foreign +governments needed to export products for sale in other countries, the FDA’s refusal to grant future premarket clearances or approvals, +withdrawals or suspensions of current product clearances or approvals and criminal prosecution. +Regulation +of Medical Devices in the European Union +The +European Union, or EU, has adopted specific directives regulating the design, manufacture, clinical investigations, conformity assessment, +labeling and adverse event reporting for medical devices. EU directives must be implemented into the national laws of the EU member states +and national laws may vary from one member state to another. +In +the EU, there is currently no premarket government review of medical devices. However, the EU requires that all medical devices placed +on the market in the EU must meet the relevant essential requirements laid down in the Council Directive 93/42/EEC, or the Medical Devices +Directive, and the Council Directive 90/385/EEC, or the Active Implantable Medical Devices Directive. The most fundamental essential +requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition +or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by +the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards +applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical +equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. +While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical +matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device +satisfies that essential requirement. +To +demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers +must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Conformity +assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience +in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where +the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to +sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified Bodies are independent +organizations designated by EU countries to assess the conformity of devices before being placed on the market. A Notified Body would +typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (which must, in particular, +comply with ISO 13485:2016 related to Medical Devices Quality Management Systems). If satisfied that the relevant product conforms to +the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for +its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on +the market throughout the EU. +30 +Notified +Body certificates of conformity are valid for a fixed duration (which shall not exceed five years). Throughout the term of the certificate, +the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In +particular, there will be a new audit by the Notified Body before it will renew the relevant certificate(s). +As +a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, +among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions +of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, +that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended +performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers +placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, incidents +must be reported to the relevant authorities of the EU member states, and manufacturers are required to take Field Safety Corrective +Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device +that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance +of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might +have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include +the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its +legal representative to its customers and/or to the end users of the device through Field Safety Notices. +The +advertising and promotion of medical devices is subject to some general principles set forth by EU directives. According to the Medical +Devices Directive, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose. +Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while +not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example requiring +that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at national level. EU member states +laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising +and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals. +Many +EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular +vis-à -vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of +payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national +“Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements +in the United States, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs. +On +May 25, 2017, Regulation 2017/745, or the EU Medical Devices Regulation, entered into force, which repeals and replaces the Medical Devices +Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of +the EU member states, regulations are directly applicable, without the need for adoption of EU member state laws implementing them, in +all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The +Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory +framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. +The +Medical Devices Regulation was originally intended to become applicable three years after publication, but in April 2020 the transition +period was extended by the European Parliament and the Council of the EU by an additional year – until May 26, 2021. Devices lawfully +placed on the market pursuant to the Medical Devices Directive and the Active Implantable Medical Devices Directive prior to May 26, +2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once applicable, the new regulations +will among other things: +● +Strengthen +the rules on placing devices on the market and reinforce surveillance once they are available; +31 +● +Establish +explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices +placed on the market; +● +Improve +the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; +● +Set +up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available +in the European Union, or EU; and +● +Strengthen +the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are +placed on the market. +The +aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus +Norway, Liechtenstein and Iceland. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the +marketing of medical devices that meet EU requirements. +The +EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. +However, as a result of Brexit, the Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored +the Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be +based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the +Medical Devices Regulation going forward. CE markings will continue to be recognized in the UK, and certificates issued by EU recognized +Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity +Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized +on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including +market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated +product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, +the “rules of origin” criteria will need to be reviewed. Depending on which countries products will ultimately be sold in, +manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for +placing medical devices on the Northern Ireland market will differ from those in the UK. +Healthcare +Fraud and Abuse Laws +In +the United States, we are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the +healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, transparency and other +healthcare fraud and abuse laws. +The +U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, +soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, +leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, +in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly +interpreted to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Among other +things, the Anti-Kickback Statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand +and prescribers and purchasers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting +some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. The government can exercise enforcement +discretion in taking action against unprotected activities. Further, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws, +which establish similar prohibitions, and in some cases may apply to items or services reimbursed by any third-party payor, including +commercial insurers and self-pay patients. +The +federal false claims, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, +or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly +making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, +or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim +includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims +Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a +claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent +claim for purposes of the federal civil False Claims Act. In addition, various states have enacted false claim laws analogous to the +federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely +a federal healthcare program. +32 +The +federal Health Insurance Portability and Accountability Act of 1996 created additional federal criminal statutes that prohibit, among +other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including +private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a +criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or +making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, +items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. +The +federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually +to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, +podiatrists and chiropractors), and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to +report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such +obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, +including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants +and certified nurse midwives. +Violations +of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, +including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), +disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on +companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such +companies. +Coverage +and Reimbursement +In +the United States, our currently cleared products are not separately reimbursed by any third-party payors and if covered, are paid for +as part of the procedure in which the product is used. Outside of the United States, there are many reimbursement programs through private +payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and +hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other +third-party payors provide coverage for and establish adequate reimbursement levels for the procedures in which our products are used. +Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain coverage and adequate reimbursement +from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors’ +coverage and reimbursement policies, may adversely impact demand for our products. +Based +on our experience to date, third-party payors generally reimburse for the procedures in which our products are used if medical necessity +is met and a prior approval is completed with a favorable response. Some payors are moving toward a managed care system and control their +healthcare costs by establishing coverage policies that categorically restrict coverage of certain procedures, or by limiting authorization +for procedures, including elective procedures using our devices. No uniform policy of coverage and reimbursement among payors in the +United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor. Third-party payors are +increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using +inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative +devices or procedures before they will reimburse healthcare providers who use the products or therapies. Even though a new product may +have been cleared for commercial distribution by the FDA, we may find limited demand for our product unless reimbursement approval can +be obtained and/or maintained from governmental and private third-party payors. +33 +In +addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly +update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes +routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. +These updates could directly impact the demand for our products. +We +believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has +led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products +and services. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs through prospective +reimbursement and capitation programs, group purchasing, redesign of benefits, and exploration of more cost-effective methods of delivering +healthcare. In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval +of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts +the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member +per month and, consequently, may limit the willingness of these providers to use our products. +In +international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted +price ceilings on specific product lines and procedures. In the European Union, member states are facing increased pressure to limit +public healthcare spending. There can be no assurance that procedures using our products will be covered for a specific indication, that +our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that +the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. More and +more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional +layer of clearance requirement. +Healthcare +Reform +The +United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change +the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United +States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare +costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare +costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures +that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our +revenue from the sale of our products. +The +implementation of the Affordable Care Act (the “ACA”) in the United States, for example, has changed healthcare financing +and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, +among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, +and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and +other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, +the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, +identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment, +there have been judicial, executive and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court +dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality +of the ACA. It is unclear how healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or +replace the ACA will impact the law or our business. +34 +In +addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of +2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent +legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 +through March 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among +other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period +for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of +2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed +annual updates and a new system of incentive payments that began in 2019 that are based on various performance measures and physicians’ +participation in alternative payment models, such as accountable care organizations. +We +expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that +federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or +additional pricing pressure. +Data +Privacy and Security Laws +Numerous +state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access +to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal +and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, +and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, +and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, +certain state and non-U.S. laws, such as the CCPA, the CPRA and the GDPR, govern the privacy and security of personal information, including +health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other +in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where +applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and +can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data +processing. +In +Europe, the GDPR went into effect on May 25, 2018 and introduces strict requirements for processing the personal data of European Union +data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory +enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global +revenues of the preceding financial year of the noncompliant company, whichever is greater. +Among +other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to +provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms +between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework +for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 +by the Court of Justice of the European Union. +Further, +from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom General Data Protection Regulation, or the UK +GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines +under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover. The relationship between +the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is also unclear +how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from +the United Kingdom will be regulated in the long term. Currently there is a four- to six-month grace period agreed in the EU and United +Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, while the parties discuss an adequacy decision. The European +Commission published a draft adequacy decision on February 19, 2021. If adopted, the decision will enable data transfers from EU member +states to the United Kingdom for a four-year period, subject to subsequent extensions. +35 +Environmental +Matters +Based +on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital +expenditures, earnings and competitive position of our Company in the current financial year and are not expected to have a significant +effect in the reasonably foreseeable future. +Manufacturing +Services Agreement +On +August 21, 2020, the Company entered into a Manufacturing Services Agreement with GMI Corporation (“GMI”), dated as of August +21, 2020 (“MSA”), for the manufacture and supply of the Company’s IB-STIM device based upon the Company’s product +specifications as set forth in the MSA. +The +Company provides the necessary equipment to GMI and retains ownership. GMI bears the risk of loss of and damage to the equipment and +consigned materials. Performance under the MSA is initiated by orders issued by the Company and accepted by GMI. +The +initial term of the MSA was 24 months and automatically renews for terms of twelve months unless either party provides a written termination +notice to the other party within 180 days prior to the end of the then-current term. +GMI +was established in 1990 and manufactures our IB-Stim device in its 69,000 square foot facility that including offices, factory, environmentally +controlled room, warehouse, parts processing, assembly, quality control, of which approximately 1,000 square feet is dedicated to producing +our product, located in Indiana. +With +controlled, repeatable, monitored production process, GMI has kit production capacity that is sufficient for all our projected needs. +There is a new, dedicated, environmentally controlled build room built in 2022 for our equipment and production. All of our materials +are now maintained in this room. +GMI +has a quality management system that is ISO 13485:2016 certified, FDA registered, and ITAR registered. +In +connection with the MSA, the Company entered into a quality agreement with GMI, dated as of August 24, 2020, for GMI to test product +provided by the Company and perform quality assurance services. +Employees +As +of December 31, 2024, we had 21 full-time employees. \ No newline at end of file diff --git a/raw/filings/0001933567/2024/0001493152-25-010984/item13.txt b/raw/filings/0001933567/2024/0001493152-25-010984/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d0b8dd0df5d1b775f2233ee643c321bc07fc746c --- /dev/null +++ b/raw/filings/0001933567/2024/0001493152-25-010984/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +87 \ No newline at end of file diff --git a/raw/filings/0001933567/2025/0001493152-26-011505/filing.txt 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December 31 , 2025 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _________ to ________ +Commission +File Number: 001-41775 +Neuraxis, +Inc. +(Exact +name of registrant as specified in its charter) +Delaware +45-5079684 +(State +or other jurisdiction +of incorporation) +(I.R.S. +Employer +Identification Number) +11611 +N Meridian St, Suite 330 +Carmel , IN 46032 +(812) +689-0791 +(Address +of principal executive offices and zip code) +(Registrant’s +telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock +NRXS +NYSE +American LLC +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The +aggregate market value of the registrant’s outstanding common equity held by non-affiliates as of the last business day of the +registrant’s most recently completed second fiscal quarter, based upon the closing price for the registrant’s common stock +on that day as reported by the NYSE American, was approximately $ 20.4 million. +The +registrant had 11,187,639 shares of its common stock, par value $ 0.001 , issued and outstanding as of March 12, 2026. +TABLE +OF CONTENTS +Page +PART I +Item +1. +Business +4 +Item +1A. +Risk Factors +36 +Item +1B. +Unresolved Staff Comments +61 +Item +1C. +Cybersecurity +61 +Item +2. +Properties +63 +Item +3 +Legal Proceedings +63 +Item +4. +Mine Safety Disclosures +63 +PART II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +64 +Item +6. +Reserved +64 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +65 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +70 +Item +8. +Financial Statements and Supplementary Data +70 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +70 +Item +9A. +Controls and Procedures +70 +Item +9B. +Other Information +71 +Item +9C. +Disclosures Regarding Foreign Jurisdictions that Prevent Inspections +71 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +72 +Item +11. +Executive Compensation +78 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +88 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +89 +Item +14. +Principal Accounting Fees and Services +89 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +90 +Item +16 +Form 10-K Summary +92 +Signatures +94 +2 +FORWARD-LOOKING +STATEMENTS +This +Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the federal securities +laws. All statements contained in this Annual Report, other than statements of historical fact, including statements regarding our future +operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and +development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking +statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” +“continues,” “anticipates,” “intends,” “expects,” “could,” “would,” +“projects,” “plans,” “targets,” and variations of such words and similar expressions are intended +to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections +about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term +and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, +uncertainties and assumptions, including those described in the “Risk Factors” in this Annual Report. Readers are urged to +carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with +the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. Moreover, +we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict +all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, +may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, +uncertainties, and assumptions, the future events and circumstances discussed in this Annual Report may not occur and actual results +could differ materially and adversely from those anticipated or implied in the forward-looking statements. +You +should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking +statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, +we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Annual Report are +made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason +after the date of this Annual Report or to conform statements to actual results or revised expectations, except as required by law. +You +should read this Annual Report and the documents that we reference herein and have filed with the SEC as exhibits to this Annual Report +with the understanding that our actual future results, performance, and events and circumstances may be materially different from what +we expect. +This +Annual Report also contains or may contain estimates, projections and other information concerning our industry, our business and the +markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information +that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events +or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, +we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third +parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources +from which these data are derived. +3 +PART +I +ITEM +1. BUSINESS +Overview +Neuraxis, +Inc. (“we”, “us”, the “Company” or “Neuraxis”) is a first-to-market growth-stage medical +technology company focused on neuromodulation therapies for chronic and debilitating conditions in gastrointestinal (GI) digestive system, +specifically from disorders of the gut-brain interaction (DGBIs) in pediatrics and adults. With several indications in the market and +additional clinical trials of Percutaneous Electrical Nerve Field Stimulation (PENFS) in multiple pediatric and adult conditions underway, +we are focused on unmet GI healthcare needs in children and adults. We are dedicated to advancing science with our proprietary IB-Stim ® +therapy, based on our PENFS technology, which was developed internally by the Company. We believe that superior science and evidence-based +research are necessary for adoption by the medical and scientific community. Additional clinical trials of PENFS in multiple pediatric +and adult conditions are underway, focused on unmet healthcare needs in children and adults. See “ Our Pipeline ” for +more information. +Our +first product, IB-Stim, is a PENFS technology intended to be used in patients 8 years and older with functional abdominal pain associated +with irritable bowel syndrome (IBS), functional dyspepsia (FD) and associated FD nausea symptoms. IB-Stim is a US FDA Class II medical +device that has received regulatory clearances: IB-Stim (DEN180057, 2019; K252024, 2025), under the regulation name of “non-implanted +nerve stimulator for functional abdominal pain relief.” +Our +second product, RED TM (Rectal Expulsion Device), is indicated to evaluate the neuromuscular function of a patient’s +ability to expel its contents from the rectum and as a qualitative test for rectal hypersensitivity. RED (K242304, 2024) helps identify +patients with rectal hypersensitivity who experience a desire or urge to defecate at lower volumes of distension. RED is intended to +be used in a clinical setting by trained health care providers in adult populations. +The +Company’s product portfolio has achieved several key milestones, including: +● +Academic +Society Guidelines: In May 2025, the leading pediatric academic society, NASPGHAN (North American Society of Pediatric Gastroenterology, +Hepatology, and Nutrition), published functional abdominal pain guidelines listing PENFS as the ONLY FDA-approved or FDA-cleared +treatment in the guidelines to be recommended. +● +AMA +Category I CPT Code (64567): In 2024 the AMA confirmed the assignment of a Category I CPT code for PENFS procedures, which takes +effect on January 1, 2026. This CPT code brings credibility, streamlined reporting, and relative value units (RVUs) for the physician, +allowing credit for their time. +● +Federal +Supply Schedule (FSS) Contract: In December 2025, NeurAxis was awarded a FSS contract with the United States government which includes +the 01-1020 IB-Stim to be sold for the FDA indications of Functional Abdominal Pain with IBS, Functional Dyspepsia (FD), and associated +FD Nausea Symptoms. +Our +Mission +Our +mission is to advance drug-free neuromodulation therapies that improve patient outcomes and reduce medication burden in complex disorders, +while expanding access to effective care for populations with significant unmet needs. +Our +Corporate History +Neuraxis, +Inc. was established in 2011 and incorporated in the state of Indiana in 2012, under the name of Innovative Health Solutions, Inc. The +name was changed to Neuraxis, Inc. in 2022 when the Company filed a Certificate of Conversion to become a Delaware corporation. On August +9, 2023, the Company consummated an initial public offering (“IPO”) pursuant to a registration statement on Form S-1 (File +No. 333- 269179), as amended. +In +2024, the Company’s shareholders authorized 5,000,000 shares of preferred stock of which all were designated at $0.001 par value +“Series B Preferred Stock” inclusive of cumulative dividends, due and payable quarterly at the Company’s discretion +either in cash or common stock when declared, at a rate of 8.5% per annum through December 31, 2026. The stated value of the Series B +Preferred Stock is $2.38 per share. +We +have developed four FDA cleared products: (i) IB-Stim (DEN180057, 2019), (ii) RED (K242304, 2024), (iii) NSS-2 Bridge (DEN170018, 2017), +and (iv) the original 510(k) clearance (K140530, 2014), all of which were developed internally by the Company. +● +IB-Stim +is a PENFS device that is indicated in patients 8 years and older with functional abdominal pain associated with irritable bowel +syndrome, functional dyspepsia, and associated FD nausea symptoms. +● +RED +is indicated to evaluate the neuromuscular function of a patient’s ability to expel its contents from the rectum and as a qualitative +test for rectal hypersensitivity patients who experience desire or urge to defecate at lower volumes of distention. RED is intended +to be used in a clinical setting by trained health care providers in adult populations. +● +NSS-2 +Bridge is a percutaneous nerve field stimulator (PNFS) device indicated for use in the reduction of the symptoms of opioid withdrawal +and was licensed to Masimo Corporation (“Masimo”). Masimo marketed and sold this product as its Masimo Bridge. On July +1, 2025, The Company terminated the NSS-2 Bridge license with Masimo in exchange for $200,000 of consideration payable of which $100,000 +was paid on December 31, 2025 and $100,000 is due on June 30, 2026. The termination agreement allowed the Company to recapture the +rights to the trademark (U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821/255 and Application +No. 29/960.608) that were originally licensed to Masimo on April 9, 2020. +● +The +original 510(k) device was the electroacupuncture device (“EAD”), now called NeuroStim . The EAD is no longer being +manufactured, sold or distributed but reserved only for research purposes. +4 +Pediatrics +Industry Overview +Pediatric +providers, as a whole, expressed concern about the lack of attention given to children with functional abdominal pain disorders (including +IBS and FD) and the limited treatment options available for a population that suffers from significant disabilities. With 20% of the +United States population under age 18, our Company focus began with opportunities in the pediatrics industry. The pediatrics industry +has multi-billion-dollar market opportunities. The following points clearly outline the unmet need in children: +● +Functional +abdominal pain in children is one of the most common conditions seen by pediatricians and pediatric gastroenterologists. +● +Children +with functional abdominal pain report lower quality of life compared with their healthy peers and equal to those with inflammatory +bowel disease. +● +Overall, +40-45% of children with functional abdominal pain disorders continue to have symptoms into adulthood, which impacts quality of life +and healthcare spending. +● +A +study published in 2021 demonstrates insufficient evidence for the use of medications in pediatric functional abdominal pain disorders. +This lack of evidence for drugs has been supported in by the American Academy of Pediatrics and NASPGHAN. +● +IB-Stim +is the only medical therapy that has shown to improve pain, global symptoms, and functional disability in children with FAP and IBS. +● +IB-Stim +is the only currently used medical therapy that is better than placebo in a randomized controlled trial and received FDA clearance +for pediatric IBS. +Our +Opportunity +For +years, physicians and qualified healthcare professionals have resorted to the use of off-label medications without proper evidence of +efficacy or safety. This is despite a technical report from the American Academy of Pediatrics and NASPGHAN which found very little evidence +to endorse the use of any drugs in the treatment of FAPDs in children. Medications including tricyclic antidepressants, SSRIs and gabapentinoids +continue to be used off-label despite lack of evidence to support efficacy or safety. Not only have the most commonly used medications +(amitriptyline and citalopram) failed to beat placebo in clinical trials, but new studies also suggest significant risks with the potential +for serious side effects with these drugs. The absence of conclusive data to support treatments based on scientific evidence, and the +fact no drug therapies have been approved by the FDA for the treatment of FAPDs or IBS in children, presents a unique market opportunity +for Neuraxis. Below are the current standard treatments in children with functional abdominal pain and IBS. +Pharmacological Treatment Options for Functional Abdominal Pain Disorders +Mild +Pain (No Disability) +Pain (With Disability) +Peppermint +oil +Tricyclic +antidepressants (amitriptyline)* +Rifaximin +Iberogast +Selective +serotonin reuptake inhibitors (citalopram)* +Constipation +Probiotics +Gabapentin +Linaclotide +Acid +suppression with PPIs +Antispasmodics +(hyoscyamine, dicyclomine)* +Lubiprostone +Cyproheptadine* +Plecanatide +* +Increased risk of dementia based on anticholinergic burden +5 +Our +Solutions +We +entered the pediatric market with clinical evidence, key opinion leaders and society endorsement, including a signed letter from the +American Academy of Pediatrics and NASPGHAN supporting our request for insurers to provide coverage for PENFS procedures with IB-Stim. +IB-Stim is a non-drug alternative to reduce functional abdominal pain in patients with IBS. In June 2019, the FDA cleared IB-Stim, a +non-surgical, neuromodulation device for children and adolescents who suffer from IBS, through a de novo process (DEN180057, 2019). Most +recently, FDA cleared 510(k) 252024, expanding the indications for use. The FDA created a new classification of PENFS for IB-Stim. This +is based on pre-clinical and clinical studies demonstrating the mechanism of action and efficacy. Based on this new class of devices, +IB-Stim falls under 21 CFR Part 876, Subpart F – Therapeutic Devices, 876.5340, Product Code QHH. As a PENFS device, it is non-implantable +and provides field stimulation to cranial nerves V, VII, IX and X in the ear to access the central nervous system. It stimulates remotely +from the source of pain to modulate central pain regions, such as the limbic system, and relieve functional abdominal pain associated +with IBS. Studies have demonstrated long-term benefits in functional disability, psychological co-morbidities, and pain. For example, +the table below is from a recently published study of IB-Stim in a population of patients with chronic functional abdominal pain. The +follow-up was done at 6-12 months post-treatment and shows improvements in validated questionnaires compared to baseline (API), functional +disability index (FDI), pain catastrophizing scale (PCS), Screen for Childhood Anxiety Related Disorders (SCARED) and the Promis Anxiety. +Santucci +NR, King C, El-Chammas KI, Wongteerasut A, Damrongmanee A, Graham K, Fei L, Sahay R, Jones C, Cunningham NR, Coghill RC. Effect of +percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents with functional +abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358. +We +have submitted one FDA De Novo request and three 510(K) submissions and plan to submit additional 510(k) premarket notifications from +our pipeline indications in the future. Most recently, FDA cleared 510(k) 252024, expanding the indications for use. +Compliance +with treatment so far has been outstanding with the four weeks of therapy required to sustain long-term benefits. Compliance has been +an issue with non-pharmacological treatment for children, particularly with some of the psychological approaches such as cognitive behavioral +therapy or guided imagery, which sometimes requires 8-12 weeks of treatment. In fact, in a survey included in the randomised, sham controlled +trial (Kovacic, K, Hainsworth, M., et al. Neurostimulation for abdominal pain-related functional gastrointestinal disorders in adolescents: +a randomised, double-blind, sham-controlled trial. Lancet Gastroenterol Hepatol. 2017 Oct;2(10):727-737), 95% of adolescents who used +IB-Stim said that they would recommend this treatment to family and friends. Many children’s hospitals and pediatric providers +across the country are currently treating children with IB-Stim due to the safety, efficacy, and patient outcomes with this non-drug +alternative. +We +have concentrated our marketing focus on the 260 children’s hospitals within the United States. To date, IB-Stim is established +in approximately 80 children’s hospitals within our target market. +6 +Competition +The +competitive landscape for therapies includes off-label drugs and drugs with FDA-approved only for adults with IBS while there is no FDA +indicated treatments for patients 8-21 years of age with functional abdominal pain associated with IBS and prescriptions often contain +FDA black box labels. Psychological treatments such as cognitive behavioral therapy (CBT) or guided imagery have been shown to be some +of the most effective treatments for these conditions, however, these are limited by access to trained therapists. As a result, the Company +is addressing this challenge by providing access to guided-imagery audio with IB-Stim at a low associated cost to the patient. Competition +also includes devices that could theoretically be used, but do not have supporting data or FDA clearance for functional bowel disorders +or IBS. Digital therapeutics that offer CBT for IBS have been developed for adults with IBS with limited success in terms of reaching +large numbers of patients. Virtual reality could potentially be used in the future to also deliver CBT to patients with IBS. Our +method patents limit other devices from targeting IBS through stimulation of cranial nerve branches in the ear. +Approved +drugs for children with IBS +1. +Linzess: +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation in 7 years of age and older +Approved +drugs for adults with IBS +1. +Rifaximin: +an intraluminal antibiotic approved for IBS-diarrhea +2. +Amitiza: +a drug that stimulates fluid secretion from the intestine, approved for IBS-diarrhea +3. +Linzess : +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation +4. +Plecanatide: +a drug that stimulates fluid secretion from the intestine, approved IBS-constipation +5. +Eluxadoline: +a schedule IV-controlled substance that is a mixed opioid receptor agonist/antagonist in the intestine approved for IBS-diarrhea +Approved +drugs for children or adults with functional dyspepsia +1. +None +7 +Devices +1. +gammaCore: +a transcutaneous, cervical vagal nerve stimulator cleared for cluster and migraine headaches. Recent studies using this device for +adults with gastroparesis. +2. +Transcranial +Magnetic Stimulation: Multiple devices cleared to treat major depressive disorder and obsessive-compulsive disorder. To date, no +known gastrointestinal indications. +3. +Roo +System and Sparrow therapy system: Transcutaneous auricular stimulation devices-cleared for neonatal and adult opioid withdrawal. +The +neurostimulation market is predominantly comprised of surgically implanted, invasive technologies that are not directly competitive with +our technology. Several neurostimulation companies are large, publicly traded companies that have a history in the market, have significantly +easier access to capital and other resources and have an established product pipeline. The combined clinical research and product development +done by the industry, including by us and all our competitors, is uncovering the beneficial effects of neurostimulation which now establishes +neuromodulation as a valid and scientifically supported approach to the treatment of neurological conditions, and accordingly, we expect +for competition in the non-implanted space to grow in the future. +While +many companies have joined the neuromodulation space, there are no companies targeting the CNS or the brain-gut axis through auricular +nerves for functional bowel disorders or IBS. Currently, the Neuraxis method patents protect access to the brain, particularly the limbic +systems through branches of cranial nerves in the ear. +Our +Competitive Strengths +We +believe that the following competitive strengths will enable us to compete effectively: +● +First +to market +● +Strong +portfolio of device and method patents +● +Large +market opportunities +● +Strong +pediatric pipeline +● +Academic +Society guidelines with the only FDA-approved or FDA-cleared recommended treatment +● +Category +I CPT code (64567) effective January 1, 2026 +● +Strong +clinical data carried out in leading academic institutions in the U.S. +Our +Growth Strategies +● +List +price of our product is $1,195 per device and $4,780 per patient +● +Strong +gross margin +● +Direct +sales force +● +Target +customers are children’s hospitals, adult gastroenterologists in the VA, and adult pain physicians in the VA +Our +Pipeline +IB-Stim +is to be used for the indication of functional abdominal pain associated with IBS, functional dyspepsia (FD), and associated FD nausea +symptoms. The same underlying technology will be used for the remaining pipeline indications, but we may use different branding strategies +for marketing and commercialization purposes. +With +one FDA indication—functional abdominal pain associated with IBS, functional dyspepsia (FD), and associated FD nausea symptoms +for 8 years and older—on the market, additional clinical trials of PENFS in multiple pediatric conditions are underway focused +on unmet healthcare needs in children and adults. These indications consist of post-concussion syndrome, cyclic vomiting syndrome, post-operative +pain and fibromyalgia pain. +The +chart below shows our status in the FDA review process for IB-Stim and each of the following pediatric indications: +1. +Functional dyspepsia ( nausea ): Sub-analysis of the RCT completed, and data was analyzed and presented to FDA. The data +looked only at those patients who met criteria for functional dyspepsia and those that improved in abdominal pain scores by 30% or more +as well as improvements in a validated measure of nausea. The sub-analysis was used for FDA purposes and there is no plan to publish +in peer reviewed journal since the entire cohort of patients with DGBIs was already published in 2017. +8 +2. +Post-concussion: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT04978571, A Prospective Study on the Effect +of Auricular Percutaneous Electrical Nerve Field Stimulation (PENFS) in Patients with Post-Concussion Syndrome (PCS). A randomized, +double blind, placebo-controlled trial to evaluate the efficacy of IB-Stim in children with post-concussion symptoms. The primary endpoint +will be to measure improvements in validated measures, including the Immediate Post-Concussion Assessment, Post-Concussion Symptom Scale, +and Balance Error Scoring Symptom compared to placebo. The study will enroll 100 participants and is being conducted at Children’s +Hospital of Orange County. +3. +Cyclic vomiting: Successful pilot study completed and published, Karrento K, et.al.. Electrical Nerve Field Stimulation +for Drug-Refractory Pediatric Cyclic Vomiting Syndrome. J Pediatr Gastroenterol Nutr. 2023;77:347-353. A new study, Auricular Neurostimulation +for Children with Cyclic Vomiting Syndrome: A randomized, placebo-controlled trial. RCT anticipated to begin enrolling patients early +in 2026. This will be a double blind, placebo-controlled trial to evaluate efficacy of IB-Stim in pediatric patients with cyclic vomiting +syndrome. The primary endpoint will be to measure decreases in the frequency and severity of cyclic vomiting episodes compared to a placebo +device. The study will include a minimum of 120 patients and is being conducted at Children’s Wisconsin/Medical College of Wisconsin. +4. +Post-operative pain (opioid sparing) : RCT currently enrolling patients and plans to include almost 300 patients total. ClinicalTrials.gov +Identifier: NCT05506878. Reduction of Opioid Requirement Associated With Auriculo-Nerve Stimulation Following Open Surgery. The primary +outcome measure is opioid consumption. Assess how the use of the NSS-2 BRIDGE Device over a 5 day stimulation period affects the participant’s +total opioid consumption using morphine equivalent following an open abdominal or pelvic surgery. Other measures will include post-operative +pain ratings, sleep, somatization, as well as length of hospital stay. The study is being conducted at University of Pittsburgh Medical +Center. +5. +Fibromyalgia in adults : RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT06415591. Auricular Neuromodulation +in Veterans with Fibromyalgia: The proposed Merit, a randomized, sham-controlled trial of auricular +PENFS, evaluates the clinical utility of PENFS for fibromyalgia as compared to sham placebo control, acute and longitudinal PENFS-related +neural changes visualized on rs-fcMRI and effects of PENFS on HRV as a potential vagal mechanism of pain relief. For Aim 1, 240 total +participants meeting 2016 diagnostic criteria for fibromyalgia (male and female, age 18-60 years old) will be randomized to either true +(n=120) or sham (n=120) auricular PENFS. The study is being conducted at Emory University and VA medical center. +Each +step in the FDA review process differs in duration and cannot be predicted with accuracy. Timing of FDA review and approval, if ever +received, cannot be assured and the process and any approval is within the sole control and discretion of the FDA. +9 +Products +IB-Stim +is a PENFS technology intended to be used in patients 8 years and older with functional abdominal pain associated with IBS, functional +dyspepsia (FD), and associated FD nausea symptoms. The FDA has classified the non-implanted nerve stimulator for functional abdominal +pain relief as a Class II device. +IB-Stim +is intended to be used for 120 hours per week, using one (1) device per week, for four (4) consecutive weeks, through application to +branches of Cranial Nerves V, VII, IX and X, and the occipital nerves identified by transillumination, as an aid in the reduction of +pain when combined with other therapies for IBS (DEN180057, 2019; K252024, 2025). In published studies, patients treated with IB-Stim +demonstrated significant improvement in pain, disability and global symptoms with no serious adverse events, and minimal to no side effects, +including localized skin irritation. The following table presents a summary of IB-Stim studies performed to date: +Author +DGBI +N= +Ages +# +of devices +Outcomes +Major +adverse events +Santucci +et al.,2025 +Functional +Abndominal Pain +219 +7-21 +4 +Abdominal +pain, nausea, disability +None +Dorfman +et.al.,2025 +Functional +Abdominal Pain +22 +11-21 +4 +Abdominal +pain, recurrent treatment +None +Kolacz +et.al.,2025 +Chronic +Nausea +84 +11-18 +4 +Cardiac +vagal effeciency +None +Santucci., +et.al., 2024 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain and nausea +None +Castillo +et.al., 2023 +Irritable +bowel syndrome +27 +11-18 +4 +Abdominal +pain, Microbiome Metabolism +None +Karento +et al., 2023 +Cyclic +Vomiting Syndrome +30 +8-18 +6 +Abdominal +pain, nausea, disability +None +Santucci +et.al.,2023 +Irritable +bowel syndrome, functional dyspepsia, FAP +101 +11-21 +4 +Abdominal +pain, nausea, disability +None +Chogle +et.al., 2023 +Irritable +bowel syndrome, functional dyspepsia +31 +11-18 +4 +Quality +of life, disability, anxiety +None +Chogle +et.al., 2023 (Registry) +Irritable +bowel syndrome, functional dyspepsia +292 +8-18 +4 +Abdominal +pain, nausea, disability +None +Santucci +et al., 2023 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain, nausea, anxiety, disability +None +Bora +et.al.,2023 +Irritable +bowel syndrome +20 +11-18 +4 +IBS +severity scale, Microbiome diversity +None +Santucci +et.al.,2021 +Functional +abdominal pain +20 +11-19 +4 +Abdominal +pain, sleep, nausea, anxiety +None +Krasaelap, +et.al., 2020 +Irritable +bowel syndrome +51 +11-18 +4 +Abdominal +pain, global symptoms, disability +None +Kovacic +et.al.,2017 +IBS, +FD, FAP, abdominal migraine +115 +11-18 +4 +Abdominal +pain, disability, global symptoms. +Syncope=1 +in sham group +The +ability of IB-Stim to produce systemic effects by modulating the central nervous system has been demonstrated in a pre-clinical animal +model of IBS (see Business— Pre-Clinical Data ). In patients with IBS, the largest effect on all pain measures, including +composite pain scores, worst pain, disability and global symptoms, was seen after completing three consecutive weeks of treatment (see +Business— Clinical Data ). A fourth consecutive week of treatment was included in clinical testing; no safety concerns were +identified with this extra consecutive week of treatment. In the trial of 115 subjects, 10 patients reported side-effects and only three +discontinued the study because of side-effects. Of such 10 patients, six experienced ear discomfort (three in the PENFS group, three +in the sham group), three experienced adhesive allergies (one in the PENFS group, 2 in the sham group), and one experienced syncope due +to needle phobia (in the sham group). There were no serious adverse events. Since that study, numerous other studies have confirmed the +safety and efficacy in children with chronic DGBIs (see table above). +Medical +providers are trained to place IB-Stim through NeurAxis’ IB-Stim Training and Certification process. Once the provider is trained, +the device can be placed in the outpatient clinic and can be removed by the provider in the clinic or by the patient at home. IB-Stim +stays on for a total of five-days to allow delivery of gentle electrical pulses to nerves below the skin that access the central nervous +system. A study in adolescents showed greater improvement in functional abdominal pain and global symptom improvement with every week +of treatment (up to four weeks). At the end of the four-week study, 95% of adolescents stated they would recommend the treatment to family +or friends. Safety of percutaneous electrical nerve field stimulation has also been reported in a separate study of over 1200 adult patients +with no serious adverse events and minimal to no side-effects. +When +wearing IB-Stim and following an easy-to-learn and efficient procedure, patients can still attend school and extracurricular activities, +exercise or play non-contact sports, shower, wear earbuds or headphones, and travel. +IB-Stim +costs $1,195 per device, and each patient will use four (4) devices. Potential patients with other indications are expected to use six +(6) or more devices per patient. +Technology +A +maladaptive central nervous system can process pain and emotions differently. This often occurs in children following a traumatic event, +viral infections, inflammation or trauma. Changes in brain pathways are known to be involved in the pathophysiology of functional bowel +disorders and IBS. IB-Stim works by sending gentle electrical impulses into cranial nerve bundles located in the ear. This stimulation +targets brain areas that process pain and helps reduce functional abdominal pain associated with IBS. An animal model of IBS demonstrated +that the firing of neurons in the amygdala could be reduced by more than 50% in just 15 minutes of stimulation with IB-Stim. A recent +human study in adults with pain related to fibromyalgia suggested that IB-Stim exerts its effect by modulating emotional and executive +control centers related to pain processing, see Feasibility of Auricular Field Stimulation in Fibromyalgia: Evaluation by Functional +Magnetic Resonance Imaging, Randomized Trial , Woodbury et.al. , Pain Med. 2021;22:715-726. The field of art pertains to an +electrical stimulation device, including a stimulator containing a generator to deliver electrical pulses with defined parameters, and +a power supply for supplying the electrical energy through four separate needles, and at least one of which is a needle array. +10 +Pre-Clinical +Data +In +an animal model of IBS, extracellular, electrophysiologic recordings were performed from neurons in the rat amygdala before and 15 minutes +after PENFS treatment. There was a 65% decrease in the spontaneous firing of these neurons after 15 minutes of PENFS. This dampening +of neurons in the CNS likely accounts for the modulation of pain responses in a model of post-inflammatory visceral and somatic hyperalgesia. +11 +Clinical +Data +There +are over 700 published patients specific to our first FDA indication which is functional abdominal pain associated with irritable bowel +syndrome in patients 8-21 years of age. A published patient is defined as a patient who went through a study, the study was analyzed, +and now the study has been published in a peer-reviewed journal. +A +randomized, controlled study in children 11-18 year of age used primary endpoint of improvements in abdominal pain. The Pain Frequency-Severity-Duration +(“PFSD”) questionnaires was completed at baseline by all subjects and after each week of treatment (weeks 1–3), as +well as at extended follow-up occurring in the 8–12 weeks following the end of treatment. The PFSD scale incorporates multiple +aspects of the pain experience and was administered weekly during treatment and at extended follow-up appointments. The PFSD scale validated +for chronic pain in children (aged 8–18 years). The PFSD was also used to rate weekly worst abdominal pain on a numerical rating +scale (0 for no pain, 10 for worst pain). Patients were followed up for a median of 9.2 weeks from the last week of treatment. +For +the active PENFS group, median worst pain at follow-up remained lower (baseline: 8.0 vs. follow-up: 6.0), whereas there was no difference +at follow-up in the control group (baseline: 7.5 vs. follow-up: 7.0). The between-group differences in worst pain ratings after 3 weeks +of treatment showed that the PENFS group improved to a greater extent, with the control group reporting significantly higher worst pain +(median 7.0) than the PENFS group (median 5.0). +At +long-term follow-up, median PFSD composite scores were 12.6 (IQR 3.6–22.5) in the PENFS group and 16.8 (4.8–33.6) in the +control group. A comparison of changes in PFSD composite scores (baseline to follow-up) showed that patients in the PENFS group reported +significantly greater improvement in pain (median –8.4) than those in the control group (median 0.0). This study was published +in the Lancet Gastroenterology Hepatology, (Kovacic K, et.al. Lancet Gastroenterol Hepatol. 2017;2:727-737). +12 +A +secondary endpoint in the same study used the functional disability index (FDI) to assess functional disability in those treated with +PENFS and compared to sham treatment. Those treated with PENFS changed from moderate disability to minimal at the 2–3-month follow-up +while the sham device group had no change. +A +separate published paper looked at 51 pediatric patients with IBS and used the symptoms response scale (SRS) to assess global symptoms +improvement following PENFS treatment compared to sham. Global symptom improvement was assessed with a validated pediatric questionnaire, +Symptom Response Scale (SRS). Symptoms were recorded as better, worse, or no change based on a 15-point scale across individual domains +for both improvement and deterioration of overall symptoms. Findings from several studies that used the SRS have shown that using 7-point +scale response options in disease-specific measures, a change score of 0.5 represents the minimal clinically important difference (Juniper +et.al. J Clin Epidemiol 1994; 47: 81–87 and Guyatt GH et.al.1987; 42: 773–78). As previously noted, a minimum change in score +of ≥ 2 was chosen for this study as a more stringent criterion for global improvement before and after PENFS treatment and to compare +between groups. Patients and providers were blinded in terms of those who received active PENFS or sham. At the end 3 weeks of therapy +using the change of ≥ 2, 81% of the PENFS group compared with 26% of the sham group (*p≤ 0.001, #p=0.002) reported overall symptom +improvement. When applying an even more stringent criteria with a change ≥ 3 on the SRS, 67% of the PENFS group compared with 22% +of the sham group reported symptoms improvement (p=0.002) (Krasaelap A et.al. Efficacy of Auricular Neurostimulation in Adolescents With +Irritable Bowel Syndrome in a Randomized, Double-Blind Trial. Clin Gastroenterol Hepatol. 2020;18:1987-1994). +13 +Recently, +the largest, prospective, multicenter registry for any drug or device in pediatric patients with pain associated DGBIs was published. +It evaluated outcomes of pediatric patients (8-18 years) following a 4-week course of IB-Stim in a real-world clinical setting. Overall, +292 patients met Rome IV Diagnostic criteria for any pain associated disorder of the gut-brain interaction (DGBIs). In this cohort, 92% +had failed medication therapy and 61% of patients had failed 4 or more medications when they entered the study. Patients were asked to +fill out several validated pediatric measures, including the abdominal pain index (API) and a validated questionnaire that assesses frequency, +duration, and intensity of abdominal pain episodes. Data were collected weekly for the first 3 weeks and at 3, 6, 9 and 12 months. Compared +to baseline scores, there were significant improvements in the API after 4 weeks of IB-Stim treatment at every time point, including +6 month (p<0.001) and 12 months (p<0.001). Although there were many dropouts by the end of the 12 months, the results were still +significant and sustained. No serious adverse effects were recorded during the entire 12 month follow-up. (Chogle, A. et. al. A multicenter +registry study on percutaneous electrical nerve field stimulation for pediatric disorders of gut-brain interaction. J Pediatr Gastroenterol +Nutr. 2024 Mar 7.). +Abdominal +Pain Index (API) +Time +point +n +Median +(IQR) +p +Value +Baseline +288 +2.68(1.84, +3.58) +N/A +3 +weeks +209 +1.99 +(1.13, 3.27) +<0.001 +3 +months +75 +1.81 +(0.85, 3.20) +<0.001 +6 +months +60 +1.70 +(0.93, 2.72) +<0.001 +9 +months +26 +1.90 +(1.33, 2.82) +0.002 +12 +months +22 +220(0.41, +3.21) +<0.001 +An +open-label study of 20 patients treated with PENFS in a “real-world” clinical setting at Cincinnati Children’s Hospital +demonstrated that after PENFS, abdominal pain (p < 0.0001), nausea (p=0.001), pain catastrophizing (p = 0.001), functional disability +(p<0.0001), and anxiety (p = 0.03) exhibited significant improvements, and were sustained 6-12 months after treatment (Santucci et.al. +Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). Validated questionnaires included the abdominal +pain index (API), nausea severity scale (NSS), functional disability index (FDI), as well as psychological measures of catastrophizing +(PCS-C) and anxiety (SCARED). The table below summarizes the results pre, during and post PENFS results at long-term follow-up (Santucci +et.al. Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). +14 +PENFS +Reimbursement +Previously, +the American Medical Association (AMA) assigned a procedure-specific Category III CPT Code (0720T) to PENFS, which was published on +December 30, 2021 and became effective for utilization on July 1, 2022. Category III CPT Codes are temporary codes issued to define +and track the utilization of new procedural technology. To expand patient access to PENFS procedures and IB-Stim technology, we +launched our internal Prior Authorization team under our Guidance & Patient Support function in 2023. This continues to address +the Prior Authorization process barriers for providers and children’s hospitals and streamlines a patient’s access to +our Patient Advocacy and Financial Assistance offerings, if needed. In September of 2024, the AMA’s CPT Editorial Panel +accepted addition of Category I CPT Code (placeholder 64X11) for PENFS and deletion of Category III CPT Code 0720T. The finalized +Category I CPT Code for PENFS, 64567 and associated valuations, was publicly announced in Q4 of 2025. CPT 64567 became effective +for utilization and reporting PENFS procedures on January 1, 2026. Twenty-four (24) commercial health insurers, including certain +Blue Cross Blue Shield licensees, have instituted formal medical policy coverage for PENFS. The total membership of these health +insurers is approaching 100,000,000 covered lives. Patients who are appropriate clinical candidates may have policy-covered access +to PENFS and IB-Stim technology under their specific health plan. We continue to actively leverage clinical evidence, peer-reviewed +publications, and academic medical society clinical practice guidelines to expand patient access to IB-Stim technology. The +finalized CPT code (1/1/2026) will strengthen PENFS access as Fee Schedules and claim payments become more transparent, allowing +both commercial and Medicaid payer entities to more-effectively process covered claims. +Marketing +NeurAxis +markets its products through a direct sales team, online channels, and to clinicians via affiliated academic societies. Our main goal +is to raise educational awareness among clinicians and hospitals about the unmet needs of patients with functional abdominal pain and +NeurAxis’ FDA-cleared, drug-free product solutions. Our primary focus is with the 260 children’s hospitals within the United +States. As our FDA-indications expand, so will our outreach and education to adult gastroenterology providers. Direct-to-patient marketing +efforts will be considered in the future. +Patients/Customers +IB-Stim +is indicated for patients 8 years and older suffering from functional abdominal pain, functional dyspepsia (FD),and associated FD nausea +symptoms. Customers are currently primarily children’s hospitals who serve these patients, but is currently expanding to adult +gastroenterologists and adult pain physicians. +RED TM +(Rectal Expulsion Device) +RED +enables comprehensive constipation for every gastroenterology practice. The mission is for every gastroenterology practice to be able +to safely and confidently differentially screen root causes of chronic constipation with the patient and physician in mind. RED can be +implemented in a GI practice with minimal impact to clinical workflow and does not require a large capital expense. Eight (8) million +patients each year present with constipation. Of those eight million patients, 700,000 patients present to the Emergency Room. +Clinical +Background +Constipation +is one of the most encountered gastrointestinal complaints in clinical practice. A recent systematic review reported that the prevalence +of chronic constipation (CC) in North America is between 10-15%. This condition causes significantly reduced quality of life, reduced +work-related productivity and billions of dollars in health expenditures. Clinical practice guidelines recommend empiric treatment of +chronically constipated patients with fiber supplements or laxative therapies. Approximately 40% of patients do not adequately respond +to empiric laxative therapy. In these patients, anorectal physiology testing is essential. +There +is a clinical need for an easy-to-use, office-based, point-of-care, anorectal function test that can measure rectal sensitivity and be +used as a rectal expulsion device to assess pelvic floor dysfunction. Current testing methods typically require elaborate volumetric +testing equipment to assess sensation and expulsion, which makes them not practical in the clinical setting. The current standard is +to refer patients to specialized motility centers for evaluation, resulting in sub-optimal number of patients with constipation undergoing +anal-rectal testing. In the current clinical setting, only about 2% of all patients with constipation are referred for anal-rectal testing +and thus, a large number with pelvic floor dysfunction and rectal hypersensitivity are missed and/or fail to get proper treatment. The +design of RED allows for it to be used as a self-inflating expulsion device and as a balloon to assess patients who experience rectal +hypersensitivity. When it is opened to atmospheric pressure, RED safely self inflates and contains a proprietary foam technology that +mimics the “feel” of stool. This provides an alternative to sensation and expulsion testing in the office without affecting +clinical workflow. +15 +Rectal +Sensation Testing +Rectal +sensation is an important metric to guide clinical care, particularly rectal hypersensitivity. For example, a patient that reports an +immediate perceived immediate need to defecate or discomfort (max tolerated) to low volumes of distension would have rectal hypersensitivity. +This diagnosis is important because it would impact how a patient is treated. Rectal hypersensitivity is addressed by pelvic floor physical +therapists who deliver education and re-training to help the patient align the desire to defecate according to the actual volume of stool +contained within the rectal vault. The basis of sensory re-training during physical therapy involves inflating a balloon in the rectum +until urge threshold is reached. With repeated inflations, the patient learns to associate a given sensory intensity with the inflated +volume. Over time, the balloon is inflated with decreasing volumes and the patient is asked to closely monitor and attend to sensations +experienced. Eventually, new sensory thresholds are established. Unfortunately, because of the difficulty in performing hypersensitivity +testing in routine clinical care, only a small percentage of all patients with constipation undergo anorectal testing in the clinical +setting. +In +a recent study, 60 adult patients (mean±standard deviation age of 46.4±17.6 years; 93.3% women) that underwent evaluation +with RED and answered the questions were included in the analysis. One patient did not undergo rectal sensation testing due to suspected +anal fissure and overall, 58 patients were included in the analysis. +As +outlined in the figure below, 18 of 58 patients, or 31%, had rectal hypersensitivity on RED when defined on a single yes/no question +of “do you feel you have to poop right now” that evaluates the patient perception to defecate. +These +data suggest that approximately 31% of patients with chronic constipation reported urge to defecate with RED baseline distension volume, +thus meeting the London criteria for hypersensitivity. +Balloon +Expulsion Testing +RED +can be used as a rectal expulsion device and in a recent prospective trial of 60 adults with functional constipation (defined by Rome +IV criteria), it was demonstrated to be safe in a clinical setting. It can be quickly performed in the left lateral position (i.e., the +patient lying on their left side) immediately after a rectal examination. Further, it proved to be effective for patients who fail a +trial of laxative therapy. In those patients with constipation who failed laxative treatment, RED was able to reliably identify patients +for whom pelvic floor physical therapy was unlikely to provide substantial benefit (i.e, patients who might be more likely to benefit +from intensifying medical therapy). Patients with an abnormal RED in the left lateral position or commode were likely to respond to pelvic +floor therapy (48.8% to 71.4%, respectively). Also, RED showed very high sensitivity (>95%) to broadly detect evacuation disorders +as a simple screening tool as noted in the table below. +16 +RED +Benefits Over Predicates +1. +Prompt +point of care test allows assessment of patients and potentially changes clinical management. +2. +Identifies +those who would benefit from physical therapy or who would require optimization of laxatives or addition of secretagogues. +3. +Identifies +many patients with rectal hypersensitivity that otherwise would never get tested. +4. +Easily +integrates with clinical workflow +There +is an urgent need to better identify patients with pelvic floor abnormalities and/or rectal hypersensitivity. Making the right diagnosis +can impact care and ensure that patients are properly assessed and treated. The figure below demonstrates how RED can impact clinical +decision making. +Overall, +RED is a point-of-care device designed to be used in the office. Rectal sensation is an important component of evaluating pelvic floor +function among patients with chronic constipation. Currently, 98% of clinically appropriate patients do not receive anorectal testing. +The study findings demonstrate that RED impacts clinical decision making by identifying patients who would benefit from physical +therapy or who would require optimization of laxatives. Shah et.al., An Office-Based, Point-of-Care Test Predicts Treatment Outcomes +With Community-Based Pelvic Floor Physical Therapy in Patients With Chronic Constipation. Clin Gastroenterol Hepatol. 2023;21:1082-1090.It +is also sufficient to qualitatively assess for rectal hypersensitivity which was evident in almost one-third of patients with chronic +constipation failing a trial of fiber/laxatives. It is critical to assess rectal sensation and balloon expulsion in patients with constipation +and/or fecal incontinence. +RED +Safety +● +The +tube for RED remains open to room air as the patient defecates. The pressure is therefore never greater than room air. +● +The +predicate device uses manual inflation with a syringe against resistance. The predicate device is re-capped so that the patient must +defecate an air-filled balloon with low compliance. The resistance with defecating the predicate is therefore greater than RED, because +RED is more compliant than an air-filled balloon. RED is therefore safer with regard to patients with decreased compliance. +● +There +have been no safety events reported to compliance in MAUDE with the predicate in the last 10 years. +● +RED +is more compliant than air or water based on balloon compression data as demonstrated in the graph below. +● RED CPT coding +changed effective January 1, 2026, and we are currently waiting on the AMA CPT Knowledge Base to give an opinion on the coding going +forward. +Intellectual +Property +Our +intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research, and +development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual +property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered +trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws +to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our +executive officers and directors. +17 +Trademarks +The +Company has nine (9) registered trademarks, and three (3) pending applications for registration: +Country +Trademark +Reg. +No. +Reg. +Date +Class/Goods +Status +US +NEURO-STIM +and Design +5105257 +20-Dec-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +THE NEUROSTIM SYSTEM and Design +4905470 +23-Feb-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +4852008 +10-Nov-2015 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable neurological pain management +generator, with percutaneously-implantable needle arrays; medical system and apparatus consisting of a non-implantable modulating +frequency generator, providing neuromodulation therapy to cranial and peripheral nerves; medical system and apparatus consisting +of implantable arrays for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and +nerve field stimulation; medical system and apparatus consisting of a non-implantable modulating frequency generator and implantable +needle arrays for transmitting current into auricular and peri-auricular tissue for use in pain management, namely, patient stimulators +for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, appliances and instruments for +peripheral nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, headache control, +control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies and other types of sympathetically +mediated pain +Registered +US +IB-STIM +5926831 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +18 +US +IB-STIM +and Design +5926832 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR +5978411 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; Medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; Medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; Medical device for peripheral nerve and nerve field stimulation; +Medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR and Design +5978412 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +19 +Country +Trademark +App. +No. +App. +Date +Class/Goods +Status +US +NEURAXIS +97/327951 +24-Mar-2022 +10 +Int. nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Registered +US +NEURAXIS +(STYLIZED) +97/356330 +11-Apr-2022 +10 +Int. nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Registered +US +RECTAL +EXPULSION DEVICE +99/249573 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +RED +– RECTAL EXPULSION DEVICE (word) +99/249859 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +RED +& Design +99/249570 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +AXI-STIM +99/507683 +20-Nov-2025 +10 +Int. Medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non-implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and per-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and per-auricular tissue for us in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve filed neuromodulation therapy; medical apparatus, for peripheral +never field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, change in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain. +Patents +The +Company has fifteen (15) granted patents in the United States and one (1) applied for patent application in the United States and one +(1) granted foreign patent and two (2) applied for foreign patent applications. +Country +Owner +Serial +No. +Actual +Filing Date +Patent +No. +Issue +Date +Anticipated +Expiration Date +Title +Application +Status +Licensing +Status +CA +Neuraxis, +Inc. +3096494 +25-Apr-2019 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Applied +for +JP +Neuraxis, +Inc. +2021-509961 +23-Oct-2020 +7252319 +27-Mar-2023 +25-Apr-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/040766 +23-Sep-2020 +11369791 +28-Jun-2022 +21-Jun-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/715121 +07-Apr-2022 +12097371 +24-Sep-2024 +04-Jan-2040 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +16/014169 +21-Jun-2018 +10322062 +18-Jun-2019 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +16/408004 +09-May-2019 +11077019 +03-Aug-2021 +16-Jul-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +17/363620 +30-Jun-2021 +11654082 +23-May-2023 +29-Jul-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +17/830411 +02-Jun-2022 +DEVICE +AND METHOD FOR ERADICATING PATHOGENS IN NASAL PASSAGES +Applied +for +US +Neuraxis, +Inc. +17/589082 +31-Jan-2022 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION AND AUDIO THERAPY DEVICE +Applied +for +20 +US +Neuraxis, +Inc. +17/861646 +11-Jul-2022 +EXTERNAL +AUDITORY CANAL THERAPY DEVICE +Applied +for +US +Neuraxis, +Inc. +17/617364 +08-Dec-2021 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION DEVICE +Applied +for +US +Neuraxis, +Inc. +15/488416 +14-Apr-2017 +10413719 +17-Sep-2019 +14-Apr-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +16/534159 +07-Aug-2019 +11331473 +17-May-2022 +14-Apr-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/595185 +15-May-2017 +9839577 +12-Dec-2017 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/811278 +13-Nov-2017 +10010479 +03-Jul-2018 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +14/277158 +14-May-2014 +9662269 +30-May-2017 +14-May-2034 +SYSTEMS +AND METHODS FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +17/725,761 +21-Apr-2022 +11813448 +14-Nov-2023 +14-Apr-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/154,375 +13-Jan-2023 +12029701 +09-Jul-2024 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +18/736,834 +07-June-2024 +12383461 +12-Aug-2025 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +18/173,893 +24-Feb-2023 +12447332 +21-Oct-2025 +01-May-2035 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/377,968 +09-Oct-2023 +12285602 +24-Apr-2025 +14-Apr-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +19173434 +08-Apr-2025 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +CA +Neuraxis, +Inc. +3243826 +07-Aug-2024 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +21 +License +Agreements +TKBMN +Exclusive License Agreement +On +May 7, 2020, the Company entered into an exclusive license agreement with TKBMN, LLC to obtain an exclusive license under certain patent +rights (the “Patent Rights”) owned by TKBMN. Dr. Thomas Carrico, our Chief Regulatory Officer, is the manager of TKBMN. Brian +Carrico, our Chief Executive Officer, and Matt Carrico, our National Sales Director, are members of TKBMN. TKBMN owns the Patent Rights +set forth in the patents listed in the following table (the “TKBMN Patents”) by virtue of an assignment from Dr. Carrico, +who is the sole inventor listed on the TKBMN Patents. TKBMN has assigned the auricular portion of the TKBMN Patent Rights to the Company. +Licensed +TKBMN Patents +Country +Owner +Application +No. +Patent +No. +Issue +Date +Anticipated +Expiration +Date* +Title +US +TKBMN, +LLC +15/981,082 +10,792,500 +October +2, 2020 +October +18, 2037 +Systems +and methods for electro-therapy treatment +US +TKBMN, +LLC +17/014,450 +11,684,782 +June +7, 2023 +October +18, 2037 +Systems +and methods for electro-therapy treatment +* +If all maintenance fees remain paid +Pursuant +to the exclusive license agreement, TKBMN agreed to grant an exclusive, worldwide, non-transferable, royalty-free license under Patent +Rights, which including three patents applications filed by TKBMN in connection with systems and methods for elector-therapy treatment, +to the Company to develop, market, and sell licensed products, in the field of electro-therapy treatment by stimulation of cranial nerves, +cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles, and/or auricular anatomical structures in +human patients (the “Field”), in consideration of a one-time license fee of $1.00. The Company has the right to grant sublicenses +to the Patents Rights in the Field. The exclusive license agreement expires upon the expiration of the last to expire valid claim within +the Patent Rights and may be terminated by the Company upon 60 days prior written notice. Upon expiration or termination of the exclusive +license agreement, all rights in the Patent Rights will revert to TKBMN. There are no royalties or any other form of committed revenue +to TKBMN or any of its members Under the agreement, the Company has agreed to cover fees and expenses associated with maintenance, prosecution, +and additional associated/continuation patent filings for the TKBMN Patents. +Masimo +License and Collaboration Agreemen t +On +April 9, 2020, the Company entered into a license and collaboration agreement with Masimo. As consideration, in part, Masimo entered +into a Series A Preferred Stock purchase agreement with the Company. Under the license and collaboration agreement, the Company grants +an exclusive, fully paid-up, royalty-free license to specifically identified patents and trademarks in a limited Field of use. At all +times, the Company remains the owner of all licensed intellectual property rights, and there is a possibility of joint ownership of collaboratively +developed products and methods. The licensed patents are generally directed to a device and the treatment of opioid withdrawal symptoms. +The licensed trademarks are generally directed to the NSS-2 Bridge mark. The license agreement includes a collaboration component to +efficiently develop, obtain regulatory approval, and commercialize products for the limited field of use. The term of the agreement is +in effect until the expiration or lapse of the last intellectual property rights. Masimo paid a one-time fee of $250,000. The license +and collaboration agreement may not be terminated by the Company for any reason, and the sole remedy for any breach or default by Masimo +shall be to seek monetary damages and equitable remedies. The license and collaboration agreement may be terminated by Masimo if there +is material breach by the Company that remain uncured for thirty (30) days or without cause by providing thirty (30) days prior written +notice. +On +July 1, 2025, The Company terminated the NSS-2 Bridge license with Masimo in exchange for $200,000 of consideration payable in equal +installments on December 31, 2025 and June 30, 2026. The termination agreement allowed the Company to recapture the rights to the trademark +(U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821/255 and Application No. 29/960.608) that +were originally licensed to Masimo on April 9, 2020. See ”—Our Corporate History ” for more information. +Implications +of Being a Smaller Reporting Company +We +are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage +of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We +will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates +equals or exceeds $250 million as of the prior June 30 th , or (2) our annual revenues equal or exceed $100 million during such +completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June 30 th . +Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our results of operations +and financial prospects. +For +additional information, see “ Risk Factors – Because the Company is a ‘smaller reporting company,’ we may take +advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than +they would receive from a public company that is not a smaller reporting company” and “As a smaller reporting company,” +we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse +effect on our public stockholders.” +22 +Implications +of Being an Emerging Growth Company +We +are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier +of (1) December 31, 2028, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, +(3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under +the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur on the date on which we have issued more than +$1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of +specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable +to public companies. As an emerging growth company, we may: +● +present +only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related +management’s discussion and analysis of financial condition and results of operations in this prospectus; +● +avail +ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal +control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +● +provide +reduced disclosure about our executive compensation arrangements; and +● +not +require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements. +In +addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards +would otherwise apply to private companies. We have elected not to take advantage of the extended transition period for complying with +new or revised accounting standards provided to emerging growth companies under the JOBS Act. +Government +Regulation +Our +products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, +state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject +to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. +United +States Regulation +The +FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness, +labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, +promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices in the United States +to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements +of the FDCA. +23 +FDA +Premarket Clearance and Approval Requirements +Unless +an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires FDA clearance +of a 510(k) premarket notification. The 510(k) clearance can be resource intensive, expensive, and lengthy. +Under +the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree +of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. +Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical +devices, which include compliance with the applicable portions of FDA’s current good manufacturing practices for devices, as reflected +in the Quality System Regulation, or QSR, establishment registration and device listing, reporting of adverse medical events, and truthful +and non-misleading labeling, advertising, and promotional materials. Some Class I devices, also called Class I reserved devices, also +require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I devices are exempt +from the premarket notification requirements. +Class +II devices are subject to the FDA’s general controls, and any other special controls deemed necessary by the FDA to ensure the +safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market +surveillance, patient registries and FDA guidance documents. +Most +Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to +commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification +is generally known as 510(k) clearance. +If +a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially +equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act +of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to +the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo +classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification +of its medical device into Class I or Class II on the basis that the device presents low or moderate risk. If the manufacturer seeks +reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable +assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a +legally marketed predicate device that would be appropriate for a 510(k) or that general controls would be inadequate to control the +risks and special controls cannot be developed. +Obtaining +FDA marketing authorization, de novo down-classification, or approval for medical devices is expensive and uncertain, and may take several +years, and generally requires significant scientific and clinical data. +Some +pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially +distributed. +Investigational +Device Process +Clinical +trials are sometimes required to support a 510(k) submission. In the United States, absent certain limited exceptions, human clinical +trials intended to support medical device clearance or approval or to determine safety and effectiveness of a device for an investigational +use must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational +device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities +of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the +FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human +clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that +it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in +advance by the FDA for a specified number of subjects. Generally, clinical trials for a significant risk device may begin once the IDE +application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards +at the clinical trial sites. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials, +and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not +bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial +meets its intended success criteria. +24 +If +the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an +IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting +such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient +and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating +disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application +must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans +and that the testing protocol is scientifically sound. The IDE will automatically become effective thirty (30) days after receipt by +the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or +other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. +Regardless +of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an +Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, +and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, +human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the +FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for +the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring +the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance +of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, +the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant +the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator +may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of +human subjects. +During +a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting +clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping +and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators +in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational +plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. +Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, +including the following: +● +The +FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold; +● +Patients +do not enroll in clinical trials at the rate expected; +● +Patients +do not comply with trial protocols; +● +Patient +follow-up is not at the rate expected; +● +Patients +experience serious adverse events; +● +Patients +die during a clinical trial, even though their death may not be related to the products that are part of the trial; +● +Device +malfunctions occur with unexpected frequency or potential adverse consequences; +● +Side +effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of result +in the imposition of new requirements or testing; +25 +● +Institutional +review boards and third-party clinical investigators may delay or reject the trial protocol; +● +Third-party +clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with +the clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other +FDA or IRB requirements; +● +Third-party +investigators are disqualified by the FDA; +● +We +or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent +with the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing +responsibilities, records, and reports of sponsors of clinical investigations; +● +Third-party +clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results +unreliable, or the company or investigators fail to disclose such interests; +● +Regulatory +inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective +action or suspend or terminate our clinical trials; +● +Changes +in government regulations or administrative actions; +● +The +interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or +● +The +FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness. +510(k) +Clearance Process +Under +the 510(k) process, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the proposed device +is “substantially equivalent,” as defined in the FDCA, to a legally marketed predicate device. +A +predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior +to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class +II or I, or a device that was found substantially equivalent through the 510(k) process. A device is considered to be substantially equivalent +if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics; or +(ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does +not raise different questions of safety or effectiveness than the predicate device. +Before +the FDA will accept a 510(k) premarket notification for substantive review, the FDA will first assess whether the submission satisfies +a minimum threshold of acceptability. If the FDA determines that the 510(k) submission lacks necessary information for substantive review, +the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to +permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information +before the FDA will proceed with additional review of the submission. If a 510(k) submission is accepted for substantive review, the +Medical Device User Fee Amendments sets a performance goal of 90 days for FDA review of a 510(k) submission, but the review time can +be delayed if FDA raises questions or requests additional information during the review process. As a practical matter, clearance often +takes longer, and clearance is never assured. Thus, as a practical matter, clearance often takes longer than 90 days. Although many 510(k) +premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make +a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device +is substantially equivalent, it will grant clearance to commercially market the device. +26 +If +the FDA determines that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to commercially +market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, +the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous requirements of the +PMA approval process, or can request a risk-based classification determination for the device in accordance with the “ de novo ” +process, which is a route to market for certain novel medical devices that are low to moderate risk and are not substantially equivalent +to a predicate device. +Medical +devices can only be marketed for the indications for use for which they are cleared or approved. After a device receives 510(k) clearance, +any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification +in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or de novo reclassification. +The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo request or +a PMA in the first instance, but the FDA may review this determination to evaluate the regulatory status of the modified product at any +time and may require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance +or PMA approval is obtained or a de novo request is granted. Also, in these circumstances, the manufacturer may be subject to +significant regulatory fines or penalties. +Over +the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements +for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process +for their products. For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket +notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to +drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset +certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that +have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. These proposals +have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. +In +September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review +pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) +clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating +the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance +process. The FDA has developed and maintains a list device types appropriate for the “safety and performance based” pathway +and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well +as recommended testing methods, where feasible. +PMA +Approval Process +Class +III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet +required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. +In a PMA, the manufacturer must demonstrate that the device is safe and effective for its intended use, and the PMA must be supported +by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of +the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. +Following receipt of a PMA, the FDA conducts an administrative review to determine whether the application is sufficiently complete to +permit a substantive review. If it is not, the agency will refuse to file the PMA. If FDA accepts the application for substantive review, +it has 180 days under the FDCA to complete its review of a filed PMA application, although in practice, the FDA’s review often +takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or +clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s +response to deficiencies communicated by the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an +applicant fails to respond to an FDA request for information (e.g., major deficiency letter) within a total of 360 days. Before approving +or denying a PMA application, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application +and provide recommendations to the FDA as to whether the FDA should approve the submission, approve it with specific conditions, or not +approve it. The FDA may or may not accept the panel’s recommendation. Prior to approval of a PMA, the FDA may conduct inspections +of the clinical trial data and clinical trial sites, as well as conduct inspections of the applicant or its third-party manufacturers’ +or suppliers’ manufacturing facility or facilities to, among other things, ensure compliance with the QSR. NeurAxis, Inc. is a designated small business with the FDA and enjoys +discounted fees. NeurAxis, Inc. PENFS technology is a Class II medical device and typically pursues De Novo or 510K clearances. +● +Overall, +the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, +limit or deny approval of a PMA application for many reasons, including: +● +The +device may not be shown safe or effective to the FDA’s satisfaction; +27 +● +The +data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval; +● +The +manufacturing process or facilities may not meet applicable requirements; and +● +Changes +in FDA approval policies or adoption of new regulations may require additional data. +If +the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which +usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have +been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, +subject to the conditions of approval and the limitations established in the approval letter. The FDA may approve a PMA with post-approval +conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, +sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or +requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance +when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger +population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number +of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval +can result in material adverse enforcement action, including withdrawal of the approval. If the FDA’s evaluation of a PMA application +or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may +determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or +years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the +data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been +sought by other companies have never been approved by the FDA for marketing. +Certain +changes to an approved medical device, such as changes in manufacturing facilities, methods, quality control procedures, sterilization +(if applicable), packaging, expiration date, labeling, device specifications, materials, or design of a device, or other changes which +affect the safety or effectiveness of the device that has been approved through the PMA process require submission of a new PMA or PMA +supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited +to information needed to support any changes from the device covered by the original, approved PMA and may not require as extensive clinical +data or the convening of an advisory panel, depending on the nature of the proposed change. Certain other changes to an approved device +require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical +basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that +were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. +28 +Ongoing +Regulation by the FDA +Even +after the FDA permits a device to be marketed, numerous and pervasive regulatory requirements continue to apply. These include: +● +Establishment +registration and device listing with the FDA; +● +QSR +requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, supplier/contractor +selection, compliant handling, documentation and other quality assurance procedures during all aspects of the design and manufacturing +process; +● +Labeling +regulations, advertising and promotion requirements, restrictions on sale, distribution or sale of a device, each including the FDA +prohibition against the promotion of products for any uses other than those authorized by the FDA, which are commonly known as “off-label” +uses; +● +The +Medical Device Reporting, or MDR, regulations, which require that a manufacturer report to the FDA if a device it markets may have +caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would +be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; +● +Medical +device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals +if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; +● +Recall +requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health +consequences or death; +● +An +order of repair, replacement, or refund; +● +Device +tracking requirements; and +● +Post-market +study and surveillance requirements. +After +a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute +a major change in its intended use, will require a new 510(k). The FDA requires each manufacturer to make this determination initially, +but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s +determination not to seek a new 510(k) clearance, the FDA may retroactively require it to seek 510(k) clearance. The FDA could also require +the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance is obtained. Also, in these +circumstances, the manufacturer may be subject to significant regulatory fines and penalties. +FDA +regulations require us to register as a medical device manufacturer with the FDA. Additionally, some states also require medical device +manufacturers and/or distributors doing business within the state to register with the state or apply for a state license, which could +subject our facility to state inspection as well as FDA inspection on a routine basis for compliance with the QSR and any applicable +state requirements. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner +with respect to manufacturing, testing and control activities. +Manufacturing +processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities +and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, +installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device +master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections +by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing +operations and the recall or seizure of marketed products, which would have a material adverse effect on our business. The discovery +of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity +or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice +of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory +device recalls. +29 +The +FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable +regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: +● +Warning +letters, untitled letters, fines, injunctions, consent decrees and civil penalties; +● +Recalls, +withdrawals, or administrative detention or seizure of our products; +● +Operating +restrictions or partial suspension or total shutdown of production; +● +Refusing +or delays in processing, clearing, or approving submissions or applications for new products or modifications to existing products; +● +Suspension +or withdrawal of 510(k) clearances or PMA approvals that have already been granted; +● +FDA +refusal to issue certification to foreign governments needed to export our products for sale in other countries; or +● +Criminal +prosecution. +Our +facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Failure to comply with the +applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, +fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures +of products, operating restrictions, total or partial suspension of production, the FDA’s refusal to issue certificates to foreign +governments needed to export products for sale in other countries, the FDA’s refusal to grant future premarket clearances or approvals, +withdrawals or suspensions of current product clearances or approvals and criminal prosecution. +Regulation +of Medical Devices in the European Union +The +European Union, or EU, has adopted specific directives regulating the design, manufacture, clinical investigations, conformity assessment, +labeling and adverse event reporting for medical devices. EU directives must be implemented into the national laws of the EU member states +and national laws may vary from one member state to another. +In +the EU, there is currently no premarket government review of medical devices. However, the EU requires that all medical devices placed +on the market in the EU must meet the relevant essential requirements laid down in the Council Directive 93/42/EEC, or the Medical Devices +Directive, and the Council Directive 90/385/EEC, or the Active Implantable Medical Devices Directive. The most fundamental essential +requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition +or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by +the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards +applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical +equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. +While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical +matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device +satisfies that essential requirement. +To +demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers +must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Conformity +assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience +in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where +the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to +sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified Bodies are independent +organizations designated by EU countries to assess the conformity of devices before being placed on the market. A Notified Body would +typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (which must, in particular, +comply with ISO 13485:2016 related to Medical Devices Quality Management Systems). If satisfied that the relevant product conforms to +the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for +its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on +the market throughout the EU. +30 +Notified +Body certificates of conformity are valid for a fixed duration (which shall not exceed five years). Throughout the term of the certificate, +the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In +particular, there will be a new audit by the Notified Body before it will renew the relevant certificate(s). +As +a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, +among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions +of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, +that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended +performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers +placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, incidents +must be reported to the relevant authorities of the EU member states, and manufacturers are required to take Field Safety Corrective +Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device +that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance +of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might +have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include +the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its +legal representative to its customers and/or to the end users of the device through Field Safety Notices. +The +advertising and promotion of medical devices is subject to some general principles set forth by EU directives. According to the Medical +Devices Directive, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose. +Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while +not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example requiring +that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at national level. EU member states +laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising +and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals. +Many +EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular +vis-à -vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of +payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national +“Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements +in the United States, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs. +On +May 25, 2017, Regulation 2017/745, or the EU Medical Devices Regulation, entered into force, which repeals and replaces the Medical Devices +Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of +the EU member states, regulations are directly applicable, without the need for adoption of EU member state laws implementing them, in +all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The +Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory +framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. +The +Medical Devices Regulation was originally intended to become applicable three years after publication, but in April 2020 the transition +period was extended by the European Parliament and the Council of the EU by an additional year – until May 26, 2021. Devices lawfully +placed on the market pursuant to the Medical Devices Directive and the Active Implantable Medical Devices Directive prior to May 26, +2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once applicable, the new regulations +will among other things: +● +Strengthen +the rules on placing devices on the market and reinforce surveillance once they are available; +31 +● +Establish +explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices +placed on the market; +● +Improve +the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; +● +Set +up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available +in the European Union, or EU; and +● +Strengthen +the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are +placed on the market. +The +aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus +Norway, Liechtenstein and Iceland. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the +marketing of medical devices that meet EU requirements. +The +EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. +However, as a result of Brexit, the Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored +the Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be +based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the +Medical Devices Regulation going forward. CE markings will continue to be recognized in the UK, and certificates issued by EU recognized +Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity +Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized +on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including +market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated +product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, +the “rules of origin” criteria will need to be reviewed. Depending on which countries products will ultimately be sold in, +manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for +placing medical devices on the Northern Ireland market will differ from those in the UK. +Healthcare +Fraud and Abuse Laws +In +the United States, we are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the +healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, transparency and other +healthcare fraud and abuse laws. +The +U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, +soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, +leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, +in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly +interpreted to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Among other +things, the Anti-Kickback Statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand +and prescribers and purchasers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting +some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. The government can exercise enforcement +discretion in taking action against unprotected activities. Further, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws, +which establish similar prohibitions, and in some cases may apply to items or services reimbursed by any third-party payor, including +commercial insurers and self-pay patients. +The +federal false claims, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, +or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly +making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, +or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim +includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims +Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a +claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent +claim for purposes of the federal civil False Claims Act. In addition, various states have enacted false claim laws analogous to the +federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely +a federal healthcare program. +32 +The +federal Health Insurance Portability and Accountability Act of 1996 created additional federal criminal statutes that prohibit, among +other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including +private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a +criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or +making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, +items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. +The +federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually +to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, +podiatrists and chiropractors), and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to +report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such +obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, +including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants +and certified nurse midwives. +Violations +of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, +including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), +disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on +companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such +companies. +Coverage +and Reimbursement +In +the United States, our currently cleared products are not separately reimbursed by any third-party payors and if covered, are paid for +as part of the procedure in which the product is used. Outside of the United States, there are many reimbursement programs through private +payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and +hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other +third-party payors provide coverage for and establish adequate reimbursement levels for the procedures in which our products are used. +Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain coverage and adequate reimbursement +from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors’ +coverage and reimbursement policies, may adversely impact demand for our products. +Based +on our experience to date, third-party payors generally reimburse for the procedures in which our products are used if medical necessity +is met and a prior approval is completed with a favorable response. Some payors are moving toward a managed care system and control their +healthcare costs by establishing coverage policies that categorically restrict coverage of certain procedures, or by limiting authorization +for procedures, including elective procedures using our devices. No uniform policy of coverage and reimbursement among payors in the +United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor. Third-party payors are +increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using +inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative +devices or procedures before they will reimburse healthcare providers who use the products or therapies. Even though a new product may +have been cleared for commercial distribution by the FDA, we may find limited demand for our product unless reimbursement approval can +be obtained and/or maintained from governmental and private third-party payors. +33 +In +addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly +update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes +routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. +These updates could directly impact the demand for our products. +We +believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has +led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products +and services. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs through prospective +reimbursement and capitation programs, group purchasing, redesign of benefits, and exploration of more cost-effective methods of delivering +healthcare. In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval +of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts +the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member +per month and, consequently, may limit the willingness of these providers to use our products. +In +international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted +price ceilings on specific product lines and procedures. In the European Union, member states are facing increased pressure to limit +public healthcare spending. There can be no assurance that procedures using our products will be covered for a specific indication, that +our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that +the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. More and +more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional +layer of clearance requirement. +Healthcare +Reform +The +United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change +the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United +States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare +costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare +costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures +that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our +revenue from the sale of our products. +The +implementation of the Affordable Care Act (the “ACA”) in the United States, for example, has changed healthcare financing +and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, +among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, +and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and +other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, +the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, +identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment, +there have been judicial, executive and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court +dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality +of the ACA. It is unclear how healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or +replace the ACA will impact the law or our business. +34 +In +addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of +2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent +legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 +through March 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among +other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period +for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of +2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed +annual updates and a new system of incentive payments that began in 2019 that are based on various performance measures and physicians’ +participation in alternative payment models, such as accountable care organizations. +We +expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that +federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or +additional pricing pressure. +Data +Privacy and Security Laws +Numerous +state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access +to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal +and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, +and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, +and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, +certain state and non-U.S. laws, such as the CCPA, the CPRA and the GDPR, govern the privacy and security of personal information, including +health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other +in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where +applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and +can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data +processing. +In +Europe, the GDPR went into effect on May 25, 2018 and introduces strict requirements for processing the personal data of European Union +data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory +enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global +revenues of the preceding financial year of the noncompliant company, whichever is greater. +Among +other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to +provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms +between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework +for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 +by the Court of Justice of the European Union. +Further, +from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom General Data Protection Regulation, or the UK +GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines +under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover. The relationship between +the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is also unclear +how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from +the United Kingdom will be regulated in the long term. Currently there is a four- to six-month grace period agreed in the EU and United +Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, while the parties discuss an adequacy decision. The European +Commission published a draft adequacy decision on February 19, 2021. If adopted, the decision will enable data transfers from EU member +states to the United Kingdom for a four-year period, subject to subsequent extensions. +35 +Environmental +Matters +Based +on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital +expenditures, earnings and competitive position of our Company in the current financial year and are not expected to have a significant +effect in the reasonably foreseeable future. +Manufacturing +Services Agreements +The Company is party to two separate manufacturing services agreements +for the manufacture and supply of the Company’s IB-Stim and RED devices based on the Company’s product specifications that +automatically renew annually unless either party provides a written termination notice to the other party within 180 days prior to the +end of the then-current term. The Company’s IB-Stim and RED devices are manufactured in Indiana and Michigan, respectively. The Company +provides the necessary equipment to the manufacturers and retains ownership. The manufacturers bear the risk of loss of and damage to +the equipment and consigned materials. Performance under the agreement is initiated by orders issued by the Company and accepted by the +manufacturers. The Company also entered into quality agreements with the manufacturers to perform quality assurance services on product +provided by the Company. +Employees +As +of December 31, 2025, we had 24 full-time employees. +ITEM +1A. RISK FACTORS +Risks +Relating to Our Business and Our Product +Our +business and prospects depend entirely on our current products, IB-Stim and RED. Even though we have received FDA clearance for our products, +it will remain subject to ongoing regulatory review. If we are unable to maintain regulatory clearance and commercialize our product +or are significantly delayed or limited in our commercialization efforts, our business and prospects will be materially harmed. +Almost +all of our revenues have been derived from sales and royalties from sales of IB-Stim, and we expect to develop, market, and sell other +neuromodulation therapy devices for the treatment of chronic and debilitating conditions in children and adults. The commercial success +of our products and our ability to generate and maintain revenues from the sale of our products will depend on a number of factors, including: +● +our +ability to develop and obtain additional regulatory clearances and further commercialize our products for additional indications; +● +our +ability to expand into new markets and future indications; +● +the +acceptance of our products by patients and the healthcare community, including physicians and third-party payers (both private and +governmental), as therapeutically effective and safe; +● +the +accomplishment of various scientific, engineering, clinical, regulatory and other goals, which we sometimes refer to as milestones, +on our anticipated timeline; +36 +● +the +relative cost, safety and efficacy of alternative therapies; +● +our +ability to obtain and maintain sufficient coverage or reimbursement by private and governmental third-party payers and to comply +with applicable health care laws and regulations; +● +the +ability of our third-party manufacturers to manufacture our products in sufficient quantities with acceptable quality; +● +our +ability to provide marketing, distribution and customer support for our products; +● +the +potential presence of competitive products in our active indications; +● +results +of future clinical studies relating to our products or other competitor products for similar indications; +● +compliance +with applicable laws and regulatory requirements; +● +the +maintenance of our existing regulatory clearance; and +● +the +consequences of any reportable adverse events involving our products. +In +addition, the promotion of our products is limited to approved indications, which vary by geography. The labelling for our device in +the U.S. is limited in certain respects, which may limit the number of patients to whom it is prescribed. +Our +ability to generate future revenues will also depend on achieving regulatory approval of, and eventual commercialization of, our products +for additional indications and in additional geographies, which is not guaranteed. Our near-term prospects are substantially dependent +on our ability to obtain regulatory approvals on the timetable we have anticipated, and thereafter to further successfully commercialize +our products for additional indications. Regulatory changes or actions in areas in which we operate or propose to operate may further +affect our ability to obtain regulatory clearances on our anticipated timetable. If we are not able to receive such approvals, meet other +anticipated milestones, or further commercialize our products, or are significantly delayed or limited in doing so, our business and +prospects will be materially harmed and we may need to reduce expenses by delaying, reducing or curtailing the development of our products +and we may need to raise additional capital to fund our operations, which we may not be able to obtain on favorable terms, if at all. +To +date, we have not generated any operating profits, and due to our long-term research and development efforts, we have a history of incurring +substantial operating losses. +We +were founded in 2011 and have a history of incurring substantial operating losses. We anticipate continuing to incur significant costs +associated with developing and commercializing our products for approved indications including signal development, device hardware and +software development, product sales, marketing, manufacturing, and distribution expenses. We expect our research, development, and clinical +study expenses to increase in connection with our ongoing activities and as additional indications enter clinical development and as +we advance our product development. Our expenses could increase beyond expectations if, for example, we are required by the FDA, or other +regulatory agencies or similar governing bodies, to change manufacturing processes for our products or to perform clinical, nonclinical +or other types of studies in addition to those that we currently anticipate. Our revenues are dependent, in part, upon the size of the +markets in the jurisdictions in which we receive regulatory approval, the accepted price for our products and the ability to obtain reimbursement +at the accepted applicable price. If the number of addressable patients is not as significant as we or our strategic partners and licensees +estimate, the indications approved by regulatory authorities are narrower than we expect or the eligible population for treatment is +narrowed by competition, regulatory approvals, physician choice or treatment guidelines, we may not generate significant revenues. If +we are not able to generate significant revenues, we may never be sustainably profitable. +Our +clinical studies could be delayed or otherwise adversely affected by many factors, including difficulties in enrolling patients. +Clinical +testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. Moreover, success +in pre-clinical and early clinical studies does not ensure that large-scale studies will be successful or predict final results. Acceptable +results in early studies may not be replicable in later studies. A number of companies in therapeutics industries have suffered significant +setbacks in advanced clinical studies, even after promising results in earlier studies. Negative or inconclusive results or adverse events +or incidents during a clinical study could cause the clinical study to be redone or terminated. In addition, failure to appropriately +construct clinical studies could result in high rates of adverse events or incidents, which could cause a clinical study to be suspended, +redone or terminated. Our failure or the failure of third-party participants in our studies to comply with their obligations to follow +protocols and/or legal requirements may also result in our inability to use the affected data in our submissions to regulatory authorities. +37 +The +timely completion of clinical studies depends, among other things, on our ability to enroll a sufficient number of patients who remain +in the study until its conclusion. We may experience difficulties in patient enrollment in our clinical studies for a variety of reasons, +including: +● +the +severity of the disease under investigation; +● +the +limited size and nature of the patient population; +● +the +patient eligibility criteria defined in our protocol and other clinical study protocols; +● +the +nature of the study protocol, including the attractiveness of, or the discomforts and risks associated with, the treatments received +by enrolled subjects; +● +the +ability to obtain IRB approval at clinical study locations; +● +clinicians’ +and patients’ perceptions as to the potential advantages, disadvantages and side effects of our products in relation to other +available therapies, including any new drugs or treatments that may be approved for the indications we are pursuing; +● +availability +of other clinical studies that exclude use of our products; +● +the +possibility or perception that enrolling in a product’s clinical study may limit the patient’s ability to enroll in future +clinical studies for other therapies due to protocol restrictions; +● +the +possibility or perception that our software is not secure enough to maintain patient privacy; +● +patient +referral practices of physicians; +● +the +ability to monitor patients adequately during and after treatment; +● +the +availability of appropriate clinical study investigators, support staff, drugs and other therapeutic supplies and proximity of patients +to clinical sites; +● +physicians’ +or our ability to obtain and maintain patient consents; and +● +the +risk that when we collaborate with a third-party for research of a product in a particular institution, we can expect to relinquish +some or all of the control over the future success of that study to the third-party. +If +we have difficulty enrolling and retaining a sufficient number or diversity of patients to conduct our clinical studies as planned, or +encounter other difficulties, we may need to delay, terminate or modify ongoing or planned clinical studies, any of which would have +an adverse effect on our business. +If +we are unable to develop an adequate sales and marketing organization or contract with third parties to assist us, we may not be able +to successfully commercialize our products for current and future indications. +To +achieve commercial success for our products, we must compliantly develop and grow our sales and marketing organization and, as necessary, +enter into sales and distribution relationships with third parties to market and sell our products. Developing and managing a sales and +marketing organization is a difficult, expensive and time consuming process. We may not be able to successfully develop adequate sales +and marketing capabilities to achieve our growth objectives. We compete with other medical device, pharmaceutical and life sciences companies +to recruit, hire, train and retain the sales and marketing personnel that we anticipate we will need, and the nature of our products +may make it more difficult to compete for sales and marketing personnel. In addition, because our current products require, and we anticipate +our future products will require, physician training and education, our sales and marketing organization may need to grow substantially +as we expand our approved indications and markets. As a consequence, our expenses associated with building up and maintaining our sales +force and marketing capabilities may be disproportionate to the revenues we may be able to generate on sales of our products. +If +we are unable to establish adequate sales and marketing capabilities or successful sales and distribution relationships, we may fail +to realize the full revenue potential of our products for current and future indications, and we may not be able to achieve the necessary +growth in a cost-effective manner or realize a positive return on our investment. In our future sales and distribution agreements with +other companies, we generally may not have control over the resources or degree of effort that any of these third parties may devote +to our products, and if they fail to devote sufficient time and resources to the marketing of our products, or if their performance is +substandard, our revenues may be adversely affected. +38 +The +success of our business may be dependent on the actions of our collaborative partners. +Our +business strategy includes, in part, the consummation of collaborative arrangements with companies who will support the development and +commercialization of our products and technology. We may also enter into clinical collaborations with third parties to test our products +and technology together with other products and technologies. +When +we collaborate with a third party for commercialization of a product in a particular territory, we can expect to relinquish some or all +of the control over the future success of that product to the third party in that territory. In addition, our collaborative partners +may have the right to terminate applicable agreements, including payment obligations, prior to or upon the expiration of the agreed-upon +terms. We may not be successful in establishing or maintaining collaborative arrangements on acceptable terms or at all, collaborative +partners may terminate funding before completion of projects, our products may not achieve the criteria for milestone payments, our collaborative +arrangements may not result in successful product commercialization, our products may not receive acceptable pricing and we may not derive +any revenue from such arrangements. Additionally, our collaborators may not perform their obligations as expected or in compliance with +study protocols or applicable laws. Acts or omissions by collaborators may disqualify study data for use in regulatory submissions and/or +create liability for us in the jurisdictions in which we operate. Any disagreements with collaborators, including disagreements over +proprietary rights, contract interpretation or the preferred course of commercialization, might cause delays or termination of the commercialization +of products, might lead to additional responsibilities for us with respect to commercializing products, or might result in litigation +or arbitration, any of which would be time-consuming and expensive. To the extent that we are not able to develop and maintain collaborative +arrangements, we would need to devote substantial capital to undertake commercialization activities on our own in order to further expand +our reach, and we may be forced to limit the territories in which we commercialize our products. +We +may not be successful in achieving market acceptance of our products by healthcare professionals, patients and/or third-party payers +in the timeframes we anticipate, or at all, which could have a material adverse effect on our business, prospects, financial condition +and results of operations. +We +may not achieve market acceptance of our products for current or future indications within the timeframes we have anticipated, or at +all, for a number of different reasons, including the following factors: +● +it +may be difficult to gain broad acceptance of our products because they are new technologies and involve a novel or derivative mechanism +of action and, as such, physicians may be reluctant to prescribe our products without prior experience or additional data or training; +● +physicians +may be reluctant to prescribe our products due to their perception that the supporting clinical study designs have limitations, as +they are, for example, unblinded; +● +physicians +at large academic universities and medical centers may prefer to enroll patients into clinical studies instead of prescribing our +products; +● +it +may be difficult to gain broad acceptance at community hospitals where the number of patients seeking treatment may be more limited +than at larger medical centers, and such community hospitals may not be willing to invest in the resources necessary for their physicians +to become trained to use our products, which could lead to reluctance to prescribe our products; +● +patients +may be reluctant to use our products for various reasons, including a perception that the treatment is untested or difficult to use +or a perception that our software is not secure; +● +our +products may have side effects and our products cannot be worn in all circumstances; and +● +each +patient will use more than one device and therefore, as the duration of the treatment course increases, the overall price will increase +correspondingly and, when used in combination with other treatments, the overall cost of treatment will be greater than using a single +type of treatment. +In +particular, our products may not achieve market acceptance for current or future indications because of the following additional factors: +● +achieving +patient acceptance could be difficult because not all patients are willing to comply with requirements of treatment with our products, +and other patients may forego our products for financial, privacy, cosmetic, visibility or mobility reasons; +39 +● +achieving +patient compliance may be difficult because the recommended use of our products is 120 hours per week for four (4) consecutive weeks, +which to some extent restricts physical mobility because our products cannot be worn in all circumstances, +and the patient or a caregiver must ensure that it remains continuously operable and this may also impact the pool of patients to +whom physicians may be willing to prescribe our products; +● +there +may be certain perceived limitations to our study designs or data obtained from our clinical studies; +● +efficacy +may also be limited in instances where patients take a break from the device when experiencing skin rashes, or while bathing or swimming +(because our products should not be immersed in water); and +● +patients +may decline therapy or prescribers may be unwilling to prescribe our products due to certain adverse events attributable to the device +reported in clinical studies by patients treated with our products. +In +addition, even if we are successful in achieving market acceptance of our products for IBS or other indications, we may be unsuccessful +in achieving market acceptance of our products for other indications. +There +may be other factors that are presently unknown to us that also may negatively impact our ability to achieve market acceptance of our +products. If we do not achieve market acceptance of our products in the timeframes we anticipate, or are unable to achieve market acceptance +at all, our business, prospects, financial condition and results of operations could be materially adversely affected. +Failure +to secure and maintain adequate coverage and reimbursement from third-party payers could adversely affect acceptance of our products +and reduce our revenues. +We +expect that the majority of our revenues will come from third-party payers, primarily children’s hospitals, either directly to +us in markets where we provide our products or plan to provide our device candidates to patients or indirectly via payments made to hospitals +or other entities providing our products or which may in the future provide our device candidates to patients. +In +the U.S., private payers cover the largest segment of the population, with the remainder either uninsured or covered by governmental +payers. The majority of the third-party payers outside the U.S. are government agencies, government sponsored entities or other payers +operating under significant regulatory requirements from national or regional governments. +Third-party +payers may decline to cover and reimburse certain procedures, supplies or services. Additionally, some third-party payers may decline +to cover and reimburse our products for a particular patient even if the payer has a favorable coverage policy addressing our products +or previously approved reimbursement for our products. Additionally, private and government payers may consider the cost of a treatment +in approving coverage or in setting reimbursement for the treatment. +Private +and government payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment +of healthcare costs has become a priority of governments. Adoption of additional price controls and cost-containment measures, and adoption +of more restrictive policies in jurisdictions with existing controls and measures, could further limit our revenues and operating results. +If third-party payers do not consider our products or the combination of our products with additional treatments to be cost-justified +under a required cost-testing model, they may not cover our products for their populations or, if they do, the level of reimbursement +may not be sufficient to allow us to sell our products on a profitable basis. +Reimbursement +for the treatment of patients with medical devices is governed by complex mechanisms. These mechanisms vary widely among countries, can +be informal, somewhat unpredictable, and evolve constantly, reflecting the efforts of these countries to reduce public spending on healthcare. +As a result, obtaining and maintaining reimbursement for the treatment of patients with medical devices has become more challenging. +We cannot guarantee that the use of our products will receive reimbursement approvals and cannot guarantee that our existing reimbursement +approvals will be maintained in any country. +Our +failure to secure or maintain adequate coverage or reimbursement for our products by third-party payers in the U.S. or in the other jurisdictions +in which we market our products could have a material adverse effect on our business, revenues and results of operations and cause our +stock price to decline. +40 +We +may not be successful in maintaining reimbursement codes necessary to facilitate accurate and timely billing for our products or physician +services attendant to our products . +Third-party +payers, healthcare systems, government agencies or other groups often issue reimbursement codes to facilitate billing for products +and physician services used in the delivery of healthcare. Our IB-Stim technology-specific CAT III CPT Code (0720T) was published on +December 30, 2021 and effective on July 1, 2022. In September of 2024, the AMA’s CPT Editorial Panel accepted the addition of +Category I CPT Code (64567) for PENFS and deletion of Category III CPT Code 0720T. The finalized Category I CPT Code for PENFS, and +associated valuations, were announced publicly in Q4 of 2025. The new code became effective for utilization on January 1, 2026. RED +CAT I CPT codes changed on January 1, 2026. We may not be able to maintain the CPT code for physician services related to +our products. Our future revenues and results may be affected by the absence of CPT codes, as physicians may be less likely to +prescribe the therapy when there is no certainty that adequate reimbursement will be available for the time, effort, skill, practice +expense and malpractice costs required to provide the therapy to patients. +Outside +the U.S., we have not secured codes to describe our products or to document physician services related to the delivery of therapy using +our products. The failure to obtain and maintain these codes could affect the future growth of our business. +We +may depend on single-source suppliers for some of our components. The loss of these suppliers could prevent or delay shipments of our +products, delay our clinical studies or otherwise adversely affect our business. +In +certain jurisdictions, we may source some of the components of our products from only a single vendor. If any one of these single-source +suppliers were to fail to continue to provide components to us on a timely basis, or at all, our business and reputation could be harmed. +We will seek and maintain second-source suppliers, but we can provide no assurance that we will secure or maintain such suppliers. We +have developed or are in the process of developing and obtaining regulatory approval for second sources for components in all jurisdictions. +Various steps must be taken before securing these suppliers, including qualifying these suppliers in accordance with regulatory requirements, +but we may never receive such approvals. The risks associated with the failure of our suppliers to comply with strictly enforced regulatory +requirements as described below are exacerbated by our dependence on single-source suppliers. +If +we experience any deficiency in the quality of, delay in or loss of availability of any components supplied to us by third-party suppliers, +or if we switch suppliers or components, we may face additional regulatory delays and the manufacture and delivery of our products would +be interrupted for an extended period of time, which could materially adversely affect our business, prospects, financial condition and +results of operations. If we are required to obtain prior regulatory approval from the FDA or regulatory authorities or similar governing +bodies in other jurisdictions or to conduct a new conformity assessment procedure for our products, regulatory approval for our products +may not be received on a timely basis, or at all, which would have a material adverse effect on our business, prospects, financial condition +and results of operations. +Quality +control problems with respect to devices and components supplied by third-party suppliers could have a material adverse effect on our +reputation, our clinical studies or the commercialization of our products and, as a result, a material adverse effect on our business, +prospects, financial condition and results of operations . +Our +products, which are manufactured by third parties, are highly technical and are required to meet exacting specifications. Any quality +control problems that we experience with respect to the devices and components supplied by third-party suppliers could have a material +adverse effect on our reputation, our attempts to complete our clinical studies, our operating expenses or the commercialization of our +products. The failure of our suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action, +including warning letters, product recalls, suspension or termination of distribution, product seizures or civil penalties. If we experience +any delay in the receipt or deficiency in the quality of products supplied to us by third-party suppliers, or if we have to switch to +replacement suppliers, we may face additional regulatory delays and the manufacture and delivery of our products would be interrupted +for an extended period of time, which would materially adversely affect our business, prospects, financial condition and results of operations. +41 +We +currently do not own a manufacturing facility and rely on contract manufacturers for the production of our product s. Any +significant disruption to the contract manufacturer’s operations or facilities could have a material adverse effect on our business, +financial condition and results of operations . +We +rely on two manufacturers for the production of our products. We do not have control over the operations of the facilities of the third-party +manufacturers that we use. A significant disruption to our manufacturers could have a material adverse effect on our business, financial +condition and results of operations. Our reliance on our manufacturers poses a number of risks, including lack of control over the manufacturing +process and ultimately over the quality and timing of delivery of our product. A change in our relationship with our manufacturers could +result in a material adverse effect on our business, financial condition and results of operations. A decision to change manufacturers +would result in longer times for design and production as we secure any necessary licenses or clearances, develop quality control measures, +and implement manufacturing processes. +Continued +testing of our products may not yield successful results and could reveal currently unknown aspects or safety hazards associated with +our products . +Our +research and development programs are designed to test the safety and efficacy of our products through extensive pre-clinical and clinical +testing. Even if our ongoing and future pre-clinical and clinical studies are completed as planned, we cannot be certain that their results +will support our claims or that the FDA and other regulatory authorities will agree with our conclusions. Success in pre-clinical studies +and early clinical studies does not ensure that later clinical studies will be successful, and we cannot be sure that the later studies +will replicate the results of prior studies and pre-clinical studies. The clinical study process may fail to demonstrate that our device +candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a device candidate and may delay development +of others. It is also possible that patients enrolled in clinical studies will experience adverse side effects that have not been previously +observed. In addition, our pre-clinical and clinical studies for our device candidates involve a relatively small patient population +and, as a result, these studies may not be indicative of future results. +We +may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent further commercialization +of our products, including the following: +● +pre-clinical +and clinical testing for our products may not produce the desired effect, may be inconclusive or may not be predictive of safety +or efficacy results obtained in future clinical studies, following long-term use or in much larger populations; +● +unanticipated +adverse events or other side effects that are not currently known may occur during our clinical studies that may preclude additional +regulatory approval or result in additional limitations to commercial use if approved; and +● +the +data collected from our clinical studies may not reach statistical significance or otherwise not be sufficient to support FDA or +other regulatory approval. +If +unacceptable side effects arise in the development of our products for future indications, we could suspend or terminate our clinical +studies or the FDA or other regulatory authorities could order us to cease clinical studies or deny approval of our device candidates +for any or all targeted indications, narrow the approved indications for use or otherwise require restrictive product labeling or marketing +or require further clinical studies, which may be time-consuming and expensive and may not produce results supporting FDA or other regulatory +approval of our products in a specific indication. Treatment-related side effects could also affect patient recruitment or the ability +of enrolled patients to complete the study or result in potential product liability claims. In addition, these side effects may not be +appropriately recognized or managed by the treating medical staff. We expect to have a need to train medical personnel using our devices +for clinical studies and upon any commercialization of our products for future indications. Inadequate training in recognizing or managing +the potential side effects of our products could result in patient injury or death. Any of these occurrences may harm our business, prospects +and financial condition significantly. +Any +delay or termination of our clinical studies will delay the filing of submissions for regulatory approvals of our products and ultimately +our ability to commercialize our products and generate revenues. Furthermore, we may abandon our products for indications that we previously +believed to be promising. Any of these events could have a material adverse effect on our business, prospects, financial condition and +results of operations and cause our stock price to decline. +42 +As +we expand, we may experience difficulties managing our growth . +Our +anticipated growth will place a significant strain on our management and on our operational and financial resources and systems. We could +face challenges inherent in efficiently managing a more complex business with an increased number of employees over large geographic +distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Failure to manage our growth +effectively could materially adversely affect our business. Additionally, our anticipated growth will increase the demands placed on +our third-party suppliers, resulting in an increased need to carefully monitor the available supply of components and services and to +scale up our quality assurance programs. There is no guarantee that our suppliers will be able to support our anticipated growth. Any +failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization +goals. +The +size and expected growth of our available market has not been established with precision and may be smaller than we estimate. +Our +data on the available market for our current products and future products is based on a number of internal and third-party research reports, +estimates and assumptions. While we believe that such research, our assumptions and the data underlying our estimates are reasonable, +these assumptions and estimates may not be correct. In addition, the statements in this document relating to, among other things, the +expected growth in the market for IB-Stim are based on a number of internal and third-party data, estimates and assumptions, and may +prove to be inaccurate. If the actual number of consumers who would benefit from our products, the price at which we can sell future +products or the available market for our products is smaller than we estimate, it could have a material adverse effect on our business, +financial condition and results of operations. +If +physicians and patients do not accept our current and future products or if the market for indications for which any product candidate +is approved is smaller than expected, we may be unable to generate significant revenue, if any. +Even +when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party +payers. Physicians may decide not to recommend our treatments for a variety of reasons including: +● +timing +of market introduction of competitive products; +● +demonstration +of clinical safety and efficacy compared to other products; +● +cost-effectiveness; +● +limited +or no coverage by third-party payers; +● +convenience +and ease of administration; +● +prevalence +and severity of adverse side effects; +● +restrictions +in the label of the device; +● +other +potential advantages of alternative treatment methods; and +● +ineffective +marketing and distribution support of its products. +If +any of our product candidates is approved but fails to achieve market acceptance or such market is smaller than anticipated, we may not +be able to generate significant revenue and our business would suffer. +Because +of the specialized nature of our business, the termination of relationships with our key employees, consultants and advisors may prevent +us from successfully operating our business, including developing our products, conducting clinical studies, commercializing our products +and obtaining any necessary financing . +We +are highly dependent on the members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. +While we have entered into employment agreements with each of our key executives, any of them could leave our employment at any time. +We do not have “key person” insurance on any of our employees. The loss of the services of one or more of our current employees +might impede the achievement of our business objectives. +The +competition for qualified personnel in the medical device fields is intense, and we rely heavily on our ability to attract and retain +qualified scientific, technical and managerial personnel. Our future success depends upon our ability to attract, retain and motivate +highly skilled employees. In order to commercialize our products successfully, we will be required to expand our workforce, particularly +in the areas of research and development and clinical studies, sales and marketing and supply chain management. These activities will +require the addition of new personnel and the development of additional expertise by existing management personnel. We face intense competition +for qualified individuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other +research institutions. We may not be able to attract and retain these individuals on acceptable terms or at all. Failure to do so could +materially harm our business. +43 +Customer +or third-party complaints or negative reviews or publicity about our company or our products could harm our reputation and brand. +We +are heavily dependent on customers who use IB-Stim to provide good reviews and word-of-mouth recommendations to contribute to our growth. +Customers who are dissatisfied with their experiences with our products or services may post negative reviews. We may also be the subject +of blog, forum or other media postings that include inaccurate statements and/or create negative publicity. In addition, any negative +news regarding similar products may adversely impact our business. Any negative reviews or publicity, whether real or perceived, disseminated +by word-of-mouth, by the general media, by electronic or social networking means or by other methods, could harm our reputation and brand +and could severely diminish consumer confidence in our products. +Adverse +global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity. +A +general slowdown in the global economy, including a recession, or in a particular region or industry, an increase in trade tensions with +U.S. trading partners, inflation or a tightening of the credit markets could negatively impact our business, financial condition and +liquidity. Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and +markets in which we operate, which have adversely affected our business and results of operations. Macroeconomic weakness and uncertainty +also make it more difficult for us to accurately forecast revenue, gross profit and expenses, and may make it more difficult to raise +or refinance debt. Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions +between the U.S. and its trading partners, could result in a global economic slowdown and long-term changes to global trade. Such events +may also (i) cause our customers and consumers to reduce, delay or forgo spending, (ii) result in customers sourcing products from other +suppliers not subject to such restrictions or tariffs, (iii) lead to the insolvency or consolidation of key suppliers and customers, +and (iv) intensify pricing pressures. Any or all of these factors could negatively affect demand for our products and our business, financial +condition and results of operations. +Additionally, +economic conditions in certain regions may also be affected by natural disasters and public health emergencies, such as extreme weather +events, and could have a significant adverse effect on our business, including interruption of our commercial and clinical operations, +supply chain disruption, endangerment of our personnel, fewer patient visits, increased patient drop-out rates, delays in recruitment +of new patients, and other delays or losses of materials and results. +A +pandemic could materially adversely impact our business . +A +pandemic could disruption and impact our business and clinical studies, which could include: +● +delays +and/or difficulties in onboarding active patients and enrolling patients in our clinical studies; +● +delays +and/or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site +staff; +● +declines +in prescriptions written due to a perception that our products are difficult to administer remotely or if patients are unwilling +to travel to treatment sites or receive in-home treatment assistance from us or other caregivers; +● +reductions +in third-party reimbursements, which could materially affect our revenue, as most of our patients rely on third-party payers to cover +the cost of our products and a material number of our patients could lose access to their private health insurance plan if they or +someone in their family lose their job; +● +diversion +of healthcare resources away from conducting clinical studies, including the diversion of hospitals serving as our clinical study +sites and hospital staff supporting the conduct of our clinical studies; +44 +● +interruption +of key clinical study activities, such as clinical study site monitoring, due to limitations on travel imposed or recommended by +federal or state governments, employers and others; +● +staff +disruptions and turnover internally and at treatment sites and third-party providers who provide support, either directly as a result +of illness or indirectly as a result of vaccine mandates and other changes in terms of employment; +● +delays +in receiving approval from local regulatory authorities or IRBs to initiate our planned clinical studies; +● +delays +in clinical sites receiving the supplies and materials needed to conduct our clinical studies; +● +interruption +in shipping that may affect the transport of active patient and clinical study materials; +● +changes +in local regulations as part of a response to a pandemic that may require us to change the ways in which our clinical studies are +conducted, which may result in unexpected costs, or to discontinue the clinical studies altogether; +● +delays +in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations +in employee resources or forced furlough of government employees; +● +disruption +of our supply chain as our suppliers and common carriers are unable to meet our requirements to provide us the materials we need +for clinical study and active patient care needs; +● +indirect +consequences of a pandemic on the economy in general, such as an increase in bankruptcies of our key suppliers, or the inability +of our third-party payers to meet their obligations reimburse us in a timely fashion or at all; +● +postponements +and cancellations of key conferences and meetings and travel restrictions could interfere with our ability to interact with key thought +leaders in the field, leading to a disruption in the rate of adoption of our technology; +● +access +restrictions at offices, hospitals, and treatment centers, and stakeholder illness could interfere with the ability of our sales +force to engage in face-to-face visits with providers, leading to a disruption in the rate of adoption of our technology; +● +increases +in expenditures for technology and other tools necessary to provide patient care in an environment where both patient and care-giver +travel is restricted and access to in-person interaction is limited; +● +refusal +of the FDA to accept data from clinical studies in affected geographies outside the United States; and +● +patient +delays in seeking or receiving treatment, either due to fear of infection or lack of access to treatment and study sites, leading +to fewer diagnoses of the indications our products are approved to treat or more advanced procession of the disease, which may contraindicate +the use of our products or disqualify the patient from participating in a given study. +The +extent to which a pandemic may impact our business and clinical studies will depend on future developments, which are highly uncertain +and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel +restrictions and social distancing guidelines, business closures or business disruptions and the effectiveness of actions taken to contain +and treat the disease. The response to a pandemic may result in permanent changes to the environment in which we operate as described +above in ways we are unable to predict. A pandemic may also have the effect of heightening many of the other risks described herein. +Developing +medical technology entails significant technical, regulatory and business risks . +We +may fail to adapt our technology to user requirements or emerging treatment standards. Neuromodulation therapies are not currently considered +standard of care for IBS and may not ever be considered standard of care. Treatment standards may not evolve to incorporate our product. +New industry standards for the development, manufacture and marketing of medical devices may evolve and we may not be able to conform +to the changes, meet new standards in a timely fashion or maintain a competitive position in the market. In particular, regulatory standards +for electrical treatments of medical conditions are evolving. If we face material delays in introducing our products and new technology, +we may fail to attract new customers. +Our +Company has an evolving business strategy and investors must be willing to accept a substantial degree of uncertainty. +The +Company’s strategic focus is on the development of developing neuromodulation therapies to address chronic and debilitating conditions +in children. The Company may engage in ongoing discussions with potential licensees, other strategic partners and institutional or private +financing sources, the result of which could add to or alter its current strategic focus, cash needs or ownership structure. Investors +must be willing to accept a substantial degree of uncertainty and must be willing to rely upon the Company’s board of directors +and management to complete an appropriate business strategy to commercially exploit targeted business opportunities. +45 +We +may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by +other companies. +Our +products will compete with existing and new therapies and treatments for chronic and debilitating conditions in children. We are aware +of a number of companies currently seeking to develop alternative therapies or treatment for such diseases and conditions at least in +part. Numerous pharmaceutical, biotechnology, drug delivery and medical device companies, hospitals, research organizations, individual +scientists, and nonprofit organizations are engaged in the development of alternatives to our technology. Some of these companies have +greater research and development capabilities, experience, manufacturing, marketing, financial, and managerial resources than we do. +Collaborations or mergers between large pharmaceutical or biotechnology companies with competing treatment technologies could enhance +our competitors’ financial, marketing, and other resources. Developments by other medical device companies could make our products +or technologies uncompetitive or obsolete. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA +clearances and/or approval for products or gaining market acceptance more rapidly than we can. +Due +in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially +promising or profitable indications or therapeutic areas for our product candidates, and/or we may be unable to pursue the clinical trials +that we would like to pursue. +We +have limited technical, managerial, and financial resources to determine the indications on which we should focus the development efforts +related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development programs +and activities that might otherwise have led to more rapid progress of our product candidates through the regulatory and development +processes. +We +may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that we +do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations and/or to accomplish +all of the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and financial resources +toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products +and may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs may also +cause us to miss valuable opportunities. +We +had material weaknesses in our internal control over financing reporting during the years ended December 31, 2025 and 2024, that are +unremediated as of December 31, 2025. If we fail to establish and maintain proper and effective internal control over financial reporting, +our operating results and our ability to operate our business could be harmed. +Ensuring +that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements +on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial +reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements in accordance with generally accepted accounting principles. +46 +We +document, review and improve our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which requires +annual management assessment of the effectiveness of our internal control over financial reporting. To comply with the requirements of +being a public company, the Company has undertaken various actions to implement internal controls and procedures. Testing and maintaining +internal controls can divert our management’s attention from other matters that are important to the operation of our business. +Additionally, when evaluating internal controls over financial reporting, the Company may identify material weaknesses that it may not +be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the +Sarbanes-Oxley Act. If the Company identifies any additional material weaknesses in its internal control over financial reporting or +is unable to remediate the material weakness described above or comply with the requirements of Section 404 of the Sarbanes-Oxley Act +in a timely manner or if the Company’s independent registered public accounting firm is unable to express an unqualified opinion +as to the effectiveness of our internal control over financial reporting once it is no longer an emerging growth company, or if the Company +is unable to conclude in our quarterly and annual reports that our disclosure controls and procedures are effective, investors may lose +confidence in the accuracy and completeness of the Company’s financial reports and the market price of our common stock could be +negatively affected, and the Company could become subject to investigations by the stock exchange on which our securities are listed, +the SEC or other regulatory authorities, which could require additional financial and management resources. +In +addition, if the Company fails to remediate any identified material weakness, our financial statements could be inaccurate and the Company +could face restricted access to capital markets. Our small size and internal control deficiencies may adversely affect our financial +condition, results of operation and access to capital. Moreover, our internal control over financial +reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide +only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations +in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur +or that all control issues and instances of fraud will be detected. If we cannot provide reliable financial reports or prevent +fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business +and reputation with investors may be harmed. +Management +has developed, documented and implemented controls over each of the Company’s material weaknesses and successfully tested the +design and operating effectiveness of three deficiencies during the year ended December 31, 2025. However, the material weaknesses +were not considered remediated as of December 31, 2025, because the new controls were not operational for a sustained period of a +full financial reporting cycle. These remediation efforts are subject to ongoing management evaluation and will continue into +fiscal year 2026. +Risks +Related to Legal and Regulatory Matters +Product +liability suits, whether or not meritorious, could be brought against us due to alleged defective devices or for the misuse of our products, +which could result in expensive and time-consuming litigation, payment of substantial damages and/or expenses and an increase in our +insurance rates . +If +our current or future devices are defectively designed or manufactured, contain defective components or are misused, or if someone claims +any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. For example, we may be +sued if our products cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, +marketing or sale. This may occur if our products are misused or damaged, have a sudden failure or malfunction (including with respect +to safety features) or are otherwise impaired due to wear and tear. Even absent a product liability suit, malfunctions of our products +or misuse by physicians or patients would need to be remedied swiftly in order to maintain continuous use and ensure efficacy of our +products. +Any +product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent +in the device, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection +acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required +to limit commercialization of our products. Even successful defense may require significant financial and management resources. Regardless +of the merits or eventual outcome, liability claims may result in: +● +decreased +demand for our products; +● +injury +to our reputation; +● +withdrawal +of clinical study participants and inability to continue clinical studies; +● +initiation +of investigations by regulators; +47 +● +costs +to prepare for and defend the related litigation; +● +a +diversion of management’s time and our resources; +● +substantial +monetary awards to study participants or patients; +● +product +recalls, withdrawals or labeling, marketing or promotional restrictions; +● +loss +of revenues; +● +exhaustion +of any available insurance and our capital resources; +● +the +inability to commercialize any device candidate; and +● +a +decline in our share price. +Product +liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage +awards against us. We may not have sufficient insurance coverage for all claims. Any product liability claims brought against us, with +or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our +reputation in the industry and could reduce revenues. Product liability claims in excess of our insurance coverage would be paid out +of cash reserves, if any, which could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. Even if our agreements with our third-party manufacturers and suppliers entitle us to indemnification +against losses, such indemnification may not be available or adequate should any claim arise. +Other +future litigation and regulatory actions could have a material adverse impact on the Company . +From +time to time, we may be subject to litigation and other legal and regulatory proceedings relating to our business or investigations or +other actions by governmental agencies. No assurances can be given that the results of these or new matters will be favorable to us. +An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect +on our financial condition and results of operations, including as a result of non-monetary remedies. Defending ourselves in these matters +may be time-consuming, expensive and disruptive to normal business operations and may result in significant expense and a diversion of +management’s time and attention from the operation of our business, which could impede our ability to achieve our business objectives. +Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance. +Subject to the Delaware General Corporation Law, our certificate of incorporation permit us to indemnify any director against any liability, +to purchase and maintain insurance against any liability for any director and to provide any director with funds (whether by loan or +otherwise) to meet expenditures incurred or to be incurred by such director in defending any criminal, regulatory or civil proceedings +or in connection with an application for relief (or to enable any such director to avoid incurring such expenditure). In addition, under +our Articles of Incorporation and bylaws (the “Bylaws”) we are obligated to indemnify each of our directors and officers +against certain liabilities and expenses arising from their being a director or officer to the maximum extent permitted by Delaware law. +In the event we are required to make such payments to our directors and officers, there can be no assurance that any of these payments +will not be material. +We +are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our +actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require +us to modify our products or marketing or advertising efforts. +In +connection with the marketing or advertisement of our products, we could be the target of claims relating to false, misleading, deceptive +or otherwise noncompliant advertising or marketing practices, including under the auspices of the FTC and state consumer protection statutes. +If we rely on third parties to provide any marketing and advertising of our products, we could be liable for, or face reputational harm +as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements. +If +we are found to have breached any consumer protection, advertising, unfair competition or other laws or regulations, we may be subject +to enforcement actions that require us to change our marketing and business practices in a manner that may negatively impact us. This +could also result in litigation, fines, penalties and adverse publicity that could cause reputational harm and loss of customer trust, +which could have a material adverse effect on our business, financial condition and results of operations. +48 +We +are increasingly dependent on information technology systems and are subject to privacy and security laws. Our products and our systems +and infrastructure face certain risks, including cyber security breaches and data leakage . +We +increasingly rely upon technology systems and infrastructure. Our technology systems, including our products, are potentially vulnerable +to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events. Likewise, data privacy +breaches by employees and others with both permitted and unauthorized access to our products and our systems may pose a risk that protected +patient information (“PI”) may be exposed to unauthorized persons or to the public, or may be permanently lost. The increasing +use and evolution of technology, including cloud-based computing, creates additional opportunities for the unintentional dissemination +of information, intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage +devices. We could also experience a business interruption, information theft of confidential information, or reputational damage from +industrial espionage attacks, malware or other cyber incidents, which may compromise our system infrastructure or lead to data leakage, +either internally or at our third-party service providers or other business partners. +The +size and complexity of our computer systems, and scope of our geographic reach, make us potentially vulnerable to information technology +system breakdowns, internal and external malicious intrusion, cyberattacks and computer viruses. Because the techniques used to obtain +unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may +be unable to anticipate these techniques or to implement adequate preventative measures. If we do not allocate and effectively manage +the resources necessary to build and sustain the proper technology infrastructure or properly manage third-party contractors who perform +data management services on our behalf, then a security breach could subject us to, among other things, transaction errors, business +process inefficiencies, the loss of customers, damage to our reputation, business disruptions or the loss of or damage to intellectual +property. Such security breaches could expose us to a risk of loss of information, litigation, penalties, remediation costs and potentially +significant liability to customers, employees, business partners and regulatory authorities, including, for example, under the Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”) in the United States and Regulation 2016/679 on the protection +of natural persons with regard to the processing of personal data and on the free movement of such data under GDPR in the EU. If our +data management systems (including third party data management systems) do not effectively collect, secure, store, process and report +relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human +error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be +impaired. Any such impairment could materially and adversely affect our financial condition and results of operations. +While +we have invested heavily in the protection of data and information technology and in related training, there can be no assurance that +our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents or ensure compliance with all applicable +security and privacy laws, regulations, and standards, including with respect to third-party service providers that utilize sensitive +personal information, including PI, on our behalf. +A +security breach, whether of our products, systems or third-party hosting services we utilize, could disrupt treatments being provided +by our products, disrupt access to our customers’ stored information, such as patient treatment data and health information, and +could lead to the loss of, damage to or public disclosure of such data and information, including patient health information. Such an +event could have serious negative consequences, including possible patient injury, regulatory action, fines, penalties and damages, reduced +demand for our products, an unwillingness of customers to use our products, harm to our reputation and brand and time-consuming and expensive +litigation, any of which could have a material adverse effect on our financial results. We currently carry cyber and privacy liability +insurance with an aggregate limit of $5,000,000, but the amount of insurance coverage that we purchased and may purchase in the future +may be inadequate. In the future, our insurance coverage may be expensive or not be available on acceptable terms or in sufficient amounts, +if at all. +49 +We +may choose to, or may be required to, suspend, repeat or terminate our clinical studies if they are not conducted in accordance with +regulatory requirements, the results are negative or inconclusive or the studies are not well designed . +Clinical +studies must be conducted in accordance with the FDA’s cGCPs and the equivalent laws and regulations applicable in other jurisdictions +in which the clinical studies are conducted. The clinical studies are subject to oversight by the FDA, regulatory agencies in other jurisdictions, +ethics committees and institutional review boards at the medical institutions where the clinical studies are conducted. In addition, +clinical studies must be conducted with device candidates produced under the FDA’s QSR and in accordance with the applicable regulatory +requirements in the other jurisdictions in which the clinical studies are conducted. The conduct of clinical studies may require large +numbers of test patients. +The +FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical studies of a device candidate for various reasons, +including: +● +the +device candidate may have unforeseen adverse side effects or may not appear to be more effective than current therapies; +● +we +may not agree with the FDA, a regulatory authority in another jurisdiction or an ethics committee regarding the protocol for the +conduct of a clinical study; +● +new +therapies may become the standard of care while we are conducting our clinical studies, which may require us to revise or amend our +clinical study protocols or terminate a clinical study; or +● +fatalities +may occur during a clinical study due to medical problems that may or may not be related to clinical study treatments. +Furthermore, +the process of obtaining and maintaining regulatory approvals in the U.S. and other jurisdictions is lengthy, expensive and uncertain. +It can vary substantially, based on the type, complexity and novelty of the product involved. Accordingly, any of our device candidates +could take a significantly longer time than we expect to, or may never, gain regulatory approval, which could have a material adverse +effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. +Legislative +and regulatory changes in the U.S. and in other countries regarding healthcare insurance and government-sponsored reimbursement programs +(such as Medicare in the United States) may adversely affect our business and financial results . +We +rely to a material degree on highly regulated private and government-run health insurance programs for our revenue in most of the countries +in which we operate. The laws and regulations regarding health care programs, both public and private, are driven by public policy considerations +that may be unrelated to the direct provision of patient care, such as lowering costs or requiring or limiting access to healthcare options. +These laws and regulations are very complicated and there are many requirements we must satisfy in order for our products to become and +remain eligible for reimbursement under these programs. In many cases we may have limited negotiating power when negotiating reimbursement +rates for our products. +In +the future, lawmakers and regulators could also pass additional healthcare laws and implement other regulatory changes at both the national +and local levels. These laws and regulations could potentially affect coverage and reimbursement for our products. However, we cannot +predict the ultimate content, timing or effect of any future healthcare initiatives or the impact any future legislation or regulation +will have on us. +With +respect to countries outside the U.S., the national competent authorities in the EU member states, the UK, Switzerland, Israel, Japan, +and other jurisdictions are also increasingly active in their goal of reducing public spending on healthcare. We cannot, therefore, guarantee +that the treatment of patients with our products would be reimbursed in any particular country or, if successfully included on reimbursement +lists, whether we will remain on such lists. +We +are subject to extensive post-marketing regulation by the FDA and comparable authorities in other jurisdictions, which could impact the +sales and marketing of our products and could cause us to incur significant costs to maintain compliance. In addition, we may become +subject to additional regulation in other jurisdictions if we market and sell our products outside of the U.S . +We +market and sell our products subject to extensive regulation by the FDA and numerous other federal, state and governmental authorities +in other jurisdictions. These regulations are broad and relate to, among other things, the conduct of pre-clinical and clinical studies, +product design, development, manufacturing, labeling, testing, product storage and shipping, premarket clearance and approval, conformity +assessment procedures, premarket clearance and approval of modifications introduced in marketed products, post-market surveillance and +monitoring, reporting of adverse events and incidents, pricing and reimbursement, interactions with healthcare professionals, interactions +with patients, information security, advertising and promotion and product sales and distribution. Although IB-Stim already has market +clearance from FDA for functional abdominal pain associated with IBS in children, we will require additional FDA clearances to market +our products for treating other indications. +50 +In +addition, before our products can be marketed in the EU, our products must obtain a CE Certificate from a notified body. New intended +uses of CE marked medical devices falling outside the scope of the current CE Certificate require a completely new conformity assessment +before the device can be CE marked and marketed in the EU for the new intended use. The process required to gather necessary information +and draw up documentation in order to obtain CE Certification of a medical device in the EU can be expensive and lengthy and its outcome +can be uncertain. We may make modifications to our products in the future that we believe do not or will not require notifications to +our notified body or new conformity assessments to permit the maintenance of our current CE Certificate. If the competent authorities +of the EU member states or our notified body disagree and require the conduct of a new conformity assessment, the modification of the +existing CE Certificate or the issuance of a new CE Certificate, we may be required to recall or suspend the marketing of the modified +versions of our products. +In +Japan, new medical devices or new therapeutic uses of medical devices falling outside the scope of the existing approval by the MHLW +require a new assessment and approval for each such new device or use. Accordingly, we may be required to obtain a new approval from +MHLW before we launch a modified version of our products or the use of our products for additional indications. Approval time frames +from the MHLW vary from simple notifications to review periods of one or more years, depending on the complexity and risk level of the +device. In addition, importation into Japan of medical devices is subject to “Quality Management System (QMS) Ordinance,” +which includes the equivalent of “Good Import” regulations in the U.S. As with any highly regulated market, significant changes +in the regulatory environment could adversely affect our ability to commercialize our products in Japan. +In +the U.S. and other jurisdictions, we also are subject to numerous post-marketing regulatory requirements, which include regulations under +the QSR related to the manufacturing of our products, labeling regulations and medical device reporting regulations, which require us +to report to the FDA or comparable regulatory authorities in other jurisdictions and our notified body if our products cause or contributes +to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. In addition, +these regulatory requirements may in the future change in a way that adversely affects us. If we fail to comply with present or future +regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA or comparable regulatory authorities +in other jurisdictions and notified bodies, which may include any of the following sanctions: +● +untitled +letters, warning letters, fines, injunctions, consent decrees and civil penalties; +● +unanticipated +expenditures to address or defend such actions; +● +patient +notification, or orders for repair, replacement or refunds; +● +voluntary +or mandatory recall, withdrawal or seizure of our current or future devices; +● +administrative +detention by the FDA or other regulatory authority in another jurisdiction of medical devices believed to be adulterated or misbranded; +● +operating +restrictions, suspension or shutdown of production; +● +refusal +or delay of our requests for approval for new intended uses for or modifications to our products or for approval of new devices; +● +refusal +or delay in obtaining CE Certificates for new intended uses for or modifications to our products; +● +suspension, +variation or withdrawal of the CE Certificates granted by our notified body in the EU; +● +prohibition +or restriction of products being placed on the market; +● +operating +restrictions; +● +suspension +or withdrawal of approvals that have already been granted; +● +refusal +to grant export approval for our products or any device candidates; or +● +criminal +prosecution. +The +occurrence of any of these events could have a material adverse effect on our business, prospects, financial condition and results of +operations and cause our stock price to decline. +51 +Over +time, we expect to make modifications to our products that are designed to improve efficacy, reduce side effects, enhance the user experience +or for other purposes. Modifications to our products may require approvals, modified or new CE Certificates and analogous regulatory +approvals in other jurisdictions or even require us to cease promoting or to recall the modified versions of our products until such +clearances, approvals or modified or new CE Certificates are obtained, and the FDA, comparable regulatory authorities in other jurisdictions +or our notified body may not agree with our conclusions regarding whether new approvals are required . +In +addition, any substantial change introduced to a medical device or to the quality system certified by our notified body requires a new +conformity assessment of the device and can lead to changes to the CE Certificates or the preparation of a new CE Certificate of Conformity. +Substantial changes may include, among others, the introduction of a new intended use of the device, a change in its design or a change +in the Company’s suppliers. Responsibility for determination that a modification constitutes a substantial change lies with the +manufacturer of the medical device. We must inform the notified body that conducted the conformity assessment of the products we market +or sell in the EU of any planned substantial changes to our quality system or changes to our products that could, among other things, +affect compliance with the MDR or the devices’ intended use. The notified body will then assess the changes and verify whether +they affect the product’s conformity with the Essential Requirements laid down in Annex I to the MDD or the conditions for the +use of the device. If the assessment is favorable, the notified body will issue a new CE Certificate or an addendum to the existing CE +Certificate attesting compliance with the Essential Requirements laid down in Annex I to the MDD. There is a risk that the competent +authorities of the EU member states or our notified body may disagree with our assessment of the changes introduced to our products. +The competent authorities of the EU member states or our notified body also may come to a different conclusion than the FDA on any given +product modification. +In +addition, medical devices that have obtained a CE Certification under the MDD may in principle continue to be marketed under such CE +Certificate until the CE Certificate expires and at the latest until May 27, 2024, provided that the manufacturer complies with the MDR’s +additional requirements related to post-marketing surveillance, market surveillance, vigilance, and registration of economic operators +and of devices. However, if such medical devices undergo a significant change in their design or intended use, we would need to obtain +a new CE Certificate under the MDR for these devices. +If +the FDA disagrees with us and requires us to submit a new application for then-existing modifications and/or the competent authorities +of the EU member states or our notified body disagree with our assessment of the change introduced in a product, its design or its intended +use, we may be required to cease promoting or to recall the modified product until we obtain approval and/or until a new conformity assessment +has been conducted in relation to the product, as applicable. In addition, we could be subject to significant regulatory fines or other +penalties. Furthermore, our products could be subject to recall if the FDA, comparable regulatory authorities in other jurisdictions, +or our notified body determine, for any reason, that our products are not safe or effective or that appropriate regulatory submissions +were not made. Any recall or requirement that we seek additional approvals or clearances could result in significant delays, fines, increased +costs associated with modification of a product, loss of revenues and potential operating restrictions imposed by the FDA, comparable +foreign regulatory authorities in other jurisdictions, or our notified body. Delays in receipt or failure to receive approvals/certification, +or the failure to comply with any other existing or future regulatory requirements, could reduce our sales, profitability and future +growth prospects. +52 +In +addition to FDA requirements, we will spend considerable time and money complying with other federal, state, local and foreign rules, +regulations and guidance and, if we are unable to fully comply with such rules, regulations and guidance, we could face substantial penalties . +We +are subject to extensive regulation by the U.S. federal government and the states and other countries in which we conduct our business. +U.S. federal government healthcare laws apply when we submit a claim on behalf of a U.S. federal healthcare program beneficiary, or when +a customer submits a claim for an item or service that is reimbursed under a U.S. federal government-funded healthcare program, such +as Medicare or Medicaid. The laws that affect our ability to operate our business in addition to the Federal Food, Drug, and Cosmetic +Act and FDA regulations include, but are not limited to, the following: +● +the +U.S. federal Anti-Kickback Statute, an intent-based federal criminal statute which prohibits knowingly and willfully offering, providing, +soliciting or receiving remuneration of any kind to induce or reward, or in return for, referrals or the purchase, lease, order or +recommendation or arranging of any items or services reimbursable by a federal healthcare program; +● +the +Federal Civil False Claims Act, which imposes civil penalties, including through civil whistleblower or “qui tam” actions, +for knowingly submitting or causing the submission of false or fraudulent claims of payment to the federal government, knowingly +making, using or causing to be made or used a false statement or record material to payment of a false claim or avoiding, decreasing +or concealing an obligation to pay money to the federal government; +● +the +Federal Criminal False Claims Act, which is similar to the Federal Civil False Claims Act and imposes criminal liability on those +that make or present a false, fictitious or fraudulent claim to the federal government; +● +Medicare +laws and regulations that prescribe requirements for coverage and reimbursement, and laws prohibiting false claims or unduly influencing +selection of products for reimbursement under Medicare and Medicaid; +● +healthcare +fraud statutes that prohibit false statements and improper claims to any third-party payer; +● +the +Federal Physician Self-Referral Law, commonly known as the Stark law, which, absent an applicable exception, prohibits physicians +from referring Medicare and Medicaid patients to an entity for the provision of certain designated health services (“DHS”), +if the physician (or a member of the physician’s immediate family) has an impermissible financial relationship with that entity +and prohibits the DHS entity from billing for such improperly referred services; +● +the +Federal Beneficiary Anti-Inducement Statute, which prohibits the offering of any remuneration to a beneficiary of Medicare or Medicaid +that is likely to influence that beneficiary’s choice of provider or supplier. This can include, but is not limited to, inappropriate +provision of patient services including financial assistance. Recent government investigations have focused on this particular prohibition. +There are established exceptions from liability, but we cannot guarantee that all of our practices will fall squarely within those +exceptions; +● +the +U.S. Foreign Corrupt Practices Act, which can be used to prosecute companies in the U.S. for arrangements with physicians or other +parties outside the U.S. if the physician or party is a government official of another country and the arrangement violates the law +of that country; +● +the +Federal Trade Commission Act, the Lanham Act and similar federal and state laws regulating truthfulness in advertising and consumer +protection; and +● +the +Federal Physician Payments Sunshine Act, the French Sunshine Act and similar state and foreign laws, which require periodic reporting +of payments and other transfers of value made to U.S. and French-licensed physicians, teaching hospitals, and in the U.S., physician +assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives. +Similar +laws exist in the EU, individual EU member states and other countries. These laws are complemented by EU or national professional codes +of practices. +HIPAA +provides data privacy and security provisions for safeguarding medical information. Additionally, states in the U.S. are enacting local +privacy laws (e.g., California). In the EU, the GDPR harmonizes data privacy laws and rules on the processing of personal data, including +patient and employee data, across the EU. The GDPR has a number of strict data protection and security requirements for companies processing +data of EU residents, including when such data is transferred outside of the EU. Additionally, we need to comply with analogous privacy +laws in other jurisdictions in which we operate, such as the Israeli Privacy Protection Law, the Asia Pacific Economic Cooperation Privacy +Framework, and Japan’s Act on the Protection of Personal Information. +The +laws and codes of practices applicable to us are subject to evolving interpretations. Moreover, certain U.S. federal and state laws regarding +healthcare fraud and abuse and certain laws in other jurisdictions regarding interactions with healthcare professionals and patients +are broad and we may be required to restrict certain of our practices to be in compliance with these laws. Healthcare fraud and abuse +laws also are complex and even minor, inadvertent irregularities, or even the perception of impropriety, can potentially give rise to +claims that a statute has been violated. +53 +Any +violation of these laws could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. Similarly, if there is a change in law, regulation or administrative or judicial interpretations, +we may have to change our business practices or our existing business practices could be challenged as unlawful, which likewise could +have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to +decline. Fines and penalties for violations of these laws and regulations could include severe criminal and civil penalties, including, +for example, significant monetary damages, exclusion from participation in the federal healthcare programs and permanent disbarment of +key employees. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate +our business, our prospects and our financial results. In addition, any action against us for violation of these laws, even if we successfully +defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of +our business and damage our reputation. +In +addition, although we believe that we have the required licenses, permits and accreditation to dispense our products in the future, a +regulator could find that we need to obtain additional licenses or permits. We also may be subject to mandatory reaccreditation and other +requirements in order to maintain our billing privileges. Failure to satisfy those requirements could cause us to lose our privileges +to bill governmental and private payers. If we are required to obtain permits or licenses that we do not already possess, we also may +become subject to substantial additional regulation or incur significant expense. +To +ensure compliance with Medicare, Medicaid and other regulations, federal and state governmental agencies and their agents, including +MACs, may conduct audits of our operations to support our claims submitted for reimbursement of items furnished to beneficiaries and +health care providers. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered +systemic, the resolution of these audits could adversely impact our revenue, financial condition and results of operations. +If +we, our collaborative partners, our contract manufacturers or our component suppliers fail to comply with the FDA’s QSR or equivalent +regulations established in other countries, the manufacturing and distribution of our products could be interrupted, and our product +sales and results of operations could suffer. +We, +our collaborative partners, our contract manufacturers and our component suppliers are required to comply with the FDA’s QSR and +the equivalent quality system requirements imposed by the laws and regulations in other jurisdictions, which are a complex regulatory +framework that covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, +sterilization, storage and shipping of our products. We cannot assure you that our facilities or our contract manufacturers’ or +component suppliers’ facilities would pass any future quality system inspection. If our or any of our contract manufacturers’ +or component suppliers’ facilities fails a quality system inspection, the manufacturing or distribution of our products could be +interrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse quality system +inspection could force a suspension or shutdown of our packaging and labeling operations or the manufacturing operations of our contract +manufacturers, and lead to suspension, variation or withdrawal of our regulatory approvals or a recall of our products. If any of these +events occurs, we may not be able to provide our customers with our products on a timely basis, our reputation could be harmed and we +could lose customers, any or all of which could have a material adverse effect on our business, prospects, financial condition and results +of operations and cause our stock price to decline. +Our +products may in the future be subject to recalls that could harm our reputation, business and financial results . +The +FDA and similar governmental authorities in other jurisdictions have the authority to require the recall of commercialized products in +the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must +be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. In addition, governmental +bodies in other jurisdictions have the authority to require the recall of our products in the event of material deficiencies or defects +in design or manufacture. Distributors and manufacturers may, under their own initiative, recall a product if any material deficiency +in a device is found. A government-mandated or voluntary recall by us or one of our manufacturers could occur as a result of component +failures, manufacturing errors, design or labeling defects or other deficiencies and issues. The FDA requires that certain classifications +of recalls be reported to the FDA within ten working days after the recall is initiated. Requirements for the reporting of product recalls +to the competent authorities are imposed in other jurisdictions in which our products are or would be marketed in the future. Companies +are required to maintain certain records of recalls, even if they are not reportable to the FDA or to the competent authorities of other +countries. In the future, we may initiate voluntary recalls involving our products that we determine do not require notification of the +FDA or to other equivalent non-U.S. authorities. If the FDA or the equivalent non-U.S. authorities disagree with our determinations, +they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively +affect our sales. In addition, the FDA and the equivalent non-U.S. authorities could take enforcement action if we fail to report the +recalls when they were conducted. Recalls of our products would divert managerial and financial resources and could have a material adverse +effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. +54 +If +our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device +reporting regulations, which can result in voluntary corrective actions or agency enforcement actions . +Under +the FDA Medical Device Reporting regulations and the equivalent regulations applicable in other jurisdictions in which our products are +or may be marketed in the future, medical device manufacturers are required to report to the FDA and to the equivalent non-U.S. authorities +information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would +likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If +we fail to report these events to the FDA or to the equivalent authorities in other jurisdictions within the required time frames, or +at all, the FDA or the equivalent authorities in other jurisdictions could take enforcement action against us. Any such adverse event +involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency +action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves +in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our +reputation and financial results. +We +may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label +uses . +Medical +devices may be marketed only for the indications for which they are approved. Our promotional materials and training materials must comply +with FDA regulations and other applicable laws and regulations governing the promotion of our products in the U.S. and other jurisdictions. +If +the FDA or the competent authorities in other jurisdictions determine that our promotional materials or training constitutes promotion +of an unapproved use, they could request that we modify our training or promotional materials or subject us to regulatory or enforcement +actions, including the issuance of an untitled or warning letter, an injunction, seizure, civil fines and criminal penalties. It is also +possible that authorities in other federal, state or national enforcement in other jurisdictions might take action if they consider our +promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties +under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged +and the commercialization of our products could be impaired. +We +are affected by and subject to environmental laws and regulations that could be costly to comply with or that may result in costly liabilities . +We +are subject to environmental laws and regulations, including those that impose various environmental controls on the manufacturing, transportation, +storage, use and disposal of hazardous chemicals and other materials used in, and hazardous waste produced by, the manufacturing of our +products. We incur and expect to continue to incur costs to comply with these environmental laws and regulations. Additional or modified +environmental laws and regulations, including those relating to the manufacture, transportation, storage, use and disposal of materials +used to manufacture our products or restricting disposal or transportation of batteries, may be imposed that may result in higher costs. +In +addition, we cannot predict the effect that additional or modified environmental laws and regulations may have on us, our third-party +suppliers of equipment and our products or our customers. +The +pediatrics and medical device industries are characterized by patent and other intellectual property litigation and disputes, and any +litigation, dispute or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, +divert the attention of management from our business, harm our reputation and require us to remove certain devices from the market . +Whether +a product infringes a patent or violates other intellectual property rights involves complex legal and factual issues, the determination +of which is often uncertain. Any intellectual property dispute, even a meritless or unsuccessful one, would be time consuming and expensive +to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, the +disruption of research and development and marketing efforts, injury to our reputation and loss of revenues. Any of these events could +negatively affect our business, prospects, financial condition and results of operations. +55 +Third +parties may assert that our products, the methods employed in the use of our products or other activities infringe on their patents. +Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties, many of whom have significantly +larger intellectual property portfolios than we have. Additionally, in recent years, individuals and groups have begun purchasing intellectual +property assets for the purpose of making claims of infringement and attempting to extract settlements from companies like ours. With +respect to our current products, the risk of infringement claims is exacerbated by the fact that there are numerous issued and pending +patents relating to the treatment of cancer. Because patent applications can take many years to issue, and in many cases remain unpublished +for many months after filing, there may be applications now pending of which we are unaware that may later result in issued patents that +our products may infringe. +There +could also be existing patents that one or more components of our products or other device candidates may inadvertently infringe. As +the number of competitors in the market or other device candidates grows, the possibility of inadvertent patent infringement by us or +a patent infringement claim against us increases. To the extent we gain greater market visibility, our risk of being subject to such +claims is also likely to increase. If a third party’s patent was upheld as valid and enforceable and we were found to be infringing, +we could be prevented from making, using, selling, offering to sell or importing our products or other device candidates, unless we were +able to obtain a license under that patent or to redesign our systems to avoid infringement. A license may not be available at all or +on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of our products or +development of device candidates to avoid infringement could require us to conduct additional clinical studies and to revise our filings +with the FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license +or redesigning our devices, we may be unable to make, use, sell, offer to sell or import our devices and our business could suffer. We +may also be required to pay substantial damages and undertake remedial activities, which could cause our business to suffer. +We +may also be subject to claims alleging that we infringe or violate other intellectual property rights, such as copyrights or trademarks, +may have to defend against allegations that we misappropriated trade secrets, and may face claims based on competing claims of ownership +of our intellectual property. The confidentiality and assignment of inventions agreements that our employees, consultants and other third +parties sign may not in all cases be enforceable or sufficient to protect our intellectual property rights. In addition, we may face +claims from third parties based on competing claims to ownership of our intellectual property. +We +may employ individuals who were previously employed at other medical device companies, and as such we may be subject to claims that such +employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of their former +employers. Any such litigation, dispute or claim could be costly to defend and could subject us to substantial damages, injunctions or +other remedies, which could have a material adverse effect on our business, prospects, financial condition and results of operations +and cause our stock price to decline. +Changes +in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our devices . +As +is the case with other medical device companies, our success is heavily dependent on our intellectual property rights, and particularly +on our patent rights. Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity, +and is therefore costly, time consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing +wide-ranging patent reform legislation. Certain U.S. Supreme Court rulings have narrowed the scope of patent protection available in +certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard +to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents +once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents +could change in unpredictable ways that could further negatively impact the value of our patents, narrow the scope of available patent +protection or weaken the rights of patent owners. +56 +Future +regulatory action remains uncertain. +We +operate in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be +time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable laws, +standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions +on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals +could materially affect our reputation, business and operations. +Our +product candidates will remain subject to ongoing regulatory review even after they receive marketing clearances, and if we fail to comply +with continuing regulations, we could lose these clearances and the sale of any of our approved commercial products could be suspended. +Even +as we received regulatory clearance to market IB-Stim, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, +promotion, and record keeping related to IB-Stim will remain subject to extensive regulatory requirements. If we fail to comply with +the regulatory requirements of the FDA and other applicable domestic and foreign regulatory authorities or discover any previously unknown +problems with any approved product, manufacturer, or manufacturing process, we could be subject to administrative or judicially imposed +sanctions, including: +● +restrictions +on the products, manufacturers, or manufacturing processes; +● +warning +letters; +● +civil +or criminal penalties; +● +fines; +● +injunctions; +● +product +seizures or detentions; +● +pressure +to initiate voluntary product recalls; +● +suspension +or withdrawal of regulatory clearances and/or approvals; and +● +refusal +to approve pending applications for marketing clearances and/or approval of new products or supplements to approved applications. +Intellectual +property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products. +The +therapeutic medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time +to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to +defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual +property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact +our ability to sell current or future products in the affected category. +We +depend extensively on our patents and proprietary technology and the patents, and we must protect those assets in order to preserve our +business. +Although +we expect to seek patent protection for any devices, in silico products (if any), systems, and processes we discover and/or for +any specific use we discover for new or previously known compounds, devices, biologics, products, systems, or processes, any or all of +these may not be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may +find ways to avoid the claims in the patents. +Our +success will depend, in part, on our ability to obtain patents, protect our trade secrets and proprietary knowledge and operate without +infringing on the proprietary rights of others. We are the sole assignee of numerous granted United States patents, pending United States +patent applications and international patents. The patent position of pharmaceutical and biotechnology firms like us are generally highly +uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims +allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications +assigned to us may not result in patents being issued, any issued patents assigned to us may not provide us with competitive protection +or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business +and achieve profitability. +57 +Moreover, +others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as +a result of the assertion of rights by a third-party or otherwise, we may be required to obtain licenses to patents or other proprietary +rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made +available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions +during our attempts to design around such patents or could find that the development, manufacture or sale of products requiring such +licenses is foreclosed. In addition, we could incur substantial costs in defending suits brought against us or in connection with patents +to which we hold licenses or in bringing suit to protect our own patents against infringement. +Due +to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have +meaningful protection from competition. +Our +long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, +discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology +and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our pending +patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the future could +be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Due to our financial +uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already issued to us or our pending +applications may become subject to dispute, and any dispute could be resolved against us. Because a substantial number of patents have +been issued in the field of neuromodulation therapy and because patent positions can be highly uncertain and frequently involve complex +legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. +Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the +extent patents have been issued or will be issued, whether these patents will be subject to further proceedings limiting their scope, +will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated. +Also, +because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods in +the United States and other countries, even after reasonable investigation, we may not know with certainty whether any products that +we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. We believe that the +patents that we own or have applied for do not infringe any third-party patents; however, we cannot know for certain whether we could +successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property +in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing +of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license +to continue to manufacture or market the accused product or process. +If +the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in +accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize +our product candidates. +We +may use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of our +product candidates for the foreseeable future. +The +FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, +for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, +and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of +these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials +in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out +their obligations could delay or prevent the development, approval, and commercialization of our product candidates or result in enforcement +action against us. +58 +Risks +Related to Our Common Stock +We +may not be able to maintain a listing of our common stock on NYSE American. +Our +common stock is listed on NYSE American. We must meet certain financial and liquidity criteria to maintain such listing. If we violate +NYSE American’s listing requirements, or if we fail to meet any of NYSE American’s listing standards, our common stock may +be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange +outweighs the benefits of such listing. A delisting of our common stock from NYSE American may materially impair our stockholders’ +ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market +for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your +investment. +We +do not expect to declare or pay dividends in the foreseeable future. +We +do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development +and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their +securities, and holders may be unable to sell their securities on favorable terms or at all. +If +securities industry analysts publish unfavorable reports on us, then the market price and market trading volume of our common stock could +be negatively affected. +Any +trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about +us. If one or more of security analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of +us, the market price and market trading volume of our common stock could be negatively affected. +Future +issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration +of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market +price of our common stock to decline and would result in the dilution of your holdings. +Future +issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration +of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market +price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations +of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution +of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties +will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In addition to any +adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, +at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available for +resale, subject to applicable law, including without notice, which could reduce the market price for our common stock. +59 +Future +issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of +preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely +affect the level of return you may be able to achieve from an investment in our common stock. +In +the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of +our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior +to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock, the holders of such preferred +stock could be entitled to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating +distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend +in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any +such future offerings or borrowings. Holders of our common stock must bear the risk that any future offerings we conduct or borrowings +we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our common stock. +If +our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares. +The +SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally +equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized +for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions +in such securities is provided by the exchange or system. If we do not retain a listing on NYSE American or another national securities +exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules +require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk +disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction +in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock +is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure +statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability +statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common +stock, and therefore stockholders may have difficulty selling their shares. +We +are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging +growth companies, and our stockholders could receive less information than they might expect to receive from more mature public companies. +We +are required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the JOBS Act) under the +reporting rules set forth under the Exchange Act. For so long as we remain an emerging growth company, we may take advantage of certain +exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth +companies, including but not limited to: +● +not +being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; +● +being +permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; +and +● +being +exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden +parachute payments not previously approved. +We +expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an emerging +growth company for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million +as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31. +Because +we are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging +growth companies, our stockholders could receive less information than they might expect to receive from more mature public companies. +We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage +of these exemptions would result in less active trading or more volatility in the price of our common stock. +60 +Because +the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting +in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting +company. +We +are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of +certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures +for so long as (i) our common stock held by non-affiliates is less than $250 million measured on the last business day of our second +fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our common stock +held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take +advantage of any reduced disclosure obligations, it may make it harder for investors to analyze the Company’s results of operations +and financial prospectus in comparison with other public companies. +As +a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other +issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. +We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, +the scaled-back disclosure in our SEC filings will result in less information about our company being available than for other public +companies. +If +investors consider our common stock less attractive as a result of our election to use the scaled-back disclosure permitted for smaller +reporting companies, there may be a less active trading market for our common stock and our share price may be more volatile. +As +a “smaller reporting company,” we may at some time in the future choose to exempt our Company from certain corporate governance +requirements that could have an adverse effect on our public shareholders. +Under +NYSE American rules, a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, is not subject to certain +corporate governance requirements otherwise applicable to companies listed on NYSE American. For example, a smaller reporting company +is exempt from the requirement of having a compensation committee composed solely of directors meeting certain enhanced independence +standards, as long as the compensation committee has at least two members who do meet such standards. Although we have determined not +to avail ourselves of this or other exemptions from NYSE American requirements that are or may be afforded to smaller reporting companies +while we will seek to maintain our shares on NYSE American, in the future we may elect to rely on any or all of these exemptions. By +electing to utilize any such exemptions, our Company may be subject to greater risks of poor corporate governance, poorer management +decision-making processes, and reduced results of operations from problems in our corporate organization. Consequently, if we were to +avail ourselves of these exemptions, our stock price might suffer, and there is no assurance that we would be able to continue to meet +all continuing listing requirements of NYSE American from which we would not be exempt, including minimum stock price requirements. +ITEM +1B. UNRESOLVED STAFF COMMENTS +Not +applicable. +ITEM +1C. CYBERSECURITY +CYBERSECURITY +RISK MANAGEMENT AND STRATEGY. NeurAxis has developed and implemented a cybersecurity framework intended to assess, identify and manage +risks from threats to the security of our information, systems, products and network using a risk-based approach. The framework is informed +in part by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and International Organization for Standardization +27001 (ISO 27001) Framework, although this does not imply that we meet all technical standards, specifications, or requirements under +the NIST or ISO 27001. +Our +key cybersecurity processes include the following: +● +Risk-based +controls for information systems and information on NeurAxis’ networks: We seek to maintain an information technology infrastructure +that implements physical, administrative and technical controls that are calibrated based on risk and designed to protect the confidentiality, +integrity and availability of our information systems and information stored on NeurAxis’ networks, including customer information, +personal information, PHI/PII, intellectual property and proprietary information. NeurAxis added physical safeguards in the form +of biometric entry systems to access server rooms and 24/7 surveillance at both NeurAxis locations. +● +Cybersecurity +incident policies: We have cybersecurity incident policies, an incident response plan and a dedicated team to respond to cybersecurity +incidents, including experienced counsel. When a cybersecurity incident occurs or we identify a vulnerability, the dedicated team +is responsible for leading the initial assessment of priority and severity, including external experts that may also be engaged as +appropriate. NeurAxis’ response to incidents depends on the severity level and seeks to improve its cybersecurity incident +response plan. NeurAxis, through experienced cybersecurity and HIPAA/HITECH counsel, has developed a security manual and a privacy +policy. These policies and manuals are reviewed and updated annually. +61 +● +Training: +We provide security awareness training to help our employees understand their information protection and cybersecurity responsibilities +at NeurAxis. We also provide additional role-based training to some employees based on customer requirements, regulatory obligations, +and industry risks. +● +Supplier +risk assessments: We have participated in several third-party risk assessment processes that include expectations regarding information +and cybersecurity. NeurAxis also seeks contractual commitments from key suppliers to appropriately secure and maintain their information +technology systems and protect NeurAxis information that is processed or stored on their systems, when applicable. This may or may +not include business associate agreements, downstream vendor agreements and vendor auditing in some cases. +● +Third-party +assessments of NeurAxis: We have third-party cybersecurity companies engaged to assess NeurAxis’ cybersecurity readiness +and to assist in identifying and remediating risks from cybersecurity threats. NeurAxis has a “real time” cybersecurity +partner that monitors our servers 24/7/365 for any attempted intrusions and directs the execution of the Company’s disaster +recovery plan. +NeurAxis +routinely reviews the Office of Civil Right (OCR) audit requirements to assess any gaps within our cybersecurity, privacy and security +programs. We have not identified risks from known cybersecurity threats, that have materially affected us, including our operations, +business strategy, results of operations, cash flows or financial condition. We face certain ongoing risks from cybersecurity threats, +including active interactions with children’s hospitals while assisting with insurance prior approvals, that, if realized, are +reasonably likely to materially affect us, including our operations, business strategy, results of operations, cash flows or financial +condition. +As +of the fiscal year ended December 31, 2025, the Company had no t experienced any material cybersecurity incidents that have had a significant +impact on our operations, data integrity, results of operations, or financial performance. +CYBERSECURITY +GOVERNANCE. NeurAxis’ Board of Directors is responsible for oversight of cybersecurity risk. The Board receives reporting about +NeurAxis’ practices, programs, notable threats or incidents and other developments related to cybersecurity throughout the year, +including through periodic updates from NeurAxis’ Chief Regulatory Officer/Privacy Officer and VP of IT/Security Officer. +NeurAxis’ +Security Officer reports to NeurAxis’ Chief Regulatory Officer and together, they lead the Company’s overall cybersecurity +function. The Security Officer has over 15 years of experience in managing and leading IT or cybersecurity teams and participates in +various cyber security trainings frequently. The Security Officer collaborates with NeurAxis personnel and our outside vendors to identify +and analyze cybersecurity risks to NeurAxis, considers industry trends, implement controls, as appropriate and feasible, to mitigate +these risks and enables business leaders to make risk-based business decisions that impact cybersecurity considerations. The Security +Officer meets with senior leadership to review and discuss NeurAxis’ cybersecurity program, including emerging cyber risks, threats, +and industry trends. The Security Officer also supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and +incidents through various means, including by collaborating with external security personnel and business stakeholders, and incorporating +threat intelligence and other information obtained from governmental, public, or private sources to strengthen our cybersecurity technologies +and processes. +Management +continues to enhance the Company’s cybersecurity governance through ongoing improvements to its internal control compliance program. +As part of these efforts, the Company has adopted the Control Objectives for Information and Related Technologies (COBIT) 2019 framework +to support the design and governance of its Information Technology General Controls (ITGCs). +During +the reporting period, management advanced the identification and implementation of ITGCs within the Company’s risk control matrix +as part of the implementation of internal control over financial reporting (“ICFR”). While the ITGC controls have been identified +and incorporated into the risk control matrix, management expects to conduct the formal assessment and testing of these controls during +fiscal year 2026 in alignment with the continued rollout and enhancement of internal controls over financial reporting . +In +addition, the Company established a dedicated internal control department during fiscal year 2025. This function reports directly to +the Audit Committee of the Board of Directors regarding the status and progress of the Company’s internal control over financial +reporting program, including matters related to ITGCs, to strengthen governance and oversight. +62 +ITEM +2. PROPERTIES +Our +corporate headquarters are located in Carmel, Indiana, where we lease office space for employees. The term of this lease commenced on +January 1, 2024 and is scheduled to end on May 31, 2029. Over the term of the lease, the monthly base rent is $6,721 with an annual 2.5% +escalator. We received a 50% reduction in our monthly rent for the first 10 months of the lease. +We +also lease office space in Batesville, Indiana, pursuant to an agreement that commenced August 1, 2025 for an inital term of three years +with automatic one year renewal options subject to an annual 4% rent escalation, unless 60 day notice of vacating is given. The Company +prepaid $25,200 of rent on June 13, 2025 which will be amortized over the initial lease term and thereby reduced the monthly base rent +to $1,300. +ITEM +3. LEGAL PROCEEDINGS +From +time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. +As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably +be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of +the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s +interest. +On +February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United +States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the +Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under +the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought +compensatory damages in excess of $5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation +of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing +and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures +could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim +to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims +against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint. +On +July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, +2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth +Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any +further review or appeal of that judgment. +Also +on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare +ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland. The plaintiffs +in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint +asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil +conspiracy and seeks compensatory damages in excess of $75,000, pre-judgment interest, punitive damages, attorney’s fees, and court +costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants +allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed +to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered +damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion +which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims are still pending, and no trial date has been +set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties could try to resolve the +disputes in both cases through an independent third-party mediator +On +April 25, 2025, the parties reached a tentative $750,000 settlement payable in 12 equal monthly installments beginning in January +of 2026 as filed with the United States District Court for the District of Maryland with the settlement agreement duly executed on May +15, 2025. +In +January 2024, Dr. Arturo Taca served notice to the Company that asserted an interest in its U.S. Patent No. 10,413,719 valued at $2,000,000 +based on his own work in neurostimulation. The Company denied both the neurostimulation patent and compensation claims. The case remains +unresolved. +While +it is too early to predict the ultimate outcome of these matters, we believe the Company has meritorious defenses and intends to defend +these matters vigorously. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +63 +PART +II +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market +Information and Holders of Common Stock +Our +common stock is listed on the NYSE American, under the symbol “NRXS”. +As +of March 12, 2026, there were approximately 1,585 record holders of our common stock. The number of record holders does not include beneficial +owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries and holders of unissued shares +of common stock. +The +last reported sales price for our Common Stock as reported on the NYSE American on March 12, 2026 was $6.48. +Dividends +We +have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the +foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends +if the payment would render us insolvent. Any future determination as to the payment of cash dividends on our common stock will be at +the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements and other +factors that the board of directors considers to be relevant. +Recent +Sales of Unregistered Securities +On +October 29, 2025, 3,334 restricted stock units (“RSUs”) vested into an equivalent number of shares of common +stock. +On +January 22, 2026, the Company granted 437,431 RSUs pursuant to the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan as amended +on August 15, 2024. The RSUs vest annually pro rata over a three-year period and are payable in shares of the Company’s common +stock. The RSUs fully vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon +vesting; there were no accrued dividends on unvested RSUs as of the report date. +Also +on January 22, 2026, the Company issued 86,392 shares of common stock to its independent board members for their 2025 and 2026 +service. +ITEM +6. RESERVED +64 +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +Overview +We +are a growth stage company focused on developing neuromodulation therapies to address chronic and debilitating conditions in children. +Our mission is to advance drug-free neuromodulation therapies that improve patient outcomes and reduce medication burden in complex disorders, +while expanding access to effective care for populations with significant unmet needs. Our IB-Stim device is a PENFS system with FDA +indications for patients 8 years and older with functional abdominal pain associated with IBS, functional dyspepsia (FD), and associated +FD nausea symptoms. Our RED device is an easy-to-use, office-based, point-of-care test that identifies patients with chronic constipation +due to pelvic floor dyssnergia and has FDA for adults. Other indications in our pipeline are comprised of post-concussion syndrome, cyclic +vomiting syndrome, post-operative pain and fibromyalgia pain. +Since +our inception, we have incurred significant operating losses. Our net loss was $7,800,555 and $8,241,501 for the years ended December +31, 2025 and 2024, respectively. Although we had stockholders’ equity of $3,399,372, our auditors have expressed substantial doubt +about our ability to continue as a going concern in their audit opinion. We expect to incur significant expenses and operating losses +for the foreseeable future as we continue to pursue widespread insurance coverage of our IB-Stim and RED devices and seek FDA clearance +of our device for other indications. There are a number of milestones and conditions that we must satisfy before we will be able to generate +sufficient revenue to fund our operations, including FDA clearance of IB-Stim to treat future indications. +Factors +Affecting our Business and Results of Operations +Revenue +Our +revenue is derived from the sale of IB-Stim to healthcare companies, primarily hospitals and clinics. Sales generally are not seasonal +and only mildly correlated with economic cycles. IB-Stim sells for $1,195 per device, and each patient being treated for functional abdominal +pain associated with IBS, functional dyspepsia (FD), and/or associated FD nausea symptoms will use four devices. +Our +sales typically are made on a purchase order basis rather than through long-term purchase commitments. We enter into sales agreements +with customers for IB-Stim based on purchase orders and standard terms, which vary slightly based on the customer’s form, and conditions +of sale. Standard payment terms generally are net 30 days. Our largest sales were to two customers representing approximately 28% and +35% of total sales for the years ended December 31, 2025 and 2024, respectively. +Inflation +did not have a material impact on our operations for any applicable period, and we do not expect inflation to have a material impact +on our operations for the foreseeable future. +Gross +profit and Gross Margin +Our +management uses gross profit and gross margin to evaluate the efficiency of operations and as a key component to determining the effectiveness +and allocation of resources. We calculate gross profit as net sales less cost of goods sold, and gross margin as gross profit divided +by net sales. Our gross margin has been and will continue to be affected by a variety of factors, primarily the average selling price +of IB-Stim, production volume, order flows, change in mix of customers, third-party manufacturing costs related to components of our +devices and cost-reduction strategies. We expect our gross profit to increase in the foreseeable future as our net sales grows, both +through broader insurer acceptance of IB-Stim in the near term and approval of our technology for the treatment of other indications +over the longer term. Our gross margin may fluctuate from quarter to quarter due to changes in average selling prices and the mix of +patient healthcare coverage (e.g., discounts are provided to lower income patients without healthcare insurance), particularly as we +introduce enhancements to IB-Stim and new products to address other indications, and as we adopt new manufacturing processes and technologies. +Expenses +We +have four categories of expenses: cost of goods sold, selling, research and development (“R&D”), and general and administrative +(“G&A”). +Costs +of goods sold consist of costs paid for the IB-Stim and RED devices to our contract manufacturers along with shipping and handling costs +and expired inventory charges. Expired inventory expense is related to the FDA clearance period from the date our devices are manufactured, +and if the device is not sold in such period, a reserve is recorded. Expired inventory charges totaled $19,973 and $0 for the +years ended December 31, 2025 and 2024. We have fixed-price contracts with the manufacturers of our devices. +65 +Our +selling expenses primarily consist of advertising, marketing and promotion of the Company’s products including salaries, commissions +and other related personnel costs including travel expenses. The Company reclassified $1,144,176 of general and administrative expenses +to selling expenses in the Consolidated Statements of Operations for the year ended December 31, 2024, to conform to current year presentation. +Research +and development expenses consist primarily of clinical research studies, new product development, costs of materials and supplies used +in research and development activities and salaries and other related personnel costs for employees engaged in research and development +activities to have our IB-Stim and RED devices cleared by the FDA for other indications. The Company reclassified $227,507 of general +and administrative expenses to research and development expenses in the Consolidated Statements of Operations for the year ended December +31, 2024, to conform to current year presentation. We expect future R&D expenses for other indications, such as post-concussion syndrome, +cyclic vomiting syndrome, post-operative pain and fibromyalgia pain. +General +and administrative expense primarily consists of wages and benefits, professional fees including legal and audit, insurance, investor +relations, facility costs, utilities and travel. +Results +of Operations +Comparison +of Year Ended December 31, 2025, and Year Ended December 31, 2024 +The +following table presents our statements of operations for the years ended December 31, 2025 and 2024: +Years Ended December 31, +2025 +2024 +Net sales +$ 3,569,282 +$ 2,685,925 +Cost of goods sold +562,916 +362,002 +Gross profit +3,006,366 +2,323,923 +Selling expenses +2,279,974 +1,468,884 +Research and development +493,611 +443,614 +General and administrative +8,062,689 +7,578,242 +Operating loss +(7,829,908 ) +(7,156,817 ) +Other income (expense), net: +Financing charges +(30,240 ) +(230,824 ) +Interest expense +(73,969 ) +(174,328 ) +Change in fair value of warrant liability +(7,634 ) +(941 ) +Amortization of debt discount and issuance costs +-- +(126,387 ) +Other income (expense), net +141,196 +(552,204 ) +Total other income (expense), net +29,353 +(1,084,684 ) +Net loss +$ (7,800,555 ) +$ (8,241,501 ) +66 +Net +Sales +Net +sales increased $883,357, or 32.9%, from $2,685,925 for the year ended December 31, 2024, to $3,569,282 for the year ended December 31, +2025, primarily due to volume growth from (i) both patients with health insurance coverage and those participating our financial assistance +programs that provide discounts to patients without health insurance coverage and (ii) device sales from the Company’s launch of +the RED product in 2025. Although unit growth from the discounted financial assistance programs outpaced the full health insurance reimbursement +programs, the Company’s overall growth was function of new customers (both hospitals and private physical practices), new insurance +carrier coverage in certain locations across the United States and higher prior authorization approval rates of the Company’s Category +III CPT Code. +Gross +Profit and Gross Margin +Gross +profit increased $682,443, or 29.4%, from $2,323,923 for the year ended December 31, 2024, to $3,006,366 for the year ended December +31, 2025, due to higher sales volume. Despite the increase in sales volume, the decrease in gross margin from 86.5% for the year ended +December 31, 2024, to 84.2% for the year ended December 31, 2025, was due to higher discounting in the Company’s financial assistance +programs provide to patients without insurance coverage, a higher unit growth rate of the discounted financial assistance programs compared +to the full reimbursement health insurance programs and expired RED inventory. +Selling +Expenses +Selling +expenses increased $811,090, or 55.2%, from $1,468,884 for the year ended December 31, 2024, to $2,279,974 for the year ended +December 31, 2025, due to higher commissions from higher sales volume, a higher temporary commission structure to facilitate growth +and adoption in new states, incremental sales and marketing headcount and increased advertising and marketing costs focused on +health insurance carriers due to the January 1, 2026 effective date of IB’Stim’s new Category I CPT Code +Research +and Development +Research +and development expenses increased $59,997, or 13.8%, from $433,614 for the year ended December 31, 2024, to $493,611 for the year ended +December 31, 2025, due to costs to higher year-over-year spending on a medical research project, improved IB-Stim design features and +costs to develop the RED device. +General +and Administrative +General +and administrative expenses increased $484,447, or 6.4%, from $7,578,242 for the year ended December 31, 2024, to $8,062,689 for the +year ended December 31, 2025, primarily due to a $630,568 one-time, non-recurring charge to settle a lawsuit, headcount and related costs +incurred to improve and enhance the Company’s internal control environment and the introduction of annual short-term and long-term +incentive plans in 2024 that were not outstanding for the full fiscal year, partially offset by the absence of certain one-time non-recurring +severance, hiring, consulting and advisory costs incurred in 2024 and lower legal, accounting and insurance costs as new hires in 2024 +have internally absorbed certain services. +Operating +Loss +Our +operating loss increased $673,091, or 9.4%, from $7,156,817 for the year ended December 31, 2024, to $7,829,908 for the year ended December +31, 2025, primarily due to higher selling and general and administrative expenses partially offset by higher gross profit from sales +volume. +67 +Other +Income (Expense) +Other +income increased $1,114,037, or 102.7%, from $1,084,684 of expense for the year ended December 31, 2024, to $29,353 of income for the +year ended December 31, 2025, due to the absence of one-time, non-recurring 2024 settlements relating +to a 2023 convertible note dispute and certain pre-IPO Series A Preferred Stock shareholder claims and the conversion of convertible +notes into Series B Preferred Stock in 2024 which eliminated any related debt discount and interest charges. +Net +Loss +Our +net loss decreased $440,946, or 5.4%, from $8,241,501 for the year ended December 31, 2024, to $7,800,555 for the year ended December +31, 2025, primarily due to higher sales volume and the absence of one-time, non-recurring 2024 settlements relating to a 2023 convertible +note dispute and certain pre-IPO Series A Preferred Stock shareholder claims, partially offset by higher selling expenses and the one-time +non-recurring settlement of a lawsuit in 2025. +Liquidity +and Capital Resources +We +had cash on hand of $4,965,072 and $3,696,870 as of December 31, 2025 and 2024, respectively. We maintained a working capital +surplus of $2,941,091 and $1,832,858 as of December 31, 2025 and 2024, respectively. The increase in working capital was primarily +due to the sale and issuance of 3,108,170 shares of common stock pursuant to the shelf registration statement and warrant exercises +for gross proceeds of $8,826,615 offset by cash used in operations of $6,432,843 for the year ended December 31, 2025 which improved +the Company’s liquidity position. +We +have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, the exercises of warrants +and the sale of capital stock. As of December 31, 2025, we had stockholders’ equity of $3,399,372, short-term outstanding borrowings +of $148,293 and long-term debt of $9,999. +Our +future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, +the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, +our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including +regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires +us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to +new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial +insurance carriers nationally, so this is a top priority of the Company. These activities, including our planned research and development +efforts, will require significant uses of working capital through the rest of 2026 and beyond. Based on our current operating plans, +we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs before the +end of 2026. +Additionally, +we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our +management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, +especially that of Section 404 of the Sarbanes-Oxley Act. This additional corporate governance time required of management could limit +the amount of time our management has to implement our business plan and may delay our anticipated growth plans. +68 +The +following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2025 and +2024: +Years Ended December 31, +2025 +2024 +Net cash used in operating activities +$ (6,432,843 ) +$ (6,098,264 ) +Net cash used in investing activities +(131,150 ) +(27,776 ) +Net cash provided by financing activities +7,832,195 +9,744,350 +Net increase in cash and cash equivalents +1,268,202 +3,618,310 +Cash and cash equivalents at beginning of period +3,696,870 +78,560 +Cash and cash equivalents at end of period +$ 4,965,072 +$ 3,696,870 +Operating +Activities – Net cash used in operating activities increased $334,579, or 5.5% from $6,098,264 for the year ended December +31, 2024, to $6,432,843 for the year ended December 31, 2025, primarily due to the payment of the 2024 short-term incentive program in +2025 (no program existed previously) and higher inventory purchases as the Company prepared for the January 1, 2026 effective date of +the Category I CPT code for the IB-Stim device, partially offset by better receivable collections. +Investing +Activities – Net cash used in investing activities increased $103,374, or 372.2%, from $27,776 for the year ended December +31, 2024, to $131,150 for the year ended December 31, 2025, primarily due to the $100,000 installment payment to Masimo pursuant to the +July 1, 2025 NSS-2 Bridge license termination agreement that allowed the Company to recapture the rights to a trademark and two patent +applications. +Financing +Activities – Net cash provided by financing activities decreased $1,912,155, or 19.6%, from $9,744,350 for the year ended December +31, 2024, to $7,832,195 for the year ended December 31, 2025, primarily due to (i) gross financing proceeds of $10,214,846 for the year +ended December 31, 2024 from the issuance of Series B preferred stock and convertible notes in addition to the exercise of warrants compared +to gross financing proceeds of $8,826,615 for the year ended December 31, 2025 through the issuance of common stock and the exercise +of warrants and (ii) higher financing fees, offering costs and legal fees paid in 2025 versus 2024. +Critical +Accounting Estimates +Management +considers its allowance for credit losses, reserve for sales returns and reserve for excess and expired inventory to be the most critical +accounting estimates and assumptions in understanding our financial statements because they involve significant judgments and uncertainties. +Actual results could differ from management’s estimates. See Note 2 for further information on our most significant accounting policies. +Allowance +for Credit Losses +The +Company sells its IB-Stim and RED devices primarily to hospitals and private physician practices with payment generally due within 30 +days. The Company does not offer discounts if the customer pays some or all of an invoiced amount prior to the due date. We maintain +an allowance for credit losses to reflect our estimate of expected losses on accounts receivable from the sale of our medical devices. +The estimate of expected credit losses is a considered a critical accounting estimate because it requires significant judgment and the +use of assumptions about future customer payment behavior and economic conditions. +In +estimating the allowance for credit losses, management regularly reviews its past due account receivable balances and evaluates many +factors including, but not limited to, creditworthiness, past transaction and payment history, historical loss experience, current economic +industry trends and payment terms. The Company performs that review by utilizing an aging schedule to assess the collectability of accounts. +Actual credit losses may differ from estimated amounts. Differences between estimated and actual credit losses are recognized in earnings +in the period in which such changes are identified. A change in the past due account balance by 10 percentage points as of December 31, +2025, would increase or decrease the allowance for credit losses by $558. +69 +Allowance +for Sales Returns +We +recognize revenue net of estimated product returns upon customer receipt under FOB destination terms. Customers may return devices if +the goods are found to be defective, nonconforming or otherwise do not meet the technical specifications. Historically, the Company has +also allowed returns at the request of physicians, on a case-by-case basis, as long as the devices are returned in their original, unopened +packaging. As a result, we record an allowance for sales returns which is considered a critical accounting estimate because it requires +significant judgment and is sensitive to changes in assumptions. +In +establishing the allowance for sales returns, management evaluates historical return rates by product and adjusts those rates to reflect +current trends and conditions. Estimates are reassessed each reporting period based on actual return activity and updated information. +Actual product returns may differ from estimated amounts. Differences between estimated and actual returns are recognized as adjustments +to revenue in the period in which they become known. A change in the return rate of one percentage point as of December 31, 2025, would +have increased or decreased the allowance by $5,593. +Allowance +for Excess and Expired Inventory +Inventories +are valued at the lower of cost or net realizable value. An allowance for excess and expired inventory is recorded to reflect inventory +quantities that are not expected to be sold or that are expected to be sold below cost. The determination of this allowance is considered +a critical accounting estimate because it requires significant judgment regarding future product demand and the timing of orders. +In +estimating the allowance for excess and expired inventory, management considered a number of factors including, but not limited to, historical +sales trends, product shelf life and expiration dates, regulatory and clinical requirements, backlog and anticipated demand and future +orders. Actual inventory usage and obsolescence may differ from management’s estimates. Differences between estimated and actual +inventory usage are recognized as adjustments to earnings in the period in which they become known. A change in the forecasted demand +of 20 percentage points as of December 31, 2025, would have increased or decreased the allowance by $758. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +Not +applicable. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +See +Index to Financial Statements and Financial Statement Schedules from page F-1 of this annual report on Form 10-K, which are incorporated +herein by reference. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not +applicable. +ITEM +9A. CONTROLS AND PROCEDURES +Disclosure +Controls and Procedures +We +maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant +to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls +and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act +is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information +is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow +timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal +financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form +10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2025, +our disclosure controls and procedures were, is design and operation, not effective. +70 +Management’s +Annual Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) +of the Exchange Act. Under the supervision and with the participation of our principal executive officer and principal financial officer +and oversight of the Board of Directors, we conducted an evaluation of the effectiveness of our internal control over financial reporting +based on criteria established in the framework set forth in Internal Control—Integrated Framework (2013) issued by the Committee +of Sponsoring Organizations of the Treadway Commission. +Our +management, including our principal executive officer and principal financial officer, recognizes that disclosure controls and procedures +and internal controls over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving +the desired control objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute +assurance that all control issues and instances of fraud, if any, have been detected. Additionally, controls can be circumvented by the +individual acts of some persons, by collusion of two or more people, or by management override of the controls. +Based +on our evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2025. +Material +Weaknesses +A +material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting +such that it is reasonably possible that a material misstatement of the Company’s annual or interim financial statements will not +be prevented or detected on a timely basis. +The +following material weaknesses in our internal control over financial reporting were identified: +● +Ineffective +approval processes governing (i) timely Board of Directors authorization and (ii) segregation of duties and roles and responsibilities +configurations within the Company’s financial reporting system; and +● +Inadequate +contract management process to capture all executed agreements prior to the commencement of services in order to ensure accuracy +within the proper accounting period. +● +Misapplication +of U.S. GAAP; and +● +Ineffective +disclosure controls and procedures a result of (i) lack of segregation of duties, (ii) lack of internal control structure review +and (iii) misapplication of U.S. GAAP. +In +order to remediate the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of +Directors, undertook measures to enhance the Company’s internal control environment, including the (i) hiring of a principal +financial officer and other accounting personnel to ensure the appropriate application of U.S. GAAP including the annual completion +of a minimum number of continuing professional education hours, (ii) hiring of a dedicated internal control manager that reports +directly to the Audit Committee and whose sole responsibility is to develop, document, implement and maintain our internal control +framework and program including walk throughs, narratives, flow charts, risk control matrices and independent testing of our +financial and IT controls, (iii) documentation and communication of business policies such as a delegation of authority over +contracts and transactions as well as invoice and journal entry approvals, (iv) completion of a formal monthly close process +including account reconciliations with supporting documentation and (v) engagement of a third-party firm that implemented controls +to segregate duties and approvals with the proper assignment of roles and responsibilities within the Company’s financial +system. +ITEM +9B. OTHER INFORMATION +Our +directors and officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our +common stock, which plans or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange +Act or which may represent a non-Rule 10b5-1 trading arrangement, as defined under Item 408(a) of Regulation S-K. +During +the three months ended December 31, 2025, none of our directors or officers adopted , terminated or modified a Rule 10b5-1 trading arrangement +or a non-Rule 10b5-1 trading arrangement. +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not +applicable. +71 +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The +following table and biographical summaries set forth information, including principal occupation and business experience, about our directors +and executive officers as of March 13, 2025: +Name +Age +Position +Brian +Carrico +44 +President, +Chief Executive Officer and Director +Timothy +Henrichs (1) +53 +Chief +Financial Officer +Dr. +Adrian Miranda +57 +Chief +Medical Officer, Senior Vice President of Science and Technology +Dr. +Thomas Carrico +69 +Chief +Regulatory Officer, Compliance Officer and Privacy Officer +Dr. +Christopher Robin Brown +72 +Director +Bradley +Mitch Watkins +51 +Director +and Chairman of the Board +Beth +Keyser +57 +Director +Kristin +Ferge +52 +Director +Gilad +Aharon +52 +Director +(1) +On +January 30, 2024, our former Chief Financial Officer John Seale resigned from his position, effective as of the close of business +on January 30 th . On the same day, Timothy R. Henrichs resigned as a member of the board of directors, effective February +2, 2024. On January 26, 2024, the board of directors appointed Mr. Henrichs to serve as the CFO, effective on February 5, 2024. +Brian +Carrico, President, Chief Executive Officer and Director +Brian +Carrico has served as President, Chief Executive Officer, and a Director of the Company since January 1, 2018. He joined the Company +in 2012 and has held multiple senior leadership roles of increasing responsibility, including Vice President of Sales and President. +As +an early employee and long-tenured executive, Mr. Carrico has played a central role in guiding the Company from an early-stage concept +through research and development, FDA clearance, and full commercial scale. Under his leadership, the Company has advanced its proprietary +technology from initial clinical validation to broad adoption, securing multiple pediatric and adult indications, achieving wide-scale +insurance policy coverage across commercial and government payers, and obtaining a Category I CPT code for the Company’s first-to-market +flagship technology. +Mr. +Carrico has been instrumental in setting the Company’s long-term strategic vision, building and leading the commercial organization, +raising growth capital, expanding clinical and payer evidence, and establishing durable reimbursement pathways to support sustainable +revenue growth. His leadership has focused on disciplined execution, stakeholder alignment across clinicians, payers, and investors, +and the development of a scalable platform to support future indications and product expansion. +Prior +to joining the Company, Mr. Carrico held sales and clinical-facing roles at Bard Medical and St. Jude Medical, where he gained extensive +experience in operating room and cath lab environments. He holds a Bachelor of Science in Business Marketing from Indiana State University. +Timothy +Henrichs, Chief Financial Officer +Timothy +Henrichs has served as the Company’s Chief Financial Officer since February 5, 2024 and was a director of the Company from August +9, 2023 to February 2, 2024. Mr. Henrichs’ global leadership experience spans over 20 years and across several industries, including +healthcare, home improvement, retail, software and education. Previously, Mr. Henrichs served as the Chief Financial Officer of Renovo +Home Partners since 2022. He also served as the Executive Vice President and Chief Financial Officer of Follett Corporation from 2008 +to 2022 and Global Controller of General Electric Company’s Healthcare Clinical Systems division responsible for the manufacture +and distribution of medical devices to the ultrasound, patient monitoring and anesthesiology markets from 2005 to 2008 in addition to +leadership positions at Federal Signal Corporation and Ernst & Young LLP. Mr. Henrichs earned his bachelor’s degree in accounting +from the University of Notre Dame and is a Certified Public Accountant. +72 +Dr. +Adrian Miranda, Chief Medical Officer, Senior Vice President of Science and Technology +Dr. +Adrian Miranda has served as the Company’s Chief Medical Officer since 2018 and provides clinical, scientific, and strategic leadership. +He brings more than 20 years of clinical, academic, and research experience to the role. Dr. Miranda is a board-certified pediatric gastroenterologist +and Professor of Pediatrics at the Medical College of Wisconsin. +Dr. +Miranda received his undergraduate degree in Biology from San Diego State University and his medical degree from the Medical College +of Wisconsin. He completed his pediatric residency and subspecialty fellowship training in pediatric gastroenterology at Children’s +Hospital of Wisconsin. +As +a physician-scientist, Dr. Miranda has spent over two decades investigating the pathophysiology of visceral and somatic pain, with a +particular focus on disorders of gut-brain interaction. His research has emphasized the role of adverse early life events, neuroplasticity, +and central nervous system modulation in the development and treatment of chronic pain conditions. He has authored and co-authored numerous +peer-reviewed publications and book chapters and is a frequent lecturer at national and international medical and scientific conferences. +Dr. +Thomas Carrico, Chief Regulatory Officer, Compliance Officer and Privacy Officer +Dr. +Thomas Carrico has served as our Chief Regulatory Officer since November 2017. He joined the Company in February 2012 as Director of +Regulatory Affairs. Prior to and during his early years with Neuraxis, he was President & Clinic Director at Spine and Neuromuscular +Associates in Lawrenceburg, Indiana from January 2002 to December 2018. He has over 40 years of experience in the healthcare field and +has been involved in the study and application of techniques and treatments that directly affect the autonomic nervous system, especially +regarding homeostasis and balance of the parasympathetic and the sympathetic nervous system. Dr. Carrico has a history of working with +attorneys while serving on state and national boards, which has positioned him to integrate into regulatory responsibilities at the Company. +Dr. Carrico received his undergraduate education from Indiana University and his Doctorate from Palmer College of Chiropractic. +Dr. +Christopher Robin Brown, Director +Dr. +Chirstopher Robin Brown is a co-founder of the Company. He developed clinical protocol, initial practice guidelines, designed and implemented +the practitioner certification program and personally financed the first two years of the Company. After developing the technique of +transillumination to isolate auricular neurovascular bundles, he authored and designed the initial studies establishing neurovascular +and tissue energy transfer theories upon which the devices’ use are based. Dr. Brown is listed as the sole or principal inventor +on all Neuraxis patents and is currently active in further device development working closely with compliance, product design and engineering. +Upon +graduation from the Indiana University School of Dentistry in 1982, while serving as clinic chief in the United States Army Reserve (USAR) +dental corps at Fort Benjamin Harrison in Indianapolis, Indiana, Dr. Brown started a private practice (current) concentrating in head, +neck, and facial pain developing the first hospital based facial pain clinic in Indiana. He received his master’s degree in Biomechanical +Trauma in 1996 from Lynn University, one of only 12 dentists in the United States to hold the combination of DDS and MPS degrees. Dr. +Brown has authored several textbook chapters, published peer reviewed articles on the physics of soft tissue trauma, pain, financial +management, was regional editor for a national facial pain management Journal, and has lectured extensively nationally and internationally. +He served on the Board of Directors of the American Academy of Pain Management for 15 years, helping grow the organization from 800 members +to over 5,000. Throughout his tenure, he developed educational tracks, served as Industry liaison, one term as treasurer and one term +as President. He served on the national board of The Alliance of TMD practitioners, serving one term as president. +Throughout +his career, Dr. Brown has been active in the purchasing and management of several destressed clinics and re-structuring them into profitable +enterprises. He has performed extensive volunteer work overseas providing surgical care in the Dominican Republic, local dental clinics +serving the underprivileged, and recently provided dental screenings for the deployment of soldiers in the USAR and National Guard. +73 +Bradley +Mitch Watkins, Director and Chairman of the Board +Bradley +Mitch Watkins has overseen four companies through their early commercialization periods within the medical device sector over the last +20 years. He has directly reported to the CEO or board of directors and operated as the lead for all field operations. Over his 20 years +in a multitude of medical device markets, Mr. Watkins has overseen $410 million in company acquisitions in an array of leadership roles. +He has thrived in early commercialization, recruitment, and strategic company direction. These duties have groomed Mr. Watkins with a +wide array of responsibilities beyond sales, including marketing, clinical study design, manufacturing, R&D, FDA submissions, and +fiscal oversight. Mr. Watkins has been the National Sales Manager of Terumo Interventional Systems since 2015, where he has led multiple +new technology sales teams within the peripheral IV and Electrophysiology markets. Mr. Watkins received his bachelor’s degree in +behavioral science from the University of Maryland. +Beth +Keyser, Director +Beth +Keyser is a 30-year healthcare industry veteran with a passion for leading organizations that are on a mission to make people healthier. +Ms. Keyser was named president of the Anthem Blue Cross and Blue Shield West Region for the Commercial Health Benefits division in 2025, +which includes Colorado, Indiana, Kentucky, Missouri, Nevada, Ohio and Wisconsin and is also responsible for Sales Enablement and Centralized +Sales Support within the Commercial Health Benefits division. +Previously, +Ms. Keyser served as president of Anthem Blue Cross and Blue Shield of Indiana from 2020 to 2025. The Anthem health plan in Indiana is +the largest in the state with nearly 5,000 Indiana-based associates, serving more than four million members. Before joining Anthem, Ms. +Keyser focused on improving doctor-patient relationships as the president of Create® health plans in New York City. Prior to her +time at Create ®, Beth held several leadership roles at Healthways where she was accountable for domestic and international +revenue growth, customer experience, call center operations and establishing partnerships with health plans, employers, physician organizations +and hospitals. Early in her career she helped stand up Gordian Health Solutions, a Nashville start-up, that was eventually sold to Blue +Cross Blue Shield of Tennessee. +Beth +currently serves on the Board of Directors of Women in Health Care Leadership at University of Alabama at Birmingham, which provides +mentoring and training programs to develop tomorrow’s leaders. She also serves on the board of directors of the Indiana Sports +Corp, Neuraxis and the WellPoint Holding Corporation. Beth is also a proud member of the Red Cross Tiffany Circle. Ms. Keyser is a graduate +of the University of Southern Mississippi and earned a master’s degree from the University of Alabama at Birmingham. +Kristin +Ferge, Director +Kristin +Ferge has been President and Chief Financial Officer of Capri Communities and Bridges Home Healthcare, a Wisconsin-based privately held +senior living corporation, since 2016. Prior to joining Capri, Ms. Ferge was an executive for 18 years with Brookdale Senior Living Inc. +or one of its predecessors. Ms. Ferge ended her tenure at Brookdale, a publicly traded senior living company, as Executive Vice President, +Treasurer, and Chief Accounting Officer. Prior to Brookdale, Ms. Ferge was an auditor with KPMG. Ms. Ferge currently services as a Director +of Citizens Bank and is a certified public accountant. +Gilad +Aharon, Ph.D. +Dr. +Aharon is a co-founder of and has served as a Portfolio Manager at Rosalind Advisors, Inc., since 2006. Dr. Aharon holds a Ph.D. in Biophysics +and Molecular Biology from the University of Toronto. Prior to co-founding Rosalind Advisors, Dr. Aharon worked as an equity analyst +at Infinium Securities Inc. +Family +Relationships +Brian +Carrico, our Chief Executive Officer and Director, is the son of Dr. Carrico, our Chief Regulatory Officer. There are no other family +relationships between or among any of our executive officers or other directors. +74 +Role +of the Board +It +is the paramount duty of the board to oversee our management in the competent and ethical operation of the Company on a day-to-day basis +and to assure that the long-term interests of the stockholders are being served. To satisfy this duty, the directors take a proactive, +focused approach to their positions, and set standards to ensure that we are committed to business success through maintenance of ambitious +standards of responsibility and ethics. +Director +Terms; Qualifications +Our +directors are elected for a term of one year and until their successors qualified, nominated, and appointed or elected. +When +considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the board of directors +to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the board of directors +focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes +associated with a director. +Director +or Officer Involvement in Certain Legal Proceedings +There +are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse +to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or +executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy +petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is +the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any +order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement +in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court +to have violated a federal or state securities or commodities law during the past ten years. +Directors +and Officers Liability Insurance +The +Company maintains directors’ and officers’ liability insurance insuring its directors and officers against liability for +acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance may also insure the Company +against losses, which it may incur in indemnifying its officers and directors. In addition, officers and directors also have indemnification +rights under applicable laws, and the Company’s Certificate of Incorporation and Bylaws. +75 +Director +Independence +The +listing rules of NYSE American require that independent directors must comprise a majority of a listed company’s board of directors. +In addition, the rules of NYSE American require that, subject to specified exceptions, each member of a listed company’s audit, +compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria +set forth in Rule 10A-3 under the Exchange Act. Under the rules of NYSE American, a director will only qualify as an “independent +director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere +with the exercise of independent judgment in carrying out the responsibilities of a director. +Our +board of directors has undertaken a review of the independence of our directors and considered whether any director has a material relationship +with it that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based +upon information requested from and provided by each director concerning his background, employment and affiliations, including family +relationships, the board of directors has determined that four are “independent” as that term is defined under the applicable +rules and regulations of the SEC and the listing standards of NYSE American. In making these determinations, our board of directors considered +the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our board +of directors deemed relevant in determining their independence. +Board +Committees +As +of December 31, 2025, the following three standing committees have been established: Audit Committee; Compensation Committee; and Nominating +and Corporate Governance Committee. Each of our independent directors, Bradley Mitch Watkins, Beth Keyser, Kristin Ferge and Dr. Gil +Aharon, serve on certain committees. Our board has adopted written charters for each of these committees. Copies of the charters are +available on our website. Our board may establish other committees as it deems necessary or appropriate from time to time. +Audit +Committee +The +Audit Committee, among other things, is responsible for: +● +appointing; +approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent +auditor; +● +reviewing +the internal audit function, including its independence, plans, and budget; +● +approving, +in advance, audit and any permissible non-audit services performed by our independent auditor; +● +reviewing +our internal controls with the independent auditor, the internal auditor, and management; +● +reviewing +the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; +● +overseeing +our financial compliance system; and +● +overseeing +our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal +audit function, and information technology. +76 +The +board of directors has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable +to audit committee members under SEC rules and listing standards of NYSE American All members of the Audit Committee are able to read +and understand fundamental financial statements, are familiar with finance and accounting practices and principles and are financially +literate. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee. +The board of directors has affirmatively determined that each member of the Audit Committee is financially literate, and that Kristin +Ferge meets the qualifications of an Audit Committee financial expert. +The +Audit Committee consists of Kristin Ferge, Bradley Mitch Watkins, and Beth Keyser and Ms. Ferge serves as chair of the Audit Committee. +The functioning of the Audit Committee complies with the applicable requirements of the rules and listing standards of NYSE American +and the SEC. +Compensation +Committee +The +Compensation Committee is responsible for: +● +reviewing +and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; +● +overseeing +and administering the Company’s executive compensation plans, including equity-based awards; +● +negotiating +and overseeing employment agreements with officers and directors; and +● +overseeing +how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking +incentives. +The +Compensation Committee consists of Dr. Gil Aharon, Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge, and Dr. Aharon serves as chair +of the Compensation Committee. The board of directors has affirmatively determined that each member of the Compensation Committee meets +the independence criteria applicable to compensation committee members under SEC rules and listing standards of NYSE American. The Company +believes that the composition of the Compensation Committee meets the requirements for independence under, and the functioning of such +Compensation Committee comply with, any applicable requirements of the rules and regulations of listing standards of NYSE American and +the SEC. +Nominating +and Corporate Governance Committee +The +Nominating and Corporate Governance Committee, among other things, is responsible for: +● +reviewing +and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion +and succession issues; +● +evaluating +and reporting to the Board on the performance and effectiveness of the directors, committees and the board of directors as a whole; +● +working +with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity +considerations, for the full Board and each committee; +● +annually +presenting to the Board a list of individuals recommended to be nominated for election to the board; +● +reviewing, +evaluating, and recommending changes to the Company’s committee charters; +● +recommending +to the Board individuals to be elected to fill vacancies and newly created directorships; +● +overseeing +the Company’s compliance program, including the Code of Conduct; and +● +overseeing +and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including +leadership, structure, and succession planning, that may affect the Company’s major risk exposures. +The +Nominating and Corporate Governance Committee consists of Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge and Ms. Keyser serves +as chair of the Nominating and Corporate Governance Committee. The Company’s board of directors has determined that each member +of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director requirements for independence +under the NYSE American listing standards and SEC rules and regulations. +77 +Compensation +Committee Interlocks and Insider Participation +None +of the Company’s executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, +or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of the +Company’s board of directors or its compensation committee. None of the members of the Company’s compensation committee is, +or has ever been, an officer or employee of the Company. +Code +of Business Conduct and Ethics +The +Company’s board of directors has adopted a code of business conduct and ethics (“Code of Conduct”) applicable to its +employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of NYSE +American. The Code of Conduct is effective and is publicly available on the Company’s website. Any substantive amendments or waivers +of the Code of Conduct may be made only by the Company’s board of directors and will be promptly disclosed as required by applicable +U.S. federal securities laws and the corporate governance rules of NYSE American. +Item +11. Executive Compensation +Summary +Compensation Table +The +following table sets forth information concerning all compensation earned by our Chief Executive Officer and three other persons who +served as executive officers as, at, or during the years ended December 31, 2025 and 2024, and who earned compensation exceeding $100,000 +during 2025 and 2024 (the “Named Executive Officers”), for services as executive officers for the last two years. +Name and Principal Position +Year +Salary +($) (1) +Bonus +($) (2) +Stock Awards +($) (3) +Benefits +($) (4) +Total +($) +Brian Carrico +2025 +345,102 +180,960 +388,841 +21,536 +936,439 +Chief Executive Officer +2024 +352,973 +206,730 +— +18,673 +578,376 +Timothy Henrichs +2025 +327,336 +140,551 +327,922 +21,536 +817,345 +Chief Financial Officer +2024 +274,077 +112,239 +227,000 +15,561 +628,877 +Dr. Thomas Carrico +2025 +300,000 +77,533 +166,308 +23,042 +566,883 +Chief Regulatory Officer +2024 +288,307 +63,772 +— +16,835 +368,914 +Dr. Adrian Miranda +2025 +300,000 +77,533 +171,900 +21,536 +570,969 +Chief Medical Officer +2024 +300,000 +63,772 +— +18,673 +382,445 +(1) +Represents +W-2 Box 1 bi-weekly payments to our executive officers pursuant to their respective employment agreements. Mr. Henrichs began employment +on February 5, 2024. +(2) +Represents +bonus earned by our executive officers from the annual incentive plan upon achievement of certain targets. Mr. Carrico’s 2024 +bonus includes $62,222 related to the successful issuance of the 2024 Convertible Notes. Bonuses are paid in the following fiscal +year. +(3) +Represents +grant date fair value of restricted stock awards. Mr. Henrichs was granted 100,000 common stock awards in 2024 as a hiring grant. +All restricted stock awards in 2025 and 2024 are subject to a three-year cliff vesting schedule. +(4) +Represents +medical, dental, vision and supplemental insurance benefits. +78 +Outstanding +Equity Awards at Fiscal Year-End +The +following table sets forth information regarding equity awards held by the Named Executive Officers as of December 31, 2025. +Option Awards +Restricted Stock Units +Name +Number of Securities Underlying Unexercised Options (#) Exercisable (1) +Number of Securities Underlying Unexercised Options (#) Unexercisable +Option Exercise Price +($) +Option Expiration Date +Number of Units of Stock That Have Not Vested (#) (2) +Market Value of Units of Stock That Have Not Vested +($) +Vesting Date +320,000 +- +$ 6.94 +9/13/2029 +Brian Carrico +100,640 +$ 456,906 +9/30/2027 +70,019 +$ 317,886 +1/3/2028 +- +- +na +na +Timothy Henrichs +174,037 +$ 790,128 +9/30/2027 +67,980 +$ 308,629 +1/3/2028 +306,236 +- +$ 6.94 +9/13/2029 +Dr. Thomas Carrico +37,435 +$ 169,955 +9/30/2027 +35,000 +$ 158,900 +1/3/2028 +337,204 +- +$ 6.94 +9/13/2029 +Dr. Adrian Miranda +40,000 +$ 181,600 +9/30/2027 +35,000 +$ 158,900 +1/3/2028 +(1) +All +option awards were granted under the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as Amended, and vested fully +upon grant. +(2) +All +restricted stock awards were granted under the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan, as Amended, and are subject +to a three-year cliff vest. +Innovative +Health Solutions, Inc. 2017 Stock Compensation Plan, As Amended +On +October 12, 2017, the Company adopted the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as amended on September +13, 2019, September 9, 2021, and November 1, 2022 (collectively, the “2017 Plan”). The purpose of the 2017 Plan is to +grant incentive stock options, nonqualified stock options, or restricted stock awards to our officers, employees, directors, +advisors, and consultants. The maximum numbers of shares of common stock that may be issued pursuant to awards granted were +1,319,394. Cancelled and forfeited stock options and stock awards may again become available for grant under the 2017 Plan. As of +December 31, 2025 and 2024, options to purchase all 1,319,394 shares of common stock have been granted under the 2017 Plan and remain +outstanding, and no shares remain available for issuance under the 2017 Plan. The following summary briefly describes the principal +features of the 2017 Plan and is qualified in its entirety by reference to the full text of the 2017 Plan, which is filed as an +exhibit to the registration statement of which this prospectus forms a part. +Purpose +of the 2017 Plan : The purposes of the 2017 Plan are to encourage ownership of shares by eligible employees and key non-employees +in order to attract and retain such eligible employees in the employ of the Company or an affiliated entity, or to attract such key non-employees +to provide services to the Company or an affiliated entity, and to provide additional incentive for such persons to promote the long-term +success of the Company or an affiliated entity. +Administration +of the Plan : The 2017 Plan is administered by the board of directors, or the committee to which the board of directors delegates +the power to act. Among other things, the administrator has the authority to select persons who will receive awards, determine the types +of awards and the number of shares to be covered by awards, and to establish the terms, conditions, restrictions and other provisions +of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the 2017 Plan. +Eligible +Recipients : Persons eligible to receive awards under the 2017 Plan are those officers, employees, directors, advisors, and consultants +of the Company or an affiliated entity who are selected by the administrator. +Shares +Available under the 2017 Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2017 +Plan is 1,319,394 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. No new grants +will be made under the 2017 Plan, and shares subject to an award under the 2017 Plan for which the award is canceled, forfeited or expires +will become available for grants under the 2022 Plan described below. Shares subject to an award that is settled in cash will not again +be made available for grants under the 2017 Plan. +79 +Stock +Options +General . +Subject to the provisions of the 2017 Plan, the administrator has the authority to determine all grants of stock options, although +there are currently no shares of common stock remaining reserved for grants under the 2017 Plan. +Option +Price . The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair +market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock +must have an exercise price of not less than 110% of the fair market value on the grant date. +Exercise +of Options . An option may be exercised only in accordance with the terms and conditions for the option agreement as established +by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. +Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to +the holder of the option based upon the fair market value of the shares on the date of exercise. +Expiration +or Termination . Options, if not previously exercised, will expire on the expiration date established by the administrator +at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders +of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date only if +the holder’s service with our Company or an affiliate terminates before the expiration date and the holder is terminated for cause. +The option may remain exercisable until the expiration date of the option after terminations of employment for any reason other than +for cause, including terminations as a result of death, disability or retirement. +Incentive +and Non-Qualified Options . An incentive stock option is an option that is intended to qualify under certain provisions of +the Internal Revenue Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify +as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. +For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date +and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will +or the laws of descent and distribution and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive +stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock +options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market +value in excess of $100,000, measured at the grant date. +Restricted +Stock Awards: Restricted stock awards could have also been granted under the 2017 Plan, although there are currently no shares of +common stock remaining reserved for grants under the 2017 Plan. A restricted stock award is a grant of shares of common stock or of a +right to receive shares in the future. +Other +Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In +the event of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, +an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise +price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes +in the award in the event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by +the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. +Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. +Our board of directors also has the authority, at any time, to discontinue the granting of awards. The Plan may be amended by the board +of directors and such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment +shall be subject to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company +if such stockholder approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under +the Plan can be made without the consent of the holder of such award. +No +new grants can be made under the 2017 Plan. The terms and conditions of awards granted under the 2017 Plan prior to the effective date +of the 2022 Plan will not be affected by the adoption or approval of the 2022 Plan, and the 2017 Plan will remain effective with respect +to such awards. +80 +Neuraxis, +Inc. 2022 Omnibus Securities and Incentive Plan, As Amended on August 15, 2024 +On +November 1, 2022, the Company adopted the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (as amended January 18, 2023, the +“2022 Plan”). The purpose of the 2022 Plan is to attract, retain and provide incentives to key management employees and non-employee +directors of, and non-employee consultants to, the Company and its affiliates, and to align the interests of such employees, non-employee +directors and non-employee consultants with those of the Company’s stockholders. The maximum number of shares of common stock that +may be issued pursuant to awards granted are 300,000. Cancelled and forfeited stock options and stock awards may again become available +for grant under the 2022 Plan. On August 15, 2024, the Company held an annual meeting of stockholders whereby an amendment was approved +such that the maximum number of shares of common stock (including shares of common stock underlying options designated as incentive stock +options) that may be issued under the Plan shall not exceed six hundred thousand (600,000) shares of Common Stock, plus an annual increase +on the first day of each calendar year beginning January 1, 2025 and ending on and including January 1, 2031 equal to the lesser of (i) +five percent (5%) of the shares of common stock outstanding on the final day of the immediately preceding calendar year, and (ii) such +smaller number of shares of common stock as determined by the Board or the Compensation Committee. +As +of the date of this Form 10-K, 896,028 awards have been granted under the 2022 Plan, and 62,791 shares of common stock remain available +for issuance under the 2022 Plan. The following summary briefly describes the principal features of the 2022 Plan and is qualified in +its entirety by reference to the full text of the 2022 Plan. +Purpose +of the 2022 Plan : The purposes of the 2022 Plan is to benefit the stockholders of the Company, by assisting the Company to attract, +retain and provide incentives to key management employees and non-employee directors of, and non-employee consultants to, the Company +and its affiliates, and to align the interests of such employees, non-employee directors and non-employee consultants with those of the +Company’s stockholders. +Administration +of the 2022 Plan : The 2022 Plan shall be administered by the board of directors or the committee designated by the board of directors. +Among other things, the administrator has the authority to select persons who will receive awards, determine the time or times when an +award shall be made, what type of award shall be granted, the term of an award, the date or dates on which an award vests (including +acceleration of vesting), the form of any payment to be made pursuant to an award, the terms and conditions of an award (including the +forfeiture of the award (and/or any financial gain) if the holder of the award violates any applicable restrictive covenant thereof), +the restrictions under a restricted stock award and the number of common stock which may be issued under an award, all as applicable. +In addition, subject to the express provisions of the 2022 Plan, the administrator is authorized to construe the 2022 Plan and the respective +award agreements executed thereunder, to prescribe such rules and regulations relating to the 2022 Plan as it may deem advisable to carry +out the intent of the 2022 Plan, to determine the terms, restrictions and provisions of each award, and to make all other determinations +necessary or advisable for administering the 2022 Plan. +Eligible +Recipients : Persons eligible to receive awards under the 2022 Plan will be those officers, employees, directors, advisors, and consultants +of the Company or an affiliated entity who are selected by the administrator. +Shares +Available under the Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2022 Plan +is 958,820 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to +an award under the 2022 Plan for which the award lapses, expires, is canceled, terminated, unexercised or ceases to be exercisable again +become available for grants under the 2022 Plan. +Stock +Options +General. +Subject to the provisions of the 2022 Plan, the administrator has the authority to determine all grants of stock options. +Option +Price. The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair +market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock +must have an exercise price of not less than 110% of the fair market value on the grant date. +Exercise +of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by +the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. +Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to +the holder of the option based upon the fair market value of the shares on the date of exercise. +81 +Expiration +or Termination. Options, if not previously exercised, will expire on the expiration date established by the administrator at the +time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more +than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s +service with our Company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods +after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period +during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award. +Incentive +and Non-Qualified Options. As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify +under certain provisions of the Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does +not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive +stock options. For example, generally, the exercise price for incentive stock options may not be less than the fair market value of the +shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, +other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. +In addition, to the extent that the aggregate fair market value of common stock with respect to which incentive stock options are exercisable +for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary +corporation thereof which provide for the grant of incentive stock options exceeds $100,000, the portion of such incentive stock options +that exceeds such threshold shall be treated as non-qualified stock options. Incentive stock options shall be granted to employees only. +Restricted +Stock Awards: Restricted stock awards can be granted under the 2022 Plan. A restricted stock award is a grant of shares of common +stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies +as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement +of specified performance goals. +Unrestricted +Stock Awards : Unrestricted stock awards can also be granted under the 2022 Plan. An unrestricted stock award is a grant of shares +of common stock which is not subject to restrictions, in consideration for past services rendered thereby to the Company or an affiliate +or for other valid consideration. +Restricted +Stock Unit Awards : Restricted stock unit awards (“RSUs”) can be granted under the 2022 Plan upon the satisfaction of +predetermined individual service related vesting requirements. The holder of a restricted stock unit shall be entitled to receive a cash +payment equal to the fair market value of shares of common stock, for each unit awarded to the holder. +Performance +Stock Unit Awards : Performance stock unit awards can be granted under the 2022 Plan. A holder of performance stock units shall be +entitled to receive a cash payment equal to the dollar value or number of shares of common stock assigned to such units if the holder +and/or the Company satisfy the predetermined performance goals and objectives. +Distribution +Equivalent Rights : Distribution equivalent right awards can be granted under the 2022 Plan. A distribution equivalent right award +entitles the holder to receive bookkeeping credits, cash payments and/or common stock distributions equal in amount to the distributions +that would have been made to the holder had the holder held a specified number of common stock during the period the holder held the +distribution equivalent right. +Stock +Appreciation Right s: Stock appreciation rights can also be granted under the 2022 Plan, which is a right, granted alone or in connection +with a related Option, to receive a payment on the date of exercise. The base value of the stock appreciation right shall be set forth +by the administrator and shall not be less than the fair market value of the common stock at the date of grant for the stock appreciation +right which is not a tandem stock appreciation right. No stock appreciation right shall be exercisable after the expiration of ten (10) +years from the date of its grant. Upon the exercise of some or all of the portion of a stock appreciation right, the holder shall receive +a payment from the Company, in cash or in the form of common stock having an equivalent fair market value or in a combination of both. +If the administrator grants a stock appreciation right which is intended to be a tandem stock appreciation right, the tandem stock appreciation +right shall be granted at the same time as the related option. +82 +Other +Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In the event +of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate +adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. +The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the +event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by the administrator at +the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, +we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board of directors +also has the authority, at any time, to discontinue the granting of awards. The 2022 Plan may be amended by the board of directors and +such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment shall be subject +to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company if such stockholder +approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under the 2022 Plan can +be made without the consent of the holder of such award. The 2022 Plan shall continue in effect, unless sooner terminated, until the +tenth (10th) anniversary of the date on which it is adopted by the board of directors. +Employment +Agreements +Brian +Carrico , our Chief Executive Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended on +May 4, 2023, which has a five-year initial term and provides for a base salary of $330,000, which shall be increased each year by not +less than 3% per annum. Mr. Carrico also will receive a one-time incentive payment in the amount of $435,577, which amount consists of +accrued and unpaid salary and a bonus to incentivize Mr. Carrico to remain with the Company for future service. Neither the accrued and +unpaid salary nor bonus was the subject of any contract or agreement between Mr. Carrico and the Company prior to the execution of the +employment agreement. The agreement contemplated that the incentive payment would be paid by December 15, 2022, but due to administrative +impracticability, payment was made with a portion of the proceeds from the IPO in August 2023. In addition, Mr. Carrico is entitled to +payment of a deferred bonus in an amount equal to (i) the aggregate of the strike price or exercise price of all 320,000 unexercised +options to purchase stock or shares of the Company held by Mr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up +payment on the Aggregate Strike Price reasonably calculated by the Company at the highest marginal rates so that after payment of all +ordinary income taxes on such Aggregate Strike Price, there remains an amount sufficient to pay such ordinary income taxes. The special +deferred bonus will be paid in substantially equal 20% installments (the “Annual Deferred Bonus Payment”) on January 2 on +each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled Payment Dates”), with a condition that on or before each Scheduled +Payment Date, Mr. Carrico shall exercise at least 64,000 of the stock option. None of stock options has been exercised, therefore, no +special deferred bonus has been paid as of the date of this prospectus. Mr. Carrico may exercise any portion of the stock options after +a Scheduled Payment Date; provided, however, an exercise after the applicable Scheduled Payment Date shall result in forfeiture of the +related Annual Deferred Bonus Payment. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Mr. Carrico will receive +any accrued compensation (as defined in the employment agreement) and is entitled to severance payments as follows: +● +If +termination occurs during the initial term, the severance payment shall be the amount equal to the greater of (a) three times Mr. +Carrico’s base salary as of the termination date; and (b) three times the total amount of Mr. Carrico’s bonus payments +the Company paid Mr. Carrico over the one year prior to the termination date, to be paid in substantially equal monthly installments +over the course of the three years. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to the greater of (a) one and one half +(1.5) times Mr. Carrico’s base salary as of the termination date; and (b) one and one half (1.5) times the total amount of +Mr. Carrico’s bonus payments the Company paid Mr. Carrico over the one (1) year prior to the termination date, to be paid in +substantially equal monthly installments over the course of 18 months following the termination date. +● +In +addition, as part of the severance payment, we agreed to pay Mr. Carrico monthly COBRA premiums for continuation of health coverage +for 18 months post termination. +83 +If +the employment agreement is terminated by the Company for cause, Mr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Mr. Carrico’s termination date; and accrued and unused paid time off (“PTO”), if any, in accordance with +the Company’s PTO policy in effect on Mr. Carrico’s termination date. +Mr. +Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the deferred bonus. +In +the event that Mr. Carrico is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments +over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred +bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Mr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) will not, +directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business +connection or business or employment relationship with any entity or person which competes with the Company during his employment and, +(v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, +management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, +sale or servicing of any service or product with which Mr. Carrico was involved during his last year of employment with the Company; +or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) +and about which Mr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months +after his separation from the Company. +Timothy +Henrichs , our Chief Financial Officer entered into an employment agreement with the Company, dated January 1, 2025 which has a five-year +initial term and provides for a base salary of $330,000, which shall be increased each year by not less than 3% per annum. Mr. Henrichs +also will receive a one-time hiring grant of 100,000 shares of common stock. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Mr. Henrichs will receive +any accrued compensation (as defined in the employment agreement) and is entitled to severance payments as follows: +● +If +termination occurs during the initial term, the severance payment shall be the amount equal to the greater of (a) one times Mr. Henrichs’ +base salary as of the termination date; and (b) one times the total amount of Mr. Henrichs’ bonus payments the Company paid +Mr. Henrichs over the one year prior to the termination date, to be paid in substantially equal monthly installments over the course +of one year. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to the greater of (a) one and times Mr. +Henrichs’ base salary as of the termination date; and (b) one times the total amount of Mr. Henrichs’ bonus payments +the Company paid Mr. Henrichs over the one (1) year prior to the termination date, to be paid in substantially equal monthly installments +over the course of 12 months following the termination date. +● +In +addition, as part of the severance payment, we agreed to pay Mr. Henrichs monthly COBRA premiums for continuation of health coverage +for 18 months post termination. +84 +If +the employment agreement is terminated by the Company for cause, Mr. Henrichs will forfeit any unpaid Annual Deferred Bonus Payment, +but will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly +incurred prior to the Mr. Henrichs’ termination date; and accrued and unused paid time off (“PTO”), if any, in accordance +with the Company’s PTO policy in effect on Mr. Henrichs’ termination date. +Mr. +Henrichs may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the deferred bonus. +Pursuant +to the employment agreement, Mr. Henrichs also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) will not, +directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business +connection or business or employment relationship with any entity or person which competes with the Company during his employment and, +(v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, +management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, +sale or servicing of any service or product with which Mr. Henrichs was involved during his last year of employment with the Company; +or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) +and about which Mr. Henrichs gained any confidential information in the course of his employment with the Company for a period of 24 +months after his separation from the Company. +Dr. +Adrian Miranda , our Chief Medical Officer and Senior Vice President of Science and Technology, entered into an employment agreement +with the Company, dated August 17, 2022, which has a two-year initial term and provides for a base salary of $300,000 with annual compensation +increase. In addition, Dr. Miranda shall be entitled to payment of a special deferred bonus in an amount equal to (i) the aggregate of +the strike price or exercise price of all 337,204 unexercised options to purchase stock or shares of the Company held by Dr. Miranda +(the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably calculated by the +Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, there remains +an amount sufficient to pay such ordinary income taxes. The deferred bonus will be paid in substantially equal 20% installments (the +“Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028, with a condition that on or before +each scheduled payment date, Dr. Miranda shall exercise at least 67,441 of the stock options. +85 +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement) occurs during the term of +the agreement, Dr. Miranda will receive any accrued compensation (as defined in the employment agreement) and is entitled to certain +amount of severance payments as follows: +● +If +termination occurs during the initial term, the Company shall provide Dr. Miranda with severance compensation in the form of salary +continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of +the initial term. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Miranda’s +Base Salary as of the termination date. +● +In +addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Miranda reimbursement +of his monthly COBRA premiums for continuation of health coverage for 18 months post termination. +If +the employment agreement is terminated by the Company for cause, Dr. Miranda will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Dr. Miranda’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO +policy in effect on Dr. Miranda’s termination date. +Dr. +Miranda may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the special deferred bonus. +In +the event that Dr. Miranda is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments +over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred +bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Dr. Miranda also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly +or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection +or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, +directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, +or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or +servicing of any service or product with which Dr. Miranda was involved during his last year of employment with the Company; or which +the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about +which Dr. Miranda gained any confidential information in the course of his employment with the Company for a period of 24 months after +his separation from the Company. +86 +Dr. +Thomas Carrico , Chief Regulatory Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended +on May 4, 2023, which has a two-year initial term and provides for a base salary of $275,000 with annual compensation increase. Dr. Carrico +will also receive a one-time incentive payment in the amount of $135,655, which amount includes accrued and unpaid salary and a bonus +to incentivize Dr. Carrico to remain with the Company for future service. Neither the accrued and unpaid salary nor bonus was the subject +of any contract or agreement between Dr. Carrico and the Company prior to the execution of the employment agreement. The agreement contemplated +that the incentive payment would be paid by December 15, 2022, but due to administrative impracticability, payment was made with a portion +of the proceeds from the IPO in August 2023. In addition, Dr. Carrico shall be entitled to payment of a deferred bonus in an amount equal +to (i) the aggregate of the strike price or exercise price of all 306,236 unexercised options to purchase stock or shares of the Company +held by Dr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably +calculated by the Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, +there remains an amount sufficient to pay such ordinary income taxes. The special deferred bonus will be paid in substantially equal +20% installments (the “Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled +Payment Dates”), with a condition that on or before each Scheduled Payment Date, Dr. Carrico shall exercise at least 61,274 of +the stock option. None of stock options has been exercised, therefore, no special deferred bonus has been paid as of the date of this +prospectus. Dr. Carrico may exercise any portion of the stock options after a Scheduled Payment Date; provided, however, an exercise +after the applicable Scheduled Payment Date shall result in forfeiture of the related Annual Deferred Bonus Payment. +If +the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Dr. Carrico will receive +any accrued compensation (as defined in the employment agreement) and is entitled to certain amount of severance payments as follows: +● +If +termination occurs during the initial term, the Company shall provide Dr. Carrico with severance compensation in the form of salary +continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of +the initial term. +● +If +termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Carrico’s +Base Salary as of the termination date. +● +In +addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Carrico reimbursement +of his Medicare, Medicare Supplement and prescription drug coverage insurance premiums for continuation of health coverage for 18 +months post termination. +If +the employment agreement is terminated by the Company for cause, Dr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but +will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred +prior to the Dr. Carrico’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO +policy in effect on Dr. Carrico’s termination date. +Dr. +Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for +good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid +balance of the special deferred bonus. +In +the event that Dr. Carrico is terminated without cause after this offering, non-forfeited portions of the deferred bonus will be paid +in equal installments over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment +dates. A deferred bonus tranche will be forfeited if its corresponding options have expired. +On +a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid +in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. +Pursuant +to the employment agreement, Dr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential +information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, +solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) +at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) +will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have +any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly +or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection +or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, +directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, +or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or +servicing of any service or product with which Dr. Carrico was involved during his last year of employment with the Company; or which +the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about +which Dr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months after +his separation from the Company. +87 +Non-Employee +Director Compensation +The +following table presents the compensation awarded to or earned by or paid to all individuals who served as non-employee directors during +the years ended December 31, 2025 and 2024. We do not provide additional compensation to directors who are our employees for also serving +as a director. +Name +Year +Fees +Earned +($) +Stock +Awards Earned +($) +Total +($) +Bradley +M. Watkins +2025 +60,537 +50,000 +110,537 +2024 +60,000 +50,000 +110,000 +Beth +Keyser +2025 +60,000 +50,000 +110,000 +2024 +60,000 +50,000 +110,000 +Kristin +Ferge (1) +2025 +65,004 +50,000 +115,004 +2024 +49,151 +40,959 +90,110 +Gilad +Aharon (2) +2025 +60,883 +50,000 +110,883 +2024 +— +— +— +Timothy +Henrichs (3) +2025 +— +— +— +2024 +5,260 +4,384 +9,644 +(1) +Kristin Ferge was appointed to the board of directors on March 7, 2024. +(2) +Gilad Aharon was appointed to the board of directors on January 1, 2025. +(3) +On January 30, 2024, Timothy R. Henrichs resigned as a member of the board of directors, effective February 2, 2024 and became the Company’s +Chief Financial Officer. +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March 12, +2026 based on 11,187,639 shares of common stock outstanding. In addition, holders of Series B Preferred Stock are entitled to an additional +2,378,015 votes (solely for purposes of voting rights, the conversion price is $3.80 per share). Therefore, the total votes of the Company’s +currently outstanding securities is 13,565,654 votes, subject to a maximum voting percentage cap of between 4.99% and 19.99% of the votes +outstanding set at the discretion of each holder of Series B Preferred Stock. +We +have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission, and the information is not +necessarily indicative of beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities +to persons who possess sole or shared voting power or investment power with respect to those securities as well as any common stock that +the person has the right to acquire within 60 days of March 12, 2026 through the exercise of stock options or other rights. These shares +are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership +of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless +otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares +shown as beneficially owned by them. +Beneficially +Ownership Common Stock +Shares +Percentage +Percentage +of +Voting +Power +Name +of beneficial owner 5% shareholders: +Brian +P. Hannasch (1) +1,139,374 +10.2 +% +8.4 +% +Bigger +Capital Fund LP (2) +863,538 +7.7 +% +6.3 +% +Rosalind +Master Fund LP (3) (8) +1,184,208 +9.6 +% +8.0 +% +Named +executive officers and directors: +Brian +Carrico (4) +340,118 +3.0 +% +2.5 +% +Timothy +Henrichs +- +* +* +Adrian +Miranda (5) +337,204 +2.9 +% +2.4 +% +Thomas +Carrico (6) +311,236 +2.7 +% +2.2 +% +Christopher +Robin Brown +1,044,617 +9.3 +% +7.7 +% +Bradley +Mitch Watkins +46,335 +* +* +Beth +Keyser +46,335 +* +* +Kristin +Ferge +35,938 +* +* +Gilad +Aharon (7) +412,778 +3.7 +% +3.0 +% +All +executive officers and directors as a group (nine (9) persons) +2,574,561 +21.6 +% +17.8 +% +* +Less +than 1%. +(1) +Shares of common stock beneficially owned consist of (i) 1,126,522 shares of common stock and (ii) warrants to purchase 12,852 shares +of common stock. +(2) +The business address for Bigger Capital Fund LP is 11700 West Charleston Boulevard 170-659, Las Vegas, NV 89135. Shares of common stock +beneficially owned consist of (i) 797,400 shares of common stock and (ii) warrants to purchase 66,138 shares of common stock. +(3) +The business address for Rosalind Master Fund LP is c/o Rosalind Advisors, Inc., 15 Wellesley Street West, Suite 326, Toronto, ON, Canada +M4Y 0G7. Shares of beneficially owned common stock consist of 1,890,756 shares of common stock issuable upon conversion of 1,890,756 +shares of Series B Preferred Stock, subject to an ownership cap of 9.99%, which equals 1,184,208 shares. 1,890,756 shares of Series B +Preferred Stock entitle Rosalind Master Fund LP to 1,184,208 votes, subject to a maximum percentage of 9.99%. +(4) +Shares of common stock beneficially owned consist of (i) 20,118 shares of common stock and (ii) 320,000 stock options. +(5) +Shares of common stock beneficially owned consist of 337,204 stock options. +(6) +Shares of common stock beneficially owned consist of (i) 5,000 shares of common stock and (ii) 306,236 stock options. +(7) +Shares of common stock beneficially owned consist of (i) 307,736 shares of common stock and (ii) 105,042 shares of common stock issuable +upon conversion of 105,042 shares of Series B Preferred Stock. 105,042 shares of Series B Preferred Stock entitle Gil Aharon to 65,787 +votes. +(8) +Mr. Aharon has indirect ownership over Rosalind Master Fund LP. +88 +Item +13. Certain Relationships and Related Transactions and Director Independence +The +following includes a summary of transactions since January 1, 2024, to which we have been a party in which the amount involved exceeded +or will exceed the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two +fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital +stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, +other than equity and other compensation, termination, change in control and other arrangements, which are described under “Item +11. Executive Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders. +The +Company has two demand notes receivable from its two founding shareholders related to the sale of common stock on January 1, 2016. The +initial balances of both notes were $506,400, with interest calculated monthly based on applicable federal rates. No payments have been +received on the notes. As of December 31, 2025, the balances of both notes were $506,400. The entire $1,012,800 balance has been fully +reserved as of December 31, 2025. +The +Company was granted an exclusive, worldwide non-transferable, royalty-free license for the auricular portion of certain patents owned +by a limited liability company in which the Company’s President and Chief Executive Officer and Chief Regulatory, Compliance and +Privacy Officer both maintain an ownership interest. The license allows for the development, marketing and sales of electro-therapy treatments +by stimulation of cranial nerves, cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles and auricular +anatomical structures in human patients. The exclusive license agreement expires on October 18, 2037, may be terminated by either party +upon 60 days prior written notice and requires the Company to pay costs associated with the maintenance, prosecution and continuation +of patent filings. The Company’s Board of Directors pre-approved the reimbursement of up to $10,000 for the year ended December +31, 2025. License costs incurred were $4,412 and $4,973 for the years ended December 31, 2025 and 2024, respectively. No amounts were +owed to the limited liability company as of December 31, 2025 and 2024, respectively. +From +time to time, a member of the Company’s Board of Directors purchases NeuroStim devices at cost to conduct research and development +activities. The Company’s Board of Directors pre-approved the sale of these NeuroStim devices up to $16,000 for the year ended +December 31, 2025. The Company sold NeuroStim devices totaling $9,380 and $3,522 for the years ended December 31, 2025 and 2024, respectively, +under this program. +The +Company’s former Chief Financial Officer was contracted for certain accounting and tax services on a continuous basis through a +through a third-party public accounting firm. He was the firm’s managing partner and majority shareholder. The services totaled +$44,365 and $207,103 for the years ended December 31, 2025 and 2024, respectively. The Company owed the third-party accounting firm for +open invoices of $2,578 and $4,173 that are included in accounts payable in the Balance Sheets as of December 31, 2025 and 2024, respectively. +On June 28, 2024, the Company also issued 20,000 common shares with a fair value $55,600 to the former Chief Financial Officer for services +rendered during the IPO process. +We +have adopted a formal policy that our executive officers, directors, holders of more than 5% of any class of our voting securities, and +any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a +related party transaction with us without the prior consent of our Audit Committee, or other independent members of our Board of Directors +if it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter +into a transaction with an executive officer, director, principal shareholder, or any of their immediate family members or affiliates, +in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed +fiscal years must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such +proposal, our Audit Committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, +including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated +third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. +Item +14. Principal Accounting Fees and Services +Fees +Billed for Audit and Non-Audit Services +The +following table presents for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial +statements and other professional services rendered by our independent registered public accounting firm Rosenberg Rich Baker Berman, +P.A. +2025 +2024 +Audit +Fees (1) +$ +176,700 +$ +181,195 +(1) +Audit Fees . These are fees for professional services for the audit of our annual financial statements, and for the review of the +financial statements included in our filings on Form 10-K and Form 10-Q, and for services that are normally provided in connection with +statutory and regulatory filings or engagements. +89 +PART +IV +ITEM +15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES +(a) +1. +Financial Statements +The +financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements +and Schedules” on page F-1 and included from F-2 onwards. +2. +Financial Statement Schedules +All +schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) +are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures +are contained in the financial statements included herein. +3. +Exhibits (including those incorporated by reference). +(b) +Exhibits +Exhibit +Number +Exhibit +Description +3.1 +Certificate +of Incorporation (incorporated by reference to exhibit 3.1 to Registration Statement on Form S-1, filed on January 10, 2023) +3.2 +Certificate +of Amendment to Certificate of Incorporation (incorporated by reference to exhibit 3.2 to Registration Statement on Form S-1, filed +on January 26, 2023) +3.3 +Certificate +of Amendment to the Certificate of Incorporation of Neuraxis, Inc., dated August 22, 2024 (incorporated by reference to exhibit 3.1 +to Quarterly Report on Form10-Q, filed on November 12, 2024) +3.4 +Certificate +of Designation of Series B Preferred Stock, dated August 22, 2024 (incorporated by reference to exhibit 3.2 to Quarterly Report on +Form10-Q, filed on November 12, 2024) +3.6 +Amendment +No. 1 to Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (incorporated by reference +to exhibit 3.1 to current report on Form 8-K, furnished to the SEC on November 21, 2024) +3.7 +Bylaws +(incorporated by reference to exhibit 3.3 to Registration Statement on Form S-1, filed on January 10, 2023) +4.1 +Description of the Company’s Securities (incorporated by reference to exhibit 4.1 to annual report on Form 10-K, filed with the SEC on March 20, 2025) +4.2 +Second +Amendment to Shareholders’ Agreement, dated January 8, 2023 (incorporated by reference to exhibit 4.21 to Registration Statement +on Form S-1, filed on January 10, 2023) +10.1† +Employment +Agreement between Neuraxis, Inc. and Brian Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.12 to Registration +Statement on Form S-1, filed on January 10, 2023) +10.2† +First +Amendment to Executive Employment Agreement between Neuraxis, Inc. and Brian Carrico, dated as of May 4, 2023 (incorporated by reference +to exhibit 10.13 to Registration Statement on Form S-1, filed on June 1, 2023) +10.3† +Employment +Agreement between Neuraxis, Inc. and Adrian Miranda, dated as of August 17, 2022 (incorporated by reference to exhibit 10.13 to Registration +Statement on Form S-1, filed on January 10, 2023) +10.4† +Employment +Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.14 to Registration +Statement on Form S-1, filed on January 10, 2023) +90 +10.5† +First +Amendment to Executive Employment Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of May 4, 2023 (incorporated by reference +to exhibit 10.16 to Registration Statement on Form S-1, filed on June 1, 2023) +10.6† +Employment +Agreement between Neuraxis, Inc. and Dan Clarence, dated as of August 9, 2022 (incorporated by reference to exhibit 10.15 to Registration +Statement on Form S-1, filed on January 10, 2023) +10.7† +First +Amendment to Executive Employment Agreement between Neuraxis, Inc. and Dan Clarence, dated as of May 4, 2023 (incorporated by reference +to exhibit 10.18 to Registration Statement on Form S-1, filed on June 1, 2023) +10.8† +Employment +Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of August 9, 2022 (incorporated by reference to exhibit 10.16 +to Registration Statement on Form S-1, filed on January 10, 2023) +10.9† +First +Amendment to Executive Employment Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of May 4, 2023 (incorporated +by reference to exhibit 10.20 to Registration Statement on Form S-1, filed on June 1, 2023) +10.10† +Employment +Agreement between Neuraxis, Inc. and Gary Peterson, dated as of August 9, 2022 (incorporated by reference to exhibit 10.17 to Registration +Statement on Form S-1, filed on January 10, 2023) +10.11† +First +Amendment to Executive Employment Agreement between Neuraxis, Inc. and Gary Peterson, dated as of May 4, 2023 (incorporated by reference +to exhibit 10.22 to Registration Statement on Form S-1, filed on June 1, 2023) +10.12† +Innovative +Health Solutions, Inc. 2017 Stock Compensation Plan, as amended (incorporated by reference to exhibit 10.20 to Registration Statement +on Form S-1, filed on January 10, 2023) +10.13† +Neuraxis, +Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.21 to Registration Statement on Form S-1, +filed on January 10, 2023) +10.14† +First +Amendment to Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.26 to Registration +Statement on Form S-1, filed on January 26, 2023) +10.15 +Securities +purchase agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit +10.1 to current report on Form 8-K, furnished to the SEC on November 14, 2023) +10.16 +Registration +rights agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit +10.2 to current report on Form 8-K, furnished to the SEC on November 14, 2023) +10.21 +Form +of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on +February 15, 2024) +10.22 +Form +of Convertible Promissory Note (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on +February 15, 2024) +10.23 +Form +of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on +February 15, 2024) +10.24 +First +Amendment to Securities Purchase Agreement, dated February 12, 2024, between the Company and Flagstaff International (incorporated +by reference to exhibit 10.4 to current report on Form 8-K, furnished to the SEC on February 15, 2024) +10.25 +Third +Amendment to Securities Purchase Agreement, dated March 22, 2024, between the Company and Flagstaff International, LLC (incorporated +by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on March 28, 2024) +10.26 +Form +of Convertible Promissory Note issued to Flagstaff International, LLC (incorporated by reference to exhibit 10.2 to current report +on Form 8-K, furnished to the SEC on March 28, 2024) +10.27 +Form +of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on +May 28, 2024) +10.28 +Form +of Convertible Promissory Note (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on +May 28, 2024) +10.29 +Form +of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on +May 28, 2024) +91 +10.30† +Form +of Unrestricted Stock Award Agreement by and between NeurAxis, Inc. and Grantees dated on July 1, 2024 (incorporated by reference +to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on July 5, 2024) +10.31 +Fourth +Amendment to Securities Purchase Agreement, dated October 12, 2024, between the Company and Flagstaff International, LLC (incorporated +by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on October 18, 2024) +10.32 +Form +of Securities Purchase Agreement (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on +October 18, 2024) +10.33 +Form +of Registration Rights Agreement (incorporated by reference to exhibit 10.3 to current report on Form 8-K, furnished to the SEC on +October 18, 2024) +10.34 +Form +of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on +November 15, 2024) +10.35 +Form +of Registration Rights Agreement (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on +November 15, 2024) +10.36 +Settlement Agreement and Mutual Release, dated May 15, 2025 (incorporated by reference to Exhibit 10.1 to current report on Form 8-K, furnished to the SEC on May 21, 2025) +10.37 +Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to current report on Form 8-K, furnished to the SEC on May 22, 2025) +10.38 +Termination Agreement, dated July 1, 2025, by and between Neuraxis, Inc. and Masimo Corporation (incorporated by reference to Exhibit 10.1 to current report on Form 8-K, furnished to the SEC on July 3.2025) +10.39 +Neuraxis, Inc. 2025 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to current report on Form 8-K, furnished to the SEC on July 3, 2025) +10.40 +At The Market Offering Agreement, dated August 29, 2025, by and between Neuraxis, Inc, and Craig-Hallum Capital Group LLC (incorporated by reference to Exhibit 10.1 to current report on Form 8-K furnished to the SEC on September 2, 2025) +19.1 +Insider Trading Policy (incorporated by reference to exhibit 19.1 to annual report on Form 10-K, filed with the SEC on March 20, 2025) +21.1 +List +of Subsidiaries of Neuraxis, Inc. (incorporated by reference to exhibit 21.1 to Registration Statement on Form S-1, filed on January +10, 2023) +23.1* +Consent of Rosenberg Rich Baker Berman, P.A. +31.1* +Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 +31.2* +Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 +32.1** +Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 +97.1 +NeurAxis, +Inc. Compensation Recovery Policy (incorporated by reference to exhibit 97.1 to Annual Report on Form 10-K, filed on April 16, 2024) +101.INS* +Inline +XBRL Instance Document. +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document. +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document. +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document. +104* +Cover +Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +† +Executive compensation plan or arrangement. +* +Filed herewith. +** +Furnished herewith. +ITEM +16. FORM 10-K SUMMARY +Not +Applicable. +92 +Index +to Financial Statements +FOR +THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +Page(s) +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 00 89 ) +F-1 +Balance Sheets as of December 31, 2025 and 2024 +F-2 +Statements of Operations for the Years Ended December 31, 2025 and 2024 +F-4 +Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2025 and 2024 +F-5 +Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +F-6 +Notes to Financial Statements +F-7 +93 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and +Stockholders +of Neuraxis, Inc. +Opinion +on the Financial Statements +We +have audited the accompanying balance sheets of NeurAxis, Inc. (the Company) as of December 31, 2025 and 2024, and the related +statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended +December 31, 2025, and the related notes (collectively referred to as the financial statements). In our opinion, the financial +statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the +results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity +with accounting principles generally accepted in the United States of America. +Emphasis of +Matter Regarding Going Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in +Note 2 to the financial statements, the Company has incurred losses and negative cash flows since inception and will need +substantial capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a +going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not +include any adjustments that might result from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, +we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ +Rosenberg Rich Baker Berman, P.A. +We +have served as the Company’s auditor since 2022. +Somerset, +New Jersey +March +19, 2026 +F- 1 +Neuraxis, +Inc. +Balance +Sheets +December 31, 2025 +December 31, 2024 +Assets +Current Assets: +Cash and cash equivalents +$ 4,965,072 +$ 3,696,870 +Accounts receivable, net of credit losses of $ 7,326 and $ 5,000 as of December 31, 2025 and 2024, respectively +195,703 +244,618 +Inventories, net of reserves of $ 34,524 and $ 4,454 as of December 31, 2025 and 2024, respectively +257,132 +44,328 +Prepaids and other current assets +315,283 +280,367 +Total current assets +5,733,190 +4,266,183 +Property and Equipment, at Cost: +382,465 +464,402 +Less - accumulated depreciation +( 306,901 ) +( 374,420 ) +Property and equipment, net +75,564 +89,982 +Other Assets: +Operating lease right of use asset, net +261,565 +284,656 +Intangible assets, net +274,778 +96,588 +Other non-current assets +58,939 +20,163 +Total Assets +$ 6,404,036 +$ 4,757,572 +Notes +to financial statements are an integral part of these statements. +F- 2 +Neuraxis, +Inc. +Balance +Sheets +December 31, 2025 +December 31, 2024 +Liabilities +Current Liabilities: +Accounts payable +$ 139,365 +$ 596,946 +Accrued expenses +2,393,229 +1,577,780 +Notes payable +148,293 +154,152 +Current portion of operating lease payable +65,752 +62,754 +Customer deposits +28,660 +32,527 +Warrant liabilities +16,800 +9,166 +Total current liabilities +2,792,099 +2,433,325 +Non-Current Liabilities: +Operating lease payable, net of current portion +202,566 +256,499 +Other non-current liabilities +9,999 +- +Total non-current liabilities +212,565 +256,499 +Total liabilities +3,004,664 +2,689,824 +Commitments and contingencies (see note 17) +- +Stockholders’ Equity +Convertible Series B Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; 3,796,907 and 4,280,939 shares issued and outstanding as of December 31, 2025 and 2024, respectively +3,797 +4,281 +Common stock, $ 0.001 par value; 100,000,000 shares authorized; 10,652,812 and 6,990,227 issued and outstanding as of December 31, 2025 and 2024, respectively +10,653 +6,990 +Additional paid in capital +67,985,089 +58,856,089 +Accumulated deficit +( 64,600,167 ) +( 56,799,612 ) +Total stockholders’ equity +3,399,372 +2,067,748 +Total Liabilities and Stockholders’ Equity +$ 6,404,036 +$ 4,757,572 +Notes +to financial statements are an integral part of these statements. +F- 3 +Neuraxis, +Inc. +Statements +of Operations +2025 +2024 +For +the Years Ended December 31, +2025 +2024 +Net +sales +$ +3,569,282 +$ +2,685,925 +Cost +of goods sold +562,916 +362,002 +Gross +profit +3,006,366 +2,323,923 +Selling +expenses +2,279,974 +1,468,884 +Research +and development +493,611 +433,614 +General +and administrative +8,062,689 +7,578,242 +Operating +loss +( 7,829,908 ) +( 7,156,817 ) +Other +income (expense): +Financing +charges +( 30,240 ) +( 230,824 ) +Interest +expense +( 73,969 ) +( 174,328 ) +Change +in fair value of warrant liability +( 7,634 ) +( 941 ) +Amortization +of debt discount and issuance cost +— +( 126,387 ) +Extinguishment +of debt liabilities +— +— +Other +income +141,196 +33,620 +Other +expense +— +( 585,824 ) +Total +other income (expense), net +29,353 +( 1,084,684 ) +Net +loss +$ +( 7,800,555 ) +$ +( 8,241,501 ) +Preferred +stock dividends +( 814,597 ) +( 211,268 ) +Net +loss available to common stockholders +$ +( 8,615,152 ) +$ +( 8,452,769 ) +Per-share +data +Basic +and diluted loss per share +$ +( 0.95 ) +$ +( 1.22 ) +Weighted +average shares outstanding +Basic +and diluted +9,083,399 +6,918,887 +Notes +to financial statements are an integral part of these statements. +F- 4 +Neuraxis, +Inc. +Statements +of Stockholders’ Equity (Deficit) +Shares +Amount +Shares +Amount +Capital +Deficit +(Deficit) +Convertible Series B +Preferred Stock +Common Stock +Additional +Paid In +Accumulated +Stockholders’ +Equity +Shares +Amount +Shares +Amount +Capital +Deficit +(Deficit) +Balances at December 31, 2023 +- +$ - +6,508,897 +$ 6,509 +$ 47,148,361 +$ ( 48,558,111 ) +$ ( 1,403,241 ) +Warrants exercised +- +- +11,000 +11 +26,169 +- +26,180 +Additional paid in capital from warrants issued under advisory agreement +- +- +- +- +157,745 +- +157,745 +Additional paid in capital from warrants issued as debt discount +- +- +- +- +97,465 +- +97,465 +Common stock issued from agreements +- +- +470,330 +470 +1,407,541 +- +1,408,011 +Debt discount on mandatory conversion of convertible promissory notes to Series B Preferred Stock +- +- +- +- +( 165,577 ) +- +( 165,577 ) +Conversion of convertible promissory notes to Series B Preferred Stock +2,073,524 +2,074 +- +- +4,932,929 +- +4,935,003 +Issuance of Series B Preferred Stock +2,207,415 +2,207 +- +- +5,251,456 +- +5,253,663 +Net loss +- +- +- +- +- +( 8,241,501 ) +( 8,241,501 ) +Balances at December 31, 2024 +4,280,939 +4,281 +6,990,227 +6,990 +58,856,089 +( 56,799,612 ) +2,067,748 +Balance +4,280,939 +$ 4,281 +6,990,227 +$ 6,990 +$ 58,856,089 +$ ( 56,799,612 ) +2,067,748 +Warrants exercised +- +- +946,525 +947 +1,097,245 +- +1,098,192 +Common stock issued from agreements +- +- +52,989 +53 +146,353 +- +146,406 +Conversion of Series B Preferred Stock to Common Stock +( 484,032 ) +( 484 ) +484,032 +484 +- +- +- +Issuance of common stock pursuant to shelf registration statement +- +- +2,161,645 +2,162 +7,726,261 +- +7,728,423 +Offering costs +- +- +- +- +( 688,804 ) +- +( 688,804 ) +Additional paid in capital from restricted stock units +- +- +- +- +251,110 +- +251,110 +Common stock issued under the 2022 Omnibus Securities and Incentive Plan +- +- +17,394 +17 +( 17 ) +- +- +Stock-based compensation +- +- +- +- +596,852 +- +596,852 +Net loss +- +- +- +- +- +( 7,800,555 ) +( 7,800,555 ) +Balances at December 31, 2025 +3,796,907 +$ 3,797 +10,652,812 +$ 10,653 +$ 67,985,089 +$ ( 64,600,167 ) +$ 3,399,372 +Balance +3,796,907 +$ 3,797 +10,652,812 +$ 10,653 +$ 67,985,089 +$ ( 64,600,167 ) +$ 3,399,372 +Notes +to financial statements are an integral part of these statements. +F- 5 +Neuraxis, +Inc. +Statements +of Cash Flows +2025 +2024 +For the Years Ended December 31, +2025 +2024 +Cash Flows from Operating Activities +Net loss +$ ( 7,800,555 ) +$ ( 8,241,501 ) +Adjustments to reconcile net loss to net cash used by operating activities: +Amortization of debt discount and issuance cost +— +126,387 +Depreciation and amortization +59,501 +37,831 +Provisions for losses on accounts receivable +2,326 +7,395 +Provision for losses on inventory +30,070 +4,454 +Loss on disposal of property and equipment +7,878 +— +Non-cash lease expense +23,092 +32,075 +Stock based compensation +596,852 +227,000 +Issuance of common stock for non-cash consideration +— +1,177,187 +Fair value of warrants issued for non-cash consideration +— +157,745 +Finance charges +30,240 +230,824 +Change in fair value of warrant liabilities +7,634 +941 +Changes in operating assets and liabilities: +Accounts receivable +46,589 +( 178,845 ) +Inventory +( 242,874 ) +( 32,500 ) +Prepaids and other current assets +240,975 +56,157 +Accounts payable +( 457,583 ) +( 607,273 ) +Accrued expenses +1,082,727 +949,693 +Customer deposits +( 3,867 ) +( 42,420 ) +Operating lease liability +( 50,935 ) +( 3,414 ) +Other non-current liabilities +( 4,913 ) +— +Net cash used by operating activities +( 6,432,843 ) +( 6,098,264 ) +Cash Flows from Investing Activities +Additions to property and equipment +( 31,150 ) +( 27,776 ) +Additions to intangible assets +( 100,000 ) +— +Net cash used by investing activities +( 131,150 ) +( 27,776 ) +Cash Flows from Financing Activities +Proceeds from issuance of common stock, net of issuance costs +7,728,423 +— +Proceeds from issuance of Series B preferred stock +— +5,253,663 +Deferred offering costs paid +( 712,669 ) +— +Proceeds from exercised warrants +1,098,192 +26,180 +Principal payments on notes payable +( 281,751 ) +( 275,994 ) +Proceeds from convertible notes +— +4,935,003 +Financing fees paid +— +( 194,502 ) +Net cash provided by financing activities +7,832,195 +9,744,350 +Net Increase in Cash and Cash Equivalents +1,268,202 +3,618,310 +Cash and Cash Equivalents at Beginning of Period +3,696,870 +78,560 +Cash and Cash Equivalents at End of Period +$ 4,965,072 +$ 3,696,870 +Supplemental Disclosure of Operating Activities +Cash paid for interest +$ 11,854 +$ 33,830 +Cash paid for federal income taxes +— +— +Cash refunded for state income taxes +13,140 +10,164 +Supplemental Disclosure of Non-Cash Investing and Financing Activities +Recognition of right of use asset +$ 37,970 +$ 284,339 +Derecognition of right of use asset +29,014 +— +Conversion of convertible promissory notes to Series B preferred stock +— +4,935,000 +Fair value of warrants from debt discount in convertible notes classified as additional paid in capital +— +97,465 +Write-off of debt discount on convertible notes classified as additional paid in capital +— +165,577 +Issuance of note payable to financing company for insurance premiums and software subscription +292,253 +282,086 +Common stock issued upon cashless exercise of warrants +186 +— +Common stock issued upon cashless conversion of Series B Preferred Stock +484 +— +Common stock issued for services accrued as of December 31, 2024 +112,493 +— +Common stock issued upon settlement of certain claims +3,673 +— +Intangible asset purchase +100,000 +— +Notes +to financial statements are an integral part of these statements. +F- 6 +Neuraxis, +Inc. +Notes +to Financial Statements +1. +Basis of Presentation, Organization and Other Matters +Neuraxis, +Inc. (“we,” “us,” the “Company,” or “Neuraxis”) was established in 2011 and incorporated +in the state of Indiana in 2012 under the name of Innovative Health Solutions, Inc. The name was changed to NeurAxis, Inc. in 2022 when +the Company filed a Certificate of Conversion to become a Delaware corporation. +The +Company is headquartered in Carmel, Indiana, and specializes in the development, production, and sale of medical neuromodulation devices. +The Company has developed four FDA cleared products: (i) IB-Stim (DEN180057, 2019), (ii) Rectal Expulsion Device (“RED”) +(K242304, 2024), (iii) NSS-2 Bridge (DEN170018, 2017) and (iv) the original 510(K) clearance (K140530, 2014). +● +IB-Stim +is a percutaneous electrical nerve field stimulator (PENFS) device that is indicated in patients 8 years and older with functional abdominal +pain associated with irritable bowel syndrome, functional dyspepsia (FD) and associated FD nausea symptoms. +● +RED +is indicated to evaluate the neuromuscular function of a patient’s ability to expel its contents from the rectum and as a qualitative +test for rectal hypersensitivity patients who experience desire or urge to defecate at lower volumes of distention. RED is intended +to be used in a clinical setting by trained health care providers in adult populations. +● +The +NSS-2 Bridge is a percutaneous nerve field stimulator (PNFS) device indicated for use in the reduction of the symptoms of opioid +withdrawal and was licensed to Masimo Corporation (“Masimo”). Masimo marketed and sold this product as its Masimo Bridge. +On July 1, 2025, The Company terminated the NSS-2 Bridge license with Masimo in exchange for $ 200,000 of consideration payable of +which $ 100,000 was paid on December 31, 2025 and $ 100,000 is due June 30, 2026. The termination agreement allowed the Company to +recapture the rights to the trademark (U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821/255 and +Application No. 29/960.608) that were originally licensed to Masimo on April 9, 2020. +● +The +original 510(K) device was the EAD, an electroacupuncture device, now called NeuroStim. The EAD is no longer being manufactured, +sold or distributed but reserved only for research purposes. +F- 7 +Neuraxis, +Inc. +Notes +to Financial Statements +2. +Summary of Significant Accounting Policies +The +summary of significant accounting policies of Neuraxis, Inc. is presented to assist in understanding the Company’s financial statements. +The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and +objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in +the preparation of the financial statements. +Use +of Estimates and Critical Accounting Estimates and Assumptions +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the +reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements +and the reported amounts of revenues and expenses during the reporting periods. +These +significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these +estimates or assumptions, and certain estimates or assumptions are difficult to measure or value. +Management +bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial +statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values +of assets and liabilities that are not readily apparent from other sources. +Management +regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes +in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates +are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for credit +losses, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of property and equipment, +and intellectual property. Actual results could differ from those estimates. +Reclassification +of Prior Year Amounts +Certain +prior year amounts have been reclassified to conform to current period presentation. The Company reclassified $ 1,144,176 of general +and administrative expenses to selling expenses in the Statements of Operations for the year ended December 31, 2024. The Company also +reclassified $ 227,507 of general and administrative expenses to research and development expenses in the Statements of Operations +for the year ended December 31, 2024. These reclassifications had no impact on previously reported net loss, total assets, total liabilities +or total equity. +Cash +and Cash Equivalents +The +Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company +did no t hold any cash equivalents as of December 31, 2025 and 2024. +Accounts +Receivable and Allowance for Credit Losses +Accounts +receivable are stated at the amount management expects to collect from outstanding balances, net of an allowance for credit losses. +Management evaluates many factors when determining the collectability of specific customer accounts, including, but not limited to, +creditworthiness, past transaction and payment history, current economic industry trends and changes in payment terms. Management +used assumptions and judgment based on the best available facts and circumstances to estimate and record an allowance. The Company +monitors accounts receivable and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses +are based on historical collection experience, an aging schedule, and other factors, including those related to current and +forecasted market conditions and events. The allowance for credit losses was $ 7,326 +and $ 5,000 +as of December 31, 2025 and 2024, respectively. The Company recorded credit losses for the years ended December 31, 2025 and 2024 of +$ 2,326 and +$ 7,395 , +respectively. +F- 8 +Neuraxis, +Inc. +Notes +to Financial Statements +Inventories +Inventories +are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The inventory is +comprised of finished medical devices on hand. Certain components within the devices have an expiration date that are removed from +current inventory and expensed at the date of expiration. The Company has reserved for expired inventory as charges to cost of goods +sold of $ 19,973 and $ 0 for the years ended December 31, 2025 and 2024, respectively, and research devices as charges to research and +development of $ 10,097 and $ 4,454 for the for the years ended December 31, 2025 and 2024, respectively. Inventory reserves totalled +$ 34,524 and +$ 4,454 as +of December 31, 2025 and 2024, respectively. +Property +and Equipment +Property +and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated +useful lives of the assets. +Depreciation +is calculated using the following estimated useful lives: +Schedule of Estimated Useful Lives +Classification +Years +Machinery +and Equipment +7 - 10 +Furniture +and Fixtures +3 - 10 +Computer +Hardware +5 +Leasehold +Improvements +10 - 20 +Depreciation +expense was $ 37,691 and $ 26,346 during the years ended December 31, 2025 and 2024, respectively. +Intangible +Assets +Intangible +assets consist of software, patents, a trademark and a license. Intangible assets are stated at their historical cost and amortized on +a straight-line basis over their expected useful lives. Capitalized patent costs, net of accumulated amortization, includes legal costs +incurred for patent applications. In accordance with ASC 350, once a patent is granted, the capitalized patent costs are amortized over +the remaining life of the patent using the straight-line method. If the patent is not granted, we write off any capitalized patent costs +at that time. +The +Company purchased a trademark related to the Company’s name for $ 50,000 . The trademark does not have a determinate life and therefore +the cost is not being amortized. +F- 9 +Neuraxis, +Inc. +Notes +to Financial Statements +We +review intangible assets for impairment annually or when events or circumstances indicate that their carrying amount may not be recoverable. +During the years ended December 31, 2025, and 2024, the Company recorded no intangible asset impairment charges. +Amortization +expense was $ 21,810 and $ 11,485 during the years ended December 31, 2025 and 2024, respectively. +Cloud +Computing Costs +The +Company utilizes cloud computing arrangements that are hosted by third-party vendors to support its operations. The Company accounts +for these arrangements as service contracts. Implementation costs incurred in connection with cloud computing arrangements are evaluated +in accordance with the guidance for internal-use software. Cost incurred during the application development state, including configuration, +coding, testing and integration activities, are capitalized. Costs incurred during the preliminary project and post-implementation stages, +as well as costs related to data conversion and ongoing support, are expensed as incurred. Payroll and payroll-related costs for employees +directly associated with the project are also expensed as incurred. +Cloud +computing implementation costs are included in Intangible Assets on the Company’s consolidated balance sheets and amortized on +a straight-line basis over the term of the relating hosting arrangement, including periods covered by renewal options that are reasonably +assured to be exercised. The Company evaluates cloud computing implementation costs for impairment annually or when events or circumstances +indicated that their carrying amount may not be recoverable. +Cloud +computing implementation costs, net of accumulated amortization, were $ 19,909 and $ 28,454 as of December 31, 2025 and 2024, respectively. +Amortization expense related to cloud computing implementation costs totaled $ 8,545 and $ 8,545 for the years ended December 31, 2025 +and 2024, respectively. +Impairment +of Long-Lived Assets +Long-lived +assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may +not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, +we compare the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated +by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment +to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. +Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. +Selling +Expenses +Selling +expenses consist primarily of advertising, marketing and promotion of the Company’s products including salaries and related personnel +costs and travel expenses. Advertising costs are expensed as incurred and amounted to $ 546,628 and $ 232,125 for the years ended +December 31, 2025 and 2024, respectively. +Research +and Development +Research +and development expenses consist primarily of clinical research studies, new product development, costs of materials and supplies used +in research and development activities and salaries and related personnel costs for employees engaged in research and development activities +of IB-Stim and RED as we seek FDA clearance for other indications. Research and development costs are expensed as incurred. +Income +Taxes +The +Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in +the Company’s financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences +between the financial statement carrying amounts, and the tax bases of existing assets and liabilities for the loss and credit carry +forwards using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax +assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized. The Company determines +whether a tax position will be sustained upon examination. If it is more likely than not that a position will be sustained, the +benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely +than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of +the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income +taxes. +Management’s +evaluation of the Company’s deferred tax assets and liabilities did not have a material effect on the Company’s financial +statements. Furthermore, no interest or penalties have been accrued as of December 31, 2025 and 2024 or charged to expense for the years +then ended. +F- 10 +Neuraxis, +Inc. +Notes +to Financial Statements +Warrant +Liabilities +Management +evaluates all of the Company’s financial instruments, including issued warrants to purchase its common stock, to determine if such +instruments are liabilities pursuant to ASC 480 and ASC 815-15. The classification of derivative financial instruments, including whether +such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. +The +Company utilizes a Black-Scholes option-pricing model to compute the fair value of the derivative and to mark-to-market the fair value +of the derivative at each balance sheet date. The inputs utilized in the application of the Black-Scholes option-pricing model included +an exercise price, the stock price as of the valuation date, an expected remaining term of each warrant as of the valuation date, estimated +volatility, a dividend yield, and a risk-free rate. The Company records the change in the fair value of the warrant as other income or +expense in the statements of operations. +Fair +Value Measurements +The +Company accounts for financial instruments in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value +Measurements and Disclosures , which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to +measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities +(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy +under ASC 820 are described as follows: +Level +1 – Quoted prices (unadjusted) for identical unrestricted assets or liabilities in active markets that the reporting entity has +the ability to access as of the measurement date. +Level +2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted +prices in markets that are not active, or financial instruments for which all significant inputs are observable or can be corroborated +by observable market date, either directly or indirectly. +Level +3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets +or liabilities. These unobservable inputs reflect that reporting entity’s own assumptions about what market participants would +use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing +models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value require +significant management judgment or estimation. +The +Company’s Level 1 assets and liabilities include cash, accounts receivable, accounts payable, prepaids, and other current assets. +Management believes the estimated fair value of these accounts on December 31, 2025 approximate their carrying value as reflected +in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments. +The +Company’s Level 3 assets and liabilities include warrant liabilities and the floating lookback option provision in the +Neuraxis, Inc. Employee Stock Purchase Plan. Inputs to determine fair value are generally unobservable and typically reflect +management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values +are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. The +valuation techniques involve management’s estimates and judgment based on unobservable inputs. The fair value estimates may +not be indicative of the amounts that would be realized in a market exchange. Additionally, there may be inherent uncertainties or +changes in the underlying assumptions used, which could significantly affect the current or future fair value estimates. +Unobservable inputs used in the models are significant to the fair values of the assets and liabilities. +F- 11 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis: +Schedule of Fair Value of Assets and Liabilities measured on Recurring Basis +Total +Level +1 +Level +2 +Level +3 +Valuation +Methodology +Unobservable +Inputs +Fair +value of warrant liabilities as of December 31, 2025 +$ +16,800 +$ +— +$ +— +$ +16,800 +Black-Scholes +model +Project +simulated cash flows +Fair +value of warrant liabilities as of December 31, 2024 +$ +9,166 +$ +— +$ +— +$ +9,166 +Black-Scholes +model +Project +simulated cash flows +Fair +value of warrant liabilities +$ +9,166 +$ +— +$ +— +$ +9,166 +Black-Scholes +model +Project +simulated cash flows +There +were no transfers between any of the levels during the years ended December 31, 2025 and 2024. In addition to assets and liabilities +that are recorded at fair value on a recurring basis, the Company’s had no assets and liabilities that were measured on a nonrecurring +basis as of December 31, 2025 and 2024. +Basic +and Diluted Net Income (Loss) per Share +Basic +earnings or loss per share (“EPS”) is computed by dividing net income (loss), net of preferred stock dividends, by the weighted +average number of common shares outstanding during the period. Diluted EPS is determined using the weighted average number of common +shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents that were outstanding for the periods +presented. In periods when losses are reported, which is the case for the years ended December 31, 2025 and 2024, the weighted average +number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. Preferred stock +dividends (neither declared nor paid) were $ 814,597 and $ 211,268 as of December 31, 2025 and 2024, respectively. +F- 12 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company had the following potentially dilutive common stock equivalents at December 31, 2025 and 2024: +Schedule of Dilutive Common Stock Equivalents +2025 +2024 +Options +1,319,394 +1,319,394 +Pre-Funded +Warrants for Common Stock +— +289,779 +Warrants +1,379,524 +2,352,751 +Series +B Preferred Stock +3,796,907 +4,280,939 +Totals +6,495,825 +8,242,863 +The +following table shows the calculation of the basic and diluted net loss per share and the effect of cumulative preferred stock +dividends: +Schedule of Basic and Diluted Net Loss Per Share +2025 +2024 +For +the Years Ended December 31, +2025 +2024 +Numerator +Net +loss +$ +( 7,800,555 ) +( 8,241,501 ) +Cumulative preferred +stock dividends +( 814,597 ) +( 211,268 ) +Net +loss available to common stockholders +( 8,615,152 ) +( 8,452,769 ) +Denominator +Weighted-average +shares of common stock outstanding - basic and diluted +9,083,399 +6,918,887 +Basic +and diluted net loss per share +$ +( 0.95 ) +$ +( 1.22 ) +Stock-Based +Compensation +The +Company accounts for all stock-based awards at fair value. The Company recognizes its stock-based compensation expense using the straight-line +method. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture. +The +Company accounts for the granting of stock options and restricted stock units to employees and non-employees using the fair value method +whereby all awards are measured at fair value on the date of the grant. The fair value of all employee stock options and restricted stock +units is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock +options, the consideration paid by the option holder is recorded in additional paid-in capital, while the par value of the shares received +is reclassified from additional paid-in-capital to common stock. Upon vesting of restricted stock units, the par value of the shares +issued are reclassified from additional paid-in-capital to common stock. +Stock-based +awards to non-employees are measured based on the fair value of the equity instrument issued. Compensation expense for non-employee stock +awards is recognized over the requisite service period following the measurement of the fair value on the grant date. +The +Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options. The use of the Black-Scholes option-pricing +model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common +stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend +yield of the common stock. Changes in these assumptions can materially affect the fair value estimate. +F- 13 +Neuraxis, +Inc. +Notes +to Financial Statements +Revenue +Recognition +In +accordance with ASC 606, Revenue from Contracts with Customers , the Company recognizes revenue when its customer +obtains control of promised goods, in an amount that reflects the consideration which the Company expects to be entitled +in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the +scope of ASC 606, it performs the following five steps: +(i) +identify +the contract(s) with a customer; +(ii) +identify +the performance obligations in the contract; +(iii) +determine +the transaction price; +(iv) +allocate +the transaction price to the performance obligations in the contract; and +(v) +recognize +revenue when (or as) the entity satisfies a performance obligation. +The +Company applies the five-step model to contracts when it determines that it is probable it will collect substantially all the consideration +it is entitled to in exchange for the goods it transfers to the customer. At contract inception, once the contract is determined +to be within the scope of ASC 606, the Company assesses the goods promised within each contract and determines those that +are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the +amount of the transaction price, after consideration of variability and constraints, if any, that is allocated to the respective performance +obligation when the performance obligation is satisfied. +The +Company offers a Patient Assistance Program for pediatric patients without insurance coverage for IB-Stim. This program offers potential +self-pay discounts for IB-Stim, based upon household income and size. +Also, +the Company offers providers an opt-in program to address adequate insurance claim payments on IB-Stim devices. This program may extend +a rebate or invoice credit where the insurance payment and patient responsibility (i.e., deductible, co-payment, and/or co-insurance +amounts required by the Payer) are less than the acquisition cost of IB-Stim. The Company recognizes revenue at such a time that collection +of the amount due is probable. +The +following table disaggregates the Company’s revenue based on the customer’s location by state for the years ended December +31: +Schedule of Disaggregation of Revenue +2025 +2024 +California +$ +898,223 +$ +778,209 +Ohio +578,769 +431,328 +Massachusetts +265,201 +154,407 +Illinois +222,389 +246,217 +Wisconsin +215,431 +157,786 +Florida +143,947 +149,985 +All +other states +1,245,322 +767,993 +$ +3,569,282 +$ +2,685,925 +Certain +economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows. All of the Company’s +products are sold to healthcare customers including hospitals and clinics. Sales to healthcare customers are subject to seasonality and +have a mild correlation with economic cycles. All of the Company’s sales are to customers located within the United States. Sales +contracts consist of purchase orders that are short-term (i.e., less than or equal to one year). +F- 14 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company typically satisfies its performance obligations for goods at a point in time as they are received at the customer’s destination +(rather than over time). Goods are shipped by common carrier to customers under FOB destination terms. As such, ownership of goods in +transit is transferred to the customer upon receipt as the Company bears the associated risks (e.g., loss, damage or delay). Management +typically relies on shipping information from common carriers to evaluate when the customer has obtained control of the goods. Shipping +and handling costs are recorded as Cost of Goods Sold in the Statements of Operations. +The +Company’s contracts with customers typically do not involve variable consideration. The information that the Company uses to determine +the transaction price for a contract is similar to the information that the Company’s management uses in establishing the prices +of goods to be sold. +Orders +may not be cancelled after shipment. Customers may return devices if the goods are found to be defective, nonconforming, or otherwise +do not meet the stated technical specifications. At the option of the customer, the Company shall either: +● +Refund +the price paid for any defective or nonconforming products. +● +Supply +and deliver to the customer replacement conforming products. +● +Reimburse +the customer for the cost of repairing any defective or nonconforming products. +At +the time revenue is recognized, the Company estimates expected returns and excludes those amounts from revenue. The Company also reflects +the effects of expected returns on the Company’s financial position and periodically adjusts those accounts to reflect its actual +return experience. Estimated returns totalled $ 13,824 and $ 5,000 as of December 31, 2025 and 2024, respectively. +Payment +for goods sold by the Company is typically due after an invoice is sent to the customer, within 30 days. The Company does not offer discounts +if the customer pays some or all of an invoiced amount prior to the due date. None of the Company’s contracts have a significant +financing component. +Customer deposits are contract liabilities under ASC 606. As of December 31, 2025, and 2024, the Company had customer deposits of $ 28,660 +and $ 32,527 , respectively. +Medical +devices that the Company contracts to sell and transfer to customers are manufactured by two separate and distinct third-party manufacturers +located within the states of Indiana and Michigan. In no case does the Company act as an agent (i.e., the Company does not provide a +service of arranging for another party to transfer goods to the customer). +F- 15 +Neuraxis, +Inc. +Notes +to Financial Statements +Leases +In +accordance with ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based +on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance +sheet as right-of-use assets and current and non-current lease liabilities, as applicable. +Operating +lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over +the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. +The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental +borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis +the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company +will adjust the right-of-use assets for straight-line rent expense, or any incentives received and remeasure the lease liability at the +net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date. The Company +has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes +an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment +unless there is reasonable certainty that the Company will renew. +Assumptions +made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease +modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original +lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification +results in a separate contract, it is accounted for in the same manner as a new lease. +Entities +may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together +as a single lease component for all underlying assets and allocate all the contract consideration to the lease component only. +F- 16 +Neuraxis, +Inc. +Notes +to Financial Statements +Concentrations +of Credit Risk +The +Company’s business activity consists of the sale of medical neuromodulation devices to doctors, clinics, and hospitals across the +country. Receivables consist of unsecured amounts due from customers. The table below sets forth the Company’s customers that accounted +for greater than 10% of its net accounts receivable for the years ended December 31, 2025 and 2024, respectively. +Schedule of Customer Accounts Receivable +Percentage +of Net Accounts +Percentage +of Net Accounts +2025 +Receivable +2024 +Receivable +Customer +A +$ +43,020 +22 +% +$ +- +0 +% +Customer +B +- +0 +% +119,616 +49 +% +$ +43,020 +22 +% +$ +119,616 +49 +% +The +table below sets forth the Company’s customers that accounted for greater than 10% of its net sales for the years ended December +31, 2025 and 2024, respectively. +Schedule of Customers Accounted Revenues +Percentage +of +Percentage +of +2025 +Net +Sales +2024 +Net +Sales +Customer +A +$ +512,288 +14 +% +$ +396,950 +15 +% +Customer +B +493,444 +14 +% +521,810 +20 +% +$ +1,005,732 +28 +% +$ +918,760 +35 +% +From +time to time, the Company’s bank balances may exceed the FDIC limit of $ 250,000 . As of December 31, 2025 and 2024, the Company +had $ 4,465,073 and $ 3,263,618 of its cash balance uninsured, respectively. +Going +Concern +We +have incurred losses and negative cash flows since inception and have funded our operations primarily with a combination of sales, debt, +and the sale of capital stock. As of December 31, 2025, we had stockholders’ equity of $ 3,399,372 , short-term outstanding borrowings +of $ 148,293 , cash of $ 4,965,072 and a working capital surplus of $ 2,941,091 . +F- 17 +Neuraxis, +Inc. +Notes +to Financial Statements +Our +future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, +the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, +our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including +regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires +us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to +new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial +insurance carriers nationally which is a top priority of the Company. These activities, including our planned research and development +efforts, will require significant uses of working capital through the rest of 2026 and beyond. Based on our current operating plans, +we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs before the +end of 2025. +Management +evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going +concern for a period of one year from the date the financial statements are issued. +While +the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in +its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance +that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent +upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by +way of a public or private offering. Neither future cash generated from operating activities, nor management’s contingency plans +to mitigate the risk and extend cash resources through the evaluation period, are considered probable. As a result, substantial doubt +is deemed to exist about the Company’s ability to continue as a going concern. As we continue to incur losses, our transition to +profitability is dependent upon achieving a level of revenues adequate to support our cost structure. We may never achieve profitability, +and unless and until doing so, we intend to fund future operations through additional dilutive or nondilutive financing. There can be +no assurances, however, that additional funding will be available on terms acceptable to us, if at all. +The +financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the +amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. +Recently +Adopted Accounting Pronouncements +In +November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, +Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires disclosure of (i) significant segment +expenses, (ii) other segment items and (iii) the title and position of the Chief Operating Decision Maker (“CODM”) on an +annual and interim basis. Additionally, ASU 2023-07 requires that a public entity that has a single reportable segment provide all the +disclosures required by Topic 280. Public business entities are required to adopt the standard for fiscal years beginning after December +15, 2023 and interim periods withing fiscal year beginning after December 15, 2024. Disclosures are required for all prior periods presented +in the financial statements. The Company adopted the disclosure provisions of ASU 2023-07 as of December 31, 2024 as operations are managed +through one reportable segment. +F- 18 +Neuraxis, +Inc. +Notes +to Financial Statements +In +December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires the +enhancement of income tax disclosures to provide better insight into how an entity’s operations and related tax risks, planning +and opportunities affect its tax rate and prospects for future cash flows. The enhanced disclosures require (i) specific categories in +a tabular rate reconciliation including both amounts and percentages and (ii) additional information for reconciling items and income +tax paid that meet a quantitative threshold. Public business entities are required to adopt the standard for annual periods beginning +after December 15, 2024. The Company adopted the disclosure provisions of ASU 2023-09 as of December 31, 2025, on a prospective basis. +The adoption of this guidance did not have a material impact on the Company’s financial statements. +Recently +Issued Accounting Pronouncements +In +September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted +Improvement to the Accounting for Internal-Use Software , which replaces project stage milestones with required capitalization when +management has authorized and committed to funding the software project and it is probably that the project will be completed and the +software will be used to perform the function intended. Depreciation expense and accumulated depreciation for internal-use software are +also required to be disclosed for all periods presented. All entities are required to adopt the standard for fiscal years beginning after +December 15, 2027 and interim periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual +reporting period. The adoption is not expected to have a material impact on the Company’s financial statements. +In +July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326) , which allows registrants to elect +a practical expedient when estimating expected credit losses on accounts receivable. Under the practical expedient, an entity may assume +that the current conditions as of the balance sheet date persist for the remaining life of the asset, thereby removing the requirement +to generate forward-looking forecasts. All entities are required to adopt the standard prospectively for fiscal years beginning after +December 15, 2025, and interim periods within those annual reporting periods. Early adoption is permitted in both interim and annual +reporting periods. The adoption is not expected to have a material impact on the Company’s financial statements. +In +November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures +(Subtopic (220-40): Disaggregation of Income Statement Expenses , which requires disclosures that disaggregate, in a tabular presentation, +each relevant expense caption on the face of the income statement that includes inventory purchases, employee compensation, depreciation +and intangible amortization expense. Additional disclosures are also required to provide a qualitative description of the amounts in +an expense caption that are not separately disaggregated quantitatively and the total amount of selling expenses including a definition. +Public business entities are required to adopt the standard for fiscal years beginning after December 15, 2026 and interim periods within +fiscal years beginning after December 15, 2027. Disclosures are required for all prior periods presented in the financial statements. +Although the standard requires enhanced disclosures, the adoption is not expected to have a material impact on the Company’s financial +statements. +F- 19 +Neuraxis, +Inc. +Notes +to Financial Statements +3. +Related Party Transactions +The +Company has two demand notes receivable from shareholders related to the sale of common stock on January 1, 2016. Both notes’ initial +balances were $ 506,400 , with interest calculated monthly based on applicable federal rates. No payments have been received on the notes. +Since repayment is not assured, the Company has fully reserved for the entire balance of principal and interest. The current allowance +is $ 1,241,559 as of December 31, 2025. The current loan balances are as follows: +Schedule of Related Party Transactions +Loan +Interest +Interest +December +31, 2025 +Receivable +Receivable +Income +Shareholder +1 +$ +506,400 +$ +114,447 +$ +20,096 +Shareholder +2 +506,400 +114,312 +20,096 +Principal +Balance +1,012,800 +228,759 +40,192 +Allowance +for Collection Risk +( 1,012,800 ) +( 228,759 ) +( 40,192 ) +Net +Balance +$ +— +$ +— +$ +— +Loan +Interest +Interest +December +31, 2024 +Receivable +Receivable +Income +Shareholder +1 +$ +506,400 +$ +94,351 +$ +23,413 +Shareholder +2 +506,400 +94,216 +23,413 +Principal +Balance +1,012,800 +188,567 +46,826 +Allowance +for Collection Risk +( 1,012,800 +) +( 188,567 +) +( 46,826 +) +Net +Balance +$ +— +$ +— +$ +— +The +Company has loans payable to shareholders related to funding needs for operations. The current loan details for all related party loans +are as follows: +Schedule of Related Party Loans payable to shareholder +Interest +& +Interest +Loan +Service +Fee +Interest +December +31, 2025 +Due +Date +Rate +Balance +Accrued +Paid +Other +Convertibles +Various +5.0 % +— +66,648 +— +Total +$ +— +$ +66,648 +$ +— +Interest +& +Interest +Loan +Service +Fee +Interest +December +31, 2024 +Due +Date +Rate +Balance +Accrued +Paid +Other +Convertibles +Various +5.0 % +— +66,648 +— +Total +$ +— +$ +66,648 +$ +— +The +Company was granted an exclusive, worldwide non-transferable, royalty-free license for the auricular portion of certain patents owned +by a limited liability company in which the Company’s President and Chief Executive Officer and Chief Regulatory, Compliance and +Privacy Officer both maintain an ownership interest. The license allows for the development, marketing and sales of electro-therapy treatments +by stimulation of cranial nerves, cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles and auricular +anatomical structures in human patients. The exclusive license agreement expires on October 18, 2037, may be terminated by either party +upon 60 days prior written notice and requires the Company to pay costs associated with the maintenance, prosecution and continuation +of patent filings. The Company’s Board of Directors pre-approved the reimbursement of up to $ 10,000 for the year ended December +31, 2025. License costs incurred were $ 4,412 and $ 4,973 for the years ended December 31, 2025 and 2024, respectively. No amounts were +owed to the limited liability company as of December 31, 2025 and 2024, respectively. +From +time to time, a member of the Company’s Board of Directors purchases NeuroStim devices at cost to conduct research and development +activities. The Company’s Board of Directors pre-approved the sale of these NeuroStim devices up to $ 16,000 for the year ended +December 31, 2025. The Company sold NeuroStim devices totaling $ 9,380 and $ 3,522 for the years ended December 31, 2025 and 2024, respectively, +under this program. +The +Company’s former Chief Financial Officer through February 5, 2024 was contracted for certain accounting and tax services on a +continuous basis through a through a third-party public accounting firm. He was the firm’s managing partner and majority +shareholder. The services totaled $ 44,365 +and $ 207,103 +for the years ended December 31, 2025 and 2024, respectively. The Company owed the third-party accounting firm for open invoices of +$ 2,578 +and $ 4,173 +that are included in accounts payable in the Balance Sheets as of December 31, 2025 and 2024, respectively. On June 28, 2024, the +Company also issued 20,000 +common shares with a fair value $ 55,600 +to the former Chief Financial Officer for services rendered during the IPO process. +F- 20 +Neuraxis, +Inc. +Notes +to Financial Statements +4. +Prepaids and Other Current Assets +Prepaid +and other current assets consisted of the following: +Schedule of Prepaids and Other Current Assets +December +31, 2025 +December +31, 2024 +Prepaid +insurance +$ +141,299 +$ +186,028 +Prepaid +software subscriptions +103,390 +39,834 +Other +70,594 +54,505 +Total +prepaids and other current assets +$ +315,283 +$ +280,367 +5. +Property and Equipment +Property +and equipment, net consists of the following: +Schedule of Property And Equipment +December +31, 2025 +December +31, 2024 +Machinery +and equipment +$ +300,181 +$ +282,181 +Furniture +and fixtures +37,403 +111,036 +Computer +hardware +44,881 +50,121 +Leasehold +improvements +- +21,064 +Total +property and equipment +382,465 +464,402 +Less: +accumulated depreciation +( 306,901 ) +( 374,420 ) +Property +and equipment, net +$ +75,564 +$ +89,982 +Depreciation +expense was $ 37,691 and $ 26,346 for the years ended December 31, 2025 and 2024, respectively. The Company expects to record future depreciation +expense totalling $ 32,136 , $ 21,708 , $ 10,123 , $ 3,380 , $ 2,028 and $ 6,189 for the years ending December 31, 2026, 2027, 2028, 2029, 2030 +and thereafter, respectively. +6. +Intangible Assets +Intangible +assets, net consists of the following: +Schedule of Intangible Assets +December +31, 2025 +December +31, 2024 +Cloud +computing implementation costs +$ +49,815 +$ +49,815 +Patents +232,464 +32,463 +Trademark +50,000 +50,000 +Licenses +- +1,000 +Total +intangible assets +332,279 +133,278 +Less: +accumulated amortization +( 57,501 ) +( 36,690 ) +Intangible +assets, net +$ +274,778 +$ +96,588 +On +July 1, 2025, the Company terminated the NSS-2 Bridge license with Masimo in exchange for $ 200,000 of consideration payable of which +$ 100,000 was paid on December 31, 2025, and $ 100,000 is due June 30, 2026. The termination agreement allowed the Company to recapture +the rights to the trademark (U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821,225 and Application +No. 29/960,608) that were licensed to Masimo on April 9, 2020 for use in the reduction of the symptoms of opioid withdrawal. The intellectual +property will be amortized over its remaining patent life of approximately nine years. +The +Company entered into an option agreement on April 12, 2023 to bring an optionor’s invention to commercialization via a royalty-bearing +licensing agreement. The agreement required an initial payment of $ 1,000 and was fully amortized in the year ended December 31, 2024. +Amortization +expense was $ 21,810 and $ 11,485 for the years ended December 31, 2025 and 2024, respectively. The Company expects to record future amortization +expense totalling $ 33,135 , $ 33,135 , $ 27,410 , $ 24,591 , $ 24,591 and $ 81,916 for the years ending December 31, 2026, 2027, 2028, 2029, 2030 +and thereafter, respectively. The Company’s trademark does not have a determinate life and therefore the cost is not being amortized. +7. +Other Non-Current Assets +Other +non-current assets consisted of the following +Schedule of Other Non-Current Assets +December +31, 2025 +December +31, 2024 +Deferred +offering costs +$ +23,864 +$ +— +Prepaid +software subscriptions +14,912 +— +Security +deposit +20,163 +20,163 +Total +other non-current assets +$ +58,939 +$ +20,163 +F- 21 +Neuraxis, +Inc. +Notes +to Financial Statements +8. +Accrued Expenses +Accrued +expenses consisted of the following: +Schedule of Accrued Expenses +December +31, 2025 +December +31, 2024 +Compensation +and benefits +$ +1,359,993 +$ +1,261,317 +Settled +litigation +692,683 +— +NSS +Bridge lease termination fee +100,000 +— +Legal +fees +65,714 +43,891 +Interest +66,648 +66,648 +Advisory +fees +- +176,750 +Other +108,191 +29,174 +Total +accrued expenses +$ +2,393,229 +$ +1,577,780 +9. +Notes Payable +Promissory +Notes +On +August 9, 2025, the Company entered into a $ 170,000 promissory note to finance the premiums of a business insurance policy, bearing +interest at an annual rate of 7.45 % and maturing on June 9, 2026 , to replace the $ 210,000 promissory note entered into +on August 9, 2024, with an annual interest rate of 7.40 % that matured on June 9, 2025 in conjunction with the annual renewal +period. On November 1, 2024, the Company entered into another promissory note with a principal balance of $ 64,328 to finance premiums +of other business insurance policies, bearing interest at a rate of 7.65 % per annum that matured on September 1, 2025 . +On +May 26, 2025, the Company also entered into a promissory note with a principal balance of $ 122,253 to finance subscription fees +on certain software arrangements maturing on March 1, 2027 . +The +Company’s outstanding principal on it promissory notes was $ 158,292 , of which $ 9,999 is included in other non-current liabilities, and +$ 154,152 as of December 31, 2025 and 2024, respectively. +2024 +Convertible Notes +On +November 8, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with a shareholder for the issuance 1,260,504 shares +of Series B Convertible Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock”), for an aggregate +purchase price of $ 3,000,000 paid in 15 monthly installments of $ 200,000 each, commencing on the later of January 10, 2024 +or a date after stockholder approval of an amendment to the Company’s Certificate of Incorporation to authorize the creation of +the Series B Preferred Stock. The Series B Preferred Stock was convertible at any time into shares of common stock of the Company without +any further consideration. Following the issuance of the Series B Preferred Stock, it would rank senior to the common stock with respect +to payments upon the liquidation, dissolution and winding up of the Company. Due to a delay in the stockholder approval, the Company +amended the SPA on February 12, 2024 to issue a promissory note, due and payable on the earlier of 15 months or 12 months if the Series +B Preferred Stock has not been authorized, convertible into Series B Convertible Preferred Stock with identical funding amounts and terms +(the “$ 3,000,000 Convertible Promissory Note”). The shareholder funded $ 800,000 of the $ 3,000,000 commitment in 2024. +The +Company then proceeded to enter into a series of incremental convertible promissory notes with other investors totaling $ 1,135,000 with +terms identical to the $ 3,000,000 Convertible Promissory Note (collectively referred to as the “Original 2024 Convertible +Promissory Notes”) for an aggregate principal amount of $ 1,935,000 . +F- 22 +Neuraxis, +Inc. +Notes +to Financial Statements +The +2024 Original Convertible Promissory Notes earned interest at 8.5 % per annum payable quarterly in either cash or common stock at +the election of the Company. At any time following the date of shareholder approval to authorize the creation of Series B Preferred Stock +prior to the maturity date, the investor may elect to convert all or part of the principal into the Company’s Series B Preferred +Stock at a conversion price per share equal to $ 2.38 . Without limiting the forgoing, all principal amounts outstanding on the maturity +date will automatically convert into the Company’s Series B Preferred Stock. The Series B Preferred Stock is entitled to cumulative +dividends at 8.5 % per annum (whether or not declared) payable quarterly in either cash or common stock at the $ 2.38 conversion +price at the election of the Company. Upon conversion to Series B Preferred Stock, the investor may elect, at its option at any time, +to convert all or part of the Series B Preferred Stock plus accrued but unpaid dividends into an equivalent amount of common stock at +the $ 2.38 conversion price. +Subsequently, +the Company entered into three convertible promissory notes with related institutional accredited investors with terms similar to +the Original 2024 Convertible Promissory Notes (collectively referred to as the “Amended 2024 Convertible Promissory +Notes”) for an additional principal amount of $ 3,000,000 . +Certain provisions to the SPA and Certificate of Designation previously issued on February 12, 2024 changed, including (i) the +number of shares of preferred stock to be designated as Series B Preferred Stock was increased to 4,000,000 shares, +(ii) the stated value of the Series B Preferred Stock was changed to $ 2.38 per +share, (iii) the right to receive dividends will expire automatically on June 30, 2025, (iv) the liquidation rights will +automatically expire on June 30, 2025, and (v) the number of shares of the common stock that a holder of Series B preferred stock is +entitled to receive shall not exceed the maximum percentage chosen by the holder, which is initially set at between 4.99 % +and 19.99 % +until shareholder approval is obtained, of the number of outstanding shares of the common stock at the time of the conversion of the +Series B Preferred Stock shares. On November 11, 2024, the Company’s shareholders authorized an increase in the number +of designated Series B preferred stock to 5,000,000 shares and extended the 8.5% per cumulative dividend period to December 31, +2026. +The +maturity date was on the earlier of (i) June 21, 2025, (ii) upon written demand occurring on or after March 21, 2025 in the event that +the Series B Preferred Stock has not been duly authorized on or before such date, or (iii) immediately upon the occurrence of an event +of default. Automatic conversion into shares of Series B preferred stock (at a conversion price of $ 2.38 per share) would occur +following the date of shareholder approval. In the event the Company failed to obtain shareholder approval before August 15, 2024, rights +existed to convert the outstanding amount into shares of the common stock, at a price per share of $ 2.38 . +As +of August 15, 2024, the Company received $ 4,935,000 of the principal amount of the Amended 2024 Convertible Notes with the remainder +due in monthly installments through March of 2025 resulting in an effective interest rate of 12.5 %. On August 15, 2024, the Company’s +shareholders authorized 5,000,000 shares of preferred stock of which 4,000,000 shares were designated as $ 0.001 par +value Series B preferred stock. Pursuant to the terms of the Amended 2024 Convertible Promissory Notes, the outstanding principal balance +of $ 4,935,000 was mandatorily converted into 2,073,524 Series B Preferred Shares at a conversion price of $ 2.38 . Upon the mandatory +conversion, the unamortized debt discount of $ 165,577 was reclassified to Additional Paid-In-Capital in the Statements of Stockholders’ +Equity (Deficit). +Interest +expense totalled $ 73,969 and $ 174,328 for the years ended December 31, 2025 and 2024, respectively. The Company’s accrued interest +totaled $ 66,648 as of December 31, 2025 and 2024. +F- 23 +Neuraxis, +Inc. +Notes +to Financial Statements +10. +Leases +Operating +lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the +lease term. As the implicit interest rate is generally not readily determinable, the Company uses an incremental borrowing rate based +on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate +reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar economic environment. +Lease expense for the operating lease is recognized on a straight-line basis over the lease term. +Leases +may include renewal options, and the renewal option is included in the lease term if the Company concludes that it is reasonably certain +that the option will be exercised. Certain leases may contain rent escalation clauses, either fixed or adjusted periodically for inflation +of market rates, that are factored into the calculation of lease payments to the extent they are fixed and determinable at lease inception. +The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance +and real estate taxes, which are recorded as expenses when incurred. +The +Company’s leases are comprised of operating leases for office space. At the inception of the lease, the Company determines whether +the lease contract conveys the right to control the use of identified property for a period of time in exchange for consideration. Leases +are classified as operating or finance leases at the commencement date of the lease. Operating leases are recorded as operating lease +right-of-use assets, other current liabilities, and operating lease liabilities in the Balance Sheets. The Company did not have any finance +leases at December 31, 2025 and 2024. +The +Company has two leases consisting of office space in Batesville and Carmel, Indiana. The lease in Batesville, Indiana commenced +on August 1, 2025, and has an initial term of three years, with automatic one year renewals subject to an annual 4% rent escalation, +unless 60 day notice of vacating is given. On May 19, 2025, the Company terminated its prior lease in Versailles, Indiana, with a monthly +lease payment of $ 1,800 , effective July 31, 2025, without penalty due to relocation of the office space to Batesville, Indiana, with +the same landlord. The current monthly lease payment is $ 2,000 with no escalations during the initial lease term. During the year +ended December 31, 2025, the Company derecognized the right of use asset and operating lease liabilities of $ 29,014 and $ 29,286 , +respectively, related to the terminated lease in Versailles, Indiana. Correspondingly, the Company recognized a right of use asset and +operating lease liabilities of $ 63,170 and $ 37,970 , respectively, during the year ended December 31, 2025, related to the new lease +in Batesville, Indiana. On June 13, 2025, the Company prepaid $ 25,200 towards the Batesville, Indiana monthly lease payments which +will be amortized over the initial lease term. The lease in Carmel, Indiana commenced January 1, 2024, with an initial term of five years +and five months. The monthly lease payment started at $ 6,721 with an annual increase of 2.5 %. The Company was only obligated +to pay an amount equal to 50% of the monthly base rent for the first 10 months of the term . +For +the years ended December 31, 2025 and 2024, the Company recognized $ 99,899 and $ 96,177 of operating lease expense, including short-term +lease expense and variable lease costs. +F- 24 +The +following table presents information related to the Company’s operating leases: +Schedule of Operating Leases +December 31, 2025 +December 31, 2024 +Operating lease right-of-use assets +$ 261,565 +$ 284,656 +Current portion of operating lease payable +65,752 +62,754 +Operating lease liabilities +202,566 +256,499 +Total +$ 268,318 +$ 319,253 +Weighted-average remaining lease term (in years) +3.31 +2.75 +Weighted-average discount rate +15.0 % +15.0 % +As +of December 31, 2025, the maturities of the Company’s operating lease liabilities were as follows: +Schedule of Maturities Operating Lease Liabilities +2026 +$ +100,347 +2027 +102,456 +2028 +98,127 +2029 +38,025 +Total +lease payments +338,955 +Less: +imputed interest +( 70,637 ) +Total +present value of lease payments +$ +268,318 +11. +Common Stock and Warrants +The +Company authorized 100,000,000 shares of common stock, of which 10,652,812 and 6,990,227 shares were issued and outstanding as of December +31, 2025 and 2024, respectively. +On +October 27, 2025, pursuant to the August 2025 At The Market Offering Agreement, the Company issued 623,184 shares of common +stock to investors for gross proceeds of $ 2,728,424 with such shares registered pursuant to the Company’s effective Registration +Statement on Form S-3 (File No. 333-283798), previously filed with the Securities and Exchange Commission (“SEC”) on December +13, 2024, and declared effective on February 11, 2025, and the related prospectus supplements filed with the SEC on August 29, 2025, +and on October 23, 2025. +On +May 22, 2025, the Company issued 1,538,461 shares +of common stock for gross proceeds totalling $ 4,999,999 pursuant +to a securities purchase agreement with certain institutional investors at a purchase price of $ 3.25 per +share of common stock. The common shares were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. +333-283798) which was declared effective by the Securities and Exchange Commission on February 11, 2025, a base prospectus dated February +11, 2025 and a prospectus supplement dated May 20, 2025. +The Company incurred placement agent fees and other offering expenses totaling $ 688,804 during the year ended December 31, 2025. No offering +expenses were incurred during the year ended December 31, 2024. +Additionally +during the year ended December 31, 2025, the Company issued (i) 186,166 common shares upon the cashless exercise of 502,647 warrants, +(ii) 484,032 common shares upon conversion of an equivalent amount of Series B Preferred Stock, (iii) 760,359 common shares upon the +exercise of warrants, (iv) 13,518 common shares to settle a shareholder dispute, (v) 17,394 common shares upon the acceleration of restricted +stock units and (vi) 39,471 common shares for board service. +During +the year ended December 31, 2024, the Company issued (i) 245,955 common shares to settle 2022 Convertible Note and Series A Preferred +Stock holder disputes, (ii) 11,000 common shares upon the exercise of warrants, (iii) 115,145 common shares as payment to vendors for +services, (iv) 59,055 common shares in lieu of interest on the 2024 Convertible Notes, (v) 25,832 shares pursuant to the severance provisions +of an employment agreement and (vi) 24,343 common shares for board service. +F- 25 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following is a summary of warrant activity for common stock during the years ended December 31, 2025 and 2024: +Schedule of Warrant Activity for Common Stock +Number +of Warrants for Common Stock +Weighted-Avg. +Exercise Price +Weighted-Avg. +Remaining Contractual Life +Outstanding +as of December 31, 2023 +1,822,358 +$ +4.69 +3.05 +Granted +861,424 +2.38 +3.49 +Cancelled +( 30,252 ) +2.38 +4.79 +Exercised +( 11,000 ) +2.38 +3.61 +Outstanding +as of December 31, 2024 +2,642,530 +2.41 +2.93 +Granted +— +— +— +Cancelled +— +— +— +Exercised +( 1,263,006 ) +1.82 +2.12 +Outstanding +as of December 31, 2025 +1,379,524 +$ +2.44 +2.26 +During +the year ended December 31, 2025, investors +(i) converted 502,647 warrants into 186,166 common shares in a cashless exercise, (ii) exercised 73,337 warrants into an equivalent +number of common shares at an exercise price of $2.08 in exchange for $152,541 in cash proceeds, (iii) exercised 397,243 +warrants into an equivalent number of common shares at an exercise price of $2.38 in exchange for $945,438 in cash proceeds and +(iii) exercised 289,779 warrants into an equivalent number of common shares at an exercise price of $0.0001 in exchange for $29 in +cash proceeds . +During +the year ended December 31, 2024, the Company issued (i) 38,697 5 five-year warrants to purchase common stock equal to six percent (6%) +of the aggregate number of Original 2024 Convertible Promissory Note common stock equivalents pursuant to an underwriting agreement at +an exercise price of $ 2.38 per share, (ii) 68,067 5 five-year warrants to purchase common stock pursuant to an advisory agreement at an +exercise price of $ 2.38 per share. The Common Stock Purchase Warrant Agreements attached to the 2023 Convertible Promissory Notes contained +anti-dilution provisions on both the exercise price and the number of warrants. These anti-dilution features were triggered when the +Company issued the Original 2024 Convertible Promissory Notes that contained a conversion price of $ 2.38 per share as compared to the +$ 5.25 per share exercise price in the 2023 Convertible Promissory Note Common Stock Purchase Warrant Agreements. As a result, the Company +issued 754,660 additional warrants in 2024 to the holders of the 2023 Convertible Promissory Note Common Stock Purchase Warrant Agreements. +Additionally, investors converted 11,000 warrants into an equivalent number of common shares at an exercise price of $2.38 in exchange +for $26,180 in cash proceeds . The Company also canceled 30,252 warrants for no consideration in conjunction with an amendment to an advisory +agreement. +F- 26 +Neuraxis, +Inc. +Notes +to Financial Statements +The +following table summarizes the Company’s warrants outstanding and exercisable as of December 31, 2025: +Schedule of Warrants outstanding and Exercisable +Number +of +Warrants +Exercise +Expiration +Outstanding +Price +Date +Investor +Warrant +12,852 +$ +8.76 +September +18, 2028 +2022 +Convertible Notes +227,098 +$ +2.38 +Various +in 2027 +2023 +Convertible Notes +971,916 +$ +2.38 +Various +in 2028 +Underwriter +Warrants +91,146 +$ +2.38 +August +8, 2028 +Advisory +Agreement Warrants +76,512 +$ +2.38 +Various +in 2029 +1,379,524 +12. +Preferred Stock +On +August 15, 2024, the Company’s shareholders (i) authorized 5,000,000 shares of preferred stock of which 4,000,000 shares +were designated as $ 0.001 par value Series B Preferred Stock inclusive of cumulative dividends, (ii) retired 1,000,000 shares of +Series A Preferred Stock and (iii) retired 120,000 shares of Series Seed Preferred Stock. Series B Preferred Stock shareholders vote +with Common Stock shareholders on an as-converted basis and not as a separate class. Cumulative dividends accrue at 8.5 % per annum +and were due and payable in either cash for common shares at the Company’s discretion on a quarterly basis through June 30, 2025. +Series B Preferred Stock converts to common stock on a 1:1 basis, subject to adjustments for stock dividends, splits, combinations and +similar events as well as unpaid dividends thereon, solely at the election of the holder at any time. +Pursuant +to the terms of the Amended 2024 Convertible Notes, the principal balance of $ 4,935,000 on August 15, 2024 was mandatorily converted +into 2,073,524 Series B Preferred Shares at a conversion price of $ 2.38 . Subsequently, the Company then proceeded to issue 64,913 shares +of Series B Preferred Stock to various investors for $ 154,500 . +On +November 11, 2024, the Company’s shareholders authorized (i) an increase in the number of designated Series B Preferred Stock to +5,000,000 shares and (ii) an extension of the 8.5 % per annum cumulative dividend period to December 31, 2026. Subsequently, the Company +issued 2,100,840 shares of Series B Preferred Stock to a dedicated life sciences fund for $ 5,000,000 and 41,662 shares of Series B Preferred +Stock to various investors for $ 99,164 . +During +the year ended December 31, 2025, the Company issued 484,032 shares of common stock to certain investors upon conversion of +an equivalent amount of Series B Preferred Stock. +F- 27 +Neuraxis, +Inc. +Notes +to Financial Statements +Upon +any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series B Preferred Stock shareholders +maintain priority preference over all other classes of capital stock. A merger or consolidation (other than one in which stockholders +of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) and a sale, lease, +transfer, exclusive license or other disposition of all or substantially all of the assets of the Company will be treated as a liquidation +event, thereby triggering payment of the liquidation preferences. +There +were 3,796,907 and 4,280,939 shares of Series B Preferred Stock issued and outstanding as of December 31, 2025 and 2024, respectively. +As of December 31, 2025 and 2024, there were no preferred stock dividends declared or paid. Series B Preferred Stock undeclared +cumulative dividends totaled $ 1,025,865 , or $ 0.27 per share, and $ 211,268 , or $ 0.05 per share, as of December 31, 2025 and 2024, respectively. +13. +Stock-Based Compensation +Restricted +Stock Units +Pursuant +to the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan, the Company initiated grants of restricted stock units (“RSUs”) +on January 3, 2025, March 4, 2025 and May 15, 2025, to certain employees as follows: +Schedule of Restricted Stock Units +Number +of RSUs +Weighted +Average Fair Value +Outstanding +as of December 31, 2024 +— +$ +— +Granted +852,214 +2.32 +Vested +( 20,868 ) +2.31 +Outstanding +as of December 31, 2025 +831,346 +$ +2.32 +Vested +as of December 31, 2025 +20,868 +$ +2.31 +The +RSUs are subject to a three-year cliff-vesting period and are payable in shares of the Company’s common stock. The RSUs fully vest +upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon vesting; there were no +accrued dividends on unvested RSUs as of December 31, 2025. On August 19, 2025, 17,534 RSUs were accelerated and issued as 14,060 shares +of common stock, net of taxes. On October 29, 2025, 3,334 RSU vested into an equivalent number of common shares. No RSUs were granted +during the year ended December 31, 2024. +Total +stock-based compensation expense is classified in the Company’s Statements of Operations as general and administrative expense +and amounted to $ 596,852 , of which $ 5,678 relates to the Employee Stock Purchase Plan, and $ 227,000 for the years ended December +31, 2025 and 2024, respectively. As of December 31, 2025, total unrecognized stock-compensation expense relating to unvested stock units +granted under the Company’s share-based compensation plans amounted to $ 1,130,970 . +F- 28 +Neuraxis, +Inc. +Notes +to Financial Statements +Stock +Options +The +following table presents a summary of the Company’s outstanding stock options as of December 31, 2025 and 2024: +Schedule of Stock Option Activity +Number +of Options +Weighted +Avg. Remaining Contractual Life (in years) +Weighted +Avg. Exercise Price +Aggregate +Intrinsic Value +Outstanding +as of December 31, 2024 +1,319,394 +4.69 +$ +6.94 +$ +— +Outstanding +as of December 31, 2025 +1,319,394 +3.69 +$ +6.94 +$ +— +Vested +and Exercisable as of December 31, 2025 +1,319,394 +3.69 +$ +6.94 +$ +— +There +was no stock-based compensation expense related to stock options recorded during the years ended December 31, 2025 and 2024. +Employee +Stock Purchase Plan +On +July 1, 2025, the Compensation Committee of the Board of Directors (“Board”) of the Company adopted the NeurAxis, Inc. +2025 Employee Stock Purchase Plan (the “ESPP”), effective as of the same date and subject to Shareholder approval by +July 1, 2026. The purpose of the ESPP is to provide eligible employees an opportunity to acquire common stock of the Company at a 15% +discount using payroll deductions. The maximum number of shares of the Company’s common stock that may be issued under the +ESPP is 100,000, subject to an annual increase on January 1st of each year from 2026 through 2035 by the lesser of (i) 1% of the +Company’s outstanding capital stock as of the prior December 31st or (ii) 100,000 shares. The Board may reduce or eliminate +this annual increase before February 1st of any given year. Total +stock-based compensation expense includes $ 5,678 relating +to the Employee Stock Purchase Plan for the year ended December 31, 2025. +14. +Warrant Liabilities +The +Company has evaluated financial instruments arising from warrants that are issued and outstanding as of December 31, 2025 and 2024. The +Company utilizes a Black-Scholes option-pricing model to compute the fair value of the liability and to mark to market the fair value +of the warrant at each balance sheet date. The inputs utilized in the application of the Black-Scholes option-pricing model included +(i) an exercise price of $ 8.76 per share, (ii) an expected remaining term of each warrant based on the remaining contractual maturity +of the each warrant, (iii) estimated volatility ranging from 65.3 % to 94.7 % based on historical stock prices of comparable companies +with a look back period commensurate with the period to maturity, (iv) a risk-free interest rate ranging from 3.56 % to 4.38 % based on +the interest rates of U.S. Treasury Notes consistent with the expected remaining contract term and (v) a 0 % expected dividend yield as +the Company has not paid dividends to date and does not anticipate declaring dividends in the near future. +The +following are the changes in the warrant liabilities during the years ended December 31, 2025 and 2024: +Schedule of Changes in Warrant Liabilities +Level +1 +Level +2 +Level +3 +Warrant +liabilities as of December 31, 2023 +$ +— +$ +— +$ +8,225 +Changes +in fair value of warrant liabilities +— +— +941 +Warrant +liabilities as of December 31, 2024 +— +— +9,166 +Changes +in fair value of warrant liabilities +— +— +7,634 +Warrant +liabilities as of December 31, 2025 +$ +— +$ +— +$ +16,800 +F- 29 +Neuraxis, +Inc. +Notes +to Financial Statements +15. +Segment Information +The +Company evaluates the following factors to identify its reportable segments: (i) nature of products and services, (ii) type of customer +for the products and services, (iii) sales, production and distribution methods of the products and services and (iv) the nature of the +regulatory environment, if applicable. Based on an evaluation of these factors, management concluded that the Company’s operations +are managed through one reportable segment, IB-Stim, that derives its revenues in the United States from a PENFS device that is used +to treat patients 8-21 years of age with functional abdominal pain associated with irritable bowel syndrome and in patients 8 years and +older with functional abdominal pain associated with functional dyspepsia and related nausea symptoms. The accounting policies of the +IB-Stim segment are the same as those described in the Summary of Significant Accounting Policies (see Footnote 2). The Chief Operating +Decision Maker (“CODM”) regularly evaluates the performance of the IB-Stim segment for the purpose of allocating resources +based on net sales and operating loss, both of which are reported in the Statements of Operations. The CODM uses net sales to evaluate +IB-Stim’s adoption and utilization by insurance carriers and physicians. As Neuraxis is an emerging growth company, operating loss +is used to monitor the Company’s cost structure in order to achieve future segment profitability. Both net sales and operating +loss are measured against an annual budget on a periodic basis to assess achievement toward annual compensation incentive targets. The +Company’s CODM is its President and Chief Executive Officer. +The +following reconciles the reportable segment net sales and operating loss to the Company’s reported net loss: +Schedule of Reconciles the Company’s Net Sales and Operating Loss +2025 +2024 +For +the Years Ended December 31, +2025 +2024 +Net +Sales +$ +3,569,282 +$ +2,685,925 +Cost +of Goods Sold +562,916 +362,002 +Gross +Profit +3,006,366 +2,323,923 +Selling +Expenses (a) +2,279,974 +1,468,884 +Research +and Development (a) +493,611 +433,614 +Wages +and Benefits (a) +4,550,833 +4,380,434 +Professional +Services (a) +1,296,368 +1,945,331 +Legal +Settlement +630,568 +-- +Depreciation +37,691 +26,346 +Amortization +21,810 +11,485 +Other +Operating Expenses (a) (b) +1,525,419 +1,214,646 +Segment +Operating Loss +( 7,829,908 ) +( 7,156,817 ) +Other +Income (Expense): +Financing +charges +( 30,240 ) +( 230,824 ) +Interest +expense +( 73,969 ) +( 174,328 ) +Change +in fair value of warrant liability +( 7,634 ) +( 941 ) +Change +in fair value of derivative liability +— +— +Amortization +of debt discount and issuance cost +— +( 126,387 ) +Extinguishment +of debt liabilities +— +— +Other +income +141,196 +33,620 +Other +expense +— +( 585,824 ) +Total +other income (expense), net +29,353 +( 1,084,684 ) +Net +Loss +$ +( 7,800,555 ) +$ +( 8,241,501 ) +(a) +The +significant expense categories and amounts align with the segment-level information provided on a regular basis to the CODM. +(b) +Other +operating expenses include advertising, rent and utilities, insurance, depreciation and amortization, travel, software subscription +fees, board fees and bad debt expense. +Total +segment assets for IB-Stim amounted to $ 6,404,036 and $ 4,757,572 as of December 31, 2025 and 2024, respectively. Total segment capital +expenditures for IB-Stim amounted to $ 131,150 and $ 27,776 for the years ended December 31, 2025 and 2024, respectively. Total segment +depreciation and amortization amounted to $ 59,501 and $ 37,831 for the years ended December 31, 2025 and 2024, respectively. +Significant +segment non-cash charges settled in common stock include (i) consulting and advisory fees totaling $ 146,423 and $ 754,685 for the years +ended December 31, 2025 and 2024, respectively, and (ii) hiring grants totaling $ 7,268 and $ 227,000 for the years ended December 31, +2025 and 2024, respectively. +F- 30 +Neuraxis, +Inc. +Notes +to Financial Statements +16. +Settled Litigation +On +February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United +States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the +Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under +the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought +compensatory damages in excess of $ 5,000,000 , pre-judgment interest, punitive damages, attorney’s fees, court costs and designation +of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing +and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures +could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim +to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims +against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint. +On +July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, +2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth +Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any +further review or appeal of that judgment. +Also +on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare +ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland. The plaintiffs +in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint +asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil +conspiracy and seeks compensatory damages in excess of $ 75,000 , pre-judgment interest, punitive damages, attorney’s fees, and court +costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants +allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed +to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered +damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. +On +September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion +which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims were still pending, and no trial date was +set for the case. The Court vacated its Scheduling Order at the parties’ request so that the parties could try to resolve the disputes +in both cases through an independent third-party mediator. +On +April 25, 2025, the parties reached a tentative $ 750,000 settlement +payable in 12 equal monthly installments beginning in January of 2026 as filed with the United States District Court for the +District of Maryland with the settlement agreement duly executed on May 15, 2025. The Company recorded a charge of $ 630,568 for +the year ended December 31, 2025, in the Statements of Operations classified as general and administrative expense, while imputed +interest expense was recorded as incurred and totaled $ 62,115 . As of December 31, 2025, the Company accrued $ 692,683 as +accrued expenses in the Balance Sheet. +F- 31 +Neuraxis, +Inc. +Notes +to Financial Statements +17 . +Commitments and Contingencies +Manufacturing +Services Agreements +The +Company is party to two separate manufacturing services agreements for the manufacture and supply of the Company’s IB-Stim and +RED devices based on the Company’s product specifications that expire in March and August, 2027, respectively, and +automatically renew annually unless either party provides a written termination notice to the other party within 180 days prior to +the end of the then-current term. The Company’s IB-Stim and RED devices are manufactured in Indiana and Michigan, +respectively. The Company provides the necessary equipment to the manufacturers and retains ownership. The manufacturers bear the +risk of loss of and damage to the equipment and consigned materials. Performance under the agreement is initiated by orders issued +by the Company and accepted by the manufacturers. The Company also entered into quality agreements with the manufacturers to perform +quality assurance services on product provided by the Company. +Advisory +Agreement +On +March 18, 2024, the Company terminated its private placement services agreement and entered into an advisory agreement with a financial +advisor for debt, equity and public securities market services for one year. The advisory agreement included a monthly fee of $ 30,000 +and 7,563 common stock warrants to be issued monthly at an exercise price of $ 2.38 with a term of five years. On December 31, 2024, the +Company and the financial advisor terminated the advisory agreement subject to the cancelation of 30,252 common stock warrants issued +after July 2024 and the payment for services rendered totaling $ 180,000 during the year ended December 31, 2025. +Settlement +Agreements +The +Company issued 13,518 and 245,955 shares of common stock to various pre-IPO 2022 Convertible Note, warrant and Series A Preferred Stock +holders to settle certain claims for the years ended December 31, 2025 and 2024, respectively. The Company recorded the fair value of +the settlements totaling $ 30,240 as Finance Charges for the year ended December 31, 2025 and $ 230,824 of Finance Charges and $ 580,250 +of Other Expense for the year ended December 31, 2024 in the Statements of Operations. +Executive +Employment Agreements +The +Company, as authorized by the board of directors, entered into employment agreements with nine key employees to provide incentives to +improve shareholder value and to contribute to the growth and financial success of the Company. The agreements had an employment start +date of October 1, 2022, with initial terms from two 2 to five years and optional one-year renewals . +There +are nine key employees and two non-employees that have stock options of the Company totaling 1,319,394 +shares. These key employees have a provision in their agreements whereas the Company will pay a special bonus equal to the aggregate +of the strike price or exercise price of all their stock options plus a tax gross-up payment. The special bonus shall be paid in +twenty percent ( 20 %) +installments starting January 2, 2024, and the same date each of the next four years. As a condition of the payment, the key +employee must exercise at least 20 % +of their stated number of stock options. There are additional provisions to cover termination and change of control events. None of +the key employees exercised any of options as of January 2, 2026. +In +April 2023, the Company amended the employee agreements to, among other things, clarify that the special one-time incentive payment and +the deferred bonus are contingent upon the effective date of the planned initial public offering. The amendment also sets forth a process +for executives to exercise the stock options in accordance with the terms of the stock option agreement in effect as of the date of the +employment agreement and to clarify that there is no modification to the stock option agreements. +F- 32 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company recorded the fair value of the stock options totaling $ 8,596,661 on the grant date. In addition, a $ 6,225,169 incremental tax +gross up payment is contingent upon the employees exercising their deferred bonus provision which will be recorded when probable. +On +April 10, 2024, the Company terminated the employment of the Company’s Chief Operating Officer. Pursuant to the employment agreement, +the Company made (i) salary continuation payments for six months during the year ended December 31, 2024, (ii) issued 25,832 shares of +common stock at a fair value of $ 78,788 and (iii) made a $ 41,980 one-time payment in lieu of the exercise of 13,764 stock options that +expired on January 2, 2024. The Company was also obligated to provide health care coverage through October 2025. +Threatened +Litigation +From +time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. +As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably +be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of +the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s +interest. Legal fees are expensed as incurred. +In +January 2024, Dr. Arturo Taca served notice to the Company that asserted an interest in its U.S. Patent No. 10,413,719 valued at $ 2,000,000 +based on his own work in neurostimulation. The Company denied both the neurostimulation patent and compensation claims. The case remains +unresolved. While it is too early to predict the ultimate outcome of these matters, we believe the Company has meritorious defenses and +intends to defend these matters vigorously. +18. +Employee Benefits +The +Company sponsors a 401(k)-retirement plan for its employees. Employees are eligible to participate in the elective deferral portion +of the plan after twelve months and 1,000 hours of service. The Company can also make a 3 % +discretionary profit-sharing contribution on an annual basis to employees with earnings under a certain threshold. Profit sharing +expense totaled $ 19,634 and +$ 20,868 for +years ended December 31, 2025 and 2024, respectively. +F- 33 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company participates in a self-funded employer program in conjunction with a group health plan for the benefit of eligible employees. +This plan is a level funded plan, and the services and products include: +● +A +self-funded employer health benefit plan. +● +Stop +loss insurance purchased from a stop loss insurance company. +● +Third +party administrator to provide administrative services with regard to the plan. +The +Company maintains a stop loss contract that reimburses the Company for claims paid under the plan if they exceed a predetermined level. +The Company makes contributions for health care costs and associated expenses that are expected during the plan year. The amount of contributions +is determined annually based on the Company’s maximum liability for expected claims, administrative expenses, and premiums for +the stop loss policy. The Company incurred premiums of $ 308,975 and $ 257,642 for the years ended December 31, 2025 and 2024, respectively. +The +Company is responsible for the monthly premiums, as established, and nothing further. The stop loss policy covers the claims if they +exceed the claims funds. After a certain time, and if there is a surplus in the claims fund, the Company may be entitled to receive a +48.5 % refund from the fund. This amount is recognized by the Company when received. +19. +Income Taxes +The +income tax provision consists of: +Schedule of Income Tax Provision +2025 +2024 +For +the Years Ended December 31, +2025 +2024 +Total +current provision +$ +- +$ +- +Deferred: +Federal +( 1,541,974 +) +( 1,561,596 +) +State +( 461,972 +) +( 634,364 +) +Total +deferred benefit +( 2,003,946 +) +( 2,195,960 +) +Valuation +allowance +2,003,946 +2,195,960 +Total +income tax provision +$ +— +$ +— +A +reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate is +as follows: +Schedule of Federal Statutory Income Tax Rate and Effective Income Tax Rate +For the Years Ended December 31, +2025 +2024 +Amount +Rate +Amount +Rate +Federal +statutory income tax rate +$ +1,638,117 +$ +21.0 +% +1,730,715 +21.0 +% +State +rate, net of valuation allowance and federal benefit +215 +— +( 14,883 +) +( 0.2 +) +Change +in federal valuation allowance +( 1,637,466 +) +( 21.0 +) +( 1,797,167 +) +( 21.8 +) +Other +( 866 +) +— +81,335 +1.0 +Effective +income tax rate +$ +— +— +% +$ +— +— +% +(a) +State +taxes in Indiana and California comprise the majority of this category. +F- 34 +Neuraxis, +Inc. +Notes +to Financial Statements +The +Company did not recognize an income tax provision for the years ended December 31, 2025 and 2024 due to net operating losses reported +in both years. +The +Company did not pay any federal income taxes for the years ended December 31, 2025 and 2024. The Company received income tax +refunds from the state of Indiana totaling $ 13,140 +and $ 10,164 for +the years ended December 31, 2025 and 2024, respectively. +On +July 4, 2025, the United States enacted the One Big Beautiful Bill Act (“OBBBA”), Public Law No. 119-21, +which includes significant changes to U.S. federal tax law. Key provisions of the OBBBA include, among other items, the extension of +certain Tax Cuts and Jobs Act of 2017 (“TCJA”) provisions, permanent reinstatement of 100% bonus depreciation for +qualifying property and modifications to various deductions and credits within the Internal Revenue Code. +Under +U.S. GAAP, the effects of changes in tax law are recognized in the period that includes the enactment date. Accordingly, the Company +evaluated the provisions of the OBBBA during the year ended December 31, 2025. Based on the Company’s preliminary analysis, the +enactment of the OBBBA did not result in a material change to the Company’s effective tax rate for the year ended December 31, +2025. +The +Company continues to evaluate the full impact of the OBBBA, including interpretive guidance that may be issued by the U.S. Department +of the Treasury and the Internal Revenue Service. As additional guidance becomes available, the Company may refine its estimates related +to the accounting for income taxes under ASC 740. +Deferred +income taxes are provided for temporary differences between the financial and tax bases of the Company’s assets and liabilities. +The temporary differences that give rise to net deferred tax assets and liabilities were as follows: +Schedule of Net Deferred Tax Assets and Liabilities +2025 +2024 +December +31, +2025 +2024 +Deferred +tax assets: +Net +operating losses +$ +11,004,401 +$ +9,222,603 +Stock +based compensation +1,628,094 +1,447,339 +Accrued +compensation +298,201 +266,816 +Notes +receivable reserve +260,362 +296,297 +Operating +lease payable +68,977 +143,484 +Accounts +payable +23,784 +84,105 +Other +361,132 +149,168 +Total +gross deferred tax assets +13,644,951 +11,609,812 +Valuation +allowance +( 13,375,770 +) +( 11,371,824 +) +Total +deferred tax assets +$ +269,181 +$ +237,988 +Deferred +tax liabilities: +Prepaid +expenses +$ +81,050 +$ +74,991 +Operating +lease right of use asset +67,241 +72,560 +Accounts +receivable +50,310 +64,443 +Other +70,580 +25,994 +Total +deferred tax liabilities +269,181 +237,988 +Deferred +tax assets, net +$ +— +$ +— +F- 35 +Neuraxis, +Inc. +Notes +to Financial Statements +Management +assessed the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize +the benefits of the net deferred tax assets due to a history of operating losses. As a result, the Company maintained a full valuation +allowance and does not reflect any deferred taxes in its Balance Sheets as of December 31, 2025 and 2024. +On +December 31, 2025, the Company’s federal and state net operating loss (NOL) carryforwards totaled $ 43,160,139 and $ 41,230,553 respectively. +These NOL carryforwards may be offset against future taxable income. There is no limitation on the number of years to utilize the federal +NOLs. The federal deduction will be limited to 80% of modified taxable income. The state NOLs are allowed up to 100 % of taxable income +and generally can be carried forward no longer than 20 years after the year of the taxable loss. +Federal +and state tax laws impose limitations on the utilization of NOLs and credit carryforwards in the event of an ownership change for tax +purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards +may be limited as a result of an ownership change. Such an ownership change could result in a limitation in the use of the NOLs in future +years and possibly a reduction of the net operating losses available. +If +not used, the state NOL carryforwards will expire as follows: +Schedule of State Carryforwards +2037 +$ +72,216 +2038 +1,039,986 +2039 +2,033,750 +2040 +4,457,495 +2041 +2,406,225 +Thereafter +31,102,107 +No +expiration +118,774 +Total +state NOL carryforwards +$ +41,230,553 +The +Company believes it has made adequate provision for all income tax uncertainties. The assessment is subject to change based on the completion +of audits or statute of limitation expirations. +The +federal and state income tax returns have a three-year statute of limitations once filed with the appropriate jurisdiction. The Company’s +income tax returns are subject to examination by the federal and state taxing authorities in the United States for the years ended December +31, 2022 through 2025. +F- 36 +Neuraxis, +Inc. +Notes +to Financial Statements +20. +Subsequent Events +On +January 22, 2026, the Company granted 437,431 RSUs pursuant to the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan as amended +on August 15, 2024. The RSUs vest annually pro rata over a three-year period and are payable in shares of the Company’s common +stock. The RSUs fully vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon +vesting; there were no accrued dividends on unvested RSUs as of the report date. +Also +on January 22, 2026, the Company issued 86,392 +shares of common stock to its independent board members for their 2025 and 2026 service. +In +January through March of 2026, pursuant to the August 2025 At The Market Offering Agreement with Craig-Hallum Capital Group LLC, the +Company issued 405,969 +shares of common stock to investors for gross proceeds of $ 2,312,443 +with such shares registered pursuant to the Company’s effective Registration Statement on Form S-3 (File No. 333-283798), +previously filed with the Securities and Exchange Commission (“SEC”) on December 13, 2024, and declared effective on +February 11, 2025, and the related prospectus supplements filed with the SEC on August 29, 2025, and on October 23, 2025. +In +February of 2026, the Company issued 136,126 shares of common stock upon exercise of an equivalent amount of common stock warrants for +gross proceeds of $ 323,980 . +The +Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and determined that there have been no +other events that have occurred that would require adjustments to our disclosures in the financial statements. +F- 37 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +NEURAXIS, +INC. +Dated: +March 19, 2026 +By: +/s/ +Brian Carrico +Brian +Carrico +Chief +Executive Officer +Dated: +March 19, 2026 +By: +/s/ +Timothy R. Henrichs +Timothy +R. Henrichs +Chief +Financial Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Brian Carrico +Chief +Executive Officer and Director +March +19, 2026 +Brian +Carrico +(Principal +Executive Officer) +/s/ +Timothy R. Henrichs +Chief +Financial Officer (Principal +March +19, 2026 +Timothy +R. Henrichs +Financial +Officer and Principal Accounting Officer) +/s/ +Christopher Robin Brown +Director +March +19, 2026 +Christopher +Robin Brown +/s/ +Bradley Mitch Watkins +Director +March +19, 2026 +Bradley +Mitch Watkins +/s/ +Beth Keyser +Director +March +19, 2026 +Beth +Keyser +/s/ +Kristin Ferge +Director +March +19, 2026 +Kristin +Ferge +/s/ +Gilad Aharon +Director +March +19, 2026 +Gilad +Aharon +94 \ No newline at end of file diff --git a/raw/filings/0001933567/2025/0001493152-26-011505/filing_metadata.csv b/raw/filings/0001933567/2025/0001493152-26-011505/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..bcb1d95afaa1c9443bcb73325138478a3a5757d4 --- /dev/null +++ b/raw/filings/0001933567/2025/0001493152-26-011505/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001933567,NRXS,"Neuraxis, INC",2025,10-K,2026-03-19,2025-12-31,2026-03-19T11:00:34.000Z,0001493152-26-011505,form10-k.htm,10-K,13578669,1,1,https://www.sec.gov/Archives/edgar/data/1933567/000149315226011505/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1933567/000149315226011505/ diff --git a/raw/filings/0001933567/2025/0001493152-26-011505/item1.txt b/raw/filings/0001933567/2025/0001493152-26-011505/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..f39badceb634377723c27b0646fb48134b8dda41 --- /dev/null +++ b/raw/filings/0001933567/2025/0001493152-26-011505/item1.txt @@ -0,0 +1,2064 @@ +ITEM +1. BUSINESS +Overview +Neuraxis, +Inc. (“we”, “us”, the “Company” or “Neuraxis”) is a first-to-market growth-stage medical +technology company focused on neuromodulation therapies for chronic and debilitating conditions in gastrointestinal (GI) digestive system, +specifically from disorders of the gut-brain interaction (DGBIs) in pediatrics and adults. With several indications in the market and +additional clinical trials of Percutaneous Electrical Nerve Field Stimulation (PENFS) in multiple pediatric and adult conditions underway, +we are focused on unmet GI healthcare needs in children and adults. We are dedicated to advancing science with our proprietary IB-Stim ® +therapy, based on our PENFS technology, which was developed internally by the Company. We believe that superior science and evidence-based +research are necessary for adoption by the medical and scientific community. Additional clinical trials of PENFS in multiple pediatric +and adult conditions are underway, focused on unmet healthcare needs in children and adults. See “ Our Pipeline ” for +more information. +Our +first product, IB-Stim, is a PENFS technology intended to be used in patients 8 years and older with functional abdominal pain associated +with irritable bowel syndrome (IBS), functional dyspepsia (FD) and associated FD nausea symptoms. IB-Stim is a US FDA Class II medical +device that has received regulatory clearances: IB-Stim (DEN180057, 2019; K252024, 2025), under the regulation name of “non-implanted +nerve stimulator for functional abdominal pain relief.” +Our +second product, RED TM (Rectal Expulsion Device), is indicated to evaluate the neuromuscular function of a patient’s +ability to expel its contents from the rectum and as a qualitative test for rectal hypersensitivity. RED (K242304, 2024) helps identify +patients with rectal hypersensitivity who experience a desire or urge to defecate at lower volumes of distension. RED is intended to +be used in a clinical setting by trained health care providers in adult populations. +The +Company’s product portfolio has achieved several key milestones, including: +● +Academic +Society Guidelines: In May 2025, the leading pediatric academic society, NASPGHAN (North American Society of Pediatric Gastroenterology, +Hepatology, and Nutrition), published functional abdominal pain guidelines listing PENFS as the ONLY FDA-approved or FDA-cleared +treatment in the guidelines to be recommended. +● +AMA +Category I CPT Code (64567): In 2024 the AMA confirmed the assignment of a Category I CPT code for PENFS procedures, which takes +effect on January 1, 2026. This CPT code brings credibility, streamlined reporting, and relative value units (RVUs) for the physician, +allowing credit for their time. +● +Federal +Supply Schedule (FSS) Contract: In December 2025, NeurAxis was awarded a FSS contract with the United States government which includes +the 01-1020 IB-Stim to be sold for the FDA indications of Functional Abdominal Pain with IBS, Functional Dyspepsia (FD), and associated +FD Nausea Symptoms. +Our +Mission +Our +mission is to advance drug-free neuromodulation therapies that improve patient outcomes and reduce medication burden in complex disorders, +while expanding access to effective care for populations with significant unmet needs. +Our +Corporate History +Neuraxis, +Inc. was established in 2011 and incorporated in the state of Indiana in 2012, under the name of Innovative Health Solutions, Inc. The +name was changed to Neuraxis, Inc. in 2022 when the Company filed a Certificate of Conversion to become a Delaware corporation. On August +9, 2023, the Company consummated an initial public offering (“IPO”) pursuant to a registration statement on Form S-1 (File +No. 333- 269179), as amended. +In +2024, the Company’s shareholders authorized 5,000,000 shares of preferred stock of which all were designated at $0.001 par value +“Series B Preferred Stock” inclusive of cumulative dividends, due and payable quarterly at the Company’s discretion +either in cash or common stock when declared, at a rate of 8.5% per annum through December 31, 2026. The stated value of the Series B +Preferred Stock is $2.38 per share. +We +have developed four FDA cleared products: (i) IB-Stim (DEN180057, 2019), (ii) RED (K242304, 2024), (iii) NSS-2 Bridge (DEN170018, 2017), +and (iv) the original 510(k) clearance (K140530, 2014), all of which were developed internally by the Company. +● +IB-Stim +is a PENFS device that is indicated in patients 8 years and older with functional abdominal pain associated with irritable bowel +syndrome, functional dyspepsia, and associated FD nausea symptoms. +● +RED +is indicated to evaluate the neuromuscular function of a patient’s ability to expel its contents from the rectum and as a qualitative +test for rectal hypersensitivity patients who experience desire or urge to defecate at lower volumes of distention. RED is intended +to be used in a clinical setting by trained health care providers in adult populations. +● +NSS-2 +Bridge is a percutaneous nerve field stimulator (PNFS) device indicated for use in the reduction of the symptoms of opioid withdrawal +and was licensed to Masimo Corporation (“Masimo”). Masimo marketed and sold this product as its Masimo Bridge. On July +1, 2025, The Company terminated the NSS-2 Bridge license with Masimo in exchange for $200,000 of consideration payable of which $100,000 +was paid on December 31, 2025 and $100,000 is due on June 30, 2026. The termination agreement allowed the Company to recapture the +rights to the trademark (U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821/255 and Application +No. 29/960.608) that were originally licensed to Masimo on April 9, 2020. +● +The +original 510(k) device was the electroacupuncture device (“EAD”), now called NeuroStim . The EAD is no longer being +manufactured, sold or distributed but reserved only for research purposes. +4 +Pediatrics +Industry Overview +Pediatric +providers, as a whole, expressed concern about the lack of attention given to children with functional abdominal pain disorders (including +IBS and FD) and the limited treatment options available for a population that suffers from significant disabilities. With 20% of the +United States population under age 18, our Company focus began with opportunities in the pediatrics industry. The pediatrics industry +has multi-billion-dollar market opportunities. The following points clearly outline the unmet need in children: +● +Functional +abdominal pain in children is one of the most common conditions seen by pediatricians and pediatric gastroenterologists. +● +Children +with functional abdominal pain report lower quality of life compared with their healthy peers and equal to those with inflammatory +bowel disease. +● +Overall, +40-45% of children with functional abdominal pain disorders continue to have symptoms into adulthood, which impacts quality of life +and healthcare spending. +● +A +study published in 2021 demonstrates insufficient evidence for the use of medications in pediatric functional abdominal pain disorders. +This lack of evidence for drugs has been supported in by the American Academy of Pediatrics and NASPGHAN. +● +IB-Stim +is the only medical therapy that has shown to improve pain, global symptoms, and functional disability in children with FAP and IBS. +● +IB-Stim +is the only currently used medical therapy that is better than placebo in a randomized controlled trial and received FDA clearance +for pediatric IBS. +Our +Opportunity +For +years, physicians and qualified healthcare professionals have resorted to the use of off-label medications without proper evidence of +efficacy or safety. This is despite a technical report from the American Academy of Pediatrics and NASPGHAN which found very little evidence +to endorse the use of any drugs in the treatment of FAPDs in children. Medications including tricyclic antidepressants, SSRIs and gabapentinoids +continue to be used off-label despite lack of evidence to support efficacy or safety. Not only have the most commonly used medications +(amitriptyline and citalopram) failed to beat placebo in clinical trials, but new studies also suggest significant risks with the potential +for serious side effects with these drugs. The absence of conclusive data to support treatments based on scientific evidence, and the +fact no drug therapies have been approved by the FDA for the treatment of FAPDs or IBS in children, presents a unique market opportunity +for Neuraxis. Below are the current standard treatments in children with functional abdominal pain and IBS. +Pharmacological Treatment Options for Functional Abdominal Pain Disorders +Mild +Pain (No Disability) +Pain (With Disability) +Peppermint +oil +Tricyclic +antidepressants (amitriptyline)* +Rifaximin +Iberogast +Selective +serotonin reuptake inhibitors (citalopram)* +Constipation +Probiotics +Gabapentin +Linaclotide +Acid +suppression with PPIs +Antispasmodics +(hyoscyamine, dicyclomine)* +Lubiprostone +Cyproheptadine* +Plecanatide +* +Increased risk of dementia based on anticholinergic burden +5 +Our +Solutions +We +entered the pediatric market with clinical evidence, key opinion leaders and society endorsement, including a signed letter from the +American Academy of Pediatrics and NASPGHAN supporting our request for insurers to provide coverage for PENFS procedures with IB-Stim. +IB-Stim is a non-drug alternative to reduce functional abdominal pain in patients with IBS. In June 2019, the FDA cleared IB-Stim, a +non-surgical, neuromodulation device for children and adolescents who suffer from IBS, through a de novo process (DEN180057, 2019). Most +recently, FDA cleared 510(k) 252024, expanding the indications for use. The FDA created a new classification of PENFS for IB-Stim. This +is based on pre-clinical and clinical studies demonstrating the mechanism of action and efficacy. Based on this new class of devices, +IB-Stim falls under 21 CFR Part 876, Subpart F – Therapeutic Devices, 876.5340, Product Code QHH. As a PENFS device, it is non-implantable +and provides field stimulation to cranial nerves V, VII, IX and X in the ear to access the central nervous system. It stimulates remotely +from the source of pain to modulate central pain regions, such as the limbic system, and relieve functional abdominal pain associated +with IBS. Studies have demonstrated long-term benefits in functional disability, psychological co-morbidities, and pain. For example, +the table below is from a recently published study of IB-Stim in a population of patients with chronic functional abdominal pain. The +follow-up was done at 6-12 months post-treatment and shows improvements in validated questionnaires compared to baseline (API), functional +disability index (FDI), pain catastrophizing scale (PCS), Screen for Childhood Anxiety Related Disorders (SCARED) and the Promis Anxiety. +Santucci +NR, King C, El-Chammas KI, Wongteerasut A, Damrongmanee A, Graham K, Fei L, Sahay R, Jones C, Cunningham NR, Coghill RC. Effect of +percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents with functional +abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358. +We +have submitted one FDA De Novo request and three 510(K) submissions and plan to submit additional 510(k) premarket notifications from +our pipeline indications in the future. Most recently, FDA cleared 510(k) 252024, expanding the indications for use. +Compliance +with treatment so far has been outstanding with the four weeks of therapy required to sustain long-term benefits. Compliance has been +an issue with non-pharmacological treatment for children, particularly with some of the psychological approaches such as cognitive behavioral +therapy or guided imagery, which sometimes requires 8-12 weeks of treatment. In fact, in a survey included in the randomised, sham controlled +trial (Kovacic, K, Hainsworth, M., et al. Neurostimulation for abdominal pain-related functional gastrointestinal disorders in adolescents: +a randomised, double-blind, sham-controlled trial. Lancet Gastroenterol Hepatol. 2017 Oct;2(10):727-737), 95% of adolescents who used +IB-Stim said that they would recommend this treatment to family and friends. Many children’s hospitals and pediatric providers +across the country are currently treating children with IB-Stim due to the safety, efficacy, and patient outcomes with this non-drug +alternative. +We +have concentrated our marketing focus on the 260 children’s hospitals within the United States. To date, IB-Stim is established +in approximately 80 children’s hospitals within our target market. +6 +Competition +The +competitive landscape for therapies includes off-label drugs and drugs with FDA-approved only for adults with IBS while there is no FDA +indicated treatments for patients 8-21 years of age with functional abdominal pain associated with IBS and prescriptions often contain +FDA black box labels. Psychological treatments such as cognitive behavioral therapy (CBT) or guided imagery have been shown to be some +of the most effective treatments for these conditions, however, these are limited by access to trained therapists. As a result, the Company +is addressing this challenge by providing access to guided-imagery audio with IB-Stim at a low associated cost to the patient. Competition +also includes devices that could theoretically be used, but do not have supporting data or FDA clearance for functional bowel disorders +or IBS. Digital therapeutics that offer CBT for IBS have been developed for adults with IBS with limited success in terms of reaching +large numbers of patients. Virtual reality could potentially be used in the future to also deliver CBT to patients with IBS. Our +method patents limit other devices from targeting IBS through stimulation of cranial nerve branches in the ear. +Approved +drugs for children with IBS +1. +Linzess: +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation in 7 years of age and older +Approved +drugs for adults with IBS +1. +Rifaximin: +an intraluminal antibiotic approved for IBS-diarrhea +2. +Amitiza: +a drug that stimulates fluid secretion from the intestine, approved for IBS-diarrhea +3. +Linzess : +a drug that stimulates fluid secretion from the intestine, approved for IBS-constipation +4. +Plecanatide: +a drug that stimulates fluid secretion from the intestine, approved IBS-constipation +5. +Eluxadoline: +a schedule IV-controlled substance that is a mixed opioid receptor agonist/antagonist in the intestine approved for IBS-diarrhea +Approved +drugs for children or adults with functional dyspepsia +1. +None +7 +Devices +1. +gammaCore: +a transcutaneous, cervical vagal nerve stimulator cleared for cluster and migraine headaches. Recent studies using this device for +adults with gastroparesis. +2. +Transcranial +Magnetic Stimulation: Multiple devices cleared to treat major depressive disorder and obsessive-compulsive disorder. To date, no +known gastrointestinal indications. +3. +Roo +System and Sparrow therapy system: Transcutaneous auricular stimulation devices-cleared for neonatal and adult opioid withdrawal. +The +neurostimulation market is predominantly comprised of surgically implanted, invasive technologies that are not directly competitive with +our technology. Several neurostimulation companies are large, publicly traded companies that have a history in the market, have significantly +easier access to capital and other resources and have an established product pipeline. The combined clinical research and product development +done by the industry, including by us and all our competitors, is uncovering the beneficial effects of neurostimulation which now establishes +neuromodulation as a valid and scientifically supported approach to the treatment of neurological conditions, and accordingly, we expect +for competition in the non-implanted space to grow in the future. +While +many companies have joined the neuromodulation space, there are no companies targeting the CNS or the brain-gut axis through auricular +nerves for functional bowel disorders or IBS. Currently, the Neuraxis method patents protect access to the brain, particularly the limbic +systems through branches of cranial nerves in the ear. +Our +Competitive Strengths +We +believe that the following competitive strengths will enable us to compete effectively: +● +First +to market +● +Strong +portfolio of device and method patents +● +Large +market opportunities +● +Strong +pediatric pipeline +● +Academic +Society guidelines with the only FDA-approved or FDA-cleared recommended treatment +● +Category +I CPT code (64567) effective January 1, 2026 +● +Strong +clinical data carried out in leading academic institutions in the U.S. +Our +Growth Strategies +● +List +price of our product is $1,195 per device and $4,780 per patient +● +Strong +gross margin +● +Direct +sales force +● +Target +customers are children’s hospitals, adult gastroenterologists in the VA, and adult pain physicians in the VA +Our +Pipeline +IB-Stim +is to be used for the indication of functional abdominal pain associated with IBS, functional dyspepsia (FD), and associated FD nausea +symptoms. The same underlying technology will be used for the remaining pipeline indications, but we may use different branding strategies +for marketing and commercialization purposes. +With +one FDA indication—functional abdominal pain associated with IBS, functional dyspepsia (FD), and associated FD nausea symptoms +for 8 years and older—on the market, additional clinical trials of PENFS in multiple pediatric conditions are underway focused +on unmet healthcare needs in children and adults. These indications consist of post-concussion syndrome, cyclic vomiting syndrome, post-operative +pain and fibromyalgia pain. +The +chart below shows our status in the FDA review process for IB-Stim and each of the following pediatric indications: +1. +Functional dyspepsia ( nausea ): Sub-analysis of the RCT completed, and data was analyzed and presented to FDA. The data +looked only at those patients who met criteria for functional dyspepsia and those that improved in abdominal pain scores by 30% or more +as well as improvements in a validated measure of nausea. The sub-analysis was used for FDA purposes and there is no plan to publish +in peer reviewed journal since the entire cohort of patients with DGBIs was already published in 2017. +8 +2. +Post-concussion: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT04978571, A Prospective Study on the Effect +of Auricular Percutaneous Electrical Nerve Field Stimulation (PENFS) in Patients with Post-Concussion Syndrome (PCS). A randomized, +double blind, placebo-controlled trial to evaluate the efficacy of IB-Stim in children with post-concussion symptoms. The primary endpoint +will be to measure improvements in validated measures, including the Immediate Post-Concussion Assessment, Post-Concussion Symptom Scale, +and Balance Error Scoring Symptom compared to placebo. The study will enroll 100 participants and is being conducted at Children’s +Hospital of Orange County. +3. +Cyclic vomiting: Successful pilot study completed and published, Karrento K, et.al.. Electrical Nerve Field Stimulation +for Drug-Refractory Pediatric Cyclic Vomiting Syndrome. J Pediatr Gastroenterol Nutr. 2023;77:347-353. A new study, Auricular Neurostimulation +for Children with Cyclic Vomiting Syndrome: A randomized, placebo-controlled trial. RCT anticipated to begin enrolling patients early +in 2026. This will be a double blind, placebo-controlled trial to evaluate efficacy of IB-Stim in pediatric patients with cyclic vomiting +syndrome. The primary endpoint will be to measure decreases in the frequency and severity of cyclic vomiting episodes compared to a placebo +device. The study will include a minimum of 120 patients and is being conducted at Children’s Wisconsin/Medical College of Wisconsin. +4. +Post-operative pain (opioid sparing) : RCT currently enrolling patients and plans to include almost 300 patients total. ClinicalTrials.gov +Identifier: NCT05506878. Reduction of Opioid Requirement Associated With Auriculo-Nerve Stimulation Following Open Surgery. The primary +outcome measure is opioid consumption. Assess how the use of the NSS-2 BRIDGE Device over a 5 day stimulation period affects the participant’s +total opioid consumption using morphine equivalent following an open abdominal or pelvic surgery. Other measures will include post-operative +pain ratings, sleep, somatization, as well as length of hospital stay. The study is being conducted at University of Pittsburgh Medical +Center. +5. +Fibromyalgia in adults : RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT06415591. Auricular Neuromodulation +in Veterans with Fibromyalgia: The proposed Merit, a randomized, sham-controlled trial of auricular +PENFS, evaluates the clinical utility of PENFS for fibromyalgia as compared to sham placebo control, acute and longitudinal PENFS-related +neural changes visualized on rs-fcMRI and effects of PENFS on HRV as a potential vagal mechanism of pain relief. For Aim 1, 240 total +participants meeting 2016 diagnostic criteria for fibromyalgia (male and female, age 18-60 years old) will be randomized to either true +(n=120) or sham (n=120) auricular PENFS. The study is being conducted at Emory University and VA medical center. +Each +step in the FDA review process differs in duration and cannot be predicted with accuracy. Timing of FDA review and approval, if ever +received, cannot be assured and the process and any approval is within the sole control and discretion of the FDA. +9 +Products +IB-Stim +is a PENFS technology intended to be used in patients 8 years and older with functional abdominal pain associated with IBS, functional +dyspepsia (FD), and associated FD nausea symptoms. The FDA has classified the non-implanted nerve stimulator for functional abdominal +pain relief as a Class II device. +IB-Stim +is intended to be used for 120 hours per week, using one (1) device per week, for four (4) consecutive weeks, through application to +branches of Cranial Nerves V, VII, IX and X, and the occipital nerves identified by transillumination, as an aid in the reduction of +pain when combined with other therapies for IBS (DEN180057, 2019; K252024, 2025). In published studies, patients treated with IB-Stim +demonstrated significant improvement in pain, disability and global symptoms with no serious adverse events, and minimal to no side effects, +including localized skin irritation. The following table presents a summary of IB-Stim studies performed to date: +Author +DGBI +N= +Ages +# +of devices +Outcomes +Major +adverse events +Santucci +et al.,2025 +Functional +Abndominal Pain +219 +7-21 +4 +Abdominal +pain, nausea, disability +None +Dorfman +et.al.,2025 +Functional +Abdominal Pain +22 +11-21 +4 +Abdominal +pain, recurrent treatment +None +Kolacz +et.al.,2025 +Chronic +Nausea +84 +11-18 +4 +Cardiac +vagal effeciency +None +Santucci., +et.al., 2024 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain and nausea +None +Castillo +et.al., 2023 +Irritable +bowel syndrome +27 +11-18 +4 +Abdominal +pain, Microbiome Metabolism +None +Karento +et al., 2023 +Cyclic +Vomiting Syndrome +30 +8-18 +6 +Abdominal +pain, nausea, disability +None +Santucci +et.al.,2023 +Irritable +bowel syndrome, functional dyspepsia, FAP +101 +11-21 +4 +Abdominal +pain, nausea, disability +None +Chogle +et.al., 2023 +Irritable +bowel syndrome, functional dyspepsia +31 +11-18 +4 +Quality +of life, disability, anxiety +None +Chogle +et.al., 2023 (Registry) +Irritable +bowel syndrome, functional dyspepsia +292 +8-18 +4 +Abdominal +pain, nausea, disability +None +Santucci +et al., 2023 +Functional +Dyspepsia +84 +11-21 +4 +Abdominal +pain, nausea, anxiety, disability +None +Bora +et.al.,2023 +Irritable +bowel syndrome +20 +11-18 +4 +IBS +severity scale, Microbiome diversity +None +Santucci +et.al.,2021 +Functional +abdominal pain +20 +11-19 +4 +Abdominal +pain, sleep, nausea, anxiety +None +Krasaelap, +et.al., 2020 +Irritable +bowel syndrome +51 +11-18 +4 +Abdominal +pain, global symptoms, disability +None +Kovacic +et.al.,2017 +IBS, +FD, FAP, abdominal migraine +115 +11-18 +4 +Abdominal +pain, disability, global symptoms. +Syncope=1 +in sham group +The +ability of IB-Stim to produce systemic effects by modulating the central nervous system has been demonstrated in a pre-clinical animal +model of IBS (see Business— Pre-Clinical Data ). In patients with IBS, the largest effect on all pain measures, including +composite pain scores, worst pain, disability and global symptoms, was seen after completing three consecutive weeks of treatment (see +Business— Clinical Data ). A fourth consecutive week of treatment was included in clinical testing; no safety concerns were +identified with this extra consecutive week of treatment. In the trial of 115 subjects, 10 patients reported side-effects and only three +discontinued the study because of side-effects. Of such 10 patients, six experienced ear discomfort (three in the PENFS group, three +in the sham group), three experienced adhesive allergies (one in the PENFS group, 2 in the sham group), and one experienced syncope due +to needle phobia (in the sham group). There were no serious adverse events. Since that study, numerous other studies have confirmed the +safety and efficacy in children with chronic DGBIs (see table above). +Medical +providers are trained to place IB-Stim through NeurAxis’ IB-Stim Training and Certification process. Once the provider is trained, +the device can be placed in the outpatient clinic and can be removed by the provider in the clinic or by the patient at home. IB-Stim +stays on for a total of five-days to allow delivery of gentle electrical pulses to nerves below the skin that access the central nervous +system. A study in adolescents showed greater improvement in functional abdominal pain and global symptom improvement with every week +of treatment (up to four weeks). At the end of the four-week study, 95% of adolescents stated they would recommend the treatment to family +or friends. Safety of percutaneous electrical nerve field stimulation has also been reported in a separate study of over 1200 adult patients +with no serious adverse events and minimal to no side-effects. +When +wearing IB-Stim and following an easy-to-learn and efficient procedure, patients can still attend school and extracurricular activities, +exercise or play non-contact sports, shower, wear earbuds or headphones, and travel. +IB-Stim +costs $1,195 per device, and each patient will use four (4) devices. Potential patients with other indications are expected to use six +(6) or more devices per patient. +Technology +A +maladaptive central nervous system can process pain and emotions differently. This often occurs in children following a traumatic event, +viral infections, inflammation or trauma. Changes in brain pathways are known to be involved in the pathophysiology of functional bowel +disorders and IBS. IB-Stim works by sending gentle electrical impulses into cranial nerve bundles located in the ear. This stimulation +targets brain areas that process pain and helps reduce functional abdominal pain associated with IBS. An animal model of IBS demonstrated +that the firing of neurons in the amygdala could be reduced by more than 50% in just 15 minutes of stimulation with IB-Stim. A recent +human study in adults with pain related to fibromyalgia suggested that IB-Stim exerts its effect by modulating emotional and executive +control centers related to pain processing, see Feasibility of Auricular Field Stimulation in Fibromyalgia: Evaluation by Functional +Magnetic Resonance Imaging, Randomized Trial , Woodbury et.al. , Pain Med. 2021;22:715-726. The field of art pertains to an +electrical stimulation device, including a stimulator containing a generator to deliver electrical pulses with defined parameters, and +a power supply for supplying the electrical energy through four separate needles, and at least one of which is a needle array. +10 +Pre-Clinical +Data +In +an animal model of IBS, extracellular, electrophysiologic recordings were performed from neurons in the rat amygdala before and 15 minutes +after PENFS treatment. There was a 65% decrease in the spontaneous firing of these neurons after 15 minutes of PENFS. This dampening +of neurons in the CNS likely accounts for the modulation of pain responses in a model of post-inflammatory visceral and somatic hyperalgesia. +11 +Clinical +Data +There +are over 700 published patients specific to our first FDA indication which is functional abdominal pain associated with irritable bowel +syndrome in patients 8-21 years of age. A published patient is defined as a patient who went through a study, the study was analyzed, +and now the study has been published in a peer-reviewed journal. +A +randomized, controlled study in children 11-18 year of age used primary endpoint of improvements in abdominal pain. The Pain Frequency-Severity-Duration +(“PFSD”) questionnaires was completed at baseline by all subjects and after each week of treatment (weeks 1–3), as +well as at extended follow-up occurring in the 8–12 weeks following the end of treatment. The PFSD scale incorporates multiple +aspects of the pain experience and was administered weekly during treatment and at extended follow-up appointments. The PFSD scale validated +for chronic pain in children (aged 8–18 years). The PFSD was also used to rate weekly worst abdominal pain on a numerical rating +scale (0 for no pain, 10 for worst pain). Patients were followed up for a median of 9.2 weeks from the last week of treatment. +For +the active PENFS group, median worst pain at follow-up remained lower (baseline: 8.0 vs. follow-up: 6.0), whereas there was no difference +at follow-up in the control group (baseline: 7.5 vs. follow-up: 7.0). The between-group differences in worst pain ratings after 3 weeks +of treatment showed that the PENFS group improved to a greater extent, with the control group reporting significantly higher worst pain +(median 7.0) than the PENFS group (median 5.0). +At +long-term follow-up, median PFSD composite scores were 12.6 (IQR 3.6–22.5) in the PENFS group and 16.8 (4.8–33.6) in the +control group. A comparison of changes in PFSD composite scores (baseline to follow-up) showed that patients in the PENFS group reported +significantly greater improvement in pain (median –8.4) than those in the control group (median 0.0). This study was published +in the Lancet Gastroenterology Hepatology, (Kovacic K, et.al. Lancet Gastroenterol Hepatol. 2017;2:727-737). +12 +A +secondary endpoint in the same study used the functional disability index (FDI) to assess functional disability in those treated with +PENFS and compared to sham treatment. Those treated with PENFS changed from moderate disability to minimal at the 2–3-month follow-up +while the sham device group had no change. +A +separate published paper looked at 51 pediatric patients with IBS and used the symptoms response scale (SRS) to assess global symptoms +improvement following PENFS treatment compared to sham. Global symptom improvement was assessed with a validated pediatric questionnaire, +Symptom Response Scale (SRS). Symptoms were recorded as better, worse, or no change based on a 15-point scale across individual domains +for both improvement and deterioration of overall symptoms. Findings from several studies that used the SRS have shown that using 7-point +scale response options in disease-specific measures, a change score of 0.5 represents the minimal clinically important difference (Juniper +et.al. J Clin Epidemiol 1994; 47: 81–87 and Guyatt GH et.al.1987; 42: 773–78). As previously noted, a minimum change in score +of ≥ 2 was chosen for this study as a more stringent criterion for global improvement before and after PENFS treatment and to compare +between groups. Patients and providers were blinded in terms of those who received active PENFS or sham. At the end 3 weeks of therapy +using the change of ≥ 2, 81% of the PENFS group compared with 26% of the sham group (*p≤ 0.001, #p=0.002) reported overall symptom +improvement. When applying an even more stringent criteria with a change ≥ 3 on the SRS, 67% of the PENFS group compared with 22% +of the sham group reported symptoms improvement (p=0.002) (Krasaelap A et.al. Efficacy of Auricular Neurostimulation in Adolescents With +Irritable Bowel Syndrome in a Randomized, Double-Blind Trial. Clin Gastroenterol Hepatol. 2020;18:1987-1994). +13 +Recently, +the largest, prospective, multicenter registry for any drug or device in pediatric patients with pain associated DGBIs was published. +It evaluated outcomes of pediatric patients (8-18 years) following a 4-week course of IB-Stim in a real-world clinical setting. Overall, +292 patients met Rome IV Diagnostic criteria for any pain associated disorder of the gut-brain interaction (DGBIs). In this cohort, 92% +had failed medication therapy and 61% of patients had failed 4 or more medications when they entered the study. Patients were asked to +fill out several validated pediatric measures, including the abdominal pain index (API) and a validated questionnaire that assesses frequency, +duration, and intensity of abdominal pain episodes. Data were collected weekly for the first 3 weeks and at 3, 6, 9 and 12 months. Compared +to baseline scores, there were significant improvements in the API after 4 weeks of IB-Stim treatment at every time point, including +6 month (p<0.001) and 12 months (p<0.001). Although there were many dropouts by the end of the 12 months, the results were still +significant and sustained. No serious adverse effects were recorded during the entire 12 month follow-up. (Chogle, A. et. al. A multicenter +registry study on percutaneous electrical nerve field stimulation for pediatric disorders of gut-brain interaction. J Pediatr Gastroenterol +Nutr. 2024 Mar 7.). +Abdominal +Pain Index (API) +Time +point +n +Median +(IQR) +p +Value +Baseline +288 +2.68(1.84, +3.58) +N/A +3 +weeks +209 +1.99 +(1.13, 3.27) +<0.001 +3 +months +75 +1.81 +(0.85, 3.20) +<0.001 +6 +months +60 +1.70 +(0.93, 2.72) +<0.001 +9 +months +26 +1.90 +(1.33, 2.82) +0.002 +12 +months +22 +220(0.41, +3.21) +<0.001 +An +open-label study of 20 patients treated with PENFS in a “real-world” clinical setting at Cincinnati Children’s Hospital +demonstrated that after PENFS, abdominal pain (p < 0.0001), nausea (p=0.001), pain catastrophizing (p = 0.001), functional disability +(p<0.0001), and anxiety (p = 0.03) exhibited significant improvements, and were sustained 6-12 months after treatment (Santucci et.al. +Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). Validated questionnaires included the abdominal +pain index (API), nausea severity scale (NSS), functional disability index (FDI), as well as psychological measures of catastrophizing +(PCS-C) and anxiety (SCARED). The table below summarizes the results pre, during and post PENFS results at long-term follow-up (Santucci +et.al. Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents +with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). +14 +PENFS +Reimbursement +Previously, +the American Medical Association (AMA) assigned a procedure-specific Category III CPT Code (0720T) to PENFS, which was published on +December 30, 2021 and became effective for utilization on July 1, 2022. Category III CPT Codes are temporary codes issued to define +and track the utilization of new procedural technology. To expand patient access to PENFS procedures and IB-Stim technology, we +launched our internal Prior Authorization team under our Guidance & Patient Support function in 2023. This continues to address +the Prior Authorization process barriers for providers and children’s hospitals and streamlines a patient’s access to +our Patient Advocacy and Financial Assistance offerings, if needed. In September of 2024, the AMA’s CPT Editorial Panel +accepted addition of Category I CPT Code (placeholder 64X11) for PENFS and deletion of Category III CPT Code 0720T. The finalized +Category I CPT Code for PENFS, 64567 and associated valuations, was publicly announced in Q4 of 2025. CPT 64567 became effective +for utilization and reporting PENFS procedures on January 1, 2026. Twenty-four (24) commercial health insurers, including certain +Blue Cross Blue Shield licensees, have instituted formal medical policy coverage for PENFS. The total membership of these health +insurers is approaching 100,000,000 covered lives. Patients who are appropriate clinical candidates may have policy-covered access +to PENFS and IB-Stim technology under their specific health plan. We continue to actively leverage clinical evidence, peer-reviewed +publications, and academic medical society clinical practice guidelines to expand patient access to IB-Stim technology. The +finalized CPT code (1/1/2026) will strengthen PENFS access as Fee Schedules and claim payments become more transparent, allowing +both commercial and Medicaid payer entities to more-effectively process covered claims. +Marketing +NeurAxis +markets its products through a direct sales team, online channels, and to clinicians via affiliated academic societies. Our main goal +is to raise educational awareness among clinicians and hospitals about the unmet needs of patients with functional abdominal pain and +NeurAxis’ FDA-cleared, drug-free product solutions. Our primary focus is with the 260 children’s hospitals within the United +States. As our FDA-indications expand, so will our outreach and education to adult gastroenterology providers. Direct-to-patient marketing +efforts will be considered in the future. +Patients/Customers +IB-Stim +is indicated for patients 8 years and older suffering from functional abdominal pain, functional dyspepsia (FD),and associated FD nausea +symptoms. Customers are currently primarily children’s hospitals who serve these patients, but is currently expanding to adult +gastroenterologists and adult pain physicians. +RED TM +(Rectal Expulsion Device) +RED +enables comprehensive constipation for every gastroenterology practice. The mission is for every gastroenterology practice to be able +to safely and confidently differentially screen root causes of chronic constipation with the patient and physician in mind. RED can be +implemented in a GI practice with minimal impact to clinical workflow and does not require a large capital expense. Eight (8) million +patients each year present with constipation. Of those eight million patients, 700,000 patients present to the Emergency Room. +Clinical +Background +Constipation +is one of the most encountered gastrointestinal complaints in clinical practice. A recent systematic review reported that the prevalence +of chronic constipation (CC) in North America is between 10-15%. This condition causes significantly reduced quality of life, reduced +work-related productivity and billions of dollars in health expenditures. Clinical practice guidelines recommend empiric treatment of +chronically constipated patients with fiber supplements or laxative therapies. Approximately 40% of patients do not adequately respond +to empiric laxative therapy. In these patients, anorectal physiology testing is essential. +There +is a clinical need for an easy-to-use, office-based, point-of-care, anorectal function test that can measure rectal sensitivity and be +used as a rectal expulsion device to assess pelvic floor dysfunction. Current testing methods typically require elaborate volumetric +testing equipment to assess sensation and expulsion, which makes them not practical in the clinical setting. The current standard is +to refer patients to specialized motility centers for evaluation, resulting in sub-optimal number of patients with constipation undergoing +anal-rectal testing. In the current clinical setting, only about 2% of all patients with constipation are referred for anal-rectal testing +and thus, a large number with pelvic floor dysfunction and rectal hypersensitivity are missed and/or fail to get proper treatment. The +design of RED allows for it to be used as a self-inflating expulsion device and as a balloon to assess patients who experience rectal +hypersensitivity. When it is opened to atmospheric pressure, RED safely self inflates and contains a proprietary foam technology that +mimics the “feel” of stool. This provides an alternative to sensation and expulsion testing in the office without affecting +clinical workflow. +15 +Rectal +Sensation Testing +Rectal +sensation is an important metric to guide clinical care, particularly rectal hypersensitivity. For example, a patient that reports an +immediate perceived immediate need to defecate or discomfort (max tolerated) to low volumes of distension would have rectal hypersensitivity. +This diagnosis is important because it would impact how a patient is treated. Rectal hypersensitivity is addressed by pelvic floor physical +therapists who deliver education and re-training to help the patient align the desire to defecate according to the actual volume of stool +contained within the rectal vault. The basis of sensory re-training during physical therapy involves inflating a balloon in the rectum +until urge threshold is reached. With repeated inflations, the patient learns to associate a given sensory intensity with the inflated +volume. Over time, the balloon is inflated with decreasing volumes and the patient is asked to closely monitor and attend to sensations +experienced. Eventually, new sensory thresholds are established. Unfortunately, because of the difficulty in performing hypersensitivity +testing in routine clinical care, only a small percentage of all patients with constipation undergo anorectal testing in the clinical +setting. +In +a recent study, 60 adult patients (mean±standard deviation age of 46.4±17.6 years; 93.3% women) that underwent evaluation +with RED and answered the questions were included in the analysis. One patient did not undergo rectal sensation testing due to suspected +anal fissure and overall, 58 patients were included in the analysis. +As +outlined in the figure below, 18 of 58 patients, or 31%, had rectal hypersensitivity on RED when defined on a single yes/no question +of “do you feel you have to poop right now” that evaluates the patient perception to defecate. +These +data suggest that approximately 31% of patients with chronic constipation reported urge to defecate with RED baseline distension volume, +thus meeting the London criteria for hypersensitivity. +Balloon +Expulsion Testing +RED +can be used as a rectal expulsion device and in a recent prospective trial of 60 adults with functional constipation (defined by Rome +IV criteria), it was demonstrated to be safe in a clinical setting. It can be quickly performed in the left lateral position (i.e., the +patient lying on their left side) immediately after a rectal examination. Further, it proved to be effective for patients who fail a +trial of laxative therapy. In those patients with constipation who failed laxative treatment, RED was able to reliably identify patients +for whom pelvic floor physical therapy was unlikely to provide substantial benefit (i.e, patients who might be more likely to benefit +from intensifying medical therapy). Patients with an abnormal RED in the left lateral position or commode were likely to respond to pelvic +floor therapy (48.8% to 71.4%, respectively). Also, RED showed very high sensitivity (>95%) to broadly detect evacuation disorders +as a simple screening tool as noted in the table below. +16 +RED +Benefits Over Predicates +1. +Prompt +point of care test allows assessment of patients and potentially changes clinical management. +2. +Identifies +those who would benefit from physical therapy or who would require optimization of laxatives or addition of secretagogues. +3. +Identifies +many patients with rectal hypersensitivity that otherwise would never get tested. +4. +Easily +integrates with clinical workflow +There +is an urgent need to better identify patients with pelvic floor abnormalities and/or rectal hypersensitivity. Making the right diagnosis +can impact care and ensure that patients are properly assessed and treated. The figure below demonstrates how RED can impact clinical +decision making. +Overall, +RED is a point-of-care device designed to be used in the office. Rectal sensation is an important component of evaluating pelvic floor +function among patients with chronic constipation. Currently, 98% of clinically appropriate patients do not receive anorectal testing. +The study findings demonstrate that RED impacts clinical decision making by identifying patients who would benefit from physical +therapy or who would require optimization of laxatives. Shah et.al., An Office-Based, Point-of-Care Test Predicts Treatment Outcomes +With Community-Based Pelvic Floor Physical Therapy in Patients With Chronic Constipation. Clin Gastroenterol Hepatol. 2023;21:1082-1090.It +is also sufficient to qualitatively assess for rectal hypersensitivity which was evident in almost one-third of patients with chronic +constipation failing a trial of fiber/laxatives. It is critical to assess rectal sensation and balloon expulsion in patients with constipation +and/or fecal incontinence. +RED +Safety +● +The +tube for RED remains open to room air as the patient defecates. The pressure is therefore never greater than room air. +● +The +predicate device uses manual inflation with a syringe against resistance. The predicate device is re-capped so that the patient must +defecate an air-filled balloon with low compliance. The resistance with defecating the predicate is therefore greater than RED, because +RED is more compliant than an air-filled balloon. RED is therefore safer with regard to patients with decreased compliance. +● +There +have been no safety events reported to compliance in MAUDE with the predicate in the last 10 years. +● +RED +is more compliant than air or water based on balloon compression data as demonstrated in the graph below. +● RED CPT coding +changed effective January 1, 2026, and we are currently waiting on the AMA CPT Knowledge Base to give an opinion on the coding going +forward. +Intellectual +Property +Our +intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research, and +development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual +property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered +trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws +to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our +executive officers and directors. +17 +Trademarks +The +Company has nine (9) registered trademarks, and three (3) pending applications for registration: +Country +Trademark +Reg. +No. +Reg. +Date +Class/Goods +Status +US +NEURO-STIM +and Design +5105257 +20-Dec-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +THE NEUROSTIM SYSTEM and Design +4905470 +23-Feb-2016 +10 +Int. nerve stimulator apparatus +Registered +US +NSS +4852008 +10-Nov-2015 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable neurological pain management +generator, with percutaneously-implantable needle arrays; medical system and apparatus consisting of a non-implantable modulating +frequency generator, providing neuromodulation therapy to cranial and peripheral nerves; medical system and apparatus consisting +of implantable arrays for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and +nerve field stimulation; medical system and apparatus consisting of a non-implantable modulating frequency generator and implantable +needle arrays for transmitting current into auricular and peri-auricular tissue for use in pain management, namely, patient stimulators +for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, appliances and instruments for +peripheral nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, headache control, +control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies and other types of sympathetically +mediated pain +Registered +US +IB-STIM +5926831 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +18 +US +IB-STIM +and Design +5926832 +03-Dec-2019 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR +5978411 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; Medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; Medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; Medical device for peripheral nerve and nerve field stimulation; +Medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; Medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +US +IB-STIM +AURICULAR STIMULATOR and Design +5978412 +04-Feb-2020 +10 +Int. medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non- implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and peri-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and peri-auricular tissue for use in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve field neuromodulation therapy; medical apparatus, for peripheral +nerve field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, changes in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain +Registered +19 +Country +Trademark +App. +No. +App. +Date +Class/Goods +Status +US +NEURAXIS +97/327951 +24-Mar-2022 +10 +Int. nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Registered +US +NEURAXIS +(STYLIZED) +97/356330 +11-Apr-2022 +10 +Int. nerve stimulator apparatus; nerve stimulator apparatus for FGID, irritable bowel, functional dyspepsia, functional abdominal +pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, chronic inflammatory bowel +disease, changes in FGID co- morbidities, sleep disturbances, psychological disorders, including mood, anxiety, and satiety, pain +control, headache control, control of phantom limb pain, stump pain, reflex sympathetic dystrophy (RSD), peripheral neuropathies +and other types of sympathetically mediated pain +Registered +US +RECTAL +EXPULSION DEVICE +99/249573 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +RED +– RECTAL EXPULSION DEVICE (word) +99/249859 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +RED +& Design +99/249570 +24-Jun-2025 +10 +Int. medical devices, namely, devices for measuring pelvic floor dysfunction and rectal hypersensitivity for use in the diagnosis +and treatment of chronic constipation; medical diagnostic apparatus for testing pelvic floor dysfunction and rectal hypersensitivity +in the field of chronic constipation; medical devices and apparatus for medical screening testing of individuals with chronic +constipation; medical apparatus and instrument for diagnostic use, namely, apparatus for medical diagnostic testing in the field +of chronic constipation; disposable medical devices for diagnosing and treating constipation +Filed +US +AXI-STIM +99/507683 +20-Nov-2025 +10 +Int. Medical apparatus, namely, electrical nerve stimulators; medical device, namely, a non-implantable modulating frequency generator, +providing neuromodulation therapy to cranial and peripheral nerves; medical apparatus consisting of percutaneously implantable arrays +for transmitting current into auricular and per-auricular tissue; medical device for peripheral nerve and nerve field stimulation; +medical device consisting of a non-implantable modulating frequency generator and percutaneously implantable needle arrays for transmitting +current into auricular and per-auricular tissue for us in pain management and FGID (functional gastrointestinal disorders), namely, +patient stimulator for auricular and peri-auricular peripheral nerve filed neuromodulation therapy; medical apparatus, for peripheral +never field stimulation in cranial and peripheral nerves and occipital nerve branches, for pain control, FGID, irritable bowel, functional +dyspepsia, functional abdominal pain, nausea, functional nausea, abdominal migraine, Crohn’s Disease, visceral hypersensitivity, +chronic inflammatory bowel disease, change in FGID co-morbidities, sleep disturbances, psychological disorders, including mood and +anxiety, satiety and changes in autonomic nervous system and other types of sympathetically mediated pain. +Patents +The +Company has fifteen (15) granted patents in the United States and one (1) applied for patent application in the United States and one +(1) granted foreign patent and two (2) applied for foreign patent applications. +Country +Owner +Serial +No. +Actual +Filing Date +Patent +No. +Issue +Date +Anticipated +Expiration Date +Title +Application +Status +Licensing +Status +CA +Neuraxis, +Inc. +3096494 +25-Apr-2019 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Applied +for +JP +Neuraxis, +Inc. +2021-509961 +23-Oct-2020 +7252319 +27-Mar-2023 +25-Apr-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/040766 +23-Sep-2020 +11369791 +28-Jun-2022 +21-Jun-2039 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +17/715121 +07-Apr-2022 +12097371 +24-Sep-2024 +04-Jan-2040 +AURICULAR +NERVE FIELD STIMULATION DEVICE +Granted +US +Neuraxis, +Inc. +16/014169 +21-Jun-2018 +10322062 +18-Jun-2019 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +16/408004 +09-May-2019 +11077019 +03-Aug-2021 +16-Jul-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +17/363620 +30-Jun-2021 +11654082 +23-May-2023 +29-Jul-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +17/830411 +02-Jun-2022 +DEVICE +AND METHOD FOR ERADICATING PATHOGENS IN NASAL PASSAGES +Applied +for +US +Neuraxis, +Inc. +17/589082 +31-Jan-2022 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION AND AUDIO THERAPY DEVICE +Applied +for +20 +US +Neuraxis, +Inc. +17/861646 +11-Jul-2022 +EXTERNAL +AUDITORY CANAL THERAPY DEVICE +Applied +for +US +Neuraxis, +Inc. +17/617364 +08-Dec-2021 +EXTERNAL +AUDITORY CANAL PHOTOBIOMODULATION DEVICE +Applied +for +US +Neuraxis, +Inc. +15/488416 +14-Apr-2017 +10413719 +17-Sep-2019 +14-Apr-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +16/534159 +07-Aug-2019 +11331473 +17-May-2022 +14-Apr-2037 +METHODS +OF TREATING DISEASE USING AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/595185 +15-May-2017 +9839577 +12-Dec-2017 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +15/811278 +13-Nov-2017 +10010479 +03-Jul-2018 +14-May-2034 +SYSTEM +AND METHOD FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +14/277158 +14-May-2014 +9662269 +30-May-2017 +14-May-2034 +SYSTEMS +AND METHODS FOR AURICULAR PERIPHERAL NERVE FIELD STIMULATION +Granted +US +Neuraxis, +Inc. +17/725,761 +21-Apr-2022 +11813448 +14-Nov-2023 +14-Apr-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/154,375 +13-Jan-2023 +12029701 +09-Jul-2024 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +18/736,834 +07-June-2024 +12383461 +12-Aug-2025 +14-May-2034 +AURICULAR +PERIPHERAL NERVE FIELD STIMULATOR AND METHOD OF OPERATING SAME +Granted +US +Neuraxis, +Inc. +18/173,893 +24-Feb-2023 +12447332 +21-Oct-2025 +01-May-2035 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +18/377,968 +09-Oct-2023 +12285602 +24-Apr-2025 +14-Apr-2037 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Granted +US +Neuraxis, +Inc. +19173434 +08-Apr-2025 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +CA +Neuraxis, +Inc. +3243826 +07-Aug-2024 +AURICULAR +NERVE FIELD STIMULATION DEVICE AND METHODS FOR USING THE SAME +Applied +for +21 +License +Agreements +TKBMN +Exclusive License Agreement +On +May 7, 2020, the Company entered into an exclusive license agreement with TKBMN, LLC to obtain an exclusive license under certain patent +rights (the “Patent Rights”) owned by TKBMN. Dr. Thomas Carrico, our Chief Regulatory Officer, is the manager of TKBMN. Brian +Carrico, our Chief Executive Officer, and Matt Carrico, our National Sales Director, are members of TKBMN. TKBMN owns the Patent Rights +set forth in the patents listed in the following table (the “TKBMN Patents”) by virtue of an assignment from Dr. Carrico, +who is the sole inventor listed on the TKBMN Patents. TKBMN has assigned the auricular portion of the TKBMN Patent Rights to the Company. +Licensed +TKBMN Patents +Country +Owner +Application +No. +Patent +No. +Issue +Date +Anticipated +Expiration +Date* +Title +US +TKBMN, +LLC +15/981,082 +10,792,500 +October +2, 2020 +October +18, 2037 +Systems +and methods for electro-therapy treatment +US +TKBMN, +LLC +17/014,450 +11,684,782 +June +7, 2023 +October +18, 2037 +Systems +and methods for electro-therapy treatment +* +If all maintenance fees remain paid +Pursuant +to the exclusive license agreement, TKBMN agreed to grant an exclusive, worldwide, non-transferable, royalty-free license under Patent +Rights, which including three patents applications filed by TKBMN in connection with systems and methods for elector-therapy treatment, +to the Company to develop, market, and sell licensed products, in the field of electro-therapy treatment by stimulation of cranial nerves, +cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles, and/or auricular anatomical structures in +human patients (the “Field”), in consideration of a one-time license fee of $1.00. The Company has the right to grant sublicenses +to the Patents Rights in the Field. The exclusive license agreement expires upon the expiration of the last to expire valid claim within +the Patent Rights and may be terminated by the Company upon 60 days prior written notice. Upon expiration or termination of the exclusive +license agreement, all rights in the Patent Rights will revert to TKBMN. There are no royalties or any other form of committed revenue +to TKBMN or any of its members Under the agreement, the Company has agreed to cover fees and expenses associated with maintenance, prosecution, +and additional associated/continuation patent filings for the TKBMN Patents. +Masimo +License and Collaboration Agreemen t +On +April 9, 2020, the Company entered into a license and collaboration agreement with Masimo. As consideration, in part, Masimo entered +into a Series A Preferred Stock purchase agreement with the Company. Under the license and collaboration agreement, the Company grants +an exclusive, fully paid-up, royalty-free license to specifically identified patents and trademarks in a limited Field of use. At all +times, the Company remains the owner of all licensed intellectual property rights, and there is a possibility of joint ownership of collaboratively +developed products and methods. The licensed patents are generally directed to a device and the treatment of opioid withdrawal symptoms. +The licensed trademarks are generally directed to the NSS-2 Bridge mark. The license agreement includes a collaboration component to +efficiently develop, obtain regulatory approval, and commercialize products for the limited field of use. The term of the agreement is +in effect until the expiration or lapse of the last intellectual property rights. Masimo paid a one-time fee of $250,000. The license +and collaboration agreement may not be terminated by the Company for any reason, and the sole remedy for any breach or default by Masimo +shall be to seek monetary damages and equitable remedies. The license and collaboration agreement may be terminated by Masimo if there +is material breach by the Company that remain uncured for thirty (30) days or without cause by providing thirty (30) days prior written +notice. +On +July 1, 2025, The Company terminated the NSS-2 Bridge license with Masimo in exchange for $200,000 of consideration payable in equal +installments on December 31, 2025 and June 30, 2026. The termination agreement allowed the Company to recapture the rights to the trademark +(U.S. Registration No. 7,394,465) and two patent applications (Application No. 18/821/255 and Application No. 29/960.608) that +were originally licensed to Masimo on April 9, 2020. See ”—Our Corporate History ” for more information. +Implications +of Being a Smaller Reporting Company +We +are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage +of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We +will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates +equals or exceeds $250 million as of the prior June 30 th , or (2) our annual revenues equal or exceed $100 million during such +completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June 30 th . +Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our results of operations +and financial prospects. +For +additional information, see “ Risk Factors – Because the Company is a ‘smaller reporting company,’ we may take +advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than +they would receive from a public company that is not a smaller reporting company” and “As a smaller reporting company,” +we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse +effect on our public stockholders.” +22 +Implications +of Being an Emerging Growth Company +We +are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier +of (1) December 31, 2028, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, +(3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under +the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur on the date on which we have issued more than +$1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of +specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable +to public companies. As an emerging growth company, we may: +● +present +only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related +management’s discussion and analysis of financial condition and results of operations in this prospectus; +● +avail +ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal +control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; +● +provide +reduced disclosure about our executive compensation arrangements; and +● +not +require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements. +In +addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards +would otherwise apply to private companies. We have elected not to take advantage of the extended transition period for complying with +new or revised accounting standards provided to emerging growth companies under the JOBS Act. +Government +Regulation +Our +products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, +state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject +to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. +United +States Regulation +The +FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness, +labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, +promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices in the United States +to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements +of the FDCA. +23 +FDA +Premarket Clearance and Approval Requirements +Unless +an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires FDA clearance +of a 510(k) premarket notification. The 510(k) clearance can be resource intensive, expensive, and lengthy. +Under +the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree +of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. +Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical +devices, which include compliance with the applicable portions of FDA’s current good manufacturing practices for devices, as reflected +in the Quality System Regulation, or QSR, establishment registration and device listing, reporting of adverse medical events, and truthful +and non-misleading labeling, advertising, and promotional materials. Some Class I devices, also called Class I reserved devices, also +require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I devices are exempt +from the premarket notification requirements. +Class +II devices are subject to the FDA’s general controls, and any other special controls deemed necessary by the FDA to ensure the +safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market +surveillance, patient registries and FDA guidance documents. +Most +Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to +commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification +is generally known as 510(k) clearance. +If +a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially +equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act +of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to +the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo +classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification +of its medical device into Class I or Class II on the basis that the device presents low or moderate risk. If the manufacturer seeks +reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable +assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a +legally marketed predicate device that would be appropriate for a 510(k) or that general controls would be inadequate to control the +risks and special controls cannot be developed. +Obtaining +FDA marketing authorization, de novo down-classification, or approval for medical devices is expensive and uncertain, and may take several +years, and generally requires significant scientific and clinical data. +Some +pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially +distributed. +Investigational +Device Process +Clinical +trials are sometimes required to support a 510(k) submission. In the United States, absent certain limited exceptions, human clinical +trials intended to support medical device clearance or approval or to determine safety and effectiveness of a device for an investigational +use must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational +device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities +of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the +FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human +clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that +it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in +advance by the FDA for a specified number of subjects. Generally, clinical trials for a significant risk device may begin once the IDE +application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards +at the clinical trial sites. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials, +and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not +bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial +meets its intended success criteria. +24 +If +the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an +IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting +such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient +and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating +disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application +must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans +and that the testing protocol is scientifically sound. The IDE will automatically become effective thirty (30) days after receipt by +the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or +other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. +Regardless +of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an +Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, +and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, +human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the +FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for +the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring +the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance +of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, +the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant +the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator +may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of +human subjects. +During +a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting +clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping +and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators +in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational +plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. +Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, +including the following: +● +The +FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold; +● +Patients +do not enroll in clinical trials at the rate expected; +● +Patients +do not comply with trial protocols; +● +Patient +follow-up is not at the rate expected; +● +Patients +experience serious adverse events; +● +Patients +die during a clinical trial, even though their death may not be related to the products that are part of the trial; +● +Device +malfunctions occur with unexpected frequency or potential adverse consequences; +● +Side +effects or device malfunctions of similar products already in the market that change the FDA’s view toward approval of result +in the imposition of new requirements or testing; +25 +● +Institutional +review boards and third-party clinical investigators may delay or reject the trial protocol; +● +Third-party +clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with +the clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other +FDA or IRB requirements; +● +Third-party +investigators are disqualified by the FDA; +● +We +or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent +with the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing +responsibilities, records, and reports of sponsors of clinical investigations; +● +Third-party +clinical investigators have significant financial interests related to us or our study such that the FDA deems the study results +unreliable, or the company or investigators fail to disclose such interests; +● +Regulatory +inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective +action or suspend or terminate our clinical trials; +● +Changes +in government regulations or administrative actions; +● +The +interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or +● +The +FDA concludes that our trial design is unreliable or inadequate to demonstrate safety and effectiveness. +510(k) +Clearance Process +Under +the 510(k) process, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the proposed device +is “substantially equivalent,” as defined in the FDCA, to a legally marketed predicate device. +A +predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior +to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class +II or I, or a device that was found substantially equivalent through the 510(k) process. A device is considered to be substantially equivalent +if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics; or +(ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device does +not raise different questions of safety or effectiveness than the predicate device. +Before +the FDA will accept a 510(k) premarket notification for substantive review, the FDA will first assess whether the submission satisfies +a minimum threshold of acceptability. If the FDA determines that the 510(k) submission lacks necessary information for substantive review, +the FDA will issue a “Refuse to Accept” letter which generally outlines the information the FDA believes is necessary to +permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information +before the FDA will proceed with additional review of the submission. If a 510(k) submission is accepted for substantive review, the +Medical Device User Fee Amendments sets a performance goal of 90 days for FDA review of a 510(k) submission, but the review time can +be delayed if FDA raises questions or requests additional information during the review process. As a practical matter, clearance often +takes longer, and clearance is never assured. Thus, as a practical matter, clearance often takes longer than 90 days. Although many 510(k) +premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make +a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device +is substantially equivalent, it will grant clearance to commercially market the device. +26 +If +the FDA determines that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to commercially +market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, +the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous requirements of the +PMA approval process, or can request a risk-based classification determination for the device in accordance with the “ de novo ” +process, which is a route to market for certain novel medical devices that are low to moderate risk and are not substantially equivalent +to a predicate device. +Medical +devices can only be marketed for the indications for use for which they are cleared or approved. After a device receives 510(k) clearance, +any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification +in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or de novo reclassification. +The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo request or +a PMA in the first instance, but the FDA may review this determination to evaluate the regulatory status of the modified product at any +time and may require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance +or PMA approval is obtained or a de novo request is granted. Also, in these circumstances, the manufacturer may be subject to +significant regulatory fines or penalties. +Over +the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements +for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process +for their products. For example, in November 2018, FDA officials announced steps that the FDA intended to take to modernize the premarket +notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it planned to develop proposals to +drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset +certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that +have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. These proposals +have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. +In +September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review +pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) +clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating +the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance +process. The FDA has developed and maintains a list device types appropriate for the “safety and performance based” pathway +and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well +as recommended testing methods, where feasible. +PMA +Approval Process +Class +III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet +required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. +In a PMA, the manufacturer must demonstrate that the device is safe and effective for its intended use, and the PMA must be supported +by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of +the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. +Following receipt of a PMA, the FDA conducts an administrative review to determine whether the application is sufficiently complete to +permit a substantive review. If it is not, the agency will refuse to file the PMA. If FDA accepts the application for substantive review, +it has 180 days under the FDCA to complete its review of a filed PMA application, although in practice, the FDA’s review often +takes significantly longer, and can take up to several years. During this review period, the FDA may request additional information or +clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s +response to deficiencies communicated by the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an +applicant fails to respond to an FDA request for information (e.g., major deficiency letter) within a total of 360 days. Before approving +or denying a PMA application, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application +and provide recommendations to the FDA as to whether the FDA should approve the submission, approve it with specific conditions, or not +approve it. The FDA may or may not accept the panel’s recommendation. Prior to approval of a PMA, the FDA may conduct inspections +of the clinical trial data and clinical trial sites, as well as conduct inspections of the applicant or its third-party manufacturers’ +or suppliers’ manufacturing facility or facilities to, among other things, ensure compliance with the QSR. NeurAxis, Inc. is a designated small business with the FDA and enjoys +discounted fees. NeurAxis, Inc. PENFS technology is a Class II medical device and typically pursues De Novo or 510K clearances. +● +Overall, +the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, +limit or deny approval of a PMA application for many reasons, including: +● +The +device may not be shown safe or effective to the FDA’s satisfaction; +27 +● +The +data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval; +● +The +manufacturing process or facilities may not meet applicable requirements; and +● +Changes +in FDA approval policies or adoption of new regulations may require additional data. +If +the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which +usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have +been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, +subject to the conditions of approval and the limitations established in the approval letter. The FDA may approve a PMA with post-approval +conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, +sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or +requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance +when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger +population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number +of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval +can result in material adverse enforcement action, including withdrawal of the approval. If the FDA’s evaluation of a PMA application +or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may +determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or +years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the +data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been +sought by other companies have never been approved by the FDA for marketing. +Certain +changes to an approved medical device, such as changes in manufacturing facilities, methods, quality control procedures, sterilization +(if applicable), packaging, expiration date, labeling, device specifications, materials, or design of a device, or other changes which +affect the safety or effectiveness of the device that has been approved through the PMA process require submission of a new PMA or PMA +supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited +to information needed to support any changes from the device covered by the original, approved PMA and may not require as extensive clinical +data or the convening of an advisory panel, depending on the nature of the proposed change. Certain other changes to an approved device +require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical +basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that +were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. +28 +Ongoing +Regulation by the FDA +Even +after the FDA permits a device to be marketed, numerous and pervasive regulatory requirements continue to apply. These include: +● +Establishment +registration and device listing with the FDA; +● +QSR +requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, supplier/contractor +selection, compliant handling, documentation and other quality assurance procedures during all aspects of the design and manufacturing +process; +● +Labeling +regulations, advertising and promotion requirements, restrictions on sale, distribution or sale of a device, each including the FDA +prohibition against the promotion of products for any uses other than those authorized by the FDA, which are commonly known as “off-label” +uses; +● +The +Medical Device Reporting, or MDR, regulations, which require that a manufacturer report to the FDA if a device it markets may have +caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would +be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; +● +Medical +device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals +if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; +● +Recall +requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health +consequences or death; +● +An +order of repair, replacement, or refund; +● +Device +tracking requirements; and +● +Post-market +study and surveillance requirements. +After +a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute +a major change in its intended use, will require a new 510(k). The FDA requires each manufacturer to make this determination initially, +but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s +determination not to seek a new 510(k) clearance, the FDA may retroactively require it to seek 510(k) clearance. The FDA could also require +the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance is obtained. Also, in these +circumstances, the manufacturer may be subject to significant regulatory fines and penalties. +FDA +regulations require us to register as a medical device manufacturer with the FDA. Additionally, some states also require medical device +manufacturers and/or distributors doing business within the state to register with the state or apply for a state license, which could +subject our facility to state inspection as well as FDA inspection on a routine basis for compliance with the QSR and any applicable +state requirements. These regulations require that we manufacture our products and maintain related documentation in a prescribed manner +with respect to manufacturing, testing and control activities. +Manufacturing +processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities +and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, +installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device +master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections +by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing +operations and the recall or seizure of marketed products, which would have a material adverse effect on our business. The discovery +of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity +or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice +of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory +device recalls. +29 +The +FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable +regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions: +● +Warning +letters, untitled letters, fines, injunctions, consent decrees and civil penalties; +● +Recalls, +withdrawals, or administrative detention or seizure of our products; +● +Operating +restrictions or partial suspension or total shutdown of production; +● +Refusing +or delays in processing, clearing, or approving submissions or applications for new products or modifications to existing products; +● +Suspension +or withdrawal of 510(k) clearances or PMA approvals that have already been granted; +● +FDA +refusal to issue certification to foreign governments needed to export our products for sale in other countries; or +● +Criminal +prosecution. +Our +facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Failure to comply with the +applicable United States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, +fines, injunctions, consent decrees, civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures +of products, operating restrictions, total or partial suspension of production, the FDA’s refusal to issue certificates to foreign +governments needed to export products for sale in other countries, the FDA’s refusal to grant future premarket clearances or approvals, +withdrawals or suspensions of current product clearances or approvals and criminal prosecution. +Regulation +of Medical Devices in the European Union +The +European Union, or EU, has adopted specific directives regulating the design, manufacture, clinical investigations, conformity assessment, +labeling and adverse event reporting for medical devices. EU directives must be implemented into the national laws of the EU member states +and national laws may vary from one member state to another. +In +the EU, there is currently no premarket government review of medical devices. However, the EU requires that all medical devices placed +on the market in the EU must meet the relevant essential requirements laid down in the Council Directive 93/42/EEC, or the Medical Devices +Directive, and the Council Directive 90/385/EEC, or the Active Implantable Medical Devices Directive. The most fundamental essential +requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition +or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by +the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards +applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical +equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. +While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical +matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device +satisfies that essential requirement. +To +demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers +must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Conformity +assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience +in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where +the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to +sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified Bodies are independent +organizations designated by EU countries to assess the conformity of devices before being placed on the market. A Notified Body would +typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (which must, in particular, +comply with ISO 13485:2016 related to Medical Devices Quality Management Systems). If satisfied that the relevant product conforms to +the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for +its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on +the market throughout the EU. +30 +Notified +Body certificates of conformity are valid for a fixed duration (which shall not exceed five years). Throughout the term of the certificate, +the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In +particular, there will be a new audit by the Notified Body before it will renew the relevant certificate(s). +As +a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, +among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions +of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, +that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended +performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers +placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, incidents +must be reported to the relevant authorities of the EU member states, and manufacturers are required to take Field Safety Corrective +Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device +that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance +of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might +have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include +the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its +legal representative to its customers and/or to the end users of the device through Field Safety Notices. +The +advertising and promotion of medical devices is subject to some general principles set forth by EU directives. According to the Medical +Devices Directive, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose. +Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while +not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example requiring +that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at national level. EU member states +laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising +and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals. +Many +EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular +vis-à -vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of +payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national +“Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements +in the United States, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs. +On +May 25, 2017, Regulation 2017/745, or the EU Medical Devices Regulation, entered into force, which repeals and replaces the Medical Devices +Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of +the EU member states, regulations are directly applicable, without the need for adoption of EU member state laws implementing them, in +all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The +Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory +framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. +The +Medical Devices Regulation was originally intended to become applicable three years after publication, but in April 2020 the transition +period was extended by the European Parliament and the Council of the EU by an additional year – until May 26, 2021. Devices lawfully +placed on the market pursuant to the Medical Devices Directive and the Active Implantable Medical Devices Directive prior to May 26, +2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once applicable, the new regulations +will among other things: +● +Strengthen +the rules on placing devices on the market and reinforce surveillance once they are available; +31 +● +Establish +explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices +placed on the market; +● +Improve +the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; +● +Set +up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available +in the European Union, or EU; and +● +Strengthen +the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are +placed on the market. +The +aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus +Norway, Liechtenstein and Iceland. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the +marketing of medical devices that meet EU requirements. +The +EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. +However, as a result of Brexit, the Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored +the Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be +based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the +Medical Devices Regulation going forward. CE markings will continue to be recognized in the UK, and certificates issued by EU recognized +Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity +Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized +on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including +market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated +product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, +the “rules of origin” criteria will need to be reviewed. Depending on which countries products will ultimately be sold in, +manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for +placing medical devices on the Northern Ireland market will differ from those in the UK. +Healthcare +Fraud and Abuse Laws +In +the United States, we are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the +healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, transparency and other +healthcare fraud and abuse laws. +The +U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, +soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, +leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, +in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly +interpreted to include anything of value, including cash, improper discounts, and free or reduced-price items and services. Among other +things, the Anti-Kickback Statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand +and prescribers and purchasers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting +some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. The government can exercise enforcement +discretion in taking action against unprotected activities. Further, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws, +which establish similar prohibitions, and in some cases may apply to items or services reimbursed by any third-party payor, including +commercial insurers and self-pay patients. +The +federal false claims, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, +or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly +making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, +or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim +includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims +Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a +claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent +claim for purposes of the federal civil False Claims Act. In addition, various states have enacted false claim laws analogous to the +federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely +a federal healthcare program. +32 +The +federal Health Insurance Portability and Accountability Act of 1996 created additional federal criminal statutes that prohibit, among +other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including +private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a +criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or +making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, +items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the +statute or specific intent to violate it in order to have committed a violation. +The +federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment +is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually +to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, +podiatrists and chiropractors), and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to +report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such +obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, +including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants +and certified nurse midwives. +Violations +of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, +including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), +disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on +companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such +companies. +Coverage +and Reimbursement +In +the United States, our currently cleared products are not separately reimbursed by any third-party payors and if covered, are paid for +as part of the procedure in which the product is used. Outside of the United States, there are many reimbursement programs through private +payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and +hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other +third-party payors provide coverage for and establish adequate reimbursement levels for the procedures in which our products are used. +Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain coverage and adequate reimbursement +from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors’ +coverage and reimbursement policies, may adversely impact demand for our products. +Based +on our experience to date, third-party payors generally reimburse for the procedures in which our products are used if medical necessity +is met and a prior approval is completed with a favorable response. Some payors are moving toward a managed care system and control their +healthcare costs by establishing coverage policies that categorically restrict coverage of certain procedures, or by limiting authorization +for procedures, including elective procedures using our devices. No uniform policy of coverage and reimbursement among payors in the +United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor. Third-party payors are +increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using +inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative +devices or procedures before they will reimburse healthcare providers who use the products or therapies. Even though a new product may +have been cleared for commercial distribution by the FDA, we may find limited demand for our product unless reimbursement approval can +be obtained and/or maintained from governmental and private third-party payors. +33 +In +addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly +update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes +routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. +These updates could directly impact the demand for our products. +We +believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has +led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products +and services. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs through prospective +reimbursement and capitation programs, group purchasing, redesign of benefits, and exploration of more cost-effective methods of delivering +healthcare. In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval +of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts +the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member +per month and, consequently, may limit the willingness of these providers to use our products. +In +international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted +price ceilings on specific product lines and procedures. In the European Union, member states are facing increased pressure to limit +public healthcare spending. There can be no assurance that procedures using our products will be covered for a specific indication, that +our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that +the third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. More and +more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional +layer of clearance requirement. +Healthcare +Reform +The +United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change +the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United +States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare +costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare +costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures +that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our +revenue from the sale of our products. +The +implementation of the Affordable Care Act (the “ACA”) in the United States, for example, has changed healthcare financing +and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, +among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, +and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and +other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, +the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, +identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment, +there have been judicial, executive and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court +dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality +of the ACA. It is unclear how healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or +replace the ACA will impact the law or our business. +34 +In +addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of +2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent +legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 +through March 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among +other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period +for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of +2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed +annual updates and a new system of incentive payments that began in 2019 that are based on various performance measures and physicians’ +participation in alternative payment models, such as accountable care organizations. +We +expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that +federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or +additional pricing pressure. +Data +Privacy and Security Laws +Numerous +state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access +to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal +and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, +and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, +and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, +certain state and non-U.S. laws, such as the CCPA, the CPRA and the GDPR, govern the privacy and security of personal information, including +health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other +in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where +applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and +can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data +processing. +In +Europe, the GDPR went into effect on May 25, 2018 and introduces strict requirements for processing the personal data of European Union +data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory +enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global +revenues of the preceding financial year of the noncompliant company, whichever is greater. +Among +other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to +provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms +between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework +for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 +by the Court of Justice of the European Union. +Further, +from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom General Data Protection Regulation, or the UK +GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines +under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover. The relationship between +the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is also unclear +how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from +the United Kingdom will be regulated in the long term. Currently there is a four- to six-month grace period agreed in the EU and United +Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, while the parties discuss an adequacy decision. The European +Commission published a draft adequacy decision on February 19, 2021. If adopted, the decision will enable data transfers from EU member +states to the United Kingdom for a four-year period, subject to subsequent extensions. +35 +Environmental +Matters +Based +on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital +expenditures, earnings and competitive position of our Company in the current financial year and are not expected to have a significant +effect in the reasonably foreseeable future. +Manufacturing +Services Agreements +The Company is party to two separate manufacturing services agreements +for the manufacture and supply of the Company’s IB-Stim and RED devices based on the Company’s product specifications that +automatically renew annually unless either party provides a written termination notice to the other party within 180 days prior to the +end of the then-current term. The Company’s IB-Stim and RED devices are manufactured in Indiana and Michigan, respectively. The Company +provides the necessary equipment to the manufacturers and retains ownership. The manufacturers bear the risk of loss of and damage to +the equipment and consigned materials. Performance under the agreement is initiated by orders issued by the Company and accepted by the +manufacturers. The Company also entered into quality agreements with the manufacturers to perform quality assurance services on product +provided by the Company. +Employees +As +of December 31, 2025, we had 24 full-time employees. \ No newline at end of file diff --git a/raw/filings/0001933567/2025/0001493152-26-011505/item13.txt b/raw/filings/0001933567/2025/0001493152-26-011505/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..7036d6409ebc2307cc3303ff4d2a67f18a7dfb5a --- /dev/null +++ b/raw/filings/0001933567/2025/0001493152-26-011505/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +89 \ No newline at end of file diff --git a/raw/filings/0001934245/2024/0001641172-25-002840/filing.txt b/raw/filings/0001934245/2024/0001641172-25-002840/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..f76be630ec5fef1dac14f4eb5ef9f99313f76492 --- /dev/null +++ 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+Washington, +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _______ to _______ +Commission +File Number: 001-41701 +NEWTON +GOLF COMPANY, INC. +(Exact +name of registrant as specified in its charter) +Delaware +82-4938288 +(State +of +incorporation) +(I.R.S. +Employer +Identification +No.) +551 +Calle San Pablo , Camarillo , California +93012 +(Address +of principal executive offices) +(Zip +Code) +(855) +774-7888 +(Registrant’s +telephone number, including area code) +(Former +name, former address and former fiscal year, if changed since last report) +Securities +registered pursuant to Section 12(b) of the Act +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock +NWTG +The +Nasdaq Stock Market LLC +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +the securities are registered, pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +aggregate market value of the voting and non-voting common equity held by non-affiliates (excluding voting shares held by officers and +directors) as of June 30, 2024 was $ 3,629,335 . +There +was a total of 4,287,902 shares of Common Stock outstanding as of March 31, 2025. +TABLE +OF CONTENTS +PART I +1 +Item 1. Business +1 +Item 1A. Risk Factors +8 +Item 1B. Unresolved Staff Comments +26 +Item 1C. Cybersecurity +26 +Item 2. Properties +27 +Item 3. Legal Proceedings +27 +Item 4. Mine Safety Disclosures +27 +PART II +28 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +28 +Item 6. [Reserved] +28 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +28 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +36 +Item 8. Financial Statements and Supplementary Data +F-1 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +37 +Item 9A. Controls and Procedures +37 +Item 9B. Other Information +37 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +37 +PART III +38 +Item 10. Directors, Executive Officers and Corporate Governance +38 +Item 11. Executive Compensation +41 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +44 +Item 13. Certain Relationships and Related Transactions, and Director Independence +45 +Item 14. Principal Accountant Fees and Services +46 +PART IV +47 +Item 15. Exhibits, Financial Statement Schedules +47 +Item 16. Form 10-K Summary +48 +i +CAUTIONARY +STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION +This +Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements that involve risks and uncertainties. These +forward-looking statements are not historical facts but rather are plans and predictions based on current expectations, estimates, and +projections about our industry, our beliefs, and assumptions. +We +use words such as “may,” “will,” “could,” “should,” “anticipate,” +“expect,” “intend,” “project,” “plan,” “believe,” “seek,” +“assume,” and variations of these words and similar expressions to identify forward-looking statements. These statements +are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are +beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted +in the forward-looking statements. You should not place undue reliance on these forward-looking statements because the matters they +describe are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Our forward-looking statements +are based on the information currently available to us and speak only as of the date on which they were made. Over time, our actual +results, performance, or achievements may differ from those expressed or implied by our forward-looking statements, and such +difference might be significant and materially adverse to our security holders. Except as required by law, we undertake no +obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. +Factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) the +development and protection of our brands and other intellectual property, (ii) the need to raise capital to meet business +requirements, (iii) significant fluctuations in marketing expenses, (iv) the ability to achieve and expand significant levels of +revenues, or recognize net income, from the sale of our products, (v) management’s ability to attract and maintain qualified +personnel necessary for the development and commercialization of its planned products, (vi) the impact of the COVID-19 pandemic, or +similar pandemic, as well as geopolitical risks on our business, suppliers, consumers, customers, and employees or the overall +economy, and (vii) other information that may be detailed from time to time in the Company’s filings with the United States +Securities and Exchange Commission (“SEC”). Please consider our forward-looking statements in light of those risks as +you read this Annual Report. +ii +PART +I +Item +1. Business +Overview +We +are a technology-forward golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, +and other golf-related products. In consideration of its growth opportunities in shaft technologies, in April of 2022, we expanded our +manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, Missouri. +It is our intent to manufacture and assemble substantially all products in the United States as is economically feasible. We anticipate +expansion into golf apparel and other golf-related product lines to enhance its growth. Our future expansions may include broadening +its offerings through mergers, acquisitions or internal developments of product lines that are complementary to its premium brand. +We +currently sell our products through our websites, resellers, and distributors in the United States, Japan, and South Korea. +Historical +Development +We +were formed in 2018 as Sacks Parente Golf, Inc., a Delaware limited liability company. On March 17, 2025 we converted into a Delaware +corporation named Newton Golf Company, Inc. Pursuant to our Plan of Conversion, on March 17, 2025, all of the outstanding ownership interests +in Sacks Parente Golf, Inc., and rights to receive such interest were converted into and exchanged for shares of capital stock of the +newly formed Delaware corporation. We retroactively reflected the conversion as of the earliest periods presented herein. +On +August 14, 2023, the Company entered into an underwriting agreement with The Benchmark Company for the purchase of shares of the Company’s +common stock, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange +Commission. In the offering, the Company sold 10,667 shares of common stock, at a price of $1,200.00 per share. The offering closed on August +17, 2023, and total proceeds received, net of fees, were $11,594,000 including an underwriting discount of 7% and a non-accountable expenses +allowance of 1% based on the aggregate proceeds of the offering. The Company incurred expenses of $565,000 associated with our initial +public offering, resulting in net proceeds for the Company of $11,029,000. +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the +offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $60.00 per share. +The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $467,000, after deducting the underwriting +discounts and commissions and estimated offering expenses. +On +December 12, 2024, we entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of +up to 233,333 Common Units, each consisting of one (1) share of Common Stock, one (1) Series A Common Warrant to purchase one (1) share +of Common Stock per warrant, and one (1) Series B Common Warrant to purchase one (1) share of Common Stock per warrant. The public offering +price per Common Unit is $36.00. The initial exercise price of each Series A Common Warrant is $72.00 per share of Common Stock. The +Series A Common Warrants are exercisable following stockholder approval and expire 60 months thereafter. The initial exercise price of +each Series B Common Warrant is $72.00 per share of Common Stock or pursuant to an alternative cashless exercise option. The Series B +Common Warrants are exercisable following stockholder approval and expire 30 months thereafter. The offering closed on December 13, 2024. +The net proceeds to us for the offering were approximately $7,326,000, after deducting underwriting discounts and commissions and estimated +offering expenses. +1 +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “First Reverse +Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As +a result of the First Reverse Split, every ten shares of common stock were automatically combined into one share of common stock. +The authorized number of shares of common stock was not affected by the First Reverse Stock Split. No fractional shares were issued +in connection with the First Reverse Stock Split, as all fractional shares were rounded up to the next whole share. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second +Reverse Stock Split”). The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. All +shares and per share amounts and information presented herein have been retroactively adjusted to reflect the reverse stock splits +for all periods presented. +Name +Change +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +Going +Concern +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the year +ended December 31, 2024, the Company incurred a net loss of $11,752,000 and used cash in operations of $4,929,000. These factors raise +substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements +being issued. At December 31, 2024, the Company had cash and cash equivalents on hand in the amount of $7,650,000. +The +Company expects its cash on hand on December 31, 2024, will last for at least the next 12 months. Should the Company need additional +debt or equity financing in the future, no assurance can be given that any future financing will be available or, if available, that +it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain +undue restrictions on operations, in the case of debt financing or cause substantial dilution for stockholders, in case or equity financing. +Industry +Overview +The +golf equipment market size is estimated at USD 13.32 billion in 2023, and is expected to reach USD 17.64 billion by 2028, growing at +a CAGR of 5.78% during the forecast period (2023-2028). +In +recent years, there has been an increase in young golfers, causing equipment sales to rise. It is one of the significant factors driving +golf equipment sales. The growing middle-class income and the increasing number of professional golfers over the last few years are contributing +to the substantial increase in demand. The participation rate in pro-golf tournaments is increasing, especially among millennials, further +boosting golf equipment sales worldwide. Based on a survey by the National Golf Foundation in 2021, golf is now played in 206 out of +the 251 countries. There are around 38,000 golf courses in over 82% of countries worldwide. Globally, millions of people of all ages +are attracted to golf, participating in the International Golf Federation’s programs and events. Including golf in the Olympic +Games has contributed to a sudden increase in golfers worldwide. The market is highly impacted by product innovations carried out by +key players and considerable investments in marketing and promotional activities to reach a broad customer base. With the substantial +growth of the golf tourism industry, the market is anticipated to have a positive outlook in the coming years. European countries are +investing heavily in Infrastructural developments of the game and hosting many international golf events and competitions. For instance, +in October 2022, several golf courses in Portugal invested heavily in improvements, with some new courses opening and others being upgraded. +Such investments in golf courses are further anticipated to boost the inflow of sports tourists and influence the market positively during +the study period. +2 +Rise +in Demand for Golf Equipment from Asia-Pacific +The +Asia-Pacific golf equipment market is driven by the rising popularity of golf in Japan, China, South Korea, and Thailand, among other +countries. There has been phenomenal growth in the Asia-Pacific golf industry. During the next few years, the golf clothing and equipment +market in the Asia-Pacific region is expected to grow, with major countries such as China, India, Australia, and Japan contributing to +the market growth. Japan is one of the major countries in the Asia-Pacific region in terms of the number of golf players, owing to the +rising awareness about golf and an increase in the golfer population in the country. According to the Ministry of Economy, Trade, and +Industry (METI), the golfing population in Japan increased from 8.93 million in 2018 to approximately 10.3 million in 2021. As the population +becomes more aware of sports and the disposable income of individuals rises, there is a strong likelihood that the regional market will +continue to grow. In addition to already established international brands, the market in the region is being driven by a rise in the +participation of gold tournaments and spending money and time on sports activities. Increasing media exposure to international golf events +has aided the rise in the popularity of golf among the masses. This trend encourages the youth to play such sports, further boosting +the sales of golf equipment in the region. +Source: +https://www.mordorintelligence.com/industry-reports/golf-equipment-market +Markets +Our +products are sold in the Americas, Asia and Europe. We sell our golf equipment products in the United States and internationally, directly +via e-commerce, through distribution or subsidiaries, to wholesale customers, including pro-shops at golf courses and off-course retailers, +sporting goods retailers, on-line retailers, third-party distributors, and through Club Champion Golf, the international leader in golf +club fitting with strategic locations across the U.S. and internationally. We sell certain products to mass merchants, as well as directly +to consumers through retail locations in Japan and have recently begun selling products in South Korea. We offer custom fitting programs +online to help consumers find the best fit for their personal specifications. In addition, we sell to corporate customers who want certain +customizations of our golf equipment. +Advertising +and Marketing +Our +marketing campaigns in connection with the NWTG brand are aimed to increase consumer awareness of the products and support our overall +growth strategy. We will focus our advertising efforts mainly on television commercials, primarily on The Golf Channel and web-based +digital, social media advertising, and printed advertisements in national magazines, such as Golf Magazine and Golf Digest, as well as +in-store advertising. We also establish relationships with professional athletes and personalities, including members of various professional +golf tours as well as other athletes and personalities, in order to promote our golf equipment product lines. +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +Distribution +Our +manufacturing, assembly, warehousing and distribution center is in St. Joseph, MO, with putter head assembly performed at our headquarters +and research and development facility in Camarillo, CA. In 2023, we began manufacturing putter and replacement shafts using our proprietary +mandrels and wrapping technology. In 2024, we expanded our shaft offerings into fairway wood/hybrid replacement shafts. In addition, +in 2025 we plan to grow distribution centers in or near Tokyo, Japan, Seoul, South Korea, Mexico City and other prominent cities based +on the needs of these markets. +3 +Production +Process +In +January 2024, the Company relocated its primary golf putting instrument assembly facility from Camarillo, CA to our St. Joseph, MO facility. +It is our ongoing goal to develop, design and manufacture as many of the company’s products, as is economically feasible in the +U.S. We currently have limited assembly/fitting capabilities in Japan and South Korea. Overall, the golf club assembly process is fairly +labor intensive, requires extensive supply chain coordination and utilizes raw materials that are obtained from suppliers both internationally +and within the United States. +Raw +Material and Suppliers +Our +golf putters raw material consist of a fairly wide variety of steel and aluminum types, along with other metals like tungsten, magnesium, +and titanium. Our shafts consist of carbon fiber and prepreg materials along with coatings, paintings, inks and other decorative materials. +The suppliers of these raw materials are located in the U.S., and China. We rely on third-party suppliers to provide our raw materials +and CNC machine certain parts. Our putters are currently assembled from components produced in the U.S. and China. Our shafts are manufactured +in-house from materials produced in the U.S. by third parties. We note that some components or materials may be available only from a +limited number of sources. We choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production +and supply of our raw materials and components, and typically transact business with our suppliers on an order-by-order basis. We also +compete with other companies for raw materials and production. +We +currently source the vast majority of our grip products from third-party suppliers in the U.S. and China, and we source some CNC milled +products from the U.S. However, we are already producing products, shafts and putter heads in the US, and plan to manufacture as many +components in the U.S. as is economically feasible. We have worked with a limited number of manufacturing partners that produced components +in facilities located in Southeast Asia and could do so again. We continuously work to diversify our sourcing and manufacturing capabilities. +Anytime +a company has limited sources for materials or suppliers, there is significant risk, and we are no different. If we are unable to acquire +raw materials such as carbon fiber, it may take significant time to educate an alternate supplier with the specific engineering and manufacturing +requirements of our materials or designs. If we were unable to secure a reliable supplier for any component or material that we do not +manufacture ourselves and find that replacement in a timely manner, this could have a material adverse effect on our business, financial +condition and results of operations. +Product +Portfolio Characteristics +We +design our golf products to fit golfers of all skill levels, amateur and professional, and our products are designed with the goal of +conforming to the Rules of Golf as published by the United States Golf Association (“USGA”) and the ruling authority (“The +R&A”). +We +live by the statement “Physics not Gimmicks” and as a result, we believe that we have created game changing innovations like +our patented Ultra-Low Balance Point technologies that we believe make any putter a better putter. Ultra-Low Balance Point is a balance +point on the shaft that is five (5) inches or less from the sole of the putter. The Company achieves this, not by making the putter head +heavier like some companies have done, but by making the putter shaft and grip feather light. An ULBP putter has substantially more of +the relative weight at the putter head which makes the putter head feel a lot heavier than it really is. The result, supported by independent +testing, is a putter that promotes a natural pendulum like tempo, natural squaring of the head at impact and a natural release of the +toe of the putter head, all of which can help contribute to better putting performance. +By +investing in research and development and leveraging applied science and physics, we design golf equipment and products to be technologically +superior by breaking the “sea of sameness” that exists in golf today. We have the ability to create and modify product designs +using computer aided design software, finite element analysis software and structural optimization techniques. Further, we utilize a +variety of robotics and testing equipment, along with computer software, including launch monitors, an in-house laboratory and test center +for our golf equipment products. +We +manage our global business operations through our operating and reportable business segments. Our business segments currently include, +golf putting instruments, golf shafts, and golf related products. +4 +Newton +Gravity Putters +Our +putter products include golf putters, shafts and grips sold under our Gravity brand and are generally made of steel, aluminum, titanium +alloys, carbon fiber, tungsten, our patented magnesium face plate technologies, and various other materials. +Our +putter technology has been shown by The Golf Lab, a Canadian golf research and education provider, to improve players’ ability +to make putts, feel of the putter head, stroke, face angle at impact, and distance control. Our management believes that our proprietary +shaft designs can enhance the performance of players’ putters as well as drivers and other golf clubs. Further, our management +believes that these innovative designs, along with our proprietary manufacturing techniques, create performance improvements over traditional +golf shafts. +We +are in prototype phase on multiple new or enhanced putter designs that are popular on the market, which we expect to launch during 2025. +Management believes that our versions of these models, while having a familiar shape, could out-perform other versions in the industry +because of our design and use of advanced metals. +Newton +Shafts +On +November 20, 2023, we announced a significant expansion of our product portfolio. We introduced “Newton,” the Company’s +latest business division and the Company’s first foray into the world of golf club shafts. The Newton Motion driver shaft, the +first Newton shaft to debut in the market, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter +and longer shots with reduced effort. Using the Company’s proprietary shaft design and construction, the Newton Motion shaft features +four essential technologies: +● +Elongated +Bend Profile – Newton has created an extreme elongated bend profile that is central to the shaft’s design. Because of +Newton’s proprietary Kinetic Storage Construction, the shaft will bend over a longer span of its length, resulting in improved +club speed. The added flexibility of the carbon fiber gives the impression that the golfer doesn’t need to exert excessive +force during the swing, leading to a more predictable and less jarring experience. This, in turn, enhances the smoothness of the +swing. +● +Kinetic +Storage Construction – The kinetic storage profile is the engine of Newton’s Motion Driver Shaft. This proprietary construction +empowers the fibers to store more energy that is harnessed through elongated bend, resulting in a significant boost in exit velocity. +In contrast to most carbon fiber shafts, Newton’s technology ensures perfect symmetry, eliminating the inconsistencies in flex +and spin rates that can often lead to decreased accuracy and distance. +● +Newton +Symmetry360 Design – Newton’s Symmetry360 design ensures consistent flex, regardless of the driver’s clocking position. +This stand-out feature allows for seamless adjustments to both the bend and torque (twist) when most flex changes occur, providing +a truly versatile and adaptive solution. +● +Variable +Bend Profile – The Newton Motion driver shaft is equipped with a variable bend profile meticulously designed to match the bend +and torque requirements of each flex. This innovation ensures that every player’s driving performance is optimized, adapting +seamlessly to the unique demands of the swing. Golfers with slower swing speeds need more torque while higher swing speeds need the +opposite. Whether a slow or high swing speed, the Newton Motion technology tailors to the torque. +In +addition to the four aforementioned technologies, instead of using the traditional categorization of shaft flexes of ladies, senior, +regular, stiff, extra-shift, etc., the Newton Motion shaft uses a DOT system. Ranging from one to six dots, the system allows for a seamless +transition from the most flexible shaft at one dot to the stiffest at six dots. Newton’s innovative DOT system, employed by Newton’s +expert shaft engineers, optimizes golf shaft performance by fine-tuning it to golfer’s unique abilities, leaving traditional flex +systems in the past. +The +Newton Motion shaft is visually captivating. When in motion, the shaft undergoes a mesmerizing color transformation from green to purple +and various shades in between. The coloration not only adds a dash of style to a golfer’s game, but it also distinguishes itself +from other shafts in the market. +5 +The +Newton shafts are manufactured in St. Joseph, Missouri, Newton’s shaft manufacturing facility. +Soft +Goods +In +addition to our existing products, we intend in the future to sell high quality soft goods such as golf apparel and golf accessories +including golf bags, gloves, headwear, practice aids and more. We are in the early stages of planning our soft goods business and do +not anticipate that we will begin manufacturing or selling soft goods until 2025. +Environmental +Matters +We +are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into +the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of +certain materials, substances and wastes and the remediation of environmental contaminants (collectively, “Environmental Laws”). +In the ordinary course of our manufacturing processes, we use paints, chemical solvents and other materials, and generate waste by-products +that are subject to these Environmental Laws. +We +endeavor to adhere to all applicable Environmental Laws and act as necessary to comply with these laws. We maintain an environmental +and safety program at our facilities. The environmental and safety program includes obtaining environmental permits as required, capturing +and appropriately disposing of any waste by-products, tracking hazardous waste generation and disposal, air emissions, safety situations, +material safety data sheet management, storm water management and recycling, and auditing and reporting on its compliance. +Intellectual +Property +We +are the owner or licensee of multiple utility and design patents in the U.S. and foreign countries relating to our products and product +designs, including U.S and foreign trademark registrations relating to our products, product designs, manufacturing processes and research +and development concepts. Other patent and trademark applications are pending and await registration. In addition, we own various other +protectable rights under copyright, trade dress and other statutory and common laws. Our intellectual property rights are material to +our business, and we seek to protect such rights through the registration of trademarks and utility and design patents, the maintenance +of trade secrets and the creation of trade dress. When necessary and appropriate, we will enforce our rights through litigation. +Our +patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks are generally +valid as long as they are in use and their registrations are properly maintained and have not been found to become generic. +Patents +We +currently hold the following patents: +● +US +D874589 S (Series 18 design patent) +● +US +D874592 S (Series 54 design patent) +● +US +D867494 S (Series 39 design patent) +● +US +11,123,614 B2 (Magnesium Golf Clubhead Insert) +● +Ultra +Low Balance Point Utility Patent: +○ +US +8,608,586 +○ +Australia +Patent No. 2012/301755 +○ +Canada +Patent No. 2,846,882 +○ +China +Patent App No. 2012/80042114.1 +○ +European +Patent App. No. 128287695 +○ +Japan +Patent No. 2014-528632 +○ +South +Korea Patent No. 2014-7008689 +○ +South +Africa Patent No. 2014/02273 +6 +The +Ultra Low Balance Point Utility Patent described above was licensed to us by Parcks Designs, LLC on July 24, 2018. The license granted +to us is perpetual, worldwide, royalty-free, and exclusive aside from one other licensee. The principals of Parcks Designs, LLC are Steve +Sacks and Richard Parente, cofounders of the Company together with Tim Triplett and Akinobu Yorihiro. On May 25, 2022, we and Parcks +Designs entered into a Consulting Agreement whereby Parcks Designs will perform club and shaft testing and analysis, putter head design +consulting and other services as may be agreed upon from time to time. The consulting fees due to Parcks Designs will be nominal in the +beginning and increase to $2,000 per month after June 1, 2024. +On +August 7, 2018, Richard E. Parente and Steve Sacks assigned to us the entire worldwide right, title and interest in and to the Quad Weighted +Lightweight Putter. +Confidential +Information and Trade Secrets +The +success of our business depends, in part, on the maintenance of confidential information and trade secrets, generally referred to as +proprietary information. We have implemented procedures to maintain the confidentiality of our proprietary information. Employees enter +into confidentiality agreements with us and, where appropriate, a confidentiality agreement is executed before confidential information +is revealed. Confidentiality provisions are also present in consulting agreements and supplier agreements in certain cases where the +consultant or supplier may be exposed to confidential information. +Trademarks +The +following marks and phrases, among others, are trademarks of the Company: +● +USPTO +Reg. No. 5,783,037 (Veni Vidi Vici) +● +USPTO +Reg No. 5,822,719 (Sacks Parente) +● +South +Korea Reg. No. 40-1820381 (Sacks Parente) +Domain +names +We +own the domain names listed below. Domain names are generally renewable every year or every two years. +www.newtongolfco.com +www.newtongolfir.com +www.sacksparente.com +www.newtonshafts.com +www.spgolfinc.com +www.spgolfco.com +www.spgputter.com +www.spgshafts.com +www.newtonshafts.com +www.spgtour.com +www.physicsnotgimmicks.com +www.spgfangster.com +Social +Media Accounts +We +operate the social media accounts listed below. +● +Twitter: +https://mobile.twitter.com/sacksparente +● +Facebook: +https://www.facebook.com/sacksparente +● +LinkedIn: +https://www.linkedin.com/company/sacks-parente-golf/ +● +Instagram: +https://www.instagram.com/sacksparente/ +7 +Government +Regulation +We +are subject to extensive federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, +the Americans with Disabilities Act (the “ADA”), and similar state laws, privacy and cybersecurity laws, environmental, health +and human safety laws and regulations, the Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws. New laws +and regulations or new interpretations of existing laws and regulations from federal, state and local authorities may also impact the +business. +Employees +As +of December 31, 2024, we had 28 full-time equivalent employees. We employ additional people on a part-time basis as needed. We have never +participated in a collective bargaining agreement. We believe relations with our employees are good. +Competition +We +compete on the basis of technologies that improve the player’s experience. Management further believes quality and unparalleled +customer service define the better companies in all industries. In order to better understand trends, management receives and evaluates +internally generated market trends for the United States and foreign markets, as well as periodic public and customized market research +for the United States and Asia. Providers of such market research are Golf Datatech and The National Golf Foundation that include trends +from certain on- and off-course retailers. In addition, we utilize data from other market research firms in Asia. +Our +major competitors for putting instruments are TaylorMade, Ping, Acushnet (Scotty Cameron, Titleist brand) and Callaway Odyssey/Toulon +brands. +Our +major competitors for golf shafts include Fujikura Composites, Inc, Mitsubishi Chemical MCC, Graphite Design, (Asia) Co Ltd, Nippon Shaft +Co. Ltd, and Paderson Kinetixx, Taiwan. +All +these and other competitors have been in business years longer than we have and have substantially greater resources than we do. +Customers +Our +customers include individual golfers as well as wholesalers and retailers, including Club Champion Golf, the international leader in +golf club fitting with strategic locations across the USA and internationally. +Available +Information +The +Company maintains a website at the following address: www.newtongolfco.com. The information on the Company’s website is not incorporated +by reference in this report. We make available on or through our website certain reports and amendments to those reports that we file +with or furnish to the Securities and Exchange Commission (“SEC”) in accordance with the Securities Exchange Act of 1934, +as amended (“Exchange Act”). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current +Reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically +file the information with, or furnish it to, the SEC. In addition, we routinely post on the “Investors” page of our website +news releases, announcements and other statements about our business and results of operations, some of which may contain information +that may be deemed material to investors. Therefore, we encourage investors to monitor the “Investors” page of our website +and review the information we post on that page. The SEC maintains a website that contains reports, proxy and information statements, +and other information regarding issuers that file electronically with the SEC at the following address: http://www.sec.gov. +Item +1A. Risk Factors +The +following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our +forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and +uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem +immaterial may also harm our business. All forward-looking statements in this document are based on information available to us as of +the date hereof, and we assume no obligations to update any such forward-looking statements. +8 +Risks +Related to Our Industry and Business +A +reduction in the number of rounds of golf played or in the number of golf participants could adversely affect sales. +We +currently generate our revenue from the sale of golf putters, golf shafts, golf grips and related gear. The demand for golf-related products +in general, as well as the demand for golf-related soft goods, is directly related to the number of golf participants and the number +of rounds of golf being played by these participants. If golf participation decreases or the number of rounds of golf played decreases, +sales of our products may be adversely affected. In the future, the overall dollar volume of the market for golf-related products may +not grow or may decline. +In +addition, the demand for golf products is directly related to the popularity of magazines, cable channels and other media dedicated to +golf, television coverage of golf tournaments and attendance at golf events. We depend on the exposure of our products through advertising +and the media or at golf tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournaments +and events or any significant reduction in the popularity of golf magazines or golf television channels, could reduce the visibility +of our brand and could adversely affect sales. +We +may have limited opportunities for future growth in sales of golf products. +In +order for us to significantly grow sales of golf putters or golf shafts, we must either increase our share of the market for golf putters +or golf shafts, develop markets in geographic regions historically underrepresented by our products, or the overall market for golf equipment +or golf shafts must grow. We currently have no significant share of worldwide sales of golf equipment and golf shafts, and the golf industry +is very competitive. As such, gaining market share quickly or at all is difficult. Therefore, opportunities for additional market share +may be limited given the challenging competitive nature of the golf industry, and the overall dollar volume of worldwide sales of golf +equipment or golf shafts may not grow or may decline. +We +may face increased labor costs or labor shortages that could slow growth and adversely affect our business, results of operations and +financial condition. +Labor +is a primary component in the cost of operating our business. If we face labor shortages or increased labor costs because of inflation, +increased competition for employees, higher employee turnover rates, the impact of pandemics, increases in the federally-mandated or +state-mandated minimum wage, changes in exempt and non-exempt status, or other employee benefits costs (including costs associated with +health insurance coverage or workers’ compensation insurance), our operating expenses could increase and our growth could be adversely +affected. With specific regard to recent inflationary pressures, we have seen some increases in material costs for various metals and +carbon fiber, and costs associated with shipping and receiving goods. We may see additional pressure on labor costs, both inside the +Company and from suppliers as they face these same issues. For the moment, we are able to maintain the price point of all of our products +without material reduction in margins. +Furthermore, +the successful operation of our business depends upon the ability to attract, motivate and retain a sufficient number of qualified executives, +managers and skilled employees. From time to time, there may be a shortage of skilled labor in certain of the communities in which we +operate. Shortages of skilled labor may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactory +number of qualified employees, which could disrupt the ability to get product to market, to produce products, to acquire suitable companies +or partners and adversely impact some or all of our operations and our profitability. Furthermore, competition for qualified employees, +particularly in markets where such shortages exist, could require us to pay higher wages, which could result in higher labor costs. Companies +in the golf industry have also historically experienced relatively high turnover rates, which may also result in higher labor costs. +Accordingly, if we are unable to recruit and retain sufficiently qualified individuals, our business, results of operations, financial +condition and growth prospects could be materially and adversely affected. +9 +In +addition, immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new immigration +legislation is enacted, such laws may contain provisions that could increase our costs in recruiting, training and retaining employees. +Also, although our hiring practices comply with the requirements of federal law in reviewing employees’ citizenship or authority +to work in the United States, changes or adaptations to these laws may negatively impact our business. +Unfavorable +economic conditions, including future pandemics, inflation or otherwise, could have a negative impact on consumer discretionary spending +and therefore negatively impact our results of operations, financial condition and cash flows. +Our +products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to +make discretionary purchases of golf products and to spend on leisure and out-of-home entertainment during favorable economic conditions +and when consumers are feeling confident and prosperous. Any actual or perceived deterioration or weakness in general, regional or local +economic conditions, unemployment levels, the job or housing markets, consumer debt levels or consumer confidence, as well as other adverse +economic or market conditions due to a pandemic, inflation, or otherwise may lead to customers having less discretionary income to spend +on entertainment and recreational activities, and may result in significant fluctuations and spending patterns year to year. Discretionary +spending is also affected by many other factors, including general business conditions, interest rates, the availability of consumer +credit, taxes and consumer confidence in future economic conditions. Purchases of our products and services could decline during periods +when disposable income is lower, or during periods of actual or perceived unfavorable economic conditions. A significant or prolonged +decline in general economic conditions or uncertainties regarding future economic prospects that adversely affect consumer discretionary +spending, whether in the United States or in our international markets, could result in reduced sales of our products, which in turn +would have a negative impact on our results of operations, financial condition and cash flows. +A +severe or prolonged economic downturn could adversely affect our wholesale customers’ financial condition, their levels of business +activity and their ability to pay trade obligations. +We +primarily sell our products to consumers online, retailers and wholesalers directly, through distribution and certain other outlets, +like golf fitters. We perform credit evaluations of larger distribution customers’ financial condition and generally require no +collateral from these customers. However, a severe or prolonged downturn in the general economy could adversely affect the retail market +which in turn, would negatively impact the liquidity and cash flows of these distribution customers, including the ability of such customers +to obtain credit to finance purchases of our products and to pay their trade obligations. This could result in increased delinquent or +uncollectible accounts for some of our customers. A failure by these customers to pay on a timely basis a significant portion of outstanding +account receivable balances would adversely impact our results of operations, financial condition and cash flows. +We +face intense competition in all of our markets, and if we are unable to compete effectively, it could have a material adverse effect +on our business, results of operations, financial condition and growth prospects. +Our +golf putting instruments, golf shaft products, grips and other products exist in a highly competitive marketplace that is served by a +number of well-established and well-financed companies with recognized brand names. In particular four major competitors enjoy the majority +of U.S. market share in golf. +With +respect to golf equipment sales, new product introductions, price reductions, consignment sales, extended payment terms, “close +outs”, tour and advertising spending by competitors continue to generate intense market competition. Furthermore, downward pressure +on pricing in the market for products like ours could have a significant adverse effect on our business. +With +respect to golf shaft sales, our competitors do incur significant costs in the areas of advertising, tour and other promotional support. +We believe to be competitive; we also will incur significant expenses in tour, advertising and promotional support. In addition, we have +invested, and may continue to invest in the future, significant capital into upgrades in our manufacturing and assembly facilities, including +our new golf shaft manufacturing facility in St. Joseph, MO to remain on the forefront of technological and competitive innovation. Unless +there is a change in competitive conditions, these competitive pressures and increased costs could adversely affect the profitability +of our business. +10 +If +we are unable to grow or if competitors copy our intellectual property forcing high legal costs to defend our patents, scaling our business +could be materially adversely affected and our business, financial condition and results of operations could suffer. +If +we are unable to successfully manage the introduction of new products that perform and satisfy changing consumer preferences, it could +significantly and adversely impact financial performance and prospects for future growth. +Our +golf products, like those of our competitors, generally have a life cycle. Depending on the product, it is considered typical, within +the industry, that revenue from a new product rises and peaks within a three-year period, with sales occurring at a higher rate in the +first two years than in the third. Factors driving a product life cycle include the rapid introduction of competitive products, consumer +demands for the latest technology or a professional who uses the product and is victorious in a major tournament. In this marketplace, +it is reasonable to assume our annual revenues can be affected each year by the introduction of new products, those that are in their +first two years of the product life cycle, and successful professional use. +These +marketplace conditions raise a number of issues that we must successfully manage. For example, we must properly anticipate consumer preferences +and design products that meet those preferences while also complying with restrictions imposed on golf equipment by the Rules of Golf +(see further discussion of the Rules of Golf below) or our new products will not achieve sufficient market success to compensate for +the usual decline in sales experienced by products already in the market. Second, our research and development, third- party design and +prototyping services and external suppliers will face constant pressures to design, develop, source and supply new products that perform +better than the predecessors, many of which incorporate new or otherwise untested technology, suppliers or materials. Third, for new +products to generate equivalent or greater revenues than their predecessors, they must either maintain the same or higher sales levels +with the same or higher pricing, or exceed the performance of their predecessors in one or both of those areas. Fourth, the relatively +short window of opportunity for launching and selling new products requires great precision in forecasting demand and assuring that supplies +are ready and delivered during the critical selling periods. +Finally, +the rapid changeover in products creates a need to monitor and manage the closeout of older products both at retail and in our own inventory. +Should we not successfully manage the frequent introduction of new products that satisfy consumer demand, our results of operations, +financial condition and cash flows could be significantly adversely affected. +Our +golf equipment, golf gear and other related golf business products could have a concentrated customer base. The loss of a major customer +could have a significant effect on our sales. +On +a consolidated basis, we will attempt to allow no single customer to account for more than 10% of our revenues. However, this goal may +not be achievable if significant markets are controlled by one major customer. In which case the failure of the one could adversely affect +business, financial condition and results of operations. +Our +business depends on a strong brand and related reputation, and if we are not able to build, maintain and enhance our brand or build a +strong reputation, our sales may be adversely affected. +Our +success depends in part on our ability to build, maintain, and enhance a brand image and reputation. Maintaining, promoting and enhancing +our brand may require us to make substantial investments in areas such as product innovation, product quality, intellectual property +protection, marketing and employee training, and these investments may not have the desired impact on our brand image and reputation. +Our business could be adversely impacted if we fail to achieve any of these objectives or if the brand reputation or image of any of +our products is tarnished or receives negative publicity. +11 +In +addition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine consumer +confidence and reduce demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. +Also, as we seek to grow our presence in existing, and expand into new, geographic or product markets, consumers in these markets may +not accept our brand image and may not be willing to pay a premium to purchase our products as compared to other brands. We anticipate +as we continue to grow our presence in existing markets and expansion into new markets, further developing our brand may become increasingly +difficult and expensive. If we are unable to maintain or further develop the image of our brand, it could materially adversely affect +business, financial condition and results of our operations. +In +addition, there has been a marked increase in the use of social media platforms and other forms of internet-based communications that +provide individuals and businesses with access to a broad audience of consumers and other interested persons. The availability of information +on social media platforms is virtually immediate, as is its potential impact to affected individuals and businesses. Many social media +platforms immediately publish the content posted by their subscribers and participants, often without filters or checks on the accuracy +of the content posted. Accordingly, our use of social media vehicles, whereby customers, Associates, franchisees, licensees or other +third parties could use negative publicity, damage our brand or our reputation and have a material adverse effect on our business, financial +condition and results of operations. +International +political instability and terrorist activities may decrease demand for our products and disrupt our business. +Terrorist +activities and armed conflicts, such as Ukraine and the Middle East, including escalation of hostilities arising out of any global conflict, +could have an adverse effect on the United States or worldwide economy and could cause decreased demand for our products as consumers’ +attention and interests are diverted from golf and become focused on issues relating to these events. If such events disrupt domestic +or international air, ground or sea shipments, or the operation of our manufacturing facilities, our ability to obtain the materials +and components necessary to manufacture products and to deliver customer orders would be harmed, which would have a significant adverse +effect on our results of operations, financial condition and cash flows. Such events can also negatively impact tourism, which could +adversely affect our sales to retailers at resorts and other vacation destinations. In addition, the occurrence of political instability +and/or terrorist activities generally restricts travel to and from the affected areas, making it more difficult in general to manage +our international relationships and operations. In particular, escalating political tensions could adversely impact macroeconomic conditions, +give rise to regional instability and result in heightened economic sanctions from the U.S. and the international community in a manner +that adversely affects our business. +Our +business could be harmed by the occurrence of natural disasters, pandemic diseases, or other emergencies. +The +occurrence of a natural disaster, such as an earthquake, tornado, tsunami, fire, flood or hurricane, or the further outbreak of a pandemic +disease, could significantly adversely affect our business. A natural disaster or a pandemic disease could significantly adversely affect +the demand for our products, our ability to manufacture our products, as well as the supply of the components and materials used to make +our products. Demand for golf products also could be negatively affected as consumers in the affected regions restrict their recreational +activities and as tourism to those areas declines. If our suppliers experienced a significant disruption in their business as a result +of a natural disaster or other emergency, our ability to obtain the necessary components to make products could be significantly adversely +affected. In addition, the occurrence of a natural disaster or the outbreak of a pandemic disease generally restricts travel to and from +the affected areas, making it more difficult in general to manage operations. +Our +business and operating results are subject to seasonal fluctuations, which could result in fluctuations in our operating results and +stock price. +Our +business, and the golf industry in general, is subject to both seasonal and non-seasonal fluctuations. In the golf equipment business, +first-quarter sales may generally represent sales of products online and to certain golf retail channels for the new golf season. Our +second and third-quarter sales may generally represent sales online and reorder business for our products. Sales of products during the +second and third quarters may be significantly affected not only by the sell-through of our products that were sold into the channel +during the first quarter but also by the sell-through of products by our competitors. Retailers can be reluctant to reorder our products +in significant quantities if they already have excess inventory of our products or our competitors. Our sales during the fourth quarter +may be generally less than those of the other quarters because in many of our key regions fewer people are playing golf during that time +of year due to cold weather. Furthermore, we generally announce new golf product lines in the fourth quarter to allow retailers to plan +for the new golf season. Such early announcements of new products could cause golfers, and therefore our customers, to defer purchasing +additional golf equipment until our new products are available. Such deferments could have a material adverse effect on sales of current +products or result in closeout sales at reduced prices. +12 +In +addition, due to the seasonality of our business, our business can be significantly adversely affected by unusual or severe weather conditions. +Unfavorable weather conditions generally result in fewer golf rounds played, which generally results in reduced demand for all golf products. +Furthermore, catastrophic storms can negatively affect golf rounds played both during the storms and afterward, as storm damaged golf +courses are repaired and golfers focus on repairing the damage to their homes, businesses and communities. +Changes +in equipment standards under applicable Rules of Golf could adversely affect our business. +We +seek to have all our putting instruments, grips and shafts meet the standards published by the USGA and The R&A in the Rules of Golf +because these standards are generally followed by golfers, both professional and amateur, within their respective jurisdictions. The +USGA publishes rules that are generally followed in the United States, Canada and Mexico, and the R&A publishes rules that are generally +followed in most other countries throughout the world. However, the Rules of Golf as published by the R&A and the USGA are virtually +the same and are intended to be so pursuant to a Joint Statement of Principles issued in 2001. +In +the future, existing USGA and/or R&A standards may be altered in ways that adversely affect the sales of our current or future products. +If a change in rules were adopted and caused one or more of our current or future products to be nonconforming, our sales of such products +would be adversely affected. +Our +sales and business could be materially and adversely affected if professional athletes, celebrities and other endorsers do not endorse +or use our products. +We +have and will establish relationships with professional athletes, celebrities and other endorsers in order to evaluate and promote our +branded products. We have currently and will in the future enter into endorsement arrangements with members of the world’s various +professional tours. These tours are known as the PGA Champions Tour, the PGA Tour, the LPGA Tour, the PGA European Tour, the Japan Golf +Tour, the Korn Ferry Tour, the Epson Tour, The PGA Latin America Tour. We will also enter into endorsements with celebrities to promote +our brand. While most endorsers fulfill their contractual obligations without issue, some have been known to stop using a sponsor’s +products despite contractual commitments. If certain of our endorsers were to stop using our products contrary to their endorsement agreements, +or if any such endorser is or becomes the subject of negative publicity, our business could be adversely affected in a material way by +the negative publicity or lack of endorsement. +We +believe that professional usage of our golf putting instruments, golf shafts and golf grips contributes to retail sales. We therefore +spend a significant amount of money to secure professional usage of our products. Many other companies, however, also aggressively seek +the patronage of these professionals and offer many inducements, including significant cash incentives and specially designed products. +There is a great deal of competition to secure the representation of tour professionals. As a result, it is expensive to attract and +retain such tour professionals. The inducements offered by other companies could result in a decrease in usage of our products by professional +golfers or limit our ability to attract other tour professionals. A decline or refusal of use by professional players of our products, +or a significant increase in the cost to attract or retain endorsers, could have a material adverse effect on our sales and our business. +Any +significant changes in U.S. trade or other policies that block, or restrict imports or increase import tariffs could have a material +adverse effect on results of operations. +Some +of our components are manufactured in foreign nations. In recent years, the U.S. government has implemented substantial changes to U.S. +trade policies, including import restrictions, increased import tariffs and changes in U.S. participation in multilateral trade agreements, +such as the United States-Mexico-Canada Agreement to replace the former North American Free Trade Agreement. The U.S. government has +assessed supplemental tariffs on certain goods imported from China, resulting in China’s assessment of retaliatory tariffs on certain +imports of U.S. goods into China and block imports from Myanmar. In addition, the United States has assessed or proposed supplemental +tariffs and quantitative restrictions on U.S. imports of certain products from other countries as well. U.S. trade policy continues to +evolve in this regard. Such changes could prevent or make it difficult or more expensive for us to obtain the components needed for new +products, which could affect our sales. Further tariff increases could require us to increase prices, which likely would decrease customer +demand for our products. Retaliatory tariff and trade measures imposed by other countries could affect our ability to export products +and therefore adversely affect sales. Any significant changes in current U.S. trade or other policies that restrict imports or increase +import tariffs could have a material adverse effect upon results of our operations. +13 +Our +current senior management team and other key executives are critical to our success, and the loss of, and failure to adequately replace, +any individual executive, or manager, could significantly harm our business . +Our +ability to build and maintain a competitive position is dependent to a large degree on the efforts and skills of the senior officers, +and certain key managers. Our executives are experienced and highly qualified with strong reputations in their industries, and we believe +our management team enables us to pursue our strategic goals. The success of our business is dependent upon the management and leadership +skills of our senior management team and other key personnel. Certain key personnel may not be easily replaced, and may have knowledge +in processes, manufacturing techniques, materials science, etc. where the loss of such a person, or persons, may limit our ability to +achieve our strategic goals. Competition for these employees and their individuals’ talents is intense, and we may not be able +to attract and retain a sufficient number of qualified personnel in the future. The loss of one or more of these senior officers could +have a material adverse effect on our business and ability to achieve our strategic goals. +Our +independent auditor has expressed substantial doubt about our ability to continue as a going concern. +We +have experienced recurring operating losses and negative operating cash flows since our inception, and we may not be able to generate +sufficient funds from our future operations to meet our cash flow requirements. Our ability to continue as a going concern is dependent +upon our ability to obtain necessary debt or equity financing to continue operations, until we begin generating positive cash flow. No +assurance can be given that any future financing will be available to us or, if available, that it will be on terms that are satisfactory +to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, +or cause substantial dilution for our stockholders, in the case of equity financing. +Risks +Related to Our Intellectual Property +Failure +to adequately enforce our intellectual property rights could adversely affect our reputation and sales. +The +golf industry, in general, has been characterized by widespread imitation of designs, or technological improvements. We have an active +program of monitoring, investigating and enforcing our proprietary rights against companies and individuals who market or manufacture +counterfeits and “knockoff” products or copy intellectual property. We will assert our rights against infringers of our patents, +copyrights, trademarks and trade dress. However, these efforts may not be successful in reducing sales of golf products by these infringers. +Additionally, other golf club manufacturers may be able to produce successful golf clubs which imitate our designs without infringing +any of our copyrights, patents, trademarks or trade dress. As an example, we have already successfully defended the Ultra Low Balance +Point utility patent along with our license partners in 2020. +We +may become subject to intellectual property claims or lawsuits that could cause it to incur significant costs or pay significant damages +or that could prohibit us from selling our products. +Competitors +in the golf equipment industry seek to obtain patent, trademark, copyright or other protection of their proprietary rights and designs +for golf equipment, golf shafts and other products as do we. From time to time, third parties have claimed or may claim in the future +that our products infringe upon their proprietary rights. We have evaluated and would evaluate any such claims and, where appropriate, +would seek to obtained licenses or other business arrangements. To date, there have been no interruptions in our business as a result +of any claims of infringement, and we do not believe that we infringe the intellectual property rights of third parties. However, in +the future, intellectual property claims could force us to alter existing products or withdraw them from the market or could delay the +introduction of new products. +14 +Various +patents have been issued to our competitors in the golf industry and these competitors may assert that our golf products infringe their +patent or other proprietary rights. If our golf products were found to infringe third-party intellectual property rights, we may be unable +to obtain a license to use such technology, and it could incur substantial costs to redesign products, withdraw them from the market, +and/or to defend legal actions. +Risks +Related to Operations, Manufacturing, and Technology +We +are exposed to risks associated with doing business globally and manufacturing in the USA. +Currently +we sell and distribute products in markets around the world, such as the Americas, Asia and Europe. These activities have and will continue +to result in investments in inventory, accounts receivable, employees, corporate infrastructure and manufacturing facilities. There are +a limited number of suppliers for the manufacturer of components in the United States, and we are dependent on these suppliers and vendors. +We have some components provided by vendors located outside of the United States and if these components were unavailable, it could have +a materially adverse effect on our operations, financial performance and condition. The operation of foreign distribution in our international +markets, as well as our management of relationships with international suppliers and vendors, will require the dedication of our management +and other Company resources. We currently assemble all of our products and manufacture some of our products in the United States. +As +a result of our international business, we are exposed to increased risks inherent in conducting business outside of the United States. +These risks include the following: +●Adverse +changes in foreign currency exchange rates can have a significant effect upon our results of operations, financial condition and cash +flows; +●Increased +difficulty in protecting our intellectual property rights and trade secrets; +●Unexpected +government action or changes in legal or regulatory requirements; +●Social, +economic or political instability; +●The +effects of any anti-American sentiments on our brand or sales of our products; +●Increased +difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, +including but not limited to the U.S. Foreign Corrupt Practices Act (the “FCPA”), local international environmental, health +and safety laws, and increasingly complex regulations relating to the conduct of international commerce, including import/export laws +and regulations, economic sanctions laws and regulations and trade controls; +●changes +in international labor costs and other costs of doing business internationally; +●Increased +difficulty in controlling and monitoring foreign vendor operations from the United States, including increased difficulty in identifying +and recruiting qualified personnel for our foreign operations; and +●Increased +exposure to interruptions in land based, air carrier or ocean shipping services. +Any +significant adverse change in these and other circumstances or conditions relating to international operations could have a significant +adverse effect on our operations, financial performance and condition. +15 +We +have international sales and international supply chains where unfavorable changes in foreign currency exchange rates could have a significant +negative impact on our results of operations. +A +portion of our component inventory purchases and a portion of our sales come from international markets. As a result, we will conduct +transactions in various currencies worldwide. We expect international business, and the number of transactions that we will conduct in +foreign currencies, to become significant. Conducting business in such currencies exposes us to fluctuations in foreign currency exchange +rates relative to the U.S. dollar. +Our +financial results are reported in U.S. dollars, and as a result, transactions conducted in foreign currencies must be translated into +U.S. dollars for reporting purposes based upon the applicable foreign currency exchange rates. Fluctuations in these foreign currency +exchange rates therefore may positively or negatively affect our reported financial results and can significantly affect period-over-period +comparisons. +The +effect of the translation of foreign currencies on our financial results could be significant. We therefore may engage in hedging activities +to mitigate the annual impact of the translation of foreign currencies on our financial results. These hedging activities may reduce, +but will not eliminate, the effects of foreign currency fluctuations. The extent to which our hedging activities mitigate the effects +of foreign currency translation varies based upon many factors, including the number of transactions being hedged. Other factors that +could affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets and the +availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the negative +impact of a stronger U.S. dollar but also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly +affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business. +Foreign +currency fluctuations may also affect the prices at which products are sold in international markets. Therefore, we adjust pricing based +in part upon fluctuations in foreign currency exchange rates. Significant unanticipated changes in foreign currency exchange rates make +it more difficult for us to manage pricing in international markets. If we are unable to adjust pricing in a timely manner to counteract +the effects of foreign currency fluctuations, our pricing may not be competitive in the marketplace and our financial results in international +markets could be adversely affected. +Any +difficulties from strategic acquisitions or strategic partnerships we pursue or consummate could adversely affect business, financial +condition and our results of operations. +We +may acquire companies, businesses and products or product lines that complement or augment our existing business or planned growth markets. +Integrating any newly acquired business, or partnership, is typically expensive and time-consuming. Integration efforts often take a +significant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be more +difficult or expensive than predicted. The diversion of management’s attention and any delay or difficulties encountered in connection +with any such acquisitions could result in the disruption of on-going business or inconsistencies in standards and controls that could +negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or +private debt or equity financing, or issue additional shares, to continue operating the business, which may result in dilution for stockholders +or the incurrence of indebtedness. +As +part of our efforts to acquire companies, businesses or products or to enter into other significant transactions, we will conduct business, +legal and financial due diligence with the goal of identifying and evaluating material risks involved in such transactions. Despite our +efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended +advantages of the transaction. If we fail to realize the expected benefits from a transaction, whether as a result of unidentified risks, +integration difficulties, complexities associated with managing the combined business, performance shortfalls at one or both of the companies +as a result of the diversion of management’s attention caused by completing the transaction and integrating the companies’ +operations, litigation with current or former employees and other events, our business, financial condition and results of operations +could be adversely affected. +16 +If +we inaccurately forecast demand for our products, we may manufacture either insufficient or excess quantities, which, in either case, +could adversely affect our financial performance. +We +plan our manufacturing capacity based upon forecasted demand for our products. Forecasting demand for our products is very difficult +given the manufacturing lead times and the number of specifications involved. For example, we must forecast how many putting instruments +we will sell, but also (1) the quantity of each model, (2) the quantity of the different components in each model, and (3) for each model +the style of grip, the number of left-handed and right-handed versions, and the style of shaft and hosel type. The nature of our business +allows for some control over our manufacturing capacity if actual demand for a product or products exceed or are less than forecasted +demand. However, if actual demand for a product or products exceeds the forecasted demand, we may not be able to produce sufficient quantities +of products in time to fulfill actual demand, which could limit our sales and adversely affect financial performance. On the other hand, +if actual demand is less than the forecasted demand for a product or products, we could produce excess quantities, resulting in excess +inventories and related obsolescence charges that could adversely affect our financial performance. +Our +planned international business expansions could adversely affect results if they fail to successfully transition and grow revenue. +As +we plan to expand our footprint into Asia, Latin America, and Europe, we could be harmed if we fail to successfully transition the business +processes to a larger global scale. Our initial international expansion target is Asia, more specifically Japan, South Korea and other +growth areas within the region, and requires significant investment of capital and human resources. Since brick-and-mortar retail stores +are still strong in many parts of Asia, the distribution structure and its costs and operations are significantly different from those +in the USA. As we increase the number of distributors, it is likely that the number of retail outlets throughout the region will also +increase, in which case we will be required to add staff and devote additional management attention. This international attention, by +the management team and other employees who would otherwise be solely focused on the core USA business, creates significant risk. If +our globalization efforts fail to produce increases in revenue, or the transition is not managed effectively, we may experience, loss +of investments, or excessive inventories and undue costs that could harm our business, financial condition and results of operations. +We +depend on single source or a limited number of suppliers for some of the components of in our products, and the loss of any of these +suppliers could harm our business. +We +are currently dependent on a limited number of suppliers for CNC milled components and carbon fiber for our shafts, some of which could +have limited sourcing options. Furthermore, some of our products require specially developed manufacturing techniques and processes which +make it difficult to identify and utilize alternative suppliers quickly. In addition, many of our suppliers may not be well capitalized +and prolonged unfavorable economic conditions could increase the risk that they will go out of business. If current suppliers are unable +to deliver putter components, materials or other components, or if we are required to transition to other suppliers, we could experience +significant production delays or disruption to our business. We also depend on a single or a limited number of suppliers for the materials +used to make our golf grips. Many of these materials are designed and customized to our specifications. Any delay or interruption in +such supplies could have a material adverse impact on our golf grip or shaft business. If we experience any such delays or interruptions, +we may not be able to find adequate alternative suppliers at a reasonable cost or without significant disruption to our business. +A +significant disruption in the operations of our assembly and golf shaft manufacturing facilities could have a material adverse effect +on our sales, profitability and results of operations. +A +significant disruption at any of our assembly or golf shaft manufacturing facilities or distribution centers in the United States or +in regions outside the United States could materially and adversely affect our sales, profitability and results of operations. Our manufacturing, +and assembly facilities or distribution centers may be subject to a number of risks related to computer viruses, the proper operation +of software and hardware, electronic or power interruptions, and other system failures. Risks associated with upgrading or expanding +these facilities may significantly disrupt or increase the cost of our operations, which may have an immediate, or in some cases prolonged, +impact on our margins. Difficulties in implementing new or upgraded technology or operational systems, could disrupt our operations and +could materially and adversely affect our financial condition, results of operations or cash flows. +17 +A +disruption in the service or a significant increase in the cost of our primary delivery and shipping services for our products and component +parts or a significant disruption at shipping ports could have a material adverse effect on our business. +We +use United Parcel Service (“UPS”) for substantially all ground shipments of products to U.S. customers. We have and will +continue to consider other carriers for domestic shipments, and we use air carriers, ocean shipping services and the like, for our international +shipments of products. Furthermore, many of the components we use to build our putters, including heads and components and carbon fiber +for shafts, are shipped to our locations via air carrier and ship services. If there is any significant interruption in service by such +providers or at airports or shipping ports, we may be unable to engage alternative suppliers or to receive or ship goods through alternate +sites in order to deliver our products, components or materials in a timely and cost-efficient manner. As a result, we could experience +manufacturing delays, increased manufacturing and shipping costs and lost sales as a result of missed delivery deadlines and product +demand cycles. Any significant interruption in UPS or other carrier services, air carrier services, ship services or at airports or shipping +ports could have a material adverse effect on our business. Furthermore, if the cost of delivery or shipping services were to increase +significantly and the additional costs could not be covered by product pricing, our operating results could be materially adversely affected. +The +costs and availability of finished products, product components and raw materials could affect our operating results. +The +costs and availability of the finished products, product components and raw materials needed in our products can be volatile as a result +of numerous factors, including general, domestic, and international economic conditions; labor costs; production levels; competition; +consumer demand; import duties; tariffs; and currency exchange rates. In 2022, we have already experienced increases in the cost of specific +materials, such as aluminum, brass, stainless/carbon steel, and tungsten. Although these increases have had minimal effect to date, if +the current inflationary trend were to continue it could affect our margins and retail pricing. This volatility could significantly affect +the availability and cost of these items for us which could have a material adverse effect on our business, financial condition and results +of operations. +The +materials and components that we use, and that are used by our suppliers, involve raw materials, including aluminum, magnesium, stainless +steel, carbon steel, synthetic rubbers, thermoplastics, and carbon fiber for the manufacturing of our golf shafts, titanium alloys, and +other materials, epoxy resins for the assembly of our golf equipment, can experience significant price fluctuations or shortages. These +raw materials or components, including the costs to transport such materials or components, the uncertainty of currency fluctuations +against the U.S. dollar, increases in labor rates, trade duties or tariffs, and/or the introduction of new and expensive raw materials, +could materially adversely affect our business, financial condition and results of operations. In addition, prolonged periods of inflationary +pressure on some or all costs may result in increased costs to produce our products that could have an adverse effect on profits from +sales of these products, or require us to increase prices for our products that could adversely affect consumer demand for our products. +Some +of our components are manufactured outside of the United States, which requires these products to be transported by third parties, sometimes +over large geographical distances. Shortages in ocean, land or air shipment capacity and volatile fuel costs can result in rapidly changing +transportation costs or an inability to transport products in a timely manner. Similarly, disruption to shipping and transportation channels +due to labor disputes could cause us to rely more heavily on alternative modes of transportation to achieve timely delivery to customers, +resulting in significantly higher freight costs. Because prices of our products are already seen online, prior to shipment, as changes +in transportation and other costs may be difficult to predict, we may not be able to pass all or any portion of these higher costs on +to our customers or adjust our pricing structure in a timely manner in order to remain competitive, either of which could have a material +adverse effect on our business, financial condition and results of operations. +We +may be subject to product warranty claims that require the replacement or repair of products sold. Such warranty claims could adversely +affect our results of operations and relationships with our customers. +We +manufacture and/or distribute a variety of products that have a two-year warranty policy for certain golf equipment. From time to time, +such products may contain manufacturing defects or design flaws that are not detected prior to sale, particularly in the case of new +product introductions or upon design changes to existing products. The failure to identify and correct manufacturing defects and product +design issues prior to the sale of those products could result in product warranty claims that result in costs to replace or repair any +such defective products. Because our products are sold to fitters/retailers for broader consumer distribution and/or to customers/distributors +who buy in large quantities, there could be significant costs associated with such product warranty claims, including the potential for +customer dissatisfaction that may adversely affect our reputation and relationships with customers, which may result in lost or reduced +sales. +18 +Our +growth initiatives require significant capital investments and there can be no assurance we will realize a positive return on these investments. +Initiatives +to drive sales and scale our business will require investment in, for example, technological improvements to our manufacturing or assembly +facilities, marketing programs with special displays or unique offerings, or special product limited editions, all involve many risks +which could result in, among other things, business interruptions and increased costs, any of which may result in our inability to realize +returns on these capital investments. Expansion of business processes or facilities, including a significant expansion or technical upgrades +for our golf shaft manufacturing facility in St Joseph, MO, all require significant capital investment. If we have insufficient sales +or are unable to realize the full potential of our capital investment, it may not realize a positive return on investment, which could +impact our margins and have a significant adverse effect on our results of operations, financial condition and cash flows. +Sales +of our products by unauthorized retailers or distributors could adversely affect our authorized distribution channels and harm our reputation. +Some +of our products find their way to unauthorized outlets or distribution channels. This “gray market” for our products can +undermine authorized retailers and foreign wholesale distributors who promote and support the sales of our products, and can injure our +image in the minds of our customers and consumers. While we may have to take lawful steps to limit commerce of our products in the “gray +market” in both the United States and abroad, it is unlikely that we could completely stop such commerce. In such case we could +incur damage to distributor relationships which could materially adversely affect our business, financial condition and results of operations. +We +rely on research and development, technical innovation and high-quality products to successfully compete. +Technical +innovation and quality control in product design and manufacturing processes is essential to our success in the golf industry. Research +and development play a key role in technical innovation and our competitive advantage. We rely upon experts in various fields to work +with us to develop materials, processes, components that give our products performance advantages over our competition. We also depend +on others who test the performance of our products. While we believe we are developing and creating the very best innovations for our +products, if we fail to continue to introduce technical innovation in our products, or if we are unable to effectively utilize new technologies, +and materials, consumer demand for our products could fail to materialize, or decline, and if we experience problems with the quality +of our products, we may incur substantial brand damage and expense to remedy the problems, any of which could materially adversely affect +our business, financial condition and results of operations. +We +rely on information systems that assist in the management of our manufacturing, inventory, distribution, engineering, sales and other +functions. If our information systems were to fail to perform these functions adequately or if we experienced an interruption in operation, +including a breach in cyber security, our business and results of operations could suffer. +All +of our major operations, including manufacturing, inventory, distribution, sales and accounting, are dependent upon information systems. +All information systems are vulnerable to damage or interruption from: +● +Earthquake, fire, flood, hurricane and other natural disasters; +●Power +loss, computer systems failure, Internet and telecommunications or data network failure; and +● +Hackers, computer viruses, software bugs or glitches. +Any +damage or significant disruption in the operation of any of our information systems, the failure of our IT vendors’ to perform +as expected, the failure to successfully integrate the information technology systems of a businesses that we may acquire or any security +breach to any of our information systems (including financial or credit/payment frauds) would disrupt our business, which may result +in decreased sales, increased overhead costs, excess inventory and product shortages and otherwise adversely affect our reputation, operations, +financial performance and condition. +19 +Cyber-attacks, +unauthorized access to, or accidental disclosure of, consumer personally-identifiable information, that we or our vendors collect through +our websites or stores on servers may result in significant expense and negatively impact our reputation and business. +Today +there is serious concern and awareness of the security of personal information transmitted over the Internet, consumer identity theft +and user privacy. As discussed in Item 1C, Cybersecurity, while we have implemented security measures, our computer systems and those +of our third party vendors and their data security systems and services, may nevertheless be susceptible to electronic or physical computer +break-ins, viruses, fraud, and other disruptions and security compromises involving the loss or unauthorized access of confidential information +because technologies used to obtain unauthorized access to or sabotage systems are constantly evolving, change frequently, and generally +are not recognized until they are launched against a target. Any perceived or actual unauthorized or inadvertent disclosure of personally-identifiable +information, whether through a compromise of our own or our third party vendors’ networks by an unauthorized party, employee theft, +misuse or error or otherwise, could harm our reputation, impair our ability to attract website visitors, require us to notify payment +processors, if payment card information is accessed or compromised, compel us to comply with federal and/or state breach notification +laws and foreign equivalents, subject us to costly mandatory corrective action, or subject us to claims or litigation arising from damages +suffered by consumers, all of which could adversely affect our operations, financial performance and condition. +Risks +Related to Governmental Regulations +We +are subject to many federal, state, local and foreign laws, as well as other statutory and regulatory requirements, with which compliance +can be both costly and complex. Our failure to comply with, or adapt to changes in these laws or requirements, could have an adverse +impact on our business. +We +subject to federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements. +● +the ADA and similar state laws; +●data +privacy and cybersecurity laws; +●environmental, +health and human safety laws and regulations; +●FCPA +and other similar anti-bribery and anti-kickback laws; and +● +laws regarding sweepstakes and promotional contests. +We +are also subject to U.S. financial services regulations, a myriad of consumer protection laws, including economic sanctions, laws and +regulations, anticorruption laws, escheat regulations and data privacy and security regulations. Changes to legal rules and regulations, +or interpretation or enforcement of them, could increase our cost of doing business, affect our competitive abilities, and increase the +difficulty of compliance. Failure to comply with regulations may have an adverse effect on our business, including the limitation, suspension +or termination of services provided to, or by, third parties, and the imposition of penalties or fines. +Regulations +related to “conflict minerals” require us to incur additional expenses and could limit the supply and increase the cost of +certain metals used in manufacturing our products. +On +August 22, 2012, the Securities and Exchange Commission (“SEC”) voted to approve final rules regarding disclosure and reporting +requirements with respect to the use of “conflict minerals” to implement Section 1502 of the Dodd-Frank Wall Street Reform +and Consumer Protection Act (the “Dodd-Frank Act”).The rules require disclosure related to sourcing of specified minerals, +known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured +by public companies. The rules require companies to, under specified circumstances, undertake due diligence, disclose and report whether +or not such minerals originated from the Democratic Republic of Congo or an adjoining country. Our products may contain some of the specified +minerals. As a result, we may incur additional expenses in connection with complying with the rules, including with respect to any due +diligence that is required under the rules. In addition, the SEC’s implementation of the rules could adversely affect the sourcing, +supply and pricing of materials used in our products. There may only be a limited number of suppliers offering “conflict free” +conflict minerals, and we cannot be certain that we will be able to obtain necessary “conflict free” minerals from such suppliers +in sufficient quantities or at competitive prices and we may not be able to sufficiently verify the origins of the relevant minerals +used in certain components of our products through the due diligence procedures that we implement, which could harm our reputation. +20 +We +are subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increased costs or restrictions +of operations in the future. +Our +locations and operations are subject to a number of environmental, health and safety laws and regulations in each of the jurisdictions +in which our facilities are operating. These laws and regulations govern, among other things, air emissions, water discharges, handling +and disposal of solid and hazardous substances and wastes, soil and groundwater contamination and employee health and safety. Our failure +to comply with such environmental, health and safety laws and regulations could result in substantial civil or criminal fines or penalties +or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or corrective +measures, installation of pollution control equipment or other actions. Liability under environmental laws has been interpreted to be +joint and several unless the harm is divisible and there is a reasonable basis for allocating the responsibility. +We +may also be subject to similar liabilities and claims in connection with locations at which hazardous substances, contaminates or wastes +we generated have been stored, treated, otherwise managed, or disposed. As a result, any of these events, and the environmental conditions +at or related to current or former properties or operations, and/or the costs of complying with current or future environmental, health +and safety requirements (which have become more stringent and complex over time), could materially adversely affect our business, financial +condition and results of operations. +Changes +in, or any failure to comply with, data privacy laws, regulations, and standards may adversely affect our business. +Data +privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions. The regulatory +framework for data privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain and continue evolving +for the foreseeable future. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future +adopt additional, laws and regulations affecting data privacy. In the United States, these include rules and regulations promulgated +under the authority of federal agencies, such as the Federal Trade Commission (“FTC”), and state attorneys general and legislatures +and consumer protection agencies. For example, the FTC Act grants the FTC authority to enforce against unfair or deceptive practices, +which the FTC has interpreted to require companies’ practices with respect to personal information comply with the commitments +posted in their privacy policies. With respect to the use of personal information for direct marketing purposes, the Controlling the +Assault of Non-Solicited Pornography and Marketing Act of 2003 (the “CAN-SPAM Act”), establishes specific requirements for +commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the +recipient as to source or content, and obligates, among other things, the sender of commercial emails to provide recipients with the +ability to opt out of receiving future commercial emails from the sender. Further, the Telephone Consumer Protection Act (TCPA) restricts +telemarketing and the use of technologies that enable automatic calling and/or messaging without proper customer consent, and is a particularly +highly litigated issue. Many states in the United States have recently enacted statutes and rules governing the ways in which businesses +may collect, use, and retain personal information. One such example is the California Consumer Privacy Act (“CCPA”), which +came into effect in 2020. In addition, the California Privacy Rights Act (“CPRA”) was passed in November 2020, which significantly +modifies the CCPA, including by creating a new state agency that will be vested with authority to implement and enforce the CCPA and +CPRA. Moreover, other states, including Nevada, Virginia and Colorado, have passed and may continue to pass similar privacy-related laws +whose restrictions and requirements differ from those of California, which could require us to design, implement and maintain different +types of state-based, privacy-related compliance controls and programs simultaneously in multiple states. Similar laws relating to data +privacy and security have been proposed at the federal level as well. Such laws have potentially conflicting requirements that could +make compliance even more challenging, require us to expend significant resources to come into compliance, and restrict our ability to +process certain personal information. Internationally, many jurisdictions in which we operate have established or enhanced their own +data security and privacy legal framework with which we or our customers must comply, including but not limited to, the European Union’s +General Data Protection Regulation (“GDPR”), which imposes stringent operational requirements, including, for example, requiring +expanded disclosures about how personal information is used, limitations on retention of information, mandatory data breach notification +obligations, and higher standards for obtaining consent to process personal information. The GDPR provides that EU member states may +make their own additional laws and regulations in relation to certain data processing activities. Recent legal developments in the EU +have created complexity and uncertainty regarding transfers of personal information from the EU to “third countries,” especially +the United States. For example, in 2020, the Court of Justice of the EU invalidated the EU-U.S. Privacy Shield Framework (a mechanism +for the transfer of personal information to the EU from the US) and made clear that reliance on standard contractual clauses (another +mechanism for the transfer of personal information outside of the EU) alone may not be sufficient in all circumstances. In addition, +after the United Kingdom, or U.K., left the EU, the U.K. enacted the U.K. GDPR, which together with the amended U.K. Data Protection +Act 2018 retains the GDPR in U.K. national law, but also creates complexity and uncertainty regarding transfers between the U.K. and +the EU, which could further limit our ability to use and share personal data and require localized changes to our operating model. In +many jurisdictions, enforcement actions and consequences for noncompliance are also rising. In addition to government regulation, privacy +advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. +The changing legal and regulatory landscape could in the future further limit our ability to use and share personal information and require +changes to our operating model. Any inability or perceived inability to adequately address data privacy and security concerns, even if +unfounded, or comply with applicable data privacy and data security laws, regulations, and policies, could result in additional compliance +costs, penalties and liability costs, damage to our reputation and adversely affect our business. +21 +Risks +Related to Tax and Financial Matters +Changes +in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. +We +are subject to income taxes in the United States and potentially numerous foreign jurisdictions. Our effective income tax rate in the +future could be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory +tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in +various jurisdictions around the world. +In +addition, new income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, or interpreted, +changed, modified or applied adversely to our business, any of which could adversely affect our business operations and financial performance. +In particular, the U.S. government may enact significant changes to the taxation of business entities including, among others, a permanent +increase in the corporate income tax rate, an increase in the tax rate applicable to the global intangible low-taxed income and elimination +of certain exemptions, and the imposition of minimum taxes or surtaxes on certain types of income. We are currently unable to predict +whether such changes will occur and, if so, the ultimate impact it would have on our business. To the extent that such changes have a +negative impact on our business, or suppliers or customers, including as a result of related uncertainty, these changes may materially +and adversely impact our business, financial condition, results of operations and cash flows. +We +may need to raise additional funds from time to time through public or private debt or equity financings in order to execute our growth +strategy. +Although +the Company has enough cash on hand for our current operation for a minimum of 12 months, depending on the Company’s growth +plan, there may be reason to raise additional funds from time to time in order to implement our business plan, take advantage of +opportunities, including the expansion of our business or the acquisition of complementary products, technologies or businesses; +develop new products or expand existing lines of business, including the launching of new products or responding to competitive +pressures. If we are unable to find ways to finance the manufacturing and development of products to scale the business on +acceptable terms or at all, or we or our financing partners default on our respective obligations to fund such costs, we could be +required to delay, significantly curtail or eliminate planned products or marketing programs which could have a material adverse +effect on our business, financial condition and results of operations. There can be no guarantee that we will be able to timely +secure financing on favorable terms, or at all, for any of the foregoing purposes. +Any +capital raised through the sale of equity or securities convertible into equity will dilute the percentage ownership of holders of our +common stock. Capital raised through debt financing would require us to make periodic interest payments and may impose restrictive covenants +on the conduct of our business. Furthermore, additional financings may not be available on terms economically favorable, especially during +periods of adverse economic conditions, could make it more difficult or impossible for us to obtain funding for the operation of our +business, for making additional investments in product development and for repaying outstanding indebtedness. A failure to obtain any +necessary additional funding could prevent us from making expenditures that may be required to grow our business or maintain our operations. +Increases +in interest rates could increase the cost of servicing our indebtedness and have an adverse effect on our results of operations and cash +flows. +Should +we secure any business loan(s), increases in interest rates would increase the cost of servicing our indebtedness and could materially +reduce our profitability and cash flows. An increase in interest rates could also make it difficult for us to obtain financing at attractive +rates, which could adversely impact our ability to execute our growth strategy or future acquisitions. Additionally, rising interest +rates could have a dampening effect on overall economic activity, which could have an adverse effect on our business. +Increases +in costs as a result of being a public company could have an adverse effect on our cash flows and business results. +Should +we be unable to scale and or generate enough positive cashflow to offset the costs of being a public company, the effect could have an +adverse effect on our business. +22 +Risks +Related to Our Common Stock +The +market prices and trading volume of our shares of Common Stock may experience rapid and substantial price volatility which could cause +purchasers of our Common Stock to incur substantial losses. +Recently, +the market prices and trading volume of shares of common stock of other small publicly traded companies with a limited number of shares +available to purchasers have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. +Similarly, shares of our Common Stock may experience similar rapid and substantial price volatility unrelated to our financial performance, +which could cause purchasers of our Common Stock to incur substantial losses, which may be unpredictable and not bear any relationship +to our business and financial performance. Extreme fluctuations in the market price of our Common Stock may occur in response to strong +and atypical retail investor interest, including on social media and online forums, the direct access by retail investors to broadly +available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and +other derivatives on our Common Stock and any related hedging and other trading factors. +If +there is extreme market volatility and trading patterns in our Common Stock, it may create several risks for investors, including the +following: +● +the market price of our Common Stock may experience rapid and substantial increases or decreases unrelated to our operating performance +or prospects, or macro or industry fundamentals; +● +if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our +Common Stock could incur substantial losses as prices decline once the level of market volatility has abated; and +● +if the future market price of our Common Stock declines, purchasers may be unable to resell their shares at or above the price at which +they acquired them. +Further, +we may incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing +with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate +dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which +are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations in the price or trading +volume of our Common Stock, including: +● +actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet +market expectations with regard to our earnings; +● +our current inability to pay dividends or other distributions; +● +changes in market valuations of similar companies; +● +market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the +holdings of our existing stockholders; +● +additions or departures of key personnel; +● +actions by institutional or significant stockholders; +● +short interest in our stock and the market response to such short interest; +● +the dramatic increase in the number of individual holders of our stock and their participation in social media platforms targeted at +speculative investing; +● +speculation in the press or investment community about our company or industry; +● +strategic actions by us or our competitors, such as acquisitions or other investments; +● +legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal +Revenue Service (“IRS”); +● +investigations, proceedings, or litigation that involve or affect us; +● +the occurrence of any of the other risk factors included in this Annual Report on Form 10-K; and +● +general market and economic conditions. +Market +and economic conditions may negatively impact our business, financial condition and share price. +Concerns +over medical epidemics, energy costs, geopolitical issues, the U.S. mortgage market and a deteriorating real estate market, unstable +global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished +liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global +economy and expectations of slower global economic growth, increased unemployment rates, and increased credit defaults in recent years. +Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued +unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make +any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing +in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and share +price and could require us to delay or abandon development or commercialization plans. +23 +If +securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our +stock price and trading volume may decline. +The +trading market for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us, +our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our Common Stock, +the lack of research coverage may adversely affect the market price of our Common Stock. Furthermore, if one or more of the analysts +who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price +would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose +visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline +and may also impair our ability to expand our business with existing customers and attract new customers. +Future +sales and issuances of our Common Stock could result in additional dilution of the percentage ownership of our stockholders and could +cause our share price to fall. +We +do not expect that significant additional capital will be needed in the future to continue our planned operations, including increased +marketing, hiring new personnel, commercializing our product, and continuing activities as an operating public company. If additional +capital is needed, to the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial +dilution. We may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and terms +that we determine at our discretion. If we sell Common Stock, convertible securities or other equity securities in more than one transaction, +investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, +and new investors could gain rights superior to our existing stockholders. Also, the issuance of shares of Common Stock as a result of +the exercise of the Company’s outstanding Series A and Series B Warrants will result in additional dilution of the percentage ownership +of existing shareholders. +We +do not intend to pay cash dividends on our shares of Common Stock so any returns will be limited to the value of our shares. +We +currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate +declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, +if any, of our share price. +We +may be at risk of securities class action litigation. +We +may be at risk of securities class action litigation. If we face such litigation, it could result in substantial costs and a diversion +of management’s attention and resources, which could harm our business and results in a decline in the market price of our common +stock. +Financial +reporting obligations of being a public company in the U.S. are expensive and time-consuming, and our management is required to devote +substantial time to compliance matters. +As +a publicly traded company we incur significant additional legal, accounting and other expenses. The obligations of being a public company +in the U.S. require significant expenditures and places significant demands on our management and other personnel, including costs resulting +from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, +including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements +of the stock exchange on which our securities are listed. These rules require the establishment and maintenance of effective disclosure +and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among +many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms +made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, +particularly after we are no longer an “emerging growth company.” In addition, we expect these rules and regulations to make +it more difficult and more expensive for us to obtain director and officer liability insurance. Our management and other personnel will +need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, +otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems. +24 +Our +Bylaws and Certificate of Incorporation provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially +all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum +for disputes with us or our directors, officers or employees. +Our +Certificate of Incorporation and Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court +of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action +asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, +our Certificate of Incorporation or Bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. +This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, +as amended, the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction. +These +provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us +or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the +choice of forum provision contained in our Certificate of Incorporation or Bylaws to be inapplicable or unenforceable in an action, we +may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, +and financial condition. +General +Risk Factors +Our +insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our +insurance. +We +maintain insurance of the type and in amounts that we believe is reasonable and that is available to businesses in our industry. We carry +or will carry various types of insurance, including general liability, auto liability, business interruption, workers’ compensation +and excess umbrella, from highly rated insurance carriers. Market forces beyond our control could limit the scope of the insurance coverage +that we can obtain in the future or restrict our ability to buy insurance coverage at reasonable rates. We cannot predict the level of +the premiums that we may be required to pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retention +applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. In the event of a substantial +loss, the insurance coverage that we carry may not be sufficient to compensate us for the losses we incur or any costs we are responsible +for. +If +our estimates or judgments relating to our critical accounting policies prove to be incorrect, our financial condition and results of +operations could be adversely affected. +The +preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) +requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying +notes. We base estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, as +discussed below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The results +of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of +revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated +financial statements include those related to revenue recognition; allowance for doubtful accounts; inventories; long-lived assets, goodwill +and non-amortizing intangible assets; warranty policy; income taxes and provisional estimates due to the Tax Cuts and Jobs Act (the “Tax +Act”) enacted in December 2017; share-based compensation; and foreign currency translation. Our financial condition and results +of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which +could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in +the price of our common stock. +Nasdaq +Listing +The +Company’s common stock is traded on the Nasdaq Capital Market under the symbol “NWTG +25 +On +January 29, 2025, the Company received a written notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) +notifying the Company that it is not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) +due to the Company’s common stock not maintaining a closing bid price of at least $1.00 per share for a period of 30 consecutive +business days. The Notice has no immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market. +Normally, +a company would be afforded a 180-day calendar period to demonstrate compliance with the minimum bid price requirement. However, +pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company was not eligible for any compliance period due to the fact that the +Company had affected a reverse split within the prior one-year period. The Company requested a hearing before a Panel as provided in +the Nasdaq Rules. The hearing request automatically stayed any suspension or delisting action pending the hearing. On March 11, +2025, the hearing was held and the Company requested an extension based on the reverse split occurring on March 17, 2025. The Panel +has granted an extension to the Company. +Additionally, +as of December 31, 2024, the Company had a negative Shareholders’ Equity of $4,142,000 resulting from the derivative liability +from the issuance of the Company’s Series A and Series B Warrants in December 2024 as part of the Company’s public +offering. However, because most of the Series B Warrants were exercised on or before March 31, 2025, the issuance of the shares upon +such exercise will be accounted for as additional paid-in capital. The effect of the exercised warrants and corresponding adjustment +to the warrant liability and additional paid-in-capital on a pro forma basis, is that as of December 31,2024, the +stockholder’s equity is $6,5633,000. Accordingly, as of March 31, 2025, the Company is in full compliance with the continuing +listing requirement for stockholders’ equity. +Item +1B. Unresolved Staff Comments +Not +applicable. +Item +1C. Cybersecurity +Risk +Management and Strategy +We +have established policies and processes for assessing, identifying, and managing material risk from cybersecurity threats, and have integrated +these processes into our overall risk management systems and processes. We routinely assess material risks from cybersecurity threats, +including any potential unauthorized occurrence on or conducted through our information and email systems that may result in adverse +effects on the confidentiality, integrity, or availability of our information and email systems or any information residing therein. +We +conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our +business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include +identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such +risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks. +Following +these risk assessments, we will redesign, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address +any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. Primary responsibility for assessing, +monitoring and managing our cybersecurity risks rests with the Chief Financial Officer, to manage the risk assessment and mitigation +process. As part of our overall risk management system, we monitor and periodically evaluate our safeguards and advise our executives +on these safeguards. +We +engage consultants or other third parties in connection with our risk assessment processes. These service providers assist us to design +and implement our cybersecurity policies and procedures, as well as to monitor and test our safeguards. In the future, we intend to require +each significant third-party service provider to certify that they have the ability to implement and maintain appropriate security measures, +consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and +to promptly report any suspected breach of its security measures that may affect us. +We +have not encountered cybersecurity challenges that have materially impaired our operations or financial condition . +26 +Governance +One +of the functions of our Board of Directors is informed oversight of our risk management process, including risks from cybersecurity threats. +Our Board of Directors is responsible for monitoring and assessing strategic risk exposure, and our executive officers are responsible +for the day-to-day management of the material risks that we face. Our Board of Directors administers its cybersecurity risk oversight +function directly as a whole, as well as through the audit committee . +Our +Chief Financial Officer is primarily responsible to assess and manage our material risks from cybersecurity threats with assistance from +third-party service providers . +Our +Chief Financial Officer oversees our cybersecurity policies and processes, including those described above at “Risk Management +and Strategy”. The cybersecurity risk management program includes tools and activities to prevent, detect, and analyze current +and emerging cybersecurity threats, and plans and strategies to address threats and incidents. +Our +Chief Financial Officer provides periodic briefings to the audit committee regarding the Company’s cybersecurity risks and activities, +including any recent cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and similar +issues. Our audit committee provides regular updates to the Board of Directors on such reports. +Item +2. Property +We +lease on a month-to-month basis approximately 4,700 square feet of office space in Camarillo, California, which serves as our principal +executive offices and research and development facility. +The +Company leases approximately 9,000 square feet of manufacturing, assembly, and distribution space in St. Joseph, Missouri. The lease +currently expires in December 2027. +Item +3. Legal Proceedings +There +are no legal proceedings that are pending against the Company or that involve the Company that, in the opinion of management, could reasonably +be expected to have a material adverse effect on the Company’s business or financial condition. +Item +4. Mine Safety Disclosures +Not +applicable. +27 +PART +II +Item +5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities +Effective +August 15, 2023, our Common Stock was registered with the SEC and listed on The Nasdaq Capital Market, and trading began under the stock +symbol “SPGC”. +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +As +of March 31, 2025, there was 4,287,902 outstanding shares of common stock. +We +currently have no expectation of paying cash dividends to holders of our common stock in the foreseeable future. +Unregistered +Sales of Equity Securities +None. +Equity +Compensation Plans +Pursuant +to the SEC’s Regulation S-K Compliance and Disclosure Interpretation 106.01, the information required by this Item pursuant to +Item 201(d) of Regulation S-K relating to securities authorized for issuance under the Corporation’s equity compensation plans +is located in Item 12 of Part III of this Annual Report and is incorporated herein by reference. +Item +6. [Reserved] +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial +statements and the related notes appearing elsewhere in this Annual Report. This discussion and analysis may contain forward-looking +statements based on assumptions about our future business. Our actual results could differ materially from those anticipated in these +forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” +and elsewhere in this Annual Report. +Company +Overview +We +are a technology-forward golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, +and other golf related products. In consideration of our growth opportunities in shaft technologies, in April of 2022, we expanded our +manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. It is +our intent to manufacture and assemble substantially all products in the United States. We anticipate expansion into golf apparel and +other golf related product lines to enhance our growth. Our future expansions may include broadening our offerings through mergers, acquisitions +or internal developments of product lines that are complementary to our premium brand. +On +August 14, 2023, we entered into an underwriting agreement with The Benchmark Company for the purchase of shares of the Company’s +common stock, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange +Commission. In the offering, the Company sold 10,667 shares of common stock, at a price of $1,200.00 per share. The offering closed on +August 17, 2023, and total proceeds received, net of fees, were $11.6 million including an underwriting discount of 7% and a non-accountable +expenses allowance of 1% based on the aggregate proceeds of the offering. +28 +Recent +Events +Secondary +Public Offering +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the +offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $60.00 per share. +The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $467,000, after deducting the underwriting +discounts and commissions and estimated offering expenses. +On +December 12, 2024, we entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of +up to 233,333 Common Units, each consisting of one (1) share of Common Stock, one (1) Series A Common Warrant to purchase one (1) share +of Common Stock per warrant, and one (1) Series B Common Warrant to purchase one (1) share of Common Stock per warrant. The public offering +price per Common Unit is $36.00. The initial exercise price of each Series A Common Warrant is $72.00 per share of Common Stock. The +Series A Common Warrants are exercisable following stockholder approval and expire 60 months thereafter. The initial exercise price of +each Series B Common Warrant is $72.00 per share of Common Stock or pursuant to an alternative cashless exercise option. The Series B +Common Warrants are exercisable following stockholder approval and expire 30 months thereafter. The offering closed on December +13, 2024. The net proceeds to us for the offering were approximately $7,326,000, after deducting underwriting discounts and commissions +and estimated offering expenses. +Newton +Motion Shafts +On +November 20, 2023, we announced a significant expansion of our product portfolio. We introduced “Newton,” the Company’s +latest business division and the Company’s first foray into the world of golf club shafts. The Newton Motion driver shaft, the +first Newton shaft to debut in the market, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter +and longer shots with reduced effort. +On +April 4, 2024, we announced another expansion of our product portfolio, the Newton Motion fairway wood shaft, which like the Newton Motion +driver shaft discussed above, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter and longer +shots with reduced effort. +The +Newton Motion shafts are manufactured at our manufacturing and assembly facility in St. Joseph, Missouri +Gravity +Putters +As +part of the rebranding to Newton Golf Company, we introduced a new line of putters under the Newton Gravity brand. +Nasdaq +Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard +On +December 5, 2023, the Company received a deficiency letter from the Listing Qualifications Department of The NASDAQ Stock Market LLC +(“Nasdaq”) notifying the Company that, for the preceding 30 consecutive business days, the closing bid price of the Company’s +common stock remained below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market as set forth in +Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). The Company was provided a compliance period of 180 calendar +days from the date of the letter, or until June 3, 2024, to regain compliance with the Bid Price Requirement. +29 +On +June 4,2024, the Company received a staff determination letter (the “Determination Letter”) from the Staff notifying the +Company that it had not regained compliance with the Bid Price Requirement by June 3, 2024, and is not eligible for a second 180-day +period due to the Company’s failure to comply with the minimum stockholders’ equity initial listing requirement of The Nasdaq +Capital Market. +Pursuant +to the Determination Letter, the Company requested a hearing before a Hearings Panel (the “Panel”). The hearing request automatically +stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel +following the hearing. By letter dated June 24, 2024, the Company was notified that the Panel granted the Company a temporary exception +to regain compliance with the Bid Price Requirement subject to the following milestones: (1) on or before July 31, 2024, the Company +must effect a reverse stock split and, thereafter maintain a $1.00 closing bid price for a minimum of ten consecutive business days; +and (2) on or before August 13,2024, the Company must demonstrate compliance with the Bid Price requirement by evidencing a closing bid +price of $1.00 or more for a minimum of ten consecutive trading sessions. As set forth below, the Company effected a reverse stock split +on July 30, 2024. By letter dated August 13, 2024 from the Nasdaq Office of General Counsel, the Company was informed that it has regained +compliance with the minimum bid price requirement of $1.00 per share under Nasdaq Listing Rule 5550(a)(2). +On +January 29, 2025, the Company received a written notice (the “Notice”) from Nasdaq notifying the Company that it is not in compliance with the minimum bid price requirement +set forth in Nasdaq Listing Rule 5550(a)(2) due to the Company’s common stock not maintaining a closing bid price of at least $1.00 +per share for a period of 30 consecutive business days. The Notice has no immediate effect on the listing of the Company’s common +stock on The Nasdaq Capital Market. +Normally, +a company would be afforded a 180-day calendar period to demonstrate compliance with the minimum bid price requirement. However, pursuant +to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period due to +the fact that the Company has affected a reverse split within the prior one-year period. +The +Company requested a hearing a Panel, as provided in the Nasdaq Rules. The hearing request automatically stayed any suspension or delisting action pending the +hearing. On March 11, 2025, the hearing +was held and the Company requested an extension based on the reverse split occurring on March 17, 2025. The Panel has granted an extension to the Company to regain compliance. +Additionally, as of December 31, 2024, the +Company had a negative Shareholders’ Equity of $4,4142,000 resulting from the derivative liability from the issuance of the +Company’s Series A and Series B Warrants in December 2025 as part of the Company’s public offering. However, because +most of the Series B Warrants were exercised on or before March 31, 2025, the issuance of the shares upon such exercise will be +accounted for as additional paid-in capital. The effect of the exercised warrants and corresponding adjustment to the warrant liability +and additional paid-in-capital on a pro forma basis, is that as of December 31, 2024, the stockholder’s equity is $6,653,000. Accordingly, +as of March 31, 2025, the Company believes it will be in full compliance with the continuing listing requirement for stockholders’ equity. +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “First Reverse +Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As +a result of the First Reverse Split, every ten shares of common stock were automatically combined into one share of common stock. +The authorized number of shares of common stock was not affected by the First Reverse Stock Split. No fractional shares were issued +in connection with the First Reverse Stock Split, as all fractional shares were rounded up to the next whole share. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second +Reverse Stock Split”). The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading +symbol. +As +a result of the Second Reverse Split, every thirty shares of common stock were automatically combined into one share of common +stock. The authorized number of shares of common stock was not affected by the Second Reverse Stock Splits. No fractional shares +were issued in connection with the Second Reverse Stock Split, as all fractional shares were rounded up to the next whole share. +Accordingly, all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to +reflect the First and Second Reverse Stock Splits for all periods presented. Proportionate adjustments for the First and Second +Reverse Stock Splits have been made to the per share exercise price and the number of shares issuable upon the exercise of warrants, +the number of shares reserved for issuance under the Company’s equity plans, and all the then outstanding awards under the +Company’s equity plans. The First and the Second Reverse Stock Splits did not change the par value of the common stock or +modify any voting rights or other terms of common stock. +30 +Key +Factors Affecting Our Performance +Seasonality +and General Trends in Golf Participation +Because +golf is a seasonal sport, our sales are cyclical and unlikely to remain consistent from quarter to quarter. Further, if golf participation +decreases or the number of rounds of golf played decreases generally, for any or no reason, sales of our products may be adversely affected. +In the future, the overall dollar volume of the market for golf-related products may not grow or may decline. The recent COVID-19 pandemic +has resulted in a surge in golf participation and growth for our industry, but such a trend may not continue, and future trends are difficult +to predict. +Public +Company Costs +Effective +August 17, 2023, our Common Stock was registered with the SEC and listed on The Nasdaq Capital Market, which requires us to hire additional +personnel and implement public company procedures and processes. We incur additional annual expenses as a public company for internal +controls compliance and public company reporting obligations, directors’ and officers’ liability insurance, director fees +and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. +Impact +of Inflation +Recent +inflationary trends have led to a moderate increase in some of the component parts used to manufacture our products. To date, we have +not passed the increase in cost to our consumers. Continued prolonged periods of inflationary pressure on some or all costs may result +in increased costs to produce our products that could have an adverse effect on profits from sales of these products or require us to +increase prices for our products that could adversely affect consumer demand for our products. +While +we have not had significant other disruptions that materially impacted our financial results, we continue to seek and expand the number +of qualified domestic vendors used to source materials. +Comparison +of the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 +Our +sales, cost of goods sold, operating expenses, and net loss from operations for the year ended December 31, 2024, as compared to the +year ended December 31, 2023 were as follows (amounts are rounded to nearest thousands): +Year +Ended +December 31, +2024 +Year +Ended +December 31, +2023 +% Change +Net Sales +$ 3,445,000 +$ 349,000 +887 % +Cost of goods sold +1,171,000 +227,000 +416 % +Gross profit +2,274,000 +122,000 +1,764 % +Operating expenses: +Selling, general and administrative +6,509,000 +4,497,000 +45 % +Research and development +743,000 +258,000 +188 % +Total operating expenses +7,252,000 +4,755,000 +53 % +Loss from operations +(4,978,000 ) +(4,633,000 ) +7 % +Interest income (expense), net +161,000 +8,000 +1,900 % +Financing costs +(6,913,000 ) +- +100 % +Change in fair value of warrant liability +(22,000 ) +- +100 % +Net loss +$ (11,752,000 ) +$ (4,625,000 ) +154 % +31 +Net +Sales +Our +net sales increased $3.1 million, or 887%, to approximately $3.5 million during the year ended December 31, 2024, compared to $349,000 +during the year ended December 31, 2023. The increase in net sales was from the introduction of our Newton Motion driver shaft product +line in November 2023, and our Newton Motion fairway shaft product line in April 2024. For the year ended December 31, 2024, we generated +$2.9 million of net sales from the Newton Motion shafts, and we generated approximately 84% of our net sales through our websites. +Cost +of goods sold +Cost +of goods sold represents primarily our material, labor, components, and changes in inventory reserves for slow-moving or potentially +obsolete products. Our cost of goods sold increased by $944,000 to $1.2 million for the year ended December 31, 2024, compared to $227,000 +for the year ended December 31, 2023, due to our increase in net sales. Our gross margin was 66% and 35% for the year ended December +31, 2024 and 2023, respectively. The increase in gross margin was due to the change in product mix sold and changes to our inventory +reserves as compared to the prior year period. +Operating +expenses +Operating +expenses include selling, general and administrative expenses, and research and development costs. +Selling, +general and administrative expenses include employee costs, legal and professional fees, sales and marketing expenses, stock-based compensation, +public company expenses, rent, depreciation and other general expenses. Our selling, general and administrative expenses increased approximately +$2.0 million to $6.5 million during the year ended December 31, 2024, compared to $4.5 million during the year ended December 31, 2023. +The increase in selling, general and administrative expenses were from increased employee related expenses, increased public company +related costs, increased advertising expense, and from routine changes in our selling, general and administrative expenses accounts to +support our operations, as compared to the prior year period. +Research +and development costs include employee costs, consultants, licensing fees, and product design and development costs. Research and development +expenses increased $485,000 to $742,000 during the year ended December 31, 2024, compared to $258,000 during the year ended December +31, 2023. The increase in research and development costs were due to costs incurred to test and refine prior to the commercialization +of our Newton Motion fairway wood shaft product, which was launched in early April 2024. In addition, beginning in October 2023, the +employment costs of our Chief Technology Officer and Vice President of Research & Development were recorded as a component of our +research and development expenses, which we previously recorded to selling general and administrative expenses. +Loss +from operations +Loss +from operations increased to $5.0 million for the year ended December 31, 2024, compared to $4.6 million for the year ended December +31, 2023. The increase in our net loss was due to our increased operating expenses, offset by increased gross profit, as discussed above. +Other +income (expense), net +During +the year ended December 31, 2024, the Company recorded financing cost of $6,913,000 and a change in the fair value of warrant liabilities +of $22,000 (see Note 8 of the accompanying financial statements), both of which did not occur in the prior year period. Interest +income, net was $161,000 for the year ended December 31, 2024, compared to interest income, net of $8,000 for the year ended December +31, 2023. The increase in interest income was due to our paying off our debt with the proceeds received from our initial public offering +in August 2023, and the interest earned on our bank balances, as compared to the prior year period. +32 +Net +loss +Net +loss increased to $11.8 million for the year ended December 31, 2024, compared to $4.6 million for the year ended December 31, 2023. +The increase in our net loss was due to the short-term warrant liability of $14,261,000, of which $6,676,000 was attributed to +financing costs, with an additional $259,000 due to the change in fair value of the warrant liability. Additional operating expenses +and other expenses were offset by increased gross profit, as discussed above. +Liquidity +and Capital Resources +The +following table summarizes our cash flows for the periods indicated (amounts are rounded to nearest thousands): +Year Ended +December 31, +2024 +2023 +Net cash provided by (used in): +Operating activities +$ (4,929,000 ) +$ (5,047,000 ) +Investing activities +(502,000 ) +(289,000 ) +Financing activities +7,743,000 +10,503,000 +Net increase in cash +$ 2,312,000 +$ 5,167,000 +Operating +Activities +Net +cash used in operating activities for the year ended December 31, 2024 totalled $4,929,000, compared to net cash used in operating activities +for the year ended December 31, 2023 of $5,047,000. The decrease in net cash used in operations for the year ended December 31, 2024, +was primarily related to cash used to repay our accrued payroll to officers. +Investing +Activities +Net +cash used in investing activities for the year ended December 31, 2024 totalled $502,000, and was for the purchase of property and equipment. +Net cash used in investing activities for the year ended December 31, 2023 totaled $289,000, and was for the purchase of property and +equipment. +Financing +Activities +Net +cash provided by financing activities for the year ended December 31, 2024 was $7,743,000, which included net proceeds after commissions +and expenses of $7.8 million from our initial public offering, offset by $50,000 for repayment of our software licensing obligation. +Net cash provided by financing activities for the year ended December 31, 2023 was $10.5 million, which included net proceeds after commissions +and expenses of $11.0 million from our initial public offering, proceeds of $180,000 received in the private placement of common stock, +proceeds of $81,000 from loans, $230,000 for deferred offering costs related to our initial public offering, offset by loan repayments +to related parties of $557,000, repayment of notes payables of $445,000, and $15,000 repayment of our equipment purchase obligation. +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the +offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $60.00 per share. +The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $467,000, after deducting the underwriting +discounts and commissions and estimated offering expenses. +33 +On +December 12, 2024, we entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of +up to 233,333 Common Units, each consisting of one (1) share of Common Stock, one (1) Series A Common Warrant to purchase one (1) share +of Common Stock per warrant, and one (1) Series B Common Warrant to purchase one (1) share of Common Stock per warrant. The public offering +price per Common Unit is $36.00. The initial exercise price of each Series A Common Warrant is $72.00 per share of Common Stock. The +Series A Common Warrants are exercisable following stockholder approval and expire 60 months thereafter. The initial exercise price of +each Series B Common Warrant is $72.00 per share of Common Stock or pursuant to an alternative cashless exercise option. The Series B +Common Warrants are exercisable following stockholder approval and expire 30 months thereafter. The offering closed on December 13, 2024. +The net proceeds to us for the offering were approximately $7,326,000, after deducting underwriting discounts and commissions and estimated +offering expenses. +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the year +ended December 31, 2024, we incurred a net loss of $11,752,000 and used cash in operations of $4,929,000. These factors raise substantial +doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being +issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated +financial statements for the year ended December 31, 2024, expressed substantial doubt about the Company’s ability to continue +as a going concern. +At +December 31, 2024, we had cash and cash equivalents on hand in the amount of $7.7 million. Management expects its cash on hand on December +31, 2024, to last for at least the next 12 months. +The +continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue +operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if +available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, +it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, +in case or equity financing. +Emerging +Growth Company +We +are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the +JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our +annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by +non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during +the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take +advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected +to take advantage of these reduced disclosure obligations and may elect to take advantage of other reduced reporting obligations in the +future. +For +so long as we are an emerging growth company, we will not be required to: +● +comply +with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation +or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., +an auditor discussion and analysis); +● +have +an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; +● +submit +certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” +and pay ratio; and +● +disclose +certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons +of the CEO’s compensation to median employee compensation. +34 +In +addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section +7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As a result, the Company may adopt new or revised +accounting standards by the date private companies are required to comply. +Off-Balance +Sheet Arrangements +At +December 31, 2024 and 2023, the Company did not have any transactions, obligations or relationships that could be considered off-balance +sheet arrangements. +Critical +Accounting Policies and Estimates +Our +discussion and analysis of our results of operations, financial condition and liquidity are based upon our consolidated financial statements, +which have been prepared and audited in accordance with GAAP. The preparation of these financial statements requires us to make estimates +and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenues and expenses, as well as +related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions +that management believes to be reasonable under the circumstances. Actual results may materially differ from these estimates under different +assumptions or conditions. On an ongoing basis, we review our estimates to ensure that the estimates appropriately reflect changes in +our business and new information as it becomes available. +Management +believes the critical accounting estimates discussed below affect its more significant estimates and assumptions used in the preparation +of its consolidated financial statements. +Revenue +Recognition +We +account for revenue recognition in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from +Contracts with Customers.” +The +amount of revenue we recognize is based on the amount of consideration we expect to receive from customers. The amount of consideration +is the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as sales +programs, sales promotions and price concessions that we offer, as described further below. These estimates are based on amounts earned +or expected to be claimed by customers on the related sales, and are therefore recorded to the respective net revenue, trade accounts +receivable, and sales program liability accounts. +We +may offer short-term sales program incentives, which include sell-through promotions and price concessions or price reductions. Sell-through +promotions are generally offered throughout a product’s life cycle, which varies from two to three years but could be shorter or +longer. Price concessions or price reductions are generally offered at the end of the product’s life cycle. The estimated variable +consideration related to these potential programs will be based on a rate that includes historical and forecasted data. We may record +a reduction to net revenues using this rate at the time of the sale. We will monitor this rate against actual results and forecasted +estimates and adjusts the rate as necessary in order to reflect the amount of consideration it expects to receive from its customers. +We +also may record an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable in the period +that the related sales are recorded. The cost recovery of inventory associated with this reserve will be accounted for in other current +assets. Sales returns will be estimated based upon historical returns, current economic trends, changes in customer demands and sell-through +of products. We also may offer certain customers sales programs that would allow for specific returns. We may record a return reserve +for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program. +35 +Stock-Based +Compensation +The Company periodically issues stock options to employees +and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued +and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date +of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. The Company recognizes +the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services +rendered. +The fair value of each option or warrant grant is +estimated using the Black-Scholes option-pricing model. The Company was a private company through August 14, 2023, and lacks company-specific +historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility +of a publicly traded set of peer companies within the consumer products industry with characteristics similar to the Company. The expected +term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as +“plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the +option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of +the award for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact +that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. +Prior to August 14, 2023, the common shares of the +Company were not publicly traded. As such, during the period, the Company estimated the fair value of common stock using an appropriate +valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice +Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions +that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including +external market conditions, guideline public company information, the prices at which the Company sold its common stock to third parties +in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and +the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used +in the valuations could result in different fair values of stock options at each valuation date, as applicable. +The +Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of +the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (FASB) in ASC 480, Distinguishing +Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants +are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the +requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and +whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, +among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the +time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. +Recently Issued Accounting Pronouncements +See Note 2 of the Notes to Condensed Financial Statements +for a discussion of recent accounting pronouncements. +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk +As a smaller reporting company, the Company is not +required to provide the information required by this Item 7A. +36 +Item 8. Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 572 ) +F-2 +Financial Statements: +Balance Sheets as of December 31, 2024 and December 31, 2023 +F-3 +Statements of Operations for the years ended December 31, 2024 and 2023 +F-4 +Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the years ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements for the years ended December 31, 2024 and 2023 +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +To the Board of Directors +and Stockholders of +Newton Golf Company, Inc. +Camarillo, California +Opinion on the Financial +Statements +We have audited the accompanying +balance sheets of Newton Golf Company (formally Sacks Parente Golf, Inc.), (the “Company”) as of December 31, 2024 and +2023, the related statements of operations, stockholders’ equity (deficiency), and cash flows for the years then ended, +and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial +statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, +and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted +in the United States of America. +Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial +statements, the Company has experienced recurring operating losses and negative operating cash flows since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going +concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements +do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial +statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight +Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. +federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in +accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance +about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not +required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we +are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing +procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing +procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures +in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates +made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provided a +reasonable basis for our opinion. +We have served as the Company’s +auditor since 2022. +/s/Weinberg & Company +Weinberg & Company +Los Angeles, California +April 4, 2025 +F- 2 +NEWTON GOLF COMPANY, INC. +(FKA SACKS PARENTE GOLF, INC.) +BALANCE SHEETS +(Amounts rounded to nearest thousands, except share +amounts) +December 31, +December 31, +2024 +2023 +ASSETS +Current Assets +Cash and cash equivalents +$ 7,650,000 +$ 5,338,000 +Accounts receivable, net +115,000 +53,000 +Inventory, net of reserve for obsolescence of $ 49,000 and $ 98,000 , respectively +913,000 +248,000 +Prepaid expenses and other current assets +274,000 +196,000 +Total Current Assets +8,952,000 +5,835,000 +Property and equipment, net +716,000 +379,000 +Right of use asset +34,000 +65,000 +Software licensing agreement, net +59,000 +110,000 +Deposits +5,000 +5,000 +Total Other Assets +814,000 +559,000 +TOTAL ASSETS +$ 9,766,000 +$ 6,394,000 +LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +Current Liabilities +Accounts payable and accrued expenses +$ 572,000 +$ 401,000 +Lease liability, current +34,000 +31,000 +Software licensing obligation, current +54,000 +41,000 +Customer deposits +- +2,000 +Warrant Liability +14,261,000 +- +Total Current Liabilities +14,921,000 +475,000 +Software licensing fee obligation, net of current +32,000 +95,000 +Lease liabilities, net of current +- +34,000 +Total Liabilities +14,953,000 +604,000 +Shareholders’ Equity (Deficiency) +Preferred stock, par value $ 0.01 , 5,000,000 shares authorized; no shares issued and outstanding, respectively +- +- +Common stock, par value $ 0.01 , 45,000,000 shares authorized; 297,184 and 51,651 shares issued and outstanding, respectively +3,000 +1,000 +Additional paid-in capital +16,879,000 +16,106,000 +Accumulated deficit +( 22,069,000 ) +( 10,317,000 ) +Total Shareholders’ Equity (Deficiency) +( 5,187,000 ) +5,790,000 +TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +$ 9,766,000 +$ 6,394,000 +The accompanying notes are an integral part of these +financial statements. +F- 3 +NEWTON GOLF COMPANY +(FKA SACKS PARENTE GOLF, INC.) +STATEMENTS OF OPERATIONS +For the Years Ended December 31, 2024 and 2023 +(Amounts rounded to nearest thousands, except share +and per share amounts) +2024 +2023 +Years Ended December 31, +2024 +2023 +Revenues +$ 3,445,000 +$ 349,000 +Cost of goods sold +1,171,000 +227,000 +Gross profit +2,274,000 +122,000 +Operating expenses: +Selling, general and administrative expense +6,509,000 +4,497,000 +Research and development expenses +743,000 +258,000 +Total operating expenses +7,252,000 +4,755,000 +Loss from operations +( 4,978,000 ) +( 4,633,000 ) +Interest income, net +161,000 +8,000 +Financing costs +( 6,913,000 ) +- +Change in fair value of warrant liabilities +( 22,000 ) +- +Net Loss +$ ( 11,752,000 ) +$ ( 4,625,000 ) +Loss per common share – basic and diluted +$ ( 178.33 ) +$ ( 113.38 ) +Weighted average common shares outstanding – basic and diluted +65,899 +40,791 +The accompanying notes are an integral part of these +financial statements. +F- 4 +NEWTON GOLF COMPANY +(FKA SACKS PARENTE GOLF, INC.) +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +(DEFICIENCY) +For the Years Ended December 31, 2024 and 2023 +(Amounts rounded to nearest thousands, except share +amounts) +Shares +Amount +Capital +Deficit +Deficiency +Common Stock +Additional +Paid In +Accumulated +Total +Stockholders’ +Shares +Amount +Capital +Deficit +Deficiency +Balance, December 31, 2022 +38,946 +$ - +$ 3,810,000 +$ ( 5,692,000 ) +$ ( 1,882,000 ) +Vesting of options +- +- +443,000 +443,000 +Shares issued for services +167 +- +225,000 +225,000 +Proceeds from private sale of common stock +1,871 +- +600,000 +600,000 +Proceeds from public sale of common stock, net of expenses +10,667 +1,000 +11,028,000 +11,029,000 +Fair value of warrant liability related to public offering +Net Loss +( 4,625,000 ) +( 4,625,000 ) +Balance, December 31, 2023 +51,651 +1,000 +16,106,000 +( 10,317,000 ) +5,790,000 +Balance +51,651 +1,000 +16,106,000 +( 10,317,000 ) +5,790,000 +Vesting of options +- +- +308,000 +308,000 +Proceeds from public offering of common stock, net of expenses +245,533 +2,000 +7,791,000 +7,793,000 +Fair value of warrant liability related to public offering +- +- +( 7,326,000 ) +( 7,326,000 ) +Net Loss +( 11,752,000 ) +( 11,752,000 ) +Balance, December 31, 2024 +297,184 +$ 3,000 +$ 16,879,000 +$ ( 22,069,000 ) +$ ( 5,187,000 ) +Balance +297,184 +$ 3,000 +$ 16,879,000 +$ ( 22,069,000 ) +$ ( 5,187,000 ) +The accompanying notes are an integral part of these +financial statements. +F- 5 +NEWTON GOLF COMPANY +(FKA SACKS PARENTE GOLF, INC.) +STATEMENTS OF CASH FLOWS +For the Years Ended December 31, 2024 and 2023 +(Amounts rounded to nearest thousands) +2024 +2023 +Years Ended December 31, +2024 +2023 +Cash Flows from Operating Activities +Net Loss +$ +( 11,752,000 +) +$ +( 4,625,000 +) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation +165,000 +32,000 +Amortization of deferred software licensing agreement +51,000 +26,000 +Change in reserve for doubtful accounts +19,000 +- +Change in reserve for inventory obsolescence +( 49,000 +) +25,000 +Vesting of options +308,000 +443,000 +Financing costs +6,913,000 +- +Change in fair value of warrant liability +22,000 +- +Shares issued for services +- +225,000 +Right-of-use asset +31,000 +30,000 +Changes in operating assets and liabilities +Accounts receivable +( 81,000 +) +( 51,000 +) +Inventory +( 616,000 +) +( 131,000 +) +Prepaids and other current assets +( 78,000 +) +( 180,000 +) +Accounts payable and accrued expenses +171,000 +304,000 +Accrued payroll to officers +- +( 1,095,000 +) +Lease liability +( 31,000 +) +( 31,000 +) +Customer deposits +( 2,000 +) +( 19,000 +) +Net cash used in operating activities +( 4,929,000 +) +( 5,047,000 +) +Cash Flows from Investing Activities +Purchase of property and equipment +( 502,000 +) +( 289,000 +) +Net cash used in investing activities +( 502,000 +) +( 289,000 +) +Cash Flows from Financing Activities +Payment of equipment purchase obligation +- +( 15,000 +) +Deferred offering costs +- +230,000 +Proceeds from private sale of common stock subject to possible redemption +- +180,000 +Proceeds from public sale of common stock, net +7,793,000 +11,029,000 +Proceeds from notes payable +- +61,000 +Software licensing obligation +( 50,000 +) +- +Repayment of notes payable +- +( 445,000 +) +Proceeds from loans payable – related party +- +20,000 +Repayment of loans payable – related party +- +( 557,000 +) +Net cash provided by financing activities +7,743,000 +10,503,000 +Net increase in cash +2,312,000 +5,167,000 +Cash and cash equivalents and restricted cash beginning of period +5,338,000 +171,000 +Cash and cash equivalents and restricted cash end of period +$ +7,650,000 +$ +5,338,000 +Supplemental disclosures of cash flow information: +Cash paid for interest +$ +- +$ +- +Cash paid for income taxes +$ +- +$ +- +SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: +Fair value of warrant liability +$ +14,239,000 +$ +- +New right of use asset and lease liability +$ +- +$ +73,000 +Recording of deferred software licensing agreement +$ +- +$ +136,000 +Reclass of common stock subject to redemption to equity +$ +- +$ +420,000 +The accompanying notes are an integral part of these +financial statements. +F- 6 +NEWTON GOLF COMPANY +(FKA SACKS PARENTE GOLF, INC.) +NOTES TO FINANCIAL STATEMENTS +For the Years Ended December 31, 2024 and 2023 +(Amounts rounded to nearest thousands, except share and per share amounts) +NOTE 1 – OPERATIONS AND LIQUIDITY +Newton Golf Company, Inc. (“we,” the “Company”) +was formed in 2018 as Sacks Parente Golf, Inc., a Delaware limited liability company. On March 18, 2025 the Company converted into a Delaware +corporation named Newton Golf Company, Inc. Pursuant to our Plan of Conversion, on March 18, 2025, all of the outstanding ownership interests +in Sacks Parente Golf, Inc., and rights to receive such interest were converted into and exchanged for shares of capital stock of Newton +Golf Company. The Company retroactively reflected the conversion as of the earliest periods presented herein. +On March 11, 2025, the Company’s Board of Directors +approved and, by written consent dated February 26, 2025, the holders of a majority of our common stock approved an amendment to our Certificate +of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton Golf Company, Inc. to better reflect its commitment to revolutionizing +golf through advanced physics and precision engineering. The change to Newton Golf Company, Inc. became effective on March 17, 2025. All +references throughout this filing to Newton Golf Company, Inc. have been changed to Newton Golf Company. +Newton Golf Company, Inc. is a technology-forward +golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, and other golf-related +products. In consideration of its growth opportunities in shaft technologies, in April of 2022, the Company expanded its manufacturing +business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. It is the Company’s +intent to manufacture and assemble substantially all products in the United States. The Company anticipates expansion into golf apparel +and other golf-related product lines to enhance its growth. The Company’s future expansions may include broadening its offerings +through mergers, acquisitions or internal developments of product lines that are complementary to its premium brand. +The Company currently sells its products through resellers, +the Company’s websites, and distributors in the United States, Japan, and South Korea. +Going Concern and Liquidity +The accompanying financial statements have been prepared +on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal +course of business. As reflected in the accompanying financial statements, during the year ended December 31, 2024, the Company incurred +a net loss of $ 11,752,000 and used cash in operations of $ 4,929,000 and had a stockholders’ deficit of $ 5,187,000 as of +that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after +the date of the financial statements being issued. These financial statements do not include adjustments relating to the recoverability +and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company +be unable to continue as a going concern. +At December 31, 2024, the Company had cash and cash +equivalents on hand in the amount of $ 7,650,000 . The Company expects its cash on hand on December 31, 2024, will last at least the +next 12 months. +The continuation of the Company as a going concern +is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive +cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory +to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the +case of debt financing or cause substantial dilution for our stockholders, in case or equity financing. +No assurance can be given that any future financing +will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain +additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution +for our stockholders, in case of equity financing, or grant unfavorable terms in licensing future licensing agreements. +F- 7 +Reverse Stock Splits +On July 18, 2024, the Company filed a +Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of Delaware to affect a reverse stock +split of the Company’s common stock at a ratio of 1-for-10 +shares (the “First Reverse Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern +Time on July 30, 2024 and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under +its existing trading symbol. As a result of the First Reverse Split, every ten shares of common stock were automatically combined +into one share of common stock. The authorized number of shares of common stock was not affected by the First Reverse Stock Split. +No fractional shares were issued in connection with the First Reverse Stock Split, as all fractional shares were rounded up to the +next whole share. +On March 4, 2025, the Company filed a +Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of Delaware to affect a reverse +stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second Reverse Stock Split”). +The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the Company’s common stock +began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. All shares and per share amounts +and information presented herein have been retroactively adjusted to reflect the reverse stock splits for all periods presented. +The authorized number of shares of common stock +was not affected by the First or Second Reverse Stock Splits. No fractional shares were issued in connection with the First or +Second Reverse Stock Split, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share +amounts presented herein with respect to common stock have been retroactively adjusted to reflect the First and Second Reverse Stock +Split for all periods presented. Proportionate adjustments for the First and Second Reverse Stock Splits have been made to the per +share exercise price and the number of shares issuable upon the exercise of warrants, the number of shares reserved for issuance +under the Company’s equity plans, and all the then outstanding awards under the Company’s equity plans. The First and +Second Reverse Stock Splits will not change the par value of the common stock or modify any voting rights or other terms of common +stock. +NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Use of Estimates +The preparation of financial statements in conformity +with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of +assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts +of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions +include estimates for reserves of uncollectible accounts receivables, assumptions used in valuing inventories at net realizable value, +impairment testing of recorded long-term and tangible and intangible assets, the valuation allowance for deferred tax assets, accruals +for potential liabilities, assumptions made in valuing warrant liabilities, and assumptions made in valuing stock instruments issued for +services. +Cash and Cash Equivalents +The Company’s cash consists of cash on deposit +with banks. Cash equivalents represent money market funds or short-term investments with original maturities of three months or less from +the date of purchase. +Accounts Receivable +Accounts receivable are generally recorded at the +invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability of its trade accounts receivable based +on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial +obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the +estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, +bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable +outstanding. The allowance for accounts receivable is established through a provision reducing the carrying value of receivables. At December +31, 2024, management recorded an allowance for doubtful accounts of $ 19,000 . At December 31, 2023, management determined that no allowance +was necessary. +F- 8 +Inventory +Inventory is stated at the lower of cost or net realizable +value, with cost determined on a first-in, first-out (“FIFO”) basis. We regularly review our inventory quantities on hand +and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and our ability to +sell the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products +include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of +advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of future product +demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. At +December 31, 2024 and 2023, management recorded a reserve for slow moving and potentially obsolete inventory of $ 49,000 and $ 98,000 , respectively. +Property and Equipment +Property and equipment are stated at cost. Expenditures +for major renewals and improvements that extend the useful lives of property and equipment are capitalized, and expenditures for repairs +and maintenance are charged to expense as incurred. Depreciation is calculated using the straight-line method over the estimated useful +lives of the assets as follows: +SCHEDULE +OF PROPERTY AND EQUIPMENT USEFUL LIVES +Property and Equipment Type +Years of Depreciation +Machinery and Equipment +7 years +Leasehold Improvements +2 years +Vehicles +5 years +Management assesses the carrying value of property +and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication +of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. +If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated +fair value. For the years ended December 31, 2024 and 2023, the Company determined there were no indicators of impairment of its property +and equipment. +Warrant Liabilities +The Company accounts for common stock warrants as +either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance +provided by the Financial Accounting Standards Board (FASB) in ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC +815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant +to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC +815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially +require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. +This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent +quarterly period end date while the warrants are outstanding. +Revenue Recognition +The Company recognizes revenue in accordance with +Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle +of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC +606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) +identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining +the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each +performance obligation is satisfied. +F- 9 +Revenue and costs of sales are recognized when control +of the products is transferred to our customer, which generally occurs upon shipment from our facilities. The Company’s performance +obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond +delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. +Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment +activity rather than a promised service to the customer. +All of the Company’s products are offered for +sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value +from them. +The Company does not allow for returns, except for +damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, +the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, +we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of +our conclusions on a quarterly basis. +The following table presents our net sales by revenue +source, and the period-over-period percentage change, for the period presented: +SCHEDULE +OF DISAGGREGATION OF REVENUE +2024 +2023 +Years Ended December 31, +2024 +2023 +Net Sales Source +Revenue +Revenue +% Change +Distributors and retailers +$ 553,000 +$ 119,000 +365 % +Online Sales +2,892,000 +230,000 +1157 % +Net Sales +$ 3,445,000 +$ 349,000 +887 % +The following table presents our net sales by product +lines for the period presented: +2024 +2023 +Years Ended December 31, +2024 +2023 +Product Line +Revenue +Revenue +Driver and Fairway Shafts +$ 3,172,000 +$ 58,000 +Putters +273,000 +291,000 +Net Sales +$ 3,445,000 +$ 349,000 +Loss per Common Share +Basic earnings (loss) per share is computed by dividing +the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the +year. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average +number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential +common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect +is antidilutive. +For the years ended December 31, 2024 and 2023, the +calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. +The potentially dilutive securities consisted of the following: +SCHEDULE +OF ANTIDILUTIVE SECURITIES +December 31, 2024 +December 31, 2023 +Stock Options +13,659 +$ 8,539 +Series A Warrants +268,333 +- +Series B Warrants +268,333 +- +Total +550,325 +$ 8,539 +F- 10 +Advertising Costs +Advertising costs are expensed as incurred and are +included in selling, general and administrative expense. Advertising costs aggregated $ 1,614,000 and $ 827,000 for the years ended December +31, 2024 and 2023, respectively. +Research and Development +Research and development expenses consist primarily +of personnel costs, prototype expenses, and consulting services associated with research and development equipment. Research and development +costs are expensed as incurred. Research and development costs were $ 743,000 and $ 258,000 for the years ended December 31, 2024 and 2023, +respectively, +Stock-Based Compensation +The Company periodically issues stock options to employees +and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued +and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and +recognized for employees as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value +of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered. +The fair value of each option or warrant grant is +estimated using the Black-Scholes option-pricing model. The Company was a private company through August 14, 2023, and lacks company-specific +historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility +of a publicly traded set of peer companies within the consumer products industry with characteristics similar to the Company. The expected +term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as +“plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the +option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of +the award for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact +that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. +Prior to August 14, 2023, the common shares of the +Company were not publicly traded. As such, during the period, the Company estimated the fair value of common stock using an appropriate +valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice +Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions +that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including +external market conditions, guideline public company information, the prices at which the Company sold its common stock to third parties +in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and +the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used +in the valuations could result in different fair values of stock options at each valuation date, as applicable. +Fair Value of Financial Instruments +The Company uses various inputs in determining the +fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value +are categorized by the level of subjectivity associated with the inputs used to measure their fair value. Accounting Standards Codification +Section 820 defines the following levels of subjectivity associated with the inputs: +Level 1—Quoted prices in active markets for +identical assets or liabilities. +Level 2—Inputs, other than the quoted prices +in active markets, that are observable either directly or indirectly. +Level 3—Unobservable inputs based on the Company’s +assumptions. +F- 11 +The carrying amounts of financial assets and liabilities, +such as cash, accounts receivable, inventory, accounts payable, and other payables, approximate their fair values because of the short +maturity of these instruments. The carrying values of warrant liabilities are determined with level 3 inputs. +Concentrations of Risk +Cash Balances. The Company’s cash balances +on deposits with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 . From time to time, however, +the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the +Company’s policy is to maintain cash balances with high quality financial institutions. All of the non-interest-bearing cash balances +were fully insured at December 31, 2024 and 2023. +Accounts Receivable. At December 31, 2024, +two customers accounted for more than 44 % and 20 % of accounts receivable, respectively. At December 31, 2023, one customer accounted for +100 % of accounts receivable. No other customers exceeded 10% of accounts receivable. +Net sales. During the year ended December 31, +2024, no customer exceeded 10% of net sales. During the year ended December 31, 2024, approximately 6 % of the Company’s net sales +were international, and 94 % of the Company’s net sales were in the United States. During the year ended December 31, 2023, one customer +classified as a distributor accounted for 26 % of net sales. No other customers exceeded 10% of net sales. During the year ended December +31, 2023, approximately 74 % of the Company’s net sales were in the United States, and 26 % of the Company’s net sales were +in South Korea. +Income Taxes +The Company uses an asset and liability approach for +accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of +realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects +of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used +for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either +expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is +to recognize interest and/or penalties related to income tax matters in income tax expense. +Segments +Under ASC 280, Segment Reporting, operating segments +are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief +operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company has one +component. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s +operations as a single operating segment for the manufacture and distribution of its products. +Recent Accounting Pronouncements +In November 2023, the FASB issued ASU 2023-07, Segment +Reporting (Topic 280): Improvements to Reportable Segment Disclosure , which is intended to improve reportable segment disclosure requirements, +primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating +decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures +about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable +segment to provide all the disclosures required by ASC 280, Segment Reporting , including the significant segment expense disclosures. +This standard became effective for the Company on January 1, 2024. The adoption of 2023-7 did not have a material impact on the Company’s +results of operations, financial position or cash flows. +F- 12 +In November 2024, FASB issued ASU 2024-03 Income Statement—Reporting +Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance +in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information +about certain costs and expenses including purchases of inventory; employee compensation; and depreciation and amortization expense for +each caption on the income statement where such expenses are included. The update is effective for annual reporting periods beginning +after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments +may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial +statements. We are currently evaluating the provisions of this guidance and assessing the potential impact on our financial statement +disclosures. +Other recent accounting pronouncements issued by the +FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission +did not or are not believed by management to have a material impact on the Company’s present or future financial statements. +NOTE 3 – INVENTORY +Inventory is valued at the lower of cost (first-in, +first-out) or net realizable value, and net of reserves is comprised of the following: +SCHEDULE +OF INVENTORY +December 31, +2024 +December 31, +2023 +Raw materials, net +$ 838,000 +$ 74,000 +Finished goods, net +75,000 +174,000 +Total +$ 913,000 +$ 248,000 +At December 31, 2024 and 2023, inventory presented +above is net of a reserve for slow moving and potentially obsolete inventory of $ 49,000 and $ 98,000 , respectively. +NOTE 4 – PROPERTY AND EQUIPMENT +Property and equipment are comprised of the following: +SCHEDULE +OF PROPERTY PLANT AND EQUIPMENT +December 31, +2024 +December 31, +2023 +Machinery and Equipment +$ 717,000 +$ 334,000 +Leasehold Improvements +161,000 +46,000 +Automobile +46,000 +42,000 +Property and equipment, gross +Accumulated depreciation +( 208,000 ) +( 43,000 ) +Property and equipment, net +$ 716,000 +$ 379,000 +Depreciation expense is included in selling, general +and administrative expenses in the accompanying Statements of Operations. For the years ended December 31, 2024 and 2023, depreciation +expenses were $ 165,000 and $ 32,000 , respectively. +NOTE 5 – SOFTWARE LICENSING OBLIGATION +In October 2023, the Company entered into a software +licensing agreement with Oracle America, Inc (“Oracle”) for its NetSuite Enterprise Resource Planning (ERP) software (“NetSuite”). +The Company agreed to license NetSuite for thirty-six (36) months and utilize Oracle’s professional services to assist in the implementation +of NetSuite. The cost of the license fee was $ 102,000 and professional services were fixed at $ 34,000 , for an aggregate cost of $ 136,000 . +Per the payment terms, no payments were due during the first nine months, and thirty monthly payments of $ 4,513 are due from April 1, +2024 through September 1, 2026. +F- 13 +The Company initially recorded the $ 136,000 cost as +a deferred software licensing asset and liability on the accompanying Balance Sheet. The deferred software licensing asset is being amortized +over the license period. The deferred software licensing balance was $ 110,000 at December 31, 2023. During the year ended December 31, +2024, the Company recorded amortization expense of $ 51,000 , resulting in a deferred software licensing balance of $ 59,000 at December +31, 2024. +During the year ended December 31, 2023, the Company +made no payments, leaving a software license obligation balance was $ 136,000 at December 31, 2023. During the year ended December 31, +2024, the Company made payments of $ 50,000 , leaving a software license obligation balance was $ 86,000 , of which the current portion was +$ 54,000 , leaving a long-term software license obligation of $ 32,000 at December 31, 2024. +Future payments under the software license obligation +are as follows: +SCHEDULE +OF SOFTWARE LICENSE OBLIGATION +Years Ending December 31, +Amount +2025 +$ 45,000 +2026 +41,000 +Total payments +86,000 +Less: current portion +( 54,000 ) +Non-current portion +$ 32,000 +NOTE 6 – LEASE LIABILITIES +The Company determines whether a contract is, or contains, +a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the +lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and +lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease +term. The Company leases its office and warehouse locations, and certain warehouse equipment. Leases with an initial term of 12 months +or less are not included on the balance sheets. +On April 1, 2022, the Company entered a facility lease +for a 4,000 square foot facility in St. Joseph, Missouri, to expand its manufacturing business to include advanced premium golf shafts. +The lease is for 24 -months, and the monthly rent is approximately $ 1,500 . On January 1, 2023, the Company amended its lease by adding +an additional 5,000 square feet and extending the lease term to December 2024. The amended lease is for 24 -months from January 1, 2023, +and the monthly rent is approximately $ 3,000 . On December 14, 2023, the Company again amended its lease by extending the lease term to +December 2025 with the monthly rent remaining unchanged. +The Company’s ROU asset balance was $ 65,000 +as of December 31, 2023. During the year ended December 31, 2024, the Company recorded a reduction of ROU assets of $ 31,000 related to +its leases, resulting in an ROU asset balance of $ 34,000 as of December 31, 2024. +The Company’s lease liability balance was $ 65,000 +as of December 31, 2023. During the year ended December 31, 2024, the Company made payments of $ 31,000 against its operating lease liability, +resulting in a lease liability of $ 34,000 . +During the year ended December 31, 2024 and 2023, +lease costs totaled approximately $ 98,000 and $ 84,000 , respectively. +As of December 31, 2024, the weighted average remaining +lease terms for operating lease is 1.00 years, and the weighted average discount rate for operating lease is 10.00 %. +F- 14 +Future minimum lease payments under the leases are +as follows: +SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS +Years Ending December 31, +Amount +2025 +$ 36,000 +Total payments +36,000 +Less: Amount representing interest +( 2,000 ) +Present value of net minimum lease payments +34,000 +Less: Current portion +( 34,000 ) +Non-current portion +$ - +NOTE 7 – STOCKHOLDERS’ EQUITY +Common Stock Issued for Services +On March 6, 2023, the Company +entered into a Management Services Agreement (“MSA”) with Steve Handy to serve in the role as the Company’s Chief Financial +Officer. As part of the MSA, the Company issued Mr. Handy 167 shares of restricted common stock with immediate vesting, which the Company +determined had a fair value of $ 225,000 , or $ 1,350 per share. The fair value of $ 225,000 was recorded as a component of selling, general, +and administrative expenses on the Statements of Operations during the year ended December 31, 2023. +Common Stock Issued for Public Offerings +On August 14, 2023, the Company entered into a underwriting +agreement with The Benchmark Company for the purchase of shares of the Company’s common stock, in an offering of securities registered +under an effective registration statement filed with the Securities and Exchange Commission. In the offering, the Company sold 10,667 +shares of common stock, at a price of $ 1,200 per share. The offering closed on August 17, 2023, and total proceeds received, net of fees, +were $ 11,594,000 including an underwriting discount of 7 % and a non-accountable expenses allowance of 1 % based on the aggregate proceeds +of the offering. The Company incurred expenses of $ 565,000 associated with our initial public offering, resulting in net proceeds for +the Company of $ 11,029,000 . +On October 8, 2024, the Company entered into an underwriting +agreement with Aegis Capital Corp. as the sole underwriter relating to the offering, issuance and sale of up to 12,200 shares of the Company’s +common stock at a public offering price of $ 60.00 per share. The offering closed on October 10, 2024. The net proceeds to the Company +for the offering were $ 467,000 , after deducting the underwriting discounts and commissions and estimated offering expenses. +On December 12, 2024, we entered into an underwriting +agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of up to 233,333 Common Units, each consisting of one +(1) share of Common Stock, one (1) Series A Common Warrant to purchase one (1) share of Common Stock per warrant, and one (1) Series B +Common Warrant to purchase one (1) share of Common Stock per warrant. The public offering price per Common Unit is $ 36.00 . The initial +exercise price of each Series A Common Warrant is $ 72.00 per share of Common Stock. The Series A Common Warrants are exercisable following +stockholder approval and expire 60 months thereafter. The initial exercise price of each Series B Common Warrant is $ 72.00 per share of +Common Stock or pursuant to an alternative cashless exercise option. The Series B Common Warrants are exercisable following stockholder +approval and expire 30 months thereafter. The offering closed on December 13, 2024. The net proceeds to us for the offering were approximately +$ 7,326,000 , after deducting underwriting discounts and commissions and estimated offering expenses. +As discussed below, the Series A and B warrants have been accounted +for as a liability. The fair value of the warrant at the date of issuance was determined to be $ 12,456,000 +(Series B) and $ 1,783,000 +(Series A). Upon closing of the offering, the fair value of the warrant liability, up to the amount of funds received of $ 7,326,000 +was recorded as a cost of capital and the excess of $ 6,913,000 was recorded as a finance cost. +F- 15 +Equity Incentive Plans +Summary of Options +A summary of stock options for the year ended December +31, 2024 is as follows: +SCHEDULE +OF STOCK OPTIONS +Weighted +Number of +Average +Options +Exercise Price +Balance outstanding, December 31, 2022 +7,403 +$ 300.00 +Options granted +3,893 +247.87 +Options forfeited +( 2,757 ) +274.03 +Balance outstanding, December 31, 2023 +8,539 +$ 276.47 +Options granted +8,053 +44.57 +Options forfeited +( 2,933 ) +- +Balance outstanding, December 31, 2024 +13,659 +142.99 +Balance exercisable, December 31, 2024 +4,815 +285.30 +Information relating to outstanding options at December +31, 2024, summarized by exercise price, is as follows: +SCHEDULE OF OUTSTANDING OPTIONS AND EXERCISABLE PRICE +Outstanding +Exercisable +Weighted +Weighted +Exercise Price +Life +Average +Average +Per Share +Shares +(Years) +Exercise Price +Shares +Exercise Price +$ +9.60 +6,587 +6.55 +$ +9.60 +- +$ +- +$ +201.60 +2,160 +5.99 +$ +201.60 +457 +$ +201.60 +$ +206.70 +767 +3.91 +$ +206.70 +277 +$ +206.70 +$ +300.00 +4,145 +2.95 +$ +300.00 +4,081 +$ +300.00 +13,659 +118.22 +$ +25.73 +4,815 +$ +285.30 +On January 1, 2024, the Company’s Board of Directors +appointed Jane Casanta to the Company’s Board of Directors. The Board granted Ms. Casanta options to purchase 133 shares of common +stock under the Company’s 2024 Equity Incentive Plan, at an exercise price of $ 201.60 per common share, vesting for a thirty-six +( 36 ) month period, and an expiration period of seven years . The grant of options was for board service to be rendered for the year ended +December 31, 2024. The total fair value of these options at grant date was approximately $ 22,145 , which was determined using a Black-Scholes-Merton +option pricing model with the following weighted average assumptions: fair value of our stock price of $ 201.60 per share, the expected +term of five years , volatility of 111 %, dividend rate of 0 %, and risk-free interest rate of 3.87 %. +On July 18, 2024 (the “Meeting Date”), +the Compensation Committee of the Board of Directors of the Company discussed the appointment of Gregor Campbell as the Company’s +permanent Executive Chairman retroactive to July 1, 2024 (the “Appointment Date”). The appointment was not effective until +the Company received from all directors a counterpart copy of the resolutions regarding the details of his compensation agreement, the +last of which was received on July 26, 2024. On the Meeting Date, he was also granted an option (the “Option”) to purchase +1,333 shares of the Company’s Common Stock at an exercise price of $ 160.20 per share which was the closing price on the Nasdaq Stock +Market on the Meeting Date. The Option terminates on the earlier of seven years from the Meeting Date or nine months from Mr. Campbell’s +separation date from the Company and vests monthly over 36 months commencing on the Meeting Date. The total fair value of these options +at grant date was $ 171,000 , which was determined using a Black-Scholes-Merton option pricing model with the following weighted average +assumptions: fair value of our stock price of $ 160.20 per share, the expected term of seven years , volatility of 150 %, dividend rate of +0 %, and risk-free interest rate of 3.49 %. +On December 20, 2024, the Company’s Board of +Directors granted themselves aggregate options to purchase 5,020 shares of common stock under the Company’s 2022 Equity Incentive +Plan, at an exercise price of $ 9.60 per common share, vesting for a thirty-six ( 36 ) month period, and an expiration period of seven years . +The grant of options was for board service for the years ended 2024 and 2025. The total fair value of these options at grant date was +approximately $ 44,223 , which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: +fair value of our stock price of $ 9.60 per share, the expected term of seven years , volatility of 150 % , dividend rate of 0 % , and risk-free +interest rate of 4.45 % . +On +December 20, 2024, the Company’s Board of Directors also granted Angelo Papadourakis and Megan Kelly aggregate options to purchase +733 shares of common stock at an exercise price of $ 9.60 per common share, vesting for a thirty-six ( 36 ) month period. The total fair +value of these options at grant date was approximately $ 6,460 , which was determined using a Black-Scholes-Merton option pricing model +with the following weighted average assumptions: fair value of our stock price of $ 9.60 per share, the expected term of seven years , +volatility of 150 % , dividend rate of 0 % , and risk-free interest rate of 4.45 % . +On +December 20, 2024, the Company’s Board of Directors also granted Shigeyuki Okabe and Dourg Barron aggregate options to purchase +667 shares of common stock at an exercise price of $ 9.60 per common share, vesting for a twenty-four ( 24 ) month period. The total fair +value of these options at grant date was approximately $ 5,459 , which was determined using a Black-Scholes-Merton option pricing model +with the following weighted average assumptions: fair value of our stock price of $ 9.60 per share, the expected term of five years , volatility +of 150 % , dividend rate of 0 % , and risk-free interest rate of 4.37 % . +On December 20, 2024, the Company’s Board of +Directors also granted Jeff Opheim options to purchase 167 +shares of common stock at an exercise price of $ 9.60 +per common share, vesting in 1 one-year. The total fair +value of these options at grant date was approximately $ 1,311 , which was determined using a Black-Scholes-Merton option pricing model +with the following weighted average assumptions: fair value of our stock price of $ 9.60 +per share, the expected term of five +years , volatility of 150 %, +dividend rate of 0 %, +and risk-free interest rate of 4.37 %. +F- 16 +On March 6, 2023, the Company entered into a +Management Services Agreement (“MSA”) with Steve Handy to serve in the role as the Company’s Chief Financial +Officer through September 6, 2023. The Company granted Mr. Handy options to purchase 233 shares +of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price of $ 321.00 per +common share, vesting for a six-month +6 period, and an expiration period of five +years . The total fair value of these options at grant date was approximately $ 274,000 , +which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value +of our stock price of $ 1,350 per +share, based on the Company’s current public offering price, the expected term of three +years , volatility of 111 %, +dividend rate of 0 %, +and risk-free interest rate of 4.61 %. +On September 7, 2023, the Company entered into an +employment agreement with Steve Handy to serve in the role as the Company’s Chief Financial Officer. The Company granted Mr. Handy +options to purchase 1,200 shares of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price +of $ 321 per common share, vesting for a thirty-six ( 36 ) month period, and an expiration period of five years . The total fair value +of these options at grant date was approximately $ 478,000 , which was determined using a Black-Scholes-Merton option pricing model with +the following weighted average assumptions: fair value of our stock price of $ 492 per share, the expected term of four years , +volatility of 112 %, dividend rate of 0 %, and risk-free interest rate of 4.52 %. +On November 27, 2023, the Company entered into an +employment agreement with Scott White to serve in the role as the Company’s Chief Operating Officer. The Company granted Mr. White +options to purchase 1,000 shares of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price +of $ 206.70 per common share, with 25 percent vesting after the first twelve months, with the remaining seventy-five (75) percent vesting +monthly over the next twenty-four (24) month period , and an expiration period of five years . The total fair value of these options +at grant date was approximately $ 147,000 , which was determined using a Black-Scholes-Merton option pricing model with the following weighted +average assumptions: fair value of our stock price of $ 206.70 per share, the expected term of four years , volatility of 100 %, +dividend rate of 0 %, and risk-free interest rate of 4.49 %. +From October 2023 to December 2023, Mr. Campbell +assumed additional responsibilities as Chairman of the Board due to the Company’s CEO leave of absence related to a family +health matter. For the assumption of additional responsibilities, the Board agreed to compensate Mr. Campbell $ 10,000 per +month. In addition, on November 27, 2023, the Company’s Board of Directors granted Mr. Campbell options to purchase 767 shares +of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price of $ 206.70 +per common share, vesting for a thirty-six ( 36 ) +month period, and an expiration period of five +years . The total fair value of these options at grant date was approximately $ 113,000 , +which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value +of our stock price of $ 206.70 per +share, the expected term of four +years , volatility of 100 %, +dividend rate of 0 %, +and risk-free interest rate of 4.49 %. +On December 22, 2023, the Company’s Board of +Directors granted themselves aggregate options to purchase 693 shares of common stock under the Company’s 2022 Equity +Incentive Plan, at an exercise price of $ 207 per common share, vesting for a thirty-six ( 36 ) month period, and an expiration period +of seven years . The grant of options was for board service for the years ended 2023 and 2024. The total fair value of these options +at grant date was approximately $ 115,000 , which was determined using a Black-Scholes-Merton option pricing model with the following weighted +average assumptions: fair value of our stock price of $ 207 per share, the expected term of five years , volatility of 111 %, +dividend rate of 0 %, and risk-free interest rate of 3.87 %. +During the year ended December 31, 2024 and 2023, +the Company recognized approximately $ 308,000 and $ 443,000 of compensation expense, respectively, relating to vested stock options. As +of December 31, 2024, the aggregate amount of unvested compensation related to stock options was approximately $ 435,000 which will be +recognized as an expense as the options vest in future periods through December 2031 . +As of December 31, 2024, the outstanding and exercisable +options had an intrinsic value of $ 20,000 . The aggregate intrinsic value was calculated as the difference between the estimated market +value of $ 12.60 per share as of December 31, 2024, and the exercise price of the outstanding options. +F- 17 +NOTE 8 – WARRANTS CLASSIFIED AS LIABILITY +SCHEDULE OF WARRENTS CLASSIFIED AS LIABILITY +Warrants issued +FV as of 12/12/24 +FV as of 12/31/24 +Series A Warrants +268,333 +$ 1,783,000 +$ +1,805,000 +Series B Warrants +268,333 +12,456,000 +12,456,000 +The securities purchase agreements governing the Series +A and Series B Warrants discussed in Note 7 (collectively, the “Purchase Warrants”) provide for a value calculation that result +in liability treatment. +Series A Warrants +The outstanding and exercisable Series A Warrants are exercisable at a +price of $ 72.00 per share and expire 60 months from the date of shareholder approval. The fair value of the Series A Warrants were valued +with a binomial model. The Company was a private company through August 14, 2023, and lacks company-specific historical and implied volatility +information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer +companies within the consumer products industry with characteristics similar to the Company. The risk-free interest rate is determined +by reference to the U.S. Treasury yield curve in effect at the time of warrants. The expected dividend yield is zero, based on the fact +that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. +Beginning on the date of the Warrant Stockholder Approval, +the Series A Warrants contain a reset of the exercise price to a price equal to the lesser of (i) the then exercise price and (ii) +the lowest volume weighted average price (VWAP) for the five trading days immediately following the date the Company effects a reverse +split with a proportionate adjustment to the number of shares underlying the Series A Warrants (a “Reverse Split Reset”). +Any such adjustment will be subject to a floor price (“the Floor Price”) calculated as follows: (a) prior to the date of the +Warrant Stockholder Approval, 50% of the Nasdaq Minimum Price, and (b) after the date of the Warrant Stockholder Approval, 20% of the +Nasdaq Minimum Price. Nasdaq Minimum Price means the lower of the Nasdaq closing price or the average closing price for the five immediately +preceding trading days, all as at the pricing of this Offering. Additionally, with certain exceptions, beginning on the date of the Warrant +Stockholder Approval, the Series A Warrants will provide for an adjustment to the exercise price and number of shares underlying the Series +A Warrants ( the “Dilutive Adjustment”) upon the Company’s issuance of its common stock or common stock equivalents +at any time after the closing of the Offering, at a price per share that is less than the then-current exercise price of the Series A +Warrants. Any Dilutive Adjustment will be subject to the Floor Price. +The Series A warrants require also require the Company +to calculate the fair value in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility +amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the +holders of the Purchase Warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option +on the Company’s own equity shares. +The +fair value of the Series A warrants was valued with a binomial model using the exercise price of $ 72.00 +per warrant, with the underlying asset price of $ 12.60 , +expiration term of 1,806 +days 1806 , volatility of 115 %, +dividend rate of 0 %, +and a risk-free interest rate of 4.18 % . +As +of March 31, 2025, there has been no A warrants exercised. As of December 12, 2024, the fair value of the A warrants has been determined +to be $ 1,783,000 . As of December 31, 2024, the fair value of the A warrants has been determined to be $ 1,805,000 . As a result of the +change in fair value, the Company recognized an expense of $ 22,000 in other expenses for the increase in the fair value of the warrant +liability for the year ended December 31, 2024. +Series B Warrants +The Series B Warrants are exercisable at $ 72.00 per share, subject to adjustment, and expire 30 months from the date +of shareholder approval. The fair value of the Series A Warrants were valued by the Company based on the subsequent settlements of these +warrants. +Beginning on the date of the Warrant Stockholder Approval, +in lieu of a cash exercise, the holder of the Series B Warrants has the right to elect to receive an aggregate number of shares of common +stock equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise of the Series +B Warrants and (y) 2.0. Also, the Series B Warrants will provide for a Reverse Split Reset subject to the Floor Price. Additionally, effective +on the 11th trading day following the date of the Warrant Stockholder Approval, the exercise price and the number of shares underlying +the Common Warrants will be reset to the then-current lowest VWAP in the period commencing on the first trading day following the date +of the Warrant Stockholder Approval and ending the close of trading on the 10th trading day thereafter. Such reset will be subject to +the Floor Price. With respect to all of the Common Warrants, with the consent of the holder, the Company may adjust the exercise price +to such amount and for such time as may be agreed upon. None of the Common Warrants may be exercisable until the Warrant Stockholder Approval. +The Series B warrants allow an alternative cashless conversion The alternative cashless conversion is determined by multiplying the number +of exercised warrants by the exercise price and dividing the result by the lesser of the VWAP price or the $ 8.40 floor. This amount is +then doubled to arrive at the final share total. +F- 18 +Therefore, pursuant to ASC 815, the Company has classified +the Purchase Warrants as liabilities in its balance sheet. The classification of the Purchase Warrants, including whether the Purchase +Warrants should be recorded as liabilities or as equity, is evaluated at the end of each reporting period with changes in the fair value +reported in other income (expense) in the consolidated statements of operations and comprehensive loss. Upon the closing of the registered +direct offering, the fair value of the Warrant liability was $ 12,456,000 , +for which up to the net amounts of the funds received of approximately $ 7,326,000 +was recorded as a financing cost, and the excess of $ 6,913,000 +was recorded as a financing cost in the statement of operations. The fair value of the B warrant liabilities at December 31, 2024 +was determined to be $ 12,456,000 . +The fair value of the Series B warrants were valued by the Company based on the subsequent settlement and exercise +of these warrants. +As of March 31, 2025, there has been a total of 247,222 +B warrants exercised for a total of 4,090,584 shares with a fair value of $ 11,750,000 based on the actual underlying share price on the +date of each warrant exercised. The remaining 21,111 warrants have been valued based on the current share price of $ 1.95 per share, thus +equating to an additional fair value of $ 706,000 . +NOTE 9 - SECURITIES PURCHASE AGREEMENT SUBJECT TO REDEMPTION +On January 30, 2022, the Company entered into a Securities +Purchase Agreement (“SPA”) with Speicher Limited (“Investor”) to which the Investor agreed to purchase 1,871 shares +of the Company’s common stock in a private placement. The purchase price per share of common stock was $ 321.00 , and the net proceeds +to the Company was $ 600,000 . The net proceeds are to pay for expenses associated with the Company’s planned Initial Public Offering +the (“Listing”). The receipt of SPA proceeds of $ 600,000 was scheduled as follows: (i) $250,000 on completion of +tasks defined in the SPA, (ii) $250,000 on or before submission of a Form S-1 in relation to the Company’s Listing; and (iii) $100,000 +before Listing or as and when requested by the Company to pay for professional fees and expenses in connection with the listing after +the submission of Form S-1 . During the year ended December 31, 2022, the Company issued 1,871 shares of the Company’s +common stock and received partial proceeds of $ 420,000 , of which $ 24,000 remained in an escrow account as of December 31, 2022. The +remaining balance to be disbursed to the Company was $ 180,000 as of December 31, 2022. During the year December 31, 2023, the Company +received the remaining proceeds of $ 180,000 . +In accordance with the SPA, the Company granted the +Investor the right to require the Company to repurchase the Investor’s shares of the Company’s common stock at a price of +$ 321.00 per share only on the event of default making the Listing unsuccessful and within five business days on receipt of written +notice. If the Listing does not occur on or before August 31, 2023, as amended, and such failure to occur is not due to the Company’s +Default, as defined in the SPA, then neither party shall owe the other any further payment under the SPA. The provision herein would require +a potential cash settlement of the company which prohibits the presentation of this instrument as part of permanent equity. As such the +amounts were reflected as a mezzanine financing at December 31, 2022. +The right of the Investor to require the repurchase +of its shares was extinguished as a result of the listing of the Company’s shares on the Nasdaq Stock Market on August 15, 2023. +As such, 1,871 shares of common stock were reclassified as outstanding, and the $ 600,000 cash received was reclassified +to additional paid in capital in the accompanying Balance Sheets at December 31, 2023. +NOTE 10 – COMMITMENTS AND CONTINGENCIES +On August 12, 2023, the Company entered a non-binding +letter of intent with Greater Asia Golf Promotions Limited as its non-exclusive distributor of the Company’s products in the territory +of Asia excluding Japan and Korea for a one-year term. The Company plans to spend up to $ 2,500,000 to fund joint marketing expenses. On +August 31, 2023, the Company transferred $ 500,000 to an escrow account as its first payment pending the negotiation and execution of a +distribution agreement, which was recorded as a marketing cost in 2023. +On May 9, 2024, the Company entered into a Distributor +Agreement with Greater Asia Golf Promotions Limited and released the $ 500,000 in an escrow account. The initial term of the Distributor +Agreement is twelve months. Within 18 months from the date of the Distributor Agreement, if Greater Asia Golf Promotions Limited purchases +from the Company exceed $500,000, the Company will issue 1,667 shares of common stock to Greater Asia Golf Promotions Limited. If purchases +exceed $1.0 million, an additional 1,667 shares of common stock will be issued, and if purchases exceed $1.5 million, an additional 1,667 +shares of common will be issued . As of December 31, 2024, purchases by Greater Asia Golf Promotions Limited were $ 98,000 . +F- 19 +NOTE 11 – INCOME TAXES +The Company +uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred +tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred +taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial +reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more +likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. +The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. +At December 31, 2024, the Company had available Federal +and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $ 2,686,000 for Federal +and state purposes. The carryforwards expire in various amounts through 2044. Given the Company’s history of net operating losses, +management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. +Accordingly, the Company has not recognized a deferred tax asset for this benefit. Section 382 generally limits the use of NOLs and credits +following an ownership change, which occurs when one or more 5 percent shareholders increase their ownership, in aggregate, by more than +50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the “testing period” +(generally three years). +The Company has adopted FASB guidelines that address +the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. +Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position +will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized +in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent +likelihood of being realized upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest +and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2024 and 2023, the +Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption. +The Company’s policy is to record interest and +penalties on uncertain tax provisions as income tax expense. As of December 31, 2024, and 2023, the Company has not accrued interest or +penalties related to uncertain tax positions. Additionally, tax years 2021 through 2024 remain open to examination by the major taxing +jurisdictions to which the Company is subject. +Upon the attainment of taxable income by the Company, +management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize the +appropriate deferred tax asset at that time. +The Company’s effective income tax rate differs +from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows: +SCHEDULE +OF EFFECTIVE TAX RATE +December 31, 2024 +December 31, 2023 +Income tax benefit at federal statutory rate +( 21.0 )% +( 21.0 )% +State income tax benefit, net of federal benefit +( 6.0 )% +( 6.0 )% +Nondeductible finance costs +13 +% +Change in valuation allowance +14.00 % +27.00 % +Income taxes at effective tax rate +- % +- % +F- 20 +The components of deferred taxes consist of the following +at December 31, 2024 and 2023: +SCHEDULE OF DEFERRED TAX +December 31, 2024 +December 31, 2023 +Net operating loss carryforwards +$ 2,686,000 +$ 1,468,000 +Less: Valuation allowance +( 2,686,000 ) +( 1,468,000 ) +Net deferred tax assets +$ - +$ - +NOTE 12. REPORTABLE SEGMENT INFORMATION +The Company is organized and operates as one operating +and reportable segment. The Company’s revenue comes from customers in the following geographic regions. +The following table presents our net sales by region +for the period presented: +SCHEDULE +OF NET SALES BYE REGION +2024 +2023 +Years Ended December 31, +2024 +2023 +Region +Revenue +Revenue +United States +$ 3,252,000 +$ 258,000 +South Korea +14,000 +91,000 +All other regions +179,000 +- +Net Sales +$ 3,445,000 +$ 349,000 +This determination is based on the management approach +which designates internal information regularly available to the Chief Operating Decision Maker (“CODM”) for making decisions +and assessing performance as the source of determination of the Company’s reportable segments. The Company’s CODM, the Chief +Executive Officer, reviews financial information presented on a consolidated basis for the purpose of making operating decisions and assessing +financial performance. +The accounting policies of the one reportable segment +are the same as those described in the summary of significant accounting policies. The CODM uses net income, as reported in our consolidated +statements of operations, to measure segment profit or loss, assess performance, and make strategic capital resources allocations. The +measure of segment assets is reported on our consolidated balance sheets as total assets. The significant expense categories regularly +provided to the CODM are the expenses as noted on the face of the consolidated statements of operations. +SCHEDULE +OF EXPENSES AS NOTED ON FACE OF CONSOLIDATED STATEMENTS OF OPERATIONS +2024 +2023 +Year Ended December 31, +2024 +2023 +Net sales +$ 3,445,000 +$ 349,000 +Cost of sales +1,171,000 +227,000 +Gross profit +2,274,000 +122,000 +Less: +Employee compensation and benefits +1,423,000 +1,558,000 +Stock-based compensation expense +308,000 +443,000 +Shares issued for services +- +225,000 +Sales and marketing expense +3,440,000 +886,000 +Other operating expenses +2,081,000 +1,643,000 +Total operating expenses +7,252,000 +4,755,000 +Loss from operations +$ ( 4,978,000 ) +$ ( 4,633,000 ) +F- 21 +NOTE 13 – SUBSEQUENT EVENTS +On January 29, 2025, the Company received a written notice (the “Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying +the Company that it is not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) due to the +Company’s common stock not maintaining a closing bid price of at least $ 1.00 per share for a period of 30 consecutive business days. +The Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq Capital Market. +Normally, a company would be afforded a 180-day calendar +period to demonstrate compliance with the minimum bid price requirement. However, pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the +Company is not eligible for any compliance period due to the fact that the Company has affected a reverse +split within the prior one-year period. +The Company requested a hearing before a Panel as provided in the Nasdaq Rules. The hearing request automatically +stayed any suspension or delisting action pending the hearing. On March 11, 2025 the hearing was held and the Company requested an extension +based on the reverse split occurring on march 17, 2025. The Panel has granted an extension to the Company to regain compliance. +Exercise of Warrants +Subsequent to December 31, 2024, the Company issued 4,090,584 shares on +the exercise of 247,222 warrants, leaving only 21,111 warrants unexercised as of March 31, 2025. Accordingly, the Company expects that the +Series B Warrant liability for the 247,222 warrants with a December 31, 2024 fair value of $ 11,750,000 will be accounted for as additional +paid in capital as of March 31, 2025 based on the actual exercised warrants that occurred in the first quarter of 2025. +The Pro-forma effect of the exercised warrants and the corresponding adjustment to warrant liability and additional +paid in capital on a pro-forma basis as of December 31, 2024 is as follows: +SCHEDULE OF ADJUSTMENT TO WARRANT LIABILITY AND +ADDITIONAL PAID IN CAPITAL ON PRO-FORMA BASIS +LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +Pro forma +Unaudited +LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +Pro forma +Unaudited +Current Liabilities +Accounts payable and accrued expenses +$ 572,000 +Lease liability, current +34,000 +Software licensing obligation, current +54,000 +Warrant Liability +2,511,000 +Total Current Liabilities +3,171,000 +Software licensing fee obligation, net of current +32,000 +Total Liabilities +3,203,000 +Shareholders’ Equity (Deficiency) +Preferred stock, par value $ 0.01 , 5,000,000 shares authorized; no shares issued and outstanding +- +Common stock, par value $ 0.01 , 45,000,000 shares authorized; 4,387,768 shares issued and outstanding +(1) +3,000 +Additional paid-in capital (1) +28,629,000 +Accumulated deficit +( 22,069,000 ) +Total Shareholders’ Equity (Deficiency) +6,563,000 +TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +$ 9,766,000 +(1) Adjusted for +the pro forma effect on exercise of 247,222 Series B Warrants with a fair value of $ 11,750,000 into 4,090,584 shares of common stock. +F- 22 +Item 9. Changes in and Disagreements with Accountants on Accounting +and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our “disclosure +controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the +period covered by this Annual Report on Form 10-K (the “Evaluation Date”), concluded that as of the Evaluation Date, our disclosure +controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that +we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities +and Exchange Commission rules and forms. +Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) +under the Exchange Act) as of December 31, 2024, our Principal Executive Officer and Principal Financial Officer have concluded that our +disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in +reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified +in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer +and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. +Management’s Annual Report on Internal +Control over Financial Reporting +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting, as such term is defined in the Securities  Exchange Act of +1934 Rule 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting +based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the +Treadway Commission (the “COSO Framework”). Our internal control over financial reporting is a process designed to +provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP. +As of December 31, 2024, management assessed the effectiveness +of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established +in Internal Control-Integrated Framework of 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) +and SEC guidance on conducting such assessments. Based on that evaluation under this framework, our management concluded that as of December +31, 2024, our internal control over financial reporting was not effective because of the following material weaknesses: +The material weaknesses identified include (i) the +Company had inadequate segregation of duties consistent with control objectives; (ii) the Company had an insufficient number of personnel +with an appropriate level of U.S. GAAP knowledge and experience and ongoing training in the application of U.S. GAAP and SEC disclosure +requirements commensurate with the Company’s financial reporting requirements, and (iii) the Company did not maintain effective +controls over its financial statement close and reporting process. Specifically, the Company: (i) had insufficient preparation and review +procedures for disclosures accompanying the Company’s financial statements; and (ii) did not provide reasonable assurance that accounts +were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved +(. +We are working to remediate the deficiencies and material +weaknesses. Our remediation efforts are ongoing, and we will continue our initiatives to implement and document policies, procedures, +and internal controls. We have taken steps to enhance our internal control environment and plan to take additional steps to remediate +the deficiencies and address material weaknesses. In addition, we continue to evaluate, remediate and improve our internal control over +financial reporting, executive management may elect to implement additional measures to address control deficiencies or may determine +that the remediation efforts described above require modification. Executive management, in consultation with and at the direction of +our Audit Committee, will continue to assess the control environment and the above-mentioned efforts to remediate the underlying causes +of the identified material weaknesses. +Although we plan to complete this remediation process as quickly as possible, +we are unable, at this time to estimate how long it will take; and our efforts may not be successful in remediating the deficiencies or +material weaknesses. +This Annual Report does not include an +attestation report of the Company’s independent registered public accounting firm regarding internal control over financial +reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the +company to provide only management’s report on internal control in this annual report. +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over +financial reporting during the year ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, +our internal control over financial reporting. +Inherent Limitations on Effectiveness of Controls +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. +Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of +changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, +no matter how well designed, have inherent limitations. These include the fact that human judgment in decision-making can be faulty and +that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention +of the established process. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect +to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material +misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent +limitations are known features of the financial reporting process. +Item 9B. Other Information +(a) +None . +(b) +In the quarter ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-rule 10b5-1 trading arrangement for the purchase or sale of our securities within the meaning of Item 408 of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions +that Prevent Inspections +Not applicable. +37 +PART III +Item 10. Directors, Executive Officers , and +Corporate Governance. +General +The following table and biographical summaries set +forth information, including principal occupation and business experience, about our directors and executive officers as of the date of +this annual report: +Name +Age +Position +Dr. Greg Campbell +61 +Executive Chairman +Jane Casanta +58 +Director – Independent +Brett Hoge +48 +Director – Independent +Dottie Pepper +61 +Director – Independent +Akinobu Yorihiro +54 +Chief Technology Officer, Director +Ryan Stearns +53 +Chief Financial Officer +Dr. Greg Campbell, Executive Chairman +Effective January 2, 2024, Greg Campbell was appointed +as Executive Chairman of NWTG. Prior to that appointment, Mr. Campbell served as Chairman since November 2018. He is currently also Chief +Executive Officer at V-Grid Energy Systems, Inc., a California-based start-up focusing on converting agricultural waste into renewable +electricity and valuable bio-carbon. With V-Grid, Campbell has helped deliver breakthrough technology that reimagines what it means to +be environmentally conscious, pushing boundaries towards carbon negative operations and fighting soil degradation. Having received his +Doctor of Philosophy, Electrical and Electronics Engineering from the University of California Los Angeles and BA/MA in Engineering from +Cambridge University, Campbell’s nearly 40-year career spans new and emerging technologies, product development, and philanthropy. +He has successfully taken two companies public. He also served as SVP & GM for Lam Research where he managed a $1.2 billion P&L. +Jane Casanta, Director +Jane Casanta has been a member of our Board of Directors +since January 2024. Jane Casanta brings a rich background in the golf industry to Sacks Parente Golf, having served in various marketing +and product development roles at the Acushnet Company for 26 years, including as Director of Marketing for Titleist Gloves and Accessories +worldwide. Her accomplishments during this time include doubling international sales, increasing domestic gear sales by 100%, and achieving +a 15-point increase in Titleist golf bag industry share. +Brett Hoge, Director +Brett Hoge has been a member of our Board of Directors +since March of 2022 and a Financial Advisor with Truist Investment Services, Inc. since 2008. Brett’s deep understanding of investments, +and capital management earned him a position in the Top 400 Financial Advisors by the Financial Times in 2017, 2018, 2020 and he was also +recognized for Best-In-State Wealth Advisors by Forbes in 2022. Brett earned his bachelor’s degree in business administration with +majors in finance and insurance, from Appalachian State University in 1999. He is a passionate community volunteer and mentor, Brett received +the 2007 Forsyth County United Way Volunteer of the Year Award, the Investment News Community Leadership Award, and is a past president +of Big Brothers Big Sisters of Forsyth, Davie and Yadkin counties. He is also an active board member of the Clemmons Community Foundation +Investment Committee, the Centers of Aging and Rehabilitation of Florida, Inc., and JDRF Piedmont Triad Chapter. +38 +Dottie Pepper, Director +Dottie Pepper has been a member of our Board of Directors +since April of 2022, and is a 17-time winner on the LPGA tour, including two major championships. She served 3 years as an Independent +Director on the PGA of America Board of Directors. Dottie was the 2016 William D. Richardson Award winner, given by the Golf Writers Association +of America for continuing contributions to golf and she was also the 2021 Gold Tee winner, given by the Metropolitan Golf Writers Association +for career achievements that exemplify the best spirit and traditions of the sport of golf. Dottie also won on the JLPGA Tour and represented +the U.S. 6 times in the Solheim Cup. She played the LPGA Tour from 1988 until her retirement in 2004 when she began a career in television. +Dottie has covered nearly every major in men’s and women’s golf and has also covered every major international amateur golf +competition. She was the first woman to announce live golf at The Masters beginning in 2016 and in 2020 became the first walking reporter +to cover that same event. She is currently the lead walking reporter for CBS Sports’ coverage of the PGA Tour, PGA Championship +and Masters. She is also the author of the recently released book and audiobook, “Letters to a Future Champion: My Time with Mr. +Pulver.” +Akinobu Yorihiro, Director, Chief Technology +Officer +Akinobu Yorihiro, one of our co-founders, is a Director +and Chief Technology Officer, and Chief Legal Officer, he has served in such capacities since March 2018. Mr. Yorihiro also served as +our Chief Financial Officer from March 2018-February 2022. Mr. Yorihiro has served as Chairman of the Board for Nippon Xport Ventures, +Inc. since 2017. Mr. Yorihiro served as Chief Executive Officer of Yoshimoto Entertainment USA, the U.S. Subsidiary of Yoshimoto Kogyo +of Japan, and the Chief Executive Officer of Bellrock Media, a digital media company backed by Dentsu, NTT Docomo and Yoshimoto Entertainment, +from 2006-2017. He was a Corporate M&A Partner of Bingham McCutchen LLP, a large national U.S. law firm, where he specialized in cross-border +transactions, representing Japanese and U.S. clients across a wide range of industries including manufacturing, pharmaceutical, technology, +banking, sports and entertainment, from 1993–2006. Bilingual and Bicultural in Japanese, he earned his B.A. in Economics and Mathematics +from Claremont McKenna College and J.D. from Georgetown University Law Center. +Ryan Stearns, Chief Financial Officer +Ryan Stearns is our Chief Financial Officer and +was appointed to this position in January 2025. As Chief Financial Officer, Mr. Stearns oversees Newton Golf Company Inc’s +financial strategy, operational reporting, and technology integration to support the brand’s continued growth and global +expansion. Since 2019, Mr. Stearns has served as Chief Financial Officer of JTB Strategic Services, LLC, a professional services +firm specializing in healthcare, fintech and SaaS. He earned his B.A. in Business Administrations from the University of Washington. +Legal Proceedings +There are no legal proceedings that are pending against +the Company or that involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect +on the Company’s business or financial condition. +Director Terms; Qualifications +Members of our board of directors are elected for +a three term and remain until their successors have been duly elected. +When considering whether directors and nominees have +the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively +in light of the Company’s business and structure, the Board focuses primarily on the person’s experience, their transactional +knowledge, industry knowledge and other background, in addition to any unique skills or attributes associated with being a Director. +39 +Family Relationships +None. +Board of Directors and Corporate Governance +Our Board of Directors consists of (5) five members, +three independent and two internal. +Board Committees +Our Board of Directors has appointed an audit committee, +governance committee and compensation committee. +Audit Committee +The audit committee is responsible for overseeing: +(i) our accounting and reporting practices and compliance with legal and regulatory requirements regarding such accounting and reporting +practices; (ii) the quality and integrity of our financial statements; (iii) our internal control and compliance programs; (iv) our independent +auditors’ qualifications and independence and (v) the performance of our independent auditors and our internal audit function. In +so doing, the audit committee maintains free and open means of communication between our directors, internal auditors and management. +The Audit Committee consists of Independent Directors +Jane Casanta, Brett Hoge, and Dottie Pepper, with Brett Hoge acting as Committee Chair and the Audit Committee financial expert. +Compensation Committee +The compensation committee is responsible for reviewing +and approving the compensation of our executive officers and directors and our performance plans and other compensation plans. The compensation +committee makes recommendations to our Board of Directors in connection with such compensation and performance plans. +The Compensation Committee consists of Independent +Directors Jane Casanta, Brett Hoge, and Dottie Pepper, with Jane Casanta acting as Committee Chair. +Nominating and Corporate Governance Committee +The nominating and corporate governance +committee is responsible for (i) recommending for the Board’s selection the director nominees for each annual meeting of +stockholders and candidates to fill any vacancies on the Board ; (ii) developing and recommending to our Board a set of corporate +governance guidelines and, if necessary or appropriate, periodically recommending modifications to such guidelines; and (iii) +overseeing evaluations of the Board and its committees. +While we do +not have a formal policy regarding board diversity, our Nominating and Corporate Governance Committee and board of directors will consider +a broad range of factors relating to the qualifications and background of nominees, which may include diversity (not limited to race, +gender or national origin). Our Nomination and Corporate Governance Committee’s and board of directors’ priority in selecting +board members is identification of persons who will further the interests of our stockholders through their established record of professional +accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding +of the competitive landscape and professional and personal experience and expertise relevant to our growth strategy. +The Nominating and Corporate Governance Committee +consists of Independent Directors Jane Casanta, Brett Hoge, and Dottie Pepper, with Dottie Pepper acting as Committee Chair. +40 +Code of Ethic +The Company adopted a formal code of ethics +within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that applies to our principal executive +officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that +that establishes, among other things, procedures for handling actual or apparent conflicts of interest. A copy of our code of ethics +will be furnished without charge to any person upon written request. Requests should be sent to: Secretary, Newton Golf Company, +Inc., 551 Calle San Pablo, Camarillo, CA 93012. +Indemnification Agreements +We have entered into indemnification agreements for +our directors and executive officers (“Indemnification Agreement”). The Indemnification Agreement provides for indemnification +against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee in connection with threatened, pending +or completed actions, suits or other proceedings, subject to certain limitations. The Indemnification Agreement also provides for the +advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or other adjudication, provided that +the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately found not to be entitled to +indemnification by us. The Indemnification Agreement sets forth procedures for making and responding to a request for indemnification +or advancement of expenses, as well as dispute resolution procedures that will apply to any dispute between us and an indemnitee arising +under the Indemnification Agreement. +Compliance with Section 16a of the Securities Exchange +Act of 1934, as Amended +Section 16a of the Securities Exchange of 1934, as +Amended, requires the Company’s directors and executive officers an persons who own more than 10% of a registered class of the Company’s +equity securities to file various reports with the SEC concerning their holdings of, and transactions in, securities of the Company. +To the Company’s knowledge, based solely on +its review of the copies of the Section 16a reports furnished to the Company in any written representations to the Company, that no other +reports were required, the Company believes that all individual filing requirements applicable to a director, officer, or beneficial owner +of more than 10% of the Company’s common stock were complied with under Section 16a of the Exchange Act during the year ended December +31, 2023, except as follows: Scott White was late in filing his Form 4 in connection with his appointment as Chief Operating Officer. +Item 11. Executive Compensation +The table below summarizes the compensation earned +for services rendered to us in all capacities, for the years indicated, by our named executive officers: +Employment +Agreements +Greg +Campbell +From +October 2023 to December 2023, Mr. Campbell assumed responsibilities as Chairman of the Board. For the assumption of additional responsibilities, +the Board agreed to compensate Mr. Campbell $10,000 per month, and granted Mr. Campbell a stock option to purchase 767 shares of the +Company’s Common Stock at an exercise price of $206.70 per share, for an estimated fair value of $112,631. On December 22, 2023, +the Board granted Mr. Campbell 160 stock options with a fair value of $26,575 for his 2023 board service. +Effective +January 2, 2024, Mr. Campbell was appointed Executive Chairman. On July 18, 2025 the Board granted Mr. Campbell stock options to purchase +1,333 shares of the Company’s Common Stock at an exercise price of $160.20 per share and a fair value of $195,972. On December +20, 2024 the Board granted Mr. Campbell stock options to purchase 2.420 shares of the Company’s Common Stock at an exercise price +of $9.60 per shar with a fair value of $21,315. +Akinobu +Yorihiro +Akinobu +Yorihiro, one of our co-founders, is a Director and Chief Technology Officer, and Chief Legal Officer, he has served in such capacities +since March 2018. Mr. Yorihiro also served as our Chief Financial Officer from March 2018 until February 2022. On December 20, 2024, +the Board granted Mr. Yorihiro stock options to purchase 833 shares of the Company’s Common Stock at an exercise price of $9.60 +per share with a fair value of $7,340. +41 +Steve +Handy +On +March 6, 2023, the Company entered into a Management Services Agreement (“MSA”) with Steve Handy to serve in the role as +the Company’s Chief Financial Officer. The MSA had an initial term of six months with cash compensation of $22,000 per month. As +part of an agreement, the Company issued Mr. Handy 167 shares of restricted common stock with immediate vesting, which the Company determined +had a fair value of $225,000, or $1,350.00 per share, and granted Mr. Handy options to purchase 233 shares of common stock under the +Company’s 2022 Equity Incentive Plan, at an exercise price of $321.00 per common share, vesting monthly over a six-month period, +and an expiration period of five years. The total fair value of these options at grant date was approximately $274,334, which was determined +using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value of our stock price of $1,350 +per share, based on the Company’s current public offering price, the expected term of three years, volatility of 111%, dividend +rate of 0%, and risk-free interest rate of 4.61%. +On +September 7, 2023, the Company entered into an employment agreement with Steve Handy to serve in the role as the Company’s Chief +Financial Officer. Mr. Handy was paid a base salary of $225,000 per annum. The Company granted Mr. Handy options to purchase 1,200 shares +of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price of $321.00 per common share, vesting for a +thirty-six (36) month period, and an expiration period of five years. The total fair value of these options at grant date was approximately +$478,000, which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair +value of our stock price of $492 per share, the expected term of four years, volatility of 112%, dividend rate of 0%, and risk-free interest +rate of 4.52%. +Mr. +Handy resigned as Chief Financial Officer, effective September 9, 2024. +Ryan +Stearns +On +January 6, 2025, the Company entered into an employment agreement with Ryan Stearns to serve in the role as the Company’s Chief +Financial Officer. Mr. Stearns is paid a base salary of $225,000 per annum. +Change-in-Control Provisions +General Policy +It is our general policy that awards that vest over +a term greater than one-year include provisions for acceleration upon a change-in-control. +Equity Compensation Plans +On March 18, 2022, the Company’s Board of Directors +adopted the Company’s 2022 Equity Incentive Plan (the “Plan”) for its officers, employees, non-employee members of the +Board of Directors, and consultants of the Company. The Plan authorized the granting of not more than 9 million restricted shares, stock +appreciation rights (“SAR’s”), and incentive and non-qualified stock options to purchase shares of the Company’s +common stock. +On October 13, 2023, our Board of Directors adopted +and, on November 4, 2023, our stockholders approved an amendment to the Plan to increase the aggregate number of shares of our common +stock issued, or to be issuable, under the Plan to 12,500 shares, including those previously issued or subject to outstanding awards under +the Plan. +On +February 16, 2025, our shareholders approved an amendment to the Plan to increase the aggregate number of shares of our common stock +issued or to be issued under the Plan to 100,000 shares, including those previously issued or subject to outstanding awards under the +Plan. +Outstanding Equity Awards at Year-End +The following table sets forth information regarding +unexercised options and equity incentive plan awards for each Named Executive Officer outstanding as of December 31, 2024: +Director Compensation +The following table sets forth summary information +concerning the compensation we paid to non-executive directors during the fiscal year ended December 31, 2024. +42 +(1) +Effective January 2, 2024, Mr. Campbell was appointed Executive +Chairman. On July 18, 2025 the Board granted Mr. Campbell stock options to purchase 1,333 shares of the Company’s Common Stock +at an exercise price of $160.20 per share. On December 20, 2024 the Board granted Mr. Campbell stock options to purchase 2.420 +shares of the Company’s Common Stock at an exercise price of $9.60 per share. +(2) +On December 20, 2024, the Board granted Mr. Yorihiro stock options to purchase 833 shares of the Company’s Common Stock at an exercise price of $9.60 per share. +(3) +On December 20, 2024 the Board granted Mr. Hoge stock options to purchase 667 shares of the Company’s Common Stock at an exercise price of $9.60 per share. +(4) +On December 20, 2024 the Board granted Ms. Pepper stock options to purchase 667 shares of the Company’s Common Stock at an exercise price of $9.60 per share. +(5) +On January 2, 2024, the Board granted Ms. Casanta stock options to purchase 133 shares of the Company’s Common Stock at an exercise price of $201.60. In addition, the Board granted Ms. Casanta a cash compensation of $20,000 for her 2024 Board service. On December 20, 2024 the Board granted Ms. Casanta stock options to purchase 300 shares of the Company’s Common Stock at an exercise price of $9.60 per share. +The Board adopted a Director Compensation Policy (the +“Director Compensation Policy”) as set forth below. +This policy sets forth compensation payable to each +non-employee member of the Board. +Non-employee members of the Board of Company shall +be eligible to receive cash and equity compensation as set forth in this Director Compensation Policy. The cash compensation and stock +awards described in this Director Compensation Policy shall be paid or be made, as applicable, automatically and without further action +of the Board, to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, an “Independent +Director”) who may be eligible to receive such cash compensation or stock awards, unless such Independent Director declines the +receipt of such cash compensation or stock awards by written notice to the Chairman of the Board. +43 +This Director Compensation Policy shall remain in +effect until it is revised or rescinded by further action of the Board. The terms and conditions of this Director Compensation Policy +shall supersede any prior cash or equity compensation arrangements between the Company and its directors. +Cash Compensation +Annual Board Member retainer: $ 25,000 +Annual retainer for the Chairman: $ 30,000 +Annual Committee Chair Retainer: $ 5,000 +● +Audit Committee: $5,000 +● +Nominating and Corporate Governance Committee: $5,000 +● +Compensation Committee: $5,000 +All cash compensation is earned on a fiscal year basis, +divided equally and paid, at the end of each quarter. Directors who commence service mid-quarter or who terminate service mid-quarter +will receive pro-rated retainers to be paid at the end of the applicable quarter. +Equity Compensation +Each Independent Director will receive stock options +to acquire 1,333 shares of common stock of the Company, when the appointment becomes effective. The Chairman will receive stock options +to purchase an additional 24,000 shares of common stock of the Company, when the appointment becomes effective. Options granted to Independent +Directors will (i) vest quarterly over a three-year period, and (ii) have an exercise period which is the shorter of (a) seven years from +the grant date or (b) two years from the date of separation, so long as the individual remains an Independent Director in good standing. +If a director is appointed at a time other than the +annual stockholders meeting, the number of options and vesting schedule will be pro-rated based upon the amount of time that has elapsed +since the Company’s most recent annual meeting. +Expense Reimbursement +Each of the non-employee directors will be entitled +to receive reimbursement for reasonable expenses which they properly incur in connection with their functions and duties as a director, +including travel expenses incurred to attend meetings. Directors are required to follow the same travel policies as the employees of the +Company. +Amendments, Revision and Termination +This policy may be amended, revised or terminated +by the Board at any time. +Compensation Clawback Policy +The Board of Directors believes that it is in the +best interest of the Company and its stockholders to create and maintain a culture of that emphasizes integrity and accountability and +that reinforces the Company’s pay-for-performance compensation philosophy. The Board of Directors has therefore adopted a compensation +recruitment policy, which provides for the recovery of erroneously awarded incentive compensation from the Company’s executive officers +in the event of a triggering event, and which has been filed as an exhibit to this report. +Item 12. Security Ownership of Certain Beneficial +Owners, Management and Related Stockholder Matters +The following table sets forth certain information +regarding beneficial ownership of our common stock as March 31, 2025 by (i) each person (or group of affiliated persons) who is known +by us to own more than five percent (5%) of the outstanding shares of our common stock, (ii) each director and executive officer, and +(iii) all of our directors, executive officers and director nominees as a group. +44 +Except as otherwise indicated, the persons listed +below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power +may be shared with a spouse. +Percentage ownership of common stock is based on +4,292,790 shares of beneficial ownership. This is comprised of 4,287,902 shares of common stock outstanding as of March 31, 2025 at 4,888 options that are exercisable within 60 days. +Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to +securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any +shares of common stock that such person currently owns or has the right to acquire within 60 days of the date of this prospectus. +With respect to options and warrants, this would include options and warrants that are currently exercisable within 60 days. With +respect to convertible securities, this would include securities that are currently convertible within 60 days. +Except as indicated in footnotes to this table, we +believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown +to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for +each director and executive officer listed is: c/o Newton Golf Company, Inc., 551 Calle San Pablo, Camarillo, CA 93012. +Item +13. Certain Relationships and Related Transactions, and Director Independence +Certain Relationships and Related Transactions +Except for employment arrangements which are described +under “Executive Compensation,” and certain related party loans, which are described below, since January 1, 2024, there has +not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser +of $120,000 or 1% of the average of the total assets at December 31, 2024 and 2023, and any of our directors, executive officers, holders +of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct or indirect material +interest. +45 +Review, Approval or Ratification of Transactions +with Related Persons +Due to the small size of our Company, we do not at +this time have a formal written policy regarding the review of related party transactions and rely on our full Board of Directors to review, +approve or ratify such transactions and identify and prevent conflicts of interest. Our Board of Directors reviews any such transaction +in light of the particular affiliation and interest of any involved director, officer or other employee or stockholder and, if applicable, +any such person’s affiliates or immediate family members. Management aims to present transactions to our Board of Directors for +approval before they are entered into or, if that is not possible, for ratification after the transaction has occurred. If our Board of +Directors finds that a conflict of interest exists, then it will determine the appropriate action or remedial action, if any. Our Board +of Directors approves or ratifies a transaction if it determines that the transaction is consistent with our best interests and the best +interest of our stockholders. +Director Independence +At December 31, 2024, our Board of Directors consisted +of four members, consisting of Greg Campbell, Brett Hoge, Dottie Pepper, and Akinobu Yorihiro. In January 2024, Jane Casanta was appointed +to the Company’s Board of Directors. Our Board of Directors undertook a review of the composition of our Board of Directors and +the independence of each director. Based upon information requested from and provided by each director concerning their background, employment +and affiliations, including family relationships, our Board of Directors has determined that Ms. Pepper, Ms. Casanta and Mr. Hoge qualify +as “independent” as that term is defined by NASDAQ Listing Rule 5605(a) (2). +Item 14. Principal Accounting Fees and Services +Weinberg & Company, P.A. (“Weinberg”) +was our independent registered public accounting firm for the years ended December 31, 2024 and 2023. +The following table shows the fees paid or accrued +by us for the audit and other services provided by Weinberg for the years ended December 31, 2024 and 2023: +2024 +2023 +Audit Fees +$ 113,318 +$ 88,000 +Audit-Related Fees +Tax Fees +11,438 +8,000 +All Other Fees +6,000 +Total +$ 124,756 +$ 102,000 +As defined by the SEC, (i) “audit fees” +are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of +financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory +and regulatory filings or engagements for those fiscal years; (ii) “audit-related fees” are fees for assurance and related +services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements +and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal +accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services +provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” +and “tax fees.” +Audit Fees +Weinberg provided services for the audits of our financial +statements included in Annual Reports on Form 10-K and limited reviews of the financial statements included in Quarterly Reports on Form +10-Q. +Audit Related Fees +Weinberg did not provide any professional services +which would be considered “audit related fees.” +46 +Tax Fees +Weinberg prepared our 2024 and 2023 Federal and state +income tax returns. +All Other Fees +Services provided by Weinberg with respect to the +filing of various registration statements made throughout the year are considered “all other fees.” +Audit Committee Pre-Approval Policies and Procedures +Under the SEC’s rules, the Audit Committee is +required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to ensure +that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent +auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement +of the independent registered public accounting firm. +Consistent with the SEC’s rules, the Audit Committee +Charter requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent +registered public accounting firm to us or any of our subsidiaries. The Audit Committee may delegate pre-approval authority to a member +of the Audit Committee and if it does, the decisions of that member must be presented to the full Audit Committee at its next scheduled +meeting. Accordingly, 100% of audit services and non-audit services described in this Item 14 were pre-approved by the Audit Committee. +There were no hours expended on the principal accountant’s +engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed +by persons other than the principal accountant’s full-time, permanent employees. +PART IV +Item 15. Exhibits and Financial Statements +(a) 1. Financial Statements +See Index to Financial Statements in Item 8 of this +Annual Report on Form 10-K, which is incorporated herein by reference. +2. Financial Statement Schedules +All other financial statement schedules have been +omitted because they are either not applicable, or the required information is shown in the financial statements or notes thereto. +47 +3. Exhibits +EXHIBIT INDEX +Exhibit No. +Description +3.1 +Certificate of Incorporation of Newton Golf Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +3.2 +Bylaws of Newton Golf Company, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +4.1 +Form +of Series A Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed on +December 10, 2024 +4.2 +Form of Series B Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 filed on December 10, 2024 +10.1 +License Agreement dated July 24, 2018 between Sacks Parente Golf, Inc. and Parcks Designs, LLC. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.2 +Agreement dated May 25, 2022 among the Company, Nippon Xport Ventures, Inc. and Parcks Designs, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.3 +Patent Assignment dated August 7, 2018 between Sacks Parente Golf, Inc. and Richard E. Parente and Steven Sacks. (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.4 +2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.5 +Amendment to 2022 Equity Incentive Plan (incorporated by reference to Appendix A to the Schedule 14C filed on November 2, 2023) +10.6 +Underwriting Agreement with Aegis Corp. (incorporated by reference to the Company’s Registration Statement on Form S-1 filed on December 4, 2024) +97.1 +Executive Compensation Clawback Policy +101.INS +Inline XBRL Instance Document** +101.SCH +Inline XBRL Taxonomy Extension Schema Document** +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document** +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document** +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document** +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document** +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +(b) Exhibits +See Item 15(a) (3) above. +(c) Financial Statement Schedules +See Item 15(a) (2) above. +Item 16. Form 10K Summary +Not applicable. +48 +SIGNATURES +In accordance with Section 13 or 15(d) of the Exchange +Act, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. +Date: April 4, 2025 +NEWTON GOLF COMPANY +a Delaware corporation +By: +/s/ Greg Campbell +Greg Campbell +Executive Chairman +In accordance with the Exchange Act, this Report has +been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Greg Campbell +Executive Chairman, Chairman of the Board +April 4, 2025 +Greg Campbell +(Principal Executive Officer) +/s/ Ryan Stearns +Chief Financial Officer +April 4, 2025 +Ryan Stearns +(Principal Financial Officer) +/s/ Dotti Pepper +Director +April 4, 2025 +Dotti Pepper +/s/ Brett Hoge +Director +April 4, 2025 +Brett Hoge +/s/ Akinobu Yorihiro +Director +April 4, 2025 +Akinobu Yorihiro +/s/ Jane Casanta +Director +April 4, 2025 +Jane Casanta +49 \ No newline at end of file diff --git a/raw/filings/0001934245/2024/0001641172-25-002840/filing_metadata.csv b/raw/filings/0001934245/2024/0001641172-25-002840/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..f6e29ddbd752df9a39d20ddfe23fd25cb11b48af --- /dev/null +++ b/raw/filings/0001934245/2024/0001641172-25-002840/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934245,NWTG,"Newton Golf Company, Inc.",2024,10-K,2025-04-04,2024-12-31,2025-04-04T21:29:39.000Z,0001641172-25-002840,form10-k.htm,,6768921,1,1,https://www.sec.gov/Archives/edgar/data/1934245/000164117225002840/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1934245/000164117225002840/ diff --git a/raw/filings/0001934245/2024/0001641172-25-002840/item1.txt b/raw/filings/0001934245/2024/0001641172-25-002840/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..3c77be09cfc0da47bacd54db3ce34182a82f0423 --- /dev/null +++ b/raw/filings/0001934245/2024/0001641172-25-002840/item1.txt @@ -0,0 +1,440 @@ +Item +1. Business +Overview +We +are a technology-forward golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, +and other golf-related products. In consideration of its growth opportunities in shaft technologies, in April of 2022, we expanded our +manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, Missouri. +It is our intent to manufacture and assemble substantially all products in the United States as is economically feasible. We anticipate +expansion into golf apparel and other golf-related product lines to enhance its growth. Our future expansions may include broadening +its offerings through mergers, acquisitions or internal developments of product lines that are complementary to its premium brand. +We +currently sell our products through our websites, resellers, and distributors in the United States, Japan, and South Korea. +Historical +Development +We +were formed in 2018 as Sacks Parente Golf, Inc., a Delaware limited liability company. On March 17, 2025 we converted into a Delaware +corporation named Newton Golf Company, Inc. Pursuant to our Plan of Conversion, on March 17, 2025, all of the outstanding ownership interests +in Sacks Parente Golf, Inc., and rights to receive such interest were converted into and exchanged for shares of capital stock of the +newly formed Delaware corporation. We retroactively reflected the conversion as of the earliest periods presented herein. +On +August 14, 2023, the Company entered into an underwriting agreement with The Benchmark Company for the purchase of shares of the Company’s +common stock, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange +Commission. In the offering, the Company sold 10,667 shares of common stock, at a price of $1,200.00 per share. The offering closed on August +17, 2023, and total proceeds received, net of fees, were $11,594,000 including an underwriting discount of 7% and a non-accountable expenses +allowance of 1% based on the aggregate proceeds of the offering. The Company incurred expenses of $565,000 associated with our initial +public offering, resulting in net proceeds for the Company of $11,029,000. +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the +offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $60.00 per share. +The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $467,000, after deducting the underwriting +discounts and commissions and estimated offering expenses. +On +December 12, 2024, we entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the sale of +up to 233,333 Common Units, each consisting of one (1) share of Common Stock, one (1) Series A Common Warrant to purchase one (1) share +of Common Stock per warrant, and one (1) Series B Common Warrant to purchase one (1) share of Common Stock per warrant. The public offering +price per Common Unit is $36.00. The initial exercise price of each Series A Common Warrant is $72.00 per share of Common Stock. The +Series A Common Warrants are exercisable following stockholder approval and expire 60 months thereafter. The initial exercise price of +each Series B Common Warrant is $72.00 per share of Common Stock or pursuant to an alternative cashless exercise option. The Series B +Common Warrants are exercisable following stockholder approval and expire 30 months thereafter. The offering closed on December 13, 2024. +The net proceeds to us for the offering were approximately $7,326,000, after deducting underwriting discounts and commissions and estimated +offering expenses. +1 +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “First Reverse +Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As +a result of the First Reverse Split, every ten shares of common stock were automatically combined into one share of common stock. +The authorized number of shares of common stock was not affected by the First Reverse Stock Split. No fractional shares were issued +in connection with the First Reverse Stock Split, as all fractional shares were rounded up to the next whole share. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second +Reverse Stock Split”). The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. All +shares and per share amounts and information presented herein have been retroactively adjusted to reflect the reverse stock splits +for all periods presented. +Name +Change +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +Going +Concern +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the year +ended December 31, 2024, the Company incurred a net loss of $11,752,000 and used cash in operations of $4,929,000. These factors raise +substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements +being issued. At December 31, 2024, the Company had cash and cash equivalents on hand in the amount of $7,650,000. +The +Company expects its cash on hand on December 31, 2024, will last for at least the next 12 months. Should the Company need additional +debt or equity financing in the future, no assurance can be given that any future financing will be available or, if available, that +it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain +undue restrictions on operations, in the case of debt financing or cause substantial dilution for stockholders, in case or equity financing. +Industry +Overview +The +golf equipment market size is estimated at USD 13.32 billion in 2023, and is expected to reach USD 17.64 billion by 2028, growing at +a CAGR of 5.78% during the forecast period (2023-2028). +In +recent years, there has been an increase in young golfers, causing equipment sales to rise. It is one of the significant factors driving +golf equipment sales. The growing middle-class income and the increasing number of professional golfers over the last few years are contributing +to the substantial increase in demand. The participation rate in pro-golf tournaments is increasing, especially among millennials, further +boosting golf equipment sales worldwide. Based on a survey by the National Golf Foundation in 2021, golf is now played in 206 out of +the 251 countries. There are around 38,000 golf courses in over 82% of countries worldwide. Globally, millions of people of all ages +are attracted to golf, participating in the International Golf Federation’s programs and events. Including golf in the Olympic +Games has contributed to a sudden increase in golfers worldwide. The market is highly impacted by product innovations carried out by +key players and considerable investments in marketing and promotional activities to reach a broad customer base. With the substantial +growth of the golf tourism industry, the market is anticipated to have a positive outlook in the coming years. European countries are +investing heavily in Infrastructural developments of the game and hosting many international golf events and competitions. For instance, +in October 2022, several golf courses in Portugal invested heavily in improvements, with some new courses opening and others being upgraded. +Such investments in golf courses are further anticipated to boost the inflow of sports tourists and influence the market positively during +the study period. +2 +Rise +in Demand for Golf Equipment from Asia-Pacific +The +Asia-Pacific golf equipment market is driven by the rising popularity of golf in Japan, China, South Korea, and Thailand, among other +countries. There has been phenomenal growth in the Asia-Pacific golf industry. During the next few years, the golf clothing and equipment +market in the Asia-Pacific region is expected to grow, with major countries such as China, India, Australia, and Japan contributing to +the market growth. Japan is one of the major countries in the Asia-Pacific region in terms of the number of golf players, owing to the +rising awareness about golf and an increase in the golfer population in the country. According to the Ministry of Economy, Trade, and +Industry (METI), the golfing population in Japan increased from 8.93 million in 2018 to approximately 10.3 million in 2021. As the population +becomes more aware of sports and the disposable income of individuals rises, there is a strong likelihood that the regional market will +continue to grow. In addition to already established international brands, the market in the region is being driven by a rise in the +participation of gold tournaments and spending money and time on sports activities. Increasing media exposure to international golf events +has aided the rise in the popularity of golf among the masses. This trend encourages the youth to play such sports, further boosting +the sales of golf equipment in the region. +Source: +https://www.mordorintelligence.com/industry-reports/golf-equipment-market +Markets +Our +products are sold in the Americas, Asia and Europe. We sell our golf equipment products in the United States and internationally, directly +via e-commerce, through distribution or subsidiaries, to wholesale customers, including pro-shops at golf courses and off-course retailers, +sporting goods retailers, on-line retailers, third-party distributors, and through Club Champion Golf, the international leader in golf +club fitting with strategic locations across the U.S. and internationally. We sell certain products to mass merchants, as well as directly +to consumers through retail locations in Japan and have recently begun selling products in South Korea. We offer custom fitting programs +online to help consumers find the best fit for their personal specifications. In addition, we sell to corporate customers who want certain +customizations of our golf equipment. +Advertising +and Marketing +Our +marketing campaigns in connection with the NWTG brand are aimed to increase consumer awareness of the products and support our overall +growth strategy. We will focus our advertising efforts mainly on television commercials, primarily on The Golf Channel and web-based +digital, social media advertising, and printed advertisements in national magazines, such as Golf Magazine and Golf Digest, as well as +in-store advertising. We also establish relationships with professional athletes and personalities, including members of various professional +golf tours as well as other athletes and personalities, in order to promote our golf equipment product lines. +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +Distribution +Our +manufacturing, assembly, warehousing and distribution center is in St. Joseph, MO, with putter head assembly performed at our headquarters +and research and development facility in Camarillo, CA. In 2023, we began manufacturing putter and replacement shafts using our proprietary +mandrels and wrapping technology. In 2024, we expanded our shaft offerings into fairway wood/hybrid replacement shafts. In addition, +in 2025 we plan to grow distribution centers in or near Tokyo, Japan, Seoul, South Korea, Mexico City and other prominent cities based +on the needs of these markets. +3 +Production +Process +In +January 2024, the Company relocated its primary golf putting instrument assembly facility from Camarillo, CA to our St. Joseph, MO facility. +It is our ongoing goal to develop, design and manufacture as many of the company’s products, as is economically feasible in the +U.S. We currently have limited assembly/fitting capabilities in Japan and South Korea. Overall, the golf club assembly process is fairly +labor intensive, requires extensive supply chain coordination and utilizes raw materials that are obtained from suppliers both internationally +and within the United States. +Raw +Material and Suppliers +Our +golf putters raw material consist of a fairly wide variety of steel and aluminum types, along with other metals like tungsten, magnesium, +and titanium. Our shafts consist of carbon fiber and prepreg materials along with coatings, paintings, inks and other decorative materials. +The suppliers of these raw materials are located in the U.S., and China. We rely on third-party suppliers to provide our raw materials +and CNC machine certain parts. Our putters are currently assembled from components produced in the U.S. and China. Our shafts are manufactured +in-house from materials produced in the U.S. by third parties. We note that some components or materials may be available only from a +limited number of sources. We choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production +and supply of our raw materials and components, and typically transact business with our suppliers on an order-by-order basis. We also +compete with other companies for raw materials and production. +We +currently source the vast majority of our grip products from third-party suppliers in the U.S. and China, and we source some CNC milled +products from the U.S. However, we are already producing products, shafts and putter heads in the US, and plan to manufacture as many +components in the U.S. as is economically feasible. We have worked with a limited number of manufacturing partners that produced components +in facilities located in Southeast Asia and could do so again. We continuously work to diversify our sourcing and manufacturing capabilities. +Anytime +a company has limited sources for materials or suppliers, there is significant risk, and we are no different. If we are unable to acquire +raw materials such as carbon fiber, it may take significant time to educate an alternate supplier with the specific engineering and manufacturing +requirements of our materials or designs. If we were unable to secure a reliable supplier for any component or material that we do not +manufacture ourselves and find that replacement in a timely manner, this could have a material adverse effect on our business, financial +condition and results of operations. +Product +Portfolio Characteristics +We +design our golf products to fit golfers of all skill levels, amateur and professional, and our products are designed with the goal of +conforming to the Rules of Golf as published by the United States Golf Association (“USGA”) and the ruling authority (“The +R&A”). +We +live by the statement “Physics not Gimmicks” and as a result, we believe that we have created game changing innovations like +our patented Ultra-Low Balance Point technologies that we believe make any putter a better putter. Ultra-Low Balance Point is a balance +point on the shaft that is five (5) inches or less from the sole of the putter. The Company achieves this, not by making the putter head +heavier like some companies have done, but by making the putter shaft and grip feather light. An ULBP putter has substantially more of +the relative weight at the putter head which makes the putter head feel a lot heavier than it really is. The result, supported by independent +testing, is a putter that promotes a natural pendulum like tempo, natural squaring of the head at impact and a natural release of the +toe of the putter head, all of which can help contribute to better putting performance. +By +investing in research and development and leveraging applied science and physics, we design golf equipment and products to be technologically +superior by breaking the “sea of sameness” that exists in golf today. We have the ability to create and modify product designs +using computer aided design software, finite element analysis software and structural optimization techniques. Further, we utilize a +variety of robotics and testing equipment, along with computer software, including launch monitors, an in-house laboratory and test center +for our golf equipment products. +We +manage our global business operations through our operating and reportable business segments. Our business segments currently include, +golf putting instruments, golf shafts, and golf related products. +4 +Newton +Gravity Putters +Our +putter products include golf putters, shafts and grips sold under our Gravity brand and are generally made of steel, aluminum, titanium +alloys, carbon fiber, tungsten, our patented magnesium face plate technologies, and various other materials. +Our +putter technology has been shown by The Golf Lab, a Canadian golf research and education provider, to improve players’ ability +to make putts, feel of the putter head, stroke, face angle at impact, and distance control. Our management believes that our proprietary +shaft designs can enhance the performance of players’ putters as well as drivers and other golf clubs. Further, our management +believes that these innovative designs, along with our proprietary manufacturing techniques, create performance improvements over traditional +golf shafts. +We +are in prototype phase on multiple new or enhanced putter designs that are popular on the market, which we expect to launch during 2025. +Management believes that our versions of these models, while having a familiar shape, could out-perform other versions in the industry +because of our design and use of advanced metals. +Newton +Shafts +On +November 20, 2023, we announced a significant expansion of our product portfolio. We introduced “Newton,” the Company’s +latest business division and the Company’s first foray into the world of golf club shafts. The Newton Motion driver shaft, the +first Newton shaft to debut in the market, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter +and longer shots with reduced effort. Using the Company’s proprietary shaft design and construction, the Newton Motion shaft features +four essential technologies: +● +Elongated +Bend Profile – Newton has created an extreme elongated bend profile that is central to the shaft’s design. Because of +Newton’s proprietary Kinetic Storage Construction, the shaft will bend over a longer span of its length, resulting in improved +club speed. The added flexibility of the carbon fiber gives the impression that the golfer doesn’t need to exert excessive +force during the swing, leading to a more predictable and less jarring experience. This, in turn, enhances the smoothness of the +swing. +● +Kinetic +Storage Construction – The kinetic storage profile is the engine of Newton’s Motion Driver Shaft. This proprietary construction +empowers the fibers to store more energy that is harnessed through elongated bend, resulting in a significant boost in exit velocity. +In contrast to most carbon fiber shafts, Newton’s technology ensures perfect symmetry, eliminating the inconsistencies in flex +and spin rates that can often lead to decreased accuracy and distance. +● +Newton +Symmetry360 Design – Newton’s Symmetry360 design ensures consistent flex, regardless of the driver’s clocking position. +This stand-out feature allows for seamless adjustments to both the bend and torque (twist) when most flex changes occur, providing +a truly versatile and adaptive solution. +● +Variable +Bend Profile – The Newton Motion driver shaft is equipped with a variable bend profile meticulously designed to match the bend +and torque requirements of each flex. This innovation ensures that every player’s driving performance is optimized, adapting +seamlessly to the unique demands of the swing. Golfers with slower swing speeds need more torque while higher swing speeds need the +opposite. Whether a slow or high swing speed, the Newton Motion technology tailors to the torque. +In +addition to the four aforementioned technologies, instead of using the traditional categorization of shaft flexes of ladies, senior, +regular, stiff, extra-shift, etc., the Newton Motion shaft uses a DOT system. Ranging from one to six dots, the system allows for a seamless +transition from the most flexible shaft at one dot to the stiffest at six dots. Newton’s innovative DOT system, employed by Newton’s +expert shaft engineers, optimizes golf shaft performance by fine-tuning it to golfer’s unique abilities, leaving traditional flex +systems in the past. +The +Newton Motion shaft is visually captivating. When in motion, the shaft undergoes a mesmerizing color transformation from green to purple +and various shades in between. The coloration not only adds a dash of style to a golfer’s game, but it also distinguishes itself +from other shafts in the market. +5 +The +Newton shafts are manufactured in St. Joseph, Missouri, Newton’s shaft manufacturing facility. +Soft +Goods +In +addition to our existing products, we intend in the future to sell high quality soft goods such as golf apparel and golf accessories +including golf bags, gloves, headwear, practice aids and more. We are in the early stages of planning our soft goods business and do +not anticipate that we will begin manufacturing or selling soft goods until 2025. +Environmental +Matters +We +are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into +the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of +certain materials, substances and wastes and the remediation of environmental contaminants (collectively, “Environmental Laws”). +In the ordinary course of our manufacturing processes, we use paints, chemical solvents and other materials, and generate waste by-products +that are subject to these Environmental Laws. +We +endeavor to adhere to all applicable Environmental Laws and act as necessary to comply with these laws. We maintain an environmental +and safety program at our facilities. The environmental and safety program includes obtaining environmental permits as required, capturing +and appropriately disposing of any waste by-products, tracking hazardous waste generation and disposal, air emissions, safety situations, +material safety data sheet management, storm water management and recycling, and auditing and reporting on its compliance. +Intellectual +Property +We +are the owner or licensee of multiple utility and design patents in the U.S. and foreign countries relating to our products and product +designs, including U.S and foreign trademark registrations relating to our products, product designs, manufacturing processes and research +and development concepts. Other patent and trademark applications are pending and await registration. In addition, we own various other +protectable rights under copyright, trade dress and other statutory and common laws. Our intellectual property rights are material to +our business, and we seek to protect such rights through the registration of trademarks and utility and design patents, the maintenance +of trade secrets and the creation of trade dress. When necessary and appropriate, we will enforce our rights through litigation. +Our +patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks are generally +valid as long as they are in use and their registrations are properly maintained and have not been found to become generic. +Patents +We +currently hold the following patents: +● +US +D874589 S (Series 18 design patent) +● +US +D874592 S (Series 54 design patent) +● +US +D867494 S (Series 39 design patent) +● +US +11,123,614 B2 (Magnesium Golf Clubhead Insert) +● +Ultra +Low Balance Point Utility Patent: +○ +US +8,608,586 +○ +Australia +Patent No. 2012/301755 +○ +Canada +Patent No. 2,846,882 +○ +China +Patent App No. 2012/80042114.1 +○ +European +Patent App. No. 128287695 +○ +Japan +Patent No. 2014-528632 +○ +South +Korea Patent No. 2014-7008689 +○ +South +Africa Patent No. 2014/02273 +6 +The +Ultra Low Balance Point Utility Patent described above was licensed to us by Parcks Designs, LLC on July 24, 2018. The license granted +to us is perpetual, worldwide, royalty-free, and exclusive aside from one other licensee. The principals of Parcks Designs, LLC are Steve +Sacks and Richard Parente, cofounders of the Company together with Tim Triplett and Akinobu Yorihiro. On May 25, 2022, we and Parcks +Designs entered into a Consulting Agreement whereby Parcks Designs will perform club and shaft testing and analysis, putter head design +consulting and other services as may be agreed upon from time to time. The consulting fees due to Parcks Designs will be nominal in the +beginning and increase to $2,000 per month after June 1, 2024. +On +August 7, 2018, Richard E. Parente and Steve Sacks assigned to us the entire worldwide right, title and interest in and to the Quad Weighted +Lightweight Putter. +Confidential +Information and Trade Secrets +The +success of our business depends, in part, on the maintenance of confidential information and trade secrets, generally referred to as +proprietary information. We have implemented procedures to maintain the confidentiality of our proprietary information. Employees enter +into confidentiality agreements with us and, where appropriate, a confidentiality agreement is executed before confidential information +is revealed. Confidentiality provisions are also present in consulting agreements and supplier agreements in certain cases where the +consultant or supplier may be exposed to confidential information. +Trademarks +The +following marks and phrases, among others, are trademarks of the Company: +● +USPTO +Reg. No. 5,783,037 (Veni Vidi Vici) +● +USPTO +Reg No. 5,822,719 (Sacks Parente) +● +South +Korea Reg. No. 40-1820381 (Sacks Parente) +Domain +names +We +own the domain names listed below. Domain names are generally renewable every year or every two years. +www.newtongolfco.com +www.newtongolfir.com +www.sacksparente.com +www.newtonshafts.com +www.spgolfinc.com +www.spgolfco.com +www.spgputter.com +www.spgshafts.com +www.newtonshafts.com +www.spgtour.com +www.physicsnotgimmicks.com +www.spgfangster.com +Social +Media Accounts +We +operate the social media accounts listed below. +● +Twitter: +https://mobile.twitter.com/sacksparente +● +Facebook: +https://www.facebook.com/sacksparente +● +LinkedIn: +https://www.linkedin.com/company/sacks-parente-golf/ +● +Instagram: +https://www.instagram.com/sacksparente/ +7 +Government +Regulation +We +are subject to extensive federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, +the Americans with Disabilities Act (the “ADA”), and similar state laws, privacy and cybersecurity laws, environmental, health +and human safety laws and regulations, the Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws. New laws +and regulations or new interpretations of existing laws and regulations from federal, state and local authorities may also impact the +business. +Employees +As +of December 31, 2024, we had 28 full-time equivalent employees. We employ additional people on a part-time basis as needed. We have never +participated in a collective bargaining agreement. We believe relations with our employees are good. +Competition +We +compete on the basis of technologies that improve the player’s experience. Management further believes quality and unparalleled +customer service define the better companies in all industries. In order to better understand trends, management receives and evaluates +internally generated market trends for the United States and foreign markets, as well as periodic public and customized market research +for the United States and Asia. Providers of such market research are Golf Datatech and The National Golf Foundation that include trends +from certain on- and off-course retailers. In addition, we utilize data from other market research firms in Asia. +Our +major competitors for putting instruments are TaylorMade, Ping, Acushnet (Scotty Cameron, Titleist brand) and Callaway Odyssey/Toulon +brands. +Our +major competitors for golf shafts include Fujikura Composites, Inc, Mitsubishi Chemical MCC, Graphite Design, (Asia) Co Ltd, Nippon Shaft +Co. Ltd, and Paderson Kinetixx, Taiwan. +All +these and other competitors have been in business years longer than we have and have substantially greater resources than we do. +Customers +Our +customers include individual golfers as well as wholesalers and retailers, including Club Champion Golf, the international leader in +golf club fitting with strategic locations across the USA and internationally. +Available +Information +The +Company maintains a website at the following address: www.newtongolfco.com. The information on the Company’s website is not incorporated +by reference in this report. We make available on or through our website certain reports and amendments to those reports that we file +with or furnish to the Securities and Exchange Commission (“SEC”) in accordance with the Securities Exchange Act of 1934, +as amended (“Exchange Act”). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current +Reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically +file the information with, or furnish it to, the SEC. In addition, we routinely post on the “Investors” page of our website +news releases, announcements and other statements about our business and results of operations, some of which may contain information +that may be deemed material to investors. Therefore, we encourage investors to monitor the “Investors” page of our website +and review the information we post on that page. The SEC maintains a website that contains reports, proxy and information statements, +and other information regarding issuers that file electronically with the SEC at the following address: http://www.sec.gov. \ No newline at end of file diff --git a/raw/filings/0001934245/2024/0001641172-25-002840/item13.txt b/raw/filings/0001934245/2024/0001641172-25-002840/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..9f2b4d686916f84a7a70e6c60c1addf0cd96df55 --- /dev/null +++ b/raw/filings/0001934245/2024/0001641172-25-002840/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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+us-gaap:RestrictedStockMember +us-gaap:SubsequentEventMember +us-gaap:ShareBasedCompensationAwardTrancheTwoMember +2026-03-27 +2026-03-27 +0001934245 +us-gaap:RestrictedStockMember +us-gaap:SubsequentEventMember +us-gaap:ShareBasedCompensationAwardTrancheThreeMember +2026-03-27 +2026-03-27 +0001934245 +2025-10-01 +2025-12-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +utr:sqft +NWTG:Segment +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2025 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from _______ to _______ +Commission +File Number: 001-41701 +NEWTON +GOLF COMPANY, INC. +(Exact +name of registrant as specified in its charter) +Delaware +82-4938288 +(State +of +incorporation) +(I.R.S. +Employer +Identification +No.) +551 +Calle San Pablo , Camarillo , California +93012 +(Address +of principal executive offices) +(Zip +Code) +(855) +774-7888 +(Registrant’s +telephone number, including area code) +(Former +name, former address and former fiscal year, if changed since last report) +Securities +registered pursuant to Section 12(b) of the Act +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Common +Stock +NWTG +The +Nasdaq Stock Market LLC +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +the securities are registered, pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +aggregate market value of the voting and non-voting common equity held by non-affiliates (excluding voting shares held by officers and +directors) as of June 30, 2025 was $ 6,402,221 . +There +was a total of 4,592,063 shares of Common Stock outstanding as of March 26, 2026. +TABLE +OF CONTENTS +PART I +1 +Item 1. Business +1 +Item 1A. Risk Factors +11 +Item 1B. Unresolved Staff Comments +29 +Item 1C. Cybersecurity +29 +Item 2. Properties +30 +Item 3. Legal Proceedings +30 +Item 4. Mine Safety Disclosures +30 +PART II +31 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +31 +Item 6. [Reserved] +32 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +32 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +44 +Item 8. Financial Statements and Supplementary Data +F-1 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +45 +Item 9A. Controls and Procedures +45 +Item 9B. Other Information +46 +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +46 +PART III +47 +Item 10. Directors, Executive Officers and Corporate Governance +47 +Item 11. Executive Compensation +51 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +57 +Item 13. Certain Relationships and Related Transactions, and Director Independence +58 +Item 14. Principal Accountant Fees and Services +59 +PART IV +60 +Item +15. Exhibits and Financial Statement Schedules +60 +Item 16. Form 10-K Summary +61 +i +RISK +FACTORS SUMMARY +Our +business, results of operations, financial condition, and growth prospects may be affected by a number of factors, whether currently +known or unknown. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition +to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in +part, let alone combined with any of the others, could materially and adversely affect our business, financial condition, results of +operations, and stock price. We have provided a summary of some of these risks below, with a more detailed explanation of those and other +risks applicable to the Company in Part I, Item 1A. “ Risk Factors ” in this Annual Report. +Risks +Related to Our Industry and Business +● Our +independent auditor has expressed substantial doubt about our ability to continue as a going +concern. +● A +reduction in the number of rounds of golf played or in the number of golf participants could +adversely affect sales. +● We +may have limited opportunities for future growth in sales of golf products. +● We +are in the early stages of scaling our business, and our growth strategy may not be successful. +● We +may face increased labor costs or labor shortages that could slow growth and adversely affect +our business, results of operations and financial condition. +● Unfavorable +economic conditions, including due to future pandemics, inflation, tariffs, geopolitical +conflicts or otherwise, could have a negative impact on consumer discretionary spending and +therefore negatively impact our results of operations, financial condition and cash flows. +● We +face intense competition in all of our markets, and if we are unable to compete effectively, +it could have a material adverse effect on our business, results of operations, financial +condition and growth prospects. +● Demographic +factors may affect the number of golf participants and related spending on our products. +● If +we are unable to successfully manage the introduction of new products that perform and satisfy +changing consumer preferences, it could significantly and adversely impact financial performance +and prospects for future growth. +● Consolidation +of retailers or concentration of retail market share among a few retailers may increase and +concentrate our credit risk, put pressure on our margins and impair our ability to sell products. +● Our +business depends on a strong brand and related reputation, and if we are not able to build, +maintain and enhance our brand or build a strong reputation, our sales may be adversely affected. +● Our +ability to grow our business depends in part on the effectiveness of our marketing and digital +advertising strategies. +● Our +business and operating results are subject to seasonal fluctuations, which could result in +fluctuations in our operating results and stock price. +● Our +sales and business could be materially and adversely affected if professional athletes, celebrities +and other endorsers do not endorse or use our products. +● Our +current senior management team and other key executives are critical to our success, and +the loss of, and failure to adequately replace, any individual executive, or manager, could +significantly harm our business. +Risks +Related to Our Intellectual Property +● Failure +to adequately enforce our intellectual property rights could adversely affect our reputation +and sales. +● We +may become subject to intellectual property claims or lawsuits that could cause us to incur +significant costs or pay significant damages or that could prohibit us from selling our products. +Risks +Related to Operations, Manufacturing, and Technology +● If +we inaccurately forecast demand for our products, we may manufacture either insufficient +or excess quantities, which, in either case, could adversely affect our financial performance. +● We +depend on single source or a limited number of suppliers for some of the components in our +products, and the loss of any of these suppliers could harm our business. +● A +significant disruption in the operations of our assembly and golf-shaft manufacturing facilities +could have a material adverse effect on our sales, profitability and results of operations. +● A +significant portion of our manufacturing operations are concentrated in a single facility, +and any disruption to this facility could adversely affect our business. +ii +● A +disruption in the service or a significant increase in the cost of our primary delivery and +shipping services for our products and component parts or a significant disruption at shipping +ports could have a material adverse effect on our business. +● The +costs and availability of finished products, product components and raw materials could affect +our operating results. +● We +may be subject to product warranty claims that require the replacement or repair of products +sold. Such warranty claims could adversely affect our results of operations and relationships +with our customers. +● Our +growth initiatives require significant capital investments and there can be no assurance +we will realize a positive return on these investments. +● Sales +of our products by unauthorized retailers or distributors could adversely affect our authorized +distribution channels and harm our reputation. +● We +rely on research and development, technical innovation and high-quality products to successfully +compete. +● We +rely on information systems that assist in the management of our manufacturing, inventory, +distribution, engineering, sales and other functions. If our information systems were to +fail to perform these functions adequately or if we experienced an interruption in operation, +including a cybersecurity breach, our business and results of operations could suffer. +● We +rely in part on e-commerce platforms and online systems to generate sales, and disruptions +to these systems could adversely affect our business. +● Cyber-attacks, +unauthorized access to, or accidental disclosure of, consumer personally-identifiable information +that we or our vendors collect through our websites or stores on servers may result in significant +expense and negatively impact our reputation and business. +Risks +Related to Governmental Regulations +● We +are subject to many federal, state, local and foreign laws, as well as other statutory and +regulatory requirements, with which compliance can be both costly and complex. Our failure +to comply with, or adapt to changes in these laws or requirements, could have an adverse +impact on our business. +● Regulations +related to “conflict minerals” require us to incur additional expenses and could +limit the supply and increase the cost of certain metals used in manufacturing our products. +Risks +Related to Tax and Financial Matters +● We +expect to raise additional funds from time to time through public or private debt or equity +financings in order to implement our business plan. +● Increases +in interest rates could increase the cost of servicing our indebtedness and have an adverse +effect on our results of operations and cash flows. +Risks +Related to Our Common Stock +● The +market prices and trading volume of our shares of common stock may experience rapid and substantial +price volatility, which could cause purchasers of our common stock to incur substantial losses. +● If +we fail to regain and maintain compliance with Nasdaq continued listing requirements, our +common stock could be delisted. +iii +CAUTIONARY +STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION +This +Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements that involve risks and uncertainties. These +forward-looking statements are not historical facts but rather are plans and predictions based on current expectations, estimates, and +projections about our industry, our beliefs, and assumptions. +We +use words such as “may,” “will,” “could,” “should,” “anticipate,” “expect,” +“intend,” “project,” “plan,” “believe,” “seek,” “assume,” and +variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future +performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond our control, are difficult to +predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You +should not place undue reliance on these forward-looking statements because the matters they describe are subject to certain risks, uncertainties, +and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us +and speak only as of the date on which they were made. Over time, our actual results, performance, or achievements may differ from those +expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security +holders. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result +of new information, future events, or otherwise. Factors that could materially affect these forward-looking statements and/or predictions +include, among other things: (i) the development and protection of our brands and other intellectual property, (ii) the need to raise +capital to meet business requirements, (iii) significant fluctuations in marketing expenses, (iv) the ability to achieve and expand significant +levels of revenues, or recognize net income, from the sale of our products, (v) management’s ability to attract and maintain qualified +personnel necessary for the development and commercialization of its planned products, (vi) the impact of geopolitical risks, including tariffs, on our business, suppliers, consumers, customers, and employees or the overall economy, and (vii) +other information that may be detailed from time to time in the Company’s filings with the United States Securities and Exchange +Commission (“SEC”). Please consider our forward-looking statements in light of those risks as you read this Annual Report. +iv +PART +I +Item +1. Business +Company +Overview +Newton +Golf Company, Inc. (the “Company,” “Newton,” “we,” “us,” or “our”) +designs, manufactures, and sells performance golf equipment, including premium golf shafts and putters, and focuses on developing +technology-driven golf products intended to enhance player performance. The Company’s Newton Motion™ shaft product line +represents a core component of its product strategy and has contributed significantly to recent revenue growth. +In +April 2022, the Company expanded its manufacturing capabilities by opening a shaft manufacturing facility in St. Joseph, Missouri to +support the production of advanced carbon fiber golf shafts. The Company seeks to manufacture and assemble substantially all of its +products in the United States where economically feasible, which management believes provides supply chain advantages and supports +product quality, engineering control, and operational flexibility. +The +Company sells its products through a combination of direct-to-consumer channels, including its websites, as well as through resellers, +professional club fitters, distributors, and golf retailers. The Company currently distributes products primarily in the United States, +with additional distribution in international markets including Japan and South Korea. +The +Company continues to expand its relationships with professional club fitters and retail partners as adoption of its shaft products increases. +Growing awareness of the Newton brand among professional golfers, club fitters, and retail partners may create opportunities to expand +distribution of other Newton-branded products. +The +Company believes its technology-driven shaft platform and domestic manufacturing capabilities position it to scale production efficiently +as demand for premium performance golf equipment increases. Management believes the Company is in the early stages of scaling its Newton +shaft platform and that continued adoption by golfers, professional club fitters, and retail partners may support significant long-term +revenue growth. +Over +time, the Company may expand its product offerings through internal product development or strategic acquisitions of complementary golf-related +product lines or technologies. In addition, the Company may explore opportunities to collaborate with other golf equipment manufacturers +or industry partners where its shaft technologies and manufacturing capabilities may complement broader equipment platforms. +1 +Historical +Development +The +Company was formed in March 2018 as Sacks Parente Golf, Inc., a Delaware corporation. In July 2018, the corporation converted from a corporation to a limited liability company. In March 2022, +the limited liability company converted back to a corporation. On March 17, 2025, the Company +changed its name to Newton Golf Company, Inc. Pursuant to the Company’s plan of conversion, on March 17, 2025, all +outstanding ownership interests in Sacks Parente Golf, Inc., and rights to receive such interests, were converted into and exchanged +for shares of capital stock of the newly formed Delaware corporation. The conversion has been retroactively reflected in the +accompanying financial statements for all periods presented. +Public +Offerings +On +August 14, 2023, the Company entered into an underwriting agreement with The Benchmark Company in connection with its initial public +offering. In the offering, the Company sold 10,667 shares of common stock at a price of $1,200 per share. The offering closed on +August 17, 2023, generating gross proceeds of approximately $11.6 million. The Company received net proceeds of approximately $11.0 +million after deducting underwriting discounts, commissions, and offering expenses of approximately $565,000. +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as sole underwriter for the sale of 12,200 +shares of common stock at a public offering price of $60.00 per share. The offering closed on October 10, 2024, generating net proceeds +to the Company of approximately $467,000, after deducting underwriting discounts, commissions, and estimated offering expenses. +On +December 12, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as sole underwriter for the sale of +233,333 common units (“Common Units”) of the Company each consisting of (i) one share of common stock, (ii) one Series A +common warrant of the Company (“Series A Warrant”), and (iii) one Series B common warrant of the Company (“Series +B Warrant”). The public offering price per Common Unit was $36.00. The Series A Warrants have an initial exercise price of +$72.00 per share, are exercisable following stockholder approval, and expire 60 months thereafter. +2 +The +Series B Warrants have an initial exercise price of $72.00 per share or may be exercised pursuant to an alternative cashless exercise +feature, are exercisable following stockholder approval, and expire 30 months thereafter. +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to effect a 1-for-10 reverse stock split of the Company’s common stock (the “First Reverse Stock Split”). +The First Reverse Stock Split became effective at 12:01 a.m. Eastern Time on July 30, 2024, and the Company’s common stock +began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to effect a 1-for-30 reverse stock split of the Company’s common stock (the “Second Reverse Stock +Split”). The Second Reverse Stock Split became effective at 12:01 a.m. Eastern Time on March 17, 2025, and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its +existing trading symbol. +All +share amounts and per-share information presented in this Annual Report have been retroactively adjusted to reflect both reverse stock +splits for all periods presented. +No +fractional shares were issued in connection with the reverse stock splits, as all fractional shares were rounded up to the next whole +share. +Industry +Overview +The +global golf equipment industry includes golf clubs, shafts, balls, and related accessories sold through golf retailers, professional +club fitters, distributors, and direct-to-consumer channels. Industry reports estimate that the global golf equipment market is estimated to be +$8.55 billion in 2025 and is expected to grow at a mid-single-digit annual rate over the next several years. +Golf +participation increased significantly during the COVID-19 pandemic as the sport was widely viewed as a socially distanced outdoor activity. +Although the initial pandemic-driven surge has moderated, participation levels have remained elevated relative to historical levels, +and industry organizations have reported continued engagement among both new and returning golfers. +3 +According to Grand View Research, in +addition to traditional golf participation, off-course golf experiences and indoor golf technologies have expanded opportunities for +consumers to engage with the sport. Golf entertainment venues such as Topgolf and the increasing availability of golf simulators and +indoor golf facilities allow consumers to participate in golf-related activities in non-traditional environments and in regions where +weather conditions may limit outdoor play during portions of the year. +The +golf equipment market is highly competitive and driven in part by product innovation, equipment fitting, and brand recognition among +professional golfers, club fitters, and retailers. Many golfers seek equipment designed to improve performance, including customized +clubs and high-performance components such as premium shafts. +International +markets represent an important component of the golf equipment industry. Countries such as Japan and South Korea have well-established +golf markets with strong demand for premium equipment, while other regions continue to experience increasing participation and investment +in golf-related infrastructure. +The +Company believes these industry trends, including increasing demand for premium equipment and the growing importance of professional +club fitting, support the long-term opportunity for technology-driven golf equipment manufacturers. +Product +Portfolio Characteristics +The +Company designs and develops golf equipment intended for golfers of all skill levels, from amateur to professional. The Company seeks +to design its products to conform to the Rules of Golf as established by the United States Golf Association (“USGA”) and +the R&A, the governing bodies responsible for establishing and interpreting the rules of golf equipment. +The +Company’s product development philosophy emphasizes the application of engineering principles and physics to golf equipment design. +Through research and development activities, the Company seeks to develop products that differentiate themselves through materials engineering, +weight distribution, and structural performance characteristics. The Company focuses its research and development efforts on composite +shaft technologies and other engineering-driven golf equipment innovations. +To +support product development, the Company utilizes computer-aided design software, finite element analysis tools, structural optimization +techniques, and various testing technologies. These include robotics, launch monitor systems, and other testing equipment used to evaluate +performance characteristics of golf equipment products. +Newton +Shafts +In +November 2023, the Company expanded its product portfolio through the introduction of the Newton Motion driver shaft, marking the Company’s +entry into the premium composite golf shaft market. In April 2024, the Company expanded its shaft product line with the introduction +of the Newton Motion fairway wood shaft. These products are manufactured at the Company’s shaft manufacturing facility in St. Joseph, +Missouri. The Company’s ability to manufacture composite shafts domestically allows it to control production processes and support +ongoing product development activities. +The +Newton shaft product family includes two primary driver shaft models: Motion and Fast Motion. The Fast Motion driver shaft was +introduced in 2025 and has become the Company’s best-selling shaft product. The Fast Motion driver shaft incorporates higher +modulus carbon fiber materials and lighter composite construction designed to reduce overall shaft weight while maintaining +structural stability. The Motion shaft utilizes a different composite construction intended to provide alternative performance +characteristics for golfers with varying swing profiles. +The +Newton Motion shafts utilize carbon fiber composite materials and proprietary shaft construction techniques designed to influence +key performance characteristics such as stability, energy transfer, and weight distribution during the golf swing. The Company +manufactures its shafts using proprietary mandrels and composite wrapping processes developed for the Newton Motion shaft product +line. +4 +Unlike +many traditional shaft designs that are used across multiple club types, the Company develops shafts tailored to the performance characteristics +of specific clubs, including drivers, fairway woods, and hybrid clubs. The Company believes that shafts designed specifically for individual +club types may improve launch conditions, consistency, and overall club performance. +The +Newton Motion shaft product line also incorporates the Company’s proprietary “DOT” system, which replaces traditional +shaft flex designations with a numerical system ranging from one to seven dots. This system is intended to provide golfers with a more +precise method for selecting shaft stiffness and to allow golfers to match shaft characteristics across driver, fairway wood, and hybrid +clubs. +The +Company continues to expand the Newton Motion shaft product line through ongoing product development. During 2026, the Company +expects to introduce additional shaft products including a Fast Motion fairway wood shaft, Fast Motion hybrid shaft, and Motion +hybrid shaft as part of the continued expansion of the Newton Motion product family. +Golf +shafts play an important role in the club fitting process and are often selected independently of the golf club head. As a result, shaft +manufacturers frequently work closely with professional club fitters and golf retailers who recommend shaft products to golfers during +the fitting process. The Company believes that the growing adoption of its shaft products among golfers, professional club fitters, and +retailers may create additional opportunities to expand distribution of other Newton-branded golf equipment products over time. +The +Company’s shaft product development is supported by in-house engineering capabilities, including computer-aided design, structural +modeling, and product testing. These capabilities allow the Company to develop composite shaft designs using proprietary manufacturing +processes and specialized composite materials. +The +Company’s shafts are used by professional golfers across several professional tours, including the PGA TOUR Champions and other +international tours. The Company believes that professional adoption provides visibility for its products among golfers, club fitters, +and retailers. +Newton +Gravity Putters +The +Company also offers golf putting instruments marketed under the Newton Gravity brand. These products incorporate certain proprietary +design characteristics, including ultra-low balance point technology intended to influence the distribution of weight within the putter. +Ultra-low +balance point technology refers to a shaft balance point positioned closer to the putter head, which shifts the relative weight distribution +toward the head of the putter. The Company achieves this balance profile through the use of lightweight shaft and grip components rather +than increasing the mass of the putter head. +Gravity +putters are manufactured using a variety of materials, including steel, aluminum, carbon fiber, tungsten, magnesium components, and other +materials. These products incorporate proprietary face and shaft technologies intended to influence feel, weight distribution, and stroke +characteristics. +While +the Company continues to develop putter technologies, recent product development efforts and revenue growth have been primarily driven +by the expansion of the Newton Motion shaft product line. +Product +Expansion Opportunities +The +Company may from time to time evaluate opportunities to expand its product portfolio beyond its current golf shaft and putting instrument +product lines. Potential expansion opportunities may include additional golf equipment categories or technologies that support the golf +equipment ecosystem and complement the Company’s existing products, engineering capabilities, and distribution channels. +Such +opportunities may be pursued through internal product development, strategic partnerships, or the acquisition of complementary businesses. +Examples of potential opportunities could include golf equipment products, such as golf balls, or technologies that support equipment +performance, fitting, or training. +5 +There +can be no assurance that the Company will pursue or complete any such expansion opportunities. +Manufacturing +and Distribution +The +Company maintains its headquarters and research and development facility in Camarillo, California, where certain product development +activities are performed. Putter head assembly was historically performed in Camarillo; however, in January 2024, the Company relocated +its primary golf club assembly operations to the St. Joseph, Missouri facility. +The +Company’s primary manufacturing, assembly, warehousing, and distribution operations are located in St. Joseph, Missouri, +which management believes provides greater control over product quality, engineering, and production processes. The facility supports the production of carbon fiber golf shafts, product assembly, inventory management, and order +fulfillment. Management +also believes that domestic manufacturing helps mitigate certain risks associated with global supply chain disruptions, tariffs, and +geopolitical trade uncertainties. +In +2023, the Company began manufacturing putter and replacement shafts using its proprietary mandrels and wrapping technology. In 2024, +the Company expanded its shaft product offerings to include driver wood and fairway wood replacement shafts. +The +Company’s golf club manufacturing and assembly processes are labor intensive and require coordination across multiple production +steps, including shaft manufacturing, component assembly, finishing, and quality control. The Company seeks to design, develop, and manufacture +as many of its products in the United States as is economically feasible. +The +Company’s St. Joseph manufacturing facility provides meaningful production capacity to support anticipated growth in shaft demand, +and management believes the facility can support significantly higher production volumes with modest operational improvements and incremental +equipment investments. +The +Company distributes its products primarily in the United States through direct-to-consumer and wholesale channels. Internationally, the +Company sells products through distribution partners, including relationships in Japan and South Korea, as well as through certain direct-to-consumer +e-commerce sales. +Raw +Material and Suppliers +The +Company’s golf shafts are manufactured using carbon fiber and prepreg materials, along with coatings, paints, inks, and other decorative +materials. Carbon fiber is a specialized composite material commonly used in the manufacture of advanced golf shafts due to its strength, +weight, and performance characteristics. Raw materials used in the production of the Company’s putters include various types of +steel and aluminum, as well as other metals such as tungsten and magnesium. +The +Company sources the majority of its raw materials and components from suppliers located in the United States, including suppliers of +carbon fiber materials used in the manufacture of its golf shafts. These materials include high-performance carbon fiber products manufactured +by suppliers such as Toray Composite Materials America, Inc. The Company manufactures its shafts in-house using carbon fiber materials +supplied by third parties. +Certain +components used in the assembly of the Company’s products, including grips and shaft tips, are sourced from third-party +suppliers located both in the United States and internationally, including Vietnam and China. Putter products are assembled from +components produced by suppliers in the United States and China, and certain components are produced using Computer Numerical Control (“CNC”) +machining performed by third-party manufacturers. +The +Company does not generally enter into long-term supply agreements and typically purchases raw materials and components on a purchase-order +basis. However, the Company maintains a blanket purchase order with one of its key suppliers that provides a committed supply allocation +for certain materials. While this arrangement provides some short-term supply assurance, it does not eliminate risks associated with +sourcing constraints or supplier concentration. +6 +Some +raw materials and components may be available from a limited number of suppliers. The Company competes with other manufacturers for access +to these materials and production capacity. The Company periodically evaluates alternative suppliers and sourcing strategies in order +to reduce supply chain concentration risk. If the Company were unable to obtain necessary materials or components from existing suppliers +and could not identify alternative suppliers in a timely manner, its business, financial condition, and results of operations could be +adversely affected. +Markets +The +Company sells its products primarily in the United States, with additional international distribution in markets including Japan and +South Korea. +The +Company distributes its products through a combination of direct-to-consumer channels, including its e-commerce websites, as well as +through wholesale channels such as professional club fitters, pro shops at golf courses, golf retailers, online retailers, and third-party +distributors. +The +Company also works with professional club fitting organizations, including Club Champion, to make its products available to golfers through +custom fitting programs. The Company has also entered into a distribution relationship with Voice Caddie to distribute its products in +South Korea. +The +Company believes its expanding relationships with club fitters, retailers, and international distributors may provide opportunities to +increase the availability of its products in existing and new markets. +Customers +Our +customers include individual golfers as well as wholesale and retail customers, including professional club fitters, golf pro shops, +off-course golf retailers, sporting goods retailers, and third-party distributors. We also sell products directly to consumers through +our e-commerce platforms. Certain customers, including professional club fitting organizations such as Club Champion, purchase products +for resale through their club fitting and retail locations in the United States and internationally. No single customer accounted for more than 10% of our total revenue in 2025, and we do not depend on any single or +limited group of major customers for a majority of our revenues. +Advertising +and Marketing +The +Company conducts marketing activities to increase awareness of the Newton brand and its golf equipment products. Marketing efforts include +paid media advertising, digital and social media campaigns, participation in industry events, product placement and use by professional +golfers, and promotional activities with club fitters and golf retailers. +The +Company allocates a significant portion of its marketing resources to paid media advertising, including digital platforms, social media +channels, and golf-industry media outlets. Historically, the Company has utilized direct-to-consumer advertising through digital media, +television, and print publications within the golf industry. During 2025, the Company reallocated a greater portion of its direct-to-consumer +advertising toward promoting its Newton Motion shaft product line, which represents the Company’s primary revenue source. +The +Company maintains relationships with professional golfers and other industry personalities who use or promote their products in professional +competitions and other public settings. In some cases, the Company enters into agreements that provide compensation in exchange for name, +image, and likeness rights associated with athletes or influencers who promote the Company’s products. +The +Company also employs representatives who attend professional golf tournaments and industry events to support professional players, club +fitters, and retailers who use the Company’s products. In addition, the Company sponsors various golf-related events, including +competitions such as the World Long Drive Championship and charitable golf tournaments, which help increase visibility of the Newton +brand among golfers, industry participants, and consumers. +7 +Competition +The +golf equipment industry is highly competitive. Companies compete based on product performance, technology, brand recognition, pricing, +customer service, and relationships with professional golfers, club fitters, and retailers. +In +the golf shaft category, the Company competes with manufacturers including Fujikura Ltd., Mitsubishi Chemical Group Corporation, Graphite +Design Inc., Nippon Shaft Co., Ltd., and Paderson Kinetixx, among others. Competition in the premium shaft market is driven in part by +technological innovation, performance characteristics, and adoption by professional golfers and club fitting professionals. The Company +believes that its technology-driven shaft designs and relationships within the professional club fitting community position it to compete +within the premium performance shaft segment of the market. The premium golf shaft market includes a number of specialized manufacturers, +and the Company competes within this segment through product innovation and performance-focused design. +In +the putter category, the Company’s Newton Gravity putters compete with products offered by major golf equipment manufacturers, +including Callaway Golf Company, TaylorMade Golf Company, Ping Inc., and brands owned by Acushnet Holdings Corp., such as Scotty Cameron +and Titleist. +Many +of these competitors have been in business significantly longer than the Company and have substantially greater financial, technical, +marketing, and distribution resources. +The +Company believes its technology-driven shaft design, domestic manufacturing capabilities, and focus on applied physics differentiate +Newton from many traditional golf equipment manufacturers that primarily compete through brand marketing and incremental product changes. +Intellectual +Property +The +Company’s intellectual property portfolio includes patents, trademarks, proprietary manufacturing processes, and other intellectual +property rights related to its golf equipment technologies and product designs. +The +Company seeks to protect its intellectual property through a combination of patent registrations, trademark registrations, trade secret +protections, and contractual arrangements. The Company also maintains proprietary manufacturing processes and design methodologies that +it believes provide competitive advantages in the development and production of its golf equipment products. +Certain +aspects of the Company’s composite shaft technologies, including manufacturing techniques, material configurations, and design +methodologies, are maintained as proprietary trade secrets rather than patented technologies in order to preserve confidentiality. +Patents +generally remain in effect for up to 20 years from the filing date of the patent application, subject to maintenance requirements. Trademarks +may remain in effect indefinitely provided that they continue to be used in commerce and applicable renewal requirements are satisfied. +Patents +The +Company holds a number of issued patents and patent rights relating to golf equipment technologies and product designs. These patents +primarily relate to certain putter technologies, including weight distribution features and clubhead components. +The +Company currently holds the following U.S. patents: +● +US +D874589 S (Series 18 design patent) +● +US +D874592 S (Series 54 design patent) +● +US +D867494 S (Series 39 design patent) +● +US +11,123,614 B2 (Magnesium Golf Clubhead Insert) +8 +The +Company also holds intellectual property rights relating to its Ultra-Low Balance Point technology, which is protected through patents +and patent applications in multiple jurisdictions, including the U.S., Australia, Canada, China, Europe, Japan, South Korea, and South +Africa., +The +Ultra-Low Balance Point patent rights described above were licensed to the Company by Parcks Designs, LLC on July 24, 2018. The license +granted to the Company is perpetual, worldwide, royalty-free, and exclusive aside from one additional licensee. +The +principals of Parcks Designs, LLC include Steve Sacks and Richard Parente. +On +May 25, 2022, the Company and Parcks Designs entered into a consulting agreement under which Parcks Designs provides club and shaft testing +and analysis, putter head design consulting, and related technical services. Consulting fees under this agreement were initially nominal +and increased to $2,000 per month beginning June 1, 2024. +On +August 7, 2018, Richard E. Parente and Steve Sacks assigned to the Company the entire worldwide right, title, and interest in and to +intellectual property relating to the Quad Weighted Lightweight Putter design. +Confidential +Information and Trade Secrets +The +Company relies in part on confidential information and trade secrets, including proprietary manufacturing processes, product design methodologies, +engineering know-how, and other technical information. The Company seeks to protect this proprietary information through a combination +of contractual obligations and internal policies. +Employees +generally enter into confidentiality agreements with the Company, and confidentiality provisions are included in certain consulting and +supplier agreements when those parties may have access to proprietary information. The Company also maintains internal procedures designed +to safeguard confidential information and trade secrets. +Certain +aspects of the Company’s composite shaft technologies, including manufacturing techniques, material configurations, and design +methodologies, are maintained as proprietary trade secrets rather than patented technologies in order to preserve confidentiality. +Trademarks +The +Company owns various trademarks and service marks used in connection with its golf equipment products and branding. These trademarks +are registered in the United States and certain international jurisdictions. +● +USPTO +Reg. No. 5,783,037 (Veni Vidi Vici) +● +USPTO +Reg No. 5,822,719 (Sacks Parente) +● +South +Korea Reg. No. 40-1820381 (Sacks Parente) +The +Company also uses various trademarks, trade names, and brand identifiers in connection with its products and marketing activities. These +include marks associated with the Company’s Newton-branded golf equipment products. The Company may seek trademark protection for +certain of these marks in the United States and other jurisdictions where appropriate. +Trademark +rights may continue indefinitely as long as the marks remain in use and registrations are properly maintained. +9 +Domain +names and Online Presence +The +Company owns and maintains various domain names and online properties used in connection with its websites, investor relations +communications, and marketing activities, including www.newtongolf.com. The Company also maintains official social media accounts +used to communicate with customers, investors, and the broader golf community. +Government +Regulation +Our +operations are subject to various federal, state, local, and foreign laws and regulations applicable to businesses engaged in the design, +manufacture, marketing, and distribution of consumer sporting goods. +Our +golf equipment products are generally designed to conform to the Rules of Golf as established by the USGA +and the R&A, the governing bodies responsible for equipment standards used in competitive play. Although conformity with these rules +is not legally required, most golf equipment manufacturers design products to meet these standards because non-conforming equipment may +be restricted from use in sanctioned competitions. +In +addition, we are subject to laws and regulations relating to product safety, consumer protection, workplace health and safety, environmental +compliance, import and export controls, and other similar regulatory requirements. These laws include, among others, environmental regulations +governing the handling and disposal of certain materials used in manufacturing processes and workplace safety requirements administered +by federal and state agencies. +Our +operations are also subject to laws addressing anti-corruption and anti-bribery matters, including the U.S. Foreign Corrupt Practices +Act (“FCPA”), particularly with respect to our international operations and relationships with distributors and other business +partners. +We are subject to various data protection, privacy, +and cybersecurity laws and regulations applicable to companies that maintain websites, conduct e-commerce activities, and process personal +information. These laws include, among others, U.S. federal and state privacy laws such as the California Consumer Privacy Act, as amended +by the California Privacy Rights Act, as well as other emerging state privacy regimes, and may also include international data protection +laws to the extent we engage with customers outside the United States. +While we primarily rely on third-party service providers, +including e-commerce platforms and payment processors such as Shopify, Amazon, and Fortis, to process payment transactions and related +sensitive financial information, we collect and maintain certain personal information from customers, including names, email addresses, +shipping addresses, and related order information. As a result, we remain subject to applicable privacy, data security, and breach notification +requirements. +Compliance with these laws and regulations +may require us to implement and maintain administrative, technical, and organizational safeguards, as well as policies and procedures +relating to data collection, use, retention, and security. These requirements may increase our compliance costs and operational complexity, +and any failure or perceived failure to comply with applicable data protection and privacy laws could result in regulatory investigations, +fines, litigation, reputational harm, and loss of customer trust. +We +believe we are in material compliance with applicable laws and regulations governing our operations. However, changes in laws, regulations, +or their interpretation could require modifications to our business practices and may increase our compliance costs in the future. +Environmental +Matters +The +Company is subject to federal, state, and local environmental laws and regulations that impose requirements related to the discharge +of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage, +and disposal of certain materials, substances, and wastes, as well as the remediation of environmental contamination (collectively, “Environmental +Laws”). +In +the ordinary course of its manufacturing and product assembly processes, the Company uses paints, coatings, chemical solvents, and other +materials and generates waste by-products that are subject to these Environmental Laws. +The +Company maintains environmental and safety programs at its facilities designed to support compliance with applicable Environmental Laws. +These programs include obtaining required environmental permits, managing and disposing of waste materials in accordance with regulatory +requirements, tracking hazardous waste generation and disposal, monitoring air emissions and stormwater management practices, maintaining +material safety data records, and conducting internal compliance reviews. +The +Company believes it is in material compliance with applicable Environmental Laws. Compliance with these laws has not had a material adverse +effect on the Company’s capital expenditures, earnings, or competitive position, although future changes in environmental regulations +could require additional compliance efforts or expenditures. +10 +Employees +As +of December 31, 2025, the Company employed 38 full-time employees and 1 part-time employee and engaged 7 consultants. We may hire additional +personnel from time to time to support operational needs and anticipated growth. None of our employees are represented by a labor union, +and we have not experienced any work stoppages. We believe our relations with our employees are good. +Available +Information +The +Company maintains a website at www.newtongolf.com . The information contained on, or accessible through, the Company’s website +is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report. +The +Company makes available, free of charge, on or through its website certain reports and amendments to those reports that it files +with or furnishes to the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Securities Exchange Act of +1934, as amended (the “Exchange Act”). These include the Company’s Annual Reports on Form 10-K, Quarterly Reports +on Form 10-Q, Current Reports on Form 8-K, proxy and information statements, and any amendments to those reports or statements. These materials +are made available on the Company’s website as soon as reasonably practicable after they are electronically filed with, or +furnished to, the SEC. +In +addition, the Company routinely posts on the “Investors” section of its website news releases, announcements, and other information +about the Company’s business and results of operations, some of which may be considered material information for investors. Accordingly, +the Company encourages investors to monitor the Investors section of its website for important information about the Company. +The +SEC maintains a website that contains reports, proxy statements, information statements, and other information regarding issuers that +file electronically with the SEC. These materials are available at www.sec.gov . +Item +1A. Risk Factors +An +investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, +together with all other information contained in this Annual Report on Form 10-K, including our financial statements and related notes, +before making an investment decision. +The +risks and uncertainties described below are those that we currently believe are material to our business. If any of these risks occur, +our business, financial condition, results of operations, and cash flows could be materially and adversely affected. In that event, the +trading price of our common stock could decline, and investors could lose all or part of their investment. +The +risks described below are not the only risks we face. Additional risks and uncertainties that are not currently known to us or that we +currently consider to be immaterial may also materially and adversely affect our business, financial condition, results of operations, +or cash flows. +11 +Risks +Related to Our Industry and Business +Our independent auditor has expressed substantial +doubt about our ability to continue as a going concern. +We have experienced recurring operating +losses and negative operating cash flows since our inception, and we may not be able to generate sufficient funds from our future operations +to meet our cash flow requirements. Our ability to continue as a going concern is dependent upon our ability to obtain necessary debt +or equity financing to continue operations until we begin generating positive cash flow. No assurance can be given that any future financing +will be available to us or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional +financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our +stockholders, in the case of equity financing. +A +reduction in the number of rounds of golf played or in the number of golf participants could adversely affect sales. +We +currently generate our revenue from the sale of golf shafts, golf putters, golf grips and related gear. The demand for golf-related +products in general, as well as the demand for golf-related soft goods, is directly related to the number of golf participants and +the number of rounds of golf being played by these participants. If golf participation decreases or the number of rounds of golf +played decreases, sales of our products may be adversely affected. In the future, the overall dollar volume of the market for +golf-related products may not grow or may decline. +In +addition, the demand for golf products is directly related to the popularity of magazines, cable channels and other media dedicated to +golf, television coverage of golf tournaments and attendance at golf events. We depend on the exposure of our products through advertising +and the media or at golf tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournaments +and events or any significant reduction in the popularity of golf magazines or golf television channels, could reduce the visibility +of our brand and could adversely affect sales. +We +may have limited opportunities for future growth in sales of golf products. +In +order for us to significantly grow sales of golf putters or golf shafts, we must either increase our share of the market for golf putters +or golf shafts, develop markets in geographic regions historically underrepresented by our products, or the overall market for golf equipment +or golf shafts must grow. We currently have no significant share of worldwide sales of golf equipment and golf shafts, and the golf industry +is very competitive. As such, gaining market share quickly or at all is difficult. Therefore, opportunities for additional market share +may be limited given the challenging competitive nature of the golf industry, and the overall dollar volume of worldwide sales of golf +equipment or golf shafts may not grow or may decline. +We +are in the early stages of scaling our business, and our growth strategy may not be successful. +We +are in the early stages of scaling our operations, including expanding manufacturing capacity, increasing marketing activities, and growing +our distribution channels. Our future success depends on our ability to manage growth effectively while maintaining product quality, +operational efficiency, and customer satisfaction. +Rapid +growth may place significant demands on our management, operational, and financial resources. We may encounter difficulties in expanding +production capacity, hiring and retaining qualified personnel, managing supply chains, or maintaining effective internal controls as +our business grows. +If +we are unable to successfully manage these challenges, our growth strategy may not be successful, and our business, financial condition, +and results of operations could be materially adversely affected. +We +may face increased labor costs or labor shortages that could slow growth and adversely affect our business, results of operations and +financial condition. +Labor +is a primary component in the cost of operating our business. If we face labor shortages or increased labor costs because of +inflation, increased competition for employees, higher employee turnover rates, increases in the federally-mandated or +state-mandated minimum wage, changes in exempt and non-exempt status, the impact of pandemics, or other employee benefits costs +(including costs associated with health insurance coverage or workers’ compensation insurance), our operating expenses could +increase and our growth could be adversely affected. With specific regard to recent inflationary pressures, we have seen some +increases in material costs for various metals and carbon fiber, and costs associated with shipping and receiving goods. We may see +additional pressure on labor costs, both inside the Company and from suppliers as they face these same issues. +Furthermore, +the successful operation of our business depends upon the ability to attract, motivate and retain a sufficient number of qualified executives, +managers and skilled employees. From time to time, there may be a shortage of skilled labor in certain of the communities in which we +operate. Shortages of skilled labor may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactory +number of qualified employees, which could disrupt the ability to get product to market, to produce products, to acquire suitable companies +or partners and adversely impact some or all of our operations and our profitability. Furthermore, competition for qualified employees, +particularly in markets where such shortages exist, could require us to pay higher wages, which could result in higher labor costs. Companies +in the golf industry have also historically experienced relatively high turnover rates, which may also result in higher labor costs. +Accordingly, if we are unable to recruit and retain sufficiently qualified individuals, our business, results of operations, financial +condition and growth prospects could be materially and adversely affected. +12 +In +addition, immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new immigration +legislation is enacted, such laws may contain provisions that could increase our costs in recruiting, training and retaining employees, which could materially and adversely affect our business, results of operations, and financial condition. +Unfavorable +economic conditions, including due to future pandemics, inflation, tariffs, geopolitical conflicts or otherwise, could have a negative impact on consumer +discretionary spending and therefore negatively impact our results of operations, financial condition and cash +flows. +Our +products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to +make discretionary purchases of golf products and to spend on leisure and out-of-home entertainment during favorable economic +conditions and when consumers are feeling confident and prosperous. Any actual or perceived deterioration or weakness in general, +regional or local economic conditions, unemployment levels, the job or housing markets, consumer debt levels or consumer confidence, +as well as other adverse economic or market conditions due to a pandemic, inflation, tariffs, geopolitical conflicts or otherwise +may lead to customers having less discretionary income to spend on entertainment and recreational activities, and may result in +significant fluctuations and spending patterns year to year. Discretionary spending is also affected by many other factors, +including general business conditions, interest rates, the availability of consumer credit, taxes and consumer confidence in future +economic conditions. Purchases of our products and services could decline during periods when disposable income is lower, or during +periods of actual or perceived unfavorable economic conditions. A significant or prolonged decline in general economic conditions or +uncertainties regarding future economic prospects that adversely affect consumer discretionary spending, whether in the United +States or in our international markets, could result in reduced sales of our products, which in turn would have a negative impact on +our results of operations, financial condition and cash flows. +A +severe or prolonged economic downturn could adversely affect our wholesale customers’ financial condition, their levels of business +activity and their ability to pay trade obligations. +We +primarily sell our products to consumers online, through retailers and wholesalers, and through certain other +outlets, like golf fitters. We perform credit evaluations of larger distribution customers’ financial condition and generally +require no collateral from these customers. However, a severe or prolonged downturn in the general economy could adversely affect +the retail market which in turn, would negatively impact the liquidity and cash flows of these distribution customers, including the +ability of such customers to obtain credit to finance purchases of our products and to pay their trade obligations. This could +result in increased delinquent or uncollectible accounts for some of our customers. A failure by these customers to pay on a timely +basis a significant portion of outstanding account receivable balances would adversely impact our results of operations, financial +condition and cash flows. +We +face intense competition in all of our markets, and if we are unable to compete effectively, it could have a material adverse effect +on our business, results of operations, financial condition and growth prospects. +Our +golf shaft products, golf putting instruments, grips and other products exist in a highly competitive +marketplace that is served by a number of well-established and well-financed companies with recognized brand names. In particular +four major competitors enjoy the majority of U.S. market share in golf. +With +respect to golf equipment sales, new product introductions, price reductions, consignment sales, extended payment terms, “close +outs”, tour and advertising spending by competitors continues to generate intense market competition. Furthermore, downward pressure +on pricing in the market for products like ours could have a significant adverse effect on our business. +With +respect to golf shaft sales, our competitors do incur significant costs in the areas of advertising, tour and other promotional +support. To be competitive, we believe we also will need to incur significant expenses in tour, advertising and promotional support. +In addition, we have invested, and may continue to invest in the future, significant capital into upgrades in our manufacturing and +assembly facilities, including our golf shaft manufacturing facility in St. Joseph, Missouri, to maintain what we believe to be our +technological and competitive advantage. Unless there is a change in competitive conditions, these competitive pressures and +increased costs could adversely affect our results of operations and financial position. +13 +If +we are unable to successfully manage the introduction of new products that perform and satisfy changing consumer preferences, it could +significantly and adversely impact financial performance and prospects for future growth. +Our +golf products, like those of our competitors, generally have a life cycle. Depending on the product, it is considered typical within +the industry that revenue from a new product rises and peaks within a three-year period, with sales occurring at a higher rate in the +first two years than in the third. Factors driving a product life cycle include the rapid introduction of competitive products, consumer +demands for the latest technology or a professional who uses the product and is victorious in a major tournament. In this marketplace, +it is reasonable to assume our annual revenues can be affected each year by the introduction of new products, those that are in their +first two years of the product life cycle, and successful professional use. +These +marketplace conditions raise a number of issues that we must successfully manage. For example, we must properly anticipate consumer preferences +and design products that meet those preferences while also complying with restrictions imposed on golf equipment by the Rules of Golf +(see further discussion of the Rules of Golf below) or our new products will not achieve sufficient market success to compensate for +the usual decline in sales experienced by products already in the market. Second, our research and development, third-party design and +prototyping services and external suppliers will face constant pressures to design, develop, source and supply new products that perform +better than their predecessors, many of which incorporate new or otherwise untested technology, suppliers or materials. Third, for new +products to generate equivalent or greater revenues than their predecessors, they must either maintain the same or higher sales levels +with the same or higher pricing, or exceed the performance of their predecessors in one or both of those areas. Fourth, the relatively +short window of opportunity for launching and selling new products requires great precision in forecasting demand and assuring that supplies +are ready and delivered during the critical selling periods. +Finally, +the rapid changeover in products creates a need to monitor and manage the closeout of older products both at retail and in our own inventory. +Should we not successfully manage the frequent introduction of new products that satisfy consumer demand, our results of operations, +financial condition and cash flows could be significantly adversely affected. +Our +revenue could become concentrated among a limited number of customers, and the loss of a significant customer could adversely affect +our business. +For +the year ended December 31, 2025, no individual customer accounted for more than 10% of our consolidated revenue. However, our golf equipment, +golf gear, and other related products are sold through distributors, retailers, club fitters, and other channel partners, and our revenue +may become concentrated among a limited number of customers in the future. +If +one or more significant customers were to reduce, delay, or discontinue purchases of our products, experience financial difficulties, +or otherwise terminate their relationship with us, and we were unable to replace that business in a timely manner, our revenue, financial +condition, and results of operations could be materially adversely affected. +Our +business depends on a strong brand and related reputation, and if we are not able to build, maintain and enhance our brand or build a +strong reputation, our sales may be adversely affected. +Our +success depends in part on our ability to build, maintain, and enhance a brand image and reputation. Maintaining, promoting and enhancing +our brand may require us to make substantial investments in areas such as product innovation, product quality, intellectual property +protection, marketing and employee training, and these investments may not have the desired impact on our brand image and reputation. +Our business could be adversely impacted if we fail to achieve any of these objectives or if the brand reputation or image of any of +our products is tarnished or receives negative publicity. +14 +In +addition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine consumer +confidence and reduce demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. +Also, as we seek to grow our presence in existing, and expand into new, geographic or product markets, consumers in these markets may +not accept our brand image and may not be willing to pay a premium to purchase our products as compared to other brands. We anticipate +as we continue to grow our presence in existing markets and expansion into new markets, further developing our brand may become increasingly +difficult and expensive. If we are unable to maintain or further develop the image of our brand, it could materially adversely affect +our business, financial condition and results of operations. +In +addition, there has been a marked increase in the use of social media platforms and other forms of internet-based communications that +provide individuals and businesses with access to a broad audience of consumers and other interested persons. The availability of information +on social media platforms is virtually immediate, as is its potential impact to affected individuals and businesses. Many social media +platforms immediately publish the content posted by their subscribers and participants, often without filters or checks on the accuracy +of the content posted. Accordingly, the use of social media by customers or other +third parties could create negative publicity, damage our brand or our reputation and have a material adverse effect on our business, financial +condition and results of operations. +Our +ability to grow our business depends in part on the effectiveness of our marketing and digital advertising strategies. +We +rely on various marketing channels, including digital advertising, social media platforms, search engines, influencer marketing, and +other promotional activities to generate consumer awareness and demand for our products. The effectiveness of these marketing efforts +may fluctuate due to changes in advertising costs, platform algorithms, privacy regulations, or consumer preferences. +Increased +competition for online advertising placements or changes to advertising platform policies may increase the cost of customer acquisition +or reduce the effectiveness of our marketing campaigns. In addition, negative publicity or unfavorable commentary about our brand on +social media or other online platforms could adversely affect consumer perception of our products. +If +our marketing efforts are not effective or become significantly more expensive, our ability to acquire new customers and grow revenue +could be adversely affected. +International +political instability and terrorist activities may decrease demand for our products and disrupt our business. +Terrorist +activities and armed conflicts, such as in Ukraine and the Middle East, including escalation of hostilities arising out of any +global conflict, could have an adverse effect on the United States or worldwide economy and could decrease demand for our +products as consumers’ attention and interests are diverted from golf and become focused on issues relating to these events. +If such events disrupt domestic or international air, ground or sea shipments, or the operation of our manufacturing facilities, our +ability to obtain the materials and components necessary to manufacture products and to deliver customer orders would be harmed, +which would have a material adverse effect on our results of operations, financial condition and cash flows. Such events can also +negatively impact tourism, which could adversely affect our sales to retailers at resorts and other vacation destinations. In +addition, the occurrence of political instability and/or terrorist activities generally restricts travel to and from the affected +areas, making it more difficult in general to manage our international relationships and operations. In particular, escalating +political tensions could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened +economic sanctions from the U.S. and the international community in a manner that adversely affects our business. +Consolidation of retailers +or concentration of retail market share among a few retailers may increase and concentrate our credit risk, put pressure on our margins +and impair our ability to sell products. +The sporting goods and off-course golf equipment retail +markets in some countries, including the United States, are dominated by a few large retailers. Certain of these retailers have in the +past increased their market share and may continue to do so in the future by expanding through acquisitions and construction of additional +stores. Future industry consolidation and correction is possible. These situations may result in a concentration of our credit risk with +respect to our sales to such retailers, and, if any of these retailers were to experience a shortage of liquidity or other financial difficulties, +or file for bankruptcy or receivership protection, it would increase the risk that their outstanding payables to us may not be paid. This +consolidation may also result in larger retailers gaining increased leverage, which may impact our margins. In addition, increasing market +share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially +reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain +the same level of sales. Any reduction in sales by our retailers could materially adversely affect our business, financial condition and +results of operations. +Demographic factors may +affect the number of golf participants and related spending on our products. +Golf is a recreational activity that requires both +time and financial resources, and different generations and socioeconomic and ethnic groups use their leisure time and discretionary funds +in different ways. Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular +as it is among older generations. A decline in golf participation or the number of rounds of golf played due to factors such as demographic +changes or lack of interest in the sport among young people or certain socioeconomic and ethnic groups could reduce sales of our products +and materially adversely affect our business, financial condition and results of operations. +Our +business could be harmed by the occurrence of natural disasters, pandemic diseases, or other emergencies. +The +occurrence of a natural disaster, such as an earthquake, tornado, tsunami, fire, flood or hurricane, or the further outbreak of a +pandemic disease, could significantly adversely affect our business. A natural disaster or a pandemic disease could significantly +adversely affect the demand for our products, our ability to manufacture our products, as well as the supply of the components and +materials used to make our products. Demand for golf products also could be negatively affected as consumers in the affected regions +restrict their recreational activities and as tourism to those areas declines. If our suppliers experienced a significant disruption +in their business as a result of a natural disaster or other emergency, our ability to obtain the necessary components to make our +products could be significantly adversely affected. In addition, the occurrence of a natural disaster or the outbreak of a pandemic +disease generally restricts travel to and from the affected areas, making it more difficult in general to manage +operations. +Our +business and operating results are subject to seasonal fluctuations, which could result in fluctuations in our operating results and +stock price. +Our +business, and the golf industry in general, is subject to both seasonal and non-seasonal fluctuations. In the golf equipment business, +first-quarter sales may generally represent sales of products online and to certain golf retail channels for the new golf season. Our +second and third-quarter sales may generally represent sales online and reorder business for our products. Sales of products during the +second and third quarters may be significantly affected not only by the sell-through of our products that were sold into the channel +during the first quarter but also by the sell-through of products by our competitors. Retailers can be reluctant to reorder our products +in significant quantities if they already have excess inventory of our products or our competitors. Our sales during the fourth quarter +may be generally less than those of the other quarters because in many of our key regions fewer people are playing golf during that time +of year due to cold weather. Furthermore, we generally announce new golf product lines in the fourth quarter to allow retailers to plan +for the new golf season. Such early announcements of new products could cause golfers, and therefore our customers, to defer purchasing +additional golf equipment until our new products are available. Such deferments could have a material adverse effect on sales of current +products or result in closeout sales at reduced prices. +15 +In +addition, due to the seasonality of our business, our business can be significantly adversely affected by unusual or severe weather conditions. +Unfavorable weather conditions generally result in fewer golf rounds played, which generally results in reduced demand for all golf products. +Furthermore, catastrophic storms can negatively affect golf rounds played both during the storms and afterward, as storm damaged golf +courses are repaired and golfers focus on repairing damage to their homes, businesses and communities. +Changes +in equipment standards under applicable Rules of Golf could adversely affect our business. +We +seek to have all our shafts, putting instruments, and grips meet the standards published by the USGA and the R&A in the +Rules of Golf because these standards are generally followed by golfers, both professional and amateur, within their respective +jurisdictions. The USGA publishes rules that are generally followed in the United States, Canada and Mexico, and the R&A +publishes rules that are generally followed in most other countries throughout the world. However, the Rules of Golf as published by +the R&A and the USGA are virtually the same and are intended to be so pursuant to a Joint Statement of Principles issued in +2001. +In +the future, existing USGA and/or R&A standards may be altered in ways that adversely affect the sales of our current or future products. +If a change in rules were adopted and caused one or more of our current or future products to be nonconforming, our sales of such products +would be adversely affected. +Our +sales and business could be materially and adversely affected if professional athletes, celebrities and other endorsers do not endorse +or use our products. +We +have and intend in the future to establish relationships with professional athletes, celebrities and other endorsers in order to +evaluate and promote our branded products. We have currently and intend in the future to enter into endorsement arrangements with +members of the world’s various professional tours. These tours are known as the PGA Champions Tour, the PGA Tour, the LPGA +Tour, the PGA European Tour, the Japan Golf Tour, the Korn Ferry Tour, the Epson Tour, and The PGA Latin America Tour. We also +expect to enter into endorsements with celebrities to promote our brand. While most endorsers fulfill their contractual obligations +without issue, some have been known to stop using a sponsor’s products despite contractual commitments. If certain of our +endorsers were to stop using our products contrary to their endorsement agreements, or if any such endorser is or becomes the +subject of negative publicity, our business could be adversely affected in a material way by the negative publicity or lack of +endorsement. +We +believe that professional usage of our golf shafts, golf putting instruments, and golf grips contributes to retail +sales. We therefore spend a significant amount of money to secure professional usage of our products. Many other companies, however, +also aggressively seek the patronage of these professionals and offer many inducements, including significant cash incentives and +specially designed products. There is a great deal of competition to secure the representation of tour professionals. As a result, +it is expensive to attract and retain such tour professionals. The inducements offered by other companies could result in a decrease +in usage of our products by professional golfers or limit our ability to attract other tour professionals. A decline or refusal of +use by professional players of our products, or a significant increase in the cost to attract or retain endorsers, could have a +material adverse effect on our sales and our business. +Any +significant changes in U.S. trade or other policies that block or restrict imports or increase import tariffs could have a material adverse +effect on results of operations. +Although +the majority of our products are sourced or manufactured in the United States, certain components used in our products, including grips +and shaft adapters, are sourced from suppliers in China. In addition, certain manufacturing equipment used in our operations, particularly +equipment required to expand production capacity, may also be sourced from China. +Changes +in U.S. trade policies, including the imposition or expansion of tariffs or other restrictions on imports from China or other countries, +could increase the cost of these components or manufacturing equipment or disrupt their availability. If we are unable to offset such +cost increases or supply disruptions through pricing adjustments, alternative sourcing, or operational efficiencies, our business, financial +condition, and results of operations could be adversely affected. Although international sales currently represent less than 1% of our +total revenue, changes in international trade policies could affect our ability to expand into international markets in the future. +16 +Our +current senior management team and other key executives are critical to our success, and the loss of, and failure to adequately replace, +any individual executive, or manager, could significantly harm our business . +Our +ability to build and maintain a competitive position is dependent to a large degree on the efforts and skills of the senior officers, +and certain key managers. Our executives are experienced and highly qualified with strong reputations in their industries, and we believe +our management team enables us to pursue our strategic goals. The success of our business is dependent upon the management and leadership +skills of our senior management team and other key personnel. Certain key personnel may not be easily replaced, and may have knowledge +in processes, manufacturing techniques, materials science, etc. where the loss of such a person, or persons, may limit our ability to +achieve our strategic goals. Competition for these employees and their individuals’ talents is intense, and we may not be able +to attract and retain a sufficient number of qualified personnel in the future. The loss of one or more of these senior officers could +have a material adverse effect on our business and ability to achieve our strategic goals. +Risks +Related to Our Intellectual Property +Failure +to adequately enforce our intellectual property rights could adversely affect our reputation and sales. +The +golf industry, in general, has been characterized by widespread imitation of designs, or technological improvements. We have an active +program of monitoring, investigating and enforcing our proprietary rights against companies and individuals who market or manufacture +counterfeits and “knockoff” products or copy intellectual property. We will assert our rights against infringers of our patents, +copyrights, trademarks and trade dress. However, these efforts may not be successful in reducing sales of golf products by these infringers. +Additionally, other golf club manufacturers may be able to produce successful golf clubs which imitate our designs without infringing +any of our copyrights, patents, trademarks or trade dress. +We +may become subject to intellectual property claims or lawsuits that could cause us to incur significant costs or pay significant damages +or that could prohibit us from selling our products. +Competitors +in the golf equipment industry seek to obtain patent, trademark, copyright or other protection of their proprietary rights and +designs for golf equipment, golf shafts and other products as do we. From time to time, third parties have claimed or may claim in +the future that our products infringe upon their proprietary rights. We have evaluated and would evaluate any such claims and, where +appropriate, would seek to obtain licenses or other business arrangements. To date, there have been no interruptions in our business +as a result of any claims of infringement, and we do not believe that we materially infringe the intellectual property rights of +third parties. However, in the future, intellectual property claims could force us to alter existing products or withdraw them from +the market or could delay the introduction of new products. +17 +Various +patents have been issued to our competitors in the golf industry, and these competitors may assert that our golf products infringe their +patent or other proprietary rights. If our golf products were found to infringe third-party intellectual property rights, we may be unable +to obtain a license to use such technology, and it could incur substantial costs to redesign products, withdraw them from the market, +and/or to defend legal actions. +Risks +Related to Operations, Manufacturing, and Technology +We +are exposed to risks associated with doing business globally and manufacturing in the U.S. +Currently +we sell and distribute products in markets around the world, such as the Americas, Asia and Europe. These activities have and will continue +to result in investments in inventory, accounts receivable, employees, corporate infrastructure and manufacturing facilities. There are +a limited number of suppliers that manufacture components in the United States, and we are dependent on these suppliers and vendors. +We have some components provided by vendors located outside of the United States and if these components were unavailable, it could have +a materially adverse effect on our operations, financial performance and condition. The operation of foreign distribution in our international +markets, as well as our management of relationships with international suppliers and vendors, will require the dedication of our management +and other Company resources. We currently assemble all of our products and manufacture some of our products in the United States. +As +a result of our international business, we are exposed to increased risks inherent in conducting business outside of the United States. +These risks include the following: +●Adverse +changes in foreign currency exchange rates can have a significant effect upon our results of operations, financial condition and cash +flows; +●Increased +difficulty in protecting our intellectual property rights and trade secrets; +●Unexpected +government action or changes in legal or regulatory requirements; +●Social, +economic or political instability; +●The +effects of any anti-American sentiments on our brand or sales of our products; +●Increased +difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, +including but not limited to the FCPA, international environmental, health +and safety laws, and increasingly complex regulations relating to the conduct of international commerce, including import/export laws +and regulations, economic sanctions laws and regulations and trade controls, including tariffs; +●changes +in international labor costs and other costs of doing business internationally; +●Increased +difficulty in controlling and monitoring foreign vendor operations from the United States, including increased difficulty in identifying +and recruiting qualified personnel for our foreign operations; and +●Increased +exposure to interruptions in land based, air carrier or ocean shipping services. +Any +significant adverse change in these and other circumstances or conditions relating to international operations could have a significant +adverse effect on our operations, financial performance and condition. +18 +We +have international sales and international supply chains where unfavorable changes in foreign currency exchange rates could have a significant +negative impact on our results of operations. +A +portion of our component inventory purchases and a portion of our sales come from international markets. As a result, we will conduct +transactions in various currencies worldwide. We expect international business, and the number of transactions that we will conduct in +foreign currencies, to become significant. Conducting business in such currencies exposes us to fluctuations in foreign currency exchange +rates relative to the U.S. dollar. +Our +financial results are reported in U.S. dollars, and as a result, transactions conducted in foreign currencies must be translated into +U.S. dollars for reporting purposes based upon the applicable foreign currency exchange rates. Fluctuations in these foreign currency +exchange rates therefore may positively or negatively affect our reported financial results and can significantly affect period-over-period +comparisons. +The +effect of the translation of foreign currencies on our financial results could be significant. We therefore may engage in hedging activities +to mitigate the annual impact of the translation of foreign currencies on our financial results. These hedging activities may reduce, +but will not eliminate, the effects of foreign currency fluctuations. The extent to which our hedging activities mitigate the effects +of foreign currency translation varies based upon many factors, including the number of transactions being hedged. Other factors that +could affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets and the +availability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the negative +impact of a stronger U.S. dollar but also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantly +affected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business. +Foreign +currency fluctuations may also affect the prices at which products are sold in international markets. Therefore, we adjust pricing based +in part upon fluctuations in foreign currency exchange rates. Significant unanticipated changes in foreign currency exchange rates make +it more difficult for us to manage pricing in international markets. If we are unable to adjust pricing in a timely manner to counteract +the effects of foreign currency fluctuations, our pricing may not be competitive in the marketplace and our financial results in international +markets could be adversely affected. +Any +difficulties from strategic acquisitions or strategic partnerships we pursue or consummate could adversely affect business, financial +condition and our results of operations. +We +may acquire companies, businesses and products or product lines that complement or augment our existing business or planned growth markets. +Integrating any newly acquired business, or partnership, is typically expensive and time-consuming. Integration efforts often take a +significant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be more +difficult or expensive than predicted. The diversion of management’s attention and any delay or difficulties encountered in connection +with any such acquisitions could result in the disruption of ongoing business or inconsistencies in standards and controls that could +negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or +private debt or equity financing, or issue additional shares, to continue operating the business, which may result in dilution for stockholders +or the incurrence of indebtedness. +As +part of our efforts to acquire companies, businesses or products or to enter into other significant transactions, we intend to conduct business, +legal and financial due diligence with the goal of identifying and evaluating material risks involved in such transactions. Despite our +efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended +advantages of the transaction. If we fail to realize the expected benefits from a transaction, whether as a result of unidentified risks, +integration difficulties, complexities associated with managing the combined business, performance shortfalls at one or both of the companies +as a result of the diversion of management’s attention caused by completing the transaction and integrating the companies’ +operations, litigation with current or former employees and other events, our business, financial condition and results of operations +could be adversely affected. +19 +If +we inaccurately forecast demand for our products, we may manufacture either insufficient or excess quantities, which, in either case, +could adversely affect our financial performance. +We +plan our manufacturing capacity based upon forecasted demand for our products. Forecasting demand for our products is very difficult +given the manufacturing lead times and the number of specifications involved. For example, we must forecast how many putting instruments +we will sell, but also (1) the quantity of each model, (2) the quantity of the different components in each model, and (3) for each model, +the style of grip, the number of left-handed and right-handed versions, and the style of shaft and hosel type. The nature of our business +allows for some control over our manufacturing capacity if actual demand for a product or products exceed or are less than forecasted +demand. However, if actual demand for a product or products exceeds the forecasted demand, we may not be able to produce sufficient quantities +of products in time to fulfill actual demand, which could limit our sales and adversely affect financial performance. On the other hand, +if actual demand is less than the forecasted demand for a product or products, we could produce excess quantities, resulting in excess +inventories and related obsolescence charges that could adversely affect our financial performance. +If +we inaccurately forecast demand or fail to manage inventory effectively, our financial results could be adversely affected. +Our +ability to manage inventory effectively depends on accurately forecasting demand for our products and maintaining appropriate production +and inventory levels. Because our products are manufactured with multiple specifications and components, including variations in shaft +models, flexes, and configurations, forecasting demand is complex. +If +we overestimate demand, we may produce excess inventory, which could result in inventory write-downs, discounting, or obsolescence. Conversely, +if we underestimate demand, we may be unable to produce sufficient quantities of products in a timely manner to meet customer demand, +resulting in lost sales opportunities and damage to customer relationships. +In +addition, our inventory balances depend on accurate bills of materials, cost assumptions, and system configurations. Errors in these +assumptions or systems could lead to inaccurate inventory valuations, operational inefficiencies, or financial reporting adjustments. +Any of these factors could have a material adverse effect on our business, financial condition, and results of operations. +Our +planned international business expansions could adversely affect results if they fail to successfully transition and grow revenue. +As +we plan to expand our footprint into Asia, Latin America, and Europe, we could be harmed if we fail to successfully transition the business +processes to a larger global scale. Our initial international expansion target is Asia, more specifically Japan, South Korea and other +growth areas within the region, and is expected to require significant investment of capital and human resources. Since brick-and-mortar retail stores +are still strong in many parts of Asia, the distribution structure and its costs and operations are significantly different from those +in the U.S. As we increase the number of distributors, it is likely that the number of retail outlets throughout the region will also +increase, in which case we will be required to add staff and devote additional management attention. This international attention by +the management team and other employees who would otherwise be solely focused on the core U.S. business creates significant risk. If +our globalization efforts fail to produce increases in revenue, or the transition is not managed effectively, we may experience loss +of investments or excessive inventories and undue costs that could harm our business, financial condition and results of operations. +We +depend on single source or a limited number of suppliers for some of the components of in our products, and the loss of any of these +suppliers could harm our business. +We +are currently dependent on a limited number of suppliers for CNC milled components and carbon fiber for our shafts, some of which could +have limited sourcing options. Furthermore, some of our products require specially developed manufacturing techniques and processes which +make it difficult to identify and utilize alternative suppliers quickly. In addition, many of our suppliers may not be well capitalized +and prolonged unfavorable economic conditions could increase the risk that they will go out of business. If current suppliers are unable +to deliver putter components, materials or other components, or if we are required to transition to other suppliers, we could experience +significant production delays or disruption to our business. We also depend on a single or a limited number of suppliers for the materials +used to make our golf grips. Many of these materials are designed and customized to our specifications. Any delay or interruption in +such supplies could have a material adverse impact on our golf grip or shaft business. If we experience any such delays or interruptions, +we may not be able to find adequate alternative suppliers at a reasonable cost or without significant disruption to our business. +A +significant disruption in the operations of our assembly and golf shaft manufacturing facilities could have a material adverse effect +on our sales, profitability and results of operations. +A +significant disruption at any of our assembly or golf shaft manufacturing facilities or distribution centers in the United States or +in regions outside the United States could materially and adversely affect our sales, profitability and results of operations. Our manufacturing +and assembly facilities or distribution centers may be subject to a number of risks related to computer viruses, the proper operation +of software and hardware, electronic or power interruptions, and other system failures. Risks associated with upgrading or expanding +these facilities may significantly disrupt or increase the cost of our operations, which may have an immediate, or in some cases prolonged, +impact on our margins. Difficulties in implementing new or upgraded technology or operational systems, could disrupt our operations and +could materially and adversely affect our financial condition, results of operations or cash flows. +20 +A +significant portion of our manufacturing operations are concentrated in a single facility, and any disruption to this facility could +adversely affect our business. +A +significant portion of our manufacturing operations, including the production of our carbon fiber golf shafts and assembly of certain +golf products, are conducted at our facility in St. Joseph, Missouri. Because a large portion of our manufacturing capacity is concentrated +in this single location, any disruption to operations at this facility could materially affect our ability to manufacture products and +fulfill customer orders. +Such +disruptions could result from equipment failure, power outages, fires, severe weather events, labor shortages, natural disasters, cybersecurity +incidents, supply interruptions, or other unforeseen circumstances. If our manufacturing operations were disrupted for any extended period +of time, we could experience delays in fulfilling orders, lost sales, increased operating costs, and damage to customer relationships. +Any such disruption could have a material adverse effect on our business, financial condition, and results of operations. +A +disruption in the service or a significant increase in the cost of our primary delivery and shipping services for our products and component +parts or a significant disruption at shipping ports could have a material adverse effect on our business. +We +use FedEx Corporation (“FedEx”) and United Parcel Service (“UPS”) for substantially all ground shipments of +products to U.S. customers. We have and will continue to consider other carriers for domestic shipments, and we use air carriers, +ocean shipping services and the like, for our international shipments of products. Furthermore, many of the components we use to +build our putters, including heads and components and carbon fiber for shafts, are shipped to our locations via air carrier and ship +services. If there is any significant interruption in service by such providers or at airports or shipping ports, we may be unable +to engage alternative suppliers or to receive or ship goods through alternate sites in order to deliver our products, components or +materials in a timely and cost-efficient manner. As a result, we could experience manufacturing delays, increased manufacturing and +shipping costs and lost sales as a result of missed delivery deadlines and product demand cycles. Any significant interruption in +FedEx, UPS or other carrier services, air carrier services, ship services or at airports or shipping ports could have a material +adverse effect on our business. Furthermore, if the cost of delivery or shipping services were to increase significantly and the +additional costs could not be covered by product pricing, our results of operations and financial position could be materially +adversely affected. +The +costs and availability of finished products, product components and raw materials could affect our operating results. +The +costs and availability of the finished products, product components and raw materials needed in our products can be volatile as a +result of numerous factors, including general, domestic, and international economic conditions; labor costs; production levels; +competition; consumer demand; import duties; tariffs; and currency exchange rates. In 2025, we have already experienced increases in +the cost of specific materials, such as aluminum, brass, stainless/carbon steel, and tungsten. Although these increases have not had +a material impact on our results of operations to date, if the current inflationary trend were to continue, it could affect our margins and retail pricing. This +volatility could significantly affect the availability and cost of these items for us which could have a material adverse effect on +our business, financial condition and results of operations. +The +materials and components that we use, and that are used by our suppliers, involve raw materials, including aluminum, magnesium, +stainless steel, carbon steel, synthetic rubbers, thermoplastics, and carbon fiber for the manufacturing of our golf shafts, +titanium alloys, and epoxy resins and other materials for the assembly of our golf equipment, can experience significant price +fluctuations or shortages. These raw materials or components, including the costs to transport such materials or components, the +uncertainty of currency fluctuations against the U.S. dollar, increases in labor rates, trade duties or tariffs, and/or the +introduction of new and expensive raw materials, could materially adversely affect our business, financial condition and results of +operations. In addition, prolonged periods of inflationary pressure on some or all costs may result in increased costs to produce +our products that could have an adverse effect on profits from sales of these products, or require us to increase prices for our +products that could adversely affect consumer demand for our products. +Some +of our components are manufactured outside of the United States, which requires these products to be transported by third parties, sometimes +over large geographical distances. Shortages in ocean, land or air shipment capacity and volatile fuel costs can result in rapidly changing +transportation costs or an inability to transport products in a timely manner. Similarly, disruption to shipping and transportation channels +due to labor disputes could cause us to rely more heavily on alternative modes of transportation to achieve timely delivery to customers, +resulting in significantly higher freight costs. Because prices of our products are already seen online, prior to shipment, as changes +in transportation and other costs may be difficult to predict, we may not be able to pass all or any portion of these higher costs on +to our customers or adjust our pricing structure in a timely manner in order to remain competitive, either of which could have a material +adverse effect on our business, financial condition and results of operations. +We +may be subject to product warranty claims that require the replacement or repair of products sold. Such warranty claims could adversely +affect our results of operations and relationships with our customers. +We +manufacture and/or distribute a variety of products that have a two-year warranty policy for certain golf equipment. From time to time, +such products may contain manufacturing defects or design flaws that are not detected prior to sale, particularly in the case of new +product introductions or upon design changes to existing products. The failure to identify and correct manufacturing defects and product +design issues prior to the sale of those products could result in product warranty claims that result in costs to replace or repair any +such defective products. Because our products are sold to fitters/retailers for broader consumer distribution and/or to customers/distributors +who buy in large quantities, there could be significant costs associated with such product warranty claims, including the potential for +customer dissatisfaction that may adversely affect our reputation and relationships with customers, which may result in lost or reduced +sales. +21 +Our +growth initiatives require significant capital investments and there can be no assurance we will realize a positive return on these investments. +Initiatives +to drive sales and scale our business will require investment in, for example, technological improvements to our manufacturing or assembly +facilities, marketing programs with special displays or unique offerings, or special product limited editions, all involve many risks +which could result in, among other things, business interruptions and increased costs, any of which may result in our inability to realize +returns on these capital investments. Expansion of business processes or facilities, including a significant expansion or technical upgrades +for our golf shaft manufacturing facility in St Joseph, Missouri, all require significant capital investment. If we have insufficient sales +or are unable to realize the full potential of our capital investment, it may not realize a positive return on investment, which could +impact our margins and have a significant adverse effect on our results of operations, financial condition and cash flows. +Sales +of our products by unauthorized retailers or distributors could adversely affect our authorized distribution channels and harm our reputation. +Some +of our products find their way to unauthorized outlets or distribution channels. This “gray market” for our products can +undermine authorized retailers and foreign wholesale distributors who promote and support the sales of our products, and can injure our +image in the minds of our customers and consumers. While we may have to take lawful steps to limit commerce of our products in the “gray +market” in both the United States and abroad, it is unlikely that we could completely stop such commerce. In such case we could +incur damage to distributor relationships, which could materially adversely affect our business, financial condition and results of operations. +We +rely on research and development, technical innovation and high-quality products to successfully compete. +Technical +innovation and quality control in product design and manufacturing processes is essential to our success in the golf industry. Research +and development play a key role in technical innovation and our competitive advantage. We rely upon experts in various fields to work +with us to develop materials, processes, and components that give our products performance advantages over our competition. We also depend +on others who test the performance of our products. If we fail to continue to introduce technical innovation in our products, or if we are unable to effectively utilize new technologies +and materials, consumer demand for our products could fail to materialize, or decline, and if we experience problems with the quality +of our products, we may incur substantial brand damage and expense to remedy the problems, any of which could materially adversely affect +our business, financial condition and results of operations. +We +rely on information systems that assist in the management of our manufacturing, inventory, distribution, engineering, sales and other +functions. If our information systems were to fail to perform these functions adequately or if we experienced an interruption in operation, +including a cybersecurity breach, our business and results of operations could suffer. +All +of our major operations, including manufacturing, inventory, distribution, sales and accounting, are dependent upon information systems. +All information systems are vulnerable to damage or interruption from: +● +Earthquake, fire, flood, hurricane and other natural disasters; +●Power +loss, computer systems failure, Internet and telecommunications or data network failure; and +● +Hackers, computer viruses, software bugs or glitches. +Any +damage or significant disruption in the operation of any of our information systems, the failure of our IT vendors to perform +as expected, the failure to successfully integrate the information technology systems of a businesses that we may acquire or any cybersecurity +breach to any of our information systems (including financial or credit/payment frauds) would disrupt our business, which may result +in decreased sales, increased overhead costs, excess inventory and product shortages and otherwise adversely affect our reputation, operations, +financial performance and condition. +22 +We +rely in part on e-commerce platforms and online systems to generate sales, and disruptions to these systems could adversely affect our +business. +A +portion of our revenue is generated through direct-to-consumer sales conducted through our websites and other online platforms. Our e-commerce +operations rely on various third-party technology providers for website hosting, payment processing, order management, shipping integrations, +and other technology services. +If +our websites experience outages, degraded performance, cybersecurity incidents, or other technical disruptions, or if any of our third-party +technology providers experience service interruptions or cybersecurity breaches, our ability to accept and process customer orders could be +impaired. In addition, changes in pricing, service terms, or the availability of services from these providers could increase our operating +costs or disrupt our operations. +Any +failure of our e-commerce systems or those of our service providers could result in lost sales, delayed order fulfillment, reputational +harm, customer dissatisfaction, and increased operational costs, which could materially adversely affect our business, financial condition, +and results of operations. +Cyber-attacks, +unauthorized access to, or accidental disclosure of, consumer personally-identifiable information that we or our vendors collect through +our websites or stores on servers may result in significant expense and negatively impact our reputation and business. +Today +there is serious concern and awareness of the security of personal information transmitted over the Internet, consumer identity theft +and user privacy. As discussed in Item 1C, Cybersecurity, while we have implemented security measures, our computer systems and those +of our third party vendors and their data security systems and services may nevertheless be susceptible to electronic or physical computer +break-ins, viruses, fraud, and other disruptions and security compromises involving the loss or unauthorized access of confidential information +because technologies used to obtain unauthorized access to or sabotage systems are constantly evolving, change frequently, and generally +are not recognized until they are launched against a target. Any perceived or actual unauthorized or inadvertent disclosure of personally-identifiable +information, whether through a compromise of our own or our third party vendors’ networks by an unauthorized party, employee theft, +misuse or error or otherwise, could harm our reputation, impair our ability to attract website visitors, require us to notify payment +processors, compel us to comply with federal and/or state breach notification +laws and foreign equivalents, subject us to costly mandatory corrective action, or subject us to claims or litigation arising from damages +suffered by consumers, all of which could adversely affect our operations, financial performance and condition. +Artificial intelligence +presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary +information, and personal data. +Issues associated with the development and use of +artificial intelligence (“AI”), combined with an uncertain regulatory environment, may result in reputational harm, liability, +or other adverse consequences to our business operations. We have adopted and may in the future adopt and integrate generative AI tools +into our systems for specific use cases in consultation with our legal and information technology departments. Our vendors may incorporate +generative AI into their offerings without disclosing this use to us, and the providers of these generative AI tools may not meet existing +or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ +ability to maintain an adequate level of service and experience. Although we have implemented policies and procedures intended to mitigate +the risks associated with the use of AI and machine learning technologies, users of our network services, technology systems or computing +equipment may take actions in violations of those policies. If we, our vendors, or our third-party partners experience an actual or perceived +breach of privacy or security incident because of the use of AI, we may lose valuable intellectual property and confidential information +and our reputation and the public perception of the effectiveness of our security measures could be harmed. Further, bad actors around +the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse +of personal information, confidential information, and intellectual property. AI and machine learning technologies may also contribute +to novel and urgent cybersecurity risks, including through the use by third parties of such technologies to launch more automated, targeted +and coordinated attacks. Any of these outcomes could have a material adverse effect on our business, reputation, financial condition and +results of operations. +Risks +Related to Governmental Regulations +We +are subject to many federal, state, local and foreign laws, as well as other statutory and regulatory requirements, with which compliance +can be both costly and complex. Our failure to comply with, or adapt to changes in these laws or requirements, could have an adverse +impact on our business. +We +subject to federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements. +● +the Americans with Disabilities Act and similar state laws; +●data +privacy and cybersecurity laws; +●environmental, +health and human safety laws and regulations; +●FCPA +and other similar anti-bribery and anti-kickback laws; and +● +laws regarding sweepstakes and promotional contests. +We +are also subject to U.S. financial services regulations, a myriad of consumer protection laws, including economic sanctions, laws and +regulations, anticorruption laws, escheat regulations and data privacy and security regulations. Changes to legal rules and regulations, +or interpretation or enforcement of them, could increase our cost of doing business, affect our competitive abilities, and increase the +difficulty of compliance. Failure to comply with regulations may have an adverse effect on our business, including the limitation, suspension +or termination of services provided to, or by, third parties, and the imposition of penalties or fines. +Regulations +related to “conflict minerals” require us to incur additional expenses and could limit the supply and increase the cost of +certain metals used in manufacturing our products. +We design and contract for the manufacture of certain +products, including putters, that may contain metals such as tungsten, tin, tantalum, or gold, which are considered “conflict minerals” +under SEC regulations. These rules require companies to conduct inquiries into the origin of such materials, including whether they originate +from the Democratic Republic of the Congo or adjoining countries. +As a result, we may be required to conduct +due diligence on our supply chain and comply with related disclosure requirements. Compliance with these rules may result in additional +administrative costs and reliance on information provided by third-party manufacturers, which may be incomplete or difficult to verify. +In addition, sourcing of such materials could become more limited or costly if suppliers are unable to meet applicable standards. +23 +We +are subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increased costs or restrictions +of operations in the future. +Our +locations and operations are subject to a number of environmental, health and safety laws and regulations in each of the jurisdictions +in which our facilities are operating. These laws and regulations govern, among other things, air emissions, water discharges, handling +and disposal of solid and hazardous substances and wastes, soil and groundwater contamination and employee health and safety. Our failure +to comply with such environmental, health and safety laws and regulations could result in substantial civil or criminal fines or penalties +or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or corrective +measures, installation of pollution control equipment or other actions. Liability under environmental laws has been interpreted to be +joint and several unless the harm is divisible and there is a reasonable basis for allocating the responsibility. +We +may also be subject to similar liabilities and claims in connection with locations at which hazardous substances, contaminates or wastes +we generated have been stored, treated, otherwise managed, or disposed. As a result, any of these events, and the environmental conditions +at or related to current or former properties or operations, and/or the costs of complying with current or future environmental, health +and safety requirements (which have become more stringent and complex over time), could materially adversely affect our business, financial +condition and results of operations. +Changes +in, or any failure to comply with, data privacy laws, regulations, and standards may adversely affect our business. +Data +privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions. The +regulatory framework for data privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain and +continue evolving for the foreseeable future. Federal, state, or foreign government bodies or agencies have in the past adopted, and +may in the future adopt additional, laws and regulations affecting data privacy. In the United States, these include rules and +regulations promulgated under the authority of federal agencies, such as the Federal Trade Commission (“FTC”), and state +attorneys general and legislatures and consumer protection agencies. For example, the FTC Act grants the FTC authority to enforce +against unfair or deceptive practices, which the FTC has interpreted to require companies’ practices with respect to personal +information comply with the commitments posted in their privacy policies. With respect to the use of personal information for direct +marketing purposes, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (the “CAN-SPAM +Act”), establishes specific requirements for commercial email messages and specifies penalties for the transmission of +commercial email messages that are intended to deceive the recipient as to source or content, and obligates, among other things, the +sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. +Further, the Telephone Consumer Protection Act (TCPA) restricts telemarketing and the use of technologies that enable automatic +calling and/or messaging without proper customer consent, and is a particularly highly litigated issue. Many states in the United +States have enacted statutes and rules governing the ways in which businesses may collect, use, and retain personal information. One +such example is the California Consumer Privacy Act (“CCPA”), which came into effect in 2020. In addition, the +California Privacy Rights Act (“CPRA”) was passed in November 2020, which significantly modified the CCPA, including by +creating a new state agency that is vested with authority to implement and enforce the CCPA and CPRA. Moreover, many other states +have passed and may continue to pass similar privacy-related laws whose restrictions and requirements differ from those of +California, which have required, and likely will continue to require, us to design, implement and maintain different types of +state-based, privacy-related compliance controls and programs simultaneously in multiple states. Similar laws relating to data +privacy and security have been proposed at the federal level as well. Such laws have potentially conflicting requirements that could +make compliance even more challenging, require us to expend significant resources to come into compliance, and restrict our ability +to process certain personal information. Internationally, many jurisdictions in which we operate have established or enhanced their +own data security and privacy legal framework with which we or our customers must comply, including but not limited to, the European +Union’s (the “EU”) General Data Protection Regulation (“GDPR”), which imposes stringent operational +requirements, including, for example, requiring expanded disclosures about how personal information is used, limitations on +retention of information, mandatory data breach notification obligations, and higher standards for obtaining consent to process +personal information. The GDPR provides that EU member states may make their own additional laws and regulations in relation to +certain data processing activities. Legal developments in the EU have created complexity and uncertainty regarding transfers +of personal information from the EU to “third countries,” especially the United States. For example, in 2020, the Court +of Justice of the EU invalidated the EU-U.S. Privacy Shield Framework (a mechanism for the transfer of personal information to the +EU from the US) and made clear that reliance on standard contractual clauses (another mechanism for the transfer of personal +information outside of the EU) alone may not be sufficient in all circumstances. In addition, after the United Kingdom (the “U.K.”), +left the EU, the U.K. enacted the U.K. GDPR, which together with the amended U.K. Data Protection Act 2018 retains the GDPR in U.K. +national law. In many jurisdictions, enforcement +actions and consequences for noncompliance are also rising. In addition to government regulation, privacy advocates and industry +groups may propose new and different self-regulatory standards that either legally or contractually apply to us. The changing legal +and regulatory landscape could in the future further limit our ability to use and share personal information and require changes to +our operating model. Any inability or perceived inability to adequately address data privacy and security concerns, even if +unfounded, or comply with applicable data privacy and data security laws, regulations, and policies, could result in additional +compliance costs, penalties and liability costs, damage to our reputation and adversely affect our business. +24 +Risks +Related to Tax and Financial Matters +We expect to need to raise additional funds +from time to time through public or private debt or equity financings in order to implement our business plan. +We expect to need to raise additional funds from time +to time in order to implement our business plan, take advantage of opportunities, including the expansion of our business or the acquisition +of complementary products, technologies or businesses; develop new products or expand existing lines of business, including the launching +of new products or responding to competitive pressures. Even if we are able to achieve our business plan, we estimate that approximately +$6.0 million of additional capital may be required to support operations until we reach operating break-even. +If we are unable to find ways to finance our operations +and the manufacturing and development of products to scale the business on acceptable terms or at all, or if we or our financing partners +default on our respective obligations to fund such costs, we could be required to delay, significantly curtail or eliminate planned products +or marketing programs, which could have a material adverse effect on our business, financial condition and results of operations. There +can be no guarantee that we will be able to timely secure financing on favorable terms, or at all, for any of the foregoing purposes. +Any capital raised through the sale of +equity or securities convertible into equity will dilute the percentage ownership of holders of our common stock. Capital raised through +debt financing would require us to make periodic interest payments and may impose restrictive covenants on the conduct of our business. +Furthermore, additional financings may not be available on economically favorable terms, especially during periods of adverse economic +conditions, which could make it more difficult or impossible for us to obtain funding for the operation of our business, for making additional +investments in product development and for repaying outstanding indebtedness. A failure to obtain necessary additional funding could +prevent us from making expenditures that may be required to grow our business or maintain our operations. +Changes +in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. +We +are subject to income taxes in the United States and potentially numerous foreign jurisdictions. Our effective income tax rate in the +future could be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutory +tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in +various jurisdictions around the world. +In +addition, new income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, or interpreted, +changed, modified or applied adversely to our business, any of which could adversely affect our business operations and financial performance. +In particular, the U.S. government may enact significant changes to the taxation of business entities including, among others, a permanent +increase in the corporate income tax rate, an increase in the tax rate applicable to the global intangible low-taxed income and elimination +of certain exemptions, and the imposition of minimum taxes or surtaxes on certain types of income. We are currently unable to predict +whether such changes will occur and, if so, the ultimate impact it would have on our business. To the extent that such changes have a +negative impact on our business, or suppliers or customers, including as a result of related uncertainty, these changes may materially +and adversely impact our business, financial condition, results of operations and cash flows. +Increases +in interest rates could increase the cost of servicing our indebtedness and have an adverse effect on our results of operations and cash +flows. +Should +we secure any business loan(s), increases in interest rates would increase the cost of servicing our indebtedness and could materially +reduce our profitability and cash flows. An increase in interest rates could also make it difficult for us to obtain financing at attractive +rates, which could adversely impact our ability to execute our growth strategy or future acquisitions. Additionally, rising interest +rates could have a dampening effect on overall economic activity, which could have an adverse effect on our business. +25 +Risks +Related to Our Common Stock +The +market prices and trading volume of our shares of common stock may experience rapid and substantial price volatility which could cause +purchasers of our common stock to incur substantial losses. +Recently, +the market prices and trading volume of shares of our common stock and of other small publicly traded companies with a limited +number of shares available to purchasers have experienced rapid and substantial price volatility unrelated to the financial +performance of those companies. Extreme fluctuations in the market price of +our common stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our +common stock, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other +trading factors. +If +there is extreme market volatility and trading patterns in our common stock, it may create several risks for investors, including the +following: +● +the market price of our common stock may experience rapid and substantial increases or decreases unrelated to our operating performance +or prospects, or macro or industry fundamentals; +● +if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our +common stock could incur substantial losses as prices decline once the level of market volatility has abated; and +● +if the future market price of our common stock declines, purchasers may be unable to resell their shares at or above the price at which +they acquired them. +Further, +we may incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing +with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of common stock may fluctuate +dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which +are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or trading +volume of our common stock, including: +● +actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet +market expectations with regard to our earnings; +● +our current inability to pay dividends or other distributions; +● +changes in market valuations of similar companies; +● +market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the +holdings of our existing stockholders; +● +additions or departures of key personnel; +● +actions by institutional or significant stockholders; +● +short interest in our stock and the market response to such short interest; +● +the dramatic increase in the number of individual holders of our stock and their participation in social media platforms targeted at +speculative investing; +26 +● +speculation in the press or investment community about our company or industry; +● +strategic actions by us or our competitors, such as acquisitions or other investments; +● +legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the Internal +Revenue Service (“IRS”); +● +investigations, proceedings, or litigation that involve or affect us; +● +the occurrence of any of the other risk factors included in this Annual Report on Form 10-K; and +● +general market and economic conditions. +If +we fail to regain and maintain compliance with Nasdaq continued listing requirements, our common stock could be +delisted. +Our +common stock is listed on Nasdaq and is subject to continued listing requirements established by Nasdaq. These requirements include, +among other things, minimum bid price, market value, stockholders’ equity, and corporate governance requirements. +As of December 31, 2025, our shareholders’ equity was $0.9 million, which is below the $2.5 million of minimum +shareholders’ equity required by the Nasdaq Listing Rules. As a result, we will be out of compliance with Nasdaq Listing Rule 5550(b)(1) +upon the filing of this Annual Report. +If +we fail to regain and maintain compliance with Nasdaq’s continued listing requirements, Nasdaq may initiate delisting proceedings. If our +common stock were delisted, the liquidity and market price of our common stock could decline significantly, and our ability to raise +capital could be adversely affected. +A +delisting could also reduce analyst coverage and investor interest in our common stock and may make it more difficult for stockholders +to sell their shares. Any such outcome could have a material adverse effect on the market value of our common stock and our ability to +access the capital markets. +Market +and economic conditions may negatively impact our business, financial condition and share price. +Concerns +over energy costs, geopolitical issues, the U.S. mortgage market and a deteriorating real estate market, unstable global credit +markets and financial conditions, volatile oil prices and medical epidemics have led to periods of significant economic instability, +diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations +for the global economy and expectations of slower global economic growth, increased unemployment rates, and increased credit +defaults. Our general business strategy may be adversely affected by any such economic downturns, volatile business +environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or +do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. +Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our +growth strategy, financial performance, and share price and could require us to delay or abandon development or commercialization +plans. +Future +sales and issuances of our common stock could result in additional dilution of the percentage ownership of our stockholders and could +cause our share price to fall. +We +expect that additional capital will be needed in the future to continue our planned operations, including increased marketing, hiring +new personnel, commercializing our product, and continuing activities as an operating public company. To the extent we raise additional +capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities +or other equity securities in one or more transactions at prices and terms that we determine at our discretion. If we sell common stock, +convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. +Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing +stockholders. Also, the issuance of shares of common stock as a result of the exercise of the Company’s outstanding Series A and +Series B Warrants will result in additional dilution of the percentage ownership of existing shareholders. +27 +Our +Bylaws and Certificate of Incorporation provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially +all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum +for disputes with us or our directors, officers or employees. +Our +Certificate of Incorporation and Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court +of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action +asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, +our Certificate of Incorporation or Bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. +This exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, +as amended, the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. +These +provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us +or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the +choice of forum provision contained in our Certificate of Incorporation or Bylaws to be inapplicable or unenforceable in an action, we +may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, +and financial condition. +General +Risk Factors +Our +insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our +insurance. +We +maintain insurance of the type and in amounts that we believe is reasonable and that is available to businesses in our industry. We carry +or will carry various types of insurance, including general liability, auto liability, business interruption, workers’ compensation +and excess umbrella, from highly rated insurance carriers. Market forces beyond our control could limit the scope of the insurance coverage +that we can obtain in the future or restrict our ability to buy insurance coverage at reasonable rates. We cannot predict the level of +the premiums that we may be required to pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retention +applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. In the event of a substantial +loss, the insurance coverage that we carry may not be sufficient to compensate us for the losses we incur or any costs we are responsible +for. +If +our estimates or judgments relating to our critical accounting policies prove to be incorrect, our financial condition and results of +operations could be adversely affected. +The +preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) +requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. +We base estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, as discussed +below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The results of these +estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue +and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our financial +statements include those related to revenue recognition; allowance for doubtful accounts; inventories; long-lived assets, goodwill and +non-amortizing intangible assets; warranty policy; income taxes and provisional estimates due to the Tax Cuts and Jobs Act (the “Tax +Act”) enacted in December 2017; share-based compensation; and foreign currency translation. Our financial condition and results +of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which +could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in +the price of our common stock. +28 +Item +1B. Unresolved Staff Comments +Not +applicable. +Item +1C. Cybersecurity +Risk +Management and Strategy +The Company maintains policies and processes designed +to identify, assess, and manage cybersecurity risks that could affect its information systems and business operations. Cybersecurity risk +management is integrated into the Company’s overall risk management processes and is considered as part of its broader operational +and strategic decision-making. +The Company’s processes include periodic assessments +of potential cybersecurity threats, evaluation of vulnerabilities, and implementation of safeguards designed to protect the confidentiality, +integrity, and availability of its information systems and data. These activities are informed by industry practices and may include the +use of internal resources as well as third-party service providers. +The Company relies on third-party platforms and service +providers, including e-commerce, payment processing, and cloud-based systems, and considers risks associated with such providers as part +of its cybersecurity risk management processes. The Company evaluates third-party service providers, where appropriate, and monitors for +potential risks arising from such relationships. +The Company may engage external consultants or service +providers from time to time to assist with evaluating cybersecurity risks, implementing security measures, and responding to potential +incidents. +While the Company has not identified +cybersecurity risks that have materially affected its business, results of operations, or financial condition, it cannot provide assurance +that such risks will not have a material impact in the future. +The +Company maintains policies and processes designed to identify, assess, and manage cybersecurity risks that could affect its information +systems and business operations. These processes include periodic reviews of potential cybersecurity threats and evaluation of safeguards +designed to protect the confidentiality, integrity , and availability of the Company’s information systems. +The +Company may engage third-party consultants or service providers to assist with evaluating cybersecurity risks and implementing appropriate +security measures. +The +Company has no t +experienced any cybersecurity incidents and has not identified any risks from cybersecurity threats that have materially affected, +or are reasonably likely to materially affect, its business strategy, results of operations, or financial +condition. +29 +Governance +The +Company’s Board of Directors has oversight responsibility for cybersecurity risk as part of its overall risk oversight +function. The Board of Directors receives periodic updates from management regarding cybersecurity risks, including potential +threats, mitigation efforts, and the status of the Company’s information security controls. +The Company’s Chief Financial Officer is responsible +for overseeing the Company’s cybersecurity risk management processes, including monitoring cybersecurity risks, coordinating mitigation +efforts, and engaging third-party service providers, as appropriate. The Chief Financial Officer reports to the Board of Directors periodically +on cybersecurity matters as part of the Company’s broader risk management framework. +The Company’s executive management team, including +the Chief Financial Officer, periodically reviews cybersecurity risks and the effectiveness of related safeguards. While the Company does +not maintain a dedicated cybersecurity committee, cybersecurity risks are considered as part of the Board’s and management’s +ongoing oversight of enterprise risk. +The Company’s leadership has experience +managing financial, operational, and technology-related risks, including oversight of third-party service providers and information systems. +In addition, the Company may engage external consultants or advisors with relevant cybersecurity expertise to assist in evaluating risks +and implementing appropriate safeguards. +Item +2. Property +We +lease on a month-to-month basis approximately 4,700 square feet of office space in Camarillo, California, which serves as our principal +executive offices and research and development facility. +The +Company leases approximately 9,000 square feet of manufacturing, assembly, and distribution space in St. Joseph, Missouri. The lease +currently expires in December 2027. +Item +3. Legal Proceedings +There +are no legal proceedings that are pending against the Company or that involve the Company that, in the opinion of management, could reasonably +be expected to have a material adverse effect on the Company’s business or financial condition. +Item +4. Mine Safety Disclosures +Not +applicable. +30 +PART +II +Item +5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities +Effective +August 15, 2023, our common stock was registered with the SEC and listed on The Nasdaq Capital Market, and trading began under the stock +symbol “SPGC”. +Effective +March 17, 2025, the Company’s name was changed from Sacks Parente Golf, Inc. to Newton Golf Company, Inc. to better reflect +its commitment to revolutionizing golf through advanced physics and precision engineering. +In connection with the name +change, the Company’s Nasdaq ticker symbol was changed from “SPGC” to “NWTG.” +Holders of Common Stock +As of March 26, 2025, there were approximately +28 holders of record of our common stock. These holders of record include depositories that hold shares of stock for brokerage firms which, +in turn, hold shares of stock for numerous beneficial owners. +Dividend Policy +We have never declared or paid any cash dividends +on our capital stock. We currently intend to retain future earnings, if any, to finance the operation of our business and do not anticipate +paying any cash dividends on our capital stock in the foreseeable future. Any future determination related to our dividend policy will +be made at the discretion of our board of directors after considering our financial condition, results of operations, current and anticipated +capital requirements, business prospects, and other factors our board of directors deems relevant, and subject to applicable laws and +the restrictions contained in any future financing instruments. +Unregistered +Sales of Equity Securities +On +October 29, 2025, the Company issued 102,041 restricted stock units to a vendor for services to be rendered with a fair value +of $150,000. The shares were valued based on the market value of the Company’s common stock price on the grant date. The issuance +was recorded as pre-paid expense in the accompanying statements of operations and balance sheets. The pre-paid expense related +to issuances of restricted stock units will be amortized over the remaining service period and charged to selling, general and administrative +expense. The Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, +for transactions not involving a public offering. +On +December 16, 2025, the Company issued 40,000 restricted stock units to a vendor for services to be rendered with a fair value +of $57,000. The shares were valued based on the market value of the Company’s common stock price on the grant date. The issuance +was recorded as pre-paid expense in the accompanying statements of operations and balance sheets. The pre-paid expense related +to issuances of restricted stock units will be amortized over the remaining service period and charged to selling, general and administrative +expense. The Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, +for transactions not involving a public offering. +31 +Item +6. [Reserved] +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial +statements and the related notes appearing elsewhere in this Annual Report. This discussion and analysis may contain forward-looking +statements based on assumptions about our future business. Our actual results could differ materially from those anticipated in these +forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” +and elsewhere in this Annual Report. +Executive +Summary +During +2024, 2025 and early 2026, several factors influenced the Company’s operations and financial position, including: +● Expansion +of the Newton Motion shaft product line. The Company continued to expand its premium shaft offerings, including the introduction +of the Motion fairway wood shaft in 2024, the Fast Motion driver shaft in 2025, and additional product development across the +fairway wood and hybrid shaft categories set to launch in 2026. +● +Increased market adoption of Newton shafts. More than 60 professional golfers have placed Newton shafts into tournament play across +multiple professional tours, including the PGA TOUR Champions, contributing to increased awareness of the Newton brand and growth in +shaft-related revenue. +● Capital +raising activities. On March 16, 2026, the Company issued to entities affiliated with and controlled by Brett Hoge, one of the +Company’s directors, an unsecured convertible promissory note with an aggregate principal amount of $500,000, which bears +interest at a rate of 10% per annum and matures in 18 months, along with a five-year warrant to purchase 50,000 shares of common +stock at an exercise price of $1.75 per share. The convertible promissory note, including accrued interest, is convertible into +shares of common stock at maturity at a conversion price of $1.60 per share. +During +2024, the Company completed two public offerings generating approximately $7.8 million in net proceeds, strengthening liquidity and supporting +product development, manufacturing expansion, and working capital. +32 +Company +Overview +We design, manufacture, and sell performance golf +equipment, including premium golf shafts and putters, and focus on developing technology-driven golf products intended to enhance player +performance. Our Newton Motion™ shaft product line represents a core component of our product strategy and has contributed significantly +to recent revenue growth. +In April 2022, we expanded our manufacturing capabilities +by opening a shaft manufacturing facility in St. Joseph, Missouri to support the production of advanced carbon fiber golf shafts. We seek +to manufacture and assemble substantially all of our products in the United States where economically feasible, which management believes +provides supply chain advantages and supports product quality, engineering control, and operational flexibility. +We sell our products through a combination of direct-to-consumer +channels, including our websites, as well as through resellers, professional club fitters, distributors, and golf retailers. We currently +distribute products primarily in the United States, with additional distribution in international markets including Japan and South Korea. +Newton +Motion Shafts +Product +Introduction +In +November 2023, the Company expanded its product portfolio through the introduction of the Newton Motion driver shaft, marking the +Company’s entry into the premium golf shaft market. The Newton Motion driver shaft is a carbon fiber golf shaft designed to +improve performance and consistency for golfers. In April 2024, the Company further expanded its product line with the introduction +of the Newton Motion fairway wood shaft. In April 2025, the Company introduced the Fast Motion driver shaft, an updated premium +shaft design that expands the Company’s driver shaft product lineup. The drivers and fairway wood shafts are manufactured +at the Company’s facility in St. Joseph, Missouri. +The +Newton Motion shafts utilize the Company’s proprietary “DOT” system, which replaces traditional shaft flex categories +with a numerical system ranging from one to seven dots designed to provide golfers with a more precise fit based on swing characteristics. +The Company believes this system simplifies shaft selection and allows golfers to match driver, fairway wood, and hybrid shafts across +its product lines. +Product +Development and Pipeline +The +Company continues to refine and expand its shaft product lineup. In March 2026, the Company introduced an updated version of its Fast +Motion Driver shaft. Updated versions of the Motion driver shaft and Motion fairway wood shaft are expected to be released in late March +and April 2026. The Company is also developing additional shaft products, including a Fast Motion fairway wood shaft expected to launch +in the second quarter of 2026 and hybrid shafts for both the Motion and Fast Motion product lines expected to launch during the second +and third quarters of 2026. +The +Company has focused product development on shaft designs tailored to specific club types, including shafts designed specifically for +fairway woods rather than using a single shaft design across both drivers and fairway woods. +33 +Market +Adoption +Since +the launch of the Newton Motion shaft line, the Company has seen increasing adoption among professional golfers across several tours, +including the PGA TOUR Champions, Korn Ferry Tour, LPGA Tour, and other international tours. More than 60 professionals have put Newton +shafts in play in tournament competitions across these tours. The Company believes that professional adoption is an indicator of product +performance, as professional golfers typically select equipment based on its ability to improve performance. +During +the 2025 golf season, Newton shafts were used in three tournament victories on the PGA TOUR Champions. +The +expansion of the Newton Motion shaft product line has been a significant contributor to the Company’s recent revenue growth. The +Company believes its premium golf-shaft products represent a core component of its long-term growth strategy. Increased adoption of Newton +shafts by professional golfers, club fitters, and retail partners has expanded awareness of the Newton brand and helped facilitate broader +distribution opportunities for the Company’s products. +Newton +Gravity Putters +The +Company also offers a line of putters under the Newton Gravity brand. During 2025, the Company reduced marketing expenditures directed +toward the direct-to-consumer channel after determining that the return on advertising spend did not meet internal +targets. As a result, the Company has shifted its near-term focus toward expanding distribution through wholesale and retail channels, +including professional club fitters and golf retailers. +The +Company’s growing presence in the premium golf shaft market has helped facilitate introductions to retail and fitter partners, +which may create additional opportunities to expand distribution of other Newton-branded products. As the Company continues to develop +these retail relationships, it expects the Gravity putter line to benefit from increased product visibility and broader distribution +through these channels. +Key +Factors Affecting Our Performance +Seasonality +and General Trends in Golf Participation +Golf +equipment sales are generally seasonal, with demand typically increasing during the spring and summer months when golf activity is highest +in many regions. As a result, the Company historically experiences stronger sales during the second and third quarters of the year when +weather conditions are more favorable for outdoor play. Conversely, sales may be lower during the first and fourth quarters when cold +weather in certain regions reduces outdoor golf activity. +Golf +participation increased significantly during the COVID-19 pandemic as the sport was widely viewed as a socially distanced outdoor activity. +Although the initial pandemic-driven surge has moderated, participation levels have remained elevated relative to historical levels, +and the Company believes the sport has benefited from increased engagement among new and returning golfers. +In +addition, the continued growth of off-course golf experiences, including golf entertainment venues such as Topgolf, and the increasing +popularity of golf simulators and indoor golf facilities have expanded opportunities for individuals to participate in the sport. These +venues and technologies allow consumers to experience golf in non-traditional environments, including urban locations, indoor facilities, +and residential settings. +Golf +simulators and indoor golf facilities have also expanded opportunities for participation in regions where weather conditions limit traditional +outdoor play during portions of the year. As a result, golf enthusiasts in colder climates are increasingly able to practice and remain +engaged with the sport on a year-round basis. +The +Company believes that sustained participation in golf and increased engagement through both traditional and non-traditional golf experiences +may support continued demand for golf equipment; however, future participation trends and consumer demand remain subject to economic +conditions and other factors beyond the Company’s control. +34 +Public +Company Costs +Since +listing our common stock on The Nasdaq Capital Market in August 2023, we have incurred additional expenses associated with operating +as a public company. These costs include compliance with SEC reporting requirements, internal control compliance, director and officer +liability insurance, board compensation, and increased accounting, legal, and audit fees. As a result, we expect our operating expenses +to remain higher than those incurred prior to becoming a public company. +Impact +of Inflation +Inflation +has resulted in moderate increases in the cost of certain raw materials and component parts used in the manufacture of our products. +To date, we have largely absorbed these increases and have not significantly raised prices. If inflationary pressures persist, our manufacturing +costs may increase and could adversely affect gross margins unless we are able to offset these increases through pricing adjustments, +cost reductions, or operational efficiencies. +We continue to expand our network of qualified domestic suppliers to diversify sourcing and mitigate potential supply chain disruptions. +Comparison +of the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024 +Our +sales, cost of goods sold, operating expenses, and net loss from operations for the year ended December 31, 2025, as compared to the +year ended December 31, 2024 were as follows (amounts are rounded to nearest thousands): +Year +Ended +December 31, +2025 +Year +Ended +December 31, +2024 +$ Changes +Net Sales +$ 8,135,000 +$ 3,445,000 +$ 4,690,000 +Cost of goods sold +3,581,000 +1,171,000 +2,410,000 +Gross profit +4,554,000 +2,274,000 +2,280,000 +Operating expenses: +Selling, general and administrative +11,323,000 +6,509,000 +4,814,000 +Research and development +779,000 +743,000 +36,000 +Total operating expenses +12,102,000 +7,252,000 +4,850,000 +Loss from operations +(7,548,000 ) +(4,978,000 ) +(2,570,000 ) +Interest income, net +99,000 +161,000 +(62,000 ) +Financing costs +- +(6,913,000 ) +6,913,000 +Change in fair value of warrant liability +1,429,000 +(22,000 ) +1,451,000 +Net loss +$ (6,020,000 ) +$ (11,752,000 ) +$ 5,732,000 +Overview +of Operating Results +The +Company’s operating results for the year ended December 31, 2025 were primarily driven by the following factors: +● Expansion +of the Newton Motion shaft product line. Revenue growth during 2025 was primarily driven by the launch of the Fast Motion driver +shaft, an updated premium shaft design that expands the Company’s driver shaft product lineup, full-year sales of the Newton +Motion fairway wood shaft launched in April 2024 and continued expansion of the Newton Motion driver shaft launched in November +2023. The Company has continued to expand the platform with additional shaft configurations, including the introduction of the Fast +Motion driver shaft and the planned launch of the Fast Motion fairway wood shaft, Fast Motion hybrid shaft, and Motion hybrid shaft. +The Company manufactures its shafts at its facility in St. Joseph, Missouri, which management believes provides meaningful +production capacity to support continued growth. +35 +● +Growth in direct-to-consumer sales. The Company continued to expand its direct-to-consumer channel through its websites, supported +by improvements in digital marketing efficiency, higher conversion rates, and repeat customer purchases. +● +Increased adoption by professional club fitters. Newton shafts gained increased visibility and adoption within the professional +fitting channel, including recognition as the No. 1 selling shafts for both drivers and fairway woods at Club Champion Golf during 2025. +● +Investment in marketing and operational infrastructure. The Company increased spending on marketing, personnel, and operational +systems to support revenue growth and the scaling of the Newton brand. +These +factors are discussed in greater detail below in the Company’s analysis of results of operations. +Net +Sales +Net +sales increased approximately $4.7 million, or 136%, to approximately $8.1 million for the year ended December 31, 2025, compared to +$3.4 million for the year ended December 31, 2024, driven primarily by strong demand for the Newton Motion shaft product line and growth +in the Company’s direct-to-consumer channel. +The +increase in net sales was primarily driven by the introduction and expansion of the Newton Motion shaft product line. The Company launched +the Newton Motion driver shaft in November 2023 and the Newton Motion fairway wood shaft in April 2024. As a result, the year ended December +31, 2025 reflects the first full year of sales for the Newton Motion fairway shaft product line. +During +the year ended December 31, 2025, the Newton Motion shaft product line generated approximately $8.0 million of net sales and represented +approximately 99% of the Company’s total revenue. +Demand +for the Company’s shaft products increased throughout 2025, including strong seasonal sales during promotional periods such as +Black Friday. Direct-to-consumer sales represented approximately 91% of total net sale s during 2025 and were primarily generated +through the Company’s websites. The Company believes improvements in digital marketing efficiency, higher conversion rates, and +repeat customer purchases contributed to the growth in online sales. +The +Company also experienced increased adoption of its shaft products among professional club fitters. During 2025, Newton shafts were named +the No. 1 selling shafts for both drivers and fairway woods at Club Champion Golf, a professional club-fitting retailer, which the Company +believes reflects strong demand among club-fitting professionals. +In +April 2025, the Company introduced the Fast Motion driver shaft, an updated premium shaft design that expands the Company’s driver +shaft product lineup. +Cost +of goods sold +Cost +of goods sold consists primarily of materials, labor, components, and changes in inventory reserves for slow-moving or potentially obsolete +products. +Cost +of goods sold increased by approximately $2.4 million to $3.6 million for the year ended December 31, 2025, compared to $1.2 million +for the year ended December 31, 2024. The increase was primarily attributable to higher sales volumes during 2025 associated with the +expansion of the Company’s Motion shaft product line plus additional labor cost driven by incremental headcount and overtime +to meet increased demand. +36 +Gross +margin was 56% for the year ended December 31, 2025, compared to 66% for the year ended December 31, 2024. The decrease in gross margin +was primarily attributable additional labor cost driven by incremental full-time employees, an increase +in temporary labor, and overtime to meet increased demand . +During +2025, the Company implemented improvements to its costing processes, bill of materials management, and internal controls over inventory +accounting. The Company is formalizing its demand planning and production scheduling processes to better align manufacturing capacity +with anticipated demand and improve operational efficiency as production volumes increase. In addition, the Company enhanced its inventory +verification procedures, including more frequent cycle counts and expanded physical inventory counts, to further improve the accuracy +of inventory records and financial reporting. +The +Company is also enhancing its manufacturing management and operational planning processes to support the continued scaling of production +operations. In January 2026, the Company expanded the operational responsibilities of its Chief Financial Officer to include oversight +of manufacturing and operational functions, strengthening coordination between financial management and factory operations. +As +production volumes increase, the Company expects to benefit from improved manufacturing efficiencies and more stable production planning. +However, gross margins may fluctuate in future periods based on production efficiency, product mix, and sales channel mix, including +the relative contribution of direct-to-consumer and wholesale sales. +Operating +expenses +Operating +expenses include selling, general and administrative expenses, and research and development costs. +Selling, +General and Administrative Expenses +Selling, +general and administrative expenses consist primarily of employee compensation and benefits, legal and professional fees, sales and marketing +expenses, stock-based compensation, public company compliance costs, shipping costs, Shopify transaction fees, rent, depreciation, and +other general operating expenses. +Selling, general and administrative expenses +increased approximately $4.8 million to $11.3 million for the year ended December 31, 2025, compared to $6.5 million for the year ended +December 31, 2024. +The +increase was primarily attributable to: +● +a $1.5 million increase in marketing expenses, primarily related to paid media and brand marketing initiatives; +● +a $1.1 million increase in sales-related expenses, including affiliate commissions, Shopify transaction fees, and shipping costs +associated with higher sales volume; +● +a $1.0 million increase in public company operating costs, including legal, audit, insurance, +and compliance expenses; +● +a $0.5 million increase in employee-related costs associated with new hires to support the Company’s growth; and +● +a $0.3 million increase in professional services related to the optimization and enhancement of enterprise systems, including +NetSuite, AfterShip, demand-planning tools, and related system integrations intended to improve operational efficiency and support +future scalability. +37 +Selling, +general and administrative expenses also included approximately $0.7 million of expenses that are not expected to recur at similar levels, +consisting primarily of legal expenses associated with a special stockholder meeting and Series B Warrant exercises, incremental accounting +and audit fees related to warrant valuation and accounting requirements, transfer agent costs related to warrant exercises, proxy solicitation +expenses associated with the special stockholder meeting, and certain system optimization costs. +During +2025, the Company also added FedEx as an additional logistics provider to support fulfillment operations. The Company expects this change +to improve delivery efficiency and reduce shipping costs over time. +The +Company expects sales and marketing expenses to increase in absolute dollars as it continues to invest in brand awareness, customer acquisition, +and market expansion to support revenue growth. However, as the Newton brand continues to gain recognition and the Company expands its +distribution through wholesale channels, including professional club fitters, retailers, and potential OEM relationships, management +expects sales and marketing expenses to decline as a percentage of net sales over time. The Company believes that increasing brand awareness, +a growing installed base of Newton shaft users, and expansion of its wholesale distribution network may improve marketing efficiency +and contribute to operating leverage as revenue scales. +Research +and Development Expenses +Research +and development expenses consist primarily of employee compensation, consulting expenses, licensing fees, and product design and development +costs. +Research +and development expenses increased approximately $0.04 million to $0.8 million, or 5%, for the year ended December 31, 2025, compared +to $0.7 million for the year ended December 31, 2024. +The +increase was primarily attributable to continued investment in product development and testing as the Company expands and refines its +Newton Motion shaft product lineup, including the development of additional shaft configurations and related technologies. These investments +support the Company’s ongoing efforts to enhance product performance and expand its technology-driven golf equipment portfolio. +Loss +from operations +Loss from operations increased approximately +$2.5 million to $7.5 million for the year ended December 31, 2025, compared to $5.0 million for the year ended December 31, 2024. +The +increase in operating loss was primarily attributable to higher operating expenses associated with the Company’s growth initiatives +and public company infrastructure, including increased marketing and brand development investments, higher employee-related costs, increased public company compliance expenses, and an increase in factory labor costs to meet increased demand. +These +increases were partially offset by significant revenue growth driven by increased sales of the Company’s Newton Motion shaft product +line. +The +Company continues to invest in marketing, personnel, operational infrastructure, and product development to support long-term revenue +growth and expansion of its product portfolio. As revenue continues to scale, the Company expects to benefit from improved operating +leverage over time. +Other +income (expense), net +Interest +income, net was $99,000 for the year ended December 31, 2025, compared to $161,000 for the year ended December 31, 2024. The +decrease in interest income was primarily attributable to lower average cash balances during 2025 compared to the prior +year. +The +Company did not incur any financing costs during the year ended December 31, 2025. During the year ended December 31, 2024, the Company +recognized $6.9 million of financing costs associated with the issuance of warrants and other costs related to its December 2024 financing +transactions. +During +the year ended December 31, 2025, the Company recognized a $1.4 million gain related to the change in the fair value of warrant liabilities, +compared to a $22,000 loss recognized during the year ended December 31, 2024. The change in fair value of warrant liabilities reflects +the periodic remeasurement of certain warrants that are classified as liabilities under applicable accounting guidance. The fair value +of these warrants is remeasured at each reporting date, and changes in fair value are recorded in the Company’s statement of operations. +38 +Net +loss and Strategic Investments +Net +loss was $6.0 million for the year ended December 31, 2025, compared to $11.8 million for the year ended December 31, 2024. +The +decrease in net loss was primarily attributable to the absence of the $6.9 million financing costs recorded during 2024 and the $1.4 +million gain related to the change in the fair value of warrant liabilities during 2025. These improvements were partially offset by +an increase in operating loss associated with the Company’s continued investments in marketing, personnel, and operational infrastructure +to support revenue growth. +Excluding +financing costs and changes in the fair value of warrant liabilities, the increase in net loss primarily reflects higher operating expenses +related to the Company’s growth initiatives, including marketing investments, personnel expansion, and operational infrastructure +to support the scaling of the Company’s Newton Motion shaft product line. +The +Company continues to invest in marketing, personnel, product development, and operational infrastructure to support the expansion of +the Newton Motion shaft platform and the broader Newton brand. Management believes these investments position the Company for continued +revenue expansion as brand awareness grows, additional shaft configurations and new products are introduced, and distribution expands +through professional club fitters, retail partners, international distributors, and potential OEM relationships. While these investments +have contributed to operating losses in the near term, management believes they position the Company for improved operating leverage +as the business scales. +Management +believes the Company is in the early stages of scaling the Newton Motion shaft platform and that continued adoption by professional club +fitters, retail partners, and international distributors may support significant revenue growth while leveraging the Company’s +existing manufacturing infrastructure, including its shaft manufacturing facility in St. Joseph, Missouri. +The +following section discusses the Company’s liquidity, capital resources, and financing strategy to support these growth initiatives. +Liquidity +and Capital Resources +On +October 24, 2025, the Company entered into an At-The-Market Sales Offering Agreement (“ATM Offering Agreement”) with Kingswood +Capital Partners, LLC (“Kingswood”), which allows the Company to sell up to $10.0 million of its common stock from time to +time pursuant to its effective shelf registration statement on Form S-3. The ATM program provides the Company with an additional source +of potential liquidity; however, the amount and timing of any sales will depend on market conditions, trading volume, and investor demand. +As of the date of this report, the Company has not sold any shares under the ATM program. The Company intends to utilize the ATM program +opportunistically, taking into account market conditions, trading volume, and the Company’s capital requirements. +On March 16, 2026, the Company entered into a securities purchase agreement (the “Purchase Agreement”), +pursuant to which the Company agreed to issue at one or more closings, on the terms and conditions +contained in the Purchase Agreement, unsecured promissory notes in the aggregate funded amount of up to $2,000,000 (the “Convertible +Notes”) and common stock warrants (the “Warrants”) to purchase shares of the Company’s common stock at an exercise +price of $1.75 per share, subject to adjustments from time to time. The first closing occurred on March 16, 2026, at which the Company +issued to entities affiliated with and controlled by Brett Hoge, one of the Company’s directors, a Convertible Note with an aggregate +principal amount of $500,000, which bears interest at a rate of 10% per annum and matures in 18 months, along with a five-year Warrant +to purchase 50,000 shares of common stock. The Convertible Note, including accrued interest, is convertible into shares of common stock +at maturity at a conversion price of $1.60 per share. The Company continues to seek to raise an additional $1,500,000 pursuant to the +Purchase Agreement; however, there can be no assurance that additional capital will be obtained. +The +Company’s capital strategy is to maintain sufficient liquidity to support ongoing operations, product development, manufacturing +expansion, and marketing initiatives while seeking to minimize dilution to existing stockholders. Management intends to utilize available +financing sources, including the ATM program and other potential financing sources, in a disciplined manner with the objective of raising the capital necessary to support operations and growth initiatives while seeking to minimize dilution to existing stockholders. +39 +The +Company estimates that approximately $6.0 million of additional capital may be required to support operations until the Company reaches +operating break-even. The Company expects to evaluate a variety of financing alternatives, including the ATM program and other potential +financing sources, to meet its capital requirements. +The +Company’s expected timeline to achieve operating break-even is influenced by the level of investment in marketing and growth initiatives. +Management has the ability to adjust the pace of these investments, which could accelerate the path to operating break-even but may also +reduce the rate of revenue growth. +The +Company’s estimated capital requirements assume that performance-based compensation earned by management is paid in cash. The Company +may elect to satisfy a portion of such compensation through equity-based awards or other non-cash compensation arrangements, which could +reduce the Company’s cash requirements. Any such determinations would be made by the Company’s Board of Directors or compensation +committee, as applicable. +As +revenue continues to scale and distribution expands through professional club fitters, retail partners, international distributors, and +potential OEM relationships, the Company expects that improving operating leverage may contribute to reducing its reliance on external +financing over time. The Company’s premium shaft products are designed to support attractive gross margins, and as production volumes +increase, management expects manufacturing efficiencies and fixed-cost leverage to further improve the Company’s operating profile. +Management expects that future capital raising activities will generally be aligned with operational milestones and revenue growth. +The +Company’s manufacturing facility in St. Joseph, Missouri currently provides meaningful production capacity to support anticipated +growth. Management estimates that the facility could support production of up to approximately 200,000 shafts annually with incremental +operational improvements. The Company’s current facility lease is approximately $3,900 per month, providing a relatively low fixed-cost +manufacturing footprint. The Company expects that only modest capital investments may be required to enhance production capacity and +operational efficiency as demand for Newton products continues to grow. +40 +The +following table summarizes our cash flows for the periods indicated (amounts are rounded to nearest thousands): +Year Ended +December 31, +2025 +2024 +Net cash (used in) provided by: +Operating activities +$ (5,166,000 ) +$ (4,929,000 ) +Investing activities +(469,000 ) +(502,000 ) +Financing activities +(717,000 ) +7,743,000 +Net (decrease) increase in cash +$ (6,352,000 ) +$ 2,312,000 +Operating +Activities +Net +cash used in operating activities for the year ended December 31, 2025 was $5,166,000, compared to $4,929,000 for the year ended +December 31, 2024. The increase in net cash used in operating activities primarily reflects higher operating expenses associated +with the Company’s growth initiatives, including increased marketing and brand-building activities, higher sales-related +expenses associated with increased revenue, and increased public company operating costs. Operating cash outflows also reflected +increased employee-related costs associated with new hires and performance-based bonuses tied to revenue growth and operational +milestones, as well as higher professional services related to the optimization and enhancement of enterprise systems intended to +support operational efficiency and future scalability. These factors were partially offset by an increase in gross profit in 2025. The +increase in operating expenses reflects management’s continued investment in brand awareness, sales infrastructure, and +operational systems intended to support the Company’s long-term revenue growth and scalability. +Investing +Activities +Net +cash used in investing activities for the year ended December 31, 2025 totaled $469,000, primarily related to purchases of property and +equipment associated with the expansion and support of the Company’s manufacturing operations. Net cash used in investing activities +for the year ended December 31, 2024 totaled $502,000, also related primarily to purchases of property and equipment. +Financing +Activities +Net +cash used in financing activities for the year ended December 31, 2025 was $717,000, compared to net cash provided by financing activities +of $7,743,000 for the year ended December 31, 2024. +The +net cash used in financing activities during 2025 primarily reflected cash used for share repurchases and other financing-related activities +during the year. +Net +cash provided by financing activities during 2024 primarily reflected proceeds from equity financing transactions completed during the +year, partially offset by approximately $50,000 used to repay software and licensing obligations. +Financing activity in 2025 was significantly lower than 2024, which benefited from capital raised through equity +financing transactions. +Going +Concern +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. +41 +As +reflected in the accompanying financial statements, during the year ended December 31, 2025, the Company incurred a net loss of $6,020,000 +and used cash in operations of $5,166,000. These factors raise substantial doubt about the Company’s ability to continue as a going +concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public +accounting firm expressed substantial doubt about the Company’s ability to continue as a going concern in its report on the Company’s financial statements for the year ended December 31, 2025. +At +December 31, 2025, the Company had approximately $1.3 million of cash and cash equivalents. Management currently expects that its existing +cash resources will fund operations for a limited period and that additional financing will be required to support ongoing operations. +The +continuation of the Company as a going concern is dependent upon its ability to obtain additional debt or equity financing until it begins +generating positive cash flow. No assurance can be given that such financing will be available or, if available, that it will be on terms +acceptable to the Company. Any additional financing may contain restrictive covenants, in the case of debt financing, or result in substantial +dilution to existing stockholders, in the case of equity financing. +Emerging +Growth Company +We +are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS +Act”). As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements +applicable to other public companies. +We +will remain an emerging growth company until the earliest of: +(i) +the last day of the fiscal year in which our annual gross revenues exceed $1.235 billion; +(ii) +the last day of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million as of the end +of the second quarter of that fiscal year; +(iii) +the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three-year period; or +(iv) +the last day of the fiscal year following the fifth anniversary of our initial public offering. +As +an emerging growth company, we are not required to: +● +comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act regarding internal control over financial +reporting; +● +comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm +rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements +(i.e., an auditor discussion and analysis); +● +provide certain executive compensation disclosures required of larger public companies; or +● +hold advisory votes on executive compensation matters, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden +parachutes.” +In +addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for +complying with new or revised accounting standards. Under this provision, an emerging growth company may delay adoption of certain accounting +standards until those standards apply to private companies. The Company has elected to take advantage of this extended transition period. +42 +Inflation +and Supply Chain +The +Company’s manufacturing operations utilize raw materials such as carbon fiber, metals, coatings, and other specialized components. +In recent years, global supply chain disruptions and inflationary pressures have affected the cost of certain raw materials, transportation, +and labor. While the Company has experienced increases in certain input costs, management has sought to mitigate these impacts through +supplier diversification, operational efficiencies, and product pricing strategies. +Because +the Company manufactures a significant portion of its shaft products domestically at its facility in St. Joseph, Missouri, management +believes the Company may benefit from greater operational control and reduced exposure to certain international supply chain disruptions +and tariffs compared to companies that rely more heavily on overseas manufacturing. +At +present, inflation has not had a material adverse effect on the Company’s results of operations; however, sustained increases in +raw material costs, freight costs, or labor expenses could impact the Company’s cost structure and operating margins in future +periods. +Off-Balance +Sheet Arrangements +At +December 31, 2025 and 2024, the Company did not have any transactions, obligations or relationships that could be considered off-balance +sheet arrangements. +Critical +Accounting Policies and Estimates +Our +discussion and analysis of our results of operations, financial condition, and liquidity are based upon our financial statements, +which have been prepared and audited in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation +of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, +liabilities, stockholders’ equity, revenues, and expenses, as well as the related disclosures of contingent assets and liabilities. +Management +bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. +These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent +from other sources. Because the use of estimates is inherent in the financial reporting process, actual results could differ materially +from those estimates. +Management +evaluates its estimates on an ongoing basis and adjusts those estimates when facts and circumstances change. Management believes the +following accounting policies involve the most significant judgments and estimates used in the preparation of the Company’s financial statements. +Revenue +Recognition +We +account for revenue recognition in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from +Contracts with Customers.” +The +amount of revenue we recognize is based on the amount of consideration we expect to receive from customers. The amount of consideration +is the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as sales +programs, sales promotions and price concessions that we offer, as described further below. These estimates are based on amounts earned +or expected to be claimed by customers on the related sales, and are therefore recorded to the respective net revenue, trade accounts +receivable, and sales program liability accounts. +We +may offer short-term sales incentives, which include sell-through promotions and price concessions or price reductions. Sell-through +promotions are generally offered throughout a product’s life cycle, which varies from two to three years but could be shorter or +longer. Price concessions or price reductions are generally offered at the end of the product’s life cycle. The estimated variable +consideration related to these potential programs will be based on a rate that includes historical and forecasted data. We may record +a reduction to net revenues using this rate at the time of the sale. We will monitor this rate against actual results and forecasted +estimates and adjusts the rate as necessary in order to reflect the amount of consideration it expects to receive from its customers. +We +also may record an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable in the period +that the related sales are recorded. The cost recovery of inventory associated with this reserve will be accounted for in other current +assets. Sales returns will be estimated based upon historical returns, current economic trends, changes in customer demands and sell-through +of products. We also may offer certain customers sales programs that would allow for specific returns. We may record a return reserve +for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program. +43 +Stock-Based +Compensation +The +Company periodically grants restricted stock units (“RSUs”) and stock options to employees, directors, and consultants as +compensation for services. The Company accounts for these awards in accordance with ASC 718, Compensation—Stock Compensation, whereby +the fair value of the award is measured on the grant date and recognized as compensation expense on a straight-line basis over the vesting +period. Stock-based compensation expense is recorded within the Company’s consolidated statements of operations based on the nature +of the services rendered. The fair value of RSUs is determined based on the fair market value of the Company’s +common stock on the grant date. RSUs generally vest based on continued service over a specified vesting period. Compensation +expense for time-based RSU awards is recognized on a straight-line basis over the requisite service period. The Company may grant RSU +awards in the future that include performance-based vesting conditions tied to operational or financial milestones. For such awards, +compensation expense would be recognized when it becomes probable that the performance condition will be achieved. The Company recognizes +forfeitures as they occur. +The +fair value of stock option awards is estimated on the grant date using the Black-Scholes option-pricing model, which requires management +to make assumptions regarding the expected term of the award, expected volatility of the Company’s common stock, risk-free interest +rate, and expected dividend yield. +Prior +to the Company’s initial public offering on August 14, 2023, the Company’s common stock was not publicly traded. As a result, +the Company estimated the fair value of its common stock using valuation methodologies consistent with the framework outlined in the +AICPA Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. These valuations incorporated various +objective and subjective factors, including external market conditions, guideline public company information, arm’s-length transactions +involving the Company’s securities, the rights and preferences of securities senior to the Company’s common stock, and the +probability of achieving a liquidity event such as an initial public offering or sale of the Company. +For +periods prior to the Company developing a sufficient trading history for its common stock, the Company estimated expected volatility +using the historical volatility of a group of comparable publicly traded companies. Beginning in the third quarter of 2025, the +Company began using the historical volatility of its own publicly traded common stock to estimate expected volatility. +The +expected term of stock options granted to employees is determined using the “simplified method” for awards that qualify as +plain-vanilla options. The expected term of stock options granted to non-employees is generally based on the contractual term of the +award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant for time +periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact that the Company +has never paid dividends and does not currently expect to pay dividends in the foreseeable future. +Warrant +Accounting +The +Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an evaluation of +the specific terms of the warrants and the applicable guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives +and Hedging. +This +evaluation includes determining whether the warrants are freestanding financial instruments, whether they meet the definition of a liability +under ASC 480, and whether they satisfy the criteria for equity classification under ASC 815. In particular, the Company assesses whether +the warrants are indexed to the Company’s own stock and whether the terms of the warrants could require net cash settlement in +circumstances outside the Company’s control, among other conditions required for equity classification. +This +assessment requires the use of professional judgment and is performed at the time of warrant issuance and reassessed at each reporting +period while the warrants remains outstanding. +Warrants +that are classified as liabilities are recorded at fair value upon issuance and remeasured at fair value at each reporting date, with +changes in fair value recognized in the Company’s consolidated statements of operations. Warrants that qualify for equity classification +are recorded within additional paid-in capital and are not subsequently remeasured. +Recently +Issued Accounting Pronouncements +See +Note 2 of the Notes to Financial Statements for a discussion of recent accounting pronouncements. +Item +7A. Quantitative and Qualitative Disclosures about Market Risk +As +a smaller reporting company, the Company is not required to provide the information required by this Item 7A. +44 +Item +8. Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 572 ) +F-2 +Financial +Statements: +Balance Sheets as of December 31, 2025 and December 31, 2024 +F-3 +Statements of Operations for the years ended December 31, 2025 and 2024 +F-4 +Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024 +F-5 +Statements of Cash Flows for the years ended December 31, 2025 and 2024 +F-6 +Notes to Financial Statements for the years ended December 31, 2025 and 2024 +F-7 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and Stockholders of +Newton +Golf Company, Inc. +Camarillo, +California +Opinion +on the Financial Statements +We +have audited the accompanying balance sheets of Newton Golf Company, Inc. (the “Company”) +as of December 31, 2025 and 2024, the related statements of operations, stockholders’ equity (deficiency), and cash flows for the +years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial +statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the +results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in +the United States of America. +Going +Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note +1 to the financial statements, the Company has experienced recurring operating losses and negative operating cash flows since inception. +These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in +regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments +that might result from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal +securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit +we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provided a reasonable basis for our opinion. +We +have served as the Company’s auditor since 2022. +/s/Weinberg +& Company +Weinberg +& Company +Los +Angeles, California +March +31, 2026 +F- 2 +NEWTON +GOLF COMPANY, INC. +BALANCE +SHEETS +(Amounts +rounded to nearest thousands, except share amounts) +December 31, +December 31, +2025 +2024 +ASSETS +Current Assets +Cash and cash equivalents +$ 1,298,000 +$ 7,650,000 +Accounts receivable, net +102,000 +115,000 +Inventory, net of reserve for obsolescence +of $ 135,000 and $ 49,000 , respectively +374,000 +913,000 +Prepaid expenses and other +current assets +413,000 +274,000 +Total +Current Assets +2,187,000 +8,952,000 +Property and equipment, net +880,000 +716,000 +Right of use asset +84,000 +34,000 +Software licensing agreement, net +25,000 +59,000 +Deferred Offering Costs +123,000 +- +Deposits +- +5,000 +Total +Other Assets +1,112,000 +814,000 +TOTAL +ASSETS +$ 3,299,000 +$ 9,766,000 +LIABILITIES AND SHAREHOLDERS’ +EQUITY (DEFICIENCY) +Current Liabilities +Accounts payable and accrued expenses +$ 1,503,000 +$ 572,000 +Lease liability, current +40,000 +34,000 +Software licensing obligation, current +41,000 +54,000 +Warrant Liability +745,000 +14,261,000 +Total +Current Liabilities +2,329,000 +14,921,000 +Software licensing fee obligation, net of current +- +32,000 +Lease liabilities, net +of current +44,000 +- +Total +Liabilities +2,373,000 +14,953,000 +Shareholders’ Equity +(Deficiency) +Preferred stock, par value $ 0.01 , 5,000,000 +shares authorized; no shares issued and outstanding, respectively +- +- +Common stock, par value $ 0.01 , 45,000,000 shares +authorized; 4,592,063 and 297,184 shares issued and outstanding, respectively +45,000 +3,000 +Additional paid-in capital +28,970,000 +16,879,000 +Accumulated deficit +( 28,089,000 ) +( 22,069,000 ) +Total +Shareholders’ Equity (Deficiency) +926,000 +( 5,187,000 ) +TOTAL +LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) +$ 3,299,000 +$ 9,766,000 +The +accompanying notes are an integral part of these financial statements. +F- 3 +NEWTON +GOLF COMPANY, INC. +STATEMENTS +OF OPERATIONS +For +the Years Ended December 31, 2025 and 2024 +(Amounts +rounded to nearest thousands, except share and per share amounts) +2025 +2024 +Years +Ended December 31, +2025 +2024 +Revenues +$ 8,135,000 +$ 3,445,000 +Cost of goods sold +3,581,000 +1,171,000 +Gross profit +4,554,000 +2,274,000 +Operating expenses: +Selling, general and administrative expense +11,323,000 +6,509,000 +Research and development +expenses +779,000 +743,000 +Total +operating expenses +12,102,000 +7,252,000 +Loss from operations +( 7,548,000 ) +( 4,978,000 ) +Interest income, net +99,000 +161,000 +Financing costs +- +( 6,913,000 ) +Change in fair value of +warrant liabilities +1,429,000 +( 22,000 ) +Net +Loss +$ ( 6,020,000 ) +$ ( 11,752,000 ) +Loss +per common share – basic and diluted +$ ( 1.63 ) +$ ( 178.33 ) +Weighted average common +shares outstanding – basic and diluted +3,701,444 +65,899 +The +accompanying notes are an integral part of these financial statements. +F- 4 +NEWTON +GOLF COMPANY, INC. +STATEMENTS OF CHANGES IN STOCKHOLDERS’ +EQUITY (DEFICIENCY) +For the Years Ended December 31, 2025 and 2024 +(Amounts rounded to nearest +thousands, except share amounts) +Shares +Amount +Capital +Deficit +Deficiency +Common +Stock +Additional +Paid In +Accumulated +Total +Stockholders’ +Equity +Shares +Amount +Capital +Deficit +(Deficiency) +Balance, December 31, 2023 +51,651 +1,000 +16,106,000 +( 10,317,000 ) +5,790,000 +Vesting of options +- +- +308,000 +308,000 +Proceeds from public offering of common stock, +net of expenses +245,533 +2,000 +7,791,000 +- +7,793,000 +Fair value of warrant liability related to +public offering +- +- +( 7,326,000 ) +- +( 7,326,000 ) +Net Loss +- +- +( 11,752,000 ) +( 11,752,000 ) +Balance, December 31, +2024 +297,184 +$ 3,000 +$ 16,879,000 +$ ( 22,069,000 ) +$ ( 5,187,000 ) +Vesting of options +- +- +181,000 +- +181,000 +Shares issued for consulting services +222,041 +2,000 +319,000 +- +321,000 +Stock compensation expense on vesting RSUs +40,000 +- +93,000 +- +93,000 +Costs incurred on conversion of warrants +- +- +( 49,000 ) +- +( 49,000 ) +Exercise of warrants +4,233,238 +42,000 +12,045,000 +12,087,000 +Acquisition and retirement treasury shares +( 200,400 ) +( 2,000 ) +( 498,000 ) +( 500,000 ) +Net Loss +- +- +- +( 6,020,000 ) +( 6,020,000 ) +Balance, December 31, +2025 +4,592,063 +$ 45,000 +$ 28,970,000 +$ ( 28,089,000 ) +$ 926,000 +The +accompanying notes are an integral part of these financial statements +F- 5 +NEWTON +GOLF COMPANY, INC. +STATEMENTS +OF CASH FLOWS +For +the Years Ended December 31, 2025 and 2024 +(Amounts +rounded to nearest thousands) +2025 +2024 +Years +Ended December 31, +2025 +2024 +Cash Flows from Operating +Activities +Net Loss +$ ( 6,020,000 ) +$ ( 11,752,000 ) +Adjustments to reconcile +net loss to net cash used in operating activities: +Depreciation +305,000 +165,000 +Amortization of deferred +software licensing agreement +34,000 +51,000 +Amortization of prepaid restricted stock +168,000 +- +Bad debt expense +50,000 +19,000 +Inventory reserve +86,000 +( 49,000 ) +Financing costs +- +6,913,000 +Change in fair value of +warrants (gain) loss +( 1,429,000 ) +22,000 +Stock-based compensation +expense +274,000 +308,000 +Right-of-use asset +35,000 +31,000 +Changes in operating assets +and liabilities +Accounts receivable +( 37,000 ) +( 81,000 ) +Inventory +453,000 +( 616,000 ) +Prepaids and other current +assets +14,000 +( 78,000 ) +Deposits +5,000 +- +Accounts payable and accrued +expenses +931,000 +171,000 +Lease liability (ROU) +( 35,000 ) +( 31,000 ) +Customer +deposits +- +( 2,000 ) +Net +cash used in operating activities +( 5,166,000 ) +( 4,929,000 ) +Cash Flows from Investing +Activities +Purchase of property and +equipment +( 469,000 ) +( 502,000 ) +Net +cash used in investing activities +( 469,000 ) +( 502,000 ) +Cash Flows from Financing +Activities +Treasury stock +( 500,000 ) +- +Offering costs +( 123,000 ) +- +Proceeds from public sale +of common stock, net +( 49,000 ) +7,793,000 +Software +licensing obligation +( 45,000 ) +( 50,000 ) +Net +cash (used in) provided by financing activities +( 717,000 ) +7,743,000 +Net (decrease) increase in cash +( 6,352,000 ) +2,312,000 +Cash and cash equivalents +and restricted cash at the beginning of period +7,650,000 +5,338,000 +Cash and cash equivalents +and restricted cash end of period +$ 1,298,000 +$ 7,650,000 +Supplemental disclosures +of cash flow information: +Cash paid for interest +$ - +$ - +Cash paid for income +taxes +$ - +$ - +SUPPLEMENTAL DISCLOSURE +OF NON-CASH INVESTING AND FINANCING ACTIVITIES: +Fair value of warrant liability converted to equity +$ 12,087,000 +$ 14,239,000 +New right of use asset and lease liability +$ 106,000 +$ - +Recording of restricted stock unit as prepaid asset +$ +321,000 +$ - +The +accompanying notes are an integral part of these financial statements. +F- 6 +NEWTON +GOLF COMPANY, INC. +NOTES +TO FINANCIAL STATEMENTS +For +the Years Ended December 31, 2025 and 2024 +(Amounts rounded to nearest thousands, except share and per share amounts) +NOTE +1 – OPERATIONS AND LIQUIDITY +Newton +Golf Company, Inc. (“we” or the “Company”) was formed in 2018 as Sacks Parente Golf, Inc., a Delaware +limited liability company. On March 18, 2025 the Company converted into a Delaware corporation named Newton Golf Company, Inc. +Pursuant to our Plan of Conversion, on March 18, 2025, all of the outstanding ownership interests in Sacks Parente Golf, Inc., and +rights to receive such interest were converted into and exchanged for shares of capital stock of Newton Golf Company, Inc.. The Company +retroactively reflected the conversion as of the earliest periods presented herein. +On +March 11, 2025, the Company’s Board of Directors approved and, by written consent dated February 26, 2025, the holders of a majority +of our common stock approved an amendment to our Certificate of Incorporation to change our name from Sacks Parente Golf, Inc. to Newton +Golf Company, Inc. to better reflect its commitment to revolutionizing golf through advanced physics and precision engineering. The change +to Newton Golf Company, Inc. became effective on March 17, 2025. +The Company designs, manufactures, and sells performance golf equipment, including premium golf shafts and putters. The +Company’s Newton Motion shaft product line represents a core component of its product strategy and has contributed +significantly to recent revenue growth. +In +April 2022, the Company expanded its manufacturing capabilities by opening a shaft manufacturing facility in St. Joseph, Missouri, to +support the production of advanced carbon fiber golf shafts. The Company seeks to manufacture and assemble substantially all of its products +in the United States where economically feasible, which management believes provides supply chain advantages and greater control over +product quality and manufacturing processes. +The +Company sells its products through a combination of direct-to-consumer channels, including its websites, as well as through resellers, +professional club fitters, distributors, and golf retailers. The Company currently distributes products primarily in the United States, +with additional distribution in Japan and South Korea. +The +Company may expand its product offerings over time through internal product development, strategic partnerships, or acquisitions of complementary +golf-related product lines or technologies. +Going +Concern and Liquidity +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the year +ended December 31, 2025, the Company incurred a net loss of $ 6,020,000 and used cash in operations of $ 5,166,000 and had stockholders’ +equity of $ 926,000 as of December 31, 2025. These factors raise substantial doubt about the Company’s ability to continue as a going concern +within one year after the date of the financial statements being issued. These financial statements do not include adjustments relating +to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary +should the Company be unable to continue as a going concern. +At +December 31, 2025, the Company had cash and cash equivalents on hand in the amount of $ 1,298,000 . Management currently expects that its +existing cash resources will fund operations for a limited period and that additional financing will be required to support ongoing operations. +F- 7 +The +continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue +operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if +available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, +it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, +in case or equity financing. +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “First Reverse +Stock Split”). The First Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the +Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As +a result of the First +Reverse Stock Split, every ten shares of common stock were automatically combined into one share of common stock . The +authorized number of shares of common stock was not affected by the First Reverse Stock Split. No fractional shares were issued in +connection with the First Reverse Stock Split, as all fractional shares were rounded up to the next whole share. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to affect a reverse stock split of the Company’s common stock at a ratio of 1-for-30 shares (the “Second Reverse +Stock Split”, and together with the First Reverse Stock Split, the “Reverse Stock Splits”) . The Second Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on March 17, 2025 and the Company’s +common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. As a result of the Second Reverse Stock Split, every 30 shares of common stock were automatically combined into one +share of common stock. All shares and per share +amounts and information presented herein have been retroactively adjusted to reflect the Reverse Stock Splits for all years presented. +The +authorized number of shares of common stock was not affected by the Reverse Stock Splits. No fractional shares were issued +in connection with the Reverse Stock Splits, as all fractional shares were rounded up to the next whole share. Accordingly, +all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the First and +Second Reverse Stock Split for all periods presented. Proportionate adjustments for the Reverse Stock Splits have been +made to the per share exercise price and the number of shares issuable upon the exercise of warrants, the number of shares reserved for +issuance under the Company’s equity plans, and all the then outstanding awards under the Company’s equity plans. The Reverse Stock Splits did not change the par value of the common stock or modify any voting rights or other terms of common +stock. +NOTE +2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Use +of Estimates +The +preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates +and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date +of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ +from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivables, assumptions +used in valuing inventories at net realizable value, impairment testing of recorded long-term and tangible and intangible assets, the +valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing warrant liabilities, and +assumptions made in valuing stock instruments issued for services. +F- 8 +Cash +and Cash Equivalents +The +Company’s cash consists of cash on deposit with banks. Cash equivalents represent money market funds or short-term investments +with original maturities of three months or less from the date of purchase. +Accounts +Receivable +Accounts +receivable are generally recorded at the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability +of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s +inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces +the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer +identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment +of past due trade accounts receivable outstanding. The allowance for accounts receivable is established through a provision reducing +the carrying value of receivables. At December 31, 2025, management recorded an allowance for doubtful accounts of $ 69,000 , reflecting +updated expectations regarding collectability. At December 31, 2024, the allowance for doubtful accounts was $ 19,000 . +Inventory +Inventory +is stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method. +Inventory consists primarily of raw materials, work-in-process, and finished goods related to the Company’s golf equipment products. +The +Company regularly reviews inventory quantities on hand and records provisions for excess, slow-moving, or potentially obsolete inventory +based primarily on estimated future product demand and the Company’s ability to sell the related products. +Demand +for the Company’s products may fluctuate due to factors such as changes in consumer preferences, product life cycles, competitive +product introductions, and general market conditions, which could result in slower inventory turnover or reductions in the rate of orders +placed by customers. +The +Company also performs periodic physical inventory counts and cycle counts to verify recorded inventory quantities. Adjustments may be +recorded when differences are identified between recorded inventory balances and physical inventory on hand, including adjustments related +to product costing or bill of materials assumptions maintained within the Company’s enterprise resource planning system. +Management’s +estimates of future product demand and net realizable value require judgment and may differ from actual results, which could result in +adjustments to inventory carrying values in future periods. +At +December 31, 2025 and 2024, management recorded reserves for slow-moving and potentially obsolete inventory of $ 135,000 and $ 49,000 , +respectively. +Property +and Equipment +Property +and equipment are stated at cost. Expenditures for major renewals and improvements that extend the useful lives of property and equipment +are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated using the +straight-line method over the estimated useful lives of the assets as follows: +SCHEDULE +OF PROPERTY AND EQUIPMENT USEFUL LIVES +Property +and Equipment Type +Years +of Depreciation +Machinery +and Equipment +7 +years +Leasehold +Improvements +2 +years +Vehicles +5 +years +F- 9 +Management +assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may +not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result +from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment +loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2025 and 2024, the Company determined +there were no indicators of impairment of its property and equipment. +Warrant +Liabilities +The +Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of +the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Codification (“ASC”) 480, Distinguishing +Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding +financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for +equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders +of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions +for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance +and as of each subsequent quarterly period end date while the warrants are outstanding. +Revenue +Recognition +The +Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC +606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at +the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the +terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations +in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance +obligations, and (5) recognizing revenue as each performance obligation is satisfied. +Revenue +and costs of sales are recognized when control of the products is transferred to our customer, which generally occurs upon shipment from +our facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts +with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause +revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of +the goods and therefore represent a fulfillment activity rather than a promised service to the customer. +All +of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment +for customers to derive the expected value from them. +The +Company does not allow for returns after 30 days, except for damaged products when the damage occurred pre-fulfillment. Damaged product +returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance +obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. +We assess our contracts and the reasonableness of our conclusions on a quarterly basis. +F- 10 +The +following table presents our net sales by revenue source, and the period-over-period percentage change, for the period presented: +SCHEDULE +OF DISAGGREGATION OF REVENUE +2025 +2024 +Years +Ended December 31, +2025 +2024 +Net Sales +Source +Revenue +% +Revenue +% +Distributors and retailers +$ 716,000 +8.8 % +$ 553,000 +16.1 % +Online Sales +7,419,000 +91.2 % +2,892,000 +83.9 % +Net Sales +$ 8,135,000 +$ 3,445,000 +The +following table presents our net sales by product lines for the period presented: +2025 +2024 +Years +Ended December 31, +2025 +2024 +Product Line +Revenue +% +Revenue +% +Driver and Fairway Shafts +$ 8,067,000 +99.2 % +$ 3,172,000 +92.1 % +Putters +68,000 +0.8 % +273,000 +7.9 % +Net Sales +$ 8,135,000 +$ 3,445,000 +Loss +per Common Share +Basic +loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number +of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing the net loss applicable +to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would +have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares +are excluded from the computation when their effect is antidilutive. +For +the years ended December 31, 2025 and 2024, the calculations of basic and diluted net loss per share are the same because potential +dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the +following: +SCHEDULE OF ANTIDILUTIVE SECURITIES +December 31, +2025 +December 31, +2024 +Stock Options +38,475 +$ 13,659 +Restricted Stock Units +755,222 +- +Series A Warrants +268,333 +268,333 +Series B Warrants +16,849 +268,333 +Total +1,078,879 +$ 550,325 +* +The +Company currently has 16,849 remaining Series B Warrants that will convert into 288,834 shares of common stock upon their alternative +cashless exercise. +Advertising +Costs +Advertising +costs are expensed as incurred and are included in selling, general and administrative expense. Advertising costs aggregated at $ 2,346,000 +and $ 1,351,000 for the years ended December 31, 2025 and 2024, respectively. +F- 11 +Research +and Development +Research +and development expenses consist primarily of personnel costs, prototype expenses, and consulting services associated with research and +development equipment. Research and development costs are expensed as incurred. Research and development costs were $ 779,000 and $ 743,000 +for the years ended December 31, 2025 and 2024, respectively. +Stock-Based +Compensation +The +Company periodically grants restricted stock units (“RSUs”) and stock options to employees, directors, and consultants in +non-capital raising transactions for services. The Company accounts for these awards in accordance with Accounting Standards Codification +718, Compensation—Stock Compensation (“ASC 718”), whereby the fair value of the award is measured on the grant date +and recognized as compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense is recorded +in the Company’s statements of operations based on the nature of the services rendered. The fair value of RSU awards +is determined based on the fair market value of the Company’s common stock on the grant date. +The +fair value of stock option awards is estimated using the Black-Scholes option-pricing model, which requires management to make assumptions +regarding the expected term of the award, expected volatility of the Company’s common stock, the risk-free interest rate, and expected +dividend yield. +The +Company was a private company through August 14, 2023, and therefore initially lacked company-specific historical and implied volatility +information. As a result, the Company historically estimated expected volatility using the historical volatility of a group of publicly +traded peer companies within the consumer products industry with characteristics similar to the Company. Beginning in the third quarter +of 2025, the Company began using the historical volatility of its own publicly traded common stock to estimate expected volatility. +The +expected term of stock options granted to employees is determined using the “simplified” method for awards that qualify as +plain-vanilla options. The expected term of stock options granted to non-employees is generally based on the contractual term of the +option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant +for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, as the Company has never +paid cash dividends and does not currently expect to pay dividends in the foreseeable future. +Fair +Value of Financial Instruments +The +Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring +basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure +their fair value. ASC Section 820 defines the following levels of subjectivity associated with the inputs: +Level +1—Quoted prices in active markets for identical assets or liabilities. +Level +2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. +Level +3—Unobservable inputs based on the Company’s assumptions. +F- 12 +The +carrying amounts of financial assets and liabilities, such as cash, accounts receivable, inventory, accounts payable, and other payables, +approximate their fair values because of the short maturity of these instruments. The carrying values of long-term financing obligations +approximate their fair values because interest rates on these obligations are based on prevailing market interest rates. +The +Company utilizes level 3 inputs in the fair value hierarchy to determine the fair market value of its warrant liability. +Concentrations +of Risk +Cash +Balances. The Company’s cash balances on deposits with banks are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) +up to $ 250,000 . From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess +of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions. +All of the non-interest-bearing cash balances were fully insured at December 31, 2025 and 2024. +Accounts +Receivable. At December 31, 2025, two customers accounted for more than 19 % and 17 % of accounts receivable, respectively. At December +31, 2024, two customers accounted for 44 % and 20 % of accounts receivable. No other customers exceeded 10% of accounts receivable in either +period. +Net +sales. During the year ended December 31, 2025, no customer exceeded 10% of net sales. During the year ended December 31, 2025, approximately +99 % of the Company’s net sales were in the United States and 1 % of the Company’s net sales were international. During the +year ended December 31, 2024, no customer accounted for more than 10% of net sales. During the year ended December 31, 2024, approximately +94 % of the Company’s net sales were in the United States, and 6 % of the Company’s net sales were international. +Income +Taxes +The +Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of +deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, +deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for +financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets +if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility +is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. +Segments +Under +ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available +that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in +assessing performance. The Company has one component. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes +decisions and manages the Company’s operations as a single 1 operating segment for the manufacture and distribution of its products. +Recent +Accounting Pronouncements +In +November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure , which +is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense +categories that are regularly provided to the CODM and included in each reported measure of a segment’s +profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided +in interim periods and for entities with a single 1 reportable segment to provide all the disclosures required by ASC 280, Segment Reporting , +including the significant segment expense disclosures. This standard became effective for the Company on January 1, 2024. The adoption +of 2023-7 did not have a material impact on the Company’s results of operations, financial position or cash flows. +F- 13 +In +November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures +(Subtopic 220-40): Disaggregation of Income Statement Expenses . The guidance in ASU 2024-03 requires public business entities +to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including +purchases of inventory; employee compensation; and depreciation and amortization expense for each caption on the income statement where +such expenses are included. The update is effective for annual reporting periods beginning after December 15, 2026, and interim reporting +periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting +periods after the effective date or retrospectively to all periods presented in the financial statements. We are currently evaluating +the provisions of this guidance and assessing the potential impact on our financial statement disclosures. +Other +recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, +and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s +present or future financial statements. +NOTE +3 – INVENTORY +Inventory +is valued at the lower of cost, first in, first out or net realizable value, and net of reserves is comprised of the +following: +SCHEDULE OF INVENTORY +December +31, +2025 +December +31, +2024 +Raw materials, net +$ 424,000 +$ 838,000 +Finished goods, net +85,000 +124,000 +Inventory Reserve +( 135,000 ) +( 49,000 ) +Total +$ 374,000 +$ 913,000 +NOTE +4 – PROPERTY AND EQUIPMENT +Property +and equipment are comprised of the following: +SCHEDULE OF PROPERTY PLANT AND EQUIPMENT +December +31, +2025 +December +31, +2024 +Machinery and equipment +$ 920,000 +$ 711,000 +Leasehold improvements +399,000 +161,000 +Information technology and software +28,000 +6,000 +Automobile +46,000 +46,000 +Property and equipment, gross +46,000 +46,000 +Accumulated depreciation +( 513,000 ) +( 208,000 ) +Property and equipment, +net +$ 880,000 +$ 716,000 +Depreciation +expense is included in selling, general and administrative expenses in the accompanying statements of operations. For the years ended +December 31, 2025 and 2024, depreciation expenses were $ 305,000 and $ 165,000 , respectively. +NOTE +5 – SOFTWARE LICENSING OBLIGATION +In +October 2023, the Company entered into a software licensing agreement with Oracle America, Inc (“Oracle”) for its NetSuite +Enterprise Resource Planning (ERP) software (“NetSuite”). The Company agreed to license NetSuite for 36 months +and utilize Oracle’s professional services to assist in the implementation of NetSuite. The cost of the license fee was $ 102,000 +and professional services were fixed at $ 34,000 , for an aggregate cost of $ 136,000 . Per the payment terms, no payments were due during +the first nine months, and 30 monthly payments of $ 4,513 are due from April 1, 2024 through September 1, 2026. +F- 14 +The +Company initially recorded the $ 136,000 cost as a deferred software licensing asset and liability on the accompanying balance sheets. +The deferred software licensing asset is being amortized over the license period. The deferred software licensing balance was $ 59,000 +at December 31, 2024. During the year ended December 31, 2025, the Company recorded amortization expense of $ 34,000 , resulting in a deferred +software licensing balance of $ 25,000 at December 31, 2025. +During +the year ended December 31, 2024, the Company made payments of $ 50,000 , leaving a software license obligation balance of $ 86,000 at +December 31, 2024. During the year ended December 31, 2025, the Company made payments of $ 45,000 , leaving a software license obligation +balance was $ 41,000 at December 31, 2025. As of December 31, 2025, the entire remaining balance of $ 41,000 was classified as current, +with no long-term software license obligation outstanding. +NOTE +6 – LEASE LIABILITIES +The +Company determines whether a contract is, or contains, a lease at inception. Right-of-use (“ROU”) assets represent the Company’s +right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease +payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present +value of unpaid lease payments over the lease term. The Company leases its office and warehouse locations, and certain warehouse equipment. +Leases with an initial term of 12 months or less are not included on the balance sheets. +On +April 1, 2022, the Company entered a facility lease for a 4,000 square +foot facility in St. Joseph, Missouri, to expand its manufacturing business to include advanced premium golf shafts. The lease is +for 24 months, +and the monthly rent is approximately $ 1,500 . +On January 1, 2023, the Company amended its lease by adding an additional 5,000 square +feet and extending the lease term to December 2024. The amended lease is for 24 months +from January 1, 2023, and the monthly rent is approximately $ 3,000 . +On December 14, 2023, the Company again amended its lease +by extending the lease term to December 2025 . +In +July 2025, the Company entered into an additional lease agreement that added a parking lot and a designated space for a dumpster. The lease +runs from January 1, 2025 through December 31, 2027 , with monthly rent increasing from $ 3,600 to $ 3,900 . +The +Company’s ROU asset balance was $ 34,000 as of December 31, 2024. During the year ended December 31, 2025, the Company recognized +an additional ROU asset of $ 106,000 related to its new lease and recorded amortization of ROU assets of $ 56,000 , resulting in an ROU asset +balance of $ 84,000 as of December 31, 2025. +The +Company’s lease liability balance was $ 34,000 +as of December 31, 2024. In connection with the 2025 lease +agreement, the Company recognized an additional lease liability of $ 106,000 . +During the year ended December 31, 2025, the Company made lease payments of $ 56,000 , +resulting in a lease liability of $ 84,000 +as of December 31, 2025. Of this amount, $ 40,000 +was classified as current and $ 44,000 +was classified as long-term. +During +the years ended December 31, 2025 and 2024, lease costs totaled approximately $ 49,000 and $ 98,000 , respectively. +As +of December 31, 2025, the weighted average remaining lease term for operating leases was 2.0 years, and the weighted average discount +rate for operating leases was 10.0 %. +F- 15 +Future +minimum lease payments under the leases are as follows: +SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS +Years +Ending December 31, +Amount +2026 +$ 47,000 +2027 +47,000 +Total payments +94,000 +Less: Amount representing +interest +( 10,000 ) +Present value of net minimum lease payments +84,000 +Less: Current portion +( 40,000 ) +Non-current portion +$ 44,000 +NOTE +7 – STOCKHOLDERS’ EQUITY +Common +Stock Issued for Public Offerings +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the +offering, issuance and sale of up to 12,200 shares of the Company’s common stock at a public offering price of $ 60.00 per share. +The offering closed on October 10, 2024. The net proceeds to the Company for the offering were $ 467,000 , after deducting the underwriting +discounts and commissions and estimated offering expenses. +On +December 12, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to +the sale of up to 233,333 +common units (the “Common Units”), each consisting of one share of common stock, one Series A Common Warrant to purchase one share of common +stock per warrant, and one Series B Common Warrant to purchase one share of common stock per warrant. The public offering +price per Common Unit is $ 36.00 . +The initial exercise price of each Series A Common Warrant is $ 72.00 +per share of Common Stock. The Series A Common Warrants are exercisable following stockholder approval and expire 60 months +thereafter. The initial exercise price of each Series B Common Warrant is $ 72.00 +per share of common stock or pursuant to an alternative cashless exercise option. The Series B Common Warrants are exercisable +following stockholder approval and expire 30 months thereafter. The offering closed on December 13, 2024. The net proceeds to the Company for +the offering were approximately $ 7,326,000 , +after deducting underwriting discounts and commissions and estimated offering expenses. +As +discussed below, the Series A and B Warrants have been accounted for as a liability. The fair value of the warrants at the date of issuance +was determined to be $ 12,456,000 (Series B) and $ 1,783,000 (Series A). Upon closing of the offering, the fair value of the warrant liability, +up to the amount of funds received of $ 7,326,000 , was recorded as a cost of capital and the excess of $ 6,913,000 was recorded as a finance +cost. +Equity +Incentive Plans +The +Company maintains the 2022 Equity Incentive Plan (the “2022 Plan”), which provides for the grant of incentive stock options, +non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs and performance units and performance +shares to employees, directors and consultants of the Company or any parent or subsidiary of the Company. The purpose of the 2022 Plan +is to enable the Company to attract and retain the best available personnel for positions of substantial responsibility, to provide additional +incentives to employees, directors and consultants of the Company or any parent or subsidiary of the Company, and to promote the success +of the Company’s business. +F- 16 +NOTE +8 – STOCK OPTIONS +Summary +of Options +A +summary of stock options for the years ended December 31, 2025 and 2024 is as follows: +SCHEDULE OF STOCK OPTIONS +Weighted- +Weighted- +Average +Average +Remaining +Aggregate +Exercise +Contractual +Intrinsic +Options +Price +Life +(Years) +Value +Outstanding at December 31, 2023 +8,539 +$ 276.47 +4.26 +$ - +Granted +8,053 +44.57 +- +- +Forfeited +( 2,933 ) +278.45 +- +- +Exercised +- +- +- +- +Outstanding at December 31, 2024 +13,659 +142.99 +2.25 +- +Granted +25,033 +1.02 +- +- +Forfeited +( 217 ) +300.00 +- +- +Exercised +- +- +- +- +Outstanding at December 31, 2025 +38,475 +$ 46.96 +1.57 +$ 12,000 +Exercisable at December 31, 2025 +7,597 +$ 194.64 +$ - +As +of December 31, 2025, the intrinsic value of the outstanding options under the 2022 Plan was $ 0 . +The +total stock compensation expense recognized related to vesting stock options for the year ended December 31, 2025 and 2024 amounted to +$ 181,000 and $ 308,000 , respectively. As of December 31, 2025, the total unrecognized stock-based compensation was $ 288,000 , which is expected +to be recognized as part of operating expense through November 2029. +The +following were stock option transactions during the year ended December 31, 2025: +On +June 26, 2025, the Company granted stock options to an employee to purchase 5,000 shares of common stock for services to be rendered. +The options have an exercise price of $ 1.50 per share, and expire in five years , vesting equally over four years from the employee’s +start date. The total fair value of these options at the grant date was approximately $ 7,000 using the Black-Scholes option pricing model. +On +November 17, 2025, the Company granted stock options to an employee to purchase 20,033 shares of common stock for services to be rendered. +The options have an exercise price of $ 0.90 per share, and expire in five years , vesting equally over four years from the employee’s +start date. The total fair value of these options at the grant date was approximately $ 16,000 using the Black-Scholes option pricing +model. +The +following were stock option transactions during the year ended December 31, 2024: +On +January 1, 2024, the Company granted stock options to a director to purchase 133 shares of common stock for services to be rendered. +The options have an exercise price of $ 201.60 per share, and expire in seven years , vesting equally over three years from the grant date. +The total fair value of these options at the grant date was approximately $ 22,000 using the Black-Scholes option pricing model. +On +July 18, 2024, the Company granted stock options to a director to purchase 1,333 shares of common stock for services to be rendered. +The options have an exercise price of $ 160.20 per share, and expire in seven years , vesting equally over three years from the grant date. +The total fair value of these options at the grant date was approximately $ 171,000 using the Black-Scholes option pricing model. +On +December 20, 2024, the Company granted stock options to directors to purchase 5,120 shares of common stock for services rendered and to +be rendered. The options have an exercise price of $ 9.60 per share, and expire in seven years , vesting equally over three years from +the grant date. The total fair value of these options at the grant date was approximately $ 62,000 using the Black-Scholes option pricing +model. +On +December 20, 2024, the Company granted stock options to an employee to purchase 333 shares of common stock for services to be rendered. +The options have an exercise price of $ 9.60 per share, and expire in seven years , vesting equally over three years from the grant date. +The total fair value of these options at the grant date was approximately $ 4,000 using the Black-Scholes option pricing model. +On +December 20, 2024, the Company granted stock options to consultants to purchase 1,133 shares of common stock for services to be rendered. +The options have an exercise price of $ 9.60 per share, have an average expiration date of 5.5 years, and vest equally over an average +of two years from the grant date. The total fair value of these options at the grant date was approximately $ 11,000 using the Black-Scholes +option pricing model. +F- 17 +The +fair value of share option award is estimated using the Black-Scholes option pricing model based on the following weighted-average assumptions: +SCHEDULE OF BLACK SCHOLES OPTION PRICING METHOD +Year +Ended +December +31, +2025 +2024 +Risk-free interest rate +3.73 +- 3.79 % +3.95 % +- 4.45 % +Average expected term +5 +years +7 +years +Expected volatility +125.76 % +to 147.06 % +150.0 % +Expected dividend yield +- +- +NOTE +9 – WARRANTS CLASSIFIED AS LIABILITY +A +summary of warrants for the years ended December 31, 2025 and 2024 is as follows: +SCHEDULE OF WARRANTS +Series +A +Weighted +Average +Series +B +Weighted +Average +Warrants +Exercise +Price +Warrants +Exercise Price +Warrants outstanding, December 31, +2023 +- +- +- +- +Warrants granted +268,333 +$ +72.00 +268,333 +$ +72.00 +Warrants forfeited +- +- +Warrants exercised +- +- +Warrants outstanding, December 31, 2024 +268,333 +$ +72.00 +268,333 +$ +72.00 +Warrants outstanding, balance +268,333 +$ +72.00 +268,333 +$ +72.00 +Warrants granted +- +- +Warrants forfeited +- +- +Warrants exercised +- +( 251,484 +) +$ +72.00 +Warrants outstanding, December +31, 2025 +268,333 +$ +72.00 +16,849 +$ +72.00 +Warrants outstanding, balance +268,333 +72.00 +16,849 +72.00 +Information +relating to outstanding warrants as of December 31, 2025 summarized by exercise price, is as follows: +SCHEDULE OF OUTSTANDING WARRANTS AND EXERCISABLE PRICE +Outstanding +Exercisable +Exercise +Price +Weighted +Average +Weighted Average +Per +Share +Warrants +Life +(Years) +Exercise +Price +Warrants +Exercise +Price +Series A +$ 72.00 +268,333 +4.20 +$ 72.00 +268,333 +$ 72.00 +Series B +$ 72.00 +16,849 +1.70 +72.00 +16,849 +72.00 +285,182 +4.32 +$ 72.00 +285,182 +$ 72.00 +Series +A Warrants +Beginning +on February 26, 2025 (the “Warrant Stockholder Approval”), the Series A Warrants contain a reset of the exercise price to +a price equal to the lesser of (i) the then exercise price and (ii) the lowest volume weighted average price (“VWAP”) for +the five trading days immediately following the date the Company effects a reverse split with a proportionate adjustment to the number +of shares underlying the Series A Warrants (a “Reverse Split Reset”). Such adjustment was subject to a floor price +(“the Floor Price”) calculated as follows: (a) prior to the date of the Warrant Stockholder Approval, 50% of the Nasdaq Minimum +Price, and (b) after the date of the Warrant Stockholder Approval, 20% of the Nasdaq Minimum Price. “Nasdaq Minimum Price” +means the lower of the Nasdaq closing price or the average closing price for the five immediately preceding trading days, as defined +in Nasdaq Listing Rule 5635(d)(1)(A). Additionally, with certain exceptions, beginning on the date of the Warrant Stockholder Approval, +the Series A Warrants provide for an adjustment to the exercise price and number of shares underlying the Series A Warrants (the “Dilutive +Adjustment”) upon the Company’s issuance of its common stock or common stock equivalents at any time after the closing of +the Offering, at a price per share that is less than the then-current exercise price of the Series A Warrants. Any Dilutive Adjustment +will be subject to the Floor Price. +F- 18 +The +Series A Warrants also require the Company to calculate the fair value in the event of certain fundamental transactions. The fair value +calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined +this provision introduces leverage to the holders of the Series A Warrants and Series B Warrants (collectively, the “Purchase Warrants”) +that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own +equity shares. +As +of December 31, 2025, no Series A Warrants had been exercised. As of December 31, 2025, the fair value of the Series A Warrants has been +determined to be $ 312,000 . As of December 31, 2024, the fair value of the Series A Warrants had been determined to be $ 1,805,000 . As +a result of the change in fair value, the Company recognized a gain of $ 1,493,000 due to the change in the fair value of the warrant +liability for the year ended December 31, 2025. On +December 31, 2025, the fair value of the Series A Warrants was valued with a binomial model using the exercise price of $ 1.88 per Series +A Warrant, with the underlying asset price of $ 1.75 , an expiration term of 1,534 days 1534 , volatility of 147 %, a dividend rate of 0 %, and +a risk-free interest rate of 3.74 %. +Series +B Warrants +The +Series B Warrants are exercisable at $ 72.00 per share, subject to adjustment, and expire 30 months from the date of the Warrant Stockholder +Approval. The fair value of the Series B Warrants was valued by the Company based on the subsequent settlements of these warrants. +Beginning +on the date of the Warrant Stockholder Approval, in lieu of a cash exercise, the holders of the Series B Warrants have the right to +elect to receive an aggregate number of shares of common stock equal to the product of (x) the aggregate number of shares of common +stock that would be issuable upon a cash exercise of the Series B Warrants and (y) 2.0. Also, the Series B Warrants provide for a +Reverse Split Reset subject to the Floor Price. Additionally, effective on the 11th trading day following the date of the Warrant +Stockholder Approval, the exercise price and the number of shares underlying the Purchase Warrants reset to the then-current lowest +VWAP in the period commencing on the first trading day following the date of the Warrant Stockholder Approval and ending the close +of trading on the 10th trading day thereafter. Such reset was subject to the Floor Price. With respect to all of the Purchase +Warrants, with the consent of the holder, the Company may adjust the exercise price to such amount and for such time as may be +agreed upon. None of the Purchase Warrants were exercisable until the Warrant Stockholder Approval. The Series B Warrants allow an +alternative cashless conversion, which is determined by multiplying the number of exercised Series B +Warrants by the exercise price and dividing the result by the lesser of the VWAP price or the $ 8.40 +floor. This amount is then doubled to arrive at the final share total. +Therefore, +pursuant to ASC 815, the Company has classified the Purchase Warrants as liabilities in its balance sheets. The classification +of the Purchase Warrants, including whether the Purchase Warrants should be recorded as liabilities or as equity, is evaluated at the +end of each reporting period with changes in the fair value reported in other income (expense) in the statements of operations. +Upon the closing of the registered direct offering, the fair value of the Series B Warrant liability was $ 12,456,000 . During the year ended +December 31, 2025, warrant holders exercised 251,484 Series B Warrants on an alternative cashless basis to acquire 4,233,238 shares of +common stock. The fair value of the Series B Warrant liabilities as of December 31, 2025 was determined to be $ 433,000 , and the Company +recognized a loss of $ 64,000 due to the change in the fair value of the warrant liability for the year ended December 31, 2025. +F- 19 +Based +on the alternative cashless exercise, the Company estimates issuing 288,834 shares of common stock when the remaining 16,849 Series B +Warrants are exercised. +A +recap of the warrant liabilities is as follows: +SCHEDULE OF WARRANT LIABILITIES +Series +A +Series +B +Total +Balance, December 31, 2023 +$ - +$ - +$ - +Grant +1,783,000 +12,456,000 +14,239,000 +Increase in fair value +22,000 +- +22,000 +Warrant exercises +22,000 +- +22,000 +Balance, December 31, 2024 +$ 1,805,000 +$ 12,456,000 +$ 14,261,000 +(Decrease) increase in fair value +( 1,493,000 ) +64,000 +( 1,429,000 ) +Warrant exercises +- +( 12,087,000 ) +( 12,087,000 ) +Balance, December 31, 2025 +$ 312,000 +$ 433,000 +$ 745,000 +NOTE +10 – RESTRICTED STOCK UNITS +A +summary of RSU activity for the year ended December 31, 2025 is presented below. +SCHEDULE OF RESTRICTED STOCK UNIT ACTIVITY +Weighted- +Average +Grant Date +Shares +Fair +Value +Fair +Value +Unvested at December 31, 2023 +- +$ - +$ - +Granted +- +- +- +Vested / deemed vested +- +- +- +Forfeited +- +- +- +Unvested at December 31, 2024 +- +$ - +$ - +Granted +795,222 +1,257,000 +1.58 +Vested / deemed vested +( 40,000 ) +( 93,000 ) +1.96 +Forfeited +- +- +- +Unvested at December 31, 2025 +755,222 +$ 1,164,000 +$ 1.54 +A +summary of activity for the year ended December 31, 2025: +On +September 23, 2025, the Company issued 40,000 RSUs to a vendor for services rendered with a fair value of +$ 78,400 . The shares were valued based on the market value of the Company’s common stock price on the grant date. Upon grant, $ 78,400 +was recognized as an expense and included in selling, general and administrative expenses. +On +December 18, 2025, the Company issued 600,000 +RSUs to officers for services to be rendered with a fair value of $ 936,000 . +The shares were valued based on the market value of the Company’s common stock price on the grant date. The 425,000 +shares vest equally over three +years from the grant date, and 175,000 +shares vest equally over three +years from June 18, 2025. The fair value is being amortized as an expense over the vesting period and included in selling, +general and administrative expenses. +On +December 18, 2025, the Company issued 155,222 +RSUs to employees for services to be rendered with a fair value of $ 242,000 . +The shares were valued based on the market value of the Company’s common stock price on the grant date. The shares vest +equally over three +years from the grant date. The fair value is being amortized as an expense over the vesting period and included in selling, +general and administrative expenses. +The +total fair value of RSUs that vested or were deemed vested during the year ended December 31, 2025 was $ 93,000 and +recognized as an expense and included in selling, general and administrative expenses. +A +summary of activity for the year ended December 31, 2024: +None +NOTE +11 – IMMEDIATELY VESTED RESTRICTED STOCK UNITS +During 2025, the Company issued 222,041 RSUs to vendors for services to be rendered with a fair value of $ 321,000 . The shares were valued based on the market +value of the Company’s common stock price on the grant date. The issuance was recorded as pre-paid expense in the accompanying +statements of operations and balance sheets. The pre-paid expense related to issuances of RSUs will be amortized over +the remaining service period and charged to selling, general and administrative expense. During the year ended December 31, 2025, +the Company amortized $ 168,000 of this cost and $ 153,000 remained unamortized as a prepaid at December 31, 2025, which will be amortized +in 2026. +F- 20 +NOTE +12 – TREASURY STOCK +On +January 31, 2025, the Board of Directors authorized the Chief Executive Officer to repurchase, from time to time, on the open market +or otherwise, shares of common stock in such quantities, at such prices, in such manner and on such terms and conditions as he determines +are in the best interests of the Company; provided, however, that the aggregate value of shares of common stock repurchased shall not +exceed $ 1,000,000 and no shares of common stock shall be repurchased after 12 months. Pursuant to this approval, the Company repurchased +a total of 200,400 shares of its common stock in 13 separate open market transactions during the month of April 2025, for an aggregate +purchase price of approximately $ 500,000 . The repurchases were funded using available cash on hand. +During +the year ended December 31, 2025, the Company repurchased 200,400 shares +of its common stock for total consideration of approximately $ 500,000 . +The shares were subsequently retired in accordance with ASC 505-30. The retirement reduced common stock by approximately $ 2,000 and +additional paid-in capital by approximately $ 498,000 . +These +transactions were not conducted under a formal share repurchase program and were solely authorized as a one-time action by the Board. +NOTE +13 – INCOME TAXES +The +Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of +deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, +deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for +financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets +if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility +is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. +At December 31, 2025, the Company had available Federal +and various state net operating loss carryforwards to reduce future taxable income of $ 17,509,000 and $ 4,640,000 , respectively. The Federal +net operating losses carry forward indefinitely and the various state net operating losses expire in various amounts through 2045. Given +the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not +be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit. +Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, +the utilization of the Company’s NOLs may be limited as a result of changes in stock ownership. NOLs incurred subsequent to the latest +change in control are not subject to the limitation. +The +Company has adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax +return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position +only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical +merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the +largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides +guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased +disclosures. As of December 31, 2025 and 2024, the Company did not have a liability for unrecognized tax benefits, and no adjustment +was required at adoption. +The +Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2025, +and 2024, the Company has not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2022 through +2025 remain open to examination by the major taxing jurisdictions to which the Company is subject. +Upon +the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the +use of the carryforwards and will recognize the appropriate deferred tax asset at that time. +The +Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss +before income taxes as follows: +SCHEDULE +OF EFFECTIVE TAX RATE +December +31, +2025 +December +31, +2024 +Income tax benefit at federal statutory +rate +( 21.0 )% +( 21.0 )% +State income tax benefit, net of federal benefit +( 7.0 )% +( 6.0 )% +Nondeductible finance costs +- +13 % +Change in valuation allowance +28.00 % +14.00 % +Income taxes at effective +tax rate +- % +- % +The +components of deferred taxes consist of the following at December 31, 2025 and 2024: +SCHEDULE OF DEFERRED TAX +December +31, +2025 +December +31, +2024 +Net operating loss carryforwards +$ 3,987,000 +$ 2,686,000 +Less: Valuation allowance +( 3,987,000 ) +( 2,686,000 ) +Net deferred tax assets +$ - +$ - +F- 21 +NOTE +14. REPORTABLE SEGMENT INFORMATION +The +Company is organized and operates as one operating and reportable segment. The Company’s revenue comes from customers in the following +geographic regions. +The +following table presents our net sales by region for the period presented: +SCHEDULE OF NET SALES BYE REGION +2025 +2024 +Years +Ended December 31, +2025 +2024 +Region +Revenue +Revenue +United States +$ 8,030,000 +$ 3,252,000 +Canada +56,000 +31,000 +Japan +43,000 +26,000 +South Korea +- +14,000 +All other regions +6,000 +122,000 +Net Sales +$ 8,135,000 +$ 3,445,000 +This +determination is based on the management approach which designates internal information regularly available to the CODM for making decisions and assessing performance as the source of determination of the Company’s reportable +segments. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis for +the purpose of making operating decisions and assessing financial performance. +The +accounting policies of the one reportable segment are the same as those described in the summary of significant accounting policies. +The CODM uses net income (loss), as reported in our statements of operations, to measure segment profit or loss, assess +performance, and make strategic capital resources allocations. The measure of segment assets is reported on our balance +sheets as total assets. The significant expense categories regularly provided to the CODM are the expenses as noted on the face of +the statements of operations. +SCHEDULE OF EXPENSES AS NOTED ON FACE OF CONSOLIDATED STATEMENTS OF OPERATIONS +2025 +2024 +Year +Ended December 31, +2025 +2024 +Net sales +$ 8,135,000 +$ 3,445,000 +Cost of sales +3,581,000 +1,171,000 +Gross +profit +4,554,000 +2,274,000 +Less: +Employee compensation and benefits +1,463,000 +1,423,000 +Stock-based compensation expense +274,000 +308,000 +Sales and marketing expense +6,429,000 +3,440,000 +Other operating expenses +3,936,000 +2,081,000 +Total operating expenses +12,102,000 +7,252,000 +Loss from operations +$ ( 7,548,000 ) +$ ( 4,978,000 ) +NOTE +15 – SUBSEQUENT EVENTS +On March 16, 2026, the Company entered into a securities +purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to issue, and the purchasers agreed to +purchase, at one or more closings, on the terms and conditions contained in the Purchase Agreement, unsecured promissory notes in the +aggregate funded amount of up to $ 2,000,000 +(the “Convertible Notes”) and common stock warrants (the “Warrants”) to purchase shares of the Company’s +common stock at an exercise price of $ 1.75 +per share, subject to adjustments from time to time. The first closing occurred on March 16, 2026, at which the Company issued to +entities affiliated with and controlled by Brett Hoge, one of the Company’s directors, a Convertible Note with an aggregate principal +amount of $ 500,000 , +which bears interest at a rate of 10 % +per annum and matures +in 18 months , along with a 5 five-year Warrant +to purchase 50,000 shares of common stock. The Convertible Note, including accrued interest, is convertible into shares of common stock +at maturity at a conversion price of $ 1.60 per share at the option of the purchasers. +On +March 27, 2026, Greg Campbell was terminated as the Company’s Executive Chairman and Chief Executive Officer, and as a result, +he forfeited all of his outstanding unvested restricted stock units. The stock options will forfeit as follows: 1,087 ninety days from +his termination date, 1,333 six months from his termination date, and 2,420 on the 2 nd anniversary from his termination date. +Also on March 27, 2026, Akinobu Yorihiro was appointed the Company’s Interim Chief Executive Officer. +F- 22 +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item +9A. Controls and Procedures +Evaluation +of Disclosure Controls and Procedures +Our +Chief Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined +in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Annual Report +on Form 10-K. +Based +on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures +were not effective as of December 31, 2025 to provide reasonable assurance that information required to be disclosed in reports that +we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules +and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, +to allow timely decisions regarding required disclosures. +Management +concluded that disclosure controls and procedures were not effective as of December 31, 2025. +Management’s +Annual Report on Internal Control over Financial Reporting +Management +is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). +Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial +reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. +Management +conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, +based on the criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations +of the Treadway Commission (“COSO”). +Based +on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December +31, 2025. +Management +completed the remediation of previously identified material weaknesses that existed as of December 31, 2024. Remediation efforts included +strengthening the Company’s finance and accounting organization, enhancing segregation of duties, and implementing additional processes +and controls over financial reporting. Management will continue to monitor the effectiveness of these controls and may implement additional +enhancements as the Company’s operations continue to grow. +During +2025, the Company restructured and expanded its finance and accounting organization, including the hiring of a new Chief Financial +Officer, Controller, Director of SEC Reporting, and additional accounting personnel. The Company also implemented several +improvements to its internal control environment, including enhancements to bill of materials management, inventory accounting +processes, and financial reporting procedures. These improvements were implemented by the new Chief Financial Officer and Controller +in connection with the Company’s review and correction of certain product costing information within its enterprise resource +planning system and the related inventory valuation adjustment recorded during the year. +These +changes were implemented to strengthen financial reporting oversight, improve internal controls, and establish greater segregation of +duties within the accounting and financial reporting functions and contributed to the remediation of previously identified material +weaknesses in internal control over financial reporting. +45 +As +part of this process, the Company also made personnel changes within its finance and accounting organization to better align the team +with the Company’s internal control and financial reporting objectives. Management believes that the current finance and accounting +structure provides a stronger control environment and improved oversight of the Company’s financial reporting processes. +This +Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal +control over financial reporting because the Company qualifies as an emerging growth company and is therefore not required to obtain +such an attestation. +Changes +in Internal Control over Financial Reporting +Other +than the remediation activities described above, there were no changes in the Company’s internal control over financial reporting +during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s +internal control over financial reporting. +Inherent +Limitations on Effectiveness of Controls +Internal +control over financial reporting has inherent limitations and may not prevent or detect misstatements. Projections of any evaluation +of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that +compliance with policies or procedures may deteriorate. +Because +of these inherent limitations, even effective internal control over financial reporting can provide only reasonable assurance regarding +the preparation and presentation of financial statements in accordance with U.S. GAAP. +Item +9B. Other Information +In the quarter ended December 31, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-rule 10b5-1 trading arrangement for the purchase or sale of our securities within the meaning of Item 408 of Regulation S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not +applicable. +46 +PART +III +Item +10. Directors, Executive Officers , and Corporate Governance. +General +The +following table and biographical summaries set forth information, including principal occupation and business experience, about our directors +and executive officers as of the date of this annual report: +Name +Age +Position +Brett +Hoge +49 +Chairman of the Board – Independent +Jane +Casanta +59 +Director +– Independent +John +Bode +51 +Director +– Independent +Akinobu +Yorihiro +57 +Interim +Chief Executive Officer, Chief Technology Officer, Director +Dr. Greg Campbell +66 +Director +Jeff +Clayborne +55 +Chief +Financial Officer & Chief Operating Officer +Directors +Brett Hoge, Chairman of the Board +Brett Hoge has been a member of our Board of +Directors since March 2022 and was appointed Chairman of the Board on March 27, 2026. Mr. Hoge is a nationally recognized financial +advisor and has worked in the wealth management industry since 1999. He brings more than 25 years of experience in investment +management, strategic planning, and advising high-net-worth and ultra-high-net-worth families and business owners. +Mr. Hoge earned his Bachelor’s degree in business +administration, with majors in finance and insurance, from Appalachian State University. Mr. Hoge also serves in an advisory capacity +with Ascend Medical, contributing selectively to strategic and growth initiatives. His nonprofit leadership includes serving as Founder +and Board President of the LVH ALS Foundation and as a member of the Appalachian State University Foundation Board. He remains actively +involved in philanthropic efforts, including support for the JDRF Piedmont Triad Chapter. +Dr. +Greg Campbell, Director +On +March 27, 2026, Greg Campbell was terminated as the Company’s Executive Chairman and Chief Executive Officer. Effective +January 2, 2024, Dr. Campbell was appointed as interim Executive Chairman of the Company, and he became Executive Chairman and Chief +Executive Officer effective July 1, 2024. Prior to those appointments, Dr. Campbell served as Chairman since November 2018. He is +currently also Chief Executive Officer at V-Grid Energy Systems, Inc. (“V-Grid”), a California-based start-up focusing +on converting agricultural waste into renewable electricity and valuable bio-carbon, a position he’s held since May 2016. +Having received his Doctor of Philosophy, Electrical and Electronics Engineering from the University of California Los Angeles and +BA/MA in Engineering from Cambridge University, Dr. Campbell’s nearly 40-year career spans new and emerging technologies, +product development, and philanthropy. He has successfully taken two companies public. He also served as SVP & GM for Lam +Research where he managed a $1.2 billion profit and loss statement. +Jane +Casanta, Director +Jane Casanta has been a member of our Board of Directors since January 2024. Ms. Casanta has served as the Vice President +of Partnership Development at Event Network, LLC, an operator for experiential retail attractions across North America, since September +2022, and previously served as Vice President of Purchasing from February 2021 to February 2024. Prior to joining Event Network, LLC, +Ms. Casanta served as Vice President of Merchandising at the Wildlife Trading Company, a retail operator at zoos and aquariums, from April +2019 to February 2021, and as the Managing Member of Casanta & Associates, LLC, a brand solutions consulting group, from July 2016 +to February 2021. Ms. Casanta brings a rich background in the golf industry to the Company, having served in various marketing and product +development roles at the Acushnet Company for 26 years, including as Director of Marketing for Titleist Gloves and Accessories worldwide. +Her accomplishments during this time include doubling international sales, increasing domestic gear sales by 100%, and achieving a 15-point +increase in Titleist golf bag industry share. +47 +Akinobu +Yorihiro, Director, Interim Chief Executive Officer and Chief Technology Officer +Akinobu +Yorihiro, one of our co-founders, is a director, Interim Chief Executive Officer and Chief Technology Officer. Mr. Yorihiro was appointed the Company’s Interim Chief Executive +Officer on March 27, 2026 and has served as a director and Chief Technology Officer since March 2018. Mr. Yorihiro also served as our +Chief Financial Officer from March 2018 through February 2022. Mr. Yorihiro served as Chairman of the Board for Nippon Xport Ventures, +Inc. from 2017 to 2023. Mr. Yorihiro served as Chief Executive Officer of Yoshimoto Entertainment USA, the U.S. Subsidiary of Yoshimoto +Kogyo of Japan, and the Chief Executive Officer of Bellrock Media, a digital media company backed by Dentsu, NTT Docomo and Yoshimoto +Entertainment, from 2006 to 2017. He was a Corporate M&A Partner at Bingham McCutchen LLP, a large national U.S. law firm, where +he specialized in cross-border transactions, representing Japanese and U.S. clients across a wide range of industries including manufacturing, +pharmaceutical, technology, banking, sports and entertainment, from 1993 to 2006. Bilingual and Bicultural in Japanese, he earned his +B.A. in Economics and Mathematics from Claremont McKenna College and his J.D. from Georgetown University Law Center. +John +Bode, Director +John +B. Bode has been a member of our Board of Directors since January 30, 2026. Since February 2015, Mr. Bode has been the owner and +managing director of Aerie Investments, LLC, a management consulting and investment company focused on assisting legacy media +companies and digital media start-ups with business development and strategic initiatives. Mr. Bode currently serves as the chief +financial officer and chief transformation officer of Postmedia Network Canada Corp., a publishing company whose shares are traded +on the Toronto Stock Exchange. Mr. Bode has served on the board of directors of SPAR Group, Inc., a leading global provider of +merchandising, marketing and distribution services that is listed on the Nasdaq, since October 2023. Mr. Bode also has served as a +Director of Zevra Therapeutics, a leading commercial-stage biotech company focused on rare disease, since May 2023, and of The +McClatchy Company, a leading privately-held publisher of newspapers, since September 2020. Mr. Bode’s past corporate +experience includes many years serving as a key executive and/or financial officer for leading public companies. He was the chief +financial officer of the Tribune Publishing Company from October 2013 to January 2015. He served as the chief financial officer of +Source Interlink Companies, one of the largest enthusiast media companies in the United States and a leading distributor of +periodicals, from January 2011 to September 2013, after serving in other accounting and finance roles with Source Interlink since +2002. He was previously employed as a certified public accountant for BDO Seidman. Mr. Bode received a BS in Accounting from Notre +Dame University. +Executive Officers +Akinobu Yorihiro, Interim Chief Executive +Officer and Chief Technology Officer. For Mr. Yorihiro’s full biography, see “Directors” section +above. +Jeff +Clayborne, Chief Financial Officer & Chief Operating Officer +Jeff +Clayborne was appointed Chief Financial Officer and Chief Operating Officer of the Company, effective as of January 30, 2026. Effective +June 10, 2025, Mr. Clayborne was appointed Chief Financial Officer of the Company, and he previously served as Chief Financial Officer +of Perfect Moment, a premium performance apparel brand, since October 2023. Since July 2023, Mr. Clayborne also has served as a financial +advisor at Healthy Extracts Inc. From March 2022 to March 2023, Mr. Clayborne served as the Chief Financial Officer of SONDORS, Inc., +an electric mobility company, and from March 2023 to June 2023, he served as a financial advisor at SONDORS, Inc. From July 2016 to January +2022, Mr. Clayborne served as Chief Financial Officer and Treasurer of Verb Technology Company, Inc., a sales enablement SaaS platform. +48 +Director +Terms; Qualifications +Members +of our board of directors are elected for one-year terms and remain until their successors have been elected and qualified or until such director’s earlier death, resignation +or removal. +When +considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directors +to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board focuses primarily +on the person’s experience, their transactional knowledge, industry knowledge and other background, in addition to any unique skills +or attributes associated with being a director. +Family +Relationships +None. +Board +of Directors and Corporate Governance +Our +Board of Directors consists of five members, three of whom are independent and two of whom are employees of the Company. +Board +Committees +Our +Board of Directors has appointed an audit committee, nominating and corporate governance committee and compensation +committee. +Audit +Committee +The +audit committee is responsible for overseeing: (i) our accounting and reporting practices and compliance with legal and regulatory requirements +regarding such accounting and reporting practices; (ii) the quality and integrity of our financial statements; (iii) our internal control +and compliance programs; (iv) our independent auditors’ qualifications and independence and (v) the performance of our independent +auditors and our internal audit function. In so doing, the audit committee maintains free and open means of communication between our +directors, internal auditors and management. +The +Audit Committee consists of independent directors John Bode, Brett Hoge, and Jane Casanta, with John Bode acting as Committee Chair and +the Audit Committee financial expert. +Compensation +Committee +The +compensation committee is responsible for reviewing and approving the compensation of our executive officers and directors and our performance +plans and other compensation plans. The compensation committee makes recommendations to our Board of Directors in connection with such +compensation and performance plans. +The +Compensation Committee consists of independent directors Jane Casanta, Brett Hoge, and John Bode, with Jane Casanta acting as Committee +Chair. +49 +Nominating +and Corporate Governance Committee +The +nominating and corporate governance committee is responsible for (i) recommending for the Board’s selection the director nominees +for each annual meeting of stockholders and candidates to fill any vacancies on the Board; (ii) developing and recommending to our Board +a set of corporate governance guidelines and, if necessary or appropriate, periodically recommending modifications to such guidelines; +and (iii) overseeing evaluations of the Board and its committees. +While +we do not have a formal policy regarding board diversity, our Nominating and Corporate Governance Committee and board of directors will +consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity (not limited +to race, gender or national origin). Our Nominating and Corporate Governance Committee’s and board of directors’ priority +in selecting board members is identification of persons who will further the interests of our stockholders through their established +record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge +of our business, understanding of the competitive landscape and professional and personal experience and expertise relevant to our growth +strategy. +The +Nominating and Corporate Governance Committee consists of independent directors Jane Casanta, Brett Hoge, and John Bode, with Brett Hoge +acting as Committee Chair. +Code +of Ethics +The +Company adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K, that applies +to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar +functions and that that establishes, among other things, procedures for handling actual or apparent conflicts of interest. A copy of +our code of ethics will be furnished without charge to any person upon written request. Requests should be sent to: Secretary, Newton +Golf Company, Inc., 551 Calle San Pablo, Camarillo, CA 93012. +Indemnification +Agreements +We +have entered into indemnification agreements for our directors and executive officers (“Indemnification Agreements”). The +Indemnification Agreements provide for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred +by an indemnitee in connection with threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. +The Indemnification Agreements also provide for the advancement of expenses in connection with a proceeding prior to a final, non-appealable +judgment or other adjudication, provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee +is ultimately found not to be entitled to indemnification by us. The Indemnification Agreements set forth procedures for making and responding +to a request for indemnification or advancement of expenses, as well as dispute resolution procedures that will apply to any dispute +between us and an indemnitee arising under the Indemnification Agreements. +Policies and Procedures Related to +the Grant of Certain Equity Awards +We +have established processes designed to ensure that the timing of any option grants and other awards to executive officers is not influenced +by material non-public information. Our standard practice was to grant options on an executive’s hire date with the option valued +at the fair market value of our common stock at closing on the first day of employment. However, our current practice is to no longer +grant stock options to our executive officers. +Delinquent +Section 16(a) Reports +Section +16(a) of the Securities Exchange of 1934, as amended, requires the Company’s directors and executive officers and persons who own +more than 10% of a registered class of the Company’s equity securities to file various reports with the SEC concerning their holdings +of, and transactions in, securities of the Company. +To +the Company’s knowledge, based solely on its review of the copies of the Section 16(a) reports filed with the SEC and any written +representations to the Company that no other reports were required, the Company believes that all individual filing requirements applicable +to a director, officer, or beneficial owner of more than 10% of the Company’s common stock were complied with under Section 16a +of the Exchange Act during the year ended December 31, 2025, except a late Form 3 filing by Mr. Clayborne disclosing no securities beneficial owned. +Insider Trading Policy +The Company has adopted an trading policy governing +the purchase, sale and/or other dispositions of its securities by directors, officers and employees, a copy of which has been included +as an exhibit to this report. +50 +Item +11. Executive Compensation +The +table below summarizes the compensation earned for services rendered to us in all capacities, for the years indicated, by our named executive +officers: +Name +and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards (1) +($) +Option +Awards (2) +($) +All +Other Compensation +($) +Total +($) +Greg Campbell, Former Executive Chairman and Chief Executive Officer (3) +2025 +272,000 (4) +- +312,000 (5) +- +3,000 (11) +587,000 +2024 +210,000 (6) +40,000 (7) +- +217,000 (8) +- +467,000 +Akinobu Yorihiro, Interim Chief Executive Officer and Chief Technology Officer (9) +2025 +227,000 +- +351,000 (10) +- +14,000 (11) +592,000 +2024 +174,000 +33,000 (12) +- +7,000 (13) +16,000 (11) +230,000 +Jeff Clayborne, Chief Financial Officer and Chief Operating Officer (14) +2025 +124,000 +50,000 (15) +273,000 (16) +- +8,000 (11) +455,000 +2024 +- +- +- +- +- +- +(1) +For valuation purposes, the dollar amount shown is calculated based on the market price of our common stock on the grant dates. The number of shares granted, the grant date, and the market price of such shares for each named executive officer is set forth below. +(2) +For valuation assumptions on stock option awards, refer to Note 2 of our financial statements for the year ended December 31, 2025 in this Annual Report. The disclosed amounts reflect the fair value of the stock option awards that were granted during the fiscal years ended December 31, 2025 and 2024 in accordance with FASB ASC Topic 718. +(3) +Dr. Campbell was appointed interim Executive Chairman effective +December 29, 2023 and Executive Chairman and Chief Executive Officer effective July 1, 2024. On March 27, 2026, Dr. Campbell was terminated as +the Company’s Executive Chairman and Chief Executive Officer. +(4) +$30,000 of the compensation reported as “Salary” was paid as a cash retainer for Dr. Campbell’s service as a director, as detailed under “Director Compensation.” $15,000 of the salary earned in 2025 was paid in January 2026. +(5) +Represents a long-term true-up incentive of 200,000 +restricted stock units. +(6) +$30,000 of the compensation reported as “Salary” was paid as a cash retainer for Dr. Campbell’s service as a director, as detailed under “Director Compensation.” +(7) +Represents a discretionary bonus accrued in 2024 and paid on January 2, 2025 +(8) +Represents a long-term incentive award of (i) 1,333 stock options for director compensation and (ii) 2,420 stock options for officer compensation. +(9) +Mr. Yorihiro, one of our co-founders, is a director and Chief Technology Officer, and he has served in such capacities since March 2018. Mr. Yorihiro also was appointed the Company’s Interim Chief Executive +Officer on March 27, 2026. $12,000 of the salary earned in 2025 was paid in January 2026. +(10) +Represents a long-term true-up incentive of 225,000 restricted stock units. +(11) +Represents medical reimbursement. +51 +(12) +Represents a discretionary bonus accrued in 2024 and paid on January 2, 2025. +(13) +Represents a long-term incentive award of 833 stock options for Mr. Yorihiro’s service as director. +(14) +Mr. Clayborne was appointed Chief Financial Officer on June 10, 2025. The Company entered into an employment agreement with Jeff Clayborne to serve in the role as the Company’s Chief Financial Officer, pursuant to which. Mr. Clayborne is paid a base salary of $225,000 per annum. $12,000 of the salary earned in 2025 was paid in January 2026. +(15) +Represents a signing bonus. +(16) +Represents an initial long-term incentive award of 175,000 RSUs. +Executive +Officer Compensation +Greg +Campbell +In +connection with Dr. Campbell’s appointment as the Company’s permanent Executive Chairman and Chief Executive Officer, Dr. +Campbell received cash compensation of $240,000 per annum commencing July 1, 2024, and was also granted options to purchase 1,333 shares +of the Company’s common stock at an exercise price of $160.20 per share. The option terminates on the earlier of seven years or +six months from Dr. Campbell’s separation from the Company and vests monthly over 36 months. Dr. Campbell is paid an additional $30,000 per annum as Chairmen of the Board. +On +December 18, 2025, the Company issued 200,000 RSUs with a fair value of $312,000. The RSUs were valued based on the market value of +the Company’s common stock price on the grant date. The RSUs vest equally over three years from the grant date. +On March 27, 2026, Greg Campbell was terminated as the Company’s Executive Chairman and Chief Executive Officer, and as a result, +he forfeited all of his outstanding unvested restricted stock units and stock options. +Akinobu +Yorihiro +Akinobu +Yorihiro, one of our co-founders, is a director, Interim Chief Executive Officer and Chief Technology Officer. Mr. Yorihiro was appointed the Company’s Interim Chief Executive +Officer on March 27, 2026 and has served as a director and Chief Technology Officer since March 2018. Mr. +Yorihiro also served as our Chief Financial Officer from March 2018 until February 2022. On December 20, 2024, the Board granted Mr. +Yorihiro stock options to purchase 833 shares of the Company’s common stock at an exercise price of $9.60 per share with a fair +value of $10,135 that vest over three years. His annual salary for 2024 was $200,000 and increased to $220,000 on January 1, 2025. +On +December 18, 2025, the Company issued 225,000 RSUs with a fair value of $351,000. The RSUs were valued based on the market value of +the Company’s common stock price on the grant date. The RSUs vest equally over three years from the grant date. +Jeff +Clayborne +On June 10, 2025, the Company +entered into an offer letter with Jeff Clayborne, dated June 9, 2025 (the “Offer Letter”), which sets forth certain +terms and conditions of his employment. Pursuant to the Offer Letter, Mr. Clayborne receives an initial base salary of $225,000 per +year. In addition, Mr. Clayborne is eligible to participate in the Company’s annual short-term cash incentive plan, with a +target cash incentive bonus equal to 75% of his base salary (the “Target Bonus”) (with a threshold level payout of 50% +of the Target Bonus and a maximum payout of 125% of the Target Bonus), prorated for the 2025 performance period. Mr. Clayborne also +received (i) a one-time signing bonus of $50,000, subject to repayment upon a termination of employment for any reason prior to the +one-year anniversary of his appointment date, and (ii) a stipend of $1,100 per month until the date that health coverage is first +available to Company employees under a group health plan (or the one-year anniversary of his appointment date, if earlier). Mr. +Clayborne also received performance stock units valued at $275,000, which vest in full 36 months after his date of hire. +52 +On +December 18, 2025, the Company issued 175,000 RSUs with a fair value of $273,000. The RSUs were valued based on the market value of the +Company’s common stock price on the grant date. The RSUs vest equally over three years from Mr. Clayborne’s start date. +Change-in-Control +Provisions +General +Policy +It +is our general policy that awards that vest over a term greater than one-year include provisions for acceleration upon a change-in-control. +Equity +Compensation Plans +On +March 18, 2022, the Company’s Board of Directors adopted the Company’s 2022 Equity Incentive Plan (the +“Plan”) for its officers, employees, non-employee members of the Board of Directors, and consultants of the Company. The +Plan authorized the granting of not more than 9,000,000 shares of the Company’s common +stock. +On November 1, 2023, our stockholders approved an amendment to the Plan to increase the aggregate number of shares of our common stock +issued, or to be issuable, under the 2022 Plan to 12,500,000 shares, including those previously issued or subject to outstanding awards +under the 2022 Plan. +On +February 16, 2025, our shareholders approved an amendment to the Plan to increase the aggregate number of shares of our common stock +issued or to be issued under the Plan to 100,000 shares, including those previously issued or subject to outstanding awards under the +Plan. +On +December 18, 2025, our shareholders approved an amendment to the Plan to increase the aggregate number of shares of our common stock +issued or to be issued under the Plan to 1,500,000 shares, including those previously issued or subject to outstanding awards under the +Plan. +53 +Outstanding +Equity Awards at Year-End +The +following table sets forth information regarding equity incentive plan awards for each named executive officer outstanding as of December +31, 2025: +Outstanding Equity Awards at Fiscal +Year-End +Option Awards +Stock Awards +Name +(a) +Grant Date +(b) +Number of securities underlying unexercised options +(#) +exercisable +(c) +Number of securities underlying unexercised options +(#) +unexercisable +(d) +Equity incentive plan awards: Number of securities underlying unexercised unearned options +(#) +(e) +Option exercise price +($) +(f) +Option expiration date +(g) +Number of shares or units of stock that have not vested +(#) +(h) +Market value of shares or units of stock that have not vested +($) +(i) +Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested +(#) +(j) +Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested +($) (1) +(k) +Greg Campbell, +4/26/2022 +160 (2) +- +- +300.00 +4/26/2029 +Former Executive Chairman and Chief Executive Officer +11/27/2023 +256 (3) +511 +- +206.70 +11/27/2028 +12/22/2023 +53 (3) +107 +- +201.60 +12/22/2030 +7/18/2024 +444 (3) +889 +- +160.20 +7/18/2031 +12/20/2024 +807 (3) +1,613 +- +9.60 +12/20/2031 +200,000 (4) +- +- +300,000 +Akinobu Yorihiro, +4/26/2022 +2,691 (2) +- +- +300.00 +4/26/2027 +337,500 +Interim Chief Executive Officer and Chief Technology Officer +12/20/2024 +278 (3) +555 +- +9.60 +12/20/2031 +225,000 (4) +- +- +Jeff Clayborne, Chief Financial Officer +- +- +- +- +- +- +175,000 (5) +- +- +262,500 +(1) +The +market value is calculated by multiplying the number of shares of unvested restricted stock outstanding under the award by $1.50, which +was the closing price of our common stock on December 31, 2025. +(2) +Options +are fully vested. +(3) +25% +vest on the grant date and 25% vest on the first, second, and third anniversaries from the grant date. +(4) +33% +vest on the first, second, and third anniversaries from the grant date. +(5) +33% +vest on June 16, 2026, 33% vest on June 16, 2027, and 33% vest on June 16, 2028. +54 +Director +Compensation +The +following table sets forth summary information concerning the compensation we paid to non-employee directors during the fiscal year +ended December 31, 2025. +Name +Fees +earned +or +paid +in +cash +($) +Stock +awards +($) +Option +awards +($) +Total +($) +Brett Hoge +$ 25,000 +- +$ - +$ 25,000 +Dottie Pepper +$ 12,500 +- +$ - +$ 12,500 +Jane Casanta +$ 25,000 +- +$ - +$ 25,000 +The +following table sets forth, for each non-employee director, certain information concerning outstanding equity awards as of +December 31, 2025: +Director +Stock +Options +Brett Hoge +(1) +1,033 +Dottie Pepper (2) +933 +Jane Casanta (3) +566 +The +grant date fair value of option awards was determined in accordance with Accounting Standards Codification (“ASC”) 718. +(1) +On +April 26, 2022, the Company granted Mr. Hoge stock options to purchase 100 shares of the Company’s common stock at an exercise +price of $300.00 per share based on the fair market value of the Company’s common stock on the date of grant. The option is +fully vested and expires on April 26, 2029. On December 22, 2023, the Company granted Mr. Hoge stock options to purchase 266 shares +of the Company’s common stock at an exercise price of $201.60 per share based on the fair market value of the Company’s +common stock on the date of grant. These options vest equally over three years from December 22, 2023, and will expire on December +22, 2030. On December 20, 2024, the Company granted Mr. Hoge a stock option to purchase 667 shares of the Company’s common +stock at an exercise price of $9.60 per share based on the fair market value of the Company’s common stock on the date of grant. +These options vest equally over three years from December 20, 2024, and will expire on December 20, 2031. +(2) +On +December 22, 2023, the Company granted Ms. Pepper stock options to purchase 266 shares of the Company’s common stock at an +exercise price of $201.60 per share based on the fair market value of the Company’s common stock on the date of grant. These +options vest equally over three years from December 22, 2023, and will expire on December 22, 2030. On December 20, 2024, the Company +granted Ms. Pepper stock options to purchase 667 shares of the Company’s common stock at an exercise price of $9.60 per share +based on the fair market value of the Company’s common stock on the date of grant. These options vest equally over three years +from December 20, 2024, and will expire on December 20, 2031. On September 28, 2025, Ms. Pepper resigned from the Board. +(3) +On January 1, 2024, the Company granted Ms. Casanta stock options to purchase 133 shares of the Company’s common stock at an exercise +price of $201.60 per share, which is the same exercise price as the stock options granted to other directors on December 22, 2023 and +higher than the fair market value on the date of grant of $175.50. These options vest equally over three years from January 1, 2024, and +will expire on January 1, 2030. On December 20, 2024, the Company granted Ms. Casanta stock options to purchase 433 shares of the +Company’s common stock at an exercise price of $9.60 per share based on the fair market value of the Company’s common +stock on the date of grant. These options vest equally over three years from December 20, 2024, and will expire on December 20, 2031. +During +fiscal 2025, the Company maintained a Director Compensation Policy under which non-employee directors were eligible to receive the following +compensation. +55 +Cash +Compensation +Annual +Board Member retainer: $ 25,000 +Annual +retainer for the Chairman: $ 30,000 +Annual +Committee Chair Retainer: $ 5,000 +● +Audit +Committee: $5,000 +● +Nominating +and Corporate Governance Committee: $5,000 +● +Compensation +Committee: $5,000 +All +cash compensation is earned on a fiscal year basis, divided equally and paid at the end of each quarter. Directors who commence service +mid-quarter or who terminate service mid-quarter will receive pro-rated retainers to be paid at the end of the applicable quarter. +Equity +Compensation +No +equity was granted to non-employee directors in fiscal 2025. +Effective +January 1, 2026, the Board adopted a Director Compensation Policy (the “Director Compensation Policy”) as set forth below. +This +policy sets forth compensation payable to each non-employee member of the Board. +Non-employee +members of the Board of Company shall be eligible to receive cash and equity compensation as set forth in this Director Compensation +Policy. The cash compensation and stock awards described in this Director Compensation Policy shall be paid or be made, as applicable, +automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parent +or subsidiary of the Company (each, an “Independent Director”) who may be eligible to receive such cash compensation or stock +awards, unless such Independent Director declines the receipt of such cash compensation or stock awards by written notice to the Chairman +of the Board. +This +Director Compensation Policy shall remain in effect until it is revised or rescinded by further action of the Board. The terms and conditions +of this Director Compensation Policy shall supersede any prior cash or equity compensation arrangements between the Company and its directors. +Cash +Compensation +Each +non-employee director will be paid an annual retainer fee of $30,000, with additional retainer fees payable +as follows: +Independent +Chairman: $30,000 +Independent +lead director: $15,000 +Chair +of a committee of the board: $ 7,500 +All +cash compensation is earned on a fiscal year basis, divided equally and paid, at the end of each quarter. directors who commence service +mid-quarter or who terminate service mid-quarter will receive pro-rated retainers to be paid at the end of the applicable quarter. +Equity +Compensation +Each +director will receive an annual grant of RSUs under the Company’s equity incentive plan +with a value of $37,500. Annual director RSUs will be granted at each annual stockholders’ meeting with respect to services to +be provided during the year following the annual meeting and vest on the 12-month anniversary of the grant date and otherwise will be +subject to the terms and conditions of the equity plan and RSU award agreement. Director RSU grants will be made prospectively and will +not be pro-rated. +56 +Upon +initial election or appointment to the Board, each new director will receive a new director equity grant of RSUs valued at $30,000, +which will vest on the 12-month anniversary of the grant date (each, an “Initial Award”). +The +number of RSUs subject to each grant will be calculated by dividing the value by the trailing 30-day volume-weighted average closing +price for a share of Company common stock determined as of the grant date, rounded down to the nearest whole share. +Equity +Compensation – True Up +The +Board approved true up RSU grants to Ms. Casanta and Mr. Hoge with a value of $37,000, which shall vest on the one year anniversary +of the grant date (the “True-Up Grants”). The True-Up Grants were approved since no equity was issued in 2025 in +accordance with the previously Board adopted Director Compensation Policy. +The +number of RSUs subject to the True-Up Grants and Initial Award shall be determined by dividing its value by the trailing 30-day +volume-weighted average closing price for a share of Company common stock determined as of the grant date, rounded down to the +nearest whole share. +Expense +Reimbursement +Each +of the non-employee directors will be entitled to receive reimbursement for reasonable expenses which they properly incur in connection +with their functions and duties as a director, including travel expenses incurred to attend meetings. Directors are required to follow +the same travel policies as the employees of the Company. +Amendments, +Revision and Termination +This +policy may be amended, revised or terminated by the Board at any time. +Compensation +Clawback Policy +The +Board of Directors believes that it is in the best interest of the Company and its stockholders to create and maintain a culture that +emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Board +of Directors has therefore adopted a compensation recoupment policy, which provides for the recovery of erroneously awarded incentive +compensation from the Company’s executive officers in the event of a triggering event, and which has been filed as an exhibit to +this report. +Item +12. Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters +Equity +Compensation Plan Information +The following table summarizes share and exercise price information about our equity compensation plan as of December 31, 2025: +Plan category +Number +of securities to be issued upon exercise of outstanding options, warrants, and rights +Weighted-average +exercise price of outstanding options, warrants, and rights +Number +of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first +column) +Equity compensation plans approved +by security holders +793,664 +$ 46.95 +881,623 +Equity compensation plans not approved by +security holders +— +$ — +— +Total +793,664 +$ 46.95 +881,623 +The +above table includes 755,222 shares underlying outstanding RSUs, which do not have an exercise price and are therefore +excluded from the weighted-average exercise price calculation. +57 +Security +Ownership of Certain Beneficial Owners and Management +The +following table sets forth, as of March 26, 2026, certain information with respect to the beneficial ownership of our common stock by +(i) each of our current directors, (ii) each of our named executive officers, (iii) our directors and named executive officers as a group, +and (iv) each stockholder known by us to be the beneficial owner of more than 5% of our outstanding our common stock. +Except +as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock +owned by them, except to the extent that power may be shared with a spouse. +We +have determined beneficial ownership in accordance with the rules of the SEC, which generally includes voting or investment power over +securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe, based on +the information furnished to us, that each stockholder identified in the table possesses sole voting and investment power over all shares +of common stock shown as beneficially owned by the stockholder. Shares of common stock subject to equity awards that are exercisable +or have vested, or will become exercisable or will vest, as applicable, within 60 days of March 26, 2026, are considered outstanding +and beneficially owned by the person holding the options or restricted stock units for the purpose of computing the percentage ownership +of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. +Unless +otherwise indicated, the address for each director and executive officer listed is: c/o Newton Golf Company, Inc., 551 Calle San Pablo, +Camarillo, CA 93012. +Shares +Percentage +(1) +Named Executive Officers +and Directors: +Greg Campbell, Director +137,974 (2) +3.0 % +Akinobu Yorihiro, Director, Interim Chief Executive Officer and Chief Technology +Officer +15,059 (3) +* +Jeff Clayborne, Chief Financial Officer +18,398 (4) +* +Brett Hoge, Chairman of the Board +320,873 (5) +6.9 % +Jane Casanta, Director +233 (6) +* +John Bode, Director +- +* +Greater than 5% Holders: +Murano Group LLC (7) +272,298 +5.9 % +Total Current Executive +Officers and Directors as a Group (6 persons) +492,536 +10.6 % +* +Less than 1%. +(1) +Percentage +ownership of common stock is based on 4,592,063 shares of our common stock issued and outstanding as of March 26, 2025. +(2) +Consists +of (i) 135,945 shares of common stock held directly and (ii) 2,029 shares of common stock issuable upon the exercise of stock options +by Dr. Campbell. +(3) +Consists +of (i) 12,090 shares of common stock held directly and (ii) 2,969 shares of common stock issuable upon the exercise of stock options +by Mr. Yorihiro. Excludes 225,000 restricted stock units that will not vest within 60 days of March 26, 2025. The total also +excludes 555 shares of our common stock underlying stock options not exercisable within 60 days of March 26, 2025. +(4) +Consists +of (i) 11,548 shares of common stock held directly and (ii) 6,850 shares held by his spouse. Excludes 175,000 restricted stock units that will not vest within 60 days of March 26, 2025. +(5) +Consists +of (i) 270,373 shares of common stock held directly, (ii) 500 shares of common stock issuable upon the exercise of stock options +by Mr. Hoge, (iii) 30,000 shares of our common stock issuable upon the exercise of warrants by Brett Widney Hoge Revocable Trust +beneficially owned by Mr. Hoge and (iv) 20,000 shares of our common stock issuable upon the exercise of warrants by RGH & BRH +LLC beneficially owned by Mr. Hoge. The total excludes 533 shares of our common stock underlying stock options not exercisable +within 60 days of March 26, 2025 and approximately 312,500 shares underlying Convertible Notes not convertible within 60 days of March 26, 2025. +(6) +Consists +of 233 shares of common stock issuable upon the exercise of stock options by Ms. Casanta. The total excludes 333 shares of our common +stock underlying stock options not exercisable within 60 days of March 26, 2025. +(7) +Based solely on the information reported in a Schedule 13G filed by Murano Capital Partners LP (“Murano Partners”), +Murano Group LLC (“Murano Group”) and Clifford Jay Thomson on January 16, 2026 with the SEC. As reported in the filing, Murano +Partners, Murano Group and Mr. Thomson have shared voting and dispositive power with respect to 243,100 shares, and Mr. Thomson has sole +voting and dispositive power with respect to 8,000 shares. Mr. Thomson is the managing member of Murano Group, the investment manager +of Murano Partners. The principal address for each of Murano Partners, Murano Group and Mr. Thomson is 600 California Street, 11th Floor, +San Francisco, California 94126 +Item +13. Certain Relationships and Related Transactions, and Director Independence +Certain +Relationships and Related Transactions +Except +for employment arrangements which are described under “Executive Compensation,” since January 1, 2024, there has not +been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser +of $120,000 or 1% of the average of the total assets at December 31, 2025 and 2024, and any of our directors, executive officers, +holders of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct or +indirect material interest. +58 +Review, +Approval or Ratification of Transactions with Related Persons +Due +to the small size of our Company, we do not at this time have a formal written policy regarding the review of related party transactions +and rely on our full Board of Directors to review, approve or ratify such transactions and identify and prevent conflicts of interest. +Our Board of Directors reviews any such transaction in light of the particular affiliation and interest of any involved director, officer +or other employee or stockholder and, if applicable, any such person’s affiliates or immediate family members. Management aims +to present transactions to our Board of Directors for approval before they are entered into or, if that is not possible, for ratification +after the transaction has occurred. If our Board of Directors finds that a conflict of interest exists, then it will determine the appropriate +action or remedial action, if any. Our Board of Directors approves or ratifies a transaction if it determines that the transaction is +consistent with our best interests and the best interest of our stockholders. +Director +Independence +At +December 31, 2025, our Board of Directors consisted of four members, consisting of Greg Campbell, Brett Hoge, Akinobu +Yorihiro and Jane Casanta. Our Board of Directors undertook a review +of the composition of our Board of Directors and the independence of each director. Based upon information requested from and provided +by each director concerning their background, employment and affiliations, including family relationships, our Board of Directors has +determined that Ms. Casanta and Mr. Hoge qualify as “independent” as that term is defined by Nasdaq Listing Rule +5605(a)(2). On January 30, 2025, John B. Bode was appointed to our Board of Directors and also was determined to qualify as “independent” as that term is defined by Nasdaq Listing Rule 5605(a)(2). +Item +14. Principal Accounting Fees and Services +Weinberg +& Company, P.A. (“Weinberg”) was our independent registered public accounting firm for the years ended December 31, 2025 +and 2024. +The +following table shows the fees paid or accrued by us for the audit and other services provided by Weinberg for the years ended December +31, 2025 and 2024: +2025 +2024 +Audit Fees +$ 245,000 +$ 113,000 +Audit-Related Fees +- +- +Tax Fees +19,000 +11,000 +All Other Fees +- +- +Total +$ 264,000 +$ 124,000 +As +defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit +of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided +by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related +fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of +the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are +fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all +other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit +fees,” “audit-related fees,” and “tax fees.” +Audit +Fees +Weinberg +provided services for the audits of our financial statements included in Annual Reports on Form 10-K and limited reviews of the financial +statements included in Quarterly Reports on Form 10-Q. +Audit +Related Fees +Weinberg +did not provide any professional services which would be considered “audit related fees.” +59 +Tax +Fees +Weinberg +prepared our 2025 and 2024 Federal and state income tax returns. +All +Other Fees +Services +provided by Weinberg with respect to the filing of various registration statements made throughout the year are considered “all +other fees.” +Audit +Committee Pre-Approval Policies and Procedures +Under +the SEC’s rules, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered +public accounting firm in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the +types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s +responsibility for administration of the engagement of the independent registered public accounting firm. +Consistent +with the SEC’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and +permitted non-audit services provided by the independent registered public accounting firm to us or any of our subsidiaries. The Audit +Committee may delegate pre-approval authority to a member of the Audit Committee and if it does, the decisions of that member must be +presented to the full Audit Committee at its next scheduled meeting. Accordingly, 100% of audit services and non-audit services described +in this Item 14 were pre-approved by the Audit Committee. +There +were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most +recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent +employees. +PART +IV +Item +15. Exhibits and Financial Statement Schedules +(a) +1. Financial Statements +See +Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. +2. +Financial Statement Schedules +All +other financial statement schedules have been omitted because they are either not applicable, or the required information is shown in +the financial statements or notes thereto. +60 +3. +Exhibits +EXHIBIT +INDEX +Exhibit +No. +Description +3.1 +Certificate of Incorporation (including amendments) (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025). +3.2 +Amended and Restated Bylaws (including amendments) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 28, 2025). +4.1 +Form +of Series A Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed on +December 10, 2024 +4.2 +Form +of Series B Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 filed on +December 10, 2024 +4.3 +Form of Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on March 18, 2026). +4.4 +Form of Convertible Note (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on March 18, 2026). +10.1 +License +Agreement dated July 24, 2018 between Sacks Parente Golf, Inc. and Parcks Designs, LLC. (incorporated by reference to Exhibit 10.1 +to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.2 +Agreement +dated May 25, 2022 among the Company, Nippon Xport Ventures, Inc. and Parcks Designs, LLC (incorporated by reference to Exhibit 10.2 +to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.3 +Patent +Assignment dated August 7, 2018 between Sacks Parente Golf, Inc. and Richard E. Parente and Steven Sacks. (incorporated by reference +to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, filed on August 5, 2022) +10.4 +At the Market Sales Agreement, dated as of October 24, 2025, by and between the Company and Kingswood Capital Partners, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on October 24, 2025). +10.5 +Amended and Restated 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2025). +10.6 +Newton Golf Company, Inc. Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 18, 2025). +10.7 +Offer Letter, dated June 9, 2025 between the Company and Jeff Clayborne (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 13, 2025). +10.8 +Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on March 18, 2026). +19.1 +Sack Parente Golf, Inc. Insider Trading Policy. +23.1 +Consent of Weinberg & Company P.A. +31.1 +Certification of Principal Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934, as amended. +31.2 +Certification of Principal Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934, as amended. +32.1 +Certification of Principal Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2 +Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Executive Compensation Clawback Policy (incorporated by reference to Exhibit 97.1 of the Company’s Annual Report on Form 10-K filed on April 4, 2025). +101.INS +Inline +XBRL Instance Document** +101.SCH +Inline +XBRL Taxonomy Extension Schema Document** +101.CAL +Inline +XBRL Taxonomy Extension Calculation Linkbase Document** +101.DEF +Inline +XBRL Taxonomy Extension Definition Linkbase Document** +101.LAB +Inline +XBRL Taxonomy Extension Label Linkbase Document** +101.PRE +Inline +XBRL Taxonomy Extension Presentation Linkbase Document** +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document) +(b) +Exhibits +See +Item 15(a) (3) above. +(c) +Financial Statement Schedules +See +Item 15(a) (2) above. +Item +16. Form 10-K Summary +Not +applicable. +61 +SIGNATURES +In +accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this Report to be signed on its behalf by the undersigned, +thereunto duly authorized. +Date: +March 31, 2026 +NEWTON +GOLF COMPANY, INC. +By: +/s/ +Akinobu Yorihiro +Akinobu Yorihiro +Interim Chief Executive Officer +In +accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities +and on the dates indicated. +Signature +Title +Date +/s/ +Akinobu Yorihiro +Interim Chief Executive Officer, Director +March 31, 2026 +Akinobu Yorihiro +(Principal +Executive Officer) +/s/ +Jeff Clayborne +Chief +Financial Officer, Chief Operating Officer +March 31, 2026 +Jeff Clayborne +(Principal +Financial Officer and Principal Accounting Officer) +/s/ +John Bode +Director +March 31, 2026 +John Bode +/s/ +Brett Hoge +Chairman of the Board +March 31, 2026 +Brett +Hoge +Director +March 31, 2026 +Greg Campbell +/s/ +Jane Casanta +Director +March 31, 2026 +Jane +Casanta +62 \ No newline at end of file diff --git a/raw/filings/0001934245/2025/0001493152-26-014164/filing_metadata.csv b/raw/filings/0001934245/2025/0001493152-26-014164/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..f481c413e7ec916920d2cdefd637fb2036e73666 --- /dev/null +++ b/raw/filings/0001934245/2025/0001493152-26-014164/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934245,NWTG,"Newton Golf Company, Inc.",2025,10-K,2026-03-31,2025-12-31,2026-03-31T20:15:00.000Z,0001493152-26-014164,form10-k.htm,10-K,7564357,1,1,https://www.sec.gov/Archives/edgar/data/1934245/000149315226014164/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1934245/000149315226014164/ diff --git a/raw/filings/0001934245/2025/0001493152-26-014164/item1.txt b/raw/filings/0001934245/2025/0001493152-26-014164/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..ea424129b185ce2f9550709dbc5e70bfb9327441 --- /dev/null +++ b/raw/filings/0001934245/2025/0001493152-26-014164/item1.txt @@ -0,0 +1,487 @@ +Item +1. Business +Company +Overview +Newton +Golf Company, Inc. (the “Company,” “Newton,” “we,” “us,” or “our”) +designs, manufactures, and sells performance golf equipment, including premium golf shafts and putters, and focuses on developing +technology-driven golf products intended to enhance player performance. The Company’s Newton Motion™ shaft product line +represents a core component of its product strategy and has contributed significantly to recent revenue growth. +In +April 2022, the Company expanded its manufacturing capabilities by opening a shaft manufacturing facility in St. Joseph, Missouri to +support the production of advanced carbon fiber golf shafts. The Company seeks to manufacture and assemble substantially all of its +products in the United States where economically feasible, which management believes provides supply chain advantages and supports +product quality, engineering control, and operational flexibility. +The +Company sells its products through a combination of direct-to-consumer channels, including its websites, as well as through resellers, +professional club fitters, distributors, and golf retailers. The Company currently distributes products primarily in the United States, +with additional distribution in international markets including Japan and South Korea. +The +Company continues to expand its relationships with professional club fitters and retail partners as adoption of its shaft products increases. +Growing awareness of the Newton brand among professional golfers, club fitters, and retail partners may create opportunities to expand +distribution of other Newton-branded products. +The +Company believes its technology-driven shaft platform and domestic manufacturing capabilities position it to scale production efficiently +as demand for premium performance golf equipment increases. Management believes the Company is in the early stages of scaling its Newton +shaft platform and that continued adoption by golfers, professional club fitters, and retail partners may support significant long-term +revenue growth. +Over +time, the Company may expand its product offerings through internal product development or strategic acquisitions of complementary golf-related +product lines or technologies. In addition, the Company may explore opportunities to collaborate with other golf equipment manufacturers +or industry partners where its shaft technologies and manufacturing capabilities may complement broader equipment platforms. +1 +Historical +Development +The +Company was formed in March 2018 as Sacks Parente Golf, Inc., a Delaware corporation. In July 2018, the corporation converted from a corporation to a limited liability company. In March 2022, +the limited liability company converted back to a corporation. On March 17, 2025, the Company +changed its name to Newton Golf Company, Inc. Pursuant to the Company’s plan of conversion, on March 17, 2025, all +outstanding ownership interests in Sacks Parente Golf, Inc., and rights to receive such interests, were converted into and exchanged +for shares of capital stock of the newly formed Delaware corporation. The conversion has been retroactively reflected in the +accompanying financial statements for all periods presented. +Public +Offerings +On +August 14, 2023, the Company entered into an underwriting agreement with The Benchmark Company in connection with its initial public +offering. In the offering, the Company sold 10,667 shares of common stock at a price of $1,200 per share. The offering closed on +August 17, 2023, generating gross proceeds of approximately $11.6 million. The Company received net proceeds of approximately $11.0 +million after deducting underwriting discounts, commissions, and offering expenses of approximately $565,000. +On +October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as sole underwriter for the sale of 12,200 +shares of common stock at a public offering price of $60.00 per share. The offering closed on October 10, 2024, generating net proceeds +to the Company of approximately $467,000, after deducting underwriting discounts, commissions, and estimated offering expenses. +On +December 12, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as sole underwriter for the sale of +233,333 common units (“Common Units”) of the Company each consisting of (i) one share of common stock, (ii) one Series A +common warrant of the Company (“Series A Warrant”), and (iii) one Series B common warrant of the Company (“Series +B Warrant”). The public offering price per Common Unit was $36.00. The Series A Warrants have an initial exercise price of +$72.00 per share, are exercisable following stockholder approval, and expire 60 months thereafter. +2 +The +Series B Warrants have an initial exercise price of $72.00 per share or may be exercised pursuant to an alternative cashless exercise +feature, are exercisable following stockholder approval, and expire 30 months thereafter. +Reverse +Stock Splits +On +July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to effect a 1-for-10 reverse stock split of the Company’s common stock (the “First Reverse Stock Split”). +The First Reverse Stock Split became effective at 12:01 a.m. Eastern Time on July 30, 2024, and the Company’s common stock +began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol. +On +March 4, 2025, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of +Delaware to effect a 1-for-30 reverse stock split of the Company’s common stock (the “Second Reverse Stock +Split”). The Second Reverse Stock Split became effective at 12:01 a.m. Eastern Time on March 17, 2025, and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its +existing trading symbol. +All +share amounts and per-share information presented in this Annual Report have been retroactively adjusted to reflect both reverse stock +splits for all periods presented. +No +fractional shares were issued in connection with the reverse stock splits, as all fractional shares were rounded up to the next whole +share. +Industry +Overview +The +global golf equipment industry includes golf clubs, shafts, balls, and related accessories sold through golf retailers, professional +club fitters, distributors, and direct-to-consumer channels. Industry reports estimate that the global golf equipment market is estimated to be +$8.55 billion in 2025 and is expected to grow at a mid-single-digit annual rate over the next several years. +Golf +participation increased significantly during the COVID-19 pandemic as the sport was widely viewed as a socially distanced outdoor activity. +Although the initial pandemic-driven surge has moderated, participation levels have remained elevated relative to historical levels, +and industry organizations have reported continued engagement among both new and returning golfers. +3 +According to Grand View Research, in +addition to traditional golf participation, off-course golf experiences and indoor golf technologies have expanded opportunities for +consumers to engage with the sport. Golf entertainment venues such as Topgolf and the increasing availability of golf simulators and +indoor golf facilities allow consumers to participate in golf-related activities in non-traditional environments and in regions where +weather conditions may limit outdoor play during portions of the year. +The +golf equipment market is highly competitive and driven in part by product innovation, equipment fitting, and brand recognition among +professional golfers, club fitters, and retailers. Many golfers seek equipment designed to improve performance, including customized +clubs and high-performance components such as premium shafts. +International +markets represent an important component of the golf equipment industry. Countries such as Japan and South Korea have well-established +golf markets with strong demand for premium equipment, while other regions continue to experience increasing participation and investment +in golf-related infrastructure. +The +Company believes these industry trends, including increasing demand for premium equipment and the growing importance of professional +club fitting, support the long-term opportunity for technology-driven golf equipment manufacturers. +Product +Portfolio Characteristics +The +Company designs and develops golf equipment intended for golfers of all skill levels, from amateur to professional. The Company seeks +to design its products to conform to the Rules of Golf as established by the United States Golf Association (“USGA”) and +the R&A, the governing bodies responsible for establishing and interpreting the rules of golf equipment. +The +Company’s product development philosophy emphasizes the application of engineering principles and physics to golf equipment design. +Through research and development activities, the Company seeks to develop products that differentiate themselves through materials engineering, +weight distribution, and structural performance characteristics. The Company focuses its research and development efforts on composite +shaft technologies and other engineering-driven golf equipment innovations. +To +support product development, the Company utilizes computer-aided design software, finite element analysis tools, structural optimization +techniques, and various testing technologies. These include robotics, launch monitor systems, and other testing equipment used to evaluate +performance characteristics of golf equipment products. +Newton +Shafts +In +November 2023, the Company expanded its product portfolio through the introduction of the Newton Motion driver shaft, marking the Company’s +entry into the premium composite golf shaft market. In April 2024, the Company expanded its shaft product line with the introduction +of the Newton Motion fairway wood shaft. These products are manufactured at the Company’s shaft manufacturing facility in St. Joseph, +Missouri. The Company’s ability to manufacture composite shafts domestically allows it to control production processes and support +ongoing product development activities. +The +Newton shaft product family includes two primary driver shaft models: Motion and Fast Motion. The Fast Motion driver shaft was +introduced in 2025 and has become the Company’s best-selling shaft product. The Fast Motion driver shaft incorporates higher +modulus carbon fiber materials and lighter composite construction designed to reduce overall shaft weight while maintaining +structural stability. The Motion shaft utilizes a different composite construction intended to provide alternative performance +characteristics for golfers with varying swing profiles. +The +Newton Motion shafts utilize carbon fiber composite materials and proprietary shaft construction techniques designed to influence +key performance characteristics such as stability, energy transfer, and weight distribution during the golf swing. The Company +manufactures its shafts using proprietary mandrels and composite wrapping processes developed for the Newton Motion shaft product +line. +4 +Unlike +many traditional shaft designs that are used across multiple club types, the Company develops shafts tailored to the performance characteristics +of specific clubs, including drivers, fairway woods, and hybrid clubs. The Company believes that shafts designed specifically for individual +club types may improve launch conditions, consistency, and overall club performance. +The +Newton Motion shaft product line also incorporates the Company’s proprietary “DOT” system, which replaces traditional +shaft flex designations with a numerical system ranging from one to seven dots. This system is intended to provide golfers with a more +precise method for selecting shaft stiffness and to allow golfers to match shaft characteristics across driver, fairway wood, and hybrid +clubs. +The +Company continues to expand the Newton Motion shaft product line through ongoing product development. During 2026, the Company +expects to introduce additional shaft products including a Fast Motion fairway wood shaft, Fast Motion hybrid shaft, and Motion +hybrid shaft as part of the continued expansion of the Newton Motion product family. +Golf +shafts play an important role in the club fitting process and are often selected independently of the golf club head. As a result, shaft +manufacturers frequently work closely with professional club fitters and golf retailers who recommend shaft products to golfers during +the fitting process. The Company believes that the growing adoption of its shaft products among golfers, professional club fitters, and +retailers may create additional opportunities to expand distribution of other Newton-branded golf equipment products over time. +The +Company’s shaft product development is supported by in-house engineering capabilities, including computer-aided design, structural +modeling, and product testing. These capabilities allow the Company to develop composite shaft designs using proprietary manufacturing +processes and specialized composite materials. +The +Company’s shafts are used by professional golfers across several professional tours, including the PGA TOUR Champions and other +international tours. The Company believes that professional adoption provides visibility for its products among golfers, club fitters, +and retailers. +Newton +Gravity Putters +The +Company also offers golf putting instruments marketed under the Newton Gravity brand. These products incorporate certain proprietary +design characteristics, including ultra-low balance point technology intended to influence the distribution of weight within the putter. +Ultra-low +balance point technology refers to a shaft balance point positioned closer to the putter head, which shifts the relative weight distribution +toward the head of the putter. The Company achieves this balance profile through the use of lightweight shaft and grip components rather +than increasing the mass of the putter head. +Gravity +putters are manufactured using a variety of materials, including steel, aluminum, carbon fiber, tungsten, magnesium components, and other +materials. These products incorporate proprietary face and shaft technologies intended to influence feel, weight distribution, and stroke +characteristics. +While +the Company continues to develop putter technologies, recent product development efforts and revenue growth have been primarily driven +by the expansion of the Newton Motion shaft product line. +Product +Expansion Opportunities +The +Company may from time to time evaluate opportunities to expand its product portfolio beyond its current golf shaft and putting instrument +product lines. Potential expansion opportunities may include additional golf equipment categories or technologies that support the golf +equipment ecosystem and complement the Company’s existing products, engineering capabilities, and distribution channels. +Such +opportunities may be pursued through internal product development, strategic partnerships, or the acquisition of complementary businesses. +Examples of potential opportunities could include golf equipment products, such as golf balls, or technologies that support equipment +performance, fitting, or training. +5 +There +can be no assurance that the Company will pursue or complete any such expansion opportunities. +Manufacturing +and Distribution +The +Company maintains its headquarters and research and development facility in Camarillo, California, where certain product development +activities are performed. Putter head assembly was historically performed in Camarillo; however, in January 2024, the Company relocated +its primary golf club assembly operations to the St. Joseph, Missouri facility. +The +Company’s primary manufacturing, assembly, warehousing, and distribution operations are located in St. Joseph, Missouri, +which management believes provides greater control over product quality, engineering, and production processes. The facility supports the production of carbon fiber golf shafts, product assembly, inventory management, and order +fulfillment. Management +also believes that domestic manufacturing helps mitigate certain risks associated with global supply chain disruptions, tariffs, and +geopolitical trade uncertainties. +In +2023, the Company began manufacturing putter and replacement shafts using its proprietary mandrels and wrapping technology. In 2024, +the Company expanded its shaft product offerings to include driver wood and fairway wood replacement shafts. +The +Company’s golf club manufacturing and assembly processes are labor intensive and require coordination across multiple production +steps, including shaft manufacturing, component assembly, finishing, and quality control. The Company seeks to design, develop, and manufacture +as many of its products in the United States as is economically feasible. +The +Company’s St. Joseph manufacturing facility provides meaningful production capacity to support anticipated growth in shaft demand, +and management believes the facility can support significantly higher production volumes with modest operational improvements and incremental +equipment investments. +The +Company distributes its products primarily in the United States through direct-to-consumer and wholesale channels. Internationally, the +Company sells products through distribution partners, including relationships in Japan and South Korea, as well as through certain direct-to-consumer +e-commerce sales. +Raw +Material and Suppliers +The +Company’s golf shafts are manufactured using carbon fiber and prepreg materials, along with coatings, paints, inks, and other decorative +materials. Carbon fiber is a specialized composite material commonly used in the manufacture of advanced golf shafts due to its strength, +weight, and performance characteristics. Raw materials used in the production of the Company’s putters include various types of +steel and aluminum, as well as other metals such as tungsten and magnesium. +The +Company sources the majority of its raw materials and components from suppliers located in the United States, including suppliers of +carbon fiber materials used in the manufacture of its golf shafts. These materials include high-performance carbon fiber products manufactured +by suppliers such as Toray Composite Materials America, Inc. The Company manufactures its shafts in-house using carbon fiber materials +supplied by third parties. +Certain +components used in the assembly of the Company’s products, including grips and shaft tips, are sourced from third-party +suppliers located both in the United States and internationally, including Vietnam and China. Putter products are assembled from +components produced by suppliers in the United States and China, and certain components are produced using Computer Numerical Control (“CNC”) +machining performed by third-party manufacturers. +The +Company does not generally enter into long-term supply agreements and typically purchases raw materials and components on a purchase-order +basis. However, the Company maintains a blanket purchase order with one of its key suppliers that provides a committed supply allocation +for certain materials. While this arrangement provides some short-term supply assurance, it does not eliminate risks associated with +sourcing constraints or supplier concentration. +6 +Some +raw materials and components may be available from a limited number of suppliers. The Company competes with other manufacturers for access +to these materials and production capacity. The Company periodically evaluates alternative suppliers and sourcing strategies in order +to reduce supply chain concentration risk. If the Company were unable to obtain necessary materials or components from existing suppliers +and could not identify alternative suppliers in a timely manner, its business, financial condition, and results of operations could be +adversely affected. +Markets +The +Company sells its products primarily in the United States, with additional international distribution in markets including Japan and +South Korea. +The +Company distributes its products through a combination of direct-to-consumer channels, including its e-commerce websites, as well as +through wholesale channels such as professional club fitters, pro shops at golf courses, golf retailers, online retailers, and third-party +distributors. +The +Company also works with professional club fitting organizations, including Club Champion, to make its products available to golfers through +custom fitting programs. The Company has also entered into a distribution relationship with Voice Caddie to distribute its products in +South Korea. +The +Company believes its expanding relationships with club fitters, retailers, and international distributors may provide opportunities to +increase the availability of its products in existing and new markets. +Customers +Our +customers include individual golfers as well as wholesale and retail customers, including professional club fitters, golf pro shops, +off-course golf retailers, sporting goods retailers, and third-party distributors. We also sell products directly to consumers through +our e-commerce platforms. Certain customers, including professional club fitting organizations such as Club Champion, purchase products +for resale through their club fitting and retail locations in the United States and internationally. No single customer accounted for more than 10% of our total revenue in 2025, and we do not depend on any single or +limited group of major customers for a majority of our revenues. +Advertising +and Marketing +The +Company conducts marketing activities to increase awareness of the Newton brand and its golf equipment products. Marketing efforts include +paid media advertising, digital and social media campaigns, participation in industry events, product placement and use by professional +golfers, and promotional activities with club fitters and golf retailers. +The +Company allocates a significant portion of its marketing resources to paid media advertising, including digital platforms, social media +channels, and golf-industry media outlets. Historically, the Company has utilized direct-to-consumer advertising through digital media, +television, and print publications within the golf industry. During 2025, the Company reallocated a greater portion of its direct-to-consumer +advertising toward promoting its Newton Motion shaft product line, which represents the Company’s primary revenue source. +The +Company maintains relationships with professional golfers and other industry personalities who use or promote their products in professional +competitions and other public settings. In some cases, the Company enters into agreements that provide compensation in exchange for name, +image, and likeness rights associated with athletes or influencers who promote the Company’s products. +The +Company also employs representatives who attend professional golf tournaments and industry events to support professional players, club +fitters, and retailers who use the Company’s products. In addition, the Company sponsors various golf-related events, including +competitions such as the World Long Drive Championship and charitable golf tournaments, which help increase visibility of the Newton +brand among golfers, industry participants, and consumers. +7 +Competition +The +golf equipment industry is highly competitive. Companies compete based on product performance, technology, brand recognition, pricing, +customer service, and relationships with professional golfers, club fitters, and retailers. +In +the golf shaft category, the Company competes with manufacturers including Fujikura Ltd., Mitsubishi Chemical Group Corporation, Graphite +Design Inc., Nippon Shaft Co., Ltd., and Paderson Kinetixx, among others. Competition in the premium shaft market is driven in part by +technological innovation, performance characteristics, and adoption by professional golfers and club fitting professionals. The Company +believes that its technology-driven shaft designs and relationships within the professional club fitting community position it to compete +within the premium performance shaft segment of the market. The premium golf shaft market includes a number of specialized manufacturers, +and the Company competes within this segment through product innovation and performance-focused design. +In +the putter category, the Company’s Newton Gravity putters compete with products offered by major golf equipment manufacturers, +including Callaway Golf Company, TaylorMade Golf Company, Ping Inc., and brands owned by Acushnet Holdings Corp., such as Scotty Cameron +and Titleist. +Many +of these competitors have been in business significantly longer than the Company and have substantially greater financial, technical, +marketing, and distribution resources. +The +Company believes its technology-driven shaft design, domestic manufacturing capabilities, and focus on applied physics differentiate +Newton from many traditional golf equipment manufacturers that primarily compete through brand marketing and incremental product changes. +Intellectual +Property +The +Company’s intellectual property portfolio includes patents, trademarks, proprietary manufacturing processes, and other intellectual +property rights related to its golf equipment technologies and product designs. +The +Company seeks to protect its intellectual property through a combination of patent registrations, trademark registrations, trade secret +protections, and contractual arrangements. The Company also maintains proprietary manufacturing processes and design methodologies that +it believes provide competitive advantages in the development and production of its golf equipment products. +Certain +aspects of the Company’s composite shaft technologies, including manufacturing techniques, material configurations, and design +methodologies, are maintained as proprietary trade secrets rather than patented technologies in order to preserve confidentiality. +Patents +generally remain in effect for up to 20 years from the filing date of the patent application, subject to maintenance requirements. Trademarks +may remain in effect indefinitely provided that they continue to be used in commerce and applicable renewal requirements are satisfied. +Patents +The +Company holds a number of issued patents and patent rights relating to golf equipment technologies and product designs. These patents +primarily relate to certain putter technologies, including weight distribution features and clubhead components. +The +Company currently holds the following U.S. patents: +● +US +D874589 S (Series 18 design patent) +● +US +D874592 S (Series 54 design patent) +● +US +D867494 S (Series 39 design patent) +● +US +11,123,614 B2 (Magnesium Golf Clubhead Insert) +8 +The +Company also holds intellectual property rights relating to its Ultra-Low Balance Point technology, which is protected through patents +and patent applications in multiple jurisdictions, including the U.S., Australia, Canada, China, Europe, Japan, South Korea, and South +Africa., +The +Ultra-Low Balance Point patent rights described above were licensed to the Company by Parcks Designs, LLC on July 24, 2018. The license +granted to the Company is perpetual, worldwide, royalty-free, and exclusive aside from one additional licensee. +The +principals of Parcks Designs, LLC include Steve Sacks and Richard Parente. +On +May 25, 2022, the Company and Parcks Designs entered into a consulting agreement under which Parcks Designs provides club and shaft testing +and analysis, putter head design consulting, and related technical services. Consulting fees under this agreement were initially nominal +and increased to $2,000 per month beginning June 1, 2024. +On +August 7, 2018, Richard E. Parente and Steve Sacks assigned to the Company the entire worldwide right, title, and interest in and to +intellectual property relating to the Quad Weighted Lightweight Putter design. +Confidential +Information and Trade Secrets +The +Company relies in part on confidential information and trade secrets, including proprietary manufacturing processes, product design methodologies, +engineering know-how, and other technical information. The Company seeks to protect this proprietary information through a combination +of contractual obligations and internal policies. +Employees +generally enter into confidentiality agreements with the Company, and confidentiality provisions are included in certain consulting and +supplier agreements when those parties may have access to proprietary information. The Company also maintains internal procedures designed +to safeguard confidential information and trade secrets. +Certain +aspects of the Company’s composite shaft technologies, including manufacturing techniques, material configurations, and design +methodologies, are maintained as proprietary trade secrets rather than patented technologies in order to preserve confidentiality. +Trademarks +The +Company owns various trademarks and service marks used in connection with its golf equipment products and branding. These trademarks +are registered in the United States and certain international jurisdictions. +● +USPTO +Reg. No. 5,783,037 (Veni Vidi Vici) +● +USPTO +Reg No. 5,822,719 (Sacks Parente) +● +South +Korea Reg. No. 40-1820381 (Sacks Parente) +The +Company also uses various trademarks, trade names, and brand identifiers in connection with its products and marketing activities. These +include marks associated with the Company’s Newton-branded golf equipment products. The Company may seek trademark protection for +certain of these marks in the United States and other jurisdictions where appropriate. +Trademark +rights may continue indefinitely as long as the marks remain in use and registrations are properly maintained. +9 +Domain +names and Online Presence +The +Company owns and maintains various domain names and online properties used in connection with its websites, investor relations +communications, and marketing activities, including www.newtongolf.com. The Company also maintains official social media accounts +used to communicate with customers, investors, and the broader golf community. +Government +Regulation +Our +operations are subject to various federal, state, local, and foreign laws and regulations applicable to businesses engaged in the design, +manufacture, marketing, and distribution of consumer sporting goods. +Our +golf equipment products are generally designed to conform to the Rules of Golf as established by the USGA +and the R&A, the governing bodies responsible for equipment standards used in competitive play. Although conformity with these rules +is not legally required, most golf equipment manufacturers design products to meet these standards because non-conforming equipment may +be restricted from use in sanctioned competitions. +In +addition, we are subject to laws and regulations relating to product safety, consumer protection, workplace health and safety, environmental +compliance, import and export controls, and other similar regulatory requirements. These laws include, among others, environmental regulations +governing the handling and disposal of certain materials used in manufacturing processes and workplace safety requirements administered +by federal and state agencies. +Our +operations are also subject to laws addressing anti-corruption and anti-bribery matters, including the U.S. Foreign Corrupt Practices +Act (“FCPA”), particularly with respect to our international operations and relationships with distributors and other business +partners. +We are subject to various data protection, privacy, +and cybersecurity laws and regulations applicable to companies that maintain websites, conduct e-commerce activities, and process personal +information. These laws include, among others, U.S. federal and state privacy laws such as the California Consumer Privacy Act, as amended +by the California Privacy Rights Act, as well as other emerging state privacy regimes, and may also include international data protection +laws to the extent we engage with customers outside the United States. +While we primarily rely on third-party service providers, +including e-commerce platforms and payment processors such as Shopify, Amazon, and Fortis, to process payment transactions and related +sensitive financial information, we collect and maintain certain personal information from customers, including names, email addresses, +shipping addresses, and related order information. As a result, we remain subject to applicable privacy, data security, and breach notification +requirements. +Compliance with these laws and regulations +may require us to implement and maintain administrative, technical, and organizational safeguards, as well as policies and procedures +relating to data collection, use, retention, and security. These requirements may increase our compliance costs and operational complexity, +and any failure or perceived failure to comply with applicable data protection and privacy laws could result in regulatory investigations, +fines, litigation, reputational harm, and loss of customer trust. +We +believe we are in material compliance with applicable laws and regulations governing our operations. However, changes in laws, regulations, +or their interpretation could require modifications to our business practices and may increase our compliance costs in the future. +Environmental +Matters +The +Company is subject to federal, state, and local environmental laws and regulations that impose requirements related to the discharge +of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage, +and disposal of certain materials, substances, and wastes, as well as the remediation of environmental contamination (collectively, “Environmental +Laws”). +In +the ordinary course of its manufacturing and product assembly processes, the Company uses paints, coatings, chemical solvents, and other +materials and generates waste by-products that are subject to these Environmental Laws. +The +Company maintains environmental and safety programs at its facilities designed to support compliance with applicable Environmental Laws. +These programs include obtaining required environmental permits, managing and disposing of waste materials in accordance with regulatory +requirements, tracking hazardous waste generation and disposal, monitoring air emissions and stormwater management practices, maintaining +material safety data records, and conducting internal compliance reviews. +The +Company believes it is in material compliance with applicable Environmental Laws. Compliance with these laws has not had a material adverse +effect on the Company’s capital expenditures, earnings, or competitive position, although future changes in environmental regulations +could require additional compliance efforts or expenditures. +10 +Employees +As +of December 31, 2025, the Company employed 38 full-time employees and 1 part-time employee and engaged 7 consultants. We may hire additional +personnel from time to time to support operational needs and anticipated growth. None of our employees are represented by a labor union, +and we have not experienced any work stoppages. We believe our relations with our employees are good. +Available +Information +The +Company maintains a website at www.newtongolf.com . The information contained on, or accessible through, the Company’s website +is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report. +The +Company makes available, free of charge, on or through its website certain reports and amendments to those reports that it files +with or furnishes to the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Securities Exchange Act of +1934, as amended (the “Exchange Act”). These include the Company’s Annual Reports on Form 10-K, Quarterly Reports +on Form 10-Q, Current Reports on Form 8-K, proxy and information statements, and any amendments to those reports or statements. These materials +are made available on the Company’s website as soon as reasonably practicable after they are electronically filed with, or +furnished to, the SEC. +In +addition, the Company routinely posts on the “Investors” section of its website news releases, announcements, and other information +about the Company’s business and results of operations, some of which may be considered material information for investors. Accordingly, +the Company encourages investors to monitor the Investors section of its website for important information about the Company. +The +SEC maintains a website that contains reports, proxy statements, information statements, and other information regarding issuers that +file electronically with the SEC. These materials are available at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0001934245/2025/0001493152-26-014164/item13.txt b/raw/filings/0001934245/2025/0001493152-26-014164/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..e1f2b8f6d5271d96009434e3a87fa37eb8909fce --- /dev/null +++ b/raw/filings/0001934245/2025/0001493152-26-014164/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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+Addison , +TX 75001 +75001 +(Address +of principal executive offices) +(Zip +code) +(945) +262-9012 +(Registrant’s +telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Exchange Act: +None +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Class +A Common Shares, representing Limited Liability Interests +MDBH +Nasdaq +Capital Markets +Securities +registered pursuant to Section 12(g) of the Act: +None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ . +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No +☐ . +Indicate +by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the +preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such +filing requirements for the last 90 days. YES ☒ NO ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). YES ☒ NO ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 +of the Exchange Act. +Large +Accelerated Filer +☐ +Accelerated +Filer +☐ +Non-accelerated +Filer +☐ +Smaller +Reporting Company +☒ +Emerging +Growth Company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒ +As +of March 31, 2025 the number of outstanding shares of Class A Common Shares, representing limited liability interests, of the registrant +was 4,950,632 . +There are also 5,000,000 +outstanding shares of Class B Common Shares, +representing limited liability interests of the registrant, each of which votes with the Class A Common Shares on all matters presented +to the holders of the Class A Common Shares. The value of the Class A Common Shares on June 28, 2024, was $ 32,131,327 , +the last business day of the registrant’s most recently completed second fiscal quarter. +DOCUMENTS +INCORPORATED BY REFERENCE +None . +TABLE +OF CONTENTS +Page +Part I +Item +1. +Business +5 +Item +1A. +Risk Factors +22 +Item +1B. +Unresolved Staff Comments +48 +Item +1C +Cybersecurity +48 +Item +2. +Properties +49 +Item +3. +Legal Proceedings +49 +Item +4. +Mine Safety Disclosures +49 +Part II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +50 +Item +6. +Selected Financial Data +52 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +52 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +63 +Item +8. +Financial Statements and Supplementary Data +63 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +63 +Item +9A. +Controls and Procedures +63 +Item +9B. +Other Information +65 +Part III +Item +10. +Directors, Executive Officers and Corporate Governance +66 +Item +11. +Executive Compensation +72 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +76 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +77 +Item +14. +Principal Accountant Fees and Services +78 +Part IV +Item +15. +Exhibits and Financial Statement Schedules +79 +Item +16. +Form 10-K Summary +79 +Signatures +80 +In +this Annual Report, unless otherwise indicated, the “Company”, “MDB,” “we”, “us” or “our” +refer to MDB Capital Holdings, LLC and, where appropriate, together with its wholly-owned and controlled subsidiaries. +2 +CAUTIONARY +STATEMENT +This +Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” +in Item 7, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended +(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) +that involve substantial risks and uncertainties. These forward-looking statements are not historical facts but are based on current +management expectations that involve substantial risks, uncertainties, and other factors, some of which are beyond our control and difficult +to predict and could cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. +Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements +by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” +“could,” “intends,” “target,” “projects,” “contemplates,” “believes,” +“estimates,” “predicts,” “potential” or “continue” or the negative of these terms or +other similar words. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements +including, but not limited to, any projections of revenue, gross profit, earnings or loss, tax provisions, cash flows or other financial +items; any statements of the plans, strategies or objectives of management for future operations; any statements regarding current or +future macroeconomic or industry-specific trends or events and the impact of those trends and events on us or our financial performance; +any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; and any statements +of assumptions underlying any of the foregoing. +These +forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our +actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, +as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking +statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment +in which we operate. +Although +we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove +to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these +and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report on Form 10-K should not be +regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described +or identified in “Risk Factors” in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking +statements, which apply only as of the date of this Annual Report on Form 10-K. Except as required by the federal securities laws, we +undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or +otherwise, to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K. +3 +Important +factors that could cause those differences include, but are not limited to: +● +our +future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve +and maintain future profitability; +● +our +business plan and our ability to effectively manage our overall operations and growth, particularly in respect of our partner companies; +● +our +ability to anticipate trends, growth rates, and challenges in our securities brokerage and related businesses as broker dealer regulation +evolves; +● +our +ability to evaluate potential partner companies and assess their potential growth and the challenges of their business; +● +our +ability to evaluate the product and service development of the partner companies, product and service acceptance of the partner companies, +and the inherent uncertainty of their product and service development and commercialization; +● +how +our partner companies are able to be financed and our ability to provide shareholder value to our holders of Class A Stock and Class +B Stock; +● +our +ability to realize upon the value created by our partner companies, by the distribution or sale of the securities we own of them; +● +regulatory, +legislative and judicial developments that impact our businesses and those of the partner companies and our ability to stay in compliance +with laws and regulations that currently apply or become applicable to our business and those of the partner companies; +● +the +ability of our group companies to protect their respective intellectual property; +● +our +relationships with our clients and service providers; +● +our +ability to identify, complete and integrate potential strategic acquisitions of complementary companies, products, services, or technologies +and our ability to successfully integrate such companies or assets into our overall structure; +● +general +economic conditions and trends and their impact on businesses of the group companies; +● +increased +expenses associated with being a public company; +● +our +ability to attract and retain qualified personnel; +● +our +ability to raise equity and debt capital to fund our operations and growth strategy, including possible developmental businesses +and acquisitions; and +● +future +revenue being lower than expected; +These +above factors should not be construed as exhaustive and should be read with the other cautionary statements in this annual report. +We also call attention to the +changes in the financial statements as a result of the deconsolidation of eXoZymes Inc, (formerly Invizyne Technologies Inc.) due to the +sale of common stock in an initial public offering consummated on November 14, 2024, which diluted the holdings of MDB Capital Holdings, +LLC to a minority ownership of approximately 47% from a majority ownership of approximately 60%. +4 +PART +I +Item +1. Business +Introduction +MDB +Capital Holdings (“MDB”) serves as a foundational platform specializing in financing startups, partnering with co-founders, +and fostering value creation. This platform sets the stage for nascent ideas and entrepreneurial talent to take root. MDB +is comprised of a group of companies that together serve as this unified foundational platform. +One +of the companies in our group, Public Ventures, LLC (“Public Ventures”), which operates under the D/B/A of “MDB Capital,” operates as a growth catalyst, focusing on +community-driven micro and small-cap financings. It enables companies to scale through the initial financing stages ranging from +five to sixty million dollars and facilitates their transition into public markets with select IPOs valued in the range of twenty to +fifty million dollars. Public Ventures also may provide financing to post-IPO companies that continue to meet its overall business +criteria for investment. +Another +company in our group, PatentVest, Inc. (“PatentVest”) complements the platform as an integrated intellectual property (“IP”) +solution and IP service provider, acting as a strategic law firm to guide technology companies through the intricacies of IP law and +provides companies with IP strategy development. It plays a pivotal role in positioning companies to become leaders in their respective +spaces and curates premier opportunities for MDB and Public Ventures, which leads to our Big Idea Companies. +MDB +Minnesota One, Inc (“M1”), a partner company, was created in mid 2024 with the vision of developing a small molecule anti-senescence +platform comprised of pharmaceutical drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases +(the “M1 Platform”). The focus of the M1 Platform is to treat senescent cells, which +are dysfunctional cells that have permanently stopped dividing, that have been implicated in the aging process, and that permit the development +of chronic low-grade inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple +fibrotic conditions that have limited treatment options and poor prognoses. +MDB +supports a continuous process, dubbed our Big Idea Pipeline, designed to surface new Big Idea Companies and other opportunities for our +platform. We believe that the Big Idea Pipeline showcases the progression of tech initiatives from discovery to commercialization stages. +Initially, in any give calendar cycle, a substantial number of potential tech ideas are scouted from various sources, including +referrals, universities, and conferences. From this broad pool, approximately 250 technologies are identified as relevant and with potential +alignment with our business model. A more focused group of these ideas, about 50, evolves into, what we call, active Big Idea Companies. +Progressing further, approximately ten of these companies reach advanced stages within the selection process, indicating a deeper engagement +and evaluation by MDB. At the pinnacle of the pipeline, as of the date of this report, two Big Idea Companies are currently in active +negotiations, marking the final step before potential partnership or investment. This is a continuous process with the Big Idea Pipeline +in constant flux as new ideas emerge or evolve. MDB’s disciplined and structured approach to vetting the Big Idea Pipeline allows +us to cultivate and invest in innovative technologies with the potential to scale and succeed in the market. +MDB’s +investment criteria focuses on six key areas to identify early-stage companies poised for success in public markets. These potential +partner companies should exhibit “Tech Leadership Potential,” with distinct differentiation that pioneers a new technological +category. “Platform Technology” is essential, with core technology that can span various vertical markets or indications. +They should be at an “Early Inflection Point,” where the timeline and costs to validate technology feasibility in the commercial +marketplace are reasonable. “Clear Market Insertion” is also critical, with technology disruption significant enough to incentivize +stakeholders for market entry. The target companies should have “Large Market Potential,” addressing substantial unmet needs +with vast market opportunities. Lastly, a “Strong IP Position” is necessary, meaning a robust and defensible intellectual +property stance with broad claims to secure a sustainable competitive edge. +5 +In +essence, the investment philosophy is to scout for companies that not only stand at the vanguard of technology but also demonstrate the +capacity to disrupt markets, backed by solid intellectual property and clear pathways to market adoption and growth. +Together, +our platform represents a holistic approach to leadership development in the general technology industry. Our objective is to provide +a continuum of support to our partner companies, from inception through growth phases, culminating in market leadership. Each part of +the overall platform is integral to the journey of a start-up, providing tailored resources, expertise, management guidance and resources, +and financial backing as necessary to evolve our partner company into a significant player in the technology sector. This unity of purpose +exemplifies the strategic foresight of MDB’s commitment to launching Big Ideas and developing industry leaders. +Overview +MDB +was founded in 1997, originally operating as MDB Capital Group, LLC, for the purpose of engaging with companies holding visionary technology, +inventors, and technology entrepreneurs. To maximize the impact of our actions and culture, under our business plan, we embark on each +journey with a company at an early point, typically acting as founders and providing the initial rounds of capital, in the manner of +a partner and usually before a specified management structure has been put in place. Part of our role as founders often includes locating +the technology that will form the basis of the new enterprise. The technologies may be found in universities, in larger companies where +it is not being used or understood, in start-up companies, and with inventors. Not only do we act as founders and providing the first +capital rounds, we assist with structuring the plans for the company development, such as the steps from research and development to +initial commercialization, the intellectual property strategy, business objectives, and financing. We refer to these subsidiary companies +as “partner companies.” +Our +model typically includes a two-step financing approach with our partner companies: we put in seed capital, as founders, and the +first round of capital between $5 to $10 million dollars to set the business on an operational foundation. Our plan is to then raise +additional amounts of substantive capital to bring the technology closer to validation or to be able to commence commercialization, +typically in the range of $20 to $60 million overall. We plan on additional financing by means of public offerings or alternative +value realization. Our community of sophisticated, individual investors with like-minded goals and values, we believe supports our +model, where we will draw on their capital, knowledge, connections and expertise. We anticipate that value creation will be +generated after any number of years of patient ownership and corporate effort, and value realization might include any number of +methods, such as continued holding and operating, initial public offerings, or IPO, joint ventures, licensing, asset sales and +merger transactions, depending on the particular business model and industry. +We +believe that we successfully have used the private and public capital markets to finance growth companies. Being able to find disruptive +technologies to develop, acting as corporate founders, owners, directors and management, and conducting financing activities for those +companies in which we are strategically involved for the long term, we believe we have a different model of helping companies grow than +that of the typical private venture capital model. We refer to our approach as public venture capital. We find the technology and then +we work to analyze the technology leadership position by our surveying the marketplace so as to establish a research and development +and intellectual property development strategy to create a dominant position in the distinct technology vertical. Then we create the +basic company, we set up its management, we define its business plan, we nurture its enterprise, and we provide its financings in its +early stage rounds, and then we likely will act as the underwriter or selling agent for their IPO, other financing or disposition. It +is our plan to remain involved with our partner companies for the long term. Where there is an IPO, we plan to stay on for several years +thereafter, by being members of the board, having consulting agreements, providing strategic business advice, and participating in, advising +on or facilitating further financing rounds. We believe, most importantly, that one gauge of the partner company success is that the +partner company will successfully foster community in connection with our broker-dealer, Public Ventures. In that regard, we intend to +follow a “Member-focused” model (further discussed below) for conducting Public Ventures-led company financings. Our typical +complete public and private follow-on offerings continue supporting their research, development, growth and marketing of their technologies’ +potential. MDB, we believe, builds value by building partner companies with the right foundations +6 +Past +Examples +In +having been able to find disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting +investing activities for those companies in which we have been strategically involved for the long term, we believe we now have a different +model for helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology, and then we work to analyze the technology leadership position and survey the marketplace so as to establish +a research and development and intellectual property development strategy to create a dominant position in the distinct technology vertical. +Then we create the basic company, we set up its management, we define its business plan, we nurture its enterprise, and we facilitate +its financings in its early-stage rounds of private funding. Then we likely will act as the underwriter or selling agent for their IPO, +other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where there is an IPO, +we plan to stay involved on for several years thereafter, by being members of the board, having consulting agreements, providing strategic +business advice, and participating in, advising on or facilitating further financing rounds. We believe, most importantly, that one gauge +of the partner company success is that the partner company will successfully complete a private and public follow-on offering to continue +supporting their research, development, growth and marketing of their technologies’ potential. +Three +companies for which we started as founders and for which we conducted their IPOs, have traded for a period of time at near or over $1 +billion in market value, which we believe is crucial for maximizing the probability the companies can raise sufficient capital to get +to commercialization. These companies are as follows: +● +Provention Bio, Inc. (“Provention”). Provention was established in 2016. Public Ventures created Provention to license molecules +from several larger pharmaceutical companies, conceived the business strategy, assisted in licensing negotiations and provided seed capital, +engaged the initial board of directors’ members, and recruited C-level executives as well as executed the successful IPO. +● +Cue BioPharma, Inc. (“Cue”). Cue was established in 2014. Public Ventures created Cue to license a platform technology from +Einstein University, engaged the members of the board of directors, recruited C- level executives and, formed the corporate and IP strategy +and provided the seed capital and well as executing the successful IPO. +● +Pulse Biosciences, Inc. (“Pulse”). Pulse was established in 2014, Public Ventures created a new entity that rolled up +the intellectual property from 2 academic institutions and one private entity. Public Ventures then completed a seed financing, +created the business and IP strategy and assembled the management team and Board. Subsequently Public Ventures successfully executed +the IPO for Pulse. +More +recently, eXoZymes Inc, (formerly Invizyne Technologies Inc.) completed its IPO on November 14, 2024, having been set up in 2019 to +develop cell-free technology to optimize nature’s own biological processes to make chemicals used in many common applications. +MDB was one of the founders of the company, provided an initial funding of $5,000,000 a subsequent funding of $758,000 and +provided executive management and several board members. Persons affiliated with MDB continue to be on the board of +directors. +Key +Pillars +Since +inception, we have defined and refined the key pillars that support what we believe is our successful company creation approach. These +pillars are defined in Our Partner Company Criteria section. We believe that our model is only suitable for companies that can be sustained +in the public markets at an early stage. Typically, these companies own what appear to be category-defining platforms capable of solving +big problems. +We +have established a process to position partner companies for success, with the intention of maximizing the value early in a company’s +history. We seek to create a strong foundation during the development phase of the partner company. We believe that this helps the partner +company attract the best people who are capable of building a successful enterprise over the long term. We call this our “Rational +Design Process For New Companies.” +A +traditional perceived shortcoming of the public markets is that they attract short-sighted investors. We understand that to make early-stage +public venture feasible; we need to create a community of investors that have the intention of helping our companies get off the ground. +We believe our investors are committed community members who seek to create value at the companies in which they invest and are critical +to sustaining value. Our investors, unlike traditional institutional investors, generally have long holding periods and value long-term +impact over quarterly performance numbers. +7 +Our +Partner Company Criteria +We +seek companies that we believe meet certain criteria. Our criteria focuses first on the probability that an early-stage technology company +ultimately can sustain its value in the public markets. We look for novel technology platforms that are category-defining and solve big +unmet needs. Our criteria are founded in the following: +Tech +Leadership Potential : Target companies must offer a well-defined technological edge that carves out new niches within the tech +landscape. +Platform +Technology : The core technology should be versatile, with potential applications across a range of vertical markets or medical +indications. +Early +Inflection Point : Prospective companies should be at a juncture where the technology’s commercial viability can be proven +within a feasible timeframe and at a justifiable cost. +Clear +Market Insertion : The technology must be disruptive enough to motivate channel partners or gatekeepers to facilitate smooth market +entry. +Large +Market Potential : There should be a significant market opportunity, with the technology addressing substantial, unmet needs. +Strong +IP Position : A robust intellectual property strategy is crucial, featuring broad, defensible claims that ensure a lasting competitive +advantage. +Rational +Analytical Process +We understand that early-stage, visionary technologies are inherently fragile +and require careful nurturing to reach commercial viability. Establishing the right corporate and financial foundation is essential to +support their growth into sustainable, market-ready companies. This is particularly true for platform technologies, where strategic decisions +around corporate structure, asset development, and market positioning can significantly influence the trajectory and success of the partner +company during its formative stage. +We +begin our process by seeking to gain a deep understanding all of the relevant players in a given space and the key issues, and how, if +solved, they could effectively create a new category and enable the partner company to rapidly become a category leader. We work to develop +a clear understanding of our companies’ potential sustainable competitive advantage. Once the “Theory of Opportunity” +is established, we develop the business strategy, financing strategy and intellectual property strategy and the innovation and R&D +prioritization road map. We test our assumptions by seeking input regarding our strategic decisions with experts in the field until we +are comfortable that they are credible and convincing. With a clearly articulated understanding of what we believe to be the partner +company’s potential, we endeavor to recruit the best possible talent to execute the strategy and bring the vision to fruition. +We strive to instill a corporate culture that is constantly re-evaluating the partner company’s working thesis, which we believe +will establish and keep the partner company as the leader in a given category or enable the partner company to pivot its strategy to +a new area based upon changing circumstances. +8 +Our +Community +A +key element of our public venture model is our community of more than 500 sophisticated investors, entrepreneurs and microcap and small cap +market participants who have experience with our approach and who we believe will advocate for our public venture mission. +In addition, investors can have a significant impact by supporting the companies they invest in. We believe that this community is vital +to the success of our public venture model. +We +have strived to create community of like-minded persons who share our vision and are supportive of the partner companies we have co-founded. +This group consists of patient company owners with a long-term focus on the value that can be unlocked upon the de-risking of our partner +companies’ technologies. This long-term focus is key to building value and stability for early-stage companies in the public markets. +In addition, we believe that our community members are often authorities in multiple industries and are capable of providing support +to our partner companies with their invaluable access and reach. We believe that MDB shareholders will comprise this community and will +continue to participate in the partner companies through their MDB share ownership as well as participation in partner company direct +investment opportunities. MDB plans to sustain a cohesive community by keeping persons engaged and curious so that they continuously +help us improve our decision process as and when selecting partner companies with which to work. +We +believe that MDB is strengthening our community of MDB shareholders and can simplify our process of developing partner companies. We +intend to use a portion of our capital to identify and find partner companies. We believe that being a public company gives us greater +flexibility and nimbleness to source new technologies and make it quicker and easier to deploy capital towards opportunities that arise. +We +also will seek to foster community in connection with our broker-dealer, Public Ventures. In that regard, we intend to follow a “Member-focused” +model (further discussed below) for conducting Public Ventures-led company financings. Our typical Public Ventures Member will be a long-term +investor and/or entrepreneur who is motivated to help develop the next generation of growth companies. Public Ventures Members may or +may not be MDB shareholders. Members may or may not provide direct financing to partner companies. +Holistic +and Sustainable Model +Our +public venture model is fundamentally different than the typical venture capital fund model. We believe that bringing well developed +early-stage companies to either the public markets or fostering a merger and acquisition exit or other realization event, while still +taking care to address the unique nature and needs of these early-stage companies, provides more liquidity, efficiency, transparency, +better protections for investors and alignment of the interests of everyone involved as described below. +Inventors/Universities/Co-founders +Taking +companies public will allow shareholders to own the same class of common stock as the company’s early founders. In addition, the +ownership interests of inventors, universities, and other co-founders become valuable, tradable shares when a company is public and listed +on an exchange. As a result, we believe that, in most cases, these ownership stakes will have much greater value than they would otherwise +have in the traditional venture capital model. We also believe that our model gives companies greater leeway to execute pivots or to +pursue other strategic initiatives, such as licensing, asset sales or corporate merger and acquisition transactions. +Partner +Company Management & Board Members +We +expect that the management and board members of our partner companies will benefit from the Company being public. The ability to grant +valuable, liquid equity as part of an employment compensation package is a strong incentive to attract and retain employees and align +their interests with those of the company at which they work. Being public can help a partner company raise substantial amounts of capital +more easily than as a private company or through traditional venture capital. +9 +MDB +Shareholders +Under +our model, MDB shareholders can buy or sell their shares in the holding company at any time. These shareholders will participate in our +partner companies through the holding company structure, for example through the tax benefits of holding an interest in a tax pass through +entity or the overall value of the holding company as it reflects the values of our subsidiaries. Where we think it beneficial for a +partner company to raise capital directly, rather than taking additional funds from the holding company, we may seek a method that can +allow the MDB shareholders to participate in the additional capital formation for a partner company. There are a few means by which the +MDB shareholder may participate: for example, a further private placement by the partner company, or by a registered public offering, +such as an IPO or rights offering where the MDB shareholder will invest new funds based on the distributed right. If the best course +of action is an asset sale, a licensing arrangement or a corporate merger or acquisition transaction of a partner company, then it is +expected that MDB shareholders would receive a distribution of the proceeds as a result of the transaction. Moreover, we believe that +many of the MDB shareholders own their Class A Common Shares because they are motivated by the opportunity to contribute their knowledge +and experience to and engage with our partner companies in an effort to improve them and enhance their value. +MDB +Employees +Pursuant +to our 2022 Equity Incentive Plan, we have granted our employees interests in the Company as part of their compensation in order to align +their interests with those of our shareholders and partner company stakeholders. +Our +Holding Company Structure +While +each partner company will present its own investment dynamic, at the onset, we intend to take a majority ownership stake in the partner +companies we co-found and to hold a significant controlling position through the early stages of development and early capital creation. +We plan on seeking one or two partner company opportunities a year, but there is no assurance that we will be able to find suitable opportunities +at that rate for inclusion in the holding company. +As +a partner company is financed by means other than the holding company putting in more equity capital, such as additional sales of equity +by the partner company on a private or public basis, we plan to continue to own at least thirty-five percent (35%) or more of the voting +stock of a partner company. We also expect to maintain the right to appoint a number of board members and otherwise be instrumental in +the management and direction of the strategy and business development efforts of our partner companies for a period of time before and +after each IPO. +It +will be our policy to have with the stakeholders of our partner companies, where we do not have a 100% ownership position, a series of +contractual rights to obtain regularly the following: (i) financial reports, (ii) milestone achievement reports, and (iii) budget formulations. +Other oversight rights which we will seek to have include, (i) approval of capital raises, (ii) approval of incurring and guaranteeing +debt in excess of $250,000, (iii) approval of capital expenses in excess of $250,000, (iv) approval of changes in the business plan, +(v) participation in budgeting, (vi) review of employment arrangements with key employees, (vii) participation in the selection of directors +and director nominees, (viii) approval of sale of the company or assets and merger and acquisition transactions, and (ix) liquidation +approval. These rights will be supplemented by agreements that will afford the founders, early owners and the holding company: (i) a +right of first refusal on future financings, (ii) approval right on the issuance of securities for compensation purposes and stock option +plan sizing, (iii) voting agreements so as to maintain the control by the holding company, (iv) drag-along sale and co-sale agreements, +right of first refusal agreement on individual ownership holdings, and (v) an investor rights agreement. +10 +In +order to not be deemed an investment company under the regulation of the Investment Company Act of 1940, MDB will not operate in a manner +such that it is or holds itself out as being engaged, or proposes to engage, in the business of investing, reinvesting, or trading in +securities. Additionally, it will maintain what are characterized as “investment securities” under the Investment Company +Act below forty percent (40%) of the value of the total assets of MDB on an unconsolidated basis, unless an exemption or safe harbor +applies under that legislation. Securities issued by companies other than consolidated companies are generally considered “investment +securities” for purposes of the Investment Company Act, unless other circumstances exist that have the holding company being actively +involved in the management of the underlying company. We will consolidate these companies for financial statement purposes as long as +they are majority-owned subsidiaries in which we hold voting power of fifty percent (50%) or greater. We expect to continue to have an +active role in the management of our partner companies for a long period of time before and after funding, such as an IPO. +Not +only for purposes of the Investment Company Act, but also to maintain our focus on exploring new investment opportunities through partner +companies, rather than holding partner companies for long term investment and increasing our asset base, our intention is to distribute +our partner companies and excess assets beyond what is needed to support the investments we plan to make under our public venture model. +Competition +Getting +access to and deploying early-stage capital is very competitive. We believe our main competitors are traditional venture capital firms, +other funds specializing in microcap and small cap investing and investment banks focusing on microcap and small cap companies. +We +believe that our approach provides multiple benefits compared to existing models and traditional methods. However, many of our competitors +are larger, have greater brand recognition, longer operating histories, established business relationships, access to greater amounts +of capital, and significantly greater resources. We believe that we will be able to compete on many fronts based on our history and reputation, +our plan to partner, encourage and support the development of our partner companies and their founders, our wide-ranging contacts in +the financial and industry sectors, our ability to provide capital as needed, our ability to source and diligence new technologies and +the experience of our professional human capital. +Our +Group of Companies +Public +Ventures +Our +wholly-owned subsidiary, Public Ventures, licensed under the name Public Ventures LLC, a registered broker- dealer (CRD-: +42677/SEC-: 8-49951) is the backbone of our financing business. Public Ventures operates under the d/b/a of “MDB +Capital.” In 2024 we expanded its capabilities to act as a licensed clearing firm. +The +Vision +We +believe that venture stage businesses are more likely to succeed when supported and financed by a community of long-term oriented, like-minded +investors and entrepreneurs who are experienced in the development of successful companies. We envision developing a close-knit community +of such clients for Public Ventures who we will refer to as our Public Ventures “Members.” Our Members will be able to submit +start-up and developing companies as potential candidates for obtaining financing through Public Ventures and/or as candidates to become +partner companies for MDB. If they so choose and as dictated by their expertise, our Members will have opportunities to assist in development +of companies that we finance at Public Ventures or who become partner companies and help them grow into tomorrow’s leaders. +We +believe that such a community of investors can foster the growth of promising public companies under $500 million in market value, also +known as microcap and/or small cap companies, by leveraging the knowledge of the community and sharing risk amongst its Members. +We +believe that we are building a robust infrastructure to support our vision for Public Ventures. Our objective is to create a high-end +service platform that will make investing in the microcap and/or small cap segment more accessible to and efficient for the Public Ventures +Member community. Public Ventures recently began self-clearing operations of U.S equity securities. Its FINRA licensed self-clearing broker-dealer +is capable of structuring and underwriting financing transactions as well as providing clearing services that enable clients to trade, +clear, and settle securities in these companies. We also are able to provide expanded account maintenance activities, such as wire transfers, +securities deposits and interest on cash deposits through typical cash management services. +11 +We +have successfully operated our broker-dealer for more than 25 years during which we have specialized in transactions for public venture +companies. During that time, we built internal processes to perform diligence and prioritize the financing of deals based on the investment +criteria that we have developed. We intend to leverage the lessons we have learned during these experiences to create processes, rating +systems and reports that will be made available to our Member community and can be used to supplement their own processes for evaluating +each opportunity and associated risks and making informed investment decisions. +The +Public Venture Opportunity +Historically, +the public markets have served as a significant funding source for companies with new ideas and enabled the growth and development of +visionary technologies that lead to advancements in our society. We believe that venture investing in the public markets is the most +transparent and liquid method for investors to participate in venture capital. Public venture is available to all classes of investors +who all receive typically equal amounts of information about their investments. Companies like Amazon, Tesla, Walmart, Home Depot, among +others, were brought public at very early stages, and capital provided through the public markets enabled their spectacular development +into industry leaders. +Market +dynamics have resulted in companies backed by traditional venture capital staying private for longer periods of time. In addition, regulatory +changes affecting broker-dealers have resulted in a shift to high volume trading that relies on payment for order flow to make up for +commission-less trading. This has resulted in broker-dealers devoting more resources to trading high volume, popular equities and away +from providing service to microcap and small-cap public venture companies and their securities. As a result, the needs of long-term investors +looking to support venture stage public companies and those of venture stage companies are not addressed by today’s brokerage firms +who cater to traders. +We +believe that the expected Public Ventures Member community, consisting of sophisticated individual investors, who are aware of the nature +of venture investments and seek to build tomorrow’s leading companies, can drive the future of public venture capital formation. +We believe that only this type of community can provide suitable financing options that will meet the needs of small public venture companies. +We have the unique opportunity to provide the right framework and platform infrastructure to this community that will enable its Members +to collectively underwrite public venture financings. +We +expect our Members to be entrepreneurial and involved in different ventures. Under our framework, they will be encouraged and rewarded +for successfully identifying business and ownership opportunities for the community that meet our criteria. We envision that our platform +will encourage and allow Members to share information and formulate the nature of and pricing for any financing opportunities through +the exchange of information about a particular opportunity. In addition, our framework is expected to consist of conducting diligence, +creating comparative analysis, providing company information, and implementing rating systems. We believe that this information and transparency +will enable high quality, informed decisions and facilitate market integrity. +Members +and Member Sponsors +It +is our intention to build our community of participants who share the collective goal of elevating and supporting development-stage +companies and have an investor rather than a trader mindset. Persons who share the values and vision of the organization can be +invited into the community as Members. We expect to encourage active participation of our Members such that they may be mentors of +growth through starting, running, or connecting companies within the community or by being active early investors in the various +business and ownership opportunities that arise. We plan to sponsor community Member forums, organized by geographic location, +investing style and subject matter expertise and/or industry segments. We believe these forums will facilitate in-person meetings +with companies, enable due diligence, and support investor engagement and camaraderie. +12 +Members +who originate business opportunities for the community will be known as “Member Sponsors” and will have additional roles, +as regulations permit, in the financing of our partner companies. A Member Sponsor likely will be a liaison among a company looking for +financing, Public Ventures’ internal team, and our community of Members. They will help the potential partner company complete +required documentation, shepherding the company through the diligence process, and fostering introductions to Members and coordinating +roadshow meetings. To the extent required, Member Sponsors will hold the required securities licenses and registrations. +Efficient +Back Office Support +We +have an out-source service contract with a Nicaraguan company with which the Company has worked for many years. The company, MDB Capital, +S.A. is owned by two of the principal shareholders and officers of the Company. The services that the Company expects to out-source to +the service provider will include administrative services to support Public Ventures and PatentVest, such as back office services related +to brokerage and clearing firms, background investigations, preparing investment research reports, patent searches and analysis, and +customer support services. Services that will be requested will be only those that can be provided by an out-source company within the +context of U.S. privacy laws, FINRA regulation, and other applicable U.S. financial service and other regulation. +Based +on recent Executive Orders imposing new and expanding prior sanctions on Nicaraguan businesses and on U.S. persons doing business in +Nicaragua, however, there may be disruption to our being able to contract for out-sourced services with Nicaraguan entities. Therefore, +we may have to adjust our business plan accordingly. +PatentVest +PatentVest +is currently expanding its business operations. We believe PatentVest can become the first venture invention and commercialization intelligence +platform created to assist technologists, advisors, venture capital investors, and established companies optimize technology commercialization. +Our process takes in information from our proprietary patent database and transforms the information about inventions and intellectual +property from a complex legal process into a manageable, measurable business process. The PatentVest process clearly defines the boundaries +of an invention by providing context for previously developed ideas and analyzes how the invention, and therefore patent claims, differ +from the discovered prior art in order to rationalize the essential distinctions that are the key value drivers. Understanding these +boundaries, as well as how protectable and valuable these boundaries are, is essential to better guide strategic business and patentability +decisions. In our experience, this PatentVest process answers the most important questions for a technology platform: how to innovate, +how to improve its ideas, and how to deploy these ideas where they matter most. +Our +innovation in a box process seeks to include the following elements and outcomes: +● +Improve idea prioritization – Allows inventors and financial backers to weigh the value of a given idea by ascertaining the uniqueness +of such invention. +● +Enhance the value of an invention – Understanding invention boundaries allows patent attorneys to draft patent claims in a way +that confers the most available protection without being encumbered by prior art. +● +Optimize strategic decisions – Deeply understand the competitive landscape, identify issues that possible partners are trying to +solve, prioritize markets where an invention might be the most valuable, and identify possible acquirers. +PatentVest +History +Eighteen +years ago, PatentVest’s founders recognized that intellectual property was the most valuable asset for technology companies and +began building a proprietary patent database and software platform to help companies manage these assets. During these years, PatentVest +has been continuously iterating uses for available information to potentially enable better investment decisions as well as to guide +the development of such technology once investment decisions were made. We believe that PatentVest has helped start-up companies move +from having novel ideas to becoming technology leaders. As a result, in our opinion, PatentVest is capable of providing the backbone +of an investment idea selection process, as well as forming intellectual property and business development strategies. We believe utilizing +the PatentVest Innovation in a Box process will enhance our ability to optimize our selection process with respect to partner companies +as well as when selecting underwriting candidates for Public Ventures. +13 +We +also believe that the PatentVest services will aid companies to define their intellectual property assets in their capital raising activities +and will be available to other companies that see to build their intellectual property outside of the context of working with MDB and +Public Ventures. +PatentVest +Objective +PatentVest +starts with a technology assessment, where it evaluates the technology to establish whether or not the technology is unique and a company +can create a leadership position with the identified intellectual property. Assessment is extensive covering an investigation into the +players in the particular industry space, whether the technology truly is innovating, can value be created with the technology, what +is the market and can there ultimately be value creation. The assessment phase includes an examination of existing patents and applications, +scientific publications and other public data. After the assessment, a strategy is developed, which will include where to focus R&D, +what to patent or keep as a trade secret, and the jurisdictions in which to protect the intellectual property, and based on the assessment +and strategy, help develop a business plan to progress the intellectual property. PatentVest also may provide development budgets and +help identify critical persons with which to work. PatentVest will be able to implement prosecution of patents and other intellectual +property, maintain surveillance of the intellectual property space, and provide reporting on developments in the particular intellectual +property space. +We +believe that the PatentVest process will provide a fundamental advantage to helping create a leadership position for a company with unique +intellectual property. By knowing and understanding the particular intellectual property space, having a focused R&D and intellectual +property development plan, a coherent business plan, and providing the related aspects of setting up a development company with the right +persons and financial backing, the success of the company in being a value creator in its industry vertical is improved. As part of this +overall process, the involvement of Public Ventures can add to the value creation with its financing resources. +It +has been our experience when evaluating, investing in or advising technology companies that intellectual property strategy development +and related processes are most often led by attorneys and is separate from the other invention and business processes at these companies. +We have seen that this work is typically outsourced and, as a result, key company personnel are often neither engaged in the claim drafting +process nor are aware of how their patents have potentially changed during prosecution. Many of the inventors and business executives +with whom we have engaged have a modest knowledge regarding what their claims cover or what the boundaries of their claims are in relation +to other companies. We believe that it is very difficult, if not impossible, to truly understand either what a company “owns” +or to effectively evaluate a given invention’s potential uniqueness and ultimately its potential value without this perspective. +14 +We +believe the companies that will derive the greatest benefit from PatentVest’s services are technology companies with a few current +active patent applications that are expected to primarily drive the value of their companies with their inventions. The analysis and +information provided by the PatentVest process, as documented in reports to its clients, is expected to guide technology companies as +they seek to prioritize ideas and develop their intellectual property and business strategies. We believe that PatentVest will not only +provide MDB with additional clarity in selecting its partner companies and Public Ventures in selecting underwriting candidates, but +also to any technology company in their decision-making processes seeking to maximize the value of their inventions. +The +PatentVest Model +We +plan to use PatentVest to help technology companies innovate and deploy their innovations in the most valuable manner as well as to support +our processes. We believe that PatentVest has one of the most comprehensive global patent databases available, containing more than 148 +million patents and covering 116 countries. PatentVest has built software processes and tools that make it possible to efficiently mine +vast amounts of data and structure this data in a way that can be analyzed by its team of analysts. In addition, PatentVest has assembled +the human capital required to cost-effectively analyze such data and build the reports for companies that are expected to be the backbone +of our services. Our objective is to serve approximately 30 client companies at any one time once we have scaled our operations. +PatentVest +has developed different report formats that provide information within context in a way that we think can be quickly processed by decision-makers +and help provide answers to the most valuable questions for the companies we will target as our business development opportunities. The +insights presented in our reports are the culmination of a long, iterative process that we have refined by the constant questioning of +which data is valuable to building technology companies. +PatentVest +as a Law Firm +On +September 20, 2022, the Supreme Court of the State of Arizona licensed PatentVest to practice law as an Alternative Business Structure, +or ABS. An ABS is a business entity that includes non-lawyers that have an economic interest or decision making authority in a law firm. +We intend to develop and maintain a team of highly trained legal professionals and staff that will principally provide legal services +related to intellectual property matters under federal law. We are in the process of operationalizing the firm and taking on clients. +Matters that we will be undertaking will generally be patent prosecution and intellectual property protection. Through offering legal +services we intend to enhance the value of inventions by addressing questions of strategy and perspective along with the technical merits +of an invention. The provision of legal services by PatentVest will be limited to those technology companies specifically engaged by +PatentVest for such services and is intended to provide all the rights and privileges of the attorney-client relationship. +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS is on patent issues and patent +prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not seen as a limitation. +Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest ABS will make referrals to firms +licensed in appropriate jurisdictions. +MDB +Minnesota One +M1, a partner +company, with the vision of developing a small molecule anti-senescence platform comprised of pharmaceutical +drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases (the “M1 Platform”). The +focus of the M1 Platform is to treat senescent cells, which are dysfunctional cells that have permanently +stopped dividing, that have been implicated in the aging process, and that permit the development of chronic low-grade inflammation. +This chronic inflammation has been linked to a variety of age-related diseases, including multiple fibrotic conditions that have limited +treatment options and poor prognoses. +Studies +conducted at Mayo Clinic have shown the potential of certain molecules to target and eliminate senescent cells with a significant therapeutic +window, reversing fibrosis across multiple conditions. The global longevity and anti-senescence therapy market is projected to reach +nearly $45 billion by 2030. +On +July 1, 2024, M1 entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo Foundation +for Medical Education and Research (“Mayo”) for certain patent rights and associated technology pursuant to which M1 intends +to develop the M1 Platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented technology and +know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license of patent +rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed products +and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2024 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A +payment of $250,000 for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A +payment of $5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2024 the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +M1 +is currently in the pre-clinical development stage of the M1 Platform and is undertaking important feasibility studies, iterative testing, +and collection of drug safety and toxicity data. +15 +Regulation +Broker-Dealer +Regulation +Our +broker-dealer subsidiary, Public Ventures, is subject to regulations governing every aspect of its securities business, including the +execution of securities transactions; capital requirements; record-keeping and reporting procedures; relationships with clients, including +the handling of cash and margin accounts; the experience of and training requirements for certain employees; and business interactions +with firms that are not members of regulatory bodies. As a participant in the financial services industry, it is subject to the complex +and extensive regulation of the U.S. federal and state regulatory agencies, self-regulatory organizations and securities exchanges and +certain other authorities with oversight on banking and money laundering. The laws, rules and regulations comprising the regulatory framework +applicable to broker-dealers are constantly changing, as are the interpretation and enforcement of existing laws, rules and regulations. +The effect of any such changes cannot be predicted. +Public +Ventures is registered as a securities broker-dealer with the SEC and is required to be a member of FINRA. FINRA is a self-regulatory +body composed of members, such as our broker-dealer subsidiary, that have agreed to abide by its rules and regulations. FINRA may expel, +fine and otherwise discipline member firms and their employees. Public Ventures is also licensed as a broker-dealer in 33 states in the +U.S., requiring it to comply with the laws, rules and regulations of each state. Additionally, Public Ventures might register in additional +states from time to time as needed. Each state may revoke the license to conduct securities business, fine, and otherwise discipline +broker-dealers and their employees. +Public +Ventures is subject to the SEC’s Uniform Net Capital Rule, Rule 15c3-1, which may limit our ability to make withdrawals of capital +from the broker-dealer subsidiary. The Uniform Net Capital Rule sets the minimum level of net capital a broker-dealer must maintain and +also requires that a portion of a broker-dealer’s assets be relatively liquid. In addition, Public Ventures is subject to certain +notification requirements related to withdrawals of excess net capital. +We +are also subject to the USA PATRIOT Act of 2001 (the “Patriot Act”), which imposes obligations regarding the prevention and +detection of money-laundering activities, including the establishment of client due diligence, client verification and other compliance +policies and procedures. Failure to comply with these requirements may result in monetary, regulatory and, in the case of the USA Patriot +Act, criminal penalties. We are subject to the Securities Investor Protection Act of 1970, which created the Securities Investors Protection +Corporation (SIPC), which provides certain client protection to clients related to their brokerage accounts. We are subject to certain +treasury regulations, such as Regulation T, relating to how money may be lent to clients and used, and the rules related to margin accounts. +Broker-dealers +are also subject to ongoing duties of financial responsibility, client protection and good conduct. These include, among other things, +(i) client funds and securities must be segregated from the broker-dealer’s proprietary business operations, (ii) maintaining basic +bookkeeping requirements including records of trades, receipts, positions held in different securities, trial balances, complaints, and +compliance, together with reports to be filed periodically, (iii) executing orders on behalf of clients to ensure the best execution +possible, disclosing information relevant to investors, charging prices in line with market conditions, and disclosing conflicts of interest, +(iv) only recommending investments or strategies that are suitable for the clients concerned, (v) communicating in a fair, balanced, +and not misleading way with clients, (vi) observing rules concerning maximum value of gifts made to clients and political contributions, +and (vii) filing reports of any suspicious activities noted by the broker-dealer, including investments over predefined monetary limits. +SEC +Regulation Best Interest requires that a broker-dealer and its associated persons act in a retail client’s best interest and not +place their own financial or other interests ahead of a retail client’s interests when recommending securities transactions or +investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy +four component obligations, including a disclosure obligation, a care obligation, a conflict of interest obligation, and a compliance +obligation, and both broker-dealers and investment advisers are required to provide disclosures about their standard of conduct and conflicts +of interest. +In +addition to the SEC, various states have proposed or adopted laws and regulations seeking to impose new standards of conduct on broker-dealers +that, as written, differ from the SEC’s new regulations and may lead to additional implementation costs if adopted. The SEC did +not indicate an intent to preempt state regulation in this area, and some of the state proposals would allow for a private right of action. +16 +Various +regulators, including the SEC, FINRA and state securities regulators and attorneys general, conduct both targeted and industry-wide investigations +of certain practices relating to the financial services industry, including sales and marketing practices, valuation practices, and compensation +arrangements. +A +variety of data privacy laws to protect personal information obligate broker-dealers to provide notice about its data handling practices, +to offer certain opt-outs, and to implement reasonable security measures to deter unauthorized access. Broker-dealer internal and external +electronic communications may only be made on approved devices and platforms that are encrypted and secure and will capture all communications +in the broker-dealer’s records. The cost and burden of taking cybersecurity measures, having personnel oversee compliance and staying +current with respect to new technology developments continues to grow. +Our +broker-dealer accounting, administrative and operations personnel are responsible for financial controls, internal and external financial +reporting, compliance with regulatory and legal requirements, office and personnel services, management information and telecommunications +systems, and the processing of our securities transactions. We are subject to the privacy laws applicable to financial institutions in +respect of our securities business. +As +is common in the securities industry, our broker-dealer subsidiary is subject to regular reviews of and investigations into our +operations, some of which progress to regulatory actions that may result in fines, censures, and limitations on activity. Currently, +we are the subject of a review of past broker-dealer activities, which may be either resolved without further regulatory action or +escalated such that we could be subject to one or more penalties. At this time, we are cooperating with the reviews, and we do not +know whether or not it will escalate to regulatory action and, if it does, what violations of rules and regulations may be +asserted against the broker-dealer and what the potential final resolutions might be. +Self-Clearing +Regulation +In +January 2024 Public Ventures began self-clearing U.S. equity securities. As part of this process, in addition to the +broker-dealer regulation described above, Public Ventures is subject to regulation directed to self-clearing operations and must +demonstrate that its financial, operational and systems capacities are able to perform this business while complying with +regulations, including those of the SEC, FINRA, Depository Trust Clearing Corporation (“DTCC”), and National Securities +Clearing Corporation (“NSCC”). To operate the self-clearing activity, we must meet different capitalization requirements +than those of an introducing broker-dealer, maintaining a capital structure with various cash and cash equivalent assets and +retaining access to necessary lines of credit that can assure our ability to comply with changing deposit requirements. We expect +that these regulations will continue to undergo substantial changes and may require additional capital as settlement operations moves to T+0 in the future. +17 +Data +Protection and Cyberattack Regulation +In +the course of our operations and in the processing of transactions, we collect, process, store, disclose, use, share and/or transmit +personal information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple +jurisdictions. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable +future. There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, +storage, protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act +(“GLBA”) (along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure +of personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent +the use and disclosure of certain nonpublic or otherwise legally protected information. Additionally, many states continue to enact legislation +on matters of privacy, information security, cybersecurity, data breach and data breach notification requirements. For example, as of +January 1, 2020, the California Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy +in California. The CCPA, among other things, entitles California residents to know how their personal information is being collected +and shared, to access or request the deletion of their personal information and to opt out of certain sharing of their personal information. +The CCPA is subject to further amendments pending certain proposed regulations that are being reviewed and revised by the California +Attorney General. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches +that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, +data breach litigation. We cannot predict the impact of the CCPA on our business, operations or financial condition, but it could result +in liabilities and/or require us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and went into effect in most material respects +starting on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly +modify the CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also +creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the +CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies +and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement +and/or litigation. +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws that took effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures, is subject to SEC Regulation S-P, which requires that businesses maintain policies and procedures +addressing the protection of client information and records. This includes protecting against any anticipated threats or hazards to the +security or integrity of client records and information and against unauthorized access to or use of client records or information. Regulation +S-P also requires businesses to provide initial and annual privacy notices to clients describing information sharing policies and informing +clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change +our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations or perceived +violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to change our business +practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing legal claims +by governmental entities or private actors, sustaining monetary penalties, sustaining reputational damage, expending substantial costs, +time and other resources and/or sustaining other harms to our business. Furthermore, our online, external-facing privacy policy and website +make certain statements regarding our privacy, information security and data security practices with regard to information collected +from our clients or visitors to our website. Failure or perceived failure to adhere to such practices may result in regulatory scrutiny +and investigation, complaints by affected clients or visitors to our website, reputational damage and/or other harm to our business. +If either we, or the third-party service providers with which we share client data, are unable to address privacy concerns, even if unfounded, +or to comply with applicable privacy or data protection laws, regulations and policies, it could result in additional costs and liability +to us, damage our reputation, inhibit sales and harm our business, financial condition and results of operations. +18 +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +Most +jurisdictions (including all 50 states) have enacted laws requiring companies to notify individuals, regulatory authorities and/or others +of security breaches involving certain types of data. In addition, our agreements with certain partners and service providers may require +us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause +our clients, partners and service providers to lose confidence in the effectiveness of our security measures and require us to expend +significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. A +security breach of any of our vendors that processes personal information of our clients may pose similar risks. +19 +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Arizona +Law Firm Regulation +The +law firm owned and operated by PatentVest is subject to the Arizona Supreme Court under Rule 31.1(c) and the Arizona Code of Judicial +Administration, or ACJA, Section 7.209, relating to Alternative Business Structures, or ABS. An ABS is an entity that includes non-lawyers +who have an economic interest or decision-making authority as defined in ACJA 7-209 which may employ, associate with, or engage a lawyer +or lawyers to provide legal services to third parties. An ABS (1) must employ at least one person who is an active member in good standing +of the State Bar of Arizona who will supervise the practice of law under the rules of the Arizona Supreme Court for the entity, (2) has +been licensed by the Arizona Supreme Court after application to the Committee on ABSs, and (3) will provide legal services by persons +authorized to do so and in compliance with the Rules of Supreme Court as generally applied to the practice of law and the particular +regulations applicable to an ABS. An approval is made in favor of an ABS application if the Committee on ABSs finds that the applicant +meets, among others, the following objectives: (a) protecting and promoting the public interest; (b) promoting access to legal services; +and (c) encouraging an independent, strong, diverse, and effective legal profession. The Committee on ABSs should also find that the +applicant (a) has lawyers providing legal services to consumers that will act with the independence that is consistent with the lawyers’ +professional responsibilities and standards, (b) the lawyers will make decisions in their practice that are in the best interest of clients, +(c) the ABS maintains confidentiality consistent with Arizona Rule of Supreme Court 42, and (d) the other business policies or procedures +of the ABS do not interfere with a lawyers’ duties and responsibilities to clients. +An +ABS is also subject to all the rules and regulations associated with the ethical rules of a law firm operating in the State of Arizona. +These rules are found in Section 7-209 of the Code of Judicial Administration and the Arizona Supreme Court Rules. Together the rules +address issues relating to (i) conflict of interest situations for client representation, (ii) issues relating to the sale of a law practice, +(iii) law firm owner responsibilities such as for having sufficient managerial authority, effective internal policies and procedures, +and procedures for the conformity of law employees to the rules of professional conduct and procedures for non-law employees, and (iv) +adequate trust account requirements, including the annual certification requirement. The rules also address code of conduct issues such +as lawyer independence in the provision of services, the diligent and promptness of rendering legal services, and record maintenance, +among others. An ABS and its law employees will be subject to the disciplinary rules 46 et. seq. of the Arizona Supreme Court. +20 +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS, however, is on patent issues +and patent prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not +seen as a limitation on its operations. Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest +ABS will make referrals to firms licensed in appropriate jurisdictions. +U.S. +Foreign Corrupt Practices Act +The +U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and individuals from engaging in certain activities to obtain +or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the +payment of anything of value to any foreign government official, government staff member, political party or political candidate in an +attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The scope of the FCPA includes +interactions with certain healthcare professionals in many countries. Equivalent laws have been adopted in other foreign countries that +impose similar obligations. +Human +Capital +As +of the date of this filing, overall there are approximately 16 full time employees of MDB, employed directly or indirectly through MDB +CG Management, Inc. (“MDB Management”). We also engage from time-to-time consultants for various activities. +MDB +Management also has an agreement with MDB Capital S.A., an affiliated Nicaraguan company, for MDB Capital S.A. to provide services to +the Company on an out-source, as required service basis. The services are provided on a specific request, within an identified scope +of activity, from time to time. Primarily the services will be administrative support services, research activities, and analytical services +as necessitated by the holding company, Public Ventures, PatentVest and partner companies. +As +our business develops, we establish partner companies and we enhance our operations, we anticipate the number of employees and consultants +will grow. In addition, we also anticipate adding human capital contractors, consultants, clinical research organizations and collaborative +businesses to perform clinical studies, toxicology assessment, manufacturing, regulatory, and other operational functions. +Legal +Matters +We +are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings +arising in the ordinary course of our business. +21 +Item +1A. Risk Factors +Risks +Relating to Holding Company Taxation +You +may be subject to U.S. federal income tax on your share of our taxable income, regardless of whether you receive any cash distributions +from us. +The +Class A Common Shares are securities issued by a limited liability company and represent limited liability interests. +Under +current law, so long as certain conditions are satisfied (see “Certain Material U.S. Federal Tax Considerations — Classification +as a Partnership”), we should be treated, for U.S. federal income tax purposes, as a partnership and not as a corporation. As such, +MDB will generally not be subject to U.S. federal income tax. Instead, each shareholder of MDB will be required to take into account +its allocable share of each item of MDB’s income, gain, loss, deduction or credit, whether or not MDB distributes any cash to it, +including distributions or dividends MDB receives from its corporate entities (i.e., in partner companies). Consequently, it is possible +that in any year, a shareholder’s tax liability arising from MDB could exceed the distributions made to him, her or it by MDB. +Thus, there may be years in which a shareholder’s tax liability exceeds its share of distributed cash from MDB. If this were to +occur, a shareholder would have to use funds from other sources to satisfy his, her or its tax liability. +You +may be subject to state, local and other taxes, depending on your own particular circumstances. +In +addition to U.S. federal income taxes, each shareholder may incur income tax liabilities under the state or local income tax laws of +certain jurisdictions in which MDB will operate, as well as in the jurisdiction of that shareholder’s residence or domicile. State +and local income tax laws vary from one location to another, and federal, state and local income tax laws are both complex and subject +to change. The income tax aspects of an investment in MDB are complicated, and each shareholder should review them with his, her or its +own professional advisors familiar with the shareholder’s own income tax situation and with the income tax laws and regulations +applicable to the shareholder. +Allocations +of income and loss may be re-determined by the IRS. +A +shareholder’s distributive share of MDB income, gains, losses, deductions and credits for U.S. federal income tax purposes is generally +determined as set forth in the limited liability company agreement governing our company, which we refer to as the operating agreement, +unless such items are allocated in a manner that has no “substantial economic effect.” If it is determined that the allocations +in the operating agreement do not possess substantial economic effect, then the IRS might seek to allocate MDB related items in a different +manner. +MDB +may provide delayed final Schedules K-1. +MDB +may not be able to provide final Schedules K-1 to shareholders for any given fiscal year until after April 15 of the following year. +The board of directors will endeavor to provide shareholders with final Schedules K-1 or with estimates of the taxable income or loss +allocated to their shares on or before April 15, but final Schedules K-1 may not be available until MDB has received tax–reporting +information necessary to prepare final Schedules K-1. Shareholders may be required to obtain extensions of time to file their U.S. federal, +state, and local income tax returns (which do not provide taxpayers with an extension of time to pay any tax that may be due on such +tax returns). Each prospective shareholder should consult with its own advisor as to the advisability and tax consequences of an investment +in MDB. +If +we are treated as a corporation for U.S. federal income tax purposes, the value of the shares could be materially adversely affected. +The +value of the Class A Common Shares of MDB that you hold will depend in part on MDB being treated as a partnership for U.S. federal income +tax purposes. We intend to manage our affairs so that, upon becoming a “publicly traded partnership” within the meaning of +Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), we will not be taxable as a corporation because +90% or more of our gross income in each taxable year will be “qualifying income” (see “Certain Material U.S. Federal +Tax Considerations—Classification as a Partnership” for a discussion of the rules relating to qualifying income and publicly-traded +partnerships). However, there is no assurance or guarantee that we will meet on an ongoing basis the applicable requirements to be taxable +as a partnership and, as discussed below, current law may change so as to cause, in either event, MDB to be treated as a corporation +for U.S. federal income tax purposes. If we were treated as a corporation for U.S. federal income tax purposes, then, among other things, +(i) we would become subject to corporate income tax and (ii) distributions to our shareholders would be taxable as dividends for U.S. +federal income tax purposes to the extent of our earnings and profits. In addition, because a tax would be imposed upon MDB as a corporation, +its cash available for distribution would be substantially reduced. We have not requested, and do not plan to request, a ruling from +the IRS on this or any other tax matter affecting us. +22 +Our +structure involves complex provisions of U.S. federal and state income tax law for which no clear precedent or authority may be available. +Our structure is also subject to potential legislative, judicial or administrative change and differing interpretations, possibly on +a retroactive basis. +The +U.S. federal income tax treatment of holders of our common shares, including the Class A Common Shares representing limited liability +interests, depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law +for which no clear precedent or authority may be available. You should be aware that the U.S. federal and state income tax rules are +constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, and state governments +frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications +and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships and entities taxed as partnerships. +The present U.S. federal income tax treatment of an investment in our shares may be modified by administrative, legislative or judicial +interpretation at any time, and any such action may affect investments and commitments previously made. +Complying +with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities or enter into +acquisitions, borrowings, financings or arrangements we may not have otherwise entered into. +In +order for us to be treated as a partnership for U.S. federal income tax purposes, and not as a publicly traded partnership taxable as +a corporation, we expect that at least 90% of our gross income in each taxable year will need to be “qualifying income” on +a continuing basis and we must not be, if we were a corporation, required to register as an investment company under the Investment Company +Act. In order to obtain such treatment, we (or our subsidiaries) may decide to forego attractive business or investment opportunities. +This may cause us to incur additional tax liabilities and/or adversely affect our ability to operate solely to maximize our cash flow. +Shareholders +may be subject to restrictions on deductibility of expenses and other losses. +The +ability of the shareholders to utilize any tax losses generated by an investment in MDB may be subject to a number of limitations under +the Code, including the basis limitations, the passive activity loss limitations, the “at-risk” limitations, and the excess +business loss limitations. See “Certain Material U.S. Federal Tax Considerations” for more information regarding such limitations. +Future +legislative or regulatory action could significantly change the tax aspects of an investment in our shares. +The +discussion of tax aspects contained in this filing is based on law currently in effect and certain proposed Treasury Regulations. Nonetheless, +shareholders should be aware that new administrative, legislative or judicial action could significantly change the tax aspects of an +investment in our shares. Any such change may be retroactive with respect to transactions entered into or contemplated before the effective +date of such change and could have a material adverse effect on the tax consequences of your investment in MDB. +Risks +Relating to Our General Business Operations +Although +our partner company model has been successful in the past, there is no assurance that we will continue to be successful in selecting +our partner companies or that these partner companies will generate income returns at the same or similar levels as those of our prior +partner companies. +There +is no assurance that MDB will continue to be as successful as when our broker-dealer business was operating as a single, stand-alone +business. As a reorganized holding company, we have a limited operating history. We believe that because of the reorganization of our +Company, we are subject to some or all of the risks inherent in the establishment of a new enterprise. Some of the risks may arise from +the absence of a significant consolidated operating history, the addition of management responsibilities as a public company, including +the production of K-1 tax documents for owners of the Company’s shares, and lack of experience in complying with reporting and +other obligations associated with being a publicly-traded company listed on Nasdaq. If our business plan, operating as a holding company, +turns out to be unsuccessful, investors may lose some or all of their investment in MDB. +23 +Investors +in MDB are cautioned that the past successes of the management as executed via their privately held broker-dealer business are no assurance +that the newly re-reorganized company will continue to have the same successes or result in same value creation. +We +might require additional capital to support operations and business growth and to fund our partner companies; this capital might not +be available when needed. +We +have funded MDB operations since inception in 2022 primarily through equity financings and revenue generated by the services provided +through Public Ventures. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations +or the growth of our business. We intend to continue to make investments in our business, particularly in our partner companies, to respond +to business opportunities and challenges, including developing new products and services, enhancing our operating infrastructure, expanding +our operations, and acquiring complementary businesses and technologies. All of the foregoing may require us to secure additional funds. +Additional financing may not be available on terms favorable to us, if at all. If we incur additional debt, or issue preferred equity +securities, the holders of these debt or preferred security holders would have rights senior to holders of our equity to make claims +on our assets, and the terms of any debt could restrict our operations, including our ability to make distributions on our equity. Because +our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict +or estimate the amount, timing, dilutive effect or nature of any future issuances of securities. As a result, our equity holders bear +the risk that future issuances of debt or equity securities could reduce the value of our Class A Common Shares and dilute their interests. +Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our +ability to continue supporting our business growth and responding to business opportunities and challenges. +Our +business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, +ultimately, the performance of our partner companies, both of which are uncertain. +If +we make poor decisions regarding the deployment of capital into new or existing partner companies, our business model will not succeed. +Our success as a holding company ultimately depends on our ability to choose the right partner companies, develop these companies, such +that these partner companies are operationally successful. If one or more of our partner companies does not succeed, the value of our +assets could be significantly reduced resulting in substantial impairments or write-offs, which could cause the results of our operations +and the price of our Class A Common Shares to decline. +The +risks relating to our partner companies include: +● +most of our partner companies have a history of operating losses and a limited operating history; +● +the new technologies that our partner companies attempt to develop and launch commercially may never be developed or may never adequately +developed to be commercial or even if commercially developed, may not be accepted in the marketplace; +● +the new technologies that our partner companies develop may not be accepted quickly enough or broadly enough resulting in additional +need funding to sustain the partner company or the decision to abandon the business at a loss; +● +intensifying competition affecting the products and services that our partner companies offer could adversely affect their businesses, +financial condition, results of operations and prospects for growth; +● +technologies of our partner companies that are subject to regulatory examination, testing and approval, may not be approved by any required +regulatory authorities; +24 +● +inability to adapt to the rapidly changing marketplaces; +● +inability to manage growth; +● +the need for additional capital to fund partner company operations, which we may not be able to fund or which may not be available from +third parties on acceptable terms, if at all; +● +inability to protect partner company intellectual property rights and/or the costs and limitations that partner companies infringe on +the intellectual property rights of others; +● +inability to put into place, monitor and maintain appropriate compliance programs related to employees, safety or other regulatory requirements +which could result in legal liability, bad press and significant additional costs to investigate, address and remediate such issues; +● +certain of our partner companies could face legal liabilities from claims made against them based upon their operations, products or +work; +● +the impact of economic downturns on their operations, results and growth prospects; +● +inability to attract and retain qualified personnel; and +● +government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies. +Our +business model does not rely upon the receipt of operating cash flows from our partner companies. +Our +public venture business model does not rely upon the receipt of operating cash flows from our partner companies. We anticipate that our +partner companies, while we own them and they are developing their businesses, will not generate revenues or positive cash flow. To the +extent that our partner companies generate any cash from operations, they will retain the funds to develop their own businesses. Our +overall day to day operations will rely on cash on hand, dividends from the operation of Public Ventures and PatentVest, and our ability +to generate capital from capital raising activities to finance our overall operations and fund the partner companies. If we need capital +to fund current and new partner companies, we will seek to raise additional capital. If we are unable to find ways of monetizing our +holdings or to raise additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business +efforts, constrain our ability to execute our business strategy, and limit our ability to provide financial support to our existing partner +companies. We may also finance our partner companies through their securities offerings or selling, licensing, or joint venturing their +businesses. There is no assurance that we will be able to raise any such funding or funding in sufficient amounts to support the early +stages of development of our partner companies. +Our +success depends, in part, on the successful development of our partner companies. +At +this time, we cannot identify the various specific risks that our partner companies will face other than the challenges typically faced +by early-stage companies, as well as risks related to general regulatory issues, general technology and product development issues, meeting +capital requirements, and market approach and penetration issues that all such early stage and development companies will face in their +evolution. To the extent that any of our partner companies fail during the development phase or experience delay until they reach a point +where they are able to successfully market their technologies or products in a financially sustainable way, our investment in those partner +companies and your investment in MDB will be impaired, and you may sustain a loss in your investment and return on investment. +To +be successful, we will need to grow the current businesses and grow the overall size of MDB and, more particularly, the number and businesses +of partner companies. Our success will depend on finding and nurturing early-stage companies and transforming them into successful companies +through our managerial and funding resources, including sources of external funding. Expanding the number of partner companies will impose +significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate +additional employees at the MDB (parent) level and at the partner company level. In addition, our management may have to divert a disproportionate +amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities +at our partner companies. Our future financial and business performance and our ability to compete effectively will depend, in part, +on our ability to effectively manage our future growth. +25 +Our +partner companies will be early-stage development companies, which will make it difficult to judge and evaluate their businesses and +their future success. +The +partner companies are and will continue to be early-stage companies, none of which, it is anticipated, initially will have any finalized +products or well-defined development, intellectual property, marketing or distribution plans. Because of these factors and the absence +of an operating history, it will be difficult for potential investors to fully evaluate the planned technologies and prospective operations +and future potential of our partner companies. As early-stage companies, they will be subject to all the risks inherent in the initial +organization, financing, expenditures, complications and delays associated with new businesses. Investors should evaluate an investment +in us in light of all of the risks inherent and uncertainties encountered by early-stage companies operating in competitive environments. +There can be no assurance that our efforts to finance and nurture our partner companies will be successful or that any of our partner +companies will ultimately develop their products to a point where the companies reach profitability. +MDB +and our partner companies have recognized the need for and have committed to developing a robust infrastructure to ensure the accurate +and timely reporting of financial results. Previously, we identified areas within our internal systems of control that were not sufficiently +robust, which could potentially lead to delays, errors, and the need for restatement of financial reports. In response, we have taken +decisive actions to address and rectify these material weaknesses. +MDB +transitioned from a private company to a public entity in September 2023, MDB operated with a lean accounting team and limited resources +while navigating challenges associated with limited accounting personnel and resources critical for robust internal control over financial +reporting. Upon a thorough evaluation of our internal controls over financial reporting across partner companies, subsidiaries, and the +holding company itself, we identified and addressed three material weaknesses. +Initially, +we encountered gaps in maintaining adequately designed entity-level controls across the five components of internal control, as outlined +by the Committee of Sponsoring Organizations (COSO) 2013 Framework, essential for preventing or detecting material misstatements in our +consolidated financial statements. Furthermore, our general information technology controls concerning logical access, user terminations, +authentication, and user access management required significant enhancement to support the integrity of the Company’s business +processes effectively. These areas of concern also contributed to segregation of duties conflicts within certain business processes. +To +address these challenges, MDB embarked on a comprehensive overhaul of its internal controls framework. We have since established and +implemented appropriately designed entity-level controls, aligning with each component of the COSO 2013 Framework, thus fortifying our +capacity to prevent or detect material misstatements accurately. Moreover, we have redefined our general information technology controls, +ensuring they are now adequately designed, implemented, and operational, thereby safeguarding logical access, managing user terminations, +and streamlining authentication and user access processes across all business functions. +Additionally, +MDB has developed and instituted formal accounting policies, procedures, and controls across virtually all business and financial reporting +processes. This advancement ensures timely, complete, and accurate financial accounting, reporting, and disclosures. These corrective +measures have effectively remedied the previously identified material weaknesses, significantly reducing the possibility of material +misstatements in our annual or interim consolidated financial statements not being identified or rectified promptly. +26 +One +of our subsidiaries, Public Ventures, is subject to Securities and Exchange Commission and FINRA regulation, DTC participant requirements, +and settlement bank agreements, and, if not compliant with those regulations, may be subject to fines, limitations on activity and financial +impairment. +One +of our subsidiaries is a securities broker-dealer, subject to a wide range of regulations under the oversight of the Securities and +Exchange Commission, FINRA and state securities regulators, and other financially-oriented governmental authorities. To conduct its +clearing operations, it is subject to DTCC participant requirements and the terms of its settlement bank agreements. Public Ventures +is currently subject to regulations related to its status as a broker-dealer and is subject to all the regulatory requirements of +the Securities and Exchange Commission applicable to our securities clearing operations. As is common in the securities industry, we +are subject to regular reviews of and investigations into our operations, some of which progress to regulatory actions that may +result in fines, censures, and limitations on activity. Currently, we are the subject of a review of past broker-dealer activities, +which may be either resolved or escalated. We do not know at this time whether this review will be escalated to regulatory action, +and if it is, what the regulatory assertions would be and what the resolution of such assertions might be. Any adverse result may +impair the value of the overall company and a loss of investment value in MDB. +Our +partner companies are likely to be operating in businesses that are subject to extensive regulation, which if not compliant with those +regulations may be subject to fines, limitations on activity and financial impairment. +Our +partner companies will likely be subject to a large range of regulations, especially if they are engaged in development of medical or +pharmaceutical therapies, medical devices and technologies subject to export and import controls. The failure to adhere to any applicable +laws or regulations relating to their business conduct may result in investigations, fines, limitations on activities and recalls. The +partner company subject to these kinds of sanctions, and possibly MDB, also could suffer from development, marketing, financial and reputational +damage. There may be consequential impairment of the value of the overall company and a loss of investment value in the Company. +We +plan to operate as a company not regulated under the Investment Company Act of 1940. We may have to buy, sell or retain assets when we +would otherwise not wish to do so in order to avoid registration under the Investment Company Act. +We +believe our operations are not subject to the Investment Company Act of 1940 (the “Investment Company Act”). We do not hold +ourselves out as conducting the business of investing, reinvesting or trading in securities. Rather, we found, own and operate our partner +companies to help them develop their businesses. We will have control of our partner companies through a majority ownership position, +by being actively engaged on the board of directors and by being involved in the certain management decision processes of the partner +companies. We are actively engaged in the development of these companies including creation of the business strategy and path to value +creation. +The +Investment Company Act regulates companies that are engaged in the business of investing, reinvesting, owning, holding or trading in +securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with +a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless +an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than majority-owned +partner companies are generally considered “investment securities” for the purpose of the Investment Company Act, unless +other circumstances exist, such as the holding company management being actively involved in the management of the underlying company. +Additionally, there may be other exemptions that we might be eligible to use to avoid regulation under the Investment Company Act. As +a company that builds value by cofounding early-stage technology and life sciences companies, we believe we are not engaged in the business +of investing, reinvesting or trading in securities. Consequently, we do not believe that we are not now and will not be an investment +company under the Investment Company Act. +We +will monitor our compliance with the 40% Test and conduct our business activities to comply with this test and other exemptions such +that we are exempt from the Investment Company Act. It is not feasible for us to be regulated as an investment company because the Investment +Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. We may +need to take various actions, however, that we would otherwise not pursue in order to remain in compliance with the 40% Test. For example, +we may need to retain a majority interest in a partner company that we no longer consider strategic, we may not be able to acquire an +interest in a company unless we are able to obtain a majority ownership interest in the company, or we may be limited in the manner or +timing in which we sell or distribute our interests in a partner company. Our ownership levels also may be affected if our partner companies +are acquired by third parties or if our partner companies issue stock which dilutes our majority ownership. The actions may require us +to take actions to avoid application of the Investment Company Act of 1940 so as to maintain compliance with the 40% Test that could +adversely affect our ability to create and realize value at our partner companies. +27 +Our +ability to retain our senior professionals and recruit additional professionals is critical to the success of our business, and our failure +to do so may adversely affect our reputation, business, results of operations and financial condition. +Our +people are one of our most valuable resources. Our ability to source attractive technologies and companies to deploy our capital depends +upon the reputation, judgment, and execution skills of our senior professionals, particularly our directors and senior management. Despite +our efforts to retain valuable employees, members of our management team may terminate their employment with us on short notice. The +loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results, +or financial condition. Currently, we do not maintain key man insurance policies with respect to any of our executive officers or employees. +Potential +Adverse Impact of U.S. and Nicaraguan Political and Regulatory Environments on Our Operations. +Our +business operations are subject to risks associated with the political, economic, and regulatory environments in both the United States +and Nicaragua, where we conduct business. Any changes in government policies, regulations, or political instability in either country +could have a material adverse effect on our ability to operate effectively and profitably. +In +the United States, shifts in trade policies, foreign relations, and regulatory frameworks may impact our ability to do business in Nicaragua. +Additionally, any restrictions on international trade, sanctions, or policy changes affecting business dealings with Nicaragua could +increase costs or limit our ability to operate within the country. +In +Nicaragua, political instability, civil unrest, or changes in government leadership could lead to policy shifts, economic uncertainty, +or regulatory changes that impact our business. Potential risks include: +● Changes +in the list of sanctioned countries where U.S. businesses and individuals are restricted +or prohibited from engaging in trade, investment, or other business activities. These restrictions +are primarily enforced by the U.S. Department of the Treasury’s Office of Foreign Assets +Control (OFAC) and are based on economic sanctions, national security concerns, and foreign +policy objectives. +● Expropriation +or nationalization risks, which could result in asset seizures or limitations on foreign-owned +businesses. +● Civil +unrest or political turmoil that may disrupt workforce availability or local market stability. +If +the political or economic environment in either country deteriorates or if new regulations are imposed that negatively impact our ability +to conduct business in Nicaragua, our financial condition, results of operations, and growth prospects could be materially and adversely +affected. We continue to monitor political developments and assess potential risks to mitigate any significant impacts on our business. +Risks +related to our significant and concentrated equity investment in eXoZymes. +The +Company’s equity investment in eXoZymes represents a significant portion of our total assets and is reported as an equity method investment +on our balance sheet. As such, fluctuations in the value of this investment may have a material impact on our financial position and +the results of operations. +Since +November 2024, eXoZymes has been a publicly traded company and its operational and strategic decisions have been directed by its board +and management. As a public company its stock price will be determined by the market and investor reaction to its product developmental +decisions and performance. The actual performance of eXoZymes will depend on many factors, such as its product discovery and development, +its ability to enter into strategic alliances or licensing arrangements, its ability to generate revenues, the maintenance of its financial +resources, regulatory compliance and developments that impact its products, and broader economic conditions. +Further, +as eXoZymes is in an early stage of its commercial development, its financial performance may be unpredictable, and periods of volatility +or underperformance may result in non-cash losses and/or impairment charges on our investment. A sustained decline in the value of our +investment could also negatively affect key financial ratios and limit our ability to raise additional capital. +Given +the size and concentration of our investment in eXoZymes, any material change in its value—positive or negative—will directly +affect our financial statements, potentially causing significant variability in our reported earnings and equity. +As +a result, investors should consider the inherent risks associated with holding a large, concentrated, and volatile equity investment +when evaluating our financial condition and future prospects and a decision to invest or hold an investment in our company. +We out-source aspects of our business operations in Nicaragua. +We +have engaged an affiliated company, MDB Capital S.A., located in Nicaragua to provide specific services from time to time, on an as out-source, +as requested basis. Currently, we believe that the Company, PatentVest and our partner companies will use the service company for various +activities. We believe that having services performed on a contract basis in Nicaragua will provide cost benefits for our operations +in the United States that will enhance our business operational competitiveness. In order to function effectively and efficiently when +engaging companies in Nicaragua, we believe that we will have to help train the persons responsible for our service requests so as to +have available when needed knowledgeable staffing for our projects. There can be no assurance that our out-sourcing these contract services +in Nicaragua will be at competitive and at cost saving rates or that we will be able to find the services there that are able to carry +out the required functions. +Whether +or not we will be able to continue to use out-sourcing companies located in Nicaragua will depend on the extent that the United States +imposes restrictions on US persons and entities engaging in commerce with companies that employ Nicaraguan persons or are located in +Nicaragua. Currently there are Executive Orders in place that restrict immigration of designated groups of individuals into the United +States and restrictive sanctions on certain trade-related activities between United States and Nicaragua. In conjunction with the Executive +Orders, other departments of the United States government have imposed complimentary sanctions on activities under their jurisdictions +to expand the effect of the Executive Orders. The effect and extent of the sanctions, including Executive Order 13851, dated October +24, 2022, is not yet known, but could potentially prohibit both imports from and exports to Nicaragua. Whether these sanctions will be +interpreted to include a prohibition on our current and proposed service arrangements to be provided by companies and persons in Nicaragua +is yet unknown. But if the sanctions extend to our out-source service arrangements with Nicaraguan persons and entities, we will face +disruption obtaining certain services, and we will have to find replacement service providers or personnel. We may have difficulty in +finding qualified, competent replacements for those functions fulfilled by our Nicaraguan contract party. If we have to find those kinds +of replacements, we also would expect our costs to increase, thereby losing the advantage of our Nicaraguan resources. +There +may be securities market risks resulting from owning the equity securities of our partner companies. +Although +we are not engaged in the business of investing, reinvesting, or trading in securities, we will own a controlling position in our partner +companies pursuant to our business model. We generally will be active in the management and development of our partner companies, as +well as actively monitoring their operations to keep abreast of their business development. In time, we anticipate that we will monetize +the value we hold in our partner companies. Our monetization process will contemplate the typical forms of merger and acquisition transactions, +such as licensing, private and public offerings, asset or company sales and registered common stock distributions. To the extent that +any of our partner companies become publicly traded, their value will become subject to market fluctuations. Any fluctuation in the value +of our partner companies’ securities, for whatever reason, may affect the value of MDB as a holding company resulting in a partial +or total loss of your investment. +28 +We +could experience competition from other potential acquirers when we seek to establish partner companies, which may result in not being +able to acquire them or having to pay at a higher valuation, thus increasing our risk of loss and reducing potential future gains. +We +believe that we will face competition from other capital providers and acquisition oriented entities as we seek to acquire and develop +our partner companies. Some of our competitors have more experience identifying and acquiring companies in various industries and have +greater financial and management resources, brand name recognition or industry contacts than we possess. We compete with those firms +on a number of factors, including our history and reputation, our ability to partner, encourage and support development of each company, +the abilities and experience of our professionals in working with development-stage companies, and our ability to source and perform +due diligence on new technologies and companies. In addition, even though we seek to acquire technologies at their very early stages +of development, we may still pay higher prices in our acquisitions and partner company creation because of competition from other potential +acquirers and higher valuations. This could increase the risk of loss and result in lower gains to the holding company. +We +may be limited in our ability to attract and continue to employ personnel engaged by our partner companies. +In +order to recruit and retain existing and future personnel for our partner companies, we may need to increase the level of compensation +that we pay and have to use equity grants as incentives. As our partner companies are subsidiaries, we may not be able to use the value +of the partner company for equity grants and similar compensation arrangements. We may have to deploy other incentives, such as higher +salaries, better benefits or equity in MDB. Any of these may adversely affect the value of MDB or increase our consolidated expenses. +We +strive to maintain a work environment that reinforces our culture of collaboration, motivation and alignment of interests with investors. +The effects of becoming public, including potential changes in our compensation structure, could adversely affect this culture. If we +do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our +ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial +condition and results of operations. +There +is significant competition for the time and capital of our community members and they have no obligation to continue to own MDB member +interests, or participate in the development of the partner companies as envisioned by our business model. +We +will rely on our community of sophisticated investors that have experience with our public venture approach for partner company formation, +development and funding. There is competition for their time and capital. There is no obligation for an investor that is part of our +community to continue to participate in our public venture approach or even to hold securities of MDB. As is common, investors will circulate +in and out of our community as their interests change over time. The loss of a prominent or an active community participant may diminish +the effectiveness of our community and may lead others to change their participation level within the community. +29 +Impact +of Ukrainian and Israeli Conflict +Currently, +we believe that the conflicts involving the Ukraine and Israel do not have any direct impact on our operations, financial condition or +financial reporting. We believe the conflicts will have only a general impact on our operations in the same manner as it is having a +general impact on all businesses that have their operations in North America as a result of international sanctions and embargo regulations, +possible shortages of goods and goods incorporating parts that may be supplied from the Ukraine, Russia or Israel, supply chain challenges, +and the international and US domestic inflationary results of the conflict and government spending for and funding of our country’s +response. We do not believe we will be targeted for cyber-attacks in connection with the conflicts, but as a financial institution, we +are aware that we may be a general target for cyber-attacks. We have no operations in the countries directly involved in the conflicts +or are specifically impacted by any of the sanctions and embargoes, as we principally operate in the United States. Other than general +securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures +related to the conflicts. +The +collection, processing, use, storage, sharing and transmission of personal information and other sensitive data are subject to stringent +and changing state, federal and international laws, regulations and standards and policies and could give rise to liabilities as a result +of our failure or perceived failure to protect such data, comply with privacy and data protection laws and regulations or adhere to the +privacy and data protection practices that we articulate to our clients. +In +the course of our operations and the processing of transactions, we collect, process, store, disclose, use, share and/or transmit personal +information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple jurisdictions. +The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. +There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, storage, +protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act (“GLBA”) +(along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure of personal information, +requires notice to individuals of privacy practices and provides individuals with certain rights to prevent the use and disclosure of +certain nonpublic or otherwise legally protected information. Additionally, many states continue to enact legislation on matters of privacy, +information security, cybersecurity, data breach and data breach notification requirements. For example, as of January 1, 2020, the California +Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy in California. The CCPA, among +other things, entitles California residents to know how their personal information is being collected and shared, to access or request +the deletion of their personal information and to opt out of certain sharing of their personal information. The CCPA is subject to further +amendments pending certain proposed regulations that are being reviewed and revised by the California Attorney General. The CCPA provides +for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal +information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. We cannot +predict the impact of the CCPA on our business, operations or financial condition, but it could result in liabilities and/or require +us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and it will be effective in most material respects +starting on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly modify +the CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also creates +a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the +CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial +costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. +30 +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws to take effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures is subject to SEC Regulation S-P, which requires that businesses maintain policies and procedures +addressing the protection of client information and records. This includes protecting against any anticipated threats or hazards to the +security or integrity of client records and information and against unauthorized access to or use of client records or information. Regulation +S-P also requires businesses to provide initial and annual privacy notices to clients describing information sharing policies and informing +clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of being subjected to fines, lawsuits and other claims, we could be required to fundamentally +change our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations +or perceived violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to +change our business practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing +investigations or being subjected to legal claims by governmental entities or private actors, sustaining monetary penalties, sustaining +reputational damage, expending substantial costs, time and other resources and/or sustaining other harms to our business. Furthermore, +our online, external-facing privacy policy and website make certain statements regarding our privacy, information security and data security +practices with regard to information collected from our clients or visitors to our website. Failure or perceived failure to adhere to +such practices may result in regulatory scrutiny and investigation, complaints by affected clients or visitors to our website, reputational +damage and/or other harm to our business. If either we, or the third-party service providers with which we share client data, are unable +to address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations and policies, +it could result in additional costs and liability to us, damage our reputation, inhibit sales and harm our business, financial condition +and results of operations. +Cyberattacks +and other security breaches or disruptions suffered by us or third parties upon which we rely could have a materially adverse effect +on our business, harm our reputation and expose us to public scrutiny or liability. +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +31 +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +Most +jurisdictions (including all 50 states) have enacted laws requiring companies to notify individuals, regulatory authorities and/or others +of security breaches involving certain types of data. In addition, our agreements with certain partners and service providers may require +us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause +our clients, partners and service providers to lose confidence in the effectiveness of our security measures and require us to expend +significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. A +security breach of any of our vendors that processes personal information of our clients may pose similar risks. +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +32 +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Risks +Pertaining to Partner Companies in General +Based +on our business model, some or all of our partner companies likely will need to raise capital from time to time to fund their operations. +We may not be able to fund some or all of these amounts, and the amounts may not be available from third parties on acceptable terms, +or at all. +We +cannot be certain that our partner companies will be able to obtain initial and additional financing on acceptable terms, or at all, +when needed. Because our resources and our ability to raise capital are limited and if we do not have funds in reserve for additional +capital infusions, we may not be able to provide our partner companies with sufficient capital resources at times when needed to enable +them to reach a cash flow positive position. We also may fail to accurately project the capital needs of our partner companies for purposes +of our cash flow planning. If our partner companies need to, but are not able to, raise capital from us or other outside sources, then +they may need to cease or scale back operations. If our partner companies raise capital from outside sources, the terms of such financings +may significantly reduce or eliminate the value of such partner companies. In all such events, our ownership interest in any such partner +company could lose some or all of its value. +If +we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business +strategy. In addition, the loss of the services of the founders of our partner companies could adversely impact their business prospects +and the value of our ownership of the partner company. +Our +ability to properly develop our partner companies and be successful in our business model depends in large part upon our ability to attract +and retain at the partner company level and at the MDB level highly qualified managerial, scientific, and technical personnel. We will +need to hire additional personnel as we further develop and grow our partner companies. Competition for skilled personnel usually is +intense. We may not be able to hire and retain highly qualified personnel on acceptable terms. If we are unable to attract and retain +high-quality personnel, especially for our partner companies, the rate and success at which they can develop and commercialize products +or succeed at all could be limited. +Some +intellectual property of our partner companies will be funded through government programs, thus being subject to federal regulation such +as “march-in” rights, certain reporting requirements and a preference for U.S. industry. Compliance with these regulations +may limit exclusive rights, subject the companies to expenditure of resources with respect to reporting requirements, and limit the ability +to contract with foreign manufacturers. +When +research is funded in part by the U.S. government, the resulting intellectual property is subject to certain federal regulations pursuant +to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. In particular, the federal government retains a “nonexclusive, nontransferable, +irrevocable, paid-up license” for its own benefit to inventions produced with its financial assistance. The Bayh-Dole Act also +provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require +the contractor or successors in title to the patent or other intellectual property to grant a “nonexclusive, partially exclusive, +or exclusive license” to a “responsible applicant or applicants.” If the intellectual property owner refuses to do +so, the government may grant the license itself. Intellectual property discovered under government-funded programs is also subject to +certain reporting requirements, compliance with which may require our partner companies or licensors to expend substantial resources. +Such intellectual property is also subject to a preference for U.S. industry, which may limit the ability to contract with foreign product +manufacturers for products covered by the intellectual property. Moreover, collaboration with academic institutions to accelerate research +or development may be limited or create the march in right. Further, the partner companies may choose to license intellectual property +in the future that may be subject to government rights pursuant to the Bayh-Dole Act. If, in the future, a partner company co-owns or +licenses in technology that is critical to its business that is developed in whole or in part with federal funds subject to the Bayh-Dole +Act, its ability to enforce or otherwise exploit patents covering the technology may be adversely affected. +33 +Some +of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others. +Our +partner companies, during their development, will assert various forms of intellectual property protection. Intellectual property is +likely to constitute an important part of our partner companies’ assets and competitive strengths. Federal law, most typically, +copyright, patent, trademark and trade secret laws, generally protects intellectual property rights. State law also addresses property +rights. Although we expect that our partner companies will take reasonable efforts to protect the rights to their intellectual property, +the complexity of United States, individual state and international trade secret, copyright, trademark and patent law, coupled with the +limited resources of these partner companies and the demands of quick delivery of products and services to market, create a risk that +their efforts will prove inadequate to prevent misappropriation of our partner companies’ technology, third parties may develop +similar technology independently, or they will otherwise be unable to adequately protected their trade secrets. +Some +of our partner companies also license intellectual property from third parties, and it is possible that they could become subject to +infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally +obtain representations as to the origin and ownership of such licensed intellectual property; however, this may not adequately protect +them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject our partner companies +to costly litigation and the diversion of their technical and management personnel from other business concerns. If our partner companies +incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will +increase. +Where +our partner companies enter into intellectual property license agreements, if they fail to adhere to their obligations thereunder, they +may lose the ability to continue the license. Such a loss may be materially adverse to the business and future of a partner company. +Third +parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or +other intellectual property claims. Even though we believe our partner companies’ products do not infringe any third-party’s +patents, they may have to pay substantial legal fees to defend against such claims as well as damages, possibly including treble damages, +if it is ultimately determined that such claims have merit. They may have to obtain a license to sell their products if it is determined +that their products infringe another person’s intellectual property. Our partner companies might be prohibited from selling their +products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement +claims against our partner companies are without merit, defending these types of lawsuits takes significant time, may be expensive and +may divert management attention from other business concerns. +Our +partner companies have limited foreign intellectual property rights and may not be able to protect their intellectual property rights +throughout the world. +Currently, +our partner companies have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents +in all countries throughout the world would be prohibitively expensive, and intellectual property rights in some countries outside the +United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual +property rights to the same extent as do federal and state laws in the United States. Consequently, our partner companies may not be +able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing +products made using our inventions in and into the United States or other jurisdictions. Many countries have compulsory licensing laws +under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability +of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which +could materially diminish the value of such patent. If our partner companies or any of their licensors are forced to grant a license +to third parties with respect to any patents relevant to their business, their competitive position may be impaired, and their business, +financial condition, results of operations and prospects may be adversely affected. Also, competitors may use the technologies in jurisdictions +where our partner companies have not obtained patent protection to develop their own products and, further, may export otherwise infringing +products to territories where there is patent protection but where enforcement is not as strong as that in the United States. These products +may compete with the products of our partner companies in jurisdictions where they do not have any issued patents and patent claims or +other intellectual property rights may not be effective or sufficient to prevent them from competing. +34 +Many +companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The +legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets +and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult +for our partner companies to stop the infringement of patents or marketing of competing products by third parties in violation of proprietary +rights generally. Proceedings to enforce patent and other intellectual property rights in foreign jurisdictions could result in substantial +costs and divert management efforts and attention from other aspects of business operations, could put the patents at risk of being invalidated +or interpreted narrowly and patent applications at risk of not issuing and could provoke third parties to assert claims against our partner +companies. The intellectual property holder may not prevail in any lawsuits that are initiated and the damages or other remedies awarded, +if any, may not be commercially meaningful. Accordingly, efforts by our partner companies to enforce their intellectual property rights +around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that they develop or license. +Our +partner companies may incur substantial costs as a result of litigation or other proceedings relating to intellectual property, including +patents, and they may be unable to protect their rights to their products and technology. +If +our partner companies or their licensors choose to go to court to stop a third party from using the inventions claimed in their owned +or in-licensed patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced against +that third party. These lawsuits are expensive and would consume time and other resources even if our partner companies were successful +in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid +and that our partner companies do not have the right to stop others from using the inventions. There is also the risk that, even if the +validity of these patents is upheld, the court will refuse to stop the third party on the ground that such third party’s activities +do not infringe our owned or in-licensed patents. +Patent +terms may be inadequate to protect a competitive position for an adequate amount of time. +Patents +have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally +20 years from its earliest U.S. non-provisional filing date. Various extensions such as patent term adjustments and/or extensions, may +be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering a product are obtained, once +the patent life has expired, our partner companies may be open to competition from competitive products. Given the amount of time required +for the development, testing and regulatory review of new products, patents protecting new products might expire before or shortly after +such products are commercialized. As a result, a patent portfolio may not provide sufficient rights to exclude others from commercializing +products similar or identical to those of the partner companies. +Our +efforts to maintain and protect our intellectual property rights through means in addition to registration may not be sufficient to protect +our business. +The +patents that our partner companies and we have are important assets. Our partner companies and we also rely on our unpatented proprietary +technology, trade secrets, processes and know-how. Generally, protection of intellectual property rights will be through filed patents, +registered trademarks and registered copyrights. Other proprietary information will be protected through a combination of trade secret +laws and confidentiality, non-disclosure and assignment of invention agreements with employees, contractors, collaborators, vendors, +consultants, advisors and third parties. Despite these measures, intellectual property rights could be challenged, invalidated, circumvented +or misappropriated. To pursue enforcement of these kinds of agreements could involve significant expense, potentially hinder or limit +use of intellectual property rights, or potentially result in the inability to use the intellectual property rights in question. If an +alternative cost-effective solution were not available, there may be an adverse effect on our financial position and performance. +35 +Enforcing +intellectual property rights against one or more third parties can be expensive and time-consuming, and an adverse result in any proceeding +could put the intellectual property rights at risk of being invalidated or narrowed in scope of coverage. Patent and trademark challenges +would increase the cost of development, engineering and marketing our products. There may not be adequate resources available to enforce +any of the intellectual property rights. In addition, the ability to enforce intellectual property rights depends on the ability to detect +infringement, and the ability to obtain evidence of infringement. Where enforcement is sought, a claim may not prevail or the damages, +if any, may not be commercially meaningful. +If +trademarks and trade names are not adequately protected, then our partner companies may not be able to build name recognition in the +markets of interest and their business may be adversely affected. +A +trademark or trade name may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. +Our partner companies may not be able to protect their rights to their trademarks and trade names or may be forced to stop using their +names. At times, competitors may adopt trade names or trademarks similar to those of our partner companies, thereby impeding their ability +to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement +claims brought by owners of other registered trade names or trademarks that incorporate variations of our unregistered trade names or +trademarks. If the partner companies are unable to establish name recognition based on our trademarks and trade names, they may not be +able to compete effectively and our business may be adversely affected. +Collaborations +of various sorts, by our partner companies, such as with respect to research, testing, clinical trials, manufacturing and distribution, +will be important to their respective businesses. Their inability to enter into collaboration arrangements as needed, or if such collaborations +are not successful, may adversely impact their respective businesses. +Our +partner companies will likely seek to collaborate with third parties to engage in product research, clinical trials, marketing, manufacturing, +and distribution as part of its strategy. If our partner companies fail to enter into or maintain collaboration arrangements, as needed +and on reasonable terms, their ability to develop their business could be delayed, or the costs of development and commercialization +increased beyond what would be reasonable and ultimately hindered to the point of business cessation. Furthermore, our partner companies +may need to obtain the use of intellectual property rights held by third parties in order to develop their products. As a result, the +growth of a particular business or product may depend in part on the ability to acquire or in-license these intellectual property rights. +Future +collaboration arrangements between partner companies and third parties may pose a number of risks, including, but not limited to, the +following: +(i) +collaborators have significant discretion in determining the efforts and resources that they will apply; +(ii) +collaborators may not perform their obligations as expected; +(iii) +collaborators may elect not to continue or renew development or commercialization programs or license arrangements; +(iv) +collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with products +of our partner companies or products the collaborators have may be viewed as competitive with product of our partner companies causing +them to cease to devote resources to the commercialization of our partner company products; +(v) +collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing +of a product candidate or product; +36 +(vi) +collaborators may not commit sufficient resources to the marketing and distribution of our partner company product or products; +(vii) +disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of +development, might cause delays or terminations of the research, development or commercialization of products, might lead to additional +responsibilities for our partner companies, or might result in litigation or arbitration, any of which would be time- consuming and expensive; +(viii) +collaborations may be terminated by the collaborator, and, if terminated, our partner companies may require more capital to pursue further +development or commercialization of the applicable product; and +(ix) +collaborations may not be negotiated on a timely basis or acceptable terms, if at all, or they may require substantial additional capital +so as to be able to pursue and fund a collaboration. +If +collaborations do not result in the successful discovery, development and commercialization of product candidates or if one of the collaborators +terminates its agreement, our partner companies may not receive any future research funding or milestone or royalty payments under such +collaboration. If a collaborator terminates its agreement, the partner company may find it more difficult to attract new collaborators, +and the perception of the product or the business and financial condition of our partner company could be adversely affected. +Risks +Related to M1 +M1 +has a limited operating history on which to evaluate its ability to achieve its operating objectives. +M1 +was founded in 2024, has a limited operating history, and only has incurred losses to date. Therefore, there can be no assurance that +the efforts of M1 to develop the M1 Platform will produce a commercial product, market acceptance or revenues that will sustain its business. +With a limited operating history and no commercialized products at this time, it will be difficult for investors to make predictions +about its future success or viability and any predictions may not be as accurate as they could be if it had a longer operating history +or a company history of successfully developing, commercializing and generating revenue from pharmaceutical products for a mass market. +M1 +may not be successful in its efforts to advance from the pre-clinical development stage and to fully develop a small molecule senescence +platform. +A +key element of M1’s strategy is to develop the M1 Platform, which is intended to be comprised of pharmaceutical drugs or other +products designed to aid in longevity and to inhibit certain forms of age-related diseases. The focus of the M1 Platform is to treat +senescent cells, which are dysfunctional cells that have permanently stopped dividing, have been +implicated in the aging process and the development of chronic low-grade inflammation. This chronic inflammation has been linked to a +variety of age-related diseases, including multiple fibrotic conditions that have limited treatment options and poor prognoses. +Although its R&D (research and development) efforts to date, which have been focused on pre-clinical development, have resulted in +what is believed to be potential pipeline of products, M1 may not be successful in finalizing the development of products to the stage +of commercial viability or be able to continue to identify and develop other pipeline products. Even if M1 is successful in continuing +to build its product pipeline, not all potential pipeline products it identifies will be suitable for development as pharmaceutical drugs +or as other commercial products. Although management believes its efforts to develop the M1 Platform will demonstrate commercial success +and deliver on the promise of aiding in longevity and inhibiting certain age-related diseases, if M1 is unsuccessful in these efforts, +the value of M1 will be significantly impaired or fully lost, and our holding company investors may suffer loss in relation to the investment +in M1. Further, in such an event, M1 may have to curtail or cease its business. +The +market, including clients and potential investors, may be skeptical of the viability and benefits of M1’s pipeline products because +they are relatively novel and will likely be subject to regulatory approvals. +The +viability and benefits of our products, which include pharmaceutical drugs, may be difficult to assess because they are based on a relatively +novel therapy. M1’s pipeline of potential products are currently in pre-clinical assessment as a therapeutic or product for other +uses. It is often an issue that what is possible in the small quantities used at the research level cannot be replicated as production +quantities are increased for testing and commercialization. Each product will be required to be progressively scaled up from early research +production quantities to show the feasibility of production in larger quantities, whether for clinical evaluation, testing, and ultimately +commercial manufacturing amounts before being made available to clients. As M1 continues to develop and optimize the M1 Platform to make +its products in the quantities needed for research, clinical or testing evaluation and manufacturing, there can be no assurance that +such products will be understood, approved, or accepted by clients, regulators and potential investors, that the relevant target products +can be commercially manufactured, or that it will be able to sell products at competitive prices and with features sufficient to establish +demand and generate revenues or any level of profit. Another consideration is if a product is a candidate as an active pharmaceutical +ingredient, then it will require FDA or any other applicable regulatory approvals, including manufacturing approvals, which may not be +obtainable. If it is unable to convince potential clients of the utility and value of its products, it will not be successful in entering +the markets that it has identified, and its business and results of operations will be adversely affected. +37 +The +market for longevity and inhibiting age-related diseases is a rapidly growing and changing market, and if M1 is unable to keep up to +date with developments, its business may be adversely affected. +M1 +is operating in a rapidly growing and changing business space within the anti-senescence market. Therefore, the market is becoming more +developed and highly competitive. M1 will have to continually assess the market and what kinds of products will be in demand. If it fails +to anticipate market demands or is not able to meet a market demand in a timely fashion, its research and development efforts will not +pay off as expected or at all. The intellectual property aspects of this market are evolving, and patents filed several years ago by +potential competitors are currently being granted, which may force M1 to license technologies it needs for its processes or to develop +a workaround to the valid claims of others. M1 may not be able to obtain any necessary licenses or develop processes that do not infringe +on others; in which case its business will be impaired, and it will be prevented from executing its business plan. The anti-senescence +market, in which M1 seeks to compete, is rapidly evolving, and therefore the extent to which it may encounter intellectual property of +others that limits or restricts its processes is unpredictable. +Because +its compounds are novel, M1 will have to perform tests for safety, use, and claim validation. +We +anticipate, because its compounds are unique, that M1 will face all the hurdles of a new technology in a marketplace. Depending on the +use of the compounds, M1 may have to comply with the extensive array of medical and other areas of regulation depending on the use of +the particular compound. In addition, it anticipates having to conduct many forms of tests to convince regulators, commercialization +partners and potential users of the safety, uses, and claim validation to be able to commercialize and gain market acceptance for its +compounds. If it is unable to successfully justify the efficacy, safety and potential of its compounds, or do so in a timely manner, +it will not be able to successfully develop its business and may have to curtail or cease its business. Holders of our shares of Common +Stock may lose value in their holdings. +M1 +will be highly dependent on its ability to hire and retain scientific and other staff with specialized backgrounds as needed. +In +this early stage of its development, M1 is highly dependent on its current scientific professionals and its other staff and management. +We believe that our future success depends on retaining these persons, particularly those with key knowledge about the M1 technology. +Success also depends on being able to expand its employee base as required. We believe there are relatively few persons with specific +knowledge of the anti-senescence space. Persons with the talents that M1 seeks to hire tend to be in high demand and it may not be able +to hire such persons as and when needed. The inability to hire and retain necessary employees may have an adverse impact on its business +implementation. +Laboratory +conditions differ from commercial and therapeutic conditions, which could affect the effectiveness of M1’s potential products. +Failures to effectively move from laboratory to commercial scale would harm its business. +Observations +and developments that may be achievable under laboratory circumstances may not be able to be replicated in commercial settings, in human +drug trials or clinical settings. M1 has observed multiple results that encourage the development of the M1 platform. M1, however, is +not certain that these laboratory results will be able to be replicated at a commercial or therapeutic scale. As it advances its technology, +M1 plans to make products at higher scales until it reaches commercially viable scales. If these results obtained at the current levels +are not replicated at commercial scales or in therapeutic settings the attractiveness of the technology will be adversely affected and +its business may fail to be successful. +The +success of M1 depends, in part, on the successful development of its science technologies and its products. +To +be successful, M1 will need to continue to develop its science technologies and the products that it can offer to commercialization entities. +If M1 does not anticipate correctly and respond with products that are commercially acceptable, it will not be successful. In that event, +the value of our business and overall company value would be diminished. +38 +M1 +is subject to risks relating to portfolio concentration. +Currently, +the M1 business is highly dependent on a small number of products, which are based on its principal technology. If these products cannot +be fully commercialized or are not accepted in the market, M1 will have expended significant financial, development and corporate assets +that will not necessarily be recovered. +M1 +does not have any sales, marketing, manufacturing and distribution capabilities or arrangements, and will need to create these as it +moves towards commercialization of our products. +M1 +does not yet have a full sales, marketing, manufacturing or distribution capacity. To date there have been limited to no sales and marketing +activities, with the primary efforts being those of research and development. To be able to commercialize our potential products, M1 +will need to develop all the foregoing elements of commercialization. M1 does not have any corporate experience in establishing these +capabilities, and therefore, it may be unsuccessful in achieving commercialization and earning revenues. Setting up the commercialization +aspects of a company will take a substantial amount of capital and commitment of time and effort. M1 plans on seeking development and +marketing partners and license the technology to others or develop contract manufacturing partners in order to avoid it having to provide +the full range of marketing, manufacturing and distribution capabilities within the M1 organization. There can be no assurance that M1 +will find any development and marketing partners or companies that are interested in licensing our technology. If management is unable +to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, M1 will not be able +to generate product revenue, and may not become profitable. +M1 +expects to experience competition from other companies and research institutions. +M1 +believes that it will face competition from many large pharmaceutical and nutraceutical companies and research institutions that are +currently working in, and will enter, the industry to work on all the many aspects of anti-senescence technology. +M1 +believes that a majority of the companies that present some aspects of competition are well established companies that have more experience +identifying and carrying out the scientific development required in the research and development of products that will be competitive +to those of M1. Many of these companies have, and others that it anticipates entering the market in the future will have, greater financial +and management resources, brand or science name recognition or industry contacts than possessed by M1. Several of the companies are multinational +companies, and many are also publicly listed companies, with large market capitalizations. +Risks +Related to PatentVest +If +PatentVest does not identify the full range of patent opportunities relevant to clients’ intellectual property portfolio, its reputation +will be harmed and it may be liable for service failure. +One +of the primary services that PatentVest provides its clients is an analysis of their intellectual property portfolio and how the portfolio +may be protected and expanded through additional patent and other IP protection opportunities. We believe that its ability to attract +and retain clients depends on its ability to identify actual and potential patent assets for clients. Although there is no guarantee +that we will be able to identify all potential patent opportunities, if we miss a patent opportunity or fail to provide the services +contracted by clients in a workmanlike manner, then the reputation of PatentVest will be harmed, and it may be liable for damages due +to providing its services negligently. +If +clients do not agree that the patents opportunities identified in the PatentVest reports are relevant to their businesses, PatentVest +will have difficulty retaining and attracting new clients, which could harm its operating results. +The +clients of PatentVest use the services to help them analyze their existing and potential intellectual property. If the clients perceive +that the analysis and the opportunities are not relevant to their business requirements, then they will not find value in its reports +and services. This may harm its reputation and make it difficult to retain a client and attract new clients, with an adverse consequence +to operating results. +PatentVest +is dependent on relationships with third parties, including public sources, to provide it with data, information and other services; +if any of these relationships change, its business could be adversely affected. +The +PatentVest reports and services are developed using data, information or services obtained from third-party providers and public sources. +The commercial relationships with third-party providers whose capabilities complement those of PatentVest, may also be competitors which +might make PatentVest vulnerable to unpredictable price increases and unfavorable licensing terms. If public sources of data that are +relied upon were to begin competing with PatentVest directly, or if they were to increase the cost that PatentVest pays to access their +data, otherwise prohibit if from collecting and synthesizing the data they provide, or cease existing altogether, PatentVest may not +be able to perform its services and operating results could be adversely impacted. +39 +PatentVest +might not be able to scale its business as fast as it believes can be done or be able to maintain the quality of its services and reports. +PatentVest +has operated, to date, on a small scale, and it has not yet proven its ability to commercialize services on a large scale. PatentVest +has plans to serve approximately 30 clients at any one time. In order to do this successfully, it may have to make additional technology +and relationship investments that could delay or limit its ability to develop its client base and commercialize its reports and consultative +services. The reports may be found to be ineffective, unreliable or otherwise unsatisfactory to potential clients as there may be unforeseen +complications in the processes of scaling. These complications could delay or limit the ability of PatentVest to provide client services +or reports, could increase the cost of its consultative and report products, prevent it from implementing processes of the appropriate +quality and completeness, and thereby cause the business to suffer. Moreover, PatentVest needs to grow sales, marketing and support staff +or make appropriate arrangements with strategic partners to market, sell and support its clients and service and report products. If +PatentVest is not able to compete effectively with others while scaling commercially on a timely basis, in sufficient quantities or on +commercially reasonable terms, it will suffer a loss of business reputation and clients. +We +believe patent analysis is a highly competitive business, and if PatentVest fails to develop widespread brand awareness in a cost-effective +manner, the business may suffer. +The +services and reports offered by PatentVest compete with many other providers of similar services, such as other companies performing +intellectual property analytics, law firms, and patent filing firms. The services provided are subject to technological changes and evolving +client demands. We believe that in order for PatentVest to achieve market acceptance and to maintain and grow a client base, it is critical +to develop and maintain the quality of its services and reports and to increase the awareness of the brand. If we fail to provide what +the client requires, and it fails to promote and maintain its brand successfully, it may fail to attract or retain clients to the extent +necessary to realize a sufficient return on its brand-building efforts and to sustain the business. +PatentVest +is licensed to offer legal services under Arizona law, and it plans to offer legal services as part of its package of intellectual property +service offerings. As a result, PatentVest must comply with the ethical and legal provisions, licensing responsibilities and obligations +of a law firm under the laws of the State of Arizona. +PatentVest +has obtained a license from the State of Arizona to provide legal services, and it will provide legal and related services in order to +enhance the overall package of the PatentVest intellectual property related service and report products. Being licensed to provide legal +services will likely impact the non-legal aspects of PatentVest’s business as it must comply with the regulatory responsibilities +and ethical obligations of operating a law firm as dictated by Arizona law and ethical standards. In respect of those services provided +to clients that constitute providing legal advice, PatentVest will have to abide by the many obligations that must be observed by attorneys, +including (i) complying with confidentiality obligations towards its legal clients, (ii) discharging attorney-client privilege obligations, +(iii) adhering to legal compliance, ethical and regulatory standards of Arizona, (iv) avoiding conflicts of interest, (v) handling of +client funds, if any, and (vi) acting in the best interests of the client. There may be instances when the legal rights of a client of +the PatentVest law group must take precedence over a business interest of PatentVest and may limit its ability to provide advice or business +services to others with respect to intellectual property matters, scope of claims and pursuit of patent claims or require PatentVest +to cease providing intellectual property advice and strategy to a particular client altogether. The failure to operate the legal business +in compliance with the responsibilities and ethical requirements placed by Arizona on law firms will subject the PatentVest law practice +to sanctions by regulators and the bar association and may result in malpractice liability for PatentVest. Additionally, the legal regulatory +authorities of Arizona may require PatentVest to cease operation of this aspect of our overall business altogether. +40 +Risks +related to Public Ventures +Public +Ventures conducts offerings where we will act as a placement agent or an underwriter, and thus we are subject to underwriter +and similar liability. +As +part of our business, as it has been conducted over the last 27 or so years through Public Ventures, we expect to act as an +underwriter and placement agent in a number of capacities. We may be a single underwriter or placement agent of a securities +offering or a co-underwriter or placement agent participating in a securities offering. There are other types of offering where +Public Ventures may be characterized as an underwriter. In each of these instances, it will bear a liability dictated by Section +11(a) of the Securities Act of 1933, as amended (“Securities Act”). Under the Securities Act, an underwriter is liable +at law or in equity if any part of the registration statement or offering documentation used in the offering of securities, in which +we participate as an “underwriter” as generally interpreted by the securities laws, “contained an untrue statement +of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not +misleading….” What constitutes an offering document with respect to underwriter liability applies to any manner of +offering materials. This liability also extends to private offerings of securities and their documentation, where Public Ventures +may act as a placement agent. In determining materiality, a court will not inquire into limitations on the underwriter’s or +placement agent’s ability to conduct its due diligence investigation and assessment of the offeror, but will instead assess +whether the statements, taken together and in context, would have misled a reasonable investor about the nature of the investment. +Section 11(b) of the Securities Act provides two affirmative defenses to Section 11(a) liability: the expert defense and the +non-expert defense, which are collectively known as the due diligence defense. Although we conduct due diligence for all of our +transactions, there is no assurance that the level of due diligence will uncover any failings in the materials used by investors, or +that it will uncover deliberate misstatements. Therefore, for any offering of securities, Public Ventures may become liable as an +underwriter or placement agent. Such a liability will have a significant impact on our overall business in terms of monetary cost +and also on our reputation. +Public +Ventures self-clearing capabilities are necessary to operate its business as planned. +At +the start of 2024, Public Ventures began self-clearing U.S equity securities. As part of this process, in +addition to the broker-dealer regulation described above, Public Ventures will be subject to regulation directed to self-clearing +operations and must demonstrate that its financial, operational and systems capacities are able to perform this business while +complying with regulations, including those of the SEC, FINRA, Depository Trust Clearing Corporation (“DTCC”), and +National Securities Clearing Corporation (“NSCC”). To operate the self-clearing activity, we must meet different +capitalization requirements than those of an introducing broker-dealer, maintaining a capital structure with various cash and cash +equivalent assets and retaining access to necessary lines of credit that can assure our ability to comply with changing deposit +requirements. We expect that these regulations will continue to undergo substantial changes and may require additional capital as +settlement operations move T+0 settlement in the future. +As +a broker-dealer, Public Ventures will have to expend considerable resources on maintaining adequate compliance practices. The failure +to be in regulatory compliance may result in fines, sanctions and the possible curtailment of operations. +Both +the broker-dealer operations and the self-clearing operations are subject to extensive regulation. In addition, regulators perceive that +engaging in business with “small and micro-cap” companies (those with market capitalizations of $300 million and under) and +“penny” stocks (stocks with market prices of less than $1.00) is an especially high-risk activity, and therefore extensively +review and supervise such business activities. Public Ventures focuses on this niche as we believe it offers a significant opportunity +for clients of Public Ventures and other persons to gain value on their securities holdings, and we believe that such companies need access to capital. By focusing on this business, however, Public Ventures we will likely increase the potential for regulatory +oversight and the potential for regulatory action against the firm. Certain aspects of the regulatory regime, including the Know Your +Client (KYC) and Anti Money Laundering (AML) requirements. The ability to oversee KYC and AML +requirements is critical to its ability to expand our client networks and increase the volume of transactions the firm performs as required +by its business model. If Public Ventures is not able to fulfill its regulatory obligations, it may be fined, have to change its business +at greater cost, or be required to cease its business. +In +addition to the direct employees of Public Ventures, other persons in our overall corporate structure may be considered subject to +FINRA review and subject to the supervision by the broker-dealer. Therefore, the Company +must maintain a structure that ensures all of the parts of the Company will strictly adhere to FINRA rules so as to avoid any +fines, limitations on the ability to conduct business or actual business closure. The loss or curtailment of the business of Public +Ventures would result in a significant loss of business opportunity and revenues to the Company, and would result in a significant +impairment to our reputation. +41 +We +may be exposed to more cybersecurity threats as we expand our business. +With +the expansion in the business to include clearing services, the Company handles increased amounts of sensitive financial and other +information about investors and company clients’ holdings and transactions that can be targeted by cybercriminals. We will need +to have in place an adequate internal security infrastructure to protect clients’ information and assets and minimize potential +liabilities for the business. In addition, as cybersecurity threats become more and more sophisticated, we will have to continually expend +funds to upgrade and expand our security measures, maintain insurance and overall be vigilant to protect our operations and clients. +The +clearing operations of Public Ventures will require contractual arrangements with several key industry entities, which, if not followed, +will require it to terminate that portion of its business. +To establish and to operate a clearing business, Public Ventures has entered into contractual arrangements with the +Depository Trust Company, National Securities Clearing Corporation and a settlement bank. These are complex sets of arrangements that +must be strictly adhered to, otherwise Public Ventures will not be able to use their services. Without these services, Public Ventures +will not be able to clear trades for clients. Not only does Public Ventures require these agreements, but as a result of them it will +need to maintain systems and interaction platforms with them and other parties in the settlement process. Information technology implemented +include a core clearing system, an order management system, and a corporate communications system, amongst others. These many activities +happen in parallel and require significant effort to successfully implement and maintain. Failure to maintain any of the individual systems +would prevent Public Ventures from conducting its self-clearing business. Part of the risk the firm faces includes its vendors’ +continuous capacity to fulfill the service levels promised to Public Ventures. Public Ventures has chosen novel providers with excellent +technology but lesser track records. Assuring these suppliers will continue to deliver their promised services is necessary for the successful +maintenance of the technological platform the business requires to operate. The failure in any of the many aspects described above may +prevent our operations from being performed or possibly require us to terminate our business. +Public +Ventures will have to maintain adequate capitalization levels to conduct its broker-dealer and clearing businesses. +To +operate the broker-dealer and self-clearing operations, Public Ventures must meet different capitalization requirements in the +Company. To do this, it will have to maintain within the capital structure of the various cash and cash equivalent assets and retain +access to necessary lines of credit that can assure its ability to comply with changing deposit requirements of the SEC and of the +Depositary Trust Clearing Company “DTCC”, and the National Securities Clearing Corporation “NSCC”. It is expected that these +regulations will undergo substantial changes, from time to time, which could require additional capital as settlement operations +move to T+1 (one day after the settlement date) and T+0 settlement in the future. Without the required capital at any time, Public +Ventures will not be able to operate its business. +Settlement +bank services are difficult to arrange, without which Public Ventures will not be able to operate a clearing +business. +There +are only a limited number of banks currently offering settlement services to clearing firms. Public Ventures could be unable to continue +providing clearing services if it is unable to maintain a settlement bank arrangement, or if its current settlement +bank decides to exit this business. +42 +Hiring +and organizing personnel for the clearing operations. +To be able to operate its self-clearing activities, Public Ventures must hire and retain the human talent capable +of handling the operational activities and fulfilling the compliance requirements of the business. Trading and settlement and compliance +personnel are necessary to manage the operations. Further expertise in financial matters and obligations for self-clearing are also required. +Although it has following a conservative approach to launching the business and onboarding clients to cause less stress on the organization, +the firm’s ability to perform going forward nonetheless depends on successfully recruiting, training and retaining new personnel. +As part of these recruitment and retention efforts, the firm must ensure that it can maintain an adequate supervising and leadership structure +capable of supporting the successful development of its business model. +Where +permitted by regulation, Public Ventures will use an overseas out-source provider for some of the self-clearing operation activities +although political and social instability and the threat of sanctions by countries, including the United States, may disrupt or hinder +the delivery of such services and result in increased costs. +We +have a contract with a Nicaraguan company to provide, on an out-sourced, as requested basis, certain back-office services that support +our broker dealer activities and patent related services and other requirements. We plan to expand and use this service facility, where +permitted, for certain aspects of the self-clearing operations that Public Ventures engages in. We believe that these operations provide a competitive advantage to the Company and facilitate developing this new business in an efficient and profitable manner, +as human resources and technological infrastructure in Nicaragua allows local companies to provide quality service at the level expected +by US clients at a fraction of the cost. Any disruption to social and political stability in Nicaragua could affect the contractor’s +capacity to achieve its goals. The current political environment in Nicaragua is unsettled due to a political crisis that erupted in +2018, which has yet to be resolved. Continued or escalated political instability and the possibility of sanctions from other countries, +including the United States, could disrupt local business and may hinder or disrupt the delivery of services to our United States operations. +The United States has several Executive Orders in force which impose sanctions regarding immigration of certain groups of persons and +imposing wider sanctions in respect of certain trading activities. We constantly monitor the situation and have a business continuity +strategy in place to assure consistent operations and activities in the United States. To the extent we are prohibited from contracting +with entities in Nicaragua, our expenses may increase, and there may be disruption in our workforce that will have to be replaced. +Risks +Related to Being a Public Company and Owning Our Class A Common Shares +Control +by management may limit your ability to influence the outcome of director elections and other transactions requiring shareholder approval. +Two +persons, Anthony DiGiandomenico and Christopher Marlett, own all the Class B Common Shares. The Class A Common Shares have one vote per +share, and the Class B Common Shares have five votes per share. The Class A Common Shares and Class B Common Shares vote together as +a single class on all matters, including the election of directors. There are 5,000,000 Class B Common Shares issued and outstanding, +currently representing 90.8% of the aggregate voting authority of our common shares immediately prior to the date of this filing. Therefore, +even if the maximum offered shares are sold, the Class B Common Shares will continue to be able to dictate the outcome of all matters +put before the shareholders. There is no automatic or voluntary conversion of the Class B Common Shares into Class A Common Shares, thus +the Class B Common Shares will have control of MDB for an indefinite period of time. +Based +on the foregoing, the Class B Common Shares will have significant influence over corporate actions requiring shareholder approval, including +the following actions: +● +to determine the composition +and to elect the board of directors; +● +to amend or prevent a change +in our operating agreement; +● +to effect or prevent a +merger, sale of assets or other corporate transaction; and +● +to control the outcome +of any other matter submitted to our shareholders for vote. +The +existence of the Class B Common Shares may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain +control of MDB, which in turn could reduce our shares price or prevent our Class A Common Shareholders from realizing a premium over +our share price. +Future +transfers by holders of Class B Common Shares generally will result in those shares converting to Class A Common Shares, subject to limited +exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B Common Shares to Class A Common +Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Shares who retain +their shares in the long term. As a result, it is possible that the persons or entities continuing to hold our Class B Common Shares +could gain significant voting control as other holders of Class B Common Shares sell or otherwise convert their shares into Class A Common +Shares. +43 +We +are deemed a “controlled company” under the listing rules of Nasdaq because our Class B Common Shares are held by two persons +who have more than 50% control of the Company. As a controlled company, MDB will be exempt from certain of the corporate governance obligations +that other companies must follow when listing on Nasdaq. +The +Class B Common Shares are held by two persons who have control over the operations of the Company. Therefore, MDB is a controlled company +under the Nasdaq listing rules and is exempt from certain listing requirements, including having (i) a board comprised of a majority +of independent directors, (ii) a compensation committee, and (iii) a director nominations committee. Additionally, we are not be required +to hold annual meetings. Management intends to take advantage of these exemptions. Accordingly, shareholders will not have the same protections +afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. Notwithstanding the +exemption, currently we have a board that has several independent directors, we are required to have and will have an audit committee, +and related party transactions will have to be reviewed by the audit committee. Shareholder approval will be required for stock options +or purchase plans, and the financial statements must be audited by an independent public accountant that is registered with the PCAOB. +The +dual class structure of our currently issued equity securities may adversely affect the trading market for our Class A Common Shares. +Certain +stock index providers, such as S&P Dow Jones, exclude companies with multiple classes of shares of equity from being added to certain +stock indices, including the S&P 500. In addition, several stockholder advisory firms and large institutional investors oppose the +use of multiple class structures. As a result, the dual class structure of our currently issued equity may prevent the inclusion of our +Class A Common Shares in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance +practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing +shares of our Class A Common Shares. Any exclusion from stock indices could result in a less active trading market for our Class A Common +Shares. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices +or capital structure could also adversely affect the value of our Class A Common Shares. +The +existence of our registered broker-dealer subsidiary may delay or prevent takeover attempts of our Company. +A +third party attempting to acquire us or a substantial position in our equity securities may be delayed or ultimately prevented from doing +so by change in ownership or control regulations to which our regulated broker-dealer subsidiary is subject. FINRA Rule 1017 generally +provides that FINRA approval must be obtained in connection with any transaction resulting in a single person or entity owning, directly +or indirectly, 25% or more of a member firm’s equity and would include a change of control of a parent company. +Our +capital structure may have anti-takeover effect. +The +existence of our preferred shares that may be issued at the discretion of the board of directors with the terms it determines may have +an anti-takeover effect. The board of directors is authorized to fix the voting rights, if any, designations, powers, preferences, the +relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to +the preferred shares of each series. The board of directors, without shareholder approval, will be able to issue preferred shares with +voting and other rights that could adversely affect the voting power and other rights of the holders of the common shares and could also +have anti-takeover effects. The ability of our board of directors to issue preferred shares without shareholder approval could have the +effect of delaying, deferring or preventing a change of control of the Company or the removal of existing management. We currently have +no preferred shares issued and outstanding as the date hereof. Although we do not currently intend to issue any preferred shares, we +cannot assure you that we will not do so in the future. +44 +The +fact that the Class B Common Shares have a right to five votes per Class B Common Share on all matters presented for a vote to the shareholders, +including in the vote for directors, and the fact that the Class B Common Shares currently have a majority ownership position of all +the common shares, means that they have an anti-takeover effect, because it would be difficult for an insurgent to overcome the authority +that the Class B Common Shares has in the governance of the Company. +The +provisions for shareholder business proposals and director nominations in the operating agreement also could have an anti-takeover effect. +The +issuance of securities with voting authority greater than the Class A Common Shares will have a voting and control dilutive effect on +outstanding Class A Common Shares. +If +the board of directors issues any of the preferred shares or obtains shareholder approval for a new class of common shares with voting +rights in excess of the one vote per one Class A Common Share, the holders of Class A Common Shares will suffer a voting dilutive effect, +in addition to any other economic dilution resulting from the issuance of those securities. +We +may make distributions of the securities of our partner companies, including cash and rights to purchase equity of a partner companies +An +aspect of our business plan will be distributing to our shareholders assets of the parent company, which may include the securities of +our partner companies after they go public, rights to purchase the equity of these companies, and/or cash and other property, from time +to time. The distribution of a right to purchase the equity of a partner company may come at a time when a recipient does not have the +ability to exercise the right, and thereby lose the opportunity that the right affords. Any distribution of securities of a partner company, +cash and other property may have an adverse impact on the value of your Class A Common Shares. On the other hand, we do not plan to regularly +make any periodic distributions, therefore investors should not look to any distribution that we might make to be a regular income item +in an investor’s portfolio. +We +incur costs as a result of operating as a public company, and our board of directors is required to devote substantial time to oversight +of compliance requirements and corporate governance practices. +As +a public company listed in the U.S., we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, +the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules +and regulations impose various requirements on listed public companies, including the establishment and maintenance of effective disclosure +and financial controls and corporate governance practices. Our board of directors, management and other personnel will need to devote +a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial +compliance costs and make some activities more time-consuming and costly. However, these rules and regulations are often subject to varying +interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time +as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters +and higher costs necessitated by ongoing revisions to disclosure and governance practices. +Pursuant +to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control +over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report +on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with +Section 404 within the prescribed periods, we will be engaged in a process to document and evaluate our internal controls over financial +reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially +engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, +continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and +implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is +a risk that we will not be able to conclude, within the prescribed timeframe, that our internal controls over financial reporting are +effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial +markets due to a loss of confidence in the reliability of our financial statements. +45 +Even +after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would +allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the +auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation +in this filing and our periodic reports and proxy statements. We cannot predict if investors will find our Class A Common Shares less +attractive because we may rely on these exemptions. If some investors find our Class A Common Shares less attractive as a result, there +may be a less active trading market for our Class A Common Shares, and our share price may be lower or more volatile. +We +are a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure +requirements available to smaller reporting companies, this could make our securities less attractive to investors and may make it more +difficult to compare our performance with other public companies. +Rule +12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed +issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that: +● +had +a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed +by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the +price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market +for the common equity; or +● +in +the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a +public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed +by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of +a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public +offering price of the shares; or +● +in +the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float +was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which +audited financial statements are available. +As +a smaller reporting company, we are not be required and may not include a Compensation Discussion and Analysis section in our proxy statements; +we need only provide only two years of financial statements; and we need not provide the table of selected financial data. We also have +other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies +which could make our securities less attractive to potential investors, which could make it more difficult for our security holders to +sell their securities. +We +do not have key-man insurance. +We +currently do not maintain, nor do we have plans to obtain, key-man insurance for our principal officers. Our business is highly dependent +on the continued services of these individuals. The loss of any of their contributions could have a material adverse effect on our operations. +Without the financial support typically provided by such insurance to recruit and transition new leadership, we may face challenges in +maintaining business continuity and strategic direction. +46 +The +price of our Class A Common Shares may be volatile, and could, upon listing on the Nasdaq Capital Market, decline significantly and rapidly. +Market volatility may affect the value of an investment in our Class A Common Shares and could subject us to litigation. +The +trading price of our Class A Common Shares may fluctuate substantially. The price of our Class A Common Shares in the market on any particular +day will depend on many factors including, but not limited to, the following: +● +price and volume fluctuations +in the overall stock market from time to time; +● +investor demand for our +Class A Common Shares; +● +significant volatility +in the market price and trading volume of companies operating in the diverse businesses of our core companies and our partner companies; +● +variations in our operating +results and market conditions specific to our businesses sectors; +● +the emergence of new competitors +or new technologies of our partner companies; +● +operating and market price +performance of other companies that investors deem comparable; +● +changes or departures of +any of our board of directors, senior management or key employees; +● +commencement of, or involvement +in, litigation; +● +changes in governmental +regulations; +● +actual or anticipated changes +in our earnings, and fluctuations in our quarterly operating results; and +● +general economic conditions +and trends. +In +the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has +often been brought against that company. Due to the potential volatility of our share price, we may therefore be the target of securities +litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources +from our business. +In +addition, if the market for equity stocks of companies in our industry or industry segments, or the stock market in general, experiences +a loss of investor confidence, the market price of our Class A Common Shares could decline for reasons unrelated to our business, financial +condition, or results of operations. If any of the foregoing occurs, it could cause the price of our Class A Common Shares to fall and +may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to our Board of Directors and management. +Certain +recent initial public offerings of companies with relatively small public floats have experienced extreme volatility that was seemingly +unrelated to the underlying performance of the company. Our Class A Common Shares may potentially experience rapid and substantial price +volatility, which may make it difficult for prospective investors to assess the value of our Class A Common Shares. +In +addition to the general volatility risks discussed in this filing, our Class A Common Shares may be subject to rapid and substantial +price volatility. We may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial +condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Common Shares. +Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility +with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a company with +a relatively small public float and recent IPO, the Class A Common Shares may experience greater stock price volatility, extreme price +run-ups, lower trading volume, large spreads in bid and asked prices, and less liquidity than large-capitalization companies. The aspects +of the trading in the Class A Common Shares may be unrelated to our actual or expected operating performance, financial condition or +prospects, making it difficult for prospective investors to assess the value of our common stock. Because of the low public float and +the absence of any significant trading volume, the reported prices may not reflect the price at which you would be able to sell shares +if you want to sell any shares you own or buy shares if you wish to buy share. +47 +If +the trading volumes of the Class A Common Shares are low, persons buying or selling in relatively small quantities may easily influence +the prices of the Class A Common Shares. A low volume of trades could also cause the price of the Class A Common Shares to fluctuate +greatly, with large percentage changes in price occurring in any trading day session. Broad market fluctuations and general economic +and political conditions may also adversely affect the market price of the Class A Common Shares. The volatility also could adversely +affect the ability of the company to issue additional shares of common stock or other securities and the ability to obtain stock market +based financing in the future. No assurance can be given that an active market in our Class A Common Shares will develop or be sustained. +The +United States stock markets recently have experienced price and volume fluctuations due to many factors, including federal +government policies, inflationary pressures, changing interest rates, and the conflict in Ukraine. +The +stock market has recently experienced significant price and volume fluctuations that have affected and continue to affect the market +prices of equity securities of many companies, with the financial service and technology sectors more volatile than others. These fluctuations +often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, +as well as general economic, political and market conditions such as federal government policies, inflation, the prospect of a recession, and interest rate changes +may negatively impact the market price of our Class A Common Shares. These fluctuations may be even more pronounced in the trading market +for our Class A Common Shares shortly following the listing of our Class A Common Shares on the Nasdaq Capital Market as a result of +the supply and demand forces described above. If the market price of our Class A Common Shares after our listing does not exceed the +opening public price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, +companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. +We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and +divert our management’s attention from other business concerns, which could harm our business. +Item +1B. Unresolved Staff Comments +We +are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and therefore we are not required to provide information +under this item. +Item +1C. Cybersecurity +We +incorporate by reference the disclosure about cybersecurity regulation that is generally applicable to MDB from section Part I, Item +1, Business – Regulation – Data Protection ad Cybersecurity Regulation. +We +have not had any reportable cybersecurity breaches, including what we may perceive or recognize as cybersecurity incidents or credible +threats during the fiscal year ended December 31, 2024. To date, as a result, there has not been any material adverse effect on our business +operations or financial condition. If there is a cybersecurity attack and an infiltration of our files, data, customer data and the +like, there would be a material adverse effect on our business, our reputation, our operations and financial condition. For example, +our reputation would be damaged in the event of a cybersecurity infiltration. If there were a cybersecurity infiltration, we could lose +access to our data which would disrupt our operations, and we even may not be able to operate. Such a loss of access might be temporary +or permanent, and it might be localized or general. The level of disruption will depend on our backup systems. Our clients financial +and other data could be taken and used against us to damage our reputation or cause harm to our clients in different ways. In the latter +instance, we may be liable for monetary damages to our clients. We may be held for cyber ransom, which would be loss to our financial +resources. Our inability to operate, payment of damages, payment of ransom, and the costs of reparation of our systems, consultants and +tangential expenses will all result in damage to our business and our financial resources. +For +MDB Holdings and its subsidiaries including Public Ventures, our regulated broker-dealer, we have implemented a comprehensive cybersecurity +program aimed at identifying, monitoring, and mitigating cybersecurity risks to the best of our ability. Our security program encompasses +information security responsibilities, incident response, and is diligently managed by our information technology department. Cybersecurity +is integrated into our overall risk management framework, with consultation from subject matter experts to assess and address potential +cyber risks and their impacts . +48 +Management +is committed to providing the Audit Committee with regular cybersecurity updates, at least annually or more often as needed, based on +emerging threats or specific incidents. These updates cover risk assessments, the current threat landscape, and any recent cybersecurity +incidents . +The +information technology department has put in place robust governance measures for information security. This includes control requirements +for change management, patching processes, the implementation of multifactor authentication, comprehensive data backup strategies, and +continuous security monitoring. Additionally, management continues to enhance our security controls, with any significant issues promptly +reported to the Audit Committee. +Item +2. Properties +We +own no real property. Our principal office is located in Addison, Texas. In July 2022, we secured a lease for approximately 5,500 square +feet of office space, with the lease set to expire in July 2030. This space serves as our principal executive offices and for general +office use. The base monthly rental rate is $12,556 until July 2024, after which it will increase to $12,786. Subsequent increases are +scheduled as follows: to $13,016 in July 2025, $13,246 in July 2026, $13,476 in July 2027, $13,707 in July 2028, and finally, to $13,937 +in July 2029, continuing through the end of the lease term in July 2030. +We +believe that our leased spaces is at local market rates, and there is sufficient space available to permit the +specific operations to obtain additional or other space if and when required. We do not believe that if there is additional space or +other space required, that the cost will be prohibitive. +Item +3. Legal Proceedings +From +time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the +enforcement of our rights under contracts with our customers and regulatory review which may result in various kinds of penalties, such as censures and monetary fines. While the outcome of these legal proceedings cannot be predicted with certainty, +we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. +Item +4. Mine Safety Disclosures +Not +applicable. +49 +PART +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Trading +Equity +Our +Class A Common Shares currently are quoted on Nasdaq under the symbol “MDBH”. +As +of March 31, 2025, we had approximately 87 shareholders of record of the Class A Common Shares and we believe over 4,200 +shareholders who hold their Class A Common Shares in street name. In addition, we have a second class of equity, the Class B Common +Shares, that are held by two persons, and do not trade on any public market. +Distributions +We +have not paid any dividends or made any distributions related to our equity securities, to date. +We +may make registered and other distributions of the securities of our partner and or subsidiary companies and of cash to our holders of +the Class A Common Shares and Class B Common Shares. It is our plan, from time to time, depending on the circumstances, to distribute +the securities of our partner companies as they go public and after they go public, including rights to purchase the equity of these +companies, and cash and other property, from time to time. Some of these distributions of securities may be dictated by our operational +plan not to be subject to the Investment Company Act of 1940. +Whether +any distributions, the kinds of distributions, and the value of distributions are made will depend on many factors and will be determined +by the management of MDB, from time to time. Investors should not look to any distribution that we might make to be a regular income +item in an investor’s portfolio. Distributions of a right to purchase the equity of a partner company may come at a time when a +recipient does not have the ability to exercise the right, and thereby the recipient may lose the opportunity that the right affords. +Any distribution of securities of a partner company, cash and other property may have an adverse impact on the value of Class A Common +Shares in the market. Distributions of the equity of our partner companies may not result in an overall investor gain on the Class A +Common Shares. +Tax +Issues Related to Distributions +MDB +believes that it will be treated as a partnership for U.S. federal income tax purposes and that it will not be taxed as a corporation. +The tax position of MDB as a publicly traded partnership is complex, and persons should consult with their own tax advisors about holding +an interest in MDB. The following brief discussion does not address U.S. state taxes or any taxes of any jurisdiction outside of the +U.S. For tax exempt organizations and non-U.S. holders of Class A Common Shares, there are additional rules that should be considered +that are not discussed below. +The +Company generally expects to receive income in the form of dividends from its equity investments in some partner companies and +capital proceeds from the sale of partner companies or their securities from others, with all such partner companies +expected to be treated as corporations for U.S. federal tax purposes. +For +U.S. federal income tax purposes, a partnership is generally not a taxable entity but rather is a “flow-through” entity whose +items of taxable income, gain, loss, deduction and credit are passed through to, and reported by, its partners, in this case the holders +of our classes of Common Shares. Thus, each Common Share holder will be required to report on its U.S. federal income tax return its +allocable share of items of taxable income, gain, loss, deduction, or credit realized by MDB. This will include the portion of dividends +received from the corporate partner companies and capital proceeds from the sale of corporate partner companies or their securities. +Each item generally will have the same character and source as would be the case if the Common Share holder realized the item directly. +This rule applies without regard to whether the Common Share holder receives or will receive any cash distributions from MDB. Accordingly, +for any taxable year of MDB, a Common Share holder may be required to report and pay tax on his share of items of MDB’s income +without receiving sufficient (or any) cash distributions. +Generally, +the character of partnership items of taxable income, gain, loss, deduction and credits also passes through to its partners. For example, +to the extent MDB has gains subject to ordinary income tax rates, each holder of Common Shares will be required to report, and pay taxes +on, its allocable share of such gains. Those holders of Common Shares who are individuals will generally be subject to reduced tax rates +on their allocable share of dividends received by MDB from corporate partner companies, to the extent such dividends constitute “qualified +dividend income” under section 1(h)(11) of the Code. +50 +The +operating agreement of MDB that governs the rights of the holder of Common Shares contains certain allocations of income, gain, losses, +and deductions that could be reallocated by the IRS if it were determined that the allocations did not have “substantial economic +effect” under Section 704(b) of the Code, and the allocations were not made in accordance with the holders of Common Shares respective +interests in MDB, taking into account all relevant facts and circumstances. If the IRS does not respect an allocation and the distributive +portions of income and loss are adjusted, the holders of Common Shares may be required to file amended income tax returns which could +subject the investors to additional taxes, interest, and penalties. +MDB +may apply certain conventions in determining and allocating items for tax purposes in order to reduce the complexity and costs of administration. +MDB intends for the application of any such conventions to be consistent with the intent of the partnership provisions of the Code and +the applicable Treasury Regulations, and that the resulting allocations will have substantial economic effect or otherwise should be +respected as being in accordance with members’ interests in MDB for federal income tax purposes. The Code and existing Treasury +Regulations do not expressly permit adoption of these conventions, and it is possible that the IRS could successfully challenge MDB’s +use of any such allocations methods on the ground that they do not satisfy the technical requirements off the Code or Treasury Regulations, +requiring a member to report a greater or lesser share of items of income, gain, loss, deduction, or credit than if such method were +respected. +The +assumptions and conventions used in making tax allocations may cause a holder of Common Shares to be allocated more or less income or +loss for federal income tax purposes than its proportionate share of the economic income or loss realized by MDB during the period it +held its shares. This “mismatch” between taxable and economic income or loss in some cases may be temporary, reversing itself +in a later period when the shares are sold, but could be permanent. +Distributions +by MDB to a holder of Common Shares generally will not be taxable to the holder for U.S. federal income tax purposes to the extent of +the tax basis in the Common Shares immediately before the distribution. Cash distributions in excess of such basis generally will be +considered to be gain from the sale or exchange of the Common Shares, taxable as further described herein. Any reduction in the portion +of MDB’s liabilities included in the basis of the holders Common Shares may be treated as a distribution of cash to such holder. +A decrease in a holder’s ownership interest in MDB because of an issuance of additional shares may decrease such holder’s +portion of nonrecourse liabilities, potentially resulting in a corresponding deemed distribution of cash. +A +holder of Common Shares will recognize gain on the complete liquidation of its Common Shares only to the extent the amount of money received +by the holder exceeds its adjusted tax basis in its Common Shares. Any such gain recognized by a holder generally will be capital gain, +but may be taxable as ordinary income, either in whole or in part, under certain circumstances. No loss may be recognized on a distribution +in liquidation of Common Shares, unless the holder receives no property other than money and/or substantially appreciated “inventory +items” and “unrealized receivables” (both as defined by Section 751 of the Code). +The +adjusted tax basis of a holder of Common Shares in his, her or its Common Shares is important for several reasons including, but not +limited to, determining: (1) the current deductibility of the distributive share of Company losses; (2) income tax consequences of distributions; +and (3) gain or loss on the sale of Common Shares. +51 +Securities +Authorized for Issuance Under Equity Compensation Plans +Plan category +Number of securities to be issued upon exercise of outstanding awards +Weighted-average exercise price of outstanding awards +Number of securities remaining available for future issuance under equity compensation plans +2022 Equity Incentive Award Plan, approved by security holders* +4,995,000 ** +$ 0.00 +$ 1,587,658 +Equity award plans not approved by security holders +- +- +- +Total +4,995,000 ** +$ 0.00 +1,587,658 +* +The 2022 Equity Incentive Award Plan provides for awards for up to 6,000,000 shares of Class A shares, plus 25% of outstanding Class +A shares at any time. As of December 31, 2024, there are a total of 6,582,658 Class A shares available for issuance, after the issuance +of 655,000 shares on October 20, 2024. +** +Represents Restricted Stock Unit awards which do not require payment of an exercise price. +Item +6. Selected Financial Data +We +are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and therefore we are not required to provide the information +under this item. +Item +7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations +Overview +MDB +Capital Holdings, LLC (the “Company” or “MDB”), a Delaware limited liability company, is a holding company +that has three wholly-owned subsidiaries: MDB CG Management Company (“MDB Management”); Public Ventures, LLC, d/b/a MDB +Capital (“Public Ventures”); and PatentVest, Inc. (“PatentVest”), and has one majority-owned partner company +MDB Minnesota One, Inc. (“MDB Minnesota One”) and one minority owned company eXoZymes Technologies, Inc., formerly known +as Invizyne Technologies, Inc., (“eXoZymes”), that was majority owned and is consolidated up to until November 14, 2024, when eXoZymes +issued securities in its IPO and no longer majority owned by MDB. eXoZymes is no longer consolidated into the financial +statements of MDB. +MDB +Management is principally an “administrative” entity whose purpose is to conduct, and wherever possible, to consolidate shared +services/resources, for our US-based operations. +Public +Ventures is a U.S. registered broker-dealer under the Exchange Act and is a member of FINRA and the Texas State Securities Board. Public +Ventures is managed by Christopher A. Marlett, who is also a founder of MDB. Public Ventures operates on a fully disclosed basis with +a nonrelated FINRA member firm, Interactive Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing +deposit. Interactive Brokers is the clearing firm and custodian of investments maintained by Public Ventures. Public Ventures also operates as a self-clearing broker dealer, and began carrying accounts for customers in January +2024 +PatentVest +is a wholly-owned subsidiary that performs intellectual property validation services for Public Ventures’ due diligence functions +on the intellectual property of partner and prospective partner companies and creates an intellectual property roadmap for such partner +companies. +Minnesota +One is a majority owned subsidiary and was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology +from Mayo. +eXoZymes, formerly known as Invizyne , was +formed with the objective of taking nature’s building blocks to make molecules of interest, effectively simplifying nature. eXoZymes +is a biology technology development company that is a minority-owned subsidiary as of the date of the financial statements included in +this annual report. Invizyne’s technology is a differentiated and unique synthetic biology platform which is designed to enable +the scalable exploration of a large number of molecules and properties found in nature. eXoZymes was majority owned by MDB Capital Holdings, +up until November 14, 2024 . +52 +On +November 14, 2024, eXoZymes completed its initial public offering (IPO), in which it sold common stock, reducing MDB Capital +Holdings’ ownership interest from approximately 60% to 47%. As a result, effective November 14, 2024, eXoZymes became a +minority owned company and is now accounted for under the equity method of accounting. As noted below, we recognized a gain of $39,307,217 on the date of deconsolidation. +Results +of Operations +The +Company has determined its reporting units in accordance with ASC (Accounting Standards Codification) 280, Segment Reporting. The Company +currently operates in two reportable segments: a broker dealer & intellectual property service and technology development. +The +Company’s consolidated statements of operations as discussed herein are presented below. +Consolidated +Results of Operations for the Years Ended December 31, 2024 and 2023 +2024 +2023 +$ Change +% Change +Operating income: +Unrealized (loss) gain on investment securities, net (from our licensed broker dealer) +$ (274,835 ) +$ 1,503,649 +$ (1,778,484 ) +(118.3 )% +Realized gain (loss) on investment securities (from our licensed broker dealer) +- +8 +(8 ) +(100.0 )% +Fee income (from our licensed broker dealer) +2,220,620 +4,233,120 +(2,012,500 ) +(47.5 )% +Impairment of investment securities +(200,000 ) +(50,000 ) +(150,000 ) +(300.0 )% +Other operating income +411,488 +308,250 +103,238 +33.5 % +Total operating income, net +2,157,273 +5,995,027 +3,837,754 +(64.0 )% +Operating costs: +General and administrative costs: +Compensation +20,056,796 +8,627,022 +11,429,774 +132.5 % +Operating expense, related party +1,485,822 +1,123,401 +362,421 +32.3 % +Professional fees +3,112,050 +1,695,017 +1,417,033 +83.6 % +Information technology +922,175 +602,393 +319,782 +53.1 % +Clearing and other charges +1,136,662 +389,963 +746,699 +191.5 % +General and administrative-other +2,608,107 +1,532,197 +1,075,910 +70.2 % +Total general and administrative costs +29,321,612 +13,969,993 +15,351,619 +109.9 % +Research and development costs +1,467,871 +528,178 +939,693 +177.9 % +Total operating costs +30,789,483 +14,498,171 +16,291,312 +112.4 % +Net operating loss +(28,632,210 ) +(8,503,144 ) +(20,129,066 ) +(236.7 )% +Other income and (expense): +Miscellaneous income +112,000 +- +112,000 +100.0 % +Interest expense +(71,629 ) +- +(71,629 ) +(100.0 )% +Interest income (from U.S. Treasury Bills) +1,179,318 +919,345 +259,973 +28.3 % +Gain related to dilution events +129,339 +- +129,339 +100.0 % +Gain on deconsolidation of subsidiary +39,307,217 +- +39,307,217 +100.0 % +Income (loss) before income taxes +12,024,035 +(7,583,799 ) +19,607,834 +258.5 % +Income taxes +2,143 +127,918 +(125,775 ) +(98.3 )% +Net income (loss) before equity method investee +12,021,892 +(7,711,717 +) +19,733,609 +255.9 +% +Equity in loss of equity method investee +(419,670 ) +- +(419,670 ) +(100.0 )% +Net income (loss) +11,602,222 +(7,711,717 ) +19,313,939 +250.4 % +Less net loss attributable to non-controlling interests +(89,869 ) +(742,900 ) +653,031 +87.9 % +Net income (loss) attributable to MDB Capital Holdings, LLC +$ 11,692,091 +$ (6,968,817 ) +$ 18,660,908 +267.8 % +53 +Operating +Income. For the years ended December 31, 2024 and 2023, respectively, operating income were derived primarily from the Company’s +broker dealer and intellectual property service segment. +For +the year ended December 31, 2024, operating income was generated from the Company’s fee from two investment banking +transactions in the broker-dealer and patent related intellectual property services. The decrease compared to the prior year is +attributable to reduced investment banking activity, as the Company executed significantly larger transactions in the previous year. +For the year ended December 31, 2023, operating income was generated from the Company’s fee income and unrealized gains +related to warrants received as compensation for investment banking services in the second quarter of 2023 in the broker-dealer and +intellectual property service segment. +General +and Administrative Costs. During the year ended December 31, 2024, and 2023, respectively, several factors contributed to changes +in various expense categories: +● +Compensation Expense: The +majority of the increase in compensation expense was due to the recognition of restricted stock units, as well as the ongoing recruitment +of additional employees in the latter half of 2023, specifically within the technology segment, to support expected operational growth. +● +Related Party Operating +Expenses and Professional Fees: The rise in related party operating expenses was due to outsourcing support services in implementation of self-clearing operations within the broker-dealer and intellectual property service segments for 2024. +● +Professional +Fees: Professional fees saw an increase from previous periods, driven by higher costs in legal, tax, audit, and consulting services. +This rise in expenses was primarily linked to the audit fees, tax return and K-1 preparation associated with fiscal year +2023 reporting, along with initiation of the self-clearing operations. +● +Information Technology +Costs: Information technology costs saw an increase from previous periods, driven by higher costs associated with the initiation +of the self-clearing operations, as well as increased cloud computing costs. +● +Clearing and Other Charges: +Clearing and other charges fluctuate with broker dealer activity, generally correlating to fee income. An increase in fee income +for the year ended December 31, 2024 as compared to the year ended December 31, 2023 resulted in a corresponding increase in fee +expense for the current fiscal year. +● +Other General and Administrative +Costs: The primary driver of the increase in other general and administrative costs was the issuance of restricted stock units +to the board of directors, as well as higher rent expenses in the technology segment compared to the previous period. +Research +and Development Costs . For the years ended December 31, 2024 and 2023, respectively, the research and development costs derived from the Company’s technology segment. +The +increase in research and development costs for the period was partially offset by increased grant funding. For the year ended +December 31, 2024, there was an increase in research and development costs due to a decrease of grant funding. It is important +to note that the upswing in grant funding was not linked to any specific event and is expected to fluctuate throughout the year. +Other +Income . For the year ended December 31, 2024, the increase is primarily from the unrealized gain on deconsolidation of a +subsidiary, eXoZymes, completed in the fourth quarter of 2024. +Income +Taxes . For the year ended December 31, 2024, the decrease in income taxes was a direct result of the reduction in fee income +as compared to the year ended, December 31, 2023. +54 +Broker +Dealer and Intellectual Property Service Segment (Public Ventures and PatentVest) Results of Operations for the Years Ended December +31, 2024 and 2023 +2024 +2023 +$ Change +% Change +Operating income: +Unrealized (loss) gain on investment securities, net (from our licensed broker dealer) +$ (274,835 ) +$ 1,503,649 +$ (1,778,484 ) +(118.3 )% +Realized gain (loss) on investment securities (from our licensed broker dealer) +- +8 +(8 ) +100.0 % +Fee income (from our licensed broker dealer) +2,220,620 +4,233,120 +(2,012,500 ) +(47.5 )% +Impairment of investment securities +(200,000 ) +(50,000 ) +(150,000 ) +(300.0 )% +Other operating income +411,488 +237,481 +174,007 +73.3 % +Total operating income, net +2,157,273 +5,924,258 +(3,766,985 ) +(63.6 )% +Operating costs: +General and administrative costs: +Compensation +3,225,503 +2,830,702 +394,801 +13.9 % +Operating expense, related party +1,301,167 +904,004 +397,163 +43.9 % +Professional fees +820,082 +440,123 +379,959 +86.3 % +Information technology +805,134 +491,352 +313,782 +63.9 % +Clearing and other charges +1,136,662 +389,963 +746,699 +191.5 % +General and administrative-other +806,269 +365,158 +512,503 +120.8 % +Total General and administrative costs +8,094,817 +5,421,302 +2,673,515 +49.3 % +Research and development costs +- +- +- +- +Total operating costs +8,094,817 +5,421,302 +2,673,515 +49.3 % +Net operating (loss) income +(5,937,544 ) +502,956 +(6,240,500 ) +(1,280.5 )% +Other income and expense: +Miscellaneous income +112,000 +- +112,000 +100.0 % +Interest income +464,558 +115,604 +348,954 +301.9 % +Interest expense +(779,004 ) +(123,382 ) +(655,622 ) +(531.4 )% +(Loss) income before income taxes +(6,139,990 ) +495,178 +(6,635,168 ) +(1,340.0 )% +Income taxes +- +22,091 +(22,091 ) +(100.0 )% +Net (loss) income +(6,139,990 ) +473,087 +(6,613,077 ) +(1,397.9 )% +Less net (loss) income attributable to non-controlling interests +- +- +- +- +Net (loss) income attributable to controlling interests +$ (6,139,990 ) +$ 473,087 +$ (6,613,077 ) +(1,397.9 )% +55 +Operating +Income. For the year ended December 31, 2024, operating income was generated from the Company’s fee income and +unrealized gains related to operating income that was generated from fees earned from the broker-dealer’s investment banking +activities and patent related intellectual property services. The decrease compared to the prior year is attributable to reduced investment banking activity, as the Company executed +significantly larger transactions in the previous year. For the year ended December 31, 2023, operating income was generated +from the Company’s fee income and unrealized gains related to warrants received as fees for investment banking activity in the +second quarter of 2023 in the broker-dealer, and fees earned at the intellectual property service segment. +General +and Administrative Costs . During the years ended December 31, 2024, and 2023, respectively, several factors contributed +to changes in various expense categories: +● +Compensation Expense: The +increase in compensation expense was driven by an increase in salaries in early 2024. +● +Related Party Operating +Expenses: There was a slight decline in related party operating expenses due to reallocation of outsourcing support to other parts +of the business. +● +Professional Fees: There +was an increase in professional fees compared to the previous periods, primarily due to increased consulting, legal, and tax. Furthermore, +there was an increase in consulting fees associated with the implementation of self-clearing operations. +● +Information +Technology Costs: Information technology costs for the year ended December 31, 2024 saw an increase from the year ended December 31, 2023, driven by +higher costs with the initiation of self-clearing operations and increased cloud computing costs. +● +Clearing and Other Charges: +Clearing and other charges fluctuate with broker dealer activity, generally correlating to fee income. An increase in fee income +for the year ended December 31, 2024 as compared to the year ended December 31, 2023 resulted in a corresponding increase in fee +income for the fiscal year. +● +Other General and Administrative +Costs: The rise in other general and administrative costs was due to higher expenses in advertising and promotions, increased spending +on travel and conferences, as well as rent allocation to the broker-dealer. +Other +Income . For the year ended December 31, 2024, the increase in interest expense compared to the prior year is primarily due to +inter-company subordinated loans for the broker-dealer, which are eliminated for consolidation purposes. Additionally, interest income +increased as a result of the broker-dealer maintaining higher balances in high-yield money market accounts. +Income +Taxes . For the year ended December 31, 2024, the decrease in income taxes was a direct result of the reduction in taxable grant income +as compared to the year ended, December 31, 2023. +Technology Segment +(MDB Minnesota One and eXoZymes, formerly known as Invizyne) Results of Operations for the Years Ended December 31, 2024 and 2023. The +results for eXoZymes are presented through November 14, 2024, which represents the date of deconsolidation from our financial statements. +2024 +2023 +$ Change +% Change +Total operating income, net +$ - +$ 70,769 +$ (70,769 ) +(100.0 )% +Operating costs: +General and administrative costs: +Compensation +2,061,580 +596,174 +1,465,406 +245.8 % +Professional fees +1,206,231 +436,339 +769,892 +176.4 % +Information technology +33,927 +21,803 +12,124 +55.6 % +General and administrative-other +133,472 +284,494 +(151,022 ) +(53.1 )% +Total general and administrative costs +3,435,210 +1,338,810 +2,096,400 +156.6 % +Research and development costs +1,467,871 +528,178 +939,693 +177.9 % +Total operating costs +4,903,081 +1,866,988 +3,036,093 +162.6 % +Net operating loss +(4,903,081 ) +(1,796,219 ) +(3,106,862 ) +(173.0 )% +Other income: +Change in fair value of SAFE +- +(200,000 ) +200,000 +100.0 % +Interest income +- +100 +(100 ) +(100.0 )% +Loss before income taxes +(4,903,081 ) +(1,996,119 ) +(2,906,962 ) +(145.6 )% +Income taxes +- +105,827 +(105,827 ) +(100.0 )% +Net loss +(4,903,081 ) +(2,101,946 ) +(2,801,135 ) +(133.3 )% +Less net loss attributable to non-controlling interests +(89,869 ) +(742,900 ) +653,031 +87.9 % +Net loss attributable to controlling interests +$ (4,813,212 ) +$ (1,359,046 ) +$ (3,454,166 ) +(254.2 )% +56 +Operating +Income. For the year ended December 31, 2023, operating income was generated from one feasibility study conducted. +General +and Administrative Costs . During the years ended December 31, 2024, and 2023, respectively, several factors contributed to +changes in various expense categories: +● +Compensation Expense: The +increase in compensation expense stemmed from the recruitment of additional administrative staff, who are not research and development +related and therefore not covered by grants, in the latter half of 2023. +● +Professional Fees: The +increase in professional fees compared to previous periods was due to higher legal, tax, audit, and consulting costs associated with +completing year-end financial audits and preparing for the initial public offering. +● +Information +Technology Costs: The increase in information technology costs were due to the increase of personnel and hardware and software needs +to support new personnel. +● +Other General and Administrative +Costs: There was a slight decrease in other general and administrative costs due to cost savings measures. +Research +and Development Costs. The increase in research and development costs for the current period was partially offset by increased +grant funding. For the year ended December 31, 2024, there was an increase in research and development costs due to a decrease +of grant funding. It is important to note that the upswing in grant funding was not linked to any specific event and is expected to fluctuate +throughout the year. +Change +in fair value of the SAFE . The technology division received a SAFE (Simple Agreement for Future Equity) from the parent company +as operating capital prior to the initial public offering. Because the SAFE originates from the parent company, it is removed during +the consolidation process. The SAFE was converted on November 14, 2024, into shares of common stock of eXoZymes. +Income +Taxes . The technology segment is a corporation for federal and state income tax purposes, The technology segment recognized an +income tax expense related to taxable grant income of approximately $105,827 for the year ended December 31, 2023. +Consolidated +Balance Sheets December 31, 2024 and 2023 +December 31, +2024 +December 31, +2023 +$ Change +% Change +ASSETS +Cash and cash equivalents +$ 20,437,492 +$ 6,109,806 +$ 14,327,686 +234.5 % +Cash segregated in compliance with regulations +843,741 +1,247,881 +(404,140 ) +(32.4 )% +Grants receivable +- +882,319 +(882,319 ) +(100.0 )% +Receivables to related party +63,759 +- +63,759 +100.0 % +Clearing deposits +1,737,771 +260,000 +1,477,771 +568.4 % +Prepaid expenses and other current assets +513,249 +523,788 +(10,539 ) +(2.0 )% +Investment securities, at amortized cost (U.S. Treasury Bills) +- +24,658,611 +(24,658,611 ) +(100.0 )% +Investment securities, at fair value (held by our licensed broker dealer) (Notes 1 and 2) +5,858,336 +5,771,634 +86,702 +1.5 % +Equity method investment +41,763,568 +- +41,763,568 +100.0 % +Investment securities, at cost less impairment +- +200,000 +(200,000 ) +(100.0 )% +Deferred offering cost +- +69,303 +(69,303 ) +(100.0 )% +Deferred costs related to deferred revenue +26,638 +75,328 +(48,690 ) +(64.6 )% +Property and equipment, net +90,491 +866,490 +(775,999 ) +(89.6 )% +Operating lease right-of-use asset, net +641,354 +2,320,119 +(1,678,765 ) +(72.4 )% +Total assets +$ 71,976,399 +$ 42,985,279 +$ 28,991,120 +67.4 % +LIABILITIES AND EQUITY +Accounts payable +$ 323,926 +$ 578,214 +$ (254,289 ) +(44.0 )% +Accrued expenses +72,188 +1,105,078 +(1,032,890 ) +(93.5 )% +Payables to non-customers +41 +1,405,293 +(1,405,252 ) +(100.0 )% +Payables to customers +772,565 +- +772,565 +100.0 % +Payables to related party +22,842 +- +22,842 +100.0 % +Deferred grant reimbursement +- +140,703 +(140,703 ) +(100.0 )% +Deferred revenue +- +20,000 +(20,000 ) +(100.0 %) +Operating lease liability +711,503 +2,415,889 +(1,704,386 ) +(70.5 )% +Total liabilities +1,903,065 +5,665,177 +(3,762,112 ) +(66.4 )% +Equity: +Paid-in-capital +68,720,930 +49,405,779 +19,315,151 +39.1 % +Accumulated income (deficit) +1,442,075 +(12,092,927 ) +13,535,002 +111.9 % +Total MDB Capital Holdings, LLC Members’ equity +70,163,005 +37,312,852 +32,850,153 +88.0 % +Non-controlling interest +(89,671 ) +7,250 +(96,921 ) +(1,336.8 )% +Total equity +70,073,334 +37,320,102 +32,753,232 +87.8 % +Total liabilities and equity +$ 71,976,399 +$ 42,985,279 +$ 28,991,120 +67.4 % +57 +Financial +Condition: Overall, the majority of each of the decreases in assets are all directly tied to the deconsolidation of eXoZymes, +formerly known as Invizyne, on November 14, 2024, when eXoZymes completed its IPO of common stock diluting the MDB ownership to approximately +47%. The increase in cash and cash equivalents was due to the transfer of U.S Treasury bills to cash and was offset by cash utilization +for operational activities during the period. The rise in cash segregated in compliance with regulations stemmed from customer deposits. +The decline in investment securities at amortized cost occurred because U.S. Treasury bills were sold and moved to high-yield money-market +accounts, with the underlining investment in U.S Treasury bills, which allows the Company to provide liquidity for operating expenses. +The decrease in investment securities at fair value was due to a decrease in the value of common stock and warrants over the period, +held by the broker dealer. Clearing deposits increased due to the launch of the self-clearing operations. Prepaid expenses remained stable +compared to the previous period. The decrease in grants receivable, property plant and equipment, and operating lease of right to use +asset are all directly tied to the deconsolidation of eXoZymes. Finally, the deferred offering costs were associated with expenses related +to eXoZymes IPO that was completed on November 14, 2024. +The +decrease in accounts payable, accrued expenses, and operating lease liabilities are all directly tied to the deconsolidation of eXoZymes, +formerly known as Invizyne, on November 14, 2024. Additionally, the rise in payables to customers stemmed from increased activity in +the self-clearing operations of the broker-dealer. Furthermore, the payables non-customers is movement by those non-customers from cash +to securities as part of self-clearing operations. +The +equity increase was primarily driven by the deconsolidation in the equity investment of eXoZymes. +The +decrease in non-controlling interest was a result of the deconsolidation of eXoZymes, formerly known as Invizyne. +Liquidity +and Capital Resources – December 31, 2024 +The +Company’s consolidated statements of cash flows as discussed herein are presented below. +Years Ended December 31, +2024 +2023 +Net cash used in operating activities +$ (9,037,746 ) +$ (7,125,622 ) +Net cash provided by (used in) investing activities +22,891,989 +(8,233,306 ) +Net cash provided by financing activities +69,303 +17,763,991 +Net increase in cash and cash equivalents +$ 13,923,546 +$ 2,405,063 +58 +At +December 31, 2024, the Company had working capital of $19,822,938, as compared to working capital of $28,925,236 at December 31, +2023, reflecting a decrease in working capital of $9,102,398 for the year ended December 31, 2023. The decrease in working capital +during the year ended December 31, 2024 was primarily the result of the expenditures to fund the Company’s operating expenses. +At December 31, 2024, the Company had cash of $21,281,233, of which $843,741 was cash segregated in compliance with regulations +that are not to fund its operations. +Operating +Activities . For the year ended December 31, 2024, operating activities used cash of $9,037,746. The main +driver for the increase in net income compared to the prior year was primarily driven by the gain of the deconsolidation of +eXoZymes (formerly Invizyne), which was offset by stock-based compensation expense. Additional cash outflows resulted from the accretion of U.S. +Treasury Bills held at amortized cost and the acquisition of investment securities. The deconsolidation also led to a decrease in +accounts payable and grants receivable related to eXoZymes. These impacts were offset by increases in clearing deposits and customer +payables, attributable to the launch of self-clearing operations. There was also a decrease in accrued expenses due to bonus +payments made in Q1 2024, along with a reduction in payables to non-customers +For +the year ended December 31, 2023, operating activities utilized cash of $7,125,622, the overall decline in cash remained consistent across +the period. Despite a reduction in net loss compared to the previous period, there was a rise in fee income received in the form of warrants +instead of cash. Additionally, there was accretion of investments at amortized costs (U.S. Treasury Bills) and the acquisition of investment +securities, funded by cash received as part of an investment banking deal. +However, +this decrease in cash was partly offset by an increase in accrued expenses, deferred revenue, and proceeds from the sale of investment +securities by the broker dealer. The rise in accrued expenses to self-clearing operations and bonuses paid in the first quarter of 2024. +Investing +Activities . For the year ended December 31, 2024, the increase in cash flows from investing activities was +primarily attributable to the proceeds +from the sale and maturity of U.S. Treasury Bills and purchases of investment securities. These inflows were partially offset by the +reinvestment of proceeds into new U.S. Treasury Bills, transfers of cash to support operating activities, and investments in money +market funds. +For the year ended December 31, +2023, the decrease in investing activities consisted of the proceeds from the sale and the maturing of U.S. Treasury Bills and purchases +of investment securities, which was offset by the reinvestment of the proceeds into new U.S. Treasury Bills and the transfer of cash for +operating activities. +Financing +Activities . For the year ended December 31, 2024, financing activities consisted of deferred IPO costs being recognized. +For +the year ended December 31, 2023 financing activities consisted of the receipt of net proceeds of $17,763,991 from MDB’s +initial public offering. +Recently +Issued Accounting Pronouncements +See +Note 2 in the consolidated financial statements for the discussion on recently accounting pronouncements. +Critical +Accounting Estimates +The +preparation of financial statements in conformity with general accepted accounting principles in the United States requires management +to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets +and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. +We have identified certain accounting policies as being critical because they require us to make difficult, subjective, or complex judgments +about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in the preparation of our unaudited consolidated +financial statements and audited consolidated financial statements are appropriate given the factual circumstances at the time. However, +actual results could differ, and the use of other assumptions or estimates could result in material differences in our results of operations +or financial condition. Our critical accounting estimates are: +59 +Revenue +recognition – Investment Banking and Warrants Valuation +The +Company receives income from underwriting fees. As an underwriter, the Company assists clients to raise capital via the placement of +various types of investment securities of private and publicly traded company issuers. Underwriting fees are primarily based on the +issuance price and quantity of the underlying instruments and are recognized as revenue typically upon execution of the +client’s transaction. The Company generally does not incur costs to obtain contracts with customers that are eligible for +deferral or receive fees prior to recognizing revenue related to investment banking transactions. If the Company did have any +contract assets or liabilities related to these revenues it would be recorded on the consolidated balance sheets. +Revenue +recognition may involve the bundling of investment banking services with other financial instruments. In such cases, we estimate the +fair value of the services provided and allocate the revenue accordingly. This estimation process involves significant judgment and sensitivity +to market conditions. Additionally, our investment banking activities may include the compensation for our services in warrants granted +to us. The valuation of these warrants requires significant estimates, including the use of option pricing models like the Black-Scholes +model. The key assumptions in this valuation process include the stock price on the date of valuation, the exercise price of the warrant, +the term to expiry, risk-free interest rate, and the expected volatility of the underlying stock. +Valuation +Allowance for Net Deferred Tax Asset +A +valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the +Company is able to realize their benefits, or that future deductibility is uncertain. At December 31, 2024 and 2023, eXoZymes, +formerly known as Invizyne, Public Ventures, PatentVest, MDB Minnesota One, and MDB CG Management have established a full valuation +allowance against all net deferred tax assets. +Fair +Value of Financial Instruments +Fair +value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between +market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes +the inputs to valuation methodologies used to measure fair value: +Level +1 — Valuations based on quoted prices for identical assets and liabilities in active markets. +Level +2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets +and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other +inputs that are observable or can be corroborated by observable market data. +Level +3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made +by other market participants. These valuations require significant judgment. +Fair +value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between +market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs +are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within +the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. +The +fair value of U.S. Treasury Bills and public equity securities are based on quoted market prices and are classified as level 1 of the +fair value hierarchy. The fair value of public equity securities that are not actively traded is based on quoted market prices of similar +instruments and other significant inputs derived from or corroborated by observable market data and are classified as level 2 of the +fair value hierarchy. The fair value of warrants is based on a Black-Scholes model, which considers the stock price at the date of the +valuation, the warrant strike price, the term to expiry, the risk-free rate of return, and the expected volatility of the underlying +stock. The level in the fair value hierarchy for warrants depends primarily on whether the stock price is determinable from active trades, +and whether the expected volatility of the underlying stock is observable and are either classified as level 2 or level 3. The fair value +of non-public equity securities and simple agreements for future equity is based on the initial investment, less impairment, and they +are classified as level 3 in the fair value hierarchy. For the significant unobservable inputs and assumptions used in level 3 fair value +measurements, see Fair Value of Financial Instruments section of Note 2: Summary of Significant Accounting Policies . +60 +Accounting +for Research Grants +The Company have and will develop partner companies that receives grant reimbursements, which are netted against research and development expenses in the consolidated +statement of operations. Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized +portion considered a deferred liability and are included in accounts payable and accrued expenses in the consolidated balance sheet. +Grants +that operate on a reimbursement basis are recognized on the accrual basis are revenues to extent of disbursements and commitments that +are allowable for reimbursement of allowable expenses incurred as of December 31, 2024 and 2023 and expected to be received from funding +sources in the subsequent year. Management considers such receivables at December 31, 2024 and 2023, to be fully collectable, +due to the historical experience with the Federal Government of the United States of America. Accordingly, no allowance for grants receivable +was recorded in the accompanying consolidated financial statements. +Research +grants received from organizations are subject to the contract agreement as to how our partner companies, conducts its research +activities, and our partner companies is required to comply with the agreement terms relating to those grants. Amounts received +under research grants are nonrefundable, regardless of the success of the underlying research project, to the extent that such +amounts are expended in accordance with the approved grant project. Our partner companies is permitted to draw down (a process of +submitting expenses for reimbursement) the research grants after incurring the related expenses. Amounts received under research +grants are offset against the related research and development costs in the Company’s consolidated statement of +operations. +Stock +Based Compensation +The +Company and its subsidiaries may periodically issue common shares, stock options and restricted stock units to officers, directors, employees, +and consultants for services rendered. Options vest and expire according to terms established at the issuance date of each grant. Stock +grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the vesting +period. +The +Company accounts for stock-based payments to officers, directors, employees, and consultants by measuring the cost of services received +in exchange for equity awards utilizing the grant date fair value of the awards, with the cost recognized as compensation expense on +the straight-line basis in the Company’s financial statements over the vesting period of the awards. +The +fair value of share options granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and +is affected by several variables, the most significant of which are the expected life of the stock option, the exercise price of the +share option as compared to the fair market value of the common shares on the grant date, and the estimated volatility of the common +shares. Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as the +mid-point between the vesting period and the contractual term (the “simplified method”). The estimated volatility is +based on the implied volatility by using comparable companies of the Company’s common shares, calculated utilizing a look-back +period approximately equal to the contractual life of the stock option being granted. The risk-free interest rate is based on the +U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common shares is determined by reference to +the quoted market price of the Company’s common shares on the grant date. The expected dividend yield is based on the +Company’s expectation of dividend payouts and is assumed to be zero. The fair value of performance based restricted stock +units was determined by using an independent valuation expert. +Summary +of Business Activities and Plans +On +September 20, 2023, the Company completed an initial public offering (IPO), which consisted of the sale of 1,666,666 shares of Class +A Common Shares at $12.00 per share, for gross proceeds of $19,999,992 that have been used for operations and funding its partner +companies, as well as identifying and developing new partner companies. +On +November 14, 2024, eXoZymes, formerly known as Invizyne, previously a corporate subsidiary of the Company, +completed its initial public offering (“IPO”), reducing MDB’s ownership interest to 47%. As a result, the Company +no longer consolidates eXoZymes Inc for financial reporting purposes and now accounts for its investment using the equity method +under ASC 323. For federal income tax purposes, MDB is treated as a partnership and is not subject to entity-level taxation. As a +result, no deferred tax assets (“DTAs”) or deferred tax liabilities (“DTLs”) are recognized at the +partnership level for differences between the book and tax basis of the equity method investment. Any tax consequences related to +book-tax basis differences will be recognized at the partner level upon disposition of the investment or other taxable +events. +61 +External +Risks Associated with the Company’s Business Activities +Inflation +Risk . The Company does not believe that inflation has had a material effect on its operations to date, other than its impact +on the general economy. +Supply +Chain Issues . The Company does not currently expect that supply chain issues will have a significant impact on its business activities. +Potential +Recession . There are various indications that the United States economy may be entering a recessionary period. Although unclear +at this time an economic recession would likely impact the general business environment and the capital markets, which could, in turn, +affect the Company. +The +Company is continuing to monitor these matters and will adjust its current business and financing plans as more information and guidance +become available. +Principal +Commitments +Net +Capital Requirement (Public Ventures ) +Public +Ventures is subject to the uniform net capital rule (SEC Rule 15c3-1) of the Securities and Exchange Commission (the “SEC”), +which requires both the maintenance of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital. +At December 31, 2024 and 2023, Public Ventures had net capital of $10,736,754 and $7,331,449, respectively, which was $10,486,754 and +$7,081,449 in excess of the minimum $250,000, as required by the Securities and Exchange Commission Rule 15c3-1. +During +the year ended December 31, 2024, the Company entered into a subordinated loan agreement with its Parent company for $7,300,000. This +amount, together with existing subordinated loans totaling $5,900,000 and $775,757 of accrued interest payable, is subordinated to other +liabilities of the Company, and is considered members’ equity for calculating net capital, and is not included in aggregate indebtedness. +The +Company’s ratio of aggregate indebtedness of $6,535,922 to net capital was 0.61 to 1 compared to the maximum 15 to 1 allowable +ratio of a broker dealer. Minimum net capital is based upon the greater of the statutory minimum net capital of $250,000 or 2% of aggregate +customer debits, which was $0 at December 31, 2024. +To +comply with to DTC membership requirements, the Company has committed to maintain at least $5,000,000 of net capital in excess of the +$250,000 minimum. +The +requirement to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent +company. +Indemnification +Provisions +Public +Ventures has agreed to indemnify its clearing broker for losses that the clearing brokers may sustain from the accounts of +customers. Should a customer not fulfill its obligation on a transaction, Public Ventures may be required to buy or sell securities +at prevailing market prices in the future on behalf of its customer. The indemnification obligations of Public Ventures to its +clearing brokers have no maximum amount. All unsettled trades at December 31, 2024 and 2023, have subsequently settled with no +resulting material liability to Public Ventures. For the years ended December 31, 2024 and 2023, Public Ventures, had no material +loss due to counterparty failure and had no obligations outstanding under the indemnification arrangement as of December 31, 2024 +and 2023. +MDB Minnesota One +On +July 1, 2024, MDB Minnesota One (“M1”) entered into a Patent and Know-How License Agreement (the “License Agreement”) +with the Mayo Foundation for Medical Education and Research (“Mayo”) for certain patent rights and associated technology +pursuant to which M1 intends to develop a small molecule senescence platform. The License Agreement grants M1 rights to develop and commercialize +Mayo’s patented technology and know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 +holds an exclusive license of patent rights and a non-exclusive license for the associated technology to make, have made, use, offer +for sale, sell, and import licensed products and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2024 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A payment of $250,000 for +Phase II clinical trial initiation, for the first instance of a licensed product. +● +A payment of $1.5 million +for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A payment of $2 million +for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A payment of $5 million +for NDA approval, for each instance of a licensed product. +62 +Trends, +Events and Uncertainties +Other +than as discussed above, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect +on our financial condition in the near term, although it is possible that new trends or events may develop in the future that could have +a material effect on our financial condition +Item +7A. Quantitative and Qualitative Disclosures About Market Risk +We +are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, therefore are not required to provide the information +under this item. +Item +8. Financial Statements and Supplementary Data +Our +consolidated financial statements are included herein, beginning on page F-1. The information required by this item is incorporated herein +by reference to the consolidated financial statements set forth in Item 15. “Exhibits and Financial Statement Schedules” +of this Annual Report. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item +9A. Controls and Procedures +Evaluation +of Disclosure Controls and Procedures +(a) +Evaluation of Disclosure Controls and Procedures. Based on management’s evaluation (with the participation of our Chief +Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have +concluded that our disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of +1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in +reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified +in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial +officer, as appropriate to allow timely decisions regarding required disclosure. +(b) +Inherent Limitation on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures +will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions +and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide +absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any, +within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and +the benefits of controls must be considered relative to their costs. +(c) +Management ’ s Report on Internal Control over Financial Reporting. Our management is responsible for establishing +and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange +Act of 1934. Our internal control over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records +that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; (b) provide reasonable assurance +that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted +accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management +and Board of Directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use +or disposition of our assets that could have a material effect on our financial statements. Our internal control over financial reporting +is a process designed with the participation of our principal executive officer and principal financial officer or persons performing +similar functions to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting +and preparation of financial statements for external purposes in accordance with generally accepted accounting principles. +Material +Weakness in Internal Control Over Financial Reporting +Our +management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024 based +on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated +Framework (2013). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was +not effective at the reasonable assurance level as of December 31, 2024 because of the material weakness described below +A +material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is +a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will +not be prevented or detected on a timely basis. +During +the preparation of our consolidated financial statements, both we and our independent registered public accounting firm identified a +material weakness in our internal control over financial reporting as of December 31, 2024. This weakness related to the proper identification +and accounting treatment of the deconsolidation of eXoZymes. Specifically, the Company lacked sufficient controls to evaluate whether +the consolidation or deconsolidation of eXoZymes was appropriate under U.S. GAAP. +63 +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated +financial statements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become +inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. +Remediation +Management +is committed to strengthening its internal control over financial reporting and addressing the material weakness related to the identification +and treatment of complex accounting matters. To remediate this deficiency, management has developed and initiated a remediation plan +designed to enhance the Company’s ability to recognize and appropriately evaluate complex transactions. Key elements of the plan +include: (a) implementing formalized policies and procedures for identifying and assessing complex accounting scenarios during each reporting +period; (b) establishing a review framework that includes oversight by senior management to ensure such assessments are accurate, complete, +and properly documented; and (c) engaging in discussions with the Audit Committee regarding complex or judgmental accounting matters +and, when necessary, consulting with external accounting experts to ensure compliance with U.S. GAAP. +We +believe that the foregoing measures will remediate the identified material weakness, although management is continuing to assess the +need for any additional steps to remediate the underlying causes that gave rise to the material weakness. The material weakness will +not be considered remediated, however, until the applicable controls operate for a sufficient period of time. There is no assurance that +additional remedial steps will not be necessary. We anticipate the remediation of the material weakness will be fully implemented and +validated by the end of the second quarter of 2025. Notwithstanding the conclusion by our management that our controls and procedures +as of December 31, 2024 were not effective, as described above with respect to proper identification and accounting treatment of the +deconsolidation of eXoZymes, management believes that the consolidated financial statements and related financial information included +in this Annual Report on Form 10-K fairly present in all material respects our financial position, results of operations and cash flows +as of and for the years then ended, in conformity with U.S. GAAP. +This +Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control +over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant +to rules from the SEC that permit us to provide only management’s report in this annual report. +(d) +Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting +during our fourth fiscal quarter ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, +our internal control over financial reporting. +Management’s +Annual Report on Internal Control over Financial Reporting +Management +holds the responsibility for preparing accurate financial statements and ensuring they faithfully represent our financial status and +operations in line with generally accepted accounting principles (GAAP). +We +are also tasked with establishing and upholding sufficient internal controls over financial reporting, as stipulated in the Exchange +Act. These controls aim to offer reasonable assurance about the fairness of our financial reporting and the accuracy of financial information. +Despite the robust nature of our internal control systems, they are subject to inherent limitations, including human error and the potential +bypassing of controls, thus providing only reasonable—not absolute—assurance. +Our +internal controls over financial reporting encompass procedures for maintaining detailed records that reflect our transactions accurately, +ensuring transactions are recorded as needed for financial statement preparation in compliance with GAAP, and safeguarding company assets +through authorized management and director actions. +After +a thorough evaluation led by our Chief Financial Officer, based on the COSO 2013 framework, we identified material weaknesses in our +internal controls in our current year, as of December 31, 2024. This included the proper identification and accounting treatment of the deconsolidation of eXoZymes. +64 +These +issues will addressed in 2 nd of quarter of 2025. We are committed to continuously improving our internal control +over financial reporting and will implement further enhancements as necessary and financially viable. +This +Annual Report on Form 10-K does not include an attestation from our public accounting firm regarding internal control over financial +reporting, following SEC rules that allow us to present only management’s report +Changes +in Internal Control over Financial Reporting +The +material weakness in our internal control framework, identified during the fiscal year ended December 31, 2024, has not been fully +remediated and corrected. +The +Company remains steadfast in our commitment to maintaining robust internal controls and financial reporting processes. We believe that +the future corrective actions not only address the previously identified issues but also strengthen our overall financial governance, positioning +us for sustainable growth and success. +Inherent +Limitations on Effectiveness of Controls and Procedures +The +Company’s management, including the Chief Executive Officer and Chief Financial Officer, believes that disclosure controls and +procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and +are effective at the reasonable assurance level. However, management does not expect that the disclosure controls and procedures or the +internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived +and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the +inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances +of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions +about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under +all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance +with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements +due to error or fraud may occur and not be detected. +Item +9B. Other Information +None . +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None +65 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance +Information +about our Directors +The +Company’s current directors are set forth below: +Name +Age +Position +Christopher +Marlett +60 +Chief +Executive Officer, Chairman of Board and Director +Anthony +DiGiandomenico +58 +Head of New Venture Discovery, and Director +George +Brandon +65 +President, +and Director +Mo +Hayat +50 +Head of Corporate Development & Chief Legal Officer, and Director +Jeremy +James +47 +Chief +Financial Officer +Susanne +Meline +57 +Director +Mathew +Hayden +53 +Director +Daniel +Torpey +60 +Director +Sean +Magennis +60 +Director +Christopher +Marlett . Christopher Marlett has been the chief executive officer and chairman of the board of directors and a director of the +Company since inception on August 10, 2021. Mr. Marlett has been since 1997, the Chief Executive Officer and a co-founder of Public Ventures +(formerly known as MDB Capital Group, LLC). Over his 36 years of working in the securities industry, he has led multiple financings for +venture stage public companies and has dedicated his efforts to optimizing this method to launch promising technology/business platforms. +He has been integral in co-founding and developing the commercialization and financing strategy for all the companies MDB has taken public. +In addition, he has served as a board member of several of the public companies in the early stages. He has invested significant efforts +in developing a human capital development platform in Nicaragua that has led to the creation of the largest call center park in the country +employing approximately 3,000 people and several knowledge process outsourcing operations to support MDB’s businesses. He developed +the first patent services company in Nicaragua that was sold to Murgitroyd an LSE-listed patent attorney and services platform. He is +the co-founder of PatentVest and developed the platform from inception in 2003. He holds a Bachelor of Science degree in Business Administration +from the University of Southern California. Mr. Marlett’s leadership and financial experience position him well to serve as a member +of our board of directors. +Anthony +DiGiandomenico . Anthony DiGiandomenico has been the Head of New Venture Discovery and director +since the inception of the Company on August 10. 2021. He has also served on the board of directors of ENDRA Life Sciences Inc. (Nasdaq: +NDRA), a developer of enhanced ultrasound technology, from July 2013 until present, the board of directors of Provention Bio, Inc., a +developer of multiple drug therapies, from January 2017 until May 2020 and the board of directors of Cue Biopharma, Inc., that develops +novel biologic drugs for the selective modulation of the human immune system to treat a broad range of cancers and autoimmune disorders +from January 2016 to October 2019. Since he co-founded Public Ventures (formerly known as MDB Capital Group, LLC) in 1997, Mr. DiGiandomenico +has been enabling investment into early-stage disruptive technologies. He has worked alongside a wide range of companies in biotechnology, +medical devices, high technology, and renewable energy spaces. Mr. DiGiandomenico holds an MBA from the Haas School of Business at the +University of California, Berkeley and a BS in Finance from the University of Colorado. Mr. DiGiandomenico’s financial expertise, +general business acumen and significant executive leadership experience position him well to make valuable contributions to our board +of directors. +66 +George +Brandon . George Brandon has served as President of the Company since its inception on August 10, 2021, and as a director of the +Company since January 14, 2022. Mr. Brandon’s 36 years of varied investment experience has included the last 12 years with Public +Ventures (formerly known as MDB Capital Group, LLC). Mr. Brandon’s business focus has primarily been marketing & strategy development +and community building in and around entrepreneurial start-ups, micro-cap, and small-cap companies. Prior to joining MDB, he served as +a partner of Trinity River Advisors, LLC, a turnaround consulting firm targeting small companies dealing with financial distress. He +received his education at Concordia University in Irvine, CA. +Mohammad +“Mo” Hayat . Mo Hayat has served as the Head of Corporate Development and Chief Legal Officer of the +Company since May 2024, Chief of Entrepreneurship & Operations of the Company since its inception on August 10, 2021 to May +2024, and as a director of the Company since January 14, 2022. Mr. Hayat has also served as the Chief Executive Officer of Invizyne +Technologies Inc (currently eXoZymes Inc) since its inception in April 2019 to August 2022, the role of President from August 2022 +to February 2025, and in the role of Executive Chairman of Invizyne Technologies Inc (currently eXoZymes Inc) from inception in April 2019 to February 2025. Mr. Hayat +founded and has operated Mora Partners Inc., a consulting and investment firm since September 2006. Notable prior experiences for +Mr. Hayat include serving as an Associate at Latham and Watkins from 2001 to 2006, as Partner at Raines Law Group from 2006 to 2009, +as EVP of Business Development at Fulham Company Ltd from 2009 to 2015, and as Associate General Counsel Corporate, M&A, and +Venture Capital at Hewlett Packard Enterprise from 2015 to 2017. Mr. Hayat also served on the board of directors of Fulham Company +Ltd. from January 2019 to August 2022. Mr. Hayat received his Juris Doctorate in 2001 from UC Berkeley School of Law and a Bachelor +of Science in Biological Chemistry in 1997 from Pepperdine University. +Jeremy +James . Jeremy James has been the Chief Financial Officer of the Company since May 2024, before that he served as the Chief Accounting +Officer of the Company from June 2022 to May 2024. From December 2020 to June 2022, Mr. James served as Vice President/Controller of +Cottonwood Financial. From November 2016 to September 2020, Mr. James served as the Director of Revenue of Orthofix. From January 2012 +to November 2016, Mr. James served as a Senior Manager in the consulting practice of Ernst and Young. From May 1999 to January 2012, +Mr. James served as a Manager with CBIZ/Mayer Hoffman McCann, an audit and tax firm. Mr. James received a Bachelor of Science degree +in Accounting from Azusa Pacific University. Mr. James is a Certified Public Accountant licensed in the states of Texas and California. +Susanne +L. Meline . Susanne Meline has served as a director of the Company since May 2, 2022. Ms. Meline has been the CEO of Encore +Investment Management, LLC and General Counsel of Wildfire Defense System, Inc. since April 2023. Ms. Meline is a former special situations +analyst at Francis Capital Management, LLC, which she co-founded and where she worked from 2003 through March 2023. She is also an arbitrator +for FINRA Dispute Resolution Services and has served on a number of boards of directors, including Finomial Corporation from 2017 – +19, AquaMetals Corporation from 2019 – 20, ClearSign Technologies Corporation from 2018 to the present, and Ra Medical Corporation +from 2021 to the present. Susanne has a Juris Doctor degree from UC Hastings College of the Law and a Bachelor of Arts degree in Political +Science from UCLA. +Matthew +“Matt” Hayden . Matt Hayden has served as a director of the Company since May 2, 2022. Mr. Hayden has managed his +family office since January 2018 which invests in both private and public companies. Mr. Hayden founded and managed Hayden Communications, +Inc, an investor relations firm in 1998 which was sold in 2006. In 2006, he founded Hayden Communications International, Inc. which sold +a 51% stake to MZ Group in 2011. Mr. Hayden then served as Chairman and advisor of MZ Group through December 2019. Since January 2022, +Mr. Hayden has also served as a member of the GP for Surfworks, which builds and operates Wave Garden Surf Facility Projects in the United +States. He earned a B.S. in Finance from the University of South Carolina. +Sean +Magennis . Sean Magennis has served as a director of the Company since May 2, 2022. Mr. Magennis has served as Chairman of Mutual +Capital Alliance since January of 2023. Mr. Magennis has served as President of CEO Coaching International, a global CEO coaching business, +from November 2021 to November 2022. Previously, Mr. Magennis served as CEO and Chairman of Capital 54, a family office, from July 2020 +to November 2021, as Global President and COO of YPO, a global community of chief executives, from May 2013 to July 2020, as Member of +Gateway Green Energy Holdings, LLC, an operator power plants and energy assets, from 2009 to present, as President of Meximae Financiera +Corporation, a real estate developer in Mexico, from January 2003 to August 2008, as President of Thomas International Management Systems +from 1991 to 2003, as President of Thomas International, A Caldwell Interest, from 1992 to 1996, and Global President, Board Member and +Chapter Chairman of Entrepreneurs Organization from 1991 to 2007. Mr. Magennis is a decisive and proactive business builder with extensive +growth, acquisition, turnaround, and international experience. He is adept at developing high performing teams who deliver results through +collaboration. He combines vision with positive pragmatism to transform strategies into actionable, measurable opportunities utilizing +strong analytical and problem-solving skills. +Daniel +“Dan” Torpey . Daniel “Dan” Torpey has served as an independent director of the Company since June 17, +2024. Mr. Torpey retired as an Assurance partner from Ernst & Young LLP after a 25-year career where he was a member of the Audit +and Forensic and Integrity practices where he held various leadership positions. He is a qualified financial expert pursuant to the rules +of the Securities and Exchange Commission, NYSE and NASDAQ and serves as the Chairperson of the Audit Committee for the Company. Mr. +Torpey is a Certified Public Accountant licensed in the state of New York and Texas and is a Certified Director of the National Association +of Corporate Directors (NACD). Prior to Ernst & Young LLP, he was a partner at Arthur Anderson LLP from July 2001 – May 2002, +and a partner and held various other titles at PricewaterhouseCoopers (and its predecessor firm Coopers & Lybrand) from 1992 – +2001. Mr. Torpey served as an auditor in EY’s audit practice from 1989 – 1992. Mr. Torpey served as a staff and senior accountant +at Matson Driscoll & Damico, LLP. from 1986-1989. Mr. Torpey’s experience allows him to add auditing, accounting, technology +and analytics, governance and leadership expertise to the Company. Mr. Torpey received his Bachelor of Science in Accountancy from St. +John’s University, Jamaica, New York. +67 +Board +Composition/Committees +Our +board of directors currently consists of eight persons. Under our operating agreement the board of directors may establish the number +of persons serving on the board of directors from time to time by resolution, up to a maximum of 12 persons. Four of our directors, Susanne +Meline, Daniel Torpey, Matthew Hayden, and Sean Magennis are independent within the meaning of Nasdaq’s rules. Susanne Meline and +Daniel Torpey are “financial experts” as that term is defined in SEC regulations. +Because +our Class B Common Shares are held by two persons and represents more than 50% voting control of MDB, we are a “controlled company” +under the listing rules of Nasdaq. As a controlled company, we are exempt from many of the corporate governance obligations that other +companies must follow when listed on Nasdaq. Management intends to take advantage of these exemptions as long as it is a controlled company. +As such, we will be exempt from the certain of the corporate governance rules under the Rule 5600 Series, as follows: (i) having a board +comprised of a majority of independent directors (Rule 5605(b)), iii) having a compensation committee (Rule 5605(d)), and (iii) having +a director nominations committee (Rule 5605(e)). Additionally, we are not be required to hold annual meetings. Notwithstanding these +exemptions, we have an audit committee comprised solely of independent directors, which among other things reviews related party transactions. +Also, notwithstanding the exemptions, Class A Common shareholder approval will be required for stock option or purchase plans, and our +financial statements must be audited by an independent public accountant that is registered with the PCAOB. +Audit +Committee . +We +have established an audit committee. The audit committee is responsible for, among other things: (i) retaining and overseeing our +independent accountants; (ii) assisting the board of directors in its oversight of the integrity of our financial statements, the qualifications, +independence and performance of our independent auditors; (iii) reviewing and approving the plan and scope of the internal and external +audit; (iv) pre-approving any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to +our independent auditors; (vi) reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls; (vii) reviewing hedging transactions; +and (viii) reviewing and assessing annually the audit committee’s performance and the adequacy of its charter. The audit committee +also reviews and approves all transactions with affiliated parties. Our board of directors has adopted a written charter for the audit +committee, which is available on our website. +The +members of the Audit Committee are Susanne Meline, Matt Hayden, Dan Torpey and Sean Magennis, each of whom satisfies the “independence” +requirements of Rule 10A-3 under the Exchange Act and Rule5605(c)(2) of the Nasdaq Marketplace Rules. Mr. Torpey serves as the chairman +of the audit committee. Mr. Torpey is a “financial expert” as that term is defined in SEC regulations. +68 +Board’s +Role in Risk Oversight +Our +board of directors is primarily responsible for overseeing our risk management processes. Our board of directors, as a whole, determines +our appropriate level of risk, assesses the specific risks that we face, and reviews management’s strategies for adequately mitigating +and managing the identified risks. Although our board of directors administers this risk management oversight function, one or more committees +of our board of directors may support our board of directors in discharging its obligations. For example, the audit committee reviews +our major financial risk exposures and the steps management has taken to monitor and control such exposures and it will reviews matters +relating to legal compliance that have a material effect on the Company financial statements and certain other limited areas of governance +and will report to our board of directors regarding such matters. +Code +of Business Conduct and Ethics +Our +board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers, and directors. The +full text of our code of business conduct and ethics will be posted on the Investor Relations section of our website. The reference to +our website address in this filing does not include or incorporate by reference the information on our website into this filing. We intend +to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our +website or in public filings. +Insider +Trading Arrangements and Policies +We +have adopted an insider trading compliance policy governing the purchase, sale, and/or other dispositions of our securities by our directors, +officers, and employees that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, +and the exchange listing standards applicable to us. The insider trading policy prohibits the use of material non-public information +about the Company when making decisions to purchase, sell, give away or otherwise trade in the Company’s securities or to provide +such information to others outside the Company. We have established black-out periods to which covered persons are subject related to +the filing of our regular reports with the Securities and Exchange Commission. The Company may impose additional black-out periods from +time to time as other types of material non-public information occur when material non-public events or disclosures are pending. Covered +persons are permitted to trade in the Company’s securities only when there is no black-out period in effect and such trade has +been pre-cleared by the appointed Company officer, or when a qualified 10b5-1 plan has been established in accordance with federal securities +laws. No covered person has adopted or terminated a Rule 10b5-1 trading plan during the last fiscal quarter of the fiscal year to which +this report relates. +Clawback +Policy +Our +board of directors has adopted a written policy to recover “excess” compensation that is granted, earned, or vested based +wholly or in part upon the attainment of a financial reporting measure. The compensation includes both cash-based and equity-based incentives. +The compensation covered includes incentive awards awarded to any individuals (including former employees) who served as an executive +officer during the three most recently completed fiscal years preceding the date on which the preparation of an accounting restatement +is required, provided that the executive officers were awarded more incentive awards than they would have received if the financial statements +had been prepared correctly. The recovery will include an executive incentive award even if the executive was not involved in preparing +the financial statements or did not commit misconduct that led to the restatement. Restatements attributable to an inadvertent error +also will subject executive officers to the recovery of previously received incentive awards. +Section +16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers, directors +and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership +with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports filed by such persons. +69 +Based +solely on our review of the copies of reports furnished to us, we believe that during the fiscal year ended December 31, 2024, all executive +officers, directors and greater than 10% beneficial owners of our Class A and Class B Common Shares complied with the reporting requirements +of Section 16(a) of the Exchange Act. +Compensation +Principles for Members of Board of Directors +We +plan not to provide director fees to board members who also receive salaries from MDB, its subsidiaries, or partner companies. Should +we appoint independent directors, the board of directors will decide their compensation upon their appointment and on an ongoing basis +thereafter. +We +do not have any defined a compensation plan for our directors. We may adopt one or more forms of compensation arrangements, including +cash and stock-based compensation arrangements in the future. Any stock-based compensation plans will be subject to the approval of the +holders of the Class A Common Shares as required by the listing rules of Nasdaq and any other applicable laws. +We +also will reimburse any persons that are independent members of our board of directors for their reasonable expenses incurred in connection +with attending meetings of our board of directors, committee meetings and other activities they undertake on our behalf and on behalf +of our subsidiaries and partner companies. +Director +Compensation +The +following table sets forth the compensation earned by or awarded or paid in 2024 and 2023 to the individuals who served as our independent +directors during such period. +Name +Year +Fee +Bonus +Shares +Options +Awards +Nonequity +Incentive +Plan +Compensation +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +Total +Susanne Meline +2023 +$ 50,000 +- +- +- +- +- +- +$ 50,000 +Susanne Meline +2024 +$ 50,000 +- +$ 136,200 +- +- +- +- +$ 186,200 +Matthew Hayden +2023 +$ 50,000 +- +- +- +- +- +- +$ 50,000 +Matthew Hayden +2024 +$ 50,000 +- +$ 272,400 +- +- +- +- +$ 322,400 +Sean Magennis +2023 +$ 50,000 +- +- +- +- +- +- +$ 50,000 +Sean Magennis +2024 +$ 50,000 +- +$ 136,200 +- +- +- +- +$ 186,200 +Dan Torpey +2024 +$ 50,000 +$ 25,000 +- +- +- +- +- +$ 75,000 +70 +Limitation +of Liability of Directors and Indemnification of Directors and Officers +MDB +provides indemnification to each person who was or is a party or is threatened to be made a party to or is involved in any threatened, +pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that +he, or a person of whom he is the legal representative, is or was a director or officer or is or was serving at the request of MDB as +a director or officer of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect +to employee benefit plans against all expenses, liability, and loss. The board may authorize the advance of expenses in connection with +any proceeding where the person is entitled to indemnification. MDB may purchase and maintain insurance to protect itself and any director, +officer, employee or other agent against any expense, whether or not MDB would have the power to indemnify the person. +Insofar +as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons +pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against +public policy as expressed in the Securities Act and is, therefore, unenforceable. +Indemnification +Agreements +We +enter into indemnification agreements with each of the persons serving on the board of directors and executive officers of MDB. The indemnification +agreements provide for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee +in connection with threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. The indemnification +agreements also provide for the advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or +other adjudication, provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately +found not to be entitled to indemnification by us. The indemnification agreement sets forth procedures for making and responding to a +request for indemnification or advancement of expenses, as well as dispute resolution procedures that apply to any dispute between us +and an indemnitee arising under the indemnification agreements. +We +also arrange that there are indemnification agreements between our partner companies and their officers and directors. These indemnification +agreements provide for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee +in connection with threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. The indemnification +agreements also provide for the advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or +other adjudication, provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately +found not to be entitled to indemnification by us. The indemnification agreement form sets forth procedures for making and responding +to a request for indemnification or advancement of expenses, as well as dispute resolution procedures that apply to any dispute between +us and an indemnitee arising under the indemnification agreements. +71 +Item +11. Executive Compensation +Executive +Compensation +This +section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive +officer and our next two most highly compensated executive officers in respect of their service to our company during the years ended +December 31, 2024, and 2023. The amounts indicated for the year ending December 31, 2024, do not include any amounts that may be awarded +in 2025 as bonus compensation. We refer to these individuals as our named executive officers. The compensation information disclosed +herein for our three named executive officers is disclosed in accordance with SEC requirements; such disclosure does not include the +compensation for our other executive officers. Our named executive officers for the year ended December 31, 2024 and 2023 respectively, +are: +Name and +Principal Position +Year +Salary +Bonus +Shares +Options +Awards +Non-equity +Incentive +Plan +Compensation +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +Total +Christopher Marlett, CEO (1) +2024 +$ 350,000 +$ - +$ 340,500 +$ 12,673 +$ - +$ - +$ - +$ 703,173 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +2024 +$ 300,000 +$ - +$ 681,000 +$ 152,078 +$ - +$ - +$ - +$ 1,133,078 +Anthony DiGiandomenico, Head of New Venture Discovery +2024 +$ 300,000 +$ - +$ 340,500 +$ 12,673 +$ - +$ - +$ - +$ 653,173 +Options +Exercisable as of December 31, 2024 +Name +Number of +securities +underlying +unexercised +options +exercisable +Number of +securities +underlying +unexercised +options +unexercisable +Equity +incentive +plan awards: +Number of +securities +underlying +unexercised +unearned +options +Option +exercise price +Option +expiration +date +Christopher Marlett, CEO +20,343 +- +5,627 +$ 2.44 +01/31/2028 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +244,115 +- +67,521 +$ 2.44 +01/31/2028 +Anthony DiGiandomenico, Head of New Venture Discovery +20,343 +- +5,627 +$ 2.44 +01/31/2028 +Name and +Principal Position +Year +Salary +Bonus +Shares +Options +Awards +Non-equity +Incentive +Plan +Compensation +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +Total +Christopher Marlett, CEO (1) +2023 +$ 350,000 +$ - +$ - +$ 12,650 +$ - +$ - +$ - +$ 362,650 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +2023 +$ 300,000 +$ - +$ - +$ 151,800 +$ - +$ - +$ - +$ 451,800 +Anthony DiGiandomenico, Head of New Venture Discovery +2023 +$ 300,000 +$ - +$ - +$ 12,650 +$ - +$ - +$ - +$ 312,650 +72 +Options +Exercisable as of December 31, 2023 +Name +Number of +securities +underlying +unexercised +options +exercisable +Number of +securities +underlying +unexercised +options +unexercisable +Equity +incentive +plan awards: +Number of +securities +underlying +unexercised +unearned +options +Option +exercise price +Option +expiration +date +Christopher Marlett, CEO +15,149 +- +21,642 +$ 2.44 +01/31/2028 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +129,848 +- +181,788 +$ 2.44 +01/31/2028 +Anthony DiGiandomenico, Head of New Venture Discovery +15,149 +- +21,642 +$ 2.44 +01/31/2028 +Equity +Compensation +From +time to time, in addition to the cash compensation, we grant equity based awards to our named executive officers, which are generally +subject to vesting based on each of our named executive officer’s continued service with us. +Executive +Employment Arrangements +Christopher +Marlett +The +Company, through MDB Management, entered into an employment agreement with Christopher Marlett on April 15, 2022. Mr. Marlett acts as +the Chief Executive Officer of the Company. Mr. Marlett is paid an initial base annual salary of $350,000, which may be increased at +the discretion of the board of the Company. He is also entitled to an annual bonus each fiscal year, one-third of which is purely discretionary, +and two-thirds of which to be determined by the board of the Company based on agreed key performance indicators. Mr. Marlett is entitled +to participate in benefit plans of the Company generally available to employees and executives. Mr. Marlett will generally work in the +Dallas, Texas metropolitan area, and he is to be reimbursed for expenses associated with his employment. +Mr. +Marlett was granted 1,000,000 RSUs for Class A Common Shares which vest over five years of the employment agreement, a portion of the +RSUs have a performance condition tied to the vesting, contingent on his continued employment with the Company. On April 15, 2024 Mr. +Marlett forfeited 50,000 RSUs, leaving 950,000 RSUs available for vesting. +The +employment agreement for Mr. Marlett provides for termination under a number of circumstances, including for and without cause, all of +which are set forth with particularity in the agreement. Depending on the circumstance, Mr. Marlett will be paid certain severance amounts +of up to a year’s salary and pro rata amounts of the annual bonus, and various insurance premiums for health, dental and vision +continued under the COBRA benefits. The agreement provides, in addition to any director indemnification agreement, indemnification in +relation to acts undertaken as an executive of the Company. +Mo +Hayat +The +Company, through MDB Management, entered into an employment agreement with Mo Hayat on April 15, 2022. Mr. Hayat currently acts as +the Head of Corporate Development & Chief Legal Officer of the Company. Mr. Hayat is +paid an initial base annual salary of $300,000, which may be increased at the discretion of the board of the Company. He is also +entitled to an annual bonus each fiscal year, one-third of which is purely discretionary, and two-thirds of which to be determined +by the board of the Company based on agreed key performance indicators. Mr. Hayat is entitled to participate in benefit plans of the +Company generally available to employees and executives. Mr. Hayat will generally work in the Los Angeles, California metropolitan +area, and he is to be reimbursed for expenses associated with his employment. +73 +Mr. +Hayat was granted 1,000,000 RSUs for Class A Common Shares which vest over five years of the employment agreement, a portion of the RSUs +have a performance condition tied to the vesting, contingent on his continued employment with the Company. +The +employment agreement for Mr. Hayat provides for termination under a number of circumstances, including for and without cause, all of +which are set forth with particularity in the agreement. Depending on the circumstance, Mr. Hayat will be paid certain severance amounts +of up to a year’s salary and pro rata amounts of the annual bonus, and various insurance premiums for health, dental and vision +continued under the COBRA benefits. The agreement provides, in addition to any director indemnification agreement, indemnification in +relation to acts undertaken as an executive of the Company. +Jeremy +James +The +Company, through MDB Management, has employed Mr. Jeremy James on an at-will basis since June 8, 2022. Mr. James currently acts as +the Chief Financial Officer of the Company. Mr. James is paid an initial base annual salary of $250,000, which may be increased at +the discretion of the board of the Company. He is also entitled to an annual bonus each fiscal year, one-third of which is purely +discretionary, and two-thirds of which to be determined by the board of the Company based on agreed key performance indicators. Mr. +James is entitled to participate in benefit plans of the Company generally available to employees and executives. Mr. James will +generally work in the Dallas, Texas metropolitan area, and he is to be reimbursed for expenses associated with his +employment. +Mr. +James was granted 100,000 RSUs for Class A Common Shares that vest over five years on each anniversary of the employment, contingent +on his continued employment of Mr. James. +Equity +Incentive Plan +MDB +adopted an equity incentive award plan, the 2022 Equity Incentive Award Plan, that permits it to grant directors, officers, employees +and others that contribute to the success of the Company stock options, restricted stock, restricted share units, deferred stock and +other equity-based awards. The ultimate value of these various awards is dependent on increases in our Class A Common Share price. Awards +are granted to provide the holder of an award with a personal financial interest in our long-term success, encourage retention through +vesting provisions and enable us to compete for the services of employees in an extremely competitive market and industry. Objectives +of the long-term incentive portion of our compensation package includes aligning the personal and financial interests of management and +other employees with shareholder interests; balancing short-term decision-making with a focus on improving shareholder value over the +long-term; and providing a means to attract, reward and retain a skilled management team. +The +2022 Equity Incentive Award Plan provides for award grants of up to a base amount of 6,000,000 Class A Common Shares, plus an additional +25% of the issued and outstanding Class A Common Shares outstanding from time to time. As of December 31, 2023, there were 7,073,908 +Class A Common Shares committed to the plan. Of this amount, 5,675,000 Class A Common Shares were under outstanding awards, and there +were 1,398,908 Class A Common Shares available for future grant. The plan is characterized as an “evergreen” plan, which +means as the number of Class A Common Shares outstanding increases, the number of Class A Common Shares available for grant under the +2022 Equity Incentive Award Plan increases. Shareholder approval is required for the plan to comply with certain IRS and Nasdaq requirements. +Both the board of directors and shareholders have approved the plan. +74 +The +board of directors may grant awards under the plan for up to ten years from the date of plan adoption. The board of directors or a committee +thereof will determine the form of award and its terms, such as the vesting period, the exercise period, any vesting criteria that might +include performance goals and termination provisions. Typically, termination will be as a result of retirement, disability and the end +of employment. Awards may not be issued at less than the fair market value of a Class A Common Share at the time of award. Although awards +are typically exercised for a cash payment, the board of directors or applicable committee may issue the awards on a net exercise, or +cashless, basis. Management makes recommendations to the board of directors or committee about the form of the award, the amount of the +award levels and its terms. Management monitors overhang (a measure of potential earnings dilution from stock awards) as well as run +rate (the rate at which stock awards are being awarded from our equity plans) when making recommendations to the board of directors or +applicable committee regarding plan awards. +Outstanding +Equity Awards Under Plan as of December 31, 2024 +MDB +has granted restricted stock unit, or RSU, awards to Messrs. Marlett, Hayat and James for an aggregate of 1,930,000 Class A Common Shares, +which awards vest as to 20% each year from the date of the person’s employment agreement, so long as the person remains employed +by MDB. +MDB +has issued RSU awards to certain key persons for an aggregate of 1,850,000 Class A Common Shares, These awards generally vest as to 20% +of one-half of the total number of granted RSUs on the thirteenth (13) month anniversary of the listing of the Class A Common Shares +on a United States national exchange and then at the rate of 10% of one-half of the total number of RSUs each six months after the date +of the initial vesting until the last vesting on the fifth year anniversary of the date of grant, at which any previously unvested RSUs +will fully vest. The other half of the RSUs will vest at any time after the 13th month anniversary of the listing of the Class A Common +Shares on a United States national securities exchange and before the five year anniversary of the date of grant, if and when (y) a Class +A Common Share has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar days at an average +price of $20.00 or more during the period commencing the date of grant and prior to the five year anniversary of the date of grant, with +an average monthly trading volume of 2,000,000 Class A Common Shares or more during the 90 consecutive calendar day period, or (z) a +Class A Common Shares has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar days at +an average price of $25.00 or more during the period commencing the date of grant and prior to the five year anniversary of the date +of grant; provided further, that if there is a distribution of cash, stock or other property by the Company on the Class A Common Shares, +then the foregoing average amounts of $20.00 or $25.00 will be reduced by the value of any one or more per share distributions after +the date of grant until vested. +75 +MDB +has issued RSU awards to various employees and other persons for an aggregate of 1,615,000 Class A Common Shares that generally vest +over a period of five years, with 20% of granted RSUs vesting on the thirteenth (13) month anniversary of the listing of the Class A +Common Shares on a United States national exchange and then at the rate of 10% of the original amount of RSUs each six months after the +date of the initial vesting until the last vesting on the fifth year anniversary of the date of grant, at which any previously unvested +RSUs will fully vest. +Each +of the above RSU awards have provisions for an acceleration of vesting for a change of control of MDB and in the discretion of the board +of directors or a committee thereof and may be adjusted by the board of directors or a committee thereof as provided in the plan. +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The +following table sets forth information regarding the beneficial ownership of our Class A Common Shares and Class B Common Shares by: +● +each +shareholder of our Class A Common Shares who is known by us to beneficially own 5% or more of our Class A Common Shares; +● +each +shareholder of our Class B Common Shares; +● +each +of our executive officers; +● +each +of the members of the board of directors; and +● +all +of the members of the board of directors and current executive officers as a group. +Beneficial +ownership is determined based on the rules and regulations of the SEC as defined in Rule 13d-3 of the Exchange Act. A person has beneficial +ownership of Class A Common Shares and Class B Common Shares if such individual has the power to vote and/or dispose of the shares. This +power may be sole or shared and direct or indirect. In computing the number of shares beneficially owned by a person and the percentage +ownership of that person, shares that are subject to options or warrants held by that person and exercisable as of, or within 60 days +of, the initial closing are counted as outstanding. These shares, however, are not counted as outstanding for the purposes of computing +the percentage ownership of any other person(s). Except as may be indicated in the footnotes to this table and pursuant to applicable +community property laws, each person named in the table has sole voting and dispositive power with respect to the Class A Common Shares +and Class B Common Shares set forth opposite that person’s name. Unless indicated below, the address of each individual listed +below is c/o MDB Capital Holdings, LLC, 14135 Midway Road, Suite G-150, Addison, TX 75001. +Applicable +percentage ownership in the following table is based on 4,950,632 Class A Common Shares and 5,000,000 Class B Common Shares outstanding +as of March 31, 2025. Because the Class A Common Shares and the Class B Common Shares vote together on all matters, we also give the +percentage ownership of the combined classes, allocating one vote for each Class A Common Share and five votes for each Class B Common +Share. +76 +Class A +Class B +Number +(1) +Percent of +Class (2) +Number +(1) +Percent of +Class (3) +Percent of +Combined +Total +Voting +Power % (4) +Named Executive Officers and Directors +Christopher Marlett (5) +129,933 +2.6 % +3,755,000 +75.1 % +63.1 % +Anthony DiGiandomenico (5) +80,693 +1.6 % +1,245,000 +24.9 % +21.1 % +George Brandon (5) +90,000 +1.8 % +- +- +0.3 % +Mo Hayat (5) +100,000 +2.0 % +- +- +0.3 % +Jeremy W. James (6) +13,339 +0.3 % +- +- +0.0 % +Susanne Meline (6) +44,500 +0.9 % +- +- +0.1 % +Matthew Hayden (7) +70,000 +1.4 % +- +- +0.2 % +Sean Magennis (6) +20,000 +0.4 % +- +- +0.1 % +Dan Torpey (8) +7,100 +0.1 % +0.0 % +All executive officers and directors as a group (8 persons) (9) +555,565 +11.2 % +5,000,000 +100.0 % +85.3 % +(1) +Beneficial +ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. +(2) +Based +on a total of 4,950,632 Class A Common Shares issued and outstanding as of March 31, 2025. +(3) +Based +on a total of 5,000,000 shares of the Class B Common Shares issued and outstanding as of March 31, 2025. +(4) +Based +on a total of 9,950,632 Class A and Class B Common Shares issued and outstanding as of March 31, 2025, with each Class A Common Share +entitled to one vote and each Class B Common Share entitled to five votes, representing a total of 29,950,632 votes in respect of +shareholder matters presented to the holders of Common Shares. +(5) +Does +not include 900,000 restricted share units (RSUs) for the Class A Common Shares vesting through April 2027. +(6) +Does +not include 80,000 restricted share units (RSUs) for the Class A Common Shares vesting through April to June of 2027. +(7) +Does +not include 60,000 restricted share units (RSUs) for the Class A Common Shares vesting through April to June of 2027. +(8) +Does +not include 100,000 restricted share units (RSUs) for the Class A Common Shares vesting through June of 2029. +(9) +Does +not include 4,000,000 restricted share units (RSUs) for the Class A Common Shares vesting through April of 2027 through June of 2029. +Item +13. Certain Relationships and Related Transactions, and Director Independence +Transactions +with Related Parties +Marlett +and DiGiandomenico own all the Class B Common Shares, each of which has five votes per share and vote together with the Class A Common +Shares as a single class on all matters on which a vote of the common shares is required, including the board of directors. +Marlett +and DiGiandomenico own MDB Capital S.A., a Nicaraguan entity, that provides services to the Company and its subsidiaries on an +out-source, as requested basis. During the years ended December 31, 2024, and 2023, respectively, the Company paid MDB Capital S.A. +$1,485,822 and $1,123,401, respectively. MDB Capital Holdings, LLC continues to have a service agreement with MDB Capital +S.A. +During +the year ended December 31, 2024, PatentVest, a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with ENDRA Life +Sciences Inc – NDRA on Nasdaq, a company for which one of our executive officer serve as a board member. Anthony DiGiandomenico, +our Chief of Transactions. For the year ended December 31, 2024, there were no revenue recognized between MDB Capital entities and ENDRA. +However, costs incurred amounting to $80,995 related to transactions with ENDRA were recognized during the year. +During +the year ended December 31, 2024, PatentVest, a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with eXoZymes, +a company of which the company owns 47% of recongtized revenus of $41,400. +During +the year ended December 31, 2024, the Company recorded related party accrued receivables totaling $63,759. This amount includes $41,400 +for services performed by Patentvest on behalf of eXoZymes and $22,359 related to taxes paid by the Company on behalf of certain officers, +which was reimbursed in full by January 31, 2025. Additionally, the Company recorded accrued expenses of $22,842 payable to officers +and directors, representing reimbursable expenses incurred in the ordinary course of business. All transactions were conducted on an +arm’s-length basis and are expected to be settled in the normal course of operations. +77 +PatentVest, +a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with ENDRA, a company for which one of our executive +officers serves as a board member, Anthony DiGiandomenico, our Chief of Transactions. For the years ended December 31, 2024 and 2023, respectively, there were no revenues recognized between MDB Capital +entities and ENDRA. In 2024, all costs incurred amounting to $80,995 related to transactions with ENDRA have been recognized, in +2023 costs incurred amounting to $16,665 related to transactions with ENDRA were deferred. +General +Policy for Evaluating Related Party Transactions +Related +party transactions will be reviewed by the audit committee, generally under its authority to review situations that give rise to conflicts +of interest, as set forth in the Audit Committee Charter. The policy of the Company is to evaluate those situations where an individual’s +private interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of the Company. A common +situation is one that involves a transaction between the Company and a party that is a director, officer or employee, or their respective +related parties or affiliates or an entity under the control of those persons. The audit committee shall review the material facts of +all related party transactions with the objective of determining to either approve or disapprove the Company entering into the transaction. +The audit committee will review the relevant facts and circumstances of a related party transactions taking into account, among other +factors, (i) whether the transaction was undertaken in the ordinary course of business of the Company, (ii) whether the related party +transaction was initiated by the Company or the related party, (iii) whether the transaction is proposed to be, or was, entered into +on terms no less favorable to the Company than terms that could have been reached with an unrelated third party, (iv) the purpose of, +and the potential benefits to the Company of, the related party transaction, (v) the approximate dollar value and the terms of the obligations +involved in the related party transaction, (vi) the extent of the related party’s interest in the transaction, and (vii) any other +information that would be material to investors in light of the circumstances of the particular transaction. Approval may be a standing +approval for the same types of transactions, where it is warranted. The audit committee may also ratify related party transactions that +have occurred, but related parties are encouraged to seek prior approval of a transaction so as not to face the situation of having to +unwind or modify it. +Item +14. Principal Accountant Fees and Services +During +the years ended December 31, 2024 and 2023, RBSM, LLP, respectively, was the Company’s independent registered public accounting +firm. +The +following table sets forth fees billed to us by our independent registered public accounting firm: +RBSM LLP +2024 +RBSM LLP +2023 +Audit fees (1) +$ 250,000 +$ 150,000 +Audit-related fees (2) +100,000 +135,000 +Tax fees +- +- +Total principal accountant fees and services +$ 350,000 +$ 285,000 +(1) +Audit +fees consisted primarily of fees for the audit of our annual financial statements and reviews of the financial statements included +in our quarterly reports and current reports. +(2) +Audit-related +fees consist of fees billed for services that are reasonably related to the performance of the audit or review of our consolidated +financial statements and are not reported under Audit fees. +78 +PART +IV +Item +15. Exhibits and Financial Statement Schedules +a. +Documents Filed as Part of this Report +The +following consolidated financial statements of MDB Capital Holdings, LLC are filed as part of this Annual Report on Form 10-K: +Page +Number +CONSOLIDATED +FINANCIAL STATEMENTS INDEX +F-1 +Report of Independent Registered Public Accounting Firm (RBSM LLP; New York, NY, PCAOB ID No. 587) +F-2 +Consolidated Balance Sheets –December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations – Years Ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Changes in Equity – Years Ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows – Years Ended December 31, 2024 and 2023 +F-6 +Notes to Consolidated Financial Statements +F-7 +b. +Exhibits +See +“Exhibit Index” on the page following the consolidated financial statements and related footnotes and the signature page +to this Annual Report on Form 10-K. +c. +Financial Statement Schedules +No +financial statement schedules are filed herewith because (i) such schedules are not required, or (ii) the information has been presented +in the aforementioned financial statements. +Item +16. Form 10-K Summary +The +Company has elected not to provide the summary of information under this item. +79 +Page +Number +CONSOLIDATED +FINANCIAL STATEMENTS INDEX +F-1 +Report of Independent Registered Public Accounting Firm ( RBSM LLP ; New York , NY, PCAOB ID No. 587 ) +F-2 +Consolidated Balance Sheets –December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations – Years Ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Changes in Equity – Years Ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows – Years Ended December 31, 2024 and 2023 +F-6 +Notes to Consolidated Financial Statements +F-7 +F- 1 +New +York Office: +805 +Third Avenue +New +York, NY 10022 +212.838-5100 +www.rbsmllp.com +Report +of Independent Registered Public Accounting Firm +Members +and Board of Directors of +MDB +Capital Holdings, LLC and Subsidiaries +Addison, +Texas +Opinion +on the Consolidated Financial Statements +We have +audited the accompanying consolidated balance sheets of MDB Capital Holdings, LLC and Subsidiaries (collectively, the +“Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, equity and cash +flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the +consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, +the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for +each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the +United States of America. +Basis for Opinion +These consolidated financial +statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight +Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance +with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether +the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to +have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required +to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness +of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing +procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing +procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures +in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates +made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ +RBSM LLP +We +have served as the Company’s auditor since 2023. +New +York, NY +March +31, 2025 +F- 2 +MDB +CAPITAL HOLDINGS, LLC +CONSOLIDATED +BALANCE SHEETS +December 31, 2024 +December 31, 2023 +Assets +Cash and cash equivalents +$ 20,437,492 +$ 6,109,806 +Cash segregated in compliance with regulations +843,741 +1,247,881 +Grants receivable, includes unbilled receivables of $ 0 and $ 695,598 +- +882,319 +Related party receivables +63,759 +- +Clearing deposits +1,737,771 +260,000 +Prepaid expenses and other current assets +513,249 +523,788 +Investment securities, at amortized cost (U.S. Treasury Bills) +- +24,658,611 +Investment securities, at fair value (held by our licensed broker dealer) (Notes 1 and 2) +5,858,336 +5,771,634 +Equity method investment +41,763,568 +- +Investment securities, at cost less impairment +- +200,000 +Deferred offering cost +- +69,303 +Deferred costs related to deferred revenue +26,638 +75,328 +Property and equipment, net +90,491 +866,490 +Operating lease right-of-use asset, net +641,354 +2,320,119 +Total assets +$ 71,976,399 +$ 42,985,279 +LIABILITIES AND EQUITY +Accounts payable +$ 323,926 +$ 578,214 +Accrued expenses +72,188 +1,105,078 +Related party payables +22,842 +- +Payables to non-customers +41 +1,405,293 +Payables to customers +772,565 +- +Deferred grant reimbursement +- +140,703 +Deferred revenue +- +20,000 +Operating lease liabilities +711,503 +2,415,889 +Total liabilities +1,903,065 +5,665,177 +Commitments and Contingencies (Note 8) +- +- +Equity: +Preferred shares, 10,000,000 authorized shares at no par value; 0 issued and outstanding +- +- +Class A Common Shares, 95,000,000 authorized shares at no par value; 4,950,632 and 4,295,632 shares issued and outstanding, respectively +- +- +Class B Common Shares, 5,000,000 authorized shares at no par value; 5,000,000 and 5,000,000 shares issued and outstanding, respectively +- +- +Common stock, value +- +- +Additional paid-in-capital +68,720,930 +49,405,779 +Accumulated income (deficit) +1,442,075 +( 12,092,927 ) +Total MDB Capital Holdings, LLC equity +70,163,005 +37,312,852 +Non-controlling interest +( 89,671 ) +7,250 +Total equity +70,073,334 +37,320,102 +Total liabilities and equity +$ 71,976,399 +$ 42,985,279 +See +accompanying notes to consolidated financial statements +F- 3 +MDB +CAPITAL HOLDINGS, LLC +CONSOLIDATED +STATEMENTS OF OPERATIONS +2024 +2023 +Year Ended December 31, +2024 +2023 +Operating income: +Unrealized (loss)/gain on investment securities, net (from our licensed broker dealer) (Notes 1 and 2) +$ ( 274,835 ) +$ 1,503,649 +Realized (loss)/gain on investment securities, net (from our licensed broker dealer) +- +8 +Fee income (from our licensed broker dealer) +2,220,620 +4,233,120 +Impairment of investment securities +( 200,000 ) +( 50,000 +Other operating income +411,488 +308,250 +Total operating income, net +2,157,273 +5,995,027 +Operating costs: +General and administrative costs: +Compensation +20,056,796 +8,627,022 +Operating expense, related party +1,485,822 +1,123,401 +Professional fees +3,112,050 +1,695,017 +Information technology +922,175 +602,393 +Clearing and other charges +1,136,662 +389,963 +General and administrative-other +2,608,107 +1,532,197 +Total general and administrative costs +29,321,612 +13,969,993 +Research and development costs, net of grants amounting to $ 2,002,650 and $ 2,954,208 +1,467,871 +528,178 +Total operating costs +30,789,483 +14,498,171 +Net operating loss +( 28,632,210 ) +( 8,503,144 ) +Other income and expenses: +Miscellaneous income +112,000 +- +Interest income +1,179,318 +919,345 +Interest expense +( 71,629 ) +- +Gain related to dilution events +129,339 +- +Gain on deconsolidation of subsidiary +39,307,217 +- +Net income (loss) before income taxes +12,024,035 +( 7,583,799 ) +Income taxes +2,143 +127,918 +Net income (loss) before equity method investee +12,021,892 +( 7,711,717 +) +Equity in loss of equity method investee +( 419,670 ) +- +Net income (loss) +11,602,222 +( 7,711,717 ) +Less net loss attributable to non-controlling interest +( 89,869 ) +( 742,900 ) +Net income (loss) attributable to MDB Capital Holdings, LLC +$ 11,692,091 +$ ( 6,968,817 ) +Income (loss) per share attributable to MDB Capital Holdings, LLC: +Income (loss) per Class A Common Share – basic +$ 1.31 +$ ( 1.04 ) +Weighted average number of Class A Common Shares outstanding – basic +4,424,484 +3,099,285 +Income (loss) per Class B Common Share – basic +$ 1.18 +$ ( 0.75 ) +Weighted average of number Class B Common Shares outstanding – basic +5,000,000 +5,000,000 +Income (loss) per Class A Common Share –diluted +$ 0.81 +$ ( 0.37 ) +Diluted number of Class A Common Shares outstanding +9,462,904 +8,817,705 +Income (loss) per Class B Common Share –diluted +$ 0.81 +$ ( 0.75 ) +Diluted number of Class B Common Shares outstanding +5,000,000 +5,000,000 +See +accompanying notes to consolidated financial statements. +F- 4 +MDB +CAPITAL HOLDINGS, LLC +CONSOLIDATED +STATEMENTS OF CHANGES IN EQUITY +Years +Ended December 31, 2024 and 2023 +Shares +Amount +Shares +Amount +Capital +Deficit +Interest +Equity +Class A +Common Shares +Class B +Common Shares +Paid-In +Accumulated +Noncontrolling +Total +Shares +Amount +Shares +Amount +Capital +Deficit +Interest +Equity +Balance, December 31, 2023 +4,295,632 +$ - +5,000,000 +$ - +$ 49,405,779 +$ ( 12,092,927 ) +$ 7,250 +$ 37,320,102 +Ownership change of non-controlling interest +- +- +- +- +- +- +198 +198 +Issuance of Class A Common Shares +655,000 +- +- +- +- +- +- +- +Stock-based compensation +- +- +- +- +14,435,172 +- +- +14,435,172 +Effect of deconsolidation of subsidiary +- +- +- +- +4,879,979 +- +1,835,661 +6,715,640 +Net income (loss) +- +- +- +- +- +13,535,002 +( 1,932,780 ) +11,602,222 +Balance, December 31, 2024 +4,950,632 +$ - +5,000,000 +$ - +$ 68,720,930 +$ 1,442,075 +$ ( 89,671 ) +$ 70,073,334 +Class A +Common Shares +Class B +Common Shares +Paid-In +Accumulated +Noncontrolling +Total +Shares +Amount +Shares +Amount +Capital +Deficit +Interest +Equity +Balance, December 31, 2022 +2,628,966 +$ - +5,000,000 +$ - +$ 27,764,453 +$ ( 5,124,110 ) +$ 468,665 +$ 23,109,008 +Balance +2,628,966 +$ - +5,000,000 +$ - +$ 27,764,453 +$ ( 5,124,110 ) +$ 468,665 +$ 23,109,008 +Issuance of Class A Common Shares, net costs of initial public offering +1,666,666 +- +- +- +17,444,659 +- +- +17,444,659 +Issuance of warrants to purchase Class A Common Shares +- +- +- +- +65,411 +- +- +65,411 +Stock-based compensation +- +- +- +- +4,131,256 +- +281,485 +4,412,741 +Net loss +- +- +- +- +- +( 6,968,817 ) +( 742,900 ) +( 7,711,717 ) +Net income (loss) +- +- +- +- +- +( 6,968,817 ) +( 742,900 ) +( 7,711,717 ) +Balance, December 31, 2023 +4,295,632 +$ - +5,000,000 +$ - +$ 49,405,779 +$ ( 12,092,927 ) +$ 7,250 +$ 37,320,102 +Balance +4,295,632 +$ - +5,000,000 +$ - +$ 49,405,779 +$ ( 12,092,927 ) +$ 7,250 +$ 37,320,102 +See +accompanying notes to consolidated financial statements. +F- 5 +MDB +CAPITAL HOLDINGS, LLC +CONSOLIDATED +STATEMENTS OF CASH FLOWS +Years +Ended December 31, 2024 and 2023 +Year Ended December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net income (loss) +$ 11,602,222 +$ ( 7,711,717 ) +Adjustments to reconcile net income (loss) to net cash used in operating activities: +Unrealized loss (gain) on investment securities, net +274,835 +( 1,503,649 ) +Accretion of investments at amortized cost (U.S Treasury Bills) +( 533,780 ) +( 710,584 ) +Realized loss (gain) on investment securities, net (from our licensed broker dealer) +- +( 8 ) +Stock-based compensation +14,435,172 +4,412,741 +Effect of deconsolidation of subsidiary +6,715,640 +- +Depreciation of property and equipment +229,920 +196,938 +Non-cash lease expense +- +81,964 +Deferred costs related to revenue +48,690 +( 75,328 ) +Dilution of deferred grant reimbursement +( 40,904 ) +( 38,880 ) +Gain on deconsolidation +( 39,307,217 ) +- +Portion of loss from equity investment +419,670 +- +Gain related to dilution events +( 129,339 ) +- +Purchases of investment securities, at fair value (made by our licensed broker dealer) +- +( 1,587,500 ) +Proceeds from sales of investment securities (from our licensed broker dealer) +- +632,851 +Warrants issued as part of an investment banking deal +297,121 +165,087 +Share of loss from equity method investment +- +- +Income recognized from warrants received +( 658,658 ) +( 2,645,620 ) +Impairment of investment securities +200,000 +50,000 +Deferred revenue +( 20,000 ) +20,000 +Change in ROU Asset +1,678,765 +- +Change in lease liability +( 1,704,386 ) +- +Changes in operating assets and liabilities: +(Increase) decrease in - +Grants receivable +882,319 +( 72,787 ) +Related party receivables +( 63,759 ) +- +Prepaid expenses and other current assets +10,539 +( 473,970 ) +Clearing deposits +( 1,477,771 ) +- +Increase (decrease) in - +Accounts payable +( 254,090 ) +( 120,786 ) +Accrued expenses +( 1,032,890 ) +850,333 +Related party payables +22,842 +- +Payables to customers +772,565 +- +Payables to non-customers +( 1,405,252 ) +1,405,293 +Net cash used in operating activities +( 9,037,746 ) +( 7,125,622 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchases of investment securities, at amortized cost (U.S. Treasury Bills) +( 17,766,330 ) +( 32,455,756 ) +Proceeds from payments and maturities of investment securities, at amortized cost (U.S. Treasury Bills) +42,958,721 +24,696,649 +Accretion of equity investments +( 2,746,682 ) +- +Deferred grant reimbursement +( 99,799 ) +( 35,415 ) +Purchases of property and equipment +546,079 +( 438,784 ) +Net cash provided by (used in) investing activities +22,891,989 +( 8,233,306 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from initial public offering +- +19,999,992 +Costs of initial public offering +- +( 2,166,698 ) +Acquisition of non-controlling interest in PatentVest +69,303 +( 69,303 ) +Net cash provided by financing activities +69,303 +17,763,991 +NET INCREASE IN CASH AND CASH EQUIVALENTS +13,923,546 +2,405,063 +CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR +7,357,687 +4,952,624 +CASH AND CASH EQUIVALENTS - END OF YEAR +$ 21,281,233 +$ 7,357,687 +Supplemental disclosures of cash flow information: +Cash paid for - +Interest +$ - +$ - +Income taxes +$ 2,143 +$ 127,918 +Non-cash investing and financing activities: +Record right-of-use asset and operating lease liability +$ - +$ 698,249 +Modification of lease - right-of-use asset and lease liability +$ - +$ 317,531 +Warrants received as part of an investment banking deal +$ 658,658 +$ 2,480,533 +Accretion of equity investments +$ 2,746,682 +$ - +Relinquishment of deferred costs of initial public offering from prior year +$ - +$ 323,224 +Investment securities, at cost less impairment, received in lieu of cash payment +$ - +100,000 +Issuance of warrants to purchase Class A stock related to the initial public offering closed on September 20, 2023 +$ - +$ 65,411 +The +following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the consolidated +balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows: +December 31, 2024 +December 31, 2023 +Cash and cash equivalents +$ 20,437,492 +$ 6,109,806 +Cash segregated in compliance with regulations +843,741 +1,247,881 +Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows +$ 21,281,233 +$ 7,357,687 +See +accompanying notes to consolidated financial statements. +F- 6 +MDB +CAPITAL HOLDINGS, LLC +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +Years +Ended December 31, 2024 and 2023 +1. +Organization and Description of Business +MDB +Capital Holdings, LLC (“the Company” or “MDB”), a Delaware limited liability company, is a holding company that +has three wholly-owned subsidiaries: MDB CG Management Company (“MDB Management”); Public Ventures, LLC, d/b/a MDB Capital (“Public Ventures”); +and PatentVest, Inc. (“PatentVest”), and MDB Minnesota One (“M1”). +MDB +Management is principally an “administrative” entity whose purpose is to conduct, and wherever possible, to consolidate shared +services/resources, for our US-based operations. +Public +Ventures is a U.S. registered broker-dealer under the Securities Exchange Act of 1934, and is a member of the Financial Industry Regulatory +Authority (“FINRA”) and the Texas State Securities Board. Public Ventures operates on a fully disclosed basis with a nonrelated +FINRA member firm, Interactive Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing deposit. +Interactive Brokers is the clearing firm and custodian of investments maintained by Public Ventures. +PatentVest +is a wholly-owned subsidiary that performs intellectual property validation services for Public Ventures’, due diligence functions +on the intellectual property of partner and prospective partner companies, and creates an intellectual property roadmap for such partner +companies. +M1 +is a majority owned subsidiary and was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology +from Mayo. The objective of the License Agreement is for Minnesota One to develop a small molecule senescence platform. +On +September 20, 2023, MDB completed an initial public offering (IPO), consisting of the sale of 1,666,666 shares of Class A Common Shares +at $ 12.00 per share, for gross proceeds of $ 19,999,992 . Accordingly, the Company received total gross proceeds of $ 19,999,992 from the +sale of 1,666,666 shares of Class A Common Shares, or $ 17,444,659 net of $ 2,555,333 of offering expenses. In conjunction with the IPO, +the Company issued warrants to the placement agent to purchase 16,667 shares of Class A Common Shares, exercisable upon issuance for +a period of 5 years at $ 15.00 per share, for a cash consideration of $ 0.001 /share. The placement agent’s warrants had a fair value +of $ 65,411 , as calculated pursuant to the Black-Scholes option-pricing model and accounted for as issuance costs that were accounted +for as equity instruments and recorded against paid in capital. The inputs used to determine the fair value was Common Stock price of +$ 12.00 , option exercise price of $ 15.00 , expected life in years of 2.45 years, with a contract life of 5 years, risk-free rate of 4.79 %, +expected annual volatility of 59.99 %, and annual rate of dividends of $ 0 . +On +July 1, 2024, the founding ownership of M1 had MDB owning 67 % and Mayo Foundation for Medical Education and Research (“Mayo”) +owning 33 % of the issued and outstanding common stock. M1 was formed with the purpose of developing pharmaceuticals, based on patents +and licensed technology from Mayo. After the initial formation of M1 and finalization and entry into a license agreement between Mayo +and M1, MDB entered into a Term Equity Purchase Agreement (“Purchase Agreement”) to provide capital for operations of M1 +in exchange for the issuance of shares of common stock of M1 to MDB. The objective of the License Agreement is for M1 to develop a small +molecule senescence platform. Under the terms of the License Agreement M1 has paid an up-front license fee to Mayo of One Hundred Fifty +Thousand Dollars ($ 150,000 ). To maintain its rights under the License Agreement, M1 is subject to achieving certain developmental and +funding milestones within designated time periods and to paying Mayo royalties on net sales of licensed products. Under the terms of +the Purchase Agreement, MDB may invest up to $ 5,000,000 over a five-year period into M1 in amounts and increments tied to its business +operating requirements. In an ancillary agreement to the license agreement, Mayo has the right of participation in future financings +of M1. +2. +Summary of Significant Accounting Policies +Basis +of Presentation and Principles of Consolidation +The +accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted +in the United States of America (“GAAP”) and include the financial statements of wholly-owned and majority owned subsidiaries. +All material intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interests at December 31, +2024 and 2023 relate to the interests of third parties in the partially owned subsidiaries. +The +managing members of the Company have a controlling interest in PatentVest, S.A., a company organized and based in Nicaragua (which was +renamed MDB Capital, S.A in 2022). As the Company itself does not have a controlling financial interest in this entity, management has +determined PatentVest, S.A. is not a variable interest entity and should not be consolidated as it has no ownership interests, so has +excluded this entity from the Company’s consolidated financial statements. It is the Company’s policy to reevaluate this +conclusion on an annual basis or if there are significant changes in ownership. +F- 7 +Deconsolidation +Upon +the occurrence of certain events and on a regular basis, the Company evaluates whether it no longer has a controlling interest in its +subsidiaries, including consolidated variable interest entities. If the Company determines it no longer has a controlling interest, the subsidiary is deconsolidated. +The Company records a gain or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of +(a) the fair value of any consideration received, (b) the fair value of any retained noncontrolling investment in the former subsidiary +and (c) the carrying amount of any noncontrolling interest in the subsidiary being deconsolidated, less (ii) the carrying amount of the +former subsidiary’s assets and liabilities. +The +Company evaluated whether the deconsolidation should be presented as a discontinued operation in its consolidated financial +statements as of the deconsolidation date. This assessment considers whether the deconsolidation constitutes a strategic shift that +has, or will have, a major impact on the Company’s operations or financial results. Based on this evaluation, the Company +concluded that the deconsolidation does not meet the criteria for presentation as a discontinued operation. Accordingly, the +Consolidated Statement of Operations includes the results of operations for the deconsolidated entity through November 14, 2024, the +effective date of deconsolidation. +Equity +method investment +The +Company applies the equity method to account for investments in entities where it has the ability to exercise significant influence +over the operating and financial policies of the investee. Under the equity method, the investment in eXoZymes, formerly known as +Invizyne, is initially recorded at cost and subsequently adjusted to reflect the Company’s proportional share of the +investee’s results of operations in its consolidated financial statements. Equity method investments are periodically reviewed +for any other-than-temporary declines in value. The Company’s investment in eXoZymes is presented as “Equity method +investment” on the consolidated balance sheet. +Any +excess of the acquisition cost over the Company’s share of the net fair value of eXoZymes’ identifiable assets and liabilities +at the acquisition date is recognized as goodwill, which is included in the carrying amount of the investment. +When +the Company increases its interest in an affiliate accounted for under the equity method while retaining significant influence, it applies +the acquisition method only to the additional interest acquired, leaving the previous interest unchanged. Conversely, when there is a +decrease in the interest in an affiliate accounted for under the equity method while retaining significant influence, the Company derecognizes +a proportionate part of its investment and recognizes any resulting gain or loss in profit or loss. +Income +Taxes +We +account for income taxes using the asset and liability method, under which we would recognize the amount of taxes payable or refundable +for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our +financial statements or tax returns. We measure current and deferred tax assets and liabilities based on provisions of enacted tax law. +We evaluate the realization of our deferred tax assets based on all available evidence and establish a valuation allowance to reduce +deferred tax assets when it is more likely than not that they will not be realized. +Use +of Estimates +The +preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported +amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the +reporting period, as well as the disclosure of contingent assets and liabilities. Some of those judgments can be subjective and complex, +and therefore, actual results could differ materially from those estimates under different assumptions or conditions. Management bases +its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements +taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets +and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used +to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable +assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from +those estimates. Significant estimates include those related to assumptions used in the valuation of investment securities, accruals +for potential liabilities, valuing equity instruments issued for services, assumptions used in the valuation of the equity method investment and gains +on the deconsolidation of the subsidiary, the estimate of the fair value of the lease liability and +related right of use assets, net realizable value of receivables, useful life of property and equipment, determining impairment of long-lived +assets, and the realization of any deferred tax assets. +Emerging +Growth Company +The +Company is an “emerging growth company,” or “EGC” as defined in Section 2(a) of the Securities Act of 1933, as +amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may +take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are required to +comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended +transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. +The Company has elected to opt out of the extended transition periods. +Cash +and Cash Equivalents +The +Company considers highly liquid investments with original maturities or remaining maturities upon purchase of three months or less to +be cash equivalents. There were $ 15,782,918 and $ 598,714 cash equivalents held by the Company at December 31, 2024 and 2023, respectively. +The +Company’s policy is to maintain its cash balances with financial institutions with high credit ratings and in accounts insured +by the Federal Deposit Insurance Corporation (the “FDIC”) and/or by the Securities Investor Protection Corporation (the +“SIPC”). The Company may periodically have cash balances in financial institutions in excess of the FDIC and SIPC +insurance limits of $ 250,000 +and $ 500,000 , +respectively. The Company considers highly liquid investments with original maturities or remaining maturities upon purchase of +three months or less to be cash equivalents. At December 31, 2024, the Company held $ 4,654,574 +of unsegregated cash and $ 15,782,918 +of cash equivalents. For the years ended December 31, 2024 and 2023, respectively, the Company had approximately $ 4,291,601 and +$ 3,943,000 of cash +and segregated cash in financial institutions in excess of FDIC insured limits. +F- 8 +The +Company periodically reviews the financial condition of the financial institutions and assesses the credit risk of such investments. +The Company did not experience any credit risk losses during the years ended December 31, 2024 and 2023. +The +Company’s membership agreement with the DTC requires that we maintain a line of credit with our settlement bank in the amount $ 2,000,000 , +to be drawn down upon as needed for self-clearing operations. The Company has established a line of credit with its settlement bank, +Lakeside Bank, which is collateralized by a $ 2,000,000 deposit of cash at Lakeside. The collateral amount may be withdrawn, but the availability +of the line of credit is dependent upon the maintenance of such compensating balance and is included in cash and cash equivalents on +the Statement of Financial Condition. +Segregated +Cash and Deposits +From +time to time the Company provides deposits or enters into agreements that would require funds to be held in a segregated cash +account. At December 31, 2024 and 2023, respectively, the Company had $ 843,741 +and $ 1,247,881 +of segregated cash consisting of funds held in reserve for customers and non-customers. +Clearing +Deposits +The +Company is obligated to maintain security deposits with the DTC and NSCC. At December 31, 2024 and 2023, these deposits totaled $ 1,737,771 +and $ 260,000 , respectively. +Prepaid +and other current assets +The +Company has prepaid and other current assets totaling $ 513,249 at +December 31, 2024 consisting of acquired intangible assets totaling $ 43,500 , +prepaid professional fees totaling $ 50,000 , +security deposits totaling $ 18,628 , +prepaid insurance $ 159,675 , +various prepaid expense of $ 151,606 , +and other assets of $ 89,840 . +Prepaid and other expenses totaling $ 523,788 at +December 31, 2023 consisted of acquired intangible assets totaling $ 43,500 , +prepaid professional fees totaling $ 95,000 , +security deposits totaling $ 47,380 , +various prepaid expense of $ 325,777 , +and other assets of $ 12,131 . +Leases +Leases +of the Company consist primarily of contracts for the right to use and direct use of an individual property. Leases were analyzed for +evidence of significant additional components and to determine if these components were separately identifiable within the context of +the contract. As an accounting policy, to account for these components, the Company has elected the practical expedient for property +leases that have both lease and non-lease components for them to be combined into a single component and account for as a lease. This +policy is effective for all current and future property operating leases and applied uniformly and will be disclosed as such within the +financial statements. Operating lease assets are included within right-of-use assets and the corresponding operating lease liabilities +are included within liabilities on the Company’s consolidated balance sheet as of December 31, 2024 and 2023. +The +Company has elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months +or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All +other right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the +lease commencement date. Because the Company’s leases do not provide an implicit rate of return, the Company used the Company’s +incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. +Stock +Based Compensation +Stock-based +compensation primarily consists of restricted stock units with service or market/performance conditions. Equity awards are measured at +the fair market value of the underlying stock at the grant date. The Company recognized stock based compensation expense using the straight-line +attribution method over the requisite service period. The Company’s subsidiary issued stock-options and the fair value is determined +utilizing Black-Scholes options-pricing model. The Company accounts for forfeitures as they occur, rather than applying an estimated +forfeiture rate. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected +to vest upon the achievement of the performance conditions. Shares are issued on the vesting dates net of the applicable statutory tax +withholding to be paid by us on behalf of our employees. As a result, fewer shares are issued to the employee than the number of awards +outstanding. The Company records a liability for the tax withholding to be paid by it as a reduction to Additional paid-in capital. +Investment +Securities +The +Company strategically invests funds in U.S. Treasury Bills, early-stage technology companies, and equity securities and options of publicly +traded and privately held companies. The Company classifies investment securities as investment securities, at amortized cost, investment +securities, at fair value, or investment securities, at cost less impairment. +F- 9 +Investment +securities, at amortized cost – From time to time the Company will hold funds in investment securities, at amortized cost. +This is comprised of debt securities held by MDB and are classified as investment securities held-to-maturity and carried at +amortized cost if management has the positive intent and ability to hold the securities to maturity. Initially, the cost of these +securities was recorded, and later on, they were assessed at amortized cost, which was modified for unamortized purchase premiums +and discounts, and also for credit losses provision. Premiums and discounts are amortized or accreted over the life of the related +security as an adjustment to yield using the effective-interest method. Such amortization and accretion are included in the other +operating income in the statements of operations. Interest income is recognized when earned. The Company recognizes estimated +expected credit losses over the life of the investment security through the allowance for credit losses account. The allowance for +credit losses is a valuation account that is deducted from, or added to, the amortized cost basis of the investment security to +present the net amount expected to be collected. In determining expected credit losses, the Company considers relevant qualitative +factors including, but not limited to, term and structure of the instrument, credit rating by rating agencies and historic credit +losses adjusted for current conditions and reasonable and supportable forecasts. The Company holds investments in U.S. Treasury +Bills or money market funds backed by U.S. Treasury Bills, so there are no expected credit losses. Declines in fair value of these +securities is due to changes in market interest rates, and because it expects to hold these securities until maturity, it does not +expect to realize any losses. +Investment +securities, at fair value - This is comprised of equity investments held by the broker dealer subsidiary and are reported at fair +value with changes in fair value recognized in the statement of operations. Purchases and sales of equity securities, consisting of common +stock and warrants to purchase common stock, are recorded based on the respective market price quotations on the trade date. Realized +gains and losses on investments represent the net gains and losses on investments sold during the period based on the average cost method. +Differences between the fair value of investments at the beginning of the year and the end of the year are recorded on the income statement +as unrealized gains and losses. +Investment +securities, at cost less impairment - This is comprised of equity securities without a readily determinable fair value held by the +broker dealer subsidiary, the Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus +changes resulting from observable price changes. The Company will reassess whether such an investment qualifies for the measurement alternative +at each reporting period. In evaluating an investment for impairment or observable price changes, we will use inputs including recent +financing events, as well as other available information regarding the investee’s historical and forecasted performance. The Company +has assessed this investment and determined that a full impairment of such securities held at the year ended December 31, 2024. +Investment +securities are as follows: +Schedule of Investment Securities +December 31, +2024 +December 31, +2023 +Investment securities, at amortized cost: +U.S Treasury Bills +$ - +$ 24,658,611 +Investment securities, at amortized cost +$ - +$ 24,658,611 +Broker/Dealer +Securities +Schedule of Investment Securities Broker Dealer +December 31, +2024 +December 31, +2023 +Investment securities, at fair value: +Common stock of publicly traded companies +$ 2,527,871 +$ 2,603,579 +Warrants of publicly traded companies +3,330,465 +3,168,055 +Investment securities, at fair value +$ 5,858,336 +$ 5,771,634 +F- 10 +Non-Broker/Dealer +Securities +Schedule of Investment Securities Non-Broker Dealer +December 31, +2024 +December 31, +2023 +Investment securities, at cost less impairment +Simple agreement on future equities (not market listed) +$ +200,000 +$ 200,000 +Impairment +( 200,000 ) +- +Investment securities, at cost less impairment +$ - +$ 200,000 +For +investment securities at fair value held at the end of each year, net unrealized loss and $ 274,835 and a gain of $ 1,503,649 were recognized +in the statement of operations for years ended December 31, 2024 and 2023, respectively. +There +was no amortized cost on December 31, 2024. +The +amortized cost, excluding gross unrealized holding loss and fair value of held to maturity securities on December 31, 2023 are as follows: +Schedule of Amortized Cost, Unrealized Holding Loss and Fair Value of Held to Maturity Securities +Amortized +Cost +Gross Unrealized Gains +Gross Unrealized Losses +Fair +Value +Amortized +Cost as of +December 31, 2023 +Gross +Unrealized +Gains +Gross +Unrealized +Losses +Fair Value +(Level 1) as of +December 31, +2023 +U.S Treasury Bills maturing 02/13/24, 04/04/24, 04/18/24 and 04/23/24 +$ 24,658,611 +$ 6,031 +$ - +$ 24,664,642 +Total assets +$ 24,658,611 +$ 6,031 +$ - +$ 24,664,642 +Fair +Value of Financial Instruments +Fair +value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between +market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs +are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within +the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. +The +Company determines the fair value of its financial instruments based on a fair value hierarchy that prioritizes inputs to valuation techniques +used to measure fair value into three levels: +Level +1 - Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to +access as of the measurement date. +Level +2 - Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly +observable through corroboration with observable market data. +Level +3 - Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to +develop its own assumptions. +F- 11 +The +Company’s financial instruments primarily consist of cash and investment securities, and securities sold, not yet purchased. As +of the statement of financial condition date, investment securities, and securities sold and not yet purchased are required to be recorded +at fair value with the change in fair value during the period being recorded as an unrealized gain or loss. +A +description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value +on a recurring basis is as follows: +Investment +securities, at fair value and securities sold, not yet purchased: These securities are valued based on quoted prices from the exchange +or other trading platform. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized +in level 1 of the fair value hierarchy. +A +description of the valuation techniques applied to the Company’s other financial assets and liabilities is as follows: +Investment +securities, at amortized cost: The fair value of U.S. Treasury Bills classified as held-to-maturity investment securities is based on +the market price and is classified as level 1 of the fair value hierarchy. +Investment +securities, at cost less impairment: Non-public equity securities and simple agreements for future equity are valued based on the initial +investment, less impairment. The Company determined that an impairment is warranted. Since these securities are not actively traded, +we will apply valuation adjustments when they become available, and they are categorized in level 3 of the fair value hierarchy. The +Company fully impaired a SAFE that was previously valued at $ 100,000 and stock that was previously valued at $ 50,000 both were held at +the year ended December 31, 2023. +The +following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring +basis as of December 31, 2024, except for the Level 3 investment that is recorded at cost: +Schedule of Fair Value of Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis +Assets +Classification +Level 1 +Level 2 +Level 3 +Total +Investment Securities (held by our licensed broker dealer) +Equity securities - common stock +$ 2,527,871 +$ - +$ - +$ 2,527,871 +Investment Securities (held by our licensed broker dealer) +Warrants +- +667,746 +2,662,719 +3,330,465 +Total assets measured at fair value (held by our licensed broker dealer) +$ 2,527,871 +$ 667,746 +$ 2,662,719 +$ 5,858,336 +During +the year ended December 31, 2024, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy. +Reconciliation +of fair value measurements categorized within Level 3 of the fair value hierarchy: +Schedule of Reconciliation of Fair Value Measurements Within Level 3 of Fair Value Hierarchy +December 31, 2023 +$ 3,133,458 +Beginning Balance +$ 3,133,458 +Receipt from investment banking fees +- +Realized gains +- +Unrealized loss +( 470,739 ) +Sales or distribution +- +Purchases +- +December 31, 2024 +$ 2,662,719 +Ending Balance +$ 2,662,719 +F- 12 +The +following table present information about significant unobservable inputs related to material components of Level 3 warrants as of December +31, 2024. +Schedule of Significant Unobservable Inputs Related to Material Components of Level 3 Warrants +Assets +Fair Value +Valuation +Techniques +Significant +Unobservable +Inputs +Ranges of +Inputs +Weighted-Average +Warrants +$ 2,662,719 +Black Scholes +Volatility +111.03 % +111.03 % +The +following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring +basis as of December 31, 2023, except for the Level 3 investment that is recorded at cost: +Assets +Classification +Level 1 +Level 2 +Level 3 +Total +Investment Securities (held by our licensed broker dealer) +Equity securities - common stock +$ 2,603,579 +$ - +$ - +$ 2,603,579 +Investment Securities (held by our licensed broker dealer) +Warrants +- +34,597 +3,133,458 +3,168,055 +Total assets measured at fair value (held by our licensed broker dealer) +$ 2,603,579 +$ 34,597 +$ 3,133,458 +$ 5,771,634 +During +the year ended December 31, 2023, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy. +Reconciliation +of fair value measurements categorized within Level 3 of the fair value hierarchy: +December 31, 2022 +$ - +Beginning Balance +$ - +Receipt from investment banking fees +2,645,620 +Realized gains +- +Unrealized gains +652,925 +Unrealized (loss) gains +652,925 +Sales or distribution +( 165,087 ) +Purchases +- +December 31, 2023 +$ 3,133,458 +Ending Balance +$ 3,133,458 +The +following table present information about significant unobservable inputs related to material components of Level 3 warrants as of December +31, 2023. +Assets +Fair Value +Valuation +Techniques +Significant +Unobservable +Inputs +Ranges of +Inputs +Weighted-Average +Warrants +$ 3,133,458 +Black Scholes +Volatility +128.85 % +128.85 % +During +the year ended December 31, 2023, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy. +Secured +Debt–- Revolving Credit Facility +The +Company entered into a revolving credit facility with a bank, (the “Lender”) on July 26, 2024 for a commitment of up to $ 2,000,000 +and which matures July 26, 2025 . The loan has a variable interest rate equal to a defined index, currently the Lender’s rate on +the sale of Federal Funds, plus 2.25 %. The loan commenced with a calculated interest rate of 7.75 %. If the Lender determines, in its +sole discretion, that the index becomes unavailable or unreliable, either temporary, indefinitely, or permanently, during the term of +this loan, the Lender may amend this loan by designating a substantially similar substitute index. The agreement provides for a quarterly +payment of the greater of accrued interest or a non-usage fee of $ 5,000 . The Company has not made any draw downs on the credit facility. +The +Company granted the Lender a security interest in a cash checking account held at the bank as collateral. The Lender has a right of setoff +available from this cash account when the line of credit is accessed. As of December 31, 2024, there is $ 2,089,831 deposited in this +account. +The +Company is responsible for the payment of all of the Lender’s legal and other fees incurred in connection with administering the +loan. The Company has incurred no such costs or debt issue costs. +As +of December 31, 2024 and 2023, respectively, there are no +outstanding indebtedness under the credit facility and interest expense totaled $ 0 . +The Company is in compliance with all covenants under the agreement. +F- 13 +Property +and Equipment +Property +and equipment are recorded at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. +Gains and losses from disposition of property and equipment are included in the statement of operations when realized. Depreciation is +provided using the straight-line method over the following estimated useful lives: +Schedule +of Estimated Useful Lives of Property +and Equipment +Laboratory equipment +5 years +Developed software +5 years +Furniture and fixtures +7 years +Leasehold improvements +Lesser of the lease duration or the life of the improvements +Property +and equipment consist of the following as of December 31, 2024 and 2023, respectively: +Schedule of Property And Equipment +December 31, +2024 * +December 31, +2023 +Laboratory equipment +$ - +$ 885,696 +Furniture and fixtures +- +49,838 +Developed software +113,114 +113,114 +Leasehold improvements +( 22,623 ) +279,161 +Total property and equipment +90,491 +1,327,809 +Less: Accumulated depreciation +- +( 461,319 ) +Property and equipment, net +$ 90,491 +$ 866,490 +* On November 14 2024, eXoZymes was deconsolidated from the Company’s +consolidated financial statements. As a result, property and equipment related to eXoZymes have been removed from the +Company’s reported balances as of December 31, 2024. +Revenue +The +Company generates revenue primarily from providing brokerage services and underwriting through Public Ventures. PatentVest and eXoZymes, +formerly known as Invizyne, have had limited activity during the years ended December 31, 2024 and 2023. +Brokerage +revenues consist of (i) trade-based commission income from executed trade orders, (ii) net realized gains and losses from proprietary +trades, and (iii) other income consisting primarily of stock loan income earned on customer accounts. Public Ventures recognizes revenue +from trade-based commissions and other income when performance obligations are satisfied through the transfer of control, as specified +in the contract, of promised services to the customers of Public Ventures. Commissions are recognized on a trade date basis. Public Ventures +believes that each executed trade order represents a single performance obligation that is fulfilled on the trade date because that is +when the underlying financial instrument is identified, the pricing is agreed upon, and the risks and rewards of ownership have been +transferred to/from the customer. When another party is involved in transferring a good or service to a customer, Public Ventures assesses +whether revenue is presented based on the gross consideration received from customers (principal) or net of amounts paid to a third party +(agent). Public Ventures has determined that it is acting as the principal as the provider of the brokerage services and therefore records +this revenue on a gross basis. Clearing, custody and trade administration fees incurred from Interactive Brokers, the Company’s +clearing firm, are recorded effective as of the trade date. The costs are treated as fulfillment costs and are recorded in operating +expenses in the consolidated statements of operations. +F- 14 +Brokerage +revenue is measured by the transaction price, which is defined as the amount of consideration that Public Ventures expects to receive +in exchange for services to customers. The transaction price is adjusted for estimates of known or expected variable consideration based +upon the individual contract terms. Variable consideration is recorded as a reduction to revenue based on amounts that Public Ventures +expects to refund back to the customer. There were no variable considerations for the years ended December 31, 2024, and 2023, respectively. +Investment +banking revenues consist of private placement and underwriting fees. The Company generally does not incur costs to obtain contracts +with customers that are eligible for deferral or receive fees prior to recognizing revenue related to investment banking +transactions, and therefore, as of December 31, 2024, the Company did not have any contract assets or liabilities related to these +revenues on its consolidated balance sheets. +Private +placement fees are related to non-underwritten transactions such as private placements of equity securities, private investments in public +equity, and Rule 144A private offerings and are recorded on the closing date of the transaction. Client reimbursements for costs associated +for private placement fees are recorded gross within investment banking and various expense captions, excluding compensation. The Company +typically receives payments on private placements transactions at the completion of the contract. The Company views the majority of placement +fees as a single performance obligation that is satisfied when the transaction is complete, and the revenue is recognized at that point +in time. +Taxes +and regulatory fees assessed by a government authority or agency that are both imposed on and concurrent with a specified revenue-producing +transaction, which are collected by Public Ventures from a customer, are excluded from revenue and recorded against general and administrative +expenses. +Public +Ventures does not incur any costs to obtain contracts with customers for revenues that are eligible for deferral or receive fees prior +to recognizing revenue, and therefore, as of December 31, 2024 and 2023, Public Ventures did not have any contract assets or liabilities +related to these revenues in its consolidated balance sheet. +During +the year ended December 31, 2024, the Company’s technology development segment revenue had no revenue. During the year ended +December 31, 2023, the Company’s technology development segment revenue, had $ 70,769 of revenue, which was derived from a +single feasibility study, which is not a typical service offered by the Company. The revenue generated from this study represents a +direct reimbursement of costs incurred in completing the study. +PatentVest +recognize revenue when performance obligations are satisfied by transferring promised goods and services to customers in an amount the +Company expects to receive in exchange for those goods or services. PatentVest enters into contracts that can include various combinations +of its offerings which are generally capable of being distinct and accounted for as a separate performance obligation for the entire +contract or a portion of the contract. When performance obligations are combined into a single contract, PatentVest utilizes stand-alone +selling price to allocate the transaction price among the performance obligations. +Certain +contracts or portions of contracts are duration-based, which in the event of customer cancellation, provide PatentVest with an enforceable +right to a proportional payment for the portion of the services provided. Accordingly, revenue from duration-based contracts is recognized +using a time-based measure of progress, which PatentVest believes best depicts how it satisfies its performance obligations in these +arrangements as control is continuously transferred throughout the contract period. Revenue from certain contracts is recognized over +the expected period of performance using a single measure of progress, typically based on hours incurred. Payments received in advance +of services being rendered are recorded as a component of contract liabilities. +The +PatentVest’s contract liabilities which is presented as deferred revenue, consist of advance payments. The table below shows changes +in deferred revenue: +Schedule of Changes in Deferred Revenue +Balance as of December 31, 2022 +$ - +Amounts billed but not recognized +100,000 +Revenue recognized +80,000 +Balance as of December 31, 2023 +20,000 +Amounts billed but not recognized +- +Revenue recognized +20,000 +Balance as of December 31, 2024 +$ - +F- 15 +Research +Grants +eXoZymes, +formerly known as Invizyne, receives grant reimbursements, which are netted against research and development expenses in the consolidated +statement of operations. Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized +portion recorded as deferred grant reimbursements and included in liabilities in the consolidated balance sheet. +Grants +function on a reimbursement model are accounted for using the accrual method. They are treated as reductions to expenses, corresponding +to the amount of disbursements and obligations eligible for reimbursement. These are for permissible expenses incurred as of December +31, 2023. The reimbursements are anticipated to be received from the respective funding entities in the following year. Management considers +such receivables at December 31, 2023, to be fully collectable due to the historical experience with the Federal Government of the United +States of America. Accordingly, no allowance for credit losses on the grants receivable was recorded in the accompanying consolidated +financial statements. +Summary +of grants receivable activity for the years ended December 31, 2024 and 2023, is presented below: +Summary of Grants Receivable Activity +2024 * +2023 +Balance +at beginning of year * +$ +882,319 +$ +809,532 +Grant +costs expensed +1,896,781 +2,836,876 +Grants +for equipment purchased +43,615 +- +Grant +fees +51,978 +117,332 +Grant +funds received +( 2,173,252 +) +( 2,881,421 +) +Removal of balance due to deconsolidation of eXoZymes at November 14, 2024 +( 701,441 +) +- +Balance +at end of year +$ +- +$ +882,319 +* In +2024, eXoZymes was deconsolidated from the Company’s consolidated financial statements. As all grant-related costs were +associated with eXoZymes, no grant-related figures are reported for 2024. +eXoZymes +has received three grants provided by the National Institute of Health, the Department of Energy and Department of Defense through +December 31, 2024. The first grant was awarded on October 1, 2023 and the latest of these grants was set to expire on May 14, 2026, +however grants can be extended, or new phases can be granted, extending the expiration of the grant. None of the grants have +commitments made by the parties, provisions for recapture, or any other contingencies, beyond complying with the normal terms of +each research and development grant. Research grants received from organizations are subject to the contract agreement as to how +eXoZymes, formerly known as eXoZymes, conducts its research activities, and eXoZymes is required to comply with the agreement terms +relating to those grants. Amounts received under research grants are nonrefundable, regardless of the success of the underlying +research project, to the extent that such amounts are expended in accordance with the approved grant project. eXoZymes is permitted +to draw down the research grants after incurring the related expenses. Amounts received under research grants are offset against the +related research and development costs in the Company’s consolidated statement of operations. For the years ended December 31, +2024 and 2023, respectively, totaled $ 3,467,871 +and , grants amounting to $ 2,836,876 +were offset against the research and development costs. Grant drawdowns, which includes grants costs expensed, grants for equipment +purchased, and grant fees, for the years ended December 31, 2024 and 2023, respectively, totaled $ 2,002,650 +and $ 2,954,208 , +which includes grant costs expensed, grants for equipment purchased, and grants fees. +Research +and Development Costs +Research +and development costs are expensed as incurred. Research and development costs consist primarily of compensation costs, fees paid to +consultants, and other expenses relating to the development of eXoZymes’ technology. For the years ended December 31, 2024 and +2023, research and development costs prior to offset of the grants amounted to $ 3,470,521 +and $ 3,482,386 , +respectively, which includes grant costs expensed, grants fees, and research and development costs, net of the grant +received. +F- 16 +Patent +and Licensing Legal and Filing Fees and Costs +Due +to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s +research efforts and related patent applications, all patent and licensing legal and filing fees and costs related to the development +and protection of its intellectual property are charged to operations as incurred. +Patent +and licensing legal and filing fees and costs were $ 296,314 and $ 107,925 for the years ended December 31, 2024 and 2023, respectively. +Patent and licensing legal and filing fees and costs are included in general and administrative costs in the Company’s consolidated +statements of operations. +Recently +Issued Accounting Pronouncements +ASU +2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance +On +January 1, 2020, The Company adopted ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government +Assistance (“ASU 2021-10”) and retrospectively applied the guidance to prior transactions. +The +amendments in ASU 2021-10 require the following annual disclosures about transactions with a government that are accounted for by applying +a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting +policy used to account for the transactions; (2) the line items on the balance sheet and income statement that are affected by the transactions, +and the amounts applicable to each financial statement line item; and (3) significant terms and conditions of the transactions, including +commitments and contingencies. +Management +does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material +impact on the Company’s consolidated financial statement presentation or disclosures. +3. +Segment Reporting +In +its operation of the business, management, including the Company’s chief operating decision maker, who is also the Company’s +Chief Executive Officer, reviews certain financial information, including segmented profit and loss and balance sheet statements. +The +Company currently operates in two reportable segments: a broker dealer & intellectual property service and technology development. +The +broker dealer & intellectual property service segment currently has two subsidiaries, Public Ventures and PatentVest. Public Ventures +is a full-service broker dealer firm focusing on conducting private and public securities offerings. PatentVest offers in-depth patent +research used for investment banking due diligence. +The +technology development segment currently has two subsidiaries, eXoZymes, formerly known as Invizyne, and MDB Minnesota One. eXoZymes +is a research and development stage company synthetic biology company, that is consolidated in the Statement of Operations up to November 14, 2024. Minnesota One research and development stage company that is +developing a small molecule senescence platform. +Non-income +generating subsidiaries for management of the business, including MDB CG Management Company, Inc. are reported in the +Other column in the table below. +F- 17 +The +segments are based on the discrete financial information reviewed by the Chief Executive Officer to make resource allocation decisions +and to evaluate performance. The reportable segments are each managed separately because they will provide a distinct product or provide +services with different processes. All reported segment revenues are derived from external customers. +The +accounting policies of the Company’s reportable segments are in consideration of ASC 280 and the same as those described in the +summary of significant accounting policies (see Note 2). +The +following sets forth the long-lived assets and total assets by segment at December 31, 2024: +Schedule of Long-lived Assets and Total Assets by Segment +ASSETS +Broker +Dealer & +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Long-lived +assets +$ 90,491 +$ - +$ 641,354 +$ - +$ 731,845 +Total +assets +$ 21,754,504 +$ 849 +$ 50,221,046 +$ - +$ 71,976,399 +Schedule of Statement of Operation by Segment +Broker +Dealer & +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Operating +income: +Unrealized +(loss) on investment securities, net (from our licensed broker dealer) (Notes 1 and 2) (1) +$ ( 274,835 ) +$ - +$ - +$ - +$ ( 274,835 ) +Realized +gain on investment securities (from our licensed broker dealer) +- +- +- +Fee +income (from our licensed broker dealer) (2) +2,220,620 +- +- +- +2,220,620 +Impairment loss (3) +( 200,000 +) +( 200,000 +) +Other +operating income (4) +411,488 +- +- +- +411,488 +Total +operating income, net +2,157,273 +- +- +- +2,157,273 +Operating +costs: +General +and administrative costs: +Compensation +3,225,503 +2,061,580 +14,769,713 +- +20,056,796 +Operating +expense, related party +1,301,167 +- +184,655 +- +1,485,822 +Professional +fees +820,082 +1,206,231 +1,085,737 +- +3,112,050 +Information +technology +805,134 +33,927 +83,114 +- +922,175 +Clearing +and other charges +1,136,662 +- +- +- +1,136,662 +General +and administrative-other +806,269 +133,472 +1,668,366 +- +2,608,107 +General +and administrative costs +8,094,817 +3,435,210 +17,791,585 +- +29,321,612 +Research +and development costs +- +1,467,871 +- +- +1,467,871 +Total +operating costs +8,094,817 +4,903,081 +17,791,585 +- +30,789,483 +Net +operating (loss) +( 5,937,544 ) +( 4,903,081 ) +( 17,791,585 ) +- +( 28,632,210 ) +Other +income and expense: +Miscellaneous +income +112,000 +- +- +- +112,000 +Interest expense +( 779,004 ) +( 91,968 ) +- +799,343 +( 71,629 ) +Change in fair value of SAFE +- +200,000 +200,000 +- +Interest +income +464,558 +2,799 +1,511,304 +( 799,343 ) +1,179,318 +Gain related to dilution events +- +- +129,339 +- +129,339 +Gain +on deconsolidation of subsidiary +- +- +39,307,217 +- +39,307,217 +Income +(loss) before income taxes +( 6,139,990 ) +( 4,992,250 ) +23,156,275 +- +12,024,035 +Income +tax expense +- +2,143 +- +- +2,143 +Income (loss) before equity method investee +( 6,139,990 +) +( 4,994,393 +) +23,156,275 +- +12,021,892 +Equity in loss of equity method investee +( 419,670 ) +( 419,670 ) +Net +income (loss) +( 6,139,990 ) +( 4,994,393 ) +22,736,605 +- +11,602,222 +Less +net loss attributable to non-controlling interests +- +( 89,869 ) +- +- +( 89,869 ) +Net +loss attributable to MDB Capital Holdings, LLC +$ ( 6,139,990 ) +$ ( 4,904,524 ) +$ 22,736,605 +$ - +$ 11,692,091 +(1) Includes unrealized +gains and losses on securities held by the broker-dealer. +(2) Includes fee income +generated for the broker-dealer from investment banking activities, including advisory services, capital raising, and other related financial +transactions. +(3) +Includes impairment loss of assets from the reduced fair value of the asset. +(4) Includes fees earned +from self-clearing activities by the broker-dealer and professional fees generated by Patentvest services. +F- 18 +The +following sets forth the long-lived assets and total assets by segment at December 31, 2023: +ASSETS +Broker +Dealer & +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Long-lived +assets +$ 113,114 +$ 2,344,895 +$ 728,600 +$ - +$ 3,186,609 +Total +assets +$ 15,038,602 +$ 3,558,509 +$ 24,388,168 +$ - +$ 42,985,279 +Broker +Dealer & +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Operating +income: +Unrealized +gain on investment securities, net (from our licensed broker dealer) (Notes 1 and 2) (1) +$ 1,503,649 +$ - +$ - +$ - +$ 1,503,649 +Realized +gain on investment securities (from our licensed broker dealer) +8 +- +- +- +8 +Fee +income (from our licensed broker dealer) (2) +4,233,120 +- +- +- +4,233,120 +Impairment +loss (3) +( 50,000 ) +- +- +- +( 50,000 ) +Other +operating income (4) +237,481 +70,769 +- +- +308,250 +Total +operating income, net +5,924,258 +70,769 +- +- +5,995,027 +Operating +costs: +General +and administrative costs: +Compensation +2,830,702 +596,174 +5,200,146 +- +8,627,022 +Operating +expense, related party +904,004 +- +219,397 +- +1,123,401 +Professional +fees +440,123 +436,339 +818,555 +- +1,695,017 +Information +technology +491,352 +21,803 +89,238 +- +602,393 +Clearing +and other charges +389,963 +- +- +- +389,963 +General +and administrative-other +365,158 +284,494 +882,545 +- +1,532,197 +General +and administrative costs +5,421,302 +1,338,810 +7,209,881 +- +13,969,993 +Research +and development costs +- +528,178 +- +- +528,178 +Total +operating costs +5,421,302 +1,866,988 +7,209,881 +- +14,498,171 +Net +operating income (loss) +502,956 +( 1,796,219 ) +( 7,209,881 ) +- +( 8,503,144 ) +Other +income and expense: +Interest expense +( 123,382 ) +- +- +123,382 +- +Change in fair value of SAFE +- +( 200,000 ) +200,000 +- +Interest +income +115,604 +100 +803,641 +- +919,345 +Income +(loss) before income taxes +495,178 +( 1,996,119 ) +( 6,406,240 ) +323,382 +( 7,583,799 ) +Income +tax expense +22,091 +105,827 +- +- +127,918 +Net +income (loss) +473,087 +( 2,101,946 ) +( 6,406,240 ) +323,382 +( 7,711,717 ) +Less +net loss attributable to non-controlling interests +- +( 742,900 ) +- +- +( 742,900 ) +Net +loss attributable to MDB Capital Holdings, LLC +$ 473,087 +$ ( 1,359,046 ) +$ ( 6,406,240 ) +$ 323,382 +$ ( 6,968,817 ) +(1) Includes unrealized +gains and losses on securities held by the broker-dealer. +(2) Includes fee income +generated for the broker from investment banking activities, including advisory services, capital raising, and other related financial +transactions. +(3) Includes impairment +loss of assets from the reduced fair value of the asset. +(4) Includes fees earned +from self-clearing activities and professional fees generated by Patentvest services. +4. +Equity and Non-Controlling Interests +Equity +Preferred +shares – 10,000,000 shares authorized, no shares issued and outstanding. The board of directors may designate preferred shares +to be issued, and may rank preferred shares as junior to, on parity with or senior to other preferred shares (in each case, with respect +to distributions or other payments in respect of shares). Since the board of directors may set all the terms of any class of preferred +shares, these are considered “blank check” preferred shares. Currently the board has not defined dividend and liquidation +preference, participation rights, call prices and dates, sinking-fund requirements, or terms that may change the conversation or exercise +price. +Class +A Common Shares – 95,000,000 +shares authorized, 4,950,632 +shares issued and outstanding as of December 31, 2024. These shares are common shares and have one vote per share. Currently there is not a defined +dividend or liquidation preference. +Class +B Common Shares – 5,000,000 +shares authorized, 5,000,000 +issued and outstanding as of December 31, 2024. These shares are common shares and have five votes per share. Currently there is not a defined dividend or +liquidation preference. These shares may be converted one to one for Class A Common Shares. +Placement +Agent and Selling Agent Warrants – 43,420 warrants of Class A common shares have been issued as part of the private placement and +the initial public offering. The Placement Agent and Selling Agent Warrants are subject to standard anti-dilution provisions and may +include cashless exercise provisions under certain circumstances. The issuance of the Placement and Selling Agent Warrants is a customary +part of compensation for the placement or selling agent’s services in connection with prior offerings. +Non-Controlling +Interests +On +July 1, 2024 M1 was incorporated. During the year ended December 31, 2024, the ownership interest in M1, ranged from 67.0 % to 67.9 % (weighted +average of 67.47 %), with the non-controlling interest ranging from 33.0 % to 32.1 % (weighted average of 32.53 %). +F- 19 +During +the year ended December 31, 2024, the ownership interest in eXoZymes, formerly known as Invizyne, ranged from 60.94 % +to 47.0 %, +with the non-controlling interest ranging from 39.06 +% to 53.0 %, +on November 14, 2024 the ownership of eXoZymes by MDB Capital Holdings, LLC moved below 50%, therefore on that day the eXoZymes was +deconsolidated from the financial statements. During the year ended December 31, 2023, the ownership interest in eXoZymes, formerly +known as Invizyne, ranged from 60.94 % +to 59.0 %, +with the non-controlling interest ranging from 39.06 +% to 41.0 % +(weighted average of 39.54 +%). In 2024 all non-controlling interests of eXoZymes have been removed from the consolidated financial statements and moved to the +equity method of accounting. +During +each period, controlling and non-controlling interests changes as a result of capital infusions from MDB Capital Holdings, LLC. For +the years ended December 31, 2024, and 2023, there were capital infusions of $ 176,840 +(M1) and $ 0 +(eXoZymes), respectively. The NCI ownership will be equal to the NCI percentage as of the reporting period. Therefore, there will be +a redistribution of equity between MDB and the non-controlling interest owner. As of December 31, 2024, the Company’s equity +interest in M1 was 67.9 % +to 67.0 %, +and the remaining equity interest was owned by the non-controlling interests as presented below. As of December 31, 2023, the +Company’s equity interest in eXoZymes changed from 60.94 % +to 59.0 %, +and the remaining equity interest was owned by the non-controlling interests as presented below: +Schedule of Equity and Non-Controlling Interests +For +the Year Ended +December 31, +2024 +2023 +Non-controlling +interest net loss +$ ( 276,239 ) +$ ( 1,901,946 ) +Weighted +average non-controlling percentage +32.53 % +39.06 % +Net +loss non-controlling interest +$ ( 89,869 ) +$ ( 742,900 ) +Prior +period balance +7,250 +468,665 +Removal +of prior period balance of eXoZymes due to deconsolidation +( 7,250 ) +- +Stock-based +compensation +- +281,485 +Ownership +change of non-controlling interest +198 +- +Ending +period balance +$ ( 89,671 ) +$ 7,250 +If there is a change in the parent ownership in a subsidiary from an additional investment or from the issuance of stock based compensation, a change +of the non-controlling ownership is recognized based on the amount invested as required, and per ASC 810-45-21A, the carrying amount +of the non-controlling interest is adjusted to reflect the change in the non-controlling ownership in the subsidiary’s net assets. +Since there was a change in the equity, a reclassification of the non-controlling interest in the subsidiary’s net assets is required +and demonstrated in the ending period balance above. +Note +5 – Deconsolidation +On +November 14, 2024 (the “Deconsolidation Date”), the Company deconsolidated eXoZymes from its financial statements due to +its ownership interest falling below 50%, resulting in the loss of a controlling financial interest. This change occurred in connection +with eXoZymes’ completion of its initial public offering, which reduced the Company’s ownership stake. +The +consolidated financial statements as of December 31, 2024 reflect the inclusion of eXoZymes’ financial results through the Deconsolidation +Date. For the period from November 15, 2024 through December 31, 2024, the Company accounted for its investment in eXoZymes under the +equity method, recognizing its proportionate share of eXoZymes’ net loss in the amount of $ 419,670 , based on eXoZymes’ total +net loss of $ 893,310 for that period. +As +of December 31, 2024, the Company continues to hold a 47% interest in eXoZymes Class A common stock. While the Company and eXoZymes share +certain officers, board members, and accounting personnel, the two entities operate independently. eXoZymes also utilizes professional +services provided by Patentvest, a wholly owned subsidiary of the Company +We +assess the potential impairment of our equity method investments when indicators such as a history of operating losses, a negative earnings +and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a loss in value. +We have not recognized any impairment loss on investment in unconsolidated affiliate to date. +The +following table represents the consolidated balance sheet of Exozymes immediately prior to the Deconsolidation Date: +Schedule +of Consolidated Balance Sheet +Assets +Cash and cash equivalents +$ 67,884 +Grants receivable +701,441 +Prepaid expenses and other current assets +441,047 +Deferred IPO Costs +550,039 +Property and equipment, net +709,501 +Operating lease right-of-use asset, net +1,365,737 +Total assets +$ 3,835,649 +Liabilities and Deficit +Accounts payable +$ 850,612 +Accrued expenses +240,589 +Due to affiliates +5,479,077 +Deferred grant reimbursement +130,456 +Operating lease liabilities +1,417,253 +Total liabilities +$ 8,117,987 +Deficit: +Common shares +- +Paid-in-capital +$ 4,119,863 +Accumulated deficit +( 8,402,201 ) +Total deficit +$ ( 4,282,338 ) +Total liabilities and deficit +$ 3,835,649 +F- 20 +For +the year ended December 31, 2024 eXoZymes. had current assets of approximately $ 10,800,000 , total assets of approximately $ 13,000,000 , +current liabilities of approximately $ 1,300,000 and total liabilities of approximately $ 2,600,000 . For the year ended December 31, 2024 +eXoZymes had revenues of $ 0 and a net loss of approximately $ 5,900,000 . +The +following represents the calculation of the gain on deconsolidation of eXoZymes. from the consolidated financial statements of the Company: +Schedule +of Gain on Deconsolidation +eXoZymes Class A common shares retained on November 14, 2024 +3,931,133 +Quoted closing price of eXoZymes Class A common shares at November 14, 2024 +$ 10.36 +Subtotal of quoted closing price of eXoZymes Class A common shares at November 14, 2024 +$ 40,726,538 +Fair value of warrants held for eXoZymes at November 14, 2024 +1,327,361 +Fair value of equity method investment retained by eXoZymes +42,053,899 +Carrying Value of the NCI +( 921,540 ) +Carrying value of eXoZymes assets at November 14, 2024 +4,282,338 +Less carrying value of former investment into eXoZymes at November 14, 2024 +( 5,786,690 ) +Carrying value of warrants held for eXoZymes at November 14,2024 +( 320,790 ) +Gain on deconsolidation +$ 39,307,216 +Note +6 – Equity Method Investment +On +November 14, 2024, Invizyne underwent an initial public offering in which MDB’s ownership interest in Invizyne decreased from 60 % +to 47 %. MDB and Invizyne deconsolidated the financial statements as the investment in Invizyne fell below 50 % majority ownership. Invizyne +is consolidated within MDB’s consolidated financial statements for the period of January 1, 2024 through the date of the initial +public offering. +On +November 14, 2024, MDB uses the equity method to account for our investment in Invizyne as we have the ability to exercise significant +influence over the operating and financial policies of the affiliate. The fair value of the equity method investment was determined using +the shares owned by MDB and the Invizyne share price on the date of deconsolidation, as well as a fair value estimate for the warrants held for eXoZymes. +The +transition resulted in an adjustment to the carrying amount of its investment in Invizyne as of November 14, 2024. The adjustment reflects +MDB’s share of Invizyne’s net assets. The impact on the consolidated statements of operations includes recognizing the MDB’s +share of Invizyne’s net losses from November 15th onwards for $ 419,670 . MDB recognized a gain on investment of $ 39,307,216 +at November 14, 2024. +As +of December 31, 2024, MDB owned 3,931,133 shares of Invizyne shares, representing a 47 % ownership of Invizyne. +The +following summarizes the Company’ consolidated balance sheet equity method investment as follows: +Schedule +of Equity Method Investment +Carrying Amount +November 14, 2024, beginning balance +$ 42,053,899 +Portion of loss from eXoZymes +( 419,670 ) +Gain related to dilution events +129,339 +December 31, 2024, carrying amount +$ 41,763,568 +7. +Stock-Based Compensation +Between +April 19, 2022 and September 21, 2022, the Company granted 3,675,000 +restricted stock units (“RSUs”). These +units will vest when 20% of the one-half of the total number of RSUs, by each individual person, on the thirteenth (13) month +anniversary, October 20, 2024, of the listing of the Class A Shares on a United States national exchange, then at a rate of 10% of +one-half the number of RSUs each six months after the date of the initial vesting, until the last vesting on the fifth year +anniversary of the date of grant, at which any previously unvested will fully vest. These RSUs were granted to officers, directors, +employees, and contractors. These RSU have begun to vest upon the completion of an initial public offering by the Company on +September 20, 2023, compensation expense related to these RSUs has been recorded. The Company will be expensing the RSUs based on +the average expense over the vesting period. The total unrecognized compensation expense based on the shares price sold in +the private placement as of December 31, 2024 is $ 23,679,438 . During the year 320,000 RSUs were either forfeited by the holders or canceled due to holder leaving the Company. +On +April 19, 2022 the Company granted 2,000,000 +restricted stock units (“RSUs”). These +units will vest when 20% of the one-half of the total number of RSUs, by each individual person, on the thirteenth (13) month +anniversary of the listing of the Class A Shares on a United States national exchange, October 20, 2024, when Class A Share has traded +in the market on which the Class A Shares are listed for any 90 consecutive calendar days at an average price of $20.00 or more +during the period commencing the date of grant and prior to the five year anniversary of the date of grant, with an average monthly +trading volume of 2,000,000 Class A Shares or more during the 90 consecutive calendar day period, or (z) a Class A Shares has traded +in the market on which the Class A Shares are listed for any 90 consecutive calendar days at an average price of $25.00 or more +during the period commencing the date of grant and prior to the five year anniversary of the date of grant; provided further, that +if there is a distribution of cash, stock or other property by the Company on the Class A Shares, then the foregoing average amounts +of $20.00 or $25.00 will be reduced, from time to time, by the value of any one or more per share distributions after the date of +grant until vested. As these RSUs do not begin to vest until the completion of an initial public offering, which was +completed on September 20, 2023, by the Company, which is outside of the control of the Company, compensation expense related to +these RSUs has been recorded. The estimated unrecognized compensation expense for performance/market vesting RSUs is $ 10,143,198 . +A summary of restricted stock unit activity during the years ended December 31, 2024 and 2023 is presented below: +Summary of Restricted Stock Unit, Time-Based and Performance-Based Activity +Time-Based +Performance-Based +Number +of +Restricted +Stock Units +Weighted +Average +Grant Date +Fair Value +Number +of +Restricted +Stock Units +Weighted +Average +Grant Date +Fair Value +Restricted +stock units outstanding at December 31, 2023 +3,675,000 +$ 10.00 +2,000,000 +$ 7.91 +Granted +295,000 +$ 8.71 +- +$ - +Exercised +( 655,000 ) +$ 10.00 +- +$ - +Expired/Cancelled +( 320,000 ) +$ 9.73 +- +$ - +Restricted +stock units outstanding at December 31, 2024 +2,995,000 +$ 9.90 +2,000,000 +$ 7.91 +Restricted +stock units at December 31, 2023 +- +$ - +- +$ - +Restricted +stock units at December 31, 2024 +655,000 +$ 10.00 +- +$ - +F- 21 +8. +Earnings Per Share +The +Company’s computation of earnings (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as +the income (loss) attributable to common stockholders divided by the weighted average common shares outstanding for the period. Diluted +EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., preferred shares, +warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential +common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded +from the calculation of diluted EPS +Loss +per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective +periods. Basic and diluted loss per common share was the same for all periods presented because stock warrants outstanding were anti-dilutive, +for a total of 43,420 warrants. +Earning +Earnings per share is presented below for the years ended December 31, 2024 and 2023, respectively. +Basic earnings per share is calculated at follows for the years ended December 31, 2024 and 2023: +Schedule +of Basic and Fully Diluted +For +the Year Ended +Basic +December +31, 2024 +December +31, 2023 +Class +A Common Shares +Class +B Common Shares +Class +A Common Shares +Class +B Common Shares +Net +income (loss) attributable to MDB Capital Holdings, LLC +$ 5,817,042 +$ 5,875,049 +$ ( 3,220,381 ) +$ ( 3,748,436 ) +Weighted +average shares outstanding – basic +4,424,484 +5,000,000 +3,099,285 +5,000,000 +Net +income (loss) per share – basic +$ 1.31 +$ 1.18 +$ ( 1.04 ) +$ ( 0.75 ) +Fully diluted earnings per share is calculated at follows for the years ended December 31, 2024 and 2023: +For +the Year Ended +Diluted +December +31, 2024 +December +31, 2023 +Class +A Common Shares +Class +B Common Shares +Class +A Common Shares +Class +B Common Shares +Net income (loss) attributable to +MDB Capital Holdings, LLC +$ +7,649,995 +$ +4,042,096 +$ +( 3,220,381 +) +$ +( 3,748,436 +) +Fully diluted shares outstanding – basic and +diluted +9,462,904 +5,000,000 +8,817,705 +5,000,000 +Net income (loss) per share –diluted +$ +0.81 +$ +0.81 +$ +( 0.37 +) +$ +( 0.75 +) +Class +A Common Shares and Class B common stock are equal for ownership purposes, but Class B shares have five times the voting rights of +Class A shares and Class B shares can be exchanged on a one-to-one basis for purposes of sale. +9. +Related Party Transactions +The +principal members of the Company have a controlling interest in PatentVest, S.A. (renamed MDB Capital, S.A. in 2022), a company organized +and based in Nicaragua that provides outsourced services to the Company and other non-related entities. During the years ended December +31, 2024 and 2023, the Company paid $ 1,573,202 and $ 1,123,401 , respectively, which is inclusive of expenses and fees, for contracted +labor, recorded against general and administrative expenses. +During +the year ended December 31, 2024, PatentVest, a 100 % +entity owned by MDB Capital Holdings, LLC, engaged in transactions with ENDRA Life Sciences Inc – NDRA on Nasdaq, a company +for which one of our executive officer serve as a board member. Anthony DiGiandomenico, our Chief of Transactions. For the year ended December 31, 2024, there were no revenue recognized between MDB Capital +entities and ENDRA. However, costs incurred amounting to $ 80,995 +related to transactions with ENDRA were recognized during the year. +During the year ended December 31, 2024, +PatentVest, a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with eXoZymes, a company of which the Company owns +47% of recognized revenues of $ 41,400 . +During the year ended December 31, +2024, the Company recorded related party accrued receivables totaling $ 63,759 . This amount includes $ 41,400 for services performed by +Patentvest on behalf of eXoZymes and $ 22,359 related to taxes paid by the Company on behalf of certain officers, which was reimbursed +in full by January 31, 2025. Additionally, the Company recorded accrued expenses of $ 22,842 payable to officers and directors, representing +reimbursable expenses incurred in the ordinary course of business. All transactions were conducted on an arm’s-length basis and +are expected to be settled in the normal course of operations. +F- 22 +10. +Commitments and Contingencies +Legal +Claims +The +Company may be subject to legal claims and actions from time to time as part of its business activities. As of December 31, 2024 and +2023, the Company was not subject to any pending or threatened legal claims or actions. +Net +Capital Requirement (Public Ventures) +Public +Ventures is subject to the uniform net capital rule (SEC Rule 15c3-1) of the Securities and Exchange Commission (the “SEC”), +which requires both the maintenance of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital. +At December 31, 2024 and 2023, Public Ventures had net capital of $ 10,736,754 and $ 7,331,449 , respectively, which was $ 10,486,754 and +$ 7,081,449 in excess of the minimum $ 250,000 , as required by the Securities and Exchange Commission Rule 15c3-1. +During +the year ended December 31, 2024, the Company entered into a subordinated loan agreement with its Parent company for $ 7,300,000 . This +amount, together with existing subordinated loans totaling $ 5,900,000 and $ 775,757 of accrued interest payable, is subordinated to other +liabilities of the Company, and is considered members’ equity for calculating net capital, and is not included in aggregate indebtedness. +The +Company’s ratio of aggregate indebtedness of $ 6,535,922 to net capital was 0.61 to 1 compared to the maximum 15 to 1 allowable +ratio of a broker dealer. Minimum net capital is based upon the greater of the statutory minimum net capital of $ 250,000 or 2 % of aggregate +customer debits, which was $ 0 at December 31, 2024. +To comply with DTC membership requirements, +the Company has committed to maintain at least $5,000,000 of net capital in excess of the $250,000 minimum. +The +requirement to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent +company. +Indemnification +Provisions +Public +Ventures has agreed to indemnify its clearing brokers for losses that the clearing brokers may sustain from the accounts of customers. +Should a customer not fulfill its obligation on a transaction, Public Ventures may be required to buy or sell securities at prevailing +market prices in the future on behalf of its customer. The indemnification obligations of Public Ventures to its clearing brokers have +no maximum amount. All unsettled trades at December 31, 2024 and 2023 have subsequently settled with no resulting material liability +to Public Ventures, LLC. For the years ended December 31, 2024 and 2023, Public Ventures had no material loss due to counterparty failure +and had no obligations outstanding under the indemnification arrangement as of December 31, 2024 and 2023. +F- 23 +11. +Employee Benefit Plans +MDB +Management and eXoZymes, formerly known as Invizyne, both sponsored individual 401(k) defined contribution plans for the benefit of +each company’s eligible employees. Public Ventures offered its employees a sponsored 401(k) defined contribution plan for the +benefit of the employees; this plan was terminated on July 30, 2021. The plans allow eligible employees to contribute a portion of +their annual compensation, not to exceed annual limits established by the Department of Treasury. eXoZymes makes matching +contributions for participating employees up to a certain percentage of the employee contributions; matching contributions were +funded for the year ended December 31, 2024 and 2023. Benefits under the eXoZymes plan were available to all employees, and +employees become fully vested in the employer contribution upon receipt. For the year ended December 31, 2024 and 2023, a total of +$ 659,253 +and $ 380,614 , +respectively, was contributed to the plans. The costs for eXoZymes are recorded up to November 14, 2024 the date of the +consolidation of eXoZymes. The majority of the expense was included in general and administrative cost, however, for any research and +development employees their portion of the expense is recorded against research and development costs. +MDB +Management and eXoZymes also provide health and related benefit plans for eligible employees. +12. +Exclusive License Agreement (MDB Minnesota One) +On +July 1, 2024, MDB Minnesota One (“M1”) entered into a Patent and Know-How License Agreement (the “License Agreement”) +with the Mayo Foundation for Medical Education and Research (“Mayo”) for certain patent rights and associated technology +pursuant to which M1 intends to develop a small molecule senescence platform. The License Agreement grants M1 rights to develop and commercialize +Mayo’s patented technology and know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 +holds an exclusive license of patent rights and a non-exclusive license for the associated technology to make, have made, use, offer +for sale, sell, and import licensed products and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $ 150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2024 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A +payment of $ 250,000 for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $ 1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $ 2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A +payment of $ 5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2024 the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +If +M1 materially breaches the terms of the License Agreement, and such material breach remains uncured after an opportunity to cure, Mayo +may terminate the License Agreement. +13. +Leases +For +operating leases, the Company records right-of-use assets and corresponding lease liabilities in the consolidated balance sheets for +all leases with terms longer than twelve months. The Company has three operating leases, with no variable lease costs, and no finance +leases as of December 31, 2024. The Company has two operating leases, with no variable lease costs, and no finance leases as of December +31, 2023. +eXoZymes, +formerly known as Invizyne, was consolidated up to November 14, 2024. In October 2023, eXoZymes, made changes to an existing lease +agreement that was originally entered into in August 2021, which resulted in an extension of the lease term by an additional 14 +months. The revised lease maintained the same escalation rate for lease payments as the previous arrangement. To account for this +modification, the Company reevaluated the remaining lease term at the time of execution. As the Company was actively utilizing the +premises, adjustments were made to reflect the revaluation of both the right-to-use asset and the corresponding lease liability in +line with the updated lease term. This was originally entered into in August 2021, with a term of 60 months beginning on August 24, +2021 and ending on September 30, 2026, with an option to extend for 60 additional months and was further modified on April 3, 2023 +for an additional 21 months with the lease ending date of April 30, 2028. At the time the lease commenced, it was not probable the +Company would exercise the one five-year option to extend the facility lease; therefore, this extension option is not included in +the lease analysis. The initial base rent is $ 14,371 +per month. The lease provides for annual increases. The base rent for the lease in the final year is $ 16,747 +per month. Additionally, eXoZymes is responsible for annual operating cost increases of 2.5 %, +which are included in the rent. Since eXoZymes is not consolidated for 2024, the information above is only calculated for +2023. +Furthermore, +in October 2023, eXoZymes made changes to an second existing lease agreement that was originally +entered into in April 2023, which resulted in an extension of the lease term by an additional 12 +months. The revised lease maintained the same escalation rate for lease payments as the previous arrangement. To account for this +modification, the Company reevaluated the remaining lease term at the time of execution. As the Company was actively utilizing the +premises, adjustments were made to reflect the revaluation of both the right-to-use asset and the corresponding lease liability in +line with the updated lease term. This was originally entered into in April 2023, with a term of 60 +months beginning on July 1, 2023 and ending on June 30, 2028, with an option +to extend for 60 additional months . At the time the lease commenced, it was not probable the Company would exercise the one +five-year option to extend the facility lease; therefore, this extension option is not included in the lease analysis. The initial +base rent is $ 13,277 per +month. The lease provides for annual increases. The base rent for the lease in the final year is $ 15,391 per +month. Additionally, eXoZymes is responsible for annual operating cost increases of 3.0 %, +which are included in the rent. Since eXoZymes is not consolidated for 2024, the information above is only calculated for +2023. +On +July 1, 2022 the Company executed a lease for new office space in the Dallas, Texas metropolitan area, the space was occupied on +December 20, 2022. The lease with a term of 91 +months and began once we took control of the space on December 20, 2022 and ending on July 20, 2030, without an option to extend. +The initial base rent was $ 12,556 +per month, after 7 months of free rent. The lease provides for annual increases. The base rent for the lease in the final year is +$ 13,937 per month. +F- 24 +ROU +assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s +obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on +the present value of lease payments over the lease term. The Company’s uses the implicit rate in its lease calculations when it +is readily determinable. Since the Company’s leases do not provide implicit rates, to determine the present value of lease payments, +management uses the Company’s estimated incremental borrowing rate for a fully collateralized loan with a similar term of the lease +that is based on the information available at the inception of the lease. +Schedule +of Operating Lease Cost +For +the years ended +December 31, +2024 +2023 +Operating +leases: +Right-of-use +assets +$ 641,354 +$ 2,320,119 +Operating +lease liabilities +$ 711,503 +$ 2,415,889 +Weighted +average remaining lease term in years +5.50 +5.33 +Weighted +average discount rate +7.80 % +7.40 % +Cash +paid for amounts included in the measurement of lease liabilities +$ 152,048 +$ 206,837 +Right-of-use +assets obtained in exchange for lease liabilities +$ - +$ 1,018,002 +Operating +lease cost +$ 146,727 +$ 146,836 +Short-term +lease costs +87,246 +275,589 +Total +operating lease costs +$ 233,973 +$ 422,425 +Future +payments due under operating leases for the as of December 31, 2024 are as follows: +Schedule +of Future payments Due Under Operating Lease +Year +Amount +2025 +154,811 +2026 +157,573 +2027 +160,336 +2028 +163,098 +2029 +and thereafter +258,772 +Total +$ 894,590 +Less +effects of discounting +( 183,087 ) +Total +operating lease liability +$ 711,503 +14. +Income Taxes +The +Company is a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the +state of Texas, in which income tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability +companies are subject to Texas margin tax. Additionally, the Company’s subsidiaries, Public Ventures, MDB Management, PatentVest, +and MDB Minnesota One are Subchapter C-corporations subject to federal and state income taxes. As such, with the exception of the state +of Texas and certain subsidiaries, the Company is not a taxable entity; it does not directly pay federal and state income taxes and recognition +has not been given to federal and state income taxes for the operations of the Company, except as set forth in the tables below. Amounts +recognized for income taxes are reported in “income tax expense (benefit)” on the consolidated statements of operations. +On +November 14, 2024, eXoZymes, formerly known as Invizyne, previously a corporate subsidiary of the Company, +completed its initial public offering (“IPO”), reducing the MDB’s ownership interest to 47%. As a result, the +company no longer consolidates eXoZymes Inc for financial reporting purposes and now accounts for its investment using the equity +method under ASC 323. For federal income tax purposes, MDB is treated as a partnership and is not subject to entity-level taxation. +As a result, no deferred tax assets (“DTAs”) or deferred tax liabilities (“DTLs”) are recognized at the +partnership level for differences between the book and tax basis of the equity method investment. Any tax consequences related to +book-tax basis differences will be recognized at the partner level upon disposition of the investment or other taxable +events. +F- 25 +For +financial reporting purposes, as of December 31, 2024, the DTAs and DTLs previously recorded for eXoZymes Inc’s temporary differences +were derecognized, resulting in a corresponding reversal of the VA. However, no new DTL related to outside basis differences was recorded +at the partnership level due to MDB’s status as a pass-through entity. Additionally, the Company will continue to monitor the book +and tax basis of its investment in eXoZymes Inc and assess whether an outside basis difference arises for financial reporting purposes. +The Company will also evaluate its assertion regarding the indefinite reinvestment of undistributed earnings of eXoZymes Inc in accordance +with ASC 740-30. +The +Company’s taxable income or loss, which may vary substantially from the net income or net loss reported on the consolidated statements +of operations, is includable in the federal and state income tax return. +Income +tax expense (benefit) (including Subchapter C-corporations) consisted of the following: +Schedule +of Income Taxes Expenses (benefit) +Year +Ended December 31, +2024 +2023 +Current +taxes +Federal +$ 1,343 +$ 105,827 +State +800 +22,091 +Deferred +taxes +Federal +- +- +State +- +- +Total +$ 2,143 +$ 127,918 +December +31, 2024, the Company’s taxable entities had approximately $ 18,003,168 of net operating loss carryforwards for federal income tax +purposes which can be carried forward indefinitely. +A +reconciliation of the federal statutory tax rate to the effective tax rate (including Subchapter C-corporations) is as follows: +Schedule +of Federal Statutory Tax Rate to The Effective Tax Rate +Year +Ended December 31, +2024 +2023 +Federal +statutory rate +21.00 % +21.00 % +State, +net of federal tax benefit +( 2.11 )% +1.27 % +Income/loss +excluded from nontaxable entities +( 68.57 )% +( 1.81 % +Permanent +differences +5.48 % +( 0.17 % +Return-to-provision +adjustments +0.04 % +1.22 % +Other +1.65 % +1.35 )% +Valuation +allowance +( 42.52 )% +( 24.54 )% +Effective +rate +( 0.00 )% +( 1.69 % +Significant +components of the deferred tax assets and liabilities (including Subchapter C-corporations) were as follows: +Schedule +of Deferred Tax Assets and Liabilities +Year +Ended December 31, +2024 +2023 +Deferred +tax assets: +Start-up +expenditures +$ 12,783 +$ 15,054 +Sec +174 – Research and development costs +3,260 +1,099,590 +Stock +compensation +2,523,450 +1,062,471 +Lease +liability +149,416 +619,900 +Warrants +- +67,366 +Bonus +expense +- +201,026 +Charitable +contribution carryforwards +1,183 +1,158 +Impairment +expense +10,500 +10,500 +Intangible +Assets +37,964 +- +Net +operating loss carryforwards +3,780,665 +1,828,404 +Valuation +allowance +( 6,123,515 ) +( 3,938,152 ) +Total +deferred tax assets +$ 395,707 +$ 967,316 +Deferred +tax liabilities: +Property +and equipment principally due to differences in depreciation +$ 3,125 +$ ( 89,083 +Right-of-use +asset +( 134,684 ) +( 598,370 +Investment +securities +( 264,147 ) +( 279,863 +Total +deferred tax liabilities +$ ( 395,707 ) +$ ( 967,316 +Net +deferred tax assets/(liabilities) +$ - +$ - +F- 26 +Net +deferred tax assets and liabilities were classified on the consolidated balance sheets as follows: +Year +Ended December 31, +2024 +2023 +Deferred +tax assets +$ 395,707 +$ 967,316 +Deferred +tax liabilities +( 395,707 ) +( 967,316 ) +Other +noncurrent assets/(liabilities) +$ - +$ - +In +assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all +of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of +future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal +of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 2024, +based on projections of future taxable income for the periods in which the deferred tax assets are deductible, a valuation allowance +of approximately $ 6,123,515 was recorded for tax carryforwards and attributes to reduce the net deferred tax assets to an amount that +is more likely than not to be recognized. The amount of deferred tax assets considered realizable could be reduced in the future if estimates +of future taxable income during the carryforward period are reduced. +In +accordance with the applicable accounting standards, the Company recognizes only the impact of income tax positions that, based on their +merits, are more likely than not to be sustained upon audit by a taxing authority. To evaluate its current tax positions in order to +identify any material uncertain tax positions, the Company developed a policy of identifying and evaluating uncertain tax positions that +considers support for each tax position, industry standards, tax return disclosures and schedules and the significance of each position. +It is the Company’s policy to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. +The Company had no material uncertain tax positions at December 31, 2024, and December 31, 2023. The tax years 2021 – 2024 remain +open to examination for federal income tax purposes. +15. +Subsequent Events +There +were no significant events identified as of date of filing. +F- 27 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +MDB +CAPITAL HOLDINGS, LLC +(the +“Registrant”) +Dated: +March 31, 2025 +By: +/s/ +Christopher A. Marlett +Christopher +A. Marlett +Chief +Executive Officer +(Principal +Executive Officer) +Dated: +March 31, 2025 +By: +/s/Jeremy +W. James +Jeremy +W. James +Chief +Financial Officer (Principal Financial and Accounting Officer) +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +Registrant and in the capacities and on the dates indicated. +Dated: +March 31, 2025 +By: +/s/ +Christopher A. Marlett +Christopher +A. Marlett, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) +Dated: March 31, 2025 +By: +/s/ Jeremy W. James +Chief Financial Officer (Principal Financial and Accounting Officer) +Dated: +March 31, 2025 +By: +/s/ +Anthony DiGiandomenico +Anthony +DiGiandomenico, Head of New Venture Discovery and Director +Dated: +March 31, 2025 +By: +/s/ +George Brandon +George +Brandon, President and Director +Dated: +March 31, 2025 +By: +/s/ +Mo Hayat +Mo +Hayat, Head of Corporate Development & Chief Legal Officer and Director +Dated: +March 31, 2025 +By: +/s/ +Matthew Hayden +Matthew +Hayden, Director +Dated: +March 31, 2025 +By: +/s/ +Susanne Meline +Susanne +Meline, Director +Dated: +March 31, 2025 +By: +/s/ +Sean Magennis +Sean +Magennis, Director +Dated: +March 31, 2025 +By: +/s/ +Daniel Torpey +Daniel +Torpey, Director +80 +EXHIBITS +Exhibit +Number +Description +of Exhibit +1.1 +Selling Agency Agreement (Incorporated herein by reference to Exhibit 1.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +3.1 +Limited Liability Company Certificate of Formation dated August 10, 2022 (incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +3.2 +Limited Liability Company Agreement of MDB Capital Holdings, LLC dated November 9, 2022 (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.1 +Form of Registrant’s Class A Common Share certificate (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.2 +Form of Selling Agent’s Warrant (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.3* +Description of Capital Stock. +10.1 +Form of Indemnification Agreement by and between the registrant and each of its directors and executive officers (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.2 +2022 Equity Incentive Award Plan (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.3 +Form of RSU Award Agreement under 2022 Equity Incentive Award Plan for grants after July 1, 2022 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.4+ +Employment Agreement by and between the registrant and Christopher Marlett, dated April 15, 2022 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.5+ +Employment Agreement by and between the registrant and Mo Hayat, dated April 15, 2022 (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.6 +MDB Capital, S.A. Service Agreement, dated January 1, 2022, as amended and restated June 1, 2023 (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.7 +Form of Warrant issued June 22, 2022 to placement agents in the June Private Offering (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-1 as filed on July 20, 2023). +14.1 +Code of Business Code and Ethics (October 2022 (incorporated herein by reference to Exhibit 14.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +19.1 +Insider Trading Policy, 2023 (incorporated herein by reference to Exhibit 19.1 to the Annual Report on Form 10-K for Fiscal Year 2023, filed March 29, 2024). +21.1* +Subsidiaries +23.1* +Consent of Independent Registered Public Accounting Firm +31.1 +* +Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +* +Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Principal Financial and Accounting, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +99.1 +Clawback Policy 2023 (incorporated herein by reference to Exhibit 99.1 to the Annual Report on Form 10-K for the Fiscal Year 2023, filed March 29, 2024). +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document) ++ +Indicates +a management contract or compensatory plan. +* +Filed +herewith. +** +Furnished +herewith. +81 \ No newline at end of file diff --git a/raw/filings/0001934642/2024/0001641172-25-001819/filing_metadata.csv b/raw/filings/0001934642/2024/0001641172-25-001819/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..35c306be738a0bc9ee86f572dc31ddeadf02a83f --- /dev/null +++ b/raw/filings/0001934642/2024/0001641172-25-001819/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934642,MDBH,"MDB Capital Holdings, LLC",2024,10-K,2025-03-31,2024-12-31,2025-03-31T20:58:40.000Z,0001641172-25-001819,form10-k.htm,,12342198,1,1,https://www.sec.gov/Archives/edgar/data/1934642/000164117225001819/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1934642/000164117225001819/ diff --git a/raw/filings/0001934642/2024/0001641172-25-001819/item1.txt b/raw/filings/0001934642/2024/0001641172-25-001819/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ff86f8fb57f18ff023bb2f3b0383c3760fb698c --- /dev/null +++ b/raw/filings/0001934642/2024/0001641172-25-001819/item1.txt @@ -0,0 +1,837 @@ +Item +1. Business +Introduction +MDB +Capital Holdings (“MDB”) serves as a foundational platform specializing in financing startups, partnering with co-founders, +and fostering value creation. This platform sets the stage for nascent ideas and entrepreneurial talent to take root. MDB +is comprised of a group of companies that together serve as this unified foundational platform. +One +of the companies in our group, Public Ventures, LLC (“Public Ventures”), which operates under the D/B/A of “MDB Capital,” operates as a growth catalyst, focusing on +community-driven micro and small-cap financings. It enables companies to scale through the initial financing stages ranging from +five to sixty million dollars and facilitates their transition into public markets with select IPOs valued in the range of twenty to +fifty million dollars. Public Ventures also may provide financing to post-IPO companies that continue to meet its overall business +criteria for investment. +Another +company in our group, PatentVest, Inc. (“PatentVest”) complements the platform as an integrated intellectual property (“IP”) +solution and IP service provider, acting as a strategic law firm to guide technology companies through the intricacies of IP law and +provides companies with IP strategy development. It plays a pivotal role in positioning companies to become leaders in their respective +spaces and curates premier opportunities for MDB and Public Ventures, which leads to our Big Idea Companies. +MDB +Minnesota One, Inc (“M1”), a partner company, was created in mid 2024 with the vision of developing a small molecule anti-senescence +platform comprised of pharmaceutical drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases +(the “M1 Platform”). The focus of the M1 Platform is to treat senescent cells, which +are dysfunctional cells that have permanently stopped dividing, that have been implicated in the aging process, and that permit the development +of chronic low-grade inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple +fibrotic conditions that have limited treatment options and poor prognoses. +MDB +supports a continuous process, dubbed our Big Idea Pipeline, designed to surface new Big Idea Companies and other opportunities for our +platform. We believe that the Big Idea Pipeline showcases the progression of tech initiatives from discovery to commercialization stages. +Initially, in any give calendar cycle, a substantial number of potential tech ideas are scouted from various sources, including +referrals, universities, and conferences. From this broad pool, approximately 250 technologies are identified as relevant and with potential +alignment with our business model. A more focused group of these ideas, about 50, evolves into, what we call, active Big Idea Companies. +Progressing further, approximately ten of these companies reach advanced stages within the selection process, indicating a deeper engagement +and evaluation by MDB. At the pinnacle of the pipeline, as of the date of this report, two Big Idea Companies are currently in active +negotiations, marking the final step before potential partnership or investment. This is a continuous process with the Big Idea Pipeline +in constant flux as new ideas emerge or evolve. MDB’s disciplined and structured approach to vetting the Big Idea Pipeline allows +us to cultivate and invest in innovative technologies with the potential to scale and succeed in the market. +MDB’s +investment criteria focuses on six key areas to identify early-stage companies poised for success in public markets. These potential +partner companies should exhibit “Tech Leadership Potential,” with distinct differentiation that pioneers a new technological +category. “Platform Technology” is essential, with core technology that can span various vertical markets or indications. +They should be at an “Early Inflection Point,” where the timeline and costs to validate technology feasibility in the commercial +marketplace are reasonable. “Clear Market Insertion” is also critical, with technology disruption significant enough to incentivize +stakeholders for market entry. The target companies should have “Large Market Potential,” addressing substantial unmet needs +with vast market opportunities. Lastly, a “Strong IP Position” is necessary, meaning a robust and defensible intellectual +property stance with broad claims to secure a sustainable competitive edge. +5 +In +essence, the investment philosophy is to scout for companies that not only stand at the vanguard of technology but also demonstrate the +capacity to disrupt markets, backed by solid intellectual property and clear pathways to market adoption and growth. +Together, +our platform represents a holistic approach to leadership development in the general technology industry. Our objective is to provide +a continuum of support to our partner companies, from inception through growth phases, culminating in market leadership. Each part of +the overall platform is integral to the journey of a start-up, providing tailored resources, expertise, management guidance and resources, +and financial backing as necessary to evolve our partner company into a significant player in the technology sector. This unity of purpose +exemplifies the strategic foresight of MDB’s commitment to launching Big Ideas and developing industry leaders. +Overview +MDB +was founded in 1997, originally operating as MDB Capital Group, LLC, for the purpose of engaging with companies holding visionary technology, +inventors, and technology entrepreneurs. To maximize the impact of our actions and culture, under our business plan, we embark on each +journey with a company at an early point, typically acting as founders and providing the initial rounds of capital, in the manner of +a partner and usually before a specified management structure has been put in place. Part of our role as founders often includes locating +the technology that will form the basis of the new enterprise. The technologies may be found in universities, in larger companies where +it is not being used or understood, in start-up companies, and with inventors. Not only do we act as founders and providing the first +capital rounds, we assist with structuring the plans for the company development, such as the steps from research and development to +initial commercialization, the intellectual property strategy, business objectives, and financing. We refer to these subsidiary companies +as “partner companies.” +Our +model typically includes a two-step financing approach with our partner companies: we put in seed capital, as founders, and the +first round of capital between $5 to $10 million dollars to set the business on an operational foundation. Our plan is to then raise +additional amounts of substantive capital to bring the technology closer to validation or to be able to commence commercialization, +typically in the range of $20 to $60 million overall. We plan on additional financing by means of public offerings or alternative +value realization. Our community of sophisticated, individual investors with like-minded goals and values, we believe supports our +model, where we will draw on their capital, knowledge, connections and expertise. We anticipate that value creation will be +generated after any number of years of patient ownership and corporate effort, and value realization might include any number of +methods, such as continued holding and operating, initial public offerings, or IPO, joint ventures, licensing, asset sales and +merger transactions, depending on the particular business model and industry. +We +believe that we successfully have used the private and public capital markets to finance growth companies. Being able to find disruptive +technologies to develop, acting as corporate founders, owners, directors and management, and conducting financing activities for those +companies in which we are strategically involved for the long term, we believe we have a different model of helping companies grow than +that of the typical private venture capital model. We refer to our approach as public venture capital. We find the technology and then +we work to analyze the technology leadership position by our surveying the marketplace so as to establish a research and development +and intellectual property development strategy to create a dominant position in the distinct technology vertical. Then we create the +basic company, we set up its management, we define its business plan, we nurture its enterprise, and we provide its financings in its +early stage rounds, and then we likely will act as the underwriter or selling agent for their IPO, other financing or disposition. It +is our plan to remain involved with our partner companies for the long term. Where there is an IPO, we plan to stay on for several years +thereafter, by being members of the board, having consulting agreements, providing strategic business advice, and participating in, advising +on or facilitating further financing rounds. We believe, most importantly, that one gauge of the partner company success is that the +partner company will successfully foster community in connection with our broker-dealer, Public Ventures. In that regard, we intend to +follow a “Member-focused” model (further discussed below) for conducting Public Ventures-led company financings. Our typical +complete public and private follow-on offerings continue supporting their research, development, growth and marketing of their technologies’ +potential. MDB, we believe, builds value by building partner companies with the right foundations +6 +Past +Examples +In +having been able to find disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting +investing activities for those companies in which we have been strategically involved for the long term, we believe we now have a different +model for helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology, and then we work to analyze the technology leadership position and survey the marketplace so as to establish +a research and development and intellectual property development strategy to create a dominant position in the distinct technology vertical. +Then we create the basic company, we set up its management, we define its business plan, we nurture its enterprise, and we facilitate +its financings in its early-stage rounds of private funding. Then we likely will act as the underwriter or selling agent for their IPO, +other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where there is an IPO, +we plan to stay involved on for several years thereafter, by being members of the board, having consulting agreements, providing strategic +business advice, and participating in, advising on or facilitating further financing rounds. We believe, most importantly, that one gauge +of the partner company success is that the partner company will successfully complete a private and public follow-on offering to continue +supporting their research, development, growth and marketing of their technologies’ potential. +Three +companies for which we started as founders and for which we conducted their IPOs, have traded for a period of time at near or over $1 +billion in market value, which we believe is crucial for maximizing the probability the companies can raise sufficient capital to get +to commercialization. These companies are as follows: +● +Provention Bio, Inc. (“Provention”). Provention was established in 2016. Public Ventures created Provention to license molecules +from several larger pharmaceutical companies, conceived the business strategy, assisted in licensing negotiations and provided seed capital, +engaged the initial board of directors’ members, and recruited C-level executives as well as executed the successful IPO. +● +Cue BioPharma, Inc. (“Cue”). Cue was established in 2014. Public Ventures created Cue to license a platform technology from +Einstein University, engaged the members of the board of directors, recruited C- level executives and, formed the corporate and IP strategy +and provided the seed capital and well as executing the successful IPO. +● +Pulse Biosciences, Inc. (“Pulse”). Pulse was established in 2014, Public Ventures created a new entity that rolled up +the intellectual property from 2 academic institutions and one private entity. Public Ventures then completed a seed financing, +created the business and IP strategy and assembled the management team and Board. Subsequently Public Ventures successfully executed +the IPO for Pulse. +More +recently, eXoZymes Inc, (formerly Invizyne Technologies Inc.) completed its IPO on November 14, 2024, having been set up in 2019 to +develop cell-free technology to optimize nature’s own biological processes to make chemicals used in many common applications. +MDB was one of the founders of the company, provided an initial funding of $5,000,000 a subsequent funding of $758,000 and +provided executive management and several board members. Persons affiliated with MDB continue to be on the board of +directors. +Key +Pillars +Since +inception, we have defined and refined the key pillars that support what we believe is our successful company creation approach. These +pillars are defined in Our Partner Company Criteria section. We believe that our model is only suitable for companies that can be sustained +in the public markets at an early stage. Typically, these companies own what appear to be category-defining platforms capable of solving +big problems. +We +have established a process to position partner companies for success, with the intention of maximizing the value early in a company’s +history. We seek to create a strong foundation during the development phase of the partner company. We believe that this helps the partner +company attract the best people who are capable of building a successful enterprise over the long term. We call this our “Rational +Design Process For New Companies.” +A +traditional perceived shortcoming of the public markets is that they attract short-sighted investors. We understand that to make early-stage +public venture feasible; we need to create a community of investors that have the intention of helping our companies get off the ground. +We believe our investors are committed community members who seek to create value at the companies in which they invest and are critical +to sustaining value. Our investors, unlike traditional institutional investors, generally have long holding periods and value long-term +impact over quarterly performance numbers. +7 +Our +Partner Company Criteria +We +seek companies that we believe meet certain criteria. Our criteria focuses first on the probability that an early-stage technology company +ultimately can sustain its value in the public markets. We look for novel technology platforms that are category-defining and solve big +unmet needs. Our criteria are founded in the following: +Tech +Leadership Potential : Target companies must offer a well-defined technological edge that carves out new niches within the tech +landscape. +Platform +Technology : The core technology should be versatile, with potential applications across a range of vertical markets or medical +indications. +Early +Inflection Point : Prospective companies should be at a juncture where the technology’s commercial viability can be proven +within a feasible timeframe and at a justifiable cost. +Clear +Market Insertion : The technology must be disruptive enough to motivate channel partners or gatekeepers to facilitate smooth market +entry. +Large +Market Potential : There should be a significant market opportunity, with the technology addressing substantial, unmet needs. +Strong +IP Position : A robust intellectual property strategy is crucial, featuring broad, defensible claims that ensure a lasting competitive +advantage. +Rational +Analytical Process +We understand that early-stage, visionary technologies are inherently fragile +and require careful nurturing to reach commercial viability. Establishing the right corporate and financial foundation is essential to +support their growth into sustainable, market-ready companies. This is particularly true for platform technologies, where strategic decisions +around corporate structure, asset development, and market positioning can significantly influence the trajectory and success of the partner +company during its formative stage. +We +begin our process by seeking to gain a deep understanding all of the relevant players in a given space and the key issues, and how, if +solved, they could effectively create a new category and enable the partner company to rapidly become a category leader. We work to develop +a clear understanding of our companies’ potential sustainable competitive advantage. Once the “Theory of Opportunity” +is established, we develop the business strategy, financing strategy and intellectual property strategy and the innovation and R&D +prioritization road map. We test our assumptions by seeking input regarding our strategic decisions with experts in the field until we +are comfortable that they are credible and convincing. With a clearly articulated understanding of what we believe to be the partner +company’s potential, we endeavor to recruit the best possible talent to execute the strategy and bring the vision to fruition. +We strive to instill a corporate culture that is constantly re-evaluating the partner company’s working thesis, which we believe +will establish and keep the partner company as the leader in a given category or enable the partner company to pivot its strategy to +a new area based upon changing circumstances. +8 +Our +Community +A +key element of our public venture model is our community of more than 500 sophisticated investors, entrepreneurs and microcap and small cap +market participants who have experience with our approach and who we believe will advocate for our public venture mission. +In addition, investors can have a significant impact by supporting the companies they invest in. We believe that this community is vital +to the success of our public venture model. +We +have strived to create community of like-minded persons who share our vision and are supportive of the partner companies we have co-founded. +This group consists of patient company owners with a long-term focus on the value that can be unlocked upon the de-risking of our partner +companies’ technologies. This long-term focus is key to building value and stability for early-stage companies in the public markets. +In addition, we believe that our community members are often authorities in multiple industries and are capable of providing support +to our partner companies with their invaluable access and reach. We believe that MDB shareholders will comprise this community and will +continue to participate in the partner companies through their MDB share ownership as well as participation in partner company direct +investment opportunities. MDB plans to sustain a cohesive community by keeping persons engaged and curious so that they continuously +help us improve our decision process as and when selecting partner companies with which to work. +We +believe that MDB is strengthening our community of MDB shareholders and can simplify our process of developing partner companies. We +intend to use a portion of our capital to identify and find partner companies. We believe that being a public company gives us greater +flexibility and nimbleness to source new technologies and make it quicker and easier to deploy capital towards opportunities that arise. +We +also will seek to foster community in connection with our broker-dealer, Public Ventures. In that regard, we intend to follow a “Member-focused” +model (further discussed below) for conducting Public Ventures-led company financings. Our typical Public Ventures Member will be a long-term +investor and/or entrepreneur who is motivated to help develop the next generation of growth companies. Public Ventures Members may or +may not be MDB shareholders. Members may or may not provide direct financing to partner companies. +Holistic +and Sustainable Model +Our +public venture model is fundamentally different than the typical venture capital fund model. We believe that bringing well developed +early-stage companies to either the public markets or fostering a merger and acquisition exit or other realization event, while still +taking care to address the unique nature and needs of these early-stage companies, provides more liquidity, efficiency, transparency, +better protections for investors and alignment of the interests of everyone involved as described below. +Inventors/Universities/Co-founders +Taking +companies public will allow shareholders to own the same class of common stock as the company’s early founders. In addition, the +ownership interests of inventors, universities, and other co-founders become valuable, tradable shares when a company is public and listed +on an exchange. As a result, we believe that, in most cases, these ownership stakes will have much greater value than they would otherwise +have in the traditional venture capital model. We also believe that our model gives companies greater leeway to execute pivots or to +pursue other strategic initiatives, such as licensing, asset sales or corporate merger and acquisition transactions. +Partner +Company Management & Board Members +We +expect that the management and board members of our partner companies will benefit from the Company being public. The ability to grant +valuable, liquid equity as part of an employment compensation package is a strong incentive to attract and retain employees and align +their interests with those of the company at which they work. Being public can help a partner company raise substantial amounts of capital +more easily than as a private company or through traditional venture capital. +9 +MDB +Shareholders +Under +our model, MDB shareholders can buy or sell their shares in the holding company at any time. These shareholders will participate in our +partner companies through the holding company structure, for example through the tax benefits of holding an interest in a tax pass through +entity or the overall value of the holding company as it reflects the values of our subsidiaries. Where we think it beneficial for a +partner company to raise capital directly, rather than taking additional funds from the holding company, we may seek a method that can +allow the MDB shareholders to participate in the additional capital formation for a partner company. There are a few means by which the +MDB shareholder may participate: for example, a further private placement by the partner company, or by a registered public offering, +such as an IPO or rights offering where the MDB shareholder will invest new funds based on the distributed right. If the best course +of action is an asset sale, a licensing arrangement or a corporate merger or acquisition transaction of a partner company, then it is +expected that MDB shareholders would receive a distribution of the proceeds as a result of the transaction. Moreover, we believe that +many of the MDB shareholders own their Class A Common Shares because they are motivated by the opportunity to contribute their knowledge +and experience to and engage with our partner companies in an effort to improve them and enhance their value. +MDB +Employees +Pursuant +to our 2022 Equity Incentive Plan, we have granted our employees interests in the Company as part of their compensation in order to align +their interests with those of our shareholders and partner company stakeholders. +Our +Holding Company Structure +While +each partner company will present its own investment dynamic, at the onset, we intend to take a majority ownership stake in the partner +companies we co-found and to hold a significant controlling position through the early stages of development and early capital creation. +We plan on seeking one or two partner company opportunities a year, but there is no assurance that we will be able to find suitable opportunities +at that rate for inclusion in the holding company. +As +a partner company is financed by means other than the holding company putting in more equity capital, such as additional sales of equity +by the partner company on a private or public basis, we plan to continue to own at least thirty-five percent (35%) or more of the voting +stock of a partner company. We also expect to maintain the right to appoint a number of board members and otherwise be instrumental in +the management and direction of the strategy and business development efforts of our partner companies for a period of time before and +after each IPO. +It +will be our policy to have with the stakeholders of our partner companies, where we do not have a 100% ownership position, a series of +contractual rights to obtain regularly the following: (i) financial reports, (ii) milestone achievement reports, and (iii) budget formulations. +Other oversight rights which we will seek to have include, (i) approval of capital raises, (ii) approval of incurring and guaranteeing +debt in excess of $250,000, (iii) approval of capital expenses in excess of $250,000, (iv) approval of changes in the business plan, +(v) participation in budgeting, (vi) review of employment arrangements with key employees, (vii) participation in the selection of directors +and director nominees, (viii) approval of sale of the company or assets and merger and acquisition transactions, and (ix) liquidation +approval. These rights will be supplemented by agreements that will afford the founders, early owners and the holding company: (i) a +right of first refusal on future financings, (ii) approval right on the issuance of securities for compensation purposes and stock option +plan sizing, (iii) voting agreements so as to maintain the control by the holding company, (iv) drag-along sale and co-sale agreements, +right of first refusal agreement on individual ownership holdings, and (v) an investor rights agreement. +10 +In +order to not be deemed an investment company under the regulation of the Investment Company Act of 1940, MDB will not operate in a manner +such that it is or holds itself out as being engaged, or proposes to engage, in the business of investing, reinvesting, or trading in +securities. Additionally, it will maintain what are characterized as “investment securities” under the Investment Company +Act below forty percent (40%) of the value of the total assets of MDB on an unconsolidated basis, unless an exemption or safe harbor +applies under that legislation. Securities issued by companies other than consolidated companies are generally considered “investment +securities” for purposes of the Investment Company Act, unless other circumstances exist that have the holding company being actively +involved in the management of the underlying company. We will consolidate these companies for financial statement purposes as long as +they are majority-owned subsidiaries in which we hold voting power of fifty percent (50%) or greater. We expect to continue to have an +active role in the management of our partner companies for a long period of time before and after funding, such as an IPO. +Not +only for purposes of the Investment Company Act, but also to maintain our focus on exploring new investment opportunities through partner +companies, rather than holding partner companies for long term investment and increasing our asset base, our intention is to distribute +our partner companies and excess assets beyond what is needed to support the investments we plan to make under our public venture model. +Competition +Getting +access to and deploying early-stage capital is very competitive. We believe our main competitors are traditional venture capital firms, +other funds specializing in microcap and small cap investing and investment banks focusing on microcap and small cap companies. +We +believe that our approach provides multiple benefits compared to existing models and traditional methods. However, many of our competitors +are larger, have greater brand recognition, longer operating histories, established business relationships, access to greater amounts +of capital, and significantly greater resources. We believe that we will be able to compete on many fronts based on our history and reputation, +our plan to partner, encourage and support the development of our partner companies and their founders, our wide-ranging contacts in +the financial and industry sectors, our ability to provide capital as needed, our ability to source and diligence new technologies and +the experience of our professional human capital. +Our +Group of Companies +Public +Ventures +Our +wholly-owned subsidiary, Public Ventures, licensed under the name Public Ventures LLC, a registered broker- dealer (CRD-: +42677/SEC-: 8-49951) is the backbone of our financing business. Public Ventures operates under the d/b/a of “MDB +Capital.” In 2024 we expanded its capabilities to act as a licensed clearing firm. +The +Vision +We +believe that venture stage businesses are more likely to succeed when supported and financed by a community of long-term oriented, like-minded +investors and entrepreneurs who are experienced in the development of successful companies. We envision developing a close-knit community +of such clients for Public Ventures who we will refer to as our Public Ventures “Members.” Our Members will be able to submit +start-up and developing companies as potential candidates for obtaining financing through Public Ventures and/or as candidates to become +partner companies for MDB. If they so choose and as dictated by their expertise, our Members will have opportunities to assist in development +of companies that we finance at Public Ventures or who become partner companies and help them grow into tomorrow’s leaders. +We +believe that such a community of investors can foster the growth of promising public companies under $500 million in market value, also +known as microcap and/or small cap companies, by leveraging the knowledge of the community and sharing risk amongst its Members. +We +believe that we are building a robust infrastructure to support our vision for Public Ventures. Our objective is to create a high-end +service platform that will make investing in the microcap and/or small cap segment more accessible to and efficient for the Public Ventures +Member community. Public Ventures recently began self-clearing operations of U.S equity securities. Its FINRA licensed self-clearing broker-dealer +is capable of structuring and underwriting financing transactions as well as providing clearing services that enable clients to trade, +clear, and settle securities in these companies. We also are able to provide expanded account maintenance activities, such as wire transfers, +securities deposits and interest on cash deposits through typical cash management services. +11 +We +have successfully operated our broker-dealer for more than 25 years during which we have specialized in transactions for public venture +companies. During that time, we built internal processes to perform diligence and prioritize the financing of deals based on the investment +criteria that we have developed. We intend to leverage the lessons we have learned during these experiences to create processes, rating +systems and reports that will be made available to our Member community and can be used to supplement their own processes for evaluating +each opportunity and associated risks and making informed investment decisions. +The +Public Venture Opportunity +Historically, +the public markets have served as a significant funding source for companies with new ideas and enabled the growth and development of +visionary technologies that lead to advancements in our society. We believe that venture investing in the public markets is the most +transparent and liquid method for investors to participate in venture capital. Public venture is available to all classes of investors +who all receive typically equal amounts of information about their investments. Companies like Amazon, Tesla, Walmart, Home Depot, among +others, were brought public at very early stages, and capital provided through the public markets enabled their spectacular development +into industry leaders. +Market +dynamics have resulted in companies backed by traditional venture capital staying private for longer periods of time. In addition, regulatory +changes affecting broker-dealers have resulted in a shift to high volume trading that relies on payment for order flow to make up for +commission-less trading. This has resulted in broker-dealers devoting more resources to trading high volume, popular equities and away +from providing service to microcap and small-cap public venture companies and their securities. As a result, the needs of long-term investors +looking to support venture stage public companies and those of venture stage companies are not addressed by today’s brokerage firms +who cater to traders. +We +believe that the expected Public Ventures Member community, consisting of sophisticated individual investors, who are aware of the nature +of venture investments and seek to build tomorrow’s leading companies, can drive the future of public venture capital formation. +We believe that only this type of community can provide suitable financing options that will meet the needs of small public venture companies. +We have the unique opportunity to provide the right framework and platform infrastructure to this community that will enable its Members +to collectively underwrite public venture financings. +We +expect our Members to be entrepreneurial and involved in different ventures. Under our framework, they will be encouraged and rewarded +for successfully identifying business and ownership opportunities for the community that meet our criteria. We envision that our platform +will encourage and allow Members to share information and formulate the nature of and pricing for any financing opportunities through +the exchange of information about a particular opportunity. In addition, our framework is expected to consist of conducting diligence, +creating comparative analysis, providing company information, and implementing rating systems. We believe that this information and transparency +will enable high quality, informed decisions and facilitate market integrity. +Members +and Member Sponsors +It +is our intention to build our community of participants who share the collective goal of elevating and supporting development-stage +companies and have an investor rather than a trader mindset. Persons who share the values and vision of the organization can be +invited into the community as Members. We expect to encourage active participation of our Members such that they may be mentors of +growth through starting, running, or connecting companies within the community or by being active early investors in the various +business and ownership opportunities that arise. We plan to sponsor community Member forums, organized by geographic location, +investing style and subject matter expertise and/or industry segments. We believe these forums will facilitate in-person meetings +with companies, enable due diligence, and support investor engagement and camaraderie. +12 +Members +who originate business opportunities for the community will be known as “Member Sponsors” and will have additional roles, +as regulations permit, in the financing of our partner companies. A Member Sponsor likely will be a liaison among a company looking for +financing, Public Ventures’ internal team, and our community of Members. They will help the potential partner company complete +required documentation, shepherding the company through the diligence process, and fostering introductions to Members and coordinating +roadshow meetings. To the extent required, Member Sponsors will hold the required securities licenses and registrations. +Efficient +Back Office Support +We +have an out-source service contract with a Nicaraguan company with which the Company has worked for many years. The company, MDB Capital, +S.A. is owned by two of the principal shareholders and officers of the Company. The services that the Company expects to out-source to +the service provider will include administrative services to support Public Ventures and PatentVest, such as back office services related +to brokerage and clearing firms, background investigations, preparing investment research reports, patent searches and analysis, and +customer support services. Services that will be requested will be only those that can be provided by an out-source company within the +context of U.S. privacy laws, FINRA regulation, and other applicable U.S. financial service and other regulation. +Based +on recent Executive Orders imposing new and expanding prior sanctions on Nicaraguan businesses and on U.S. persons doing business in +Nicaragua, however, there may be disruption to our being able to contract for out-sourced services with Nicaraguan entities. Therefore, +we may have to adjust our business plan accordingly. +PatentVest +PatentVest +is currently expanding its business operations. We believe PatentVest can become the first venture invention and commercialization intelligence +platform created to assist technologists, advisors, venture capital investors, and established companies optimize technology commercialization. +Our process takes in information from our proprietary patent database and transforms the information about inventions and intellectual +property from a complex legal process into a manageable, measurable business process. The PatentVest process clearly defines the boundaries +of an invention by providing context for previously developed ideas and analyzes how the invention, and therefore patent claims, differ +from the discovered prior art in order to rationalize the essential distinctions that are the key value drivers. Understanding these +boundaries, as well as how protectable and valuable these boundaries are, is essential to better guide strategic business and patentability +decisions. In our experience, this PatentVest process answers the most important questions for a technology platform: how to innovate, +how to improve its ideas, and how to deploy these ideas where they matter most. +Our +innovation in a box process seeks to include the following elements and outcomes: +● +Improve idea prioritization – Allows inventors and financial backers to weigh the value of a given idea by ascertaining the uniqueness +of such invention. +● +Enhance the value of an invention – Understanding invention boundaries allows patent attorneys to draft patent claims in a way +that confers the most available protection without being encumbered by prior art. +● +Optimize strategic decisions – Deeply understand the competitive landscape, identify issues that possible partners are trying to +solve, prioritize markets where an invention might be the most valuable, and identify possible acquirers. +PatentVest +History +Eighteen +years ago, PatentVest’s founders recognized that intellectual property was the most valuable asset for technology companies and +began building a proprietary patent database and software platform to help companies manage these assets. During these years, PatentVest +has been continuously iterating uses for available information to potentially enable better investment decisions as well as to guide +the development of such technology once investment decisions were made. We believe that PatentVest has helped start-up companies move +from having novel ideas to becoming technology leaders. As a result, in our opinion, PatentVest is capable of providing the backbone +of an investment idea selection process, as well as forming intellectual property and business development strategies. We believe utilizing +the PatentVest Innovation in a Box process will enhance our ability to optimize our selection process with respect to partner companies +as well as when selecting underwriting candidates for Public Ventures. +13 +We +also believe that the PatentVest services will aid companies to define their intellectual property assets in their capital raising activities +and will be available to other companies that see to build their intellectual property outside of the context of working with MDB and +Public Ventures. +PatentVest +Objective +PatentVest +starts with a technology assessment, where it evaluates the technology to establish whether or not the technology is unique and a company +can create a leadership position with the identified intellectual property. Assessment is extensive covering an investigation into the +players in the particular industry space, whether the technology truly is innovating, can value be created with the technology, what +is the market and can there ultimately be value creation. The assessment phase includes an examination of existing patents and applications, +scientific publications and other public data. After the assessment, a strategy is developed, which will include where to focus R&D, +what to patent or keep as a trade secret, and the jurisdictions in which to protect the intellectual property, and based on the assessment +and strategy, help develop a business plan to progress the intellectual property. PatentVest also may provide development budgets and +help identify critical persons with which to work. PatentVest will be able to implement prosecution of patents and other intellectual +property, maintain surveillance of the intellectual property space, and provide reporting on developments in the particular intellectual +property space. +We +believe that the PatentVest process will provide a fundamental advantage to helping create a leadership position for a company with unique +intellectual property. By knowing and understanding the particular intellectual property space, having a focused R&D and intellectual +property development plan, a coherent business plan, and providing the related aspects of setting up a development company with the right +persons and financial backing, the success of the company in being a value creator in its industry vertical is improved. As part of this +overall process, the involvement of Public Ventures can add to the value creation with its financing resources. +It +has been our experience when evaluating, investing in or advising technology companies that intellectual property strategy development +and related processes are most often led by attorneys and is separate from the other invention and business processes at these companies. +We have seen that this work is typically outsourced and, as a result, key company personnel are often neither engaged in the claim drafting +process nor are aware of how their patents have potentially changed during prosecution. Many of the inventors and business executives +with whom we have engaged have a modest knowledge regarding what their claims cover or what the boundaries of their claims are in relation +to other companies. We believe that it is very difficult, if not impossible, to truly understand either what a company “owns” +or to effectively evaluate a given invention’s potential uniqueness and ultimately its potential value without this perspective. +14 +We +believe the companies that will derive the greatest benefit from PatentVest’s services are technology companies with a few current +active patent applications that are expected to primarily drive the value of their companies with their inventions. The analysis and +information provided by the PatentVest process, as documented in reports to its clients, is expected to guide technology companies as +they seek to prioritize ideas and develop their intellectual property and business strategies. We believe that PatentVest will not only +provide MDB with additional clarity in selecting its partner companies and Public Ventures in selecting underwriting candidates, but +also to any technology company in their decision-making processes seeking to maximize the value of their inventions. +The +PatentVest Model +We +plan to use PatentVest to help technology companies innovate and deploy their innovations in the most valuable manner as well as to support +our processes. We believe that PatentVest has one of the most comprehensive global patent databases available, containing more than 148 +million patents and covering 116 countries. PatentVest has built software processes and tools that make it possible to efficiently mine +vast amounts of data and structure this data in a way that can be analyzed by its team of analysts. In addition, PatentVest has assembled +the human capital required to cost-effectively analyze such data and build the reports for companies that are expected to be the backbone +of our services. Our objective is to serve approximately 30 client companies at any one time once we have scaled our operations. +PatentVest +has developed different report formats that provide information within context in a way that we think can be quickly processed by decision-makers +and help provide answers to the most valuable questions for the companies we will target as our business development opportunities. The +insights presented in our reports are the culmination of a long, iterative process that we have refined by the constant questioning of +which data is valuable to building technology companies. +PatentVest +as a Law Firm +On +September 20, 2022, the Supreme Court of the State of Arizona licensed PatentVest to practice law as an Alternative Business Structure, +or ABS. An ABS is a business entity that includes non-lawyers that have an economic interest or decision making authority in a law firm. +We intend to develop and maintain a team of highly trained legal professionals and staff that will principally provide legal services +related to intellectual property matters under federal law. We are in the process of operationalizing the firm and taking on clients. +Matters that we will be undertaking will generally be patent prosecution and intellectual property protection. Through offering legal +services we intend to enhance the value of inventions by addressing questions of strategy and perspective along with the technical merits +of an invention. The provision of legal services by PatentVest will be limited to those technology companies specifically engaged by +PatentVest for such services and is intended to provide all the rights and privileges of the attorney-client relationship. +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS is on patent issues and patent +prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not seen as a limitation. +Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest ABS will make referrals to firms +licensed in appropriate jurisdictions. +MDB +Minnesota One +M1, a partner +company, with the vision of developing a small molecule anti-senescence platform comprised of pharmaceutical +drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases (the “M1 Platform”). The +focus of the M1 Platform is to treat senescent cells, which are dysfunctional cells that have permanently +stopped dividing, that have been implicated in the aging process, and that permit the development of chronic low-grade inflammation. +This chronic inflammation has been linked to a variety of age-related diseases, including multiple fibrotic conditions that have limited +treatment options and poor prognoses. +Studies +conducted at Mayo Clinic have shown the potential of certain molecules to target and eliminate senescent cells with a significant therapeutic +window, reversing fibrosis across multiple conditions. The global longevity and anti-senescence therapy market is projected to reach +nearly $45 billion by 2030. +On +July 1, 2024, M1 entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo Foundation +for Medical Education and Research (“Mayo”) for certain patent rights and associated technology pursuant to which M1 intends +to develop the M1 Platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented technology and +know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license of patent +rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed products +and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2024 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A +payment of $250,000 for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A +payment of $5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2024 the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +M1 +is currently in the pre-clinical development stage of the M1 Platform and is undertaking important feasibility studies, iterative testing, +and collection of drug safety and toxicity data. +15 +Regulation +Broker-Dealer +Regulation +Our +broker-dealer subsidiary, Public Ventures, is subject to regulations governing every aspect of its securities business, including the +execution of securities transactions; capital requirements; record-keeping and reporting procedures; relationships with clients, including +the handling of cash and margin accounts; the experience of and training requirements for certain employees; and business interactions +with firms that are not members of regulatory bodies. As a participant in the financial services industry, it is subject to the complex +and extensive regulation of the U.S. federal and state regulatory agencies, self-regulatory organizations and securities exchanges and +certain other authorities with oversight on banking and money laundering. The laws, rules and regulations comprising the regulatory framework +applicable to broker-dealers are constantly changing, as are the interpretation and enforcement of existing laws, rules and regulations. +The effect of any such changes cannot be predicted. +Public +Ventures is registered as a securities broker-dealer with the SEC and is required to be a member of FINRA. FINRA is a self-regulatory +body composed of members, such as our broker-dealer subsidiary, that have agreed to abide by its rules and regulations. FINRA may expel, +fine and otherwise discipline member firms and their employees. Public Ventures is also licensed as a broker-dealer in 33 states in the +U.S., requiring it to comply with the laws, rules and regulations of each state. Additionally, Public Ventures might register in additional +states from time to time as needed. Each state may revoke the license to conduct securities business, fine, and otherwise discipline +broker-dealers and their employees. +Public +Ventures is subject to the SEC’s Uniform Net Capital Rule, Rule 15c3-1, which may limit our ability to make withdrawals of capital +from the broker-dealer subsidiary. The Uniform Net Capital Rule sets the minimum level of net capital a broker-dealer must maintain and +also requires that a portion of a broker-dealer’s assets be relatively liquid. In addition, Public Ventures is subject to certain +notification requirements related to withdrawals of excess net capital. +We +are also subject to the USA PATRIOT Act of 2001 (the “Patriot Act”), which imposes obligations regarding the prevention and +detection of money-laundering activities, including the establishment of client due diligence, client verification and other compliance +policies and procedures. Failure to comply with these requirements may result in monetary, regulatory and, in the case of the USA Patriot +Act, criminal penalties. We are subject to the Securities Investor Protection Act of 1970, which created the Securities Investors Protection +Corporation (SIPC), which provides certain client protection to clients related to their brokerage accounts. We are subject to certain +treasury regulations, such as Regulation T, relating to how money may be lent to clients and used, and the rules related to margin accounts. +Broker-dealers +are also subject to ongoing duties of financial responsibility, client protection and good conduct. These include, among other things, +(i) client funds and securities must be segregated from the broker-dealer’s proprietary business operations, (ii) maintaining basic +bookkeeping requirements including records of trades, receipts, positions held in different securities, trial balances, complaints, and +compliance, together with reports to be filed periodically, (iii) executing orders on behalf of clients to ensure the best execution +possible, disclosing information relevant to investors, charging prices in line with market conditions, and disclosing conflicts of interest, +(iv) only recommending investments or strategies that are suitable for the clients concerned, (v) communicating in a fair, balanced, +and not misleading way with clients, (vi) observing rules concerning maximum value of gifts made to clients and political contributions, +and (vii) filing reports of any suspicious activities noted by the broker-dealer, including investments over predefined monetary limits. +SEC +Regulation Best Interest requires that a broker-dealer and its associated persons act in a retail client’s best interest and not +place their own financial or other interests ahead of a retail client’s interests when recommending securities transactions or +investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy +four component obligations, including a disclosure obligation, a care obligation, a conflict of interest obligation, and a compliance +obligation, and both broker-dealers and investment advisers are required to provide disclosures about their standard of conduct and conflicts +of interest. +In +addition to the SEC, various states have proposed or adopted laws and regulations seeking to impose new standards of conduct on broker-dealers +that, as written, differ from the SEC’s new regulations and may lead to additional implementation costs if adopted. The SEC did +not indicate an intent to preempt state regulation in this area, and some of the state proposals would allow for a private right of action. +16 +Various +regulators, including the SEC, FINRA and state securities regulators and attorneys general, conduct both targeted and industry-wide investigations +of certain practices relating to the financial services industry, including sales and marketing practices, valuation practices, and compensation +arrangements. +A +variety of data privacy laws to protect personal information obligate broker-dealers to provide notice about its data handling practices, +to offer certain opt-outs, and to implement reasonable security measures to deter unauthorized access. Broker-dealer internal and external +electronic communications may only be made on approved devices and platforms that are encrypted and secure and will capture all communications +in the broker-dealer’s records. The cost and burden of taking cybersecurity measures, having personnel oversee compliance and staying +current with respect to new technology developments continues to grow. +Our +broker-dealer accounting, administrative and operations personnel are responsible for financial controls, internal and external financial +reporting, compliance with regulatory and legal requirements, office and personnel services, management information and telecommunications +systems, and the processing of our securities transactions. We are subject to the privacy laws applicable to financial institutions in +respect of our securities business. +As +is common in the securities industry, our broker-dealer subsidiary is subject to regular reviews of and investigations into our +operations, some of which progress to regulatory actions that may result in fines, censures, and limitations on activity. Currently, +we are the subject of a review of past broker-dealer activities, which may be either resolved without further regulatory action or +escalated such that we could be subject to one or more penalties. At this time, we are cooperating with the reviews, and we do not +know whether or not it will escalate to regulatory action and, if it does, what violations of rules and regulations may be +asserted against the broker-dealer and what the potential final resolutions might be. +Self-Clearing +Regulation +In +January 2024 Public Ventures began self-clearing U.S. equity securities. As part of this process, in addition to the +broker-dealer regulation described above, Public Ventures is subject to regulation directed to self-clearing operations and must +demonstrate that its financial, operational and systems capacities are able to perform this business while complying with +regulations, including those of the SEC, FINRA, Depository Trust Clearing Corporation (“DTCC”), and National Securities +Clearing Corporation (“NSCC”). To operate the self-clearing activity, we must meet different capitalization requirements +than those of an introducing broker-dealer, maintaining a capital structure with various cash and cash equivalent assets and +retaining access to necessary lines of credit that can assure our ability to comply with changing deposit requirements. We expect +that these regulations will continue to undergo substantial changes and may require additional capital as settlement operations moves to T+0 in the future. +17 +Data +Protection and Cyberattack Regulation +In +the course of our operations and in the processing of transactions, we collect, process, store, disclose, use, share and/or transmit +personal information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple +jurisdictions. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable +future. There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, +storage, protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act +(“GLBA”) (along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure +of personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent +the use and disclosure of certain nonpublic or otherwise legally protected information. Additionally, many states continue to enact legislation +on matters of privacy, information security, cybersecurity, data breach and data breach notification requirements. For example, as of +January 1, 2020, the California Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy +in California. The CCPA, among other things, entitles California residents to know how their personal information is being collected +and shared, to access or request the deletion of their personal information and to opt out of certain sharing of their personal information. +The CCPA is subject to further amendments pending certain proposed regulations that are being reviewed and revised by the California +Attorney General. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches +that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, +data breach litigation. We cannot predict the impact of the CCPA on our business, operations or financial condition, but it could result +in liabilities and/or require us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and went into effect in most material respects +starting on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly +modify the CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also +creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the +CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies +and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement +and/or litigation. +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws that took effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures, is subject to SEC Regulation S-P, which requires that businesses maintain policies and procedures +addressing the protection of client information and records. This includes protecting against any anticipated threats or hazards to the +security or integrity of client records and information and against unauthorized access to or use of client records or information. Regulation +S-P also requires businesses to provide initial and annual privacy notices to clients describing information sharing policies and informing +clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change +our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations or perceived +violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to change our business +practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing legal claims +by governmental entities or private actors, sustaining monetary penalties, sustaining reputational damage, expending substantial costs, +time and other resources and/or sustaining other harms to our business. Furthermore, our online, external-facing privacy policy and website +make certain statements regarding our privacy, information security and data security practices with regard to information collected +from our clients or visitors to our website. Failure or perceived failure to adhere to such practices may result in regulatory scrutiny +and investigation, complaints by affected clients or visitors to our website, reputational damage and/or other harm to our business. +If either we, or the third-party service providers with which we share client data, are unable to address privacy concerns, even if unfounded, +or to comply with applicable privacy or data protection laws, regulations and policies, it could result in additional costs and liability +to us, damage our reputation, inhibit sales and harm our business, financial condition and results of operations. +18 +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +Most +jurisdictions (including all 50 states) have enacted laws requiring companies to notify individuals, regulatory authorities and/or others +of security breaches involving certain types of data. In addition, our agreements with certain partners and service providers may require +us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause +our clients, partners and service providers to lose confidence in the effectiveness of our security measures and require us to expend +significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. A +security breach of any of our vendors that processes personal information of our clients may pose similar risks. +19 +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Arizona +Law Firm Regulation +The +law firm owned and operated by PatentVest is subject to the Arizona Supreme Court under Rule 31.1(c) and the Arizona Code of Judicial +Administration, or ACJA, Section 7.209, relating to Alternative Business Structures, or ABS. An ABS is an entity that includes non-lawyers +who have an economic interest or decision-making authority as defined in ACJA 7-209 which may employ, associate with, or engage a lawyer +or lawyers to provide legal services to third parties. An ABS (1) must employ at least one person who is an active member in good standing +of the State Bar of Arizona who will supervise the practice of law under the rules of the Arizona Supreme Court for the entity, (2) has +been licensed by the Arizona Supreme Court after application to the Committee on ABSs, and (3) will provide legal services by persons +authorized to do so and in compliance with the Rules of Supreme Court as generally applied to the practice of law and the particular +regulations applicable to an ABS. An approval is made in favor of an ABS application if the Committee on ABSs finds that the applicant +meets, among others, the following objectives: (a) protecting and promoting the public interest; (b) promoting access to legal services; +and (c) encouraging an independent, strong, diverse, and effective legal profession. The Committee on ABSs should also find that the +applicant (a) has lawyers providing legal services to consumers that will act with the independence that is consistent with the lawyers’ +professional responsibilities and standards, (b) the lawyers will make decisions in their practice that are in the best interest of clients, +(c) the ABS maintains confidentiality consistent with Arizona Rule of Supreme Court 42, and (d) the other business policies or procedures +of the ABS do not interfere with a lawyers’ duties and responsibilities to clients. +An +ABS is also subject to all the rules and regulations associated with the ethical rules of a law firm operating in the State of Arizona. +These rules are found in Section 7-209 of the Code of Judicial Administration and the Arizona Supreme Court Rules. Together the rules +address issues relating to (i) conflict of interest situations for client representation, (ii) issues relating to the sale of a law practice, +(iii) law firm owner responsibilities such as for having sufficient managerial authority, effective internal policies and procedures, +and procedures for the conformity of law employees to the rules of professional conduct and procedures for non-law employees, and (iv) +adequate trust account requirements, including the annual certification requirement. The rules also address code of conduct issues such +as lawyer independence in the provision of services, the diligent and promptness of rendering legal services, and record maintenance, +among others. An ABS and its law employees will be subject to the disciplinary rules 46 et. seq. of the Arizona Supreme Court. +20 +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS, however, is on patent issues +and patent prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not +seen as a limitation on its operations. Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest +ABS will make referrals to firms licensed in appropriate jurisdictions. +U.S. +Foreign Corrupt Practices Act +The +U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and individuals from engaging in certain activities to obtain +or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the +payment of anything of value to any foreign government official, government staff member, political party or political candidate in an +attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The scope of the FCPA includes +interactions with certain healthcare professionals in many countries. Equivalent laws have been adopted in other foreign countries that +impose similar obligations. +Human +Capital +As +of the date of this filing, overall there are approximately 16 full time employees of MDB, employed directly or indirectly through MDB +CG Management, Inc. (“MDB Management”). We also engage from time-to-time consultants for various activities. +MDB +Management also has an agreement with MDB Capital S.A., an affiliated Nicaraguan company, for MDB Capital S.A. to provide services to +the Company on an out-source, as required service basis. The services are provided on a specific request, within an identified scope +of activity, from time to time. Primarily the services will be administrative support services, research activities, and analytical services +as necessitated by the holding company, Public Ventures, PatentVest and partner companies. +As +our business develops, we establish partner companies and we enhance our operations, we anticipate the number of employees and consultants +will grow. In addition, we also anticipate adding human capital contractors, consultants, clinical research organizations and collaborative +businesses to perform clinical studies, toxicology assessment, manufacturing, regulatory, and other operational functions. +Legal +Matters +We +are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings +arising in the ordinary course of our business. +21 \ No newline at end of file diff --git a/raw/filings/0001934642/2024/0001641172-25-001819/item13.txt b/raw/filings/0001934642/2024/0001641172-25-001819/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..e3d470c9d5511701575ba2d230732efaff8e58c2 --- /dev/null +++ b/raw/filings/0001934642/2024/0001641172-25-001819/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +77 \ No newline at end of file diff --git a/raw/filings/0001934642/2025/0001493152-26-013924/filing.txt b/raw/filings/0001934642/2025/0001493152-26-013924/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..387f18fbfc8e598895c4ce3aed0f18d11df4787e --- /dev/null +++ b/raw/filings/0001934642/2025/0001493152-26-013924/filing.txt @@ -0,0 +1,7851 @@ +false +FY +0001934642 +Yes +Yes 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+(Address +of principal executive offices) +(Zip +code) +(945) +262-9012 +(Registrant’s +telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Exchange Act: +None +Title +of each class +Trading +Symbol(s) +Name +of each exchange on which registered +Class +A Common Shares, representing Limited Liability Interests +MDBH +Nasdaq +Capital Market +Securities +registered pursuant to Section 12(g) of the Act: +None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ . +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No +☐ . +Indicate +by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the +preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such +filing requirements for the last 90 days. YES +☒ NO ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). YES +☒ NO ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 +of the Exchange Act. +Large +Accelerated Filer +☐ +Accelerated +Filer +☐ +Non-accelerated +Filer +☐ +Smaller +Reporting Company +☒ +Emerging +Growth Company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒ +As +of March 31, 2026 the number of outstanding shares of Class A Common Shares, representing limited liability interests, of the registrant +was 5,300,132 . There are also 5,000,000 outstanding shares of Class B Common Shares, representing limited liability interests of the +registrant, each of which votes with the Class A Common Shares on all matters presented to the holders of the Class A Common Shares. +The value of the Class A Common Shares on June 30, 2025, was $ 22,178,831 , the last business day of the registrant’s most recently +completed second fiscal quarter. +DOCUMENTS +INCORPORATED BY REFERENCE +None . +TABLE +OF CONTENTS +Page +Part I +Item +1. +Business +5 +Item +1A. +Risk Factors +21 +Item +1B. +Unresolved Staff Comments +46 +Item +1C +Cybersecurity +46 +Item +2. +Properties +47 +Item +3. +Legal Proceedings +47 +Item +4. +Mine Safety Disclosures +47 +Part +II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +48 +Item +6. +[Reserved] +50 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +50 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +61 +Item +8. +Financial Statements and Supplementary Data +61 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +61 +Item +9A. +Controls and Procedures +61 +Item +9B. +Other Information +62 +Item +9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +62 +Part +III +Item +10. +Directors, Executive Officers and Corporate Governance +63 +Item +11. +Executive Compensation +69 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +73 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +74 +Item +14. +Principal Accountant Fees and Services +75 +Part +IV +Item +15. +Exhibits and Financial Statement Schedules +76 +Item +16. +Form 10-K Summary +76 +Signatures +77 +In +this Annual Report, unless otherwise indicated, the “Company”, “MDB,” “we”, “us” or “our” +refer to MDB Capital Holdings, LLC and, where appropriate, together with its wholly-owned and controlled subsidiaries. +2 +CAUTIONARY +STATEMENT +This +Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” +in Item 7, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended +(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) +that involve substantial risks and uncertainties. These forward-looking statements are not historical facts but are based on current +management expectations that involve substantial risks, uncertainties, and other factors, some of which are beyond our control and difficult +to predict and could cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. +Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements +by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” +“could,” “intends,” “target,” “projects,” “contemplates,” “believes,” +“estimates,” “predicts,” “potential” or “continue” or the negative of these terms or +other similar words. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements +including, but not limited to, any projections of revenue, gross profit, earnings or loss, tax provisions, cash flows or other financial +items; any statements of the plans, strategies or objectives of management for future operations; any statements regarding current or +future macroeconomic or industry-specific trends or events and the impact of those trends and events on us or our financial performance; +any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; and any statements +of assumptions underlying any of the foregoing. +These +forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our +actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, +as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking +statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment +in which we operate. +Although +we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove +to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these +and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report on Form 10-K should not be +regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described +or identified in “Risk Factors” in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking +statements, which apply only as of the date of this Annual Report on Form 10-K. Except as required by the federal securities laws, we +undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or +otherwise, to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K. +3 +Important +factors that could cause those differences include, but are not limited to: +● +our +future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve +and maintain future profitability; +● +our +business plan and our ability to effectively manage our overall operations and growth, particularly in respect of our partner companies; +● +our +ability to anticipate trends, growth rates, and challenges in our securities brokerage and related businesses as broker dealer regulation +evolves; +● +our +ability to evaluate potential partner companies and assess their potential growth and the challenges of their business; +● +our +ability to evaluate the product and service development of the partner companies, product and service acceptance of the partner companies, +and the inherent uncertainty of their product and service development and commercialization; +● +how +our partner companies are able to be financed and our ability to provide shareholder value to our holders of Class A Shares and Class +B Shares; +● +our +ability to realize upon the value created by our partner companies by the distribution or sale of the securities we own of them; +● +regulatory, +legislative and judicial developments that impact our businesses and those of the partner companies and our ability to stay in compliance +with laws and regulations that currently apply or become applicable to our business and those of the partner companies; +● +the +ability of our partner companies to protect their respective intellectual property; +● +our +relationships with our clients and service providers; +● +our +ability to identify, complete and integrate potential strategic acquisitions of complementary companies, products, services, or technologies +and our ability to successfully integrate such companies or assets into our overall structure; +● +general +economic conditions and trends and their impact on businesses of the group companies; +● +increased +expenses associated with being a public company; +● +our +ability to attract and retain qualified personnel; +● +our +ability to raise equity and debt capital to fund our operations and growth strategy, including possible developmental businesses +and acquisitions; and +● +future +revenue being lower than expected. +These +above factors should not be construed as exhaustive and should be read with the other cautionary statements in this annual report. +4 +PART +I +Item +1. Business +Introduction +MDB +Capital Holdings, LLC (“MDB”) serves as a foundational platform specializing in financing startups, partnering with co-founders, +and fostering value creation. This platform sets the stage for nascent ideas and entrepreneurial talent to take root. MDB is comprised +of a group of companies that together serve as this unified foundational platform. +One +of the companies in our group, Public Ventures, LLC (“Public Ventures”), which operates under the D/B/A of “MDB +Capital,” operates as a growth catalyst, focusing on community-driven micro and small-cap financings and is a self-clearing broker dealer. It enables companies to +scale through the initial financing stages ranging from $5 million to sixty million dollars and facilitates their transition into +public markets with select IPOs valued in the range of twenty to fifty million dollars. Public Ventures also may provide financing +to post-IPO companies that continue to meet its overall business criteria for investment. +Another +company in our group, PatentVest, Inc. (“PatentVest”) complements the platform as an integrated intellectual property (“IP”) +solution and IP service provider, acting as a strategic law firm to guide technology companies through the intricacies of IP law and +provides companies with IP strategy development. It plays a pivotal role in positioning companies to become leaders in their respective +spaces and curates premier opportunities for MDB and Public Ventures, which leads to our Big Idea Companies. +MDB +Minnesota One, Inc (“M1”), a partner company, was created in mid-2024 with the vision of developing a small molecule anti-senescence +platform comprised of pharmaceutical drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases +(the “M1 Platform”). The focus of the M1 Platform is to treat senescent cells, which +are dysfunctional cells that have permanently stopped dividing, that have been implicated in the aging process, and that permit the development +of chronic low-grade inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple +fibrotic conditions that have limited treatment options and poor prognoses. +MDB +supports a continuous process, dubbed our Big Idea Pipeline, designed to surface new Big Idea Companies and other opportunities for +our platform. We believe that the Big Idea Pipeline showcases the progression of tech initiatives from discovery to +commercialization stages. Initially, in any given calendar cycle, a substantial number of potential tech ideas are scouted from +various sources, including referrals, universities, and conferences. From this broad pool, approximately 250 technologies are +identified annually as relevant and with potential alignment with our business model. A more focused group of these ideas, about 50, +evolves into, what we call, active Big Idea Companies. Progressing further, approximately ten of these companies reach advanced +stages within the selection process, indicating a deeper engagement and evaluation by MDB. At the pinnacle of the pipeline, as of +the date of filing this Annual Report on Form 10-K, two Big Idea Companies are currently in active negotiations, marking the final step before potential +partnership or investment. This is a continuous process with the Big Idea Pipeline in constant flux as new ideas emerge or evolve. +MDB’s disciplined and structured approach to vetting the Big Idea Pipeline allows us to cultivate and invest in innovative +technologies with the potential to scale and succeed in the market. +MDB’s +investment criteria focuses on six key areas to identify early-stage companies poised for success in public markets. These potential +partner companies should exhibit “Tech Leadership Potential,” with distinct differentiation that pioneers a new technological +category. “Platform Technology” is essential, with core technology that can span various vertical markets or indications. +They should be at an “Early Inflection Point,” where the timeline and costs to validate technology feasibility in the commercial +marketplace are reasonable. “Clear Market Insertion” is also critical, with technology disruption significant enough to incentivize +stakeholders for market entry. The target companies should have “Large Market Potential,” addressing substantial unmet needs +with vast market opportunities. Lastly, a “Strong IP Position” is necessary, meaning a robust and defensible intellectual +property stance with broad claims to secure a sustainable competitive edge. +5 +In +essence, the investment philosophy is to scout for companies that not only stand at the vanguard of technology but also demonstrate the +capacity to disrupt markets, backed by solid intellectual property and clear pathways to market adoption and growth. +Together, +our platform represents a holistic approach to leadership development in the general technology industry. Our objective is to provide +a continuum of support to our partner companies, from inception through growth phases, culminating in market leadership. Each part of +the overall platform is integral to the journey of a start-up, providing tailored resources, expertise, management guidance and resources, +and financial backing as necessary to evolve our partner company into a significant player in the technology sector. This unity of purpose +exemplifies the strategic foresight of MDB’s commitment to launching Big Ideas and developing industry leaders. +Overview +MDB +was founded in 1997, originally operating as MDB Capital Group, LLC, for the purpose of engaging with companies holding visionary technology, +inventors, and technology entrepreneurs. To maximize the impact of our actions and culture, under our business plan, we embark on each +journey with a company at an early point, typically acting as founders and providing the initial rounds of capital, in the manner of +a partner and usually before a specified management structure has been put in place. Part of our role as founders often includes locating +the technology that will form the basis of the new enterprise. The technologies may be found in universities, in larger companies where +it is not being used or understood, in start-up companies, and with inventors. Not only do we act as founders and providing the first +capital rounds, we assist with structuring the plans for the company development, such as the steps from research and development to +initial commercialization, the intellectual property strategy, business objectives, and financing. We refer to these subsidiary companies +as “partner companies.” +Our +model typically includes a two-step financing approach with our partner companies: we put in seed capital, as founders, and the +first round of capital between $5 to $10 million to set the business on an operational foundation. Our plan is to then raise +additional amounts of substantive capital to bring the technology closer to validation or to be able to commence commercialization, +typically in the range of $20 to $60 million overall. We plan on additional financing by means of public offerings or alternative +value realization. Our community of sophisticated, individual investors with like-minded goals and values, supports our model, where +we will draw on their capital, knowledge, connections and expertise. We anticipate that value creation will be generated after any +number of years of patient ownership and corporate effort, and value realization might include any number of methods, such as +continued holding and operating, initial public offerings (“IPO”), joint ventures, licensing, asset sales and merger +transactions, depending on the particular business model and industry. +We +believe that we successfully have used the private and public capital markets to finance growth companies. Being able to find +disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting financing +activities for those companies in which we are strategically involved for the long term, we believe we have a different model of +helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology and then we work to analyze the technology leadership position by our surveying the marketplace so as to +establish a research and development and intellectual property development strategy to create a dominant position in the distinct +technology vertical. Then we create the basic company, we set up its management, we define its business plan, we nurture its +enterprise, and we provide its financings in its early-stage rounds, and then we likely will act as the underwriter or selling agent +for their IPO, other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where +there is an IPO, we plan to stay on for several years thereafter, by being members of the board, having consulting agreements, +providing strategic business advice, and participating in, advising on or facilitating further financing rounds. We believe, most +importantly, that one gauge of the partner company success is that the partner company will successfully foster community, where +community members who seek to create value at the companies, in connection with our self-clearing broker-dealer, Public Ventures. Our typical complete public and private follow-on offerings continue supporting their research, development, +growth and marketing of their technologies’ potential. MDB, we believe, builds value by building partner companies with the +right foundations +6 +Past +Examples +In +having been able to find disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting +investing activities for those companies in which we have been strategically involved for the long term, we believe we now have a different +model for helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology, and then we work to analyze the technology leadership position and survey the marketplace so as to establish +a research and development and intellectual property development strategy to create a dominant position in the distinct technology vertical. +Then we create the basic company, we set up its management, we define its business plan, we nurture its enterprise, and we facilitate +its financings in its early-stage rounds of private funding. Then we likely will act as the underwriter or selling agent for their IPO, +other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where there is an IPO, +we plan to stay involved on for several years thereafter, by being members of the board, having consulting agreements, providing strategic +business advice, and participating in, advising on or facilitating further financing rounds. We believe that one gauge +of the partner company success is that the partner company will successfully complete a private and public follow-on offering to continue +supporting their research, development, growth and marketing of their technologies’ potential. +Three +companies for which we started as founders and for which we conducted their IPOs, have traded for a period of time at near or over $1 +billion in market value, which we believe is crucial for maximizing the probability the companies can raise sufficient capital to get +to commercialization. These companies are as follows: +● +Provention Bio, Inc. (“Provention”). Provention was established in 2016. Public Ventures created Provention to license molecules +from several larger pharmaceutical companies, conceived the business strategy, assisted in licensing negotiations, provided seed capital, +engaged the initial board of directors’ members, and recruited C-level executives as well as executed the successful IPO. +● +Cue BioPharma, Inc. (“Cue”). Cue was established in 2014. Public Ventures created Cue to license a platform technology from +Einstein University, engaged the members of the board of directors, recruited C- level executives, formed the corporate and IP strategy +and provided the seed capital and well as executing the successful IPO. +● +Pulse Biosciences, Inc. (“Pulse”). Pulse was established in 2014, Public Ventures created a new entity that rolled up the +intellectual property from two academic institutions and one private entity. Public Ventures then completed a seed financing, created the +business and IP strategy and assembled the management team and Board. Subsequently Public Ventures successfully executed the IPO for +Pulse. +More +recently, eXoZymes Inc, (formerly Invizyne Technologies Inc.) completed its IPO on November 14, 2024, having been set up in 2019 to +develop cell-free technology to optimize nature’s own biological processes to make chemicals used in many common applications. +MDB was one of the founders of the company, provided an initial funding of $5 million and a subsequent funding of $0.75 million and +provided executive management and several board members. Persons affiliated with MDB continue to be on the board of +directors. +Key +Pillars +Since +inception, we have defined and refined the key pillars that support what we believe is our successful company creation approach. +These pillars are defined in Our Partner Company Criteria section. We believe that our model is only suitable for companies that can +be sustained in the public markets at an early stage. Typically, these companies own what appear to be category-defining technology +platforms capable of solving big problems. +We +have established a process to position partner companies for success, with the intention of maximizing the value early in a company’s +history. We seek to create a strong foundation during the development phase of the partner company. We believe that this helps the partner +company attract the best people who are capable of building a successful enterprise over the long term. We call this our “Rational +Design Process For New Companies.” +A +traditional perceived shortcoming of the public markets is that they attract investors focused on the short-term markets. We understand that to make early-stage +public venture feasible; we need to create a community of investors that have the intention of helping our companies get off the ground. +We believe our investors are committed community members who seek to create value at the companies in which they invest and are critical +to sustaining value. Our investors, unlike traditional institutional investors, generally have long holding periods and value long-term +impact over quarterly performance numbers. +7 +Our +Community +A +key element of our public venture model is our community of more than 500 sophisticated investors, entrepreneurs and microcap and small +cap market participants who have experience with our approach and who we believe will advocate for our public venture mission. In addition, +investors can have a significant impact by supporting the companies they invest in. We believe that this community is vital to the success +of our public venture model. +We +have strived to create community of like-minded persons who share our vision and are supportive of the partner companies we have co-founded. +This group consists of patient company owners with a long-term focus on the value that can be unlocked upon the de-risking of our partner +companies’ technologies. This long-term focus is key to building value and stability for early-stage companies in the public markets. +In addition, we believe that our community members are often authorities in multiple industries and are capable of providing support +to our partner companies with their invaluable access and reach. We believe that MDB shareholders will comprise this community and will +continue to participate in the partner companies through their MDB share ownership as well as participation in partner company direct +investment opportunities. MDB plans to sustain a cohesive community by keeping persons engaged and curious so that they continuously +help us improve our decision process as and when selecting partner companies with which to work. +We +believe that MDB is strengthening our community of MDB shareholders and can simplify our process of developing partner companies. We +used a portion of our capital to identify and find partner companies. We believe that being a public company gives us greater +flexibility and nimbleness to source new technologies and make it quicker and easier to deploy capital towards opportunities that arise. +We +also will seek to foster community in connection with our broker-dealer, Public Ventures. Our typical Public Ventures Member will be a long-term +investor and/or entrepreneur who is motivated to help develop the next generation of growth companies. Public Ventures Members may or +may not be MDB shareholders. Members may or may not provide direct financing to partner companies. +Holistic +and Sustainable Model +Our +public venture model is fundamentally different than the typical venture capital fund model. We believe that bringing well developed +early-stage companies to either the public markets or fostering a merger and acquisition exit or other realization event, while still +taking care to address the unique nature and needs of these early-stage companies, provides more liquidity, efficiency, transparency, +better protections for investors and alignment of the interests of everyone involved as described below. +Inventors/Universities/Co-founders +Taking +companies public allows shareholders to own the same class of common stock as the company’s early founders. In addition, the +ownership interests of inventors, universities, and other co-founders become valuable, tradable shares when a company is public and listed +on an exchange. As a result, we believe that, in most cases, these ownership stakes will have much greater value than they would otherwise +have in the traditional venture capital model. We also believe that our model gives companies greater leeway to execute pivots or to +pursue other strategic initiatives, such as licensing, asset sales or corporate merger and acquisition transactions. +8 +Partner +Company Management & Board Members +We +expect that the management and board members of our partner companies will benefit from the Company being public. The ability to grant +valuable, liquid equity as part of an employment compensation package is a strong incentive to attract and retain employees and align +their interests with those of the company at which they work. Being public can help a partner company raise substantial amounts of capital +more easily than as a private company or through traditional venture capital. +MDB +Shareholders +Under +the MDB model, MDB shareholders can buy or sell their shares in the holding company in the open market at any time. These +shareholders will participate in our partner companies through the holding company structure, for example through the tax benefits +of holding an interest in a tax pass through entity or the overall value of the holding company as it reflects the values of our +subsidiaries. Where we think it beneficial for a partner company to raise capital directly, rather than taking additional funds from +the holding company, we may seek a method that can allow the MDB shareholders the ability to participate in additional capital +formation for a partner company. There are a few means by which the MDB shareholder may participate: for example, a further private +placement by the partner company, or by a registered public offering, such as an IPO or rights offering where the MDB shareholder +can invest new funds based on the distributed right. If the best course of action is an asset sale, a licensing arrangement or a +corporate merger or acquisition transaction of a partner company, then it is expected that MDB shareholders will receive a +distribution of the proceeds as a result of the transaction. Moreover, we believe that many of the MDB shareholders own their Class +A Common Shares because they are motivated by the opportunity to contribute their knowledge and experience to and engage with our +partner companies in an effort to improve them and enhance their value. +Our +Holding Company Structure +While +each partner company will present its own investment dynamic, at the onset, we take a majority ownership stake in the partner companies +we co-found and to hold a significant controlling position through the early stages of development and early capital creation. We plan +on seeking one or two partner company opportunities a year, but there is no assurance that we will be able to find suitable opportunities +at that rate for inclusion in the holding company. +9 +In +order to not be deemed an investment company under the regulation of the Investment Company Act of 1940, MDB will not operate in a manner +such that it is or holds itself out as being engaged in the business of investing, reinvesting, or trading in +securities. Additionally, it will maintain what are characterized as “investment securities” under the Investment Company +Act below forty percent (40%) of the value of the total assets of MDB on an unconsolidated basis, unless an exemption or safe harbor +applies under that legislation. Securities issued by companies other than consolidated companies are generally considered “investment +securities” for purposes of the Investment Company Act, unless other circumstances exist that have the holding company being actively +involved in the management of the underlying company. We consolidate these companies for financial statement purposes as long as +they are majority-owned subsidiaries in which we hold voting power of fifty percent (50%) or greater. We expect to continue to have an +active role in the management of our partner companies for a period of time before and after funding, such as an IPO. The Company’s Broker-Dealer subsidiary is excluded from the Investment Company Act of 1940, and therefore all +securities held by the Broker-Dealer are excluded from the asset calculation.  +Not +only for purposes of the Investment Company Act, but also to maintain our focus on exploring new investment opportunities through partner +companies, rather than holding partner companies for long term investment and increasing our asset base, our intention is to distribute +our partner companies and excess assets beyond what is needed to support the investments we plan to make under our public venture model. +Competition +Getting +access to and deploying early-stage capital is very competitive. We believe our main competitors are traditional venture capital firms, +other funds specializing in microcap and small cap investing and investment banks focusing on microcap and small cap companies. +We +believe that our approach provides multiple benefits compared to existing models and traditional methods. However, many of our competitors +are larger, have greater brand recognition, longer operating histories, established business relationships, access to greater amounts +of capital, and significantly greater resources. We believe that we will be able to compete on many fronts based on our history and reputation, +our plan to partner, encourage and support the development of our partner companies and their founders, our wide-ranging contacts in +the financial and industry sectors, our ability to provide capital as needed, our ability to source and diligence new technologies and +the experience of our professional human capital. +Our +Group of Companies +Public +Ventures +Our +wholly-owned subsidiary, Public Ventures, licensed under the name Public Ventures LLC, a registered broker- dealer (CRD-: 42677/SEC-: +8-49951) is the backbone of our financing business. Public Ventures operates under the d/b/a of “MDB Capital.” In 2024 we +expanded its capabilities to act as a licensed clearing firm. +The +Vision +We +believe that venture-stage businesses are more likely to succeed when supported and financed by a community of long-term oriented, +like-minded investors and entrepreneurs who have experience building successful companies. +We envision building a close-knit +community of such clients for Public Ventures, whom we refer to as our Public Ventures “Members.” Our Members will have the +opportunity to submit start-up and developing companies as potential candidates for financing through Public Ventures and/or as partner +companies for MDB. Members may also, at their discretion and based on their expertise, actively assist in the development and growth of +the companies we finance, helping them become tomorrow’s industry leaders. +We +believe that such a community of investors can foster the growth of promising public companies under $500 million in market value, also +known as microcap and/or small cap companies, by leveraging the knowledge of the community and sharing risk amongst its Members. +We +believe that we are building a robust infrastructure to support our vision for Public Ventures. Our objective is to create a +high-end service platform that will make investing in the microcap and/or small cap segment more accessible to and efficient for the +Public Ventures Member community. Public Ventures recently began self-clearing operations of U.S equity securities and its FINRA +licensed self-clearing broker-dealer is capable of structuring and underwriting financing transactions as well as providing clearing +services that enable clients to trade, clear, and settle securities in these companies. We also are able to provide expanded account +maintenance activities, such as wire transfers, securities deposits and interest on cash deposits through typical cash management +services. +10 +We +have successfully operated our broker-dealer for more than 28 years during which we have specialized in transactions for public venture +companies. During that time, we built internal processes to perform diligence and prioritize the financing of deals based on the investment +criteria that we have developed. We intend to leverage the lessons we have learned during these experiences to create processes, rating +systems and reports that will be made available to our Member community and can be used to supplement their own processes for evaluating +each opportunity and associated risks and making informed investment decisions. +The +Public Venture Opportunity +Historically, +the public markets have served as a significant funding source for companies with new ideas and enabled the growth and development +of visionary technologies that lead to advancements in our society. We believe that venture investing in the public markets is a +transparent and liquid method for investors to participate in venture capital. Public venture is available to all classes of +investors who all receive typically equal amounts of information about their investments. Companies like Amazon, Tesla, Walmart, +Home Depot, among others, were brought public at very early stages, and capital provided through the public markets enabled their +spectacular development into industry leaders. +Market +dynamics have resulted in companies backed by traditional venture capital staying private for longer periods of time. In addition, regulatory +changes affecting broker-dealers have resulted in a shift to high volume trading that relies on payment for order flow to make up for +commission-less trading. This has resulted in broker-dealers devoting more resources to trading high volume, popular equities and away +from providing service to microcap and small-cap public venture companies and their securities. As a result, the needs of long-term investors +looking to support venture stage public companies and those of venture stage companies are not addressed by today’s brokerage firms +who cater to traders. +We +believe that the expected Public Ventures Member community, consisting of sophisticated individual investors, who are aware of the nature +of venture investments and seek to build tomorrow’s leading companies, can drive the future of public venture capital formation. +We believe that only this type of community can provide suitable financing options that will meet the needs of small public venture companies. +We have the unique opportunity to provide the right framework and platform infrastructure to this community that will enable its Members +to collectively underwrite public venture financings. +We +expect our Members to be entrepreneurial and involved in different ventures. Under our framework, they will be encouraged and rewarded +for successfully identifying business and ownership opportunities for the community that meet our criteria. We envision that our platform +will encourage and allow Members to share information and formulate the nature of and pricing for any financing opportunities through +the exchange of information about a particular opportunity. In addition, our framework is expected to consist of conducting diligence, +creating comparative analysis, providing company information, and implementing rating systems. We believe that this information and transparency +will enable high quality, informed decisions and facilitate market integrity. +Members +and Member Sponsors +It +is our intention to build our community of participants who share the collective goal of elevating and supporting development-stage companies +and have an investor rather than a trader mindset. Persons who share the values and vision of the organization can be invited into the +community as Members. We expect to encourage active participation of our Members such that they may be mentors of growth through starting, +running, or connecting companies within the community or by being active early investors in the various business and ownership opportunities +that arise. +11 +Efficient +Back Office Support +We have an out-source +service contract with MDB Capital, S.A, an affiliated Nicaraguan company with which the Company has worked for many years. MDB +Capital, S.A. is owned by two of the principal shareholders and officers of the Company. The services that are typically out-sourced +include administrative services to support Public Ventures and PatentVest, such as back office and accounting services related to +brokerage and clearing firms, background investigations, preparing investment research reports, patent searches and analysis, and +customer support services. Services that will be requested will be only those that can be provided by an out-source company within +the context of U.S. privacy laws, FINRA regulation, and other applicable U.S. financial service and other regulation. +Based +on prior Executive Orders imposing new and expanding prior sanctions on Nicaraguan businesses and on U.S. persons doing business in +Nicaragua, however, there may be disruption to our being able to contract for out-sourced services with Nicaraguan entities. Therefore, +we may have to adjust our business plan accordingly. +Self-Clearing +In January 2024 Public Ventures +began self-clearing U.S. equity securities. +PatentVest +The PatentVest business plan +is to be a venture invention and commercialization intelligence platform specifically created to assist technologists, advisors, venture +capital investors, and established companies optimize technology commercialization. The PatentVest process takes in information from our +proprietary patent database and transforms the information about inventions and intellectual property from a complex legal process into +a manageable, measurable business process. The PatentVest process clearly defines the boundaries of an invention by providing context +for previously developed ideas and analyzes how the invention, and therefore patent claims, differ from the discovered prior art in order +to rationalize the essential distinctions that are the key value drivers. Understanding these boundaries, as well as how protectable and +valuable these boundaries are, is essential to better guide strategic business and patentability decisions. In our experience, this PatentVest +process answers the most important questions for a technology platform: how to innovate, how to improve its ideas, and how to deploy these +ideas where they matter most. +Our process seeks to include +the following elements and outcomes: +● +Improve idea prioritization – Allows inventors and financial backers to weigh the value of a given idea by ascertaining the uniqueness +of such invention. +● +Enhance the value of an invention – Understanding invention boundaries allows patent attorneys to draft patent claims in a way +that confers the most available protection without being encumbered by prior art. +● +Optimize strategic decisions – Deeply understand the competitive landscape, identify issues that possible partners are trying to +solve, prioritize markets where an invention might be the most valuable, and identify possible acquirers. +PatentVest +History +Over twenty +years ago, PatentVest’s founders recognized that intellectual property was the most valuable asset for technology companies and +began building a proprietary patent database and software platform to help companies manage these assets. During these years, PatentVest +has been continuously iterating uses for available information to potentially enable better investment decisions as well as to guide +the development of such technology once investment decisions were made. We believe that PatentVest has helped start-up companies move +from having novel ideas to becoming technology leaders. As a result, in our opinion, PatentVest is capable of providing the backbone +of an investment idea selection process, as well as forming intellectual property and business development strategies. We believe utilizing +the PatentVest Innovation in a Box process will enhance our ability to optimize our selection process with respect to partner companies +as well as when selecting underwriting candidates for Public Ventures. +12 +We +also believe that the PatentVest services will aid companies to define their intellectual property assets in their capital raising activities +and will be available to other companies that see to build their intellectual property outside of the context of working with MDB and +Public Ventures. +PatentVest +Objective +PatentVest +starts with a technology assessment, where it evaluates the technology to establish whether or not the technology is unique and a +company can create a leadership position with the identified intellectual property. Assessment is extensive covering an +investigation into the players in the particular industry space, whether the technology truly is innovating, can value be created +with the technology, what is the market and can there ultimately be value creation. The assessment phase includes an examination of +existing patents and applications, scientific publications and other public data. After the assessment, a strategy is developed, +which include where to focus R&D, what to patent or keep as a trade secret, and the jurisdictions in which to protect the +intellectual property, and based on the assessment and strategy, help develop a business plan to progress the intellectual property. +PatentVest also may provide development budgets and help identify critical persons with which to work with. PatentVest is able to +implement prosecution of patents and other intellectual property, maintain surveillance of the intellectual property space, and +provide reporting on developments in the particular intellectual property space. +We +believe that the PatentVest process provides a fundamental advantage to helping create a leadership position for a company with unique +intellectual property. By knowing and understanding the particular intellectual property space, having a focused R&D and intellectual +property development plan, a coherent business plan, and providing the related aspects of setting up a development company with the right +persons and financial backing, the success of the company in being a value creator in its industry vertical is improved. As part of this +overall process, the involvement of Public Ventures can add to the value creation with its financing resources. +It +has been our experience when evaluating, investing in or advising technology companies that intellectual property strategy development +and related processes are most often led by attorneys and is separate from the other invention and business processes at these companies. +We have seen that this work is typically outsourced and, as a result, key company personnel are often neither engaged in the claim drafting +process nor are aware of how their patents have potentially changed during prosecution. Many of the inventors and business executives +with whom we have engaged have a modest knowledge regarding what their claims cover or what the boundaries of their claims are in relation +to other companies. We believe that it is very difficult, if not impossible, to truly understand either what a company “owns” +or to effectively evaluate a given invention’s potential uniqueness and ultimately its potential value without this perspective. +13 +We +believe the companies that will derive the greatest benefit from PatentVest’s services are technology companies with a few current +active patent applications that are expected to primarily drive the value of their companies with their inventions. The analysis and +information provided by the PatentVest process, as documented in reports to its clients, is expected to guide technology companies as +they seek to prioritize ideas and develop their intellectual property and business strategies. We believe that PatentVest not only +provides MDB with additional clarity in selecting its partner companies and Public Ventures in selecting underwriting candidates, but +also to any technology company in their decision-making processes seeking to maximize the value of their inventions. +The +PatentVest Model +We +use PatentVest to help technology companies innovate and deploy their innovations in the most valuable manner as well as to support +our processes. We believe that PatentVest has one of the most comprehensive global patent databases available, containing more than 148 +million patents and covering 116 countries. PatentVest has built software processes and tools that make it possible to efficiently mine +vast amounts of data and structure this data in a way that can be analyzed by its team of analysts. In addition, PatentVest has assembled +the human capital required to cost-effectively analyze such data and build the reports for companies that are expected to be the backbone +of our services. Our objective is to serve approximately 30 client companies at any one time once we have scaled our operations. +PatentVest +has developed different report formats that provide information within context in a way that we think can be quickly processed by decision-makers +and help provide answers to the most valuable questions for the companies we target as our business development opportunities. The +insights presented in our reports are the culmination of a long, iterative process that we have refined by the constant questioning of +which data is valuable to building technology companies. +PatentVest +as a Law Firm +On September 20, 2022, the Supreme Court of the State of Arizona licensed +PatentVest to practice law as an Alternative Business Structure, or ABS. An ABS is a business entity that includes non-lawyers that have +an economic interest or decision-making authority in a law firm. We develop and maintain a team of highly trained legal professionals +and staff that principally provide legal services related to intellectual property matters under federal law. Matters that we are undertaking +are generally be patent prosecution and intellectual property protection. Through offering legal services we enhance the value of inventions +by addressing questions of strategy and perspective along with the technical merits of an invention. The provision of legal services by +PatentVest are limited to those technology companies specifically engaged by PatentVest for such services and is intended to provide all +the rights and privileges of the attorney-client relationship. +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS is on patent issues and patent +prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not seen as a limitation. +Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest ABS will make referrals to firms +licensed in appropriate jurisdictions. In late 2025, the Company commenced a process to spin off PatentVest as a separate standalone entity. +MDB +Minnesota One +M1, +is a partner company, with the vision of developing a small molecule anti-senescence platform comprised of pharmaceutical drugs or +other products to aid in longevity and to inhibit certain forms of age-related diseases. The focus +of the M1 Platform is to treat senescent cells, which are dysfunctional cells that have +permanently stopped dividing, that have been implicated in the aging process, and that permit the development of chronic low-grade +inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple fibrotic conditions +that have limited treatment options and poor prognoses. +Studies +conducted at Mayo Clinic have shown the potential of certain molecules to target and eliminate senescent cells with a significant therapeutic +window, reversing fibrosis across multiple conditions. The global longevity and anti-senescence therapy market is projected to reach +nearly $45 billion by 2030. +On +July 1, 2024, M1 entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo Foundation +for Medical Education and Research (“Mayo”) for certain patent rights and associated technology pursuant to which M1 intends +to develop the M1 Platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented technology and +know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license of patent +rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed products +and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2025 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A +payment of $0.25 million for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A +payment of $5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2025, the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +M1 +is currently in the pre-clinical development stage of the M1 Platform and is undertaking important feasibility studies, iterative testing, +and collection of drug safety and toxicity data. +14 +Regulation +Broker-Dealer +Regulation +Our +broker-dealer subsidiary, Public Ventures is subject to regulations governing every aspect of its securities business, including the +execution of securities transactions; capital requirements; record-keeping and reporting procedures; relationships with clients, including +the handling of cash and margin accounts; the experience of and training requirements for certain employees; and business interactions +with firms that are not members of regulatory bodies. As a participant in the financial services industry, it is subject to the complex +and extensive regulation of the U.S. federal and state regulatory agencies, self-regulatory organizations and securities exchanges and +certain other authorities with oversight on banking and money laundering. The laws, rules and regulations comprising the regulatory framework +applicable to broker-dealers are constantly changing, as are the interpretation and enforcement of existing laws, rules and regulations. +The effect of any such changes cannot be predicted. +Public +Ventures is registered as a securities broker-dealer with the SEC and is required to be a member of FINRA. FINRA is a self-regulatory +body composed of members, such as our broker-dealer subsidiary, that have agreed to abide by its rules and regulations. FINRA may expel, +fine and otherwise discipline member firms and their employees. Public Ventures is also licensed as a broker-dealer in 33 states in the +U.S., requiring it to comply with the laws, rules and regulations of each state. Additionally, Public Ventures might register in additional +states from time to time as needed. Each state may revoke the license to conduct securities business, fine, and otherwise discipline +broker-dealers and their employees. +Public +Ventures is subject to the SEC’s Uniform Net Capital Rule, Rule 15c3-1, which may limit our ability to make withdrawals of capital +from the broker-dealer subsidiary. The Uniform Net Capital Rule sets the minimum level of net capital a broker-dealer must maintain and +also requires that a portion of a broker-dealer’s assets be relatively liquid. In addition, Public Ventures is subject to certain +notification requirements related to withdrawals of excess net capital. +We +are also subject to the PATRIOT Act of 2001 (the “Patriot Act”), which imposes obligations regarding the prevention and +detection of money-laundering activities, including the establishment of client due diligence, client verification and other compliance +policies and procedures. Failure to comply with these requirements may result in monetary, regulatory and, in the case of the USA Patriot +Act, criminal penalties. We are subject to the Securities Investor Protection Act of 1970, which created the Securities Investors Protection +Corporation (SIPC), which provides certain client protection to clients related to their brokerage accounts. We are subject to certain +treasury regulations, such as Regulation T, relating to how money may be lent to clients and used, and the rules related to margin accounts. +Broker-dealers +are also subject to ongoing duties of financial responsibility, client protection and good conduct. These include, among other things, +(i) client funds and securities must be segregated from the broker-dealer’s proprietary business operations, (ii) maintaining basic +bookkeeping requirements including records of trades, receipts, positions held in different securities, trial balances, complaints, and +compliance, together with reports to be filed periodically, (iii) executing orders on behalf of clients to ensure the best execution +possible, disclosing information relevant to investors, charging prices in line with market conditions, and disclosing conflicts of interest, +(iv) only recommending investments or strategies that are suitable for the clients concerned, (v) communicating in a fair, balanced, +and not misleading way with clients, (vi) observing rules concerning maximum value of gifts made to clients and political contributions, +and (vii) filing reports of any suspicious activities noted by the broker-dealer, including investments over predefined monetary limits. +SEC +Regulation Best Interest requires that a broker-dealer and its associated persons act in a retail client’s best interest and not +place their own financial or other interests ahead of a retail client’s interests when recommending securities transactions or +investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy +four component obligations, including a disclosure obligation, a care obligation, a conflict-of-interest obligation, and a compliance +obligation, and both broker-dealers and investment advisers are required to provide disclosures about their standard of conduct and conflicts +of interest. +In +addition to the SEC, various states have proposed or adopted laws and regulations seeking to impose new standards of conduct on broker-dealers +that, as written, differ from the SEC’s new regulations and may lead to additional implementation costs if adopted. The SEC did +not indicate an intent to preempt state regulation in this area, and some of the state proposals would allow for a private right of action. +15 +Various +regulators, including the SEC, FINRA and state securities regulators and attorneys general, conduct both targeted and industry-wide investigations +of certain practices relating to the financial services industry, including sales and marketing practices, valuation practices, and compensation +arrangements. +A +variety of data privacy laws to protect personal information obligate broker-dealers to provide notice about its data handling practices, +to offer certain opt-outs, and to implement reasonable security measures to deter unauthorized access. Broker-dealer internal and external +electronic communications may only be made on approved devices and platforms that are encrypted and secure and will capture all communications +in the broker-dealer’s records. The cost and burden of taking cybersecurity measures, having personnel oversee compliance and staying +current with respect to new technology developments continues to grow. +Our +broker-dealer accounting, administrative and operations personnel are responsible for financial controls, internal and external financial +reporting, compliance with regulatory and legal requirements, office and personnel services, management information and telecommunications +systems, and the processing of our securities transactions. We are subject to the privacy laws applicable to financial institutions in +respect of our securities business. +As +is common in the securities industry, our broker-dealer subsidiary is subject to regular reviews of and investigations into our operations, +some of which progress to regulatory actions that may result in fines, censures, and limitations on activity. At this time, we are cooperating with the reviews, and we do not know whether or not it will +escalate to regulatory action and, if it does, what violations of rules and regulations may be asserted against the broker-dealer and +what the potential final resolutions might be. +Self-Clearing +Regulation +In +January 2024, Public Ventures began self-clearing U.S. equity securities. As part of this process, in addition to the broker-dealer regulation +described above, Public Ventures is subject to regulation directed to self-clearing operations and must demonstrate that its financial, +operational and systems capacities are able to perform this business while complying with regulations, including those of the SEC, FINRA, +Depository Trust Clearing Corporation (“DTCC”), and National Securities Clearing Corporation (“NSCC”). To operate +the self-clearing activity, we must meet different capitalization requirements than those of an introducing broker-dealer, maintaining +a capital structure with various cash and cash equivalent assets and retaining access to necessary lines of credit that can assure our +ability to comply with changing deposit requirements. We expect that these regulations will continue to undergo substantial changes and +may require additional capital as settlement operations moves to T+0 in the future. +16 +Data +Protection and Cyberattack Regulation +In +the course of our operations and in the processing of transactions, we collect, process, store, disclose, use, share and/or transmit +personal information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple +jurisdictions. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable +future. There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, +storage, protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act +(“GLBA”) (along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure +of personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent +the use and disclosure of certain nonpublic or otherwise legally protected information. Additionally, many states continue to enact legislation +on matters of privacy, information security, cybersecurity, data breach and data breach notification requirements. For example, as of +January 1, 2020, the California Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy +in California. The CCPA, among other things, entitles California residents to know how their personal information is being collected +and shared, to access or request the deletion of their personal information and to opt out of certain sharing of their personal information. +The CCPA is subject to further amendments pending certain proposed regulations that are being reviewed and revised by the California +Attorney General. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches +that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, +data breach litigation. We cannot predict the impact of the CCPA on our business, operations or financial condition, but it could result +in liabilities and/or require us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and went into effect in most material respects starting +on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the +CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also creates a new +state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the CPRA +are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial +costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws that took effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures, is subject to SEC Regulation S-P, which requires that businesses maintain policies and +procedures addressing the protection of client information and records. This includes protecting against any anticipated threats or +hazards to the security or integrity of client records and information and against unauthorized access to or use of client records +or information. SEC Regulation S-P also requires businesses to provide initial and annual privacy notices to clients describing +information sharing policies and informing clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change +our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations or perceived +violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to change our business +practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing legal claims +by governmental entities or private actors, sustaining monetary penalties, sustaining reputational damage, expending substantial costs, +time and other resources and/or sustaining other harms to our business. Furthermore, our online, external-facing privacy policy and website +make certain statements regarding our privacy, information security and data security practices with regard to information collected +from our clients or visitors to our website. Failure or perceived failure to adhere to such practices may result in regulatory scrutiny +and investigation, complaints by affected clients or visitors to our website, reputational damage and/or other harm to our business. +If either we, or the third-party service providers with which we share client data, are unable to address privacy concerns, even if unfounded, +or to comply with applicable privacy or data protection laws, regulations and policies, it could result in additional costs and liability +to us, damage our reputation, inhibit sales and harm our business, financial condition results of operations and cash flows. +17 +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +The different states and federal +government have enacted laws requiring companies to notify individuals, regulatory authorities and/or others of security breaches involving +certain types of data. In addition, our agreements with certain partners and service providers may require us to notify them in the event +of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our clients, partners and service +providers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources +to respond to and/or alleviate problems caused by the actual or perceived security breach. A security breach of any of our vendors that +processes personal information of our clients may pose similar risks. +18 +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Arizona +Law Firm Regulation +The +law firm owned and operated by PatentVest is subject to the Arizona Supreme Court under Rule 31.1(c) and the Arizona Code of Judicial +Administration, or ACJA, Section 7.209, relating to Alternative Business Structures, or ABS. An ABS is an entity that includes non-lawyers +who have an economic interest or decision-making authority as defined in ACJA 7-209 which may employ, associate with, or engage a lawyer +or lawyers to provide legal services to third parties. An ABS (1) must employ at least one person who is an active member in good standing +of the State Bar of Arizona who will supervise the practice of law under the rules of the Arizona Supreme Court for the entity, (2) has +been licensed by the Arizona Supreme Court after application to the Committee on ABSs, and (3) provide legal services by persons +authorized to do so and in compliance with the Rules of Supreme Court as generally applied to the practice of law and the particular +regulations applicable to an ABS. An approval is made in favor of an ABS application if the Committee on ABSs finds that the applicant +meets, among others, the following objectives: (a) protecting and promoting the public interest; (b) promoting access to legal services; +and (c) encouraging an independent, strong, diverse, and effective legal profession. The Committee on ABSs should also find that the +applicant (a) has lawyers providing legal services to consumers that will act with the independence that is consistent with the lawyers’ +professional responsibilities and standards, (b) the lawyers will make decisions in their practice that are in the best interest of clients, +(c) the ABS maintains confidentiality consistent with Arizona Rule of Supreme Court 42, and (d) the other business policies or procedures +of the ABS do not interfere with a lawyers’ duties and responsibilities to clients. +An +ABS is also subject to all the rules and regulations associated with the ethical rules of a law firm operating in the State of Arizona. +These rules are found in Section 7-209 of the Code of Judicial Administration and the Arizona Supreme Court Rules. Together the rules +address issues relating to (i) conflict of interest situations for client representation, (ii) issues relating to the sale of a law practice, +(iii) law firm owner responsibilities such as for having sufficient managerial authority, effective internal policies and procedures, +and procedures for the conformity of law employees to the rules of professional conduct and procedures for non-law employees, and (iv) +adequate trust account requirements, including the annual certification requirement. The rules also address code of conduct issues such +as lawyer independence in the provision of services, the diligent and promptness of rendering legal services, and record maintenance, +among others. An ABS and its law employees are subject to the disciplinary rules 46 et. seq. of the Arizona Supreme Court. +19 +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS, however, is on patent issues +and patent prosecution, which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not +seen as a limitation on its operations. Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest +ABS will make referrals to firms licensed in appropriate jurisdictions. In recent months, certain states have sought to restrict or limit business dealings with firms based in Arizona and to require fee-sharing +arrangements with local entities. +U.S. +Foreign Corrupt Practices Act +The +U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and individuals from engaging in certain activities to obtain +or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the +payment of anything of value to any foreign government official, government staff member, political party or political candidate in an +attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The scope of the FCPA includes +interactions with certain healthcare professionals in many countries. Equivalent laws have been adopted in other foreign countries that +impose similar obligations. +Human +Capital +As +of the date of filing this Annual Report on Form 10-K, overall there are 14 full time employees of MDB, employed directly or indirectly through MDB +CG Management, Inc. (“MDB Management”). We also engage from time-to-time consultants for various activities. +MDB +Management also has an agreement with MDB Capital S.A., an affiliated Nicaraguan company, for MDB Capital S.A. to provide services to +the Company on an out-source, as required service basis, overall there are 40 full time contractors assigned to MDB. The services are provided on a specific request, within an identified scope +of activity, from time to time. Primarily the services are administrative support services, research activities, and analytical services +as necessitated by the holding company, Public Ventures, PatentVest and partner companies. +As +our business develops, we establish partner companies and we enhance our operations, we anticipate the number of employees and consultants +will grow. In addition, we also anticipate adding human capital contractors, consultants, clinical research organizations and collaborative +businesses to perform clinical studies, toxicology assessment, manufacturing, regulatory, and other operational functions. +Legal +Matters +We +are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings +arising in the ordinary course of our business. +20 +Item +1A. Risk Factors +Risks +Relating to Holding Company Taxation +You +may be subject to U.S. federal income tax on your share of our taxable income, regardless of whether you receive any cash distributions +from us. +The +Class A Common Shares are securities issued by a limited liability company and represent limited liability interests. +Under +current law, so long as certain conditions are satisfied, we should be treated, for U.S. federal income tax purposes, as a partnership and not as a corporation. As such, +MDB will generally not be subject to U.S. federal income tax. Instead, each shareholder of MDB will be required to take into account +its allocable share of each item of MDB’s income, gain, loss, deduction or credit, whether or not MDB distributes any cash to it, +including distributions or dividends MDB receives from its corporate entities (i.e., in partner companies). Consequently, it is possible +that in any year, a shareholder’s tax liability arising from MDB could exceed the distributions made to him, her or it by MDB. +Thus, there may be years in which a shareholder’s tax liability exceeds its share of distributed cash from MDB. If this were to +occur, a shareholder would have to use funds from other sources to satisfy his, her or its tax liability. +You +may be subject to state, local and other taxes, depending on your own particular circumstances. +In +addition to U.S. federal income taxes, each shareholder may incur income tax liabilities under the state or local income tax laws of +certain jurisdictions in which MDB will operate, as well as in the jurisdiction of that shareholder’s residence or domicile. State +and local income tax laws vary from one location to another, and federal, state and local income tax laws are both complex and subject +to change. The income tax aspects of an investment in MDB are complicated, and each shareholder should review them with his, her or its +own professional advisors familiar with the shareholder’s own income tax situation and with the income tax laws and regulations +applicable to the shareholder. +Allocations +of income and loss may be re-determined by the IRS. +A +shareholder’s distributive share of MDB income, gains, losses, deductions and credits for U.S. federal income tax purposes is generally +determined as set forth in the limited liability company agreement governing our company, which we refer to as the operating agreement, +unless such items are allocated in a manner that has no “substantial economic effect.” If it is determined that the allocations +in the operating agreement do not possess substantial economic effect, then the IRS might seek to allocate MDB related items in a different +manner. +MDB +may provide delayed final Schedules K-1. +MDB +may not be able to provide final Schedules K-1 to shareholders for any given fiscal year until after April 15 of the following year. +The board of directors will endeavor to provide shareholders with final Schedules K-1 or with estimates of the taxable income or loss +allocated to their shares on or before April 15, but final Schedules K-1 may not be available until MDB has received tax–reporting +information necessary to prepare final Schedules K-1. Shareholders may be required to obtain extensions of time to file their U.S. federal, +state, and local income tax returns (which do not provide taxpayers with an extension of time to pay any tax that may be due on such +tax returns). Each prospective shareholder should consult with its own advisor as to the advisability and tax consequences of an investment +in MDB. +If +we are treated as a corporation for U.S. federal income tax purposes, the value of the shares could be materially adversely affected. +The +value of the Class A Common Shares of MDB that you hold will depend in part on MDB being treated as a partnership for U.S. federal income +tax purposes. We intend to manage our affairs so that, upon becoming a “publicly traded partnership” within the meaning of +Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), we will not be taxable as a corporation because +90% or more of our gross income in each taxable year will be “qualifying income”. However, there is no assurance or guarantee that we will meet on an ongoing basis the applicable requirements to be taxable +as a partnership and, as discussed below, current law may change so as to cause, in either event, MDB to be treated as a corporation +for U.S. federal income tax purposes. If we were treated as a corporation for U.S. federal income tax purposes, then, among other things, +(i) we would become subject to corporate income tax and (ii) distributions to our shareholders would be taxable as dividends for U.S. +federal income tax purposes to the extent of our earnings and profits. In addition, because a tax would be imposed upon MDB as a corporation, +its cash available for distribution would be substantially reduced. We have not requested, and do not plan to request, a ruling from +the IRS on this or any other tax matter affecting us. +21 +Our +structure involves complex provisions of U.S. federal and state income tax law for which no clear precedent or authority may be available. +Our structure is also subject to potential legislative, judicial or administrative change and differing interpretations, possibly on +a retroactive basis. +The +U.S. federal income tax treatment of holders of our common shares, including the Class A Common Shares representing limited liability +interests, depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law +for which no clear precedent or authority may be available. You should be aware that the U.S. federal and state income tax rules are +constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, and state governments +frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications +and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships and entities taxed as partnerships. +The present U.S. federal income tax treatment of an investment in our shares may be modified by administrative, legislative or judicial +interpretation at any time, and any such action may affect investments and commitments previously made. +Complying +with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities or enter into +acquisitions, borrowings, financings or arrangements we may not have otherwise entered into. +In +order for us to be treated as a partnership for U.S. federal income tax purposes, and not as a publicly traded partnership taxable as +a corporation, we expect that at least 90% of our gross income in each taxable year will need to be “qualifying income” on +a continuing basis and we must not be, if we were a corporation, required to register as an investment company under the Investment Company +Act. In order to obtain such treatment, we (or our subsidiaries) may decide to forego attractive business or investment opportunities. +This may cause us to incur additional tax liabilities and/or adversely affect our ability to operate solely to maximize our cash flow. +Shareholders +may be subject to restrictions on deductibility of expenses and other losses. +The +ability of the shareholders to utilize any tax losses generated by an investment in MDB may be subject to a number of limitations under +the Code, including the basis limitations, the passive activity loss limitations, the “at-risk” limitations, and the excess +business loss limitations. +Future +legislative or regulatory action could significantly change the tax aspects of an investment in our shares. +The +discussion of tax aspects contained in this filing is based on law currently in effect and certain proposed Treasury Regulations. Nonetheless, +shareholders should be aware that new administrative, legislative or judicial action could significantly change the tax aspects of an +investment in our shares. Any such change may be retroactive with respect to transactions entered into or contemplated before the effective +date of such change and could have a material adverse effect on the tax consequences of your investment in MDB. +Risks +Relating to Our General Business Operations +Although +our partner company model has been successful in the past, there is no assurance that we will continue to be successful in selecting +our partner companies or that these partner companies will generate income returns at the same or similar levels as those of our prior +partner companies. +There +is no assurance that MDB will continue to be as successful as when our broker-dealer business was operating as a single, stand-alone +business. As a reorganized holding company, we have a limited operating history. We believe that because of the reorganization of our +Company, we are subject to some or all of the risks inherent in the establishment of a new enterprise. Some of the risks may arise from +the absence of a significant consolidated operating history, the addition of management responsibilities as a public company, including +the production of K-1 tax documents for owners of the Company’s shares, and lack of experience in complying with reporting and +other obligations associated with being a publicly traded company listed on Nasdaq. If our business plan, operating as a holding company, +turns out to be unsuccessful, investors may lose some or all of their investment in MDB. +22 +Investors +in MDB are cautioned that the past successes of the management as executed via their privately held broker-dealer business are no assurance +that the newly re-reorganized company will continue to have the same successes or result in same value creation. +We +might require additional capital to support operations and business growth and to fund our partner companies; this capital might not +be available on terms favorable to us, or all, when needed. +We +have funded MDB operations since inception in 2022 primarily through equity financings and revenue generated by the services provided +through Public Ventures. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations +or the growth of our business. We intend to continue to make investments in our business, particularly in our partner companies, to respond +to business opportunities and challenges, including developing new products and services, enhancing our operating infrastructure, expanding +our operations, and acquiring complementary businesses and technologies. All of the foregoing may require us to secure additional funds. +Additional financing may not be available on terms favorable to us, if at all. If we incur additional debt, or issue preferred equity +securities, the holders of these debt or preferred security holders would have rights senior to holders of our equity to make claims +on our assets, and the terms of any debt could restrict our operations, including our ability to make distributions on our equity. Because +our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict +or estimate the amount, timing, dilutive effect or nature of any future issuances of securities. As a result, our equity holders bear +the risk that future issuances of debt or equity securities could reduce the value of our Class A Common Shares and dilute their interests. +Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our +ability to continue supporting our business growth and responding to business opportunities and challenges. +Our +business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, +ultimately, the performance of our partner companies, both of which are uncertain. +If +we make poor decisions regarding the deployment of capital into new or existing partner companies, our business model will not succeed. +Our success as a holding company ultimately depends on our ability to choose the right partner companies, develop these companies, such +that these partner companies are operationally successful. If one or more of our partner companies does not succeed, the value of our +assets could be significantly reduced resulting in substantial impairments or write-offs, which could cause the results of our operations +and the price of our Class A Common Shares to decline. +The +risks relating to our partner companies include: +● +most of our partner companies have a history of operating losses and a limited operating history; +● +the new technologies that our partner companies attempt to develop and launch commercially may never be developed or may never adequately +developed to be commercial or even if commercially developed, may not be accepted in the marketplace; +● +the new technologies that our partner companies develop may not be accepted quickly enough or broadly enough resulting in additional +need funding to sustain the partner company or the decision to abandon the business at a loss; +● +intensifying competition affecting the products and services that our partner companies offer could adversely affect their businesses, +financial condition, results of operations, cash flows and prospects for growth; +● +technologies of our partner companies that are subject to regulatory examination, testing and approval, may not be approved by any required +regulatory authorities; +23 +● +inability to adapt to the rapidly changing marketplaces; +● +inability to manage growth; +● +the need for additional capital to fund partner company operations, which we may not be able to fund or which may not be available from +third parties on acceptable terms, if at all; +● +inability to protect partner company intellectual property rights and/or the costs and limitations that partner companies infringe on +the intellectual property rights of others; +● +inability to put into place, monitor and maintain appropriate compliance programs related to employees, safety or other regulatory requirements +which could result in legal liability, bad press and significant additional costs to investigate, address and remediate such issues; +● +certain of our partner companies could face legal liabilities from claims made against them based upon their operations, products or +work; +● +the impact of economic downturns on their operations, results and growth prospects; +● +inability to attract and retain qualified personnel; and +● +government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies. +Our +business model does not rely upon the receipt of operating cash flows from our partner companies. +Our +public venture business model does not rely upon the receipt of operating cash flows from our partner companies. We anticipate that our +partner companies, while we own them and they are developing their businesses, will not generate revenues or positive cash flow. To the +extent that our partner companies generate any cash from operations, they will retain the funds to develop their own businesses. Our +overall day to day operations will rely on cash on hand, dividends from the operation of Public Ventures and PatentVest, and our ability +to generate capital from capital raising activities to finance our overall operations and fund the partner companies. If we need capital +to fund current and new partner companies, we will seek to raise additional capital. If we are unable to find ways of monetizing our +holdings or to raise additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business +efforts, constrain our ability to execute our business strategy, and limit our ability to provide financial support to our existing partner +companies. We may also finance our partner companies through their securities offerings or selling, licensing, or joint venturing their +businesses. There is no assurance that we will be able to raise any such funding or funding in sufficient amounts to support the early +stages of development of our partner companies. +Our +success depends, in part, on the successful development of our partner companies. +At +this time, we cannot identify the various specific risks that our partner companies will face other than the challenges typically faced +by early-stage companies, as well as risks related to general regulatory issues, general technology and product development issues, meeting +capital requirements, and market approach and penetration issues that all such early stage and development companies will face in their +evolution. To the extent that any of our partner companies fail during the development phase or experience delay until they reach a point +where they are able to successfully market their technologies or products in a financially sustainable way, our investment in those partner +companies and your investment in MDB will be impaired, and you may sustain a loss in your investment and return on investment. +24 +To +be successful, we will need to grow the current businesses and grow the overall size of MDB and, more particularly, the number and businesses +of partner companies. Our success will depend on finding and nurturing early-stage companies and transforming them into successful companies +through our managerial and funding resources, including sources of external funding. Expanding the number of partner companies will impose +significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate +additional employees at the MDB (parent) level and at the partner company level. In addition, our management may have to divert a disproportionate +amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities +at our partner companies. Our future financial and business performance and our ability to compete effectively will depend, in part, +on our ability to effectively manage our future growth. +Our +partner companies are expected to be early-stage development companies, which will make it difficult to judge and evaluate their +businesses and their future success. +The +partner companies are and will continue to be early-stage companies, none of which, it is anticipated, initially will have any finalized +products or well-defined development, intellectual property, marketing or distribution plans. Because of these factors and the absence +of an operating history, it will be difficult for potential investors to fully evaluate the planned technologies and prospective operations +and future potential of our partner companies. As early-stage companies, they will be subject to all the risks inherent in the initial +organization, financing, expenditures, complications and delays associated with new businesses. Investors should evaluate an investment +in us in light of all of the risks inherent and uncertainties encountered by early-stage companies operating in competitive environments. +There can be no assurance that our efforts to finance and nurture our partner companies will be successful or that any of our partner +companies will ultimately develop their products to a point where the companies reach profitability. +One +of our subsidiaries, Public Ventures, is subject to Securities and Exchange Commission and FINRA regulation, DTC participant requirements, +and settlement bank agreements, and, if not compliant with those regulations, may be subject to fines, limitations on activity and financial +impairment. +One +of our subsidiaries is a securities broker-dealer, subject to a wide range of regulations under the oversight of the Securities and Exchange +Commission, FINRA and state securities regulators, and other financially-oriented governmental authorities. To conduct its clearing operations, +it is subject to DTCC participant requirements and the terms of its settlement bank agreements. Public Ventures is currently subject +to regulations related to its status as a broker-dealer and is subject to all the regulatory requirements of the Securities and Exchange +Commission applicable to our securities clearing operations. As is common in the securities industry, we are subject to regular reviews +of and investigations into our operations, some of which progress to regulatory actions that may result in fines, censures, and limitations +on activity. Currently, we are the subject of a review of past broker-dealer activities, which may be either resolved or escalated. We +do not know at this time whether this review will be escalated to regulatory action, and if it is, what the regulatory assertions would +be and what the resolution of such assertions might be. Any adverse result may impair the value of the overall company and a loss of +investment value in MDB. +25 +Our +partner companies are likely to be operating in businesses that are subject to extensive regulation, which if not compliant with those +regulations may be subject to fines, limitations on activity and financial impairment. +Our +partner companies will likely be subject to a large range of regulations, especially if they are engaged in development of medical or +pharmaceutical therapies, medical devices and technologies subject to export and import controls. The failure to adhere to any applicable +laws or regulations relating to their business conduct may result in investigations, fines, limitations on activities and recalls. The +partner company subject to these kinds of sanctions, and possibly MDB, also could suffer from development, marketing, financial and reputational +damage. There may be consequential impairment of the value of the overall company and a loss of investment value in the Company. +We +plan to operate as a company not regulated under the Investment Company Act of 1940. We may have to buy, sell or retain assets when we +would otherwise not wish to do so in order to avoid registration under the Investment Company Act. +We +believe our operations are not subject to the Investment Company Act of 1940 (the “Investment Company Act”). We do not hold +ourselves out as conducting the business of investing, reinvesting or trading in securities. Rather, we found, own and operate our partner +companies to help them develop their businesses. We will have control of our partner companies through a majority ownership position, +by being actively engaged on the board of directors and by being involved in the certain management decision processes of the partner +companies. We are actively engaged in the development of these companies including creation of the business strategy and path to value +creation. +The +Investment Company Act regulates companies that are engaged in the business of investing, reinvesting, owning, holding or trading in +securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with +a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless +an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than majority-owned +partner companies are generally considered “investment securities” for the purpose of the Investment Company Act, unless +other circumstances exist, such as the holding company management being actively involved in the management of the underlying company. +Additionally, there may be other exemptions that we might be eligible to use to avoid regulation under the Investment Company Act. As +a company that builds value by cofounding early-stage technology and life sciences companies, we believe we are not engaged in the business +of investing, reinvesting or trading in securities. Consequently, we do not believe that we are not now and will not be an investment +company under the Investment Company Act. +We +are monitoring our compliance with the 40% Test and conduct our business activities to comply with this test and other exemptions such +that we are exempt from the Investment Company Act. It is not feasible for us to be regulated as an investment company because the Investment +Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. We may +need to take various actions, however, that we would otherwise not pursue in order to remain in compliance with the 40% Test. For example, +we may need to retain a majority interest in a partner company that we no longer consider strategic, we may not be able to acquire an +interest in a company unless we are able to obtain a majority ownership interest in the company, or we may be limited in the manner or +timing in which we sell or distribute our interests in a partner company. Our ownership levels also may be affected if our partner companies +are acquired by third parties or if our partner companies issue stock which dilutes our majority ownership. The actions may require us +to take actions to avoid application of the Investment Company Act of 1940 so as to maintain compliance with the 40% Test that could +adversely affect our ability to create and realize value at our partner companies. The Company’s Broker-Dealer subsidiary is excluded from the Investment Company Act of 1940, and therefore all securities held by +the Broker-Dealer are excluded from the asset calculation. +26 +Our +ability to retain our senior professionals and recruit additional professionals is critical to the success of our business, and our failure +to do so may adversely affect our reputation, business, results of operations, cash flows and financial condition. +Our +people are one of our most valuable resources. Our ability to source attractive technologies and companies to deploy our capital +depends upon the reputation, judgment, and execution skills of our senior professionals, particularly our directors and senior +management. Despite our efforts to retain valuable employees, members of our management team may terminate their employment with us +on short notice. The loss of the services of any of our executive officers or other key employees could potentially harm our +business, operating results, cash flows or financial condition. Currently, we do not maintain key man insurance policies with +respect to any of our executive officers or employees. +Potential +Adverse Impact of U.S. and Nicaraguan Political and Regulatory Environments on Our Operations. +Our +business operations are subject to risks associated with the political, economic, and regulatory environments in both the United States +and Nicaragua, where we conduct business. Any changes in government policies, regulations, or political instability in either country +could have a material adverse effect on our ability to operate effectively and profitably. +In +the United States, shifts in trade policies, foreign relations, and regulatory frameworks may impact our ability to do business in Nicaragua. +Additionally, any restrictions on international trade, sanctions, or policy changes affecting business dealings with Nicaragua could +increase costs or limit our ability to operate within the country. +In +Nicaragua, political instability, civil unrest, or changes in government leadership could lead to policy shifts, economic uncertainty, +or regulatory changes that impact our business. Potential risks include: +● +Changes +in the list of sanctioned countries where U.S. businesses and individuals are restricted or prohibited from engaging in trade, investment, +or other business activities. These restrictions are primarily enforced by the U.S. Department of the Treasury’s Office of +Foreign Assets Control (OFAC) and are based on economic sanctions, national security concerns, and foreign policy objectives. +● +Expropriation +or nationalization risks, which could result in asset seizures or limitations on foreign-owned businesses. +● +Civil +unrest or political turmoil that may disrupt workforce availability or local market stability. +If +the political or economic environment in either country deteriorates or if new regulations are imposed that negatively impact our ability +to conduct business in Nicaragua, our financial condition, results of operations, and growth prospects could be materially and adversely +affected. We continue to monitor political developments and assess potential risks to mitigate any significant impacts on our business. +We out-source aspects of our business operations +in Nicaragua. +We have engaged an affiliated +company, MDB Capital S.A., located in Nicaragua to provide specific services from time to time, on an as out-source, as requested basis. +Currently, we believe that the Company, PatentVest and our partner companies will use the service company for various activities. We believe +that having services performed on a contract basis in Nicaragua will provide cost benefits for our operations in the United States that +will enhance our business operational competitiveness. In order to function effectively and efficiently when engaging companies in Nicaragua, +we believe that we will have to help train the persons responsible for our service requests so as to have available when needed knowledgeable +staffing for our projects. There can be no assurance that our out-sourcing these contract services in Nicaragua will be at competitive +and at cost saving rates or that we will be able to find the services there that are able to carry out the required functions. +Whether or not we will be +able to continue to use out-sourcing companies located in Nicaragua will depend on the extent that the United States imposes restrictions +on US persons and entities engaging in commerce with companies that employ Nicaraguan persons or are located in Nicaragua. Currently there +are Executive Orders in place that restrict immigration of designated groups of individuals into the United States and restrictive sanctions +on certain trade-related activities between United States and Nicaragua. In conjunction with the Executive Orders, other departments of +the United States government have imposed complimentary sanctions on activities under their jurisdictions to expand the effect of the +Executive Orders. The effect and extent of the sanctions, including Executive Order 13851, dated October 24, 2022, is not yet known, but +could potentially prohibit both imports from and exports to Nicaragua. Whether these sanctions will be interpreted to include a prohibition +on our current and proposed service arrangements to be provided by companies and persons in Nicaragua is yet unknown. But if the sanctions +extend to our out-source service arrangements with Nicaraguan persons and entities, we will face disruption obtaining certain services, +and we will have to find replacement service providers or personnel. We may have difficulty in finding qualified, competent replacements +for those functions fulfilled by our Nicaraguan contract party. If we have to find those kinds of replacements, we also would expect our +costs to increase, thereby losing the advantage of our Nicaraguan resources. +Risks +related to our significant and concentrated equity investment in eXoZymes. +The +Company’s equity investment in eXoZymes represents a significant portion of our total assets and is reported as an equity method +investment on our balance sheet. As such, fluctuations in the value of this investment may have a material impact on our financial position +and the results of operations. +Since +November 2024, eXoZymes has been a publicly traded company and its operational and strategic decisions have been directed by its board +and management. As a public company its stock price is determined by the market and investor reaction to its product developmental +decisions and performance. The actual performance of eXoZymes will depend on many factors, such as its product discovery and development, +its ability to enter into strategic alliances or licensing arrangements, its ability to generate revenues, the maintenance of its financial +resources, regulatory compliance and developments that impact its products, and broader economic conditions. +Further, +as eXoZymes is in an early stage of its commercial development, its financial performance may be unpredictable, and periods of volatility +or underperformance may result in non-cash losses and/or impairment charges on our investment. A sustained decline in the value of our +investment could also negatively affect key financial ratios and limit our ability to raise additional capital. +Given +the size and concentration of our investment in eXoZymes, any material change in its value—positive or negative—will directly +affect our financial statements, potentially causing significant variability in our reported earnings and equity. +As +a result, investors should consider the inherent risks associated with holding a large, concentrated, and volatile equity investment +when evaluating our financial condition and future prospects and a decision to invest or hold an investment in our company. +There +may be securities market risks resulting from owning the equity securities of our partner companies. +Although we are not engaged +in the business of investing, reinvesting, or trading in securities, we will own a controlling or other positions in our partner companies +pursuant to our business model. We generally will be active in the management and development of our partner companies, as well as actively +monitoring their operations to keep abreast of their business development. In time, we anticipate that we will monetize the value we hold +in our partner companies. Our monetization process will contemplate the typical forms of merger and acquisition transactions, such as +licensing, private and public offerings, asset or company sales and registered common stock distributions. To the extent that any of our +partner companies become publicly traded, their value will become subject to market fluctuations. Any fluctuation in the value of our +partner companies’ securities, for whatever reason, may affect the value of MDB as a holding company resulting in a partial or total +loss of your investment. +27 +We +could experience competition from other potential acquirers when we seek to establish partner companies, which may result in not being +able to acquire them or having to invest at a higher valuation, thus increasing our risk of loss and reducing potential future gains. +We +believe that we will face competition from other capital providers and acquisition-oriented entities as we seek to acquire and develop +our partner companies. Some of our competitors have more experience identifying and acquiring companies in various industries and have +greater financial and management resources, brand name recognition or industry contacts than we possess. We compete with those firms +on a number of factors, including our history and reputation, our ability to partner, encourage and support development of each company, +the abilities and experience of our professionals in working with development-stage companies, and our ability to source and perform +due diligence on new technologies and companies. In addition, even though we seek to acquire technologies at their very early stages +of development, we may still pay higher prices in our acquisitions and partner company creation because of competition from other potential +acquirers and higher valuations. This could increase the risk of loss and result in lower gains to the holding company. +We +may be limited in our ability to attract and continue to employ personnel engaged by our partner companies. +In +order to recruit and retain existing and future personnel for our partner companies, we may need to increase the level of compensation +that we pay and have to use equity grants as incentives. As our partner companies are subsidiaries, we may not be able to use the value +of the partner company for equity grants and similar compensation arrangements. We may have to deploy other incentives, such as higher +salaries, better benefits or equity in MDB. Any of these may adversely affect the value of MDB or increase our consolidated expenses. +We +strive to maintain a work environment that reinforces our culture of collaboration, motivation and alignment of interests with investors. +The effects of becoming public, including potential changes in our compensation structure, could adversely affect this culture. If we +do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our +ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial +condition, results of operations and cash flows. +There +is significant competition for the time and capital of our community members and they have no obligation to continue to own MDB member +interests, or participate in the development of the partner companies as envisioned by our business model. +We +will rely on our community of sophisticated investors that have experience with our public venture approach for partner company formation, +development and funding. There is competition for their time and capital. There is no obligation for an investor that is part of our +community to continue to participate in our public venture approach or even to hold securities of MDB. As is common, investors will circulate +in and out of our community as their interests change over time. The loss of a prominent or an active community participant may diminish +the effectiveness of our community and may lead others to change their participation level within the community. +28 +Impact +of Ukrainian and Israeli Conflict +Currently, +we believe that the conflicts involving the Ukraine and Israel do not have any direct impact on our operations, financial condition or +financial reporting. We believe the conflicts will have only a general impact on our operations in the same manner as it is having a +general impact on all businesses that have their operations in North America as a result of international sanctions and embargo regulations, +possible shortages of goods and goods incorporating parts that may be supplied from the Ukraine, Russia or Israel, supply chain challenges, +and the international and US domestic inflationary results of the conflict and government spending for and funding of our country’s +response. We do not believe we will be targeted for cyber-attacks in connection with the conflicts, but as a financial institution, we +are aware that we may be a general target for cyber-attacks. We have no operations in the countries directly involved in the conflicts +or are specifically impacted by any of the sanctions and embargoes, as we principally operate in the United States. Other than general +securities market trends, we do not have reason to believe that investors will evaluate the company as having special risks or exposures +related to the conflicts. +Impact of the Iran Conflict +Currently, we believe that the ongoing military conflict involving Iran (the “Iran Conflict”), including +actions by the United States and Israel, does not have any direct impact on our operations, financial condition or financial reporting. +We believe the conflict will have only a general impact on our operations in the same manner as it is having a general impact on all businesses +that have their operations in North America as a result of international sanctions and embargo regulations, possible disruptions to global +energy supplies and oil prices due to tensions in the Strait of Hormuz and the Middle East region, shortages of goods and supply chain +challenges, and the international and US domestic inflationary results of the conflict and government spending for and funding of our +country’s response. We do not believe we will be specifically targeted for cyber-attacks in connection with the conflict, but as +a financial institution, we are aware that we may be a general target for cyber-attacks, including potentially from state-sponsored actors +associated with the conflict. We have no operations in Iran or the countries directly involved in the conflict and are not specifically +impacted by any of the sanctions and embargoes, as we principally operate in the United States. Other than general securities market trends, +we do not have reason to believe that investors will evaluate the company as having special risks or exposures related to the conflict. +The +collection, processing, use, storage, sharing and transmission of personal information and other sensitive data are subject to stringent +and changing state, federal and international laws, regulations and standards and policies and could give rise to liabilities as a result +of our failure or perceived failure to protect such data, comply with privacy and data protection laws and regulations or adhere to the +privacy and data protection practices that we articulate to our clients. +In +the course of our operations and the processing of transactions, we collect, process, store, disclose, use, share and/or transmit personal +information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple jurisdictions. +The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. +There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, storage, +protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act (“GLBA”) +(along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure of personal information, +requires notice to individuals of privacy practices and provides individuals with certain rights to prevent the use and disclosure of +certain non-public or otherwise legally protected information. Additionally, many states continue to enact legislation on matters of privacy, +information security, cybersecurity, data breach and data breach notification requirements. For example, as of January 1, 2020, the California +Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy in California. The CCPA, among +other things, entitles California residents to know how their personal information is being collected and shared, to access or request +the deletion of their personal information and to opt out of certain sharing of their personal information. The CCPA is subject to further +amendments pending certain proposed regulations that are being reviewed and revised by the California Attorney General. The CCPA provides +for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal +information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. We cannot +predict the impact of the CCPA on our business, operations or financial condition, but it could result in liabilities and/or require +us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and it will be effective in most material respects +starting on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly modify +the CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also creates +a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the +CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial +costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. +29 +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws to take effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures is subject to SEC Regulation S-P, which requires that businesses maintain policies and procedures +addressing the protection of client information and records. This includes protecting against any anticipated threats or hazards to the +security or integrity of client records and information and against unauthorized access to or use of client records or information. Regulation +S-P also requires businesses to provide initial and annual privacy notices to clients describing information sharing policies and informing +clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of being subjected to fines, lawsuits and other claims, we could be required to fundamentally +change our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations +or perceived violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to +change our business practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing +investigations or being subjected to legal claims by governmental entities or private actors, sustaining monetary penalties, sustaining +reputational damage, expending substantial costs, time and other resources and/or sustaining other harms to our business. Furthermore, +our online, external-facing privacy policy and website make certain statements regarding our privacy, information security and data security +practices with regard to information collected from our clients or visitors to our website. Failure or perceived failure to adhere to +such practices may result in regulatory scrutiny and investigation, complaints by affected clients or visitors to our website, reputational +damage and/or other harm to our business. If either we, or the third-party service providers with which we share client data, are unable +to address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations and policies, +it could result in additional costs and liability to us, damage our reputation, inhibit sales and harm our business, financial condition, +results of operations, and cash flows. +Cyberattacks +and other security breaches or disruptions suffered by us or third parties upon which we rely could have a materially adverse effect +on our business, harm our reputation and expose us to public scrutiny or liability. +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +30 +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +Most jurisdictions in the +United States have enacted laws requiring companies to notify individuals, regulatory authorities and/or others of security breaches involving +certain types of data. In addition, our agreements with certain partners and service providers may require us to notify them in the event +of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our clients, partners and service +providers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources +to respond to and/or alleviate problems caused by the actual or perceived security breach. A security breach of any of our vendors that +processes personal information of our clients may pose similar risks. +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +31 +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Risks +Pertaining to Partner Companies in General +Based +on our business model, some or all of our partner companies likely will need to raise capital from time to time to fund their operations. +We may not be able to fund some or all of these amounts, and the amounts may not be available from third parties on acceptable terms, +or at all. +We +cannot be certain that our partner companies will be able to obtain initial and additional financing on acceptable terms, or at all, +when needed. Because our resources and our ability to raise capital are limited and if we do not have funds in reserve for additional +capital infusions, we may not be able to provide our partner companies with sufficient capital resources at times when needed to enable +them to reach a cash flow positive position. We also may fail to accurately project the capital needs of our partner companies for purposes +of our cash flow planning. If our partner companies need to, but are not able to, raise capital from us or other outside sources, then +they may need to cease or scale back operations. If our partner companies raise capital from outside sources, the terms of such financings +may significantly reduce or eliminate the value of such partner companies. In all such events, our ownership interest in any such partner +company could lose some or all of its value. +If +we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business +strategy. In addition, the loss of the services of the founders of our partner companies could adversely impact their business prospects +and the value of our ownership of the partner company. +Our +ability to properly develop our partner companies and be successful in our business model depends in large part upon our ability to attract +and retain at the partner company level and at the MDB level highly qualified managerial, scientific, and technical personnel. We will +need to hire additional personnel as we further develop and grow our partner companies. Competition for skilled personnel usually is +intense. We may not be able to hire and retain highly qualified personnel on acceptable terms. If we are unable to attract and retain +high-quality personnel, especially for our partner companies, the rate and success at which they can develop and commercialize products +or succeed at all could be limited. +Some +intellectual property of our partner companies will be funded through government programs, thus being subject to federal regulation such +as “march-in” rights, certain reporting requirements and a preference for U.S. industry. Compliance with these regulations +may limit exclusive rights, subject the companies to expenditure of resources with respect to reporting requirements, and limit the ability +to contract with foreign manufacturers. +When +research is funded in part by the U.S. government, the resulting intellectual property is subject to certain federal regulations pursuant +to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. In particular, the federal government retains a “nonexclusive, nontransferable, +irrevocable, paid-up license” for its own benefit to inventions produced with its financial assistance. The Bayh-Dole Act also +provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require +the contractor or successors in title to the patent or other intellectual property to grant a “nonexclusive, partially exclusive, +or exclusive license” to a “responsible applicant or applicants.” If the intellectual property owner refuses to do +so, the government may grant the license itself. Intellectual property discovered under government-funded programs is also subject to +certain reporting requirements, compliance with which may require our partner companies or licensors to expend substantial resources. +Such intellectual property is also subject to a preference for U.S. industry, which may limit the ability to contract with foreign product +manufacturers for products covered by the intellectual property. Moreover, collaboration with academic institutions to accelerate research +or development may be limited or create the march in right. Further, the partner companies may choose to license intellectual property +in the future that may be subject to government rights pursuant to the Bayh-Dole Act. If, in the future, a partner company co-owns or +licenses in technology that is critical to its business that is developed in whole or in part with federal funds subject to the Bayh-Dole +Act, its ability to enforce or otherwise exploit patents covering the technology may be adversely affected. +32 +Some +of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others. +Our +partner companies, during their development, will typically assert various forms of intellectual property protection. Intellectual +property is likely to constitute an important part of our partner companies’ assets and competitive strengths. Federal law, +most typically, copyright, patent, trademark and trade secret laws, generally protects intellectual property rights. State law also +addresses property rights. Although we expect that our partner companies will take reasonable efforts to protect the rights to their +intellectual property, the complexity of United States, individual state and international trade secret, copyright, trademark and +patent law, coupled with the limited resources of these partner companies and the demands of quick delivery of products and services +to market, create a risk that their efforts will prove inadequate to prevent misappropriation of our partner companies’ +technology, third parties may develop similar technology independently, or they will otherwise be unable to adequately protected +their trade secrets. +Some +of our partner companies also license intellectual property from third parties, and it is possible that they could become subject to +infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally +obtain representations as to the origin and ownership of such licensed intellectual property; however, this may not adequately protect +them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject our partner companies +to costly litigation and the diversion of their technical and management personnel from other business concerns. If our partner companies +incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will +increase. +Where +our partner companies enter into intellectual property license agreements, if they fail to adhere to their obligations thereunder, they +may lose the ability to continue the license. Such a loss may be materially adverse to the business and future of a partner company. +Third +parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or +other intellectual property claims. Even though we believe our partner companies’ products do not infringe any third-party’s +patents, they may have to pay substantial legal fees to defend against such claims as well as damages, possibly including treble damages, +if it is ultimately determined that such claims have merit. They may have to obtain a license to sell their products if it is determined +that their products infringe another person’s intellectual property. Our partner companies might be prohibited from selling their +products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement +claims against our partner companies are without merit, defending these types of lawsuits takes significant time, may be expensive and +may divert management attention from other business concerns. +Our +partner companies have limited foreign intellectual property rights and may not be able to protect their intellectual property rights +throughout the world. +Currently, +our partner companies have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents +in all countries throughout the world would be prohibitively expensive, and intellectual property rights in some countries outside the +United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual +property rights to the same extent as do federal and state laws in the United States. Consequently, our partner companies may not be +able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing +products made using our inventions in and into the United States or other jurisdictions. Many countries have compulsory licensing laws +under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability +of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which +could materially diminish the value of such patent. If our partner companies or any of their licensors are forced to grant a license +to third parties with respect to any patents relevant to their business, their competitive position may be impaired, and their business, +financial condition, results of operations and prospects may be adversely affected. Also, competitors may use the technologies in jurisdictions +where our partner companies have not obtained patent protection to develop their own products and, further, may export otherwise infringing +products to territories where there is patent protection but where enforcement is not as strong as that in the United States. These products +may compete with the products of our partner companies in jurisdictions where they do not have any issued patents and patent claims or +other intellectual property rights may not be effective or sufficient to prevent them from competing. +33 +Many +companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The +legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets +and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult +for our partner companies to stop the infringement of patents or marketing of competing products by third parties in violation of proprietary +rights generally. Proceedings to enforce patent and other intellectual property rights in foreign jurisdictions could result in substantial +costs and divert management efforts and attention from other aspects of business operations, could put the patents at risk of being invalidated +or interpreted narrowly and patent applications at risk of not issuing and could provoke third parties to assert claims against our partner +companies. The intellectual property holder may not prevail in any lawsuits that are initiated and the damages or other remedies awarded, +if any, may not be commercially meaningful. Accordingly, efforts by our partner companies to enforce their intellectual property rights +around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that they develop or license. +Our +partner companies may incur substantial costs as a result of litigation or other proceedings relating to intellectual property, including +patents, and they may be unable to protect their rights to their products and technology. +If +our partner companies or their licensors choose to go to court to stop a third party from using the inventions claimed in their owned +or in-licensed patents, that third party may ask the court to rule that the patents are invalid and/or should not be enforced against +that third party. These lawsuits are expensive and would consume time and other resources even if our partner companies were successful +in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid +and that our partner companies do not have the right to stop others from using the inventions. There is also the risk that, even if the +validity of these patents is upheld, the court will refuse to stop the third party on the ground that such third party’s activities +do not infringe our owned or in-licensed patents. +Patent +terms may be inadequate to protect a competitive position for an adequate amount of time. +Patents +have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally +20 years from its earliest U.S. non-provisional filing date. Various extensions, such as patent term adjustments and/or extensions, may +be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering a product are obtained, once +the patent life has expired, our partner companies may be open to competition from competitive products. Given the amount of time required +for the development, testing and regulatory review of new products, patents protecting new products might expire before or shortly after +such products are commercialized. As a result, a patent portfolio may not provide sufficient rights to exclude others from commercializing +products similar or identical to those of the partner companies. +Our +efforts to maintain and protect our intellectual property rights through means in addition to registration may not be sufficient to protect +our business. +The +patents that our partner companies and we have are important assets. Our partner companies and we also rely on our unpatented proprietary +technology, trade secrets, processes and know-how. Generally, protection of intellectual property rights will be through filed patents, +registered trademarks and registered copyrights. Other proprietary information will be protected through a combination of trade secret +laws and confidentiality, non-disclosure and assignment of invention agreements with employees, contractors, collaborators, vendors, +consultants, advisors and third parties. Despite these measures, intellectual property rights could be challenged, invalidated, circumvented +or misappropriated. To pursue enforcement of these kinds of agreements could involve significant expense, potentially hinder or limit +use of intellectual property rights, or potentially result in the inability to use the intellectual property rights in question. If an +alternative cost-effective solution were not available, there may be an adverse effect on our financial position and performance. +34 +Enforcing +intellectual property rights against one or more third parties can be expensive and time-consuming, and an adverse result in any proceeding +could put the intellectual property rights at risk of being invalidated or narrowed in scope of coverage. Patent and trademark challenges +would increase the cost of development, engineering and marketing our products. There may not be adequate resources available to enforce +any of the intellectual property rights. In addition, the ability to enforce intellectual property rights depends on the ability to detect +infringement, and the ability to obtain evidence of infringement. Where enforcement is sought, a claim may not prevail or the damages, +if any, may not be commercially meaningful. +If +trademarks and trade names are not adequately protected, then our partner companies may not be able to build name recognition in the +markets of interest and their business may be adversely affected. +A +trademark or trade name may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. +Our partner companies may not be able to protect their rights to their trademarks and trade names or may be forced to stop using their +names. At times, competitors may adopt trade names or trademarks similar to those of our partner companies, thereby impeding their ability +to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement +claims brought by owners of other registered trade names or trademarks that incorporate variations of our unregistered trade names or +trademarks. If the partner companies are unable to establish name recognition based on our trademarks and trade names, they may not be +able to compete effectively and our business may be adversely affected. +Collaborations +of various sorts, by our partner companies, such as with respect to research, testing, clinical trials, manufacturing and distribution, +will be important to their respective businesses. Their inability to enter into collaboration arrangements as needed, or if such collaborations +are not successful, may adversely impact their respective businesses. +Our +partner companies will likely seek to collaborate with third parties to engage in product research, clinical trials, marketing, manufacturing, +and distribution as part of its strategy. If our partner companies fail to enter into or maintain collaboration arrangements, as needed +and on reasonable terms, their ability to develop their business could be delayed, or the costs of development and commercialization +increased beyond what would be reasonable and ultimately hindered to the point of business cessation. Furthermore, our partner companies +may need to obtain the use of intellectual property rights held by third parties in order to develop their products. As a result, the +growth of a particular business or product may depend in part on the ability to acquire or in-license these intellectual property rights. +Future +collaboration arrangements between partner companies and third parties may pose a number of risks, including, but not limited to, the +following: +(i) +collaborators have significant discretion in determining the efforts and resources that they will apply; +(ii) +collaborators may not perform their obligations as expected; +(iii) +collaborators may elect not to continue or renew development or commercialization programs or license arrangements; +(iv) +collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with products +of our partner companies or products the collaborators have may be viewed as competitive with product of our partner companies causing +them to cease to devote resources to the commercialization of our partner company products; +(v) +collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing +of a product candidate or product; +35 +(vi) +collaborators may not commit sufficient resources to the marketing and distribution of our partner company product or products; +(vii) +disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of +development, might cause delays or terminations of the research, development or commercialization of products, might lead to additional +responsibilities for our partner companies, or might result in litigation or arbitration, any of which would be time- consuming and expensive; +(viii) +collaborations may be terminated by the collaborator, and, if terminated, our partner companies may require more capital to pursue further +development or commercialization of the applicable product; and +(ix) +collaborations may not be negotiated on a timely basis or acceptable terms, if at all, or they may require substantial additional capital +so as to be able to pursue and fund a collaboration. +If +collaborations do not result in the successful discovery, development and commercialization of product candidates or if one of the collaborators +terminates its agreement, our partner companies may not receive any future research funding or milestone or royalty payments under such +collaboration. If a collaborator terminates its agreement, the partner company may find it more difficult to attract new collaborators, +and the perception of the product or the business and financial condition of our partner company could be adversely affected. +Risks +Related to M1 +M1 +has a limited operating history on which to evaluate its ability to achieve its operating objectives. +M1 +was founded in 2024, has a limited operating history, and only has incurred losses to date. Therefore, there can be no assurance that +the efforts of M1 to develop the M1 Platform will produce a commercial product, market acceptance or revenues that will sustain its business. +With a limited operating history and no commercialized products at this time, it will be difficult for investors to make predictions +about its future success or viability and any predictions may not be as accurate as they could be if it had a longer operating history +or a company history of successfully developing, commercializing and generating revenue from pharmaceutical products for a mass market. +M1 +may not be successful in its efforts to advance from the pre-clinical development stage and to fully develop a small molecule senescence +platform. +A +key element of M1’s strategy is to develop the M1 Platform, which is intended to be comprised of pharmaceutical drugs or other +products designed to aid in longevity and to inhibit certain forms of age-related diseases. The focus of the M1 Platform is to treat +senescent cells, which are dysfunctional cells that have permanently stopped dividing, have been +implicated in the aging process and the development of chronic low-grade inflammation. This chronic inflammation has been linked to a +variety of age-related diseases, including multiple fibrotic conditions that have limited treatment options and poor prognoses. +Although its R&D (research and development) efforts to date, which have been focused on pre-clinical development, have resulted in +what is believed to be potential pipeline of products, M1 may not be successful in finalizing the development of products to the stage +of commercial viability or be able to continue to identify and develop other pipeline products. Even if M1 is successful in continuing +to build its product pipeline, not all potential pipeline products it identifies will be suitable for development as pharmaceutical drugs +or as other commercial products. Although management believes its efforts to develop the M1 Platform will demonstrate commercial success +and deliver on the promise of aiding in longevity and inhibiting certain age-related diseases, if M1 is unsuccessful in these efforts, +the value of M1 will be significantly impaired or fully lost, and our holding company investors may suffer loss in relation to the investment +in M1. Further, in such an event, M1 may have to curtail or cease its business. +36 +Risks +Related to PatentVest +If +PatentVest does not identify the full range of patent opportunities relevant to clients’ intellectual property portfolio, its reputation +will be harmed and it may be liable for service failure. +One +of the primary services that PatentVest provides its clients is an analysis of their intellectual property portfolio and how the portfolio +may be protected and expanded through additional patent and other IP protection opportunities. We believe that its ability to attract +and retain clients depends on its ability to identify actual and potential patent assets for clients. Although there is no guarantee +that we will be able to identify all potential patent opportunities, if we miss a patent opportunity or fail to provide the services +contracted by clients in a workmanlike manner, then the reputation of PatentVest will be harmed, and it may be liable for damages due +to providing its services negligently. +If +clients do not agree that the patents opportunities identified in the PatentVest reports are relevant to their businesses, PatentVest +will have difficulty retaining and attracting new clients, which could harm its operating results. +The +clients of PatentVest use the services to help them analyze their existing and potential intellectual property. If the clients perceive +that the analysis and the opportunities are not relevant to their business requirements, then they will not find value in its reports +and services. This may harm its reputation and make it difficult to retain a client and attract new clients, with an adverse consequence +to operating results. +PatentVest +is dependent on relationships with third parties, including public sources, to provide it with data, information and other services; +if any of these relationships change, its business could be adversely affected. +The +PatentVest reports and services are developed using data, information or services obtained from third-party providers and public sources. +The commercial relationships with third-party providers whose capabilities complement those of PatentVest, may also be competitors which +might make PatentVest vulnerable to unpredictable price increases and unfavorable licensing terms. If public sources of data that are +relied upon were to begin competing with PatentVest directly, or if they were to increase the cost that PatentVest pays to access their +data, otherwise prohibit if from collecting and synthesizing the data they provide, or cease existing altogether, PatentVest may not +be able to perform its services and operating results could be adversely impacted. +37 +PatentVest +might not be able to scale its business as fast as it believes can be done or be able to maintain the quality of its services and reports. +PatentVest +has operated, to date, on a small scale, and it has not yet proven its ability to commercialize services on a large scale. In order to do this successfully, it may have to make additional technology +and relationship investments that could delay or limit its ability to develop its client base and commercialize its reports and consultative +services. The reports may be found to be ineffective, unreliable or otherwise unsatisfactory to potential clients as there may be unforeseen +complications in the processes of scaling. These complications could delay or limit the ability of PatentVest to provide client services +or reports, could increase the cost of its consultative and report products, prevent it from implementing processes of the appropriate +quality and completeness, and thereby cause the business to suffer. Moreover, PatentVest needs to grow sales, marketing and support staff +or make appropriate arrangements with strategic partners to market, sell and support its clients and service and report products. If +PatentVest is not able to compete effectively with others while scaling commercially on a timely basis, in sufficient quantities or on +commercially reasonable terms, it will suffer a loss of business reputation and clients. +We +believe patent analysis is a highly competitive business, and if PatentVest fails to develop widespread brand awareness in a cost-effective +manner, the business may suffer. +The +services and reports offered by PatentVest compete with many other providers of similar services, such as other companies performing +intellectual property analytics, law firms, and patent filing firms. The services provided are subject to technological changes and evolving +client demands. We believe that in order for PatentVest to achieve market acceptance and to maintain and grow a client base, it is critical +to develop and maintain the quality of its services and reports and to increase the awareness of the brand. If we fail to provide what +the client requires, and it fails to promote and maintain its brand successfully, it may fail to attract or retain clients to the extent +necessary to realize a sufficient return on its brand-building efforts and to sustain the business. +PatentVest +is licensed to offer legal services under Arizona law, and it plans to offer legal services as part of its package of intellectual property +service offerings. As a result, PatentVest must comply with the ethical and legal provisions, licensing responsibilities and obligations +of a law firm under the laws of the State of Arizona. +PatentVest +has obtained a license from the State of Arizona to provide legal services, and it will provide legal and related services in order to +enhance the overall package of the PatentVest intellectual property related service and report products. Being licensed to provide legal +services will likely impact the non-legal aspects of PatentVest’s business as it must comply with the regulatory responsibilities +and ethical obligations of operating a law firm as dictated by Arizona law and ethical standards. In respect of those services provided +to clients that constitute providing legal advice, PatentVest will have to abide by the many obligations that must be observed by attorneys, +including (i) complying with confidentiality obligations towards its legal clients, (ii) discharging attorney-client privilege obligations, +(iii) adhering to legal compliance, ethical and regulatory standards of Arizona, (iv) avoiding conflicts of interest, (v) handling of +client funds, if any, and (vi) acting in the best interests of the client. There may be instances when the legal rights of a client of +the PatentVest law group must take precedence over a business interest of PatentVest and may limit its ability to provide advice or business +services to others with respect to intellectual property matters, scope of claims and pursuit of patent claims or require PatentVest +to cease providing intellectual property advice and strategy to a particular client altogether. The failure to operate the legal business +in compliance with the responsibilities and ethical requirements placed by Arizona on law firms will subject the PatentVest law practice +to sanctions by regulators and the bar association and may result in malpractice liability for PatentVest. Additionally, the legal regulatory +authorities of Arizona may require PatentVest to cease operation of this aspect of our overall business altogether. +38 +Risks +related to Public Ventures +Public +Ventures conducts offerings where we will act as a placement agent or an underwriter, and thus we are subject to underwriter and similar +liability. +As +part of our business, as it has been conducted over the last 28 or so years through Public Ventures, we expect to act as an underwriter +and placement agent in a number of capacities. We may be a single underwriter or placement agent of a securities offering or a co-underwriter +or placement agent participating in a securities offering. There are other types of offering where Public Ventures may be characterized +as an underwriter. In each of these instances, it will bear a liability dictated by Section 11(a) of the Securities Act of 1933, as amended +(“Securities Act”). Under the Securities Act, an underwriter is liable at law or in equity if any part of the registration +statement or offering documentation used in the offering of securities, in which we participate as an “underwriter” as generally +interpreted by the securities laws, “contained an untrue statement of a material fact or omitted to state a material fact required +to be stated therein or necessary to make the statements therein not misleading….” What constitutes an offering document +with respect to underwriter liability applies to any manner of offering materials. This liability also extends to private offerings of +securities and their documentation, where Public Ventures may act as a placement agent. In determining materiality, a court will not +inquire into limitations on the underwriter’s or placement agent’s ability to conduct its due diligence investigation and +assessment of the offeror, but will instead assess whether the statements, taken together and in context, would have misled a reasonable +investor about the nature of the investment. Section 11(b) of the Securities Act provides two affirmative defenses to Section 11(a) liability: +the expert defense and the non-expert defense, which are collectively known as the due diligence defense. Although we conduct due diligence +for all of our transactions, there is no assurance that the level of due diligence will uncover any failings in the materials used by +investors, or that it will uncover deliberate misstatements. Therefore, for any offering of securities, Public Ventures may become liable +as an underwriter or placement agent. Such a liability will have a significant impact on our overall business in terms of monetary cost +and also on our reputation. +Public Ventures self-clearing capabilities +facilitate its operations. +At +the start of 2024, Public Ventures began self-clearing U.S equity securities. As part of this process, in addition to the broker-dealer +regulation described above, Public Ventures will be subject to regulation directed to self-clearing operations and must demonstrate that +its financial, operational and systems capacities are able to perform this business while complying with regulations, including those +of the SEC, FINRA, Depository Trust Clearing Corporation (“DTCC”), and National Securities Clearing Corporation (“NSCC”). +To operate the self-clearing activity, we must meet different capitalization requirements than those of an introducing broker-dealer, +maintaining a capital structure with various cash and cash equivalent assets and retaining access to necessary lines of credit that can +assure our ability to comply with changing deposit requirements. We expect that these regulations will continue to undergo substantial +changes and may require additional capital as settlement operations move T+0 settlement in the future. +Self-clearing requires us to finance transactions and maintain margin +deposits at clearing organizations. Self-clearing exposes our business to operational risks, including business and technology disruption; +operational inefficiencies; liquidity, financing and regulatory risks; and potentially increased expenses. We have in the past and may +in the future also encounter difficulties with self-clearing that lead to operating inefficiencies, technology issues, dissatisfaction +amongst our client base, disruption in the infrastructure that supports the business, inadequate liquidity, increased margin requirements +with clearing organizations and third-party settlement agents who provide financing with respect to transactions, reductions in available +borrowing capacity and financial loss. Any such delay, disruption, expense or failure could adversely affect our ability to effect transactions +and manage our exposure to risk. Moreover, any of these events could have a material adverse effect on our business, financial condition, +operating results and cash flows. +As +a broker-dealer, Public Ventures will have to expend considerable resources on maintaining adequate compliance practices. The failure +to be in regulatory compliance may result in fines, sanctions and the possible curtailment of operations. +Both +the broker-dealer operations and the self-clearing operations are subject to extensive regulation. In addition, regulators perceive that +engaging in business with “small and micro-cap” companies (those with market capitalizations of $300 million and under) and +“penny” stocks (stocks with market prices of less than $1.00) is an especially high-risk activity, and therefore extensively +review and supervise such business activities. Public Ventures focuses on this niche as we believe it offers a significant opportunity +for clients of Public Ventures and other persons to gain value on their securities holdings, and we believe that such companies need +access to capital. By focusing on this business, however, Public Ventures will likely increase the potential for regulatory oversight +and the potential for regulatory action against the firm. Certain aspects of the regulatory regime, including the Know Your Client (KYC) +and Anti Money Laundering (AML) requirements. The ability to oversee KYC and AML requirements is critical to its ability to expand our +client networks and increase the volume of transactions the firm performs as required by its business model. If Public Ventures is not +able to fulfill its regulatory obligations, it may be fined, have to change its business at greater cost, or be required to cease its +business. +In +addition to the direct employees of Public Ventures, other persons in our overall corporate structure may be considered subject to FINRA +review and subject to the supervision by the broker-dealer. Therefore, the Company must maintain a structure that ensures all of the +parts of the Company will strictly adhere to FINRA rules so as to avoid any fines, limitations on the ability to conduct business or +actual business closure. The loss or curtailment of the business of Public Ventures would result in a significant loss of business opportunity +and revenues to the Company, and would result in a significant impairment to our reputation. +39 +We +may be exposed to more cybersecurity threats as we expand our business. +With +the expansion in the business to include clearing services, the Company handles increased amounts of sensitive financial and other information +about investors and company clients’ holdings and transactions that can be targeted by cybercriminals. We will need to have in +place an adequate internal security infrastructure to protect clients’ information and assets and minimize potential liabilities +for the business. In addition, as cybersecurity threats become more and more sophisticated, we will have to continually expend funds +to upgrade and expand our security measures, maintain insurance and overall be vigilant to protect our operations and clients. +The +clearing operations of Public Ventures will require contractual arrangements with several key industry entities, which, if not followed, +will require it to terminate that portion of its business. +To +establish and to operate a clearing business, Public Ventures has entered into contractual arrangements with the Depository Trust Company, +National Securities Clearing Corporation and a settlement bank. These are complex sets of arrangements that must be strictly adhered +to, otherwise Public Ventures will not be able to use their services. Without these services, Public Ventures will not be able to clear +trades for clients. Not only does Public Ventures require these agreements, but as a result of them it will need to maintain systems +and interaction platforms with them and other parties in the settlement process. Information technology implemented include a core clearing +system, an order management system, and a corporate communications system, amongst others. These many activities happen in parallel and +require significant effort to successfully implement and maintain. Failure to maintain any of the individual systems would prevent Public +Ventures from conducting its self-clearing business. Part of the risk the firm faces includes its vendors’ continuous capacity +to fulfill the service levels promised to Public Ventures. Public Ventures has chosen novel providers with excellent technology but lesser +track records. Assuring these suppliers will continue to deliver their promised services is necessary for the successful maintenance +of the technological platform the business requires to operate. The failure in any of the many aspects described above may prevent our +operations from being performed or possibly require us to terminate our business. +Public +Ventures will have to maintain adequate capitalization levels to conduct its broker-dealer and clearing businesses. +To +operate the broker-dealer and self-clearing operations, Public Ventures must meet different capitalization requirements in the Company. +To do this, it will have to maintain within the capital structure of the various cash and cash equivalent assets and retain access to +necessary lines of credit that can assure its ability to comply with changing deposit requirements of the SEC and of the Depositary Trust +Clearing Company (“DTCC”), and the National Securities Clearing Corporation (“NSCC”). It is expected that these regulations +will undergo substantial changes, from time to time, which could require additional capital as settlement operations move to T+1 (one +day after the settlement date) and T+0 settlement in the future. Without the required capital at any time, Public Ventures will not be +able to operate its business. +Settlement +bank services are difficult to arrange, without which Public Ventures will not be able to operate a clearing business. +There +are only a limited number of banks currently offering settlement services to clearing firms. Public Ventures could be unable to continue +providing clearing services if it is unable to maintain a settlement bank arrangement, or if its current settlement bank decides to exit +this business. +40 +Hiring +and organizing personnel for the clearing operations. +To +be able to operate its self-clearing activities, Public Ventures must hire and retain the human talent capable of handling the operational +activities and fulfilling the compliance requirements of the business. Trading and settlement and compliance personnel are necessary +to manage the operations. Further expertise in financial matters and obligations for self-clearing are also required. Although it has +a conservative approach to launching the business and onboarding clients to cause less stress on the organization, the firm’s +ability to perform going forward nonetheless depends on successfully recruiting, training and retaining new personnel. As part of these +recruitment and retention efforts, the firm must ensure that it can maintain an adequate supervising and leadership structure capable +of supporting the successful development of its business model. +Where +permitted by regulation, Public Ventures will use an overseas out-source provider for some of the self-clearing operation activities +although political and social instability and the threat of sanctions by countries, including the United States, may disrupt or hinder +the delivery of such services and result in increased costs. +We +have a contract with a Nicaraguan company to provide, on an out-sourced, as requested basis, certain back-office services that support +our broker dealer activities and patent related services and other requirements. We plan to expand and use this service facility, where +permitted, for certain aspects of the self-clearing operations that Public Ventures engages in. We believe that these operations provide +a competitive advantage to the Company and facilitate developing this new business in an efficient and profitable manner, as human resources +and technological infrastructure in Nicaragua allows local companies to provide quality service at the level expected by US clients at +a fraction of the cost. Any disruption to social and political stability in Nicaragua could affect the contractor’s capacity to +achieve its goals. The current political environment in Nicaragua is unsettled due to a political crisis that erupted in 2018, which +has yet to be resolved. Continued or escalated political instability and the possibility of sanctions from other countries, including +the United States, could disrupt local business and may hinder or disrupt the delivery of services to our United States operations. The +United States has several Executive Orders in force which impose sanctions regarding immigration of certain groups of persons and imposing +wider sanctions in respect of certain trading activities. We constantly monitor the situation and have a business continuity strategy +in place to assure consistent operations and activities in the United States. To the extent we are prohibited from contracting with entities +in Nicaragua, our expenses may increase, and there may be disruption in our workforce that will have to be replaced. +Risks +Related to Being a Public Company and Owning Our Class A Common Shares +Control +by management may limit your ability to influence the outcome of director elections and other transactions requiring shareholder approval. +Two +persons, Anthony DiGiandomenico and Christopher Marlett, own all the Class B Common Shares. The Class A Common Shares have one vote +per share, and the Class B Common Shares have five votes per share. The Class A Common Shares and Class B Common Shares vote +together as a single class on all matters, including the election of directors. There are 5,000,000 Class B Common Shares issued and +outstanding, currently representing 90.8% of the aggregate voting authority of our common shares immediately prior to the +date of this filing. Therefore, even if the maximum Class A offered shares, as currently approved by the Board of the Directors, are sold, the Class B Common Shares will continue to be +able to dictate the outcome of all matters put before the shareholders. There is no automatic or voluntary conversion of the Class B +Common Shares into Class A Common Shares, thus the Class B Common Shares will have control of MDB for an indefinite period of +time. +Based +on the foregoing, the Class B Common Shares have significant influence over corporate actions requiring shareholder approval, including +the following actions: +● +to +determine the composition and to elect the board of directors; +● +to +amend or prevent a change in our operating agreement; +● +to +effect or prevent a merger, sale of assets or other corporate transaction; and +● +to +control the outcome of any other matter submitted to our shareholders for vote. +The +existence of the Class B Common Shares may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain +control of MDB, which in turn could reduce our shares price or prevent our Class A Common Shareholders from realizing a premium over +our share price. +Future +transfers by holders of Class B Common Shares generally will result in those shares converting to Class A Common Shares, subject to limited +exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B Common Shares to Class A Common +Shares will have the effect, over time, of increasing the relative voting power of those holders of Class B Common Shares who retain +their shares in the long term. As a result, it is possible that the persons or entities continuing to hold our Class B Common Shares +could gain significant voting control as other holders of Class B Common Shares sell or otherwise convert their shares into Class A Common +Shares. +41 +We +are deemed a “controlled company” under the listing rules of Nasdaq because our Class B Common Shares are held by two persons +who have more than 50% control of the Company. As a controlled company, MDB will be exempt from certain of the corporate governance obligations +that other companies must follow when listing on Nasdaq. +The +Class B Common Shares are held by two persons who have control over the operations of the Company. Therefore, MDB is a controlled company +under the Nasdaq listing rules and is exempt from certain listing requirements, including having (i) a board comprised of a majority +of independent directors, (ii) a compensation committee, and (iii) a director nominations committee. Additionally, we are not be required +to hold annual meetings. Management intends to take advantage of these exemptions. Accordingly, shareholders will not have the same protections +afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. Notwithstanding the +exemption, currently we have a board that has several independent directors, we are required to have and will have an audit committee, +and related party transactions will have to be reviewed by the audit committee. Shareholder approval will be required for stock options +or purchase plans, and the financial statements must be audited by an independent public accountant that is registered with the PCAOB. +The +dual class structure of our currently issued equity securities may adversely affect the trading market for our Class A Common Shares. +Certain +stock index providers, such as S&P Dow Jones, exclude companies with multiple classes of shares of equity from being added to certain +stock indices, including the S&P 500. In addition, several stockholder advisory firms and large institutional investors oppose the +use of multiple class structures. As a result, the dual class structure of our currently issued equity may prevent the inclusion of our +Class A Common Shares in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance +practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing +shares of our Class A Common Shares. Any exclusion from stock indices could result in a less active trading market for our Class A Common +Shares. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices +or capital structure could also adversely affect the value of our Class A Common Shares. +The +existence of our registered broker-dealer subsidiary may delay or prevent takeover attempts of our Company. +A +third party attempting to acquire us or a substantial position in our equity securities may be delayed or ultimately prevented from doing +so by change in ownership or control regulations to which our regulated broker-dealer subsidiary is subject. FINRA Rule 1017 generally +provides that FINRA approval must be obtained in connection with any transaction resulting in a single person or entity owning, directly +or indirectly, 25% or more of a member firm’s equity and would include a change of control of a parent company. +Our +capital structure may have anti-takeover effect. +The +existence of our preferred shares that may be issued at the discretion of the board of directors with the terms it determines may have +an anti-takeover effect. The board of directors is authorized to fix the voting rights, if any, designations, powers, preferences, the +relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to +the preferred shares of each series. The board of directors, without shareholder approval, will be able to issue preferred shares with +voting and other rights that could adversely affect the voting power and other rights of the holders of the common shares and could also +have anti-takeover effects. The ability of our board of directors to issue preferred shares without shareholder approval could have the +effect of delaying, deferring or preventing a change of control of the Company or the removal of existing management. We currently have +no preferred shares issued and outstanding as the date hereof. Although we do not currently intend to issue any preferred shares, we +cannot assure you that we will not do so in the future. +42 +The +fact that the Class B Common Shares have a right to five votes per Class B Common Share on all matters presented for a vote to the shareholders, +including in the vote for directors, and the fact that the Class B Common Shares currently have a majority ownership position of all +the common shares, means that they have an anti-takeover effect, because it would be difficult for an insurgent to overcome the authority +that the Class B Common Shares has in the governance of the Company. +The +provisions for shareholder business proposals and director nominations in the operating agreement also could have an anti-takeover effect. +The +issuance of securities with voting authority greater than the Class A Common Shares will have a voting and control dilutive effect on +outstanding Class A Common Shares. +If +the board of directors issues any of the preferred shares or obtains shareholder approval for a new class of common shares with voting +rights in excess of the one vote per one Class A Common Share, the holders of Class A Common Shares will suffer a voting dilutive effect, +in addition to any other economic dilution resulting from the issuance of those securities. +We +may make distributions of the securities of our partner companies, including cash and rights to purchase equity of a partner companies. +An +aspect of our business plan is to distribute to our shareholders assets of the parent company, which may include the securities of +our partner companies after they go public, rights to purchase the equity of these companies, and/or cash and other property, from time +to time. The distribution of a right to purchase the equity of a partner company may come at a time when a recipient does not have the +ability to exercise the right, and thereby lose the opportunity that the right affords. Any distribution of securities of a partner company, +cash and other property may have an adverse impact on the value of your Class A Common Shares. On the other hand, we do not plan to regularly +make any periodic distributions, therefore investors should not look to any distribution that we might make to be a regular income item +in an investor’s portfolio. +We +incur costs as a result of operating as a public company, and our board of directors is required to devote substantial time to oversight +of compliance requirements and corporate governance practices. +As +a public company listed in the U.S., we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, +the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules +and regulations impose various requirements on listed public companies, including the establishment and maintenance of effective disclosure +and financial controls and corporate governance practices. Our board of directors, management and other personnel will need to devote +a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial +compliance costs and make some activities more time-consuming and costly. However, these rules and regulations are often subject to varying +interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time +as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters +and higher costs necessitated by ongoing revisions to disclosure and governance practices. +Pursuant +to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on our internal control +over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report +on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with +Section 404 within the prescribed periods, we will be engaged in a process to document and evaluate our internal controls over financial +reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially +engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, +continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and +implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is +a risk that we will not be able to conclude, within the prescribed timeframe, that our internal controls over financial reporting are +effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial +markets due to a loss of confidence in the reliability of our financial statements. +43 +Even after we no longer qualify +as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage +of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements +of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this filing and our periodic +reports and proxy statements. We cannot predict if investors will find our Class A Common Shares less attractive because we may rely on +these exemptions. If some investors find our Class A Common Shares less attractive as a result, there may be a less active trading market +for our Class A Common Shares, and our share price may be lower or more volatile. +We are a smaller reporting company within the +meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to smaller reporting +companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with +other public companies. +Rule 12b-2 of the Exchange +Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned +subsidiary of a parent that is not a smaller reporting company and that: +● +had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or +● +in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or +● +in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available. +As a smaller reporting +company, we are not required to include a Compensation Discussion and Analysis section in our proxy statements; we provided the +required two years of financial statements; and provided the table of selected financial data as required for a smaller reporting company. We also have other +“scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which +could make our securities less attractive to potential investors. +We do not have key-man insurance. +We currently do not maintain, +nor do we have plans to obtain, key-man insurance for our principal officers. Our business is highly dependent on the continued services +of these individuals. The loss of any of their contributions could have a material adverse effect on our operations. Without the financial +support typically provided by such insurance to recruit and transition new leadership, we may face challenges in maintaining business +continuity and strategic direction. +44 +The price of our Class A Common Shares may +be volatile, and could, upon listing on the Nasdaq Capital Market, decline significantly and rapidly. Market volatility may affect the +value of an investment in our Class A Common Shares and could subject us to litigation. +The trading price of our Class +A Common Shares may fluctuate substantially. The price of our Class A Common Shares in the market on any particular day will depend on +many factors including, but not limited to, the following: +● +price and volume fluctuations in the overall stock market from time to time; +● +investor demand for our Class A Common Shares; +● +significant volatility in the market price and trading volume of companies operating in the diverse businesses of our core companies and our partner companies; +● +variations in our operating results and market conditions specific to our businesses sectors; +● +the emergence of new competitors or new technologies of our partner companies; +● +operating and market price performance of other companies that investors deem comparable; +● +changes or departures of any of our board of directors, senior management or key employees; +● +commencement of, or involvement in, litigation; +● +changes in governmental regulations; +● +actual or anticipated changes in our earnings, and fluctuations in our quarterly operating results; and +● +general economic conditions and trends. +In the past, following periods +of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that +company. Due to the potential volatility of our share price, we may therefore be the target of securities litigation in the future. Securities +litigation could result in substantial costs and divert management’s attention and resources from our business. +In addition, if the market +for equity stocks of companies in our industry or industry segments, or the stock market in general, experiences a loss of investor confidence, +the market price of our Class A Common Shares could decline for reasons unrelated to our business, financial condition, or results of +operations. If any of the foregoing occurs, it could cause the price of our Class A Common Shares to fall and may expose us to lawsuits +that, even if unsuccessful, could be costly to defend and a distraction to our Board of Directors and management. +Certain recent initial public offerings of +companies with relatively small public floats have experienced extreme volatility that was seemingly unrelated to the underlying performance +of the company. Our Class A Common Shares may potentially experience rapid and substantial price volatility, which may make it difficult +for prospective investors to assess the value of our Class A Common Shares. +In addition to the general +volatility risks discussed in this filing, our Class A Common Shares may be subject to rapid and substantial price volatility. We may +experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition or prospects, +making it difficult for prospective investors to assess the rapidly changing value of our Class A Common Shares. Recently, there have +been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent +initial public offerings, especially among companies with relatively smaller public floats. As a company with a relatively small public +float and recent IPO, the Class A Common Shares may experience greater stock price volatility, extreme price run-ups, lower trading volume, +large spreads in bid and asked prices, and less liquidity than large-capitalization companies. The aspects of the trading in the Class +A Common Shares may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult +for prospective investors to assess the value of our common stock. Because of the low public float and the absence of any significant +trading volume, the reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares +you own or buy shares if you wish to buy share. +45 +If the trading volumes of +the Class A Common Shares are low, persons buying or selling in relatively small quantities may easily influence the prices of the Class +A Common Shares. A low volume of trades could also cause the price of the Class A Common Shares to fluctuate greatly, with large percentage +changes in price occurring in any trading day session. Broad market fluctuations and general economic and political conditions may also +adversely affect the market price of the Class A Common Shares. The volatility also could adversely affect the ability of the company +to issue additional shares of common stock or other securities and the ability to obtain stock market based financing in the future. No +assurance can be given that an active market in our Class A Common Shares will develop or be sustained. +The United States stock markets recently have +experienced price and volume fluctuations due to many factors, including federal government policies, inflationary pressures, changing +interest rates, and the conflicts in Ukraine and Iran. +The stock market has recently +experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities +of many companies, with the financial service and technology sectors more volatile than others. These fluctuations often have been unrelated +or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general +economic, political and market conditions such as federal government policies, inflation, the prospect of a recession, and interest rate +changes may negatively impact the market price of our Class A Common Shares. These fluctuations may be even more pronounced in the trading +market for our Class A Common Shares shortly following the listing of our Class A Common Shares on the Nasdaq Capital Market as a result +of the supply and demand forces described above. If the market price of our Class A Common Shares after our listing does not exceed the +opening public price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, +companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. +We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and +divert our management’s attention from other business concerns, which could harm our business. +Item 1B. Unresolved +Staff Comments +We are a smaller reporting +company as defined by Rule 12b-2 of the Exchange Act, and therefore we are not required to provide information under this item. +Item 1C. Cybersecurity +We incorporate by reference +the disclosure about cybersecurity regulation that is generally applicable to MDB from section Part I, Item 1, Business – Regulation +– Data Protection ad Cybersecurity Regulation. +We have not had any reportable +cybersecurity breaches, including what we may perceive or recognize as cybersecurity incidents or credible threats during the fiscal year +ended December 31, 2025. To date, as a result, there has not been any material adverse effect on our business operations or financial +condition. If there is a cybersecurity attack and an infiltration of our files, data, customer data and the like, there would be a material +adverse effect on our business, our reputation, our operations and financial condition. For example, our reputation would be damaged in +the event of a cybersecurity infiltration. If there were a cybersecurity infiltration, we could lose access to our data which would disrupt +our operations, and we even may not be able to operate. Such a loss of access might be temporary or permanent, and it might be localized +or general. The level of disruption will depend on our backup systems. Our clients financial and other data could be taken and used against +us to damage our reputation or cause harm to our clients in different ways. In the latter instance, we may be liable for monetary damages +to our clients. We may be held for cyber ransom, which would be loss to our financial resources. Our inability to operate, payment of +damages, payment of ransom, and the costs of reparation of our systems, consultants and tangential expenses will all result in damage +to our business and our financial resources. +For MDB Holdings and its subsidiaries +including Public Ventures, our regulated broker-dealer, we have implemented a comprehensive cybersecurity program aimed at identifying, +monitoring, and mitigating cybersecurity risks to the best of our ability. Our security program encompasses information security responsibilities, +incident response, and is diligently managed by our information technology department. Cybersecurity is integrated into our overall risk +management framework, with consultation from subject matter experts to assess and address potential cyber risks and their impacts. +46 +Management is committed to +providing the Audit Committee with regular cybersecurity updates, at least annually or more often as needed, based on emerging threats +or specific incidents. These updates cover risk assessments, the current threat landscape, and any recent cybersecurity incidents. +The information technology +department has put in place robust governance measures for information security. This includes control requirements for change management, +patching processes, the implementation of multifactor authentication, comprehensive data backup strategies, and continuous security monitoring. +Additionally, management continues to enhance our security controls, with any significant issues promptly reported to the Audit Committee. +Item 2. Properties +We own no real property. Our +principal office is located in Addison, Texas. In July 2022, we secured a lease for approximately 5,500 square feet of office space, with +the lease set to expire in July 2030. This space serves as our principal executive offices and for general office use. The base monthly +rental rate is $12.5 thousand until July 2024, after which it will increase to $12.8 thousand. Subsequent increases are scheduled as follows: +to $13.0 thousand in July 2025, $13.2 thousand in July 2026, $13.5 thousand in July 2027, $13.7 thousand in July 2028, and finally, to +$14.0 thousand in July 2029, continuing through the end of the lease term in July 2030. +We believe that our leased +spaces is at local market rates, and there is sufficient space available to permit the specific operations to obtain additional or other +space if and when required. We do not believe that if there is additional space or other space required, that the cost will be prohibitive. +Item 3. Legal +Proceedings +From time to time, we may +be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights +under contracts with our customers and regulatory review which may result in various kinds of penalties, such as censures and monetary +fines. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have +a material effect upon our financial condition, results of operations or cash flows. +Item 4. Mine +Safety Disclosures +Not applicable. +47 +PART II +Item 5. Market for Registrant’s Common +Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Trading Equity +Our Class A Common Shares +currently are quoted on Nasdaq under the symbol “MDBH”. +As of March 31, 2026, we had +approximately 3,210 shareholders of record of the Class A Common Shares and we believe over 79 shareholders who hold their Class A Common +Shares in street name. In addition, we have a second class of equity, the Class B Common Shares, that are held by Christopher Marlett and Anthony DiGiandomenico , and do +not trade on any public market. +Distributions +We have not paid any dividends +or made any distributions related to our equity securities, to date. +We may make registered and +other distributions of the securities of our partner and or subsidiary companies and of cash to our holders of the Class A Common Shares +and Class B Common Shares. It is our plan, from time to time, depending on the circumstances, to distribute the securities of our partner +companies as they go public and after they go public, including rights to purchase the equity of these companies, and cash and other property, +from time to time. Some of these distributions of securities may be dictated by our operational plan not to be subject to the Investment +Company Act of 1940. +Whether any distributions, +the kinds of distributions, and the value of distributions are made will depend on many factors and will be determined by the management +of MDB, from time to time. Investors should not look to any distribution that we might make to be a regular income item in an investor’s +portfolio. Distributions of a right to purchase the equity of a partner company may come at a time when a recipient does not have the +ability to exercise the right, and thereby the recipient may lose the opportunity that the right affords. Any distribution of securities +of a partner company, cash and other property may have an adverse impact on the value of Class A Common Shares in the market. Distributions +of the equity of our partner companies may not result in an overall investor gain on the Class A Common Shares. +Tax Issues Related to Distributions +MDB believes that it will +be treated as a partnership for U.S. federal income tax purposes and that it will not be taxed as a corporation. The tax position of MDB +as a publicly traded partnership is complex, and persons should consult with their own tax advisors about holding an interest in MDB. +The following brief discussion does not address U.S. state taxes or any taxes of any jurisdiction outside of the U.S. For tax exempt organizations +and non-U.S. holders of Class A Common Shares, there are additional rules that should be considered that are not discussed below. +The Company generally expects +to receive income in the form of dividends from its equity investments in some partner companies and capital proceeds from the sale of +partner companies or their securities from others, with all such partner companies expected to be treated as corporations for U.S. federal +tax purposes. +For U.S. federal income tax +purposes, a partnership is generally not a taxable entity but rather is a “flow-through” entity whose items of taxable income, +gain, loss, deduction and credit are passed through to, and reported by, its partners, in this case the holders of our classes of Common +Shares. Thus, each Common Share holder will be required to report on its U.S. federal income tax return its allocable share of items of +taxable income, gain, loss, deduction, or credit realized by MDB. This will include the portion of dividends received from the corporate +partner companies and capital proceeds from the sale of corporate partner companies or their securities. Each item generally will have +the same character and source as would be the case if the Common Share holder realized the item directly. This rule applies without regard +to whether the Common Share holder receives or will receive any cash distributions from MDB. Accordingly, for any taxable year of MDB, +a Common Share holder may be required to report and pay tax on his share of items of MDB’s income without receiving sufficient (or +any) cash distributions. +Generally, the character of +partnership items of taxable income, gain, loss, deduction and credits also passes through to its partners. For example, to the extent +MDB has gains subject to ordinary income tax rates, each holder of Common Shares will be required to report, and pay taxes on, its allocable +share of such gains. Those holders of Common Shares who are individuals will generally be subject to reduced tax rates on their allocable +share of dividends received by MDB from corporate partner companies, to the extent such dividends constitute “qualified dividend +income” under section 1(h)(11) of the Code. +48 +The operating agreement of +MDB that governs the rights of the holder of Common Shares contains certain allocations of income, gain, losses, and deductions that could +be reallocated by the IRS if it were determined that the allocations did not have “substantial economic effect” under Section +704(b) of the Code, and the allocations were not made in accordance with the holders of Common Shares respective interests in MDB, taking +into account all relevant facts and circumstances. If the IRS does not respect an allocation and the distributive portions of income and +loss are adjusted, the holders of Common Shares may be required to file amended income tax returns which could subject the investors to +additional taxes, interest, and penalties. +MDB may apply certain conventions +in determining and allocating items for tax purposes in order to reduce the complexity and costs of administration. MDB intends for the +application of any such conventions to be consistent with the intent of the partnership provisions of the Code and the applicable Treasury +Regulations, and that the resulting allocations will have substantial economic effect or otherwise should be respected as being in accordance +with members’ interests in MDB for federal income tax purposes. The Code and existing Treasury Regulations do not expressly permit +adoption of these conventions, and it is possible that the IRS could successfully challenge MDB’s use of any such allocations methods +on the ground that they do not satisfy the technical requirements off the Code or Treasury Regulations, requiring a member to report a +greater or lesser share of items of income, gain, loss, deduction, or credit than if such method were respected. +The assumptions and conventions +used in making tax allocations may cause a holder of Common Shares to be allocated more or less income or loss for federal income tax +purposes than its proportionate share of the economic income or loss realized by MDB during the period it held its shares. This “mismatch” +between taxable and economic income or loss in some cases may be temporary, reversing itself in a later period when the shares are sold, +but could be permanent. +Distributions by MDB to a +holder of Common Shares generally will not be taxable to the holder for U.S. federal income tax purposes to the extent of the tax basis +in the Common Shares immediately before the distribution. Cash distributions in excess of such basis generally will be considered to be +gain from the sale or exchange of the Common Shares, taxable as further described herein. Any reduction in the portion of MDB’s +liabilities included in the basis of the holders’ Common Shares may be treated as a distribution of cash to such holder. A decrease in +a holder’s ownership interest in MDB because of an issuance of additional shares may decrease such holder’s portion of nonrecourse +liabilities, potentially resulting in a corresponding deemed distribution of cash. +A holder of Common Shares +will recognize gain on the complete liquidation of its Common Shares only to the extent the amount of money received by the holder exceeds +its adjusted tax basis in its Common Shares. Any such gain recognized by a holder generally will be capital gain, but may be taxable as +ordinary income, either in whole or in part, under certain circumstances. No loss may be recognized on a distribution in liquidation of +Common Shares, unless the holder receives no property other than money and/or substantially appreciated “inventory items” +and “unrealized receivables” (both as defined by Section 751 of the Code). +The adjusted tax basis of +a holder of Common Shares in its Common Shares is important for several reasons including, but not limited to, determining: +(1) the current deductibility of the distributive share of Company losses; (2) income tax consequences of distributions; and (3) gain +or loss on the sale of Common Shares. +49 +Securities Authorized for +Issuance Under Equity Compensation Plans (in thousands, except exercise price) +Plan category +Number of +securities to be +issued upon +exercise of +outstanding awards +(in thousands) +Weighted-average +exercise price of +outstanding awards +Number of +securities remaining +available for +future issuance +under equity +compensation plans +(in thousands) +2022 Equity Incentive Award Plan approved by security holders(1) +4,682 +(2) +$ 4.25 +$ 1,760 +Equity award plans not approved by security holders +- +- +- +Total +4,682 (2) +$ 4.25 +1,760 +(1) The 2022 Equity Incentive Award Plan provides for awards for up to 6.0 +million shares of Class A shares, plus 25% of outstanding Class A shares at any time. As of December 31, 2025, there are a total of 7.3 +million Class A shares available for issuance, which includes the shares issued of 0.84 million since October 20, 2024. +(2) Represents Restricted Stock Unit awards +of 1.08 million shares which do not require payment of an exercise price, the weighted average exercise price of outstanding awards +is for the 3.6 million of stock option awards with an exercise price of $4.25. +Item 6. [RESERVED] +Item 7 . Management’s Discussion +and Analysis of Financial Condition and Results of Operations +Overview +MDB Capital Holdings, +LLC (the “Company” or “MDB”), a Delaware limited liability company, is a holding company that has three +wholly-owned subsidiaries: MDB CG Management Company (“MDB Management”); Public Ventures, LLC, d/b/a MDB Capital +(“Public Ventures”); and PatentVest, Inc. (“PatentVest”), and has one majority-owned partner company MDB +Minnesota One, Inc. (“MDB Minnesota One”) and one minority owned company eXoZymes Technologies, Inc., formerly known as +Invizyne Technologies, Inc., (“eXoZymes”), that was majority owned and is consolidated until November 14, 2024, when +eXoZymes issued securities in its IPO. Because MDB no longer holds a majority ownership interest in eXoZymes, the company is no +longer consolidated in the financial statements. +MDB Management is principally +an “administrative” entity whose purpose is to conduct and, wherever possible, to consolidate shared services/resources for +our US-based operations. +Public Ventures is a U.S. +registered broker-dealer under the Exchange Act and is a member of FINRA and the Texas State Securities Board. Public Ventures is managed +by Christopher A. Marlett, who is also a founder of MDB. Public Ventures operates on a fully disclosed basis with a nonrelated FINRA member +firm, Interactive Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing deposit. Interactive Brokers +is the clearing firm and custodian of investments maintained by Public Ventures. Public Ventures also operates as a self-clearing broker +dealer, and began carrying accounts for customers in January 2024 +PatentVest is a wholly-owned +subsidiary that performs intellectual property validation services for Public Ventures’ due diligence functions on the intellectual +property of partner and prospective partner companies and creates an intellectual property roadmap for such partner companies. +Minnesota One is a majority +owned subsidiary and was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology from Mayo. +eXoZymes was formed with the objective of taking nature’s building blocks to make molecules of interest, effectively simplifying +nature. eXoZymes is a biology technology development company that is a minority-owned subsidiary as of the date of the financial statements +included in this annual report. eXoZymes’s technology is a differentiated and unique synthetic biology platform which is designed +to enable the scalable exploration of a large number of molecules and properties found in nature. eXoZymes was majority owned by MDB Capital +Holdings, up until November 14, 2024. +50 +On November 14, 2024, eXoZymes +completed its initial public offering, in which it sold common stock, reducing MDB Capital Holdings’ ownership interest from +approximately 60% to 47%. As a result, effective November 14, 2024, eXoZymes became a minority owned company and is now accounted for +under the equity method of accounting. As noted below, we recognized a gain of $39.3 million on the date of deconsolidation. +Results of Operations +The Company has determined +its reporting units in accordance with ASC (Accounting Standards Codification) 280, Segment Reporting. The Company currently operates +in two reportable segments: a broker dealer & intellectual property service and technology development. +The Company’s consolidated +statements of operations as discussed herein are presented below. +Consolidated Results of Operations for the +Years Ended December 31, 2025 and 2024 (in thousands): +2025 +2024 +$ Change +Operating income: +Unrealized (loss) on investment securities, net from the licensed broker dealer (Notes 1 and 2) +$ (331 ) +$ (275 ) +$ (56 +) +Unrealized gain on investment securities, net from non-licensed broker dealer (Notes 1 and 2) +85 +- +85 +Realized gain on investment securities, net from the licensed broker dealer +14 +- +14 +Fee income (from our licensed broker dealer) +4,282 +2,221 +2,061 +Impairment of investment securities +- +(200 ) +200 +Other operating income +861 +411 +450 +Total operating income, net +4,911 +2,157 +2,754 +Operating costs: +General and administrative costs: +Compensation +14,969 +20,057 +(5,088 ) +Operating expense, related party +1,833 +1,486 +347 +Professional fees +1,937 +3,112 +(1,175 ) +Information technology +1,103 +922 +181 +Clearing and other charges +556 +1,137 +(581 ) +General and administrative-other +2,239 +2,608 +(369 ) +Total general and administrative costs +22,637 +29,322 +(6,685 ) +Research and development costs +- +1,468 +(1,468 ) +Total operating costs +22,637 +30,790 +(8,153 ) +Net operating loss +(17,726 ) +(28,633 ) +10,907 +Other income and (expense): +Miscellaneous income +75 +112 +(37 ) +Interest expense +- +(72 ) +72 +Interest income (from U.S. Treasury Bills) +617 +1,179 +(562 ) +Gain related to dilution events +61 +130 +(69 ) +Gain on deconsolidation of subsidiary +- +39,307 +(39,307 ) +Income (loss) before income taxes +(16,973 ) +12,023 +(28,996 ) +Income taxes +11 +2 +9 +Net income (loss) before equity method investee +(16,984 ) +12,021 +(29,005 ) +Equity in loss of equity method investee +(4,282 ) +(420 ) +(3,862 ) +Net income (loss) +(21,266 ) +11,601 +(32,867 ) +Less net loss attributable to non-controlling interests +(21 ) +(90 ) +69 +Net income (loss) attributable to MDB Capital Holdings, LLC +$ (21,245 ) +$ 11,691 +$ (32,936 ) +51 +Operating Income. +For the years ended December 31, 2025 and 2024, operating income was derived primarily from the Company’s broker +dealer and intellectual property service segment. +For the year ended +December 31, 2025, operating income was generated from the Company’s fees from investment banking transactions in the +broker-dealer and intellectual property services. The increase compared to the year ended December 31. 2024 is +attributable to investment banking activity, as the Company executed significantly larger transactions during the year ended December 31. 2025. For the +year ended December 31, 2024, operating income was generated from the Company’s fees from investment banking transactions +in the broker-dealer and patent related intellectual property services. +General and Administrative +Costs. During the year ended December 31, 2025, and 2024, several factors contributed to changes in various expense +categories: +● +Compensation Expense: The majority of the decrease in compensation expense was attributable to the deconsolidation of eXoZymes, as well as the exchange of restricted stock units to options during the period. +● +Related Party Operating Expenses: The increase is primarily due to the outsourcing of support services related to the Company’s self-clearing operations and community group within the broker-dealer, as well as services provided by the intellectual property segment. +● +Professional Fees: The decrease compared to the year ended December +31, 2024 was largely due to a reduction in audit and consulting fees that were primarily associated with reporting activities +completed in 2024. +● +Information Technology Costs: Costs increased from the year ended December 31, 2024, driven by higher expenses incurred for self-clearing operations. +● +Clearing and Other Charges: The decrease is in line with investment +banking activity, as these costs generally correlate with investment banking transactions, which compared to the year ended December +31, 2024 had larger fee generating transactions. +● +Other General and Administrative Costs: The primary driver for the decrease in general and administrative expenses was the deconsolidation of eXoZymes, which resulted in the removal of related operating costs from the condensed consolidated financials. +Research and Development +Costs . For the years ended December 31, 2025 and 2024, research and development costs derived from the Company’s +technology segment. +For the year ended December +31, 2025 research and development expenses decreased compared to the same period in the year ended December 31. 2024, due to the deconsolidation of +eXoZymes. +Other Income . For +the year ended December 31, 2025, the decrease in other income compared to the year ended December 31, 2024 was +the result of less interest generated on U.S. Treasury Bill interest from cash used in operating activities during the year. The +decrease in gain on deconsolidation of subsidiary was an event that happened in November 2024. +Equity +Method Investee . For the year ended December 31, 2025, the increase in equity in loss of equity method investee was due to recording +the net loss for eXoZymes as equity investee. +Income Taxes . For the year ended December 31, 2025, the increase in income taxes was +a result increased revenues at the broker-dealer. +52 +Broker Dealer and Intellectual +Property Service Segment (Public Ventures and PatentVest) Results of Operations for the Years Ended December 31, 2025 and 2024 (in thousands): +2025 +2024 +$ Change +Operating income: +Unrealized (loss) on investment securities, net from the licensed broker dealer (Notes 1 and 2) +$ (331 ) +$ (275 ) +$ (56 ) +Unrealized gain on investment securities, net from non-licensed broker dealer (Notes 1 and 2) +85 +- +85 +Realized gain on investment securities, net from the licensed broker dealer +14 +- +14 +Fee income (from our licensed broker dealer) +4,282 +2,221 +2,061 +Impairment of investment securities +- +(200 ) +200 +Other operating income +861 +411 +450 +Total operating income, net +4,911 +2,157 +2,754 +Operating costs: +General and administrative costs: +Compensation +2,875 +3,226 +(351 ) +Operating expense, related party +1,471 +1,301 +170 +Professional fees +1,005 +820 +185 +Information technology +968 +805 +163 +Clearing and other charges +556 +1,137 +(581 ) +General and administrative-other +742 +806 +(64 ) +Total General and administrative costs +7,617 +8,095 +(478 ) +Research and development costs +- +- +- +Total operating costs +7,617 +8,095 +(478 ) +Net operating (loss) income +(2,706 ) +(5,938 ) +3,232 +Other income and expense: +Miscellaneous income +75 +112 +(37 ) +Interest income +471 +465 +6 +Interest expense +(990 ) +(779 ) +(211 ) +(Loss) income before income taxes +(3,150 ) +(6,140 ) +2,990 +Income taxes +11 +- +11 +Net (loss) income +(3,161 ) +(6,140 ) +2,979 +Less net (loss) income attributable to non-controlling interests +- +- +- +Net (loss) income attributable to controlling interests +$ (3,161 ) +(6,140 ) +2,979 +53 +Operating +Income. For the year ended December 31, 2025, operating income was generated from the Company’s fees from investment banking transactions in the broker-dealer and patent related intellectual property services. The increase compared to the +year ended December 31, 2024 is attributable to investment banking activity, as the Company executed significantly larger +transactions in the year ended December 31, 2025. For the year ended December 31, 2024, operating income was generated from the Company’s fees +from investment banking transactions in the broker-dealer and patent related intellectual property services. +General and Administrative +Costs . During the years ended December 31, 2025, and 2024, respectively, several factors contributed to changes in various +expense categories: +● +Compensation Expense: The decrease in compensation expense was driven by departure of personnel during 2025. +● +Related Party Operating Expenses: The increase is primarily due to the outsourcing of support services related to the Company’s self-clearing operations and community group within the broker-dealer, as well as services provided by the intellectual property segment. +● +Professional Fees: There was an increase in professional fees compared to the previous periods, primarily due to increased consulting, legal, and tax. Furthermore, there was an increase in consulting fees associated with the self-clearing operations. +● +Information Technology Costs: Information technology costs for the year ended December 31, 2025 saw an increase from the year ended December 31, 2024, driven by higher costs with the initiation of self-clearing operations and increased cloud computing costs. +● +Clearing and Other Charges: The decrease is in line with investment +banking activity, as these costs generally correlate with investment banking transactions, which compared to the year ended December +31, 2024 had larger fee generating transactions. +● +Other General and Administrative Costs: The decrease in other general and administrative costs was due to lower expenses in advertising and promotions and decreased spending on travel and conferences. +Other Income . For +the year ended December 31, 2025, the increase in interest expense compared to the year ended December 31, 2024 is primarily due to +inter-company subordinated loans for the broker-dealer, which are eliminated for consolidation purposes. +Income Taxes . +For the year ended December 31, 2025, the increase in income taxes was a result of increased revenues at the broker-dealer. +Technology Segment +(MDB Minnesota One and eXoZymes ) Results of Operations for the Years Ended December 31, 2025 and +2024. The results for eXoZymes are presented through November 14, 2024, which represents the date of deconsolidation from the +Company’s financial statements (in thousands): +2025 +2024 +$ Change +Total operating income, net +$ - +$ - +$ - +Operating costs: +General and administrative costs: +Compensation +- +2,062 +(2,062 ) +Professional fees +64 +1,206 +(1,142 ) +Information technology +- +34 +(34 ) +General and administrative-other +- +133 +(133 ) +Total general and administrative costs +64 +3,435 +(3,371 ) +Research and development costs +- +1,468 +(1,468 ) +Total operating costs +64 +4,903 +(4,839 ) +Net operating loss +(64 ) +(4,903 ) +4,839 +Other income: +Interest expense +- +(92 ) +92 +Interest income +- +3 +(3 ) +Loss before income taxes +(64 ) +(4,992 ) +4,928 +Income taxes +- +2 +(2 ) +Net loss +(64 ) +(4,994 ) +4,930 +Less net loss attributable to non-controlling interests +(21 ) +(90 ) +69 +Net loss attributable to controlling interests +$ (43 ) +$ (4,904 ) +$ 4,813 +54 +Operating Income. +There was no activity during the years ended December 31, 2025 and 2024. +General and Administrative +Costs . During the years ended December 31, 2025, and 2024, several factors contributed to changes in various +expense categories: +● +Compensation Expense: The decrease in compensation expense was attributable to the deconsolidation of eXoZymes. +● +Professional Fees: The decrease in professional fees was attributable to the deconsolidation of eXoZymes, that was offset by legal fees for M1. +● +Information Technology Costs: The decrease in information technology costs was attributable to the deconsolidation of eXoZymes. +● +Other General and Administrative Costs: The decrease in general and administrative costs was attributable to the deconsolidation of eXoZymes. +Research and Development +Costs. The research and development costs were incurred by the Company’s technology development segment. For the year ended +December 31, 2025, R&D expenses decreased compared to the same period in the year ended December 31, 2024, due to the deconsolidation of eXoZymes. +Consolidated Balance Sheets +at December 31, 2025 and 2024 (in thousands): +December 31, +2025 +December 31, +2024 +$ Change +ASSETS +Cash and cash equivalents +$ 13,217 +$ 20,437 +$ (7,220 ) +Cash segregated in compliance with regulations +2,331 +844 +1,487 +Receivables to related party +13 +64 +(51 ) +Clearing deposits +2,000 +1,738 +262 +Prepaid expenses and other current assets +433 +488 +(55 ) +Accounts receivable +124 +25 +99 +Investment securities, at fair value, held by the licensed broker dealer (Notes 1 and 2) +7,166 +5,858 +1,308 +Investment securities, at fair value, held by the non-licensed broker dealer (Notes 1 and 2) +235 +- +235 +Equity method investment +37,543 +41,764 +(4,221 ) +Deferred costs related to deferred revenue +14 +27 +(13 ) +Property and equipment, net +117 +90 +27 +Operating lease right-of-use asset, net +547 +641 +(94 ) +Total assets +$ 63,740 +$ 71,976 +$ (8,236 ) +LIABILITIES AND EQUITY +Accounts payable +$ 267 +$ 324 +$ (57 ) +Accrued expenses +95 +72 +23 +Payables to customers +2,189 +773 +1,416 +Payables to related party +1 +23 +(22 ) +Operating lease liability +609 +711 +(102 ) +Total liabilities +3,161 +1,903 +1,258 +Equity: +Paid-in-capital +80,493 +68,721 +11,772 +Accumulated income (deficit) +(19,803 ) +1,442 +(21,245 ) +Total MDB Capital Holdings, LLC Members’ equity +60,690 +70,163 +(9,473 ) +Non-controlling interest +(111 ) +(90 ) +(21 ) +Total equity +60,579 +70,073 +(9,494 ) +Total liabilities and equity +$ 63,740 +$ 71,976 +$ (8,236 ) +55 +Financial Condition: +Overall, the reduction in assets was primarily attributed to their utilization for operational activities during the period. The increase +in cash segregated in compliance with regulations stemmed from customer deposits. The increase +in investment securities at fair value was due to an increase in the value of common stock and warrants over the period and the receipt +of warrants for investment banking activities. The decrease in prepaid expenses stemmed from the amortization of prepaid insurance over +the period. The increase in accounts receivable is due to an increase in activity from legal and strategy fees earned. The decrease in +related party receivable is due to the payoff of a loan to an equity method investment. The decrease in equity method investment is directly +tied to the Company’s portion of the net loss. Finally, the reduction in property and equipment and right-of-use asset was due +to its regular utilization. +The decrease in accounts payable +and accrued expenses stemmed from normal course of business activity. The increase in payables to customers stemmed from customer deposits. The decrease in related party payables was due to taxes paid on behalf of employees being settled +during the year ended December 31, 2025. Finally, the reduction in lease liability was due to its routine utilization. +The decrease in equity was +primarily due from the current period net loss. +The increase in non-controlling +interest resulted from the net loss experienced by M1. +Liquidity and Capital Resources – December +31, 2025 +The Company’s consolidated +statements of cash flows as discussed herein are presented below (in thousands): +Years Ended December 31, +2025 +2024 +Net cash used in operating activities +$ (5,684 ) +$ (9,038 ) +Net cash provided by (used in) investing activities +(49 ) +22,892 +Net cash provided by financing activities +- +69 +Net increase (decrease) in cash and cash equivalents +$ (5,733 ) +$ 13,923 +56 +At December 31, 2025, the +Company had working capital of $13.2 million, as compared to working capital of $19.8 million at December 31, 2024, reflecting a decrease +in working capital of $6.6 million for the year ended December 31, 2025. The decrease in working capital during the year ended December +31, 2025, was primarily the result of the expenditures to fund the Company’s operating expenses. At December 31, 2025, the Company +had cash of $15.5 million, of which $2.3 million was cash segregated in compliance with regulations that is not to fund its operations. +Operating Activities . +For the year ended December 31, 2025, operating activities used cash of $5.7 million. Operating activities use of cash represented +a combination of increased activity in the broker dealer, increased professional and consulting fees related to year end audits and issuance +of the tax preparation fees related to the publicly traded partnership +For the year ended December 31, 2024, operating activities used cash of +$9.0 million. The main driver for the increase in net income compared to the year ended December 31. 2024 was the +gain of the deconsolidation of eXoZymes, which was offset by stock-based compensation expense. Additional cash outflows +resulted from the accretion of U.S. Treasury Bills held at amortized cost and the acquisition of investment securities. The deconsolidation +also led to a decrease in accounts payable and grants receivable related to eXoZymes. These impacts were offset by increases in clearing +deposits and customer payables, attributable to the launch of self-clearing operations. There was also a decrease in accrued expenses +due to bonus payments made during the three months ended March 31, 2024, along with a reduction in payables to non-customers. +Investing Activities . +There was an investment in the development of self-clearing software for the year ended December 31, 2025. +For the year ended December 31, +2024, the increase in cash flows from investing activities was primarily attributable to the proceeds from the sale and maturity of U.S. +Treasury Bills and purchases of investment securities. These inflows were partially offset by the reinvestment of proceeds into new U.S. +Treasury Bills, transfers of cash to support operating activities, and investments in money market funds. +Financing Activities . +For the year ended December 31, 2024, financing activities consisted primarily of the non-cash recognition of previously deferred initial +public offering costs, which were reclassified to additional paid-in capital upon completion of the IPO. +Recently Issued Accounting Pronouncements +See Note 2 to the consolidated financial statements for the discussion +of recent accounting pronouncements. +Critical Accounting Estimates +The preparation of +financial statements in conformity with accounting principles general accepted in the United States requires +management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of +contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during +the reporting period. We have identified certain accounting policies as being critical because they require us to make difficult, +subjective, or complex judgments about matters that are uncertain. We believe that the judgment, estimates, and assumptions used in +the preparation of our audited consolidated financial statements are appropriate +given the factual circumstances at the time. However, actual results could differ, and the use of other assumptions or estimates +could result in material differences in our results of operations or financial condition. Our critical accounting estimates are: +57 +Revenue recognition +– Investment Banking and Warrants Valuation +The Company receives income +from underwriting fees. As an underwriter, the Company assists clients to raise capital via the placement of various types of investment +securities of private and publicly traded company issuers. Underwriting fees are primarily based on the issuance price and quantity of +the underlying instruments and are recognized as revenue typically upon execution of the client’s transaction. The Company generally +does not incur costs to obtain contracts with customers that are eligible for deferral or receive fees prior to recognizing revenue related +to investment banking transactions. If the Company did have any contract assets or liabilities related to these revenues it would be recorded +on the consolidated balance sheets. +Revenue recognition may involve +the bundling of investment banking services with other financial instruments. In such cases, we estimate the fair value of the services +provided and allocate the revenue accordingly. This estimation process involves significant judgment and sensitivity to market conditions. +Additionally, our investment banking activities may include the compensation for our services in warrants granted to us. The valuation +of these warrants requires significant estimates, including the use of option pricing models like the Black-Scholes model. The key assumptions +in this valuation process include the stock price on the date of valuation, the exercise price of the warrant, the term to expiry, risk-free +interest rate, and the expected volatility of the underlying stock. +Valuation Allowance +for Net Deferred Tax Asset +A valuation allowance is provided +for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, +or that future deductibility is uncertain. At December 31, 2025 and 2024, Public Ventures, PatentVest, +MDB Minnesota One, and MDB CG Management have established a full valuation allowance against all net deferred tax assets. +Fair Value of Financial +Instruments +Fair value is defined as the +price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at +the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation +methodologies used to measure fair value: +Level 1 — Valuations +based on quoted prices for identical assets and liabilities in active markets. +Level 2 — Valuations +based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active +markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable +or can be corroborated by observable market data. +Level 3 — Valuations +based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. +These valuations require significant judgment. +Fair value is defined as the +price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at +the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the +market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy +is based upon the lowest level of input that is significant to the fair value measurement. +The fair value of U.S. Treasury +Bills and public equity securities are based on quoted market prices and are classified as level 1 of the fair value hierarchy. The fair +value of public equity securities that are not actively traded is based on quoted market prices of similar instruments and other significant +inputs derived from or corroborated by observable market data and are classified as level 2 of the fair value hierarchy. The fair value +of warrants is based on a Black-Scholes model, which considers the stock price at the date of the valuation, the warrant strike price, +the term to expiry, the risk-free rate of return, and the expected volatility of the underlying stock. The level in the fair value hierarchy +for warrants depends primarily on whether the stock price is determinable from active trades, and whether the expected volatility of the +underlying stock is observable and are either classified as level 2 or level 3. The fair value of non-public equity securities and simple +agreements for future equity is based on the initial investment, less impairment, and they are classified as level 3 in the fair value +hierarchy. For the significant unobservable inputs and assumptions used in level 3 fair value measurements, see Fair Value of Financial +Instruments section of Note 2: Summary of Significant Accounting Policies . +58 +Accounting for Research +Grants +The Company has and will +develop partner companies that receives, grant reimbursements, which are netted against research and development expenses in the consolidated +statement of operations. Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized +portion considered a deferred liability and are included in accounts payable and accrued expenses in the consolidated balance sheet. +Grants that operate on a reimbursement +basis are recognized on the accrual basis are revenues to extent of disbursements and commitments that are allowable for reimbursement +of allowable expenses incurred as of December 31, 2025 and 2024 and expected to be received from funding sources in the subsequent year. +Management considers such receivables at December 31, 2024 to be fully collectable, there were no grant receivables at December 31, 2025, due to the historical experience with the +Federal Government of the United States of America. Accordingly, no allowance for grants receivable was recorded in the accompanying consolidated +financial statements. +Research grants received from organizations are subject to the contract +agreement as to how our partner companies conducts their research activities, and our partner companies are required to comply with the +agreement terms relating to those grants. Amounts received under research grants are nonrefundable, regardless of the success of the underlying +research project, to the extent that such amounts are expended in accordance with the approved grant project. Our partner companies are +permitted to draw down (a process of submitting expenses for reimbursement) the research grants after incurring the related expenses. +Amounts received under research grants are offset against the related research and development costs in the Company’s consolidated +statements of operations. +Stock Based Compensation +The Company and its subsidiaries +may periodically issue common shares, stock options and restricted stock units to officers, directors, employees, and consultants for +services rendered. Options vest and expire according to terms established at the issuance date of each grant. Stock grants, which are +generally time vested, are measured at the grant date fair value and charged to operations ratably over the vesting period. +The Company accounts for stock-based +payments to officers, directors, employees, and consultants by measuring the cost of services received in exchange for equity awards utilizing +the grant date fair value of the awards, with the cost recognized as compensation expense on the straight-line basis in the Company’s +financial statements over the vesting period of the awards. +The fair value of share options +granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and is affected by several variables, +the most significant of which are the expected life of the stock option, the exercise price of the share option as compared to the fair +market value of the common shares on the grant date, and the estimated volatility of the common shares. Unless sufficient historical exercise +data is available, the expected life of the stock option is calculated as the mid-point between the vesting period and the contractual +term (the “simplified method”). The estimated volatility is based on the implied volatility by using comparable companies +of the Company’s common shares, calculated utilizing a look-back period approximately equal to the contractual life of the stock +option being granted. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market +value of the common shares is determined by reference to the quoted market price of the Company’s common shares on the grant date. +The expected dividend yield is based on the Company’s expectation of dividend payouts and is assumed to be zero. The fair value +of performance based restricted stock units was determined by using an independent valuation expert. +Summary of Business Activities and Plans +On September 20, 2023, the Company completed an IPO, which consisted of the sale of 1.67 million shares of Class A Common Shares at $12.00 per share, for gross proceeds of $20.0 million +that have been used for operations and funding its partner companies, as well as identifying and developing new partner companies. +On November 14, 2024, eXoZymes, +formerly known as Invizyne, previously a corporate subsidiary of the Company, completed its initial public offering, +reducing MDB’s ownership interest to 47%. As a result, the Company no longer consolidates eXoZymes Inc for financial reporting purposes +and now accounts for its investment using the equity method under ASC 323-Investments—Equity Method and Joint Ventures. For federal income tax purposes, MDB is treated as a partnership +and is not subject to entity-level taxation. As a result, no deferred tax assets (“DTAs”) or deferred tax liabilities (“DTLs”) +are recognized at the partnership level for differences between the book and tax basis of the equity method investment. Any tax consequences +related to book-tax basis differences will be recognized at the partner level upon disposition of the investment or other taxable events. +59 +External Risks Associated with the Company’s +Business Activities +Inflation Risk . +The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the general +economy. +Supply Chain Issues . +The Company does not currently expect that supply chain issues will have a significant impact on its business activities. +Potential Recession . +There are various indications that the United States economy may be entering a recessionary period. Although unclear at this time an economic +recession would likely impact the general business environment and the capital markets, which could, in turn, affect the Company. +The Company is continuing +to monitor these matters and will adjust its current business and financing plans as more information and guidance become available. +Principal Commitments +Net Capital Requirement +(Public Ventures ) +Public Ventures is subject to +the uniform net capital rule (SEC Rule 15c3-1) of the SEC, which requires both +the maintenance of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital. At December 31, +2025 and 2024, Public Ventures had net capital of $8.7 million and $10.7 million, respectively, which was $8.45 million and $10.45 million +in excess of the minimum $0.25 million, as required by the SEC Commission Rule 15c3-1. +The Company has subordinated loans +with its Parent company totaling $13.2 million and $1.8 million of accrued interest payable, which is subordinated to other liabilities +of the Company, and is considered members’ equity for calculating net capital, and is not included in aggregate indebtedness. +Minimum net capital is based upon +the greater of the statutory minimum net capital of $0.25 million or 2% of aggregate customer debits, which was $0 at December 31, 2025. +To comply with to DTCC membership +requirements, the Company has committed to maintain at least $5.0 million of net capital in excess of the $0.25 million minimum. +The requirement to comply +with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent company. +Indemnification Provisions +Public Ventures has agreed +to indemnify its clearing broker for losses that the clearing broker may sustain from the accounts of customers. Should a customer not +fulfill its obligation on a transaction, Public Ventures may be required to buy or sell securities at prevailing market prices in the +future on behalf of its customer. The indemnification obligations of Public Ventures to its clearing brokers have no maximum amount. All +unsettled trades at December 31, 2025 and 2024, have subsequently settled with no resulting material liability to Public Ventures. For +the years ended December 31, 2025 and 2024, Public Ventures had no material loss due to counterparty failure, and had no obligations outstanding +under the indemnification arrangement as of December 31, 2025 and 2024. +MDB Minnesota One +On July 1, 2024, MDB Minnesota +One (“M1”) entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo Foundation +for Medical Education and Research (“Mayo”) for certain patent rights and associated technology pursuant to which M1 intends +to develop a small molecule senescence platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented +technology and know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license +of patent rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed +products and derivatives. +As part of initial consideration +for the License Agreement, M1 issued 1.98 million shares of common stock equity to Mayo; which at that time represented thirty-three percent +of its shares. M1 also paid an initial license fee of $0.15 million as part of the initial consideration. M1 will pay earned royalties +on future net sales (including modest minimum annual royalties, which commence in the second year of the term of the License Agreement +and gradually increase and plateau over time, and which will be credited against earned royalties due on net sales), and a percentage +of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. At December 31, 2025 there +were no accrued royalties recorded. +Under the License Agreement, +M1 is required to achieve certain development milestones within designated time periods. For select development milestones, as listed +below, M1 will be required to make a payment to Mayo, also as noted below: +● +A payment of $0.25 million for Phase II clinical trial initiation, for the first instance of a +licensed product. +● +A payment of $1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A payment of $2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A payment of $5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2025 the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +M1 +is currently in the pre-clinical development stage of the M1 Platform and is undertaking important feasibility studies, iterative testing, +and collection of drug safety and toxicity data. +60 +Trends, Events and Uncertainties +Other than as discussed above, +we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition +in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our +financial condition +Item 7A. Quantitative and Qualitative Disclosures +About Market Risk +We are a smaller reporting +company, as defined by Rule 12b-2 of the Exchange Act, therefore are not required to provide the information under this item. +Item 8. Financial Statements and Supplementary +Data +Our consolidated financial +statements are included herein, beginning on page F-1. The information required by this item is incorporated herein by reference to the +consolidated financial statements set forth in Item 15. “Exhibits and Financial Statement Schedules” of this Annual Report. +Item 9. Changes in and +Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +(a) Evaluation of Disclosure +Controls and Procedures. Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief +Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls +and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are +effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the +Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated +and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely +decisions regarding required disclosure. +(b) Inherent Limitation +on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect +all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide +only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance +that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any, within the Company +have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls +must be considered relative to their costs. +(c) Management ’ s +Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal +control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control +over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, +accurately and fairly reflect our transactions and dispositions of assets; (b) provide reasonable assurance that transactions are recorded +as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that +our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and (c) +provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that +could have a material effect on our financial statements. Our internal control over financial reporting is a process designed with the +participation of our principal executive officer and principal financial officer or persons performing similar functions to provide reasonable +assurance to our management and board of directors regarding the reliability of financial reporting and preparation of financial statements +for external purposes in accordance with generally accepted accounting principles. +Management’s Annual Report on Internal +Control over Financial Reporting +Management holds the +responsibility for preparing accurate financial statements and ensuring they faithfully represent our financial status and +operations in line with accounting principles generally accepted in the Untied States (GAAP). +We are also tasked with establishing +and upholding sufficient internal controls over financial reporting, as stipulated in the Exchange Act. These controls aim to offer reasonable +assurance about the fairness of our financial reporting and the accuracy of financial information. Despite the robust nature of our internal +control systems, they are subject to inherent limitations, including human error and the potential bypassing of controls, thus providing +only reasonable—not absolute—assurance. +Our internal controls over +financial reporting encompass procedures for maintaining detailed records that reflect our transactions accurately, ensuring transactions +are recorded as needed for financial statement preparation in compliance with GAAP, and safeguarding company assets through authorized +management and director actions. +After a thorough evaluation led by our Chief Financial Officer, based on +the Committee of Sponsoring Organizations of the Treadway Commission (COSO)2013 framework, based on its evaluation, our management concluded +that our internal control over financial reporting was effective as of December 31, 2025. +61 +This Annual Report on Form +10-K does not include an attestation from our public accounting firm regarding internal control over financial reporting, following SEC rules +that allow us to present only management’s report. +Changes in Internal Control over Financial +Reporting +A material weakness in our internal control framework, identified during +the fiscal year ended December 31, 2024, was fully remediated and corrected in during 2025. +The Company remains steadfast +in our commitment to maintaining robust internal controls and financial reporting processes. +Inherent Limitations on Effectiveness of Controls +and Procedures +The Company’s management, +including the Chief Executive Officer and Chief Financial Officer, believes that disclosure controls and procedures and internal control +over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable +assurance level. However, management does not expect that the disclosure controls and procedures or the internal control over financial +reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only +reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control +systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company +have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future +events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. +Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures +may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur +and not be detected. +Item 9B. +Other Information +None . +Item 9C. Disclosure Regarding Foreign Jurisdictions +that Prevent Inspections +Not Applicable +62 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +Information about our Directors +The Company’s current +directors as of the filing date of this report are set forth below: +Name +Age +Position +Christopher Marlett +61 +Chief Executive Officer, Chairman of Board and Director +Anthony DiGiandomenico +59 +Head of New Venture Discovery, and Director +George Brandon +66 +President, and Director +Mo Hayat +51 +Head of Corporate Development & Chief Legal Officer, and Director +Jeremy James +48 +Chief Financial Officer +Daniel Torpey +61 +Director +Sean Magennis +61 +Director +Jeb Terry +71 +Director +Christopher Marlett . +Christopher Marlett has been the chief executive officer and chairman of the board of directors and a director of the Company since inception +on August 10, 2021. Mr. Marlett has been since 1997, the Chief Executive Officer and a co-founder of Public Ventures (formerly known as +MDB Capital Group, LLC). Over his 36 years of working in the securities industry, he has led multiple financings for venture stage public +companies and has dedicated his efforts to optimizing this method to launch promising technology/business platforms. He has been integral +in co-founding and developing the commercialization and financing strategy for all the companies MDB has taken public. In addition, he +has served as a board member of several of the public companies in the early stages. He has invested significant efforts in developing +a human capital development platform in Nicaragua that has led to the creation of the largest call center park in the country employing +approximately 3,000 people and several knowledge process outsourcing operations to support MDB’s businesses. He developed the first +patent services company in Nicaragua that was sold to Murgitroyd an LSE-listed patent attorney and services platform. He is the co-founder +of PatentVest and developed the platform from inception in 2003. He holds a Bachelor of Science degree in Business Administration from +the University of Southern California. Mr. Marlett’s leadership and financial experience position him well to serve as a member +of our board of directors. +Anthony DiGiandomenico . +Anthony DiGiandomenico has been the Head of New Venture Discovery and director since the inception of the Company on August 10. 2021. +He has also served on the board of directors of ENDRA Life Sciences Inc. (Nasdaq: NDRA), a developer of enhanced ultrasound technology, +from July 2013 until present, the board of directors of Provention Bio, Inc., a developer of multiple drug therapies, from January 2017 +until May 2020 and the board of directors of Cue Biopharma, Inc., that develops novel biologic drugs for the selective modulation of the +human immune system to treat a broad range of cancers and autoimmune disorders from January 2016 to October 2019. Since he co-founded +Public Ventures (formerly known as MDB Capital Group, LLC) in 1997, Mr. DiGiandomenico has been enabling investment into early-stage disruptive +technologies. He has worked alongside a wide range of companies in biotechnology, medical devices, high technology, and renewable energy +spaces. Mr. DiGiandomenico holds an MBA from the Haas School of Business at the University of California, Berkeley and a BS in Finance +from the University of Colorado. Mr. DiGiandomenico’s financial expertise, general business acumen and significant executive leadership +experience position him well to make valuable contributions to our board of directors. +63 +George Brandon . +George Brandon has served as President of the Company since its inception on August 10, 2021, and as a director of the Company since January +14, 2022. Mr. Brandon’s 36 years of varied investment experience has included the last 12 years with Public Ventures (formerly known +as MDB Capital Group, LLC). Mr. Brandon’s business focus has primarily been marketing & strategy development and community building +in and around entrepreneurial start-ups, micro-cap, and small-cap companies. Prior to joining MDB, he served as a partner of Trinity River +Advisors, LLC, a turnaround consulting firm targeting small companies dealing with financial distress. He received his education at Concordia +University in Irvine, CA. +Mohammad “Mo” +Hayat . Mo Hayat has served as the Head of Corporate Development and Chief Legal Officer of the Company since May 2024, Chief of +Entrepreneurship & Operations of the Company since its inception on August 10, 2021 to May 2024, and as a director of the Company +since January 14, 2022. Mr. Hayat has also served as the Chief Executive Officer of Invizyne Technologies Inc (currently eXoZymes Inc) +since its inception in April 2019 to August 2022, the role of President from August 2022 to February 2025, and in the role of Executive +Chairman of Invizyne Technologies Inc (currently eXoZymes Inc) from inception in April 2019 to February 2025. Mr. Hayat founded and has +operated Mora Partners Inc., a consulting and investment firm since September 2006. Notable prior experiences for Mr. Hayat include serving +as an Associate at Latham and Watkins from 2001 to 2006, as Partner at Raines Law Group from 2006 to 2009, as EVP of Business Development +at Fulham Company Ltd from 2009 to 2015, and as Associate General Counsel Corporate, M&A, and Venture Capital at Hewlett Packard Enterprise +from 2015 to 2017. Mr. Hayat also served on the board of directors of Fulham Company Ltd. from January 2019 to August 2022. Mr. Hayat +received his Juris Doctorate in 2001 from UC Berkeley School of Law and a Bachelor of Science in Biological Chemistry in 1997 from Pepperdine +University. +Jeremy James . +Jeremy James has been the Chief Financial Officer of the Company since May 2024, before that he served as the Chief Accounting Officer +of the Company from June 2022 to May 2024. From December 2020 to June 2022, Mr. James served as Vice President/Controller of Cottonwood +Financial. From November 2016 to September 2020, Mr. James served as the Director of Revenue of Orthofix. From January 2012 to November +2016, Mr. James served as a Senior Manager in the consulting practice of Ernst and Young. From May 1999 to January 2012, Mr. James served +as a Manager with CBIZ/Mayer Hoffman McCann, an audit and tax firm. Mr. James received a Bachelor of Science degree in Accounting from +Azusa Pacific University. Mr. James is a Certified Public Accountant licensed in the states of Texas and California. +Sean Magennis . +Sean Magennis has served as a director of the Company since May 2, 2022. Mr. Magennis has served as Chairman of Mutual Capital Alliance +since January of 2023. Mr. Magennis has served as President of CEO Coaching International, a global CEO coaching business, from November +2021 to November 2022. Previously, Mr. Magennis served as CEO and Chairman of Capital 54, a family office, from July 2020 to November +2021, as Global President and COO of YPO, a global community of chief executives, from May 2013 to July 2020, as Member of Gateway Green +Energy Holdings, LLC, an operator power plants and energy assets, from 2009 to present, as President of Meximae Financiera Corporation, +a real estate developer in Mexico, from January 2003 to August 2008, as President of Thomas International Management Systems from 1991 +to 2003, as President of Thomas International, A Caldwell Interest, from 1992 to 1996, and Global President, Board Member and Chapter +Chairman of Entrepreneurs Organization from 1991 to 2007. Mr. Magennis is a decisive and proactive business builder with extensive growth, +acquisition, turnaround, and international experience. He is adept at developing high performing teams who deliver results through collaboration. +He combines vision with positive pragmatism to transform strategies into actionable, measurable opportunities utilizing strong analytical +and problem-solving skills. +Daniel “Dan” +Torpey . Daniel “Dan” Torpey has served as an independent director of the Company since June 17, 2024. Mr. Torpey retired +as an Assurance partner from Ernst & Young LLP after a 25-year career where he was a member of the Audit and Forensic and Integrity +practices where he held various leadership positions. He is a qualified financial expert pursuant to the rules of the Securities and Exchange +Commission, NYSE and NASDAQ and serves as the Chairperson of the Audit Committee for the Company. Mr. Torpey is a Certified Public Accountant +licensed in the state of New York and Texas and is a Certified Director of the National Association of Corporate Directors (NACD). Prior +to Ernst & Young LLP, he was a partner at Arthur Anderson LLP from July 2001 – May 2002, and a partner and held various other +titles at PricewaterhouseCoopers (and its predecessor firm Coopers & Lybrand) from 1992 – 2001. Mr. Torpey served as an auditor +in EY’s audit practice from 1989 – 1992. Mr. Torpey served as a staff and senior accountant at Matson Driscoll & Damico, +LLP. from 1986-1989. Mr. Torpey’s experience allows him to add auditing, accounting, technology and analytics, governance and leadership +expertise to the Company. Mr. Torpey received his Bachelor of Science in Accountancy from St. John’s University, Jamaica, New York. +Jeb Terry, Sr. . +Jeb Terry, Sr. is a seasoned investor with more than 20 years of expertise in microcap medical and biotechnology companies, where he +has consistently identified and capitalized on high-potential opportunities in this dynamic and innovation-driven sector. Drawing on +a career spanning venture capital, leveraged buyouts, emerging international markets, and public equities, Mr. Terry brings a multifaceted +perspective to investment decision-making. Since January 1, 2026 Mr. Terry has managed his personal family office and is also currently +managing the Wilson Foundation since December 2015. Previously, Mr. Terry founded and served as President of Aberdeen Investment +Management LLC from September 2010 through December 31, 2025, where he led investment strategy and portfolio management with a sharp +focus on undervalued microcap opportunities in life sciences. Prior to founding Aberdeen Investment Management, Mr. Terry held senior +roles at a top-20 commercial bank, advised ultra-high-net-worth family offices, and worked within a bulge-bracket investment bank. Mr. +Terry was a principal in venture capital and private equity and founded and managed a hedge fund specializing in dynamic hedging strategies +for concentrated public holdings on behalf of large family office clients. Mr. Terry holds an MBA from Columbia Business +School and a BBA from Southern Methodist University +64 +Board Composition/Committees +Our board of directors +currently consists of seven persons. Under our operating agreement the board of directors may establish the number of persons +serving on the board of directors from time to time by resolution, up to a maximum of 12 persons. Three of our directors, Daniel +Torpey, Sean Magennis and Jeb Terry are independent within the meaning of Nasdaq’s rules. Jeb Terry and Daniel Torpey are +“financial experts” as that term is defined in SEC regulations. +Because our Class B Common +Shares are held by two persons and represents more than 50% voting control of MDB, we are a “controlled company” under the +listing rules of Nasdaq. As a controlled company, we are exempt from many of the corporate governance obligations that other companies +must follow when listed on Nasdaq. Management intends to take advantage of these exemptions as long as it is a controlled company. As +such, we will be exempt from the certain of the corporate governance rules under the Rule 5600 Series, as follows: (i) having a board +comprised of a majority of independent directors (Rule 5605(b)), iii) having a compensation committee (Rule 5605(d)), and (iii) having +a director nominations committee (Rule 5605(e)). Additionally, we are not required to hold annual meetings. Notwithstanding these exemptions, +we have an audit committee comprised solely of independent directors, which among other things reviews related party transactions. Also, +notwithstanding the exemptions, Class A Common shareholder approval will be required for stock option or purchase plans, and our financial +statements must be audited by an independent public accountant that is registered with the PCAOB. +Audit Committee . +We have established an audit +committee. The audit committee is responsible for, among other things: (i) retaining and overseeing our independent accountants; (ii) +assisting the board of directors in its oversight of the integrity of our financial statements, the qualifications, independence and performance +of our independent auditors; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving any +audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors; (vi) +reviewing with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our +internal controls; (vii) reviewing hedging transactions; and (viii) reviewing and assessing annually the audit committee’s performance +and the adequacy of its charter. The audit committee also reviews and approves all transactions with affiliated parties. Our board of +directors has adopted a written charter for the audit committee, which is available on our website. +The members of the Audit Committee +are Dan Torpey, Sean Magennis and Jeb Terry, each of whom satisfies the “independence” requirements of Rule 10A-3 under the +Exchange Act and Rule5605(c)(2) of the Nasdaq Marketplace Rules. Mr. Torpey serves as the chairman of the audit committee. Each of Messrs. +Jeb Terry and Dan Torpey is a “financial expert” as that term is defined in SEC regulations. +65 +Board’s Role in Risk Oversight +Our board of directors is +primarily responsible for overseeing our risk management processes. Our board of directors, as a whole, determines our appropriate level +of risk, assesses the specific risks that we face, and reviews management’s strategies for adequately mitigating and managing the +identified risks. Although our board of directors administers this risk management oversight function, one or more committees of our board +of directors may support our board of directors in discharging its obligations. For example, the audit committee reviews our major financial +risk exposures and the steps management has taken to monitor and control such exposures and it will reviews matters relating to legal +compliance that have a material effect on the Company financial statements and certain other limited areas of governance and will report +to our board of directors regarding such matters. +Code of Business Conduct and Ethics +Our board of directors has +adopted a code of business conduct and ethics that applies to all of our employees, officers, and directors. The full text of our code +of business conduct and ethics will be posted on the Investor Relations section of our website. The reference to our website address in +this filing does not include or incorporate by reference the information on our website into this filing. We intend to disclose future +amendments to certain provisions of our code of business conduct and ethics, or waivers of these provisions, on our website or in public +filings. +Insider Trading Arrangements and Policies +We have adopted an insider +trading compliance policy governing the purchase, sale, and/or other dispositions of our securities by our directors, officers, and employees +that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing +standards applicable to us. The insider trading policy prohibits the use of material non-public information about the Company when making +decisions to purchase, sell, give away or otherwise trade in the Company’s securities or to provide such information to others outside +the Company. We have established black-out periods to which covered persons are subject related to the filing of our regular reports with +the Securities and Exchange Commission. The Company may impose additional black-out periods from time to time as other types of material +non-public information occur when material non-public events or disclosures are pending. Covered persons are permitted to trade in the +Company’s securities only when there is no black-out period in effect and such trade has been pre-cleared by the appointed Company +officer, or when a qualified 10b5-1 plan has been established in accordance with federal securities laws. No covered person has adopted +or terminated a Rule 10b5-1 trading plan during the last fiscal quarter of the fiscal year to which this report relates. +Clawback Policy +Our board of directors has +adopted a written policy to recover “excess” compensation that is granted, earned, or vested based wholly or in part upon +the attainment of a financial reporting measure. The compensation includes both cash-based and equity-based incentives. The compensation +covered includes incentive awards awarded to any individuals (including former employees) who served as an executive officer during the +three most recently completed fiscal years preceding the date on which the preparation of an accounting restatement is required, provided +that the executive officers were awarded more incentive awards than they would have received if the financial statements had been prepared +correctly. The recovery will include an executive incentive award even if the executive was not involved in preparing the financial statements +or did not commit misconduct that led to the restatement. Restatements attributable to an inadvertent error also will subject executive +officers to the recovery of previously received incentive awards. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Securities +Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers, directors and persons who beneficially +own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons +are required by SEC regulations to furnish us with copies of all Section 16(a) reports filed by such persons. +66 +Based solely on our review +of the copies of reports furnished to us, we believe that during the fiscal year ended December 31, 2025, all executive officers, directors +and greater than 10% beneficial owners of our Class A and Class B Common Shares complied with the reporting requirements of Section 16(a) +of the Exchange Act. +Compensation Principles for Members of Board +of Directors +We do not provide director fees to board members who also receive salaries +from MDB, its subsidiaries, or partner companies. Should we appoint independent directors, the board of directors will decide their compensation +upon their appointment and on an ongoing basis thereafter. +We do not have any defined +a compensation plan for our directors. We may adopt one or more forms of compensation arrangements, including cash and stock-based compensation +arrangements in the future. Any stock-based compensation plans will be subject to the approval of the holders of the Class A Common Shares +as required by the listing rules of Nasdaq and any other applicable laws. +We also will reimburse any +persons that are independent members of our board of directors for their reasonable expenses incurred in connection with attending meetings +of our board of directors, committee meetings and other activities they undertake on our behalf and on behalf of our subsidiaries and +partner companies. +Director Compensation +The following table sets forth the compensation +earned by or awarded or paid in 2025 and 2024 to the individuals who served as our independent directors during such period (in thousands). +Name +Year +Fee +Bonus +Shares +Options +Awards +Nonequity +Incentive +Plan +Compensation +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +Total +Susanne Meline +2025 +$ +50 +- +$ +34 +- +- +- +- +$ +84 +2024 +$ +50 +- +$ +136 +- +- +- +- +$ +186 +Matthew Hayden +2025 +$ +50 +- +$ +26 +- +- +- +- +$ +76 +2024 +$ +50 +- +$ +272 +- +- +- +- +$ +322 +Sean Magennis +2025 +$ +50 +- +$ +34 +- +- +- +- +$ +84 +2024 +$ +50 +- +$ +136 +- +- +- +- +$ +186 +Dan Torpey +2025 +$ +50 +- +$ +68 +- +- +- +- +$ +118 +2024 +$ +50 +$ +25 +$ +- +- +- +- +- +$ +75 +67 +Limitation of Liability of Directors and Indemnification +of Directors and Officers +MDB provides indemnification +to each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending, or completed action, +suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that he, or a person of whom he is +the legal representative, is or was a director or officer or is or was serving at the request of MDB as a director or officer of another +corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans against +all expenses, liability, and loss. The board may authorize the advance of expenses in connection with any proceeding where the person +is entitled to indemnification. MDB may purchase and maintain insurance to protect itself and any director, officer, employee or other +agent against any expense, whether or not MDB would have the power to indemnify the person. +Insofar as indemnification +for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing +provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed +in the Securities Act and is, therefore, unenforceable. +Indemnification Agreements +We enter into indemnification +agreements with each of the persons serving on the board of directors and executive officers of MDB. The indemnification agreements provide +for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee in connection with +threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. The indemnification agreements also +provide for the advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or other adjudication, +provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately found not to +be entitled to indemnification by us. The indemnification agreement sets forth procedures for making and responding to a request for indemnification +or advancement of expenses, as well as dispute resolution procedures that apply to any dispute between us and an indemnitee arising under +the indemnification agreements. +We also arrange that there +are indemnification agreements between our partner companies and their officers and directors. These indemnification agreements provide +for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee in connection with +threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. The indemnification agreements also +provide for the advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or other adjudication, +provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately found not to +be entitled to indemnification by us. The indemnification agreement form sets forth procedures for making and responding to a request +for indemnification or advancement of expenses, as well as dispute resolution procedures that apply to any dispute between us and an indemnitee +arising under the indemnification agreements. +68 +Item 11. Executive Compensation +Executive Compensation +This section provides an overview +of the compensation awarded to, earned by, or paid to each individual who served as our principal executive officer and our next two most +highly compensated executive officers in respect of their service to our company during the years ended December 31, 2025, and 2024. The +amounts indicated for the year ending December 31, 2025, do not include any amounts that may be awarded in 2026 as bonus compensation +for 2025. We refer to these individuals as our named executive officers. The compensation information disclosed herein for our three named +executive officers is disclosed in accordance with SEC requirements; such disclosure does not include the compensation for our other executive +officers. Our named executive officers for the years ended December 31, 2025 and 2024 respectively, are (in thousands): +Name and +Principal Position +Year +Salary +Bonus +Shares +Options +Awards +Non-equity +Incentive +Plan +Compensation +Nonqualified +Deferred +Compensation +Earnings +All Other +Compensation +Total +Christopher Marlett, CEO +2025 +$ +350 +$ +- +$ +- +$ +1,000 +$ +- +$ +- +$ +- +$ +1,350 +2024 +$ +350 +$ +- +$ +340 +$ +13 +$ +- +$ +- +$ +- +$ +703 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +2025 +$ +300 +$ +- +$ +- +$ +1,000 +$ +- +$ +- +$ +- +$ +1,300 +2024 +$ +300 +$ +- +$ +681 +$ +152 +$ +- +$ +- +$ +- +$ +1,133 +Anthony DiGiandomenico, Head of New Venture Discovery +2025 +$ +300 +$ +- +$ +- +$ +1,000 +$ +- +$ +- +$ +- +$ +1,300 +2024 +$ +300 +$ +- +$ +340 +$ +13 +$ +- +$ +- +$ +- +$ +653 +Options Exercisable as of December 31, 2025 +and 2024 (in thousands, except exercise price): +Name +Year +Number of +securities +underlying +unexercised +options +exercisable +Number of +securities +underlying +unexercised +options +unexercisable +Equity +incentive +plan awards: +Number of +securities +underlying +unexercised +unearned +options +Option +exercise price +Option +expiration +date +Christopher Marlett, CEO +2025 +267 +- +633 +$ 4.25 +04/28/2035 +2024 +20 +- +6 +$ 2.44 +01/31/2028 +Mo Hayat, Head of Corporate Development & Chief Legal Officer +2025 +267 +- +633 +$ 4.25 +04/28/2035 +2024 +244 +- +68 +$ 2.44 +01/31/2028 +Anthony DiGiandomenico, Head of New Venture Discovery +2025 +267 +- +633 +$ 4.25 +04/28/2035 +2024 +20 +- +6 +$ 2.44 +01/31/2028 +69 +Equity Compensation +From time to time, in addition +to the cash compensation, we grant equity based awards to our named executive officers, which are generally subject to vesting based on +each of our named executive officer’s continued service with us. +Executive Employment Arrangements +Christopher Marlett +The Company, through MDB Management, +entered into an employment agreement with Christopher Marlett on April 15, 2022. Mr. Marlett acts as the Chief Executive Officer of the +Company. Mr. Marlett is paid an initial base annual salary of $350 thousand, which may be increased at the discretion of the board of +the Company. He is also entitled to an annual bonus each fiscal year, one-third of which is purely discretionary, and two-thirds of which +to be determined by the board of the Company based on agreed key performance indicators. Mr. Marlett is entitled to participate in benefit +plans of the Company generally available to employees and executives. Mr. Marlett will generally work in the Dallas, Texas metropolitan +area, and he is to be reimbursed for expenses associated with his employment. +Mr. Marlett was granted one +million RSUs for Class A Common Shares which vest over five years of the employment agreement, a portion of the RSUs have a performance +condition tied to the vesting, contingent on his continued employment with the Company. On April 15, 2024 Mr. Marlett forfeited 50 thousand +RSUs, leaving 950 thousand RSUs available for vesting. In April 2025 the remaining 900 thousand RSUs were exchanged for 900 thousand stock +options, after 50 thousand RSUs had vested in 2024. Of the 900 thousands stock options, 400 thousand stock options are time vesting, while 500 thousand stock options +only vest only when a United States national securities exchange and before the ten year anniversary of the date of grant, if and when +(y) a Class A Common Share has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar days +at an average price of $20.00 or more during the period commencing the date of grant and prior to the ten year anniversary of the date +of grant, with an average monthly trading volume of 2.0 million Class A Common Shares or more during the 90 consecutive calendar day period, +or (z) a Class A Common Shares has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar +days at an average price of $25.00 or more during the period commencing the date of grant and prior to the ten year anniversary of the +date of grant; provided further, that if there is a distribution of cash, stock or other property by the Company on the Class A Common +Shares, then the foregoing average amounts of $20.00 or $25.00 will be reduced by the value of any one or more per share distributions +after the date of grant until vested. +The employment agreement for +Mr. Marlett provides for termination under a number of circumstances, including for and without cause, all of which are set forth with +particularity in the agreement. Depending on the circumstance, Mr. Marlett will be paid certain severance amounts of up to a year’s +salary and pro rata amounts of the annual bonus, and various insurance premiums for health, dental and vision continued under the COBRA +benefits. The agreement provides, in addition to any director indemnification agreement, indemnification in relation to acts undertaken +as an executive of the Company. +Mo Hayat +The Company, through MDB Management, +entered into an employment agreement with Mo Hayat on April 15, 2022. Mr. Hayat currently acts as the Head of Corporate Development and +Chief Legal Officer of the Company. Mr. Hayat is paid an initial base annual salary of $300 thousand, which may be increased at the discretion +of the board of the Company. He is also entitled to an annual bonus each fiscal year, one-third of which is purely discretionary, and +two-thirds of which to be determined by the board of the Company based on agreed key performance indicators. Mr. Hayat is entitled to +participate in benefit plans of the Company generally available to employees and executives. Mr. Hayat will generally work in the Los +Angeles, California metropolitan area, and he is to be reimbursed for expenses associated with his employment. +70 +Mr. Hayat was granted one million +RSUs for Class A Common Shares which vest over five years of the employment agreement, a portion of the RSUs have a performance condition +tied to the vesting, contingent on his continued employment with the Company. In April 2025 the remaining 900 thousand RSUs were exchanged +for 900 thousand stock options, after 100 thousand RSUs had vested in 2024. Of the 900 thousands stock options, 400 thousand stock options are time vesting, while 500 thousand stock options +only vest only when a United States national securities exchange and before the ten year anniversary of the date of grant, if and when +(y) a Class A Common Share has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar days +at an average price of $20.00 or more during the period commencing the date of grant and prior to the ten year anniversary of the date +of grant, with an average monthly trading volume of 2.0 million Class A Common Shares or more during the 90 consecutive calendar day period, +or (z) a Class A Common Shares has traded in the market on which the Class A Common Shares are listed for any 90 consecutive calendar +days at an average price of $25.00 or more during the period commencing the date of grant and prior to the ten year anniversary of the +date of grant; provided further, that if there is a distribution of cash, stock or other property by the Company on the Class A Common +Shares, then the foregoing average amounts of $20.00 or $25.00 will be reduced by the value of any one or more per share distributions +after the date of grant until vested. +The employment agreement for +Mr. Hayat provides for termination under a number of circumstances, including for and without cause, all of which are set forth with particularity +in the agreement. Depending on the circumstance, Mr. Hayat will be paid certain severance amounts of up to a year’s salary and pro +rata amounts of the annual bonus, and various insurance premiums for health, dental and vision continued under the COBRA benefits. The +agreement provides, in addition to any director indemnification agreement, indemnification in relation to acts undertaken as an executive +of the Company. +Jeremy James +The Company, through MDB Management, +has employed Mr. Jeremy James on an at-will basis since June 8, 2022. Mr. James currently acts as the Chief Financial Officer of the Company. +Mr. James is paid an initial base annual salary of $250 thousand, which may be increased at the discretion of the board of the Company. +He is also entitled to an annual bonus each fiscal year, one-third of which is purely discretionary, and two-thirds of which to be determined +by the board of the Company based on agreed key performance indicators. Mr. James is entitled to participate in benefit plans of the Company +generally available to employees and executives. Mr. James will generally work in the Dallas, Texas metropolitan area, and he is to be +reimbursed for expenses associated with his employment. +Mr. James was granted 100 +thousand RSUs for Class A Common Shares that vest over five years on each anniversary of the employment, contingent on his continued employment +of Mr. James. +Equity Incentive Plan +MDB adopted an equity incentive +award plan, the 2022 Equity Incentive Award Plan, that permits it to grant directors, officers, employees and others that contribute to +the success of the Company stock options, restricted stock, restricted share units, deferred stock and other equity-based awards. The +ultimate value of these various awards is dependent on increases in our Class A Common Share price. Awards are granted to provide the +holder of an award with a personal financial interest in our long-term success, encourage retention through vesting provisions and enable +us to compete for the services of employees in an extremely competitive market and industry. Objectives of the long-term incentive portion +of our compensation package includes aligning the personal and financial interests of management and other employees with shareholder +interests; balancing short-term decision-making with a focus on improving shareholder value over the long-term; and providing a means +to attract, reward and retain a skilled management team. +The 2022 Equity Incentive +Award Plan provides for award grants of up to a base amount of 6.0 million Class A Common Shares, plus an additional 25% of the issued +and outstanding Class A Common Shares outstanding from time to time. As of December 31, 2025, there were 7.3 million Class A Common Shares +committed to the plan. Of this amount, 5.5 million Class A Common Shares were under outstanding awards, and there were 1.8 million Class +A Common Shares available for future grant. The plan is characterized as an “evergreen” plan, which means as the number of +Class A Common Shares outstanding increases, the number of Class A Common Shares available for grant under the 2022 Equity Incentive Award +Plan increases. Shareholder approval is required for the plan to comply with certain IRS and Nasdaq requirements. Both the board of directors +and shareholders have approved the plan. +71 +The board of directors may +grant awards under the plan for up to ten years from the date of plan adoption. The board of directors or a committee thereof will determine +the form of award and its terms, such as the vesting period, the exercise period, any vesting criteria that might include performance +goals and termination provisions. Typically, termination will be as a result of retirement, disability and the end of employment. Awards +may not be issued at less than the fair market value of a Class A Common Share at the time of award. Although awards are typically exercised +for a cash payment, the board of directors or applicable committee may issue the awards on a net exercise, or cashless, basis. Management +makes recommendations to the board of directors or committee about the form of the award, the amount of the award levels and its terms. +Management monitors overhang (a measure of potential earnings dilution from stock awards) as well as run rate (the rate at which stock +awards are being awarded from our equity plans) when making recommendations to the board of directors or applicable committee regarding +plan awards. +Outstanding Equity Awards Under Plan as of +December 31, 2025 +MDB has granted +restricted stock unit, or RSU, awards and options awards to Messrs. Marlett and Hayat for an aggregate of 1.8 million Class A stock +options, which awards vest as to 20% each year from the date of the person’s employment agreement, so long as the person +remains employed by MDB. James for an aggregate of 70 thousand Class A Common Shares, which awards vest as to 20% each year from the +date of the person’s employment agreement, so long as the person remains employed by MDB. As of December 31, 2025, of these +granted RSUs and options, 1.87 million in the aggregate are still subject to issuance in the future. +MDB has issued stock option awards to certain key persons for an aggregate +of 3.6 million Class A Common Shares, of which 1.8 million continue to be subject to outstanding awards. These awards generally vest as +to 20% of one-half of the total number of granted stock options on the thirteenth (13) month anniversary of the listing of the Class A +Common Shares on a United States national exchange and then at the rate of 10% of one-half of the total number of stock options each six +months after the date of the initial vesting until the last vesting on the fifth year anniversary of the date of grant, at which any previously +unvested stock options will fully vest. The other half of the stock options will vest at any time after the 13th month anniversary of +the listing of the Class A Common Shares on a United States national securities exchange and before the ten year anniversary of the date +of grant, if and when (y) a Class A Common Share has traded in the market on which the Class A Common Shares are listed for any 90 consecutive +calendar days at an average price of $20.00 or more during the period commencing the date of grant and prior to the ten year anniversary +of the date of grant, with an average monthly trading volume of 2.0 million Class A Common Shares or more during the 90 consecutive calendar +day period, or (z) a Class A Common Shares has traded in the market on which the Class A Common Shares are listed for any 90 consecutive +calendar days at an average price of $25.00 or more during the period commencing the date of grant and prior to the ten year anniversary +of the date of grant; provided further, that if there is a distribution of cash, stock or other property by the Company on the Class A +Common Shares, then the foregoing average amounts of $20.00 or $25.00 will be reduced by the value of any one or more per share distributions +after the date of grant until vested. +72 +MDB has issued RSU awards +to various employees and other persons for an aggregate of 1,079,500 Class A Common Shares that generally vest over a period of five years, +with 20% of granted RSUs vesting on the thirteenth (13) month anniversary of the listing of the Class A Common Shares on a United States +national exchange and then at the rate of 10% of the original amount of RSUs each six months after the date of the initial vesting until +the last vesting on the fifth year anniversary of the date of grant, at which any previously unvested RSUs will fully vest. +Each of the above RSU awards +have provisions for an acceleration of vesting for a change of control of MDB and in the discretion of the board of directors or a committee +thereof and may be adjusted by the board of directors or a committee thereof as provided in the plan. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table sets forth +information regarding the beneficial ownership of our Class A Common Shares and Class B Common Shares by: +● +each shareholder of our Class A Common Shares who is known by us to beneficially own 5% or more of our Class A Common Shares; +● +each shareholder of our Class B Common Shares; +● +each of our executive officers; +● +each of the members of the board of directors; and +● +all of the members of the board of directors and current executive officers as a group. +Beneficial ownership is determined +based on the rules and regulations of the SEC as defined in Rule 13d-3 of the Exchange Act. A person has beneficial ownership of Class +A Common Shares and Class B Common Shares if such individual has the power to vote and/or dispose of the shares. This power may be sole +or shared and direct or indirect. In computing the number of shares beneficially owned by a person and the percentage ownership of that +person, shares that are subject to options or warrants held by that person and exercisable as of, or within 60 days of, the initial closing +are counted as outstanding. These shares, however, are not counted as outstanding for the purposes of computing the percentage ownership +of any other person(s). Except as may be indicated in the footnotes to this table and pursuant to applicable community property laws, +each person named in the table has sole voting and dispositive power with respect to the Class A Common Shares and Class B Common Shares +set forth opposite that person’s name. Unless indicated below, the address of each individual listed below is c/o MDB Capital Holdings, +LLC, 14135 Midway Road, Suite G-150, Addison, TX 75001. +Applicable percentage ownership +in the following table is based on 5,300,132 Class A Common Shares and 5,000,000 Class B Common Shares outstanding as of March 31, 2026. +Because the Class A Common Shares and the Class B Common Shares vote together on all matters, we also give the percentage ownership of +the combined classes, allocating one vote for each Class A Common Share and five votes for each Class B Common Share. +73 +Class A +Class B +Percent of +Combined +Total +Number +(1) +Percent of +Class (2) +Number +(1) +Percent of +Class (3) +Voting +Power % (4) +Named Executive Officers and Directors +Christopher Marlett (5) +166,720 +3.2 +% +3,755,000 +75.1 +% +62.5 +% +Anthony DiGiandomenico (5) +96,149 +1.9 +% +1,245,000 +24.9 +% +20.9 +% +George Brandon (5) +105,248 +2.0 +% +- +- +0.3 +% +Mo Hayat (5) +100,000 +1.9 +% +- +- +0.3 +% +Jeremy W. James (6) +23,339 +0.5 +% +- +- +0.1 +% +Sean Magennis (6) +30,000 +0.6 +% +- +- +0.1 +% +Dan Torpey (7) +27,100 +0.5 +% +- +- +0.1 +% +Jeb Terry (8) +4,166 +0.1 +% +- +- +0.0 +% +All executive officers and directors as a group (8 persons) (9) +552,722 +10.8 +% +5,000,000 +100.0 +% +84.3 +% +(1) +Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. +(2) +Based on a total of 5,300,132 Class A Common Shares issued and outstanding as of March 31, 2026. +(3) +Based on a total of 5,000,000 shares of the Class B Common Shares issued and outstanding as of March 31, 2026. +(4) +Based on a total of 10,300,132 Class A and Class B Common Shares issued and outstanding as of March 31, 2026, with each Class A Common Share entitled to one vote and each Class B Common Share entitled to five votes, representing a total of 30,300,132 votes in respect of shareholder matters presented to the holders of Common Shares. +(5) +Does not include 900,000 unexcised stock options for the Class A Common Shares vesting through April 2027. +(6) +Does not include 70,000 restricted share units (RSUs) for the Class A Common Shares vesting through June of 2027. +(7) +Does not include 80,000 restricted share units (RSUs) for the Class A Common Shares vesting through June of 2029. +(8) +Does not include 100,000 unexcised stock options for the Class A Common Shares vesting through February of 2031. +(9) +Does not include 290,000 restricted share units (RSUs) for the Class A Common Shares vesting through April of 2027 through June of 2029 and 3,700,000 unexcised stock options for the Class A Common Shares vesting through February of 2031. +Item 13. +Certain Relationships and Related Transactions, and Director Independence +Transactions with Related +Parties +Marlett and DiGiandomenico +own all the Class B Common Shares, each of which has five votes per share and vote together with the Class A Common Shares as a single +class on all matters on which a vote of the common shares is required, including the board of directors. +Marlett and DiGiandomenico +own MDB Capital S.A., a Nicaraguan entity, that provides services to the Company and its subsidiaries on an out-source, as requested basis. +During the years ended December 31, 2025, and 2024, respectively, the Company paid MDB Capital S.A. $1.8 million and $1,6 million, respectively. +MDB Capital Holdings, LLC continues to have a service agreement with MDB Capital S.A. +During the year ended +December 31, 2025, PatentVest, a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with ENDRA Life Sciences +Inc – NDRA on Nasdaq, a company for which one of our executive officers, Anthony DiGiandomenico, Chief of Transactions, serves +as a board member.. For the year ended December 31, 2025 and 2024, respectively, there were no revenue recognized between MDB +Capital entities and ENDRA. However, costs incurred amounting to $81 thousand related to transactions with ENDRA were recognized +during the year ended December 31, 2024. +During the years ended December +31, 2025 and 2024, PatentVest, a 100% entity owned by MDB Capital Holdings, LLC, engaged in transactions with eXoZymes, a company of which +the Company owns 47% of recognized revenue of $91 thousand and $41 thousand, respectively. +During the year ended December 31, 2025, the Company recorded related party +accrued receivables totaling $13 thousand for services performed by PatentVest on behalf of eXoZymes. Additionally, the Company recorded +accrued expenses of $1 thousand payable to PatentVest, representing reimbursable expenses incurred in the ordinary course of business. +During the year ended December 31, 2024, the Company recorded related party accrued receivables totaling $64 thousand. This amount includes +$42 thousand for services performed by PatentVest on behalf of eXoZymes and $22 thousand related to taxes paid by the Company on behalf +of certain officers, which was reimbursed in full by January 31, 2025. Additionally, the Company recorded accrued expenses of $23 thousand +payable to officers and directors, representing reimbursable expenses incurred in the ordinary course of business. All transactions were +conducted on an arm’s-length basis and are expected to be settled in the normal course of operations. +74 +General Policy for Evaluating Related Party +Transactions +Related party transactions +will be reviewed by the audit committee, generally under its authority to review situations that give rise to conflicts of interest, as +set forth in the Audit Committee Charter. The policy of the Company is to evaluate those situations where an individual’s private +interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of the Company. A common situation +is one that involves a transaction between the Company and a party that is a director, officer or employee, or their respective related +parties or affiliates or an entity under the control of those persons. The audit committee shall review the material facts of all related +party transactions with the objective of determining to either approve or disapprove the Company entering into the transaction. The audit +committee will review the relevant facts and circumstances of a related party transactions taking into account, among other factors, (i) +whether the transaction was undertaken in the ordinary course of business of the Company, (ii) whether the related party transaction was +initiated by the Company or the related party, (iii) whether the transaction is proposed to be, or was, entered into on terms no less +favorable to the Company than terms that could have been reached with an unrelated third party, (iv) the purpose of, and the potential +benefits to the Company of, the related party transaction, (v) the approximate dollar value and the terms of the obligations involved +in the related party transaction, (vi) the extent of the related party’s interest in the transaction, and (vii) any other information +that would be material to investors in light of the circumstances of the particular transaction. Approval may be a standing approval for +the same types of transactions, where it is warranted. The audit committee may also ratify related party transactions that have occurred, +but related parties are encouraged to seek prior approval of a transaction so as not to face the situation of having to unwind or modify +it. +Item 14. Principal Accountant Fees and Services +During the years ended +December 31, 2025 and 2024, RBSM, LLP was the Company’s independent registered public accounting firm. +The following table sets forth +fees billed to us by our independent registered public accounting firm (in thousands): +2025 +2024 +Audit fees (1) +$ 302 +$ 250 +Audit-related fees (2) +153 +100 +Tax fees +- +- +Total principal accountant fees and services +$ 455 +$ 350 +(1) +Audit fees consisted primarily of fees for the audit of our annual financial statements and reviews of the financial statements included in our quarterly reports and current reports. +(2) +Audit-related fees consist of fees billed for services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under Audit fees. +75 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +a. Documents Filed as Part +of this Report +The following consolidated +financial statements of MDB Capital Holdings, LLC are filed as part of this Annual Report on Form 10-K: +Page +Number +CONSOLIDATED FINANCIAL STATEMENTS INDEX +F-1 +Report of Independent Registered Public Accounting Firm (RBSM LLP; New York, NY, PCAOB ID No. 587) +F-2 +Consolidated Balance Sheets –December 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations – Years Ended December 31, 2025 and 2024 +F-4 +Consolidated Statements of Changes in Equity – Years Ended December 31, 2025 and 2024 +F-5 +Consolidated Statements of Cash Flows – Years Ended December 31, 2025 and 2024 +F-6 +Notes to Consolidated Financial Statements +F-7 +b. Exhibits +See “Exhibit Index” +on the page following the consolidated financial statements and related footnotes and the signature page to this Annual Report on Form +10-K. +c. Financial Statement +Schedules +No financial statement schedules +are filed herewith because (i) such schedules are not required, or (ii) the information has been presented in the aforementioned financial +statements. +Item 16. Form 10-K Summary +The Company has elected not +to provide the summary of information under this item. +76 +Page +Number +CONSOLIDATED FINANCIAL STATEMENTS INDEX +F-1 +Report of Independent Registered Public Accounting Firm ( RBSM LLP ; New York , NY, PCAOB ID No. 587 ) +F-2 +Consolidated Balance Sheets –December 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations – Years Ended December 31, 2025 and 2024 +F-4 +Consolidated Statements of Changes in Equity – Years Ended December 31, 2025 and 2024 +F-5 +Consolidated Statements of Cash Flows – Years Ended December 31, 2025 and 2024 +F-6 +Notes to Consolidated Financial Statements +F-7 +F- 1 +New York Office: +805 Third Avenue +New York, NY 10022 +212.838-5100 +www.rbsmllp.com +Report of Independent Registered Public Accounting +Firm +Members and Board of Directors of +MDB Capital Holdings, LLC and Subsidiaries +Addison, Texas +Opinion +on the Consolidated Financial Statements +We +have audited the accompanying consolidated balance sheets of MDB Capital Holdings, LLC and Subsidiaries (collectively, the “Company”) +as of December 31, 2025 and 2024, and the related consolidated statements of operations, equity and cash flows for each of the two years +in the period ended December 31, 2025, and the related notes (collectively referred to as the consolidated financial statements). In +our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as +of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December +31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Basis +for Opinion +These +consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion +on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance +with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part +of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether +due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. +We believe that our audits provide a reasonable basis for our opinion. +/s/ RBSM LLP +We have served as the Company’s auditor +since 2023. +New York, NY +March 31, 2026 +F- 2 +MDB CAPITAL HOLDINGS, LLC AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(in thousands, except share count): +As of December 31, +2025 +2024 +Assets +Cash and cash equivalents +$ 13,217 +$ 20,437 +Cash segregated in compliance with regulations +2,331 +844 +Accounts receivable +124 +- +Related party receivables +13 +64 +Clearing deposits +2,000 +1,738 +Prepaid expenses and other current assets +433 +513 +Investment securities, at fair value, held by the licensed broker dealer (Notes 1 and +2) +7,166 +5,858 +Investment securities, at fair value, held by the non-licensed broker dealer (Notes 1 and 2) +235 +- +Equity method investment +37,543 +41,764 +Deferred costs related to deferred revenue +14 +27 +Property and equipment, net +117 +90 +Operating lease right-of-use asset, net +547 +641 +Total assets +$ 63,740 +$ 71,976 +LIABILITIES AND EQUITY +Liabilities: +Accounts payable +$ 267 +$ 324 +Accrued expenses +95 +72 +Related party payables +1 +23 +Payables to customers +2,189 +773 +Operating lease liabilities +609 +711 +Total liabilities +3,161 +1,903 +Commitments and Contingencies (Note 10) +- +- +Equity: +Preferred shares, 10,000,000 authorized shares at no par value; 0 issued and outstanding +- +- +Class A Common Shares, 95,000,000 authorized shares at no par value; 5,138,632 and 4,950,632 shares issued and outstanding, respectively +- +- +Class B Common Shares, 5,000,000 +authorized shares at no +par value; 5,000,000 +shares issued and outstanding +- +- +Common stock, value +- +- +Additional paid-in-capital +80,493 +68,721 +Accumulated income (deficit) +( 19,803 ) +1,442 +Total MDB Capital Holdings, LLC equity +60,690 +70,163 +Non-controlling interest +( 111 ) +( 90 ) +Total equity +60,579 +70,073 +Total liabilities and equity +$ 63,740 +$ 71,976 +See accompanying notes to consolidated +financial statements +F- 3 +MDB CAPITAL HOLDINGS, LLC AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +(in thousands, except per share data and share count) +Years Ended December 31, +2025 +2024 +Operating income: +Unrealized (loss) on investment securities, net from the licensed broker +dealer (Notes 1 and 2) +$ ( 331 ) +$ ( 275 ) +Unrealized gain on investment securities, net from non-licensed broker dealer (Notes 1 and 2) +85 +- +Realized gain on investment securities, net from the licensed broker dealer +14 +- +Fee income (from our licensed broker dealer) +4,282 +2,221 +Impairment of investment securities +- +( 200 ) +Other operating income +861 +411 +Total operating income, net +4,911 +2,157 +Operating costs: +General and administrative costs: +Compensation +14,969 +20,057 +Operating expense, related party +1,833 +1,486 +Professional fees +1,937 +3,112 +Information technology +1,103 +922 +Clearing and other charges +556 +1,137 +General and administrative-other +2,239 +2,608 +Total general and administrative costs +22,637 +29,322 +Research and development costs, net of grants $ 0 and $ 2,003 in 2024 and 2024 +- +1,468 +Total operating costs +22,637 +30,790 +Net operating loss +( 17,726 ) +( 28,633 ) +Other income and expenses: +Miscellaneous income +75 +112 +Interest income +617 +1,179 +Interest expense +- +( 72 ) +Gain related to dilution events +61 +130 +Gain on deconsolidation of subsidiary +- +39,307 +Net income (loss) before income taxes +( 16,973 ) +12,023 +Income taxes +11 +2 +Net income (loss) before equity method investee +( 16,984 ) +12,021 +Equity in loss of equity method investee +( 4,282 ) +( 420 ) +Net income (loss) +( 21,266 ) +11,601 +Less net loss attributable to non-controlling interest +( 21 ) +( 90 ) +Net income (loss) attributable to MDB Capital Holdings, LLC +$ ( 21,245 ) +$ 11,691 +Income (loss) per share attributable to MDB Capital Holdings, LLC: +Income (loss) per Class A Common Share – basic +$ ( 2.14 ) +$ 1.31 +Weighted average number of Class A Common Shares outstanding – basic +5,022,742 +4,424,484 +Income (loss) per Class B Common Share – basic +$ ( 2.10 ) +$ 1.18 +Weighted average of number Class B Common Shares outstanding – basic +5,000,000 +5,000,000 +Income (loss) per Common Share – basic +$ ( 2.10 ) +$ 1.18 +Weighted average of number Common Shares outstanding – basic +5,000,000 +5,000,000 +Income (loss) per Class A Common Share –diluted +$ ( 1.91 ) +$ 0.81 +Diluted number of Class A Common Shares outstanding +6,145,212 +9,462,904 +Income (loss) per Class B Common Share –diluted +$ ( 1.91 ) +$ 0.81 +Diluted number of Class B Common Shares outstanding +5,000,000 +5,000,000 +Income (loss) per Common Share –diluted +$ ( 1.91 ) +$ 0.81 +Diluted number of Common Shares outstanding +5,000,000 +5,000,000 +See accompanying notes to consolidated financial +statements. +F- 4 +MDB CAPITAL HOLDINGS, LLC AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY +(in thousands) +Years Ended December 31, 2025 and 2024 +Class A +Common Shares +Class B +Common Shares +Paid-In +Accumulated +Income +Noncontrolling +Total +Shares +Amount +Shares +Amount +Capital +(Deficit) +Interest +Equity +Balance, December 31, 2024 +4,951 +$ - +5,000 +$ - +$ 68,721 +$ 1,442 +$ ( 90 ) +$ 70,073 +Issuance of Class A Common Shares +188 +- +- +- +- +- +- +- +Stock-based compensation +- +- +- +- +11,772 +- +- +11,772 +Net (loss) +- +- +- +- +- +( 21,245 ) +( 21 ) +( 21,266 ) +Balance, December 31, 2025 +5,139 +$ - +5,000 +$ - +$ 80,493 +$ ( 19,803 ) +$ ( 111 ) +$ 60,579 +Class A +Common Shares +Class B +Common Shares +Paid-In +Accumulated +Income +Noncontrolling +Total +Shares +Amount +Shares +Amount +Capital +(Deficit) +Interest +Equity +Balance, December 31, 2023 +4,296 +$ - +5,000 +$ - +$ 49,406 +$ ( 12,092 ) +$ 7 +$ 37,321 +Balance +4,296 +$ - +5,000 +$ - +$ 49,406 +$ ( 12,092 ) +$ 7 +$ 37,321 +Ownership change of non-controlling interest +- +- +- +- +- +- +- +- +Issuance of Class A Common Shares +655 +- +- +- +- +- +- +- +Stock-based compensation +- +- +- +- +14,435 +- +- +14,435 +Effect of deconsolidation of subsidiary +- +- +- +- +4,880 +- +1,836 +6,716 +Net income (loss) +- +- +- +- +- +13,534 +( 1,933 ) +11,601 +Net income (loss) +- +- +- +- +- +13,534 +( 1,933 ) +11,601 +Balance, December 31, 2024 +4,951 +$ - +5,000 +$ - +$ 68,721 +$ 1,442 +$ ( 90 ) +$ 70,073 +Balance +4,951 +$ - +5,000 +$ - +$ 68,721 +$ 1,442 +$ ( 90 ) +$ 70,073 +See accompanying notes to consolidated financial +statements. +F- 5 +MDB CAPITAL HOLDINGS, LLC AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in thousands) +Years Ended December 31, 2025 and 2024 +Years Ended December 31, +2025 +2024 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net income (loss) +$ ( 21,266 ) +$ 11,601 +Adjustments to reconcile net income (loss) to net cash used in operating activities: +Unrealized loss on investment securities, net +246 +275 +Accretion of investments at amortized cost (U.S Treasury Bills) +- +( 534 ) +Realized loss (gain) on investment securities, net from the licensed broker dealer +( 14 ) +- +Stock-based compensation +11,772 +14,435 +Effect of deconsolidation of subsidiary +- +6,716 +Depreciation of property and equipment +22 +230 +Deferred costs related to revenue +13 +49 +Dilution of deferred grant reimbursement +- +( 41 ) +Gain on deconsolidation +- +( 39,307 ) +Portion of loss from equity investment +4,282 +420 +Gain related to dilution events +( 61 ) +( 130 ) +Warrants issued as part of an investment banking deal +- +297 +Share of loss from equity method investment +Income recognized from warrants received +( 1,889 ) +( 659 ) +Impairment of investment securities +- +200 +Deferred revenue +- +( 20 ) +Change in ROU Asset +95 +1,679 +Change in lease liability +( 103 ) +( 1,705 ) +Changes in operating assets and liabilities: +(Increase) decrease in - +Grants receivable +- +882 +Accounts receivable +( 100 ) +- +Related party receivables +51 +( 64 ) +Prepaid expenses and other current assets +55 +11 +Clearing deposits +( 262 ) +( 1,478 ) +Increase (decrease) in - +Accounts payable +58 +( 252 ) +Accrued expenses +22 +( 1,033 ) +Related party payables +( 22 ) +23 +Payables to customers +1,417 +772 +Payables to non-customers +- +( 1,405 ) +Net cash used in operating activities +( 5,684 ) +( 9,038 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Purchases of investment securities, at amortized cost (U.S. Treasury Bills) +- +( 17,766 ) +Proceeds from payments and maturities of investment securities, at amortized cost (U.S. Treasury Bills) +- +42,959 +Accretion of equity investments +- +( 2,747 ) +Deferred grant reimbursement +- +( 100 ) +Purchases of property and equipment +( 49 ) +546 +Net cash provided by (used in) investing activities +( 49 ) +22,892 +CASH FLOWS FROM FINANCING ACTIVITIES: +Acquisition of non-controlling interest +- +69 +Net cash provided by financing activities +- +69 +NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS +( 5,733 ) +13,923 +CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR +21,281 +7,358 +CASH AND CASH EQUIVALENTS - END OF YEAR +$ 15,548 +$ 21,281 +Supplemental disclosures of cash flow information: +Cash paid for - +Income taxes +$ 11 +$ 2 +Non-cash investing and financing activities: +Warrants received as part of an investment banking deal +$ - +$ 657 +Relinquishment of deferred costs of initial public offering from prior year +$ - +$ 323 +Investment securities, at cost less impairment, received in lieu of cash payment +$ - +100 +Issuance of warrants to purchase Class A stock related to the initial public offering closed on September 20, 2023 +$ - +$ 65 +The following table provides a reconciliation +of the amount of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the total of the same +such amounts shown in the consolidated statements of cash flows: +Years Ended December 31, +2025 +2024 +Cash and cash equivalents +$ 13,217 +$ 20,437 +Cash segregated in compliance with regulations +2,331 +844 +Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows +$ 15,548 +$ 21,281 +See accompanying notes to consolidated financial +statements. +F- 6 +MDB CAPITAL HOLDINGS, LLC AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Years Ended December 31, 2025 and 2024 +1. Organization and Description of Business +MDB Capital Holdings, LLC (“the +Company” or “MDB”), a Delaware limited liability company, is a holding company that has three wholly-owned subsidiaries: +MDB CG Management Company (“MDB Management”); Public Ventures, LLC, d/b/a MDB Capital (“Public Ventures”); and +PatentVest, Inc. (“PatentVest”), and MDB Minnesota One (“M1”). +MDB Management is principally an “administrative” +entity whose purpose is to conduct, and wherever possible, to consolidate shared services/resources, for our US-based operations. +Public Ventures is a U.S. registered +broker-dealer under the Securities Exchange Act of 1934, and is a member of the Financial Industry Regulatory Authority (“FINRA”) +and the Texas State Securities Board. Public Ventures operates on a fully disclosed basis with a nonrelated FINRA member firm, Interactive +Brokers, LLC (“Interactive Brokers”), and is not required to maintain a clearing deposit. Interactive Brokers is the clearing +firm and custodian of investments maintained by Public Ventures. +PatentVest is a wholly-owned subsidiary +that performs intellectual property validation services for Public Ventures’, due diligence functions on the intellectual property +of partner and prospective partner companies, and creates an intellectual property roadmap for such partner companies. +M1 is a majority owned subsidiary +and was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology from Mayo Foundation for Medical Education and Research (“Mayo”). The objective of +the License Agreement is for Minnesota One to develop a small molecule senescence platform. +On September 20, 2023, MDB completed +an initial public offering, consisting of the sale of 1.67 million shares of Class A Common Shares at $ 12.00 per share, for gross +proceeds of $ 20.0 million. Accordingly, the Company received total gross proceeds of $ 20.0 million from the sale of 1.67 million shares +of Class A Common Shares, or $ 17.4 million net of $ 2.6 million of offering expenses. In conjunction with the IPO, the Company issued warrants +to the placement agent to purchase 16.7 thousand shares of Class A Common Shares, exercisable upon issuance for a period of 5 years at +$ 15.00 per share, for a cash consideration of $ 0.001 /share. The placement agent’s warrants had a fair value of $ 65.4 thousand, as +calculated pursuant to the Black-Scholes option-pricing model and accounted for as issuance costs that were accounted for as equity instruments +and recorded against paid in capital. The inputs used to determine the fair value was Common Stock price of $ 12.00 , option exercise price +of $ 15.00 , expected life in years of 2.45 years, with a contract life of 5 years, risk-free rate of 4.79 %, expected annual volatility +of 59.99 %, and annual rate of dividends of $ 0 . +On July 1, 2024, the founding ownership +of M1 had MDB owning 67 % and Mayo owning 33 % of the issued and outstanding +common stock. M1 was formed with the purpose of developing pharmaceuticals, based on patents and licensed technology from Mayo. After +the initial formation of M1 and finalization and entry into a license agreement between Mayo and M1, MDB entered into a Term Equity Purchase +Agreement (“Purchase Agreement”) to provide capital for operations of M1 in exchange for the issuance of shares of common +stock of M1 to MDB. The objective of the License Agreement is for M1 to develop a small molecule senescence platform. Under the terms +of the License Agreement M1 has paid an up-front license fee to Mayo of One Hundred Fifty Thousand Dollars ($ 150 thousand). To maintain +its rights under the License Agreement, M1 is subject to achieving certain developmental and funding milestones within designated time +periods and to paying Mayo royalties on net sales of licensed products. Under the terms of the Purchase Agreement, MDB may invest up to +$ 5.0 million over a five-year period into M1 in amounts and increments tied to its business operating requirements. In an ancillary agreement +to the license agreement, Mayo has the right of participation in future financings of M1. +2. Summary of Significant Accounting Policies +Basis of Presentation and Principles +of Consolidation +The accompanying consolidated financial +statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America +(“GAAP”) and include the financial statements of wholly-owned and majority owned subsidiaries. All material intercompany accounts +and transactions have been eliminated in consolidation. Non-controlling interests at December 31, 2025 and 2024 relate to the interests +of third parties in the partially owned subsidiaries. +The managing members of the Company +have a controlling interest in PatentVest, S.A., a company organized and based in Nicaragua (which was renamed MDB Capital, S.A in 2022). +As the Company itself does not have a controlling financial interest in this entity, management has determined PatentVest, S.A. is not +a variable interest entity and should not be consolidated as it has no ownership interests, so has excluded this entity from the Company’s +consolidated financial statements. It is the Company’s policy to reevaluate this conclusion on an annual basis or if there are significant +changes in ownership. +F- 7 +Deconsolidation +Upon the occurrence of certain events +and on a regular basis, the Company evaluates whether it no longer has a controlling interest in its subsidiaries, including consolidated +variable interest entities. If the Company determines it no longer has a controlling interest, the subsidiary is deconsolidated. The Company +records a gain or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of (a) the fair +value of any consideration received, (b) the fair value of any retained noncontrolling investment in the former subsidiary and (c) the +carrying amount of any noncontrolling interest in the subsidiary being deconsolidated, less (ii) the carrying amount of the former subsidiary’s +assets and liabilities. +The Company evaluated whether the +deconsolidation should be presented as a discontinued operation in its consolidated financial statements as of the deconsolidation date. +This assessment considers whether the deconsolidation constitutes a strategic shift that has, or will have, a major impact on the Company’s +operations or financial results. Based on this evaluation, the Company concluded that the deconsolidation does not meet the criteria +for presentation as a discontinued operation. Accordingly, the Consolidated Statement of Operations includes the results of operations +for the deconsolidated entity through November 14, 2024, the effective date of deconsolidation. +Equity method investment +The Company applies the equity method +to account for investments in entities where it has the ability to exercise significant influence over the operating and financial policies +of the investee. Under the equity method, the investment in eXoZymes Inc, (“eXoZymes “), formerly Invizyne Technologies +Inc. (“Invizyne”)”, is initially recorded at cost and subsequently +adjusted to reflect the Company’s proportional share of the investee’s results of operations in its consolidated financial +statements. Equity method investments are periodically reviewed for any other-than-temporary declines in value. The Company’s investment +in eXoZymes is presented as “Equity method investment” on the consolidated balance sheet. +Any excess of the acquisition cost +over the Company’s share of the net fair value of eXoZymes’ identifiable assets and liabilities at the acquisition date is +recognized as goodwill, which is included in the carrying amount of the investment. +When the Company increases its interest +in an affiliate accounted for under the equity method while retaining significant influence, it applies the acquisition method only to +the additional interest acquired, leaving the previous interest unchanged. Conversely, when there is a decrease in the interest in an +affiliate accounted for under the equity method while retaining significant influence, the Company derecognizes a proportionate part of +its investment and recognizes any resulting gain or loss in profit or loss. +Income Taxes +We account for income taxes using the +asset and liability method, under which we would recognize the amount of taxes payable or refundable for the current year and deferred +tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. +We measure current and deferred tax assets and liabilities based on provisions of enacted tax law. We evaluate the realization of our +deferred tax assets based on all available evidence and establish a valuation allowance to reduce deferred tax assets when it is more +likely than not that they will not be realized. +Use of Estimates +The preparation of financial statements +in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities +at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the +disclosure of contingent assets and liabilities. Some of those judgments can be subjective and complex, and therefore, actual results +could differ materially from those estimates under different assumptions or conditions. Management bases its estimates on historical experience +and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, +the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent +from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available +information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, +those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related +to assumptions used in the valuation of investment securities, accruals for potential liabilities, valuing equity instruments issued for +services, assumptions used in the valuation of the equity method investment and gains on the deconsolidation of the subsidiary, the estimate +of the fair value of the lease liability and related right of use assets, net realizable value of receivables, useful life of property +and equipment, determining impairment of long-lived assets, and the realization of any deferred tax assets. +Emerging Growth Company +The Company is an “emerging growth +company,” or “EGC” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified +by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from +various reporting requirements that are applicable to other public companies that are not emerging growth companies. +Further, Section 102(b)(1) of the JOBS +Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies +(that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered +under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected to opt out of the +extended transition periods. +Cash and Cash Equivalents +The Company considers highly liquid +investments with original maturities or remaining maturities upon purchase of three months or less to be cash equivalents. There were +$ 4.5 million and $ 11.8 million cash equivalents held by the Company at December 31, 2025 and 2024, respectively. +The Company’s policy is to +maintain its cash balances with financial institutions with high credit ratings and in accounts insured by the Federal Deposit +Insurance Corporation (the “FDIC”) and/or by the Securities Investor Protection Corporation (the “SIPC”). +The Company may periodically have cash balances in financial institutions in excess of the FDIC and SIPC insurance limits of $ 0.25 +million and $ 0.5 +million. At December 31, 2025, the Company held $ 8.7 +million of unsegregated cash and $ 4.5 +million of cash equivalents. For the years ended December 31, 2025 and 2024, respectively, the Company had approximately $ 7.2 +million and $ 4.3 +million of cash and segregated cash in financial institutions in excess of FDIC insured limits. +F- 8 +The Company periodically reviews the +financial condition of the financial institutions and assesses the credit risk of such investments. The Company did not experience any +credit risk losses during the years ended December 31, 2025 and 2024. +The Company’s membership agreement +with the Depository Trust Clearing Corporation (“DTCC”) requires that we maintain a line of credit with our settlement bank in the amount $ 2.0 million, to be drawn down upon as +needed for self-clearing operations. The Company has established a line of credit with its settlement bank, Lakeside Bank, which is collateralized +by a $ 2.0 million deposit of cash at Lakeside. The collateral amount may be withdrawn, but the availability of the line of credit is dependent +upon the maintenance of such compensating balance and is included in cash and cash equivalents on the Statement of Financial Condition. +Segregated Cash and Deposits +From time to time the Company provides +deposits or enters into agreements that would require funds to be held in a segregated cash account. At December 31, 2025 and 2024, respectively, +the Company had $ 2.3 million and $ 0.8 million of segregated cash consisting of funds held in reserve for customers and non-customers. +Clearing Deposits +The Company is obligated to maintain +security deposits with the DTCC and National Securities Clearing Corporation (“NSCC”). At December 31, 2025 and 2024, these deposits totaled $ 2.0 million and $ 1.7 million, respectively. +Prepaid and other current assets +The Company has prepaid and other current +assets totaling $ 433 thousand at December 31, 2025 consisting of acquired intangible assets totaling $ 44 thousand, prepaid professional +fees totaling $ 50 thousand, security deposits totaling $ 19 thousand, prepaid insurance $ 169 thousand, various prepaid expense of $ 130 +thousand, and other assets of $ 21 thousand. Prepaid and other expenses totaling $ 513 thousand at December 31, 2024 consisting of acquired +intangible assets totaling $ 44 thousand, prepaid professional fees totaling $ 50 thousand, security deposits totaling $ 19 thousand, prepaid +insurance $ 160 thousand, various prepaid expense of $ 150 thousand, and other assets of $ 90 thousand. +Leases +Leases of the Company consist primarily +of contracts for the right to use and direct use of an individual property. Leases were analyzed for evidence of significant additional +components and to determine if these components were separately identifiable within the context of the contract. As an accounting policy, +to account for these components, the Company has elected the practical expedient for property leases that have both lease and non-lease +components for them to be combined into a single component and account for as a lease. This policy is effective for all current and future +property operating leases and applied uniformly and will be disclosed as such within the financial statements. Operating lease assets +are included within right-of-use assets and the corresponding operating lease liabilities are included within liabilities on the Company’s +consolidated balance sheet as of December 31, 2025 and 2024. +The Company has elected not to present +short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not +contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other right-of-use assets and lease +liabilities are recognized based on the present value of lease payments over the lease term at the lease commencement date. Because the +Company’s leases do not provide an implicit rate of return, the Company used the Company’s incremental borrowing rate based +on the information available at lease commencement date in determining the present value of lease payments. +Stock Based Compensation +Stock-based compensation primarily +consists of restricted stock units with service or market/performance conditions. Equity awards are measured at the fair market value +of the underlying stock at the grant date. The Company recognized stock based compensation expense using the straight-line attribution +method over the requisite service period. The Company’s subsidiary issued stock-options and the fair value is determined utilizing +Black-Scholes options-pricing model. The Company accounts for forfeitures as they occur, rather than applying an estimated forfeiture +rate. For performance-based restricted stock units, the compensation cost is recognized based on the number of units expected to vest +upon the achievement of the performance conditions. Shares are issued on the vesting dates net of the applicable statutory tax withholding +to be paid by us on behalf of our employees. As a result, fewer shares are issued to the employee than the number of awards outstanding. +The Company records a liability for the tax withholding to be paid by it as a reduction to Additional paid-in capital. +Investment Securities +The Company strategically invests funds +in U.S. Treasury Bills, early-stage technology companies, and equity securities and options of publicly traded and privately held companies. +The Company classifies investment securities as investment securities, at amortized cost, investment securities, at fair value, or investment +securities, at cost less impairment. +F- 9 +Investment securities, at amortized +cost – From time to time the Company will hold funds in investment securities, at amortized cost. This is comprised of debt +securities held by MDB and are classified as investment securities held-to-maturity and carried at amortized cost if management has the +positive intent and ability to hold the securities to maturity. Initially, the cost of these securities was recorded, and later on, they +were assessed at amortized cost, which was modified for unamortized purchase premiums and discounts, and also for credit losses provision. +Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective-interest +method. Such amortization and accretion are included in the other operating income in the statements of operations. Interest income is +recognized when earned. The Company recognizes estimated expected credit losses over the life of the investment security through the allowance +for credit losses account. The allowance for credit losses is a valuation account that is deducted from, or added to, the amortized cost +basis of the investment security to present the net amount expected to be collected. In determining expected credit losses, the Company +considers relevant qualitative factors including, but not limited to, term and structure of the instrument, credit rating by rating agencies +and historic credit losses adjusted for current conditions and reasonable and supportable forecasts. The Company holds investments in +U.S. Treasury Bills or money market funds backed by U.S. Treasury Bills, so there are no expected credit losses. Declines in fair value +of these securities is due to changes in market interest rates, and because it expects to hold these securities until maturity, it does +not expect to realize any losses. There were no investment securities, at amortized cost as of December 31, 2025 and 2024. +Investment securities, at fair value +- This is comprised of equity investments held by the broker dealer subsidiary and are reported at fair value with changes in fair +value recognized in the statement of operations. Purchases and sales of equity securities, consisting of common stock and warrants to +purchase common stock, are recorded based on the respective market price quotations on the trade date. Realized gains and losses on investments +represent the net gains and losses on investments sold during the period based on the average cost method. Differences between the fair +value of investments at the beginning of the year and the end of the year are recorded on the income statement as unrealized gains and +losses. +Investment securities, at cost less +impairment - This is comprised of equity securities without a readily determinable fair value held by the broker dealer subsidiary, +the Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable +price changes. The Company will reassess whether such an investment qualifies for the measurement alternative at each reporting period. +In evaluating an investment for impairment or observable price changes, we will use inputs including recent financing events, as well +as other available information regarding the investee’s historical and forecasted performance. The Company has assessed this investment +and determined that the current impairment of such securities held at the year ended December 31, 2025 is accurate. +Investment securities are as follows +(in thousands): +Broker/Dealer Securities +Schedule of Investment Securities Broker Dealer +December 31, +2025 +December 31, +2024 +Investment securities, at fair value: +Common stock of publicly traded companies +$ 2,571 +$ 2,528 +Warrants of publicly traded companies +3,937 +3,330 +Warrants of non-publicly traded companies +658 +- +Investment securities, at fair value +$ 7,166 +$ 5,858 +F- 10 +Non-Broker/Dealer Securities +Schedule of Investment Securities Non-Broker Dealer +December 31, +2025 +December 31, +2024 +Investment securities, at fair value: +Common stock of publicly traded companies +$ 235 +$ - +Investment securities, at fair value +$ 235 +$ - +December 31, +2025 +December 31, +2024 +Investment securities, at cost less impairment +Simple agreement on future equities (not market listed) +$ - +$ 200 +Impairment +- +( 200 ) +Investment securities, at cost less impairment +$ - +$ - +For investment securities at fair value +held at the end of each year, net unrealized loss of $ 246 thousand and $ 275 thousand were recognized in the statement of operations for +years ended December 31, 2025 and 2024, respectively. +Fair Value of Financial Instruments +Fair value is defined as the price +that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement +date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree +that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the +lowest level of input that is significant to the fair value measurement. +The Company determines the fair value +of its financial instruments based on a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value +into three levels: +Level 1 - Observable inputs such as +quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. +Level 2 - Inputs, other than quoted +prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration +with observable market data. +Level 3 - Unobservable inputs in which +there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. +F- 11 +The Company’s financial instruments primarily consist of cash and investment +securities. These investment securities and securities sold and not yet purchased are recorded at fair value as of the balance sheet date, +with unrealized gains and losses resulting from changes in fair value recognized in the statement of operations. +A description of the valuation techniques +applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows: +Investment securities, at fair value +and securities sold, not yet purchased: These securities are valued based on quoted prices from the exchange or other trading platform. +To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the +fair value hierarchy. +A description of the valuation techniques +applied to the Company’s other financial assets and liabilities is as follows: +Investment securities, at amortized +cost: The fair value of U.S. Treasury Bills classified as held-to-maturity investment securities is based on the market price and is classified +as level 1 of the fair value hierarchy. +Investment securities, at cost +less impairment: Non-public equity securities and simple agreements for future equity are valued based on the initial investment, +less impairment. The Company determined that an impairment is warranted. Since these securities are not actively traded, we will +apply valuation adjustments when they become available, and they are categorized in level 3 of the fair value hierarchy. The Company +fully impaired a Simple Agreement for Future Equity (“SAFE”) that was previously valued at $ 100 +thousand and stock that was previously valued at $ 50 +thousand both were held at the year ended December 31, 2023. +The following table sets forth the +fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025, +except for the Level 3 investment that is recorded at cost (in thousands): +Schedule of Fair Value of Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis +Assets +Classification +Level 1 +Level 2 +Level 3 +Total +Investment securities, at fair value, held by the licensed broker dealer +Equity securities - common stock +$ 2,571 +$ - +$ - +$ 2,571 +Investment securities, at fair value, held by the non-licensed broker dealer +Equity securities - common stock +235 +- +- +235 +Investment Securities (held by our licensed broker dealer) +Warrants +- +132 +4,463 +4,595 +Total assets measured at fair value +$ 2,806 +$ 132 +$ 4,463 +$ 7,401 +During the year ended December 31, +2025, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy. +Reconciliation of fair value measurements +categorized within Level 3 of the fair value hierarchy (in thousands): +Schedule of Reconciliation of Fair Value Measurements Within Level 3 of Fair Value Hierarchy +December 31, 2024 +$ 2,662 +Beginning Balance +$ 2,662 +Receipt from investment banking fees +1,690 +Unrealized gain +111 +December 31, 2025 +$ 4,463 +Ending Balance +$ 4,463 +F- 12 +The following table present information +about significant unobservable inputs related to material components of Level 3 warrants as of December 31, 2025 (in thousands) : +Schedule of Significant Unobservable Inputs Related to Material Components of Level 3 Warrants +Assets +Fair Value +Valuation +Techniques +Significant +Unobservable +Inputs +Ranges of +Inputs +Weighted-Average +Warrants +$ +4,463 +Black Scholes +Volatility +95.92 - 120.3 +% +115.45 +% +The following table sets forth the +fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024, +except for the Level 3 investment that is recorded at cost (in thousands): +Assets +Classification +Level 1 +Level 2 +Level 3 +Total +Investment Securities (held by our licensed broker dealer) +Equity securities - common stock +$ 2,528 +$ - +$ - +$ 2,528 +Investment Securities (held by our licensed broker dealer) +Warrants +- +668 +2,662 +3,330 +Total assets measured at fair value (held by our licensed broker dealer) +$ 2,528 +$ 668 +$ 2,662 +$ 5,858 +During the year ended December 31, +2024, the Company did not have any transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy. +Reconciliation of fair value measurements +categorized within Level 3 of the fair value hierarchy (in thousands): +December 31, 2023 +$ 3,134 +Beginning Balance +$ 3,134 +Unrealized gains +( 472 ) +Unrealized (loss) gains +( 472 ) +December 31, 2024 +$ 2,662 +Ending Balance +$ 2,662 +The following table present information +about significant unobservable inputs related to material components of Level 3 warrants as of December 31, 2024 (in thousands) : +Assets +Fair Value +Valuation +Techniques +Significant +Unobservable +Inputs +Ranges of +Inputs +Weighted-Average +Warrants +$ +2,662 +Black Scholes +Volatility +111.03 +% +111.03 +% +Secured Debt–- Revolving +Credit Facility +The Company entered into a revolving +credit facility with a bank, (the “Lender”) on July 26, 2024 for a commitment of up to $ 2.0 million and which matures July +26, 2025 . The loan has a variable interest rate equal to a defined index, currently the Lender’s rate on the sale of Federal Funds, +plus 2.25 %. The loan commenced with a calculated interest rate of 7.75 %. If the Lender determines, in its sole discretion, that the index +becomes unavailable or unreliable, either temporary, indefinitely, or permanently, during the term of this loan, the Lender may amend +this loan by designating a substantially similar substitute index. The agreement provides for a quarterly payment of the greater of accrued +interest or a non-usage fee of $ 5 thousand. The Company has not made any draw downs on the credit facility. +The Company granted the Lender a +security interest in a cash checking account held at the bank as collateral. The Lender has a right of setoff available from this +cash account when the line of credit is accessed. As of December 31, 2025 and 2024, there was $ 2.1 +and $ 2.1 million deposited in this account. +The Company is responsible for the +payment of all of the Lender’s legal and other fees incurred in connection with administering the loan. The Company has incurred +no such costs or debt issue costs. +As of December 31, 2025 and 2024, there are no outstanding indebtedness under the credit facility and interest expense totaled $ 0 . The Company is in compliance with all +covenants under the agreement. +F- 13 +Property and Equipment +Property and equipment are recorded +at cost. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition +of property and equipment are included in the statement of operations when realized. Depreciation is provided using the straight-line +method over the following estimated useful lives: +Schedule +of Estimated Useful Lives of Property +and Equipment +Laboratory equipment +5 years +Developed software +5 years +Furniture and fixtures +7 years +Leasehold improvements +Lesser of the lease duration or the life of the improvements +Property and equipment consist of the +following as of December 31, 2025 and 2024, respectively, (in thousands): +Schedule of Property And Equipment +December 31, +2025 +December 31, +2024 +Developed software +$ 139 +$ 113 +Total property and equipment +139 +113 +Less: Accumulated depreciation +( 22 ) +( 23 ) +Property and equipment, net +$ 117 +$ 90 +Revenue +The Company generates revenue primarily +from providing brokerage services and underwriting through Public Ventures. PatentVest and eXoZymes, have +had limited activity during the years ended December 31, 2025 and 2024. +Brokerage revenues consist of (i) trade-based +commission income from executed trade orders, (ii) net realized gains and losses from proprietary trades, and (iii) other income consisting +primarily of stock loan income earned on customer accounts. Public Ventures recognizes revenue from trade-based commissions and other +income when performance obligations are satisfied through the transfer of control, as specified in the contract, of promised services +to the customers of Public Ventures. Commissions are recognized on a trade date basis. Public Ventures believes that each executed trade +order represents a single performance obligation that is fulfilled on the trade date because that is when the underlying financial instrument +is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer. When another +party is involved in transferring a good or service to a customer, Public Ventures assesses whether revenue is presented based on the +gross consideration received from customers (principal) or net of amounts paid to a third party (agent). Public Ventures has determined +that it is acting as the principal as the provider of the brokerage services and therefore records this revenue on a gross basis. Clearing, +custody and trade administration fees incurred from Interactive Brokers, the Company’s clearing firm, are recorded effective as +of the trade date. The costs are treated as fulfillment costs and are recorded in operating expenses in the consolidated statements of +operations. +F- 14 +Brokerage revenue is measured by the +transaction price, which is defined as the amount of consideration that Public Ventures expects to receive in exchange for services to +customers. The transaction price is adjusted for estimates of known or expected variable consideration based upon the individual contract +terms. Variable consideration is recorded as a reduction to revenue based on amounts that Public Ventures expects to refund back to the +customer. There were no variable considerations for the years ended December 31, 2025, and 2024, respectively. +Investment banking revenues +consist of private placement and underwriting fees. The Company generally does not incur costs to obtain contracts with customers +that are eligible for deferral or receive fees prior to recognizing revenue related to investment banking transactions, and +therefore, as of December 31, 2025 and 2024, the Company did not have any contract assets or liabilities related to these revenues +on its consolidated balance sheets. +The +Company enters into underwriting agreements, to act as an underwriter and security offerings which include distribution and sale of securities +to investors. These agreements allow non-defaulting underwriters and the issuer’s representative to seek substitute purchasers within +36 hours if the Company defaults on its commitment. If replacements are not found and the default exceeds 10% of the offering, the agreement +may be terminated without liability. Under ASC 606, revenue is recognized only upon transfer of cash from the escrow account from investors +which is the final receipt of payment, as well receipt of warrants and common stock on the date of closing, with no recognition for defaulted +or terminated portions until resolution. +Private placement fees are related +to non-underwritten transactions such as private placements of equity securities, private investments in public equity, and Rule 144A +private offerings and are recorded on the closing date of the transaction. Client reimbursements for costs associated for private placement +fees are recorded gross within investment banking and various expense captions, excluding compensation. The Company typically receives +payments on private placements transactions at the completion of the contract. The Company views the majority of placement fees as a single +performance obligation that is satisfied when the transaction is complete, and the revenue is recognized at that point in time. +Taxes and regulatory fees assessed +by a government authority or agency that are both imposed on and concurrent with a specified revenue-producing transaction, which are +collected by Public Ventures from a customer, are excluded from revenue and recorded against general and administrative expenses. +Public Ventures does not incur any +costs to obtain contracts with customers for revenues that are eligible for deferral or receive fees prior to recognizing revenue, and +therefore, as of December 31, 2025 and 2024, Public Ventures did not have any contract assets or liabilities related to these revenues +in its consolidated balance sheet. +During the years ended December 31, +2025 and 2024, the Company’s technology development segment did not have any revenue. +PatentVest recognizes revenue when performance +obligations are satisfied by transferring promised goods and services to customers in an amount the Company expects to receive in exchange +for those goods or services. PatentVest enters into contracts that can include various combinations of its offerings which are generally +capable of being distinct and accounted for as a separate performance obligation for the entire contract or a portion of the contract. +When performance obligations are combined into a single contract, PatentVest utilizes stand-alone selling price to allocate the transaction +price among the performance obligations. +Certain contracts or portions of contracts +are duration-based, which in the event of customer cancellation, provide PatentVest with an enforceable right to a proportional payment +for the portion of the services provided. Accordingly, revenue from duration-based contracts is recognized using a time-based measure +of progress, which PatentVest believes best depicts how it satisfies its performance obligations in these arrangements as control is continuously +transferred throughout the contract period. Revenue from certain contracts is recognized over the expected period of performance using +a single measure of progress, typically based on hours incurred. Payments received in advance of services being rendered are recorded +as a component of contract liabilities. +The PatentVest’s contract liabilities +which is presented as deferred revenue, consist of advance payments. The table below shows changes in deferred revenue (in thousands): +Schedule of Changes in Deferred Revenue +Balance as of December 31, 2023 +$ 20 +Amounts billed but not recognized +- +Revenue recognized +20 +Balance as of December 31, 2024 +- +Amounts billed but not recognized +- +Revenue recognized +- +Balance as of December 31, 2025 +$ - +F- 15 +Research Grants +eXoZymes, receives grant reimbursements, which are netted against research and development expenses in the consolidated statement of operations. +Grant reimbursements for capitalized assets are recognized over the useful life of the assets, with the unrecognized portion recorded +as deferred grant reimbursements and included in liabilities in the consolidated balance sheet. +Grants function on a reimbursement +model are accounted for using the accrual method. They are treated as reductions to expenses, corresponding to the amount of disbursements +and obligations eligible for reimbursement. These are for permissible expenses incurred as of December 31, 2024. The reimbursements are +anticipated to be received from the respective funding entities in the following year. Management considers such receivables at December +31, 2024, to be fully collectable due to the historical experience with the Federal Government of the United States of America. Accordingly, +no allowance for credit losses on the grants receivable was recorded in the accompanying consolidated financial statements. The Company was not engaged in any research grants for the year ended December 31. 2025. +Summary of grants receivable activity +for the years ended December 31, 2025 and 2024, is presented below (in thousands): +Summary of Grants Receivable Activity +2025 +2024 (1) +Balance at beginning of year (1) +$ - +$ 882 +Grant costs expensed +- +1,897 +Grants for equipment purchased +- +44 +Grant fees +- +52 +Grant funds received +- +( 2,173 ) +Removal of balance due to deconsolidation of eXoZymes at November 14, 2024 +- +( 702 ) +Balance at end of year +$ - +$ - +(1) In 2024, eXoZymes was deconsolidated +from the Company’s consolidated financial statements. As all grant-related costs were associated with eXoZymes, no grant-related +figures are reported for 2024. +eXoZymes has received three grants +provided by the National Institute of Health, the Department of Energy and Department of Defense through December 31, 2024. The first +grant was awarded on October 1, 2023 and the latest of these grants was set to expire on May 14, 2026, however grants can be extended, +or new phases can be granted, extending the expiration of the grant. None of the grants have commitments made by the parties, provisions +for recapture, or any other contingencies, beyond complying with the normal terms of each research and development grant. Research grants +received from organizations are subject to the contract agreement as to how eXoZymes, formerly known as eXoZymes, conducts its research +activities, and eXoZymes is required to comply with the agreement terms relating to those grants. Amounts received under research grants +are nonrefundable, regardless of the success of the underlying research project, to the extent that such amounts are expended in accordance +with the approved grant project. eXoZymes is permitted to draw down the research grants after incurring the related expenses. Amounts +received under research grants are offset against the related research and development costs in the Company’s consolidated statement +of operations. For the years ended December 31, 2025 and 2024, grants amounting $ 0 and $ 2.8 million, were offset against +the research and development costs. Grant drawdowns, which includes grants costs expensed, grants for equipment purchased, and grant fees, +for the years ended December 31, 2025 and 2024, totaled $ 0 and $ 2.0 million, respectively, which included grant costs expensed, grants +for equipment purchased, and grants fees. +Research and Development Costs +Research and development costs are +expensed as incurred. Research and development costs consist primarily of compensation costs, fees paid to consultants, and other expenses +relating to the development of eXoZymes’ technology. For the years ended December 31, 2025 and 2024, research and development costs +prior to offset of the grants amounted to $ 0 and $ 3.4 million, respectively, which included grant costs expensed, grants fees, and research +and development costs, net of the grant received. +F- 16 +Patent and Licensing Legal and Filing +Fees and Costs +Due to the significant uncertainty +associated with the successful development of one or more commercially viable products based on the Company’s research efforts and +related patent applications, all patent and licensing legal and filing fees and costs related to the development and protection of its +intellectual property are charged to operations as incurred. +Patent and licensing legal and filing +fees and costs were $ 54 thousand and $ 296 thousand for the years ended December 31, 2025 and 2024, respectively. Patent and licensing +legal and filing fees and costs are included in general and administrative costs in the Company’s consolidated statements of operations. +Recently Issued Accounting Pronouncements +ASU 2021-10, Government Assistance +(Topic 832): Disclosures by Business Entities about Government Assistance +On January 1, 2020, The Company adopted +ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”) +and retrospectively applied the guidance to prior transactions. +The amendments in ASU 2021-10 require +the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting +model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions; +(2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each +financial statement line item; and (3) significant terms and conditions of the transactions, including commitments and contingencies. +Management does not believe that any +other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s +consolidated financial statement presentation or disclosures. +3. Segment Reporting +In its operation of the business, management, +including the Company’s chief operating decision maker, who is also the Company’s Chief Executive Officer, reviews certain +financial information, including segmented profit and loss and balance sheet statements. +The Company currently operates in two +reportable segments: a broker dealer & intellectual property service and technology development. +The broker dealer & intellectual +property service segment currently has two subsidiaries, Public Ventures and PatentVest. Public Ventures is a full-service broker dealer +firm focusing on conducting private and public securities offerings. PatentVest offers in-depth patent research used for investment banking +due diligence. +The technology development segment +currently has two subsidiaries, eXoZymes, and M1. eXoZymes is a research and development stage +company synthetic biology company, that is consolidated in the Statement of Operations up to November 14, 2024. M1 research +and development stage company that is developing a small molecule senescence platform. +Non-income generating subsidiaries +for management of the business, including MDB Management are reported in the Other column in the table below. +F- 17 +The segments are based on the discrete +financial information reviewed by the Chief Executive Officer to make resource allocation decisions and to evaluate performance. The reportable +segments are each managed separately because they will provide a distinct product or provide services with different processes. All reported +segment revenues are derived from external customers. +The accounting policies of the Company’s +reportable segments are in consideration of ASC 280 and the same as those described in the summary of significant accounting policies +(see Note 2). +The following sets forth the long-lived +assets and total assets by segment at December 31, 2025 (in thousands): +Schedule of Long-lived Assets and Total Assets by Segment +ASSETS +Broker +Dealer and +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Long-lived assets +$ 117 +$ - +$ 547 +$ - +$ 664 +Total assets +$ 25,128 +$ 3 +$ 38,609 +$ - +$ 63,740 +Schedule of Statement of Operation by Segment +Broker +Dealer & +Intellectual +Property +Service +Technology Development +Other +Eliminations +Consolidated +Operating income: +Unrealized (loss) on investment securities, net from the licensed broker +dealer (1) +$ ( 331 ) +$ - +$ - +$ - +$ ( 331 ) +Investment securities, at fair value, held by the non-licensed broker dealer (1) +85 +- +- +- +85 +Realized gain on investment securities, net from the licensed broker dealer (2) +14 +- +- +- +14 +Fee income from the licensed broker dealer (3) +4,282 +- +- +- +4,282 +Impairment loss +- +- +- +- +- +Other operating income (4) +861 +- +- +- +861 +Total operating income, net +4,911 +- +- +- +4,911 +Operating costs: +General and administrative costs: +Compensation +2,875 +- +12,094 +- +14,969 +Operating expense, related party +1,471 +- +362 +- +1,833 +Professional fees +1,005 +64 +868 +- +1,937 +Information technology +968 +- +135 +- +1,103 +Clearing and other charges +556 +- +- +- +556 +General and administrative-other +742 +- +1,497 +- +2,239 +General and administrative costs +7,617 +64 +14,956 +- +22,637 +Research and development costs +- +- +- +- +- +Total operating costs +7,617 +64 +14,956 +- +22,637 +Net operating (loss) +( 2,706 ) +( 64 ) +( 14,956 ) +- +( 17,726 ) +Other income and expense: +Miscellaneous income +75 +- +- +- +75 +Interest expense +( 990 ) +- +- +990 +- +Interest income +471 +- +1,136 +( 990 ) +617 +Gain related to dilution events +- +- +61 +- +61 +Gain on deconsolidation of subsidiary +- +- +- +- +- +(Loss) before income taxes +( 3,150 ) +( 64 ) +( 13,759 ) +- +( 16,973 ) +Income tax expense +11 +- +- +- +11 +Income (loss) before equity method investee +( 3,161 ) +( 64 ) +( 13,759 ) +- +( 16,984 ) +Equity in loss of equity method investee +- +- +( 4,282 ) +- +( 4,282 ) +Net (loss) +( 3,161 ) +( 64 ) +( 18,041 ) +- +( 21,266 ) +Less net loss attributable to non-controlling interests +- +( 21 ) +- +- +( 21 ) +Net loss attributable to MDB Capital Holdings, LLC +$ ( 3,161 ) +$ ( 43 ) +$ ( 18,041 ) +$ - +$ ( 21,245 ) +(1) +Includes unrealized losses on securities +held by the broker-dealer and non-broker dealer. +(2) +Includes realized gains on securities held by the broker-dealer. +(3) +Includes fee income generated for the broker-dealer from investment banking activities, including advisory services, capital raising, and other related financial transactions. +(4) +Includes fees earned from self-clearing activities by the broker-dealer and professional fees generated by PatentVest services. +F- 18 +The following sets forth the long-lived +assets and total assets by segment at December 31, 2024 (in thousands): +ASSETS +Broker +Dealer & +Intellectual +Property +Service +Technology +Development +Other +Eliminations +Consolidated +Long-lived assets +$ 91 +$ - +$ 641 +$ - +$ 732 +Total assets +$ 21,754 +$ 1 +$ 50,221 +$ - +$ 71,976 +Broker +Dealer & +Intellectual +Property +Service +Technology Development +Other +Eliminations +Consolidated +Operating income: +Unrealized (loss) on investment securities, net from the licensed broker +dealer (1) +$ ( 275 ) +$ - +$ - +$ - +$ ( 275 ) +Fee income from the licensed broker dealer (2) +2,221 +- +- +- +2,221 +Impairment loss (3) +( 200 ) +( 200 ) +Other operating income (4) +411 +- +- +- +411 +Total operating income, net +2,157 +- +- +- +2,157 +Operating costs: +General and administrative costs: +Compensation +3,226 +2,062 +14,769 +- +20,057 +Operating expense, related party +1,301 +- +185 +- +1,486 +Professional fees +820 +1,206 +1,086 +- +3,112 +Information technology +805 +34 +83 +- +922 +Clearing and other charges +1,137 +- +- +- +1,137 +General and administrative-other +806 +133 +1,669 +- +2,608 +General and administrative costs +8,095 +3,435 +17,792 +- +29,322 +Research and development costs +- +1,468 +- +- +1,468 +Total operating costs +8,095 +4,903 +17,792 +- +30,790 +Net operating (loss) +( 5,938 ) +( 4,903 ) +( 17,792 ) +- +( 28,633 ) +Other income and expense: +Miscellaneous income +112 +- +- +- +112 +Interest expense +( 779 ) +( 92 ) +- +799 +( 72 ) +Interest income +465 +3 +1,510 +( 799 ) +1,179 +Gain related to dilution events +- +- +130 +- +130 +Gain on deconsolidation of subsidiary +- +- +39,307 +- +39,307 +Income (loss) before income taxes +( 6,140 ) +( 4,992 ) +23,155 +- +12,023 +Income tax expense +- +2 +- +- +2 +Income (loss) before equity method investee +( 6,140 ) +( 4,994 ) +23,155 +- +12,021 +Equity in loss of equity method investee +- +- +( 420 ) +- +( 420 ) +Net income (loss) +( 6,140 ) +( 4,994 ) +22,735 +- +11,601 +Less net loss attributable to non-controlling interests +- +( 90 ) +- +- +( 90 ) +Net income and (loss) attributable to MDB Capital Holdings, LLC +$ ( 6,140 ) +$ ( 4,904 ) +$ 22,735 +$ - +$ 11,691 +(1) Includes unrealized gains and +losses on securities held by the broker-dealer. +(2) Includes fee income generated +for the broker from investment banking activities, including advisory services, capital raising, and other related financial transactions. +(3) Includes impairment loss of assets +from the reduced fair value of the asset. +(4) Includes fees earned from self-clearing +activities and professional fees generated by PatentVest services. +4. Equity and Non-Controlling Interests +Equity +Preferred shares – 10,000,000 +shares authorized, no shares issued and outstanding. The board of directors may designate preferred shares to be issued, and may rank +preferred shares as junior to, on parity with or senior to other preferred shares (in each case, with respect to distributions or other +payments in respect of shares). Since the board of directors may set all the terms of any class of preferred shares, these are considered +“blank check” preferred shares. Currently the board has not defined dividend and liquidation preference, participation rights, +call prices and dates, sinking-fund requirements, or terms that may change the conversation or exercise price. +Class A Common Shares – 95,000,000 +shares authorized, 4,950,632 shares issued and outstanding as of December 31, 2024. These shares are common shares and have one vote per +share. Currently there is not a defined dividend or liquidation preference. +Class B Common Shares – 5,000,000 +shares authorized, 5,000,000 issued and outstanding as of December 31, 2024. These shares are common shares and have five votes per share. +Currently there is not a defined dividend or liquidation preference. These shares may be converted one to one for Class A Common Shares. +Placement Agent and Selling Agent +Warrants – 43,420 warrants of Class A common shares have been issued as part of the private placement and the initial public offering. +The Placement Agent and Selling Agent Warrants are subject to standard anti-dilution provisions and may include cashless exercise provisions +under certain circumstances. The issuance of the Placement and Selling Agent Warrants is a customary part of compensation for the placement +or selling agent’s services in connection with prior offerings. +F- 19 +Non-Controlling Interests +On July 1, 2024 M1 was incorporated. +During the year ended December 31, 2024, the ownership interest in M1, ranged from 67.0 % to 67.9 % (weighted average of 67.47 %), with +the non-controlling interest ranging from 33.0 % to 32.1 % (weighted average of 32.53 %). +During the year ended December 31, +2025, the Company held a weighted average of 67.84 % ownership interest in M1, with the remaining 32.16 % representing NCI. During the year +ended December 31, 2024, the ownership interest in eXoZymes, ranged from 60.94 % to 47.0 %, with the non-controlling +interest ranging from 39.06 % to 53.0 %. On November 14, 2024 the ownership of eXoZymes by MDB moved below 50%, therefore +on that day the eXoZymes was deconsolidated from the financial statements. +During each period, controlling and +non-controlling interests changes as a result of capital infusions from MDB. For the years ended December 31, 2025, +and 2024, there were capital infusions of $ 93 thousand (M1) and $ 177 thousand (M1), respectively. The NCI ownership will be equal to the +NCI percentage as of the reporting period. Therefore, there will be a redistribution of equity between MDB and the non-controlling interest +owner. As of December 31, 2025, the Company’s equity interest in M1 was 67.9 % to 67.8 %, and the remaining equity interest was owned +by the non-controlling interests as presented below. As of December 31, 2024, the Company’s equity interest in M1 was 67.9 % to 67.0 %, +and the remaining equity interest was owned by the non-controlling interests as presented below (in thousands): +Schedule of Equity and Non-Controlling Interests +For the Years Ended +December 31, +2025 +2024 +Non-controlling interest net loss +$ ( 64 ) +$ ( 276 ) +Weighted average non-controlling percentage +32.16 % +32.53 % +Net loss non-controlling interest +$ ( 21 ) +$ ( 90 ) +Prior period balance +( 90 ) +7 +Removal of prior period balance of eXoZymes due to deconsolidation +- +( 7 ) +Stock-based compensation +- +- +Ownership change of non-controlling interest +- +- +Ending period balance +$ ( 111 ) +$ ( 90 ) +If there is a change in the parent +ownership in a subsidiary from an additional investment or from the issuance of stock based compensation, a change of the non-controlling +ownership is recognized based on the amount invested as required, and per ASC 810-45-21A, the carrying amount of the non-controlling interest +is adjusted to reflect the change in the non-controlling ownership in the subsidiary’s net assets. Since there was a change in the +equity, a reclassification of the non-controlling interest in the subsidiary’s net assets is required and demonstrated in the ending +period balance above. +Note 5 – Deconsolidation +On November 14, 2024 (the “Deconsolidation +Date”), the Company deconsolidated eXoZymes from its financial statements due to its ownership interest falling below 50%, resulting +in the loss of a controlling financial interest. This change occurred in connection with eXoZymes’ completion of its initial public +offering, which reduced the Company’s ownership stake. +The consolidated financial statements +as of December 31, 2024 reflect the inclusion of eXoZymes’ financial results through the Deconsolidation Date. For the period from +November 15, 2024 through December 31, 2024, the Company accounted for its investment in eXoZymes under the equity method, recognizing +its proportionate share of eXoZymes’ net loss in the amount of $ 420 thousand, based on eXoZymes’ total net loss of $ 893 thousand +for that period. +As of December 31, 2024, the Company +continues to hold a 47% interest in eXoZymes Class A common stock. While the Company and eXoZymes share certain officers, board members, +and accounting personnel, the two entities operate independently. eXoZymes also utilizes professional services provided by PatentVest, +a wholly owned subsidiary of the Company +The assessment of the potential +impairment of the Company’s equity method investments when indicators such as a history of operating losses, a negative +earnings and cash flow outlook, and the financial condition and prospects for the investee’s business segment might indicate a +loss in value. The Company has not recognized any impairment loss on investment in unconsolidated affiliate to +date. +The following table represents the +consolidated balance sheet of xXoZymes immediately prior to the Deconsolidation Date (in thousands): +Schedule +of Consolidated Balance Sheet +December +31, 2024 +Assets +Cash and cash equivalents +$ 68 +Grants receivable +701 +Prepaid expenses and other current assets +441 +Deferred IPO Costs +550 +Property and equipment, net +710 +Operating lease right-of-use asset, net +1,366 +Total assets +$ 3,836 +Liabilities and Deficit +Accounts payable +$ 851 +Accrued expenses +241 +Due to affiliates +5,479 +Deferred grant reimbursement +130 +Operating lease liabilities +1,417 +Total liabilities +$ 8,118 +Deficit: +Common shares +- +Paid-in-capital +$ 4,120 +Accumulated deficit +( 8,402 ) +Total deficit +$ ( 4,282 ) +Total liabilities and deficit +$ 3,836 +F- 20 +At December 31, 2024 +eXoZymes had current assets of approximately $ 10.8 million, total assets of approximately $ 13.0 million, current liabilities of approximately +$ 1.3 million and total liabilities of approximately $ 2.6 million. For the year ended December 31, 2024, eXoZymes had revenues of $ 0 and +a net loss of approximately $ 5.9 million. +The following represents the calculation +of the gain on deconsolidation of eXoZymes from the consolidated financial statements of the Company (in thousands, except for share +price): +Schedule +of Gain on Deconsolidation +eXoZymes Class A common shares retained on November 14, 2024 +3,931 +Quoted closing price of eXoZymes Class A common shares at November 14, 2024 +$ 10.36 +Subtotal of quoted closing price of eXoZymes Class A common shares at November 14, 2024 +$ 40,727 +Fair value of warrants held for eXoZymes at November 14, 2024 +1,327 +Fair value of equity method investment retained by eXoZymes +42,054 +Carrying Value of the NCI +( 921 ) +Carrying value of eXoZymes assets at November 14, 2024 +4,282 +Less carrying value of former investment into eXoZymes at November 14, 2024 +( 5,787 ) +Carrying value of warrants held for eXoZymes at November 14,2024 +( 321 ) +Gain on deconsolidation +$ 39,307 +Note 6 – Equity Method Investment +On November 14, 2024, eXoZymes underwent +an initial public offering in which MDB’s ownership interest in eXoZymes decreased from 60 % to 47 % . MDB and eXoZymes deconsolidated +the financial statements as the investment in eXoZymes fell below 50 % majority ownership. +The fair value of the equity method investment +was determined based on the number of eXoZymes shares held by MDB and the market price of eXoZymes stock on the deconsolidation date. +This valuation also included the estimated fair value of warrants held in eXoZymes, along with an assessment of the investment for any +potential impairment. +The Company’s portion of the net loss +for the year ended December 31, 2025, was $ 4.28 million. As of December 31, 2025, MDB owned 3.93 million shares of eXoZymes shares, representing +a 46.76 % ownership of eXoZymes. +The following summarizes the Company’ +consolidated balance sheet equity method investment as follows (in thousands): +Schedule +of Equity Method Investment +Carrying +Amount +December 31, 2024, +carrying amount +$ 41,764 +Portion of loss +from eXoZymes +( 4,282 ) +Gain related to dilution events +61 +December 31, 2025, carrying amount +$ 37,543 +7. Stock-Based Compensation +On April 28, 2025, Mo Hayat, Chris +Marlett, George Brandon, and Anthony DiGiandomenico voluntarily relinquished their outstanding restricted stock units (RSUs) in exchange +for stock options for an equivalent number of Class A shares and similar vesting schedules. This exchange was executed as part of a broader +equity compensation strategy aimed at aligning long-term incentives with shareholder value creation. The terms of the stock options, including +exercise price and vesting schedules, were approved by the Company’s Board of Directors in accordance with the existing equity incentive +plan and Section 16 of the Exchange Act. +Between April 19, 2022 and September +21, 2022, the Company granted 3.7 million restricted stock units (“RSUs”). These units vested 20% of one-half of the total +number of RSUs, by each individual person, on the thirteenth (13) month anniversary, October 20, 2024, of the listing of the Class A Shares +on a United States national exchange, then vesting would be at a rate of 10% of one-half the number of RSUs each six months after the +date of the initial vesting, until the last vesting on the fifth year anniversary of the date of grant, at which any previously unvested +would fully vest. These RSUs were granted to officers, directors, employees, and contractors. These RSU began to vest upon the completion +of the initial public offering by the Company on September 20, 2023, compensation expense related to these RSUs has been recorded. The +Company expensed the RSUs based on the average expense over the vesting period. In 2024 an additional 295 thousands RSUs were +granted, 320 thousand RSUs were either canceled or forfeited, and 655 thousand RSUs vested. The total unrecognized compensation expense +based on the share price sold in the 2022 private placement as of December 31, 2025 was $ 6.0 million. The weighted average of the remaining +restricted stock units at December 31, 2025 was 1.6 years and at December 31, 2024 was 2.4 years. During the year ended December 31, 2025, +128 thousand RSUs were canceled due to holder leaving the Company and 1.6 million RSUs were exchanged and converted to stock options. +As a result of the modification, the fair value of the awards immediately after the modification was determined to be $ 6.0 million compared +to the fair value of the original restricted stock unit awards of $ 6.8 million immediately prior to the modification. The modification +resulted to a decrease in the aggregate fair value of the awards and in accordance with ASC 718-Compensation—Stock Compensation, no incremental compensation costs need +to be recognized over the remaining requisite service period. +F- 21 +On April 19, 2022 the Company granted +2 +million restricted stock units (“RSUs”). These +units will vest 20% of one-half of the total number of RSUs, by each individual person, starting on the thirteenth (13) month anniversary +of the listing of the Class A Shares on a United States national exchange, October 20, 2024, when a Class A Share has traded in the market +on which the Class A Shares are listed for any 90 consecutive calendar days at an average price of $20.00 or more during the period commencing +the date of grant and prior to the five year anniversary of the date of grant, with an average monthly trading volume of 2 million Class +A Shares or more during the 90 consecutive calendar day period, or a Class A Shares has traded in the market on which the Class A Shares +are listed for any 90 consecutive calendar days at an average price of $25.00 or more during the period commencing the date of grant +and prior to the five year anniversary of the date of grant; provided further, that if there is a distribution of cash, stock or other +property by the Company on the Class A Shares, then the foregoing average amounts of $20.00 or $25.00 will be reduced, from time to time, +by the value of any one or more per share distributions after the date of grant until vested. As these RSUs did not begin to vest +until the completion of an initial public offering, which was completed on September 20, 2023, by the Company, which was outside of the +control of the Company, compensation expense related to these RSUs has been recorded. On April 28, 2025 all of the market based RSUs +were modified and exchanged for stock options in their place. The unvested portion of the market based RSUs was $ 8.7 +million and the incremental value of $ 5.5 +million in the exchange for a total amortized amount of $ 14.2 +million that will be amortized over the 10 ten-year life +of the award. There is not an estimated unrecognized compensation expense, as all the RSUs were modified and exchanged for stock options. +A summary of restricted stock unit +activity during the year ended December 31, 2025 and the year ended December 31, 2024 is presented below (in thousands, except for share +price): +Schedule +of Restricted Stock Unit Activity +Time-Based +Performance-Based +Number of +Restricted +Stock Units +Weighted +Average +Grant Date +Fair Value +Number of +Restricted +Stock Units +Weighted +Average +Grant Date +Fair Value +Restricted stock units outstanding at December 31, 2024 +2,995 +$ 9.90 +2,000 +$ 7.91 +Granted +- +- +- +$ - +Vested +( 188 ) +9.69 +- +Exchanged/Modified +( 1,600 ) +10.00 +( 2,000 ) +$ 7.91 +Expired/Cancelled +( 128 ) +9.97 +- +$ - +Restricted stock units outstanding at December 31, 2025 +1,079 +$ 9.78 +- +$ - +Restricted stock units at December 31, 2024 +655 +$ 10.00 +- +$ - +Restricted stock units at December 31, 2025 +843 +$ 9.93 +- +$ - +On April 28, 2025, in exchange for +1.6 million unvested time-based RSUs, stock options to purchase 1.6 million shares of Common Shares were granted at an exercise price of +$ 4.25 per share, which was equal to the closing price of the Common Shares immediately prior to the date of grant, and are exercisable +for a period of 10 years. One-half of the stock options vested immediately on grant, with the remaining stock options vesting ratably +over a period of 2 years, subject to continued service. The inputs used to determine the fair value of this stock option grant were as +follows: (1) Common Stock price of $ 4.25 per share; (2) exercise price of $ 4.25 per share; (3) expected life of 10 years; (4) risk-free +interest rate of 4.23 %; (5) expected annual volatility of 85.65 %; and (6) an annual dividend rate of 0 %. The total unrecognized compensation +expense based on the pre-modification valuation of the shares price sold in the 2022 private placement as of December 31, 2025 was $ 6.9 +million. +A summary of time-based stock option +activity during the year ended December 31, 2025 and the year ended December 31, 2024 is presented below (in thousands, except +for share price and contractual life): +Schedule +of Time-Based Stock Option Activity +Number of Options +Weighted Average Exercise Price +Weighted Average Remaining Contractual Life (in Years) +Time-based stock options outstanding at December 31, 2024 +- +$ - +- +Exchanged/Modified +1,600 +3.75 +10.00 +Exercised +- +- +- +Expired/Cancelled +- +- +- +Time-based stock options outstanding at December 31, 2025 +1,600 +$ 3.75 +9.32 +Stock options exercisable at December 31, 2024 +- +$ - +- +Stock options exercisable at December 31, 2025 +1,067 +$ 3.75 +9.32 +In addition, on April 28, 2025, in +exchange for 2 million unvested market-based RSUs, stock options to purchase 2 million shares of Common Shares were granted at an exercise +price of $ 4.25 per share, which was equal to the closing price of the Common Shares immediately prior to the date of grant, and are exercisable +for a period of 10 years. The stock options vest if either (a) the Common Shares has traded in the market on which the shares are listed +for at least 30 trading days at an average price per share of $ 20.00 or more, whether consecutive or non-consecutive, or (b) there are +distributions of cash, stock or other property by the Company to the holders of the Common Shares, at a value per share of $ 20.00 or more +in the aggregate, subject to continued service. Once vested, the stock options will be exercisable for the remainder of the 10 -year grant +date period. The total unrecognized compensation expense based on the post-modification valuation of the unamortized amount and the incremental +value as of December 31, 2025 was $ 13.2 million. +A summary of market-based stock option +activity during the year ended December 31, 2025 and the year ended December 31, 2024 is presented below (in thousands, except for share +price and contractual life): +Schedule +of Market-Based Stock Option Activity +Number of Options +Weighted Average Exercise Price +Weighted Average Remaining Contractual Life (in Years) +Market-based stock options outstanding at December 31, 2024 +- +- +- +Exchanged/Modified +2,000 +$ 3.02 +10.00 +Exercised +- +- +- +Expired/Cancelled +- +- +- +Market-based stock options outstanding at December 31, 2025 +2,000 +$ 3.02 +9.32 +Stock options exercisable at December 31, 2024 +- +$ - +- +Stock options exercisable at December 31, 2025 +- +$ - +- +F- 22 +8. Earnings Per Share +The Company’s computation of +earnings (loss) per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) attributable +to common stockholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but +presents the dilutive effect on a per share basis of potential common shares (e.g., preferred shares, warrants and stock options) as if +they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive +effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS +Loss per common share is computed by +dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted +loss per common share was the same for all periods presented because stock warrants outstanding were anti-dilutive, for a total of 43 +thousand warrants. +Earning Earnings per share is presented +below for the years ended December 31, 2025 and 2024, respectively. +Basic earnings per share is calculated +at follows for the years ended December 31, 2025 and 2024 (in thousands, except for share price): +Schedule +of Basic and Fully Diluted +For +the Years Ended +Basic +December +31, 2025 +December +31, 2024 +Class +A Common Shares +Class +B Common Shares +Class +A Common Shares +Class +B Common Shares +Net income (loss) attributable to MDB Capital +Holdings, LLC +$ ( 10,768 ) +$ ( 10,477 ) +$ 5,817 +$ 5,875 +Weighted average shares outstanding – basic +5,023 +5,000 +4,424 +5,000 +Net income (loss) per share – basic +$ ( 2.14 ) +$ ( 2.10 ) +$ 1.31 +$ 1.18 +Fully diluted earnings per share is +calculated at follows for the years ended December 31, 2025 and 2024 (in thousands, except for share price): +For the Years Ended +Diluted +December 31, 2025 +December 31, 2024 +Class A Common Shares +Class B Common Shares +Class A Common Shares +Class B Common Shares +Net income (loss) attributable to MDB Capital Holdings, LLC +$ ( 11,714 ) +$ ( 9,531 ) +$ 7,650 +$ 4,042 +Diluted shares outstanding –diluted +6,145 +5,000 +9,463 +5,000 +Net income (loss) per share –diluted +$ ( 1.91 ) +$ ( 1.91 ) +$ 0.81 +$ 0.81 +Class A Common Shares and Class B common +stock are equal for ownership purposes, but Class B shares have five times the voting rights of Class A shares and Class B shares can +be exchanged on a one-to-one basis for purposes of sale. +9. Related Party Transactions +The principal members of the Company +have a controlling interest in PatentVest, S.A. (renamed MDB Capital, S.A. in 2022), a company organized and based in Nicaragua that provides +outsourced services to the Company and other non-related entities. During the years ended December 31, 2025 and 2024, the Company paid +$ 1.8 million and $ 1.5 million, respectively, which is inclusive of expenses and fees, for contracted labor, recorded against general and +administrative expenses. +During the years ended December 31, +2025 and 2024, PatentVest, engaged in transactions with ENDRA Life Sciences Inc – NDRA on Nasdaq, a company for which one of our +executive officer serve as a board member. Anthony DiGiandomenico, our Chief of Transactions. For the year ended December 31, 2024, there +were no revenues recognized between MDB entities and ENDRA. However, costs incurred amounting to $ 81 thousand +related to transactions with ENDRA were recognized during the year. For the year ended December 31, 2025 there was no revenue or costs +recognized during the year. +During the years ended December +31, 2025 and 2024, PatentVest engaged in transactions with eXoZymes, a company of which the Company owns 47% of recognized revenues +of $ 91 +thousand and $ 41 +thousand. +During the year ended December 31, +2025, the Company recorded related party accrued receivables totaling $ 13 thousand for services performed by PatentVest on behalf of eXoZymes. +Additionally, the Company recorded accrued expenses of $ 1 thousand payable to PatentVest, representing reimbursable expenses incurred +in the ordinary course of business. During the year ended December 31, 2024, the Company recorded related party accrued receivables totaling +$ 64 thousand. This amount includes $ 42 thousand for services performed by PatentVest on behalf of eXoZymes and $ 22 thousand related to +taxes paid by the Company on behalf of certain officers, which was reimbursed in full by January 31, 2025. Additionally, the Company recorded +accrued expenses of $ 23 thousand payable to officers and directors, representing reimbursable expenses incurred in the ordinary course +of business. All transactions were conducted on an arm’s-length basis and are expected to be settled in the normal course of operations. +F- 23 +10. Commitments and Contingencies +Legal Claims +The Company may be subject to legal +claims and actions from time to time as part of its business activities. As of December 31, 2025 and 2024, the Company was not subject +to any pending or threatened legal claims or actions. +Net Capital Requirement (Public +Ventures) +Public Ventures is subject to the uniform +net capital rule (SEC Rule 15c3-1) of the Securities and Exchange Commission (the “SEC”), which requires both the maintenance +of minimum net capital and the maintenance of maximum ratio of aggregate indebtedness to net capital. At December 31, 2025 and 2024, Public +Ventures had net capital of $ 8.7 million and $ 10.7 million, respectively, which was $ 8.45 million and $ 10.45 million in excess of the +minimum $ 250 thousand, as required by the Securities and Exchange Commission Rule 15c3-1. +During the year ended December 31, +2025, the broker dealer had existing subordinated loans with MDB, the Parent company, totaling $ 13.2 million and $ 1.0 million of accrued interest +payable, is subordinated to other liabilities of the Company, and is considered members’ equity for calculating net capital, and +is not included in aggregate indebtedness. +Minimum net capital is based upon +the greater of the statutory minimum net capital of $ 250 +thousand or 2 % +of aggregate customer debits, which were $ 0 +at December 31, 2025 and 2024. +To comply with DTCC membership requirements, +the Company has committed to maintain at least $ 5.0 million of net capital in excess of the $ 250 thousand minimum. +The requirement +to comply with the Uniform Net Capital Rule 15c3-1 may limit Public Ventures’ ability to issue dividends to its parent company. +Indemnification Provisions +Public Ventures has agreed to indemnify +its clearing broker for losses that the clearing brokers may sustain from the accounts of customers. Should a customer not fulfill its +obligation on a transaction, Public Ventures may be required to buy or sell securities at prevailing market prices in the future on behalf +of its customer. The indemnification obligations of Public Ventures to its clearing brokers have no maximum amount. All unsettled trades +at December 31, 2025 and 2024, have subsequently settled with no resulting material liability to Public Ventures. For the years ended +December 31, 2025 and 2024, Public Ventures, had no material loss due to counterparty failure and had no obligations outstanding under +the indemnification arrangement as of December 31, 2025 and 2024. +F- 24 +11. Employee Benefit Plans +MDB Management and eXoZymes, both sponsored individual 401(k) defined contribution plans for the benefit of each company’s eligible employees. +Public Ventures offered its employees a sponsored 401(k) defined contribution plan for the benefit of the employees; this plan was terminated +on July 30, 2021. The plans allow eligible employees to contribute a portion of their annual compensation, not to exceed annual limits +established by the Department of Treasury. eXoZymes makes matching contributions for participating employees up to a certain percentage +of the employee contributions; matching contributions were funded for the year ended December 31, 2025 and 2024. Benefits under the eXoZymes +plan were available to all employees, and employees become fully vested in the employer contribution upon receipt. For the year ended +December 31, 2025 and 2024, a total of $ 392 thousand and $ 659 thousand, respectively, was contributed to the plans. The costs for eXoZymes +are recorded up to November 14, 2024, the date of the consolidation of eXoZymes. The majority of the expense was included in general and +administrative cost, however, for any research and development employees. their portion of the expense is recorded in research and +development costs. +MDB Management and eXoZymes also provide +health and related benefit plans for eligible employees. +12. Exclusive License Agreement (MDB Minnesota +One) +On July 1, 2024, M1 entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo for certain patent rights and associated technology pursuant to which M1 intends +to develop a small molecule senescence platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented +technology and know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license +of patent rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed +products and derivatives. +As part of initial consideration for +the License Agreement, M1 issued 1.98 million shares of common stock equity to Mayo; which at that time represented thirty-three percent +of its shares. M1 also paid an initial license fee of $ 150 thousand as part of the initial consideration. M1 will pay earned royalties +on future net sales (including modest minimum annual royalties, which commence in the second year of the term of the License Agreement +and gradually increase and plateau over time, and which will be credited against earned royalties due on net sales), and a percentage +of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. At December 31, 2025 there +were no accrued royalties recorded. +Under the License Agreement, M1 is +required to achieve certain development milestones within designated time periods. For select development milestones, as listed below, +M1 will be required to make a payment to Mayo, also as noted below: +● +A payment of $ 250 thousand for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A payment of $ 1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A payment of $ 2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A payment of $ 5 million for NDA approval, for each instance of a licensed product. +As of December 31, 2025 the development +milestones noted above are not required to have been met and have not been met. There are other developmental milestones in the License +Agreement relating to funding of the business and to initiating various clinical trial phases over time. +If M1 materially breaches the terms +of the License Agreement, and such material breach remains uncured after an opportunity to cure, Mayo may terminate the License Agreement. +13. Leases +For operating leases, the Company records +right-of-use assets and corresponding lease liabilities in the consolidated balance sheets for all leases with terms longer than twelve +months. The Company has one operating leases, with no variable lease costs, and no finance leases as of December 31, 2025. The Company +has three operating leases, with no variable lease costs, and no finance leases as of December 31, 2024. +eXoZymes was consolidated up to November 14, 2024. In October 2023, eXoZymes, made changes to an existing lease agreement that was originally entered +into in August 2021, which resulted in an extension of the lease term by an additional 14 months. The revised lease maintained the same +escalation rate for lease payments as the previous arrangement. To account for this modification, the Company reevaluated the remaining +lease term at the time of execution. As the Company was actively utilizing the premises, adjustments were made to reflect the revaluation +of both the right-to-use asset and the corresponding lease liability in line with the updated lease term. This was originally entered +into in August 2021, with a term of 60 months beginning on August 24, 2021 and ending on September 30, 2026, with an option to extend +for 60 additional months and was further modified on April 3, 2023 for an additional 21 months with the lease ending date of April 30, +2028. At the time the lease commenced, it was not probable the Company would exercise the one five-year option to extend the facility +lease; therefore, this extension option is not included in the lease analysis. The initial base rent is $ 14.3 thousand per month. The +lease provides for annual increases. The base rent for the lease in the final year is $ 16.7 thousand per month. Additionally, eXoZymes +was responsible for annual operating cost increases of 2.5 %, which are included in the rent. Since eXoZymes is not consolidated for 2025, +the information above was only calculated for 2024. +Furthermore, in October 2023, eXoZymes +made changes to a second existing lease agreement that was originally entered into in April 2023, which resulted in an extension of the +lease term by an additional 12 months. The revised lease maintained the same escalation rate for lease payments as the previous arrangement. +To account for this modification, the Company reevaluated the remaining lease term at the time of execution. As the Company was actively +utilizing the premises, adjustments were made to reflect the revaluation of both the right-to-use asset and the corresponding lease liability +in line with the updated lease term. This was originally entered into in April 2023, with a term of 60 months beginning on July 1, 2023 +and ending on June 30, 2028, with an option to extend for 60 additional months . At the time the lease commenced, it was not probable the +Company would exercise the one five-year option to extend the facility lease; therefore, this extension option is not included in the +lease analysis. The initial base rent is $ 13.3 thousand per month. The lease provides for annual increases. The base rent for the lease +in the final year is $ 15.4 thousand per month. Additionally, eXoZymes is responsible for annual operating cost increases of 3.0 %, which +are included in the rent. Since eXoZymes is not consolidated for 2024, the information above is only calculated for 2023. +On July 1, 2022 the Company executed +a lease for new office space in the Dallas, Texas metropolitan area, the space was occupied on December 20, 2022. The lease with a term +of 91 months and began once we took control of the space on December 20, 2022 and ending on July 20, 2030, without an option to extend. +The initial base rent was $ 12.6 thousand per month, after 7 months of free rent. The lease provides for annual increases. The base rent +for the lease in the final year is $ 13.9 thousand per month. +F- 25 +ROU assets represent the Company’s +right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. +Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments +over the lease term. The Company’s uses the implicit rate in its lease calculations when it is readily determinable. Since the Company’s +leases do not provide implicit rates, to determine the present value of lease payments, management uses the Company’s estimated +incremental borrowing rate for a fully collateralized loan with a similar term of the lease that is based on the information available +at the inception of the lease. +Schedule +of Operating Lease Cost +For the years ended +December 31, +(in thousands) +2025 +2024 +Operating leases: +Right-of-use assets +$ 547 +$ 641 +Operating lease liabilities +$ 609 +$ 711 +Weighted average remaining lease term in years +4.50 +5.50 +Weighted average discount rate +7.80 % +7.80 % +Cash paid for amounts included in the measurement of lease liabilities +$ 155 +$ 152 +Right-of-use assets obtained in exchange for lease liabilities +$ - +$ - +Operating lease cost +$ 52 +$ 147 +Short-term lease costs +95 +87 +Total operating lease costs +$ 147 +$ 234 +Future payments due under operating +leases for the as of December 31, 2025 are as follows (in thousands): +Schedule +of Future payments Due Under Operating Lease +Year +Amount +2026 +158 +2027 +160 +2028 +163 +2029 and thereafter +259 +Total +$ 740 +Less effects of discounting +( 131 ) +Total operating lease liability +$ 609 +14. Income Taxes +The Company is a limited liability +company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income +tax liabilities and/or benefits of the Company are passed through to its unitholders. Limited liability companies are subject to Texas +margin tax. Additionally, the Company’s subsidiaries, Public Ventures, MDB Management, PatentVest, and M1 are Subchapter C-corporations +subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries, the Company is +not a taxable entity; it does not directly pay federal and state income taxes and recognition has not been given to federal and state +income taxes for the operations of the Company, except as set forth in the tables below. Amounts recognized for income taxes are reported +in “income tax expense (benefit)” on the consolidated statements of operations. +F- 26 +The Company’s taxable income +or loss, which may vary substantially from the net income or net loss reported on the consolidated statements of operations, is includable +in the federal and state income tax returns of each unitholder. +Income tax expense (benefit) (including +Subchapter C-corporations) consisted of the following (in thousands): +Schedule +of Income Taxes Expenses (benefit) +Years Ended December 31, +2025 +2024 +Current taxes +Federal +$ - +$ 1 +State +11 +1 +Deferred taxes +Federal +- +- +State +- +- +Total +$ 11 +$ 2 +Total cash taxes paid net of refunds +received in 2025 was $ 0 . +As of December 31, 2025, the Company had approximately $ 23.3 million and $ 0.1 million of net operating loss carryforwards +for U.S. federal and Florida income tax purposes, respectively. These net operating losses may be carried forward indefinitely +Effective for the year ended December +31, 2025, the Company adopted ASU 2023-09-Improvements to Income Tax Disclosures, prospectively. The reconciliation of income tax expense (including Subchapter C-corporations) +computed at the U.S. federal statutory income tax rate of 21% to the recognized income tax expense for the year ended December 31, 2025, +presented in accordance with the disclosure requirements of ASU 2023-09-Improvements to Income Tax Disclosures, is as follows (in thousands): +Schedule +of Federal Statutory Tax Rate to The Effective Tax Rate +Year Ended December 31, 2025 +Amount +Rate +U.S Federal statutory income rate +$ ( 4,463 ) +21.00 % +State, net of federal tax benefit +9 +( 0.04 )% +Nontaxable or nondeductible items +Income/loss excluded from nontaxable entities +944 +( 4.44 )% +Permanent differences +Permanent differences +Meals and entertainment +7 +( 0.04 )% +Stock options +614 +( 3.06 )% +Equity award vesting +248 +( 1.24 )% +Modification of equity awards +2,194 +( 10.95 )% +Return-to-provision adjustments +( 44 ) +0.22 % +Other +Other +Valuation allowance +502 +( 2.52 )% +Effective rate +$ 11 +( 0.05 )% +A reconciliation of the federal +statutory tax rate to the effective tax rate (including Subchapter C-corporations) for the year ended December 31, 2024 and +2024 is as follows: +Year +Ended December 31, 2024 +Amount +Rate +U.S Federal statutory +income rate +$ 2,453 +21.00 % +State, net of federal tax +benefit +( 246 ) +( 2.11 )% +Income/loss excluded from +nontaxable entities +( 8,009 ) +( 68.57 )% +Permanent differences +641 +5.49 % +Return-to-provision adjustments +5 +0.04 % +Other +192 +1.65 % +Valuation +allowance +4,966 +42.52 % +Effective +rate +$ 2 +0.02 % +F- 27 +Significant components of the deferred +tax assets and liabilities (including Subchapter C-corporations) were as follows (in thousands): +Schedule +of Deferred Tax Assets and Liabilities +Years Ended December 31, +2025 +2024 +Deferred tax assets: +Start-up expenditures +$ 4 +$ 13 +Organizational expenditures +14 +Sec 174 – Research and development costs +- +3 +Stock compensation +1,795 +2,524 +Lease liability +128 +149 +Property and equipment principally due to differences in depreciation +2 +3 +Bonus expense +14 +- +Charitable contribution carryforwards +1 +1 +Impairment expense +53 +11 +Intangible Assets +51 +38 +Net operating loss carryforwards +4,890 +3,781 +Valuation allowance +( 6,625 ) +( 6,124 ) +Total deferred tax assets +$ 327 +$ 399 +Deferred tax liabilities: +Right-of-use asset +$ ( 115 ) +$ ( 135 ) +Investment securities +( 212 ) +( 264 ) +Total deferred tax liabilities +$ ( 327 ) +$ ( 399 ) +Net deferred tax assets/(liabilities) +$ - +$ - +Net deferred tax assets and liabilities +were classified on the consolidated balance sheets as follows (in thousands): +Years Ended December 31, +2025 +2024 +Deferred tax assets +$ 327 +$ 399 +Deferred tax liabilities +( 327 ) +( 399 ) +Other noncurrent assets/(liabilities) +$ - +$ - +In assessing the realizability of deferred +tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. +The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which +those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future +taxable income and tax planning strategies in making this assessment. At December 31, 2025, based on projections of future taxable +income for the periods in which the deferred tax assets are deductible, a valuation allowance of approximately $ 6.6 million was recorded +for tax carry forwards and attributes to reduce the net deferred tax assets to an amount that is more likely than not to be recognized. +The amount of deferred tax assets considered realizable could be reduced in the future if estimates of future taxable income during the +carry forward period are reduced. +In accordance with the applicable accounting +standards, the Company recognizes only the impact of income tax positions that, based on their merits, are more likely than not to be +sustained upon audit by a taxing authority. To evaluate its current tax positions in order to identify any material uncertain tax positions, +the Company developed a policy of identifying and evaluating uncertain tax positions that considers support for each tax position, industry +standards, tax return disclosures and schedules and the significance of each position. It is the Company’s policy to recognize interest +and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company had no material uncertain tax positions +at December 31, 2025 and December 31, 2024. The tax years 2022 – 2025 remain open to examination for federal income tax +purposes. +15. Subsequent Events +On February 3, 2026, the Company granted +161,500 restricted stock units (RSUs) to employees pursuant to its equity incentive plan. +F- 28 +SIGNATURES +Pursuant to the requirements +of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by +the undersigned, thereunto duly authorized. +MDB CAPITAL HOLDINGS, LLC +(the “Registrant”) +Dated: March 31, 2026 +By: +/s/ Christopher A. Marlett +Christopher A. Marlett +Chief Executive Officer +(Principal Executive Officer) +Dated: March 31, 2026 +By: +/s/Jeremy W. James +Jeremy W. James +Chief Financial Officer (Principal Financial and Accounting Officer) +Pursuant to the requirements +of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in +the capacities and on the dates indicated. +Dated: March 31, 2026 +By: +/s/ Christopher A. Marlett +Christopher A. Marlett, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) +Dated: March 31, 2026 +By: +/s/ Jeremy W. James +Chief Financial Officer (Principal Financial and Accounting Officer) +Dated: March 31, 2026 +By: +/s/ Anthony DiGiandomenico +Anthony DiGiandomenico, Head of New Venture Discovery and Director +Dated: March 31, 2026 +By: +/s/ George Brandon +George Brandon, President and Director +Dated: March 31, 2026 +By: +/s/ Mo Hayat +Mo Hayat, Head of Corporate Development & Chief Legal Officer and Director +Dated: March 31, 2026 +By: +/s/ Matthew Hayden +Matthew Hayden, Director +Dated: March 31, 2026 +By: +/s/ Jeb Terry +Jeb Terry, Director +Dated: March 31, 2026 +By: +/s/ Sean Magennis +Sean Magennis, Director +Dated: March 31, 2026 +By: +/s/ Daniel Torpey +Daniel Torpey, Director +77 +EXHIBITS +Exhibit +Number +Description +of Exhibit +1.1 +Selling Agency Agreement (Incorporated herein by reference to Exhibit 1.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +3.1 +Limited Liability Company Certificate of Formation dated August 10, 2022 (incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +3.2 +Limited Liability Company Agreement of MDB Capital Holdings, LLC dated November 9, 2022 (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.1 +Form of Registrant’s Class A Common Share certificate (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.2 +Form of Selling Agent’s Warrant (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +4.3* +Description of Capital Stock. +10.1 +Form of Indemnification Agreement by and between the registrant and each of its directors and executive officers (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.2 +2022 Equity Incentive Award Plan (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.3 +Form of RSU Award Agreement under 2022 Equity Incentive Award Plan for grants after July 1, 2022 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.4+ +Employment Agreement by and between the registrant and Christopher Marlett, dated April 15, 2022 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.5+ +Employment Agreement by and between the registrant and Mo Hayat, dated April 15, 2022 (incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.6 +MDB Capital, S.A. Service Agreement, dated January 1, 2022, as amended and restated June 1, 2023 (incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 as filed on July 20, 2023). +10.7 +Form of Warrant issued June 22, 2022 to placement agents in the June Private Offering (incorporated herein by reference to Exhibit 10.7 to the Registration Statement on Form S-1 as filed on July 20, 2023). +14.1 +Code of Business Code and Ethics (October 2022 (incorporated herein by reference to Exhibit 14.1 to the Registration Statement on Form S-1 as filed on July 20, 2023). +19.1 +Insider Trading Policy, 2023 (incorporated herein by reference to Exhibit 19.1 to the Annual Report on Form 10-K for Fiscal Year 2023, filed March 29, 2024). +21.1* +Subsidiaries +23.1* +Consent of Independent Registered Public Accounting Firm +31.1 +* +Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +* +Certification of Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Principal Financial and Accounting, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +99.1 +Clawback Policy 2023 (incorporated herein by reference to Exhibit 99.1 to the Annual Report on Form 10-K for the Fiscal Year 2023, filed March 29, 2024). +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document) ++ +Indicates a management contract or compensatory plan. +* +Filed herewith. +** +Furnished herewith. +78 \ No newline at end of file diff --git a/raw/filings/0001934642/2025/0001493152-26-013924/filing_metadata.csv b/raw/filings/0001934642/2025/0001493152-26-013924/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..7888370b87817770d5b9f2e84b081b5345b3ede4 --- /dev/null +++ b/raw/filings/0001934642/2025/0001493152-26-013924/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934642,MDBH,"MDB Capital Holdings, LLC",2025,10-K,2026-03-31,2025-12-31,2026-03-31T15:26:01.000Z,0001493152-26-013924,form10-k.htm,10-K,10693443,1,1,https://www.sec.gov/Archives/edgar/data/1934642/000149315226013924/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1934642/000149315226013924/ diff --git a/raw/filings/0001934642/2025/0001493152-26-013924/item1.txt b/raw/filings/0001934642/2025/0001493152-26-013924/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..402855047a8c33f5e041e32fdaf5250edd3ac522 --- /dev/null +++ b/raw/filings/0001934642/2025/0001493152-26-013924/item1.txt @@ -0,0 +1,769 @@ +Item +1. Business +Introduction +MDB +Capital Holdings, LLC (“MDB”) serves as a foundational platform specializing in financing startups, partnering with co-founders, +and fostering value creation. This platform sets the stage for nascent ideas and entrepreneurial talent to take root. MDB is comprised +of a group of companies that together serve as this unified foundational platform. +One +of the companies in our group, Public Ventures, LLC (“Public Ventures”), which operates under the D/B/A of “MDB +Capital,” operates as a growth catalyst, focusing on community-driven micro and small-cap financings and is a self-clearing broker dealer. It enables companies to +scale through the initial financing stages ranging from $5 million to sixty million dollars and facilitates their transition into +public markets with select IPOs valued in the range of twenty to fifty million dollars. Public Ventures also may provide financing +to post-IPO companies that continue to meet its overall business criteria for investment. +Another +company in our group, PatentVest, Inc. (“PatentVest”) complements the platform as an integrated intellectual property (“IP”) +solution and IP service provider, acting as a strategic law firm to guide technology companies through the intricacies of IP law and +provides companies with IP strategy development. It plays a pivotal role in positioning companies to become leaders in their respective +spaces and curates premier opportunities for MDB and Public Ventures, which leads to our Big Idea Companies. +MDB +Minnesota One, Inc (“M1”), a partner company, was created in mid-2024 with the vision of developing a small molecule anti-senescence +platform comprised of pharmaceutical drugs or other products to aid in longevity and to inhibit certain forms of age-related diseases +(the “M1 Platform”). The focus of the M1 Platform is to treat senescent cells, which +are dysfunctional cells that have permanently stopped dividing, that have been implicated in the aging process, and that permit the development +of chronic low-grade inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple +fibrotic conditions that have limited treatment options and poor prognoses. +MDB +supports a continuous process, dubbed our Big Idea Pipeline, designed to surface new Big Idea Companies and other opportunities for +our platform. We believe that the Big Idea Pipeline showcases the progression of tech initiatives from discovery to +commercialization stages. Initially, in any given calendar cycle, a substantial number of potential tech ideas are scouted from +various sources, including referrals, universities, and conferences. From this broad pool, approximately 250 technologies are +identified annually as relevant and with potential alignment with our business model. A more focused group of these ideas, about 50, +evolves into, what we call, active Big Idea Companies. Progressing further, approximately ten of these companies reach advanced +stages within the selection process, indicating a deeper engagement and evaluation by MDB. At the pinnacle of the pipeline, as of +the date of filing this Annual Report on Form 10-K, two Big Idea Companies are currently in active negotiations, marking the final step before potential +partnership or investment. This is a continuous process with the Big Idea Pipeline in constant flux as new ideas emerge or evolve. +MDB’s disciplined and structured approach to vetting the Big Idea Pipeline allows us to cultivate and invest in innovative +technologies with the potential to scale and succeed in the market. +MDB’s +investment criteria focuses on six key areas to identify early-stage companies poised for success in public markets. These potential +partner companies should exhibit “Tech Leadership Potential,” with distinct differentiation that pioneers a new technological +category. “Platform Technology” is essential, with core technology that can span various vertical markets or indications. +They should be at an “Early Inflection Point,” where the timeline and costs to validate technology feasibility in the commercial +marketplace are reasonable. “Clear Market Insertion” is also critical, with technology disruption significant enough to incentivize +stakeholders for market entry. The target companies should have “Large Market Potential,” addressing substantial unmet needs +with vast market opportunities. Lastly, a “Strong IP Position” is necessary, meaning a robust and defensible intellectual +property stance with broad claims to secure a sustainable competitive edge. +5 +In +essence, the investment philosophy is to scout for companies that not only stand at the vanguard of technology but also demonstrate the +capacity to disrupt markets, backed by solid intellectual property and clear pathways to market adoption and growth. +Together, +our platform represents a holistic approach to leadership development in the general technology industry. Our objective is to provide +a continuum of support to our partner companies, from inception through growth phases, culminating in market leadership. Each part of +the overall platform is integral to the journey of a start-up, providing tailored resources, expertise, management guidance and resources, +and financial backing as necessary to evolve our partner company into a significant player in the technology sector. This unity of purpose +exemplifies the strategic foresight of MDB’s commitment to launching Big Ideas and developing industry leaders. +Overview +MDB +was founded in 1997, originally operating as MDB Capital Group, LLC, for the purpose of engaging with companies holding visionary technology, +inventors, and technology entrepreneurs. To maximize the impact of our actions and culture, under our business plan, we embark on each +journey with a company at an early point, typically acting as founders and providing the initial rounds of capital, in the manner of +a partner and usually before a specified management structure has been put in place. Part of our role as founders often includes locating +the technology that will form the basis of the new enterprise. The technologies may be found in universities, in larger companies where +it is not being used or understood, in start-up companies, and with inventors. Not only do we act as founders and providing the first +capital rounds, we assist with structuring the plans for the company development, such as the steps from research and development to +initial commercialization, the intellectual property strategy, business objectives, and financing. We refer to these subsidiary companies +as “partner companies.” +Our +model typically includes a two-step financing approach with our partner companies: we put in seed capital, as founders, and the +first round of capital between $5 to $10 million to set the business on an operational foundation. Our plan is to then raise +additional amounts of substantive capital to bring the technology closer to validation or to be able to commence commercialization, +typically in the range of $20 to $60 million overall. We plan on additional financing by means of public offerings or alternative +value realization. Our community of sophisticated, individual investors with like-minded goals and values, supports our model, where +we will draw on their capital, knowledge, connections and expertise. We anticipate that value creation will be generated after any +number of years of patient ownership and corporate effort, and value realization might include any number of methods, such as +continued holding and operating, initial public offerings (“IPO”), joint ventures, licensing, asset sales and merger +transactions, depending on the particular business model and industry. +We +believe that we successfully have used the private and public capital markets to finance growth companies. Being able to find +disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting financing +activities for those companies in which we are strategically involved for the long term, we believe we have a different model of +helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology and then we work to analyze the technology leadership position by our surveying the marketplace so as to +establish a research and development and intellectual property development strategy to create a dominant position in the distinct +technology vertical. Then we create the basic company, we set up its management, we define its business plan, we nurture its +enterprise, and we provide its financings in its early-stage rounds, and then we likely will act as the underwriter or selling agent +for their IPO, other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where +there is an IPO, we plan to stay on for several years thereafter, by being members of the board, having consulting agreements, +providing strategic business advice, and participating in, advising on or facilitating further financing rounds. We believe, most +importantly, that one gauge of the partner company success is that the partner company will successfully foster community, where +community members who seek to create value at the companies, in connection with our self-clearing broker-dealer, Public Ventures. Our typical complete public and private follow-on offerings continue supporting their research, development, +growth and marketing of their technologies’ potential. MDB, we believe, builds value by building partner companies with the +right foundations +6 +Past +Examples +In +having been able to find disruptive technologies to develop, acting as corporate founders, owners, directors and management, and conducting +investing activities for those companies in which we have been strategically involved for the long term, we believe we now have a different +model for helping companies grow than that of the typical private venture capital model. We refer to our approach as public venture capital. +We find the technology, and then we work to analyze the technology leadership position and survey the marketplace so as to establish +a research and development and intellectual property development strategy to create a dominant position in the distinct technology vertical. +Then we create the basic company, we set up its management, we define its business plan, we nurture its enterprise, and we facilitate +its financings in its early-stage rounds of private funding. Then we likely will act as the underwriter or selling agent for their IPO, +other financing or disposition. It is our plan to remain involved with our partner companies for the long term. Where there is an IPO, +we plan to stay involved on for several years thereafter, by being members of the board, having consulting agreements, providing strategic +business advice, and participating in, advising on or facilitating further financing rounds. We believe that one gauge +of the partner company success is that the partner company will successfully complete a private and public follow-on offering to continue +supporting their research, development, growth and marketing of their technologies’ potential. +Three +companies for which we started as founders and for which we conducted their IPOs, have traded for a period of time at near or over $1 +billion in market value, which we believe is crucial for maximizing the probability the companies can raise sufficient capital to get +to commercialization. These companies are as follows: +● +Provention Bio, Inc. (“Provention”). Provention was established in 2016. Public Ventures created Provention to license molecules +from several larger pharmaceutical companies, conceived the business strategy, assisted in licensing negotiations, provided seed capital, +engaged the initial board of directors’ members, and recruited C-level executives as well as executed the successful IPO. +● +Cue BioPharma, Inc. (“Cue”). Cue was established in 2014. Public Ventures created Cue to license a platform technology from +Einstein University, engaged the members of the board of directors, recruited C- level executives, formed the corporate and IP strategy +and provided the seed capital and well as executing the successful IPO. +● +Pulse Biosciences, Inc. (“Pulse”). Pulse was established in 2014, Public Ventures created a new entity that rolled up the +intellectual property from two academic institutions and one private entity. Public Ventures then completed a seed financing, created the +business and IP strategy and assembled the management team and Board. Subsequently Public Ventures successfully executed the IPO for +Pulse. +More +recently, eXoZymes Inc, (formerly Invizyne Technologies Inc.) completed its IPO on November 14, 2024, having been set up in 2019 to +develop cell-free technology to optimize nature’s own biological processes to make chemicals used in many common applications. +MDB was one of the founders of the company, provided an initial funding of $5 million and a subsequent funding of $0.75 million and +provided executive management and several board members. Persons affiliated with MDB continue to be on the board of +directors. +Key +Pillars +Since +inception, we have defined and refined the key pillars that support what we believe is our successful company creation approach. +These pillars are defined in Our Partner Company Criteria section. We believe that our model is only suitable for companies that can +be sustained in the public markets at an early stage. Typically, these companies own what appear to be category-defining technology +platforms capable of solving big problems. +We +have established a process to position partner companies for success, with the intention of maximizing the value early in a company’s +history. We seek to create a strong foundation during the development phase of the partner company. We believe that this helps the partner +company attract the best people who are capable of building a successful enterprise over the long term. We call this our “Rational +Design Process For New Companies.” +A +traditional perceived shortcoming of the public markets is that they attract investors focused on the short-term markets. We understand that to make early-stage +public venture feasible; we need to create a community of investors that have the intention of helping our companies get off the ground. +We believe our investors are committed community members who seek to create value at the companies in which they invest and are critical +to sustaining value. Our investors, unlike traditional institutional investors, generally have long holding periods and value long-term +impact over quarterly performance numbers. +7 +Our +Community +A +key element of our public venture model is our community of more than 500 sophisticated investors, entrepreneurs and microcap and small +cap market participants who have experience with our approach and who we believe will advocate for our public venture mission. In addition, +investors can have a significant impact by supporting the companies they invest in. We believe that this community is vital to the success +of our public venture model. +We +have strived to create community of like-minded persons who share our vision and are supportive of the partner companies we have co-founded. +This group consists of patient company owners with a long-term focus on the value that can be unlocked upon the de-risking of our partner +companies’ technologies. This long-term focus is key to building value and stability for early-stage companies in the public markets. +In addition, we believe that our community members are often authorities in multiple industries and are capable of providing support +to our partner companies with their invaluable access and reach. We believe that MDB shareholders will comprise this community and will +continue to participate in the partner companies through their MDB share ownership as well as participation in partner company direct +investment opportunities. MDB plans to sustain a cohesive community by keeping persons engaged and curious so that they continuously +help us improve our decision process as and when selecting partner companies with which to work. +We +believe that MDB is strengthening our community of MDB shareholders and can simplify our process of developing partner companies. We +used a portion of our capital to identify and find partner companies. We believe that being a public company gives us greater +flexibility and nimbleness to source new technologies and make it quicker and easier to deploy capital towards opportunities that arise. +We +also will seek to foster community in connection with our broker-dealer, Public Ventures. Our typical Public Ventures Member will be a long-term +investor and/or entrepreneur who is motivated to help develop the next generation of growth companies. Public Ventures Members may or +may not be MDB shareholders. Members may or may not provide direct financing to partner companies. +Holistic +and Sustainable Model +Our +public venture model is fundamentally different than the typical venture capital fund model. We believe that bringing well developed +early-stage companies to either the public markets or fostering a merger and acquisition exit or other realization event, while still +taking care to address the unique nature and needs of these early-stage companies, provides more liquidity, efficiency, transparency, +better protections for investors and alignment of the interests of everyone involved as described below. +Inventors/Universities/Co-founders +Taking +companies public allows shareholders to own the same class of common stock as the company’s early founders. In addition, the +ownership interests of inventors, universities, and other co-founders become valuable, tradable shares when a company is public and listed +on an exchange. As a result, we believe that, in most cases, these ownership stakes will have much greater value than they would otherwise +have in the traditional venture capital model. We also believe that our model gives companies greater leeway to execute pivots or to +pursue other strategic initiatives, such as licensing, asset sales or corporate merger and acquisition transactions. +8 +Partner +Company Management & Board Members +We +expect that the management and board members of our partner companies will benefit from the Company being public. The ability to grant +valuable, liquid equity as part of an employment compensation package is a strong incentive to attract and retain employees and align +their interests with those of the company at which they work. Being public can help a partner company raise substantial amounts of capital +more easily than as a private company or through traditional venture capital. +MDB +Shareholders +Under +the MDB model, MDB shareholders can buy or sell their shares in the holding company in the open market at any time. These +shareholders will participate in our partner companies through the holding company structure, for example through the tax benefits +of holding an interest in a tax pass through entity or the overall value of the holding company as it reflects the values of our +subsidiaries. Where we think it beneficial for a partner company to raise capital directly, rather than taking additional funds from +the holding company, we may seek a method that can allow the MDB shareholders the ability to participate in additional capital +formation for a partner company. There are a few means by which the MDB shareholder may participate: for example, a further private +placement by the partner company, or by a registered public offering, such as an IPO or rights offering where the MDB shareholder +can invest new funds based on the distributed right. If the best course of action is an asset sale, a licensing arrangement or a +corporate merger or acquisition transaction of a partner company, then it is expected that MDB shareholders will receive a +distribution of the proceeds as a result of the transaction. Moreover, we believe that many of the MDB shareholders own their Class +A Common Shares because they are motivated by the opportunity to contribute their knowledge and experience to and engage with our +partner companies in an effort to improve them and enhance their value. +Our +Holding Company Structure +While +each partner company will present its own investment dynamic, at the onset, we take a majority ownership stake in the partner companies +we co-found and to hold a significant controlling position through the early stages of development and early capital creation. We plan +on seeking one or two partner company opportunities a year, but there is no assurance that we will be able to find suitable opportunities +at that rate for inclusion in the holding company. +9 +In +order to not be deemed an investment company under the regulation of the Investment Company Act of 1940, MDB will not operate in a manner +such that it is or holds itself out as being engaged in the business of investing, reinvesting, or trading in +securities. Additionally, it will maintain what are characterized as “investment securities” under the Investment Company +Act below forty percent (40%) of the value of the total assets of MDB on an unconsolidated basis, unless an exemption or safe harbor +applies under that legislation. Securities issued by companies other than consolidated companies are generally considered “investment +securities” for purposes of the Investment Company Act, unless other circumstances exist that have the holding company being actively +involved in the management of the underlying company. We consolidate these companies for financial statement purposes as long as +they are majority-owned subsidiaries in which we hold voting power of fifty percent (50%) or greater. We expect to continue to have an +active role in the management of our partner companies for a period of time before and after funding, such as an IPO. The Company’s Broker-Dealer subsidiary is excluded from the Investment Company Act of 1940, and therefore all +securities held by the Broker-Dealer are excluded from the asset calculation.  +Not +only for purposes of the Investment Company Act, but also to maintain our focus on exploring new investment opportunities through partner +companies, rather than holding partner companies for long term investment and increasing our asset base, our intention is to distribute +our partner companies and excess assets beyond what is needed to support the investments we plan to make under our public venture model. +Competition +Getting +access to and deploying early-stage capital is very competitive. We believe our main competitors are traditional venture capital firms, +other funds specializing in microcap and small cap investing and investment banks focusing on microcap and small cap companies. +We +believe that our approach provides multiple benefits compared to existing models and traditional methods. However, many of our competitors +are larger, have greater brand recognition, longer operating histories, established business relationships, access to greater amounts +of capital, and significantly greater resources. We believe that we will be able to compete on many fronts based on our history and reputation, +our plan to partner, encourage and support the development of our partner companies and their founders, our wide-ranging contacts in +the financial and industry sectors, our ability to provide capital as needed, our ability to source and diligence new technologies and +the experience of our professional human capital. +Our +Group of Companies +Public +Ventures +Our +wholly-owned subsidiary, Public Ventures, licensed under the name Public Ventures LLC, a registered broker- dealer (CRD-: 42677/SEC-: +8-49951) is the backbone of our financing business. Public Ventures operates under the d/b/a of “MDB Capital.” In 2024 we +expanded its capabilities to act as a licensed clearing firm. +The +Vision +We +believe that venture-stage businesses are more likely to succeed when supported and financed by a community of long-term oriented, +like-minded investors and entrepreneurs who have experience building successful companies. +We envision building a close-knit +community of such clients for Public Ventures, whom we refer to as our Public Ventures “Members.” Our Members will have the +opportunity to submit start-up and developing companies as potential candidates for financing through Public Ventures and/or as partner +companies for MDB. Members may also, at their discretion and based on their expertise, actively assist in the development and growth of +the companies we finance, helping them become tomorrow’s industry leaders. +We +believe that such a community of investors can foster the growth of promising public companies under $500 million in market value, also +known as microcap and/or small cap companies, by leveraging the knowledge of the community and sharing risk amongst its Members. +We +believe that we are building a robust infrastructure to support our vision for Public Ventures. Our objective is to create a +high-end service platform that will make investing in the microcap and/or small cap segment more accessible to and efficient for the +Public Ventures Member community. Public Ventures recently began self-clearing operations of U.S equity securities and its FINRA +licensed self-clearing broker-dealer is capable of structuring and underwriting financing transactions as well as providing clearing +services that enable clients to trade, clear, and settle securities in these companies. We also are able to provide expanded account +maintenance activities, such as wire transfers, securities deposits and interest on cash deposits through typical cash management +services. +10 +We +have successfully operated our broker-dealer for more than 28 years during which we have specialized in transactions for public venture +companies. During that time, we built internal processes to perform diligence and prioritize the financing of deals based on the investment +criteria that we have developed. We intend to leverage the lessons we have learned during these experiences to create processes, rating +systems and reports that will be made available to our Member community and can be used to supplement their own processes for evaluating +each opportunity and associated risks and making informed investment decisions. +The +Public Venture Opportunity +Historically, +the public markets have served as a significant funding source for companies with new ideas and enabled the growth and development +of visionary technologies that lead to advancements in our society. We believe that venture investing in the public markets is a +transparent and liquid method for investors to participate in venture capital. Public venture is available to all classes of +investors who all receive typically equal amounts of information about their investments. Companies like Amazon, Tesla, Walmart, +Home Depot, among others, were brought public at very early stages, and capital provided through the public markets enabled their +spectacular development into industry leaders. +Market +dynamics have resulted in companies backed by traditional venture capital staying private for longer periods of time. In addition, regulatory +changes affecting broker-dealers have resulted in a shift to high volume trading that relies on payment for order flow to make up for +commission-less trading. This has resulted in broker-dealers devoting more resources to trading high volume, popular equities and away +from providing service to microcap and small-cap public venture companies and their securities. As a result, the needs of long-term investors +looking to support venture stage public companies and those of venture stage companies are not addressed by today’s brokerage firms +who cater to traders. +We +believe that the expected Public Ventures Member community, consisting of sophisticated individual investors, who are aware of the nature +of venture investments and seek to build tomorrow’s leading companies, can drive the future of public venture capital formation. +We believe that only this type of community can provide suitable financing options that will meet the needs of small public venture companies. +We have the unique opportunity to provide the right framework and platform infrastructure to this community that will enable its Members +to collectively underwrite public venture financings. +We +expect our Members to be entrepreneurial and involved in different ventures. Under our framework, they will be encouraged and rewarded +for successfully identifying business and ownership opportunities for the community that meet our criteria. We envision that our platform +will encourage and allow Members to share information and formulate the nature of and pricing for any financing opportunities through +the exchange of information about a particular opportunity. In addition, our framework is expected to consist of conducting diligence, +creating comparative analysis, providing company information, and implementing rating systems. We believe that this information and transparency +will enable high quality, informed decisions and facilitate market integrity. +Members +and Member Sponsors +It +is our intention to build our community of participants who share the collective goal of elevating and supporting development-stage companies +and have an investor rather than a trader mindset. Persons who share the values and vision of the organization can be invited into the +community as Members. We expect to encourage active participation of our Members such that they may be mentors of growth through starting, +running, or connecting companies within the community or by being active early investors in the various business and ownership opportunities +that arise. +11 +Efficient +Back Office Support +We have an out-source +service contract with MDB Capital, S.A, an affiliated Nicaraguan company with which the Company has worked for many years. MDB +Capital, S.A. is owned by two of the principal shareholders and officers of the Company. The services that are typically out-sourced +include administrative services to support Public Ventures and PatentVest, such as back office and accounting services related to +brokerage and clearing firms, background investigations, preparing investment research reports, patent searches and analysis, and +customer support services. Services that will be requested will be only those that can be provided by an out-source company within +the context of U.S. privacy laws, FINRA regulation, and other applicable U.S. financial service and other regulation. +Based +on prior Executive Orders imposing new and expanding prior sanctions on Nicaraguan businesses and on U.S. persons doing business in +Nicaragua, however, there may be disruption to our being able to contract for out-sourced services with Nicaraguan entities. Therefore, +we may have to adjust our business plan accordingly. +Self-Clearing +In January 2024 Public Ventures +began self-clearing U.S. equity securities. +PatentVest +The PatentVest business plan +is to be a venture invention and commercialization intelligence platform specifically created to assist technologists, advisors, venture +capital investors, and established companies optimize technology commercialization. The PatentVest process takes in information from our +proprietary patent database and transforms the information about inventions and intellectual property from a complex legal process into +a manageable, measurable business process. The PatentVest process clearly defines the boundaries of an invention by providing context +for previously developed ideas and analyzes how the invention, and therefore patent claims, differ from the discovered prior art in order +to rationalize the essential distinctions that are the key value drivers. Understanding these boundaries, as well as how protectable and +valuable these boundaries are, is essential to better guide strategic business and patentability decisions. In our experience, this PatentVest +process answers the most important questions for a technology platform: how to innovate, how to improve its ideas, and how to deploy these +ideas where they matter most. +Our process seeks to include +the following elements and outcomes: +● +Improve idea prioritization – Allows inventors and financial backers to weigh the value of a given idea by ascertaining the uniqueness +of such invention. +● +Enhance the value of an invention – Understanding invention boundaries allows patent attorneys to draft patent claims in a way +that confers the most available protection without being encumbered by prior art. +● +Optimize strategic decisions – Deeply understand the competitive landscape, identify issues that possible partners are trying to +solve, prioritize markets where an invention might be the most valuable, and identify possible acquirers. +PatentVest +History +Over twenty +years ago, PatentVest’s founders recognized that intellectual property was the most valuable asset for technology companies and +began building a proprietary patent database and software platform to help companies manage these assets. During these years, PatentVest +has been continuously iterating uses for available information to potentially enable better investment decisions as well as to guide +the development of such technology once investment decisions were made. We believe that PatentVest has helped start-up companies move +from having novel ideas to becoming technology leaders. As a result, in our opinion, PatentVest is capable of providing the backbone +of an investment idea selection process, as well as forming intellectual property and business development strategies. We believe utilizing +the PatentVest Innovation in a Box process will enhance our ability to optimize our selection process with respect to partner companies +as well as when selecting underwriting candidates for Public Ventures. +12 +We +also believe that the PatentVest services will aid companies to define their intellectual property assets in their capital raising activities +and will be available to other companies that see to build their intellectual property outside of the context of working with MDB and +Public Ventures. +PatentVest +Objective +PatentVest +starts with a technology assessment, where it evaluates the technology to establish whether or not the technology is unique and a +company can create a leadership position with the identified intellectual property. Assessment is extensive covering an +investigation into the players in the particular industry space, whether the technology truly is innovating, can value be created +with the technology, what is the market and can there ultimately be value creation. The assessment phase includes an examination of +existing patents and applications, scientific publications and other public data. After the assessment, a strategy is developed, +which include where to focus R&D, what to patent or keep as a trade secret, and the jurisdictions in which to protect the +intellectual property, and based on the assessment and strategy, help develop a business plan to progress the intellectual property. +PatentVest also may provide development budgets and help identify critical persons with which to work with. PatentVest is able to +implement prosecution of patents and other intellectual property, maintain surveillance of the intellectual property space, and +provide reporting on developments in the particular intellectual property space. +We +believe that the PatentVest process provides a fundamental advantage to helping create a leadership position for a company with unique +intellectual property. By knowing and understanding the particular intellectual property space, having a focused R&D and intellectual +property development plan, a coherent business plan, and providing the related aspects of setting up a development company with the right +persons and financial backing, the success of the company in being a value creator in its industry vertical is improved. As part of this +overall process, the involvement of Public Ventures can add to the value creation with its financing resources. +It +has been our experience when evaluating, investing in or advising technology companies that intellectual property strategy development +and related processes are most often led by attorneys and is separate from the other invention and business processes at these companies. +We have seen that this work is typically outsourced and, as a result, key company personnel are often neither engaged in the claim drafting +process nor are aware of how their patents have potentially changed during prosecution. Many of the inventors and business executives +with whom we have engaged have a modest knowledge regarding what their claims cover or what the boundaries of their claims are in relation +to other companies. We believe that it is very difficult, if not impossible, to truly understand either what a company “owns” +or to effectively evaluate a given invention’s potential uniqueness and ultimately its potential value without this perspective. +13 +We +believe the companies that will derive the greatest benefit from PatentVest’s services are technology companies with a few current +active patent applications that are expected to primarily drive the value of their companies with their inventions. The analysis and +information provided by the PatentVest process, as documented in reports to its clients, is expected to guide technology companies as +they seek to prioritize ideas and develop their intellectual property and business strategies. We believe that PatentVest not only +provides MDB with additional clarity in selecting its partner companies and Public Ventures in selecting underwriting candidates, but +also to any technology company in their decision-making processes seeking to maximize the value of their inventions. +The +PatentVest Model +We +use PatentVest to help technology companies innovate and deploy their innovations in the most valuable manner as well as to support +our processes. We believe that PatentVest has one of the most comprehensive global patent databases available, containing more than 148 +million patents and covering 116 countries. PatentVest has built software processes and tools that make it possible to efficiently mine +vast amounts of data and structure this data in a way that can be analyzed by its team of analysts. In addition, PatentVest has assembled +the human capital required to cost-effectively analyze such data and build the reports for companies that are expected to be the backbone +of our services. Our objective is to serve approximately 30 client companies at any one time once we have scaled our operations. +PatentVest +has developed different report formats that provide information within context in a way that we think can be quickly processed by decision-makers +and help provide answers to the most valuable questions for the companies we target as our business development opportunities. The +insights presented in our reports are the culmination of a long, iterative process that we have refined by the constant questioning of +which data is valuable to building technology companies. +PatentVest +as a Law Firm +On September 20, 2022, the Supreme Court of the State of Arizona licensed +PatentVest to practice law as an Alternative Business Structure, or ABS. An ABS is a business entity that includes non-lawyers that have +an economic interest or decision-making authority in a law firm. We develop and maintain a team of highly trained legal professionals +and staff that principally provide legal services related to intellectual property matters under federal law. Matters that we are undertaking +are generally be patent prosecution and intellectual property protection. Through offering legal services we enhance the value of inventions +by addressing questions of strategy and perspective along with the technical merits of an invention. The provision of legal services by +PatentVest are limited to those technology companies specifically engaged by PatentVest for such services and is intended to provide all +the rights and privileges of the attorney-client relationship. +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS is on patent issues and patent +prosecution which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not seen as a limitation. +Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest ABS will make referrals to firms +licensed in appropriate jurisdictions. In late 2025, the Company commenced a process to spin off PatentVest as a separate standalone entity. +MDB +Minnesota One +M1, +is a partner company, with the vision of developing a small molecule anti-senescence platform comprised of pharmaceutical drugs or +other products to aid in longevity and to inhibit certain forms of age-related diseases. The focus +of the M1 Platform is to treat senescent cells, which are dysfunctional cells that have +permanently stopped dividing, that have been implicated in the aging process, and that permit the development of chronic low-grade +inflammation. This chronic inflammation has been linked to a variety of age-related diseases, including multiple fibrotic conditions +that have limited treatment options and poor prognoses. +Studies +conducted at Mayo Clinic have shown the potential of certain molecules to target and eliminate senescent cells with a significant therapeutic +window, reversing fibrosis across multiple conditions. The global longevity and anti-senescence therapy market is projected to reach +nearly $45 billion by 2030. +On +July 1, 2024, M1 entered into a Patent and Know-How License Agreement (the “License Agreement”) with the Mayo Foundation +for Medical Education and Research (“Mayo”) for certain patent rights and associated technology pursuant to which M1 intends +to develop the M1 Platform. The License Agreement grants M1 rights to develop and commercialize Mayo’s patented technology and +know-how for all fields of use on a worldwide basis. Under the terms of the License Agreement, M1 holds an exclusive license of patent +rights and a non-exclusive license for the associated technology to make, have made, use, offer for sale, sell, and import licensed products +and derivatives. +As +part of initial consideration for the License Agreement, M1 issued 1,980,000 shares of common stock equity to Mayo; which at that time +represented thirty-three percent of its shares. M1 also paid an initial license fee of $150,000 as part of the initial consideration. +M1 will pay earned royalties on future net sales (including modest minimum annual royalties, which commence in the second year of the +term of the License Agreement and gradually increase and plateau over time, and which will be credited against earned royalties due on +net sales), and a percentage of any sublicensing income. The earned royalty commences after the first commercial sale of a licensed product. +At December 31, 2025 there were no accrued royalties recorded. +Under +the License Agreement, M1 is required to achieve certain development milestones within designated time periods. For select development +milestones, as listed below, M1 will be required to make a payment to Mayo, also as noted below: +● +A +payment of $0.25 million for Phase II clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $1.5 million for Phase III clinical trial initiation, for the first instance of a licensed product. +● +A +payment of $2 million for FDA New Drug Application (NDA) acceptance, for the first instance of a licensed product. +● +A +payment of $5 million for NDA approval, for each instance of a licensed product. +As +of December 31, 2025, the development milestones noted above are not required to have been met and have not been met. There are other +developmental milestones in the License Agreement relating to funding of the business and to initiating various clinical trial phases +over time. +M1 +is currently in the pre-clinical development stage of the M1 Platform and is undertaking important feasibility studies, iterative testing, +and collection of drug safety and toxicity data. +14 +Regulation +Broker-Dealer +Regulation +Our +broker-dealer subsidiary, Public Ventures is subject to regulations governing every aspect of its securities business, including the +execution of securities transactions; capital requirements; record-keeping and reporting procedures; relationships with clients, including +the handling of cash and margin accounts; the experience of and training requirements for certain employees; and business interactions +with firms that are not members of regulatory bodies. As a participant in the financial services industry, it is subject to the complex +and extensive regulation of the U.S. federal and state regulatory agencies, self-regulatory organizations and securities exchanges and +certain other authorities with oversight on banking and money laundering. The laws, rules and regulations comprising the regulatory framework +applicable to broker-dealers are constantly changing, as are the interpretation and enforcement of existing laws, rules and regulations. +The effect of any such changes cannot be predicted. +Public +Ventures is registered as a securities broker-dealer with the SEC and is required to be a member of FINRA. FINRA is a self-regulatory +body composed of members, such as our broker-dealer subsidiary, that have agreed to abide by its rules and regulations. FINRA may expel, +fine and otherwise discipline member firms and their employees. Public Ventures is also licensed as a broker-dealer in 33 states in the +U.S., requiring it to comply with the laws, rules and regulations of each state. Additionally, Public Ventures might register in additional +states from time to time as needed. Each state may revoke the license to conduct securities business, fine, and otherwise discipline +broker-dealers and their employees. +Public +Ventures is subject to the SEC’s Uniform Net Capital Rule, Rule 15c3-1, which may limit our ability to make withdrawals of capital +from the broker-dealer subsidiary. The Uniform Net Capital Rule sets the minimum level of net capital a broker-dealer must maintain and +also requires that a portion of a broker-dealer’s assets be relatively liquid. In addition, Public Ventures is subject to certain +notification requirements related to withdrawals of excess net capital. +We +are also subject to the PATRIOT Act of 2001 (the “Patriot Act”), which imposes obligations regarding the prevention and +detection of money-laundering activities, including the establishment of client due diligence, client verification and other compliance +policies and procedures. Failure to comply with these requirements may result in monetary, regulatory and, in the case of the USA Patriot +Act, criminal penalties. We are subject to the Securities Investor Protection Act of 1970, which created the Securities Investors Protection +Corporation (SIPC), which provides certain client protection to clients related to their brokerage accounts. We are subject to certain +treasury regulations, such as Regulation T, relating to how money may be lent to clients and used, and the rules related to margin accounts. +Broker-dealers +are also subject to ongoing duties of financial responsibility, client protection and good conduct. These include, among other things, +(i) client funds and securities must be segregated from the broker-dealer’s proprietary business operations, (ii) maintaining basic +bookkeeping requirements including records of trades, receipts, positions held in different securities, trial balances, complaints, and +compliance, together with reports to be filed periodically, (iii) executing orders on behalf of clients to ensure the best execution +possible, disclosing information relevant to investors, charging prices in line with market conditions, and disclosing conflicts of interest, +(iv) only recommending investments or strategies that are suitable for the clients concerned, (v) communicating in a fair, balanced, +and not misleading way with clients, (vi) observing rules concerning maximum value of gifts made to clients and political contributions, +and (vii) filing reports of any suspicious activities noted by the broker-dealer, including investments over predefined monetary limits. +SEC +Regulation Best Interest requires that a broker-dealer and its associated persons act in a retail client’s best interest and not +place their own financial or other interests ahead of a retail client’s interests when recommending securities transactions or +investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy +four component obligations, including a disclosure obligation, a care obligation, a conflict-of-interest obligation, and a compliance +obligation, and both broker-dealers and investment advisers are required to provide disclosures about their standard of conduct and conflicts +of interest. +In +addition to the SEC, various states have proposed or adopted laws and regulations seeking to impose new standards of conduct on broker-dealers +that, as written, differ from the SEC’s new regulations and may lead to additional implementation costs if adopted. The SEC did +not indicate an intent to preempt state regulation in this area, and some of the state proposals would allow for a private right of action. +15 +Various +regulators, including the SEC, FINRA and state securities regulators and attorneys general, conduct both targeted and industry-wide investigations +of certain practices relating to the financial services industry, including sales and marketing practices, valuation practices, and compensation +arrangements. +A +variety of data privacy laws to protect personal information obligate broker-dealers to provide notice about its data handling practices, +to offer certain opt-outs, and to implement reasonable security measures to deter unauthorized access. Broker-dealer internal and external +electronic communications may only be made on approved devices and platforms that are encrypted and secure and will capture all communications +in the broker-dealer’s records. The cost and burden of taking cybersecurity measures, having personnel oversee compliance and staying +current with respect to new technology developments continues to grow. +Our +broker-dealer accounting, administrative and operations personnel are responsible for financial controls, internal and external financial +reporting, compliance with regulatory and legal requirements, office and personnel services, management information and telecommunications +systems, and the processing of our securities transactions. We are subject to the privacy laws applicable to financial institutions in +respect of our securities business. +As +is common in the securities industry, our broker-dealer subsidiary is subject to regular reviews of and investigations into our operations, +some of which progress to regulatory actions that may result in fines, censures, and limitations on activity. At this time, we are cooperating with the reviews, and we do not know whether or not it will +escalate to regulatory action and, if it does, what violations of rules and regulations may be asserted against the broker-dealer and +what the potential final resolutions might be. +Self-Clearing +Regulation +In +January 2024, Public Ventures began self-clearing U.S. equity securities. As part of this process, in addition to the broker-dealer regulation +described above, Public Ventures is subject to regulation directed to self-clearing operations and must demonstrate that its financial, +operational and systems capacities are able to perform this business while complying with regulations, including those of the SEC, FINRA, +Depository Trust Clearing Corporation (“DTCC”), and National Securities Clearing Corporation (“NSCC”). To operate +the self-clearing activity, we must meet different capitalization requirements than those of an introducing broker-dealer, maintaining +a capital structure with various cash and cash equivalent assets and retaining access to necessary lines of credit that can assure our +ability to comply with changing deposit requirements. We expect that these regulations will continue to undergo substantial changes and +may require additional capital as settlement operations moves to T+0 in the future. +16 +Data +Protection and Cyberattack Regulation +In +the course of our operations and in the processing of transactions, we collect, process, store, disclose, use, share and/or transmit +personal information and other sensitive data from current, past and prospective clients as well as our employees in and across multiple +jurisdictions. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable +future. There are federal, state and foreign laws and regulations regarding privacy, data security and the collection, processing, use, +storage, protection, sharing and/or transmission of personal information and sensitive data. For example, the Gramm-Leach-Bliley Act +(“GLBA”) (along with its implementing regulations) restricts certain collection, processing, storage, use and disclosure +of personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent +the use and disclosure of certain nonpublic or otherwise legally protected information. Additionally, many states continue to enact legislation +on matters of privacy, information security, cybersecurity, data breach and data breach notification requirements. For example, as of +January 1, 2020, the California Consumer Privacy Act (“CCPA”) grants additional consumer rights with respect to data privacy +in California. The CCPA, among other things, entitles California residents to know how their personal information is being collected +and shared, to access or request the deletion of their personal information and to opt out of certain sharing of their personal information. +The CCPA is subject to further amendments pending certain proposed regulations that are being reviewed and revised by the California +Attorney General. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches +that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, +data breach litigation. We cannot predict the impact of the CCPA on our business, operations or financial condition, but it could result +in liabilities and/or require us to modify certain processes or procedures, which could result in additional costs. +Additionally, +the California Privacy Rights Act (“CPRA”) was passed in November 2020 and went into effect in most material respects starting +on January 1, 2023. The CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the +CCPA, including by expanding clients’ rights with respect to certain sensitive personal information. The CPRA also creates a new +state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the CPRA +are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial +costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. +We +expect more states to enact legislation similar to the CCPA and the CPRA, which provide clients with new privacy rights and increase +the privacy and security obligations of entities handling certain personal information of such clients. The CCPA has prompted a number +of proposals for new federal and state-level privacy legislation, such as in Virginia and Colorado, both with laws that took effect in +2023. It is anticipated that all such laws will add additional complexity, have variation in requirements, restrictions and potential +legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful +data and could result in increased compliance costs and/or changes in business practices and policies. +Additionally, +our broker-dealer, Public Ventures, is subject to SEC Regulation S-P, which requires that businesses maintain policies and +procedures addressing the protection of client information and records. This includes protecting against any anticipated threats or +hazards to the security or integrity of client records and information and against unauthorized access to or use of client records +or information. SEC Regulation S-P also requires businesses to provide initial and annual privacy notices to clients describing +information sharing policies and informing clients of their rights. +Because +the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted +and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform +capabilities. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change +our business activities and practices or modify our platform, which could have an adverse effect on our business. Any violations or perceived +violations of these laws, rules and regulations by us, or any third parties with which we do business, may require us to change our business +practices or operational structure, including limiting our activities in certain states and/or jurisdictions, addressing legal claims +by governmental entities or private actors, sustaining monetary penalties, sustaining reputational damage, expending substantial costs, +time and other resources and/or sustaining other harms to our business. Furthermore, our online, external-facing privacy policy and website +make certain statements regarding our privacy, information security and data security practices with regard to information collected +from our clients or visitors to our website. Failure or perceived failure to adhere to such practices may result in regulatory scrutiny +and investigation, complaints by affected clients or visitors to our website, reputational damage and/or other harm to our business. +If either we, or the third-party service providers with which we share client data, are unable to address privacy concerns, even if unfounded, +or to comply with applicable privacy or data protection laws, regulations and policies, it could result in additional costs and liability +to us, damage our reputation, inhibit sales and harm our business, financial condition results of operations and cash flows. +17 +In +the normal course of business, we collect, process, use and retain sensitive and confidential information regarding our clients and prospective +clients, including data provided by and related to clients and their transactions, as well as other data of the counterparties to their +payments. We also have arrangements in place with certain third-party service providers that require us to share client information. +Although we devote resources and management focus to ensuring the integrity of our systems through information security and business +continuity programs, our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external +or internal security breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third +parties, computer viruses, phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized +encryption, denial-of-service attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, +war, telecommunications or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious +or inadvertent disruptions or events. We and our third-party service providers from time to time have experienced and may in the future +continue to experience such instances. In some cases, the bad actors facilitated unauthorized financial transactions. We also face security +threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will +continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in legal claims or +proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state, or non-U.S. laws +regarding the privacy and protection of information, including personal information, damage to our reputation and a loss of confidence +in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect +on us, no assurance is given that this will be the case in the future. +Information +security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet +and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased +sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In +addition to cyberattacks and other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, +sophisticated nation-state and nation-state supported actors and other malicious third parties recently have engaged in attacks that +are designed to disrupt key business services, such as consumer-facing websites. We and our third-party service providers may not be +able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques +used to sabotage or to obtain unauthorized access to our or our third-party service providers’ technology, systems, networks and/or +physical facilities in which data is stored or through which data is transmitted change frequently and because attacks can originate +from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, +early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect +the existence of a security breach related to the information of our clients and to prevent or detect service interruption, system failure +or data loss. Further, as a significant number of people work from home, these cybersecurity risks may be heightened by an increased +attack surface across our business and those of our clients and third-party service providers. We cannot guarantee that our efforts, +or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information security incidents. +The +access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our clients or our proprietary +information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and +financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products +and services, all of which could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized +attacks or breaches affecting companies in the financial services industry that have heightened concern by clients, which could also +intensify regulatory focus, cause clients to lose trust in the security of the industry in general and result in reduced use of our services +and increased costs, all of which could also have a material adverse effect on our business. +The different states and federal +government have enacted laws requiring companies to notify individuals, regulatory authorities and/or others of security breaches involving +certain types of data. In addition, our agreements with certain partners and service providers may require us to notify them in the event +of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our clients, partners and service +providers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources +to respond to and/or alleviate problems caused by the actual or perceived security breach. A security breach of any of our vendors that +processes personal information of our clients may pose similar risks. +18 +A +security breach may also cause us to breach client contracts. Our agreements with certain partners and service providers may require +us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us +to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by +our clients or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we +could be subject to legal action or our clients could end their relationships with us. There can be no assurance that the limitations +of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages, and in some +cases our client agreements may not limit our remediation costs or liability with respect to data breaches. +Litigation +resulting from security breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical +facilities, or those of our third-party service providers, could result in litigation with our clients or other relevant stakeholders. +These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our +costs of doing business or adversely affect our reputation. We could be required to fundamentally change our business activities and +practices or modify our products and/or technology capabilities in response to such litigation, which could have an adverse effect on +our business. If a security breach were to occur, and the confidentiality, integrity or availability of personal information was disrupted, +we could incur significant liability, or our technology, systems or networks may be perceived as less desirable, which could negatively +affect our business and damage our reputation. +We +may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security breaches or +disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against us that +exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition +of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that +our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers +will not deny coverage as to any future claim. +While +we take precautions to prevent consumer identity fraud, it is possible that identity fraud may still occur or has occurred, which may +adversely affect the performance of our products and services or subject us to scrutiny or penalties. +Arizona +Law Firm Regulation +The +law firm owned and operated by PatentVest is subject to the Arizona Supreme Court under Rule 31.1(c) and the Arizona Code of Judicial +Administration, or ACJA, Section 7.209, relating to Alternative Business Structures, or ABS. An ABS is an entity that includes non-lawyers +who have an economic interest or decision-making authority as defined in ACJA 7-209 which may employ, associate with, or engage a lawyer +or lawyers to provide legal services to third parties. An ABS (1) must employ at least one person who is an active member in good standing +of the State Bar of Arizona who will supervise the practice of law under the rules of the Arizona Supreme Court for the entity, (2) has +been licensed by the Arizona Supreme Court after application to the Committee on ABSs, and (3) provide legal services by persons +authorized to do so and in compliance with the Rules of Supreme Court as generally applied to the practice of law and the particular +regulations applicable to an ABS. An approval is made in favor of an ABS application if the Committee on ABSs finds that the applicant +meets, among others, the following objectives: (a) protecting and promoting the public interest; (b) promoting access to legal services; +and (c) encouraging an independent, strong, diverse, and effective legal profession. The Committee on ABSs should also find that the +applicant (a) has lawyers providing legal services to consumers that will act with the independence that is consistent with the lawyers’ +professional responsibilities and standards, (b) the lawyers will make decisions in their practice that are in the best interest of clients, +(c) the ABS maintains confidentiality consistent with Arizona Rule of Supreme Court 42, and (d) the other business policies or procedures +of the ABS do not interfere with a lawyers’ duties and responsibilities to clients. +An +ABS is also subject to all the rules and regulations associated with the ethical rules of a law firm operating in the State of Arizona. +These rules are found in Section 7-209 of the Code of Judicial Administration and the Arizona Supreme Court Rules. Together the rules +address issues relating to (i) conflict of interest situations for client representation, (ii) issues relating to the sale of a law practice, +(iii) law firm owner responsibilities such as for having sufficient managerial authority, effective internal policies and procedures, +and procedures for the conformity of law employees to the rules of professional conduct and procedures for non-law employees, and (iv) +adequate trust account requirements, including the annual certification requirement. The rules also address code of conduct issues such +as lawyer independence in the provision of services, the diligent and promptness of rendering legal services, and record maintenance, +among others. An ABS and its law employees are subject to the disciplinary rules 46 et. seq. of the Arizona Supreme Court. +19 +Because +the only other state that permits an ABS like ownership is Colorado, which is a more limited authorization than afforded by Arizona, +PatentVest will not be able to expand its Arizona ABS into other states. The focus of the PatentVest ABS, however, is on patent issues +and patent prosecution, which is largely a federal practice, therefore the restriction of its practice to the State of Arizona is not +seen as a limitation on its operations. Where it has clients that seek legal representation outside of the State of Arizona, the PatentVest +ABS will make referrals to firms licensed in appropriate jurisdictions. In recent months, certain states have sought to restrict or limit business dealings with firms based in Arizona and to require fee-sharing +arrangements with local entities. +U.S. +Foreign Corrupt Practices Act +The +U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and individuals from engaging in certain activities to obtain +or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the +payment of anything of value to any foreign government official, government staff member, political party or political candidate in an +attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The scope of the FCPA includes +interactions with certain healthcare professionals in many countries. Equivalent laws have been adopted in other foreign countries that +impose similar obligations. +Human +Capital +As +of the date of filing this Annual Report on Form 10-K, overall there are 14 full time employees of MDB, employed directly or indirectly through MDB +CG Management, Inc. (“MDB Management”). We also engage from time-to-time consultants for various activities. +MDB +Management also has an agreement with MDB Capital S.A., an affiliated Nicaraguan company, for MDB Capital S.A. to provide services to +the Company on an out-source, as required service basis, overall there are 40 full time contractors assigned to MDB. The services are provided on a specific request, within an identified scope +of activity, from time to time. Primarily the services are administrative support services, research activities, and analytical services +as necessitated by the holding company, Public Ventures, PatentVest and partner companies. +As +our business develops, we establish partner companies and we enhance our operations, we anticipate the number of employees and consultants +will grow. In addition, we also anticipate adding human capital contractors, consultants, clinical research organizations and collaborative +businesses to perform clinical studies, toxicology assessment, manufacturing, regulatory, and other operational functions. +Legal +Matters +We +are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceedings +arising in the ordinary course of our business. +20 \ No newline at end of file diff --git a/raw/filings/0001934642/2025/0001493152-26-013924/item13.txt b/raw/filings/0001934642/2025/0001493152-26-013924/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f071d2cb7ec818369ff98a90ea3ebf2cd67eefe8 --- /dev/null +++ b/raw/filings/0001934642/2025/0001493152-26-013924/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +74 \ No newline at end of file diff --git a/raw/filings/0001934850/2024/0001934850-25-000015/filing.txt b/raw/filings/0001934850/2024/0001934850-25-000015/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..49ef54bb2b2d7184dd5fc68da055c197a05cd53f --- /dev/null +++ b/raw/filings/0001934850/2024/0001934850-25-000015/filing.txt @@ -0,0 +1,4641 @@ +fg-20241231 +FALSE 2024 FY 0001934850 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0001934850 us-gaap:InvestmentsSegmentMember 2024-01-01 2024-12-31 0001934850 fg:LifeInsurancePremiumsMember 2023-01-01 2023-12-31 0001934850 fg:LifeContingentPRTPremiumsMember 2023-01-01 2023-12-31 0001934850 us-gaap:InvestmentsSegmentMember 2023-01-01 2023-12-31 0001934850 fg:LifeInsurancePremiumsMember 2022-01-01 2022-12-31 0001934850 fg:LifeContingentPRTPremiumsMember 2022-01-01 2022-12-31 0001934850 us-gaap:InvestmentsSegmentMember 2022-01-01 2022-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number 001-41490 +F&G Annuities & Life, Inc. +(Exact name of registrant as specified in its charter) +Delaware +85-2487422 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +801 Grand Avenue, Suite 2600 +Des Moines, Iowa 50309 +(Address of principal executive offices, including zip code) +( 866 ) 846-4660 +(Registrant's telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common stock, par value $0.001 per share FG New York Stock Exchange +7.950% Senior Notes due 2053 FGN New York Stock Exchange +7.300% Junior Subordinated Notes due 2065 FGSN New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ☒ +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated filer +☐ +Smaller reporting company +☐ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No +If the company’s securities are registered under Section 12(b), indicate by check mark whether the company’s financial statements included in the Form 10-K reflect the correction of an error to previously issued financial statements. Yes ☐ No ☒ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the company’s executive officers during the relevant recovery period pursuant to Rule 10D-1(b) under the Exchange Act. Yes No ☒ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the shares of F&G common stock held by non-affiliates of the registrant as of June 30, 2024 was $ 622,990,760 based on the closing price of $24.78 as reported by The New York Stock Exchange. +The registrant had outstanding 126,773,653 shares of common stock as of January 31, 2025. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement to be filed in connection with the Annual Meeting of Shareholders, which will be filed no later than 120 days after December 31, 2024, are incorporated by reference into Part III of this Annual Report on Form 10-K. +F&G ANNUITIES & LIFE, INC. +FORM 10-K +TABLE OF CONTENTS +Page +Part I +10 +Item 1. Business +10 +Item 1A. Risk Factors +46 +Item 1B. Unresolved Staff Comments +74 +Item 1C. Cybersecurity +74 +Item 2. Properties +76 +Item 3, Legal Proceedings +76 +Item 4. Mine Safety Disclosures +76 +Part II +77 +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +77 +Item 6. Reserved +78 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +79 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +113 +Item 8. Financial Statements and Supplementary Data +121 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +215 +Item 9A. Controls and Procedures +215 +Item 9B. Other Information +217 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +217 +Part III +218 +Item 10. Directors, Executive Officers and Corporate Governance +218 +Item 11. Executive Compensation +218 +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Shareholder Matters +218 +Item 13. Certain Relationships and Related Transactions, and Director Independence +218 +Item 14. Principal Accounting Fees and Services +218 +Part IV +219 +Item 15. Exhibits, Financial Statement Schedules +219 +Item 16. Form 10-K Summary +223 +Signatures +224 +3 +Introductory Note +The following describes the business of F&G Annuities & Life, Inc. and its subsidiaries. Except where otherwise noted in this Annual Report on Form 10-K, all references to “we,” “us,” “our,” the “Company,” or “F&G” are to F&G Annuities & Life, Inc. and its subsidiaries, taken together. +Statement Regarding Forward-Looking Information +Certain statements included in this Annual Report on Form 10-K and the documents incorporated into this document by reference are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements about our plans and objectives, including our future financial condition, anticipated capital expenditures, anticipated distributions, and our belief that we have the liquidity and capital resources necessary to meet our known obligations. +This Annual Report on Form 10-K and other materials that F&G has filed or will file with the Securities and Exchange Commission (the “SEC”) contains information that includes or is based upon forward-looking statements that are intended to enhance the reader’s ability to assess our future financial and business performance. +Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. However, not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our future performance. +Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in “Risk Factors” and the Risk Factor Summary provided below. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include the following (among others): +• general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance; +• natural disasters, public health crises, international tensions and conflicts, geopolitical events, terrorist acts, labor strikes, political crises, accidents and other events; +• concentration in certain states for distribution of our products; +• the impact of interest rate fluctuations; +• equity market volatility; +• credit market volatility or disruption; +• the impact of credit risk of our counterparties; +• volatility or decline in the market price of our common stock could impair our ability to raise necessary capital; +• changes in our methodologies, estimates and assumptions regarding our valuation of investments and the determinations of the amounts of allowances and impairments; +4 +• changes in our valuation allowance against our deferred tax assets, and restrictions on our ability to fully utilize such assets; +• the accuracy of management’s reserving assumptions; +• regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) underwriting of insurance products and regulation of the sale, underwriting and pricing of products, and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of our insurance subsidiaries to make cash distributions to us (including dividends or payments on surplus notes those insurance subsidiaries issue to us); +• the impact of fiduciary standards on us and on our products, distribution and business model; +• changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products; +• changes in tax laws which affect us and/or our shareholders; +• the impact on our business of new accounting rules or changes to existing accounting rules; +• our potential need and our insurance subsidiaries’ potential need for additional capital to maintain our and their financial strength and credit ratings and meet other requirements and obligations; +• our ability to successfully acquire new companies or businesses and integrate such acquisitions into our existing framework; +• the impact of potential litigation, including class action litigation; +• our ability to protect our intellectual property; +• our ability to maintain effective internal controls over financial reporting; +• the impact of restrictions in our debt instruments on its ability to operate its business, finance its capital needs or pursue or expand its business strategies; +• our ability and our insurance subsidiaries’ ability to maintain or improve financial strength ratings; +• the performance of third parties including third-party administrators, investment managers, independent distributors, underwriters, actuarial consultants and other outsourcing relationships; +• the loss of key personnel; +• interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems; +• security breaches or other disruptions in our information technology infrastructure; +• our exposure to unidentified or unanticipated risk not adequately addressed by our risk management policies and procedures; +• the impact on our business of natural and man-made catastrophes, pandemics, and malicious and terrorist acts; +• our ability to compete in a highly competitive industry; +• our ability to attract and retain national marketing organizations and independent agents; +• our subsidiaries’ ability to pay dividends to us; and +• the other factors discussed in “Risk Factors” of this Annual Report on Form 10-K +Consequently, any forward-looking statements should be regarded solely as F&G’s current plans, estimates and beliefs and are based on management’s beliefs and assumptions about the businesses in which F&G competes, global and domestic economic conditions and other factors. F&G does not intend, and will not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances or changed assumptions after the date of such statements. +You should review carefully the section captioned “Risk Factors” in this Annual Report on Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. +5 +Risk Factor Summary +Risks Related to Our Business +• Our debt instruments may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. +• Our ability to grow depends in large part upon the continued availability of capital. +• A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition. +• We may face losses if our actual experience differs significantly from our reserving assumptions. +• Our valuation of investments and the determinations of the amounts of allowances and impairments taken on our investments may include methodologies, estimates and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect our results of operations and financial condition. +• Change in our evaluation of the recoverability of our deferred tax assets could materially adversely affect our results of operations and financial condition. +• We have recorded goodwill as a result of past acquisitions, and adverse events affecting the value of our reporting unit could cause the balance to become impaired, requiring write-downs that would reduce our operating income. +• If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced. +• We operate in a highly competitive industry, which could limit our ability to gain or maintain our position in the industry and could materially adversely affect our business, financial condition and results of operations. +• Concentration in certain states for the distribution of our products may subject us to losses attributable to economic downturns or catastrophes in those states. +• Concentration in one or more of our products may subject us to greater volatility of sales if such products experienced a significant decrease in sales. +• We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options. +• Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships. +• The loss of key personnel could negatively affect our financial results and impair our ability to implement our business strategy. +• Our risk management policies and procedures may not capture unidentified or unanticipated risk, which could negatively affect our business or result in losses. +• F&G has a subsidiary focused on acquiring minority and/or majority ownership in indexed universal life and annuity Independent Marketing Organizations (“IMO”). While these acquisitions are intended to diversify our earnings, they present several risks that could adversely affect our business, financial condition and operating results. +• Interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems, including as a result of human error, could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and impairment of our ability to conduct business effectively. +• Security breaches like the June 2023 MOVEit incident and other disruptions to our information technology infrastructure could compromise Company, consumer and customer information, interfere with our operations, cause us to incur significant costs for remediation and enhancement of our IT systems and +6 +expose us to legal liability, all of which could have a substantial negative impact on our business and reputation. +• Advancements in Artificial Intelligence, Machine Learning, and Large Language Models (“AI/ML/LLM”) pose risks and challenges. +• The new and emerging types of AI and their uses are very early stage in the industry and may be subject to many uncertain future developments and regulations. +• We rely on our investment management advisory agreements (“IMA”) with Blackstone ISG-I Advisors LLC (“BIS”) and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios. +• We have a long-term contractual relationship with BIS that limits our ability to terminate this relationship or retain another investment manager without BIS’s consent. +• The historical performance of BIS, or any other asset manager we engage, should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our common stock. +• Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact the reputation of our business. +Risks Related to Economic Conditions and Market Conditions +• Conditions in the economy generally could adversely affect our business, results of operations and financial condition. +• Our investments are subject to geopolitical risk. The on-going conflicts in Russia, Ukraine and the Middle East may adversely affect our business, financial condition, results of operations and cash flows. +• Our investments are subject to market risks that could be heightened during periods of extreme volatility or disruption in financial and credit markets. +• Our investments are subject to credit risks of the underlying issuer, borrower, or physical collateral which can change over time with the credit cycle. +• Interest rate fluctuations could adversely affect our business, financial condition, liquidity and results of operations. +• Equity market volatility could negatively impact our business. +• We are exposed to liquidity risk as a result of our other risks. +• Our business could be materially and adversely affected by the occurrence of a catastrophe, including natural or man-made disasters. +• Our business is subject to risk due to our owned distribution strategy and investments in distribution consolidators. +Legal, Regulatory and Tax Risks +• Our business is highly regulated and subject to numerous legal restrictions and regulations. +• Our business is subject to government regulation in each of the jurisdictions in which we conduct business and regulators have broad administrative and discretionary authority over our business and business practices. +• Our business in the United States is regulated by the National Association of Insurance Commissioners (“NAIC”), which continues to consider reforms including relating to cybersecurity regulations, best interest standards, risk-based capital (“RBC”) and life insurance reserves. +• Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business. +7 +• Our regulation in Bermuda and the Cayman Islands may limit or curtail our activities, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services. +• The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete. +• The amount of statutory capital that our insurance subsidiaries have and the amount of statutory capital that they must hold to maintain their financial strength ratings and meet other requirements can vary significantly from time to time due to a number of factors outside of our control. +• New accounting rules or changes to existing accounting standards could adversely impact our reported results of operations. +• Changes in federal or state tax laws may affect sales of our products and profitability. +• Changes in tax law may increase our future tax liabilities and related compliance costs. +• The redemption of our preferred stock may require a significant amount of cash and may result in adverse tax consequences. +• We may be the target of future litigation, law enforcement investigations or increased scrutiny which may negatively affect our operations or financial strength or reduce profitability. +• We may not be able to protect our intellectual property and may be subject to infringement claims. +• Changing rules, public disclosure regulations and stakeholder expectations on environmental, social and corporate governance (“ESG”) related matters create a variety of risks for our business. +Risks Relating to Our Indebtedness and Financing +• We are a holding company and depend on distributions from our subsidiaries for cash. +Risks Related to the Separation and Distribution and our Status as a Subsidiary of Fidelity National Financial, Inc. (“FNF”) +• Although we have past history of operating as a public company, our historical financial information and summary historical financial information are not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. +• FNF is our principal shareholder and retains significant rights with respect to our governance and certain corporate actions. In certain cases, FNF may have interests which differ from our other shareholders. +• Certain of our directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions. +• Provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock. +• We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. +• FNF or F&G may fail to perform under various transaction agreements that were executed as part of the separation and distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +• In connection with the separation and distribution, FNF has agreed to indemnify us for certain liabilities and we have agreed to indemnify FNF for certain liabilities. If we are required to pay under these indemnities to FNF, our financial results could be negatively impacted. FNF’s indemnification of us may not be sufficient to hold us harmless from the full amount of all liabilities that will be allocated to us, and FNF may not be able to satisfy its indemnification obligations in the future. +• We may have received better terms from unaffiliated third parties than the terms we received in our agreements with FNF. +• Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, which is presumed to exist if a person owns, directly or indirectly, 10% or more of the voting securities of an insurance company, without the prior approval of such insurance +8 +company’s domiciliary state insurance regulator. Persons considering an investment in our common stock should take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such laws in light of their particular circumstances. +• Our amended and restated bylaws contain an exclusive forum provision that could limit our shareholders’ ability to choose a judicial forum that they find favorable for certain disputes with us or our directors, officers, shareholders, employees or agents, and may discourage lawsuits with respect to such claims. +• We and certain of our subsidiaries file consolidated federal income tax returns with FNF. +Risks Related to Our Common Stock and Preferred Stock +• Our stock price may fluctuate significantly. +• If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our investors may lose confidence in the accuracy and completeness of our financial reports, which could adversely affect our stock price. +• Our common stock is subordinated to our preferred stock. +• Substantial sales of our common stock may occur which could cause our stock price to be volatile and to decline. +• We cannot guarantee the timing, amount or payment of dividends on our common stock or preferred stock in the future. +• Your percentage of ownership in F&G may be diluted in the future. +9 +Part I +Item 1. Business +Overview +Founded in 1959, F&G is a leading provider of insurance solutions serving retail annuity and life customers as well as institutional clients. Our mission is to help people turn their aspirations into reality. As of December 31, 2024, F&G has approximately 731,000 policyholders who count on the safety and protection of our fixed annuity and life insurance products. We also serve approximately 115,000 plan participants who will receive their pension payments from F&G through our pension risk transfer solutions. +Through our insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), we market a broad portfolio of annuities, including fixed indexed annuities (“FIAs”), registered index-linked annuities (“RILAs”), (together referred to as “indexed annuities”), multi-year guarantee annuities (“MYGAs”) as well as pension risk transfer (“PRT”) solutions, indexed universal life (“IUL”) insurance and institutional funding agreements. +On June 1, 2020, F&G was acquired by Fidelity National Financial, Inc. (“FNF”). We have benefited from financial strength ratings upgrades since the acquisition; S&P and Fitch upgraded to A- in June 2020, Moody’s upgraded to A3 in July 2023, and A.M. Best upgraded to A in January 2024. These upgrades are valued by our distribution partners and positioned us to quickly expand our business in our existing channels and gain access to new markets. Gross sales profitability increased from $4.5 billion for the full year 2020 to $15.3 billion in 2024. With our success in expanding distribution under FNF’s ownership, we have grown assets under management (“AUM”) from $26.5 billion at the time of acquisition to $53.8 billion as of December 31, 2024. We now operate in and source significant premiums from three distinct retail channels and two institutional markets versus a single channel prior to the acquisition by FNF in June 2020. For a discussion of the five distinct channels, see “ We Play in Large and Growing Markets” and “ Our Retail Distribution Channels” within this section of the Annual Report on Form 10-K. +We believe the strength of our balance sheet provides confidence to our policyholders and business partners and positions us for continued growth. Our investment portfolio is diversified, well positioned and high quality. As of December 31, 2024, 96% of our fixed maturity securities were rated under criteria of the NAIC as NAIC 1 or NAIC 2, the two highest credit rating designations of the NAIC. These assets are managed against what we believe to be prudently underwritten liabilities. We have in-force liabilities of $52.3 billion at December 31, 2024, with a liability duration of approximately 6 years, well matched to our assets. For the year ended December 31, 2024, net earnings attributable to F&G totaled $639 million, we produced adjusted net earnings attributable to F&G common shareholders of $546 million, and we had an adjusted return on assets attributable to F&G common shareholders (“ROA”) of 106 basis points. Adjusted net earnings attributable to F&G common shareholders the year ended December 31, 2024 included $514 million of investment income from alternative investments and $46 million of collateralized loan obligations (“CLOs”) redemptions and bond prepay income, and $14 million tax valuation allowance, partially offset by $26 million of net expense from actuarial assumption and model updates and other items. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $659 million. +We are focused on growing our inforce liabilities and AUM, driven by sales of attractively priced liabilities across our multi-channel new business platform. We have great momentum and remain focused on continuing to deliver long-term growth by driving sustainable asset growth from our retail and pension risk transfer growth strategies, generating ROA expansion from enhanced investment margin opportunities, scale benefits and fee-based earnings from accretive flow reinsurance, as well as diversifying earnings through strong growth in our middle market life insurance business and owned distribution strategies. +As of December 31, 2024 , we had $4.0 billion of total F&G equity and $5.6 bil lion of total F&G common shareholders’ equity excluding accumulated other comprehensive income (loss) (“AOCI”). FGL Insurance’s estimated U.S. RBC ratio was over 410% a s of December 31, 2024, as compared to 451% and 442% as of +10 +December 31, 2023 and December 31, 2022, respectively. FGL Insurance expects to maintain its U.S. risk-based capital (“RBC”) ratio at or above our target of 400%. +F&G Dividend Distribution (the “separation and distribution”) +On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G. The purpose of the separation and distribution was to enhance and more fully recognize the overall market value of each company. FNF retained control of F&G through ownership of approximately 85% of F&G common stock. +For additional information about risks to F&G related to our status as a subsidiary of FNF, please see “Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF.” +Our Strategy +Through a diversified growth strategy, F&G has demonstrated profitable, compound annual growth rates in gross sales of 31% and AUM of 15% for the five-year period 2019 to 2024 and, more recently, annual increases in gross sales of 16% and AUM of 10% as of December 31, 2024 compared to the year ended December 31, 2023. We have expanded our business in our traditional channel and entered new markets. We are focused on delivering on our medium term financial targets laid out at our October 2023 Investor Day to grow assets, expand ROA and ROE, and increase our multiple as we grow our retail distribution, win our share of the healthy PRT pipeline, maintain spreads in any rate environment, benefit from demographic tailwinds, and diversify through our accretive flow reinsurance and owned distribution strategies, which set F&G apart. We are positioned to accomplish our goals through the following areas of strategic focus: +• Targeting large and growing markets . The opportunity for our core annuity products remains significant, as policyholders seek to add safety and certainty to their retirement plans. Our investments in life insurance products allows us to penetrate the underserved middle market, which addresses the needs of many of our cultural communities. And as corporations continue to de-risk their pension funds, our buyout solutions can guarantee pension-holders the lifetime benefits they need and want. Finally, we continue to attract strong institutional annuity buyers with funding agreements. F&G is a national leader in the markets we play in, and demographic trends provide tailwinds and significant room to continue growing. +• Superior ecosystem . Our business model gives us a sustainable competitive advantage. We have strong and long-standing relationships with a diverse network of distributors, a durable investment edge through our Blackstone partnership, a scalable administrative platform, and a track record of attracting and retaining top talent. +• Consistent track record of success. F&G’s deep and experienced management team has successfully diversified products and channels in recent years and demonstrated our ability to deliver consistent top line growth, increase assets under management and generate steady spreads and expand ROA, excluding short-term mark-to-market effects, across varying market cycles. +• Driving margin expansion and improved returns. We are pursuing strategies to continue to grow earnings, while generating significant positive net cash flow and diversifying into “capital light” flow reinsurance and accretive owned distribution to generate higher return on equity. +Our Competitive Advantages +Our business model is strong and positions us to capitalize on the growth prospects in our addressable markets. +• Trusted by distributors. We have long-standing relationships with a broad range of distributors representing nearly 138,000 independent agents and financial advisors, and built on our reputation for transparency and a consistently competitive product portfolio. We offer fixed annuities and life insurance products through a network of approximately 22 leading banks and broker-dealers and approximately 300 Independent Marketing Organizations (“IMO”) that provide back-office support for thousands of independent insurance agents. +11 +• Winning in high-growth markets. The U.S. retirement and middle markets are growing, and we are both well-established and well-positioned for continued growth. Our strategic alignment with our distribution partners allows us to reach a diverse, growing and underserved middle market demographic in both our retail and institutional channels. +• Durable investment management edge. Our strategic partnership with Blackstone provides a sustained competitive advantage for our business. Our liability profile and risk appetite drives our investment strategy. F&G’s investment and risk offices set strategic asset allocation and risk limits. Blackstone is responsible for idea generation and security selection. Blackstone’s capabilities expand our investment universe to new asset classes and their origination capabilities provide incremental spread. Our high quality, diversified investment portfolio is well positioned to withstand macroeconomic headwinds and continues to perform well. We have enhanced the return while improving the credit quality of our portfolio, and credit related impairments remain low, averaging 7 basis points over the past 3 years, below our pricing assumption. +• Clean and profitable in-force book. As a life insurer, we generate spread earnings based on our assets under management and over the lifetime of the liabilities in place. Our disciplined new business underwriting process provides us with stable liabilities, primarily in products that reset annually, which has allowed us to achieve consistently attractive lifetime returns. Approximately 93% of our $35.6 billion fixed indexed and fixed rate annuities account value are surrender-charge protected and our asset and liability cash flows are well matched. Additionally, our funding agreements, pension risk transfer and immediate annuities are non-surrenderable. +• Track record of attracting top talent. F&G’s management team and over 1,300 employees have a record of long-term success and have delivered impressive results in the last few years. Our commitment to our cultural values is the cornerstone of our success, whereby F&G is a company of individuals who believe in the power of partnerships, encourage innovation and creativity, and are transparent about decisions while delivering on their commitments. This is borne out by consistently being recognized as an employer of choice as well as an involuntary turnover rate that is well below that of other financial services companies. We believe our flexible, employee-centric work approach positions us as an employer of choice. +• Clear governance structure. We have a disciplined approach for considering new lines of business to enter, the appropriate product/channel mix for achieving our targeted new business profitability, and the management of our capital and in-force liabilities. Further, we target and pursue opportunities that leverage our strengths. +We Play in Large and Growing Markets +We serve a market with very attractive demographic tailwinds as more than 10,000 Baby Boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last approximately 30 years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth and principal protection, as an alternative to the traditional 60/40 investment portfolio. +The U.S. retirement market opportunity is vast and includes the $1.1 trillion U.S. consumer savings market and the $223 billion retail life and annuities market. While insured products are designed to effectively serve the needs of retirees, annuities and life insurance solutions continue to be underutilized. We believe middle market consumers, in particular, lack the guidance they need and want and can benefit greatly from insurance solutions. +Retail. Until recently, F&G distributed our flagship annuity and life insurance products solely through our longstanding IMO relationships. In mid-2020, we expanded into the bank and broker-dealer channels to broaden our reach and capture share of the personal savings and CDs markets. Our entry into these channels was successful, resulting in $15.3 billion of cumulative new business since the launch in 2020 to year-end 2024. In early 2024, we entered into the fast-growing RILA market and have successfully onboarded with seven banker dealer distribution partners. We are focused on adding additional distribution partners and see the potential for RILA sales to ramp up over the medium term. Annuity sales through the bank and broker-dealer channels were $5.0 billion and $4.9 billion for the years ended December 31, 2024 and 2023, respectively. The approximate 22 banks and broker-dealers we +12 +work with account for 42% of all annuity sales. In these retail markets F&G ranks: (i) 5th and 11th in FIA sales in the IMO and bank channels and 7th in FIA industry sales; (ii) 7th and 4th in MYGA sales in the broker-dealer and bank channels and 6th in MYGA industry sales; and (iii) 5th in IUL sales in the IMO channel, 4th in the number of IUL policies sold and 6th in IUL industry sales, in each case, for the year to date as of September 30, 2024, as sourced from Wink’s Sales and Market Report. +We successfully expanded into new retail channels and diversified our annuity distribution, yet not at the expense of our traditional IMO channel. We grew our IMO channel sales by 41% and 6% during the years ended December 31, 2024 and December 31, 2023, respectively. +We continue to invest in our life insurance business, focusing our approach to meet the needs of the underserved middle market which we reach largely through Network Marketing Groups (“NMGs”). The middle market segment was the largest in 2023, at 45% of households. NMGs are unique and growing, recruiting members of diverse communities for careers in insurance and penetrating cultural segments. NMGs have proven to be one of our most cost-efficient distribution channels, in large part because they tend to work with a smaller number of strategic product providers. This has allowed us to build deep and lasting relationships with both the NMGs and the agents. Since 2019, largely due to our NMG strategy, F&G’s IUL sales growth has far outpaced the industry, with a three-year combined annual growth rate of 46% compared to the industry’s 10%. F&G’s growth rate in IUL has consistently placed us in the top 10 IUL sales ranking since 2021. Untapped opportunities remain in this channel, particularly among younger and more diverse demographics. In the United States, 42% of adults reported a need for life insurance or more coverage, which equates to approximately 102 million adults with a life insurance gap. Hispanics, the second largest ethnic group behind Caucasians, have the largest uninsured population among adults at 40% representing significant opportunity for us to serve this market. +Owned Distribution. Our owned distribution strategy provides a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. We have invested $680 million in owned distribution partners through the following transactions: +• In October 2021, we purchased a 30% minority ownership stake in Freedom Equity Group (“FEG”). FEG is a nearly 4,000 agent strong NMG that focuses on cultural markets including Mexican-American, Hmong, Laotian, Filipino, Burmese, Congolese-American, Samoan, African-American, Thai and Vietnamese. +• In January 2023, we purchased a 49% minority ownership stake in Syncis Holdings, LLC, an NMG. Syncis is an approximately 1,200 agent NMG that focuses on cultural markets including Korean, African-American, and Persian. +• In June 2023, we purchased a 40% minority ownership stake in DCMT Worldwide, LLC (“DCMT”), who distributes life insurance and annuity products through a network of over 1,000 agents. +• In January 2024, we purchased a 70% majority ownership stake in Roar Joint Venture, LLC (“Roar”), a wholesaler of annuities and life insurance products to financial institutions and the broker-dealer community. +• In July 2024, we acquired a 100% ownership stake in PALH, LLC (“PALH”), who owns a 100% ownership stake in an operating company. PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. +Institutional . In 2021, F&G entered two institutional business lines to further diversify our sources of revenue. Our competitive asset management advantage through Blackstone allows us to have very competitive offerings in our spread lending products as well as in the PRT market, while still meeting our internal pricing targets. +• In addition to our funding agreement business with the Federal Home Loan Bank of Atlanta, (“FHLB”), we now offer the proven ability to originate Funding Agreement Backed Notes (“FABN”), a $210 billion market. Our FABN Program (the “FABN Program”) offers funding agreements to institutional clients by means of capital markets transactions through investment banks. This business line has generated $2.3 billion in sales for F&G in 2021, its year of inception of FABN, $1.4 billion in sales for the year ended +13 +December 31, 2022, $1.3 billion in sales for the year ended December 31, 2023, and $1.0 billion in sales for the year ended December 31, 2024. +• We also offer PRT solutions to a $45 billion (of $3 trillion total private defined benefit plan assets) market. Our PRT business is supported by an experienced team with access to brokers and institutional consultants for distribution. We have generated over $7 billion of cumulative sales since launch in 2021 to year-end 2024 and now serve approximately 115,000 total participants, including beneficiaries, who will receive their pension payments from F&G. Our targeted deal size is approximately $100 million to $1 billion, and we selectively pursue plan termination and larger retiree buyouts. We expect our opportunity to continue to grow as employers shift away from traditional defined benefit pension plans and seek to de-risk frozen pension plans. This line of business generated $1.1 billion in sales for F&G in 2021, its year of inception, $1.4 billion in sales for the year ended December 31, 2022, $2.0 billion in sales for the year ended December 31, 2023, and $2.2 billion in sales for the year ended December 31, 2024. In the pension risk transfer market, F&G ranks as 8th in the PRT industry sales for the year to date as of September 30, 2024, as sourced from the Life Insurance Marketing and Research Association. +We Have Meaningfully Diversified Our Business +With the addition of the retail bank and broker-dealer channels and our success in entering the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to now five, and from one primary product to now six with our entrance into the RILA market in early 2024. We completed this expansion over a five-year period and, combined with organic growth in our core IMO channel, increased gross sales by 292%, from $3.9 billion in 2019 to $15.3 billion in 2024. +We have reinforced our earnings engine in addition to driving top-line growth. We have acquired and retained customers through the years, growing AUM from $26.5 billion at the time of FNF’s acquisition to $53.8 billion as of December 31, 2024. Profitable growth in AUM is the most important driver of F&G’s earnings and our ability to return capital to shareholders. +Our Financial Goals +Our competitive advantages – product and channel diversification, as well as our strategic partnership with Blackstone – enable us to address a greater share of the markets in which we play. Further, the strength of our distribution partner relationships and pension risk transfer growth strategy has enabled the Company to achieve profitable double digit sales growth. The launch of our RILA product in early 2024 will further boost our sales growth as we enter a large and fast-growing market. We have made good progress toward the medium term financial targets we laid out at our 2023 Investor Day as we focus on driving sustainable asset growth from our retail and pension risk transfer growth strategies, generating ROA expansion from enhanced investment margin, scale benefits and fee-based earnings from accretive flow reinsurance, and diversifying earnings through strong growth in our middle market life insurance business and owned distribution strategies. +The Products We Offer +F&G’s expertise in annuities, life insurance, pension risk transfer solutions and funding agreements will allow us to continue to introduce innovative products and solutions designed to meet customers’ changing needs. We work hand-in-hand with our distributors and institutional advisors to devise the most suitable solutions for the ever-changing market. Our retail annuities serve as a retirement and savings tool on which our customers rely for principal protection and predictable income streams. In addition, our life insurance products provide our customers with a complementary product that allows them to build on their savings and provide a payment to their designated beneficiaries upon the policyholder’s death. Our most popular products are FIAs that tie contractual returns to specific market indices, such as the S&P 500 Index. Our customers value our FIAs, which provide a portion of the gains of an underlying market index, while also providing principal protection. We believe this principal protection fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their savings. As noted above, in 2021, we launched into two institutional markets to originate FABN and PRT +14 +transactions. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone. +For the year ended December 31, 2024, FIAs generated approximately 44% of our gross sales. The remaining 56% of sales were primarily generated from fixed rate annuities (33%), PRT sales (15%), funding agreements (7%) and IUL (1%). We invest the proceeds primarily in fixed income securities. We also use options and futures that hedge the index credit of our FIA and IUL liabilities by replicating the market index returns to our policyholders. We invest in options on indices such as the S&P 500 Index. The majority of our products allow for active management to achieve targeted lifetime returns. In addition, our annuity contracts generally either cannot be surrendered or include surrender charges that discourage early redemptions. +Annuities. Through F&G’s insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), immediate annuities, and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically pays principal and earnings in equal payments over some period of time. +Deferred Annuities – FIAs . Our FIAs allow contract owners the possibility of earning returns linked to the performance of a specified market index, such as the S&P 500 Index, while providing principal protection. The contract owners typically make a single deposit into our deferred annuities. The contracts include a provision for a minimum guaranteed surrender value calculated in accordance with applicable law. A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. All FIA products allow policyholders to allocate funds once a year among several different crediting strategies, including one or more index-based strategies and a traditional fixed rate strategy. Surrender charges apply for early withdrawal, typically for seven to fourteen years after purchase. +We purchase derivatives consisting predominantly of over-the-counter options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the applicable policy such as the S&P 500 Index. These derivatives are used to fund the index credits due to policyholders under the FIA and IUL contracts based upon policyholders’ contract elections. The down-side risk to F&G is limited to the cost of the options because if the value of the options decreases there is no index credit. The cost of the hedge is included in the pricing of the product and can be reset on an annual basis for each policy based on market conditions. The majority of all such equity options are one-year options purchased to match the funding requirements underlying the FIA/IUL contracts. On the anniversary dates of the FIA/IUL contracts, the market index used to compute the annual index credit under the contracts is reset. At such time, we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums on each contract’s anniversary date. The change in the fair value of the options and futures contracts is generally designed to offset the equity market related change in the fair value of the FIA/IUL contract’s related reserve liability. The options and futures contracts are marked to fair value with the change in fair value included as a component of “Recognized gains and (losses), net” in our Consolidated Statements of Operations. The change in fair value of the options and futures contracts includes the gains and losses recognized at the expiration of the instrument’s term or upon early termination and the changes in fair value of open positions. Generally accepted accounting principles (“GAAP”) accounting of the reserve liability for products with embedded derivatives such as FIA creates additional volatility beyond the accounting for the options and the futures. +The contractholder account value of a FIA contract is equal to the sum of deposits paid, premium bonuses, if any, (described below), and index credits based on the change in the relevant market index (subject to a cap, spread and/or a participation rate) less any fees for riders and any withdrawals taken to-date. Caps (a maximum rate that may be credited) generally range from 1% to 10% when measured annually and 1% to 3% when measured monthly, spreads (a credited rate determined by deducting a specific rate from the index return) generally range from 1% to 3% when measured annually, and participation rates (a credited rate equal to a percentage of index return) generally +15 +range from 50% to 250% of the performance of the applicable market index. The cap, spread and participation rate can typically be reset annually and in some instances every two to five years. Certain riders provide a variety of benefits, such as the ability to increase their cap, lifetime income or additional liquidity for a set fee. As this fee is fixed, the contract holder may lose principal if the index credits received do not exceed the amount of such fee. +Approximately 39% of the FIA sales for the year ended December 31, 2024, involved premium bonuses or vesting bonuses. Premium bonuses increase the initial annuity deposit by a specified rate of 2%. The vesting bonuses, which range from 1% to 15%, increase the initial annuity deposit liability but are subject to adjustment for unvested amounts in the event of surrender by the policyholder prior to the end of the vesting period. We made compensating adjustments in the commission paid to the agent or the surrender charges on the policy to offset the premium bonus. +Approximately 48% of our FIA contracts were issued with a guaranteed minimum withdrawal benefit (“GMWB”) rider for the year ended December 31, 2024. With this rider, a contract owner can elect to receive guaranteed payments for life from the FIA contract without requiring the owner to annuitize the FIA contract value. The amount of the income benefit available is determined by the growth in the policy’s benefit base value as defined in the FIA contract rider. Typically, this accumulates for 10 years based on a guaranteed rate of 3% to 8%. Guaranteed withdrawal payments may be stopped and restarted at the election of the contract owner. Some of the FIA contract riders that we offer include an additional death benefit or an increase in benefit amounts under chronic health conditions. Rider fees range from 0% to 1%. Unlike a variable annuity, policyholder values do not decline with market movements. +Deferred Annuities – Fixed Rate Annuities . Fixed rate annuities are typically single deposit contracts and include annual reset and multi-year rate guaranteed policies. Fixed rate annual reset annuities issued by us have an annual interest rate (the “crediting rate”) that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting rate once annually to any rate at or above a guaranteed minimum rate. MYGAs are similar to fixed rate annual reset annuities except that the initial crediting rate is guaranteed for a specified number of years before it may be changed at our discretion. As of December 31, 2024, crediting rates on outstanding (i) single-year guaranteed annuities generally ranged from 2% to 6% and (ii) MYGA ranged from 1% to 6%. The average crediting rate on all outstanding fixed rate annuities at December 31, 2024 was 5%. +Deferred Annuities - RILA – In early 2024, we entered into the RILA markets. RILAs are similar to FIAs in offering the policyholder the opportunity for tax-deferred growth based in part on the performance of a market index. Compared to a FIA, RILAs have the potential for higher returns but also have the potential for risk of loss to principal and related earnings. RILAs provide the ability for the policyholder to participate in the positive performance of certain market indices during a term, limited by a cap or adjusted for a participation rate. Negative performance of the market indices during a term can result in negative policyholder returns, with downside protection typically provided in the form of either a “buffer” or a “floor” to limit the policyholder’s exposure to market loss. A “buffer” is protection from negative exposure up to a certain percentage, typically 10 or 20 percent. A “floor” is protection from negative exposure less than a stated percentage (i.e., the policyholder risks exposure of loss up to the “floor,” but is protected against any loss in excess of this amount). +Withdrawal Options for Deferred Annuities. After the first year following the issuance of a deferred annuity, policy holders of deferred annuities are typically permitted penalty-free withdrawals up to a contractually specified amount. The penalty-free withdrawal amount is typically 10% of the prior year account value for FIAs and is typically up to accumulated interest for fixed rate annuities, subject to certain restrictions. Withdrawals in excess of allowable penalty-free amounts are assessed a surrender charge if such withdrawals are made during the penalty period of the deferred annuity policy. The penalty period typically ranges from seven to fourteen years for FIAs and three to ten years for fixed rate annuities. This surrender charge initially ranges from 8% to 14% of the contract value for FIAs and is 8% of the contract value for fixed rate annuities and generally decreases by approximately one to two percentage points per year during the penalty period. The average surrender charge was 8% for our FIAs and 7% for our fixed rate annuities as of December 31, 2024. A market value adjustment (“MVA”) will also apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on a +16 +formula that accounts for changes in interest rates since contract issuance. Generally, if interest rates have risen, the MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. MVAs are included on all policies, if allowed (for FIAs since 2015 and for a longer time for fixed rate annuities). At December 31, 2024, approximately 81% of our business included an MVA feature. +The following table summarizes our deferred annuity account values and surrender charge protection as of December 31, 2024 (dollars in millions): +SURRENDER CHARGE EXPIRATION BY YEAR Fixed Rate and Indexed Annuities Account Value Percent of Total Weighted Average Surrender Charge +Out of surrender charge $ 2,427 7 % — % +2025 2,225 6 4 % +2026-2028 8,332 23 6 % +2029-2030 6,347 18 7 % +2031-2032 6,213 17 8 % +Thereafter 10,009 29 11 % +Total $ 35,553 100 % 7 % +Subsequent to the penalty period, the policyholder may elect to take the proceeds of the surrender either in a single payment or in a series of payments over the life of the policyholder or for a fixed number of years (or a combination of these payment options). In addition to the foregoing withdrawal rights, policyholders may also elect to have additional withdrawal benefits by purchasing a GMWB. +Single Premium Immediate Annuities . We have previously sold single premium immediate annuities (“SPIA”), which provide a series of periodic payments for a fixed period of time or for the life of the policyholder, according to the policyholder’s choice at the time of issue. The amounts, frequency and length of time of the payments are fixed at the outset of the annuity contract. SPIAs are often purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years. Existing policyholders may elect to surrender their contract and use the proceeds to purchase a supplementary contract which functions as a SPIA. +Life Insurance. We currently offer IUL insurance policies and have previously sold universal life, term and whole life insurance products. Holders of universal life insurance policies may make periodic payments over the life of the contract and earn returns on their policies, which are credited to the policyholder’s cash value account. The insurer periodically deducts its expenses and the cost of life insurance protection from the cash value account. The balance of the cash value account is credited interest at a fixed rate or returns based on the performance of a market index, or both, at the option of the policyholder, using a method similar to that described above for FIAs. In addition to the annual renewal premium, we are diversifying earnings through strong growth in our middle market life insurance business. +Funding Agreements. As defined by the Iowa Insurance Division (“IID”), a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers are agreeing to a defined stream of future payments in exchange for a single upfront premium. This type of business is sometimes referred to as spread lending, as funding agreement providers invest upfront premiums with the intent to earn an investment spread on the funds prior to making agreed upon maturity and interest payments. The structure of the payments can take several forms but are commonly a fixed or variable interest payment with a single maturity principal re-payment. +F&G currently utilizes two forms of funding agreement offerings. The first is through the issuance of collateralized funding agreements with the FHLB. This enables spread-based income without longevity or mortality exposure given the certainty in liability profile. Funding agreements through the FHLB are flexible in their format and the ability to issue during broad windows, as long as sufficient eligible collateral has been deposited with the bank. F&G and its predecessors have been entering into funding agreements with the FHLB since at least 2004. +17 +In June 2021, we established a FABN Program, which is a medium term note program under which funding agreements are issued to a special-purpose trust that issues marketable notes. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors. These FABN offerings are more limited regarding timing of issuance, but do not require collateralization as with the FHLB. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is currently $5.0 billion. As of December 31, 2024, we had approximately $2.5 billion outstanding under the FABN Program. +Pension Risk Transfer. In July 2021, we entered the PRT market. A PRT occurs when a defined-benefit pension provider seeks to remove some or all of its obligation to pay guaranteed retirement income or post-retirement benefits to plan participants. There are four major types of PRT strategies: longevity reinsurance, buy-in, buy-out, and paying in lump sums. We are currently active in plan buy-outs, where we have a direct, irrevocable commitment to each covered participant to make the specified annuity payments based upon the terms of the pension plan. Plan buy-out transactions fully and permanently transfer all investment, mortality, and administrative risk, associated with covered benefits, from the pension plan sponsor to the insurance provider. +Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. These products primarily create earnings through spread income. In each transaction FGL Insurance and/or FGL NY Insurance issues a group annuity contract to discharge pension plan liabilities from a pension plan sponsor, either through a separate account or through a general account guarantee. Certificate holders covered under a group annuity contract have a guaranteed benefit from the insurance company. +Our PRT solutions business is supported by a team of experienced professionals, and we partner with brokers and institutional consultants for distribution. As of December 31, 2024, we had completed cumulative PRT transactions that represented pension obligations of $7.0 billion. +Reinsurance philosophy/arrangements. Our insurance subsidiaries cede insurance to other insurance companies. We use reinsurance to diversify risks and earnings, to manage loss exposures, to enhance our capital position, and to manage new business volume. The effects of certain reinsurance agreements are not accounted for as reinsurance as they do not reinsure insurance contracts, or they do not transfer the risks of the reinsured policies. +In instances where we are the ceding company, we pay a premium to a reinsurer in exchange for the reinsurer assuming a portion of our liabilities under the policies we issued and collect expense allowances in return for our administration of the ceded policies. Use of reinsurance does not discharge our liability as the ceding company because we remain directly liable to our policyholders and are required to pay the full amount of our policy obligations in the event that our reinsurers fail to satisfy their obligations. We collect reimbursement from our reinsurers when we pay claims on policies that are reinsured. +We monitor the credit risk related to the ability of our reinsurers to honor their obligations under various agreements. To minimize the risk of credit loss on such contracts, we generally diversify our exposures among many reinsurers and limit the amount of exposure to each based on financial strength ratings, which are reviewed annually. We are able to further manage risk with various forms of collateral or collateral arrangements, including secured trusts, funds withheld arrangements and irrevocable letters of credit. +Please refer to Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further discussion on reinsurance, reinsurance recoverables for our largest reinsurers and credit risk and counterparty risk. +Please refer to “ Risk Factors ” for additional details regarding credit risk related to reinsurance agreements. A description of significant ceded reinsurance transactions appears below. +18 +Wilton Reinsurance Transaction . Almost all of the life insurance policies in force issued before March 1, 2010, except for the return of premium benefits on term life insurance products, are subject to a reinsurance arrangement with Wilton Reassurance Company (“Wilton Re”). Pursuant to the agreed upon terms, Wilton Re purchased through a 100% quota share reinsurance agreement certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s in-force traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the agreement satisfies the risk transfer requirements for GAAP. +Hannover Reinsurance Transaction. Originally effective January 1, 2017, FGL Insurance has a reinsurance agreement with Hannover Life Reassurance Company of America, an unaffiliated reinsurer, to reinsure an in-force block of FGL Insurance’s FIA and fixed rate deferred annuity contracts with GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of secondary guarantee payments in excess of account value for GMWB and death benefits in excess of account value for GMDB guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL insurance applies the right of offset in the reinsurance agreement. +Kubera Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2024. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $300 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2024 and December 31, 2023, the amount funded under the NPA was insignificant. +Kubera & Somerset Reinsurance Transactions. FGL Insurance entered into a reinsurance agreement with Kubera, effective December 31, 2018, to cede certain fixed rate annuity (including MYGA) GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset Reinsurance Ltd. (“Somerset”), a certified third-party reinsurer. Effective December 1, 2023, FGL Insurance executed an additional coinsurance funds withheld agreement with Somerset to cede certain flow MYGA business written effective on or after December 1, 2023. As the policies ceded to Somerset are investment contracts, there is no significant insurance risk present and the reinsurance agreements are accounted for as separate investment contracts. +Effective July 1, 2024, FGL Insurance amended the existing flow reinsurance agreement with Somerset to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis written on or after July 1, 2024. As the base contract benefits and GWMB riders are ceded to Somerset, there is sufficient insurance risk present that results in this portion of the reinsurance agreement being accounted for as reinsurance. +19 +Everlake Reinsurance Transaction. Effective September 1, 2023, FGL Insurance executed a coinsurance agreement with Everlake Life Insurance Company (“Everlake”), an unaffiliated reinsurer to cede, on a quota share basis, certain flow MYGA business written effective on or after September 1, 2023. As the policies ceded to Everlake are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +Effective January 1, 2025, F&G amended the existing flow reinsurance agreement with Everlake Life Insurance Company (“Everlake”) to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. +Aspida Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Aspida Life Re Ltd. (“Aspida Re”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after January 15, 2021. As the policies ceded to Aspida Re are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +New Re Reinsurance Transaction. Effective December 31, 2022, FGL Insurance entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd., an unaffiliated reinsurer and wholly owned subsidiary of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (d/b/a Munich Re), to cede certain FIA policies. Effective July 1, 2023, this agreement was amended to reinsure additional FIA products. The coinsurance quota share is only applicable to the base contract benefits under the FIA policies. The yearly renewable term is applicable to the waiver of surrender charges and return of premium. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +The CARVM Facility. Life insurance companies operating in the United States must calculate required reserves for life and annuity policies based on statutory principles. The insurance divisions have adopted the methodology contained in the NAIC Valuation Manual as the prescribed methodology for the insurance industry. The industry has reduced or eliminated redundancies thereby increasing capital using a variety of techniques including reserve facilities. +FGL Insurance has a reinsurance treaty with Raven Reinsurance Company (“Raven Re”), its wholly owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation Method (“CARVM”) liability for annuity benefits where surrender charges are waived related to certain FIA, deferred annuity and MYGA policies. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement with Nomura Bank International plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The financing facility has $175 million available to draw on as of December 31, 2024. The amended facility may terminate earlier than the current termination date of October 1, 2027, in accordance with the terms of the reimbursement agreement. Under the terms of the reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required to repay the amounts utilized, and F&G Annuities & Life, Inc. (“FGAL”) is obligated to repay the amounts utilized if Raven Re fails to make the required reimbursement. Under the terms of the agreement, FGAL is also required to make a capital contribution to Raven Re in certain circumstances, including in the event that Raven Re’s statutory capital and surplus falls below defined levels. As of December 31, 2024 and December 31, 2023, no capital contributions were required to be made due to these conditions. As this letter of credit is provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an admitted asset on the Raven Re statutory balance sheet. +GMWB/GWP Reinsurance Transaction . Effective December 31, 2023, FGL Insurance recaptured its reinsurance arrangement with Canada Life Assurance Company (“Canada Life”) United States Branch covering FIA policies with GMWB and guaranteed withdrawal payment (“GWP”) features and entered into a reinsurance treaty with Corbeau Re, Inc. (“Corbeau Re”), its wholly owned captive reinsurance company, to cede certain FIA policies with GMWB and GWP. In accordance with the terms of this agreement, FGL Insurance cedes a quota share of GMWB and GWP paid in excess of account value. In connection with the reinsurance agreement between FGL +20 +Insurance and Corbeau Re, Corbeau Re entered into an excess of loss reinsurance agreement (“XOL”) with Canada Life Barbados Branch to finance the portion of statutory reserves considered to be non-economic. The XOL matures on December 31, 2043, and provides for coverage on losses up to $1,500 million as of December 31, 2024. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. The XOL is not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. Under the terms of the agreement, FGAL is required to make a capital contribution to Corbeau Re in certain circumstances, including in the event that Corbeau Re’s statutory capital and surplus falls below defined levels. As of December 31, 2024, no capital contributions were required to be made due to these conditions. Corbeau Re is permitted to account for the excess of loss reinsurance agreement from Canada Life as an admitted asset on the Corbeau Re statutory balance sheet. +PRT Reinsurance Transaction . Effective October 1, 2023, FGL Insurance recaptured a reinsurance agreement with its affiliate F&G Life Re Ltd. (“F&G Life Re”), a Bermuda reinsurer, covering a quota share of certain pension risk transfer group annuity contracts and entered into an agreement with its affiliate F&G Cayman Re Ltd. (“F&G Cayman Re”), a Cayman Islands reinsurer, to reinsure a quota share of certain pension risk transfer group annuity contracts (previously ceded to F&G Life Re) in addition to flow pension risk transfer group annuity contracts. Some of the contracts reinsured are held by FGL Insurance’s general account and others are held by a FGL Insurance separate account (which does not meet the GAAP definition of a separate account). Reinsurance of the general account contracts are maintained on a coinsurance funds withheld basis for the general account statutory reserves. Reinsurance of the separate account contracts are maintained on a modified coinsurance basis for the separate account statutory reserves and coinsurance basis for the general account statutory reserves supporting the separate account. In connection with the agreement, F&G Cayman Re entered into a financing agreement with Deutsche Bank AG (“DB”), operating out of its New York branch, whereby DB issued a letter of credit used to support the coinsured general account statutory reserves (generally considered to be the non-economic reserves). +Our Retail Distribution Channels +We distribute our annuity and life insurance products through three main retail channels of distribution: independent agents, banks, and broker-dealers. +In our independent agent channel, the sale of our products typically occurs as part of a four party, three stage sales process between FGL Insurance, an IMO, the agent and the customer. FGL Insurance designs, manufactures, issues, and services the product. The IMOs will typically sign contracts with multiple insurance carriers to provide their agents with a broad and competitive product portfolio. The IMO provides training and discusses product options with agents in preparation for meetings with clients. The IMO staff also provide assistance to the agent during the selling and application process. The agent may get customer leads from the IMOs. The agent conducts a fact finding and presents suitable product choices to the customers. We monitor the business issued by each distribution partner for pricing metrics, mortality, persistency, as well as market conduct and suitability. +We offer our products through a network of approximately 300 IMOs, representing approximately 126,000 agents. We believe that our relationships with these IMOs are strong. We identify Power Partners as those who have demonstrated the ability to generate significant production for our business. We currently have 41 Power Partners, comprised of 19 annuity IMOs and 22 life insurance IMOs. The average tenure of the Power Partners is approximately 21 years. +We took a similar approach in launching products as a new entrant into the bank and broker-dealer channels by partnering with one of the largest broker-dealers in the industry. In 2020, F&G launched a set of fixed rate annuity and FIA products to banks and broker-dealers and gained selling agreements with some of the largest banks and broker-dealers in the United States. We offer our products through a network of approximately 22 banks and broker-dealers, representing approximately 12,000 financial advisers. The financial advisers at our bank and broker-dealer partners are able to offer their clients guaranteed rates of return, protected growth, and income for life through our Secure series of annuity products. We employ a hybrid distribution model in this channel, whereby some financial institutions partner directly with F&G and our sales team, and others work with an intermediary. As such, we partner +21 +with a select number of financial institution intermediaries who have expertise in the channel and maintain the appropriate field wholesaling forces to be successful in this channel. In 2024, the top 5 firms represented 77% of channel sales. Bank and broker-dealers represented 42% of annuity sales for the year ended December 31, 2024. +The top five states for the distribution of F&G’s retail products in the year ended December 31, 2024 were Florida, California, Pennsylvania, Texas and Ohio, which together accounted for 38.7% of F&G’s retail sales. +Our Investment Management Governance and Approach +We embrace a long-term conservative investment philosophy, investing nearly all the insurance premiums we receive in a wide range of high-quality debt securities. Our investment strategy is designed to (i) preserve capital, (ii) provide consistent yield and investment income, and (iii) achieve attractive absolute returns. We base all of our decisions on fundamental, bottom-up research, coupled with a top-down view that respects the cyclicality of certain asset classes. The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. +FGL Insurance and certain other subsidiaries of F&G are party to investment management agreements (“IMAs”) with Blackstone ISG-I Advisors LLC (“BIS”) pursuant to which BIS is appointed as investment manager of substantially all assets in the general and separate accounts of those entities (the “F&G Accounts”). Effective October 1, 2024, FGL Insurance amended and restated its IMA with BIS to increase a fee cap from 26 basis points to 30 basis points. This increase did not change the overall economics of the IMA as it was not material in nature. MVB Management, LLC, (“MVB Management”), an entity that is 50% owned by BilCar, LLC (an affiliate of William Foley, the Executive Chairman and a director of the Company) (“BilCar”), receives a participation fee from BIS in connection with assets of F&G and its subsidiaries that are managed by BIS. BIS also receives services from MVB Management. Pursuant to the investment management agreements with BIS, BIS pays MVB Management a fee of approximately 7.5% of certain fees paid to BIS and its affiliates for AUM relating to new business generated after March 31, 2023 (“New AUM”) (15% prior to that date). In March 2023, BilCar waived its right to receive any portion of payments made by BIS to MVB in respect of such New AUM. Additionally, in March 2023 the Company entered into an agreement with BilCar to pay BilCar the fees that it would have received through MVB Management from BIS over the 10-year period ending March 31, 2033. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. There are no specified minimum amounts of assets that we have agreed that BIS will manage; however, BIS has the right to manage (and receive fees based on) all assets in the F&G Accounts with limited exceptions. For certain asset classes, we continue to utilize specialized third-party investment managers. As of December 31, 2024, approximately 81% of our $60 billion investment portfolio was managed by BIS, with 18% managed by other third parties, and the remaining 1% internally managed. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. +On March 10, 2023, the IMAs were amended such that, for assets under management as of March 31, 2023, BIS’s per annum management fees are as follows: +• for aggregate assets under management in the F&G Accounts up to $25 billion, 0.26% of such aggregate assets under management; +• for aggregate assets under management in the F&G Accounts above $25 billion and up to $34 billion, 0.24% of such aggregate assets under management; and +• for aggregate assets under management in the F&G Accounts above $34 billion, .12% of such aggregate assets under management. +In addition, the Sub-Manager Fee Agreement has been amended to provide for certain updates thereto, including, among other things, to reflect certain additional asset classes, certain revisions to the applicable sub-manager fee rates in respect of certain existing asset classes and certain revisions to the applicable sub-manager fee +22 +rates in respect of assets under management relating to new business of the Company and its subsidiaries generated after March 31, 2023. For the avoidance of doubt, there will be no management fee payable under the IMAs with respect to New AUM. +Aggregate fees paid to BIS were $203 million, $194 million and $155 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Effective January 1, 2025, FGL NY Insurance and BIS entered into an IMA pursuant to which BIS is appointed as investment manager of substantially all assets in the general account of FGL NY Insurance . FGL NY Insurance terminated its current IMA with its current investment manager effective December 31, 2024. There are no separate agreements or arrangements between BIS or its affiliates, on the one hand, and FGL NY Insurance or its affiliates, on the other hand, concerning the IMA between BIS and FGL NY Insurance. +F&G has a robust governance process and framework to manage the investment portfolio. While BIS is primarily responsible for security selection, F&G makes all investment strategy decisions and sets risk parameters. All major decisions need to be reviewed and approved by the F&G Investment Committee, and new investment asset classes go through an internal risk assessment process at F&G to ensure the investments are suitable for an insurance company balance sheet. We define risk tolerance across a wide range of factors, including credit risk, liquidity risk, concentration (issuer and sector) risk, and caps on specific asset classes, which in turn establish conservative risk thresholds. Also, F&G has flexibility to use other asset management partners through our flow reinsurance platform over time. +F&G, along with BIS, continually monitors portfolio allocations and holdings to optimize the portfolio profile. F&G has undertaken several programs to take advantage of the credit cycle and market conditions or to undertake prudent risk management in anticipation of an unfavorable economic environment. We have also added several new asset classes to the investment portfolio to further enhance diversification. +Each of our subsidiaries that is party to an investment management agreement with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any investment management agreement upon 30 days’ notice. However, F&G and FNF are party to an omnibus termination side letter under which they are required to cause our insurance subsidiaries to engage BIS as an investment manager and to generally not engage any other person as an investment manager. See also “Risk Factors—Risks Relating to Our Business— We rely on our investment management advisory agreements with BIS and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios.” +The initial term of the side letter expires in 2029 and will automatically renew for successive two-year terms unless F&G terminates the side letter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations under the investment management agreements. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may with prior notice terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination would not become effective for one year from the date of termination given in the notice, during which time BIS may seek to cure the events giving arise to the termination notice. +Because our subsidiaries can terminate an investment management agreement at any time upon 30 days' notice, it is possible that such a termination by one of our subsidiaries could cause us to be in breach of our obligations under the side letter. BIS’s contractual remedies under the side letter include specific performance and the right to seek damages including, in the event of a non-permitted termination of an investment management agreement by one of our subsidiaries, as compensation for the costs incurred in performing services under, and the failure to receive the benefits reasonably anticipated by, an IMA, the full amount of damages available at law in the same manner and to the same extent as if such IMA had been terminated by us our at our direction in violation of the terms of the side letter. +23 +Our investment portfolio consists of fixed-rate high-quality fixed maturities, including publicly and privately issued corporate bonds, municipal and other government bonds, asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities, commercial mortgage loans (“CMLs”), residential mortgage loans (“RMLs”), limited partnership investments, and other investments. We also maintain holdings in floating rate, and less rate-sensitive investments, including CLOs, non-agency RMBS, and various types of ABS. It is our expectation that our investment portfolio will broaden in scope and diversity to include other asset classes held by life and annuity insurance writers. We also have a small amount of equity holdings required as part of our funding arrangements with the FHLB. +Over the year, we have hedged a portion of the existing floating rate asset exposure in the portfolio. In addition to hedging the existing floating-rate assets, subject to the broader macro and interest rate environment, we will also look to hedge a significant share of new purchases of floating-rate assets. +The portfolio also has exposure to U.S. dollar denominated emerging market bonds, highly rated preferred stocks and hybrids. We currently maintain a well-matched asset/liability profile (asset duration of 4.9 years vs. liability duration of 5.8 years). +Please refer to Note C - Investments in the Consolidated Financial Statements and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Portfolio” in this Annual Report on Form 10-K for additional information about our investment portfolio. +Mature Risk Management Framework and Governance +Risk management is a critical part of our business to manage our financial strength and meet or exceed regulatory requirements. We seek to assess risk to our business through a comprehensive, formal process involving: +a. identifying short-term and long-term strategic and operational objectives; +b. development of risk appetite statements that establish what the Company is willing to accept in terms of risks to achieving its goals and objectives; +c. identifying the levers that control the risk appetite of the Company; +d. establishing the overall limits of risk acceptable for a given risk driver; +e. establishing operational risk limits that are aligned with the tolerances; +f. assigning risk limit quantification and mitigation responsibilities to individual team members within functional groups; +g. analyzing the potential qualitative and quantitative impact of individual risks, including but not limited to stress and scenario testing covering over eight economic and insurance related risks; +h. mitigating risks by appropriate actions; and +i. identifying, documenting and communicating key business risks in a timely fashion. +Our most significant risks are governed through holding company governance committees and overall by the Enterprise Risk Management Committee (“ERMC”). Our most significant risks such as credit risk, liquidity risk, and policyholder behavior associated with interest rate risk have established risk limits associated with our risk appetite statements. These include investment limits by asset class, ratings and issuer. Liquidity risk is managed through frequent forecasting of sources and uses of cash and managed to our Liquidity Policy. Asset liability management procedures and limits protect the Company, within limits, against significant changes in interest rates. In addition, the risks are stressed as part of our scenario testing process to identify areas requiring mitigation plans based on the macroeconomic environment. Risk limits, risk appetite and scenario testing results of the stresses are discussed with stakeholders such as the F&G ERMC, the Board of Directors (“Board”) and Audit Committee (“AC”) of F&G, regulators and rating agencies. +24 +The responsibility for monitoring, evaluating and responding to risk embedded across the organization: first assigned to our management and employees, second to those occupying specialist functions, such as legal compliance and risk teams, and third to those occupying supervisory functions, such as internal audit and the Board. +Operations/Outsourcing +We believe we have designed an efficient corporate platform which enables us to be highly scalable with volume over time and allows us to onboard incremental business with low incremental fixed operating cost. As a result, we believe we should be able to convert a significant portion of incremental net investment income from additional invested assets and liabilities into operating income. +We outsource the following functions to third-party service providers: +• new business administration (data entry and policy issue only); +• service of existing policies; +• underwriting administration of life insurance applications; +• call centers; +• information technology development and maintenance; +• certain investment accounting and custody; and +• co-located data centers and hosting of financial systems. +We closely manage our outsourcing partners and integrate their services into our operations. We believe that outsourcing such functions allows us to focus capital and our employees on our core business operations and perform differentiating functions, such as finance, actuarial, product development and risk management functions. In addition, we believe an outsourcing model provides predictable pricing, service levels and volume capabilities and allows us to benefit from technological developments that enhance our customer self-service and sales processes. We believe that we have a good relationship with our principal outsource service providers. +Our Financial Strength/Ratings +Our access to funding and our related cost of borrowing, the attractiveness of certain of our products to customers and requirements for derivatives collateral posting are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. +As of the date of this Annual Report on Form 10-K, A.M. Best, Fitch, Moody’s, and S&P had issued credit ratings, financial strength ratings and/or outlook statements regarding us, as listed below. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations under an insurance policy and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the insurer and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to policyholders, agents and intermediaries and are not directed toward the protection of investors. Credit and financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization. +In addition to the financial strength ratings, rating agencies use an “outlook statement” to indicate a medium- or long-term trend that, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. A developing outlook is assigned when a rating may be raised, lowered, or affirmed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A rating may have a +25 +“stable” outlook to indicate that the rating is not expected to change, but a “stable” outlook does not preclude a rating agency from changing a rating at any time without notice. +The rating organizations may take various actions, positive or negative. Such actions are beyond our control, and we cannot predict what these actions may be and the timing thereof. +A.M. Best S&P Fitch Moody’s +Holding Company & Security Ratings +F&G Annuities & Life, Inc. +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Senior Unsecured Notes Not Rated BBB- BBB- Baa3 +Junior Subordinated Notes (a) +Not Rated BB BB Ba1 +CF Bermuda Holdings Limited +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Fidelity & Guaranty Life Holdings, Inc. (b) +Issuer Credit / Default Rating BBB BBB- BBB Not Rated +Outlook Stable Stable Stable +Operating Subsidiary Ratings +Fidelity & Guaranty Life Insurance Company +Financial Strength Rating A A- A- A3 +Outlook Stable Stable Stable Stable +Fidelity & Guaranty Life Insurance Company of New York +Financial Strength Rating A A- A- Not Rated +Outlook Stable Stable Stable +F&G Life Re Ltd +Financial Strength Rating Not Rated A- A- A3 +Outlook Stable Stable Stable +F&G Cayman Re Ltd +Financial Strength Rating Not Rated Not Rated A- Not Rated +Outlook Stable +(a) Reflects rating of $375 million Junior Subordinated Notes due 2065 issued in January 2025 +(b) Ratings removed for Fidelity & Guaranty Life Holdings, Inc. Senior Unsecured Notes due 2025 following full redemption in February 2025 +A.M. Best, S&P, Fitch and Moody’s review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales and persistency is unknown, we believe if our ratings were to be negatively adjusted for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business. See “ Risk Factors ” in this Annual Report on Form 10-K. +Potential Impact of a Ratings Downgrade. We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivatives agreements on International Swap and Derivative Association (“ISDA”) forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. Please refer to Note D - Derivative Financial Instruments to the Consolidated Financial Statements in this Annual Report on Form 10-K for disclosure around our requirement to maintain minimum ratings. +If the insurance subsidiaries held net short positions against a counterparty, and the subsidiaries’ financial strength ratings were below the levels required in the ISDA agreement with the counterparty, the counterparty would demand immediate further collateralization, which could negatively impact overall liquidity. Based on the fair value +26 +of our derivatives as of December 31, 2024, we hold no net short positions against a counterparty; therefore, we were not required to post collateral at December 31, 2024. +A downgrade of the financial strength rating of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it more difficult for us to market our products, as potential customers may select companies with higher financial strength ratings. A downgrade of the financial strength rating could also impact our borrowing costs. +Regulation of F&G +U.S. Regulatory Overview +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to comprehensive regulation and supervision in their domiciles, Iowa, New York, Vermont and Vermont, respectively, and in each state in which they do business. FGL Insurance does business throughout the United States and Puerto Rico, except for New York. FGL NY Insurance only does business in New York. Raven Re is a special purpose captive reinsurance company that only provides reinsurance to FGL Insurance under the CARVM Treaty. Corbeau Re, a wholly owned captive reinsurance company, reinsures certain of FGL Insurance’s FIA policies with GMWB and GWP. FGL Insurance’s principal insurance regulatory authority is the IID; however, state insurance departments throughout the United States also monitor FGL Insurance’s insurance operations as a licensed insurer. The New York State Department of Financial Services (“NYDFS”) regulates the operations of FGL NY Insurance. The purpose of these regulations is primarily to protect insurers’ policyholders and beneficiaries and not their general creditors and shareholders of those insurers or of their holding companies. Many of the laws and regulations to which FGL Insurance and FGL NY Insurance are subject are regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect their operations. +Generally, insurance products underwritten by, and rates used by, FGL Insurance and FGL NY Insurance must be approved by the insurance regulators in each state or territory in which they are sold. In addition, insurance products may also be subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). +State insurance authorities have broad administrative powers over FGL Insurance and FGL NY Insurance with respect to all aspects of the insurance business, including: +• licensing to transact business; +• licensing agents; +• prescribing which assets and liabilities are to be considered in determining statutory surplus; +• regulating premium rates for certain insurance products; +• approving policy forms and certain related materials; +• requiring insurers and agents to act in the best interests of consumers when making recommendations to purchase annuities, or to determine whether a reasonable basis exists as to the suitability of such investments for consumers; +• regulating unfair trade and claims practices; +• establishing reserve requirements and solvency standards; +• regulating the amount of dividends that may be paid in any year by insurance companies; +• regulating the availability of reinsurance or other substitute financing solutions, the terms thereof and the ability of an insurer to take credit on its financial statements for insurance ceded to reinsurers or other substitute financing solutions; +• fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; and +• regulating the type, amounts, and valuations of investments permitted, transactions with affiliates and other matters. +27 +Financial Regulation +State insurance laws and regulations require FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to file reports, including financial statements, with state insurance departments in each state in which they do business, and their operations and accounts are subject to examination by those departments at any time. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these departments. +The NAIC has approved a series of statutory accounting principles and various model regulations that have been adopted, in some cases with certain modifications, by all state insurance departments. These statutory principles are subject to ongoing change and modification. Moreover, compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Any particular regulator’s interpretation of a legal or accounting issue may change over time to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s detriment, or changes to the overall legal or market environment, even absent any change of interpretation by a particular regulator, may cause FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to change their views regarding the actions they need to take from a legal risk management perspective, which could necessitate changes to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s practices that may, in some cases, limit their ability to grow and improve profitability. +State insurance departments conduct periodic examinations of the books and records, financial reporting, policy and rate filings, market conduct and business practices of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. +The IID last completed a routine financial examination of FGL Insurance for the five year period ending 2022 and found no material deficiencies and proposed no adjustments to the financial statements as filed. The IID is currently in the process of executing a market conduct exam for the five year period ending 2022. Results of the most recent market conduct exam have not been finalized. +The NYDFS last completed a routine financial examination of FGL NY Insurance for the five year period ended December 31, 2017, and found no material deficiencies and proposed no adjustments to the financial statements as filed. The NYDFS is currently in the process of executing an exam for the five year period ending 2022. Results of the most recent examination have not been finalized. +The Vermont Department of Financial Regulation completed a routine financial examination of Raven Re for the five year period ending December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) 10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +28 +In 2024, FGL Insurance did not pay dividends to Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2025 is $0. +Any payment of dividends by FGL Insurance is subject to the regulatory restrictions described above and the approval of such payment by the board of directors of FGL Insurance, which must consider various factors, including general economic and business conditions, tax considerations, FGL Insurance’s strategic plans, financial results and condition, FGL Insurance’s expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends and its effect on RBC and such other factors the board of directors of FGL Insurance considers relevant. For example, payments of dividends could reduce FGL Insurance’s RBC and financial condition and lead to a reduction in FGL Insurance’s financial strength rating. See “Risk Factors—Risks Relating to Our Business— A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions as calculated under New York insurance laws without being required to obtain the prior consent of the NYDFS. However, to pay any dividends or distributions (including the payment of any dividends or distributions for which prior consent is not required), FGL NY Insurance must provide advance written notice to the NYDFS. +FGL NY Insurance has historically not paid dividends. +Surplus and Capital +FGL Insurance and FGL NY Insurance are subject to the supervision of the regulators in states where they are licensed to transact business. Regulators have discretionary authority in connection with the continued licensing of these entities to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such entities have not maintained the minimum surplus or capital or that the further transaction of business would be hazardous to policyholders. +Risk-Based Capital +In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement RBC requirements for life, health and property and casualty insurance companies. All states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. In general, RBC is calculated by applying factors to various asset, premium and reserve items, taking into account the risk characteristics of the insurer. Within a given risk category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. The RBC formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for FGL Insurance and FGL NY Insurance each exceeded the minimum RBC requirements. +It is desirable to maintain an RBC ratio in excess of the minimum requirements in order to maintain or improve financial strength ratings. FGL Insurance’s estimated U.S. RBC ratio was over 410% as of December 31, 2024, above our 400% target. See “Risk Factors — Risks Related to Our Business — A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +29 +See “ Bermuda Regulatory Overview — ECR and Bermuda Solvency Capital Requirements ” for a discussion of Bermuda regulatory requirements that impact F&G Life Re. +Insurance Regulatory Information System Tests +The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A ratio falling outside the prescribed “usual range” is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more ratios that fall outside the usual range. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined “usual ranges.” Generally, regulators will begin to investigate or monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. IRIS consists of a statistical phase and an analytical phase whereby financial examiners review insurers’ annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that are generated from the NAIC database annually; each ratio has a “usual range” of results. +As of December 31, 2024, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re had five, one, two and four ratios outside the usual range, respectively. The IRIS ratios for net and gross change to capital and surplus, total affiliated investments to capital and surplus, surplus relief - over $5 million capital and surplus and change in premium for FGL Insurance were outside the usual range. The IRIS ratio for change in premium ratio for FGL NY Insurance was outside the usual range. The IRIS ratios for adequacy of investment income and change in premium for Raven Re were outside the usual range. The IRIS ratios for net income to total income (including realized capital gains and losses), adequacy of investment income, change in premium and change in asset mix for Corbeau Re were outside the usual range. +In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are not currently subject to regulatory restrictions based on these ratios. +Group Capital Calculation +The NAIC developed a group capital calculation tool using an RBC methodology for all entities within the insurance holding company system, including non-U.S. entities. In December 2020, the NAIC adopted the Group Capital Calculation Template and Instructions, as well as amendments to the Model Holding Company Act and Regulation. The amendments implement the annual filing requirement for the group capital calculation but will not become effective until adopted by state legislatures or regulatory agencies. Legislation was introduced in New York in May 2022 that would require a group capital calculation. FNF’s lead regulator, which is also the Company’s lead regulator for this purpose, has not yet adopted a requirement for group capital. +Insurance Reserves +State insurance laws require insurers to analyze the adequacy of reserves. Following the implementation of principle-based reserving for life insurance products, the NAIC is now developing a principle-based reserving framework for fixed annuity products. The respective appointed actuaries for FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re must each submit an opinion on an annual basis that their respective reserves, when considered in light of the respective assets FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re hold with respect to those reserves, make adequate provision for the contractual obligations and related expenses of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re have filed all of the required opinions with the insurance departments in the states in which they do business. +30 +Credit for Reinsurance Regulation +States regulate the extent to which insurers are permitted to take credit on their financial statements for the financial obligations that the insurers cede to reinsurers. Where an insurer cedes obligations to a reinsurer that is neither licensed nor accredited by the state insurance department, the ceding insurer is not permitted to take such financial statement credit unless the unlicensed or unaccredited reinsurer secures the liabilities it will owe under the reinsurance contract. +Under the laws regulating credit for reinsurance issued by such unlicensed or unaccredited reinsurers, the permissible means of securing such liabilities are (i) the establishment of a trust account by the reinsurer to hold certain qualifying assets in a qualified U.S. financial institution, such as a member of the Federal Reserve, with the ceding insurer as the exclusive beneficiary of such trust account with the unconditional right to demand, without notice to the reinsurer, that the trustee pay over to it the assets in the trust account equal to the liabilities owed by the reinsurer; (ii) the posting of an unconditional and irrevocable letter of credit by a qualified U.S. financial institution in favor of the ceding company allowing the ceding company to draw upon the letter of credit up to the amount of the unpaid liabilities of the reinsurer and (iii) a “funds withheld” arrangement by which the ceding company withholds transfer to the reinsurer of the assets, which support the liabilities to be owed by the reinsurer, with the ceding insurer retaining title to and exclusive control over such assets. +In addition, all U.S. states, including Iowa and New York, permit an insurer to take credit for reinsurance ceded to a non-U.S. reinsurer that posts collateral in amounts less than 100% of the reinsurer’s obligations if the reinsurer has been designated as a “certified reinsurer” and is domiciled in a country recognized by the state and the NAIC as a “Qualified Jurisdiction.” The reduced percentage of full collateral applied to a certified reinsurer is based upon an assessment of the reinsurer and its financial ratings. Iowa and New York both also recognize certain qualified non-U.S. insurers as reciprocal jurisdiction reinsurers such that ceding domestic insurers may receive credit for reinsurance ceded to such unauthorized reinsurers without the requirement for the reinsurer to provide collateral. +FGL Insurance and FGL NY Insurance are subject to the credit for reinsurance rules described above in Iowa and New York, respectively, insofar as they enter into any reinsurance contracts with reinsurers that are neither licensed, accredited nor certified in Iowa and New York, respectively, or recognized as a reciprocal reinsurer in such jurisdictions. +Insurance Holding Company Regulation +F&G, as the indirect parent company of FGL Insurance and FGL NY Insurance, is subject to the insurance holding company laws in Iowa and New York. These laws generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company’s state of domicile and to furnish annually financial and other information about the operations of companies within the holding company system. Generally, all transactions between insurers and affiliates within the holding company system are subject to regulation and must be fair and reasonable, and may require prior notice and approval or non-disapproval by its domiciliary insurance regulator. +Most states, including Iowa and New York, have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s holding company. Such laws prevent any person from acquiring control, directly or indirectly, of F&G, FGL US Holdings Inc. (“FGL US Holdings”), CF Bermuda Holdings Limited (“CF Bermuda”), FGLH, FGL Insurance or FGL NY Insurance or certain of their affiliates unless that person has filed a statement with specified information with the insurance regulators and has obtained their prior approval. In addition, investors deemed to have a direct or indirect controlling interest are required to make regulatory filings and respond to regulatory inquiries. Under most states’ statutes, including those of Iowa and New York, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. In addition, the insurance laws of Iowa and New York permit a determination of control in circumstances where the thresholds for the presumption of control have not been crossed. Similar laws apply to a direct or indirect change of ownership of Raven Re and +31 +Corbeau Re. Any person who is deemed to acquire control over F&G, FNF, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance, FGL NY Insurance, Raven Re, Corbeau Re or certain of their affiliates including any person who acquires 10% or more of our or FNF’s voting securities of FGL Insurance, FGL NY Insurance or certain of their affiliates, without the prior approval of the insurance regulators of Iowa and New York, will be in violation of those states’ laws and may be subject to injunctive action requiring the disposition or seizure of those securities by the relevant insurance regulator or prohibiting the voting of those securities and to other actions determined by the relevant insurance regulator. +Insurance Guaranty Association Assessments +Each state has insurance guaranty association laws under which insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all member insurers in the state. Although no prediction can be made as to the amount and timing of any future assessments under these laws, FGL Insurance and FGL NY Insurance have established reserves that they believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. +Market Conduct Regulation +State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales and complaint process practices. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. In addition, FGL Insurance and FGL NY Insurance must file, and in many jurisdictions and for some lines of business obtain regulatory approval for, rates and forms relating to the insurance written in the jurisdictions in which they operate. FGL Insurance is currently the subject of two ongoing market conduct examinations in various states. Market conduct examinations can result in monetary fines or remediation and generally require FGL Insurance to devote significant resources to the management of such examinations. FGL Insurance does not believe that any of the current market conduct examinations it is subject to will result in any fines or remediation orders that will be material to its business. +Regulation of Investments +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain asset categories, such as below investment grade fixed income securities, equity, real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as either non-admitted assets for purposes of measuring surplus or as not qualified as an asset held for reserve purposes and, in some instances, would require divestiture or replacement of such non-qualifying investments. We believe that the investment portfolios of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re as of December 31, 2024, complied in all material respects with such regulations. +In 2023, the NAIC released new regulations the define a residual interest. All the Company’s impacted insurance subsidiaries have complied with the new regulations. Beginning January 1, 2025, these investments will be subject to a new accounting model, which the Company is currently in the process of implementing. Also in 2023, the NAIC released new regulations that define the criteria for investments that can be classified as a bond, which the Company is currently in the process of implementing for all of its impacted insurance subsidiaries. See “Risk Factors — Risks Related to Our Business — Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact of the reputation of our business” in this Annual Report on Form 10-K. +On December 7, 2021, the NAIC assigned to its Macroprudential Working Group, the evaluation of a list of “Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers.” Included +32 +within this list is the consideration of material increases in privately structured securities (both by affiliated and non-affiliated asset managers), which the NAIC says introduces other sources of risk or increases traditional credit risk, such as complexity risk and illiquidity risk. As a result, the NAIC has issued several clarifying revisions to the guidance and disclosure requirements for related party and affiliated securities and continues to consider additional proposals and disclosure requirements. +In addition, the NAIC continues to refine its application of RBC factors for certain investments. +Privacy Regulation +Our operations are subject to certain federal and state laws and regulations that require financial institutions and other businesses to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of such information. These laws and regulations require notice to affected individuals, law enforcement agencies, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Our operations are also subject to certain federal regulations that require financial institutions and creditors to implement effective programs to detect, prevent and mitigate identity theft. In addition, our ability to make telemarketing calls and to send unsolicited email or fax messages to consumers and customers and our uses of certain personal information, including consumer report information, are regulated. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information. +The Dodd-Frank Act +The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Dodd-Frank Act”) established the Federal Insurance Office within the U.S. Department of the Treasury to monitor the insurance industry. The Dodd-Frank Act made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Dodd-Frank Act are applicable to us, our competitors or those entities with which we do business. These provisions may impact us in many ways, including, but not limited to, having an effect on the overall business climate, requiring the allocation of certain resources to government affairs, and increasing our legal and compliance related activities and the costs associated therewith. +Under the Dodd-Frank Act, annuities that meet specific requirements, including requirements relating to certain state suitability rules, are specifically exempted from being treated as securities by the SEC. We believe that the types of FIAs that FGL Insurance and FGL NY Insurance sell will meet these requirements and, therefore, are exempt from being treated as securities by the SEC and state securities regulators. However, there can be no assurance that federal or state securities laws or state insurance laws and regulations will not be amended or interpreted to impose further requirements on FIAs. If FIAs were to be treated as securities, federal and state securities laws would require additional registration and licensing of these products and the agents selling them, and FGL Insurance and FGL NY Insurance would be required to seek additional marketing relationships for these products, any of which could impose significant restrictions on its ability to conduct operations as currently operated. However, our RILA product is not exempted from being treated as a security by the SEC. +Additionally, the Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which plays a role in shaping the regulatory environment affecting RILAs. The FSOC monitors systemic risks and may designate insurers offering RILAs as systemically important financial institutions if their activities pose significant risks to the broader economy, subjecting them to enhanced prudential standards and supervision by the Board of Governors of the United States Federal Reserve. The prudential standards for non-bank Systemically Important Financial Institutions (“SIFIs”) include enhanced RBC requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures, and recovery and resolution planning. +33 +ERISA and Fiduciary Standards +We may offer certain insurance and annuity products to employee benefit plans governed by ERISA and/or the Internal Revenue Code of 1986, as amended (the “Code”), including group annuity contracts designated to fund tax-qualified retirement plans. ERISA and the Code provide (among other requirements) standards of conduct for employee benefit plan fiduciaries, including investment managers and investment advisers with respect to the assets of such plans, and holds fiduciaries liable if they fail to satisfy fiduciary standards of conduct. +State and federal regulators have been adopting stronger consumer protection regulations that may materially impact our company, business, distribution, and products. The NAIC adopted an amended Suitability in Annuity Transactions Model Regulation in February 2020 incorporating a requirement that agents act in the best interest of consumers without putting their own financial interests or insurer’s interests ahead of consumer interests. The best interest requirement is satisfied by complying with four regulatory obligations relating to care, disclosure, conflict of interest, and documentation. The amended model regulation also requires agents to provide certain disclosures to consumers, obligates insurers to supervise agent compliance with the new requirements, and prohibits sales contests or other incentives based on sales of specific annuities within a limited period of time. +Several states have adopted the revised NAIC model regulation, including FGL Insurance’s domiciliary state of Iowa. Management has instituted business procedures to comply with these revised requirements where required. FGL NY Insurance separately instituted new business procedures in response to the NYDFS best interest rule adopted in August 2019 which survived a legal challenge and deviates from the NAIC model regulation and is considered more onerous in certain respects including its broader application to life insurance sales. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. Meanwhile, the DOL has publicly announced its intention to consider future rulemaking that may revoke or modify PTE 84-24. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the New Fiduciary Rule, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s +34 +best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s new Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al. , (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s final fiduciary rule (and related amendments to PTE 84-24) that was issued in March 2024. The District Court, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the Final Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the Final Rule’s original effective date of September 23, 2024 has been delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al. , held the remaining PTE amendments included in the Final Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the Final Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. On February 11, 2025, the DOL filed an unopposed motion to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motion was granted so the appeals are in abeyance. A Fifth Circuit reversal of the Texas district court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +Management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. See “Risk Factors—Legal, Regulatory and Tax Risk s—Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business.” +The SECURE 2.0 Act +New and recently passed legislation may also impact the industry in which F&G competes. For example, the SECURE 2.0 Act of 2022, which went into effect as early as January 1, 2023, in certain respects, creates an opportunity for F&G and its competitors to pursue sales to employer retirement plan sponsors as well as its traditional customers. In addition, F&G and its competitors may implement operational changes to adapt to the effect of the new legislation. See “Risk Factors— L egal, Regulatory and Tax Risks —The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete .” +Corporate Alternative Minimum Tax +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% corporate alternative minimum tax (“CAMT”) +35 +on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. The life companies will join the consolidated tax return group with FNF and file a life/non-life consolidated return once the five-year waiting period has completed in 2026, which should strengthen that position as FNF is not anticipating owing CAMT on its future returns. For the years ended December 31, 2024 and 2023, the Company was subject to CAMT, but there was no impact to total tax. A CAMT credit carryforward was created and is expected to be able to be utilized in future years. +Climate Risk +On November 15, 2021, NYDFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change, detailing NYDFS’s expectations related to domestic insurers' management of the financial risks from climate change. These guidelines are applicable to FGL NY Insurance and became effective in 2022. Under the guidelines, climate change risk must be specifically included in an insurance group's enterprise risk management function. +Diversity and Corporate Governance +The NAIC and certain state insurance regulators are focused on the issue of diversity within the insurance industry, such as the diversity of an insurer’s board of directors and management. The NAIC is developing a framework for approaching issues related to race and insurance. The NAIC goals include improving access to different types of insurance products in minority communities, addressing issues related to affordability, and providing guidance to regulators on ways to improve insurance access and the understanding of insurance in underserved communities. In New York, NYDFS issued a circular letter that states that the NYDFS expects the insurers it regulates to make diversity of their leadership a business priority and key element of their corporate governance, and it includes diversity-related questions in its examination process. This guidance is applicable to FGL NY Insurance. +Bermuda Regulatory Overview +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act, 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +The Bermuda Insurance Act provides that no person may carry on an insurance business in or from within Bermuda unless registered as an insurer under the Bermuda Insurance Act by the BMA. In deciding whether to grant registration, the BMA has broad discretion to act as it thinks fit in the public interest. The BMA is required by the Bermuda Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. The registration of an applicant as an insurer is subject to the insurer complying with the terms of its registration and such other conditions as the BMA may impose at any time. In addition, the Bermuda Insurance Act requires BMA approval of increases in control or dispositions of control of an insurance company. +Effective January 1, 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. F&G Life Re is a certified reinsurer in Iowa. +Bermuda has been awarded full equivalence for commercial insurers under Europe’s Solvency II regime applicable to insurance companies, which regime came into effect on January 1, 2016. +36 +Effective January 1, 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting collateral. F&G Life Re has been designated a reciprocal jurisdiction reinsurer in Iowa. +All insurers are required to implement corporate governance policies and processes as the BMA considers appropriate given the nature, size, complexity and risk profile of the insurer and all insurers, on an annual basis, are required to deliver a declaration to the BMA confirming whether or not they meet the minimum criteria for registration under the Bermuda Insurance Act. +All insurers are required to comply with the Bermuda Insurance Code of Conduct, which is a codification of best practices for insurers provided by the BMA, and to submit annually to the BMA with its statutory financial return a declaration of compliance confirming it complies with the Bermuda Insurance Code of Conduct. All insurers are also required to comply with the Bermuda Insurance Sector Cyber Risk Management Code of Conduct issued by the BMA under the Bermuda Insurance Act, which establishes the duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management. +The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance and reinsurance companies. As part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer or reinsurer is used to determine the limitations and specific requirements that may be imposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through the scrutiny of audited financial statements, and, as appropriate, meeting with senior management during onsite visits. +The Bermuda Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below. +Minimum Solvency Margin. The Bermuda Insurance Act provides that the value of the assets of an insurer must exceed the value of its liabilities by an amount greater than its prescribed minimum solvency margin. +The minimum solvency margin that must be maintained by a Class E insurer is the greater of: (i) $8,000,000; (ii) 2% of first $500,000,000 of assets plus 1.5% of assets above $500,000,000; and (iii) 25% of that insurer’s enhanced capital requirement (“ECR”). An insurer may file an application under the Bermuda Insurance Act to waive the aforementioned requirements. +ECR and Bermuda Solvency Capital Requirements (“BSCR”). Class E insurers are required to maintain available capital and surplus at a level equal to or in excess of the applicable ECR, which is established by reference to either the applicable BSCR model or an approved internal capital model. Furthermore, to enable the BMA to better assess the quality of the insurer’s capital resources, a Class E insurer is required to disclose the makeup of its capital in accordance with its 3-tiered capital system. An insurer may file an application under the Bermuda Insurance Act to have the aforementioned ECR requirements waived. +Restrictions on Dividends and Distributions. In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. +F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. +37 +In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. +The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +Reduction of Capital. F&G Life Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as statutory capital. +Bermuda Corporate Income Tax +The Corporate Income Tax (“CIT”) Act of 2023 was passed in Bermuda on December 27, 2023. The CIT Act commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, does not anticipate to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2024, of $10 million has a full valuation allowance. As a result, there is no material impact to the financial statements. +Block Transactions +Since January 2023, the BMA has required all long-term (life) commercial reinsurers such as F&G Life Re to obtain the prior approval of the BMA for all long-term block reinsurance transactions, which is defined as a block transaction that covers an existing long-term business policy that is written and in force and on the books of the cedant, as of the date of the reinsurance transaction (including pension risk transfer transactions). +Affiliate, Related Party or Connected Party Assets +As a Class E insurer, F&G Life Re is required to obtain the prior written approval of the BMA before investing in assets with counterparty credit exposure to an affiliate, related party or connected party (each as defined under the Bermuda Insurance Act) of F&G Life Re. +Cayman Islands Regulatory Overview +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, (2023 Revision) as amended, and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulations (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by the Cayman Islands Monetary Authority (“CIMA”). +The Cayman Islands Insurance Act provides that no person may carry on an insurance business in or from within the Cayman Islands unless licensed under the Cayman Islands Insurance Act. CIMA has broad discretion in its consideration of whether to grant a license and must act in the public interest. CIMA is required by the Cayman +38 +Islands Insurance Act to determine whether an applicant is a fit and proper body to be engaged in insurance business. A licensed insurer must comply with the terms of its license and such other conditions as CIMA may impose at any time. In addition, the Cayman Islands Insurance Act requires CIMA approval of increases in control or dispositions of control of an insurance company. +All insurers are required to implement corporate governance policies as CIMA considers appropriate given the nature, size, complexity and risk profile of the insurer. All insurers are also required to comply with the CIMA's Rules and Statements of Guidance as applicable to insurers which is a codification of best practices provided by CIMA, and to submit annually to CIMA audited financial statements and a declaration of compliance confirming it complies with the Cayman Islands Insurance Act. +Capital Requirements. The Cayman Islands Insurance Act provides that an insurer must maintain a minimum capital requirement based on its license class. For a Class D insurer, the minimum capital requirement is $50,000,000. In addition, an insurer must maintain a minimum margin of solvency at a level equal to or in excess of the total prescribed capital requirement which is established by reference to either the applicable prescribed capital requirements based on license class or an internal capital model approved by CIMA. Notwithstanding the minimum capital requirements, CIMA may set an enhanced prescribed capital requirement in respect of any insurer. CIMA may also, for class B, C and D insurers, exclude from the calculations assets that it deems inappropriate. +CIMA utilizes a risk-based approach to licensing and supervising insurers and to determining limitations and/or specific requirements. CIMA reviews on an ongoing basis, an insurer’s audited financial statements, actuarial valuation report and, as appropriate, meeting with senior management during onsite visits. +The Cayman Islands Insurance Act and regulations promulgated thereunder impose solvency and liquidity standards on Cayman Islands insurance companies, as well as auditing and reporting requirements. +As a regulated insurance company, F&G Cayman Re is subject to the supervision of CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +The laws and regulations of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Statutes, regulations and policies that F&G Cayman Re is subject to may also restrict the ability of F&G Cayman Re to write insurance and reinsurance policies, make certain investments and distribute funds. Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. +Human Capital Resources +As of December 31, 2024, we had 1,338 full-time equivalent employees. None of our employees are subject to collective bargaining agreements. We consider our relations with our employees to be good. +Talent Management +F&G’s core values - Collaborative, Authentic, Dynamic and Empowered, coupled with our competitive total rewards philosophy and flexible work environment provide an attractive employee value proposition. We recruit top talent to join our team and provide opportunities for personal and professional growth. +Our development programs are designed to provide opportunities for all employees to grow and develop. Development programs are aligned to the skills and behaviors defined in our F&G Competencies - Think Enterprise +39 +Wide, Leverage Data, Center Equity, Communicate with Courage, Be Accountable- and ensure our employees are developing skills that are critical to achieve business goals now and in the future. +Leadership Academy is our leadership development program designed to develop the next level of leaders at F&G and enables cross-functional leaders to hone their leadership capability and network with colleagues from across the enterprise. +Employee engagement is measured annually through two surveys. Our strong engagement scores on the Energage Engagement Survey were rewarded with several “Top Places to Work” designations including Leadership, Innovation, Compensation & Benefits, Work-Life Flexibility and Financial Services Industry. We are honored to be a recipient of the “Top Workplaces USA” designation in 2024, 2023 and 2022 and a recipient of the “Top Workplaces Iowa” designation since 2018. +The Gallup Employee Engagement survey data is our key metric to support strategic decisions on engaging and retaining our talent. Initiatives such as our Employee Resource Groups and our Connection Week program are a few examples of programs that were identified based on our employee engagement data. +At F&G, we provide comprehensive benefits designed to meet the needs of our employees and demonstrate the value they bring to the organization. Employees are eligible to participate in our 401(k) savings plan, to which we make matching and annual nondiscretionary contributions. Employees are also eligible to participate in our Employee Stock Purchase Plan with a competitive match feature. We offer competitive health care benefit options for medical, dental and vision coverage, as well as a health savings account with an employer contribution. Other benefits offerings include health care and dependent care flexible spending accounts, employee assistance program, lifestyle reimbursements, charitable matching donations, and adoption assistance. To support a healthy work-life balance, all employees receive paid time off, holidays, flexible Fridays, volunteer time off and paid parental leave for new parents. +Employee retention is critical to the success of our business. Turnover is monitored and analyzed to ensure we are protecting our most valuable asset, our team members. Our turnover rates have been consistently below national and industry-specific benchmarks. +Workplace Flexibility +F&G is committed to providing employees with the opportunities and flexibility they need to succeed, as well as ensuring a culture of belonging and inclusion by: +• Providing well rounded benefits that support employees diverse needs such as, domestic partner medical coverage, gender dysphoria services, $50,000 lifetime maximum for infertility services ($35,000 is United Health Care standard), travel & lodging reimbursement for services rendered out-of-state due to state law, Employee Assistance Program including 6 free counseling sessions per person per incident per year, in addition to other emotional health solutions, $10,000 in adoption assistance benefit, parental leave benefits, flexible PTO and lifestyle reimbursements. +• Supporting employee training, developing and educating through LinkedIn learning with a wide array of topics (e.g., Using Gender inclusive language, fueling your Company Culture, Inclusive Leadership, Unconscious Bias, etc.), tuition reimbursement, and manager and leadership training. +• Hosting educational and developmental events such as, a Mental Awareness and Racial Equity Master Class, a Mental Health panel, and a panel on Neurodiversity. +• Recognized for several Cultural Excellence Awards in 2024, 2023 and 2022 through Energage, for excellence in 1) Compensation and Benefits, 2) Leadership, 3) Work-Life Flexibility, 4) Professional Development, 5) Appreciation, 6) Employee Wellbeing, 7) Professional Development and 8) Purpose and Values. +40 +Community engagement +F&G focuses its community engagement and charitable giving to support essential needs such as food insecurity and housing. In recent years, F&G has won multiple awards for its corporate support and employee involvement with United Way, including Outstanding Corporate/Foundation Philanthropist for 2023 from the Association of Fundraising Professionals Central Iowa Chapter. Other community investments include: +• Serving as founding partner of the American Council of Life Insurer’s Impact Investments Initiative (“360 Community Capital”) to make housing affordable and sustainable in underserved communities. +• Fostering partnerships in the Des Moines community with the Iowa Food Bank and Polk County Housing Trust. +• Offering company-wide volunteer events for employees to make an impact locally with organizations such as Rebuilding Together. +• Providing employees with 16 hours of paid time off per year for volunteering. +• Supporting dozens of other community organizations identified by F&G employees in support of essential needs within the community where they live and work. +Operational Sustainability +F&G aims to reduce the company’s environmental footprint through a variety of sustainable and environmentally sound programs within its LEED-certified headquarters building in Des Moines, Iowa. F&G also promotes flexible work from home arrangements which reduce commute time, greenhouse gas emissions, and paper usage. +Governance +Our Company and our Board is committed to sustainable practices to serve our employees, business partners and the community +The F&G AC is responsible for overseeing the Company’s sustainability risks. Such risks may include climate risks as a subset of investment risks. The Company’s Chief Risk Officer (“CRO”) will continue to update the AC on F&G’s climate risk profile as risks and opportunities arise. +Management’s Role in Assessing and Managing Sustainability Risks and Opportunities +Additional governance committees +The AC and ERMC utilize and rely on other groups and committees within F&G to facilitate that all risks and opportunities related to our sustainability are addressed appropriately. +The ERMC is an enterprise committee, consisting of C-suite level executives including the Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and CRO who are responsible for reviewing risks and associated strategy across the business. The risks are included in the overall F&G Risk Register that is the basis for quarterly risk assessments. The overall risk posture of the organization is updated in the quarterly ERM dashboard report. The development of and maturity of the enterprise ESG program, including climate-risks, is included in F&G’s 2023 Own Risk and Solvency Assessment (“ORSA”) summary report, and articulates the responsibility for actively monitoring and focusing resources on sustainability-related activities. +The Investment Committee provides oversight of investments held, approves new asset classes, and reviews investment managers and mandates. The Investment Committee also oversees the relationships with F&G’s Asset Management companies, which includes assessing their sustainability policies and practices for consistency with F&G’s missions and vision. +41 +Strategy +F&G’s product solutions provide social good by supporting clients to achieve their retirement goals and to improve their financial lives, while protecting against unforeseen events through life insurance policies. This sentiment of service provides the foundation for F&G’s culture and guides business operations as well as interactions within our communities. +The investment portfolio supporting the current range of products offered by F&G considers climate-related risks and the transition to a low carbon economy. As long-term investors, F&G understands the energy transition will be gradual, and the focus should be on investment outcomes that will support our fiduciary duty to our clients and the investment goals of our clients. +F&G completed a qualitative assessment of climate risks and opportunities in 2023 with input from the ESG Executive Steering Committee and ESG working group. The assessment identified potential impacts of climate change on the F&G businesses and financial plans over short-, medium-, and long-term time horizons. Generally, short term is defined as present and 1 – 5 years in the future, medium-term is 5- 10 years in the future, and long-term is 10-30 years in the future. +The assessment also identified the risks applicable to F&G based on physical presence, products sold, and credit/counterparty risk. The identified risks were added to the enterprise risk register for inclusion in the quarterly self-assessment and annual risk assessment processes. The risks were also integrated into the ESG Program. +Impact of pending and passed legislation +Developments in national, state, and international regulations related to ESG and climate risk are ever-changing. F&G is diligently working to identify and gather the appropriate data for evolving reporting standards. +The California Air Resources Board ("CARB"), and similar regulators in other U.S. states and international jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards. +The state of California passed two bills that will require certain companies doing businesses in the state to disclose GHG emissions and climate-related financial risk information. Senate Bill 253 (SB 253) requires the annual disclosure of Scope 1, 2 and 3 GHG emissions, with certain GHG emissions data subject to third party assurance. The bill requires disclosure of Scope 1 and 2 GHG emissions beginning in 2026 for the 2025 reporting year and disclosure of Scope 3 GHG emissions beginning in 2027 for the 2026 reporting year. SB 253 would be effective for public and private companies with total annual revenues exceeding $1 billion and that do business in California. Senate Bill 261 (SB 261) requires biennial disclosures posted on a company’s website related to climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks. The bill requires disclosure of the climate-related financial risk disclosures beginning in 2026 for the 2025 reporting year. SB 261 is effective for public and private companies with total annual revenues exceeding $500 million. Both SB 253 and 261 have been challenged in the U.S. District Court for the Central District of California. Further, on September 27, 2024, the California Governor amended both SB 253 and SB 261 by signing into law Senate Bill 219 (SB 219). SB 219 extends the time in which CARB has to promulgate implementing regulations for SB 253 until July 1, 2025, a delay of six months, but does not otherwise change the reporting deadlines in SB 253 or SB 261. +Capital expenditures related to climate change +Current expenditures related specifically to climate change have been minimal. F&G added a sustainability module to the Governance, Risk, and Compliance application to maintain risk information and metrics related to sustainability efforts. Future expenditures will likely increase as F&G moves forward with plans for ongoing scenario analysis and data stores to facilitate the calculation of Scope 3 emissions. +42 +Investment Portfolio climate scenario analysis +F&G conducted a one-time pilot scenario analysis exercise with the advisory support of Baringa using BlackRock’s Aladdin Climate technology (incorporating Baringa’s industry-leading Climate Change Scenario Model). This analysis included an overall scenario analysis on the investment portfolio and assessed the transition risks by asset class and sector for the portfolio using different climate scenarios. The overall scenario analysis covered multiple industry-recognized scenarios, including a 2°C or lower scenario. For the pilot portfolio temperature alignment was calculated, aligning F&G’s pilot portfolio with a warming trajectory through 2050. The analysis also included an assessment of physical risk of three commercial properties held in the F&G portfolio. The evaluation included electricity and gas expenditures, outdoor labor costs, vulnerability to rising sea levels, and weather-related catastrophes. +The overall results of the pilot scenario analysis indicated larger impacts under the Orderly and Disorderly scenarios by 2050, as expected, highlighting energy-intensive industries. Utilities saw larger variability between the issuers, while energy and airlines saw more uniform impacts. Automobile manufacturers saw the largest impact and variability, while financials and structured products had smaller impacts. +We will continue to enhance our capabilities in the evaluation and assessment of risks due to climate change as a component of our overall enterprise risk process. +Risk Management +F&G’s ERM policy defines the approach to risk identification, risk assessment, and risk response. The ERMC owns the ERM Policy and is responsible for reviewing and approving the policy on an annual basis. Updates to the policy are determined by the ERM leadership team. +The ERM process includes a risk appetite statement which outlines the level of acceptable risk in the pursuit of overall financial and strategic objectives. Risk appetite statements and risk tolerances are linked to the strategic objectives set out in the corporate plan and are stressed using a variety of multifactor scenarios. Qualitative and quantitative approaches are used to manage risk appetite and are monitored as part of the strategy and planning process. +Risks are defined in the risk taxonomy, based on International Organization for Standardization 31000, and captured in a risk library. The taxonomy includes four parent categories: Operational, Governance/Strategy, Product/Distribution, and Investments. These four parent categories are broken down further into 31 sub-categories (IMO/Agent Servicing, Business Continuity/Disaster Recovery, Third-Party Administration/Outsourcing, Fraud, Human Resources/People, Policy Administration, IT Systems, Information Security, Accounting and Financial Reporting, Actuarial and Governance Operations, Project Management, Model Risk, Compliance, Capital Management, Risk Management, Business Strategy, Corporate Governance, Marketing/Communications, ESG, Legal/Litigation, Regulatory Environment, Reputation, Pricing and Product Design, Product Governance, In-force Performance Management, Distribution, Asset Liability Management (“ALM”), Investment Guidelines and Compliance, Credit, Foreign Exchange, and Liquidity Risk). The library identifies risk ownership, corresponding risk limits, and high-level controls for monitoring, reporting, and mitigating material risks. +Risks are identified via ongoing discussions between ERM and the business partners, as well as through monitoring of industry groups and publications. New and emerging risks are reviewed at the ERMC and added to the risk register. Each quarter, ERM works with the risk owners to assess the impact and likelihood of each risk in the register to determine the inherent risk rating, and then apply a control assurance rating to identify the residual risk rating. The rating scales are three by three (low, medium, high). The quarterly self-assessment results are reported in the ERM dashboard to the ERMC. The dashboard reflects the residual risk ratings at the sub-category level for the Enterprise, and the direction the risk is trending (increasing, decreasing, stable). +F&G monitors risks via an annual risk assessment, the quarterly risk self-assessments, quarterly ERMC meetings, monthly Investment Committee meetings, monthly Capital Committee meetings, and ad hoc analysis. The +43 +overall risk posture of the organization is updated in the ERMC meeting report that includes a CRO assessment, emerging risks, ERM dashboard, market risk discussion, stress testing results, and risk appetite measures. +The development of an enterprise program, including climate risks, is included in F&G’s 2023 ORSA summary report, and articulates the Management Committee’s responsibility for actively monitoring and focusing resources on sustainability-related activities. Overall climate risk was deemed to be minimal by the ESG Steering Committee during a qualitative review of risks and opportunities based on the insurance-related products sold by F&G. As a life insurance and annuities company, physical climate risks that are material risks for property and casualty insurers are less impactful. Climate-related underwriting risk (mortality/morbidity) is monitored within the overall risk framework, although it is not considered material to F&G’s overall business. +F&G recognizes the rapidly evolving regulatory environment on climate-related risks and opportunities and has a regulatory monitoring process. The ongoing monitoring of ESG-related regulations is included in the overall regulatory monitoring process overseen by the Legal Department. Any new regulation passed related to ESG is entered into the Comply On Demand Enterprise system and assigned to subject matter experts for review. If policy or procedure changes are required, the implementation of those changes is monitored through this system. +Climate risks will be identified and assessed in accordance with the ERM Policy and managed through the ERM framework. The framework utilizes the three lines of defense model: Business/Operational Management, the ERM function (Risk Management), and Internal Audit. +The 1st line of defense develops and implements mitigation activities for risks in business activities and provides monitoring and reporting of such risks on an ongoing basis; the 2nd line of defense challenges and supports the 1st line of defense, while helping to identify activities to mitigate risks and advise on risk management activities. The 3rd line of defense provides management with independent, objective assurance of the overall effectiveness, and efficiency of the design and operation of internal controls. +The framework and process alignment includes utilization of committee structure to identify, assess, and prioritize risk to ensure both senior management and the Board understand and can manage the risk profile. Any changes in business trends as a result of climate change would be identified through Risk Management interaction with the 1st line of defense discussions and risk assessments. No material or significant changes due to climate change have been identified to date. +Investment risk is one of the largest sources of risk to the Company, and the Senior Vice President, Investment Risk and ALM Strategy, with the Deputy Chief Investment Officer are responsible for integrating sustainability practices, including understanding and managing climate-related risks, into F&G’s investment process. Our primary asset manager generally considers material sustainability factors a key part of evaluating new investments. By considering applicable sustainability factors in the investment process, they aim to identify and address material investment risks and opportunities. They also continuously monitor sustainability-related risks throughout the investment holding period and engage on certain focus areas such as Climate Risk, Inclusion and good Corporate Governance. +Metrics and Targets +F&G is evaluating how climate-related metrics can be leveraged to better understand the potential risks and opportunities to our business. F&G anticipates conducting an expanded quantitative analysis of the investment portfolio, as well as considering other metrics and proactive contributions to reduce uncertainty, filling data gaps, and working with investment managers and other stakeholders to collect additional data about climate risks. +F&G anticipates gathering Scope 1 and Scope 2 emissions in the coming year for additional office locations in New York, Bermuda and Cayman. +F&G’s existing risk management framework includes various metrics to manage risks across the investment portfolio. F&G is currently assessing the development of climate-related targets to improve the existing risk +44 +management framework. Efforts will continue to develop and enhance key policies and statements to reflect our ongoing commitment to mitigating climate-related risk, including climate scenario analysis, and F&G will continue to monitor risks and opportunities related to our climate risk assessment. +Available Information +Our web address is www.fglife.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) will be available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this document. +The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. +45 +Item 1A. Risk Factors +You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating F&G and our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of F&G’s common stock could decline, and you could lose all or part of your investment. +The risk factors generally have been separated into the following 6 groups: risks related to our business; risks related to economic conditions and market conditions; legal, regulatory and tax risks; risks relating to our indebtedness and financing; risks related to the separation and distribution and our status as a subsidiary of FNF, and risks related to our common stock and preferred stock. However, these risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects . +Risks Related to Our Business +Our debt instruments may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. +At December 31, 2024, we had outstanding (i) $500 million in aggregate principal balance of our 6.250% F&G Senior Notes due 2034 (the “6.250% F&G Notes”), (ii) $550 million in aggregate principal of our 6.50% Senior Notes due 2029 (the 6.50% F&G Notes”), (iii) $345 million in aggregate principal of our 7.95% Senior Notes due 2053 (the “7.95% F&G Notes”), (iv) $500 million in aggregate principal of our 7.40% Senior Notes due 2028 (the “7.40% F&G Notes”) and (v) $300 million in aggregate principal of our 5.50% Senior Notes due 2025 (the “5.50% F&G Notes”). We also had an unsecured revolving credit agreement with Bank of America, N.A., as administrative agent, the lenders ( the “Lenders”) and guarantors party there-to and the other parties there-to (the “Credit Agreement”), which had no balance outstanding and $750 million of borrowing availability at December 31, 2024. +The Credit Agreement imposes operating and financial restrictions, including financial covenants, and the Credit Agreement and the indentures governing the 6.250% F&G Notes, the 6.50% F&G Notes, the 7.95% F&G Notes, the 7.40% F&G Notes and the 5.50% F&G Notes impose limitations. As a result of these restrictions, covenants and limitations, we may be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or take advantage of new business opportunities. We do not believe these restrictions, covenants or limitations will have a material impact on the Company’s current or future operations. However, our failure to comply with the restrictive covenants in existing or future debt instruments could result in an event of default, which, if not cured or waived, could result in our being required to repay outstanding indebtedness before their due date. If we are forced to refinance indebtedness on less favorable terms or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected. +Our ability to grow depends in large part upon the continued availability of capital. +Our long-term strategic capital requirements will depend on many factors, including our accumulated statutory earnings and the relationship between our statutory capital and surplus and various elements of required capital. To support long-term capital requirements, we may need to increase or maintain statutory capital and surplus of our insurance subsidiaries through financing which could include debt, equity, financing arrangements or other surplus relief transactions. On June 24, 2022, FNF capitalized $400 million of intercompany indebtedness into common stock of F&G. FNF is not obligated to, may choose not to, or may not be able to provide financing or make capital contributions to us now or in the future. Consequently, financings, if available at all, may be available only on terms that are not favorable to us. Under a NPA with Kubera, in which we are a noteholder, and capital keep-well agreements with our reinsurance subsidiary, F&G Cayman Re, there is an obligation to provide financing to the extent of a funding shortfall on a reserve note facility. Adverse market conditions have affected and continue to affect the availability and cost of capital from external sources. If we cannot maintain adequate capital for our +46 +insurance subsidiaries, or if we are obligated to provide capital contributions in the event of funding shortfalls, we may be required to limit growth in sales of new policies which could materially adversely affect our business, operations and financial condition. +A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition. +Various nationally recognized rating agencies review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in our products, our ability to market our products and our competitive position. Downgrades, unfavorable changes in rating methodology or other negative action by a rating agency could have a material adverse effect on us in many ways, including the following: +• adversely affecting relationships with distributors, IMOs and sales agents, which could result in reduction of sales; +• increasing the number or amount of policy lapses or surrenders and withdrawals of funds; +• requiring a reduction in prices for our subsidiaries’ insurance products and services in order to remain competitive; +• excluding us from participating in the PRT business or FABN issuances; +• adversely affecting our ability to obtain reinsurance at a reasonable price, on reasonable terms or at all; +• requiring us to collateralize reserves, balances or obligations under certain reinsurance agreements. In the event of a withdrawal or downgrade of our S&P issuer credit rating to BB or lower, we are required to fund a note issued by a reinsurance counterparty up to $300 million. As of December 31, 2024, the amount funded under the note agreement was insignificant; and +• limiting our ability to hedge index risk inherent in the products offered due to Additional Termination Event (“ATE”) provisions in our ISDA/Credit Support Annex (“CSA”), which could allow counterparties to opt not to trade with us should our rating fall below a certain threshold. As of December 31, 2024, our ratings exceeded the ATE threshold in our ISDA/CSAs. +We may face losses if our actual experience differs significantly from our reserving assumptions. +Our profitability depends significantly upon the extent to which our actual experience is consistent with the assumptions used in setting rates for our products and establishing liabilities for future life insurance, annuity and PRT policy benefits and claims. However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot precisely determine the amounts we will ultimately pay to settle these liabilities. As a result, we may experience volatility in our reserves and, therefore, our profitability from period to period. To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our reserves which may reduce our profitability and impact our financial strength. +We have been issuing GMWB products since 2008. In our reserve calculations, we make assumptions for policyholder behavior as it relates to GMWB utilization. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on our reserve levels and related results of operations. We will continue to monitor the GMWB utilization assumption and update our best estimate as applicable. +47 +Our valuation of investments and the determinations of the amounts of allowances and impairments taken on our investments may include methodologies, estimates and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect our results of operations and financial condition. +Fixed maturities, equity securities and derivatives represent the majority of total cash and invested assets reported at fair value on our balance sheet. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Expectations that our investments will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process and on assumptions a market participant would use in determining the current fair value. +The determination of current expected credit loss varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Our management considers a wide range of factors about the instrument issuer (e.g., operations of the issuer and future earnings potential) and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the instrument and in assessing the prospects for recovery. In addition, we conduct various quantitative credit screens on the investment portfolio to create a credit watchlist. The credit watchlist investments are then further analyzed by our portfolio managers for likelihood of loss of contractual principal and interest. Our portfolio managers also maintain a credit spotlight for investments that do not meet the quantitative screens. These investments have been identified as requiring a higher level of review and monitoring due to idiosyncratic risk. Such evaluations and assessments require significant judgment and are revised as conditions change and new information becomes available. Additional impairments may need to be taken in the future, and the ultimate loss may exceed management’s current estimate of impairment amounts. +The value and performance of certain of our assets are dependent upon the performance of collateral underlying these investments. It is possible the collateral will not meet performance expectations leading to adverse changes in the cash flows on our holdings of these types of securities. +See Note C - Investments to the Consolidated Financial Statements, including the notes thereto, in this Annual Report on Form 10-K for additional information about our investment portfolio. +Change in our evaluation of the recoverability of our deferred tax assets could materially adversely affect our results of operations and financial condition. +Deferred tax assets and liabilities are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates expected to be in effect during the years in which the basis differences reverse. Deferred tax assets, in essence, represent future savings of taxes that would otherwise be paid in cash. We are required to evaluate the recoverability of our deferred tax assets each quarter and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realizable. In determining the need for a valuation allowance, we consider many factors, including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and implementation of any feasible and prudent tax planning strategies management would employ to realize the tax benefit. +Based on our current assessment of future taxable income, including available tax planning opportunities, we anticipate it is more-likely-than-not that we will generate sufficient taxable income to realize all of our deferred tax assets as to which we do not have a valuation allowance. If future events differ from our current assumptions, the valuation allowance may need to be increased, which could have a material adverse effect on our results of operations and financial condition. +We have recorded goodwill as a result of past acquisitions, and adverse events affecting the value of our reporting unit could cause the balance to become impaired, requiring write-downs that would reduce our operating income. +48 +Current accounting rules require that goodwill be assessed for impairment annually or more frequently if changes in events or circumstances indicate that the fair value of our reporting unit may be less than its carrying value. Factors that may be considered a change in circumstance indicating the carrying value of goodwill may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, divestitures, and negative industry or economic trends. Evaluating this asset’s recoverability requires us to make estimates and assumptions to estimate the fair value of our reporting unit. For the years ended December 31, 2024 and 2023, no goodwill impairment charge was recorded. However, if there is an adverse event affecting the value of our reporting unit in the future, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. We will continue to monitor our operating results and the impact of the economy to determine if there is an impairment of goodwill in future periods. +If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced. +We must attract and retain our network of IMOs and independent agents to sell our products. Insurance companies compete vigorously for productive agents. We compete with private equity investments as well as other life insurance companies for marketers and agents primarily on the basis of our financial position, support services, compensation and product features. If we are unable to attract and retain a sufficient number of marketers and agents to sell our products, our ability to compete and our revenues would suffer. +We operate in a highly competitive industry, which could limit our ability to gain or maintain our position in the industry and could materially adversely affect our business, financial condition and results of operations. +We operate in a highly competitive industry. We encounter significant competition in all of our product lines from other insurance companies, many of which have greater financial resources and higher financial strength ratings than us and which may have a greater market share, offer a broader range of products, services or features, assume a greater level of risk, have lower operating or financing costs, or have different profitability expectations than we do. Competition could result in, among other things, lower sales or higher lapses of existing products. +Our annuity products compete with indexed annuities and fixed rate annuities sold by other insurance companies and also with mutual fund products, traditional bank investments and other retirement funding alternatives offered by asset managers, banks and broker-dealers. The ability of banks and broker-dealers to increase their securities-related business or to affiliate with insurance companies may materially and adversely affect sales of all of our products by substantially increasing the number and financial strength of potential competitors. Our insurance products compete with those of other insurance companies, financial intermediaries and other institutions based on a number of factors, including premium rates, policy terms and conditions, service provided to distribution channels and policyholders, ratings by rating agencies, reputation and commission structures. +Our ability to compete is dependent upon, among other things, our ability to develop competitive and profitable products, our ability to maintain low unit costs, our maintenance of adequate financial strength ratings from rating agencies and our ability to attract and retain distribution channels to market our products, the competition for which is vigorous. We must anticipate and respond effectively to changes in customer preferences, new industry standards, evolving distribution models, disruptive technology developments and alternate business models. The evolving nature of consumer needs and preferences and improvements in technology could result in a reduction in consumer demand and in the prices of the products and services we offer. Our competitive position may be impacted if we are unable to deploy, in a cost effective and competitive manner, technology such as artificial intelligence and machine learning, or if our competitors collect and use data which we do not have the ability to access or use. +There is a risk that purchasers may be able to obtain more favorable terms and offerings from competitors, vendors or other third parties, including pricing and technology. Additionally, customers may turn to our competitors as a result of our or our client’s failure, or perceived failure, to deliver on customer expectations, product or service flaws, technology issues, gaps in operational support or other issues affecting customer +49 +experience. As a result, competition may adversely affect the persistency of our policies, our ability to sell products and provide services, maintain client relationships, and our revenues and results of operations. +Concentration in certain states for the distribution of our products may subject us to losses attributable to economic downturns or catastrophes in those states. +For the year ended December 31, 2024, our top five states for the distribution of our products were Florida, California, Pennsylvania, Texas and Ohio, which together accounted for 38.7% of our premiums. Any adverse economic developments or catastrophes in these states could have an adverse impact on our business. +Concentration in one or more of our products may subject us to greater volatility of sales if such products experienced a significant decrease in sales. +We may experience greater volatility in our sales performance from period to period to the extent we have a high concentration of sales in one or more of our products and those products suffer a material decline (for whatever reason) in a particular period. We may not be able to increase the sales of other products at the same pace, or at all, to the extent there is a decrease in sales of our products that made up the majority of our sales in historical periods. As a result, decreased sales in high concentration products could adversely affect our financial condition, liquidity and results of operations. +With the addition of the retail bank and broker-dealer channels and our success in entering the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to now five, and from one primary product to now six with our recent entrance into the RILA markets. +We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options. +We cede material amounts of insurance to other insurance companies through reinsurance. Accordingly, we bear credit risk with respect to our reinsurers. The failure, insolvency, inability or unwillingness of any reinsurer to pay under the terms of reinsurance agreements with us could materially adversely affect our business, financial condition, liquidity and results of operations. We regularly monitor the credit rating and performance of our reinsurance parties. Aspida Re, Wilton Re, Somerset and Everlake represent our largest third-party reinsurance counterparty exposures. As of December 31, 2024, the net amount recoverable from Aspida Re, Somerset, Everlake and Wilton Re were $7,844 million, $2,822 million, $1,168 million and $1,066 million, respectively. The risk of non-performance is mitigated with various forms of collateral or collateral arrangements, including secured trusts, funds withheld accounts and irrevocable letters of credit. +We are also exposed to credit loss in the event of non-performance by our counterparties on options. We seek to reduce the risk associated with such agreements by purchasing such options from large, well-established financial institutions, and by holding collateral. There can be no assurance we will not suffer losses in the event of counterparty non-performance. Several of our derivative counterparty ISDA agreements contain additional termination event triggers based on a downgrade of FGL Insurance. These triggers would give these counterparties the option to terminate our options, which could lead to losses if occurring at an inopportune time. +Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details on credit risk and counterparty risk. +Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships. +If we do not maintain an effective outsourcing strategy or third-party providers do not perform as contracted, we may experience operational difficulties, increased costs and a loss of business that could have a material adverse effect on our results of operations. If there is a delay in our third-party providers’ introduction of our new products or if our third-party providers are unable to service our customers appropriately, we may experience a loss of +50 +business that could have a material adverse effect on our business, financial condition and results of operations. We have a formal vendor management program that follows a continuous lifecycle for all third-party providers. The lifecycle includes an initial risk assessment for new relationships to determine risk tier; vendor due diligence depending on the risk tier; contract management to effectively address all terms, conditions, duties and obligations, risks/issues identified; ongoing monitoring and management to ensure compliance with contract provisions and service level agreements; and termination/offboarding to ensure appropriate communication and any other requirements such as destruction of data. +If our key providers, distributors or other parties terminate important business arrangements with us, reduce their business with us or renew contracts on terms less favorable to us, which occurs from time to time, we may fail to meet our business objectives and targets, and our cash flows, results of operations and financial condition could be materially adversely affected. +In addition, our reliance on third-party service providers that we do not control does not relieve us of our responsibilities and contractual, legal and other requirements. Any failure or negligence by such third-party service providers in carrying out their contractual duties may result in us becoming subjected to liability to parties who are harmed and ensuing litigation. Any litigation relating to such matters could be costly, expensive and time-consuming, and the outcome of any such litigation may be uncertain. Moreover, any adverse publicity arising from such litigation, even if the litigation is not successful, could adversely affect our reputation and sales of our products. +The loss of key personnel could negatively affect our financial results and impair our ability to implement our business strategy. +Our success depends in large part on our ability to attract and retain qualified employees. Intense competition exists for key employees with demonstrated ability, and we may be unable to hire or retain such employees. Our key employees include senior management, sales and distribution professionals, actuarial, investment and finance professionals and information technology professionals. We do not believe the departure of any particular individual would cause a material adverse effect on our operations; however, the unexpected loss of several key employees could have a material adverse effect on our operations due to the loss of their skills, knowledge of our business, and their years of industry experience as well as the potential difficulty of promptly finding qualified replacement employees. +Our risk management policies and procedures may not capture unidentified or unanticipated risk, which could negatively affect our business or result in losses. +We believe we have developed risk management policies and procedures designed to manage material risks within established risk appetites and risk tolerances. Nonetheless, our policies and procedures may not effectively mitigate the internal and external risks identified or predict future exposures, which could be different or significantly greater than expected and which could result in unexpected monetary losses or cause damage to our reputation or additional costs, or which could impair our ability to conduct business effectively. Many of our methods of managing risk and exposures are based upon observed historical data, current market behavior, and certain assumptions made by management. This information may not always be accurate, complete, up-to-date, or properly evaluated. As a result, additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may materially adversely affect our business, financial condition and results of operations. +F&G has a subsidiary focused on acquiring minority and/or majority ownership in indexed universal life and annuity Independent Marketing Organizations (“IMO”). While these acquisitions are intended to diversify our earnings, they present several risks that could adversely affect our business, financial condition and operating results. +Successfully integrating acquisitions into our existing operations involves significant challenges such as integrating IT systems, consolidating GAAP financials, aligning organizational cultures, and retaining key +51 +personnel. Failure to effectively manage any of the integration processes could disrupt our operations and negatively impact our financial performance. +Our due diligence processes may not identify all potential liabilities and risks associated with acquisitions. This could result in unexpected financial and operational challenges post-acquisition, including regulatory non-compliance, undisclosed liabilities, or operational inefficiencies. +Changes in market conditions, regulatory landscapes, or operational environments could adversely impact performance. Additionally, any reputational issues or operational failures could affect our overall brand and market standing. +If acquisitions do not perform as expected, it could lead to financial losses, impairments of goodwill, and a negative impact on our earnings and capital position. Moreover, the use of our financial resources for acquisitions may limit our ability to invest in other strategic initiatives. +Our focus on acquisitions may divert management’s attention from our core operations and other priorities resulting in strategic misalignment. +Failure to comply with regulations during, or post-acquisition, can result in legal penalties, regulatory actions, or reputational damage, which could have a material, adverse effect on our business. +Interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems, including as a result of human error, could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and impairment of our ability to conduct business effectively. +We are highly dependent on automated and information technology systems to record and process our internal transactions and transactions involving our customers, as well as to calculate reserves, value invested assets and complete certain other components of our financial statements. The integrity of our computer systems and the protection of the information, including policy holder information, that resides on such systems are important to our successful operation. If we fail to maintain an adequate security infrastructure, adapt to emerging security threats or follow our internal business processes with respect to security, the information or assets we hold could be compromised. Further, even if we, or third parties to which we outsource certain information technology services, maintain a reasonable, industry-standard information security infrastructure to mitigate these risks, the inherent risk that unauthorized access to information or assets remains. This risk is increased by transmittal of information over the internet and the increased threat and sophistication of cyber criminals. While, to date, we believe that we have not experienced a material breach of our computer systems, the occurrence or scope of such events is not always apparent. +In addition, some laws and certain of our contracts require notification of various parties, including regulators, consumers or customers, in the event that confidential or personal information has or may have been taken or accessed by unauthorized parties. Such notifications can potentially result in, among other things, adverse publicity, diversion of management and other resources, the attention of regulatory authorities, the imposition of fines, and disruptions in business operations, the effects of which may be material. Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could inhibit our ability to retain or attract new clients and/or result in financial losses, litigation, increased costs, negative publicity, or other adverse consequences to our business. +Further, our financial institution clients have obligations to safeguard their information technology systems and the confidentiality of customer information. In certain of our businesses, we are bound contractually and/or by regulation to comply with the same requirements. If we fail to comply with these regulations and requirements, we could be exposed to suits for breach of contract, governmental proceedings or the imposition of fines. In addition, future adoption of more restrictive privacy laws, rules or industry security requirements by federal or state +52 +regulatory bodies or by a specific industry in which we do business could have an adverse impact on us through increased costs or restrictions on business processes. +Security breaches like the June 2023 MOVEit incident and other disruptions to our information technology infrastructure could compromise Company, consumer and customer information, interfere with our operations, cause us to incur significant costs for remediation and enhancement of our IT systems and expose us to legal liability, all of which could have a substantial negative impact on our business and reputation. +In the ordinary course of business, we collect, process, transmit and store sensitive data, including intellectual property, proprietary business information and personally identifiable information. The secure operation of our information technology systems, and of the processing and maintenance of this information, is critical to our business operations and strategy. Despite our substantial investment in physical and technological security measures, our information technology infrastructure (or those of our third-party vendors and other service providers) are potentially vulnerable to unauthorized access to data or breaches of confidential information. +In June 2023, we were notified that PBI Research Services (“PBI”), a third-party vendor to F&G, was the victim of the security incident associated with the MOVEit file transfer system. PBI provides services to F&G and other companies in the insurance industry, including services to satisfy certain regulatory obligations related to identifying the deaths of insured persons that may trigger the payment of certain insurance benefits. It was widely reported that numerous organizations around the world, including Fortune 500 companies, governmental agencies, and non-governmental organizations, were affected by a zero-day vulnerability in the MOVEit file transfer system. This vulnerability resulted in access to PBI’s instance of the MOVEit system and acquisition of certain data within the MOVEit system by an unauthorized third party. The incident did not affect any F&G systems, including any of F&G’s financial systems. In addition, the incident did not affect F&G’s ability to serve its customers. +Because our products and services involve the storage and transmission of personal information of consumers, we will continue to routinely be the target of attempted cyber and other security threats by outside third parties. Our increased dependence on third parties to store our data systems may also subject us to further cyber threats. In addition, a significant number of our employees continue to work from home and we believe this will continue into 2025 and future years. The remote work environment puts greater demands on our technological systems, puts us at greater risk of cybersecurity incidents and adds complexity to our programs that are designed to protect private data. +While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to cybersecurity breaches or attacks, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductibles, could materially and adversely affect our financial condition, results of operations and cash flows. +Advancements in Artificial Intelligence, Machine Learning, and Large Language Models (“AI/ML/LLM”) pose risks and challenges. +Issues in the development and use of AI/ML/LLM, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, AI/ML/LLM presents risks and challenges that could impact our business. We may adopt and integrate generative artificial intelligence tools into our systems for specific use cases reviewed by legal and information security. Our vendors may incorporate generative artificial intelligence tools into their offerings without disclosing this use to us, and the providers of these generative artificial intelligence tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience. If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of AI/ML/LLM, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. +53 +The new and emerging types of AI and their uses are very early stage in the industry and may be subject to many uncertain future developments and regulations. +Regulatory agencies are evaluating existing regulatory frameworks for insurance industry wide use of AI. New AI algorithms and predictive models may be used by insurance companies in the development, administration and sales of insurance products to consumers. However, the use of new artificial intelligence models may make insurance companies more susceptible to potential bias, discrimination, and data security risks. These concerns could lead to development of new, or modifications to, laws and regulations pertaining to the use of Artificial Intelligence by insurance companies, or the broader financial services sector, that may prove to be onerous for companies to implement in a timely manner. +We rely on our investment management advisory agreements (“IMA”) with Blackstone ISG-I Advisors LLC (“BIS”) and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios. +Our insurance company subsidiaries are parties to IMAs with BIS and other investment managers and sub-managers. These entities depend in large part on their ability to attract and retain key people, including senior executives, finance professionals and information technology professionals. Intense competition exists for key employees with demonstrated ability, and our investment managers may be unable to hire or retain such employees. The unexpected loss by any of our investment managers, including BIS, of key employees could have a material adverse effect on their ability to manage our investment portfolio and have an adverse impact on our investment portfolio and results of operations. +We have a long-term contractual relationship with BIS that limits our ability to terminate this relationship or retain another investment manager without BIS’s consent. +Under an omnibus termination side letter among us, FNF and BIS, we have agreed with BIS not to allow other investment managers to be appointed or retained to provide investment management or advisory services to our annuity and life insurance subsidiaries without BIS’s consent. Although BIS has consented to the engagement of other investment managers in the past, BIS has no obligation to do so in the future. +Each of our subsidiaries that is party to an IMA with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any IMA upon 30 days’ notice. However, we and FNF have agreed in the omnibus termination side letter to cause our insurance company subsidiaries to engage BIS as an investment manager. The initial term of this side letter expires on June 1, 2029, and contains an automatic renewal provision which provides for successive two-year terms thereafter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may, with prior notice, terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination will not become effective for one year, during which time BIS may seek to cure the events giving arise to our termination right. If one of our subsidiaries were to terminate an IMA or take other actions that we have agreed will not be taken under the omnibus termination side letter, we and FNF may be in breach of our respective obligations to BIS under such side letter. +The historical performance of BIS, or any other asset manager we engage, should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our common stock. +Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not continue or currently exist, or may not be repeated, and there can be no assurance that BIS will be able to avail itself of profitable investment opportunities in the future. In addition, because BIS is +54 +compensated based solely on our assets which it manages, rather than by investment return targets, BIS is not directly incentivized to maximize investment return targets. Accordingly, there can be no guarantee that BIS will be able to achieve, or seek to achieve, any particular returns for our investment portfolio in the future. +Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact the reputation of our business. +The regulatory environment for investment managers is evolving, and changes in the regulation of investment managers may adversely affect the ability of BIS to effect transactions that utilize leverage or pursue their strategies in managing our investment portfolio. BIS, in conjunction with its investment managers, continuously monitors the ongoing regulatory conversations. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The SEC, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. Due to our reliance on these relationships in particular to manage a significant portion of our investment portfolio, any regulatory action or enforcement against BIS could have an adverse effect on our financial condition. +In addition, the NAIC continues to consider the nature of the relationships between insurance companies and their investment advisors and investment managers, and more broadly the impact of private equity within the insurance industry. We are continuing to monitor the development of any proposals that could have a material impact on the contractual relationships between us and BIS. +Risks Related to Economic Conditions and Market Conditions +Conditions in the economy generally could adversely affect our business, results of operations and financial condition. +Our results of operations are materially affected by conditions in the U.S. economy. Adverse economic conditions may result in a decline in revenues and/or erosion of our profit margins. In addition, in the event of extreme prolonged market events and economic downturns, we could incur significant losses. Even in the absence of a market downturn we are exposed to substantial risk of loss due to market volatility. +Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates, commodity prices, inflation levels, changes in trade policy, tariffs and trade sanctions on goods, trade wars, United States-China relations and supply chain disruptions all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Under such conditions, we may also experience an elevated incidence of policy lapses, policy loans, withdrawals and surrenders. In addition, our investments could be adversely affected as a result of deteriorating financial and business conditions affecting the issuers of the securities in our investment portfolio. +As of December 31, 2024, current economic conditions, including high inflation rates, have not adversely affected our business, results of operations and financial condition. However, we cannot predict if it will impact our business, results of operations and financial condition in the future for the forgoing reasons. +Please refer to “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Trends and Conditions ” for additional details on economic conditions and market conditions that may impact our business. +55 +Our investments are subject to geopolitical risk. The on-going conflicts in Russia, Ukraine and the Middle East may adversely affect our business, financial condition, results of operations and cash flows. +While we have no exposure to investments in Russia or Ukraine, we have de minimis exposure in the Middle East and the surrounding regions. If the conflicts and their inflationary impact leads to a wider recession or other restrictive actions by the United States and/or other countries, our investments could suffer losses, which could have a negative impact on our financial results. +The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia. The United States and other NATO member states, as well as non-member states, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals. These and any future additional sanctions and any resulting conflict between Russia, the United States and NATO countries could have an adverse impact on our current operations because they could cause declining conditions in worldwide credit and capital markets and the economy in general. Further, such invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United States and other countries are likely to lead to market disruptions, including significant volatility in the credit and capital markets, which could have an adverse impact on our operations and financial performance. +The ongoing armed conflicts in and around the Middle East may negatively impact the business environment, both within and outside of Israel, including due to reluctance of foreign investors to invest or transact business, as well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security markets, and other changes in macroeconomic conditions. To the extent that any of these negative developments do occur, they may have an adverse effect on our business, results of operations and financial condition. +Our investments are subject to market risks that could be heightened during periods of extreme volatility or disruption in financial and credit markets. +Our invested assets and derivative financial instruments are subject to risks of credit defaults and changes in market values. Periods of extreme volatility or disruption in the financial and credit markets could increase these risks. Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed income instruments in our investment portfolio. Significant volatility and lack of liquidity in the credit markets could cause the market value of the fixed-income securities we own to decline. Further, if our investment manager, BIS, fails to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses. +Our investments are subject to credit risks of the underlying issuer, borrower, or physical collateral which can change over time with the credit cycle. +A worsening business climate, recession, or changing trends could cause issuers of the fixed-income securities that we own to default on either principal or interest payments. Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within our investment portfolio. +The value of our mortgage-backed securities and our commercial and residential mortgage loan investments depends in part on the financial condition of the borrowers and tenants for the properties underlying those investments, as well as general and specific economic trends affecting the overall default rate. We are also subject to the risk that cash flows resulting from the payments on pools of mortgages that serve as collateral underlying the mortgage-backed securities we own may differ from our expectations in timing or size. Historically, we have not experienced material credit losses; however, any event reducing the estimated fair value of these securities, other than on a temporary basis, could have an adverse effect on our business, results of operations, liquidity and financial condition. +56 +We also maintain holdings in floating rate, and less rate-sensitive investments, including senior tranches of CLOs and directly originated senior secured loans. If realized collateral loss and recoveries differ materially from our assumptions, returns on these assets could be lower than our expectation. +We invest in ABS (traditional and specialty finance) and asset-backed and consumer whole loans. Consumer balance sheets are healthy and underwriting standards have become more conservative following the Global Financial Crisis. However, high inflation rates have been a headwind for consumers, and efforts by the Federal Reserve to stem inflation could induce a recession which would have an adverse impact on consumers and potentially increase delinquencies to a higher level than what is assumed in our underwriting. +Interest rate fluctuations could adversely affect our business, financial condition, liquidity and results of operations. +Interest rate risk is a significant market risk for us, as our business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets. As of December 31, 2024, we also maintained approximately 21% of the assets in our investment portfolio in floating rate investments. We have executed some variable interest rate credit agreements, floating rate funding agreements and pay-float and receive-fixed interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. All of these assets are subject to an element of market risk from changes in interest rates. +Prior to 2022, interest rates had been at or near historical low levels over the preceding several years. A prolonged period of low rates exposes us to the risk of not achieving returns sufficient to meet our earnings targets and/or our contractual obligations. Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations. Lower interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business. +Since March 2022, the Federal Reserve has increased the Federal Funds (“Fed Funds”) rate 11 times from approximately 0% to approximately 5.50% before pausing in the latter half of 2023. In September 2024, the Federal Reserve began reducing the Fed Funds rate ending 2024 at approximately 4.5%. Over the period since March 2022, market rates across the yield curve have risen. During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed annuities, and we may increase crediting rates on in-force products to keep these products competitive. We may be required to accept lower spread income (the difference between the returns we earn on our investments and the amounts we credit to contract holders), thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates. Rapidly rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve higher returns elsewhere, requiring us to liquidate assets in an unrealized loss position. If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate other less liquid assets such as limited partnership investments. We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would have been able to realize, which could have a material adverse effect on our business, financial condition or operating results. We have developed and maintain ALM programs and procedures that are, we believe, designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows, and robust inflows provide additional opportunities to allocate in force assets in support of news business, further mitigating potential losses due to disintermediation risk. In addition, we assess surrender charges on withdrawals in excess of allowable penalty-free amounts that occur during the surrender charge period. The significant new business written in recent years strengthens the surrender charge protection since the surrender charges are highest in the early years of a policy. There can be no assurance that actual withdrawals, contract benefits, and maturities will match our estimates. Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby realizing capital losses on the assets sold. +57 +Liabilities that are held on our balance sheet at fair value, including embedded derivatives on our Indexed Annuity and IUL business and market risk benefits (“MRB”) on our indexed annuity and fixed rate annuity business, are sensitive to fluctuations in interest rates. Decreases in interest rates generally would have the impact of increasing the value of these liabilities, which will result in a reduction in our net income. Liabilities for future policy benefits (“FPB”) are valued using locked-in discount rates, and any changes in interest rates since the inception of those contracts are reflected in AOCI. Decreases in interest rates would result in a reduction in our AOCI. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves. +As of December 31, 2024, current economic conditions, including higher interest rates, have not adversely affected our business, results of operations and financial condition. However, we cannot predict if it will impact our business, results of operations and financial condition in the future for the forgoing reasons. Higher interest rates have decreased the fair value of our investment security portfolio, primarily our fixed maturity securities, as of December 31, 2024 and December 31, 2023, resulting in our AOCI being a loss of $1.9 billion and $2.0 billion, respectively. See “ Quantitative and Qualitative Disclosure about Market Risk ” in this Annual Report on Form 10-K for a more detailed discussion of interest rate risk. +Equity market volatility could negatively impact our business. +The estimated cost of providing guaranteed minimum withdrawal benefit riders associated with our annuity products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the MRBs or contractholder funds liabilities associated with such products, resulting in a reduction in our revenues and net income. +We are exposed to liquidity risk as a result of our other risks. +We are exposed to liquidity risk, which is the risk that we are unable to meet near-term obligations as they come due. +Liquidity risk is a manifestation of events that are driven by other risk types, including market, insurance, investment or operational risks. A liquidity shortfall may arise in the event of insufficient funding sources or an immediate and significant need for cash or collateral. In addition, it is possible that expected liquidity sources, such as our minimum cash buffers, funding agreements through the FHLB or other credit facilities, may be unavailable or inadequate to satisfy the liquidity demands described below. +We have the following sources of liquidity exposure and associated drivers that trigger material liquidity demand. Those sources are: +• Derivative collateral market exposure: abrupt changes to interest rate, equity, and/or currency markets may increase collateral requirements to counterparties and create liquidity risk for us. +• Asset liability mismatch: there are liquidity risks associated with liabilities coming due prior to the matching asset cash flows. +• Insurance cash flows: we face potential liquidity risks from unexpected cash demands due to severe mortality calamity, customer withdrawals, policy loans or lapse events. If such events were to occur, we may face unexpectedly high levels of claim payments to policyholders. +• FHLB collateral: we issue funding agreements to the FHLB for which eligible securities collateral is posted. If the value of the eligible securities declines significantly, and there is no available eligible security collateral in the portfolio, we may need to supplement the collateral account with cash. +• Kubera NPA: we issued a variable note purchase agreement to Kubera for which we may be liable to fund any shortfall in Kubera’s ability to pay its obligations under the amended reinsurance agreement with FGL Insurance, assuring such principal up to $300 million is timely paid. +58 +• Holding Company Liquidity: as a holding company, we are required to make interest and expense payments to satisfy obligations. The holding company’s cash position is targeted at the minimum of two times fixed charge coverage ratio on an annual basis. +Our business could be materially and adversely affected by the occurrence of a catastrophe, including natural or man-made disasters. +Any catastrophic event, such as pandemic diseases, terrorist attacks, floods, severe storms or hurricanes or computer cyber-terrorism, could have a material and adverse effect on our business in several respects: +• any such event could have a material adverse effect on our liquidity, financial condition and the operating results of our insurance business due to its impact on the economy and financial markets; +• we could experience long-term interruptions in the services provided by our significant vendors due to the effects of catastrophic events; +• some of our operational systems are not fully redundant, and our disaster recovery and business continuity planning cannot account for all eventualities. Additionally, unanticipated problems with our disaster recovery systems could further impede our ability to conduct business, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data; +• how we manage our financial exposure for losses with third-party reinsurance and catastrophic events could adversely affect the cost and availability of that reinsurance; and +• the value of our investment portfolio may decrease if the securities in which we invest are negatively impacted by climate change (both transition risk and physical risk), pandemic diseases, severe weather conditions and other catastrophic events. +Natural and man-made catastrophes, pandemics (including COVID-19) present risks that could materially adversely affect our results of operations or the mortality or morbidity experience of our business. In addition, our business operations may be adversely affected by the increased risk of malicious and terrorist acts, as evidenced by recent incidents such as the New Orleans attack and Las Vegas explosion, which could disrupt our operations or the safety of our employees or customers. Claims arising from such events could have a material adverse effect on our business, operations and financial condition, either directly or as a result of their effect on our reinsurers or other counterparties. Such events could also have an adverse effect on the rate and amount of lapses and surrenders of existing policies, as well as sales of new policies. +While we believe we have taken steps to identify and mitigate these types of risks, such risks cannot be reliably predicted, nor fully protected against even if anticipated. In addition, such events could result in overall macroeconomic volatility or specifically a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of our business within such geographic areas or the general economic climate, which in turn could have an adverse effect on our business, results of operations and financial condition. The possible macroeconomic effects of such events could also adversely affect our asset portfolio. +Our business is subject to risk due to our owned distribution strategy and investments in distribution consolidators. +Our owned distribution strategy, including our investments in minority and majority stakes in various NMGs and other distribution consolidators, exposes us to operational, financial, and strategic risks. These investments, including stakes in Syncis Holdings, DCMT Worldwide, a majority interest in Roar, and a wholly-owned interest in PALH, represent a significant component of our distribution strategy. The success of this strategy depends on the continued growth and performance of these businesses, which is subject to challenges such as the retention and performance of agents, market demand in cultural communities, and our ability to integrate these entities effectively into our broader operations. Furthermore, as industry consolidation among independent agent distribution channels accelerates, competition to acquire and partner with high-performing platforms intensifies, limiting our ability to secure attractive investment opportunities. Our ownership stakes also expose us to financial risks, including the potential for impairment of goodwill or intangible assets if these entities underperform, as well as regulatory and +59 +compliance risks related to licensing and fiduciary standards. These factors, combined with the operational challenges of managing both majority and minority investments, create risks that could materially and adversely affect our financial performance, competitive position, and long-term growth prospects. +Legal, Regulatory and Tax Risks +Our business is highly regulated and subject to numerous legal restrictions and regulations. +Insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. Most states also regulate insurance holding companies like us with respect to acquisitions, changes of control and the terms of transactions with our affiliates. In addition, we may incur significant costs in the course of complying with regulatory requirements. +State insurance regulators, the NAIC and federal regulators continually reexamine existing laws and regulations and may impose changes in the future. New interpretations of existing laws and the passage of new legislation may harm our ability to sell new policies, increase our claim exposure on policies we issued previously and adversely affect our profitability and financial strength. We are also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition. +We cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on us if enacted into law. In addition, because our activities are relatively concentrated in a small number of lines of business, any change in law or regulation affecting one of those lines of business could have a disproportionate impact on us as compared to other more diversified insurance companies. +Please refer to “ Business-Regulation of F&G ” included in this Annual Report on Form 10-K for additional details on the impact of regulations on our business. +Our business is subject to government regulation in each of the jurisdictions in which we conduct business and regulators have broad administrative and discretionary authority over our business and business practices. +Our business is subject to government regulation in each of the states in which we conduct business, along with the District of Columbia and Puerto Rico, and is concerned primarily with the protection of policyholders and other customers. Such regulation is vested in state agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy. At any given time, we and our insurance subsidiaries may be the subject of a number of ongoing financial or market conduct, audits or inquiries. From time to time, regulators raise issues during such examinations or audits that could have a material impact on our business. +Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. We cannot predict the amount or timing of any such future assessments and therefore the liability we have established for these potential assessments may not be adequate. In addition, regulators may change their interpretation or application of existing laws and regulations, including, for example, broadening the scope of carriers that must contribute towards long-term care insolvencies. +60 +Our business in the United States is regulated by the National Association of Insurance Commissioners (“NAIC”), which continues to consider reforms including relating to cybersecurity regulations, best interest standards, risk-based capital (“RBC”) and life insurance reserves. +Although our business is subject to regulation in each state in which we conduct business, along with the District of Columbia and Puerto Rico, in many instances the state regulatory models emanate from the NAIC. Some of the NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes, regulations and interpretations may be applied with retroactive impact, particularly in areas such as accounting and reserve requirements. The NAIC continues to work to reform state regulation in various areas, including comprehensive reforms relating to cybersecurity regulations, best interest standards, RBC and life insurance reserves. +We and our insurance subsidiaries are subject to minimum capitalization requirements based on RBC formulas for life insurance companies that establish capital requirements relating to insurance, business, asset, interest rate and certain other risks. Changes to statutory reserve or RBC requirements may increase the amount of reserves or capital we and our insurance subsidiaries are required to hold and may impact our ability to pay dividends. In addition, changes in statutory reserve or RBC requirements may adversely impact our financial strength ratings. Changes currently under consideration include adding an operational risk component, factors for asset credit risk, and group wide capital calculations. See “— Risks Related to our Business—A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow the business, and could hinder our ability to participate in certain market segments, thereby adversely affect our financial condition and results of operations ” for a discussion of risks relating to our financial strength ratings. +Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. Meanwhile, the DOL has publicly announced its intention to consider future rulemaking that may revoke or modify PTE 84-24. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the New Fiduciary Rule, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or +61 +beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s new Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al. , (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s final fiduciary rule (and related amendments to PTE 84-24) that was issued in March 2024. The District Court, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the Final Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the Final Rule’s original effective date of September 23, 2024 has been delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al. , held the remaining PTE amendments included in the Final Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the Final Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. On February 11, 2025, the DOL filed an unopposed motion to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motion was granted so the appeals are in abeyance. A Fifth Circuit reversal of the Texas district court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +Management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. +Please refer to “ Business-Regulation of F&G ” for additional details on the DOL’s “Fiduciary Rule.” +Our regulation in Bermuda and the Cayman Islands may limit or curtail our activities, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services. +Our business is subject to regulation in Bermuda and the Cayman Islands, including the BMA and the CIMA. These regulations may limit or curtail our activities, including activities that might be profitable, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services we may wish to offer in the future. +62 +Our reinsurance subsidiary, F&G Life Re, is registered in Bermuda under the Bermuda Insurance Act and is subject to the rules and regulations promulgated thereunder. The BMA has sought regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the European Union (“EU”) on a “level playing field.” In connection with its initial efforts to achieve equivalency under the EU’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates. Effective 1 January 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. F&G Life Re has been designated as a certified reinsurer in Iowa. The European Commission in 2016 granted Bermuda’s commercial insurers full equivalency in all areas of Solvency II for an indefinite period of time. Effective 1 January 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations, which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting any collateral. F&G Life Re has been approved as a reciprocal jurisdiction reinsurer in Iowa. +Our reinsurance subsidiary, F&G Cayman Re, is a licensed Class D insurer in the Cayman Islands and a wholly owned direct subsidiary of ours, is licensed by the CIMA and is subject to supervision by CIMA. CIMA may, at any time, direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +Please refer to “ Business-Regulation of F&G ” for additional details on the regulations in Bermuda and the Cayman Islands. +The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete. +The Secure 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023 (“SECURE Act 2.0”), was signed into law on December 29, 2022, and went into effect as early as January 1, 2023, in certain respects. The SECURE Act 2.0 contains provisions that may impact our F&G insurance subsidiaries, and these changes could affect the desirability of IRAs, necessitate changes to our administrative system to implement the Act, and affect, to some extent, the length of time that IRA assets remain in our annuity products. These provisions include, for example, raising the age for required minimum distributions from IRAs from 72 to 73 (age 74 after 2032); additional exceptions to the 10% penalty tax for distributions before age 59-1/2; reduction of the penalty for failures to take a required distribution amount; directions to the SEC for new registration forms for registered index linked annuities; and directions to the DOL to revisit fiduciary standards relating to choosing an annuity provider in pension risk transfer transactions. While we cannot predict whether, or to what extent, the SECURE Act 2.0 will ultimately impact us, whether positive or negative, it may have implications for our business operations and the markets in which we compete. +The amount of statutory capital that our insurance subsidiaries have and the amount of statutory capital that they must hold to maintain their financial strength ratings and meet other requirements can vary significantly from time to time due to a number of factors outside of our control. +The financial strength ratings of our insurance subsidiaries are significantly influenced by their statutory surplus amounts and capital adequacy ratios. In any particular year, statutory surplus amounts and U.S. RBC ratios may increase or decrease depending on a variety of factors, most of which are outside of the control of each of our insurance subsidiaries, including, but not limited to, the following: +• the amount of statutory income or losses generated by such insurance subsidiary (which itself is sensitive to equity market and credit market conditions); +• the amount of additional capital such insurance subsidiary must hold to support business growth and changes to the RBC calculation methodologies; +63 +• changes in statutory accounting or reserve requirements applicable to such insurance subsidiary; +• such insurance subsidiary’s ability to access capital markets to provide reserve relief; +• changes in equity market levels, interest rates, and market volatility; +• the value of certain fixed-income and equity securities in such insurance subsidiary’s investment portfolio; +• changes in the credit ratings of investments held in such insurance subsidiary’s portfolio; and +• the value of certain derivative instruments. +Rating agencies may also implement changes to their internal models, which differ from the RBC capital model and could result in such insurance subsidiary increasing or decreasing the amount of statutory capital it must hold in order to maintain its current financial strength ratings. In addition, rating agencies may downgrade the investments held in such insurance subsidiary’s portfolio, which could result in a reduction of its capital and surplus and its RBC ratio. To the extent that such insurance subsidiary’s U.S. RBC ratios are deemed to be insufficient, such insurance subsidiary may take actions either to increase its capitalization or to reduce the capitalization requirements. If such insurance subsidiary is unable to take such actions, the rating agencies may view this as a reason for a ratings downgrade. +The failure of any of our insurance subsidiaries to meet their applicable RBC requirements or minimum capital and surplus requirements could subject them to further examination or corrective action imposed by insurance regulators, including limitations on their ability to write additional business, supervision by regulators or seizure or liquidation. Any corrective action imposed could have a material adverse effect on such insurance subsidiary’s business, results of operations and financial condition. A decline in U.S. RBC ratios could be a factor in causing rating agencies to downgrade such insurance subsidiary’s financial strength ratings, which could have a material adverse effect on its business, results of operations and financial condition. +New accounting rules or changes to existing accounting standards could adversely impact our reported results of operations. +As a U.S.-based SEC registrant, F&G prepares its financial statements in accordance with GAAP, subject to the accounting-related rules and interpretations of the SEC. New accounting rules or changes in accounting standards, particularly those that specifically apply to insurance company operations, may impact F&G’s reported financial results and could cause increased volatility in reported earnings, resulting in other adverse impacts on F&G’s ratings and cost of capital, and decrease the understandability of F&G’s financial results as well as the comparability of F&G’s reported results with other insurers. +Changes in federal or state tax laws may affect sales of our products and profitability. +The annuity and life insurance products that we market generally provide the policyholder with certain federal income or state tax advantages. For example, federal income taxation on any increases in non-qualified annuity contract values (i.e., the “inside build-up”) is deferred until it is received by the policyholder. Non-qualified annuities are annuities that are not sold to a qualified retirement plan or are in the form of a qualified contract such as an IRA. With other savings investments, such as certificates of deposit and taxable bonds, the increase in value is generally taxed each year as it is realized. Additionally, life insurance death benefits and the inside build-up under life insurance contracts are generally exempt from income tax or are tax deferred. +From time to time, various tax law changes have been proposed that could have an adverse effect on our business, including the elimination of all or a portion of the income tax advantages described above for annuities and life insurance policies. For example, changes in tax law could reduce or eliminate the tax-deferred accumulation of earnings on the deposits paid by the holders of annuities and life insurance products, which could make such products less attractive to potential purchasers. Additionally, insurance products, including the tax favorable features of these products, generally must be approved by the insurance regulators in each state in which they are sold. This review could delay the introduction of new products or impact the features that provide for tax advantages and make such products less attractive to potential purchasers. A shift away from life insurance and annuity products could +64 +reduce FGL Insurance’s and FGL NY Insurance’s income from the sale of such products, as well as the assets upon which FGL Insurance and FGL NY Insurance earn investment income. If legislation were enacted to eliminate the tax deferral for annuities or life insurance policies, such a change would have a material adverse effect on our ability to sell non-qualified annuities or life insurance policies. +Changes in tax law may increase our future tax liabilities and related compliance costs. +From time to time, the United States, as well as foreign, state and local governments, consider changes to their tax laws that may affect our future results of operations and financial condition. Also, the Organization for Economic Co-operation and Development has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. Changes to tax laws could increase their complexity and the burden and costs of compliance. Additionally, such changes could also result in significant modifications to the existing transfer pricing rules and could potentially have an impact on our taxable profits as such legislation is adopted by participating countries. +We and our subsidiaries and affiliates are subject to reviews and audits by the Internal Revenue Service (“IRS”) and other taxing authorities from time to time, and the IRS or other taxing authority may challenge tax positions taken by us and our subsidiaries and affiliates. Responding to or defending against challenges from taxing authorities could be expensive and time consuming, and could divert management’s time and focus away from operating our business. We cannot predict whether and when taxing authorities will conduct an audit, challenge our tax positions or the cost involved in responding to any such audit or challenge. If our subsidiaries and affiliates are unsuccessful in defending against such challenges, they may be required to pay taxes for prior periods, interest, fines or penalties, and may be obligated to pay increased taxes in the future, all of which could have an adverse effect on our business, financial condition, results of operations or growth prospects. +The Inflation Reduction Act establishes, among other things, a new corporate alternative minimum tax of 15% on corporations that have an average adjusted financial statement income in excess of $1 billion over a three-year period and an excise tax of 1% on certain stock buy-backs by publicly-traded corporations. While we are continuing to evaluate the impact of these new provisions, as well as any regulations and legal decisions interpreting and applying them, we currently anticipate that their impact, if any, will not be material to our operating results, cash flows or statutory capital position. +The redemption of our preferred stock may require a significant amount of cash and may result in adverse tax consequences. +We have 5,000,000 shares of preferred stock outstanding as of December 31, 2024 . Pursuant to the Certificate of Designations, on January 15, 2027, unless converted earlier in accordance with the terms of the certificate of designations, each share of the 6.875% Series A Mandatory Convertible Preferred Stock, par value $.0.001 per share, liquidation preference of $50.00 per share (“the FNF Preferred Stock”) will automatically convert into between 0.9456 shares and 1.1111 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations. The number of shares of common stock issuable upon conversion will be determined based on the average volume weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to January 15, 2027. The FNF Preferred Stock is not subject to redemption at our option. The redemption of the FNF Preferred Stock and the payment of any excise tax could adversely affect the Company’s business, financial position and results of operations. In the event our assets are not sufficient to meet our redemption obligations, this could have a significant adverse effect on our reputation, business, financial condition, growth and ability to accomplish our strategic objectives. +65 +We may be the target of future litigation, law enforcement investigations or increased scrutiny which may negatively affect our operations or financial strength or reduce profitability. +We, like other financial services companies, are involved in litigation and arbitration in the ordinary course of business. For further discussion on litigation and regulatory investigation risk, see Note N - Commitments and Contingencies to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +From time to time, we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries, and we have responded to or are currently responding to inquiries from multiple governmental agencies. Various governmental entities are studying the insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. +More generally, we operate in an industry in which various practices are subject to scrutiny and potential litigation, including class actions. In addition, we sell our products through IMOs, whose activities may be difficult to monitor. Civil jury verdicts have been returned against insurers and other financial services companies involving sales, underwriting practices, product design, product disclosure, administration, denial or delay of benefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, payment of sales or other contingent commissions and other matters. Such lawsuits can result in substantial judgments and damage to our reputation that is disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, financial services companies have made material settlement payments. +We may not be able to protect our intellectual property and may be subject to infringement claims. +We rely on a combination of contractual rights and copyright, trademark and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, trade secrets and know-how or to determine their scope, validity or enforceability, which represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could adversely impact our business and our ability to compete effectively. +We may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon that party’s intellectual property rights. Third parties may have, or may eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could otherwise limit our ability to offer certain product features. We may also be subject to claims by third parties for breach of copyright, trademark, trade secret or license usage rights. Any such claims and any resulting litigation could result in significant expense and liability for damages or we could be enjoined from providing certain products or services to our customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or licenses, or alternatively, we could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, results of operations and financial condition. +66 +Changing rules, public disclosure regulations and stakeholder expectations on environmental, social and corporate governance (“ESG”) related matters create a variety of risks for our business. +In addition to the changing rules and regulations related to ESG matters imposed by governmental and self-regulatory organizations such as the SEC and the NYSE, a variety of third-party organizations, institutional investors and customers evaluate the performance of companies on ESG topics, and the results of these assessments are widely publicized. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. Reduced access to or increased cost of capital may occur as financial institutions and investors increase or change expectations related to ESG matters. +Developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards. We may also communicate certain initiatives and goals, regarding environmental matters, diversity, social investments and other ESG-related matters, in our SEC filings or in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals, including our previously announced commitments to reduce greenhouse gas emissions, within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected. +In addition, in recent years “anti-ESG” sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions, and the President having recently issued an executive order opposing diversity equity and inclusion (“DEI”) initiatives in the private sector. Such anti-ESG and anti-DEI-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in additional compliance obligations, investigations and enforcement actions, or reputational harm. +Risks Relating to Our Indebtedness and Financing +We are a holding company and depend on distributions from our subsidiaries for cash. +We are a holding company whose operating subsidiaries write insurance products that generate a net spread between their assets and liabilities (net of operating costs). Our ability to pay interest on our outstanding debt and our other obligations and to pay dividends is dependent on the ability of our subsidiaries to pay dividends or make other distributions or payments to us. If our operating subsidiaries are not able to pay dividends to us, we may not be able to meet our obligations or pay dividends on our common stock or preferred stock. +Our insurance subsidiaries are also subject to state laws or other regulations with respect to the payment of dividends. For example, the Iowa insurance law and the New York insurance law regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. Compliance with these state regulations will limit the amounts that FGL Insurance and FGL NY Insurance may dividend to us. Any dividends in excess of a threshold amount are subject to advance state notice or approval. +The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. To the extent that we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation, or are otherwise unable to provide such funds, it could materially and adversely affect our liquidity and financial condition. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our subsidiaries or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of +67 +investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in interpretation of statutory accounting requirements by regulators. +Risks Related to the Separation and Distribution and our Status as a Subsidiary of Fidelity National Financial, Inc. (“FNF”) +Although we have past history of operating as a public company, our historical financial information and summary historical financial information are not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. +The historical information about us in this Annual Report on Form 10-K includes periods where we operated as a wholly owned subsidiary of FNF or as a stand-alone public company. Our historical financial information and summary historical financial information included in this Annual Report on Form 10-K is derived from the Consolidated Financial Statements and the accounting records of F&G and FNF. Accordingly, the historical financial information for periods prior to the separation and distribution included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented, or those that we will achieve in the future, including: +• The ongoing cost of capital for our business may be higher than our access to FNF’s cost of capital prior to the separation and distribution. +• Our historical financial information for periods prior the separation and distribution does not reflect the debt or the associated interest expense that we have incurred in connection with the separation and distribution or expect to incur in the future. +Other changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from FNF. For additional information about the past financial performance of our business and the basis of presentation of the Consolidated Financial Statements and summary historical financial information of our business, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the historical financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. +FNF is our principal shareholder and retains significant rights with respect to our governance and certain corporate actions. In certain cases, FNF may have interests which differ from our other shareholders. +FNF owns approximately 85% of our outstanding common stock and 5,000,000 shares of our FNF Preferred Stock. As a result, FNF is able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. FNF also has sufficient voting power to approve amendments to our organizational documents. +FNF is under no obligation to sell its remaining interest in us and retains the sole discretion to determine the timing of any future sales of shares of our common stock. +Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that may discourage, delay or prevent a change in our management or control. These provisions not only could have a negative impact on the trading price of our common stock but could also allow FNF to delay or prevent a corporate transaction of which the public shareholders approve. +In addition, conflicts of interest may arise between FNF, as our controlling shareholder, and us. Affiliates of FNF engage in transactions with us. Further, FNF may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us, and FNF may either directly, or through affiliates, also maintain business +68 +relationships with companies that may directly compete with us. In general, FNF or its affiliates could pursue business interests or exercise their voting power as shareholders in ways that are detrimental to us but beneficial to themselves or to other companies in which they invest or with whom they have relationships. Conflicts of interest could also arise with respect to business opportunities that could be advantageous to FNF, and they may pursue acquisition opportunities in the future that may be complementary to our business. As a result, those acquisition opportunities may not be available to us. +As a result of these relationships, the interests of FNF may not coincide with our interests or the interests of the other holders of our common stock and preferred stock. So long as FNF continues to control a significant amount of the outstanding shares of our common stock, FNF will continue to be able to strongly influence or effectively control our decisions, including with respect to potential mergers or acquisitions, asset sales and other significant corporate transactions. +Certain of our directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions. +A number of persons who currently are our directors are also officers, directors or employees of FNF (or officers, directors or employees of affiliates of FNF) and, thus, have professional relationships with FNF’s officers, directors or employees. In addition, certain of our directors and executive officers own FNF common stock or other equity compensation awards. These relationships may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF and us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between FNF and us regarding the terms of the agreements governing our relationship with FNF. +Provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock. +Our amended and restated certificate of incorporation and bylaws contain, and Delaware law contains, provisions that may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a shareholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our stock. +These provisions include: +• rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings; +• permitting our Board to issue preferred stock without shareholder approval; +• granting to the Board, and not the shareholders, the sole power to set the number of directors; +• the initial division of our Board into three classes of directors, with each class serving a staggered term; +• a provision that directors serving on a classified Board may be removed by shareholders only for cause; +• authorizing vacancies on our Board to be filled only by a vote of the majority of the directors then in office and specifically denying our shareholders the right to fill vacancies in the Board; and +• limiting shareholder action by written consent. +These provisions apply even if an offer may be considered beneficial by some shareholders. +Certain other provisions of our amended and restated certificate of incorporation and bylaws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a shareholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our shares. We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and the provisions +69 +could delay or prevent an acquisition that our Board determines is not in the best interests of us and our shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. +We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. +FNF controls a majority of the voting power of our outstanding common stock. Accordingly, we will qualify as a “controlled company” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance standards, including: +• the requirement that a majority of the board consist of independent directors; +• the requirement to have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; +• the requirement to have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors; and +• the requirement for an annual performance evaluation of the nominating and governance and compensation committees. +We have availed ourselves of some or all of these exemptions. Consequently, you do not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price. If we cease to qualify as a “controlled company” we will be subject to certain phase-in rules to come into compliance with applicable listing standards. +FNF or F&G may fail to perform under various transaction agreements that were executed as part of the separation and distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +In connection with the separation and distribution, we and FNF entered into the separation and distribution agreement. In connection with the separation, F&G also entered into various ancillary agreements to effect the separation and provide a framework for its relationship with FNF after the separation and distribution, such as a corporate services agreement (the “Corporate Services Agreement”), a reverse corporate services agreement (the “Reverse Corporate Services Agreement”), a tax sharing agreement (the “Tax Sharing Agreement”) and other agreements entered into in connection therewith (collectively with a Separation and Distribution Agreement, the “Transaction Agreements”). The Transaction Agreements determine the allocation of assets, rights and liabilities between the companies following the separation and distribution and include indemnifications related to liabilities and obligations. The Corporate Services Agreement provides for the performance of certain services by FNF for the benefit of us for a limited period of time after the separation and distribution. The reverse services agreement provides for the performance of certain services by us for the benefit of FNF for a limited period of time after the separation and distribution. We rely on FNF to satisfy its obligations under the Transaction Agreements. If FNF is unable to satisfy its obligations under the Transaction Agreements, including its indemnification obligations, we could incur operational difficulties or losses. Upon expiration of the Corporate Services Agreement, the services that are covered thereunder will have to be provided internally or by third parties. If we do not have agreements with other providers for these services once certain Transaction Agreements expire or terminate, we may not be able to operate our business effectively, which may have a material adverse effect on our business, financial condition or operating results. +70 +In connection with the separation and distribution, FNF has agreed to indemnify us for certain liabilities, and we have agreed to indemnify FNF for certain liabilities. If we are required to pay under these indemnities to FNF, our financial results could be negatively impacted. FNF’s indemnification of us may not be sufficient to hold us harmless from the full amount of all liabilities that will be allocated to us, and FNF may not be able to satisfy its indemnification obligations in the future. +Pursuant to the Transaction Agreements, FNF has agreed to indemnify us for certain liabilities, and we have agreed to indemnify FNF for certain liabilities, in certain cases for uncapped amounts. Indemnities that we may be required to provide FNF may not be subject to any cap, may be significant and could negatively impact our business, particularly with respect to indemnities provided in the Tax Sharing Agreement. Third parties could also seek to hold us responsible for any of the liabilities that FNF has agreed to retain under the Transaction Agreements. Any amounts that we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used operating our business. Further, the indemnities from FNF may not be sufficient to protect us against the full amount of such liabilities, and FNF may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from FNF any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our business, financial condition or operating results. +We may have received better terms from unaffiliated third parties than the terms we received in our agreements with FNF. +The agreements we entered into with FNF in connection with the separation and distribution, including the Transaction Agreements, were prepared in the context of our separation from FNF while we were still a wholly owned subsidiary of FNF. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of FNF. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s length negotiations between unaffiliated third parties. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business. +Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, which is presumed to exist if a person owns, directly or indirectly, 10% or more of the voting securities of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Persons considering an investment in our common stock should take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such laws in light of their particular circumstances. +We are subject to regulation under the insurance holding company laws of various jurisdictions. See “ Business -Regulation of F&G .” Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in any direct or indirect parent company of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Under the laws of each of the domiciliary states of our U.S. insurance subsidiaries, Iowa and New York, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company is presumed to have acquired “control” of the company, which may consider voting securities held at both the parent company and subsidiary collectively for these purposes. This statutory presumption of control may be rebutted by a showing that control does not exist in fact. State insurance regulators, however, may find that “control” exists in circumstances in which a person owns or controls less than 10% of the voting securities. We are a subsidiary of FNF, the common stock (its voting securities) of which trades on the NYSE. Consequently, persons considering an investment in our common stock (our voting securities) should also take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such insurance holding company laws relating to the purchase and ownership of our common stock in light of their particular circumstances. +71 +Our amended and restated bylaws contain an exclusive forum provision that could limit our shareholders’ ability to choose a judicial forum that they find favorable for certain disputes with us or our directors, officers, shareholders, employees or agents, and may discourage lawsuits with respect to such claims. +Our amended and restated bylaws provide that unless the Board otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, shareholder, employee or agent of ours to either of us or our shareholders, (iii) any action asserting a claim against us or any director, officer, shareholder, employee or agent of ours arising out of or relating to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or bylaws, or (iv) any action asserting a claim against us or any director, officer, shareholder, employee or agent of ours governed by the internal affairs doctrine, in all cases subject to the court having subject matter jurisdiction and personal jurisdiction over an indispensable party named as a defendant. The amended and restated bylaws further provide that the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Therefore, there is uncertainty as to whether a court will enforce the exclusive forum provision with respect to claims arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision does not apply to any actions arising under the Exchange Act and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive forum provisions may limit our shareholders’ ability, or make it more costly, to bring a claim in a judicial forum that they find favorable for such disputes and may discourage these types of lawsuits. Alternatively, if a court were to find the exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions. +We and certain of our subsidiaries file consolidated federal income tax returns with FNF. +We and our eligible subsidiaries are “affiliated” with FNF for U.S. federal income tax purposes and will join in filing with FNF a consolidated federal income tax return. Pursuant to the Tax Sharing Agreement, we are periodically obligated to make payments to FNF equal to the tax obligations of us and our subsidiaries for federal income taxes and certain state and local income taxes that are computed on a combined, consolidated or unitary method. In addition, are obligated to make payments to FNF for the use of certain tax attributes of FNF and its subsidiaries that are used to offset taxes by us and our subsidiaries. Certain tax attributes of us and our subsidiaries are also available for use by FNF, for which FNF will generally be obligated to make payments to us in compensation. To the extent such tax attributes are used by FNF and its subsidiaries, they will not be available to offset taxes of us and our subsidiaries. +Risks Related to Our Common Stock and Preferred Stock +Our stock price may fluctuate significantly. +Many factors could cause the market price of our common stock to rise and fall, including the following: +• our business profile and market capitalization may not fit the investment objectives of current shareholders, causing a shift in our investor base, and our common stock may not be included in some indices causing certain holders to sell their common stock; +• our announcements or our competitors’ announcements regarding new products or services, significant contracts, acquisitions or strategic investments; +• fluctuations in our quarterly or annual financial results or the quarterly or annual financial results of companies perceived to be similar to us; +• the failure of securities analysts to cover our common stock; +72 +• actual or anticipated fluctuations in our operating results; +• changes in earnings estimates or recommendations by securities analysts or our ability to meet those estimates; +• the operating and stock price performance of other comparable companies; +• investors’ general perception of us and our industry; +• changes to the regulatory and legal environment under which we operate; +• changes in general economic and market conditions; +• changes in industry conditions; +• changes in regulatory and other dynamics; and +• the other factors described in this “ Risk Factors ” section and elsewhere in this Annual Report on Form 10-K. +In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management. +If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our investors may lose confidence in the accuracy and completeness of our financial reports, which could adversely affect our stock price. +Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, our management is required to report on the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investor confidence and our stock price could decline. +Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NYSE rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect the price of our common stock. +Our common stock is subordinated to our preferred stock. +The Company issued and sold in a private placement to FNF 5,000,000 shares of its FNF Preferred Stock. As described in the Certificate of Designations, subject to certain exceptions, so long as any share of FNF Preferred Stock remains outstanding, no dividend or distribution will be declared or paid on shares of the Company’s common stock, or any other class or series of stock ranking junior to the FNF Preferred Stock, and no common stock or any other class or series of stock ranking junior to or on parity with the FNF Preferred Stock will be purchased, redeemed, or otherwise acquired for consideration by the Company or any of its subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in cash, shares of common stock or a combination thereof, or a sufficient sum of cash or number of shares of common stock has been set aside for the payment of such dividends, on all outstanding shares of FNF Preferred Stock. In addition, when dividends on shares of the FNF Preferred Stock (i) have not been declared and paid in full on any dividend payment date (or, in the case of any parity stock having dividend payment dates different from such dividend payment dates, on a dividend payment date falling within a regular dividend period related to such dividend payment date), or (ii) +73 +have been declared but a sum of cash or number of shares of common stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable regular record date, no dividends may be declared or paid on any parity stock unless dividends are declared on the shares of FNF Preferred Stock such that the respective amounts of such dividends declared on the shares of FNF Preferred Stock and such shares of parity stock shall be allocated pro rata among the holders of the shares of FNF Preferred Stock and the holders of any shares of parity stock then outstanding. +Substantial sales of our common stock may occur which could cause our stock price to be volatile and to decline. +Any sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, in connection with the distribution or otherwise, could cause the market price of our common stock to decline. These sales also could impede our ability to raise future capital. We cannot predict the size of future sales of shares of our common stock in the open market following the distribution or the effect, if any, that such future sales, or the perception that such sales may occur, would have on the market price of our common stock. We are also unable to predict whether a sufficient number of buyers would be in the market at that time. +We cannot guarantee the timing, amount or payment of dividends on our common stock or preferred stock in the future. +We expect to pay regular quarterly dividends in the future. However, there can be no assurance we will be able to pay such dividends. The payment and amount of any future dividend will be subject to the sole discretion of our Board and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our Board may deem relevant, and there can be no assurance that we will continue to pay a dividend in the future. +Your percentage of ownership in F&G may be diluted in the future. +In the future, your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we may be granting to our directors, officers and employees. Such awards may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional options or other stock-based awards to our employees under our employee benefits plans. +In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy Disclosure +The Company’s Information Security team is responsible for executing the Company’s enterprise-wide cybersecurity strategy, which is based upon the Center for Internet Security’s best practice controls, including +74 +providing subject matter expertise, accountability, and oversight in the areas of policy and standards development, security architecture, engineering, and development practices, third-party IT and Security risk, compliance with industry, state, and federal regulations, and security education, awareness, and training. The Information Security program is managed and overseen by a full-time Chief Information Security Officer (“CISO”) with over 25 years in information technology leadership, service management, operations, information security, risk management, and regulatory compliance. +The CISO reports to the Company’s Chief Information Officer (“CIO”), who is an executive of the Company and oversees all of the Company’s information technology efforts. The Company’s CIO has over 33 years of information technology leadership experience within the insurance and financial services industries. The CIO provides regular updates to senior leadership, including reports to the Board on a periodic basis. +In conjunction with CIO senior leadership updates and periodic reports to the Board, the Company’s ERM team also provides updates on the Company’s cyber risk and threats, status of key projects improving the Company’s security posture, and efforts reducing the Company’s attack surface. +In addition, a cybersecurity working group reviews the status of the Company’s cybersecurity environment monthly with the senior managers of various departments including Information Technology, Information Security, ERM, Internal Audit, and Compliance. Based on the information received, the working group generates monthly reports and updates key stakeholders across the enterprise. +To mitigate information and cybersecurity risks, the Company utilizes external firms to perform supplemental annual vulnerability and penetration testing to objectively assess and identify potential improvements to the Company’s security posture. Findings from such testing are tracked, prioritized, remediated, and reported accordingly. The Company also leverages a third-party to perform 24x7 Security Operations Center monitoring of its information assets. The Company has processes in-place to risk assess through initial due diligence, monitor throughout the third-party service provider lifecycle, and periodically re-evaluate the technology and security risks associated with the usage of third-party service providers. Additionally, the Company maintains cyber insurance coverage to reduce potential financial losses that may stem from security incidents. +See Item 1A - Risk Factors for discussion of material risks faced by the Company, including risks related to cybersecurity. +Governance Disclosure +As set forth in the Company’s charter, our Audit Committee, comprised of fully independent directors, is responsible for reviewing with management of the Company, the Company’s policies and practices with respect to risk assessment and risk management, including cybersecurity risk. The CRO reports information and cybersecurity risks to the Audit Committee. +F&G has adopted a “three lines of defense” governance model for information and cybersecurity risk management. The CISO is the first line of defense providing frontline business, operational, and technology controls and capabilities to protect against information and cybersecurity risks and responding to cyber incidents and data breaches. The information security team under the CISO is responsible for overseeing infrastructure defense and security controls, managing access controls, performing vulnerability assessments, facilitating independent external penetration testing, assessing third-party or vendor information security, implementing employee awareness and training programs, and handling security incident management. +F&G's ERM department serves as the Company’s second line of defense and considers Information Security risk alongside other company risks. ERM facilitates the quarterly risk self-assessment with the CISO and the CIO to identify and assess information and cybersecurity risks, evaluates the likelihood and impact of potential risk events to Information Assets, and assesses mitigation offered by the control environment to determine residual risk. The assessment results are presented at quarterly Operational Risk Sub-Committee (“ORSC”) and ERMC meetings. ERM, jointly with the Information Security professionals, annually conducts a Cybersecurity Risk Assessment based +75 +on critical security controls set forth by the Center for Internet Security. The assessment is reported to the CRO, CISO and CIO. +The Company’s Internal Audit department serves as the third line of defense and independently assures the effectiveness of the Company’s management of information and cybersecurity risk. +As an added layer of defense, the Company has an incident response team in place to evaluate information and cybersecurity incidents on an on-going basis. Based on materiality, a security incident may be escalated to the Corporate Crisis Management Team (“CCMT”) for risk mitigation and recovery action s. +Cybersecurity Incidents +F&G did not experience a cybersecurity reporting incident during the year ended December 31, 2024. On June 30, 2023, F&G filed a Current Report on Form 8-K regarding a cybersecurity incident associated with the MOVEit file transfer system. As a result of this incident, F&G is a defendant in two putative class action lawsuits that allege certain of F&G’s customers’ personal information was disclosed due to a vulnerability in the MOVEit file transfer software. F&G’s vendor, Pension Benefit Information, LLC (“PBI”), used the MOVEit software in the course of providing audit and address research services to F&G and many other corporate customers. At this time, F&G does not believe the incident will have a material impact on its business, operations, or financial results. For more details on these lawsuits, refer to Note N - Commitment and Contingencies to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K. +Item 2. Properties +Our headquarters are in leased facilities at 801 Grand Avenue, in Des Moines, Iowa. We also have leased space for our primary operations in Hamilton, Bermuda; George Town, Cayman Islands; and New York, New York. We believe our existing facilities are suitable and adequate for our present purposes and operations. +Item 3. Legal Proceedings +See discussion of legal proceedings in Note N - Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K, which is incorporated by reference into this Item 3 of Part I. +Item 4. Mine Safety Disclosures +Not applicable. +76 +Part II +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market Information +On December 1, 2022, FNF announced completion of the distribution to FNF shareholders, on a pro rata basis, of approximately 15% of the common stock of its subsidiary, F&G. Effective December 1, 2022, F&G commenced “regular-way” trading of its common stock on the New York Stock Exchange (“NYSE”) under the symbol “FG”. FNF retains control of F&G through an approximate 85% equity ownership stake and continues to trade on the NYSE under the symbol “FNF”. +On January 31, 2025, the last reported sale price of our common stock on the NYSE was $45.91. We had approximately 6,570 shareholders of record of our Common Stock on January 31, 2025. This number does not include the stockholders for whom shares are held in a “nominee” or “street” name. +Refer to Note R - Employee Benefit Plans to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated by reference into this Item 5 of Part II, for further information on securities issued for employee stock compensation pursuant to our Omnibus Plan. +Information concerning securities authorized for issuance under our equity compensation plans will be included in the definitive proxy statement for our Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the close of the fiscal year pursuant to Regulation 14A. +Performance Graph +The graph and the table below compare the cumulative total shareholder return on our common stock against the cumulative total return on the S&P 500 Index and S&P 500 Life and Health Insurance Index. The graph assumes a $100 initial investment on December 1, 2022 (the date that our common stock commenced regular way trading on the New York Stock Exchange) with dividends reinvested over the periods indicated. The stock performance in this graph is not necessarily indicative of future stock performance. +*$100 invested on December 1, 2022 in stock or on November 30, 2022, in index, including reinvestment of dividends. Fiscal year ending December 31. +77 +12/01/22 12/31/22 03/31/23 06/30/23 09/30/23 12/31/23 03/31/24 06/30/24 09/30/24 12/31/24 +F&G Annuities and Life, Inc. $ 100.00 $ 104.60 $ 95.63 $ 132.00 $ 150.54 $ 247.92 $ 219.80 $ 207.43 $ 245.00 $ 228.18 +S&P 500 100.00 94.24 101.30 110.16 106.55 119.01 131.57 137.21 145.29 148.79 +S&P 500 Life & Health Insurance 100.00 94.94 81.17 84.91 91.45 99.35 108.78 106.05 123.46 119.52 +Dividends on Ordinary Shares +On February 20, 2025, our Board of Directors declared a quarterly cash dividend of $0.22 per share, payable on March 31, 2025, to F&G common shareholders of record as of March 17, 2025. During the years ended December 31, 2024, 2023 , and 2022, we declared dividends on our common stock of $0.85, $0.81, and $0.20, respectively (inaugural dividend declared December 2022). On February 20, 2025, our Board of Directors also declared a quarterly cash dividend of $0.8594 per share on the F&G 6.875% Series A Mandatory Convertible Preferred Stock, par value $.0.001 per share, liquidation preference of $50.00 per share (the “FNF Preferred Stock”) for the period from January 1, 2025 to and excluding April 15, 2025, to be paid on April 15, 2025, to FNF Preferred Stock record holders as of April 1, 2025. Preferred Stock dividends of approximately $17 million were declared during the year ended December 31, 2024 . +We intend to announce the record date and payment date for each dividend, subject to quarterly review and approval by our Board of Directors and any required regulatory approvals, following completion of the relevant fiscal quarter and with payment in the third month of each subsequent quarter, based on our view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance. Generally, no dividends will be declared or paid on F&G common stock and no common stock can be acquired by F&G unless all preferred dividends are declared and paid on the outstanding FNF Preferred Stock. +Purchases of Equity Securities by the Issuer +In 2023, F&G’s Board of Directors approved a three-year stock repurchase program, under which the Company may repurchase up to $50 million of F&G common stock. There were no shares of F&G common stock repurchased under the program during the year ended December 31, 2024. The total remaining authorization of F&G common stock that may yet be purchased under the program at December 31, 2024 totaled approximately $32 million. The Company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued. For further details of the repurchase program, refer to Note U - Equity to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. +There were no unregistered sales of equity securities sold during the period covered by this Annual Report on Form 10-K that were not previously included in a Current Report on Form 8-K. +Item 6. Reserved +78 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 should be read together with, and is qualified in its entirety by reference to, our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K which have been prepared in accordance with GAAP. The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Note Regarding Forward-Looking Statements.” +Our Results of Operations discussion and analysis presents a review for the years ended December 31, 2024, 2023 and 2022, and year-over-year comparisons between these years. For a discussion of our 2022 results of operations, including year-over-year comparison to the year ended December 31, 2021, refer to Part I, Item 7 of our Annual Report on Form 10-K, which was filed with the SEC on February 27, 2023. +Overview +The following describes the business of F&G Annuities & Life, Inc. and its subsidiaries. Except where otherwise noted in this Report, all references to “we,” “us,” “our,” the “Company,” or “F&G” are to F&G Annuities & Life, Inc. and its subsidiaries, taken together. +For a description of our business see the discussion under “ Business ” in Item 1 of Part I of this Annual Report on Form 10-K, and Note A - Business and Summary of Significant Accounting Policies in Part II - Item 8 of this Annual Report on Form 10-K, which are incorporated by reference into this Item 7 of Part II of this Annual Report on Form 10-K. +Business Trends and Conditions +The following factors represent some of the key trends and uncertainties that have influenced the development of the Company and its historical financial performance, and we believe these key trends and uncertainties will continue to influence the business and financial performance of the Company in the future. +Market Conditions +Market volatility has affected, and may continue to affect, our business and financial performance in varying ways. Volatility can pressure sales and reduce demand as consumers hesitate to make financial decisions. To enhance the attractiveness and profitability of our products and services, we continually monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which vary in response to changes in market conditions. See “ Part I. Item 1A. Risk Factors” in this Annual Report on Form 10-K for further discussion of risk factors that could affect market conditions. +Interest Rate Environment +Some of our products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of December 31, 2024 and December 31, 2023, our reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $6 billion and 5%, respectively, and $6 billion and 4%, respectively. We are required to pay the guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates +79 +rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows. +See “ Quantitative and Qualitative Disclosure about Market Risk ” and “ Part I. Item 1A. Risk Factors ” in this Annual Report on Form 10-K for a more detailed discussion of interest rate risk. +Aging of the U.S. Population +We believe that the aging of the U.S. population will increase the demand for our indexed annuity and indexed universal life (“IUL”) products. As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth, and income products will grow. We serve a growing retirement population, with more than 10,000 Americans turning 65 every day and a projected 23% increase in people age 65 and older over the next 25 years. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income. +Industry Factors and Trends Affecting Our Results of Operations +We operate in the sector of the insurance industry that focuses on the needs of middle-income Americans. The underserved middle-income market represents a major growth opportunity for us. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the financial certainty that we believe annuities such as our FIA products afford. For example, the fixed index annuity market grew from nearly $12 billion of sales in 2002 to $97 billion of sales in 2023 and the registered index-linked annuities (“RILA”) market grew from $11 billion of sales in 2018 to $44 billion of sales in 2023. Additionally, this market demand has positively impacted the IUL market as it has expanded from $100 million of annual sales in 2002 to $3 billion of annual sales in 2023. +Critical Accounting Policies and Estimates +The accounting estimates described below are those we consider critical in preparing our Consolidated Financial Statements. Management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. See Note A - Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements. +Reserves for Future Policy Benefits and Certain Information on Contractholder Funds +The determination of FPB reserves is dependent on actuarial assumptions. The principal assumptions used to establish liabilities for FPBs are established at issue of the contract and include discount rates, mortality and cash surrender or policy lapse for our traditional life insurance products. The assumptions used require considerable judgment. We review policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Discount rate assumptions are updated at each reporting period and also incorporate changes in risk free rates and option market values. Changes in, or deviations from, the assumptions previously used can significantly affect our reserve levels and related results of operations in a positive or negative direction. +Mortality refers to the incidence of death on covered lives, which triggers contractual death benefit provisions. On our deferred annuities and life insurance products, these provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. On our life-contingent immediate annuities (which includes life-contingent pension risk transfer (“PRT”) annuities), the death of a named annuitant or certificate holder may trigger the cessation or reduction of future life-contingent payments due, depending on the presence of a joint annuitant/certificate holder and any remaining guaranteed non-life contingent payment periods. We utilize a combination of internal and industry experience when setting our mortality assumptions. +80 +A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. A lapse rate is the percentage of account value canceled by us due to nonpayment of premiums required to maintain coverage on our life insurance products. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender behavior generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our reserve levels and related results of operations. +Discount rates refer to the interest rates used to discount future cash flows to the current period to determine a present value. For liability for FPB reserves the discount rate used is based on the yield curve for A-rated corporate bonds as of the valuation date. Changes in the discount rates from the at-issue or at-purchase discount rates flow through other comprehensive income (loss) (“OCI”). +Our aggregate reserves for contractholder funds, FPBs and MRBs on a direct and net basis as of December 31, 2024 and December 31, 2023, are summarized as follows (in millions): +As of December 31, 2024 +Direct Deposit Asset/ +Reinsurance Recoverable Net +Indexed annuities $ 31,002 $ (861) $ 30,141 +Fixed rate annuities 17,443 (11,009) 6,434 +Single premium immediate annuities ("SPIA") and other 1,673 (109) 1,564 +IUL and other life 4,203 (1,390) 2,813 +Funding agreements 5,315 — 5,315 +PRT 6,066 — 6,066 +Total $ 65,702 $ (13,369) $ 52,333 +As of December 31, 2023 +Direct Deposit Asset/ +Reinsurance Recoverable Net +Indexed annuities $ 27,809 $ (17) $ 27,792 +Fixed rate annuities 13,445 (7,521) 5,924 +SPIA and other 1,814 (115) 1,699 +IUL and other life 3,828 (1,307) 2,521 +Funding agreements 5,152 — 5,152 +PRT 4,203 — 4,203 +Total $ 56,251 $ (8,960) $ 47,291 +Indexed annuities and IUL products contain an embedded derivative; a feature that permits the holder to elect an interest rate return or an equity-index linked component, where interest credited to the contract is linked to the performance of various equity indices. The indexed annuities/IUL embedded derivatives are valued at fair value and included in the liability for Contractholder funds in our Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in our Consolidated Statements of Operations. +For life-contingent immediate annuity policies, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPBs. +81 +Valuation of Fixed Maturity, Preferred and Equity Securities, and Derivatives +Our investments in fixed maturity securities have been designated as available-for-sale (“AFS”) and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”), net of deferred income taxes. Our equity securities are carried at fair value with unrealized gains and losses included in net income (loss). Realized gains and losses on the sale of investments are determined on the basis of first-in first-out cost basis and are credited or charged to income on a trade date basis. +Management’s assessment of all available data when determining fair value of the AFS securities is necessary to appropriately apply fair value accounting. Management utilizes information from independent pricing services, who take into account perceived market movements and sector news, as well as a security’s terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. We generally obtain one value from our primary external pricing service. In situations where a price is not available from the independent pricing service, we may obtain broker quotes or prices from additional parties recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing, or other similar techniques. +We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparisons to valuations from other independent pricing services, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. See Note B - Fair Value of Financial Instruments and Note C - Investments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +The fair value of derivative assets and liabilities is based upon valuation pricing models or independent broker quotes and represents what we would expect to receive or pay at the balance sheet date if we canceled or exercised the derivative or entered into offsetting positions. Fair values for instruments utilizing valuation pricing models are determined internally using a conventional model and market observable inputs, including interest rates, yield curve volatilities and other factors. Credit risk related to the counterparty is considered when estimating the fair values of these derivatives. However, we are largely protected by collateral arrangements with counterparties when individual counterparty exposures exceed certain thresholds. The fair value of futures contracts (specifically for indexed annuities contracts) at the balance sheet date represents the cumulative unsettled variation margin (open trade equity net of cash settlements). The fair value of an interest rate swap represents the change in projected interest rates between the reporting date and the date the interest rate swap was executed. The fair values of the embedded derivatives in our indexed annuities and IUL contracts are derived using market value of options, use of current and budgeted option cost, swap rates, mortality rates, surrender rates, partial withdrawals, and non-performance spread. The discount rate used to determine the fair value of our indexed annuities/IUL embedded derivative liabilities includes an adjustment to reflect the risk that these obligations will not be fulfilled (“non-performance risk”). For the years ended December 31, 2024 and December 31, 2023, our non-performance risk adjustment was based on the expected loss due to default in debt obligations for similarly rated financial companies. See Note B - Fair Value of Financial Instruments and Note D - Derivative Financial Instruments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +F&G cedes certain business on a coinsurance funds withheld basis. Investment results for the assets that support the coinsurance that are segregated within the funds withheld account are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance arrangement, which creates embedded derivatives considered to be total return swaps. These total return swaps are not clearly and closely related to the underlying insurance contract and thus require bifurcation. The fair value of the total return swaps is based on the change in fair value of the underlying assets held in the funds withheld account. For arrangements reinsuring indexed annuities products, the funds withheld account additionally contains an embedded derivative representing the index credit obligation due the reinsurer, resulting in a compound embedded derivative. These compound embedded derivatives are +82 +reported in Funds withheld for reinsurance liabilities and for all other arrangements, embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the Consolidated Balance Sheets. The related gains or losses are reported in Recognized gains and (losses), net on the Consolidated Statements of Operations. See Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +We categorize our fixed maturity securities, preferred securities, equity securities and derivatives into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. The following table presents the fair value of fixed maturity securities and equity securities by pricing source, hierarchy level and net asset value (“NAV”) as of December 31, 2024 and December 31, 2023, dollars in millions. +As of December 31, 2024 +Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total +Fixed maturity securities available-for-sale and equity securities: +Prices via third party pricing services $ 441 $ 35,136 $ 852 $ — $ 36,429 +Priced via independent broker quotations — — 10,246 — 10,246 +Priced via other methods — — — 57 57 +Total $ 441 $ 35,136 $ 11,098 $ 57 $ 46,732 +% of Total 1 % 75 % 24 % — % 100 % +As of December 31, 2023 +Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total +Fixed maturity securities available-for-sale and equity securities: +Prices via third party pricing services $ 586 $ 31,195 $ 895 $ — $ 32,676 +Priced via independent broker quotations — — 8,290 — 8,290 +Priced via other methods — — — 59 59 +Total $ 586 $ 31,195 $ 9,185 $ 59 $ 41,025 +% of Total 2 % 76 % 22 % — % 100 % +Market Risk Benefits +MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on FIA contracts that provide minimum guarantees to policyholders, such as Guaranteed Minimum Death Benefit (“GMDBs”) and Guaranteed Minimum Withdrawal Benefits (“GMWBs”) and Guaranteed Minimum Accumulation Benefits (“GMAB”) riders. In certain reinsurance transactions, the underlying risks ceded to a reinsurer contain MRBs. MRBs, inclusive of reinsured MRBs, are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. +The principal policyholder behavior assumptions used to calculate MRBs are established at issue of the contract and include mortality, contract full and partial surrenders, and utilization of the GMWB rider benefits. The assumptions used reflect a combination of internal experience, industry experience, and judgment. We review overall policyholder behavior experience at least annually and update these assumptions when deemed necessary +83 +based on additional information that becomes available. Changes in, or deviations from, the assumptions previously used can significantly affect our MRBs and related results of operations in a positive or negative direction. +See Note G - Market Risk Benefits to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further information on the changes in MRB. +Mortality refers to the incidence of death amongst policyholders on covered lives, which triggers contractual death benefit provisions. These provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. We utilize a combination of actual internal and industry experience when setting our mortality assumptions. +A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our MRBs and related results of operations. +We have been issuing GMWB products since 2008. We make assumptions for policyholder behavior as it relates to GMWB utilization using a higher degree of industry experience and judgment than our other behavioral assumptions because internal experience, which we review annually, is still emerging. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on MRBs and related results of operations. +Goodwill +As of December 31, 2024 and December 31, 2023, goodwill was $2,179 million and $1,749 million. The goodwill was recorded in connection with the recent owned distribution acquisitions and the FNF Acquisition. +In evaluating the recoverability of goodwill, we perform a qualitative analysis at the reporting unit level to determine whether there are any events or circumstances that would indicate it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value. Based on the results of this analysis, an annual goodwill impairment test may be completed based on an analysis of the discounted future cash flows generated by the underlying assets. The process of determining whether or not goodwill is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Future cash flow estimates are based partly on projections of market conditions such as the volume and mix of refinance and purchase transactions and interest rates, which are beyond our control and are likely to fluctuate. While we believe that our estimates of future cash flows are reasonable, these estimates are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ from what is assumed in our impairment tests. Such analyses are particularly sensitive to changes in estimates of future cash flows and discount rates. Changes to these estimates might result in material changes in fair value and determination of the recoverability of goodwill, which may result in charges against earnings and a reduction in the carrying value of our goodwill in the future. We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2024 and December 31, 2023, we determined there were no events or circumstances that indicated that the carrying value exceeded the fair value. +Accounting for Income Taxes +As part of the process of preparing the Consolidated Financial Statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. We must then assess the likelihood that deferred income tax assets will be realized and, to the extent we believe that realizability is not likely, establish a valuation allowance. Determination of income +84 +tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from period to period. We believe that our tax positions comply with applicable tax law and that we adequately provide for any known tax contingencies. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period that determination is made. +For the year ended December 31, 2024, changes in market conditions, including changing interest rates, resulted in deferred tax assets related to the net unrealized capital losses in the Company’s investment portfolio. GAAP requires the evaluation of the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized. When assessing the need for valuation allowance on the unrealized capital loss deferred tax assets, we assert a tax planning strategy to hold the vast majority of underlying securities to recovery or maturity. Our ability to assert such a tax planning strategy is dependent upon factors such as the Company’s asset/liability matching process, overall investment strategy, projected future annuity product sales, and expected liquidity needs. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the income tax expense recorded in the Consolidated Financial Statements. This includes a further significant decline in value of assets incorporated into our tax planning strategies which could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results. +Refer to Note H - Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for details. +Business Overview +We are in three distinct retail channels and two institutional markets. Our three retail channels include agent-based Independent Marketing Organizations (“IMOs”), banks and broker-dealers. We have deep, long-tenured relationships with our network of leading IMOs and their agents to serve the needs of the middle-income market and develop competitive annuity and life products to align with their evolving needs. Upon FNF’s acquisition of F&G on June 1, 2020 (the “FNF Acquisition”), and F&G’s subsequent rating upgrades in mid-2020, we launched into banks and broker-dealers. Further, in 2021, we launched into two institutional markets to originate Funding Agreement Backed Notes (“FABN”) and pension risk transfer (“PRT”) transactions. The FABN Program offers funding agreements to institutional clients by means of capital markets transactions through investment banks. The funding agreements issued under the FABN Program are in addition to those issued to the Federal Home Loan Bank of Atlanta (“FHLB”). The PRT solutions business is supported by an experienced team, and we partner with brokers and institutional consultants for distribution. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone ISG-I Advisors LLC (“Blackstone”). +Additionally, we have expanded our owned distribution strategy with majority and minority ownership stakes in a number of IMOs, providing a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. For our minority owned interests, our Consolidated Statements of Operations reflects dividend income in Interest and investment income. For our majority owned interests, unaffiliated commission revenue is recorded in Owned distribution revenue and unaffiliated expenses are recorded in Personnel costs and Other operating expenses in our Consolidated Statements of Operations. +In setting the features and pricing of our flagship indexed annuity products relative to our targeted net margin, we take into account our expectations regarding (1) the difference between the net investment income we earn and the sum of the interest credited to policyholders and the cost of hedging our risk on the policies; (2) fees, including surrender charges and rider fees, partly offset by vesting bonuses that we pay our policyholders; and (3) a number of +85 +related expenses, including benefits and changes in reserves, acquisition costs, and general and administrative expenses. +On March 16, 2022, FNF announced its intention to partially spin off F&G through a dividend to FNF shareholders. On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G. FNF retained control of F&G through ownership of approximately 85% of F&G common stock. Effective December 1, 2022, F&G commenced “regular-way” trading of its common stock on the New York Stock Exchange (“NYSE”) under the symbol “FG”. +Key Components of Our Historical Results of Operations +Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), IUL insurance, immediate annuities, funding agreements and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. IUL insurance is a complementary type of contract that accumulates value in a cash value account and provides a payment to designated beneficiaries upon the policyholder’s death. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically makes payments of principal and interest earnings over a period of time. As defined by the IID, a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers issue fixed maturity contracts with fixed or floating interest rates in exchange for a single upfront premium. Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. +Under GAAP, premium collections for deferred annuities (indexed annuities and fixed rate annuities), immediate annuities and PRT without life contingency, and deposits received for funding agreements are reported in the financial statements as deposit liabilities (i.e., contractholder funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges, cost of insurance and other charges deducted from contractholder funds (i.e., amortization of URL), and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the hedging cost of providing index credits to the policyholder), amortization of VOBA, DAC and DSI, and other operating costs and expenses. +F&G hedges certain portions of its exposure to product related equity market risk by entering into derivative transactions. We purchase derivatives consisting predominantly of equity options and, to a lesser degree, futures contracts (specifically for indexed annuity contracts) on the equity indices underlying the applicable policy. These derivatives are used to offset the reserve impact of the index credits due to policyholders under the indexed annuity and IUL contracts. The majority of all such equity options are one-year options purchased to match the funding requirements underlying the indexed annuity/IUL contracts. We attempt to manage the cost of these purchases through the terms of our indexed annuity/IUL contracts, which permit us to change caps, spread, or participation rates on each policy's annual anniversary, subject to certain guaranteed minimums that must be maintained. The equity options and futures contracts are marked to fair value with the change in fair value included as a component of net investment gains (losses). The change in fair value of the equity options and futures contracts includes the gains and losses recognized at the expiration of the instruments’ terms or upon early termination and the changes in fair value of open positions. In addition, to reduce market risks from interest rate changes on our earnings associated with our floating rate investments, during 2023, we began to execute pay-float and receive-fixed interest rate swaps. +Market risk benefits (“MRBs”) are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs (inclusive of reinsured MRBs) are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and +86 +industry experience, and other factors. The change in fair value of MRBs generally reflects impacts from actual policyholder behavior (including surrenders of the benefit), changes in interest rates, and changes in equity market returns. Generally higher interest rates and equity returns result in gains whereas lower interest rates and equity returns result in losses. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. +Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed annuity/IUL policies, which includes the expenses incurred to fund the index credit with respect to indexed annuities/IULs. Proceeds received upon expiration or early termination of equity options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives and are largely offset by an expense for index credits earned on annuity contractholder fund balances. +Our profitability depends in large part upon the amount of: +i. AUM (see “—Non-GAAP Financial Measures”), +ii. the excess of net investment income over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, earned on our average assets under management (“AAUM” — see “—Non-GAAP Financial Measures”), +iii. flow reinsurance fee income from allocating capital to the highest returning retained business while enhancing cash flow and generating fee-based earnings, +iv. owned distribution margin generated from a meaningfully higher risk adjusted return on capital than retained business and providing a diversifying source of earnings while further strengthening our relationships with key partners, and +v. through our disciplined expense management and the costs of acquiring new business (principally commissions to agents and bonuses credited to policyholders). +As we grow AUM, earnings generally increase. AUM increases when cash inflows, which include sales, exceed cash outflows. Managing the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, involves the ability to maximize returns on our AUM and minimize risks such as interest rate changes and defaults or impairment of investments. It also includes our ability to manage interest rates credited to policyholders and costs of the options and futures purchased to fund the annual index credits on the indexed annuities/IULs. We analyze returns on AAUM to measure our profitability. +F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is reinsured. F&G primarily seeks reinsurance coverage in order to manage loss exposures, to enhance our capital position, to diversify risks and earnings, and to manage new business volume. F&G follows reinsurance accounting when the treaty adequately transfers insurance risk and any acquisition cost reimbursements reduce policy acquisition costs deferred and maintenance expense reimbursements reduce direct expenses incurred. Otherwise, F&G follows deposit accounting if there is inadequate transfer of insurance risk or if the underlying policy for which risk is being transferred is an investment contract that does not contain insurance risk. See Note E - Reinsurance to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information. +Non-GAAP Financial Measures +In addition to reporting financial results in accordance with GAAP, this document includes non-GAAP financial measures, which the Company believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. Management believes these non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior +87 +operating periods. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do. The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. By disclosing these non-GAAP financial measures, the Company believes it offers investors a greater understanding of, and an enhanced level of transparency into, the means by which the Company’s management operates the Company. Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings, net earnings attributable to common shareholders, or any other measures derived in accordance with GAAP as measures of operating performance or liquidity. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are provided within. +Adjusted Net Earnings Attributable to Common Shareholders +Adjusted net earnings attributable to common shareholders is a non-GAAP economic measure we use to evaluate financial performance each period. Adjusted net earnings attributable to common shareholders is calculated by adjusting net earnings (loss) attributable to common shareholders to eliminate: +(i) Recognized (gains) and losses, net: the impact of net investment gains/losses, including changes in allowance for expected credit losses and other than temporary impairment (“OTTI”) losses, recognized in operations; and the effects of changes in fair value of the reinsurance related embedded derivative and other derivatives, including interest rate swaps and forwards; +(ii) Market related liability adjustments: the impacts related to changes in the fair value, including both realized and unrealized gains and losses, of index product related derivatives and embedded derivatives, net of hedging cost; the impact of initial pension risk transfer deferred profit liability losses, including amortization from previously deferred pension risk transfer deferred profit liability losses; and the changes in the fair value of market risk benefits by deferring current period changes and amortizing that amount over the life of the market risk benefit; +(iii) Purchase price amortization: the impacts related to the amortization of certain intangibles (internally developed software, trademarks and value of distribution asset and the change in fair value of liabilities recognized as a result of acquisition activities); +(iv) Transaction costs: the impacts related to acquisition, integration and merger related items; +(v) Other and “non-recurring,” “infrequent” or “unusual items”: Other adjustments include removing any charges associated with U.S. guaranty fund assessments as these charges neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance, but result from external situations not controlled by the Company. Further, Management excludes certain items determined to be “non-recurring,” “infrequent” or “unusual” from adjusted net earnings when incurred if it is determined these expenses are not a reflection of the core business and when the nature of the item is such that it is not reasonably likely to recur within two years and/or there was not a similar item in the preceding two years; +(vi) Non-controlling interest on non-GAAP adjustments: the portion of the non-GAAP adjustments attributable to the equity interest of entities that F&G does not wholly own; and +(vii) Income taxes: the income tax impact related to the above-mentioned adjustments is measured using an effective tax rate, as appropriate by tax jurisdiction. +While these adjustments are an integral part of the overall performance of F&G, market conditions and/or the non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations. Adjusted net earnings should not be used as a substitute for net earnings (loss). However, we believe the adjustments made to net earnings (loss) in order to derive adjusted net earnings provide an understanding of our overall results of operations. +For example, we could have strong operating results in a given period, yet report net income that is materially less, if during such period the fair value of our derivative assets hedging the indexed annuity and IUL index credit obligations decreased due to general equity market conditions but the embedded derivative liability related to the +88 +index credit obligation did not decrease in the same proportion as the derivative assets because of non-equity market factors such as interest rate and non-performance credit spread movements. Similarly, we could also have poor operating results in a given period yet show net earnings (loss) that is materially greater, if during such period the fair value of the derivative assets increased but the embedded derivative liability did not increase in the same proportion as the derivative assets. We hedge our index credits with a combination of static and dynamic strategies, which can result in earnings volatility, the effects of which are generally likely to reverse over time. Our management and board of directors review adjusted net earnings and net earnings (loss) as part of their examination of our overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on our net earnings (loss). Accordingly, our management performs a review and analysis of these items, as part of their review of our hedging results each period. +Amounts attributable to the fair value accounting for derivatives hedging the indexed annuities and IUL index credits and the related embedded derivative liability fluctuate from period to period based upon changes in the derivative’s underlying index, changes in the interest rates and non-performance credit spreads used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on risk-free interest rates adjusted for our non-performance as of the reporting date. The impact of the change in fair values of these derivatives and hedging costs has been removed from net earnings (loss) in calculating adjusted net earnings. +Adjusted Return on Assets attributable to Common Shareholders +Adjusted return on assets attributable to common shareholders is calculated by dividing year-to-date annualized adjusted net earnings attributable to common shareholders by year-to-date AAUM. Return on assets is comprised of net investment income, less cost of funds, flow reinsurance fee income, owned distribution margin and less expenses (including operating expenses, interest expense and income taxes) consistent with our adjusted net earnings definition and related adjustments. Cost of funds includes liability costs related to cost of crediting as well as other liability costs. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing financial performance and profitability earned on AAUM. +Assets Under Management (“AUM”) +AUM is comprised of the following components and is reported net of reinsurance assets ceded in accordance with GAAP: +(i) total invested assets at amortized cost, excluding investments in unconsolidated affiliates, owned distribution and derivatives; +(ii) investments in unconsolidated affiliates at carrying value; +(iii) related party loans and investments; +(iv) accrued investment income; +(v) the net payable/receivable for the purchase/sale of investments; and +(vi) cash and cash equivalents excluding derivative collateral at the end of the period. +Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the size of our investment portfolio that is retained. +Average Assets Under Management (“AAUM”) +AAUM is calculated as AUM at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. +Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the rate of return on retained assets. +89 +Sales +Annuity, IUL, funding agreement and non-life contingent PRT sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. Sales from these products are recorded as deposit liabilities (i.e., contractholder funds) within the Company's consolidated financial statements in accordance with GAAP. Life contingent PRT sales are recorded as premiums in revenues within the consolidated financial statements. Management believes that presentation of sales, as measured for management purposes, enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition. +Total F&G Equity attributable to common shareholders, excluding AOCI +Total F&G equity attributable to common shareholder, excluding AOCI is based on total F&G Annuities & Life, Inc. shareholders' equity excluding the effect of AOCI and preferred stocks, including additional paid-in-capital. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, changes in instrument-specific credit risk for market risk benefits and discount rate assumption changes for the future policy benefits, management considers this non-GAAP financial measure to be useful internally and for investors and analysts to assess the level of return driven by the Company that is available to common shareholders. +Yield on AAUM +Yield on AAUM is calculated by dividing annualized net investment income by AAUM. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of return earned on AAUM. +90 +Results of Operations +The results of operations for the years ended December 31, 2024, 2023 and 2022 were as follows (in millions): +Year ended December 31, +2024 2023 2022 +Revenues +Life insurance premiums and other fees $ 2,860 $ 2,413 $ 1,704 +Interest and investment income 2,719 2,211 1,655 +Owned distribution revenues 81 — — +Recognized gains and (losses), net 84 (124) (1,010) +Total revenues 5,744 4,500 2,349 +Benefits and expenses +Benefits and other changes in policy reserves 3,791 3,553 1,126 +Market risk benefit (gains) losses (25) 95 (182) +Depreciation and amortization 569 412 324 +Personnel costs 296 232 157 +Other operating expenses 203 146 102 +Interest expense 132 97 29 +Total benefits and expenses 4,966 4,535 1,556 +Earnings (loss) before income taxes 778 (35) 793 +Income tax expense 136 23 158 +Net earnings (loss) 642 (58) 635 +Less: Non-controlling interests 3 — — +Net earnings (loss) attributable to F&G 639 (58) 635 +Less: Preferred stock dividend 17 — — +Net earnings (loss) attributable to F&G common shareholders $ 622 $ (58) $ 635 +The following table summarizes sales by product type (in millions) (see “ Non-GAAP Financial Measures” ): +Year ended December 31, +2024 2023 2022 +Indexed annuities ("FIA/RILA") $ 6,729 $ 4,699 $ 4,550 +Fixed rate annuities ("MYGA") 5,105 5,066 3,744 +Total annuity 11,834 9,765 8,294 +IUL 166 156 127 +Funding agreements ("FABN/FHLB") 1,020 1,256 1,443 +PRT 2,242 1,976 1,390 +Gross sales 15,262 13,153 11,254 +Sales attributable to flow reinsurance to third parties (4,691) (3,915) (2,248) +Net sales $ 10,571 $ 9,238 $ 9,006 +• Total annuity sales were higher during the years ended December 31, 2024 and 2023, reflecting F&G's productive and expanding retail distribution through independent agents, banks and broker-dealers, enhanced product features and pricing actions taken to align to the macro environment. +• Funding agreements, reflecting new FABN and FHLB agreements, were lower for the years ended December 31, 2024 and 2023, and are subject to fluctuation period to period based on economic conditions and the timing of entering the new agreements. +• PRT sales increased during the years ended December 31, 2024 and 2023, reflecting the timing of PRT transactions that are also subject to fluctuation period to period. During the year ended December 31, 2024, we closed 12 pension risk transfer transactions. Since entering the pension risk transfer market in 2021 +91 +through December 31, 2024, we have closed 32 transactions involving approximately 115,000 plan participants and resulting in over $7 billion cumulative plan transaction value from inception. +• Sales attributable to flow reinsurance to third parties were higher during the years ended December 31, 2024 and 2023, primarily reflecting the addition of new reinsurance, the higher level of MYGA sales, and changes in the percentages ceded during the periods. +Revenues +Life Insurance Premiums and Other Fees +Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on indexed annuity policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts (up to 10% of the prior year's value, subject to certain limitations). The following table summarizes the Life insurance premiums and other fees, on the Consolidated Statements of Operations for the respective periods (in millions): +Year ended December 31, +2024 2023 2022 +Life-contingent pension risk transfer premiums $ 2,217 $ 1,964 $ 1,362 +Traditional life insurance and life-contingent immediate annuity premiums 35 43 33 +Surrender charges 268 103 58 +Policyholder fees and other income 340 303 251 +Life insurance premiums and other fees $ 2,860 $ 2,413 $ 1,704 +• Life-contingent pension risk transfer premiums increased for the years ended December 31, 2024 and 2023, reflecting the timing of PRT transactions. As noted above, PRT premiums are subject to fluctuation period to period. +• Surrender charges increased for the years ended December 31, 2024 and 2023, primarily reflecting increases in withdrawals from policyholders with surrender charges and market value adjustments (“MVAs”), primarily on our indexed annuities policies. The increase in termination activity is primarily due to the higher interest rate environment. See “ Item 1. Business – The Products We Offer – Withdrawal Option for Deferred Annuities,” in this Annual Report on Form 10-K for additional discussion on surrender charges and MVAs. +• Policyholder fees and other income increased for the years ended December 31, 2024 and 2023, primarily due to increased cost of insurance charges, net of changes in unearned revenue liabilities (“URL”) on IUL policies from growth in business and higher guaranteed minimum withdrawal benefit (“GMWB”) rider fees. GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year. +92 +Interest and Investment Income +Below is a summary of interest and investment income (in millions): +Year ended December 31, +2024 2023 2022 +Fixed maturity securities, available-for-sale $ 2,181 $ 1,843 $ 1,431 +Equity securities 21 20 17 +Preferred securities 23 41 49 +Mortgage loans 273 229 186 +Invested cash and short-term investments 161 76 33 +Limited partnerships 323 229 110 +Other investments 32 27 20 +Gross investment income 3,014 2,465 1,846 +Investment expense (295) (254) (191) +Interest and investment income $ 2,719 $ 2,211 $ 1,655 +Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $636 million, $339 million and $109 million, for the years ended December 31, 2024, 2023 and 2022, respectively. +Our AAUM and yield on AAUM are summarized as follows (annualized) (dollars in millions) (see “ Non-GAAP Financial Measures” ): +Year ended December 31, +2024 2023 2022 +AAUM $ 51,574 $ 46,044 $ 40,069 +Yield on AAUM (at amortized cost) 5.27 % 4.80 % 4.13 % +• AAUM was higher for the years ended December 31, 2024 and 2023, reflecting net new business asset flows, stable inforce retention and net debt proceeds. +• Interest and investment income was higher for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to $266 million from invested asset growth, $49 million from returns on alternative investments and $193 million of all other rate and mix impacts. +• Interest and investment income was higher for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to $258 million from invested asset growth, $192 million from returns on alternative investments and $106 million of all other rate and mix impacts. +Owned Distribution Revenues +Below is a summary of owned distribution revenues (in millions): +Year ended December 31, +2024 2023 2022 +Owned distribution revenues $ 81 $ — $ — +Owned distribution revenues $ 81 $ — $ — +• Owned distribution revenues represent commissions received by our majority owned distribution partners generated from third-party annuity and life insurance sales. Override and bonus commissions are recognized as revenue at the effective date of each policy sold under a contract. Owned distribution revenues for the year ended December 31, 2024 represent revenues associated with the 2024 acquisitions of Roar and PALH, and primarily reflect commission revenues. +93 +Recognized Gains and (Losses), Net +Below is a summary of the major components included in recognized gains and losses, net (in millions): +Year ended December 31, +2024 2023 2022 +Net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets $ 76 $ (111) $ (461) +Change in allowance for expected credit losses (34) (37) (34) +Net realized and unrealized gains (losses) on certain derivatives instruments 70 147 (857) +Change in fair value of reinsurance related embedded derivatives (32) (128) 352 +Change in fair value of other derivatives and embedded derivatives 4 5 (10) +Recognized gains and (losses), net $ 84 $ (124) $ (1,010) +Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $(30) million, $(123) million and $381 million for the years ended December 31, 2024, 2023 and 2022, respectively. +• For the year ended December 31, 2024, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of unrealized fair value option gains on owned distribution investments and mark-to-market gains on our preferred and equity securities. +• For the year ended December 31, 2023, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity available-for-sale securities, partially offset by mark-to-market gains on our equity securities and realized gains on other invested assets. +• For the year ended December 31, 2022, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity available-for-sale securities and mark-to-market losses on our equity securities. +• For all periods, net realized and unrealized gains (losses) on certain derivative instruments primarily relate to the net realized and unrealized gains (losses) on equity options and futures used to hedge indexed annuity and IUL products, including gains on option and futures expiration and changes in the fair value of interest rate swaps. See the table below for primary drivers of gains (losses) on certain derivatives. +• The fair value of reinsurance related embedded derivative is based on the change in fair value of the underlying assets held in the funds withheld (“FWH”) portfolio. +We utilize a combination of static (equity options) and dynamic (long futures contracts) instruments in our product hedging strategy. Equity options and futures contracts are generally based upon the performance of various equity indices, such as the S&P 500 Index, as well as other bond and gold market indices. +We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. +94 +The components of the realized and unrealized gains (losses) on certain derivative instruments hedging our indexed annuities, universal life products and floating rate investments are summarized in the table below (in millions): +Year ended December 31, +2024 2023 2022 +Equity options: +Realized gains (losses) $ 220 $ (216) $ (170) +Change in unrealized (losses) gains (75) 308 (692) +Futures contracts: +Gains (losses) on futures contracts expiration 24 7 (6) +Change in unrealized (losses) gains (6) 2 (1) +Interest rate swap (losses) gains (103) 48 — +Other derivative investments +Gains (losses) on other derivative investments 10 (2) 12 +Total net change in fair value $ 70 $ 147 $ (857) +Annual Point-to-Point Change in S&P 500 Index during the periods 23 % 24 % (19) % +Secured Overnight Financing Rates 4.49 % 5.38 % 4.30 % +• Realized gains and (losses) on certain derivative instruments are directly correlated to the performance of the indices upon which the equity options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. +• The changes in unrealized gains (losses) due to the net changes in fair value of equity options and futures contracts are driven by the underlying performance of the indices, such as the S&P 500 Index, upon which the equity options and futures contracts are based during each respective period relative to the respective indices on the policyholder buy dates. +• The net change in fair value of the interest rate swaps was primarily driven by fluctuations in the interest rate index underlying the swap contracts. +The average index credits to policyholders are as follows: +Year ended December 31, +2024 2023 2022 +Average Crediting Rate 4 % 1 % 1 % +S&P 500 Index: +Point-to-point strategy 4 % 2 % 1 % +Monthly average strategy 3 % 1 % 2 % +Monthly point-to-point strategy 5 % — % — % +3 year high water mark 3 % 8 % 13 % +• Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the indexed annuity contracts and certain IUL contracts (caps, spreads and participation rates), which allow us to manage the cost of the options purchased to fund the annual index credits. +• The credits for the periods presented were based on comparing the S&P 500 Index on each issue date in the period to the same issue date in the respective prior year periods. +95 +Benefits and Expenses +Benefits and Other Changes in Policy Reserves +Below is a summary of the major components included in Benefits and other changes in policy reserves (in millions): +Year ended December 31, +2024 2023 2022 +PRT agreements $ 2,310 $ 2,016 $ 1,399 +Indexed annuities/IUL market related liability movements (221) 588 (1,010) +Index credits, interest credited and bonuses 1,696 831 593 +Other changes in policy reserves 6 118 144 +Total benefits and other changes in policy reserves $ 3,791 $ 3,553 $ 1,126 +• PRT agreements increased for the years ended December 31, 2024 and 2023 reflecting the timing of PRT transactions. PRT transactions are subject to fluctuation period to period. +• The indexed annuities/IUL market related liability movements for all periods presented are mainly driven by changes in the equity markets, non-performance spreads, and risk-free rates during the respective periods. The change in risk free rates and non-performance spreads increased (decreased) the indexed annuities market related liability by approximately $(203) million, $106 million and $(656) million during the years ended December 31, 2024, 2023 and 2022, respectively. The remaining changes in market value of the market related liability movements for all periods were primarily driven by equity market impacts. See “ Revenues — Recognized gains and (losses), net” above for summary and discussion of net unrealized gains (losses) on certain derivative instruments. +• Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. +• During the third quarter of 2024 and for the year ended December 31, 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain FIA assumptions used to calculate the fair value of the embedded derivative component within contractholder funds. These changes resulted in decreases in total benefits and other changes in policy reserves of approximately $89 million for the year ended December 31, 2024. +• During the third quarter and for the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and also aligned reserves to actual policyholder behavior. These changes, taken together, resulted in an increase in total benefits and other changes in policy reserves of approximately $73 million. +• During the fourth quarter of 2022, based on increases in interest rates and pricing changes during 2022, we updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and the fair value of market risk benefits. These changes, taken together, resulted in an increase in contractholder funds and market risk benefits of approximately $99 million. +• Index credits, interest credited and bonuses were higher for the years ended December 31, 2024 and 2023, primarily reflecting higher index credits and interest credited on indexed annuities and other policies as a result of market movement during the respective periods and higher interest credited associated with the growth in PRT agreements. +96 +Market Risk Benefit (Gains) Losses +Below is a summary of market risk benefit (gains) losses (in millions): +Year ended December 31, +2024 2023 2022 +Market risk benefit (gains) losses $ (25) $ 95 $ (182) +• Market risk benefit (gains) losses is primarily driven by issuances, attributed fees collected, effects of market related movements (including changes in equity markets and risk-free rates), actual policyholder behavior as compared with expected, changes in assumptions during the periods. Market risk benefit (gains) losses are reported net of reinsurance, reflecting an amended reinsurance agreement effective during the year ended December 31, 2024. +• Changes in market risk benefit (gains) losses for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily reflect more favorable market related movements and favorable actual policyholder behavior as compared to expected. +• Changes in market risk benefit (gains) losses for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily reflect less favorable market related movements, a favorable GMWB utilization assumption change in 2022 (that did not recur in 2023) and higher attributed fees. These changes were partially offset by actual policyholder behavior for the year ended December 31, 2023 being more in line with expected, as compared to the year ended December 31, 2022, resulting in a favorable change to the market risk benefit (gains) losses. +Depreciation and Amortization +Below is a summary of the major components included in depreciation and amortization (in millions): +Year ended December 31, +2024 2023 2022 +Amortization of DAC, VOBA and DSI $ 495 $ 382 $ 300 +Amortization of other intangible assets and fixed asset depreciation 74 30 24 +Total depreciation and amortization $ 569 $ 412 $ 324 +• DAC, VOBA and DSI are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Amortization of DAC, VOBA and DSI increased for the years ended December 31, 2024 and 2023, primarily reflecting increased DAC and DSI associated with the growth of the business. In addition, as a result of our annual actuarial assumption update process, amortization rates on some DAC and DSI balances increased primarily for indexed annuities. Amortization of VOBA also increased approximately $15 million for the year ended December 31, 2024, reflecting other actuarial model updates and refinements. +• Amortization of other intangible assets and fixed asset depreciation for the year ended December 31, 2024 included amortization of other intangible assets from our majority owned interests in Roar and PALH. +Personnel Costs and Other Operating Expenses +Below is a summary of personnel costs and other operating expenses (in millions): +Year ended December 31, +2024 2023 2022 +Personnel costs $ 296 $ 232 $ 157 +Other operating expenses 203 146 102 +Total personnel costs and other operating expenses $ 499 $ 378 $ 259 +97 +• Personnel costs and other operating expenses increased for the years ended December 31, 2024 and 2023, reflecting costs in line with the growth in sales and assets along with continued investments in our operating platform. In addition, the year ended December 31, 2024 includes $39 million from our majority owned interests in Roar and PALH, $26 million related to the change in fair value of contingent consideration and $19 million of guaranty fund assessments. +Interest expense +Below is a summary of interest expense (in millions): +Year ended December 31, +2024 2023 2022 +Interest expense $ 132 $ 97 $ 29 +Total interest expense $ 132 $ 97 $ 29 +• Interest expense increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily reflecting interest on the debt issuances in December 2023, June 2024, and October 2024, partially offset by lower interest resulting from a partial repayment of the 5.5% F&G Notes in June 2024 and lower balances on the revolving credit facility. +Other Items Affecting Net Earnings +Income Tax Expense +Below is a summary of the major components included in income tax expense (benefit) (dollars in millions): +Year ended December 31, +2024 2023 2022 +Earnings (loss) before taxes $ 778 $ (35) $ 793 +Income tax (benefit) expense before valuation allowance 150 (12) 131 +Change in valuation allowance (14) 35 27 +Income tax expense $ 136 $ 23 $ 158 +Effective rate 17 % (66) % 20 % +• The income tax expense for the year ended December 31, 2024 was $136 million compared to income tax expense of $23 million for the year ended December 31, 2023. The effective tax rate was 17% and (66)%, respectively, for the years ended December 31, 2024 and December 31, 2023. The effective tax rate for the year ended December 31, 2024 differs from the statutory rate of 21% primarily due to favorable permanent adjustments and valuation allowance release on unrealized losses and capital loss carryforwards. The effective tax rate for the year ended December 31, 2023 differs from the statutory rate of 21% primarily due to a tax valuation allowance expense recorded on unrealized losses and capital loss carryforwards. The effective tax rate for the year ended December 31, 2022 differs from the statutory rate of 21% primarily due to favorable permanent tax adjustments. +• See Note H - Income Taxes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information. +98 +Adjusted Net Earnings (See “ — Non-GAAP Financial Measures”) +The table below shows the adjustments made to reconcile Net earnings (loss) attributable to common shareholders to Adjusted net earnings attributable to common shareholders (in millions): +Year ended December 31, +2024 2023 2022 +Net earnings (loss) attributable to common shareholders $ 622 $ (58) $ 635 +Non-GAAP adjustments: +Recognized (gains) and losses, net +Net realized and unrealized (gains) losses on fixed maturity available-for-sale securities, equity securities and other invested assets (76) 98 446 +Change in allowance for expected credit losses 32 48 24 +Change in fair value of reinsurance related embedded derivatives 33 128 (352) +Change in fair value of other derivatives and embedded derivatives 38 (60) (1) +Recognized (gains) losses, net 27 214 117 +Market related liability adjustments (214) 258 (534) +Purchase price amortization 84 22 21 +Transaction costs, other and non-recurring items 16 3 10 +Non-controlling interest (10) — — +Income taxes adjustment 21 (104) 104 +Adjusted net earnings attributable to common shareholders $ 546 $ 335 $ 353 +The commentary below is intended to provide additional information on the significant income and expense items that help explain the trends in our adjusted net earnings for each time period, as we believe these items provide further clarity to the financial performance of the business. +• Adjusted net earnings of $546 million for the year ended December 31, 2024 included $514 million of investment income from alternative investments and $46 million of CLO redemptions and bond prepay income, and $14 million tax valuation allowance, partially offset by $26 million of net expense from actuarial assumption and model updates and other items. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $659 million. +• Adjusted net earnings of $335 million for the year ended December 31, 2023 included $405 million of investment income from alternative investments and $5 million of bond prepay income, partially offset by $37 million tax valuation allowance, $10 million of one-time fixed asset impairment charge and $9 million actuarial industry assumption updates. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $558 million. +• Adjusted net earnings of $353 million for the year ended December 31, 2022 included $202 million of +investment income from alternative investments, $66 million gain from actuarial assumption updates, $20 +million net, tax benefits and $13 million net, CLO redemption gains and other income and expense items. +Alternative investments investment income based on management’s long-term expected return of +approximately 10% was $419 million. +• . +Investment Portfolio +The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, we invest in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and investment income; (iii) preserve capital; and (iv) provide liquidity to meet policyholder and other corporate obligations. +Our investment portfolio is designed to contribute stable earnings, excluding short-term mark-to-market effects, and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities. +99 +As of December 31, 2024 and December 31, 2023, the fair value of our investment portfolio was approximately $60 billion and $52 billion, respectively, and was divided among the following asset classes and sectors (dollars in millions): +December 31, 2024 December 31, 2023 +Fair Value Percent Fair Value Percent +Fixed maturity securities, available for sale: +United States Government full faith and credit $ 158 — % $ 261 1 % +United States Government sponsored entities 95 — 31 — +United States municipalities, states and territories 1,346 2 1,567 3 +Foreign Governments 186 — 226 — +Corporate securities: +Finance, insurance and real estate 8,611 14 6,895 13 +Manufacturing, construction and mining 1,139 2 947 2 +Utilities, energy and related sectors 2,971 5 2,374 5 +Wholesale/retail trade 3,210 5 2,433 5 +Services, media and other 4,547 8 3,930 8 +Hybrid securities 581 1 618 1 +Non-agency residential mortgage-backed securities 2,693 5 2,393 5 +Commercial mortgage-backed securities 5,131 9 4,410 9 +Asset-backed securities 10,270 17 8,929 17 +Collateral loan obligations +5,379 9 5,405 10 +Total fixed maturity available for sale securities 46,317 77 40,419 79 +Equity securities (a) 415 1 606 1 +Limited partnerships: +Private equity 1,830 3 1,277 2 +Real assets 437 1 463 1 +Credit 1,021 2 1,039 2 +Limited partnerships 3,288 6 2,779 5 +Commercial mortgage loans 2,404 4 2,253 4 +Residential mortgage loans 2,916 5 2,545 5 +Other (primarily derivatives, company owned life insurance and unconsolidated owned distribution investments) 1,753 3 1,697 3 +Short term investments 2,410 4 1,452 3 +Total investments $ 59,503 100 % $ 51,751 100 % +(a) Includes investment grade non-redeemable preferred stocks ($222 million and $428 million at December 31, 2024 and 2023, respectively). +Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in primarily high-grade fixed-income assets across a wide range of sectors, including Corporate securities, U.S. Government and government-sponsored agency securities, and Structured securities, among others. +The NAIC’s Securities Valuation Office (“SVO”) is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such securities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation or unit price. Typically, if a security has been rated by a nationally recognized statistical rating organization (“NRSRO”), the SVO utilizes that rating and assigns an NAIC designation based upon the NAIC published comparison of NRSRO ratings to NAIC designations. +The NAIC determines ratings for non-agency Residential Mortgage-backed Securities (“RMBS”) and commercial mortgage-backed securities using modeling that estimates security level expected losses under a variety of economic scenarios. For such assets issued prior to January 1, 2013, an insurer’s amortized cost basis in applicable assets can impact the assigned rating. In the tables below, we present the rating of structured securities +100 +based on ratings from the NAIC rating methodologies described above (which in some cases do not correspond to rating agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the NAIC methodologies. +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our fixed income portfolio (dollars in millions) at December 31, 2024 and 2023: +December 31, 2024 December 31, 2023 +NRSRO +Rating NAIC Designation Amortized Cost Fair Value Fair Value Percent Amortized Cost Fair Value Fair Value Percent +AAA/AA/A 1 $ 31,258 $ 29,174 63 % $ 28,052 $ 26,170 65 % +BBB 2 16,254 15,082 33 13,421 12,302 30 +BB 3 1,591 1,538 3 1,633 1,554 4 +B 4 375 353 1 268 215 1 +CCC 5 100 68 — 103 72 — +CC and lower 6 151 102 — 124 106 — +Total +$ 49,729 $ 46,317 100 % $ 43,601 $ 40,419 100 % +Investment Concentrations +The tables below present the top ten structured security and industry categories of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of December 31, 2024 and 2023 (dollars in millions): +December 31, 2024 +Top 10 Concentrations Fair Value Percent of Total Fair Value +ABS other $ 10,270 22 % +CLO securities 5,379 11 +Commercial mortgage-backed securities 5,131 11 +Diversified financial services 4,271 9 +Whole loan collateralized mortgage obligation 2,635 6 +Banking 1,988 4 +Insurance 1,761 4 +Municipal 1,363 3 +Electric 1,229 3 +Pharmaceuticals 738 1 +Total $ 34,765 74 % +December 31, 2023 +Top 10 Concentrations Fair Value Percent of Total Fair Value +ABS other $ 8,929 22 % +CLO securities 5,405 13 +Commercial mortgage-backed securities 4,410 11 +Diversified financial services 3,272 8 +Banking 2,048 5 +Whole loan collateralized mortgage obligation 2,043 5 +Municipal 1,600 4 +Insurance 1,567 4 +Electric 1,086 3 +Telecommunications 696 2 +Total $ 31,056 77 % +101 +The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of December 31, 2024 (dollars in millions), are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. +December 31, 2024 +Amortized Cost Fair Value +Corporate, Non-structured Hybrids, Municipal, Foreign and U.S. Government securities: +Due in one year or less $ 525 $ 524 +Due after one year through five years 3,634 3,589 +Due after five years through ten years 4,930 4,756 +Due after ten years 16,675 13,880 +Subtotal 25,764 22,749 +Other securities, which provide for periodic payments +Asset-backed securities 15,777 15,649 +Commercial mortgage-backed securities 5,327 5,131 +Residential mortgage-backed securities 2,861 2,788 +Subtotal 23,965 23,568 +Total fixed maturity available-for-sale securities $ 49,729 $ 46,317 +Non-Agency RMBS Exposure +Our investment in non-agency RMBS securities is predicated on the conservative and adequate cushion between purchase price and NAIC 1 rating, general lack of sensitivity to interest rates, positive convexity to prepayment rates and correlation between the price of the securities and the unfolding recovery of the housing market. +The fair value of our investments in subprime securities and Alt-A RMBS securities were $29 million and $44 million as of December 31, 2024, respectively, and $33 million and $49 million as of December 31, 2023, respectively. As of December 31, 2024 and 2023, approximately 93% and 95%, respectively, of the subprime and Alt-A RMBS exposures were rated NAIC 2 or higher. +ABS and CLO Exposures +Our ABS exposures are largely diversified by underlying collateral and issuer type. Our CLO exposures are generally senior tranches of CLOs which have leveraged loans as their underlying collateral. +As of December 31, 2024, the CLO and ABS positions were trading at a net unrealized gain position of $92 million and a net unrealized loss of $207 million, respectively. As of December 31, 2023, the CLO and ABS positions were trading at a net unrealized gain position of $65 million and a net unrealized loss position of $344 million, respectively. +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS ABS portfolio at December 31, 2024 and 2023 (dollars in millions) . +December 31, 2024 December 31, 2023 +Fair Value Percent Fair Value Percent +NRSRO Rating NAIC Designation +AAA/AA/A 1 $ 7,963 78 % $ 7,023 79 % +BBB 2 1,633 16 1,375 15 +BB 3 445 4 418 5 +B 4 183 2 59 1 +CCC 5 8 — 13 — +CC and lower 6 38 — 41 — +Total $ 10,270 100 % $ 8,929 100 % +102 +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS CLO portfolio at December 31, 2024 and 2023 (dollars in millions). +December 31, 2024 December 31, 2023 +Fair Value Percent Fair Value Percent +NRSRO Rating NAIC Designation +AAA/AA/A 1 $ 3,411 63 % $ 3,288 61 % +BBB 2 1,396 26 1,582 29 +BB 3 524 10 480 9 +B 4 10 — 17 — +CCC 5 — — — — +CC and lower 6 38 1 38 1 +Total $ 5,379 100 % $ 5,405 100 % +Municipal Bond Exposure +The following table summarizes our municipal bond exposure as of December 31, 2024 and 2023 (dollars in millions). +December 31, 2024 December 31, 2023 +Amortized Cost Fair Value Amortized Cost Fair Value +General obligation bonds $ 247 $ 205 $ 269 $ 232 +Special revenue bonds 1,329 1,128 1,507 1,335 +Certificate participations 16 13 — — +Total $ 1,592 $ 1,346 $ 1,776 $ 1,567 +Across all municipal bonds, the largest issuer represented 5% of the category and less than 1% of the total portfolio for both December 31, 2024 and 2023, and is rated NAIC 1 as of December 31, 2024. Our focus within municipal bonds is on NAIC 1 rated instruments, with 97% and 98% of our municipal bond exposure rated NAIC 1 as of December 31, 2024 and 2023, respectively. +Mortgage Loans +Commercial Mortgage Loans +We diversify our commercial mortgage loans (“CMLs”) portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a level to secure the related debt. Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are utilized to assess the risk and quality of CMLs. As of December 31, 2024 and December 31, 2023, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times, and a weighted average LTV ratio of 57% and 55%, respectively. +We consider a CML delinquent when a loan payment is greater than 30 days past due. For mortgage loans that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. At December 31, 2024, we had one CML that was delinquent in principal or interest payments compared to none at December 31, 2023. At December 31, 2024 and 2023, we had no CMLs in the process of foreclosure. See Note C - Investments to the Consolidated Financial Statements included in this report for additional information on our CMLs, including our distribution by property type, geographic region, LTV and DSC ratios. +103 +Residential Mortgage Loans (“RML”) +Our residential mortgage loans are closed end, amortizing loans and 100% of the properties are in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. RMLs have a primary credit quality indicator of either a performing or non-performing loan. We define non-performing RMLs as those that are 90 or more days past due and/or in non-accrual status. +Loans are placed on non-accrual status when they are over 90 days delinquent. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current can be put in place. See Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on our RMLs. +Unrealized Losses +The amortized cost and fair value of the fixed maturity securities and the equity securities that were in an unrealized loss position as of December 31, 2024 and 2023, were as follows (dollars in millions): +December 31, 2024 +Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value +Fixed maturity securities, available for sale: +United States Government full faith and credit 29 $ 106 $ — $ (3) $ 103 +United States Government sponsored agencies 64 92 — (4) 88 +United States municipalities, states and territories 176 1,476 — (249) 1,227 +Foreign Governments 43 224 — (45) 179 +Corporate securities: +Finance, insurance and real estate 840 6,596 — (728) 5,868 +Manufacturing, construction and mining 156 1,173 — (161) 1,012 +Utilities, energy and related sectors 477 3,000 — (542) 2,458 +Wholesale/retail trade 523 3,111 — (497) 2,614 +Services, media and other 640 4,679 — (874) 3,805 +Hybrid securities 31 515 — (29) 486 +Non-agency residential mortgage-backed securities 314 1,370 — (101) 1,269 +Commercial mortgage-backed securities 344 2,552 (41) (200) 2,311 +Asset-backed securities 355 4,148 (11) (317) 3,820 +Total fixed maturity available for sale securities 3,992 29,042 (52) (3,750) 25,240 +Equity securities 31 363 — (87) 276 +Total investments 4,023 $ 29,405 $ (52) $ (3,837) $ 25,516 +104 +December 31, 2023 +Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value +Fixed maturity securities, available for sale: +United States Government full faith and credit 8 $ 15 $ — $ (1) $ 14 +United States Government sponsored agencies 56 30 — (3) 27 +United States municipalities, states and territories 180 1,498 — (222) 1,276 +Foreign Governments 50 209 — (39) 170 +Corporate securities: +Finance, insurance and real estate 637 5,529 — (690) 4,839 +Manufacturing, construction and mining 117 965 — (135) 830 +Utilities, energy and related sectors 316 2,402 — (471) 1,931 +Wholesale/retail trade 332 2,165 — (397) 1,768 +Services, media and other 401 3,370 — (686) 2,684 +Hybrid securities 36 597 — (53) 544 +Non-agency residential mortgage-backed securities 244 1,118 (2) (101) 1,015 +Commercial mortgage-backed securities 435 3,198 (22) (323) 2,853 +Asset-backed securities 800 8,078 (9) (470) 7,599 +Total fixed maturity available for sale securities 3,612 29,174 (33) (3,591) 25,550 +Equity securities 41 567 — (100) 467 +Total investments 3,653 $ 29,741 $ (33) $ (3,691) $ 26,017 +The gross unrealized loss position on the fixed maturity available-for-sale fixed and equity portfolio was $3,837 million and $3,691 million as of December 31, 2024 and 2023, respectively. Most components of the portfolio exhibited price depreciation caused by higher treasury rates as opposed to issuer specific credit concerns. The total amortized cost of all securities in an unrealized loss position was $29,405 million and $29,741 million as of December 31, 2024 and 2023, respectively. The average market value/book value of the investment category with the largest unrealized loss position was 81% for services, media and other as of December 31, 2024. In the aggregate, services, media and other represented 23% of the total unrealized loss position as of December 31, 2024. The average market value/book value of the investment category with the largest unrealized loss position was 88% for finance, insurance and real estate as of December 31, 2023. In the aggregate, finance, insurance and real estate represented 19% of the total unrealized loss position as of December 31, 2023. +The amortized cost and fair value of fixed maturity available for sale securities under watch list analysis and the number of months in a loss position with investment grade securities (NRSRO rating of BBB/Baa or higher) as of December 31, 2024 and 2023, were as follows (dollars in millions): +December 31, 2024 +Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses +Investment grade: +Less than six months 8 $ 54 $ 52 $ — $ (2) +Six months or more and less than twelve months — — — — — +Twelve months or greater 107 1,443 959 — (484) +Total investment grade 115 1,497 1,011 — (486) +Below investment grade: +Less than six months — — — — — +Six months or more and less than twelve months — — — — — +Twelve months or greater 5 82 51 — (31) +Total below investment grade 5 82 51 — (31) +Total 120 $ 1,579 $ 1,062 $ — $ (517) +105 +December 31, 2023 +Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses +Investment grade: +Less than six months 1 $ 15 $ 14 $ — $ (1) +Six months or more and less than twelve months 1 54 44 — (10) +Twelve months or greater 47 634 444 — (190) +Total investment grade 49 703 502 — (201) +Below investment grade: +Less than six months — — — — — +Six months or more and less than twelve months — — — — — +Twelve months or greater 3 19 15 — (4) +Total below investment grade 3 19 15 — (4) +Total 52 $ 722 $ 517 $ — $ (205) +Expected Credit Losses and Watch List +We prepare a watch list to identify securities to evaluate for expected credit losses. Factors used in preparing the watch list include fair values relative to amortized cost, ratings and negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit impairment loss indicators and, where present, calculate an allowance for expected credit loss or direct write-down of a security’s amortized cost. +At December 31, 2024, our watch list included 120 securities in an unrealized loss position with an amortized cost of $1,579 million, no allowance for expected credit losses, unrealized losses of $517 million and a fair value of $1,062 million. +At December 31, 2023, our watch list included 52 securities in an unrealized loss position with an amortized cost of $722 million, no allowance for expected credit losses, unrealized losses of $205 million and a fair value of $517 million. +The watch list excludes structured securities as we have separate processes to evaluate the credit quality on the structured securities. +There were 45 and 101 structured securities with a fair value of $146 million and $316 million, respectively to which we had potential credit exposure as of December 31, 2024 and 2023, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $62 million and $35 million as of December 31, 2024 and 2023, respectively. +Exposure to Sovereign Debt and Certain Other Exposures +Our investment portfolio had an immaterial amount of direct exposure to European sovereign debt as of December 31, 2024 and 2023, respectively. We have no exposure to investments in Russia or Ukraine and de minimis investments in peripheral countries in the region. +Interest and Investment Income +For discussion regarding our net investment income and net investment gains (losses) refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +106 +AFS Securities +For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value as well as the amortized cost and fair value of fixed maturity AFS securities by contractual maturities, as of December 31, 2024 and 2023, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Concentrations of Financial Instruments +For certain information regarding our concentrations of financial instruments, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Derivatives +We are exposed to credit loss in the event of non-performance by our counterparties on derivative instruments. We attempt to reduce this credit risk by purchasing such derivative instruments from large, well-established financial institutions. +We also hold cash and cash equivalents received from counterparties for derivative instrument collateral, as well as U.S. Government securities pledged as derivative instrument collateral, if our counterparty’s net exposures exceed pre-determined thresholds. +We are required to pay counterparties the effective federal funds rate each day for cash collateral posted to F&G for daily mark-to-market margin changes. We reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral. This program permits collateral cash received to be invested in short term Treasury securities, bank deposits and commercial paper rated A1/P1, which are included in Cash and cash equivalents in the Consolidated Balance Sheets. +See Note D - Derivatives to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information regarding our derivatives and our exposure to credit loss on derivatives. +Liquidity and Capital Resources +Liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are annuity considerations, insurance premiums, and fees and investment income. We also generate cash inflows from investing activities resulting from maturities and sales of invested assets and from financing activities including inflows on our investment-type products, proceeds from borrowing activities and issuances of preferred stock. Our operating activities provided cash of $5,999 million and $5,834 million for the years ended December 31, 2024 and 2023, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, F&G Annuities & Life, Inc. As a holding company with no operations of its own, F&G Annuities & Life, Inc. derives its cash primarily from its insurance subsidiaries and CF Bermuda Holdings Ltd. (“CF Bermuda”), a Bermuda exempted limited liability company and a wholly owned direct subsidiary of the Company, a downstream holding company that provides additional sources of liquidity. Dividends from our insurance subsidiaries flow through CF Bermuda to F&G Annuities & Life, Inc. F&G Cayman Re, a licensed class D insurer in the Cayman Islands and a wholly owned direct subsidiary of the Company, could also provide dividends directly to F&G Annuities & Life, Inc. +The sources of liquidity of the holding company are principally comprised of dividends from subsidiaries, lines of credit (at the F&G Annuities & Life, Inc. level), existing surplus notes, investment income on holding company assets and the ability to raise long-term public financing under an SEC-filed registration statement or private placement offering. These sources of liquidity and cash flow support the general corporate needs of the holding company, interest and debt service, funding acquisitions and investment in core businesses. +107 +On January 2, 2024, F&G acquired a 70% majority ownership stake in the equity of Roar Joint Venture, LLC (“Roar”). Roar wholesales life insurance and annuity products to banks and broker-dealers through a network of agents. Total initial consideration is comprised of cash of approximately $269 million and contingent consideration. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to approximately $90 million over a 3 year period upon the achievement of certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) milestones of Roar. +On January 12, 2024 we completed a $250 million preferred stock investment from FNF. Net proceeds from the investment have been used to support the growth of F&G’s assets under management. Under the terms of the agreement, FNF agreed to invest $250 million in exchange for 5,000,000 shares of FNF Preferred Stock. Unless earlier converted at the option of the holder, each outstanding share of the FNF Preferred Stock will automatically convert into shares of F&G common stock on January 15, 2027. Generally, no dividends will be declared or paid on F&G common stock and no common stock can be acquired by F&G unless all preferred dividends are declared and paid on the outstanding FNF Preferred Stock. +The offer and the sale of the FNF Preferred Stock were made in a private placement pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The agreement was negotiated pursuant to market terms and pricing by a Special Committee of F&G’s Board of Directors comprised of independent members of the Board, in consultation with an independent financial advisor and independent legal counsel. +On February 16, 2024, F&G entered into an amendment and extension of its existing senior unsecured revolving credit agreement (the “Credit Agreement”). The maturity date of the Credit Agreement was extended by approximately two years from November 22, 2025 to November 22, 2027. Total borrowing availability increased from $665 million to $750 million. Pricing and advance rates remain unchanged. Financial covenants also remain essentially the same. As noted below, we used $365 million of net proceeds from our 6.250% F&G Notes to pay off the Credit Agreement. As of December 31, 2024, the balance of the Credit Agreement was $0 and the borrowing capacity was $750 million. +On June 4, 2024, F&G completed its public offering of $550 million aggregate principal amount of its 6.50% Senior Notes due 2029 (the “6.50% F&G Notes”). The 6.50% F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. A portion of the net proceeds were used to finance a cash tender offer by its wholly owned subsidiary Fidelity & Guaranty Life Holdings, Inc. (“FGLH”) for an aggregate principal amount of $250 million of FGLH’s 5.50% Senior Notes due 2025 (the “5.50% F&G Notes”). +On July 18, 2024, F&G acquired a 100% ownership stake in the equity of PALH, LLC (“PALH”). PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. Prior to the acquisition date, PALH owned a 70% ownership stake in an operating company of which F&G owned 30% equity. Total consideration of approximately $314 million is comprised of cash of $215 million, settlement of a prepaid asset of $8 million, acquisition date fair value of the previously held interests of $92 million, net of $1 million cash acquired. +On October 4, 2024, F&G completed its public offering of its 6.250% Senior Notes due 2034 with the aggregate principal amount of $500 million (the “6.250% F&G Notes”).The 6.250% F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. A portion of the net proceeds were used to pay off the outstanding balance of $365 million on the Company’s revolving credit facility. +Cash Requirements. Our current cash requirements include personnel costs, operating expenses, benefit payments, funding agreement payments, taxes, payments of interest and principal on our debt, capital expenditures, business acquisitions, stock repurchases and dividends on our common stock. For the year ended December 31, 2024, we paid common and preferred dividends of approximately $121 million. +108 +On November 6, 2024, our Board of Directors declared a quarterly cash dividend of $0.8594 per share on the FNF Preferred Stock for the period from October 15, 2024 to and excluding January 15, 2025, which was paid on January 15, 2025, to FNF Preferred Stock record holders on January 1, 2025. On February 20, 2025, our Board of Directors declared a quarterly cash dividend of $0.22 per common share, payable on March 31, 2025, to F&G common shareholders of record as of March 17, 2025. On February 20, 2025, our Board of Directors also declared a quarterly cash dividend of $0.8594 per share on the FNF Preferred Stock for the period from January 15, 2025 to and excluding April 15, 2025, to be paid on April 15, 2025, to FNF Preferred Stock record holders as of April 1, 2025. +There are no restrictions on our retained earnings regarding our ability to pay dividends to our shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. As discussed above, there are certain conditions on the declaration and payment of dividends pursuant to our recent preferred stock issuance. The declaration of any future dividends is at the discretion of our Board of Directors. +In 2023, F&G’s Board of Directors approved a three-year stock repurchase program, under which the Company may repurchase up to $50 million of F&G common stock. Purchases may be made from time to time by the Company in the open market at prevailing market prices or through privately negotiated transactions or accelerated share repurchase transactions through November 6, 2026. All purchases are held as treasury stock. The timing and extent of share repurchases will depend on a variety of factors, including, market conditions, regulatory requirements, and considerations as determined by management. No shares were repurchased pursuant to the program during the year ended December 31, 2024, compared to approximately 869,000 shares for a total cost of approximately $18 million with an average cost per share of $21.07 for the year ended December 31, 2023. At December 31, 2024, the total remaining authorization of F&G common stock that may be repurchased was approximately $32 million. +As of December 31, 2024 and 2023, we had cash and cash equivalents of $2,264 million and $1,563 million, respectively, and short term investments of $2,410 million and $1,452 million, respectively. As of December 31, 2024 we had $200 million of capacity under our revolving credit facility with FNF (the “FNF Credit Facility ” ). No amounts were outstanding under the FNF Credit Facility as of December 31, 2024 or 2023. The FNF Credit Facility matures October 29, 2025, or when the Revolving Credit Facility described above is terminated, whichever occurs first. We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, if any, reducing debt, investing in growth of our subsidiaries, making acquisitions and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, potential issuances of additional debt or equity securities, and borrowings on the revolving credit facility or the FNF Credit Facility. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Refer to Financing Arrangements below and Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding our borrowings. +Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. As discussed below, our insurance subsidiaries are restricted by state regulation and other laws in their ability to pay dividends and make distributions. +The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. +109 +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. In 2024, FGL Insurance did not pay dividends to its parent, Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). FGL Insurance’s maximum ordinary dividend capacity for 2025 is $0. FGL NY Insurance has historically not paid dividends. Under the laws of the State of Vermont, Raven Re and Corbeau Re cannot pay dividends out of, or other distribution with respect to, capital or surplus, without prior approval. Likewise, the insurance laws of Bermuda limit the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval and those of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Please refer to “ Item 1. Business - Regulation of F&G ” of Part I of this Annual Report on Form 10-K and Note O - Insurance Subsidiary Financial Information and Regulatory Matters to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K, for additional details on risk-based capital, statutory capital and dividend and other distribution payment limitations. +Cash Flow from our Operations +Cash flow from our operations will be used for general corporate purposes including to reinvest in operations, repay debt, pay dividends, repurchase stock, pursue other strategic initiatives and/or conserve cash. +Operating Cash Flow . Our cash flows provided by operations for the years ended December 31, 2024, 2023, and 2022 were $5,999 million, $5,834 million and $3,171 million, respectively. The primary cash inflows from operating activities include net investment income and insurance premiums. The primary cash outflows from operating activities are comprised of benefit payments and operating expenses. Cash provided by operations for the years ended December 31, 2024 and 2023 included approximately $1,800 million and $1,300 million of net cash received for PRT transactions, respectively, included in the change in future policy benefits. +Investing Cash Flows. Our cash used in investing activities for the years ended December 31, 2024, 2023, and 2022 were $7,953 million, $8,918 million, $9,370 million, respectively. The primary cash inflows from investing activities are the proceeds from sales, calls, maturities and redemptions of investments, including those resulting from our portfolio repositioning. The primary cash outflows from investing activities are the purchases of fixed maturity securities and other investments. Cash used in investing activities for the years ended December 31, 2024 and 2023 included purchases of fixed maturity securities and other investments associated with investing the net cash received from our investment-type products, generated from financing cash flows and PRT transactions, generated from operating activities, as well as cash received from borrowings generated from financing activities in both periods. Cash used in investing activities for the year ended December 31, 2024 also included net cash outflows of $482 million for the Roar and PALH acquisitions. +Financing Cash Flows. Our cash flows provided by financing activities for the years ended December 31, 2024, 2023, and 2022 were $2,655 million, $3,687 million and $5,626 million, respectively and reflected lower net contractholder deposits for the years ended December 31, 2024 and 2023. Contractholder account deposits and withdrawals in 2024 included FABN issuances of approximately $600 million and withdrawals of $820 million as compared to no FABN issuances and withdrawals of $53 million for 2023. In addition, cash provided by financing activities for the year ended December 31, 2024 included borrowing proceeds of $1,050 million, portions of which were used to finance a $250 million cash tender offer on the 5.50% F&G Notes and for net revolving credit facility repayments of $365 million, and proceeds of $250 million from the issuance of the FNF Preferred Stock, all discussed above, partially offset by dividend payments of approximately $121 million. Cash provided by financing activities for the year ended December 31, 2023 included proceeds from debt issuances of $845 million, partially offset by net partial revolver pay downs of $185 million, dividend payments of approximately $101 million and common stock repurchases of $18 million. +110 +Financing Arrangements. At December 31, 2024, we had outstanding: +• $300 million aggregate principal amount of 5.50% F&G Notes, +• $500 million aggregate principal amount of our 7.40% Senior Notes due 2028 (the “7.40% F&G Notes”), +• $345 million aggregate principal amount of our 7.95% Senior Notes due 2053 (“the 7.95% F&G Notes”), +• $550 million aggregate principal amount of its 6.50% F&G Notes, and +• $500 million aggregate principal amount of our 6.250% F&G Notes. +For further description of our financing arrangements see Note L - Notes Payable to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K. +The Credit Agreement imposes significant operating and financial restrictions, including financial covenants, and the Credit Agreement and the indentures governing the 6.250% F&G Notes, 6.50% F&G Notes, 7.95% F&G Notes, the 7.40% F&G Notes, and the 5.50% F&G Notes limit, among other things, our and our subsidiaries’ ability to: +• incur or assume additional indebtedness, including guarantees; +• incur or assume liens; +• engage in mergers or consolidations; +• convey, transfer, lease or dispose of assets; +• make certain investments; +• enter into transactions with affiliates; +• declare or make any dividend payments or distributions or repurchase capital stock or other equity interests; +• change the nature of our business materially; +• make changes in accounting treatment or reporting practices that affect the calculation of financial covenants, or change our fiscal year; and +• enter into certain agreements that would restrict the ability of subsidiaries to make payments to us. +As of December 31, 2024, we were in compliance with all covenants. +Subsequent Events. On January 13, 2025, F&G completed its public offering of its 7.300% Junior Subordinated Notes due 2065 with an aggregate principal amount of $375 million (the “7.300% F&G Notes”). F&G intends to use the net proceeds of this offering for general corporate purposes, including the repurchase, redemption or repayment at maturity of outstanding indebtedness. +On February 1, 2025, F&G redeemed the outstanding $300 million aggregate principal amount of its 5.50% senior notes due May 1, 2025. +Obligations - Contractual and Other. As of December 31, 2024, our required annual payments relating to contractual and other obligations were as follows: +2025 2026 2027 2028 2029 Thereafter Total +Notes payable principal repayment $ 300 $ — $ — $ 500 $ 550 $ 845 $ 2,195 +Operating lease payments 2 2 2 2 1 1 10 +Annuity and universal life products 6,801 6,340 7,338 7,284 6,881 45,376 80,020 +Pension risk transfer annuity payments 854 821 793 763 734 8,922 12,887 +Funding agreements (FABN / FHLB) 796 1,514 1,690 1,052 429 — 5,481 +Interest on fixed rate notes payable 133 131 131 96 77 809 1,377 +Total $ 8,886 $ 8,808 $ 9,954 $ 9,697 $ 8,672 $ 55,953 $ 101,970 +Reinsurance. Please refer to Note E - Reinsurance to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional information on our reinsurance. +111 +Preferred and Equity Security Investments. Our preferred and equity security investments may be subject to significant volatility. Currently prevailing accounting standards require us to record the change in fair value of preferred and equity security investments held as of any given period end within earnings. Our results of operations in future periods are anticipated to be subject to such volatility. +Off-Balance Sheet Arrangements. Throughout our history, we have entered in indemnifications in the ordinary course of business with our customers, suppliers, service providers, business partners and in certain instances, when we sold businesses. Additionally, we have indemnified our directors and officers who are, or were, serving at our request in such capacities. Although the specific terms or number of such arrangements is not precisely known due to the extensive history of our past operations, costs incurred to settle claims related to these indemnifications have not been material to our financial statements. We have no reason to believe that future costs to settle claims related to our former operations will have a material impact on our financial position, results of operations or cash flows. +We have unfunded commitments as of December 31, 2024 based upon the timing of when investments and agreements are executed or signed compared to when the actual commitments are funded or closed. Some investments require that funding occur over a period of months or years. Please refer to Note C - Investments and Note N - Commitments and Contingencies to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional details on unfunded commitments. +FHLB Collateral. We are currently a member of the FHLB and are required to maintain a collateral deposit that backs any funding agreements issued. We use these funding agreements as part of a spread enhancement strategy. We have the ability to obtain funding from the FHLB based on a percentage of the value of our assets, subject to the availability of eligible collateral. Collateral is pledged based on the outstanding balances of FHLB funding agreements. The amount of funding varies based on the type, rating and maturity of the collateral posted to the FHLB. Generally, U.S. government agency notes, mortgage-backed securities, municipal bonds, and commercial and residential whole loans are pledged to the FHLB as collateral. Market value fluctuations resulting from changes in interest rates, spreads and other risk factors for each type of asset are monitored and additional collateral is either pledged or released as needed. +Our borrowing capacity under these credit facilities does not have an expiration date as long as we maintain a satisfactory level of creditworthiness based on the FHLB’s credit assessment. As of December 31, 2024 and 2023, we had $2,852 million and $2,514 million, respectively, in FHLB non-putable funding agreements included under contractholder funds on our Consolidated Balance Sheets. As of December 31, 2024 and 2023, we had assets with a fair value of approximately $4,289 million and $4,345 million, respectively, which collateralized the FHLB funding agreements. Assets pledged to the FHLB are primarily included in fixed maturities, AFS, on our Consolidated Balance Sheets. +Collateral-Derivative Contracts. Under the terms of our ISDA agreements, we may receive from, or deliver to, counterparties collateral to assure that all terms of the ISDA agreements will be met with regard to the Credit Support Annex (“CSA”). The terms of the CSA call for us to pay interest on any cash received equal to the federal funds rate. As of December 31, 2024 and 2023, $771 million and $775 million, respectively, of collateral was posted by our counterparties as they did not meet the net exposure thresholds. Collateral requirements are monitored on a daily basis and incorporate changes in market values of both the derivatives contract as well as the collateral pledged. Market value fluctuations are due to changes in interest rates, spreads and other risk factors. +Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset declines (or increases), the collateral required to be posted by our counterparties would also decline (or increase). Likewise, when the value of a derivative liability declines (or increases), the collateral we are required to post to our counterparties would also decline (or increase). +112 +Guarantor Financial Information +Our 2024 issuances of the 6.250% F&G Notes and 6.50% F&G Notes and the 2023 issuances of the 7.40% F&G Notes and the 7.95% F&G Notes are fully and unconditionally guaranteed on a senior, unsecured, unsubordinated basis, jointly and severally, by each of our existing and future direct and indirect subsidiaries that are guarantors of our obligations under the credit agreement (collectively, the “obligor group”). Refer to Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding these borrowings. +Set forth below is summarized unaudited financial information of the obligor group, as presented on a combined basis (dollars in millions). Intercompany transactions and balances within the obligor group have been eliminated. In addition, financial information of any non-guarantor subsidiaries, which would normally be consolidated by either F&G or the guarantors under GAAP, has been excluded from such presentation. +Year ended December 31, +2024 2023 +Summarized Statement of Operations: +Total revenues $ 77 $ (5) +Total expenses (124) (94) +Income tax (expense) benefit 3 (1) +Net loss $ (44) $ (100) +December 31, +2024 2023 +Summarized Balance Sheet: +Investments $ 334 $ 532 +Cash and cash equivalents 272 322 +Goodwill 1,725 1,725 +Due from non-guarantor affiliates 77 64 +Other assets 42 33 +Total assets $ 2,450 $ 2,676 +Notes payable $ 2,171 $ 1,754 +Other liabilities 167 145 +Total liabilities $ 2,338 $ 1,899 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, we are routinely subject to a variety of risks, as described in “ Part I - Item 1A Risk Factors ” included in this Annual Report on Form 10-K. +The risks related to our business also include certain market risks that may affect our financial instruments and certain liabilities. +At present, we face market risks associated with our marketable equity securities, liability for Contractholder Funds, balances for MRBs which are subject to equity price volatility, and interest rate movements on both our fixed income investments and liabilities for debt, FPBs, MRBs, and Contractholder Funds. +We regularly assess these market risks and have established policies and business practices designed to protect against the adverse effects of these exposures. +113 +Additionally, financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, derivatives, long-term investments and short-term investments. We require placement of cash in financial institutions evaluated as highly creditworthy. +Enterprise Risk Management +We place a high priority on risk management and risk control. As part of our effort to ensure measured risk taking, management has integrated risk management in our daily business activities and strategic planning. We have comprehensive risk management, governance and control procedures in place and have established a dedicated risk management function with responsibility for the formulation of our risk appetite, risk mitigation strategies, policies and limits. The risk management function is also responsible for monitoring our overall market risk exposures and provides review, oversight and support functions on risk-related issues. Our risk appetite is aligned with how our businesses are managed and anticipated future regulatory developments. +Our risk governance and control systems enable us to identify, control, monitor and aggregate risks and provide assurance that risks are being measured, monitored and reported adequately and effectively in accordance with the following three principles: +i. Management of the business has primary responsibility for the day-to-day management of risk. +ii. The risk management function has the primary responsibility to align risk taking with strategic planning through risk tolerance and limit setting. +iii. The internal audit function provides an ongoing independent and objective assessment of the effectiveness of internal controls. +The Chief Risk Officer (“CRO”) heads our risk management process and reports directly to our Chief Executive Officer (“CEO”). Our Enterprise Risk Management Committee (“ERMC”) reviews all risk policies, risk appetites, and discusses market risks associated with our activities. Market risks include the risks of losses due to an ineffective ALM program and the risk of losses arising from fluctuations in market prices, including interest rates, exchange rates, asset prices. These risks are monitored and assessed for appropriate mitigating activities to reduce the likelihood of erosion of the value of investments or trading positions that could result in financial losses or capital inadequacies. +We have implemented several limit structures to manage risk. Examples include, but are not limited to, the following: +i. At-risk limits on sensitivities of regulatory capital to the capital markets provide the fundamental framework to manage capital markets risks including the risk of asset / liability mismatch; +ii. Duration mismatch limits; +iii. Credit risk concentration limits; and +iv. Investment and derivative guidelines. +We manage our risk appetite based on two key risk metrics: +i. Regulatory Capital Sensitivities: the potential reduction, under a range of moderate to extreme capital markets stress scenarios, of the excess of available statutory capital above the minimum required under the NAIC regulatory RBC methodology; and +ii. Earnings Sensitivities: the potential reduction in results of operations over a 30-year time horizon under the same moderate to extreme capital markets stress scenario. Maintaining a consistent level of earnings helps us to finance our operations, support our capital requirements and provide funds to pay dividends to shareholders. +Our risk metrics cover the most important aspects in terms of performance measures where risk can materialize and are representative of the regulatory constraints to which our business is subject. The sensitivities for earnings +114 +and statutory capital are important metrics since they provide insight into the level of risk we take under stress scenarios. They also are the basis for internal risk management. +We are also subject to cash flow stress testing pursuant to regulatory requirements. This analysis measures the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the effects of: +i. The timing and amount of redemptions and prepayments in our asset portfolio; +ii. Our derivative portfolio; +iii. Death benefits and other claims payable under the terms of our insurance products; +iv. Lapses and surrenders in our insurance products; +v. Minimum interest guarantees in our insurance products, +vi. Book value guarantees in our insurance products; and +vii. Reinvestment and disinvestment +Asset Liability Management (“ALM”) +As part of our ALM program, we have made a significant effort to identify the assets appropriate to different product lines and ensure investing strategies match the profile of these liabilities. We monitor ALM metrics (such as duration, key-rate durations, net cash flows and liquidity) and manage the risk exposures at levels that are consistent with our risk appetite. The ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows. As such, a major component of our effort to manage interest rate risk has been to structure the investment portfolio with cash flow characteristics that are consistent with the cash flow characteristics of the insurance liabilities. We use actuarial models to simulate the cash flows expected from the existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in the fair value of interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from assets to meet the expected cash requirements of the liabilities and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. Duration measures the price sensitivity of a security to a small change in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities. +The durations of the investment portfolio, net of investments subject to reinsurance agreements and excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of December 31, 2024 and December 31, 2023, are summarized as follows (dollars in millions): +December 31, 2024 December 31, 2023 +Duration (years) Amortized Cost % of Total Amortized Cost % of Total +0-4 $ 29,363 54 % $ 26,146 54 % +5-9 12,526 23 10,455 21 +10-14 10,448 19 9,943 20 +15-19 1,862 4 2,650 5 +20-30 33 — 69 — +Total $ 54,232 100 % $ 49,263 100 % +Interest Rate Risk +Interest rate risk is our primary market risk exposure. We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from investing life insurance premiums and fixed annuity deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. Substantial and sustained increases or decreases in market interest rates can affect the profitability of the insurance products and the fair value of our investments, as the majority of our insurance liabilities are backed by fixed maturity securities. +115 +Investments +Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of investments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. We monitor our interest rate risk and make investment decisions to manage the perceived risk. We manage interest rate risk through a variety of measures, including pay-float and receive-fixed interest rate swaps to reduce market risks from interest rate changes on our earnings associated with floating rate investments. +Product Liabilities +The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. We have the ability to adjust the rates credited on the majority of the annuity liabilities at least annually, subject to minimum guaranteed values. In addition, the majority of the annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at the levels necessary to avoid a narrowing of spreads under certain market conditions. +In order to meet our policy and contractual obligations, we must earn a sufficient return on invested assets. Significant changes in interest rates expose us to the risk of not earning the anticipated spreads between the interest rate earned on its investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect interest earnings, spread income and the attractiveness of certain products. +During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as IUL insurance and fixed annuities, and may increase crediting rates on in-force products to keep these products competitive. A rise in interest rates, in the absence of other countervailing changes, will result in a decline in the market value of our investment portfolio, partially offset by gains related to the fair value of MRBs. In addition, some of our deferred annuity policies contain a market value adjustment (“MVA”) during the surrender charge period, where if interest rates have risen, the MVA will decrease the surrender value, whereas if rates have fallen, it will increase the surrender value. The MVA reduces market risk and earnings volatility from interest rate changes, should a policy surrender, as it offsets the decline in the market value of the investment portfolio in a rising rate scenario, and vice versa in a declining rate scenario +Additionally, at December 31, 2024, we had floating rate funding agreements outstanding to match certain of our floating rate investments. Accordingly, fluctuations in market interest rates on the funding agreements will be significantly offset by corresponding changes in investment income associated with our floating rate investments. +Notes Payable +At December 31, 2024 , we had a short-term revolving credit facility that bears interest at a floating rate. Accordingly, depending on the amounts outstanding, fluctuations in market interest rates will have an impact on our resulting interest expense. The impact to net earnings, however, will again be significantly offset by corresponding changes in investment income associated with our floating rate investments. There was no balance outstanding on the revolving credit facility at December 31, 2024. +Equity Price Risk +Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. In the past, our exposure to changes in equity prices primarily resulted from our holdings of equity securities. Refer to +116 +Note B - Fair Value of Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on how the carrying values of these investments are determined as of the balance sheet date. Carrying values are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported carrying value. Fluctuation in the carrying value of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. +We are also exposed to equity price risk through certain insurance products. We offer a variety of indexed annuities and IUL contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index, and target volatility indices. Additionally, the estimated cost of providing GMWB on FIA products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the MRB liabilities and decrease in the valuation of contractholder funds liabilities associated with such products. +To economically hedge the equity returns on these products, we purchase derivatives to hedge the indexed annuities and IUL equity exposures. The primary way we hedge indexed annuities and IUL equity exposure is to purchase over the counter equity index equity options from broker-dealer derivative counterparties approved by F&G. The second way to hedge indexed annuities and IUL equity exposure is by purchasing exchange traded equity index futures contracts. This hedging strategy enables us to reduce the overall hedging costs and achieve a high correlation of returns on the equity options purchased relative to the index credits earned by the indexed annuity/IUL contractholders. The majority of the equity options are one-year options purchased to match the funding requirements underlying the indexed annuity/IUL contracts. These hedge programs are limited to the current policy term of the indexed annuity/IUL contracts. Future returns, which may be reflected in indexed annuity/IUL contracts’ credited rates beyond the current policy term, are not hedged. We attempt to manage the costs of these purchases through the terms of the indexed annuity/IUL contracts, which permit us to change cap, spread or participation rates, subject to certain guaranteed minimums that must be maintained. +The derivatives are used to fund the indexed annuities and IUL contract index credits and the cost of the equity options purchased is treated as a component of spread earnings. While the indexed annuity/IUL hedging program does not explicitly hedge GAAP income volatility, the indexed annuities/ IUL hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges, which are put in place are only intended to cover exposures expected to remain until the end of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, we incur a raw hedging loss. +See Note D - Derivative Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on the derivatives portfolio. +Fair value changes associated with these investments are intended to, but do not always, substantially offset the increase or decrease in the amounts added to contractholder funds for indexed products. When index credits to policyholders exceed option proceeds received at expiration related to such credits, any shortfall is funded by our excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies and futures income. For the years ended December 31, 2024 , December 31, 2023 and December 31, 2022, the annual index credits to policyholders on their anniversaries were $725 million, $203 million and $155 million, respectively. Proceeds received at expiration of options related to such credits were $849 million, $212 million and $158 million, respectively. +117 +Other market exposures are hedged periodically depending on market conditions and our risk tolerance. The indexed annuity/ IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques, including direct estimation of market sensitivities, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and risk tolerance change. +Sensitivity Analysis +For purposes of this Annual Report on Form 10-K , we perform a sensitivity analysis to determine the effects that market risk exposures may have on various financial instruments. +The financial instruments that are included in the sensitivity analysis with respect to interest rate risk include fixed maturity investments, certain preferred securities, interest rate swaps, embedded derivatives, MRBs and floating rate notes payable and funding agreements. The financial instruments that are included in the sensitivity analysis with respect to equity price risk include marketable equity securities. With the exception of our equity method investments, it is not anticipated that there would be a significant change in the fair value of other long-term investments or short-term investments if there were a change in market conditions, based on the nature and duration of the financial instruments involved. +To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates and equity prices on market-sensitive instruments. The changes in fair values for interest rate risks are determined by estimating the present value of future cash flows using various models, primarily duration modeling. The changes in fair values for equity price risk are determined by comparing the market price of investments against their reported values as of the balance sheet date. +Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor are held constant. +Market Risk Factors +Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We have significant holdings in financial instruments, which are naturally exposed to a variety of market risks. They are primarily exposed to interest rate risk, credit risk and equity price risk and have some exposure to counterparty risk, which affect the fair value of financial instruments subject to market risk. +We have no market risk sensitive instruments entered into for trading purposes; therefore, all of our market risk sensitive instruments were entered into for purposes other than trading. The results of the sensitivity analysis at December 31, 2024 is as follows: +Interest Rate Risk +An increase in the levels of interest rates of 100 basis points, with all other variables held constant, would result in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $2.6 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.6 bil lion at December 31, 2024 . For comparison, a similar increase in the levels of interest rates of 100 basis points, with all other variables held constant, would have resulted in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $2.4 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.5 billion at December 31, 2023. +118 +A 100 basis point shift in interest rates for our floating rate debt and funding agreements will increase or decrease floating expense by approximatel y $17 million and $14 million per year as of December 31, 2024 and December 31, 2023, respectively . As noted above, the impact to net earnings related to the interest rate swaps and floating rate notes payable and funding agreements will be significantly offset by corresponding changes in investment income associated with our floating rate investments. +The actuarial models used to estimate the impact of a one percentage point change in market interest rates incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of financial instruments indicated by these simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, the net exposure to interest rates can vary over time. However, any such decreases in the fair value of fixed maturity securities, unless related to credit concerns of the issuer requiring allowances for credit losses, would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet liquidity needs. Our liquidity needs are managed using the surrender and withdrawal provisions of the annuity contracts and through other means. +Equity Price Risk +At December 31, 2024, a 10% decrease in market prices, with all other variables held constant, would result in a net decrease in the fair value of our equity securities portfolio of $42 million, as compared with a decrease of $61 million at December 31, 2023 . +Credit Risk and Counterparty Risk +We are exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. Our major source of credit risk arises predominantly in our insurance operations’ portfolios of debt and similar securities. The fair value of our fixed maturity portfolio totaled $46 billion at December 31, 2024 . Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where it expects the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements. +We attempt to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, we diversify exposure by issuer and country, using rating-based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly basis. +In connection with the use of derivative instruments, we are exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. We have adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst different approved counterparties to limit the concentration in one counterparty. This policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the insurance laws of Iowa. We review the ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See Note D - Derivative Financial Instruments in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information regarding our exposure to credit loss. +119 +We also have credit risk related to the ability of reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. To minimize the risk of credit loss on such contracts, we diversify exposures among many reinsurers and limit the amount of exposure to each based on credit rating. We also generally limit selection of counterparties with which to do new transactions to those with an “A-” credit rating or above from at least one of the major rating agencies and/or that are appropriately collateralized and provide credit for reinsurance. +In the normal course of business, certain reinsurance recoverables are subject to reviews by the reinsurers. We are not aware of any material disputes arising from these reviews or other communications with the counterparties as of December 31, 2024 and December 31, 2023, that would require an increase to the allowance for credit losses. +For information on concentrations of reinsurance risk, refer to Note E - Reinsurance in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +For further information on certain risk associated with our business, refer to Note N - Commitments and Contingencies in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +Use of Estimates and Assumptions +The preparation of our Consolidated Financial Statements included in this Annual Report on Form 10-K in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used. +Concentrations of Financial Instruments +Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations - Investment Portfolio - Investment Concentrations included in Part II - Item 7 of this Annual Report on Form 10-K regarding the top ten investment concentrations of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of December 31, 2024 and December 31, 2023. +Refer to Note C - Investments in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for our underlying investment concentrations that exceed 10% of shareholders equity as of December 31, 2024 and December 31, 2023. +Concentrations of Financial and Capital Markets Risk +We are exposed to financial and capital markets risk, including changes in interest rates and credit spreads, which can have an adverse effect on our results of operations, financial condition and liquidity. Exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest rates, in the absence of other countervailing changes, will increase the net unrealized loss position and, if long-term interest rates rise dramatically within a six- to twelve-month time period, certain of our products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders surrender their contracts in a rising interest rate environment, requiring us to liquidate assets in an unrealized loss position. We attempt to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset-backed securities. Management believes this risk is also mitigated to some extent by surrender charge and MVA protection provided by our products. We expect to continue to face these challenges and uncertainties that could adversely affect our results of operations and financial condition. +. +120 +Item 8. Financial Statements and Supplementary Data +INDEX TO FINANCIAL INFORMATION +F&G ANNUITIES AND LIFE, INC. AND SUBSIDIARIES +Page +Number +Audited Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control Over Financial Reporting (Ernst & Young, LLP, Des Moines, IA, Auditor Firm ID: 42 ) +122 +Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (Ernst & Young, LLP, Des Moines, IA, Auditor Firm ID : 42 ) +124 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +126 +Consolidated Statements of Operations for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 +127 +Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 +128 +Consolidated Statements of Equity for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 +129 +Consolidated Statements of Cash Flows for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 +131 +Notes to Consolidated Financial Statements +132 +Consolidated Financial Statement Schedules +Schedule I—Summary of Investments - Other Than Investments in Related Parties +225 +Schedule II—Financial Information of Registrant +226 +Schedule III—Supplementary Insurance Information +229 +Schedule IV—Reinsurance +230 +121 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of F&G Annuities & Life, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited F&G Annuities & Life, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, F&G Annuities & Life, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. +As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Roar Joint Venture, LLC, which is included in the 2024 consolidated financial statements of the Company and constituted 0.49% and 10.29% of total assets and total equity, respectively, as of December 31, 2024 and 1.36% and 6.89% of revenues and net earnings attributable to F&G common shareholders, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Roar Joint Venture, LLC. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(2) and our report dated February 28, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable +122 +assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Des Moines, Iowa +February 28, 2025 +123 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of F&G Annuities & Life, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of F&G Annuities & Life, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2025, expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +124 +Fixed Indexed Annuity Embedded Derivative Liability, Market Risk Benefits, and Future Policy Benefits Liability +Description of the Matter +At December 31, 2024, the fair value of the Company’s fixed indexed annuity embedded derivative liability totaled $5.2 billion. Certain of the Company’s fixed indexed annuity (FIA) contracts allow the policyholder to elect an equity index linked feature, where amounts credited to the contract’s account value are linked to the performance of designated equity indices and crediting strategy selected by the policyholder. The equity index crediting feature is accounted for as an embedded derivative liability and reported at fair value as discussed in Notes A (see section on Contractholder Funds), B, and D to the consolidated financial statements. A subset of FIA contracts include certain contract features that provide minimum guarantees to policyholders, such as guaranteed minimum withdrawal benefits and guaranteed minimum death benefit features that are market risk benefits (MRB) measured at fair value as discussed in Notes A (see section on MRBs), B, and G to the consolidated financial statements. The Company’s MRB assets and MRB liabilities totaled $189 million and $549 million, respectively, as of December 31, 2024. +At December 31, 2024, future policy benefits (FPB) liabilities related to traditional life and life-contingent immediate annuity policies (which includes life-contingent pension risk transfer annuities) totaled $8.7 billion. The future policy benefits liability related to these products is based on estimates of how much the Company will need to pay for future benefits and related claim expenses and the amount of net premiums to be collected from policyholders as discussed in Notes A (see section on Future Policy Benefits) and J to the consolidated financial statements. +Auditing the valuation of the Company’s fixed indexed annuity embedded derivative, MRBs, and FPB liabilities was complex because of the highly judgmental nature of the determination of the assumptions required to determine the fair value of the embedded derivative and MRBs and valuation of FPB liabilities. In particular, the fair value of fixed indexed annuity embedded derivative and MRBs was sensitive to the significant assumptions including surrender rates, GMWB utilization, option cost and non-performance spread. In addition, mortality, partial withdrawals, and capital market performance scenarios were significant assumptions used in the valuation of MRBs. Mortality is a significant assumption used in the valuation of FPB liabilities. +How we Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over management’s process for the development of the significant assumptions used in measuring the fair value of the embedded derivative for fixed indexed annuities and MRBs and the valuation of FPB liabilities. These controls included, among others, the review and approval process management has in place for the development of the significant assumptions. +To evaluate the judgment used by management in determining the assumptions used in measuring the fair value of the fixed indexed annuity embedded derivative and MRBs and the valuation of FPB liabilities, among other procedures, we involved actuarial specialists and evaluated the methodology applied by management in determining the valuation with those used in the prior period and in the industry. To evaluate the significant assumptions used by management in the methodology applied, we compared as applicable, the significant assumptions noted above to historical experience, observable market data, and management’s estimates of prospective changes in these assumptions. We also performed an independent recalculation of the embedded derivative, MRB, and FPB liabilities for a sample of policies or cohorts for comparison with the actuarial models used by management. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2020. +Des Moines, Iowa +February 28, 2025 +125 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(Dollars in millions, except share data) +December 31, +2024 2023 +ASSETS: +Investments +Fixed maturity securities available for sale, at fair value, at December 31, 2024 and 2023, at an amortized cost of $ 49,729 and $ 43,601 , respectively, net of allowance for credit losses of $ 62 and $ 35 , respectively +$ 46,317 $ 40,419 +Preferred securities, at fair value 270 469 +Equity securities, at fair value 145 137 +Derivative investments 792 797 +Mortgage loans, net of allowance for credit losses of $ 70 and $ 66 at December 31, 2024 and 2023, respectively +5,926 5,336 +Investments in unconsolidated affiliates (certain investments at fair value of $ 272 and $ 285 at December 31, 2024 and 2023, respectively) +3,565 3,071 +Other long-term investments 580 537 +Policy loans 104 71 +Short-term investments 2,410 1,452 +Total investments 60,109 52,289 +Cash and cash equivalents 2,264 1,563 +Reinsurance recoverable, net of allowance for credit losses of $ 20 and $ 21 at December 31, 2024 and 2023, respectively +13,369 8,960 +Goodwill 2,179 1,749 +Prepaid expenses and other assets (certain assets held at fair value of $ 11 million and $ 0 at December 31, 2024 and 2023, respectively) +1,059 931 +Other intangible assets, net 5,572 4,207 +Market risk benefits asset 189 88 +Income taxes receivable — 27 +Deferred tax asset, net 299 388 +Total assets $ 85,040 $ 70,202 +LIABILITIES AND EQUITY +Liabilities: +Contractholder funds $ 56,404 $ 48,798 +Future policy benefits 8,749 7,050 +Market risk benefits liability 549 403 +Accounts payable and accrued liabilities 2,219 2,011 +Income taxes payable 5 — +Notes payable 2,171 1,754 +Funds withheld for reinsurance liabilities 10,867 7,083 +Total liabilities 80,964 67,099 +Equity: +Preferred stock $ 0.001 par value; authorized 25,000,000 shares as of December 31, 2024 and 2023; outstanding and issued 5,000,000 and 0 shares as of December 31, 2024 and 2023, respectively +— — +F&G common stock, $ 0.001 par value; authorized 500,000,000 shares as of December 31, 2024 and 2023; outstanding of 126,792,844 and 126,332,142 as of December 31, 2024 and 2023, respectively, and issued of 127,952,143 and 127,234,902 as of December 31, 2024 and 2023, respectively +— — +Additional paid-in-capital 3,464 3,185 +Retained earnings 2,440 1,926 +Accumulated other comprehensive income (loss) ("AOCI") ( 1,923 ) ( 1,990 ) +Treasury stock, at cost ( 1,159,299 shares and 902,760 shares as of December 31, 2024 and 2023, respectively) +( 30 ) ( 18 ) +Total F&G Annuities & Life, Inc. shareholders' equity 3,951 3,103 +Non-controlling interests 125 — +Total equity 4,076 3,103 +Total liabilities and equity $ 85,040 $ 70,202 +See accompanying Notes to Consolidated Financial Statements +126 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +(Dollars and shares in millions, except per share data) +Year ended December 31, +2024 2023 2022 +Revenues: +Life insurance premiums and other fees $ 2,860 $ 2,413 $ 1,704 +Interest and investment income 2,719 2,211 1,655 +Owned distribution revenues 81 — — +Recognized gains and (losses), net 84 ( 124 ) ( 1,010 ) +Total revenues 5,744 4,500 2,349 +Benefits and expenses: +Benefits and other changes in policy reserves (remeasurement gains (losses) (a)) 3,791 3,553 1,126 +Market risk benefit (gains) losses ( 25 ) 95 ( 182 ) +Depreciation and amortization 569 412 324 +Personnel costs 296 232 157 +Other operating expenses 203 146 102 +Interest expense 132 97 29 +Total benefits and expenses 4,966 4,535 1,556 +Earnings (loss) before income taxes 778 ( 35 ) 793 +Income tax expense 136 23 158 +Net earnings (loss) 642 ( 58 ) 635 +Less: Non-controlling interests 3 — — +Net earnings (loss) attributable to F&G 639 ( 58 ) 635 +Less: Preferred stock dividend 17 — — +Net earnings (loss) attributable to F&G common shareholders $ 622 $ ( 58 ) $ 635 +Earnings per share +Basic +Net earnings (loss) per share attributable to F&G common shareholders, basic $ 4.98 $ ( 0.47 ) $ 5.52 +Diluted +Net earnings (loss) per share attributable to F&G common shareholders, diluted $ 4.88 $ ( 0.47 ) $ 5.52 +Weighted average shares outstanding F&G common stock, basic basis (b) 125 124 115 +Weighted average shares outstanding F&G common stock, diluted basis (b) 131 124 115 +(a) The remeasurement gains for the years ended December 31, 2024, 2023 and 2022 were $ 20 million, $ 7 million and $ 1 million, respectively . +(b) Weighted average shares outstanding for the year ended December 31, 2022 includes the 105,000 for 1 stock split that became effective on June 24, 2022. +See accompanying Notes to Consolidated Financial Statements +127 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(In millions) +Year ended December 31, +2024 2023 2022 +Net earnings (loss) $ 642 $ ( 58 ) $ 635 +Other comprehensive income (loss), net: +Changes in current discount rate - future policy benefits 224 ( 189 ) 764 +Changes in instrument-specific credit risk - market risk benefits 5 ( 34 ) 67 +Unrealized (loss) gain on investments and other financial instruments ( 164 ) 919 ( 4,689 ) +Unrealized (loss) gain on foreign currency translation ( 5 ) 2 ( 5 ) +Reclassification adjustments for change in unrealized gains and losses included in net earnings 7 130 212 +Other comprehensive income (loss) 67 828 ( 3,651 ) +Comprehensive income (loss) 709 770 ( 3,016 ) +Less: Comprehensive income attributable to non-controlling interests 3 — — +Comprehensive income (loss) attributable to F&G $ 706 $ 770 $ ( 3,016 ) +See accompanying Notes to Consolidated Financial Statements +128 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY +(In millions) +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2022 $ — $ — $ 2,750 $ 1,451 $ 833 $ — $ — $ 5,034 +Treasury stock purchased — — — — — — — — +Stock-based compensation — — 12 — — — — 12 +Common stock dividends declared — — — ( 25 ) — — — ( 25 ) +Other comprehensive income (loss) — — — — ( 3,651 ) — — ( 3,651 ) +Debt to equity conversion — — 400 — — — — 400 +Net earnings (loss) — — — 635 — — — 635 +Balance, December 31, 2022 $ — $ — $ 3,162 $ 2,061 $ ( 2,818 ) $ — $ — $ 2,405 +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2023 $ — $ — $ 3,162 $ 2,061 $ ( 2,818 ) $ — $ — $ 2,405 +Treasury stock purchased — — — — — ( 18 ) — ( 18 ) +Stock-based compensation — — 23 — — — — 23 +Common stock dividends declared — — — ( 77 ) — — — ( 77 ) +Other comprehensive income (loss) — — — — 828 — — 828 +Net earnings (loss) — — — ( 58 ) — — — ( 58 ) +Balance, December 31, 2023 $ — $ — $ 3,185 $ 1,926 $ ( 1,990 ) $ ( 18 ) $ — $ 3,103 +See accompanying Notes to Consolidated Financial Statements +129 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY, CONTINUED +(In millions) +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2024 $ — $ — $ 3,185 $ 1,926 $ ( 1,990 ) $ ( 18 ) $ — $ 3,103 +Acquisition of non-controlling interest — — — — — — 136 136 +Issuance of Preferred Stock — — 250 — — — — 250 +Treasury stock purchased — — — — — ( 12 ) — ( 12 ) +Stock-based compensation — — 29 — — — — 29 +Common stock dividends declared — — — ( 108 ) — — — ( 108 ) +Preferred stock dividends declared — — — ( 17 ) — — — ( 17 ) +Dividends declared and distributions to non-controlling interests — — — — — — ( 14 ) ( 14 ) +Other comprehensive income (loss) — — — — 67 — — 67 +Net earnings (loss) — — — 639 — — 3 642 +Balance, December 31, 2024 $ — $ — $ 3,464 $ 2,440 $ ( 1,923 ) $ ( 30 ) $ 125 $ 4,076 +See accompanying Notes to Consolidated Financial Statements +130 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In millions) +Year ended December 31, +2024 2023 2022 +Cash Flows from Operating Activities: +Net earnings (loss) $ 642 $ ( 58 ) $ 635 +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization 569 412 324 +(Gain) loss on sales of investments and other assets and asset impairments, net ( 210 ) 461 436 +Interest credited/index credits to contractholder account balances 1,327 1,409 ( 560 ) +Change in market risk benefits, net ( 25 ) 95 ( 182 ) +Deferred policy acquisition costs and deferred sales inducements ( 1,419 ) ( 1,082 ) ( 814 ) +Charges assessed to contractholders for mortality and administration ( 291 ) ( 255 ) ( 221 ) +Distributions from unconsolidated affiliates, return on investment 108 104 119 +Stock-based compensation cost 29 23 12 +Change in NAV of limited partnerships, net ( 350 ) ( 220 ) ( 109 ) +Change in valuation of derivatives, equity and preferred securities and other assets, net 60 ( 347 ) 561 +Changes in assets and liabilities, net of effects from acquisitions: +Change in reinsurance recoverable ( 19 ) 94 148 +Change in derivative collateral liabilities 91 410 ( 398 ) +Change in future policy benefits 1,853 1,325 1,071 +Change in funds withheld from reinsurers 3,795 3,386 2,056 +Net change in income taxes 103 ( 4 ) 211 +Net change in other assets and other liabilities ( 264 ) 81 ( 118 ) +Net cash provided by operating activities 5,999 5,834 3,171 +Cash Flows from Investing Activities: +Proceeds from sales, calls and maturities of investments 11,260 5,279 5,429 +Additions to property and equipment and capitalized software ( 24 ) ( 27 ) ( 32 ) +Purchases of investment securities ( 16,922 ) ( 13,326 ) ( 12,426 ) +Net proceeds from sales, maturities and purchases of short-term investment securities ( 1,103 ) ( 28 ) ( 1,654 ) +Other acquisitions/disposals, net of cash acquired ( 482 ) — — +Additional investments in unconsolidated affiliates ( 1,114 ) ( 1,137 ) ( 987 ) +Net increase in policy loans ( 33 ) ( 19 ) ( 13 ) +Distributions from unconsolidated affiliates, return of investment 478 340 313 +Net increase in notes receivable ( 13 ) — — +Net cash used in investing activities ( 7,953 ) ( 8,918 ) ( 9,370 ) +Cash Flows from Financing Activities: +Borrowings 1,050 845 550 +Debt issuance costs ( 20 ) ( 16 ) ( 4 ) +Net revolving credit facility (repayments) borrowings ( 365 ) ( 185 ) — +Repayments of outstanding debt ( 250 ) — — +Dividends paid ( 121 ) ( 101 ) — +Dividends and distributions paid to non-controlling interest shareholders ( 14 ) — — +Purchases of treasury stock ( 12 ) ( 18 ) — +Issuance of preferred stock 250 — — +Contractholder account deposits 10,147 7,787 8,530 +Contractholder account withdrawals ( 8,010 ) ( 4,625 ) ( 3,450 ) +Net cash provided by financing activities 2,655 3,687 5,626 +Net increase (decrease) in cash and cash equivalents 701 603 ( 573 ) +Cash and cash equivalents at beginning of period 1,563 960 1,533 +Cash and cash equivalents at end of period $ 2,264 $ 1,563 $ 960 +See accompanying Notes to Consolidated Financial Statements +131 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Note A - Business and Summary of Significant Accounting Policies +The following describes the business and significant accounting policies of F&G Annuities & Life, Inc. (“FGAL”) and its subsidiaries (collectively, “we,” “us,” “our,” the “Company” or “F&G”), which have been followed in preparing the Consolidated Financial Statements. +Description of the Business +F&G is a majority-owned subsidiary of Fidelity National Financial, Inc. (NYSE: FNF) (“FNF”). We provide insurance solutions and market a broad portfolio of annuity and life insurance products through retail channels and institutional markets and earn commissions on the sale of insurance products through our owned distribution channels. For certain disclosures within this Annual Report on Form 10-K, we have elected to aggregate business based on the applicable product type, the manner in which information is regularly reviewed by management and the nature of disclosures that exist outside the Company’s generally accepted accounting principles (“GAAP”) financial statements. +Retail distribution channels products include: +• Deferred annuities including fixed indexed annuities (“FIA”), registered index-linked annuities (“RILA”), (together referred to as “indexed annuities”) and fixed rate annuities including multi-year guarantee annuities (“MYGA”), +• Immediate annuities, and +• Indexed universal life (“IUL”) insurance. +Institutional markets products include: +• Pension risk transfer (“PRT”) solutions, and +• Funding agreements, including funding agreement backed notes (“FABN”) and Federal Home Loan Bank funding agreements (“FHLB”). +F&G has one reporting segment, which reflects the manner by which our chief operating decision maker (“CODM”), the Chief Executive Officer of F&G, views and manages the business. For information about our reporting segment refer to Note V - Segment Information. +Recent Developments +Redemption of 5.50 % F&G Senior Notes +On February 1, 2025, F&G redeemed the outstanding $ 300 million aggregate principal amount of its 5.50 % Senior Notes due May 1, 2025 (the “ 5.50 % F&G Senior Notes”). The notes were redeemed for a redemption price equal to 100 % of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date. On and after the redemption date, interest will cease to accrue on the notes. +7.300 % F&G Junior Notes +On January 13, 2025, F&G completed its public offering of its 7.300 % Junior Subordinated Notes due 2065 with an aggregate principal amount of $ 375 million (the “ 7.300 % F&G Notes”). F&G intends to use the net proceeds of this offering for general corporate purposes, including the repurchase, redemption or repayment at maturity of outstanding indebtedness. The 7.300 % F&G Notes were registered under the Securities Act of 1933 (as amended) (the “Securities Act”). +132 +6.250 % F&G Senior Notes +On October 4, 2024, F&G completed its public offering of its 6.250 % Senior Notes due 2034 with an aggregate principal amount of $ 500 million (the “ 6.250 % F&G Notes”). The 6.250 % F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreements. A portion of the net proceeds were used to pay off the outstanding balance of $ 365 million on the Company’s revolving credit facility. The 6.250 % F&G Notes were registered under the Securities Act. +6.50 % F&G Senior Notes +On June 4, 2024, F&G completed its public offering of $ 550 million aggregate principal amount of its 6.50 % Senior Notes due 2029 (the “ 6.50 % F&G Notes”). The 6.50 % F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. A portion of the net proceeds were used to finance a cash tender offer by its wholly owned subsidiary Fidelity & Guaranty Life Holdings, Inc. (“FGLH”) for an aggregate principal amount of $ 250 million of FGLH’s 5.50 % Senior Notes due 2025 (the “ 5.50 % F&G Notes”). The 6.50 % F&G Notes were registered under the Securities Act. +Revolving Credit Facility +On February 16, 2024, F&G entered into an amendment and extension of its existing senior unsecured revolving credit agreement (the “Credit Agreement”). The maturity date of the Credit Agreement has been extended by approximately two years from November 22, 2025 to November 22, 2027. Total commitments increased from $ 665 million to $ 750 million. Pricing and advance rates remain unchanged. Financial covenants also remain essentially the same. As noted above, we used $ 365 million of net proceeds from our 6.250 % F&G Notes to pay off the Credit Agreement, and the balance was of the Credit Agreement was $ 0 as of December 31, 2024. +Refer to Note L- Notes Payable for further information related to these financing facilities. +FNF $ 250 million Preferred Stock Investment +On January 12, 2024, we completed a $ 250 million preferred stock investment from FNF. Net proceeds from the investment have been used to support the growth of F&G’s assets under management. Under the terms of the agreement, FNF agreed to invest $ 250 million in exchange for 5,000,000 shares of F&G’s 6.875 % Series A Mandatory Convertible Preferred Stock, par value $. 0.001 per share, liquidation preference of $ 50.00 per share (the “FNF Preferred Stock”). For further information related to this preferred stock issuance, refer to Note Q - Related Party Transactions and Note U - Equity. +Owned Distribution Investments +On July 18, 2024, F&G acquired a 100 % ownership stake in the equity of PALH, LLC (“PALH”). PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. Prior to the acquisition date, PALH owned a 70 % ownership stake in an operating company of which F&G owned 30 % equity. Total consideration of approximately $ 314 million is comprised of cash of $ 215 million, settlement of a prepaid asset of $ 8 million, acquisition date fair value of the previously held interests of $ 92 million, net of $ 1 million cash acquired. +On January 2, 2024, F&G acquired a 70 % majority ownership stake in the equity of Roar Joint Venture, LLC (“Roar”) resulting in the consolidation of Roar in F&G’s financial statements. Roar wholesales life insurance and annuity products to banks and broker-dealers through a network of agents. Total initial consideration is comprised of cash of approximately $ 269 million and $ 48 million of contingent consideration. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to approximately $ 90 million over a three year +133 +period upon the achievement by Roar of certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) milestones. +For more information regarding the Roar and PALH acquisitions, refer to Note P - Acquisitions . +Principles of Consolidation and Basis of Presentation +The Consolidated Financial Statements are prepared in accordance with GAAP and include our accounts as well as our wholly owned subsidiaries and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Non-controlling interests recorded on the Consolidated Statements of Operations represent the portion of a majority-owned subsidiary's net earnings or loss that is owned by non-controlling shareholders of the subsidiary. Non-controlling interests recorded on the Consolidated Balance Sheets represent the portion of equity in a consolidated subsidiary owned by non-controlling shareholders. +Refer to Note T - Recent Accounting Pronouncements for information on recent accounting pronouncements that may have an impact on our Consolidated Financial Statements. +We are involved in certain entities that are considered variable interest entities (“VIEs”) as defined under GAAP. Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. We assess our relationships with VIEs to evaluate if we are the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our Consolidated Financial Statements. See Note C - Investments for additional information on our investments in VIEs. +Investments +Fixed Maturity Securities Available-for-Sale +Fixed maturity securities are purchased to support our investment strategies, which are developed based on factors including rate of return, maturity, credit risk, duration, tax considerations and regulatory requirements. Our investments in fixed maturity securities have been designated as available-for-sale (“AFS”) and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”), net of deferred income taxes. We recognize investment income on fixed maturities based on the effective interest method, which results in the recognition of a constant rate of return on the investment equal to the prevailing rate at the time of purchase or at the time of subsequent adjustments of book value. Realized gains and losses on sales of our fixed maturity securities are determined on the first-in first-out cost basis. We generally record security transactions on a trade date basis except for private placements, which are recorded on a settlement date basis. Realized gains and losses on sales of fixed maturity securities are reported within Recognized gains and (losses), net in the Consolidated Statements of Operations. Fixed maturity securities AFS are subject to an allowance for credit loss and changes in the allowance are reported in net earnings as a component of Recognized gains and (losses), net. For details on our policy around allowance for expected credit losses on available-for-sale securities, refer to Note C - Investments. +Preferred and Equity Securities +Preferred and equity securities held are carried at fair value as of the balance sheet dates. Changes in fair value and realized gains and losses on sales of our preferred and equity securities are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. Realized gains and losses on sales of our preferred and equity securities are determined on the first-in first-out cost basis and are credited or charged to earnings on a trade date basis unless the security is a private placement in which case settlement date basis is used. Interest and dividend income from these investments is reported in Interest and investment income in the Consolidated Statements of Operations. +134 +Derivative Financial Instruments +We hedge certain portions of our exposure to product related equity market risk by entering into derivative transactions (primarily equity options). We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. All such derivative instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets at fair value. The changes in fair value are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. The change in the fair value of derivative instruments is included in (Gain) loss on sales of investments and other assets and asset impairments, net, in the Consolidated Statements of Cash Flow. +We purchase financial instruments that may contain embedded derivative instruments. If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract for measurement purposes. +Mortgage Loans +Our investment in mortgage loans consists of commercial and residential mortgage loans on real estate, which are reported at amortized cost, less allowance for expected credit losses. For details on our policy around allowance for expected credit losses on mortgage loans, refer to Note C - Investments . +Commercial mortgage loans are continuously monitored by reviewing appraisals, operating statements, rent revenues, annual inspection reports, loan specific credit quality, property characteristics, market trends and other factors. +Commercial mortgage loans are rated for the purpose of quantifying the level of risk. Loans are placed on a watch list when the debt service coverage (“DSC”) ratio falls below certain thresholds and the loan-to-value (“LTV”) ratios exceeds certain thresholds. Loans on the watchlist are closely monitored for collateral deficiency or other credit events that may lead to a potential loss of principal or interest. We define delinquent mortgage loans as 30 days past due, consistent with industry practice. +Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. We define nonperforming residential mortgage loans as those that are 90 or more days past due and/or in nonaccrual status, which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss. We consider residential mortgage loans that are 90 or more days past due and have an LTV greater than 90% to be foreclosure probable. +Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Interest income, amortization of premiums and discounts, prepayment fees, and loan commitment fees are reported in Interest and investment income in the Consolidated Statements of Operations. +Policy loans +Policy loans are reported at the unpaid principal balance and are fully collateralized by the cash surrender value of underlying insurance policies. +Short-term investments +Short-term investments consist of financial instruments with an original maturity of one year or less when purchased and include short-term fixed maturity securities and money market instruments, which are carried at fair value, and short-term loans, which are carried at amortized cost, which approximates fair value. +135 +Investments in Unconsolidated Affiliates +We account for our investments in unconsolidated affiliates using the equity method or by electing the fair value option. Initial investments are recorded at cost. +For investments subsequently measured using the equity method (primarily limited partnerships), adjustments to the carrying amount reflect our pro rata ownership percentage of the operating results as indicated by net asset value (“NAV”) in the unconsolidated affiliates’ financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. Our pro rata share of NAV adjustments are reported in Interest and investment income and realized gains and losses on sales are reported in Recognized gains and (losses), net in the Consolidated Statements of Operations. Distributions received from investments measured using the equity method are recorded as a decrease in the investment balance. Recognition of income and adjustments to the carrying amount can be delayed due to the availability of the related financial statements, which are obtained from the general partner or managing member generally on a one to three month delay. Management inquires quarterly with the general partner or managing member to determine whether any credit or other market events have occurred since prior quarter financial statements to ensure any material events are properly included in our current quarter NAV adjustments and investment income. +For investments subsequently measured using the fair value option, adjustments to the carrying amount reflecting the change in fair value of the investment and realized gains and losses on sales are reported in Recognized gains and (losses), net in the Consolidated Statements of Operations. Distributions received from investments measured using the fair value option are reported within Interest and investment income in the Consolidated Statements of Operations. +For descriptions of the fair value methodologies used for our investments, refer to Note B - Fair Value of Financial Instruments. +Interest and investment income +Dividends and interest income are recorded in Interest and investment income and recognized when earned. Income or losses upon call or prepayment of fixed maturity securities are recognized in Interest and investment income. Amortization of premiums and accretion of discounts on investments in fixed maturity securities are reflected in Interest and investment income over the contractual terms of the investments, and for callable investments at a premium, based on the earliest call date of the investments, in a manner that produces a constant effective yield. +For mortgage-backed and asset-backed securities, included in the fixed maturity securities portfolios, one of two models may be used to recognize interest income. For higher rated securities, interest income will be estimated based on an effective yield that considers cash flows received to date plus current expectations of future cash flows. For all other securities, interest income will be estimated based upon an effective yield that considers current expectations of future cash flows. For both interest income models, the estimated future cash flows include assumptions regarding the performance of the underlying collateral pool. +Interest and investment income is presented net of investment expenses and the effects of certain reinsurance contracts. +Cash and Cash Equivalents +Highly liquid instruments purchased as part of cash management with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. +136 +Fair Value of Financial Instruments +The fair values of financial instruments presented in the Consolidated Financial Statements are estimates of the fair values at the balance sheet date using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments . +Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations +The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, requires an acquirer to recognize, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree, and to measure these items generally at their acquisition date fair values. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to report provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the acquisition date, when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. +Goodwill +Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment at the reporting unit level on an annual basis or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform a qualitative analysis at the reporting unit level to determine whether there are any events or circumstances that would indicate it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value, prior to performing a full fair-value assessment. +We complete annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2024 and 2023, we determined there were no events or circumstances which indicated that the carrying value of a reporting unit exceeded the fair value. +Insurance and Reinsurance Related Intangible Assets +We have insurance and reinsurance related intangible assets, which include the value of insurance and reinsurance contracts acquired (hereafter referred to as “VOBA”), DAC, DSI, and cost of reinsurance (“COR”). VOBA, DAC, and DSI are reported in Other intangible assets, net, on the Consolidated Balance Sheets. COR may be reported in Prepaid expenses and other assets or in Accounts payable and accrued liabilities on the Consolidated Balance Sheets as described below under “ Reinsurance - Cost of Reinsurance.” +VOBA is an intangible asset that reflects the amount recorded as insurance contract liabilities less the estimated fair value of in-force contracts (“VIF”) in a life insurance company acquisition. It represents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business in force at the acquisition date. VOBA is a function of the VIF, current GAAP reserves, GAAP assets, and deferred tax liability. The VIF is determined by the present value of statutory distributable earnings less opening required capital. DAC +137 +consists principally of commissions and other acquisition costs that are related directly to the successful sale of new or renewal insurance contracts that are deferred as they are incurred. When insurance contracts are reinsured and reinsurance accounting is applied, acquisition cost reimbursements from reinsurers are recorded as a reduction to DAC. Indirect or unsuccessful acquisition costs, maintenance, product development and overhead expenses are charged to expense as incurred and are offset by maintenance expense reimbursements within a reinsurance arrangement, when reinsurance accounting is applied to the respective arrangement DSI represents up front bonus credits and persistency or vesting bonuses credited to contractholder fund balances. COR represents net cash flows on reinsurance coverage to ensure no gain or loss is recognized at inception. +VOBA, DAC, DSI, and COR are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Contracts are grouped by product type, feature and issue year into cohorts consistent with the grouping used in estimating the associated liability, where applicable. The constant level amortization bases of VOBA, DAC, DSI, and COR varies by product type. For universal life and IUL insurance products, the constant level basis used is face amount in force. For deferred annuities (indexed annuities and fixed rate annuities), the constant level basis used is initial premium deposit for DAC and DSI and vested account value as of the acquisition date for VOBA and ceded initial premium for COR. For immediate annuity contracts, the VOBA balance is amortized in alignment with the Company’s accounting policy of amortizing the deferred profit liability (“DPL”). All amortization bases are adjusted by full lapses, which includes deaths, full surrenders, annuitizations and maturities, where applicable. +The constant level basis used for amortization are projected using mortality and lapse assumptions that are based on Company’s experience, industry data, and other factors and are consistent with those used for the FPB, where applicable. If those projected assumptions change in future periods, they will be reflected in the cohort level amortization basis at that time. Unexpected contract terminations, due to higher mortality and/or lapse experience than expected, are recognized in the current period as a reduction of the capitalized balances. All balances are reduced for actual experience in excess of expected experience with changes in future estimates recognized prospectively over the remaining expected grouped contract term. The impact of changes in projected assumptions and the impact of actual experience that is different from expectations impact the amortization of these intangible assets, which is reported within Depreciation and amortization for VOBA, DAC DSI and for COR, if the net COR balance is in a deferred gain position is reported within Life insurance premiums and other fees, and if the net COR balance is in a deferred loss position is reported within Other operating expenses in the Consolidated Statements of Operations. +Some of our IUL policies require payment of fees or other policyholder assessments in advance for services that will be rendered over the estimated lives of the policies or contracts. These payments are established as URL upon receipt and included in Accounts payable and other accrued liabilities in the Consolidated Balance Sheets. URL is amortized like DAC over the estimated lives of these policies. +Other Intangible Assets +We have other intangible assets, not including goodwill, VOBA, DAC or DSI, which consist primarily of customer relationships and contracts, the value of distribution network acquired (“VODA”), trademarks and tradenames, state licenses and computer software, which are generally recorded in connection with business combinations at their fair value . Intangible assets with estimable lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In general, customer relationships are amortized over their estimated useful lives using an accelerated method, which takes into consideration expected customer attrition rates. VODA is an intangible asset that represents the value of an acquired distribution network and is amortized using the sum of years digits method. Contractual relationships are generally amortized over their contractual life. Trademarks and tradenames are generally amortized over ten years . Capitalized computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life. For internal-use computer software products, +138 +internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use. +We review VOBA, DSI and other intangible assets for impairment annually or when events or circumstances occur that indicate a potential change in the underlying basis . Refer to Note F - Intangibles for details of impairment expense. +Contingent Consideration +Contingent consideration recognized in connection with a business combination represents an obligation to transfer additional assets or equity interests as part of the exchange for control of an acquiree if specified future events or conditions are met. Contingent consideration is recognized at fair value in the Consolidated Balance Sheets within Accounts payable and accrued liabilities. Changes in fair value are recognized in the Consolidated Statements of Operations as Other operating expenses. +Property and Equipment +Property and equipment are recorded at cost, less accumulated depreciation in Prepaid expenses and other assets on the Consolidated Balance Sheets. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets: twenty to thirty years for buildings and three to twenty-five years for furniture, fixtures and equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. +Contractholder Funds +Contractholder funds include deferred annuities (indexed annuities and fixed rate annuities), IULs, funding agreements and non-life contingent (“NLC”) immediate annuities (which includes NLC PRT annuities). The liabilities for contractholder funds for fixed rate annuities, funding agreements and NLC immediate annuities consist of contract account balances that accrue to the benefit of the contractholders. The liabilities for indexed annuities and IUL policies consist of the value of the host contract plus the fair value of the indexed crediting feature of the policy, which is accounted for as an embedded derivative. The embedded derivative liability is carried at fair value in Contractholder funds in the Consolidated Balance Sheets with changes in fair value reported in Benefits and other changes in policy reserves in the Consolidated Statements of Operations. See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments . +Future Policy Benefits +The FPB are determined as the present value of future policy benefits and related claims expenses to be paid to or on behalf of the policyholder less the present value of future net premiums to be collected from policyholders. The FPB for traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities) are estimated using current assumptions that include discount rate, mortality and surrender/lapse terminations for traditional life insurance policies only, and expenses. The expense assumption is locked-in at contract issuance and not subsequently reviewed or updated. The initial assumptions are based on generally accepted actuarial methods and a combination of internal and industry experience. Policies are terminated through surrenders, lapses and maturities, where surrenders represent the voluntary terminations of policies by policyholders, lapses represent cancellations by us due to nonpayment of premiums, and maturities are determined by policy contract terms. +For traditional life policies and life-contingent immediate annuity policies, contracts are grouped into cohorts by product type, legal entity, and issue year, or acquisition year for cohorts established as of the FNF Acquisition Date. Life-contingent PRT annuities are grouped into cohorts by deal and legal entity. At contract inception, a net +139 +premium ratio (“NPR”) is determined, which is calculated based on discounted future cash flows projected using best estimate assumptions and is capped at 100 %, as net premiums cannot exceed gross premiums. Cohorts with NPRs less than 100 % are not used to offset cohorts with NPRs greater than 100 %. +The NPR is adjusted for changes in cash flow assumptions and for differences between actual and expected experience. We assess the appropriateness of all future cash flow assumptions, excluding the expense assumption, on a quarterly basis and perform an in-depth review of future cash flow assumptions in the third quarter of each year. Updates are made when evidence suggests a revision is necessary. Updates for actual experience, which includes actual cash flows and insurance in-force, are performed on a quarterly basis. These updated cash flows are used to calculate a revised NPR, which is used to derive an updated liability as of the beginning of the current reporting period, discounted at the original contract issuance date. The updated liability is compared with the carrying amount of the liability as of that same date before the revised NPR. The difference between these amounts is the remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. In subsequent periods, the revised NPR is used to measure the FPB, subject to future revisions. If the NPR is greater than 100 %, and therefore capped at 100 %, the liability is increased and expensed immediately to reflect the amount necessary for net premiums to equal gross premiums. As the liability assumptions are reviewed and updated, if deemed necessary, at least annually, if conditions improve whereby the contracts are no longer expected to have net premiums in excess of gross premiums, the improvements would be captured in the remeasurement process and reflected in the Consolidated Statements of Operations in the period of improvement. +For traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities), the discount rate assumption is an equivalent single rate that is derived based on A-credit-rated fixed-income instruments with similar duration to the liability. We selected fixed-income instruments that have been A-rated by Bloomberg. In order to reflect the duration characteristics of the liability, we will use an implied forward yield curve and linear interpolation will be used for durations that have limited or no market observable points on the curve. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in the Consolidated Statements of Comprehensive Income (Loss). +Deferred Profit Liability +For life-contingent immediate annuity policies, gross premiums received in excess of net premiums are deferred at initial recognition as a DPL. Premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPBs, including discount rate, mortality, and expenses. +The DPL is amortized and recognized as premium revenue with the amount of expected future benefit payments, discounted using the same discount rate determined and locked-in at contract issuance that is used in the measurement of the related FPB. Interest is accreted on the balance of the DPL using this same discount rate. We periodically review and update our estimates using the actual historical experience and updated cash flows for the DPL at the same time as the estimates of cash flows for the FPB. When cash flows are updated, the updated estimates are used to recalculate the initial DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, with any differences recognized as a remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. The DPL is recorded as a component of the Future policy benefits in the Consolidated Balance Sheets. +Market Risk Benefits +MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest rate and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on indexed annuities products that provide minimum guarantees to policyholders, such as guaranteed minimum death benefit (“GMDB”), guaranteed minimum withdrawal benefit (“GMWB”) riders and guaranteed minimum accumulation benefit (“GMAB”) riders. In certain reinsurance transactions, the underlying risks ceded to a reinsurer contain MRBs. +140 +MRBs (inclusive of reinsured MRBs) are measured at fair value using an attributed fee measurement approach where attributed fees are explicit rider charges collectible from the policyholder (or paid to the reinsurer) used to cover the excess benefits, which represent expected benefits in excess of the policyholder’s account value. At contract inception, an attributed fee ratio is calculated equal to rider charges over benefits paid in excess of the account value attributable to the MRBs. The attributed fee ratio remains static over the life of the MRBs and is capped at 100 %. Each period subsequent to contract inception, the attributed fee ratio is used to calculate the fair value of the MRBs using a risk neutral valuation method and is based on current net amounts at risk, market data, internal and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, GMWB utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. MRBs can either be in an asset or liability position and are presented separately on the Consolidated Balance Sheets as the right of setoff criteria are not met. Changes in fair value, net, are recognized in Market risk benefit (gains) losses in the Consolidated Statements of Operations, except for the change in fair value due to a change in our instrument-specific credit risk, which is recognized in the Consolidated Statements of Comprehensive Income (Loss). See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments and Note G - Market Risk Benefits . +Income Taxes +We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that it is more likely than not that some portion of the tax benefit will not be realized. We adjust the valuation allowance if, based on our evaluation, there is a change in the amount of deferred income tax assets that are deemed more-likely-than-not to be realized. T he impact on deferred taxes of changes in tax rates and laws, if any, is applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted. +Reinsurance +Our insurance subsidiaries enter into reinsurance agreements with other companies in the normal course of business. In certain arrangements that are not accounted for as reinsurance, the right of offset may be applied resulting in all balances and activity associated with the agreement being presented on a net basis in the Consolidated Balance Sheets and Statements of Operations, respectively. +When the right of offset is not applied, the arrangement is reflected on a gross basis in the Consolidated Balance Sheets and Statements of Operations. This results in the recognition of a Reinsurance recoverable for amounts due from the reinsurer. For arrangements accounted for as reinsurance, the Reinsurance recoverable balance reflects the reserve balance of the policies ceded. For arrangements not accounted for as reinsurance, deposit accounting is applied. As a result, the deposit asset presented as a Reinsurance recoverable on the Consolidated Balance Sheets, is based on the actual and expected cash flows due from the reinsurer where the interest method is used to accrete the deposit asset using an effective yield based on changes in actual and expected cash flows. For coinsurance of FIA and IUL policies, the Reinsurance recoverable will incorporate the fair value of the indexed crediting feature, which is accounted for as an embedded derivative. Changes in the Reinsurance recoverable balance are reported as Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +141 +Cost of Reinsurance +Amounts received from or paid to reinsurers in excess of reimbursements or liabilities ceded, respectively, represents COR. If the net COR balance is in a deferred gain position, it is included within Accounts payable and accrued liabilities with the related amortization reflected within Life insurance premiums and other fees and, if in a deferred loss position, is included within the Prepaid expenses and other assets with the related amortization reflected within Other operating expenses, in the Consolidated Balance Sheets and Statements of Operations, respectively. Premiums and expenses are recorded net of reinsurance ceded. +Funds Withheld Arrangements +F&G cedes certain business on a coinsurance funds withheld basis. Investment results for the assets that support the coinsurance that are segregated within the funds withheld account are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance agreement, which creates embedded derivatives considered to be total return swaps. These total return swaps are not clearly and closely related to the underlying reinsurance agreement and thus require bifurcation. The fair value of the total return swaps is based on the change in fair value of the underlying assets held in the funds withheld account. These embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the Consolidated Balance Sheets and the related gains or losses are reported in Recognized gains and (losses), net, on the Consolidated Statements of Operations. +Revenue Recognition +F&G derives its revenue from external customers primarily located in the United States. Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on indexed annuities policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts. We have ceded the majority of our traditional life business to unaffiliated third-party reinsurers. While the base contract has been reinsured, we continue to retain the return of premium rider. Other income related to riders is earned when elected by the policyholder. Surrender charges are earned when a policyholder withdraws funds from the contract early or cancels the contract. +Premium and annuity deposit collections for indexed annuities, fixed rate annuities, immediate annuities and PRT without life contingencies, and amounts received for funding agreements are reported in the financial statements as deposit liabilities (i.e., Contractholder Funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities include net investment income, surrender, cost of insurance and other charges deducted from Contractholder Funds, and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the hedging cost of providing index credits to the policyholder), amortization of VOBA, DAC, DSI and COR, other operating costs and expenses, and income taxes. +Premiums, annuity deposits (net of reinsurance and reinsurance recoverable) and funding agreements, which are not included as revenues in the Consolidated Statements of Operations, collected by product type were as follows: +Year Ended December 31, +2024 2023 2022 +Indexed annuities $ 5,828 $ 4,738 $ 4,483 +Fixed rate annuities 1,277 1,147 1,522 +Funding agreements (FABN/FHLB) 2,404 1,256 1,891 +Life insurance and other (a) +638 646 446 +Total $ 10,147 $ 7,787 $ 8,342 +(a) Life insurance and other primarily includes indexed universal life insurance. +142 +Interest and investment income consist primarily of interest payments received on fixed maturity security holdings and dividends received on preferred and equity security holdings along with the investment income of limited partnerships and is recognized when earned. +Owned distribution revenues generated from commissions earned on contracts with insurance carriers are considered variable consideration and consist of revenue primarily from annuity products. Revenue is recognized at the effective date of each policy sold at the net amount retained under a contract within Owned distribution revenues on the Consolidated Statements of Operations. Intercompany transactions are eliminated in consolidation. +Benefits and Other Changes in Policy Reserves +Benefit expenses for deferred annuities (indexed annuities and fixed rate annuities), IUL policies and funding agreements include interest credited to contractholder account balances. For indexed annuities and IUL, the benefits expense includes the change in fair value of the embedded derivatives associated with the equity crediting rates. Benefit claims in excess of contract account balances, net of reinsurance recoveries, are charged to expense in the period that they are earned by the policyholder based on their selected strategy or strategies. +All changes in the Reinsurance recoverable balance that need to be reflected in earnings are included within Benefits and other changes in policy reserves on the Consolidated Statements of Operations. For reinsurance arrangements that apply reinsurance accounting, this primarily relates to changes in the reserve balance ceded. For reinsurance arrangements that apply deposit accounting, this primarily relates to accretion of the deposit asset balance. +Other changes in policy reserves also include the change in reserves for life insurance products. For traditional life and life-contingent immediate annuities (which includes PRT annuities with life contingencies), policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries. Remeasurement gains or losses on the related FPB and DPL balances are presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +Stock-Based Compensation Plans +We account for stock-based compensation plans using the fair value method. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date using quoted market prices and recognized over the service period. Refer to Note R - Employee Benefit Plans for more details regarding our stock compensation plans. +Earnings Per Share +Basic earnings per share (“EPS”), as presented on the Consolidated Statements of Operations, is computed by dividing net earnings available to common shareholders in a given period by the weighted average number of common shares outstanding during such period. Net earnings available to common shareholders is net earnings adjusted for net earnings attributable to non-controlling interests, preferred stock dividends, including preferred stock dividends declared. In periods when earnings are positive, diluted EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted loss per share is equal to basic loss per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. Certain shares of restricted stock, using the treasury stock method and, as of January 12, 2024, the FNF Preferred Stock, using the if-converted method, are treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which the effect is dilutive. The if-converted method assumes that the convertible preferred stock converts into common stock at the beginning of the period or date of issuance, if later. +Refer to Note S - Earnings Per Share for more details over our calculation of EPS. +143 +Comprehensive Income (Loss) +We report Comprehensive Income (Loss) in accordance with GAAP on the Consolidated Statements of Comprehensive Income (Loss). Total comprehensive income is defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders. While total Comprehensive Income (Loss) is the activity in a period and is largely driven by net earnings in that period, Accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. Amounts reclassified to net earnings relate to the realized gains (losses) on our investments and other financial instruments, excluding investments in unconsolidated affiliates, and are included in Recognized gains and (losses), net on the Consolidated Statements of Operations. The income tax effects are released from AOCI when the related activity is reclassified to net earnings. +Management Estimates +The preparation of these Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +Periodically, and at least annually, typically in the third quarter, we review the assumptions associated with reserves for policy benefits and product guarantees. During the third quarter and for the year ended December 31, 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds. These changes resulted in a decrease in total benefits and other changes in policy reserves of approximately $ 89 million for the year ended December 31, 2024. +During the third quarter and for the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain indexed annuities assumptions to calculate the fair value of the embedded derivative component within the contractholder funds and also aligned reserves to actual policyholder behavior. These changes resulted in an increase in total benefits and other changes in policy reserves of approximately $ 73 million . +During the fourth quarter of 2022, based on increases in interest rates and pricing changes during 2022, we updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and the fair value of market risk benefits. These changes, taken together, resulted in an increase in contractholder funds and market risk benefits of $ 99 million . +Reclassifications +Prior period amounts have been reclassified to conform with the current period presentation. +Note B - Fair Value of Financial Instruments +Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or non-performance risk, which may include our own credit risk. We estimate an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market for that asset or liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or assume a liability (“entry price”). We categorize financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique, along with net asset value. The three-level hierarchy for fair value measurement is defined as follows: +144 +Level 1 – Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. +Level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves. +Level 3 – Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date based on the best information available in the circumstances. +Net Asset Value (“NAV”) – Certain equity investments are measured using NAV as a practical expedient in determining fair value. In addition, our unconsolidated affiliates (primarily limited partnerships) are primarily accounted for using the equity method of accounting with fair value determined using NAV as a practical expedient. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the unconsolidated affiliate’s financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. The underlying investments of the unconsolidated affiliates may have significant unobservable inputs, which may include, but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model. Additionally, management inquires quarterly with the general partner to determine whether any credit or other market events have occurred since prior period financial statements to ensure any material events are properly included in current period valuation and investment income. +In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. +When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-based sources. +145 +Our assets and liabilities measured and carried at fair value on a recurring basis, summarized according to the hierarchy previously described, are as follows (in millions): +December 31, 2024 +Level 1 Level 2 Level 3 NAV Fair Value +Assets +Cash and cash equivalents $ 2,264 $ — $ — $ — $ 2,264 +Fixed maturity securities, available-for-sale: +Asset-backed securities — 7,506 8,143 — 15,649 +Commercial mortgage-backed securities — 5,131 — — 5,131 +Corporates 41 17,496 2,941 — 20,478 +Hybrids 35 546 — — 581 +Municipals — 1,346 — — 1,346 +Residential mortgage-backed securities — 2,785 3 — 2,788 +U.S. Government 158 — — — 158 +Foreign Governments — 182 4 — 186 +Preferred securities 119 144 7 — 270 +Equity securities 88 — — 57 145 +Derivative investments — 789 3 — 792 +Investment in unconsolidated affiliates — — 272 — 272 +Other long-term investments — — 32 32 +Short term investments 2,355 18 37 — 2,410 +Loan receivable, included in Prepaid expenses and other assets — — 11 — 11 +Reinsurance related embedded derivative, included in Prepaid expenses and other assets — 109 — — 109 +Market risk benefits asset — — 189 — 189 +Total financial assets at fair value $ 5,060 $ 36,052 $ 11,642 $ 57 $ 52,811 +Liabilities +Derivatives: +Indexed annuities/ IUL embedded derivatives, included in Contractholder funds $ — $ — $ 5,220 $ — $ 5,220 +Interest rate swaps, included in Accounts payable and accrued liabilities — 10 — — 10 +Contingent consideration, included in Accounts payable and accrued liabilities — — 74 — 74 +Market risk benefits liability — — 549 — 549 +Total financial liabilities at fair value $ — $ 10 $ 5,843 $ — $ 5,853 +146 +December 31, 2023 +Level 1 Level 2 Level 3 NAV Fair Value +Assets +Cash and cash equivalents $ 1,563 $ — $ — $ — $ 1,563 +Fixed maturity securities, available-for-sale: +Asset-backed securities — 7,212 7,122 — 14,334 +Commercial mortgage-backed securities — 4,392 18 — 4,410 +Corporates — 14,609 1,970 — 16,579 +Hybrids 95 523 — — 618 +Municipals — 1,518 49 — 1,567 +Residential mortgage-backed securities — 2,421 3 — 2,424 +U.S. Government 261 — — — 261 +Foreign Governments — 210 16 — 226 +Preferred securities 152 310 7 — 469 +Equity securities 78 — — 59 137 +Derivative investments — 740 57 — 797 +Investment in unconsolidated affiliates — — 285 — 285 +Other long-term investments — — 37 — 37 +Short-term investments 1,444 8 — — 1,452 +Reinsurance related embedded derivative, included in Prepaid expenses and other assets — 152 — — 152 +Market risk benefits asset — — 88 — 88 +Total financial assets at fair value $ 3,593 $ 32,095 $ 9,652 $ 59 $ 45,399 +Liabilities +Derivatives: +Indexed annuities/ IUL embedded derivatives, included in Contractholder funds $ — $ — $ 4,258 $ — $ 4,258 +Market risk benefits liability — — 403 — 403 +Total financial liabilities at fair value $ — $ — $ 4,661 $ — $ 4,661 +Valuation Methodologies +Cash and Cash Equivalents +The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. +Fixed Maturity, Preferred and Equity Securities +We measure the fair value of our securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity, preferred or equity security, and we will then consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include third-party pricing services, independent broker quotations, or pricing matrices. We use observable and unobservable inputs in our valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met. +For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. The significant input used in the fair value measurement of equity securities for which the market approach valuation technique is employed is yield for comparable securities. Increases or decreases in the yields would result in lower or higher, respectively, fair value measurements. For broker-quoted only securities, quotes +147 +from market makers or broker-dealers are obtained from sources recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. +We analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, we did not adjust prices received from third parties as of December 31, 2024 or 2023. +Certain equity investments are measured using NAV as a practical expedient in determining fair value. +Derivative Financial Instruments +Our call options and put options (together referred to as “equity options”), futures contracts, and interest rate swaps can either be exchange traded or over the counter. Exchange traded derivatives typically fall within Level 1 of the fair value hierarchy if there is active trading activity. Two methods are used to value over-the-counter derivatives. When required inputs are available, certain derivatives are valued using valuation pricing models, which represent what we would expect to receive or pay at the balance sheet date if we cancelled or exercised the derivative or entered into offsetting positions. Valuation models require a variety of inputs, which include the use of market-observable inputs, including interest rate, yield curve volatilities, and other factors. These over-the-counter derivatives are typically classified within Level 2 of the fair value hierarchy as the majority trade in liquid markets, we can verify model inputs and model selection does not involve significant management judgment. When inputs aren’t available for valuation models, certain over-the-counter derivatives are valued using independent broker quotes, which are based on unobservable market data and classified within Level 3. Effective September 30, 2024, pricing for certain derivatives was obtained from internal models using substantially all market observable inputs, and those derivatives were transferred out of Level 3 to Level 2. +The fair value of the reinsurance-related embedded derivatives in our funds withheld reinsurance agreements are estimated based upon the fair value of the assets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on a quoted market price of similar assets (Level 2), and therefore the fair value of the embedded derivative is based on market-observable inputs and classified as Level 2. +The fair value measurement of the indexed annuities/IUL embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant unobservable inputs using the option budget method. The market observable inputs are the market value of option and treasury rates. The significant unobservable inputs are the budgeted option cost (i.e., the expected cost to purchase equity options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier at December 31, 2024 and 2023 was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Increases or decreases in treasury rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower or higher fair value measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Also refer to Management's Estimates in Note A - Business and Summary of Significant Accounting Policies regarding certain assumption updates. +Investments in Unconsolidated affiliates +We have elected the fair value option for certain investments in unconsolidated affiliates as we believe this better aligns them with other investments in unconsolidated affiliates that are measured using NAV as a practical expedient in determining fair value. Investments measured using the fair value option are included in Level 3 and the fair values of these investments are determined using a multiple of the affiliates’ EBITDA. The EBITDA is based on the affiliates’ financial information. The multiple is derived from market analysis of transactions involving comparable companies. The inputs are considered unobservable, as not all market participants have access to this data. +148 +Other Long-term Investments +We hold a fund-linked note, which provides for an additional payment at maturity based on the value of an embedded derivative based on the actual return of a dedicated return fund. Fair value of the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to an equity option on the NAV of the fund with a strike price of zero since we will not be required to make any additional payments at maturity of the fund-linked note in order to receive the NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of the equity option regardless of the values used for the other inputs to the option pricing model. The NAV of the fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the fund. As the value of the fund increases or decreases, the fair value of the embedded derivative will increase or decrease. See further discussion on the available-for-sale embedded derivative in Note D - Derivative Financial Instruments . +The fair value of the credit-linked note is based on a weighted average of a broker quote and a discounted cash flow analysis. The discounted cash flow approach is based on the expected portfolio cash flows and amortization schedule reflecting investment expectations, adjusted for assumptions on the portfolio's default and recovery rates, and the note's discount rate. The fair value of the note is provided by the fund manager at the end of each quarter. +Short-term Investments +The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. Certain short-term investments are valued based on third-party pricing services or broker quotes and are classified as Level 2 or 3. +Loan receivable +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar. The loan is collateralized by the sellers’ minority equity stake in Roar. The loan receivable is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated cash flows at each measurement period and for each simulated path relative to the estimated collateral value. The Monte Carlo simulation utilizes the outstanding principal balance, a risk-adjusted discount rate, and risk-free rates to discount the expected cash flows and compare to the estimated collateral value for each payment period and simulated path. The discounted cash flow approach applies a company-specific discount rate to future expected interest and payoff payments to calculate the estimated fair value based on the average outcome from the simulation. This loan receivable is included in Level 3 and the inputs are considered unobservable, as not all market participants have access to this data. +Market Risk Benefits +MRBs (inclusive of reinsured MRBs) are measured at fair value using an attributed fee measurement approach where attributed fees are explicit rider charges collectible from the policyholder (or paid to the reinsurer) used to cover the excess benefits. The fair value is calculated using a risk neutral valuation method and is based on current net amounts at risk, market data, internal and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, rider benefit utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. See further discussion on MRBs in Note G - Market Risk Benefits . +149 +Contingent Consideration +The contingent consideration is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated EBITDA at each measurement period and for each simulated path relative to contractual EBITDA milestones. The Monte Carlo simulation utilizes a risk-adjusted discount rate, volatility assumption, and risk-free rates to assess the probability Roar's EBITDA trajectory reaches required milestones for the earn out payments to be made. The discounted cash flow approach applies a company-specific discount rate based on F&G credit profile to future expected earn out payments to calculate the estimated fair value based on the average outcome from the simulation. See further discussion on the contingent consideration in Note N - Commitments and Contingencies. +Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of December 31, 2024 and 2023, excluding assets and liabilities for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are as follows (in millions): +December 31, 2024 +Fair Value Valuation Technique Unobservable Input(s) Range +(Weighted average) +Assets +Fixed maturity securities, available-for-sale: +Asset-backed securities $ 95 Third-Party Valuation Discount Rate +4.83 % - 7.15 % +( 6.33 %) +Corporates 750 Third-Party Valuation Discount Rate +2.00 % - 22.53 % +( 6.76 %) +Residential mortgage-backed securities 3 Third-Party Valuation Discount Rate +5.89 % - 5.89 % +( 5.89 %) +Foreign governments 4 Third-Party Valuation Discount Rate +12.14 % - 12.14 % +( 12.14 %) +Investment in unconsolidated affiliates 272 Market Comparable Company Analysis EBITDA Multiple +8.7 x - 23.6 x +( 14.6 x) +Other long-term investments: +Available-for-sale embedded derivative 32 Black Scholes Model Market Value of AnchorPath Fund +100.00 % +Prepaid expenses and other assets: +Loan receivable 11 Discounted Cash Flow Risk-Adjusted Discount Rate +7.22 % - 7.22 % +( 7.22 %) +Collateral Volatility +35.00 % - 35.00 % +( 35.00 %) +Market risk benefits asset 189 Discounted Cash Flow Mortality +80.00 % - 115.00 % +( 100.00 %) +Surrender Rates +0.25 % - 30.00 % +( 5.05 %) +Partial Withdrawal Rates +2.00 % - 24.39 % +( 2.48 %) +Non-Performance Spread +0.48 % - 0.95 % +( 0.75 %) +GMWB Utilization +50.00 % - 75.00 % +( 61.77 %) +Total financial assets at fair value (a) $ 1,356 +150 +December 31, 2024 +Fair Value Valuation Technique Unobservable Input(s) Range +(Weighted average) +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 5,220 Discounted Cash Flow Market Value of Option +0.00 % - 20.81 % +( 2.92 %) +Mortality Multiplier +80.00 % - 115.00 % +( 100.00 %) +Surrender Rates +0.25 % - 50.00 % +( 6.94 %) +Partial Withdrawals +2.00 % - 35.71 % +( 2.72 %) +Non-Performance Spread +0.48 % - 0.95 % +( 0.75 %) +Option Cost +0.07 % - 5.70 % +( 2.68 %) +Accounts payable and accrued liabilities: +Contingent consideration 74 Discounted Cash Flow Risk-Adjusted Discount Rate +13.50 % - 13.50 % +( 13.50 %) +EBITDA Volatility +35.00 % - 35.00 % +( 35.00 %) +Counterparty Discount Rate +6.50 % - 6.50 % +( 6.50 %) +Market risk benefits liability 549 Discounted Cash Flow Mortality +80.00 % - 115.00 % +( 100.00 %) +Surrender Rates +0.25 % - 30.00 % +( 5.05 %) +Partial Withdrawal Rates +2.00 % - 24.39 % +( 2.48 %) +Non-Performance Spread +0.48 % - 0.95 % +( 0.75 %) +GMWB Utilization +50.00 % - 75.00 % +( 61.77 %) +Total financial liabilities at fair value $ 5,843 +(a) Assets of $ 10,286 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the respective totals in the table above. +151 +December 31, 2023 +Fair Value Valuation Technique Unobservable Input(s) Range +(Weighted average) +Assets +Fixed maturity securities, available-for-sale: +Asset-backed securities $ 57 Third-Party Valuation Discount Rate +5.09 % - 6.95 % +( 6.00 %) +Corporates 787 Third-Party Valuation Discount Rate +0.00 % - 12.87 % +( 6.91 %) +Municipals 32 Third-Party Valuation Discount Rate +6.25 % - 6.25 % +( 6.25 %) +Residential mortgage-backed securities 3 Third-Party Valuation Discount Rate +5.46 % - 5.46 % +( 5.46 %) +Foreign Governments 16 Third-Party Valuation Discount Rate +6.94 % - 7.68 % +( 7.45 %) +Investment in unconsolidated affiliates 285 Market Comparable Company Analysis EBITDA Multiple +4.4 x - 31.8 x +( 23.2 x) +Other long-term investments: +Available-for-sale embedded derivative 28 Black Scholes Model Market Value of Fund +100.00 % +Market risk benefits asset 88 Discounted Cash Flow Mortality +100.00 % - 100.00 % +( 100.00 %) +Surrender Rates +0.25 % - 10.00 % +( 5.22 %) +Partial Withdrawal Rates +0.00 % - 23.26 % +( 2.50 %) +Non-Performance Spread +0.38 % - 1.10 % +( 0.96 %) +GMWB Utilization +50.00 % - 60.00 % +( 50.81 %) +Total financial assets at fair value (a) $ 1,296 +Liabilities +Derivatives: +Indexed annuities/ IUL embedded derivatives, included in Contractholder funds $ 4,258 Discounted Cash Flow Market Value of Option +0.00 % - 18.93 % +( 2.63 %) +Mortality Multiplier +100.00 % - 100.00 % +( 100.00 %) +Surrender Rates +0.25 % - 70.00 % +( 6.83 %) +Partial Withdrawals +2.00 % - 34.48 % +( 2.74 %) +Non-Performance Spread +0.38 % - 1.10 % +( 0.96 %) +Option Cost +0.07 % - 5.48 % +( 2.38 %) +Market risk benefits liability 403 Discounted Cash Flow Mortality +100.00 % - 100.00 % +( 100.00 %) +Surrender Rates +0.25 % - 10.00 % +( 5.22 %) +Partial Withdrawal Rates +0.00 % - 23.26 % +( 2.50 %) +Non-Performance Spread +0.38 % - 1.10 % +( 0.96 %) +GMWB Utilization +50.00 % - 60.00 % +( 50.81 %) +Total financial liabilities at fair value $ 4,661 +(a) Assets of $ 8,356 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the respective totals in the table above. +152 +The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the years ended December 31, 2024 and 2023, respectively (in millions). The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology. +Year ended December 31, 2024 +Balance at Beginning +of Period Total Gains (Losses) for Assets and Losses for Liabilities Purchases Sales Settlements Net transfer In (Out) of +Level 3 (a) Balance at End of +Period Change in Unrealized Included in OCI +Included in +Earnings Included in +AOCI +Assets +Fixed maturity securities available-for-sale: +Asset-backed securities $ 7,122 $ 19 $ 128 $ 5,104 $ ( 2,825 ) $ ( 1,210 ) $ ( 195 ) $ 8,143 $ 130 +Commercial mortgage-backed securities 18 — — 58 — — ( 76 ) — — +Corporates 1,970 ( 2 ) 81 1,146 ( 97 ) ( 139 ) ( 18 ) 2,941 80 +Municipals 49 — 1 — ( 50 ) — — — 1 +Residential mortgage-backed securities 3 — — 1 — — ( 1 ) 3 — +Foreign Governments 16 — ( 1 ) — — ( 11 ) — 4 ( 1 ) +Preferred securities 7 — — — — — — 7 — +Derivative investments 57 ( 50 ) 3 — — — ( 7 ) 3 1 +Investment in unconsolidated affiliates (b) 285 79 — — — — ( 92 ) 272 — +Other long-term investments: +Available-for-sale embedded derivative 27 — 5 — — — — 32 5 +Credit linked note 10 1 — — — ( 11 ) — — — +Short term investments — — — 236 ( 190 ) ( 9 ) — 37 — +Prepaid expenses and other assets: +Loan receivable (c) — — — 11 — — — 11 — +Subtotal assets at Level 3 fair value +9,564 $ 47 $ 217 $ 6,556 $ ( 3,162 ) $ ( 1,380 ) $ ( 389 ) 11,453 $ 216 +Market risk benefits asset (d) 88 189 +Total assets at Level 3 fair value $ 9,652 $ 11,642 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 4,258 $ 45 $ — $ 1,351 $ — $ ( 434 ) $ — $ 5,220 $ — +Interest rate swaps — 28 — — — — ( 28 ) — — +Accounts payable and accrued liabilities +Contingent consideration (e) — 26 — 48 — — — 74 — +Subtotal liabilities at Level 3 fair value +4,258 $ 99 $ — $ 1,399 $ — $ ( 434 ) $ ( 28 ) 5,294 — +Market risk benefits liability (d) 403 549 +Total liabilities at Level 3 fair value +$ 4,661 $ 5,843 +(a) The net transfers out of Level 3 during the year ended December 31, 2024 were exclusively to Level 2 with the exception of (b) below. +(b) The transfer out of investments in unconsolidated affiliates reflects F&G’s majority acquisition of PALH on July 18, 2024. Refer to Note P - Acquisitions for details of the PALH majority acquisition. +153 +(c) Purchases represent advances on the loan commitment to Roar. Refer to Note N - Commitments and Contingencies for further details. +(d) Refer to Note G - Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability. +(e) The initial contingent consideration recorded in the Roar transaction is included in purchases in the table above. Refer to Note P - Acquisitions for more information. +Year ended December 31, 2023 +Balance at Beginning +of Period Total Gains (Losses) for Assets and Losses for Liabilities Purchases Sales Settlements +Net transfer In (Out) of +Level 3 (a) +Balance at End of +Period Change in Unrealized Included in OCI +Included in +Earnings Included in +AOCI +Assets +Fixed maturity securities available-for-sale: +Asset-backed securities $ 6,263 $ ( 53 ) $ 186 $ 1,830 $ ( 125 ) $ ( 738 ) $ ( 241 ) $ 7,122 $ 185 +Commercial mortgage-backed securities 37 — 2 22 — — ( 43 ) 18 2 +Corporates 1,427 ( 2 ) ( 21 ) 652 — ( 94 ) 8 1,970 ( 20 ) +Municipals 29 — 20 — — — — 49 20 +Residential mortgage-backed securities 302 1 7 32 — ( 9 ) ( 330 ) 3 7 +Foreign Governments 16 — — — — — — 16 — +Preferred securities — — 1 — — — 6 7 1 +Derivative investments — 57 — — — — — 57 — +Investment in unconsolidated affiliates 23 13 — 249 — — — 285 — +Other long-term investments: +Available-for-sale embedded derivative 23 — 4 — — — — 27 4 +Credit linked note 15 — — — — ( 5 ) — 10 — +Secured borrowing receivable 10 — — — — ( 10 ) — — — +Short term investments — — — 204 ( 19 ) ( 185 ) — — — +Subtotal assets at Level 3 fair value +8,145 $ 16 $ 199 $ 2,989 $ ( 144 ) $ ( 1,041 ) $ ( 600 ) 9,564 $ 199 +Market risk benefits asset (b) 117 88 +Total assets at Level 3 fair value $ 8,262 $ 9,652 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 3,115 $ 257 $ — $ 1,049 $ — $ ( 163 ) $ — $ 4,258 $ — +Subtotal liabilities at Level 3 fair value +3,115 $ 257 $ — $ 1,049 $ — $ ( 163 ) $ — 4,258 $ — +Market risk benefits liability (b) 282 403 +Total liabilities at Level 3 fair value +$ 3,397 $ 4,661 +(a) The net transfers out of Level 3 during the year ended December 31, 2023 were exclusively to Level 2. +(b) Refer to Note G - Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability. +Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value +The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments. +154 +Mortgage Loans +The fair value of mortgage loans is established using a discounted cash flow method based on internal credit rating, maturity and future income. This yield-based approach is sourced from our third-party vendor. The internal ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan-to-value, quality of tenancy, borrower, and payment record. The inputs used to measure the fair value of our mortgage loans are classified as Level 3 within the fair value hierarchy. +Investments in Unconsolidated affiliates +The fair value of investments in unconsolidated affiliates is primarily determined using NAV as a practical expedient. As discussed in Note A - Business and Summary of Significant Accounting Policies, recognition of income and adjustments to the carrying amount are delayed due to the availability of the related financial statements, which are obtained from the general partner generally on a one to three-month delay. +Policy Loans +Policy loans are reported at the unpaid principal balance and are fully collateralized by the cash surrender value of underlying insurance policies. The carrying value of the policy loans approximates the fair value and are classified as Level 3 in the fair value hierarchy. +Company Owned Life Insurance +Company owned life insurance (“COLI”) is a life insurance program used to finance certain employee benefit expenses. The fair value of COLI is based on net realizable value, which is generally cash surrender value. COLI is classified as Level 3 within the fair value hierarchy. +Investment Contracts +Investment contracts include deferred annuities (indexed annuities and fixed rate annuities), IUL policies, funding agreements and PRT and immediate annuity contracts without life contingencies. The indexed annuities/ IUL embedded derivatives, included in contractholder funds, are excluded as they are carried at fair value. The fair value of the deferred annuities (indexed annuities and fixed rate annuities) and IUL contracts is based on their cash surrender value (i.e., the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of funding agreements and PRT and immediate annuity contracts without life contingencies is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. The Company is not required to, and has not, estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value. +Other +FHLB common stock is carried at cost, which approximates fair value. The carrying amount of FHLB common stock represents the value it can be sold back to the FHLB and is classified as Level 2 within the hierarchy. +Notes Payable +The fair value of notes payable, with the exception of the Revolving Credit Facility, is based on quoted market prices of debt with similar credit risk and tenor. The inputs used to measure the fair value of these notes payable results in a Level 2 classification within the fair value hierarchy. +155 +The carrying value of the revolving credit facility approximates fair value as the rates are comparable to those at which we could currently borrow under similar terms. As such, the fair value of the revolving credit facility was classified as a Level 2 measurement. At December 31, 2024 and 2023, the outstanding balance on the revolving credit facility was $ 0 and $ 365 million, respectively. +The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described (in millions). +December 31, 2024 +Level 1 Level 2 Level 3 NAV Total Estimated Fair Value Carrying Amount +Assets +FHLB common stock $ — $ 153 $ — $ — $ 153 $ 153 +Commercial mortgage loans — — 2,404 — 2,404 2,705 +Residential mortgage loans — — 2,916 — 2,916 3,221 +Investments in unconsolidated affiliates — — 5 3,288 3,293 3,293 +Policy loans — — 104 — 104 104 +Company-owned life insurance — — 395 — 395 395 +Total +$ — $ 153 $ 5,824 $ 3,288 $ 9,265 $ 9,871 +Liabilities +Investment contracts, included in contractholder funds $ — $ — $ 46,339 $ — $ 46,339 $ 51,184 +Notes payable — 2,228 — — 2,228 2,171 +Total +$ — $ 2,228 $ 46,339 $ — $ 48,567 $ 53,355 +December 31, 2023 +Level 1 Level 2 Level 3 NAV Total Estimated Fair Value Carrying Amount +Assets +FHLB common stock $ — $ 138 $ — $ — $ 138 $ 138 +Commercial mortgage loans — — 2,253 — 2,253 2,538 +Residential mortgage loans — — 2,545 — 2,545 2,798 +Investments in unconsolidated affiliates — — 7 2,779 2,786 2,786 +Policy loans — — 71 — 71 71 +Company-owned life insurance — — 362 — 362 362 +Total +$ — $ 138 $ 5,238 $ 2,779 $ 8,155 $ 8,693 +Liabilities +Investment contracts, included in contractholder funds $ — $ — $ 40,229 $ — $ 40,229 $ 44,540 +Notes payable — 1,777 — — 1,777 1,754 +Total +$ — $ 1,777 $ 40,229 $ — $ 42,006 $ 46,294 +For investments for which NAV is used, we do not have any significant restrictions in our ability to liquidate our positions in these investments, other than obtaining general partner approval, nor do we believe it is probable a price less than NAV would be received in the event of a liquidation. +We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value. +156 +Note C - Investments +Our investments in fixed maturity securities have been designated as AFS and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within AOCI, net of deferred income taxes. Our preferred and equity securities investments are carried at fair value with unrealized gains and losses included in net earnings. The Company’s consolidated investments are summarized as follows (in millions): +December 31, 2024 +Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value +AFS securities +Asset-backed securities $ 15,777 $ ( 13 ) $ 202 $ ( 317 ) $ 15,649 +Commercial mortgage-backed securities 5,327 ( 49 ) 53 ( 200 ) 5,131 +Corporates 23,177 — 103 ( 2,802 ) 20,478 +Hybrids 604 — 6 ( 29 ) 581 +Municipals 1,592 — 3 ( 249 ) 1,346 +Residential mortgage-backed securities 2,861 — 32 ( 105 ) 2,788 +U.S. Government 160 — 1 ( 3 ) 158 +Foreign Governments 231 — — ( 45 ) 186 +Total AFS securities +$ 49,729 $ ( 62 ) $ 400 $ ( 3,750 ) $ 46,317 +December 31, 2023 +Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value +AFS securities +Asset-backed securities $ 14,623 $ ( 11 ) $ 191 $ ( 469 ) $ 14,334 +Commercial mortgage-backed securities 4,732 ( 22 ) 23 ( 323 ) 4,410 +Corporates 18,780 — 178 ( 2,379 ) 16,579 +Hybrids 668 — 3 ( 53 ) 618 +Municipals 1,776 — 14 ( 223 ) 1,567 +Residential mortgage-backed securities 2,501 ( 2 ) 29 ( 104 ) 2,424 +U.S. Government 258 — 4 ( 1 ) 261 +Foreign Governments 263 — 2 ( 39 ) 226 +Total AFS securities +$ 43,601 $ ( 35 ) $ 444 $ ( 3,591 ) $ 40,419 +Securities held on deposit with various state regulatory authorities had a fair value of $ 866 million at December 31, 2024 and was immaterial at December 31, 2023. +As of December 31, 2024 and 2023, the Company held $ 32 million and $ 47 million, respectively, of investments that were non-income producing for a period greater than twelve months. +As of December 31, 2024 and 2023, the Company's accrued interest receivable balance, excluding accrued interest receivable balances related to mortgage loans discussed below under “ Mortgage Loans, ” was $ 465 million and $ 438 million , respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the Consolidated Balance Sheets. +In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to us for general purposes. The collateral investments had a fair value of $ 4,289 million and $ 4,345 million as of December 31, 2024 and 2023, respectively. +157 +The amortized cost and fair value of fixed maturity securities by contractual maturities, as applicable, are shown below (in millions). Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. +December 31, 2024 +Amortized Cost Fair Value +Corporates, Non-structured Hybrids, Municipal, Foreign and U.S. Government Securities: +Due in one year or less $ 525 $ 524 +Due after one year through five years 3,634 3,589 +Due after five years through ten years 4,930 4,756 +Due after ten years 16,675 13,880 +Subtotal 25,764 22,749 +Other securities, which provide for periodic payments: +Asset-backed securities 15,777 15,649 +Commercial mortgage-backed securities 5,327 5,131 +Residential mortgage-backed securities 2,861 2,788 +Subtotal 23,965 23,568 +Total fixed maturity AFS securities $ 49,729 $ 46,317 +Allowance for Current Expected Credit Loss +We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss: +• The extent to which the fair value is less than the amortized cost basis; +• The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); +• The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength); +• Current delinquencies and non-performing assets of underlying collateral; +• Expected future default rates; +• Collateral value by vintage, geographic region, industry concentration or property type; +• Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and +• Contractual and regulatory cash obligations and the issuer's plans to meet such obligations. +We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e., the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and (losses), net in the Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise. +We consider the following in determining whether write-offs of a security’s amortized cost are necessary: +• We believe amounts related to securities have become uncollectible; +• We intend to sell a security; or +• It is more likely than not that we will be required to sell a security prior to recovery. +158 +If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and (losses), net in the Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible, an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and (losses), net in the Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI in the Consolidated Statements of Equity. +The activity in the allowance for expected credit losses of AFS securities aggregated by investment category was as follows (in millions): +Year ended December 31, 2024 +Additions Reductions +Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period +AFS securities +Asset-backed securities $ ( 11 ) $ ( 2 ) $ — $ — $ — $ — $ — $ ( 13 ) +Commercial mortgage-backed securities ( 22 ) ( 8 ) ( 19 ) — — — — ( 49 ) +Residential mortgage-backed securities ( 2 ) — 2 — — — — — +Total AFS securities $ ( 35 ) $ ( 10 ) $ ( 17 ) $ — $ — $ — $ — $ ( 62 ) +Year ended December 31, 2023 +Additions Reductions +Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period +AFS securities +Asset-backed securities $ ( 8 ) $ ( 18 ) $ 15 $ — $ — $ — $ — $ ( 11 ) +Commercial mortgage-backed securities ( 1 ) ( 22 ) 1 — — — — ( 22 ) +Corporates ( 15 ) — — 15 — — — — +Residential mortgage-backed securities ( 7 ) ( 7 ) 12 — — — — ( 2 ) +Total AFS securities $ ( 31 ) $ ( 47 ) $ 28 $ 15 $ — $ — $ — $ ( 35 ) +There were no purchases of purchased credit deteriorated AFS securities during the years ended December 31, 2024 and 2023. +159 +The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of December 31, 2024 and 2023 were as follows (dollars in millions): +December 31, 2024 +Less than 12 months 12 months or longer Total +Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses +AFS securities +Asset-backed securities $ 1,164 $ ( 30 ) $ 2,637 $ ( 276 ) $ 3,801 $ ( 306 ) +Commercial mortgage-backed securities 699 ( 10 ) 1,508 ( 175 ) 2,207 ( 185 ) +Corporates 6,524 ( 202 ) 9,234 ( 2,600 ) 15,758 ( 2,802 ) +Hybrids 105 ( 4 ) 380 ( 25 ) 485 ( 29 ) +Municipals 261 ( 12 ) 966 ( 237 ) 1,227 ( 249 ) +Residential mortgage-backed securities 898 ( 16 ) 459 ( 89 ) 1,357 ( 105 ) +U.S. Government 93 ( 2 ) 10 ( 1 ) 103 ( 3 ) +Foreign Government 51 ( 1 ) 128 ( 44 ) 179 ( 45 ) +Total AFS securities $ 9,795 $ ( 277 ) $ 15,322 $ ( 3,447 ) $ 25,117 $ ( 3,724 ) +Total number of AFS securities in an unrealized loss position less than twelve months 1,838 +Total number of AFS securities in an unrealized loss position twelve months or longer 2,113 +Total number of AFS securities in an unrealized loss position 3,951 +December 31, 2023 +Less than 12 months 12 months or longer Total +Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses +AFS securities +Asset-backed securities $ 1,707 $ ( 56 ) $ 5,835 $ ( 404 ) $ 7,542 $ ( 460 ) +Commercial mortgage-backed securities 798 ( 53 ) 1,916 ( 234 ) 2,714 ( 287 ) +Corporates 2,273 ( 128 ) 9,779 ( 2,251 ) 12,052 ( 2,379 ) +Hybrids 60 ( 2 ) 483 ( 51 ) 543 ( 53 ) +Municipals 392 ( 48 ) 884 ( 174 ) 1,276 ( 222 ) +Residential mortgage-backed securities 334 ( 5 ) 660 ( 89 ) 994 ( 94 ) +U.S. Government 5 — 9 ( 1 ) 14 ( 1 ) +Foreign Government 25 ( 1 ) 145 ( 38 ) 170 ( 39 ) +Total AFS securities $ 5,594 $ ( 293 ) $ 19,711 $ ( 3,242 ) $ 25,305 $ ( 3,535 ) +Total number of AFS securities in an unrealized loss position less than twelve months 927 +Total number of AFS securities in an unrealized loss position twelve months or longer 2,602 +Total number of AFS securities in an unrealized loss position 3,529 +We determined the unrealized losses were caused by higher treasury rates compared to those at the time of the FNF acquisition or the purchase of the security if later. For securities in an unrealized loss position as of December 31, 2024, our allowance for expected credit loss was $ 62 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of December 31, 2024 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns. +160 +Mortgage Loans +Our mortgage loans are collateralized by commercial and residential properties. +Commercial Mortgage Loans +Commercial mortgage loans (“CMLs”) represented approximately 5 % of our total investments as of December 31, 2024 and 2023. The mortgage loans in our investment portfolio, are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail buildings, multifamily properties and office buildings. We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables (dollars in millions): +December 31, 2024 December 31, 2023 +Gross Carrying Value % of Total Gross Carrying Value % of Total +Property Type: +Hotel $ 17 1 % $ 18 1 % +Industrial 657 24 616 24 +Mixed Use 11 — 11 — +Multifamily 1,006 37 1,012 40 +Office 349 13 316 13 +Retail 98 4 102 4 +Student Housing 83 3 83 3 +Other 501 18 392 15 +Total CMLs, gross of valuation allowance 2,722 100 % 2,550 100 % +Allowance for expected credit loss ( 17 ) ( 12 ) +Total CMLs, net of valuation allowance $ 2,705 $ 2,538 +U.S. Region: +East North Central $ 98 4 % $ 151 6 % +East South Central 75 3 75 3 +Middle Atlantic 354 13 354 14 +Mountain 409 15 352 14 +New England 164 6 168 6 +Pacific 706 26 766 30 +South Atlantic 683 25 563 22 +West North Central 62 2 4 — +West South Central 171 6 117 5 +Total CMLs, gross of valuation allowance 2,722 100 % 2,550 100 % +Allowance for expected credit loss ( 17 ) ( 12 ) +Total CMLs, net of valuation allowance $ 2,705 $ 2,538 +CMLs segregated by aging of the loans and charge offs (by year of origination), gross of valuation allowances, were as follows for the years ended December 31, 2024 and 2023 (in millions): +161 +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +Current (less than 30 days past due) $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 201 $ 2,713 +30-89 days past due — — — — — — — +90 days or more past due — — — — — 9 9 +Total CMLs $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 210 $ 2,722 +Charge offs $ — $ — $ — $ — $ — $ — $ — +December 31, 2023 +Amortized Cost by Origination Year +2023 2022 2021 2020 2019 Prior Total +Current (less than 30 days past due) $ 213 $ 288 $ 1,256 $ 512 $ — $ 259 $ 2,528 +30-89 days past due — — — — — — — +90 days or more past due — — — — — — — +Total CMLs (a) $ 213 $ 288 $ 1,256 $ 512 $ — $ 259 $ 2,528 +Charge offs $ — $ — $ — $ — $ — $ 3 $ 3 +(a) Excludes loans under development with an amortized cost and estimated fair value of $ 22 million at December 31, 2023. +LTV and DSC ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25 -year amortization period for purposes of our general loan allowance evaluation. +The following tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios, gross of valuation allowances at December 31, 2024 and 2023 (dollars in millions) : +Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total +>1.25 1.00 - 1.25 <1.00 +December 31, 2024 +LTV Ratios: +Less than 50.00% $ 490 $ 34 $ — $ 524 19 % $ 501 21 % +50.00% to 59.99% 803 112 12 927 34 826 34 +60.00% to 74.99% 1,238 16 — 1,254 46 1,060 44 +75.00% to 84.99% 4 4 9 17 1 17 1 +CMLs $ 2,535 $ 166 $ 21 $ 2,722 100 % $ 2,404 100 % +December 31, 2023 +LTV Ratios: +Less than 50.00% $ 519 $ 4 $ 10 $ 533 21 % $ 510 23 % +50.00% to 59.99% 764 — — 764 30 679 30 +60.00% to 74.99% 1,160 56 — 1,216 48 1,028 46 +75.00% to 84.99% — 6 9 15 1 14 1 +CMLs (a) $ 2,443 $ 66 $ 19 $ 2,528 100 % $ 2,231 100 % +(a) Excludes loans under development with an amortized cost and estimated fair value of $ 22 million at December 31, 2023. +162 +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +LTV Ratios: +Less than 50.00% $ 66 $ 99 $ 19 $ 74 $ 189 $ 77 $ 524 +50.00% to 59.99% 112 53 149 321 159 133 927 +60.00% to 74.99% 91 71 113 858 121 — 1,254 +75.00% to 84.99% 4 4 9 — — — 17 +Total CMLs $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 210 2,722 +DSCR +Greater than 1.25x $ 140 $ 215 $ 278 $ 1,241 $ 469 $ 192 $ 2,535 +1.00x - 1.25x 133 12 3 — — 18 166 +Less than 1.00x — — 9 12 — — 21 +Total CMLs $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 210 $ 2,722 +December 31, 2023 +Amortized Cost by Origination Year +2023 2022 2021 2020 2019 Prior Total +LTV Ratios: +Less than 50.00% $ 85 $ 17 $ 77 $ 232 $ — $ 122 $ 533 +50.00% to 59.99% 53 149 267 158 — 137 764 +60.00% to 74.99% 69 113 912 122 — — 1,216 +75.00% to 84.99% 6 9 — — — — 15 +Total CMLs (a) $ 213 $ 288 $ 1,256 $ 512 $ — $ 259 $ 2,528 +DSCR +Greater than 1.25x $ 154 $ 276 $ 1,256 $ 512 $ — $ 245 $ 2,443 +1.00x - 1.25x 59 3 — — — 4 66 +Less than 1.00x — 9 — — — 10 19 +Total CMLs (a) $ 213 $ 288 $ 1,256 $ 512 $ — $ 259 $ 2,528 +(a) Excludes loans under development with an amortized cost and estimated fair value of $ 22 million at December 31, 2023. +We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At December 31, 2024, we had one CML that was delinquent in principal or interest payments compared to none at December 31, 2023 as shown in the tables above. +Residential Mortgage Loans +Residential mortgage loans (“RMLs”) represented approximately 5 % of our total investments as of December 31, 2024 and 2023. Our RMLs are closed end, amortizing loans and 100 % of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables, gross of valuation allowances (dollars in millions): +December 31, 2024 +U.S. States: Amortized Cost % of Total +Florida $ 164 5 % +All other states (a) 3,110 95 +Total RMLs, gross of valuation allowance 3,274 100 % +Allowance for expected credit loss ( 53 ) +Total RMLs, net of valuation allowance $ 3,221 +(a) The individual concentration of each state is less than 5% as of December 31, 2024. +163 +December 31, 2023 +U.S. States: Amortized Cost % of Total +Florida $ 163 6 % +New York 129 5 +Texas 129 5 +All other states (a) 2,431 84 +Total RMLs, gross of valuation allowance 2,852 100 % +Allowance for expected credit loss ( 54 ) +Total RMLs, net of valuation allowance $ 2,798 +(a) The individual concentration of each state is less than 5% as of December 31, 2023. +RMLs have a primary credit quality indicator of either a performing or non-performing loan. We define non-performing residential mortgage loans as those that are 90 or more days past due or in non-accrual status, which is assessed monthly. The credit quality of RMLs was as follows (dollars in millions): +December 31, 2024 December 31, 2023 +Performance indicators: Amortized Cost % of Total Amortized Cost % of Total +Performing $ 3,188 97 % $ 2,795 98 % +Non-performing 86 3 57 2 +Total RMLs, gross of valuation allowance 3,274 100 % 2,852 100 % +Allowance for expected loan loss ( 53 ) ( 54 ) +Total RMLs, net of valuation allowance $ 3,221 $ 2,798 +There were no charge offs recorded for RMLs during the year ended December 31, 2024. RMLs segregated by aging of the loans (by year of origination) as of December 31, 2024 and 2023 were as follows, gross of valuation allowances (in millions): +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +Current (less than 30 days past due) $ 610 $ 368 $ 911 $ 805 $ 162 $ 312 $ 3,168 +30-89 days past due 1 6 4 6 1 3 21 +90 days or more past due 3 2 13 29 13 25 85 +Total RML mortgages $ 614 $ 376 $ 928 $ 840 $ 176 $ 340 $ 3,274 +December 31, 2023 +Amortized Cost by Origination Year +2023 2022 2021 2020 2019 Prior Total +Current (less than 30 days past due) $ 373 $ 985 $ 854 $ 192 $ 183 $ 192 $ 2,779 +30-89 days past due — 4 7 3 — 2 16 +90 days or more past due — 6 16 13 21 1 57 +Total RML mortgages $ 373 $ 995 $ 877 $ 208 $ 204 $ 195 $ 2,852 +Non-accrual loans by amortized cost as of December 31, 2024 and 2023, were as follows (in millions): +December 31, +2024 2023 +Residential mortgage $ 85 $ 57 +Commercial mortgage 9 — +Total non-accrual mortgages $ 94 $ 57 +Immaterial interest income was recognized on non-accrual financing receivables for the years ended December 31, 2024 and 2023. +164 +It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes 90 days or more delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of December 31, 2024 and 2023, we had $ 94 million and $ 57 million, respectively, of mortgage loans that were over 90 days past due. +As of December 31, 2024 and 2023, we had $ 81 million and $ 41 million, respectively, of residential mortgage loans that were in the process of foreclosure. +Loan Modifications +Under certain circumstances, modifications are granted to mortgage loans. Generally, the types of concessions may include interest rate reduction, term extension, payment deferrals, principal forgiveness or a combination of these concessions. We had an immaterial amount of mortgage loans modified during the years ended December 31, 2024 and 2023. +Allowance for Expected Credit Loss +We estimate expected credit losses for our commercial and residential mortgage loan portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans' current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses, net in the Consolidated Statements of Operations. +The allowances for our mortgage loan portfolio are summarized as follows (in millions): +Year Ended December 31, +2024 2023 +Residential +Mortgages Commercial +Mortgages Total Residential +Mortgages Commercial +Mortgages Total +Beginning Balance +$ ( 54 ) $ ( 12 ) $ ( 66 ) $ ( 32 ) $ ( 10 ) $ ( 42 ) +Provision (expense) benefit for loan losses 1 ( 5 ) ( 4 ) ( 22 ) ( 5 ) ( 27 ) +Loans charged off — — — — 3 3 +Ending Balance +$ ( 53 ) $ ( 17 ) $ ( 70 ) $ ( 54 ) $ ( 12 ) $ ( 66 ) +An allowance for expected credit loss is not measured on accrued interest income for commercial mortgage loans as we have a process to write-off interest on loans that enter into non-accrual status (90 days or more past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of December 31, 2024 and 2023. +There were no purchases of purchased credit deteriorated mortgage loans during the years ended December 31, 2024 and 2023. +As of December 31, 2024 and 2023, the accrued interest receivable balance on CMLs totaled $ 8 million and $ 7 million, respectively, and the accrued interest receivable on RMLs totaled $ 28 million and $ 24 million, respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the Consolidated Balance Sheets. +165 +Interest and Investment Income +The major sources of Interest and investment income reported on the Consolidated Statements of Operations were as follows (in millions): +Year ended December 31, +2024 2023 2022 +Fixed maturity securities, available-for-sale $ 2,181 $ 1,843 $ 1,431 +Equity securities 21 20 17 +Preferred securities 23 41 49 +Mortgage loans 273 229 186 +Invested cash and short-term investments 161 76 33 +Limited partnerships 323 229 110 +Other investments 32 27 20 +Gross investment income 3,014 2,465 1,846 +Investment expense ( 295 ) ( 254 ) ( 191 ) +Interest and investment income +$ 2,719 $ 2,211 $ 1,655 +Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $ 636 million, $ 339 million and $ 109 million, for the years ended December 31, 2024, 2023 and 2022, respectively. +Recognized Gains and (Losses), Net +Details underlying Recognized gains and losses, net reported on the Consolidated Statements of Operations were as follows (in millions): +Year ended December 31, +2024 2023 2022 +Net realized (losses) gains on fixed maturity available-for-sale securities $ ( 8 ) $ ( 155 ) $ ( 241 ) +Net realized/unrealized (losses) gains on equity securities (a) +11 18 ( 40 ) +Net realized/unrealized (losses) gains on preferred securities (b) +6 2 ( 167 ) +Realized (losses) gains on other invested assets 67 24 ( 13 ) +Change in allowance for expected credit losses ( 34 ) ( 37 ) ( 34 ) +Derivatives and embedded derivatives: +Realized (losses) gains on certain derivative instruments 254 ( 211 ) ( 164 ) +Unrealized (losses) gains on certain derivative instruments ( 184 ) 358 ( 693 ) +Change in fair value of reinsurance related embedded derivatives ( 32 ) ( 128 ) 352 +Change in fair value of other derivatives and embedded derivatives 4 5 ( 10 ) +Realized (losses) gains on derivatives and embedded derivatives 42 24 ( 515 ) +Recognized gains and losses, net +$ 84 $ ( 124 ) $ ( 1,010 ) +(a) Includes net valuation (losses) gains of $ 12 million, $ 18 million, and $( 40 ) million for the years ended December 31, 2024, 2023 and 2022, respectively. +(b) Includes net valuation (losses) gains of $ 6 million, $ 73 million, and $( 159 ) million for the years ended December 31, 2024, 2023 and 2022, respectively. +Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which are passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $( 30 ) million, $( 123 ) million and $ 381 million for the years ended December 31, 2024, 2023 and 2022, respectively. +The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows (in millions): +166 +Year ended December 31, +2024 2023 2022 +Proceeds $ 4,368 $ 2,590 $ 3,097 +Gross gains 44 8 13 +Gross losses ( 80 ) ( 134 ) ( 239 ) +Unconsolidated Variable Interest Entities +We own investments in VIEs that are not consolidated within our financial statements. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by their ‘primary beneficiary,’ a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While we participate in the benefits from VIEs in which we invest, but do not consolidate, the substantive power to make the key economic decisions for each respective VIE resides with entities not under our common control. It is for this reason that we are not considered the primary beneficiary for the VIE investments that are not consolidated. +We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our Consolidated Balance Sheets. In addition, we invest in structured investments, which may be VIEs, but for which we are not the primary beneficiary. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in fixed maturity securities available for sale on our Consolidated Balance Sheets. +Our maximum loss exposure with respect to these VIEs is limited to the investment carrying amounts reported in our Consolidated Balance Sheets for limited partnerships and the amortized costs of certain of our fixed maturity securities, in addition to any required unfunded commitments (also refer to Note N - Commitments and Contingencies ). +The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of December 31, 2024 and 2023 (in millions): +December 31, +2024 2023 +Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure +Investment in unconsolidated affiliates $ 3,565 $ 4,703 $ 3,071 $ 4,806 +Fixed maturity securities 23,242 24,242 20,837 22,346 +Total unconsolidated VIE investments $ 26,807 $ 28,945 $ 23,908 $ 27,152 +Concentrations +Our underlying investment concentrations that exceed 10% of shareholders equity as of December 31, 2024 and 2023 are as follows (in millions): +December 31, +2024 2023 +Blackstone Wave Asset Holdco (a) $ 710 $ 725 +Blackstone Cooper Asset Holdco (a) 472 — +Elba (b) (c) — 463 +COLI (c) — 324 +(a) Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple individual investments and industries. +167 +(b) Represents special purpose vehicles that hold an underlying minority ownership interest in a single operating liquified natural gas export facility. +(c) Investments did not exceed 10% of shareholder’s equity as of December 31, 2024. +Note D - Derivative Financial Instruments +The notional and carrying amounts of derivative instruments, including derivative instruments embedded in indexed annuities and IUL contracts, and reinsurance is as follows (in millions): +December 31, 2024 December 31, 2023 +Notional Amount Carrying Amount Notional Amount Carrying Amount +Assets: +Derivative investments: +Equity options $ 29,594 $ 773 $ 27,263 $ 739 +Interest rate swaps 2,340 16 2,705 57 +Other derivative investments 157 3 137 1 +Other long-term investments: +Other embedded derivatives 32 28 +Prepaid expenses and other assets: +Reinsurance related embedded derivatives 109 152 +Total $ 933 $ 977 +Liabilities +Contractholder funds: +Indexed annuities/IUL embedded derivatives $ 5,220 $ 4,258 +Accounts payable and accrued liabilities: +Interest rate swaps $ 2,700 10 $ — — +Total $ 5,230 $ 4,258 +The change in fair value of derivative instruments included within Recognized gains and (losses), net, in the Consolidated Statements of Operations is as follows (in millions): +Year ended December 31, +2024 2023 2022 +Net investment gains (losses): +Equity options $ 145 $ 92 $ ( 862 ) +Interest rate swaps ( 103 ) 48 — +Futures contracts 18 9 ( 7 ) +Other derivative investments 10 ( 2 ) 12 +Other embedded derivatives 4 5 ( 10 ) +Reinsurance related embedded derivatives ( 32 ) ( 128 ) 352 +Total net investment gains (losses) $ 42 $ 24 $ ( 515 ) +Benefits and other changes in policy reserves: +Indexed annuities/IUL embedded derivatives increase (decrease) $ 962 $ 1,143 $ ( 768 ) +Additional Disclosures +See descriptions of the fair value methodologies used for derivative financial instruments in Note B - Fair Value of Financial Instruments . +168 +Indexed Annuities/IUL Embedded Derivative, Equity Options and Futures +We have indexed annuities and IUL contracts that permit the holder to elect an interest rate return or an equity index linked component, where interest credited to the contracts is linked to the performance of various equity indices, such as the S&P 500 Index. This feature represents an embedded derivative under GAAP. The indexed annuities/IUL embedded derivatives are valued at fair value and included in the liability for contractholder funds in the Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +We purchase derivatives consisting of a combination of equity options and futures contracts (specifically for indexed annuity contracts) on the applicable market indices to fund the index credits due to indexed annuity/IUL contractholders. The equity options are one , two , three , five and six year options purchased to match the funding requirements of the underlying policies. On the respective anniversary dates of the indexed policies, the index used to compute the interest credit is reset and we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our indexed annuities/IUL contracts, which permit us to change caps, spreads or participation rates, subject to guaranteed minimums, on each contract’s anniversary date. The change in the fair value of the equity options and futures contracts is generally designed to offset the portion of the change in the fair value of the indexed annuities/IUL embedded derivatives related to index performance through the current credit period. The equity options and futures contracts are marked to fair value with the change in fair value included as a component of Recognized gains and (losses), net, in the Consolidated Statements of Operations. The change in fair value of the equity options and futures contracts includes the gains and losses recognized at the expiration of the instrument term or upon early termination and the changes in fair value of open positions. +Other market exposures are hedged periodically depending on market conditions and our risk tolerance. Our indexed annuities/IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques, including direct estimation of market sensitivities, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and our risk tolerance changes. +Interest Rate Swaps +We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. With an interest rate swap, we agree with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts tied to an agreed upon notional principal. The interest rate swaps are marked to fair value with the change in fair value, including accrued interest and related periodic cash flows received or paid, included as a component of Recognized gains and (losses), net, in the Consolidated Statements of Operations. +Reinsurance Related Embedded Derivatives +F&G cedes certain business on a coinsurance funds withheld basis. Investment results for the assets that support the coinsurances that are segregated within the funds withheld account are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance agreement, which creates embedded derivatives considered to be total return swaps. These total return swaps are not clearly and closely related to the underlying reinsurance contract and thus require bifurcation. The fair value of the total return swaps is based on the change in fair value of the underlying assets held in the funds withheld account. These embedded derivatives are reported in Prepaid expenses and other assets if in a net gain position, or Accounts payable and accrued liabilities, if in a net loss position on the Consolidated Balance Sheets and the related gains or losses are reported in Recognized gains and (losses), net, on the Consolidated Statements of Operations. +Credit Risk +169 +We are exposed to credit loss in the event of non-performance by our counterparties and reflect assumptions regarding this non-performance risk in the fair value of our derivatives. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. We maintain a policy of requiring all derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. +We manage credit risk related to non-performance by our counterparties by (i) entering into derivative transactions with creditworthy counterparties; (ii) obtaining collateral, such as cash and securities when appropriate; and (iii) establishing counterparty exposure limits, which are subject to periodic management review. +Information regarding our exposure to credit loss on the derivative instruments we hold, excluding futures contracts, is presented below (in millions): +Fair Value Collateral Net Credit Risk +December 31, 2024 $ 782 $ 771 $ 34 +December 31, 2023 796 775 39 +Collateral Agreements +We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivative agreements on ISDA forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open derivative contracts between the parties, at which time any amounts payable by us or the counterparty would be dependent on the market value of the underlying contracts. Our current rating does not allow any counterparty the right to terminate ISDA agreements. In certain transactions, both us and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. For all counterparties, except one , the threshold is set to zero . As of December 31, 2024 and 2023 counterparties posted collateral of $ 771 million and $ 775 million, respectively, of which $ 679 million and $ 588 million, respectively, is included in Cash and cash equivalents with an associated payable for this collateral included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. Accordingly, the maximum amount of loss due to credit risk that we would incur if parties to the derivatives failed completely to perform according to the terms of the contracts was $ 34 million at December 31, 2024 and $ 39 million at December 31, 2023. +We are required to pay our counterparties the effective federal funds interest rate each day for cash collateral posted to us. Cash collateral is reinvested in overnight investment sweep products, which are included in Cash and cash equivalents on the Consolidated Balance Sheets, to reduce the interest cost. Changes in cash collateral are included in the Change in derivative collateral liabilities in the Consolidated Statements of Cash Flow. +We held 527 and 439 futures contracts at December 31, 2024 and 2023, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements). We provide cash collateral to the counterparties for the initial and variation margin on the futures contracts, which is included in Cash and cash equivalents in the Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $ 7 million and $ 4 million at December 31, 2024 and 2023, respectively. +Note E - Reinsurance +F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is reinsured. F&G primarily seeks reinsurance coverage in order to manage loss exposures, to enhance our capital position, to diversify risks and earnings, and to manage new business volume. F&G follows reinsurance accounting when the treaty adequately transfers insurance risk and any acquisition cost reimbursements reduce policy acquisition costs deferred and maintenance expense reimbursements +170 +reduce direct expenses incurred. Otherwise, F&G follows deposit accounting if there is inadequate transfer of insurance risk or if the underlying policy for which risk is being transferred is an investment contract that does not contain insurance risk. Refer to Note A - Business and Summary of Significant Accounting Policies for more information over our accounting policy for reinsurance agreements. As of December 31, 2024, we had an immaterial amount of COR included in Prepaid expenses and other assets on the Consolidated Balance Sheets compared to none as of December 31, 2023. +The effects of reinsurance on net premiums earned and net benefits incurred (benefits paid and reserve changes) for the years ended December 31, 2024, 2023, and 2022 respectively, were as follows (in millions): +Year Ended December 31, +2024 2023 2022 +Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred Net Premiums Earned Net Benefits Incurred +Direct $ 2,346 $ 3,987 $ 2,112 $ 3,728 $ 1,522 $ 3,640 +Ceded ( 94 ) ( 196 ) ( 105 ) ( 175 ) ( 128 ) ( 2,514 ) +Net $ 2,252 $ 3,791 $ 2,007 $ 3,553 $ 1,394 $ 1,126 +Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. No policies issued by F&G have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance. F&G has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues. +Reinsurance Transactions +The following summarizes significant changes to third-party reinsurance agreements for the years ended December 31, 2024 and 2023: +Somerset: Effective July 1, 2024, F&G amended the existing flow reinsurance agreement with Somerset Reinsurance Ltd. (“Somerset”), a third-party reinsurer, to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis. +Kubera: F&G has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2024. +Everlake and Somerset: F&G executed flow reinsurance agreements with Everlake Life Insurance Company (“Everlake”) and Somerset, third-party reinsurers, to cede certain MYGA business written effective September 1, 2023, and December 1, 2023, respectively, on a coinsurance quota share basis. +Canada Life: Effective May 1, 2020, F&G entered into an indemnity reinsurance agreement with Canada Life Assurance Company (“Canada Life”) United States Branch, a third-party reinsurer, to reinsure FIA policies with GMWB riders. In accordance with the terms of this agreement, F&G cedes a quota share percentage of the net retention of guaranteed payments in excess of account value for GMWB. Effective December 31, 2023, we entered a Recapture and Termination Agreement with Canada Life whereby 100 % of the liabilities and obligations were recaptured. +The following summarizes significant changes to third-party reinsurance agreements subsequent to the year ended December 31, 2024: +Everlake Reinsurance Amendment +171 +Effective January 1, 2025, F&G amended the existing flow reinsurance agreement with Everlake to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. +The following summarizes our reinsurance recoverable (in millions): +Parent Company/ +Principal Reinsurers Reinsurance Recoverable (a) Agreement Type Products +Covered Accounting +December 31, 2024 December 31, 2023 +Aspida Life Re Ltd. $ 7,844 $ 6,128 Coinsurance Funds Withheld Certain MYGA (b) Deposit +Somerset (c) 2,822 716 Coinsurance Funds Withheld Certain MYGA (b) and deferred annuities Deposit +Coinsurance Funds Withheld Certain FIA Reinsurance +Everlake 1,168 509 Coinsurance Certain MYGA (b) (d) Deposit +Wilton Reassurance Company 1,066 1,092 Coinsurance Block of traditional, IUL, and UL (e) Reinsurance +Other (f) 489 536 +Reinsurance recoverable, gross of allowance for credit losses 13,389 8,981 +Allowance for expected credit loss ( 20 ) ( 21 ) +Reinsurance recoverable, net of allowance for credit losses $ 13,369 $ 8,960 +(a) Reinsurance recoverables do not include unearned ceded premiums that would be recovered in the event of early termination of certain traditional life policies. +(b) The combined quota share flow reinsurance amongst all reinsurers for 2024 varied between 30 % and 90 %. As of December 31, 2024, the combined quota share flow reinsurance amongst all reinsurers was 90 %. +(c) The balance represents the total reinsurance recoverable for all reinsurance agreements with Somerset. +(d) Reinsurance recoverable is collateralized by assets placed in a statutory comfort trust by the reinsurer and maintained for our sole benefit. +(e) Also includes certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX. +(f) Represents all other reinsurers, with no single reinsurer having a carrying value in excess of 5% of total reinsurance recoverable +As of December 31, 2024 and December 31, 2023, F&G had a deposit asset of $ 11,039 million and $ 7,481 million, respectively, which is reported in the Reinsurance recoverable, net of allowance for credit losses on the Consolidated Balance Sheets. +F&G incurred risk charge fees of $ 42 million, $ 39 million, and $ 36 million during the years ended December 31, 2024, 2023, and 2022, respectively, in relation to reinsurance agreements. +Credit Losses +F&G estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurer's credit risk, expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features. +The expected credit loss reserves were as follows (in millions): +Year Ended December 31, +2024 2023 +Balance at beginning of period $ ( 21 ) $ ( 10 ) +Changes in the expected credit loss reserve 1 ( 11 ) +Balance at end of period $ ( 20 ) $ ( 21 ) +172 +Concentration of Reinsurance Risk +As indicated above, the Company has a significant concentration of reinsurance risk with third party reinsurers, Aspida Life Re Ltd. (“Aspida Re”), Wilton Reassurance (“Wilton Re”), Somerset, and Everlake that could have a material impact on our financial position in the event that any of these reinsurers fails to perform its obligations under the various reinsurance treaties. We monitor the financial condition and financial strength of individual reinsurers using public ratings (refer to table below) and ratings reports of individual reinsurers to attempt to reduce the risk of default by such reinsurers. In addition, the risk of non-performance is further mitigated with various forms of collateral or collateral arrangements, including secured trusts, funds withheld accounts and irrevocable letters of credit. We believe that all amounts due from Aspida Re, Wilton Re, Somerset and Everlake for periodic treaty settlements, net of any applicable credit loss reserves, are collectible as of December 31, 2024. The following table presents financial strength ratings as of December 31, 2024: +Parent Company/Principal Reinsurers Financial Strength Rating +AM Best S&P Fitch Moody's +Aspida Re A- — — — +Somerset A- BBB+ — — +Everlake A — — — +Wilton Re A+ — A- — +“—” indicates not rated +Intercompany Reinsurance Agreements +The Company executes various intercompany reinsurance agreements between its insurance subsidiaries, including off shore entities, for purposes of managing regulatory statutory capital and risk. Since these agreements are intercompany, the financial impacts are eliminated in the preparation of the Consolidated Financial Statements included within this Annual Report on Form 10-K. +Some of these intercompany transactions are executed with wholly owned reinsurance subsidiaries, Corbeau Re, Inc. (“Corbeau Re”), Raven Reinsurance Company (“Raven Re”) and F&G Cayman Re (“Cayman Re”), to finance the portion of statutory reserves considered to be non-economic. The financing arrangements involve Fidelity & Guaranty Life Insurance Company reinsuring certain annuity products and their related rider benefits to the captives and the captives executing third-party financing facilities that are classified as capital for statutory purposes. +The transactions with Raven Re and Cayman Re included the execution of letter of credits with Nomura Bank International plc (“NBI”) and Deutsche Bank AG, respectively, that are undrawn and have maximum borrowing capacities of $ 175 million and $ 400 million, respectively, as of December 31, 2024. The transaction with Corbeau Re included the execution of an excess of loss agreement (“XOL”) with Canada Life Barbados Branch that matures on December 31, 2043, and provides for coverage on losses up to $ 1,500 million as of December 31, 2024. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. The XOL is not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. +Note F - Intangibles +The following table reconciles to Other intangible assets, net, on the Consolidated Balance Sheets as of December 31, 2024 and 2023 (in millions): +173 +December 31, 2024 December 31, 2023 +VOBA $ 1,349 $ 1,446 +DAC 3,036 2,215 +DSI 625 346 +VODA 74 86 +Computer software 76 65 +Definite lived trademarks, tradenames, and other 131 41 +Customer relationships and contracts 273 — +Indefinite lived tradenames and other 8 8 +Total Other intangible assets, net $ 5,572 $ 4,207 +The following tables roll forward VOBA by product for the years ended December 31, 2024 and 2023 (in millions): +Indexed Annuities Fixed Rate Annuities Immediate Annuities Universal Life Traditional Life Total +Balance at January 1, 2024 +$ 1,025 $ 27 $ 191 $ 134 $ 69 $ 1,446 +Amortization ( 133 ) ( 5 ) ( 7 ) ( 8 ) ( 7 ) ( 160 ) +Actuarial model updates and refinements (a) — — — — 63 63 +Balance at December 31, 2024 +$ 892 $ 22 $ 184 $ 126 $ 125 $ 1,349 +(a) net of amortization of ($ 15 million). +Indexed Annuities Fixed Rate Annuities Immediate Annuities Universal Life Traditional Life Total +Balance at January 1, 2023 +$ 1,166 $ 32 $ 201 $ 143 $ 73 $ 1,615 +Amortization ( 141 ) ( 5 ) ( 10 ) ( 9 ) ( 4 ) ( 169 ) +Balance at December 31, 2023 +$ 1,025 $ 27 $ 191 $ 134 $ 69 $ 1,446 +VOBA amortization expense of $ 175 million, $ 169 million, and $ 180 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2024, 2023, and 2022, respectively. +The following tables roll forward DAC by product for the years ended December 31, 2024 and 2023 (in millions): +Indexed Annuities Fixed Rate Annuities Universal Life Total (a) +Balance at January 1, 2024 +$ 1,378 $ 288 $ 545 $ 2,211 +Capitalization 652 174 274 1,100 +Amortization ( 156 ) ( 86 ) ( 38 ) ( 280 ) +Balance at December 31, 2024 +$ 1,874 $ 376 $ 781 $ 3,031 +Indexed Annuities Fixed Rate Annuities Universal Life Total (a) +Balance at January 1, 2023 +$ 971 $ 83 $ 348 $ 1,402 +Capitalization 510 177 229 916 +Amortization ( 103 ) ( 51 ) ( 32 ) ( 186 ) +Reinsurance related adjustments — 79 — 79 +Balance at December 31, 2023 +$ 1,378 $ 288 $ 545 $ 2,211 +(a) Excludes insignificant amounts of DAC related to FABN and PRT. +174 +DAC amortization expense of $ 280 million, $ 186 million, and $ 99 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the year s ended December 31, 2024, 2023, and 2022, respectively, excluding insignificant amounts related to FABN and PRT. +The following table presents a reconciliation of DAC to the table above which is reconciled to the Consolidated Balance Sheets as of December 31, 2024 and 2023 (in millions): +December 31, 2024 December 31, 2023 +Indexed Annuities $ 1,874 $ 1,378 +Fixed Rate Annuities 376 288 +Universal Life 781 545 +Funding Agreements 4 4 +PRT 1 — +Total $ 3,036 $ 2,215 +The following tables roll forward DSI for our indexed annuity products for the years ended December 31, 2024 and 2023 (in millions): +Years Ended December 31, +2024 2023 +Balance at January 1, $ 346 $ 200 +Capitalization 319 168 +Amortization ( 40 ) ( 22 ) +Balance at December 31, $ 625 $ 346 +DSI amortization expense of $ 40 million, $ 22 million, and $ 14 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2024, 2023, and 2022, respectively. +The cash flow assumptions used to amortize VOBA and DAC were consistent with the assumptions used to estimate the FPB for life contingent immediate annuities, and will be reviewed and unlocked, if applicable, in the same period as those balances. For nonparticipating traditional life contracts, the VOBA amortization is straight-line, without the use of cash flow assumptions. For indexed annuity contracts, the cash flow assumptions used to amortize VOBA, DAC, and DSI were consistent with the assumptions used to estimate the value of the embedded derivative and MRBs, and will be reviewed and unlocked, if applicable, in the same period as those balances. For fixed rate annuities and IUL the cash flow assumptions used to amortize VOBA, DAC and DSI reflect the Company’s best estimates for policyholder behavior, consistent with the development of assumptions for indexed annuities and immediate annuities. Refer to Note A - Business and Summary of Significant Accounting Policies for further information about accounting policies for amortization of VOBA, DAC and DSI. +We review cash flow assumptions annually, generally in the third quarter. In 2024 and 2023, we undertook a review of all significant assumptions and revised several assumptions relating to our deferred annuity (indexed annuity and fixed rate annuity) and IUL products. For the year ended December 31, 2024, we updated assumptions including surrender rates, GMWB election timing, premium persistency, mortality improvement, and option budgets. For the year ended December 31, 2023, we updated assumptions including surrender rates, GMWB election timing, premium persistency, and option budgets. All updates to these assumptions brought us more in line with our company and overall industry experience since the prior assumption update. +Definite and Indefinite Lived Other Intangible Assets +175 +Other intangible assets as of December 31, 2024 and 2023 consist of the following (in millions): +December 31, 2024 +Cost Accumulated amortization Net carrying amount Weighted average useful life (years) +Definite lived other intangible assets +VODA $ 140 $ ( 66 ) $ 74 15 +Computer software 114 ( 38 ) 76 +2 to 10 +Definite lived trademarks, tradenames, and other (a) 155 ( 24 ) 131 +5 to 10 +Customer relationship intangibles and contracts (a) 310 ( 37 ) 273 +12 to 20 +Indefinite lived other intangible assets +Indefinite lived tradenames and other 8 N/A 8 Indefinite +Total $ 562 +(a) Includes intangible assets acquired with ROAR and PALH. Refer to Note P - Acquisitions for further details. +December 31, 2023 +Cost Accumulated amortization Net carrying amount Weighted average useful life (years) +Definite lived other intangible assets +VODA $ 140 $ ( 54 ) $ 86 15 +Computer software 94 ( 29 ) 65 +2 to 10 +Definite lived trademarks, tradenames and other 54 ( 13 ) 41 10 +Indefinite lived other intangible assets +Indefinite lived tradenames and other 8 N/A 8 Indefinite +Total $ 200 +Total amortization expense for definite lived other intangible assets, was $ 69 million, $ 26 million and $ 25 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Within definite lived trademarks, tradenames, and other is an amount established to offset MRBs with no explicit rider charges, which had a balance of $ 94 million and $ 22 million as of December 31, 2024 and December 31, 2023, respectively. Amortization of $ 5 million, $ 1 million and $ 1 million was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2024, 2023, and 2022, respectively, and is included in total amortization expense noted above. +We recorded no impairment expense related to computer software during the year ended December 31, 2024, compared to $ 13 million and $ 14 million for the years ended December 31, 2023 and 2022, respectively. +The following table shows the estimated amortization expense in future fiscal periods for VOBA for the in-force liabilities, customer relationship intangibles and definite lived other intangible assets as of December 31, 2024 (in millions): +VOBA Customer Relationship +Intangibles Definite Lived Other +Intangible Assets +2025 $ 145 $ 35 $ 41 +2026 132 30 37 +2027 121 26 35 +2028 110 23 28 +2029 100 20 25 +Thereafter 741 139 115 +Total $ 1,349 $ 273 $ 281 +176 +Note G - Market Risk Benefits +The following table presents the balances of and changes in MRBs associated with indexed annuities and fixed rate annuities for the years ended December 31, 2024 and 2023 (in millions): +December 31, 2024 December 31, 2023 +Indexed annuities Fixed rate annuities Indexed annuities Fixed rate annuities +Balance, beginning of period, net liability $ 314 $ 1 $ 164 $ 1 +Balance, beginning of period, before effect of changes in the instrument-specific credit risk $ 209 $ 1 $ 102 $ 1 +Issuances and benefit payments 109 — ( 10 ) — +Attributed fees collected and interest accrual 147 — 131 — +Actual policyholder behavior different from expected ( 5 ) — 27 — +Changes in assumptions and other 24 — 29 — +Effects of market related movements ( 162 ) — ( 70 ) — +Balance, end of period, before effect of changes in the instrument-specific credit risk 322 1 209 1 +Effect of changes in the instrument-specific credit risk 98 — 105 — +Balance, end of period, net liability 420 1 314 1 +Less: reinsured market risk benefits 61 — — — +Balance, end of period, net of reinsurance $ 359 $ 1 $ 314 $ 1 +Weighted-average attained age of policyholders weighted by total AV (years) 67.98 72.58 68.28 72.59 +Net amount at risk $ 1,327 $ 2 $ 1,059 $ 2 +The following table reconciles MRBs by amounts in an asset position and amounts in a liability position to the MRBs amounts in the Consolidated Balance Sheets (in millions): +December 31, 2024 December 31, 2023 +Direct Reinsured Net Direct Reinsured Net +MRB asset +Indexed annuities $ 128 $ 61 $ 189 $ 88 $ — $ 88 +Fixed rate annuities — — — — — — +Total MRB asset $ 128 $ 61 $ 189 $ 88 $ — $ 88 +MRB liability +Indexed annuities $ 548 $ — $ 548 $ 402 $ — $ 402 +Fixed rate annuities 1 — 1 1 — 1 +Total MRB liability $ 549 $ — $ 549 $ 403 $ — $ 403 +2024 . The net MRB liability increased for the year ended December 31, 2024, primarily as a result of collection of attributed fees, interest accrual, MRB reserves for contracts issued within the period, and changes in actuarial assumptions. These increases were partially offset by the effects of market related movements, including the impacts of higher risk-free rates and increases in the equity market related projections. +For the year ended December 31, 2024, notable changes made to the inputs to the fair value estimates of MRBs calculations included an increase in risk-free rates leading to a favorable change in the MRBs associated with indexed annuities and fixed rate annuities; increases in the equity market related projections resulted in a decrease in the net amount at risk associated with indexed annuities, leading to a favorable change in the value of the associated MRBs; and an increase in the rider benefit utilization assumption, leading to an unfavorable change in the value of the associated MRBs. +177 +2023. The net MRB liability increased for the year ended December 31, 2023, primarily as a result of attributed fees collected, increases as a result of actual policyholder behavior different than expected and changes in assumptions as discussed below. These increases were partially offset by the effects of market related movements, including the impacts of higher risk-free rates and increases in the equity market related projections. +For the year ended December 31, 2023, notable changes made to the inputs to the fair value estimates of MRBs calculations included a significant increase in risk-free rates leading to a favorable change in the MRBs associated with indexed annuities and fixed rate annuities; increases in the equity market related projections resulted in a decrease in the net amount at risk associated with indexed annuities, leading to a favorable change in the value of the associated MRBs; and F&G’s credit spread decreased, lead to a corresponding unfavorable change in the MRBs associated with both indexed annuities and fixed rate annuities. +In 2024 and 2023, F&G undertook a review of all significant assumptions and revised several assumptions relating to our deferred annuities (indexed annuities and fixed rate annuities) with MRBs. For the year ended December 31, 2024, we updated assumptions including surrender rates, rider benefit election utilization, mortality improvement, and option budgets. For the year ended December 31, 2023, we updated assumptions including surrender rates, partial withdrawal rates, mortality improvement, and option budgets. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption updates. These updates, in total, led to increases in the net MRB liability for the years ended December 31, 2024 and 2023. +Note H - Income Taxes +Income tax expense (benefit) on continuing operations consists of the following (in millions): +Year Ended December 31, +2024 2023 2022 +Current $ 65 $ 27 $ ( 31 ) +Deferred 71 ( 4 ) 189 +Total $ 136 $ 23 $ 158 +Total income tax expense (benefit) was allocated as follows (in millions): +Year Ended December 31, +2024 2023 2022 +Taxes on net earnings from continuing operations $ 136 $ 23 $ 158 +Other comprehensive income (loss): +Changes in current discount rate - future policy benefits 59 ( 50 ) 203 +Changes in instrument-specific credit risk-market benefits 1 ( 9 ) 18 +Unrealized (loss) gain on investments and other financial instruments ( 41 ) 275 ( 1,186 ) +Unrealized gain (loss) on foreign currency translation and cash flow hedging ( 1 ) 1 ( 1 ) +Total income tax (benefit) expense allocated to other comprehensive income (loss) 18 217 ( 966 ) +Total income taxes $ 154 $ 240 $ ( 808 ) +178 +A reconciliation of the federal statutory rate to our effective tax rate is as follows: +Year Ended December 31, +2024 2023 2022 +Federal statutory rate 21.0 % 21.0 % 21.0 % +State income taxes, net of federal benefit 0.3 ( 12.7 ) 0.1 +Benefit for capital loss carryback — — ( 3.0 ) +Officers Compensation 1.2 ( 11.2 ) 0.3 +Stock compensation ( 0.8 ) 2.7 — +Tax credits ( 1.6 ) 16.2 ( 1.1 ) +Dividends received deduction ( 0.2 ) 7.9 ( 0.4 ) +Valuation allowance for deferred tax assets ( 1.8 ) ( 100.1 ) 3.4 +COLI ( 0.6 ) 13.2 ( 0.4 ) +Non-deductible expenses and other, net — ( 3.2 ) — +Effective tax rate 17.5 % ( 66.2 ) % 19.9 % +For the year ended December 31, 2024, the Company’s effective tax rate was 17.5 %. The effective tax rate was positively impacted by favorable permanent adjustments, including low income housing tax credits (“LIHTC”), the dividends received deduction (“DRD”), and COLI, as well as the valuation allowance release on unrealized losses and capital loss carryforwards. +For the year ended December 31, 2023, the Company’s effective tax rate was ( 66.2 )%. The effective tax rate was negatively impacted by the valuation allowance expense recorded on unrealized losses and capital loss carryforwards. +For the year ended December 31, 2022, the Company’s effective tax rate was 19.9 %. The effective tax rate was positively impacted by favorable permanent adjustments, including LIHTC, DRD, and COLI. The effective tax rate was also impacted by the benefit of the capital loss carryback. This benefit is offset by the valuation allowance expense recorded on unrealized losses and capital loss carryforwards. +179 +The significant components of deferred tax assets and liabilities consist of the following (in millions): +December 31, +2024 2023 +Deferred tax assets: +Employee benefit accruals $ 29 $ 25 +Net operating loss carryforwards 105 75 +General business tax credits 9 43 +Corporate Alternative Minimum Tax ("CAMT") Credit Carryforwards 155 36 +Bermuda CIT NOL Carryforward 10 24 +Investment securities 643 597 +Capital loss carryover 19 38 +Market risk benefit 56 61 +Derivatives 18 — +Life insurance and claim related adjustments 451 547 +Funds held under reinsurance agreements 822 500 +Other 13 5 +Total gross deferred tax asset 2,330 1,951 +Less: valuation allowance 58 85 +Total deferred tax asset 2,272 1,866 +Deferred Tax Liabilities: +Amortization of goodwill and intangible assets ( 18 ) ( 25 ) +Other ( 2 ) ( 5 ) +Depreciation ( 11 ) ( 15 ) +Partnerships ( 163 ) ( 127 ) +Value of business acquired ( 283 ) ( 304 ) +Derivatives — ( 3 ) +Deferred acquisition costs ( 543 ) ( 361 ) +Transition reserve on new reserve method ( 8 ) ( 17 ) +Funds held under reinsurance agreements ( 945 ) ( 621 ) +Total deferred tax liability ( 1,973 ) ( 1,478 ) +Net deferred tax asset (liability) $ 299 $ 388 +Our net deferred tax asset was $ 299 million as of December 31, 2024 and a net deferred tax asset of $ 388 million as of December 31, 2023. The significant changes in the deferred taxes are as follows: the deferred tax asset for investment securities increased by $ 46 million primarily due to unrealized capital losses on fixed maturities and the recognition of tax gains on commercial mortgage loans, which were carried at a zero tax basis as a result of an IRS Code Section 338(h)(10) election made on November 30, 2017. The deferred tax liability related to deferred acquisition costs increased by $ 182 million, which is consistent with the growth in sales in our U.S. life group. The life insurance reserves and claim related adjustments deferred tax asset decreased by $ 96 million primarily due to the tax reserves for the year increasing by more than the GAAP reserves. The reinsurance receivable deferred tax asset increased by $ 322 million, and the reinsurance receivable deferred tax liability increased by $ 324 million, both due to the increase in the Modco reinsurance. +As of December 31, 2024, we have net operating losses (“NOLs”) on a pretax basis of $ 503 million, which are available to carryforward and offset future federal taxable income subject to the 80% taxable income limitation. A portion of these NOLs are subject to Internal Revenue Code Section 382 limitations, however, such limitations are in excess of the relevant carryforward balances. Therefore, the carryforwards are effectively unlimited. These losses do not expire. +As of December 31, 2024 and 2023, we had $ 9 million and $ 43 million of general business tax credits, respectively, which expire between 2041 and 2044. None of the $ 9 million in tax credits are limited. As of December 31, 2024 and 2023, the Company also had $ 155 million and $ 36 million of CAMT credits. The CAMT credits are not limited by IRC Section 382, and have no expiration date. +180 +As of December 31, 2024, the valuation allowance of $ 58 million consisted of a full valuation allowance of $ 2 million on the unrealized capital loss deferred tax assets for F&G Life Re Ltd. (“F&G Life Re”), F&G Cayman Re Ltd. (“F&G Cayman Re”), and the US Non-life Companies, a full valuation allowance of $ 10 million on the foreign deferred tax assets of F&G Life Re, a full valuation allowance of $ 1 million on the deferred capital loss carryforwards for the US Non-life Companies and F&G Cayman Re, and a partial valuation allowance of $ 45 million on the US Life Companies’ capital loss deferred tax assets. +The Company makes certain investments in limited partnerships, which invest in affordable housing projects that qualify for the LIHTC. The Company’s investment in the funds is amortized through income tax expense on the Consolidated Statements of Operations using the proportional amortization method. +The tax credits and other benefits recognized are included in the net change in income taxes on the Consolidated Statements of Cash Flows. The following table presents the impacts of the LIHTC investments included in income tax expense on the Consolidated Statements of Operations (in millions): +For the Year Ended December 31, +2024 2023 2022 +Tax credits and other benefits recognized $ ( 36 ) $ ( 27 ) $ ( 26 ) +Tax credit amortization expense 26 22 18 +Total $ ( 10 ) $ ( 5 ) $ ( 8 ) +At December 31, 2024 and December 31, 2023, LIHTC investments included in Prepaid expenses and other assets on the Consolidated Balance Sheets totaled $ 135 million and $ 108 million , respectively. +The U.S. Life insurance group is subject to a Tax Sharing Agreement within the members of the life insurance tax return group. The agreement provides for an allocation based on separate return calculations and allows for reimbursement of company tax benefits absorbed by other members of the group. The U.S. non-life group is subject to a Tax Sharing Agreement with its parent, FNF, with which it files a consolidated federal income tax return. The Company’s non-life group Tax Sharing Agreement allows for reimbursement of company tax benefits absorbed by FNF. If, during the year ended December 31, 2024, the Company had computed taxes using the separate return method, the pro-forma provision for income taxes would remain unchanged. +The U.S. Federal income tax returns of the Company for years prior to 2020 are no longer subject to examination by the taxing authorities. The Company does no t have any unrecognized tax benefits (“UTBs”) at December 31, 2024 or December 31, 2023. In the event the Company has UTBs, interest and penalties related to uncertain tax positions would be recorded as part of income tax expense in the financial statements. The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its tax reserves based on new information or developments. +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% CAMT on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. The life companies will join the consolidated tax return group with FNF and file a life/non-life consolidated return once the five-year waiting period has completed in 2026, which should strengthen that position as FNF is not anticipating owing CAMT on its future returns. The Company has elected to consider the effects of CAMT separately in evaluating the need for a valuation allowance. For the year ended December 31, 2024, due to the reasons above, no valuation allowance is needed. For the year ended December 31, 2024, the Company was subject to CAMT, but there is no impact to total tax. A CAMT credit carryforward was created and is expected to be able to be utilized in future years. +181 +The CIT Act of 2023 was passed in Bermuda on December 27, 2023. The CIT commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, is not expected to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2024 of $ 10 million has a full valuation allowance. Since the CIT did not have any material impact to the financial statements, the deferred tax asset and offsetting valuation allowance were netted together in the rate reconciliation above. +Note I - Contractholder Funds +The following tables summarize balances of and changes in contractholder funds’ account balances (in millions): +December 31, 2024 +Indexed annuities Fixed rate annuities Universal Life FABN (b) FHLB (b) +Balance, beginning of year $ 27,164 $ 13,443 $ 2,391 $ 2,613 $ 2,539 +Issuances 6,649 5,125 208 600 1,804 +Premiums received 120 1 495 — — +Policy charges (a) ( 195 ) — ( 315 ) — — +Surrenders and withdrawals ( 3,832 ) ( 1,479 ) ( 101 ) — — +Benefit payments ( 495 ) ( 315 ) ( 18 ) ( 820 ) ( 1,606 ) +Interest credited 821 667 157 71 117 +Other 3 — — ( 1 ) ( 2 ) +Balance, end of year 30,235 17,442 2,817 2,463 2,852 +Embedded derivative adjustment (c) 219 — 79 — — +Gross liability, end of period 30,454 17,442 2,896 2,463 2,852 +Less: Reinsurance recoverable 861 11,009 877 — — +Net liability, after reinsurance recoverable $ 29,593 $ 6,433 $ 2,019 $ 2,463 $ 2,852 +Weighted-average crediting rate 2.90 % 4.42 % 6.20 % N/A N/A +Net amount at risk (d) N/A N/A $ 74,279 N/A N/A +Cash surrender value (e) $ 27,865 $ 16,266 $ 2,177 N/A N/A +(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance. +(b) FABN and FHLB are considered funding agreements that are investment contracts which follow the interest method of accounting, and therefore are not subject to Accounting Standards Update (“ASU”) 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials. +(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives. +(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. +(e) These amounts are gross of reinsurance. +182 +December 31, 2023 +Indexed annuities Fixed rate annuities Universal Life FABN (b) FHLB (b) +Balance, beginning of year $ 24,766 $ 9,358 $ 2,112 $ 2,613 $ 1,982 +Issuances 4,722 5,061 199 — 1,256 +Premiums received 103 1 382 — — +Policy charges (a) ( 182 ) — ( 261 ) — — +Surrenders and withdrawals ( 2,005 ) ( 1,142 ) ( 90 ) — — +Benefit payments ( 526 ) ( 240 ) ( 27 ) ( 53 ) ( 763 ) +Interest credited 270 405 76 54 64 +Other 16 — — ( 1 ) — +Balance, end of year 27,164 13,443 2,391 2,613 2,539 +Embedded derivative adjustment (c) 243 — 84 — — +Gross liability, end of period 27,407 13,443 2,475 2,613 2,539 +Less: Reinsurance recoverable 17 7,520 894 — — +Net liability, after reinsurance recoverable $ 27,390 $ 5,923 $ 1,581 $ 2,613 $ 2,539 +Weighted-average crediting rate 1.40 % 4.85 % 3.44 % N/A N/A +Net amount at risk (d) N/A N/A $ 60,389 N/A N/A +Cash surrender value (e) $ 25,099 $ 12,505 $ 1,872 N/A N/A +(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance. +(b) FABN and FHLB are considered funding agreements that are investment contracts which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials. +(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives. +(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. +(e) These amounts are gross of reinsurance. +The following table reconciles contractholder funds’ account balances to the contractholder funds liability in the Consolidated Balance Sheets (in millions): +December 31, +2024 2023 +Indexed annuities $ 30,454 $ 27,407 +Fixed rate annuities 17,442 13,443 +Immediate annuities 286 311 +Universal life 2,896 2,475 +Traditional life 5 5 +Funding Agreement-FABN 2,463 2,613 +FHLB 2,852 2,539 +PRT 6 5 +Total $ 56,404 $ 48,798 +Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. During the third quarter of 2024 and for the year ended December 31, 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds. These changes resulted in a decrease in total benefits and other changes in policy reserves of approximately $ 89 million for the year ended December 31, 2024. +During the third quarter of 2023 and for the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and also aligned reserves to actual policyholder +183 +behavior. These changes resulted in an increase in total benefits and other changes in policy reserves of approximately $ 73 million for the year ended December 31, 2023. +The following tables present the account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums (in millions): +December 31, 2024 +Range of guaranteed minimum crediting rate At Guaranteed Minimum +1 Basis Point- 50 Basis Points Above +51 Basis Points- 150 Basis Points Above +Greater Than 150 Basis Points Above +Total +Indexed Annuities +0.00%-1.50% $ 23,540 $ 1,236 $ 492 $ 1,846 $ 27,114 +1.51%-2.50% 875 1 684 1,242 2,802 +Greater than 2.50% 303 2 — 14 319 +Total $ 24,718 $ 1,239 $ 1,176 $ 3,102 $ 30,235 +Fixed Rate Annuities +0.00%-1.50% $ 57 $ 20 $ 773 $ 14,407 $ 15,257 +1.51%-2.50% 4 7 20 462 493 +Greater than 2.50% 804 2 5 881 1,692 +Total $ 865 $ 29 $ 798 $ 15,750 $ 17,442 +Universal Life +0.00%-1.50% $ 2,421 $ 7 $ — $ 24 $ 2,452 +1.51%-2.50% — — — — — +Greater than 2.50% 364 — 1 — 365 +Total $ 2,785 $ 7 $ 1 $ 24 $ 2,817 +December 31, 2023 +Range of guaranteed minimum crediting rate At Guaranteed Minimum +1 Basis Point- 50 Basis Points Above +51 Basis Points- 150 Basis Points Above +Greater Than 150 Basis Points Above +Total +Indexed Annuities +0.00%-1.50% $ 22,392 $ 1,444 $ 526 $ 1,953 $ 26,315 +1.51%-2.50% 196 1 24 250 471 +Greater than 2.50% 377 1 — — 378 +Total $ 22,965 $ 1,446 $ 550 $ 2,203 $ 27,164 +Fixed Rate Annuities +0.00%-1.50% $ 23 $ 25 $ 1,532 $ 10,271 $ 11,851 +1.51%-2.50% 5 8 23 453 489 +Greater than 2.50% 893 2 4 204 1,103 +Total $ 921 $ 35 $ 1,559 $ 10,928 $ 13,443 +Universal Life +0.00%-1.50% $ 1,987 $ 5 $ — $ 21 $ 2,013 +1.51%-2.50% — — — — — +Greater than 2.50% 361 16 1 — 378 +Total $ 2,348 $ 21 $ 1 $ 21 $ 2,391 +184 +Note J - Future Policy Benefits +The following table summarizes balances and changes in the present value of expected net premiums and the present value of the expected FPB for nonparticipating traditional contracts (in millions): +Traditional life +December 31, 2024 December 31, 2023 +Expected net premiums +Balance, beginning of year $ 722 $ 797 +Beginning balance at original discount rate 874 974 +Effect of actual variances from expected experience ( 4 ) ( 1 ) +Balance adjusted for variances from expectation 870 973 +Interest accrual 17 19 +Net premiums collected ( 107 ) ( 118 ) +Ending Balance at original discount rate 780 874 +Effect of changes in discount rate assumptions ( 149 ) ( 152 ) +Balance, end of year $ 631 $ 722 +Expected FPB +Balance, beginning of year $ 2,071 $ 2,151 +Beginning balance at original discount rate 2,492 2,665 +Effect of actual variances from expected experience 44 ( 24 ) +Balance adjusted for variances from expectation 2,536 2,641 +Interest accrual 54 56 +Benefits payments ( 222 ) ( 205 ) +Ending Balance at original discount rate 2,368 2,492 +Effect of changes in discount rate assumptions ( 435 ) ( 421 ) +Balance, end of year $ 1,933 $ 2,071 +Net liability for future policy benefits $ 1,302 $ 1,349 +Less: Reinsurance recoverable 513 413 +Net liability for future policy benefits, after reinsurance recoverable $ 789 $ 936 +Weighted-average duration of liability for future policyholder benefits (years) 6.28 7.36 +185 +The following tables summarize balances and changes in the present value of the expected FPB for limited-payment contracts (in millions): +PRT +December 31, 2024 December 31, 2023 +Balance, beginning of year $ 4,189 $ 2,165 +Beginning balance at original discount rate 4,351 2,475 +Effect of changes in cash flow assumptions ( 3 ) ( 9 ) +Effect of actual variances from expected experience ( 11 ) ( 7 ) +Balance adjusted for variances from expectation 4,337 2,459 +Issuances 2,324 2,041 +Interest accrual 240 109 +Benefits payments ( 484 ) ( 258 ) +Ending Balance at original discount rate 6,417 4,351 +Effect of changes in discount rate assumptions ( 363 ) ( 162 ) +Balance, end of year $ 6,054 $ 4,189 +Net liability for future policy benefits, after reinsurance recoverable $ 6,054 $ 4,189 +Weighted-average duration of liability for future policyholder benefits (years) 7.78 8.23 +Immediate annuities +December 31, 2024 December 31, 2023 +Balance, beginning of year $ 1,415 $ 1,429 +Beginning balance at original discount rate 1,788 1,858 +Effect of changes in cash flow assumptions — — +Effect of actual variances from expected experience ( 27 ) ( 15 ) +Balance adjusted for variances from expectation 1,761 1,843 +Issuances 30 22 +Interest accrual 59 51 +Benefits payments ( 118 ) ( 128 ) +Ending Balance at original discount rate 1,732 $ 1,788 +Effect of changes in discount rate assumptions ( 435 ) ( 373 ) +Balance, end of year $ 1,297 $ 1,415 +Net liability for future policy benefits $ 1,297 $ 1,415 +Less: Reinsurance recoverable 109 116 +Net liability for future policy benefits, after reinsurance recoverable $ 1,188 $ 1,299 +Weighted-average duration of liability for future policyholder benefits (years) 12.63 12.47 +186 +The following tables summarize balances and changes in the liability for DPL for limited-payment contracts (in millions): +December 31, 2024 December 31, 2023 +Immediate annuities PRT Immediate annuities PRT +Balance, beginning of year $ 87 $ 10 $ 69 $ 4 +Effect of modeling changes — — 4 — +Effect of changes in cash flow assumptions — ( 8 ) — 1 +Effect of actual variances from expected experience 8 — 16 5 +Balance adjusted for variances from expectation 95 2 89 10 +Issuances 3 1 3 — +Interest accrual 1 4 2 1 +Amortization ( 9 ) ( 1 ) ( 7 ) ( 1 ) +Balance, end of year $ 90 $ 6 $ 87 $ 10 +The following table reconciles the net FPB to the FPB in the Consolidated Balance Sheets (in millions). The DPL for Immediate Annuities and PRT is presented together with the FPB in the Consolidated Balance Sheets and has been included as a reconciling item in the table below: +December 31, +2024 2023 +Traditional life $ 1,302 $ 1,349 +Immediate annuities 1,297 1,415 +PRT 6,054 4,189 +Immediate annuities DPL 90 87 +PRT DPL 6 10 +Total $ 8,749 $ 7,050 +The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefits and expenses for nonparticipating traditional and limited-payment contracts (in millions): +Undiscounted Discounted +December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 +Traditional life +Expected future benefit payments $ 2,705 $ 2,935 $ 1,948 $ 2,075 +Expected future gross premiums 914 1,082 681 789 +Immediate annuities +Expected future benefit payments $ 3,189 $ 3,291 $ 1,297 $ 1,413 +Expected future gross premiums — — — — +PRT +Expected future benefit payments $ 10,038 $ 6,709 $ 6,054 $ 4,350 +Expected future gross premiums — — — — +187 +The following table summarizes the amount of revenue and interest related to nonparticipating traditional and limited-payment contracts recognized in the Consolidated Statements of Operations (in millions): +Gross Premiums (a) Interest Expense (b) +December 31, December 31, +2024 2023 2022 2024 2023 2022 +Traditional life $ 111 $ 123 $ 137 $ 37 $ 37 $ 39 +Immediate annuities 18 24 23 59 51 60 +PRT 2,217 1,964 1,362 240 109 50 +Total $ 2,346 $ 2,111 $ 1,522 $ 336 $ 197 $ 149 +(a) Included in Life insurance premiums and other fees on the Consolidated Statements of Operations. +(b) Included in Benefits and other changes in policy reserves (remeasurement gains (losses) (a)) on the Consolidated Statements of Operations. +The following table presents the weighted-average interest rate: +December 31, +2024 2023 2022 +Traditional life +Interest accretion rate 2.34 % 2.33 % 2.32 % +Current discount rate 5.44 % 5.03 % 5.37 % +Immediate annuities +Interest accretion rate 3.17 % 3.14 % 3.07 % +Current discount rate 5.45 % 4.98 % 5.21 % +PRT +Interest accretion rate 4.72 % 4.61 % 3.20 % +Current discount rate 5.54 % 5.03 % 5.40 % +The following tables summarize the actual experience and expected experience for mortality and lapses of the FPB: +December 31, 2024 +Traditional life Immediate annuities PRT +Mortality +Actual experience 1.4 % 2.7 % 2.7 % +Expected experience 1.5 % 1.9 % 2.5 % +Lapses +Actual experience 0.1 % — % — % +Expected experience 0.5 % — % — % +December 31, 2023 +Traditional life Immediate annuities PRT +Mortality +Actual experience 1.7 % 3.2 % 3.2 % +Expected experience 1.4 % 1.8 % 2.3 % +Lapses +Actual experience — % — % — % +Expected experience 0.3 % — % — % +188 +December 31, 2022 +Traditional life Immediate annuities PRT +Mortality +Actual experience 1.5 % 3.0 % 1.9 % +Expected experience 1.3 % 1.9 % 2.5 % +Lapses +Actual experience — % — % — % +Expected experience 0.3 % — % — % +The following table provides additional information for periods in which a cohort has a net premium ratio (“NPR”) greater than 100% (and therefore capped at 100%) (dollars in millions): +December 31, 2024 +Cohort X Description +NPR before capping 108 % Term with return of premium Non-NY Cohort +Reserves before NPR capping $ 1,147 Term with return of premium Non-NY Cohort +Reserves after NPR capping 1,174 Term with return of premium Non-NY Cohort +Loss Expense 27 Term with return of premium Non-NY Cohort +F&G realized actual-to-expected experience variances and made changes to assumptions during the years ended December 31, 2024 and 2023 as follows: +Traditional life +The traditional life line of business primarily consists of policies that were sold prior to 2010. As this line of business continues to age, benefit payments made from these contracts will be the primary driver of the emergence of reserves, decreasing the reserve balance. +Significant assumption inputs to the calculation of the FPB for traditional life include mortality, lapses (including lapses due to nonpayment of premium and surrenders for cash surrender value), and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. In 2024, F&G made an adjustment to the calculation to reflect additional actuarial precision, unrelated to the assumptions, driving an increase to the FPB liability. In 2023, F&G undertook a review of all significant assumptions and revised the lapse assumption, resulting in a slight decrease to the FPB. There have been no other significant changes. +Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. Market data that underlies current discount rates was updated in 2023 from that utilized in 2022, resulting in decreased discount rates that drove a material increase to the FPB. +Immediate annuities (life contingent) +Significant assumption inputs to the calculation of the FPB for immediate annuities (life contingent) include mortality and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. In 2024 and 2023, F&G undertook a review of the significant cash flow assumptions and did not make any changes to mortality. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. Market data that underlies current discount rates was updated in 2023 from that utilized in 2022, resulting in decreased discount rates that drove a material increase to the FPB. +189 +PRT (life contingent) +The PRT line of business has issued a significant volume of contracts for both 2024 and 2023, which is the primary impact in increasing the reserve balance in each of those periods. +Significant assumption inputs to the calculation of the FPB for PRT (life contingent) include mortality and discount rates (both accretion and current). Additionally, for PRT contracts with deferred payment streams, retirement age and elected payment form are significant assumptions. We review the cash flow assumptions annually, typically in the third quarter. In 2024 and 2023, F&G undertook a review of the significant cash flow assumptions and did not make any changes to mortality. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. Market data that underlies current discount rates was updated in 2023 from that utilized in 2022, resulting in decreased discount rates that drove a material increase to the FPB. +Premium deficiency testing +F&G conducts annual premium deficiency testing for its long-duration contracts except for the FPB for nonparticipating traditional and limited-payment contracts. F&G also conducts annual premium deficiency testing for the VOBA of all long-duration contracts. Premium deficiency testing is performed by reviewing assumptions used to calculate the insurance liabilities and determining whether the sum of the existing contract liabilities and the present value of future gross premiums is sufficient to cover the present value of future benefits to be paid to or on behalf of policyholders and settlement costs and recover unamortized present value of future profits. Anticipated investment income, based on F&G’s experience, is considered when performing premium deficiency testing for long-duration contracts. During 2024, F&G did not pass premium deficiency testing for the traditional life block of business, related to the recoverability of VOBA. Due to that result, F&G began accruing a liability in the fourth quarter of 2024 that increases the amortization of traditional life VOBA. The liability balance was immaterial at December 31, 2024. During 2023, F&G was not required to establish any additional liabilities as a result of premium deficiency testing. +Note K - Accounts Payable and Accrued Liabilities +As of December 31, 2024 and 2023, the total URL balance of $ 401 million and $ 270 million, respectively, is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The following table presents a reconciliation of Accounts payable and accrued liabilities to the Consolidated Balance Sheets as of December 31, 2024 and 2023 (in millions): +December 31, +2024 2023 +Salaries and incentives $ 116 $ 99 +Accrued benefits 67 60 +URL 401 270 +Trade accounts payable 147 297 +Liability for policy and contract claims 102 92 +Retained asset account 60 81 +Remittances and items not allocated 224 284 +Option collateral liabilities 679 588 +Lease liability 10 11 +Investment purchases payable 100 21 +Contingent consideration 74 — +Accrued interest on notes payable 31 23 +Interest rate swaps 10 — +Other accrued liabilities 198 185 +Accounts payable and accrued liabilities +$ 2,219 $ 2,011 +190 +The following tables roll forward URL for our universal life product for the years ended December 31, 2024 and 2023 (in millions): +December 31, +2024 2023 +Balance at January 1, $ 270 $ 166 +Capitalization 151 119 +Amortization ( 20 ) ( 15 ) +Balance at December 31, $ 401 $ 270 +For IUL the cash flow assumptions used to amortize URL reflect the Company’s best estimates for policyholder behavior. We review cash flow assumptions annually, generally in the third quarter. In 2024, F&G undertook a review of all significant assumptions, resulting in a revision to the IUL assumptions involving premium persistency and mortality improvement. In 2023, F&G undertook a review of all significant assumptions, resulting in revisions to IUL assumptions involving surrender rates, partial withdrawal rates, mortality improvement, premium persistency, and option budgets. +Note L - Notes Payable +Notes payable consists of the following (dollars in millions): +December 31, +2024 2023 +6.250 % F&G Notes, net of $ 8 and $ 0 of deferred issuance costs at December 31, 2024 and 2023, respectively +$ 492 $ — +6.50 % F&G Notes, net of $ 5 and $ 0 of deferred issuance costs at December 31, 2024 and 2023, respectively +545 — +7.95 % F&G Notes, net of $ 9 and $ 9 of deferred issuance costs at December 31, 2024 and 2023, respectively +336 336 +7.40 % F&G Notes, net of $ 3 and $ 5 of deferred issuance costs at December 31, 2024 and 2023, respectively +497 495 +5.50 % F&G Notes, net of $ 1 and $ 11 of purchase premium at December 31, 2024 and 2023, respectively +301 561 +Revolving Credit Facility - Short-term, net of deferred issuance costs of $ 0 and $ 3 at December 31, 2024 and 2023, respectively +— 362 +Total $ 2,171 $ 1,754 +6.250 % F&G Notes - On October 4, 2024, F&G completed its public offering of $ 500 million aggregate principal amount of its 6.250 % Senior Notes due 2034. The 6.250 % F&G Notes were issued at 99.36 % of face value net of deferred issuance costs of approximately $ 8 million. The 6.250 % F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 6.250 % F&G Notes mature on October 4, 2034, and become callable on July 4, 2034. Interest is payable semi-annually at a fixed rate of 6.250 %, and if the 6.250 % F&G Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. A portion of the net proceeds were used to pay off the outstanding balance of $ 365 million on the Company’s revolving credit facility described below. F&G intends to use the remaining net proceeds of this offering for general corporate purposes, including the support of organic growth opportunities. +6.50 % F&G Senior Notes - On June 4, 2024, F&G completed its public offering of $ 550 million aggregate principal amount of its 6.50 % Senior Notes due 2029. The 6.50 % F&G Notes were issued at 99.74 % of face value net of deferred issuance costs of approximately $ 6 million. The 6.50 % F&G Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 6.50 % F&G Notes mature on June 4, 2029, and become callable on May 4, 2029. Interest is payable semi-annually at a fixed rate of 6.50 %, and, if the 6.50 % F&G Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. F&G used a portion of the net proceeds from the 6.50 % F&G Notes offering to repay an aggregate principal amount of $ 250 million of the 5.50 % F&G Notes described below and intends to use the remaining net proceeds of this offering for general corporate purposes, which may include the repurchase, redemption or repayment at maturity of outstanding indebtedness. +7.95 % F&G Notes - On December 6, 2023, F&G issued $ 345 million of its 7.95 % Senior Notes due 2053 (the +191 +“ 7.95 % F&G Notes”). The 7.95 % F&G Notes were issued at par, net of deferred issuance costs of approximately $ 9 million. The 7.95 % F&G Notes are senior unsecured, unsubordinated obligations of F&G and are guaranteed by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 7.95 % F&G Notes mature on December 15, 2053, and become callable on or after December 15, 2028. Interest is payable quarterly at a fixed rate of 7.95 %, and, if the 7.95 % F&G Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. +7.40 % F&G Notes - On January 13, 2023, F&G issued $ 500 million of its 7.40 % F&G Notes due 2028 (the “ 7.40 % F&G Notes”). The 7.40 % F&G Notes were issued at par, net of deferred issuance costs of approximately $ 6 million. The 7.40 % F&G Notes are senior, unsecured unsubordinated obligations of F&G and are fully and unconditionally guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 7.40 % F&G Notes mature on January 13, 2028, and become callable on or after December 13, 2027. Interest is payable semi-annually at a fixed rate of 7.40 %, and if, the 7.40 % F&G Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. +5.50 % F&G Notes - On April 20, 2018, FGLH, our indirect wholly owned subsidiary, completed a debt offering of $ 550 million aggregate principal amount of 5.50 % senior notes due May 1, 2025 at 99.5 % of face value for proceeds of $ 547 million. As a result of the FNF acquisition, a premium of $ 39 million was established for these notes and is being amortized over the remaining life of the debt through 2025. In conjunction with the acquisition, FNF became a guarantor of FGLH’s obligations under the 5.50 % F&G Notes and agreed to fully and unconditionally guarantee the 5.50 % F&G Notes, on a joint and several basis. A portion of the net proceeds of the 6.50 % F&G Notes were used for a $ 250 million cash tender offer of the 5.50 % F&G Notes in June 2024. +Refer to Note A - Business and Summary of Significant Accounting Policies for a discussion of the redemption of the 5.50 % F&G Notes on February 1, 2025. +Revolving Credit Facility - On November 22, 2022, we entered into a Credit Agreement with certain lenders (the “Lenders”) and Bank of America, N.A. as administrative agent, swing line lender and an issuing bank, pursuant to which the Lenders have made available an unsecured revolving credit facility in an aggregate principal amount of $ 550 million to be used for working capital and general corporate purposes. On February 21, 2023, we entered into an amendment with the Lenders to increase the available aggregate principal amount of the Credit Agreement by $ 115 million to $ 665 million. On February 16, 2024, we entered into an amendment with the Lenders to increase the available aggregate principal amount of the Credit Agreement by $ 85 million to $ 750 million, and the maturity date of the Credit Agreement was extended from November 22, 2025 to November 22, 2027. Pricing and advance rates remain unchanged. Financial covenants also remained essentially the same. +Revolving loans under the Credit Agreement generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent’s “prime rate,” or (c) the sum of one percent plus Term The Secured Overnight Financing Rate (“SOFR”) plus a margin of between 30.0 and 80.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G or (ii) Term SOFR plus a margin of between 130.0 and 180.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G. In addition, we pay a facility fee of between 20.0 and 45.0 basis points on the entire facility, also depending on the non-credit-enhanced, senior unsecured long-term debt ratings, which is payable quarterly in arrears. The average variable interest rate on the revolving credit facility for the period the debt was outstanding in 2024 was 7.06 % compared to 7.11 % for the year ended December 31, 2023. +F&G used a portion of the net proceeds from the 6.250 % F&G Notes offering to pay off the revolving credit facility in October 2024. As of December 31, 2024, no balance was outstanding on the revolving credit facility, and we had $ 750 million of remaining borrowing availability. +FNF Credit Facility - On December 29, 2020, we entered into a revolving note agreement with FNF for up to $ 200 million capacity (the "FNF Credit Facility") to be used for working capital and other general corporate +192 +purposes. No amounts were outstanding under this revolving note agreement as of December 31, 2024 or December 31, 2023. The FNF Credit Facility matures on October 29, 2025 or when the Revolving Credit Facility described above is terminated, whichever occurs first. +Refer to Note A - Business and Summary of Significant Accounting Policies for a discussion related to the public offering of its $ 375 million aggregate principal amount of the 7.300 % F&G Junior Subordinated Notes completed on January 13, 2025. +Covenants - The Credit Agreement imposes and the indentures governing the 6.250 % F&G Notes, 6.50 % F&G Senior Notes , 7.95 % F&G Notes, the 7.40 % F&G Notes and the 5.50 % F&G Notes impose certain operating and financial restrictions on F&G. The Credit Agreement imposes certain financial covenants on F&G, and as of December 31, 2024, we were in compliance with all covenants. +Interest Expense - Amortization of deferred issuance costs and purchase premiums are recognized as a component of interest expense. Interest expense on F&G’s outstanding notes payable for the years ended December 31, 2024, 2023 and 2022 was as follows (in millions): +Year ended December 31, +2024 2023 2022 +6.250 % F&G Notes +$ 8 $ — $ — +6.50 % F&G Notes +21 — — +7.95 % F&G Notes +28 1 — +7.40 % F&G Notes +38 37 — +5.50 % F&G Notes +14 22 22 +Revolving Credit Facility 23 37 1 +FNF Promissory Note (a) — — 6 +Total $ 132 $ 97 $ 29 +(a) In June 2022, the $ 400 million FNF Promissory Note was exchanged for F&G common stock, and the note was retired. +Maturities - Gross principal maturities of notes payable at December 31, 2024 are as follows (in millions): +2025 $ 300 +2026 — +2027 — +2028 500 +2029 550 +Thereafter 845 +Total $ 2,195 +Note M - Supplemental Cash Flow Information +The following supplemental cash flow information is provided with respect to certain cash payment and non-cash investing and financing activities (in millions). +Year ended December 31, +2024 2023 2022 +Cash paid (refunded) for: +Interest paid $ 127 $ 84 $ 34 +Income taxes paid (refunded) 8 4 ( 72 ) +Deferred sales inducements 319 168 87 +Non-cash investing and financing activities: +Investments received from pension risk transfer premiums $ 129 $ 464 $ — +Change in proceeds of sales of investments available for sale receivable in period ( 79 ) 34 115 +Change in purchases of investments available for sale payable in period 84 20 ( 10 ) +193 +Refer to Note P -Acquisitions for information on the acquisitions of Roar and PALH including the assets acquired and liabilities and non-controlling interest assumed as of the respective acquisition dates. +Note N - Commitments and Contingencies +Contingent Consideration +Under the terms of the purchase agreement for Roar, we have agreed to make cash payments of up to approximately $ 90 million over a three-year period upon the achievement by Roar of certain EBITDA milestones. The contingent consideration is recorded at fair value in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. Refer to Note P - Acquisitions for more information on the Roar acquisition and refer to Note B - Fair Value of Financial Instruments for more information regarding the fair value of the contingent consideration. +Legal and Regulatory Contingencies +In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. Like other companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any, depart from customary litigation incidental to our business. +We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and that represents our best estimate has been recorded. Our accrual for legal and regulatory matters was insignificant as of December 31, 2024 and 2023. We do not consider (i) the amounts we have currently recorded for all legal proceedings in which it has been determined that a loss is both probable and reasonably estimable and (ii) reasonably possible losses for all pending legal proceedings to be material to our financial statements either individually or in the aggregate. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. +Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) is a defendant in a lawsuit filed in U.S. District Court for the Southern District of Texas styled, Insurance Distribution Consulting, LLC v. Fidelity & Guaranty Life Insurance Company, Case No. 3:23-cv-00126. Plaintiff, which provides consulting services to independent marketing organizations (“IMO”), alleges FGL Insurance failed to pay commissions owed to Plaintiff and diverted commissions from one of Plaintiff’s IMO customers, Syncis, to another IMO, Freedom Equity Group, LLC (“Freedom Equity”). Further, Plaintiff alleges after FGL Insurance purportedly purchased a partial ownership interest in Syncis and Freedom Equity, Plaintiff offered to sell its interests in its contracts with Syncis but FGL Insurance declined, leading Plaintiff to allege a statutory violation of 42 U.S.C. §1981 for discrimination where Plaintiff’s sole member is a racial minority. Plaintiff claims its damages for breach of contract from FGL Insurance’s purported failure to pay commissions are more than $ 162 million and its damages from FGL Insurance’s declining to purchase Plaintiff’s interest in its contracts with Syncis are over $ 11 million. FGL Insurance denies the allegations and denies any contract or agreement existed with Plaintiff to pay commissions. Dispositive motions are due April 21, 2025, and the case is expected to be set for trial in the summer of 2025. FGL Insurance will vigorously contest the Plaintiff’s claims in the action. As this case continues to evolve, it is not possible to reasonably estimate the probability that Plaintiff will ultimately prevail on its claims or that FGL Insurance will be held liable for the dispute. At this time, FGL Insurance does not believe the lawsuit will have a material impact on its business, operations, or financial results. +194 +On May 28, 2024, a stockholder derivative lawsuit styled, Roofers Local 149 Pension Fund v. Fidelity National Financial Inc., William P. Foley, F&G Annuities & Life Inc., C.A. No. 2024-0562-LWW, was filed in the Chancery Court of the State of Delaware against defendants FNF, in its capacity as F&G’s controlling stockholder, and William P. Foley, Executive Chairman of F&G and Chairman of FNF, alleging breach of fiduciary duty related to F&G’s January 11, 2024 sale of $ 250 million of 6.875 % Series A Mandatory Convertible Preferred Stock to FNF. Plaintiff alleges that, based upon the unfair process and unfair price, the preferred stock investment was advantageous to FNF and unfair to F&G. Plaintiff seeks to recover damages on behalf of F&G for the alleged unfair preferred stock investment and the adoption of certain corporate governance measures. On July 24, 2024, F&G filed its answer to plaintiff’s complaint, and the remaining defendants filed their motion to dismiss. On September 23, 2024, plaintiff voluntarily dismissed its action against William P. Foley, leaving FNF’s motion to dismiss pending with briefing completed on October 24, 2024. On February 4, 2025, FNF argued the motion to dismiss before the court. The defendants will vigorously contest the plaintiff’s claims in the action. +F&G is a defendant in two putative class action lawsuits that allege some customers’ personally identifiable information was disclosed due to a vulnerability in the MOVEit file transfer software. F&G’s vendor, Pension Benefit Information, LLC (“PBI”), used the MOVEit software in the course of providing audit and address research services to F&G and many other corporate customers. Miller v. F&G, No. 4:23-cv-00326 (“Miller”), was filed against F&G in the Southern District of Iowa on August 31, 2023. Miller alleges that he is a F&G customer whose personally identifiable information was disclosed in the MOVEit incident and brings common law tort and implied contract claims. Plaintiff seeks injunctive relief and damages. Cooper v. Progress Software Corp., No. 1:23-cv-12067 (“Cooper”), was filed against F&G and five other defendants in the District of Massachusetts on September 7, 2023. Cooper also alleges that he is a F&G customer whose personally identifiable information was disclosed and brings similar common law tort claims and alleges claims as a purported third-party beneficiary of an alleged contract. Plaintiff seeks declaratory and injunctive relief and damages. +Well over 150 similar lawsuits have been filed against other entities impacted by the MOVEit incident including a number of such lawsuits related to PBI’s use of MOVEit. On October 4, 2023, the U.S. Judicial Panel on Multidistrict Litigation created a multidistrict litigation (“MDL”) pursuant to 28 U.S.C. § 1407 to handle all litigation brought by individuals whose information was potentially compromised in connection with the alleged MOVEit vulnerability. Both Miller and Cooper have been transferred to the MDL and are proceeding under MDL Case No. 1:23-md-03083-ADB-PGL. Plaintiffs filed amendments to their complaints, and the Defendants filed their omnibus motion to dismiss for lack of Article III standing on July 23, 2024. The case is proceeding under a modified bellwether structure to decide critical issues and facilitate reciprocal discovery. At this time, F&G does not believe the incident will have a material impact on its business, operations, or financial results. +From time to time, we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries, and we have responded to or are currently responding to inquiries from multiple governmental agencies. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. We do not anticipate such fines and settlements, either individually or in the aggregate, will have a material adverse effect on our business, operations or financial condition. +195 +Commitments +We have unfunded commitments as of December 31, 2024 based upon the timing of when investments and agreements are executed or signed compared to when the actual investments and agreements are funded or closed. Some investments require that funding occur over a period of months or years. A summary of unfunded commitments by commitment type as of December 31, 2024 is included below (in millions): +December 31, 2024 +Commitment Type +Unconsolidated VIEs: +Limited partnerships $ 1,138 +Whole loans 278 +Fixed maturity securities, ABS 338 +Direct Lending 1,618 +Other fixed maturity securities, AFS 70 +Commercial mortgage loans 116 +Residential mortgage loans 35 +Other assets 162 +Other invested assets 134 +Total +$ 3,889 +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar for us to lend up to $ 40 million. The loan matures on August 5, 2027. The principal balance outstanding as of December 31, 2024 was $ 11 million and is included in Prepaid expenses and other assets on the Consolidated Balance Sheets. Changes in fair value are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. Interest income is recorded in Interest and investment income in the Consolidated Statements of Operations and recognized when earned. The remainder of the unfunded loan commitment is included in the unfunded commitments table above in the “Other assets” line item. Refer to Note P - Acquisitions for more information on the Roar acquisition, and refer to Note B - Fair Value of Financial Instruments for information regarding the fair value calculation of this loan receivable. +See Note A - Business and Summary of Significant Accounting Policies , for discussion of funding agreements that have been issued pursuant to the FABN Program as well as to the FHLB that are included in Contractholder funds. +The Company leases office space under operating leases. The largest leases expire in 2030. Rent expense and minimum rental commitments under all leases are immaterial. +F&G has a reinsurance agreement with Kubera to cede certain FIA statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, effective October 31, 2021, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $ 300 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2024 and 2023, the amount funded under the NPA was insignificant. +Note O - Insurance Subsidiary Financial Information and Regulatory Matters +196 +Our U.S. insurance subsidiaries, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re file financial statements with state insurance regulatory authorities and, except for Raven Re, with the National Association of Insurance Commissioners (“NAIC”) that are prepared in accordance with Statutory Accounting Principles (“SAP”) prescribed or permitted by such authorities, which may vary materially from GAAP. Prescribed SAP includes the Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not so prescribed but approved by state regulators. The principal differences between SAP financial statements and financial statements prepared in accordance with GAAP are that SAP financial statements do not reflect VOBA, DAC, and DSI, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contractholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP basis financial statements for comparable items. +Our non-U.S. insurance subsidiaries, F&G Life Re (Bermuda) and F&G Cayman Re (Cayman Islands) file financial statements with their respective regulators. +U.S. Companies +Our principal insurance subsidiaries' statutory financial statements are based on a December 31 year end. Statutory net income and statutory capital and surplus of our wholly owned U.S. regulated insurance subsidiaries were as follows (in millions): +Subsidiary (state of domicile) (a) +FGL Insurance (IA) FGL NY Insurance (NY) Raven Re (VT) Corbeau Re (VT) +Statutory Net income (loss): +Year ended December 31, 2024 +$ 150 $ 8 $ 54 $ ( 458 ) +Year ended December 31, 2023 +( 462 ) 5 60 ( 644 ) +Year ended December 31, 2022 +( 243 ) ( 15 ) ( 111 ) — +Statutory Capital and Surplus: +December 31, 2024 +$ 1,654 $ 97 $ 168 $ 178 +December 31, 2023 +2,009 86 140 171 +(a) FGL NY Insurance, Raven Re and Corbeau Re are subsidiaries of FGL Insurance, and the columns should not be added together. Corbeau Re was incorporated on September 1, 2023. +Regulation - U.S. Companies +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re’s respective statutory capital and surplus satisfy the applicable minimum regulatory requirements. +To enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement risk-based capital (“RBC”) requirements for life, health and property and casualty insurance companies. All states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for each of our U.S. Insurance Companies exceeded the minimum RBC requirements. +Dividends +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) +197 +10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +FGL Insurance did not pay dividends to its parent, Fidelity & Guaranty Life Holdings, Inc. (“FGLH”), for the years ended December 31, 2024, 2023, and 2022. Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2025 is $ 0 . +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions without being required to obtain the prior consent of the New York State Department of Financial Services (“NYDFS”). However, to pay any dividends or distributions in a calendar year immediately following a calendar year in which the FGL NY’s net gain from operations, not including realized capital gains, was negative, approval from the NY Superintendent is required. +FGL NY Insurance has historically not paid dividends. Based on the limitations described above, it’s estimated that the maximum amount of ordinary dividends FGL NY Insurance will be permitted to distribute during 2025 is approximately $ 10 million. +Raven Re and Corbeau Re dividends are paid as declared by their Board of Directors. Under the laws of the State of Vermont, no captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, without prior approval. Based on the limitations described above, no dividends may be paid in 2025 by either Raven Re or Corbeau Re without prior regulatory approval. +Prescribed and permitted practices +FGL Insurance - FGL Insurance applies Iowa-prescribed accounting practices prescribed by Iowa Administrative Code (“ IAC “) Chapter 97, “ Accounting for Certain Derivative Instruments Used to Hedge the Growth in Interest Credited for Indexed Insurance Products and Accounting for the Indexed Insurance Products Reserve, ” for its indexed annuities and IUL products. Under these alternative accounting practices, the equity option derivative instruments that hedge the growth in interest credited on index products are accounted for at amortized cost with the corresponding amortization recorded as a decrease to net investment income and indexed annuity reserves are calculated based on Standard Valuation Law and Actuarial Guideline XXXV assuming the market value of the equity options associated with the current index term is zero regardless of the observable market value for such options. +In addition, based on a permitted practice received from the IID, FGL Insurance carries one of its limited partnership interests which qualifies for accounting under SSAP No. 48, “Investments in Joint Ventures, Partnerships and Limited Liability Companies,” on a net asset value per share basis. This is a departure from SSAP No. 48 which requires such investments to be carried based on the investees underlying GAAP equity (prior to any impairment considerations). This limited partnership investment was redeemed as of December 31, 2024. In addition, the financial statements of Raven Re and Corbeau Re include certain permitted practices approved by the Vermont Department of Financial Regulations. Without these permitted practices, the carry value of these two entities would be zero . +The prescribed and permitted practices resulted in increases to statutory capital and surplus of $ 454 million and $ 194 million at December 31, 2024 and 2023, respectively. +FGL Insurance’s statutory carrying value of Raven Re reflects the effect of permitted practices Raven Re received to treat the available amount of a letter of credit as an admitted asset, which increased Raven Re’s statutory capital and surplus by $ 175 million and $ 200 million at December 31, 2024 and 2023, respectively. In addition, FGL Insurance’s statutory carrying value of Corbeau Re reflects the effect of permitted practices Corbeau Re received to treat the excess of loss as an admitted asset, which increased Corbeau Re’s statutory capital and surplus by $ 1,230 +198 +million and $ 765 million at December 31, 2024 and 2023, respectively. Refer to Note E - Reinsurance for a discussion of the XOL and letter of credit. +Raven Re - Raven Re is also permitted to follow Iowa prescribed statutory accounting practice for its reserves on reinsurance assumed from FGL Insurance and also has approval to include as an admitted asset the value of a letter of credit serving as collateral for reinsurance credit taken by FGL Insurance. Without such permitted statutory accounting practices, Raven Re’s statutory capital and surplus (deficit) would be $( 13 ) million and $( 89 ) million as of December 31, 2024 and 2023, respectively, and its risk-based capital would fall below the minimum regulatory requirements. The letter of credit facility is collateralized by NAIC 1 rated debt securities. If the permitted practice was revoked, the letter of credit could be replaced by the collateral assets with Nomura’s consent (refer to discussion of letter of credit in Note E- Reinsurance ). FGL Insurance’s statutory carrying value of Raven Re was $ 168 million and $ 140 million at December 31, 2024 and 2023, respectively. +Corbeau Re - Corbeau Re has four permitted practices pursuant to Vermont Statute, Title 8, Chapter 141 – (8 V.S.A. § 6048k(a)(2), whereby the Vermont Department authorizes the Company to (i) account for the amount equal to the excess of loss amount (“XOL Asset”) as an asset on its statutory financial statements; (ii) calculate the reserves with respect to the Retirement Pro Contracts in accordance with the following reserving methodology: the reserves are calculated as the present value of reinsured benefits when account value equals zero less the present value of reinsurance premiums from the winning integrated stream, floored at zero and capped as necessary to keep the net statutory reserve at the net cash surrender value. For benefits associated with all other contracts (“the GMWB Riders”), the reserves are calculated as the statutory reserves for the entire contract (i.e., the base contracts plus the GMWB Riders) minus the statutory reserves for the base contracts only (“Reserve Calculation Permitted Practice”); (iii) calculate its company action level risk-based capital as defined in Section 8301(13)(A) and, calculated using the risk-based capital factors and formulas prescribed by the NAIC, applying a factor of 0.62% to the XOL Asset Value; and (iv) annually perform a total company solvency analysis in lieu of cash flow testing and actuarial opinion and memorandum under Section 2010-2 of the Vermont Administrative Code. In addition, Corbeau Re assumes reserves that are equal to the reserves ceded by FGL Insurance which includes application of IAC Insurance 191, Chapter 97, “ Accounting for Certain Derivative Instruments Used to Hedge the Growth in Interest Credited for Indexed Insurance Products and Accounting for the Indexed Insurance Products Reserve .” Without such permitted statutory accounting practices, the Company’s statutory capital and surplus (deficit) would be $( 1,052 ) million and $( 594 ) million as of December 31, 2024 and 2023, respectively, and its risk-based capital would fall below the minimum regulatory requirements. FGL Insurance’s statutory carrying value of Corbeau Re was $ 178 million and $ 171 million at December 31, 2024 and 2023, respectively. +FGL NY Insurance - As of December 31, 2024 and 2023, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices. +Non-U.S. Companies +Our non-U.S. insurance subsidiaries, F&G Cayman Re and F&G Life Re, file financial statements with their respective regulators. For the annual period ended December 31, 2023, F&G Cayman Re began to file financial statements that are prepared in accordance with SAP prescribed or permitted by such authorities, which may vary materially from GAAP. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP basis financial statements for comparable items. +F&G Cayman Re has two permitted practices which have been approved by the Cayman Islands Monetary Authority (“CIMA”). F&G Cayman Re has a permitted practice approved by CIMA to include, as an admitted asset, the value of the letters of credit (“LOCs”) acquired to support reinsurance transactions. Also, F&G Cayman Re has a permitted practice, approved by CIMA, for PRT reinsurance transactions to use U.S. statutory book value adjusted for best estimate reserve calculations (consistent with GAAP prior to ASU 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts). These reserve calculations will be subject to annual assumption reviews consistent with other GAAP liability balances. If F&G Cayman Re had not been permitted to calculate PRT assumed reserves using best estimate reserve calculations or include the value of the LOCs as an admitted asset, statutory surplus would be $( 64 ) million and $ 102 million as of December 31, +199 +2024 and December 31, 2023, respectively. Without such permitted statutory accounting practices, F&G Cayman Re’s risk-based capital would fall below the minimum regulatory requirements as of December 31, 2024 and December 31, 2023. +F&G Life Re files financial statements based on GAAP. +Net income and capital and surplus of our wholly owned Cayman Islands and Bermuda regulated insurance subsidiaries under SAP and GAAP, respectively, were as follows (in millions): +Subsidiary (country of domicile) +F&G Cayman Re (Cayman Islands) F&G Life Re (Bermuda) +Statutory Net income (loss): +Year ended December 31, 2024 +$ ( 11 ) $ 139 +Year ended December 31, 2023 +133 151 +Year ended December 31, 2022 +71 ( 339 ) +Statutory Capital and Surplus (Deficit): +December 31, 2024 +$ 734 $ 123 +December 31, 2023 +543 11 +Regulation - Bermuda +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +F&G Life Re’s ability to pay dividends in 2025 is subject to the limitations described above. +200 +Regulation - Cayman Islands +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, as amended (2023 Revision) and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulation (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by CIMA. +F&G Cayman Re dividends are paid as declared by its Board of Directors. The dividends will be in accordance with CIMA regulatory requirements and contractual obligations and any dividends require approval by CIMA. F&G Cayman Re can only request approval for dividends if (i) the ending capital, including considerations for future business plans, will maintain a surplus over the CIMA approved and permitted target modified RBC, and (ii) contractual language pursuant to the PRT reinsurance agreement requiring a US RBC above specified target is met. As of the most recent annual financial statement filed with CIMA, the RBC ratios for F&G Cayman Re exceeded these minimum requirements. Pursuant to the limitations described above, no dividends may be paid in 2025 by F&G Cayman Re without prior regulatory approval. +The prescribed and permitted statutory accounting practices have no impact on our audited Consolidated Financial Statements, which are prepared in accordance with GAAP. +Note P — Acquisitions +Owned Distribution - Acquisition of Roar Joint Venture, LLC +On January 2, 2024, F&G acquired a 70 % majority ownership stake in the equity of Roar Joint Venture, LLC (“Roar”). Roar wholesales life insurance and annuity products to banks and broker-dealers through a network of agents. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to approximately $ 90 million over a three-year period upon the achievement of certain EBITDA milestones of Roar. +The initial purchase price is as follows (in millions): +Cash paid for 70 % majority interest of Roar shares +$ 269 +Less: Cash acquired net of non-controlling interests 1 +Net cash paid for 70 % majority interest of Roar +268 +Initial fair value of contingent consideration 48 +Total initial consideration $ 316 +The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions): +Fair value as of +January 2, 2024 +Goodwill $ 268 +Prepaid expenses and other assets 3 +Other intangible assets 183 +Total assets acquired 454 +Accounts payable and accrued liabilities 2 +Total liabilities assumed 2 +Non-controlling interests (fair value determined using income approach) 136 +Total liabilities assumed and non-controlling interests 138 +Net assets acquired $ 316 +201 +The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the Roar acquisition consist of the following (dollars in millions): +Gross Carrying Value Estimated Useful Life +(in years) +Other intangible assets: +Customer relationships $ 179 12 +Definite lived trademarks, tradenames, and other 4 10 +Total Other intangible assets $ 183 +Goodwill consists primarily of intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. The total amount of goodwill recorded is expected to be deductible for tax purposes. +Roar’s revenues of $ 78 million and net earnings attributable to F&G common shareholders of $ 6 million are included in the Consolidated Statements of Operations for the year ended December 31, 2024. +Unaudited Supplemental Pro-Forma Financial Results +For comparative purposes, selected unaudited pro-forma consolidated results of operations of F&G for the year ended December 31, 2023 are presented below (in millions). Unaudited pro-forma results presented assume the acquisition of Roar occurred as of January 1, 2023 and are not intended to represent or be indicative of actual or future results of operations. Pro-forma results for the year ended December 31, 2024 are not included because there is no material variance from actual results due to the timing of the acquisition. +Year ended December 31, +2023 +Total revenues $ 4,561 +Net earnings (loss) attributable to F&G common shareholders ( 94 ) +Amounts reflect certain pro forma adjustments to revenue and net earnings (loss) attributable to F&G common shareholders that were directly attributable to the acquisition, primarily reflecting the elimination of intercompany activity between the entities. +Owned Distribution - Acquisition of PALH, LLC +On July 18, 2024, F&G acquired a 100 % ownership stake in the equity of PALH, LLC (“PALH”). PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. Prior to the acquisition date, PALH owned a 70 % ownership stake in an operating company of which F&G owned 30 % equity. Immediately before the acquisition date, the fair value of F&G’s minority stake in the operating company was approximately $ 92 million, derived from the transaction value. The transaction value contemplates measures such as EBITDA margin, revenue growth over time periods and growth opportunities. This remeasurement resulted in a realized gain of $ 2 million recorded in Recognized gains and (losses), net in the Consolidated Statements of Operations during the year ended December 31, 2024 . +The initial purchase price is as follows (in millions): +Cash consideration $ 215 +Less: Cash acquired 1 +Net cash paid 214 +Settlement of prepaid asset 8 +Acquisition date fair value of previously held interests 92 +Total consideration $ 314 +202 +The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions): +Fair value as of +July 18, 2024 +Goodwill $ 162 +Prepaid expenses and other assets 5 +Other intangible assets 149 +Total assets acquired 316 +Accounts payable and accrued liabilities 2 +Total liabilities assumed 2 +Net assets acquired $ 314 +The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the PALH acquisition consist of the following (dollars in millions): +Gross Carrying Value Estimated Useful Life +(in years) +Other intangible assets: +Customer relationships $ 131 20 +Definite lived trademarks, tradenames, and other 18 +5 to 10 +Total Other intangible assets $ 149 +Goodwill consists primarily of intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. A portion of the total amount of goodwill recorded is expected to be deductible for tax purposes. +PALH’s revenues and net loss attributable to F&G common shareholders of $ 3 million and $ 6 million, respectively, are included in the Consolidated Statements of Operations for the year ended December 31, 2024. +Unaudited Supplemental Pro-Forma Financial Results +For comparative purposes, selected unaudited pro-forma consolidated results of operations of F&G for the years ended December 31, 2024 and 2023 are presented below (in millions). Unaudited pro-forma results presented assume the acquisition of PALH occurred as of January 1, 2023 and are not intended to represent or be indicative of actual or future results of operations. +Year ended December 31, +2024 2023 +Total revenues $ 5,746 $ 4,504 +Net earnings (loss) attributable to F&G common shareholders 616 ( 69 ) +Amounts reflect certain pro forma adjustments to revenue and net earnings (loss) attributable to F&G common shareholders that were directly attributable to the acquisition, primarily reflecting the elimination of intercompany activity between the entities. +Note Q - Related Party Transactions +The Company has determined that related parties would fall into the following categories; (i) affiliates of the entity, (ii) entities for which investments in their equity securities would be required to be accounted for by the equity method by the investing entity, (iii) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management, (iv) principal owners ( greater than 10% equity stake) of the entity and members of their immediate families, (v) management (including FNF’s Board of Directors, Chief Executive Officer, and other persons responsible for achieving the objectives of the entity and who have the +203 +authority to establish policies and make decisions) of the entity and other members of their immediate families, (vi) other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests (vii) other parties that can significantly influence management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate business, (viii) attorney in fact of a reciprocal reporting entity or any affiliate of the attorney in fact, and (ix) a U.S. manager of a U.S. branch or any affiliate of the U.S. manager of a U.S. branch. +The Company has determined that FNF as well as FNF's directors and officers (along with their immediate family members) are related parties. +FNF +Separation Agreement +F&G has entered into the Separation Agreement with FNF to provide for, among other things, the principal corporate transactions required to effect the separation and distribution, certain conditions to the separation and distribution and provisions governing our relationship with FNF with respect to and resulting from the separation and distribution. Refer to “ Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF” in this Annual Report on Form 10-K for additional information on the separation. +Notes Payable +For a description of our financing arrangements with FNF see Note L - Notes Payable to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Governance +Because FNF owns approximately 85 % of the shares of outstanding F&G common stock, we are a controlled company within the meaning of the corporate governance standards of the NYSE. A controlled company does not need its board of directors to have a majority of independent directors or to form an independent compensation committee or nominating and corporate governance committee. Refer to “ Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF” in this Annual Report on Form 10-K for additional information on management and governance. +FNF $ 250 million Preferred Stock Investment +Refer to Note U - Equity for a discussion of the $ 250 million preferred stock investment from FNF. +Tax Sharing Agreement +Refer to Note H - Income Taxes for a discussion of the tax matters agreement between FNF and the Company. +Stock Split +On June 24, 2022, a stock split in a ratio of 105,000 for 1 previously approved by the F&G board of directors became effective. FNF, as the sole shareholder, received, in the form of a dividend, 104,999 additional shares of common stock for each share of common stock held. +Corporate Services Agreement +FNF has entered into a Corporate Services Agreement with F&G, which we refer to as the Corporate Services Agreement. Pursuant to such agreement, FNF will provide F&G with certain corporate services, including internal +204 +audit services, litigation and dispute management services, compliance services, corporate and transactional support services, SEC & reporting services, insurance and risk management services, human resources support services and real estate services. The Corporate Services Agreement terminates after the date upon which all corporate services or transition assistance have been terminated or upon the mutual agreement of the parties. F&G may terminate corporate services by providing 90 days written notice to FNF. +Reverse Corporate Services Agreement +F&G has entered into a Reverse Corporate Services Agreement with FNF. Pursuant to such agreement, F&G will provide FNF with certain services, including employee services. The Reverse Corporate Services Agreement terminates after the date upon which all corporate services or transition assistance has been terminated or upon the mutual agreement of the parties. FNF may terminate corporate services by providing 90 days written notice to F&G. +Shared Services +For the three-year period ended December 31, 2024, FNF provided certain operational support services for F&G including tax, insurance, legal, risk management, information technology, employee benefits and accounting. Expenses incurred by F&G for all services were insignificant for the years ended December 31, 2024, 2023 and 2022. +Owned Distribution Investments +On January 2, 2024, F&G acquired a 70 % majority ownership stake in the equity of Roar resulting in the consolidation of Roar in F&G’s financial statements. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to approximately $ 90 million over a three year period upon the achievement by Roar of certain EBITDA milestones. Refer to Note A - Business and Summary of Significant Accounting Policies - Principles of Consolidation and Basis of Presentation for discussions of contingent consideration and non-controlling interests and to Consolidated Statements of Equity for activity with non-controlling interests. +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar for us to lend up to $ 40 million. The principal balance outstanding as of December 31, 2024 was $ 11 million. Refer to Note B - Fair Value of Financial Instruments for information regarding the fair value calculation of this loan receivable. Refer to Note N - Commitments and Contingencies for more information regarding this loan commitment. Refer to Note P - Acquisitions for more information on the Roar acquisition. +On July 18, 2024, F&G acquired a 100 % ownership stake in the equity of PALH. Prior to the acquisition date, PALH owned a 70 % ownership stake in an operating company of which F&G owned 30 % equity. +In 2023, we purchased a 40 % minority ownership stake in DCMT and a 49 % minority ownership stake in Syncis. We have elected the fair value option to account for these investments and have included them in Investments in unconsolidated affiliates on the Consolidated Balance Sheets. +For the years ended December 31, 2024, 2023 and 2022, we expensed approximately $ 119 million, $ 154 million, and $ 74 million in commissions on sales through our funded unconsolidated owned distribution investments and their affiliates. Acquisition expenses are deferred and amortized in Depreciation and amortization on the Consolidated Statements of Operations. +Other Investments +In 2023, we purchased a 30 % minority ownership stake in Quility. We have elected the fair value option to account for this investment and have included Quility in Investments in unconsolidated affiliates on the +205 +Consolidated Balance Sheets. Commissions expensed on sales through Quility were insignificant for the years ended December 31, 2024 and 2023. +The Company has a 10 % ownership stake in Specialty Lending Company LLC with a 50 % voting interest. Specialty Lending is a specialty finance company focused on consumer credit. Specialty Lending is accounted for using the equity method of accounting and is included in Investments in unconsolidated affiliates on the Consolidated Balance Sheets. +Refer to Note A - Business and Summary of Significant Accounting Policies - Investments in Unconsolidated Affiliates for more information regarding the accounting for Investments in unconsolidated affiliates. +Note R - Employee Benefit Plans +FNF Stock Purchase Plan +During the year ended December 31, 2022, our eligible employees could voluntarily participate in FNF's employee stock purchase plan (“ESPP”) sponsored by FNF. Company matching contributions are funded one year after employee contributions are made pursuant to the ESPP. We provided FNF an insignificant amount with respect to our matching contributions to the ESPP in the year ended December 31, 2022. Effective January 1, 2023, our employees were no longer eligible to participate in the ESPP. +F&G Stock Purchase Plan +On January 1, 2023, the Company adopted an Employee Stock Purchase Plan (“F&G ESPP”), enabling employees to purchase the Company stock in an amount between 3 % and 15 % of their base salary and certain commissions. Based on employee contributions the Company will match either 33.3 % or 50 % one year after initial employee contributions are made pursuant to the F&G ESPP. Our matching expense related to the F&G ESPP was immaterial for the years ended December 31, 2024 and December 31, 2023. +401(k) Plan +During the three-year period ended December 31, 2024, we offered our employees the opportunity to participate in our 401(k) plan (the “401(k) Plan”), a qualified voluntary contributory savings plan that is available to substantially all of our employees. Eligible employees may contribute up to 75 % of their pre-tax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. +We make an employer match on the 401(k) Plan of $ 1.00 on each $1.00 contributed up to the first 5 % of eligible earnings contributed to the 401(k) Plan by employees. We may also make discretionary non-elective contributions to the 401(k) Plan for eligible employees, and any such contributions are subject to approval by the Board of Directors for each plan year. The employer match and discretionary non-elective contributions are credited based on the participant's individual investment elections in the 401(k) Plan and recorded in personnel costs in the Consolidated Statements of Operations. +The employer match was $ 8 million, $ 7 million, and $ 5 million for the years ended December 31, 2024, 2023, and 2022, respectively. Discretionary non-elective contributions were immaterial for the years ended December 31, 2024, 2023, and 2022, respectively. +Stock-Based Compensation +We account for stock-based compensation plans in accordance with GAAP on share-based payments, which requires that compensation cost relating to share-based payments be recognized in the consolidated financial statements based on the fair value of each award. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date and recognized over the service period. A forfeiture rate, derived from historical experience, is used in the calculation of total stock-based compensation expense. Total +206 +stock-based compensation costs recorded in personnel costs in the Consolidated Statements of Operations for the years ended December 31, 2024, 2023 , and 2022 wer e $ 29 million, $ 23 million and $ 12 million, respectively. F&G’s income tax expense for the years ended December 31, 2024, 2023 and 2022 included an immaterial amount of tax benefit related to the vesting and forfeiture of share-based payments. +2022 F&G Omnibus Incentive Plan +On December 1, 2022, we established the F&G Annuities & Life, Inc. 2022 Omnibus Incentive Plan (the “2022 F&G Omnibus Plan”), authorizing the issuance of up to 6 million shares of F&G common stock, subject to the terms of the 2022 F&G Omnibus Plan. The 2022 F&G Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance shares, performance units, other cash and stock-based awards and dividend equivalents. As of December 31, 2024, there were 1,801,618 shares of restricted stock outstanding under the 2022 F&G Omnibus Plan. Awards granted are approved by the Compensation Committee of the Board of Directors. Awards vest over a 3-year period and have a performance restricti on that must be met for shares awarded to vest. If the performance restriction is not satisfied during the measurement period, all of the shares that do not satisfy the performance criteria will be forfeited to the Company for no consideration. +F&G restricted stock transactions under the 2022 F&G Omnibus Plan during the years ended December 31, 2024, 2023, and 2022 are as follows: +2024 2023 2022 +Shares Weighted Average +Grant Date +Fair Value Shares Weighted Average +Grant Date +Fair Value Shares Weighted Average +Grant Date +Fair Value +Outstanding January 1, 1,784,142 $ 30.88 1,409,904 $ 21.80 — $ — +Granted 829,899 46.05 876,736 40.28 1,411,369 21.80 +Canceled ( 118,063 ) 29.04 ( 48,900 ) 21.80 ( 1,465 ) 21.80 +Vested ( 694,360 ) 29.17 ( 453,598 ) 21.80 — — +Balance at December 31, 1,801,618 $ 38.65 1,784,142 $ 30.88 1,409,904 $ 21.80 +Fair value of restricted stock awards and units is based on the grant date value of the underlying stock derived from quoted market prices. The total fair value of restricted stock awards granted in the years ended December 31, 2024, 2023, and 2022 was $ 38 million, $ 35 million, and $ 31 million, respectively. There were 694,360 , 453,598 , and 0 restricted stock awards which vested in the years ended December 31, 2024, 2023, and 2022, respectively. Net earnings (loss) reflects stock-based compensation expense amounts of $ 28 million, $ 19 million, and $ 1 million for the years ended December 31, 2024, 2023, and 2022, respectively, which are recorded in personnel costs i n the Consolidated Statements of Operations. +For the period ended December 31, 2024, the total unrecognized compensation costs related to non-vested restricted stock grants pursuant to the 2022 F&G Omnibus Plan are $ 51 million, which is expected to be recognized in pre-tax income over a weighted average period of 2.54 years. +FGL Incentive Plan and 2020 F&G Omnibus Incentive Plan +We have outstanding restricted stock grants and stock options under the FGL Holdings 2017 Omnibus Incentive Plan, as amended and restated (the “2020 F&G Omnibus Plan”), which was assumed by FNF. The outstanding awards and options are settled by issuance of FNF common stock. All of the outstanding options are vested and expire at various dates through August 2026. As of December 31, 2024, there were no shares of restricted stock and 100,000 stock options outstanding under the 2020 F&G Omnibus Plan. +207 +Stock option transactions under the 2020 F&G Omnibus Plan during the years ended December 31, 2024 , 2023, 2022 are as follows: +2024 2023 2022 +Options Weighted Average +Exercise Price Options Weighted Average +Exercise Price Options Weighted Average +Exercise Price +Balance at January 1, 643,623 $ 38.80 1,172,607 $ 35.15 1,527,936 $ 35.97 +Granted — — — — — — +Exercised ( 543,623 ) 38.74 ( 502,414 ) 30.31 ( 352,614 ) 38.79 +Canceled — — ( 26,570 ) 38.07 ( 2,715 ) 28.00 +Balance at December 31, 100,000 $ 39.10 643,623 $ 38.80 1,172,607 $ 35.15 +There were 100,000 , 643,623 , and 1,172,607 exercisable stock options under the 2020 F&G Omnibus Plan at the year ended December 31, 2024, 2023, and 2022, respectively. +The following table summarizes information related to stock options outstanding and exercisable as of December 31, 2024: +Options Outstanding Options Exercisable +Range of Exercise Prices Number of Options Weighted Average Remaining Contractual Life Weighted Average Exercise Price Intrinsic Value Number of Options Weighted Average Remaining Contractual Life Weighted Average Exercise Price Intrinsic Value +(In years) (In millions) (In years) (In millions) +$ 0.00 - $ 39.10 +100,000 0.97 $ 39.10 $ 2 100,000 0.97 $ 39.10 $ 2 +100,000 $ 2 100,000 $ 2 +Option awards are measured at fair value on the grant date using the Black Scholes Option Pricing Model. The intrinsic value of options exercised was $ 9 million and $ 8 million for the years ended December 31, 2024 and December 31, 2023, respectively, and insignificant for the year ended December 31, 2022. +Restricted stock transactions under the 2020 F&G Omnibus Plan during the years ended December 31, 2024 , 2023, and 2022 are as follows: +2024 2023 2022 +Shares Weighted Average +Grant Date Fair Value Shares Weighted Average +Grant Date Fair Value Shares Weighted Average +Grant Date Fair Value +Balance at January 1, 181,479 $ 41.08 501,548 $ 42.31 718.641 $ 40.24 +Granted — — — — — — +Canceled ( 13,082 ) 48.28 ( 15,965 ) 45.63 ( 78,551 ) 37.79 +Vested ( 168,397 ) 40.53 ( 304,104 ) 42.87 ( 138,542 ) 34.11 +Balance at December 31, — $ — 181,479 $ 41.08 501,548 $ 42.31 +There were no restricted stock awards granted under the 2020 F&G Omnibus Plan in the years ended December 31, 2024, 2023 and 2022. The total fair value of restricted stock awards that vested in the years ended December 31, 2024, 2023, and 2022 was $ 7 million, $ 13 million and $ 5 million, respectively. Net earnings (loss) reflects stock-based compensation expense amounts of $ 1 million, $ 3 million and $ 12 million for the years ended December 31, 2024, 2023 and 2022, respectively, which are included in p ersonnel costs in the Consolidated Statements of Operations. +208 +At December 31, 2024, there were no unrecognized compensation cost related to restricted stock grants pursuant to the FGL Incentive Plan and the 2020 F&G Omnibus Plan. +Non-Qualified Deferred Compensation Plan +We have established the F&G Annuities & Life, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which allows eligible employees and directors to make voluntary contributions to the Deferred Compensation Plan. Employer contributions to the Deferred Compensation Plan are discretionary. For the years ended December 31, 2024, 2023 and 2022, we did not make any discretionary contributions. At December 31, 2024 and 2023, the total liability for the Deferred Compensation Plan was $ 13 million and $ 11 million, respectively. +Note S - Earnings Per Share +The following table sets forth the computation of basic and diluted earnings per share (dollars and shares in millions except per share data): +Year Ended December 31, +2024 2023 2022 +Net earnings (loss) $ 642 $ ( 58 ) $ 635 +Less: Non-controlling interests 3 — — +Net earnings (loss) attributable to F&G 639 ( 58 ) 635 +Less: Preferred stock dividend 17 — — +Net earnings (loss) attributable to F&G common shareholders $ 622 $ ( 58 ) $ 635 +Weighted-average common shares outstanding - basic 125 124 115 +Dilutive effect of unvested restricted stock 1 — — +Dilutive effect of mandatory convertible preferred stock 5 — — +Weighted-average shares outstanding - diluted 131 124 115 +Net earnings (loss) per share attributable to F&G common shareholders +Basic - net $ 4.98 $ ( 0.47 ) $ 5.52 +Diluted - net $ 4.88 $ ( 0.47 ) $ 5.52 +Under applicable accounting guidance, companies in a loss position are required to use basic weighted average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our net loss for the year ended December 31, 2023, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share, as the inclusion of 593 thousand restricted shares would have been antidilutive to the calculation. If we had not incurred a net loss for the year ended December 31, 2023, dilutive potential common shares would have been 125 million. +Restricted stock, options or other instruments, which provide the ability to acquire shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. For the years ended December 31, 2024, 2023, and 2022 the diluted earnings per share calculation excluded the weighted average effect of 122 thousand, 111 thousand and 120 thousand restricted stock units, respectively, issued under the 2022 F&G Omnibus Plan due to their antidilutive effect. +On June 24, 2022, a stock split in a ratio of 105,000 for 1 previously approved by the F&G board of directors became effective. Earnings per share has been retrospectively adjusted to reflect as if the split occurred as of June 1, 2020, in accordance with GAAP. +209 +Note T - Recent Accounting Pronouncements +Adopted Pronouncements +In March 2023, the FASB issued ASU 2023-02, Accounting for Investments in Tax Credit Structure Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. We adopted this standard on January 1, 2024, as required, and there was no material impact to our Consolidated Financial Statements. Refer to Note H - Income Taxes for further information. +In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the CODM and included in each reported measure of a segment’s profit or loss. In addition, the amendments enhance interim disclosure requirements that are currently required annually, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. Additionally, the amendments require that entities with a single reportable segment must now provide all the disclosures previously required under Topic 280. The amendments in this update are incremental to the current requirements of Topic 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. We adopted this standard using the retrospective approach for all periods presented as required. Refer to Note V - Segment Information for additional information. +Pronouncements Not Yet Adopted +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency of the income tax disclosures by expanding on the disclosures required annually. The amendments require entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes, in addition to providing details about the reconciling items in some categories if above a quantitative threshold. Additionally, the amendments require annual disclosure of income taxes paid (net of refunds received) disaggregated by jurisdiction based on a quantitative threshold. The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis, and retrospective application is permitted. We do not currently expect to early adopt this standard and are in the process of assessing its impact on our disclosures upon adoption. +In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update enhance transparency of certain expense captions by disclosing more granular information of specific expenses within those captions such as personnel costs, depreciation, and amortization. The amendments also require disclosure of qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated. The amendments in this update are effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to all prior periods presented in the financial statements. We do not expect to early adopt this standard and are in the process of assessing its impact on our disclosures upon adoption. +210 +Note U - Equity +Common Stock +The total number of common stock shares we are authorized to issue is 500,000,000 , par value $ 0.001 per share. +We intend to announce the record date and payment date for each common stock dividend, subject to quarterly review and approval by our Board of Directors and any required regulatory approvals, following completion of the relevant fiscal quarter and with payment in the third month of each subsequent quarter, based on our view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance. +Changes in common shares outstanding during the years ended December 31, 2024, 2023 , and 2022 were as follows: +For the Year Ended December 31, +2024 2023 2022 +Shares outstanding at January 1, 126,332,142 126,409,904 105,000,000 +Shares issued (a) 717,241 824,998 21,409,904 +Shares repurchased (b) ( 256,539 ) ( 902,760 ) — +Shares outstanding at December 31, 126,792,844 126,332,142 126,409,904 +(a) 2022 includes 20,000,000 shares in an exchange agreement with FNF pursuant to which F&G transferred shares of its common stock to FNF in exchange for the $ 400 million FNF Promissory Note, after which the note was retired. +(b) Includes shares of common stock withheld with respect to tax withholding obligations associated with the vesting of share-based compensation awards under our 2020 F&G Omnibus Plan and 2022 F&G Omnibus Plan. +Share Repurchases +On March 21, 2023, our Board of Directors approved the three-year stock repurchase program, which was amended on November 7, 2023, to authorize the aggregate repurchase of $ 50 million of F&G common stock. The Company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued. No shares were purchased pursuant to the program during the year ended December 31, 2024. During the year ended December 31, 2023, the Company purchased approximately 869,000 shares pursuant to the program, for a total cost of approximately $ 18 million with an average cost per share of $ 21.07 . At December 31, 2024 and 2023, the total remaining authorization of F&G common stock that may be repurchased was approximately $ 32 million. +Purchases may be made from time to time by the Company in the open market at prevailing market prices or through privately negotiated transactions or accelerated share repurchase transactions through November 6, 2026. All purchases are held as treasury stock. The extent to which the Company repurchases its shares, and the timing of such purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other considerations, as determined by the Company. +Preferred Stock +The total number of preferred stock shares we are authorized to issue is 25,000,000 , par value $ 0.001 per share. +Refer to Note A - Business and Summary of Significant Accounting Policie s to the Consolidated Financial Statements for details of the issuance of 5,000,000 shares of FNF Preferred Stock on January 12, 2024. Preferred stock dividends of approximately $ 17 million were declared during the year ended December 31, 2024 . +Subject to certain exceptions, so long as any share of FNF Preferred Stock remains outstanding, no dividend or distribution will be declared or paid on shares of the Company’s Common Stock, or any other class or series of stock ranking junior to the FNF Preferred Stock, and no Common Stock or any other class or series of stock ranking junior to or on parity with the FNF Preferred Stock will be purchased, redeemed, or otherwise acquired for consideration +211 +by the Company or any of its subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in cash, shares of Common Stock or a combination thereof, or a sufficient sum of cash or number of shares of Common Stock has been set aside for the payment of such dividends, on all outstanding shares of FNF Preferred Stock. In addition, when dividends on shares of the FNF Preferred Stock (i) have not been declared and paid in full on any dividend payment date (or, in the case of any parity stock having dividend payment dates different from such dividend payment dates, on a dividend payment date falling within a regular dividend period related to such dividend payment date), or (ii) have been declared but a sum of cash or number of shares of Common Stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable regular record date, no dividends may be declared or paid on any parity stock unless dividends are declared on the shares of FNF Preferred Stock such that the respective amounts of such dividends declared on the shares of FNF Preferred Stock and such shares of parity stock shall be allocated pro rata among the holders of the shares of FNF Preferred Stock and the holders of any shares of parity stock then outstanding. +Unless converted earlier in accordance with the terms of the Certificate of Designations, each share of the FNF Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be January 15, 2027, into between 0.9456 shares and 1.1111 shares of Common Stock, in each case, subject to customary anti-dilution adjustments described in the Certificate of Designations. The number of shares of Common Stock issuable upon conversion will be determined based on the average volume weighted average price per share of Common Stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to January 15, 2027. +Dividends on the FNF Preferred Stock will be payable on a cumulative basis when, as and if declared by the Company’s board of directors, or an authorized committee thereof, at an annual rate of 6.875 % on the liquidation preference of $ 50.00 per share of FNF Preferred Stock, and may be paid in cash or, subject to certain limitations, in shares of Common Stock or, subject to certain limitations, any combination of cash and shares of Common Stock. If declared, dividends on the FNF Preferred Stock will be payable quarterly on January 15, April 15, July 15 and October 15 of each year to, and including, January 15, 2027, commencing on April 15, 2024. With respect to any decision to declare or pay dividends, the board of directors or an authorized committee thereof, as the case may be, shall be required to act in accordance with the recommendation of a committee (whether or not formally constituted) consisting of all of the independent and disinterested directors at any time sitting on the board of directors. +Holders of the FNF Preferred Stock will have the option to convert all or any portion of their shares of FNF Preferred Stock at any time prior to the mandatory conversion date. Early conversions that are not made in connection with a Fundamental Change (as defined in Certificate of Designations) will be settled at the minimum conversion rate of 0.9456 shares of Common Stock per share of the FNF Preferred Stock (subject to anti-dilution adjustments). In addition, the conversion rate applicable to any such early conversion may in certain circumstances be increased to compensate holders of the FNF Preferred Stock for certain unpaid accumulated dividends. +If a Fundamental Change occurs on or prior to January 15, 2027, then holders of the FNF Preferred Stock will be entitled to convert all or any portion of their FNF Preferred Stock at the Fundamental Change Conversion Rate (as defined in the Certificate of Designations) for a specified period of time and to also receive an amount to compensate them for certain unpaid accumulated dividends and any remaining future scheduled dividend payments. +The FNF Preferred Stock will not be subject to redemption at the Company’s option. +Upon the Company’s voluntary or involuntary liquidation, winding-up or dissolution, each holder of the FNF Preferred Stock will be entitled to receive a liquidation preference in the amount of $ 50.00 per share of FNF Preferred Stock, plus an amount equal to accumulated and unpaid dividends on such shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution, to be paid out of the Company’s assets legally available for distribution to its stockholders after satisfaction of debt and other liabilities owed to the Company’s creditors and holders of shares of its stock ranking senior to the FNF Preferred Stock and before any payment or distribution is made to holders of any stock ranking junior to the FNF Preferred Stock, including, without limitation, Common Stock. +212 +Dividends +The following table shows the quarterly common stock dividends declared during the years ended December 31, 2024, 2023 , and 2022: +Year ended December 31, +2024 2023 2022 +First quarter $ 0.21 $ 0.20 $ — +Second quarter 0.21 0.20 — +Third quarter 0.21 0.20 — +Fourth quarter 0.22 0.21 0.20 +Total $ 0.85 $ 0.81 $ 0.20 +On February 20, 2025, our Board of Directors declared a quarterly cash dividend of $ 0.22 per share, payable on March 31, 2025, to F&G common shareholders of record as of March 17, 2025. On February 20, 2025, our Board of Directors also declared a quarterly cash dividend of $ 0.8594 per share on the FNF Preferred Stock for the period from January 15, 2025 to and excluding April 15, 2025, to be paid on April 15, 2025, to FNF Preferred Stock shareholders of record as of April 1, 2025. +Accumulated other comprehensive income (loss) +Changes in the balance of Accumulated other comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022, by component are as follows (in millions). +Year Ended December 31, 2024 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) +Balance at December 31, 2023 +$ ( 2,479 ) $ 574 $ ( 83 ) $ ( 2 ) $ ( 1,990 ) +Reclassification adjustments included in net earnings (a) 6 — 1 7 +Other comprehensive income (loss) before tax, net of reclassifications ( 207 ) 283 6 ( 6 ) 76 +Deferred income tax (expense) benefit 43 ( 59 ) ( 1 ) 1 ( 16 ) +Balance at December 31, 2024 $ ( 2,637 ) $ 798 $ ( 78 ) $ ( 6 ) $ ( 1,923 ) +Year Ended December 31, 2023 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) +Balance at December 31, 2022 $ ( 3,528 ) $ 763 $ ( 49 ) $ ( 4 ) $ ( 2,818 ) +Reclassification adjustments included in net earnings (a) 130 — — — 130 +Other comprehensive income (loss) before tax, net of reclassifications 1,159 ( 239 ) ( 43 ) 3 880 +Deferred income tax (expense) benefit ( 240 ) 50 9 ( 1 ) ( 182 ) +Balance at December 31, 2023 +$ ( 2,479 ) $ 574 $ ( 83 ) $ ( 2 ) $ ( 1,990 ) +213 +Year Ended December 31, 2022 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) +Balance at December 31, 2021 $ 949 $ ( 1 ) $ ( 116 ) $ 1 $ 833 +Reclassification adjustments included in net earnings (a) 212 — — — 212 +Other comprehensive income (loss) before tax, net of reclassifications ( 5,931 ) 967 85 ( 6 ) ( 4,885 ) +Deferred income tax (expense) benefit 1,242 ( 203 ) ( 18 ) 1 1,022 +Balance at December 31, 2022 $ ( 3,528 ) $ 763 $ ( 49 ) $ ( 4 ) $ ( 2,818 ) +(a) Net of income tax expense of $ 2 million, $ 35 million and $ 56 million for the year ended December 31, 2024, 2023, and 2022, respectively. +214 +Note V - Segment Information +F&G has one reportable segment, which reflects the manner by which our CODM, the Chief Executive Officer of F&G, views and manages the business. F&G’s CODM uses the consolidated net earnings (loss) as reported on the Consolidated Statements of Operations to evaluate F&G’s results and measure profitability and performance. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets. +Summarized financial information concerning our single reportable segment is shown in the following table (in millions). +Year Ended December 31, +2024 2023 2022 +Revenues: +Life-contingent pension risk transfer premiums $ 2,217 $ 1,964 $ 1,362 +Traditional life insurance and life-contingent immediate annuity premiums 35 43 33 +Surrender charges 268 103 58 +Policyholder fees and other income 340 303 251 +Life insurance premiums and other fees 2,860 2,413 1,704 +Owned distribution revenues 81 — — +Revenues from external customers 2,941 2,413 1,704 +Interest and investment income 2,719 2,211 1,655 +Recognized gains and losses, net 84 ( 124 ) ( 1,010 ) +Total revenues 5,744 4,500 2,349 +Significant expenses (a): +Benefits and other changes in policy reserves 3,791 3,553 1,126 +Personnel costs 296 232 157 +Other operating expenses 203 146 102 +Total significant expenses: 4,290 3,931 1,385 +Other segment items +Market risk benefit (gains) losses ( 25 ) 95 ( 182 ) +Depreciation and amortization 569 412 324 +Interest expense 132 97 29 +Total other segment items: 676 604 171 +Total expenses 4,966 4,535 1,556 +Earnings (loss) before income taxes 778 ( 35 ) 793 +Income tax (benefit) expense 136 23 158 +Net earnings (loss) $ 642 $ ( 58 ) $ 635 +(a) The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM. +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of December 31, 2024, the Company’s disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is +215 +recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. +Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. +Management’s Report on Internal Control Over Financial Reporting +The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. These inherent limitations are an intrinsic part of the financial reporting process. Therefore, although the Company’s management is unable to eliminate this risk, it is possible to develop safeguards to reduce it. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +We completed the Roar acquisition on January 2, 2024 (see Note P - Acquisitions of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this Annual Report on Form 10-K). The scope of management’s assessment of the effectiveness of the Company’s disclosure controls and procedures did not include the internal controls over financial reporting of Roar. This exclusion is in accordance with the SEC Staff’s general guidance that an assessment of a recently acquired business may be omitted from the scope of management’s assessment for one year following the acquisition. Roar represented approximately 1.4% of our total revenues for the year ended December 31, 2024. Total assets of the acquired business as of December 31, 2024 represented approximately 0.5% of total consolidated assets, consisting principally of goodwill and intangible assets. +As a result of the closing of the Roar acquisition, we have incorporated internal controls over significant processes specific to the acquisition that we believe are appropriate and necessary in consideration of the level of related integration. As the post-closing integration continues, we will continue to review the internal controls and processes of Roar and may take further steps to integrate such controls and processes with those of the Company. +The Company's management, under the supervision of and with the participation of the CEO and CFO, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2024 based on criteria for effective control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Based on this assessment the Company's management concluded that its internal control over financial reporting was effective as of December 31, 2024 in accordance with the COSO criteria. The Company's independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting, which is included herein. +216 +Changes in Internal Control Over Financial Reporting +An evaluation was performed under the supervision of the Company's management, including the CEO and CFO, of whether any change in the Company's internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended December 31, 2024. +Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that no change in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Limitations on the Effectiveness of Controls +A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. +Item 9B. Other Information +Refer to Note A - Business and Summary of Significant Accounting Policies, Recent Developments for a discussion of subsequent events. +During the quarter ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.” +Item 9C. Disclosures Regarding Foreign Jurisdiction that Prevent Inspections +Not applicable. +217 +Part III +Items 10-14 +Codes of Ethics +Our board of directors has adopted a Code of Ethics for Senior Financial Officers, which is applicable to our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, and a Code of Business Conduct and Ethics, which is applicable to all our directors, officers and employees. The purpose of these codes is to: (i) promote honest and ethical conduct, including the ethical handling of conflicts of interest; (ii) promote full, fair, accurate, timely and understandable disclosure; (iii) promote compliance with applicable laws and governmental rules and regulations; (iv) ensure the protection of our legitimate business interests, including corporate opportunities, assets and confidential information; and (v) deter wrongdoing. Our codes of ethics are designed to maintain our commitment to our longstanding standards for ethical business practices. Our reputation for integrity is one of our most important assets and each of our employees and directors is expected to contribute to the care and preservation of that asset. Under our codes of ethics, an amendment to or a waiver or modification of any ethics policy applicable to our directors or executive officers must be disclosed to the extent required under Securities and Exchange Commission and/or New York Stock Exchange rules. We intend to disclose any such amendment or waiver by posting it on our website at www.investors.fglife.com. +Copies of our Code of Business Conduct and Ethics and our Code of Ethics for Senior Financial Officers are available for review on our website at www.investors.fglife.com. +Policy Prohibiting Insider Trading and Related Procedures +We have adopted an Insider Trading and Tipping Policy prohibiting insider trading and provides related procedures governing the purchase, sale, and other dispositions of the registrant's securities. This policy also prohibits tipping or disclosing material nonpublic information (“MNPI”) to outsiders. This policy is applicable to all directors, officers, employees, their immediate family, and any entities controlled by them who have regular access to MNPI. A copy of the insider trading policy is filed as an exhibit to this Annual Report on Form 10-K. +Within 120 days after the close of our fiscal year, we intend to file with the Securities and Exchange Commission the matters required by these items. +218 +Part IV +Item 15. Exhibits, Financial Statement Schedules +List of Documents Filed +1) Financial Statements +See Index to Consolidated Financial Statements on Page 101 included in Item. 8 of Part II in this Annual Report on Form 10-K. +2) Financial Statement Schedules +Schedule I - Summary of Investments - Other than Investments in Related Parties +Schedule II - Condensed Financial Information of Parent Only +Schedule III - Supplementary Insurance Information +Schedule IV - Reinsurance +All other schedules have been omitted since they are either not applicable or the information is contained within the accompanying consolidated financial statements. +List of Exhibits +The following is a list of exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K. +Exhibit +No. +Description of Exhibits +2.1 +Separation and Distribution Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.1 +Amended and Restated Certificate of Incorporation of F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.2 +Amended and Restated Bylaws of F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.3 +Certificate of Designations of the Company designating the 6.875% Series A Mandatory Convertible Preferred Stock, dated as of January 12, 2024 (incorporated by reference to Exhibit No. 5.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2024). +4.1 +Form of Indenture, between F&G, and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.1 to the Company’s Curre nt Report on Form 8- K , filed with the Commission on January 13 , 2025). +4.2 +F orm of First Supplemental Indenture relating to the 7.300% Junior Subordinated Notes due 2065, between F&G Annuities and Life , Inc. and Citibank, N.A., as trustee (i ncorporate d by reference to Exhibit No. 4.2 on the Comp any ’ s Current Report on Form 8- K , filed wit h the Commission on January 13 , 2025 ) . +4.3 +Form of 7.300% Junior Subordinated Note due 2065 (included in Exhibit 4.2) (incorporated by reference to Exhibit No. 4.3 on the Company’s Current Re port on Form 8- K , filed with the Commission on January 13 , 2025). +4.4 +Fifth Supplemental Indenture relating to F&G Annuities & Life, Inc.’s 6.250% senior notes due 2034, dated as of October 4, 2024, among F&G Annuities & Life Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Commission on October 4, 2024). +219 +4.5 +F orm of F&G Annuities & Life, Inc. ’ s 6.250% senior notes due 2034 ( inc orporated by reference to Exhibit No. 4.1 to the Comp any ’ s Current Report on Form 8-K, filed with the Commission on Oc to ber 4, 2024). +4.6 +Fourth Supplemental Indenture relating to F&G Annuities & Life, Inc’s 6.500% senior notes due 2029 (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2024). +4.7 +F orm of F&G Annuities and Life, Inc . ’ s 6.500 % senior notes due 2029 (incorporated by reference to Exhibit 4.2 to the Comp any ’ s Current Report on Form 8-K, filed with the Commission on June 4, 2024). +4.8 +Third Supplemental Indenture relating to the 7.950% Senior Notes due 2053, dated as of December 6, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Commission on December 6, 2023) . +4.9 +Form of 7.950% Senior Notes due 2053 (included in Exhibit 4.1) incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 6, 2023) . +4.10 +Indenture, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.11 +First Supplemental Indenture relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.12 +Form of 7.400% Senior Notes due 2028 (incorporated by reference to Exhibit No. 4.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.13 +Indenture, dated as of April 20, 2018, among Fidelity Guaranty & Life Holdings, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, including the form of 5.50% Note due 2025 (incorporated by reference to Exhibit No. 4.1 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.14 +First Supplemental Indenture, dated as of April 20, 2018, among Fidelity & Guaranty Life Holdings, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit No. 4.2 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.15 +Second Supplemental Indenture, dated as of June 1, 2020, among Fidelity National Financial, Inc., Fidelity & Guaranty Life Holdings, Inc., and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit No. 4.3 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.16 +Officer’s Certificate of Fidelity & Guaranty Life Holdings, Inc., dated April 13, 2021 (incorporated by reference to Exhibit No. 4.4 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.17 +Description of Capital Stock (incorporated by reference to Exhibit No. 4.11 to the Company’s Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +10.1 +Tax Sharing Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.2 +Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.3 +Reverse Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.4 † +Employment Agreement, dated as of February 6, 2019, by and between FGL Holdings and Christopher Blunt (incorporated by reference to Exhibit No. 10.4 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +220 +10.5 † +Employment Agreement, dated as of November 11, 2019, by and between FGL Holdings and John Fleurant (incorporated by reference to Exhibit No. 10.5 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.6 † +Employment Agreement, dated November 14, 2013, by and between Fidelity & Guaranty Life Business Services, Inc. and Wendy J.B. Young (incorporated by reference to Exhibit No. 10.6 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.7 † +Assignment of Employment Agreements, dated as of February 7, 2020, by and between FGL Holdings and F II Corp., and acknowledged and agreed to by Christopher Blunt, Jonathan Bayer and John Fleurant (incorporated by reference to Exhibit No. 10.7 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.8 † +F&G Annuities & Life, Inc. 2022 Omnibus Incentive Plan (incorporated by reference to Exhibit No. 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.9 † +F&G Annuities & Life, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.10† +F&G Annuities & Life, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit No. 10.6 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.11 +Amended and Restated Omnibus Investment Management Agreement Termination Side Letter, dated as of June 1, 2020, by and among FGL Holdings, Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.10 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.12 +Amended and Restated Sub-Manager Fee Agreement, dated as of June 1, 2020, by and among FGL Holdings, Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.11 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.13 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between FGL US Holdings Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.12 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.14 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between Fidelity & Guaranty Life Holdings, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.13 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.15 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between F&G Life Re Ltd (f/k/a F&G Re Ltd) and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.14 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.16 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between CF Bermuda Holdings Limited and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.15 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.17 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between Fidelity and Guaranty Life Insurance Company and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.16 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.18 +Investment Management Agreement, dated as of December 16, 2020, by and between F&G Cayman Re Ltd. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.18 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.19 +Investment Management Agreement, dated as of January 4, 2021, by and between F&G Annuities & Life, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.19 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +221 +10.20 +Investment Management Agreement, dated as of July 29, 2021, by and between Fidelity & Guaranty Life Insurance Company and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.20 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.21 +Amended and Restated Amendment to Investment Management Agreements; IMA Omnibus Termination Side Letter; SMA Fee Agreement and Participation Fee Agreement, dated September 24, 2021, by and among F&G Life & Annuities, Inc., Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.21 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.22 +Note Purchase Agreement, dated as of December 20, 2021, between Kubera Insurance (SAC) Ltd. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.22 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.23 +Keepwell Agreement, dated December 17, 2020, between F&G Annuities & Life, Inc. and F&G Cayman Re Ltd. (incorporated by reference to Exhibit No. 10.23 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.24 +Keepwell Agreement, dated December 17, 2020, between F&G Annuities & Life, Inc. and F&G Cayman Re Ltd. (incorporated by reference to Exhibit No. 10.24 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.25 † +Retention Agreement between Fidelity & Guaranty Life Business Services, Inc. and John Currier dated February 16, 2023 (incorporated by reference to Exhibit No. 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on February 21, 2023). +10.26 +Amended and Restated Credit Agreement, dated as of February 16, 2024, by and among F&G Annuities & Life, Inc., a Delaware corporation, as the borrower, the guarantors party thereto, Bank of America, N.A., as administrative agent, and the financial institutions party thereto as lenders (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 16, 2024). +10.27 +Registration Rights Agreement relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and BofA Securities, Inc., J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as representatives of the initial purchasers (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +10.28 +Amendment to the Amended and Restated Investment Management Agreements; IMA Omnibus Termination Side Letter and Existing SMA Fee Agreement, dated as of March 10, 2023, by and among F&G Annuities & Life Inc., Blackstone ISG-I Advisors L.L.C. and Fidelity National Financial, Inc. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 10, 2023). +10.29 +Letter regarding Blackstone Participation Fee in Respect of New Business, dated as of March 10, 2023, by and between F&G Annuities & Life Inc., and BilCar, LLC (incorporated by reference to Exhibit No. 10.2 to the Company Current Report on Form 8-K, filed with the Commission on March 10, 2023). +10.30 † +Form of Notice of F&G Restricted Stock Grant dated November 15, 2023 under F&G 2022 Omnibus Incentive Plan (incorporated by reference to Exhibit No. 10.30 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +10.31 † +Amended and Restated Retention Agreement between F&G Annuities & Life, Inc. and John D. Currier, Jr., dated as of May 8, 2024 (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 13, 2024). +10.32* +Third Amended and Restated Investment Management Agreement, dated as of October 1, 2024, by and between Fidelity & Guaranty Life Insurance Company and Blackstone Advisors L.L.C. +10.33*† +Form of Notice of F&G Restricted Stock Grant dated November 8, 2024, under F&G 2022 Omnibus Incentive Plan. +10.34*† +Form of Notice of F&G Director Restricted Stock Grant dated November 8, 2024, under F&G 2022 Omnibus Incentive Plan. +10.35 * +Investment Management Agreement, dated as of November 6, by and between Fidelity & Guaranty Life Insurance Company of New York and Blackstone ISG-I Advisors, L.L.C. +10.36*†^ +Employment Agreement between Fidelity & Guaranty Annuities & Life, Inc., and Conor Murphy effective as of April 1, 2025 . +19.1* +Insider Trading and Tipping Policy 2024. +222 +21.1* +List of Subsidiaries. +23.1* +Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. +24* Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K and incorporated by reference herein). +31.1* +Certification of Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97 † +F&G Annuities & Life, Inc. Incentive-Based Compensation Recovery Policy (incorporated by reference to Exhibit 97 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +101.INS * Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. +101.SCH * Inline XBRL Taxonomy Extension Schema Document. +101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document. +101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document. +104* The cover page from the Company’s Annual Report on Form 10-K for the twelve-month period ended December 31, 2024 is formatted in Inline XBRL (Extensible Business Reporting Language) and contained in Exhibit 101. +* Filed herewith. +** Furnished herewith. +† Indicates management contract or compensatory plan or agreement. +^ Certain identified information has been excluded from the exhibit because it both (i) is not material and (ii) is the type of information that the company treats as confidential or private. +Item 16. Form 10-K Summary +None. +223 +Signatures +Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +F&G Annuities & Life, Inc. (Registrant) +Date: February 28, 2025 +By: +/s/ Wendy J.B. Young +Executive Vice President, Chief Financial Officer +(on behalf of the Registrant and as Principal Financial Officer) +POWERS OF ATTORNEY +KNOW ALL BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Christopher O. Blunt and Wendy J.B. Young, and each of them, acting individually, as his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Christopher O. Blunt Director, Chief Executive Officer February 28, 2025 +Christopher O. Blunt (Principal Executive Officer) +/s/ Wendy J.B. Young Executive Vice President, Chief Financial Officer February 28, 2025 +Wendy J.B. Young (Principal Financial and Accounting Officer) +/s/ William P. Foley, II Director and Executive Chairman of the Board February 28, 2025 +William P. Foley, II +/s/ Douglas K. Ammerman Director February 28, 2025 +Douglas K. Ammerman +/s/ Celina J. Wang Doka Director February 28, 2025 +Celina Wang Doka +/s/ Douglas Martinez Director February 28, 2025 +Douglas Martinez +/s/ Michael J. Nolan Director February 28, 2025 +Michael J. Nolan +/s/ Raymond R. Quirk Director February 28, 2025 +Raymond R. Quirk +/s/ John D. Rood Director February 28, 2025 +John D. Rood +224 +Schedule I +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES +December 31, 2024 +(In millions) Amortized Cost Fair Value Amount Shown on Consolidated Balance Sheets +Fixed maturity securities, available for sale: +United States Government full faith and credit $ 160 $ 158 $ 158 +United States Government sponsored entities 98 95 95 +United States municipalities, states and territories 1,592 1,346 1,346 +Foreign Governments 231 186 186 +Corporate securities: +Finance, insurance and real estate 9,284 8,611 8,611 +Manufacturing, construction and mining 1,299 1,139 1,139 +Utilities, energy and related sectors 3,498 2,971 2,971 +Wholesale/retail trade 3,694 3,210 3,210 +Services, media and other 5,402 4,547 4,547 +Hybrid securities 604 581 581 +Non-agency residential mortgage-backed securities 2,763 2,693 2,693 +Commercial mortgage-backed securities 5,327 5,131 5,131 +Asset-backed securities 10,478 10,270 10,270 +Collateralized loan obligations 5,299 5,379 5,379 +Total fixed maturity securities, available for sale $ 49,729 $ 46,317 $ 46,317 +Equity securities 468 415 415 +Limited partnerships: +Private equity 1,830 1,830 1,830 +Real assets 444 437 437 +Credit 1,021 1,021 1,021 +Limited partnerships 3,295 3,288 3,288 +Commercial mortgage loans 2,705 2,404 2,705 +Residential mortgage loans 3,221 2,916 3,221 +Other (primarily derivatives and company owned life insurance) 1,489 1,476 1,476 +Short term investments 2,410 2,410 2,410 +Total investments $ 63,317 $ 59,226 $ 59,832 +See Report of Independent Registered Public Accounting Firm +225 +Schedule II +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED BALANCE SHEETS +(In millions) December 31, +2024 2023 +Assets +Investments in consolidated subsidiaries $ 5,545 $ 4,236 +Fixed maturity securities, available for sale — 54 +Mortgage loans, net of allowance for credit losses of $ 3 and $ 0 at December 31, 2024 and 2023, respectively +84 — +Cash and cash equivalents 202 12 +Prepaid expenses and other assets 11 3 +Income taxes receivable 22 13 +Total assets $ 5,864 $ 4,318 +Liabilities and Equity +Accounts payable and other liabilities $ 37 $ 20 +Intercompany payables 6 1 +Notes payable 1,870 1,194 +Total liabilities 1,913 1,215 +Equity: +Preferred stock $ 0.001 par value; authorized 25,000,000 shares as of December 31, 2024 and 2023; outstanding and issued 5,000,000 and 0 shares as of December 31, 2024 and 2023, respectively +— — +F&G common stock, $ 0.001 par value; authorized 500,000,000 shares as of December 31, 2024 and 2023; outstanding of 126,792,844 and 126,332,142 as of December 31, 2024 and 2023, respectively, and issued of 127,952,143 and 127,234,902 as of December 31, 2024 and 2023, respectively +— — +Additional paid-in-capital 3,464 3,185 +Retained earnings 2,440 1,926 +Accumulated other comprehensive income (loss) ( 1,923 ) ( 1,990 ) +Treasury stock, at cost ( 1,159,299 shares and 902,760 shares as of December 31, 2024 and +2023, respectively) +( 30 ) ( 18 ) +Total equity 3,951 3,103 +Total liabilities and equity $ 5,864 $ 4,318 +See Report of Independent Registered Public Accounting Firm. +226 +Schedule II (continued) +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED INCOME STATEMENTS +(In millions) Year ended December 31, +2024 2023 2022 +Revenues: +Life insurance premiums and other fees $ 2 $ 3 $ — +Interest and investment income 18 16 3 +Total revenues 20 19 3 +Expenses: +Other operating expenses 7 5 — +Interest expense 118 75 7 +Total expenses 125 80 7 +Earnings (loss) before income tax expense and equity in earnings of subsidiaries ( 105 ) ( 61 ) ( 4 ) +Income tax benefit ( 21 ) ( 13 ) ( 24 ) +Earnings (loss) before equity in earnings of subsidiaries ( 84 ) ( 48 ) 20 +Equity in earnings (loss) of subsidiaries 723 ( 10 ) 615 +Net earnings (loss) 639 ( 58 ) 635 +Less: Preferred stock dividend 17 — — +Net earnings (loss) attributable to F&G common shareholders $ 622 $ ( 58 ) $ 635 +See Report of Independent Registered Public Accounting Firm. +227 +Schedule II (continued) +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED CASH FLOW STATEMENTS +(In millions) Year ended December 31, +2024 2023 2022 +Cash Flows from Operating Activities: +Net earnings (loss) $ 639 $ ( 58 ) $ 635 +Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: +Equity in (earnings) loss of subsidiaries ( 723 ) 10 ( 615 ) +Loss on sales of investments 2 — 1 +Stock-based compensation cost 29 23 12 +Net change in income taxes ( 9 ) 47 ( 25 ) +Net change in other assets and other liabilities ( 65 ) ( 28 ) ( 9 ) +Net cash used in operating activities ( 127 ) ( 6 ) ( 1 ) +Cash Flows from Investing Activities: +Proceeds from sales, calls and maturities of investments 28 2 4 +Net cash provided by investing activities 28 2 4 +Cash Flows from Financing Activities: +Borrowings 1,050 845 550 +Debt issuance costs ( 20 ) ( 12 ) ( 4 ) +Capital contributions ( 493 ) ( 589 ) ( 500 ) +Net revolving credit facility (repayments) borrowings ( 365 ) ( 185 ) — +Dividends paid ( 121 ) ( 77 ) — +Purchases of treasury stock ( 12 ) ( 18 ) — +Issuance of preferred stock 250 — — +Net cash provided by (used in) financing activities 289 ( 36 ) 46 +Net increase (decrease) in cash and cash equivalents 190 ( 40 ) 49 +Cash and cash equivalents at beginning of period 12 52 3 +Cash and cash equivalents at end of period $ 202 $ 12 $ 52 +See Report of Independent Registered Public Accounting Firm. +228 +Schedule III +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUPPLEMENTARY INSURANCE INFORMATION +(In millions) Year ended December 31, +2024 2023 2022 +Deferred acquisition costs $ 3,036 $ 2,215 $ 1,411 +Future policy benefits, losses, claims and loss expenses 8,749 7,050 5,021 +Other policy claims and benefits payable 102 92 109 +Life insurance premiums and other fees 2,860 2,413 1,704 +Interest and investment income 2,719 2,211 1,655 +Benefits, claims, losses and settlement expenses ( 3,791 ) ( 3,553 ) ( 1,126 ) +Amortization of deferred policy acquisition costs ( 280 ) ( 191 ) ( 99 ) +Other operating expenses, net of deferrals ( 203 ) ( 146 ) ( 102 ) +See Report of Independent Registered Public Accounting Firm. +229 +Schedule IV +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUPPLEMENTAL REINSURANCE SCHEDULE +(In millions) +For the year ended December 31, 2024 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 10,906 $ ( 1,370 ) $ — $ 9,536 — % +Premiums and other considerations: +Traditional life insurance premiums 129 ( 94 ) — 35 — +Life-contingent PRT premiums 2,217 — — 2,217 — +Annuity product charges and other fees 655 ( 47 ) — 608 — +Total premiums and other considerations $ 3,001 $ ( 141 ) $ — $ 2,860 — % +For the year ended December 31, 2023 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 8,448 $ ( 1,436 ) $ — $ 7,012 — % +Premiums and other considerations: +Traditional life insurance premiums 148 ( 105 ) — 43 — +Life-contingent PRT premiums 1,964 — — 1,964 — +Annuity product charges and other fees 455 ( 49 ) — 406 — +Total premiums and other considerations $ 2,567 $ ( 154 ) $ — $ 2,413 — % +For the year ended December 31, 2022 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 6,296 $ ( 1,524 ) $ — $ 4,772 — % +Premiums and other considerations: +Traditional life insurance premiums 160 ( 128 ) — 32 — +Life-contingent PRT premiums 1,362 — — 1,362 — +Annuity product charges and other fees 360 ( 50 ) — 310 — +Total premiums and other considerations $ 1,882 $ ( 178 ) $ — $ 1,704 — % +See Report of Independent Registered Public Accounting Firm. +230 \ No newline at end of file diff --git a/raw/filings/0001934850/2024/0001934850-25-000015/filing_metadata.csv b/raw/filings/0001934850/2024/0001934850-25-000015/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..a1f4a74fbd8187db0ab995c9a5cb4b7ad1b6bab5 --- /dev/null +++ b/raw/filings/0001934850/2024/0001934850-25-000015/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934850,FGSN,"F&G Annuities & Life, Inc.",2024,10-K,2025-02-28,2024-12-31,2025-02-28T21:08:54.000Z,0001934850-25-000015,fg-20241231.htm,10-K,59814934,1,1,https://www.sec.gov/Archives/edgar/data/1934850/000193485025000015/fg-20241231.htm,https://www.sec.gov/Archives/edgar/data/1934850/000193485025000015/ diff --git a/raw/filings/0001934850/2024/0001934850-25-000015/item1.txt b/raw/filings/0001934850/2024/0001934850-25-000015/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..6366b22277ac37e199b6a2b4db5c45cafaafc2a9 --- /dev/null +++ b/raw/filings/0001934850/2024/0001934850-25-000015/item1.txt @@ -0,0 +1,423 @@ +Item 1. Business +Overview +Founded in 1959, F&G is a leading provider of insurance solutions serving retail annuity and life customers as well as institutional clients. Our mission is to help people turn their aspirations into reality. As of December 31, 2024, F&G has approximately 731,000 policyholders who count on the safety and protection of our fixed annuity and life insurance products. We also serve approximately 115,000 plan participants who will receive their pension payments from F&G through our pension risk transfer solutions. +Through our insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), we market a broad portfolio of annuities, including fixed indexed annuities (“FIAs”), registered index-linked annuities (“RILAs”), (together referred to as “indexed annuities”), multi-year guarantee annuities (“MYGAs”) as well as pension risk transfer (“PRT”) solutions, indexed universal life (“IUL”) insurance and institutional funding agreements. +On June 1, 2020, F&G was acquired by Fidelity National Financial, Inc. (“FNF”). We have benefited from financial strength ratings upgrades since the acquisition; S&P and Fitch upgraded to A- in June 2020, Moody’s upgraded to A3 in July 2023, and A.M. Best upgraded to A in January 2024. These upgrades are valued by our distribution partners and positioned us to quickly expand our business in our existing channels and gain access to new markets. Gross sales profitability increased from $4.5 billion for the full year 2020 to $15.3 billion in 2024. With our success in expanding distribution under FNF’s ownership, we have grown assets under management (“AUM”) from $26.5 billion at the time of acquisition to $53.8 billion as of December 31, 2024. We now operate in and source significant premiums from three distinct retail channels and two institutional markets versus a single channel prior to the acquisition by FNF in June 2020. For a discussion of the five distinct channels, see “ We Play in Large and Growing Markets” and “ Our Retail Distribution Channels” within this section of the Annual Report on Form 10-K. +We believe the strength of our balance sheet provides confidence to our policyholders and business partners and positions us for continued growth. Our investment portfolio is diversified, well positioned and high quality. As of December 31, 2024, 96% of our fixed maturity securities were rated under criteria of the NAIC as NAIC 1 or NAIC 2, the two highest credit rating designations of the NAIC. These assets are managed against what we believe to be prudently underwritten liabilities. We have in-force liabilities of $52.3 billion at December 31, 2024, with a liability duration of approximately 6 years, well matched to our assets. For the year ended December 31, 2024, net earnings attributable to F&G totaled $639 million, we produced adjusted net earnings attributable to F&G common shareholders of $546 million, and we had an adjusted return on assets attributable to F&G common shareholders (“ROA”) of 106 basis points. Adjusted net earnings attributable to F&G common shareholders the year ended December 31, 2024 included $514 million of investment income from alternative investments and $46 million of collateralized loan obligations (“CLOs”) redemptions and bond prepay income, and $14 million tax valuation allowance, partially offset by $26 million of net expense from actuarial assumption and model updates and other items. Alternative investments investment income based on management’s long-term expected return of approximately 10% was $659 million. +We are focused on growing our inforce liabilities and AUM, driven by sales of attractively priced liabilities across our multi-channel new business platform. We have great momentum and remain focused on continuing to deliver long-term growth by driving sustainable asset growth from our retail and pension risk transfer growth strategies, generating ROA expansion from enhanced investment margin opportunities, scale benefits and fee-based earnings from accretive flow reinsurance, as well as diversifying earnings through strong growth in our middle market life insurance business and owned distribution strategies. +As of December 31, 2024 , we had $4.0 billion of total F&G equity and $5.6 bil lion of total F&G common shareholders’ equity excluding accumulated other comprehensive income (loss) (“AOCI”). FGL Insurance’s estimated U.S. RBC ratio was over 410% a s of December 31, 2024, as compared to 451% and 442% as of +10 +December 31, 2023 and December 31, 2022, respectively. FGL Insurance expects to maintain its U.S. risk-based capital (“RBC”) ratio at or above our target of 400%. +F&G Dividend Distribution (the “separation and distribution”) +On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G. The purpose of the separation and distribution was to enhance and more fully recognize the overall market value of each company. FNF retained control of F&G through ownership of approximately 85% of F&G common stock. +For additional information about risks to F&G related to our status as a subsidiary of FNF, please see “Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF.” +Our Strategy +Through a diversified growth strategy, F&G has demonstrated profitable, compound annual growth rates in gross sales of 31% and AUM of 15% for the five-year period 2019 to 2024 and, more recently, annual increases in gross sales of 16% and AUM of 10% as of December 31, 2024 compared to the year ended December 31, 2023. We have expanded our business in our traditional channel and entered new markets. We are focused on delivering on our medium term financial targets laid out at our October 2023 Investor Day to grow assets, expand ROA and ROE, and increase our multiple as we grow our retail distribution, win our share of the healthy PRT pipeline, maintain spreads in any rate environment, benefit from demographic tailwinds, and diversify through our accretive flow reinsurance and owned distribution strategies, which set F&G apart. We are positioned to accomplish our goals through the following areas of strategic focus: +• Targeting large and growing markets . The opportunity for our core annuity products remains significant, as policyholders seek to add safety and certainty to their retirement plans. Our investments in life insurance products allows us to penetrate the underserved middle market, which addresses the needs of many of our cultural communities. And as corporations continue to de-risk their pension funds, our buyout solutions can guarantee pension-holders the lifetime benefits they need and want. Finally, we continue to attract strong institutional annuity buyers with funding agreements. F&G is a national leader in the markets we play in, and demographic trends provide tailwinds and significant room to continue growing. +• Superior ecosystem . Our business model gives us a sustainable competitive advantage. We have strong and long-standing relationships with a diverse network of distributors, a durable investment edge through our Blackstone partnership, a scalable administrative platform, and a track record of attracting and retaining top talent. +• Consistent track record of success. F&G’s deep and experienced management team has successfully diversified products and channels in recent years and demonstrated our ability to deliver consistent top line growth, increase assets under management and generate steady spreads and expand ROA, excluding short-term mark-to-market effects, across varying market cycles. +• Driving margin expansion and improved returns. We are pursuing strategies to continue to grow earnings, while generating significant positive net cash flow and diversifying into “capital light” flow reinsurance and accretive owned distribution to generate higher return on equity. +Our Competitive Advantages +Our business model is strong and positions us to capitalize on the growth prospects in our addressable markets. +• Trusted by distributors. We have long-standing relationships with a broad range of distributors representing nearly 138,000 independent agents and financial advisors, and built on our reputation for transparency and a consistently competitive product portfolio. We offer fixed annuities and life insurance products through a network of approximately 22 leading banks and broker-dealers and approximately 300 Independent Marketing Organizations (“IMO”) that provide back-office support for thousands of independent insurance agents. +11 +• Winning in high-growth markets. The U.S. retirement and middle markets are growing, and we are both well-established and well-positioned for continued growth. Our strategic alignment with our distribution partners allows us to reach a diverse, growing and underserved middle market demographic in both our retail and institutional channels. +• Durable investment management edge. Our strategic partnership with Blackstone provides a sustained competitive advantage for our business. Our liability profile and risk appetite drives our investment strategy. F&G’s investment and risk offices set strategic asset allocation and risk limits. Blackstone is responsible for idea generation and security selection. Blackstone’s capabilities expand our investment universe to new asset classes and their origination capabilities provide incremental spread. Our high quality, diversified investment portfolio is well positioned to withstand macroeconomic headwinds and continues to perform well. We have enhanced the return while improving the credit quality of our portfolio, and credit related impairments remain low, averaging 7 basis points over the past 3 years, below our pricing assumption. +• Clean and profitable in-force book. As a life insurer, we generate spread earnings based on our assets under management and over the lifetime of the liabilities in place. Our disciplined new business underwriting process provides us with stable liabilities, primarily in products that reset annually, which has allowed us to achieve consistently attractive lifetime returns. Approximately 93% of our $35.6 billion fixed indexed and fixed rate annuities account value are surrender-charge protected and our asset and liability cash flows are well matched. Additionally, our funding agreements, pension risk transfer and immediate annuities are non-surrenderable. +• Track record of attracting top talent. F&G’s management team and over 1,300 employees have a record of long-term success and have delivered impressive results in the last few years. Our commitment to our cultural values is the cornerstone of our success, whereby F&G is a company of individuals who believe in the power of partnerships, encourage innovation and creativity, and are transparent about decisions while delivering on their commitments. This is borne out by consistently being recognized as an employer of choice as well as an involuntary turnover rate that is well below that of other financial services companies. We believe our flexible, employee-centric work approach positions us as an employer of choice. +• Clear governance structure. We have a disciplined approach for considering new lines of business to enter, the appropriate product/channel mix for achieving our targeted new business profitability, and the management of our capital and in-force liabilities. Further, we target and pursue opportunities that leverage our strengths. +We Play in Large and Growing Markets +We serve a market with very attractive demographic tailwinds as more than 10,000 Baby Boomers are retiring every day. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last approximately 30 years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth and principal protection, as an alternative to the traditional 60/40 investment portfolio. +The U.S. retirement market opportunity is vast and includes the $1.1 trillion U.S. consumer savings market and the $223 billion retail life and annuities market. While insured products are designed to effectively serve the needs of retirees, annuities and life insurance solutions continue to be underutilized. We believe middle market consumers, in particular, lack the guidance they need and want and can benefit greatly from insurance solutions. +Retail. Until recently, F&G distributed our flagship annuity and life insurance products solely through our longstanding IMO relationships. In mid-2020, we expanded into the bank and broker-dealer channels to broaden our reach and capture share of the personal savings and CDs markets. Our entry into these channels was successful, resulting in $15.3 billion of cumulative new business since the launch in 2020 to year-end 2024. In early 2024, we entered into the fast-growing RILA market and have successfully onboarded with seven banker dealer distribution partners. We are focused on adding additional distribution partners and see the potential for RILA sales to ramp up over the medium term. Annuity sales through the bank and broker-dealer channels were $5.0 billion and $4.9 billion for the years ended December 31, 2024 and 2023, respectively. The approximate 22 banks and broker-dealers we +12 +work with account for 42% of all annuity sales. In these retail markets F&G ranks: (i) 5th and 11th in FIA sales in the IMO and bank channels and 7th in FIA industry sales; (ii) 7th and 4th in MYGA sales in the broker-dealer and bank channels and 6th in MYGA industry sales; and (iii) 5th in IUL sales in the IMO channel, 4th in the number of IUL policies sold and 6th in IUL industry sales, in each case, for the year to date as of September 30, 2024, as sourced from Wink’s Sales and Market Report. +We successfully expanded into new retail channels and diversified our annuity distribution, yet not at the expense of our traditional IMO channel. We grew our IMO channel sales by 41% and 6% during the years ended December 31, 2024 and December 31, 2023, respectively. +We continue to invest in our life insurance business, focusing our approach to meet the needs of the underserved middle market which we reach largely through Network Marketing Groups (“NMGs”). The middle market segment was the largest in 2023, at 45% of households. NMGs are unique and growing, recruiting members of diverse communities for careers in insurance and penetrating cultural segments. NMGs have proven to be one of our most cost-efficient distribution channels, in large part because they tend to work with a smaller number of strategic product providers. This has allowed us to build deep and lasting relationships with both the NMGs and the agents. Since 2019, largely due to our NMG strategy, F&G’s IUL sales growth has far outpaced the industry, with a three-year combined annual growth rate of 46% compared to the industry’s 10%. F&G’s growth rate in IUL has consistently placed us in the top 10 IUL sales ranking since 2021. Untapped opportunities remain in this channel, particularly among younger and more diverse demographics. In the United States, 42% of adults reported a need for life insurance or more coverage, which equates to approximately 102 million adults with a life insurance gap. Hispanics, the second largest ethnic group behind Caucasians, have the largest uninsured population among adults at 40% representing significant opportunity for us to serve this market. +Owned Distribution. Our owned distribution strategy provides a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. We have invested $680 million in owned distribution partners through the following transactions: +• In October 2021, we purchased a 30% minority ownership stake in Freedom Equity Group (“FEG”). FEG is a nearly 4,000 agent strong NMG that focuses on cultural markets including Mexican-American, Hmong, Laotian, Filipino, Burmese, Congolese-American, Samoan, African-American, Thai and Vietnamese. +• In January 2023, we purchased a 49% minority ownership stake in Syncis Holdings, LLC, an NMG. Syncis is an approximately 1,200 agent NMG that focuses on cultural markets including Korean, African-American, and Persian. +• In June 2023, we purchased a 40% minority ownership stake in DCMT Worldwide, LLC (“DCMT”), who distributes life insurance and annuity products through a network of over 1,000 agents. +• In January 2024, we purchased a 70% majority ownership stake in Roar Joint Venture, LLC (“Roar”), a wholesaler of annuities and life insurance products to financial institutions and the broker-dealer community. +• In July 2024, we acquired a 100% ownership stake in PALH, LLC (“PALH”), who owns a 100% ownership stake in an operating company. PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. +Institutional . In 2021, F&G entered two institutional business lines to further diversify our sources of revenue. Our competitive asset management advantage through Blackstone allows us to have very competitive offerings in our spread lending products as well as in the PRT market, while still meeting our internal pricing targets. +• In addition to our funding agreement business with the Federal Home Loan Bank of Atlanta, (“FHLB”), we now offer the proven ability to originate Funding Agreement Backed Notes (“FABN”), a $210 billion market. Our FABN Program (the “FABN Program”) offers funding agreements to institutional clients by means of capital markets transactions through investment banks. This business line has generated $2.3 billion in sales for F&G in 2021, its year of inception of FABN, $1.4 billion in sales for the year ended +13 +December 31, 2022, $1.3 billion in sales for the year ended December 31, 2023, and $1.0 billion in sales for the year ended December 31, 2024. +• We also offer PRT solutions to a $45 billion (of $3 trillion total private defined benefit plan assets) market. Our PRT business is supported by an experienced team with access to brokers and institutional consultants for distribution. We have generated over $7 billion of cumulative sales since launch in 2021 to year-end 2024 and now serve approximately 115,000 total participants, including beneficiaries, who will receive their pension payments from F&G. Our targeted deal size is approximately $100 million to $1 billion, and we selectively pursue plan termination and larger retiree buyouts. We expect our opportunity to continue to grow as employers shift away from traditional defined benefit pension plans and seek to de-risk frozen pension plans. This line of business generated $1.1 billion in sales for F&G in 2021, its year of inception, $1.4 billion in sales for the year ended December 31, 2022, $2.0 billion in sales for the year ended December 31, 2023, and $2.2 billion in sales for the year ended December 31, 2024. In the pension risk transfer market, F&G ranks as 8th in the PRT industry sales for the year to date as of September 30, 2024, as sourced from the Life Insurance Marketing and Research Association. +We Have Meaningfully Diversified Our Business +With the addition of the retail bank and broker-dealer channels and our success in entering the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to now five, and from one primary product to now six with our entrance into the RILA market in early 2024. We completed this expansion over a five-year period and, combined with organic growth in our core IMO channel, increased gross sales by 292%, from $3.9 billion in 2019 to $15.3 billion in 2024. +We have reinforced our earnings engine in addition to driving top-line growth. We have acquired and retained customers through the years, growing AUM from $26.5 billion at the time of FNF’s acquisition to $53.8 billion as of December 31, 2024. Profitable growth in AUM is the most important driver of F&G’s earnings and our ability to return capital to shareholders. +Our Financial Goals +Our competitive advantages – product and channel diversification, as well as our strategic partnership with Blackstone – enable us to address a greater share of the markets in which we play. Further, the strength of our distribution partner relationships and pension risk transfer growth strategy has enabled the Company to achieve profitable double digit sales growth. The launch of our RILA product in early 2024 will further boost our sales growth as we enter a large and fast-growing market. We have made good progress toward the medium term financial targets we laid out at our 2023 Investor Day as we focus on driving sustainable asset growth from our retail and pension risk transfer growth strategies, generating ROA expansion from enhanced investment margin, scale benefits and fee-based earnings from accretive flow reinsurance, and diversifying earnings through strong growth in our middle market life insurance business and owned distribution strategies. +The Products We Offer +F&G’s expertise in annuities, life insurance, pension risk transfer solutions and funding agreements will allow us to continue to introduce innovative products and solutions designed to meet customers’ changing needs. We work hand-in-hand with our distributors and institutional advisors to devise the most suitable solutions for the ever-changing market. Our retail annuities serve as a retirement and savings tool on which our customers rely for principal protection and predictable income streams. In addition, our life insurance products provide our customers with a complementary product that allows them to build on their savings and provide a payment to their designated beneficiaries upon the policyholder’s death. Our most popular products are FIAs that tie contractual returns to specific market indices, such as the S&P 500 Index. Our customers value our FIAs, which provide a portion of the gains of an underlying market index, while also providing principal protection. We believe this principal protection fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their savings. As noted above, in 2021, we launched into two institutional markets to originate FABN and PRT +14 +transactions. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone. +For the year ended December 31, 2024, FIAs generated approximately 44% of our gross sales. The remaining 56% of sales were primarily generated from fixed rate annuities (33%), PRT sales (15%), funding agreements (7%) and IUL (1%). We invest the proceeds primarily in fixed income securities. We also use options and futures that hedge the index credit of our FIA and IUL liabilities by replicating the market index returns to our policyholders. We invest in options on indices such as the S&P 500 Index. The majority of our products allow for active management to achieve targeted lifetime returns. In addition, our annuity contracts generally either cannot be surrendered or include surrender charges that discourage early redemptions. +Annuities. Through F&G’s insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), immediate annuities, and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically pays principal and earnings in equal payments over some period of time. +Deferred Annuities – FIAs . Our FIAs allow contract owners the possibility of earning returns linked to the performance of a specified market index, such as the S&P 500 Index, while providing principal protection. The contract owners typically make a single deposit into our deferred annuities. The contracts include a provision for a minimum guaranteed surrender value calculated in accordance with applicable law. A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. All FIA products allow policyholders to allocate funds once a year among several different crediting strategies, including one or more index-based strategies and a traditional fixed rate strategy. Surrender charges apply for early withdrawal, typically for seven to fourteen years after purchase. +We purchase derivatives consisting predominantly of over-the-counter options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the applicable policy such as the S&P 500 Index. These derivatives are used to fund the index credits due to policyholders under the FIA and IUL contracts based upon policyholders’ contract elections. The down-side risk to F&G is limited to the cost of the options because if the value of the options decreases there is no index credit. The cost of the hedge is included in the pricing of the product and can be reset on an annual basis for each policy based on market conditions. The majority of all such equity options are one-year options purchased to match the funding requirements underlying the FIA/IUL contracts. On the anniversary dates of the FIA/IUL contracts, the market index used to compute the annual index credit under the contracts is reset. At such time, we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums on each contract’s anniversary date. The change in the fair value of the options and futures contracts is generally designed to offset the equity market related change in the fair value of the FIA/IUL contract’s related reserve liability. The options and futures contracts are marked to fair value with the change in fair value included as a component of “Recognized gains and (losses), net” in our Consolidated Statements of Operations. The change in fair value of the options and futures contracts includes the gains and losses recognized at the expiration of the instrument’s term or upon early termination and the changes in fair value of open positions. Generally accepted accounting principles (“GAAP”) accounting of the reserve liability for products with embedded derivatives such as FIA creates additional volatility beyond the accounting for the options and the futures. +The contractholder account value of a FIA contract is equal to the sum of deposits paid, premium bonuses, if any, (described below), and index credits based on the change in the relevant market index (subject to a cap, spread and/or a participation rate) less any fees for riders and any withdrawals taken to-date. Caps (a maximum rate that may be credited) generally range from 1% to 10% when measured annually and 1% to 3% when measured monthly, spreads (a credited rate determined by deducting a specific rate from the index return) generally range from 1% to 3% when measured annually, and participation rates (a credited rate equal to a percentage of index return) generally +15 +range from 50% to 250% of the performance of the applicable market index. The cap, spread and participation rate can typically be reset annually and in some instances every two to five years. Certain riders provide a variety of benefits, such as the ability to increase their cap, lifetime income or additional liquidity for a set fee. As this fee is fixed, the contract holder may lose principal if the index credits received do not exceed the amount of such fee. +Approximately 39% of the FIA sales for the year ended December 31, 2024, involved premium bonuses or vesting bonuses. Premium bonuses increase the initial annuity deposit by a specified rate of 2%. The vesting bonuses, which range from 1% to 15%, increase the initial annuity deposit liability but are subject to adjustment for unvested amounts in the event of surrender by the policyholder prior to the end of the vesting period. We made compensating adjustments in the commission paid to the agent or the surrender charges on the policy to offset the premium bonus. +Approximately 48% of our FIA contracts were issued with a guaranteed minimum withdrawal benefit (“GMWB”) rider for the year ended December 31, 2024. With this rider, a contract owner can elect to receive guaranteed payments for life from the FIA contract without requiring the owner to annuitize the FIA contract value. The amount of the income benefit available is determined by the growth in the policy’s benefit base value as defined in the FIA contract rider. Typically, this accumulates for 10 years based on a guaranteed rate of 3% to 8%. Guaranteed withdrawal payments may be stopped and restarted at the election of the contract owner. Some of the FIA contract riders that we offer include an additional death benefit or an increase in benefit amounts under chronic health conditions. Rider fees range from 0% to 1%. Unlike a variable annuity, policyholder values do not decline with market movements. +Deferred Annuities – Fixed Rate Annuities . Fixed rate annuities are typically single deposit contracts and include annual reset and multi-year rate guaranteed policies. Fixed rate annual reset annuities issued by us have an annual interest rate (the “crediting rate”) that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting rate once annually to any rate at or above a guaranteed minimum rate. MYGAs are similar to fixed rate annual reset annuities except that the initial crediting rate is guaranteed for a specified number of years before it may be changed at our discretion. As of December 31, 2024, crediting rates on outstanding (i) single-year guaranteed annuities generally ranged from 2% to 6% and (ii) MYGA ranged from 1% to 6%. The average crediting rate on all outstanding fixed rate annuities at December 31, 2024 was 5%. +Deferred Annuities - RILA – In early 2024, we entered into the RILA markets. RILAs are similar to FIAs in offering the policyholder the opportunity for tax-deferred growth based in part on the performance of a market index. Compared to a FIA, RILAs have the potential for higher returns but also have the potential for risk of loss to principal and related earnings. RILAs provide the ability for the policyholder to participate in the positive performance of certain market indices during a term, limited by a cap or adjusted for a participation rate. Negative performance of the market indices during a term can result in negative policyholder returns, with downside protection typically provided in the form of either a “buffer” or a “floor” to limit the policyholder’s exposure to market loss. A “buffer” is protection from negative exposure up to a certain percentage, typically 10 or 20 percent. A “floor” is protection from negative exposure less than a stated percentage (i.e., the policyholder risks exposure of loss up to the “floor,” but is protected against any loss in excess of this amount). +Withdrawal Options for Deferred Annuities. After the first year following the issuance of a deferred annuity, policy holders of deferred annuities are typically permitted penalty-free withdrawals up to a contractually specified amount. The penalty-free withdrawal amount is typically 10% of the prior year account value for FIAs and is typically up to accumulated interest for fixed rate annuities, subject to certain restrictions. Withdrawals in excess of allowable penalty-free amounts are assessed a surrender charge if such withdrawals are made during the penalty period of the deferred annuity policy. The penalty period typically ranges from seven to fourteen years for FIAs and three to ten years for fixed rate annuities. This surrender charge initially ranges from 8% to 14% of the contract value for FIAs and is 8% of the contract value for fixed rate annuities and generally decreases by approximately one to two percentage points per year during the penalty period. The average surrender charge was 8% for our FIAs and 7% for our fixed rate annuities as of December 31, 2024. A market value adjustment (“MVA”) will also apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on a +16 +formula that accounts for changes in interest rates since contract issuance. Generally, if interest rates have risen, the MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. MVAs are included on all policies, if allowed (for FIAs since 2015 and for a longer time for fixed rate annuities). At December 31, 2024, approximately 81% of our business included an MVA feature. +The following table summarizes our deferred annuity account values and surrender charge protection as of December 31, 2024 (dollars in millions): +SURRENDER CHARGE EXPIRATION BY YEAR Fixed Rate and Indexed Annuities Account Value Percent of Total Weighted Average Surrender Charge +Out of surrender charge $ 2,427 7 % — % +2025 2,225 6 4 % +2026-2028 8,332 23 6 % +2029-2030 6,347 18 7 % +2031-2032 6,213 17 8 % +Thereafter 10,009 29 11 % +Total $ 35,553 100 % 7 % +Subsequent to the penalty period, the policyholder may elect to take the proceeds of the surrender either in a single payment or in a series of payments over the life of the policyholder or for a fixed number of years (or a combination of these payment options). In addition to the foregoing withdrawal rights, policyholders may also elect to have additional withdrawal benefits by purchasing a GMWB. +Single Premium Immediate Annuities . We have previously sold single premium immediate annuities (“SPIA”), which provide a series of periodic payments for a fixed period of time or for the life of the policyholder, according to the policyholder’s choice at the time of issue. The amounts, frequency and length of time of the payments are fixed at the outset of the annuity contract. SPIAs are often purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years. Existing policyholders may elect to surrender their contract and use the proceeds to purchase a supplementary contract which functions as a SPIA. +Life Insurance. We currently offer IUL insurance policies and have previously sold universal life, term and whole life insurance products. Holders of universal life insurance policies may make periodic payments over the life of the contract and earn returns on their policies, which are credited to the policyholder’s cash value account. The insurer periodically deducts its expenses and the cost of life insurance protection from the cash value account. The balance of the cash value account is credited interest at a fixed rate or returns based on the performance of a market index, or both, at the option of the policyholder, using a method similar to that described above for FIAs. In addition to the annual renewal premium, we are diversifying earnings through strong growth in our middle market life insurance business. +Funding Agreements. As defined by the Iowa Insurance Division (“IID”), a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers are agreeing to a defined stream of future payments in exchange for a single upfront premium. This type of business is sometimes referred to as spread lending, as funding agreement providers invest upfront premiums with the intent to earn an investment spread on the funds prior to making agreed upon maturity and interest payments. The structure of the payments can take several forms but are commonly a fixed or variable interest payment with a single maturity principal re-payment. +F&G currently utilizes two forms of funding agreement offerings. The first is through the issuance of collateralized funding agreements with the FHLB. This enables spread-based income without longevity or mortality exposure given the certainty in liability profile. Funding agreements through the FHLB are flexible in their format and the ability to issue during broad windows, as long as sufficient eligible collateral has been deposited with the bank. F&G and its predecessors have been entering into funding agreements with the FHLB since at least 2004. +17 +In June 2021, we established a FABN Program, which is a medium term note program under which funding agreements are issued to a special-purpose trust that issues marketable notes. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors. These FABN offerings are more limited regarding timing of issuance, but do not require collateralization as with the FHLB. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is currently $5.0 billion. As of December 31, 2024, we had approximately $2.5 billion outstanding under the FABN Program. +Pension Risk Transfer. In July 2021, we entered the PRT market. A PRT occurs when a defined-benefit pension provider seeks to remove some or all of its obligation to pay guaranteed retirement income or post-retirement benefits to plan participants. There are four major types of PRT strategies: longevity reinsurance, buy-in, buy-out, and paying in lump sums. We are currently active in plan buy-outs, where we have a direct, irrevocable commitment to each covered participant to make the specified annuity payments based upon the terms of the pension plan. Plan buy-out transactions fully and permanently transfer all investment, mortality, and administrative risk, associated with covered benefits, from the pension plan sponsor to the insurance provider. +Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. These products primarily create earnings through spread income. In each transaction FGL Insurance and/or FGL NY Insurance issues a group annuity contract to discharge pension plan liabilities from a pension plan sponsor, either through a separate account or through a general account guarantee. Certificate holders covered under a group annuity contract have a guaranteed benefit from the insurance company. +Our PRT solutions business is supported by a team of experienced professionals, and we partner with brokers and institutional consultants for distribution. As of December 31, 2024, we had completed cumulative PRT transactions that represented pension obligations of $7.0 billion. +Reinsurance philosophy/arrangements. Our insurance subsidiaries cede insurance to other insurance companies. We use reinsurance to diversify risks and earnings, to manage loss exposures, to enhance our capital position, and to manage new business volume. The effects of certain reinsurance agreements are not accounted for as reinsurance as they do not reinsure insurance contracts, or they do not transfer the risks of the reinsured policies. +In instances where we are the ceding company, we pay a premium to a reinsurer in exchange for the reinsurer assuming a portion of our liabilities under the policies we issued and collect expense allowances in return for our administration of the ceded policies. Use of reinsurance does not discharge our liability as the ceding company because we remain directly liable to our policyholders and are required to pay the full amount of our policy obligations in the event that our reinsurers fail to satisfy their obligations. We collect reimbursement from our reinsurers when we pay claims on policies that are reinsured. +We monitor the credit risk related to the ability of our reinsurers to honor their obligations under various agreements. To minimize the risk of credit loss on such contracts, we generally diversify our exposures among many reinsurers and limit the amount of exposure to each based on financial strength ratings, which are reviewed annually. We are able to further manage risk with various forms of collateral or collateral arrangements, including secured trusts, funds withheld arrangements and irrevocable letters of credit. +Please refer to Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further discussion on reinsurance, reinsurance recoverables for our largest reinsurers and credit risk and counterparty risk. +Please refer to “ Risk Factors ” for additional details regarding credit risk related to reinsurance agreements. A description of significant ceded reinsurance transactions appears below. +18 +Wilton Reinsurance Transaction . Almost all of the life insurance policies in force issued before March 1, 2010, except for the return of premium benefits on term life insurance products, are subject to a reinsurance arrangement with Wilton Reassurance Company (“Wilton Re”). Pursuant to the agreed upon terms, Wilton Re purchased through a 100% quota share reinsurance agreement certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s in-force traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the agreement satisfies the risk transfer requirements for GAAP. +Hannover Reinsurance Transaction. Originally effective January 1, 2017, FGL Insurance has a reinsurance agreement with Hannover Life Reassurance Company of America, an unaffiliated reinsurer, to reinsure an in-force block of FGL Insurance’s FIA and fixed rate deferred annuity contracts with GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of secondary guarantee payments in excess of account value for GMWB and death benefits in excess of account value for GMDB guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL insurance applies the right of offset in the reinsurance agreement. +Kubera Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2024. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $300 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2024 and December 31, 2023, the amount funded under the NPA was insignificant. +Kubera & Somerset Reinsurance Transactions. FGL Insurance entered into a reinsurance agreement with Kubera, effective December 31, 2018, to cede certain fixed rate annuity (including MYGA) GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset Reinsurance Ltd. (“Somerset”), a certified third-party reinsurer. Effective December 1, 2023, FGL Insurance executed an additional coinsurance funds withheld agreement with Somerset to cede certain flow MYGA business written effective on or after December 1, 2023. As the policies ceded to Somerset are investment contracts, there is no significant insurance risk present and the reinsurance agreements are accounted for as separate investment contracts. +Effective July 1, 2024, FGL Insurance amended the existing flow reinsurance agreement with Somerset to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis written on or after July 1, 2024. As the base contract benefits and GWMB riders are ceded to Somerset, there is sufficient insurance risk present that results in this portion of the reinsurance agreement being accounted for as reinsurance. +19 +Everlake Reinsurance Transaction. Effective September 1, 2023, FGL Insurance executed a coinsurance agreement with Everlake Life Insurance Company (“Everlake”), an unaffiliated reinsurer to cede, on a quota share basis, certain flow MYGA business written effective on or after September 1, 2023. As the policies ceded to Everlake are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +Effective January 1, 2025, F&G amended the existing flow reinsurance agreement with Everlake Life Insurance Company (“Everlake”) to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. +Aspida Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Aspida Life Re Ltd. (“Aspida Re”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after January 15, 2021. As the policies ceded to Aspida Re are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +New Re Reinsurance Transaction. Effective December 31, 2022, FGL Insurance entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd., an unaffiliated reinsurer and wholly owned subsidiary of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (d/b/a Munich Re), to cede certain FIA policies. Effective July 1, 2023, this agreement was amended to reinsure additional FIA products. The coinsurance quota share is only applicable to the base contract benefits under the FIA policies. The yearly renewable term is applicable to the waiver of surrender charges and return of premium. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +The CARVM Facility. Life insurance companies operating in the United States must calculate required reserves for life and annuity policies based on statutory principles. The insurance divisions have adopted the methodology contained in the NAIC Valuation Manual as the prescribed methodology for the insurance industry. The industry has reduced or eliminated redundancies thereby increasing capital using a variety of techniques including reserve facilities. +FGL Insurance has a reinsurance treaty with Raven Reinsurance Company (“Raven Re”), its wholly owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation Method (“CARVM”) liability for annuity benefits where surrender charges are waived related to certain FIA, deferred annuity and MYGA policies. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement with Nomura Bank International plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The financing facility has $175 million available to draw on as of December 31, 2024. The amended facility may terminate earlier than the current termination date of October 1, 2027, in accordance with the terms of the reimbursement agreement. Under the terms of the reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required to repay the amounts utilized, and F&G Annuities & Life, Inc. (“FGAL”) is obligated to repay the amounts utilized if Raven Re fails to make the required reimbursement. Under the terms of the agreement, FGAL is also required to make a capital contribution to Raven Re in certain circumstances, including in the event that Raven Re’s statutory capital and surplus falls below defined levels. As of December 31, 2024 and December 31, 2023, no capital contributions were required to be made due to these conditions. As this letter of credit is provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an admitted asset on the Raven Re statutory balance sheet. +GMWB/GWP Reinsurance Transaction . Effective December 31, 2023, FGL Insurance recaptured its reinsurance arrangement with Canada Life Assurance Company (“Canada Life”) United States Branch covering FIA policies with GMWB and guaranteed withdrawal payment (“GWP”) features and entered into a reinsurance treaty with Corbeau Re, Inc. (“Corbeau Re”), its wholly owned captive reinsurance company, to cede certain FIA policies with GMWB and GWP. In accordance with the terms of this agreement, FGL Insurance cedes a quota share of GMWB and GWP paid in excess of account value. In connection with the reinsurance agreement between FGL +20 +Insurance and Corbeau Re, Corbeau Re entered into an excess of loss reinsurance agreement (“XOL”) with Canada Life Barbados Branch to finance the portion of statutory reserves considered to be non-economic. The XOL matures on December 31, 2043, and provides for coverage on losses up to $1,500 million as of December 31, 2024. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. The XOL is not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. Under the terms of the agreement, FGAL is required to make a capital contribution to Corbeau Re in certain circumstances, including in the event that Corbeau Re’s statutory capital and surplus falls below defined levels. As of December 31, 2024, no capital contributions were required to be made due to these conditions. Corbeau Re is permitted to account for the excess of loss reinsurance agreement from Canada Life as an admitted asset on the Corbeau Re statutory balance sheet. +PRT Reinsurance Transaction . Effective October 1, 2023, FGL Insurance recaptured a reinsurance agreement with its affiliate F&G Life Re Ltd. (“F&G Life Re”), a Bermuda reinsurer, covering a quota share of certain pension risk transfer group annuity contracts and entered into an agreement with its affiliate F&G Cayman Re Ltd. (“F&G Cayman Re”), a Cayman Islands reinsurer, to reinsure a quota share of certain pension risk transfer group annuity contracts (previously ceded to F&G Life Re) in addition to flow pension risk transfer group annuity contracts. Some of the contracts reinsured are held by FGL Insurance’s general account and others are held by a FGL Insurance separate account (which does not meet the GAAP definition of a separate account). Reinsurance of the general account contracts are maintained on a coinsurance funds withheld basis for the general account statutory reserves. Reinsurance of the separate account contracts are maintained on a modified coinsurance basis for the separate account statutory reserves and coinsurance basis for the general account statutory reserves supporting the separate account. In connection with the agreement, F&G Cayman Re entered into a financing agreement with Deutsche Bank AG (“DB”), operating out of its New York branch, whereby DB issued a letter of credit used to support the coinsured general account statutory reserves (generally considered to be the non-economic reserves). +Our Retail Distribution Channels +We distribute our annuity and life insurance products through three main retail channels of distribution: independent agents, banks, and broker-dealers. +In our independent agent channel, the sale of our products typically occurs as part of a four party, three stage sales process between FGL Insurance, an IMO, the agent and the customer. FGL Insurance designs, manufactures, issues, and services the product. The IMOs will typically sign contracts with multiple insurance carriers to provide their agents with a broad and competitive product portfolio. The IMO provides training and discusses product options with agents in preparation for meetings with clients. The IMO staff also provide assistance to the agent during the selling and application process. The agent may get customer leads from the IMOs. The agent conducts a fact finding and presents suitable product choices to the customers. We monitor the business issued by each distribution partner for pricing metrics, mortality, persistency, as well as market conduct and suitability. +We offer our products through a network of approximately 300 IMOs, representing approximately 126,000 agents. We believe that our relationships with these IMOs are strong. We identify Power Partners as those who have demonstrated the ability to generate significant production for our business. We currently have 41 Power Partners, comprised of 19 annuity IMOs and 22 life insurance IMOs. The average tenure of the Power Partners is approximately 21 years. +We took a similar approach in launching products as a new entrant into the bank and broker-dealer channels by partnering with one of the largest broker-dealers in the industry. In 2020, F&G launched a set of fixed rate annuity and FIA products to banks and broker-dealers and gained selling agreements with some of the largest banks and broker-dealers in the United States. We offer our products through a network of approximately 22 banks and broker-dealers, representing approximately 12,000 financial advisers. The financial advisers at our bank and broker-dealer partners are able to offer their clients guaranteed rates of return, protected growth, and income for life through our Secure series of annuity products. We employ a hybrid distribution model in this channel, whereby some financial institutions partner directly with F&G and our sales team, and others work with an intermediary. As such, we partner +21 +with a select number of financial institution intermediaries who have expertise in the channel and maintain the appropriate field wholesaling forces to be successful in this channel. In 2024, the top 5 firms represented 77% of channel sales. Bank and broker-dealers represented 42% of annuity sales for the year ended December 31, 2024. +The top five states for the distribution of F&G’s retail products in the year ended December 31, 2024 were Florida, California, Pennsylvania, Texas and Ohio, which together accounted for 38.7% of F&G’s retail sales. +Our Investment Management Governance and Approach +We embrace a long-term conservative investment philosophy, investing nearly all the insurance premiums we receive in a wide range of high-quality debt securities. Our investment strategy is designed to (i) preserve capital, (ii) provide consistent yield and investment income, and (iii) achieve attractive absolute returns. We base all of our decisions on fundamental, bottom-up research, coupled with a top-down view that respects the cyclicality of certain asset classes. The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. +FGL Insurance and certain other subsidiaries of F&G are party to investment management agreements (“IMAs”) with Blackstone ISG-I Advisors LLC (“BIS”) pursuant to which BIS is appointed as investment manager of substantially all assets in the general and separate accounts of those entities (the “F&G Accounts”). Effective October 1, 2024, FGL Insurance amended and restated its IMA with BIS to increase a fee cap from 26 basis points to 30 basis points. This increase did not change the overall economics of the IMA as it was not material in nature. MVB Management, LLC, (“MVB Management”), an entity that is 50% owned by BilCar, LLC (an affiliate of William Foley, the Executive Chairman and a director of the Company) (“BilCar”), receives a participation fee from BIS in connection with assets of F&G and its subsidiaries that are managed by BIS. BIS also receives services from MVB Management. Pursuant to the investment management agreements with BIS, BIS pays MVB Management a fee of approximately 7.5% of certain fees paid to BIS and its affiliates for AUM relating to new business generated after March 31, 2023 (“New AUM”) (15% prior to that date). In March 2023, BilCar waived its right to receive any portion of payments made by BIS to MVB in respect of such New AUM. Additionally, in March 2023 the Company entered into an agreement with BilCar to pay BilCar the fees that it would have received through MVB Management from BIS over the 10-year period ending March 31, 2033. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. There are no specified minimum amounts of assets that we have agreed that BIS will manage; however, BIS has the right to manage (and receive fees based on) all assets in the F&G Accounts with limited exceptions. For certain asset classes, we continue to utilize specialized third-party investment managers. As of December 31, 2024, approximately 81% of our $60 billion investment portfolio was managed by BIS, with 18% managed by other third parties, and the remaining 1% internally managed. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. +On March 10, 2023, the IMAs were amended such that, for assets under management as of March 31, 2023, BIS’s per annum management fees are as follows: +• for aggregate assets under management in the F&G Accounts up to $25 billion, 0.26% of such aggregate assets under management; +• for aggregate assets under management in the F&G Accounts above $25 billion and up to $34 billion, 0.24% of such aggregate assets under management; and +• for aggregate assets under management in the F&G Accounts above $34 billion, .12% of such aggregate assets under management. +In addition, the Sub-Manager Fee Agreement has been amended to provide for certain updates thereto, including, among other things, to reflect certain additional asset classes, certain revisions to the applicable sub-manager fee rates in respect of certain existing asset classes and certain revisions to the applicable sub-manager fee +22 +rates in respect of assets under management relating to new business of the Company and its subsidiaries generated after March 31, 2023. For the avoidance of doubt, there will be no management fee payable under the IMAs with respect to New AUM. +Aggregate fees paid to BIS were $203 million, $194 million and $155 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Effective January 1, 2025, FGL NY Insurance and BIS entered into an IMA pursuant to which BIS is appointed as investment manager of substantially all assets in the general account of FGL NY Insurance . FGL NY Insurance terminated its current IMA with its current investment manager effective December 31, 2024. There are no separate agreements or arrangements between BIS or its affiliates, on the one hand, and FGL NY Insurance or its affiliates, on the other hand, concerning the IMA between BIS and FGL NY Insurance. +F&G has a robust governance process and framework to manage the investment portfolio. While BIS is primarily responsible for security selection, F&G makes all investment strategy decisions and sets risk parameters. All major decisions need to be reviewed and approved by the F&G Investment Committee, and new investment asset classes go through an internal risk assessment process at F&G to ensure the investments are suitable for an insurance company balance sheet. We define risk tolerance across a wide range of factors, including credit risk, liquidity risk, concentration (issuer and sector) risk, and caps on specific asset classes, which in turn establish conservative risk thresholds. Also, F&G has flexibility to use other asset management partners through our flow reinsurance platform over time. +F&G, along with BIS, continually monitors portfolio allocations and holdings to optimize the portfolio profile. F&G has undertaken several programs to take advantage of the credit cycle and market conditions or to undertake prudent risk management in anticipation of an unfavorable economic environment. We have also added several new asset classes to the investment portfolio to further enhance diversification. +Each of our subsidiaries that is party to an investment management agreement with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any investment management agreement upon 30 days’ notice. However, F&G and FNF are party to an omnibus termination side letter under which they are required to cause our insurance subsidiaries to engage BIS as an investment manager and to generally not engage any other person as an investment manager. See also “Risk Factors—Risks Relating to Our Business— We rely on our investment management advisory agreements with BIS and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios.” +The initial term of the side letter expires in 2029 and will automatically renew for successive two-year terms unless F&G terminates the side letter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations under the investment management agreements. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may with prior notice terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination would not become effective for one year from the date of termination given in the notice, during which time BIS may seek to cure the events giving arise to the termination notice. +Because our subsidiaries can terminate an investment management agreement at any time upon 30 days' notice, it is possible that such a termination by one of our subsidiaries could cause us to be in breach of our obligations under the side letter. BIS’s contractual remedies under the side letter include specific performance and the right to seek damages including, in the event of a non-permitted termination of an investment management agreement by one of our subsidiaries, as compensation for the costs incurred in performing services under, and the failure to receive the benefits reasonably anticipated by, an IMA, the full amount of damages available at law in the same manner and to the same extent as if such IMA had been terminated by us our at our direction in violation of the terms of the side letter. +23 +Our investment portfolio consists of fixed-rate high-quality fixed maturities, including publicly and privately issued corporate bonds, municipal and other government bonds, asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities, commercial mortgage loans (“CMLs”), residential mortgage loans (“RMLs”), limited partnership investments, and other investments. We also maintain holdings in floating rate, and less rate-sensitive investments, including CLOs, non-agency RMBS, and various types of ABS. It is our expectation that our investment portfolio will broaden in scope and diversity to include other asset classes held by life and annuity insurance writers. We also have a small amount of equity holdings required as part of our funding arrangements with the FHLB. +Over the year, we have hedged a portion of the existing floating rate asset exposure in the portfolio. In addition to hedging the existing floating-rate assets, subject to the broader macro and interest rate environment, we will also look to hedge a significant share of new purchases of floating-rate assets. +The portfolio also has exposure to U.S. dollar denominated emerging market bonds, highly rated preferred stocks and hybrids. We currently maintain a well-matched asset/liability profile (asset duration of 4.9 years vs. liability duration of 5.8 years). +Please refer to Note C - Investments in the Consolidated Financial Statements and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Portfolio” in this Annual Report on Form 10-K for additional information about our investment portfolio. +Mature Risk Management Framework and Governance +Risk management is a critical part of our business to manage our financial strength and meet or exceed regulatory requirements. We seek to assess risk to our business through a comprehensive, formal process involving: +a. identifying short-term and long-term strategic and operational objectives; +b. development of risk appetite statements that establish what the Company is willing to accept in terms of risks to achieving its goals and objectives; +c. identifying the levers that control the risk appetite of the Company; +d. establishing the overall limits of risk acceptable for a given risk driver; +e. establishing operational risk limits that are aligned with the tolerances; +f. assigning risk limit quantification and mitigation responsibilities to individual team members within functional groups; +g. analyzing the potential qualitative and quantitative impact of individual risks, including but not limited to stress and scenario testing covering over eight economic and insurance related risks; +h. mitigating risks by appropriate actions; and +i. identifying, documenting and communicating key business risks in a timely fashion. +Our most significant risks are governed through holding company governance committees and overall by the Enterprise Risk Management Committee (“ERMC”). Our most significant risks such as credit risk, liquidity risk, and policyholder behavior associated with interest rate risk have established risk limits associated with our risk appetite statements. These include investment limits by asset class, ratings and issuer. Liquidity risk is managed through frequent forecasting of sources and uses of cash and managed to our Liquidity Policy. Asset liability management procedures and limits protect the Company, within limits, against significant changes in interest rates. In addition, the risks are stressed as part of our scenario testing process to identify areas requiring mitigation plans based on the macroeconomic environment. Risk limits, risk appetite and scenario testing results of the stresses are discussed with stakeholders such as the F&G ERMC, the Board of Directors (“Board”) and Audit Committee (“AC”) of F&G, regulators and rating agencies. +24 +The responsibility for monitoring, evaluating and responding to risk embedded across the organization: first assigned to our management and employees, second to those occupying specialist functions, such as legal compliance and risk teams, and third to those occupying supervisory functions, such as internal audit and the Board. +Operations/Outsourcing +We believe we have designed an efficient corporate platform which enables us to be highly scalable with volume over time and allows us to onboard incremental business with low incremental fixed operating cost. As a result, we believe we should be able to convert a significant portion of incremental net investment income from additional invested assets and liabilities into operating income. +We outsource the following functions to third-party service providers: +• new business administration (data entry and policy issue only); +• service of existing policies; +• underwriting administration of life insurance applications; +• call centers; +• information technology development and maintenance; +• certain investment accounting and custody; and +• co-located data centers and hosting of financial systems. +We closely manage our outsourcing partners and integrate their services into our operations. We believe that outsourcing such functions allows us to focus capital and our employees on our core business operations and perform differentiating functions, such as finance, actuarial, product development and risk management functions. In addition, we believe an outsourcing model provides predictable pricing, service levels and volume capabilities and allows us to benefit from technological developments that enhance our customer self-service and sales processes. We believe that we have a good relationship with our principal outsource service providers. +Our Financial Strength/Ratings +Our access to funding and our related cost of borrowing, the attractiveness of certain of our products to customers and requirements for derivatives collateral posting are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. +As of the date of this Annual Report on Form 10-K, A.M. Best, Fitch, Moody’s, and S&P had issued credit ratings, financial strength ratings and/or outlook statements regarding us, as listed below. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations under an insurance policy and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the insurer and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to policyholders, agents and intermediaries and are not directed toward the protection of investors. Credit and financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization. +In addition to the financial strength ratings, rating agencies use an “outlook statement” to indicate a medium- or long-term trend that, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. A developing outlook is assigned when a rating may be raised, lowered, or affirmed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A rating may have a +25 +“stable” outlook to indicate that the rating is not expected to change, but a “stable” outlook does not preclude a rating agency from changing a rating at any time without notice. +The rating organizations may take various actions, positive or negative. Such actions are beyond our control, and we cannot predict what these actions may be and the timing thereof. +A.M. Best S&P Fitch Moody’s +Holding Company & Security Ratings +F&G Annuities & Life, Inc. +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Senior Unsecured Notes Not Rated BBB- BBB- Baa3 +Junior Subordinated Notes (a) +Not Rated BB BB Ba1 +CF Bermuda Holdings Limited +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Fidelity & Guaranty Life Holdings, Inc. (b) +Issuer Credit / Default Rating BBB BBB- BBB Not Rated +Outlook Stable Stable Stable +Operating Subsidiary Ratings +Fidelity & Guaranty Life Insurance Company +Financial Strength Rating A A- A- A3 +Outlook Stable Stable Stable Stable +Fidelity & Guaranty Life Insurance Company of New York +Financial Strength Rating A A- A- Not Rated +Outlook Stable Stable Stable +F&G Life Re Ltd +Financial Strength Rating Not Rated A- A- A3 +Outlook Stable Stable Stable +F&G Cayman Re Ltd +Financial Strength Rating Not Rated Not Rated A- Not Rated +Outlook Stable +(a) Reflects rating of $375 million Junior Subordinated Notes due 2065 issued in January 2025 +(b) Ratings removed for Fidelity & Guaranty Life Holdings, Inc. Senior Unsecured Notes due 2025 following full redemption in February 2025 +A.M. Best, S&P, Fitch and Moody’s review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales and persistency is unknown, we believe if our ratings were to be negatively adjusted for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business. See “ Risk Factors ” in this Annual Report on Form 10-K. +Potential Impact of a Ratings Downgrade. We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivatives agreements on International Swap and Derivative Association (“ISDA”) forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. Please refer to Note D - Derivative Financial Instruments to the Consolidated Financial Statements in this Annual Report on Form 10-K for disclosure around our requirement to maintain minimum ratings. +If the insurance subsidiaries held net short positions against a counterparty, and the subsidiaries’ financial strength ratings were below the levels required in the ISDA agreement with the counterparty, the counterparty would demand immediate further collateralization, which could negatively impact overall liquidity. Based on the fair value +26 +of our derivatives as of December 31, 2024, we hold no net short positions against a counterparty; therefore, we were not required to post collateral at December 31, 2024. +A downgrade of the financial strength rating of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it more difficult for us to market our products, as potential customers may select companies with higher financial strength ratings. A downgrade of the financial strength rating could also impact our borrowing costs. +Regulation of F&G +U.S. Regulatory Overview +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to comprehensive regulation and supervision in their domiciles, Iowa, New York, Vermont and Vermont, respectively, and in each state in which they do business. FGL Insurance does business throughout the United States and Puerto Rico, except for New York. FGL NY Insurance only does business in New York. Raven Re is a special purpose captive reinsurance company that only provides reinsurance to FGL Insurance under the CARVM Treaty. Corbeau Re, a wholly owned captive reinsurance company, reinsures certain of FGL Insurance’s FIA policies with GMWB and GWP. FGL Insurance’s principal insurance regulatory authority is the IID; however, state insurance departments throughout the United States also monitor FGL Insurance’s insurance operations as a licensed insurer. The New York State Department of Financial Services (“NYDFS”) regulates the operations of FGL NY Insurance. The purpose of these regulations is primarily to protect insurers’ policyholders and beneficiaries and not their general creditors and shareholders of those insurers or of their holding companies. Many of the laws and regulations to which FGL Insurance and FGL NY Insurance are subject are regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect their operations. +Generally, insurance products underwritten by, and rates used by, FGL Insurance and FGL NY Insurance must be approved by the insurance regulators in each state or territory in which they are sold. In addition, insurance products may also be subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). +State insurance authorities have broad administrative powers over FGL Insurance and FGL NY Insurance with respect to all aspects of the insurance business, including: +• licensing to transact business; +• licensing agents; +• prescribing which assets and liabilities are to be considered in determining statutory surplus; +• regulating premium rates for certain insurance products; +• approving policy forms and certain related materials; +• requiring insurers and agents to act in the best interests of consumers when making recommendations to purchase annuities, or to determine whether a reasonable basis exists as to the suitability of such investments for consumers; +• regulating unfair trade and claims practices; +• establishing reserve requirements and solvency standards; +• regulating the amount of dividends that may be paid in any year by insurance companies; +• regulating the availability of reinsurance or other substitute financing solutions, the terms thereof and the ability of an insurer to take credit on its financial statements for insurance ceded to reinsurers or other substitute financing solutions; +• fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; and +• regulating the type, amounts, and valuations of investments permitted, transactions with affiliates and other matters. +27 +Financial Regulation +State insurance laws and regulations require FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to file reports, including financial statements, with state insurance departments in each state in which they do business, and their operations and accounts are subject to examination by those departments at any time. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these departments. +The NAIC has approved a series of statutory accounting principles and various model regulations that have been adopted, in some cases with certain modifications, by all state insurance departments. These statutory principles are subject to ongoing change and modification. Moreover, compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Any particular regulator’s interpretation of a legal or accounting issue may change over time to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s detriment, or changes to the overall legal or market environment, even absent any change of interpretation by a particular regulator, may cause FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to change their views regarding the actions they need to take from a legal risk management perspective, which could necessitate changes to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s practices that may, in some cases, limit their ability to grow and improve profitability. +State insurance departments conduct periodic examinations of the books and records, financial reporting, policy and rate filings, market conduct and business practices of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. +The IID last completed a routine financial examination of FGL Insurance for the five year period ending 2022 and found no material deficiencies and proposed no adjustments to the financial statements as filed. The IID is currently in the process of executing a market conduct exam for the five year period ending 2022. Results of the most recent market conduct exam have not been finalized. +The NYDFS last completed a routine financial examination of FGL NY Insurance for the five year period ended December 31, 2017, and found no material deficiencies and proposed no adjustments to the financial statements as filed. The NYDFS is currently in the process of executing an exam for the five year period ending 2022. Results of the most recent examination have not been finalized. +The Vermont Department of Financial Regulation completed a routine financial examination of Raven Re for the five year period ending December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) 10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +28 +In 2024, FGL Insurance did not pay dividends to Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2025 is $0. +Any payment of dividends by FGL Insurance is subject to the regulatory restrictions described above and the approval of such payment by the board of directors of FGL Insurance, which must consider various factors, including general economic and business conditions, tax considerations, FGL Insurance’s strategic plans, financial results and condition, FGL Insurance’s expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends and its effect on RBC and such other factors the board of directors of FGL Insurance considers relevant. For example, payments of dividends could reduce FGL Insurance’s RBC and financial condition and lead to a reduction in FGL Insurance’s financial strength rating. See “Risk Factors—Risks Relating to Our Business— A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions as calculated under New York insurance laws without being required to obtain the prior consent of the NYDFS. However, to pay any dividends or distributions (including the payment of any dividends or distributions for which prior consent is not required), FGL NY Insurance must provide advance written notice to the NYDFS. +FGL NY Insurance has historically not paid dividends. +Surplus and Capital +FGL Insurance and FGL NY Insurance are subject to the supervision of the regulators in states where they are licensed to transact business. Regulators have discretionary authority in connection with the continued licensing of these entities to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such entities have not maintained the minimum surplus or capital or that the further transaction of business would be hazardous to policyholders. +Risk-Based Capital +In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement RBC requirements for life, health and property and casualty insurance companies. All states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. In general, RBC is calculated by applying factors to various asset, premium and reserve items, taking into account the risk characteristics of the insurer. Within a given risk category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. The RBC formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for FGL Insurance and FGL NY Insurance each exceeded the minimum RBC requirements. +It is desirable to maintain an RBC ratio in excess of the minimum requirements in order to maintain or improve financial strength ratings. FGL Insurance’s estimated U.S. RBC ratio was over 410% as of December 31, 2024, above our 400% target. See “Risk Factors — Risks Related to Our Business — A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +29 +See “ Bermuda Regulatory Overview — ECR and Bermuda Solvency Capital Requirements ” for a discussion of Bermuda regulatory requirements that impact F&G Life Re. +Insurance Regulatory Information System Tests +The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A ratio falling outside the prescribed “usual range” is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more ratios that fall outside the usual range. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined “usual ranges.” Generally, regulators will begin to investigate or monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. IRIS consists of a statistical phase and an analytical phase whereby financial examiners review insurers’ annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that are generated from the NAIC database annually; each ratio has a “usual range” of results. +As of December 31, 2024, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re had five, one, two and four ratios outside the usual range, respectively. The IRIS ratios for net and gross change to capital and surplus, total affiliated investments to capital and surplus, surplus relief - over $5 million capital and surplus and change in premium for FGL Insurance were outside the usual range. The IRIS ratio for change in premium ratio for FGL NY Insurance was outside the usual range. The IRIS ratios for adequacy of investment income and change in premium for Raven Re were outside the usual range. The IRIS ratios for net income to total income (including realized capital gains and losses), adequacy of investment income, change in premium and change in asset mix for Corbeau Re were outside the usual range. +In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are not currently subject to regulatory restrictions based on these ratios. +Group Capital Calculation +The NAIC developed a group capital calculation tool using an RBC methodology for all entities within the insurance holding company system, including non-U.S. entities. In December 2020, the NAIC adopted the Group Capital Calculation Template and Instructions, as well as amendments to the Model Holding Company Act and Regulation. The amendments implement the annual filing requirement for the group capital calculation but will not become effective until adopted by state legislatures or regulatory agencies. Legislation was introduced in New York in May 2022 that would require a group capital calculation. FNF’s lead regulator, which is also the Company’s lead regulator for this purpose, has not yet adopted a requirement for group capital. +Insurance Reserves +State insurance laws require insurers to analyze the adequacy of reserves. Following the implementation of principle-based reserving for life insurance products, the NAIC is now developing a principle-based reserving framework for fixed annuity products. The respective appointed actuaries for FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re must each submit an opinion on an annual basis that their respective reserves, when considered in light of the respective assets FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re hold with respect to those reserves, make adequate provision for the contractual obligations and related expenses of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re have filed all of the required opinions with the insurance departments in the states in which they do business. +30 +Credit for Reinsurance Regulation +States regulate the extent to which insurers are permitted to take credit on their financial statements for the financial obligations that the insurers cede to reinsurers. Where an insurer cedes obligations to a reinsurer that is neither licensed nor accredited by the state insurance department, the ceding insurer is not permitted to take such financial statement credit unless the unlicensed or unaccredited reinsurer secures the liabilities it will owe under the reinsurance contract. +Under the laws regulating credit for reinsurance issued by such unlicensed or unaccredited reinsurers, the permissible means of securing such liabilities are (i) the establishment of a trust account by the reinsurer to hold certain qualifying assets in a qualified U.S. financial institution, such as a member of the Federal Reserve, with the ceding insurer as the exclusive beneficiary of such trust account with the unconditional right to demand, without notice to the reinsurer, that the trustee pay over to it the assets in the trust account equal to the liabilities owed by the reinsurer; (ii) the posting of an unconditional and irrevocable letter of credit by a qualified U.S. financial institution in favor of the ceding company allowing the ceding company to draw upon the letter of credit up to the amount of the unpaid liabilities of the reinsurer and (iii) a “funds withheld” arrangement by which the ceding company withholds transfer to the reinsurer of the assets, which support the liabilities to be owed by the reinsurer, with the ceding insurer retaining title to and exclusive control over such assets. +In addition, all U.S. states, including Iowa and New York, permit an insurer to take credit for reinsurance ceded to a non-U.S. reinsurer that posts collateral in amounts less than 100% of the reinsurer’s obligations if the reinsurer has been designated as a “certified reinsurer” and is domiciled in a country recognized by the state and the NAIC as a “Qualified Jurisdiction.” The reduced percentage of full collateral applied to a certified reinsurer is based upon an assessment of the reinsurer and its financial ratings. Iowa and New York both also recognize certain qualified non-U.S. insurers as reciprocal jurisdiction reinsurers such that ceding domestic insurers may receive credit for reinsurance ceded to such unauthorized reinsurers without the requirement for the reinsurer to provide collateral. +FGL Insurance and FGL NY Insurance are subject to the credit for reinsurance rules described above in Iowa and New York, respectively, insofar as they enter into any reinsurance contracts with reinsurers that are neither licensed, accredited nor certified in Iowa and New York, respectively, or recognized as a reciprocal reinsurer in such jurisdictions. +Insurance Holding Company Regulation +F&G, as the indirect parent company of FGL Insurance and FGL NY Insurance, is subject to the insurance holding company laws in Iowa and New York. These laws generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company’s state of domicile and to furnish annually financial and other information about the operations of companies within the holding company system. Generally, all transactions between insurers and affiliates within the holding company system are subject to regulation and must be fair and reasonable, and may require prior notice and approval or non-disapproval by its domiciliary insurance regulator. +Most states, including Iowa and New York, have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s holding company. Such laws prevent any person from acquiring control, directly or indirectly, of F&G, FGL US Holdings Inc. (“FGL US Holdings”), CF Bermuda Holdings Limited (“CF Bermuda”), FGLH, FGL Insurance or FGL NY Insurance or certain of their affiliates unless that person has filed a statement with specified information with the insurance regulators and has obtained their prior approval. In addition, investors deemed to have a direct or indirect controlling interest are required to make regulatory filings and respond to regulatory inquiries. Under most states’ statutes, including those of Iowa and New York, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. In addition, the insurance laws of Iowa and New York permit a determination of control in circumstances where the thresholds for the presumption of control have not been crossed. Similar laws apply to a direct or indirect change of ownership of Raven Re and +31 +Corbeau Re. Any person who is deemed to acquire control over F&G, FNF, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance, FGL NY Insurance, Raven Re, Corbeau Re or certain of their affiliates including any person who acquires 10% or more of our or FNF’s voting securities of FGL Insurance, FGL NY Insurance or certain of their affiliates, without the prior approval of the insurance regulators of Iowa and New York, will be in violation of those states’ laws and may be subject to injunctive action requiring the disposition or seizure of those securities by the relevant insurance regulator or prohibiting the voting of those securities and to other actions determined by the relevant insurance regulator. +Insurance Guaranty Association Assessments +Each state has insurance guaranty association laws under which insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all member insurers in the state. Although no prediction can be made as to the amount and timing of any future assessments under these laws, FGL Insurance and FGL NY Insurance have established reserves that they believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. +Market Conduct Regulation +State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales and complaint process practices. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. In addition, FGL Insurance and FGL NY Insurance must file, and in many jurisdictions and for some lines of business obtain regulatory approval for, rates and forms relating to the insurance written in the jurisdictions in which they operate. FGL Insurance is currently the subject of two ongoing market conduct examinations in various states. Market conduct examinations can result in monetary fines or remediation and generally require FGL Insurance to devote significant resources to the management of such examinations. FGL Insurance does not believe that any of the current market conduct examinations it is subject to will result in any fines or remediation orders that will be material to its business. +Regulation of Investments +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain asset categories, such as below investment grade fixed income securities, equity, real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as either non-admitted assets for purposes of measuring surplus or as not qualified as an asset held for reserve purposes and, in some instances, would require divestiture or replacement of such non-qualifying investments. We believe that the investment portfolios of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re as of December 31, 2024, complied in all material respects with such regulations. +In 2023, the NAIC released new regulations the define a residual interest. All the Company’s impacted insurance subsidiaries have complied with the new regulations. Beginning January 1, 2025, these investments will be subject to a new accounting model, which the Company is currently in the process of implementing. Also in 2023, the NAIC released new regulations that define the criteria for investments that can be classified as a bond, which the Company is currently in the process of implementing for all of its impacted insurance subsidiaries. See “Risk Factors — Risks Related to Our Business — Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact of the reputation of our business” in this Annual Report on Form 10-K. +On December 7, 2021, the NAIC assigned to its Macroprudential Working Group, the evaluation of a list of “Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers.” Included +32 +within this list is the consideration of material increases in privately structured securities (both by affiliated and non-affiliated asset managers), which the NAIC says introduces other sources of risk or increases traditional credit risk, such as complexity risk and illiquidity risk. As a result, the NAIC has issued several clarifying revisions to the guidance and disclosure requirements for related party and affiliated securities and continues to consider additional proposals and disclosure requirements. +In addition, the NAIC continues to refine its application of RBC factors for certain investments. +Privacy Regulation +Our operations are subject to certain federal and state laws and regulations that require financial institutions and other businesses to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of such information. These laws and regulations require notice to affected individuals, law enforcement agencies, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Our operations are also subject to certain federal regulations that require financial institutions and creditors to implement effective programs to detect, prevent and mitigate identity theft. In addition, our ability to make telemarketing calls and to send unsolicited email or fax messages to consumers and customers and our uses of certain personal information, including consumer report information, are regulated. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information. +The Dodd-Frank Act +The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Dodd-Frank Act”) established the Federal Insurance Office within the U.S. Department of the Treasury to monitor the insurance industry. The Dodd-Frank Act made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Dodd-Frank Act are applicable to us, our competitors or those entities with which we do business. These provisions may impact us in many ways, including, but not limited to, having an effect on the overall business climate, requiring the allocation of certain resources to government affairs, and increasing our legal and compliance related activities and the costs associated therewith. +Under the Dodd-Frank Act, annuities that meet specific requirements, including requirements relating to certain state suitability rules, are specifically exempted from being treated as securities by the SEC. We believe that the types of FIAs that FGL Insurance and FGL NY Insurance sell will meet these requirements and, therefore, are exempt from being treated as securities by the SEC and state securities regulators. However, there can be no assurance that federal or state securities laws or state insurance laws and regulations will not be amended or interpreted to impose further requirements on FIAs. If FIAs were to be treated as securities, federal and state securities laws would require additional registration and licensing of these products and the agents selling them, and FGL Insurance and FGL NY Insurance would be required to seek additional marketing relationships for these products, any of which could impose significant restrictions on its ability to conduct operations as currently operated. However, our RILA product is not exempted from being treated as a security by the SEC. +Additionally, the Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which plays a role in shaping the regulatory environment affecting RILAs. The FSOC monitors systemic risks and may designate insurers offering RILAs as systemically important financial institutions if their activities pose significant risks to the broader economy, subjecting them to enhanced prudential standards and supervision by the Board of Governors of the United States Federal Reserve. The prudential standards for non-bank Systemically Important Financial Institutions (“SIFIs”) include enhanced RBC requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures, and recovery and resolution planning. +33 +ERISA and Fiduciary Standards +We may offer certain insurance and annuity products to employee benefit plans governed by ERISA and/or the Internal Revenue Code of 1986, as amended (the “Code”), including group annuity contracts designated to fund tax-qualified retirement plans. ERISA and the Code provide (among other requirements) standards of conduct for employee benefit plan fiduciaries, including investment managers and investment advisers with respect to the assets of such plans, and holds fiduciaries liable if they fail to satisfy fiduciary standards of conduct. +State and federal regulators have been adopting stronger consumer protection regulations that may materially impact our company, business, distribution, and products. The NAIC adopted an amended Suitability in Annuity Transactions Model Regulation in February 2020 incorporating a requirement that agents act in the best interest of consumers without putting their own financial interests or insurer’s interests ahead of consumer interests. The best interest requirement is satisfied by complying with four regulatory obligations relating to care, disclosure, conflict of interest, and documentation. The amended model regulation also requires agents to provide certain disclosures to consumers, obligates insurers to supervise agent compliance with the new requirements, and prohibits sales contests or other incentives based on sales of specific annuities within a limited period of time. +Several states have adopted the revised NAIC model regulation, including FGL Insurance’s domiciliary state of Iowa. Management has instituted business procedures to comply with these revised requirements where required. FGL NY Insurance separately instituted new business procedures in response to the NYDFS best interest rule adopted in August 2019 which survived a legal challenge and deviates from the NAIC model regulation and is considered more onerous in certain respects including its broader application to life insurance sales. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. Meanwhile, the DOL has publicly announced its intention to consider future rulemaking that may revoke or modify PTE 84-24. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the New Fiduciary Rule, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s +34 +best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s new Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al. , (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s final fiduciary rule (and related amendments to PTE 84-24) that was issued in March 2024. The District Court, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the Final Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the Final Rule’s original effective date of September 23, 2024 has been delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al. , held the remaining PTE amendments included in the Final Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the Final Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. On February 11, 2025, the DOL filed an unopposed motion to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motion was granted so the appeals are in abeyance. A Fifth Circuit reversal of the Texas district court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +Management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. See “Risk Factors—Legal, Regulatory and Tax Risk s—Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business.” +The SECURE 2.0 Act +New and recently passed legislation may also impact the industry in which F&G competes. For example, the SECURE 2.0 Act of 2022, which went into effect as early as January 1, 2023, in certain respects, creates an opportunity for F&G and its competitors to pursue sales to employer retirement plan sponsors as well as its traditional customers. In addition, F&G and its competitors may implement operational changes to adapt to the effect of the new legislation. See “Risk Factors— L egal, Regulatory and Tax Risks —The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete .” +Corporate Alternative Minimum Tax +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% corporate alternative minimum tax (“CAMT”) +35 +on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. The life companies will join the consolidated tax return group with FNF and file a life/non-life consolidated return once the five-year waiting period has completed in 2026, which should strengthen that position as FNF is not anticipating owing CAMT on its future returns. For the years ended December 31, 2024 and 2023, the Company was subject to CAMT, but there was no impact to total tax. A CAMT credit carryforward was created and is expected to be able to be utilized in future years. +Climate Risk +On November 15, 2021, NYDFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change, detailing NYDFS’s expectations related to domestic insurers' management of the financial risks from climate change. These guidelines are applicable to FGL NY Insurance and became effective in 2022. Under the guidelines, climate change risk must be specifically included in an insurance group's enterprise risk management function. +Diversity and Corporate Governance +The NAIC and certain state insurance regulators are focused on the issue of diversity within the insurance industry, such as the diversity of an insurer’s board of directors and management. The NAIC is developing a framework for approaching issues related to race and insurance. The NAIC goals include improving access to different types of insurance products in minority communities, addressing issues related to affordability, and providing guidance to regulators on ways to improve insurance access and the understanding of insurance in underserved communities. In New York, NYDFS issued a circular letter that states that the NYDFS expects the insurers it regulates to make diversity of their leadership a business priority and key element of their corporate governance, and it includes diversity-related questions in its examination process. This guidance is applicable to FGL NY Insurance. +Bermuda Regulatory Overview +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act, 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +The Bermuda Insurance Act provides that no person may carry on an insurance business in or from within Bermuda unless registered as an insurer under the Bermuda Insurance Act by the BMA. In deciding whether to grant registration, the BMA has broad discretion to act as it thinks fit in the public interest. The BMA is required by the Bermuda Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. The registration of an applicant as an insurer is subject to the insurer complying with the terms of its registration and such other conditions as the BMA may impose at any time. In addition, the Bermuda Insurance Act requires BMA approval of increases in control or dispositions of control of an insurance company. +Effective January 1, 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. F&G Life Re is a certified reinsurer in Iowa. +Bermuda has been awarded full equivalence for commercial insurers under Europe’s Solvency II regime applicable to insurance companies, which regime came into effect on January 1, 2016. +36 +Effective January 1, 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting collateral. F&G Life Re has been designated a reciprocal jurisdiction reinsurer in Iowa. +All insurers are required to implement corporate governance policies and processes as the BMA considers appropriate given the nature, size, complexity and risk profile of the insurer and all insurers, on an annual basis, are required to deliver a declaration to the BMA confirming whether or not they meet the minimum criteria for registration under the Bermuda Insurance Act. +All insurers are required to comply with the Bermuda Insurance Code of Conduct, which is a codification of best practices for insurers provided by the BMA, and to submit annually to the BMA with its statutory financial return a declaration of compliance confirming it complies with the Bermuda Insurance Code of Conduct. All insurers are also required to comply with the Bermuda Insurance Sector Cyber Risk Management Code of Conduct issued by the BMA under the Bermuda Insurance Act, which establishes the duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management. +The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance and reinsurance companies. As part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer or reinsurer is used to determine the limitations and specific requirements that may be imposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through the scrutiny of audited financial statements, and, as appropriate, meeting with senior management during onsite visits. +The Bermuda Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below. +Minimum Solvency Margin. The Bermuda Insurance Act provides that the value of the assets of an insurer must exceed the value of its liabilities by an amount greater than its prescribed minimum solvency margin. +The minimum solvency margin that must be maintained by a Class E insurer is the greater of: (i) $8,000,000; (ii) 2% of first $500,000,000 of assets plus 1.5% of assets above $500,000,000; and (iii) 25% of that insurer’s enhanced capital requirement (“ECR”). An insurer may file an application under the Bermuda Insurance Act to waive the aforementioned requirements. +ECR and Bermuda Solvency Capital Requirements (“BSCR”). Class E insurers are required to maintain available capital and surplus at a level equal to or in excess of the applicable ECR, which is established by reference to either the applicable BSCR model or an approved internal capital model. Furthermore, to enable the BMA to better assess the quality of the insurer’s capital resources, a Class E insurer is required to disclose the makeup of its capital in accordance with its 3-tiered capital system. An insurer may file an application under the Bermuda Insurance Act to have the aforementioned ECR requirements waived. +Restrictions on Dividends and Distributions. In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. +F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. +37 +In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. +The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +Reduction of Capital. F&G Life Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as statutory capital. +Bermuda Corporate Income Tax +The Corporate Income Tax (“CIT”) Act of 2023 was passed in Bermuda on December 27, 2023. The CIT Act commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, does not anticipate to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2024, of $10 million has a full valuation allowance. As a result, there is no material impact to the financial statements. +Block Transactions +Since January 2023, the BMA has required all long-term (life) commercial reinsurers such as F&G Life Re to obtain the prior approval of the BMA for all long-term block reinsurance transactions, which is defined as a block transaction that covers an existing long-term business policy that is written and in force and on the books of the cedant, as of the date of the reinsurance transaction (including pension risk transfer transactions). +Affiliate, Related Party or Connected Party Assets +As a Class E insurer, F&G Life Re is required to obtain the prior written approval of the BMA before investing in assets with counterparty credit exposure to an affiliate, related party or connected party (each as defined under the Bermuda Insurance Act) of F&G Life Re. +Cayman Islands Regulatory Overview +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, (2023 Revision) as amended, and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulations (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by the Cayman Islands Monetary Authority (“CIMA”). +The Cayman Islands Insurance Act provides that no person may carry on an insurance business in or from within the Cayman Islands unless licensed under the Cayman Islands Insurance Act. CIMA has broad discretion in its consideration of whether to grant a license and must act in the public interest. CIMA is required by the Cayman +38 +Islands Insurance Act to determine whether an applicant is a fit and proper body to be engaged in insurance business. A licensed insurer must comply with the terms of its license and such other conditions as CIMA may impose at any time. In addition, the Cayman Islands Insurance Act requires CIMA approval of increases in control or dispositions of control of an insurance company. +All insurers are required to implement corporate governance policies as CIMA considers appropriate given the nature, size, complexity and risk profile of the insurer. All insurers are also required to comply with the CIMA's Rules and Statements of Guidance as applicable to insurers which is a codification of best practices provided by CIMA, and to submit annually to CIMA audited financial statements and a declaration of compliance confirming it complies with the Cayman Islands Insurance Act. +Capital Requirements. The Cayman Islands Insurance Act provides that an insurer must maintain a minimum capital requirement based on its license class. For a Class D insurer, the minimum capital requirement is $50,000,000. In addition, an insurer must maintain a minimum margin of solvency at a level equal to or in excess of the total prescribed capital requirement which is established by reference to either the applicable prescribed capital requirements based on license class or an internal capital model approved by CIMA. Notwithstanding the minimum capital requirements, CIMA may set an enhanced prescribed capital requirement in respect of any insurer. CIMA may also, for class B, C and D insurers, exclude from the calculations assets that it deems inappropriate. +CIMA utilizes a risk-based approach to licensing and supervising insurers and to determining limitations and/or specific requirements. CIMA reviews on an ongoing basis, an insurer’s audited financial statements, actuarial valuation report and, as appropriate, meeting with senior management during onsite visits. +The Cayman Islands Insurance Act and regulations promulgated thereunder impose solvency and liquidity standards on Cayman Islands insurance companies, as well as auditing and reporting requirements. +As a regulated insurance company, F&G Cayman Re is subject to the supervision of CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +The laws and regulations of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Statutes, regulations and policies that F&G Cayman Re is subject to may also restrict the ability of F&G Cayman Re to write insurance and reinsurance policies, make certain investments and distribute funds. Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. +Human Capital Resources +As of December 31, 2024, we had 1,338 full-time equivalent employees. None of our employees are subject to collective bargaining agreements. We consider our relations with our employees to be good. +Talent Management +F&G’s core values - Collaborative, Authentic, Dynamic and Empowered, coupled with our competitive total rewards philosophy and flexible work environment provide an attractive employee value proposition. We recruit top talent to join our team and provide opportunities for personal and professional growth. +Our development programs are designed to provide opportunities for all employees to grow and develop. Development programs are aligned to the skills and behaviors defined in our F&G Competencies - Think Enterprise +39 +Wide, Leverage Data, Center Equity, Communicate with Courage, Be Accountable- and ensure our employees are developing skills that are critical to achieve business goals now and in the future. +Leadership Academy is our leadership development program designed to develop the next level of leaders at F&G and enables cross-functional leaders to hone their leadership capability and network with colleagues from across the enterprise. +Employee engagement is measured annually through two surveys. Our strong engagement scores on the Energage Engagement Survey were rewarded with several “Top Places to Work” designations including Leadership, Innovation, Compensation & Benefits, Work-Life Flexibility and Financial Services Industry. We are honored to be a recipient of the “Top Workplaces USA” designation in 2024, 2023 and 2022 and a recipient of the “Top Workplaces Iowa” designation since 2018. +The Gallup Employee Engagement survey data is our key metric to support strategic decisions on engaging and retaining our talent. Initiatives such as our Employee Resource Groups and our Connection Week program are a few examples of programs that were identified based on our employee engagement data. +At F&G, we provide comprehensive benefits designed to meet the needs of our employees and demonstrate the value they bring to the organization. Employees are eligible to participate in our 401(k) savings plan, to which we make matching and annual nondiscretionary contributions. Employees are also eligible to participate in our Employee Stock Purchase Plan with a competitive match feature. We offer competitive health care benefit options for medical, dental and vision coverage, as well as a health savings account with an employer contribution. Other benefits offerings include health care and dependent care flexible spending accounts, employee assistance program, lifestyle reimbursements, charitable matching donations, and adoption assistance. To support a healthy work-life balance, all employees receive paid time off, holidays, flexible Fridays, volunteer time off and paid parental leave for new parents. +Employee retention is critical to the success of our business. Turnover is monitored and analyzed to ensure we are protecting our most valuable asset, our team members. Our turnover rates have been consistently below national and industry-specific benchmarks. +Workplace Flexibility +F&G is committed to providing employees with the opportunities and flexibility they need to succeed, as well as ensuring a culture of belonging and inclusion by: +• Providing well rounded benefits that support employees diverse needs such as, domestic partner medical coverage, gender dysphoria services, $50,000 lifetime maximum for infertility services ($35,000 is United Health Care standard), travel & lodging reimbursement for services rendered out-of-state due to state law, Employee Assistance Program including 6 free counseling sessions per person per incident per year, in addition to other emotional health solutions, $10,000 in adoption assistance benefit, parental leave benefits, flexible PTO and lifestyle reimbursements. +• Supporting employee training, developing and educating through LinkedIn learning with a wide array of topics (e.g., Using Gender inclusive language, fueling your Company Culture, Inclusive Leadership, Unconscious Bias, etc.), tuition reimbursement, and manager and leadership training. +• Hosting educational and developmental events such as, a Mental Awareness and Racial Equity Master Class, a Mental Health panel, and a panel on Neurodiversity. +• Recognized for several Cultural Excellence Awards in 2024, 2023 and 2022 through Energage, for excellence in 1) Compensation and Benefits, 2) Leadership, 3) Work-Life Flexibility, 4) Professional Development, 5) Appreciation, 6) Employee Wellbeing, 7) Professional Development and 8) Purpose and Values. +40 +Community engagement +F&G focuses its community engagement and charitable giving to support essential needs such as food insecurity and housing. In recent years, F&G has won multiple awards for its corporate support and employee involvement with United Way, including Outstanding Corporate/Foundation Philanthropist for 2023 from the Association of Fundraising Professionals Central Iowa Chapter. Other community investments include: +• Serving as founding partner of the American Council of Life Insurer’s Impact Investments Initiative (“360 Community Capital”) to make housing affordable and sustainable in underserved communities. +• Fostering partnerships in the Des Moines community with the Iowa Food Bank and Polk County Housing Trust. +• Offering company-wide volunteer events for employees to make an impact locally with organizations such as Rebuilding Together. +• Providing employees with 16 hours of paid time off per year for volunteering. +• Supporting dozens of other community organizations identified by F&G employees in support of essential needs within the community where they live and work. +Operational Sustainability +F&G aims to reduce the company’s environmental footprint through a variety of sustainable and environmentally sound programs within its LEED-certified headquarters building in Des Moines, Iowa. F&G also promotes flexible work from home arrangements which reduce commute time, greenhouse gas emissions, and paper usage. +Governance +Our Company and our Board is committed to sustainable practices to serve our employees, business partners and the community +The F&G AC is responsible for overseeing the Company’s sustainability risks. Such risks may include climate risks as a subset of investment risks. The Company’s Chief Risk Officer (“CRO”) will continue to update the AC on F&G’s climate risk profile as risks and opportunities arise. +Management’s Role in Assessing and Managing Sustainability Risks and Opportunities +Additional governance committees +The AC and ERMC utilize and rely on other groups and committees within F&G to facilitate that all risks and opportunities related to our sustainability are addressed appropriately. +The ERMC is an enterprise committee, consisting of C-suite level executives including the Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and CRO who are responsible for reviewing risks and associated strategy across the business. The risks are included in the overall F&G Risk Register that is the basis for quarterly risk assessments. The overall risk posture of the organization is updated in the quarterly ERM dashboard report. The development of and maturity of the enterprise ESG program, including climate-risks, is included in F&G’s 2023 Own Risk and Solvency Assessment (“ORSA”) summary report, and articulates the responsibility for actively monitoring and focusing resources on sustainability-related activities. +The Investment Committee provides oversight of investments held, approves new asset classes, and reviews investment managers and mandates. The Investment Committee also oversees the relationships with F&G’s Asset Management companies, which includes assessing their sustainability policies and practices for consistency with F&G’s missions and vision. +41 +Strategy +F&G’s product solutions provide social good by supporting clients to achieve their retirement goals and to improve their financial lives, while protecting against unforeseen events through life insurance policies. This sentiment of service provides the foundation for F&G’s culture and guides business operations as well as interactions within our communities. +The investment portfolio supporting the current range of products offered by F&G considers climate-related risks and the transition to a low carbon economy. As long-term investors, F&G understands the energy transition will be gradual, and the focus should be on investment outcomes that will support our fiduciary duty to our clients and the investment goals of our clients. +F&G completed a qualitative assessment of climate risks and opportunities in 2023 with input from the ESG Executive Steering Committee and ESG working group. The assessment identified potential impacts of climate change on the F&G businesses and financial plans over short-, medium-, and long-term time horizons. Generally, short term is defined as present and 1 – 5 years in the future, medium-term is 5- 10 years in the future, and long-term is 10-30 years in the future. +The assessment also identified the risks applicable to F&G based on physical presence, products sold, and credit/counterparty risk. The identified risks were added to the enterprise risk register for inclusion in the quarterly self-assessment and annual risk assessment processes. The risks were also integrated into the ESG Program. +Impact of pending and passed legislation +Developments in national, state, and international regulations related to ESG and climate risk are ever-changing. F&G is diligently working to identify and gather the appropriate data for evolving reporting standards. +The California Air Resources Board ("CARB"), and similar regulators in other U.S. states and international jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards. +The state of California passed two bills that will require certain companies doing businesses in the state to disclose GHG emissions and climate-related financial risk information. Senate Bill 253 (SB 253) requires the annual disclosure of Scope 1, 2 and 3 GHG emissions, with certain GHG emissions data subject to third party assurance. The bill requires disclosure of Scope 1 and 2 GHG emissions beginning in 2026 for the 2025 reporting year and disclosure of Scope 3 GHG emissions beginning in 2027 for the 2026 reporting year. SB 253 would be effective for public and private companies with total annual revenues exceeding $1 billion and that do business in California. Senate Bill 261 (SB 261) requires biennial disclosures posted on a company’s website related to climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks. The bill requires disclosure of the climate-related financial risk disclosures beginning in 2026 for the 2025 reporting year. SB 261 is effective for public and private companies with total annual revenues exceeding $500 million. Both SB 253 and 261 have been challenged in the U.S. District Court for the Central District of California. Further, on September 27, 2024, the California Governor amended both SB 253 and SB 261 by signing into law Senate Bill 219 (SB 219). SB 219 extends the time in which CARB has to promulgate implementing regulations for SB 253 until July 1, 2025, a delay of six months, but does not otherwise change the reporting deadlines in SB 253 or SB 261. +Capital expenditures related to climate change +Current expenditures related specifically to climate change have been minimal. F&G added a sustainability module to the Governance, Risk, and Compliance application to maintain risk information and metrics related to sustainability efforts. Future expenditures will likely increase as F&G moves forward with plans for ongoing scenario analysis and data stores to facilitate the calculation of Scope 3 emissions. +42 +Investment Portfolio climate scenario analysis +F&G conducted a one-time pilot scenario analysis exercise with the advisory support of Baringa using BlackRock’s Aladdin Climate technology (incorporating Baringa’s industry-leading Climate Change Scenario Model). This analysis included an overall scenario analysis on the investment portfolio and assessed the transition risks by asset class and sector for the portfolio using different climate scenarios. The overall scenario analysis covered multiple industry-recognized scenarios, including a 2°C or lower scenario. For the pilot portfolio temperature alignment was calculated, aligning F&G’s pilot portfolio with a warming trajectory through 2050. The analysis also included an assessment of physical risk of three commercial properties held in the F&G portfolio. The evaluation included electricity and gas expenditures, outdoor labor costs, vulnerability to rising sea levels, and weather-related catastrophes. +The overall results of the pilot scenario analysis indicated larger impacts under the Orderly and Disorderly scenarios by 2050, as expected, highlighting energy-intensive industries. Utilities saw larger variability between the issuers, while energy and airlines saw more uniform impacts. Automobile manufacturers saw the largest impact and variability, while financials and structured products had smaller impacts. +We will continue to enhance our capabilities in the evaluation and assessment of risks due to climate change as a component of our overall enterprise risk process. +Risk Management +F&G’s ERM policy defines the approach to risk identification, risk assessment, and risk response. The ERMC owns the ERM Policy and is responsible for reviewing and approving the policy on an annual basis. Updates to the policy are determined by the ERM leadership team. +The ERM process includes a risk appetite statement which outlines the level of acceptable risk in the pursuit of overall financial and strategic objectives. Risk appetite statements and risk tolerances are linked to the strategic objectives set out in the corporate plan and are stressed using a variety of multifactor scenarios. Qualitative and quantitative approaches are used to manage risk appetite and are monitored as part of the strategy and planning process. +Risks are defined in the risk taxonomy, based on International Organization for Standardization 31000, and captured in a risk library. The taxonomy includes four parent categories: Operational, Governance/Strategy, Product/Distribution, and Investments. These four parent categories are broken down further into 31 sub-categories (IMO/Agent Servicing, Business Continuity/Disaster Recovery, Third-Party Administration/Outsourcing, Fraud, Human Resources/People, Policy Administration, IT Systems, Information Security, Accounting and Financial Reporting, Actuarial and Governance Operations, Project Management, Model Risk, Compliance, Capital Management, Risk Management, Business Strategy, Corporate Governance, Marketing/Communications, ESG, Legal/Litigation, Regulatory Environment, Reputation, Pricing and Product Design, Product Governance, In-force Performance Management, Distribution, Asset Liability Management (“ALM”), Investment Guidelines and Compliance, Credit, Foreign Exchange, and Liquidity Risk). The library identifies risk ownership, corresponding risk limits, and high-level controls for monitoring, reporting, and mitigating material risks. +Risks are identified via ongoing discussions between ERM and the business partners, as well as through monitoring of industry groups and publications. New and emerging risks are reviewed at the ERMC and added to the risk register. Each quarter, ERM works with the risk owners to assess the impact and likelihood of each risk in the register to determine the inherent risk rating, and then apply a control assurance rating to identify the residual risk rating. The rating scales are three by three (low, medium, high). The quarterly self-assessment results are reported in the ERM dashboard to the ERMC. The dashboard reflects the residual risk ratings at the sub-category level for the Enterprise, and the direction the risk is trending (increasing, decreasing, stable). +F&G monitors risks via an annual risk assessment, the quarterly risk self-assessments, quarterly ERMC meetings, monthly Investment Committee meetings, monthly Capital Committee meetings, and ad hoc analysis. The +43 +overall risk posture of the organization is updated in the ERMC meeting report that includes a CRO assessment, emerging risks, ERM dashboard, market risk discussion, stress testing results, and risk appetite measures. +The development of an enterprise program, including climate risks, is included in F&G’s 2023 ORSA summary report, and articulates the Management Committee’s responsibility for actively monitoring and focusing resources on sustainability-related activities. Overall climate risk was deemed to be minimal by the ESG Steering Committee during a qualitative review of risks and opportunities based on the insurance-related products sold by F&G. As a life insurance and annuities company, physical climate risks that are material risks for property and casualty insurers are less impactful. Climate-related underwriting risk (mortality/morbidity) is monitored within the overall risk framework, although it is not considered material to F&G’s overall business. +F&G recognizes the rapidly evolving regulatory environment on climate-related risks and opportunities and has a regulatory monitoring process. The ongoing monitoring of ESG-related regulations is included in the overall regulatory monitoring process overseen by the Legal Department. Any new regulation passed related to ESG is entered into the Comply On Demand Enterprise system and assigned to subject matter experts for review. If policy or procedure changes are required, the implementation of those changes is monitored through this system. +Climate risks will be identified and assessed in accordance with the ERM Policy and managed through the ERM framework. The framework utilizes the three lines of defense model: Business/Operational Management, the ERM function (Risk Management), and Internal Audit. +The 1st line of defense develops and implements mitigation activities for risks in business activities and provides monitoring and reporting of such risks on an ongoing basis; the 2nd line of defense challenges and supports the 1st line of defense, while helping to identify activities to mitigate risks and advise on risk management activities. The 3rd line of defense provides management with independent, objective assurance of the overall effectiveness, and efficiency of the design and operation of internal controls. +The framework and process alignment includes utilization of committee structure to identify, assess, and prioritize risk to ensure both senior management and the Board understand and can manage the risk profile. Any changes in business trends as a result of climate change would be identified through Risk Management interaction with the 1st line of defense discussions and risk assessments. No material or significant changes due to climate change have been identified to date. +Investment risk is one of the largest sources of risk to the Company, and the Senior Vice President, Investment Risk and ALM Strategy, with the Deputy Chief Investment Officer are responsible for integrating sustainability practices, including understanding and managing climate-related risks, into F&G’s investment process. Our primary asset manager generally considers material sustainability factors a key part of evaluating new investments. By considering applicable sustainability factors in the investment process, they aim to identify and address material investment risks and opportunities. They also continuously monitor sustainability-related risks throughout the investment holding period and engage on certain focus areas such as Climate Risk, Inclusion and good Corporate Governance. +Metrics and Targets +F&G is evaluating how climate-related metrics can be leveraged to better understand the potential risks and opportunities to our business. F&G anticipates conducting an expanded quantitative analysis of the investment portfolio, as well as considering other metrics and proactive contributions to reduce uncertainty, filling data gaps, and working with investment managers and other stakeholders to collect additional data about climate risks. +F&G anticipates gathering Scope 1 and Scope 2 emissions in the coming year for additional office locations in New York, Bermuda and Cayman. +F&G’s existing risk management framework includes various metrics to manage risks across the investment portfolio. F&G is currently assessing the development of climate-related targets to improve the existing risk +44 +management framework. Efforts will continue to develop and enhance key policies and statements to reflect our ongoing commitment to mitigating climate-related risk, including climate scenario analysis, and F&G will continue to monitor risks and opportunities related to our climate risk assessment. +Available Information +Our web address is www.fglife.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) will be available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this document. +The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. +45 \ No newline at end of file diff --git a/raw/filings/0001934850/2024/0001934850-25-000015/item13.txt b/raw/filings/0001934850/2024/0001934850-25-000015/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..1642d63a0f15a3f0f7b57bac35b2c56be3a83bb8 --- /dev/null +++ b/raw/filings/0001934850/2024/0001934850-25-000015/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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There have been no changes in goodwill since the FNF acquisition. Refer to Note A - Business and Summary of Significant Accounting Policies regarding our accounting policy for Goodwill and discussion of impairment testing. +Subsequent to December 31, 2023, we recorded $ 262 million of goodwill associated with the acquisition of Roar Joint Venture, LLC. 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srt:ParentCompanyMember 2023-01-01 2023-12-31 0001934850 srt:ParentCompanyMember 2023-12-31 0001934850 srt:ParentCompanyMember 2022-12-31 0001934850 fg:LifeInsurancePremiumsMember 2025-01-01 2025-12-31 0001934850 fg:LifeContingentPRTPremiumsMember 2025-01-01 2025-12-31 0001934850 us-gaap:InvestmentsSegmentMember 2025-01-01 2025-12-31 0001934850 fg:LifeInsurancePremiumsMember 2024-01-01 2024-12-31 0001934850 fg:LifeContingentPRTPremiumsMember 2024-01-01 2024-12-31 0001934850 us-gaap:InvestmentsSegmentMember 2024-01-01 2024-12-31 0001934850 fg:LifeInsurancePremiumsMember 2023-01-01 2023-12-31 0001934850 fg:LifeContingentPRTPremiumsMember 2023-01-01 2023-12-31 0001934850 us-gaap:InvestmentsSegmentMember 2023-01-01 2023-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number 001-41490 +F&G Annuities & Life, Inc. +(Exact name of registrant as specified in its charter) +Delaware +85-2487422 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +801 Grand Avenue, Suite 2600 +Des Moines, Iowa 50309 +(Address of principal executive offices, including zip code) +( 866 ) 846-4660 +(Registrant's telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common stock, par value $0.001 per share +FG +New York Stock Exchange +7.950% Senior Notes due 2053 +FGN +New York Stock Exchange +7.300% Junior Subordinated Notes due 2065 +FGSN +New York Stock Exchange +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ☒ +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated filer +☐ +Smaller reporting company +☐ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No +If the company’s securities are registered under Section 12(b), indicate by check mark whether the company’s financial statements included in the Form 10-K reflect the correction of an error to previously issued financial statements. Yes ☐ No ☒ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the company’s executive officers during the relevant recovery period pursuant to Rule 10D-1(b) under the Exchange Act. Yes No ☒ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the shares of F&G common stock held by non-affiliates of the registrant as of June 30, 2025 was $ 667,849,667 based on the closing price of $31.98 as reported by The New York Stock Exchange. +The registrant had outstanding 135,610,118 shares of common stock as of January 31, 2026. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement to be filed in connection with the Annual Meeting of Shareholders, which will be filed no later than 120 days after December 31, 2025, are incorporated by reference into Part III of this Annual Report on Form 10-K. +F&G ANNUITIES & LIFE, INC. +FORM 10-K +TABLE OF CONTENTS +Page +Part I +10 +Item 1. Business +10 +Item 1A. Risk Factors +46 +Item 1B. Unresolved Staff Comments +76 +Item 1C. Cybersecurity +76 +Item 2. Properties +77 +Item 3, Legal Proceedings +77 +Item 4. Mine Safety Disclosures +78 +Part II +79 +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +79 +Item 6. Reserved +80 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +81 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +116 +Item 8. Financial Statements and Supplementary Data +125 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +231 +Item 9A. Controls and Procedures +231 +Item 9B. Other Information +232 +Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections +232 +Part III +233 +Item 10. Directors, Executive Officers and Corporate Governance +233 +Item 11. Executive Compensation +233 +Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Shareholder Matters +233 +Item 13. Certain Relationships and Related Transactions, and Director Independence +233 +Item 14. Principal Accounting Fees and Services +233 +Part IV +234 +Item 15. Exhibits, Financial Statement Schedules +234 +Item 16. Form 10-K Summary +238 +Signatures +239 +3 +Introductory Note +The following describes the business of F&G Annuities & Life, Inc. and its subsidiaries. Except where otherwise noted in this Annual Report on Form 10-K, all references to “we,” “us,” “our,” the “Company,” or “F&G” are to F&G Annuities & Life, Inc. and its subsidiaries, taken together. +Statement Regarding Forward-Looking Information +Certain statements included in this Annual Report on Form 10-K and the documents incorporated into this document by reference are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements about our plans and objectives, including our future financial condition, anticipated capital expenditures, anticipated distributions, and our belief that we have the liquidity and capital resources necessary to meet our known obligations. +This Annual Report on Form 10-K and other materials that F&G has filed or will file with the Securities and Exchange Commission (the “SEC”) contains information that includes or is based upon forward-looking statements that are intended to enhance the reader’s ability to assess our future financial and business performance. +Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. However, not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects and growth strategies and the industries in which we operate and including, without limitation, statements relating to our future performance. +Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity, and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our consolidated results of operations, financial condition and liquidity, and industry development are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including the risks and uncertainties discussed in “Risk Factors” and the Risk Factor Summary provided below. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include the following (among others): +• general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance; +• natural disasters, public health crises, international tensions and conflicts, geopolitical events, terrorist acts, labor strikes, political crises, accidents and other events; +• concentration in certain states for distribution of our products; +• the impact of interest rate fluctuations; +• equity market volatility; +• credit market volatility or disruption; +• the impact of credit risk of our counterparties; +• volatility or decline in the market price of our common stock could impair our ability to raise necessary capital; +• changes in our methodologies, estimates and assumptions regarding our valuation of investments and the determinations of the amounts of allowances and impairments; +4 +• changes in our valuation allowance against our deferred tax assets, and restrictions on our ability to fully utilize such assets; +• the accuracy of management’s reserving assumptions; +• regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) underwriting of insurance products and regulation of the sale, underwriting and pricing of products, and minimum capitalization and statutory reserve requirements for insurance companies, or the ability of our insurance subsidiaries to make cash distributions to us (including dividends or payments on surplus notes those insurance subsidiaries issue to us); +• the impact of fiduciary standards on us and on our products, distribution and business model; +• changes in the federal income tax laws and regulations which may affect the relative income tax advantages of our products; +• changes in tax laws which affect us and/or our shareholders; +• the impact on our business of new accounting rules or changes to existing accounting rules; +• our potential need and our insurance subsidiaries’ potential need for additional capital to maintain our and their financial strength and credit ratings and meet other requirements and obligations; +• our ability to successfully acquire new companies or businesses and integrate such acquisitions into our existing framework; +• the impact of potential litigation, including class action litigation; +• our ability to protect our intellectual property; +• our ability to maintain effective internal controls over financial reporting; +• the impact of restrictions in our debt instruments on its ability to operate its business, finance its capital needs or pursue or expand its business strategies; +• our ability and our insurance subsidiaries’ ability to maintain or improve financial strength ratings; +• the performance of third parties including third-party administrators, investment managers, independent distributors, underwriters, actuarial consultants and other outsourcing relationships; +• the loss of key personnel; +• interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems; +• security breaches or other disruptions in our information technology infrastructure; +• our exposure to unidentified or unanticipated risk not adequately addressed by our risk management policies and procedures; +• the impact on our business of natural and man-made catastrophes, pandemics, and malicious and terrorist acts; +• our ability to compete in a highly competitive industry; +• our ability to attract and retain national marketing organizations and independent agents; +• our subsidiaries’ ability to pay dividends to us; and +• the other factors discussed in “Risk Factors” of this Annual Report on Form 10-K +Consequently, any forward-looking statements should be regarded solely as F&G’s current plans, estimates and beliefs and are based on management’s beliefs and assumptions about the businesses in which F&G competes, global and domestic economic conditions and other factors. F&G does not intend, and will not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances or changed assumptions after the date of such statements. +You should review carefully the section captioned “Risk Factors” in this Annual Report on Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. +5 +Risk Factor Summary +Risks Related to Our Business +• Our debt instruments may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. +• Our ability to grow depends in large part upon the continued availability of capital. +• A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition. +• We may face losses if our actual experience differs significantly from our reserving assumptions. +• Our valuation of investments and the determinations of the amounts of allowances and impairments taken on our investments may include methodologies, estimates and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect our results of operations and financial condition. +• Change in our evaluation of the recoverability of our deferred tax assets could materially adversely affect our results of operations and financial condition. +• We have recorded goodwill as a result of past acquisitions, and adverse events affecting the value of our reporting unit could cause the balance to become impaired, requiring write-downs that would reduce our operating income. +• If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced. +• We operate in a highly competitive industry, which could limit our ability to gain or maintain our position in the industry and could materially adversely affect our business, financial condition and results of operations. +• Concentration in certain states for the distribution of our products may subject us to losses attributable to economic downturns or catastrophes in those states. +• Concentration in one or more of our products may subject us to greater volatility of sales if such products experienced a significant decrease in sales. +• We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options. +• Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships. +• The loss of key personnel could negatively affect our financial results and impair our ability to implement our business strategy. +• Our risk management policies and procedures may not capture unidentified or unanticipated risk, which could negatively affect our business or result in losses. +• F&G has a subsidiary focused on acquiring minority and/or majority ownership in indexed universal life and annuity Independent Marketing Organizations (“IMO”). While these acquisitions are intended to diversify our earnings, they present several risks that could adversely affect our business, financial condition and operating results. +• Interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems, including as a result of human error, could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and impairment of our ability to conduct business effectively. +• Security breaches like the June 2023 MOVEit incident and other disruptions to our information technology infrastructure could compromise Company, consumer and customer information, interfere with our operations, cause us to incur significant costs for remediation and enhancement of our IT systems and +6 +expose us to legal liability, all of which could have a substantial negative impact on our business and reputation. +• Advancements in Artificial Intelligence, Machine Learning, and Large Language Models (“AI/ML/LLM”) pose risks and challenges. +• The new and emerging types of AI and their uses are very early stage in the industry and may be subject to many uncertain future developments and regulations. +• We rely on our investment management advisory agreements (“IMA”) with Blackstone ISG-I Advisors LLC (“BIS”) and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios. +• We have a long-term contractual relationship with BIS that limits our ability to terminate this relationship or retain another investment manager without BIS’s consent. +• The historical performance of BIS, or any other asset manager we engage, should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our common stock. +• Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact the reputation of our business. +Risks Related to Economic Conditions and Market Conditions +• Conditions in the economy generally could adversely affect our business, results of operations and financial condition. +• Our investments are subject to geopolitical risk. The geopolitical events such as the on-going conflicts in Russia, Ukraine and the Middle East may adversely affect our business, financial condition, results of operations and cash flows. +• Changes in trade policies, tariffs, or global economic conditions could materially affect our business and financial results. +• Our investments are subject to market risks that could be heightened during periods of extreme volatility or disruption in financial and credit markets. +• Our investments are subject to credit risks of the underlying issuer, borrower, or physical collateral which can change over time with the credit cycle. +• Interest rate fluctuations could adversely affect our business, financial condition, liquidity and results of operations. +• Equity market volatility could negatively impact our business. +• We are exposed to liquidity risk as a result of our other risks. +• Our business could be materially and adversely affected by the occurrence of a catastrophe, including natural or man-made disasters. +• Our business is subject to risk due to our owned distribution strategy and investments in distribution consolidators. +Legal, Regulatory and Tax Risks +• Our business is highly regulated and subject to numerous legal restrictions and regulations. +• Our business is subject to government regulation in each of the jurisdictions in which we conduct business and regulators have broad administrative and discretionary authority over our business and business practices. +• Risks associated with a shutdown of the United States Government. +• Our business in the United States is regulated by the National Association of Insurance Commissioners (“NAIC”), which continues to consider reforms including relating to cybersecurity regulations, best interest standards, risk-based capital (“RBC”) and life insurance reserves. +7 +• Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business. +• Changes to regulations under ERISA could adversely affect the Company by increasing the Company’s regulatory and compliance burden. +• Our regulation in Bermuda and the Cayman Islands may limit or curtail our activities, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services. +• The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete. +• The amount of statutory capital that our insurance subsidiaries have and the amount of statutory capital that they must hold to maintain their financial strength ratings and meet other requirements can vary significantly from time to time due to a number of factors outside of our control. +• New accounting rules or changes to existing accounting standards could adversely impact our reported results of operations. +• Changes in federal or state tax laws may affect sales of our products and profitability. +• Changes in tax law may increase our future tax liabilities and related compliance costs. +• The redemption of our preferred stock may require a significant amount of cash and may result in adverse tax consequences. +• We may be the target of future litigation, law enforcement investigations or increased scrutiny which may negatively affect our operations or financial strength or reduce profitability. +• We may not be able to protect our intellectual property and may be subject to infringement claims. +• Changing rules, public disclosure regulations and stakeholder expectations on environmental, social and corporate governance (“ESG”) related matters create a variety of risks for our business. +Risks Relating to Our Indebtedness and Financing +• We are a holding company and depend on distributions from our subsidiaries for cash. +Risks Related to the Separation and Distribution and our Status as a Subsidiary of Fidelity National Financial, Inc. (“FNF”) +• Although we have past history of operating as a public company, our historical financial information and summary historical financial information are not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. +• FNF is our principal shareholder and retains significant rights with respect to our governance and certain corporate actions. In certain cases, FNF may have interests which differ from our other shareholders. +• Certain of our directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions. +• Provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock. +• We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. +• FNF or F&G may fail to perform under various transaction agreements that were executed as part of the separation and distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +• In connection with the separation and distribution, FNF has agreed to indemnify us for certain liabilities and we have agreed to indemnify FNF for certain liabilities. If we are required to pay under these indemnities to FNF, our financial results could be negatively impacted. FNF’s indemnification of us may not be sufficient to hold us harmless from the full amount of all liabilities that will be allocated to us, and FNF may not be able to satisfy its indemnification obligations in the future. +8 +• We may have received better terms from unaffiliated third parties than the terms we received in our agreements with FNF. +• Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, which is presumed to exist if a person owns, directly or indirectly, 10% or more of the voting securities of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Persons considering an investment in our common stock should take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such laws in light of their particular circumstances. +• Our amended and restated bylaws contain an exclusive forum provision that could limit our shareholders’ ability to choose a judicial forum that they find favorable for certain disputes with us or our directors, officers, shareholders, employees or agents, and may discourage lawsuits with respect to such claims. +• We and certain of our subsidiaries file consolidated federal income tax returns with FNF. +Risks Related to Our Common Stock and Preferred Stock +• Our stock price may fluctuate significantly. +• If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our investors may lose confidence in the accuracy and completeness of our financial reports, which could adversely affect our stock price. +• Our common stock is subordinated to our preferred stock. +• Substantial sales of our common stock may occur which could cause our stock price to be volatile and to decline. +• We cannot guarantee the timing, amount or payment of dividends on our common stock or preferred stock in the future. +• Your percentage of ownership in F&G may be diluted in the future. +9 +Part I +Item 1. Business +Overview +Founded in 1959, F&G is a leading provider of insurance solutions serving retail annuity and life customers as well as institutional clients. Our mission is to help people turn their aspirations into reality. As of December 31, 2025, F&G has approximately 778,000 policyholders who count on the safety and protection of our fixed annuity and life insurance products. We also serve approximately 145,000 plan participants who will receive their pension payments from F&G through our pension risk transfer solutions. +Through our insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), we market a broad portfolio of annuities, including fixed indexed annuities (“FIAs”), registered index-linked annuities (“RILAs”), (together referred to as “indexed annuities”), multi-year guarantee annuities (“MYGAs”) as well as pension risk transfer (“PRT”) solutions, indexed universal life (“IUL”) insurance and institutional funding agreements. +On June 1, 2020, F&G was acquired by Fidelity National Financial, Inc. (“FNF”). We have benefited from financial strength ratings upgrades since the acquisition; S&P and Fitch upgraded to A- in June 2020, Moody’s upgraded to A3 in July 2023, and A.M. Best upgraded to A in January 2024. These upgrades are valued by our distribution partners and positioned us to quickly expand our business in our existing channels and gain access to new markets. Gross sales increased from $4.5 billion for the full year 2020 to $14.6 billion in 2025. With our success in expanding distribution under FNF’s ownership, we have grown assets under management (“AUM”) from $26.5 billion at the time of acquisition to $57.6 billion as of December 31, 2025. We now operate in and source significant premiums from three distinct retail channels and two institutional markets versus a single channel prior to the acquisition by FNF in June 2020. For a discussion of the five distinct channels, see “ We Play in Large and Growing Markets” and “ Our Retail Distribution Channels” within this section of the Annual Report on Form 10-K. +We believe the strength of our balance sheet provides confidence to our policyholders and business partners and positions us for continued growth. Our investment portfolio is diversified, well positioned and high quality. As of December 31, 2025, 96% of our fixed maturity securities were rated under criteria of the NAIC as NAIC 1 or NAIC 2, the two highest credit rating designations of the NAIC. These assets are managed against what we believe to be prudently underwritten liabilities. We have inforce liabilities of $56.8 billion at December 31, 2025, with a liability duration of approximately 5 years, well matched to our assets. For the year ended December 31, 2025, net earnings attributable to F&G totaled $265 million, we produced adjusted net earnings attributable to F&G common shareholders of $482 million, and we had an adjusted return on assets attributable to F&G common shareholders (“ROA”) of 87 basis points. Adjusted net earnings attributable to F&G common shareholders for the year ended December 31, 2025 included income from a $16 million reinsurance true-up adjustment, $10 million tax valuation allowance benefit, and $4 million of actuarial reserve release. Investment income from alternative investments was $278 million below management’s long-term expected return of approximately 10%. +We are uniquely positioned in the industry with a profitabl e and growing $56.8 billio n inforce block. We generate spread-based earnings from fixed annuities and pension risk transfer and we have multiple sources of fee-based earnings with the reinsurance sidecar vehicle launched in August 2025 alongside our flow reinsurance, middle market life insurance and well performing owned distribution portfolio. As our business grows, we are becoming a more fee-based, higher margin and capital light business, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. We are balancing this with continuing to grow our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. +As of December 31, 2025 , we had $4.8 billion of total F&G equity and $6.0 billion of total F&G common shareholders’ equity excluding accumulated other comprehensive income (loss) (“AOCI”). FGL Insurance’s estimated U.S. RBC ratio was approximately 430% a s of December 31, 2025, as compared to 410% and 451% as of December 31, 2024 and December 31, 2023, respectively. FGL Insurance expects to maintain its U.S. risk-based capital (“RBC”) ratio at or above our target of 400%. +10 +F&G Dividend Distributions +On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G (the “separation and distribution”). The purpose of the separation and distribution was to enhance and more fully recognize the overall market value of each company. +Additionally, on December 31, 2025, FNF distributed, on a pro rata basis, approximately 12% of the outstanding shares of F&G common stock. Following the distribution, FNF retained approximately 70% ownership of F&G and the public float of F&G increased to approximately 30%. +For additional information about risks to F&G related to our status as a subsidiary of FNF, please see “Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF.” +Our Strategy +Through a diversified growth strategy, F&G has delivered a compound annual growth rate in AUM of 17% for the six-year period 2019 to 2025 and, more recently, an annual increase in AUM of 7% as of December 31, 2025 compared to the year ended December 31, 2024. Since 2019, we have expanded our business in our traditional channel and entered new markets. +Leveraging our position as one of the industry’s largest sellers of annuities and life insurance, F&G is transforming into a more fee-based, higher margin and less capital-intensive business, balanced with disciplined growth in our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. Through our strategic focus, we have made significant progress toward our medium term financial targets laid out at our October 2023 Investor Day to grow assets and expand returns. Our strategy is underpinned by the following key areas of focus: +• Targeting large, growing markets. As a nationwide leader, F&G is strategically positioned within large, growing markets, benefiting from powerful demographic trends that are fueling sustainable demand for guaranteed income solutions. Our disciplined focus on core products – including indexed annuities, middle market life insurance, and pension risk transfer – will continue to drive AUM growth with attractive and stable liabilities. The market for our core annuity products is substantial, driven by increasing demand for safety and certainty in retirement planning. Our life insurance products strategically target the underserved middle market, offering solutions tailored to diverse cultural communities. And as corporations continue to de-risk their pension funds, our pension risk transfer solutions provide guaranteed lifetime benefits to pension-holders. Finally, our funding agreements continue to generate strong interest from institutional investors. +• Evolved ecosystem and sustainable advantage. Our business model gives us a sustainable competitive advantage. Our evolved ecosystem is built on expanding relationships with key long-term distribution partners, a differentiated asset management approach powered by Blackstone's best-in-class asset origination with a proven track record and complemented by other asset managers, and strategic relationships with reinsurers that provide efficient access to substantial external capital. +• Proven track record; well positioned for steady earnings growth and capital flexibility. We have successfully executed on our diversified growth strategy, maintained a strong capital position and made significant progress toward our 2023 Investor Day targets. We are positioned to deliver steady earnings growth aligned to pricing over the long term, significant scale benefit and an increasing mix of more stable, predictable and less capital intensive fee-based sources of earnings. +• Strategic shift to fee-based, less capital intensive for enhanced returns. F&G is rapidly transforming into a more fee-based, higher margin and less capital intensive business. Increased earnings contributions from fee-based flow reinsurance, middle market life insurance and owned distribution strategies, coupled with disciplined growth in our spread-based products, are expected to generate higher returns over time. +11 +Our Competitive Advantages +Our business model is strong and positions us to capitalize on the growth prospects in our addressable markets. +• Trusted by distributors. We have long-standing relationships with a broad range of distributors representing nearly 187,000 independent agents and financial advisors, and built on our reputation for transparency and a consistently competitive product portfolio. We offer fixed annuities and life insurance products through a network of approximately 26 leading banks and broker-dealers and approximately 300 Independent Marketing Organizations (“IMO”) that provide back-office support for thousands of independent insurance agents. +• Winning in high-growth markets. The U.S. retirement and middle markets are growing, and we are both well-established and well-positioned for continued growth. Our strategic alignment with our distribution partners allows us to reach a diverse, growing and underserved middle market demographic in both our retail and institutional channels. +• Differentiated asset management approach. We have a differentiated asset management approach powered by Blackstone's best-in-class asset origination with a proven track record and complemented by other asset managers. Our liability profile and risk appetite drives our investment strategy. F&G’s investment and risk offices set strategic asset allocation and risk limits. Blackstone is responsible for idea generation and security selection. Blackstone’s capabilities expand our investment universe to new asset classes and their origination capabilities provide incremental spread. Our high quality, diversified investment portfolio is well positioned to withstand macroeconomic headwinds and continues to perform well. We have enhanced the return while improving the credit quality of our portfolio, and credit related impairments remain low, averaging 6 basis points over the past 5 years, below our pricing assumptions. +• Clean and profitable inforce book. As a life insurer, we generate spread earnings based on our assets under management and over the lifetime of the liabilities in place. Our disciplined new business underwriting process provides us with stable liabilities, primarily in products that reset annually, which has allowed us to achieve consistently attractive lifetime returns. Approximately 93% of our $36.1 billion indexed annuities and fixed rate annuities account value are surrender-charge protected and our asset and liability cash flows are well matched. Additionally, our funding agreements, pension risk transfer and immediate annuities are non-surrenderable. +• Track record of attracting top talent. F&G’s management team and over 1,100 employees have a record of long-term success and have delivered impressive results in the last few years. Our commitment to our cultural values is the cornerstone of our success, whereby F&G is a company of individuals who believe in the power of partnerships, encourage innovation and creativity, and are transparent about decisions while delivering on their commitments. This is borne out by consistently being recognized as an employer of choice as well as an involuntary turnover rate that is well below that of other financial services companies. We believe our flexible, employee-centric work approach positions us as an employer of choice. +• Clear governance structure. We have a disciplined approach for considering new lines of business to enter, the appropriate product/channel mix for achieving our targeted new business profitability, and the management of our capital and inforce liabilities. Further, we target and pursue opportunities that leverage our strengths. +We Play in Large and Growing Markets +We serve a market with very attractive demographic tailwinds as more than 11,000 Americans are turning 65 every day according to the U.S. Census Bureau. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last approximately 30 years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth and principal protection, as an alternative to the traditional 60/40 investment portfolio. +The U.S. retirement market opportunity is vast and includes $5.8 trillion of mutual fund 401(k) assets, $800 billion of U.S. consumer savings and the $447 billion retail life and annuities market. While insured products are +12 +designed to effectively serve the needs of retirees, annuities and life insurance solutions continue to be underutilized. We believe middle market consumers, in particular, lack the guidance they need and want and can benefit greatly from insurance solutions. +Retail. Until recently, F&G distributed our flagship annuity and life insurance products solely through our longstanding IMO relationships. In mid-2020, we expanded into the bank and broker-dealer channels to broaden our reach and capture share of the personal savings and CDs markets. Our entry into these channels was successful, resulting in $19.9 billion of cumulative new business since the launch in 2020 to year-end 2025. Annuity sales through the bank and broker-dealer channels were $3.8 billion and $5 billion for the years ended December 31, 2025 and 2024, respectively. The approximate 26 banks and broker-dealers we work with account for 36% of all annuity sales. In these retail markets F&G ranks: (i) 5th and 10th in FIA sales in the IMO and bank channels and 6th in FIA industry sales; (ii) 9th and 7th in MYGA sales in the broker-dealer and bank channels and 11th in MYGA industry sales; and (iii) 5th in IUL sales in the IMO channel, 8th in the number of IUL policies sold and 7th in IUL industry sales, in each case, for the year to date as of September 30, 2025, as sourced from Wink’s Sales and Market Report. +We successfully expanded into new retail channels and diversified our annuity distribution, while continuing to leverage our traditional IMO channel. Our IMO channel sales were $6.9 billion and $7.0 billion for the years ended December 31, 2025 and December 31, 2024, respectively. +We continue to invest in our life insurance business, focusing our approach to meet the needs of the underserved middle market which we reach largely through Network Marketing Groups (“NMGs”). The middle market segment was the largest in 2025, at 45% of households. NMGs are unique and growing, recruiting members of diverse communities for careers in insurance and penetrating cultural segments. NMGs have proven to be one of our most cost-efficient distribution channels, in large part because they tend to work with a smaller number of strategic product providers. This has allowed us to build deep and lasting relationships with both the NMGs and the agents. Since 2019, largely due to our NMG strategy, F&G’s IUL sales growth has far outpaced the industry, with a three-year combined annual growth rate of 24% compared to the industry’s 7%. F&G’s growth rate in IUL has consistently placed us in the top 10 IUL sales ranking since 2021. Untapped opportunities remain in this channel, particularly among younger and more diverse demographics. In the United States, 42% of adults reported a need for life insurance or more coverage, which equates to approximately 102 million adults with a life insurance gap. Hispanics, the second largest ethnic group behind Caucasians, have the largest uninsured population among adults at 40% representing significant opportunity for us to serve this market. +Owned Distribution. Our owned distribution strategy provides a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. We have invested approximately $700 million in owned distribution partners through the following transactions: +• In October 2021, we purchased a 30% minority ownership stake in Freedom Equity Group (“FEG”). FEG is a nearly 4,000 agent strong NMG that focuses on cultural markets including Mexican-American, Hmong, Laotian, Filipino, Burmese, Congolese-American, Samoan, African-American, Thai and Vietnamese. +• In January 2023, we purchased a 49% minority ownership stake in Syncis Holdings, LLC, an NMG. Syncis is an approximately 1,200 agent NMG that focuses on cultural markets including Korean, African-American, and Persian. +• In June 2023, we purchased a 40% minority ownership stake in DCMT Worldwide, LLC (“DCMT”), who distributes life insurance and annuity products through a network of over 1,000 agents. +• In January 2024, we purchased a 70% majority ownership stake in Roar Joint Venture, LLC (“Roar”), a wholesaler of annuities and life insurance products to financial institutions and the broker-dealer community. +• In July 2024, we acquired a 100% ownership stake in PALH, LLC (“PALH”), who owns a 100% ownership stake in an operating company. PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. +13 +Institutional . In 2021, F&G entered two institutional business lines to further diversify our sources of revenue. Our competitive asset management advantage through Blackstone allows us to have very competitive offerings in our spread lending products as well as in the PRT market, while still meeting our internal pricing targets. +• In addition to our funding agreement business with the Federal Home Loan Bank of Atlanta, (“FHLB”), we originate Funding Agreement Backed Notes (“FABN”), a $276 billion market. Our FABN Program (the “FABN Program”) offers funding agreements to institutional clients by means of capital markets transactions through investment banks. We view FABN as opportunistic and volumes will fluctuate quarter to quarter depending on economics and market opportunity. We issued $1.2 billion and $0.6 billion of FABN for the years ended December 31, 2025 and 2024 respectively. +• We also offer PRT solutions to a $45 billion (of $3 trillion total private defined benefit plan assets) market. Our PRT business is supported by an experienced team with access to brokers and institutional consultants for distribution. We have generated almost $9 billion of cumulative sales since launch in 2021 to year-end 2025, including $2.1 billion and $2.2 billion of sales for the years ended December 31, 2025 and 2024. We serve over 145,000 plan participants, who will receive their pension payments from F&G. Our targeted deal size is up to $500 million, and we selectively pursue plan termination and larger retiree buyouts. We expect our opportunity to continue to grow as employers shift away from traditional defined benefit pension plans and seek to de-risk frozen pension plans. In the pension risk transfer market, F&G ranked 7th in the PRT industry sales for year to date sales through September 30, 2025, as sourced from the Life Insurance Marketing and Research Association. +We Have Meaningfully Diversified Our Business +With the addition of the retail bank and broker-dealer channels and our success in the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to five, and from one primary product to six. We completed this expansion over a five-year period and, combined with organic growth in our core IMO channel, increased gross sales by 274%, from $3.9 billion in 2019 to $14.6 billion in 2025. +We generate spread-based earnings from fixed annuities and pension risk transfer and we have multiple sources of fee-based earnings including the reinsurance sidecar vehicle alongside our flow reinsurance strategy, middle market life insurance and our owned distribution portfolio. As our business grows, we are becoming a more fee-based, higher margin and less capital intensive business, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. We are balancing this with continuing to grow our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. +We have acquired and retained customers through the years, growing AUM from $26.5 billion at the time of FNF’s acquisition to $57.6 billion as of December 31, 2025. Profitable growth in AUM is the most important driver of F&G’s earnings and our ability to return capital to shareholders. +Our Financial Goals +Our competitive advantages – product and channel diversification, as well as our strategic partnership with Blackstone – enable us to address a greater share of the markets in which we play. Further, the strength of our distribution partner relationships and pension risk transfer growth strategy has enabled the Company to achieve profitable sales growth. We have made significant progress toward the medium term financial targets we laid out at our 2023 Investor Day to grow AUM, expand adjusted ROA, increase adjusted ROE, and expand our earnings multiple. We are well positioned to deliver on our targets as we move further toward a more fee-based, higher margin, and less capital intensive business model, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. +14 +The Products We Offer +F&G’s expertise in annuities, life insurance, pension risk transfer solutions and funding agreements will allow us to continue to introduce innovative products and solutions designed to meet customers’ changing needs. We work hand-in-hand with our distributors and institutional advisors to devise the most suitable solutions for the ever-changing market. Our retail annuities serve as a retirement and savings tool on which our customers rely for principal protection and predictable income streams. In addition, our life insurance products provide our customers with a complementary product that allows them to build on their savings and provide a payment to their designated beneficiaries upon the policyholder’s death. Our most popular products are FIAs that tie contractual returns to specific market indices, such as the S&P 500 Index. Our customers value our FIAs, which provide a portion of the gains of an underlying market index, while also providing principal protection. We believe this principal protection fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their savings. As noted above, in 2021, we launched into two institutional markets to originate FABN and PRT transactions. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone. +We view our products in two categories: “core” and “opportunistic”. Our “core” products include fixed indexed annuities, registered index-linked annuities, pension risk transfer and indexed universal life. Our “opportunistic” products include multi-year guaranteed annuities, FABN and Federal Home Loan Bank funding agreements. Opportunistic sales fluctuate quarter to quarter depending on economics and market opportunity, and we prioritize pricing discipline and allocate capital to the highest return opportunities. +For the year ended December 31, 2025, FIAs generated approximately 46% of our gross sales. The remaining 54% of sales were primarily generated from fixed rate annuities (26%), PRT sales (15%), funding agreements (12%) and IUL (1%). We invest the proceeds primarily in fixed income securities. We also use options and futures that hedge the index credit of our FIA and IUL liabilities by replicating the market index returns to our policyholders. We invest in options on indices such as the S&P 500 Index. The majority of our products allow for active management to achieve targeted lifetime returns. In addition, our annuity contracts generally either cannot be surrendered or include surrender charges that discourage early redemptions. +Annuities. Through F&G’s insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), immediate annuities, and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically pays principal and earnings in equal payments over some period of time. +Deferred Annuities – FIAs . Our FIAs allow contract owners the possibility of earning returns linked to the performance of a specified market index, such as the S&P 500 Index, while providing principal protection. The contract owners typically make a single deposit into our deferred annuities. The contracts include a provision for a minimum guaranteed surrender value calculated in accordance with applicable law. A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. All FIA products allow policyholders to allocate funds once a year among several different crediting strategies, including one or more index-based strategies and a traditional fixed rate strategy. Surrender charges apply for early withdrawal, typically for seven to fourteen years after purchase. +We purchase derivatives consisting predominantly of over-the-counter options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the applicable policy such as the S&P 500 Index. These derivatives are used to fund the index credits due to policyholders under the FIA and IUL contracts based upon policyholders’ contract elections. The down-side risk to F&G is limited to the cost of the options because if the value of the options decreases there is no index credit. The cost of the hedge is included in the pricing of the product and can be reset on an annual basis for each policy based on market conditions. The majority of all +15 +such equity options are one-year options purchased to match the funding requirements underlying the FIA/IUL contracts. On the anniversary dates of the FIA/IUL contracts, the market index used to compute the annual index credit under the contracts is reset. At such time, we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums on each contract’s anniversary date. The change in the fair value of the options and futures contracts is generally designed to offset the equity market related change in the fair value of the FIA/IUL contract’s related reserve liability. The options and futures contracts are marked to fair value with the change in fair value included as a component of “Recognized gains and (losses), net” in our Consolidated Statements of Operations. The change in fair value of the options and futures contracts includes the gains and losses recognized at the expiration of the instrument’s term or upon early termination and the changes in fair value of open positions. Generally accepted accounting principles (“GAAP”) accounting of the reserve liability for products with embedded derivatives such as FIA creates additional volatility beyond the accounting for the options and the futures. +The contractholder account value of a FIA contract is equal to the sum of deposits paid, premium bonuses, if any, (described below), and index credits based on the change in the relevant market index (subject to a cap, spread and/or a participation rate) less any fees for riders and any withdrawals taken to-date. Caps (a maximum rate that may be credited) generally range from 1% to 10% when measured annually and 1% to 3% when measured monthly, spreads (a credited rate determined by deducting a specific rate from the index return) generally range from 1% to 3% when measured annually, and participation rates (a credited rate equal to a percentage of index return) generally range from 50% to 250% of the performance of the applicable market index. The cap, spread and participation rate can typically be reset annually and in some instances every two to five years. Certain riders provide a variety of benefits, such as the ability to increase their cap, lifetime income or additional liquidity for a set fee. As this fee is fixed, the contract holder may lose principal if the index credits received do not exceed the amount of such fee. +Approximately 39% of the FIA sales for the year ended December 31, 2025, involved premium bonuses or vesting bonuses. Premium bonuses increase the initial annuity deposit by a specified rate of 2%. The vesting bonuses, which range from 3% to 17%, increase the initial annuity deposit liability but are subject to adjustment for unvested amounts in the event of surrender by the policyholder prior to the end of the vesting period. We made compensating adjustments in the commission paid to the agent or the surrender charges on the policy to offset the premium bonus. +Approximately 77% of our FIA contracts were issued with a guaranteed minimum withdrawal benefit (“GMWB”) rider for the year ended December 31, 2025. With this rider, a contract owner can elect to receive guaranteed payments for life from the FIA contract without requiring the owner to annuitize the FIA contract value. The amount of the income benefit available is determined by the growth in the policy’s benefit base value as defined in the FIA contract rider. Typically, this accumulates for 10 years based on a guaranteed rate of 3% to 10%. Guaranteed withdrawal payments may be stopped and restarted at the election of the contract owner. Some of the FIA contract riders that we offer include an additional death benefit or an increase in benefit amounts under chronic health conditions. Rider fees range from 0% to 1%. Unlike a variable annuity, policyholder values do not decline with market movements. +Deferred Annuities – Fixed Rate Annuities . Fixed rate annuities are typically single deposit contracts and include annual reset and multi-year rate guaranteed policies. Fixed rate annual reset annuities issued by us have an annual interest rate (the “crediting rate”) that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting rate once annually to any rate at or above a guaranteed minimum rate. MYGAs are similar to fixed rate annual reset annuities except that the initial crediting rate is guaranteed for a specified number of years before it may be changed at our discretion. As of December 31, 2025, crediting rates on outstanding (i) single-year guaranteed annuities generally ranged from 2% to 6% and (ii) MYGA ranged from 1% to 6%. The average crediting rate on all outstanding fixed rate annuities at December 31, 2025 was 5%. +Deferred Annuities - RILA – In early 2024, we entered into the RILA markets. RILAs are similar to FIAs in offering the policyholder the opportunity for tax-deferred growth based in part on the performance of a market +16 +index. Compared to a FIA, RILAs have the potential for higher returns but also have the potential for risk of loss to principal and related earnings. RILAs provide the ability for the policyholder to participate in the positive performance of certain market indices during a term, limited by a cap or adjusted for a participation rate. Negative performance of the market indices during a term can result in negative policyholder returns, with downside protection typically provided in the form of either a “buffer” or a “floor” to limit the policyholder’s exposure to market loss. A “buffer” is protection from negative exposure up to a certain percentage, typically 10 or 20 percent. A “floor” is protection from negative exposure less than a stated percentage (i.e., the policyholder risks exposure of loss up to the “floor,” but is protected against any loss in excess of this amount). +Withdrawal Options for Deferred Annuities. After the first year following the issuance of a deferred annuity, policy holders of deferred annuities are typically permitted penalty-free withdrawals up to a contractually specified amount. The penalty-free withdrawal amount is typically 10% of the prior year account value for FIAs and is typically up to accumulated interest for fixed rate annuities, subject to certain restrictions. Withdrawals in excess of allowable penalty-free amounts are assessed a surrender charge if such withdrawals are made during the penalty period of the deferred annuity policy. The penalty period typically ranges from seven to fourteen years for FIAs and three to ten years for fixed rate annuities. This surrender charge initially ranges from 7% to 15% of the contract value for FIAs and is approximately 9% of the contract value for fixed rate annuities and generally decreases by approximately one to two percentage points per year during the penalty period. The average surrender charge was 7% for our FIAs and 7% for our fixed rate annuities as of December 31, 2025. A market value adjustment (“MVA”) will also apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on a formula that accounts for changes in interest rates since contract issuance. Generally, if interest rates have risen, the MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. MVAs are included on all policies, if allowed (for FIAs since 2015 and for a longer time for fixed rate annuities). At December 31, 2025, approximately 83% of our business included an MVA feature. +The following table summarizes our deferred annuity account values and surrender charge protection as of December 31, 2025 (dollars in millions): +SURRENDER CHARGE EXPIRATION BY YEAR Fixed Rate and Indexed Annuities Account Value Percent of Total Weighted Average Surrender Charge +Out of surrender charge $ 2,637 7 % — % +2025 2,166 6 4 % +2026-2028 8,774 24 6 % +2029-2030 6,367 18 7 % +2031-2032 6,763 19 8 % +Thereafter 9,402 26 11 % +Total $ 36,109 100 % 7 % +Subsequent to the penalty period, the policyholder may elect to take the proceeds of the surrender either in a single payment or in a series of payments over the life of the policyholder or for a fixed number of years (or a combination of these payment options). In addition to the foregoing withdrawal rights, policyholders may also elect to have additional withdrawal benefits by purchasing a GMWB. +Single Premium Immediate Annuities . We have previously sold single premium immediate annuities (“SPIA”), which provide a series of periodic payments for a fixed period of time or for the life of the policyholder, according to the policyholder’s choice at the time of issue. The amounts, frequency and length of time of the payments are fixed at the outset of the annuity contract. SPIAs are often purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years. Existing policyholders may elect to surrender their contract and use the proceeds to purchase a supplementary contract which functions as a SPIA. +Life Insurance. We currently offer IUL insurance policies and have previously sold universal life, term and whole life insurance products. Holders of universal life insurance policies may make periodic payments over the life of the contract and earn returns on their policies, which are credited to the policyholder’s cash value account. The +17 +insurer periodically deducts its expenses and the cost of life insurance protection from the cash value account. The balance of the cash value account is credited interest at a fixed rate or returns based on the performance of a market index, or both, at the option of the policyholder, using a method similar to that described above for FIAs. In addition to the annual renewal premium, we are diversifying earnings through strong growth in our middle market life insurance business. +Funding Agreements. As defined by the Iowa Insurance Division (“IID”), a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers are agreeing to a defined stream of future payments in exchange for a single upfront premium. This type of business is sometimes referred to as spread lending, as funding agreement providers invest upfront premiums with the intent to earn an investment spread on the funds prior to making agreed upon maturity and interest payments. The structure of the payments can take several forms but are commonly a fixed or variable interest payment with a single maturity principal re-payment. +F&G currently utilizes two forms of funding agreement offerings. The first is through the issuance of collateralized funding agreements with the FHLB. This enables spread-based income without longevity or mortality exposure given the certainty in liability profile. Funding agreements through the FHLB are flexible in their format and the ability to issue during broad windows, as long as sufficient eligible collateral has been deposited with the bank. F&G and its predecessors have been entering into funding agreements with the FHLB since at least 2004. +In June 2021, we established a FABN Program, which is a medium term note program under which funding agreements are issued to a special-purpose trust that issues marketable notes. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors. These FABN offerings are more limited regarding timing of issuance, but do not require collateralization as with the FHLB. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is currently $5.0 billion. As of December 31, 2025, we had approximately $3.3 billion outstanding under the FABN Program with an additional $750 million issued in January 2026. +Pension Risk Transfer. In July 2021, we entered the PRT market. A PRT occurs when a defined-benefit pension provider seeks to remove some or all of its obligation to pay guaranteed retirement income or post-retirement benefits to plan participants. There are four major types of PRT strategies: longevity reinsurance, buy-in, buy-out, and paying in lump sums. We are currently active in plan buy-outs, where we have a direct, irrevocable commitment to each covered participant to make the specified annuity payments based upon the terms of the pension plan. Plan buy-out transactions fully and permanently transfer all investment, mortality, and administrative risk, associated with covered benefits, from the pension plan sponsor to the insurance provider. +Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. These products primarily create earnings through spread income. In each transaction FGL Insurance and/or FGL NY Insurance issues a group annuity contract to discharge pension plan liabilities from a pension plan sponsor, either through a separate account or through a general account guarantee. Certificate holders covered under a group annuity contract have a guaranteed benefit from the insurance company. +Our PRT solutions business is supported by a team of experienced professionals, and we partner with brokers and institutional consultants for distribution. As of December 31, 2025, we had completed cumulative PRT transactions that represented pension obligations of $9.1 billion. +Reinsurance philosophy/arrangements. Our insurance subsidiaries cede insurance to other insurance companies. We use reinsurance to diversify risks and earnings, to manage loss exposures, to enhance our capital position, and to manage new business volume. The effects of certain reinsurance agreements are not accounted for as reinsurance as they do not reinsure insurance contracts, or they do not transfer the risks of the reinsured policies. +18 +In instances where we are the ceding company, we pay a premium to a reinsurer in exchange for the reinsurer assuming a portion of our liabilities under the policies we issued and collect expense allowances in return for our administration of the ceded policies. Use of reinsurance does not discharge our liability as the ceding company because we remain directly liable to our policyholders and are required to pay the full amount of our policy obligations in the event that our reinsurers fail to satisfy their obligations. We collect reimbursement from our reinsurers when we pay claims on policies that are reinsured. +We monitor the credit risk related to the ability of our reinsurers to honor their obligations under various agreements. To minimize the risk of credit loss on such contracts, we generally diversify our exposures among many reinsurers and limit the amount of exposure to each based on financial strength ratings, which are reviewed annually. We are able to further manage risk with various forms of collateral or collateral arrangements, including secured trusts, funds withheld arrangements and irrevocable letters of credit. +Please refer to Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further discussion on reinsurance, reinsurance recoverables for our largest reinsurers and credit risk and counterparty risk. +Please refer to “ Risk Factors - We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options” for additional details regarding credit risk related to reinsurance agreements. A description of significant ceded reinsurance transactions appears below. +Wilton Reinsurance Transaction . Almost all of the life insurance policies inforce issued before March 1, 2010, except for the return of premium benefits on term life insurance products, are subject to a reinsurance arrangement with Wilton Reassurance Company (“Wilton Re”). Pursuant to the agreed upon terms, Wilton Re purchased through a 100% quota share reinsurance agreement certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s inforce traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the agreement satisfies the risk transfer requirements for GAAP. +Hannover Reinsurance Transaction. Originally effective January 1, 2017, FGL Insurance has a reinsurance agreement with Hannover Life Reassurance Company of America, an unaffiliated reinsurer, to reinsure an inforce block of FGL Insurance’s FIA and fixed rate deferred annuity contracts with GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of secondary guarantee payments in excess of account value for GMWB and death benefits in excess of account value for GMDB guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL insurance applies the right of offset in the reinsurance agreement. +Kubera Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2025. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $435 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds +19 +withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2025 and December 31, 2024, the amount funded under the NPA was insignificant. +Kubera & Somerset Reinsurance Transactions. FGL Insurance entered into a reinsurance agreement with Kubera, effective December 31, 2018, to cede certain fixed rate annuity (including MYGA) GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset Reinsurance Ltd. (“Somerset”), a certified third-party reinsurer. Effective December 1, 2023, FGL Insurance executed an additional coinsurance funds withheld agreement with Somerset to cede certain flow MYGA business written effective on or after December 1, 2023. As the policies ceded to Somerset are investment contracts, there is no significant insurance risk present and these portions of the reinsurance agreements are accounted for as separate investment contracts. +Effective July 1, 2024, FGL Insurance amended the existing flow reinsurance agreement with Somerset to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis written on or after July 1, 2024. As the base contract benefits and GWMB riders are ceded to Somerset, there is sufficient insurance risk present that results in this portion of the reinsurance agreement being accounted for as reinsurance. +Everlake Reinsurance Transaction. Effective September 1, 2023, FGL Insurance executed a coinsurance agreement with Everlake Life Insurance Company (“Everlake”), an unaffiliated reinsurer to cede, on a quota share basis, certain flow MYGA business written effective on or after September 1, 2023. Effective January 1, 2025, FGL amended the flow reinsurance agreement to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. As the policies ceded to Everlake are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +Aspida Reinsurance Transactions. FGL Insurance has a reinsurance agreement with Aspida Life Re Ltd. (“Aspida Re”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after January 15, 2021. As the policies ceded to Aspida Re are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +FGL Insurance entered into a reinsurance agreement with Aspida Re Cayman Ltd. (“Aspida Re Cayman”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after November 1, 2025. As the policies ceded to Aspida Re Cayman are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +New Re Reinsurance Transaction. Effective December 31, 2022, FGL Insurance entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd., an unaffiliated reinsurer and wholly owned subsidiary of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (d/b/a “Munich Re”), to cede certain FIA policies. Effective July 1, 2023, this agreement was amended to reinsure additional FIA products. The coinsurance quota share is applicable to the base contract benefits under the FIA policies and the yearly renewable term is applicable to the waiver of surrender charges and return of premium. Effective October 1, 2025, this agreement was recaptured and terminated and FGL Insurance entered into a new indemnity reinsurance agreement with Munich Re to cede certain inforce and future flow FIA policies on a coinsurance basis, applicable to the base contract benefits, waiver of surrender charges, and minimum guaranteed surrender value benefits and for certain FIA policies, return of premium rider and minimum interest credit rider benefits. The effects of these agreements are not accounted for as reinsurance as they do not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreements. +20 +The CARVM Facility. Life insurance companies operating in the United States must calculate required reserves for life and annuity policies based on statutory principles. The insurance divisions have adopted the methodology contained in the NAIC Valuation Manual as the prescribed methodology for the insurance industry. The industry has reduced or eliminated redundancies thereby increasing capital using a variety of techniques including reserve facilities. +FGL Insurance has a reinsurance treaty with Raven Reinsurance Company (“Raven Re”), its wholly owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation Method (“CARVM”) liability for annuity benefits where surrender charges are waived related to certain FIA, deferred annuity and MYGA policies. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement with Nomura Bank International plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The financing facility has $150 million available to draw on as of December 31, 2025. The amended facility may terminate earlier than the current termination date of October 1, 2027, in accordance with the terms of the reimbursement agreement. Under the terms of the reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required to repay the amounts utilized, and F&G Annuities & Life, Inc. (“FGAL”) is obligated to repay the amounts utilized if Raven Re fails to make the required reimbursement. Under the terms of the agreement, FGAL is also required to make a capital contribution to Raven Re in certain circumstances, including in the event that Raven Re’s statutory capital and surplus falls below defined levels. As of December 31, 2025 and December 31, 2024, no capital contributions were required to be made due to these conditions. As this letter of credit is provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an admitted asset on the Raven Re statutory balance sheet. +GMWB/GWP Reinsurance Transaction . Effective December 31, 2023, FGL Insurance recaptured its reinsurance arrangement with Canada Life Assurance Company (“Canada Life”) United States Branch covering FIA policies with GMWB and guaranteed withdrawal payment (“GWP”) features and entered into a reinsurance treaty with Corbeau Re, Inc. (“Corbeau Re”), its wholly owned captive reinsurance company, to cede certain FIA policies with GMWB and GWP. In accordance with the terms of this agreement, FGL Insurance cedes a quota share of GMWB and GWP paid in excess of account value. In connection with the reinsurance agreement between FGL Insurance and Corbeau Re, Corbeau Re entered into an excess of loss reinsurance agreement (“XOL”) with Canada Life Barbados Branch to finance the portion of statutory reserves considered to be non-economic. The XOL matures on December 31, 2043, and provides for coverage on losses up to $2,400 million as of December 31, 2024. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. The XOL is not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. Under the terms of the agreement, FGAL is required to make a capital contribution to Corbeau Re in certain circumstances, including in the event that Corbeau Re’s statutory capital and surplus falls below defined levels. As of December 31, 2025, no capital contributions were required to be made due to these conditions. Corbeau Re is permitted to account for the excess of loss reinsurance agreement from Canada Life as an admitted asset on the Corbeau Re statutory balance sheet. +PRT Reinsurance Transaction . Effective October 1, 2023, FGL Insurance recaptured a reinsurance agreement with its affiliate F&G Life Re Ltd. (“F&G Life Re”), a Bermuda reinsurer, covering a quota share of certain pension risk transfer group annuity contracts and entered into an agreement with its affiliate F&G Cayman Re Ltd. (“F&G Cayman Re”), a Cayman Islands reinsurer, to reinsure a quota share of certain pension risk transfer group annuity contracts (previously ceded to F&G Life Re) in addition to flow pension risk transfer group annuity contracts. Some of the contracts reinsured are held by FGL Insurance’s general account and others are held by a FGL Insurance separate account (which does not meet the GAAP definition of a separate account). Reinsurance of the general account contracts are maintained on a coinsurance funds withheld basis for the general account statutory reserves. Reinsurance of the separate account contracts are maintained on a modified coinsurance basis for the separate account statutory reserves and coinsurance basis for the general account statutory reserves supporting the separate account. In connection with the agreement, F&G Cayman Re entered into a financing agreement with Deutsche Bank AG (“DB”), operating out of its New York branch, whereby DB issued a letter of credit used to support the coinsured general account statutory reserves (generally considered to be the non-economic reserves). +21 +IUL YRT Reinsurance: Effective January 1, 2025, F&G entered into separate flow reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain new IUL policies and effective July 1, 2025, F&G entered into additional separate reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain inforce IUL policies. In accordance with the terms of these agreements, F&G cedes the net amount at risk on the IUL policies, which is the difference between the stated death benefit and the contractholder funds balance, on a yearly renewable term basis. The effects of these agreements are accounted for as reinsurance as the ceded policies qualify as insurance products and the agreements satisfy the risk transfer requirements for GAAP. +New Reinsurance Vehicle: During the third quarter of 2025, F&G announced the launch of a strategic partnership with a new reinsurance vehicle backed by Blackstone managed funds, with approximately $1 billion in anticipated capital commitments. Effective August 1, 2025, F&G executed this forward flow reinsurance agreement with Fort Greene Reinsurance SPC Limited Segregated Portfolio No. 1, (“Fort Greene”) to cede certain FIA policies on a coinsurance funds withheld quota share basis and certain funding agreements on a modified coinsurance basis. F&G does not hold any ownership stake in the unaffiliated Fort Greene entity. As the policies ceded to Fort Greene are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +F&G Life Re. Effective December 1, 2025, FGL Insurance recaptured a portion of the reinsurance agreement with its affiliate F&G Life Re, covering a quota share of certain FIA policies. +All intercompany balances have been eliminated in the preparation of the accompanying Consolidated Financial Statements. See Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +Our Retail Distribution Channels +We distribute our annuity and life insurance products through three main retail channels of distribution: independent agents, banks, and broker-dealers. +In our independent agent channel, the sale of our products typically occurs as part of a four party, three stage sales process between FGL Insurance, an IMO, the agent and the customer. FGL Insurance designs, manufactures, issues, and services the product. The IMOs will typically sign contracts with multiple insurance carriers to provide their agents with a broad and competitive product portfolio. The IMO provides training and discusses product options with agents in preparation for meetings with clients. The IMO staff also provide assistance to the agent during the selling and application process. The agent may get customer leads from the IMOs. The agent conducts a fact finding and presents suitable product choices to the customers. We monitor the business issued by each distribution partner for pricing metrics, mortality, persistency, as well as market conduct and suitability. +We offer our products through a network of approximately 300 IMOs, representing approximately 173,000 agents. We believe that our relationships with these IMOs are strong. We identify Power Partners as those who have demonstrated the ability to generate significant production for our business. We currently have 58 Power Partners, comprised of 24 annuity IMOs and 34 life insurance IMOs. The average tenure of the Power Partners is approximately 21 years. +We took a similar approach in launching products as a new entrant into the bank and broker-dealer channels by partnering with one of the largest broker-dealers in the industry. In 2020, F&G launched a set of fixed rate annuity and FIA products to banks and broker-dealers and gained selling agreements with some of the largest banks and broker-dealers in the United States. We offer our products through a network of approximately 26 banks and broker-dealers, representing approximately 14,000 financial advisers. The financial advisers at our bank and broker-dealer partners are able to offer their clients guaranteed rates of return, protected growth, and income for life through our Secure series of annuity products. We employ a hybrid distribution model in this channel, whereby some financial institutions partner directly with F&G and our sales team, and others work with an intermediary. As such, we partner +22 +with a select number of financial institution intermediaries who have expertise in the channel and maintain the appropriate field wholesaling forces to be successful in this channel. In 2025, the top 5 firms represented 81% of channel sales. Bank and broker-dealers represented 36% of annuity sales for the year ended December 31, 2025. +The top five states for the distribution of F&G’s retail products in the year ended December 31, 2025 were California, Florida, Pennsylvania, Texas and New Jersey, which together accounted for 40% of F&G’s retail sales. +Our Investment Management Governance and Approach +We embrace a long-term conservative investment philosophy, investing nearly all the insurance premiums we receive in a wide range of high-quality debt securities. Our investment strategy is designed to (i) preserve capital, (ii) provide consistent yield and investment income, and (iii) achieve attractive absolute returns. We base all of our decisions on fundamental, bottom-up research, coupled with a top-down view that respects the cyclicality of certain asset classes. The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. +FGL Insurance and certain other subsidiaries of F&G are party to investment management agreements (“IMAs”) with Blackstone ISG-I Advisors LLC (“BIS”) pursuant to which BIS is appointed as investment manager of substantially all assets in the general and separate accounts of those entities (the “F&G Accounts”). Effective October 1, 2024, FGL Insurance amended and restated its IMA with BIS to increase a fee cap from 26 basis points to 30 basis points. This increase did not change the overall economics of the IMA as it was not material in nature. MVB Management, LLC, (“MVB Management”), an entity that is 50% owned by BilCar, LLC (an affiliate of William Foley, the Executive Chairman and a director of the Company) (“BilCar”), receives a participation fee from BIS in connection with assets of F&G and its subsidiaries that are managed by BIS. BIS also receives services from MVB Management. Pursuant to the investment management agreements with BIS, BIS pays MVB Management a fee of approximately 7.5% of certain fees paid to BIS and its affiliates for AUM relating to new business generated after March 31, 2023 (“New AUM”) (15% prior to that date). In March 2023, BilCar waived its right to receive any portion of payments made by BIS to MVB in respect of such New AUM. Additionally, in March 2023 the Company entered into an agreement with BilCar to pay BilCar the fees that it would have received through MVB Management from BIS over the 10-year period ending March 31, 2033. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. There are no specified minimum amounts of assets that we have agreed that BIS will manage; however, BIS has the right to manage (and receive fees based on) all assets in the F&G Accounts with limited exceptions. One such exception relates to non-affiliated funds‑withheld reinsurance agreements, pursuant to which third‑party asset managers are responsible for all aspects of investment management for the associated assets. In these arrangements, the F&G investment team retains governance oversight, including monitoring compliance with the investment guidelines negotiated between F&G and the respective third‑party managers to ensure alignment with our investment objectives, risk parameters and applicable regulatory requirements. In addition, for certain asset classes, including consolidated variable interest entities, we utilize specialized third-party investment managers. As of December 31, 2025, approximately 78% of our $69 billion investment portfolio was managed by BIS, with 20% managed by other third parties, and the remaining 2% internally managed. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. +On March 10, 2023, the IMAs were amended such that, for assets under management as of March 31, 2023, BIS’s per annum management fees are as follows: +• for aggregate assets under management in the F&G Accounts up to $25 billion, 0.26% of such aggregate assets under management; +• for aggregate assets under management in the F&G Accounts above $25 billion and up to $34 billion, 0.24% of such aggregate assets under management; and +23 +• for aggregate assets under management in the F&G Accounts above $34 billion, .12% of such aggregate assets under management. +In addition, the Sub-Manager Fee Agreement has been amended to provide for certain updates thereto, including, among other things, to reflect certain additional asset classes, certain revisions to the applicable sub-manager fee rates in respect of certain existing asset classes and certain revisions to the applicable sub-manager fee rates in respect of assets under management relating to new business of the Company and its subsidiaries generated after March 31, 2023. For the avoidance of doubt, there will be no management fee payable under the IMAs with respect to New AUM. +Aggregate fees paid to BIS were $182 million, $203 million and $194 million for the years ended December 31, 2025, 2024 and 2023, respectively. +Effective January 1, 2025, FGL NY Insur ance and BIS entered into an IMA pursuant to which BIS is appointed as investment manager of substantially all assets in the general account of FGL NY Insurance . FGL NY Insurance terminated its current IMA with its current investment manager effective December 31, 2024. There are no separate agreements or arrangements between BIS or its affiliates, on the one hand, and FGL NY Insurance or its affiliates, on the other hand, concerning the IMA between BIS and FGL NY Insurance. +F&G has a robust governance process and framework to manage the investment portfolio. While BIS is primarily responsible for security selection, F&G makes all investment strategy decisions and sets risk parameters. All major decisions need to be reviewed and approved by the F&G Investment Committee, and new investment asset classes go through an internal risk assessment process at F&G to ensure the investments are suitable for an insurance company balance sheet. We define risk tolerance across a wide range of factors, including credit risk, liquidity risk, concentration (issuer and sector) risk, and caps on specific asset classes, which in turn establish conservative risk thresholds. Also, F&G has flexibility to use other asset management partners through our flow reinsurance platform over time. +F&G, along with BIS, continually monitors portfolio allocations and holdings to optimize the portfolio profile. F&G has undertaken several programs to take advantage of the credit cycle and market conditions or to undertake prudent risk management in anticipation of an unfavorable economic environment. We have also added several new asset classes to the investment portfolio to further enhance diversification. +Each of our subsidiaries that is party to an investment management agreement with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any investment management agreement upon 30 days’ notice. However, F&G and FNF are party to an omnibus termination side letter under which they are required to cause our insurance subsidiaries to engage BIS as an investment manager and to generally not engage any other person as an investment manager. See also “Risk Factors—Risks Relating to Our Business— We rely on our investment management advisory agreements with BIS and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios.” +The initial term of the side letter expires in 2029 and will automatically renew for successive two-year terms unless F&G terminates the side letter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations under the investment management agreements. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may with prior notice terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination would not become effective for one year from the date of termination given in the notice, during which time BIS may seek to cure the events giving arise to the termination notice. +Because our subsidiaries can terminate an investment management agreement at any time upon 30 days' notice, it is possible that such a termination by one of our subsidiaries could cause us to be in breach of our obligations +24 +under the side letter. BIS’s contractual remedies under the side letter include specific performance and the right to seek damages including, in the event of a non-permitted termination of an investment management agreement by one of our subsidiaries, as compensation for the costs incurred in performing services under, and the failure to receive the benefits reasonably anticipated by, an IMA, the full amount of damages available at law in the same manner and to the same extent as if such IMA had been terminated by us our at our direction in violation of the terms of the side letter. +Our investment portfolio consists of fixed-rate high-quality fixed maturities, including publicly and privately issued corporate bonds, municipal and other government bonds, asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities, commercial mortgage loans (“CMLs”), residential mortgage loans (“RMLs”), limited partnership investments, and other investments. We also maintain holdings in floating rate, and less rate-sensitive investments, including CLOs, non-agency RMBS, and various types of ABS. It is our expectation that our investment portfolio will broaden in scope and diversity to include other asset classes held by life and annuity insurance writers. We also have a small amount of equity holdings required as part of our funding arrangements with the FHLB. +The Company employs hedging strategies to manage exposure to floating interest rates on a portion of its existing and newly acquired floating‑rate assets, subject to market conditions. The Company also uses foreign exchange hedging instruments to manage exposure to non‑U.S. dollar‑denominated investments by economically converting such exposures to U.S. dollars, with the objective of reducing volatility in earnings resulting from changes in interest rates and foreign exchange rates. +The portfolio also has exposure to U.S. dollar denominated emerging market bonds, highly rated preferred stocks and hybrids. We currently maintain a well-matched asset/liability profile (asset duration of 4.5 years vs. liability duration of 5.2 years). +Please refer to Note C - Investments in the Consolidated Financial Statements and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Portfolio” in this Annual Report on Form 10-K for additional information about our investment portfolio. +Mature Risk Management Framework and Governance +Risk management is a critical part of our business to manage our financial strength and meet or exceed regulatory requirements. We seek to assess risk to our business through a comprehensive, formal process involving: +a. identifying short-term and long-term strategic and operational objectives; +b. development of risk appetite statements that establish what the Company is willing to accept in terms of risks to achieving its goals and objectives; +c. identifying the levers that control the risk appetite of the Company; +d. establishing the overall limits of risk acceptable for a given risk driver; +e. establishing operational risk limits that are aligned with the tolerances; +f. assigning risk limit quantification and mitigation responsibilities to individual team members within functional groups; +g. analyzing the potential qualitative and quantitative impact of individual risks, including but not limited to stress and scenario testing covering over eight economic and insurance related risks; +h. mitigating risks by appropriate actions; and +i. identifying, documenting and communicating key business risks in a timely fashion. +Our most significant risks are governed through holding company governance committees and overall by the Enterprise Risk Management Committee (“ERMC”). Our most significant risks such as credit risk, liquidity risk, and policyholder behavior associated with interest rate risk have established risk limits associated with our risk appetite statements. These include investment limits by asset class, ratings and issuer. Liquidity risk is managed +25 +through frequent forecasting of sources and uses of cash and managed to our Liquidity Policy. Asset liability management procedures and limits protect the Company, within limits, against significant changes in interest rates. In addition, the risks are stressed as part of our scenario testing process to identify areas requiring mitigation plans based on the macroeconomic environment. Risk limits, risk appetite and scenario testing results of the stresses are discussed with stakeholders such as the F&G ERMC, the Board of Directors (“Board”) and Audit Committee (“AC”) of F&G, regulators and rating agencies. +The responsibility for monitoring, evaluating and responding to risk embedded across the organization: first assigned to our management and employees, second to those occupying specialist functions, such as legal compliance and risk teams, and third to those occupying supervisory functions, such as internal audit and the Board. +Operations/Outsourcing +We believe we have designed an efficient corporate platform which enables us to be highly scalable with volume over time and allows us to onboard incremental business with low incremental fixed operating cost. As a result, we believe we should be able to convert a significant portion of incremental net investment income from additional invested assets and liabilities into operating income. +We outsource the following functions to third-party service providers: +• new business administration (data entry and policy issue only); +• service of existing policies; +• underwriting administration of life insurance applications; +• call centers; +• information technology development and maintenance; +• certain investment accounting and custody; and +• co-located data centers and hosting of financial systems. +We closely manage our outsourcing partners and integrate their services into our operations. We believe that outsourcing such functions allows us to focus capital and our employees on our core business operations and perform differentiating functions, such as finance, actuarial, product development and risk management functions. In addition, we believe an outsourcing model provides predictable pricing, service levels and volume capabilities and allows us to benefit from technological developments that enhance our customer self-service and sales processes. We believe that we have a good relationship with our principal outsource service providers. +Our Financial Strength/Ratings +Our access to funding and our related cost of borrowing, the attractiveness of certain of our products to customers and requirements for derivatives collateral posting are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. +As of the date of this Annual Report on Form 10-K, A.M. Best, Fitch, Moody’s, and S&P had issued credit ratings, financial strength ratings and/or outlook statements regarding us, as listed below. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations under an insurance policy and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the insurer and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to policyholders, agents and intermediaries and are not directed toward the protection of investors. Credit and financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization. +26 +In addition to the financial strength ratings, rating agencies use an “outlook statement” to indicate a medium- or long-term trend that, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. A developing outlook is assigned when a rating may be raised, lowered, or affirmed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A rating may have a “stable” outlook to indicate that the rating is not expected to change, but a “stable” outlook does not preclude a rating agency from changing a rating at any time without notice. +The rating organizations may take various actions, positive or negative. Such actions are beyond our control, and we cannot predict what these actions may be and the timing thereof. +A.M. Best S&P Fitch Moody’s +Holding Company and Security Ratings +F&G Annuities & Life, Inc. +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Senior Unsecured Notes Not Rated BBB- BBB- Baa3 +Junior Subordinated Notes (a) +Not Rated BB BB Ba1 +Operating Subsidiary Ratings +Fidelity & Guaranty Life Insurance Company +Financial Strength Rating A A- A- A3 +Outlook Stable Stable Stable Stable +Fidelity & Guaranty Life Insurance Company of New York +Financial Strength Rating A A- A- Not Rated +Outlook Stable Stable Stable +F&G Life Re Ltd +Financial Strength Rating Not Rated Not Rated Not Rated A3 +Outlook Stable +F&G Cayman Re Ltd +Financial Strength Rating Not Rated Not Rated A- Not Rated +Outlook Stable +(a) Reflects rating of $375 million Junior Subordinated Notes due 2065 issued in January 2025 +A.M. Best, S&P, Fitch and Moody’s review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales and persistency is unknown, we believe if our ratings were to be negatively adjusted for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business. See “ Risk Factors ” in this Annual Report on Form 10-K. +Potential Impact of a Ratings Downgrade. We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivatives agreements on International Swap and Derivative Association (“ISDA”) forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. Please refer to Note D - Derivative Financial Instruments to the Consolidated Financial Statements in this Annual Report on Form 10-K for disclosure around our requirement to maintain minimum ratings. +If the insurance subsidiaries held net short positions against a counterparty, and the subsidiaries’ financial strength ratings were below the levels required in the ISDA agreement with the counterparty, the counterparty would demand immediate further collateralization, which could negatively impact overall liquidity. Based on the fair value of our derivatives as of December 31, 2025, we hold no net short positions against a counterparty; therefore, we were not required to post collateral at December 31, 2025. +27 +A downgrade of the financial strength rating of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it more difficult for us to market our products, as potential customers may select companies with higher financial strength ratings. A downgrade of the financial strength rating could also impact our borrowing costs. +Regulation of F&G +U.S. Regulatory Overview +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to comprehensive regulation and supervision in their domiciles, Iowa, New York, Vermont and Vermont, respectively, and in each state in which they do business. FGL Insurance does business throughout the United States and Puerto Rico, except for New York. FGL NY Insurance only does business in New York. Raven Re is a special purpose captive reinsurance company that only provides reinsurance to FGL Insurance under the CARVM Treaty. Corbeau Re, a wholly owned captive reinsurance company, reinsures certain of FGL Insurance’s FIA policies with GMWB and GWP. FGL Insurance’s principal insurance regulatory authority is the IID; however, state insurance departments throughout the United States also monitor FGL Insurance’s insurance operations as a licensed insurer. The New York State Department of Financial Services (“NYDFS”) regulates the operations of FGL NY Insurance. The purpose of these regulations is primarily to protect insurers’ policyholders and beneficiaries and not their general creditors and shareholders of those insurers or of their holding companies. Many of the laws and regulations to which FGL Insurance and FGL NY Insurance are subject are regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect their operations. +Generally, insurance products underwritten by, and rates used by, FGL Insurance and FGL NY Insurance must be approved by the insurance regulators in each state or territory in which they are sold. In addition, insurance products may also be subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). +State insurance authorities have broad administrative powers over FGL Insurance and FGL NY Insurance with respect to all aspects of the insurance business, including: +• licensing to transact business; +• licensing agents; +• prescribing which assets and liabilities are to be considered in determining statutory surplus; +• regulating premium rates for certain insurance products; +• approving policy forms and certain related materials; +• requiring insurers and agents to act in the best interests of consumers when making recommendations to purchase annuities, or to determine whether a reasonable basis exists as to the suitability of such investments for consumers; +• regulating unfair trade and claims practices; +• establishing reserve requirements and solvency standards; +• regulating the amount of dividends that may be paid in any year by insurance companies; +• regulating the availability of reinsurance or other substitute financing solutions, the terms thereof and the ability of an insurer to take credit on its financial statements for insurance ceded to reinsurers or other substitute financing solutions; +• fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; and +• regulating the type, amounts, and valuations of investments permitted, transactions with affiliates and other matters. +28 +Financial Regulation +State insurance laws and regulations require FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to file reports, including financial statements, with state insurance departments in each state in which they do business, and their operations and accounts are subject to examination by those departments at any time. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these departments. +The NAIC has approved a series of statutory accounting principles and various model regulations that have been adopted, in some cases with certain modifications, by all state insurance departments. These statutory principles are subject to ongoing change and modification. Moreover, compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Any particular regulator’s interpretation of a legal or accounting issue may change over time to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s detriment, or changes to the overall legal or market environment, even absent any change of interpretation by a particular regulator, may cause FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to change their views regarding the actions they need to take from a legal risk management perspective, which could necessitate changes to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s practices that may, in some cases, limit their ability to grow and improve profitability. +State insurance departments conduct periodic examinations of the books and records, financial reporting, policy and rate filings, market conduct and business practices of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. +The IID last completed a routine financial examination and a market conduct examination of FGL Insurance for the five year period ending December 31, 2022 and found no material deficiencies and proposed no adjustments to the financial statements as filed. +The NYDFS last completed a routine financial examination of FGL NY Insurance for the five year period ended December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +The Vermont Department of Financial Regulation completed a routine financial examination of Raven Re for the five year period ending December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) 10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +29 +In 2025, FGL Insurance did not pay dividends to Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2026 is $0. +Any payment of dividends by FGL Insurance is subject to the regulatory restrictions described above and the approval of such payment by the board of directors of FGL Insurance, which must consider various factors, including general economic and business conditions, tax considerations, FGL Insurance’s strategic plans, financial results and condition, FGL Insurance’s expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends and its effect on RBC and such other factors the board of directors of FGL Insurance considers relevant. For example, payments of dividends could reduce FGL Insurance’s RBC and financial condition and lead to a reduction in FGL Insurance’s financial strength rating. See “Risk Factors—Risks Relating to Our Business— A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions as calculated under New York insurance laws without being required to obtain the prior consent of the NYDFS. However, to pay any dividends or distributions (including the payment of any dividends or distributions for which prior consent is not required), FGL NY Insurance must provide advance written notice to the NYDFS. +FGL NY Insurance has historically not paid dividends. +Surplus and Capital +FGL Insurance and FGL NY Insurance are subject to the supervision of the regulators in states where they are licensed to transact business. Regulators have discretionary authority in connection with the continued licensing of these entities to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such entities have not maintained the minimum surplus or capital or that the further transaction of business would be hazardous to policyholders. +Risk-Based Capital +In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement RBC requirements for life, health and property and casualty insurance companies. All states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. In general, RBC is calculated by applying factors to various asset, premium and reserve items, taking into account the risk characteristics of the insurer. Within a given risk category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. The RBC formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for FGL Insurance and FGL NY Insurance each exceeded the minimum RBC requirements. +It is desirable to maintain an RBC ratio in excess of the minimum requirements in order to maintain or improve financial strength ratings. FGL Insurance’s estimated U.S. RBC ratio was approximately 430% as of December 31, 2025, above our 400% target. See “Risk Factors — Risks Related to Our Business — A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +30 +See “ Bermuda Regulatory Overview — ECR and Bermuda Solvency Capital Requirements ” for a discussion of Bermuda regulatory requirements that impact F&G Life Re. +Insurance Regulatory Information System Tests +The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A ratio falling outside the prescribed “usual range” is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more ratios that fall outside the usual range. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined “usual ranges.” Generally, regulators will begin to investigate or monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. IRIS consists of a statistical phase and an analytical phase whereby financial examiners review insurers’ annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that are generated from the NAIC database annually; each ratio has a “usual range” of results. +As of December 31, 2025, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re had three, one, two and four ratios outside the usual range, respectively. The IRIS ratios for “net income to total income (including realized capital gains and losses)”, “total affiliated investments to capital and surplus” and “surplus relief - over $5 million capital and surplus” for FGL Insurance were outside the usual range. The IRIS ratio for “change in reserving ratio” for FGL NY Insurance was outside the usual range. The IRIS ratios for “adequacy of investment income” and “change in premium” for Raven Re were outside the usual range. The IRIS ratios for “net income to total income (including realized capital gains and losses)”, “adequacy of investment income”, “change in premium” and “change in asset mix” for Corbeau Re were outside the usual range. +In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are not currently subject to regulatory restrictions based on these ratios. +Group Capital Calculation +The NAIC developed a group capital calculation tool using an RBC methodology for all entities within the insurance holding company system, including non-U.S. entities. In December 2020, the NAIC adopted the Group Capital Calculation Template and Instructions, as well as amendments to the Model Holding Company Act and Regulation. The amendments implement the annual filing requirement for the group capital calculation but will not become effective until adopted by state legislatures or regulatory agencies. FNF’s lead regulator, the Florida Office of Insurance Regulation, which is also the Company’s lead regulator for this purpose, adopted a requirement for group capital reporting in late 2025 that will be effective for year-end 2026 with filing required in the first half of 2027. +Insurance Reserves +State insurance laws require insurers to analyze the adequacy of reserves. Following the implementation of principle-based reserving for life insurance products, the NAIC is now developing a principle-based reserving framework for fixed annuity products. The respective appointed actuaries for FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re must each submit an opinion on an annual basis that their respective reserves, when considered in light of the respective assets FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re hold with respect to those reserves, make adequate provision for the contractual obligations and related expenses of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re have filed all of the required opinions with the insurance departments in the states in which they do business. +31 +Credit for Reinsurance Regulation +States regulate the extent to which insurers are permitted to take credit on their financial statements for the financial obligations that the insurers cede to reinsurers. Where an insurer cedes obligations to a reinsurer that is neither licensed nor accredited by the state insurance department, the ceding insurer is not permitted to take such financial statement credit unless the unlicensed or unaccredited reinsurer secures the liabilities it will owe under the reinsurance contract. +Under the laws regulating credit for reinsurance issued by such unlicensed or unaccredited reinsurers, the permissible means of securing such liabilities are (i) the establishment of a trust account by the reinsurer to hold certain qualifying assets in a qualified U.S. financial institution, such as a member of the Federal Reserve, with the ceding insurer as the exclusive beneficiary of such trust account with the unconditional right to demand, without notice to the reinsurer, that the trustee pay over to it the assets in the trust account equal to the liabilities owed by the reinsurer; (ii) the posting of an unconditional and irrevocable letter of credit by a qualified U.S. financial institution in favor of the ceding company allowing the ceding company to draw upon the letter of credit up to the amount of the unpaid liabilities of the reinsurer and (iii) a “funds withheld” arrangement by which the ceding company withholds transfer to the reinsurer of the assets, which support the liabilities to be owed by the reinsurer, with the ceding insurer retaining title to and exclusive control over such assets. +In addition, all U.S. states, including Iowa and New York, permit an insurer to take credit for reinsurance ceded to a non-U.S. reinsurer that posts collateral in amounts less than 100% of the reinsurer’s obligations if the reinsurer has been designated as a “certified reinsurer” and is domiciled in a country recognized by the state and the NAIC as a “Qualified Jurisdiction.” The reduced percentage of full collateral applied to a certified reinsurer is based upon an assessment of the reinsurer and its financial ratings. Iowa and New York both also recognize certain qualified non-U.S. insurers as reciprocal jurisdiction reinsurers such that ceding domestic insurers may receive credit for reinsurance ceded to such unauthorized reinsurers without the requirement for the reinsurer to provide collateral. +FGL Insurance and FGL NY Insurance are subject to the credit for reinsurance rules described above in Iowa and New York, respectively, insofar as they enter into any reinsurance contracts with reinsurers that are neither licensed, accredited nor certified in Iowa and New York, respectively, or recognized as a reciprocal reinsurer in such jurisdictions. +Insurance Holding Company Regulation +F&G, as the indirect parent company of FGL Insurance and FGL NY Insurance, is subject to the insurance holding company laws in Iowa and New York. These laws generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company’s state of domicile and to furnish annually financial and other information about the operations of companies within the holding company system. Generally, all transactions between insurers and affiliates within the holding company system are subject to regulation and must be fair and reasonable, and may require prior notice and approval or non-disapproval by its domiciliary insurance regulator. +Most states, including Iowa and New York, have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s holding company. Such laws prevent any person from acquiring control, directly or indirectly, of F&G, FGL US Holdings Inc. (“FGL US Holdings”), CF Bermuda Holdings Limited (“CF Bermuda”), FGLH, FGL Insurance or FGL NY Insurance or certain of their affiliates unless that person has filed a statement with specified information with the insurance regulators and has obtained their prior approval. In addition, investors deemed to have a direct or indirect controlling interest are required to make regulatory filings and respond to regulatory inquiries. Under most states’ statutes, including those of Iowa and New York, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. In addition, the insurance laws of Iowa and New York permit a determination of control in circumstances where the thresholds for the presumption of control have not been crossed. Similar laws apply to a direct or indirect change of ownership of Raven Re and +32 +Corbeau Re. Any person who is deemed to acquire control over F&G, FNF, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance, FGL NY Insurance, Raven Re, Corbeau Re or certain of their affiliates including any person who acquires 10% or more of our or FNF’s voting securities of FGL Insurance, FGL NY Insurance or certain of their affiliates, without the prior approval of the insurance regulators of Iowa and New York, will be in violation of those states’ laws and may be subject to injunctive action requiring the disposition or seizure of those securities by the relevant insurance regulator or prohibiting the voting of those securities and to other actions determined by the relevant insurance regulator. +Insurance Guaranty Association Assessments +Each state has insurance guaranty association laws under which insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all member insurers in the state. Although no prediction can be made as to the amount and timing of any future assessments under these laws, FGL Insurance and FGL NY Insurance have established reserves that they believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. +Market Conduct Regulation +State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales and complaint process practices. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. In addition, FGL Insurance and FGL NY Insurance must file, and in many jurisdictions and for some lines of business obtain regulatory approval for, rates and forms relating to the insurance written in the jurisdictions in which they operate. FGL Insurance is currently the subject of an ongoing market conduct examination in one state. Market conduct examinations can result in monetary fines or remediation and generally require FGL Insurance to devote significant resources to the management of such examinations. FGL Insurance does not believe that the current market conduct examination it is subject to will result in any fines or remediation orders that will be material to its business. +Regulation of Investments +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain asset categories, such as below investment grade fixed income securities, equity, real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as either non-admitted assets for purposes of measuring surplus or as not qualified as an asset held for reserve purposes and, in some instances, would require divestiture or replacement of such non-qualifying investments. We believe that the investment portfolios of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re as of December 31, 2025, complied in all material respects with such regulations. +In 2023, the NAIC released new regulations that define a residual interest and new criteria for investments that can be classified as a bond. All of the Company’s impacted insurance subsidiaries have implemented the new accounting requirements beginning January 1, 2025. See “Risk Factors — Risks Related to Our Business — Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact of the reputation of our business” in this Annual Report on Form 10-K. +On December 7, 2021, the NAIC assigned to its Macroprudential Working Group, the evaluation of a list of “Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers.” Included within this list is the consideration of material increases in privately structured securities (both by affiliated and non-affiliated asset managers), which the NAIC says introduces other sources of risk or increases traditional credit risk, such as complexity risk and illiquidity risk. As a result, the NAIC has issued several clarifying revisions to the +33 +guidance and disclosure requirements for related party and affiliated securities and continues to consider additional proposals and disclosure requirements. +In addition, the NAIC continues to refine its application of RBC factors for certain investments. +Privacy Regulation +Our operations are subject to certain federal and state laws and regulations that require financial institutions and other businesses to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of such information. These laws and regulations require notice to affected individuals, law enforcement agencies, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Our operations are also subject to certain federal regulations that require financial institutions and creditors to implement effective programs to detect, prevent and mitigate identity theft. In addition, our ability to make telemarketing calls and to send unsolicited email or fax messages to consumers and customers and our uses of certain personal information, including consumer report information, are regulated. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information. +The Dodd-Frank Act +The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Dodd-Frank Act”) established the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. Although the FIO currently does not directly regulate the insurance industry, FIO does monitor and scrutinize developments in the industry. FIO publications or reports, some of which are periodically submitted to Congress, could continue to increase scrutiny of the industry and ultimately lead to changes in the regulation of insurers and reinsurers in the United States, which could negatively impact our insurance business. The Dodd-Frank Act made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Dodd-Frank Act are applicable to us, our competitors or those entities with which we do business. Further, certain provisions of the Dodd-Frank Act may become applicable to us, our competitors, or certain entities with which we do business. These provisions may impact us in many ways, including, but not limited to, having an effect on the overall business climate, requiring the allocation of certain resources to government affairs, and increasing our legal and compliance related activities and the costs associated therewith. For example, it is possible that regulations issued by the Consumer Financial Protection Bureau may extend, or be interpreted to extend, to the sale of certain insurance products by covered financial institutions, which could adversely affect sales of such products. The FIO, in response to various studies it conducts, may also recommend changes in laws or regulations that affect our business. There may be further federal involvement in the business of insurance in the future, which may add significant legal complexity and associated costs to our business. +Under the Dodd-Frank Act, annuities that meet specific requirements, including requirements relating to certain state suitability rules, are specifically exempted from being treated as securities by the SEC. We believe that the types of FIAs that FGL Insurance and FGL NY Insurance sell will meet these requirements and, therefore, are exempt from being treated as securities by the SEC and state securities regulators. However, there can be no assurance that federal or state securities laws or state insurance laws and regulations will not be amended or interpreted to impose further requirements on FIAs. If FIAs were to be treated as securities, federal and state securities laws would require additional registration and licensing of these products and the agents selling them, and FGL Insurance and FGL NY Insurance would be required to seek additional marketing relationships for these products, any of which could impose significant restrictions on its ability to conduct operations as currently operated. However, our RILA product is not exempted from being treated as a security by the SEC. +Additionally, the Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which plays a role in shaping the regulatory environment affecting RILAs and other insurance products that are connected to the +34 +capital markets. The FSOC monitors systemic risks and may designate insurers offering RILAs, as well as certain other products, as systemically important financial institutions if their activities pose significant risks to the broader economy, subjecting them to enhanced prudential standards and supervision by the Board of Governors of the United States Federal Reserve. The prudential standards for non-bank Systemically Important Financial Institutions (“SIFIs”) include enhanced RBC (Risk-Based Capital) requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures, and recovery and resolution planning. +ERISA and Fiduciary Standards +We may offer certain insurance and annuity products to employee benefit plans governed by ERISA and/or the Internal Revenue Code of 1986, as amended (the “Code”), including group annuity contracts designated to fund tax-qualified retirement plans. ERISA and the Code provide (among other requirements) standards of conduct for employee benefit plan fiduciaries, including investment managers and investment advisers with respect to the assets of such plans, and holds fiduciaries liable if they fail to satisfy fiduciary standards of conduct. +State and federal regulators have been adopting stronger consumer protection regulations that may materially impact our company, business, distribution, and products. The NAIC adopted an amended Suitability in Annuity Transactions Model Regulation in February 2020 incorporating a requirement that agents act in the best interest of consumers without putting their own financial interests or insurer’s interests ahead of consumer interests. The best interest requirement is satisfied by complying with four regulatory obligations relating to care, disclosure, conflict of interest, and documentation. The amended model regulation also requires agents to provide certain disclosures to consumers, obligates insurers to supervise agent compliance with the new requirements, and prohibits sales contests or other incentives based on sales of specific annuities within a limited period of time. +All 50 states have adopted the revised NAIC model regulation, including FGL Insurance’s domiciliary state of Iowa. Management has instituted business procedures to comply with these revised requirements where required. FGL NY Insurance separately instituted new business procedures in response to the NYDFS best interest rule adopted in August 2019 which survived a legal challenge and deviates from the NAIC model regulation and is considered more onerous in certain respects including its broader application to life insurance sales. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the “New Fiduciary Rule”, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or +35 +beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s New Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al., (“Federation of Americans”) the United States District Court for the Eastern District of Texas (the “Eastern District of Texas”) issued an order staying the effective date of the DOL’s New Fiduciary Rule (and related amendments to PTE 84-24) that was issued in March 2024. The Eastern District of Texas, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the New Fiduciary Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the New Fiduciary Rule’s original effective date of September 23, 2024 was delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al., held the remaining PTE amendments included in the New Fiduciary Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the New Fiduciary Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. In early 2025, the DOL filed successive unopposed motions to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motions were granted so the appeals were in abeyance. In November 2025, the DOL moved to voluntarily dismiss their appeals and the Fifth Circuit agreed and remanded the cases to the District Courts. The DOL has moved the District Courts to allow until March 2026 to determine their position and next steps with the cases. Adverse Texas District Court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +We cannot predict the final outcome of the pending litigation regarding the New Fiduciary Rule, however, management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs, all of which could adversely impact our business, results of operations and/or financial condition. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. See “Risk Factors—Legal, Regulatory and Tax Risk s—Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business.” +36 +The SECURE 2.0 Act +New and recently passed legislation may also impact the industry in which F&G competes. For example, the SECURE 2.0 Act of 2022, which went into effect as early as January 1, 2023, in certain respects, creates an opportunity for F&G and its competitors to pursue sales to employer retirement plan sponsors as well as its traditional customers. In addition, F&G and its competitors may implement operational changes to adapt to the effect of the new legislation. See “Risk Factors—Legal, Regulatory and Tax Risks —The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete .” +Corporate Alternative Minimum Tax +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Beginning in 2026, the Company will not be eligible to file a consolidated return with FNF, but would still be subject to CAMT as the Company is still considered an applicable corporation due to FNF's ownership. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. The Company was not subject to CAMT in 2023, but was for 2024 and 2025, but there was no impact to total tax. A CAMT credit carryforward from 2024 was created and is expected to be able to be utilized in future years. +Climate Risk +On November 15, 2021, NYDFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change, detailing NYDFS’s expectations related to domestic insurers' management of the financial risks from climate change. These guidelines are applicable to FGL NY Insurance and became effective in 2022. Under the guidelines, climate change risk must be specifically included in an insurance group's enterprise risk management function. +Diversity and Corporate Governance +The NAIC and certain state insurance regulators are focused on the issue of diversity within the insurance industry, such as the diversity of an insurer’s board of directors and management. The NAIC is developing a framework for approaching issues related to race and insurance. The NAIC goals include improving access to different types of insurance products in minority communities, addressing issues related to affordability, and providing guidance to regulators on ways to improve insurance access and the understanding of insurance in underserved communities. In New York, NYDFS issued a circular letter that states that the NYDFS expects the insurers it regulates to make diversity of their leadership a business priority and key element of their corporate governance, and it includes diversity-related questions in its examination process. This guidance is applicable to FGL NY Insurance. +Bermuda Regulatory Overview +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act, 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +On February 19, 2026, the Company announced the expected sale of its Bermuda based subsidiary, F&G Life Re, to Ancient Financial Holdings, LP (“Ancient”). Blackstone will retain asset management for the inforce assets and Ancient will manage assets under a new flow reinsurance treaty for certain MYGA new business. The +37 +transaction is expected to be completed on March 1, 2026. The transaction reflects F&G’s disciplined execution of risk transfer options and that we no longer needed a Bermuda operation to support our reinsurance strategy. +The Bermuda Insurance Act provides that no person may carry on an insurance business in or from within Bermuda unless registered as an insurer under the Bermuda Insurance Act by the BMA. In deciding whether to grant registration, the BMA has broad discretion to act as it thinks fit in the public interest. The BMA is required by the Bermuda Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. The registration of an applicant as an insurer is subject to the insurer complying with the terms of its registration and such other conditions as the BMA may impose at any time. In addition, the Bermuda Insurance Act requires BMA approval of increases in control or dispositions of control of an insurance company. +Effective January 1, 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. +Bermuda has been awarded full equivalence for commercial insurers under Europe’s Solvency II regime applicable to insurance companies, which regime came into effect on January 1, 2016. +Effective January 1, 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting collateral. +All insurers are required to implement corporate governance policies and processes as the BMA considers appropriate given the nature, size, complexity and risk profile of the insurer and all insurers, on an annual basis, are required to deliver a declaration to the BMA confirming whether or not they meet the minimum criteria for registration under the Bermuda Insurance Act. +All insurers are required to comply with the Bermuda Insurance Code of Conduct, which is a codification of best practices for insurers provided by the BMA, and to submit annually to the BMA with its statutory financial return a declaration of compliance confirming it complies with the Bermuda Insurance Code of Conduct. All insurers are also required to comply with the Bermuda Insurance Sector Cyber Risk Management Code of Conduct issued by the BMA under the Bermuda Insurance Act, which establishes the duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management. +The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance and reinsurance companies. As part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer or reinsurer is used to determine the limitations and specific requirements that may be imposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through the scrutiny of audited financial statements, and, as appropriate, meeting with senior management during onsite visits. +The Bermuda Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below. +Minimum Solvency Margin. The Bermuda Insurance Act provides that the value of the assets of an insurer must exceed the value of its liabilities by an amount greater than its prescribed minimum solvency margin. +The minimum solvency margin that must be maintained by a Class E insurer is the greater of: (i) $8,000,000; (ii) 2% of first $500,000,000 of assets plus 1.5% of assets above $500,000,000; and (iii) 25% of that insurer’s +38 +enhanced capital requirement (“ECR”). An insurer may file an application under the Bermuda Insurance Act to waive the aforementioned requirements. +ECR and Bermuda Solvency Capital Requirements (“BSCR”). Class E insurers are required to maintain available capital and surplus at a level equal to or in excess of the applicable ECR, which is established by reference to either the applicable BSCR model or an approved internal capital model. Furthermore, to enable the BMA to better assess the quality of the insurer’s capital resources, a Class E insurer is required to disclose the makeup of its capital in accordance with its 3-tiered capital system. An insurer may file an application under the Bermuda Insurance Act to have the aforementioned ECR requirements waived. +Restrictions on Dividends and Distributions. In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. +F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. +In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. +The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +Reduction of Capital. F&G Life Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as statutory capital. +Bermuda Corporate Income Tax +The Corporate Income Tax (“CIT”) Act of 2023 was passed in Bermuda on December 27, 2023. The CIT Act commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, does not anticipate to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2025, of $1 million has a full valuation allowance. As a result, there is no material impact to the financial statements. +Block Transactions +Since January 2023, the BMA has required all long-term (life) commercial reinsurers such as F&G Life Re to obtain the prior approval of the BMA for all long-term block reinsurance transactions, which is defined as a block +39 +transaction that covers an existing long-term business policy that is written and inforce and on the books of the cedant, as of the date of the reinsurance transaction (including pension risk transfer transactions). +Affiliate, Related Party or Connected Party Assets +As a Class E insurer, F&G Life Re is required to obtain the prior written approval of the BMA before investing in assets with counterparty credit exposure to an affiliate, related party or connected party (each as defined under the Bermuda Insurance Act) of F&G Life Re. +Cayman Islands Regulatory Overview +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, (2023 Revision) as amended, and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulations (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by the Cayman Islands Monetary Authority (“CIMA”). +The Cayman Islands Insurance Act provides that no person may carry on an insurance business in or from within the Cayman Islands unless licensed under the Cayman Islands Insurance Act. CIMA has broad discretion in its consideration of whether to grant a license and must act in the public interest. CIMA is required by the Cayman Islands Insurance Act to determine whether an applicant is a fit and proper body to be engaged in insurance business. A licensed insurer must comply with the terms of its license and such other conditions as CIMA may impose at any time. In addition, the Cayman Islands Insurance Act requires CIMA approval of increases in control or dispositions of control of an insurance company. +All insurers are required to implement corporate governance policies as CIMA considers appropriate given the nature, size, complexity and risk profile of the insurer. All insurers are also required to comply with the CIMA's Rules and Statements of Guidance as applicable to insurers which is a codification of best practices provided by CIMA, and to submit annually to CIMA audited financial statements and a declaration of compliance confirming it complies with the Cayman Islands Insurance Act. +Capital Requirements. The Cayman Islands Insurance Act provides that an insurer must maintain a minimum capital requirement based on its license class. For a Class D insurer, the minimum capital requirement is $50,000,000. In addition, an insurer must maintain a minimum margin of solvency at a level equal to or in excess of the total prescribed capital requirement which is established by reference to either the applicable prescribed capital requirements based on license class or an internal capital model approved by CIMA. Notwithstanding the minimum capital requirements, CIMA may set an enhanced prescribed capital requirement in respect of any insurer. CIMA may also, for class B, C and D insurers, exclude from the calculations assets that it deems inappropriate. +CIMA utilizes a risk-based approach to licensing and supervising insurers and to determining limitations and/or specific requirements. CIMA reviews on an ongoing basis, an insurer’s audited financial statements, actuarial valuation report and, as appropriate, meeting with senior management during onsite visits. +The Cayman Islands Insurance Act and regulations promulgated thereunder impose solvency and liquidity standards on Cayman Islands insurance companies, as well as auditing and reporting requirements. +As a regulated insurance company, F&G Cayman Re is subject to the supervision of CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +The laws and regulations of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Statutes, regulations and policies that F&G Cayman Re is subject to may also restrict the ability of F&G Cayman Re to write insurance and +40 +reinsurance policies, make certain investments and distribute funds. Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. +Human Capital Resources +As of December 31, 2025, we had 1,173 full-time equivalent employees. None of our employees are subject to collective bargaining agreements. We consider relations with our employees to be good. +Talent Management +F&G’s core values - Collaborative, Authentic, Dynamic and Empowered, coupled with our competitive total rewards philosophy and flexible work environment provide an attractive employee value proposition. We recruit top talent to join our team and provide opportunities for personal and professional growth. +Our development programs are designed to provide opportunities for all employees to grow and develop. Development programs are aligned to the skills and behaviors defined in our F&G Competencies - Think Enterprise Wide, Leverage Data, Center Equity, Communicate with Courage, Be Accountable- and ensure our employees are developing skills that are critical to achieve business goals now and in the future. +Leadership Academy is our leadership development program designed to develop the next generation of leaders at F&G and enables cross-functional leaders to hone their leadership capability and network with colleagues from across the enterprise. +Employee engagement is measured annually through two surveys. Our strong engagement scores on the Energage Engagement Survey were rewarded with several “Top Places to Work” designations including Leadership, Innovation, Compensation & Benefits, Work-Life Flexibility and Financial Services Industry. We are honored to be a recipient of the “Top Workplaces USA” designation in 2024, 2023 and 2022 and a recipient of the “Top Workplaces Iowa” designation since 2018. +The Gallup Employee Engagement survey data is our key metric to support strategic decisions on engaging and retaining our talent. Initiatives such as our Employee Resource Groups and our Connection Week program are a few examples of programs that were identified based on employee engagement data. +At F&G, we provide comprehensive benefits designed to meet the needs of our employees and demonstrate the value they bring to the organization. Employees are eligible to participate in our 401(k) savings plan, to which we make matching and annual nondiscretionary contributions. Employees are also eligible to participate in our Employee Stock Purchase Plan with a competitive match feature. We offer competitive health care benefit options for medical, dental and vision coverage, as well as a health savings account with an employer contribution. Other benefit offerings include health care and dependent care flexible spending accounts, employee assistance programs, lifestyle reimbursements, charitable matching donations, and adoption assistance. To support a healthy work-life balance, all employees receive paid time off, holidays, flexible Fridays, volunteer time off and paid parental leave for new parents. +Employee retention is critical to the success of our business. Turnover is monitored and analyzed to ensure we are protecting our most valuable asset, our team members. Our turnover rates have been consistently below national and industry-specific benchmarks. +Workplace Flexibility +F&G is committed to providing employees with the opportunities and flexibility they need to succeed, as well as ensuring a culture of belonging and inclusion by: +41 +• Providing well rounded benefits that support employees diverse needs such as, domestic partner medical coverage, gender dysphoria services, $50,000 lifetime maximum for infertility services ($35,000 is United Health Care standard), travel & lodging reimbursement for services rendered out-of-state due to state law, Employee Assistance Program including 6 free counseling sessions per person per incident per year, in addition to other emotional health solutions, $10,000 in adoption assistance benefit, parental leave benefits, flexible PTO and lifestyle reimbursements. +• Supporting employee training, developing and educating through LinkedIn learning with a wide array of topics (e.g., Using Gender inclusive language, fueling your Company Culture, Inclusive Leadership, Unconscious Bias, etc.), tuition reimbursement, and manager and leadership training. +• Hosting educational and developmental events such as, a Mental Awareness and Racial Equity Master Class, a Mental Health panel, and a panel on Neurodiversity. +• Recognized for several Cultural Excellence Awards in 2025, 2024 and 2023 through Energage, for excellence in 1) Compensation and Benefits, 2) Leadership, 3) Work-Life Flexibility, 4) Professional Development, 5) Appreciation, 6) Employee Wellbeing, 7) Professional Development and 8) Purpose and Values. +Community engagement +F&G’s mission is to help people turn their aspirations into reality. F&G recognizes that focusing its community engagement and charitable giving to support essential needs is critical to fulfilling that mission. In recent years, F&G has won multiple awards for its corporate support and employee involvement with United Way, including Outstanding Corporate/Foundation Philanthropist for 2023 from the Association of Fundraising Professionals Central Iowa Chapter. Other community investments include: +• Serving as founding partner of the American Council of Life Insurer’s 360 Community Capital Initiative to make housing affordable and sustainable in underserved communities. +• Fostering partnerships in the Des Moines community with the Iowa Food Bank and Polk County Housing Trust. +• Supporting dozens of other community organizations identified by F&G employees in support of essential needs within the community where they live and work. +• Supporting Junior Achievement of Central Iowa, helps young people gain the knowledge and skills to own their own economic success, plan for their futures, and make smart academic and economic decisions. +• Supporting Ellipsis, which is a care provider for kids and families in Iowa that provides residential care and treatment, counseling and therapy, behavioral health intervention services, care coordination, and family support through volunteering. +• Supporting ChildServe which is an organization that improves the health and well-being of thousands of children each year through specialized clinical, home, and community-based programs and services. +Operational Sustainability +F&G is committed to sustainable practices that serve our employees, business partners, and community. F&G recognizes the rapidly evolving regulatory environment on climate-related risks and is monitoring to ensure sustainability practices remain consistent with regulatory requirements. F&G also promotes flexible work from home arrangements which reduce commute time, greenhouse gas emissions, and paper usage. +Governance +Our Company and our Board is committed to sustainable practices to serve our employees, business partners and the community +42 +The F&G AC is responsible for overseeing the Company’s sustainability risks. Such risks may include climate risks as a subset of investment risks. The Company’s Chief Risk and Audit Officer (“CRAO”) will continue to update the AC on F&G’s climate risk profile as risks and opportunities arise. +Management’s Role in Assessing and Managing Sustainability Risks and Opportunities +Additional governance committees +The AC and ERMC utilize and rely on other groups and committees within F&G to facilitate that all risks and opportunities related to our sustainability are addressed appropriately. +The ERMC is an enterprise committee which includes the Chief Executive Officer, President an d Chief Financial Officer, Chief Liability Officer and Treasurer, Chief Operating Officer, Chief Investment Officer, Chief Risk & Audit Officer, Chief Information Officer, Chief of Government, Regulatory and Compliance Affairs, Chief Human Resource Officer, Investments Chief Operating Officer, Head of Operational Risk, Senior Advisor, and General Counsel and Secretary and is responsible for reviewing risks and associated strategy across the business. The risks are included in the overall F&G Risk Register that is the basis for quarterly risk assessments. The overall risk posture of the organization is updated in the quarterly ERM dashboard report. +The Investment Committee provides oversight of investments held, approves new asset classes, and reviews investment managers and mandates. The Investment Committee also oversees the relationships with F&G’s Asset Management companies, which includes assessing their sustainability policies and practices for consistency with F&G’s missions and vision. +Strategy +F&G’s product solutions provide social good by supporting clients to achieve their retirement goals and to improve their financial lives, while protecting against unforeseen events through life insurance policies. This sentiment of service provides the foundation for F&G’s culture and guides business operations as well as interactions within our communities. +The investment portfolio supporting the current range of products offered by F&G considers climate-related risks and the transition to a low carbon economy. As long-term investors, F&G understands the energy transition will be gradual, and the focus should be on investment outcomes that will support our fiduciary duty to our clients and the investment goals of our clients. +F&G completed a qualitative assessment of climate risks and opportunities in 2023 with input from the ESG Executive Steering Committee and ESG working group. The assessment identified potential impacts of climate change on the F&G businesses and financial plans over short-, medium-, and long-term time horizons. Generally, short term is defined as present and 1 – 5 years in the future, medium-term is 5- 10 years in the future, and long-term is 10-30 years in the future. +The assessment also identified the risks applicable to F&G based on physical presence, products sold, and credit/counterparty risk. The identified risks were added to the enterprise risk register for inclusion in the quarterly self-assessment and annual risk assessment processes. The risks were also integrated into the ESG Program. +Impact of pending and passed legislation +Developments in national, state, and international regulations related to Sustainability and climate risk are ever-changing. F&G is diligently working to identify and gather the appropriate data for evolving reporting standards. +43 +The California Air Resources Board ("CARB"), and similar regulators in other U.S. states and international jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards. +The state of California passed two bills that will require certain companies doing business in the state to disclose GHG emissions and climate-related financial risk information. Senate Bill 253 (SB 253) requires the annual disclosure of Scope 1, 2 and 3 GHG emissions, with certain GHG emissions data subject to third party assurance. The bill requires disclosure of Scope 1 and 2 GHG emissions beginning in 2026 for the 2025 reporting year and disclosure of Scope 3 GHG emissions beginning in 2027 for the 2026 reporting year. SB 253 would be effective for public and private companies with total annual revenues exceeding $1 billion and that do business in California. Senate Bill 261 (SB 261) requires biennial disclosures posted on a company’s website related to climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks. The bill requires disclosure of the climate-related financial risk disclosures beginning in 2026 for the 2025 reporting year. SB 261 is effective for public and private companies with total annual revenues exceeding $500 million. Both SB 253 and 261 have been challenged in the U.S. District Court for the Central District of California. Further, on September 27, 2024, the California Governor amended both SB 253 and SB 261 by signing into law Senate Bill 219 (SB 219). SB 219 extends the time in which CARB has to promulgate implementing regulations for SB 253 until July 1, 2025, a delay of six months, but does not otherwise change the reporting deadlines in SB 253 or SB 261. +Risk Management +F&G’s ERM policy defines the approach to risk identification, risk assessment, and risk response. The ERMC owns the ERM Policy and is responsible for reviewing and approving the policy on an annual basis. Updates to the policy are determined by the ERM leadership team. +The ERM process includes risk appetite statements and risk tolerances that are linked to the strategic objectives set out in the corporate plan and are stressed using a variety of multifactor scenarios. Qualitative and quantitative approaches are used to manage risk appetite and are monitored as part of the strategy and planning process. +Risks are defined in the risk taxonomy and includes four parent categories: Operational, Product, Financial & Investment, and Strategy. +Risks are identified via ongoing discussions between ERM and the business partners, as well as through monitoring of industry groups and publications. New and emerging risks are reviewed at the ERMC and added to the risk register. Each quarter, ERM works with the risk owners to assess the impact and likelihood of each risk in the register to determine the inherent risk rating and then apply a control assurance rating to identify the residual risk rating. The rating scales are three by three (low, medium, high). The quarterly self-assessment results are reported in the ERM dashboard to the ERMC. The dashboard reflects the residual risk ratings at the sub-category level for the Enterprise. +F&G monitors risks via an annual risk assessment, annual cybersecurity assessment, the quarterly risk self-assessments, quarterly ERMC meetings, monthly Investment Committee meetings, monthly Capital Committee meetings, and ad hoc analysis. The overall risk posture of the organization is updated in the ERMC meeting report that includes a CRAO assessment, emerging risks, ERM dashboard, market risk discussion, stress testing results, and risk appetite measures. +F&G recognizes the rapidly evolving regulatory environment on climate-related risks and opportunities and has a regulatory monitoring process. The ongoing monitoring of sustainability regulations is included in the overall regulatory monitoring process overseen by the Legal Department. Any new regulation passed related to sustainability is entered into the Comply on Demand Enterprise system and assigned to subject matter experts for review. If policy or procedure changes are required, the implementation of those changes is monitored through this system. +44 +Climate risks will be identified and assessed in accordance with the ERM Policy and managed through the ERM framework. The framework utilizes the three lines of defense model: Business/Operational Management, the ERM function (Risk Management), and Internal Audit. +The 1st line of defense develops and implements mitigation activities for risks in business activities and provides monitoring and reporting of such risks on an ongoing basis; the 2nd line of defense challenges and supports the 1st line of defense, while helping to identify activities to mitigate risks and advise on risk management activities. The 3rd line of defense provides management with independent, objective assurance of the overall effectiveness, and efficiency of the design and operation of internal controls. +The framework and process alignment includes utilization of committee structure to identify, assess, and prioritize risk to ensure both senior management and the Board understand and can manage the risk profile. Any changes in business trends as a result of climate change would be identified through Risk Management interaction with the 1st line of defense discussions and risk assessments. No material or significant changes due to climate change have been identified to date. +Investment risk is one of the largest sources of risk to the Company, and the Vice President, Head of Investment Risk and the Chief Investment Officer and Senior Vice President, Investments Chief Operating Officer are responsible for integrating sustainability practices, including understanding and managing climate-related risks, into F&G’s investment process. +Metrics and Targets +F&G’s existing risk management framework includes various metrics to manage risks across the investment portfolio. F&G will continue to monitor risks and opportunities related to our climate risk assessment. +Available Information +Our web address is www.fglife.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) will be available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this document. +The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. +45 +Item 1A. Risk Factors +You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating F&G and our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of F&G’s common stock could decline, and you could lose all or part of your investment. +The risk factors generally have been separated into the following 6 groups: risks related to our business; risks related to economic conditions and market conditions; legal, regulatory and tax risks; risks relating to our indebtedness and financing; risks related to the separation and distribution and our status as a subsidiary of FNF, and risks related to our common stock and preferred stock. However, these risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects . +Risks Related to Our Business +Our debt instruments may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions. +At December 31, 2025, we had outstanding (i) $500 million in aggregate principal balance of our 6.250% F&G Senior Notes due 2034 (the “6.250% F&G Notes”), (ii) $550 million in aggregate principal of our 6.50% Senior Notes due 2029 (the 6.50% F&G Notes”), (iii) $345 million in aggregate principal of our 7.95% Senior Notes due 2053 (the “7.95% F&G Notes”), (iv) $500 million in aggregate principal of our 7.40% Senior Notes due 2028 (the “7.40% F&G Notes”) and (v) $375 million in aggregate principal of our 7.300% Senior Notes due 2065 (the “7.300% F&G Notes”). We also had an unsecured revolving credit agreement with Bank of America, N.A., as administrative agent, the lenders ( the “Lenders”) and guarantors party there-to and the other parties there-to (the “Credit Agreement”), which had no balance outstanding and $750 million of borrowing availability at December 31, 2025. +The Credit Agreement imposes operating and financial restrictions, including financial covenants, and the Credit Agreement and the indentures governing the 6.250% F&G Notes, the 6.50% F&G Notes, the 7.95% F&G Notes, the 7.40% F&G Notes and the 7.300% F&G Notes impose limitations. As a result of these restrictions, covenants and limitations, we may be limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or take advantage of new business opportunities. We do not believe these restrictions, covenants or limitations will have a material impact on the Company’s current or future operations. However, our failure to comply with the restrictive covenants in existing or future debt instruments could result in an event of default, which, if not cured or waived, could result in our being required to repay outstanding indebtedness before their due date. If we are forced to refinance indebtedness on less favorable terms or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected. +Our ability to grow depends in large part upon the continued availability of capital. +Our long-term strategic capital requirements will depend on many factors, including our accumulated statutory earnings and the relationship between our statutory capital and surplus and various elements of required capital. To support long-term capital requirements, we may need to increase or maintain statutory capital and surplus of our insurance subsidiaries through financing which could include debt, equity, financing arrangements or other surplus relief transactions. On June 24, 2022, FNF capitalized $400 million of intercompany indebtedness into common stock of F&G. FNF is not obligated to, may choose not to, or may not be able to provide financing or make capital contributions to us now or in the future. Consequently, financings, if available at all, may be available only on terms that are not favorable to us. Under a NPA with Kubera, in which we are a noteholder, and capital keep-well agreements with our reinsurance subsidiary, F&G Cayman Re, there is an obligation to provide financing to the extent of a funding shortfall on a reserve note facility. Adverse market conditions have affected and continue to +46 +affect the availability and cost of capital from external sources. If we cannot maintain adequate capital for our insurance subsidiaries, or if we are obligated to provide capital contributions in the event of funding shortfalls, we may be required to limit growth in sales of new policies which could materially adversely affect our business, operations and financial condition. +A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition. +Various nationally recognized rating agencies review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in our products, our ability to market our products and our competitive position. Downgrades, unfavorable changes in rating methodology or other negative action by a rating agency could have a material adverse effect on us in many ways, including the following: +• adversely affecting relationships with distributors, IMOs and sales agents, which could result in reduction of sales; +• increasing the number or amount of policy lapses or surrenders and withdrawals of funds; +• requiring a reduction in prices for our subsidiaries’ insurance products and services in order to remain competitive; +• excluding us from participating in the PRT business or FABN issuances; +• adversely affecting our ability to obtain reinsurance at a reasonable price, on reasonable terms or at all; +• requiring us to collateralize reserves, balances or obligations under certain reinsurance agreements. In the event of a withdrawal or downgrade of our S&P issuer credit rating to BB or lower, we are required to fund a note issued by a reinsurance counterparty up to $435 million. As of December 31, 2025, the amount funded under the note agreement was insignificant; and +• limiting our ability to hedge index risk inherent in the products offered due to Additional Termination Event (“ATE”) provisions in our ISDA/Credit Support Annex (“CSA”), which could allow counterparties to opt not to trade with us should our rating fall below a certain threshold. As of December 31, 2025, our ratings exceeded the ATE threshold in our ISDA/CSAs. +We may face losses if our actual experience differs significantly from our reserving assumptions. +Our profitability depends significantly upon the extent to which our actual experience is consistent with the assumptions used in setting rates for our products and establishing liabilities for future life insurance, annuity and PRT policy benefits and claims. However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot precisely determine the amounts we will ultimately pay to settle these liabilities. As a result, we may experience volatility in our reserves and, therefore, our profitability from period to period. To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our reserves which may reduce our profitability and impact our financial strength. +We have been issuing GMWB products since 2008. In our reserve calculations, we make assumptions for policyholder behavior as it relates to GMWB utilization. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on our reserve levels and related results of operations. We will continue to monitor the GMWB utilization assumption and update our best estimate as applicable. +47 +Our valuation of investments and the determinations of the amounts of allowances and impairments taken on our investments may include methodologies, estimates and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect our results of operations and financial condition. +Fixed maturities, equity securities and derivatives represent the majority of total cash and invested assets reported at fair value on our balance sheet. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Expectations that our investments will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process and on assumptions a market participant would use in determining the current fair value. +The determination of current expected credit loss varies by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Our management considers a wide range of factors about the instrument issuer (e.g., operations of the issuer and future earnings potential) and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the instrument and in assessing the prospects for recovery. In addition, we conduct various quantitative credit screens on the investment portfolio to create a credit watchlist. The credit watchlist investments are then further analyzed by our portfolio managers for likelihood of loss of contractual principal and interest. Our portfolio managers also maintain a credit spotlight for investments that do not meet the quantitative screens. These investments have been identified as requiring a higher level of review and monitoring due to idiosyncratic risk. Such evaluations and assessments require significant judgment and are revised as conditions change and new information becomes available. Additional impairments may need to be taken in the future, and the ultimate loss may exceed management’s current estimate of impairment amounts. +The value and performance of certain of our assets are dependent upon the performance of collateral underlying these investments. It is possible the collateral will not meet performance expectations leading to adverse changes in the cash flows on our holdings of these types of securities. +See Note C - Investments to the Consolidated Financial Statements, including the notes thereto, in this Annual Report on Form 10-K for additional information about our investment portfolio. +Change in our evaluation of the recoverability of our deferred tax assets could materially adversely affect our results of operations and financial condition. +Deferred tax assets and liabilities are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates expected to be in effect during the years in which the basis differences reverse. Deferred tax assets, in essence, represent future savings of taxes that would otherwise be paid in cash. We are required to evaluate the recoverability of our deferred tax assets each quarter and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realizable. In determining the need for a valuation allowance, we consider many factors, including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years and implementation of any feasible and prudent tax planning strategies management would employ to realize the tax benefit. +Based on our current assessment of future taxable income, including available tax planning opportunities, we anticipate it is more-likely-than-not that we will generate sufficient taxable income to realize all of our deferred tax assets as to which we do not have a valuation allowance. If future events differ from our current assumptions, the valuation allowance may need to be increased, which could have a material adverse effect on our results of operations and financial condition. +48 +We have recorded goodwill as a result of past acquisitions, and adverse events affecting the value of our reporting unit could cause the balance to become impaired, requiring write-downs that would reduce our operating income. +Current accounting rules require that goodwill be assessed for impairment annually or more frequently if changes in events or circumstances indicate that the fair value of our reporting unit may be less than its carrying value. Factors that may be considered a change in circumstance indicating the carrying value of goodwill may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, divestitures, and negative industry or economic trends. Evaluating this asset’s recoverability requires us to make estimates and assumptions to estimate the fair value of our reporting unit. For the years ended December 31, 2025 and 2024, no goodwill impairment charge was recorded. However, if there is an adverse event affecting the value of our reporting unit in the future, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. We will continue to monitor our operating results and the impact of the economy to determine if there is an impairment of goodwill in future periods. +If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced. +We must attract and retain our network of IMOs and independent agents to sell our products. Insurance companies compete vigorously for productive agents. We compete with private equity investments as well as other life insurance companies for marketers and agents primarily on the basis of our financial position, support services, compensation and product features. If we are unable to attract and retain a sufficient number of marketers and agents to sell our products, our ability to compete and our revenues would suffer. +We operate in a highly competitive industry, which could limit our ability to gain or maintain our position in the industry and could materially adversely affect our business, financial condition and results of operations. +We operate in a highly competitive industry. We encounter significant competition in all of our product lines from other insurance companies, many of which have greater financial resources and higher financial strength ratings than us and which may have a greater market share, offer a broader range of products, services or features, assume a greater level of risk, have lower operating or financing costs, or have different profitability expectations than we do. Competition could result in, among other things, lower sales or higher lapses of existing products. +Our annuity products compete with indexed annuities and fixed rate annuities sold by other insurance companies and also with mutual fund products, traditional bank investments and other retirement funding alternatives offered by asset managers, banks and broker-dealers. The ability of banks and broker-dealers to increase their securities-related business or to affiliate with insurance companies may materially and adversely affect sales of all of our products by substantially increasing the number and financial strength of potential competitors. Our insurance products compete with those of other insurance companies, financial intermediaries and other institutions based on a number of factors, including premium rates, policy terms and conditions, service provided to distribution channels and policyholders, ratings by rating agencies, reputation and commission structures. +Our ability to compete is dependent upon, among other things, our ability to develop competitive and profitable products, our ability to maintain low unit costs, our maintenance of adequate financial strength ratings from rating agencies and our ability to attract and retain distribution channels to market our products, the competition for which is vigorous. We must anticipate and respond effectively to changes in customer preferences, new industry standards, evolving distribution models, disruptive technology developments and alternate business models. The evolving nature of consumer needs and preferences and improvements in technology could result in a reduction in consumer demand and in the prices of the products and services we offer. Our competitive position may be impacted if we are unable to deploy, in a cost effective and competitive manner, technology such as artificial intelligence and machine learning, or if our competitors collect and use data which we do not have the ability to access or use. +49 +There is a risk that purchasers may be able to obtain more favorable terms and offerings from competitors, vendors or other third parties, including pricing and technology. Additionally, customers may turn to our competitors as a result of our or our client’s failure, or perceived failure, to deliver on customer expectations, product or service flaws, technology issues, gaps in operational support or other issues affecting customer experience. As a result, competition may adversely affect the persistency of our policies, our ability to sell products and provide services, maintain client relationships, and our revenues and results of operations. +Concentration in certain states for the distribution of our products may subject us to losses attributable to economic downturns or catastrophes in those states. +For the year ended December 31, 2025, our top five states for the distribution of our products were California, Florida, Pennsylvania, Texas and New Jersey, which together accounted for 40% of our premiums. Any adverse economic developments or catastrophes in these states could have an adverse impact on our business. +Concentration in one or more of our products may subject us to greater volatility of sales if such products experienced a significant decrease in sales. +We may experience greater volatility in our sales performance from period to period to the extent we have a high concentration of sales in one or more of our products and those products suffer a material decline (for whatever reason) in a particular period. We may not be able to increase the sales of other products at the same pace, or at all, to the extent there is a decrease in sales of our products that made up the majority of our sales in historical periods. As a result, decreased sales in high concentration products could adversely affect our financial condition, liquidity and results of operations. +With the addition of the retail bank and broker-dealer channels and our success in entering the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to now five, and from one primary product to now six with our recent entrance into the RILA markets. +We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options. +We cede material amounts of insurance to other insurance companies through reinsurance. Accordingly, we bear credit risk with respect to our reinsurers. The failure, insolvency, inability or unwillingness of any reinsurer to pay under the terms of reinsurance agreements with us could materially adversely affect our business, financial condition, liquidity and results of operations. We regularly monitor the credit rating and performance of our reinsurance parties. Aspida Re, Wilton Re, Somerset and Everlake represent our largest third-party reinsurance counterparty exposures. As of December 31, 2025, the net amount recoverable from Aspida, Somerset, Everlake and Wilton Re were $8,589 million, $5,071 million, $1,868 million and $1,032 million, respectively. The risk of non-performance is mitigated with various forms of collateral or collateral arrangements, including secured trusts, funds withheld accounts and irrevocable letters of credit. +We are also exposed to credit loss in the event of non-performance by our counterparties on options. We seek to reduce the risk associated with such agreements by purchasing such options from large, well-established financial institutions, and by holding collateral. There can be no assurance we will not suffer losses in the event of counterparty non-performance. Several of our derivative counterparty ISDA agreements contain additional termination event triggers based on a downgrade of FGL Insurance. These triggers would give these counterparties the option to terminate our options, which could lead to losses if occurring at an inopportune time. +Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional details on credit risk and counterparty risk. +Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships. +50 +If we do not maintain an effective outsourcing strategy or third-party providers do not perform as contracted, we may experience operational difficulties, increased costs and a loss of business that could have a material adverse effect on our results of operations. If there is a delay in our third-party providers’ introduction of our new products or if our third-party providers are unable to service our customers appropriately, we may experience a loss of business that could have a material adverse effect on our business, financial condition and results of operations. We have a formal vendor management program that follows a continuous lifecycle for all third-party providers. The lifecycle includes an initial risk assessment for new relationships to determine risk tier; vendor due diligence depending on the risk tier; contract management to effectively address all terms, conditions, duties and obligations, risks/issues identified; ongoing monitoring and management to ensure compliance with contract provisions and service level agreements; and termination/offboarding to ensure appropriate communication and any other requirements such as destruction of data. +If our key providers, distributors or other parties terminate important business arrangements with us, reduce their business with us or renew contracts on terms less favorable to us, which occurs from time to time, we may fail to meet our business objectives and targets, and our cash flows, results of operations and financial condition could be materially adversely affected. +In addition, our reliance on third-party service providers that we do not control does not relieve us of our responsibilities and contractual, legal and other requirements. Any failure or negligence by such third-party service providers in carrying out their contractual duties may result in us becoming subjected to liability to parties who are harmed and ensuing litigation. Any litigation relating to such matters could be costly, expensive and time-consuming, and the outcome of any such litigation may be uncertain. Moreover, any adverse publicity arising from such litigation, even if the litigation is not successful, could adversely affect our reputation and sales of our products. +The loss of key personnel could negatively affect our financial results and impair our ability to implement our business strategy. +Our success depends in large part on our ability to attract and retain qualified employees. Intense competition exists for key employees with demonstrated ability, and we may be unable to hire or retain such employees. Our key employees include senior management, sales and distribution professionals, actuarial, investment and finance professionals and information technology professionals. We do not believe the departure of any particular individual would cause a material adverse effect on our operations; however, the unexpected loss of several key employees could have a material adverse effect on our operations due to the loss of their skills, knowledge of our business, and their years of industry experience as well as the potential difficulty of promptly finding qualified replacement employees. +Our risk management policies and procedures may not capture unidentified or unanticipated risk, which could negatively affect our business or result in losses. +We believe we have developed risk management policies and procedures designed to manage material risks within established risk appetites and risk tolerances. Nonetheless, our policies and procedures may not effectively mitigate the internal and external risks identified or predict future exposures, which could be different or significantly greater than expected and which could result in unexpected monetary losses or cause damage to our reputation or additional costs, or which could impair our ability to conduct business effectively. Many of our methods of managing risk and exposures are based upon observed historical data, current market behavior, and certain assumptions made by management. This information may not always be accurate, complete, up-to-date, or properly evaluated. As a result, additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may materially adversely affect our business, financial condition and results of operations. +F&G has a subsidiary focused on acquiring minority and/or majority ownership in indexed universal life and annuity Independent Marketing Organizations (“IMO”). While these acquisitions are intended to diversify our +51 +earnings, they present several risks that could adversely affect our business, financial condition and operating results. +Successfully integrating acquisitions into our existing operations involves significant challenges such as integrating IT systems, consolidating GAAP financials, aligning organizational cultures, and retaining key personnel. Failure to effectively manage any of the integration processes could disrupt our operations and negatively impact our financial performance. +Our due diligence processes may not identify all potential liabilities and risks associated with acquisitions. This could result in unexpected financial and operational challenges post-acquisition, including regulatory non-compliance, undisclosed liabilities, or operational inefficiencies. +Changes in market conditions, regulatory landscapes, or operational environments could adversely impact performance. Additionally, any reputational issues or operational failures could affect our overall brand and market standing. +If acquisitions do not perform as expected, it could lead to financial losses, impairments of goodwill, and a negative impact on our earnings and capital position. Moreover, the use of our financial resources for acquisitions may limit our ability to invest in other strategic initiatives. +Our focus on acquisitions may divert management’s attention from our core operations and other priorities resulting in strategic misalignment. +Failure to comply with regulations during, or post-acquisition, can result in legal penalties, regulatory actions, or reputational damage, which could have a material, adverse effect on our business. +Interruption or other operational failures in telecommunication, information technology and other operational systems, or a failure to maintain the security, integrity, confidentiality or privacy of sensitive data residing on such systems, including as a result of human error, could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and impairment of our ability to conduct business effectively. +We are highly dependent on automated and information technology systems to record and process our internal transactions and transactions involving our customers, as well as to calculate reserves, value invested assets and complete certain other components of our financial statements. The integrity of our computer systems and the protection of the information, including policy holder information, that resides on such systems are important to our successful operation. If we fail to maintain an adequate security infrastructure, adapt to emerging security threats or follow our internal business processes with respect to security, the information or assets we hold could be compromised. Further, even if we, or third parties to which we outsource certain information technology services, maintain a reasonable, industry-standard information security infrastructure to mitigate these risks, the inherent risk that unauthorized access to information or assets remains. This risk is increased by transmittal of information over the internet and the increased threat and sophistication of cyber criminals. While, to date, we believe that we have not experienced a material breach of our computer systems, the occurrence or scope of such events is not always apparent. +In addition, some laws and certain of our contracts require notification of various parties, including regulators, consumers or customers, in the event that confidential or personal information has or may have been taken or accessed by unauthorized parties. Such notifications can potentially result in, among other things, adverse publicity, diversion of management and other resources, the attention of regulatory authorities, the imposition of fines, and disruptions in business operations, the effects of which may be material. Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could inhibit our ability to retain or attract new clients and/or result in financial losses, litigation, increased costs, negative publicity, or other adverse consequences to our business. +52 +Further, our financial institution clients have obligations to safeguard their information technology systems and the confidentiality of customer information. In certain of our businesses, we are bound contractually and/or by regulation to comply with the same requirements. If we fail to comply with these regulations and requirements, we could be exposed to suits for breach of contract, governmental proceedings or the imposition of fines. In addition, future adoption of more restrictive privacy laws, rules or industry security requirements by federal or state regulatory bodies or by a specific industry in which we do business could have an adverse impact on us through increased costs or restrictions on business processes. +Security breaches like the June 2023 MOVEit incident and other disruptions to our information technology infrastructure could compromise Company, consumer and customer information, interfere with our operations, cause us to incur significant costs for remediation and enhancement of our IT systems and expose us to legal liability, all of which could have a substantial negative impact on our business and reputation. +In the ordinary course of business, we collect, process, transmit and store sensitive data, including intellectual property, proprietary business information and personally identifiable information. The secure operation of our information technology systems, and of the processing and maintenance of this information, is critical to our business operations and strategy. Despite our substantial investment in physical and technological security measures, our information technology infrastructure (or those of our third-party vendors and other service providers) are potentially vulnerable to unauthorized access to data or breaches of confidential information. +In June 2023, we were notified that PBI Research Services (“PBI”), a third-party vendor to F&G, was the victim of the security incident associated with the MOVEit file transfer system. PBI provides services to F&G and other companies in the insurance industry, including services to satisfy certain regulatory obligations related to identifying the deaths of insured persons that may trigger the payment of certain insurance benefits. It was widely reported that numerous organizations around the world, including Fortune 500 companies, governmental agencies, and non-governmental organizations, were affected by a zero-day vulnerability in the MOVEit file transfer system. This vulnerability resulted in access to PBI’s instance of the MOVEit system and acquisition of certain data within the MOVEit system by an unauthorized third party. The incident did not affect any F&G systems, including any of F&G’s financial systems. In addition, the incident did not affect F&G’s ability to serve its customers. +Because our products and services involve the storage and transmission of personal information of consumers, we will continue to routinely be the target of attempted cyber and other security threats by outside third parties. Our increased dependence on third parties to store our data systems may also subject us to further cyber threats. In addition, a significant number of our employees continue to work from home and we believe this will continue into 2026 and future years. The remote work environment puts greater demands on our technological systems, puts us at greater risk of cybersecurity incidents and adds complexity to our programs that are designed to protect private data. +While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to cybersecurity breaches or attacks, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductibles, could materially and adversely affect our financial condition, results of operations and cash flows. +Advancements in Artificial Intelligence, Machine Learning, and Large Language Models (“AI/ML/LLM”) pose risks and challenges. +Issues in the development and use of AI/ML/LLM, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, AI/ML/LLM presents risks and challenges that could impact our business. We have and may adopt and integrate artificial intelligence tools into our systems for specific use cases reviewed by legal and information security. The providers of these artificial intelligence tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ +53 +ability to maintain an adequate level of service and experience. If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of AI/ML/LLM, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. +The new and emerging types of AI and their uses are very early stage in the industry and may be subject to many uncertain future developments and regulations. +Regulatory agencies are evaluating existing regulatory frameworks for insurance industry wide use of AI. New AI algorithms and predictive models may be used by insurance companies in the development, administration and sales of insurance products to consumers. However, the use of new artificial intelligence models may make insurance companies more susceptible to potential bias, discrimination, and data security risks. These concerns could lead to development of new, or modifications to, laws and regulations pertaining to the use of Artificial Intelligence by insurance companies, or the broader financial services sector, that may prove to be onerous for companies to implement in a timely manner. +We rely on our investment management advisory agreements (“IMA”) with Blackstone ISG-I Advisors LLC (“BIS”) and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios. +Our insurance company subsidiaries are parties to IMAs with BIS and other investment managers and sub-managers. These entities depend in large part on their ability to attract and retain key people, including senior executives, finance professionals and information technology professionals. Intense competition exists for key employees with demonstrated ability, and our investment managers may be unable to hire or retain such employees. The unexpected loss by any of our investment managers, including BIS, of key employees could have a material adverse effect on their ability to manage our investment portfolio and have an adverse impact on our investment portfolio and results of operations. +We have a long-term contractual relationship with BIS that limits our ability to terminate this relationship or retain another investment manager without BIS’s consent. +Under an omnibus termination side letter among us, FNF and BIS, we have agreed with BIS not to allow other investment managers to be appointed or retained to provide investment management or advisory services to our annuity and life insurance subsidiaries without BIS’s consent. Although BIS has consented to the engagement of other investment managers in the past, BIS has no obligation to do so in the future. +Each of our subsidiaries that is party to an IMA with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any IMA upon 30 days’ notice. However, we and FNF have agreed in the omnibus termination side letter to cause our insurance company subsidiaries to engage BIS as an investment manager. The initial term of this side letter expires on June 1, 2029, and contains an automatic renewal provision which provides for successive two-year terms thereafter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may, with prior notice, terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination will not become effective for one year, during which time BIS may seek to cure the events giving arise to our termination right. If one of our subsidiaries were to terminate an IMA or take other actions that we have agreed will not be taken under the omnibus termination side letter, we and FNF may be in breach of our respective obligations to BIS under such side letter. +54 +The historical performance of BIS, or any other asset manager we engage, should not be considered as indicative of the future results of our investment portfolio, our future results or any returns expected on our common stock. +Our investment portfolio’s returns have benefited historically from investment opportunities and general market conditions that may not continue or currently exist, or may not be repeated, and there can be no assurance that BIS will be able to avail itself of profitable investment opportunities in the future. In addition, because BIS is compensated based solely on our assets which it manages, rather than by investment return targets, BIS is not directly incentivized to maximize investment return targets. Accordingly, there can be no guarantee that BIS will be able to achieve, or seek to achieve, any particular returns for our investment portfolio in the future. +Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact the reputation of our business. +The regulatory environment for investment managers is evolving, and changes in the regulation of investment managers may adversely affect the ability of BIS to effect transactions that utilize leverage or pursue their strategies in managing our investment portfolio. BIS, in conjunction with its investment managers, continuously monitors the ongoing regulatory conversations. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The SEC, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. Due to our reliance on these relationships in particular to manage a significant portion of our investment portfolio, any regulatory action or enforcement against BIS could have an adverse effect on our financial condition. +In addition, the NAIC continues to consider the nature of the relationships between insurance companies and their investment advisors and investment managers, and more broadly the impact of private equity within the insurance industry. We are continuing to monitor the development of any proposals that could have a material impact on the contractual relationships between us and BIS. +Risks Related to Economic Conditions and Market Conditions +Conditions in the economy generally could adversely affect our business, results of operations and financial condition. +Our results of operations are materially affected by conditions in the U.S. economy. Adverse economic conditions may result in a decline in revenues and/or erosion of our profit margins. In addition, in the event of extreme prolonged market events and economic downturns, we could incur significant losses. Even in the absence of a market downturn we are exposed to substantial risk of loss due to market volatility. +Factors such as consumer spending, business investment, government spending, potential government shutdowns, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates, commodity prices, inflation levels, changes in trade policy, tariffs and trade sanctions on goods, trade wars, United States-China relations and supply chain disruptions all affect the business and economic environment and, ultimately, the amount and profitability of our business. The use or threatened use of tariffs by the current administration may cause disruptions in global trade, which could negatively impact clients that we serve and reduce demand for our services. We have limited flexibility to combat these uncertainties and reduce expenses during economic downturns. In an economic downturn characterized by higher unemployment, lower family income, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Under such conditions, we may also experience increased pricing pressures and an elevated incidence of policy lapses, policy loans, withdrawals and surrenders. We have limited flexibility to combat these uncertainties and reduce expenses during economic downturns. As a result, we may face increased pricing pressures during these periods. In addition, the use or threatened use of tariffs by the current administration may cause disruptions in global trade, which could negatively impact clients that we serve and reduce demand for our services. +55 +In addition, our investments could be adversely affected as a result of deteriorating financial and business conditions affecting the issuers of the securities in our investment portfolio. +As of December 31, 2025, current economic conditions, including slightly elevated inflation rates, have not adversely affected our business, results of operations and financial condition. However, we cannot predict if it will impact our business, results of operations and financial condition in the future for the forgoing reasons. +Please refer to “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Trends and Conditions ” for additional details on economic conditions and market conditions that may impact our business. +Our investments are subject to geopolitical risk. The geopolitical events such as the on-going conflicts in Russia, Ukraine and the Middle East may adversely affect our business, financial condition, results of operations and cash flows. +Our operations and financial results may be adversely affected by geopolitical events, including conflicts, political instability, trade restrictions, sanctions, or other hostilities in the regions where we operate or in countries with which we do business. While we have no exposure to investments in Russia or Ukraine, we have de minimis exposure in the Middle East and the surrounding regions. If the conflicts and their inflationary impact leads to a wider recession or other restrictive actions by the United States and/or other countries, our investments could suffer losses, which could have a negative impact on our financial results. +The current invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization (“NATO”) and Russia. The United States and other NATO member states, as well as non-member states, have announced new sanctions against Russia and certain Russian banks, enterprises and individuals. These and any future additional sanctions and any resulting conflict between Russia, the United States and NATO countries could have an adverse impact on our current operations because they could cause declining conditions in worldwide credit and capital markets and the economy in general. Further, such invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United States and other countries are likely to lead to market disruptions, including significant volatility in the credit and capital markets, which could have an adverse impact on our operations and financial performance. +The ongoing armed conflicts in and around the Middle East may negatively impact the business environment, both within and outside of Israel, including due to reluctance of foreign investors to invest or transact business, as well as to increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security markets, and other changes in macroeconomic conditions. To the extent that any of these negative developments do occur, they may have an adverse effect on our business, results of operations and financial condition. +Changes in trade policies, tariffs, or global economic conditions could materially affect our business and financial results. +Changes in trade policies, including tariffs, import/export restrictions, and other trade measures, could have a material and adverse impact on our results of operations, financial condition and cash flows. Such measures may contribute to broader economic and market disruptions, which could affect investment returns, the cost of services we rely on, or the demand for our products. Existing and future trade restrictions or tariffs could increase volatility in financial markets, impact our counterparties and service providers, and otherwise create adverse conditions that may negatively affect our financial position, results of operations, and cash flows. +Our investments are subject to market risks that could be heightened during periods of extreme volatility or disruption in financial and credit markets. +Our invested assets and derivative financial instruments are subject to risks of credit defaults and changes in market values. Periods of extreme volatility or disruption in the financial and credit markets could increase these +56 +risks. Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed income instruments in our investment portfolio. Significant volatility and lack of liquidity in the credit markets could cause the market value of the fixed-income securities we own to decline. Further, if our investment manager, BIS, fails to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses. +Our investments are subject to credit risks of the underlying issuer, borrower, or physical collateral which can change over time with the credit cycle. +A worsening business climate, recession, or changing trends could cause issuers of the fixed-income securities that we own to default on either principal or interest payments. Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within our investment portfolio. +The value of our mortgage-backed securities and our commercial and residential mortgage loan investments depends in part on the financial condition of the borrowers and tenants for the properties underlying those investments, as well as general and specific economic trends affecting the overall default rate. We are also subject to the risk that cash flows resulting from the payments on pools of mortgages that serve as collateral underlying the mortgage-backed securities we own may differ from our expectations in timing or size. Historically, we have not experienced material credit losses; however, any event reducing the estimated fair value of these securities, other than on a temporary basis, could have an adverse effect on our business, results of operations, liquidity and financial condition. +We also maintain holdings in floating rate, and less rate-sensitive investments, including senior tranches of CLOs and directly originated senior secured loans. If realized collateral loss and recoveries differ materially from our assumptions, returns on these assets could be lower than our expectation. +We invest in ABS (traditional and specialty finance) and asset-backed and consumer whole loans. Consumer balance sheets are healthy and underwriting standards have become more conservative following the Global Financial Crisis. However, high inflation rates have been a headwind for consumers, and efforts by the Federal Reserve to stem inflation could induce a recession which would have an adverse impact on consumers and potentially increase delinquencies to a higher level than what is assumed in our underwriting. +Interest rate fluctuations could adversely affect our business, financial condition, liquidity and results of operations. +Interest rate risk is a significant market risk for us, as our business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets. As of December 31, 2025, we also maintained approximately 24% of the assets in our investment portfolio in floating rate investments. We have executed some variable interest rate credit agreements, floating rate funding agreements and pay-float and receive-fixed interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. All of these assets are subject to an element of market risk from changes in interest rates. +Prior to 2022, interest rates had been at or near historical low levels over the preceding several years. A prolonged period of low rates exposes us to the risk of not achieving returns sufficient to meet our earnings targets and/or our contractual obligations. Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations. Lower interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business. +Since March 2022, the Federal Reserve has increased the Federal Funds (“Fed Funds”) rate 11 times from approximately 0% to approximately 5.50% before pausing in the latter half of 2023. In September 2024, the Federal Reserve began reducing the Fed Funds rate ending 2024 at approximately 4.5%. By September 2025, the Fed Funds rate had declined to 4.00%–4.25%, and subsequent cuts in October and December 2025 brought the Fed Funds rate +57 +down further to approximately 3.75%–4.00%, with market expectations and Fed communications suggesting additional reductions into 2026. Over the period since March 2022, market rates across the yield curve have risen. During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed annuities, and we may increase crediting rates on inforce products to keep these products competitive. We may be required to accept lower spread income (the difference between the returns we earn on our investments and the amounts we credit to contract holders), thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates. Rapidly rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve higher returns elsewhere, requiring us to liquidate assets in an unrealized loss position. If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate other less liquid assets such as limited partnership investments. We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would have been able to realize, which could have a material adverse effect on our business, financial condition or operating results. We have developed and maintain ALM programs and procedures that are, we believe, designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows, and robust inflows provide additional opportunities to allocate inforce assets in support of news business, further mitigating potential losses due to disintermediation risk. In addition, we assess surrender charges on withdrawals in excess of allowable penalty-free amounts that occur during the surrender charge period. The significant new business written in recent years strengthens the surrender charge protection since the surrender charges are highest in the early years of a policy. There can be no assurance that actual withdrawals, contract benefits, and maturities will match our estimates. Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby realizing capital losses on the assets sold. +Liabilities that are held on our balance sheet at fair value, including embedded derivatives on our Indexed Annuity and IUL business and market risk benefits (“MRB”) on our indexed annuity and fixed rate annuity business, are sensitive to fluctuations in interest rates. Decreases in interest rates generally would have the impact of increasing the value of these liabilities, which will result in a reduction in our net income. Liabilities for future policy benefits (“FPB”) are valued using locked-in discount rates, and any changes in interest rates since the inception of those contracts are reflected in AOCI. Decreases in interest rates would result in a reduction in our AOCI. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves. +As of December 31, 2025, current economic conditions, including higher interest rates, have not adversely affected our business, results of operations and financial condition. However, we cannot predict if it will impact our business, results of operations and financial condition in the future for the forgoing reasons. Higher interest rates have decreased the fair value of our investment security portfolio, primarily our fixed maturity securities, as of December 31, 2025 and December 31, 2024, resulting in our AOCI being a loss of $1.5 billion and $1.9 billion, respectively. See “ Quantitative and Qualitative Disclosure about Market Risk ” in this Annual Report on Form 10-K for a more detailed discussion of interest rate risk. +Equity market volatility could negatively impact our business. +The estimated cost of providing guaranteed minimum withdrawal benefit riders associated with our annuity products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the MRBs or contractholder funds liabilities associated with such products, resulting in a reduction in our revenues and net income. +We are exposed to liquidity risk as a result of our other risks. +We are exposed to liquidity risk, which is the risk that we are unable to meet near-term obligations as they come due. +58 +Liquidity risk is a manifestation of events that are driven by other risk types, including market, insurance, investment or operational risks. A liquidity shortfall may arise in the event of insufficient funding sources or an immediate and significant need for cash or collateral. In addition, it is possible that expected liquidity sources, such as our minimum cash buffers, funding agreements through the FHLB or other credit facilities, may be unavailable or inadequate to satisfy the liquidity demands described below. +We have the following sources of liquidity exposure and associated drivers that trigger material liquidity demand. Those sources are: +• Derivative collateral market exposure: abrupt changes to interest rate, equity, and/or currency markets may increase collateral requirements to counterparties and create liquidity risk for us. +• Asset liability mismatch: there are liquidity risks associated with liabilities coming due prior to the matching asset cash flows. +• Insurance cash flows: we face potential liquidity risks from unexpected cash demands due to severe mortality calamity, customer withdrawals, policy loans or lapse events. If such events were to occur, we may face unexpectedly high levels of claim payments to policyholders. +• FHLB collateral: we issue funding agreements to the FHLB for which eligible securities collateral is posted. If the value of the eligible securities declines significantly, and there is no available eligible security collateral in the portfolio, we may need to supplement the collateral account with cash. +• Kubera NPA: we issued a variable note purchase agreement to Kubera for which we may be liable to fund any shortfall in Kubera’s ability to pay its obligations under the amended reinsurance agreement with FGL Insurance, assuring such principal up to $435 million is timely paid. +• Holding Company Liquidity: as a holding company, we are required to make interest and expense payments to satisfy obligations. The holding company’s cash position is targeted at the minimum of two times fixed charge coverage ratio on an annual basis. +Our business could be materially and adversely affected by the occurrence of a catastrophe, including natural or man-made disasters. +Any catastrophic event, such as pandemic diseases, terrorist attacks, floods, severe storms or hurricanes or computer cyber-terrorism, could have a material and adverse effect on our business in several respects: +• any such event could have a material adverse effect on our liquidity, financial condition and the operating results of our insurance business due to its impact on the economy and financial markets; +• we could experience long-term interruptions in the services provided by our significant vendors due to the effects of catastrophic events; +• some of our operational systems are not fully redundant, and our disaster recovery and business continuity planning cannot account for all eventualities. Additionally, unanticipated problems with our disaster recovery systems could further impede our ability to conduct business, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data; +• how we manage our financial exposure for losses with third-party reinsurance and catastrophic events could adversely affect the cost and availability of that reinsurance; and +• the value of our investment portfolio may decrease if the securities in which we invest are negatively impacted by climate change (both transition risk and physical risk), pandemic diseases, severe weather conditions and other catastrophic events. +Natural and man-made catastrophes, including but not limited to, pandemics, present risks that could materially adversely affect our results of operations or the mortality or morbidity experience of our business. In addition, our business operations may be adversely affected by the increased risk of malicious and terrorist acts, which could disrupt our operations or the safety of our employees or customers. Claims arising from such events could have a material adverse effect on our business, operations and financial condition, either directly or as a result of their effect +59 +on our reinsurers or other counterparties. Such events could also have an adverse effect on the rate and amount of lapses and surrenders of existing policies, as well as sales of new policies. +While we believe we have taken steps to identify and mitigate these types of risks, such risks cannot be reliably predicted, nor fully protected against even if anticipated. In addition, such events could result in overall macroeconomic volatility or specifically a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of our business within such geographic areas or the general economic climate, which in turn could have an adverse effect on our business, results of operations and financial condition. The possible macroeconomic effects of such events could also adversely affect our asset portfolio. +Our business is subject to risk due to our owned distribution strategy and investments in distribution consolidators. +Our owned distribution strategy, including our investments in minority and majority stakes in various NMGs and other distribution consolidators, exposes us to operational, financial, and strategic risks. These investments, including stakes in Syncis Holdings, DCMT Worldwide, a majority interest in Roar, and a wholly-owned interest in PALH, represent a significant component of our distribution strategy. The success of this strategy depends on the continued growth and performance of these businesses, which is subject to challenges such as the retention and performance of agents, market demand in cultural communities, and our ability to integrate these entities effectively into our broader operations. Furthermore, as industry consolidation among independent agent distribution channels accelerates, competition to acquire and partner with high-performing platforms intensifies, limiting our ability to secure attractive investment opportunities. Our ownership stakes also expose us to financial risks, including the potential for impairment of goodwill or intangible assets if these entities underperform, as well as regulatory and compliance risks related to licensing and fiduciary standards. These factors, combined with the operational challenges of managing both majority and minority investments, create risks that could materially and adversely affect our financial performance, competitive position, and long-term growth prospects. +Legal, Regulatory and Tax Risks +Our business is highly regulated and subject to numerous legal restrictions and regulations. +Insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. Most states also regulate insurance holding companies like us with respect to acquisitions, changes of control and the terms of transactions with our affiliates. In addition, we may incur significant costs in the course of complying with regulatory requirements. +State insurance regulators, the NAIC and federal regulators continually reexamine existing laws and regulations and may impose changes in the future. New interpretations of existing laws and the passage of new legislation may harm our ability to sell new policies, increase our claim exposure on policies we issued previously and adversely affect our profitability and financial strength. We are also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition. +We cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on us if enacted into law. In addition, because our activities are relatively concentrated in a small number of lines of business, any change in law or regulation affecting one of those lines of business could have a disproportionate impact on us as compared to other more diversified insurance companies. +Please refer to “ Business-Regulation of F&G ” included in this Annual Report on Form 10-K for additional details on the impact of regulations on our business. +60 +Our business is subject to government regulation in each of the jurisdictions in which we conduct business and regulators have broad administrative and discretionary authority over our business and business practices. +Our business is subject to government regulation in each of the states in which we conduct business, along with the District of Columbia and Puerto Rico, and is concerned primarily with the protection of policyholders and other customers. Such regulation is vested in state agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy. At any given time, we and our insurance subsidiaries may be the subject of a number of ongoing financial or market conduct, audits or inquiries. From time to time, regulators raise issues during such examinations or audits that could have a material impact on our business. +Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. We cannot predict the amount or timing of any such future assessments and therefore the liability we have established for these potential assessments may not be adequate. In addition, regulators may change their interpretation or application of existing laws and regulations, including, for example, broadening the scope of carriers that must contribute towards long-term care insolvencies. +Risks associated with a shutdown of the United States Government +The United States federal government was shut down on October 1, 2025 and reopened November 13, 2025. When the government is not funded, non-essential federal employees are furloughed and services are limited or curtailed. A prolonged shutdown may lead to broader economic uncertainty and financial market volatility. These conditions could negatively affect our operations, and overall demand for our services and products. A prolonged shutdown could disrupt our ability to complete transactions, delay regulatory approvals, impede access to government data or services necessary for our operations, and hinder our ability to execute strategic initiatives or consummate acquisitions in a timely manner. Further, a prolonged shutdown of the U.S. federal government could materially impact the operations of the SEC. For example, the SEC announced that during the October 2025 U.S. federal government shutdown, it would not declare registration statements effective. In the event of an extended shutdown, the SEC may operate with limited staff or suspend certain functions altogether, which could delay the review or effectiveness of our filings, including registration statements or other financing-related disclosures. Such delays could adversely affect our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue to fund our operations. While we strive to mitigate these risks through contingency planning and industry government affairs efforts, the ultimate impact of any government shutdown is difficult to predict and may be outside our control. Any material adverse effects resulting from a government shutdown could have a negative impact on our business, financial position, and results of operations. +Our business in the United States is regulated by the National Association of Insurance Commissioners (“NAIC”), which continues to consider reforms including relating to cybersecurity regulations, best interest standards, risk-based capital (“RBC”) and life insurance reserves. +Although our business is subject to regulation in each state in which we conduct business, along with the District of Columbia and Puerto Rico, in many instances the state regulatory models emanate from the NAIC. Some of the NAIC pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes, regulations and interpretations may be applied with retroactive impact, particularly in areas such as accounting and reserve requirements. The NAIC continues to work to reform state regulation in various areas, including comprehensive reforms relating to cybersecurity regulations, best interest standards, RBC and life insurance reserves. +We and our insurance subsidiaries are subject to minimum capitalization requirements based on RBC formulas for life insurance companies that establish capital requirements relating to insurance, business, asset, interest rate +61 +and certain other risks. Changes to statutory reserve or RBC requirements may increase the amount of reserves or capital we and our insurance subsidiaries are required to hold and may impact our ability to pay dividends. In addition, changes in statutory reserve or RBC requirements may adversely impact our financial strength ratings. Changes currently under consideration include adding an operational risk component, factors for asset credit risk, and group wide capital calculations. See “— Risks Related to our Business—A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow the business, and could hinder our ability to participate in certain market segments, thereby adversely affect our financial condition and results of operations ” for a discussion of risks relating to our financial strength ratings. +Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the “New Fiduciary Rule”, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s New Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United +62 +States Department of Labor, et al., (“Federation of Americans”) the United States District Court for the Eastern District of Texas issued an order staying the effective date of the DOL’s New Fiduciary Rule (and related amendments to PTE 84-24) that was issued in March 2024. The District Court, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the New Fiduciary Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the New Fiduciary Rule’s original effective date of September 23, 2024 was delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al., held the remaining PTE amendments included in the New Fiduciary Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the New Fiduciary Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. In early 2025, the DOL filed successive unopposed motions to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motions were granted so the appeals were in abeyance. In November 2025, the DOL moved to voluntarily dismiss their appeals and the Fifth Circuit agreed and remanded the cases to the District Courts. The DOL has moved the District Courts to allow until March 2026 to determine their position and next steps with the cases. Adverse Texas District Court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +We cannot predict the final outcome of the pending litigation regarding the New Fiduciary Rule, however, management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs, all of which could adversely impact our business, results of operations and/or financial condition. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. +Please refer to “ Business-Regulation of F&G ” for additional details on the DOL’s “Fiduciary Rule.” +Changes to regulations under ERISA could adversely affect the Company by increasing the Company’s regulatory and compliance burden. +The prohibited transaction rules of ERISA and the Code generally restrict the provision of investment advice to ERISA plans and participants and IRA owners, if the investment recommendation results in fees paid to the individual advisor, his or her firm, or their affiliates, which vary according to the investment recommendation chosen. The 2020 PTE, which took effect on February 16, 2021, was expected to ease some of the investment advice restrictions under ERISA. However, this expectation may change if the New Fiduciary Rule, discussed earlier, becomes law. Currently, the New Fiduciary Rule’s effective date has been stayed from going into effect. In recent years, the DOL has issued or proposed several regulations that increase the level of disclosure that must be provided to plan sponsors and participants. These ERISA disclosure requirements will increase the Company’s regulatory and compliance burden, resulting in increased costs. +Our regulation in Bermuda and the Cayman Islands may limit or curtail our activities, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services. +Our business is subject to regulation in Bermuda and the Cayman Islands, including the BMA and the CIMA. These regulations may limit or curtail our activities, including activities that might be profitable, and changes to +63 +existing regulations may affect our ability to continue to offer our existing products and services, or new products and services we may wish to offer in the future. +Our reinsurance subsidiary, F&G Life Re, is registered in Bermuda under the Bermuda Insurance Act and is subject to the rules and regulations promulgated thereunder. The BMA has sought regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the European Union (“EU”) on a “level playing field.” In connection with its initial efforts to achieve equivalency under the EU’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates. Effective 1 January 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. F&G Life Re has been designated as a certified reinsurer in Iowa. The European Commission in 2016 granted Bermuda’s commercial insurers full equivalency in all areas of Solvency II for an indefinite period of time. Effective 1 January 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations, which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting any collateral. F&G Life Re has been approved as a reciprocal jurisdiction reinsurer in Iowa. +Our reinsurance subsidiary, F&G Cayman Re, is a licensed Class D insurer in the Cayman Islands and a wholly owned direct subsidiary of ours, is licensed by the CIMA and is subject to supervision by CIMA. CIMA may, at any time, direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +Please refer to “ Business-Regulation of F&G ” for additional details on the regulations in Bermuda and the Cayman Islands. +The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete. +The Secure 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023 (“SECURE Act 2.0”), was signed into law on December 29, 2022, and went into effect as early as January 1, 2023, in certain respects. The SECURE Act 2.0 contains provisions that may impact our F&G insurance subsidiaries, and these changes could affect the desirability of IRAs, necessitate changes to our administrative system to implement the Act, and affect, to some extent, the length of time that IRA assets remain in our annuity products. These provisions include, for example, raising the age for required minimum distributions from IRAs from 72 to 73 (age 74 after 2032); additional exceptions to the 10% penalty tax for distributions before age 59-1/2; reduction of the penalty for failures to take a required distribution amount; directions to the SEC for new registration forms for registered index linked annuities; and directions to the DOL to revisit fiduciary standards relating to choosing an annuity provider in pension risk transfer transactions. While we cannot predict whether, or to what extent, the SECURE Act 2.0 will ultimately impact us, whether positive or negative, it may have implications for our business operations and the markets in which we compete. +The amount of statutory capital that our insurance subsidiaries have and the amount of statutory capital that they must hold to maintain their financial strength ratings and meet other requirements can vary significantly from time to time due to a number of factors outside of our control. +The financial strength ratings of our insurance subsidiaries are significantly influenced by their statutory surplus amounts and capital adequacy ratios. In any particular year, statutory surplus amounts and U.S. RBC ratios may increase or decrease depending on a variety of factors, most of which are outside of the control of each of our insurance subsidiaries, including, but not limited to, the following: +• the amount of statutory income or losses generated by such insurance subsidiary (which itself is sensitive to equity market and credit market conditions); +64 +• the amount of additional capital such insurance subsidiary must hold to support business growth and changes to the RBC calculation methodologies; +• changes in statutory accounting or reserve requirements applicable to such insurance subsidiary; +• such insurance subsidiary’s ability to access capital markets to provide reserve relief; +• changes in equity market levels, interest rates, and market volatility; +• the value of certain fixed-income and equity securities in such insurance subsidiary’s investment portfolio; +• changes in the credit ratings of investments held in such insurance subsidiary’s portfolio; and +• the value of certain derivative instruments. +Rating agencies may also implement changes to their internal models, which differ from the RBC capital model and could result in such insurance subsidiary increasing or decreasing the amount of statutory capital it must hold in order to maintain its current financial strength ratings. In addition, rating agencies may downgrade the investments held in such insurance subsidiary’s portfolio, which could result in a reduction of its capital and surplus and its RBC ratio. To the extent that such insurance subsidiary’s U.S. RBC ratios are deemed to be insufficient, such insurance subsidiary may take actions either to increase its capitalization or to reduce the capitalization requirements. If such insurance subsidiary is unable to take such actions, the rating agencies may view this as a reason for a ratings downgrade. +The failure of any of our insurance subsidiaries to meet their applicable RBC requirements or minimum capital and surplus requirements could subject them to further examination or corrective action imposed by insurance regulators, including limitations on their ability to write additional business, supervision by regulators or seizure or liquidation. Any corrective action imposed could have a material adverse effect on such insurance subsidiary’s business, results of operations and financial condition. A decline in U.S. RBC ratios could be a factor in causing rating agencies to downgrade such insurance subsidiary’s financial strength ratings, which could have a material adverse effect on its business, results of operations and financial condition. +New accounting rules or changes to existing accounting standards could adversely impact our reported results of operations. +As a U.S.-based SEC registrant, F&G prepares its financial statements in accordance with GAAP, subject to the accounting-related rules and interpretations of the SEC. New accounting rules or changes in accounting standards, particularly those that specifically apply to insurance company operations, may impact F&G’s reported financial results and could cause increased volatility in reported earnings, resulting in other adverse impacts on F&G’s ratings and cost of capital, and decrease the understandability of F&G’s financial results as well as the comparability of F&G’s reported results with other insurers. +Changes in federal or state tax laws may affect sales of our products and profitability. +The annuity and life insurance products that we market generally provide the policyholder with certain federal income or state tax advantages. For example, federal income taxation on any increases in non-qualified annuity contract values (i.e., the “inside build-up”) is deferred until it is received by the policyholder. Non-qualified annuities are annuities that are not sold to a qualified retirement plan or are in the form of a qualified contract such as an IRA. With other savings investments, such as certificates of deposit and taxable bonds, the increase in value is generally taxed each year as it is realized. Additionally, life insurance death benefits and the inside build-up under life insurance contracts are generally exempt from income tax or are tax deferred. +From time to time, various tax law changes have been proposed that could have an adverse effect on our business, including the elimination of all or a portion of the income tax advantages described above for annuities and life insurance policies. For example, changes in tax law could reduce or eliminate the tax-deferred accumulation of earnings on the deposits paid by the holders of annuities and life insurance products, which could make such products less attractive to potential purchasers. Any such enactment, interpretation, change, repeal or modification could adversely affect us, possibly with retroactive effect. For example, on July 4, 2025, the U.S. government +65 +enacted Public Law 119-21 commonly referred to as the One Big Beautiful Bill Act, which (along with prior U.S. federal tax reform legislation) has resulted in significant changes to the taxation of business entities, including, among other changes, the imposition of minimum taxes and excise taxes, changes to the taxation of income derived from international operations, changes in the deduction and amortization of research and development expenditures, and limitations on the deductibility of business interest. Additionally, insurance products, including the tax favorable features of these products, generally must be approved by the insurance regulators in each state in which they are sold. This review could delay the introduction of new products or impact the features that provide for tax advantages and make such products less attractive to potential purchasers. A shift away from life insurance and annuity products could reduce FGL Insurance’s and FGL NY Insurance’s income from the sale of such products, as well as the assets upon which FGL Insurance and FGL NY Insurance earn investment income. If legislation were enacted to eliminate the tax deferral for annuities or life insurance policies, such a change would have a material adverse effect on our ability to sell non-qualified annuities or life insurance policies. In addition, it is uncertain if and to what extent various states will conform to federal law. We continue to evaluate the impact that these and other tax reforms may have on our business. +Changes in tax law may increase our future tax liabilities and related compliance costs. +From time to time, the United States, as well as foreign, state and local governments, consider changes to their tax laws that may affect our future results of operations and financial condition. Also, the Organization for Economic Co-operation and Development has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. Changes to tax laws could increase their complexity and the burden and costs of compliance. Additionally, such changes could also result in significant modifications to the existing transfer pricing rules and could potentially have an impact on our taxable profits as such legislation is adopted by participating countries. +We and our subsidiaries and affiliates are subject to reviews and audits by the Internal Revenue Service (“IRS”) and other taxing authorities from time to time, and the IRS or other taxing authority may challenge tax positions taken by us and our subsidiaries and affiliates. Responding to or defending against challenges from taxing authorities could be expensive and time consuming, and could divert management’s time and focus away from operating our business. We cannot predict whether and when taxing authorities will conduct an audit, challenge our tax positions or the cost involved in responding to any such audit or challenge. If our subsidiaries and affiliates are unsuccessful in defending against such challenges, they may be required to pay taxes for prior periods, interest, fines or penalties, and may be obligated to pay increased taxes in the future, all of which could have an adverse effect on our business, financial condition, results of operations or growth prospects. +The Inflation Reduction Act establishes, among other things, a new corporate alternative minimum tax of 15% on corporations that have an average adjusted financial statement income in excess of $1 billion over a three-year period and an excise tax of 1% on certain stock buy-backs by publicly-traded corporations. While we are continuing to evaluate the impact of these new provisions, as well as any regulations and legal decisions interpreting and applying them, we currently anticipate that their impact, if any, will not be material to our operating results, cash flows or statutory capital position. +The redemption of our preferred stock may require a significant amount of cash and may result in adverse tax consequences. +We have 5,000,000 shares of preferred stock outstanding as of December 31, 2025 . Pursuant to the Certificate of Designations, on January 15, 2027, unless converted earlier in accordance with the terms of the certificate of designations, each share of the 6.875% Series A Mandatory Convertible Preferred Stock, par value $0.001 per share, liquidation preference of $50.00 per share (“the FNF Preferred Stock”) will automatically convert into between 0.9456 shares and 1.1111 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations. The number of shares of common stock issuable upon conversion will be determined based on the average volume weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to January 15, +66 +2027. The FNF Preferred Stock is not subject to redemption at our option. The redemption of the FNF Preferred Stock and the payment of any excise tax could adversely affect the Company’s business, financial position and results of operations. In the event our assets are not sufficient to meet our redemption obligations, this could have a significant adverse effect on our reputation, business, financial condition, growth and ability to accomplish our strategic objectives. +We may be the target of future litigation, law enforcement investigations or increased scrutiny which may negatively affect our operations or financial strength or reduce profitability. +We, like other financial services companies, are involved in litigation and arbitration in the ordinary course of business. For further discussion on litigation and regulatory investigation risk, see Note N - Commitments and Contingencies to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +From time to time, we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries, and we have responded to or are currently responding to inquiries from multiple governmental agencies. Various governmental entities are studying the insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. +More generally, we operate in an industry in which various practices are subject to scrutiny and potential litigation, including class actions. In addition, we sell our products through IMOs, whose activities may be difficult to monitor. Civil jury verdicts have been returned against insurers and other financial services companies involving sales, underwriting practices, product design, product disclosure, administration, denial or delay of benefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, payment of sales or other contingent commissions and other matters. Such lawsuits can result in substantial judgments and damage to our reputation that is disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, financial services companies have made material settlement payments. +We may not be able to protect our intellectual property and may be subject to infringement claims. +We rely on a combination of contractual rights and copyright, trademark and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, trade secrets and know-how or to determine their scope, validity or enforceability, which represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce the protection of our intellectual property assets could adversely impact our business and our ability to compete effectively. +We may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon that party’s intellectual property rights. Third parties may have, or may eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could otherwise limit our ability to offer certain product features. We may also be subject to claims by third parties for breach of copyright, trademark, trade secret or license usage rights. Any such claims and any resulting litigation could result in significant expense and liability for damages or we could be enjoined from providing certain products or services to our customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade secrets or +67 +licenses, or alternatively, we could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, results of operations and financial condition. +Changing rules, public disclosure regulations and stakeholder expectations on environmental, social and corporate governance (“ESG”) related matters create a variety of risks for our business. +In addition to the changing rules and regulations related to ESG matters imposed by governmental and self-regulatory organizations such as the SEC and the NYSE, a variety of third-party organizations, institutional investors and customers evaluate the performance of companies on ESG topics, and the results of these assessments are widely publicized. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. Reduced access to or increased cost of capital may occur as financial institutions and investors increase or change expectations related to ESG matters. +Developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards. We may also communicate certain initiatives and goals, regarding environmental matters, diversity, social investments and other ESG-related matters, in our SEC filings or in other public disclosures. These initiatives and goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals, including our previously announced commitments to reduce greenhouse gas emissions, within the scope of ESG on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected. +In addition, in recent years “anti-ESG” sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions, and the President having recently issued an executive order opposing diversity equity and inclusion (“DEI”) initiatives in the private sector. Such anti-ESG and anti-DEI-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in additional compliance obligations, investigations and enforcement actions, or reputational harm. +Risks Relating to Our Indebtedness and Financing +We are a holding company and depend on distributions from our subsidiaries for cash. +We are a holding company whose operating subsidiaries write insurance products that generate a net spread between their assets and liabilities (net of operating costs). Our ability to pay interest on our outstanding debt and our other obligations and to pay dividends is dependent on the ability of our subsidiaries to pay dividends or make other distributions or payments to us. If our operating subsidiaries are not able to pay dividends to us, we may not be able to meet our obligations or pay dividends on our common stock or preferred stock. +Our insurance subsidiaries are also subject to state laws or other regulations with respect to the payment of dividends. For example, the Iowa insurance law and the New York insurance law regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. Compliance with these state regulations will limit the amounts that FGL Insurance and FGL NY Insurance may dividend to us. Any dividends in excess of a threshold amount are subject to advance state notice or approval. +The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. To the extent that we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation, or are otherwise unable to provide such funds, it could materially and adversely affect our liquidity and financial condition. Further, depending on business and regulatory +68 +conditions, we may in the future need to retain cash in our subsidiaries or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in interpretation of statutory accounting requirements by regulators. +Risks Related to the Separation and Distribution and our Status as a Subsidiary of Fidelity National Financial, Inc. (“FNF”) +Although we have past history of operating as a public company, our historical financial information and summary historical financial information are not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. +Our historical financial information and summary historical financial information included in this Annual Report on Form 10-K is derived from the Consolidated Financial Statements and the accounting records of F&G and FNF. Accordingly, the historical financial information for periods prior to the separation and distribution included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented, or those that we will achieve in the future, including: +• The ongoing cost of capital for our business may be higher than our access to FNF’s cost of capital prior to the separation and distribution. +• Our historical financial information for periods prior the separation and distribution does not reflect the debt or the associated interest expense that we have incurred in connection with the separation and distribution or expect to incur in the future. +Other changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from FNF. For additional information about the past financial performance of our business and the basis of presentation of the Consolidated Financial Statements and summary historical financial information of our business, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the historical financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K. +FNF is our principal shareholder and retains significant rights with respect to our governance and certain corporate actions. In certain cases, FNF may have interests which differ from our other shareholders. +FNF owns approximately 70% of our outstanding common stock and 5,000,000 shares of our FNF Preferred Stock. As a result, FNF is able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. FNF also has sufficient voting power to approve amendments to our organizational documents. +FNF is under no obligation to sell its remaining interest in us and retains the sole discretion to determine the timing of any future sales of shares of our common stock. +Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that may discourage, delay or prevent a change in our management or control. These provisions not only could have a negative impact on the trading price of our common stock but could also allow FNF to delay or prevent a corporate transaction of which the public shareholders approve. +In addition, conflicts of interest may arise between FNF, as our controlling shareholder, and us. Affiliates of FNF engage in transactions with us. Further, FNF may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us, and FNF may either directly, or through affiliates, also maintain business +69 +relationships with companies that may directly compete with us. In general, FNF or its affiliates could pursue business interests or exercise their voting power as shareholders in ways that are detrimental to us but beneficial to themselves or to other companies in which they invest or with whom they have relationships. Conflicts of interest could also arise with respect to business opportunities that could be advantageous to FNF, and they may pursue acquisition opportunities in the future that may be complementary to our business. As a result, those acquisition opportunities may not be available to us. +Moreover, FNF, our majority-owned parent, recently completed a special distribution of our stock to its shareholders, representing approximately 12% of the outstanding shares of F&G, from a portion of FNF’s ownership interest in us. As a result, the ownership interest held by FNF has been reduced from previous levels to approximately 70%. Changes in our ownership structure may affect our ability to realize the economic benefits historically associated with our prior ownership profile, including but not limited to increased volatility in our stock price or changes in our governance dynamics. +As a result of these relationships, the interests of FNF may not coincide with our interests or the interests of the other holders of our common stock and preferred stock. So long as FNF continues to control a significant amount of the outstanding shares of our common stock, FNF will continue to be able to strongly influence or effectively control our decisions, including with respect to potential mergers or acquisitions, asset sales and other significant corporate transactions. +Certain of our directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions. +A number of persons who currently are our directors are also officers, directors or employees of FNF (or officers, directors or employees of affiliates of FNF) and, thus, have professional relationships with FNF’s officers, directors or employees. In addition, certain of our directors and executive officers own FNF common stock or other equity compensation awards. These relationships may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF and us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between FNF and us regarding the terms of the agreements governing our relationship with FNF. +Provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock. +Our amended and restated certificate of incorporation and bylaws contain, and Delaware law contains, provisions that may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a shareholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our stock. +These provisions include: +• rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings; +• permitting our Board to issue preferred stock without shareholder approval; +• granting to the Board, and not the shareholders, the sole power to set the number of directors; +• the initial division of our Board into three classes of directors, with each class serving a staggered term; +• a provision that directors serving on a classified Board may be removed by shareholders only for cause; +• authorizing vacancies on our Board to be filled only by a vote of the majority of the directors then in office and specifically denying our shareholders the right to fill vacancies in the Board; and +• limiting shareholder action by written consent. +These provisions apply even if an offer may be considered beneficial by some shareholders. +70 +Certain other provisions of our amended and restated certificate of incorporation and bylaws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a shareholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our shares. We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some shareholders and the provisions could delay or prevent an acquisition that our Board determines is not in the best interests of us and our shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. +We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and, as a result, we qualify for, and rely on, exemptions from certain corporate governance requirements. +FNF controls a majority of the voting power of our outstanding common stock. Accordingly, we will qualify as a “controlled company” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance standards, including: +• the requirement that a majority of the board consist of independent directors; +• the requirement to have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; +• the requirement to have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors; and +• the requirement for an annual performance evaluation of the nominating and governance and compensation committees. +We have availed ourselves of some or all of these exemptions. Consequently, you do not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price. If we cease to qualify as a “controlled company” we will be subject to certain phase-in rules to come into compliance with applicable listing standards. +FNF or F&G may fail to perform under various transaction agreements that were executed as part of the separation and distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +In connection with the separation and distribution, we and FNF entered into the separation and distribution agreement. In connection with the separation, F&G also entered into various ancillary agreements to effect the separation and provide a framework for its relationship with FNF after the separation and distribution, such as a corporate services agreement (the “Corporate Services Agreement”), a reverse corporate services agreement (the “Reverse Corporate Services Agreement”), a tax sharing agreement (the “Tax Sharing Agreement”) and other agreements entered into in connection therewith (collectively with a Separation and Distribution Agreement, the “Transaction Agreements”). The Transaction Agreements determine the allocation of assets, rights and liabilities between the companies following the separation and distribution and include indemnifications related to liabilities and obligations. The Corporate Services Agreement provides for the performance of certain services by FNF for the benefit of us for a limited period of time after the separation and distribution. The reverse services agreement provides for the performance of certain services by us for the benefit of FNF for a limited period of time after the separation and distribution. We rely on FNF to satisfy its obligations under the Transaction Agreements. If FNF is unable to satisfy its obligations under the Transaction Agreements, including its indemnification obligations, we could incur operational difficulties or losses. Upon expiration of the Corporate Services Agreement, the services that are covered thereunder will have to be provided internally or by third parties. If we do not have agreements with other providers for these services once certain Transaction Agreements expire or terminate, we may not be able to operate our business effectively, which may have a material adverse effect on our business, financial condition or operating results. +71 +In connection with the separation and distribution, FNF has agreed to indemnify us for certain liabilities, and we have agreed to indemnify FNF for certain liabilities. If we are required to pay under these indemnities to FNF, our financial results could be negatively impacted. FNF’s indemnification of us may not be sufficient to hold us harmless from the full amount of all liabilities that will be allocated to us, and FNF may not be able to satisfy its indemnification obligations in the future. +Pursuant to the Transaction Agreements, FNF has agreed to indemnify us for certain liabilities, and we have agreed to indemnify FNF for certain liabilities, in certain cases for uncapped amounts. Indemnities that we may be required to provide FNF may not be subject to any cap, may be significant and could negatively impact our business, particularly with respect to indemnities provided in the Tax Sharing Agreement. Third parties could also seek to hold us responsible for any of the liabilities that FNF has agreed to retain under the Transaction Agreements. Any amounts that we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used operating our business. Further, the indemnities from FNF may not be sufficient to protect us against the full amount of such liabilities, and FNF may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from FNF any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our business, financial condition or operating results. +We may have received better terms from unaffiliated third parties than the terms we received in our agreements with FNF. +The agreements we entered into with FNF in connection with the separation and distribution, including the Transaction Agreements, were prepared in the context of our separation from FNF while we were still a wholly owned subsidiary of FNF. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of FNF. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s length negotiations between unaffiliated third parties. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business. +Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, which is presumed to exist if a person owns, directly or indirectly, 10% or more of the voting securities of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Persons considering an investment in our common stock should take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such laws in light of their particular circumstances. +We are subject to regulation under the insurance holding company laws of various jurisdictions. See “ Business -Regulation of F&G .” Insurance holding company laws generally provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in any direct or indirect parent company of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Under the laws of each of the domiciliary states of our U.S. insurance subsidiaries, Iowa and New York, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company is presumed to have acquired “control” of the company, which may consider voting securities held at both the parent company and subsidiary collectively for these purposes. This statutory presumption of control may be rebutted by a showing that control does not exist in fact. State insurance regulators, however, may find that “control” exists in circumstances in which a person owns or controls less than 10% of the voting securities. We are a subsidiary of FNF, the common stock (its voting securities) of which trades on the NYSE. Consequently, persons considering an investment in our common stock (our voting securities) should also take into consideration their ownership of FNF voting securities and consult their own legal advisors regarding such insurance holding company laws relating to the purchase and ownership of our common stock in light of their particular circumstances. +72 +Our amended and restated bylaws contain an exclusive forum provision that could limit our shareholders’ ability to choose a judicial forum that they find favorable for certain disputes with us or our directors, officers, shareholders, employees or agents, and may discourage lawsuits with respect to such claims. +Our amended and restated bylaws provide that unless the Board otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, shareholder, employee or agent of ours to either of us or our shareholders, (iii) any action asserting a claim against us or any director, officer, shareholder, employee or agent of ours arising out of or relating to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or bylaws, or (iv) any action asserting a claim against us or any director, officer, shareholder, employee or agent of ours governed by the internal affairs doctrine, in all cases subject to the court having subject matter jurisdiction and personal jurisdiction over an indispensable party named as a defendant. The amended and restated bylaws further provide that the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Therefore, there is uncertainty as to whether a court will enforce the exclusive forum provision with respect to claims arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision does not apply to any actions arising under the Exchange Act and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive forum provisions may limit our shareholders’ ability, or make it more costly, to bring a claim in a judicial forum that they find favorable for such disputes and may discourage these types of lawsuits. Alternatively, if a court were to find the exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions. +We and certain of our subsidiaries file consolidated federal income tax returns with FNF. +We and our eligible subsidiaries are “affiliated” with FNF for U.S. federal income tax purposes and will join in filing with FNF a consolidated federal income tax return for the year ended December 31, 2025. Due to the share distribution on December 31, 2025, F&G will no longer be allowed to file a consolidated tax return with FNF starting in 2026. Therefore, the obligations described here will be ending with the 2025 tax return. There will be a settlement once the final tax return is filed, but our tax attributes might still be impacted by amended returns or carrybacks involving open prior years. Pursuant to the Tax Sharing Agreement, we are periodically obligated to make payments to FNF equal to the tax obligations of us and our subsidiaries for federal income taxes and certain state and local income taxes that are computed on a combined, consolidated or unitary method. In addition, are obligated to make payments to FNF for the use of certain tax attributes of FNF and its subsidiaries that are used to offset taxes by us and our subsidiaries. Certain tax attributes of us and our subsidiaries are also available for use by FNF, for which FNF will generally be obligated to make payments to us in compensation. To the extent such tax attributes are used by FNF and its subsidiaries, they will not be available to offset taxes of us and our subsidiaries. +Risks Related to Our Common Stock and Preferred Stock +Our stock price may fluctuate significantly. +Many factors could cause the market price of our common stock to rise and fall, including the following: +• our business profile and market capitalization may not fit the investment objectives of current shareholders, causing a shift in our investor base, and our common stock may not be included in some indices causing certain holders to sell their common stock; +• our announcements or our competitors’ announcements regarding new products or services, significant contracts, acquisitions or strategic investments; +73 +• fluctuations in our quarterly or annual financial results or the quarterly or annual financial results of companies perceived to be similar to us; +• the failure of securities analysts to cover our common stock; +• actual or anticipated fluctuations in our operating results; +• changes in earnings estimates or recommendations by securities analysts or our ability to meet those estimates; +• the operating and stock price performance of other comparable companies; +• investors’ general perception of us and our industry; +• changes to the regulatory and legal environment under which we operate; +• changes in general economic and market conditions; +• changes in industry conditions; +• changes in regulatory and other dynamics; and +• the other factors described in this “ Risk Factors ” section and elsewhere in this Annual Report on Form 10-K. +In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management. +If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our investors may lose confidence in the accuracy and completeness of our financial reports, which could adversely affect our stock price. +Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, our management is required to report on the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investor confidence and our stock price could decline. +Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NYSE rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect the price of our common stock. +Our common stock is subordinated to our preferred stock. +The Company issued and sold in a private placement to FNF 5,000,000 shares of its FNF Preferred Stock. As described in the Certificate of Designations, subject to certain exceptions, so long as any share of FNF Preferred Stock remains outstanding, no dividend or distribution will be declared or paid on shares of the Company’s common stock, or any other class or series of stock ranking junior to the FNF Preferred Stock, and no common stock or any other class or series of stock ranking junior to or on parity with the FNF Preferred Stock will be purchased, redeemed, or otherwise acquired for consideration by the Company or any of its subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in cash, shares of common stock or a combination thereof, or a sufficient sum of cash or number of shares of common stock has been +74 +set aside for the payment of such dividends, on all outstanding shares of FNF Preferred Stock. In addition, when dividends on shares of the FNF Preferred Stock (i) have not been declared and paid in full on any dividend payment date (or, in the case of any parity stock having dividend payment dates different from such dividend payment dates, on a dividend payment date falling within a regular dividend period related to such dividend payment date), or (ii) have been declared but a sum of cash or number of shares of common stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable regular record date, no dividends may be declared or paid on any parity stock unless dividends are declared on the shares of FNF Preferred Stock such that the respective amounts of such dividends declared on the shares of FNF Preferred Stock and such shares of parity stock shall be allocated pro rata among the holders of the shares of FNF Preferred Stock and the holders of any shares of parity stock then outstanding. +Substantial sales of our common stock may occur which could cause our stock price to be volatile and to decline. +Any sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, in connection with the distribution or otherwise, could cause the market price of our common stock to decline. These sales also could impede our ability to raise future capital. We cannot predict the size of future sales of shares of our common stock in the open market following the distribution or the effect, if any, that such future sales, or the perception that such sales may occur, would have on the market price of our common stock. We are also unable to predict whether a sufficient number of buyers would be in the market at that time. +We cannot guarantee the timing, amount or payment of dividends on our common stock or preferred stock in the future. +We expect to pay regular quarterly dividends in the future. However, there can be no assurance we will be able to pay such dividends. The payment and amount of any future dividend will be subject to the sole discretion of our Board and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our Board may deem relevant, and there can be no assurance that we will continue to pay a dividend in the future. +Your percentage of ownership in F&G may be diluted in the future. +In the future, your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we may be granting to our directors, officers and employees. Such awards may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional options or other stock-based awards to our employees under our employee benefits plans. +In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. +75 +Item 1B. Unresolved Staff Comments +The Company first received a comment letter from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) dated April 25, 2025 relating to the Company’s Form 10-K, filed with the Commission on February 28, 2025. The Company has responded to the Staff on their initial questions and subsequent questions and we have made revisions to clarify certain factual portions of our disclosure in response. As of December 31, 2025, we do not believe any of the revisions or unresolved comments would have a material impact on our business, operations, or financial results. Once formally resolved, further updates will be made in future filings. +Item 1C. Cybersecurity +Risk Management and Strategy Disclosure +The Company’s Information Security team is responsible for executing the Company’s enterprise-wide cybersecurity strategy, which is based upon the Center for Internet Security’s best practice controls, including providing subject matter expertise, accountability, and oversight in the areas of policy and standards development, security architecture, engineering, and development practices, third-party IT and Security risk, compliance with industry, state, and federal regulations, and security education, awareness, and training. The Information Security program is managed and overseen by a full-time Chief Information Security Officer (“CISO”) with over 29 years in information technology leadership, service management, operations, information security, risk management, and regulatory compliance. +The CISO reports to the Company’s Chief Information Officer (“CIO”), who is an executive of the Company and oversees all of the Company’s information technology efforts. The Company’s CIO has over 34 years of information technology leadership experience within the insurance and financial services industries. The CIO provides regular updates to senior leadership, including reports to the Board on a periodic basis. +In conjunction with CIO senior leadership updates and periodic reports to the Board, the Company’s ERM team also provides updates on the Company’s cyber risk and threats, status of key projects improving the Company’s security posture, and efforts reducing the Company’s attack surface. +In addition, a cybersecurity working group reviews the status of the Company’s cybersecurity environment monthly with the senior managers of various departments including Information Technology, Information Security, ERM, Internal Audit, and Compliance. Based on the information received, the working group generates monthly reports and updates key stakeholders across the enterprise. +To mitigate information and cybersecurity risks, the Company utilizes external firms to perform supplemental annual vulnerability and penetration testing to objectively assess and identify potential improvements to the Company’s security posture. Findings from such testing are tracked, prioritized, remediated, and reported accordingly. The Company also leverages a third-party to perform 24x7 Security Operations Center monitoring of its information assets. The Company has processes in-place to risk assess through initial due diligence, monitor throughout the third-party service provider lifecycle, and periodically re-evaluate the technology and security risks associated with the usage of third-party service providers. Additionally, the Company maintains cyber insurance coverage to reduce potential financial losses that may stem from security incidents. +See Item 1A - Risk Factors for discussion of material risks faced by the Company, including risks related to cybersecurity. +76 +Governance Disclosure +As set forth in the Company’s charter, our Audit Committee, comprised of fully independent directors, is responsible for reviewing with management of the Company, the Company’s policies and practices with respect to risk assessment and risk management, including cybersecurity risk. The CRAO reports information and cybersecurity risks to the Audit Committee. +F&G has adopted a “three lines of defense” governance model for information and cybersecurity risk management. The CISO is the first line of defense providing frontline business, operational, and technology controls and capabilities to protect against information and cybersecurity risks and responding to cyber incidents and data breaches. The information security team under the CISO is responsible for overseeing infrastructure defense and security controls, managing access controls, performing vulnerability assessments, facilitating independent external penetration testing, assessing third-party or vendor information security, implementing employee awareness and training programs, and handling security incident management. +F&G's ERM department serves as the Company’s second line of defense and considers Information Security risk alongside other company risks. ERM facilitates the quarterly risk self-assessment with the CISO and the CIO to identify and assess information and cybersecurity risks, evaluates the likelihood and impact of potential risk events to Information Assets, and assesses mitigation offered by the control environment to determine residual risk. The assessment results are presented at quarterly Operational Risk Sub-Committee (“ORSC”) and ERMC meetings. ERM, jointly with the Information Security professionals, annually conducts a Cybersecurity Risk Assessment based on critical security controls set forth by the Center for Internet Security. The assessment is reported to the CRO, CISO and CIO. +The Company’s Internal Audit department serves as the third line of defense and independently assures the effectiveness of the Company’s management of information and cybersecurity risk. +As an added layer of defense, the Company has an incident response team in place to evaluate information and cybersecurity incidents on an on-going basis. Based on materiality, a security incident may be escalated to the Corporate Crisis Management Team (“CCMT”) for risk mitigation and recovery action s. +Cybersecurity Incidents +F&G did not experience a cybersecurity reporting incident during the year ended December 31, 2025. On June 30, 2023, F&G filed a Current Report on Form 8-K regarding a cybersecurity incident associated with the MOVEit file transfer system. As a result of this incident, F&G is a defendant in two putative class action lawsuits that allege certain of F&G’s customers’ personal information was disclosed due to a vulnerability in the MOVEit file transfer software. F&G’s vendor, Pension Benefit Information, LLC (“PBI”), used the MOVEit software in the course of providing audit and address research services to F&G and many other corporate customers. At this time, F&G does not believe the incident will have a material impact on its business, operations, or financial results. For more details on these lawsuits, refer to Note N - Commitment and Contingencies to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K. +Item 2. Properties +Our headquarters are in leased facilities at 801 Grand Avenue, in Des Moines, Iowa. We also have leased space for our primary operations in Hamilton, Bermuda; George Town, Cayman Islands; and New York, New York. We believe our existing facilities are suitable and adequate for our present purposes and operations. +Item 3. Legal Proceedings +See discussion of legal proceedings in Note N - Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K, which is incorporated by reference into this Item 3 of Part I. +77 +Item 4. Mine Safety Disclosures +Not applicable. +78 +Part II +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market Information +On December 1, 2022, FNF announced completion of the distribution to FNF shareholders, on a pro rata basis, of approximately 15% of the common stock of its subsidiary, F&G. Effective December 1, 2022, F&G commenced “regular-way” trading of its common stock on the New York Stock Exchange (“NYSE”) under the symbol “FG”. On December 31, 2025, FNF distributed, on a pro rata basis, approximately 12% of the outstanding shares of F&G common stock. FNF retained control of F&G through approximately 70% ownership of F&G common stock as of December 31, 2025 and continues to trade on the NYSE under the symbol “FNF”. +On January 31, 2026, the last reported sale price of our common stock on the NYSE was $29.49. We had approximately 6,794 shareholders of record of our Common Stock on January 31, 2026. This number does not include the stockholders for whom shares are held in a “nominee” or “street” name. +Refer to Note R - Employee Benefit Plans to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated by reference into this Item 5 of Part II, for further information on securities issued for employee stock compensation pursuant to our Omnibus Plan. +Information concerning securities authorized for issuance under our equity compensation plans will be included in the definitive proxy statement for our Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the close of the fiscal year pursuant to Regulation 14A. +Performance Graph +The graph and the table below compare the cumulative total shareholder return on our common stock against the cumulative total return on the S&P 500 Index and S&P 500 Life and Health Insurance Index. The graph assumes a $100 initial investment on December 1, 2022 (the date that our common stock commenced regular way trading on the New York Stock Exchange) with dividends reinvested over the periods indicated. The stock performance in this graph is not necessarily indicative of future stock performance. +*$100 invested on December 1, 2022 in stock or on November 30, 2022, in index, including reinvestment of dividends. Fiscal year ending December 31. +79 +12/01/22 12/31/22 12/31/23 12/31/24 03/31/25 06/30/25 09/30/25 12/31/25 +F&G Annuities and Life, Inc. $ 100.00 $ 104.60 $ 247.92 $ 228.18 $ 199.52 $ 178.23 $ 175.42 $ 174.38 +S&P 500 100.00 94.24 119.01 148.79 142.43 158.02 170.86 175.39 +S&P 500 Life & Health Insurance 100.00 94.94 99.35 119.52 123.06 119.72 124.47 126.53 +Dividends on Ordinary Shares +On February 19, 2026, our Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on March 31, 2026, to F&G common shareholders of record as of March 17, 2026. During the years ended December 31, 2025, 2024, and 2023, we declared dividends on our common stock of $0.91, $0.85 and $0.81, respectively. On February 19, 2026, our Board of Directors also declared a quarterly cash dividend of $0.8594 per share on the F&G 6.875% Series A Mandatory Convertible Preferred Stock, par value $0.001 per share, liquidation preference of $50.00 per share (the “FNF Preferred Stock”) for the period from January 15, 2026 to and excluding April 15, 2026, to be paid on April 15, 2026, to FNF Preferred Stock record holders as of April 1, 2026. Preferred Stock dividends of approximately $17 million were declared during the year ended December 31, 2025. +We intend to announce the record date and payment date for each dividend, subject to quarterly review and approval by our Board of Directors and any required regulatory approvals, following completion of the relevant fiscal quarter and with payment in the third month of each subsequent quarter, based on our view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance. Generally, no dividends will be declared or paid on F&G common stock and no common stock can be acquired by F&G unless all preferred dividends are declared and paid on the outstanding FNF Preferred Stock. +Purchases of Equity Securities by the Issuer +In 2023, F&G’s Board of Directors approved a three-year stock repurchase program, under which the Company may repurchase up to $50 million of F&G common stock. There were no shares of F&G common stock repurchased under the program during the year ended December 31, 2025. The total remaining authorization of F&G common stock that may yet be purchased under the program at December 31, 2025 totaled approximately $32 million. The Company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued. For further details of the repurchase program, refer to Note U - Equity to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. +There were no unregistered sales of equity securities sold during the period covered by this Annual Report on Form 10-K that were not previously included in a Current Report on Form 8-K. +Item 6. Reserved +80 +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2025, December 31, 2024 and December 31, 2023 should be read together with, and is qualified in its entirety by reference to, our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K which have been prepared in accordance with GAAP. The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Note Regarding Forward-Looking Statements.” +Our Results of Operations discussion and analysis presents a review for the years ended December 31, 2025, 2024 and 2023, and year-over-year comparisons between these years. For a discussion of our 2024 results of operations, including year-over-year comparison to the year ended December 31, 2023, refer to Part I, Item 7 of our Annual Report on Form 10-K, which was filed with the SEC on February 28, 2025. +Overview +The following describes the business of F&G Annuities & Life, Inc. and its subsidiaries. Except where otherwise noted in this Report, all references to “we,” “us,” “our,” the “Company,” or “F&G” are to F&G Annuities & Life, Inc. and its subsidiaries, taken together. +For a description of our business see the discussion under “ Business ” in Item 1 of Part I of this Annual Report on Form 10-K, and Note A - Business and Summary of Significant Accounting Policies in Part II - Item 8 of this Annual Report on Form 10-K, which are incorporated by reference into this Item 7 of Part II of this Annual Report on Form 10-K. +Business Trends and Conditions +The following factors represent some of the key trends and uncertainties that have influenced the development of the Company and its historical financial performance, and we believe these key trends and uncertainties will continue to influence the business and financial performance of the Company in the future. +Market Conditions +Market conditions can change rapidly with significant positive or negative impacts on our results. Volatility can pressure sales and reduce demand as consumers hesitate to make financial decisions. We anticipate various macroeconomic factors will continue to drive uncertainty and instability, which could have a significant impact on the Company during fiscal year 2026. These factors include, among others, consumer spending, business investment, government spending, government shutdown, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates, commodity prices, inflation levels, changes in trade policy, tariffs and trade sanctions on goods, trade wars, United States-China relations and supply chain disruptions. +In light of increasing uncertainty in the markets we serve, we are unable to predict how long the current environment will last or the significance of the financial and operational impacts to us. To enhance the attractiveness and profitability of our products and services, we continually monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which vary in response to changes in market conditions. See “ Part I. Item 1A. Risk Factors” in this Annual Report on Form 10-K for further discussion of risk factors that could affect market conditions. +81 +Interest Rate Environment +Some of our products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of December 31, 2025 and December 31, 2024, our reserves, net of reinsurance, and average crediting rate on our fixed rate annuities were $6.4 billion and 4.84%, respectively, and $6.4 billion and 4.42%, respectively. We are required to pay the guaranteed minimum crediting rates even if earnings on our investment portfolio decline, which would negatively impact earnings. In addition, we expect more policyholders to hold policies with comparatively high guaranteed rates for a longer period in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would increase earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect that policyholders would be less likely to hold policies with existing guarantees as interest rates rise and the relative value of other new business offerings are increased, which would negatively impact our earnings and cash flows. +See “ Quantitative and Qualitative Disclosure about Market Risk ” and “ Part I. Item 1A. Risk Factors ” in this Annual Report on Form 10-K for a more detailed discussion of interest rate risk. +Aging of the U.S. Population +We believe that the aging of the U.S. population will continue to increase demand for retirement savings, growth, and income solutions, including demand for our indexed annuity and indexed universal life (“IUL”) products. We serve a growing retirement population, with more than 11,000 Americans turning 65 every day and a projected 30% increase in people age 65-100 over the next 25 years according to the U.S. Census Bureau. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income. +Industry Factors and Trends Affecting Our Results of Operations +We operate in the sector of the insurance industry that focuses on the needs of middle-income Americans. The underserved middle-income market represents a major growth opportunity for us. As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the financial certainty that we believe annuities such as our indexed annuity products afford. For example, the fixed index annuity (“FIA”) market grew from nearly $12 billion of sales in 2002 to $130 billion of sales in 2024 and the registered index-linked annuities (“RILA”) market grew from $17 billion of sales in 2019 to $62 billion of sales in 2024. Additionally, this market demand has positively impacted the IUL market as it has expanded from $100 million of annual sales in 2002 to $2 billion of annual sales in 2024. +Critical Accounting Policies and Estimates +The accounting estimates described below are those we consider critical in preparing our Consolidated Financial Statements. Management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. See Note A - Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements. +Reserves for Future Policy Benefits and Certain Information on Contractholder Funds +The determination of FPB reserves is dependent on actuarial assumptions. The principal assumptions used to establish liabilities for FPBs are established at issue of the contract and include discount rates, mortality and cash surrender or policy lapse for our traditional life insurance products. The assumptions used require considerable judgment. We review policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Discount rate assumptions are updated at +82 +each reporting period and also incorporate changes in risk free rates and option market values. Changes in, or deviations from, the assumptions previously used can significantly affect our reserve levels and related results of operations in a positive or negative direction. +Mortality refers to the incidence of death on covered lives, which triggers contractual death benefit provisions. On our deferred annuities and life insurance products, these provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. On our life-contingent immediate annuities (which includes life-contingent pension risk transfer (“PRT”) annuities), the death of a named annuitant or certificate holder may trigger the cessation or reduction of future life-contingent payments due, depending on the presence of a joint annuitant/certificate holder and any remaining guaranteed non-life contingent payment periods. We utilize a combination of internal and industry experience when setting our mortality assumptions. +A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. A lapse rate is the percentage of account value canceled by us due to nonpayment of premiums required to maintain coverage on our life insurance products. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender behavior generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our reserve levels and related results of operations. +Discount rates refer to the interest rates used to discount future cash flows to the current period to determine a present value. For liability for FPB reserves the discount rate used is based on the yield curve for A-rated corporate bonds as of the valuation date. Changes in the discount rates from the at-issue or at-purchase discount rates flow through other comprehensive income (loss) (“OCI”). +Our aggregate reserves for contractholder funds, FPBs and MRBs on a direct and net basis as of December 31, 2025 and December 31, 2024, are summarized as follows (in millions): +As of December 31, 2025 +Direct Deposit Asset/ +Reinsurance Recoverable Net +Indexed annuities $ 34,449 $ (3,198) $ 31,251 +Fixed rate annuities 19,267 (12,863) 6,404 +Single premium immediate annuities ("SPIA") and other 1,628 (107) 1,521 +IUL and other life 4,681 (1,377) 3,304 +Funding agreements 6,234 — 6,234 +PRT 8,125 — 8,125 +Total $ 74,384 $ (17,545) $ 56,839 +As of December 31, 2024 +Direct Deposit Asset/ +Reinsurance Recoverable Net +Indexed annuities $ 31,002 $ (861) $ 30,141 +Fixed rate annuities 17,443 (11,009) 6,434 +SPIA and other 1,673 (109) 1,564 +IUL and other life 4,203 (1,390) 2,813 +Funding agreements 5,315 — 5,315 +PRT 6,066 — 6,066 +Total $ 65,702 $ (13,369) $ 52,333 +We have indexed annuities and IUL contracts that permit the holder to elect an interest rate return or an equity index linked component, where interest credited to the contracts is linked to the performance of various equity +83 +indices, such as the S&P 500 Index. This feature represents an embedded derivative under GAAP. The indexed annuities/IUL embedded derivatives are valued at fair value and included in the liability for Contractholder funds in the Consolidated Balance Sheets with the ceded portion of the reinsured indexed crediting feature embedded derivatives recorded as a component of the Reinsurance recoverable in the Consolidated Balance Sheets. Changes in fair value are included as a component of Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +For life-contingent immediate annuity policies, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”). Gross premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPBs. +Valuation of Fixed Maturity, Preferred and Common Equity Securities, and Derivatives +Our investments in fixed maturity securities have been designated as available-for-sale (“AFS”) and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”), net of deferred income taxes. Our equity securities are carried at fair value with unrealized gains and losses included in net income (loss). Realized gains and losses on the sale of investments are determined on the specific identification basis and are credited or charged to income on a trade date basis. +Management’s assessment of all available data when determining fair value of the fixed maturity securities is necessary to appropriately apply fair value accounting. Management utilizes information from independent pricing services, who take into account perceived market movements and sector news, as well as a security’s terms and conditions, including any features specific to that issue that may influence risk and marketability. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. We generally obtain one value from our primary external pricing service. In situations where a price is not available from the independent pricing service, we may obtain broker quotes or prices from additional parties recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing, or other similar techniques. +We validate external valuations at least quarterly through a combination of procedures that include the evaluation of methodologies used by the pricing services, comparisons to valuations from other independent pricing services, analytical reviews and performance analysis of the prices against trends, and maintenance of a securities watch list. See Note B - Fair Value of Financial Instruments and Note C - Investments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +The fair value of derivative assets and liabilities is based upon valuation pricing models or independent broker quotes and represents what we would expect to receive or pay at the balance sheet date if we canceled or exercised the derivative or entered into offsetting positions. Fair values for instruments utilizing valuation pricing models are determined internally using a conventional model and market observable inputs, including interest rates, yield curve volatilities and other factors. Credit risk related to the counterparty is considered when estimating the fair values of these derivatives. However, we are largely protected by collateral arrangements with counterparties when individual counterparty exposures exceed certain thresholds. The fair value of futures contracts (specifically for indexed annuities contracts) at the balance sheet date represents the cumulative unsettled variation margin (open trade equity net of cash settlements). The fair value of an interest rate swap represents the change in projected interest rates between the reporting date and the date the interest rate swap was executed. The fair values of the embedded derivatives in our indexed annuities and IUL contracts are derived using market value of options, use of current and budgeted option cost, swap rates, mortality rates, surrender rates, partial withdrawals, and non-performance spread. The discount rate used to determine the fair value of our indexed annuities/IUL embedded derivative liabilities includes an adjustment to reflect the risk that these obligations will not be fulfilled (“non-performance risk”). For the years ended December 31, 2025 and December 31, 2024, our non-performance risk adjustment was based on the expected loss due to default in debt obligations for similarly rated financial companies. See Note B - Fair Value of +84 +Financial Instruments and Note D - Derivative Financial Instruments to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +F&G cedes certain business on a coinsurance funds withheld basis. Assets supporting the arrangements are reported within Funds withheld for reinsurance liabilities on our Consolidated Balance Sheets. All assets within the Funds withheld for reinsurance liabilities are recorded in a manner consistent with each respective item of our accounting policies discussed in Note A - Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. Investment results for the assets that support the coinsurance that are segregated within the funds withheld account are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance arrangement, which creates embedded derivatives considered to be total return swaps. These embedded derivatives are not clearly and closely related to the underlying reinsurance agreement and thus require bifurcation. For arrangements reinsuring indexed annuities products, the funds withheld account additionally contains an embedded derivative representing the index credit obligation due the reinsurer, resulting in a compound embedded derivative. Beginning in 2025, these embedded derivatives are reported in Funds withheld for reinsurance liabilities, irrespective if in a net asset position or a net liability position, on the Consolidated Balance Sheets and prior periods have been reclassified from Prepaid expenses and other assets to conform with the current presentation. The related gains or losses are reported in Recognized gains and (losses), net on the Consolidated Statements of Operations. Refer to Note B – Fair Value of Financial Instruments for descriptions of the fair value methodologies used for these and other derivative financial instruments and Note D - Derivatives and Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information. +We categorize our fixed maturity securities, preferred securities, common equity securities and derivatives into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. The following table presents the fair value of fixed maturity securities and equity securities by pricing source, hierarchy level and net asset value (“NAV”) as of December 31, 2025 and December 31, 2024, dollars in millions. +As of December 31, 2025 +Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total +Fixed maturity securities and equity securities: +Prices via third party pricing services $ 746 $ 38,986 $ 752 $ — $ 40,484 +Priced via independent broker quotations — — 12,522 — 12,522 +Priced via other methods — — — 35 35 +Total $ 746 $ 38,986 $ 13,274 $ 35 $ 53,041 +% of Total 1 % 74 % 25 % — % 100 % +As of December 31, 2024 +Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) NAV Total +Fixed maturity securities and equity securities: +Prices via third party pricing services $ 441 $ 35,136 $ 852 $ — $ 36,429 +Priced via independent broker quotations — — 10,246 — 10,246 +Priced via other methods — — — 57 57 +Total $ 441 $ 35,136 $ 11,098 $ 57 $ 46,732 +% of Total 1 % 75 % 24 % — % 100 % +85 +Market Risk Benefits +MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on FIA contracts that provide minimum guarantees to policyholders, such as Guaranteed Minimum Death Benefit (“GMDBs”) and Guaranteed Minimum Withdrawal Benefits (“GMWBs”) and Guaranteed Minimum Accumulation Benefits (“GMAB”) riders. In certain reinsurance transactions, the underlying risks ceded to a reinsurer contain MRBs. MRBs, inclusive of reinsured MRBs, are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. +The principal policyholder behavior assumptions used to calculate MRBs are established at issue of the contract and include mortality, contract full and partial surrenders, and utilization of the GMWB rider benefits. The assumptions used reflect a combination of internal experience, industry experience, and judgment. We review overall policyholder behavior experience at least annually and update these assumptions when deemed necessary based on additional information that becomes available. Changes in, or deviations from, the assumptions previously used can significantly affect our MRBs and related results of operations in a positive or negative direction. +See Note G - Market Risk Benefits to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further information on the changes in MRB. +Mortality refers to the incidence of death amongst policyholders on covered lives, which triggers contractual death benefit provisions. These provisions may allow for lump sum payments, payments over a period of time, or spousal continuation of the contract. We utilize a combination of actual internal and industry experience when setting our mortality assumptions. +A surrender rate is the percentage of account value surrendered by the policyholder in exchange for receipt of a cash surrender value. We make estimates of expected full and partial surrenders of our deferred annuity products based on a combination of internal and industry experience. Management’s best estimate of surrender generally represents a medium-to-long term perspective, as we expect to experience a range of policyholder behavior and market conditions period to period. If actual surrender rates are significantly different from those estimated, such differences could have a significant effect on our MRBs and related results of operations. +We have been issuing GMWB products since 2008. We make assumptions for policyholder behavior as it relates to GMWB utilization using a higher degree of industry experience and judgment than our other behavioral assumptions because internal experience, which we review annually, is still emerging. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on MRBs and related results of operations. +Goodwill +As of December 31, 2025 and December 31, 2024, goodwill was $2,180 million and $2,179 million. The goodwill was recorded in connection with the owned distribution acquisitions and the FNF Acquisition. +In evaluating the recoverability of goodwill, we perform a qualitative analysis at the reporting unit level to determine whether there are any events or circumstances that would indicate it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value. Based on the results of this analysis, an annual goodwill impairment test may be completed based on an analysis of the discounted future cash flows generated by the underlying assets. The process of determining whether or not goodwill is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Future cash flow estimates are based partly on projections of market conditions such as the volume and mix of refinance and purchase transactions and interest rates, which are beyond our control and are likely to fluctuate. While we believe that our estimates of future cash flows are reasonable, these estimates are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ from what is assumed in our impairment tests. Such analyses are +86 +particularly sensitive to changes in estimates of future cash flows and discount rates. Changes to these estimates might result in material changes in fair value and determination of the recoverability of goodwill, which may result in charges against earnings and a reduction in the carrying value of our goodwill in the future. We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2025 and December 31, 2024, we determined there were no events or circumstances that indicated that the carrying value exceeded the fair value. +Accounting for Income Taxes +As part of the process of preparing the Consolidated Financial Statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. We must then assess the likelihood that deferred income tax assets will be realized and, to the extent we believe that realizability is not likely, establish a valuation allowance. Determination of income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from period to period. We believe that our tax positions comply with applicable tax law and that we adequately provide for any known tax contingencies. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period that determination is made. +For the year ended December 31, 2025, changes in market conditions, including changing interest rates, resulted in deferred tax assets related to the net unrealized capital losses in the Company’s investment portfolio. U.S. GAAP requires the evaluation of the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized. When assessing the need for valuation allowance on the unrealized capital loss deferred tax assets, we assert a tax planning strategy to hold the vast majority of underlying securities to recovery or maturity. Our ability to assert such a tax planning strategy is dependent upon factors such as the Company’s asset/liability matching process, overall investment strategy, projected future annuity product sales, and expected liquidity needs. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be required to significantly change the income tax expense recorded in the Consolidated Financial Statements. This includes a further significant decline in value of assets incorporated into our tax planning strategies which could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results. +Refer to Note H - Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for details. +Business Overview +We are in three distinct retail channels and two institutional markets. Our three retail channels include agent-based Independent Marketing Organizations (“IMOs”), banks and broker-dealers. We have deep, long-tenured relationships with our network of leading IMOs and their agents to serve the needs of the middle-income market and develop competitive annuity and life products to align with their evolving needs. Upon FNF’s acquisition of F&G on June 1, 2020 (the “FNF Acquisition”), and F&G’s subsequent rating upgrades in mid-2020, we launched into banks and broker-dealers. Further, in 2021, we launched into two institutional markets to originate Funding Agreement Backed Notes (“FABN”) and pension risk transfer (“PRT”) transactions. The FABN Program offers funding agreements to institutional clients by means of capital markets transactions through investment banks. The funding agreements issued under the FABN Program are in addition to those issued to the Federal Home Loan Bank of Atlanta (“FHLB”). The PRT solutions business is supported by an experienced team, and we partner with brokers +87 +and institutional consultants for distribution. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone ISG-I Advisors LLC. +Additionally, we have expanded our owned distribution strategy with majority and minority ownership stakes in a number of IMOs, providing a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. For our minority owned interests, our Consolidated Statements of Operations reflects dividend income in Interest and investment income. For our majority owned interests, unaffiliated commission revenue is recorded in Owned distribution revenue and unaffiliated expenses are recorded in Personnel costs and Other operating expenses in our Consolidated Statements of Operations. +In setting the features and pricing of our flagship indexed annuity products relative to our targeted net margin, we take into account our expectations regarding (1) the difference between the net investment income we earn and the sum of the interest credited to policyholders and the cost of hedging our risk on the policies; (2) fees, including surrender charges and rider fees, partly offset by vesting bonuses that we pay our policyholders; and (3) a number of related expenses, including benefits and changes in reserves, acquisition costs, and general and administrative expenses. +On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G. The purpose of the distribution was to enhance and more fully recognize the overall market value of each company. Additionally, on December 31, 2025, FNF distributed, on a pro rata basis, approximately 12% of the outstanding shares of F&G common stock. Following the distribution, FNF retained approximately 70% ownership of F&G common stock as of December 31, 2025. +Key Components of Our Historical Results of Operations +Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), IUL insurance, immediate annuities, funding agreements and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. IUL insurance is a complementary type of contract that accumulates value in a cash value account and provides a payment to designated beneficiaries upon the policyholder’s death. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically makes payments of principal and interest earnings over a period of time. As defined by the Iowa Insurance Division, a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers issue fixed maturity contracts with fixed or floating interest rates in exchange for a single upfront premium. Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. +Under GAAP, premium collections for deferred annuities (indexed annuities and fixed rate annuities), immediate annuities and PRT without life contingency, and deposits received for funding agreements are reported in the financial statements as deposit liabilities (i.e., contractholder funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges, cost of insurance and other charges deducted from contractholder funds (i.e., amortization of unearned revenue liabilities (“URL”)), and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the hedging cost of providing index credits to the policyholder), amortization of value of business acquired (“VOBA”), deferred acquisition costs (“DAC”) and deferred sales inducements (“DSI”), and other operating costs and expenses. +88 +F&G hedges certain portions of its exposure to product related equity market risk by entering into derivative transactions. We purchase derivatives consisting predominantly of equity options and, to a lesser degree, futures contracts (specifically for indexed annuity contracts) on the equity indices underlying the applicable policy. These derivatives are used to offset the reserve impact of the index credits due to policyholders under the indexed annuity and IUL contracts. The majority of all such equity options are one-year options purchased to match the funding requirements underlying the indexed annuity/IUL contracts. We attempt to manage the cost of these purchases through the terms of our indexed annuity/IUL contracts, which permit us to change caps, spread, or participation rates on each policy's annual anniversary, subject to certain guaranteed minimums that must be maintained. The equity options and futures contracts are marked to fair value with the change in fair value included as a component of net investment gains (losses). The change in fair value of the equity options and futures contracts includes the gains and losses recognized at the expiration of the instruments’ terms or upon early termination and the changes in fair value of open positions. In addition, to reduce market risks from interest rate changes on our earnings associated with our floating rate investments, during 2023 we began to execute pay-float and receive-fixed interest rate swaps. +MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs (inclusive of reinsured MRBs) are measured at fair value using a risk neutral valuation method, which is based on current net amounts at risk, market data, internal and industry experience, and other factors. The change in fair value of MRBs generally reflects impacts from actual policyholder behavior (including surrenders of the benefit), changes in interest rates, and changes in equity market returns. Generally higher interest rates and equity returns result in gains whereas lower interest rates and equity returns result in losses. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. +Earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed annuity/IUL policies, which includes the expenses incurred to fund the index credit with respect to indexed annuities/IULs. Proceeds received upon expiration or early termination of equity options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives and are largely offset by an expense for index credits earned on annuity contractholder fund balances. +Our profitability depends in large part upon the amount of: +i. AUM (see “—Non-GAAP Financial Measures”), +ii. the excess of net investment income over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, earned on our average assets under management (“AAUM” — see “—Non-GAAP Financial Measures”), +iii. flow reinsurance fee income from allocating capital to the highest returning retained business while enhancing cash flow and generating fee-based earnings, +iv. owned distribution margin generated from a meaningfully higher risk adjusted return on capital than retained business and providing a diversifying source of earnings while further strengthening our relationships with key partners, and +v. through our disciplined expense management and the costs of acquiring new business (principally commissions to agents and bonuses credited to policyholders). +As we grow AUM, earnings generally increase. AUM increases when cash inflows, which include sales, exceed cash outflows. Managing the excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies, involves the ability to maximize returns on our AUM and minimize risks such as interest rate changes and defaults or impairment of investments. It also includes our ability to manage interest rates credited to policyholders and costs of the options and futures purchased to fund the annual index credits on the indexed annuities/IULs. We analyze returns on AAUM to measure our profitability. +89 +F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is reinsured. F&G primarily seeks reinsurance coverage in order to manage loss exposures, to enhance our capital position, to diversify risks and earnings, and to manage new business volume. F&G follows reinsurance accounting when the treaty adequately transfers insurance risk and any acquisition cost reimbursements reduce policy acquisition costs deferred and maintenance expense reimbursements reduce direct expenses incurred. Otherwise, F&G follows deposit accounting if there is inadequate transfer of insurance risk or if the underlying policy for which risk is being transferred is an investment contract that does not contain insurance risk. See Note E - Reinsurance to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information. +Non-GAAP Financial Measures +In addition to reporting financial results in accordance with GAAP, this document includes non-GAAP financial measures, which the Company believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. Management believes these non-GAAP financial measures may be useful in certain instances to provide additional meaningful comparisons between current results and results in prior operating periods. Our non-GAAP measures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate such non-GAAP measures in the same manner as we do. The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. By disclosing these non-GAAP financial measures, the Company believes it offers investors a greater understanding of, and an enhanced level of transparency into, the means by which the Company’s management operates the Company. Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings, net earnings attributable to common shareholders, or any other measures derived in accordance with GAAP as measures of operating performance or liquidity. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are provided within. +Adjusted Net Earnings Attributable to Common Shareholders +Adjusted net earnings attributable to common shareholders is a non-GAAP economic measure we use to evaluate financial performance each period. Adjusted net earnings attributable to common shareholders is calculated by adjusting net earnings (loss) attributable to common shareholders to eliminate: +(i) Recognized (gains) and losses, net: the impact of net investment gains/losses, including changes in allowance for expected credit losses and other than temporary impairment (“OTTI”) losses, recognized in operations; and the effects of changes in fair value of the reinsurance related embedded derivative and other derivatives, including interest rate swaps and forwards; +(ii) Market related liability adjustments: the impacts related to changes in the fair value, including both realized and unrealized gains and losses, of index product related derivatives and embedded derivatives, net of hedging cost; the impact of initial pension risk transfer deferred profit liability losses, including amortization from previously deferred pension risk transfer deferred profit liability losses; and the changes in the fair value of market risk benefits by deferring current period changes and amortizing that amount over the life of the market risk benefit; +(iii) Purchase price amortization: the impacts related to the amortization of certain intangibles (internally developed software, trademarks and value of distribution asset and the change in fair value of liabilities recognized as a result of acquisition activities); +(iv) Transaction costs: the impacts related to acquisition, integration and merger related items; +(v) Other and “non-recurring,” “infrequent” or “unusual items”: Other adjustments include removing any charges associated with U.S. guaranty fund assessments as these charges neither relate to the ordinary course of +90 +the Company’s business nor reflect the Company’s underlying business performance, but result from external situations not controlled by the Company. Further, Management excludes certain items determined to be “non-recurring,” “infrequent” or “unusual” from adjusted net earnings when incurred if it is determined these expenses are not a reflection of the core business and when the nature of the item is such that it is not reasonably likely to recur within two years and/or there was not a similar item in the preceding two years; +(vi) Non-controlling interest on non-GAAP adjustments: the portion of the non-GAAP adjustments attributable to the equity interest of entities that F&G does not wholly own; and +(vii) Income taxes: the income tax impact related to the above-mentioned adjustments is measured using an effective tax rate, as appropriate by tax jurisdiction. +While these adjustments are an integral part of the overall performance of F&G, market conditions and/or the non-operating nature of these items can overshadow the underlying performance of the core business. Accordingly, management considers this to be a useful measure internally and to investors and analysts in analyzing the trends of our operations. Adjusted net earnings should not be used as a substitute for net earnings (loss). However, we believe the adjustments made to net earnings (loss) in order to derive adjusted net earnings provide an understanding of our overall results of operations. +For example, we could have strong operating results in a given period, yet report net income that is materially less, if during such period the fair value of our derivative assets hedging the indexed annuity and IUL index credit obligations decreased due to general equity market conditions but the embedded derivative liability related to the index credit obligation did not decrease in the same proportion as the derivative assets because of non-equity market factors such as interest rate and non-performance credit spread movements. Similarly, we could also have poor operating results in a given period yet show net earnings (loss) that is materially greater, if during such period the fair value of the derivative assets increased but the embedded derivative liability did not increase in the same proportion as the derivative assets. We hedge our index credits with a combination of static and dynamic strategies, which can result in earnings volatility, the effects of which are generally likely to reverse over time. Our management and board of directors review adjusted net earnings and net earnings (loss) as part of their examination of our overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on our net earnings (loss). Accordingly, our management performs a review and analysis of these items, as part of their review of our hedging results each period. +Amounts attributable to the fair value accounting for derivatives hedging the indexed annuities and IUL index credits and the related embedded derivative liability fluctuate from period to period based upon changes in the derivative’s underlying index, changes in the interest rates and non-performance credit spreads used to discount the embedded derivative liability, and the fair value assumptions reflected in the embedded derivative liability. The accounting standards for fair value measurement require the discount rates used in the calculation of the embedded derivative liability to be based on risk-free interest rates adjusted for our non-performance as of the reporting date. The impact of the change in fair values of these derivatives and hedging costs has been removed from net earnings (loss) in calculating adjusted net earnings. +Adjusted Return on Assets attributable to Common Shareholders +Adjusted return on assets attributable to common shareholders is calculated by dividing year-to-date annualized adjusted net earnings attributable to common shareholders by year-to-date AAUM. Return on assets is comprised of net investment income, less cost of funds, flow reinsurance fee income, owned distribution margin and less expenses (including operating expenses, interest expense and income taxes) consistent with our adjusted net earnings definition and related adjustments. Cost of funds includes liability costs related to cost of crediting as well as other +91 +liability costs. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing financial performance and profitability earned on AAUM. +Assets Under Management (“AUM”) +AUM is comprised of the following components and is reported net of reinsurance assets ceded in accordance with GAAP: +(i) total invested assets at amortized cost, excluding investments in unconsolidated affiliates, owned distribution and derivatives; +(ii) investments in unconsolidated affiliates at carrying value; +(iii) related party loans and investments; +(iv) accrued investment income; +(v) the net payable/receivable for the purchase/sale of investments; and +(vi) cash and cash equivalents excluding derivative collateral at the end of the period. +Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the size of our investment portfolio that is retained. +Average Assets Under Management (“AAUM”) +AAUM is calculated as AUM at the beginning of the period and the end of each month in the period, divided by the total number of months in the period plus one. +Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the rate of return on retained assets. +Sales +Annuity, IUL, funding agreement and non-life contingent PRT sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP. Sales from these products are recorded as deposit liabilities (i.e., contractholder funds) within the Company's consolidated financial statements in accordance with GAAP. Life contingent PRT sales are recorded as premiums in revenues within the consolidated financial statements. Management believes that presentation of sales, as measured for management purposes, enhances the understanding of our business and helps depict longer term trends that may not be apparent in the results of operations due to the timing of sales and revenue recognition. +Total F&G Equity attributable to common shareholders, excluding AOCI +Total F&G equity attributable to common shareholder, excluding AOCI is based on total F&G Annuities & Life, Inc. shareholders' equity excluding the effect of AOCI and preferred stocks, including additional paid-in-capital. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, changes in instrument-specific credit risk for market risk benefits and discount rate assumption changes for the future policy benefits, management considers this non-GAAP financial measure to be useful internally and for investors and analysts to assess the level of return driven by the Company that is available to common shareholders. +Yield on AAUM +Yield on AAUM is calculated by dividing annualized GAAP net investment income by AAUM. Management considers this non-GAAP financial measure to be useful internally and to investors and analysts when assessing the level of return earned on AAUM. +92 +Results of Operations +The results of operations for the years ended December 31, 2025, 2024 and 2023 were as follows (in millions): +Year Ended December 31, +2025 2024 2023 +Revenues +Life insurance premiums and other fees $ 2,795 $ 2,860 $ 2,413 +Interest and investment income 2,837 2,719 2,211 +Owned distribution revenues 89 81 — +Recognized gains and (losses), net 10 84 (124) +Total revenues 5,731 5,744 4,500 +Benefits and expenses +Benefits and other changes in policy reserves 3,963 3,791 3,553 +Market risk benefit losses (gains) 167 (25) 95 +Depreciation and amortization 665 569 412 +Personnel costs 293 296 232 +Other operating expenses 156 203 146 +Interest expense 164 132 97 +Total benefits and expenses 5,408 4,966 4,535 +Earnings (loss) before income taxes 323 778 (35) +Income tax expense 52 136 23 +Net earnings (loss) 271 642 (58) +Less: Non-controlling interests 6 3 — +Net earnings (loss) attributable to F&G 265 639 (58) +Less: Preferred stock dividend 17 17 — +Net earnings (loss) attributable to F&G common shareholders $ 248 $ 622 $ (58) +The following table summarizes sales by product type (in millions) (see “ Non-GAAP Financial Measures” ): +Year Ended December 31, +2025 2024 2023 +Indexed annuities ("FIA/RILA") $ 6,703 $ 6,729 $ 4,699 +IUL 190 166 156 +PRT 2,126 2,242 1,976 +Subtotal: Core sales 9,019 9,137 6,831 +Fixed rate annuities ("MYGA") 3,794 5,105 5,066 +Funding agreements ("FABN/FHLB") 1,825 1,020 1,256 +Subtotal: Opportunistic sales 5,619 6,125 6,322 +Gross sales 14,638 15,262 13,153 +Sales attributable to flow reinsurance to third parties (4,609) (4,691) (3,915) +Net sales $ 10,029 $ 10,571 $ 9,238 +• Gross sales were modestly lower during the year ended December 31, 2025 compared to the year ended December 31, 2024, and higher for the year ended December 31, 2024 compared to the year ended December 31, 2023. Core sales of indexed annuities, IUL, and PRT, were modestly lower for the year ended December 31, 2025 compared to the year ended December 31, 2024, and higher for the year ended December 31, 2024 compared to the year ended December 31, 2023. Opportunistic sales of MYGA and funding agreements are subject to fluctuation period to period based on economics and market opportunity; we continue to prioritize pricing discipline and capital allocation to the highest return opportunities. +93 +• Sales attributable to flow reinsurance to third parties, including the reinsurance vehicle that went into effect August 1, 2025, were modestly lower during the year ended December 31, 2025 compared to the year ended December 31, 2024, and higher for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily reflecting the level of MYGA sales during the respective periods, the addition of new reinsurance and changes in the percentages ceded during the periods. +Revenues +Life Insurance Premiums and Other Fees +Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on indexed annuity policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts (up to 10% of the prior year's value, subject to certain limitations). The following table summarizes the Life insurance premiums and other fees, on the Consolidated Statements of Operations for the respective periods (in millions): +Year Ended December 31, +2025 2024 2023 +Life-contingent pension risk transfer premiums $ 2,108 $ 2,217 $ 1,964 +Traditional life insurance and life-contingent immediate annuity premiums 30 35 43 +Surrender charges 253 268 103 +Policyholder fees and other income 404 340 303 +Life insurance premiums and other fees (a) $ 2,795 $ 2,860 $ 2,413 +(a) Reported net of ceded premiums of $85 million, $94 million and $105 million and ceded product fees of $60 million, $47 million and $49 million for the years ended December 31, 2025, 2024 and 2023, respectively. +• Life-contingent pension risk transfer premiums were modestly lower during the year ended December 31, 2025 compared to the year ended December 31, 2024, and higher for the year ended December 31, 2024 compared to the year ended December 31, 2023, reflecting the timing of PRT transactions. PRT premiums are subject to fluctuation period to period. +• Surrender charges were modestly lower for the year ended December 31, 2025 compared to the year ended December 31, 2024, and higher for the year ended December 31, 2024 compared to the year ended December 31, 2023. These charges primarily reflect withdrawals from policyholders with surrender charges and market value adjustments (“MVAs”), primarily on our indexed annuities policies, and are subject to changes in the interest rate environment. See “ Item 1. Business – The Products We Offer – Withdrawal Option for Deferred Annuities,” in this Annual Report on Form 10-K for additional discussion on surrender charges and MVAs. +• Policyholder fees and other income increased for the years ended December 31, 2025 and 2024, primarily reflecting higher guaranteed minimum withdrawal benefit (“GMWB”) rider fees and increased cost of insurance charges, net of changes in unearned revenue liabilities (“URL”) on IUL policies from growth in business. GMWB rider fees are based on the policyholder's benefit base and are collected at the end of the policy year. The increase for the year ended December 31, 2025 also includes a reinsurance true-up adjustment. +94 +Interest and Investment Income +Below is a summary of interest and investment income (in millions): +Year Ended December 31, +2025 2024 2023 +Fixed maturity securities, available-for-sale +$ 2,247 $ 2,181 $ 1,843 +Equity securities +18 21 20 +Preferred securities +14 23 41 +Mortgage loans +374 273 229 +Invested cash and short-term investments +105 161 76 +Limited partnerships +302 323 229 +Other investments +43 32 27 +Gross investment income +3,103 3,014 2,465 +Investment expense +(266) (295) (254) +Interest and investment income +$ 2,837 $ 2,719 $ 2,211 +Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $816 million, $636 million and $339 million, for the years ended December 31, 2025, 2024 and 2023, respectively. +Our AAUM and yield on AAUM are summarized as follows (annualized) (dollars in millions) (see “ Non-GAAP Financial Measures” above and “Reconciliation of total investments to AUM ’ below): +Year Ended December 31, +2025 2024 2023 +Annualized interest and investment income $ 2,837 $ 2,719 $ 2,211 +AAUM $ 55,384 $ 51,574 $ 46,044 +Yield on AAUM (at amortized cost) 5.12 % 5.27 % 4.80 % +• AAUM was higher for the years ended December 31, 2025 and 2024, reflecting net new business asset flows, stable inforce retention and net capital transaction proceeds. +• Interest and investment income was higher for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to $201 million from invested asset growth and $33 million of all other rate and mix impacts, partially offset by $116 million of lower returns on alternative investments. +• Interest and investment income was higher for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to $266 million from invested asset growth, $49 million from returns on alternative investments and $193 million of all other rate and mix impacts. +Owned Distribution Revenues +Below is a summary of owned distribution revenues (in millions): +Year Ended December 31, +2025 2024 2023 +Owned distribution revenues $ 89 $ 81 $ — +Owned distribution revenues $ 89 $ 81 $ — +• Owned distribution revenues represent commissions received by our majority owned distribution partners generated from third-party annuity and life insurance sales. Override and bonus commissions are recognized as revenue at the effective date of each policy sold under a contract. Owned distribution +95 +revenues were higher for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily reflecting higher commission revenues. +Recognized Gains and (Losses), Net +Below is a summary of the major components included in recognized gains and losses, net (in millions): +Year Ended December 31, +2025 2024 2023 +Net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets $ (45) $ 76 $ (111) +Change in allowance for expected credit losses (56) (34) (37) +Net realized and unrealized gains (losses) on certain derivatives instruments 250 70 147 +Change in fair value of reinsurance related embedded derivatives (148) (32) (128) +Change in fair value of other derivatives and embedded derivatives 9 4 5 +Recognized gains and (losses), net $ 10 $ 84 $ (124) +Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $(154) million, $(30) million and $(123) million for the years ended December 31, 2025, 2024 and 2023, respectively. +• For the year ended December 31, 2025, net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of mark-to-market losses on our equity securities and net realized losses on fixed maturity available-for-sale securities. +• For the year ended December 31, 2024, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of unrealized fair value option (“FVO”) gains on our unconsolidated owned distribution investments and mark-to-market gains on our preferred and equity securities. +• For the year ended December 31, 2023, net realized and unrealized gains (losses) on fixed maturity available-for-sale securities, equity securities and other invested assets is primarily the result of realized losses on fixed maturity available-for-sale securities, partially offset by mark-to-market gains on our equity securities and realized gains on other invested assets. +• The change in allowance for expected credit losses primarily relates to available for sale securities. +• For all periods, net realized and unrealized gains (losses) on certain derivative instruments primarily relate to the net realized and unrealized gains (losses) on equity options and futures used to hedge indexed annuity and IUL products, including gains on option and futures expiration and changes in the fair value of interest rate swaps. See the table below for primary drivers of gains (losses) on certain derivatives. +• The fair value of the reinsurance-related embedded derivatives in our funds withheld (“FWH”) reinsurance agreements are estimated based upon the change in fair value (for total return swaps), or the fair value (for the index credit obligation due the reinsurer), of the assets supporting the funds withheld from reinsurance liabilities. +We utilize a combination of static (equity options) and dynamic (long futures contracts) instruments in our product hedging strategy. Equity options and futures contracts are generally based upon the performance of various equity indices, such as the S&P 500 Index, as well as other bond and gold market indices. +We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments and we utilize foreign currency swaps to reduce market risks from fluctuations in foreign exchange rates that impact earnings associated with our foreign currency denominated investments. +96 +The components of the realized and unrealized gains (losses) on certain derivative instruments hedging our indexed annuities, universal life products and floating rate investments are summarized in the table below (Dollars in millions): +Year Ended December 31, +2025 2024 2023 +Equity options: +Realized (losses) gains $ (77) $ 220 $ (216) +Change in unrealized gains (losses) 254 (75) 308 +Futures contracts: +Gains on futures contracts expiration 26 24 7 +Change in unrealized gains (losses) 6 (6) 2 +Foreign currency swaps losses (9) — — +Interest rate swaps gains (losses) 59 (103) 48 +Other derivative investments: +(Losses) gains on other derivative investments (9) 10 (2) +Total net change in fair value $ 250 $ 70 $ 147 +Annual Point-to-Point Change in S&P 500 Index during the periods 16 % 23 % 24 % +Secured Overnight Financing Rates 3.87 % 4.49 % 5.38 % +• Realized gains and (losses) on certain derivative instruments are directly correlated to the performance of the indices upon which the equity options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. +• The changes in unrealized gains (losses) due to the net changes in fair value of equity options and futures contracts are driven by the underlying performance of the indices, such as the S&P 500 Index, upon which the equity options and futures contracts are based during each respective period relative to the respective indices on the policyholder buy dates. +• The net change in fair value of the foreign currency and interest rate swaps were primarily driven by fluctuations in the foreign currency exchange rate and interest rate indexes underlying the swap contracts. +The average index credits to policyholders are as follows: +Year Ended December 31, +2025 2024 2023 +Average Crediting Rate 4 % 4 % 1 % +S&P 500 Index: +Point-to-point strategy 5 % 4 % 2 % +Monthly average strategy 3 % 3 % 1 % +Monthly point-to-point strategy 2 % 5 % — % +3 year high water mark 13 % 3 % 8 % +• Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the indexed annuity contracts and certain IUL contracts (caps, spreads and participation rates), which allow us to manage the cost of the options purchased to fund the annual index credits. +• The credits for the periods presented were based on comparing the S&P 500 Index on each issue date in the period to the same issue date in the respective prior year periods. +97 +Benefits and Expenses +Benefits and Other Changes in Policy Reserves +Below is a summary of the major components included in Benefits and other changes in policy reserves (in millions): +Year Ended December 31, +2025 2024 2023 +PRT agreements $ 2,194 $ 2,310 $ 2,016 +Indexed annuities/IUL market related liability movements (56) (221) 588 +Index credits, interest credited and bonuses 1,859 1,696 831 +Other changes in policy reserves (34) 6 118 +Benefits and other changes in policy reserves (a) $ 3,963 $ 3,791 $ 3,553 +(a) Reported net of ceded benefits and other changes in policy reserves of $234 million, $196 million and $175 million for the years ended December 31, 2025, 2024 and 2023, respectively. +• PRT agreements, primarily representing the change in reserves associated with PRT premiums during the periods, were modestly lower during the year ended December 31, 2025 compared to the year ended December 31, 2024, and increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 reflecting the timing of PRT transactions. PRT transactions are subject to fluctuation period to period. +• The indexed annuities/IUL market related liability movements for all periods presented are mainly driven by changes in the equity markets, non-performance spreads, and risk-free rates during the respective periods. The change in risk free rates and non-performance spreads increased (decreased) the indexed annuities market related liability by approximately $138 million, $(203) million and $106 million during the years ended December 31, 2025, 2024 and 2023, respectively. The remaining changes in market value of the market related liability movements for all periods were primarily driven by equity market impacts. See “ Revenues — Recognized gains and (losses), net” above for summary and discussion of net unrealized gains (losses) on certain derivative instruments. +• Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. +• For the year ended December 31, 2025, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within Contractholder funds. These changes resulted in a decrease in total benefits and other changes in policy reserves of approximately $20 million for the year ended December 31, 2025. +• For the year ended December 31, 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within Contractholder funds. These changes resulted in a decrease in total benefits and other changes in policy reserves of approximately $89 million. +• For the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within Contractholder funds and also aligned reserves to actual policyholder behavior. These changes resulted in an increase in total benefits and other changes in policy reserves of approximately $73 million. +98 +• Index credits, interest credited and bonuses were higher for the years ended December 31, 2025 and 2024, primarily reflecting higher index credits and interest credited on indexed annuities and other policies as a result of market movement during the respective periods and higher interest credited associated with the growth in PRT agreements. +Market Risk Benefit Losses (Gains) +Below is a summary of market risk benefit losses (gains) (in millions): +Year Ended December 31, +2025 2024 2023 +Market risk benefit losses (gains) $ 167 $ (25) $ 95 +• Market risk benefit losses (gains) is primarily driven by issuances, attributed fees collected, effects of market related movements (including changes in equity markets and risk-free rates), actual policyholder behavior as compared with expected, changes in assumptions during the periods. Market risk benefit losses (gains) are reported net of reinsurance, reflecting an amended reinsurance agreement effective July 1, 2024. +• Changes in market risk benefit losses (gains) for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily reflect unfavorable market related movements and unfavorable actual policyholder behavior as compared to expected. +• Changes in market risk benefit losses (gains) for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily reflect more favorable market related movements and favorable actual policyholder behavior as compared to expected. +Depreciation and Amortization +Below is a summary of the major components included in depreciation and amortization (in millions): +Year Ended December 31, +2025 2024 2023 +Amortization of DAC, VOBA and DSI $ 576 $ 495 $ 382 +Amortization of other intangible assets and fixed asset depreciation 89 74 30 +Depreciation and amortization $ 665 $ 569 $ 412 +• DAC, VOBA and DSI are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Depreciation and amortization increased for the years ended December 31, 2025 and 2024, primarily reflecting increased DAC and DSI associated with the growth of the business. In addition, as a result of our annual actuarial assumption update process, amortization rates on some DAC and DSI balances increased primarily for indexed annuities. Amortization of VOBA also increased approximately $15 million for the year ended December 31, 2024, reflecting other actuarial model updates and refinements. +• Amortization of other intangible assets and fixed asset depreciation for the year ended December 31, 2025 and 2024 included amortization of other intangible assets from our majority owned interests in Roar and PALH that were acquired in 2024. +99 +Personnel Costs and Other Operating Expenses +Below is a summary of personnel costs and other operating expenses (in millions): +Year Ended December 31, +2025 2024 2023 +Personnel costs $ 293 $ 296 $ 232 +Other operating expenses 156 203 146 +Total personnel costs and other operating expenses $ 449 $ 499 $ 378 +• Personnel costs and other operating expenses decreased during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily reflecting costs in line with sales volumes and growth in assets, disciplined expense management, including one-time management actions taken in the second quarter of 2025, along with continued investments in our operating platform. +• Personnel costs and other operating expenses increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily reflecting costs in line with sales volumes and growth in assets, along with continued investments in our operating platform. The increase for the year ended December 31, 2024 also included $39 million from our majority owned interests in Roar and PALH, $26 million related to the change in fair value of contingent consideration and $19 million of guaranty fund assessments. +Interest expense +Below is a summary of interest expense (in millions): +Year Ended December 31, +2025 2024 2023 +Interest expense $ 164 $ 132 $ 97 +• Interest expense increased for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily reflecting interest on the debt issuances in 2024 and January 2025, partially offset by the payoffs of the 5.50% Senior Notes in February 2025 and the revolving credit facility in 2024. +• Interest expense increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily reflecting interest on the debt issuances in December 2023, June 2024, and October 2024, partially offset by lower interest resulting from a partial repayment of the 5.5% F&G Notes in June 2024 and lower balances on the revolving credit facility. +Other Items Affecting Net Earnings +Income Tax Expense +Below is a summary of the major components included in income tax expense (benefit) (dollars in millions): +Year Ended December 31, +2025 2024 2023 +Earnings (loss) before taxes $ 323 $ 778 $ (35) +Income tax expense (benefit) before valuation allowance 56 150 (12) +Change in valuation allowance (4) (14) 35 +Income tax expense $ 52 $ 136 $ 23 +Effective rate 16 % 17 % (66) % +• The income tax expense for the year ended December 31, 2025 was $52 million compared to income tax expense of $136 million for the year ended December 31, 2024. The effective tax rate was 16% and 17%, +100 +respectively, for the years ended December 31, 2025 and December 31, 2024. The effective tax rate for the year ended December 31, 2025 differs from the statutory rate of 21% primarily due to favorable permanent adjustments and valuation allowance release on unrealized losses and capital loss carryforwards. The effective tax rate for the year ended December 31, 2024 differs from the statutory rate of 21% primarily due to favorable permanent adjustments and valuation allowance release on unrealized losses and capital loss carryforwards. The effective tax rate for the year ended December 31, 2023 differs from the statutory rate of 21% primarily due to a tax valuation allowance expense recorded on unrealized losses and capital loss carryforwards. +• See Note H - Income Taxes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information. +Adjusted Net Earnings (See “ — Non-GAAP Financial Measures”) +The table below shows the adjustments made to reconcile Net earnings (loss) attributable to common shareholders to Adjusted net earnings attributable to common shareholders (in millions): +Year Ended December 31, +2025 2024 2023 +Net earnings (loss) attributable to F&G common shareholders $ 248 $ 622 $ (58) +Non-GAAP adjustments: +Recognized (gains) and losses, net +Net realized and unrealized (gains) losses on fixed maturity available-for-sale securities, equity securities and other invested assets 44 (76) 98 +Change in allowance for expected credit losses 54 32 48 +Change in fair value of reinsurance related embedded derivatives 139 33 128 +Change in fair value of other derivatives and embedded derivatives (57) 38 (60) +Recognized (gains) losses, net 180 27 214 +Market related liability adjustments 28 (214) 258 +Purchase price amortization 80 84 22 +Transaction costs, other and non-recurring items 16 16 3 +Non-controlling interest (9) (10) — +Income taxes adjustment (61) 21 (104) +Adjusted net earnings attributable to common shareholders $ 482 $ 546 $ 335 +The commentary below is intended to provide additional information on the significant income and expense items that help explain the trends in our adjusted net earnings for each time period, as we believe these items provide further clarity to the financial performance of the business. +• Adjusted net earnings of $482 million for the year ended December 31, 2025 included income from a $16 million reinsurance true-up adjustment, $10 million tax valuation allowance benefit, and $4 million of actuarial reserve release. Investment income from alternative investments was $278 million below management’s long-term expected return of approximately 10%. +• Adjusted net earnings of $546 million for the year ended December 31, 2024 included expense from $30 million of actuarial model updates and refinements; partially offset by income from a $14 million tax valuation allowance and $6 million of other income items. Investment income from alternative investments was $145 million below management’s long-term expected return of approximately 10%. +• Adjusted net earnings of $335 million for the year ended December 31, 2023 included expense from $37 million tax valuation allowance, $10 million of one-time fixed asset impairment charge and $9 million actuarial industry assumption updates. Investment income from alternative investments was $153 million below management’s long-term expected return of approximately 10%. +101 +• . +Investment Portfolio +The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. Within the parameters of these laws, we invest in assets giving consideration to four primary investment objectives: (i) maintain robust absolute returns; (ii) provide reliable yield and investment income; (iii) preserve capital; and (iv) provide liquidity to meet policyholder and other corporate obligations. +Our investment portfolio is designed to contribute stable earnings, excluding short-term mark-to-market effects, and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities. +Our investments include assets backing reserves as part of coinsurance with funds withheld agreements. The funds withheld invested assets are reported within their respective line items. +As of December 31, 2025 and 2024, the fair value of our investment portfolio was approximately $69 billion and $60 billion, respectively, and was divided among the following asset classes and sectors (dollars in millions): +December 31, 2025 December 31, 2024 +Fair Value Percent Fair Value Percent +Fixed maturity securities, available for sale: +United States Government full faith and credit $ 493 1 % $ 158 — % +United States Government sponsored entities 196 — 95 — +United States municipalities, states and territories 1,355 2 1,346 2 +Foreign Governments 261 — 186 — +Corporate securities: +Finance, insurance and real estate 9,309 14 8,611 14 +Manufacturing, construction and mining 1,386 2 1,139 2 +Utilities, energy and related sectors 3,681 5 2,971 5 +Wholesale/retail trade 3,732 5 3,210 5 +Services, media and other 5,142 8 4,547 8 +Hybrid securities 609 1 581 1 +Non-agency residential mortgage-backed securities 2,649 4 2,693 5 +Commercial mortgage-backed securities (a) 5,155 8 5,131 9 +Asset-backed securities ("ABS") (a) 7,842 11 10,270 17 +Collateral loan obligations and loan backed-private obligations ("CLO") (a) +10,890 16 5,379 9 +Total fixed maturity available for sale securities 52,700 77 46,317 77 +Equity securities (b) 341 1 415 1 +Limited partnerships: +Private equity 2,079 3 1,830 3 +Real assets 886 1 437 1 +Credit 1,643 2 1,021 2 +Limited partnerships 4,608 6 3,288 6 +Commercial mortgage loans 3,025 4 2,404 4 +Residential mortgage loans 4,424 6 2,916 5 +Other (primarily derivatives, company owned life insurance and unconsolidated owned distribution investments) 2,859 4 1,753 3 +Short term investments 1,043 2 2,410 4 +Total investments $ 69,000 100 % $ 59,503 100 % +102 +(a) Balances at December 31, 2025 reflect classifications consistent with NAIC Principles Based Bond Definition Project effective January 1, 2025. +(b) Includes investment grade non-redeemable preferred stocks ($197 million and $222 million at December 31, 2025 and 2024, respectively). +Insurance statutes regulate the type of investments that our life insurance subsidiaries are permitted to make and limit the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and our business and investment strategy, we generally seek to invest in primarily high-grade fixed-income assets across a wide range of sectors, including Corporate securities, U.S. Government and government-sponsored agency securities, and Structured securities, among others. +The NAIC’s Securities Valuation Office (“SVO”) is responsible for the day-to-day credit quality assessment and valuation of securities owned by state regulated insurance companies. Insurance companies report ownership of securities to the SVO when such securities are eligible for regulatory filings. The SVO conducts credit analysis on these securities for the purpose of assigning an NAIC designation or unit price. Typically, if a security has been rated by a nationally recognized statistical rating organization (“NRSRO”), the SVO utilizes that rating and assigns an NAIC designation based upon the NAIC published comparison of NRSRO ratings to NAIC designations. +The NAIC determines ratings for non-agency Residential Mortgage-backed Securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) using modeling that estimates security level expected losses under a variety of economic scenarios. For such assets issued prior to January 1, 2013, an insurer’s amortized cost basis in applicable assets can impact the assigned rating. In the tables below, we present the rating of structured securities based on ratings from the NAIC rating methodologies described above (which in some cases do not +103 +correspond to rating agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the NAIC methodologies. +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our fixed income portfolio (dollars in millions) at December 31, 2025 and 2024: +December 31, 2025 December 31, 2024 +NRSRO +Rating NAIC Designation Amortized Cost Fair Value Fair Value Percent Amortized Cost Fair Value Fair Value Percent +AAA/AA/A 1 $ 34,360 $ 32,738 62 % $ 31,258 $ 29,174 63 % +BBB 2 18,300 17,524 34 16,254 15,082 33 +BB 3 1,705 1,660 3 1,591 1,538 3 +B 4 495 464 1 375 353 1 +CCC 5 127 107 — 100 68 — +CC and lower 6 305 207 — 151 102 — +Total +$ 55,292 $ 52,700 100 % $ 49,729 $ 46,317 100 % +Investment Concentrations +The tables below present the top ten structured security and industry categories of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of December 31, 2025 and 2024 (dollars in millions): +December 31, 2025 +Top 10 Concentrations Fair Value Percent of Total Fair Value +CLO (a) $ 10,890 21 % +ABS (a) 7,842 15 +Commercial mortgage-backed securities 5,155 10 +Diversified financial services 4,161 8 +Whole loan collateralized mortgage obligation 2,630 5 +Banking 2,246 4 +Insurance 1,902 4 +Electric 1,413 3 +Municipal 1,355 2 +Pipelines 945 2 +Total $ 38,539 74 % +(a) Balances at December 31, 2025, reflect classifications consistent with the NAIC Principles Bond Definition Project effective January 1, 2025. +December 31, 2024 +Top 10 Concentrations Fair Value Percent of Total Fair Value +ABS $ 10,270 22 % +CLO 5,379 11 +Commercial mortgage-backed securities 5,131 11 +Diversified financial services 4,271 9 +Whole loan collateralized mortgage obligation 2,635 6 +Banking 1,988 4 +Insurance 1,761 4 +Municipal 1,363 3 +Electric 1,229 3 +Pharmaceuticals 738 1 +Total $ 34,765 74 % +104 +The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of December 31, 2025 (in millions), are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. +December 31, 2025 +Amortized Cost Fair Value +Corporate, Non-structured Hybrids, Municipal, Foreign and U.S. Government securities: +Due in one year or less $ 331 $ 330 +Due after one year through five years 4,552 4,586 +Due after five years through ten years 5,398 5,394 +Due after ten years 18,026 15,658 +Subtotal 28,307 25,968 +Other securities, which provide for periodic payments +Asset-backed securities 18,847 18,732 +Commercial mortgage-backed securities 5,298 5,155 +Residential mortgage-backed securities 2,840 2,845 +Subtotal 26,985 26,732 +Total fixed maturity available-for-sale securities $ 55,292 $ 52,700 +Non-Agency RMBS Exposure +Our investment in non-agency RMBS securities is predicated on the conservative and adequate cushion between purchase price and NAIC 1 rating, general lack of sensitivity to interest rates, positive convexity to prepayment rates and correlation between the price of the securities and the unfolding recovery of the housing market. +The fair value of our investments in subprime securities and Alt-A RMBS securities were $4 million and $48 million as of December 31, 2025, respectively, and $29 million and $44 million as of December 31, 2024, respectively. As of December 31, 2025 and 2024, approximately 92% and 93%, respectively, of the subprime and Alt-A RMBS exposures were rated NAIC 2 or higher. +ABS and CLO Exposures +Our ABS exposures are largely diversified by underlying collateral and issuer type. Our CLO exposures are generally senior tranches of CLOs which have leveraged loans as their underlying collateral. +As of December 31, 2025, the CLO and ABS positions were trading at a net unrealized gain of $42 million and a net unrealized loss of $133 million, respectively. As of December 31, 2024, the CLO and ABS positions were trading at a net unrealized gain of $92 million and a net unrealized loss of $207 million, respectively. +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS ABS portfolio (dollars in millions) at December 31, 2025 and 2024. Balances at December 31, 2025 reflect classifications consistent with the NAIC Principles Based Bond Definition Project effective January 1, 2025. +December 31, 2025 December 31, 2024 +Fair Value Percent Fair Value Percent +NRSRO Rating NAIC Designation +AAA/AA/A 1 $ 5,457 70 % $ 7,963 78 % +BBB 2 2,018 26 1,633 16 +BB 3 190 2 445 4 +B 4 17 — 183 2 +CCC 5 10 — 8 — +CC and lower 6 150 2 38 — +Total $ 7,842 100 % $ 10,270 100 % +105 +The following table summarizes the credit quality by NRSRO rating, or NAIC designation equivalent, of our AFS CLO portfolio (dollars in millions) at December 31, 2025 and 2024. Balances at December 31, 2025 reflect classifications consistent with the NAIC Principles Based Bond Definition Project effective January 1, 2025. +December 31, 2025 December 31, 2024 +Fair Value Percent Fair Value Percent +NRSRO Rating NAIC Designation +AAA/AA/A 1 $ 7,366 67 % $ 3,411 63 % +BBB 2 2,466 23 1,396 26 +BB 3 835 8 524 10 +B 4 196 2 10 — +CCC 5 — — — — +CC and lower 6 27 — 38 1 +Total $ 10,890 100 % $ 5,379 100 % +Municipal Bond Exposure +The following table summarizes our municipal bond exposure as of December 31, 2025 and 2024 (in millions). +December 31, 2025 December 31, 2024 +Amortized Cost Fair Value Amortized Cost Fair Value +General obligation bonds $ 221 $ 186 $ 247 $ 205 +Special revenue bonds 1,325 1,156 1,329 1,128 +Certificate participations 16 13 16 13 +Total $ 1,562 $ 1,355 $ 1,592 $ 1,346 +Across all municipal bonds, the largest issuer represented 4% and 5% respectively, of the category and less than 1% of the total portfolio for both December 31, 2025 and 2024, and is rated NAIC 1 as of December 31, 2025. Our focus within municipal bonds is on NAIC 1 rated instruments, with 98% and 97% of our municipal bond exposure rated NAIC 1 as of December 31, 2025 and 2024, respectively. +Mortgage Loans +Commercial Mortgage Loans +We diversify our commercial mortgage loans (“CMLs”) portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a level to secure the related debt. Loan-to-value (“LTV”) and debt-service coverage (“DSC”) ratios are utilized to assess the risk and quality of CMLs. As of December 31, 2025 and 2024, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times and a weighted average LTV ratio of 57% for both periods. +We consider a CML delinquent when a loan payment is greater than 30 days past due. For mortgage loans that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. As of December 31, 2025 and 2024, we had one CML that was delinquent in principal or interest payments. We had no CMLs in the process of foreclosure as of December 31, 2025 and 2024. See Note C - Investments to the Consolidated Financial Statements included in this report for additional information on our CMLs, including our distribution by property type, geographic region, LTV and DSC ratios. +106 +Residential Mortgage Loans +Our residential mortgage loans (“RMLs”) are primarily closed end, amortizing loans and 100% of the properties are in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. RMLs have a primary credit quality indicator of either a performing or non-performing loan. We define non-performing RMLs as those that are 90 or more days past due and/or in non-accrual status. +Loans are placed on non-accrual status when they are over 90 days delinquent. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current can be put in place. See Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on our RMLs. +Unrealized Losses +The amortized cost and fair value of the fixed maturity securities and the equity securities that were in an unrealized loss position as of December 31, 2025 and 2024, were as follows (dollars in millions): +December 31, 2025 +Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value +Fixed maturity securities, available for sale: +United States Government full faith and credit 23 $ 346 $ — $ (2) $ 344 +United States Government sponsored agencies 49 29 — (2) 27 +United States municipalities, states and territories 174 1,424 — (211) 1,213 +Foreign Governments 38 188 — (35) 153 +Corporate securities: +Finance, insurance and real estate 719 4,854 (17) (514) 4,323 +Manufacturing, construction and mining 169 993 — (124) 869 +Utilities, energy and related sectors 561 2,740 — (464) 2,276 +Wholesale/retail trade 546 2,613 — (438) 2,175 +Services, media and other 707 4,265 — (816) 3,449 +Hybrid securities 40 456 — (22) 434 +Non-agency residential mortgage-backed securities 193 652 (1) (68) 583 +Commercial mortgage-backed securities 267 1,942 (59) (139) 1,744 +Asset-backed securities 569 7,231 (23) (256) 6,952 +Total fixed maturity available for sale securities 4,055 27,733 (100) (3,091) 24,542 +Equity securities 23 304 — (89) 215 +Total investments 4,078 $ 28,037 $ (100) $ (3,180) $ 24,757 +107 +December 31, 2024 +Number of Securities Amortized Cost Allowance for Expected Credit Losses Unrealized Losses Fair Value +Fixed maturity securities, available for sale: +United States Government full faith and credit 29 $ 106 $ — $ (3) $ 103 +United States Government sponsored agencies 64 92 — (4) 88 +United States municipalities, states and territories 176 1,476 — (249) 1,227 +Foreign Governments 43 224 — (45) 179 +Corporate securities: +Finance, insurance and real estate 840 6,596 — (728) 5,868 +Manufacturing, construction and mining 156 1,173 — (161) 1,012 +Utilities, energy and related sectors 477 3,000 — (542) 2,458 +Wholesale/retail trade 523 3,111 — (497) 2,614 +Services, media and other 640 4,679 — (874) 3,805 +Hybrid securities 31 515 — (29) 486 +Non-agency residential mortgage-backed securities 314 1,370 — (101) 1,269 +Commercial mortgage-backed securities 344 2,552 (41) (200) 2,311 +Asset-backed securities 355 4,148 (11) (317) 3,820 +Total fixed maturity available for sale securities 3,992 29,042 (52) (3,750) 25,240 +Equity securities 31 363 — (87) 276 +Total investments 4,023 $ 29,405 $ (52) $ (3,837) $ 25,516 +The gross unrealized loss position on the fixed maturity available-for-sale fixed and equity portfolio was $3,180 million and $3,837 million as of December 31, 2025 and 2024, respectively. During 2025, most components of the portfolio exhibited price appreciation caused by lower treasury rates. The total amortized cost of all securities in an unrealized loss position was $28,037 million and $29,405 million as of December 31, 2025 and 2024, respectively. The average market value/book value of the investment category with the largest unrealized loss position was 81% for services, media and other as of December 31, 2025 and 2024, respectively. In the aggregate, services, media and other represented 26% and 23% of the total unrealized loss position as of December 31, 2025 and 2024, respectively. +The amortized cost and fair value of fixed maturity available for sale securities under watch list analysis and the number of months in a loss position with investment grade securities (NRSRO rating of BBB/Baa or higher) as of December 31, 2025 and 2024, were as follows (dollars in millions): +December 31, 2025 +Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses +Investment grade: +Less than six months — $ — $ — $ — $ — +Six months or more and less than twelve months — — — — — +Twelve months or greater 80 1,159 750 — (409) +Total investment grade 80 1,159 750 — (409) +Below investment grade: +Less than six months 3 35 17 (18) — +Six months or more and less than twelve months 2 33 32 — (1) +Twelve months or greater 7 119 94 — (25) +Total below investment grade 12 187 143 (18) (26) +Total 92 $ 1,346 $ 893 $ (18) $ (435) +108 +December 31, 2024 +Number of Securities Amortized Cost Fair Value Allowance for Credit Loss Gross Unrealized Losses +Investment grade: +Less than six months 8 $ 54 $ 52 $ — $ (2) +Six months or more and less than twelve months — — — — — +Twelve months or greater 107 1,443 959 — (484) +Total investment grade 115 1,497 1,011 — (486) +Below investment grade: +Less than six months — — — — — +Six months or more and less than twelve months — — — — — +Twelve months or greater 5 82 51 — (31) +Total below investment grade 5 82 51 — (31) +Total 120 $ 1,579 $ 1,062 $ — $ (517) +Expected Credit Losses and Watch List +We prepare a watch list to identify securities to evaluate for expected credit losses. Factors used in preparing the watch list include fair values relative to amortized cost, ratings and negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit impairment loss indicators and, where present, calculate an allowance for expected credit loss or direct write-down of a security’s amortized cost. +The watch list excludes structured securities as we have separate processes to evaluate the credit quality on the structured securities. +There were 71 and 45 structured securities with a fair value of $237 million and $146 million, respectively to which we had potential credit exposure as of December 31, 2025 and 2024, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $86 million and $62 million as of December 31, 2025 and 2024, respectively. +Refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the allowance for expected credit loss. +Exposure to Sovereign Debt and Certain Other Exposures +Our investment portfolio had an immaterial amount of direct exposure to European sovereign debt as of December 31, 2025 and 2024, respectively. We have no exposure to investments in Russia or Ukraine and de minimis investments in peripheral countries in the region. +Interest and Investment Income +For discussion regarding our interest and investment income and investment gains (losses), net, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +AFS Securities +For additional information regarding our AFS securities, including the amortized cost, gross unrealized gains (losses), and fair value as well as the amortized cost and fair value of fixed maturity AFS securities by contractual +109 +maturities, as of December 31, 2025 and 2024, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Concentrations of Financial Instruments +For certain information regarding our concentrations of financial instruments, refer to Note C - Investments to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Derivatives +We are exposed to credit loss in the event of non-performance by our counterparties on derivative instruments. We attempt to reduce this credit risk by purchasing such derivative instruments from large, well-established financial institutions. +We also hold cash and cash equivalents received from counterparties for derivative instrument collateral, as well as U.S. Government securities pledged as derivative instrument collateral, if our counterparty’s net exposures exceed pre-determined thresholds. +We are required to pay counterparties the effective federal funds rate each day for cash collateral posted to F&G for daily mark-to-market margin changes. We reduce the negative interest cost associated with cash collateral posted from counterparties under various ISDA agreements by reinvesting derivative cash collateral. This program permits collateral cash received to be invested in short term Treasury securities, bank deposits and commercial paper rated A1/P1, which are included in Cash and cash equivalents in the Consolidated Balance Sheets. +See Note D - Derivatives to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information regarding our derivatives and our exposure to credit loss on derivatives. +Liquidity and Capital Resources +Liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are annuity considerations, insurance premiums, and fees and investment income. We also generate cash inflows from investing activities resulting from maturities and sales of invested assets and from financing activities including inflows on our investment-type products, proceeds from borrowing activities and issuances of preferred stock. Our operating activities provided cash of $4,681 million and $5,999 million for the years ended December 31, 2025 and 2024, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, F&G Annuities & Life, Inc. As a holding company with no operations of its own, F&G Annuities & Life, Inc. derives its cash primarily from its insurance subsidiaries and CF Bermuda Holdings Ltd. (“CF Bermuda”), a Bermuda exempted limited liability company and a wholly owned direct subsidiary of the Company, a downstream holding company that provides additional sources of liquidity. Dividends from our insurance subsidiaries flow through CF Bermuda to F&G Annuities & Life, Inc. F&G Cayman Re, a licensed class D insurer in the Cayman Islands and a wholly owned direct subsidiary of the Company, could also provide dividends directly to F&G Annuities & Life, Inc. +The sources of liquidity of the holding company are principally comprised of dividends from subsidiaries, lines of credit (at the F&G Annuities & Life, Inc. level), investment income on holding company assets and the ability to raise long-term public financing under an SEC-filed registration statement or private placement offering. These sources of liquidity and cash flow support the general corporate needs of the holding company, interest and debt service, funding acquisitions and investment in core businesses. +Cash Requirements. Our current cash requirements include personnel costs, operating expenses, benefit payments, funding agreement payments, taxes, payments of interest and principal on our debt, capital expenditures, +110 +business acquisitions, stock repurchases and dividends on our common and preferred stock. For the year ended December 31, 2025, we paid common and preferred dividends of approximately $137 million. +On November 6, 2025, our Board of Directors declared a quarterly cash dividend of $0.8594 per share on the FNF Preferred Stock for the period from October 15, 2025 to and excluding January 15, 2026, which was paid on January 15, 2026, to FNF Preferred Stock record holders on January 1, 2026. On February 19, 2026, our Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on March 31, 2026, to F&G common shareholders of record as of March 17, 2026. On February 19, 2026, our Board of Directors also declared a quarterly cash dividend of $0.8594 per share on the FNF Preferred Stock for the period from January 15, 2026 to and excluding April 15, 2026, to be paid on April 15, 2026, to FNF Preferred Stock record holders as of April 1, 2026. +There are no restrictions on our retained earnings regarding our ability to pay dividends to our shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. There are certain conditions on the declaration and payment of dividends pursuant to our preferred stock (refer to Note U - Equity to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional information on our preferred stock. The declaration of any future dividends is at the discretion of our Board of Directors. +We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, if any, reducing debt, investing in growth of our subsidiaries, making acquisitions and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, potential issuances of additional debt or equity securities, and borrowings on the Revolving Credit Agreement or the FNF Credit Facility. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Refer to Financing Arrangements below and Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding our borrowings. +Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. As discussed below, our insurance subsidiaries are restricted by state regulation and other laws in their ability to pay dividends and make distributions. +The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. In 2025, FGL Insurance did not pay dividends to its parent, Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). FGL Insurance’s maximum ordinary dividend capacity for 2026 is $0. FGL NY Insurance has historically not paid dividends. Under the laws of the State of Vermont, Raven Re and Corbeau Re cannot pay dividends out of, or other distribution with respect to, capital or surplus, without prior approval. Likewise, the insurance laws of Bermuda limit the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval and those of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Please refer to “ Item 1. Business - Regulation of F&G ” of Part I of this +111 +Annual Report on Form 10-K and Note O - Insurance Subsidiary Financial Information and Regulatory Matters to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K, for additional details on risk-based capital, statutory capital and dividend and other distribution payment limitations. +Cash Flow from our Operations +Cash flow from our operations will be used for general corporate purposes including to reinvest in operations, repay debt, pay dividends, repurchase stock, pursue other strategic initiatives and/or conserve cash. +As of December 31, 2025 and 2024, we had cash and cash equivalents of $1,486 million and $2,264 million, respectively, and short term investments of $1,043 million and $2,410 million, respectively. +Operating Cash Flow . Our cash flows provided by operations for the years ended December 31, 2025, 2024, and 2023 were $4,681 million, $5,999 million and $5,834 million, respectively. The primary cash inflows from operating activities include net investment income and insurance premiums. The primary cash outflows from operating activities are comprised of benefit payments and operating expenses. Cash provided by operations for the years ended December 31, 2025 and 2024 included approximately $1,500 million and $1,800 million of net cash received for PRT transactions, respectively, included in the change in future policy benefits. +Investing Cash Flows. Our cash used in investing activities for the years ended December 31, 2025, 2024, and 2023 were $8,429 million, $7,953 million, $8,918 million, respectively. The primary cash inflows from investing activities are the proceeds from sales, calls, maturities and redemptions of investments, including those resulting from our portfolio repositioning. The primary cash outflows from investing activities are the purchases of fixed maturity securities and other investments. Cash used in investing activities for the years ended December 31, 2025 and 2024 included purchases of fixed maturity securities and other investments associated with investing the net cash received from our investment-type products, generated from financing cash flows and PRT transactions, generated from operating activities, as well as cash received from borrowings generated from financing activities in both periods. Cash used in investing activities for the year ended December 31, 2024 also included net cash outflows of $482 million for the Roar and PALH acquisitions. +Financing Cash Flows. Our cash flows provided by financing activities for the years ended December 31, 2025, 2024, and 2023 were $2,970 million, $2,655 million and $3,687 million, respectively and reflected higher net contractholder deposits for the year ended December 31, 2025 and lower net contractholder deposits for the year ended December 31, 2024. Net contractholder account deposits and withdrawals in 2025 included an increase of approximately $900 million related to funding agreements. In addition, cash provided by financing activities for the year ended December 31, 2025 included borrowing proceeds of $375 million, portions of which were used to finance a $300 million redemption of the 5.50% F&G Notes, and $269 million of net proceeds from the issuance of common stock, all discussed below, partially offset by dividend payments of approximately $137 million. Cash provided by financing activities for the year ended December 31, 2024 included borrowing proceeds of $1,050 million, portions of which were used to finance a $250 million cash tender offer on the 5.50% F&G Notes and for net revolving credit facility repayments of $365 million, and proceeds of $250 million from the issuance of the FNF Preferred Stock, partially offset by dividend payments of approximately $121 million. +Financing Arrangements. On January 13, 2025, F&G completed its public offering of $375 million aggregate principal amount of its 7.300% Junior Subordinated Notes due 2065 (the “7.300% F&G Junior Notes”). The 7.300% F&G Junior Notes are guaranteed on an unsecured, subordinated basis and rank junior in right of payment to all of F&G’s Senior Indebtedness. The net proceeds of the offering were used for general corporate purposes, including the repurchase, redemption or repayment at maturity of outstanding indebtedness. +On February 1, 2025, F&G redeemed the outstanding $300 million aggregate principal amount of its 5.50% F&G Senior Notes. The notes were redeemed for a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date. +112 +At December 31, 2025, we had outstanding (aggregate principal amounts): +• $500 million of our 7.40% Senior Notes (“the 7.40% F&G Notes”), +• $550 million of our 6.50% Senior Notes (“the 6.50% F&G Notes”) +• $500 million of our 6.250% Senior Notes (“the 6.250% F&G Notes”) +• $345 million of our 7.95% Senior Notes (“the 7.95% F&G Notes”), and +• $375 million of our 7.300% Junior Notes (“the 7.300% F&G Notes”) +As of December 31, 2025 we had $750 million of borrowing availability under our senior unsecured revolving credit agreement (the “Revolving Credit Agreement”) and $200 million of borrowing availability under our revolving credit facility with FNF (the “FNF Credit Facility ” ). No amounts were outstanding under the Revolving Credit Agreement or the FNF Credit Facility as of December 31, 2025 and 2024. The maturity date of the Revolving Credit Agreement is November 22, 2027. The FNF facility matured on October 29, 2025 and, effective October 30, 2025, was replaced by a new revolving note agreement with FNF. The new revolving note matures the earlier of October 29, 2030, or when the Revolving credit facility described above is terminated. +For further description of our financing arrangements see Note L - Notes Payable to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K. +The Credit Agreement imposes significant operating and financial restrictions, including financial covenants, and the Credit Agreement and the indentures governing the +7.40% F&G Notes, the 6.50% F&G Notes, the 6.250% F&G Notes the 7.95% F&G Notes, and the 7.300% F&G Notes limit, among other things, our and our subsidiaries’ ability to: +• incur or assume additional indebtedness, including guarantees; +• incur or assume liens; +• engage in mergers or consolidations; +• convey, transfer, lease or dispose of assets; +• make certain investments; +• enter into transactions with affiliates; +• declare or make any dividend payments or distributions or repurchase capital stock or other equity interests; +• change the nature of our business materially; +• make changes in accounting treatment or reporting practices that affect the calculation of financial covenants, or change our fiscal year; and +• enter into certain agreements that would restrict the ability of subsidiaries to make payments to us. +As of December 31, 2025, we were in compliance with all covenants. +Recent Equity Issuance. On March 24, 2025, we completed a public offering of 8,000,000 shares of common stock, par value $0.001 per share, for net proceeds of $269 million. In connection with the offering, we entered into an underwriting agreement, pursuant to which we granted the underwriters of the offering a 30-day option to purchase up to an additional 1,200,000 shares of common stock. Pursuant to the underwriting agreement, the underwriters agreed to resell to FNF 4,500,000 shares of common stock at the same price per share paid by the underwriters, which was $33.60 per share. The underwriters option subsequently expired unexercised. The net proceeds from the offering were used for general corporate purposes, including the support of organic growth opportunities. +Obligations - Contractual and Other. As of December 31, 2025, our required annual payments relating to +113 +contractual and other obligations were as follows: +2026 2027 2028 2029 2030 Thereafter Total +Notes payable principal repayment $ — $ — $ 500 $ 550 $ — $ 1,220 $ 2,270 +Operating lease payments 2 2 2 2 2 2 12 +Annuity and universal life products 7,316 7,900 8,850 7,724 6,881 48,267 86,938 +Pension risk transfer annuity payments 843 810 783 755 727 8,936 12,854 +Funding agreements (FABN / FHLB) 1,938 1,776 1,710 723 360 — 6,507 +Interest on fixed rate notes payable 159 159 123 104 86 1,681 2,312 +Total $ 10,258 $ 10,647 $ 11,968 $ 9,858 $ 8,056 $ 60,106 $ 110,893 +Reinsurance. Please refer to Note E - Reinsurance to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional information on our reinsurance. +Preferred and Equity Security Investments. Our preferred and equity security investments may be subject to significant volatility. Currently prevailing accounting standards require us to record the change in fair value of preferred and equity security investments held as of any given period end within earnings. Our results of operations in future periods are anticipated to be subject to such volatility. +Off-Balance Sheet Arrangements. Throughout our history, we have entered in indemnifications in the ordinary course of business with our customers, suppliers, service providers, business partners and in certain instances, when we sold businesses. Additionally, we have indemnified our directors and officers who are, or were, serving at our request in such capacities. Although the specific terms or number of such arrangements is not precisely known due to the extensive history of our past operations, costs incurred to settle claims related to these indemnifications have not been material to our financial statements. We have no reason to believe that future costs to settle claims related to our former operations will have a material impact on our financial position, results of operations or cash flows. +We have unfunded commitments as of December 31, 2025 based upon the timing of when investments and agreements are executed or signed compared to when the actual commitments are funded or closed. Some investments require that funding occur over a period of months or years. We also have unfunded commitments to consolidated VIEs. Please refer to Note C - Investments and Note N - Commitments and Contingencies to the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for additional details on unfunded commitments. +Stock Repurchase Program . In 2023, F&G’s Board of Directors approved a three-year stock repurchase program, under which the Company may repurchase up to $50 million of F&G common stock. Purchases may be made from time to time by the Company in the open market at prevailing market prices or through privately negotiated transactions or accelerated share repurchase transactions through November 6, 2026. All purchases are held as treasury stock. The timing and extent of share repurchases will depend on a variety of factors, including, market conditions, regulatory requirements, and considerations as determined by management. No shares were repurchased pursuant to the program during the years ended December 31, 2025 and December 31, 2024. At December 31, 2025, the total remaining authorization of F&G common stock that may be repurchased was approximately $32 million. +FHLB Collateral. We are currently a member of the FHLB and are required to maintain a collateral deposit that backs any funding agreements issued. We use these funding agreements as part of a spread enhancement strategy. We have the ability to obtain funding from the FHLB based on a percentage of the value of our assets, subject to the availability of eligible collateral. Collateral is pledged based on the outstanding balances of FHLB funding agreements. The amount of funding varies based on the type, rating and maturity of the collateral posted to the FHLB. Generally, U.S. government agency notes, mortgage-backed securities, municipal bonds, and commercial and residential whole loans are pledged to the FHLB as collateral. Market value fluctuations resulting from changes in interest rates, spreads and other risk factors for each type of asset are monitored and additional collateral is either pledged or released as needed. +114 +Our borrowing capacity under these credit facilities does not have an expiration date as long as we maintain a satisfactory level of creditworthiness based on the FHLB’s credit assessment. As of December 31, 2025 and 2024, we had $2,899 million and $2,852 million, respectively, in FHLB non-putable funding agreements included under contractholder funds on our Consolidated Balance Sheets. As of December 31, 2025 and 2024, we had assets with a fair value of approximately $4,621 million and $4,289 million, respectively, which collateralized the FHLB funding agreements. Assets pledged to the FHLB are primarily included in fixed maturities, AFS, on our Consolidated Balance Sheets. +Collateral-Derivative Contracts. Under the terms of our ISDA agreements, we may receive from, or deliver to, counterparties collateral to assure that all terms of the ISDA agreements will be met with regard to the Credit Support Annex (“CSA”). The terms of the CSA call for us to pay interest on any cash received equal to the federal funds rate. As of December 31, 2025 and 2024, $1,185 million and $771 million, respectively, of collateral was posted by our counterparties as they did not meet the net exposure thresholds. Collateral requirements are monitored on a daily basis and incorporate changes in market values of both the derivatives contract as well as the collateral pledged. Market value fluctuations are due to changes in interest rates, spreads and other risk factors. +Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset declines (or increases), the collateral required to be posted by our counterparties would also decline (or increase). Likewise, when the value of a derivative liability declines (or increases), the collateral we are required to post to our counterparties would also decline (or increase). +115 +Guarantor Financial Information +Our 6.250% F&G Senior Notes, 6.50% F&G Senior Notes, 7.40% F&G Senior Notes and 7.95% F&G Senior Notes are fully and unconditionally guaranteed on a senior, unsecured, unsubordinated basis, jointly and severally, by each of our existing and future direct and indirect subsidiaries that are guarantors of our obligations under the credit agreement (collectively, the “obligor group”). Refer to Note L - Notes Payable of the Consolidated Financial Statements in Part II - Item 8 of this Annual Report on Form 10-K for further information regarding these borrowings. +Set forth below is summarized unaudited financial information of the obligor group, as presented on a combined basis (dollars in millions). Intercompany transactions and balances within the obligor group have been eliminated. In addition, financial information of any non-guarantor subsidiaries, which would normally be consolidated by either F&G or the guarantors under GAAP, has been excluded from such presentation. +Year Ended December 31, +2025 2024 +Summarized Statement of Operations: +Total revenues $ 23 $ 77 +Total expenses 178 124 +Income tax benefit (31) (3) +Net loss $ (124) $ (44) +December 31, +2025 2024 +Summarized Balance Sheet: +Investments $ 393 $ 334 +Cash and cash equivalents 127 272 +Goodwill 1,725 1,725 +Due from non-guarantor affiliates 53 77 +Other assets 38 42 +Total assets $ 2,336 $ 2,450 +Notes payable $ 2,237 $ 2,171 +Other liabilities 152 167 +Total liabilities $ 2,389 $ 2,338 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, we are routinely subject to a variety of risks, as described in “ Part I - Item 1A Risk Factors ” included in this Annual Report on Form 10-K. +The risks related to our business also include certain market risks that may affect our financial instruments and certain liabilities. +At present, we face market risks associated with our marketable equity securities, liability for Contractholder Funds, balances for MRBs which are subject to equity price volatility, and interest rate movements on both our fixed income investments and liabilities for debt, FPBs, MRBs, and Contractholder Funds. +We regularly assess these market risks and have established policies and business practices designed to protect against the adverse effects of these exposures. +116 +Additionally, financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, derivatives, long-term investments and short-term investments. We require placement of cash in financial institutions evaluated as highly creditworthy. +Enterprise Risk Management +We place a high priority on risk management and risk control. As part of our effort to ensure measured risk taking, management has integrated risk management in our daily business activities and strategic planning. We have comprehensive risk management, governance and control procedures in place and have established a dedicated risk management function with responsibility for the formulation of our risk appetite, risk mitigation strategies, policies and limits. The risk management function is also responsible for monitoring our overall market risk exposures and provides review, oversight and support functions on risk-related issues. Our risk appetite is aligned with how our businesses are managed and anticipated future regulatory developments. +Our risk governance and control systems enable us to identify, control, monitor and aggregate risks and provide assurance that risks are being measured, monitored and reported adequately and effectively in accordance with the following three principles: +i. Management of the business has primary responsibility for the day-to-day management of risk. +ii. The risk management function has the primary responsibility to align risk taking with strategic planning through risk tolerance and limit setting. +iii. The internal audit function provides an ongoing independent and objective assessment of the effectiveness of internal controls. +The CRAO heads our risk management process and reports directly to our Chief Executive Officer (“CEO”). Our Enterprise Risk Management Committee (“ERMC”) reviews all risk policies, risk appetites, and discusses market risks associated with our activities. Market risks include the risks of losses due to an ineffective ALM program and the risk of losses arising from fluctuations in market prices, including interest rates, exchange rates, asset prices. These risks are monitored and assessed for appropriate mitigating activities to reduce the likelihood of erosion of the value of investments or trading positions that could result in financial losses or capital inadequacies. +We have implemented several limit structures to manage risk. Examples include, but are not limited to, the following: +i. At-risk limits on sensitivities of regulatory capital to the capital markets provide the fundamental framework to manage capital markets risks including the risk of asset / liability mismatch; +ii. Duration mismatch limits; +iii. Credit risk concentration limits; and +iv. Investment and derivative guidelines. +We manage our risk appetite based on two key risk metrics: +i. Regulatory Capital Sensitivities: the potential reduction, under a range of moderate to extreme capital markets stress scenarios, of the excess of available statutory capital above the minimum required under the NAIC regulatory RBC methodology; and +ii. Earnings Sensitivities: the potential reduction in results of operations over a 30-year time horizon under the same moderate to extreme capital markets stress scenario. Maintaining a consistent level of earnings helps us to finance our operations, support our capital requirements and provide funds to pay dividends to shareholders. +Our risk metrics cover the most important aspects in terms of performance measures where risk can materialize and are representative of the regulatory constraints to which our business is subject. The sensitivities for earnings and statutory capital are important metrics since they provide insight into the level of risk we take under stress scenarios. They also are the basis for internal risk management. +117 +We are also subject to cash flow testing pursuant to regulatory requirements. This analysis measures the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the effects of: +i. The timing and amount of redemptions and prepayments in our asset portfolio; +ii. Our derivative portfolio; +iii. Death benefits and other claims payable under the terms of our insurance products; +iv. Lapses and surrenders in our insurance products; +v. Minimum interest guarantees in our insurance products, +vi. Book value guarantees in our insurance products; and +vii. Reinvestment and disinvestment +Asset Liability Management (“ALM”) +As part of our ALM program, we have made significant efforts to identify the assets appropriate to support different product lines and ensure investing strategies match the profile of these liabilities. We monitor ALM metrics (such as duration, key-rate durations, net cash flows and liquidity) and manage the risk exposures at levels that are consistent with our risk appetite. The ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows. As such, a major component of our effort to manage interest rate risk has been to structure the investment portfolio with cash flow characteristics that are consistent with the cash flow characteristics of the insurance liabilities. We use actuarial models to simulate the cash flows expected from the existing business under various interest rate scenarios. These simulations enable us to measure the potential gain or loss in the fair value of interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from assets to meet the expected cash requirements of the liabilities and to determine if it is necessary to lengthen or shorten the average life and duration of our investment portfolio. Duration measures the price sensitivity of a security to a small change in interest rates. When the durations of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities. +The durations of the investment portfolio, net of investments subject to reinsurance agreements and excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of December 31, 2025 and December 31, 2024, are summarized as follows (dollars in millions): +December 31, 2025 December 31, 2024 +Duration (years) Amortized Cost % of Total Amortized Cost % of Total +0-4 $ 32,061 56 % $ 29,363 54 % +5-9 12,891 22 12,526 23 +10-14 11,311 20 10,448 19 +15-19 1,392 2 1,862 4 +20-29 69 — 33 — +30 and over 26 — — — +Total $ 57,750 100 % $ 54,232 100 % +Interest Rate Risk +Interest rate risk is our primary market risk exposure. We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from investing life insurance premiums and fixed annuity deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. Substantial and sustained increases or decreases in market interest rates can affect the profitability of the insurance products and the fair value of our investments, as the majority of our insurance liabilities are backed by fixed maturity securities. +Investments +118 +Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of investments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. We monitor our interest rate risk and make investment decisions to manage the perceived risk. We manage interest rate risk through a variety of measures, including pay-float and receive-fixed interest rate swaps to reduce market risks from interest rate changes on our earnings associated with floating rate investments. +Product Liabilities +The profitability of most of our products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. We have the ability to adjust the rates credited on the majority of the annuity liabilities annually, subject to minimum guaranteed values. In addition, the majority of the annuity products have surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at the levels necessary to avoid a narrowing of spreads under certain market conditions. +In order to meet our policy and contractual obligations, we must earn a sufficient return on invested assets. Significant changes in interest rates expose us to the risk of not earning the anticipated spreads between the interest rate earned on its investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect interest earnings, spread income and the attractiveness of certain products. +During periods of increasing interest rates, we may offer higher crediting rates on interest-sensitive products, such as IUL insurance and fixed annuities, and may increase crediting rates on inforce products to keep these products competitive. A rise in interest rates, in the absence of other countervailing changes, will result in a decline in the market value of our investment portfolio, partially offset by gains related to the fair value of MRBs. In addition, some of our deferred annuity policies contain a market value adjustment (“MVA”) during the surrender charge period, where if interest rates have risen, the MVA will decrease the surrender value, whereas if rates have fallen, it will increase the surrender value. The MVA reduces market risk and earnings volatility from interest rate changes, should a policy surrender, as it offsets the decline in the market value of the investment portfolio in a rising rate scenario, and vice versa in a declining rate scenario +Additionally, at December 31, 2025, we had floating rate funding agreements outstanding to match certain of our floating rate investments. Accordingly, fluctuations in market interest rates on the funding agreements will be significantly offset by corresponding changes in investment income associated with our floating rate investments. +Notes Payable +At December 31, 2025 , we had a short-term revolving credit facility that bears interest at a floating rate. Accordingly, depending on the amounts outstanding, fluctuations in market interest rates will have an impact on our resulting interest expense. The impact to net earnings, however, will again be significantly offset by corresponding changes in investment income associated with our floating rate investments. There was no balance outstanding on the revolving credit facility at December 31, 2025 and December 31, 2024. +Equity Price Risk +Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. In the past, our exposure to changes in equity prices primarily resulted from our holdings of equity securities. Refer to Note B - Fair Value of Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on how the carrying values of these investments are determined as of the balance sheet date. Carrying values are subject to fluctuation and, consequently, the amount +119 +realized in the subsequent sale of an investment may significantly differ from the reported carrying value. Fluctuation in the carrying value of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. +We are also exposed to equity price risk through certain insurance products. We offer a variety of indexed annuities and IUL contracts with crediting strategies linked to the performance of indices such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index, and target volatility indices. Additionally, the estimated cost of providing GMWB on indexed annuity products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the MRB liabilities and decrease in the valuation of contractholder funds liabilities associated with such products. +To economically hedge the equity returns on these products, we purchase derivatives to hedge the indexed annuities and IUL equity exposures. The primary way we hedge indexed annuities and IUL equity exposure is to purchase over the counter equity index equity options from broker-dealer derivative counterparties approved by F&G. The second way to hedge indexed annuities and IUL equity exposure is by purchasing exchange traded equity index futures contracts. This hedging strategy enables us to reduce the overall hedging costs and achieve a high correlation of returns on the equity options purchased relative to the index credits earned by the indexed annuity/IUL contractholders. The majority of the equity options are one-year options purchased to match the funding requirements underlying the indexed annuity/IUL contracts. These hedge programs are limited to the current policy term of the indexed annuity/IUL contracts. Future returns, which may be reflected in indexed annuity/IUL contracts’ credited rates beyond the current policy term, are not hedged. We attempt to manage the costs of these purchases through the terms of the indexed annuity/IUL contracts, which permit us to change cap, spread or participation rates, subject to certain guaranteed minimums that must be maintained. +The derivatives are used to fund the indexed annuities and IUL contract index credits and the cost of the equity options purchased is treated as a component of spread earnings. While the indexed annuity/IUL hedging program does not explicitly hedge GAAP income volatility, the indexed annuities/ IUL hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the equity market. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges, which are put in place are only intended to cover exposures expected to remain until the end of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, we incur a raw hedging loss. +See Note D - Derivative Financial Instruments to the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional details on the derivatives portfolio. +Fair value changes associated with these investments are intended to, but do not always, substantially offset the increase or decrease in the amounts added to contractholder funds for indexed products. When index credits to policyholders exceed option proceeds received at expiration related to such credits, any shortfall is funded by our excess of net investment income earned over the sum of interest credited to policyholders and the cost of hedging our risk on indexed product policies and futures income. For the years ended December 31, 2025 , December 31, 2024 and December 31, 2023, the annual index credits to policyholders on their anniversaries were $721 million, $725 million and $203 million, respectively. Proceeds received at expiration of options related to such credits were $705 million, $849 million and $212 million, respectively. +Other market exposures are hedged periodically depending on market conditions and our risk tolerance. The indexed annuity and IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging +120 +assets. We use a variety of techniques, including direct estimation of market sensitivities, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and risk tolerance change. +Foreign Currency Exchange Rate Risk +Our fair value exposure to fluctuations in foreign currency exchange rates against the U.S. dollar results from our holdings in non-U.S. dollar denominated fixed maturity securities and an investment in an unconsolidated affiliate. The principal currencies that create foreign currency exchange rate risk in our investment portfolio are the Euro and the British pound. We use various derivative instruments to hedge substantially all of our foreign currency exposure such that sensitivity to changes in foreign currencies is minimal. +Sensitivity Analysis +For purposes of this Annual Report on Form 10-K , we perform a sensitivity analysis to determine the effects that market risk exposures may have on various financial instruments. +The financial instruments that are included in the sensitivity analysis with respect to interest rate risk include fixed maturity investments, certain preferred securities, interest rate swaps, embedded derivatives, MRBs and floating rate notes payable and funding agreements. The financial instruments that are included in the sensitivity analysis with respect to equity price risk include marketable equity securities. With the exception of our equity method investments, it is not anticipated that there would be a significant change in the fair value of other long-term investments or short-term investments if there were a change in market conditions, based on the nature and duration of the financial instruments involved. +To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates and equity prices on market-sensitive instruments. The changes in fair values for interest rate risks are determined by estimating the present value of future cash flows using various models, primarily duration modeling. The changes in fair values for equity price risk are determined by comparing the market price of investments against their reported values as of the balance sheet date. +Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor are held constant. +Market Risk Factors +Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We have significant holdings in financial instruments, which are naturally exposed to a variety of market risks. They are primarily exposed to interest rate risk, credit risk and equity price risk and have some exposure to counterparty risk, which affect the fair value of financial instruments subject to market risk. +We have no market risk sensitive instruments entered into for trading purposes; therefore, all of our market risk sensitive instruments were entered into for purposes other than trading. The results of the sensitivity analysis at December 31, 2025 is as follows: +Interest Rate Risk +An increase in the levels of interest rates of 100 basis points, with all other variables held constant, would result in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $3.1 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.8 bil lion at December 31, 2025 . For comparison, a similar increase in the levels of interest rates of 100 basis points, with all +121 +other variables held constant, would have resulted in a decrease in the fair value of our fixed maturity securities and certain investments in preferred securities of approximately $2.6 billion, a net decrease in the fair value of interest rate swaps of approximately $0.1 billion and a net decrease in the combined fair value of embedded derivatives and MRBs of approximately $0.6 billion at December 31, 2024. +A 100 basis point shift in interest rates for our floating rate debt and funding agreements will increase or decrease floating expense by approximatel y $28 million and $17 million per year as of December 31, 2025 and December 31, 2024, respectively . As noted above, the impact to net earnings related to the interest rate swaps, floating rate notes payable and funding agreements will be significantly offset by corresponding changes in investment income associated with our floating rate investments. +The actuarial models used to estimate the impact of a one percentage point change in market interest rates incorporate numerous assumptions, require significant estimates and assume an immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of financial instruments indicated by these simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our investments and liabilities, the net exposure to interest rates can vary over time. However, any such decreases in the fair value of fixed maturity securities, unless related to credit concerns of the issuer requiring allowances for credit losses, would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet liquidity needs. Our liquidity needs are managed using the surrender and withdrawal provisions of the annuity contracts and through other means. +Equity Price Risk +At December 31, 2025, a 10% decrease in market prices, with all other variables held constant, would result in a net decrease in the fair value of our equity securities portfolio of $34 million, as compared with a decrease of $42 million at December 31, 2024 . +Foreign Currency Exchange Rate Risk +As noted above, we use various derivative instruments to hedge substantially all of our foreign currency exposure such that sensitivity to changes in foreign currencies is minimal. +Credit Risk and Counterparty Risk +We are exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. Our major source of credit risk arises predominantly in our insurance operations’ portfolios of debt and similar securities. The fair value of our fixed maturity portfolio totaled $53 billion at December 31, 2025 . Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where it expects the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements. +We attempt to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk investments. In addition, we diversify exposure by issuer and country, using rating-based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly basis. +122 +In connection with the use of derivative instruments, we are exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. We have adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst different approved counterparties to limit the concentration in one counterparty. This policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the insurance laws of Iowa. We review the ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See Note D - Derivative Financial Instruments in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for additional information regarding our exposure to credit loss. +We also have credit risk related to the ability of reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. To minimize the risk of credit loss on such contracts, we diversify exposures among many reinsurers and limit the amount of exposure to each based on credit rating. We also generally limit selection of counterparties with which to do new transactions to those with an “A-” credit rating or above from at least one of the major rating agencies and/or that are appropriately collateralized and provide credit for reinsurance. +In the normal course of business, certain reinsurance recoverables are subject to reviews by the reinsurers. We are not aware of any material disputes arising from these reviews or other communications with the counterparties as of December 31, 2025 and December 31, 2024, that would require an increase to the allowance for credit losses. +For information on concentrations of reinsurance risk, refer to Note E - Reinsurance in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +For further information on certain risk associated with our business, refer to Note N - Commitments and Contingencies in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +Use of Estimates and Assumptions +The preparation of our Consolidated Financial Statements included in this Annual Report on Form 10-K in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used. +Concentrations of Financial Instruments +Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations - Investment Portfolio - Investment Concentrations included in Part II - Item 7 of this Annual Report on Form 10-K regarding the top ten investment concentrations of our fixed maturity and equity securities including the fair value and percent of total fixed maturity and equity securities fair value as of December 31, 2025 and December 31, 2024 . +Refer to Note C - Investments in the Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for our underlying investment concentrations that exceed 10% of shareholders equity as of December 31, 2025 and December 31, 2024 . +Concentrations of Financial and Capital Markets Risk +We are exposed to financial and capital markets risk, including changes in interest rates and credit spreads, which can have an adverse effect on our results of operations, financial condition and liquidity. Exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with +123 +changes in interest rates. A rise in interest rates, in the absence of other countervailing changes, will increase the net unrealized loss position and, if long-term interest rates rise dramatically within a six- to twelve-month time period, certain of our products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders surrender their contracts in a rising interest rate environment, requiring us to liquidate assets in an unrealized loss position. We attempt to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset-backed securities. Management believes this risk is also mitigated to some extent by surrender charge and MVA protection provided by our products. We expect to continue to face these challenges and uncertainties that could adversely affect our results of operations and financial condition. +. +124 +Item 8. Financial Statements and Supplementary Data +INDEX TO FINANCIAL INFORMATION +F&G ANNUITIES AND LIFE, INC. AND SUBSIDIARIES +Page +Number +Audited Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control Over Financial Reporting (Ernst & Young, LLP, Des Moines, IA, Auditor Firm ID: 42 ) +126 +Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (Ernst & Young, LLP, Des Moines, IA, Auditor Firm ID: 42 ) +127 +Consolidated Balance Sheets as of December 31, 202 5 and 2 02 4 +129 +Consolidated Sta teme nts of Operations for the years ended December 31, 202 5 , December 31, 202 4 and D ecember 31, 202 3 +130 +Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 5 , December 31, 202 4 and Dece mber 31, 20 23 +131 +Consolidated Statements of Equity for the years ended December 31, 202 5 , December 31, 202 4 and December 3 1, 202 3 +132 +Consolidated Statements of Cash Flows for the years ended December 31, 202 5 , December 31, 202 4 and Decemb er 31 , 202 3 +134 +Notes to Consolidated Financial Statements +135 +Consolidated Financial Statement Schedules +Schedule I—Summary of Investments - Other Than Investments in Related Parties +240 +Schedule II—Financial Information of Registrant +241 +Schedule III—Supplementary Insurance Information +244 +Schedule IV—Reinsurance +245 +125 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of F&G Annuities & Life, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited F&G Annuities & Life, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, F&G Annuities & Life, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedules listed in the Index at Item 15(2) and our report dated February 26, 2026 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Des Moines, Iowa +February 26, 2026 +126 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of F&G Annuities & Life, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of F&G Annuities & Life, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and financial statement schedules listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2026, expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +127 +Fixed Indexed Annuity Embedded Derivative Liability, Market Risk Benefits, and Future Policy Benefits Liability +Description of the Matter +At December 31, 2025, the fair value of the Company’s fixed indexed annuity embedded derivative liability totaled $6.5 billion. Certain of the Company’s fixed indexed annuity (FIA) contracts allow the policyholder to elect an equity index linked feature, where amounts credited to the contract’s account value are linked to the performance of designated equity indices and crediting strategy selected by the policyholder. The equity index crediting feature is accounted for as an embedded derivative liability and reported at fair value as discussed in Notes A (see section on Contractholder Funds), B, and D to the consolidated financial statements. A subset of FIA contracts include certain contract features that provide minimum guarantees to policyholders, such as guaranteed minimum withdrawal benefits and guaranteed minimum death benefit features that are market risk benefits (MRB) measured at fair value as discussed in Notes A (see section on MRBs), B, and G to the consolidated financial statements. The Company’s MRB assets and MRB liabilities totaled $285 million and $903 million, respectively, as of December 31, 2025. +At December 31, 2025, future policy benefits (FPB) liabilities related to traditional life and life-contingent immediate annuity policies (which includes life-contingent pension risk transfer annuities) totaled $10.8 billion. The future policy benefits liability related to these products is based on estimates of how much the Company will need to pay for future benefits and related claim expenses and the amount of net premiums to be collected from policyholders as discussed in Notes A (see section on Future Policy Benefits) and J to the consolidated financial statements. +Auditing the valuation of the Company’s fixed indexed annuity embedded derivative, MRBs, and life-contingent immediate annuity policies liabilities was complex because of the highly judgmental nature of the determination of the assumptions required to determine the fair value of the embedded derivative and MRBs and valuation of life-contingent immediate annuity policies liabilities. In particular, the fair value of fixed indexed annuity embedded derivative and MRBs was sensitive to the significant assumptions including surrender rates, GMWB utilization, partial withdrawal, and option cost. In addition, mortality and capital market performance scenarios were significant assumptions used in the valuation of MRBs. Mortality is a significant assumption used in the valuation of life-contingent immediate annuity policies liabilities. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over management’s process for the development of the significant assumptions used in measuring the fair value of the embedded derivative for fixed indexed annuities and MRBs and the valuation of life-contingent immediate annuity policies. These controls included, among others, the review and approval process management has in place for the development of the significant assumptions. +To evaluate the judgment used by management in determining the assumptions used in measuring the fair value of the fixed indexed annuity embedded derivative and MRBs and the valuation of life-contingent immediate annuity policies liabilities, among other procedures, we involved actuarial specialists and evaluated the methodology applied by management in determining the valuation with those used in the prior period and in the industry. To evaluate the significant assumptions used by management in the methodology applied, we compared as applicable, the significant assumptions noted above to historical experience, observable market data, and management’s estimates of prospective changes in these assumptions. We also performed an independent recalculation of the embedded derivative, MRB, and life-contingent immediate annuity policies liabilities for a sample of policies or cohorts for comparison with the actuarial models used by management. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2020. +Des Moines, Iowa +February 26, 2026 +128 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(Dollars in millions, except share data) +December 31, +2025 2024 +ASSETS: +Investments +Fixed maturity securities available for sale, at fair value, at December 31, 2025 and 2024, at an amortized cost of $ 55,292 and $ 49,729 , respectively, net of allowance for credit losses of $ 104 and $ 62 , respectively +$ 52,700 $ 46,317 +Equity securities, at fair value 341 415 +Derivative investments 1,148 792 +Mortgage loans, net of allowance for credit losses of $ 86 and $ 70 at December 31, 2025 and 2024, respectively +7,891 5,926 +Investments in unconsolidated affiliates (2025 includes $ 262 related to investments held by consolidated variable interest entities (“VIEs”) and 2025 and 2024 include certain investments at fair value of $ 270 and $ 272 , respectively) +4,878 3,565 +Other long-term investments (2025 includes $ 248 related to investments held by consolidated VIEs) +1,294 580 +Policy loans 147 104 +Short-term investments (2025 includes $ 116 related to investments held by consolidated VIEs) +1,043 2,410 +Total investments 69,442 60,109 +Cash and cash equivalents (2025 includes $ 2 related to investments held by consolidated VIEs) +1,486 2,264 +Reinsurance recoverable, net of allowance for credit losses of $ 18 and $ 20 at December 31, 2025 and 2024, respectively +17,545 13,369 +Goodwill 2,180 2,179 +Prepaid expenses and other assets (certain assets held at fair value of $ 24 and $ 11 at December 31, 2025 and 2024, respectively) +1,052 950 +Other intangible assets, net 6,275 5,572 +Market risk benefits asset 285 189 +Income taxes receivable 83 — +Deferred tax asset, net 82 299 +Total assets $ 98,430 $ 84,931 +LIABILITIES AND EQUITY +Liabilities: +Contractholder funds $ 62,726 $ 56,404 +Future policy benefits 10,755 8,749 +Market risk benefits liability 903 549 +Accounts payable and accrued liabilities 2,701 2,219 +Income taxes payable — 5 +Notes payable 2,237 2,171 +Funds withheld for reinsurance liabilities 14,191 10,758 +Total liabilities 93,513 80,855 +Equity: +Preferred stock $ 0.001 par value; authorized 25,000,000 shares; outstanding and issued 5,000,000 as of December 31, 2025 and 2024 +— — +F&G common stock, $ 0.001 par value; authorized 500,000,000 shares as of December 31, 2025 and 2024; outstanding of 135,610,292 and 126,792,844 , respectively, and issued of 137,056,106 and 127,952,143 , respectively +— — +Additional paid-in-capital 3,764 3,464 +Retained earnings 2,568 2,440 +Accumulated other comprehensive income (loss) ("AOCI") ( 1,488 ) ( 1,923 ) +Treasury stock, at cost ( 1,445,814 shares and 1,159,299 shares as of December 31, 2025 and 2024, respectively) +( 40 ) ( 30 ) +Total F&G Annuities & Life, Inc. shareholders' equity 4,804 3,951 +Non-controlling interests 113 125 +Total equity 4,917 4,076 +Total liabilities and equity $ 98,430 $ 84,931 +See accompanying Notes to Consolidated Financial Statements +129 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +(Dollars and shares in millions, except per share data) +Year Ended December 31, +2025 2024 2023 +Revenues: +Life insurance premiums and other fees $ 2,795 $ 2,860 $ 2,413 +Interest and investment income 2,837 2,719 2,211 +Owned distribution revenues 89 81 — +Recognized gains and (losses), net 10 84 ( 124 ) +Total revenues 5,731 5,744 4,500 +Benefits and expenses: +Benefits and other changes in policy reserves (remeasurement gains (a)) 3,963 3,791 3,553 +Market risk benefit losses (gains) 167 ( 25 ) 95 +Depreciation and amortization 665 569 412 +Personnel costs 293 296 232 +Other operating expenses 156 203 146 +Interest expense 164 132 97 +Total benefits and expenses 5,408 4,966 4,535 +Earnings (loss) before income taxes 323 778 ( 35 ) +Income tax expense 52 136 23 +Net earnings (loss) 271 642 ( 58 ) +Less: Non-controlling interests 6 3 — +Net earnings (loss) attributable to F&G 265 639 ( 58 ) +Less: Preferred stock dividend 17 17 — +Net earnings (loss) attributable to F&G common shareholders $ 248 $ 622 $ ( 58 ) +Earnings per share +Basic +Net earnings (loss) per share attributable to F&G common shareholders, basic $ 1.89 $ 4.98 $ ( 0.47 ) +Diluted +Net earnings (loss) per share attributable to F&G common shareholders, diluted $ 1.88 $ 4.88 $ ( 0.47 ) +Weighted average shares outstanding F&G common stock, basic basis 131 125 124 +Weighted average shares outstanding F&G common stock, diluted basis 132 131 124 +(a) The remeasurement gains for the years ended December 31, 2025, 2024 and 2023 were $ 28 million, $ 20 million and $ 7 million, respectively . +See accompanying Notes to Consolidated Financial Statements +130 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) +(In millions) +Year Ended December 31, +2025 2024 2023 +Net earnings (loss) $ 271 $ 642 $ ( 58 ) +Other comprehensive income (loss), net: +Changes in current discount rate - future policy benefits ( 235 ) 224 ( 189 ) +Changes in instrument-specific credit risk - market risk benefits ( 24 ) 5 ( 34 ) +Unrealized gain (loss) on investments and other financial instruments 676 ( 164 ) 919 +Unrealized gain (loss) on foreign currency translation 10 ( 5 ) 2 +Reclassification adjustments for change in unrealized gains and losses included in net earnings (loss) 8 7 130 +Other comprehensive income 435 67 828 +Comprehensive income 706 709 770 +Less: Comprehensive income attributable to non-controlling interests 6 3 — +Comprehensive income attributable to F&G $ 700 $ 706 $ 770 +See accompanying Notes to Consolidated Financial Statements +131 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY +(In millions) +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2023 $ — $ — $ 3,162 $ 2,061 $ ( 2,818 ) $ — $ — $ 2,405 +Treasury stock purchased — — — — — ( 18 ) — ( 18 ) +Stock-based compensation — — 23 — — — — 23 +Common stock dividends declared — — — ( 77 ) — — — ( 77 ) +Other comprehensive income — — — — 828 — — 828 +Net earnings (loss) — — — ( 58 ) — — — ( 58 ) +Balance, December 31, 2023 $ — $ — $ 3,185 $ 1,926 $ ( 1,990 ) $ ( 18 ) $ — $ 3,103 +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2024 $ — $ — $ 3,185 $ 1,926 $ ( 1,990 ) $ ( 18 ) $ — $ 3,103 +Acquisition of non-controlling interest — — — — — — 136 136 +Issuance of preferred stock — — 250 — — — — 250 +Treasury stock purchased — — — — — ( 12 ) — ( 12 ) +Stock-based compensation — — 29 — — — — 29 +Preferred stock dividends declared — — — ( 17 ) — — — ( 17 ) +Common stock dividends declared — — — ( 108 ) — — — ( 108 ) +Dividends declared and distribution to non-controlling interests — — — — — — ( 14 ) ( 14 ) +Other comprehensive income — — — — 67 — — 67 +Net earnings — — — 639 — — 3 642 +Balance, December 31, 2024 $ — $ — $ 3,464 $ 2,440 $ ( 1,923 ) $ ( 30 ) $ 125 $ 4,076 +See accompanying Notes to Consolidated Financial Statements +132 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF EQUITY, CONTINUED +(In millions) +F&G Annuities & Life, Inc. shareholders' equity +Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total Equity +Balance, January 1, 2025 $ — $ — $ 3,464 $ 2,440 $ ( 1,923 ) $ ( 30 ) $ 125 $ 4,076 +Treasury stock purchased — — — — — ( 10 ) — ( 10 ) +Stock-based compensation — — 31 — — — — 31 +Issuance of common stock — — 269 — — — — 269 +Preferred stock dividends declared — — — ( 17 ) — — — ( 17 ) +Common stock dividends declared — — — ( 120 ) — — — ( 120 ) +Dividends declared and distribution to non-controlling interests — — — — — — ( 18 ) ( 18 ) +Other comprehensive income — — — — 435 — — 435 +Net earnings — — — 265 — — 6 271 +Balance, December 31, 2025 $ — $ — $ 3,764 $ 2,568 $ ( 1,488 ) $ ( 40 ) $ 113 $ 4,917 +See accompanying Notes to Consolidated Financial Statements +133 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In millions) +Year Ended December 31, +2025 2024 2023 +Cash Flows from Operating Activities: +Net earnings (loss) $ 271 $ 642 $ ( 58 ) +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization 665 569 412 +(Gain) loss on sales of investments and other assets and asset impairments, net 128 ( 210 ) 461 +Interest credited/index credits to contractholder account balances 202 1,327 1,409 +Change in market risk benefits, net 167 ( 25 ) 95 +Deferred policy acquisition costs and deferred sales inducements ( 1,286 ) ( 1,419 ) ( 1,082 ) +Charges assessed to contractholders for mortality and administration ( 330 ) ( 291 ) ( 255 ) +Distributions from unconsolidated affiliates, return on investment 176 108 104 +Stock-based compensation cost 31 29 23 +Change in NAV of limited partnerships, net ( 349 ) ( 350 ) ( 220 ) +Change in valuation of derivatives, equity and preferred securities and other assets, net ( 144 ) 60 ( 347 ) +Changes in assets and liabilities, net of effects from acquisitions: +Change in reinsurance recoverable ( 5 ) ( 19 ) 94 +Change in derivative collateral liabilities 249 91 410 +Change in future policy benefits 1,710 1,853 1,325 +Change in funds withheld from reinsurers 3,277 3,795 3,386 +Net change in income taxes 22 103 ( 4 ) +Net change in other assets and other liabilities ( 103 ) ( 264 ) 81 +Net cash provided by operating activities 4,681 5,999 5,834 +Cash Flows from Investing Activities: +Proceeds from sales, calls and maturities of investments 14,294 11,260 5,279 +Additions to property and equipment and capitalized software ( 15 ) ( 24 ) ( 27 ) +Purchases of investment securities ( 22,498 ) ( 16,922 ) ( 13,326 ) +Net proceeds from sales, maturities and purchases of short-term investment securities 1,535 ( 1,103 ) ( 28 ) +Other acquisitions/disposals, net of cash acquired — ( 482 ) — +Additional investments in unconsolidated affiliates ( 2,386 ) ( 1,114 ) ( 1,137 ) +Net increase in policy loans ( 43 ) ( 33 ) ( 19 ) +Distributions from unconsolidated affiliates, return of investment 694 478 340 +Net change in notes receivable ( 10 ) ( 13 ) — +Net cash used in investing activities ( 8,429 ) ( 7,953 ) ( 8,918 ) +Cash Flows from Financing Activities: +Borrowings 375 1,050 845 +Debt issuance costs ( 11 ) ( 20 ) ( 16 ) +Payment of contingent consideration for acquisitions ( 10 ) — — +Net revolving credit facility (repayments) borrowings — ( 365 ) ( 185 ) +Repayments of outstanding debt ( 300 ) ( 250 ) — +Dividends paid ( 137 ) ( 121 ) ( 101 ) +Dividends and distributions paid to non-controlling interest shareholders ( 18 ) ( 14 ) — +Purchases of treasury stock ( 10 ) ( 12 ) ( 18 ) +Issuance of preferred stock — 250 — +Issuance of common stock 269 — — +Contractholder account deposits 11,575 10,147 7,787 +Contractholder account withdrawals ( 8,763 ) ( 8,010 ) ( 4,625 ) +Net cash provided by financing activities 2,970 2,655 3,687 +Net (decrease) increase in cash and cash equivalents ( 778 ) 701 603 +Cash and cash equivalents at beginning of period 2,264 1,563 960 +Cash and cash equivalents at end of period $ 1,486 $ 2,264 $ 1,563 +See accompanying Notes to Consolidated Financial Statements +134 +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Note A - Business and Summary of Significant Accounting Policies +The following describes the business and significant accounting policies of F&G Annuities & Life, Inc. (“FGAL”) and its subsidiaries (collectively, “we,” “us,” “our,” the “Company” or “F&G”), which have been followed in preparing the Consolidated Financial Statements. +Description of the Business +F&G is a majority-owned subsidiary of Fidelity National Financial, Inc. (NYSE: FNF) (“FNF”). We provide insurance solutions and market a broad portfolio of annuity and life insurance products through retail channels and institutional markets and earn commissions on the sale of insurance products through our owned distribution channels. For certain disclosures within this Annual Report on Form 10-K, we have elected to aggregate business based on the applicable product type, the manner in which information is regularly reviewed by management and the nature of disclosures that exist outside the Company’s generally accepted accounting principles (“GAAP”) financial statements. +Retail distribution channels products include: +• Deferred annuities including fixed indexed annuities (“FIA”), registered index-linked annuities (“RILA”), (together referred to as “indexed annuities”) and fixed rate annuities including multi-year guarantee annuities (“MYGA”), +• Immediate annuities, and +• Indexed universal life (“IUL”) insurance. +Institutional markets products include: +• Pension risk transfer (“PRT”) solutions, and +• Funding agreements, including funding agreement backed notes (“FABN”) and Federal Home Loan Bank funding agreements (“FHLB”). +F&G has one reporting segment, which reflects the manner by which our chief operating decision maker (“CODM”), the Chief Executive Officer of F&G, views and manages the business. For information about our reporting segment refer to Note V - Segment Information. +Recent Developments +F&G Life Re Ltd. (“F&G Life Re”) +On February 19, 2026, the Company announced the expected sale of its Bermuda based subsidiary, F&G Life Re, to Ancient Financial Holdings, LP (“Ancient”). Blackstone will retain asset management for the inforce assets and Ancient will manage assets under a new flow reinsurance treaty for certain MYGA new business. The transaction is expected to be completed on March 1, 2026. The transaction reflects F&G’s disciplined execution of risk transfer options and that we no longer needed a Bermuda operation to support our reinsurance strategy. +F&G Special Stock Distribution +On December 31, 2025, FNF distributed, on a pro rata basis, approximately 12 % of the outstanding shares of F&G common stock. FNF retained control of F&G through approximately 70 % ownership of F&G common stock as of December 31, 2025. +Common Stock Issuance +135 +On March 24, 2025, we completed a public offering of 8,000,000 shares of common stock, par value $ 0.001 per share, for net proceeds of $ 269 million. In connection with the offering, we entered into an underwriting agreement, pursuant to which we granted the underwriters of the offering a 30 -day option to purchase up to an additional 1,200,000 shares of common stock. Pursuant to the underwriting agreement, the underwriters agreed to resell to FNF 4,500,000 shares of common stock at the same price per share paid by the underwriters, which was $ 33.60 per share. The underwriters option expired unexercised. The net proceeds from the offering were used for general corporate purposes, including the support of organic growth opportunities. +Redemption of 5.50 % F&G Senior Notes +On February 1, 2025, F&G redeemed the outstanding $ 300 million aggregate principal amount of its 5.50 % Senior Notes due May 1, 2025 (the “ 5.50 % F&G Senior Notes”). The notes were redeemed for a redemption price equal to 100 % of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date. +7.300 % F&G Junior Notes +On January 13, 2025, F&G completed its public offering of its 7.300 % Junior Subordinated Notes due 2065 with an aggregate principal amount of $ 375 million (the “ 7.300 % F&G Notes”). The net proceeds were used for general corporate purposes, including the repurchase, redemption or repayment at maturity of outstanding indebtedness. +Refer to Note L- Notes Payable for further information related to these financing facilities. +Principles of Consolidation and Basis of Presentation +The Consolidated Financial Statements are prepared in accordance with GAAP and include our accounts as well as our wholly owned subsidiaries, majority-owned subsidiaries, and variable interest entities (“VIEs”) for which we are the primary beneficiary. All intercompany profits, transactions and balances have been eliminated. Non-controlling interests recorded on the Consolidated Statements of Operations represent the portion of a majority-owned subsidiary's net earnings or loss that is owned by non-controlling shareholders of the subsidiary. Non-controlling interests recorded on the Consolidated Balance Sheets represent the portion of equity in a consolidated subsidiary owned by non-controlling shareholders. +Refer to Note T - Recent Accounting Pronouncements for information on recent accounting pronouncements that may have an impact on our Consolidated Financial Statements. +We are involved in certain entities that are considered VIEs as defined under GAAP. Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. We consolidate VIEs for which we are the primary beneficiary and account for all other VIEs as unconsolidated VIEs. We assess our relationships with VIEs to evaluate if we are the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant. See Note C - Investments for additional information on our investments in VIEs. +Investments +Fixed Maturity Securities +Fixed maturity securities are purchased to support our investment strategies, which are developed based on factors including rate of return, maturity, credit risk, duration, tax considerations and regulatory requirements. Our investments in fixed maturity securities have been designated as available-for-sale (“AFS”) and are carried at fair +136 +value, net of allowance for expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”), net of deferred income taxes. We recognize investment income on fixed maturities based on the effective interest method, which results in the recognition of a constant rate of return on the investment equal to the prevailing rate at the time of purchase or at the time of subsequent adjustments of book value. Realized gains and losses on sales of our fixed maturity securities are determined on the specific identification basis. We generally record security transactions on a trade date basis except for private placements, which are recorded on a settlement date basis. Realized gains and losses on sales of fixed maturity securities are reported within Recognized gains and (losses), net in the Consolidated Statements of Operations. Fixed maturity securities AFS are subject to an allowance for credit loss and changes in the allowance are reported in net earnings as a component of Recognized gains and (losses), net. For details on our policy around allowance for expected credit losses on available-for-sale securities, refer to Note C - Investments. +Equity Securities +Preferred and common equity securities held are carried at fair value as of the balance sheet dates. Changes in fair value and realized gains and losses on sales of our preferred and common equity securities are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. Realized gains and losses on sales of our preferred and common equity securities are determined on the specific identification basis and are credited or charged to earnings on a trade date basis unless the security is a private placement, in which case settlement date basis is used. Interest and dividend income from these investments is reported in Interest and investment income in the Consolidated Statements of Operations. +Derivative Financial Instruments +Freestanding Derivatives +We economically hedge certain portions of our exposure to product related equity market risk by entering into derivative transactions (primarily equity options and, to a lesser degree, futures contracts). We also utilize certain interest rate swaps, to reduce market risks from interest rate changes on our earnings associated with our floating rate investments, and foreign currency swaps, to reduce market risks from fluctuations in foreign exchange rates that impact earnings associated with our foreign currency denominated investments. All such derivative instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets at fair value. The changes in fair value of derivatives not designated to hedge relationships are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. The change in the fair value of these derivative instruments is included in operating activities in the Consolidated Statements of Cash Flows. +Hedge Accounting +We designate certain derivatives to fair value or cash flow hedge relationships that hedge exposures to interest rates, foreign currency, or both, associated with changes in the fair value of a recognized asset or liability (“fair value hedge”) or a forecasted transaction or variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). +When a derivative is designated as a fair value hedge and is determined to be highly effective, changes in the fair value of the derivative included in the assessment of effectiveness are reported in the same line on the Consolidated Statements of Operations that is used to report the earnings effect of the hedged item. +When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in the fair value of the derivative included in the assessment of effectiveness are recorded in AOCI until earnings are affected by the variability of cash flows being hedged. At the time the variability of cash flows being hedged impacts net earnings, the related portion of deferred gains or losses on the derivative instrument is reclassified and reported in net earnings in the same line item on the Consolidated Statements of Operations that is used to report the earnings effect of the hedged item. +137 +Any portion of the change in fair value of a derivative designated to a fair value or cash flow hedge relationship that is excluded from the assessment of effectiveness will be recorded in AOCI and amortized into earnings over the life of the remaining term of the hedge relationship. +To qualify for hedge accounting, at hedge inception we formally document our risk management objective and strategy for entering into hedging relationships, as well as the designation of the hedge. In our hedge documentation, we explain how the hedging instrument is expected to hedge the designated risks related to the hedged item and the method that will be used to test for hedge effectiveness on both a prospective and retrospective basis. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and at least quarterly throughout the life of the hedging relationship. +We prospectively discontinue hedge accounting when (1) the criteria to qualify for hedge accounting is no longer met; (2) the derivative expires, is sold, terminated or is exercised; or (3) we de-designate the derivative from being the hedging instrument for a fair value or cash flow hedge. +If a fair value or cash flow hedge is discontinued, the derivative will continue to be carried at fair value on the Consolidated Balance Sheets, with changes in fair value recognized prospectively in Recognized gains and losses in the Consolidated Statements of Operations. +For discontinued fair value hedges, the hedged item will no longer be adjusted for changes in the hedged risk and any existing basis adjustment will be amortized into the Consolidated Statements of Operations within the same line item that is used to report other earnings effects of the hedged item. Any amounts remaining in AOCI associated with a component of the change in derivative fair value excluded from the assessment of effectiveness will be amortized into earnings in a manner consistent with how any basis adjustment associated with the hedged item would be amortized. +The component of AOCI related to discontinued cash flow hedges where it is probable the hedged forecasted transaction will not occur, will be immediately reclassified from AOCI into earnings. In all other cases any amounts remaining in AOCI will be amortized into earnings consistent with the earnings impacts expected from the original hedged cash flows. +Embedded Derivatives +We purchase financial instruments and enter into agreements that may contain embedded derivatives. If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract for measurement purposes. Refer to Note D - Derivatives for additional information on derivatives. +Mortgage Loans +Our investment in mortgage loans consists of commercial and residential mortgage loans on real estate, which are reported at amortized cost, less allowance for expected credit losses. For details on our policy around allowance for expected credit losses on mortgage loans, refer to Note C - Investments . +Commercial mortgage loans are continuously monitored by reviewing appraisals, operating statements, rent revenues, annual inspection reports, loan specific credit quality, property characteristics, market trends and other factors. +Commercial mortgage loans are rated for the purpose of quantifying the level of risk. Loans are placed on a watch list when the debt service coverage (“DSC”) ratio falls below certain thresholds and the loan-to-value (“LTV”) ratios exceeds certain thresholds. Loans on the watch list are closely monitored for collateral deficiency or +138 +other credit events that may lead to a potential loss of principal or interest. We define delinquent mortgage loans as 30 days past due, consistent with industry practice. +Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. We define nonperforming residential mortgage loans as those that are 90 or more days past due and/or in nonaccrual status, which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss. We consider residential mortgage loans that are 90 or more days past due and have an LTV greater than 90% to be foreclosure probable. +Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Interest income, amortization of premiums and discounts, prepayment fees, and loan commitment fees are reported in Interest and investment income in the Consolidated Statements of Operations. +Policy loans +Policy loans are reported at the unpaid principal balance and are fully collateralized by the cash surrender value of underlying insurance policies. +Short-term investments +Short-term investments consist of financial instruments with an original maturity of one year or less when purchased and include short-term fixed maturity securities and money market instruments, which are carried at fair value, and short-term loans, which are carried at amortized cost, which approximates fair value. +Investments in Unconsolidated Affiliates +We account for our investments in unconsolidated affiliates using the equity method or by electing the fair value option. Initial investments are recorded at cost. +For investments subsequently measured using the equity method (primarily limited partnerships, including those held by consolidated VIEs), adjustments to the carrying amount reflect our pro rata ownership percentage of the operating results as indicated by net asset value (“NAV”) in the unconsolidated affiliates’ financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. Our pro rata share of NAV adjustments are reported in Interest and investment income and realized gains and losses on sales are reported in Recognized gains and (losses), net in the Consolidated Statements of Operations. Distributions received from investments measured using the equity method are recorded as a decrease in the investment balance. Recognition of income and adjustments to the carrying amount can be delayed due to the availability of the related financial statements, which are obtained from the general partner or managing member generally on a one to three month delay. Management inquires quarterly with the general partner or managing member to determine whether any credit or other market events have occurred since prior quarter financial statements to ensure any material events are properly included in our current quarter NAV adjustments and investment income. +For investments subsequently measured using the fair value option, adjustments to the carrying amount reflecting the change in fair value of the investment and realized gains and losses on sales are reported in Recognized gains and (losses), net in the Consolidated Statements of Operations. Distributions received from investments measured using the fair value option are reported within Interest and investment income in the Consolidated Statements of Operations. +139 +For descriptions of the fair value methodologies used for our investments, refer to Note B - Fair Value of Financial Instruments. +Interest and investment income +Dividends and interest income are recorded in Interest and investment income and recognized when earned. Income or losses upon call or prepayment of fixed maturity securities are recognized in Interest and investment income. Amortization of premiums and accretion of discounts on investments in fixed maturity securities are reflected in Interest and investment income over the contractual terms of the investments, and for callable investments at a premium, based on the earliest call date of the investments, in a manner that produces a constant effective yield. +For mortgage-backed and asset-backed securities included in the fixed maturity securities portfolios, one of two models may be used to recognize interest income. For higher rated securities, interest income will be estimated based on an effective yield that considers cash flows received to date plus current expectations of future cash flows. For all other securities, interest income will be estimated based upon an effective yield that considers current expectations of future cash flows. For both interest income models, the estimated future cash flows include assumptions regarding the performance of the underlying collateral pool. +Interest and investment income is presented net of investment expenses and the effects of certain reinsurance contracts. +Cash and Cash Equivalents +Highly liquid instruments purchased as part of cash management with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. +Fair Value of Financial Instruments +The fair values of financial instruments presented in the Consolidated Financial Statements are estimates of the fair values at the balance sheet date using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments . +Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations +The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, requires an acquirer to recognize, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree, and to measure these items generally at their acquisition date fair values. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to report provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the acquisition date, when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. +140 +Goodwill +Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment at the reporting unit level on an annual basis or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform a qualitative analysis at the reporting unit level to determine whether there are any events or circumstances that would indicate it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value, prior to performing a full fair-value assessment. +We complete annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2025 and 2024, we determined there were no events or circumstances which indicated that the carrying value of a reporting unit exceeded the fair value. +Insurance and Reinsurance Related Intangible Assets +We have insurance and reinsurance related intangible assets, which include the value of insurance and reinsurance contracts acquired (hereafter referred to as “VOBA”), deferred acquisition costs (“DAC”), deferred sales inducements (“DSI”), and cost of reinsurance (“COR”). VOBA, DAC, and DSI are reported in Other intangible assets, net, on the Consolidated Balance Sheets. COR may be reported in Prepaid expenses and other assets or in Accounts payable and accrued liabilities on the Consolidated Balance Sheets as described below under “ Reinsurance - Cost of Reinsurance.” +VOBA is an intangible asset that reflects the amount recorded as insurance contract liabilities less the estimated fair value of inforce contracts (“VIF”) in a life insurance company acquisition. It represents the portion of the purchase price that is allocated to the value of the rights to receive future cash flows from the business inforce at the acquisition date. VOBA is a function of the VIF, current GAAP reserves, GAAP assets, and deferred tax liability. The VIF is determined by the present value of statutory distributable earnings less opening required capital. DAC consists principally of commissions and other acquisition costs that are related directly to the successful sale of new or renewal insurance contracts that are deferred as they are incurred. When insurance contracts are reinsured and reinsurance accounting is applied, acquisition cost reimbursements from reinsurers are recorded as a reduction to DAC. Indirect or unsuccessful acquisition costs, maintenance, product development and overhead expenses are charged to expense as incurred and are offset by maintenance expense reimbursements within a reinsurance arrangement, when reinsurance accounting is applied to the respective arrangement DSI represents up front bonus credits and persistency or vesting bonuses credited to contractholder fund balances. COR represents net cash flows on reinsurance coverage to ensure no gain or loss is recognized at inception. +VOBA, DAC, DSI, and COR are amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. Contracts are grouped by product type, feature and issue year into cohorts consistent with the grouping used in estimating the associated liability, where applicable. The constant level amortization bases of VOBA, DAC, DSI, and COR varies by product type. For universal life and IUL insurance products, the constant level basis used is face amount inforce. For deferred annuities (indexed annuities and fixed rate annuities), the constant level basis used is initial premium deposit for DAC and DSI and vested account value as of the acquisition date for VOBA and ceded initial premium for COR. For immediate annuity contracts, the VOBA balance is amortized in alignment with the Company’s accounting policy of amortizing the deferred profit liability (“DPL”). All amortization bases are adjusted by full lapses, which includes deaths, full surrenders, annuitizations and maturities, where applicable. +The constant level basis used for amortization are projected using mortality and lapse assumptions that are based on Company’s experience, industry data, and other factors and are consistent with those used for the future policy benefits (“FPB”), where applicable. If those projected assumptions change in future periods, they will be reflected in the cohort level amortization basis at that time. Unexpected contract terminations, due to higher mortality and/or lapse experience than expected, are recognized in the current period as a reduction of the capitalized +141 +balances. All balances are reduced for actual experience in excess of expected experience with changes in future estimates recognized prospectively over the remaining expected grouped contract term. The impact of changes in projected assumptions and the impact of actual experience that is different from expectations impact the amortization of these intangible assets, which is reported within Depreciation and amortization for VOBA, DAC DSI and for COR, if the net COR balance is in a deferred gain position is reported within Life insurance premiums and other fees, and if the net COR balance is in a deferred loss position is reported within Other operating expenses in the Consolidated Statements of Operations. +Some of our IUL policies require payment of fees or other policyholder assessments in advance for services that will be rendered over the estimated lives of the policies or contracts. These payments are established as unearned revenue liabilities (“URL”) upon receipt and included in Accounts payable and other accrued liabilities in the Consolidated Balance Sheets. URL is amortized like DAC over the estimated lives of these policies. +Other Intangible Assets +We have other intangible assets, not including goodwill, VOBA, DAC or DSI, which consist primarily of customer relationships and contracts, the value of distribution network acquired (“VODA”), trademarks and tradenames, state licenses and computer software, which are generally recorded in connection with business combinations at their fair value . Intangible assets with estimable lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In general, customer relationships are amortized over their estimated useful lives using an accelerated method, which takes into consideration expected customer attrition rates. VODA is an intangible asset that represents the value of an acquired distribution network and is amortized using the sum of years digits method. Contractual relationships are generally amortized over their contractual life. Trademarks and tradenames are generally amortized over ten years . Capitalized computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life. For internal-use computer software products, internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use. +We review VOBA, DSI and other intangible assets for impairment annually or when events or circumstances occur that indicate a potential change in the underlying basis . Refer to Note F - Intangibles for details of impairment expense. +Contingent Consideration +Contingent consideration recognized in connection with a business combination represents an obligation to transfer additional assets or equity interests as part of the exchange for control of an acquiree if specified future events or conditions are met. Contingent consideration is recognized at fair value in the Consolidated Balance Sheets within Accounts payable and accrued liabilities. Changes in fair value are recognized in the Consolidated Statements of Operations as Other operating expenses. +Property and Equipment +Property and equipment are recorded at cost, less accumulated depreciation in Prepaid expenses and other assets on the Consolidated Balance Sheets. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets: twenty to thirty years for buildings and three to twenty-five years for furniture, fixtures and equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. +142 +Contractholder Funds +Contractholder funds include deferred annuities (indexed annuities and fixed rate annuities), IULs, funding agreements and non-life contingent (“NLC”) immediate annuities (which includes NLC PRT annuities). The liabilities for contractholder funds for fixed rate annuities, funding agreements and NLC immediate annuities consist of contract account balances that accrue to the benefit of the contractholders. The liabilities for indexed annuities and IUL policies consist of the value of the host contract plus the fair value of the indexed crediting feature of the policy, which is accounted for as an embedded derivative. The embedded derivative liability is carried at fair value in Contractholder funds in the Consolidated Balance Sheets with changes in fair value reported in Benefits and other changes in policy reserves in the Consolidated Statements of Operations. See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments . +Future Policy Benefits +The FPB are determined as the present value of future policy benefits and related claims expenses to be paid to or on behalf of the policyholder less the present value of future net premiums to be collected from policyholders. The FPB for traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities) are estimated using current assumptions that include discount rate, mortality and surrender/lapse terminations for traditional life insurance policies only, and expenses. The expense assumption is locked-in at contract issuance and not subsequently reviewed or updated. The initial assumptions are based on generally accepted actuarial methods and a combination of internal and industry experience. Policies are terminated through surrenders, lapses and maturities, where surrenders represent the voluntary terminations of policies by policyholders, lapses represent cancellations by us due to nonpayment of premiums, and maturities are determined by policy contract terms. +For traditional life policies and life-contingent immediate annuity policies, contracts are grouped into cohorts by product type, legal entity, and issue year, or acquisition year for cohorts established as of the FNF Acquisition Date. Life-contingent PRT annuities are grouped into cohorts by deal and legal entity. At contract inception, a net premium ratio (“NPR”) is determined, which is calculated based on discounted future cash flows projected using best estimate assumptions and is capped at 100 %, as net premiums cannot exceed gross premiums. Cohorts with NPRs less than 100 % are not used to offset cohorts with NPRs greater than 100 %. +The NPR is adjusted for changes in cash flow assumptions and for differences between actual and expected experience. We assess the appropriateness of all future cash flow assumptions, excluding the expense assumption, on a quarterly basis and perform an in-depth review of future cash flow assumptions in the third quarter of each year. Updates are made when evidence suggests a revision is necessary. Updates for actual experience, which includes actual cash flows and insurance inforce, are performed on a quarterly basis. These updated cash flows are used to calculate a revised NPR, which is used to derive an updated liability as of the beginning of the current reporting period, discounted at the original contract issuance date. The updated liability is compared with the carrying amount of the liability as of that same date before the revised NPR. The difference between these amounts is the remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. In subsequent periods, the revised NPR is used to measure the FPB, subject to future revisions. If the NPR is greater than 100 %, and therefore capped at 100 %, the liability is increased and expensed immediately to reflect the amount necessary for net premiums to equal gross premiums. As the liability assumptions are reviewed and updated, if deemed necessary, at least annually, if conditions improve whereby the contracts are no longer expected to have net premiums in excess of gross premiums, the improvements would be captured in the remeasurement process and reflected in the Consolidated Statements of Operations in the period of improvement. +For traditional life policies and life-contingent immediate annuity policies (which includes life-contingent PRT annuities), the discount rate assumption is an equivalent single rate that is derived based on A-credit-rated fixed-income instruments with similar duration to the liability. We selected fixed-income instruments that have been A-rated by Bloomberg. In order to reflect the duration characteristics of the liability, we will use an implied forward +143 +yield curve and linear interpolation will be used for durations that have limited or no market observable points on the curve. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in the Consolidated Statements of Comprehensive Income (Loss). +Deferred Profit Liability +For life-contingent immediate annuity policies, gross premiums received in excess of net premiums are deferred at initial recognition as a DPL. Premiums are measured using assumptions consistent with those used in the measurement of the related liability for FPBs, including discount rate, mortality, and expenses. +The DPL is amortized and recognized as premium revenue with the amount of expected future benefit payments, discounted using the same discount rate determined and locked-in at contract issuance that is used in the measurement of the related FPB. Interest is accreted on the balance of the DPL using this same discount rate. We periodically review and update our estimates using the actual historical experience and updated cash flows for the DPL at the same time as the estimates of cash flows for the FPB. When cash flows are updated, the updated estimates are used to recalculate the initial DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, with any differences recognized as a remeasurement gain or loss, presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. The DPL is recorded as a component of the Future policy benefits in the Consolidated Balance Sheets. +Market Risk Benefits (“MRBs”) +MRBs are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk (equity, interest rate and foreign exchange risk) and expose the Company to other-than-nominal capital market risk. MRBs include certain contract features primarily on indexed annuities products that provide minimum guarantees to policyholders, such as guaranteed minimum death benefit (“GMDB”), guaranteed minimum withdrawal benefit (“GMWB”) riders and guaranteed minimum accumulation benefit (“GMAB”) riders. In certain reinsurance transactions, the underlying risks ceded to a reinsurer contain MRBs. +MRBs (inclusive of reinsured MRBs) are measured at fair value using an attributed fee measurement approach where attributed fees are explicit rider charges collectible from the policyholder (or paid to the reinsurer) used to cover the excess benefits, which represent expected benefits in excess of the policyholder’s account value. At contract inception, an attributed fee ratio is calculated equal to rider charges over benefits paid in excess of the account value attributable to the MRBs. The attributed fee ratio remains static over the life of the MRBs and is capped at 100 %. Each period subsequent to contract inception, the attributed fee ratio is used to calculate the fair value of the MRBs using a risk neutral valuation method and is based on current net amounts at risk, market data, internal and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, GMWB utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. MRBs can either be in an asset or liability position and are presented separately on the Consolidated Balance Sheets as the right of setoff criteria are not met. Changes in fair value, net, are recognized in Market risk benefit (gains) losses in the Consolidated Statements of Operations, except for the change in fair value due to a change in our instrument-specific credit risk, which is recognized in the Consolidated Statements of Comprehensive Income (Loss). See a description of the fair value methodology used in Note B - Fair Value of Financial Instruments and Note G - Market Risk Benefits . +Income Taxes +We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable +144 +income in the years in which those temporary differences are expected to be recovered or settled. We evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that it is more likely than not that some portion of the tax benefit will not be realized. We adjust the valuation allowance if, based on our evaluation, there is a change in the amount of deferred income tax assets that are deemed more-likely-than-not to be realized. T he impact on deferred taxes of changes in tax rates and laws, if any, is applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted. +Reinsurance +Our insurance subsidiaries enter into reinsurance agreements with other companies in the normal course of business. In certain arrangements that are not accounted for as reinsurance, the right of offset may be applied resulting in all balances and activity associated with the agreement being presented on a net basis in the Consolidated Balance Sheets and Statements of Operations, respectively. +When the right of offset is not applied, the arrangement is reflected on a gross basis in the Consolidated Balance Sheets and Statements of Operations. This results in the recognition of a Reinsurance recoverable for amounts due from the reinsurer. For arrangements accounted for as reinsurance, the Reinsurance recoverable balance reflects the reserve balance of the policies ceded. For arrangements not accounted for as reinsurance, deposit accounting is applied. As a result, the deposit asset presented as a Reinsurance recoverable on the Consolidated Balance Sheets, is based on the actual and expected cash flows due from the reinsurer where the interest method is used to accrete the deposit asset using an effective yield based on changes in actual and expected cash flows. For coinsurance of FIA and IUL policies, the Reinsurance recoverable will incorporate the fair value of the indexed crediting feature, which is accounted for as an embedded derivative. Changes in the Reinsurance recoverable balance are reported as Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +Cost of Reinsurance +Amounts received from or paid to reinsurers in excess of reimbursements or liabilities ceded, respectively, represents COR. If the net COR balance is in a deferred gain position, it is included within Accounts payable and accrued liabilities with the related amortization reflected within Life insurance premiums and other fees and, if in a deferred loss position, is included within the Prepaid expenses and other assets with the related amortization reflected within Other operating expenses, in the Consolidated Balance Sheets and Statements of Operations, respectively. Premiums and expenses are recorded net of reinsurance ceded. +Funds Withheld Arrangements +F&G cedes certain business on a coinsurance funds withheld basis. Assets supporting the arrangements are reported within Funds withheld for reinsurance liabilities on our Consolidated Balance Sheets. All assets within the Funds withheld for reinsurance liabilities are recorded in a manner consistent with each respective item of our accounting policies discussed in this Note A - Business and Summary of Significant Accounting Policies . Refer to Note E - Reinsurance, for additional information on the funds withheld arrangements. Investment results for the assets that support the coinsurance are segregated within the funds withheld account and are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance agreement, which creates embedded derivatives considered to be total return swaps. These embedded derivatives are not clearly and closely related to the underlying reinsurance agreement and thus require bifurcation. For arrangements reinsuring indexed annuities products, the funds withheld account additionally contains an embedded derivative representing the index credit obligation due the reinsurer, resulting in a compound embedded derivative. Beginning in 2025, these embedded derivatives are reported in Funds withheld for reinsurance liabilities, irrespective if in a net asset position or a net liability position, on the Consolidated Balance Sheets and prior periods have been reclassified from Prepaid expenses and other assets to conform with the current presentation. The related gains or losses are reported in Recognized gains and (losses), net, on the Consolidated Statements of Operations. Refer to Note B - Fair Value of Financial Instruments for descriptions of the fair value methodologies used for these and other derivative financial instruments and Note D – Derivatives, for additional information on these and other derivatives. +145 +Revenue Recognition +F&G derives its revenue from external customers primarily located in the United States. Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on indexed annuities policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts. We have ceded the majority of our traditional life business to unaffiliated third-party reinsurers. While the base contract has been reinsured, we continue to retain the return of premium rider. Other income related to riders is earned when elected by the policyholder. Surrender charges are earned when a policyholder withdraws funds from the contract early or cancels the contract. +Premium and annuity deposit collections for indexed annuities, fixed rate annuities, immediate annuities and PRT without life contingencies, and amounts received for funding agreements are reported in the financial statements as deposit liabilities (i.e., Contractholder Funds) instead of as sales or revenues. Similarly, cash payments to customers are reported as decreases in the liability for contractholder funds and not as expenses. Sources of revenues for products accounted for as deposit liabilities include net investment income, surrender, cost of insurance and other charges deducted from Contractholder Funds, and net realized gains (losses) on investments. Components of expenses for products accounted for as deposit liabilities are interest-sensitive and index product benefits (primarily interest credited to account balances or the hedging cost of providing index credits to the policyholder), amortization of VOBA, DAC, DSI and COR, other operating costs and expenses, and income taxes. +Premiums, annuity deposits (net of reinsurance and reinsurance recoverable) and funding agreements, which are not included as revenues in the Consolidated Statements of Operations, collected by product type were as follows: +Year Ended December 31, +2025 2024 2023 +Indexed annuities $ 5,341 $ 5,828 $ 4,738 +Fixed rate annuities 1,637 1,277 1,147 +Funding agreements (FABN/FHLB) 3,748 2,404 1,256 +Life insurance and other (a) +849 638 646 +Total $ 11,575 $ 10,147 $ 7,787 +(a) Life insurance and other primarily includes indexed universal life insurance. +Interest and investment income consist primarily of interest payments received on fixed maturity security holdings and dividends received on preferred and equity security holdings along with the investment income of limited partnerships and is recognized when earned. +Owned distribution revenues generated from commissions earned on contracts with insurance carriers are considered variable consideration and consist of revenue primarily from annuity products. Revenue is recognized at the effective date of each policy sold at the net amount retained under a contract within Owned distribution revenues on the Consolidated Statements of Operations. Intercompany transactions are eliminated in consolidation. +Benefits and Other Changes in Policy Reserves +Benefit expenses for deferred annuities (indexed annuities and fixed rate annuities), IUL policies and funding agreements include interest credited to contractholder account balances. For indexed annuities and IUL, the benefits expense includes the change in fair value of the embedded derivatives associated with the equity crediting rates. Benefit claims in excess of contract account balances, net of reinsurance recoveries, are charged to expense in the period that they are earned by the policyholder based on their selected strategy or strategies. +With the exception of reinsured MRBs discussed above, changes in the Reinsurance recoverable balance that need to be reflected in earnings are included within Benefits and other changes in policy reserves on the Consolidated Statements of Operations. For reinsurance arrangements that apply reinsurance accounting, this +146 +primarily relates to changes in the reserve balance ceded. For reinsurance arrangements that apply deposit accounting, this primarily relates to accretion of the deposit asset balance. +Other changes in policy reserves also include the change in reserves for life insurance products. For traditional life and life-contingent immediate annuities (which includes PRT annuities with life contingencies), policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries. Remeasurement gains or losses on the related FPB and DPL balances are presented parenthetically within Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +Stock-Based Compensation Plans +We account for stock-based compensation plans using the fair value method. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date using quoted market prices and recognized over the service period. Refer to Note R - Employee Benefit Plans for more details regarding our stock compensation plans. +Earnings Per Share +Basic earnings per share (“EPS”), as presented on the Consolidated Statements of Operations, is computed by dividing net earnings available to common shareholders in a given period by the weighted average number of common shares outstanding during such period. Net earnings available to common shareholders is net earnings adjusted for net earnings attributable to non-controlling interests, preferred stock dividends, including preferred stock dividends declared. In periods when earnings are positive, diluted EPS is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted loss per share is equal to basic loss per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. Certain shares of restricted stock, using the treasury stock method and, as of January 12, 2024, the FNF Preferred Stock, using the if-converted method, are treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which the effect is dilutive. The if-converted method assumes that the convertible preferred stock converts into common stock at the beginning of the period or date of issuance, if later. +Refer to Note S - Earnings Per Share for more details over our calculation of EPS. +Comprehensive Income (Loss) +We report Comprehensive Income (Loss) in accordance with GAAP on the Consolidated Statements of Comprehensive Income (Loss). Total comprehensive income is defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders. While total Comprehensive Income (Loss) is the activity in a period and is largely driven by net earnings in that period, Accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. Amounts reclassified to net earnings relate to the realized gains (losses) on our investments and other financial instruments, excluding investments in unconsolidated affiliates, and are included in Recognized gains and (losses), net on the Consolidated Statements of Operations. The income tax effects are released from AOCI when the related activity is reclassified to net earnings. +Management Estimates +The preparation of these Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +147 +Periodically, and at least annually, typically in the third quarter, we review the assumptions associated with reserves for policy benefits and product guarantees. During the third quarter and for the years ended December 31, 2025 and 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within Contractholder funds. These changes resulted in decreases in total benefits and other changes in policy reserves of approximately $ 20 million and $ 89 million for the years ended December 31, 2025 and 2024, respectively. +During the third quarter and for the year ended December 31, 2023, based on increases in interest rates and pricing changes, we updated certain indexed annuities assumptions to calculate the fair value of the embedded derivative component within the contractholder funds and also aligned reserves to actual policyholder behavior. These changes resulted in an increase in total benefits and other changes in policy reserves of approximately $ 73 million . +Reclassifications +Prior period amounts have been reclassified to conform with the current period presentation. Refer to “ Funds Withheld Arrangements ” above for further information. +148 +Note B - Fair Value of Financial Instruments +Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or non-performance risk, which may include our own credit risk. We estimate an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market for that asset or liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or assume a liability (“entry price”). We categorize financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique, along with net asset value. The three-level hierarchy for fair value measurement is defined as follows: +Level 1 – Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. +Level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves. +Level 3 – Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date based on the best information available in the circumstances. +Net Asset Value (“NAV”) – Certain equity investments are measured using NAV as a practical expedient in determining fair value. In addition, our unconsolidated affiliates (primarily limited partnerships) are primarily accounted for using the equity method of accounting with fair value determined using NAV as a practical expedient. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the unconsolidated affiliate’s financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. The underlying investments of the unconsolidated affiliates may have significant unobservable inputs, which may include, but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model. Additionally, management inquires quarterly with the general partner to determine whether any credit or other market events have occurred since prior period financial statements to ensure any material events are properly included in current period valuation and investment income. +In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. +When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-based sources. +149 +Our assets and liabilities measured and carried at fair value on a recurring basis, summarized according to the hierarchy previously described, are as follows (in millions): +December 31, 2025 +Level 1 Level 2 Level 3 NAV Fair Value +Assets +Cash and cash equivalents $ 1,486 $ — $ — $ — $ 1,486 +Fixed maturity securities, available-for-sale: +Asset-backed securities — 8,638 10,094 — 18,732 +Commercial mortgage-backed securities — 5,155 — — 5,155 +Corporates 40 20,086 3,124 — 23,250 +Hybrids 36 558 15 — 609 +Municipals — 1,352 3 — 1,355 +Residential mortgage-backed securities — 2,842 3 — 2,845 +U.S. Government 493 — — — 493 +Foreign Governments — 238 23 — 261 +Equity securities: +Preferred equity securities 115 117 7 — 239 +Common equity securities 62 — 5 35 102 +Derivative investments — 1,148 — — 1,148 +Investments in unconsolidated affiliates — — 270 — 270 +Other long-term investments (a) — 248 41 — 289 +Short term investments 887 82 74 — 1,043 +Indexed annuities/IUL ceded embedded derivatives, included in Reinsurance recoverable — — 399 — 399 +Loan receivable, included in Prepaid expenses and other assets — — 24 — 24 +Market risk benefits asset — — 285 — 285 +Total financial assets at fair value $ 3,119 $ 40,464 $ 14,367 $ 35 $ 57,985 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ — $ — $ 6,542 $ — $ 6,542 +Interest rate and foreign currency swaps, included in Accounts payable and accrued liabilities — 3 9 — 12 +Reinsurance related embedded derivatives, included in Funds withheld for reinsurance liabilities — 75 — — 75 +Contingent consideration, included in Accounts payable and accrued liabilities — — 72 — 72 +Market risk benefits liability — — 903 — 903 +Total financial liabilities at fair value $ — $ 78 $ 7,526 $ — $ 7,604 +(a) Includes certain interests in VIEs for which the fair value option has been elected. Refer to Note C - Investments for further details. +150 +December 31, 2024 +Level 1 Level 2 Level 3 NAV Fair Value +Assets +Cash and cash equivalents $ 2,264 $ — $ — $ — $ 2,264 +Fixed maturity securities, available-for-sale: +Asset-backed securities — 7,506 8,143 — 15,649 +Commercial mortgage-backed securities — 5,131 — — 5,131 +Corporates 41 17,496 2,941 — 20,478 +Hybrids 35 546 — — 581 +Municipals — 1,346 — — 1,346 +Residential mortgage-backed securities — 2,785 3 — 2,788 +U.S. Government 158 — — — 158 +Foreign Governments — 182 4 — 186 +Equity securities: +Preferred equity securities 119 144 7 — 270 +Common equity securities 88 — — 57 145 +Derivative investments — 789 3 — 792 +Investments in unconsolidated affiliates — — 272 — 272 +Other long-term investments — — 32 — 32 +Short term investments 2,355 18 37 — 2,410 +Indexed annuities/IUL ceded embedded derivatives, included in Reinsurance recoverable — — 98 — 98 +Loan receivable, included in Prepaid expenses and other assets — — 11 — 11 +Market risk benefits asset — — 189 — 189 +Total financial assets at fair value $ 5,060 $ 35,943 $ 11,740 $ 57 $ 52,800 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ — $ — $ 5,220 $ — $ 5,220 +Interest rate swaps, included in Accounts payable and accrued liabilities — 10 — — 10 +Reinsurance related embedded derivatives, included in Funds withheld for reinsurance liabilities — ( 109 ) — — ( 109 ) +Contingent consideration, included in Accounts payable and accrued liabilities — — 74 — 74 +Market risk benefits liability — — 549 — 549 +Total financial liabilities at fair value $ — $ ( 99 ) $ 5,843 $ — $ 5,744 +Valuation Methodologies +Cash and Cash Equivalents +The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. +Fixed Maturity, Preferred and Equity Securities +We measure the fair value of our securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity, preferred or equity security, and we will then consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include third-party pricing services, independent broker quotations, or pricing matrices. We use observable and unobservable inputs in our valuation methodologies. Observable inputs include +151 +benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met. +For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. The significant input used in the fair value measurement of equity securities for which the market approach valuation technique is employed is yield for comparable securities. Increases or decreases in the yields would result in lower or higher, respectively, fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. We believe the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices. +We analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, we did not adjust prices received from third parties as of December 31, 2025 or 2024. +Certain equity investments are measured using NAV as a practical expedient in determining fair value. +Derivative Financial Instruments +Derivative contracts can either be exchange traded or traded over the counter. Exchange traded derivatives typically fall within Level 1 of the fair value hierarchy if there is active trading activity. Two methods are used to value over-the-counter derivatives. When required inputs are available, certain derivatives are valued using valuation pricing models, which represent what we would expect to receive or pay at the balance sheet date if we cancelled or exercised the derivative or entered into offsetting positions. Valuation models require a variety of inputs, which include the use of market-observable inputs, including interest rate, yield curve volatilities, foreign currency exchange rates and other factors. These over-the-counter derivatives are typically classified within Level 2 of the fair value hierarchy as the majority trade in liquid markets, we can verify model inputs and model selection does not involve significant management judgment. When inputs are not available for valuation models, certain over-the-counter derivatives are valued using independent broker quotes, which are based on unobservable market data and classified within Level 3. Effective September 30, 2024, pricing for certain derivatives was obtained from internal models using substantially all market observable inputs, and those derivatives were transferred out of Level 3 to Level 2. +The fair value of the reinsurance-related embedded derivatives in our funds withheld reinsurance agreements are estimated based upon the change in fair value (for total return swaps), or the fair value (for the index credit obligation due the reinsurer), of the assets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on a quoted market price of similar assets or is obtained from models using substantially all market observable inputs (Level 2), and therefore the fair value of the embedded derivatives are based on market-observable inputs and are classified as Level 2. +The fair value measurement of the indexed annuities/IUL embedded derivatives, representing the indexed crediting feature of the policies included in Contractholder funds, and the ceded portion, the reinsured indexed crediting feature embedded derivatives recorded as a component of the Reinsurance recoverable, is determined through a combination of market observable information and significant unobservable inputs using the option budget method. The market observable inputs are the market value of option and treasury rates. The significant unobservable inputs are the budgeted option cost (i.e., the expected cost to purchase equity options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier at December 31, 2025 and 2024 was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher or lower, respectively, fair value measurement. Increases or decreases in treasury rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower or higher fair value measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Also +152 +refer to Management's Estimates in Note A - Business and Summary of Significant Accounting Policies regarding certain assumption updates. +Investments in Unconsolidated affiliates +We have elected the fair value option (“FVO”) for certain investments in unconsolidated affiliates as we believe this better aligns them with other investments in unconsolidated affiliates that are measured using NAV as a practical expedient in determining fair value. Investments measured using the FVO are included in Level 3 and the fair values of these investments are determined using a multiple of the affiliates’ earnings before interest, taxes, depreciation and amortization (“EBITDA”). The EBITDA is based on the affiliates’ financial information. The multiple is derived from market analysis of transactions involving comparable companies. The inputs are considered unobservable, as not all market participants have access to this data. +Other Long-term Investments +We have elected the fair value option (“FVO”) for certain loans held by consolidated VIEs to better align measurement with the economic characteristics of the underlying structures and to reduce accounting mismatches that would otherwise result from measuring the assets and liabilities using different attributes. We have also elected to apply the collateralized financing entity guidance in ASC 810 to measure both the financial assets and the financial liabilities of the VIE using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. We believe that the value of the debt securities, that trade in the secondary market, are more observable than the pricing of the individual loans and will use the fair value of the debt securities issued by the VIE as a practical expedient in determining the fair value of the loans. Based on the market-observable inputs of the debt securities, the fair value of the loans are included in Level 2. +We hold a fund-linked note, which provides for an additional payment at maturity based on the value of an embedded derivative based on the actual return of a dedicated return fund. Fair value of the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to an equity option on the NAV of the fund with a strike price of zero since we will not be required to make any additional payments at maturity of the fund-linked note in order to receive the NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of the equity option regardless of the values used for the other inputs to the option pricing model. The NAV of the fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the fund. As the value of the fund increases or decreases, the fair value of the embedded derivative will increase or decrease. See further discussion on the available-for-sale embedded derivative in Note D - Derivative Financial Instruments . +Short-term Investments +The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value. Certain short-term investments are valued based on third-party pricing services or broker quotes and are classified as Level 2 or 3. +Loan receivable +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar. The loan is collateralized by the sellers’ minority equity stake in Roar. The loan receivable is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated cash flows at each measurement period and for each simulated path relative to the estimated collateral value. The Monte Carlo simulation utilizes the outstanding principal balance, a risk-adjusted discount rate, and risk-free rates to discount the expected cash flows and compare to the estimated collateral value for each payment period and simulated path. The discounted cash flow approach applies a company-specific discount rate to future expected interest and payoff payments to calculate the estimated fair value based on the average outcome from the simulation. This loan +153 +receivable is included in Level 3 and the inputs are considered unobservable, as not all market participants have access to this data. +Contingent Consideration +We have recorded contingent consideration pursuant to the terms of the purchase agreement for the acquisition of Roar. The contingent consideration is measured at fair value using a discounted cash flow model applied using a Monte Carlo simulation of estimated EBITDA at each measurement period and for each simulated path relative to contractual EBITDA milestones. The Monte Carlo simulation utilizes a risk-adjusted discount rate, volatility assumption, and risk-free rates to assess the probability Roar's EBITDA trajectory reaches required milestones for the earn out payments to be made. The discounted cash flow approach applies a company-specific discount rate based on F&G credit profile to future expected earn out payments to calculate the estimated fair value based on the average outcome from the simulation. This contingent consideration is included in Level 3 and the inputs are considered unobservable, as not all market participants have access to this data. See further discussion on the contingent consideration in Note N - Commitments and Contingencies. +Market Risk Benefits +MRBs (inclusive of reinsured MRBs) are measured at fair value using an attributed fee measurement approach where attributed fees are explicit rider charges collectible from the policyholder (or paid to the reinsurer) used to cover the excess benefits. The fair value is calculated using a risk neutral valuation method and is based on current net amounts at risk, market data, internal and industry experience, and other factors. The balances are computed using assumptions including mortality, full and partial surrender, rider benefit utilization, risk-free rates including non-performance spread and risk margin, market value of options and economic scenarios. Policyholder behavior assumptions are reviewed at least annually, typically in the third quarter, for any revisions. Reinsured MRBs are valued using a methodology consistent with direct MRBs, with the exception of the non-performance spread which reflects the credit of the reinsurer. See further discussion on MRBs in Note G - Market Risk Benefits . +Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of December 31, 2025 and 2024, excluding assets and liabilities for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are as follows (in millions): +December 31, 2025 +Fair Value Valuation Technique Unobservable Input(s) Range Weighted Average +Assets +Fixed maturity securities, available-for-sale: +Asset-backed securities $ 92 Third-Party Valuation Discount Rate +4.36 % - 7.15 % +5.80 % +Corporates 649 Third-Party Valuation Discount Rate +3.45 % - 8.68 % +5.84 % +Municipals 3 Third-Party Valuation Discount Rate +4.94 % - 4.94 % +4.94 % +Residential mortgage-backed securities 3 Third-Party Valuation Discount Rate +5.41 % - 5.41 % +5.41 % +Foreign Governments 5 Third-Party Valuation Discount Rate +5.73 % - 5.73 % +5.73 % +Investments in unconsolidated affiliates 270 Market Comparable Company Analysis EBITDA Multiple +7.4 x - 15.5 x +12.10 x +Other long-term investments: +Available-for-sale embedded derivative 41 Black Scholes Model Market Value of AnchorPath Fund 100.00 % +Reinsurance recoverable: +Indexed annuities/IUL ceded embedded derivatives 399 Discounted Cash Flow Market Value of Option +0.00 % - 31.77 % +2.74 % +Mortality Multiplier +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 50.00 % +3.33 % +Partial Withdrawals +2.00 % - 6.50 % +2.22 % +Non-Performance Spread +0.53 % - 1.15 % +0.90 % +154 +December 31, 2025 +Fair Value Valuation Technique Unobservable Input(s) Range Weighted Average +Option Cost +1.39 % - 5.30 % +1.98 % +Prepaid expenses and other assets: +Loan receivable 24 Discounted Cash Flow Risk-Adjusted Discount Rate +6.35 % - 6.35 % +6.35 % +Collateral Volatility +35.00 % - 35.00 % +35.00 % +Market risk benefits asset 285 Discounted Cash Flow Mortality +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 30.00 % +5.33 % +Partial Withdrawal Rates +0.00 % - 25.64 % +2.47 % +Non-Performance Spread +0.43 % - 0.85 % +0.64 % +GMWB Utilization +50.00 % - 75.00 % +63.03 % +Total financial assets at fair value (a) $ 1,771 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 6,542 Discounted Cash Flow Market Value of Option +0.00 % - 40.13 % +3.84 % +Mortality Multiplier +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 50.00 % +6.68 % +Partial Withdrawals +2.00 % - 35.71 % +2.69 % +Non-Performance Spread +0.43 % - 0.85 % +0.64 % +Option Cost +0.50 % - 6.09 % +2.78 % +Contingent consideration, included in Accounts payable and accrued liabilities 72 Discounted Cash Flow Risk-Adjusted Discount Rate +11.50 % - 11.50 % +11.50 % +EBITDA Volatility +35.00 % - 35.00 % +35.00 % +Counterparty Discount Rate +6.30 % - 6.30 % +6.30 % +Market risk benefits liability 903 Discounted Cash Flow Mortality +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 30.00 % +5.33 % +Partial Withdrawal Rates +0.00 % - 25.64 % +2.47 % +Non-Performance Spread +0.43 % - 0.85 % +0.64 % +GMWB Utilization +50.00 % - 75.00 % +63.03 % +Total financial liabilities at fair value $ 7,517 +(a) Assets of $ 12,596 million and liabilities of $ 9 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the respective totals in the table above. +155 +December 31, 2024 +Fair Value Valuation Technique Unobservable Input(s) Range Weighted Average +Assets +Fixed maturity securities, available-for-sale: +Asset-backed securities $ 95 Third-Party Valuation Discount Rate +4.83 % - 7.15 % +6.33 % +Corporates 750 Third-Party Valuation Discount Rate +2.00 % - 22.53 % +6.76 % +Residential mortgage-backed securities 3 Third-Party Valuation Discount Rate +5.89 % - 5.89 % +5.89 % +Foreign Governments 4 Third-Party Valuation Discount Rate +12.14 % - 12.14 % +12.14 % +Investments in unconsolidated affiliates 272 Market Comparable Company Analysis EBITDA Multiple +8.7 x - 23.6 x +14.6 x +Other long-term investments: +Available-for-sale embedded derivative 32 Black Scholes Model Market Value of AnchorPath Fund +100.00 % +Reinsurance recoverable: +Indexed annuities/IUL ceded embedded derivatives 98 Discounted Cash Flow Market Value of Option +0.35 % - 2.53 % +1.39 % +Mortality Multiplier +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 50.00 % +3.24 % +Partial Withdrawals +2.00 % - 5.00 % +2.13 % +Non-Performance Spread +0.48 % - 0.95 % +0.75 % +Option Cost +1.40 % - 1.40 % +1.40 % +Prepaid expenses and other assets: +Loan receivable 11 Discounted Cash Flow Risk-Adjusted Discount Rate +7.22 % - 7.22 % +7.22 % +Collateral Volatility +35.00 % - 35.00 % +35.00 % +Market risk benefits asset 189 Discounted Cash Flow Mortality +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 30.00 % +5.05 % +Partial Withdrawal Rates +2.00 % - 24.39 % +2.48 % +Non-Performance Spread +0.48 % - 0.95 % +0.75 % +GMWB Utilization +50.00 % - 75.00 % +61.77 % +Total financial assets at fair value (a) $ 1,454 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 5,220 Discounted Cash Flow Market Value of Option +0.00 % - 20.81 % +2.92 % +Mortality Multiplier +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 50.00 % +6.94 % +Partial Withdrawals +2.00 % - 35.71 % +2.72 % +Non-Performance Spread +0.48 % - 0.95 % +0.75 % +Option Cost +0.07 % - 5.70 % +2.68 % +Contingent consideration, included in Accounts payable and accrued liabilities 74 Discounted Cash Flow Risk-Adjusted Discount Rate +13.50 % - 13.50 % +13.50 % +EBITDA Volatility +35.00 % - 35.00 % +35.00 % +Counterparty Discount Rate +6.50 % - 6.50 % +6.50 % +Market risk benefits liability 549 Discounted Cash Flow Mortality +80.00 % - 115.00 % +100.00 % +Surrender Rates +0.25 % - 30.00 % +5.05 % +Partial Withdrawal Rates +2.00 % - 24.39 % +2.48 % +Non-Performance Spread +0.48 % - 0.95 % +0.75 % +GMWB Utilization +50.00 % - 75.00 % +61.77 % +Total financial liabilities at fair value $ 5,843 +156 +(a) Assets of $ 10,286 million for which significant quantitative unobservable inputs are not developed internally and not readily available to the Company (primarily those valued using broker quotes and certain third-party pricing services) are excluded from the respective totals in the table above. +157 +The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the years ended December 31, 2025 and 2024, respectively (in millions).The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology. +158 +Year ended December 31, 2025 +Balance at Beginning +of Period Total Gains (Losses) for Assets and (Gains) Losses for Liabilities Purchases Sales Settlements Net transfer In (Out) of +Level 3 (a) Balance at End of +Period Change in Unrealized Included in OCI +Included in +Earnings Included in +AOCI +Assets +Fixed maturity securities available-for-sale: +Asset-backed securities $ 8,143 $ ( 5 ) $ 80 $ 3,688 $ ( 433 ) $ ( 1,228 ) $ ( 151 ) $ 10,094 $ 73 +Commercial mortgage-backed securities — — — 46 — ( 46 ) — — +Corporates 2,941 ( 11 ) 73 1,476 ( 886 ) ( 407 ) ( 62 ) 3,124 73 +Hybrids — — — 15 — — — 15 — +Municipals — — — 4 — ( 1 ) — 3 — +Residential mortgage-backed securities 3 — — 2 — — ( 2 ) 3 — +Foreign Governments 4 — 2 19 — ( 2 ) — 23 1 +Equity securities: +Preferred equity securities 7 ( 1 ) 1 — — — — 7 — +Common equity securities — — — 5 — — — 5 — +Derivative investments 3 ( 2 ) ( 2 ) 1 — — — — ( 2 ) +Investments in unconsolidated affiliates 272 ( 2 ) — — — — — 270 — +Other long-term investments: +Available-for-sale embedded derivative 32 — 9 — — — — 41 9 +Short term investments 37 — — 75 — ( 38 ) — 74 — +Reinsurance recoverable: +Indexed annuities/IUL ceded embedded derivatives 98 48 — 256 — ( 3 ) — 399 — +Prepaid expenses and other assets: +Loan receivable (b) 11 — — 13 — — — 24 — +Subtotal assets at Level 3 fair value +11,551 $ 27 $ 163 $ 5,600 $ ( 1,319 ) $ ( 1,679 ) $ ( 261 ) 14,082 $ 154 +Market risk benefits asset (c) 189 285 +Total assets at Level 3 fair value $ 11,740 $ 14,367 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 5,220 $ 450 $ — $ 1,357 $ — $ ( 485 ) $ — $ 6,542 $ — +Foreign currency swaps, included in Accounts payable and accrued liabilities — 9 — — — — — 9 — +Contingent consideration, included in Accounts payable and accrued liabilities 74 10 — — — ( 12 ) — 72 — +Subtotal liabilities at Level 3 fair value 5,294 $ 469 $ — $ 1,357 $ — $ ( 497 ) $ — 6,623 — +Market risk benefits liability (c) 549 903 +Total liabilities at Level 3 fair value $ 5,843 $ 7,526 +(a) The net transfers out of Level 3 during the year ended December 31, 2025 were exclusively into Level 2. +(b) Purchases represent advances on the loan commitment to Roar. Refer to Note N - Commitments and Contingencies for further details. +(c) Refer to Note G - Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability. +159 +Year ended December 31, 2024 +Balance at Beginning +of Period Total Gains (Losses) for Assets and Losses for Liabilities Purchases Sales Settlements +Net transfer In (Out) of +Level 3 (a) +Balance at End of +Period Change in Unrealized Included in OCI +Included in +Earnings Included in +AOCI +Assets +Fixed maturity securities available-for-sale: +Asset-backed securities $ 7,122 $ 19 $ 128 $ 5,104 $ ( 2,825 ) $ ( 1,210 ) $ ( 195 ) $ 8,143 $ 130 +Commercial mortgage-backed securities 18 — — 58 — — ( 76 ) — — +Corporates 1,970 ( 2 ) 81 1,146 ( 97 ) ( 139 ) ( 18 ) 2,941 80 +Municipals 49 — 1 — ( 50 ) — — — 1 +Residential mortgage-backed securities 3 — — 1 — — ( 1 ) 3 — +Foreign Governments 16 — ( 1 ) — — ( 11 ) — 4 ( 1 ) +Preferred equity securities 7 — — — — — — 7 — +Derivative investments 57 ( 50 ) 3 — — — ( 7 ) 3 1 +Investments in unconsolidated affiliates (b) 285 79 — — — — ( 92 ) 272 — +Other long-term investments: +Available-for-sale embedded derivative 27 — 5 — — — — 32 5 +Credit linked note 10 1 — — — ( 11 ) — — — +Short term investments — — — 236 ( 190 ) ( 9 ) — 37 — +Reinsurance recoverable: +Indexed annuities/IUL ceded embedded derivatives 20 ( 2 ) — 81 — ( 1 ) — 98 — +Prepaid expenses and other assets: +Loan receivable (c) — — — 11 — — — 11 — +Subtotal assets at Level 3 fair value +9,584 $ 45 $ 217 $ 6,637 $ ( 3,162 ) $ ( 1,381 ) $ ( 389 ) 11,551 $ 216 +Market risk benefits asset (d) 88 189 +Total assets at Level 3 fair value $ 9,672 $ 11,740 +Liabilities +Derivatives: +Indexed annuities/IUL embedded derivatives, included in Contractholder funds $ 4,258 $ 45 $ — $ 1,351 $ — $ ( 434 ) $ — $ 5,220 $ — +Interest rate swaps, included in Accounts payable and accrued liabilities — 28 — — — — ( 28 ) — — +Contingent consideration, included in Accounts payable and accrued liabilities (e) — $ 26 $ — $ 48 $ — $ — $ — 74 $ — +Subtotal liabilities at Level 3 fair value 4,258 $ 99 $ — $ 1,399 $ — $ ( 434 ) $ ( 28 ) 5,294 $ — +Market risk benefits liability (d) 403 549 +Total liabilities at Level 3 fair value $ 4,661 $ 5,843 +(a) The net transfers out of Level 3 during the year ended December 31, 2024 were exclusively to Level 2. +160 +(b) The transfer out of investments in unconsolidated affiliates represents F&G’s 30 % ownership of PALH prior to the majority acquisition on July 18, 2024. Refer to Note P - Acquisitions for details of the PALH majority acquisition. +(c) Purchases represent advances on the loan commitment to Roar. Refer to Note N - Commitments and Contingencies for further details. +(d) Refer to Note G - Market Risk Benefits for roll forward activity of the net Market Risk Benefits Asset and Liability. +(e) The initial contingent consideration recorded in the Roar transaction is included in purchases in the table above. Refer to Note P - Acquisitions for more information. +Fair Value Option +We have elected the FVO for certain investments held by consolidated VIEs, including certain loans reported in other long term investments. See Note C - Investments for additional information on our investments in VIEs. As discussed above, we have also elected the FVO for certain other investments in unconsolidated affiliates and for a loan receivable. +The following table presents information regarding the assets for which the fair value option was elected. +December 31, +2025 2024 +Assets +Investments in unconsolidated affiliates $ 270 $ 272 +Other loans, within other long-term investments (a) +Fair Value $ 248 $ — +Aggregate unpaid principal 250 — +Loan receivable, within prepaid expenses and other assets (a) +Fair Value $ 24 $ 11 +Aggregate unpaid principal 24 11 +(a) No loans are 90 days or more past due or on nonaccrual status +The following table presents information regarding the impact of changes in fair value of assets for which the fair value option was elected which are reported within Recognized gains and losses, net on the Consolidated Statements of Operations. +December 31, +2025 2024 +Investments in unconsolidated affiliates ( 2 ) 79 +Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value +The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments. +Mortgage Loans +The fair value of mortgage loans is established using a discounted cash flow method based on internal credit rating, maturity and future income. This yield-based approach is sourced from our third-party vendor. The internal ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan-to-value, quality of tenancy, borrower, and payment record. The inputs used to measure the fair value of our mortgage loans are classified as Level 3 within the fair value hierarchy. +161 +Investments in Unconsolidated affiliates +The fair value of investments in unconsolidated affiliates is primarily determined using NAV as a practical expedient. As discussed in Note A - Business and Summary of Significant Accounting Policies, recognition of income and adjustments to the carrying amount are delayed due to the availability of the related financial statements, which are obtained from the general partner generally on a one to three-month delay. +Policy Loans +Policy loans are reported at the unpaid principal balance and are fully collateralized by the cash surrender value of underlying insurance policies. The carrying value of the policy loans approximates the fair value and are classified as Level 3 in the fair value hierarchy. +Company Owned Life Insurance +Company owned life insurance (“COLI”) is a life insurance program used to finance certain employee benefit expenses. The fair value of COLI is based on net realizable value, which is generally cash surrender value. COLI is classified as Level 3 within the fair value hierarchy. +Investment Contracts +Investment contracts include deferred annuities (indexed annuities and fixed rate annuities), IUL policies, funding agreements and PRT and immediate annuity contracts without life contingencies. The indexed annuities/ IUL embedded derivatives, included in contractholder funds are excluded as they are carried at fair value. The fair value of the deferred annuities (indexed annuities and fixed rate annuities) and IUL contracts is based on their cash surrender value (i.e., the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of funding agreements and PRT and immediate annuity contracts without life contingencies is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. The Company is not required to, and has not, estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value. +Other +FHLB common stock is carried at cost, which approximates fair value. The carrying amount of FHLB common stock represents the value it can be sold back to the FHLB and is classified as Level 2 within the hierarchy. +Notes Payable +The fair value of notes payable, with the exception of the Revolving Credit Facility, is based on quoted market prices of debt with similar credit risk and tenor. The inputs used to measure the fair value of these notes payable results in a Level 2 classification within the fair value hierarchy. +The carrying value of outstanding balances under our revolving credit facility would approximate fair value as the rates would be comparable to those at which we could currently borrow under similar terms. As such, the fair value of our revolving credit facility was classified as a Level 2 measurement. At December 31, 2025 and 2024, there were no outstanding balances for the revolving credit facility. +162 +The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the Consolidated Balance Sheets at amounts other than fair value, summarized according to the fair value hierarchy previously described (in millions). +December 31, 2025 +Level 1 Level 2 Level 3 NAV Total Estimated Fair Value Carrying Amount +Assets +FHLB common stock $ — $ 155 $ — $ — $ 155 $ 155 +Commercial mortgage loans — — 3,025 — 3,025 3,242 +Residential mortgage loans — — 4,424 — 4,424 4,649 +Investments in unconsolidated affiliates — — — 4,608 4,608 4,608 +Policy loans — — 147 — 147 147 +Company-owned life insurance — — 850 — 850 850 +Total +$ — $ 155 $ 8,446 $ 4,608 $ 13,209 $ 13,651 +Liabilities +Investment contracts, included in Contractholder funds $ — $ — $ 51,027 $ — $ 51,027 $ 56,184 +Notes payable — 2,289 — — 2,289 2,237 +Total +$ — $ 2,289 $ 51,027 $ — $ 53,316 $ 58,421 +December 31, 2024 +Level 1 Level 2 Level 3 NAV Total Estimated Fair Value Carrying Amount +Assets +FHLB common stock $ — $ 153 $ — $ — $ 153 $ 153 +Commercial mortgage loans — — 2,404 — 2,404 2,705 +Residential mortgage loans — — 2,916 — 2,916 3,221 +Investments in unconsolidated affiliates — — 5 3,288 3,293 3,293 +Policy loans — — 104 — 104 104 +Company-owned life insurance — — 395 — 395 395 +Total +$ — $ 153 $ 5,824 $ 3,288 $ 9,265 $ 9,871 +Liabilities +Investment contracts, included in Contractholder funds $ — $ — $ 46,339 $ — $ 46,339 $ 51,184 +Notes payable — 2,228 — — 2,228 2,171 +Total +$ — $ 2,228 $ 46,339 $ — $ 48,567 $ 53,355 +For investments for which NAV is used, we do not have any significant restrictions in our ability to liquidate our positions in these investments, other than obtaining general partner approval, nor do we believe it is probable a price less than NAV would be received in the event of a liquidation. +We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value. +163 +Note C - Investments +Our investments in fixed maturity securities have been designated as AFS and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included within AOCI, net of deferred income taxes. Our preferred and equity securities investments are carried at fair value with unrealized gains and losses included in net earnings. +Our investments include assets backing reserves as part of coinsurance with funds withheld agreements. The funds withheld invested assets are reported within their respective line items. See Note E - Reinsurance , for more information on the funds withheld agreements. +The Company’s consolidated AFS investments are summarized as follows (in millions): +December 31, 2025 +Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value +AFS securities +Asset-backed securities $ 18,847 $ ( 25 ) $ 166 $ ( 256 ) $ 18,732 +Commercial mortgage-backed securities 5,298 ( 61 ) 57 ( 139 ) 5,155 +Corporates 25,333 ( 17 ) 290 ( 2,356 ) 23,250 +Hybrids 625 — 6 ( 22 ) 609 +Municipals 1,562 — 4 ( 211 ) 1,355 +Residential mortgage-backed securities 2,840 ( 1 ) 76 ( 70 ) 2,845 +U.S. Government 495 — — ( 2 ) 493 +Foreign Governments 292 — 4 ( 35 ) 261 +Total AFS securities +$ 55,292 $ ( 104 ) $ 603 $ ( 3,091 ) $ 52,700 +December 31, 2024 +Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value +AFS securities +Asset-backed securities $ 15,777 $ ( 13 ) $ 202 $ ( 317 ) $ 15,649 +Commercial mortgage-backed securities 5,327 ( 49 ) 53 ( 200 ) 5,131 +Corporates 23,177 — 103 ( 2,802 ) 20,478 +Hybrids 604 — 6 ( 29 ) 581 +Municipals 1,592 — 3 ( 249 ) 1,346 +Residential mortgage-backed securities 2,861 — 32 ( 105 ) 2,788 +U.S. Government 160 — 1 ( 3 ) 158 +Foreign Governments 231 — — ( 45 ) 186 +Total AFS securities +$ 49,729 $ ( 62 ) $ 400 $ ( 3,750 ) $ 46,317 +Securities held on deposit with various state regulatory authorities had a fair value of $ 15 million and $ 866 million at December 31, 2025 and 2024, respectively. +As of December 31, 2025 and 2024, the Company held $ 54 million and $ 32 million, respectively, of investments that were non-income producing for a period greater than twelve months. +As of December 31, 2025 and 2024, the Company's accrued interest receivable balance, excluding accrued interest receivable balances related to mortgage loans discussed below under “ Mortgage Loans, ” was $ 500 million and $ 465 million , respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the Consolidated Balance Sheets. +164 +In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to us for general purposes. The collateral investments had a fair value of $ 4,621 million and $ 4,289 million as of December 31, 2025 and 2024, respectively. +The amortized cost and fair value of fixed maturity securities AFS by contractual maturities, as applicable, are shown below (in millions). Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. +December 31, 2025 +Amortized Cost Fair Value +Corporates, Non-structured Hybrids, Municipal, Foreign and U.S. Government Securities: +Due in one year or less $ 331 $ 330 +Due after one year through five years 4,552 4,586 +Due after five years through ten years 5,398 5,394 +Due after ten years 18,026 15,658 +Subtotal 28,307 25,968 +Other securities, which provide for periodic payments: +Asset-backed securities 18,847 18,732 +Commercial mortgage-backed securities 5,298 5,155 +Residential mortgage-backed securities 2,840 2,845 +Subtotal 26,985 26,732 +Total fixed maturity AFS securities $ 55,292 $ 52,700 +Allowance for Current Expected Credit Loss +We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss: +• The extent to which the fair value is less than the amortized cost basis; +• The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); +• The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength); +• Current delinquencies and non-performing assets of underlying collateral; +• Expected future default rates; +• Collateral value by vintage, geographic region, industry concentration or property type; +• Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and +• Contractual and regulatory cash obligations and the issuer's plans to meet such obligations. +We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e., the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and (losses), net in the Consolidated Statements of Operations, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise. +165 +We consider the following in determining whether write-offs of a security’s amortized cost are necessary: +• We believe amounts related to securities have become uncollectible; +• We intend to sell a security; or +• It is more likely than not that we will be required to sell a security prior to recovery. +If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and (losses), net in the Consolidated Statements of Operations. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible, an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and (losses), net in the Consolidated Statements of Operations. The remainder of unrealized loss is held in AOCI in the Consolidated Statements of Equity. +The activity in the allowance for expected credit losses of AFS securities aggregated by investment category was as follows (in millions): +Year ended December 31, 2025 +Additions Reductions +Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period +AFS securities +Asset-backed securities $ ( 13 ) $ ( 6 ) $ ( 7 ) $ 1 $ — $ — $ — $ ( 25 ) +Commercial mortgage-backed securities ( 49 ) ( 6 ) ( 6 ) — — — — ( 61 ) +Corporates — ( 14 ) ( 3 ) — — — — ( 17 ) +Residential mortgage-backed securities — — ( 1 ) — — — — ( 1 ) +Total AFS securities $ ( 62 ) $ ( 26 ) $ ( 17 ) $ 1 $ — $ — $ — $ ( 104 ) +Year ended December 31, 2024 +Additions Reductions +Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period +AFS securities +Asset-backed securities $ ( 11 ) $ ( 2 ) $ — $ — $ — $ — $ — $ ( 13 ) +Commercial mortgage-backed securities ( 22 ) ( 8 ) ( 19 ) — — — — ( 49 ) +Residential mortgage-backed securities ( 2 ) — 2 — — — — — +Total AFS securities $ ( 35 ) $ ( 10 ) $ ( 17 ) $ — $ — $ — $ — $ ( 62 ) +There were no purchases of purchased credit deteriorated AFS securities during the years ended December 31, 2025 and 2024. +166 +The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of December 31, 2025 and 2024 were as follows (dollars in millions): +December 31, 2025 +Less than 12 months 12 months or longer Total +Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses +AFS securities +Asset-backed securities $ 4,756 $ ( 30 ) $ 2,160 $ ( 209 ) $ 6,916 $ ( 239 ) +Commercial mortgage-backed securities 541 ( 11 ) 1,048 ( 106 ) 1,589 ( 117 ) +Corporates 3,291 ( 52 ) 9,793 ( 2,304 ) 13,084 ( 2,356 ) +Hybrids 61 ( 1 ) 372 ( 21 ) 433 ( 22 ) +Municipals 201 ( 3 ) 1,012 ( 208 ) 1,213 ( 211 ) +Residential mortgage-backed securities 208 ( 2 ) 389 ( 67 ) 597 ( 69 ) +U.S. Government 334 ( 1 ) 11 ( 1 ) 345 ( 2 ) +Foreign Government 29 — 124 ( 35 ) 153 ( 35 ) +Total AFS securities $ 9,421 $ ( 100 ) $ 14,909 $ ( 2,951 ) $ 24,330 $ ( 3,051 ) +Total number of AFS securities in an unrealized loss position less than twelve months 1,904 +Total number of AFS securities in an unrealized loss position twelve months or longer 2,090 +Total number of AFS securities in an unrealized loss position 3,994 +December 31, 2024 +Less than 12 months 12 months or longer Total +Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses +AFS securities +Asset-backed securities $ 1,164 $ ( 30 ) $ 2,637 $ ( 276 ) $ 3,801 $ ( 306 ) +Commercial mortgage-backed securities 699 ( 10 ) 1,508 ( 175 ) 2,207 ( 185 ) +Corporates 6,524 ( 202 ) 9,234 ( 2,600 ) 15,758 ( 2,802 ) +Hybrids 105 ( 4 ) 380 ( 25 ) 485 ( 29 ) +Municipals 261 ( 12 ) 966 ( 237 ) 1,227 ( 249 ) +Residential mortgage-backed securities 898 ( 16 ) 459 ( 89 ) 1,357 ( 105 ) +U.S. Government 93 ( 2 ) 10 ( 1 ) 103 ( 3 ) +Foreign Government 51 ( 1 ) 128 ( 44 ) 179 ( 45 ) +Total AFS securities $ 9,795 $ ( 277 ) $ 15,322 $ ( 3,447 ) $ 25,117 $ ( 3,724 ) +Total number of AFS securities in an unrealized loss position less than twelve months 1,838 +Total number of AFS securities in an unrealized loss position twelve months or longer 2,113 +Total number of AFS securities in an unrealized loss position 3,951 +We determined the unrealized losses were caused by higher treasury rates compared to those at the time of the FNF acquisition or the purchase of the security if later. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of December 31, 2025 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties as opposed to issuer specific credit concerns. +167 +Mortgage Loans +Our mortgage loans are collateralized by commercial and residential properties. +Commercial Mortgage Loans +Commercial mortgage loans (“CMLs”) represented approximately 5 % of our total investments as of December 31, 2025 and 2024. The mortgage loans in our investment portfolio, are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail buildings, multifamily properties and office buildings. We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables (dollars in millions): +December 31, 2025 December 31, 2024 +Gross Carrying Value % of Total Gross Carrying Value % of Total +Property Type: +Hotel $ 9 — % $ 17 1 % +Industrial 671 21 657 24 +Mixed Use 21 1 11 — +Multifamily 1,150 35 1,006 37 +Office 345 11 349 13 +Retail 327 10 98 4 +Student Housing 83 3 83 3 +Other 654 19 501 18 +Total CMLs, gross of valuation allowance 3,260 100 % 2,722 100 % +Allowance for expected credit loss ( 18 ) ( 17 ) +Total CMLs, net of valuation allowance $ 3,242 $ 2,705 +U.S. Region: +East North Central $ 124 4 % $ 98 4 % +East South Central 86 3 75 3 +Middle Atlantic 356 11 354 13 +Mountain 396 12 409 15 +New England 183 6 164 6 +Pacific 709 22 706 26 +South Atlantic 1,157 34 683 25 +West North Central 69 2 62 2 +West South Central 180 6 171 6 +Total CMLs, gross of valuation allowance +3,260 100 % 2,722 100 % +Allowance for expected credit loss ( 18 ) ( 17 ) +Total CMLs, net of valuation allowance $ 3,242 $ 2,705 +An individual loan, or a portion thereof, is charged off when it is determined to be uncollectible. There were no charge offs for CMLs for the years ended December 31, 2025 and 2024. CMLs segregated by aging of the loans (by year of origination), gross of valuation allowances, were as follows for the years ended December 31, 2025 and 2024 (in millions): +168 +December 31, 2025 +Amortized Cost by Origination Year +2025 2024 2023 2022 2021 Prior Total +Current (less than 30 days past due) $ 646 $ 295 $ 194 $ 292 $ 1,252 $ 569 $ 3,248 +30-89 days past due — — — — — — — +90 days or more past due — — — — — 12 12 +Total CMLs $ 646 $ 295 $ 194 $ 292 $ 1,252 $ 581 $ 3,260 +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +Current (less than 30 days past due) $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 201 $ 2,713 +30-89 days past due — — — — — — — +90 days or more past due — — — — — 9 9 +Total CMLs $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 210 $ 2,722 +Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25 -year amortization period for purposes of our general loan allowance evaluation. +The following tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated LTV ratios, gross of valuation allowances at December 31, 2025 and 2024 (dollars in millions) : +Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total +>1.25 1.00 - 1.25 <1.00 +December 31, 2025 +LTV Ratios: +Less than 50.00% $ 594 $ 16 $ — $ 610 19 % $ 596 19 % +50.00% to 59.99% 850 36 37 923 28 852 28 +60.00% to 74.99% 1,415 288 6 1,709 52 1,560 52 +75.00% to 84.99% — 9 9 18 1 17 1 +Total CMLs $ 2,859 $ 349 $ 52 $ 3,260 100 % $ 3,025 100 % +December 31, 2024 +LTV Ratios: +Less than 50.00% $ 490 $ 34 $ — $ 524 19 % $ 501 21 % +50.00% to 59.99% 803 112 12 927 34 826 34 +60.00% to 74.99% 1,238 16 — 1,254 46 1,060 44 +75.00% to 84.99% 4 4 9 17 1 17 1 +Total CMLs $ 2,535 $ 166 $ 21 $ 2,722 100 % $ 2,404 100 % +169 +December 31, 2025 +Amortized Cost by Origination Year +2025 2024 2023 2022 2021 Prior Total +LTV Ratios: +Less than 50.00% $ 148 $ 49 $ 66 $ 21 $ 75 $ 251 $ 610 +50.00% to 59.99% 157 36 53 149 320 208 923 +60.00% to 74.99% 341 206 70 113 857 122 1,709 +75.00% to 84.99% — 4 5 9 — — 18 +Total CMLs $ 646 $ 295 $ 194 $ 292 1,252 $ 581 3,260 +DSC Ratios +Greater than 1.25x $ 469 $ 140 $ 182 $ 283 $ 1,240 $ 545 $ 2,859 +1.00x - 1.25x 169 155 12 — — 13 349 +Less than 1.00x 8 — — 9 12 23 52 +Total CMLs $ 646 $ 295 $ 194 $ 292 $ 1,252 $ 581 $ 3,260 +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +LTV Ratios: +Less than 50.00% $ 66 $ 99 $ 19 $ 74 $ 189 $ 77 $ 524 +50.00% to 59.99% 112 53 149 321 159 133 927 +60.00% to 74.99% 91 71 113 858 121 — 1,254 +75.00% to 84.99% 4 4 9 — — — 17 +Total CMLs $ 273 $ 227 $ 290 $ 1,253 $ 469 $ 210 $ 2,722 +DSC Ratios +Greater than 1.25x $ 140 $ 215 $ 278 $ 1,241 $ 469 $ 192 $ 2,535 +1.00x - 1.25x 133 12 3 — — 18 166 +Less than 1.00x — — 9 12 — — 21 +Total CMLs $ 273 $ 227 $ 290 $ 1253 $ 469 $ 210 $ 2,722 +We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. As of December 31, 2025 and 2024, we had one CML that was delinquent in principal or interest payments as shown in the tables above. +Residential Mortgage Loans +Residential mortgage loans (“RMLs”) represented approximately 7 % and 5 % of our total investments reported on the Condensed Consolidated Balance Sheets as of December 31, 2025 and 2024, respectively. Our RMLs are primarily closed end, amortizing loans and 100 % of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables, gross of valuation allowances (dollars in millions): +December 31, 2025 +U.S. States: Amortized Cost % of Total +California $ 288 6 % +Florida 246 5 +New York 232 5 +All other states (a) 3,951 84 +Total RMLs, gross of valuation allowance 4,717 100 % +Allowance for expected credit loss ( 68 ) +Total RMLs, net of valuation allowance $ 4,649 +(a) The individual concentration of each state is less than 5% as of December 31, 2025. +170 +December 31, 2024 +U.S. States: Amortized Cost % of Total +Florida $ 164 5 % +All other states (a) 3,110 95 +Total RMLs, gross of valuation allowance 3,274 100 % +Allowance for expected credit loss ( 53 ) +Total RMLs, net of valuation allowance $ 3,221 +(a) The individual concentration of each state is less than 5% as of December 31, 2024. +RMLs have a primary credit quality indicator of either a performing or non-performing loan. We define non-performing residential mortgage loans as those that are 90 or more days past due or in non-accrual status, which is assessed monthly. The credit quality of RMLs was as follows (dollars in millions): +December 31, 2025 December 31, 2024 +Performance indicators: Amortized Cost % of Total Amortized Cost % of Total +Performing $ 4,650 99 % $ 3,188 97 % +Non-performing 67 1 86 3 +Total RMLs, gross of valuation allowance 4,717 100 % 3,274 100 % +Allowance for expected loan loss ( 68 ) ( 53 ) +Total RMLs, net of valuation allowance $ 4,649 $ 3,221 +An individual loan, or a portion thereof, is charged off when it is determined to be uncollectible. There were no charge offs recorded for RMLs during the year ended December 31, 2025. RMLs segregated by aging of the loans (by year of origination) as of December 31, 2025 and 2024 were as follows, gross of valuation allowances (in millions): +December 31, 2025 +Amortized Cost by Origination Year +2025 2024 2023 2022 2021 Prior Total +Current (less than 30 days past due) $ 1,568 $ 736 $ 327 $ 798 $ 731 $ 419 $ 4,579 +30-89 days past due 15 2 17 29 4 3 70 +90 days or more past due 2 4 4 12 21 25 68 +Total RMLs $ 1,585 $ 742 $ 348 $ 839 $ 756 $ 447 $ 4,717 +December 31, 2024 +Amortized Cost by Origination Year +2024 2023 2022 2021 2020 Prior Total +Current (less than 30 days past due) $ 610 $ 368 $ 911 $ 805 $ 162 $ 312 $ 3,168 +30-89 days past due 1 6 4 6 1 3 21 +90 days or more past due 3 2 13 29 13 25 85 +Total RMLs $ 614 $ 376 $ 928 $ 840 $ 176 $ 340 $ 3,274 +Non-accrual loans by amortized cost as of December 31, 2025 and 2024, were as follows (in millions): +December 31, +2025 2024 +Residential mortgage $ 67 $ 85 +Commercial mortgage 12 9 +Total non-accrual mortgages $ 79 $ 94 +Immaterial interest income was recognized on non-accrual financing receivables for the years ended December 31, 2025 and 2024. +It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan +171 +becomes 90 days or more delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of December 31, 2025 and 2024, we had $ 79 million and $ 94 million, respectively, of mortgage loans that were over 90 days past due. +As of December 31, 2025 and 2024, we had $ 111 million and $ 81 million, respectively, of residential mortgage loans that were in the process of foreclosure. +Loan Modifications +Under certain circumstances, modifications are granted to mortgage loans. Generally, the types of concessions may include interest rate reduction, term extension, payment deferrals, principal forgiveness or a combination of these concessions. We had an immaterial amount of mortgage loans modified during the years ended December 31, 2025 and 2024. +Allowance for Expected Credit Loss +We estimate expected credit losses for our commercial and residential mortgage loan portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans' current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses, net in the Consolidated Statements of Operations. +The allowances for our mortgage loan portfolio are summarized as follows (in millions): +Year Ended December 31, +2025 2024 +Residential +Mortgages Commercial +Mortgages Total Residential +Mortgages Commercial +Mortgages Total +Beginning Balance $ ( 53 ) $ ( 17 ) $ ( 70 ) $ ( 54 ) $ ( 12 ) $ ( 66 ) +Provision (expense) benefit for loan losses ( 15 ) ( 1 ) ( 16 ) 1 ( 5 ) ( 4 ) +Ending Balance $ ( 68 ) $ ( 18 ) $ ( 86 ) $ ( 53 ) $ ( 17 ) $ ( 70 ) +An allowance for expected credit loss is not measured on accrued interest income for commercial mortgage loans as we have a process to write-off interest on loans that enter into non-accrual status (90 days or more past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of December 31, 2025 and 2024. +There were no purchases of purchased credit deteriorated mortgage loans during the years ended December 31, 2025 and 2024. +As of December 31, 2025 and 2024, the accrued interest receivable balance on CMLs totaled $ 11 million and $ 8 million, respectively, and the accrued interest receivable on RMLs totaled $ 45 million and $ 28 million, respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the Consolidated Balance Sheets. +172 +Interest and Investment Income +The major sources of Interest and investment income reported on the Consolidated Statements of Operations were as follows (in millions): +Year ended December 31, +2025 2024 2023 +Fixed maturity securities, available-for-sale $ 2,247 $ 2,181 $ 1,843 +Preferred equity securities 14 23 41 +Common equity securities 18 21 20 +Mortgage loans 374 273 229 +Invested cash and short-term investments 105 161 76 +Limited partnerships 302 323 229 +Other investments 43 32 27 +Gross investment income 3,103 3,014 2,465 +Investment expense ( 266 ) ( 295 ) ( 254 ) +Interest and investment income $ 2,837 $ 2,719 $ 2,211 +Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $ 816 million, $ 636 million and $ 339 million, for the years ended December 31, 2025, 2024 and 2023, respectively. +Recognized Gains and (Losses), Net +Details underlying Recognized gains and losses, net reported on the Consolidated Statements of Operations were as follows (in millions): +Year ended December 31, +2025 2024 2023 +Net realized (losses) on fixed maturity available-for-sale securities $ ( 13 ) $ ( 8 ) $ ( 155 ) +Net realized/unrealized (losses) gains on preferred equity securities (a) ( 5 ) 6 2 +Net realized/unrealized (losses) gains on common equity securities (b) ( 31 ) 11 18 +Net realized/unrealized gains on other invested assets 4 67 24 +Change in allowance for expected credit losses ( 56 ) ( 34 ) ( 37 ) +Derivatives and embedded derivatives: +Realized (losses) gains on certain derivative instruments ( 62 ) 254 ( 211 ) +Unrealized gains (losses) on certain derivative instruments 312 ( 184 ) 358 +Change in fair value of reinsurance related embedded derivatives (c) ( 148 ) ( 32 ) ( 128 ) +Change in fair value of other derivatives and embedded derivatives 9 4 5 +Net realized/unrealized gains on derivatives and embedded derivatives 111 42 24 +Recognized gains and (losses), net $ 10 $ 84 $ ( 124 ) +(a) Includes net valuation (losses) gains of $( 3 ) million, $ 6 million, and $ 73 million for the years ended December 31, 2025, 2024 and 2023, respectively. +(b) Includes net valuation (losses) gains of $( 22 ) million, $ 12 million, and $ 18 million for the years ended December 31, 2025, 2024 and 2023, respectively. +(c) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties. +Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which are passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $( 154 ) million, $( 30 ) million and $( 123 ) million for the years ended December 31, 2025, 2024 and 2023, respectively. +173 +The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows (in millions): +Year ended December 31, +2025 2024 2023 +Proceeds $ 5,666 $ 4,368 $ 2,590 +Gross gains 30 44 8 +Gross losses ( 26 ) ( 80 ) ( 134 ) +Variable Interest Entities +Our involvement with VIEs is primarily through investments in entities that provide exposure to a diversified portfolio of investment asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by their ‘primary beneficiary,’ a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. We perform ongoing qualitative assessments of our variable interests in VIEs to determine whether we have a controlling financial interest and are therefore the primary beneficiary of the VIE. We consolidate the assets and liabilities (if applicable) of VIEs for which we are determined to be the primary beneficiary in our consolidated financial statements. +Consolidated variable interest entities +We have concluded that we are the primary beneficiary for certain VIEs where we have both the power to direct the most significant activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. +Consolidated VIEs at December 31, 2025 are structured investments that are managed by third parties. These structured investments are established as special purpose vehicles (“SPVs”) designed to hold specific assets which include limited partnerships, middle market loans, short-term investments, and cash and cash equivalents. The assets of each VIE can be used only to settle obligations of the VIE. Asset and liability information held by consolidated VIEs included on the Consolidated Balance Sheets are as follows (in millions): +December 31, +2025 2024 +Assets +Investments in unconsolidated affiliates $ 262 $ — +Other long-term investments 248 — +Short-term investments 116 — +Cash and cash equivalents 2 — +Total assets $ 628 $ — +Total consolidated VIE investments $ 628 $ — +We are not required to provide financial support to these VIEs beyond our contractual obligations. Our maximum exposure to loss related to these consolidated VIEs is limited to our capital invested plus any unfunded capital commitments (refer to unfunded commitments in Note N - Commitments and Contingencies ). The maximum loss exposure of our consolidated VIEs as of December 31, 2025 was $ 878 million. +Unconsolidated Variable Interest Entities +We own investments in VIEs that are not consolidated within our financial statements. While we participate in the benefits from these VIEs in which we invest, but do not consolidate, the substantive power to make the key +174 +economic decisions for each respective VIE resides with entities not under our common control. It is for this reason that we are not considered the primary beneficiary for the VIE investments that are not consolidated. +We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our Consolidated Balance Sheets. In addition, we invest in structured investments, which may be VIEs, but for which we are not the primary beneficiary. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in fixed maturity securities available for sale on our Consolidated Balance Sheets. +Our maximum loss exposure with respect to these VIEs is limited to the investment carrying amounts reported in our Consolidated Balance Sheets for limited partnerships and the amortized costs of certain of our fixed maturity securities, in addition to any required unfunded commitments (refer to unfunded commitments in Note N - Commitments and Contingencies ). +The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of December 31, 2025 and 2024 (in millions): +December 31, +2025 2024 +Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure +Investment in unconsolidated affiliates $ 4,878 $ 6,102 $ 3,565 $ 4,703 +Fixed maturity securities 26,419 28,803 23,242 24,242 +Total unconsolidated VIE investments $ 31,297 $ 34,905 $ 26,807 $ 28,945 +Concentrations +Our underlying investment concentrations that exceed 10% of shareholders equity as of December 31, 2025 and 2024 are as follows (in millions): +December 31, +2025 2024 +Blackstone Wave Asset Holdco (a) $ 655 $ 710 +Blackstone Cooper Asset Holdco (a) (b) — 472 +(a) Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple individual investments and industries. +(b) Investment did not exceed 10% of shareholder’s equity as of December 31, 2025. +175 +Note D - Derivative Financial Instruments +Refer to Note A - Business and Summary of Significant Accounting Policies , for a description of the Company’s accounting policies for derivative financial instruments and Note B - Fair Value of Financial Instruments for descriptions of the fair value methodologies used for derivative financial instruments. +The notional and carrying amounts of derivative financial instruments, including derivative instruments embedded in indexed annuities and IUL contracts, and reinsurance are as follows (in millions): +December 31, 2025 December 31, 2024 +Gross Notional Assets Liabilities Gross Notional Assets Liabilities +Derivatives designated as hedging instruments +Interest rate swaps (a) $ 850 $ 11 $ 1 $ — $ — $ — +Foreign currency swaps (a) 21 — 3 39 2 — +Total derivatives designated as hedging instruments 871 11 4 39 2 — +Derivatives not designated as hedging instruments +Equity options (a) 29,651 1,062 — 29,594 773 — +Interest rate swaps (a) 6,229 75 2 5,040 16 10 +Foreign currency swaps (a) 503 — 6 — — — +Futures contracts (a) 68 — 1 152 — — +Other derivative investments (a) 93 — — 118 1 — +Other embedded derivatives (b) — 41 — — 32 — +Indexed annuities/IUL embedded derivatives (c) — 399 6,542 — 98 5,220 +Reinsurance related embedded derivatives (d) — — 75 — — ( 109 ) +Total derivatives not designated as hedging instruments 36,544 1,577 6,626 34,904 920 5,121 +Total derivatives $ 37,415 $ 1,588 $ 6,630 $ 34,943 $ 922 $ 5,121 +(a) The fair value of derivative assets is reported in Derivative investments, and the fair value of derivative liabilities is reported in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. +(b) The fair value is included in Other long term investments on the Consolidated Balance Sheets. +(c) The fair value of the liability is included in Contractholder funds and the ceded portion is included in Reinsurance recoverable on the Consolidated Balance Sheets. +(d) The fair value of the embedded derivative asset is included in Funds withheld for reinsurance liabilities as a contra-liability on the Consolidated Balance Sheet as of December 31, 2024. +176 +The amounts and locations of gains (losses), net recognized for derivatives items included in the Consolidated Statements of Operations are as follows (in millions): +Year Ended December 31, +2025 2024 2023 +Recognized gains (losses), net for derivatives Benefits and other changes in policy reserves for derivatives Recognized gains (losses), net for derivatives Benefits and other changes in policy reserves for derivatives Recognized gains (losses), net for derivatives Benefits and other changes in policy reserves for derivatives +Derivatives designated as hedging instruments +Interest rate swaps $ — $ 11 $ — $ — $ — $ — +Foreign currency swaps ( 3 ) — — — — — +Total derivatives designated as hedging instruments ( 3 ) 11 — — — — +Derivatives not designated as hedging instruments +Equity options 177 — 145 — 92 — +Interest rate swaps 59 — ( 103 ) — 48 — +Foreign currency swaps ( 6 ) — — — — — +Futures contracts 32 — 18 — 9 — +Other derivative investments ( 9 ) — 10 — ( 2 ) — +Other embedded derivatives 9 — 4 — 5 — +Indexed annuities/IUL embedded derivatives — 402 — 47 — 257 +Reinsurance related embedded derivatives ( 148 ) — ( 32 ) — ( 128 ) — +Total derivatives not designated as instruments 114 402 42 47 24 257 +Total derivatives $ 111 $ 413 $ 42 $ 47 $ 24 $ 257 +The amounts and locations of gains (losses), net recognized for hedged items included in the Consolidated Statements of Operations are as follows (in millions): +Year Ended December 31, +2025 2024 2023 +Recognized gains (losses), net for hedged item Benefits and other changes in policy reserves for hedged item Recognized gains (losses), net for hedged item Benefits and other changes in policy reserves for hedged item Recognized gains (losses), net for hedged item Benefits and other changes in policy reserves for hedged item +Derivatives designated as hedging instruments +Interest rate swaps $ — $ ( 11 ) $ — $ — $ — $ — +Foreign currency swaps 3 — — — — — +Total derivatives designated as hedging instruments $ 3 $ ( 11 ) $ — $ — $ — $ — +177 +The following amounts are recorded in the Consolidated Balance Sheets related to the carrying amount of hedged assets and (liabilities) and the cumulative basis adjustment included in the carrying amount for fair value hedges (in millions): +Year Ended December 31, +2025 2024 +Line Item in the Consolidated Balance Sheet that includes hedged item Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustment included in the Carrying Amount of the Hedged Assets (Liabilities) Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustment included in the Carrying Amount of the Hedged Assets (Liabilities) +Fixed maturity securities, AFS, at amortized cost $ 21 $ — $ — $ — +Contractholder funds ( 862 ) ( 11 ) — — +For the years ended December 31, 2025, 2024, and 2023, the derivative instruments’ gains (losses), net excluded from the assessment of hedge effectiveness was immaterial. +There were no cumulative fair value hedging adjustments for hedged assets and liabilities for which hedge accounting was discontinued as of December 31, 2025 and 2024. +Derivatives designated as hedging instruments +We utilize interest rate swaps and foreign currency swaps that are designated and accounted for as fair value hedges to reduce interest rate risk for certain funding agreements and to reduce the risk of certain exposures to foreign currency risk for foreign AFS fixed maturity securities. For fair value hedges of funding agreements, changes in fair value are reported in Benefits and other changes in policy reserves. For fair value hedges of AFS fixed maturity securities, changes in fair value included in the assessment of effectiveness are reported in Recognized gains and (losses), net in the Consolidated Statement of Operations. The change in the fair value of components excluded from the assessment of hedge effectiveness is recorded in OCI and is recognized in net income through periodic settlements. +Derivatives not designated as hedging instruments +Indexed Annuities/IUL Embedded Derivative, Equity Options and Futures +We have indexed annuities and IUL contracts that permit the holder to elect an interest rate return or an equity index linked component, where interest credited to the contracts is linked to the performance of various equity indices, such as the S&P 500 Index. This feature represents an embedded derivative under GAAP. The indexed annuities/IUL embedded derivatives are valued at fair value and included in the liability for Contractholder funds in the Consolidated Balance Sheets with the ceded portion of the reinsured indexed crediting feature embedded derivatives, recorded as a component of the Reinsurance recoverable in the Consolidated Balance Sheets. Changes in fair value are included as a component of Benefits and other changes in policy reserves in the Consolidated Statements of Operations. +We purchase derivatives consisting of a combination of equity options and futures contracts (specifically for indexed annuity contracts) on the applicable market indices to fund the index credits due to indexed annuity/IUL contractholders. The equity options are one, two, three, five and six year options purchased to match the funding requirements of the underlying policies. On the respective anniversary dates of the indexed policies, the index used to compute the interest credit is reset and we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our indexed annuities/IUL contracts, which permit us to change caps, spreads or participation rates, subject to guaranteed minimums, on each contract’s anniversary date. The change in the fair value of the equity options and futures contracts is generally designed to offset the portion of the change in the fair value of the indexed annuities/IUL embedded derivatives related to index performance through the +178 +current credit period. The equity options and futures contracts are marked to fair value with the change in fair value included as a component of Recognized gains and (losses), net, in the Consolidated Statements of Operations. The change in fair value of the equity options and futures contracts includes the gains and losses recognized at the expiration of the instrument term or upon early termination and the changes in fair value of open positions. +Other market exposures are hedged periodically depending on market conditions and our risk tolerance. Our indexed annuities/IUL hedging strategy economically hedges the equity returns and exposes us to the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques, including direct estimation of market sensitivities, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and our risk tolerance changes. +Interest Rate Swaps +We utilize interest rate swaps to reduce market risks from interest rate changes on our earnings associated with our floating rate investments. With an interest rate swap, we agree with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts tied to an agreed upon notional principal. +The interest rate swaps are marked to fair value with the change in fair value, including accrued interest and related periodic cash flows received or paid, included as a component of Recognized gains and (losses), net, in the Consolidated Statements of Operations. +Foreign Currency Swaps +We utilize foreign currency swaps to reduce market risks from fluctuations in foreign exchange rates that impact earnings associated with our foreign currency denominated investments. Through a foreign currency swap, we agree with another party to exchange, at specified intervals, principal and interest payments in one currency for principal and interest payments in another currency, based on an agreed-upon notional amount. +The foreign currency swaps are marked to fair value with the change in fair value, including accrued interest and related periodic cash flows received or paid, included as a component of Recognized gains and (losses), net, in the Consolidated Statements of Operations. +Reinsurance Related Embedded Derivatives +F&G cedes certain business on a coinsurance funds withheld basis. Investment results for the assets that support the coinsurance are segregated within the funds withheld account and are passed directly to the reinsurer pursuant to the contractual terms of the reinsurance agreement, which creates embedded derivatives considered to be total return swaps. These total return swaps are not clearly and closely related to the underlying reinsurance agreement and thus require bifurcation. For arrangements reinsuring indexed annuities products, the funds withheld account additionally contains an embedded derivative representing the index credit obligation due the reinsurer, resulting in a compound embedded derivative. Beginning in 2025, these embedded derivatives are reported in Funds withheld for reinsurance liabilities, irrespective if in a net asset position or a net liability position, on the Consolidated Balance Sheets and prior periods have been reclassified from Prepaid expenses and other assets to conform with the current presentation. The related gains or losses are reported in Recognized gains and (losses), net, on the Consolidated Statements of Operations. +Credit Risk +We are exposed to credit loss in the event of non-performance by our counterparties and reflect assumptions regarding this non-performance risk in the fair value of our derivatives. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. We maintain a policy of +179 +requiring all derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. +We manage credit risk related to non-performance by our counterparties by (i) entering into derivative transactions with creditworthy counterparties; (ii) obtaining collateral, such as cash and securities when appropriate; and (iii) establishing counterparty exposure limits, which are subject to periodic management review. +Information regarding our exposure to credit loss on the derivative instruments we hold, excluding futures contracts, is presented below (in millions): +Fair Value Collateral Net Credit Risk +December 31, 2025 $ 1,137 $ 1,185 $ 34 +December 31, 2024 782 771 34 +Collateral Agreements +We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivative agreements on ISDA forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open derivative contracts between the parties, at which time any amounts payable by us or the counterparty would be dependent on the market value of the underlying contracts. Our current rating does not allow any counterparty the right to terminate ISDA agreements. In certain transactions, both us and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures exceed pre-determined thresholds. For all counterparties, except one , the threshold is set to zero . As of December 31, 2025 and 2024 counterparties posted collateral of $ 1,185 million and $ 771 million, respectively. This included cash collateral of $ 928 million and $ 679 million, respectively, for which we record an associated payable included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. Cash collateral received is not legally segregated and may be used by the Company in the normal course of business. The Company is obligated to return an equivalent amount of collateral upon settlement or termination of the related derivative contracts, or otherwise in accordance with the collateral provisions of such agreements, including in circumstances where changes in market conditions cause the Company’s mark-to-market position to decline. The remaining collateral represents securities collateral received that is not reported on the Consolidated Balance Sheets. Accordingly, the maximum amount of loss due to credit risk that we would incur if parties to the derivatives failed completely to perform according to the terms of the contracts, after giving effect to cash and securities collateral held, was $ 34 million at both December 31, 2025 and 2024. +We are required to pay our counterparties the effective federal funds interest rate each day for cash collateral posted to us. Cash collateral is reinvested in overnight investment sweep products, which are included in Cash and cash equivalents on the Consolidated Balance Sheets, to reduce the interest cost. Changes in cash collateral are included in the Change in derivative collateral liabilities in the Consolidated Statements of Cash Flows. +We held 172 and 527 futures contracts at December 31, 2025 and 2024, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements). We provide cash collateral to the counterparties for the initial and variation margin on the futures contracts, which is included in Cash and cash equivalents in the Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $ 4 million and $ 7 million at December 31, 2025 and 2024, respectively. +180 +Note E - Reinsurance +F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is reinsured. F&G primarily seeks reinsurance coverage in order to manage loss exposures, to enhance our capital position, to diversify risks and earnings, and to manage new business volume. F&G follows reinsurance accounting when the treaty adequately transfers insurance risk and any acquisition cost reimbursements reduce policy acquisition costs deferred and maintenance expense reimbursements reduce direct expenses incurred. Otherwise, F&G follows deposit accounting if there is inadequate transfer of insurance risk or if the underlying policy for which risk is being transferred is an investment contract that does not contain insurance risk. Refer to Note A - Business and Summary of Significant Accounting Policies for more information over our accounting policy for reinsurance agreements. As of December 31, 2025 and 2024, we had an immaterial amount of cost of reinsurance recorded on the Consolidated Balance Sheets. +The effects of reinsurance on net premiums earned, net product fees and net benefits incurred (benefits paid and reserve changes) for the years ended December 31, 2025, 2024, and 2023 respectively, were as follows (in millions): +Year Ended December 31, +2025 2024 2023 +Net Premiums Earned Net Product +Fees Net Benefits Incurred Net Premiums Earned Net Product +Fees Net Benefits Incurred Net Premiums Earned Net Product +Fees Net Benefits Incurred +Direct $ 2,223 $ 717 $ 4,197 $ 2,346 $ 655 $ 3,987 $ 2,112 $ 455 $ 3,728 +Ceded ( 85 ) ( 60 ) ( 234 ) ( 94 ) ( 47 ) ( 196 ) ( 105 ) ( 49 ) ( 175 ) +Net $ 2,138 $ 657 $ 3,963 $ 2,252 $ 608 $ 3,791 $ 2,007 $ 406 $ 3,553 +Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. No policies issued by F&G have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance. F&G has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit issues. +Reinsurance Transactions +The following summarizes significant changes to third-party reinsurance agreements for the years ended December 31, 2025 and 2024: +Aspida Re Cayman: Effective November 1, 2025, FGL Insurance entered into a reinsurance agreement with Aspida Re Cayman Ltd. (“Aspida Re Cayman”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance. +New Re Reinsurance Transaction:. Effective October 1, 2025, FGL Insurance recaptured and terminated the indemnity reinsurance agreement with New Reinsurance Company Ltd., an unaffiliated reinsurer and wholly owned subsidiary of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (d/b/a “Munich Re”). FGL Insurance recaptured 100% of the liabilities and obligations ceded and entered into a new indemnity reinsurance agreement with Munich Re to cede certain inforce and future flow FIA policies on a coinsurance basis. The coinsurance basis is applicable to the base contract benefits, waiver of surrender charges, and minimum guaranteed surrender value benefits and for certain FIA policies, return of premium rider and minimum interest credit rider benefits. +New Reinsurance Vehicle: Effective August 1, 2025, F&G executed this forward flow reinsurance agreement with Fort Greene Reinsurance SPC Limited Segregated Portfolio No. 1, (“Fort Greene”) to cede certain FIA policies +181 +on a coinsurance funds withheld quota share basis and certain funding agreements on a modified coinsurance basis. F&G does not hold any ownership stake in the unaffiliated Fort Greene entity. +Everlake: Effective January 1, 2025, F&G amended the existing flow reinsurance agreement with Everlake Life Insurance Company (“Everlake”) to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. +IUL YRT Reinsurance: Effective January 1, 2025, F&G entered into separate flow reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain new IUL policies and effective July 1, 2025, F&G entered into additional separate reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain inforce IUL policies. In accordance with the terms of these agreements, F&G cedes the net amount at risk on the IUL policies, which is the difference between the stated death benefit and the contractholder funds balance, on a yearly renewable term basis. +Somerset: Effective July 1, 2024, F&G amended the existing flow reinsurance agreement with Somerset Reinsurance Ltd. (“Somerset”), a third-party reinsurer, to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis. +Kubera: F&G has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2025. +The following summarizes our reinsurance recoverable (in millions) as of December 31, 2025 and 2024: +Parent Company/ +Principal Reinsurers Reinsurance Recoverable (a) Agreement Type Products +Covered Accounting +December 31, 2025 December 31, 2024 +Aspida (b) $ 8,589 $ 7,844 Coinsurance Funds Withheld Certain MYGA Deposit +Somerset Reinsurance Ltd. (c) 5,071 2,822 Coinsurance Funds Withheld Certain MYGA and deferred annuities Deposit +Coinsurance Funds Withheld Certain FIA Reinsurance +Everlake 1,868 1,168 Coinsurance Certain MYGA (d) Deposit +Wilton Reassurance Company 1,032 1,066 Coinsurance Block of traditional, IUL, and UL (e) Reinsurance +Fort Greene 502 — Coinsurance Funds Withheld Certain FIA Deposit +Other (f) 501 489 +Reinsurance recoverable, gross of allowance 17,563 13,389 +Allowance for expected credit loss ( 18 ) ( 20 ) +Reinsurance recoverable, net of allowance for expected credit losses $ 17,545 $ 13,369 +(a) Reinsurance recoverables do not include unearned ceded premiums that would be recovered in the event of early termination of certain traditional life policies. +(b) Includes Aspida Life Re Ltd. and Aspida Re Cayman Ltd. +(c) The balance represents the total reinsurance recoverable for all reinsurance agreements with Somerset. +(d) Reinsurance recoverable is collateralized by assets placed in a statutory comfort trust by the reinsurer and maintained for our sole benefit. +(e) Also includes certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX. +(f) Represents all other reinsurers, with no single reinsurer having a carrying value in excess of 5% of total reinsurance recoverable. +182 +As of December 31, 2025 and 2024, F&G had a deposit asset of $ 13,279 million and $ 11,039 million, respectively, which is reported in the Reinsurance recoverable, net of allowance for credit losses on the Consolidated Balance Sheets. +F&G incurred risk charge fees of $ 42 million, $ 42 million, and $ 39 million during the years ended December 31, 2025, 2024, and 2023, respectively, in relation to reinsurance agreements. +Credit Losses +F&G estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurer's credit risk, expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features. +The expected credit loss reserves were as follows (in millions): +Year Ended December 31, +2025 2024 +Balance at beginning of period $ ( 20 ) $ ( 21 ) +Changes in the expected credit loss reserve 2 1 +Balance at end of period $ ( 18 ) $ ( 20 ) +Concentration of Reinsurance Risk +As indicated above, F&G has a significant concentration of reinsurance risk with third party reinsurers, Aspida, Somerset Reinsurance Ltd (“Somerset Re”), Everlake, Wilton Reassurance (“Wilton Re”), and Fort Greene that could have a material impact on our financial position in the event that any of these reinsurers fails to perform its obligations under the various reinsurance treaties. We monitor the financial condition and financial strength of individual reinsurers using public ratings (refer to table below) and ratings reports of individual reinsurers to attempt to reduce the risk of default by such reinsurers. In addition, the risk of non-performance is further mitigated with various forms of collateral or collateral arrangements, including secured trusts, funds withheld accounts and irrevocable letters of credit. We believe that all amounts due from Aspida, Somerset Re, Everlake, Wilton Re, and Fort Greene for periodic treaty settlements, net of any applicable credit loss reserves, are collectible as of December 31, 2025: +Parent Company/Principal Reinsurers Financial Strength Rating +AM Best S&P Fitch Moody's +Aspida A- — — — +Somerset Re A BBB+ — — +Everlake A — — — +Wilton Re A+ — A- — +Fort Greene — — — — +“—” indicates not rated +Intercompany Reinsurance Agreements +F&G executes various intercompany reinsurance agreements between its insurance subsidiaries, including off shore entities, for purposes of managing regulatory statutory capital and risk. Since these agreements are intercompany, the financial impacts are eliminated in the preparation of the Consolidated Financial Statements included within this Annual Report on Form 10-K. +Some of these intercompany transactions are executed with wholly owned reinsurance subsidiaries, Corbeau Re, Inc. (“Corbeau Re”), Raven Reinsurance Company (“Raven Re”) and F&G Cayman Re (“Cayman Re”), to finance the portion of statutory reserves considered to be non-economic. The financing arrangements involve Fidelity & +183 +Guaranty Life Insurance Company reinsuring certain annuity products and their related rider benefits to the captives and the captives executing third-party financing facilities that are classified as capital for statutory purposes. +The transactions with Raven Re and Cayman Re included the execution of letter of credits with Nomura Bank International plc (“NBI”) and Deutsche Bank AG, respectively, that are undrawn and have maximum borrowing capacities of $ 150 million and $ 610 million, respectively, as of December 31, 2025. The transaction with Corbeau Re included the execution of an excess of loss agreement (“XOL”) with Canada Life Barbados Branch that matures on December 31, 2043, and provides for coverage on losses up to $ 2,400 million as of December 31, 2025. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. +184 +Note F - Intangibles +The following table reconciles to Other intangible assets, net, on the Consolidated Balance Sheets as of December 31, 2025 and 2024 (in millions): +December 31, 2025 December 31, 2024 +VOBA $ 1,196 $ 1,349 +DAC 3,637 3,036 +DSI 891 625 +VODA 62 74 +Computer software 80 76 +Definite lived trademarks, tradenames, and other 173 131 +Customer relationships and contracts 228 273 +Indefinite lived tradenames and other 8 8 +Total Other intangible assets, net $ 6,275 $ 5,572 +The following tables roll forward VOBA by product for the years ended December 31, 2025 and 2024 (in millions): +Indexed Annuities Fixed Rate Annuities Immediate Annuities Universal Life Traditional Life Total +Balance at January 1, 2025 +$ 892 $ 22 $ 184 $ 126 $ 125 $ 1,349 +Amortization ( 122 ) ( 4 ) ( 6 ) ( 7 ) ( 14 ) ( 153 ) +Balance at December 31, 2025 +$ 770 $ 18 $ 178 $ 119 $ 111 $ 1,196 +Indexed Annuities Fixed Rate Annuities Immediate Annuities Universal Life Traditional Life Total +Balance at January 1, 2024 +$ 1,025 $ 27 $ 191 $ 134 $ 69 $ 1,446 +Amortization ( 133 ) ( 5 ) ( 7 ) ( 8 ) ( 7 ) ( 160 ) +Actuarial model updates and refinements (a) — — — — 63 63 +Balance at December 31, 2024 +$ 892 $ 22 $ 184 $ 126 $ 125 $ 1,349 +(a) net of amortization of ($ 15 million). +VOBA amortization expense of $ 153 million, $ 175 million, and $ 169 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2025, 2024, and 2023, respectively. +The following tables roll forward DAC by product for the years ended December 31, 2025 and 2024 (in millions): +Indexed Annuities Fixed Rate Annuities Universal Life Total (a) +Balance at January 1, 2025 +$ 1,874 $ 376 $ 781 $ 3,031 +Capitalization 530 132 292 954 +Amortization ( 199 ) ( 106 ) ( 52 ) ( 357 ) +Balance at December 31, 2025 +$ 2,205 $ 402 $ 1,021 $ 3,628 +Indexed Annuities Fixed Rate Annuities Universal Life Total (a) +Balance at January 1, 2024 +$ 1,378 $ 288 $ 545 $ 2,211 +Capitalization 652 174 274 1,100 +Amortization ( 156 ) ( 86 ) ( 38 ) ( 280 ) +Balance at December 31, 2024 +$ 1,874 $ 376 $ 781 $ 3,031 +(a) Excludes insignificant amounts of DAC related to FABN and PRT. +185 +DAC amortization expense of $ 357 million, $ 280 million, and $ 186 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the year s ended December 31, 2025, 2024, and 2023, respectively, excluding insignificant amounts related to FABN and PRT. +The following table presents a reconciliation of DAC to the table above which is reconciled to the Consolidated Balance Sheets as of December 31, 2025 and 2024 (in millions): +December 31, 2025 December 31, 2024 +Indexed Annuities $ 2,205 $ 1,874 +Fixed Rate Annuities 402 376 +Universal Life 1,021 781 +FABN 5 4 +PRT 4 1 +Total $ 3,637 $ 3,036 +The following tables roll forward DSI for our indexed annuity products for the years ended December 31, 2025 and 2024 (in millions): +Years Ended December 31, +2025 2024 +Balance at January 1, $ 625 $ 346 +Capitalization 332 319 +Amortization ( 66 ) ( 40 ) +Balance at December 31, $ 891 $ 625 +DSI amortization expense of $ 66 million, $ 40 million, and $ 22 million, was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2025, 2024, and 2023, respectively. +The cash flow assumptions used to amortize VOBA and DAC were consistent with the assumptions used to estimate the future policy benefits (“FPB”) for life contingent immediate annuities and PRT. Those assumptions will be reviewed and unlocked, if applicable, in the same period as those balances. For nonparticipating traditional life contracts, the VOBA amortization is straight-line, without the use of cash flow assumptions. For indexed annuity contracts, the cash flow assumptions used to amortize VOBA, DAC, and DSI were consistent with the assumptions used to estimate the value of the embedded derivative and MRBs, and will be reviewed and unlocked, if applicable, in the same period as those balances. For fixed rate annuities and IUL the cash flow assumptions used to amortize VOBA and DAC reflect the Company’s best estimates for policyholder behavior, consistent with the development of assumptions for indexed annuities and immediate annuities. Refer to Note A - Business and Summary of Significant Accounting Policies for further information about accounting policies for amortization of VOBA, DAC and DSI. +We review cash flow assumptions annually, generally in the third quarter. In 2024 and 2025, F&G undertook a review of all significant assumptions and revised several assumptions relating to our deferred annuity (indexed annuity and fixed rate annuity) and IUL products. For the year ended December 31, 2025, we updated the assumption for option budgets, surrenders, lapses, mortality and mortality improvement, and free partial withdrawals. For the year ended December 31, 2024, we updated assumptions including surrender rates, GMWB election timing, premium persistency, mortality improvement, and option budgets. For both periods, these assumption updates resulted in increased amortization rates on some DAC and DSI balances, primarily for indexed annuities. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption update. +The following table rolls forward the customer relationship intangibles acquired in the Roar acquisition on January 2, 2024, and the PALH acquisition on July 18, 2024, (in millions). For more information, refer to Note P - Acquisitions. +186 +Years ended December 31, +2025 2024 +Balance at January 1, +$ 273 $ — +Acquired and related adjustments 6 310 +Amortization ( 51 ) ( 37 ) +Balance at December 31, $ 228 $ 273 +Definite and Indefinite Lived Other Intangible Assets +Other intangible assets as of December 31, 2025 and 2024 consist of the following (in millions): +December 31, 2025 +Cost Accumulated amortization Net carrying amount Weighted average useful life (years) +Definite lived other intangible assets +VODA $ 140 $ ( 78 ) $ 62 15 +Computer software 130 ( 50 ) 80 +2 to 10 +Definite lived trademarks, tradenames, and other (a) 209 ( 36 ) 173 +10 +Customer relationship intangibles and contracts (a) 316 ( 88 ) 228 +5 to 20 +Indefinite lived other intangible assets +Indefinite lived tradenames and other 8 N/A 8 Indefinite +Total $ 551 +(a) Includes intangible assets acquired with ROAR and PALH. Refer to Note P - Acquisitions for further details. +December 31, 2024 +Cost Accumulated amortization Net carrying amount Weighted average useful life (years) +Definite lived other intangible assets +VODA $ 140 $ ( 66 ) $ 74 15 +Computer software 114 ( 38 ) 76 +2 to 10 +Definite lived trademarks, tradenames, and other (a) 155 ( 24 ) 131 +5 to 10 +Customer relationship intangibles and contracts (a) 310 ( 37 ) 273 +12 to 20 +Indefinite lived other intangible assets +Indefinite lived tradenames and other 8 N/A 8 Indefinite +Total $ 562 +(a) Includes intangible assets acquired with ROAR and PALH. Refer to Note P - Acquisitions for further details. +Total amortization expense for definite lived other intangible assets, was $ 87 million, $ 69 million and $ 26 million for the years ended December 31, 2025, 2024 and 2023, respectively. +Within definite lived trademarks, tradenames, and other is an amount established to offset MRBs with no explicit rider charges, which had a balance of $ 145 million and $ 94 million as of December 31, 2025 and December 31, 2024, respectively. Amortization of $ 9 million, $ 5 million and $ 1 million was recorded in Depreciation and amortization on the Consolidated Statements of Operations for the years ended December 31, 2025, 2024, and 2023, respectively, and is included in total amortization expense noted above. +We recorded no impairment expense related to computer software during the years ended December 31, 2025 and December 31, 2024, compared to $ 13 million for the year ended December 31, 2023. +187 +The following table shows the estimated amortization expense in future fiscal periods for VOBA for the in-force liabilities, customer relationship intangibles and definite lived other intangible assets as of December 31, 2025 (in millions): +VOBA Customer Relationship +Intangibles Definite Lived Other +Intangible Assets +2026 $ 133 $ 39 $ 46 +2027 120 33 40 +2028 109 28 38 +2029 99 24 37 +2030 90 20 28 +Thereafter 645 84 126 +Total $ 1,196 $ 228 $ 315 +Note G - Market Risk Benefits +The following table presents the balances of and changes in MRBs associated with indexed annuities and fixed rate annuities for the years ended December 31, 2025 and 2024 (in millions): +December 31, 2025 December 31, 2024 +Indexed annuities Fixed rate annuities Indexed annuities Fixed rate annuities +Balance, beginning of period, net liability $ 420 $ 1 $ 314 $ 1 +Balance, beginning of period, before effect of changes in the instrument-specific credit risk $ 322 $ 1 $ 209 $ 1 +Issuances and benefit payments 147 — 109 — +Attributed fees collected and interest accrual 156 — 147 — +Actual policyholder behavior different from expected 45 — ( 5 ) — +Changes in assumptions and other 8 — 24 — +Effects of market related movements 6 — ( 162 ) — +Balance, end of period, before effect of changes in the instrument-specific credit risk 684 1 322 1 +Effect of changes in the instrument-specific credit risk 128 — 98 — +Balance, end of period, net liability 812 1 420 1 +Less: reinsured market risk benefits 195 — 61 — +Balance, end of period, net of reinsurance $ 617 $ 1 $ 359 $ 1 +Weighted-average attained age of policyholders weighted by total AV (years) 67.84 84.69 67.98 83.51 +Net amount at risk $ 1,900 $ 2 $ 1,327 $ 2 +188 +The following table reconciles MRBs by amounts in an asset position and amounts in a liability position to the MRBs amounts in the Consolidated Balance Sheets (in millions): +December 31, 2025 December 31, 2024 +Direct Reinsured Total Direct Reinsured Total +MRB asset +Indexed annuities $ 88 $ 197 $ 285 $ 128 $ 61 $ 189 +Fixed rate annuities — — — — — — +Total MRB asset $ 88 $ 197 $ 285 $ 128 $ 61 $ 189 +MRB liability +Indexed annuities $ 900 $ 2 $ 902 $ 548 $ — $ 548 +Fixed rate annuities 1 — 1 1 — 1 +Total MRB liability $ 901 $ 2 $ 903 $ 549 $ — $ 549 +2025 . The net MRB liability increased for the year ended December 31, 2025, primarily as a result of collection of attributed fees, interest accrual, and MRB reserves for contracts issued within the period. +For the year ended December 31, 2025, notable changes made to the inputs to the fair value estimates of MRBs calculations included an increase in risk-free rates leading to a favorable change in the MRBs associated with indexed annuities and decreases in the equity market related projections resulted in an increase in the net amount at risk associated with indexed annuities, leading to an unfavorable change in the value of the associated MRBs. +2024. The net MRB liability increased for the year ended December 31, 2024, primarily as a result of collection of attributed fees, interest accrual, MRB reserves for contracts issued within the period, and changes in actuarial assumptions. These increases were partially offset by the effects of market related movements, including the impacts of higher risk-free rates and increases in the equity market related projections. +For the year ended December 31, 2024, notable changes made to the inputs to the fair value estimates of MRBs calculations included an increase in risk-free rates leading to a favorable change in the MRBs associated with indexed annuities and fixed rate annuities; increases in the equity market related projections resulted in a decrease in the net amount at risk associated with indexed annuities, leading to a favorable change in the value of the associated MRBs; and an increase in the rider benefit utilization assumption, leading to an unfavorable change in the value of the associated MRBs. +In addition, the cash flow assumptions used to calculate MRBs reflect the Company’s best estimates for policyholder behavior. We review cash flow assumptions annually, generally in the third quarter. In 2024 and 2025, F&G undertook a review of all significant assumptions and revised several assumptions relating to our deferred annuities (indexed annuities and fixed rate annuities) with MRBs. For the year ended December 31, 2025, we updated assumptions including surrender rates, mortality and mortality improvement, partial withdrawals, projected CPI, and option budgets. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption updates. These updates, in total, led to an increase in the net MRB liability for the year ended December 31, 2025. For the year ended December 31, 2024, we updated assumptions including surrender rates, rider benefit election utilization, mortality improvement, and option budgets. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption updates. These updates, in total, led to an increase in the net MRB liability for the year ended December 31, 2024. +189 +Note H - Income Taxes +We adopted Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, as of December 31, 2025 using the prospective approach. Refer to Note T - Recent Accounting Pronouncements for further information. +Income from continuing operations before income tax consists of the following (in millions): +Year Ended December 31, +2025 +Pretax income (loss): +United States $ 323 +Outside the United States $ — +Total pretax income $ 323 +Income tax expense (benefit) on continuing operations consists of the following (in millions): +Year Ended December 31, +2025 +Current +Federal $ ( 51 ) +Foreign — +State 4 +Total Current ( 47 ) +Deferred +Federal 99 +Foreign — +State — +Total Deferred 99 +Total $ 52 +Year Ended December 31, +2024 2023 +Current $ 65 $ 27 +Deferred 71 ( 4 ) +Total $ 136 $ 23 +Total income tax expense (benefit) was allocated as follows (in millions): +Year Ended December 31, +2025 2024 2023 +Taxes on net earnings from continuing operations $ 52 $ 136 $ 23 +Other comprehensive income (loss): +Changes in current discount rate - future policy benefits ( 62 ) 59 ( 50 ) +Changes in instrument-specific credit risk-market benefits ( 6 ) 1 ( 9 ) +Unrealized (loss) gain on investments and other financial instruments 174 ( 41 ) 275 +Unrealized gain (loss) on foreign currency translation and cash flow hedging 2 ( 1 ) 1 +Total income tax (benefit) expense allocated to other comprehensive income (loss) 108 18 217 +Total income taxes $ 160 $ 154 $ 240 +190 +A reconciliation of the federal statutory rate to our effective tax rate is as follows: +Year Ended December 31, +2025 +US Federal statutory rate $ 68 21.0 % +State and local income taxes, net of federal income tax effect (a) 3 1.0 +Foreign tax effect — — +Effect of changes in tax laws or rates enacted in the current period — — +Effect of cross border tax laws +Foreign Tax Credit ( 1 ) ( 0.4 ) +Tax credits +Low income housing tax credits ( 9 ) ( 2.8 ) +Research and development credits ( 1 ) ( 0.3 ) +Other — — +Changes in valuation allowance ( 4 ) ( 1.3 ) +Nontaxable or nondeductible items +Dividend received deduction ( 2 ) ( 0.6 ) +Officers compensation 7 2.1 +Stock compensation ( 1 ) ( 0.4 ) +COLI ( 7 ) ( 2.1 ) +Other ( 1 ) ( 0.3 ) +Change in unrecognized tax benefit — — +Other adjustments — — +Reported income tax expense/(benefit) $ 52 15.9 % +(a) For 2025, state taxes in Iowa, Florida, and New Jersey contributed to the majority of the tax effect in this category. +Year Ended December 31, +2024 2023 +Federal statutory rate 21.0 % 21.0 % +State income taxes, net of federal benefit 0.3 ( 12.7 ) +Benefit for capital loss carryback — — +Officers Compensation 1.2 ( 11.2 ) +Stock compensation ( 0.8 ) 2.7 +Tax credits ( 1.6 ) 16.2 +Dividends received deduction ( 0.2 ) 7.9 +Valuation allowance for deferred tax assets ( 1.8 ) ( 100.1 ) +COLI ( 0.6 ) 13.2 +Non-deductible expenses and other, net — ( 3.2 ) +Effective tax rate 17.5 % ( 66.2 ) % +For the year ended December 31, 2025, the Company’s effective tax rate was 15.9 %. The effective tax rate was positively impacted by favorable permanent adjustments, including low income housing tax credits (“LIHTC”), the dividends received deduction (“DRD”), and COLI, as well as the valuation allowance release on unrealized losses and capital loss carryforwards. +For the year ended December 31, 2024, the Company’s effective tax rate was 17.5 %. The effective tax rate was positively impacted by favorable permanent adjustments, including LIHTC, DRD, and COLI, as well as the valuation allowance release on unrealized losses and capital loss carryforwards. +For the year ended December 31, 2023, the Company’s effective tax rate was ( 66.2 )%. The effective tax rate was negatively impacted by the valuation allowance expense recorded on unrealized losses and capital loss carryforwards. +191 +The significant components of deferred tax assets and liabilities consist of the following (in millions): +December 31, +2025 2024 +Deferred tax assets: +Employee benefit accruals $ 30 $ 29 +Net operating loss carryforwards 106 105 +Accrued liabilities 8 — +General business tax credits 117 9 +Corporate Alternative Minimum Tax ("CAMT") Credit Carryforwards 7 155 +Bermuda CIT NOL Carryforward — 10 +Investment securities 466 643 +Capital loss carryover — 19 +Market risk benefit 99 56 +Derivatives — 18 +Life insurance and claim related adjustments 539 451 +Section 263a Costs 30 — +Funds held under reinsurance agreements 1,178 822 +Other 14 13 +Total gross deferred tax asset 2,594 2,330 +Less: valuation allowance 38 58 +Total deferred tax asset 2,556 2,272 +Deferred Tax Liabilities: +Amortization of goodwill and intangible assets ( 13 ) ( 18 ) +Other ( 7 ) ( 2 ) +Depreciation ( 7 ) ( 11 ) +Partnerships ( 211 ) ( 163 ) +Value of business acquired ( 251 ) ( 283 ) +Derivatives ( 47 ) — +Deferred acquisition costs ( 677 ) ( 543 ) +Transition reserve on new reserve method — ( 8 ) +Funds held under reinsurance agreements ( 1,261 ) ( 945 ) +Total deferred tax liability ( 2,474 ) ( 1,973 ) +Net deferred tax asset (liability) $ 82 $ 299 +Our net deferred tax asset was $ 82 million as of December 31, 2025 and a net deferred tax asset of $ 299 million as of December 31, 2024. The significant changes in the deferred taxes are as follows: the deferred tax asset for investment securities decreased by $ 177 million, primarily due to unrealized gains on fixed maturities. The deferred tax liability related to deferred acquisition costs increased by $ 134 million, which is consistent with the growth in sales in our U.S. life group. The life insurance reserves and claim related adjustments deferred tax asset increased by $ 88 million primarily due to the GAAP reserves for the year increasing by more than the tax reserves. The reinsurance receivable deferred tax asset increased by $ 356 million, and the reinsurance receivable deferred tax liability increased by $ 316 million, both due to the increase in modified coinsurance reinsurance. The deferred tax related to Derivatives decreased by $ 65 million due to unrealized gains on call options, interest rate swaps, and embedded derivatives.The deferred tax liability related to partnerships increased by $ 48 million, primarily attributable to unrealized gains. +As of December 31, 2025, we have net operating losses (“NOLs”) on a pretax basis of $ 506 million, which are available to carryforward and offset future federal taxable income subject to the 80% taxable income limitation. None of these NOLs are subject to Internal Revenue Code Section 382 limitations and these losses do not expire. +As of December 31, 2025 and 2024, we had $ 117 million and $ 9 million of general business tax credits, respectively, which expire between 2041 and 2045. None of the $ 117 million in tax credits are limited. As of +192 +December 31, 2025 and 2024, the Company also had $ 7 million and $ 155 million of CAMT credits. The CAMT credits are not limited by IRC Section 382, and have no expiration date. +As of December 31, 2025, the valuation allowance of $ 38 million consisted of a full valuation allowance of $ 1 million on the unrealized capital loss deferred tax assets for F&G Life Re Ltd. (“F&G Life Re”), F&G Cayman Re Ltd. (“F&G Cayman Re”), and the US Non-life Companies, a full valuation allowance of $ 1 million on the foreign deferred tax assets of F&G Life Re, a full valuation allowance of $ 8 million on the deferred capital loss carryforwards for the US Non-life Companies and F&G Cayman Re, and a partial valuation allowance of $ 28 million on the US Life Companies’ capital loss deferred tax assets. +Income taxes paid (net of refunds received) consist of the following (in millions): +Year Ended December 31, +2025 +Income Taxes Paid +Federal $ 6 +Foreign — +State +Iowa 1 +Florida 1 +New York — +Other 1 +Total $ 9 +The Company makes certain investments in limited partnerships, which invest in affordable housing projects that qualify for the LIHTC. The Company’s investment in the funds is amortized through income tax expense on the Consolidated Statements of Operations using the proportional amortization method. +The tax credits and other benefits recognized are included in the net change in income taxes on the Consolidated Statements of Cash Flows. The following table presents the impacts of the LIHTC investments included in income tax expense on the Consolidated Statements of Operations (in millions): +For the Year Ended December 31, +2025 2024 2023 +Tax credits and other benefits recognized $ ( 40 ) $ ( 36 ) $ ( 27 ) +Tax credit amortization expense 31 26 22 +Total $ ( 9 ) $ ( 10 ) $ ( 5 ) +At December 31, 2025 and December 31, 2024, LIHTC investments included in Prepaid expenses and other assets on the Consolidated Balance Sheets totaled $ 165 million and $ 135 million , respectively. +The U.S. Life insurance group is subject to a Tax Sharing Agreement within the members of the life insurance tax return group. The agreement provides for an allocation based on separate return calculations and allows for reimbursement of company tax benefits absorbed by other members of the group. The U.S. non-life group is subject to a Tax Sharing Agreement with its parent, FNF, with which it files a consolidated federal income tax return. The Company’s non-life group Tax Sharing Agreement allows for reimbursement of company tax benefits absorbed by FNF. If, during the year ended December 31, 2025, the Company had computed taxes using the separate return method, the pro-forma provision for income taxes would remain unchanged. The tax sharing agreement with FNF will not be applicable after 2025. There will be a settlement once the final tax return is filed, but our tax attributes might still be impacted by amended returns or carrybacks involving open years. +The U.S. Federal income tax returns of the Company for years prior to 2020 are no longer subject to examination by the taxing authorities. The Company does no t have any unrecognized tax benefits (“UTBs”) at +193 +December 31, 2025 or December 31, 2024. In the event the Company has UTBs, interest and penalties related to uncertain tax positions would be recorded as part of income tax expense in the financial statements. The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its tax reserves based on new information or developments. +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% CAMT on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. On September 30, 2025, the Internal Revenue Service issued Notice 2025-46 which allows the Company to calculate its CAMT on a consolidated basis with FNF without regard to the five-taxable-year-limitation. The Company applied this Notice 2025-46 to its 2024 tax return and plans to amend its 2023 return to apply the Notice 2025-46. The CAMT was reduced by $ 27 million and $ 114 million for 2023 and 2024 respectively. Beginning in 2026, the Company will not be eligible to file a consolidated return with FNF, but CAMT would be calculated with all F&G entities without regard to the five-taxable-year limitation. The Company has elected to consider the effects of CAMT separately in evaluating the need for a valuation allowance. For the year ended December 31, 2025, no valuation allowance is needed. For the year ended December 31, 2025, the Company was not in a CAMT position. A CAMT credit carryforward created in 2024 is expected to be able to be utilized in future years. +The CIT Act of 2023 was passed in Bermuda on December 27, 2023. The CIT commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, is not expected to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2025 of $ 1 million has a full valuation allowance. Since the CIT did not have any material impact to the financial statements, the deferred tax asset and offsetting valuation allowance were netted together in the rate reconciliation above. +On July 4, 2025, Public Law 119-21, commonly referred to as the One Big Beautiful Bill Act, was signed into law. The accounting consequences of a change in tax law are required to be recognized in the period legislation is enacted. The Company evaluated the provisions of this legislation and incorporated the effects into our 2025 financial statements, which were not material. We will continue to monitor developments related to the legislation. +194 +Note I - Contractholder Funds +The following tables summarize balances of and changes in contractholder funds’ account balances (in millions): +December 31, 2025 +Indexed annuities Fixed rate annuities Universal life FABN (b) FHLB (b) +Balance, beginning of year $ 30,235 $ 17,442 $ 2,817 $ 2,463 $ 2,852 +Issuances 6,714 3,801 229 1,148 2,241 +Premiums received 31 — 593 — — +Policy charges (a) ( 222 ) — ( 378 ) — — +Surrenders and withdrawals ( 3,831 ) ( 2,485 ) ( 130 ) — — +Benefit payments ( 536 ) ( 358 ) ( 21 ) ( 395 ) ( 2,298 ) +Interest credited 830 866 182 107 103 +Other 5 ( 1 ) — 1 — +Balance, end of year 33,226 19,265 3,292 3,324 2,898 +Reconciling items (c) 321 2 115 11 — +Gross liability, end of year 33,547 19,267 3,407 3,335 2,898 +Less: Reinsurance recoverable 3,198 12,863 887 — — +Net liability, after reinsurance $ 30,349 $ 6,404 $ 2,520 $ 3,335 $ 2,898 +Weighted-average crediting rate 2.65 % 4.84 % 6.13 % N/A N/A +Net amount at risk (d) N/A N/A $ 29,581 N/A N/A +Cash surrender value (e) $ 30,920 $ 18,034 $ 2,533 N/A N/A +(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance. +(b) FABN and FHLB are considered funding agreements that are investment contracts which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials. +(c) The reconciling items reconcile the account balance to the gross GAAP liability. For indexed annuities and universal life, the reconciling items represent embedded derivatives and include the combination of the host contracts and the fair value of the embedded derivatives. For FABN, the reconciling items represent basis adjustments due to the impact of fair value hedge accounting. +(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. +(e) These amounts are gross of reinsurance. +December 31, 2024 +Indexed annuities Fixed rate annuities Universal life FABN (b) FHLB (b) +Balance, beginning of year $ 27,164 $ 13,443 $ 2,391 $ 2,613 $ 2,539 +Issuances 6,649 5,125 208 600 1,804 +Premiums received 120 1 495 — — +Policy charges (a) ( 195 ) — ( 315 ) — — +Surrenders and withdrawals ( 3,832 ) ( 1,479 ) ( 101 ) — — +Benefit payments ( 495 ) ( 315 ) ( 18 ) ( 820 ) ( 1,606 ) +Interest credited 821 667 157 71 117 +Other 3 — — ( 1 ) ( 2 ) +Balance, end of year 30,235 17,442 2,817 2,463 2,852 +Embedded derivative adjustment (c) 219 — 79 — — +Gross liability, end of year 30,454 17,442 2,896 2,463 2,852 +Less: Reinsurance recoverable 861 11,009 877 — — +Net liability, after reinsurance $ 29,593 $ 6,433 $ 2,019 $ 2,463 $ 2,852 +Weighted-average crediting rate 2.90 % 4.42 % 6.20 % N/A N/A +Net amount at risk (d) N/A N/A $ 74,279 N/A N/A +Cash surrender value (e) $ 27,865 $ 16,266 $ 2,177 N/A N/A +195 +(a) Contracts included in the contractholder funds are generally charged a premium and/or monthly assessments on the basis of the account balance. +(b) FABN and FHLB are considered funding agreements that are investment contracts which follow the interest method of accounting, and therefore are not subject to ASU 2018-12 disclosure requirements. However, the Company has elected to present the liability for these agreements within the disaggregated roll forward as we believe it will provide meaningful information for users of the financials. +(c) The embedded derivative adjustment reconciles the account balance to the gross GAAP liability and represents the combination of the host contract and the fair value of the embedded derivatives. +(d) For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. +(e) These amounts are gross of reinsurance. +The following table reconciles contractholder funds’ account balances to the contractholder funds liability in the Consolidated Balance Sheets (in millions): +December 31, +2025 2024 +Indexed annuities $ 33,547 $ 30,454 +Fixed rate annuities 19,267 17,442 +Immediate annuities 262 286 +Universal life 3,407 2,896 +Traditional life 4 5 +FABN 3,335 2,463 +FHLB 2,898 2,852 +PRT 6 6 +Total $ 62,726 $ 56,404 +Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. During the years ended December 31, 2025 and 2024, based on policyholder behavior, experience and interest rate movements, we reflected updates to surrender assumptions for recent and expected near term policyholder behavior, as well as updated certain indexed annuities assumptions used to calculate the fair value of the embedded derivative component within Contractholder funds. These changes resulted in a decrease in Contractholder funds of approximately $ 22 million and $ 89 million for the years ended December 31, 2025 and 2024, respectively. +The following tables present the account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums (in millions): +196 +December 31, 2025 +Range of guaranteed minimum crediting rate At Guaranteed Minimum +1 Basis Point- 50 Basis Points Above +51 Basis Points- 150 Basis Points Above +Greater Than 150 Basis Points Above +Total +Indexed annuities +Up to 1.50% $ 659 $ 464 $ 298 $ 812 $ 2,233 +1.51%-2.50% 548 17 633 630 1,828 +Greater than 2.50% 212 1 — 1 214 +Subtotal $ 1,419 $ 482 $ 931 $ 1,443 $ 4,275 +No guaranteed minimum crediting rate 28,951 +Total $ 33,226 +Fixed rate annuities +Up to 1.50% $ 94 $ 75 $ 792 $ 15,548 $ 16,509 +1.51%-2.50% 4 6 16 466 492 +Greater than 2.50% 727 2 5 1,530 2,264 +Total $ 825 $ 83 $ 813 $ 17,544 $ 19,265 +Universal life +Up to 1.50% $ 2,898 $ 9 $ — $ 31 $ 2,938 +1.51%-2.50% — — — — — +Greater than 2.50% 353 — 1 — 354 +Total $ 3,251 $ 9 $ 1 $ 31 $ 3,292 +December 31, 2024 +Range of guaranteed minimum crediting rate At Guaranteed Minimum +1 Basis Point- 50 Basis Points Above +51 Basis Points- 150 Basis Points Above +Greater Than 150 Basis Points Above +Total +Indexed annuities +Up to 1.50% $ 721 $ 596 $ 309 $ 880 $ 2,506 +1.51%-2.50% 432 1 313 485 1,231 +Greater than 2.50% 253 — — 14 267 +Subtotal $ 1,406 $ 597 $ 622 $ 1,379 $ 4,004 +No guaranteed minimum crediting rate 26,231 +Total $ 30,235 +Fixed rate annuities +Up to 1.50% $ 57 $ 20 $ 773 $ 14,407 $ 15,257 +1.51%-2.50% 4 7 20 462 493 +Greater than 2.50% 804 2 5 881 1,692 +Total $ 865 $ 29 $ 798 $ 15,750 $ 17,442 +Universal life +Up to 1.50% $ 2,421 $ 7 $ — $ 24 $ 2,452 +1.51%-2.50% — — — — — +Greater than 2.50% 364 — 1 — 365 +Total $ 2,785 $ 7 $ 1 $ 24 $ 2,817 +197 +Note J - Future Policy Benefits +The following table summarizes balances and changes in the present value of expected net premiums and the present value of the expected FPB for nonparticipating traditional contracts (in millions): +Traditional life +December 31, 2025 December 31, 2024 +Expected net premiums +Balance, beginning of year $ 631 $ 722 +Beginning balance at original discount rate 780 874 +Effect of actual variances from expected experience 1 ( 4 ) +Balance adjusted for variances from expectation 781 870 +Interest accrual 15 17 +Net premiums collected ( 96 ) ( 107 ) +Ending balance at original discount rate 700 780 +Effect of changes in discount rate assumptions ( 115 ) ( 149 ) +Balance, end of year $ 585 $ 631 +Expected FPB +Balance, beginning of year $ 1,933 $ 2,071 +Beginning balance at original discount rate 2,368 2,492 +Effect of actual variances from expected experience ( 21 ) 44 +Balance adjusted for variances from expectation 2,347 2,536 +Interest accrual 50 54 +Benefits payments ( 230 ) ( 222 ) +Ending balance at original discount rate 2,167 2,368 +Effect of changes in discount rate assumptions ( 312 ) ( 435 ) +Balance, end of year $ 1,855 $ 1,933 +Net liability for future policy benefits $ 1,270 $ 1,302 +Less: Reinsurance recoverable 489 513 +Net liability for future policy benefits, after reinsurance recoverable $ 781 $ 789 +Weighted-average duration of liability for future policyholder benefits (years) 6.84 6.28 +198 +The following tables summarize balances and changes in the present value of the expected FPB for limited-payment contracts (in millions): +PRT +December 31, 2025 December 31, 2024 +Balance, beginning of year $ 6,054 $ 4,189 +Beginning balance at original discount rate 6,417 4,351 +Effect of changes in cash flow assumptions ( 36 ) ( 3 ) +Effect of actual variances from expected experience 13 ( 11 ) +Balance adjusted for variances from expectation 6,394 4,337 +Issuances 2,206 2,324 +Interest accrual 331 240 +Benefits payments ( 663 ) ( 484 ) +Ending balance at original discount rate 8,268 6,417 +Effect of changes in discount rate assumptions ( 156 ) ( 363 ) +Balance, end of year $ 8,112 $ 6,054 +Net liability for future policy benefits, after reinsurance recoverable $ 8,112 $ 6,054 +Weighted-average duration of liability for future policyholder benefits (years) 7.80 7.78 +Immediate annuities +December 31, 2025 December 31, 2024 +Balance, beginning of year $ 1,297 $ 1,415 +Beginning balance at original discount rate 1,732 1,788 +Effect of actual variances from expected experience ( 11 ) ( 27 ) +Balance adjusted for variances from expectation 1,721 1,761 +Issuances 17 30 +Interest accrual 54 59 +Benefits payments ( 113 ) ( 118 ) +Ending balance at original discount rate 1,679 1,732 +Effect of changes in discount rate assumptions ( 403 ) ( 435 ) +Balance, end of year $ 1,276 $ 1,297 +Net liability for future policy benefits $ 1,276 $ 1,297 +Less: Reinsurance recoverable 106 109 +Net liability for future policy benefits, after reinsurance recoverable $ 1,170 $ 1,188 +Weighted-average duration of liability for future policyholder benefits (years) 12.32 12.63 +199 +The following tables summarize balances and changes in the liability for DPL for limited-payment contracts (in millions): +December 31, 2025 December 31, 2024 +Immediate annuities PRT Immediate annuities PRT +Balance, beginning of year $ 90 $ 6 $ 87 $ 10 +Effect of changes in cash flow assumptions — — — ( 8 ) +Effect of actual variances from expected experience 2 1 8 — +Balance adjusted for variances from expectation 92 7 95 2 +Issuances 6 1 3 1 +Interest accrual 1 — 1 4 +Amortization ( 9 ) ( 1 ) ( 9 ) ( 1 ) +Balance, end of year $ 90 $ 7 $ 90 $ 6 +The following table reconciles the net FPB to the FPB in the Consolidated Balance Sheets (in millions). The DPL for Immediate Annuities and PRT is presented together with the FPB in the Consolidated Balance Sheets and has been included as a reconciling item in the table below: +December 31, +2025 2024 +Traditional life $ 1,270 $ 1,302 +Immediate annuities 1,276 1,297 +PRT 8,112 6,054 +Immediate annuities DPL 90 90 +PRT DPL 7 6 +Total $ 10,755 $ 8,749 +The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefits and expenses for nonparticipating traditional and limited-payment contracts (in millions): +Undiscounted Discounted +December 31, 2025 December 31, 2024 December 31, 2025 December 31, 2024 +Traditional life +Expected future benefit payments $ 2,511 $ 2,705 $ 1,857 $ 1,948 +Expected future gross premiums 848 914 630 681 +Immediate annuities +Expected future benefit payments $ 3,095 $ 3,189 $ 1,276 $ 1,297 +Expected future gross premiums — — — — +PRT +Expected future benefit payments $ 13,074 $ 10,038 $ 8,112 $ 6,054 +Expected future gross premiums — — — — +The following table summarizes the amount of revenue and interest related to nonparticipating traditional and limited-payment contracts recognized in the Consolidated Statements of Operations (in millions): +Gross Premiums (a) Interest Expense (b) +December 31, December 31, +2025 2024 2023 2025 2024 2023 +Traditional life $ 99 $ 111 $ 123 $ 35 $ 37 $ 37 +Immediate annuities 17 18 24 54 59 51 +PRT 2,107 2,217 1,964 331 240 109 +Total $ 2,223 $ 2,346 $ 2,111 $ 420 $ 336 $ 197 +(a) Included in Life insurance premiums and other fees on the Consolidated Statements of Operations. +200 +(b) Included in Benefits and other changes in policy reserves (remeasurement gains (a)) on the Consolidated Statements of Operations. +The following table presents the weighted-average interest rate: +December 31, +2025 2024 2023 +Traditional life +Interest accretion rate 2.35 % 2.34 % 2.33 % +Current discount rate 4.77 % 5.44 % 5.03 % +Immediate annuities +Interest accretion rate 3.20 % 3.17 % 3.14 % +Current discount rate 5.29 % 5.45 % 4.98 % +PRT +Interest accretion rate 4.87 % 4.72 % 4.61 % +Current discount rate 4.98 % 5.54 % 5.03 % +The following tables summarize the actual experience and expected experience for mortality and lapses of the FPB: +December 31, +2025 2024 2023 +Traditional life Immediate annuities PRT Traditional life Immediate annuities PRT Traditional life Immediate annuities PRT +Mortality +Actual experience 2.4 % 2.4 % 2.6 % 1.4 % 2.7 % 2.7 % 1.7 % 3.2 % 3.2 % +Expected experience 1.6 % 1.7 % 2.5 % 1.5 % 1.9 % 2.5 % 1.4 % 1.8 % 2.3 % +Lapses +Actual experience — % — % — % 0.1 % — % — % — % — % — % +Expected experience 0.6 % — % — % 0.5 % — % — % 0.3 % — % — % +The following table provides additional information for periods in which a cohort has a net premium ratio (“NPR”) greater than 100% (and therefore capped at 100%) (dollars in millions): +December 31, 2025 December 31, 2024 +Cohort X Description Cohort X Description +NPR before capping 104 % Term with return of premium Non-NY Cohort 108 % Term with return of premium Non-NY Cohort +Reserves before NPR capping $ 1,145 Term with return of premium Non-NY Cohort $ 1,147 Term with return of premium Non-NY Cohort +Reserves after NPR capping 1,156 Term with return of premium Non-NY Cohort 1,174 Term with return of premium Non-NY Cohort +Loss Expense 11 Term with return of premium Non-NY Cohort 27 Term with return of premium Non-NY Cohort +F&G made changes to assumptions during the years ended December 31, 2025 and 2024. Significant assumption inputs used in the calculation of our FPB are described below. Refer to the tables above for further details on changes to our FPB. +Traditional life +The traditional life line of business primarily consists of policies that were sold prior to 2010. As this line of business continues to age, benefit payments made from these contracts will be the primary driver of the emergence of reserves, decreasing the reserve balance. +201 +Significant assumption inputs to the calculation of the FPB for traditional life include mortality, lapses (including lapses due to nonpayment of premium and surrenders for cash surrender value), and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. In 2025, we updated the assumptions for surrenders and lapses. Updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption updates. These assumption updates resulted in a decrease to the FPB liability for the year ended December 31, 2025. In 2024, F&G made an adjustment to the calculation to reflect additional actuarial precision, unrelated to the assumptions, driving an increase to the FPB liability. +Market data that underlies current discount rates was updated in 2025 from that utilized in 2024 resulting in decreased discount rates that drove an increase to the FPB. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. +Immediate annuities (life contingent) +Significant assumption inputs to the calculation of the FPB for immediate annuities (life contingent) include mortality and discount rates (both accretion and current). We review the cash flow assumptions annually, typically in the third quarter. In 2024, F&G undertook a review of the significant cash flow assumptions and did not make any changes to mortality. Market data that underlies current discount rates was updated in 2025 from that utilized in 2024 resulting in decreased discount rates that drove an increase to the FPB. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. +PRT (life contingent) +The PRT line of business has issued a significant volume of contracts for 2025 and 2024, which is the primary impact in increasing the reserve balance in each of those periods. +Significant assumption inputs to the calculation of the FPB for PRT (life contingent) include mortality and discount rates (both accretion and current). Additionally, for PRT contracts with deferred payment streams, retirement age and elected payment form are significant assumptions. We review the cash flow assumptions annually, typically in the third quarter. In 2024, F&G undertook a review of the significant cash flow assumptions and did not make any changes to any significant assumptions. Market data that underlies current discount rates was updated in 2025 from that utilized in 2024 resulting in decreased discount rates that drove an increase to the FPB. Market data that underlies current discount rates was updated in 2024 from that utilized in 2023 resulting in increased discount rates that drove a decrease to the FPB. +Premium deficiency testing +F&G conducts annual premium deficiency testing for its long-duration contracts except for the FPB for nonparticipating traditional and limited-payment contracts. F&G also conducts annual premium deficiency testing for the VOBA of all long-duration contracts. Premium deficiency testing is performed by reviewing assumptions used to calculate the insurance liabilities and determining whether the sum of the existing contract liabilities and the present value of future gross premiums is sufficient to cover the present value of future benefits to be paid to or on behalf of policyholders and settlement costs and recover unamortized present value of future profits. Anticipated investment income, based on F&G’s experience, is considered when performing premium deficiency testing for long-duration contracts. During 2024, F&G did not pass premium deficiency testing for the traditional life block of business, related to the recoverability of VOBA. Due to that result, F&G began accruing a liability in the fourth quarter of 2024 that increases the amortization of traditional life VOBA. The liability balance was immaterial at December 31, 2025 and December 31, 2024. +202 +Note K - Accounts Payable and Accrued Liabilities +As of December 31, 2025 and 2024, the total URL balance of $ 551 million and $ 401 million, respectively, is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The following table presents a reconciliation of Accounts payable and accrued liabilities to the Consolidated Balance Sheets as of December 31, 2025 and 2024 (in millions): +December 31, +2025 2024 +Salaries and incentives $ 106 $ 116 +Accrued benefits 75 67 +URL 551 401 +Trade accounts payable 199 147 +Liability for policy and contract claims 100 102 +Retained asset account 48 60 +Remittances and items not allocated 267 224 +Option collateral liabilities 928 679 +Lease liability 12 10 +Investment purchases payable 102 100 +Contingent consideration 72 74 +Accrued interest on notes payable 34 31 +Interest rate and foreign currency swaps 12 10 +Other accrued liabilities 195 198 +Accounts payable and accrued liabilities +$ 2,701 $ 2,219 +The following tables rolls forward URL for our universal life product for the years ended December 31, 2025 and 2024 (in millions): +December 31, +2025 2024 +Balance at January 1, $ 401 $ 270 +Capitalization 178 151 +Amortization ( 28 ) ( 20 ) +Balance at December 31, $ 551 $ 401 +For IUL the cash flow assumptions used to amortize URL reflect the Company’s best estimates for policyholder behavior. We review cash flow assumptions annually, generally in the third quarter. In 2025 and 2024, F&G undertook a review of all significant assumptions. For the year ended December 31, 2025, we updated the assumptions for surrenders, lapses, and mortality. For the year ended December 31, 2024, we updated assumptions including premium persistency and mortality improvement. All updates to these assumptions brought us more in line with our Company and overall industry experience since the prior assumption update. +203 +Note L - Notes Payable +The components o f notes payable are summarized as follows (in millions): +December 31, +2025 2024 +Principal Net unamortized discount, premium and debt issuance costs Carrying Amount Principal Net unamortized discount, premium and debt issuance costs Carrying Amount +Revolving Credit Facility - Short-term $ — $ — $ — $ — $ — $ — +FNF Credit Facility - Short-term — — — — — — +5.50 % F&G Senior Notes, due 2025 +— — — 300 1 301 +7.40 % F&G Senior Notes, due 2028 +500 ( 2 ) 498 500 ( 3 ) 497 +6.50 % F&G Senior Notes, due 2029 +550 ( 4 ) 546 550 ( 5 ) 545 +6.250 % F&G Senior Notes, due 2034 +500 ( 7 ) 493 500 ( 8 ) 492 +7.95 % F&G Senior Notes, due 2053 +345 ( 9 ) 336 345 ( 9 ) 336 +7.300 % F&G Junior Notes, due 2065 +375 ( 11 ) 364 — — — +Total $ 2,270 $ ( 33 ) $ 2,237 $ 2,195 $ ( 24 ) $ 2,171 +7.300 % F&G Junior Notes - On January 13, 2025, F&G completed its public offering of its 7.300 % Junior Subordinated Notes due 2065 with an aggregate principal amount of $ 375 million (the “ 7.300 % F&G Junior Notes”). The net proceeds of this offering were used for general corporate purposes, including the repurchase, redemption or repayment at maturity of outstanding indebtedness. The 7.300 % F&G Junior Notes are junior, unsecured subordinated obligations of F&G. Interest is payable quarterly in arrears beginning on April 15, 2025, and the 7.300 % F&G Junior Notes mature on January 15, 2065, unless earlier repurchased or redeemed. The 7.300 % F&G Junior Notes become redeemable in whole or in part, any time and from time to time on or after January 15, 2030 or within 90 days of the occurrence of certain events as described in the indenture. The 7.300 % F&G Junior Notes were registered under the Securities Act of 1933 (as amended) (the “Securities Act”). +Redemption of 5.50 % F&G Senior Notes - On February 1, 2025, F&G redeemed the outstanding $ 300 million aggregate principal amount of its 5.50 % F&G Senior Notes. The notes were redeemed for a redemption price equal to 100 % of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date. On and after the redemption date, interest ceased to accrue on the notes. +7.40 % F&G Senior Notes - On January 13, 2023, F&G issued $ 500 million of its 7.40 % F&G Senior Notes due 2028 (the “ 7.40 % Senior F&G Notes”). The 7.40 % F&G Senior Notes were issued at par, net of deferred issuance costs of approximately $ 6 million. The 7.40 % F&G Senior Notes are senior, unsecured unsubordinated obligations of F&G and are fully and unconditionally guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 7.40 % F&G Senior Notes mature on January 13, 2028, and become callable on or after December 13, 2027. Interest is payable semi-annually at a fixed rate of 7.40 %, and if, the 7.40 % F&G Senior Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. +6.50 % F&G Senior Notes - On June 4, 2024, F&G completed its public offering of $ 550 million aggregate principal amount of its 6.50 % Senior Notes due 2029 (The “ 6.50 % F&G Senior Notes”). The 6.50 % F&G Senior Notes were issued at 99.74 % of face value net of deferred issuance costs of approximately $ 6 million. The 6.50 % F&G Senior Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 6.50 % F&G Senior Notes mature on June 4, 2029, and become callable on May 4, 2029. Interest is payable semi-annually at a fixed rate of 6.50 %, and, if the 6.50 % F&G Senior Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. F&G used a portion of the net proceeds from the 6.50 % F&G Notes offering to repay an aggregate principal amount of $ 250 million of the 5.50 % F&G Notes described below and the remaining net proceeds were used for general corporate purposes, including the repurchase, redemption or repayment at maturity +204 +of outstanding indebtedness. +6.250 % F&G Senior Notes - On October 4, 2024, F&G completed its public offering of $ 500 million aggregate principal amount of its 6.250 % Senior Notes due 2034 (the “ 6.250 % F&G Senior Notes”). The 6.250 % F&G Senior Notes were issued at 99.36 % of face value net of deferred issuance costs of approximately $ 8 million. The 6.250 % F&G Senior Notes are guaranteed on an unsecured, unsubordinated basis by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 6.250 % F&G Senior Notes mature on October 4, 2034, and become callable on July 4, 2034. Interest is payable semi-annually at a fixed rate of 6.250 %, and if the 6.250 % F&G Senior Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. A portion of the net proceeds were used to pay off the outstanding balance of $ 365 million on the Company’s revolving credit facility described below. The remaining net proceeds of this offering for were used for general corporate purposes, including the support of organic growth opportunities. +7.95 % F&G Senior Notes - On December 6, 2023, F&G issued $ 345 million of its 7.95 % Senior Notes due 2053 (the “ 7.95 % F&G Senior Notes”). The 7.95 % F&G Senior Notes were issued at par, net of deferred issuance costs of approximately $ 9 million. The 7.95 % F&G Senior Notes are senior unsecured, unsubordinated obligations of F&G and are guaranteed by each of F&G’s subsidiaries that are guarantors of F&G’s obligations under its existing credit agreement. The 7.95 % F&G Senior Notes mature on December 15, 2053, and become callable on or after December 15, 2028. Interest is payable quarterly at a fixed rate of 7.95 %, and, if the 7.95 % F&G Senior Notes are downgraded, the interest rate payable is subject to adjustment from time to time per the terms of the indenture. +Revolving Credit Facility - On November 22, 2022, we entered into a Credit Agreement with certain lenders (the “Lenders”) and Bank of America, N.A. as administrative agent, swing line lender and an issuing bank, pursuant to which the Lenders have made available an unsecured revolving credit facility in an aggregate principal amount of $ 550 million to be used for working capital and general corporate purposes. On February 21, 2023, we entered into an amendment with the Lenders to increase the available aggregate principal amount of the Credit Agreement by $ 115 million to $ 665 million. On February 16, 2024, we entered into an amendment with the Lenders to increase the available aggregate principal amount of the Credit Agreement by $ 85 million to $ 750 million, and the maturity date of the Credit Agreement was extended from November 22, 2025 to November 22, 2027. Pricing and advance rates remain unchanged. Financial covenants also remained essentially the same. +Revolving loans under the Credit Agreement generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent’s “prime rate,” or (c) the sum of one percent plus Term The Secured Overnight Financing Rate (“SOFR”) plus a margin of between 30.0 and 80.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G or (ii) Term SOFR plus a margin of between 130.0 and 180.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G. In addition, we pay a facility fee of between 20.0 and 45.0 basis points on the entire facility, also depending on the non-credit-enhanced, senior unsecured long-term debt ratings, which is payable quarterly in arrears. The average variable interest rate on the revolving credit facility for the period the debt was outstanding during the year ended December 31, 2024 was 7.06 %. +As of December 31, 2025, no balance was outstanding on the revolving credit facility, and we had $ 750 million of remaining borrowing availability. +FNF Credit Facility - On December 29, 2020, we entered into a revolving note agreement with FNF for up to $ 200 million capacity (the "FNF Credit Facility") to be used for working capital and other general corporate purposes. This facility matured on October 29, 2025 and, effective October 30, 2025, was replaced by a new revolving note agreement with FNF. This new facility maintains a maximum borrowing capacity of $ 200 million, and matures the earlier of October 29, 2030, or when the Revolving credit facility described above is terminated. No amounts were outstanding under this revolving note agreement as of December 31, 2025 and 2024. +Refer to Note A - Business and Summary of Significant Accounting Policies for a discussion related to the public offering of its $ 375 million aggregate principal amount of the 7.300 % F&G Junior Subordinated Notes +205 +completed on January 13, 2025 and for a discussion of the redemption of the 5.50 % F&G Senior Notes on February 1, 2025. +Covenants - The Credit Agreement imposes and the indentures governing the 7.40 % F&G Senior Notes, 6.50 % F&G Senior Notes , 6.250 % F&G Senior Notes, 7.95 % F&G Senior Notes, and the 7.300 % F&G Junior Notes impose certain operating and financial restrictions on F&G. The Credit Agreement imposes certain financial covenants on F&G, and as of December 31, 2025, we were in compliance with all covenants. +Interest Expense - Amortization of deferred issuance costs and purchase premiums are recognized as a component of interest expense. Interest expense on notes payable for the years ended December 31, 2025, 2024 and 2023 was as follows (in millions): +Year ended December 31, +2025 2024 2023 +Revolving Credit Facility - Short-term $ 2 $ 23 $ 37 +5.50 % F&G Senior Notes, due 2025 +— 14 22 +7.40 % F&G Senior Notes, due 2028 +38 38 37 +6.50 % F&G Senior Notes, due 2029 +37 21 — +6.250 % F&G Senior Notes, due 2034 +32 8 — +7.95 % F&G Senior Notes, due 2053 +28 28 1 +7.300 % F&G Junior Notes, due 2065 +27 — — +Total $ 164 $ 132 $ 97 +Maturities - Gross principal maturities of notes payable at December 31, 2025 are as follows (in millions): +2026 $ — +2027 — +2028 500 +2029 550 +2030 — +Thereafter 1,220 +Total $ 2,270 +Note M - Supplemental Cash Flow Information +The following supplemental cash flow information is provided with respect to certain cash payment and non-cash investing and financing activities (in millions). +Year Ended December 31, +2025 2024 2023 +Cash paid (refunded) for: +Interest paid $ 156 $ 127 $ 84 +Income taxes paid 9 8 4 +Deferred sales inducements 332 319 168 +Non-cash investing and financing activities: +Investments received from pension risk transfer premiums $ — $ 129 $ 464 +Investments transferred subject to reinsurance agreement ( 500 ) — — +Change in proceeds of sales of investments available for sale receivable in period 19 ( 79 ) 34 +Change in purchases of investments available for sale payable in period 3 84 20 +Refer to Note P - Acquisitions for information on the acquisitions of Roar and PALH including the assets acquired and liabilities and non-controlling interest assumed as of the respective acquisition dates. Refer to Note H - Income Taxes for further information on income taxes paid disaggregated by federal, foreign, and state. +206 +Note N - Commitments and Contingencies +Contingent Consideration +Under the terms of the purchase agreement for Roar, we have agreed to make cash payments of up to approximately $ 90 million over a three-year period upon the achievement by Roar of certain EBITDA milestones. The contingent consideration is recorded at fair value in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. Roar achieved the required EBITDA milestone based on results for the year ended December 31, 2024, and we made the first cash payment of $ 12 million during the quarter ended March 31, 2025. The remaining contingent consideration recorded at December 31, 2025 is $ 72 million. Refer to Note P - Acquisitions for more information on the Roar acquisition and refer to Note B - Fair Value of Financial Instruments for more information regarding the fair value of the contingent consideration. +Legal and Regulatory Contingencies +In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. Like other companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any, depart from customary litigation incidental to our business. +We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and that represents our best estimate has been recorded. Our accrual for legal and regulatory matters was insignificant as of December 31, 2025 and 2024. We do not consider (i) the amounts we have currently recorded for all legal proceedings in which it has been determined that a loss is both probable and reasonably estimable and (ii) reasonably possible losses for all pending legal proceedings to be material to our financial statements either individually or in the aggregate. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition. +Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) is a defendant in a lawsuit filed in U.S. District Court for the Southern District of Texas (the “Southern District of Texas”) styled, Insurance Distribution Consulting, LLC v. Fidelity & Guaranty Life Insurance Company , Case No. 3:23-cv-00126. Plaintiff, which provides consulting services to independent marketing organizations (“IMO”), alleges FGL Insurance failed to pay commissions owed to plaintiff and diverted commissions from one of plaintiff’s IMO customers, Syncis, to another IMO, Freedom Equity Group, LLC (“Freedom Equity”). Further, plaintiff alleges after FGL Insurance purportedly purchased a partial ownership interest in Syncis and Freedom Equity, plaintiff offered to sell its interests in its contracts with Syncis but FGL Insurance declined, leading plaintiff to allege a statutory violation of 42 U.S.C. §1981 for discrimination where plaintiff’s sole member is a racial minority. Plaintiff claims its damages for breach of contract from FGL Insurance’s purported failure to pay commissions are more than $ 162 million and its damages from FGL Insurance’s declining to purchase plaintiff’s interest in its contracts with Syncis are over $ 11 million. FGL Insurance denies the allegations and denies any contract or agreement existed with plaintiff to pay commissions. On April 21, 2025, FGL Insurance filed its initial motion for summary judgment. On June 5, 2025, plaintiff amended its complaint to include an additional breach of contract claim, prompting FGL Insurance to file a second motion for summary judgment on July 18, 2025, addressing the new allegation. Both motions for summary judgment were argued on February 20, 2026, and a decision is pending with the Southern District of Texas. Additionally, FGL Insurance’s motion to exclude plaintiff’s expert testimony as inadmissible, filed June 9, 2025, remains pending with the Southern District of Texas. On July 18, 2025, Peak Altitude Equity, LLC (“Peak”), a subsidiary of Fidelity & Guaranty Life Holdings, Inc., was served with a new lawsuit filed by Insurance Distribution +207 +Consulting, LLC (“IDC”) as a counterclaim in response to a separate breach of contract lawsuit initiated against IDC by Syncis. The case, styled Syncis Insurance Solutions, LLC v. Insurance Distribution Consulting, LLC , Case No. 2:25-cv-03874, is pending in the U.S. District Court for the Central District of California (the “Central District of California”), and certain facts alleged by IDC against Peak overlap with those asserted in the lawsuit filed by IDC against FGL Insurance. On September 8, 2025, Peak filed its motion to dismiss IDC’s counterclaim on various grounds. A decision is pending with the Central District of California. FGL Insurance and Peak will vigorously contest the plaintiff’s claims in the actions. As these cases continue to evolve, it is not possible to reasonably estimate the probability that plaintiff will ultimately prevail on its claims or that FGL Insurance or Peak will be held liable for the dispute. At this time, F&G does not believe the lawsuit will have a material impact on its business, operations, or financial results. +F&G is a defendant in two putative class action lawsuits related to the alleged compromise of certain customers’ personal information resulting from an alleged vulnerability in the MOVEit file transfer software. F&G’s vendor, Pension Benefit Information, LLC (“PBI”), used the MOVEit software in the course of providing audit and address research services to F&G and many other corporate customers. Miller v. F&G , No. 4:23-cv-00326 was filed against F&G in the Southern District of Iowa on August 31, 2023. Miller alleges that he is a F&G customer whose information was impacted in the MOVEit incident and brings common law tort and implied contract claims. Cooper v. Progress Software Corp ., No. 1:23-cv-12067 was filed against F&G and five other defendants in the District of Massachusetts on September 7, 2023. Cooper also alleges that he is a F&G customer and brings similar common law tort claims and alleges claims as a purported third-party beneficiary of an alleged contract. +Well over 150 similar lawsuits have been filed against other entities impacted by the MOVEit incident including a number of such lawsuits related to PBI’s use of MOVEit. On October 4, 2023, the U.S. Judicial Panel on Multidistrict Litigation created a multidistrict litigation (“MDL”) pursuant to 28 U.S.C. § 1407 to handle all litigation brought by individuals whose information was potentially compromised in connection with the alleged MOVEit vulnerability. Both Miller and Cooper have been transferred to the MDL and are consolidated under MDL Case No. 1:23-md-03083-ADB-PGL. The case is proceeding under a modified bellwether structure to decide critical issues and facilitate reciprocal discovery, and plaintiffs’ consolidated class action complaint against all the bellwether Defendants was filed on December 6, 2024. F&G was not selected as a bellwether Defendant, and there is no schedule in place for further proceedings involving the non-bellwether Defendants like F&G. At this time, F&G does not believe the incident will have a material impact on its business, operations, or financial results. +From time to time, we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. We do not anticipate such fines and settlements, either individually or in the aggregate, will have a material adverse effect on the Company’s business, operations, or financial condition. +208 +Commitments +We have unfunded commitments as of December 31, 2025 based upon the timing of when investments and agreements are executed or signed compared to when the actual investments and agreements are funded or closed. Some investments require that funding occur over a period of months or years. A summary of unfunded commitments by commitment type as of December 31, 2025 is included below (in millions): +December 31, 2025 +Commitment Type +Other fixed maturity securities, AFS $ 126 +Commercial mortgage loans 74 +Residential mortgage loans 300 +Other assets 122 +Consolidated VIEs: +Other long-term investments 250 +Unconsolidated VIEs: +Limited partnerships $ 1,224 +Asset-backed lending 263 +Fixed maturity securities, asset-backed securities 684 +Direct Lending 1,199 +Total +$ 4,242 +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar for us to lend up to $ 40 million The loan matures on August 5, 2027. The principal balance outstanding as of December 31, 2025 and 2024 was $ 24 million and $ 11 million, respectively. The balance is included in “Prepaid expenses and other assets” on the Consolidated Balance Sheets. Changes in fair value are reported within Recognized gains and losses, net in the Consolidated Statements of Operations. Interest income is recorded in Interest and investment income in the Consolidated Statements of Operations and recognized when earned. The remainder of the unfunded loan commitment is included in the unfunded commitments table above in the “Other assets” line item. Refer to Note P - Acquisitions for more information on the Roar acquisition, and refer to Note B - Fair Value of Financial Instruments for information regarding the fair value calculation of this loan receivable. +See Note A - Business and Summary of Significant Accounting Policies for discussion of funding agreements that have been issued pursuant to the FABN Program as well as to the FHLB that are included in Contractholder funds. +F&G leases office space under operating leases. The largest leases expire in 2030. Rent expense and minimum rental commitments under all leases are immaterial. +F&G has a reinsurance agreement with Kubera to cede certain FIA statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, effective October 31, 2021, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $ 435 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2025 and 2024, the amount funded under the NPA was insignificant. +209 +Note O - Insurance Subsidiary Financial Information and Regulatory Matters +Our U.S. insurance subsidiaries, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re file financial statements with state insurance regulatory authorities and, except for Raven Re, with the National Association of Insurance Commissioners (“NAIC”) that are prepared in accordance with Statutory Accounting Principles (“SAP”) prescribed or permitted by such authorities. Prescribed SAP includes the Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not prescribed but approved by state regulators. The principal differences between SAP financial statements and financial statements prepared in accordance with GAAP are that SAP financial statements do not reflect VOBA, DAC, and DSI, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contractholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP basis financial statements for comparable items. +Our non-U.S. insurance subsidiaries, F&G Cayman Re Ltd (“F&G Cayman Re”), a Cayman Islands entity, and F&G Life Re, a Bermuda entity, file financial statements with their respective regulators. +U.S. Companies +Our principal insurance subsidiaries' statutory financial statements are based on a December 31 year end. Statutory net income and statutory capital and surplus of our wholly owned U.S. regulated insurance subsidiaries were as follows (in millions): +Subsidiary (state of domicile) (a) +FGL Insurance (IA) FGL NY Insurance (NY) Raven Re (VT) Corbeau Re (VT) +Statutory Net income (loss): +Year ended December 31, 2025 +$ ( 257 ) $ 29 $ 38 $ ( 201 ) +Year ended December 31, 2024 +150 8 54 ( 458 ) +Year ended December 31, 2023 +( 462 ) 5 60 ( 644 ) +Statutory Capital and Surplus: +December 31, 2025 +$ 1,735 $ 122 $ 182 $ 236 +December 31, 2024 +1,654 97 168 178 +(a) FGL NY Insurance, Raven Re and Corbeau Re are subsidiaries of FGL Insurance, and the columns should not be added together. Corbeau Re was incorporated on September 1, 2023. +Regulation - U.S. Companies +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re’s respective statutory capital and surplus satisfy the applicable minimum regulatory requirements. +Dividends +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) 10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for the twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the +210 +earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +FGL Insurance did not pay dividends to its parent, Fidelity & Guaranty Life Holdings, Inc. (“FGLH”), for the years ended December 31, 2025, 2024, and 2023. Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2026 is $ 0 . +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions without being required to obtain the prior consent of the New York State Department of Financial Services (“NYDFS”). However, to pay any dividends or distributions in a calendar year immediately following a calendar year in which the FGL NY’s net gain from operations, not including realized capital gains, was negative, approval from the NY Superintendent is required. +FGL NY Insurance has historically not paid dividends. Based on the limitations described above, it’s estimated that the maximum amount of ordinary dividends FGL NY Insurance will be permitted to distribute during 2026 is approximately $ 27 million. +Raven Re and Corbeau Re dividends are paid as declared by their Board of Directors. Under the laws of the State of Vermont, no captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, without the prior approval of the Commissioner. +Prescribed and permitted practices +FGL Insurance - FGL Insurance applies Iowa-prescribed accounting practices prescribed by Iowa Administrative Code (“IAC“) Chapter 97, “ Accounting for Certain Derivative Instruments Used to Hedge the Growth in Interest Credited for Indexed Insurance Products and Accounting for the Indexed Insurance Products Reserve, ” for its indexed annuities and IUL products. Under these alternative accounting practices, the equity option derivative instruments that hedge the growth in interest credited on index products are accounted for at amortized cost with the corresponding amortization recorded as a decrease to net investment income and indexed annuity reserves are calculated based on Standard Valuation Law and Actuarial Guideline XXXV assuming the market value of the equity options associated with the current index term is zero regardless of the observable market value for such options. +In addition, based on a permitted practice received from the IID, FGL Insurance carries one of its limited partnership interests which qualifies for accounting under SSAP No. 48, “ Investments in Joint Ventures, Partnerships and Limited Liability Companies ,” on a net asset value per share basis. This is a departure from SSAP No. 48 which requires such investments to be carried based on the investees underlying GAAP equity (prior to any impairment considerations). In addition, the financial statements of Raven Re and Corbeau Re include certain permitted practices approved by the Vermont Department of Financial Regulation. Without such permitted statutory accounting practices, Raven Re’s risk-based capital would have been above the minimum regulatory requirements at December 31, 2025, but would have fallen below the minimum regulatory requirements at December 31, 2024. Without such permitted statutory accounting practices, Corbeau Re’s risk-based capital would have fallen below the minimum regulatory requirements as of December 31, 2025 and December 31, 2024. +The prescribed and permitted practices resulted in increases to statutory capital and surplus of $ 249 million and $ 454 million at December 31, 2025 and 2024, respectively. +FGL Insurance’s statutory carrying value of Raven Re reflects the effect of permitted practices Raven Re received to treat the available amount of a letter of credit as an admitted asset, which increased Raven Re’s statutory capital and surplus by $ 150 million and $ 175 million at December 31, 2025 and 2024, respectively. In addition, FGL Insurance’s statutory carrying value of Corbeau Re reflects the effect of permitted practices Corbeau Re received to treat the excess of loss as an admitted asset, which increased Corbeau Re’s statutory capital and surplus by $ 1,489 million and $ 1,230 million at December 31, 2025 and 2024, respectively. Refer to Note E - Reinsurance for a discussion of the XOL and letter of credit. +211 +Raven Re - Raven Re is also permitted to follow Iowa prescribed statutory accounting practice for its reserves on reinsurance assumed from FGL Insurance and also has approval to include as an admitted asset the value of a letter of credit serving as collateral for reinsurance credit taken by FGL Insurance. Without such permitted statutory accounting practices, Raven Re’s statutory capital and surplus (deficit) would be $ 29 million and $( 13 ) million as of December 31, 2025 and 2024, respectively, thus its risk-based capital would fall below the minimum regulatory requirements in the prior year. The letter of credit facility is collateralized by NAIC 1 rated debt securities. If the permitted practice was revoked, the letter of credit could be replaced by the collateral assets with Nomura’s consent (refer to discussion of letter of credit in Note E- Reinsurance ). FGL Insurance’s statutory carrying value of Raven Re was $ 182 million and $ 168 million at December 31, 2025 and 2024, respectively. +Corbeau Re - Corbeau Re has four permitted practices pursuant to Vermont Statute, Title 8, Chapter 141 – (8 V.S.A. § 6048k(a)(2), whereby the Vermont Department authorizes the Company to (i) account for the amount equal to the excess of loss amount (“XOL Asset”) as an asset on its statutory financial statements; (ii) that the reserves assumed by Corbeau Re are equal to the reserves ceded by FGL Insurance, which includes application of IAC Insurance 191, Chapter 97, “Accounting for Certain Derivative Instruments Used to Hedge the Growth in Interest Credited for Indexed Insurance Products and Accounting for the Indexed Insurance Products Reserve “ and to (a) calculate the reserves with respect to the Retirement Pro Contracts in accordance with the following reserving methodology: the reserves are calculated as the present value of reinsured benefits when account value equals zero less the present value of reinsurance premiums from the winning integrated stream, floored at zero and capped as necessary to keep the net statutory reserve at the net cash surrender value; and (b) for benefits associated with all other contracts (“the GMWB Riders”), the reserves are calculated as the statutory reserves for the entire contract (i.e., the base contracts plus the GMWB Riders) minus the statutory reserves for the base contracts only (“Reserve Calculation Permitted Practice”); (iii) calculate its company action level risk-based capital as defined in Section 8301(13)(A) and, calculated using the risk-based capital factors and formulas prescribed by the NAIC, applying a factor of 0.62% to the XOL Asset Value; and (iv) annually perform a total company solvency analysis in lieu of cash flow testing and actuarial opinion and memorandum under Section 2010-2 of the Vermont Administrative Code. Without such permitted statutory accounting practices, the Company’s statutory capital and surplus (deficit) would be $( 1,253 ) million and $( 1,052 ) million as of December 31, 2025 and 2024, respectively, and its risk-based capital would fall below the minimum regulatory requirements. FGL Insurance’s statutory carrying value of Corbeau Re was $ 236 million and $ 178 million at December 31, 2025 and 2024, respectively. +FGL NY Insurance - As of December 31, 2025 and 2024, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices. +Non-U.S. Companies +Our non-U.S. insurance subsidiaries, F&G Cayman Re and F&G Life Re, file financial statements with their respective regulators. For the annual period ended December 31, 2023, F&G Cayman Re began to file financial statements that are prepared in accordance with SAP prescribed or permitted by such authorities, which may vary materially from GAAP. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP basis financial statements for comparable items. +F&G Cayman Re has two permitted practices which have been approved by the Cayman Islands Monetary Authority (“CIMA”). F&G Cayman Re has a permitted practice approved by CIMA to include, as an admitted asset, the value of the letters of credit (“LOCs”) acquired to support reinsurance transactions. Also, F&G Cayman Re has a permitted practice, approved by CIMA, for PRT reinsurance transactions to use U.S. statutory book value adjusted for best estimate reserve calculations (consistent with GAAP prior to ASU 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts). These reserve calculations will be subject to annual assumption reviews consistent with other GAAP liability balances. If F&G Cayman Re had not been permitted to calculate PRT assumed reserves using best estimate reserve calculations or include the value of the LOCs as an admitted asset, statutory surplus (deficit) would be $ 20 million and $( 64 ) million as of December 31, 2025 and December 31, 2024, respectively. Without such permitted statutory accounting practices, F&G Cayman Re’s risk-based capital would fall below the minimum regulatory requirements as of December 31, 2025 and December 31, 2024. +212 +F&G Life Re files financial statements based on GAAP. +Net income and capital and surplus of our wholly owned Cayman Islands and Bermuda regulated insurance subsidiaries under SAP and GAAP, respectively, were as follows (in millions): +Subsidiary (country of domicile) +F&G Cayman Re (Cayman Islands) F&G Life Re (Bermuda) +Statutory Net income (loss): +Year ended December 31, 2025 +$ ( 30 ) $ 160 +Year ended December 31, 2024 +( 11 ) 139 +Year ended December 31, 2023 +133 151 +Statutory Capital and Surplus (Deficit): +December 31, 2025 +$ 1,134 $ 84 +December 31, 2024 +734 123 +Regulation - Bermuda +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +F&G Life Re’s ability to pay dividends in 2026 is subject to the limitations described above. +Regulation - Cayman Islands +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, as amended (2023 Revision) and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulation (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by CIMA. +213 +F&G Cayman Re dividends are paid as declared by its Board of Directors. The dividends will be in accordance with CIMA regulatory requirements and contractual obligations and any dividends require approval by CIMA. F&G Cayman Re can only request approval for dividends if (i) the ending capital, including considerations for future business plans, will maintain a surplus over the CIMA approved and permitted target modified RBC, and (ii) contractual language pursuant to the PRT reinsurance agreement requiring a US RBC above specified target is met. As of the most recent annual financial statement filed with CIMA, the RBC ratios for F&G Cayman Re exceeded these minimum requirements. Pursuant to the limitations described above, no dividends may be paid in 2026 by F&G Cayman Re without prior regulatory approval. +The prescribed and permitted statutory accounting practices have no impact on our audited Consolidated Financial Statements, which are prepared in accordance with GAAP. +214 +Note P — Acquisitions +Owned Distribution - Acquisition of Roar Joint Venture, LLC +On January 2, 2024, F&G acquired a 70 % majority ownership stake in the equity of Roar Joint Venture, LLC (“Roar”). Roar wholesales life insurance and annuity products to banks and broker-dealers through a network of agents. Under the terms of the purchase agreement, the Company has agreed to make cash payments of up to approximately $ 90 million over a three-year period upon the achievement of certain EBITDA milestones of Roar. See Note N - Commitments and Contingencies for a discussion of the first contingent consideration payment and remaining contingent consideration balance as of December 31, 2025. +The initial purchase price was as follows (in millions): +Cash paid for 70 % majority interest of Roar shares +$ 269 +Less: Cash acquired net of non-controlling interests 1 +Net cash paid for 70 % majority interest of Roar +268 +Initial fair value of contingent consideration 48 +Total initial consideration $ 316 +The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions): +Fair value as of +January 2, 2024 +Goodwill $ 268 +Prepaid expenses and other assets 3 +Other intangible assets 183 +Total assets acquired 454 +Accounts payable and accrued liabilities 2 +Total liabilities assumed 2 +Non-controlling interests (fair value determined using income approach) 136 +Total liabilities assumed and non-controlling interests 138 +Net assets acquired $ 316 +The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the Roar acquisition consist of the following (dollars in millions): +Gross Carrying Value Estimated Useful Life +(in years) +Other intangible assets: +Customer relationships $ 179 12 +Definite lived trademarks, tradenames, and other 4 10 +Total Other intangible assets $ 183 +Goodwill consists primarily of intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. The total amount of goodwill recorded is expected to be deductible for tax purposes. +215 +Roar’s revenues of $ 84 million and $ 78 million and net earnings attributable to F&G common shareholders of $ 15 million and $ 6 million are included in the Consolidated Statements of Operations for the years ended December 31, 2025 and December 31, 2024, respectively. +Unaudited Supplemental Pro-Forma Financial Results +For comparative purposes, selected unaudited pro-forma consolidated results of operations of F&G for the year ended December 31, 2023 are presented below (in millions). Unaudited pro-forma results presented assume the acquisition of Roar occurred as of January 1, 2023 and are not intended to represent or be indicative of actual or future results of operations. Pro-forma results for the year ended December 31, 2024 are not included because there is no material variance from actual results due to the timing of the acquisition. +Year ended December 31, +2023 +Total revenues $ 4,561 +Net earnings (loss) attributable to F&G common shareholders ( 94 ) +Amounts reflect certain pro forma adjustments to revenue and net earnings (loss) attributable to F&G common shareholders that were directly attributable to the acquisition, primarily reflecting the elimination of intercompany activity between the entities. +Owned Distribution - Acquisition of PALH, LLC +On July 18, 2024, F&G acquired a 100 % ownership stake in the equity of PALH, LLC (“PALH”). PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. Prior to the acquisition date, PALH owned a 70 % ownership stake in an operating company of which F&G owned 30 % equity. Immediately before the acquisition date, the fair value of F&G’s minority stake in the operating company was approximately $ 92 million, derived from the transaction value. The transaction value contemplates measures such as EBITDA margin, revenue growth over time periods and growth opportunities. This remeasurement resulted in a realized gain of $ 2 million recorded in Recognized gains and (losses), net in the Consolidated Statements of Operations during the third quarter of 2024 . +The purchase price was as follows (in millions): +Cash consideration $ 215 +Less: Cash acquired 1 +Net cash paid 214 +Settlement of prepaid asset 8 +Acquisition date fair value of previously held interests 92 +Total consideration $ 314 +The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions): +Fair value as of +July 18, 2024 +Goodwill $ 162 +Prepaid expenses and other assets 5 +Other intangible assets 149 +Total assets acquired 316 +Accounts payable and accrued liabilities 2 +Total liabilities assumed 2 +Net assets acquired $ 314 +216 +The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the PALH acquisition consist of the following (dollars in millions): +Gross Carrying Value Estimated Useful Life +(in years) +Other intangible assets: +Customer relationships $ 131 20 +Definite lived trademarks, tradenames, and other 18 +5 to 10 +Total Other intangible assets $ 149 +Goodwill consists primarily of intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. A portion of the total amount of goodwill recorded is expected to be deductible for tax purposes. +PALH’s revenues of $ 5 million and $ 3 million and net losses attributable to F&G common shareholders of $ 24 million and $ 6 million are included in the Consolidated Statements of Operations for the years ended December 31, 2025 and December 31, 2024, respectively. +Unaudited Supplemental Pro-Forma Financial Results +For comparative purposes, selected unaudited pro-forma consolidated results of operations of F&G for the years ended December 31, 2024 and 2023 are presented below (in millions). Unaudited pro-forma results presented assume the acquisition of PALH occurred as of January 1, 2023 and are not intended to represent or be indicative of actual or future results of operations. +Year ended December 31, +2024 2023 +Total revenues $ 5,746 $ 4,504 +Net earnings (loss) attributable to F&G common shareholders 616 ( 69 ) +Amounts reflect certain pro forma adjustments to revenue and net earnings (loss) attributable to F&G common shareholders that were directly attributable to the acquisition, primarily reflecting the elimination of intercompany activity between the entities. +217 +Note Q - Related Party Transactions +The Company has determined that related parties would fall into the following categories; (i) affiliates of the entity, (ii) entities for which investments in their equity securities would be required to be accounted for by the equity method by the investing entity, (iii) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management, (iv) principal owners ( greater than 10% equity stake) of the entity and members of their immediate families, (v) management (including FNF’s Board of Directors, Chief Executive Officer, and other persons responsible for achieving the objectives of the entity and who have the authority to establish policies and make decisions) of the entity and other members of their immediate families, (vi) other parties with which the entity may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests (vii) other parties that can significantly influence management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate business, (viii) attorney in fact of a reciprocal reporting entity or any affiliate of the attorney in fact, and (ix) a U.S. manager of a U.S. branch or any affiliate of the U.S. manager of a U.S. branch. +The Company has determined that FNF as well as FNF's directors and officers (along with their immediate family members) are related parties. +FNF +Separation Agreement +F&G has entered into the Separation Agreement with FNF to provide for, among other things, the principal corporate transactions required to effect the separation and distribution, certain conditions to the separation and distribution and provisions governing our relationship with FNF with respect to and resulting from the separation and distribution. Refer to “ Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF” in this Annual Report on Form 10-K for additional information on the separation. +Notes Payable +For a description of our financing arrangements with FNF see Note L - Notes Payable to the Consolidated Financial Statements included in this Annual Report on Form 10-K. +Governance +Because FNF owns approximately 70 % of the shares of outstanding F&G common stock, we are a controlled company within the meaning of the corporate governance standards of the NYSE. A controlled company does not need its board of directors to have a majority of independent directors or to form an independent compensation committee or nominating and corporate governance committee. Refer to “ Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF” in this Annual Report on Form 10-K for additional information on management and governance. +FNF $ 250 million Preferred Stock Investment +Refer to Note U - Equity for a discussion of the $ 250 million preferred stock investment from FNF. +Tax Sharing Agreement +Refer to Note H - Income Taxes for a discussion of the tax matters agreement between FNF and the Company. +218 +Corporate Services Agreement +FNF has entered into a Corporate Services Agreement with F&G, which we refer to as the Corporate Services Agreement. Pursuant to such agreement, FNF will provide F&G with certain corporate services, including internal audit services, litigation and dispute management services, compliance services, corporate and transactional support services, SEC & reporting services, insurance and risk management services, human resources support services and real estate services. The Corporate Services Agreement terminates after the date upon which all corporate services or transition assistance have been terminated or upon the mutual agreement of the parties. F&G may terminate corporate services by providing 90 days written notice to FNF. +Reverse Corporate Services Agreement +F&G has entered into a Reverse Corporate Services Agreement with FNF. Pursuant to such agreement, F&G will provide FNF with certain services, including employee services. The Reverse Corporate Services Agreement terminates after the date upon which all corporate services or transition assistance has been terminated or upon the mutual agreement of the parties. FNF may terminate corporate services by providing 90 days written notice to F&G. +Shared Services +For the three-year period ended December 31, 2025, FNF provided certain operational support services for F&G including tax, insurance, legal, risk management, information technology, employee benefits and accounting. +Expenses incurred by F&G for all services were insignificant for the years ended December 31, 2025, 2024 and 2023. +Owned Distribution Investments +On January 2, 2024, F&G acquired a 70 % majority ownership stake in the equity of Roar resulting in the consolidation of Roar in F&G’s financial statements. Refer to Note N - Commitments and Contingencies - Contingent Consideration for discussion of contingent consideration associated with the acquisition. Refer to Note A - Business and Summary of Significant Accounting Policies - Principles of Consolidation and Basis of Presentation for discussions of contingent consideration and non-controlling interests and to Consolidated Statements of Equity for activity with non-controlling interests. +Concurrent with the Roar purchase agreement, we executed a separate loan agreement with the sellers of Roar for us to lend up to $ 40 million. The principal balance outstanding as of December 31, 2025 and December 31, 2024 was $ 24 million and $ 11 million, respectively. Refer to Note B - Fair Value of Financial Instruments for information regarding the fair value calculation of this loan receivable. Refer to Note N - Commitments and Contingencies - Commitments for more information regarding this loan commitment. Refer to Note P - Acquisitions for more information on the Roar acquisition. +On July 18, 2024, F&G acquired a 100 % ownership stake in the equity of PALH. Prior to the acquisition date, PALH owned a 70 % ownership stake in an operating company of which F&G owned 30 % equity. +In 2023, we purchased a 40 % minority ownership stake in DCMT and a 49 % minority ownership stake in Syncis. We have elected the fair value option to account for these investments and have included them in Investments in unconsolidated affiliates on the Consolidated Balance Sheets. +For the years ended December 31, 2025, 2024 and 2023, we expensed approximately $ 55 million, $ 119 million, and $ 154 million in commissions on sales through our funded unconsolidated owned distribution investments and their affiliates. Acquisition expenses are deferred and amortized in Depreciation and amortization on the Consolidated Statements of Operations. +219 +Other Investments +In 2023, we purchased a 30 % minority ownership stake in Quility. We have elected the fair value option to account for this investment and have included Quility in Investments in unconsolidated affiliates on the Consolidated Balance Sheets. Commissions expensed on sales through Quility were insignificant for the years ended December 31, 2025 and 2024. +The Company has a 10 % ownership stake in Specialty Lending Company LLC with a 50 % voting interest. Specialty Lending is a specialty finance company focused on consumer credit. Specialty Lending is accounted for using the equity method of accounting and is included in Investments in unconsolidated affiliates on the Consolidated Balance Sheets. +In the ordinary course of business, we enter into various arrangements with VIEs, and we consolidate the VIE if we are determined to be the primary beneficiary. Refer to Note A - Business and Summary of Significant Accounting Policies - Investments in Unconsolidated Affiliates for more information regarding the accounting for Investments in unconsolidated affiliates and to Note C - Investments- Variable Interest Entities for additional information on these investments. +Other Related Party Transactions +Certain of our subsidiaries are party to investment management agreements (“IMAs”) with Blackstone ISG-I Advisors LLC (“BIS”) pursuant to which BIS is appointed as investment manager of substantially all assets in the general and separate accounts of those entities (“the F&G Accounts”). MVB Management, LLC (“MVB Management”), an entity that is 50 % owned by BilCar, LLC (“BilCar”, which is an affiliate of our Executive Chairman and a director of the Company, William P. Foley, II) receives a participation fee from BIS in connection with assets of F&G and its subsidiaries that are managed by BIS. BIS also receives services from MVB Management. BIS paid MVB Management a participation fee of approximately 15 % of certain fees paid to BIS and its affiliates for assets under management (“AUM”) relating to new business AUM (“New AUM”) generated prior to March 31, 2023, and pays MVB Management a fee of approximately 7.5 % of certain fees paid to BIS and its affiliates relating to New AUM generated after March 31, 2023, in each case, under the investment management agreements between F&G and BIS. In March 2023, BilCar waived its right to receive any portion of payments made by BIS to MVB Management in respect of such New AUM. Additionally, in March 2023, F&G entered into an agreement with BilCar to pay BilCar the fees that it would have received through MVB Management from BIS over the 10-year period ending March 31, 2033. BilCar received payments totaling approximately $ 8 million and $ 9 million from MVB Management for the years ended December 31, 2025 and 2024, respectively. BilCar received payments that were insignificant from F&G for the years ended December 31, 2025 and 2024. F&G is not a party to the agreements between BIS and MVB Management and does not pay, and is not responsible for, any fees paid to MVB Management. +220 +Note R - Employee Benefit Plans +F&G Stock Purchase Plan +On January 1, 2023, the Company adopted an Employee Stock Purchase Plan (“F&G ESPP”), enabling employees to purchase the Company stock in an amount between 3 % and 15 % of their base salary and certain commissions. Based on employee contributions the Company will match either 33.3 % or 50 % one year after initial employee contributions are made pursuant to the F&G ESPP. Our matching expense related to the F&G ESPP was immaterial for the years ended December 31, 2025, 2024, and 2023. +401(k) Plan +During the three-year period ended December 31, 2025, we offered our employees the opportunity to participate in our 401(k) plan (the “401(k) Plan”), a qualified voluntary contributory savings plan that is available to substantially all of our employees. Eligible employees may contribute up to 75 % of their pre-tax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. +We make an employer match on the 401(k) Plan of $ 1.00 on each $1.00 contributed up to the first 5 % of eligible earnings contributed to the 401(k) Plan by employees. We may also make discretionary non-elective contributions to the 401(k) Plan for eligible employees, and any such contributions are subject to approval by the Board of Directors for each plan year. The employer match and discretionary non-elective contributions are credited based on the participant's individual investment elections in the 401(k) Plan and recorded in personnel costs in the Consolidated Statements of Operations. +The employer match was $ 9 million, $ 8 million, and $ 7 million for the years ended December 31, 2025, 2024, and 2023, respectively. Discretionary non-elective contributions were immaterial for the years ended December 31, 2025, 2024, and 2023. +Stock-Based Compensation +We account for stock-based compensation plans in accordance with GAAP on share-based payments, which requires that compensation cost relating to share-based payments be recognized in the consolidated financial statements based on the fair value of each award. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date and recognized over the service period. A forfeiture rate, derived from historical experience, is used in the calculation of total stock-based compensation expense. Total stock-based compensation costs recorded in personnel costs in the Consolidated Statements of Operations for the years ended December 31, 2025, 2024 , and 2023 wer e $ 31 million, $ 29 million and $ 23 million, respectively. F&G’s income tax expense for the years ended December 31, 2025, 2024 and 2023 included an immaterial amount of tax benefit related to the vesting and forfeiture of share-based payments. +2022 F&G Omnibus Incentive Plan +On December 1, 2022, we established the F&G Annuities & Life, Inc. 2022 Omnibus Incentive Plan (the “2022 F&G Omnibus Plan”), authorizing the issuance of up to 6 million shares of F&G common stock, subject to the terms of the 2022 F&G Omnibus Plan. The 2022 F&G Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance shares, performance units, other cash and stock-based awards and dividend equivalents. As of December 31, 2025, there were 2,038,959 shares of restricted stock outstanding under the 2022 F&G Omnibus Plan. Awards granted are approved by the Compensation Committee of the Board of Directors. Awards vest over a 3-year period and have a performance restricti on that must be met for shares awarded to vest. If the performance restriction is not satisfied during the measurement period, all of the shares that do not satisfy the performance criteria will be forfeited to the Company for no consideration. +221 +F&G restricted stock transactions under the 2022 F&G Omnibus Plan during the years ended December 31, 2025, 2024, and 2023 are as follows: +2025 2024 2023 +Shares Weighted Average +Grant Date +Fair Value Shares Weighted Average +Grant Date +Fair Value Shares Weighted Average +Grant Date +Fair Value +Outstanding January 1, 1,801,618 $ 38.65 1,784,142 $ 30.88 1,409,904 $ 21.80 +Granted 1,333,014 32.95 829,899 46.05 876,736 40.28 +Canceled ( 238,125 ) 39.55 ( 118,063 ) 29.04 ( 48,900 ) 21.80 +Vested ( 857,548 ) 36.26 ( 694,360 ) 29.17 ( 453,598 ) 21.80 +Balance at December 31, 2,038,959 $ 35.82 1,801,618 $ 38.65 1,784,142 $ 30.88 +Fair value of restricted stock awards and units is based on the grant date value of the underlying stock derived from quoted market prices. The total fair value of restricted stock awards granted in the years ended December 31, 2025, 2024, and 2023 was $ 44 million, $ 38 million, and $ 35 million, respectively. There were 857,548 , 694,360 , and 453,598 restricted stock awards which vested in the years ended December 31, 2025, 2024, and 2023, respectively. Net earnings (loss) reflects stock-based compensation expense amounts of $ 31 million, $ 28 million, and $ 19 million for the years ended December 31, 2025, 2024, and 2023, respectively, which are recorded in personnel costs i n the Consolidated Statements of Operations. +For the period ended December 31, 2025, the total unrecognized compensation costs related to non-vested restricted stock grants pursuant to the 2022 F&G Omnibus Plan are $ 55 million, which is expected to be recognized in pre-tax income over a weighted average period of 2.54 years. +FGL Incentive Plan and 2020 F&G Omnibus Incentive Plan +We have outstanding restricted stock grants and stock options under the FGL Holdings 2017 Omnibus Incentive Plan, as amended and restated (the “2020 F&G Omnibus Plan”), which was assumed by FNF. The outstanding awards and options are settled by issuance of FNF common stock. All of the outstanding options are vested and expire at various dates through August 2026. As of December 31, 2025, there were no shares of restricted stock or stock options outstanding under the 2020 F&G Omnibus Plan. +Stock option transactions under the 2020 F&G Omnibus Plan during the years ended December 31, 2025 , 2024, 2023 are as follows: +2025 2024 2023 +Options Weighted Average +Exercise Price Options Weighted Average +Exercise Price Options Weighted Average +Exercise Price +Balance at January 1, 100,000 $ 39.10 643,623 $ 38.80 1,172,607 $ 35.15 +Granted — — — — — — +Exercised ( 100,000 ) 39.10 ( 543,623 ) 38.74 ( 502,414 ) 30.31 +Canceled — — — — ( 26,570 ) 38.07 +Balance at December 31, — $ — 100,000 $ 39.10 643,623 $ 38.80 +There were 0 , 100,000 , and 643,623 exercisable stock options under the 2020 F&G Omnibus Plan at the year ended December 31, 2025, 2024, and 2023, respectively. Option awards are measured at fair value on the grant date using the Black Scholes Option Pricing Model. The intrinsic value of options exercised was $ 3 million, $ 9 million, and $ 8 million for the years ended December 31, 2025, 2024, and 2023, respectively. +222 +Non-Qualified Deferred Compensation Plan +We have established the F&G Annuities & Life, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which allows eligible employees and directors to make voluntary contributions to the Deferred Compensation Plan. Employer contributions to the Deferred Compensation Plan are discretionary. For the years ended December 31, 2025, 2024 and 2023, we did not make any discretionary contributions. At December 31, 2025, 2024, and 2023, the total liability for the Deferred Compensation Plan was $ 14 million, $ 13 million, and $ 11 million, respectively. +Note S - Earnings Per Share +The following table sets forth the computation of basic and diluted earnings per share (dollars and shares in millions except per share data): +Year Ended December 31, +2025 2024 2023 +Net earnings (loss) $ 271 $ 642 $ ( 58 ) +Less: Non-controlling interests 6 3 — +Net earnings (loss) attributable to F&G 265 639 ( 58 ) +Less: Preferred stock dividend 17 17 — +Net earnings (loss) attributable to F&G common shareholders $ 248 $ 622 $ ( 58 ) +Weighted-average common shares outstanding - basic 131 125 124 +Dilutive effect of unvested restricted stock 1 1 — +Dilutive effect of mandatory convertible preferred stock — 5 — +Weighted-average shares outstanding - diluted 132 131 124 +Net earnings (loss) per share attributable to F&G common shareholders +Basic - net $ 1.89 $ 4.98 $ ( 0.47 ) +Diluted - net $ 1.88 $ 4.88 $ ( 0.47 ) +Under applicable accounting guidance, shares that are anti-dilutive to the calculation are to be excluded from the diluted earnings per share calculation. The inclusion of 5 million convertible preferred shares would have been antidilutive to the earnings per share for the year ended December 31, 2025. +Under applicable accounting guidance, companies in a loss position are required to use basic weighted average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our net loss for the year ended December 31, 2023, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share, as the inclusion of 593 thousand restricted shares would have been antidilutive to the calculation. If we had not incurred a net loss for the year ended December 31, 2023, dilutive potential common shares would have been 125 million. +Restricted stock, options or other instruments, which provide the ability to acquire shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. For the years ended December 31, 2025, 2024, and 2023 the diluted earnings per share calculation excluded the weighted average effect of 26 thousand, 122 thousand and 111 thousand restricted stock units, respectively, issued under the 2022 F&G Omnibus Plan due to their antidilutive effect. +Unless converted earlier in accordance with the terms of certificate of designations, each share of the FNF preferred stock will automatically convert on the mandatory conversion date, which is expected to be January 15, 2027, into between 0.9456 shares and 1.1111 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations. +223 +Note T - Recent Accounting Pronouncements +Adopted Pronouncements +In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the CODM and included in each reported measure of a segment’s profit or loss. In addition, the amendments enhance interim disclosure requirements that are currently required annually, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. Additionally, the amendments require that entities with a single reportable segment must now provide all the disclosures previously required under Topic 280. The amendments in this update are incremental to the current requirements of Topic 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. We adopted this standard as of December 31, 2024 using the retrospective approach for all periods presented as required. Refer to Note V - Segment Information for additional information. +In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency of the income tax disclosures by expanding on the disclosures required annually. The amendments require entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes, in addition to providing details about the reconciling items in some categories if above a quantitative threshold. Additionally, the amendments require annual disclosure of income taxes paid (net of refunds received) disaggregated by jurisdiction based on a quantitative threshold. We adopted this standard as of December 31, 2025 using the prospective approach. Refer to Note H - Income Taxes for further information. +Pronouncements Not Yet Adopted +In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this update enhance transparency of certain expense captions by disclosing more granular information of specific expenses within those captions such as personnel costs, depreciation, and amortization. The amendments also require disclosure of qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated. The amendments in this update are effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to all prior periods presented in the financial statements. We do not expect to early adopt this standard and are in the process of assessing its impact on our disclosures upon adoption. +In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this update refine capitalization thresholds by removing all references to project stages. The amendments require that an entity capitalize software costs when management has authorized and committed to funding the software project and when it is probable that the project will be completed and the software will be used to perform the function intended (“probable-to-complete recognition threshold”). Additionally, the amendments clarify the disclosure requirements for internal-use software costs. The amendments in this update are effective for all companies for annual and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments should be applied using a prospective, retrospective, or modified transition approach. We are still in the process of assessing this standard and its impact upon adoption. +In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements. The amendments in this update make improvements to the hedge accounting guidance, with the overall goal of simplifying the application of hedge accounting guidance. The main amendments in this +224 +Update include: Issue 1) Similar Risk Assessment for Cash Flow Hedges: expands the hedged risks permitted to be aggregated in a group of individual forecasted transactions in a cash flow hedge, enabling entities to apply hedge accounting to potentially broader portfolios of forecasted transactions, Issue 2) Hedging Forecasted Interest Payments on Choose-Your-Rate Debt Instruments: establishes a model that enables hedge accounting to be applied more broadly to choose-your-rate debt and address existing diversity in practice, Issue 3) Cash Flow Hedges of Nonfinancial Forecasted Transactions: expands hedge accounting for forecasted purchases and sales of nonfinancial assets subject to certain criteria, Issue 4) Net Written Options as Hedging Instruments: accommodates differences in the loan and swap markets that resulted from reference rate reform, eliminating the requirement for the net written option test in certain instances, and Issue 5) Foreign-Currency-Denominated Debt Instrument as Hedging Instrument and Hedged Item (Dual Hedge): eliminates the recognition and presentation mismatch related to a dual hedge strategy. The amendments in this update are effective for public companies for annual and interim reporting periods beginning after December 15, 2026. Early adoption is permitted, and the amendments should be applied using a prospective basis for all hedging relationships. We are still in the process of assessing this standard and its impact upon adoption. +225 +Note U - Equity +Common Stock +The total number of common stock shares we are authorized to issue is 500,000,000 , par value $ 0.001 per share. +We intend to announce the record date and payment date for each common stock dividend, subject to quarterly review and approval by our Board of Directors and any required regulatory approvals, following completion of the relevant fiscal quarter and with payment in the third month of each subsequent quarter, based on our view of the prevailing and prospective macroeconomic conditions, regulatory landscape and business performance. +Changes in common shares outstanding during the years ended December 31, 2025, 2024 , and 2023 were as follows: +For the year ended December 31, +2025 2024 2023 +Shares outstanding at January 1, 126,792,844 126,332,142 126,409,904 +Shares issued (a) 9,103,963 717,241 824,998 +Shares repurchased (b) ( 286,515 ) ( 256,539 ) ( 902,760 ) +Shares outstanding at December 31, 135,610,292 126,792,844 126,332,142 +(a) Refer to Note A - Business and Summary of Significant Accounting policies - Recent developments - Common stock issuance for additional information. +(b) Includes shares of common stock withheld with respect to tax withholding obligations associated with the vesting of share-based compensation awards under our 2020 F&G Omnibus Plan and 2022 F&G Omnibus Plan. +Share Repurchases +On March 21, 2023, our Board of Directors approved the three-year stock repurchase program, which was amended on November 7, 2023, to authorize the aggregate repurchase of $ 50 million of F&G common stock. The Company believes the share repurchase program is an efficient means of returning cash to shareholders when we consider the shares to be undervalued. No shares were purchased pursuant to the program during the years ended December 31, 2025 or December 31, 2024. During the year ended December 31, 2023, the Company purchased approximately 869,000 shares pursuant to the program, for a total cost of approximately $ 18 million with an average cost per share of $ 21.07 . At December 31, 2025 and 2024, the total remaining authorization of F&G common stock that may be repurchased was approximately $ 32 million. +Purchases may be made from time to time by the Company in the open market at prevailing market prices or through privately negotiated transactions or accelerated share repurchase transactions through November 6, 2026. All purchases are held as treasury stock. The extent to which the Company repurchases its shares, and the timing of such purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other considerations, as determined by the Company. +Preferred Stock +The total number of preferred stock shares we are authorized to issue is 25,000,000 , par value $ 0.001 per share. +On January 12, 2024, we completed a $ 250 million preferred stock investment from FNF. Under the terms of the agreement, FNF agreed to invest $ 250 million in exchange for 5,000,000 shares of F&G’s 6.875 % Series A Mandatory Convertible Preferred Stock, par value $ 0.001 per share, liquidation preference of $ 50.00 per share (the “FNF Preferred Stock”). Preferred stock dividends of approximately $ 17 million were declared during the year ended December 31, 2025 . +226 +Subject to certain exceptions, so long as any share of FNF Preferred Stock remains outstanding, no dividend or distribution will be declared or paid on shares of the Company’s Common Stock, or any other class or series of stock ranking junior to the FNF Preferred Stock, and no Common Stock or any other class or series of stock ranking junior to or on parity with the FNF Preferred Stock will be purchased, redeemed, or otherwise acquired for consideration by the Company or any of its subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in cash, shares of Common Stock or a combination thereof, or a sufficient sum of cash or number of shares of Common Stock has been set aside for the payment of such dividends, on all outstanding shares of FNF Preferred Stock. In addition, when dividends on shares of the FNF Preferred Stock (i) have not been declared and paid in full on any dividend payment date (or, in the case of any parity stock having dividend payment dates different from such dividend payment dates, on a dividend payment date falling within a regular dividend period related to such dividend payment date), or (ii) have been declared but a sum of cash or number of shares of Common Stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable regular record date, no dividends may be declared or paid on any parity stock unless dividends are declared on the shares of FNF Preferred Stock such that the respective amounts of such dividends declared on the shares of FNF Preferred Stock and such shares of parity stock shall be allocated pro rata among the holders of the shares of FNF Preferred Stock and the holders of any shares of parity stock then outstanding. +Unless converted earlier in accordance with the terms of the Certificate of Designations, each share of the FNF Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be January 15, 2027, into between 0.9456 shares and 1.1111 shares of Common Stock, in each case, subject to customary anti-dilution adjustments described in the Certificate of Designations. The number of shares of Common Stock issuable upon conversion will be determined based on the average volume weighted average price per share of Common Stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to January 15, 2027. +Dividends on the FNF Preferred Stock will be payable on a cumulative basis when, as and if declared by the Company’s board of directors, or an authorized committee thereof, at an annual rate of 6.875 % on the liquidation preference of $ 50.00 per share of FNF Preferred Stock, and may be paid in cash or, subject to certain limitations, in shares of Common Stock or, subject to certain limitations, any combination of cash and shares of Common Stock. If declared, dividends on the FNF Preferred Stock will be payable quarterly on January 15, April 15, July 15 and October 15 of each year to, and including, January 15, 2027, commencing on April 15, 2024. With respect to any decision to declare or pay dividends, the board of directors or an authorized committee thereof, as the case may be, shall be required to act in accordance with the recommendation of a committee (whether or not formally constituted) consisting of all of the independent and disinterested directors at any time sitting on the board of directors. +Holders of the FNF Preferred Stock will have the option to convert all or any portion of their shares of FNF Preferred Stock at any time prior to the mandatory conversion date. Early conversions that are not made in connection with a Fundamental Change (as defined in Certificate of Designations) will be settled at the minimum conversion rate of 0.9456 shares of Common Stock per share of the FNF Preferred Stock (subject to anti-dilution adjustments). In addition, the conversion rate applicable to any such early conversion may in certain circumstances be increased to compensate holders of the FNF Preferred Stock for certain unpaid accumulated dividends. +If a Fundamental Change occurs on or prior to January 15, 2027, then holders of the FNF Preferred Stock will be entitled to convert all or any portion of their FNF Preferred Stock at the Fundamental Change Conversion Rate (as defined in the Certificate of Designations) for a specified period of time and to also receive an amount to compensate them for certain unpaid accumulated dividends and any remaining future scheduled dividend payments. +The FNF Preferred Stock will not be subject to redemption at the Company’s option. +Upon the Company’s voluntary or involuntary liquidation, winding-up or dissolution, each holder of the FNF Preferred Stock will be entitled to receive a liquidation preference in the amount of $ 50.00 per share of FNF Preferred Stock, plus an amount equal to accumulated and unpaid dividends on such shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution, to be paid out of the Company’s assets +227 +legally available for distribution to its stockholders after satisfaction of debt and other liabilities owed to the Company’s creditors and holders of shares of its stock ranking senior to the FNF Preferred Stock and before any payment or distribution is made to holders of any stock ranking junior to the FNF Preferred Stock, including, without limitation, Common Stock. +Dividends +The following table shows the quarterly common stock dividends declared during the years ended December 31, 2025, 2024 , and 2023: +Year ended December 31, +2025 2024 2023 +First quarter $ 0.22 $ 0.21 $ 0.20 +Second quarter 0.22 0.21 0.20 +Third quarter 0.22 0.21 0.20 +Fourth quarter 0.25 0.22 0.21 +Total $ 0.91 $ 0.85 $ 0.81 +On February 19, 2026, our Board of Directors declared a quarterly cash dividend of $ 0.25 per share, payable on March 31, 2026, to F&G common shareholders of record as of March 17, 2026. On February 19, 2026, our Board of Directors also declared a quarterly cash dividend of $ 0.8594 per share on the FNF Preferred Stock for the period from January 15, 2026 to and excluding April 15, 2026, to be paid on April 15, 2026, to FNF Preferred Stock shareholders of record as of April 1, 2026. +Accumulated other comprehensive income (loss) +Changes in the balance of Accumulated other comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023, by component are as follows (in millions). +Year Ended December 31, 2025 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (loss) +Balance at December 31, 2024 $ ( 2,637 ) $ 798 $ ( 78 ) $ ( 6 ) $ ( 1,923 ) +Reclassification adjustments included in net earnings (a) 10 — ( 2 ) 8 +Other comprehensive income (loss) before tax, net of reclassifications 847 ( 297 ) ( 30 ) 12 532 +Deferred income tax (expense) benefit ( 171 ) 62 6 ( 2 ) ( 105 ) +Balance at December 31, 2025 $ ( 1,951 ) $ 563 $ ( 102 ) $ 2 $ ( 1,488 ) +228 +Year Ended December 31, 2024 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (loss) +Balance at December 31, 2023 $ ( 2,479 ) $ 574 $ ( 83 ) $ ( 2 ) $ ( 1,990 ) +Reclassification adjustments included in net earnings (a) 6 — 1 7 +Other comprehensive income (loss) before tax, net of reclassifications ( 207 ) 283 6 ( 6 ) 76 +Deferred income tax (expense) benefit 43 ( 59 ) ( 1 ) 1 ( 16 ) +Balance at December 31, 2024 $ ( 2,637 ) $ 798 $ ( 78 ) $ ( 6 ) $ ( 1,923 ) +Year Ended December 31, 2023 +Unrealized gain +(loss) on +investments and +other financial +instruments, net +(excluding +investments in +unconsolidated +affiliates) Change in +current discount rate - future +policy benefits Change in +instrument- +specific credit +risk - market +risk benefits Foreign Currency Translation Total Accumulated Other Comprehensive Income (Loss) +Balance at December 31, 2022 $ ( 3,528 ) $ 763 $ ( 49 ) $ ( 4 ) $ ( 2,818 ) +Reclassification adjustments included in net earnings (a) 130 — — — 130 +Other comprehensive income (loss) before tax, net of reclassifications 1,159 ( 239 ) ( 43 ) 3 880 +Deferred income tax (expense) benefit ( 240 ) 50 9 ( 1 ) ( 182 ) +Balance at December 31, 2023 $ ( 2,479 ) $ 574 $ ( 83 ) $ ( 2 ) $ ( 1,990 ) +(a) Net of income tax expense of $ 2 million, $ 2 million and $ 35 million for the years ended December 31, 2025, 2024, and 2023, respectively. +229 +Note V - Segment Information +F&G has one reportable segment, which reflects the manner by which our CODM, the Chief Executive Officer of F&G, views and manages the business. F&G’s CODM uses the consolidated net earnings (loss) as reported on the Consolidated Statements of Operations to evaluate F&G’s results and measure profitability and performance. The measure of segment assets is reported on the Consolidated Balance Sheets as total consolidated assets. +Summarized financial information concerning our single reportable segment is shown in the following table (in millions). +Year Ended December 31, +2025 2024 2023 +Revenues: +Life-contingent pension risk transfer premiums $ 2,108 $ 2,217 $ 1,964 +Traditional life insurance and life-contingent immediate annuity premiums 30 35 43 +Surrender charges 253 268 103 +Policyholder fees and other income 404 340 303 +Life insurance premiums and other fees 2,795 2,860 2,413 +Owned distribution revenues 89 81 — +Revenues from external customers 2,884 2,941 2,413 +Interest and investment income 2,837 2,719 2,211 +Recognized gains and (losses), net 10 84 ( 124 ) +Total revenues 5,731 5,744 4,500 +Significant expenses (a): +Benefits and other changes in policy reserves 3,963 3,791 3,553 +Personnel costs 293 296 232 +Other operating expenses 156 203 146 +Total significant expenses: 4,412 4,290 3,931 +Other segment items +Market risk benefit losses (gains) 167 ( 25 ) 95 +Depreciation and amortization 665 569 412 +Interest expense 164 132 97 +Total other segment items: 996 676 604 +Total expenses 5,408 4,966 4,535 +Earnings (loss) before income taxes 323 778 ( 35 ) +Income tax expense 52 136 23 +Net earnings (loss) $ 271 $ 642 $ ( 58 ) +(a) The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM. +F&G derives its revenue from external customers primarily located in the United States. Life insurance premiums and other fees primarily reflect premiums on life-contingent PRTs and traditional life insurance products, which are recognized as revenue when due from the policyholder, as well as policy rider fees primarily on indexed annuities policies, the cost of insurance on IUL policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts. We have ceded the majority of our traditional life business to unaffiliated third-party reinsurers. While the base contract has been reinsured, we continue to retain the return of premium rider. Other income related to riders is earned when elected by the policyholder. Surrender charges are earned when a policyholder withdraws funds from the contract early or cancels the contract. +230 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of December 31, 2025, the Company’s disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. +Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. +Management’s Report on Internal Control Over Financial Reporting +The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. These inherent limitations are an intrinsic part of the financial reporting process. Therefore, although the Company’s management is unable to eliminate this risk, it is possible to develop safeguards to reduce it. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +231 +The Company's management, under the supervision of and with the participation of the CEO and CFO, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2025 based on criteria for effective control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Based on this assessment the Company's management concluded that its internal control over financial reporting was effective as of December 31, 2025 in accordance with the COSO criteria. The Company's independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting, which is included herein. +Changes in Internal Control Over Financial Reporting +An evaluation was performed under the supervision of the Company's management, including the CEO and CFO, of whether any change in the Company's internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended December 31, 2025. +Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that no change in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Limitations on the Effectiveness of Controls +A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. +Item 9B. Other Information +Refer to Note A - Business and Summary of Significant Accounting Policies, Recent Developments for a discussion of subsequent events. +During the quarter ended December 31, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.” +Item 9C. Disclosures Regarding Foreign Jurisdiction that Prevent Inspections +Not applicable. +232 +Part III +Items 10-14 +Codes of Ethics +Our board of directors has adopted a Code of Ethics for Senior Financial Officers, which is applicable to our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, and a Code of Business Conduct and Ethics, which is applicable to all our directors, officers and employees. The purpose of these codes is to: (i) promote honest and ethical conduct, including the ethical handling of conflicts of interest; (ii) promote full, fair, accurate, timely and understandable disclosure; (iii) promote compliance with applicable laws and governmental rules and regulations; (iv) ensure the protection of our legitimate business interests, including corporate opportunities, assets and confidential information; and (v) deter wrongdoing. Our codes of ethics are designed to maintain our commitment to our longstanding standards for ethical business practices. Our reputation for integrity is one of our most important assets and each of our employees and directors is expected to contribute to the care and preservation of that asset. Under our codes of ethics, an amendment to or a waiver or modification of any ethics policy applicable to our directors or executive officers must be disclosed to the extent required under Securities and Exchange Commission and/or New York Stock Exchange rules. We intend to disclose any such amendment or waiver by posting it on our website at www.investors.fglife.com. +Copies of our Code of Business Conduct and Ethics and our Code of Ethics for Senior Financial Officers are available for review on our website at www.investors.fglife.com. +Policy Prohibiting Insider Trading and Related Procedures +We have adopted an Insider Trading and Tipping Policy prohibiting insider trading and provides related procedures governing the purchase, sale, and other dispositions of the registrant's securities. This policy also prohibits tipping or disclosing material nonpublic information (“MNPI”) to outsiders. This policy is applicable to all directors, officers, employees, their immediate family, and any entities controlled by them who have regular access to MNPI. A copy of the insider trading policy is filed as an exhibit to this Annual Report on Form 10-K. +Within 120 days after the close of our fiscal year, we intend to file with the Securities and Exchange Commission the matters required by these items. +233 +Part IV +Item 15. Exhibits, Financial Statement Schedules +List of Documents Filed +1) Financial Statements +See Index to Consolidated Financial Statements on Page 101 included in Item. 8 of Part II in this Annual Report on Form 10-K. +2) Financial Statement Schedules +Schedule I - Summary of Investments - Other than Investments in Related Parties +Schedule II - Condensed Financial Information of Parent Only +Schedule III - Supplementary Insurance Information +Schedule IV - Reinsurance +All other schedules have been omitted since they are either not applicable or the information is contained within the accompanying consolidated financial statements. +List of Exhibits +The following is a list of exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K. +Exhibit +No. +Description of Exhibits +2.1 +Separation and Distribution Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.1 +Amended and Restated Certificate of Incorporation of F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.2 +Amended and Restated Bylaws of F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +3.3 +Certificate of Designations of the Company designating the 6.875% Series A Mandatory Convertible Preferred Stock, dated as of January 12, 2024 (incorporated by reference to Exhibit No. 5.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2024). +4.1 +Form of Indenture, between F&G, and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2025). +4.2 +Form of First Supplemental Indenture relating to the 7.300% Junior Subordinated Notes due 2065, between F&G Annuities and Life, Inc. and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.2 on the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2025). +4.3 +Form of 7.300% Junior Subordinated Note due 2065 (included in Exhibit 4.2) (incorporated by reference to Exhibit No. 4.3 on the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2025). +4.4 +Fifth Supplemental Indenture relating to F&G Annuities & Life, Inc.’s 6.250% senior notes due 2034, dated as of October 4, 2024, among F&G Annuities & Life Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Commission on October 4, 2024). +234 +4.5 +Form of F&G Annuities & Life, Inc.’s 6.250% senior notes due 2034 (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on October 4, 2024). +4.6 +Fourth Supplemental Indenture relating to F&G Annuities & Life, Inc’s 6.500% senior notes due 2029 (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2024). +4.7 +Form of F&G Annuities and Life, Inc.’s 6.500% senior notes due 2029 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2024). +4.8 +Third Supplemental Indenture relating to the 7.950% Senior Notes due 2053, dated as of December 6, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Commission on December 6, 2023) . +4.9 +Form of 7.950% Senior Notes due 2053 (included in Exhibit 4.1) incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 6, 2023) . +4.10 +Indenture, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.11 +First Supplemental Indenture relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to Exhibit No. 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.12 +Form of 7.400% Senior Notes due 2028 (incorporated by reference to Exhibit No. 4.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +4.13 +Indenture, dated as of April 20, 2018, among Fidelity Guaranty & Life Holdings, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, including the form of 5.50% Note due 2025 (incorporated by reference to Exhibit No. 4.1 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.14 +First Supplemental Indenture, dated as of April 20, 2018, among Fidelity & Guaranty Life Holdings, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit No. 4.2 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.15 +Second Supplemental Indenture, dated as of June 1, 2020, among Fidelity National Financial, Inc., Fidelity & Guaranty Life Holdings, Inc., and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit No. 4.3 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.16 +Officer’s Certificate of Fidelity & Guaranty Life Holdings, Inc., dated April 13, 2021 (incorporated by reference to Exhibit No. 4.4 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +4.17 +Description of Capital Stock (incorporated by reference to Exhibit No. 4.11 to the Company’s Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +10.1 +Tax Sharing Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.2 +Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.3 +Reverse Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.4 † +Employment Agreement, dated as of February 6, 2019, by and between FGL Holdings and Christopher Blunt (incorporated by reference to Exhibit No. 10.4 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +235 +10.5 † +Employment Agreement, dated November 14, 2013, by and between Fidelity & Guaranty Life Business Services, Inc. and Wendy J.B. Young (incorporated by reference to Exhibit No. 10.6 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.6 † +Assignment of Employment Agreements, dated as of February 7, 2020, by and between FGL Holdings and F II Corp., and acknowledged and agreed to by Christopher Blunt, Jonathan Bayer and John Fleurant (incorporated by reference to Exhibit No. 10.7 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.7 † +F&G Annuities & Life, Inc. 2022 Omnibus Incentive Plan (incorporated by reference to Exhibit No. 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.8 † +F&G Annuities & Life, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit No. 10.5 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.9† +F&G Annuities & Life, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit No. 10.6 to the Company’s Current Report on Form 8-K, filed with the Commission on December 1, 2022). +10.10 +Amended and Restated Omnibus Investment Management Agreement Termination Side Letter, dated as of June 1, 2020, by and among FGL Holdings, Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.10 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.11 +Amended and Restated Sub-Manager Fee Agreement, dated as of June 1, 2020, by and among FGL Holdings, Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.11 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.12 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between FGL US Holdings Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.12 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.13 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between Fidelity & Guaranty Life Holdings, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.13 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.14 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between F&G Life Re Ltd (f/k/a F&G Re Ltd) and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.14 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.15 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between CF Bermuda Holdings Limited and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.15 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.16 +Second Amended and Restated Investment Management Agreement, dated as of June 1, 2020, by and between Fidelity and Guaranty Life Insurance Company and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.16 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.17 +Investment Management Agreement, dated as of December 16, 2020, by and between F&G Cayman Re Ltd. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.18 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.18 +Investment Management Agreement, dated as of January 4, 2021, by and between F&G Annuities & Life, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.19 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.19 +Investment Management Agreement, dated as of July 29, 2021, by and between Fidelity & Guaranty Life Insurance Company and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.20 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +236 +10.20 +Amended and Restated Amendment to Investment Management Agreements; IMA Omnibus Termination Side Letter; SMA Fee Agreement and Participation Fee Agreement, dated September 24, 2021, by and among F&G Life & Annuities, Inc., Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit No. 10.21 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.21 +Note Purchase Agreement, dated as of December 20, 2021, between Kubera Insurance (SAC) Ltd. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit No. 10.22 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.22 +Keepwell Agreement, dated December 17, 2020, between F&G Annuities & Life, Inc. and F&G Cayman Re Ltd. (incorporated by reference to Exhibit No. 10.23 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.23 +Keepwell Agreement, dated December 17, 2020, between F&G Annuities & Life, Inc. and F&G Cayman Re Ltd. (incorporated by reference to Exhibit No. 10.24 to the Company’s Amendment No. 3 to Form 10, filed with the Commission on November 10, 2022). +10.24 † +Retention Agreement between Fidelity & Guaranty Life Business Services, Inc. and John Currier dated February 16, 2023 (incorporated by reference to Exhibit No. 10.1 to the Company's Current Report on Form 8-K, filed with the Commission on February 21, 2023). +10.25 +Amended and Restated Credit Agreement, dated as of February 16, 2024, by and among F&G Annuities & Life, Inc., a Delaware corporation, as the borrower, the guarantors party thereto, Bank of America, N.A., as administrative agent, and the financial institutions party thereto as lenders (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 16, 2024). +10.26 +Registration Rights Agreement relating to the 7.400% Senior Notes due 2028, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and BofA Securities, Inc., J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as representatives of the initial purchasers (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2023). +10.27 +Amendment to the Amended and Restated Investment Management Agreements; IMA Omnibus Termination Side Letter and Existing SMA Fee Agreement, dated as of March 10, 2023, by and among F&G Annuities & Life Inc., Blackstone ISG-I Advisors L.L.C. and Fidelity National Financial, Inc. (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 10, 2023). +10.28 +Letter regarding Blackstone Participation Fee in Respect of New Business, dated as of March 10, 2023, by and between F&G Annuities & Life Inc., and BilCar, LLC (incorporated by reference to Exhibit No. 10.2 to the Company Current Report on Form 8-K, filed with the Commission on March 10, 2023). +10.29 † +Form of Notice of F&G Restricted Stock Grant dated November 15, 2023 under F&G 2022 Omnibus Incentive Plan (incorporated by reference to Exhibit No. 10.30 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +10.30 † +Amended and Restated Retention Agreement between F&G Annuities & Life, Inc. and John D. Currier, Jr., dated as of May 8, 2024 (incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 13, 2024). +10.31 +Third Amended and Restated Investment Management Agreement, dated as of October 1, 2024, by and between Fidelity & Guaranty Life Insurance Company and Blackstone Advisors L.L.C. +10.32† +Form of Notice of F&G Restricted Stock Grant dated November 8, 2024, under F&G 2022 Omnibus Incentive Plan. +10.33† +Form of Notice of F&G Director Restricted Stock Grant dated November 8, 2024, under F&G 2022 Omnibus Incentive Plan. +10.34 +Investment Management Agreement, dated as of November 6, by and between Fidelity & Guaranty Life Insurance Company of New York and Blackstone ISG-I Advisors, L.L.C. +10.35†^ +Employment Agreement between Fidelity & Guaranty Annuities & Life, Inc., and Conor Murphy effective as of April 1, 2025 (incorporated by reference to Exhibit 10.36 on the Company’s Annual Report on Form 10-K, filed with the Commission on February 28, 2025). +10.36† +Amendment No. 1 to Employment Agreement between Fidelity & Guaranty Annuities & Life, Inc. and Conor Murphy, dated August 6, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 8, 2025). +237 +10.37 +Underwriting Agreement, dated March 20, 2025, among BofA Securities, Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein, and F&G Annuities & Life, Inc (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the Commission on March 24, 2024). +10.38*† +Form of Notice of F&G Restricted Stock Grant dated November 10, 2025, under F&G 2022 Omnibus Incentive Plan. +10.39*† +Form of Notice of F&G Director Restricted Stock Grant dated November 10, 2025, under F&G 2022 Omnibus Incentive Plan. +19.1* +Insider Trading and Tipping Policy 2025. +21.1* +List of Subsidiaries. +23.1* +Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. +24* Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K and incorporated by reference herein). +31.1* +Certification of Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer, pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97 † +F&G Annuities & Life, Inc. Incentive-Based Compensation Recovery Policy (incorporated by reference to Exhibit 97 to the Company's Annual Report on Form 10-K, filed with the Commission on February 29, 2024). +101.INS * Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. +101.SCH * Inline XBRL Taxonomy Extension Schema Document. +101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document. +101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document. +104* The cover page from the Company’s Annual Report on Form 10-K for the twelve-month period ended December 31, 2024 is formatted in Inline XBRL (Extensible Business Reporting Language) and contained in Exhibit 101. +* Filed herewith. +** Furnished herewith. +† Indicates management contract or compensatory plan or agreement. +^ Certain identified information has been excluded from the exhibit because it both (i) is not material and (ii) is the type of information that the company treats as confidential or private. +Item 16. Form 10-K Summary +None. +238 +Signatures +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +F&G Annuities & Life, Inc. (Registrant) +Date: February 26, 2026 +By: +/s/ Conor Murphy +Conor Murphy +President and Chief Financial Officer +(on behalf of the Registrant and as Principal Financial Officer) +POWERS OF ATTORNEY +KNOW ALL BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Christopher O. Blunt and Conor Murphy, and each of them, acting individually, as his or her true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Christopher O. Blunt Director, Chief Executive Officer February 26, 2026 +Christopher O. Blunt (Principal Executive Officer) +/s/ Conor Murphy President and Chief Financial Officer February 26, 2026 +Conor Murphy (Principal Financial and Accounting Officer) +/s/ William P. Foley, II Director and Executive Chairman of the Board February 26, 2026 +William P. Foley, II +/s/ Douglas K. Ammerman Director February 26, 2026 +Douglas K. Ammerman +/s/ Celina J. Wang Doka Director February 26, 2026 +Celina Wang Doka +/s/ Douglas Martinez Director February 26, 2026 +Douglas Martinez +/s/ Michael J. Nolan Director February 26, 2026 +Michael J. Nolan +/s/ Raymond R. Quirk Director February 26, 2026 +Raymond R. Quirk +/s/ John D. Rood Director February 26, 2026 +John D. Rood +239 +Schedule I +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES +December 31, 2025 +(In millions) Amortized Cost Fair Value Amount Shown on Consolidated Balance Sheets +Fixed maturity securities, available for sale: +United States Government full faith and credit $ 495 $ 493 $ 493 +United States Government sponsored entities 194 196 196 +United States municipalities, states and territories 1,562 1,355 1,355 +Foreign Governments 292 261 261 +Corporate securities: +Finance, insurance and real estate 9,699 9,309 9,309 +Manufacturing, construction and mining 1,496 1,386 1,386 +Utilities, energy and related sectors 4,098 3,681 3,681 +Wholesale/retail trade 4,124 3,732 3,732 +Services, media and other 5,916 5,142 5,142 +Hybrid securities 625 609 609 +Non-agency residential mortgage-backed securities 2,646 2,649 2,649 +Commercial mortgage-backed securities 5,298 5,155 5,155 +Asset-backed securities 7,982 7,842 7,842 +Collateralized loan obligations and loan-backed private originations 10,865 10,890 10,890 +Total fixed maturity securities, available for sale $ 55,292 $ 52,700 $ 52,700 +Equity securities 414 341 341 +Limited partnerships: +Private equity 2,010 2,010 2,079 +Real assets 690 693 886 +Credit 1,643 1,643 1,643 +Limited partnerships 4,343 4,346 4,608 +Commercial mortgage loans 3,242 3,025 3,242 +Residential mortgage loans 4,649 4,424 4,649 +Other (primarily derivatives and company owned life insurance) 2,006 2,341 2,859 +Short term investments 927 927 1,043 +Total investments $ 70,873 $ 68,104 $ 69,442 +See Report of Independent Registered Public Accounting Firm +240 +Schedule II +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED BALANCE SHEETS +(In millions) December 31, +2025 2024 +Assets +Investments in consolidated subsidiaries $ 6,630 $ 5,545 +Fixed maturity securities, available for sale 237 — +Mortgage loans, net of allowance for credit losses of $ 3 and $ 3 at December 31, 2025 and 2024, respectively +90 84 +Short term-investments 40 — +Cash and cash equivalents 43 202 +Prepaid expenses and other assets 8 11 +Income taxes receivable 33 22 +Total assets $ 7,081 $ 5,864 +Liabilities and Equity +Accounts payable and other liabilities $ 30 $ 37 +Intercompany payables 9 6 +Deferred tax liability, net 1 — +Notes payable 2,237 1,870 +Total liabilities 2,277 1,913 +Equity: +Preferred stock $ 0.001 par value; authorized 25,000,000 shares as of December 31, 2025 and 2024; outstanding and issued 5,000,000 shares as of December 31, 2025 and 2024 +— — +F&G common stock, $ 0.001 par value; authorized 500,000,000 shares as of December 31, 2025 and 2024; outstanding of 135,610,292 and 126,792,844 as of December 31, 2025 and 2024, respectively, and issued of 137,056,106 and 127,952,143 as of December 31, 2025 and 2024, respectively +— — +Additional paid-in-capital 3,764 3,464 +Retained earnings 2,568 2,440 +Accumulated other comprehensive income (loss) ( 1,488 ) ( 1,923 ) +Treasury stock, at cost ( 1,445,814 shares and 1,159,299 shares as of December 31, 2025 and +2024, respectively) +( 40 ) ( 30 ) +Total equity 4,804 3,951 +Total liabilities and equity $ 7,081 $ 5,864 +See Report of Independent Registered Public Accounting Firm. +241 +Schedule II (continued) +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED INCOME STATEMENTS +(In millions) Year Ended December 31, +2025 2024 2023 +Revenues: +Life insurance premiums and other fees $ — $ 2 $ 3 +Interest and investment income 21 18 16 +Total revenues 21 20 19 +Expenses: +Other operating expenses 11 7 5 +Interest expense 149 118 75 +Total expenses 160 125 80 +Earnings (loss) before income tax expense and equity in earnings of subsidiaries ( 139 ) ( 105 ) ( 61 ) +Income tax benefit ( 41 ) ( 21 ) ( 13 ) +Earnings (loss) before equity in earnings of subsidiaries ( 98 ) ( 84 ) ( 48 ) +Equity in earnings (loss) of subsidiaries 363 723 ( 10 ) +Net earnings (loss) 265 639 ( 58 ) +Less: Preferred stock dividend 17 17 — +Net earnings (loss) attributable to F&G common shareholders $ 248 $ 622 $ ( 58 ) +See Report of Independent Registered Public Accounting Firm. +242 +Schedule II (continued) +F&G ANNUITIES & LIFE, INC. (Parent Only) +CONDENSED FINANCIAL INFORMATION OF PARENT ONLY +SUPPLEMENTAL CONDENSED CASH FLOW STATEMENTS +(In millions) Year Ended December 31, +2025 2024 2023 +Cash Flows from Operating Activities: +Net earnings (loss) $ 265 $ 639 $ ( 58 ) +Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities: +Equity in (earnings) loss of subsidiaries ( 363 ) ( 723 ) 10 +(Gain) loss on sales of investments — 2 — +Stock-based compensation cost 31 29 23 +Net change in income taxes ( 10 ) ( 9 ) 47 +Net change in other assets and other liabilities ( 65 ) ( 65 ) ( 28 ) +Net cash used in operating activities ( 142 ) ( 127 ) ( 6 ) +Cash Flows from Investing Activities: +Proceeds from sales, calls and maturities of investments 11 28 2 +Purchases of investment securities ( 388 ) — — +Net proceeds from sales, maturities, and purchases of short-term investment securities 110 — — +Net cash (used in) provided by investing activities ( 267 ) 28 2 +Cash Flows from Financing Activities: +Borrowings 375 1,050 845 +Debt issuance costs ( 11 ) ( 20 ) ( 12 ) +Capital contributions ( 295 ) ( 493 ) ( 589 ) +Net revolving credit facility (repayments) borrowings — ( 365 ) ( 185 ) +Dividends paid ( 137 ) ( 121 ) ( 77 ) +Dividends from subsidiaries 59 — — +Purchases of treasury stock ( 10 ) ( 12 ) ( 18 ) +Issuance of preferred stock — 250 — +Issuance of common stock 269 — — +Net cash provided by (used in) financing activities 250 289 ( 36 ) +Net (decrease) increase in cash and cash equivalents ( 159 ) 190 ( 40 ) +Cash and cash equivalents at beginning of period 202 12 52 +Cash and cash equivalents at end of period $ 43 $ 202 $ 12 +See Report of Independent Registered Public Accounting Firm. +243 +Schedule III +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUPPLEMENTARY INSURANCE INFORMATION +(In millions) Year Ended December 31, +2025 2024 2023 +Deferred acquisition costs $ 3,637 $ 3,036 $ 2,215 +Future policy benefits, losses, claims and loss expenses 10,755 8,749 7,050 +Other policy claims and benefits payable 100 102 92 +Life insurance premiums and other fees 2,795 2,860 2,413 +Interest and investment income 2,837 2,719 2,211 +Benefits, claims, losses and settlement expenses ( 3,963 ) ( 3,791 ) ( 3,553 ) +Amortization of deferred policy acquisition costs ( 357 ) ( 280 ) ( 191 ) +Other operating expenses, net of deferrals ( 156 ) ( 203 ) ( 146 ) +See Report of Independent Registered Public Accounting Firm. +244 +Schedule IV +F&G ANNUITIES & LIFE, INC. AND SUBSIDIARIES +SUPPLEMENTAL REINSURANCE SCHEDULE +(In millions) +For the Year Ended December 31, 2025 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 13,148 $ ( 1,306 ) $ — $ 11,842 — % +Premiums and other considerations: +Traditional life insurance premiums 115 ( 85 ) — 30 — +Life-contingent PRT premiums 2,108 — — 2,108 — +Annuity product charges and other fees 717 ( 60 ) — 657 — +Total premiums and other considerations $ 2,940 $ ( 145 ) $ — $ 2,795 — % +For the Year Ended December 31, 2024 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 10,906 $ ( 1,370 ) $ — $ 9,536 — % +Premiums and other considerations: +Traditional life insurance premiums 129 ( 94 ) — 35 — +Life-contingent PRT premiums 2,217 — — 2,217 — +Annuity product charges and other fees 655 ( 47 ) — 608 — +Total premiums and other considerations $ 3,001 $ ( 141 ) $ — $ 2,860 — % +For the Year Ended December 31, 2023 Gross Amount Ceded to other companies Assumed from other companies Net Amount Percentage of amount assumed to net +Life insurance in force $ 8,448 $ ( 1,436 ) $ — $ 7,012 — % +Premiums and other considerations: +Traditional life insurance premiums 148 ( 105 ) — 43 — +Life-contingent PRT premiums 1,964 — — 1,964 — +Annuity product charges and other fees 455 ( 49 ) — 406 — +Total premiums and other considerations $ 2,567 $ ( 154 ) $ — $ 2,413 — % +See Report of Independent Registered Public Accounting Firm. +245 \ No newline at end of file diff --git a/raw/filings/0001934850/2025/0001934850-26-000026/filing_metadata.csv b/raw/filings/0001934850/2025/0001934850-26-000026/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..0c58398db734a06daeb49c3ef090d94f5144dead --- /dev/null +++ b/raw/filings/0001934850/2025/0001934850-26-000026/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001934850,FGSN,"F&G Annuities & Life, Inc.",2025,10-K,2026-02-26,2025-12-31,2026-02-26T22:21:45.000Z,0001934850-26-000026,fg-20251231.htm,10-K,43131720,1,1,https://www.sec.gov/Archives/edgar/data/1934850/000193485026000026/fg-20251231.htm,https://www.sec.gov/Archives/edgar/data/1934850/000193485026000026/ diff --git a/raw/filings/0001934850/2025/0001934850-26-000026/item1.txt b/raw/filings/0001934850/2025/0001934850-26-000026/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..aea2e29a0bed68ddad74ee2d54db506f244679ef --- /dev/null +++ b/raw/filings/0001934850/2025/0001934850-26-000026/item1.txt @@ -0,0 +1,414 @@ +Item 1. Business +Overview +Founded in 1959, F&G is a leading provider of insurance solutions serving retail annuity and life customers as well as institutional clients. Our mission is to help people turn their aspirations into reality. As of December 31, 2025, F&G has approximately 778,000 policyholders who count on the safety and protection of our fixed annuity and life insurance products. We also serve approximately 145,000 plan participants who will receive their pension payments from F&G through our pension risk transfer solutions. +Through our insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”), we market a broad portfolio of annuities, including fixed indexed annuities (“FIAs”), registered index-linked annuities (“RILAs”), (together referred to as “indexed annuities”), multi-year guarantee annuities (“MYGAs”) as well as pension risk transfer (“PRT”) solutions, indexed universal life (“IUL”) insurance and institutional funding agreements. +On June 1, 2020, F&G was acquired by Fidelity National Financial, Inc. (“FNF”). We have benefited from financial strength ratings upgrades since the acquisition; S&P and Fitch upgraded to A- in June 2020, Moody’s upgraded to A3 in July 2023, and A.M. Best upgraded to A in January 2024. These upgrades are valued by our distribution partners and positioned us to quickly expand our business in our existing channels and gain access to new markets. Gross sales increased from $4.5 billion for the full year 2020 to $14.6 billion in 2025. With our success in expanding distribution under FNF’s ownership, we have grown assets under management (“AUM”) from $26.5 billion at the time of acquisition to $57.6 billion as of December 31, 2025. We now operate in and source significant premiums from three distinct retail channels and two institutional markets versus a single channel prior to the acquisition by FNF in June 2020. For a discussion of the five distinct channels, see “ We Play in Large and Growing Markets” and “ Our Retail Distribution Channels” within this section of the Annual Report on Form 10-K. +We believe the strength of our balance sheet provides confidence to our policyholders and business partners and positions us for continued growth. Our investment portfolio is diversified, well positioned and high quality. As of December 31, 2025, 96% of our fixed maturity securities were rated under criteria of the NAIC as NAIC 1 or NAIC 2, the two highest credit rating designations of the NAIC. These assets are managed against what we believe to be prudently underwritten liabilities. We have inforce liabilities of $56.8 billion at December 31, 2025, with a liability duration of approximately 5 years, well matched to our assets. For the year ended December 31, 2025, net earnings attributable to F&G totaled $265 million, we produced adjusted net earnings attributable to F&G common shareholders of $482 million, and we had an adjusted return on assets attributable to F&G common shareholders (“ROA”) of 87 basis points. Adjusted net earnings attributable to F&G common shareholders for the year ended December 31, 2025 included income from a $16 million reinsurance true-up adjustment, $10 million tax valuation allowance benefit, and $4 million of actuarial reserve release. Investment income from alternative investments was $278 million below management’s long-term expected return of approximately 10%. +We are uniquely positioned in the industry with a profitabl e and growing $56.8 billio n inforce block. We generate spread-based earnings from fixed annuities and pension risk transfer and we have multiple sources of fee-based earnings with the reinsurance sidecar vehicle launched in August 2025 alongside our flow reinsurance, middle market life insurance and well performing owned distribution portfolio. As our business grows, we are becoming a more fee-based, higher margin and capital light business, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. We are balancing this with continuing to grow our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. +As of December 31, 2025 , we had $4.8 billion of total F&G equity and $6.0 billion of total F&G common shareholders’ equity excluding accumulated other comprehensive income (loss) (“AOCI”). FGL Insurance’s estimated U.S. RBC ratio was approximately 430% a s of December 31, 2025, as compared to 410% and 451% as of December 31, 2024 and December 31, 2023, respectively. FGL Insurance expects to maintain its U.S. risk-based capital (“RBC”) ratio at or above our target of 400%. +10 +F&G Dividend Distributions +On December 1, 2022, FNF distributed, on a pro rata basis, approximately 15% of the common stock of F&G (the “separation and distribution”). The purpose of the separation and distribution was to enhance and more fully recognize the overall market value of each company. +Additionally, on December 31, 2025, FNF distributed, on a pro rata basis, approximately 12% of the outstanding shares of F&G common stock. Following the distribution, FNF retained approximately 70% ownership of F&G and the public float of F&G increased to approximately 30%. +For additional information about risks to F&G related to our status as a subsidiary of FNF, please see “Risk Factors - Risks Related to the Separation and Distribution and our Status as a subsidiary of FNF.” +Our Strategy +Through a diversified growth strategy, F&G has delivered a compound annual growth rate in AUM of 17% for the six-year period 2019 to 2025 and, more recently, an annual increase in AUM of 7% as of December 31, 2025 compared to the year ended December 31, 2024. Since 2019, we have expanded our business in our traditional channel and entered new markets. +Leveraging our position as one of the industry’s largest sellers of annuities and life insurance, F&G is transforming into a more fee-based, higher margin and less capital-intensive business, balanced with disciplined growth in our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. Through our strategic focus, we have made significant progress toward our medium term financial targets laid out at our October 2023 Investor Day to grow assets and expand returns. Our strategy is underpinned by the following key areas of focus: +• Targeting large, growing markets. As a nationwide leader, F&G is strategically positioned within large, growing markets, benefiting from powerful demographic trends that are fueling sustainable demand for guaranteed income solutions. Our disciplined focus on core products – including indexed annuities, middle market life insurance, and pension risk transfer – will continue to drive AUM growth with attractive and stable liabilities. The market for our core annuity products is substantial, driven by increasing demand for safety and certainty in retirement planning. Our life insurance products strategically target the underserved middle market, offering solutions tailored to diverse cultural communities. And as corporations continue to de-risk their pension funds, our pension risk transfer solutions provide guaranteed lifetime benefits to pension-holders. Finally, our funding agreements continue to generate strong interest from institutional investors. +• Evolved ecosystem and sustainable advantage. Our business model gives us a sustainable competitive advantage. Our evolved ecosystem is built on expanding relationships with key long-term distribution partners, a differentiated asset management approach powered by Blackstone's best-in-class asset origination with a proven track record and complemented by other asset managers, and strategic relationships with reinsurers that provide efficient access to substantial external capital. +• Proven track record; well positioned for steady earnings growth and capital flexibility. We have successfully executed on our diversified growth strategy, maintained a strong capital position and made significant progress toward our 2023 Investor Day targets. We are positioned to deliver steady earnings growth aligned to pricing over the long term, significant scale benefit and an increasing mix of more stable, predictable and less capital intensive fee-based sources of earnings. +• Strategic shift to fee-based, less capital intensive for enhanced returns. F&G is rapidly transforming into a more fee-based, higher margin and less capital intensive business. Increased earnings contributions from fee-based flow reinsurance, middle market life insurance and owned distribution strategies, coupled with disciplined growth in our spread-based products, are expected to generate higher returns over time. +11 +Our Competitive Advantages +Our business model is strong and positions us to capitalize on the growth prospects in our addressable markets. +• Trusted by distributors. We have long-standing relationships with a broad range of distributors representing nearly 187,000 independent agents and financial advisors, and built on our reputation for transparency and a consistently competitive product portfolio. We offer fixed annuities and life insurance products through a network of approximately 26 leading banks and broker-dealers and approximately 300 Independent Marketing Organizations (“IMO”) that provide back-office support for thousands of independent insurance agents. +• Winning in high-growth markets. The U.S. retirement and middle markets are growing, and we are both well-established and well-positioned for continued growth. Our strategic alignment with our distribution partners allows us to reach a diverse, growing and underserved middle market demographic in both our retail and institutional channels. +• Differentiated asset management approach. We have a differentiated asset management approach powered by Blackstone's best-in-class asset origination with a proven track record and complemented by other asset managers. Our liability profile and risk appetite drives our investment strategy. F&G’s investment and risk offices set strategic asset allocation and risk limits. Blackstone is responsible for idea generation and security selection. Blackstone’s capabilities expand our investment universe to new asset classes and their origination capabilities provide incremental spread. Our high quality, diversified investment portfolio is well positioned to withstand macroeconomic headwinds and continues to perform well. We have enhanced the return while improving the credit quality of our portfolio, and credit related impairments remain low, averaging 6 basis points over the past 5 years, below our pricing assumptions. +• Clean and profitable inforce book. As a life insurer, we generate spread earnings based on our assets under management and over the lifetime of the liabilities in place. Our disciplined new business underwriting process provides us with stable liabilities, primarily in products that reset annually, which has allowed us to achieve consistently attractive lifetime returns. Approximately 93% of our $36.1 billion indexed annuities and fixed rate annuities account value are surrender-charge protected and our asset and liability cash flows are well matched. Additionally, our funding agreements, pension risk transfer and immediate annuities are non-surrenderable. +• Track record of attracting top talent. F&G’s management team and over 1,100 employees have a record of long-term success and have delivered impressive results in the last few years. Our commitment to our cultural values is the cornerstone of our success, whereby F&G is a company of individuals who believe in the power of partnerships, encourage innovation and creativity, and are transparent about decisions while delivering on their commitments. This is borne out by consistently being recognized as an employer of choice as well as an involuntary turnover rate that is well below that of other financial services companies. We believe our flexible, employee-centric work approach positions us as an employer of choice. +• Clear governance structure. We have a disciplined approach for considering new lines of business to enter, the appropriate product/channel mix for achieving our targeted new business profitability, and the management of our capital and inforce liabilities. Further, we target and pursue opportunities that leverage our strengths. +We Play in Large and Growing Markets +We serve a market with very attractive demographic tailwinds as more than 11,000 Americans are turning 65 every day according to the U.S. Census Bureau. Demand for our fixed annuity products continues to grow as people plan for a retirement that could last approximately 30 years and are seeking solutions that can withstand market volatility. Both retirees and advisors are turning to fixed annuities for simplicity, relatively higher interest rates, guaranteed tax deferred growth and principal protection, as an alternative to the traditional 60/40 investment portfolio. +The U.S. retirement market opportunity is vast and includes $5.8 trillion of mutual fund 401(k) assets, $800 billion of U.S. consumer savings and the $447 billion retail life and annuities market. While insured products are +12 +designed to effectively serve the needs of retirees, annuities and life insurance solutions continue to be underutilized. We believe middle market consumers, in particular, lack the guidance they need and want and can benefit greatly from insurance solutions. +Retail. Until recently, F&G distributed our flagship annuity and life insurance products solely through our longstanding IMO relationships. In mid-2020, we expanded into the bank and broker-dealer channels to broaden our reach and capture share of the personal savings and CDs markets. Our entry into these channels was successful, resulting in $19.9 billion of cumulative new business since the launch in 2020 to year-end 2025. Annuity sales through the bank and broker-dealer channels were $3.8 billion and $5 billion for the years ended December 31, 2025 and 2024, respectively. The approximate 26 banks and broker-dealers we work with account for 36% of all annuity sales. In these retail markets F&G ranks: (i) 5th and 10th in FIA sales in the IMO and bank channels and 6th in FIA industry sales; (ii) 9th and 7th in MYGA sales in the broker-dealer and bank channels and 11th in MYGA industry sales; and (iii) 5th in IUL sales in the IMO channel, 8th in the number of IUL policies sold and 7th in IUL industry sales, in each case, for the year to date as of September 30, 2025, as sourced from Wink’s Sales and Market Report. +We successfully expanded into new retail channels and diversified our annuity distribution, while continuing to leverage our traditional IMO channel. Our IMO channel sales were $6.9 billion and $7.0 billion for the years ended December 31, 2025 and December 31, 2024, respectively. +We continue to invest in our life insurance business, focusing our approach to meet the needs of the underserved middle market which we reach largely through Network Marketing Groups (“NMGs”). The middle market segment was the largest in 2025, at 45% of households. NMGs are unique and growing, recruiting members of diverse communities for careers in insurance and penetrating cultural segments. NMGs have proven to be one of our most cost-efficient distribution channels, in large part because they tend to work with a smaller number of strategic product providers. This has allowed us to build deep and lasting relationships with both the NMGs and the agents. Since 2019, largely due to our NMG strategy, F&G’s IUL sales growth has far outpaced the industry, with a three-year combined annual growth rate of 24% compared to the industry’s 7%. F&G’s growth rate in IUL has consistently placed us in the top 10 IUL sales ranking since 2021. Untapped opportunities remain in this channel, particularly among younger and more diverse demographics. In the United States, 42% of adults reported a need for life insurance or more coverage, which equates to approximately 102 million adults with a life insurance gap. Hispanics, the second largest ethnic group behind Caucasians, have the largest uninsured population among adults at 40% representing significant opportunity for us to serve this market. +Owned Distribution. Our owned distribution strategy provides a diversified source of earnings while generating a meaningfully higher risk adjusted return on capital than retained business. Owned distribution further strengthens our relationships with key partners and with industry consolidation underway, we believe we are uniquely positioned to partner as a distribution consolidator. We have invested approximately $700 million in owned distribution partners through the following transactions: +• In October 2021, we purchased a 30% minority ownership stake in Freedom Equity Group (“FEG”). FEG is a nearly 4,000 agent strong NMG that focuses on cultural markets including Mexican-American, Hmong, Laotian, Filipino, Burmese, Congolese-American, Samoan, African-American, Thai and Vietnamese. +• In January 2023, we purchased a 49% minority ownership stake in Syncis Holdings, LLC, an NMG. Syncis is an approximately 1,200 agent NMG that focuses on cultural markets including Korean, African-American, and Persian. +• In June 2023, we purchased a 40% minority ownership stake in DCMT Worldwide, LLC (“DCMT”), who distributes life insurance and annuity products through a network of over 1,000 agents. +• In January 2024, we purchased a 70% majority ownership stake in Roar Joint Venture, LLC (“Roar”), a wholesaler of annuities and life insurance products to financial institutions and the broker-dealer community. +• In July 2024, we acquired a 100% ownership stake in PALH, LLC (“PALH”), who owns a 100% ownership stake in an operating company. PALH markets and sells life insurance and annuity products of various insurance carriers to individuals through a network of agents. +13 +Institutional . In 2021, F&G entered two institutional business lines to further diversify our sources of revenue. Our competitive asset management advantage through Blackstone allows us to have very competitive offerings in our spread lending products as well as in the PRT market, while still meeting our internal pricing targets. +• In addition to our funding agreement business with the Federal Home Loan Bank of Atlanta, (“FHLB”), we originate Funding Agreement Backed Notes (“FABN”), a $276 billion market. Our FABN Program (the “FABN Program”) offers funding agreements to institutional clients by means of capital markets transactions through investment banks. We view FABN as opportunistic and volumes will fluctuate quarter to quarter depending on economics and market opportunity. We issued $1.2 billion and $0.6 billion of FABN for the years ended December 31, 2025 and 2024 respectively. +• We also offer PRT solutions to a $45 billion (of $3 trillion total private defined benefit plan assets) market. Our PRT business is supported by an experienced team with access to brokers and institutional consultants for distribution. We have generated almost $9 billion of cumulative sales since launch in 2021 to year-end 2025, including $2.1 billion and $2.2 billion of sales for the years ended December 31, 2025 and 2024. We serve over 145,000 plan participants, who will receive their pension payments from F&G. Our targeted deal size is up to $500 million, and we selectively pursue plan termination and larger retiree buyouts. We expect our opportunity to continue to grow as employers shift away from traditional defined benefit pension plans and seek to de-risk frozen pension plans. In the pension risk transfer market, F&G ranked 7th in the PRT industry sales for year to date sales through September 30, 2025, as sourced from the Life Insurance Marketing and Research Association. +We Have Meaningfully Diversified Our Business +With the addition of the retail bank and broker-dealer channels and our success in the PRT and funding agreement institutional markets, F&G has diversified our product and distribution capabilities from one primary channel to five, and from one primary product to six. We completed this expansion over a five-year period and, combined with organic growth in our core IMO channel, increased gross sales by 274%, from $3.9 billion in 2019 to $14.6 billion in 2025. +We generate spread-based earnings from fixed annuities and pension risk transfer and we have multiple sources of fee-based earnings including the reinsurance sidecar vehicle alongside our flow reinsurance strategy, middle market life insurance and our owned distribution portfolio. As our business grows, we are becoming a more fee-based, higher margin and less capital intensive business, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. We are balancing this with continuing to grow our spread-based business, prioritizing pricing discipline and allocating capital to the highest return opportunities. +We have acquired and retained customers through the years, growing AUM from $26.5 billion at the time of FNF’s acquisition to $57.6 billion as of December 31, 2025. Profitable growth in AUM is the most important driver of F&G’s earnings and our ability to return capital to shareholders. +Our Financial Goals +Our competitive advantages – product and channel diversification, as well as our strategic partnership with Blackstone – enable us to address a greater share of the markets in which we play. Further, the strength of our distribution partner relationships and pension risk transfer growth strategy has enabled the Company to achieve profitable sales growth. We have made significant progress toward the medium term financial targets we laid out at our 2023 Investor Day to grow AUM, expand adjusted ROA, increase adjusted ROE, and expand our earnings multiple. We are well positioned to deliver on our targets as we move further toward a more fee-based, higher margin, and less capital intensive business model, leveraging our position as one of the industry’s largest sellers of annuities and life insurance. +14 +The Products We Offer +F&G’s expertise in annuities, life insurance, pension risk transfer solutions and funding agreements will allow us to continue to introduce innovative products and solutions designed to meet customers’ changing needs. We work hand-in-hand with our distributors and institutional advisors to devise the most suitable solutions for the ever-changing market. Our retail annuities serve as a retirement and savings tool on which our customers rely for principal protection and predictable income streams. In addition, our life insurance products provide our customers with a complementary product that allows them to build on their savings and provide a payment to their designated beneficiaries upon the policyholder’s death. Our most popular products are FIAs that tie contractual returns to specific market indices, such as the S&P 500 Index. Our customers value our FIAs, which provide a portion of the gains of an underlying market index, while also providing principal protection. We believe this principal protection fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their savings. As noted above, in 2021, we launched into two institutional markets to originate FABN and PRT transactions. These markets leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone. +We view our products in two categories: “core” and “opportunistic”. Our “core” products include fixed indexed annuities, registered index-linked annuities, pension risk transfer and indexed universal life. Our “opportunistic” products include multi-year guaranteed annuities, FABN and Federal Home Loan Bank funding agreements. Opportunistic sales fluctuate quarter to quarter depending on economics and market opportunity, and we prioritize pricing discipline and allocate capital to the highest return opportunities. +For the year ended December 31, 2025, FIAs generated approximately 46% of our gross sales. The remaining 54% of sales were primarily generated from fixed rate annuities (26%), PRT sales (15%), funding agreements (12%) and IUL (1%). We invest the proceeds primarily in fixed income securities. We also use options and futures that hedge the index credit of our FIA and IUL liabilities by replicating the market index returns to our policyholders. We invest in options on indices such as the S&P 500 Index. The majority of our products allow for active management to achieve targeted lifetime returns. In addition, our annuity contracts generally either cannot be surrendered or include surrender charges that discourage early redemptions. +Annuities. Through F&G’s insurance subsidiaries, we issue a broad portfolio of deferred annuities (indexed annuities and fixed rate annuities), immediate annuities, and PRT solutions. A deferred annuity is a type of contract that accumulates value on a tax deferred basis and typically begins making specified periodic or lump sum payments a certain number of years after the contract has been issued. An immediate annuity is a type of contract that begins making specified payments within one annuity period (e.g., one month or one year) and typically pays principal and earnings in equal payments over some period of time. +Deferred Annuities – FIAs . Our FIAs allow contract owners the possibility of earning returns linked to the performance of a specified market index, such as the S&P 500 Index, while providing principal protection. The contract owners typically make a single deposit into our deferred annuities. The contracts include a provision for a minimum guaranteed surrender value calculated in accordance with applicable law. A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. All FIA products allow policyholders to allocate funds once a year among several different crediting strategies, including one or more index-based strategies and a traditional fixed rate strategy. Surrender charges apply for early withdrawal, typically for seven to fourteen years after purchase. +We purchase derivatives consisting predominantly of over-the-counter options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the applicable policy such as the S&P 500 Index. These derivatives are used to fund the index credits due to policyholders under the FIA and IUL contracts based upon policyholders’ contract elections. The down-side risk to F&G is limited to the cost of the options because if the value of the options decreases there is no index credit. The cost of the hedge is included in the pricing of the product and can be reset on an annual basis for each policy based on market conditions. The majority of all +15 +such equity options are one-year options purchased to match the funding requirements underlying the FIA/IUL contracts. On the anniversary dates of the FIA/IUL contracts, the market index used to compute the annual index credit under the contracts is reset. At such time, we purchase new equity options to fund the next index credit. We manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps or participation rates, subject to certain guaranteed minimums on each contract’s anniversary date. The change in the fair value of the options and futures contracts is generally designed to offset the equity market related change in the fair value of the FIA/IUL contract’s related reserve liability. The options and futures contracts are marked to fair value with the change in fair value included as a component of “Recognized gains and (losses), net” in our Consolidated Statements of Operations. The change in fair value of the options and futures contracts includes the gains and losses recognized at the expiration of the instrument’s term or upon early termination and the changes in fair value of open positions. Generally accepted accounting principles (“GAAP”) accounting of the reserve liability for products with embedded derivatives such as FIA creates additional volatility beyond the accounting for the options and the futures. +The contractholder account value of a FIA contract is equal to the sum of deposits paid, premium bonuses, if any, (described below), and index credits based on the change in the relevant market index (subject to a cap, spread and/or a participation rate) less any fees for riders and any withdrawals taken to-date. Caps (a maximum rate that may be credited) generally range from 1% to 10% when measured annually and 1% to 3% when measured monthly, spreads (a credited rate determined by deducting a specific rate from the index return) generally range from 1% to 3% when measured annually, and participation rates (a credited rate equal to a percentage of index return) generally range from 50% to 250% of the performance of the applicable market index. The cap, spread and participation rate can typically be reset annually and in some instances every two to five years. Certain riders provide a variety of benefits, such as the ability to increase their cap, lifetime income or additional liquidity for a set fee. As this fee is fixed, the contract holder may lose principal if the index credits received do not exceed the amount of such fee. +Approximately 39% of the FIA sales for the year ended December 31, 2025, involved premium bonuses or vesting bonuses. Premium bonuses increase the initial annuity deposit by a specified rate of 2%. The vesting bonuses, which range from 3% to 17%, increase the initial annuity deposit liability but are subject to adjustment for unvested amounts in the event of surrender by the policyholder prior to the end of the vesting period. We made compensating adjustments in the commission paid to the agent or the surrender charges on the policy to offset the premium bonus. +Approximately 77% of our FIA contracts were issued with a guaranteed minimum withdrawal benefit (“GMWB”) rider for the year ended December 31, 2025. With this rider, a contract owner can elect to receive guaranteed payments for life from the FIA contract without requiring the owner to annuitize the FIA contract value. The amount of the income benefit available is determined by the growth in the policy’s benefit base value as defined in the FIA contract rider. Typically, this accumulates for 10 years based on a guaranteed rate of 3% to 10%. Guaranteed withdrawal payments may be stopped and restarted at the election of the contract owner. Some of the FIA contract riders that we offer include an additional death benefit or an increase in benefit amounts under chronic health conditions. Rider fees range from 0% to 1%. Unlike a variable annuity, policyholder values do not decline with market movements. +Deferred Annuities – Fixed Rate Annuities . Fixed rate annuities are typically single deposit contracts and include annual reset and multi-year rate guaranteed policies. Fixed rate annual reset annuities issued by us have an annual interest rate (the “crediting rate”) that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting rate once annually to any rate at or above a guaranteed minimum rate. MYGAs are similar to fixed rate annual reset annuities except that the initial crediting rate is guaranteed for a specified number of years before it may be changed at our discretion. As of December 31, 2025, crediting rates on outstanding (i) single-year guaranteed annuities generally ranged from 2% to 6% and (ii) MYGA ranged from 1% to 6%. The average crediting rate on all outstanding fixed rate annuities at December 31, 2025 was 5%. +Deferred Annuities - RILA – In early 2024, we entered into the RILA markets. RILAs are similar to FIAs in offering the policyholder the opportunity for tax-deferred growth based in part on the performance of a market +16 +index. Compared to a FIA, RILAs have the potential for higher returns but also have the potential for risk of loss to principal and related earnings. RILAs provide the ability for the policyholder to participate in the positive performance of certain market indices during a term, limited by a cap or adjusted for a participation rate. Negative performance of the market indices during a term can result in negative policyholder returns, with downside protection typically provided in the form of either a “buffer” or a “floor” to limit the policyholder’s exposure to market loss. A “buffer” is protection from negative exposure up to a certain percentage, typically 10 or 20 percent. A “floor” is protection from negative exposure less than a stated percentage (i.e., the policyholder risks exposure of loss up to the “floor,” but is protected against any loss in excess of this amount). +Withdrawal Options for Deferred Annuities. After the first year following the issuance of a deferred annuity, policy holders of deferred annuities are typically permitted penalty-free withdrawals up to a contractually specified amount. The penalty-free withdrawal amount is typically 10% of the prior year account value for FIAs and is typically up to accumulated interest for fixed rate annuities, subject to certain restrictions. Withdrawals in excess of allowable penalty-free amounts are assessed a surrender charge if such withdrawals are made during the penalty period of the deferred annuity policy. The penalty period typically ranges from seven to fourteen years for FIAs and three to ten years for fixed rate annuities. This surrender charge initially ranges from 7% to 15% of the contract value for FIAs and is approximately 9% of the contract value for fixed rate annuities and generally decreases by approximately one to two percentage points per year during the penalty period. The average surrender charge was 7% for our FIAs and 7% for our fixed rate annuities as of December 31, 2025. A market value adjustment (“MVA”) will also apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on a formula that accounts for changes in interest rates since contract issuance. Generally, if interest rates have risen, the MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. MVAs are included on all policies, if allowed (for FIAs since 2015 and for a longer time for fixed rate annuities). At December 31, 2025, approximately 83% of our business included an MVA feature. +The following table summarizes our deferred annuity account values and surrender charge protection as of December 31, 2025 (dollars in millions): +SURRENDER CHARGE EXPIRATION BY YEAR Fixed Rate and Indexed Annuities Account Value Percent of Total Weighted Average Surrender Charge +Out of surrender charge $ 2,637 7 % — % +2025 2,166 6 4 % +2026-2028 8,774 24 6 % +2029-2030 6,367 18 7 % +2031-2032 6,763 19 8 % +Thereafter 9,402 26 11 % +Total $ 36,109 100 % 7 % +Subsequent to the penalty period, the policyholder may elect to take the proceeds of the surrender either in a single payment or in a series of payments over the life of the policyholder or for a fixed number of years (or a combination of these payment options). In addition to the foregoing withdrawal rights, policyholders may also elect to have additional withdrawal benefits by purchasing a GMWB. +Single Premium Immediate Annuities . We have previously sold single premium immediate annuities (“SPIA”), which provide a series of periodic payments for a fixed period of time or for the life of the policyholder, according to the policyholder’s choice at the time of issue. The amounts, frequency and length of time of the payments are fixed at the outset of the annuity contract. SPIAs are often purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years. Existing policyholders may elect to surrender their contract and use the proceeds to purchase a supplementary contract which functions as a SPIA. +Life Insurance. We currently offer IUL insurance policies and have previously sold universal life, term and whole life insurance products. Holders of universal life insurance policies may make periodic payments over the life of the contract and earn returns on their policies, which are credited to the policyholder’s cash value account. The +17 +insurer periodically deducts its expenses and the cost of life insurance protection from the cash value account. The balance of the cash value account is credited interest at a fixed rate or returns based on the performance of a market index, or both, at the option of the policyholder, using a method similar to that described above for FIAs. In addition to the annual renewal premium, we are diversifying earnings through strong growth in our middle market life insurance business. +Funding Agreements. As defined by the Iowa Insurance Division (“IID”), a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers are agreeing to a defined stream of future payments in exchange for a single upfront premium. This type of business is sometimes referred to as spread lending, as funding agreement providers invest upfront premiums with the intent to earn an investment spread on the funds prior to making agreed upon maturity and interest payments. The structure of the payments can take several forms but are commonly a fixed or variable interest payment with a single maturity principal re-payment. +F&G currently utilizes two forms of funding agreement offerings. The first is through the issuance of collateralized funding agreements with the FHLB. This enables spread-based income without longevity or mortality exposure given the certainty in liability profile. Funding agreements through the FHLB are flexible in their format and the ability to issue during broad windows, as long as sufficient eligible collateral has been deposited with the bank. F&G and its predecessors have been entering into funding agreements with the FHLB since at least 2004. +In June 2021, we established a FABN Program, which is a medium term note program under which funding agreements are issued to a special-purpose trust that issues marketable notes. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors. These FABN offerings are more limited regarding timing of issuance, but do not require collateralization as with the FHLB. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is currently $5.0 billion. As of December 31, 2025, we had approximately $3.3 billion outstanding under the FABN Program with an additional $750 million issued in January 2026. +Pension Risk Transfer. In July 2021, we entered the PRT market. A PRT occurs when a defined-benefit pension provider seeks to remove some or all of its obligation to pay guaranteed retirement income or post-retirement benefits to plan participants. There are four major types of PRT strategies: longevity reinsurance, buy-in, buy-out, and paying in lump sums. We are currently active in plan buy-outs, where we have a direct, irrevocable commitment to each covered participant to make the specified annuity payments based upon the terms of the pension plan. Plan buy-out transactions fully and permanently transfer all investment, mortality, and administrative risk, associated with covered benefits, from the pension plan sponsor to the insurance provider. +Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are typically fixed in nature but may vary in duration based on participant mortality experience. These products primarily create earnings through spread income. In each transaction FGL Insurance and/or FGL NY Insurance issues a group annuity contract to discharge pension plan liabilities from a pension plan sponsor, either through a separate account or through a general account guarantee. Certificate holders covered under a group annuity contract have a guaranteed benefit from the insurance company. +Our PRT solutions business is supported by a team of experienced professionals, and we partner with brokers and institutional consultants for distribution. As of December 31, 2025, we had completed cumulative PRT transactions that represented pension obligations of $9.1 billion. +Reinsurance philosophy/arrangements. Our insurance subsidiaries cede insurance to other insurance companies. We use reinsurance to diversify risks and earnings, to manage loss exposures, to enhance our capital position, and to manage new business volume. The effects of certain reinsurance agreements are not accounted for as reinsurance as they do not reinsure insurance contracts, or they do not transfer the risks of the reinsured policies. +18 +In instances where we are the ceding company, we pay a premium to a reinsurer in exchange for the reinsurer assuming a portion of our liabilities under the policies we issued and collect expense allowances in return for our administration of the ceded policies. Use of reinsurance does not discharge our liability as the ceding company because we remain directly liable to our policyholders and are required to pay the full amount of our policy obligations in the event that our reinsurers fail to satisfy their obligations. We collect reimbursement from our reinsurers when we pay claims on policies that are reinsured. +We monitor the credit risk related to the ability of our reinsurers to honor their obligations under various agreements. To minimize the risk of credit loss on such contracts, we generally diversify our exposures among many reinsurers and limit the amount of exposure to each based on financial strength ratings, which are reviewed annually. We are able to further manage risk with various forms of collateral or collateral arrangements, including secured trusts, funds withheld arrangements and irrevocable letters of credit. +Please refer to Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K for further discussion on reinsurance, reinsurance recoverables for our largest reinsurers and credit risk and counterparty risk. +Please refer to “ Risk Factors - We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or from whom we have purchased options” for additional details regarding credit risk related to reinsurance agreements. A description of significant ceded reinsurance transactions appears below. +Wilton Reinsurance Transaction . Almost all of the life insurance policies inforce issued before March 1, 2010, except for the return of premium benefits on term life insurance products, are subject to a reinsurance arrangement with Wilton Reassurance Company (“Wilton Re”). Pursuant to the agreed upon terms, Wilton Re purchased through a 100% quota share reinsurance agreement certain FGL Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s inforce traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the agreement satisfies the risk transfer requirements for GAAP. +Hannover Reinsurance Transaction. Originally effective January 1, 2017, FGL Insurance has a reinsurance agreement with Hannover Life Reassurance Company of America, an unaffiliated reinsurer, to reinsure an inforce block of FGL Insurance’s FIA and fixed rate deferred annuity contracts with GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of this agreement, FGL Insurance cedes 70% net retention of secondary guarantee payments in excess of account value for GMWB and death benefits in excess of account value for GMDB guarantees. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL insurance applies the right of offset in the reinsurance agreement. +Kubera Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Kubera Insurance (SAC) Ltd. (“Kubera”), an unaffiliated reinsurer, to cede certain FIA statutory reserves on a coinsurance funds withheld quota share basis, net of applicable existing reinsurance. This agreement has been amended several times to include additional FIA policies, with the latest amendment effective December 1, 2025. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreement. +To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $435 million, to the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds +19 +withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2025 and December 31, 2024, the amount funded under the NPA was insignificant. +Kubera & Somerset Reinsurance Transactions. FGL Insurance entered into a reinsurance agreement with Kubera, effective December 31, 2018, to cede certain fixed rate annuity (including MYGA) GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset Reinsurance Ltd. (“Somerset”), a certified third-party reinsurer. Effective December 1, 2023, FGL Insurance executed an additional coinsurance funds withheld agreement with Somerset to cede certain flow MYGA business written effective on or after December 1, 2023. As the policies ceded to Somerset are investment contracts, there is no significant insurance risk present and these portions of the reinsurance agreements are accounted for as separate investment contracts. +Effective July 1, 2024, FGL Insurance amended the existing flow reinsurance agreement with Somerset to additionally cede the base contract benefits and GMWB riders attached under certain FIA policies on a coinsurance funds withheld quota share basis written on or after July 1, 2024. As the base contract benefits and GWMB riders are ceded to Somerset, there is sufficient insurance risk present that results in this portion of the reinsurance agreement being accounted for as reinsurance. +Everlake Reinsurance Transaction. Effective September 1, 2023, FGL Insurance executed a coinsurance agreement with Everlake Life Insurance Company (“Everlake”), an unaffiliated reinsurer to cede, on a quota share basis, certain flow MYGA business written effective on or after September 1, 2023. Effective January 1, 2025, FGL amended the flow reinsurance agreement to cede future additional MYGA business for agreed upon periods to Everlake pursuant to an offer and acceptance process, rather than on a flow basis. The amendment included a cession of an inforce block of certain MYGA policies on a coinsurance quota share basis. As the policies ceded to Everlake are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +Aspida Reinsurance Transactions. FGL Insurance has a reinsurance agreement with Aspida Life Re Ltd. (“Aspida Re”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after January 15, 2021. As the policies ceded to Aspida Re are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +FGL Insurance entered into a reinsurance agreement with Aspida Re Cayman Ltd. (“Aspida Re Cayman”), an unaffiliated reinsurer, to cede certain flow MYGA business, on a funds withheld coinsurance basis, net of applicable existing reinsurance, written effective on or after November 1, 2025. As the policies ceded to Aspida Re Cayman are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +New Re Reinsurance Transaction. Effective December 31, 2022, FGL Insurance entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd., an unaffiliated reinsurer and wholly owned subsidiary of Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (d/b/a “Munich Re”), to cede certain FIA policies. Effective July 1, 2023, this agreement was amended to reinsure additional FIA products. The coinsurance quota share is applicable to the base contract benefits under the FIA policies and the yearly renewable term is applicable to the waiver of surrender charges and return of premium. Effective October 1, 2025, this agreement was recaptured and terminated and FGL Insurance entered into a new indemnity reinsurance agreement with Munich Re to cede certain inforce and future flow FIA policies on a coinsurance basis, applicable to the base contract benefits, waiver of surrender charges, and minimum guaranteed surrender value benefits and for certain FIA policies, return of premium rider and minimum interest credit rider benefits. The effects of these agreements are not accounted for as reinsurance as they do not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied and FGL Insurance applies the right of offset in the reinsurance agreements. +20 +The CARVM Facility. Life insurance companies operating in the United States must calculate required reserves for life and annuity policies based on statutory principles. The insurance divisions have adopted the methodology contained in the NAIC Valuation Manual as the prescribed methodology for the insurance industry. The industry has reduced or eliminated redundancies thereby increasing capital using a variety of techniques including reserve facilities. +FGL Insurance has a reinsurance treaty with Raven Reinsurance Company (“Raven Re”), its wholly owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation Method (“CARVM”) liability for annuity benefits where surrender charges are waived related to certain FIA, deferred annuity and MYGA policies. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement with Nomura Bank International plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The financing facility has $150 million available to draw on as of December 31, 2025. The amended facility may terminate earlier than the current termination date of October 1, 2027, in accordance with the terms of the reimbursement agreement. Under the terms of the reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required to repay the amounts utilized, and F&G Annuities & Life, Inc. (“FGAL”) is obligated to repay the amounts utilized if Raven Re fails to make the required reimbursement. Under the terms of the agreement, FGAL is also required to make a capital contribution to Raven Re in certain circumstances, including in the event that Raven Re’s statutory capital and surplus falls below defined levels. As of December 31, 2025 and December 31, 2024, no capital contributions were required to be made due to these conditions. As this letter of credit is provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an admitted asset on the Raven Re statutory balance sheet. +GMWB/GWP Reinsurance Transaction . Effective December 31, 2023, FGL Insurance recaptured its reinsurance arrangement with Canada Life Assurance Company (“Canada Life”) United States Branch covering FIA policies with GMWB and guaranteed withdrawal payment (“GWP”) features and entered into a reinsurance treaty with Corbeau Re, Inc. (“Corbeau Re”), its wholly owned captive reinsurance company, to cede certain FIA policies with GMWB and GWP. In accordance with the terms of this agreement, FGL Insurance cedes a quota share of GMWB and GWP paid in excess of account value. In connection with the reinsurance agreement between FGL Insurance and Corbeau Re, Corbeau Re entered into an excess of loss reinsurance agreement (“XOL”) with Canada Life Barbados Branch to finance the portion of statutory reserves considered to be non-economic. The XOL matures on December 31, 2043, and provides for coverage on losses up to $2,400 million as of December 31, 2024. With Corbeau Re, non-economic reserves were financed through the maturity date of the XOL and statutory reserves are recorded for all risks expected to be incurred after the maturity date of the XOL. The XOL is not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. Under the terms of the agreement, FGAL is required to make a capital contribution to Corbeau Re in certain circumstances, including in the event that Corbeau Re’s statutory capital and surplus falls below defined levels. As of December 31, 2025, no capital contributions were required to be made due to these conditions. Corbeau Re is permitted to account for the excess of loss reinsurance agreement from Canada Life as an admitted asset on the Corbeau Re statutory balance sheet. +PRT Reinsurance Transaction . Effective October 1, 2023, FGL Insurance recaptured a reinsurance agreement with its affiliate F&G Life Re Ltd. (“F&G Life Re”), a Bermuda reinsurer, covering a quota share of certain pension risk transfer group annuity contracts and entered into an agreement with its affiliate F&G Cayman Re Ltd. (“F&G Cayman Re”), a Cayman Islands reinsurer, to reinsure a quota share of certain pension risk transfer group annuity contracts (previously ceded to F&G Life Re) in addition to flow pension risk transfer group annuity contracts. Some of the contracts reinsured are held by FGL Insurance’s general account and others are held by a FGL Insurance separate account (which does not meet the GAAP definition of a separate account). Reinsurance of the general account contracts are maintained on a coinsurance funds withheld basis for the general account statutory reserves. Reinsurance of the separate account contracts are maintained on a modified coinsurance basis for the separate account statutory reserves and coinsurance basis for the general account statutory reserves supporting the separate account. In connection with the agreement, F&G Cayman Re entered into a financing agreement with Deutsche Bank AG (“DB”), operating out of its New York branch, whereby DB issued a letter of credit used to support the coinsured general account statutory reserves (generally considered to be the non-economic reserves). +21 +IUL YRT Reinsurance: Effective January 1, 2025, F&G entered into separate flow reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain new IUL policies and effective July 1, 2025, F&G entered into additional separate reinsurance agreements with several unaffiliated reinsurers to reinsure mortality risk on certain inforce IUL policies. In accordance with the terms of these agreements, F&G cedes the net amount at risk on the IUL policies, which is the difference between the stated death benefit and the contractholder funds balance, on a yearly renewable term basis. The effects of these agreements are accounted for as reinsurance as the ceded policies qualify as insurance products and the agreements satisfy the risk transfer requirements for GAAP. +New Reinsurance Vehicle: During the third quarter of 2025, F&G announced the launch of a strategic partnership with a new reinsurance vehicle backed by Blackstone managed funds, with approximately $1 billion in anticipated capital commitments. Effective August 1, 2025, F&G executed this forward flow reinsurance agreement with Fort Greene Reinsurance SPC Limited Segregated Portfolio No. 1, (“Fort Greene”) to cede certain FIA policies on a coinsurance funds withheld quota share basis and certain funding agreements on a modified coinsurance basis. F&G does not hold any ownership stake in the unaffiliated Fort Greene entity. As the policies ceded to Fort Greene are investment contracts, there is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. +F&G Life Re. Effective December 1, 2025, FGL Insurance recaptured a portion of the reinsurance agreement with its affiliate F&G Life Re, covering a quota share of certain FIA policies. +All intercompany balances have been eliminated in the preparation of the accompanying Consolidated Financial Statements. See Note E - Reinsurance to our Consolidated Financial Statements included in Part II - Item 8 of this Annual Report on Form 10-K. +Our Retail Distribution Channels +We distribute our annuity and life insurance products through three main retail channels of distribution: independent agents, banks, and broker-dealers. +In our independent agent channel, the sale of our products typically occurs as part of a four party, three stage sales process between FGL Insurance, an IMO, the agent and the customer. FGL Insurance designs, manufactures, issues, and services the product. The IMOs will typically sign contracts with multiple insurance carriers to provide their agents with a broad and competitive product portfolio. The IMO provides training and discusses product options with agents in preparation for meetings with clients. The IMO staff also provide assistance to the agent during the selling and application process. The agent may get customer leads from the IMOs. The agent conducts a fact finding and presents suitable product choices to the customers. We monitor the business issued by each distribution partner for pricing metrics, mortality, persistency, as well as market conduct and suitability. +We offer our products through a network of approximately 300 IMOs, representing approximately 173,000 agents. We believe that our relationships with these IMOs are strong. We identify Power Partners as those who have demonstrated the ability to generate significant production for our business. We currently have 58 Power Partners, comprised of 24 annuity IMOs and 34 life insurance IMOs. The average tenure of the Power Partners is approximately 21 years. +We took a similar approach in launching products as a new entrant into the bank and broker-dealer channels by partnering with one of the largest broker-dealers in the industry. In 2020, F&G launched a set of fixed rate annuity and FIA products to banks and broker-dealers and gained selling agreements with some of the largest banks and broker-dealers in the United States. We offer our products through a network of approximately 26 banks and broker-dealers, representing approximately 14,000 financial advisers. The financial advisers at our bank and broker-dealer partners are able to offer their clients guaranteed rates of return, protected growth, and income for life through our Secure series of annuity products. We employ a hybrid distribution model in this channel, whereby some financial institutions partner directly with F&G and our sales team, and others work with an intermediary. As such, we partner +22 +with a select number of financial institution intermediaries who have expertise in the channel and maintain the appropriate field wholesaling forces to be successful in this channel. In 2025, the top 5 firms represented 81% of channel sales. Bank and broker-dealers represented 36% of annuity sales for the year ended December 31, 2025. +The top five states for the distribution of F&G’s retail products in the year ended December 31, 2025 were California, Florida, Pennsylvania, Texas and New Jersey, which together accounted for 40% of F&G’s retail sales. +Our Investment Management Governance and Approach +We embrace a long-term conservative investment philosophy, investing nearly all the insurance premiums we receive in a wide range of high-quality debt securities. Our investment strategy is designed to (i) preserve capital, (ii) provide consistent yield and investment income, and (iii) achieve attractive absolute returns. We base all of our decisions on fundamental, bottom-up research, coupled with a top-down view that respects the cyclicality of certain asset classes. The types of assets in which we may invest are influenced by various state laws, which prescribe qualified investment assets applicable to insurance companies. +FGL Insurance and certain other subsidiaries of F&G are party to investment management agreements (“IMAs”) with Blackstone ISG-I Advisors LLC (“BIS”) pursuant to which BIS is appointed as investment manager of substantially all assets in the general and separate accounts of those entities (the “F&G Accounts”). Effective October 1, 2024, FGL Insurance amended and restated its IMA with BIS to increase a fee cap from 26 basis points to 30 basis points. This increase did not change the overall economics of the IMA as it was not material in nature. MVB Management, LLC, (“MVB Management”), an entity that is 50% owned by BilCar, LLC (an affiliate of William Foley, the Executive Chairman and a director of the Company) (“BilCar”), receives a participation fee from BIS in connection with assets of F&G and its subsidiaries that are managed by BIS. BIS also receives services from MVB Management. Pursuant to the investment management agreements with BIS, BIS pays MVB Management a fee of approximately 7.5% of certain fees paid to BIS and its affiliates for AUM relating to new business generated after March 31, 2023 (“New AUM”) (15% prior to that date). In March 2023, BilCar waived its right to receive any portion of payments made by BIS to MVB in respect of such New AUM. Additionally, in March 2023 the Company entered into an agreement with BilCar to pay BilCar the fees that it would have received through MVB Management from BIS over the 10-year period ending March 31, 2033. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. There are no specified minimum amounts of assets that we have agreed that BIS will manage; however, BIS has the right to manage (and receive fees based on) all assets in the F&G Accounts with limited exceptions. One such exception relates to non-affiliated funds‑withheld reinsurance agreements, pursuant to which third‑party asset managers are responsible for all aspects of investment management for the associated assets. In these arrangements, the F&G investment team retains governance oversight, including monitoring compliance with the investment guidelines negotiated between F&G and the respective third‑party managers to ensure alignment with our investment objectives, risk parameters and applicable regulatory requirements. In addition, for certain asset classes, including consolidated variable interest entities, we utilize specialized third-party investment managers. As of December 31, 2025, approximately 78% of our $69 billion investment portfolio was managed by BIS, with 20% managed by other third parties, and the remaining 2% internally managed. BIS, in accordance with our IMAs, has delegated certain investment services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS and each such affiliate. +On March 10, 2023, the IMAs were amended such that, for assets under management as of March 31, 2023, BIS’s per annum management fees are as follows: +• for aggregate assets under management in the F&G Accounts up to $25 billion, 0.26% of such aggregate assets under management; +• for aggregate assets under management in the F&G Accounts above $25 billion and up to $34 billion, 0.24% of such aggregate assets under management; and +23 +• for aggregate assets under management in the F&G Accounts above $34 billion, .12% of such aggregate assets under management. +In addition, the Sub-Manager Fee Agreement has been amended to provide for certain updates thereto, including, among other things, to reflect certain additional asset classes, certain revisions to the applicable sub-manager fee rates in respect of certain existing asset classes and certain revisions to the applicable sub-manager fee rates in respect of assets under management relating to new business of the Company and its subsidiaries generated after March 31, 2023. For the avoidance of doubt, there will be no management fee payable under the IMAs with respect to New AUM. +Aggregate fees paid to BIS were $182 million, $203 million and $194 million for the years ended December 31, 2025, 2024 and 2023, respectively. +Effective January 1, 2025, FGL NY Insur ance and BIS entered into an IMA pursuant to which BIS is appointed as investment manager of substantially all assets in the general account of FGL NY Insurance . FGL NY Insurance terminated its current IMA with its current investment manager effective December 31, 2024. There are no separate agreements or arrangements between BIS or its affiliates, on the one hand, and FGL NY Insurance or its affiliates, on the other hand, concerning the IMA between BIS and FGL NY Insurance. +F&G has a robust governance process and framework to manage the investment portfolio. While BIS is primarily responsible for security selection, F&G makes all investment strategy decisions and sets risk parameters. All major decisions need to be reviewed and approved by the F&G Investment Committee, and new investment asset classes go through an internal risk assessment process at F&G to ensure the investments are suitable for an insurance company balance sheet. We define risk tolerance across a wide range of factors, including credit risk, liquidity risk, concentration (issuer and sector) risk, and caps on specific asset classes, which in turn establish conservative risk thresholds. Also, F&G has flexibility to use other asset management partners through our flow reinsurance platform over time. +F&G, along with BIS, continually monitors portfolio allocations and holdings to optimize the portfolio profile. F&G has undertaken several programs to take advantage of the credit cycle and market conditions or to undertake prudent risk management in anticipation of an unfavorable economic environment. We have also added several new asset classes to the investment portfolio to further enhance diversification. +Each of our subsidiaries that is party to an investment management agreement with BIS may terminate such agreement upon 30 days’ notice. BIS may also terminate any investment management agreement upon 30 days’ notice. However, F&G and FNF are party to an omnibus termination side letter under which they are required to cause our insurance subsidiaries to engage BIS as an investment manager and to generally not engage any other person as an investment manager. See also “Risk Factors—Risks Relating to Our Business— We rely on our investment management advisory agreements with BIS and other investment managers and sub-managers for the management of portions of certain of our life insurance companies’ investment portfolios.” +The initial term of the side letter expires in 2029 and will automatically renew for successive two-year terms unless F&G terminates the side letter. Prior to June 1, 2029, we and FNF may only terminate the side letter for cause. Cause is generally limited to circumstances where BIS is legally unable to manage our assets, if BIS fails to offer us “most favored nations” rights with respect to certain products it may issue to third parties, or where BIS has acted with gross negligence, willful misconduct or reckless disregard of its obligations under the investment management agreements. In addition, at the expiration of the initial term of the side letter in 2029, or at the end of any renewal term, we may with prior notice terminate the side letter for unsatisfactory long-term performance by BIS based on underperformance. If we provide any such notice, the termination would not become effective for one year from the date of termination given in the notice, during which time BIS may seek to cure the events giving arise to the termination notice. +Because our subsidiaries can terminate an investment management agreement at any time upon 30 days' notice, it is possible that such a termination by one of our subsidiaries could cause us to be in breach of our obligations +24 +under the side letter. BIS’s contractual remedies under the side letter include specific performance and the right to seek damages including, in the event of a non-permitted termination of an investment management agreement by one of our subsidiaries, as compensation for the costs incurred in performing services under, and the failure to receive the benefits reasonably anticipated by, an IMA, the full amount of damages available at law in the same manner and to the same extent as if such IMA had been terminated by us our at our direction in violation of the terms of the side letter. +Our investment portfolio consists of fixed-rate high-quality fixed maturities, including publicly and privately issued corporate bonds, municipal and other government bonds, asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities, commercial mortgage loans (“CMLs”), residential mortgage loans (“RMLs”), limited partnership investments, and other investments. We also maintain holdings in floating rate, and less rate-sensitive investments, including CLOs, non-agency RMBS, and various types of ABS. It is our expectation that our investment portfolio will broaden in scope and diversity to include other asset classes held by life and annuity insurance writers. We also have a small amount of equity holdings required as part of our funding arrangements with the FHLB. +The Company employs hedging strategies to manage exposure to floating interest rates on a portion of its existing and newly acquired floating‑rate assets, subject to market conditions. The Company also uses foreign exchange hedging instruments to manage exposure to non‑U.S. dollar‑denominated investments by economically converting such exposures to U.S. dollars, with the objective of reducing volatility in earnings resulting from changes in interest rates and foreign exchange rates. +The portfolio also has exposure to U.S. dollar denominated emerging market bonds, highly rated preferred stocks and hybrids. We currently maintain a well-matched asset/liability profile (asset duration of 4.5 years vs. liability duration of 5.2 years). +Please refer to Note C - Investments in the Consolidated Financial Statements and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Portfolio” in this Annual Report on Form 10-K for additional information about our investment portfolio. +Mature Risk Management Framework and Governance +Risk management is a critical part of our business to manage our financial strength and meet or exceed regulatory requirements. We seek to assess risk to our business through a comprehensive, formal process involving: +a. identifying short-term and long-term strategic and operational objectives; +b. development of risk appetite statements that establish what the Company is willing to accept in terms of risks to achieving its goals and objectives; +c. identifying the levers that control the risk appetite of the Company; +d. establishing the overall limits of risk acceptable for a given risk driver; +e. establishing operational risk limits that are aligned with the tolerances; +f. assigning risk limit quantification and mitigation responsibilities to individual team members within functional groups; +g. analyzing the potential qualitative and quantitative impact of individual risks, including but not limited to stress and scenario testing covering over eight economic and insurance related risks; +h. mitigating risks by appropriate actions; and +i. identifying, documenting and communicating key business risks in a timely fashion. +Our most significant risks are governed through holding company governance committees and overall by the Enterprise Risk Management Committee (“ERMC”). Our most significant risks such as credit risk, liquidity risk, and policyholder behavior associated with interest rate risk have established risk limits associated with our risk appetite statements. These include investment limits by asset class, ratings and issuer. Liquidity risk is managed +25 +through frequent forecasting of sources and uses of cash and managed to our Liquidity Policy. Asset liability management procedures and limits protect the Company, within limits, against significant changes in interest rates. In addition, the risks are stressed as part of our scenario testing process to identify areas requiring mitigation plans based on the macroeconomic environment. Risk limits, risk appetite and scenario testing results of the stresses are discussed with stakeholders such as the F&G ERMC, the Board of Directors (“Board”) and Audit Committee (“AC”) of F&G, regulators and rating agencies. +The responsibility for monitoring, evaluating and responding to risk embedded across the organization: first assigned to our management and employees, second to those occupying specialist functions, such as legal compliance and risk teams, and third to those occupying supervisory functions, such as internal audit and the Board. +Operations/Outsourcing +We believe we have designed an efficient corporate platform which enables us to be highly scalable with volume over time and allows us to onboard incremental business with low incremental fixed operating cost. As a result, we believe we should be able to convert a significant portion of incremental net investment income from additional invested assets and liabilities into operating income. +We outsource the following functions to third-party service providers: +• new business administration (data entry and policy issue only); +• service of existing policies; +• underwriting administration of life insurance applications; +• call centers; +• information technology development and maintenance; +• certain investment accounting and custody; and +• co-located data centers and hosting of financial systems. +We closely manage our outsourcing partners and integrate their services into our operations. We believe that outsourcing such functions allows us to focus capital and our employees on our core business operations and perform differentiating functions, such as finance, actuarial, product development and risk management functions. In addition, we believe an outsourcing model provides predictable pricing, service levels and volume capabilities and allows us to benefit from technological developments that enhance our customer self-service and sales processes. We believe that we have a good relationship with our principal outsource service providers. +Our Financial Strength/Ratings +Our access to funding and our related cost of borrowing, the attractiveness of certain of our products to customers and requirements for derivatives collateral posting are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. +As of the date of this Annual Report on Form 10-K, A.M. Best, Fitch, Moody’s, and S&P had issued credit ratings, financial strength ratings and/or outlook statements regarding us, as listed below. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations under an insurance policy and generally involve quantitative and qualitative evaluations by rating agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the insurer and upon their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to policyholders, agents and intermediaries and are not directed toward the protection of investors. Credit and financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization. +26 +In addition to the financial strength ratings, rating agencies use an “outlook statement” to indicate a medium- or long-term trend that, if continued, may lead to a rating change. A positive outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. A developing outlook is assigned when a rating may be raised, lowered, or affirmed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A rating may have a “stable” outlook to indicate that the rating is not expected to change, but a “stable” outlook does not preclude a rating agency from changing a rating at any time without notice. +The rating organizations may take various actions, positive or negative. Such actions are beyond our control, and we cannot predict what these actions may be and the timing thereof. +A.M. Best S&P Fitch Moody’s +Holding Company and Security Ratings +F&G Annuities & Life, Inc. +Issuer Credit / Default Rating Not Rated BBB- BBB Baa3 +Outlook Stable Stable Stable +Senior Unsecured Notes Not Rated BBB- BBB- Baa3 +Junior Subordinated Notes (a) +Not Rated BB BB Ba1 +Operating Subsidiary Ratings +Fidelity & Guaranty Life Insurance Company +Financial Strength Rating A A- A- A3 +Outlook Stable Stable Stable Stable +Fidelity & Guaranty Life Insurance Company of New York +Financial Strength Rating A A- A- Not Rated +Outlook Stable Stable Stable +F&G Life Re Ltd +Financial Strength Rating Not Rated Not Rated Not Rated A3 +Outlook Stable +F&G Cayman Re Ltd +Financial Strength Rating Not Rated Not Rated A- Not Rated +Outlook Stable +(a) Reflects rating of $375 million Junior Subordinated Notes due 2065 issued in January 2025 +A.M. Best, S&P, Fitch and Moody’s review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales and persistency is unknown, we believe if our ratings were to be negatively adjusted for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business. See “ Risk Factors ” in this Annual Report on Form 10-K. +Potential Impact of a Ratings Downgrade. We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivatives agreements on International Swap and Derivative Association (“ISDA”) forms. Under some ISDA agreements, we have agreed to maintain certain financial strength ratings. Please refer to Note D - Derivative Financial Instruments to the Consolidated Financial Statements in this Annual Report on Form 10-K for disclosure around our requirement to maintain minimum ratings. +If the insurance subsidiaries held net short positions against a counterparty, and the subsidiaries’ financial strength ratings were below the levels required in the ISDA agreement with the counterparty, the counterparty would demand immediate further collateralization, which could negatively impact overall liquidity. Based on the fair value of our derivatives as of December 31, 2025, we hold no net short positions against a counterparty; therefore, we were not required to post collateral at December 31, 2025. +27 +A downgrade of the financial strength rating of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it more difficult for us to market our products, as potential customers may select companies with higher financial strength ratings. A downgrade of the financial strength rating could also impact our borrowing costs. +Regulation of F&G +U.S. Regulatory Overview +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to comprehensive regulation and supervision in their domiciles, Iowa, New York, Vermont and Vermont, respectively, and in each state in which they do business. FGL Insurance does business throughout the United States and Puerto Rico, except for New York. FGL NY Insurance only does business in New York. Raven Re is a special purpose captive reinsurance company that only provides reinsurance to FGL Insurance under the CARVM Treaty. Corbeau Re, a wholly owned captive reinsurance company, reinsures certain of FGL Insurance’s FIA policies with GMWB and GWP. FGL Insurance’s principal insurance regulatory authority is the IID; however, state insurance departments throughout the United States also monitor FGL Insurance’s insurance operations as a licensed insurer. The New York State Department of Financial Services (“NYDFS”) regulates the operations of FGL NY Insurance. The purpose of these regulations is primarily to protect insurers’ policyholders and beneficiaries and not their general creditors and shareholders of those insurers or of their holding companies. Many of the laws and regulations to which FGL Insurance and FGL NY Insurance are subject are regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect their operations. +Generally, insurance products underwritten by, and rates used by, FGL Insurance and FGL NY Insurance must be approved by the insurance regulators in each state or territory in which they are sold. In addition, insurance products may also be subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). +State insurance authorities have broad administrative powers over FGL Insurance and FGL NY Insurance with respect to all aspects of the insurance business, including: +• licensing to transact business; +• licensing agents; +• prescribing which assets and liabilities are to be considered in determining statutory surplus; +• regulating premium rates for certain insurance products; +• approving policy forms and certain related materials; +• requiring insurers and agents to act in the best interests of consumers when making recommendations to purchase annuities, or to determine whether a reasonable basis exists as to the suitability of such investments for consumers; +• regulating unfair trade and claims practices; +• establishing reserve requirements and solvency standards; +• regulating the amount of dividends that may be paid in any year by insurance companies; +• regulating the availability of reinsurance or other substitute financing solutions, the terms thereof and the ability of an insurer to take credit on its financial statements for insurance ceded to reinsurers or other substitute financing solutions; +• fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; and +• regulating the type, amounts, and valuations of investments permitted, transactions with affiliates and other matters. +28 +Financial Regulation +State insurance laws and regulations require FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to file reports, including financial statements, with state insurance departments in each state in which they do business, and their operations and accounts are subject to examination by those departments at any time. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these departments. +The NAIC has approved a series of statutory accounting principles and various model regulations that have been adopted, in some cases with certain modifications, by all state insurance departments. These statutory principles are subject to ongoing change and modification. Moreover, compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Any particular regulator’s interpretation of a legal or accounting issue may change over time to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s detriment, or changes to the overall legal or market environment, even absent any change of interpretation by a particular regulator, may cause FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re to change their views regarding the actions they need to take from a legal risk management perspective, which could necessitate changes to FGL Insurance’s, FGL NY Insurance’s, Raven Re’s or Corbeau Re’s practices that may, in some cases, limit their ability to grow and improve profitability. +State insurance departments conduct periodic examinations of the books and records, financial reporting, policy and rate filings, market conduct and business practices of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states. +The IID last completed a routine financial examination and a market conduct examination of FGL Insurance for the five year period ending December 31, 2022 and found no material deficiencies and proposed no adjustments to the financial statements as filed. +The NYDFS last completed a routine financial examination of FGL NY Insurance for the five year period ended December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +The Vermont Department of Financial Regulation completed a routine financial examination of Raven Re for the five year period ending December 31, 2022, and found no material deficiencies and proposed no adjustments to the financial statements as filed. +Dividend and Other Distribution Payment Limitations +The insurance laws of Iowa and New York regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively. +FGL Insurance dividends are paid as declared by its Board of Directors. Pursuant to Iowa insurance law, any proposed payment of a dividend is classified as an “extraordinary dividend” if it, together with the aggregate fair market value of other dividends or distributions made during the preceding twelve months, exceeds the greater of (i) 10% of capital and surplus as of the preceding December 31 or (ii) net gain from operations before realized capital gains or losses for twelve month period ending December 31 of the preceding year. No extraordinary dividends may be paid without prior approval of the IID. In addition, no ordinary dividends may be paid except from the earned profits arising from FGL Insurance’s business, which does not include contributed capital or contributed surplus. +29 +In 2025, FGL Insurance did not pay dividends to Fidelity & Guaranty Life Holdings, Inc. (“FGLH”). Pursuant to the limitations described above, it is estimated that FGL Insurance’s maximum ordinary dividend capacity for 2026 is $0. +Any payment of dividends by FGL Insurance is subject to the regulatory restrictions described above and the approval of such payment by the board of directors of FGL Insurance, which must consider various factors, including general economic and business conditions, tax considerations, FGL Insurance’s strategic plans, financial results and condition, FGL Insurance’s expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends and its effect on RBC and such other factors the board of directors of FGL Insurance considers relevant. For example, payments of dividends could reduce FGL Insurance’s RBC and financial condition and lead to a reduction in FGL Insurance’s financial strength rating. See “Risk Factors—Risks Relating to Our Business— A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions as calculated under New York insurance laws without being required to obtain the prior consent of the NYDFS. However, to pay any dividends or distributions (including the payment of any dividends or distributions for which prior consent is not required), FGL NY Insurance must provide advance written notice to the NYDFS. +FGL NY Insurance has historically not paid dividends. +Surplus and Capital +FGL Insurance and FGL NY Insurance are subject to the supervision of the regulators in states where they are licensed to transact business. Regulators have discretionary authority in connection with the continued licensing of these entities to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such entities have not maintained the minimum surplus or capital or that the further transaction of business would be hazardous to policyholders. +Risk-Based Capital +In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement RBC requirements for life, health and property and casualty insurance companies. All states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. In general, RBC is calculated by applying factors to various asset, premium and reserve items, taking into account the risk characteristics of the insurer. Within a given risk category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. The RBC formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon the level of capital inadequacy. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for FGL Insurance and FGL NY Insurance each exceeded the minimum RBC requirements. +It is desirable to maintain an RBC ratio in excess of the minimum requirements in order to maintain or improve financial strength ratings. FGL Insurance’s estimated U.S. RBC ratio was approximately 430% as of December 31, 2025, above our 400% target. See “Risk Factors — Risks Related to Our Business — A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could increase our cost of capital, making it challenging to grow our business, and could hinder our ability to participate in certain market segments, thereby adversely affecting our results of operations and our financial condition ” in this Annual Report on Form 10-K. +30 +See “ Bermuda Regulatory Overview — ECR and Bermuda Solvency Capital Requirements ” for a discussion of Bermuda regulatory requirements that impact F&G Life Re. +Insurance Regulatory Information System Tests +The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A ratio falling outside the prescribed “usual range” is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more ratios that fall outside the usual range. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined “usual ranges.” Generally, regulators will begin to investigate or monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. IRIS consists of a statistical phase and an analytical phase whereby financial examiners review insurers’ annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that are generated from the NAIC database annually; each ratio has a “usual range” of results. +As of December 31, 2025, FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re had three, one, two and four ratios outside the usual range, respectively. The IRIS ratios for “net income to total income (including realized capital gains and losses)”, “total affiliated investments to capital and surplus” and “surplus relief - over $5 million capital and surplus” for FGL Insurance were outside the usual range. The IRIS ratio for “change in reserving ratio” for FGL NY Insurance was outside the usual range. The IRIS ratios for “adequacy of investment income” and “change in premium” for Raven Re were outside the usual range. The IRIS ratios for “net income to total income (including realized capital gains and losses)”, “adequacy of investment income”, “change in premium” and “change in asset mix” for Corbeau Re were outside the usual range. +In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are not currently subject to regulatory restrictions based on these ratios. +Group Capital Calculation +The NAIC developed a group capital calculation tool using an RBC methodology for all entities within the insurance holding company system, including non-U.S. entities. In December 2020, the NAIC adopted the Group Capital Calculation Template and Instructions, as well as amendments to the Model Holding Company Act and Regulation. The amendments implement the annual filing requirement for the group capital calculation but will not become effective until adopted by state legislatures or regulatory agencies. FNF’s lead regulator, the Florida Office of Insurance Regulation, which is also the Company’s lead regulator for this purpose, adopted a requirement for group capital reporting in late 2025 that will be effective for year-end 2026 with filing required in the first half of 2027. +Insurance Reserves +State insurance laws require insurers to analyze the adequacy of reserves. Following the implementation of principle-based reserving for life insurance products, the NAIC is now developing a principle-based reserving framework for fixed annuity products. The respective appointed actuaries for FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re must each submit an opinion on an annual basis that their respective reserves, when considered in light of the respective assets FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re hold with respect to those reserves, make adequate provision for the contractual obligations and related expenses of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re. FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re have filed all of the required opinions with the insurance departments in the states in which they do business. +31 +Credit for Reinsurance Regulation +States regulate the extent to which insurers are permitted to take credit on their financial statements for the financial obligations that the insurers cede to reinsurers. Where an insurer cedes obligations to a reinsurer that is neither licensed nor accredited by the state insurance department, the ceding insurer is not permitted to take such financial statement credit unless the unlicensed or unaccredited reinsurer secures the liabilities it will owe under the reinsurance contract. +Under the laws regulating credit for reinsurance issued by such unlicensed or unaccredited reinsurers, the permissible means of securing such liabilities are (i) the establishment of a trust account by the reinsurer to hold certain qualifying assets in a qualified U.S. financial institution, such as a member of the Federal Reserve, with the ceding insurer as the exclusive beneficiary of such trust account with the unconditional right to demand, without notice to the reinsurer, that the trustee pay over to it the assets in the trust account equal to the liabilities owed by the reinsurer; (ii) the posting of an unconditional and irrevocable letter of credit by a qualified U.S. financial institution in favor of the ceding company allowing the ceding company to draw upon the letter of credit up to the amount of the unpaid liabilities of the reinsurer and (iii) a “funds withheld” arrangement by which the ceding company withholds transfer to the reinsurer of the assets, which support the liabilities to be owed by the reinsurer, with the ceding insurer retaining title to and exclusive control over such assets. +In addition, all U.S. states, including Iowa and New York, permit an insurer to take credit for reinsurance ceded to a non-U.S. reinsurer that posts collateral in amounts less than 100% of the reinsurer’s obligations if the reinsurer has been designated as a “certified reinsurer” and is domiciled in a country recognized by the state and the NAIC as a “Qualified Jurisdiction.” The reduced percentage of full collateral applied to a certified reinsurer is based upon an assessment of the reinsurer and its financial ratings. Iowa and New York both also recognize certain qualified non-U.S. insurers as reciprocal jurisdiction reinsurers such that ceding domestic insurers may receive credit for reinsurance ceded to such unauthorized reinsurers without the requirement for the reinsurer to provide collateral. +FGL Insurance and FGL NY Insurance are subject to the credit for reinsurance rules described above in Iowa and New York, respectively, insofar as they enter into any reinsurance contracts with reinsurers that are neither licensed, accredited nor certified in Iowa and New York, respectively, or recognized as a reciprocal reinsurer in such jurisdictions. +Insurance Holding Company Regulation +F&G, as the indirect parent company of FGL Insurance and FGL NY Insurance, is subject to the insurance holding company laws in Iowa and New York. These laws generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company’s state of domicile and to furnish annually financial and other information about the operations of companies within the holding company system. Generally, all transactions between insurers and affiliates within the holding company system are subject to regulation and must be fair and reasonable, and may require prior notice and approval or non-disapproval by its domiciliary insurance regulator. +Most states, including Iowa and New York, have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s holding company. Such laws prevent any person from acquiring control, directly or indirectly, of F&G, FGL US Holdings Inc. (“FGL US Holdings”), CF Bermuda Holdings Limited (“CF Bermuda”), FGLH, FGL Insurance or FGL NY Insurance or certain of their affiliates unless that person has filed a statement with specified information with the insurance regulators and has obtained their prior approval. In addition, investors deemed to have a direct or indirect controlling interest are required to make regulatory filings and respond to regulatory inquiries. Under most states’ statutes, including those of Iowa and New York, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. In addition, the insurance laws of Iowa and New York permit a determination of control in circumstances where the thresholds for the presumption of control have not been crossed. Similar laws apply to a direct or indirect change of ownership of Raven Re and +32 +Corbeau Re. Any person who is deemed to acquire control over F&G, FNF, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance, FGL NY Insurance, Raven Re, Corbeau Re or certain of their affiliates including any person who acquires 10% or more of our or FNF’s voting securities of FGL Insurance, FGL NY Insurance or certain of their affiliates, without the prior approval of the insurance regulators of Iowa and New York, will be in violation of those states’ laws and may be subject to injunctive action requiring the disposition or seizure of those securities by the relevant insurance regulator or prohibiting the voting of those securities and to other actions determined by the relevant insurance regulator. +Insurance Guaranty Association Assessments +Each state has insurance guaranty association laws under which insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all member insurers in the state. Although no prediction can be made as to the amount and timing of any future assessments under these laws, FGL Insurance and FGL NY Insurance have established reserves that they believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. +Market Conduct Regulation +State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales and complaint process practices. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. In addition, FGL Insurance and FGL NY Insurance must file, and in many jurisdictions and for some lines of business obtain regulatory approval for, rates and forms relating to the insurance written in the jurisdictions in which they operate. FGL Insurance is currently the subject of an ongoing market conduct examination in one state. Market conduct examinations can result in monetary fines or remediation and generally require FGL Insurance to devote significant resources to the management of such examinations. FGL Insurance does not believe that the current market conduct examination it is subject to will result in any fines or remediation orders that will be material to its business. +Regulation of Investments +FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in certain asset categories, such as below investment grade fixed income securities, equity, real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as either non-admitted assets for purposes of measuring surplus or as not qualified as an asset held for reserve purposes and, in some instances, would require divestiture or replacement of such non-qualifying investments. We believe that the investment portfolios of FGL Insurance, FGL NY Insurance, Raven Re and Corbeau Re as of December 31, 2025, complied in all material respects with such regulations. +In 2023, the NAIC released new regulations that define a residual interest and new criteria for investments that can be classified as a bond. All of the Company’s impacted insurance subsidiaries have implemented the new accounting requirements beginning January 1, 2025. See “Risk Factors — Risks Related to Our Business — Increased regulation or scrutiny of alternative investment advisers, arrangements with such investment advisers and investment activities may affect BIS’s or, if engaged, any other asset manager’s ability to manage our investment portfolio or impact of the reputation of our business” in this Annual Report on Form 10-K. +On December 7, 2021, the NAIC assigned to its Macroprudential Working Group, the evaluation of a list of “Regulatory Considerations Applicable (But Not Exclusive) to Private Equity (PE) Owned Insurers.” Included within this list is the consideration of material increases in privately structured securities (both by affiliated and non-affiliated asset managers), which the NAIC says introduces other sources of risk or increases traditional credit risk, such as complexity risk and illiquidity risk. As a result, the NAIC has issued several clarifying revisions to the +33 +guidance and disclosure requirements for related party and affiliated securities and continues to consider additional proposals and disclosure requirements. +In addition, the NAIC continues to refine its application of RBC factors for certain investments. +Privacy Regulation +Our operations are subject to certain federal and state laws and regulations that require financial institutions and other businesses to protect the security and confidentiality of personal information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of such information. These laws and regulations require notice to affected individuals, law enforcement agencies, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Our operations are also subject to certain federal regulations that require financial institutions and creditors to implement effective programs to detect, prevent and mitigate identity theft. In addition, our ability to make telemarketing calls and to send unsolicited email or fax messages to consumers and customers and our uses of certain personal information, including consumer report information, are regulated. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information. +The Dodd-Frank Act +The Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Dodd-Frank Act”) established the Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. Although the FIO currently does not directly regulate the insurance industry, FIO does monitor and scrutinize developments in the industry. FIO publications or reports, some of which are periodically submitted to Congress, could continue to increase scrutiny of the industry and ultimately lead to changes in the regulation of insurers and reinsurers in the United States, which could negatively impact our insurance business. The Dodd-Frank Act made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Dodd-Frank Act are applicable to us, our competitors or those entities with which we do business. Further, certain provisions of the Dodd-Frank Act may become applicable to us, our competitors, or certain entities with which we do business. These provisions may impact us in many ways, including, but not limited to, having an effect on the overall business climate, requiring the allocation of certain resources to government affairs, and increasing our legal and compliance related activities and the costs associated therewith. For example, it is possible that regulations issued by the Consumer Financial Protection Bureau may extend, or be interpreted to extend, to the sale of certain insurance products by covered financial institutions, which could adversely affect sales of such products. The FIO, in response to various studies it conducts, may also recommend changes in laws or regulations that affect our business. There may be further federal involvement in the business of insurance in the future, which may add significant legal complexity and associated costs to our business. +Under the Dodd-Frank Act, annuities that meet specific requirements, including requirements relating to certain state suitability rules, are specifically exempted from being treated as securities by the SEC. We believe that the types of FIAs that FGL Insurance and FGL NY Insurance sell will meet these requirements and, therefore, are exempt from being treated as securities by the SEC and state securities regulators. However, there can be no assurance that federal or state securities laws or state insurance laws and regulations will not be amended or interpreted to impose further requirements on FIAs. If FIAs were to be treated as securities, federal and state securities laws would require additional registration and licensing of these products and the agents selling them, and FGL Insurance and FGL NY Insurance would be required to seek additional marketing relationships for these products, any of which could impose significant restrictions on its ability to conduct operations as currently operated. However, our RILA product is not exempted from being treated as a security by the SEC. +Additionally, the Dodd-Frank Act established the Financial Stability Oversight Council (“FSOC”), which plays a role in shaping the regulatory environment affecting RILAs and other insurance products that are connected to the +34 +capital markets. The FSOC monitors systemic risks and may designate insurers offering RILAs, as well as certain other products, as systemically important financial institutions if their activities pose significant risks to the broader economy, subjecting them to enhanced prudential standards and supervision by the Board of Governors of the United States Federal Reserve. The prudential standards for non-bank Systemically Important Financial Institutions (“SIFIs”) include enhanced RBC (Risk-Based Capital) requirements, leverage limits, liquidity requirements, single counterparty exposure limits, governance requirements for risk management, stress test requirements, special debt-to-equity limits for certain companies, early remediation procedures, and recovery and resolution planning. +ERISA and Fiduciary Standards +We may offer certain insurance and annuity products to employee benefit plans governed by ERISA and/or the Internal Revenue Code of 1986, as amended (the “Code”), including group annuity contracts designated to fund tax-qualified retirement plans. ERISA and the Code provide (among other requirements) standards of conduct for employee benefit plan fiduciaries, including investment managers and investment advisers with respect to the assets of such plans, and holds fiduciaries liable if they fail to satisfy fiduciary standards of conduct. +State and federal regulators have been adopting stronger consumer protection regulations that may materially impact our company, business, distribution, and products. The NAIC adopted an amended Suitability in Annuity Transactions Model Regulation in February 2020 incorporating a requirement that agents act in the best interest of consumers without putting their own financial interests or insurer’s interests ahead of consumer interests. The best interest requirement is satisfied by complying with four regulatory obligations relating to care, disclosure, conflict of interest, and documentation. The amended model regulation also requires agents to provide certain disclosures to consumers, obligates insurers to supervise agent compliance with the new requirements, and prohibits sales contests or other incentives based on sales of specific annuities within a limited period of time. +All 50 states have adopted the revised NAIC model regulation, including FGL Insurance’s domiciliary state of Iowa. Management has instituted business procedures to comply with these revised requirements where required. FGL NY Insurance separately instituted new business procedures in response to the NYDFS best interest rule adopted in August 2019 which survived a legal challenge and deviates from the NAIC model regulation and is considered more onerous in certain respects including its broader application to life insurance sales. +In December 2020, the DOL issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered a fiduciary for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), and sets forth a new exemption, referred to as prohibited transaction class exemption (“PTE”) 2020-02. The rule’s preamble also contains the DOL’s reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling IRA products and withdraws the DOL’s longstanding position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021. The DOL left in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products, provided that certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. We, along with FGL Insurance and FGL NY Insurance, designed and launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. +On April 23, 2024, following previous attempts to expand fiduciary regulation for advisers, the DOL released a new rule, the “New Fiduciary Rule”, which significantly broadens the definition of “fiduciary” under ERISA and Section 4975 when advisers provide investment recommendations to plans subject to ERISA and Section 4975 of the Code. Among other requirements, the New Fiduciary Rule provides that any person will be an investment advice fiduciary if such person provides investment advice or makes an investment recommendation to a retirement investor (i.e., a plan, a discretionary plan fiduciary, a plan participant or beneficiary, an IRA, an IRA owner or +35 +beneficiary, or an IRA fiduciary) for a fee or other compensation, the person makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation is based on a review of the particular needs or individual investor circumstances of the retirement investor, reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest. Unlike the current ERISA standard, the New Fiduciary Rule subjects non-discretionary investment advice to retirement plans and accounts under the care and loyalty standards that also apply to investment advisors with discretionary authority or control over such plans and accounts. In addition, on the same date, the DOL issued amended versions of PTE 2020-02 and PTE 84-24, either or both of which provide prohibited transaction exemptive relief to insurance companies and insurance producers who make insurance product recommendations to retirement investors, subject to certain conditions. The New Fiduciary Rule likely means that certain of the Company’s agents will be considered fiduciaries for purposes of ERISA and the Code, subjecting the Company, and the insurance industry on the whole, to greater regulatory risk. +The DOL’s New Fiduciary Rule, which was scheduled to become effective on September 23, 2024, has been challenged. On July 25, 2024, in the case of Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al., (“Federation of Americans”) the United States District Court for the Eastern District of Texas (the “Eastern District of Texas”) issued an order staying the effective date of the DOL’s New Fiduciary Rule (and related amendments to PTE 84-24) that was issued in March 2024. The Eastern District of Texas, in part relying on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo , found that the plaintiffs (primarily insurance agents) were likely to succeed on their arguments that the New Fiduciary Rule improperly expanded the definition of an “investment advice fiduciary” under ERISA. As a result, the New Fiduciary Rule’s original effective date of September 23, 2024 was delayed until further notice. +In addition, on July 26, 2024, a companion case to Federation of Americans filed in the United States District Court for the Northern District of Texas, American Council of Life Insurers, et al. v. United States Dep’t of Labor, et al., held the remaining PTE amendments included in the New Fiduciary Rule (PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128) that were not challenged in Federation of Americans were also stayed, noting that the Northern District fully agreed with the Eastern District’s analysis and decision to stay the effective date of the New Fiduciary Rule. +On September 20, 2024, the DOL appealed both rulings to the Fifth Circuit Court of Appeals. In early 2025, the DOL filed successive unopposed motions to hold the appeals in abeyance to allow new agency officials time to become familiar with the issues in these cases and determine how they wish to proceed. The motions were granted so the appeals were in abeyance. In November 2025, the DOL moved to voluntarily dismiss their appeals and the Fifth Circuit agreed and remanded the cases to the District Courts. The DOL has moved the District Courts to allow until March 2026 to determine their position and next steps with the cases. Adverse Texas District Court rulings could have harmful effects on the insurance industry, creating additional hurdles to operate our business. +We cannot predict the final outcome of the pending litigation regarding the New Fiduciary Rule, however, management believes these current and emerging developments relating to market conduct standards for the financial services industry may, over time, materially affect the way in which our agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how we supervise our distribution force, compensation practices and liability exposure and costs, all of which could adversely impact our business, results of operations and/or financial condition. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors to adapt to these evolving regulatory requirements and risks. See “Risk Factors—Legal, Regulatory and Tax Risk s—Current and emerging developments relating to market conduct standards for the financial industry emerging from the United States Department of Labor’s (“DOL”) implementation of the “fiduciary rule” may over time materially affect our business.” +36 +The SECURE 2.0 Act +New and recently passed legislation may also impact the industry in which F&G competes. For example, the SECURE 2.0 Act of 2022, which went into effect as early as January 1, 2023, in certain respects, creates an opportunity for F&G and its competitors to pursue sales to employer retirement plan sponsors as well as its traditional customers. In addition, F&G and its competitors may implement operational changes to adapt to the effect of the new legislation. See “Risk Factors—Legal, Regulatory and Tax Risks —The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete .” +Corporate Alternative Minimum Tax +The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) was signed into law on August 16, 2022. Among other changes, the Inflation Reduction Act introduced a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income and a 1% excise tax on treasury stock repurchases. These provisions were effective January 1, 2023. For purposes of calculating the adjusted financial statement income, the Company is included in the controlled group of FNF, its parent company. Beginning in 2026, the Company will not be eligible to file a consolidated return with FNF, but would still be subject to CAMT as the Company is still considered an applicable corporation due to FNF's ownership. Though the Company is subject to the minimum tax, the Company does not expect to be in a perpetual CAMT position. The Company was not subject to CAMT in 2023, but was for 2024 and 2025, but there was no impact to total tax. A CAMT credit carryforward from 2024 was created and is expected to be able to be utilized in future years. +Climate Risk +On November 15, 2021, NYDFS issued final Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change, detailing NYDFS’s expectations related to domestic insurers' management of the financial risks from climate change. These guidelines are applicable to FGL NY Insurance and became effective in 2022. Under the guidelines, climate change risk must be specifically included in an insurance group's enterprise risk management function. +Diversity and Corporate Governance +The NAIC and certain state insurance regulators are focused on the issue of diversity within the insurance industry, such as the diversity of an insurer’s board of directors and management. The NAIC is developing a framework for approaching issues related to race and insurance. The NAIC goals include improving access to different types of insurance products in minority communities, addressing issues related to affordability, and providing guidance to regulators on ways to improve insurance access and the understanding of insurance in underserved communities. In New York, NYDFS issued a circular letter that states that the NYDFS expects the insurers it regulates to make diversity of their leadership a business priority and key element of their corporate governance, and it includes diversity-related questions in its examination process. This guidance is applicable to FGL NY Insurance. +Bermuda Regulatory Overview +F&G Life Re is a Bermuda exempted company incorporated under the Companies Act, 1981, as amended (the “Bermuda Companies Act”) and registered as a Class E insurer under the Insurance Act 1978, as amended, and its related regulations (the “Bermuda Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”). +On February 19, 2026, the Company announced the expected sale of its Bermuda based subsidiary, F&G Life Re, to Ancient Financial Holdings, LP (“Ancient”). Blackstone will retain asset management for the inforce assets and Ancient will manage assets under a new flow reinsurance treaty for certain MYGA new business. The +37 +transaction is expected to be completed on March 1, 2026. The transaction reflects F&G’s disciplined execution of risk transfer options and that we no longer needed a Bermuda operation to support our reinsurance strategy. +The Bermuda Insurance Act provides that no person may carry on an insurance business in or from within Bermuda unless registered as an insurer under the Bermuda Insurance Act by the BMA. In deciding whether to grant registration, the BMA has broad discretion to act as it thinks fit in the public interest. The BMA is required by the Bermuda Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. The registration of an applicant as an insurer is subject to the insurer complying with the terms of its registration and such other conditions as the BMA may impose at any time. In addition, the Bermuda Insurance Act requires BMA approval of increases in control or dispositions of control of an insurance company. +Effective January 1, 2015, Bermuda was placed on the NAIC’s List of Qualified Jurisdictions, which makes Bermuda-domiciled reinsurers that meet certain criteria to qualify as a certified reinsurer eligible for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law and Regulations as adopted by various states. +Bermuda has been awarded full equivalence for commercial insurers under Europe’s Solvency II regime applicable to insurance companies, which regime came into effect on January 1, 2016. +Effective January 1, 2020, Bermuda was granted NAIC Reciprocal Jurisdiction status, which makes Bermuda domiciled reinsurers that satisfy certain conditions eligible to be designated as a reciprocal jurisdiction reinsurer. Under the NAIC’s Credit for Reinsurance Model Law and Regulations which has been adopted by all states, a ceding insurer may take credit for reinsurance ceded to a reciprocal jurisdiction reinsurer without posting collateral. +All insurers are required to implement corporate governance policies and processes as the BMA considers appropriate given the nature, size, complexity and risk profile of the insurer and all insurers, on an annual basis, are required to deliver a declaration to the BMA confirming whether or not they meet the minimum criteria for registration under the Bermuda Insurance Act. +All insurers are required to comply with the Bermuda Insurance Code of Conduct, which is a codification of best practices for insurers provided by the BMA, and to submit annually to the BMA with its statutory financial return a declaration of compliance confirming it complies with the Bermuda Insurance Code of Conduct. All insurers are also required to comply with the Bermuda Insurance Sector Cyber Risk Management Code of Conduct issued by the BMA under the Bermuda Insurance Act, which establishes the duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management. +The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance and reinsurance companies. As part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer or reinsurer is used to determine the limitations and specific requirements that may be imposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through the scrutiny of audited financial statements, and, as appropriate, meeting with senior management during onsite visits. +The Bermuda Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below. +Minimum Solvency Margin. The Bermuda Insurance Act provides that the value of the assets of an insurer must exceed the value of its liabilities by an amount greater than its prescribed minimum solvency margin. +The minimum solvency margin that must be maintained by a Class E insurer is the greater of: (i) $8,000,000; (ii) 2% of first $500,000,000 of assets plus 1.5% of assets above $500,000,000; and (iii) 25% of that insurer’s +38 +enhanced capital requirement (“ECR”). An insurer may file an application under the Bermuda Insurance Act to waive the aforementioned requirements. +ECR and Bermuda Solvency Capital Requirements (“BSCR”). Class E insurers are required to maintain available capital and surplus at a level equal to or in excess of the applicable ECR, which is established by reference to either the applicable BSCR model or an approved internal capital model. Furthermore, to enable the BMA to better assess the quality of the insurer’s capital resources, a Class E insurer is required to disclose the makeup of its capital in accordance with its 3-tiered capital system. An insurer may file an application under the Bermuda Insurance Act to have the aforementioned ECR requirements waived. +Restrictions on Dividends and Distributions. In addition to the requirements under the Bermuda Companies Act (as discussed below), the Bermuda Insurance Act limits the maximum amount of annual dividends and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval. +F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. +In addition, as a Class E insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of such insurer, as certified by the insurer’s approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or ECR. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed that excess. +Furthermore, as a Class E insurer, F&G Life Re must not declare or pay a dividend in any financial year which would exceed 25% of its total statutory capital and surplus, as set out in its previous year’s Bermuda statutory financial statements, unless at least seven days before payment of such dividend F&G Life Re files with the BMA an affidavit signed by at least two directors of F&G Life Re and its principal representative under the Bermuda Insurance Act stating that, in the opinion of those signing, declaration of such dividend has not caused the insurer to fail to meet its relevant margins. +The Bermuda Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities. +Reduction of Capital. F&G Life Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as statutory capital. +Bermuda Corporate Income Tax +The Corporate Income Tax (“CIT”) Act of 2023 was passed in Bermuda on December 27, 2023. The CIT Act commenced on January 1, 2025 and applies a statutory rate of 15% to the taxable income or loss of Bermuda tax resident entities and permanent establishments. F&G Life Re, a 953(d) company with no or minimal US permanent tax differences, does not anticipate to owe any Bermuda CIT due to the foreign tax credit. The deferred tax asset recorded for the year ended December 31, 2025, of $1 million has a full valuation allowance. As a result, there is no material impact to the financial statements. +Block Transactions +Since January 2023, the BMA has required all long-term (life) commercial reinsurers such as F&G Life Re to obtain the prior approval of the BMA for all long-term block reinsurance transactions, which is defined as a block +39 +transaction that covers an existing long-term business policy that is written and inforce and on the books of the cedant, as of the date of the reinsurance transaction (including pension risk transfer transactions). +Affiliate, Related Party or Connected Party Assets +As a Class E insurer, F&G Life Re is required to obtain the prior written approval of the BMA before investing in assets with counterparty credit exposure to an affiliate, related party or connected party (each as defined under the Bermuda Insurance Act) of F&G Life Re. +Cayman Islands Regulatory Overview +F&G Cayman Re is a Cayman Islands exempted company incorporated under the Companies Act, (2023 Revision) as amended, and licensed as a Class D insurer in the Cayman Islands under the Insurance Act, 2010 as amended and its related regulations (the “Cayman Islands Insurance Act”). F&G Cayman Re is regulated by the Cayman Islands Monetary Authority (“CIMA”). +The Cayman Islands Insurance Act provides that no person may carry on an insurance business in or from within the Cayman Islands unless licensed under the Cayman Islands Insurance Act. CIMA has broad discretion in its consideration of whether to grant a license and must act in the public interest. CIMA is required by the Cayman Islands Insurance Act to determine whether an applicant is a fit and proper body to be engaged in insurance business. A licensed insurer must comply with the terms of its license and such other conditions as CIMA may impose at any time. In addition, the Cayman Islands Insurance Act requires CIMA approval of increases in control or dispositions of control of an insurance company. +All insurers are required to implement corporate governance policies as CIMA considers appropriate given the nature, size, complexity and risk profile of the insurer. All insurers are also required to comply with the CIMA's Rules and Statements of Guidance as applicable to insurers which is a codification of best practices provided by CIMA, and to submit annually to CIMA audited financial statements and a declaration of compliance confirming it complies with the Cayman Islands Insurance Act. +Capital Requirements. The Cayman Islands Insurance Act provides that an insurer must maintain a minimum capital requirement based on its license class. For a Class D insurer, the minimum capital requirement is $50,000,000. In addition, an insurer must maintain a minimum margin of solvency at a level equal to or in excess of the total prescribed capital requirement which is established by reference to either the applicable prescribed capital requirements based on license class or an internal capital model approved by CIMA. Notwithstanding the minimum capital requirements, CIMA may set an enhanced prescribed capital requirement in respect of any insurer. CIMA may also, for class B, C and D insurers, exclude from the calculations assets that it deems inappropriate. +CIMA utilizes a risk-based approach to licensing and supervising insurers and to determining limitations and/or specific requirements. CIMA reviews on an ongoing basis, an insurer’s audited financial statements, actuarial valuation report and, as appropriate, meeting with senior management during onsite visits. +The Cayman Islands Insurance Act and regulations promulgated thereunder impose solvency and liquidity standards on Cayman Islands insurance companies, as well as auditing and reporting requirements. +As a regulated insurance company, F&G Cayman Re is subject to the supervision of CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation. +The laws and regulations of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Statutes, regulations and policies that F&G Cayman Re is subject to may also restrict the ability of F&G Cayman Re to write insurance and +40 +reinsurance policies, make certain investments and distribute funds. Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. +Human Capital Resources +As of December 31, 2025, we had 1,173 full-time equivalent employees. None of our employees are subject to collective bargaining agreements. We consider relations with our employees to be good. +Talent Management +F&G’s core values - Collaborative, Authentic, Dynamic and Empowered, coupled with our competitive total rewards philosophy and flexible work environment provide an attractive employee value proposition. We recruit top talent to join our team and provide opportunities for personal and professional growth. +Our development programs are designed to provide opportunities for all employees to grow and develop. Development programs are aligned to the skills and behaviors defined in our F&G Competencies - Think Enterprise Wide, Leverage Data, Center Equity, Communicate with Courage, Be Accountable- and ensure our employees are developing skills that are critical to achieve business goals now and in the future. +Leadership Academy is our leadership development program designed to develop the next generation of leaders at F&G and enables cross-functional leaders to hone their leadership capability and network with colleagues from across the enterprise. +Employee engagement is measured annually through two surveys. Our strong engagement scores on the Energage Engagement Survey were rewarded with several “Top Places to Work” designations including Leadership, Innovation, Compensation & Benefits, Work-Life Flexibility and Financial Services Industry. We are honored to be a recipient of the “Top Workplaces USA” designation in 2024, 2023 and 2022 and a recipient of the “Top Workplaces Iowa” designation since 2018. +The Gallup Employee Engagement survey data is our key metric to support strategic decisions on engaging and retaining our talent. Initiatives such as our Employee Resource Groups and our Connection Week program are a few examples of programs that were identified based on employee engagement data. +At F&G, we provide comprehensive benefits designed to meet the needs of our employees and demonstrate the value they bring to the organization. Employees are eligible to participate in our 401(k) savings plan, to which we make matching and annual nondiscretionary contributions. Employees are also eligible to participate in our Employee Stock Purchase Plan with a competitive match feature. We offer competitive health care benefit options for medical, dental and vision coverage, as well as a health savings account with an employer contribution. Other benefit offerings include health care and dependent care flexible spending accounts, employee assistance programs, lifestyle reimbursements, charitable matching donations, and adoption assistance. To support a healthy work-life balance, all employees receive paid time off, holidays, flexible Fridays, volunteer time off and paid parental leave for new parents. +Employee retention is critical to the success of our business. Turnover is monitored and analyzed to ensure we are protecting our most valuable asset, our team members. Our turnover rates have been consistently below national and industry-specific benchmarks. +Workplace Flexibility +F&G is committed to providing employees with the opportunities and flexibility they need to succeed, as well as ensuring a culture of belonging and inclusion by: +41 +• Providing well rounded benefits that support employees diverse needs such as, domestic partner medical coverage, gender dysphoria services, $50,000 lifetime maximum for infertility services ($35,000 is United Health Care standard), travel & lodging reimbursement for services rendered out-of-state due to state law, Employee Assistance Program including 6 free counseling sessions per person per incident per year, in addition to other emotional health solutions, $10,000 in adoption assistance benefit, parental leave benefits, flexible PTO and lifestyle reimbursements. +• Supporting employee training, developing and educating through LinkedIn learning with a wide array of topics (e.g., Using Gender inclusive language, fueling your Company Culture, Inclusive Leadership, Unconscious Bias, etc.), tuition reimbursement, and manager and leadership training. +• Hosting educational and developmental events such as, a Mental Awareness and Racial Equity Master Class, a Mental Health panel, and a panel on Neurodiversity. +• Recognized for several Cultural Excellence Awards in 2025, 2024 and 2023 through Energage, for excellence in 1) Compensation and Benefits, 2) Leadership, 3) Work-Life Flexibility, 4) Professional Development, 5) Appreciation, 6) Employee Wellbeing, 7) Professional Development and 8) Purpose and Values. +Community engagement +F&G’s mission is to help people turn their aspirations into reality. F&G recognizes that focusing its community engagement and charitable giving to support essential needs is critical to fulfilling that mission. In recent years, F&G has won multiple awards for its corporate support and employee involvement with United Way, including Outstanding Corporate/Foundation Philanthropist for 2023 from the Association of Fundraising Professionals Central Iowa Chapter. Other community investments include: +• Serving as founding partner of the American Council of Life Insurer’s 360 Community Capital Initiative to make housing affordable and sustainable in underserved communities. +• Fostering partnerships in the Des Moines community with the Iowa Food Bank and Polk County Housing Trust. +• Supporting dozens of other community organizations identified by F&G employees in support of essential needs within the community where they live and work. +• Supporting Junior Achievement of Central Iowa, helps young people gain the knowledge and skills to own their own economic success, plan for their futures, and make smart academic and economic decisions. +• Supporting Ellipsis, which is a care provider for kids and families in Iowa that provides residential care and treatment, counseling and therapy, behavioral health intervention services, care coordination, and family support through volunteering. +• Supporting ChildServe which is an organization that improves the health and well-being of thousands of children each year through specialized clinical, home, and community-based programs and services. +Operational Sustainability +F&G is committed to sustainable practices that serve our employees, business partners, and community. F&G recognizes the rapidly evolving regulatory environment on climate-related risks and is monitoring to ensure sustainability practices remain consistent with regulatory requirements. F&G also promotes flexible work from home arrangements which reduce commute time, greenhouse gas emissions, and paper usage. +Governance +Our Company and our Board is committed to sustainable practices to serve our employees, business partners and the community +42 +The F&G AC is responsible for overseeing the Company’s sustainability risks. Such risks may include climate risks as a subset of investment risks. The Company’s Chief Risk and Audit Officer (“CRAO”) will continue to update the AC on F&G’s climate risk profile as risks and opportunities arise. +Management’s Role in Assessing and Managing Sustainability Risks and Opportunities +Additional governance committees +The AC and ERMC utilize and rely on other groups and committees within F&G to facilitate that all risks and opportunities related to our sustainability are addressed appropriately. +The ERMC is an enterprise committee which includes the Chief Executive Officer, President an d Chief Financial Officer, Chief Liability Officer and Treasurer, Chief Operating Officer, Chief Investment Officer, Chief Risk & Audit Officer, Chief Information Officer, Chief of Government, Regulatory and Compliance Affairs, Chief Human Resource Officer, Investments Chief Operating Officer, Head of Operational Risk, Senior Advisor, and General Counsel and Secretary and is responsible for reviewing risks and associated strategy across the business. The risks are included in the overall F&G Risk Register that is the basis for quarterly risk assessments. The overall risk posture of the organization is updated in the quarterly ERM dashboard report. +The Investment Committee provides oversight of investments held, approves new asset classes, and reviews investment managers and mandates. The Investment Committee also oversees the relationships with F&G’s Asset Management companies, which includes assessing their sustainability policies and practices for consistency with F&G’s missions and vision. +Strategy +F&G’s product solutions provide social good by supporting clients to achieve their retirement goals and to improve their financial lives, while protecting against unforeseen events through life insurance policies. This sentiment of service provides the foundation for F&G’s culture and guides business operations as well as interactions within our communities. +The investment portfolio supporting the current range of products offered by F&G considers climate-related risks and the transition to a low carbon economy. As long-term investors, F&G understands the energy transition will be gradual, and the focus should be on investment outcomes that will support our fiduciary duty to our clients and the investment goals of our clients. +F&G completed a qualitative assessment of climate risks and opportunities in 2023 with input from the ESG Executive Steering Committee and ESG working group. The assessment identified potential impacts of climate change on the F&G businesses and financial plans over short-, medium-, and long-term time horizons. Generally, short term is defined as present and 1 – 5 years in the future, medium-term is 5- 10 years in the future, and long-term is 10-30 years in the future. +The assessment also identified the risks applicable to F&G based on physical presence, products sold, and credit/counterparty risk. The identified risks were added to the enterprise risk register for inclusion in the quarterly self-assessment and annual risk assessment processes. The risks were also integrated into the ESG Program. +Impact of pending and passed legislation +Developments in national, state, and international regulations related to Sustainability and climate risk are ever-changing. F&G is diligently working to identify and gather the appropriate data for evolving reporting standards. +43 +The California Air Resources Board ("CARB"), and similar regulators in other U.S. states and international jurisdictions in which we sell our products have phased in, or are phasing in, emission regulations setting maximum emission standards. +The state of California passed two bills that will require certain companies doing business in the state to disclose GHG emissions and climate-related financial risk information. Senate Bill 253 (SB 253) requires the annual disclosure of Scope 1, 2 and 3 GHG emissions, with certain GHG emissions data subject to third party assurance. The bill requires disclosure of Scope 1 and 2 GHG emissions beginning in 2026 for the 2025 reporting year and disclosure of Scope 3 GHG emissions beginning in 2027 for the 2026 reporting year. SB 253 would be effective for public and private companies with total annual revenues exceeding $1 billion and that do business in California. Senate Bill 261 (SB 261) requires biennial disclosures posted on a company’s website related to climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks. The bill requires disclosure of the climate-related financial risk disclosures beginning in 2026 for the 2025 reporting year. SB 261 is effective for public and private companies with total annual revenues exceeding $500 million. Both SB 253 and 261 have been challenged in the U.S. District Court for the Central District of California. Further, on September 27, 2024, the California Governor amended both SB 253 and SB 261 by signing into law Senate Bill 219 (SB 219). SB 219 extends the time in which CARB has to promulgate implementing regulations for SB 253 until July 1, 2025, a delay of six months, but does not otherwise change the reporting deadlines in SB 253 or SB 261. +Risk Management +F&G’s ERM policy defines the approach to risk identification, risk assessment, and risk response. The ERMC owns the ERM Policy and is responsible for reviewing and approving the policy on an annual basis. Updates to the policy are determined by the ERM leadership team. +The ERM process includes risk appetite statements and risk tolerances that are linked to the strategic objectives set out in the corporate plan and are stressed using a variety of multifactor scenarios. Qualitative and quantitative approaches are used to manage risk appetite and are monitored as part of the strategy and planning process. +Risks are defined in the risk taxonomy and includes four parent categories: Operational, Product, Financial & Investment, and Strategy. +Risks are identified via ongoing discussions between ERM and the business partners, as well as through monitoring of industry groups and publications. New and emerging risks are reviewed at the ERMC and added to the risk register. Each quarter, ERM works with the risk owners to assess the impact and likelihood of each risk in the register to determine the inherent risk rating and then apply a control assurance rating to identify the residual risk rating. The rating scales are three by three (low, medium, high). The quarterly self-assessment results are reported in the ERM dashboard to the ERMC. The dashboard reflects the residual risk ratings at the sub-category level for the Enterprise. +F&G monitors risks via an annual risk assessment, annual cybersecurity assessment, the quarterly risk self-assessments, quarterly ERMC meetings, monthly Investment Committee meetings, monthly Capital Committee meetings, and ad hoc analysis. The overall risk posture of the organization is updated in the ERMC meeting report that includes a CRAO assessment, emerging risks, ERM dashboard, market risk discussion, stress testing results, and risk appetite measures. +F&G recognizes the rapidly evolving regulatory environment on climate-related risks and opportunities and has a regulatory monitoring process. The ongoing monitoring of sustainability regulations is included in the overall regulatory monitoring process overseen by the Legal Department. Any new regulation passed related to sustainability is entered into the Comply on Demand Enterprise system and assigned to subject matter experts for review. If policy or procedure changes are required, the implementation of those changes is monitored through this system. +44 +Climate risks will be identified and assessed in accordance with the ERM Policy and managed through the ERM framework. The framework utilizes the three lines of defense model: Business/Operational Management, the ERM function (Risk Management), and Internal Audit. +The 1st line of defense develops and implements mitigation activities for risks in business activities and provides monitoring and reporting of such risks on an ongoing basis; the 2nd line of defense challenges and supports the 1st line of defense, while helping to identify activities to mitigate risks and advise on risk management activities. The 3rd line of defense provides management with independent, objective assurance of the overall effectiveness, and efficiency of the design and operation of internal controls. +The framework and process alignment includes utilization of committee structure to identify, assess, and prioritize risk to ensure both senior management and the Board understand and can manage the risk profile. Any changes in business trends as a result of climate change would be identified through Risk Management interaction with the 1st line of defense discussions and risk assessments. No material or significant changes due to climate change have been identified to date. +Investment risk is one of the largest sources of risk to the Company, and the Vice President, Head of Investment Risk and the Chief Investment Officer and Senior Vice President, Investments Chief Operating Officer are responsible for integrating sustainability practices, including understanding and managing climate-related risks, into F&G’s investment process. +Metrics and Targets +F&G’s existing risk management framework includes various metrics to manage risks across the investment portfolio. F&G will continue to monitor risks and opportunities related to our climate risk assessment. +Available Information +Our web address is www.fglife.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) will be available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this document. +The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. +45 \ No newline at end of file diff --git a/raw/filings/0001934850/2025/0001934850-26-000026/item13.txt b/raw/filings/0001934850/2025/0001934850-26-000026/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..be1d3e36b322c13e58668aafa2a842104593aa7b --- /dev/null +++ b/raw/filings/0001934850/2025/0001934850-26-000026/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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+Number) +69 +Wanke Boyu , Xili Liuxin 1st Rd , Nanshan District , Shenzhen , Guangdong 518052 , China +Address +of principal executive offices, including zip code +(+86) +176-1282-2030 +Registrant’s +phone number, including area code +Securities +registered pursuant to Section 12(b) of the Securities Exchange Act: None +Securities +registered pursuant to Section 12(g) of the Securities Exchange Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes +☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes +☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. +YES +☒ NO ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). +YES +☒ NO ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting +company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” +in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. +☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. +☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). +☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). +Yes +☐ No ☒ +State +the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which +the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s +most recently completed second fiscal quarter. +Not +applicable. +APPLICABLE +ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS +Indicate +by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities +Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. +N/A +APPLICABLE +ONLY TO CORPORATE REGISTRANTS +Indicate +the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. +Class +Outstanding +at October 10, 2024 +Common +Stock, $ 0.001 par value +55,000,000 +DOCUMENTS +INCORPORATED BY REFERENCE +No +documents are incorporated by reference. +KEEMO +FASHION GROUP LIMITED +FORM +10-K +For +the Fiscal Year Ended July 31, 2024 +Index +Page +# +PART +I +Item +1. +Business +4 +Item +1A. +Risk +Factors +7 +Item +1B. +Unresolved +Staff Comments +7 +Item +2. +Description +of property +7 +Item +3. +Legal +Proceedings +7 +Item +4. +Mine +Safety Disclosures +7 +PART +II +Item +5. +Market +for Registrant’s Common Equity and Related Stockholder Matters +8 +Item +6. +Selected +Financial Data +9 +Item +7. +Management’s +Discussion and Analysis of Financial Condition and Results of Operations +9 +Item +7A. +Quantitative +and Qualitative Disclosures About Market Risk +12 +Item +8. +Financial +Statements and Supplementary Data +12 +Item +9. +Changes +in and Disagreements with Accountants on Accounting and Financial Disclosure +12 +Item +9A. +Controls +and Procedures +12 +Item +9B. +Other +Information +14 +PART +III +Item +10. +Directors, +Executive Officers and Corporate Governance +15 +Item +11. +Executive +Compensation +17 +Item +12. +Security +Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +18 +Item +13. +Certain +Relationships and Related Transactions, and Director Independence +18 +Item +14. +Principal +Accounting Fees and Services +19 +PART +IV +Item +15. +Exhibits +and Financial Statement Schedules +20 +Item +16. +Form +10-K Summary +20 +SIGNATURES +21 +2 +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements are not historical facts but rather +are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” +“intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these +words and similar expressions to identify forward-looking statements. These statements are not guarantee of future performance and are +subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause +actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following: +● +The +availability and adequacy of our cash flow to meet our requirements; +● +Economic, +competitive, demographic, business and other conditions in our local and regional markets; +● +Changes +or developments in laws, regulations or taxes in our industry; +● +Actions +taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial +and other governmental authorities; +● +Competition +in our industry; +● +The +loss of or failure to obtain any license or permit necessary or desirable in the operation of our business; +● +Changes +in our business strategy, capital improvements or development plans; +● +The +availability of additional capital to support capital improvements and development; and +● +Other +risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC. +This +report should be read completely and with the understanding that actual future results may be materially different from what we expect. +The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration +of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change +in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events +or otherwise. +Use +of Defined Terms +Except +as otherwise indicated by the context, references in this Report to: +● +The +“Company,” “we,” “us,” “our,” or “Keemo Fashion” are references to Keemo +Fashion Group Limited, a Nevada corporation. +● +“Common +Stock” refers to the common stock, par value $0.001, of the Company; +● +“U.S. +dollar,” “$” and “US$” refer to the legal currency of the United States; +● +“Securities +Act” refers to the Securities Act of 1933, as amended; and +● +“Exchange +Act” refers to the Securities Exchange Act of 1934, as amended. +3 +PART +I +ITEM +1. BUSINESS +Overview +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +KEEMO +Fashion Group Limited is a company that operates in the apparel and garment trade industry through wholesaling men’s and women’s +apparel to retailers in Asian countries. At present, the Company has primarily focused its efforts on attracting small to medium apparel +and garment retailers by wholesaling low to mid-range apparel and garments. We do not maintain and operate any production and manufacturing +of apparel facility or machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +4 +Description +of Business +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +On +April 22, 2022 Ms. Liu Lu was appointed as Chief Executive Officer, President, Secretary, Treasurer, and Director. +Primarily, +the products that we carry are targeted towards customers, both men and women, from 18 to 40 years of age. It is the company’s +belief that the products we wholesale have an appealing presentation, cover a diverse range of clothing and garment types, are stylish +for any occasion (including casual, work, and dressy), and they are offered at accessible price points. We believe that this combination +of factors will assist our growth moving forward and that we have the opportunity to capture a significant portion of the growing apparel +and garment market in Asian countries specifically. +At +present, the Company sells all of its products through word-of-mouth and utilization of our sole officer’s business network and +various connections. Ms. Liu, our sole officer and director, has broad knowledge and experience in marketing strategies and promotional +activities. She is familiar with marketing execution and promotional marketing methodology, which she intends to utilize to assist the +Company to gain market awareness and locate potential distributors as precisely and efficiently as possible. +Business +Model +The +Company currently primarily sources mid-priced women’s semi-formal apparel, which the company believes potentially has a higher +gross profit margin compared to low-priced apparel. Inventory is presently selected at the discretion of our sole officer and director, +and based upon recommendations from the suppliers regarding the latest fashion trends and styles, as well as what types of clothing are +currently the most sought after by consumers. The Company also performs internal analysis to compare the profit margins of various types +of clothing and, accordingly, seeks to primarily acquire inventory that has the greatest profit margin. +At +present, when identifying potential customers, the Company targets small size apparel retailers, especially home-based e-commerce retailers. +In the opinion of the Company’s sole officer and director, this market is easier to penetrate as our officer and director believes +that many small size apparel retailers are just side or part time businesses for the business owner. As such, the business owners might +face the problem of lack of capacity to arrange the logistics and filter the correct apparel in term of trend and quality. +The +Company adopts what is commonly referred to as a virtual network business structure, as the Company only maintains internal procurement, +sales, marketing, operational, accounting and finance functions, whereby the Company relies on suppliers for other crucial function such +as production and packaging, storage, courier inward and outward, etc. However, in some instances the Company does take physical possession +of inventory. In most cases, the Company purchases inventory from the suppliers, and this inventory is then held at the supplier’s +warehouse, although the product is owned by the Company at this time, and delivery from the warehouse is arranged by the Company through +a courier service. In some instances, the Company will take possession of the inventory and store apparel at the Company’s office, +and from that point courier service to the purchaser is arranged. There is no formal method of determination as to what items will be +stored in the supplier’s warehouse versus what items will be stored at the Company’s office. +Sales +and Marketing +KEEMO +Fashion Group Limited plans to penetrate the marketplace and attract customers by building our brand image through print ads, and possibly +online paid advertisements, to create brand awareness. We have prepared our corporate website (https://keemofashiongroup.wixsite.com/keemo-fashion-group) +to market our Company and we utilize search engine marketing to improve the number of distributors who can find and view our website. +Finally, we also have yet unidentified plans to market our Company through social networking websites. All the above marketing plans +have not yet been determined in sufficient detail to outline at this time, nor do we have a definitive timeline for when our marketing +strategy will be completed, and as such all of our marketing endeavors remain under development. +Employees +and Function +Currently, +we have one employee which is our President and Sole Director, Ms. Liu Lu. Currently, Ms. Liu has the flexibility to work on our business +up to 30 hours per week but is prepared to devote more time if necessary. The Company intends to hire more employees who possess industry-related +experience to assist in the development and execution of our business operations. +We +do not presently have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans; however, we may adopt +plans in the future. There are presently no personal benefits available to our employee, Officer and/or Director. +5 +Competition +KEEMO +Fashion Group Limited plans to operate in a mature and competitive industry. We consider our focus to be on distributors in China first. +Competition in the apparel and garment industry, with a focus on low to mid-range priced products, is very intense in China. We face +competition from various specialized and retail-based wholesalers, from different provinces and cities, which supply similar men’s +and women’s apparel and garment products to those that we offer. We also face competition from e-commerce-based wholesalers, many +of whom have exposure in various China whole websites and B2B platform, such as Alibaba, DHgate, AliExpress, and Global Sources. These +competitors generate significant traffic and have established brand recognition and financial resources manufacturing capacity, well +established business models and distribution channels and branding. +Despite +intense competition, our director is confident in the Company’s ability to develop and enlarge our market share in China through, +at present, the various relationships of the Company’s sole Officer and Director. +Enforcement +of Civil Liabilities under United States Federal Securities Laws +We +are a Nevada corporation and most of our operations are and will be located outside of the United States and our sole officer and director +resides outside the United States. Moreover, a majority of our assets are located outside the United States. Since a majority of the +assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible +within the United States. There is no treaty between the United States and China providing for the reciprocal recognition and enforcement +of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in +the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not +be automatically enforceable in China. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law +against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural +requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual +basis and a cause for the suit. +There +is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us +or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state +in the United States, or (2) entertain original actions brought in each respective jurisdiction against us or our directors or officers +predicated upon the securities laws of the United States or any state in the United States. +The +recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce +foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the +country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form +of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, +according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers +if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a +result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under +the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish +sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the +plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. +In +addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we +are incorporated under the laws of State of Nevada and it will be difficult for U.S. shareholders, holding our common stock, to establish +a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law. +6 +ITEM +1A. RISK FACTORS +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +1B. UNRESOLVED STAFF COMMENTS +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +2. DESCRIPTION OF PROPERTY +We +do not own any real estate or other properties. Our office is located at 69 Wanke Boyu, Xili Liuxin 1st Rd, Nanshan District, Shenzhen, +Guangdong 518052, China. +The +Company utilizes home office space of its management at no cost. The company’s home office space is 34.78 square meters or approximately +374 square feet. There is no agreement pertaining to utilizing the home office space of management, and management is free to discontinue +providing the office space at any time and without notice. The Company does not own, rent, or lease any properties. +ITEM +3. LEGAL PROCEEDINGS +From +time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation +is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. +There are currently no pending legal proceedings or claims that we believe will have a material adverse effect on our business, financial +condition or operating results. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or +has a material interest adverse to our business. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +7 +PART +II +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS +Our +common stock is currently quoted on the OTC Pink under the trading symbol “KMFG.” +Trading +in stocks quoted on the OTC Pink is often thin and is characterized by wide fluctuations in trading prices due to many factors that may +have little to do with a company’s operations or business prospects. We cannot assure you that there will be any liquidity for +our common stock in the future. +For +the periods indicated, the following table sets forth the high and low bid prices per share of common stock based on inter-dealer prices, +without retail mark-up, mark-down or commission and may not represent actual transactions. +Fiscal +Year 2024 +Highest +Bid +Lowest +Bid +First Quarter +$ - +$ - +Second Quarter +$ 0.025 +$ 0.00 +Third Quarter +$ 0.20 +$ 0.025 +Fourth Quarter +$ 0.22 +$ 0.20 +Holders +As +of July 31, 2024, we have 31 shareholders on record of our common stock. +Transfer +Agent and Registrar +The +transfer agent for our capital stock is Transfer Online, Inc, with an address at 512 SE Salmon St., Portland, OR 97214, United States +and telephone number is +1 (503) 227-2950. +Penny +Stock Regulations +The +Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security +that has a market price of less than $5.00 per share. Our Common Stock, when and if a trading market develops, may fall within the definition +of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities +to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual +incomes exceeding $200,000 individually, or $300,000, together with their spouse). +For +transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities +and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt +transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated +by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable +to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole +market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly +statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market +in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock +and may affect the ability of investors to sell their Common Stock in the secondary market. +In +addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory +Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must +have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced +securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s +financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that +there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements +make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the investors’ +ability to buy and sell our stock. +Forward +Stock Split +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000, which +is proportional to the ratio of the split. Neither the split nor the increase in authorized shares affected any stockholder’s ownership +percentage of our common stock, altered the par value of our common stock or modified any voting rights or other terms of the common +stock. +Dividends +Any +future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our +board of directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare +or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. Our board of directors +currently intends to retain all earnings for use in the business for the foreseeable future. +8 +Recent +Sales of Unregistered Securities +No +securities have been sold by the Company during the period covered by this Form 10-K. +Purchases +of Equity Securities by the Registrant and Affiliated Purchasers +We +have not repurchased any shares of our common stock during the fiscal year ended July 31, 2024. +Other +Stockholder Matters +None. +ITEM +6. SELECTED FINANCIAL DATA +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The +following discussion and analysis of our results of operations and financial condition for fiscal year ended July 31, 2024 should be +read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report. +Some of the information contained in this management’s discussion and analysis or set forth elsewhere in this Annual Report, including +information with respect to our plans and strategy for our business and related financing, includes forward looking statements that involve +risks, uncertainties and assumptions. As a result of many factors, including those factors set forth in the “Risk Factors” +section in Form S-1/A registration statement, filed on May 12, 2023, our actual results could differ materially from the results described +in or implied by the forward-looking statements contained in this Annual Report. +9 +Overview +We, +KEEMO Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada +on April 22, 2022. +KEEMO +Fashion Group Limited is headquartered in Shenzhen, People Republic of China (herein referred as (“China”). We primarily +operate in men and women apparel and garment trading business, focusing on wholesaling to distributors mainly based in Asian countries, +sourcing directly from manufacturers in China. We do not maintain and operate any production and manufacturing of apparel facility or +machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +Our +cash and cash equivalents are $19,421 as of July 31, 2024. Our cash balance is not sufficient to fund our limited levels of operations +for any period of time. In order to continue our current business plan and increase our current level of operations for the next twelve-month +period, we require further funding. +For +the year ended July 31, 2024, the Company incurred a net loss of $42,275 and used cash in operating activities of $9,322 and borrowed +$29,514 from our director. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. +The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining +the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. +These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts +and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. +The +Company expects to finance its operations primarily through cash flow from revenue and continuing financial support from a shareholder. +In the event that we require additional funding to finance the growth of the Company’s current and expected future operations as +well as to achieve our strategic objectives, the shareholder has indicated the intent and ability to provide additional financing. +No +assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory +to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, +in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. +Results +of operations for the year ended July 31, 2024 and 2023 +Revenues +For +the years ended July 31, 2024, the Company has generated a revenue of $21,522. +For +the years ended July 31, 2023, the Company has generated a revenue of $16,945. +The +revenue was generated through wholesaling men’s and women’s apparel and garments to retailers. +10 +General +and Administrative Expenses +For +the years ended July 31, 2024, the Company incurred general and administrative expenses of $52,861. These were primarily comprised of +other professional fee, audit fees, stock and registrar fees, bank charges, printing and stationery, and legal fees. +For +the years ended July 31, 2023, the Company incurred general and administrative expenses of $30,605. These were primarily comprised of +audit fees, stock and registrar fees, legal fees, bank charges and other professional fees. +Net +Loss +For +the years ended July 31, 2024, the Company incurred a net loss of $42,275. +For +the years ended July 31, 2023, the Company incurred a net loss of $22,196. +Liquidity +and Capital Resources +The +Company’s cash and cash equivalents has decreased by $9,322, from $28,743 as of July 31, 2023 to $19,421 as of July 31, 2024. The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. +Cash +Used in Operating Activities +For +the year ended July 31, 2024, the Company has used $9,322 in operating activities, which was primarily attributable to net loss from +operation, increase in the amount due to our director, Ms. Liu Lu, increase in prepayment, decrease in accounts receivable, decrease +in inventories, and decrease in other accruals. +For +the year ended July 31, 2023, the Company has used $17,837 in operating activities, which was primarily attributable to net loss from +operation, increase in accounts receivable, increase in prepayment, increase in inventories, increase in the amount due to our director, +Ms. Liu Lu and increase in other accruals. +Cash +Provided by Financing Activities +On +April 22, 2022, our sole officer and director, Liu Lu, purchased 3,600,000 shares of restricted common stock at a purchase price of $0.001 +(par value). The $3,600 in proceeds went directly to the Company to be used for working capital. +For +the year ended July 31, 2024, the Company did not generate nor used any cash in financing activities. +For +the year ended July 31, 2023, the Company received $28,500 from financing activities primarily from issuance of shares of common stock +pursuant to our initial public offering closing at July 26, 2023. +11 +Off-Balance +Sheet Arrangement +We +have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial +condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital +resources that are material to our stockholders as of July 31, 2024. +Contractual +Obligation +As +a smaller reporting company, we are not required to provide the aforementioned information. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +The +financial statements required by this item are located following the signature page of this Annual Report. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not +Applicable +ITEM +9A. CONTROLS AND PROCEDURES +Evaluation +of Disclosure Controls and Procedures +We +conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, of +the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, +as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means +controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the +reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified +in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, +controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits +under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal +financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. +Based on this evaluation, our Chief Executive Officer concluded as of July 31, 2024, that our disclosure controls and procedures were +not effective. The matters involving internal controls and procedures that our management considered to be material weaknesses under +the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority +of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in +the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties and effective risk +assessment ; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements +and application of both US GAAP and SEC guidelines; and (4) lack of internal audit function due to the fact that the Company lacks qualified +resources to perform the internal audit functions properly and that the scope and effectiveness of the internal audit function are yet +to be developed. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review +of our financial statements as of July 31, 2024. +12 +Management +believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, +management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors +results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result +in a material misstatement in our financial statements in future periods. +Management’s +Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) +and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally +accepted accounting principles. The internal controls for the Company are provided by executive management’s review and approval +of all transactions. Our internal control over financial reporting also includes those policies and procedures that: +● +Pertain +to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets +of the Company; +● +Provide +reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with +accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being +made only in accordance with authorizations of management and directors of the Company; and +● +Provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s +assets that could have a material effect on the financial statements. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of +any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, +or that the degree of compliance with the policies or procedures may deteriorate. +Management +assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2024. In making this assessment, +management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated +Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing +of the operational effectiveness of these controls. +13 +Based +on this assessment, management has concluded that as of July 31, 2024, our internal control over financial reporting was not effective +to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external +purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses +and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: +We +will increase our personnel resources and technical accounting expertise within the accounting function. We will create a position to +segregate duties consistent with control objectives. And, we plan to appoint one or more outside directors to our board of directors +who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the +establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made +by management when funds are available to us. +We +anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2025. +Changes +in Internal Control over Financial Reporting +There +was no change in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially +affected, or is reasonably likely to materially affect, our internal controls over financial reporting: +This +annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal +control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent +public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s +report in this Annual Report on Form 10-K. +ITEM +9B. OTHER INFORMATION +None . +14 +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Set +forth below are the present directors and executive officers of the Company. Note that there are no other persons who have been nominated +or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements +or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or +an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected +and have qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of +stockholders and until their successors have been elected and qualified. +Name +Age +Positions +and Offices +Liu +Lu +32 +Chief +Executive Officer, President, Secretary, Treasurer, Director +Liu +Lu – Chief Executive Officer, President, Secretary, Treasurer, Director +In +2017, Ms. Liu graduated from the Sichuan University, Undergraduate Program for Specialty in Computer Science and Technology. From July +2017 to present, Ms. Liu works in the promotional department at the Tencent Interactive Entertainment Group, which is a division of Tencent +Holdings that publishes and develops video games for multiple platforms. From July 2017 to August 2017, she was responsible for three +initiatives, which are event planning, content operation, and market promotional and platform collaboration for the project “Deformers”, +a PC game. Regarding event planning, she handled event execution and post-event analysis. For content operation, she handled the official +website construction, content creation, and content planning. For market promotion and platform collaboration, she handled marketing +of the game, which involved collaboration with different online and media platforms. From August 2018 until present, Ms. Liu has been +mainly responsible for the project “Rocket League”, which is an online game. She mainly responsible on the resource allocation, +event planning and execution, post-event analysis and the user operation. Ms. Liu’s position at Tencent Holdings is a full-time +job, to which she devotes approximately 45 hours per week. +In +April 2022, Ms. Liu founded KEEMO Fashion Group Limited, and as a result of her promotional, organizational, and marketing experience, +it is the determination of the board that she serves as our Chief Executive Officer, President, Secretary, Treasurer, and Director. +Corporate +Governance +The +Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable +disclosure in reports and documents that the Company files with the Securities and Exchange Commission and in other public communications +made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations. The Company has not formally +adopted a written code of business conduct and ethics that governs the Company’s employees, officers and Directors as the Company +is not required to do so. +In +lieu of an Audit Committee, the Company’s Board of Directors, is responsible for reviewing and making recommendations concerning +the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company’s financial +statements and other services provided by the Company’s independent public accountants. The Board of Directors and the Chief Executive +Officer of the Company review the Company’s internal accounting controls, practices and policies. +Committees +of the Board +Our +Company currently does not have nominating, compensation, or audit committees or committees performing similar functions nor does our +Company have a written nominating, compensation or audit committee charter. Our Director(s) believe that it is not necessary to have +such committees, at this time, because the Directors can adequately perform the functions of such committees. +15 +Audit +Committee Financial Expert +Our +Board of Directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” +as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the term +is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(14) +of the FINRA Rules. +We +believe that our Director(s) are capable of analyzing and evaluating our financial statements and understanding internal controls and +procedures for financial reporting. The Director(s) of our Company does not believe that it is necessary to have an audit committee because +management believes that the Board of Directors can adequately perform the functions of an audit committee. In addition, we believe that +retaining an independent Director who would qualify as an “audit committee financial expert” would be overly costly and burdensome +and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash +flows from operations to date. +Involvement +in Certain Legal Proceedings +Our +Directors and our Officers have not been involved in any of the following events during the past ten years: +1. +bankruptcy +petition filed by or against any business of which such person was a general partner or executive officer either at the time of the +bankruptcy or within two years prior to that time; +2. +any +conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor +offenses); +3. +being +subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, +permanently or temporarily enjoining, barring, suspending or otherwise limiting his/her involvement in any type of business, securities +or banking activities; or +4. +being +found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have +violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. +5. +Such +person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State +securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, +or vacated; +6. +Such +person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated +any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not +been subsequently reversed, suspended or vacated; +7. +Such +person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not +subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) Any Federal or State securities or commodities +law or regulation; or(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited +to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist +order, or removal or prohibition order; or(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with +any business entity; or +8. +Such +person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory +organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section +1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that +has disciplinary authority over its members or persons associated with a member. +Independence +of Directors +We +are not required to have independent members of our Board of Directors, and do not anticipate having independent Directors until such +time as we are required to do so. +Code +of Ethics +We +have not adopted a formal Code of Ethics. The Board of Directors evaluated the business of the Company and the number of employees and +determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, +business conduct and securities laws are adequate ethical guidelines. In the event our operations, employees and/or Directors expand +in the future, we may take actions to adopt a formal Code of Ethics. +Shareholder +Proposals +Our +Company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for Directors. +The Board of Directors believes that, given the stage of our development, a specific nominating policy would be premature and of little +assistance until our business operations develop to a more advanced level. Our Company does not currently have any specific or minimum +criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such +nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations +for election or appointment. +A +shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Sole Officer +and Director, Liu Lu, at the address appearing on the first page of this Registration Statement. +16 +SECTION +16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section +16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, +to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide +us with copies of those filings. Based solely on our review of the copies of such forms furnished to us and written representations by +our officers and directors regarding their compliance with applicable reporting requirements under Section 16(a) of the Exchange Act, +we believe that all Section 16(a) filing requirements for our executive officers, directors and 10% stockholders were met during the +year ended July 31, 2024. +ITEM +11. EXECUTIVE COMPENSATION +MANAGEMENT +COMPENSATION +The +following tables set forth certain information about compensation paid, earned or accrued for services by our Executive Officer from +July 31, 2023 to July 31, 2024: +Summary +Compensation Table +Summary +Compensation Table +Name +and principal position (a) +Year +ended July 31 (b) +Salary +($) (c) +Bonus +($) (d) +Stock +Compensation ($) (e) +Option +Awards ($) (f) +Non-Equity +Incentive Plan Compensation ($) (g) +Nonqualified +Deferred Compensation Earnings ($) (h) +All +Other Compensation ($) (i) +Total +($) (j) +Liu +Lu, +Chief +Executive Officer, President, Secretary, Treasurer, Director +2024 +$ - +- +- +- +- +- +- +$ - +Stock +Option Grants +We +have not granted any stock options to our executive officers since our incorporation. +Employment +Agreements +We +do not have an employment or consulting agreement with any officers or Directors. +Compensation +Discussion and Analysis +Director +Compensation +Our +Board of Directors does not currently receive any consideration for their services as members of the Board of Directors. The Board of +Directors reserves the right in the future to award the members of the Board of Directors cash or stock-based consideration for their +services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors. +Executive +Compensation Philosophy +Our +Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors reserves +the right to pay our executive or any future executives a salary, and/or issue them shares of common stock in consideration for services +rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s +performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance +of our executives with our long-term business strategies. Additionally, while our Board of Directors has not granted any performance +base stock options to date, the Board of Directors reserves the right to grant such options in the future, if the Board in its sole determination +believes such grants would be in the best interests of the Company. +Incentive +Bonus +The +Board of Directors may grant incentive bonuses to our executive officer and/or future executive officers in its sole discretion, if the +Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and +growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability +of such executives. +Long-term, +Stock Based Compensation +In +order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award +our executive and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board of +Directors, which we do not currently have any immediate plans to award. +17 +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +As +of July 31, 2024, the Company has 55,000,000 shares of common stock issued and outstanding, which number of issued and outstanding shares +of common stock have been used throughout this report. +Name +and Address of +Beneficial Owner +Shares +of +Common +Stock +Beneficially +Owned +Common +Stock Voting +Percentage +Beneficially +Owned +Voting +Shares of +Preferred +Stock +Preferred +Stock Voting +Percentage +Beneficially +Owned +Total +Voting +Percentage +Beneficially +Owned +Executive Officers and Directors +Liu Lu +Chief Executive Officer, +President, Secretary, Treasurer and Director +36,000,000 +65 % +- +- +65 % +5% or Greater Shareholders +- +- +- +- +- +*Officers +and or Directors who may hold a 5% or greater controlling interest in the Company are included above, but only under the subtitle, “Executive +Officers and Directors”. +On +August 8, 2024, a ten-for-one (10:1) forward stock split of the Company’s common stock became effective, which increased the number +of shares of common stock beneficially owned by the beneficial owner increased from 3,600,000 to 36,000,000, consistent with the split +ratio. Neither the split nor the increase in authorized shares affected any stockholder’s ownership percentage of our common stock. +Beneficial +ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to +be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). +In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon +exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership +of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition +rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect +the person’s actual voting power at any particular date. +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE +On +April 23, 2022, we issued 3,600,000 shares of our common stock to Ms. Liu Lu, our Chief Executive Officer, President, Secretary, Treasurer, +and Director in consideration of $3,600, or $0.001 per share. +In +regards to the above transaction we claim an exemption from registration afforded by Regulation S of the Securities Act of 1933, as amended +(“Regulation S”) for the above sale of stock since the sale of stock was made to a non-U.S. person (as defined under Rule +902 section (k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States +by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. +As +of July 31, 2022, our sole director, Ms. Liu Lu, advanced $25,758 to the Company, which is unsecured and non-interest bearing, and payable +upon demand. Proceeds from the offering herein will not be used to repay the loan to Ms. Liu Lu. +As +of October 31, 2022, the sole director of the Company advanced $26,958 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of January 31, 2023, the sole director of the Company advanced $30,419 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +On +July 26, 2023, we issued 1,900,000 shares of our common stock in consideration of $28,500, or $0.015 per share through initial public +offering. +As +of July 31, 2023, the sole director of the Company advanced $40,405 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of October 31, 2023, the sole director of the Company advanced $47,716 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of April 30, 2024, the sole director of the Company advanced $66,903 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +On +August 8, 2024, a ten-for-one (10:1) forward stock split of the Company’s common stock became effective, increasing the number +of issued and outstanding shares from 5,500,000 to 55,000,000. +As +of July 31, 2024, the sole director of the Company advanced $69,919 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +18 +Review, +Approval and Ratification of Related Party Transactions +Given +our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification +of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to +establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so +that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee +thereof. On a moving forward basis, our Directors will continue to approve any related party transaction. +ITEM +14. PRINCIPAL ACCOUNTING FEES AND SERVICES +Audit +Fees +The +following table sets forth the aggregate fees billed to the Company by its independent registered public accounting firms for the fiscal +years ended July 31, 2024 and 2023. We have engaged JP Centurion & Partners PLT as our independent registered public accounting firm +since August 17, 2022. +ACCOUNTING +FEES AND SERVICES +2024 +2023 +Audit fees +$ 17,100 +$ 17,100 +Audit-related fees +- +- +Tax fees +- +- +All other fees +- +- +Total +$ 17,100 +$ 17,100 +The +category of “Audit fees” includes fees for our annual audit, quarterly reviews and services rendered in connection with regulatory +filings with the SEC, such as the issuance of comfort letters and consents. +The +category of “Audit-related fees” includes employee benefit plan audits, internal control reviews and accounting consultation. +The +category of “Tax services” includes tax compliance, tax advice, tax planning. +The +category of “All other fees” generally includes advisory services related to accounting rules and regulations. +All +of the professional services rendered by principal accountants for the audit of our annual financial statements that are normally provided +by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by our board +of directors. +19 +PART +IV +ITEM +15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) +Financial Statements +The +following are filed as part of this report: +Financial +Statements +The +following financial statements of Keemo Fashion Group Limited and Report of Independent Registered Public Accounting Firm are presented +in the “F” pages of this Report: +Page +Audited +Financial Statements +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +F-2 +CONSOLIDATED BALANCE SHEETS +F-3 +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +F-4 +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +F-5 +CONSOLIDATED STATEMENTS OF CASH FLOWS +F-6 +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +F-7 +– F-14 +(b) +Exhibits +The +following exhibits are filed herewith: +31.1 +Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer, principal financial officer* +32.1 +Section 1350 Certification of principal executive officer, principal financial officer and principal accounting officer* +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase +101.LAB* +Inline +XBRL Taxonomy Extension Labels Linkbase +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase +104* +Cover +Page Interactive Data File (embedded within the Inline XBRL document) +*Filed +herewith +ITEM +16. FORM 10-K SUMMARY +As +permitted, the registrant has elected not to supply a summary of information required by Form 10-K. +20 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed +on its behalf by the undersigned, thereunto duly authorized. +Keemo +Fashion Group Limited +Date: +October 10, 2024 +By: +/s/ +Liu Lu +Liu +Lu +Chief +Executive Officer, President, Secretary, Treasurer, and Director +(Principal +Executive Officer, Principal Financial Officer, Principal Accounting Officer) +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +Registrant, and in the capacities and on the dates indicated: +Signature +Title +Date +/s/ +Liu Lu +Chief +Executive Officer, President, Secretary, Treasurer, Director +Liu +Lu +(Principal +Executive Officer, Principal Financial Officer and Principal Accounting Officer) +October 10, 2024 +21 +Keemo +Fashion Group Limited +INDEX +TO FINANCIAL STATEMENTS +Page +Audited +Financial Statements +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 6723) +F-2 +CONSOLIDATED +BALANCE SHEETS +F-3 +CONSOLIDATED +STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +F-4 +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +F-5 +CONSOLIDATED +STATEMENTS OF CASH FLOWS +F-6 +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +F-7 +– F-14 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The +Board of Directors and Stockholders of +KEEMO +Fashion Group Limited +69 +Wanke Boyu, Xili Liuxin 1 st Road, +Nanshan +District, Shenzen +Guangdong +518052 China. +Opinion +on the Financial Statements +We have audited the accompanying consolidated balance sheets of KEEMO Fashion +Group Limited (the ‘Company’) as of July 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive +loss, consolidated statements changes in of stockholders’ equity, and consolidated statements of cash flows for the year ended as +of July 31, 2024 and 2023, and the related notes to consolidated financial statements (collectively referred to as the “financial +statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company +as of July 31, 2024 and 2023, and the results of its operations and its cash flows for the financial year ended as of July 31, 2024 and +2023, in conformity with accounting principles generally accepted in the United States of America. +Going +Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note +2 to the financial statements, for the year ended July 31, 2024, the Company’s losses from operations, accumulated deficit, net +current liabilities, and negative operating cash flows raise substantial doubt about its ability to continue as a going concern. Management’s +plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result +from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal +securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits +we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that +our audits provide a reasonable basis for our opinion. +Critical +Audit Matters +Critical +audit matters are matters arising from the current year audit of the financial statements that were communicated or required to be communicated +to those charged with governance that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved +our especially challenging, subjective, or complex judgements. We determined that there are no critical matters. +/s/ +JP CENTURION & PARTNERS PLT +JP +CENTURION & PARTNERS PLT (ID: 6723 ) +We +have served as the Company’s auditor since 2022. +Kuala +Lumpur, Malaysia +October 10, 2024 +F- 2 +Item +1. Financial Statements +KEEMO +FASHION GROUP LIMITED +CONSOLIDATED +BALANCE SHEETS +AS +OF JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +As +of +July +31, 2024 +As +of +July +31, 2023 +(Audited) +(Audited) +ASSETS +CURRENT ASSETS +Cash and cash +equivalents +$ 19,421 +$ 28,743 +Accounts receivable +- +6,954 +Inventories +2,527 +3,405 +Prepayment +6,526 +3,933 +TOTAL +CURRENT ASSETS +28,474 +43,035 +TOTAL +ASSETS +$ 28,474 +$ 43,035 +LIABILITIES +AND STOCKHOLDERS’ EQUITY +CURRENT LIABILITIES +Amount due to a director +69,919 +40,405 +Other +accruals +7,500 +9,300 +TOTAL +CURRENT LIABILITIES +77,419 +49,705 +TOTAL +LIABILITIES +$ 77,419 +$ 49,705 +STOCKHOLDERS’ EQUITY +Common stock – Par value $ 0.001 ; Authorized: +75,000,000 shares; Issued and outstanding: 55,000,000 as of July 31, 2024 and July 31, 2023, respectively (1) +$ 5,500 +$ 5,500 +Additional paid in capital +26,600 +26,600 +Accumulated +deficit +( 81,045 ) +( 38,770 ) +TOTAL +STOCKHOLDERS’ EQUITY +$ ( 48,945 ) +$ ( 6,670 ) +TOTAL +LIABILITIES AND STOCKHOLDERS’ EQUITY +$ 28,474 +$ 43,035 +(1) Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the +form of a stock issuance in August 8, 2024. See Note 1, Overview , for details. +See +accompanying notes to consolidated financial statements. +F- 3 +KEEMO +FASHION GROUP LIMITED +CONSOLIDATED +STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +FOR +THE YEARS ENDED JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +For +the Years Ended July 31, +2024 +2023 +(Audited) +(Audited) +REVENUE +$ 21,522 +$ 16,945 +COST OF REVENUE +( 10,936 ) +( 8,594 ) +GROSS PROFIT +10,586 +8,351 +GENERAL AND ADMINISTRATIVE EXPENSES +( 52,861 ) +( 30,605 ) +LOSS FROM OPERATIONS +( 42,275 ) +( 22,254 ) +OTHER INCOME +- +58 +LOSS FROM OPERATIONS BEFORE INCOME TAX +( 42,275 ) +( 22,196 ) +INCOME TAX EXPENSES +- +- +NET LOSS +( 42,275 ) +( 22,196 ) +OTHER COMPREHENSIVE LOSS +- +- +TOTAL COMPREHENSIVE LOSS +$ ( 42,275 ) +$ ( 22,196 ) +NET LOSS PER SHARE - BASIC AND DILUTED (1) +$ ( 0.00 ) +$ ( 0.00 ) +WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, +BASIC AND DILUTED (1) +55,000,000 +40,486,413 +(1) Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the +form of a stock issuance in August 8, 2024. See Note 1, Overview , for details. +See +accompanying notes to consolidated financial statements. +F- 4 +KEEMO +FASHION GROUP LIMITED +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +FOR +THE YEARS ENDED JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +COMMON +STOCK +ADDITIONAL +Number +of +shares +Amount +PAID-IN +CAPITAL +ACCUMULATED +DEFICIT +TOTAL +EQUITY +Balance as of July 31, 2022 +36,000,000 +3,600 +- +( 16,574 ) +( 12,974 ) +Issuance of share +19,000,000 +1,900 +26,600 +- +28,500 +Net loss +- +- +- +( 22,196 ) +( 22,196 ) +Balance as of July 31, 2023 (1) +55,000,000 +5,500 +26,600 +( 38,770 ) +( 6,670 ) +Balance +55,000,000 +5,500 +26,600 +( 38,770 ) +( 6,670 ) +Net loss +- +- +- +( 42,275 ) +( 42,275 ) +Balance as of July 31, 2024 +55,000,000 +5,500 +26,600 +( 81,045 ) +( 48,945 ) +Balance +55,000,000 +5,500 +26,600 +( 81,045 ) +( 48,945 ) +(1) Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the +form of a stock issuance in August 8, 2024. See Note 1, Overview , for details. +See +accompanying notes to consolidated financial statements. +F- 5 +KEEMO +FASHION GROUP LIMITED +CONSOLIDATED +STATEMENTS OF CASH FLOWS +FOR +THE YEARS ENDED JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +For +the Years Ended July 31, +2024 +2023 +(Audited) +(Audited) +CASH FLOWS FROM OPERATING +ACTIVITIES: +Net loss +$ ( 42,275 ) +$ ( 22,196 ) +Changes in operating assets and liabilities: +Accounts receivable +6,954 +( 6,954 ) +Inventories +878 +( 901 ) +Prepayment +( 2,593 ) +( 3,933 ) +Amount due to a director +29,514 +14,647 +Other accruals +( 1,800 ) +1,500 +Net cash flows used in +operating activities +( 9,322 ) +( 17,837 ) +CASH FLOWS FROM FINANCING +ACTIVITY: +Proceeds from issuance +of share +- +28,500 +Net cash flows provided +by financing activity +- +28,500 +Effect of exchange rate changes in cash +and cash equivalents +- +- +Net changes in cash and cash equivalents +( 9,322 ) +10,663 +Cash and cash equivalents, beginning of +year +28,743 +18,080 +CASH AND CASH EQUIVALENTS, +END OF YEAR +$ 19,421 +$ 28,743 +SUPPLEMENTAL CASH FLOWS +INFORMATION +Income taxes paid +$ - +$ - +Interest paid +$ - +$ - +See +accompanying notes to consolidated financial statements. +F- 6 +KEEMO +FASHION GROUP LIMITED +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +FOR +THE YEARS ENDED JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +1. +ORGANIZATION AND BUSINESS BACKGROUND +KEEMO +Fashion Group Limited, a Nevada corporation, (herein referred as “the Company”) was incorporated under the laws of the State +of Nevada on April 22, 2022. +KEEMO +Fashion Group Limited is headquartered in Shenzhen, People Republic of China (herein referred as (“China”). We primarily +operate in men and women apparel and garment trading business, focusing on wholesaling to distributors mainly based in Asian countries, +sourcing directly from manufacturers in China. We do not maintain and operate any production and manufacturing of apparel facility or +machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $ 0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000 , which +is proportional to the ratio of the split. All share and per share amounts presented herein have been retroactively adjusted to reflect +the impact of the Forward Split. +2. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements of the Company are prepared pursuant to the rules and regulations of the U.S. Securities +and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America +(“US GAAP”). The Company has adopted July 31 as its fiscal year end. +Going +Concern +For +the year ended July 31, 2024, the Company incurred a net loss of $ 42,275 and used cash in operating activities of $ 9,322 . As of July +31, 2024, the current liabilities of the Company exceeded its current assets by $ 48,945 and has a shareholders’ deficits of $ 48,945 . +These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as +a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing +to meet its obligations and repay its liabilities arising from normal business operations when they become due. These financial statements +do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that +might be necessary should the Company be unable to continue as a going concern. The Company expects to finance its operations primarily +through cash flow from revenue and continuing financial support from a shareholder. In the event that we require additional funding to +finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the +shareholder has indicated the intent and ability to provide additional financing. +Use +of Estimates +Management +uses estimates and assumptions in preparing these financial statements in accordance with US GAAP. Those estimates and assumptions affect +the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities in the balance sheets, and the reported +revenue and expenses during the periods reported. Actual results may differ from these estimates. +Cash +and Cash Equivalents +Cash +and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions +and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. +F- 7 +Revenue +Recognition +Revenue +is generated through wholesale business of men and women apparel and garment to customer. Revenue is recognized when a customer obtains +control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive +in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty +of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that +the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to +determine this amount: +(i) +identification of the promised goods and services in the contract; +(ii) +determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context +of the contract; +(iii) +measurement of the transaction price, including the constraint on variable consideration; +(iv) +allocation of the transaction price to the performance obligations; and +(v) +recognition of revenue when (or as) the Company satisfies each performance obligation. +The +Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Company records revenue when persuasive +evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company +records revenue from the wholesale of goods upon the delivery of men and women apparel and garment to the customer. +Credit losses +The Company estimates and records a provision for +its expected credit losses related to its financial instruments, including its trade receivables. Management considers historical collection +rates, the current financial status of the Company’s customers, macroeconomic factors, and other industry-specific factors when +evaluating current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit +losses. However, because of the short time to the expected receipt of accounts receivable, management believes that the carrying value, +net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments, +including its trade receivables. +To determine the provision for credit losses for accounts +receivable, the Company has disaggregated its accounts receivable by class of customer at the business component level, as management +determined that risk profile of the Company’s customers is consistent based on the type and industry in which they operate. Each +business component is analyzed for estimated credit losses individually. In doing so, the Company establishes a historical loss matrix, +based on the previous collections of accounts receivable by the age of such receivables, and evaluates the current and forecasted financial +position of its customers, as available. Further, the Company considers macroeconomic factors and the status of the relevant industry +to estimate if there are current expected credit losses within its trade receivables based on the trends of the Company’s expectation +of the future status of such economic and industry-specific factors. Also, specific allowance amounts are established based on review +of outstanding invoices to record the appropriate provision for customers that have a higher probability of default. +Accounts receivable at July 31, 2024 and July 31, +2023 there were no allowances for credit losses. +Cost +of Revenue +Cost +of revenue includes the purchase cost of raw materials for manufacturing and distribute to customers and packing materials. It includes +purchasing and receiving costs, internal transfer costs, other costs of distribution network, opening and closing inventory net off discount +received and return outwards in cost of revenue. +Earnings +Per Share +The +Company reports earnings per share in accordance with ASC Topic 260 “Earnings Per Share”, which requires presentation of +basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. +Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average +common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if +securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common +shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations +of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital +structure. +The +Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number of +the Company’s ordinary shares outstanding. Diluted earnings per share reflects the amount of net income available to each ordinary +share outstanding during the period plus the number of additional shares that would have been outstanding if potentially dilutive securities +had been issued. +Income +Taxes +The +Company accounts for income taxes using the asset and liability method prescribed by ASC Topic 740 “Income Taxes”. Under +this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases +of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. +The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not +that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is +recognized as income or loss in the period that includes the enactment date. +New +U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into +law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory +U.S. federal corporate income tax rate from 35% to 21 % for taxable years beginning after December 31, 2017; limiting and/or eliminating +many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation +of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate +income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay +the one-time transition tax over eight years, or in a single lump-sum payment. +F- 8 +Related +Parties +Parties, +which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control +the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also +considered to be related if they are subject to common control or common significant influence. +Fair +Value Measurement +Accounting +Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” (ASC Topic 820), which defines +fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies +that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability +in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market +for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and +that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. +This +ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and +the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: +Level +1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; +Level +2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the +full term of the asset or liability; and +Level +3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported +by little or no market activity). +Recent Accounting Pronouncements +The Company has reviewed all recently issued, but not yet effective, considers +the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting +standards that are issued. +In November 2023, the FASB issued ASU 2023-07 “Segment Reporting +(Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable +segments, primarily through enhanced disclosures about significant segment expenses. The ASU 2023-07 is effective for annual reporting +periods beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024, and early adoption is +permitted. The Company is currently evaluating the impact of this ASU may have on its consolidated financial statements and related disclosures. +In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic +740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related +to the rate reconciliation and income taxes paid. The ASU 2023-09 is effective for annual reporting periods beginning after December 15, +2024, and early adoption is permitted. The Company is currently evaluating the impact of this ASU may have on its consolidated financial +statements and related disclosures. +F- 9 +3. +INVENTORIES +As +of July 31, 2024 and 2023, the Company inventories consist of following: +SCHEDULE +OF INVENTORIES +As +of +July +31, 2024 +As +of +July +31, 2023 +Finished goods +$ 2,527 +$ 3,405 +Total inventories +$ 2,527 +$ 3,405 +No +allowance has been provided for the year ended July 31, 2024. +4. +PREPAYMENT +As +of July 31, 2024 and 2023, prepayment consist of following: +SCHEDULE OF PREPAYMENT +As +of +July +31, 2024 +As +of +July +31, 2023 +Stock & Registrar fees +$ 4,690 +$ - +Other professional fee +1,836 +3,933 +Total prepayment +$ 6,526 +$ 3,933 +5. +AMOUNT DUE TO A DIRECTOR +SCHEDULE +OF AMOUNT DUE TO A DIRECTOR +As +of +July +31, 2024 +As +of +July +31, 2023 +Amount due to +a director +$ 69,919 +$ 40,405 +As +of July 31, 2024, the sole director of the Company advanced $ 69,919 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +Our +director, Ms. Liu Lu, has not been compensated for the services. +6. +OTHER ACCRUALS +SCHEDULE +OF OTHER ACCRUALS +As +of +July +31, 2024 +As +of +July +31, 2023 +Accrued expenses +$ 7,500 +$ 9,300 +Total other accruals +$ 7,500 +$ 9,300 +Accrued +expenses for the years ended July 31, 2024 and 2023 consist of accrued audit fees, transfer agent fee and other professional fee. +F- 10 +7. +SHAREHOLDERS’ EQUITY +On +April 22, 2022, upon the incorporation of the Company, Liu Lu, subscribed to 3,600,000 shares of common stock at par value of $ 0.001 +per share for a total subscription value of $ 3,600 . +On +26 July, 2023, the Company issued 1,900,000 shares of common stock being sold at $ 0.015 per share for a total of $ 28,500 through initial +public offering. +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $ 0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000 , which +is proportional to the ratio of the split. All share and per share amounts presented herein have been retroactively adjusted to reflect +the impact of the Forward Split. +As +of July 31, 2024, the Company has 55,000,000 shares of common stock issued and outstanding. +The +Company has 75,000,000 shares of commons stock authorized. +8. +INCOME TAX +The +loss from operation before income tax of the Company for the years ended July 31, 2024 and 2023 were comprised of the following: +SCHEDULE +OF LOSS FROM OPERATION BEFORE INCOME TAX +2024 +2023 +For +the years ended July 31 +2024 +2023 +Tax jurisdictions from: +– Local +$ ( 42,275 ) +$ ( 22,196 ) +Loss before income taxes +$ ( 42,275 ) +$ ( 22,196 ) +United +States of America +The +Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of July 31, 2024, the +operations in the United States of America incurred $ 42,275 of cumulative net operating losses (NOL’s) which can be carried forward +to offset future taxable income, at the tax rate of 21 %. The NOL carry forwards begin to expire in 2043 , if unutilized. The Company has +provided for a full valuation allowance of approximately $ 8,878 against the deferred tax assets on the expected future tax benefits from +the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in +the future. +The +following table sets forth the significant components of the aggregate deferred tax assets of the Company as of July 31, 2024 and July +31, 2023: +SCHEDULE OF COMPONENTS OF AGGREGATE DEFERRED TAX ASSETS +2024 +2023 +As +of July 31 +2024 +2023 +Deferred +tax assets: +Net +operating loss carryforwards +$ +$ +– +United States of America +8,878 +8,142 +Less: +valuation allowance +( 8,878 ) +( 8,142 ) +Deferred +tax assets +$ - +$ - +Management +believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company +provided for a full valuation allowance against its deferred tax assets of $ 8,878 as of July 31, 2024. +F- 11 +9 . +CONCENTRATION OF RISK +Customer +Concentration +For +the year ended July 31, 2024, the Company generated total revenue of $ 21,522 , of which four customers accounted for 100 % of the Company’s +revenue. The Company has no accounts receivable from the customers. +For +the year ended July 31, 2023, the Company generated total revenue of $ 16,945 , of which two customers accounted for 100 % of the Company’s +revenue. The Company has accounts receivable of $ 6,954 from one of the customers. +SCHEDULE +OF CONCENTRATION OF RISK +For +the year ended July 31 +2024 +2023 +2024 +2023 +2024 +2023 +Revenues +Percentage +of +revenues +Accounts +receivable, +trade +Customer A +$ 4,942 +$ 9,991 +23 % +59 % +$ - +$ - +Customer B +- +6,954 +- % +41 % +- +6,954 +Customer C +6,516 +- +30 % +- % +- +- +Customer D +5,100 +- +24 % +- % +- +- +Customer E +4,964 +- +23 % +- % +- +- +Total +$ 21,522 +$ 16,945 +100 % +100 % +$ - +$ 6,954 +Supplier +Concentration +For +the year ended July 31, 2024, the Company incurred cost of revenue of $ 10,936 , accounted by two vendors. For the year ended July 31, +2023, the Company incurred cost of revenue of $ 8,594 , accounted by two vendors. +For +the year ended July 31 +2024 +2023 +2024 +2023 +2024 +2023 +Cost +of revenue +Percentage +of +Cost +of revenue +Accounts +payable, +trade +Vendor A +$ - +$ 2,292 +- % +27 % +$ - +$ - +Vendor B +3,405 +6,302 +31 % +73 % +- +- +Vendor C +7,531 +- +69 % +- % +- +- +Total +$ 10,936 +$ 8,594 +100 % +100 % +$ - +$ - +F- 12 +10. +SEGMENT REPORTING +ASC +280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with +the Company’s internal organization structure as well as information about services categories, business segments and major customers +in financial statements. The Company has single reportable segment based on business unit, apparel and garment trading business and two +reportable segments based on country, United States and Non-United States. +In +accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified +as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing +performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements +to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, +and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation +under “Segment Reporting” due to their similar customer base and similarities in economic characteristics; nature of products +and services; and procurement, manufacturing and distribution processes. +SCHEDULE OF SEGMENT REPORTING +For +the Year Ended and As of July 31, 2024 +By +Business Unit +Apparel +& Garment Trading Business +Total +Revenue +$ 21,522 +$ 21,522 +Cost of revenue +( 10,936 ) +( 10,936 ) +General and administrative +expenses +( 52,861 ) +( 52,861 ) +Loss from operations +( 42,275 ) +( 42,275 ) +Total assets +$ 28,474 +$ 28,474 +Capital expenditure +$ - +$ - +For +the Year Ended and As of July 31, 2023 +By +Business Unit +Apparel +& Garment Trading Business +Total +Revenue +$ 16,945 +$ 16,945 +Cost of revenue +( 8,594 ) +( 8,594 ) +General and administrative +expenses +( 30,605 ) +( 30,605 ) +Loss from operations +( 22,254 ) +( 22,254 ) +Total assets +$ 43,035 +$ 43,035 +Capital expenditure +$ - +$ - +For the Year +Ended and +As +of July 31, 2024 +By +Country +United +States +Non-United +States +Total +Revenue +$ - +$ 21,522 +$ 21,522 +Cost of revenue +- +( 10,936 ) +( 10,936 ) +General and administrative +expenses +- +( 52,861 ) +( 52,861 ) +Loss from operations +- +( 42,275 ) +( 42,275 ) +Total assets +$ - +$ 28,474 +$ 28,474 +Capital expenditure +$ - +$ - +$ - +For the Year +Ended and +As +of July 31, 2023 +By +Country +United +States +Non-United +States +Total +Revenue +$ - +$ 16,945 +$ 16,945 +Cost of revenue +- +( 8,594 ) +( 8,594 ) +General and administrative +expenses +- +( 30,605 ) +( 30,605 ) +Loss from operations +- +( 22,254 ) +( 22,254 ) +Total assets +$ - +$ 43,035 +$ 43,035 +Capital expenditure +$ - +$ - +$ - +F- 13 +11. +GOING CONCERN +For +the year ended July 31, 2024, the Company incurred a net loss of $ 42,275 and used cash in operating activities of $ 9,322 . As of July +31, 2024, the current liabilities of the Company exceeded its current assets by $ 48,945 and has a shareholders’ deficits of $ 48,945 . +These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as +a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing +to meet its obligations and repay its liabilities arising from normal business operations when they become due. These financial statements +do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that +might be necessary should the Company be unable to continue as a going concern. The Company expects to finance its operations primarily +through cash flow from revenue and continuing financial support from a shareholder. In the event that we require additional funding to +finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the +shareholder has indicated the intent and ability to provide additional financing. +12. +SUBSEQUENT EVENTS +In +accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure +of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or +transactions that occurred after July 31, 2024 up through the date the Company presented these audited financial statements. During the +period, the Company did not have any material recognizable subsequent events. +Forward +Stock Split +On +July 25, 2024, our Board of Directors approved an amendment to the Company’s Certificate of Amendment and Restated Certificate +of Incorporation. This amendment was filed on August 2, 2024, and effective as of August 8, 2024, effected a ten-for-one (10:1) forward +stock split of the Company’s common stock, increasing the number of issued and outstanding shares from 5,500,000 to 55,000,000 . +The par value of each share of common stock, $ 0.001 , remained unchanged. +As +a result of the Forward Split, each share of Common Stock outstanding as of August 8, 2024, was automatically converted into ten shares. +Each stockholder of record on that date holding shares of the Company’s Common Stock received nine additional shares of the Company’s +Common Stock for every one share held. The additional shares were distributed after the close of business on August 8, 2024. The Common +Stock began trading on the market on a post-split basis on August 9, 2024. +F- 14 \ No newline at end of file diff --git a/raw/filings/0001935033/2024/0001493152-24-040685/filing_metadata.csv b/raw/filings/0001935033/2024/0001493152-24-040685/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..b0344a6f666cefdf0b2cc5f52fe4fd129e9e8293 --- /dev/null +++ b/raw/filings/0001935033/2024/0001493152-24-040685/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935033,KMFG,KEEMO Fashion Group Ltd,2024,10-K,2024-10-10,2024-07-31,2024-10-10T11:05:13.000Z,0001493152-24-040685,form10-k.htm,,4208600,1,1,https://www.sec.gov/Archives/edgar/data/1935033/000149315224040685/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1935033/000149315224040685/ diff --git a/raw/filings/0001935033/2024/0001493152-24-040685/item1.txt b/raw/filings/0001935033/2024/0001493152-24-040685/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..da4a406aa2925a1e12b77afe5c2164b75f991ead --- /dev/null +++ b/raw/filings/0001935033/2024/0001493152-24-040685/item1.txt @@ -0,0 +1,120 @@ +ITEM +1. BUSINESS +Overview +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +KEEMO +Fashion Group Limited is a company that operates in the apparel and garment trade industry through wholesaling men’s and women’s +apparel to retailers in Asian countries. At present, the Company has primarily focused its efforts on attracting small to medium apparel +and garment retailers by wholesaling low to mid-range apparel and garments. We do not maintain and operate any production and manufacturing +of apparel facility or machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +4 +Description +of Business +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +On +April 22, 2022 Ms. Liu Lu was appointed as Chief Executive Officer, President, Secretary, Treasurer, and Director. +Primarily, +the products that we carry are targeted towards customers, both men and women, from 18 to 40 years of age. It is the company’s +belief that the products we wholesale have an appealing presentation, cover a diverse range of clothing and garment types, are stylish +for any occasion (including casual, work, and dressy), and they are offered at accessible price points. We believe that this combination +of factors will assist our growth moving forward and that we have the opportunity to capture a significant portion of the growing apparel +and garment market in Asian countries specifically. +At +present, the Company sells all of its products through word-of-mouth and utilization of our sole officer’s business network and +various connections. Ms. Liu, our sole officer and director, has broad knowledge and experience in marketing strategies and promotional +activities. She is familiar with marketing execution and promotional marketing methodology, which she intends to utilize to assist the +Company to gain market awareness and locate potential distributors as precisely and efficiently as possible. +Business +Model +The +Company currently primarily sources mid-priced women’s semi-formal apparel, which the company believes potentially has a higher +gross profit margin compared to low-priced apparel. Inventory is presently selected at the discretion of our sole officer and director, +and based upon recommendations from the suppliers regarding the latest fashion trends and styles, as well as what types of clothing are +currently the most sought after by consumers. The Company also performs internal analysis to compare the profit margins of various types +of clothing and, accordingly, seeks to primarily acquire inventory that has the greatest profit margin. +At +present, when identifying potential customers, the Company targets small size apparel retailers, especially home-based e-commerce retailers. +In the opinion of the Company’s sole officer and director, this market is easier to penetrate as our officer and director believes +that many small size apparel retailers are just side or part time businesses for the business owner. As such, the business owners might +face the problem of lack of capacity to arrange the logistics and filter the correct apparel in term of trend and quality. +The +Company adopts what is commonly referred to as a virtual network business structure, as the Company only maintains internal procurement, +sales, marketing, operational, accounting and finance functions, whereby the Company relies on suppliers for other crucial function such +as production and packaging, storage, courier inward and outward, etc. However, in some instances the Company does take physical possession +of inventory. In most cases, the Company purchases inventory from the suppliers, and this inventory is then held at the supplier’s +warehouse, although the product is owned by the Company at this time, and delivery from the warehouse is arranged by the Company through +a courier service. In some instances, the Company will take possession of the inventory and store apparel at the Company’s office, +and from that point courier service to the purchaser is arranged. There is no formal method of determination as to what items will be +stored in the supplier’s warehouse versus what items will be stored at the Company’s office. +Sales +and Marketing +KEEMO +Fashion Group Limited plans to penetrate the marketplace and attract customers by building our brand image through print ads, and possibly +online paid advertisements, to create brand awareness. We have prepared our corporate website (https://keemofashiongroup.wixsite.com/keemo-fashion-group) +to market our Company and we utilize search engine marketing to improve the number of distributors who can find and view our website. +Finally, we also have yet unidentified plans to market our Company through social networking websites. All the above marketing plans +have not yet been determined in sufficient detail to outline at this time, nor do we have a definitive timeline for when our marketing +strategy will be completed, and as such all of our marketing endeavors remain under development. +Employees +and Function +Currently, +we have one employee which is our President and Sole Director, Ms. Liu Lu. Currently, Ms. Liu has the flexibility to work on our business +up to 30 hours per week but is prepared to devote more time if necessary. The Company intends to hire more employees who possess industry-related +experience to assist in the development and execution of our business operations. +We +do not presently have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans; however, we may adopt +plans in the future. There are presently no personal benefits available to our employee, Officer and/or Director. +5 +Competition +KEEMO +Fashion Group Limited plans to operate in a mature and competitive industry. We consider our focus to be on distributors in China first. +Competition in the apparel and garment industry, with a focus on low to mid-range priced products, is very intense in China. We face +competition from various specialized and retail-based wholesalers, from different provinces and cities, which supply similar men’s +and women’s apparel and garment products to those that we offer. We also face competition from e-commerce-based wholesalers, many +of whom have exposure in various China whole websites and B2B platform, such as Alibaba, DHgate, AliExpress, and Global Sources. These +competitors generate significant traffic and have established brand recognition and financial resources manufacturing capacity, well +established business models and distribution channels and branding. +Despite +intense competition, our director is confident in the Company’s ability to develop and enlarge our market share in China through, +at present, the various relationships of the Company’s sole Officer and Director. +Enforcement +of Civil Liabilities under United States Federal Securities Laws +We +are a Nevada corporation and most of our operations are and will be located outside of the United States and our sole officer and director +resides outside the United States. Moreover, a majority of our assets are located outside the United States. Since a majority of the +assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible +within the United States. There is no treaty between the United States and China providing for the reciprocal recognition and enforcement +of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in +the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not +be automatically enforceable in China. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law +against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural +requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual +basis and a cause for the suit. +There +is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us +or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state +in the United States, or (2) entertain original actions brought in each respective jurisdiction against us or our directors or officers +predicated upon the securities laws of the United States or any state in the United States. +The +recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce +foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the +country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form +of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, +according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers +if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a +result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under +the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish +sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the +plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. +In +addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we +are incorporated under the laws of State of Nevada and it will be difficult for U.S. shareholders, holding our common stock, to establish +a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law. +6 \ No newline at end of file diff --git a/raw/filings/0001935033/2024/0001493152-24-040685/item13.txt b/raw/filings/0001935033/2024/0001493152-24-040685/item13.txt new file mode 100644 index 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+KMFG:SharePurchaseAgreementMember +KMFG:GWReaderHoldingLimitedMember +2025-09-02 +2025-09-02 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +KMFG:Segment +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +The Fiscal Year Ended July 31 , 2025 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from __________ to __________ +Commission +File Number 333-267967 +KEEMO +FASHION GROUP LIMITED +(Exact +name of registrant issuer as specified in its charter) +Nevada +32-0686375 +(State +or other jurisdiction of +incorporation +or organization) +(I.R.S. +Employer +Identification +Number) +69 +Wanke Boyu , Xili Liuxin 1st Rd , Nanshan District , Shenzhen, Guangdong 518052 , China +Address +of principal executive offices, including zip code +(+86) +176-1282-2030 +Registrant’s +phone number, including area code +Securities +registered pursuant to Section 12(b) of the Securities Exchange Act: None +Securities +registered pursuant to Section 12(g) of the Securities Exchange Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes +☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes +☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. +YES +☒ NO ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). +YES +☒ NO ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting +company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” +in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. +☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. +☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. +☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). +☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). +Yes +☐ No ☒ +State +the aggregate market value of the voting and no n-voting common equity held by non-affiliates computed by reference to the price at which +the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s +most recently completed second fiscal quarter. +Not +applicable. +APPLICABLE +ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS +Indicate +by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities +Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. +N/A +APPLICABLE +ONLY TO CORPORATE REGISTRANTS +Indicate +the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. +Class +Outstanding +at October 28, 2025 +Common +Stock, $ 0.001 par value +55,000,000 +DOCUMENTS +INCORPORATED BY REFERENCE +No +documents are incorporated by reference . +KEEMO +FASHION GROUP LIMITED +FORM +10-K +For +the Fiscal Year Ended July 31, 2025 +Index +Page +# +PART I +Item +1. +Business +4 +Item +1A. +Risk Factors +7 +Item +1B. +Unresolved Staff Comments +7 +Item +1C. +Cybersecurity +7 +Item +2. +Description of property +7 +Item +3. +Legal Proceedings +7 +Item +4. +Mine Safety Disclosures +7 +PART II +Item +5. +Market for Registrant’s Common Equity and Related Stockholder Matters +8 +Item +6. +Selected Financial Data +9 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +9 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +12 +Item +8. +Financial Statements and Supplementary Data +12 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +12 +Item +9A. +Controls and Procedures +12 +Item +9B. +Other Information +14 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +14 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +15 +Item +11. +Executive Compensation +17 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +18 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +19 +Item +14. +Principal Accounting Fees and Services +20 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +21 +Item +16. +Form 10-K Summary +21 +SIGNATURES +22 +2 +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements are not historical facts but rather +are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” +“intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these +words and similar expressions to identify forward-looking statements. These statements are not guarantee of future performance and are +subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause +actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following: +● +The +availability and adequacy of our cash flow to meet our requirements; +● +Economic, +competitive, demographic, business and other conditions in our local and regional markets; +● +Changes +or developments in laws, regulations or taxes in our industry; +● +Actions +taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial +and other governmental authorities; +● +Competition +in our industry; +● +The +loss of or failure to obtain any license or permit necessary or desirable in the operation of our business; +● +Changes +in our business strategy, capital improvements or development plans; +● +The +availability of additional capital to support capital improvements and development; and +● +Other +risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC. +This +report should be read completely and with the understanding that actual future results may be materially different from what we expect. +The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration +of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change +in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events +or otherwise. +Use +of Defined Terms +Except +as otherwise indicated by the context, references in this Report to: +● +The +“Company,” “we,” “us,” “our,” or “Keemo Fashion” are references to Keemo +Fashion Group Limited, a Nevada corporation. +● +“Common +Stock” refers to the common stock, par value $0.001, of the Company; +● +“U.S. +dollar,” “$” and “US$” refer to the legal currency of the United States; +● +“Securities +Act” refers to the Securities Act of 1933, as amended; and +● +“Exchange +Act” refers to the Securities Exchange Act of 1934, as amended. +3 +PART +I +ITEM +1. BUSINESS +Overview +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +KEEMO +Fashion Group Limited is a company that operates in the apparel and garment trade industry through wholesaling men’s and women’s +apparel to retailers in Asian countries. At present, the Company has primarily focused its efforts on attracting small to medium apparel +and garment retailers by wholesaling low to mid-range apparel and garments. We do not maintain and operate any production and manufacturing +of apparel facility or machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +We +face various legal and operational risks and uncertainties related to being based in and having all of our operations in China. The PRC +government has significant authority to exert influence on the ability of a company with China-based operations, such as Keemo Fashion +Group Limited, to conduct its business, accept foreign investments or list on U.S. or other foreign exchanges. For example, we face risks +associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, as well as oversight on cybersecurity and +data privacy. Such risks could result in a material change in our operations and/or the value of our common stock or could significantly +limit or completely hinder our ability to offer, or continue to offer, our common stock and/or other securities to investors and cause +the value of such securities to significantly decline or be worthless. In addition, the PRC government has significant oversight and +discretion over the conduct of our business and may intervene with or influence the operations of our business as the government deems +appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly +affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the +future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results +of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities +offerings and other capital markets activities and foreign investment in companies with China-based operations like us. Any such action, +once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities +to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. +Pursuant +to the Holding Foreign Companies Accountable Act (“HFCAA”), the Public Company Accounting Oversight Board (United States) +(the “PCAOB”) issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate +completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of +a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the +PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific +registered public accounting firms which are subject to these determinations. Trading in our securities may be prohibited under the Holding +Foreign Companies Accountable Act, or the HFCAA, if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) +determines that it cannot inspect or completely investigate our auditor. Our registered public accounting firm, JP Centurion & Partners +PLT, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the +PCAOB’s determinations. +On +December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong +from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Each year, +the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. +If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland +China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on +our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual +report on Form 10-K for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified +Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition +on trading under the HFCAA. +4 +Description +of Business +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +On +April 22, 2022 Ms. Liu Lu was appointed as Chief Executive Officer, President, Secretary, Treasurer, and Director. +Primarily, +the products that we carry are targeted towards customers, both men and women, from 18 to 40 years of age. It is the company’s +belief that the products we wholesale have an appealing presentation, cover a diverse range of clothing and garment types, are stylish +for any occasion (including casual, work, and dressy), and they are offered at accessible price points. We believe that this combination +of factors will assist our growth moving forward and that we have the opportunity to capture a significant portion of the growing apparel +and garment market in Asian countries specifically. +At +present, the Company sells all of its products through word-of-mouth and utilization of our sole officer’s business network and +various connections. Ms. Liu, our sole officer and director, has broad knowledge and experience in marketing strategies and promotional +activities. She is familiar with marketing execution and promotional marketing methodology, which she intends to utilize to assist the +Company to gain market awareness and locate potential distributors as precisely and efficiently as possible. +Business +Model +The +Company currently primarily sources mid-priced women’s semi-formal apparel, which the company believes potentially has a higher +gross profit margin compared to low-priced apparel. Inventory is presently selected at the discretion of our sole officer and director, +and based upon recommendations from the suppliers regarding the latest fashion trends and styles, as well as what types of clothing are +currently the most sought after by consumers. The Company also performs internal analysis to compare the profit margins of various types +of clothing and, accordingly, seeks to primarily acquire inventory that has the greatest profit margin. +At +present, when identifying potential customers, the Company targets small size apparel retailers, especially home-based e-commerce retailers. +In the opinion of the Company’s sole officer and director, this market is easier to penetrate as our officer and director believes +that many small size apparel retailers are just side or part time businesses for the business owner. As such, the business owners might +face the problem of lack of capacity to arrange the logistics and filter the correct apparel in term of trend and quality. +The +Company adopts what is commonly referred to as a virtual network business structure, as the Company only maintains internal procurement, +sales, marketing, operational, accounting and finance functions, whereby the Company relies on suppliers for other crucial function such +as production and packaging, storage, courier inward and outward, etc. However, in some instances the Company does take physical possession +of inventory. In most cases, the Company purchases inventory from the suppliers, and this inventory is then held at the supplier’s +warehouse, although the product is owned by the Company at this time, and delivery from the warehouse is arranged by the Company through +a courier service. In some instances, the Company will take possession of the inventory and store apparel at the Company’s office, +and from that point courier service to the purchaser is arranged. There is no formal method of determination as to what items will be +stored in the supplier’s warehouse versus what items will be stored at the Company’s office. +Sales +and Marketing +KEEMO +Fashion Group Limited plans to penetrate the marketplace and attract customers by building our brand image through print ads, and possibly +online paid advertisements, to create brand awareness. We have prepared our corporate website (https://keemofashiongroup.wixsite.com/keemo-fashion-group) +to market our Company and we utilize search engine marketing to improve the number of distributors who can find and view our website. +Finally, we also have yet unidentified plans to market our Company through social networking websites. All the above marketing plans +have not yet been determined in sufficient detail to outline at this time, nor do we have a definitive timeline for when our marketing +strategy will be completed, and as such all of our marketing endeavors remain under development. +Employees +and Function +Currently, +we have one employee which is our President and Sole Director, Ms. Liu Lu. Currently, Ms. Liu has the flexibility to work on our business +up to 30 hours per week but is prepared to devote more time if necessary. The Company intends to hire more employees who possess industry-related +experience to assist in the development and execution of our business operations. +We +do not presently have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans; however, we may adopt +plans in the future. There are presently no personal benefits available to our employee, Officer and/or Director. +5 +Competition +KEEMO +Fashion Group Limited plans to operate in a mature and competitive industry. We consider our focus to be on distributors in China first. +Competition in the apparel and garment industry, with a focus on low to mid-range priced products, is very intense in China. We face +competition from various specialized and retail-based wholesalers, from different provinces and cities, which supply similar men’s +and women’s apparel and garment products to those that we offer. We also face competition from e-commerce-based wholesalers, many +of whom have exposure in various China whole websites and B2B platform, such as Alibaba, DHgate, AliExpress, and Global Sources. These +competitors generate significant traffic and have established brand recognition and financial resources manufacturing capacity, well +established business models and distribution channels and branding. +Despite +intense competition, our director is confident in the Company’s ability to develop and enlarge our market share in China through, +at present, the various relationships of the Company’s sole Officer and Director. +Enforcement +of Civil Liabilities under United States Federal Securities Laws +We +are a Nevada corporation and most of our operations are and will be located outside of the United States and our sole officer and director +resides outside the United States. Moreover, a majority of our assets are located outside the United States. Since a majority of the +assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible +within the United States. There is no treaty between the United States and China providing for the reciprocal recognition and enforcement +of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in +the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not +be automatically enforceable in China. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law +against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural +requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual +basis and a cause for the suit. +There +is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us +or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state +in the United States, or (2) entertain original actions brought in each respective jurisdiction against us or our directors or officers +predicated upon the securities laws of the United States or any state in the United States. +The +recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce +foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the +country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form +of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, +according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers +if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a +result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under +the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish +sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the +plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. +In +addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we +are incorporated under the laws of State of Nevada and it will be difficult for U.S. shareholders, holding our common stock, to establish +a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law. +6 +ITEM +1A. RISK FACTORS +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +1B. UNRESOLVED STAFF COMMENTS +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM 1C. CYBERSECURITY +As of July 31, 2025, the Company has +not identified any cybersecurity threats, including previous incidents, that have materially impacted our business strategy, +results of operations, or financial condition. This assertion signifies our diligent efforts in managing and mitigating cybersecurity +risks, contributing to the stability and continuity of our operations. +ITEM +2. DESCRIPTION OF PROPERTY +We +do not own any real estate or other properties. Our office is located at 69 Wanke Boyu, Xili Liuxin 1st Rd, Nanshan District, Shenzhen, +Guangdong 518052, China. +The +Company utilizes home office space of its management at no cost. The company’s home office space is 34.78 square meters or approximately +374 square feet. There is no agreement pertaining to utilizing the home office space of management, and management is free to discontinue +providing the office space at any time and without notice. The Company does not own, rent, or lease any properties. +ITEM +3. LEGAL PROCEEDINGS +From +time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation +is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. +There are currently no pending legal proceedings or claims that we believe will have a material adverse effect on our business, financial +condition or operating results. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or +has a material interest adverse to our business. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +7 +PART +II +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS +Our +common stock is currently quoted on the OTC Pink under the trading symbol “KMFG.” +Trading +in stocks quoted on the OTC Pink is often thin and is characterized by wide fluctuations in trading prices due to many factors that may +have little to do with a company’s operations or business prospects. We cannot assure you that there will be any liquidity for +our common stock in the future. +For +the periods indicated, the following table sets forth the high and low bid prices per share of common stock based on inter-dealer prices, +without retail mark-up, mark-down or commission and may not represent actual transactions. +Fiscal Year 2025 +Highest Bid +Lowest Bid +First Quarter +$ 4.85 +$ 0.01 +Second Quarter +$ 3.40 +$ 2.31 +Third Quarter +$ 3.06 +$ 1.52 +Fourth Quarter +$ 1.95 +$ 0.87 +Holders +As +of July 31, 2025, we have 32 shareholders on record of our common stock. +Transfer +Agent and Registrar +The +transfer agent for our capital stock is Transfer Online, Inc, with an address at 512 SE Salmon St., Portland, OR 97214, United States +and telephone number is +1 (503) 227-2950. +Penny +Stock Regulations +The +Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security +that has a market price of less than $5.00 per share. Our Common Stock, when and if a trading market develops, may fall within the definition +of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities +to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual +incomes exceeding $200,000 individually, or $300,000, together with their spouse). +For +transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities +and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt +transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated +by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable +to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole +market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly +statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market +in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock +and may affect the ability of investors to sell their Common Stock in the secondary market. +In +addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory +Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must +have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced +securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s +financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that +there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements +make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the investors’ +ability to buy and sell our stock. +Forward +Stock Split +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000, which +is proportional to the ratio of the split. Neither the split nor the increase in authorized shares affected any stockholder’s ownership +percentage of our common stock, altered the par value of our common stock or modified any voting rights or other terms of the common +stock. +Transfer +of Shares +On +January 2, 2025, a Stock Purchase Agreement was entered into between Liu Lu and Guang Wen Global Group Limited , wherein Guang Wen Global +Group Limited purchased 34,200,000 shares of Common Shares, par value $0.001 per share, of Keemo Fashion Group Limited. As a result, +Guang Wen Global Group Limited became an approximately 62% holder of the voting rights of the issued and outstanding shares of the Company, +on a fully-diluted basis, and became the controlling shareholder. The transaction was completed on April 25, 2025. The consideration +paid for each share was $0.005. +Dividends +Any +future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our +board of directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare +or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. Our board of directors +currently intends to retain all earnings for use in the business for the foreseeable future. +8 +Recent +Sales of Unregistered Securities +No +securities have been sold by the Company during the period covered by this Form 10-K. +Purchases +of Equity Securities by the Registrant and Affiliated Purchasers +We +have not repurchased any shares of our common stock during the fiscal year ended July 31, 2025. +Other +Stockholder Matters +None. +ITEM +6. SELECTED FINANCIAL DATA +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The +following discussion and analysis of our results of operations and financial condition for fiscal year ended July 31, 2025 should be +read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report. +Some of the information contained in this management’s discussion and analysis or set forth elsewhere in this Annual Report, including +information with respect to our plans and strategy for our business and related financing, includes forward looking statements that involve +risks, uncertainties and assumptions. As a result of many factors, including those factors set forth in the “Risk Factors” +section in Form S-1/A registration statement, filed on May 12, 2023, our actual results could differ materially from the results described +in or implied by the forward-looking statements contained in this Annual Report. +On +May 26, 2025, we acquired GW Reader Holding Limited, a company engaged in digital publishing. This acquisition expands our Company portfolio +into the digital publishing sector and is expected to contribute to the Company’s growth beginning in fiscal year 2026. Because +the transaction closed after our fiscal year-end of July 31, 2025, the financial results of GW Reader Holding Limited are not included +in the consolidated results discussed in this Management’s Discussion and Analysis. Additional information regarding the acquisition, +including the historical financial statements of GW Reader Holding Limited and the pro forma financial information prepared in accordance +with Article 11 of Regulation S-X, is included in our Form 8-K/A filed on September 5, 2025, which is incorporated by reference into +this Annual Report on Form 10-K. +9 +Overview +We, +KEEMO Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada +on April 22, 2022. +KEEMO +Fashion Group Limited is headquartered in Shenzhen, People Republic of China (herein referred as (“China”). We primarily +operate in men and women apparel and garment trading business, focusing on wholesaling to distributors mainly based in Asian countries, +sourcing directly from manufacturers in China. We do not maintain and operate any production and manufacturing of apparel facility or +machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +Our +cash and cash equivalents are $3,088 as of July 31, 2025. Our cash balance is not sufficient to fund our limited levels of operations +for any period of time. In order to continue our current business plan and increase our current level of operations for the next twelve-month +period, we require further funding. +For +the year ended July 31, 2025, the Company incurred a net loss of $33,121 and used cash in operating activities of $16,333. As of July +31, 2025, the current liabilities of the Company exceeded its current assets by $82,066 and has a shareholders’ deficits of $82,066. +These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as +a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing +to meet its obligations and repay its liabilities arising from normal business operations when they become due. These financial statements +do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that +might be necessary should the Company be unable to continue as a going concern. +The +Company expects to finance its operations primarily through cash flow from revenue and continuing financial support from a shareholder. +In the event that we require additional funding to finance the growth of the Company’s current and expected future operations as +well as to achieve our strategic objectives, the shareholder has indicated the intent and ability to provide additional financing. +No +assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory +to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, +in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. +We +are incorporated in Nevada and conduct our business operations in the People’s Republic of China (“PRC”). We maintain +cash balances in both Renminbi (“RMB”) accounts in the PRC and a U.S. dollar-denominated account with East West Bank in the +United States. +Cash +maintained in the PRC is subject to foreign exchange and capital controls. Under PRC regulations, the conversion of RMB into U.S. dollars +and the remittance of such funds abroad require regulatory approval and are subject to limitations, including the requirement to allocate +at least 10% of after-tax profits to statutory reserves before distributing dividends. As a result, cash generated from our PRC operations +may not be freely transferable outside of China. Funds held in our East West Bank account are maintained in the United States and are +not subject to PRC foreign exchange restrictions. To date, we have not declared or paid any dividends to our shareholders. We currently +intend to retain cash generated from operations to support our business activities in the PRC and do not anticipate distributing cash +to shareholders in the foreseeable future. +While +we have been able to transfer funds between our PRC operations and our U.S. account, there can be no assurance that the PRC government +will not in the future impose additional restrictions that could materially affect our ability to access or use cash generated from our +operations in China. Any such limitations could affect our liquidity and our ability to pay dividends, service debt, or fund operations +outside of the PRC. +Results +of operations for the year ended July 31, 2025 and 2024 +Revenues +For +the years ended July 31, 2025, the Company has generated a revenue of $15,081. +For +the years ended July 31, 2024, the Company has generated a revenue of $21,522. +The +revenue was generated through wholesaling men’s and women’s apparel and garments to retailers. +10 +General +and Administrative Expenses +For +the years ended July 31, 2025, the Company incurred general and administrative expenses of $40,642. These were primarily comprised of +other professional fee, audit fees, stock and registrar fees, bank charges, printing and stationery, and legal fees. +For +the years ended July 31, 2024, the Company incurred general and administrative expenses of $52,861. These were primarily comprised of +other professional fee, audit fees, stock and registrar fees, bank charges, printing and stationery, and legal fees. +Net +Loss +For +the years ended July 31, 2025, the Company incurred a net loss of $33,121. +For +the years ended July 31, 2024, the Company incurred a net loss of $42,275. +Liquidity +and Capital Resources +The +Company’s cash and cash equivalents has decreased by $16,333, from $19,421 as of July 31, 2024 to $3,088 as of July 31, 2025. The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. +Cash +Used in Operating Activities +For +the year ended July 31, 2025, the Company has used $16,333 in operating activities, which was primarily attributable to net loss from +operation, increase in the amount due to our director, Ms. Liu Lu, decrease in prepayment, decrease in inventories, and increase in other +accruals. +For +the year ended July 31, 2024, the Company has used $9,322 in operating activities, which was primarily attributable to net loss from +operation, increase in the amount due to our director, Ms. Liu Lu, increase in prepayment, decrease in accounts receivable, decrease +in inventories, and decrease in other accruals. +Cash +Provided by Investing Activities +For +the year ended July 31, 2025 and 2024, the Company did not generate nor used any cash in investing activities. +Cash +Provided by Financing Activities +For +the year ended July 31, 2025 and 2024, the Company did not generate nor used any cash in financing activities. +11 +Off-Balance +Sheet Arrangement +We +have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial +condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital +resources that are material to our stockholders as of July 31, 2025. +Contractual +Obligation +As +a smaller reporting company, we are not required to provide the aforementioned information. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We +are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information +under this item. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +The +financial statements required by this item are located following the signature page of this Annual Report. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not +Applicable +ITEM +9A. CONTROLS AND PROCEDURES +Evaluation +of Disclosure Controls and Procedures +We +conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, of +the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, +as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means +controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the +reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified +in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, +controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits +under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal +financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. +Based on this evaluation, our Chief Executive Officer concluded as of July 31, 2025, that our disclosure controls and procedures were +not effective. The matters involving internal controls and procedures that our management considered to be material weaknesses under +the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority +of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in +the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties and effective risk +assessment ; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements +and application of both US GAAP and SEC guidelines; and (4) lack of internal audit function due to the fact that the Company lacks qualified +resources to perform the internal audit functions properly and that the scope and effectiveness of the internal audit function are yet +to be developed. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review +of our financial statements as of July 31, 2025. +12 +Management +believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, +management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors +results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result +in a material misstatement in our financial statements in future periods. +Management’s +Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) +and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally +accepted accounting principles. The internal controls for the Company are provided by executive management’s review and approval +of all transactions. Our internal control over financial reporting also includes those policies and procedures that: +● +Pertain +to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets +of the Company; +● +Provide +reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with +accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being +made only in accordance with authorizations of management and directors of the Company; and +● +Provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s +assets that could have a material effect on the financial statements. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of +any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, +or that the degree of compliance with the policies or procedures may deteriorate. +Management +assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2025. In making this assessment, +management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated +Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing +of the operational effectiveness of these controls. +13 +Based +on this assessment, management has concluded that as of July 31, 2025, our internal control over financial reporting was not effective +to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external +purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses +and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: +We +will increase our personnel resources and technical accounting expertise within the accounting function. We will create a position to +segregate duties consistent with control objectives. And, we plan to appoint one or more outside directors to our board of directors +who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the +establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made +by management when funds are available to us. +We +anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2025. +Changes +in Internal Control over Financial Reporting +There +was no change in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially +affected, or is reasonably likely to materially affect, our internal controls over financial reporting: +This +annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal +control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent +public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s +report in this Annual Report on Form 10-K. +ITEM +9B. OTHER INFORMATION +None . +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not +Applicable. +14 +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Set +forth below are the present directors and executive officers of the Company. Note that there are no other persons who have been nominated +or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements +or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or +an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected +and have qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of +stockholders and until their successors have been elected and qualified. +Name +Age +Positions +and Offices +Liu +Lu +33 +Chief +Executive Officer, President, Secretary, Treasurer, Director +Liu +Lu – Chief Executive Officer, President, Secretary, Treasurer, Director +In +2017, Ms. Liu graduated from the Sichuan University, Undergraduate Program for Specialty in Computer Science and Technology. From July +2017 to present, Ms. Liu works in the promotional department at the Tencent Interactive Entertainment Group, which is a division of Tencent +Holdings that publishes and develops video games for multiple platforms. From July 2017 to August 2017, she was responsible for three +initiatives, which are event planning, content operation, and market promotional and platform collaboration for the project “Deformers”, +a PC game. Regarding event planning, she handled event execution and post-event analysis. For content operation, she handled the official +website construction, content creation, and content planning. For market promotion and platform collaboration, she handled marketing +of the game, which involved collaboration with different online and media platforms. From August 2018 until present, Ms. Liu has been +mainly responsible for the project “Rocket League”, which is an online game. She mainly responsible on the resource allocation, +event planning and execution, post-event analysis and the user operation. Ms. Liu’s position at Tencent Holdings is a full-time +job, to which she devotes approximately 45 hours per week. +In +April 2022, Ms. Liu founded KEEMO Fashion Group Limited, and as a result of her promotional, organizational, and marketing experience, +it is the determination of the board that she serves as our Chief Executive Officer, President, Secretary, Treasurer, and Director. +Corporate +Governance +The +Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable +disclosure in reports and documents that the Company files with the Securities and Exchange Commission and in other public communications +made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations. The Company has not formally +adopted a written code of business conduct and ethics that governs the Company’s employees, officers and Directors as the Company +is not required to do so. +In +lieu of an Audit Committee, the Company’s Board of Directors, is responsible for reviewing and making recommendations concerning +the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company’s financial +statements and other services provided by the Company’s independent public accountants. The Board of Directors and the Chief Executive +Officer of the Company review the Company’s internal accounting controls, practices and policies. +Committees +of the Board +Our +Company currently does not have nominating, compensation, or audit committees or committees performing similar functions nor does our +Company have a written nominating, compensation or audit committee charter. Our Director(s) believe that it is not necessary to have +such committees, at this time, because the Directors can adequately perform the functions of such committees. +15 +Audit +Committee Financial Expert +Our +Board of Directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” +as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the term +is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(14) +of the FINRA Rules. +We +believe that our Director(s) are capable of analyzing and evaluating our financial statements and understanding internal controls and +procedures for financial reporting. The Director(s) of our Company does not believe that it is necessary to have an audit committee because +management believes that the Board of Directors can adequately perform the functions of an audit committee. In addition, we believe that +retaining an independent Director who would qualify as an “audit committee financial expert” would be overly costly and burdensome +and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash +flows from operations to date. +Involvement +in Certain Legal Proceedings +Our +Directors and our Officers have not been involved in any of the following events during the past ten years: +1. +bankruptcy +petition filed by or against any business of which such person was a general partner or executive officer either at the time of the +bankruptcy or within two years prior to that time; +2. +any +conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor +offenses); +3. +being +subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, +permanently or temporarily enjoining, barring, suspending or otherwise limiting his/her involvement in any type of business, securities +or banking activities; or +4. +being +found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have +violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. +5. +Such +person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State +securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, +or vacated; +6. +Such +person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated +any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not +been subsequently reversed, suspended or vacated; +7. +Such +person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not +subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) Any Federal or State securities or commodities +law or regulation; or(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited +to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist +order, or removal or prohibition order; or(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with +any business entity; or +8. +Such +person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory +organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section +1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that +has disciplinary authority over its members or persons associated with a member. +Independence +of Directors +We +are not required to have independent members of our Board of Directors, and do not anticipate having independent Directors until such +time as we are required to do so. +Code +of Ethics +We +have not adopted a formal Code of Ethics. The Board of Directors evaluated the business of the Company and the number of employees and +determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, +business conduct and securities laws are adequate ethical guidelines. In the event our operations, employees and/or Directors expand +in the future, we may take actions to adopt a formal Code of Ethics. +Shareholder +Proposals +Our +Company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for Directors. +The Board of Directors believes that, given the stage of our development, a specific nominating policy would be premature and of little +assistance until our business operations develop to a more advanced level. Our Company does not currently have any specific or minimum +criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such +nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations +for election or appointment. +A +shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our Sole Officer +and Director, Liu Lu, at the address appearing on the first page of this Registration Statement. +16 +SECTION +16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Section +16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, +to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide +us with copies of those filings. Based solely on our review of the copies of such forms furnished to us and written representations by +our officers and directors regarding their compliance with applicable reporting requirements under Section 16(a) of the Exchange Act, +we believe that all Section 16(a) filing requirements for our executive officers, directors and 10% stockholders were met during the +year ended July 31, 2025. +ITEM +11. EXECUTIVE COMPENSATION +MANAGEMENT +COMPENSATION +The +following tables set forth certain information about compensation paid, earned or accrued for services by our Executive Officer from +July 31, 2024 to July 31, 2025: +Summary +Compensation Table +Summary Compensation Table +Name and principal position (a) +Year ended July 31 (b) +Salary ($) (c) +Bonus ($) (d) +Stock Compensation ($) (e) +Option Awards ($) (f) +Non-Equity Incentive Plan Compensation ($) (g) +Nonqualified Deferred Compensation Earnings ($) (h) +All Other Compensation ($) (i) +Total ($) (j) +Liu Lu, +Chief Executive Officer, President, Secretary, Treasurer, Director +2025 +$ - +- +- +- +- +- +- +$ - +Stock +Option Grants +We +have not granted any stock options to our executive officers since our incorporation. +Employment +Agreements +We +do not have an employment or consulting agreement with any officers or Directors. +Compensation +Discussion and Analysis +Director +Compensation +Our +Board of Directors does not currently receive any consideration for their services as members of the Board of Directors. The Board of +Directors reserves the right in the future to award the members of the Board of Directors cash or stock-based consideration for their +services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors. +Executive +Compensation Philosophy +Our +Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors reserves +the right to pay our executive or any future executives a salary, and/or issue them shares of common stock in consideration for services +rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s +performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance +of our executives with our long-term business strategies. Additionally, while our Board of Directors has not granted any performance +base stock options to date, the Board of Directors reserves the right to grant such options in the future, if the Board in its sole determination +believes such grants would be in the best interests of the Company. +Incentive +Bonus +The +Board of Directors may grant incentive bonuses to our executive officer and/or future executive officers in its sole discretion, if the +Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and +growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability +of such executives. +Long-term, +Stock Based Compensation +In +order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award +our executive and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board of +Directors, which we do not currently have any immediate plans to award. +17 +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +As +of July 31, 2025, the Company has 55,000,000 shares of common stock issued and outstanding, which number of issued and outstanding shares +of common stock have been used throughout this report. +Name and Address of +Beneficial Owner +Shares of +Common +Stock +Beneficially +Owned +Common +Stock Voting +Percentage +Beneficially +Owned +Voting +Shares of +Preferred +Stock +Preferred +Stock Voting +Percentage +Beneficially +Owned +Total Voting +Percentage +Beneficially +Owned +Executive Officers and Directors +Liu Lu +Chief Executive Officer, President, Secretary, Treasurer and Director +1,800,000 +3 % +- +- +3 % +5% or Greater Shareholders +Guang Wen Global Group Limited +34,200,000 +62 % +- +- +62 % +*Officers +and or Directors who may hold a 5% or greater controlling interest in the Company are included above, but only under the subtitle, “Executive +Officers and Directors”. +On +August 8, 2024, a ten-for-one (10:1) forward stock split of the Company’s common stock became effective, which increased the number +of shares of common stock beneficially owned by the beneficial owner increased from 3,600,000 to 36,000,000, consistent with the split +ratio. Neither the split nor the increase in authorized shares affected any stockholder’s ownership percentage of our common stock. +On +January 2, 2025, a Stock Purchase Agreement was entered into between Liu Lu and Guang Wen Global Group Limited, wherein Guang Wen Global +Group Limitedpurchased 34,200,000 shares of Common Shares, par value $0.001 per share, of Keemo Fashion Group Limited. As a result, Guang +Wen Global Group Limited became an approximately 62% holder of the voting rights of the issued and outstanding shares of the Company, +on a fully-diluted basis, and became the controlling shareholder. The transaction was completed on April 25, 2025. The consideration +paid for each share was $0.005. +Beneficial +ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to +be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). +In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon +exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership +of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition +rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect +the person’s actual voting power at any particular date. +18 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE +On +April 23, 2022, we issued 3,600,000 shares of our common stock to Ms. Liu Lu, our Chief Executive Officer, President, Secretary, Treasurer, +and Director in consideration of $3,600, or $0.001 per share. +In +regards to the above transaction we claim an exemption from registration afforded by Regulation S of the Securities Act of 1933, as amended +(“Regulation S”) for the above sale of stock since the sale of stock was made to a non-U.S. person (as defined under Rule +902 section (k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States +by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. +As +of July 31, 2022, our sole director, Ms. Liu Lu, advanced $25,758 to the Company, which is unsecured and non-interest bearing, and payable +upon demand. Proceeds from the offering herein will not be used to repay the loan to Ms. Liu Lu. +As +of October 31, 2022, the sole director of the Company advanced $26,958 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of January 31, 2023, the sole director of the Company advanced $30,419 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +On +July 26, 2023, we issued 1,900,000 shares of our common stock in consideration of $28,500, or $0.015 per share through initial public +offering. +As +of July 31, 2023, the sole director of the Company advanced $40,405 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of October 31, 2023, the sole director of the Company advanced $47,716 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +As +of April 30, 2024, the sole director of the Company advanced $66,903 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +On +August 8, 2024, a ten-for-one (10:1) forward stock split of the Company’s common stock became effective, increasing the number +of issued and outstanding shares from 5,500,000 to 55,000,000. +On +January 2, 2025, a Stock Purchase Agreement was entered into between Liu Lu and Guang Wen Global Group Limited, wherein Guang Wen Global +Group Limited purchased 34,200,000 shares of Common Shares, par value $0.001 per share, of Keemo Fashion Group Limited. Following the +transaction, Ms. Liu Lu, the Company’s sole director, retained ownership of 1,800,000 shares of common stock. +As +of July 31, 2025, the sole director of the Company advanced $76,389 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +19 +Review, +Approval and Ratification of Related Party Transactions +Given +our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification +of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to +establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so +that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee +thereof. On a moving forward basis, our Directors will continue to approve any related party transaction. +ITEM +14. PRINCIPAL ACCOUNTING FEES AND SERVICES +Audit +Fees +The +following table sets forth the aggregate fees billed to the Company by its independent registered public accounting firms for the fiscal +years ended July 31, 2025 and 2024. We have engaged JP Centurion & Partners PLT as our independent registered public accounting firm +since August 17, 2022. +ACCOUNTING FEES AND SERVICES +2025 +2024 +Audit fees +$ 17,100 +$ 17,100 +Audit-related fees +- +- +Tax fees +- +- +All other fees +- +- +Total +$ 17,100 +$ 17,100 +The +category of “Audit fees” includes fees for our annual audit, quarterly reviews and services rendered in connection with regulatory +filings with the SEC, such as the issuance of comfort letters and consents. +The +category of “Audit-related fees” includes employee benefit plan audits, internal control reviews and accounting consultation. +The +category of “Tax services” includes tax compliance, tax advice, tax planning. +The +category of “All other fees” generally includes advisory services related to accounting rules and regulations. +All +of the professional services rendered by principal accountants for the audit of our annual financial statements that are normally provided +by the accountant in connection with statutory and regulatory filings or engagements for last two fiscal years were approved by our board +of directors. +20 +PART +IV +ITEM +15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) +Financial Statements +The +following are filed as part of this report: +Financial +Statements +The +following financial statements of Keemo Fashion Group Limited and Report of Independent Registered Public Accounting Firm are presented +in the “F” pages of this Report: +Page +Audited +Financial Statements +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +F-2 +BALANCE SHEETS +F-3 +STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +F-4 +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +F-5 +STATEMENTS OF CASH FLOWS +F-6 +NOTES TO FINANCIAL STATEMENTS +F-7 +– F-14 +(b) +Exhibits +The +following exhibits are filed herewith: +31.1 +Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer, principal financial officer* +32.1 +Section 1350 Certification of principal executive officer, principal financial officer and principal accounting officer* +101.INS* +Inline +XBRL Instance Document +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase +101.LAB* +Inline +XBRL Taxonomy Extension Labels Linkbase +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase +104* +Cover +Page Interactive Data File (embedded within the Inline XBRL document) +*Filed +herewith +ITEM +16. FORM 10-K SUMMARY +As +permitted, the registrant has elected not to supply a summary of information required by Form 10-K. +21 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed +on its behalf by the undersigned, thereunto duly authorized. +Keemo +Fashion Group Limited +Date: +October 28, 2025 +By: +/s/ +Liu Lu +Liu +Lu +Chief +Executive Officer, President, Secretary, Treasurer, and Director +(Principal +Executive Officer, Principal Financial Officer, Principal Accounting Officer) +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +Registrant, and in the capacities and on the dates indicated: +Signature +Title +Date +/s/ +Liu Lu +Chief +Executive Officer, President, Secretary, Treasurer, Director +Liu +Lu +(Principal +Executive Officer, Principal Financial Officer and Principal Accounting Officer) +October +28, 2025 +22 +Keemo +Fashion Group Limited +INDEX +TO FINANCIAL STATEMENTS +Page +Audited +Financial Statements +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 6723 ) +F-2 +BALANCE SHEETS +F-3 +STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +F-4 +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +F-5 +STATEMENTS OF CASH FLOWS +F-6 +NOTES TO FINANCIAL STATEMENTS +F-7 +– F-14 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The +Board of Directors and Stockholders of +KEEMO +Fashion Group Limited +69 +Wanke Boyu, Xili Liuxin 1 st Road, +Nanshan +District, Shenzen +Guangdong +518052 China. +Opinion +on the Financial Statements +We have audited the accompanying balance sheets of KEEMO Fashion Group Limited (the ‘Company’) as of +July 31, 2025 and 2024, and the related statements of operations and comprehensive loss, statements changes in of stockholders’ +equity, and statements of cash flows for the year ended as of July 31, 2025 and 2024, and the related notes to financial statements (collectively +referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, +the financial position of the Company as of July 31, 2025 and 2024, and the results of its operations and its cash flows for the financial +year ended as of July 31, 2025 and 2024, in conformity with accounting principles generally accepted in the United States of America. +Going +Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. +As discussed in Note 2 to the financial statements, for the year ended July 31, 2025, the Company incurred a net loss of $33,121 and used +cash in operating activities of $16,333. As of July 31, 2025, the current liabilities of the Company exceeded its current assets by $82,066 +and has a shareholders’ deficits of $82,066. These conditions raise substantial doubt about the Company’s ability to continue +as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include +any adjustments that might result from the outcome of this uncertainty. +Basis +for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express +an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company +in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission +and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform +the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error +or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. +As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose +of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express +no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, +whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, +evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe +that our audits provide a reasonable basis for our opinion. +Critical +Audit Matters +Critical audit matters are matters arising from the current year audit of the financial statements that were communicated +or required to be communicated to those charged with governance that: (1) relate to accounts or disclosures that are material to the financial +statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical matters. +/s/ +JP CENTURION & PARTNERS PLT +JP +CENTURION & PARTNERS PLT (ID: 6723) +We +have served as the Company’s auditor since 2022. +Kuala +Lumpur, Malaysia +October +28, 2025 +F- 2 +Item +1. Financial Statements +KEEMO +FASHION GROUP LIMITED +BALANCE +SHEETS +AS +OF JULY 31, 2025 AND 2024 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +As of +July 31, 2025 +As of +July 31, 2024 +(Audited) +(Audited) +ASSETS +CURRENT ASSETS +Cash and cash equivalents +$ 3,088 +$ 19,421 +Inventories +- +2,527 +Prepayment +- +6,526 +TOTAL CURRENT ASSETS +3,088 +28,474 +TOTAL ASSETS +$ 3,088 +$ 28,474 +LIABILITIES AND STOCKHOLDERS’ EQUITY +CURRENT LIABILITIES +Amount due to a director +76,389 +69,919 +Other accruals +8,765 +7,500 +TOTAL CURRENT LIABILITIES +85,154 +77,419 +TOTAL LIABILITIES +$ 85,154 +$ 77,419 +STOCKHOLDERS’ EQUITY +Common stock – Par value $ 0.001 ; Authorized: 75,000,000 shares; Issued and outstanding: 55,000,000 +as of July 31, 2025 and July 31, 2024, respectively (1) +$ 5,500 +$ 5,500 +Additional paid in capital +26,600 +26,600 +Accumulated deficit +( 114,166 ) +( 81,045 ) +TOTAL STOCKHOLDERS’ EQUITY +$ ( 82,066 ) +$ ( 48,945 ) +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY +$ 3,088 +$ 28,474 +(1) +Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the form of a stock issuance in August 8, 2024. +See Note 1, Overview , for details. +See +accompanying notes to financial statements. +F- 3 +KEEMO +FASHION GROUP LIMITED +STATEMENTS +OF OPERATIONS AND COMPREHENSIVE LOSS +FOR +THE YEARS ENDED JULY 31, 2025 AND 2024 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +2025 +2024 +For the Years Ended July 31, +2025 +2024 +(Audited) +(Audited) +REVENUE +$ 15,081 +$ 21,522 +COST OF REVENUE +( 7,560 ) +( 10,936 ) +GROSS PROFIT +7,521 +10,586 +GENERAL AND ADMINISTRATIVE EXPENSES +( 40,642 ) +( 52,861 ) +LOSS FROM OPERATIONS +( 33,121 ) +( 42,275 ) +OTHER INCOME +- +- +LOSS FROM OPERATIONS BEFORE INCOME TAX +( 33,121 ) +( 42,275 ) +INCOME TAX EXPENSES +- +- +NET LOSS +( 33,121 ) +( 42,275 ) +OTHER COMPREHENSIVE LOSS +- +- +TOTAL COMPREHENSIVE LOSS +$ ( 33,121 ) +$ ( 42,275 ) +NET LOSS PER SHARE - BASIC AND DILUTED (1) +$ ( 0.00 ) +$ ( 0.00 ) +WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED (1) +55,000,000 +55,000,000 +(1) +Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the form of a stock issuance in August 8, 2024. +See Note 1, Overview , for details. +See +accompanying notes to financial statements. +F- 4 +KEEMO +FASHION GROUP LIMITED +STATEMENTS +OF CHANGES IN STOCKHOLDERS’ EQUITY +FOR +THE YEARS ENDED JULY 31, 2025 AND 2024 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +COMMON STOCK +ADDITIONAL +Number of shares +Amount +PAID-IN CAPITAL +ACCUMULATED DEFICIT +TOTAL EQUITY +Balance as of August 1, 2023 (1) +55,000,000 +5,500 +26,600 +( 38,770 ) +( 6,670 ) +Balance +55,000,000 +5,500 +26,600 +( 38,770 ) +( 6,670 ) +Net loss +- +- +- +( 42,275 ) +( 42,275 ) +Balance as of July 31, 2024 +55,000,000 +5,500 +26,600 +( 81,045 ) +( 48,945 ) +Net loss +- +- +- +( 33,121 ) +( 33,121 ) +Balance as of July 31, 2025 +55,000,000 +5,500 +26,600 +114,166 +( 82,066 ) +Balance +55,000,000 +5,500 +26,600 +114,166 +( 82,066 ) +(1) +Prior +period results have been adjusted to reflect the ten-for-one stock split effected in the form of a stock issuance in August 8, 2024. +See Note 1, Overview , for details. +See +accompanying notes to financial statements. +F- 5 +KEEMO +FASHION GROUP LIMITED +STATEMENTS +OF CASH FLOWS +FOR +THE YEARS ENDED JULY 31, 2024 AND 2023 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +2025 +2024 +For the Years Ended July 31, +2025 +2024 +(Audited) +(Audited) +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss +$ ( 33,121 ) +$ ( 42,275 ) +Changes in operating assets and liabilities: +Accounts receivable +- +6,954 +Inventories +2,527 +878 +Prepayment +6,526 +( 2,593 ) +Amount due to a director +6,470 +29,514 +Other accruals +1,265 +( 1,800 ) +Net cash flows used in operating activities +( 16,333 ) +( 9,322 ) +Effect of exchange rate changes in cash and cash equivalents +- +- +Net changes in cash and cash equivalents +( 16,333 ) +( 9,322 ) +Cash and cash equivalents, beginning of year +19,421 +28,743 +CASH AND CASH EQUIVALENTS, END OF YEAR +$ 3,088 +$ 19,421 +SUPPLEMENTAL CASH FLOWS INFORMATION +Income taxes paid +$ - +$ - +Interest paid +$ - +$ - +See +accompanying notes to financial statements. +F- 6 +KEEMO +FASHION GROUP LIMITED +NOTES +TO FINANCIAL STATEMENTS +FOR +THE YEARS ENDED JULY 31, 2025 AND 2024 +(Currency +expressed in United States Dollars (“US$”), except for number of shares) +1. +ORGANIZATION AND BUSINESS BACKGROUND +KEEMO +Fashion Group Limited, a Nevada corporation, (herein referred as “the Company”) was incorporated under the laws of the State +of Nevada on April 22, 2022. +KEEMO +Fashion Group Limited is headquartered in Shenzhen, People Republic of China (herein referred as (“China”). We primarily +operate in men and women apparel and garment trading business, focusing on wholesaling to distributors mainly based in Asian countries, +sourcing directly from manufacturers in China. We do not maintain and operate any production and manufacturing of apparel facility or +machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $ 0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000 , which +is proportional to the ratio of the split. All share and per share amounts presented herein have been retroactively adjusted to reflect +the impact of the Forward Split. +2. GOING CONCERN +For +the year ended July 31, 2025, the Company incurred a net loss of $ 33,121 and used cash in operating activities of $ 16,333 . As of July +31, 2025, the current liabilities of the Company exceeded its current assets by $ 82,066 and has a shareholders’ deficits of $ 82,066 . +These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as +a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing +to meet its obligations and repay its liabilities arising from normal business operations when they become due. These financial statements +do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that +might be necessary should the Company be unable to continue as a going concern. The Company expects to finance its operations primarily +through cash flow from revenue and continuing financial support from a shareholder. In the event that we require additional funding to +finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the +shareholder has indicated the intent and ability to provide additional financing. +3. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying financial statements of the Company are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange +Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America (“US +GAAP”). The Company has adopted July 31 as its fiscal year end. +Use +of Estimates +Management +uses estimates and assumptions in preparing these financial statements in accordance with US GAAP. Those estimates and assumptions affect +the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities in the balance sheets, and the reported +revenue and expenses during the periods reported. Actual results may differ from these estimates. +Cash +and Cash Equivalents +Cash +and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions +and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. +F- 7 +Revenue +Recognition +Revenue +is generated through wholesale business of men and women apparel and garment to customer. Revenue is recognized when a customer obtains +control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive +in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty +of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that +the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to +determine this amount: +(i) +identification of the promised goods and services in the contract; +(ii) +determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context +of the contract; +(iii) +measurement of the transaction price, including the constraint on variable consideration; +(iv) +allocation of the transaction price to the performance obligations; and +(v) +recognition of revenue when (or as) the Company satisfies each performance obligation. +The +Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Company records revenue when persuasive +evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company +records revenue from the wholesale of goods upon the delivery of men and women apparel and garment to the customer. +Credit +losses +The +Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables. +Management considers historical collection rates, the current financial status of the Company’s customers, macroeconomic factors, +and other industry-specific factors when evaluating current expected credit losses. Forward-looking information is also considered in +the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, +management believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical +and current analysis of such financial instruments, including its trade receivables. +To +determine the provision for credit losses for accounts receivable, the Company has disaggregated its accounts receivable by class of +customer at the business component level, as management determined that risk profile of the Company’s customers is consistent based +on the type and industry in which they operate. Each business component is analyzed for estimated credit losses individually. In doing +so, the Company establishes a historical loss matrix, based on the previous collections of accounts receivable by the age of such receivables, +and evaluates the current and forecasted financial position of its customers, as available. Further, the Company considers macroeconomic +factors and the status of the relevant industry to estimate if there are current expected credit losses within its trade receivables +based on the trends of the Company’s expectation of the future status of such economic and industry-specific factors. Also, specific +allowance amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have +a higher probability of default. +Accounts +receivable at July 31, 2025 and July 31, 2024 there were no allowances for credit losses. +Cost +of Revenue +Cost +of revenue includes the purchase cost of raw materials for manufacturing and distribute to customers and packing materials. It includes +purchasing and receiving costs, internal transfer costs, other costs of distribution network, opening and closing inventory net off discount +received and return outwards in cost of revenue. +Earnings +Per Share +The +Company reports earnings per share in accordance with ASC Topic 260 “Earnings Per Share”, which requires presentation of +basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. +Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average +common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if +securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common +shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations +of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital +structure. +The +Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number of +the Company’s ordinary shares outstanding. Diluted earnings per share reflects the amount of net income available to each ordinary +share outstanding during the period plus the number of additional shares that would have been outstanding if potentially dilutive securities +had been issued. +Income +Taxes +The +Company accounts for income taxes using the asset and liability method prescribed by ASC Topic 740 “Income Taxes”. Under +this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases +of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. +The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not +that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is +recognized as income or loss in the period that includes the enactment date. The Company also adopted ASU 2023-09, “Income Taxes +(Topic 740): Improvements to Income Tax Disclosures”, which requires disaggregated information about the reporting entity’s +effective tax rate reconciliation as well as information on income taxes paid. +ASC +740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclosed in their financial statements +uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the +financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax +positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of +being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. +F- 8 +Related +Parties +Parties, +which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control +the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also +considered to be related if they are subject to common control or common significant influence. +Fair +Value Measurement +Accounting +Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” (ASC Topic 820), which defines +fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies +that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability +in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market +for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and +that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. +This +ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy +gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and +the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: +Level +1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; +Level +2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the +full term of the asset or liability; and +Level +3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported +by little or no market activity). +Segment +Reporting +The +Company follows the guidance of ASC 280, “Segment Reporting”, which establishes standards for reporting information about +operating segments on a basis consistent with the Company’s internal organization structure as well as information about services +categories, business segments and major customers in financial statements. For the year ended July 31, 2025, the Company has one reportable +segment based on business unit, apparel & garment trading services, and one 1 +reportable segment based on region. The Company also adopted +ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands annual and interim +disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. +Recent +Accounting Pronouncements +The +Company has reviewed all recently issued, but not yet effective, considers the applicability and impact of all accounting standards updates +(“ASUs”). Management periodically reviews new accounting standards that are issued. +In +November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures +(Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). Additionally, in January 2025, the FASB issued +ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying +the Effective Date to further clarify the effective date of ASU 2024-03. ASU 2024-03 requires disclosure in the notes to the financial +statements of specified information about certain costs and expenses. +The +requirements of ASU 2024-03 are effective for the Company for fiscal years beginning after December 15, 2026 and interim periods within +fiscal years beginning after December 15, 2027. +Early +adoption is permitted and should be applied either prospectively to financial statements issued for reporting periods after the effective +date of this ASU 2024-03 or retrospectively to any or all periods presented in the financial statements. We are currently evaluating +the impact of this standard on our financial statements and related disclosures. +F- 9 +4. +INVENTORIES +As +of July 31, 2025 and 2024, the Company inventories consist of following: +SCHEDULE +OF INVENTORIES +As of +July 31, 2025 +As of +July 31, 2024 +Finished goods +$ - +$ 2,527 +Total inventories +$ - +$ 2,527 +No +allowance has been provided for the year ended July 31, 2025 and 2024. +5. +PREPAYMENT +As +of July 31, 2025 and 2024, prepayment consist of following: +SCHEDULE OF PREPAYMENT +As of +July 31, 2025 +As of +July 31, 2024 +Stock & Registrar fees +$ - +$ 4,690 +Other professional fee +- +1,836 +Total prepayment +$ - +$ 6,526 +6. +AMOUNT DUE TO A DIRECTOR +SCHEDULE +OF AMOUNT DUE TO A DIRECTOR +As of +July 31, 2025 +As of +July 31, 2024 +Amount due to a director +$ 76,389 +$ 69,919 +As +of July 31, 2025, the sole director of the Company advanced $ 76,389 to the Company, which is unsecured and non-interest bearing with +no fixed terms of repayment. +Our +director, Ms. Liu Lu, has not been compensated for the services. +7. +OTHER ACCRUALS +SCHEDULE +OF OTHER ACCRUALS +As of +July 31, 2025 +As of +July 31, 2024 +Accrued expenses +$ 8,765 +$ 7,500 +Total other accruals +$ 8,765 +$ 7,500 +Accrued +expenses for the years ended July 31, 2025 and 2024 consist of accrued audit fees, transfer agent fee and other professional fee. +F- 10 +8. +SHAREHOLDERS’ EQUITY +On +April 22, 2022, upon the incorporation of the Company, Liu Lu, subscribed to 3,600,000 shares of common stock at par value of $ 0.001 +per share for a total subscription value of $ 3,600 . +On +26 July, 2023, the Company issued 1,900,000 shares of common stock being sold at $ 0.015 per share for a total of $ 28,500 through initial +public offering. +On +July 25, 2024, the Board of Directors approved a ten-for-one (10:1) forward stock split (the “Forward Split”) of the Company’s +common stock, par value $ 0.001 per share. The Company filed a Certificate of Amendment and Restated Certificate of Incorporation (the +“Certificate of Amendment”) to effect the forward stock split with the Secretary of State of Nevada on August 2, 2024. The +Forward Split became effective on August 8, 2024 and our common stock began trading on a split-adjusted basis on August 9, 2024. Concurrently +with the effectiveness of the split, the issued and outstanding shares of common stock increased from 5,500,000 to 55,000,000 , which +is proportional to the ratio of the split. All share and per share amounts presented herein have been retroactively adjusted to reflect +the impact of the Forward Split. +On +January 2, 2025, a Stock Purchase Agreement was entered into between Liu Lu and Guang Wen Global Group Limited, wherein Guang Wen Global +Group Limited purchased 34,200,000 shares of Common Shares, par value $ 0.001 per share, of Keemo Fashion Group Limited. Following the +transaction, Ms. Liu Lu, the Company’s sole director, retained ownership of 1,800,000 shares of common stock. +As +of July 31, 2025, the Company has 55,000,000 shares of common stock issued and outstanding. +The +Company has 75,000,000 shares of commons stock authorized. +9. +INCOME TAX +The +loss from operation before income tax of the Company for the years ended July 31, 2025 and 2024 were comprised of the following: +SCHEDULE +OF LOSS FROM OPERATION BEFORE INCOME TAX +2025 +2024 +For the years ended July 31 +2025 +2024 +Tax jurisdictions from: +– Local +$ ( 33,121 ) +$ ( 42,275 ) +Loss before income taxes +$ ( 33,121 ) +$ ( 42,275 ) +United +States of America +The +Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of July 31, 2025, the +operations in the United States of America incurred $ 33,121 of net operating losses (NOL’s) which can be carried forward to offset +future taxable income, at the tax rate of 21 %. The NOL carry forwards begin to expire in 2045, if unutilized . The Company has provided +for a full valuation allowance of approximately $ 6,955 against the deferred tax assets on the expected future tax benefits from the net +operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future. +The +following table sets forth the significant components of the aggregate deferred tax assets of the Company as of July 31, 2025 and July +31, 2024: +SCHEDULE OF COMPONENTS OF AGGREGATE DEFERRED TAX ASSETS +2025 +2024 +As of July 31 +2025 +2024 +Deferred tax assets: +Net operating loss carryforwards +– United States of America +$ 6,955 +$ 8,878 +Less: valuation allowance +( 6,955 ) +( 8,878 ) +Deferred tax assets +$ - +$ - +Management +believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company +provided for a full valuation allowance against its deferred tax assets of $ 6,955 as of July 31, 2025. +F- 11 +10 . +CONCENTRATION OF RISK +Customer +Concentration +For +the year ended July 31, 2025, the Company generated total revenue of $ 15,081 , of which two customers accounted for 100 % of the Company’s +revenue. The Company has no accounts receivable from the customers. +For +the year ended July 31, 2024, the Company generated total revenue of $ 21,522 , of which four customers accounted for 100 % of the Company’s +revenue. The Company has no accounts receivable from the customers. +SCHEDULE +OF CONCENTRATION OF RISK +For the year ended July 31 +2025 +2024 +2025 +2024 +2025 +2024 +Revenues +Percentage of +revenues +Accounts +receivable, trade +Customer A +$ 5,124 +$ - +34 % +- % +$ - +$ - +Customer B +- +4,942 +- % +23 % +$ - +$ - +Customer C +9,957 +- +66 % +- % +- +- +Customer D +- +6,516 +- % +30 % +- +- +Customer E +- +5,100 +- % +24 % +- +- +Customer F +- +4,964 +- % +23 % +- +- +Total +$ 15,081 +$ 21,522 +100 % +100 % +$ - +$ - +Supplier +Concentration +For +the year ended July 31, 2025, the Company incurred cost of revenue of $ 7,560 , +accounted by one vendor. For the year ended July 31, 2024, the Company incurred cost of revenue of $ 10,936 , +accounted by two vendors. +For the year ended July 31 +2025 +2024 +2025 +2024 +2025 +2024 +Cost of revenue +Percentage of +Cost of revenue +Accounts +payable, trade +Vendor A +$ 7,560 +$ - +100 % +- % +$ - +$ - +Vendor B +- +3,405 +- % +31 % +- +- +Vendor C +- +7,531 +- % +69 % +- +- +Total +$ 7,560 +$ 10,936 +100 % +100 % +$ - +$ - +F- 12 +11. +SEGMENT REPORTING +ASC +280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent +with the Company’s internal organization structure as well as information about services categories, business segments and +major customers in financial statements. The Company has single 1 +reportable segment based on business unit, apparel and garment trading business and two 2 +reportable segments based on country, United States and Non-United States. +In +accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified +as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing +performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements +to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, +and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation +under “Segment Reporting” due to their similar customer base and similarities in economic characteristics; nature of products +and services; and procurement, manufacturing and distribution processes. +SCHEDULE OF SEGMENT REPORTING +For the Year Ended and As of July 31, 2025 +By Business Unit +Apparel & Garment Trading Business +Total +Revenue +$ 15,081 +$ 15,081 +Cost of revenue +( 7,560 ) +( 7,560 ) +General and administrative expenses +( 40,642 ) +( 40,642 ) +Loss from operations +( 33,121 ) +( 33,121 ) +Total assets +$ 3,088 +$ 3,088 +Capital expenditure +$ - +$ - +For the Year Ended and As of July 31, 2024 +By Business Unit +Apparel & +Garment +Trading +Business +Total +Revenue +$ 21,522 +$ 21,522 +Cost of revenue +( 10,936 ) +( 10,936 ) +General and administrative expenses +( 52,861 ) +( 52,861 ) +Loss from operations +( 42,275 ) +( 42,275 ) +Total assets +$ 28,474 +$ 28,474 +Capital expenditure +$ - +$ - +For the Year Ended and +As of July 31, 2025 +By Country +United States +Non-United States +Total +Revenue +$ - +$ 15,081 +$ 15,081 +Cost of revenue +- +( 7,560 ) +( 7,560 ) +General and administrative expenses +- +( 40,642 ) +( 40,642 ) +Loss from operations +- +( 33,121 ) +( 33,121 ) +Total assets +$ - +$ 3,088 +$ 3,088 +Capital expenditure +$ - +$ - +$ - +For the Year Ended and +As of July 31, 2024 +By Country +United States +Non-United States +Total +Revenue +$ - +$ 21,522 +$ 21,522 +Cost of revenue +- +( 10,936 ) +( 10,936 ) +General and administrative expenses +- +( 52,861 ) +( 52,861 ) +Loss from operations +- +( 42,275 ) +( 42,275 ) +Total assets +$ - +$ 28,474 +$ 28,474 +Capital expenditure +$ - +$ - +$ - +F- 13 +12. +SUBSEQUENT EVENTS +In +accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure +of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or +transactions that occurred after July 31, 2025 up through the date the Company presented these audited financial statements. During the +period, the Company did not have any material recognizable subsequent events. +Acquisition +of GW Reader Holding Limited +The +Company has entered into a Material Definitive Agreement on May 26, 2025, pursuant to a Share Purchase Agreement with Guang Wen Global +Group Limited (the “Seller”), a company incorporated in the British Virgin Islands. Under the terms of the Agreement, the +Company agreed to purchase 100% of the issued and outstanding shares of GW Reader Holding Limited, a company incorporated in the Cayman +Islands, and a wholly-owned subsidiary of the Seller. As part of the Agreement Keemo will also acquire all of GW Reader Holding Limited’s +assets which include two wholly owned subsidiaries. Those assets are owned as follows: GW Reader Holding Limited owns 100% of the shares +of Willing Read Culture Technology Co., Limited, incorporated in Hong Kong, which in turn holds 100% ownership of GW Reader Sdn. Bhd., +a limited liability company incorporated in Malaysia . The acquisition was completed on September 2, 2025. +F- 14 \ No newline at end of file diff --git a/raw/filings/0001935033/2025/0001493152-25-019811/filing_metadata.csv b/raw/filings/0001935033/2025/0001493152-25-019811/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..3d0ecc593396b32604abc271ec2f3b209d13ceb8 --- /dev/null +++ b/raw/filings/0001935033/2025/0001493152-25-019811/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935033,KMFG,KEEMO Fashion Group Ltd,2025,10-K,2025-10-28,2025-07-31,2025-10-28T06:20:40.000Z,0001493152-25-019811,form10-k.htm,10-K,3799695,1,1,https://www.sec.gov/Archives/edgar/data/1935033/000149315225019811/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1935033/000149315225019811/ diff --git a/raw/filings/0001935033/2025/0001493152-25-019811/item1.txt b/raw/filings/0001935033/2025/0001493152-25-019811/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..86a69b60055906b9627b8a7a8fb53323e0f450b6 --- /dev/null +++ b/raw/filings/0001935033/2025/0001493152-25-019811/item1.txt @@ -0,0 +1,157 @@ +ITEM +1. BUSINESS +Overview +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +KEEMO +Fashion Group Limited is a company that operates in the apparel and garment trade industry through wholesaling men’s and women’s +apparel to retailers in Asian countries. At present, the Company has primarily focused its efforts on attracting small to medium apparel +and garment retailers by wholesaling low to mid-range apparel and garments. We do not maintain and operate any production and manufacturing +of apparel facility or machine and equipment. +The +Company’s executive office is located at 69, Wanke Boyu, Xili Liuxin 1 st Rd, Nanshan District, Shenzhen, Guangdong 518052, +China. +We +face various legal and operational risks and uncertainties related to being based in and having all of our operations in China. The PRC +government has significant authority to exert influence on the ability of a company with China-based operations, such as Keemo Fashion +Group Limited, to conduct its business, accept foreign investments or list on U.S. or other foreign exchanges. For example, we face risks +associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, as well as oversight on cybersecurity and +data privacy. Such risks could result in a material change in our operations and/or the value of our common stock or could significantly +limit or completely hinder our ability to offer, or continue to offer, our common stock and/or other securities to investors and cause +the value of such securities to significantly decline or be worthless. In addition, the PRC government has significant oversight and +discretion over the conduct of our business and may intervene with or influence the operations of our business as the government deems +appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly +affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the +future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results +of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities +offerings and other capital markets activities and foreign investment in companies with China-based operations like us. Any such action, +once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities +to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless. +Pursuant +to the Holding Foreign Companies Accountable Act (“HFCAA”), the Public Company Accounting Oversight Board (United States) +(the “PCAOB”) issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate +completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of +a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the +PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific +registered public accounting firms which are subject to these determinations. Trading in our securities may be prohibited under the Holding +Foreign Companies Accountable Act, or the HFCAA, if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) +determines that it cannot inspect or completely investigate our auditor. Our registered public accounting firm, JP Centurion & Partners +PLT, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the +PCAOB’s determinations. +On +December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong +from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Each year, +the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. +If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland +China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on +our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual +report on Form 10-K for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified +Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition +on trading under the HFCAA. +4 +Description +of Business +Keemo +Fashion Group Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on April +22, 2022. +On +April 22, 2022 Ms. Liu Lu was appointed as Chief Executive Officer, President, Secretary, Treasurer, and Director. +Primarily, +the products that we carry are targeted towards customers, both men and women, from 18 to 40 years of age. It is the company’s +belief that the products we wholesale have an appealing presentation, cover a diverse range of clothing and garment types, are stylish +for any occasion (including casual, work, and dressy), and they are offered at accessible price points. We believe that this combination +of factors will assist our growth moving forward and that we have the opportunity to capture a significant portion of the growing apparel +and garment market in Asian countries specifically. +At +present, the Company sells all of its products through word-of-mouth and utilization of our sole officer’s business network and +various connections. Ms. Liu, our sole officer and director, has broad knowledge and experience in marketing strategies and promotional +activities. She is familiar with marketing execution and promotional marketing methodology, which she intends to utilize to assist the +Company to gain market awareness and locate potential distributors as precisely and efficiently as possible. +Business +Model +The +Company currently primarily sources mid-priced women’s semi-formal apparel, which the company believes potentially has a higher +gross profit margin compared to low-priced apparel. Inventory is presently selected at the discretion of our sole officer and director, +and based upon recommendations from the suppliers regarding the latest fashion trends and styles, as well as what types of clothing are +currently the most sought after by consumers. The Company also performs internal analysis to compare the profit margins of various types +of clothing and, accordingly, seeks to primarily acquire inventory that has the greatest profit margin. +At +present, when identifying potential customers, the Company targets small size apparel retailers, especially home-based e-commerce retailers. +In the opinion of the Company’s sole officer and director, this market is easier to penetrate as our officer and director believes +that many small size apparel retailers are just side or part time businesses for the business owner. As such, the business owners might +face the problem of lack of capacity to arrange the logistics and filter the correct apparel in term of trend and quality. +The +Company adopts what is commonly referred to as a virtual network business structure, as the Company only maintains internal procurement, +sales, marketing, operational, accounting and finance functions, whereby the Company relies on suppliers for other crucial function such +as production and packaging, storage, courier inward and outward, etc. However, in some instances the Company does take physical possession +of inventory. In most cases, the Company purchases inventory from the suppliers, and this inventory is then held at the supplier’s +warehouse, although the product is owned by the Company at this time, and delivery from the warehouse is arranged by the Company through +a courier service. In some instances, the Company will take possession of the inventory and store apparel at the Company’s office, +and from that point courier service to the purchaser is arranged. There is no formal method of determination as to what items will be +stored in the supplier’s warehouse versus what items will be stored at the Company’s office. +Sales +and Marketing +KEEMO +Fashion Group Limited plans to penetrate the marketplace and attract customers by building our brand image through print ads, and possibly +online paid advertisements, to create brand awareness. We have prepared our corporate website (https://keemofashiongroup.wixsite.com/keemo-fashion-group) +to market our Company and we utilize search engine marketing to improve the number of distributors who can find and view our website. +Finally, we also have yet unidentified plans to market our Company through social networking websites. All the above marketing plans +have not yet been determined in sufficient detail to outline at this time, nor do we have a definitive timeline for when our marketing +strategy will be completed, and as such all of our marketing endeavors remain under development. +Employees +and Function +Currently, +we have one employee which is our President and Sole Director, Ms. Liu Lu. Currently, Ms. Liu has the flexibility to work on our business +up to 30 hours per week but is prepared to devote more time if necessary. The Company intends to hire more employees who possess industry-related +experience to assist in the development and execution of our business operations. +We +do not presently have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans; however, we may adopt +plans in the future. There are presently no personal benefits available to our employee, Officer and/or Director. +5 +Competition +KEEMO +Fashion Group Limited plans to operate in a mature and competitive industry. We consider our focus to be on distributors in China first. +Competition in the apparel and garment industry, with a focus on low to mid-range priced products, is very intense in China. We face +competition from various specialized and retail-based wholesalers, from different provinces and cities, which supply similar men’s +and women’s apparel and garment products to those that we offer. We also face competition from e-commerce-based wholesalers, many +of whom have exposure in various China whole websites and B2B platform, such as Alibaba, DHgate, AliExpress, and Global Sources. These +competitors generate significant traffic and have established brand recognition and financial resources manufacturing capacity, well +established business models and distribution channels and branding. +Despite +intense competition, our director is confident in the Company’s ability to develop and enlarge our market share in China through, +at present, the various relationships of the Company’s sole Officer and Director. +Enforcement +of Civil Liabilities under United States Federal Securities Laws +We +are a Nevada corporation and most of our operations are and will be located outside of the United States and our sole officer and director +resides outside the United States. Moreover, a majority of our assets are located outside the United States. Since a majority of the +assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible +within the United States. There is no treaty between the United States and China providing for the reciprocal recognition and enforcement +of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in +the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not +be automatically enforceable in China. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law +against us in the PRC, if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural +requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual +basis and a cause for the suit. +There +is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us +or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state +in the United States, or (2) entertain original actions brought in each respective jurisdiction against us or our directors or officers +predicated upon the securities laws of the United States or any state in the United States. +The +recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce +foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the +country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form +of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, +according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers +if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a +result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under +the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in the PRC, if they can establish +sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the +plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. +In +addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we +are incorporated under the laws of State of Nevada and it will be difficult for U.S. shareholders, holding our common stock, to establish +a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law. +6 \ No newline at end of file diff --git a/raw/filings/0001935033/2025/0001493152-25-019811/item13.txt b/raw/filings/0001935033/2025/0001493152-25-019811/item13.txt new file mode 100644 index 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Employer +Identification No.) +6991 E. Camelback Road , +Suite D-300 +Scottsdale , AZ 85251 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area +code: ( 307 ) 200-2803 +Securities registered under Section 12(b) of the Exchange +Act: None +Securities registered under Section 12(g) of the Exchange +Act: Common Stock, par value $0.001 per share +Common Stock, par value $0.001 per share +(Title of Class) +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ +No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ +No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +Yes ☒ No ☐ +Indicate +by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, +to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this +Form 10-K or any amendment to this Form 10-K. ☐ +Indicate by check mark whether the registrant is a +large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See +the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and +“emerging growth company”, in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ +Accelerated filer ☐ +Non-accelerated filer ☐ (Do not check if smaller reporting company) +Smaller reporting company ☒ +Emerging growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for +complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check +mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal +control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting +firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, +indicate by check mark whether the consolidated financial statements of the registrant included in the filing reflect the correction of +an error to previously issued consolidated financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check +mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ +No ☒ +As +of June 28, 2024 (the last business day of the registrant's most recently second fiscal quarter), the aggregate market value, computed +by reference to the price at which the registrant's common equity was last sold, of the 53,016,165 shares of common stock held by non-affiliates +of the issuer on such date was $ 13,254,041 . +At April 14, 2025 there were 113,461,878 +shares of the registrant’s Common Stock issued and outstanding. +Cyber Enviro-Tech, Inc. +FORM 10-K +For The Fiscal Year Ended December 31, 2024 +PART I +1 +Item 1. Business. +2 +Item 1A. Risk Factors. +2 +Item 1B. Unresolved Staff Comments. +2 +Item 1C. Cybersecurity +2 +Item 2. Properties. +2 +Item 3. Legal Proceedings. +2 +Item 4. Mine Safety Disclosures. +2 +PART II +3 +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +3 +Item 6. Selected Financial Data. +10 +Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations +10 +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +13 +Item 8. +Consolidated Financial Statements and Supplementary Data. +F-1 +Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. +14 +Item 9A. Controls and Procedures. +14 +Item 9B. Other Information. +15 +PART III +16 +Item 10. Directors, Executive Officers, and Corporate Governance. +16 +Item 11. Executive Compensation. +19 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +20 +Item 13. Certain Relationships and Related Transactions, and Director Independence. +20 +Item 14. Principal Accountant Fees and Services. +21 +Item 15. Exhibits. +21 +SIGNATURES +22 +i +Explanatory Note +In this Annual Report on Form 10-K, Cyber Enviro-Tech, +Inc. is sometimes referred to as the “Company”, “we”, “our”, “us” or “registrant” +and U.S. Securities and Exchange Commission is sometimes referred to as the “SEC”. +PART I +Item 1. Business – OVERVIEW OF OUR COMPANY +Our Company +CYBER ENVIRO-TECH, INC. ("the Company", +"CETI") was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986 (“Inception”). +Cyber Enviro-Tech, Inc is a water science +technology company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas +industry. We are an emerging growth company with limited revenues and operating history. Our independent auditor has issued an audit +opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. Our pilot project +is an oil field in West Texas. We currently own the mineral rights to a 479- acre, 33-well, +located in Callahan County, Texas. This oil field operation known as the Alvey oil field is intended to be spun-off into a new +entity in the near future. This has been shown as discontinued operation in the accompanying consolidated financial statements. In +addition, the Company is continuing the development and testing of its water filtration machine in Texas as well as looking +to place its oil and soil remediation systems in the Middle East and its water remediation systems in the meat packing industry. +CETI is a 51% owner of CETI Axenic (“Axenic”). +Axenic was formed in 2024 and focuses on water remediation in the commercial laundry industry. Its day-to-day operations are run by other +personnel who are not officers of CETI which provides the ability for CETI to expand into another industry while not burdening its current +focus on water remediation for oil and gas, meat packing and municipalities. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., also referred to as “CETI” +and the “Company”, was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The company has never filed Bankruptcy or been involved in any +receiverships or similar proceedings. +Material reclassification ; +The Company has been known by a variety of names since its inception +in the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, Inc. (“Global”) +acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed its name to Cyber Enviro-Tech, +Inc. Below lists the names that the Company has been known as since inception as well as the dates those names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until April 30, 2021 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc April 1986 +Business of the Cyber Enviro-Tech, Inc.; +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We do +this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +waste water and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +Our pilot project was an oil field in West +Texas. We currently own the mineral rights to a 479- acre, 33-well, property located in Callahan +County, Texas. This oil field operation known as the Alvey oil field is intended to be spun-off into a new entity in the near future +and is shown as discontinued operations in the accompanying consolidated financial statements. In addition, the Company is +continuing the development and testing of its water filtration machine in Texas as well as looking to place its oil and soil +remediation systems in the Middle East and its water remediation systems in the meat packing industry and with municipalities. +Our focus for the current fiscal year will be on: +1) +Expanding our water and oil remediation operations in the Middle East and Texas +2) +Developing further tests +with at least one meat packing client +3) +Spin off the Alvey Oil Field and turning management over to +a third-party owner/operator. +1 +Sales Strategy – CETI’s B2B Sales +Strategy will include partnering with individuals and companies who have many years of experience and developed relationships within their +respective aforementioned targeted verticals. Prior knowledge of those specific industry issues, water filtration needs, history and relationships +developed over many years will enable them to shorten the sales cycle for our water filtration system. As of December 31, 2024 the Company +has independent services contracts with three individuals for its B2B sales strategy – two in oil and gas and one in the meat packing +industry – and another company for its overseas services in the Middle East. +Market Demand and Size - CETI’s water +filtration system can be modified to address many of the water contamination issues that exists anywhere in the world. The markets envisioned +for the CETI water filtration system, when funds permit, would be both domestic (U.S.) and global. +Government Regulation +We are subject to government regulations that +regulate businesses generally, such as compliance with regulatory requirements of federal, state, and local agencies and +authorities, including regulations concerning workplace safety and labor relations. In addition, our operations are affected by +federal and state laws relating to marketing practices in the oil industry and/or expansion of operations; a change to or changes +to government regulations; a general economic slowdown; a significant decrease in the price of West Texas Intermediate crude. Any +change in one or more of these factors could reduce our ability to earn and grow revenue in future periods. +Research and Development +For the year ending December 31, 2024, we spent +approximately $1.5 million in research and development of our oil/water filtration products and process. In addition, from 2021 +through December 31, 2024, approximately $3.4 million was invested in the Alvey Ranch Oil field to prove our new technologies in +opening up the downhole fractures and removing contaminants from the reservoir for increased oil production. The former has been +expensed and the latter capitalized. Currently the Alvey is being spun off into a separate company as the Company intends to focus +its efforts on water and oil/soil remediation. +Personnel +As of December 31, 2024, we have no employees but +the Company does have 11 full-time and part-time consultants. +Item 1A. Risk Factors. +As a "smaller +reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +Cybersecurity Policy +Overview +Cyber Enviro-Tech, Inc. is committed +to protecting its information systems, customer data, and operational infrastructure through a robust cybersecurity framework. +Governance & Risk Management +The Board oversees cybersecurity strategy, with management ensuring +compliance and enforcement . Key measures include: +Risk Assessments: Continuous monitoring of threats and vulnerabilities. +Incident Response: A structured plan for rapid mitigation and resolution. +Third-Party Security : Due diligence on vendors and partners. +Regulatory Compliance: Adherence to industry standards and legal +requirements. +Data Protection & Incident Response +CETI safeguards sensitive data with: +Encryption & Access Controls: Secure storage and restricted access. +Employee Training: Awareness programs on cyber threats. +Breach Response: Rapid containment, forensic analysis, and regulatory +notifications. +Cybersecurity Investments +CETI continuously enhances security through: +Advanced threat detection systems. +Regular penetration testing. +Collaboration with cybersecurity experts. +Forward-Looking Statements +While CETI implements strong cybersecurity measures, no system +is completely immune to threats. The Company remains vigilant in strengthening its security post. +Item 2. Properties. +Our executive offices are located at 6991 E. Camelback +Road, Suite D-300, Scottsdale, AZ 85251. We rent an executive office at the cost of $125/month and it is rented on a month-to-month basis. +The directors and officers of the company generally work from their home offices. +On February 10, 2021, CETI entered into an agreement +with Danny Hyde, former operator of the Alvey Ranch oil field, to take over as the operator of record. Danny Hyde died during 2021 and +at the end of 2021, we renegotiated with the Estate of Danny Hyde (“EDH”) where CETI is to receive a higher percentage of +the Working Interest (gross revenue less royalty payments to the landowners). Of the 100% working interest under the December 31, 2021 +agreement between EDH and CETI, EDH receives 18.75% less its share of all operating costs, taxes, shipping and other expenses associated +with the rework, production and delivery of oil from the existing wells on the Alvey Oil Field. Said 18.75% working interest is to be +paid in perpetuity. The remaining 81.25% working interest is to be paid to CETI less its share of taxes, shipping and other expenses associated +with the rework, production and delivery of oil from the existing wells on the Alvey. For any new wells put into production by CETI, the +working interest to EHD, less all its expenses, is 5%. +In addition to the working interest payments due to +EDH from well production, EDH will receive $450,000 to be paid in installments. As of December 31, 2024, the remaining amount owed is +$343,500. +Our focus for the current fiscal year will be on +water/oil remediation as opposed to oil production. We are in the process of spinning off the Alvey Ranch oil field and will focus on +developing and expanding our water and oil/soil remediation technologies both domestic and foreign. +Item +3. Legal Proceedings. +We are not a party to legal proceedings. However, CETI owes $343,500 to EDH but the +Company maintains that EDH owes CETI over $400,000 for unreimbursed working interest expenses. No lawsuits have been filed and discussions +are ongoing. In addition, CETI contracted earlier in 2024 to buy a salt water disposal facility in Oklahoma. During the due diligence +period, CETI decided not to move forward. While no lawsuit has been filed, we are working with the seller and his attorney to resolve +damages. +Item 4. Mine Safety Disclosures +Not applicable to smaller reporting companies. +2 +PART II +Item 5. Market for Registrant ’ s Common Equity, Related +Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our common stock was approved for listing on +the OTC Bulletin Board under the symbol CETI on October 6, 2020. As of December 31, 2024, there were 494 active shareholders +and the total shares outstanding of 108,159,556. The transfer agent for our common stock is Pacific Stock Transfer 6725 Via +Austin Parkway Suite 300, Las Vegas, Nevada 98119. +The following table shows the reported high and low +closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board for the periods indicated. +Quotations reflect inter-dealer prices, without markup, markdown or commissions and may not represent actual transactions. +Fiscal Year Ended December 31, 2024 +HIGH +LOW +Fourth Quarter +$ 0.30 +$ 0.17 +Third Quarter +$ 0.39 +$ 0.16 +Second Quarter +$ 0.81 +$ 0.38 +First Quarter +$ 0.37 +$ 0.32 +Fiscal Year Ended December 31, 2023 +HIGH +LOW +Fourth Quarter +$ 0.40 +$ 0.32 +Third Quarter +$ 0.60 +$ 0.24 +Second Quarter +$ 0.40 +$ 0.31 +First Quarter +$ 0.44 +$ 0.30 +Trades in our common stock may be subject to Rule +15g-9 under the Exchange Act, which imposes requirements on broker-dealers who sell securities subject to the rule to persons other than +established customers and accredited investors. For transactions covered by the rule, broker-dealers must make a special suitability +determination for purchasers of the securities and receive the purchaser's written agreement to the transaction before the sale. +Our shares are subject to rules applicable to "penny +stock" which pertain to any equity security with a market price less than $5.00 per share or an exercise price of less than $5.00 +per share. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure +document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock +market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, +and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's +account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the +broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the +purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in +our shares. +Dividend Policy +We have not paid or declared any cash dividends on +our common stock in the past and do not foresee doing so in the foreseeable future. We intend to retain any future earnings for +the operation and expansion of our business. Any decision as to future payment of dividends will depend on the available earnings, +the capital requirements of our Company, our general financial condition and other factors deemed pertinent by our Board of Directors. +3 +Sales of Unregistered Securities +Date of +Transaction +Transaction type (e.g. new issuance, cancellation, shares returned to treasury) +Number of Shares Issued (or cancelled) +Class of Securities +Value of shares issued ($/per share) at Issuance +Individual/ Entity Shares were issued to (entities must have individual with voting / investment control disclosed). +Reason for share issuance (e.g. for cash or debt conversion) -OR- Nature of Services Provided +Restricted or Unrestricted as of this filing. +3/24/2023 +New +300,000 +Common +0.420 +Joe Isaacs, Axiom Group +Services +Restricted +4/3/2023 +New +3,000,000 +Common +0.001 +Joe Isaacs +Services +Unrestricted +5/23/2023 +New +250,000 +Common +0.42 +Joe Isaacs +Services +Restricted +5/23/2023 +New +250,000 +Common +0.38 +Frank Straw +Services +Restricted +5/23/2023 +New +250,000 +Common +0.31 +Markus Miller +Services +Restricted +5/23/2023 +New +200,000 +Common +0.38 +Bruce Moore +Services +Restricted +5/23/2023 +New +1,000,000 +Common +0.38 +US Affiliated Inc, Karen Fowler +Services +Restricted +7/21/2023 +New +15,000 +Common +0.35 +Benjamin Berry +Contingent Lability Paid +Restricted +10/18/2023 +New +600,000 +Common +0.10 +Jaron Mossman & Jode Vallejos JTTEN +Debt conv +Restricted +10/18/2023 +New +253,180 +Common +0.10 +Mark Mitrev +Debt conv +Restricted +10/18/2023 +New +101,250 +Common +0.10 +Jaylen Mossman +Debt conv +Restricted +10/18/2023 +New +252,850 +Common +0.10 +Peter D. Lawrence +Debt conv +Restricted +10/18/2023 +New +121,370 +Common +0.10 +Justin Mossman +Debt conv +Restricted +11/7/2023 +New +500,000 +Common +0.31 +Markus Miller +Services +Restricted +4 +11/7/2023 +New +2,000,000 +Common +0.335 +Serdar Gurel +Services +Restricted +11/7/2023 +New +252,580 +Common +0.10 +McKellar R Trust, Winston McKellar, trustee +Debt conv +Restricted +11/7/2023 +New +252,580 +Common +0.10 +Susan E. Crossett +Debt conv +Restricted +11/7/2023 +New +505,050 +Common +0.10 +Douglas Gore +Debt conv +Restricted +12/28/2023 +New +360,000 +Common +0.25 +Markham and ML Broughton RT, Markham Broughton +Services +Restricted +12/28/2023 +New +253,240 +Common +0.10 +Timothy and Kim Dukes +Debt conv +Restricted +12/28/2023 +New +252,470 +Common +0.10 +Alexander Fil +Debt conv +Restricted +12/28/2023 +New +252,360 +Common +0.10 +Chris Gressinger +Debt conv +Restricted +12/28/2023 +New +253,020 +Common +0.10 +Dwayne Hay +Debt conv +Restricted +2/2/2024 +New +1,011,620 +Common +0.10 +DePrima Donnelly Family Trust, Anthony DePrima, trustee +Debt conv +Restricted +2/2/2024 +New +335,850 +Common +0.10 +Carl R. Vertuca +Debt conv +Restricted +2/2/2024 +New +335,780 +Common +0.10 +Bryan Vertuca +Debt conv +Restricted +2/28/2024 +New +252,030 +Common +0.10 +Jeffrey Kelley +Debt conv +Restricted +2/28/2024 +New +302,370 +Common +0.10 +Leibowitz Living Trust, Alan Leibowitz, trustee +Debt conv +Restricted +2/28/2024 +New +336,790 +Common +0.10 +Dominic Mancini +Debt conv +Restricted +2/28/2024 +New +253,680 +Common +0.10 +David Townley Paton +Debt conv +Restricted +2/28/2024 +New +253,240 +Common +0.10 +Michael Volpe/ Liliane Stachishin-Moura, JTTN +Debt conv +Restricted +3/12/2024 +New +505,820 +Common +0.10 +Paul Stander, SEP-IRA +Debt conv +Restricted +3/12/2024 +New +202,020 +Common +0.10 +Nicole M. Hobbs +Debt conv +Restricted +3/12/2024 +New +252,140 +Common +0.10 +James S Benedict +Debt conv +Restricted +3/12/2024 +New +252,090 +Common +0.10 +Cameron Turner +Debt conv +Restricted +3/12/2024 +New +100,710 +Common +0.10 +Jill B. Mossman +Debt conv +Restricted +4/2/2024 +New +256,310 +Common +0.10 +Dwayne Hay +Debt conv +Restricted +4/2/2024 +New +252,310 +Common +0.10 +JJJ Enterprises, Jeff J. Jorgenson +Debt conv +Restricted +4/2/2024 +New +251,700 +Common +0.10 +Michael B. Schuster +Debt conv +Restricted +4/2/2024 +New +126,565 +Common +0.20 +Business Marketing Group, Brian Foster +Debt conv +Restricted +4/2/2024 +New +252,030 +Common +0.10 +McKellar Revocable Trust, December 17 2012, Donald McKellar III, trustee +Debt conv +Restricted +5 +4/15/2024 +New +756,250 +Common +0.10 +Timothy and Kim Dukes +Debt conv +Restricted +4/15/2024 +New +500,760 +Common +0.10 +Dwayne Hay +Debt conv +Restricted +4/15/2024 +New +34,000 +Common +0.35 +DePrima Donnelly Family Trust, Anthony DePrima, trustee +Debt conv +Restricted +4/15/2024 +New +66,000 +Common +0.35 +Neil Superfon +Debt conv +Restricted +4/15/2024 +New +201,360 +Common +0.20 +Thomas Randall Powell +Debt conv +Restricted +5/9/2024 +New +252,910 +Common +0.10 +Markl Family Living Trust, Barry Markl +Debt conv +Restricted +5/9/2024 +New +200,970 +Common +0.10 +Kaan Brian Gokay +Debt conv +Restricted +5/9/2024 +New +253,015 +Common +0.20 +William and Jennifer Vincent +Debt conv +Restricted +5/9/2024 +New +303,555 +Common +0.20 +TWCI Consulting LLC, Christopher Ingram +Debt conv +Restricted +5/9/2024 +New +25,255 +Common +0.20 +Michael Hay +Debt conv +Restricted +5/9/2024 +New +50,505 +Common +0.20 +Jaye Gene Todd Collier +Debt conv +Restricted +5/22/2024 +New +77,285 +Common +0.20 +Paul Leonard +Debt conv +Restricted +5/22/2024 +New +128,645 +Common +0.20 +David Haley +Debt conv +Restricted +5/22/2024 +New +128,535 +Common +0.20 +Staunton Family 2007 Trust, Richard Staunton, trustee +Debt conv +Restricted +5/22/2024 +New +1,285,070 +Common +0.20 +Chris Cappuccilli +Debt conv +Restricted +5/22/2024 +New +12,835 +Common +0.20 +Dallas Dukes +Debt conv +Restricted +5/22/2024 +New +12,835 +Common +0.20 +T Jordan Dukes +Debt conv +Restricted +6/11/2024 +New +513,155 +Common +0.20 +Michael and Judith Mendoza Revocable Living Trust dated 8 March 2004, Michael Mendoza, trustee +Debt conv +Restricted +6 +6/11/2024 +New +127,580 +Common +0.20 +Jessica Patterson +Debt conv +Restricted +6/11/2024 +New +127,140 +Common +0.20 +F. Stanton Sipes +Debt conv +Restricted +6/11/2024 +New +260,305 +Common +0.20 +Peter Mitrev +Debt conv +Restricted +6/11/2024 +New +184,620 +Common +0.20 +Carlos Eduardo Garcia Enriquez +Debt conv +Restricted +6/11/2024 +New +25,785 +Common +0.20 +Michele Blackman +Debt conv +Restricted +6/20/2024 +New +525,320 +Common +0.20 +Neil Superfon +Debt conv +Restricted +6/20/2024 +New +127,905 +Common +0.20 +Michele Blackman +Debt conv +Restricted +6/20/2024 +New +127,330 +Common +0.20 +Harborside Group Trust, Jim Mead +Debt conv +Restricted +6/20/2024 +New +128,730 +Common +0.20 +Chase Donaldson +Debt conv +Restricted +6/20/2024 +New +12,870 +Common +0.20 +David Paton +Debt conv +Restricted +6/20/2024 +New +294,200 +Common +0.10 +Lawrence Weiss Living Trust, Katherine Lawrence, trustee +Debt conv +Restricted +7/10/2024 +New +170,910 +Common +0.15 +Mark Mitrev +Debt conv +Restricted +7/10/2024 +New +407,980 +Common +0.25 +Neil Superfon +Debt conv +Restricted +7/10/2024 +New +252,910 +Common +0.10 +Lawrence Weiss Living Trust, Katherine Lawrence, trustee +Debt conv +Restricted +7/10/2024 +New +388,975 +Common +0.20 +Suncoast Financial Mortgage Profit Sharing Plan, David Malcolm, trustee +Debt conv +Restricted +7/10/2024 +New +126,700 +Common +0.20 +Staunton Family Investment Partnership, Richard Staunton, trustee +Debt conv +Restricted +7/10/2024 +New +127,000 +Common +0.20 +Gardner Investment Trust, Roy A Gardner, trustee +Debt conv +Restricted +7/15/2024 +New +170 +Common +0.10 +Timothy and Kim Dukes +Debt conv +Restricted +7 +7/15/2024 +New +25 +Common +0.20 +Business Marketing Group, Brian Foster +Debt conv +Restricted +7/15/2024 +New +60 +Common +0.10 +The McKellar Revocable Trust, December 17 2012, Donald McKellar III, trustee +Debt conv +Restricted +7/15/2024 +New +45 +Common +0.20 +Thomas Randall Powell +Debt conv +Restricted +8/1/2024 +New +500,000 +Common +0.20 +Michael and Judith Mendoza Revocable Living Trust, dated 8 March 2004, Michael Mendoza, trustee +Cash +Restricted +8/1/2024 +New +334,000 +Common +0.15 +Jason Black +Cash +Restricted +8/1/2024 +New +281,352 +Common +0.10 +Julie Kutilek +Debt conv +Restricted +8/1/2024 +New +2,992,822 +Common +0.10 +Joseph Kutilek +Debt conv +Restricted +8/1/2024 +New +110,669 +Common +0.10 +Tara Rahr +Debt conv +Restricted +8/1/2024 +New +1,603,902 +Common +0.10 +Charles Merkel +Debt conv +Restricted +8/20/2024 +New +1,655,192 +Common +0.10 +Scott Jasper +Debt conv +Restricted +8/20/2024 +New +1,635,472 +Common +0.10 +Joel Gale +Debt conv +Restricted +8/20/2024 +New +2,192,290 +Common +0.10 +Larry Grillo +Debt conv +Restricted +8/20/2024 +New +26,742 +Common +0.20 +Kelsey Mallory +Debt conv +Restricted +10/7/2024 +New +203,990 +Common +0.20 +JJJ Enterprises, Jeff J Jorgenson +Debt conv +Restricted +10/7/2024 +New +697,064 +Common +0.20 +Chris Cappuccilli +Debt conv +Restricted +10/15/2024 +New +317,950 +Common +0.20 +Alla Abato +Debt conv +Restricted +8 +Securities authorized for issuance under +equity compensation plans +The Company has +not reserved any securities for issuance under equity compensation plans for any officers, directors or any beneficial owners. The individuals +below are consultants and part of their compensation is in stock as follows: +On April 25, 2023 +the company entered into a consulting agreement with Dr. Markus Miller for professional services wherein the Company paid 1,000,000 common +shares. +On May 17, 2023 +the company entered into a consulting agreement with Frank Straw for professional services wherein the Company paid 1,000,000 common shares. +On June 3, 2023, +the company entered into a consulting agreement with Ken Waters for professional services wherein the Company issued 1,000,000 options +with a strike price of $0.20 a share. +On September 15, +2023, the company entered into a consulting agreement with Kaybrook Client Consulting LLC, Harry Datys, for professional services wherein +the Company issued 3,750,000 warrants at a par value of $0.001. This agreement was amended on November 1, 2024 and CETI authorized another +800,000 warrants at the same par value as before and extended the consulting agreement for another 8 months. +On November 6, 2023 +the company entered into a distribution and consulting agreement with Delta, Serdar Gurel, for professional services wherein the Company +paid 1,000,000 common shares. +The Company has had +a working relationship with Bruce Moore for several years. To keep him engaged, the Company gave him 200,000 common shares in 2023 for +professional services. +The Company +has had a working relationship with US Affiliated, Inc, owned by Karen Fowler, for the past year. To keep the company engaged in 2023, +CETI gave US Affiliated, Inc 1,000,000 common shares for professional services. +Purchases of Equity Securities +by the Issuer and Affiliated Purchasers +None. +Holders of Record +As of December 31, 2024, there were 494 record holders +and 440 as of December 31, 2023, of the Company’s common stock. +9 +Item 6. Selected Financial Data. +As a "smaller reporting company," +as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +Item 7. Management ’ s Discussion and Analysis of Financial +Condition and Results of Operations +The following discussion and analysis should be +read in conjunction with our consolidated financial statements, including the notes thereto, appearing in this Form 10-K and are +hereby referenced. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our +actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or +contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report. You should not +place undue certainty on these forward-looking statements, which apply only as of the date of this report. We believe it is +important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements +whether as a result of new information, future events or otherwise. +These forward-looking statements are based on our +management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ +materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot +assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify a forward-looking +statement by the use of the forward-terminology, including words such as “may”, “will”, “believes”, +“anticipates”, “estimates”, “expects”, “continues”, “should”, “seeks”, +“intends”, “plans”, and/or words of similar import, or the negative of these words and phrases or other variations +of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results +of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative +expenses; our ability to maintain and develop relationship with our existing and potential future customers, and, our ability to maintain +a level of investment that is required to remain competitive. Many factors could cause our actual results to differ materially from those +projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; risks +associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption +of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic +events; general economic conditions, government mandates; and, the continued employment of our key personnel and other risks associated +with competition. +GENERAL OVERVIEW +Business Background +Cyber Enviro-Tech, Inc. is a publicly held Wyoming +water technology Company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas +industry. +Our principal executive office is located at Cyber +Enviro-Tech, Inc., 6991 E. Camelback Road, Suite D-300, Scottsdale, Arizona 85251. Our telephone number is 866 687-6856. Our Internet +site is located at: www.cyberenviro.tech . We maintain our statutory registered agent's office at Registered Agents Inc. 30 +N Gould St Ste R Sheridan, WY 82801 USA Telephone Number. (307) 200-2803 +June 12, 2020, the District Court of Laramie County, +Wyoming appointed Benjamin Berry of Synergy Management Group LLC (“Synergy”) as custodian of the Company. +On September 3, 2020, Synergy and Global Environmental +Technologies, Inc. (“Global”), entered into a Securities Purchase Agreement, whereby Synergy sold its one share of Special +Series A preferred stock and one-half share of Series C preferred stock to Global Environmental Technologies, Inc. +On September 23, 2020, the Company entered into a +share exchange agreement with Global Environmental Technologies, Inc., (“Global”) a Wyoming corporation. Per the terms of +the agreement, NexGen Holdings Corp exchanged thirty-five shares of common stock for one share of Global. +On October 6, 2020, the Company formally changed its +name with the State of Wyoming from NexGen Holdings Corp to Cyber Enviro-Tech, Inc. +10 +DESCRIPTION OF BUSINESS +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We do +this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +waste water and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +Our pilot project was an oil field in West +Texas. We currently own the mineral rights to a 479- acre, 33-well, located in Callahan County, +Texas. This oil field operation known as the Alvey oil field is intended to be spun-off into a new entity in the near future and is +shown as discontinued operations in the accompanying consolidated financial statements. In addition, the Company is +continuing the development and testing of its water filtration machine in Texas as well as looking to place its oil and soil +remediation systems in the Middle East and its water remediation systems in the meat packing industry and with municipalities. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., also referred to as “CETI” +and the “Company”, was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The company has never filed Bankruptcy or been involved in any receiverships +or similar proceedings. +Material reclassification ; +The Company has been known by a variety of names since its inception in +the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, Inc (“Global”) +acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed its name to Cyber Enviro-Tech, +Inc. Below lists the names that the Company has been known as since inception as well as the dates those names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until April 30, 2021 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc. April 1986 +Business of the Cyber Enviro-Tech, Inc. +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We do +this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +waste water and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +The Company is also testing its oil water filtration +machine in a few locations in Southwest Texas. Upon successful completion, the Company has preliminary agreements in place to expand to +at least three other locations in Texas. +Our focus for the current fiscal year will be on: +The Company is also testing its oil water filtration +machine in a few locations in Southwest Texas. Upon successful completion, the Company has preliminary agreements in place to expand to +at least three other locations in Texas. +During 2023, the Company purchased the licensing to several patents +from KAM Biotechnology, Ltd. This proprietary technology enhances the Company’s ability to treat wastewater in an environmentally +friendly manner. While the Company will still benefit from the technology, KAM became +insolvent in 2024 and therefore, to be conservative, the intangible assets related to this were fully written off in 2024. +Our focus for the current fiscal year will be on: +1) +Expanding our water and oil filtration operations in the Middle East and Texas +2) +Performing initial commercial tests with at least one significant meat packing client +3) +Spinning off the 479-acre Pilot Oil Field in Callahan County, Texas. +Sales Strategy – CETI’s B2B +Sales Strategy will include partnering with individuals and companies who have many years of experience and developed relationships within +their respective aforementioned targeted verticals. Prior knowledge of those specific industry issues, water filtration needs, history +and relationships developed over many years will enable them to shorten the sales cycle for our water filtration system. As of April 14, +2025, the Company has agreements with several individuals who are pursuing a variety of opportunities but no contracts have been ratified +so far. +Market Demand and Size - CETI’s +water filtration system can be modified to address many of the water contamination issues that exists anywhere in the world. The markets +envisioned for the CETI Water system when funds permit would be both domestic (U.S.) and global. +11 +Results of Operations for the Years Ending December +31, 2024 and 2023 +2024 +2023 +$ +% +Operating Expenses: +Professional Fees +131,054 +119,146 +11,908 +10.0 +General and administrative +1,051,798 +517,380 +534,418 +103.3 +Consulting +1,666,553 +3,265,062 +(1,598,509 ) +-48.9 +Total operating expenses +2,849,405 +3,901,588 +(1,052,183 ) +-26.9 +Operating loss from continuing operations +(2,849,405 ) +(3,901,588 ) +(1,052,183 ) +-26.9 +Other Income (Expense): +Change in fair value of derivative +161,122 +88,880 +72,242 +81.3 +Loss on issuance of derivative +(191,162 ) +(130,305 ) +(60,857 ) +46.7 +Loss on impairment of assets +(957,377 ) +— +(957.377 ) +100.0 +Gain on extinguishment of debt +264,539 +49,248 +215,291 +437.2 +Amortization of intangible assets +(112,850 ) +(58,275 ) +(54,575 ) +93.7 +Change in fair value of contingent liabilities +(437,500 ) +450 +(437,950 ) +97,322 +Interest income +10,768 +906 +9,862 +1,088.5 +Interest expense +(759,013 ) +(331,606 ) +(427,407 ) +128.9 +Total Other Income (Expense) +(2,021,473 ) +(380,702 ) +(1,640,771 ) +431.0 +Loss from continuing operations +(4,870,878 ) +(4,282,290 ) +(588,588 ) +13.7 +Discontinued Operations: +Loss from operations of discontinued operations +(1,495,106 ) +(60,814 ) +(1,434,292 ) +2,358.5 +Total Discontinued Operations +(1,495,106 ) +(60,814 ) +(1,434,292 ) +2,358.5 +Net Income (Loss) +$ (6,365,984 ) +$ (4,343,104 ) +(2,022,880 ) +46.6 +General +and Administrative Expenses . General and administrative expenses for the year ended December 31, 2024 were up by 103.3% vs 2023 +largely due to +an increase in Supplies and Materials (+$192k), Rent (+$126k), Meat Packing Testing ($143k) and Advertising (+$106k). The Supplies and +Materials and Rent increases were due to our temporary operations on a salt water disposal well that we had under contract but did not +pursue. The Meat Packing Plant testing fees were paid to Texas Tech to provide independent validation of our process and products in the +meat packing industry. The Advertising was from payments to a company to assist in the marketing of CETI stock. +Professional +fees . These fees are largely made up of audit and audit-related fees $98,395 and $92,552 as +of December 31, 2024 and 2023 respectively. +Consulting fees . The decrease of 48.9% was largely due to stock compensation payments +made to various consultants in 2023 that largely were not continued in 2024. For the year 2023, around 72% of the total consulting fees +were paid in the form of stock or warrants and the decrease in these equity payments made up over 90% of the total decrease in consulting +fees of ($1,598,509). +12 +Other Income +(Expense). The line items related to derivative accounting are due to loans from a company that provides the option for +CETI to pay back in either cash or stock. The stock amount is uncertain which accounts for the derivative calculations. For 2024, the +average loan amounts were around 30% higher than in 2023 which accounts for the increases in the derivative related accounts. For amortization +of intangible assets, they were acquired in 2023 so that was only a partial year of amortization vs a full year in 2024. Lastly, interest +expense consists of amortization of debt discount as well as interest payments on loans. The amortization relates to the loans due to +derivative accounting and these loans were higher in 2024 vs 2023. For interest payments, 61% was due to interest on convertible debentures +and, as noted previously, the average balance of debentures was 30% higher in 2024 vs 2023. In addition, loans to individuals other than +convertible debenture holders were over three times higher in 2024 vs 2023 resulting in a corresponding increase in interest expense. +Two other significant items in this category relate +to the Loss on impairment of assets and the Change in fair value of contingent liabilities. The former is due to a write off of intangible +assets due to insolvency of the company from which CETI purchased licensing rights. While the intellectual property acquired by the Company +still has value to CETI, it was decided to take the conservative approach and write off the rest of the value of $957,377 as of December +31, 2024. For the Change in fair value. This largely relates to stock guarantees to certain investors and represents the additional stock +compensation that would have been due as of December 31, 2024 if the guarantee were valued at that time. +Discontinued Operations . Beginning in +the fourth quarter 2024, monies paid for the Alvey Oil Field were expensed rather than capitalized since it is in the processing of being +spun off. In addition, the previously capitalized Well Development costs were determined to be over-valued given current market conditions +and were written down by $1,395,460, +Net Income (Loss). The above changes +resulted in net loss of $6,365,984 in 2024 compared to net loss of $4,343,104 in 2023. This increase in loss is largely due to an increase +in impairment of assets offsetting the drop in Consulting fees. +Liquidity and Capital Resources +As of December 31, 2024, the Company had total assets of $3,565,691 including current +assets of $707,149. We also have current liabilities of $2,455,628 which consist of accounts payable of $242,732, accrued interest +of $204,760, short-term loans of $333,773 net of discount, convertible notes payable of $815,863 net of discount, change in contingent +liabilities of $437,500 and liabilities associated with discontinued operations of $399,000. We also have $1,612,322 of long-term liabilities +largely consisting of convertible notes of $1,127,621 net of discount, derivative liability of $387,238 and liabilities of discontinued +operations of $97,463. We believe our ability to achieve commercial success and continued growth will be dependent upon our continued +access to capital either through sale of additional convertible debentures, sale of our equity or cash generated from operations. We will +attempt to obtain additional capital through private investors; however, we have no agreements or understandings with third parties at +this time in regards to investing additional monies. +ITEM 7A. QUANTITATIVE +AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +As +a "smaller reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +13 +ITEM +8. CONSOLIDATED FINANCIAL CONSOLIDATED STATEMENTS AND SUPPLEMENTARY DATA. +Our consolidated +financial statements for the fiscal years ended December 31, 2024 and 2023 are attached hereto. +TABLE OF CONTENTS +Consolidated +Financial Statements +Page +Number +Report of Independent Registered Public Accounting Firm (PCAOB ID 6920 ) +F-2 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 +F-6 +Notes to Consolidated Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and +Stockholders of Cyber Enviro-Tech, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Cyber Enviro-Tech, Inc. (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, +stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2024, and the related +notes and schedules (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements +present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its +operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles +generally accepted in the United States of America. +Substantial Doubt about the Company’s +Ability to Continue as a Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company has not begun to generate +sufficient revenues to fund operations and will need additional financing in order to execute its business plan. These conditions raise +substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include +any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the +responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial +statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United +States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and +the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated +financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we +engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to +assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures +that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the +consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made +by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide +a reasonable basis for our opinion. +Astra Audit & Advisory +We have served as the Company’s auditor since 2024. +Tampa, Florida 33609 +April 14, 2025 +F- 2 +CYBER ENVIRO-TECH, +INC. +CONSOLIDATED BALANCE +SHEETS +AS OF DECEMBER 31, 2024 AND 2023 +2024 +2023 +ASSETS +Current Assets: +Cash and cash equivalents +$ 59,411 +$ 239,417 +Notes receivable +190,000 +100,000 +Prepaid expenses and other current assets +457,768 +691,536 +Total current assets +707,179 +1,030,953 +Property and equipment, net +776,560 +438,558 +Acquired intangible assets, net +— +1,070,226 +Assets of discontinued operations, non-current +2,081,952 +3,330,985 +Total Assets +$ 3,565,691 +$ 5,870,722 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current Liabilities: +Accounts payable +$ 105,042 +$ 20,144 +Accounts payable – related parties +137,690 +— +Accrued interest +204,760 +96,623 +Notes payable, current maturities +188,061 +100,000 +Note payable, related party, net of discount of $ 8,277 and $ 23,915 at December 31, 2024 and 2023, respectively +145,712 +130,074 +Convertible +notes payable, net of discount of $ 24,400 +and $ 137,096 at December 31, 2024 and +2023, respectively +815,863 +32,154 +Convertible notes payable – related parties +22,000 +22,000 +Contingent liabilities +437,500 +— +Liabilities of discontinued operations, current +369,000 +462,578 +Liabilities of discontinued operations, current – related parties +30,000 +80,991 +Total current liabilities +2,455,628 +944,564 +Convertible notes payable, net of discount of $ 318,779 +and $ 0 at December 31, 2024 and 2023, respectively +1,127,621 +2,641,000 +Derivative liability +387,238 +217,177 +Liabilities of discontinued operations, non-current +97,463 +97,463 +Total Liabilities +4,067,950 +3,900,204 +Commitments and contingencies (Note 4) +— +Stockholders’ Equity (Deficit): +Series A Convertible Preferred Stock, par value $ 0.001 , +200,000 shares authorized; 16,671 shares issued and outstanding +17 +17 +Series B Convertible Preferred Stock, par value $ 0.001 , +85,000 shares authorized; 1 share issued and outstanding +— +— +Series C Non-convertible, Preferred Stock, par value $ 0.001 , +50,000 shares authorized; 0.5 shares issued and outstanding +— +— +Special 2020 Series A Preferred Stock, par value $ 0.0001 , 1 +share authorized; 1 +share issued and 0 outstanding +— +— +Common Stock, par value $ 0.001 , 350,000,000 shares +authorized; 108,159,556 and 77,467,573 shares issued and +outstanding, respectively +108,120 +77,468 +Additional paid-in capital +12,165,669 +7,801,868 +Common stock to be issued +373,443 +933,489 +Treasury stock, at cost +( 66,400 ) +( 66,400 ) +Accumulated deficit +( 13,129,093 ) +( 6,775,924 ) +Controlling interest +( 548,244 ) +1,970,518 +Non-controlling interest +45,985 +— +Total +Stockholders’ Equity (Deficit) +( 502,259 ) +1,970,518 +Total +Liabilities and Stockholders’ Equity (Deficit) +$ 3,565,691 +$ 5,870,722 +The accompanying +notes are an integral part of these audited consolidated financial statements +F- 3 +CYBER +ENVIRO-TECH, INC. +STATEMENTS OF OPERATIONS +FOR THE YEARS ENDING +DECEMBER 31, 2024 AND 2023 +2024 +2023 +Operating Expenses: +Professional fees +$ 131,054 +$ 119,146 +General and administrative +1,051,798 +517,380 +Consulting +1,666,553 +3,265,062 +Total operating expenses +2,849,405 +3,901,588 +Operating loss from continuing operations +( 2,849,405 ) +( 3,901,588 ) +Other Income (Expense): +Change in fair value of derivatives +161,122 +88,880 +Loss on issuance of derivatives +( 191,162 ) +( 130,305 ) +Loss on impairment of assets +( 957,377 ) +— +Gain on extinguishment of derivative liability +264,539 +49,248 +Amortization of intangible assets +( 112,850 ) +( 58,275 ) +Change in fair value of contingent liabilities +( 437,500 ) +450 +Interest income +10,768 +906 +Interest expense +( 759,013 ) +( 331,606 ) +Total other income (expense) +( 2,021,473 ) +( 380,702 ) +Loss from continuing operations +$ ( 4,870,878 ) +$ ( 4,282,290 ) +Discontinued Operations: +Loss from operations of discontinued operations +( 1,495,106 ) +( 60,814 ) +Total Discontinued Operations +( 1,495,106 ) +( 60,814 ) +Net Loss +$ ( 6,365,984 ) +$ ( 4,343,104 ) +Net loss attributable: +Non-controlling interest +$ ( 12,815 ) +$ — +Common stockholders +( 6,353,169 ) +( 4,343,104 ) +Net loss +$ ( 6,365,984 ) +$ ( 4,343,104 ) +Loss per share, basic +( 0.07 ) +( 0.04 ) +Weighted average shares outstanding, basic and diluted +$ 92,515,600 +$ 109,190,942 +The accompanying +notes are an integral part of these audited consolidated financial statements +F- 4 +CYBER +ENVIRO-TECH, INC. +STATEMENTS OF STOCKHOLDERS’ +EQUITY (DEFICIT) +FOR THE YEARS ENDING +DECEMBER 31, 2024 AND 2023 +Preferred Stock +Common Stock +Treasury +CS to be Issued +Accum +Non-Controlling +Description +Shares +Amt +Shares +Amt +APIC +Stock +Shares +Amt +Deficit +Interest +Total +Balance, December 31, 2022 +4 +$ — +115,914,283 +$ 115,915 +$ 4,368,442 +$ ( 66,400 ) +154,400 +$ 52,496 +( 2,432,820 ) +— +2,037,633 +Options granted for services +— +— +— +— +96,742 +— +— +— +— +— +96,742 +Warrants granted in settlement of CS to be issued +— +— +— +— +1,050,374 +— +( 1,333,333 ) +( 560,000 ) +— +— +490,374 +Warrants granted for services +— +— +— +— +111,805 +— +— +— +— +— +111,805 +Conversion of contingent liability +— +— +15,000 +15 +5,235 +— +— +— +— +— +5,250 +Shares issued for services +— +— +4,185,000 +4,185 +1,418,315 +— +1,241,262 +530,724 +— +— +1,953,224 +Shares issued for interest +— +— +133,290 +133 +13,192 +— +110,690 +15,269 +— +— +28,594 +Shares issued for conversion of notes payable +— +— +500,000 +500 +49,500 +— +— +— +— +— +50,000 +Shares issued for conversion of convertible notes payable +— +— +2,720,000 +2,720 +269,280 +— +8,000,000 +895,000 +— +— +1,167,000 +Shares issued for conversion of notes payable - related party +— +— +3,000,000 +3,000 +— +— +— +— +— +— +3,000 +Shares issued for purchase of intangible assets +— +— +1,000,000 +1,000 +369,000 +— +— +— +— +— +370,000 +Retired common shares +16,667 +17 +( 50,000,000 ) +( 50,000 ) +49,983 +— +— +— +— +— +— +Net loss +— +— +— +— +— +— +— +— +( 4,343,104 ) +— +( 4,343,104 ) +Balance, December 31, 2023 +16,671 +$ 17 +$ 77,467,573 +$ 77,468 +$ 7,801,868 +$ ( 66,400 ) +8,173,019 +$ 933,489 +$ ( 6,775,924 ) +— +$ 1,970,518 +Shares issued for cash +— +— +834,000 +834 +149,166 +— +— +— +— +— +150,000 +Shares issued for services +— +— +250,000 +250 +77,250 +— +990,668 +261,400 +— +— +338,900 +Warrants issued for services +— +— +— +— +215,962 +— +— +— +— +— +215,962 +Warrants issued for convertible notes payable +— +— +— +— +33,056 +— +— +— +— +— +33,056 +Shares issued for interest +— +— +1,437,918 +1,396 +182,302 +— +( 9,730 ) +( 1,409 ) +— +— +182,289 +Shares issued for conversion of convertible notes payable +— +— +28,170,065 +28,172 +3,644,865 +— +( 7,199,707 ) +( 820,037 ) +— +— +2,853,000 +Noncontrolling interest contributions +— +— +— +— +61,200 +— +— +— +— +58,800 +120,000 +Net loss +— +— +— +— +— +— +— +— +( 6,353,169 ) +( 12,815 ) +( 6,365,984 ) +Balance, December 31, 2024 +16,671 +17 +108,159,556 +$ 108,120 +$ 12,165,669 +( 66,400 ) +1,954,250 +$ 373,443 +$ ( 13,129,093 ) +$ 45,985 +$ ( 502,259 ) +The accompanying +notes are an integral part of these audited consolidated financial statements +F- 5 +CYBER +ENVIRO-TECH, INC. +STATEMENTS OF CASH +FLOWS +FOR THE YEARS ENDED +DECEMBER 31, 2024 AND 2023 +2024 +2023 +Cash flows from operating activities: +Net Loss +$ ( 6,365,984 ) +$ ( 4,343,104 ) +Adjustments to reconcile net income (loss) to net cash from operating activities: +Change in fair value of derivatives +( 161,122 ) +( 88,880 ) +Loss on issuance of derivatives +191,162 +130,305 +Loss on impairment of assets +957,377 +— +Gain on extinguishment of debt +( 264,539 ) +( 49,248 ) +Change in fair value of contingent liability +— +( 450 ) +Shares issued for services +267,500 +1,951,346 +Warrants issued for services +53,991 +301,090 +Options issued for services +— +27,962 +Amortization of debt discount +294,222 +161,932 +Depreciation expense and amortization +112,850 +67,950 +Changes in operating assets and liabilities: +Prepaid expenses and other current assets +395,737 +( 100,045 ) +Contingent liabilities +437,500 +— +Accounts payable +222,587 +6,942 +Accrued interest +361,979 +117,727 +Net cash from operating activities +( 3,496,740 ) +( 1,816,473 ) +Cash flows from investing activities: +Purchase of property and equipment +( 338,001 ) +( 387,682 ) +Issuance of loan receivable +( 90,000 ) +( 100,000 ) +Noncontrolling interest contribution +120,000 +— +Net cash from investing activities +( 308,001 ) +( 487,682 ) +Cash flows from financing activities: +Repayment of notes payable - related parties +— +( 25,000 ) +Repayment of notes payable +( 95,000 ) +( 908,501 ) +Repayment of convertible notes payable +( 277,638 ) +( 380,250 ) +Proceeds from convertible notes payable +2,582,650 +3,971,500 +Proceeds from notes payable +183,061 +340,074 +Proceeds from the sale of common stock +150,000 +— +Net cash from financing activities +2,543,073 +2,997,823 +Net change in cash and cash equivalents from continuing operations +( 1,261,668 ) +693,668 +Net change in operating activities from discontinued operations +1,301,882 +216,993 +Net change in investing activities from discontinued operations +( 220,220 ) +( 968,593 ) +Net change in financing activities from discontinued operations +— +— +Net change in cash and cash equivalents from discontinued operations +$ 1,081,662 +$ ( 751,600 ) +Net change in cash and cash equivalents +( 180,006 ) +( 57,932 ) +Cash and cash equivalents at beginning of year +239,417 +297,349 +Cash and cash equivalents at end of period +$ 59,411 +$ 239,417 +Cash and cash equivalents paid during the period for: +Interest +$ — +$ — +Income taxes +$ — +$ — +Supplemental Disclosure of Non-Cash Investing and Financing Activities +Shares issued for conversion of convertible notes payable and accrued interest +$ 1,695,000 +$ 1,167,000 +Shares issued for notes payable +$ — +$ 50,000 +Shares issued for contingent liability +$ — +$ 5,250 +Purchase of intangible assets with debt +$ — +$ 758,501 +Purchase of intangible assets with stock +$ — +$ 370,000 +Conversion of common stock to preferred stock +$ — +$ 50,000 +Debt discount on convertible notes payable +$ 337,889 +$ 225,000 +Conversion of related party notes payable to common stock +$ — +$ 3,000 +Shares issued for accrued interest +$ 253,842 +$ 28,593 +The accompanying +notes are an integral part of these audited consolidated financial statements. +F- 6 +CYBER +ENVIRO-TECH, INC. +NOTES TO +CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2024 AND +2023 +NOTE 1 +– ORGANIZATION AND DESCRIPTION OF BUSINESS +Cyber Enviro-Tech, +Inc. (the “Company”) is a publicly held water science technology company that +designs water purification solutions for commercial applications and industries. Its pilot project was on a 479-acre oil field in West +Texas called the Alvey Oil Field. The c orporate headquarters are located in Scottsdale, Arizona. +On September +3, 2020, Synergy Management Group, LLC (“Synergy”) and Global Environmental Technologies, +Inc (“Global”), which was formed on April 20, 2020 , entered into a securities purchase agreement, whereby Synergy +sold its share of Special 2020 Series A preferred stock and its one-half share of Series C preferred stock to Global for $ 66,400 ($40,000 +in cash and 15,000 shares of stock, post reverse split of one share for every 20 shares on April 30, 2021). The shares of stock were +to be awarded contingent upon the effectiveness of a S-1 Registration which occurred in January 2023. These shares are recorded as a +contingent liability on the Balance Sheet in the amount to $ 5,700 at December 31, 2022. These shares were issued in 2023 so there is +no contingent liability at December 31, 2023 as well as for December 31, 2024. +NOTE 2 +- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of presentation +The Company’s +consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States +of America (“U.S. GAAP”). +Principles of Consolidation +The consolidated financial statements include +the accounts of CETI and CETI Axenic, Inc (“Axenic”). Axenic is a majority owned subsidiary of CETI. All significant intercompany +balances and transactions have been eliminated. +Use +of estimates +The preparation of consolidated financial +statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets +and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported +amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +Reclassification of Presentation +Certain prior year amounts have been reclassified +to conform with current year presentation. These reclassifications related to reclassifications from unearned compensation in the statement +of stockholders’ deficit section to prepaid expense in the current asset section of the balance sheet. +Revenue +recognition +The Company +recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with +Customers,” (“Topic 606”). Revenue is recognized when a customer obtains control of promised goods or services. +In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts +with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for +those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised +goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct +in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) +allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies +each performance obligation. +The Company +only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in +exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of Topic 606 at +contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of +these performance obligations are distinct. The Company expects to recognize revenues as the amount of the transaction price that is +allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. +The Company +recognizes sales when oil is picked up by the delivery company and control passes to the customer. +Cash +equivalents +The Company +considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no +cash equivalents at December 31, 2024 and 2023. +F- 7 +Property +and Equipment +Property and +equipment is recorded at cost. Cost of improvements that substantially extend the useful lives of the assets are capitalized. Maintenance +and repair costs are expensed when incurred. When other property and equipment is sold or retired, the capitalized costs and related +accumulated depreciation are removed from their respective accounts. +Discontinued +Operations +A component of an entity +that is disposed of by sale or abandonment is reported as discontinued operations if the transaction represents a strategic shift that +will have a major effect on an entity's operations and financial results. The results of discontinued operations are aggregated and presented +separately in the Statement of Operations. Assets and liabilities of the discontinued operations are aggregated and reported separately +as assets and liabilities of discontinued operations in the Balance Sheet, including the comparative prior year period. The Company is +in the process of spinning off its oil field operations known as the Alvey oil field (Alvey). Alvey’s cash flows are reflected +as cash flows from discontinued operations within the Company’s Statements of Cash Flows for each period presented. +Amounts presented +in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical +basis of assets, liabilities, and historical results of Alvey. The discontinued operations exclude general corporate +allocations. +Note +receivable +CETI +provided two Short-Term Capital Bridge Loan totaling $ 190,000 +to Sedar Gurel, Founder and CEO of DELTA Cervresel Solusyonlari ve Makinalar A.S. a Turkish Corporation ("DELTA"). The notes +are currently due and had been accruing simple interest at 6 % +per annum. DETLA is a significant partner in CETI’s overseas operations and the Company does not have any concern about +the collectability of this note. +Impairment +of Long-Lived Assets +In accordance +with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the ASC, +the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate +an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less +than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount +of the assets exceeds the estimated fair value of the assets. +Intangible Assets +The Company recognizes +intangible assets in accordance with ASC 350. Intangible assets are defined as identifiable non-monetary assets without physical substance, +acquired through purchase, internally generated, or acquired as part of a business combination, which provide future economic benefits +and are under the control of the Company. +Intangible assets with +finite useful lives are amortized over their estimated useful lives on a straight-line basis, unless another systematic and rational +method better represents the consumption of the economic benefits. Intangible assets with indefinite useful lives are not amortized but +are tested for impairment annually or more frequently if there are indications of impairment. +The Company reviews +intangible assets for indicators of impairment whenever events or circumstances indicate that the carrying amount of an asset may +not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its recoverable amount. The recoverable +amount is the higher of an asset's fair value less costs to sell and its value in use. Any impairment loss is recognized in the income +statement. Upon impairment, the carrying amount of the intangible asset is reduced to its recoverable amount. +Accounting +for Majority-Owned Subsidiary +The +Company consolidates the consolidated financial statements of majority-owned subsidiaries in accordance with U.S. GAAP. A subsidiary is classified as majority-owned when the +Company owns more than 50% of its voting shares, giving it control over the subsidiary's operations and financial policies. +In the +consolidated financial statements, all intercompany transactions, balances, and unrealized gains and losses on transactions between +the Company and its subsidiaries have been eliminated. The financial position, results of operations, and cash flows of each +majority-owned subsidiary are fully consolidated with the portion attributable to non-controlling interests presented as a separate +line item in the equity section of the consolidated balance sheets and as a separate component of net income in the consolidated +statements of income. However, for the year ended December 31, 2024, due to the immaterial amount, no non-controlling interest are +presented in the consolidated financial statements but are noted in the footnotes to the consolidated financial +statements. +Non-controlling interests +represent the portion of equity in subsidiaries that is not attributable, directly or indirectly, to the Company. +F- 8 +Stock-based Compensation +The Company applies the fair +value method of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, +“Share Based Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured +at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. +The Company values stock-based compensation at the market price for the Company’s common stock and other pertinent factors at the +grant date. During the years ended December 31, 2024 and 2023, the Company recorded $ 694,328 and $ 2,280,398 in stock-based compensation +expense, respectively. +Fair Value of Financial Instruments +The +Company adopted ASC 820, “ Fair Value Measurements .” ASC 820 clarifies the definition of fair value, prescribes methods +for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: +Level 1: +Quoted market +prices available in active markets for identical assets or liabilities as of the reporting date. +Level 2: +Pricing inputs other than +quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. +Level 3: +Pricing inputs that are +generally unobservable inputs and not corroborated by market data. +The +carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate +their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value +of such instruments as the notes bear interest rates that are consistent with current market rates. +The +Company evaluates convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components +of those contracts qualify as derivatives to be separately accounted for under ASC 815, “Derivatives and Hedging”. +The result of this accounting treatment is that the fair value of the derivative is marked to market each balance sheet date and recorded +as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of +operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value +at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity +that become subject to reclassification under ASC 815 are reclassified to liabilities at the fair value of the instrument on the reclassification +date. +The following table +classifies the Company’s liability measured at fair value on a recurring basis into the fair value hierarchy as of December 31, +2024: +Schedule of derivative liability +Description +Level +1 +Level +2 +Level +3 +Total +Derivative +$ — +$ — +$ 387,238 +$ 387,238 +Total +$ — +$ — +$ 387,238 +$ 387,238 +The following table +classifies the Company’s liability measured at fair value on a recurring basis into the fair value hierarchy as of December 31, +2023: +Description +Level 1 +Level 2 +Level 3 +Total +Derivative +$ — +$ — +$ 217,177 +$ 217,177 +Total +$ — +$ — +$ 217,177 +$ 217,177 +Income +taxes +Income states +are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences +attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective +tax bases and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measures using enacted +tax rates expected to apply to the taxable income in the years in which those temporary differences are expect to be recovered or settled. +The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment +date. +F- 9 +The Company +recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income +tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement +are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized +tax benefits as a component of general and administrative expenses. The Company’s federal tax return and any state tax returns +are not currently under examination. +The Company has adopted ASC 740, “ Accounting +for Income Taxes ,” which requires an asset and lability approach to financial accounting and reporting for income taxes. Deferred +income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities +that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which +the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets +to the amount expected to be realized. +Net income (loss) per common share +Under the provisions of ASC 260, “ Earnings +per Share ”, basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average +number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that +could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance +of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The following potential common +shares were excluded from the calculation of diluted net income (loss) per share available to common stockholders because their effect +would have been antidilutive: +Schedule of diluted net income (loss) per share available to common stockholders +Year ended +December 31, +2024 +2023 +Warrants +4,950,000 +3,750,000 +Stock options +1,000,000 +1,000,000 +Convertible notes payable +12,842,243 +19,687,988 +Common stock to be issued +2,973,132 +8,173,019 +Preferred stock +50,012,000 +3 +Total +71,777,375 +32,611,010 +Concentration of credit risks +The Company maintains accounts +with financial institutions. All cash in checking accounts is non-interest bearing and is fully secured by the Federal Deposit Insurance +Corporation (FDIC). At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company +believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions. +Segment Reporting +The Company has determined that +it has one reportable segment, which includes industrial water remediation. The single segment was identified based +on how the Chief Operating Decision Maker, who was determined to be the Chief Executive Officer, manages and evaluates performance and +allocates resources. +Recently +issued accounting pronouncements +The +Company has implemented all new accounting pronouncements that are in effect. These +pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does +not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial +position or results of operations. +In November 2023, the FASB issued ASU 2023-07, “Segment +Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, enhancing segment expense transparency. The update requires +public entities to disclose significant segment expenses regularly provided to the chief operating decision maker and extends certain +annual segment disclosures to interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with interim +period application required starting after December 15, 2024, and early adoption permitted. +NOTE 3 – GOING +CONCERN +The +Company’s consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will +be able to realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable +future. The Company does not yet have sufficient revenue to cover its operating expenses. These factors raise substantial doubt +about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon +generating profitable operations in the future and/or to obtain the necessary financing to meet the Company’s obligations and +repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over +the next twelve months with increased revenue and private placement loans or institutional investors. While the Company believes +that it will be successful in obtaining the necessary financing and generating revenue to fund the Company’s operations, meet +regulatory requirements and achieve commercial goals, there are no assurances that such additional funding will be achieved and that +the Company will succeed in its future operations. +The +consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these +uncertainties. +F- 10 +NOTE 4 +– COMMITMENTS AND CONTINGENCIES +During +the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it +evaluates the merits of the case in accordance with ASC 450, Contingencies . The Company evaluates its exposure to the matter, +possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable +outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of December 31, 2024 and December 31, +2023, the Company is not aware of any contingent liabilities related to potential litigation that should be reflected in the +consolidated financial statements. +In December +2021, the Company entered into an agreement to operate the wells on the Alvey Oil Field. Under this agreement, the Company owes a contingent +amount based upon a 18.75 % of the Working Interest less any rework and production costs to the Estate of Danny Hyde (“EDH) the +former owner of the operator of record for the Alvey Oil Field. The rework costs incurred by the Company to date have been over $1 million +so it is not anticipated any contingent payments will be made to EDH in 2025. In addition, the Company owes 20% of gross sales less severance +tax to the landowners. At the same time of this agreement, the Company purchased $ 450,000 of equipment from the entity formerly owned +by Danny Hyde. The Company is still evaluating the allocation of that purchase price to various assets acquired and potential liabilities +assumed. The final allocation may be different than the current presentation. +In February 2022 and February 2023, CETI into +agreements with two different investors offering them a stock guarantee on share price within three-year period of time. The first investor’s +shares in February 2022, came due in February 2025 and CETI entered into agreement to pay cash and shares to satisfy that guarantee. +For the second investor, the Company accrued a liability as of December 31, 2024 for the difference between share price on that date +and the guaranteed share price. The two guarantees show up in Contingent liabilities of $ 437,500 at December 31, 2024. No provision was +made in prior years. +On December +9, 2024, CETI entered into an agreement with a company to provide consulting services to obtain funding of at least $ 25 million or more +to fund CETI’s projects in the Middle East. The compensation under this agreement was $65,000 plus 0.5% of any monies raised. As +of March 18, 2025, no money has been raised but it is anticipated these monies will be raised during the first Quarter of 2025. +On December 21, 2024, CETI entered into a Financial +Consulting Engagement Agreement (FCEA) to provide consulting services and identify potential sources of private and/or public financing +of up to 50 million in British pound sterling The retainer fee was $35,000 and the success fee is 5% of the total money raised payable +at 1% a year for five years. As of March 28, 2025, no money has been raised but it is anticipated these monies will be raised during the +second Quarter of 2025. +NOTE 5 +– PROPERTY AND EQUIPMENT +As of December +31, 2024 and December 31, 2023, property and equipment consisted of the following: +Schedule of property and equipment +December 31, 2024 +December 31, 2023 +Useful Lives +Equipment +$ 770,560 +$ 432,558 +5 to 20 years +Vehicles +6,000 +6,000 +5 to 15 years +Property and equipment, net +$ 776,560 +$ 438,558 +No assets were +placed in service for continuing operations under either period so there is no depreciation expense. +NOTE 6 – INTANGIBLE ASSETS +The intangible assets consist of exclusive licenses +for United States distribution obtained by the Company from KAM Biotechnology Ltd (“KAM”) in May 2023 and the agreement has +a term of ten years. The asset is stated at the fair value of $ 758,501 , less amortization from May to December of $ 50,567 , for a net of +$ 707,934 . In October 2023, CETI signed an additional agreement with KAM for secured worldwide rights to most the licenses over a ten-year +period of time and outright purchase of one license. CETI gave KAM 1,000,000 share of common stock which were valued at $ 0.37 /share at +the date of the transaction for a total of $ 370,000 , less amortization from October to December of $ 7,708 , for a net of $ 362,292 . This, +combined with the initial license acquisition, resulted in a total Intangible assets net balance of $ 1,070,226 as of December 31, 2023. +For the year ending December 31, 2024, there was a total amortization of intangible assets of $ 112,850 resulting in net tangible asset +balance of $ 957,377 at December 31, 2024. However, during 2024, KAM was declared insolvent. While intellectual property acquired +by the Company still has value to CETI, it was decided to take the conservative approach and write off the rest of the value of $ 957,377 +as of December 31, 2024. +F- 11 +NOTE 7 +– DEBT +Schedule of debt +December 31, 2024 +December 31, 2023 +Note payable +$ 188,061 +$ 100,000 +Note payable – related party +153,989 +153,989 +Convertible notes payable +2,262,263 +2,810,250 +Convertible notes payable – related party +22,000 +22,000 +2,626,313 +3,086,239 +Debt discount +( 327,056 ) +( 161,011 ) +2,299,257 +2,925,228 +Less current portion +1,171,636 +154,154 +Long term portion +$ 1,127,621 +$ 2,771,074 +The following +is a schedule of long-term debt and the years in which it is scheduled to mature: +Schedule of debt maturity +Year +Amount +2025 +$ 1,204,313 +2026 +1,422,000 +$ 2,626,313 +F- 12 +Notes +payable +In February +2021, the Company purchased certain oil and gas production equipment in the Alvey Oil Field. The total purchase price was $ 450,000 ($ 389,046 +after discount). As of December 31, 2024 and 2023, the Company had repaid $ 106,500 leaving a balance of $ 343,500 . The remaining amount +due was to be paid in installments. However, no further payments have been made as the parties are discussing the amount due the Company +for operational expenses which exceed the amount the Company owes to the Estate of Danny Hyde, the creditor. No resolution has been determined +as of the end of 2024. +At December +31, 2022, the Company had a note payable to a shareholder for $ 100,000 along with interest of $ 10,000 . Repayment was due in January 2023. +The shareholder decided to take $ 50,000 in cash and converted the remaining $ 60,000 to common stock. +At December +31, 2022, the Company had a note payable to a related party for $ 15,000 with an interest rate of 7 %. This loan was paid off in January +2023. +In May 2023, the Company +acquired certain intellectual property rights from KAM Biotechnology. The total acquisition price was $ 800,000 ($ 758,501 after discount). +As of December 31, 2023, the Company has repaid the full balance. +In June 2023, the Company +had a loan payable to an individual for $ 100,000 which was repaid in full with interest of $ 22,718 in September 2023. In December 2023, +the Company borrowed $ 100,000 from the same individual and it was outstanding as of December 31, 2024. This loan does not have an expiration +date and accrues interest at $ 250 day, of which $ 50 will be paid in cash and $ 200 in stock at $ 0.20 a share, when paid plus an additional +$ 7,500 in cash. +In September 2023, +a related party issued a loan to the Company for a total amount of $ 153,989 . +The net after discount was $ 145,712 and $ 130,074 +for December 31, 2024 and 2023 respectively with a discount of $ 8,277 and $ 23,915 at December 31, 2024 and 2023 respectively. +The loan is at 12.5 % +and is due in September of 2025. +In March 2024, the +Company had two loans payable to an individual. One loan was paid off in December and the other of $ 40,000 is still due at December 31, +2024. Each loan accrued interest at $ 125 a day and $ 6,500 of interest was paid in 2024. +At December 31, 2024, the Company had drawn down $ 48,061 against +a line of credit. The Company did no t have a line of credit in 2023. +Convertible notes +payable +In 2020, the Company +executed a convertible note payable with a related party for $ 25,000 that is unsecured, non-interest bearing and convertible into shares +of common stock at $ 0.001 . In 2023, $ 3,000 of this note was converted into 3,000,000 shares of common stock. The note +matured on September 23, 2020 and is in default. +During the +year ended December 31, 2022, the Company received $ 1,461,000 +from the issuance of thirty-two separate convertible notes payable. $ 1,075,000 +worth of notes payable were converted into common stock in 2023. The remaining $ 386,000 +worth of notes payable bear interest at 8 % +and are convertible into common stock at a range of $ 0.10 +to $ 0.25 +a share. These notes had a two-year maturity date when issued. As of December 31, 2023, the balance +remaining on these notes issued in December 2022 was $ 75,000 . +As of December 31, 2024, they were converted into shares of common stock. +During the year ended +December 31, 2023, the Company raised a net of $ 3,971,500 in convertible notes payable. The terms were the same as the convertible notes +payable issued in December 2022, with the exception of three notes, one for $ 69,250 incurred in January 2023 and paid off in July 2023, +the second for $ 90,000 incurred in September 2023 and the third for $ 79,250 incurred in December 2023. Each of these three notes bears +interest at 8 % and the second and third note were payable at maturity of September 25, 2024 and December 29, 2024 , respectively. The +second note was convertible into common stock at issuer’s option beginning March 20, 2024 at a 35 % discount off of the lowest price +for the ten preceding trading days. On March 21, 2024, CETI paid $ 60,000 towards this loan and the remainder in April 2024. The third +note had the same terms with the issuer’s option starting June 25, 2024 and was paid off in June 2024. +F- 13 +During the +year ended December 31, 2023, the Company converted $ 1,178,787 of convertible notes payable, plus accrued interest, into 10,830,890 +shares of common stock. As of December 31, 2023, 8,110,690 common shares remain unissued. Also, as of December 31, 2023, $ 2,810,250 worth +of convertible notes payable remain outstanding. +During 2024, the Company raised a net of $ 2,582,650 +in convertible notes payable. The terms were the same as the convertible notes payable issued in during 2023 with the exception of +eight notes – six for a total of $ 750,000 +and two for a total of $ 173,650 . +For the notes totaling $ 750,000 , +$ 150,000 of these notes bear interest at 10 % +and were payable at maturity of September 2024. The notes are convertible into common stock at issuer’s option beginning +thirty days after issuance at $ 0.35 +share. In addition, a total of 150,000 +common shares were issued in April 2024 as additional loan incentive. For $ 300,000 of these notes, the interest rate was 9 % with +varying maturities in 2026 plus a total of 300,000 warrants priced at $ 0.80 /share. The remaining $ 300,000 of these notes were at 10 % +interest with varying maturities in 2025 and 2026. For the notes totaling $ 173,650 , +these notes bear interest at 8 % +and are paid back in installments which began on October 30, 2024 and December 30, 2024, respectively. Both notes have an option +beginning six months after issuance to be converted into common stock at a 35 % +discount off of the lowest price for the ten preceding trading days. +During 2024, the Company converted +$ 3,673,037 of convertible notes +payable, and accrued interest, into 28,170,065 +shares of common stock. As of December 31, 2024, 1,954,250 +common shares remain unissued. Also, as of December 31, 2024, $ 2,262,263 +worth of convertible notes payable remain outstanding consisting of short-term convertible notes payable of $ 815,863 (net of discount of $ 24,400 ) and long-term +convertible notes payable of $ 1,127,621 (net of discount of $ 318,779 ). +NOTE 8 – DERIVATIVE +FINANCIAL INSTRUMENTS +Embedded derivatives +The Company’s +convertible promissory notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were +not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist +of the embedded conversion option. +The following tables +summarize the components of the Company’s derivative liabilities and linked common shares as of December 31, 2024 and 2023 and +the amounts that were reflected in income related to derivatives for the year ended: +Schedule of derivative liabilities +December 31, 2024 +The financings giving rise to derivative financial instruments +Indexed +Shares +Fair +Values +Embedded derivatives +2,791,924 +$ 387,238 +Total +2,791,924 +$ 387,238 +December 31, 2023 +The financings giving rise to derivative financial instruments +Indexed +Shares +Fair +Values +Embedded derivatives +878,836 +$ 217,177 +Total +878,836 +$ 217,177 +The following table +summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments +by type of financing for the years ended December 31, 2024 and 2023: +Schedule of changes in gain loss fair values of the derivative financial instruments +For the Years Ended +December 31, 2024 +December 31, 2023 +Embedded derivatives +$ 161,122 +$ 88,880 +Loss on issuance of derivative +( 191,162 ) +( 130,305 ) +Total gain (loss) +$ ( 30,040 ) +$ ( 41,425 ) +F- 14 +Current accounting +principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be +classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Monte Carlo +Simulation Model, valuation technique to fair value the embedded derivative because it believes that this technique is reflective of +all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions +involving embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and +redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The +Monte Carlo Simulation Model technique is a level three valuation technique because it requires the +development of significant internal assumptions in addition to observable market indicators. For instruments in which the time to +expiration has expired, the Company has utilized the intrinsic value as the fair value. The intrinsic value is the difference +between the quoted market price on the valuation date and the applicable conversion price. +Significant inputs +and results arising from the Monte Carlo Simulation process are as follows for the embedded derivatives that have been bifurcated from +the convertible notes and classified in liabilities: +Schedule of embedded derivatives +Inception Date +April 26, 2024 Note +Inception Date +June 21, 2024 Note +Quoted market price on valuation date +$ 0.193 +$ 0.30 +Effective contractual conversion rates +$ 0.104 +$ 0.176 +Contractual term to maturity +1 year +1 year +Market volatility: +Volatility +213.68 %- 298.84 % +239.77 %- 465.49 % +Risk-adjusted interest rate +5.31 % +5.20 % +Inception Date +October 10, 2024 Note +Inception Date +November 7, 2024 Note +Inception Date +December 31, 2024 Note +Quoted market price on valuation date +$ 0.231 +$ 0.253 +$ 0.23 +Effective contractual conversion rates +$ 0.200 +$ 0.200 +$ 0.1495 - 0.20 +Contractual term to maturity +2 years +3 years +0.16 - 2.85 years +Market volatility: +Volatility +177.44 %- 452.93 % +179.09 %- 453.59 % +117.27 %- 433.33 % +Risk-adjusted interest rate +9 % +9 % +9 - 12 % +The following table +reflects the issuances of embedded derivatives and changes in fair value inputs and assumptions related to the embedded derivatives as +of December 31, 2024 and 2023. +Schedule of fair value assumptions +Year Ended +December 31, 2024 +Year Ended +December 31, 2023 +Balances at beginning of year +$ 217,177 +$ — +Issuances: +Embedded derivatives +595,722 +355,305 +Gain on extinguishment +( 264,539 ) +( 49,248 ) +Changes in fair value inputs and assumptions reflected in income +( 161,122 ) +( 88,880 ) +Balances at end of year +$ 387,238 +$ 217,177 +F- 15 +NOTE 9 +– RELATED PARTY TRANSACTIONS +At December 31, 2024 and 2023, the Company had a +convertible note payable for $ 22,000 with a related +party. The note is unsecured, non-interest bearing and is convertible into shares of common stock at $ 0.001 . +At December 31, 2023, the Company had accounts payable to various +related parties for a total of $ 80,991 . +At December 31, 2022, the Company had a note payable +of $ 15,000 to a related party. The note was secured by the F-150 truck and bore interest of 7 %. This was paid back in February 2023. +In September 2023, a related party loaned $ 153,989 +to CETI. The loan is due in two years and has interest only payments at 12.5 %. +The first six months interest plus closing costs were paid at time of closing. The closing costs and interest are being amortized +over a six month and twenty-four month period of time, respectively. This resulted in expenses of $ 15,638 and $ 10,074 as of December +31, 2024 and 2023, respectively and a net balance of $ 145,712 (discount $ 8,277 ) and $ 130,074 (discount $ 23,915 ) at December 31, 2024 +and 2023, respectively. +During years ended December 31, 2024 and 2023, the +Company paid various related parties for consulting services in the amounts of $ 409,850 +and $ 588,308 , respectively. For the years ended +December 31, 2024 and December 31, 2023, $ 30,000 and +$ 120,836 , respectively, of the consulting fees were +capitalized in property and equipment under well development costs. Well Development costs are part of the discontinued operations in +the balance sheet. +At December 31, 2024, the Company had accounts payable +to various related parties for a total of $ 137,690 . +The above transactions and amounts are not necessarily +what third parties would have agreed to. +NOTE 10 +– PREFERRED STOCK +Series +A Convertible Preferred Stock +The Company previously +designated 200,000 shares of Preferred Stock as Series A Convertible Preferred Stock and had issued 200,000 shares. Voting Rights had +been established whereby one (1) share of Series A Convertible Preferred Stock has ten (10) equivalent votes of stockholders of the Company's +common stock for an aggregate of 10 votes. Each share of Series A Convertible Preferred Stock previously was convertible into ten (10) +shares of the Company's common stock. In event of the liquidation of the Company, the shareholders of Series A Convertible Preferred +Stock would have preference over the shareholders of the Company's common stock and all other series of Preferred Stock. +During 2023, the Company +changed the terms of this series of stock whereby one (1) share of Series A Convertible Preferred, after a minimum two-year holding period, +can be converted into three thousand (3,000) shares of the Company’s common stock and has the same equivalent voting rights. In +October 2023, the three top shareholders cancelled 50,000,000 +common shares of stock and were issued 16,667 +shares of Series A Convertible Preferred Stock. As of December 31, 2024 and 2023, there are 16,671 +shares of Series A Convertible Stock issued and outstanding. +Series +B Convertible Preferred Stock +The Company previously +designated 85,000 shares of Preferred Stock as Series B Convertible Preferred Stock and had issued 67,448 shares. Holders of Series B +Convertible Preferred Stock had no voting Rights. Each share of Series B Preferred Stock previously was convertible into one (1) share +of the Company's Common Stock. In event of the liquidation of the Company, the shareholders of Series B Convertible Preferred Stock would +have preference over the shareholders of the Company's Common Stock and all other series of Preferred Stock except for the shareholders +of Series A Convertible Preferred Stock. As of December 31, 2024 and 2023, there is one 1 share of Series B Convertible Stock issued an +outstanding. +Series +C Non-Convertible Preferred Stock +The Company previously +designated 50,000 shares of Preferred Stock as Series C Non-Convertible Preferred Stock and had issued all 50,000 shares. Holders of +Series C Non-Convertible Preferred Stock have 1,600 shares of voting Rights per share. Series C Non-Convertible Preferred Stock is not +convertible into any of the Company's Common Stock or other Series of Preferred Stock. In event of the liquidation of the Company, the +shareholders of Series C Non-Convertible Preferred Stock would have preference over the shareholders of the Company's Common Stock and +all other series of Preferred Stock except for the shareholders of Series A and Series B Convertible Preferred Stock. As of December +31, 2024 and 2023, there is one-half 0.5 share of Series C Convertible Stock issued an outstanding. +Special 2020 +Series A Preferred +The Company has one +share of preferred stock designated as Special 2020 Series A Preferred , par value $ 0.0001 . The holder for the Special 2020 Series +A Preferred shall vote with the holders of both preferred and common stockholders as a single class. The holder is entitled to 60% of +all votes. The one share of Series A is convertible into 150,000,000 shares of common stock at any time and is not entitled to dividends. +The Company purchased that one series A preferred share for $ 66,400 . This share is now recorded as a Treasury stock. As of December 31, +2024 and 2023, there is 1 share of Special 2020 Series A Preferred issued and 0 outstanding. +F- 16 +NOTE 11 – +STOCK OPTIONS AND WARRANTS +In connection with +a consulting agreement dated March 7, 2022, the Company issued 200,000 options at an exercise price of $ 0.58 per share. These options +vest one-fourth each six months over a period of two years and had a term of three years. The grant date fair value was $ 55,966 . The +Company recorded compensation expense in the amount of $ 18,318 for December 31, 2022 and, +as of that date, there was $ 37,648 of total unrecognized compensation cost related to non-vested portion of options granted. In addition, +there were 200,000 options outstanding, of which 100,000 and 50,000 were exercisable as December 31, 2022 with a weighted average remaining +term of 1.31 years. +On June 3, 2023, the +Company canceled the consultant’s 200,000 Options, of which 150,000 vested as of the cancellation date. On the same date, the Company +agreed to issue 1,000,000 replacement options with a vesting date of June 3, 2023. The Company interprets this as concurrent replacement +award and, as such, will account for it as a modification. +The following table +summarizes the accounting effects of the modification: +Schedule of accounting effects +June 3, 2023 +Replacement Award +Fair value of new award +$ 60,472 +Fair value of original award on modification date +$ 1,377 +Incremental cost +$ 59,095 +Unrecognized grant-date fair value of original award on modification date +$ 37,647 +Cost to be recognized after modification +$ 96,742 +Recognition Period +24 months +Significant inputs +and results arising from the Black-Scholes process are as follows for the options: +Schedule of significant inputs and results in options +Quoted market price on valuation date +$ 0.3480 +Exercise price +$ 0.3600 +Expected life (in years) +1.50 Years +Equivalent volatility +32.88 % +Interest rates +4.50 % +Stock option +activity for the year ended December 31, 2024 and 2023 summarized as follows: +Schedule of stock option activity +Number of Shares +Weighted Average Exercise Price +Weighted Average +Remaining Contractual Life +Options outstanding December 31, 2022 +— +— +— +Issued +1,000,000 +0.36 +3.00 +Exercised +— +— +— +Cancelled +— +— +— +Options outstanding December 31, 2023 +1,000,000 +0.3600 +2.42 +Issued +— +— +— +Exercised +— +— +— +Cancelled +— +— +— +Options outstanding December 31, 2024 +1,000,000 +0.3600 +1.42 +Options exercisable December 31, 2024 +1,000,000 +$ 0.3600 +1.42 +In +connection with a different consulting agreement dated March 1, 2023, the Company initially agreed to pay 2,000,000 +shares of common stock, along with a monthly consulting fee. This common stock was valued at $ 0.42 +on the date of the agreement and was amortized equally over the six-month agreement. On July 1, 2023, the Company and consultant +decided to amend the agreement so that the consultant would receive 3,250,000 +warrants valued at $ 0.001 +in replacement for the stock and extend the agreement until June 30, 2024. The agreement was amended again on September 15, +2023 resulting in an additional 500,000 +warrants being issued and the agreement extended until September 15, 2024. This resulted in an additional $ 602,179 +in consulting expenses which will be equally amortized over the following twelve months. The agreement was extended again on November 1, 2024 with another +800,000 warrants being issued. +During the year ended December 31, 2024, the +Company issued an aggregate 1,200,000 warrants in connection with convertible notes. +F- 17 +Significant range of +inputs and results arising from the Black-Scholes process are as follows for the warrants: +Schedule of assumptions +Quoted market price on valuation date +$ 0.231 - 0.3100 +Effective contractual strike price +$ 0.0013 – 0.80 +Market volatility +373 % - 401 % +Contractual term to maturity +2 years +Risk-adjusted interest rate +3.98 % - 4.87 % +Stock warrant +activity for the year ended December 31, 2024 is summarized as follows: +Schedule of stock warrant activity +Number of Shares +Weighted Average Exercise Price +Weighted Average +Remaining Contractual Life +Warrants exercisable December 31, 2023 +3,750,000 +$ +0.001 +1.50 +Issued +1,200,000 +$ +0.267 +2.00 +Exercised +— +— +— +Expired +— +— +— +Warrants outstanding December 31, 2024 +4,950,000 +0.070 +0.82 +Warrants exercisable December 31, 2024 +4,950,000 +$ +0.070 +0.82 +NOTE 12 – +DISCONTINUED OPERATIONS +CETI is planning to spin-off the Alvey oil field operations +into a new entity. The shareholders of CETI will get a pro rata stock distribution of the new company’s common shares. A new investor +group will run the operation. +Accordingly, the Company +has categorized Alvey as discontinued operations in the consolidated financial statements for the years ended December 31, 2024 and December +31, 2023. +The operating results +for discontinued operations have been presented in the accompanying Statement of Operations for the years ended December 31, 2024 and +2023 as discontinued operations and are summarized below: +Schedule of discontinued operations consolidated statement of operations +Year Ended +December 31, +2024 +2023 +Total revenue +$ 20,362 +$ 23,649 +Total cost of revenue +( 5,707 ) +( 6,159 ) +Gross profit +14,655 +17,490 +Operating expenses +( 1,509,761 ) +( 54,704 ) +Loss from operations +( 1,495,106 ) +( 37,214 ) +Other income (expenses) +— +( 23,600 ) +Loss before tax expense +( 1,495,106 ) +( 60,814 ) +Tax expense +— +— +Loss from operations of discontinued operations +$ ( 1,495,106 ) +$ ( 60,814 ) +The assets and liabilities of the discontinued +operations at December 31, 2024 and 2023 are summarized below: +Schedule of assets and liabilities of the discontinued operation +As of +December 31, +2024 +2023 +Property +and equipment, net +$ 2,019,415 +$ 3,268,448 +Texas Railroad Commission bond +62,537 +62,537 +Assets of discontinued operations, non-current +2,081,952 +3,330,985 +Total assets +$ 2,081,952 +$ 3,330,985 +Accounts payable +$ 25,500 +$ 119,078 +Accounts payable - related party +30,000 +80,991 +Note payable, current maturities +343,500 +343,500 +Liabilities of discontinued operations, current +399,000 +543,569 +Estimated asset retirement obligation +97,463 +97,463 +Liabilities of discontinued operations, non-current +97,463 +97,463 +Total liabilities +$ 496,463 +$ 641,032 +F- 18 +Property and equipment, at cost, for the discontinued +operations consisted of the following at December 31, 2024 and 2023: +Schedule of property and equipment cost, for discontinued operations +December 31, 2024 +December 31, 2023 +Useful Lives +Equipment +$ +802,016 +$ +739,481 +5 to 20 years +Vehicles +61,000 +61,000 +5 to 15 years +Well development costs +1,395,461 +2,571,221 +* +Less accumulated depreciation +( 176,525 +) +( 103,254 +) +— +Property and equipment, net +$ +2,081,952 +$ +3,268,448 +— +* +Once +full production begins, “Well development costs” will be depreciated using the units-of-production method based on +barrels of oil produced. As of December 31, 2024, a minimal amount of oil has been produced and work is ongoing to determine how to +get regular production from the field. In addition, as of December 31, 2024, it was determined the fair value of the Well +Development cost exceeded their fair value and were written down by $ 1,395,980 . +Depreciation +expense for the discontinued operations for the years ended December 31, 2024 and 2023 was $ 73,272 and +$ 54,705 respectively. +Oil and Gas Producing Activities +The Company uses the successful efforts method +of accounting for oil and gas activities. Under this method, the costs of productive exploratory wells, all development wells, related +asset retirement obligation assets, and productive leases are capitalized and amortized, principally by field, on a units-of-production +basis over the life of the remaining proved reserves. Exploration costs, including personnel costs, geological and geophysical expenses, +and delay rentals for oil and gas leases are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but +charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest +in a proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly +affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties. There were +capitalized costs of $ 1,395,461 and $ 2,571,221 at December 31, 2024 and 2023, respectively. The amount for 2024 is after a write down +of $ 1,395,980 to estimated fair value. +Unproved oil and gas properties are assessed annually +to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances, which +may indicate a decline in value. When impairment occurs, a loss is recognized. When leases for unproved properties expire, the costs thereof, +net of any related allowance for impairment, is removed from the accounts and charged to expense. During the years ended December 31, +2024 and 2023, there was no impairment to unproved properties. The sale of a partial interest in an unproved property is accounted for +as a recovery of cost when substantial uncertainty exists as to the ultimate recovery of the cost applicable to the interest retained. +A gain on the sale is recognized to the extent that the sales price exceeds the carrying amount of the unproved property. A gain or loss +is recognized for all other sales of unproved properties. For the years ending December 31, 2024 and 2023, there was no gain or loss recognized +for sales of unproved properties. However, CETI is in conversations with various parties relating to the spinoff +of the Alvey Oil Field assets. +Costs associated with development wells that are unevaluated +or are waiting on access to transportation or processing facilities are reclassified into developmental wells-in-progress ("WIP"). +These costs are not put into a depletable field basis until the wells are fully evaluated or access is gained to transportation and processing +facilities. Costs associated with WIP are included in the cash flows from investing as part of investment in oil and gas properties. At +December 31, 2024 and 2023, no capitalized developmental costs were included in WIP. +Depreciation, depletion and amortization of proved +oil and gas properties is calculated using the units-of- production method based on proved reserves and estimated salvage values. During +the years ended December 31, 2024 and 2023, the Company recorded no depreciation, depletion +and amortization expense on oil and gas properties. The Company will start using the units-of-production method when the field is continuously +operational and there are material sales. +The Company reviews its proved oil and natural gas +properties for impairment whenever events and circumstances indicate that a decline in the recoverability of its carrying value may have +occurred. It estimates the undiscounted future net cash flows of its oil and natural gas properties and compares such undiscounted future +cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying +amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties +to fair value. During the years ended December 31, 2024 and 2023, there was no impairment to proved properties. +F- 19 +To cover the estimated future asset retirement obligations +("ARO") related to its oil and gas properties, the Company maintains a $ 62,337 bond with the Railroad Commission of Texas (“RRC”). +With the help of an outside consultant, the Company estimates it would take $ 5,000 to cap each of the 32 wells on the property so there +is a liability of $ 97,463 to make up the difference. The bond ensures that the Company will cap any wells on the Alvey Oil Field that +it decides are no longer productive. Once the Company decides it is finished working the Alvey Oil Field, it can apply to the RRC to have +the bond repaid. +Revisions to the liability could occur due to changes +in estimated abandonment costs, changes in well economic lives, or if federal or state regulators enact new requirements regarding the +abandonment of wells. +NOTE 13 – INCOME TAXES +Deferred taxes are provided on a liability +method whereby deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards +and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported +amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of +management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and +liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate of +21 % is being used. +Income taxes consist of the following components +as of: +Schedule of federal income tax rate +December 31, 2024 +December 31, 2023 +Federal income tax benefit attributable to: +Current Operations +$ 1,294,226 +$ 901,551 +Less: Valuation Allowance +( 1,294,226 ) +( 901,551 ) +Net provision for Federal income taxes +$ — +$ — +The income tax provision differs from the +amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years +ended December 31, 2024 and 2023, due to the following: +Schedule of deferred tax asset +December 31, 2024 +December 31, 2023 +Deferred tax asset attributable to: +Net operating loss carryover +$ 2,706,210 +$ 1,411,984 +Less: Valuation Allowance +( 2,706,210 ) +( 1,411,984 ) +Net deferred tax asset +$ — +$ — +At December 31, 2024, the Company had net +operating loss carry forwards of $ 12,886,715 +which would result in a deferred tax asset of $ 2,706,210 +that may be offset against future taxable income from the year 2025 to 2040. No +tax benefit has been reported in the December 2024 and 2023 consolidated financial statements since the potential tax benefit is offset +by a valuation allowance of the same amount. +Due to the change in ownership provisions +of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting purposes are subject to annual limitations. +Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years. +NOTE 14 – SUBSEQUENT EVENTS +The following are subsequent events that +the Company considers may be material: +· +Net money raised from investors since December 31, +2024 was $ 787,500 +· +CETI took out a loan of $ 93,150 from a previous lender in January +2025. As before, this loan has a conversion option and will create derivative accounting in the 1 st Qtr 2025. +· +CETI +signed a deal with a company to spin off the Alvey Oil Field. The transaction is dependent upon the new company raising +capital which as of April 11, 2025 it has not yet done. +· +CETI has been approved to raise money via Green Bonds – money +used for environmentally friendly projects and provides favorable tax treatment for investors. +· +CETI has opened up offices in London, England and Dubai, UAE to help +support pending operations in the Middle East +· +In +February of 2022 an individual invested in CETI with an assurance of a guaranteed within three years (February 2025). CETI's +stock fell short of that amount so the company agreed to settle the agreement with a combination of cash and stock. The liability of +$ 295,000 for the total of cash and stock was recorded as of December 31, 2024. +F- 20 +ITEM 9. Changes in and Disagreements with Accountants +on Accounting and Financial Disclosure. +While there are no disagreements with the former accountants, +the Company did switch accountants due to the former accountant, Accell Audit and Compliance, P.A. (“Accell”) ceasing to provide +PCAOB audit services. It is our understanding that certain of the audit principals of Accell are now a part of Astra Audit and Advisory, +LLC, and as such we are making this change in auditors to accommodate their transition. Accell issued the auditor’s report on the +Company’s consolidated financial statements for the years ended December 31, 2023 and 2022. +Other than an explanatory paragraph included in Accell’s +audit report for the Company’s fiscal years ended December 31, 2023 and 2022 relating to the uncertainty of the Company’s +ability to continue as a going concern, the audit reports of Accell on the Company’s consolidated financial statements for the fiscal +years ended December 31, 2023 and 2022 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified +or modified as to uncertainty, audit scope, or accounting principle. +During the Company’s fiscal years ended December +31, 2023 and 2022 and any subsequent interim period through August 12, 2024, the date of the dismissal of Accell, there were no disagreements +with Accell on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which +disagreements, if not resolved to Accell’s satisfaction, would have caused Accell to make reference to the subject matter of the +disagreements in connection with their report on the Company’s consolidated financial statements for such years; and there were +not reportable events, as listed in Item 304(a)(l)(v) of Regulation S-K. +The Company provided Accell with a copy of the disclosure +contained in the Form 8-K filed on August 12, 2024 and requested in writing that Accell furnish the Company with a letter addressed to +the Securities and Exchange Commission stating whether or not it agrees with such disclosures. Accell provided a letter, dated August +12, 2024, stating its agreement with such statements. +Effective August 12, 2024, the Board of Directors +of the Company approved the appointment of Astra Audit & Advisory LLC., as its independent registered public accountant for the quarters +ending June and September of 2024 and the year ended December 31, 2024. During the Company’s most recent fiscal years ended December +31, 2023 and 2022 and subsequent interim periods through the date of appointment, neither the Company nor anyone acting on its behalf +has consulted with Astra Audit & Advisory LLC with respect to: (i) the application of accounting principles to a specified transaction, +either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, +or (ii) any other matter or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K. +ITEM 9A: Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are controls +and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the +Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods +specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures +designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and +communicated to management to allow timely decisions regarding required disclosure. +As required by paragraph (b) of Rules 13a-15 +or 15d-15 under the Exchange Act, our management, with the participation of our chief executive officer (our principal executive officer) +and our chief financial officer (our principal financial officer and principal accounting officer) evaluated the effectiveness of our +disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2024. +Based on this evaluation, these officers concluded +that, as of December 31, 2024 these disclosure controls and procedures were not effective to ensure that the information required to be +disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within +the time periods specified in the rules and forms of the Securities Exchange Commission. The conclusion that our disclosure +controls and procedures were not effective was due to the Company lacking in pre-planning for expenses and documentation of all transactions. +Because of the inherent limitations in all +control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been +detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur +because of simple error or mistake. +14 +Management's Annual Report on Internal Control +over Financial Reporting +Our management is responsible for +establishing and maintaining adequate internal control over financial reporting. The term "internal control over financial +reporting" is defined as a process designed by, or under the supervision of, an issuer's principal executive and principal +financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other +personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated +financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies +and procedures that: +(1) +Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and +(2) +provide reasonable +assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance +with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance +with authorizations of management and directors of the issuer. +Under the supervision of our chief executive +officer, being our principal executive officer, and our chief financial officer, being our principal financial officer and principal accounting +officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024 using +the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway +Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, +testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded +our internal control over financial reporting were not effective at December 31, 2024. +A material weakness is a deficiency, or +combination of deficiencies, in internal control over financial reporting, such that there is a more than remote possibility that a +misstatement of our company's annual or interim consolidated financial statements could occur. In its assessment of the +effectiveness of our internal control over financial reporting as of December 31, 2024, we determined that there were control +deficiencies that constituted material weaknesses which are indicative of many small companies with small staff, such as: +(1) +inadequate segregation of duties and ineffective risk assessment; and +(2) +insufficient written policies and procedures for documenting all transactions with vendors. +Our management is currently evaluating remediation +plans for the above deficiencies. The Company anticipates a significant increase in funding raising during 2025 and will be hiring more +people to provide for a better segregation of duties. +ITEM 9B. OTHER INFORMATION. +During +the Company’s fourth quarter, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 +trading arrangement. +15 +PART III +Item 10. Directors, Executive Officers and Corporate +Governance. +Directors and Executive Officers of Cyber Enviro-Tech, +Inc. +The following sets forth information about our directors +and executive officers: +NAME +AGE +POSITION/INITIAL ELECTION +APPOINTMENT +DATE +Kim D. Southworth +65 +Chief Executive Officer and Director +September 3, 2020 +TJ Agardy +70 +President and Director +September 3, 2020 +Dan Leboffe +67 +Chief Financial Officer and Treasurer +February 7, 2022 +Winston McKellar +74 +Director of IR/PR (Non-Board) +NA +Kim D. Southworth, Chief Executive Officer and Director +Kim D. Southworth, CEO – Mr. Southworth +has more than 37 years in the corporate world, holding key roles in management, administration and corporate finance. He is the founder +and senior partner of Advanced Business Strategies, a venture catalyst firm assisting early stage, high growth technology companies in +the development, expansion, and execution of their business plans. He has served as founder, president, CEO and consultant for numerous +companies and industries, including oil & gas, biotech, instore digital music and advertising, ballistic armor and fuel treatment +technologies. +• +2020 to Present , Mr. Southworth is a co-founder, director and Chief Executive officer of the Cyber Enviro-Tech, Inc. a Wyoming company formerly, Global Environmental Technologies, Inc ., prior to a name change in 2021. At Cyber Enviro-Tech, Mr. Southworth leads the strategic business plan development and execution, corporate capitalization, investment structuring, strategic partnership development, joint venture relationships, corporate filings, public auditing review, mergers and acquisitions. +• +August 2017 to April 2020 , Mr. Southworth was a founder, director and CEO of Applied Logic Filtration, LLC. A Utah limited liability company in business to become an R&D water filtration technology Company. Mr. Southworth spent approximately 2 years bringing together numerous technologies from around the world to develop, design and engineer a unique and proprietary industrial wastewater filtration system. +• +2016 to 2018 , Mr. Southworth was a director and President of Gold Standard Mining Company . +Gold +Standard Mining Company (“GSMC”) or the “Company” incorporated in the State of Nevada on August 22, 2016. Mr. +Southworth incorporated the company, hired accountants and attorney for the propose of developing +business activities described as a “blank check”. The company filed an S-1 as a blank check company +with the Securities and Exchange Commission. The company went effective on its S-1 on September 27, 2017. On February 20, 2019, +Mr. Southworth resigned as the President of Gold Standard Mining Company and had no further ownership or involvement with management of +the company. +16 +TJ Agardy, President and Director +Mr. Agardy, – Mr. Agardy has over 40 +years of engineering and sales experience. +• +2020 to Present , Mr. Agardy is a co-founder, director and President of Cyber Enviro-Tech, Inc. a Wyoming company, formerly, Global Environmental Technologies, Inc ., prior to a name change in 2021. As the President and acting Chief Technical Officer for the company His responsibilities include evaluating and integrating commercially viable technologies from multiple industries to the company’s core water filtration, extraction, and cyber-SCADA capabilities. Assessing critical path partners, sourcing manufacturers and negotiating terms for delivery, utilization, and performance is another component of this function with the Company. +• +August 2017 to April 2020 , Mr. Agardy was a co-founder, President and director of Applied Logic Filtration, LLC. A Utah limited liability company in business to become an R&D water filtration technology Company. Mr. Agardy spent approximately 2 years bringing together numerous technologies from around the world to develop, design and engineer a unique and proprietary industrial wastewater filtration system. +• +March +1997 to August 2017 , Mr. Agardy served as Managing Director at Artic FX LLC . Clients +served included energy conversion firms processing mining tires for pyrolysis; diesel production, gasoline production, asphalt, +scrap metal and environmental recycling. Either consulting or operational assistance attached to projects determined travel +schedules and job scopes. From 2008 projects included interface for software development contracted in Asia, South America, Europe, +and the US with design and test engineers. +• +November 1987 to +February 1997 , Mr. Agardy was a Director of International Trades at American PetroChem . American PetroChem served +as a supply chain provider for Automotive, Pharmaceutical, Mining, and Chemical Operations enterprises on an international platform. +As such, Mr. Agardy handled all of the ICC400 – ICC600 banking interface, shipping modal interface, technical compliance for +international trade accommodations for storage, transport, discharge, and delivery of final product to the end client. This involved +extensive travel to ports, shipping lines, storage facilities, manufacturing facilities, and client visits for end product viability. +At times, technical substitution capacity was required for either higher quality delivery or on-site best practices with clients. +During his tenure there, he managed relationships with Elf, Esso, Royal Dutch, Vasso, Sunoco, Arco, Marathon, Crown, San Joaquin, +Union Oil, Texaco, Shell, Chevron, Mobil, Exxon, Citgo, Cato, Phillips, Conoco and more. +• +August +1983 – October 1987 , Mr. Agardy, served with Burroughs Corporation as a Technical Support Representative +in Phoenix Arizona; responsible for integrating 3rd party peripheral and mainframe computers to Burroughs MT985’s, +ET2000’s, B1900’s, B3900’s, while structuring a multi-vendor solution to specific custom applications. Each +application addressed critical base operations data input off production, quality control, inventory control, access security, or +resource allocation. +This was before the Sperry Corporation takeover, with a focus on Mining [Newmont-Asarco] and medical [WL Gore], plus integrated shop floor control applications at microchip manufacturers. Prior to this, Mr. Agardy worked at Honeywell in Detroit serving Fortune 100 companies in process controls, closed loop applications for mining, pharmaceutical, food processing, automotive, refining, glass, paint, and chemical processing. He also worked with power plants, automotive plants, food processing, and machine tool client bases in industrial settings during his tenure with Eaton Cutler Hammer. Mr. Agardy began his industrial career in Plant Engineering with General Motors in Detroit. +17 +Dan Leboffe, Chief Financial Officer and Treasurer +(Non-Board) +Mr. Leboffe joined the Company in the capacity of +Chief Financial Officer earlier in 2022. He brings to CETI a diverse background in his 40+ years of business experience. His experience +includes audit/tax work with (then) Price Waterhouse, over ten years of marketing/sales experience with various Fortune 1000 consumer +packaged goods companies and overseeing training for publicly traded real estate company ZipRealty. Mr. Leboffe’s entrepreneurial +ventures include a construction accounting software reseller, high-performance boat manufacturer Spectre, real estate development and +business consulting. +• +2020 to Present: CFO (as of February 2022) and consultant (2020 to 2022) for CETI. +Primarily focused on financial modeling, investor presentations, business strategy and filings with OTC Markets and the SEC. +• +2017 to 2020 : Co-founded two business consulting firms – Path Capital Advisors, LLC and AscentCore Group LLC. Both organizations focus on growth and capital advisory services for CEOs, board of directors and business owners. In addition, he has individually provided consulting services to both Realogy, Inc and Homeward Inc both in the real estate industry. +• +Education background. BS in Accounting from University at Albany, MBA from The Wharton School of the University of Pennsylvania +• +Certifications. Formerly a Certified Public Accountant in the State of New York with Price Waterhouse +• +Community: For the last seven years, he has been the Treasurer for Everybody Matters, an organization that teaches coping skills to emotionally vulnerable youths in the public school system. +Winston P. McKellar, Director of IR/PR (Non-Board) +Mr. McKellar has close to 50 years in both the entrepreneurial +and corporate world from the brokerage, development, management and syndication of commercial real estate throughout the Southwest. He +has also been in corporate finance and marketing strategy for early-stage companies for over three decades. Mr. McKellar has served as +a consultant for all types of companies primarily in the early-stage levels. He has been successful in expanding their business and connecting +these companies to outside growth capital. +• +January 2021 to Present : Mr. McKellar joined the senior management team behind Cyber Enviro-Tech based in Arizona. He has the executive position of (Director of IR & PR) for the company and handles majority of the communication between management and shareholders. +• +December 2015 to October 2020 : Mr. McKellar became a integral member of the Vizi Healthcare company that helped insurers of Medicare and Medicaid with their care managed programs to save costs. He was instrumental in bringing equity growth capital to the company over the five years and opening strategic opportunities for the company while serving on their advisory board level. +• +February 2012 to November 2015 : Mr. McKellar was a consultant for a company called YipTV that created a software platform for the streaming of real time content for the Hispanic and Latino population. He also sits on YipTV’s advisory board. +18 +Item 11. Executive Compensation. +The following table sets forth the compensation of our Executive Officers +for the years ending December 31, 2024 and 2023 these amounts were paid as consulting fees. +Summary Compensation Table: +Name And Principal position +Year +Salary($) +Bonus($) +Stock +Awards($) +Option Awards($) +Non-Equity Incentive Plan Compensation($) +Nonqualified Deferred Compensation Earnings($) +All Other Compensation($) +Total($) +Kim D. Southworth, CEO +2024 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +2023 +$ 120,750 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,750 +TJ Agardy, President +2024 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +2023 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +Dan Leboffe. CFO and Treasurer (Non-Board) +2024 +$ 102,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 102,000 +2023 +$ 99,250 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 99,250 +Markham Broughton, Former Director +2024 +$ 20,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 20,000 +2023 +$ 10,000 +$ 0 +$ 90,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 100,000 +Winston McKellar, Director of IR/PR +(Non-Board) +2024 +$ 67,850 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 67,850 +2023 +$ 112,850 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 112,850 +Employment Agreements +None +Consulting Agreements +None, although the officers are currently paid as +consultants of the Company. +19 +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters. +The following tables set forth certain information +regarding beneficial ownership of our stock as of December 31, 2024, by (i) each person who is known by us to own beneficially more than +five percent (5%) of the outstanding shares of each class of our voting stock, (ii) each of our directors and executive officers, and +(iii) all of our directors and executive officers as a group. We believe that each individual or entity named has sole investment and +voting power with respect to the stock indicated as beneficially owned by them, subject to community property laws, where applicable, +except where otherwise noted: +As of December 31, 2024, 108,159,556 shares of common +stock were issued and outstanding: +Number of Shares +Name and Address (1) +Beneficially Owned +Kim D. Southworth, CEO and Director +9,983,333 +TJ Agardy, President and Director +8,500,000 +Dan Leboffe, CFO and Treasurer +4,648,352 +Winston McKellar, Director IR/PR (Non-Board) +250,000 +Officers and Directors as a group (5 people) +23,381,685 +(22 %) +Item 13. Certain Relationships and Related Transactions, +and Director Independence +At December 31, 2024 and 2023, the Company had a convertible +note payable for $22,000 with a related party. The note is unsecured, non-interest bearing and is convertible into shares of common stock +at $0.001. +At December 31, 2022, the Company had a note +payable of $15,000 to a related party. The note was secured by the F-150 truck and bore interest of 7%. This was paid back in February +2023. +In September 2023, a related party loaned $153,989 +to CETI. The loan is due in two years and has interest only payments at 12.5%. The first six months interest was paid and is being amortized +over the six-month period of time. +During years ended December 31, 2024 and 2023, the +Company paid various related parties for consulting services in the amounts of $409,850 and $588,308 respectively. For the years ended +December 31, 2024 and 2023, $30,000 and $120,836, respectively, of the consulting fees were capitalized in property and equipment under +well development costs. +Director Independence +We are not currently a “listed company” +under SEC rules and are therefore not required to have a Board comprised of a majority of independent directors or separate committees +comprised of independent directors. We currently do not have any independent directors as the term “independent” is defined +by the rules of the Nasdaq Stock Market. +20 +Item 14. Principal Accountant Fees and Services. +The following table sets forth fees billed +to us for principal accountant fees and services for years ended December 31, 2024 and 2023. +Year Ended +December 31, 2024 +Year Ended +December 31, 2023 +Audit Fees +$ 89,055 +$ 84,305 +Audit-Related Fees +9,340 +8,247 +Total Audit and Audit-Related Fees +$ 98,395 +$ 92,552 +Item 15. Exhibits. +(a) Exhibits +The following exhibits are filed with this Report on Form 10-K: +Incorporated by Reference +Filed or +Furnished +Exhibit No. +Exhibit Description +Form +Date Filed +Number +Herewith +3.1 +Articles of Incorporation, as currently in effect +S-1 +9/22/2022 +3.1 +3.2 +Bylaws as currently in effect +S-1 +9/22/2022 +3.2 +19.1 +Insider Trading Policy +X +31.1 +Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +31.2 +Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +32.1 +Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +XX +101.INS +Inline XBRL Instance Document +X +101.SCH +Inline XBRL Instance Schema +X +101.CAL +Inline XBRL Instance Calculation Linkbase +X +101.DEF +Inline XBRL Instance Definition Linkbase +X +101.LAB +Inline XBRL Instance Label Linkbase +X +101.PRE +Inline XBRL Instance Presentation Linkbase +X +104 +The Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101). +X +XX Furnished herewith +21 +SIGNATURES +In accordance with Section 13 or 15(d) of the Exchange +Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th April 2025. +CYBER ENVIRO-TECH, INC. +By: +/s/ Kim D. Southworth +Kim D. Southworth +Chief Executive Officer +By: +/s/ Dan Leboffe +Dan Leboffe +Chief Financial Officer +Pursuant to the requirements of the Securities Exchange +Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities +and on the dates indicated. +Signature +Title +Date +/s/ Kim D. Southworth +Chief Executive Officer +April 14, 2025 +Kim D. Southworth +/s/ Dan Leboffe +Principal Accounting Officer +April +14, 2025 +Dan Leboffe +22 \ No newline at end of file diff --git a/raw/filings/0001935092/2024/0001079973-25-000641/filing_metadata.csv b/raw/filings/0001935092/2024/0001079973-25-000641/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..1a26c5b8966825f4784b731abdd8f41272d9de12 --- /dev/null +++ b/raw/filings/0001935092/2024/0001079973-25-000641/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935092,CETI,"Cyber Enviro-Tech, Inc.",2024,10-K,2025-04-14,2024-12-31,2025-04-14T21:25:00.000Z,0001079973-25-000641,ceti_10k.htm,FORM 10-K,6933858,1,1,https://www.sec.gov/Archives/edgar/data/1935092/000107997325000641/ceti_10k.htm,https://www.sec.gov/Archives/edgar/data/1935092/000107997325000641/ diff --git a/raw/filings/0001935092/2024/0001079973-25-000641/item1.txt b/raw/filings/0001935092/2024/0001079973-25-000641/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..d1c6610998b9b51c6b5319ddbb8f283b8551a370 --- /dev/null +++ b/raw/filings/0001935092/2024/0001079973-25-000641/item1.txt @@ -0,0 +1,83 @@ +Item 1. Business – OVERVIEW OF OUR COMPANY +Our Company +CYBER ENVIRO-TECH, INC. ("the Company", +"CETI") was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986 (“Inception”). +Cyber Enviro-Tech, Inc is a water science +technology company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas +industry. We are an emerging growth company with limited revenues and operating history. Our independent auditor has issued an audit +opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. Our pilot project +is an oil field in West Texas. We currently own the mineral rights to a 479- acre, 33-well, +located in Callahan County, Texas. This oil field operation known as the Alvey oil field is intended to be spun-off into a new +entity in the near future. This has been shown as discontinued operation in the accompanying consolidated financial statements. In +addition, the Company is continuing the development and testing of its water filtration machine in Texas as well as looking +to place its oil and soil remediation systems in the Middle East and its water remediation systems in the meat packing industry. +CETI is a 51% owner of CETI Axenic (“Axenic”). +Axenic was formed in 2024 and focuses on water remediation in the commercial laundry industry. Its day-to-day operations are run by other +personnel who are not officers of CETI which provides the ability for CETI to expand into another industry while not burdening its current +focus on water remediation for oil and gas, meat packing and municipalities. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., also referred to as “CETI” +and the “Company”, was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The company has never filed Bankruptcy or been involved in any +receiverships or similar proceedings. +Material reclassification ; +The Company has been known by a variety of names since its inception +in the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, Inc. (“Global”) +acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed its name to Cyber Enviro-Tech, +Inc. Below lists the names that the Company has been known as since inception as well as the dates those names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until April 30, 2021 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc April 1986 +Business of the Cyber Enviro-Tech, Inc.; +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We do +this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +waste water and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +Our pilot project was an oil field in West +Texas. We currently own the mineral rights to a 479- acre, 33-well, property located in Callahan +County, Texas. This oil field operation known as the Alvey oil field is intended to be spun-off into a new entity in the near future +and is shown as discontinued operations in the accompanying consolidated financial statements. In addition, the Company is +continuing the development and testing of its water filtration machine in Texas as well as looking to place its oil and soil +remediation systems in the Middle East and its water remediation systems in the meat packing industry and with municipalities. +Our focus for the current fiscal year will be on: +1) +Expanding our water and oil remediation operations in the Middle East and Texas +2) +Developing further tests +with at least one meat packing client +3) +Spin off the Alvey Oil Field and turning management over to +a third-party owner/operator. +1 +Sales Strategy – CETI’s B2B Sales +Strategy will include partnering with individuals and companies who have many years of experience and developed relationships within their +respective aforementioned targeted verticals. Prior knowledge of those specific industry issues, water filtration needs, history and relationships +developed over many years will enable them to shorten the sales cycle for our water filtration system. As of December 31, 2024 the Company +has independent services contracts with three individuals for its B2B sales strategy – two in oil and gas and one in the meat packing +industry – and another company for its overseas services in the Middle East. +Market Demand and Size - CETI’s water +filtration system can be modified to address many of the water contamination issues that exists anywhere in the world. The markets envisioned +for the CETI water filtration system, when funds permit, would be both domestic (U.S.) and global. +Government Regulation +We are subject to government regulations that +regulate businesses generally, such as compliance with regulatory requirements of federal, state, and local agencies and +authorities, including regulations concerning workplace safety and labor relations. In addition, our operations are affected by +federal and state laws relating to marketing practices in the oil industry and/or expansion of operations; a change to or changes +to government regulations; a general economic slowdown; a significant decrease in the price of West Texas Intermediate crude. Any +change in one or more of these factors could reduce our ability to earn and grow revenue in future periods. +Research and Development +For the year ending December 31, 2024, we spent +approximately $1.5 million in research and development of our oil/water filtration products and process. In addition, from 2021 +through December 31, 2024, approximately $3.4 million was invested in the Alvey Ranch Oil field to prove our new technologies in +opening up the downhole fractures and removing contaminants from the reservoir for increased oil production. The former has been +expensed and the latter capitalized. Currently the Alvey is being spun off into a separate company as the Company intends to focus +its efforts on water and oil/soil remediation. +Personnel +As of December 31, 2024, we have no employees but +the Company does have 11 full-time and part-time consultants. \ No newline at end of file diff --git a/raw/filings/0001935092/2024/0001079973-25-000641/item13.txt b/raw/filings/0001935092/2024/0001079973-25-000641/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..65225f526939c905a5199332c5dbecccb056dca3 --- /dev/null +++ b/raw/filings/0001935092/2024/0001079973-25-000641/item13.txt @@ -0,0 +1,2 @@ +Item 13. 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10-K +☒ ANNUAL +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 ,2025 +☐ TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number: 333-267560 +Cyber Enviro-Tech, Inc. +(Exact name of registrant as specified in its charter) +Wyoming +86-3601702 +(State or other +jurisdiction of +incorporation or organization) +(I.R.S. Employer +Identification No.) +6991 E. Camelback Road , +Suite D-300 +Scottsdale , AZ 85251 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area +code: ( 307 ) 200-2803 +Securities registered under Section 12(b) of the Exchange +Act: None +Securities registered under Section 12(g) of the Exchange +Act: Common Stock, par value $0.001 per share +Common Stock, par value $0.001 per share +(Title of Class) +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ +No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ +No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +Yes ☒ No ☐ +Indicate +by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, +to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this +Form 10-K or any amendment to this Form 10-K. ☐ +Indicate by check mark whether the registrant is +a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, +and “emerging growth company”, in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated filer ☐ (Do +not check if smaller reporting company) +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period +for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the consolidated financial statements +of the registrant included in the filing reflect the correction of an error to previously issued consolidated financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ +No ☒ +As +of June 30, 2025 (the last business day of the registrant's most recently second fiscal quarter), the aggregate market value, computed +by reference to the price at which the registrant's common equity was last sold, of the 29,528,327 shares of common stock held by non-affiliates +of the issuer on such date was $ 13,254,041 . +At May 19, 2026 there were 155,360,845 shares of +the registrant’s Common Stock issued and outstanding. +Cyber Enviro-Tech, Inc. +FORM 10-K +For The Fiscal Year Ended December 31, 2025 +PART I +1 +Item 1. +Business. +1 +Item 1A. +Risk Factors. +2 +Item 1B. +Unresolved Staff Comments. +2 +Item 1C. +Cybersecurity +2 +Item 2. +Properties. +3 +Item 3. +Legal Proceedings. +3 +Item 4. +Mine Safety Disclosures. +3 +PART II +4 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +4 +Item 6. +Selected Financial Data. +7 +Item 7. +Management’s Discussion And Analysis Of Financial Condition And Results Of Operations +7 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk. +12 +Item 8. +Consolidated Financial Statements and Supplementary Data. +F-1 +Item 9. +Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. +13 +Item 9A. +Controls and Procedures. +13 +Item 9B. +Other Information. +14 +PART III +14 +Item 10. +Directors, Executive Officers, and Corporate Governance. +14 +Item 11. +Executive Compensation. +16 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +17 +Item 13. +Certain Relationships and Related Transactions, and Director Independence. +17 +Item 14. +Principal Accountant Fees and Services. +17 +Item 15. +Exhibits. +18 +SIGNATURES +19 +i +Explanatory Note +In this Annual Report on Form 10-K, Cyber Enviro-Tech, +Inc. is sometimes referred to as the “Company”, “we”, “our”, “us” or “registrant” +and U.S. Securities and Exchange Commission is sometimes referred to as the “SEC”. +PART I +Item 1. Business – OVERVIEW OF OUR COMPANY +Our Company +CYBER ENVIRO-TECH, INC. ("the Company", +"CETI") was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986 (“Inception”). +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +are an emerging growth company with limited revenues and operating history. Our independent auditor has issued an audit opinion which +includes a statement expressing substantial doubt as to our ability to continue as a going concern. We owned an oil field in West Texas, +which we identified as our pilot project. We owned the mineral rights to a 479 acre, 33-well, located in Callahan County, Texas. +This oil field operation was known as the Alvey oil field and it was spun-off into a new entity on October 14, 2025. The Alvey project +was shown as discontinued operation in the accompanying consolidated financial statements for the year ended December 31, 2024. In addition, +the Company is continuing the development and testing of its water filtration machine as well as looking to place its oil and soil remediation +systems in the Middle East and its water remediation systems in the meat packing industry and with municipalities. +CETI is a 51% owner of CETI Axenic (“Axenic”). +Axenic was formed in 2024 and focused on water remediation in the commercial laundry industry. Axenic shut down operations effective +December 31, 2025. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., was founded in the State +of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The Company has never filed Bankruptcy or been involved in any +receiverships or similar proceedings. +Material reclassification ; +The Company has been known by a variety +of names since its inception in the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, +Inc. (“Global”) acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed +its name to Cyber Enviro-Tech, Inc. Below lists the names that the Company has been known as since inception as well as the dates those +names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until October 6, 2020 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc April 1986 +Business of Cyber Enviro-Tech, Inc.; +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +do this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +wastewater and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +1 +Our pilot project was an oil field in West Texas. +We owned the mineral rights to a 479 acre, 33-well, located in Callahan County, Texas. This oil field operation was known as the +Alvey oil field and it was spun-off into a new entity on October 14, 2025. The Alvey project was shown as discontinued operation in the +accompanying consolidated financial statements for the year ended December 31, 2024. In addition, the Company is continuing the development +and testing of its water filtration machine as well as looking to place its oil and soil remediation systems in the Middle East and its +water remediation systems in the meat packing industry and with municipalities. +Our focus for the current fiscal year will be on +water/oil remediation as opposed to oil production and we will focus on developing and expanding our water and oil/soil remediation technologies +both domestic and foreign. +Sales Strategy – CETI’s B2B Sales Strategy +includes partnering with individuals and companies who have many years of experience and developed relationships within their respective +targeted vertical markets. Prior knowledge of those specific industry issues, water filtration needs, history and relationships developed +over many years will enable them to shorten the sales cycle for our water filtration system. +Market Demand and Size - CETI’s water filtration +system can be modified to address many of the water contamination issues that exists worldwide. The markets envisioned for the CETI water +filtration system, when funds permit, would be both domestic (U.S.) and global. +Government Regulation +We are subject to government regulations that regulate +businesses generally, such as compliance with regulatory requirements of federal, state, and local agencies and authorities, including +regulations concerning workplace safety and labor relations. In addition, our operations are affected by federal and state laws relating +to marketing practices in the oil industry and/or expansion of operations; a change to or changes to government regulations; a general +economic slowdown; a significant decrease in the price of West Texas Intermediate crude. Any change in one or more of these factors could +reduce our ability to earn and grow revenue in future periods. +Research and Development +For the years ending December 31, 2025 and 2024, +we spent approximately $396k and $1.5 million in research and development of our oil/water filtration products and process, respectively. +In addition, from 2021 through December 31, 2024, approximately $3.4 million was invested in the Alvey Ranch Oil field to test our new +technologies in opening up the downhole fractures and removing contaminants from the reservoir for increased oil production. The former +has been expensed and the latter capitalized. Effective October 14, 2025, the Alvey oil field was spun off into a separate company as +the Company intends to focus its efforts on water and oil/soil remediation. +Personnel +As of December 31, 2025, we have no employees but +the Company does have 7 full-time and part-time consultants. +Item 1A. Risk Factors. +As a "smaller +reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +Cybersecurity Policy +Overview +Cyber Enviro-Tech, Inc. is committed to protecting +its information systems, customer data, and operational infrastructure through a robust cybersecurity framework. +Governance & Risk Management +The Board oversees cybersecurity strategy, with management ensuring compliance +and enforcement. Key measures include: +Risk Assessments: Continuous monitoring of threats and vulnerabilities. +Third-Party Security : Due diligence on vendors and partners. +Regulatory Compliance: Adherence to industry standards and legal +requirements. +2 +Data Protection +& Incident Response +CETI safeguards sensitive data with: +Encryption & Access Controls: Secure storage and restricted access. +Employee Training: Awareness programs on cyber threats. +Cybersecurity +Investments +CETI continuously enhances security through: +Advanced threat detection systems. +Collaboration with cybersecurity experts. +Forward-Looking +Statements +While CETI implements strong cybersecurity +measures, no system is completely immune to threats. The Company remains vigilant in strengthening its security post. +Item 2. Properties. +Our executive offices are located at 6991 E. Camelback +Road, Suite D-300, Scottsdale, AZ 85251. We rent an executive office at the cost of $125/month and it is rented on a month-to-month basis. +The directors and officers of the company generally work from their home offices. +On February 10, 2021, CETI entered into an +agreement with Danny Hyde, former operator of the Alvey Ranch oil field, to take over as the operator of record. Danny Hyde died +during 2021 and at the end of 2021, we renegotiated with the Estate of Danny Hyde (“EDH”) where CETI is to receive a +higher percentage of the Working Interest (gross revenue less royalty payments to the landowners). Of the 100% working interest +under the December 31, 2021 agreement between EDH and CETI, EDH receives 18.75% less its share of all operating costs, taxes, +shipping and other expenses associated with the rework, production and delivery of oil from the existing wells on the Alvey Oil +Field. Said 18.75% working interest is to be paid in perpetuity. The remaining 81.25% working interest is to be paid to CETI less +its share of taxes, shipping and other expenses associated with the rework, production and delivery of oil from the existing wells +on the Alvey oil field. For any new wells put into production by CETI, the working interest to EHD, less all its expenses, is 5%. In +addition to the working interest payments due to EDH from well production, EDH will receive $450,000 to be paid in installments. As +of December 31, 2024, the remaining amount owed is $343,500. This note was sold as part of the Alvey spinoff transaction which +closed on October 14, 2025. +In February 2025, CETI formed a wholly-owned Turkish +subsidiary, Cyber International Ltd, with an office in Istanbul. There are no operations yet, however the entity was formed +to enable CETI to effectively manage its international contacts. +In June 2025, CETI formed a wholly-owned UAE +subsidiary, CETI International Environmental Solutions Inc, with an office in Dubai. There are no operations yet, however the +entity was formed to enable CETI to effectively manage its international contacts. Our efforts to conduct business in the Middle +East may be delayed by geopolitical instability, military conflict involving Iran, regional security concerns, sanctions, travel restrictions, +banking limitations, customer delays, or changes in government approvals. +Item 3. Legal Proceedings. +We are litigating a lawsuit against West Fox SWD, +LLC, involving claims/counterclaims relating to lease of a saltwater disposal well near Ratliff City, OK. The subject property was discovered +to be unsuitable for CETI’s purposes due to environmental concerns. CETI terminated the lease for cause, leading to this dispute +with the owner/lessor. Each party claims damages against the other in the range of $135k-$200k. Settlement negotiations are in progress. +Item 4. Mine Safety Disclosures +Not applicable to smaller reporting companies. +3 +PART II +Item 5. Market for Registrant ’ s Common +Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our common stock was approved for listing on +the OTC Bulletin Board under the symbol CETI on October 6, 2020. As of December 31, 2025, there were 509 active shareholders +and the total shares outstanding of 128,889,309. The transfer agent for our common stock is Pacific Stock Transfer 6725 Via +Austin Parkway Suite 300, Las Vegas, Nevada 98119. +The following table shows the reported high and low +closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board for the periods indicated. +Quotations reflect inter-dealer prices, without markup, markdown or commissions and may not represent actual transactions. +Fiscal Year Ended December 31, 2025 +HIGH +LOW +Fourth Quarter +$ 0.19 +$ 0.17 +Third Quarter +$ 0.38 +$ 0.35 +Second Quarter +$ 0.75 +$ 0.73 +First Quarter +$ 0.31 +$ 0.29 +Trades in our common stock may be subject to Rule +15g-9 under the Exchange Act, which imposes requirements on broker-dealers who sell securities subject to the rule to persons other than +established customers and accredited investors. For transactions covered by the rule, broker-dealers must make a special suitability +determination for purchasers of the securities and receive the purchaser's written agreement to the transaction before the sale. +Our shares are subject to rules applicable to "penny +stock" which pertain to any equity security with a market price less than $5.00 per share or an exercise price of less than $5.00 +per share. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure +document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock +market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, +and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's +account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the +broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the +purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity +in our shares. +Dividend Policy +We have not paid or declared any cash dividends on +our common stock in the past and do not foresee doing so in the foreseeable future. We intend to retain any future earnings for +the operation and expansion of our business. Any decision as to future payment of dividends will depend on the available earnings, +the capital requirements of our Company, our general financial condition and other factors deemed pertinent by our Board of Directors. +4 +Sales +of Unregistered Securities +Date +of Transaction +Transaction +type (e.g. new issuance, cancellation, shares returned to treasury) +Number +of Shares Issued (or cancelled) +Class +of Securities +Value +of shares issued ($/per share) at Issuance +Individual/ +Entity Shares were issued to (entities must have individual with voting / investment control disclosed) +Reason +for share issuance (e.g. for cash or debt conversion) -OR- Nature of Services Provided +Restricted +or Unrestricted as of this filing +2/25/2025 +New +168,860 +Common +0.15 +Mark Mitrev +Debt conv +Restricted +2/25/2025 +New +84,804 +Common +0.25 +Markl Family Living Trust, Barry Markl +Debt conv +Restricted +2/25/2025 +New +1,991,931 +Common +0.001 +Kaybrook Client Group LLC, Harry Datys +Services +Restricted +3/20/2025 +New +113,317 +Common +0.1 +Craig Cox +Debt conv +Restricted +3/20/2025 +New +63,295 +Common +0.2 +Dan’l Mitchell +Debt conv +Restricted +3/20/2025 +New +136,450 +Common +0.2 +Dr. Sea Sport, Steve Mikulak +Debt conv +Restricted +3/20/2025 +New +218,276 +Common +0.25 +Nick Frost +Debt conv +Restricted +3/20/2025 +New +269,830 +Common +0.2 +Jim Wade +Debt conv +Restricted +3/20/2025 +New +130,885 +Common +0.2 +Robert Romanchek +Debt conv +Restricted +4/1/2025 +New +127,050 +Common +0 +Cynthia Gosnell +Debt conv +Restricted +4/1/2025 +New +27,905 +Common +0.2 +Kimberly Dukes +Debt conv +Restricted +4/1/2025 +New +109,488 +Common +0.25 +Greg Paloolian +Debt conv +Restricted +45748 +New +173713 +Common +0.15 +Justin Tripp +Debt conv +Restricted +4/1/2025 +New +449,109 +Common +0.25 +Jeffrey J. Jorgenson +Debt conv +Restricted +4/1/2025 +New +1,202,716 +Common +0.1285 +Jeffrey J. Jorgenson +Debt conv +Restricted +4/1/2025 +New +34,693 +Common +0.15 +Carlos Eduardo Garcia Enriquez +Debt conv +Restricted +5/20/2025 +New +50,537 +Common +0.20 +Jill Mossman +Debt conv +Restricted +5/20/2025 +New +561044 +Common +0.1 +Fredric Colman +Debt conv +Restricted +5/20/2025 +New +1,153,696 +Common +0.10 +Gerald Quave Jr. +Debt conv +Restricted +5/20/2025 +New +138206 +Common +0.2 +Tahoe Sunrise LLC, Mark Schimpf +Debt conv +Restricted +5/20/2025 +New +138,016 +Common +0.20 +Tahoe Shores LLC, Mark Schimpf +Debt conv +Restricted +5/20/2025 +New +256,248 +Common +0.20 +NW Realty Advisors 401K Plan, Michael Dunn +Debt conv +Restricted +5/30/2025 +New +135,546 +Common +0.20 +JPM Property Holdings, James MacPherson +Debt conv +Restricted +5/30/2025 +New +241,736 +Common +0.25 +Justin Tripp +Debt conv +Restricted +5 +Date +of Transaction +Transaction +type (e.g. new issuance, cancellation, shares returned to treasury) +Number +of Shares Issued (or cancelled) +Class +of Securities +Value +of shares issued ($/per share) at Issuance +Individual/ +Entity Shares were issued to (entities must have individual with voting / investment control disclosed) +Reason +for share issuance (e.g. for cash or debt conversion) -OR- Nature of Services Provided +Restricted +or Unrestricted as of this filing +9/20/2025 +New +129,125 +Common +0.20 +Casper-Stone Holdings +Services +Restricted +9/20/2025 +New +800,000 +Common +0.20 +David Townley Paton +Cash +Restricted +9/20/2025 +New +201,928 +Common +0.25 +Michael & Judith Mendoza Revocable Living Trust dated 8 March 2004, Michael Mendoza, trustee +Debt conv +Restricted +9/20/2025 +New +201,620 +Common +0.25 +Jim Wade +Debt conv +Restricted +9/20/2025 +New +130,177 +Common +0.20 +Grant Gardner +Debt conv +Restricted +9/20/2025 +New +130,260 +Common +0.20 +Ryan Gardner +Debt conv +Restricted +9/26/2025 +New +292,630 +Common +0.20 +Scott Jasper +Debt conv +Restricted +9/26/2025 +New +563,120 +Common +0.10 +Scott Jasper +Debt conv +Restricted +9/26/2025 +New +583,549 +Common +0.0888 +Scott Jasper +Debt conv +Restricted +9/26/2025 +New +562,680 +Common +0.10 +Gerald Quave Jr. +Debt conv +Restricted +9/26/2025 +New +582,809 +Common +0.0888 +Gerald Quave Jr. +Debt conv +Restricted +9/26/2025 +New +582,932 +Common +0.0888 +Joseph Kutilek +Debt conv +Restricted +9/26/2025 +New +582,932 +Common +0.0888 +Joseph Seeman +Debt conv +Restricted +9/26/2025 +New +582,192 +Common +0.0888 +Larry Grillo +Debt conv +Restricted +9/30/2025 +New +2,736,585 +Common +0.001 +Kaybrook Client Group LLC, Harry Datys +Services +Restricted +9/30/2025 +New +582,932 +Common +0.0888 +Joel Gale +Debt conv +Restricted +9/30/2025 +New +100,000 +Common +0.20 +Eric Ingram +Cash +Restricted +9/30/2025 +New +582,809 +Common +0.0888 +Barry Donner +Debt conv +Restricted +9/30/2025 +New +50,813 +Common +0.20 +Casper-Stone Holdings +Services +Restricted +9/30/2025 +New +1,060,000 +Common +0.20 +Jeff J. Jorgenson +Debt conv +Restricted +9/30/2025 +New +581,822 +Common +0.0888 +Charles Merkel +Debt conv +Restricted +12/1/2025 +New +103,748 +Common +Dick Living Trust, dated 9/4/2003, and fifth amendment and restatement dated 10/20/2023, Cameron Dick, +trustee +Debt conv +Restricted +12/1/2025 +New +62,739 +Common +0.20 +Casper-Stone Holdings +Services +Restricted +12/1/2025 +New +52,500 +Common +0.20 +Marshall Welch +Services +Restricted +12/1/2025 +New +750,000 +Common +0.00 +Gary E Smith TTEE U/A DTD 05/14/93 Gary E Smith Living Trust +Debt conv +Restricted +12/1/2025 +New +162,500 +Common +0.20 +Marshall Welch +Services +Restricted +12/31/2025 +New +11,147,804 +Common +0.1 +DePrima-Donnelly Family Trust dated July 3rd, 2019, Anthony Deprima, trustee +Debt conv +Restricted +12/31/2025 +New +30,000 +Common +0.001 +Louis DeLeon +Interest +Restricted +12/31/2025 +New +60,000 +Common +0.001 +DePrima-Donnelly Family Trust dated July 3rd, 2019, Anthony Deprima, trustee +Interest +Restricted +12/31/2025 +New +30,000 +Common +0.001 +James P. Wagner +Interest +Restricted +12/31/2025 +New +60,000 +Common +0.001 +Neil Superfon +Interest +Restricted +6 +Securities authorized for issuance +under equity compensation plans +The Company has not +reserved any securities for issuance under equity compensation plans for any officers, directors or any beneficial owners. The individuals +below are consultants and part of their compensation is in stock as follows: +On July 27, 2025 the +Company entered into a consulting agreement with Marshall Welch, for professional services wherein the Company paid 50,000 +common shares. +On August 23, 2025 the +Company entered into a consulting agreement with Deborah Casper-Stone, for professional services wherein the Company paid 50,000 common +shares. +Purchases of Equity Securities by the +Issuer and Affiliated Purchasers +None. +Holders of Record +There were 509 and 494 record holders as of December +31, 2025 and 2024, respectively, of the Company’s common stock. +Item 6. Selected Financial Data. +As a "smaller +reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +Item 7. Management ’ s Discussion and +Analysis of Financial Condition and Results of Operations +The following discussion and analysis should be read +in conjunction with our consolidated financial statements, including the notes thereto, appearing in this Form 10-K and are hereby referenced. +The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could +differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences +include, but are not limited to, those discussed below and elsewhere in this report. You should not place undue certainty on these forward-looking +statements, which apply only as of the date of this report. We believe it is important to communicate our expectations. However, our +management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or +otherwise. +These forward-looking statements are based on our +management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ +materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot +assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify a forward-looking +statement by the use of the forward-terminology, including words such as “may”, “will”, “believes”, +“anticipates”, “estimates”, “expects”, “continues”, “should”, “seeks”, +“intends”, “plans”, and/or words of similar import, or the negative of these words and phrases or other variations +of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results +of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative +expenses; our ability to maintain and develop relationship with our existing and potential future customers, and, our ability to maintain +a level of investment that is required to remain competitive. Many factors could cause our actual results to differ materially from those +projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; +risks associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption +of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic +events; general economic conditions, government mandates; and, the continued employment of our key personnel and other risks associated +with competition. +GENERAL OVERVIEW +Business Background +Cyber Enviro-Tech, Inc. is a publicly held Wyoming +water technology Company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & +gas industry. +Our principal executive office is located at Cyber +Enviro-Tech, Inc., 6991 E. Camelback Road, Suite D-300, Scottsdale, Arizona 85251. Our telephone number is 866 687-6856. We +maintain our statutory registered agent's office at Registered Agents Inc. 30 N Gould St Ste R Sheridan, WY 82801 USA Telephone Number. +(307) 200-2803 +On June 12, 2020, the District Court of Laramie County, +Wyoming appointed Benjamin Berry of Synergy Management Group LLC (“Synergy”) as custodian of the Company. +7 +On September 3, 2020, Synergy and Global Environmental +Technologies, Inc. (“Global”), entered into a Securities Purchase Agreement, whereby Synergy sold its one share of Special +Series A preferred stock and one-half share of Series C preferred stock to Global Environmental Technologies, Inc. +On September 23, 2020, the Company entered into a +share exchange agreement with Global Environmental Technologies, Inc., (“Global”) a Wyoming corporation. Per the terms of +the agreement, NexGen Holdings Corp exchanged thirty-five shares of common stock for one share of Global. +On October 6, 2020, the Company formally changed +its name with the State of Wyoming from NexGen Holdings Corp to Cyber Enviro-Tech, Inc. +DESCRIPTION OF BUSINESS +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +do this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +wastewater and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +The Alvey Oil Field was originally acquired by +CETI as a pilot site to test and refine its proprietary oil production enhancement technologies. Those efforts proved instrumental in demonstrating broader +applications—extending beyond oil field optimization into large-scale remediation of contaminated oil, sludge, soil, and wastewater. +As CETI’s technology and strategy have evolved, the Alvey asset no longer aligned with the Company’s core focus +On October 14, 2025, CETI exchanged all assets related to the Alvey oil field operation for 8,600,000 common shares of West Texas +Resources Incorporated, (“WTXR”). By spinning off the Alvey asset, CETI can fully dedicate its resources to advancing +a growing portfolio of domestic and international remediation projects. At the same time, CETI and its shareholders retain the opportunity +to participate in the future value of the Alvey Oil Field through its continued development by a company with expertise in oil and gas +production—ensuring the asset has a better chance to realize its full potential while CETI concentrates on its primary growth markets. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., also referred to as “CETI” +and the “Company”, was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The Company has never filed Bankruptcy or been involved in any receiverships +or similar proceedings. +Material reclassification ; +The Company has been known by a variety of names +since its inception in the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, +Inc (“Global”) acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed +its name to Cyber Enviro-Tech, Inc. Below lists the names that the Company has been known as since inception as well as the dates those +names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until October 6, 2020 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc. April 1986 +Business of the Cyber Enviro-Tech, Inc. +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +do this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +wastewater and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +8 +On March 23, 2026 we announced we entered +into a manufacturing and distribution agreement with AirPower USA, securing exclusive territory rights to manufacture and distribute +compressed-air-powered energy generation systems across key international markets. This agreement provides CETI with a tangible, revenue-oriented +platform through the deployment of AirPower's clean energy generation technology. The Company expects initial project activity and potential +deployments in the second half of 2026, aligning with CETI's broader strategy to prioritize revenue-producing opportunities and scalable +environmental solutions. +CETI continues to evaluate its existing +remediation business while expanding its environmental footprint into complementary sectors, including clean power generation and sustainable +infrastructure solutions. The Company intends to leverage its established international relationships to support distribution, project +development, and market entry initiatives for AirPower systems. +Building on this momentum, CETI has +multiple projects in its development pipeline that are expected to come online during the second half of 2026, positioning the +Company for potential revenue growth and expanded commercial traction. +Sales Strategy – CETI’s B2B Sales +Strategy will include partnering with individuals and companies who have many years of experience and developed relationships within +their respective aforementioned targeted verticals. Prior knowledge of those specific industry issues, water filtration needs, history +and relationships developed over many years will enable them to shorten the sales cycle for our water filtration system. As of May 19, +2026, the Company has agreements with several individuals who are pursuing a variety of opportunities but no contracts have been ratified +so far. +Market Demand and Size - CETI’s water +filtration system can be modified to address many of the water contamination issues that exist worldwide. The markets envisioned for +the CETI water system when funds permit would be both domestic (U.S.) and global. +9 +Results of Operations for the Years Ending +December 31, 2025 and 2024 +Twelve Months Ended +Twelve Months Ended +December 31, 2025 +December 31, 2024 +$ +% +Revenue: +Gross sales +$ — +$ — +$ — +0.00 % +Cost of sales +— +— +— +0.00 % +Gross margin +— +— +— +0.00 % +Operating Expenses: +Professional fees +343,498 +131,054 +212,444 +162.1 % +General and administrative +993,291 +1,051,798 +(58,507 ) +-5.6 % +Consulting +1,779,681 +1,666,553 +113,128 +6.8 % +Total operating expenses +3,116,470 +2,849,405 +267,065 +9.4 % +Loss from continuing operations +(3,116,470 ) +(2,849,405 ) +(267,065 ) +9.4 % +Other Income (Expense): +Change in fair value of derivatives +(179,252 ) +161,122 +(340,374 ) +-211.3 % +Loss on issuance of derivative +(2,068,536 ) +(191,162 ) +(1,877,374 ) +1193.5 % +Gain on extinguishment of derivative liability +1,431,541 +264,539 +1,167,002 +441.1 % +Unrealized loss on investment WTXR +(147,435 ) +— +(147,435 ) +100.0 % +Change in fair value of contingent liability +(47,500 ) +(437,500 ) +390,000 +-89.1 % +Loss on impairment of assets +(579,957 ) +(957,377 ) +377,420 +-39.4 % +Amortization of intangible assets +— +(112,850 ) +112,850 +-100.0 % +Interest income +12,564 +10,768 +1,796 +16.7 % +Interest expense +(1,464,963 ) +(759,013 ) +(705,950 ) +93.0 % +Total other income (expense) +(3,043,538 ) +(2,021,473 ) +(1,022,065 ) +50.6 % +Loss from continuing operations +(6,160,008 ) +(4,870,878 ) +(1,289,130 ) +26.5 % +Discontinued Operations: +Loss from discontinued operations +(1,462,514 ) +(1,495,106 ) +32,592 +-2.2 % +Loss on sale of Axenic +(18,451 ) +— +(18,451 ) +100.0 % +Loss from discontinued operations +(1,480,965 ) +(1,495,106 ) +14,141 +-0.9 % +Net loss +(7,640,973 ) +(6,365,984 ) +(1,274,989 ) +20.0 % +Net loss attributable: +Net loss attributable to noncontrolling interest +(89,057 ) +(12,815 ) +(76,242 ) +594.9 % +Net loss attributable to common stockholders +(7,551,916 ) +(6,353,169 ) +(1,198,747 ) +18.9 % +Net loss +$ (7,640,973 ) +$ (6,365,984 ) +$ (1,274,989 ) +20.0 % +General and Administrative Expenses . +General and administrative expenses for the year ended December 31, 2025 were down by $58,507 or 5.6% vs 2024 largely due to a decrease +in Meat Packing Testing of $150k and decrease in Advertising & Marketing expenses of $90k which were offset by increase of $61k for +travel. The Meat Packing Plant testing fees were paid to Texas Tech to provide independent validation of our process and products in +the meat packing industry. The Advertising was from payments to a company to assist in the marketing of CETI stock. +Professional fees . These fees increased +by $212,444 or 162.1%, due to increased audit and audit-related fees of $44k, legal fees of $156k and professional fees of $15k which +include fees for the S1 preparation and supervision of soil testing. Legal fees include costs related to a lawsuit which arose from the +Company’s withdrawal of a project of a salt water disposal facility in Oklahoma and general legal services related to standard +corporate compliance. +Consulting fees . The increase of $113,128 +or 6.8% primarily due to consulting fees related to international business efforts offset by the reduction in consulting fees associated +with the Alvey oil field efforts. A total of $497k and $238k are from non-cash, stock-b ased compensation, +for the years ended December 31, 2025 and 2024, respectively. This compensation is mostly due to marketing services and the increase +in 2025 is mostly due to amortization of warrants given for these services (approximately $164K). +10 +Other Income (Expense). Total decline +in other income and expense, net increased by $1,022,065 or 50,6%. Other income and expense items are primarily made up of items related +to interest expense and derivative accounting. For the derivative related accounts, these are driven by loans whereas the lender has a +conversion component if the loan is not paid off. Historically the Company has always repaid the debt instead of allowing a conversion. +However, for accounting purposes, we must account for the potential conversion. During the year ended December 31, 2025, seven new loans +were executed resulting in a $2.1M increase in loss on issuance of derivatives. Additionally, during the twelve months ended December +31, 2025, three loans were paid off resulting in a $1.4M increase in gain on extinguishment of derivative liability. The decline in amortization +of intangible assets relates to assets which were acquired in 2023 and fully amortized as of December 31, 2024. Lastly, interest expense +increased by $706k due to a larger number of convertible notes with derivative components outstanding during full year 2025 as compared +to 2024. +Two other significant items in this category relate +to the loss on impairment of assets and the change in fair value of contingent liabilities. There is a loss on impairment of assets of +$580K in 2025 which is due to the write down to market value of equipment while the 2024 write off of $957k is due to a write off of intangible +assets due to insolvency of the company from which CETI purchased licensing rights. While the intellectual property acquired by the Company +still has value to CETI, it was decided to take the conservative approach and write off the rest of the value of $957,377 as of December +31, 2024. The change in fair value of contingent liability is largely related to stock guarantees to certain investors and represents +the additional stock compensation that would have been due as of December 31, 2025 and 2024, respectively, if the guarantee were valued +at that time. +Discontinued Operations . Effective +October 14, 2025 the Company completed its spinoff of the Alvey oil field operation to Texas Coastal Energy, Corp. (TCEC). +The Alvey oil field was originally acquired by +CETI as a pilot site to test and refine its proprietary oil production enhancement technologies. Those efforts proved instrumental in +demonstrating broader applications—extending beyond oil field optimization into large-scale remediation of contaminated oil, sludge, +soil, and wastewater. As CETI’s technology and strategy have evolved, the Alvey asset no longer aligned with the Company’s +core focus. By spinning off the Alvey asset, CETI can fully dedicate its resources to advancing a growing portfolio of domestic and international +remediation projects. At the same time, CETI and its shareholders retain the opportunity to participate in the future value of the Alvey +oil field through its continued development by a company with expertise in oil and gas production—ensuring the asset has a better +chance to realize its full potential while CETI concentrates on its primary growth markets.  +The assets, liabilities and results of operations +related to Alvey, previously shown in discontinued operations, have been removed from Cyber Enviro-Tech, Inc. consolidated results of +operations. +Net Loss. The above changes resulted +in a year over year increase in net loss of $1,274,989. +Liquidity and Capital Resources +Our principal sources of liquidity are cash and cash +equivalents on hand, cash generated from operations and investors, and available borrowing capacity under our credit facilities. As of +December 31, 2025, we had $50,230 of cash and cash equivalents. These resources are not sufficient to meet our working capital requirements, +capital expenditures, contractual obligations, and other cash needs. The Company must continue to raise capital to facilitate our business +operations for the next 12 months. We believe our ability to achieve commercial success and continued growth will be dependent upon our +continued access to capital either through sale of additional convertible debentures, sale of our equity or cash generated from operations. +We will attempt to obtain additional capital through private investors; however, we have no agreements or understandings with third parties +at this time in regards to investing additional monies. +11 +As of December 31, 2025, the Company had total +assets of $1,989,348 including current assets of $738,117. Current liabilities total $2,628,563 which consist of accounts payable of $569,660, +accrued interest of $309,487, short-term loans of $367,472, convertible notes payable of $1,169,944 net of discount of $263,018 and contingent +liabilities of $190,000. Long-term liabilities of $2,462,009 include convertible notes of $1,390,065 net of discount of $274,416 and derivative +liability of $1,071,944. +Net cash used in operating activities was +$2.9M for the year ended December 31, 2025, compared to $3.5M for the prior year. The change in operating cash flow was primarily driven +by loss on issuance of derivatives ($2.1M), loss on sale of Alvey oil field ($1.2M), and amortization of debt discount ($0.9M) offsetting +gain on extinguishment of derivatives liability ($1.4M) and change in fair value of derivatives ($0.2M). In addition, the net loss for +2025 was $1.3M greater than 2024. +Net cash used in investing activities was $1.0M +for the year ended December 31, 2025 compared to $308K in the prior year. Investing cash flows primarily consisted of $861K from purchase +of PPE, $100K for deposit on an asset and $25K cash issued for notes receivable. +Net cash used in financing activities was $3.9M +for the year ended December 31, 2025, compared to $2.5M in the prior year. Financing cash flows primarily consisted of $3.6M in proceeds +from convertible notes. +The Company’s consolidated financial +statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge +its liabilities and commitments in the normal course of business for the foreseeable future. The Company does not yet have sufficient +revenue to cover its operating expenses. These factors raise substantial doubt about the Company’s ability to continue as a going +concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or to obtain +the necessary financing to meet the Company’s obligations and repay its liabilities arising from normal business operations when +they come due. Management intends to finance operating costs over the next twelve months with increased revenue and private placement +loans or institutional investors. While the Company believes that it will be successful in obtaining the necessary financing and generating +revenue to fund the Company’s operations, meet regulatory requirements and achieve commercial goals, there are no assurances that +such additional funding will be achieved and that the Company will succeed in its future operations. +ITEM 7A. QUANTITATIVE +AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +As a "smaller reporting +company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. +12 +ITEM 8. CONSOLIDATED +FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. +Our consolidated financial statements for +the fiscal years ended December 31, 2025 and 2024 are attached hereto. +TABLE OF CONTENTS +Consolidated +Financial Statements +Page +Number +Report of Independent Registered Public +Accounting Firm (PCAOB ID 6920 ) +F-2 +Consolidated Balance Sheets as +of December 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations +for the years ended December 31, 2025 and 2024 +F-4 +Consolidated Statements of Stockholders’ +Deficit for the years ended December 31, 2025 and 2024 +F-5 +Consolidated Statements of Cash Flows +for the years ended December 31, 2025 and 2024 +F-6 +Notes to Consolidated Financial Statements +F-7 to F-19 +F- 1 +REPORT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and +Stockholders of Cyber Enviro-Tech, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Cyber +Enviro-Tech, Inc. (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes and schedules +(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, +in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and +its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally +accepted in the United States of America. +Substantial Doubt about the Company’s Ability to Continue as +a Going Concern +The accompanying consolidated financial statements have been prepared +assuming that the Company will continue as a going concern. As discussed in Note 3, the Company has not begun to generate sufficient +revenues to fund operations and will need additional financing in order to execute its business plan. These conditions raise substantial +doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments +that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the +Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based +on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. +Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements +are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal +control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material +misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those +risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well +as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis +for our opinion. +We have served as the Company’s auditor since 2024. +Astra Audit & Advisory +Tampa, Florida +May 19, 2026 +F- 2 +CYBER ENVIRO-TECH, INC. +CONSOLIDATED BALANCE SHEETS +AS OF DECEMBER 31, 2025 AND 2024 +December 31, 2025 +December 31, 2024 +ASSETS +Current Assets: +Cash and cash equivalents +$ 50,230 +$ 59,411 +Accounts receivable +— +— +Loans receivable +215,000 +190,000 +Investment in WTXR +203,368 +— +Prepaid expenses and other current assets +269,519 +457,768 +Total current assets +738,117 +707,179 +Property and equipment, net +1,151,231 +776,560 +Long term deposit +100,000 +— +Assets of discontinued operations, non-current +— +2,081,952 +Total Assets +$ 1,989,348 +$ 3,565,691 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current Liabilities: +Accounts payable +$ 359,490 +$ 105,042 +Accounts payable - related parties +210,170 +137,690 +Accrued interest +309,487 +204,760 +Note payable, current maturities +199,001 +188,061 +Note payable, related party, net of discount of nil +0 at December 31, 2025 and $ 8,277 +at December 31, 2024 +168,471 +145,712 +Convertible notes payable, net of discount of $ 263,018 at December 31, 2025 and $ 24,400 at December 31, 2024 +1,169,944 +815,863 +Convertible notes payable – related parties +22,000 +22,000 +Contingent liabilities +190,000 +437,500 +Liabilities of discontinued operations, current +— +369,000 +Liabilities of discontinued operations, current – related parties +— +30,000 +Total current liabilities +2,628,563 +2,455,628 +Convertible notes payable, net of discount of $ 274,416 at December 31, 2025 and $ 318,779 at December 31, 2024 +1,390,065 +1,127,621 +Derivative liability +1,071,944 +387,238 +Liabilities of discontinued operations, non-current +— +97,463 +Total Liabilities +5,090,572 +4,067,950 +Commitments and contingencies (Note 4) +Stockholders’ Deficit: +Series A Convertible Preferred Stock, par value $ 0.001 , 200,000 shares authorized; 16,671 shares issued and outstanding +17 +17 +Series B Convertible Preferred Stock, par value $ 0.001 , 85,000 shares authorized; 1 share issued and outstanding +— +— +Series C Non-convertible, Preferred Stock, par value $ 0.001 , 50,000 shares authorized; 0.5 shares issued and outstanding +— +— +Special 2020 Series A Preferred Stock, par value $ 0.0001 , 1 +— +— +share authorized; 1 share issued and 0 outstanding +Common Stock, par value $ 0.001 , 350,000,000 shares authorized; 128,889,309 and 108,159,556 shares issued and outstanding, for the period ended December 31, 2025 and December 31, 2024, respectively +128,904 +108,120 +Additional paid-in capital +15,978,681 +12,165,669 +Common stock to be issued +1,611,148 +373,443 +Treasury stock, at cost +( 66,400 ) +( 66,400 ) +Accumulated deficit +( 20,753,574 ) +( 13,129,093 ) +Controlling interest +( 3,101,224 ) +( 548,244 ) +Non-controlling interest +— +45,985 +Total Stockholders’ Deficit +( 3,101,224 ) +( 502,259 ) +Total Liabilities and Stockholders’ Deficit +$ 1,989,348 +$ 3,565,691 +The accompanying notes are an integral part of +these audited consolidated financial statements +F- 3 +CYBER ENVIRO-TECH, INC. +CONSOLIDATED STATEMENTS +OF OPERATIONS +FOR THE YEARS ENDING DECEMBER 31, 2025 AND 2024 +Twelve Months Ending +December 31, 2025 +December 31, 2024 +Revenue: +Gross Sales +$ — +$ — +Cost of Sales +— +— +Gross Margin +— +— +Operating Expenses: +Professional fees +343,498 +131,054 +General and administrative +993,291 +1,051,798 +Consulting +1,779,681 +1,666,553 +Total operating expenses +3,116,470 +2,849,405 +Operating loss from continuing operations +( 3,116,470 ) +( 2,849,405 ) +Other Income (Expense): +Change in fair value of derivatives +( 179,252 ) +161,122 +Change in fair value of contingent liabilities +( 47,500 ) +( 437,500 ) +Loss on issuance of derivative +( 2,068,536 ) +( 191,162 ) +Loss on impairment of assets +( 579,957 ) +( 957,377 ) +Unrealized loss on investment in WTXR +( 147,435 ) +— +Gain on extinguishment of derivative liability +1,431,541 +264,539 +Amortization of intangible assets +— +( 112,850 ) +Interest income +12,564 +10,768 +Interest expense +( 1,464,963 ) +( 759,013 ) +Total other expense, net +( 3,043,538 ) +( 2,021,473 ) +Loss from continuing operations +( 6,160,008 ) +( 4,870,878 ) +Discontinued Operations: +Loss from discontinued operations +( 1,462,514 ) +( 1,495,106 ) +Loss from shutdown of Axenic +( 18,451 ) +— +Total Discontinued Operations +( 1,480,965 ) +( 1,495,106 ) +Net loss before income taxes +( 7,640,973 ) +( 6,365,984 ) +Provision for income taxes +— +— +Net Loss +$ ( 7,640,973 ) +$ ( 6,365,984 ) +Net loss attributable: +Loss attributable to noncontrolling interest +$ ( 89,057 ) +$ ( 12,815 ) +Net loss attributable to common stockholders +( 7,551,916 ) +( 6,353,169 ) +Net loss +$ ( 7,640,973 ) +$ ( 6,365,984 ) +Loss per share, basic and diluted +$ ( 0.07 ) +$ ( 0.07 ) +Weighted average shares outstanding, basic and diluted +115,064,908 +92,515,600 +The accompanying notes are an integral part of +these audited consolidated financial statements +F- 4 +CYBER ENVIRO-TECH, INC. +CONSOLIDATED STATEMENTS OF +STOCKHOLDERS’ DEFICIT +FOR THE YEARS ENDING DECEMBER 31, 2025 AND 2024 +Preferred +Common +Stock +Common +Stock to be Issued +Unrealized +Accumulated +Non-Controlling +Description +Shares +Amt +Shares +Amt +APIC +Shares +Amt +Treasury +Loss +Deficit +Interest +Total +Balance, December 31, 2023 +16,671 +$ +17 +77,467,573 +$ +77,468 +$ +7,801,868 +8,173,019 +$ +933,489 +$ +( 66,400 +) +0 +$ +( 6,775,924 +) +— +$ +1,970,518 +Warrants issued for services +— +— +— +— +215,962 +— +— +— +— +— +— +215,962 +Warrants issued for convertible notes payable +— +— +— +— +33,056 +— +— +— +— +— +— +33,056 +Shares issued for cash +— +— +834,000 +834 +149,166 +— +— +— +— +— +— +150,000 +Shares issued for services +— +— +250,000 +250 +77,250 +990,668 +261,400 +— +— +— +— +338,900 +Shares issued for interest +— +— +1,437,918 +1,396 +182,302 +( 9,730 +) +( 1,409 +) +— +— +— +— +182,289 +Shares issued for conversion of convertible notes payable +— +— +28,170,065 +28,172 +3,644,865 +( 7,199,707 +) +( 820,037 +) +— +— +— +— +2,853,000 +Noncontrolling interest +— +— +— +— +61,200 +— +— +— +— +— +58,800 +120,000 +Net loss +— +— +— +— +— +— +— +— +— +( 6,353,169 +) +( 12,815 +) +( 6,365,984 +) +Balance, December 31, 2024 +16,671 +$ +17 +108,159,556 +$ +108,120 +$ +12,165,669 +1,954,250 +$ +373,443 +$ +( 66,400 +) +$ +— +$ +( 13,129,093 +) +$ +45,985 +$ +( 502,259 +) +Balance, December 31, 2024 +16,671 +$ +17 +108,159,556 +$ +108,120 +$ +12,165,669 +1,954,250 +$ +373,443 +$ +( 66,400 +) +0 +$ +( 13,129,093 +) +$ +45,985 +$ +( 502,259 +) +Shares issued for cash +— +— +900,000 +900 +179,100 +100,000 +20,000 +— +— +— +— +200,000 +Shares issued for services +— +— +457,675 +459 +90,033 +256,430 +86,643 +— +— +— +— +177,135 +Warrants issued for services +— +— +4,728,515 +4,781 +24,206 +— +— +— +— +— +— +28,987 +Shares issued for interest +— +— +847,554 +848 +116,450 +1,349,341 +151,062 +— +— +— +— +268,360 +Shares issued for conversion of notes payable +— +— +1,000,000 +1,000 +199,000 +( 1,000,000 +) +( 200,000 +) +— +— +— +— +— +Shares issued for conversion of convertible notes +payable +— +— +12,796,008 +12,796 +2,946,238 +11,003,331 +1,180,000 +— +— +— +— +4,139,034 +Net loss +— +— +— +— +— +— +— +— +— +( 7,551,916 +) +( 89,057 +) +( 7,640,973 +) +Liquidation of noncontrolling interest +— +— +— +— +257,984 +— +— +— +— +( 72,567 +) +43,072 +228,489 +Balance, December 31, 2025 +16,671 +$ +17 +128,889,308 +$ +128,904 +$ +15,978,681 +13,663,352 +$ +1,611,148 +$ +( 66,400 +) +$ +( 147,435 +) +$ +( 20,753,574 +) +$ +( 0 +) +$ +( 3,101,224 +) +The accompanying notes are an integral part of +these audited consolidated financial statements +F- 5 +CYBER ENVIRO-TECH, INC. +CONSOLIDATED STATEMENTS OF +CASH FLOWS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +For the Twelve Months Ending +December 31, 2025 +December 31, 2024 +Cash Flows from Operating Activities +Net loss +$ ( 7,640,973 ) +$ ( 6,365,984 ) +Adjustments to reconcile net loss to net cash used by operating activities: +Depreciation and amortization +26,722 +112,850 +Change in fair value of derivatives +179,252 +( 161,122 ) +Change in fair value of contingent liability +47,500 +— +Loss on issuance of derivative +2,068,536 +191,162 +Gain on extinguishment of derivative liability +( 1,431,541 ) +( 264,539 ) +Loss on impairment of assets +579,957 +957,377 +Loss on shutdown of Axenic +18,451 +— +Loss on sale of Alvey oil field +1,241,110 +— +Loss on investment in WTXR +147,435 +— +Bad debt expense +123,076 +— +Shares issued for services +— +267,500 +Stock compensation +177,135 +— +Warrants issued for services +28,987 +53,991 +Amortization of debt discount +933,116 +294,222 +Changes in operating assets and liabilities: +Prepaid expenses and other current assets +163,250 +395,737 +Contingent liability +( 100,000 ) +437,500 +Accounts payable +272,227 +222,587 +Accrued interest +280,420 +361,979 +Net cash used in operating activities +( 2,885,340 ) +( 3,496,740 ) +Cash Flows from Investing Activities +Purchase or capitalization of property and equipment +( 861,350 ) +( 338,001 ) +Cash issued for deposit on asset +( 100,000 ) +— +Cash issued for loans receivable +( 25,000 ) +( 90,000 ) +Cash received from non-controlling interest contribution +— +120,000 +Net cash used from investing activities +( 986,350 ) +( 308,001 ) +Cash Flows from Financing Activities +Shares issued for cash +200,000 +— +Proceeds from issuance of common stock +— +150,000 +Proceeds from notes payable +517,562 +183,061 +Proceeds from convertible notes payable +3,570,800 +2,582,650 +Proceeds from notes payable, related party +14,482 +— +Repayment of convertible notes payable +( 284,313 ) +( 277,638 ) +Repayment of note payable +( 129,242 ) +( 95,000 ) +Net cash provided by financing activities +3,889,289 +2,543,073 +Net change in cash and cash equivalents from continuing operations +$ 17,599 +$ ( 1,261,668 ) +Cash Flows from Discontinued Operations +Net change in operating activities from discontinued operations +( 26,780 ) +1,301,882 +- +- +Net change in investing activities from discontinued operations +— +( 220,220 ) +Net change in cash and cash equivalents from discontinued operations +$ ( 26,780 ) +$ 1,081,662 +Net change in cash and cash equivalents +( 9,181 ) +( 180,006 ) +Cash at beginning of period +59,411 +239,417 +Cash at end of period +$ 50,230 +$ 59,411 +Supplemental Cash Flow Information +Cash paid for interest +$ 19,156 +$ — +Non-cash investing and financing activities: +Shares issued for conversion of convertible notes payable and accrued interest +$ 4,139,034 +$ 1,695,000 +Shares issued for accrued interest +$ 268,360 +$ 253,842 +Shares issued for contingent liability +$ 195,000 +$ — +Derivative liability +$ 1,035,000 +$ — +Debt discount on convertible notes payable +$ ( 1,504,245 ) +$ 337,889 +The accompanying notes are an integral part of +these audited consolidated financial statements. +F- 6 +CYBER ENVIRO-TECH, INC. +CONSOLIDATED NOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +NOTE 1 – ORGANIZATION AND DESCRIPTION +OF BUSINESS +Cyber Enviro-Tech, Inc. (the “Company”) +(CETI) Cyber Enviro-Tech, Inc is a water science technology company focusing on the remediation of contaminated industrial wastewater +with an initial emphasis on the oil & gas industry. We do this by integrating technologies to include cyber, aerospace, satellite, +industrial and AI engineering telemetry. Our water filtration, wastewater and alternative energy systems will have neural sensors, controls +and networks - all connected to a cellular device. The corporate headquarters is in Scottsdale, Arizona and it also has satellite offices +in Istanbul, Turkey and Dubai, UAE. +NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING +POLICIES +Basis of presentation +The Company’s consolidated financial +statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. +GAAP”). +Principles of Consolidation +The consolidated financial statements include +the accounts of CETI and CETI Axenic, Inc (“Axenic”). Axenic is a majority owned subsidiary of CETI which discontinued operations +on December 31, 2025. All significant intercompany balances and transactions have been eliminated for 2025 and 2024. As of December 31, +2025, the investment in Axenic has been written off resulting in a nil balance. +Use of estimates +The preparation of consolidated financial +statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets +and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported +amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +Revenue recognition +The Company recognizes revenue in accordance +with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” (“Topic +606”). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires +disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount +of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies +the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination +of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) +measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to +the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. +The Company only applies the five-step model +to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services +it transfers to the customer. Once a contract is determined to be within the scope of Topic 606 at contract inception, the Company reviews +the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. +The Company expects to recognize revenues as the amount of the transaction price that is allocated to the respective performance obligation +when the performance obligation is satisfied or as it is satisfied. +The Company recognizes sales when oil is picked +up by the delivery company and control passes to the customer. +Advertising Policy +The Company expenses advertising and public relations +costs, including costs associated with press release distribution and investor awareness activities, as incurred. Such costs are included +in general and administrative expenses in the consolidated statements of operations. Advertising and promotional costs were not significant +for the years ended December 31, 2025 and 2024. +Cash equivalents +The Company considers all highly liquid investments +with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at December 31, 2025 and +2024. +F- 7 +Investments +The Company accounts for investments in accordance +with U.S. GAAP. Equity securities are measured at fair value, with changes in fair value recognized in earnings as a component of other +income (expense), net. Equity investments without readily determinable fair values are recorded at cost, less impairment, and adjusted +for observable price changes in orderly transactions for identical or similar securities of the same issuer. The Company reviews investments +for impairment each reporting period. +The Company determines the fair value of its +investments in accordance with ASC 820, Fair Value Measurement . Investments are classified within the fair value hierarchy based +on the lowest level of input that is significant to the fair value measurement. Investments valued using quoted prices in active markets +for identical securities are classified as Level 1. Investments valued using observable inputs other than quoted prices in active markets +are classified as Level 2. Investments valued using significant unobservable inputs, including management assumptions, discounts for +lack of marketability, limited trading volume, restrictions on transfer, or valuation techniques prepared with the assistance of a valuation +specialist, are classified as Level 3. +As of December 31, 2025, the Company’s +investment in West Texas Resources, Inc. (“WTXR”) was measured at fair value and classified as a Level 3 investment. Although +WTXR’s common stock is quoted on the OTC market, the stock is thinly traded and the Company’s fair value determination was +not based solely on the quoted market price. The Company considered available market data and other valuation inputs, including the limited +trading activity of WTXR’s common stock and other relevant factors, in determining fair value. As of December 31, 2025, the carrying +value of the Company’s investment in WTXR was $ 203,368 . During the year ended December 31, 2025, the Company recognized an unrealized +loss of $ 147,435 related to its investment in WTXR, which is included in other income (expense), net in the consolidated statements of +operations. +Property and Equipment +Property and equipment is recorded at cost. +Cost of improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed +when incurred. When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed +from their respective accounts. Assets are depreciated over a five to twenty year period of time, depending upon the estimated useful +life of the assets, on a straight-line basis. +Discontinued Operations +A component of an entity that is disposed of by sale +or abandonment is reported as discontinued operations if the transaction represents a strategic shift that will have a major effect on +an entity's operations and financial results. The results of discontinued operations are aggregated and presented separately in the Consolidated +Statement of Operations. Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities +of discontinued operations in the Consolidated Balance Sheets, including the comparative prior year period. +Loans Receivable +In November 2023 and March 2024, CETI provided +two Short-Term Capital Bridge Loan totaling $ 190,000 to Sedar Gurel, Founder and CEO of DELTA Cervresel Solusyonlari ve Makinalar A.S. +a Turkish Corporation ("DELTA"). The notes are currently due and are accruing simple interest at 6 % per annum. Interest income +was $ 11,400 and $ 10,425 for years ending December 31, 2025 and 2024, respectively. DELTA is a significant partner in CETI’s overseas +operations and the Company does not have any concern about the collectability of the Company’s loans. Interest income receivable +is part of prepaid and other current assets on the balance sheets. +CETI provided a Short-Term Capital Bridge Loan +totaling $ 25,000 to Donald Goree, CEO of West Texas Resources, Inc. (OTCID: WTXR). The loan is currently due and is accruing simple interest +at 9 % per annum. Interest income was $ 1,479 for the year ended December 31, 2025. Interest income receivable is part of prepaid and other +current assets on the balance sheets. +Impairment of Long-Lived Assets +In accordance with authoritative guidance +on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability +of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment +loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this +occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of +the assets. +F- 8 +Accounting for Majority-Owned Subsidiary +The Company consolidates the financial statements +of majority-owned subsidiaries in accordance with U.S. GAAP. A subsidiary is classified as majority-owned when the Company owns more +than 50% of its voting shares, giving it control over the subsidiary's operations and financial policies. +In the consolidated financial statements, all intercompany +transactions, balances, and unrealized gains and losses on transactions between the Company and its subsidiaries have been eliminated. +The financial position, results of operations, and cash flows of each majority-owned subsidiary are fully consolidated with the portion +attributable to non-controlling interests presented as a separate line item in the equity section of the consolidated balance sheets +and as a separate component of net loss in the Consolidated Statements of Operations. +CETI is a 51% owner of Axenic which was formed in +2024 and to focus on water remediation in the commercial laundry industry. Its day-to-day operations are run by other personnel who are +not officers of CETI which provides the ability for CETI to expand into another industry while not burdening its current focus on water +remediation for oil and gas, meat packing and municipalities. +The consolidated financial statements include the +accounts of CETI and Axenic. Axenic is a majority owned subsidiary of CETI which discontinued operations on December 31, 2025. All significant +intercompany balances and transactions have been eliminated for 2025 and 2024. As of December 31, 2025, the investment in Axenic has +been written off resulting in a nil balance. The Company had non-controlling interest of $ 45,985 as of December 31, 2024. +Stock-based Compensation +The Company applies the fair value method +of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Share +Based Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured at +the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The +Company values stock-based compensation at the market price for the Company’s common stock and other pertinent factors at the grant +date. During the years ended December 31, 2025 and 2024, the Company recorded $ 496,664 and $ 694,328 in stock-based compensation expense, +respectively. +Fair Value of Financial Instruments +The Company adopted ASC 820, “ Fair +Value Measurements .” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes +a fair value hierarchy to classify the inputs used in measuring fair value as follows: +Level 1: +Quoted market +prices available in active markets for identical assets or liabilities as of the reporting date. +Level 2: +Pricing inputs other than +quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. +Level 3: +Pricing inputs that are +generally unobservable inputs and not corroborated by market data. +The carrying amount of the Company’s +financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short +maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments as the notes bear +interest rates that are consistent with current market rates. +The Company evaluates convertible instruments, +options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives +to be separately accounted for under ASC 815, “Derivatives and Hedging”. The result of this accounting treatment is +that the fair value of the derivative is marked to market each balance sheet date and recorded as a liability. In the event that the +fair value is recorded as a liability, the change in fair value is recorded in the Consolidated Statements of Operations as other income +(expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and +then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification +under ASC 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. +F- 9 +The following table classifies the Company’s +liability measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2025: +Schedule of derivative liability +Description +Level 1 +Level 2 +Level 3 +Total +Derivative +$ — +$ — +$ 1,071,944 +$ 1,071,944 +Total +$ — +$ — +$ 1,071,944 +$ 1,071,944 +The following table classifies the Company’s +liability measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2024: +Description +Level 1 +Level 2 +Level 3 +Total +Derivative +$ — +$ — +$ 387,238 +$ 387,238 +Total +$ — +$ — +$ 387,238 +$ 387,238 +Income taxes +Income taxes are accounted for under the asset +and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences +between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, +capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measures using enacted tax rates expected to apply +to the taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred +tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. +The Company recognizes the effect of income +tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the +largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in +which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of +general and administrative expenses. The Company’s federal tax return and any state tax returns are not currently under examination. +The Company has adopted ASC 740, “ Accounting +for Income Taxes ,” which requires an asset and lability approach to financial accounting and reporting for income taxes. Deferred +income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and +liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods +in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred +tax assets to the amount expected to be realized. +Net income (loss) per common share +Under the provisions of ASC 260, “ Earnings +per Share ”, basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average +number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that +could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance +of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The following potential common +shares were excluded from the calculation of diluted net income (loss) per share available to common stockholders because their effect +would have been antidilutive: +Schedule of diluted net income (loss) per share available to common stockholders +Year ended December 31, +2025 +2024 +Warrants +677,778 +4,950,000 +Stock options +1,000,000 +1,000,000 +Convertible notes payable +35,856,883 +34,842,243 +Common stock to be issued +13,663,352 +2,973,132 +Preferred stock +50,012,000 +50,012,000 +Embedded derivatives +31,204,555 +3,543,165 +Total +132,414,568 +97,320,540 +F- 10 +Concentration of credit risks +The Company maintains accounts with financial +institutions. All cash in checking accounts is non-interest bearing and is fully secured by the Federal Deposit Insurance Corporation +(FDIC). At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes +it mitigates its risk by depositing its cash and cash equivalents with major financial institutions. +Segment Reporting +The Company has determined that it has one reportable +segment, which includes industrial water remediation. The single segment was identified based on how the Chief Operating Decision +Maker, who was determined to be the Chief Executive Officer, manages and evaluates performance and allocates resources. +The Company operates as one reportable segment: industrial +water remediation. The Company’s Chief Executive Officer has been identified as the chief operating decision maker (“CODM”). +The CODM assesses performance and allocates resources based on the Company’s consolidated operating results. The measure of segment +profit or loss reviewed by the CODM is consolidated net loss, as reported in the consolidated statements of operations. Because the Company +has one reportable segment, all required segment financial information is presented in the consolidated financial statements. The Company +does not separately report significant segment expenses to the CODM other than those reflected in the consolidated statements of operations. +The Company’s segment assets are consistent with total assets reported in the consolidated balance sheets. +Geographic Information +The Company had no revenue from customers outside +the United States during the year ended December 31, 2025. As of December 31, 2025, long-lived assets located outside the United States +consisted of a demonstration machine used in the Company’s water filtration process located in Mardin, Turkey, with a carrying +value of $916,512 plus equipment for a Cl02 plant of $115,000 for a total of $1,031,512. The Company also maintains offices in Istanbul, +Turkey and Dubai, United Arab Emirates; however, these offices did not generate revenue and did not incur significant expenses during +the year ended December 31, 2025. +Derivatives +The Company evaluates convertible debt and other +financial instruments to determine whether they contain embedded features requiring separate accounting as derivative liabilities under +U.S. GAAP. Derivative liabilities, including embedded conversion features that do not qualify for equity classification, are initially +recorded at fair value and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings. Upon conversion, +settlement, or extinguishment, the related derivative liability is remeasured and any resulting gain or loss is recognized in earnings. +Convertible Debt +Effective January 1, 2025, the Company adopted ASU +2024-04, Induced Conversions of Convertible Debt Instruments , which clarifies the accounting guidance for settlements of convertible +debt instruments that occur after the adoption of ASU 2020-06. The amendments specify that an issuer must apply the induced-conversion +model when it offers a sweetener or other consideration that is incentive-based and is not required under the original contractual terms +of the instrument, regardless of whether the settlement is structured as a conversion or as an extinguishment of the debt. The Company +adopted the amendments using the prospective approach. Adoption of ASU 2024-04 did not have a material impact on the Company’s +consolidated financial statements for the year ended December 31, 2025. +Recently issued accounting pronouncements +The Company has implemented all new accounting pronouncements +that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, +and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material +impact on its financial position or results of operations. +In July 2025, the FASB issued ASU 2025-05, “ Financial +Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ”. The +update introduces two major simplifications to the CECL model for current accounts receivable and contract assets, aiming to reduce +cost and complexity—especially for private companies and NFPs. This pronouncement becomes effective for fiscal years beginning +after December 15, 2025. The Company does not believe this accounting pronouncement will have a material impact +on its financial position or results of operations. +NOTE 3 – GOING CONCERN +The Company’s consolidated financial +statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge +its liabilities and commitments in the normal course of business for the foreseeable future. The Company does not yet have sufficient +revenue to cover its operating expenses . These factors raise substantial doubt about the Company’s ability to continue +as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or +to obtain the necessary financing to meet the Company’s obligations and repay its liabilities arising from normal business operations +when they come due. Management intends to finance operating costs over the next twelve months with increased revenue and private placement +loans or institutional investors. While the Company believes that it will be successful in obtaining the necessary financing and generating +revenue to fund the Company’s operations, meet regulatory requirements and achieve commercial goals, there are no assurances that +such additional funding will be achieved and that the Company will succeed in its future operations. +The consolidated financial statements of the +Company do not include any adjustments that may result from the outcome of these uncertainties. +NOTE 4 – COMMITMENTS AND CONTINGENCIES +During the normal course of business, the +Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in +accordance with ASC 450, Contingencies . The Company evaluates its exposure to the matter, possible legal or settlement strategies +and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably +estimated, it establishes the necessary accruals. As of December 31, 2025 and December 31, 2024, the Company is not aware of any contingent +liabilities related to potential litigation that should be reflected in the consolidated financial statements. +In February 2022 and February 2023, CETI entered +into agreements with two different investors offering them a stock guarantee on share price within a three-year period of time. The first +investor’s shares in February 2022, came due in February 2025 and CETI entered into an agreement to pay $100,000 in cash and shares +to satisfy that guarantee. For the second investor, the Company accrued a liability as of December 31, 2025 and 2024 for the difference +between share price on those dates and the guaranteed share price. The remaining guarantee is reported as Contingent liability of $ 190,000 +at December 31, 2025. The two guarantees were reported as Contingent liabilities of $ 437,500 at December 31, 2024. +F- 11 +On December 9, 2024, CETI entered into an +agreement with a company to provide consulting services to obtain funding of at least $ 25 million or more to fund CETI’s projects +in the Middle East. The compensation under this agreement was $65,000 plus 0.5% of any monies raised. As of April 14, 2026, no money +has been raised and the Company does not expect to raise capital under this agreement. +On December 21, 2024, CETI entered into a Financial +Consulting Engagement Agreement (FCEA) to provide consulting services and identify potential sources of private and/or public financing +of up to 50 million in British pound sterling The retainer fee was $35,000 and the success fee is 5% of the total money raised payable +at 1% a year for five years. As of April 14, 2026, no money has been raised and the Company does not expect to raise capital under this +agreement. +NOTE 5 – PROPERTY AND EQUIPMENT +As of December 31, 2025 and December 31, 2024, property +and equipment consisted of the following: +Schedule of property and equipment +December +31, 2025 +December +31, 2024 +Useful lifes +Equipment +$ 140,441 +$ 600,398 +5 to 20 years +Equipment - Turkey +1,031,512 +170,162 +5 to 20 years +Vehicles +6,000 +6,000 +5 to 15 years +Less accumulated depreciation +( 26,722 ) +— +Total +$ 1,151,231 +$ 776,560 +Depreciation expense for 2025 was $ 26,722 . In 2024, +no assets were placed in service for continuing operations so there is no depreciation expense. +NOTE 6 – INTANGIBLE ASSETS +The intangible assets consist of exclusive licenses +for United States distribution obtained by the Company from KAM Biotechnology Ltd (“KAM”) in May 2023 and the agreement has +a term of ten years. The asset is stated at the fair value of $ 758,501 , less amortization from May to December of $ 50,567 , for a net +of $ 707,934 . In October 2023, CETI signed an additional agreement with KAM for secured worldwide rights to most the licenses over a ten-year +period of time and outright purchase of one license. CETI gave KAM 1,000,000 share of common stock which were valued at $ 0.37 /share at +the date of the transaction for a total of $ 370,000 , less amortization from October to December of $ 7,708 , for a net of $ 362,292 . This, +combined with the initial license acquisition, resulted in a total Intangible assets net balance of $ 1,070,226 as of December 31, 2023. +For the year ending December 31, 2024, there was a total amortization of intangible assets of $ 112,850 resulting in net tangible asset +balance of $ 957,377 at December 31, 2024. However, during 2024, KAM was declared insolvent. Intellectual property acquired +by the Company was written off in the amount of $ 957,377 as of December 31, 2024. +NOTE 7 – DEBT +Schedule of debt +December 31, 2025 +December 31, 2024 +Notes Payable +$ 199,001 +$ 188,061 +Note payable - related party +168,471 +153,989 +Convertible notes payable +3,097,443 +2,262,263 +Convertible notes payable - related party +22,000 +22,000 +3,486,916 +2,626,313 +Debt discount +( 537,434 ) +( 327,056 ) +Total Debt +$ 2,949,481 +$ 2,299,257 +Short term +2,045,166 +1,171,636 +Long term +904,315 +1,127,621 +Total Debt +$ 2,949,481 +$ 2,299,257 +The following is a schedule of long-term debt and +the years in which it is scheduled to mature: +Schedule of debt maturity +Amount +2026 +$ +2,045,166 +2027 +904,315 +2028 +— +$ +2,949,481 +F- 12 +Notes payable +In February 2021, the Company purchased certain +oil and gas production equipment in the Alvey Oil Field. The total purchase price was $ 450,000 ($ 389,046 after discount). As of December +31, 2024 and 2023, the Company had repaid $ 106,500 leaving a balance of $ 343,500 . The remaining amount due was to be paid in installments. +However, no further payments have been made as the parties are discussing the amount due the Company for operational expenses which exceed +the amount the Company owes to the Estate of Danny Hyde, the creditor. This debt was sold to West Texas Coastal as part of the Alvey +spin off which was effective October 14, 2025. +In September 2023, +a related party issued a loan to the Company for a total amount of $ 153,989 . The loan has a 12.5 % interest rate and is currently past +due as of December 31,2025 and is currently in default. In +addition, in 2025, there was $ 14,482 accrued for expenses owed in the wind down of Axenic and part of this incurs interest at 8 % . +In December 2023, the Company borrowed $ 100,000 from +an individual with $ 62,000 and $ 100,000 outstanding as of December 31, 2025 and 2024, respectively. This loan does not have an expiration +date and accrues interest at $ 250 day, of which $ 50 will be paid in cash and $ 200 in stock at $ 0.15 a share, when paid plus an additional +$ 7,500 in cash. Accrued interest was $ 34,375 and $ 16,125 at December 31, 2025 and 2024, respectively. +In March 2024, the Company had two loans payable +to an individual totaling $ 90,000 . One loan of $ 50,000 was paid off in September 2024 and the other note principal +balance was paid off in January 2025 and accrued interest of $ 35,900 remains due as of December 31, 2025. Accrued interest was +$ 69,500 as of December 31, 2024. Each loan accrued interest at $ 125 a day and $ 39,000 and $ 6,500 of interest was paid in 2025 and 2024, +respectively. +In December 2025, the Company had four loans +payable to four individuals totaling $ 60,000 . +Each loan will have monthly payments beginning first full month following the commencement of revenues from a project with an amount +equal to 10% of net revenue. Payments shall continue until 200% of the original loan principal is paid. Two loans will also each +have 30,000 shares of common stock at par value ($0.001), one loan will have 60,000 shares of common and the last loan will have +160,000 shares of common. The term will remain open until earlier of capital is paid in full or 5 years. The value of the shares for the first two loans is $5,025, the third +loan is $6,000 and the last loan is $9,600. +The Company had an outstanding balance on its line +of credit of $ 54,381 and $ 48,061 as of December 31, 2025 and 2024, respectively, included in the notes payable, current maturities line of the balance +sheet of $ 199,001 and $ 188,081 . This is a revolving line of credit with a total line of $55,000 and an interest rate of 8.5%. +Convertible notes payable +In 2020, the Company executed a convertible note +payable with a related party for $ 25,000 that is unsecured, non-interest bearing and convertible into shares of common stock at $ 0.001 . +In 2023, $ 3,000 of this note was converted into 3,000,000 shares of common stock. The note matured on September 23, 2020 and is currently +in default. +During 2024, the Company raised a net of $ 2,582,650 +from 47 convertible notes payable. The notes included a 8 % +interest rate and conversion rate between $ 0.10 +- $ 0.25 , with +the exception of eight notes – For six notes totaling $ 750,000 , +they have the following terms, $ 150,000 of +these notes bear interest at 10% and were payable at maturity of September 2024. The notes are convertible into common stock +at issuer’s option beginning thirty days after issuance at $ 0.35 +share. In addition, a total of 150,000 +common shares were issued in April 2024 as additional loan incentive. For $ 300,000 +of these notes, the interest rate was 9 % +with varying maturities in 2026 plus a total of 300,000 +warrants priced at $0.80/share. The remaining $300,000 of these notes were at 10% interest with varying maturities in 2025 and 2026. +For the two notes totaling $ 173,650 , they bear interest at 8 % +and are paid back in installments which began on October 30, 2024 and December 30, 2024, respectively. The outstanding balance as of +December 31, 2024 was $2,262,263 +including accrued interest of $ 68,750 . Amortization +discount totaling $ 294,222 was recorded during the year ended December 31, 2024. +During 2024, the Company converted $ 3,673,037 +of convertible notes payable, and accrued interest, into 28,170,065 +shares of common stock. As of December 31, 2024, convertible notes payable outstanding consist of short-term convertible notes payable +of $ 815,863 +(net of discount of $ 24,400 ) +and long-term convertible notes payable of $ 1,127,621 +(net of discount of $ 318,779 ). +During 2025, the Company raised a net of $ 3,632,744 +from 45 convertible notes payable. The notes included an 8 % +interest rate and conversion rate between $ 0.08 +- $ 0.25 , +with +the exception of seven notes totaling $714,744 which have a stated interest rate of 12% and are paid back in installments which began +on July 15, 2025 and the final payment is due January 2027. The balance outstanding on these seven loans was $ 609,944 +and $ 65,263 +at December 31, 2025 and 2024, respectively. +During 2025, the Company converted $ 1,180,000 +of convertible notes payable, and accrued interest, into 11,003,331 +shares of common stock. As of December 31, 2025, $ 3,097,444 remain outstanding consisting of short-term convertible +notes payable of $ 1,693,194 , +net of discount of $ 37,500 +and long-term convertible notes payable of $ 1,404,250 , +net of discount of $ 499,935 . +Amortization discount of $ 536,495 was recorded during the year ended December 31, 2025. +NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS +Embedded derivatives +Some of the Company’s convertible promissory notes +gave rise to derivative financial instruments which are based upon potential conversion if the loan is not paid off in cash or if the +lender converts to stock for repayment. Historically the Company has always repaid the debt instead of allowing a conversion. However, +for accounting purposes, we must account for the potential conversion. +F- 13 +The following tables summarize the components +of the Company’s derivative liabilities and linked common shares as of December 31, 2025 and 2024 and the amounts that were reflected +in income related to derivatives for the year ended: +Schedule of derivative liabilities +December +31, 2025 +The financings giving rise to derivative financial +instruments +Indexed +Shares +Fair +Values +Embedded derivatives +31,204,555 +$ 1,060,899 +Warrant derivatives +277,778 +11,045 +Total +31,482,333 +$ 1,071,944 +December +31, 2024 +The financings giving rise to derivative financial +instruments +Indexed +Shares +Fair +Values +Embedded derivatives +3,543,165 +$ 387,238 +Total +3,543,165 +$ 387,238 +The following table summarizes the effects on the +Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for +the years ended December 31, 2025 and 2024: +Schedule of changes in gain loss fair values of the derivative financial instruments +For the +Years Ended +December +31, 2025 +December +31, 2024 +Embedded derivatives +$ ( 204,186 ) +$ 161,122 +Warrant derivatives +24,934 +— +Loss on issuance of derivative +( 2,068,536 ) +( 191,162 ) +Total gain (loss) +$ ( 2,247,788 ) +$ ( 30,040 ) +Current accounting principles that are provided in +ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried +at fair value with changes recorded in income. The Company has selected the Monte Carlo Simulation Model, valuation technique to fair +value the embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of +assumption inputs, that market participants would likely consider in transactions involving embedded derivatives. Such assumptions include, +among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for +option models such as market trading volatility and risk-free rates. The Monte Carlo Simulation Model technique is a level three valuation +technique because it requires the development of significant internal assumptions in addition to observable market indicators. For instruments +in which the time to expiration has expired, the Company has utilized the intrinsic value as the fair value. The intrinsic value is the +difference between the quoted market price on the valuation date and the applicable conversion price. +Significant inputs and results arising from the Monte +Carlo Simulation process are as follows for the embedded derivatives that have been bifurcated from the convertible notes and classified +in liabilities: +Schedule of embedded derivatives +Inception Date January +3, 2025 Note +Inception Date June +10, 2025 Note +Inception Date September +22, 2025 Note +Inception Date November +11, 2025 Note +Quoted market price on valuation date +$ 0.2400 +$ 0.4625 +$ 0.1680 +$ 0.1400 +Effective contractual conversion rates +$ 0.1495 +$ 0.2665 +$ 0.0960 +$ 0.0840 +Contractual term to maturity +0.87 Years +0.87 Years +0.85 Years +1.00 Year +Market volatility: +Volatility +116.47 % - 291.91 % +148.93 % - 297.07 % +139.46 % - 196.42 % +108.20 % - 175.98 % +Risk-adjusted interest rate +12 % +12 % +12 % +12 % +Inception Date November +19, 2025 Note +Period Ended December +18, 2025 +Period Ended December +26, 2025 +Period Ended December +31, 2025 +Quoted market price on valuation date +$ 0.1300 +$ 0.0560 +$ 0.0480 +$ 0.0400 +Effective contractual conversion rates +$ 0.0860 +$ 0.0050 +$ 0.0310 +$ 0.005 - 0.0339 +Contractual term to maturity +0.75 Years +2.00 Years +0.84 Years +0.29 - 1.96 Years +Market volatility: +Volatility +181.77 % - 321.83 % +182.95 % - 307.62 % +202.62 % - 346.00 % +189.30 % - 380.88 % +Risk-adjusted interest rate +12 % +8 % +12 % +8 % - 12 % +F- 14 +The following table reflects the issuances of embedded +derivatives and changes in fair value inputs and assumptions related to the embedded derivatives as of December 31, 2025 and 2024. +Schedule of fair value assumptions +As of +December 31, 2025 +As of +December 31, 2024 +Balances at beginning of year +$ 387,238 +$ 217,177 +Issuances: +Embedded derivatives +2,259,520 +595,722 +Warrant derivatives +35,979 +— +Gain on extinguishment +( 1,431,541 ) +( 264,539 ) +Changes in fair value inputs and assumptions reflected in income +( 179,252 ) +( 161,122 ) +Balances at end of year +$ 1,071,944 +$ 387,238 +NOTE 9 – RELATED PARTY TRANSACTIONS +At December 31, 2025 and 2024, the Company had a +convertible note payable for $ 22,000 with a related party. The note is unsecured, non-interest bearing and is convertible into shares +of common stock at $ 0.001 and is in default. +In September 2023, a related party loaned $ 153,989 +to CETI. The loan term was two years and had interest only payments at 12.5 % . The first six months interest plus closing costs were paid +at time of closing. The closing costs and interest are being amortized over a six month and twenty-four month period of time, respectively. +This resulted in expenses of $ 8,277 and $ 15,638 as of December 31, 2025 and 2024, respectively. The net outstanding balance is $ 153,989 +and $ 145,712 at December 31, 2025 and 2024, respectively. This note is currently in default. +The Company paid various related parties for +consulting services in the amounts of $ 421,510 +and $ 409,850 , during +years ended December 31, 2025 and 2024, respectively. Some of these consulting fees were capitalized in property and equipment under +well development costs for the years ended December 31, 2025 and December 31, 2024, nil 0 and $ 30,000 , +respectively. Well Development costs were included in the spin off sale to West Texas Coastal which was effective October 14, 2025 +and no longer shows as discontinued operations on the consolidated balance sheets. +At December 31, 2025 and 2024, the Company had accounts +payable to various related parties for a total of $ 210,170 and $ 137,690 . +The above transactions and amounts are not necessarily +what third parties would have agreed to. +NOTE 10 – PREFERRED STOCK +Series A Convertible Preferred Stock +The Company previously designated 200,000 shares +of Preferred Stock as Series A Convertible Preferred Stock and had issued 200,000 shares. Voting Rights had been established whereby +one (1) share of Series A Convertible Preferred Stock has ten (10) equivalent votes of stockholders of the Company's common stock for +an aggregate of 10 votes. Each share of Series A Convertible Preferred Stock previously was convertible into ten (10) shares of the Company's +common stock. In event of the liquidation of the Company, the shareholders of Series A Convertible Preferred Stock would have preference +over the shareholders of the Company's common stock and all other series of Preferred Stock. +During 2023, the Company changed the terms of this +series of stock whereby one (1) share of Series A Convertible Preferred, after a minimum two-year holding period, can be converted into +three thousand (3,000) shares of the Company’s common stock and has the same equivalent voting rights. In October 2023, the three +top shareholders cancelled 50,000,000 shares of common stock and were issued 16,667 shares of Series A Convertible Preferred Stock. As +of December 31, 2025 and 2024, there are 16,671 shares of Series A Convertible Stock issued and outstanding. +During 2025, the lockup period for this series of +stock was extended for four more years, plus optional two-year extension, for any transfer or conversion applicable to all current Series +A shareholders as of December 19, 2025. This lockup period would also be applicable to any future holders of this stock. +F- 15 +Series B Convertible Preferred Stock +The Company previously designated 85,000 shares of +Preferred Stock as Series B Convertible Preferred Stock and had issued 67,448 shares. Holders of Series B Convertible Preferred Stock +had no voting Rights. Each share of Series B Preferred Stock previously was convertible into one (1) share of the Company's Common Stock. +In event of the liquidation of the Company, the shareholders of Series B Convertible Preferred Stock would have preference over the shareholders +of the Company's Common Stock and all other series of Preferred Stock except for the shareholders of Series A Convertible Preferred Stock. +As of December 31, 2025 and 2024, there is one 1 share of Series B Convertible Stock issued an outstanding. +Series C Non-Convertible Preferred Stock +The Company previously designated 50,000 +shares of Preferred Stock as Series C Non-Convertible Preferred Stock and issued all 50,000 shares. Holders +of Series C Non-Convertible Preferred Stock have 1,600 shares of voting Rights per share. Series C Non-Convertible Preferred Stock is +not convertible into any of the Company's Common Stock or other Series of Preferred Stock. In event of the liquidation of the +Company, the shareholders of Series C Non-Convertible Preferred Stock would have preference over the shareholders of the Company's Common +Stock and all other series of Preferred Stock except for the shareholders of Series A and Series B Convertible Preferred Stock. As of +December 31, 2025 and 2024, there is one-half share of Series C Convertible Stock issued an outstanding. +Special 2020 Series A Preferred +The Company has one share of preferred stock designated +as Special 2020 Series A Preferred , par value $ 0.0001 . The holder for the Special 2020 Series A Preferred shall vote with the +holders of both preferred and common stockholders as a single class. The holder is entitled to 60% of all votes. The one share of Series +A is convertible into 150,000,000 shares of common stock at any time and is not entitled to dividends. The Company purchased that one +series A preferred share for $ 66,400 . This share is now recorded as a Treasury stock. As of December 31, 2025 and 2024, there is 1 share +of Special 2020 Series A Preferred issued and 0 outstanding. +NOTE 11 – STOCK OPTIONS AND WARRANTS +Stock option activity for the years ended +December 31, 2025 and 2024 summarized as follows: +Schedule of stock option activity +Number of +Shares +Weighted +Average Exercise Price +Weighted +Average +Remaining +Contractual Life +Options +outstanding December 31, 2023 +— +— +— +Issued +1,000,000 +$ 0.3600 +1.42 +Exercised +— +— +— +Cancelled +— +— +— +Options +outstanding December 31, 2024 +1,000,000 +0.3600 +0.93 +Issued +— +— +— +Exercised +— +— +— +Cancelled +— +— +— +Options +outstanding December 31, 2025 +1,000,000 +0.3600 +0.42 +Options +exercisable December 31, 2025 +1,000,000 +$ 0.3600 +0.42 +In connection with a different consulting agreement +dated March 1, 2023, the Company initially agreed to pay 2,000,000 shares of common stock, along with a monthly consulting fee. +This common stock was valued at $ 0.42 on the date of the agreement and was amortized equally over the six-month agreement. On July 1, +2023, the Company and consultant decided to amend the agreement so that the consultant would receive 3,250,000 warrants valued at $ 0.001 +in replacement for the stock and extend the agreement until June 30, 2024. The agreement was amended again on September 15, 2023 resulting +in an additional 500,000 warrants being issued and the agreement extended until September 15, 2024. This resulted in an additional $ 602,179 +in consulting expenses which will be equally amortized over the following twelve months. The agreement was extended again on November +1, 2024 with another 800,000 warrants being issued valued at $ 215,962 and amortized equally over the eight-month term of the extended +agreement. +During the years ended December 31, 2025 and +2024, the Company issued an aggregate 277,778 and 1,200,000 warrants in connection with convertible notes, respectively. +Significant range of inputs and results arising from +the Black-Scholes process are as follows for the warrants: +Schedule of assumptions +Quoted market price on valuation date +$ 0.231 - 0.3100 +Effective contractual strike price +$ 0.0013 +- 0.80 +Market volatility +373 % - 401 % +Contractual term to maturity +2 Years +Risk-adjusted interest rate +3.98 % - 4.87 % +Stock warrant activity for the years ended +December 31, 2025 and 2024 is summarized as follows: +Schedule of stock warrant activity +Number +of Shares +Weighted +Average Exercise Price +Weighted +Average Remaining Contractual Life +Warrants exercisable December 31, +2023 +3,750,000 +$ +0.001 +1.50 +Issued +1,200,000 +— +— +Exercised +— +— +— +Cancelled +— +— +— +Warrants outstanding December 31, 2024 +4,950,000 +0.001 +0.82 +Warrants outstanding December 31, 2024 +4,950,000 +$ +0.001 +0.82 +Warrants exercisable December 31, 2024 +4,950,000 +$ +0.001 +3.00 +Issued +277,778 +0.200 +— +Exercised +4,550,000 +— +— +Cancelled +— +— +— +Warrants outstanding December 31, 2025 +677,778 +0.550 +1.65 +Warrants exercisable December 31, 2025 +677,778 +0.550 +1.65 +NOTE 12 – DISCONTINUED OPERATIONS +In 2023, CETI was planning to spin-off the Alvey +oil field operations into a new entity. Accordingly, the Company has categorized Alvey as discontinued operations in the consolidated +financial statements for the years ended December 31, 2025 and 2024 . +Effective October 14, 2025 the +Company completed its spinoff of the Alvey oil field operation to Texas Coastal Energy, Corp. (TCEC) in exchange for 8,600,000 shares +of West Texas Resources, Inc (OTCID: WTXR). While this transaction was being negotiated, TCEC completed +a reverse merger through which it assumed control and operational stewardship of West Texas Resources, Inc. Operating under the WTXR +banner, the company has expanded its portfolio of producing oil and gas wells and reinforced its strategy to revitalize legacy oil fields +across Texas. The acquisition of the Alvey oil field further accelerates WTXR’s growth trajectory. +The Alvey oil field was originally acquired by +CETI as a pilot site to test and refine its proprietary oil production enhancement technologies. Those efforts proved instrumental in demonstrating broader +applications—extending beyond oil field optimization into large-scale remediation of contaminated oil, sludge, soil, and wastewater. +As CETI’s technology and strategy have evolved, the Alvey asset no longer aligned with the Company’s core focus. By +spinning off the Alvey asset, CETI can fully dedicate its resources to advancing a growing portfolio of domestic and international remediation +projects. At the same time, CETI and its shareholders retain the opportunity to participate in the future value of the Alvey oil field +through its continued development by a company with deep expertise in oil and gas production—ensuring the asset has a better chance +to realize its full potential while CETI concentrates on its primary growth markets.  +F- 16 +The assets, liabilities and results of operations related +to Alvey, previously shown in discontinued operations, have been removed from Cyber Enviro-Tech, Inc. consolidated results +of operations for the year ended December 31, 2025 and 2024. +Schedule of discontinued operations consolidated statement of operations +Years Ended +December 31, +2025 +2024 +Total revenue +$ 9,951 +$ 20,362 +Total cost of revenue +( 2,409 ) +( 5,707 ) +Gross profit +7,182 +14,655 +Operating expenses +( 244,297 ) +( 1,509,761 ) +Loss on sale of Alvey oil field +( 1,225,399 ) +— +Loss from operations +( 1,462,514 ) +( 1,495,106 ) +Other income (expenses) +— +— +Loss before tax expense +( 1,462,514 ) +( 1,495,106 ) +Tax expense +— +— +Loss from operations of discontinued operations +$ ( 1,462,514 ) +$ ( 1,495,106 ) +The assets and liabilities of the discontinued operations at December +31, 2025 and 2024 are summarized below: +Schedule of assets and liabilities of the discontinued operation +As of December +31, +2025 +2024 +Property and equipment, net +$ — +$ 2,019,415 +Texas Railroad Commission bond +— +62,537 +Assets of discontinued operations, +non-current +— +2,081,952 +Total assets +$ — +$ 2,081,952 +Accounts payable +$ — +$ 25,500 +Accounts payable - related party +— +30,000 +Note payable, current maturities +— +343,500 +Liabilities of discontinued operations, current +— +399,000 +Estimated asset retirement obligation +— +97,463 +Liabilities of discontinued operations, +non-current +— +97,463 +Total liabilities +$ — +$ 496,463 +Property and equipment, at cost, for the discontinued +operations consisted of the following at December 31, 2025 and 2024: +Schedule of property and equipment cost, for discontinued operations +December +31, +2025 +December +31, 2024 +Useful Lives +Equipment +$ — +$ 802,016 +5 to 20 years +Vehicles +— +61,000 +5 to 15 years +Well development costs +— +1,395,461 +* +Less accumulated depreciation +— +( 176,525 ) +— +Property and equipment, net +$ — +$ 2,081,952 +— +* Once full production +begins, Well development costs were to be depreciated using the units-of-production method based on barrels of oil produced. Full production +did not occur so no depreciation was ever taken on this asset. In addition, as of December 31, 2024, it was determined the fair value +of the Well Development costs exceeded their fair value and were written down by $ 1,395,980 . +Depreciation expense for the discontinued +operations for the years ended December 31, 2025 and 2024 was $nil 0 and $ 73,272 , respectively. +Oil and Gas Producing Activities +The Company uses the successful efforts +method of accounting for oil and gas activities. Under this method, the costs of productive exploratory wells, all development +wells, related asset retirement obligation assets, and productive leases are capitalized and amortized, principally by field, on a +units-of-production basis over the life of the remaining proved reserves. Exploration costs, including personnel costs, geological +and geophysical expenses, and delay rentals for oil and gas leases are charged to expense as incurred. Exploratory drilling costs +are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial +quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery, and no gain or loss is +recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is +recognized for all other sales of producing properties. There were capitalized costs of nil 0 and $ 1,395,461 at December 31, 2025 +and 2024, respectively. The amount for 2024 is after a write down of $ 1,395,980 to estimated fair value. +F- 17 +Unproved oil and gas properties are assessed annually +to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances, which +may indicate a decline in value. When impairment occurs, a loss is recognized. When leases for unproved properties expire, the costs +thereof, net of any related allowance for impairment, is removed from the accounts and charged to expense. During the years ended December +31, 2025 and 2024, there was no impairment to unproved properties. The sale of a partial interest in an unproved property is accounted +for as a recovery of cost when substantial uncertainty exists as to the ultimate recovery of the cost applicable to the interest retained. +A gain on the sale is recognized to the extent that the sales price exceeds the carrying amount of the unproved property. A gain or loss +is recognized for all other sales of unproved properties. For the years ending December 31, 2025 and 2024, there was no gain or loss +recognized for sales of unproved properties. +Costs associated with development wells that are +unevaluated or are waiting on access to transportation or processing facilities were reclassified into developmental wells-in-progress +("WIP"). These costs are not put into a depletable field basis until the wells are fully evaluated or access is gained to transportation +and processing facilities. Costs associated with WIP are included in the cash flows from investing as part of investment in oil and gas +properties. At December 31, 2025 and 2024, no capitalized developmental costs were included in WIP. +Depreciation, depletion and amortization of proved +oil and gas properties is calculated using the units-of- production method based on proved reserves and estimated salvage values. During +the years ended December 31, 2025 and 2024, the Company recorded no depreciation, depletion +and amortization expense on oil and gas properties. The Company will start using the units-of-production method when the field is continuously +operational and there are material sales. +The Company reviews its proved oil and natural gas +properties for impairment whenever events and circumstances indicate that a decline in the recoverability of its carrying value may have +occurred. It estimates the undiscounted future net cash flows of its oil and natural gas properties and compares such undiscounted future +cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying +amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties +to fair value. During the years ended December 31, 2025 and 2024, there was no impairment to proved properties. +To cover the estimated future asset retirement obligations +("ARO") related to its oil and gas properties, the Company maintains a $ 62,337 bond with the Railroad Commission of Texas (“RRC”). +With the help of an outside consultant, the Company estimates it would take $ 5,000 to cap each of the 32 wells on the property so there +is a potential liability of $ 97,463 to account for the total estimated cost if the Company decided to cap the wells. The bond ensures +that the Company will cap any wells on the Alvey Oil Field that it decides are no longer productive. +Effective October 14, 2025 the Company +completed its spinoff of the Alvey oil field operation to Texas Coastal Energy, Corp. (TCEC). The assets, liabilities +and results of operation including the aforementioned bond, related to the Alvey oil field, previously shown in discontinued +operations, have been removed from Cyber Enviro-Tech, Inc. consolidated results of operations. +NOTE 13 – INCOME TAXES +Deferred taxes are provided on a liability +method whereby deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards +and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the +reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the +opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred +tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income +tax rate of 21 % is being used as the effective tax rate. The Company filed an extension for Federal Income taxes for the year ended December +31, 2025 and the federal corporate tax return for 2024 has not been filed as of May 19, 2026. +Income taxes consist of the following components +as of: +Schedule of income taxes +December 31, 2025 +December 31, 2024 +Federal income tax benefit attributable to: +Current Operations +$ 1,270,465 +$ 1,294,226 +Less: Valuation Allowance +( 1,270,465 ) +( 1,294,226 ) +Net provision for Federal income taxes +$ — +$ — +The income tax provision differs from the amount +of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended +December 31, 2025 and 2025, due to the following: +Schedule of income tax provision +December 31, 2025 +December 31, 2024 +Deferred tax asset attributable to: +Net operating loss carryover +$ 3,976,675 +$ 2,706,210 +Less: Valuation Allowance +( 3,976,675 ) +( 2,706,210 ) +Net deferred tax asset +$ — +$ — +F- 18 +At December 31, 2025, the Company had a total +net operating loss carry forwards of $ 18,936,548 which would result in a deferred tax asset of $ 3,976,675 , an increase of $ 1,270,465 +from 2024. At December 31, 2024, the Company had net operating loss carry forwards of $ 12,886,715 which would result in a deferred tax +asset of $ 2,706,210 , an increase of $ 1,294,226 from 2023. Net operating losses generated in tax years beginning after December 31, 2017 +may be carried forward indefinitely, subject to applicable limitations, including the limitation that such losses may generally offset +no more than 80% of taxable income in future taxable years. No tax benefit has been reported in December 2025 and 2024 consolidated +financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. +Utilization of the Company’s net operating +loss carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code if the Company has experienced, +or experiences in the future, an ownership change. Should a change in ownership occur, net operating loss carry forwards may be limited +as to use in future years. +NOTE 14 – SUBSEQUENT EVENTS +The Company has evaluated subsequent events through +May 19, 2026, the date the consolidated financial statements were available to be issued. The following subsequent events were identified +as potentially being material and requiring disclosure: +Subsequent to December 31, +2025, the Company entered into new loan arrangements with various lenders totaling $ 320,600 . These borrowings consisted of the following: +· a $35,000 loan repayable in +equal weekly installments of $2,226 over 25 weeks; +· a $110,000 convertible promissory +note maturing on March 17, 2027, which is immediately convertible into shares of the Company’s common stock based on a variable +conversion formula tied to market prices; +· a $110,000 convertible promissory +note maturing on March 30, 2027, which becomes convertible 165 days after issuance and includes variable conversion pricing based on market +prices, with interest payable in shares of the Company’s common stock; and +· three additional notes +totaling $65,600 from Kim N Southworth, the wife of CETI’s CEO, consisting of: (i) a $28,000 note bearing interest at 25% per month for the first two months; (ii) a $17,600 note +with an upfront loan fee of $2,000 plus $1,000 per month for two months; and (iii) a $20,000 note with an upfront loan fee of $2,000 +plus $1,000 per month for two months. +On January 12, 2026, the +Company commenced a Regulation A offering of up to 1,000,000,000 shares of common stock, par value $ 0.001 per share, at an offering price +of $ 0.005 per share. On February 13, 2026, the Company reduced the offering price to $ 0.004 per share. On March 13, 2026, the Company +terminated the Regulation A offering after raising $ 137,192 . +On March 11, 2026, the Company +issued one share of Special 2025 Series A Preferred Stock to Kim D. Southworth, the Company’s Chief Executive Officer. The Special +2025 Series A Preferred Stock was issued for voting control purposes. +On March 17, 2026, Dan Leboffe +resigned as Chief Financial Officer, and Deborah Casper-Stone was appointed Chief Financial Officer. On April 30, 2026, Deborah Casper-Stone +resigned as Chief Financial Officer, and Dan Leboffe was reinstated as Acting Chief Financial Officer. +On March 20, 2026, the Company +entered into an Equity Purchase Agreement with Monroe Street Capital Partners, LP. Pursuant to the agreement, the Company has the right, +but not the obligation, to sell to Monroe Street Capital Partners, LP up to $ 30,000,000 of the Company’s common stock from time +to time during the commitment period, subject to the terms, conditions, limitations, and procedures set forth in the agreement. +On April 3, 2026, the Company +created a new class of preferred stock designated as Series D Convertible Preferred Stock, with 5,000,000 shares authorized and a par +value of $ 0.001 per share. The Series D Convertible Preferred Stock has a one-year lockup period from the date of issuance and is convertible +into shares of common stock at a ratio of ten shares of common stock for each share of Series D Convertible Preferred Stock. The Series +D Convertible Preferred Stock also has voting rights equivalent to the common stock on an as-converted basis. In 2026, three shareholders +agreed to convert an aggregate of 19,404,168 shares of common stock into 1,940,417 shares of Series D Convertible Preferred Stock. +On April 6, 2026, Dan Leboffe +resigned from the Company’s Board of Directors and joined the Company’s newly created Advisory Board. Also on April 6, 2026, +the Company announced the creation of its Advisory Board and appointed Brian Feingold and Dan Leboffe as members. Mr. Leboffe, the Company’s +former Chief Financial Officer and former director, transitioned to the Advisory Board. Mr. Feingold has over 30 years of experience across +emerging technologies and global markets, including strategic alliances, mergers and acquisitions, capital formation, and electrical engineering. +On April 7, 2026, the Company +appointed Brianna Stoecklein, Chief Executive Officer of AirPower USA, to the Company’s Board of Directors. Ms. Stoecklein’s +appointment is intended to support the Company’s strategic alignment with its exclusive AirPower manufacturing and distribution +agreement. In addition, the Company provided AirPower USA 5.5M common shares of stock and 40K shares of Series A Preferred stock as collateral +on the agreement. +F- 19 +ITEM 9. Changes in +and Disagreements with Accountants on Accounting and Financial Disclosure. +While there are no disagreements with the former +accountants, the Company did switch accountants due to the former accountant, Accell Audit and Compliance, P.A. (“Accell”) +ceasing to provide PCAOB audit services. It is our understanding that certain of the audit principals of Accell are now a part of Astra +Audit and Advisory, LLC, and as such we are making this change in auditors to accommodate their transition. Accell issued the auditor’s +report on the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022. +Effective August 12, 2024, the Board of Directors +of the Company approved the appointment of Astra Audit & Advisory LLC., as its independent registered public accountant for the quarters +ending June and September of 2024 and the year ended December 31, 2024. During the Company’s most recent fiscal years ended December +31, 2023 and 2022 and subsequent interim periods through the date of appointment, neither the Company nor anyone acting on its behalf +has consulted with Astra Audit & Advisory LLC with respect to: (i) the application of accounting principles to a specified transaction, +either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, +or (ii) any other matter or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K. +ITEM 9A: Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are controls +and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the +Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods +specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures +designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated +and communicated to management to allow timely decisions regarding required disclosure. +As required by paragraph (b) of Rules 13a-15 +or 15d-15 under the Exchange Act, our management, with the participation of our chief executive officer (our principal executive officer) +and our chief financial officer (our principal financial officer) evaluated the effectiveness of our disclosure controls and procedures +as of the end of the period covered by this annual report, being December 31, 2025. +Based on this evaluation, these officers concluded +that, as of December 31, 2025 these disclosure controls and procedures were not effective to ensure that the information required to +be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within +the time periods specified in the rules and forms of the Securities Exchange Commission. The conclusion that our disclosure +controls and procedures were not effective was due to the Company lacking in pre-planning for expenses and documentation of all transactions. +Because of the inherent limitations in all +control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been +detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur +because of simple error or mistake. +13 +Management's Annual Report on Internal Control +over Financial Reporting +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting. The term "internal control over financial reporting" +is defined as a process designed by, or under the supervision of, an issuer's principal executive and principal financial officers, or +persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable +assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes +in accordance with generally accepted accounting principles and includes those policies and procedures that: +(1) +Pertain +to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the +assets of the issuer; and +(2) +provide reasonable +assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance +with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance +with authorizations of management and directors of the issuer. +Under the supervision of our chief executive +officer, being our principal executive officer, and our chief financial officer, being our principal financial officer we conducted an +evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2025 using the criteria established +in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the +operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal +controls over financial reporting had strengthened during the year ended December 31, 2025 , but were not effective at December +31, 2025. +A material weakness is a deficiency, or combination +of deficiencies, in internal control over financial reporting, such that there is a more than remote possibility that a misstatement +of our company's annual or interim consolidated financial statements could occur. In its assessment of the effectiveness of our internal +control over financial reporting as of December 31, 2025, we determined that there were control deficiencies that constituted material +weaknesses which are indicative of many small companies with small staff, such as: +(1) +inadequate segregation of duties and ineffective +risk assessment; and +(2) +insufficient written +policies and procedures for documenting all transactions with vendors. +Our management is currently evaluating remediation +plans for the above deficiencies. The Company anticipates revenue growth in 2026 and expects to increase hiring which will provide better +segregation of duties and internal controls. +ITEM 9B. OTHER INFORMATION. +During the Company’s fourth quarter, +no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement. +PART III +Item 10. Directors, Executive +Officers and Corporate Governance. +Directors and Executive Officers of Cyber Enviro-Tech, +Inc. +The following sets forth information about our directors +and executive officers: +NAME +AGE +POSITION/INITIAL +ELECTION +APPOINTMENT +DATE +Kim D. Southworth +66 +Chief Executive Officer and Director +September 3, +2020 +Dan Leboffe +68 +Chief Financial Officer +February 7, 2022 +Don Gritten +42 +Director +July 3, 2025 +Brook Brost +32 +Director +June 6, 2025 to July 3, +2025 +14 +Kim D. Southworth, Chief Executive Officer and Director +Kim D. Southworth, CEO – Mr. Southworth +has more than 38 years in the corporate world, holding key roles in management, administration and corporate finance. He is the founder +and senior partner of Advanced Business Strategies, a venture catalyst firm assisting early stage, high growth technology companies in +the development, expansion, and execution of their business plans. He has served as founder, president, CEO and consultant for numerous +companies and industries, including oil & gas, biotech, instore digital music and advertising, ballistic armor and fuel treatment +technologies. +· 2020 +to Present , Mr. Southworth is a co-founder, director and Chief Executive officer of the +Cyber Enviro-Tech, Inc. a Wyoming company formerly, Global Environmental Technologies, +Inc ., prior to a name change in 2021. At Cyber Enviro-Tech, Mr. Southworth leads the +strategic business plan development and execution, corporate capitalization, investment structuring, +strategic partnership development, joint venture relationships, corporate filings, public +auditing review, mergers and acquisitions. +· +August 2017 to April +2020 , Mr. Southworth was a founder, director and CEO of Applied Logic Filtration, LLC. A Utah limited liability company +in business to become an R&D water filtration technology Company. Mr. Southworth spent approximately 2 years bringing together +numerous technologies from around the world to develop, design and engineer a unique and proprietary industrial wastewater filtration system. +· +2016 to 2018 , Mr. +Southworth was a director and President of Gold Standard Mining Company . +Gold Standard Mining +Company (“GSMC”) or the “Company” incorporated in the State of Nevada on August 22, 2016. Mr. Southworth +incorporated the company, hired accountants and attorney for the propose of developing business +activities described as a “blank check”. The company filed an S-1 as a blank check company with the Securities and Exchange +Commission. The company went effective on its S-1 on September 27, 2017. On February 20, 2019, Mr. Southworth resigned as the President +of Gold Standard Mining Company and had no further ownership or involvement with management of the company. +Dan Leboffe, Chief Financial Officer +Mr. Leboffe joined the Company in the capacity of +Chief Financial Officer earlier in 2022. He brings to CETI a diverse background in his 40+ years of business experience. His experience +includes audit/tax work with (then) Price Waterhouse, over ten years of marketing/sales experience with various Fortune 1000 consumer +packaged goods companies and overseeing training for publicly traded real estate company ZipRealty. Mr. Leboffe’s entrepreneurial +ventures include a construction accounting software reseller, high-performance boat manufacturer Spectre, real estate development and +business consulting. +· +2020 to Present: CFO (as of February 2022) and +consultant (2020 to 2022) for CETI. +Primarily focused on financial modeling, investor presentations, business strategy and filings with OTC Markets and the SEC. +· +2017 to 2020 : Co-founded +two business consulting firms – Path Capital Advisors, LLC and AscentCore Group LLC. Both organizations +focus on growth and capital advisory services for CEOs, board of directors and business owners. In addition, he has individually +provided consulting services to both Realogy, Inc and Homeward Inc both in the real estate industry. +· +Education background. BS +in Accounting from University at Albany, MBA from The Wharton School of the University of Pennsylvania +· +Certifications. Formerly +a Certified Public Accountant in the State of New York with Price Waterhouse +· +Community: For the last +seven years, he has been the Treasurer for Everybody Matters, an organization that teaches coping skills to emotionally vulnerable +youths in the public school system. +15 +Don +Gritten, Director +Mr. Donald (“Don”) Gritten Jr. has served +as a Director of Cyber Enviro Technologies, Inc. (OTCQB: CETI) since June 2024. Mr. Gritten is a business leader, strategist, and post-M&A +consultant with over two decades of experience guiding multi-state and international ventures. He is recognized for corporate transformation +and turnaround leadership, including stabilizing distressed operations and scaling companies through disciplined execution. A former +U.S. Army Sergeant, Mr. Gritten has played key roles in eight businesses and has helped guide two companies through public listings, +one on the U.S. OTC markets and another on the Australian Securities Exchange (ASX). He previously served as Co-Founder and President/Chief +Executive Officer of Botanic Wellness Ltd. (ASX) from 2020 to 2024 and Co-Founder and President/Chief Executive Officer of Live Opulent +Inc. from 2018 to 2023. +Selected Experience +Dec 2024 to Present: GM, Director, Cyber Enviro Technologies, Inc. +(OTCQB: CETI). +2020 to 2024: Co-Founder and President/Chief Executive Officer, +Botanic Wellness Ltd. (ASX). +2018 to 2023: Co-Founder and President/Chief Executive Officer, +Live Opulent Inc. +U.S. Army: Served as a Sergeant. +Item 11. Executive Compensation. +The following table sets forth the compensation of our Executive Officers +for the years ending December 31, 2025 and 2024 these amounts were paid as consulting fees. +Summary Compensation Table: +Name And Principal position +Year +Salary($) +Bonus($) +Stock +Awards($) +Option Awards($) +Non-Equity +Incentive Plan Compensation($) +Nonqualified +Deferred Compensation Earnings($) +All Other +Compensation($) +Total($) +Kim D. Southworth, Director & CEO +2025 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +2024 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +Dan Leboffe, Director & Treasurer +2025 +$ 102,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 102,000 +2024 +$ 102,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 102,000 +Don Gritten, Director +2025 +$ 50,400 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 50,400 +2024 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +TJ Agardy, (Former President) +2025 +$ 49,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 49,000 +2024 +$ 120,000 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 0 +$ 120,000 +Employment Agreements +None +Consulting Agreements +The officers of the Company are currently paid as +consultants of the Company. +On July 27, 2025 the +Company entered into a consulting agreement with Marshall Welch, for professional services wherein the Company paid 50,000 +common shares. +On August 23, 2025 the Company entered into a consulting agreement +with Deborah Casper-Stone, for professional services wherein the Company paid 50,000 common shares. Deborah Casper-Stone was appointed +Chief Financial Officer on March 17, 2026. +16 +Item 12. Security Ownership +of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following tables set forth certain information +regarding beneficial ownership of our stock as of December 31, 2025, by (i) each person who is known by us to own beneficially more than +five percent (5%) of the outstanding shares of each class of our voting stock, (ii) each of our directors and executive officers, and +(iii) all of our directors and executive officers as a group. We believe that each individual or entity named has sole investment and +voting power with respect to the stock indicated as beneficially owned by them, subject to community property laws, where applicable, +except where otherwise noted: +As of December 31, 2025, 128,889,309 shares of common +stock were issued and outstanding: +Name and Address (1) +Number of Shares Beneficially Owned +Kim D. Southworth, CEO and Director +9,983,333 +7.7 % +TJ Agardy, former President and Director +7,372,500\ +5.7 % +Dan Leboffe, CFO and Treasurer +4,648,352 +3.6 % +Winston McKeller, Director IR/PR +250,000 +0.2 % +Officers and Directors as a group (4 people) +22,254,185 +17.3 % +Item 13. Certain Relationships +and Related Transactions, and Director Independence +At December 31, 2025 and 2024, the Company had a +convertible note payable for $22,000 with a related party. The note is unsecured, non-interest bearing and is convertible into shares +of common stock at $0.001. +In September 2023, a related party loaned $153,989 +to CETI. The loan is currently due and has interest only payments at 12.5%. The first six months interest was paid and is being amortized +over the six-month period of time. This note is currently in default. +During the years ended December 31, 2025 and 2024, +the Company paid various related parties for consulting services in the amounts of $421,510 and $409,850 respectively. For the years +ended December 31, 2025 and 2024, nil and $30,000, respectively, of the consulting fees were capitalized in property and equipment under +well development costs. +Director Independence +We are not currently a “listed company” +under SEC rules and are therefore not required to have a Board comprised of a majority of independent directors or separate committees +comprised of independent directors. We currently do not have any independent directors as the term “independent” is defined +by the rules of the Nasdaq Stock Market. +Item 14. Principal Accountant Fees and Services. +The following table sets forth fees billed +to us for principal accountant fees and services for years ended December 31, 2025 and 2024. +Year Ended +December 31, 2025 +Year Ended +December 31, 2024 +Audit Fees +$ 120,195 +$ 89,055 +17 +Item 15. Exhibits. +(a) Exhibits +The following exhibits are filed with this Report on Form 10-K: +Incorporated +by Reference +Filed or +Furnished +Exhibit +No. +Exhibit +Description +Form +Date +Filed +Number +Herewith +3.1 +Articles +of Incorporation, as currently in effect +S-1 +9/22/2022 +3.1 +3.2 +Bylaws +as currently in effect +S-1 +9/22/2022 +3.2 +19.1 +Insider +Trading Policy +10-K +4/14/2025 +19.1 +31.1 +Certification +of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +31.2 +Certification +of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +X +32.1 +Certification +of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +XX +101.INS +Inline XBRL Instance Document +X +101.SCH +Inline XBRL Instance Schema +X +101.CAL +Inline XBRL Instance Calculation +Linkbase +X +101.DEF +Inline XBRL Instance Definition +Linkbase +X +101.LAB +Inline XBRL Instance Label +Linkbase +X +101.PRE +Inline XBRL Instance Presentation +Linkbase +X +104 +The Cover Page Interactive +Data File, formatted in Inline XBRL (included in Exhibit 101). +X +XX Furnished herewith +18 +SIGNATURES +In accordance with Section 13 or 15(d) of the Exchange +Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 19, 2026. +CYBER ENVIRO-TECH, INC. +By: +/s/ Kim D. +Southworth +Kim +D. Southworth +Chief Executive Officer +By: +/s/ Dan Leboffe +Dan +Leboffe +Chief Financial Officer +Pursuant to the requirements of the Securities Exchange +Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities +and on the dates indicated. +Signature +Title +Date +/s/ +Kim D. Southworth +Chief +Executive Officer +May +19, 2026 +Kim +D. Southworth +/s/ +Dan Leboffe +Chief +Financial Officer +May +19, 2026 +Dan +Leboffe +19 \ No newline at end of file diff --git a/raw/filings/0001935092/2025/0001079973-26-000703/filing_metadata.csv b/raw/filings/0001935092/2025/0001079973-26-000703/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..8179dba9e555a756c5c095b97cc6d8e40384d7f4 --- /dev/null +++ b/raw/filings/0001935092/2025/0001079973-26-000703/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935092,CETI,"Cyber Enviro-Tech, Inc.",2025,10-K,2026-05-20,2025-12-31,2026-05-19T22:14:53.000Z,0001079973-26-000703,ceti_10k.htm,FORM 10-K,6615648,1,1,https://www.sec.gov/Archives/edgar/data/1935092/000107997326000703/ceti_10k.htm,https://www.sec.gov/Archives/edgar/data/1935092/000107997326000703/ diff --git a/raw/filings/0001935092/2025/0001079973-26-000703/item1.txt b/raw/filings/0001935092/2025/0001079973-26-000703/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..78f045ff061cfe6b502fb95da51ced8f07d01e1a --- /dev/null +++ b/raw/filings/0001935092/2025/0001079973-26-000703/item1.txt @@ -0,0 +1,75 @@ +Item 1. Business – OVERVIEW OF OUR COMPANY +Our Company +CYBER ENVIRO-TECH, INC. ("the Company", +"CETI") was founded in the State of Wyoming as Electronic Biotek, Inc in April 1986 (“Inception”). +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +are an emerging growth company with limited revenues and operating history. Our independent auditor has issued an audit opinion which +includes a statement expressing substantial doubt as to our ability to continue as a going concern. We owned an oil field in West Texas, +which we identified as our pilot project. We owned the mineral rights to a 479 acre, 33-well, located in Callahan County, Texas. +This oil field operation was known as the Alvey oil field and it was spun-off into a new entity on October 14, 2025. The Alvey project +was shown as discontinued operation in the accompanying consolidated financial statements for the year ended December 31, 2024. In addition, +the Company is continuing the development and testing of its water filtration machine as well as looking to place its oil and soil remediation +systems in the Middle East and its water remediation systems in the meat packing industry and with municipalities. +CETI is a 51% owner of CETI Axenic (“Axenic”). +Axenic was formed in 2024 and focused on water remediation in the commercial laundry industry. Axenic shut down operations effective +December 31, 2025. +GENERAL OVERVIEW +Form and year of organization; +Cyber Enviro-Tech, Inc., was founded in the State +of Wyoming as Electronic Biotek, Inc in April 1986. +Bankruptcy, receivership; +The Company has never filed Bankruptcy or been involved in any +receiverships or similar proceedings. +Material reclassification ; +The Company has been known by a variety +of names since its inception in the State of Wyoming as Electronic Biotek, Inc. In 2020, CETI through its previous name, Globel Technologies, +Inc. (“Global”) acquired NexGen Holdings Corp via a reverse merger. Subsequent to the reverse merger, the Company changed +its name to Cyber Enviro-Tech, Inc. Below lists the names that the Company has been known as since inception as well as the dates those +names were active: +Cyber Enviro-Tech, Inc - CURRENT. +NexGen Holdings Corp - Until October 6, 2020 +WindPower Innovations, Inc. until January 2014 +Educational Services International, Inc. until November 2009 +Bio-Life Systems, Inc. until November 2001 +Biolectronics, Corp. to April 1992 +Electronic Biotek, Inc April 1986 +Business of Cyber Enviro-Tech, Inc.; +Cyber Enviro-Tech, Inc is a water science technology +company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We +do this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, +wastewater and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device. +1 +Our pilot project was an oil field in West Texas. +We owned the mineral rights to a 479 acre, 33-well, located in Callahan County, Texas. This oil field operation was known as the +Alvey oil field and it was spun-off into a new entity on October 14, 2025. The Alvey project was shown as discontinued operation in the +accompanying consolidated financial statements for the year ended December 31, 2024. In addition, the Company is continuing the development +and testing of its water filtration machine as well as looking to place its oil and soil remediation systems in the Middle East and its +water remediation systems in the meat packing industry and with municipalities. +Our focus for the current fiscal year will be on +water/oil remediation as opposed to oil production and we will focus on developing and expanding our water and oil/soil remediation technologies +both domestic and foreign. +Sales Strategy – CETI’s B2B Sales Strategy +includes partnering with individuals and companies who have many years of experience and developed relationships within their respective +targeted vertical markets. Prior knowledge of those specific industry issues, water filtration needs, history and relationships developed +over many years will enable them to shorten the sales cycle for our water filtration system. +Market Demand and Size - CETI’s water filtration +system can be modified to address many of the water contamination issues that exists worldwide. The markets envisioned for the CETI water +filtration system, when funds permit, would be both domestic (U.S.) and global. +Government Regulation +We are subject to government regulations that regulate +businesses generally, such as compliance with regulatory requirements of federal, state, and local agencies and authorities, including +regulations concerning workplace safety and labor relations. In addition, our operations are affected by federal and state laws relating +to marketing practices in the oil industry and/or expansion of operations; a change to or changes to government regulations; a general +economic slowdown; a significant decrease in the price of West Texas Intermediate crude. Any change in one or more of these factors could +reduce our ability to earn and grow revenue in future periods. +Research and Development +For the years ending December 31, 2025 and 2024, +we spent approximately $396k and $1.5 million in research and development of our oil/water filtration products and process, respectively. +In addition, from 2021 through December 31, 2024, approximately $3.4 million was invested in the Alvey Ranch Oil field to test our new +technologies in opening up the downhole fractures and removing contaminants from the reservoir for increased oil production. The former +has been expensed and the latter capitalized. Effective October 14, 2025, the Alvey oil field was spun off into a separate company as +the Company intends to focus its efforts on water and oil/soil remediation. +Personnel +As of December 31, 2025, we have no employees but +the Company does have 7 full-time and part-time consultants. \ No newline at end of file diff --git a/raw/filings/0001935092/2025/0001079973-26-000703/item13.txt b/raw/filings/0001935092/2025/0001079973-26-000703/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..24770c30ef323ad5cdfb39d77bc639dbf653b4bd --- /dev/null +++ b/raw/filings/0001935092/2025/0001079973-26-000703/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence. +17 \ No newline at end of file diff --git a/raw/filings/0001935979/2024/0001935979-25-000015/filing.txt b/raw/filings/0001935979/2024/0001935979-25-000015/filing.txt new file mode 100644 index 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us-gaap:OperatingSegmentsMember bhvn:ReportableSegmentMember 2022-01-01 2022-12-31 0001935979 us-gaap:OperatingSegmentsMember bhvn:ReportableSegmentMember 2024-01-01 2024-12-31 0001935979 us-gaap:OperatingSegmentsMember bhvn:ReportableSegmentMember 2023-01-01 2023-12-31 0001935979 us-gaap:OperatingSegmentsMember bhvn:ReportableSegmentMember 2022-01-01 2022-12-31 0001935979 us-gaap:MaterialReconcilingItemsMember 2024-01-01 2024-12-31 0001935979 us-gaap:MaterialReconcilingItemsMember 2023-01-01 2023-12-31 0001935979 us-gaap:MaterialReconcilingItemsMember 2022-01-01 2022-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, DC 20549 +____________________________________________________________________________ +FORM 10-K +____________________________________________________________________________ +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____ to ______ +Commission File Number: 001-41477 +Biohaven Ltd. +(Exact Name of Registrant as Specified in its Charter) +____________________________________________________________________________ +British Virgin Islands +Not applicable +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +c/o Biohaven Pharmaceuticals, Inc. +215 Church Street , New Haven , Connecticut +06510 +(Address of principal executive offices) (Zip Code) +( 203 ) 404-0410 +(Registrant's telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol Name of each exchange on which registered +Common Shares, without par value BHVN New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☒ +Accelerated filer ☐ +Non-accelerated filer ☐ +Smaller reporting company +☐ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý +The aggregate market value of the registrant's common shares held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2024, based on the last reported sale price of the registrant's common shares on the New York Stock Exchange on June 28, 2024 of $34.71, was $ 2.239 billion. The calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose. As of February 28, 2025, there were 102,054,499 common shares, no par value per share, outstanding. +Documents Incorporated by Reference +Portions of the registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for its 2024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. +Unless the context requires otherwise, references in this report to “Biohaven,” the “Company,” “we,” “our” or “us” refer to Biohaven Ltd. and its subsidiaries. +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K, or this report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would”, or the negative of these terms or other comparable terminology. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies or state other forward-looking information. +These forward-looking statements include, but are not limited to, statements about: +• our ongoing and planned clinical trials, including discovery and proof-of-concept trials, the status of our ongoing clinical trials, commencement dates for new clinical trials, and the timing of clinical trial results; +• our plans to pursue research and development of product candidates; +• anticipated future milestones, contingent and royalty payments and lease payments (and, in each case, their expected impact on liquidity); +• our commercialization, marketing and manufacturing capabilities and strategy; and +• our estimates regarding future revenues, expenses and needs for additional financing. +Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following: +• future business combinations or disposals; +• our ability to enter into additional collaborations with third parties; +• the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; +• our intellectual property position; +• the rate and degree of market acceptance of our products or product candidates, and our estimates regarding the potential market opportunity for our product candidates; +• our competitive position, including our competitors and competing products (including biosimilars); +• the impact of economic conditions, including volatility in interest rates and inflation, on the costs of raw materials, wages, manufacturing and clinical trials and on borrowing costs; +• the timing and anticipated amounts of future tax payments and benefits (including the potential recognition of unrecognized tax benefits), as well as the timing of conclusion of tax audits; +• the impact of disruptions at the FDA and other government agencies that could prevent new products from being developed or commercialized in a timely manner, or negatively impact the approval of an NDA, BLA or similar application; and +• other factors identified elsewhere in this Annual Report on Form 10-K and our other filings with the SEC. +Any forward-looking statements in this report reflect our current views with respect to future events and with respect to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part I, Item 1A. Risk Factors, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report. Given these uncertainties, you should not place undue reliance on any forward-looking statements. Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, even if new information becomes available in the future. +This report contains estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analyses that may, in the future, not prove to have been accurate. +Note Regarding Trademarks +We have proprietary rights to a number of registered and unregistered trademarks worldwide that we believe are important to our business. We have, in certain cases, omitted the ® and ™ designations for these and other trademarks used in this Annual Report on Form 10-K. Nevertheless, all rights to such trademarks are reserved. These and other trademarks referenced in this Annual Report on Form 10-K are the property of their respective owners. +TABLE OF CONTENTS +Page +Part I +Item 1 : +Business +1 +Item 1A : +Risk Factors +53 +Item 1B : +Unresolved Staff Comments +90 +Item 1 C: +Cybersecurity +90 +Item 2 : +Properties +91 +Item 3 : +Legal Proceedings +91 +Item 4 : +Mine Safety Disclosures +91 +Part II +Item 5 : +Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +92 +Item 6 : +Reserved +93 +Item 7 : +Management's Discussion and Analysis of Financial Condition and Results of Operations +94 +Item 7A : +Quantitative and Qualitative Disclosures About Market Risk +104 +Item 8 : +Financial Statements and Supplementary Data +105 +Item 9 : +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +105 +Item 9A : +Controls and Procedures +105 +Item 9B : +Other Information +107 +Item 9C: +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +107 +Part III +Item 10 : +Directors, Executive Officers and Corporate Governance +108 +Item 11 : +Executive Compensation +108 +Item 12 : +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +108 +Item 13 : +Certain Relationships and Related Transactions, and Director Independence +108 +Item 14 : +Principal Accountant Fees and Services +108 +Part IV +Item 15 : +Exhibit and Financial Statement Schedules +109 +Item 16 : +Form 10-K Summary +110 +Signatures +111 +Table of Contents +PART I +Item 1. Business +Overview +Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. Our extensive clinical and preclinical programs include Kv7 ion channel modulation for epilepsy and mood disorders; extracellular protein degradation for immunological diseases; Transient Receptor Potential Melastatin 3 ("TRPM3") antagonism for migraine and neuropathic pain; Tyrosine Kinase 2/Janus Kinase 1 ("TYK2/JAK1") inhibition for neuroinflammatory disorders; glutamate modulation for obsessive-compulsive disorder (“OCD”) and spinocerebellar ataxia ("SCA"); myostatin inhibition for neuromuscular and metabolic diseases, including spinal muscular atrophy ("SMA") and obesity; and antibody recruiting bispecific molecules ("ARMs") and antibody drug conjugates ("ADCs") for cancer. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution (the “Distribution”) to holders of its common shares of all of the outstanding common shares of Biohaven Ltd. and the spin-off of Biohaven Ltd. from the Former Parent (the “Spin-Off”) described in Biohaven’s Information Statement attached as Exhibit 99.1 to Biohaven’s Registration Statement on Form 10, as amended (Reg. No. 001-41477). Collectively, we refer to the Distribution and Spin-Off throughout this Annual Report on Form 10-K ("Annual Report") as the "Separation." As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange (the "NYSE") on October 4, 2022. Where we describe historical business activities in this report, we do so as if the Former Parent’s activities related to such assets and liabilities had been performed by the Company. +Product Candidates +The following table summarizes our programs for our product candidates. We hold the worldwide rights to substantially all of our product candidates. +Glutamate Modulation Platform +The most advanced product candidate from our glutamate receptor antagonist platform is troriluzole (previously referred to as trigriluzole and BHV-4157), which is currently in two Phase 3 trials in OCD and, for which our new drug +1 +Table of Contents +application (“NDA”) in Spinocerebellar Ataxia and marketing authorisation application ("MAA") have been accepted and are currently under review by the U.S. FDA and European Medicines Agency ("EMA"), respectively. Troriluzole is also being evaluated by the Global Coalition for Adaptive Research ("GCAR") as part of Glioblastoma Adaptive Global Innovative Learning Environment - NCT03970447 ("GBM AGILE"), a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent glioblastoma ("GBM"). Other product candidates include BHV-5500, an antagonist of the glutamate N-methyl-D-aspartate (“NMDA”) receptor and its oral prodrug BHV-5000. +Glutamate is an important neurotransmitter present in over 90% of all brain synapses. Glutamate plays an essential role in normal brain functioning and its levels must be tightly regulated. Abnormalities in glutamate levels can disrupt nerve health and communication, and in extreme cases may lead to nerve cell death. Nerve cell dysfunction and death leads to devastating diseases, including ataxia, amyotrophic lateral sclerosis (“ALS”) and other neurodegenerative disorders. Glutamate clearance is necessary for proper synaptic activation and to prevent neuronal damage from excessive activation of glutamate receptors. Excitatory amino-acid transporters (“EAATs”) help regulate glutamate clearance, and are responsible for most of the glutamate uptake within the brain. +The mechanism of action of our glutamate platform is depicted below. Glutamate must be tightly regulated once released from a pre-synaptic neuron. It acts as a signaling neurotransmitter to stimulate the post-synaptic neuron via glutamate receptors (e.g., NMDA, alpha-amino-3-hydroxy-5-methyl-4-isoxazole-propionic acid (“AMPA”) or Kainate receptors). Glial cells surrounding the synaptic junction are predominantly responsible for clearing glutamate through transporters, specifically the EAATs. There are five distinct types of glutamate transporters. The figure below depicts the areas of modulation that are affected by our product candidates. +Adapted from Glutamate abnormalities in obsessive compulsive disorder: Neurobiology, pathophysiology, and treatment, C. Pittenger, +M. Bloch, and K. Williams +(1) As depicted in the glial cell to the right in the figure, troriluzole increases the activity and expression of the EAATs to increase the clearance of glutamate released from the pre-synaptic neuron. Troriluzole also inhibits presynaptic ion channels that may inhibit the release of glutamate from presynaptic neurons. +(2) As depicted in the postsynaptic neuron to the bottom of the figure, BHV-5500 blocks glutamate signaling that is mediated by post-synaptic NMDA receptors. Modulating glutamate also has the potential to be neuroprotective and increase the release of neurotrophic factors, including brain derived neurotrophic factor (“BDNF”) which are endogenous molecules that help to support the survival of existing neurons, and encourage the growth and differentiation of new neurons and synapses. +2 +Table of Contents +Glutamate Transporter Modulation +Abnormal glutamate release or dysfunction of glutamate clearance can cause overstimulation of glutamate receptors which can lead to a dangerous neural injury called excitotoxicity, which has been associated with a wide range of neurodegenerative diseases. The FDA has approved anti-excitotoxicity drugs that act on the glutamatergic system by blocking NMDA receptors, such as memantine (“Namenda”) for Alzheimer’s disease, lamotrigine (“Lamictal”) for epilepsy and bipolar disorder and riluzole (“Rilutek”) for ALS. Although these drugs show the therapeutic potential of glutamate receptor antagonists and other glutamate modulators in the treatment of a range of neurological diseases, these approved drugs have serious side effects and other drawbacks that we have attempted to solve with our development of troriluzole. +Troriluzole +Troriluzole is a new chemical entity (“NCE”) and tripeptide prodrug of the active metabolite, riluzole. Based on its mechanism of action, preclinical data and clinical studies, troriluzole has potential for therapeutic benefit in a range of neurological and neuropsychiatric illnesses. Initial development has focused on its use in treating SCA, an orphan neurological indication that currently has no approved drug therapies and for which the active metabolite, riluzole, has demonstrated preliminary efficacy in two prior randomized controlled trials conducted by third parties. +Ristori et al. reported a randomized, double-blind, placebo-controlled trial of 40 patients presenting with cerebellar ataxias of diverse etiologies, including SCA. Subjects were randomized to receive 8 weeks treatment with either placebo or riluzole (50 mg Riluzole tablets, twice daily). Statistically significant improvement in the riluzole treated group was demonstrated on the International Cooperative Ataxia Rating Scale (“ICARS”). The number of patients with a 5-point ICARS drop was higher in the riluzole group than in the placebo group after 4 weeks (9/19 vs 1/19; odds ratio [“OR”] =16.2; 95% confidence interval [“CI”] 1.8–147.1) and 8 weeks (13/19 vs 1/19; OR = 39.0; 95% CI 4.2– 364.2). The mean change in the riluzole group ICARS after treatment revealed a decrease (p < 0.001) in the total score (-7.05 [4.96] vs 0.16 [2.65]). +Romano et al. described results of a second randomized, placebo-controlled trial in subjects diagnosed with a hereditary ataxia (including SCAs) randomized to receive 12 months of treatment with either placebo or riluzole (50 mg, twice daily). 60 patients were randomized. Statistically significant improvement in the riluzole treated group was demonstrated on the Scale for the Assessment of Ataxia (“SARA”). The proportion with decreased SARA score was 14 (50%) of 28 patients in the riluzole group versus three (11%) of 27 in the placebo group (OR 8.00, 95% CI 1.95– 32.83; p=0.002). +We acquired troriluzole as well as an estate of over 300 prodrugs from ALS Biopharma, LLC (“ALS Biopharma”) and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”). A prodrug is a compound that, after administration, is metabolized in the body into an active drug. Troriluzole is actively transported by virtue of recognition of its tripeptide moiety by the PepT1 transporter in the gut and is responsible for the increased bioavailability of the drug. Once inside the body, the prodrug, troriluzole is cleaved by enzymes in the blood to the parent, riluzole. To mitigate the limitations of riluzole, several classes of prodrugs were designed, synthesized, and evaluated in multiple in vitro stability assays that predict in vivo drug levels. Troriluzole is a third generation of prodrug development and the product of six years of intensive chemistry efforts. +Riluzole is currently only indicated for ALS and has a number of non-desirable attributes that have limited its clinical use. Key limitations of riluzole include poor oral bioavailability, difficulty swallowing due to tablet formulation, food reducing efficacy, liver toxicity, pharmacokinetic variability, and oral numbness. +The prodrug design and selected administration pathway that was pursued with troriluzole is intended to address all of these limitations of riluzole. In addition, a prodrug can be engineered to enhance absorption and protect from diminished absorption when taken with meals. The troriluzole preclinical development strategy was based on optimizing in vivo and in vitro features, such as stability in gastrointestinal and stomach fluids; stability in liver microsomes; limiting off-target effects (particularly liver effects); metabolic cleavage in the plasma to release the active moiety; and enhanced gastrointestinal absorption properties. In in vivo studies in rodents, the intended benefits of this optimization program were observed, including delayed peak concentrations and greater exposure. +After six years of chemistry development and preclinical testing, the resulting lead prodrug from the chemistry program was troriluzole. Troriluzole is chemically comprised of riluzole linked via an amide bond to a tripeptide that is a substrate for PepT1 and which contributes to its improved bioavailability. The tripeptide moiety is cleaved by plasma aminopeptidases. We believe that the estate of compounds we acquired, combined with our internally developed intellectual property, will provide a significant protection for our innovations. The safety and tolerability of troriluzole has now been demonstrated in approximately 2000 subjects in early- and late-stage clinical studies. +3 +Table of Contents +Our Clinical Program for Troriluzole +Phase 1 Studies with Troriluzole +In July 2016, we began a Phase 1 randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability and pharmacokinetics (“PK”) of single and multiple ascending doses of troriluzole in normal healthy volunteers. 58 healthy volunteers were dosed with troriluzole and 20 were dosed with placebo. Both single and multiple doses up to 200 mg were well tolerated without evidence of novel, clinically significant safety signals or lab abnormalities. There was no apparent dose response regarding the frequency or severity of adverse events (“AEs”). In the blinded group, including subjects treated with both placebo and troriluzole, the most common AEs were headache (five subjects, two with moderate severity and three with mild severity) and constipation (two subjects). No pattern of AEs or lab abnormalities were apparent to provide specific cautions or to suggest cautions beyond what is appropriate for the active metabolite, riluzole. Commencing in December 2017, an additional single and multiple dose study was conducted to assess the safety, tolerability and PK of a 280 mg dose in 10 healthy young and elderly volunteers (eight active; two placebo). The results supported adequate safety and tolerability and yielded mean exposures comparable to what would be expected from a 200 mg dose, a dose that has been safely used in clinic populations and associated with efficacy in a range of disorders in randomized controlled trials (Huntington Study Group Neurology 2003; Lacomblez Neurology 1996). In addition, a bioequivalence study was conducted to bridge a commercial formulation with a Phase 2/3 formulation in 32 healthy volunteers. The commercial formulation was well-tolerated and provided bioequivalent exposure with the Phase 2/3 formulation. +Troriluzole for SCA +Spinocerebellar Ataxias ("SCAs") are a group of ultra-rare, dominantly inherited neurodegenerative disorders predominantly characterized by atrophy of the cerebellum, brainstem, and spinal cord. The disease course of SCA is one of relentless progression over years and inevitably leads to clinical deterioration of motor function, gait imbalance with frequent falling, severe speech impairment, swallowing difficulties, and premature death. SCAs are thought to be pathogenetically related but disease course and brain region involvement are known to vary between the different genotypes. SCA affects approximately 15,000 people in the United States and 24,000 in Europe and the United Kingdom. SCA3, also known as Machado-Joseph disease, is the most common genotype and accounts for approximately 30% to 50% of SCAs worldwide. Currently, there are no approved symptomatic or neuroprotective treatments for SCA. +Based on the results of our Phase 1 trial with troriluzole and two third-party academic trials (Ristori et al 2020, published in Neurology in 2010 and Romano et al 2015, published in The Lancet in 2015) that have shown preliminary efficacy of riluzole in cerebellar ataxias, we advanced troriluzole into development for SCA. Initially, we conducted a Phase 2b/3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 8 weeks in subjects with SCA (Study BHV4157-201). In October 2017, we announced that troriluzole at a dose of 140 mg once daily (“QD”) did not differentiate from placebo on the primary endpoint of the mean change from baseline on the SARA total score after 8 weeks of treatment. After eight weeks of treatment, troriluzole treated subjects (n = 64) demonstrated an improvement of –0.81 points [95% CI: –1.4 to –0.2] on the SARA versus –1.05 points [95% CI: –1.6 to –0.4] improvement in placebo-treated (n = 68), p-value = 0.52. In this trial, we observed a favorable safety and tolerability profile of troriluzole, with no drug-related serious adverse events (“SAEs”) and low discontinuation rates due to AEs. During open-label treatment over the open-label extension phase, however, troriluzole did show slowing of disease progression in troriluzole-treated subjects in contrast to the measurable decline expected as compared to a matched cohort of untreated patients from the U.S. natural history study (Clinical Research Consortium for the Study of Cerebellar Ataxia (“CRC-SCA”)). +Based on our learnings from the proof-of-concept Study BHV4157-201, including analyses from the open-label extension phase, we advanced troriluzole into a pivotal Phase 3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 48 weeks in subjects with SCA (Study BHV4157-206). Randomization was stratified by genotype (consisting of these three groupings: SCA1 and SCA2; SCA3; and SCA6, SCA7, SCA8, and SCA10) in order to ensure balance within each of these subgroups. We enriched this trial with specific SCA genotypes, extended the treatment period of this trial to 48 weeks, implemented the use of a modified SARA scale (“f-SARA”), and increased the dose of troriluzole to 200 mg QD. Notably, the f-SARA is a novel, 16-point scale developed in collaboration with FDA and key opinion leaders as the primary outcome measure for this trial; the scale was designed to limit subjectivity of the scale and focus on functional aspects of the disease so that significant changes would reflect a clinically meaningful change in function. +In May 2022, the Company announced top-line results from the Phase 3 clinical trial (Study BHV4157-206) evaluating the efficacy and safety of its investigational therapy, troriluzole, in adult patients with SCA. The primary endpoint, change from baseline to week 48 on the f-SARA, did not reach statistical significance in the overall SCA population as there was less than expected disease progression in the placebo arm over the course of the study. In the overall study population (n = 213), the troriluzole and placebo groups each had mean baseline scores of 4.9 on the f-SARA and the two groups showed minimal change at the 48-week endpoint with f-SARA scores of 5.1 and 5.2, respectively. Preliminary post hoc analysis of +4 +Table of Contents +efficacy measures by genotype suggested a treatment effect in patients with the SCA3 genotype . A risk reduction in falls was also observed in the SCA3 population, as well as across all SCA genotypes . Troriluzole was well tolerated with an adverse event profile similar to placebo. +In May 2023, the Company presented further analysis of Study BHV4157-206 (summarized in the figure below) by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, the most common genotype worldwide, which represented 41% of study participants. In SCA3 subjects, troriluzole 200mg QD demonstrated benefit on the f-SARA compared with placebo at 48 weeks (LS mean treatment difference = -0.56; 95% CI = -1.11, -0.01; p = 0.0450). This genotype analysis was post hoc as the All SCA study population (SCA1, SCA2, SCA3, SCA6, SCA7, SCA8, SCA 10) was the mITT population for the primary analysis. Results for the SCA3 group are based on a model with no covariates with fixed effects for treatment, visit, and visit-by-treatment interaction; p-values are descriptive. +In addition to the beneficial effects observed on the f-SARA, the forest plot below demonstrates a consistent treatment benefit of troriluzole in SCA3 genotype subjects across multiple prespecified primary, secondary, and +5 +Table of Contents +exploratory study outcome measures. The SCA3 genotype analysis of the clinician- and patient-rated endpoints in the table represent all of the prespecified endpoints in the study protocol. +As shown in the figure below, safety data from Study BHV4157-206 showed that troriluzole-treated subjects showed a substantial risk reduction in falls in the All SCA and SCA3 genotype study populations. Treatment with troriluzole for 48 weeks reduced the risk of fall events by approximately 53% in subjects in the overall (All SCA) population (p = 0.005), by approximately 54% in subjects in the SCA3 population (p = 0.023), and by approximately 68% in subjects with SCA3 who were ambulatory (i.e., baseline Gait 1 or 2) (p = 0.009). This analysis, demonstrating that subjects who were more ambulatory with less severe disease at baseline were more likely to show a benefit from troriluzole, is consistent with the early treatment paradigm for other neurodegenerative diseases. +Two independent natural history cohorts for SCA, one in the U.S. (CRC-SCA) and one in Europe (EUROSCA), have characterized disease progression in this genetically defined neurodegenerative disorder. A Matching Adjusted Indirect Comparison (“MAIC”) was performed to match natural history subjects to subjects in BHV4157-206. As demonstrated in the figure below, at years 1, 2, and 3 change from baseline in f-SARA scores was significantly better among troriluzole patients vs the matched natural history referent (combined CRC-SCA and cross-European registry of SCA patients +6 +Table of Contents +(“EUROSCA”) data - all p values ~0.0004). These results were consistent for both SCA3 only and All SCA analyses. Validation metrics from f-SARA confirm that these changes are clinically relevant and meaningful to patients. +As seen in the figure below, an additional comparative study was conducted using OLE data from up to 3 years with subjects from BHV4157-201. Using a matched control pooled from the same two independent natural history studies (U.S. and European), troriluzole-treated All SCA subjects showed clinically relevant benefit compared to expected progression from the external control at 1 year, 2 years, and 3 years. Of note, there was an administrative gap in treatment in BHV4157-201 between the end of the 48-week OLE and the resumption of treatment at the start of the 96-week period. This gap was observed to result in a decline in f-SARA scores. However, after resumption of treatment patients re-stabilized (did not progress) resulting in the estimation of compelling treatment effects at years 2 and 3. +Given these findings and the debilitating nature of SCA, in May 2023 we announced that we submitted a New Drug Application ("NDA") to the FDA for troriluzole for the treatment of SCA3. In July 2023, the FDA informed us that it would not review the submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. In followup to the regulatory decision on the NDA application, we held followup meetings with the FDA regarding the SCA data. We had constructive dialogue with the FDA regarding our SCA development program and potential future data analyses to address regulatory concerns in the previously issued refuse-to-file decision on the NDA application for SCA3. +7 +Table of Contents +In October 2023, the European Medicines Agency ("EMA") informed us that our Marketing Authorization Application ("MAA") for troriluzole (Dazluma) in the treatment of SCA3 was validated and was now under review by EMA's Committee for Medicinal Products for Human Use ("CHMP"). In the fourth quarter of 2024, we completed a clarification meeting with the CHMP Rapporteurs. The MAA documents were subsequently updated with a broader indication to include all SCA genotypes, in light of the new positive BHV4157-206-RWE study data (discussed below). +In September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. The study achieved the primary endpoint (see figure below). +Collectively, data across multiple analyses demonstrate a robust and clinically meaningful slowing of disease progression in SCA patients. These treatment benefits translate into a 50-70% slower rate of decline compared to untreated patients, representing 1.5-2.2 years delay in disease progression over the 3-year study period. Additionally, in a responder sensitivity analysis, disease progression when defined by a 2 point or greater worsening on the f-SARA at 3 years showed an odds ratio ("OR") of 4.1 (95% CI: 2.1, 8.1) for the untreated external control arm versus troriluzole treated subjects (p < 0.0001; pooled analysis). +Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study utilized Phase 3 data and an external control of matched, untreated SCA subjects from the U.S. CRC-SCA in accordance with FDA's Guidance on Real-World Evidence ("RWE") of effectiveness. All endpoints were prespecified, and both the study protocol and statistical analysis plan were submitted to, and reviewed by, FDA prior to topline data analysis. The new analysis doubled the previously available 3 year data with 63 subjects now completing 3 years of treatment with troriluzole and matched to the external control arm. Propensity Score Matching ("PSM") was used to ensure that untreated patients from the CRC-SCA study were rigorously matched to treated patients from Study BHV4157-206 on baseline characteristics. The primary objective was to examine the treatment effects of troriluzole for up to 3 years, by comparing data on the f-SARA from patients treated with troriluzole in Study BHV4157-206 to untreated patients from the natural history study. Troriluzole-treated patients demonstrated statistically significant and sustained benefits at years 1, 2 and 3 on the f-SARA compared to a rigorously matched natural history control. +Additionally, prespecified analyses in the protocol employed a separate, independent natural history control from the European SCA natural history study ("EUROSCA") for global regulatory purposes. Results using the EUROSCA patients, in addition to a pooled analysis using both CRC-SCA and EUROSCA patients, as the external controls were also statistically significant and consistent with the primary efficacy analysis at all timepoints (see figures below). The addition +8 +Table of Contents +of EUROSCA data increased the external control sample size and added to the robustness of the statistically significant treatment differences at years 1, 2, and 3, favoring troriluzole. +Based upon the topline data from Study BHV4157-206-RWE, and previous safety and efficacy data from the troriluzole development program in SCA, we submitted an NDA for the treatment of all SCA genotypes to the FDA in the fourth quarter of 2024. The troriluzole development program has generated the largest clinical trial dataset in SCA and now has follow-up in some patients treated with troriluzole for over 5 years. We previously received both Fast-Track and Orphan drug designation ("ODD") from the FDA, and ODD from the European Medicines Agency ("EMA"), for troriluzole in SCA. An NDA with ODD is eligible for priority FDA review. +In February 2025, the FDA accepted for review our NDA for troriluzole for the treatment of adult patients with SCA and granted priority review. The FDA's decision regarding the NDA is expected during the third quarter of 2025. Based on FDA priority review timelines and if ultimately approved, we are prepared to commercialize troriluzole for SCA in the U.S. in 2025. +Troriluzole for OCD +OCD is a chronic neuropsychiatric disorder characterized by symptoms of obsessions (intrusive thoughts) and compulsions (repetitive behaviors) that can interfere with patients’ functional abilities. According to the National Institute of Mental Health, the 12-month prevalence of OCD is 1% of the U.S. adult population, and approximately half of these cases are characterized as severe. First-line treatment for OCD includes cognitive behavioral therapy, selective serotonin reuptake inhibitors (“SSRIs”) and adjunctive use of atypical antipsychotics. Nonetheless, up to 60% of patients have an inadequate response to conventional intervention strategies and some seek invasive neurosurgical procedures to ameliorate symptoms. +9 +Table of Contents +We are currently developing troriluzole as a potential treatment option for patients suffering from OCD. Despite the significant public health burden, no novel mechanisms of action have been approved by the FDA for OCD in over two decades. The rationale for use of troriluzole in OCD is supported by clinical data with its active metabolite, riluzole, in populations with OCD in open-label and placebo-controlled clinical trials as well as in preclinical, genetic and neuroimaging studies implicating the glutamatergic hyperactivity in the pathogenesis of OCD. +In multiple case studies, the use of riluzole in patients with refractory OCD has commonly been associated with meaningful improvement of symptoms. A small-scale randomized controlled trial in adults with OCD conducted by a third party showed favorable trends for the use of riluzole in an outpatient setting. Another randomized controlled third-party study demonstrated statistically significant therapeutic effects with the adjunctive use of riluzole as compared to adjunctive placebo in 50 adults with refractory OCD. These clinical effects are consistent with findings such as genetic associations of glutamate transporter genes with OCD and increased glutamate concentrations in brain and cerebrospinal fluid of patients with OCD. Taken together, we believed there was a clear rationale for advancement of troriluzole, a prodrug of riluzole, into a Phase 2 proof-of-concept trial in OCD. +We commenced a Phase 2/3 double-blind, randomized controlled trial on the use of troriluzole in adults with OCD in late 2017. Results from the Phase 2/3 trial were announced in June 2020. Troriluzole 200 mg administered once daily as adjunctive therapy in OCD patients with inadequate response to standard of care treatment showed consistent numerical improvement over placebo on the Yale-Brown Obsessive Compulsive Scale (“Y-BOCS”) at all study timepoints (weeks 4 to 12) but did not meet the primary endpoint at week 12. Troriluzole treated subjects (n = 111) had a mean Y-BOCS improvement of -3.4 points from baseline versus -2.9 for placebo-treated (n = 115) subjects [difference -0.5 and p-value = 0.451] at week 4, -5.1 points (n = 96) versus -3.6 for placebo-treated (n = 108) subjects [difference -1.5 and p-value = 0.041] at week 8, and -5.9 points (n = 99) versus -4.9 for placebo-treated (n = 102) subjects [difference -1.0 and p-value = 0.220] at week 12. Troriluzole’s safety profile was generally consistent with past clinical trial experience with its active metabolite, riluzole. Treatment emergent adverse events (“TEAEs”) were mostly reported to be mild in intensity. TEAEs that occurred in at least 5% of patients in the troriluzole group, and more frequently in the troriluzole group than in the placebo group, were headache, dizziness, fatigue, somnolence, nausea and nasopharyngitis. +Given the strong signal in the Phase 2/3 proof-of-concept study and after receiving feedback from the FDA in an End of Phase 2 meeting, in December 2020, we initiated enrollment in a Phase 3 program. The Phase 3 program will have an estimated total enrollment of up to 700 participants in each trial with a primary endpoint of change from baseline on the Y-BOCS total score at week 4, 8 and 10. The two Phase 3 randomized, double-blind, placebo-controlled trials that make-up our Phase 3 program for OCD are currently ongoing. +In January 2024, we announced plans to conduct a pre-planned interim analysis ("IA") to evaluate efficacy in the first of our two Phase 3 studies in OCD. The IA was planned to be conducted by an independent Data Monitoring Committee ("DMC") after approximately 70% of subjects in the primary analysis population reached the primary endpoint. The Data Monitoring Committee convened in the second quarter of 2024 to review the IA and informed the Company that the study may continue. As such, we continue enrolling patients in the first Phase 3 study in OCD and expect that this study will be fully enrolled in the first quarter of 2025. We expect to report topline data from the first Phase 3 study in OCD in the first half of 2025. There was a similarly designed pre-planned IA for the second Phase 3 study in OCD conducted in the fourth quarter of 2024, and the DMC also informed us that this study may continue. We expect to report topline data from the second Phase 3 study in OCD in the second half of 2025. +Troriluzole for Glioblastoma +Preclinical and small-scale pilot studies are underway to explore troriluzole’s use in the treatment of a pipeline of other indications such as some cancers whose spread is thought mediated by glutamate transmission, such as melanoma and GBM. +In collaboration with Johns Hopkins University, we explored the potential applicability of troriluzole for GBM. The oncology collaboration with Johns Hopkins was based upon the mechanistic rationale that some tumors over express glutamate receptors, the central role that glutamate may have in cancer metabolism and the effect of glutamate on the tumor microenvironment. +In December 2021, GCAR selected troriluzole for evaluation in GBM AGILE. GBM AGILE is a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent GBM, the most fatal form of brain cancer. Troriluzole will be evaluated in all patient subgroups of the trial which include newly-diagnosed methylated O6-methylguanine DNA methyltransferase (“MGMT”), newly-diagnosed unmethylated MGMT, and recurrent GBM. Troriluzole was selected for inclusion in GBM AGILE based on compelling evidence showing deregulation of glutamate in GBM. The therapeutic potential of troriluzole in GBM and other oncology indications is supported by several recent clinical and translational research studies conducted with troriluzole and its active moiety. For example, Medikonda et al. showed a survival benefit with troriluzole, alone and in combination with anti-programmed cell death protein-1 (“PD-1”) immunotherapy, utilizing a frequently used murine brain tumor model. +10 +Table of Contents +C57BL/6J mice were intracranially implanted with luciferase-tagged GL261 glioma cells. Mice were randomly assigned to the control, anti-PD-1, troriluzole or combination anti-PD-1 plus troriluzole treatment arms, and median overall survival was assessed. The troriluzole treatment arm demonstrated improved survival compared with the control arm (median survival of 36% vs. 0%; p < 0.0001), as did the combination anti-PD-1 plus troriluzole treatment arm (overall survival of 80% vs. 0; p = 0.0007). +In July 2022, the Company and GCAR announced that enrollment has commenced in GBM AGILE for the evaluation of troriluzole. GBM AGILE is a multi-arm, platform trial. The evaluation of each therapy in GBM AGILE proceeds in 2 possible stages. A therapy's Stage 1 is an adaptively randomized screening stage for evaluating the therapy within patient signatures compared against a common control. A therapy in Stage 1 will stop accruing patients if it reaches its maximal sample size, drops for futility, or evinces inadequate safety. If a therapy reaches an efficacy threshold for graduation from Stage 1, it will move into Stage 2 within one of the prospectively defined signatures. The maximum sample size in Stage 1 is 150 patients. For a therapy graduating to Stage 2 there is a fixed randomization, expansion cohort. The maximum sample size in Stage 2 is 50 experimental patients in the graduating signature. The primary analysis of a regimen's effect on overall survival uses all patients in both its stages and all control patients in the trial in the graduating signature, suitably adjusted for any possible time trends. The study is ongoing. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) +In February 2022, we announced a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel Phase 3 asset. Myostatin, a negative regulator of muscle growth, is a key member of the Transforming Growth Factor ("TGF-β") superfamily. Taldefgrobep's novelty in a field of myostatin inhibitors is based on the mechanism where it binds to myostatin to both lower overall free myostatin levels, but also to function as a receptor antagonist to block myostatin signaling in skeletal muscles. Recently generated data has shown that the taldefgrobep alfa-myostatin complex is stable, and blocks myostatin signaling to both myostatin and to a lesser extent to activin A potentially for a protracted period after cessation of dosing. Blocking myostatin activity and signaling has shown to improve muscle function and strength in a number of disease models for neuromuscular wasting along with physical and metabolic changes important to individuals living with overweight and obesity. Blocking activin contributes to decreased adipose tissue and improved glucose homeostasis. Clinical studies have confirmed that taldefgrobep improved lean body mass directly through increase on contractile muscle and loss of adipose tissue as demonstrated in both normal healthy volunteers and in patients with Duchenne muscular dystrophy (“DMD”). The mechanism of increasing overall muscle size and reducing adipose tissue volume provide development opportunities in both neuromuscular disease and individuals living with overweight and obesity. +11 +Table of Contents +The advanced taldefgrobep alfa anti-myostatin development program offers extensive human safety data, especially in the pediatric population. +Previous Clinical Trials +Taldefgrobep was previously studied by Bristol Meyers Squibb ("BMS") and Roche in 4 completed clinical studies in healthy volunteers and subjects with DMD. An estimated 360 subjects received taldefgrobep; 179 healthy subjects and 181 subjects with DMD. +Completed clinical pharmacology studies in healthy adult subjects included: +• CN001001 was a randomized, placebo-controlled, Phase 1 study designed to evaluate the safety, tolerability, PK, and PD of single and multiple ascending subcutaneous doses of taldefgrobep (vial) in healthy adults. +• CN001023 was a randomized, open-label, single dose, parallel-group, Phase 1 study designed to compare the bioavailability of subcutaneous injections in the arm, thigh, and abdomen and to evaluate the safety, tolerability, PK, and immunogenicity of taldefgrobep (pre-filled syringe) in healthy adults. +Completed clinical studies in subjects with DMD included: +• CN001006 was a multi-site, randomized, placebo-controlled, double-blind, dose-ranging, Phase 1b/2 study to evaluate the safety, tolerability, and PK of taldefgrobep in ambulatory boys with DMD aged ≥ 5 to < 11 years. +• CN001016 was a randomized, double-blind, placebo-controlled, Phase 2/3 study to assess the efficacy, safety, and tolerability of 2 doses of taldefgrobep in ambulatory boys with DMD aged ≥ 6 to < 12 years. +All studies supported the safety and tolerability of taldefgrobep with fixed doses from 35 mg up to 180 mg administered weekly, subcutaneously ("SC"). The pharmacokinetics and safety data from the Phase 1 studies supported the continued development with doses of 35 mg and 50 mg administered weekly SC. +In the Phase 3 Clinical Study, CN001016, a futility analysis based on this primary endpoint, conducted after approximately 30% of subjects had completed 48 weeks of study drug treatment, did not show any statistically significant +12 +Table of Contents +treatment differences. A summary of the development and outcome from these studies are published (Neurol Ther. 2024 Feb;13(1):183-219). +There are significant differences between a neuromuscular (DMD) and neurodegenerative disease (SMA). The differences in residual muscle in SMA along with adjunctive survival of motor neuron (“SMN”) upregulation therapy support the continued development of taldefgrobep alfa in SMA. +Spinal Muscular Atrophy +SMA is a rare genetic neurodegenerative disorder characterized by the loss of motor neurons, atrophy of the voluntary muscles of the limbs and trunk and progressive muscle weakness that is often fatal and typically diagnosed in young children. The underlying pathology of SMA is caused by insufficient production of the survival of motor neuron (“SMN”) protein, essential for the survival of motor neurons, and is encoded by two genes, SMN1 and SMN2. In the U.S., SMA affects approximately 1 in 11,000 births, and about 1 in every 50 Americans is a genetic carrier. Newborn screening is now available in 48 U.S. states and covers over 94% of all births. +Our Clinical Trial for Taldefgrobep Alfa in SMA +In September 2023, we completed enrollment in a Phase 3 clinical trial assessing the efficacy and safety of taldefgrobep alfa in SMA. The Phase 3 placebo-controlled, double-blind trial was designed to evaluate the efficacy and safety of taldefgrobep as an adjunctive therapy for participants who are already taking a stable dose of nusinersen or risdiplam or have a history of treatment with onasemnogene abeparvovec-xioi, compared to placebo. The primary outcome measure of the study was efficacy of taldefgrobep alfa compared to placebo in the change in the 32 item Motor Function Measure (“MFM-32”) total score from baseline to Week 48. Scores range from 0-3 on each item, with higher scores indicating higher functioning. The study was neither restricted nor limited to patients based on ambulatory status or classification of SMA and was designed to randomize approximately 180 patients in this randomized, double-blind, placebo-controlled global trial. +In November 2024, we announced that taldefgrobep alfa showed clinically meaningful improvements in motor function at all timepoints on the MFM-32, but the treatment arm did not statistically separate on the primary outcome at Week 48 compared to the placebo+standard of care ("SOC") group. Efficacy signals were observed in clinically relevant and biomarker-defined subgroups including those related to age, ambulatory status, background therapy, and baseline myostatin level. Analyses of prespecified subgroups by race and ethnicity demonstrated that the largest study population (87% Caucasian; n=180) showed clinically meaningful improvements on the MFM-32 at all timepoints, including Week 48, compared to the corresponding placebo+SOC group (p < 0.05). Additional analyses of these subjects (n=123) who had measurable baseline myostatin (the pharmacological target of taldefgrobep) showed an improved efficacy signal within this myostatin-positive population (p=0.02). +Prespecified outcome measures in the overall study population analyzing the change from baseline in body composition at Week 48 demonstrated a greater reduction in the percent change in total body fat mass in the taldefgrobep arm compared to the placebo+SOC arm (p=0.008) as measured by dual energy x-ray absorptiometry ("DXA"). The taldefgrobep arm also showed numerically larger increases in lean muscle mass and bone density compared to the placebo+SOC arm. +Biohaven plans to engage the FDA in the first half of 2025 to discuss the potential registrational path forward and will present the study data at an upcoming conference. The optional long-term extension phase of the trial will remain ongoing pending further data analysis as well as regulatory discussions. +In February 2023, we received Fast Track designation from the FDA for taldefgrobep alfa for the treatment of SMA. Fast Track designation enables important new drugs to reach patients earlier by facilitating more frequent communications with the FDA and expeditious review of a drug which treats a serious condition and fills an unmet medical need. In December 2022, we received orphan drug designation from the FDA for taldefgrobep in the treatment of SMA and from the European Commission in July 2023. +In April 2024, we announced that the FDA granted "rare pediatric disease" designation for taldefgrobep alfa. The designation provides for the potential for taldefgrobep to receive a priority review voucher (“PRV”) if ultimately approved for the indication of SMA prior to September 30, 2026. The rare pediatric disease PRV program began to sunset in December 2024 and will not apply for approvals after September 30, 2026. +Taldefgrobep Alfa’s Role in Spinal Muscular Atrophy +In the past few years, significant advancements were made to address the underlying cause of disease in SMA with the up-regulation of SMN1 and SMN2 expression which positions taldefgrobep as a potential combination therapy to enhance muscle performance. Data from an SMA animal model study that shows advantages of combination SMN therapy with taldefgrobep and the extensive clinical data in DMD support the advancement of taldefgrobep into a SMA +13 +Table of Contents +Phase 3 study. Other indications in muscle wasting diseases may be a follow-on for taldefgrobep along with other life-cycle opportunities. +Metabolic Disorders +Obesity is a disease of excess and/or abnormal deposits of adipose tissue and a current global public health crisis. By 2030, it is expected that nearly one billion people will be living with obesity, including 50% of the adult and 25% of the adolescent U.S. population. The primary driver of obesity-related morbidity and mortality is metabolically active visceral adipose tissue and associated deposits of adipose tissue in and around organs such as the heart, liver, kidneys, and muscle. +Taldefgrobep Alfa’s Role in the Management of Overweight and Obesity +Preclinical and clinical data have demonstrated the potential for anti-myostatin therapies to produce physical and metabolic changes that are highly relevant to individuals living with overweight and obesity, including reducing total body fat and visceral adiposity, and improving insulin sensitivity and bone mineral density, while increasing lean muscle mass. Taldefgrobep’s novel mode of action and unique impact on body composition suggest it could be used as monotherapy or in combination with other anti-obesity medications. +In October 2023, we announced preclinical data demonstrating the ability of taldefgrobep to significantly reduce fat mass while increasing lean mass in an obese mouse model. In a mouse model of diet-induced obesity, untreated mice exhibited an increase in fat mass of 31%, while the mice treated with taldefgrobep demonstrated increases in lean mass of 25% from baseline (p≤.0.001) and lost 11% of their baseline fat (p≤.0.001) compared to vehicle (placebo) treated mice. Insulin and leptin levels were consistently lower in mice treated with taldefgrobep compared to the untreated mice. There was no difference in food intake over time across the taldefgrobep and untreated mice, counter to what has been observed with incretin mimetics (e.g., semaglutide) which are consistently associated with a reduction in energy intake. +Our Clinical Trial for Taldefgrobep Alfa in Obesity +In a Phase 1 MAD study conducted by BMS in normal healthy volunteers, the cohort using the projected therapeutic 45mg dose of taldefgrobep demonstrated a continued improvement in lean mass and a reduction in fat mass during the 29 day dosing period that continued to increase through the observation period at 4 weeks post dosing (see figure below). +14 +Table of Contents +In May 2024, we announced preclinical data from a diet induced obesity mouse model, which showed treatment with taldefgrobep alfa together with a glucagon-like peptide-1 ("GLP-1") agonist produced greater reductions in body weight and fat mass, and a larger increase in lean muscle mass, compared to treatment with GLP-1 alone (see figure below). +We plan to initiate a Phase 2 clinical trial of taldefgrobep in the management of metabolic disease in the first half of 2025. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +15 +Table of Contents +Ion Channel Platform +Kv7 +Kv7 Platform Acquisition +In February 2022, we announced that we entered into a definitive agreement with Channel Biosciences, LLC, a subsidiary of Knopp Biosciences, LLC, to acquire a drug discovery platform targeting Kv7 ion channels, adding the latest advances in ion channel modulation to our growing neuroscience portfolio. +Kv7’s Role in Epilepsy, Mood Disorders, and Other Central Nervous System Disorders +Because of their fundamental role in health and their aberrant role in disease, ion channels in cell membranes represent a broad and important class of drug targets. Sodium channels and potassium channels form the ionic basis of the action potential in electrically charged cells throughout the body (see figures below). The Kv7 protein in particular forms a channel that exquisitely regulates the flow of charged potassium ions (K+) across cell membranes, repolarizing nerve cells and resetting them for normal action potential firing. Kv7 channels include a family of channel subtypes, designated as Kv7.1 through Kv7.5, and they are formed by tetramers of identical or compatible subunits. Some of these channel subtypes localize in nerve cells (neurons) while others can be found in cardiac muscle, smooth muscle, and other tissue types. +The Kv7 subunits, Kv7.2 and Kv7.3, are widely expressed in the brain, notably in the cortex and hippocampus, and together they form Kv7.2/7.3 heteromeric channels that produce the M-current ( I KM ), a critical regulator of neuronal excitability (see figures below). Kv7.2/7.3 channels normally perform a natural “braking” function by regulating the electrical excitability and hyperexcitability of brain cells. Dysfunction of these channels, due to genetic mutations or other factors, increases seizure risk, while augmenting the ‘open’ activity of these channels has been demonstrated to reduce neuronal hyperexcitability and seizure frequency in electrophysiology laboratories, in animal models, and, most importantly, in patients. +White, Role of Potassium Channel Ions in Epilepsy, Medscape.org +We are synthesizing novel Kv7.2/7.3 activators that improve on the selectivity, potency, and other characteristics of ezogabine (Potiga in the U.S. and Trobalt (retigabine) in Europe), a drug approved in 2011 for the treatment of refractory epilepsy and voluntarily withdrawn from the market in 2017 because of poor tolerability and structure-related toxicities that limited its clinical use, and ezogabine-like compounds, while averting its negative attributes, including off-target activity at a different brain ion channel, gamma-aminobutyric acid (“GABA”) A receptor (“GABA A -R”). +Using a structure-based approach, supplemented by in silico modeling, we have identified structural features of our molecules critical to Kv7 activation. We have applied these analyses to the generation of proprietary chemical leads structurally distinct from known Kv7 activators, including ezogabine and flupirtine, the only other approved Kv7 modulator, approved in Europe for the treatment of acute pain. Our team has synthesized a large library of Kv7-activating molecules and are advancing them according to stringent criteria requiring improvements over ezogabine, including chemical stability, synthetic tractability, the avoidance of structural motifs associated with the generation of reactive metabolites and other unwanted, off-target activity, including GABA A -R activation. +Epilepsy, Major Depressive Disorder ("MDD"), and Bipolar Disorder are the initial indications we are targeting with activators from our Kv7 platform. In addition to their role in treating epilepsy, anti-seizure medications ("ASMs") are often +16 +Table of Contents +used in the management of bipolar disorder and Kv7 activators have recently shown great promise in the the treatment of MDD. While the use of ASMs is often accompanied by dose-limiting side effects, our Kv7 activators are specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives activators from our Kv7 platform a wide therapeutic window and is expected to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving ASMs. +BHV-7000 +BHV-7000 (formerly known as KB-3061), the lead asset from the Kv7 platform, is a potent Kv7.2/7.3 ion channel activator from a novel, bicyclic imidazole class that is structurally-distinct from other Kv7 modulators (e.g., ezogabine and related aniline compounds) with significant in vivo anticonvulsant activity and a wide therapeutic index. In the most widely used and positively-predictive preclinical model of epilepsy, the maximal electroshock (“MES”) model, data for BHV-7000 and ezogabine were collected in independent experiments (see figures below), measuring the activity of both compounds in preventing seizures (ED50) and recording the neurologic deficit five minutes prior to the MES test to calculate the tolerability index (“TI”). The neurologic deficit is a behavioral index ranging from normal activity (score of 0) to a loss of righting reflex (score of 3). As shown below, BHV-7000 was demonstrated to have an ED50 = 0.5 mg/kg with almost no impact on behavior producing a TI > 40x. In a separate rotarod experiment of preclinical tolerability, BHV-7000 had no impact on rat motor behavior up to 30 mg/kg, the highest dose tested. In contrast, ezogabine was 40x less potent (ED50 = 20 mg/kg) in the MES model with a narrow TI < 3x. The narrow preclinical TI for ezogabine is consistent with the clinical experience with the drug where side effects such as somnolence and dizziness limited its use at doses that prevented seizures in patients. +Phase 1 Clinical Development +In the second quarter of 2022, our Clinical Trial Application for BHV-7000 was approved by Health Canada, and we subsequently began phase 1 clinical development. First-in-human single ascending dose ("SAD") and multiple ascending dose ("MAD") studies have now been completed. In the SAD and MAD cohorts, 77 subjects received BHV-7000 (N=58) or placebo (N= 19). Thirty-nine SAD subjects were randomized to BHV-7000 or placebo and thirty-eight MAD subjects were +17 +Table of Contents +randomized to BHV-7000 or placebo. The rates of adverse events ("AEs") by MedDRA System Organ Class across the pooled SAD and MAD cohorts among subjects treated with BHV-7000 and placebo are presented in the tables below. +Table 1: Treatment‐emergent adverse events ("TEAEs") Occurring in ≥ 2 Subjects Receiving BHV-7000 in SAD Cohorts +All AEs reported in the SAD cohorts were mild in severity. +Table 2: TEAEs Occurring in ≥ 2 Subjects Receiving BHV-7000 in MAD Cohorts +All AEs reported in the MAD cohorts were mild in severity, except 1 case of back pain (moderate severity, 40 mg) and 1 case of dizziness (moderate severity, 80 mg). +a Data are included from a separate study evaluating higher MAD doses. +b Data are pooled across studies. +In 2023, we initiated a Phase 1 open-label electroencephalogram ("EEG") study designed to evaluate the effects of BHV-7000 on EEG parameters in healthy adults. The study’s objective was to demonstrate BHV-7000 target engagement in the cerebral cortex and to help refine dose selection for Phase 3 trials. Study measures included continuous EEG monitoring, time locked pharmacokinetic ("PK") sampling, and changes in EEG spectral power post dose. +The Phase 1 EEG study was designed to evaluate qualitative changes from baseline in EEG spectral power after administration of single doses of BHV-7000 (10, 25, or 50 mg) to 11 healthy male and female adult volunteers. EEG spectral power is a measure derived from quantitative analysis of EEG signals that assesses the amount of rhythmic activity in different frequency bands, including delta [1-3.5 Hz], theta [3.5-7.5 Hz], alpha [7.5-13 Hz], beta [13-30 Hz], and gamma [30-100 Hz]. Changes in spectral power have been used to evaluate the risk, onset and progression of seizures, assess cognitive and behavioral impairments, and characterize the effects of anti-seizure medications ("ASMs"), and they may also have utility in refining dose selection in clinical trials of ASMs. Spectral analysis was performed by Clouds of Care (Ghent, Belgium), a global leader in EEG analytics. +Interim data from the Phase 1 EEG study were presented in December 2023 at the American Epilepsy Society meeting in Orlando, Florida. BHV-7000 was well-tolerated at all doses studied, without the typical CNS AEs associated with other ASMs, such as somnolence or cognitive/mood disturbances, and EEG data showed dose-dependent increases in brain spectral power in healthy subjects (Figure 1 below). Unlike prior reports where EEG effects of a Kv7.2/7.3 activator showed the greatest power increase in the delta frequency band (Biondi et al. 2022), the highest spectral power increases with BHV-7000 were seen in alpha, beta, and gamma frequency bands (Figure 2 below). While changes in spectral power were observed across all frequency bands with BHV-7000, the minimal impact on slower frequencies (i.e., delta) is consistent with the low incidence of CNS adverse events, in particular somnolence, seen in the BHV-7000 Phase 1 +18 +Table of Contents +SAD/MAD studies. EEG delta activity is associated with somnolence, an undesirable CNS adverse event often seen with other ASMs. +Figure 1: BHV-7000 shows dose-dependent increases in spectral power over all brain regions. +Figure 2: BHV-7000 effect on spectral power in resting -state EEGs. Greatest impact observed on alpha frequency with minimal impact on delta and theta frequencies. +The preliminary EEG study results confirm the CNS activity of BHV-7000 at projected therapeutic concentrations, dose-dependent and time-dependent changes in EEG spectral power, and are consistent with the quantitative EEG effects observed with other ASMs approved for the treatment of epilepsy. +Based on the results from the EEG study and the safety profile in SAD/MAD trials, along with PK data from a new once-daily extended-release (“ER”) formulation, Biohaven is exploring three oral doses of BHV-7000 (once daily 25 mg ER, once daily 50 mg ER, and once daily 75 mg ER) in the Phase 2/3 clinical trials in epilepsy and mood disorders. This dosing +19 +Table of Contents +approach with a Kv7 activator will allow for assessment of distinct target concentrations over a wide range, above and below projected efficacious EC50 drug concentrations (Figure 3), not previously feasible with drugs in this class. +Figure 3: Predicted PK profile of BHV-7000 ER, mean predicted concentration vs. time profiles for 25 mg ER, 50 mg ER and 75 mg ER once-daily dosing at steady state relative to EC20 and EC50 (EC values from preclinical MES models). +In December 2024, t the American Epilepsy Society meeting, we presented additional safety data with the BHV-7000 once-daily extended-release formulation, which further demonstrated tolerability. +Epilepsy +Epilepsy affects approximately 3.5 million Americans, or more than 1.2% of adults and 0.6% of children in the U.S., and more than 50 million patients worldwide, according to the World Health Organization (“WHO”). It is the fourth most common neurological disorder, and many patients struggle to achieve freedom from seizures, with more than one third of patients requiring two or more medications to manage their epilepsy. While the use of anti-seizure medications is often accompanied by dose-limiting side effects, our clinical candidate BHV-7000 is specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives BHV-7000 a wide therapeutic window which we expect to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving anti-seizure medications. We aim to bring this potassium channel modulator as a potential solution to patients with epilepsy who remain uncontrolled on their current regimens. +Our Clinical Trials for BHV-7000 in Epilepsy +Focal Epilepsy +In January 2024, we completed our End-of-Phase 2 meeting with the FDA to advance to Phase 3 trials and announced that more than 110 global clinical sites have been selected in the first of two focal epilepsy trials. Enrollment in our Phase 2/3 program commenced in the first quarter of 2024. The two pivotal studies evaluating the efficacy of BHV-7000 in refractory focal epilepsy are planned as randomized, double-blind, placebo-controlled, 8- and 12-week trials with a primary endpoint of change from baseline in 28-day average seizure frequency in adults with focal epilepsy. One of the focal epilepsy studies will evaluate 25 mg and 50 mg doses of BHV-7000 and the second study will evaluate 50 mg and +20 +Table of Contents +75 mg doses of BHV-7000 (see figures below). We expect to report topline results from the first study in the first half of 2026. +Idiopathic Generalized Epilepsy +In addition to the focal epilepsy program, we initiated a Phase 2/3 study of BHV-7000 in idiopathic generalized epilepsy ("IGE") in the second quarter of 2024. The pivotal study evaluating the efficacy of BHV-7000 with IGE is planned as a randomized, double-blind, placebo-controlled 24-week time-to-event trial with a primary endpoint of time to second generalized seizure in adults and adolescents with IGE (see figure below). +Mood disorders +Approximately 1 in 5 adults in the U.S. are living with neuropsychiatric illnesses that are associated with inadequate treatment, poor quality of life, disability, and considerable direct and indirect costs. There is significant unmet need for novel and effective therapeutic options that are not limited by long latency periods to clinical effects, low response rates, and significant risks and side effects. Increasing evidence from animal models and clinical trials now suggests that Kv7.2/7.3 targeting drugs offer the potential to treat a spectrum of these neuropsychiatric diseases including, but not limited to, mood disorders such as major depressive disorder, bipolar disorder and anxiety. +Major Depressive Disorder +Major depressive disorder ("MDD") is a leading cause of morbidity. Approximately 8.3% of adults in the U.S. have had at least one major depressive episode; accordingly, there is an urgent need for more effective treatments. Within the current armamentarium of treatments nearly one third of patients fail to respond. Kv7 activation has emerged as a novel strategy to treat and prevent depressive episodes and holds significant potential as a novel treatment for patients with +21 +Table of Contents +MDD. The therapeutic role for Kv7 activation in MDD is supported by a broad range of epigenetic, mechanistic, preclinical, and clinical evidence. Multiple depression models have demonstrated the antidepressant efficacy of enhancing potassium channel activity. As preclinical studies demonstrate upregulation of Kv7 channels in mice subject to chronic stress, increasing potassium channel function either through genetic over expression or via potassium channel activation (via ezogabine) reverses depressive and anhedonic behaviors in mice across multiple studies. Recent randomized, controlled clinical trials of Kv7 activators demonstrated efficacy in MDD. Together, these data, coupled with the favorable clinical safety and tolerability profile exhibited by BHV 7000 to date, provide a compelling rationale for the evaluation of Kv7 activation with BHV-7000 in MDD. +Our Clinical Trial for BHV-7000 in Major Depressive Disorder +We initiated a Phase 2 clinical trial with BHV-7000 for the treatment of MDD in the second quarter of 2024. The study is a 6 week, randomized, double-blind, placebo-controlled trial in approximately 300 subjects, with a primary endpoint of measurement on the Montgomery-Asberg Depression Rating Scale ("MADRS"). See figure below for trial design. We expect to report topline results from the study in the second half of 2025. +Bipolar disorder +Bipolar disorder affects an estimated 4.4% of U.S. adults over their lifetime. Bipolar disorder is associated with significant morbidity, decreased quality of life and economic burden. Treatment guidelines recommend patients receive life-long treatment for bipolar disorder. However, medication adherence is typically very low in this population, due in large part to undesirable side effects that are poorly tolerated by patients. The mainstays of treatment include mood stabilizing agents that are also used as anti-seizure medicines (i.e., valproic acid, lamotrigine, and topiramate). Preclinical and pilot clinical data similarly suggest a potential therapeutic role for Kv7 activation in bipolar disorder, which is expected to result in an improved side effect profile compared to other anti-seizure medications. +Our Clinical Trial for BHV-7000 in Bipolar Disorder +We initiated a Phase 2/3 clinical trial with BHV-7000 for the treatment of bipolar disorder in the second quarter of 2024. The study was a 3 week, randomized, double-blind, placebo-controlled trial in approximately 256 subjects, with a primary endpoint of measurement on the Young Mania Rating Scale ("YMRS"). See below for trial design detail. +22 +Table of Contents +In March 2025, the Company completed a focused topline analysis of treatment with BHV-7000 in the acute treatment of manic episodes associated with bipolar disorder in a 3-week trial. BHV-7000 did not statistically differentiate from the comparator arm on the primary efficacy endpoint of improvement from Baseline to Day 21 on the YMRS. Additional analyses are ongoing, and complete study results will be presented at an upcoming scientific meeting. +BHV-7000 75 mg once daily, the highest dose of BHV-7000 being evaluated in Phase 2/3 trials, was safe and well-tolerated in this study. No adverse trends in vital signs, ECGs, or labs were noted. There were no treatment emergent serious adverse events. Most adverse events were mostly mild in intensity and resolved spontaneously. This offers a highly favorable and differentiated profile compared to other antiseizure medicines and is consistent with lack of GABA effects. +Developmental Epileptic Encephalopathies +KCNQ2 developmental epileptic encephalopathy (“KCNQ2-DEE”) is a rare pediatric epileptic encephalopathy first described in 2012 resulting from dominant-negative mutations in the KCNQ2 gene. Epileptic encephalopathies (“EE”) comprise a group of epilepsy syndromes in which onset of recurrent and medically refractory seizures are associated with cognitive and broader developmental delay or regression. Although only recently described, heterozygous de novo variants in KCNQ2 are a highly validated cause of early onset epileptic encephalopathy, and KCNQ2-DEE has emerged as a well-defined clinical entity with a characteristic neonatal presentation, including hypotonia, treatment-resistant tonic seizures, a profoundly abnormal EEG, and most often with moderate-to-profound global developmental delay. KCNQ2-DEE is thus both a seizure disorder and a developmental disorder caused by pathogenic KCNQ2 mutations. +Identification of genetic etiologies has created the opportunity to treat not just the symptoms of KCNQ2-DEE, including seizures, but also the underlying causes, including attenuating or reversing the effects of the disease-causing variants. In addition to its activity in the MES model, we explored the ability of BHV-7000 to reverse the reduced current density associated with KCNQ2-DEE and support its use as potential treatment for the disease). To determine the effects of BHV-7000 on the function of Kv7.2 and Kv7.2/7.3 channels poisoned by dominant-negative KCNQ2 mutations, four highly recurrent human missense variants known to cause KCNQ2-DEE were evaluated in an in vitro model measuring current density in cells expressing the pathologic proteins. +The figure below shows the effects of BHV-7000 on current density of wt/wt Kv7.2 channels and those formed by 1:1 coexpression of wt KCNQ2 genes with four disease-causing KCNQ2 variants (T274M, A294V, R581L, R210H). In the control condition, all pathogenic variants produced a marked reduction in current density to below wt/wt levels. BHV-7000 at either 0.3µM or 1.0 µM restored current density in all mutated channels to or beyond wt control current density (**<0.01). +BHV-7000 has been granted Rare Pediatric Disease Designation by the U.S. Food and Drug Administration ("FDA") for the treatment of KCNQ2-DEE. +Neuropathic Pain +Neuropathic pain, as defined by the International Association for the Study of Pain, is pain caused by a lesion or disease of the somatosensory nervous system and includes a collection of heterogeneous conditions that are often chronic and debilitating and for which long term therapy is difficult. In the United States, over 30 million adults are estimated to be living with neuropathic pain. Pharmacological treatments for neuropathic pain vary according to patient needs, although recommendations such as the WHO analgesic ladder, United States Centers for Disease Control (“CDC”) guidelines, and FDA guidelines are in use. Initial or first line treatment for neuropathic pain includes non-opioid analgesics, in particular, antidepressants, anticonvulsants, steroids, and anxiolytics. Second line treatment of persistent, +23 +Table of Contents +severe pain may require escalation to opiates, often less potent ones at first, followed by more potent opiates for intense refractory pain. +Accordingly, an urgent need exists for effective, non-addictive pain therapies. Flupirtine, a non-selective Kv7 activator, was previously approved in several European countries and indicated for the treatment of pain. However, the European Medicines Agency recommended withdrawal of its marketing authorization in 2018 because of the risk of serious liver injury. Selective Kv7 potassium channel activators represent a new approach in the development of non-opioid therapeutic options for neuropathic pain. In addition to leveraging the reduced abuse and addiction risk potential of potassium channel activators, our Kv7 potassium channel platform addresses the complexities of channel subtype physiology through targeted pharmacology to overcome the limitations inherent in nonselective Kv7 activators and is intended to deliver a well-tolerated, highly effective, non-opioid treatment for neuropathic pain. +Our Kv7 program research was supported in part with funding from the National Institutes of Health (“NIH”) to advance the development of novel Kv7 non-opioid therapies for the treatment of chronic pain. The NIH funding is by the NIH Helping to End Addiction Long-term Initiative (“NIH HEAL Initiative”), which aims to improve treatments for chronic pain, curb the rates of opioid use disorder and overdose, and achieve long-term recovery from opioid addiction. The goal of our Kv7 program is to discover a small-molecule activator of the Kv7.2/7.3 voltage-gated potassium channel to treat neuropathic pain. Similar to our epilepsy program, we are targeting compounds with these characteristics: +• Biased for Kv7.2/3 activation vs. Kv7.4 activation to minimize potential adverse smooth muscle effects; +• Selective against GABA A receptors to minimize potential tolerability issues; +• Selective against Kv7.1/KCNE1 (IKs) and hERG (IKr) to minimize cardiac side-effects; and +• Potent and effective across animal models of neuropathic pain. +Axonal excitability and neurotransmitter release are altered in neuropathic pain due to sodium channel plasticity, increased voltage-gated calcium channels in the spinal cord, and diminished potassium channel activity in dorsal root ganglion (“DRG”) neurons. These changes in ion channel number, distribution, and function are common to many neuropathic pain subtypes. The functional density of Kv7.2/3 channels is a key variable governing sensory DRG control of intrinsic excitability. Rose et. al demonstrated downregulation of Kv7 potassium channel mRNA in an experimental nerve injury model and further showed alleviation of neuropathic hyperalgesia with administration of flupirtine. +Using human induced pluripotent stem cell (“iPSC”)-derived DRG sensory neurons, we have assessed the physiological activity of these neurons by modulating Kv7 channels across three electrophysiologic parameters: resting membrane potential (Vm), rheobase = the current required to stimulate an action potential (“AP”), and the number of APs elicited by a suprathreshold stimulus (3x rheobase). We are currently evaluating the activity of various compounds from our proprietary series of selective Kv7.2/7.3 activators in multiple preclinical models of neuropathic pain. The Company has also initiated a sponsored research agreement with Yale to evaluate the activity of BHV-7000 in an iPSC model of inherited erythromelalgia, a severe rare genetic neuropathy. +Migraine +We are currently exploring BHV-7000 as a potential treatment for migraine. Kv7.2/7.3 openers have shown significant activity in cortical spreading depression models of migraine. +TRPM3 Ion Channel Antagonists +KU Leuven Agreement +In January 2022, we entered into an agreement with KU Leuven ("the KU Leuven Agreement") to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery and the Laboratory of Ion Channel Research at KU Leuven. Under the KU Leuven Agreement, we receive exclusive global rights to develop, manufacture and commercialize KU Leuven's portfolio of small-molecule TRPM3 antagonists. The portfolio includes the lead candidate, BHV-2100. We are continuing to support further basic and translational research on the role of TRPM3 in pain and other disorders through our collaboration with professors in Transient Receptor Potential ("TRP") biology at KU Leuven. +Efforts to target TRP Ion Channels for pain +Since the Nobel Prize-winning discovery of the capsaicin receptor TRPV1 in 1997, members of the TRP cation channel family have been elusive drug targets for the treatment of pain. Initially, there was much excitement and investment in TRPV1 antagonists due to promising preclinical efficacy and some evidence of clinical pain reduction. However, trials of most TRPV1 antagonists were terminated after the class consistently caused clinically-significant +24 +Table of Contents +hyperthermia in study participants. Several companies then made efforts to progress antagonists of TRPA1, the receptor for mustard oil. Though Glenmark’s GRC 17536 showed encouraging results in a subset of diabetic peripheral neuropathic pain subjects in a Phase 2a study, it suffers from poor physiochemical properties and pharmacokinetics like many other TRPA1 antagonists. +TRPM3 is a novel target in the TRP family. Like TRPV1 and TRPA1, preclinical data and human genetic validation support TRPM3’s role in neuropathic pain and migraine. Unlike TRPV1 antagonists, TRPM3 antagonists are unlikely to possess significant thermal liabilities, and, unlike TRPA1 antagonists, Biohaven’s TRPM3 antagonists have desirable physiochemical properties and good pharmacokinetic profiles. The figure below illustrates TRPM3 as a differentiated target for the treatment of pain in the TRP family. +Adapted from Efforts to target TRP channels for pain , Kovivisto et al. 2022 +About TRPM3 +TRPM3 is a novel druggable target in the TRP cation channel family. TRPM3 is functionally expressed in the human dorsal root ganglion, and several single nucleotide polymorphisms ("SNPs") in TRPM3 are associated with altered pain sensation in response to ultraviolet B ("UVB") (see figure below). Additionally, people with TRPM3 gain-of-function mutations experience altered pain sensation (de Sainte Agathe 2020, Dyment 2019, Van Hoeymissen 2020). Knocking out or antagonizing TRPM3 in animal models attenuates the development of various pain states, including those associated with nerve injury, chemotherapy, and diabetic peripheral neuropathy, further indicating that TRPM3 is a promising target for neuropathic pain. Lastly, preclinical evidence suggests that antagonizing TRPM3 may avoid the on-target body temperature effects and TRPV1 antagonist-induced malignant hyperthermia. +Vangeel et al, 2020 Lotsch et al, 2020 +25 +Table of Contents +BHV-2100 +BHV-2100 is an orally-bioavailable small molecule antagonist of TRPM3. TRPM3 is expressed in the relevant human tissue types for neuropathic pain, and both preclinical models and human genetics implicate TRPM3 in pain signaling. +Our Phase 1 Study with BHV-2100 +We completed a Phase 1 study of BHV-2100 in Canada. The Phase 1 study was a randomized, double-blind, placebo-controlled, SAD/MAD study in healthy subjects to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of BHV-2100. In May 2024, we reported positive pharmacokinetic and safety data from the completed Phase 1 study with BHV-2100. The results demonstrated rapid absorption with therapeutic concentrations achieved by 20 minutes. The favorable tolerability profile at single doses up to 500 mg exceeds the anticipated therapeutic dose and is well above the EC90 concentration. Based on these findings, we initiated a Phase 2 study of BHV-2100 in the acute treatment of migraine and a proof-of-concept study in pain in the fourth quarter of 2024. +Our Clinical Trial for BHV-2100 in Migraine +Nearly 40 million people in the U.S. suffer from migraine and the World Health Organization classifies migraine as one of the 10 most disabling medical illnesses. Migraine is characterized by debilitating attacks lasting four to 72 hours with multiple symptoms, including pulsating headaches of moderate to severe pain intensity that can be associated with nausea or vomiting, and/or sensitivity to sound (phonophobia) and sensitivity to light (photophobia). There is a significant unmet need for new treatments as more than 90 percent of migraine sufferers are unable to work or function normally during an attack. +In September 2024, we announced that we have initiated a Phase 2 study evaluating BH-2100 in the acute treatment of migraine. The study is a 45-day, randomized, double-blind, placebo-controlled trial in approximately 575 subjects, with primary endpoints of freedom from pain at two hours post-dose and freedom from most bothersome symptom at two hours post-dose. See figure below for trial design. Data from the proof-of-concept migraine study are expected in the first half of 2025. +Our Development of BHV-2100 for the Treatment of Neuropathic Pain +BHV-2100 is also being developed as a potential non-opioid treatment for neuropathic pain. We are evaluating the ability of BHV-2100 to reduce pain behaviors across several preclinical models of neuropathic pain, including chemotherapy induced neuropathy, diabetic neuropathy, and nerve injury.We initiated a conduct a proof-of-concept study for neuropathic pain in the fourth quarter of 2024. The study is a Phase-1b, randomized, double-blind, placebo and active reference controlled, crossover trial to assess the anti-nociceptive and anti-hyperalgesic effects of single oral doses of BHV-2100 (25 mg, 75 mg, and 150 mg) vs. placebo, in a cohort of approximately 24 healthy male volunteer participants, utilizing a laser-evoked potential experimental pain paradigm. Preliminary data from the laser-evoked hyperalgesia study demonstrated that BHV-2100 reduced laser heat-induced pain and brain evoked potentials in healthy volunteers. Preliminary data demonstrated that BHV-2100 reduced laser heat-induced pain and brain evoked potentials in healthy volunteers. Complete data from the laser-evoked potential study are expected in the first half of 2025. +26 +Table of Contents +Additional research on TRPM3-mediated disorders +Under the KU Leuven Agreement, Biohaven is supporting further basic and translational research at KU Leuven on the role of TRPM3 in pain and other disorders. In addition to BHV-2100, we are optimizing other lead compounds for TRPM3-mediated disorders of the peripheral and central nervous systems. +27 +Table of Contents +Inflammation and Immunology Platform +TYK2/JAK1 +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") (the "Highlightll Agreement"), pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +BHV-8000 +Dysregulation of the immune system has been implicated in several neurodegenerative and neuroinflammatory disorders including Parkinson's Disease, Multiple Sclerosis, Alzheimer's Disease, Amyotrophic Lateral Sclerosis and Autoimmune Encephalitis. Over-active immune cells and microglia driving chronic neuroinflammation results in release of cytokines with activation of leukocytes and is thought to contribute to neuronal injury, death, gliosis, and demyelination. The tyrosine kinase 2 ("TYK2") and Janus kinase 1 ("JAK1") signal transduction pathways mediate highly complementary immune and inflammatory signaling events. Targeted, small-molecule therapies that inhibit TYK2 or JAK kinases have separately demonstrated robust efficacy in autoimmune, dermatologic and gastrointestinal disorders. TYK2 is a validated immune target as evidenced by a recent peripheral program that gained FDA approval, and there are multiple additional peripheral non-CNS programs in clinical development. Brain penetrant inhibitors of TYK2/JAK1 have the potential to bring this validated immune target to brain disorders. There are currently no brain penetrant, selective, dual TYK2/JAK1 inhibitors approved for brain disorders. +Target indications for BHV-8000 include Parkinson's disease, Alzheimer's disease, prevention of amyloid-related imaging abnormalities ("ARIA"), and multiple sclerosis ("MS"). Biohaven completed interactions with FDA enabling registrational programs for Parkinson's disease and the prevention of ARIA. +Our Phase 1 Study with BHV-8000 +In May 2023, we began dosing with BHV-8000 (previously TLL-041), in a phase 1 study in normal healthy volunteers. In May 2024, we reported positive results from the Phase 1 single and multiple ascending dose study, including evidence of target engagement along with a safe and well tolerated profile. Phase 1 study data also confirmed cerebrospinal fluid ("CSF") exposures of BHV-8000. +We expect to initiate a pivotal trial in Parkinson's in the first half of 2025 and advance Alzheimer's, MS and ARIA programs in 2025. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +MoDE and TRAP Degraders +Molecular Degraders of Extracellular Proteins +The Molecular Degraders of Extracellular Proteins (“MoDEs”) platform harnesses selectivity, rapidity, and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE degrader is a novel bispecific molecule that targets a specific form of circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. Four INDs have been accepted by the FDA for MoDE degrader molecules in 2024 and multiple other investigational agents are in development. Three assets have been dosed in Phase 1 trials, with the fourth anticipated to be dosed in the first half of 2025. The first-of-its-kind molecule, BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1400 and BHV-1600, currently in Phase 1 clinical trials, Biohaven's first Targeted Removal of Aberrant Protein ("TRAP"™) molecules, represent next generation MoDEs targeting very specific pathogenic antibodies, while sparing healthy immunoglobulin to preserve immune function. Data from the first, and lowest, dose cohort of BHV-1400 demonstrated clear differentiation from competitors in the IgA nephropathy space, with rapid lowering of Gd-IgA1 within hours and preservation of host immunoglobulins including IgG, IgA, IgE, and IgM. Multiple new and novel investigational MoDE and +28 +Table of Contents +TRAP molecules are in development for potential treatment of diseases, such as membranous nephropathy, Graves' disease, diabetes, and IgG4-mediated diseases. +BHV-1300 +The first-of-its-kind molecule BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1300 was rationally designed to spare IgG3, potentially allowing for preservation host defense. BHV-1300 is being developed for the treatment of common immune mediated-diseases, such as Graves' Disease and Rheumatoid Arthritis ("RA"). Graves' Disease is a disease in which IgG1 autoantibodies stimulate the thyroid to produce excess thyroid hormone. Targeted removal of disease-causing IgG has the potential to eliminate the pathogenic thyroid-stimulating antibody and modify the disease. Graves' Disease is estimated to impact 1% of the population globally. RA is a chronic autoimmune disease estimated to affect 1 to 2% of the global population. RA primarily affects the joints, causing pain, swelling, stiffness, and loss of function. +We evaluated the effect of single and multiple doses of BHV-1300 in cynomolgus monkeys. In September 2023, we reported data from confirmatory studies that showed a 75-80% reduction of IgG levels two days after a single dose and over 90% of IgG lowering after three doses. +Maximal lowering across FcRn inhibitors is 60-80% within approximately 7 to 21 days after initiation of single or multiple doses, respectively, in cynomolgus. In contrast, a single dose of BHV-1300 lowers IgG by approximately 75 to 80% after approximately 2 days, and after three rapid doses to greater than 90% lowering. The length of significant exposure to BHV-1300 is approximately one day within the dosage interval compared to continuous exposure required of the FcRn inhibitors. Mechanism-related liabilities of FcRn inhibitors seen in animals and humans, including +29 +Table of Contents +hypoalbuminemia and hypercholeresterolemia, are not expected and do not occur with BHV-1300 in cynomolgus. See figures below comparing the speed and depth of lowering to FcRn inhibitors. +In January 2024, we reported preclinical pharmacodynamic single dose data with BHV-1300 which demonstrated the Biohaven IgG degrader technology allows for co-administration with Fc-containing biologics. The PK of Humira® was unaltered after being dosed 12 hours after BHV-1300 administration (see figure below). +* Adapted from BLA 761154, IND 116471, Study no. r-fkb327-01 +Our Phase 1 Study with BHV-1300 +The Phase 1 SAD study examining BHV-1300 in healthy subjects was initiated in the first quarter of 2024 and remains ongoing. In May 2024, we reported preliminary results from our Phase 1 study of BHV-1300. These results in healthy subjects demonstrated that BHV-1300 rapidly and selectively lowers IgG in a dose-dependent manner in the first 4 cohorts completed to date (see figure below). Preliminary IgG lowering data is consistent with modeling, with dose- and time-dependent IgG lowering observed even in initial low-dose cohorts. Some subjects experienced IgG reductions as low as 50 to 70% of baseline. BHV-1300 demonstrated reduction of IgG without significantly impacting LFTs, albumin, LDL cholesterol or other serum labs. BHV-1300 has been safe and well tolerated to date, with no serious or severe adverse events. Most AEs were mild, deemed unrelated to study drug and resolved spontaneously. As expected from the selectivity of the molecule for IgG, when compared to placebo, there were no meaningful reductions in average IgA, IgM or IgE levels during the week after dosing. No adverse trends have been observed in vital signs or ECGs. Modeling suggests additional +30 +Table of Contents +cohorts in the Phase 1 study will achieve greater than 70% lowering of IgG utilizing doses compatible with subcutaneous administration. +The Phase 1 study has also compared intravenous and subcutaneous administration of BHV-1300. Subcutaneous administration of BHV-1300 demonstrated an average of approximately 44% higher than expected exposure compared to the dose-equivalent intravenous formulation without injection site reactions. This new human data confirms the feasibility of our plan for convenient dosing of BHV-1300 with a patient self-administered subcutaneous autoinjector. +In the fourth quarter of 2024 we provided an update to our Phase 1 study of BHV-1300, reporting that subcutaneously administered BHV-1300 achieved deep lowering of targeted IgG (IgG1, IgG2, IgG4, over IgG3), with reductions over 60% in the lowest subcutaneous dose tested in the ongoing MAD study. Subcutaneous BHV-1300 achieved progressive reduction in IgG within hours of each weekly dose administration in the MAD, and pharmacodynamic effects were sustained relative to baseline over the four-week study period. BHV-1300 has been safe and well-tolerated across the Phase 1 study. There were no clinically significant effects on albumin or liver function, and no increases in cholesterol were noted. Further enhancing the competitive safety profile and as intentionally designed, plasma IgG3 levels were preserved through the end of study week 4 to allow for healthy immune effector functioning. All AEs were mild, any drug-related AE resolved, and there were no discontinuations due to study drug related AEs. The optimized subcutaneous formulation in the MAD also showed substantially less inter-patient variability compared to previously reported intravenous BHV-1300. In addition, we announced that we entered into an agreement with Ypsomed to develop and manufacture BHV-1300 in an easy-to-use, autoinjector for self-administration intended for commercialization. +In March 2025, we provided further updates to our ongoing Phase 1 study of BHV-1300. In the four-week Phase 1 study, subcutaneously administered BHV-1300 at a dose of 1000 mg weekly achieved rapid, deep and sustained reductions +31 +Table of Contents +in total IgG of up to 84%, with a median reduction of 80% (see Figure 1 below). Reductions occurred within hours of each dose, were progressive, and were sustained compared to baseline over the four-week period. +BHV-1300 was safe and well-tolerated in subcutaneous doses up to 2000 mg with no clinically significant increases in ALT, AST, or bilirubin, no clinically significant reductions in albumin, and no clinically significant increases in cholesterol over the four-week dosing period compared to placebo. There were no clinically significant reductions in IgG3, IgA, IgE, or IgM compared to baseline. Most AEs were mild and self-resolving, there were no discontinuations due to AEs related to study drug, and there were no serious or severe AEs. The Phase 1 study is ongoing with plans to continue to escalate multiple doses to explore deeper reductions to characterize the potential range of IgG lowering possible with MoDE technology, allowing for customization of speed and depth of IgG lowering and decreased frequency of administration across different disease indications. We plan to initiate a Phase 2 study of BHV-1300 in Graves’ disease in mid-2025. Additional follow-on studies in other autoimmune diseases will be pursued. +BHV-1310 +BHV-1310 is a next generation bispecific IgG degrader with specificity for IgG1, IgG2 and IgG4, which is initially being developed for the treatment of rare disorders including conditions like generalized myasthenia gravis ("gMG") and potentially other acute or chronic conditions, or chronic conditions with acute exacerbations or flares. MG is a neuromuscular disorder that is estimated to affect approximately 36,000 to 60,000 people in the United States. Patients with gMG develop antibodies that attack critical signaling receptor proteins at the junction between nerve and muscle cells, inhibiting communication between nerves and muscle and resulting in weakness of the skeletal muscles. BHV-1310 is completing preclinical testing prior to initiation of a Phase 1 study in the first half 2025. +32 +Table of Contents +BHV-1400 +BHV-1400 is the first TRAP degrader introduced by Biohaven, a selective MoDE which is being developed to target Gd-IgA1, an aberrant immunoglobulin that drives IgA Nephropathy (see figure below). +Specific removal of pathogenic Gd-IgA1 and associated circulating immune complexes with preservation of normal IgA potentially permits disease remission without incurring an infection risk. We shared preliminary data demonstrating the chimeric antibody-ASGPR ligand conjugate specifically mediated endocytosis of Gd-IgA1, as opposed to normal IgA1 and IgA2, in an endocytosis assay with ASGPR-expressing cell lines, and that TRAP degraders successfully internalize and degrade these immune-complexes. In mice, after deposition of Gd-IgA1 in the glomerular mesangial matrix followed by administration of BHV-1400, Gd-IgA1 is progressively removed and no longer detected by six hours. +Our Phase 1 Study with BHV-1400 +We initiated Phase 1 studies of BHV-1400 in the fourth quarter of 2024. The first-in-human ("FIH") trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1400 in healthy volunteers. In the first quarter of 2025, Biohaven announced deep and selective lowering of Gd-IgA1 with the first dose cohort tested in the SAD. Subjects achieved median Gd-IgA1 lowering of 60% within 4 hours of dose administration without clinically significant lowering of healthy immunoglobulins IgA, IgE, IgM, or IgG (see figure below). As a next generation TRAP degrader, BHV-1400 is a potential therapeutic for the treatment of IgA nephropathy, and highlights the precision of MoDE platform molecules in their ability to selectively remove a pathogenic disease-causing protein without suppressing the healthy immune system. +33 +Table of Contents +BHV-1600 +BHV-1600 is a selective TRAP designed to remove agonistic antibodies directed against myocardial beta-1 adrenergic receptor ("β-1 AR"). β-1 AR autoantibodies have been identified in serum individuals with dilated cardiomyopathies, such as peripartum cardiomyopathy, and have been shown to cause chronic stimulation and dilation of the myocardium. Peripartum cardiomyopathy is a life-threatening condition affecting mothers within the months following delivery of a child. Through elimination of the agonistic β-1 AR autoantibodies, BHV-1600 is designed to potentially treat the underlying autoimmune etiology of this disease with no approved therapy, and prevent irreversible cardiac pump dysfunction. +We initiated Phase 1 studies of BHV-1600 in the fourth quarter of 2024. The FIH trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1600. Early results from the first two dose cohorts indicate that BHV-1600 was safe and well tolerated, with no SAEs, and without clinically relevant changes in innate or adaptive immunity, including white blood cells and immunoglobulins IgG, IgA, IgE, and IgM. There were no clinically significant reductions in albumin, liver function test abnormalities, or increases in cholesterol compared to baseline. +Additional Degraders +We are currently developing additional MoDE degraders advancing towards candidate nomination. These include an IgG4 specific degrader, a phospholipase A2 receptor ("PLA2R") autoantibody degrader for membranous nephropathy, a pro-insulin autoantibody degrader for type 1 diabetes, and a Thyroid Stimulating Hormone ("TSH") receptor autoantibody degrader as a selective follow-on asset for Graves' Disease. +Oncology Platform +Antibody Recruiting Molecules +Antibody Recruiting Molecules (“ARMs”) are bispecific molecules that recruit endogenous antibodies to target cancer, virally infected cells, and disease-causing microorganisms for immune-mediated clearance. These molecules are engineered as modular components that are readily interchangeable, giving the platform tremendous flexibility for a variety of indications and therapy areas. +34 +Table of Contents +By recruiting antibodies to coat the disease cell target, ARMs mark it for removal by the body’s innate antibody-mediated immune mechanisms (antibody dependent cellular cytotoxicity and antibody dependent cellular phagocytosis). +Platform advantages +Similar to biologics, ARMs directly engage patients’ immune system to destroy disease cells by connecting target disease cells with components of the immune system. However, unlike biologics, ARMs are smaller in size than an antibody potentially allowing for enhanced tumor penetration and biodistribution, and may offer manufacturing advantages including enhanced shelf stability. +ARM™ NK Combination Therapy +BHV-1100 +The BHV-1100 program is a CD-38 targeting NK ARM engager intended for use as a combination therapy in the treatment of multiple myeloma. Due to strategic re-prioritization within both our oncology-specific and non-oncology programs, and multiple changes in the treatment landscape for multiple myeloma since the inception of the open-label single center Phase 1a/b trial of BHV-1100 and such changes negatively impacting trial enrollment, the multiple myeloma trial is planned to end shortly. Alternative trial designs in multiple myeloma and additional indications for our ARM(TM) platform are being considered for possible development. +Antibody Drug Conjugates +We are using next-generation ADC conjugation technologies, including our MATE® platform, to generate site-specific antibody drug conjugates (“ADC”s) which have shown show superior preclinical stability in comparison with those using current industry-standard methodologies. Our expectation is that the enhanced in vivo stability and expected superior physicochemical properties of these ADCs will lead to increased therapeutic indices in patients (more cytotoxic payload reaching cancer cells and less free payload that can lead to off-target toxicities in normal tissues), consistent with early in vitro and in vivo (rodent and cynomolgus monkey) studies. +BHV-1510 +In January 2024, we acquired BHV-1510 through our acquisition of Pyramid Biosciences, Inc. ("Pyramid"). BHV-1510 is a next-generation Trophoblast Cell Surface Antigen 2 ("TROP-2") directed ADC. BHV-1510 utilizes a next-generation, highly stable site-specific conjugation, resulting in a favorable preclinical PK, toxicity and manufacturability profile. The ADC targets TROP2-expressing carcinomas, which are malignant neoplasms of epithelial origin. Carcinomas account for 80 to 90 percent of all cancer cases and several examples have been successfully treated with ADCs. Abundant TROP-2 expression has been described for many carcinoma subtypes. +Preclinically, BHV-1510 has shown high plasma stability, enhanced cellular cytotoxicity, bystander killing, and immunogenic cell death with a novel topoisomerase 1 inhibitor ("TopoIx") payload, resulting in improved efficacy as monotherapy, and synergistic efficacy in combination with anti-programmed cell death protein-1 ("anti-PD1") immune checkpoint inhibitor therapy. In IND-enabling GLP toxicology studies in cynomolgus monkeys, BHV-1510 showed a differentiated safety profile that suggests a wider therapeutic margin relative to more advanced TROP-2 ADCs, including a lack of lung toxicity, that may translate to an improved clinical efficacy and safety profile. +35 +Table of Contents +Our Phase 1/2 Study with BHV-1510 +The IND for BHV-1510 was approved by the FDA in January 2024. The First-in Human, Phase 1/2 trial evaluating BHV-1510 in patients with advanced solid tumors commenced in the second quarter of 2024. This trial consists of two parts; Phase 1 dose escalation and Phase 2 dose expansion, in patients with advanced incurable cancer that have progressed on or are intolerant to standard therapy. The trial will also evaluate BHV-1510 in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). In May 2024, we announced that we entered into a clinical supply agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron") under which we will sponsor and fund the planned combination Phase 1/2 clinical trial, and Regeneron will provide Libtayo®. +The primary objective of Phase 1 is to characterize the safety profile of BHV-1510 as monotherapy and in combinations with cemiplimab, and to identify a recommended dose for expansion ("RDE") or maximum tolerated dose. Phase 1 dose escalation will be implemented based on a Bayesian optimal interval design, with the lowest dose initiated as a single patient cohort. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every two or three weeks. The Phase 2 dose expansion part of the study will consist of non-randomized efficacy finding expansion cohorts, defined by specific tumor types that will be treated at the RDE to estimate the anti-tumor activity of BHV-1510. Up to approximately 220 subjects are planned to be evaluated. +In the first quarter of 2025, we announced preliminary data from the initial Phase 1 monotherapy dose escalation cohorts of BHV-1510, which demonstrated early evidence of clinical activity, including tumor shrinkage, with a safety profile of the TopoIx payload supporting further development. Clinical activity was seen in various monotherapy dose cohorts tested to date, including the lowest dose tested of 2mg/kg once every three weeks. Early PK data demonstrate a stable ADC with low serum concentrations of free payload. Preliminary safety data showed a lack of payload-associated interstitial lung disease, gastrointestinal toxicities, or significant hematological toxicities observed in early cohorts. The main toxicity observed thus far in the study has been stomatitis, an expected on-target Trop2 class toxicity. The Phase 1/2 study of BHV-1510 is progressing, with robust enrollment in dose escalation and optimization, both as monotherapy and in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). +Based on these early results, we have entered into an expanded collaboration agreement with GeneQuantum Healthcare Co. Ltd. ("GeneQuantum"), which provides broad target exclusivity for up to 18 ADC targets incorporating the TopoIx payload. +BHV-1530 +The next ADC incorporating the TopoIx payload that we plan to move into clinical development is BHV-1530. BHV-1530 is a fibroblast growth factor receptor 3 ("FGFR3")-directed ADC with potential indications in cancers driven by FGFR3 alterations and/or upregulated FGFR3 protein expression, including urothelial cancers and other solid tumors. FGFR3 is a clinically validated target in oncology, with one small molecule inhibitor (Balversa(R), erdafitinib) approved; however, to our knowledge there are currently no FGFR3-directed ADCs in clinical development. Biohaven retains global rights for BHV-1530 under an exclusive license with GeneQuantum (the "FGFR3 Agreement"). The U.S. IND for BHV-1530 was opened in the second half of 2024, and a FIH study for solid tumors is planned to initiate in the first half of 2025. +Our Phase 1 Study with BHV-1530 +The Phase 1 study will evaluate BHV-1530 in patients with advanced solid tumors, including patients whose cancers have progressed on or are intolerant to standard therapy. The primary objective of Phase 1 is to characterize the safety profile of BHV-1530, and to identify a recommended dose or maximum tolerated dose. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every three weeks. Up to approximately 95 subjects are planned to be evaluated. +BHV-1500 +BHV-1500 is a next-generation CD30-directed ADC generated using Biohaven's proprietary MATE(R) technology, targeting CD30-expressing tumors such as Hodgkin and non-Hodgkin lymphomas. Hodgkin lymphoma ("HL") is a malignant neoplasm of B-cells. Approximately 9,000 new HL cases are diagnosed each year. HL and other CD30-expressing lymphoma are characterized by the uncontrolled growth of malignant lymphocytes or lymphoblasts. A first-generation CD30 directed ADC, Adcetris (brentuximab vedotin), has demonstrated effectiveness in the treatment of Hodgkin's Lymphoma. +In preclinical CD30 expressing murine tumor models, BHV-1500 has shown improved antitumor activity versus Adcetris, and in preliminary cynomolgus monkey studies, BHV-1500 has shown substantially improved safety, plasma stability and pharmacokinetics. A regulatory interaction with the FDA to discuss the development plans for BHV-1500 is planned for the first half of 2025. +36 +Table of Contents +Merus Agreement +In January 2025, Biohaven announced a research collaboration and license agreement with Merus N.V. ("Merus") to co-develop three novel dual-targeting ADCs, leveraging Merus’ Biclonics® technology platform, and Biohaven’s next-generation ADC conjugation and payload platform technologies (the "Merus Agreement"). Pursuant to the Merus Agreement, Merus will receive an upfront payment and license fee at ADC candidate nomination of the first program, with Merus to assume the preclinical bispecific antibody generation cost, and Biohaven to assume the preclinical ADC generation cost. Thereafter, upon mutual agreement to advance each program, the parties plan to share further development and commercialization costs. +Clinical-Stage Milestones +Our clinical-stage milestones include the following: +Competition +The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary drugs. While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their safety, efficacy, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third-party payors. +Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. +37 +Table of Contents +Manufacturing +We have an experienced chemistry and manufacturing leadership team that manages our relationships with third party manufacturers. We currently rely, and expect to continue to rely, on third parties for the development and manufacturing of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing of our products if our product candidates receive marketing approval. +We expect to continue to develop product candidates that can be produced cost-effectively at contract manufacturing facilities. +Commercialization +We intend to develop and, if approved by the FDA, commercialize our product candidates in the United States, and we may commercialize or enter into distribution or licensing arrangements for commercialization rights for other regions. With respect to troriluzole, if approved for the treatment of adult patients with SCA, we currently intend to build a neurological specialty sales force to manage commercialization, potentially in combination with a larger pharmaceutical partner, to maximize patient coverage in the United States and to support global expansion. +Members of our management team and board of directors have deep experience leading immunology, neuroscience, and oncology research, and have been involved in the development and commercialization of drugs such as Abilify, Opdivo, Nurtec ODT and Zavzpret. +Our Chief Executive Officer, Vlad Coric, M.D. was the Chief Executive Officer of the Former Parent from 2015 through the Separation, leading the Former Parent’s development and successful commercial launch of Nurtec ODT (rimegepant) in the U.S., which received FDA approval for the acute and preventative treatment of migraine in February 2020 and May 2021, respectively. Under Dr. Coric’s leadership, the Former Parent entered into several strategic arrangements, including its Collaboration and License agreement with Pfizer, Inc. for the development of rimegepant and zavegepant outside of the United States. +Intellectual Property +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection ("RDP"). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +38 +Table of Contents +Patents and Patent Applications +We have many U.S. and foreign patents and patent applications in our portfolio related to the composition of matter, methods of use, methods of manufacture or formulations of our product candidates which have been filed in major markets throughout the world, including the U.S., Europe, the United Kingdom, Japan, Korea, China, Hong Kong and Australia. +Kv7 +In April 2022, we acquired Channel Biosciences, LLC. This acquisition included Channel’s Kv7 channel targeting platform and related patents and patent applications. The patents and patent applications are directed to the composition of matter of compounds that are activators of Kv7.2/Kv7.3 and their use in treating diseases such as epilepsy. U.S. Patent 10,851,067 (the “‘067 Patent”), issued December 1, 2020, specifically claims BHV-7000 and will expire in March 2039, not including possible patent term extensions. Ex-U.S. counterparts to the ‘067 patent have been granted in Australia, Israel, Korea, Mexico and New Zealand and patent applications to the ‘067 patent are pending in Brazil, Canada, China, European Union, United Kingdom, Hong Kong, Israel, India, Japan, Republic of Korea, New Zealand, Singapore and South Africa. The ex-U.S. patents, and patent applications, if granted, will expire in March 2039, not including possible patent term extensions in countries where such extensions are available. In addition, U.S. Patent 9,481,653 (the “‘653 patent”), issued November 1, 2016, claims a class of compounds including BHV-7000 and will expire in September 2035, not including possible patent term extensions. Ex-U.S. counterparts to the ‘653 patent are granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Netherlands, Norway and Sweden. The ex-U.S. patents will expire in September 2035, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/US23/10295, PCT/US23/63111, PCT/US23/63113 and PCT/US23/63115 directed to various Kv7 activator chemotypes were filed in January and February 2023. These applications are pending in the United States and major market countries. The patent applications, if granted, will expire in January/February 2043, not including possible patent term extensions in countries where such extensions are available. Other patent application directed to the combination treatment with a Kv7 activator and N-methyl-D-aspartate ("NMDA") receptor antagonist (PCT/US23/73125), a Kv7 activator and glutamate modulator (PCT/US23/73504), and a Kv7 activator and TDP-43 binder (PCT/US23/73491) were filed in August and September 2023. These applications are pending in the United States Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. The patent applications, if granted, will expire in August/September 2043, not including possible patent term extensions in countries where such extensions are available. +Troriluzole +We have a portfolio of patents and patent applications in the U.S. and foreign countries directed to prodrugs of riluzole, including, among others, U.S. Patent 10,485,791, issued November 26, 2019, which is directed to troriluzole and other prodrugs of riluzole. This patent expires in February 2036, not including possible patent term extensions. Ex-U.S. counterparts to the ‘791 patent have been granted in Albania, Armenia, Austria, Australia, Azerbaijan, Belgium, Brazil, Bulgaria, Belarus, Canada, Switzerland, China, Cyprus, Czechia, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, India, Ireland, Israel, Italy, Japan, Kyrgyzstan, Kazakhstan, Lithuania, Luxembourg, Latvia, Monaco, North Macedonia, Macao, Malta, Mexico, Netherlands, Norway, Philippines, Poland, Portugal, Republic of Korea, Romania, Serbia, Russia, Singapore, Sweden, Slovenia, Slovakia, Tajikistan, Turkmenistan, Turkey and South Africa. The ex-U.S. patents and patent applications will expire in February 2036, not including possible patent term extensions in countries where such extensions are available. In addition, the use of these compounds for treating OCD, ALS, SCA, depression, Alzheimer’s Disease and other diseases are described and claimed in these patents and patent applications. These patent applications are subject to an agreement with ALS Biopharma and FCCDC. In addition, we have filed patent applications relating to drug product formulations containing troriluzole and methods of using the formulations to treat various diseases, including, for example, the use of troriluzole with immunotherapies to treat ataxias, including among others U.S. Patent 12,102,618, issued October 1, 2024, which expires in November 2038, not including possible patent term extensions. Ex-U.S. patents and patent applications corresponding to the '618 patent will expire in November 2038, not including possible patent term extensions in countries where such extensions are available. In addition, another patent applications directed to the treatment of SCA3 (PCT/US23/67326) was filed in May 2023 and is pending in the United States and other major market countries. These patents, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. Also, a patent application directed to the use of troriluzole for treating OCD was filed in June 2021 (PCT/US21/38789) and national applications are pending in major jurisdictions. These patents, if granted, will expire in 2041, not including possible patent term extensions in countries where such extensions are available. Another patent application directed to the treatment of glioblastoma (PCT/US23/69038) was filed June 26, 2023 and is pending in the United States and other major market countries. +MoDE Platform, ARM Technology, MATE Conjugation Technology +In January 2021, we entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel MoDEs platform. The platform pertains to the clearance of disease-causing protein and +39 +Table of Contents +other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The platform is differentiated from existing approaches in that it does not rely on ubiquitin ligases, and it allows for a broad range of targets to be degraded. The patent portfolio is directed to the composition of matter of bifunctional degraders and their use in degrading circulating proteins and treating diseases. U.S. Patent No. 11,767,301, issued September 26, 2023, and U.S. Patent No. 12,083,181, issued September 10, 2024, relate to bifunctional molecules to degrade circulating proteins, including BHV-1300. Ex-U.S. counterparts to the '301 patent and '181 patent are pending in the European Union, Canada, China and Hong Kong, and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/046221, filed October 8, 2020, relates to bifunctional small molecules to target selective degradation of circulating proteins. Ex-U.S. counterparts to the '221 application have been filed in China, European Union and Hong Kong and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768166, filed April 11, 2022, relates to bifunctional compounds as degraders of autoantibodies. Ex-U.S. counterparts to the '166 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, European Union, Israel, Japan, Republic of Korea, Mexico, Philippines, Saudi Arabia, Singapore, and South Africa and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768145, filed April 11, 2022 relates to engineered antibodies as molecular degraders through cellular receptors. Ex-U.S. counterparts to the '145 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/017319, which relates to targeted bifunctional degraders, was filed February 22, 2022, and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/019658, which relates to bifunctional degraders of galactose deficient immunoglobulins, was filed March 10, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in March 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/075527 and PCT/US2022/075535, filed August 26, 2022, which relate to difunctional degraders of pathogenic anti-β1ECII (the second extracellular loop of the β1 adrenergic receptor) autoantibodies, are pending in the United States and major jurisdictions worldwide. PCT/US2024/026709, filed April 28, 2024, which relates to degraders of immunoglobulin G, including BHV-1310, is pending in the United States PCT Receiving Office designating all PCT countries. PCT/US2024/026733, filed April 29, 2024, which relates to bifunctional degraders of galactose deficient immunoglobulins, including BHV-1400, is pending in the United States PCT Receiving Office designating all PCT countries. +We also acquired Kleo Pharmaceuticals, Inc. in January 2021. This acquisition included Kleo’s proprietary technology platforms which are modular in design and enable rapid generation of novel immunotherapies that can be optimized against specified biological targets and combined with existing cell- or antibody-based therapies. These include ARM technology and MATE conjugation technology, which complement the MoDE technology licensed from Yale. U.S. Serial No. 17/769924, filed April 18, 2022, relates to directed conjugation technologies. Ex-U.S. counterparts to the '924 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in November 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/912563, filed September 19, 2022, relates to technologies for treating COVID infections. Ex-U.S. counterparts to the '563 application are pending in major market countries. PCT/US2022/015390, which relates to technologies for preventing or treating infections, was filed February 6, 2022 and is pending in the United States. PCT/US2022/029533, which relates to compositions including conjugated therapy enhancers, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/029535, which relates to agents for directed conjugation techniques and conjugated products, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/030070, which relates to antibody drug conjugates using MATE technology for delivering cytotoxic agents, including BHV-1500, was filed May 19, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/025746, filed April 23, 2024 relates to BHV-1500 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +TRPM3 +In January 2022, we entered into an exclusive global license and research agreement to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery (“CD3”) and the Laboratory of Ion +40 +Table of Contents +Channel Research (“LICR”) at Katholieke Universiteit Leuven (KU Leuven). PCT/EP2021/082853, which relates to aryl derivatives for treating TRPM3 mediated disorders, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, Taiwan and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. PCT/EP2021/082865, which relates to heterocycle derivatives for treating TRPM3 mediated disorders, including BHV-2100, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, Eurasia, European Union, Israel, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, Singapore, Taiwan, South Africa and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. U.S. Patent 9,194,863, issued November 24, 2015, which relates to screening methods for analgesic agents, has also been granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Italy, Netherlands and Sweden. The patents, will expire in May 2032, not including possible patent term extensions in countries where such extensions are available. In addition, seven PCT applications directed to various TRPM3 antagonist chemotypes were filed in May 2023 (PCT/EP2023/063992, PCT/EP2023/063994, PCT/EP2023/063996, PCT/EP2023/063997, PCT/US2023/067443, PCT/US2023/067446, PCT/US2023/067448). The patent applications, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. +Myostatin +In December 2021, we entered into a worldwide license agreement with Bristol Myers Squibb for the global development and commercialization rights to taldefgrobep alfa (BHV-2000), a novel, Phase 3-ready anti-myostatin adnectin. Myostatin is a natural protein that limits skeletal muscle growth, an important process in healthy muscular development. +U.S. Patent 8,853,154 issued October 7, 2014, U.S. Patent 8,933,199, issued January 13, 2015, U.S. Patent 8,993,265, issued March 31, 2015, U.S. Patent 9,493,546, issued November 15, 2016, U.S. Patent 9,662,373, issued May 30, 2017, U.S. Patent 10,245,302, issued April 2, 2019, U.S. Patent 10,406,212, issued September 10, 2019, and U.S. Patent 11,813,315, issued November 14, 2023, are directed to fibronectin based scaffold domain proteins that bind to myostatin. The U.S. patents expire in September 2033, not including possible patent term extensions. Ex-U.S. counterparts to the U.S. patents have been granted in Argentina, Austria, Australia, Belgium, Bulgaria, Brazil, Canada, Switzerland, Chile, China, Colombia, Czechia, Germany, Denmark, Algeria, Egypt, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, Indonesia, Ireland, Israel, India, Italy, Japan, Republic of Korea, Lithuania, Morocco, Macao, Mexico, Malaysia, Netherlands, Norway, New Zealand, Peru, Philippines, Poland, Portugal, Romania, Serbia, Russia, Sweden, Singapore, Slovenia, Slovakia, Thailand, Tunisia, Turkey, Taiwan, Uruguay, Venezuela, Vietnam and South Africa. The ex-U.S. patents will expire in September 2033, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 16/607688, filed May 3, 2018, relates to stable formulations fibronectin based scaffold domain proteins that bind to myostatin. Ex-U.S. counterparts to the '688 application have been granted in Israel, Japan, Korea and are pending in Australia, Canada, China, European Union, Hong Kong, Mexico, Singapore and Taiwan. The ex-U.S. patents and patent applications, if granted, will expire in May 2038, not including possible patent term extensions in countries where such extensions are available. +TYK2 / JAK1 +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Highlightll pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +U.S. Patent RE49834 (the “‘834 Patent”), having an issue date of February 13, 2024, is directed to BHV-8000 and will expire in September 2037, not including possible patent term extensions. Ex-U.S. counterparts to the ‘834 patent have been granted in Australia, European Union, Israel, India, Japan, Mexico, and New Zealand, and patent applications to the ‘834 patent are pending in Brazil, Canada, Eurasia, and Republic of Korea. The ex-U.S. patents and patent applications, if granted, will expire in September 2037, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2022/113807, filed August 22, 2022, which relate to methods of treating CNS disorders with dual TYK2/JAK1 inhibitors, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. The patent applications, if granted, will expire in August 2042, not including possible patent term extensions in countries where such extensions are available. +BHV-1510 +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger, dated January 7, 2024 ("the Pyramid Agreement"). As a result of the merger, the Company acquired rights under certain patents exclusively licensed to Pyramid from GeneQuantum Healthcare (Suzhou) Co. Ltd. +41 +Table of Contents +The licensed patents include the following, among others: PCT/CN2023/107444, filed July 14, 2023, which relates to anti-TROP2 antibodies and conjugates, including BHV-1510, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. PCT/CN2024/087405, filed April 12, 2024, which relates to combinations of antibody-drug conjugates and anti-PD-1 antibodies, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. PCT/CN2025/071669, filed January 10, 2025, which relates to pharmaceutical compositions of antibody-drug conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +BHV-1530 +In December 2024, the Company entered into a Development and License Agreement with GeneQuantum Healthcare (Suzhou) Co. Ltd. and Aimed Bio, Inc. relating to certain Fibroblast Growth Factor Receptor ADCs. The licensed patents include the following, among others: WO2024002154A1, published January 4, 2024, which relates to anti-FGFR3 antibody conjugates and medical uses thereof is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. WO2022149837, published July 14, 2022, which relates to anti-FGFR3 antibodies and uses thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea and the United States. WO2023088235, published May 25, 2023, which relates to exatecan derivatives, linker-payloads and conjugates thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea, Mexico and the United States. WO2022160156, published August 4, 2022, which relates to ligase fusion proteins and applications thereof, is pending in Australia, China, the European Patent Office, Japan, Korea and the United States. +Licensing and Other Agreements +In addition to our independent efforts to develop and market products, we from time to time enter into agreements such as licensing agreements, option-to-license agreements and strategic collaborations. The licensing and other agreements typically include, among other terms and conditions, non-refundable upfront license fees, option fees and option exercise payments, milestone payments and royalties. See Note 10, "License, Acquisitions and Other Agreements," to the Consolidated Financial Statements included in this report for additional information regarding our licenses and other agreements. +Government Regulation +In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (the "FDCA") and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including imposition of a clinical hold, refusal by the FDA to approve applications, withdrawal of an approval, import/export delays, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. +The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include: +• preclinical laboratory tests and animal tests conducted under Good Laboratory Practices ("GLP"); +• the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence; +• approval by an independent institutional review board ("IRB"), representing each clinical site before each clinical trial may be initiated; +• adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication and conducted in accordance with Good Clinical Practices ("GCP"); +• the preparation and submission to the FDA of an NDA; +• FDA acceptance, review and approval of the NDA, which might include an Advisory Committee review; +• satisfactory completion of an FDA inspection of the manufacturing facilities at which the product, or components thereof, are made to assess compliance with current Good Manufacturing Practices ("cGMPs"). +42 +Table of Contents +The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. +Preclinical and Human Clinical Trials in Support of an NDA +Preclinical studies include laboratory evaluations of the product candidate, as well as in vitro and animal studies to gather information on the safety and efficacy of the product candidate. The conduct of preclinical trials is subject to federal regulations and requirements including GLP regulations. The results of the preclinical studies, together with manufacturing information and analytical data, among other things, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. The FDA may nevertheless initiate a clinical hold after the 30 days if, for example, a deficiency is found in the IND application. +Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCP requirements. Each clinical trial must be reviewed and approved by an IRB at each of the sites at which the trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. +Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap or be combined. These phases generally include the following: +Phase 1 . Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics. +Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population with a specific disease or condition to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks. +Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product approval and labeling. +Phase 4. Clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in enforcement action or withdrawal of approval. +A Phase 2/3 trial design, which we have used in our troriluzole development program, is often used in the development of pharmaceutical and biological products. The trial includes Phase 2 elements, such as an early interim analysis of safety or activity, and Phase 3 elements, such as larger patient populations with less restrictive enrollment criteria. An early interim analysis of clinical or physiologic activity and/or safety allows the study to be stopped, changed or continued before a large number of patients have been enrolled, while still allowing all data from enrolled patients to count in the analysis used to support approval. +Submission and Review of an NDA +The results of preclinical studies and clinical trials, together with detailed information on the product's manufacture, composition, quality, controls and proposed labeling, among other things, are submitted to the FDA in the form of an NDA, requesting approval to market the product. The application must be accompanied by a significant user fee payment, which typically increases annually, although waivers may be granted in limited cases. The FDA has substantial discretion in the approval process and may refuse to accept an application if they determine that the data are insufficient for approval and require additional nonclinical, clinical or other studies. +Once an NDA has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA sets a user fee goal date that informs the applicant of the specific date by which the FDA intends to complete its review and take an action on the application. A standard review typically takes 10 months from the date that the application is accepted for filing by the FDA and a priority review typically takes 6 months from the date that the application is accepted by the FDA for filing. The review process can be extended by FDA requests for additional information or clarification. The FDA reviews NDAs to +43 +Table of Contents +determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA typically will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities comply with cGMPs. Additionally, the FDA will typically inspect one or more clinical trial sites, as well as the Sponsor of the NDA, for compliance with GCP and integrity of the data supporting safety and efficacy. +During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy ("REMS") is necessary to assure the safe use of the product post approval. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as a boxed warning, to be included in the product label in order to highlight a particular safety risk. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. +On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA will issue either an approval of the NDA or a Complete Response Letter ("CRL"), detailing the deficiencies in the submission and the additional testing or information required for reconsideration of the application. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the application, or request a hearing. Even with submission of this additional information, the FDA may ultimately decide that the application does not satisfy the regulatory criteria for approval. +Post-Approval Requirements +Approved drugs that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims and some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for marketed products. +The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance programs to further assess and monitor the product's safety and effectiveness after commercialization. The FDA may also require a REMS, which could involve requirements for, among other things, medication guides, special trainings for prescribers and dispensers, patient registries, and elements to assure safe use. +In addition, entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA has promulgated specific requirements for drug cGMPs. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. +Once an approval is granted, the FDA may issue enforcement letters or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay product distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; +• fines, warning letters or holds on post-approval clinical trials; +44 +Table of Contents +• refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; or +• injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities. +Section 505(b)(2) NDAs +As an alternative path to FDA approval for modifications to formulations or uses of drugs previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments. A Section 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use from the company by or for whom the investigations were conducted. This type of application permits reliance for such approvals on literature or on an FDA finding of safety, effectiveness or both for an approved drug product. As such, under Section 505(b)(2), the FDA may rely, for approval of an NDA, on data not developed by the applicant. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for the new indication sought by the 505(b)(2) applicant. +Our clinical program for troriluzole for the treatment of SCA and the treatment of OCD is based on a regulatory pathway under section 505(b)(2) of the FDCA that allows reference to data on riluzole for the purpose of safety assessments. +Product Exclusivity - United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation at least in part for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a Biologic License Application ("BLA") is filed. The type of application filed affects regulatory data protection (“RDP”) exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an Abbreviated New Drug Application ("ANDA") with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, could be filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file +45 +Table of Contents +its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA, which includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the European Commission ("EC") and the EC then approves or denies the MAA. Regulatory approval via the centralized procedure results in a marketing authorization for the innovative pharmaceutical product in each EU member state. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed after October/November 2005 are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the +46 +Table of Contents +innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +To obtain marketing authorization of pharmaceutical products in Japan, an NDA must be submitted to the Pharmaceutical and Medical Devices Agency (“PMDA”) once safety and efficacy has been established. In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +China +To obtain marketing authorization of pharmaceutical products in China, an NDA must be submitted to the National Medical Products Administration ("NMPA") once safety and efficacy has been established in Chinese patients. For imported drugs, this means issuance of an import license. The applicant must submit evidence of foreign approval (certificate of pharmaceutical product), unless it is an innovative drug that has never been approved anywhere in the world. +In China, medicines of new chemical entities are generally afforded six years of data exclusivity for approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +South Korea +To obtain marketing authorization of pharmaceutical products in South Korea, a marketing application must be submitted to the Ministry of Food and Drug Safety ("MFDS"). The application must contain data in South Korean patients, information regarding safety and efficacy, quality, a good manufacturing practice certificate, and a certificate of pharmaceutical product in an approved country to show that the drug being imported is being sold in the approved country in accordance with the with the relevant rules and regulations in that country. +In South Korea, medicines of new chemical entities are generally afforded six years of data exclusivity for first approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +Rest of the World +In countries outside of the U.S., the EU, Japan, China and South Korea, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization ("WTO") commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +Coverage, Reimbursement and Pricing +Challenges exist that pertain to the coverage and reimbursement status of any products for which regulatory approval is sought. In the United States and foreign markets, sales of any products that receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities, such as Medicare and Medicaid, and private entities, such as managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. The latter is often informed by entities such as the Institute for Clinical and Economic Review ("ICER") which provides a reimbursement rate based on a multifactorial value assessment. Admittedly, ICER value assessments are more pertinent to the U.S. environment. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Typically, patients must "step through," or fail less expensive therapies such as generics in order to be prescribed a branded therapy. Moreover, a third-party payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor's reimbursement payment rate may not be adequate or may require patient co-payments that patients find unacceptably high. Additionally, coverage and +47 +Table of Contents +reimbursement for products can differ significantly from one payor system to the next. Private payor systems set reimbursement policy in accordance with their particular model. For example, some payor systems mandate value based pricing wherein a particular price point is premised upon achieving a particular goal. These can include an improvement in patients’ clinical course (therapeutic effectiveness), or reductions in drug and health care utilization and cost. Thus a third-party payor's decision to cover a particular product does not ensure that other payors will also provide the same level of coverage for the product, or will provide coverage at an adequate reimbursement rate. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +Third-party payors require evidence of value that are supplemental to the regulatory mandates of safety and efficacy in order to support a particular price. To obtain coverage and reimbursement for any product that might be approved for sale, there is often a need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity (based on evidence of disease burden and unmet need) and cost-effectiveness of the therapy. As mentioned, the ICER evidence review mandates such information. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, they may deem a subpopulation of eligible patients based on greater unmet need as eligible for reimbursement. Thus, obtaining and maintaining reimbursement status can be time-consuming and costly. However, drug developers accept these requirements as a condition of reimbursement, analogous to their acceptance of the level of evidence needed to obtain regulatory approval. +The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. For example, the U.S. and particularly state legislatures have implemented cost containment programs that include price controls, restrictions on reimbursement and "first use" of generic products prior to access to branded prescriptions. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("collectively, the ACA") contains provisions such as increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. The Centers for Medicare and Medicaid Services ("CMS") may develop new payment and delivery models, such as bundled payment models. For example, the U.S. Department of Health and Human Services ("HHS") moved 41% of Medicare fee-for-service payments to alternative payment models ("APMs") tied to the quality or value of services by the end of 2018. HHS has a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. These constitute significant challenges, which are analogous to the regulatory hurdles in many aspects and drug developers acknowledge these challenges as the path to providing safe and effective therapies to the patients that require them. +European Union Coverage Reimbursement and Pricing +In the European Union, pricing and reimbursement requirements can vary widely from country to country. These may range from ICER-like value assessments (e.g. NICE in the U.K. and SMC in Scotland) that include cost-effectiveness parameters to criteria that are based solely on a novel therapy’s incremental effectiveness (efficacy, safety) relative to approved standards of care. These latter criteria may require additional studies. All of these are compiled as country-specific health technology assessments ("HTAs"), that constitute a requisite for reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of access restrictions that typically target sub populations with high unmet need. Sponsors are expected to demonstrate incremental value including effectiveness in these subpopulations via additional analyses. +Healthcare Laws and Regulations +Physicians, other healthcare providers, and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Futur e arrangements wi th healthcare professionals, principal investigators, consultants, customers and third-party payors are and will be subject to various federal, state and foreign fraud and abuse laws and other healthcare laws and regulations. These laws and regulations may impact, among other things, healthcare professionals who participate in our clinical research programs, and our proposed sales, marketing, distribution, and education programs. The U.S. federal and state healthcare laws and regulations that may affect our ability to operate include, without limitation, the following: +• The federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs, such as Medicare and Medicaid. The term "remuneration" has been broadly interpreted to include anything of value; +48 +Table of Contents +• The federal civil and criminal false claims laws, including, without limitation, the federal civil monetary penalties law and the civil False Claims Act (which can be enforced by private citizens through qui tam actions), prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government; +• The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") enacted as part of the American Recovery and Reinvestment Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, on entities subject to the law, such as healthcare providers, health plans, and healthcare clearinghouses and their respective business associates to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosures; +• The federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, and other programs such as CHIP to report to HHS information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; and +• Analogous state laws and regulations, such as state anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers; and state health information privacy and data breach notification laws, which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and some of which are not pre-empted by HIPAA, thus complicating compliance efforts. +We are required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Healthcare reform legislation has strengthened these federal and state healthcare laws. For example, the ACA amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Violations of these laws can subject us to criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and reputational harm, we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business. +Healthcare Reform +The legislative landscape in the United States continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states, without specifically ruling on the ACA’s constitutionality. +The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following: +• an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; +49 +Table of Contents +• a Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; +• requirements to report certain financial arrangements with physicians and certain others, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests; +• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; +• a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; +• extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; +• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; +• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; +• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and +• establishment of the Center for Medicare Innovation at the Centers for Medicare and Medicaid Services ("CMS"), to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. In January 2021, an Executive Order entitled “Executive Order on Strengthening Medicaid and the Affordable Care Act” repealed two previous Executive Orders delaying the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that amend all or part of the ACA. +In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. +Further, there have been several Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion. In August 2022, Congress passed the Inflation Reduction Act of 2022 (the "IRA"), which, among other things, requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). Subsequently, certain pharmaceutical companies and other entities filed lawsuits in various courts against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. While some of these cases are on appeal, HHS has generally won the substantive disputes in these cases, and various federal district court judges expressed skepticism regarding the merits of the legal arguments being pursued by the pharmaceutical industry. Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results. In addition, recent administrations have released various executive orders with provisions aimed at, among other things, prescription drug pricing, lowering drug costs for Medicare and Medicaid beneficiaries and setting forth various potential policies or actions that Congress or administrative agencies could pursue. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +50 +Table of Contents +At the state level, legislatures are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. +The Foreign Corrupt Practices Act +The Foreign Corrupt Practices Act (the "FCPA") prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts. +Environmental, Social, Governance, and Human Capital +Governance and Leadership +Our commitment to integrating sustainability across our organization begins with our Board of Directors. The Nominating and Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance (“ESG”). Six of our eight directors are independent under the NYSE’s listing standards for independence. +Business Ethics +We are committed to creating an environment where we are able to excel in our business while maintaining the highest standards of conduct and ethics. Our Code of Business Conduct and Ethics (the “Code of Conduct”) reflects the business practices and principles of behavior that support this commitment, including our policies on bribery, corruption, conflicts of interest and our whistleblower program. We expect every director, officer, and employee to read, understand and comply with the Code of Conduct and its application to the performance of his or her business responsibilities. +We encourage employees to come to us with observations and complaints, and we strive to understand the severity and frequency of an event in order to escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and report. Incidents are reported up to the Board of Directors on a quarterly basis. +Environmental Commitment +We are committed to protecting the environment and attempt to mitigate negative impacts of our operations. We monitor resource use, and aim to improve efficiency, and at the same time reduce our emissions and waste. +Externally, we strive to reduce the overall impact of our product on the environment by taking steps to enhance the sustainability of our manufacturing processes for our drug substances. +In collaboration with our contract research organization partners, we apply various green chemistry methodologies to our commercial and development pipeline. We have especially focused on using biocatalysis, a technology that makes use of enzymes instead of chemicals to accomplish specific chemical reactions used to construct organic small molecules such as Active Pharmaceutical Ingredients. +We have also initiated work in removing hazardous organic solvents from certain reactions and replacing them with water. This green technology relies on the use of micelles to enable such reactions to occur in water where they would normally not occur due in part to the very poor solubility of most organic compounds in water. These greener processes create less waste and reduce the environmental impact of the manufacturing process. +Social Responsibility +For third-party vendor selection and oversight, we have adopted standard operating procedures that apply to employees and subcontractors who on our behalf, oversee and conduct research regulated by the FDA. We retain ultimate +51 +Table of Contents +authority and responsibility for the conduct of regulated research, manufacturing, and testing and we must ensure that contracted services are conducted in accordance with Good Practice Guidelines and all applicable regulations. +Human Capital Management +We foster and encourage a workplace environment that holds possibilities for everyone, with a commitment to respect and acceptance without biases. +Development and continuous feedback are priorities for our organization, which was comprised of 256 employees as of December 31, 2024. We believe each person is critical to our success and we invest in our people by supporting continuous training programs and courses. We encourage each employee to engage with their manager in developmental discussions designed to focus on feedback rather than a rating. +An important part of our talent recruitment is our robust paid internship program for high school, college and graduate-level students. This program offers opportunities to students in the community and develops a roadmap for ‘entry-level’ candidates. We evaluate the success of our recruitment program through metrics such as time to hire, offer acceptance rate, turnover rate and business results. +We strive to provide an inclusive workplace to foster growth and innovation. Biohaven engages in forward-thinking people policies to allow for our employees to thrive in our workforce. Regular attendance at an office is only required of our lab professionals, allowing over 50% of our workforce to work remotely full-time. Our vacation policy is unlimited and is aimed at giving employees the ability to achieve work/life balance in a way that is bespoke to their circumstances. +Information about Segments +We currently operate in a single business segment developing a portfolio of treatments in therapeutic areas including neuroscience, immunology and oncology. See additional information in our financial statements contained in Part II, Item 8 of this Annual Report. +Corporate Information +We are a business company limited by shares organized under the laws of the British Virgin Islands. Our registered office is located at P.O. Box 173, Road Town, Tortola, British Virgin Islands and our telephone number is +1 (284) 852-3000. Our U.S. subsidiary's office is located at 215 Church Street, New Haven, Connecticut 06510 and telephone number is (203) 404-0410. Our website address is www.biohaven.com. The information contained on our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in making an investment decision regarding our common shares. On September 16, 2022, the Company changed its name from “Biohaven Research Ltd.” to “Biohaven Ltd.” +Available Information +Our internet website address is www.biohaven.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report. +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). A copy of these reports is also available at the SEC's website (www.sec.gov). +52 +Table of Contents +Item 1A. Risk Factors +In connection with any investment decision with respect to our securities, you should carefully consider the risks described below, as well as general economic and business risks and the other information in this Annual Report on Form 10-K and in our other filings with the SEC. The occurrence of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results of operations and financial condition and could cause the trading price of our common shares to decline. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business. +SUMMARY +An investment in our common shares is subject to a number of risks, including risks related to our product candidates, risks related to our business and risks related to our common shares. The following list of risk factors is not exhaustive. Please read the information in this section captioned “1A. Risk Factors” for a more thorough description of these and other risks. +Risks Related to Our Financial Position and Need for Additional Capital +• We have a limited operating history, have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. +• Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, may have a negative impact on our business and results of operations. +• An inability to raise capital when needed or on terms favorable to us could force us to curtail our planned operations and growth strategy. +• Credit risk with respect to our investments or the financial institutions at which we deposit funds could adversely affect us. +Risks Related to the Development of Our Product Candidates +• We depend entirely on the success of a limited number of product candidates. +• Clinical trials are very expensive, time consuming and difficult to design and implement, involve uncertain outcomes and may not be predictive of results of future trials. +• Regulatory approval processes in the U.S. and foreign jurisdictions are lengthy, time consuming and unpredictable. +• Our product candidates may fail to demonstrate safety and efficacy in clinical trials, or may cause serious adverse or unacceptable side effects. +• We may become exposed to costly and damaging liability claims, which may not be covered by insurance. +Risks Related to Commercialization of Our Product Candidates +• We have never commercialized a product candidate and may lack the necessary expertise, personnel and resources to successfully commercialize any product candidate that may receive regulatory approval. +• We operate in a highly competitive and rapidly changing industry. +• Failure to obtain or maintain adequate coverage and reimbursement for our approved product candidates could limit our ability to market those products and decrease our ability to generate revenue. +• Our product candidates, if approved, will be subject to ongoing regulatory oversight. +• Our approved product candidates may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +Risks Related to Our Dependence on Third Parties +• We rely on third parties to conduct our preclinical studies and clinical trials and to supply, manufacture and distribute clinical drug supplies for our product candidates, which may expose our business to risks. +• We may not establish or maintain collaborations with third parties to develop or commercialize product candidates. +53 +Table of Contents +Risks Related to Regulatory Compliance +• Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set. +• Our business operations and relationships with investigators, health care professionals, consultants, third-party payors and customers are subject to federal and state healthcare and other laws. +• We may not obtain or maintain orphan drug designation or exclusivity for our product candidates. +• Disruptions at the FDA and other government agencies could prevent new products from being developed or commercialized in a timely manner, or negatively impact the approval of an NDA, BLA or similar application. +Risks Related to Our Intellectual Property +• We could lose market exclusivity earlier than expected. +• If we were unable to obtain licenses from third parties on commercially reasonable terms or lose our rights to licensed intellectual property, we may not be able to continue developing or commercializing our product candidates. +• Patent terms may not provide exclusivity for our product candidates for an adequate amount of time to realize sufficient commercial benefits. +• Third parties may seek to invalidate our patents. +• Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +• Our future growth and ability to compete depend on, among other things, retaining key personnel and recruiting additional qualified personnel and on our ability to penetrate foreign markets. +• Laws and regulations governing our international operations may preclude us from developing, manufacturing and selling certain product candidates and products outside of the United States and require us to develop and implement costly compliance programs. +• We may encounter difficulties in managing our growth, which could disrupt our operations. +• Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in improper activities. +• Our business and operations may be materially adversely affected in the event of computer system failures or security breaches. +Risks Related to Ownership of Our Common Shares +• Substantially all of our total outstanding shares may be sold freely into the market. This could cause the market price of our common shares to drop significantly, even if our business is doing well. +• Because we do not expect to pay dividends on our common shares in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +• The trading price of our common shares has been and may continue to be volatile. +• If we are or become a passive foreign investment company, there could be adverse U.S. federal income tax consequences to U.S. holders. +• We are a British Virgin Islands ("BVI") business company limited by shares, and the rights of shareholders are more limited under BVI law than under U.S. law. It may be difficult to enforce a U.S. or foreign judgment against us, our directors and our officers outside the United States. +54 +Table of Contents +Risks Related to Our Financial Position and Need for Additional Capital +We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the success of our business to date and to assess our future viability. +We were incorporated on May 2, 2022 as a direct, wholly-owned subsidiary of the Former Parent. Our operations to date have been largely focused on organizing and staffing, raising capital and in-licensing the rights to, and advancing the development of, our product candidates, including conducting preclinical studies and clinical trials. We have not yet demonstrated an ability to obtain marketing approvals for any product candidates, manufacture products on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products. +We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We will need to eventually transition from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition. +Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, may have a negative impact on our business and results of operations. +Our business and results of operations could be adversely affected by changes in national or global economic conditions. These conditions include, but are not limited to, volatility in inflation and interest rates, volatility in the capital markets, energy availability and costs, the negative impacts from pandemics and public health crises, negative impacts resulting from the military conflict between Russia and Ukraine, geopolitical and trade tensions between the U.S. and China or other geopolitical events, potential protectionist trade policies adopted by the U.S. and other governments, and the effects of governmental initiatives to manage economic conditions. Impacts of such conditions could be passed on to our business in the form of higher costs for labor and materials, higher investigator fees, possible reductions in pharmaceutical industry-wide spending on research and development and acquisitions and higher costs of capital. +We have incurred significant operating losses since our inception as a business of the Former Parent and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. +Since our inception as a business of the Former Parent, we have incurred significant operating losses. Our net loss was $846.4 million, $408.2 million and $570.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. None of our product candidates has been approved for marketing in the United States, or in any other jurisdiction, and may never receive such approval. It could be several years, if ever, before we have a commercialized product that generates significant revenues. As a result, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. The net losses we incur have in the past and may in the future fluctuate significantly from quarter to quarter and year to year. Our expenses have increased, and we anticipate that our expenses will further increase substantially as we: +• initiate, continue, or complete planned or ongoing clinical trials of our current product candidates, including related support activities; +• continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies; +• make required milestone and royalty payments under the license agreements by which we acquired some of the rights to our product candidates; +• initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue; +• continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies; +• continue to develop, maintain, expand and protect our intellectual property portfolio; +• pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials; +55 +Table of Contents +• ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; +• hire additional clinical, medical, commercial, and development personnel; and +• incur additional legal, accounting and other expenses in operating as a public company. +To become and remain profitable, we must develop and eventually commercialize one or more product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, developing commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any current and future product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We are only in the preliminary stages of most of these activities and, in some cases, have not yet commenced certain of these activities. +We may never succeed in commercializing any of our product candidates and, even if we do, we may never generate sufficient revenue to achieve profitability. +Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will obtain marketing approval to commercialize any of our product candidates. If we are required by the FDA or other regulatory authorities such as the EMA to perform studies and trials in addition to those currently expected, or if there are any delays in the development, or in the completion of any planned or future preclinical studies or clinical trials of our current or future product candidates, our expenses could increase and profitability could be further delayed. +Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of the Company also could cause you to lose all or part of your investment. +We will need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed or on terms favorable to us, we could be forced to curtail our planned operations and the pursuit of our growth strategy. +Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We will require additional capital to complete our planned clinical development programs for our current product candidates to seek regulatory approval. Our expenses have increased and we expect our expenses to continue to increase in connection with our ongoing activities, particularly as we continue to develop our product candidates. Our expenses could increase beyond our current expectations if the FDA requires us to perform clinical trials and other studies in addition to those that we currently anticipate. If we receive regulatory approval for any of our product candidates, we may incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. +In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all. Additionally, if we obtain marketing approval for our product candidates, we expect to incur significant expenses related to manufacturing, marketing, sales and distribution and, with respect to certain of our product candidates, the payment of milestone and royalty fees. +As of December 31, 2024, we had cash, cash equivalents and marketable securities of $486.0 million, excluding restricted cash of $3.4 million. We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operating and financial commitments and other cash requirements for at least 12 months from the date of filing of this report. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume our available capital before that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements will depend on many factors, including: +• the scope, progress, results and costs of our ongoing and planned preclinical studies and clinical trials for our product candidates; +• the timing and amount of milestone and royalty payments we are required to make under our license agreements; +• the extent to which we in-license or acquire other product candidates and technologies; +56 +Table of Contents +• the number and development requirements of other product candidates that we may pursue, and other indications for our current product candidates that we may pursue; +• the costs, timing and outcome of regulatory review of our product candidates; +• the costs and timing of future commercialization activities, including drug manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; +• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; +• our ability to establish strategic collaborations for the development or commercialization of some of our product candidates; and +• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims brought by third parties against us. +We will require additional capital to complete our planned clinical development programs for our current product candidates to seek regulatory approval. Any additional capital-raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved. +In addition, we cannot guarantee that future financing will be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities by us, whether equity or debt, or the market perception that such issuances are likely to occur, could cause the market price of our common shares to decline. As a result, we may not be able to access the capital markets as frequently as comparable companies. If we are unable to obtain funding on a timely basis on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired. +Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams. +Until such time as we can generate substantial product revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and license and development agreements in connection with any future collaborations. We do not have any committed external source of funds. In the event we seek additional funds, we may raise additional capital through the sale of equity securities, including through our "at-the-market" equity program, or convertible debt securities. In such an event, our existing shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of the holders of our common shares. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could hurt our ability to conduct our business. +Further, if we raise additional capital through collaborations, strategic alliances, or marketing, distribution, licensing or funding arrangements with third parties, we may have to relinquish valuable rights to our intellectual property future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. +Credit risk with respect to our investments or the financial institutions at which we deposit funds could adversely affect us. +Financial instruments that expose us to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. Market conditions and changing circumstances, many of which are beyond our control, could reduce the value of our investments or impair our ability to access our existing cash, cash equivalents or other investments. For example, rising interest rates could negatively impact the value of investments that are not held to maturity. +We maintain cash deposits that are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit in FDIC-insured financial institutions. If any financial institution with which we have a banking relationship were to be placed into receivership or become insolvent in the future, we may be unable to access, temporarily or over a longer-term, or we may lose, a portion of our funds on deposit with that institution. +Any delay in our ability to access our cash, cash equivalents and investments, or the loss of some or all of such funds, could result in us not being able to pay our employees, vendors or others on a timely basis, or at all, and could hinder us from being able to enter into commercial arrangements that could be advantageous to us. Conversely, if any of +57 +Table of Contents +our counterparties are impacted by any banking failures, that could impact their ability to transact with us. Any of the foregoing could adversely impact, possibly materially, our business and operations. +Risks Related to the Development of Our Product Candidates +Our current business depends entirely on the success of a limited number of product candidates, which are in clinical development. If we do not obtain or are delayed in obtaining regulatory approval for and successfully commercialize one or more of our product candidates, our business, financial condition and results of operations could be materially impacted and we may never become profitable. +Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. We do not have any products that have received regulatory approval, and therefore we have never generated any revenue from product sales, and we may never be able to develop product candidates that receive regulatory approval or are successfully commercialized after regulatory approval is received. Consequently, the revenue-generating potential of our business is unproven and uncertain. We expect that a substantial portion of our efforts and expenses over the next few years will be devoted to the development of our product candidates; specifically, completion of our Phase 3 clinical trials of troriluzole in OCD, completion of clinical trials for BHV-7000, including Phase 2/3 studies in epilepsy and a Phase 2 study in MDD, completion of a Phase 2/3 clinical trial of troriluzole in glioblastoma, execution of a Phase 2 clinical trial for BHV-2000 in metabolic disorders, completion of Phase 2 studies for BHV-2100 in pain and migraine, initiation of a Phase 2/3 clinical trial for BHV-8000 in Parkinson's Disease, completion of Phase 1 clinical trials for BHV-1300, BHV-1400, BHV-1600, BHV-1510, and initiation of Phase 1 clinical trials for BHV-1310 and BHV-1530. As a result, our business currently depends heavily on the successful development, regulatory approval and, if approved, commercialization of these product candidates. We cannot be certain that we will be able to submit a new drug application (“NDA”), biologics license application (“BLA”) or comparable applications in other jurisdictions for any of our product candidates within the timeframes we expect, or that any NDA, BLA or similar application we submit will be accepted by the FDA or comparable foreign regulators for filing in a timely manner or at all. The research, testing, manufacturing, safety, efficacy, labeling, approval, sale, marketing and distribution of our product candidates are, and will remain, subject to comprehensive regulation by the FDA and similar foreign regulatory authorities. The success of our product candidates will depend on various factors, including: +• completing clinical trials that demonstrate our product candidates’ efficacy and safety; +• receiving marketing approvals from applicable regulatory authorities; +• completing any post-marketing studies required by applicable regulatory authorities; +• establishing commercial manufacturing capabilities; +• launching commercial sales, marketing and distribution operations; +• the prevalence and severity of adverse events experienced with our product candidates; +• acceptance of our product candidates by patients, the medical community and third-party payors; +• a continued acceptable safety profile following approval; +• obtaining and maintaining healthcare coverage and adequate reimbursement for our product candidates; +• competing effectively with other therapies, including with respect to the sales and marketing of our product candidates, if approved; and +• qualifying for, maintaining, enforcing and defending our intellectual property rights and claims. +Many of these factors are beyond our control, including the time needed to adequately complete clinical testing, the regulatory submission process, potential threats to our intellectual property rights and changes in the competitive landscape. Our failure to achieve one or more of these factors in a timely manner or at all could materially harm our business, financial condition and results of operations. +Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials. +Clinical testing is expensive and can take many years to complete, and delay or failure can occur at any time during the clinical trial process. +For example, in September 2021, we reported negative topline results from our Phase 3 clinical trial evaluating verdiperstat compared to placebo for the treatment of participants with MSA. In September 2022, we reported negative +58 +Table of Contents +topline results from the Phase 2/3 HEALEY ALS Platform trial evaluating verdiperstat compared to placebo for the treatment of participants with ALS. At this time, we have no plans to continue development of verdiperstat in ALS, and we are evaluating whether or not to pursue any additional clinical trials evaluating verdiperstat in other disease indications. +In addition, the results generated to date in preclinical studies or clinical trials for our product candidates do not ensure that later preclinical studies or clinical trials will demonstrate similar results. Further, we have limited clinical data for many of our product candidates. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and earlier stage clinical trials. In later-stage clinical trials, we will likely be subject to more rigorous statistical analyses than in completed earlier stage clinical trials. +In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen, and the rate of dropout among clinical trial participants. +If we fail to produce positive results in our planned preclinical studies or clinical trials of any of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be materially adversely affected. +Interim topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our reputation and business prospects. +We have limited experience in drug discovery and drug development. +Because we in-licensed some of our investigational agents from other companies, including BHV-2000 from BMS, we were not involved in and had no control over the preclinical and clinical development of these product candidates prior to entering into these in-license agreements. In addition, we are relying on the other companies from which we licensed our investigational agents to have conducted such research and development in accordance with the applicable protocol, legal, regulatory and scientific standards, accurately reported the results of all clinical trials conducted prior to our acquisition of the applicable product candidate, and correctly collected and interpreted the data from these studies and trials. To the extent any of these has not occurred, our expected development time and costs may be increased, which could adversely affect our prospects for marketing approval of, and receiving any future revenue from, these product candidates. +Clinical trials may be delayed, suspended or terminated for many reasons, which will increase our expenses and delay the time it takes to develop our product candidates. +We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will need to be redesigned, enroll an adequate number of patients on time or begin or be completed on schedule, if at all. The commencement and completion of clinical trials for our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including: +• the FDA or other regulators disagreeing as to the design, protocol or implementation of our clinical trials; +• the delay or refusal of regulators (including the FDA) or IRBs to authorize us to commence a clinical trial; +• regulators (including the FDA), IRBs, ethics committees of the institutions at which trials are being conducted or the data safety monitoring board for such trials requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements (including the FDA’s current GCP regulations) or our clinical protocols, safety concerns, adverse side effects, or lack of adequate funding to continue the clinical trial, among others; +• changes in regulatory requirements, policies and guidelines; +• delays or failure to reach agreement on acceptable terms with prospective clinical research organization (“CROs”) and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly +59 +Table of Contents +among different CROs and trial sites; delays in patient enrollment and variability in the number and types of patients available for clinical trials; +• the inability to enroll a sufficient number of patients in trials, particularly in orphan indications, to observe statistically significant treatment effects in the trial; +• having clinical sites deviate from the trial protocol or dropping out of a trial; +• negative or inconclusive results from ongoing preclinical studies or clinical trials, which may require us to conduct additional preclinical studies or clinical trials or to abandon projects that we expect to be promising; +• safety or tolerability concerns (including due to reports from testing of similar therapies) that could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks; +• regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others; +• lower than anticipated retention rates of patients and volunteers in clinical trials; +• our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial; +• delays relating to adding new clinical trial sites; +• difficulty in maintaining contact with patients after treatment, resulting in incomplete data; +• delays in establishing the appropriate dosage levels; +• the quality or stability of the product candidate falling below acceptable standards; +• the inability to produce or obtain sufficient quantities of the product candidate to commence or complete clinical trials; and +• exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials. +Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue from product sales. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. +The regulatory approval processes of the FDA and comparable foreign regulatory agencies are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be materially harmed. +Neither we nor any future collaborator is permitted to market any of our product candidates in the United States or abroad until we receive regulatory approval of an NDA or BLA from the FDA or approval from the EMA, NMPA or other applicable foreign regulatory agency. The time required to obtain approval by the FDA is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including those beyond our control, such as the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval is generally uncertain, may change during the course of a product candidate’s clinical development and may vary among jurisdictions. +Prior to obtaining approval to commercialize a product candidate in any jurisdiction, we must demonstrate to the satisfaction of the FDA, EMA, NMPA or any comparable foreign regulatory agency that such product candidates are safe and effective for their intended uses. The FDA, EMA, NMPA or any comparable foreign regulatory agency can delay, limit or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including: +• the FDA, EMA, NMPA or the applicable foreign regulatory agency’s disagreement with the number, design, conduct or implementation of our preclinical studies and clinical trials; +• negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA, EMA, NMPA or any comparable foreign regulatory agency for approval; +• serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates; +60 +Table of Contents +• our inability to demonstrate to the satisfaction of the FDA, EMA, NMPA or the applicable foreign regulatory agency that our product candidates are safe and effective for their proposed indications, or that the clinical and other benefits of our product candidates outweigh any safety or other perceived risks; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from preclinical studies or clinical trials; +• actions by the CROs that we retain to conduct our preclinical studies and clinical trials, which are outside of our control and that materially adversely impact our preclinical studies and clinical trials; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling or the specifications of our product candidates; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; and +• the potential for approval policies or regulations of the FDA, EMA, NMPA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval. +For example, with respect to our randomized, controlled clinical trial of troriluzole for the treatment of SCA, we undertook discussions with the FDA regarding the acceptability of the primary endpoint and necessary secondary endpoints, including our proposal to use a modified SARA scale. In our first Phase 2/3 clinical trial, the FDA stated that while certain items measured by the SARA scale appeared capable of reflecting a clinically meaningful benefit for patients depending on how the scoring of those items is defined, the use of the SARA scale was not appropriate as a primary endpoint in the trial. Based on our post-hoc analyses of data from the open-label extension phase of the trial, we proposed modifications to the SARA scale that we believe may address some of these shortcomings. Based on feedback received from the FDA, we incorporated trial design modifications that include utilization of a modified SARA scale. However, notwithstanding the feedback that we have received from the FDA, there remains substantial risk that the FDA or any foreign regulatory agency may nevertheless conclude that results obtained using the modified SARA scale would not be an adequate basis for approval. +In addition, in our Phase 3 clinical trial ("Study BHV4157-206") evaluating the efficacy and safety of troriluzole in adult patients with SCA, the primary endpoint, change from baseline to week 48 on the modified SARA scale, did not reach statistical significance in the overall SCA population as there was less than expected disease progression over the course of the study. Post-hoc analysis of efficacy measures by genotype suggests a treatment effect in patients with the SCA Type 3 ("SCA3") genotype. There is substantial risk that the FDA, EMA, NMPA or the applicable foreign regulatory agency may disagree with the interpretation of our data, and there can be no assurance that any such regulatory agency will find the data sufficient to support approval, or that we will not be required to conduct additional testing on the safety and efficacy of troriluzole. +In May 2023, we presented further analysis of Study BHV4157-206 by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, which represented 41% of study participants. These results were further supported by consistent results across the range of secondary and exploratory endpoints assessed in the SCA3 subgroup. In July 2023, the FDA informed us that it would not review the recently submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. In September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study achieved the primary endpoint and showed statistically significant improvements on the f-SARA at years 1 and 2 and 3 and we submitted an NDA to the FDA in the fourth quarter of 2024 for all of SCA. In October 2023, the EMA informed us that our MAA for troriluzole (Dazluma) in the treatment of SCA has been validated and is now under review by EMA's CHMP. In the fourth quarter of 2024, we completed a clarification meeting with the CHMP Rapporteurs. The MAA documents were subsequently updated with a broader indication to include all SCA genotypes, in light of the new positive BHV4157-206-RWE study data. +We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the EU and other key global markets, which requires compliance with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdiction. Failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. +Moreover, even if we were to obtain approval to market any product candidate we develop, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the +61 +Table of Contents +price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates. +Our product candidates may fail to demonstrate safety and efficacy in clinical trials, or may cause serious adverse or unacceptable side effects that could prevent or delay regulatory approval and commercialization, limit the commercial profile of an approved label, increase our costs, necessitate the abandonment or limitation of the development of some of our product candidates or result in significant negative consequences following marketing approval, if any. +Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate efficacy or safety of the product candidate studied for the target indication. +For example, in September 2021 we reported negative topline results from a Phase 3 clinical trial to evaluate the efficacy and safety of verdiperstat in participants with MSA. Results of the trial showed that verdiperstat did not statistically differentiate from placebo on the prespecified primary efficacy measure, nor on the key secondary efficacy measures. In September 2022, we reported negative topline results from the Phase 2/3 HEALEY ALS Platform trial evaluating verdiperstat compared to placebo for the treatment of participants with ALS. At this time, we do not have plans to pursue any additional clinical trials evaluating verdiperstat in ALS, but we are evaluating its potential in other disease indications. +Moreover, undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label, the limitation of commercial potential or the delay or denial of regulatory approval by the FDA or a foreign regulatory agency. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Accordingly, we may need to abandon the development of certain product candidates or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in preclinical or early-stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound in the tested indication. +Occurrence of serious treatment-related side effects could impede subject recruitment and clinical trial enrollment or the ability of enrolled patients to complete the trial, delay the clinical trial, and prevent receipt of regulatory approval from the FDA and other regulators. They could also adversely affect physician or patient acceptance of our product candidates or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. +If any of our product candidates receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug could be compromised. +Clinical trials of our product candidates by their nature are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. +We have monitored the subjects in our studies for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials. However, if one or more of our product candidates receives regulatory approval, and we, or others, later discover that they are less effective than previously believed, or cause undesirable side effects that had not previously been identified, a number of potentially significant negative consequences could result, including: +• withdrawal or limitation by regulatory authorities of approvals of such product; +• seizure of the product by regulatory authorities; +• recall of the product; +• restrictions on the marketing of the product or the manufacturing process for any component thereof; +• requirement by regulatory authorities of additional warnings on the label, such as a “black box” warning or contraindication; +• requirement that we implement a REMS or similar program or create a medication guide outlining the risks of such side effects for distribution to patients; +62 +Table of Contents +• commitment to expensive additional safety studies prior to approval or post-marketing studies required by regulatory authorities of such product; +• the product may become less competitive; +• initiation of regulatory investigations and government enforcement actions; +• initiation of legal action against us to hold us liable for harm caused to patients; and +• harm to our reputation and resulting harm to physician or patient acceptance of our products. +Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, financial condition, and results of operations. +We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected. +Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. If we are unable to enroll a sufficient number of patients in our clinical trials, our timelines for recruiting patients, conducting clinical trials and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of our clinical trials altogether. We cannot predict how successful we will be at enrolling patients in future clinical trials. Patient enrollment is affected by other factors including: +• the eligibility criteria for the trial in question; +• the perceived risks and benefits of the product candidate in the trial; +• clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating or drugs that may be used off-label for these indications; +• the size of the patient population required for analysis of the trial’s primary endpoints; +• competition for patients for competitive product candidates undergoing clinical trials; +• the efforts to facilitate timely enrollment in clinical trials; +• the design of the trial; +• the patient referral practices of physicians; +• the ability to monitor patients adequately during and after treatment; +• the risk that patients enrolled in clinical trials will drop out of the trials before completion; +• the ability to obtain and maintain patient consents; +• the number of patients with the indication being studied; and +• the proximity and availability of clinical trial sites for prospective patients. +We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. +We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all damages from such claims. +We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. The current and future use of product +63 +Table of Contents +candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, or others selling such products. In addition, we have agreed to indemnify the licensors of the intellectual property related to our product candidates against certain intellectual property infringement claims. Any claims against us, or with respect to which we are obligated to provide indemnification, regardless of their merit, could be difficult and costly to defend or settle, and could compromise the market acceptance of our product candidates or any prospects for commercialization of our product candidates, if approved. +Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects or identify patients who should not use our product candidates. +Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all our liabilities. We routinely review our insurance coverage in consideration of our ongoing clinical trials and anticipated commercial operations. As the expense of insurance coverage is increasing, we may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. +If serious adverse events or other undesirable side effects are identified during the use of our product candidates in trials, it may adversely affect our development of such product candidates. +Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt preclinical studies and clinical trials, or could make it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects or unexpected characteristics of our product candidates are observed in investigator-sponsored trials, further clinical development of such product candidate may be delayed or we may not be able to continue development of such product candidate at all, and the occurrence of these events could have a material adverse effect on our business. Undesirable side effects caused by our product candidates could also result in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect. +Risks Related to Commercialization of Our Product Candidates +We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any of our products that receive regulatory approval on our own or together with suitable collaborators. +We have never commercialized a product candidate. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring the rights to our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We currently have no sales force, marketing or distribution capabilities. To achieve commercial success of our product candidates, if any are approved, we will have to develop our own sales, marketing and supply capabilities or outsource these activities to a third party. +Factors that may affect our ability to commercialize our product candidates on our own include: recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our product candidates, and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization requires significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization in the United States, the EU or other key global markets. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may have difficulties generating revenue from such product candidates or be able to achieve or sustain profitability. +To the extent that we enter into collaboration agreements with respect to marketing, sales or distribution of any approved product, our product revenue may be lower than if we directly marketed or sold such product. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third-party collaborators, which may not be successful and are generally not within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. +64 +Table of Contents +We operate in a highly competitive and rapidly changing industry. Failure to compete successfully could adversely affect our business, financial condition and results of operations. +Biopharmaceutical product development is highly competitive and subject to rapid and significant technological advancements. Our success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market, specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the United States, the EU and other jurisdictions. +With respect to troriluzole, which we are currently developing for the treatment of ataxias and other neurologic disorders, with SCA as our initial indication, there are currently no approved drug treatments for SCA in the United States. We are also developing troriluzole for the potential treatment of OCD and other indications. If we continue to pursue these indications, we would face substantial competition from companies that develop or sell products that treat OCD. +Many of the companies which we are competing with or which we may compete with in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the biopharmaceutical industry have resulted in and could in the future result in even more resources being concentrated among our competitors. +Competition may further increase as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in the biopharmaceutical industry. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, products that are more effective or less costly than any product candidates that we may develop. +Established biopharmaceutical companies may invest heavily to accelerate research and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, and in discovering, developing, receiving FDA approval for or commercializing drugs before we do, which would have an adverse impact on our business and results of operations. +The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidates we commercialize, if any. The inability to compete with existing or subsequently introduced drugs would harm our business, financial condition and results of operations. +The successful commercialization of certain of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue. +The availability and adequacy of coverage and reimbursement by governmental healthcare programs, such as Medicare and Medicaid, private health insurers and other third-party payors, are essential for most patients to be able to afford products such as our product candidates, if approved. Our ability to achieve acceptable levels of coverage and reimbursement for products by third-party payors will have an effect on our ability to successfully commercialize our product candidates, if approved, and attract additional collaboration partners to invest in the development of our product candidates. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and adequate reimbursement in the United States, the EU or elsewhere will be available for any product that we may develop, and any reimbursement that becomes available may be decreased or eliminated in the future. +Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. Our competitors may offer their products and services on a less expensive basis to gain coverage and reimbursement from third-party payors. It is possible that a third-party payor may consider our product candidates as substitutable by less expensive therapies and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing drugs may limit the amount we will be able to charge for our product candidates, once approved. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or +65 +Table of Contents +existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. +There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such devices or therapies. +Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that further changes in these rules and regulations are likely. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates, if approved. We expect to experience pricing pressures in connection with the sale of any of our approved product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect: +• the demand for any products for which we may obtain regulatory approval; +• our ability to set a price that we believe is fair for our products; +• our ability to obtain coverage and adequate reimbursement approval for a product; +• our ability to generate revenues and achieve or maintain profitability; and +• the level of taxes that we are required to pay. +Even if we obtain regulatory approval for our product candidates, they will remain subject to ongoing regulatory oversight. +Even if we obtain regulatory approval for any of our product candidates, they will be subject to extensive and ongoing regulatory requirements for manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promoting, sampling and record-keeping. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCPs, for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. We may not be able to adapt to changes in existing requirements or the adoption of new requirements or policies. If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include: +• issuing warning or untitled letters; +• seeking an injunction or imposing civil or criminal penalties or monetary fines; +• suspension or imposition of restrictions on operations, including product manufacturing; +66 +Table of Contents +• seizure or detention of products, refusal to permit the import or export of products, or requesting that we initiate a product recall; +• suspension or withdrawal of our marketing authorizations; +• suspension of any ongoing clinical trials; +• refusal to approve pending applications or supplements to applications submitted by us; +• refusal to permit the import or export of products; or +• requiring us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization. +Moreover, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties. +If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expenses to comply with regulatory requirements, which could adversely affect our business, financial condition and results of operations. +Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +Even if the FDA approves the marketing of any product candidates that we develop, physicians, patients, third-party payors or the medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates. If any of our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue or any profits from operations. Because we expect sales of our product candidates, if approved, to generate substantially all of our product revenue for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business and could require us to seek additional financing. The degree of market acceptance of our product candidates that are approved for commercial sale will depend on a variety of factors, including: +• the efficacy, cost, convenience and ease of administration, and other potential advantages compared to alternative treatments, including any similar generic treatments; +• effectiveness of sales and marketing efforts; +• the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; +• the strength of marketing and distribution support; +• the availability of third-party coverage and adequate reimbursement, and patients’ willingness to pay out-of-pocket in the absence of third-party coverage or adequate reimbursement; +• the prevalence and severity of any side effects; and +• any restrictions on the use of our products, if approved, together with other medications. +In addition, the potential market opportunity for our product candidates is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions may be inaccurate. If any of the assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity, our revenue from product sales may be limited and we may be unable to achieve or maintain profitability. +67 +Table of Contents +If the FDA or comparable foreign regulatory authorities approve generic versions of any of our products that receive marketing approval, or such authorities do not grant our products sufficient periods of exclusivity before approving generic versions of our products, the sales of our products could be adversely affected. +Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications (“ANDAs”) in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product. +The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDCA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical element (“NCE”). Specifically, in cases where such exclusivity has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference listed drug. +While we believe that troriluzole, a prodrug of riluzole will be treated as an NCE under current FDA interpretations and, therefore, if approved, should be afforded five years of data exclusivity, the FDA may disagree with that conclusion and may approve generic products after a period that is less than five years. Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if we still have patent protection for our product. +Competition that our products may face from generic versions of our products could materially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates. +Risks Related to Our Dependence on Third Parties +We rely on third parties to conduct our preclinical studies and clinical trials and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed. +We have historically conducted, and we intend to continue to conduct our clinical trials using our own clinical resources, while also leveraging expertise and assistance from medical institutions, clinical investigators, contract laboratories and other third parties, such as contract research organizations as appropriate. We are reliant upon such third parties to assist us in conducting GCP-compliant clinical trials on our product candidates properly and on time, and may not currently have all of the necessary contractual relationships in place to do so. Once we have established contractual relationships with such third-parties, we will have only limited control over their actual performance of these activities. +We and our CROs and other vendors are required to comply with cGMP, GCP and GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EU and any comparable foreign regulatory authorities for all of our product candidates in preclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators, clinical trial sites and other contractors. Although we rely on CROs to conduct any current or planned GLP-compliant preclinical studies and GCP-compliant clinical trials and have limited influence over their actual performance, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or any comparable foreign regulatory agency may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory agency, such regulatory agency will determine that all of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced under cGMP requirements. Our failure to comply with these requirements may require us to repeat clinical trials, which would delay the regulatory approval process. +While we will have agreements governing their activities, we are not, and will not be, able to control whether or not our CROs devote sufficient time and resources to our future preclinical and clinical programs. These CROs may also have +68 +Table of Contents +relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our business. If our CROs do not successfully carry out their contractual duties or obligations, or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed or terminated, the clinical data generated in our clinical trials may be deemed unreliable, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenue could be delayed. +If our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus, and could delay development and commercialization of our product candidates. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can negatively impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business and financial condition. +We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval; and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates. +We do not currently have, nor do we plan to acquire, the internal infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products. +Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain the active pharmaceutical ingredients (“APIs”) and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates. In addition, our results of operations and cash flows could be adversely impacted by any inability to obtain favorable terms from our suppliers, including any acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements. +While we have auditing rights with all our current manufacturing counterparties, we do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If our contract suppliers or manufacturers fail to achieve and maintain compliance with applicable laws and regulatory requirements, our business could be adversely affected in a number of ways, and cause, among other things: +• an inability to initiate or continue clinical trials of our product candidates under development; +• delay in submitting regulatory applications, or receiving regulatory approvals, for our product candidates; +• subjecting third-party manufacturing facilities or our own facilities to additional inspections by regulatory authorities; +• requirements to cease distribution or to recall batches of our product candidates; +• suspension of manufacturing of our product candidates; +• revocation of obtained approvals; and +• inability to meet commercial demands for our product candidates in the event of approval. +Further, if the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws and regulatory requirements, or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory +69 +Table of Contents +submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all. +We may rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture. We may also have sole-source suppliers for one or more of our other product candidates. Some of the APIs and other substances and materials used in our product candidates are currently available only from one or a limited number of domestic or foreign suppliers and foreign manufacturers and certain of our finished product candidates are manufactured by one or a limited number of contract manufacturers. +In the event an existing supplier or manufacturer fails to supply or manufacture, as applicable, product on a timely basis or in the requested amount, fails to meet regulatory requirements or our specifications, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source, or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we likely would incur added costs and delays in identifying or qualifying replacement suppliers, manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. In certain cases, we may be required to get regulatory approval to use alternative suppliers and manufacturers, and this process of approval could delay production of our products or development of product candidates indefinitely. We and our manufacturers do not currently maintain inventory of these APIs and other substances and materials. Any interruption in the supply of an API or other substance or material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects. +In addition, these contract manufacturers are or may be engaged with other companies to supply and manufacture materials or products for such companies, which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval of or market our product candidates, if approved. +We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future, but supply and manufacturing arrangements do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. We and our contract suppliers and manufacturers may attempt to improve production processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. While we attempt to build in certain contractual obligations on such third-party suppliers and manufacturers, we may not be able to ensure that such third parties comply with these obligations. Depending on the extent of any difficulties encountered, we could experience an interruption in clinical or commercial supply, with the result that the development, regulatory approval or commercialization of our product candidates may be delayed or interrupted. In addition, third-party suppliers and manufacturers may have the ability to increase the price payable by us for the supply of the APIs and other substances and materials used in our product candidates, in some cases without our consent. +Additionally, any damages to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to have our product candidates manufactured on a timely basis. Furthermore, if a contract manufacturer or supplier becomes financially distressed or insolvent, or discontinues our relationship beyond the term of any existing agreement for any other reason, this could result in substantial management time and expense to identify, qualify and transfer processes to alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply. +In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our products or product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging. +We, or third-party manufacturers on whom we rely, may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any. +As we prepare for later-stage clinical trials and potential commercialization, we will need to take steps to increase the scale of production of our product candidates, which may include transferring production to new third-party suppliers or manufacturers. In order to conduct larger or late-stage scale clinical trials for our product candidates and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, our contract manufacturers and suppliers will need to produce our product candidates in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. We, or our manufacturers, may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective +70 +Table of Contents +manner, or at all. In addition, quality issues may arise during scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of the APIs or the finished product. If we, or any of our manufacturers, are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing, and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business. If we are unable to obtain or maintain third-party manufacturing for commercial supply of our product candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully. +We may in the future enter into collaborations with third parties to develop and commercialize our product candidates. If these collaborations are not successful, or if we are not able to establish or maintain these collaborations, our business could be harmed. +Our product development programs and the potential commercialization of our product candidates will require substantial additional capital to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the future development and potential commercialization of those product candidates. Furthermore, we may find that our programs require the use of proprietary rights held by third parties, and the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. Collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, and the terms of any collaborations or other arrangements that we may establish may not be favorable to us. +We face significant competition in seeking appropriate collaborators, and a number of more established companies may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, competing or alternative products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. We may also be restricted under existing license agreements from entering into agreements on certain terms with potential collaborators. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the same rights and compete with us. +The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, including for example, that the collaborators may not: adequately perform their obligations under the collaboration agreement; devote sufficient resources to the collaboration to ensure success; or agree with us on the strategy or tactical aspects of the collaboration. +If any such potential future collaborations do not result in the successful development and commercialization of product candidates, or if one of our future collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, the development of our product candidates could be delayed and we may need additional resources to develop our product candidates. In addition, if one of our future collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization apply to the activities of our potential future collaborators. +Risks Related to Regulatory Compliance +We are required to comply with a wide variety of laws and regulations, and are subject to regulation by various federal, state and foreign agencies, and our failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition. Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set. +Our operations are subject to a broad array of regulatory requirements globally. We are subject to federal, state, local, international and transnational laws and regulations, including the operating, quality and security standards of the FDA, the U.S. Department of Health and Human Services (“HHS”), and other regulatory authorities such as the EMA, and in the future, any changes to such laws and regulations could adversely affect us. In particular, changes in the FDA’s +71 +Table of Contents +regulation of drug discovery and development or manufacturing processes could adversely affect our results of operations and financial condition. We may be required to register for permits and/or licenses with the FDA, HHS, or other regulatory authorities such as the EMA, and there can be no assurance that we will be able to maintain or renew existing permits, licenses or other regulatory approvals or obtain, without significant delay, future permits, licenses or other approvals needed for the operation of our business. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on our results of operations and financial condition. +In the United States, the EU, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the "ACA") was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. +Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS is developing new payment and delivery models, such as bundled payment models. HHS moved 30% of Medicare payments to alternative payment models tied to the quality or value of services in 2016. Additionally, HHS has set a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +Further, there have been several recent U.S. congressional inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. HHS has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. The IRA, enacted in August 2022, among other things directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions have started to take effect progressively starting in fiscal year 2023, although the Medicare drug price negation program is currently subject to legal challenges. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has issued and will continue to issue and update guidance as these programs are implemented. In January 2025, President Trump revoked several Biden-era executive orders which included efforts to lower the cost of prescription drugs for people on Medicare and Medicaid, increasing protections for Medicaid enrollees and enhancing the Affordable Care Act. Notably, Biden’s Executive Order 14087, which ordered the testing of three new Medicare and Medicaid pricing negotiation models, was revoked. It is currently unclear how the IRA will be implemented, but it could have a significant impact on companies in the pharmaceutical industry that are within its scope. The Company does not currently have any drugs that are impacted by the IRA. +At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects. +Further, the Supreme Court struck down the Chevron doctrine in June 2024 in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce . The Chevron doctrine gave deference to regulatory agencies in litigation against the FDA and other agencies. As a result, more companies may bring lawsuits against the FDA to challenge longstanding decisions and policies of the FDA, which could undermine the FDA’s authority, lead to uncertainties in the industry and disrupt the FDA’s normal operations, which could delay the FDA’s review of our applications. +In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize any of our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, +72 +Table of Contents +legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business. +Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors and customers will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. +Although we do not currently have any products on the market, if we obtain FDA approval for our product candidates, and begin commercializing those products in the United States, our operations may be directly, or indirectly through our prescribers, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws and Physician Payments Sunshine Act and regulations. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our current business operations, including our clinical research activities proposed sales and marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers, physicians and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The U.S. laws that may affect our ability to operate include: +• the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; +• the U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) enacted as part of the American Recovery and Reinvestment Act of 2009, and its implementing regulations, and as amended again by the Modifications to the HIPAA Privacy, Security, Enforcement and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to the HIPAA Rules, commonly referred +73 +Table of Contents +to as the Final HIPAA Omnibus Rule, published in January 2013, which imposes certain obligations, including mandatory contractual terms, on covered entities subject to HIPAA (i.e., health plans, healthcare clearinghouses and certain healthcare providers), as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information, to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosure; +• the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; +• the U.S. federal Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members; +• analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; +• state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; +• state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; +• state and local laws that require the registration of pharmaceutical sales representatives; and +• state laws governing the privacy and security of personal information, including personal health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. +Ensuring that our internal operations and current and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. +We may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates. +We have obtained orphan drug designation in the United States for troriluzole in SCA and for taldefgrobep alfa in SMA and in the EU for taldefgrobep alfa in SMA. We may seek orphan drug designation for other product candidates in the future. Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. +Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for the same indication during that time period. The applicable period is seven years in the United States and ten years in the EU. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is +74 +Table of Contents +sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. +We cannot assure you that any future application for orphan drug designation with respect to any other product candidate will be granted. If we are unable to obtain orphan drug designation with respect to other product candidates in the United States, we will not be eligible to obtain the period of market exclusivity that could result from orphan drug designation or be afforded the financial incentives associated with orphan drug designation. Even when we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve a later drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law, including the laws of the BVI. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +Disruptions at the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products from being developed or commercialized in a timely manner, or otherwise prevent those agencies from performing normal business functions, which could negatively impact our business and the approval of an NDA, BLA or similar application. +The ability of the FDA to review and approve new products can be affected by a variety of factors, including the ability to hire and retain key personnel, including senior leadership, government budget and funding levels and related government shutdowns, the ability to accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the FDA and other government agencies on which our operations may rely is subject to the impacts of political events, which are inherently fluid and unpredictable. +Disruptions at the FDA and other agencies may slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If a prolonged government shutdown occurs in the future, it could significantly impact the ability of the FDA to timely review and process our submissions. +In addition, FDA-regulated industries, such as ours, face substantial uncertainty in regard to the regulatory environment we will face as we proceed with research and development efforts under the new presidential Administration in the U.S. For example, recent personnel reduction measures have significantly impacted and could continue to impact the FDA’s ability to hire and retain key personnel, which could result in delays or limitations on our ability to obtain guidance from the FDA on our product candidates in development and obtain the requisite regulatory approvals in the future. Moreover, the new Administration has proposed action to freeze or reduce the budget of the NIH as relates to its funding for medical research, which could in turn decrease the ability of facilities that rely on NIH funding to enroll and conduct clinical trials or increase the costs to us of conducting clinical trials. State governments may attempt to address or react to changes at the federal level with changes to their own regulatory frameworks in a manner that is adverse to our operations. If we become negatively impacted by future governmental orders, regulations, policies or guidance, there could be a material adverse effect on us and our business. +Changes to legislation or regulations in the British Virgin Islands could lead to increased costs for us to comply with additional regulatory and reporting requirements. +As the global regulatory and tax environment evolves, we may be subject to new or different statutory and regulatory requirements. For example, on January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 +75 +Table of Contents +of the British Virgin Islands (the “Economic Substance Act”) came into force and was amended on October 1, 2019 and June 29, 2021 and remains subject to further amendments, additional regulations and guidance on interpretation from the regulator. We strive to conduct our business in a manner that is in compliance with the Economic Substance Act. However, the imposition of additional requirements due to further amendments, additional regulations or new guidance on interpretation of these laws may create additional costs that may be borne by us or otherwise affect our management and operation. +Risks Related to Our Intellectual Property +We could lose market exclusivity earlier than expected. +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection (“RDP”). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, the United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +Product Exclusivity – United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation, at least in part, for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a BLA is filed. The type of application filed affects RDP exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an ANDA with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an +76 +Table of Contents +innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, are filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full Biologics License Application ("BLA"). After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the EU and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the EC and the EC then approves or denies the MAA. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement +77 +Table of Contents +procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +Rest of the World +In countries outside of the U.S., the EU and Japan, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization (“WTO”) commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +We are dependent on licensed intellectual property in our business. If we are unable to obtain licenses from third parties on commercially reasonable terms or lose our rights to such licensed intellectual property, or if our rights are determined to be narrower than we understand them to be, we may not be able to continue developing or commercializing our product candidates. +We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our business, including, for example, an agreement with ALS Biopharma and Fox Chase Chemical Diversity Center, Inc., pursuant to which we were assigned intellectual property rights relating to troriluzole, a license agreement with Yale University, pursuant to which we were granted certain patent rights to develop and commercialize riluzole-based products, another license agreement with Yale University pursuant to which we acquired exclusive, worldwide rights to Yale's intellectual property directed to its MoDE platform, a license agreement with Highlightll, pursuant to which we were granted exclusive rights to develop and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program, a license agreement with Bristol-Myers Squibb, pursuant to which we were granted exclusive rights to develop and commercialize taldefgrobep alfa, and a license agreement with KU Leuven, pursuant to which we were granted an exclusive license to develop and commercialize the TRPM3 antagonist platform. We may enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations, such as non-compete periods for certain collaboration targets and rights of first negotiation for development of certain programs. Typically, in our licenses, we have control over the filing, prosecution, maintenance and enforcement of the licensed intellectual property. However, in some cases, we do not control prosecution of the licensed intellectual property, or do not have the first right to enforce such intellectual property. In those cases, we may not be able to adequately influence patent prosecution or enforcement, or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. +If we fail to comply with any of our obligations under a current or future license agreement, the licensor may allege that we have breached our license agreement, and may seek to terminate our license. Termination of any of our current or future licenses could result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop, manufacture or commercialize a product candidate or product, if approved, as well +78 +Table of Contents +as harm our competitive business position and our business prospects. Under some license agreements, termination may also result in the transfer of or granting of rights under certain of our intellectual property and information related to the product candidate being developed under the license, such as regulatory information. If our licensors fail to comply with their obligations under these agreements, such as, for example, by failing to maintain or enforce patents licensed to us, exclusivity relating to the products covered by the license may be diminished or lost. Our rights under license agreements could be determined to be narrower than we understand them to be. Also, if it is found that our licensors were not the original inventors of the licensed intellectual property, or were not the first to file patent applications, then we may lose rights to the licensed intellectual property. +Licensing of intellectual property is important to our business and involves complex legal, business and scientific issues. Disputes between us and our licensors have arisen and may arise in the future. For example, disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including: +• the scope of rights granted under the license agreement and other interpretation-related issues, including our right to sublicense patents and other rights to third parties; +• whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; +• the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; +• our right to transfer or assign the license; and +• the effects of termination. +If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop, manufacture or commercialize the affected product candidates. +It may be necessary or desirable for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would seek to obtain a license from these third parties. If we are unable to license such technology, or if we are forced to license such technology on unfavorable terms, our business could be harmed. If we are unable to obtain a necessary license, we may be unable to develop or commercialize the affected product candidates, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales or payment of royalties and/or other forms of compensation. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. +Patent terms may not provide exclusivity for our product candidates for an adequate amount of time for us to realize commercial benefits. +Patents have a limited lifespan. In the United States and most of the world, the statutory expiration of a patent is generally 20 years from the first filing date. Even if patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive products, including generic products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates may not provide us with exclusivity for an adequate amount of time for us to realize commercial benefits. +Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process, subject to a statutory maximum of fourteen (14) years from the regulatory approval and an additional six months of pediatric exclusivity if available. Similar regulations regarding patent term extensions, or supplementary protection certificates, are available in some countries such as the EU, United Kingdom, Japan and Korea. +However, we may not receive a patent term restoration, a supplementary protection certificate or extension if we fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain a patent term restoration, a supplementary protection certificate or extension, or the term is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors +79 +Table of Contents +may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. +Third parties may seek to invalidate our patents. +Once granted, patents may remain open to invalidity challenges including opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation actions in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims which are the subject of the challenge, or may lose the allowed or granted claims altogether. +Generic manufacturers seeking to launch a generic substitute of small molecule drug in the U.S. typically engage in patent challenges. We expect that as early as four (4) years after the approval of our products, one or more generic manufactures may allege that one or more of the patents listed in the Orange Book under our NDA is either invalid or not infringed (a Paragraph IV certification). We then must decide whether to file a patent infringement suit against such generic manufacturer(s). Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. +Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our technology, such as our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license. +Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. If, in the context of seeking approval for one of our product candidates subject to approval via Section 505(b)(2), we were required to file a Paragraph IV certification against any patents of a third party, we would additionally be at risk of an automatic stay if litigation is initiated, thereby potentially delaying our approval or market entry. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of resources from our business. +In the event of a successful claim of infringement against us, we may have to pay substantial damages, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. +In addition to claims of infringement made by third parties against us, we have in the past and may again in the future file claims of infringement and/or trade secret misappropriation against third parties who infringe, or misappropriate, our patents and/or trade secrets or those of our licensors. This can occur as a counter claim in an infringement suit against us or as a direct claim against the third party. Our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable or claims challenging the scope of the intellectual property rights we own or control. The outcome following legal assertions of invalidity and unenforceability is unpredictable. +During the course of any intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions or other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product candidates, programs or intellectual property could be diminished and the market price of our common stock could decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business. +80 +Table of Contents +We are subject to other risks relating to our intellectual property. +In addition to the risk factors described above, we consider the items below to be relevant for consideration in the assessment of the Company’s intellectual property position. +• Changes in intellectual property laws or regulations in the U.S. or other countries could negatively affect our business. Similarly, changes in the interpretation of such laws or regulations could have an impact on our business. For example, U.S. Supreme Court has ruled on several patent cases in recent years, such as Impression Products, Inc. v. Lexmark International, Inc., Association for Molecular Pathology v. Myriad Genetics, Inc., Mayo Collaborative Services v. Prometheus Laboratories, Inc., and Alice Corporation Pty. Ltd. v. CLS Bank International, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, decisions by courts may lead to legislation impacting our ability to obtain or enforce our intellectual property. +• Our ability to enforce our intellectual property outside of the U.S. is dependent on the laws of jurisdiction in which the alleged infringement occurred, the ability to engage in discovery to obtain evidence and the availability of meaningful recoveries, e.g., damages and injunctions. The laws of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights. As a result, our business may be harmed by limitations on our ability to protect our technology through the enforcement of our intellectual property in certain countries outside the U.S. +• The U.S. government may seek to exercise its rights under the Bayh-Dole Act of 1980 in programs that have received government funding. This exercise of rights could require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party the U.S. Government determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). +• We rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into confidentiality agreements with parties who have access to them, such as our employees, third party collaborators, contract manufacturers, consultants, advisors and other third parties. An unauthorized disclosure or use of our trade secrets can have an adverse impact on our business. +• Other innovator companies may independently develop alternative technologies to our technologies without infringing our intellectual property rights, such as, for example, by developing compounds that function according to the same mechanism of action as our compounds, but are chemically distinct from ours and are not covered by the claims of the patents that we own or control. +• Litigation involving intellectual property can be generally time consuming and expensive. Litigation or other legal proceedings relating to intellectual property claims is unpredictable and generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on our valuation. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel. +We are highly dependent on the management, development, clinical, financial and business development experience of our senior management. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or employees. +The competition for qualified personnel in the biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could harm our business. +81 +Table of Contents +In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. +Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. +Our future profitability will depend, in part, on our ability to commercialize our product candidates in markets outside of the United States and the EU. If we commercialize our product candidates in foreign markets, we will be subject to additional risks and uncertainties, including: +• economic weakness, including inflation, or political instability in particular economies and markets; +• the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, many of which vary between countries; +• different medical practices and customs in foreign countries affecting acceptance in the marketplace; +• tariffs and trade barriers; +• other trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or foreign governments; +• longer accounts receivable collection times; +• longer lead times for shipping; +• compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; +• workforce uncertainty in countries where labor unrest is common; +• language barriers for technical training; +• reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics; +• foreign currency exchange rate fluctuations and currency controls; +• differing foreign reimbursement landscapes; +• uncertain and potentially inadequate reimbursement of our products; and +• the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. +Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs. +Our business and operations may be materially adversely affected in the event of computer system failures or security breaches. +Despite the implementation of security measures, our internal computer systems, and those of our CROs, CMOs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyberattacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Although we have not experienced a material security breach or disruption to date, we may experience a material security breach or disruption in the future in the event such security breach or disruption results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including individually identifiable health information or the personal data of employees or former employees, access to our clinical data or disruption of the manufacturing process. We are also vulnerable to cybersecurity incidents through cyberattacks by hackers, user error, phishing scams or other malfeasance, as well as cybersecurity incidents involving our employees, business partners, collaborators or other third parties. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business, reputation, financial condition, results of operations or result in legal proceedings. +82 +Table of Contents +Additionally, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including date concerning health, is subject to the EU General Data Protection Regulation, or GDPR. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing data concerning health and other sensitive data, obtaining consent of the individuals to whom the personal data relates to process their personal data, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global turnover, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. +Various U.S. states and other governmental authorities around the world have imposed or are considering similar types of laws and regulations, data breach reporting and penalties for non-compliance and increasing security requirements. These laws and regulations are broad in scope and are subject to evolving interpretation and we have in the past been, and in the future could be, required to incur substantial costs to monitor compliance or to alter our practices. Moreover, these new laws and regulations could diverge and conflict with each other in certain respects. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with such laws and regulations, as well as our potential liability for non-compliance and reporting obligations in the case of data breaches, have increased and may further increase. +Laws and regulations governing our international operations may preclude us from developing, manufacturing and selling certain product candidates and products outside of the United States and require us to develop and implement costly compliance programs. +As we expand our operations outside of the United States, we will be required to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. We are subject to U.S. laws governing international business activities, including U.S. economic sanctions, export controls and anti-corruption laws, including the FCPA, compliance with which is expensive and difficult, particularly in countries in which corruption is a recognized problem. As a result, these laws may preclude us from developing, manufacturing or selling certain product candidates outside of the United States, which could limit our growth potential and increase our development costs. If our employees or agents violate our policies or we fail to maintain adequate record keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Violations of U.S. economic sanctions, export controls and anti-corruption laws, or allegations of such acts, could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees which could adversely affect our business, consolidated financial condition and results of operations. +We have expanded and expect to further expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +As our clinical development progresses, we have experienced and expect to continue to experience growth in the number of our employees and the scope of our operations, particularly in the areas of clinical operations, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements. +We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA, the EMA and other similar regulatory authorities, including those laws requiring the reporting of +83 +Table of Contents +true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. +Although we have adopted a code of business conduct and ethics, it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. +We may be subject to securities litigation, which is expensive and could divert management attention. +Our share price has been and may continue to be volatile, and in the past companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation. This risk is especially relevant for us because biotechnology companies have experienced significant share price volatility in recent years. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming, and could divert our management’s attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our common shares. Any of the foregoing could seriously harm our business. +Risks Related to Ownership of Our Common Shares +The trading price of our common shares has in the past been and could in the future be volatile and fluctuate due to factors beyond our control, and purchasers of our common shares could incur substantial losses. +Our share price has in the past been and could in the future be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our shareholders and investors may not be able to sell their common shares at or above the price paid for the shares. The market price for our common shares may be influenced by many factors, including: +• positive or negative results, including preliminary or topline results, of preclinical studies and clinical trials reported by us, strategic partners or competitors; +• any progress or delay in the commencement, enrollment and the ultimate completion of clinical trials; +• technological innovations or commercial product introductions by us or competitors; +• failure to successfully develop and commercialize any of our product candidates; +• developments, announcements or changes in government regulations relating to drug products, including related to drug pricing, reimbursement and healthcare coverage; +• delays in in-licensing or acquiring additional complementary product candidates; +• developments concerning proprietary rights, including patents and litigation matters; +• public concern relating to the commercial value or safety of any of our product candidates; +• financing or other corporate transactions, or inability to obtain additional funding; +84 +Table of Contents +• announcements relating to our arrangements with strategic partners; +• failure to meet or exceed expectations of the investment community; +• actual or anticipated variations in our operating results; +• changes in financial estimates by us or by any securities analysts who might cover our shares; +• announcements by therapeutic drug product providers related to pricing of therapeutics; +• announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors; +• publication of research reports or comments by securities or industry analysts; +• failure to attract or retain key personnel; +• sales of our common shares, including sales by our directors and officers or specific shareholders; +• general market or regulatory conditions in the pharmaceutical industry or in the economy as a whole; +• other events and factors, many of which are beyond our control; and +• other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. +These and other market and industry factors have caused and may in the future cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their common shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common shares. +If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could decline. +The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. Equity research analysts may elect not to initiate, and our current equity research analysts may not elect to continue to provide research coverage of our common shares, and such lack of research coverage may adversely affect the market price of our common shares. We do not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade our shares or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause our share price or trading volume to decline. +Anti-takeover provisions in our amended memorandum and articles of association (“Amended Memorandum and Articles of Association”) could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our common shares. +Provisions in our Amended Memorandum and Articles of Association may discourage, delay or prevent a merger, acquisition or other change in control of us that shareholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for our common shares, thereby depressing the market price of our common shares. In addition, because our Board is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our Board. Among other things, these provisions: +• establish a classified Board such that not all members of the Board are elected at one time; +• allow the authorized number of our directors to be changed only by resolution of our Board; +• limit the manner in which shareholders can remove directors from the Board; +• establish advance notice requirements for shareholder proposals that can be acted on at shareholder meetings and nominations to our Board; +• require that shareholder actions must be effected at a duly called shareholder meeting and prohibit actions by our shareholders by written consent; +• limit the ability of members to requisition and convene general meetings of members; and +85 +Table of Contents +• authorize our Board to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our members without shareholder approval, which could be used to institute a shareholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board. +Any provision of our Amended Memorandum and Articles of Association or BVI law that has the effect of delaying or deterring a change of control could limit the opportunity for our shareholders to receive a premium for their common shares, and could also affect the price that some investors are willing to pay for our common shares. +Substantially all of our total outstanding shares may be sold freely into the market. This could cause the market price of our common shares to drop significantly, even if our business is doing well. +Sales of substantially all of our common shares in the public market, or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. Substantially all of our common shares are freely tradable, without restrictions or further registration under the Securities Act, subject to certain restrictions applicable to shares held by our affiliates as defined in Rule 144 under the Securities Act. +Because we do not expect to pay dividends on our common shares in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +We have never declared or paid any dividends on our common shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. The decision to pay future dividends to shareholders will be at the discretion of our Board after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. Accordingly, investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares. +We are a BVI business company limited by shares and the holders of our common shares may have fewer protections as a shareholder of our company, because judicial precedent regarding the rights of shareholders is more limited under BVI law than that under U.S. law. +Our corporate affairs are governed by our Amended Memorandum and Articles of Association as amended and restated from time to time, the BVI Business Companies Act (As Revised) (the “BVI Act”) and the common law of the BVI. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under BVI law are to a large extent governed by the common law of the BVI. The common law of the BVI is derived in part from comparatively limited judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. The rights of our shareholders and the fiduciary responsibilities of our directors under BVI law therefore are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the BVI has a less exhaustive body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the BVI. There is no statutory recognition in the BVI of judgments obtained in the U.S., although the courts of the BVI will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. +As a result of all of the above, holders of our common shares may have more difficulty in protecting their interests through actions against our management, directors or controlling shareholders than they would as shareholders of a U.S. company. They may have greater difficulty securing legal advice about the law of the BVI than they would U.S. and state law, and the relatively less developed nature of the BVI’s securities law may leave investors with less certainty about the validity and strength of any claims they believe they may have against us. In addition, other differences between BVI and U.S. law, as well as the terms of our Amended Memorandum and Articles of Association, may result in shareholders having different potential influence than they would under various U.S. state laws with respect to matters such as officer and director actions, mergers and acquisitions, dispositions of assets, takeover efforts, and other corporate decision making. +Shareholders in BVI business companies may not be able to initiate shareholder derivative actions, thereby depriving a shareholder of the ability to protect its interests. +While statutory provisions do exist in BVI law for derivative actions to be brought in certain circumstances, shareholders in BVI business companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI business company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders +86 +Table of Contents +may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to: (i) recognize or enforce against us judgments of courts in the United States based on certain civil liability provisions of U.S. securities law; or (ii) to impose liabilities against us, in original actions brought in the BVI, based on certain civil liability provisions of U.S. securities laws that are penal in nature or that relate to taxes or similar fiscal or revenue obligations or would be viewed as contrary to BVI public policy or the proceedings pursuant to which judgment was obtained were contrary to natural justice. +There is no statutory recognition in the BVI of judgments obtained in the United States. However, the courts of the BVI will in certain circumstances recognize such a foreign judgment and treat it as a cause of action in itself which may be sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that: +• the U.S. court issuing the judgment had jurisdiction in the matter and the company either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process; +• the judgment is final and for a liquidated sum; +• the judgment given by the U.S. court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company; +• in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court; +• recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public policy; and +• the proceedings pursuant to which judgment was obtained were not contrary to natural justice. +The British Virgin Islands courts are unlikely: +• to recognize or enforce against the Company, judgments of courts of the U.S. predicated upon the civil liability provisions of the securities law of the U.S.; and +• to impose liabilities against the Company, predicated upon the certain civil liability provisions of the securities laws of the U.S. so far as the liabilities imposed by those provisions are penal in nature. +The laws of the BVI relating to the protection of minority shareholders differ from those under U.S. law and, in some circumstances, may offer less protection. +The BVI Act includes the following statutory remedies which minority shareholders in the company can rely upon: +• If the company or a director of the company engages in or proposes to engage in conduct, that contravenes the BVI Act or our Amended Memorandum and Articles of Association, a shareholder may apply to the BVI court for an order directing the company or its director(s) to comply with or restraining the company or a director from engaging in conduct that contravenes the BVI Act or our Amended Memorandum and Articles of Association. +• Under the BVI Act, minority shareholders have a statutory right to bring a derivative action in the name of and on behalf of the company in circumstances where the company has a cause of action against its directors. This remedy is available at the discretion of the BVI court which will take a number of factors into account before granting or refusing a leave to proceed to the relevant shareholder, including whether such action is in the interests of the company, the cost of such action and whether there are alternative remedies that the shareholder concerned may rely upon. +• A shareholder of the company may bring an action against the company for breach of duty owed to him or her as a shareholder. This would typically be relevant in a situation where a shareholder is aggrieved by the company for breach of an entitlement or right under the company’s memorandum and articles of association. +• A shareholder of the company who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order to remedy the situation. Again, this is a discretionary remedy and the BVI court will only award it if they are satisfied that it is just and equitable to do so. +• A shareholder may, in certain circumstances, apply for liquidators to be appointed over the affairs of a company under the BVI’s Insolvency Act 2003 (as amended) (the “BVI Insolvency Act”). Shareholders can also by resolution appoint a liquidator of a BVI business company under the BVI Act if the company is solvent or under the BVI Insolvency Act if the company is insolvent. +87 +Table of Contents +In addition to the statutory rights outlined above, there are common law rights for the protection of shareholders that may be invoked, largely dependent on English common law. Under the general rule pursuant to English common law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the Board. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s Amended Memorandum and Articles of Association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of the shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States. +Having regard to the above, the protection available to minority shareholders under BVI law may be more limited than under the laws of some jurisdictions in the United States. +It may be difficult to enforce a U.S. or foreign judgment against us, our directors and our officers outside the United States, or to assert U.S. securities laws claims outside of the United States. +As a BVI business company, it may be difficult for a shareholder to effect service of process within the United States upon us, our directors and officers, or to enforce against us, or them, judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state therein. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. Accordingly, it may be difficult or impossible for you to bring an action against us in the BVI if you believe your rights under the U.S. securities laws have been infringed. In addition, there is uncertainty as to whether the courts of the BVI would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state and it is uncertain whether such British Virgin Islands courts would hear original actions brought in the British Virgin Islands against us or such persons predicated upon the securities laws of the U.S. or any state. +Changes in tax law, determinations by tax authorities or changes in our effective tax rates may adversely affect our business and financial results. +Under current law, we expect to be treated as a non-U.S. corporation for U.S. federal income tax purposes. The tax laws applicable to our business activities, however, are subject to change and uncertain interpretation. Our tax position could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business. Our actual tax rate may vary from our expectation and that variance may be material. A number of factors may increase our future effective tax rates, including: (1) the jurisdictions in which profits are determined to be earned and taxed; (2) the resolution of issues arising from any future tax audits with various tax authorities; (3) changes in the valuation of our deferred tax assets and liabilities; (4) our ability to use net operating loss carryforwards to offset future taxable income and any adjustments to the amount of the net operating loss carryforwards we can utilize; and (5) changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles. We may also become subject to income, withholding or other taxes in jurisdictions by reason of our activities and operations, and it is possible that taxing authorities in such jurisdictions could assert that we are subject to greater taxation than we currently anticipate. In particular, the Organization for Economic Co-operation and Development and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) has put forth two proposals—Pillar One and Pillar Two—that revise the existing profit allocation and nexus rules and ensure a minimal level of taxation, respectively. On December 12, 2022, the European Union member states agreed to implement the Inclusive Framework’s global corporate minimum tax rate of 15%, and various countries (both within and outside the European Union) have enacted new law implementing Pillar Two or have draft legislation proposed for adoption. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation anticipated in 2024. We are continuing to evaluate the potential impact on future periods of the Inclusive Framework, pending legislative adoption by individual countries, which could have an adverse impact on our effective tax rate, income tax expense and cash flows. +88 +Table of Contents +If we are or become a passive foreign investment company, there could be adverse U.S. federal income tax consequences to U.S. holders. +If we are or become a passive foreign investment company (“PFIC”) for any taxable year during which a U.S. holder holds our shares, the U.S. holder would be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. +Under the Code, we would be a PFIC for any taxable year in which (1) 75% or more of our gross income consisted of passive income or (2) 50% or more of the average quarterly value of our assets consisted of assets that produce, or are held for the production of, passive income. For purposes of these tests, passive income includes, but is not limited to, dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations and subject to certain exceptions, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. +Although we believe our common shares should not currently be stock of a PFIC for U.S. federal income tax purposes and do not expect to become a PFIC in the foreseeable future, we cannot provide any assurances regarding our PFIC status for any current or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies which in some circumstances are unclear and subject to varying interpretation. In particular, the determination of whether we are a PFIC and the characterization of our assets as active or passive may depend in part on (i) our current and intended future business plans which are subject to change, and (ii) the application of certain “look-through” rules. For our current and future taxable years, the total value of our assets for PFIC testing purposes may fluctuate considerably from time to time, and is dependent on our application (which inherently involves an element of judgment) of the relevant valuation assumptions and methodologies. Under the income test, our status as a PFIC depends on the composition of our income which, in our current and future taxable years, we may not be able to fully control, for example, with respect to income attributed to us from entities owned 25% or more by us. The composition of our income and assets is also affected by how, and how quickly, we spend the cash we raise in any offering. Therefore, we cannot provide any assurance regarding our PFIC status for any past, current or future taxable years. +In certain circumstances, a U.S. holder of shares in a PFIC may alleviate some of the adverse tax consequences described above by making a “qualified electing fund” (“QEF”) election to include in income its pro rata share of the corporation’s income on a current basis. However, a U.S. holder may make a QEF election with respect to our common shares only if we agree to furnish such U.S. holder annually with a PFIC annual information statement as specified in the applicable U.S. Treasury Regulations. We currently do not intend to prepare or provide the information that would enable U.S. holders to make a QEF election if we are treated as a PFIC for any taxable year, and U.S. holders of our common shares should assume that a QEF election will not be available. +U.S. holders should consult their own tax advisors with respect to the operation of the PFIC rules and related reporting requirements in light of their particular circumstances, including the advisability of making any election that may be available. +Mail addressed to us may not reach us in a timely manner. +Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by Company to be dealt with. None of the Company, its directors, officers, advisors or service providers (including the organization which provides registered office services in the BVI) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address. Such risk will be borne solely by the Company’s shareholders. +Our Amended Memorandum and Articles of Association provide that unless we consent in writing to the selection of an alternative forum, the courts of the British Virgin Islands shall, with certain limited exceptions, be the sole and exclusive forum for certain disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. +Our Amended Memorandum and Articles of Association provide that unless we consent in writing to the selection of an alternative forum, the courts of the British Virgin Islands shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s members, (iii) any action asserting a claim arising pursuant to any provision of British Virgin Islands law or the Amended Memorandum and Articles of Association, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine, and that each shareholder consents to the exclusive jurisdiction of the courts of the British Virgin Islands over all such claims or disputes. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over +89 +Table of Contents +actions brought under the Securities Act or the rules and regulations promulgated thereunder. Furthermore, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the forum selection provision in our Amended Memorandum and Articles of Association will not apply to actions or suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States of America, the sole and exclusive forum for determination of such a claim. +This choice of forum provision may increase a shareholder’s cost, impose additional litigation costs and limit the shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees, although our shareholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder and may therefore bring certain claims in another appropriate forum. Any person or entity purchasing or otherwise acquiring any of our shares or other securities, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. It is possible that a court could find such a choice of forum provision to be inapplicable or unenforceable, and if a court were to find this provision in our Amended Memorandum and Articles of Association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have an adverse effect on our business, results of operations and financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. Our cybersecurity program is aligned with industry standards and best practices, such as the National Institute of Standards and Technology Cybersecurity Framework. Our measures to prevent, detect and mitigate cyber threats include training for employees, multi-factor authentication, backup servers, threat monitoring, periodic strategy review and penetration testing performed by a third-party advisory firm, and coverage under an information security risk insurance policy. Third-party suppliers are pre-screened as part of our vendor onboarding process to evaluate their cybersecurity programs and assess risk. As a part of our pre-screening process, we evaluate each vendor's overall cybersecurity risk profile relative to the services they provide for the Company, including questions relating to cybersecurity insurance, security operations and access and management of our data. Cybersecurity incidents involving third-party supplier systems are evaluated for their impact on the Company and managed through our cyber incident management process. In addition, our employees are required to complete an annual cybersecurity training managed through our internal compliance training system. +Governance +The Board recognizes the importance of cybersecurity in maintaining the trust and confidence of our stakeholders, patients and employees. Our Audit Committee is central to the Board's oversight of cybersecurity and bears the primary responsibility for overseeing risks associated with our information systems and technology, including cybersecurity. +Our Chief Technology Officer ("CTO") is tasked with updating the Board and Audit Committee on cybersecurity risks. Our CTO provides comprehensive briefings to our Audit Committee on a quarterly basis regarding our strategy for managing and mitigating cybersecurity and technology-related risks. Our CTO also provides such comprehensive briefings to the Board on an annual basis. Our CTO has been in the position for over four years and has over three decades of industry experience focusing on large scale business transformations leveraging technology, cybersecurity, and technical operations excellence. Our CTO has held various senior technology leadership roles at other companies prior to joining the Company. +Cybersecurity Risks +Although cybersecurity risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we are subject to various cybersecurity risks, which could, in the future, be material. For more information about the cybersecurity risks we face, see the risk factor entitled "Our business and operations may be materially adversely affected in the event of computer system failures or security breaches" in Item 1A, "Risk Factors." +90 +Table of Contents +Item 2. Properties +Our U.S. headquarters is located in New Haven, Connecticut. Details of our leased and owned facilities, which include our U.S. headquarters and consist of office, lab, research, chemistry, and discovery facilities, are as follows: +Location Type +Approximate Square Feet +Lease Expiration +New Haven, Connecticut +Office Space +66,000 N/A +Cambridge, Massachusetts Office & Lab Space 27,000 October, 2032 +Yardley, Pennsylvania Office Space 21,000 September, 2027 +Pittsburgh, Pennsylvania Office & Research Space 20,000 +October, 2025 +Dublin, Ireland Office Space 6,000 April, 2027 +West Palm Beach, Florida Office Space 5,000 +December, 2034 +New Haven, Connecticut Chemistry & Discovery Facilities 3,500 +February, 2028 +New Haven, Connecticut +Vivarium & Office Space +2,000 +November, 2028 +We believe that our current facilities are suitable and adequate to meet our current needs and we believe that suitable additional or substitute space will be available as needed to accommodate any future expansions. +Item 3. Legal Proceedings +From time to time, in the ordinary course of business, the Company is subject to litigation and regulatory examinations as well as information gathering requests, inquiries and investigations. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition. +Item 4. Mine Safety Disclosures +Not applicable. +91 +Table of Contents +PART II +Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common shares began trading on the New York Stock Exchange under the symbol "BHVN" on October 4, 2022. +Stock Performance Graph +_______________________________________________________________________________ +* $100 invested on October 4, 2022 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. +Shareholders +As of February 28, 2025, there were 51 shareholders of record of our common shares. The actual number of holders of our common shares is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities. +Dividend Policy +We have never declared or paid dividends on our share capital. We do not expect to pay any cash dividends on our common shares in the foreseeable future. All decisions regarding the payment of dividends will be made by our Board of Directors from time to time in accordance with applicable law. +Recent Sales of Unregistered Securities +FGFR3 Agreement with GeneQuantum Healthcare Co. Ltd. and Aimed Bio, Inc. +In December 2024, we entered into the FGFR3 Agreement with GeneQuantum and Aimed Bio pursuant to which we obtained the exclusive rights to develop and commercialize GeneQuantum's and Aimed Bio's joint research FGFR3 ADC program. As consideration for the agreement, we were obligated to pay an upfront payment of 222,119 common shares valued at approximately $8.6 million as of the effective date, which were issued in January 2025. +92 +Table of Contents +The foregoing issuance and sale of our common shares in connection with the execution of the FGFR3 Agreement have not been registered under the Securities Act of 1933 (the “Securities Act”) or any state securities laws. We have relied on the exemption from the registration requirements of the Securities Act under Section 4(a)(2) thereof, for a transaction by an issuer not involving any public offering. +Merus Agreement +In January 2025, we entered into a research collaboration and license agreement with Merus N.V. ("Merus") to co-develop three novel dual-targeting ADCs, leveraging Merus’ Biclonics® technology platform, and our next-generation ADC conjugation and payload platform technologies (the "Merus Agreement"). As consideration for the agreement, we were obligated to pay an upfront payment of 132,700 common shares valued at approximately $5.0 million as of the effective date, which were issued in February 2025. +The foregoing issuance and sale of our common shares in connection with the execution of the Merus Agreement have not been registered under the Securities Act of 1933 (the “Securities Act”) or any state securities laws. We have relied on the exemption from the registration requirements of the Securities Act under Section 4(a)(2) thereof, for a transaction by an issuer not involving any public offering. +Securities Authorized for Issuance Under Equity Compensation Plans +See Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters" of this report. +Issuer Purchases of Equity Securities +We did not purchase any of our registered equity securities during the period covered by this report. +Item 6. Reserved +93 +Table of Contents +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or this Annual Report. Discussions of 2022 items and year-to-year comparisons between the years ended December 31, 2023 and 2022 that are not included in this Form 10-K can be found within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report. +Overview +We are a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. Our extensive clinical and preclinical programs include Kv7 ion channel modulation for epilepsy and mood disorders; extracellular protein degradation for immunological diseases; TRPM3 antagonism for migraine and neuropathic pain; TYK2/JAK1 inhibition for neuroinflammatory disorders; glutamate modulation for OCD and SCA; myostatin inhibition for neuromuscular and metabolic diseases, including SMA and obesity; and antibody recruiting bispecific molecules and ADCs for cancer. +For a full discussion of our programs, including recent developments, refer to "Item 1. Business" included in this Annual Report on Form 10-K. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, the Former Parent completed the Separation from Biohaven Ltd. As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol "BHVN" on the NYSE on October 4, 2022. +Biohaven is a British Virgin Islands ("BVI") corporation and was a wholly owned subsidiary of the Former Parent prior to the Separation. +Prior to the Separation, the historical combined financial statements of the Company were prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of the Former Parent. The financial statements for all periods presented, including the historical results of the Company prior to October 3, 2022, are now referred to as "Consolidated Financial Statements." Our financial statements are presented in conformity with generally accepted accounting principles in the United States ("GAAP"). +The financial position, results of operations and cash flows of the Company historically operated as part of the Former Parent’s financial position, results of operations and cash flows up until the Distribution. These historical combined financial statements may not be indicative of the future performance of the Company and do not necessarily reflect what our consolidated results of operations, financial condition and cash flows would have been had we operated as a separate, publicly traded company during the periods presented. +Where we describe historical business activities in this Annual Report on Form 10-K, we do so as if these transfers had already occurred and the Former Parent's activities related to such assets and liabilities had been performed by Biohaven. +Refer to Note 1, "Nature of the Business and Basis of Presentation," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K for further discussion of the underlying basis used to prepare the consolidated financial statements. +Transition from the Former Parent and Costs to Operate as an Independent Company +The consolidated financial statements reflect the operating results and financial position of the Company as it was operated by the Former Parent prior to the Separation, rather than as an independent company. We have incurred and will continue to incur ongoing operating expenses to operate as an independent company. These costs will include the cost of various corporate headquarters functions, information technology-related costs and costs to operate stand-alone accounting, legal and other administrative functions. We will also incur non-recurring expenses and non-recurring capital expenditures. As an independent company, our information technology operating costs may be higher than the costs allocated in the historical combined financial statements. It is not practicable to estimate the costs that would have been incurred in each of the periods presented in the historical combined financial statements for the functions described +94 +Table of Contents +above. Actual costs that would have been incurred if we operated as a stand-alone company during these periods would have depended on various factors, including the chosen organizational structure, what corporate functions the Company might have performed directly or outsourced and strategic decisions the Company might have made in areas such as executive management, legal and other professional services, and certain corporate overhead functions. +Agreements with the Former Parent +We had entered into a Distribution Agreement and various other agreements relating to transition services, licenses and certain other matters with the Former Parent. These agreements govern our relationship with the Former Parent and include the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the Separation. For additional information regarding these agreements, see Note 13, "Related Party Transactions," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. +Recent Developments +The following is a summary of key developments affecting our business in 2024 (excluding updates to our programs, which are discussed in "Item 1. Business" included in this Annual Report on Form 10-K): +Amendment to Knopp Purchase Agreement +In May 2024, we entered into an amendment to the Purchase Agreement with Knopp (the “Knopp Amendment”). Under the Knopp Amendment, the parties thereto agreed to replace the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for BHV-7000 and the pipeline programs. The parties also agreed to reduce the success-based payments payable under the Purchase Agreement by removing all commercial sales-based milestones, which were up to $562.5 million, and reducing the developmental and regulatory milestones, which were up to $575 million, to up to $210 million based on regulatory approvals in the United States and EMEA for BHV-7000 ($25 million of which has already been paid) and up to an additional $60 million based on regulatory approval in the United States for the other Kv7 pipeline programs. We retain the ability to pay these contingent milestone payments in cash or in Biohaven Shares at our election. +In consideration of the revisions to the success-based payment and royalty payment obligations, we agreed to issue to Knopp 1,872,874 Biohaven Shares, valued at approximately $75 million, through a private placement within 60 days of the date of execution of the Knopp Amendment (the “2024 Additional Consideration”) and additional Biohaven Shares with an approximate value of $75 million within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). We also gave Knopp the option to request a one-time cash true-up payment from us in December 2024 in the event that Knopp continued to hold the Biohaven Shares representing the 2024 Additional Consideration and the value of such shares has declined, and a one-time cash true-up payment from us in December 2025 in the event that Knopp continues to hold the Biohaven Shares representing the 2025 Additional Consideration and the value of such shares has declined, in each case, subject to certain conditions. In May 2024, we issued the 2024 Additional Consideration at an approximate value of $66.0 million and the December 2024 cash true-up payment right subsequently expired. +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, we issued to Knopp a warrant (the “Warrant”) to purchase 294,195 Biohaven Shares at a purchase price per share of $67.98, subject to certain specified development milestones and the Company achieving a specified market capitalization. +For further discussion of the Knopp Amendment, refer to Note 4, "Fair Value of Financial Assets and Liabilities", Note 6, "Shareholders' Equity, " and Note 10, " License, Acquisitions and Other Agreements" to the accompanying consolidated financial statements included in this Form 10-K. +Components of Our Results of Operations +Revenue +To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, then we may generate revenue in the future from product sales. +95 +Table of Contents +Operating Expenses +Research and Development Expenses +Research and development ("R&D") expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include: +• expenses incurred under agreements with contract research organizations (“CROs”) or contract manufacturing organizations (“CMOs”), as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services; +• manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches; +• employee-related expenses, including salaries, benefits, travel and non-cash share-based compensation expense for employees engaged in research and development functions; +• costs related to compliance with regulatory requirements; +• development milestone payments incurred prior to regulatory approval of the product candidate; +• rent and operating expenses incurred for leased lab facilities and equipment; and +• payments made in cash, equity securities or other forms of consideration under third-party licensing or other agreements prior to regulatory approval of the product candidate. +We recognize external development costs based on an evaluation of the progress to completion of specific tasks using estimates from our clinical personnel and information provided to us by our service providers. +Our external direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees and certain development milestones incurred under license agreements. We do not allocate employee costs, or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and development as well as for managing our preclinical development, process development, manufacturing and clinical development activities. +Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain significant over the next several years as we increase personnel costs, conduct late-stage clinical trials, and prepare regulatory filings for our product candidates. We also expect to incur additional expenses related to milestones payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates. +The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of: +• the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities; +• establishment of an appropriate safety profile with IND-enabling studies; +• successful patient enrollment in, and the initiation and completion of, clinical trials; +• the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; +• establishment of commercial manufacturing capabilities or making arrangements with third-party manufacturers; +• development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; +• acquisition, maintenance, defense and enforcement of patent claims and other intellectual property rights; +96 +Table of Contents +• significant and changing government regulation; +• initiation of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and +• maintenance of a continued acceptable safety profile of the product candidates following approval. +General and Administrative Expenses +General and administrative ("G&A") expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, corporate development and other administrative functions; and non-cash share-based compensation expense. General and administrative expenses also include facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies; and for public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property. +We anticipate that our general and administrative expenses, including payroll and related expenses, will remain significant in the future as we continue to support our research and development activities and prepare for potential commercialization of our product candidates, if successfully developed and approved. We also anticipate increased expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure, and office-related costs, such as information technology costs, and certain costs to establish ourself as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company. +Other Income (Expense) +Other Income (Expense), Net +Other income (expense), net during the year ended December 31, 2024 primarily consists of changes in the fair value of our forward contract and derivative liabilities and net investment income. +The fair value of the forward contracts and derivative liabilities recognized in connection with the Knopp Amendment are determined using a Monte Carlo simulation of the Company's stock price over the respective duration and terms of each instrument being valued. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" to the accompanying consolidated financial statements included in this Form 10-K for detail on valuation inputs and methodology. The fair value of these liabilities are recorded on the consolidated balanced sheets with changes in fair value recorded in other income (expense), net in the consolidated statements of operations. +Net investment income is comprised of interest income and net accretion and amortization on investments in addition to realized gains and losses. Refer to Note 3, "Marketable Securities," for further discussion of our investments. +Other income (expense), net during the year ended December 31, 2023 primarily consisted of net investment income and service revenue from the Transition Service Agreement we entered into with the Former Parent. Refer to Note 13, "Related Party Transactions," for further discussions of agreements entered into with the Former Parent. +Provision (Benefit) for Income Taxes +As a company incorporated in the BVI, we are principally subject to taxation in the BVI. Under the current laws of the BVI, the Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI. +We have historically outsourced all of the research and clinical development for our programs under a master services agreement with Biohaven Pharmaceuticals, Inc. ("BPI"). As a result of providing services under this agreement, BPI was profitable during the years ended December 31, 2024, 2023, and 2022. A similar arrangement is also in place for our subsidiary, Biohaven Biosciences Ireland Limited ("BBIL"). Both Companies are subject to taxation in the United States and Ireland, respectively. As such, in each reporting period, the tax provision includes the effects of the results of operations of BPI and BBIL. +At December 31, 2024 and 2023, we continued to maintain a full valuation allowance against our net deferred tax assets, comprised primarily of research and development tax credit carryforwards, and net operating loss carryforwards, based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized. +Our income tax provision (benefit) primarily relates to the profitable operations of our subsidiaries in the United States and Ireland. +97 +Table of Contents +Results of Operations +Comparison of the Years Ended December 31, 2024 and 2023 +The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: +Year Ended December 31, +In thousands 2024 2023 Change +Operating expenses: +Research and development $ 795,871 $ 373,281 $ 422,590 +General and administrative 89,240 62,770 26,470 +Total operating expenses 885,111 436,051 449,060 +Loss from operations (885,111) (436,051) (449,060) +Other income, net: +Other income, net +39,424 26,500 12,924 +Total other income, net +39,424 26,500 12,924 +Loss before provision (benefit) for income taxes (845,687) (409,551) (436,136) +Provision (benefit) for income taxes 735 (1,383) 2,118 +Net loss $ (846,422) $ (408,168) $ (438,254) +Research and Development Expenses +Year Ended December 31, +In thousands 2024 +2023* +Change +Direct research and development expenses by program: +BHV-4157 (Troriluzole) +$ 63,983 $ 73,080 $ (9,097) +BHV-2000 (Taldefgrobep Alfa) +59,710 40,870 18,840 +BHV-7000 & BHV-7010 (Kv7) +136,422 47,327 89,095 +BHV-2100 (TRPM3) +29,044 12,865 16,179 +BHV-8000 (TYK2/JAK1) +12,697 39,025 * (26,328) +BHV-1300 (IgG Degrader) +30,078 22,239 7,839 +BHV-1310 (IgG Degrader) +13,341 1,962 11,379 +BHV-1400 (IgA Degrader) +19,572 1,810 17,762 +BHV-1600 (β1-AR AAB Degrader) +14,650 254 14,396 +BHV-1510 (Trop2) +28,540 — 28,540 +BHV-1530 (FGFR3) +14,554 — 14,554 +Knopp amendment expense +171,850 — 171,850 +Other programs 2,821 5,615 (2,794) +Unallocated research and development costs: +Personnel related (including non-cash share-based compensation) 116,238 76,043 40,195 +Preclinical research programs 57,181 35,911 21,270 +Other 25,190 16,280 8,910 +Total research and development expenses $ 795,871 $ 373,281 $ 422,590 +*Certain prior year amounts have been reclassified to conform to current year presentation +R&D expenses, including non-cash share-based compensation costs, were $795.9 million for the year ended December 31, 2024, compared to $373.3 million for the year ended December 31, 2023. The increase of $422.6 million was largely due to non-cash expense of $171.9 million paid to Knopp for a milestone and royalty buyback related to the BHV-7000 and broader Kv7 platform that was recognized during the three months ended June 30, 2024 (the buyback reduced our potential future milestone payments by $867.5 million, and replaced the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for the Kv7 programs). See further discussion of the Knopp Amendment included in Note 10, "License, Acquisitions and Other Agreements" to the +98 +Table of Contents +consolidated financial statements included in this Form 10-K. The increase in expense was also related to advancing our clinical platforms including four phase 3 starts and one phase 2 start for BHV-7000, follow-on Kv7 assets, preclinical research programs, and increases in direct program spend for additional and advancing multiple clinical development programs in 2024, as compared to the same period in the prior year. The increase was also due to a $40.2 million increase in personnel costs, primarily due to increased non-cash share based compensation expense and increased headcount to support our expanding clinical and preclinical research programs. The $28.5 million increase in expense for BHV-1510 was primarily due to the Pyramid Acquisition, which resulted in $10.9 million non-cash of expense recorded to R&D during the year ended December 31, 2024, a $1.5 million milestone payment which became due during the first quarter of 2024, and a $5.7 million non-cash milestone payment which became due during the first quarter of 2024. The $14.6 million increase in BHV-1530 was related to an upfront cash payment of $6.0 million and non-cash issuance of common shares valued at $8.6 million issuable to GeneQuantum and Aimed Bio for a development and license agreement entered into in the fourth quarter of 2024. These increases were partially offset by a decrease of $26.3 million related to BHV-8000, primarily due to one-time expenses of $31.8 million to acquire rights related to our Highlightll Agreement incurred during the year ended December 31, 2023. Refer to Note 10, "License, Acquisitions and Other Agreements" to the consolidated financial statements included in this Form 10-K for further discussion of the Highlightll Agreement. +Non-cash share-based compensation expense was $42.6 million for the year ended December 31, 2024, an increase of $26.6 million as compared to the same period in 2023. Non-cash share-based compensation expense was higher in the year ended December 31, 2024 primarily due to our annual equity incentive awards granted in the fourth quarter of 2023 and first quarter of 2024. +General and Administrative Expenses +G&A expenses, including non-cash share-based compensation costs, were $89.2 million for the year ended December 31, 2024, compared to $62.8 million for the year ended December 31, 2023. The increase of $26.5 million was primarily due to increased non-cash share-based compensation costs and increased legal costs. +Non-cash share-based compensation expense was $29.4 million for the year ended December 31, 2024, an increase of $16.6 million as compared to the same period in 2023. Non-cash share-based compensation expense was higher in 2024 primarily due to our annual equity incentive awards being partially granted in the fourth quarter of 2023 with a greater portion granted in the first quarter of 2024, partially offset by the subsequent year annual equity incentive awards being granted in the first quarter of 2025 and no partial grants from such annual equity incentive awards in the fourth quarter of 2024. +Other Income (Expense), Net +Other income (expense), net was other income of $39.4 million for the year ended December 31, 2024, compared to other income, net of $26.5 million for the year ended December 31, 2023. The increase of $12.9 million in other income (expense), net was primarily related to non-cash changes in the fair value of our forward contract and derivative liabilities recorded in connection with the Knopp Amendment of $17.8 million as well as increased investment income. The increases were partially offset by a decrease of $9.2 million in other income recognized during the year ended December 31, 2024 as compared to the same period in 2023 related to the Transition Services Agreement entered into with the Former Parent. See Note 4, "Fair Value of Financial Assets and Liabilities" and Note 10, "License, Acquisitions and Other Agreements " to the accompanying consolidated financial statements included in this Form 10-K for discussion of the forward contract and derivative liabilities recorded in connection with the Knopp Amendment. +Provision (Benefit) for Income Taxes +We recorded a provision for income taxes of $0.7 million for the year ended December 31, 2024, compared to a benefit for income taxes of $1.4 million for the year ended December 31, 2023. The change in income tax expense for the for the year ended December 31, 2024 as compared to 2023 was primarily attributable to our adoption of the guidance contained in a Notice of Proposed Rule Making issued during the third quarter of 2023 by the United States Internal Revenue Service ("the Notice"). +Liquidity and Capital Resources +Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from operations. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval and pursue commercialization of any approved product candidate. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, regulatory and commercial milestones and royalty payments. In addition, we may incur expenses in connection with the in-license or acquisition of additional product candidates. +99 +Table of Contents +Through March 3, 2025, we have funded our operations primarily with funding from the Former Parent, proceeds from the sale of its common shares, and the cash contribution received from the Former Parent at the Separation. The Company has incurred recurring losses since its inception and expects to continue to generate operating losses for the foreseeable future. +As of December 31, 2024, we had cash and cash equivalents of $99.1 million and marketable securities of $386.9 million. Cash in excess of immediate requirements is invested in marketable securities and money market funds with a view to liquidity and capital preservation. We continuously assess our working capital needs, capital expenditure requirements, and future investments or acquisitions. +Cash Flows +The following table summarizes our cash flows for each of the periods presented: +Year Ended December 31, +In thousands 2024 2023 +Net cash used in operating activities $ (582,453) $ (331,725) +Net cash (used in) provided by investing activities +(244,974) 129,830 +Net cash provided by financing activities 677,774 211,908 +Effect of exchange rate changes on cash and cash equivalents and restricted cash 75 (497) +Net (decrease) increase in cash, cash equivalents and restricted cash +$ (149,578) $ 9,516 +Operating Activities +Net cash used in operating activities was $582.5 million in 2024 and $331.7 million in 2023. The $250.7 million increase in net cash used in operating activities in 2024 was driven primarily by an increase in R&D spending to advance our clinical platforms including four Phase 3 starts and one Phase 2 start for BHV-7000, follow-on Kv7 assets, preclinical research programs, and increases in direct program spend for additional and advancing multiple clinical development programs in 2024, as compared to the prior year. The increase in net cash used in operating activities in 2024 was also due to an increase in personnel costs primarily due to increased headcount to support our expanding clinical and preclinical research programs and an increase in legal costs. The increases in costs were partially offset by an increase in investment income. +Investing Activities +Net cash used in investing activities was $245.0 million in 2024, and net cash provided by investing activities was $129.8 million in 2023. The $374.8 million increase in net cash used in investing activities in 2024 was driven primarily by an increase in purchases of marketable securities with cash in excess of immediate requirements, partially offset by an increase in maturities of marketable securities (see Note 3, "Marketable Securities," to the Consolidated Financial Statements), as compared to the prior year. +Financing Activities +Net cash provided by financing activities was $677.8 million in 2024 and $211.9 million in 2023. The $465.9 million increase in net cash provided by financing activities in 2024 was driven primarily by an increase in proceeds from the issuance of common shares from our April 2024 and October 2024 public equity offerings and at-the-market sales of common shares in connection with our Equity Distribution Agreement in 2024, as compared to the prior year. +2024 Public Offerings +On April 22, 2024, we closed an underwritten public offering of 6,451,220 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at the price of $41.00 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $247.8 million. We intend to use the net proceeds received from the offering for general corporate purposes. +On October 2, 2024, we closed an underwritten public offering of 6,052,631 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price of $47.50 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $269.9 million. We intend to use the net proceeds received from the offering for general corporate purposes. +100 +Table of Contents +Equity Distribution Agreement +In October 2023, we entered into an equity distribution agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $150.0 million from time to time through or to the sales agent, acting as our agent or principal (the "Equity Distribution Agreement"). Sales of our common shares, if any, will be made in sales deemed to be “at-the-market offerings”. The sales agent is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and us. We currently plan to use the net proceeds from any at-the-market offerings of our common shares for general corporate purposes. +In August 2024, we entered into an Amendment to the Equity Distribution Agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $450.0 million from time to time through or to the sales agent, acting as its agent or principal. +As of December 31, 2024, we sold and issued 4,248,588 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $146.3 million. As of December 31, 2024, additional common shares having an aggregate offering price of up to $300.0 million remain available to be issued. +Knopp Amendment +In May 2024, we entered into the Knopp Amendment which reduced our milestone payments by $867.5 million and replaced the high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for our Kv7 programs. As consideration, we agreed to issue to Knopp the 2024 Additional Consideration and 2025 Additional Consideration, both non-cash common share payments, as well as agreed to one-time cash true-ups for both the 2024 Additional Consideration and 2025 Additional Consideration. +On May 30, 2024, we issued 1,872,874 common shares valued at $66.0 million to Knopp to settle the forward contract liability related to the 2024 Additional Consideration and recognized a non-cash gain of $9.2 million on settlement. In addition, the 2024 Additional Consideration True-up was considered settled as of December 2024, with no cash payment due upon expiration. The Company recognized a gain related to the 2024 Additional Consideration True-Up of $15.5 million. We expect to issue the common shares representing the 2025 Additional Consideration on or before June 30, 2025, in accordance with the Knopp amendment. +In the event that Knopp continues to hold the shares of our common shares representing the 2025 Additional Consideration on December 1, 2025 and the Market Price declines relative to the respective Reference Price, both as defined in the agreement, we would be responsible for a cash payment equal to the difference. +Knopp Warrant +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, we issued to Knopp a warrant to purchase 294,195 of our common shares with a purchase price of $67.98, subject to certain specified development milestones and the Company achieving a specified market capitalization. +As of December 31, 2024, the vesting conditions have not been met and the warrant is still outstanding. +2023 Public Offering +In October 2023, the Compan y completed an underwritten public offering of 11,761,363 of its common shares, including the exercise in full of the underwriters' option to purchase additional common shares, at a price to the public of $22.00 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by the Company, were approximately $242.4 million, which are being used for general corporate purposes. +Funding Requirements +We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our product candidates. Our costs will also increase as we: +• continue to advance and expand the development of our discovery programs and clinical-stage assets; +• continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies; +• initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue; +101 +Table of Contents +• continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies; +• continue to develop, maintain, expand and protect our intellectual property portfolio; +• pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials; +• establish and support our sales, marketing and distribution infrastructure to commercialize any future product candidates for which we may obtain marketing approval; and +• hire additional clinical, medical, commercial, and development personnel. +We expect that our cash, cash equivalents and marketable securities, as of the date of this Annual Report on Form 10-K, will be sufficient to fund operating and financial commitments, and other cash requirements for at least one year after the issuance date of these financial statements.To execute our business plans, we will require funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales or royalties, if ever, we expect to finance our operations through the sale of public or private equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our shareholders. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. +We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for our product candidates, we expect to incur commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own. +Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including: +• the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials; +• the costs, timing and outcome of regulatory review of our product candidates; +• the costs and timing of hiring new employees to support our continued growth; +• the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; +• the extent to which we acquire or in-license other product candidates and technologies; +• the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any; and +• other capital expenditures, working capital requirements, and other general corporate activities. +102 +Table of Contents +Contractual Obligations and Commitments +The following table summarizes certain estimated future obligations by period under our various contractual obligations as of December 31, 2024 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: +Payments Due by Period +In thousands Total 2025 +2026-2027 +2028-2029 +Thereafter +Operating leases (1) +$ 49,305 $ 6,135 $ 12,027 $ 10,811 $ 20,332 +Purchase obligations: +Research commitments (2) +53,364 53,364 — — +Total $ 102,669 $ 59,499 $ 12,027 $ 10,811 $ 20,332 +(1) Refer to Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this 10-K for additional information on future minimum rental commitments under non-cancelable operating leases. +(2) Research commitments are primarily CRO agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee. In addition to the amounts above, as of December 31, 2024, the Company had remaining maximum research commitments of approximately $1,750, which are variable based on number of trial participants and contingent upon the achievement of certain milestones of the clinical trials covered under the agreements. Since the achievement of these milestones is uncertain and the timing unpredictable, the Company did not include the additional research commitments in the table above. If all related milestones are achieved, the Company expects these amounts to be paid over approximately one year. +In addition to the contractual obligations in the table above, under various agreements with third-party licensors and collaborators, we have agreed to make milestone payments and pay royalties and annual maintenance fees to third parties and to meet due diligence requirements based upon specified milestones. We have not included any contingent payment obligations, such as milestones, royalties, or due diligence, in the table above as the amount, timing and likelihood of such payments are not known. We have not included any of the annual license maintenance fee payments in the above table, as although the amount and timing are known, we cannot currently determine the final termination dates of the agreements and, as a result, we cannot determine the total amounts of such payments we will be required to make under the agreements. We do not anticipate making material annual license maintenance payments related to our license agreements in the next 12 months. For additional details on contingent milestone and royalty payments, see Note 10, "License, Acquisitions and Other Agreements ", to the Consolidated Financial Statements. +Critical Accounting Policies and Significant Judgments and Estimates +Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the consolidated financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. +While our significant accounting policies are described in more detail in Note 2, "Summary of Significant Accounting Policies," in the notes to our financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. +Accrued Research and Development Expenses +As part of the process of preparing the consolidated financial statements, we are required to estimate accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service +103 +Table of Contents +providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to: +• vendors, including central laboratories, in connection with preclinical development activities; +• CROs and investigative sites in connection with preclinical and clinical studies; and +• CMOs in connection with drug substance and drug product formulation of preclinical and clinical trial materials. +We base expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf as well as estimates of services and materials consumed by CMOs that manufacture drug substances and products on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. +Valuation of Forward Contract and Derivative Liabilities +We have accounted for certain consideration agreed to in connection with the Knopp Amendment as forward contracts and derivative liabilities. The fair value of these liabilities have been determined based on Monte Carlo simulations of Biohaven's share price, which requires judgment and assumptions on the volatility of our share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk as they are payable in either cash or a variable number of shares. +Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. +Recently Issued Accounting Pronouncements +A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements appearing at the end of this Annual Report. +Item 7A. Quantitative and Qualitative Disclosures about Market Risks +Foreign Currency Translation +Our operations include activities in countries outside the U.S. As a result, our financial results are impacted by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets where we operate. Our monetary exposures on our consolidated balance sheets were immaterial to our financial position as of December 31, 2024 and 2023. +We do not engage in any hedging activities against changes in foreign currency exchange rates. +Interest Rate Risk +As of December 31, 2024, our excess cash balances were invested in short-term money market funds and short-term debt securities issued by the United States government. We seek to diversify our investments and limit the amount of investment concentrations for individual corporate institutions, maturities and investment types. Most of our interest-bearing securities are subject to interest rate risk and could decline in value if interest rates fluctuate. Based on the type and duration of securities we hold, we do not believe a change in interest rates would have a material impact on our financial statements. If interest rates were to increase or decrease by 1.00%, the fair value of our investment portfolio would (decrease) increase by approximately $1.0 million and $1.0 million, respectively. For further discussion of our investments in marketable securities, refer to Note 3, "Marketable Securities," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. +We do not engage in any hedging activities against changes in interest rates. +104 +Table of Contents +Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. The Company maintains a portion of its cash deposits in government insured institutions in excess of government insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and have not experienced any losses on such accounts. The Company's cash management policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, supranational and sovereign obligations, certain qualifying money market mutual funds, certain repurchase agreements, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash in excess of government insured limits and in the event of default by corporations and governments in which it holds investments in cash equivalents and short-term debt securities, to the extent recorded on the consolidated balance sheet. +We have not experienced any credit losses or recorded any allowance for credit losses related to our cash, cash equivalents, and short-term debt securities. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +The consolidated financial statements and supplementary data of the Company required in this item are set forth beginning on page F-1. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. +In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. +Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2024, our disclosure controls and procedures were effective at the reasonable assurance level. +Management's Report on Internal Control over Financial Reporting +Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024 based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on that evaluation, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2024. +105 +Table of Contents +Report of Independent Registered Public Accounting Firm +The effectiveness of our internal control over financial reporting as of December 31, 2024 has been audited by Ernst & Young LLP., an independent registered public accounting firm, as stated in their report, which is included below. +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Biohaven Ltd. +Opinion on Internal Control Over Financial Reporting +We have audited Biohaven Ltd.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Biohaven Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated March 3, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Boston, Massachusetts +March 3, 2025 +106 +Table of Contents +Changes in Internal Controls over Financial Reporting +There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION +During the year ended December 31, 2024, none of our directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K. +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not applicable. +107 +Table of Contents +PART III +We will file a definitive Proxy Statement for our 2025 Annual Meeting of Shareholders (the "2025 Proxy Statement") with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10 ‑ K. Only those sections of the 2025 Proxy Statement that specifically address the items set forth herein are incorporated by reference. +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this Item is incorporated herein by reference to the information that will be contained in our 2025 Proxy Statement under the captions "Information Regarding the Board of Directors and Corporate Governance," "Insider Trading Policy," "Election of Directors," and "Executive Officers." +Item 11. Executive Compensation +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2025 Proxy Statement under the captions "Executive Compensation" and "Director Compensation." +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2025 Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance under Equity Compensation Plans." +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2025 Proxy Statement under the captions "Transactions with Related Persons" and "Independence of the Board of Directors." +Item 14. Principal Accountant Fees and Services +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2025 Proxy Statement under the caption "Ratification of Selection of Independent Auditors." +108 +Table of Contents +PART IV +Item 15. Exhibit and Financial Statement Schedules +a. The following documents are filed as part of this report: +(1) Financial Statements: +The financial statements required by this item are submitted in a separate section beginning on page F-1 of this report. +(2) Financial Statement Schedules: +All other financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the consolidated financial statements or the notes thereto. +(3) Exhibits. +Exhibit +Number +Description of Document +2.1 +Separation and Distribution Agreement, dated as of May 9, 2022, by and among Pfizer Inc., Bulldog (BVI) Ltd. and Biohaven Pharmaceutical Holding Company Ltd. (incorporated by reference to Exhibit 2.1 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022) . +2.2 +Agreement and Plan of Merger, dated as of May 9, 2022, by and among Pfizer Inc., Bulldog (BVI) Ltd. and Biohaven Pharmaceutical Holding Company Ltd. (incorporated by reference to Exhibit 2.2 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +2.3 # +Membership Interest Purchase Agreement, dated as of February 24, 2022, by and among Biohaven Therapeutics LTD., Knopp Biosciences LLC, Channel Biosciences, LLC and Biohaven Pharmaceutical Holding Company Ltd., solely for the purpose of Section 9.14 (incorporated by reference to Exhibit 2.3 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +2.4 +# +Amendment to Membership Interest Purchase Agreement, dated as of May 1, 2024, by and among the Company, BTL, BPI and Knopp (incorporated by reference to Exhibit 2.1 to the C ompany's Form 10- Q (F ile No. 001-41477) filed on August 9, 2024 ). +3.1 +Amended & Restated Memorandum and Articles of Association of Biohaven Ltd. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 001-41477) filed on October 3, 2022). +4.1 +# +Warrant, dated as of May 1, 2024, by and between the Company and Knopp ( incorporated by reference to Exhibit 4 .1 to the Company's Form 10-Q (File No. 001-41477) filed on August 9, 2024 ) . +10.1 # +Amended and Restated Agreement, by and between the Registrant and Yale University, dated as of May 6, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 001-41477) filed on October 3, 2022). +10.2 # +License Agreement, by and between the Registrant and AstraZeneca AB, dated as of September 4, 2018 (incorporated by reference to Exhibit 10.2 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.3 # +License Agreement between Biohaven Therapeutics LTD. and Bristol-Myers Squibb Company, dated as of December 23, 2021 (incorporated by reference to Exhibit 10.3 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.4 # +ALS Biopharma Agreement, by and among the registrant, ALS Biopharma, LLC and Fox Chase Chemical Diversity Center Inc., dated as of August 10, 2015 (incorporated by reference to Exhibit 10.4 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.5 +Amendment and Assignment, by and among the Registrant, ALS Biopharma, LLC, Fox Chase Chemical Diversity Center and Biohaven Therapeutics Ltd, dated as of May 29, 2019 (incorporated by reference to Exhibit 10.5 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.6 + +Employment Agreement dated May 9, 2017 by and between Biohaven Pharmaceuticals, Inc. and Vlad Coric (incorporated by reference to Exhibit 10.6 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.7 + +Employment Agreement, dated December 8, 2021, between Biohaven Pharmaceuticals, Inc. and Matthew Buten (incorporated by reference to Exhibit 10.7 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.8 + +Employment Agreement dated February 1, 2014 by and between Biohaven Pharmaceuticals, Inc. and Kimberly A. Gentile (incorporated by reference to Exhibit 10.9 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.9 + +2022 Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to Company’s Registration Statement on Form S-8 filed on October 11, 2022). +10.10 + +Form of Restricted Share Unit Grant Notice and Restricted Share Unit Award Agreement under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.11 + +Form of Share Option Grant Notice and Share Option Agreement under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +109 +Table of Contents +10.12 + +2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 4.3 to Company’s Registration Statement on Form S-8 filed on October 11, 2022). +10.13 + +Form of Employment Agreement by and between Biohaven Ltd. and Vladimir Coric (incorporated by reference to Exhibit 10.16 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.14 + +Form of Employment Agreement by and between Biohaven Ltd. and Matthew Buten (incorporated by reference to Exhibit 10.17 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.15 + +Amended and Restated Offer of Employment, by and between Biohaven Pharmaceuticals, Inc. and Bruce Car (Incorporated by reference to Exhibit 10.18 to the Company's Form 10-K (File No. 001-41477) filed on March 23, 2023). +10.16 +# +Development and License Agreement, dated as of March 21, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.17 +# +Amendment to Development and License Agreement dated March 21, 2023, dated as of April 14, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.18 + +Form of Nonstatutory Share Option Grant Notice (Early Exercise) and Share Option Agreement under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.19 + +Form of Amendment to Share Option Grant Notice and Option Agreement under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.20 +# +Second Amendment to Development and License Agreement dated March 21, 2023, dated as of December 10, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (Incorporated by reference to Exhibit 10.22 to the Company's Form 10-K (File No. 001-41477) filed on February 29, 2024). +19 +Insider Trading Policy. +21.1 +Subsidiaries of the Registrant. +23.1 +Consent of Ernst & Young LLP. +24.1 +Power of Attorney (contained on signature page hereto). +31.1 +Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act. +31.2 +Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act. +32.1 * +Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act. +97 +Incentive Compensation Recovery Policy (Incorporated by reference to Exhibit 97 to the Company's Form 10-K (File No. 001-41477) filed on February 29, 2024). +101 +The following materials from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2024 formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Shareholders' Equity, (v) the Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements, and (vi) Cover Page, tagged as blocks of text. +104 +The cover page from the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, formatted in Inline XBRL (included as Exhibit 101). +_______________________________________________________________________________ +# Portions of this exhibit (indicated by asterisks) have been omitted as such information is (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. ++ Indicates management contract or compensatory plan. +* These certifications are being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. +Item 16. Form 10-K Summary +Not applicable. +110 +Table of Contents +SIGNATURES +Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. +BIOHAVEN LTD. +Dated: March 3, 2025 +By: /s/ VLAD CORIC, M.D. +Vlad Coric, M.D. +Chief Executive Officer +(On behalf of the Registrant and as the Principal Executive Officer) +By: /s/ MATTHEW BUTEN +Matthew Buten +Chief Financial Officer +(Principal Financial Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vlad Coric as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K of Biohaven Ltd., and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +111 +Table of Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ VLAD CORIC, M.D. +Chief Executive Officer and Director +(Principal Executive Officer) +March 3, 2025 +Vlad Coric, M.D. +/s/ MATTHEW BUTEN Chief Financial Officer +(Principal Financial Officer) March 3, 2025 +Matthew Buten +/s/ GEORGE C. CLARK Chief Accounting Officer +(Principal Accounting Officer) March 3, 2025 +George C. Clark +/s/ GREGORY H. BAILEY, M.D. Director March 3, 2025 +Gregory H. Bailey, M.D. +/s/ JOHN W. CHILDS Director March 3, 2025 +John W. Childs +/s/ JULIA P. GREGORY Director March 3, 2025 +Julia P. Gregory +/s/ MICHAEL HEFFERNAN Director March 3, 2025 +Michael Heffernan +/s/ ROBERT J. HUGIN Director March 3, 2025 +Robert J. Hugin +/s/ KISHEN MEHTA Director March 3, 2025 +Kishen Mehta +/s/ IRINA ANTONIJEVIC Director March 3, 2025 +Irina Antonijevic +112 +Table of Contents +Biohaven Ltd. +Financial Statements +For the Years Ended December 31, 2024, 2023 and 2022 +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +2 +Consolidated Balance Sheets +4 +Consolidated Statements of Operations +5 +Consolidated Statements of Comprehensive Loss +6 +Consolidated Statements of Shareholders' Equity +7 +Consolidated Statements of Cash Flows +8 +Notes to Consolidated Financial Statements +9 +F-1 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Biohaven Ltd. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Biohaven Ltd. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 3, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +F-2 +Table of Contents +Accrued and Prepaid Research and Development Expenses +Description of the Matter +As discussed in Note 2 to the consolidated financial statements, the Company estimates its accrued and prepaid research and development expenses based on the estimated level of effort expended each period. As of December 31, 2024, the Company recorded prepaid expenses of $49.4 million which included prepayment for certain clinical trial costs and recorded $38.4 million for accrued clinical trial costs. +Auditing management’s accounting for accrued and prepaid research and development expenses was challenging in the context of our audit due to the estimation required by management to determine the cost incurred for the services rendered on or prior to the balance sheet date for preclinical development activities, preclinical and clinical studies and drug substance and drug product formulation for preclinical and clinical trial material. The Company has contracts with multiple clinical research organizations (“CROs”) that conduct and manage studies on its behalf, as well as contract manufacturing organizations (“CMOs”) that perform manufacturing activities. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows during the period. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant controls over the Company’s accrued and prepaid research and development expenses, including controls over the determination of costs incurred to date and the completeness and accuracy of the data used in determining prepaid and accrued research and development expenses estimate. +To evaluate the completeness, measurement and valuation of the accrued and prepaid research and development expenses, our audit procedures included, among others, reading certain contracts with CROs and CMOs to evaluate the financial and other relevant contractual terms, testing the accuracy and completeness of the underlying data used by management to estimate the recorded balances, and testing the mathematical accuracy of the calculation of the accrued or prepaid balances. We also evaluated management’s estimates of costs incurred to date for a sample of clinical trials and manufacturing efforts by making direct inquiries of the Company’s research and development personnel who oversee the research and development program. Further, we requested direct confirmation of total contract value, costs incurred, amounts invoiced, invoices unpaid and expected service period as of December 31, 2024, from a sample of CROs and CMOs. To evaluate the completeness of the accrued research and development expenses we also examined invoices received from a sample of vendors and a sample of cash disbursements made to third-party service providers subsequent to December 31, 2024, to the extent such invoices were received, or payments were made prior to the date that the financial statements were issued. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2022. +Boston, Massachusetts +March 3, 2025 +F-3 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED BALANCE SHEETS +(Amounts in thousands, except share amounts) +December 31, +2024 2023 +Assets +Current assets: +Cash and cash equivalents $ 99,134 $ 248,402 +Marketable securities 386,857 133,417 +Prepaid expenses 49,376 35,242 +Income tax receivable 2,597 13,252 +Other current assets 508 12,133 +Total current assets 538,472 442,446 +Property and equipment, net 17,320 17,191 +Intangible assets 18,400 18,400 +Goodwill 1,390 1,390 +Other non-current assets 39,525 33,785 +Total assets $ 615,107 $ 513,212 +Liabilities and Shareholders' Equity +Current liabilities: +Accounts payable $ 18,029 $ 15,577 +Accrued expenses and other current liabilities 51,487 39,846 +Forward contract and derivative liability +84,710 — +Total current liabilities 154,226 55,423 +Non-current operating lease liability +32,782 27,569 +Other non-current liabilities 4,663 2,245 +Total liabilities 191,671 85,237 +Commitments and contingencies (Note 11) +Shareholders' Equity: +Preferred shares, no par value; 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2024 and 2023 +— — +Common shares, no par value; 200,000,000 shares authorized as of December 31, 2024 and 2023; 101,221,989 and 81,115,723 shares issued and outstanding as of December 31, 2024 and 2023, respectively +1,656,702 887,528 +Additional paid-in capital 112,369 39,804 +Accumulated deficit ( 1,345,714 ) ( 499,292 ) +Accumulated other comprehensive income (loss) +79 ( 65 ) +Total shareholders' equity 423,436 427,975 +Total liabilities and shareholders' equity $ 615,107 $ 513,212 +The accompanying notes are an integral part of these consolidated financial statements. +F-4 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF OPERATIONS +(Amounts in thousands, except share and per share amounts) +Year Ended December 31, +2024 2023 2022 +Operating expenses: +Research and development $ 795,871 $ 373,281 $ 437,072 +General and administrative 89,240 62,770 130,860 +Total operating expenses 885,111 436,051 567,932 +Loss from operations ( 885,111 ) ( 436,051 ) ( 567,932 ) +Other income (expense): +Other income (expense), net +39,424 26,500 ( 1,909 ) +Total other income (expense), net +39,424 26,500 ( 1,909 ) +Loss before provision (benefit) for income taxes +( 845,687 ) ( 409,551 ) ( 569,841 ) +Provision (benefit) for income taxes +735 ( 1,383 ) 438 +Net loss $ ( 846,422 ) $ ( 408,168 ) $ ( 570,279 ) +Net loss per share — basic and diluted $ ( 9.28 ) $ ( 5.73 ) $ ( 12.75 ) +Weighted average common shares outstanding—basic and diluted 91,234,337 71,200,527 44,741,316 +The accompanying notes are an integral part of these consolidated financial statements. +F-5 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS +(Amounts in thousands) +Year Ended December 31, +2024 2023 2022 +Net loss $ ( 846,422 ) $ ( 408,168 ) $ ( 570,279 ) +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments 78 ( 497 ) 429 +Net unrealized gain (loss) related to available-for-sale debt securities +66 148 ( 145 ) +Other comprehensive income (loss) +144 ( 349 ) 284 +Comprehensive loss $ ( 846,278 ) $ ( 408,517 ) $ ( 569,995 ) +The accompanying notes are an integral part of these consolidated financial statements. +F-6 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY +(Amounts in thousands, except share amounts) +Common Shares +Shares Amount Net Investment from Former Parent Additional Paid-in Capital Accumulated Deficit +Accumulated Other Comprehensive (Loss) Income +Total Shareholders' Equity +Balances as of December 31, 2021 — $ — $ 34,691 $ — $ — $ — $ 34,691 +Net loss — — ( 479,155 ) — ( 91,124 ) — ( 570,279 ) +Net transfers from Former Parent, including separation related adjustments — — 776,630 — — — 776,630 +Issuance of common shares in connection with the Separation and reclassification of Net investment from Former Parent 39,375,944 332,166 ( 332,166 ) — — — — +Issuance of common shares, net of offering costs 28,750,000 282,804 — — — — 282,804 +Issuance of common shares under 2022 Equity Incentive Plan 64,535 772 — ( 321 ) — — 451 +Non-cash share-based compensation expense — — — 14,189 — — 14,189 +Other comprehensive income — — — — — 284 284 +Balances as of December 31, 2022 68,190,479 615,742 — 13,869 ( 91,124 ) 284 538,771 +Net loss — — — — ( 408,168 ) — ( 408,168 ) +Issuance of common shares, net of offering costs 11,761,363 242,425 — — — — 242,425 +Issuance of common shares as payment for license agreement +721,136 21,814 — — — — 21,814 +Issuance of common shares under 2022 Equity Incentive Plan and employee share purchase plan +442,745 7,547 — ( 2,852 ) — — 4,695 +Non-cash share-based compensation expense — — — 28,787 — — 28,787 +Other comprehensive loss +— — — — — ( 349 ) ( 349 ) +Balances as of December 31, 2023 +81,115,723 887,528 — 39,804 ( 499,292 ) ( 65 ) 427,975 +Net loss +— — — — ( 846,422 ) — ( 846,422 ) +Issuance of common shares, net of offering costs +16,752,439 664,015 — — — — 664,015 +Issuance of common shares as payment for IPR&D asset +253,838 10,811 — — — — 10,811 +Issuance of common shares as payment under license and other agreements +1,970,261 71,627 — — — — 71,627 +Obligation to issue common shares as payment under license and other agreements +— — — 8,554 — — 8,554 +Issuance of common shares under 2022 Equity Incentive Plan and 2022 Employee Share Purchase Plan +1,129,728 22,721 — ( 11,292 ) — — 11,429 +Issuance of warrant as payment under license agreement +— — — 3,340 — — 3,340 +Non-cash share-based compensation expense +— — — 71,963 — — 71,963 +Other comprehensive income +— — — — — 144 144 +Balances as of December 31, 2024 +101,221,989 $ 1,656,702 $ — $ 112,369 $ ( 1,345,714 ) $ 79 $ 423,436 +The accompanying notes are an integral part of these consolidated financial statements. +F-7 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(Amounts in thousands) +Year ended December 31, +2024 2023 2022 +Cash flows from operating activities: +Net loss $ ( 846,422 ) $ ( 408,168 ) $ ( 570,279 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Non-cash share-based compensation 71,963 28,787 193,556 +Acquisition of IPR&D asset 10,811 — 93,747 +Impairment of Artizan preferred stock — — 10,000 +Depreciation and amortization 7,855 6,912 1,386 +Issuance of Former Parent common shares as payment for license and consulting agreements — — 1,779 +Issuance of common shares as payment for license agreement +71,627 21,814 — +Obligation to issue common shares as payment for license agreements and other arrangements +8,554 — — +Fair value of forward contract and derivative liabilities under license agreement +102,529 — — +Change in fair value of forward contract and derivative liabilities +( 17,819 ) — — +Issuance of warrant under license agreement +3,340 — — +Other non-cash items ( 11,702 ) ( 5,683 ) 726 +Changes in operating assets and liabilities: +Prepaid expenses, income tax receivable, and other current and non-current assets +8,043 27,176 ( 41,336 ) +Accounts payable 710 4,874 5,928 +Accrued expenses and other current and non-current liabilities +8,058 ( 7,437 ) 6,804 +Net cash used in operating activities $ ( 582,453 ) $ ( 331,725 ) $ ( 297,689 ) +Cash flows from investing activities: +Proceeds from maturities of marketable securities +504,364 322,079 — +Proceeds from sales of marketable securities +— 4,920 — +Purchases of marketable securities ( 745,680 ) ( 194,121 ) ( 259,716 ) +Purchases of property and equipment ( 4,049 ) ( 3,048 ) ( 6,074 ) +Payment for IPR&D asset acquisition — — ( 35,000 ) +Cash acquired from acquisition of IPR&D asset +391 — — +Purchase of Artizan preferred stock — — ( 4,000 ) +Net cash (used in) provided by investing activities +$ ( 244,974 ) $ 129,830 $ ( 304,790 ) +Cash flows from financing activities: +Net transfers from Former Parent — — 449,130 +Change in restricted cash due to Former Parent +— ( 35,212 ) 35,212 +Proceeds from issuance of common shares 666,165 243,225 283,804 +Payments of issuance costs ( 2,150 ) ( 800 ) ( 1,000 ) +Proceeds from issuance of common shares under 2022 Equity Incentive Plan and 2022 Employee Share Purchase Plan +11,501 4,695 451 +Other financing activities, net +2,258 — — +Net cash provided by financing activities $ 677,774 $ 211,908 $ 767,597 +Effect of exchange rates on cash, cash equivalents and restricted cash 75 ( 497 ) 429 +Net (decrease) increase in cash, cash equivalents and restricted cash +( 149,578 ) 9,516 165,547 +Cash, cash equivalents and restricted cash at beginning of period 252,120 242,604 77,057 +Cash, cash equivalents and restricted cash at end of period $ 102,542 $ 252,120 $ 242,604 +Supplemental disclosure of cash flow information: +Cash paid for interest $ 125 $ — $ — +Cash (received) paid for income taxes +$ ( 10,444 ) $ ( 33,300 ) $ 38,165 +The accompanying notes are an integral part of these consolidated financial statements. +F-8 +Table of Contents +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +1. Nature of the Business and Basis of Presentation +Biohaven Ltd. (“we,” “us," "our," "Biohaven" or the “Company”) was incorporated in Tortola, British Virgin Islands in May 2022. Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. The Company is advancing its innovative portfolio of therapeutics, leveraging its proven drug development experience and multiple, proprietary drug development platforms. Biohaven's extensive clinical and preclinical programs include Kv7 ion channel modulation for epilepsy and mood disorders; extracellular protein degradation for immunological diseases; Transient Receptor Potential Melastatin 3 ("TRPM3") antagonism for migraine and neuropathic pain; Tyrosine Kinase 2/Janus Kinase 1 ("TYK2/JAK1") inhibition for neuroinflammatory disorders; glutamate modulation for obsessive compulsive disorder (“OCD”); and spinocerebellar ataxia ("SCA"); myostatin inhibition for neuromuscular and metabolic diseases, including spinal muscular atrophy ("SMA") and obesity; antibody recruiting bispecific molecules ("ARMs") and antibody drug conjugates ("ADCs") for cancer. +The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts may require additional capital, additional personnel and infrastructure, and further regulatory and other capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution (the “Distribution”) to holders of its common shares of all of the outstanding common shares of Biohaven Ltd. and the spin-off of Biohaven Ltd. from the Former Parent (the “Spin-Off”) described in Biohaven’s Information Statement attached as Exhibit 99.1 to Biohaven’s Registration Statement on Form 10, as amended (Reg. No. 001-41477). Collectively, we refer to the Distribution and Spin-Off throughout this Quarterly Report on Form 10-Q as the "Separation." As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange (the "NYSE") on October 4, 2022. Where we describe historical business activities in this report, we do so as if the Former Parent’s activities related to such assets and liabilities had been performed by the Company. +In connection with the Separation, the Company entered into various agreements relating to transition services, licenses and certain other matters with the Former Parent. For additional information regarding these agreements, see Note 13, "Related Party Transactions." +Basis of Presentation +The financial statements for all periods presented, including the historical results of the Company prior to October 3, 2022, are now referred to as "Consolidated Financial Statements," and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of Biohaven Ltd. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. +Periods Prior to the Separation +On October 3, 2022, the Company became a standalone publicly traded company, and its financial statements are now presented on a consolidated basis. Prior to the Separation on October 3, 2022, the Company’s historical combined financial statements were prepared on a standalone basis and were derived from the Former Parent's consolidated financial statements and accounting records. +For periods prior to the Separation, the consolidated financial statements present, on a historical basis, the combined assets, liabilities, expenses and cash flows directly attributable to the Business, which have been prepared from the Former Parent’s consolidated financial statements and accounting records, and are presented on a stand-alone +F-9 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +1. Nature of the Business and Basis of Presentation (Continued) +basis as if the operations had been conducted independently from the Former Parent. The consolidated statements of operations for periods prior to the Separation include all costs directly related to the Business, including costs for facilities, functions and services utilized by the Company. The consolidated statements of operations for periods prior to the Separation also include allocations for various expenses related to the Former Parent’s corporate functions, including research and development, human resources, information technology, facilities, tax, shared services, accounting, finance and legal. These expenses were allocated on the basis of direct usage or benefit when specifically identifiable, with the remainder allocated on a proportional cost allocation method primarily based on employee labor hours or direct expenses. Management believes the assumptions underlying the consolidated financial statements for periods prior to the Separation, including the expense methodology and resulting allocation, are reasonable for all periods presented. However, the allocations may not include all of the actual expenses that would have been incurred by the Company and may not reflect its consolidated results of operations, financial position and cash flows had it been a standalone company during the periods presented. It is not practicable to estimate actual costs that would have been incurred had the Company been a standalone company and operated as an unaffiliated entity during the periods presented. Actual costs that might have been incurred had the Company been a standalone company would depend on a number of factors, including the chosen organizational structure, what corporate functions the Company might have performed directly or outsourced and strategic decisions the Company might have made in areas such as executive management, legal and other professional services, and certain corporate overhead functions. +The income tax amounts in the consolidated financial statements for the periods prior to the Separation were calculated on a separate return method and is presented as if the Company’s operations were separate taxpayers in the respective jurisdiction. Therefore, tax expense, cash tax payments, and items of current and deferred taxes may not be reflective of the Company's actual tax balances prior to or subsequent to the Distribution. +The consolidated balance sheets for periods prior to the Separation include assets and liabilities that have been determined to be specifically identifiable or otherwise attributable to the Company, including certain assets that were historically held at the corporate level in the Former Parent. All intracompany transactions within the Company have been eliminated. All intercompany transactions between the Company and the Former Parent are considered to be effectively settled in the consolidated financial statements at the time the transactions are recorded. The total net effect of these intercompany transactions considered to be settled is reflected in the consolidated statement of cash flows within financing activities as “Net transfers from Former Parent.” See Note 13, "Related Party Transactions," for additional information regarding related party transactions. +For periods prior to the Separation, the Company's equity balance in these consolidated financial statements represents the excess of total assets over liabilities. Net investment from Former Parent is primarily impacted by contributions from the Former Parent, which are the result of net funding provided by or distributed to the Former Parent. As a result of the Separation, the Company’s Net investment from Former Parent balance was reclassified to common shares. The Net investment from Former Parent balance reclassified to common shares during the fourth quarter of 2022 included Separation-related adjustments of $ 27,811 . The adjustments related primarily to differences in the amount of assets and liabilities transferred to the Company upon the Separation and the amount of the transferred assets and liabilities reported in the Company’s combined balance sheet as of September 30, 2022. +Going Concern +In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. +Through March 3, 2025, the Company has funded its operations primarily with funding from the Former Parent, proceeds from the sale of its common shares (refer to Note 6, "Shareholders' Equity"), and the cash contribution received from the Former Parent at the Separation (refer to Note 13, "Related Party Transactions.") The Company has incurred recurring losses since its inception and expects to continue to generate operating losses for the foreseeable future. +As of the date of issuance of these consolidated financial statements, the Company expects its existing cash, cash equivalents and marketable securities will be sufficient to fund operating and financial commitments, and other cash requirements for at least one year after the issuance date of these financial statements. +To execute its business plans, the Company will require funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales or royalties, if ever, it expects to finance its operations through the sale of public or private equity, debt financings or other capital sources, +F-10 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +1. Nature of the Business and Basis of Presentation (Continued) +including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. +2. Summary of Significant Accounting Policies +Use of Estimates +The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, valuation of forward contract and derivative liabilities, and determining the allocations of costs and expenses from the Former Parent. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. +Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. The Company's cash equivalents are comprised of short-term money market funds and marketable securities that are highly liquid and readily convertible to known amounts of cash. +Restricted Cash +Restricted cash included in other current assets consists primarily of employee contributions to the Company's employee share purchase plan held for future purchases of the Company's outstanding shares. See Note 8, "Non-Cash Share-Based Compensation," for additional information on the Company's employee share purchase plan. +Restricted cash included in other non-current assets in the consolidated balance sheets primarily represents collateral held by banks for a letter of credit ("LOC") issued in connection with the leased office space in Yardley, Pennsylvania and LOCs issued in connection with the leased office and lab spaces in Cambridge, Massachusetts and Pittsburgh, Pennsylvania. See Note 11, "Commitments and Contingencies," for additional information on the real estate leases. +The following represents a reconciliation of cash and cash equivalents in the consolidated balance sheets to total cash, cash equivalents and restricted cash for the years ended December 31, 2024, 2023 and 2022, respectively, in the consolidated statements of cash flows: +December 31, +2024 2023 2022 +Cash and cash equivalents $ 99,134 $ 248,402 $ 204,877 +Restricted cash held on behalf of Former Parent +— — 35,212 +Restricted cash (included in other current assets) 275 1,318 117 +Restricted cash (included in other non-current assets) 3,133 2,400 2,398 +Total cash, cash equivalents and restricted cash at the end of the period in the consolidated statement of cash flows $ 102,542 $ 252,120 $ 242,604 +Marketable Securities +We invest our excess cash balances in marketable securities of highly rated financial institutions, which consist of investment-grade debt instruments. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as available-for-sale and, accordingly, record such securities at fair value on the consolidated balance sheets. We classify +F-11 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +these securities as current assets as these investments are intended to be available to the Company for use in funding current operations. +Unrealized gains and losses on our marketable debt securities that are deemed temporary are included in accumulated other comprehensive income as a separate component of shareholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we evaluate the extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to our consolidated statement of operations. Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating to other factors recorded in accumulated other comprehensive income. +Forward Contracts and Derivative Liabilities +The Company evaluates certain of its financial and business development transactions to determine the accounting classification of equity linked instruments issued in those transactions. The Company first assesses whether a freestanding equity linked instrument meets liability classification in accordance with ASC 480-10 Distinguishing Liabilities from Equity and ASC 815-40 Derivatives and Hedging - Contracts in Entity's Own Equity . Under ASC 480-10 an instrument is considered liability classified if the instrument is mandatorily redeemable, obligate the issuer to settle an instrument or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares. +If an instrument does not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require net cash settlement are liabilities recorded at fair value. If the instrument does not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the instrument is indexed to its common stock and whether the instrument is classified as equity under ASC 815-40 or other applicable GAAP. +Equity linked instruments that are accounted for in accordance with ASC 815-40 are reported as liabilities on the consolidated balance sheets at fair value. Any change in fair value, as determined at each measurement period, is recorded as a component of other income, net on the consolidated statements of operations. Changes in fair value are reported on the consolidated statements of cash flows as change in fair value of forward contract and derivative liabilities. +The Company accounted for certain consideration agreed to in connection with the amendment, dated as of May 1, 2024 (the "Knopp Amendment"), to the Membership Interest Purchase Agreement, dated as of February 24, 2022 (the "Purchase Agreement") entered into with Knopp Biosciences, LLC ("Knopp") as derivative liabilities under ASC 815 (see Notes 4, "Fair Value of Financial Assets and Liabilities" and 10, "License, Acquisitions and Other Agreements"). +Warrants +The Company evaluates warrants issued as either equity instruments, liabilities or derivative liabilities in accordance with ASC Topic 480, Distinguishing Liabilities from Equity ("ASC 480") and/or ASC Topic 815, Derivatives and Hedging ("ASC 815"), depending on the specific terms of the warrant agreement. +The Company assessed the warrants issued to Knopp in May 2024 (the "Knopp Warrants") and concluded that they met the criteria for equity classification under ASC 480 and ASC 815. Accordingly, the Knopp Warrants were recorded within additional paid-in capital on the consolidated balance sheet at the time of issuance and are not subject to remeasurement. See Note 6, "Shareholders' Equity," for further detail on the Knopp Warrants. +Acquisitions +Our consolidated financial statements include the operations of acquired businesses after the completion of the acquisitions. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired In-Process Research and Development ("IPR&D") be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration in a business acquisition is included as part of the consideration transferred and is recognized at fair value as of the acquisition date. Fair value of IPR&D and contingent consideration is generally estimated by using a probability-weighted discounted cash flow approach. +F-12 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +Property and Equipment +Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the respective assets. As of December 31, 2024 and December 31, 2023, the Company's property and equipment consisted of building and land, office and lab equipment, computer hardware and software, furniture and fixtures, and leasehold improvements. +The fixed assets have the following useful lives: +Building 30 years +Office equipment +3 - 5 years +Computer hardware and software +3 - 5 years +Lab equipment 3 years +Furniture and fixtures 3 years +Leasehold improvements +Shorter of the useful life or remaining lease term +Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. Property and equipment are monitored regularly for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. +Intangible Assets +Acquired In-Process Research and Development +IPR&D that the Company acquires in conjunction with the acquisition of a business represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the asset is classified as a definite-lived intangible and the Company will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. +The Company reviews amounts capitalized as acquired IPR&D for impairment annually, as of November 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. If impairment indicators are present, the Company performs a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value. If the fair value is less than the carrying amount, an impairment loss is recognized in operating results. +The Company did not record any impairment charges relating to its acquired IPR&D for the years ended December 31, 2024, 2023 or 2022. +If the Company acquires an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date, unless it has an alternative future use. Future costs to develop these assets are recorded to research and development expense as they are incurred. +In January 2021, in connection with the Company's acquisition of Kleo Pharmaceuticals, Inc. (“Kleo”), it recorded intangible assets consisting of IPR&D assets of $ 18,400 , which included an oncology therapeutic candidate entering Phase I clinical trials (BHV-1100) and a Multimodal Antibody Therapy Enhancer ("MATE") conjugation asset in the planning stage for clinical development, and goodwill of $ 1,390 . +Impairment of Long-lived Assets +The Company reviews its long-lived assets for indicators of impairment at least annually, as of November 30, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets +F-13 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. +The Company did not record any impairment charges relating to its long-lived assets for the years ended December 31, 2024, 2023 or 2022. +Fair Value Measurements +Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• Level 1— Quoted prices in active markets for identical assets or liabilities. +• Level 2— Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. +• Level 3— Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. +The carrying values of other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. +The Company has accounted for certain consideration agreed to in connection with the Knopp Amendment as forward contract liabilities, which are recorded on the consolidated balance sheets at fair value. Any changes in fair value, as determined each measurement period, are recorded as a component of other income, net on the consolidated statements of operations. The fair value of the forward contract liabilities is determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuations are based on a Monte Carlo simulation of the Company's share price, which requires judgement and assumption on the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk since payable in a variable number of shares. (see Notes 4, "Fair Value of Financial Assets and Liabilities" and 10, "License, Acquisitions and Other Agreements"). +Leases +The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. If the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based on market sources including interest rates for companies with similar credit quality for agreements of similar duration, determined by class of underlying asset, to discount the lease payments. The right-of-use assets also include lease payments made before commencement and exclude lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these short-term leases are expensed as incurred over the term of the lease. +Certain real estate leases require additional payments including reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. +For its real estate leases, which are accounted for as operating leases, the Company has elected the practical expedient to include both the lease and non-lease components as a single component. In addition, payments made by the +F-14 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +Company for improvements to the underlying asset, if the payment relates to an asset of the lessor, are recorded as prepaid rent within other non-current assets in the consolidated balance sheets prior to lease commencement and on commencement, reclassified to the right-of-use asset. As of December 31, 2024, the Company had restricted cash of $ 3,133 included in other non-current assets in the consolidated financial statements, which represents collateral held by banks for letters of credit issued in connection with the leased office space in Yardley, Pennsylvania and leased office and lab spaces in Cambridge, Massachusetts and Pittsburgh, Pennsylvania. Restricted cash is generally invested in time deposits and short-term money market funds. See Note 11, "Commitments and Contingencies," for additional information on real estate leases. +Research and Development Costs +Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, non-cash share-based compensation and benefits, third-party license fees, rent and operating expenses for leased lab facilities, and external costs of vendors engaged to conduct clinical development activities and clinical trials as well as to manufacture clinical trial materials. Prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. +The Company has entered into various research and development-related contracts. These agreements are cancellable, and related expenses are recorded as research and development expenses are incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Certain judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company's estimates. The Company's historical accrual estimates have not been materially different from the actual costs. +Foreign Currency +The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for shareholders’ equity and weighted average exchange rates for operating results. The resulting translation gains and losses are included in accumulated other comprehensive (loss) income, net of tax, in shareholders’ equity. +For U.S. dollar functional currency subsidiaries, foreign currency assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates, except for nonmonetary balance sheet accounts which are remeasured at historical exchange rates. Revenues and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the nonmonetary balance sheet amounts which are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in other income (expense), net in the consolidated statement of operations. +The Company's aggregate foreign currency transaction gains and losses and effects of foreign currency remeasurements were immaterial for the years ended December 31, 2024, 2023 and 2022. +Non-Cash Share-Based Compensation +The Company measures share options and restricted share unit awards granted to employees, non-employees, and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. Generally, the Company issues share options and restricted share units with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company also issues share options with performance-based vesting conditions and records expense for these awards when the Company concludes that it is probable that the performance condition will be achieved. +The Company classifies non-cash share-based compensation expense in its consolidated statement of operations in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified. +The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company lacks a sufficient history of company-specific historical and implied volatility information for its +F-15 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +shares. Therefore, it estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of all of the Company's share options has been determined utilizing the "simplified" method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future. +Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. +Share-Based Compensation for Periods Prior to the Separation +Prior to the Separation from the Former Parent on October 3, 2022, certain of the Company’s employees have historically participated in the Former Parent’s non-cash share-based compensation plans. Non-cash share-based compensation expense for periods prior to the Separation has been allocated to the Company based on a combination of specific identification and a proportionate cost allocation method. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company's tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. +The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The provision for income taxes includes the effects of applicable tax reserves, or unrecognized tax benefits, as well as the related net interest and penalties. +Net Loss per Share +Basic net loss per common share is calculated by dividing net loss by the weighted-average shares outstanding during the period. For purposes of the diluted net loss per share calculation, common share options are considered to be common share equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented. +Net Loss per Share for Periods Prior to the Separation +Net loss per share for periods prior to the Separation from the Former Parent was calculated based on the 39,375,944 shares of the Company's common shares distributed to the Former Parent's shareholders at the time of the Distribution, including common shares issued in connection with Former Parent share options that were exercised on October 3, 2022 and common shares issued in connection with Former Parent restricted share units that vested on October 3, 2022. The same number of shares is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Spin-Off. +Concentrations of Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. The Company maintains a portion of its cash deposits in government insured institutions in excess of government insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts. The Company's cash management policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, supranational and sovereign obligations, certain qualifying money market mutual funds, certain repurchase agreements, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to +F-16 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +credit risk in the event of a default by the financial institutions holding its cash in excess of government insured limits and in the event of default by corporations and governments in which it holds investments in cash equivalents and short-term debt securities, to the extent recorded on the consolidated balance sheets. +Segment Information +The Company manages its operations as a single segment, focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology for the purposes of assessing performance and making operating decisions. Consistent with our operational structure, the Company’s Chief Operating Decision Maker ("CODM") manages and allocates resources at a consolidated level. See Note 14, "Segment Information" for further detail. +Recently Adopted Accounting Pronouncements +In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in ASU No. 2023-07 apply to public entities, including those with a single reportable segment, and are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-07 as of January 1, 2024, the primary impact of which was the disclosure of the significant segment expenses reviewed by the Company’s CODM. Refer to Note 14, "Segment Information" for disclosure of the information required under ASU 2023-07. +Recently Issued Accounting Pronouncements +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact ASU No. 2023-09 will have on its consolidated financial statements. +In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure, in the notes to the financial statements, of specified information about certain costs and expenses. This ASU is effective for public entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact ASU 2024-03 will have on its consolidated financial statements. +F-17 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +3. Marketable Securities +The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of debt securities available-for-sale by type of security at December 31, 2024 and December 31, 2023 is as follows: +Amortized Cost Allowance for Credit Losses Net Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value +December 31, 2024 +Debt securities +U.S. treasury bills $ 312,262 $ — $ 312,262 $ 82 $ ( 47 ) $ 312,297 +U.S. treasury bonds +74,526 — 74,526 34 — 74,560 +Total $ 386,788 $ — $ 386,788 $ 116 $ ( 47 ) $ 386,857 +December 31, 2023 +Debt securities +U.S. corporate bonds $ 46,228 $ — $ 46,228 $ 7 $ ( 24 ) $ 46,211 +Foreign corporate bonds 7,180 — 7,180 — ( 7 ) 7,173 +U.S. treasury bills 113,908 — 113,908 27 — 113,935 +Total $ 167,316 $ — $ 167,316 $ 34 $ ( 31 ) $ 167,319 +The fair values of debt securities available-for-sale by classification in the consolidated balance sheets were as follows: +December 31, 2024 December 31, 2023 +Cash and cash equivalents $ — $ 33,902 +Marketable securities 386,857 133,417 +Total $ 386,857 $ 167,319 +The net amortized cost and fair value of debt securities available-for-sale at December 31, 2024 and December 31, 2023 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity. +December 31, 2024 December 31, 2023 +Net Amortized Cost Fair Value Net Amortized Cost Fair Value +Due to mature: +Less than one year $ 386,788 $ 386,857 $ 167,316 $ 167,319 +F-18 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +3. Marketable Securities (Continued) +Summarized below are the debt securities available-for-sale the Company held at December 31, 2024 and December 31, 2023 that were in an unrealized loss position, aggregated by the length of time the investments have been in that position: +Less than 12 months +Number of Securities Fair Value Unrealized Losses +December 31, 2024 +Debt securities +U.S. treasury bills 4 $ 58,988 $ ( 47 ) +December 31, 2023 +Debt securities +U.S. corporate bonds 6 $ 29,537 $ ( 24 ) +Foreign corporate bonds 1 7,173 ( 7 ) +Total 7 $ 36,710 $ ( 31 ) +The Company did no t have any investments in a continuous unrealized loss position for more than twelve months as of December 31, 2024 or December 31, 2023. +The Company reviewed the securities in the table above and concluded that they are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the credit quality of the investment security based on research performed by external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. As of December 31, 2024, the Company did not intend to sell these securities and did not believe it was more likely than not that it would be required to sell these securities prior to the anticipated recovery of their amortized cost basis. +Net Investment Income +Gross investment income includes interest income from debt securities available-for-sale, money-market funds, cash, and restricted cash. Net investment income included in other income (expense), net in the consolidated statements of operations for the years ended December 31, 2024, December 31, 2023, and December 31, 2022 were as follows: +2024 2023 2022 +Debt securities (including realized losses) +$ 14,477 $ 10,490 $ 1,454 +Other investments +7,034 7,432 1,781 +Gross investment income (including realized losses) +21,511 17,922 3,235 +Investment expenses ( 177 ) ( 236 ) ( 27 ) +Net investment income $ 21,334 $ 17,686 $ 3,208 +We utilize the specific identification method in computing realized gains and losses on sales of debt securities. The proceeds from the sale of debt securities available-for-sale and the related gross realized losses for the year ended December 31, 2024, 2023 and 2022 were as follows: +2024 2023 2022 +Proceeds from sales +$ — $ 4,920 $ — +Gross realized losses +$ — $ 39 $ — +4. Fair Value of Financial Assets and Liabilities +The preparation of the Company’s consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted +F-19 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +4. Fair Value of Financial Assets and Liabilities (Continued) +historical cost basis. In this note, the Company provides details on the fair value of financial assets and liabilities and how it determines those fair values. +Financial Instruments Measured at Fair Value on the Consolidated Balance Sheets +Certain of the Company’s financial instruments are measured at fair value on the consolidated balance sheets on a recurring basis. The fair values of these instruments are based on valuations that include inputs that can be classified within one of three levels of a hierarchy established by GAAP. See Fair Value Measurements in Note 2, "Summary of Significant Accounting Policies," for a brief description of the type of valuation information (“valuation inputs”) that qualifies a financial asset or liability for each level. +Financial assets measured at fair value on a recurring basis on the consolidated balance sheets at December 31, 2024 and December 31, 2023 and financial liabilities measured at fair value on a recurring basis on the consolidated balance sheet at December 31, 2024 were as follows: +Fair Value Measurement Using: +Balance Sheet Classification Type of Instrument Level 1 Level 2 Level 3 Total +December 31, 2024 +Assets: +Cash equivalents Money market funds $ 38,967 $ — $ — $ 38,967 +Marketable securities U.S. treasury bills 29,707 282,590 — 312,297 +Marketable securities +U.S. treasury bonds +— 74,560 — 74,560 +Other non-current assets +Money market funds +3,133 — — 3,133 +Total assets $ 71,807 $ 357,150 $ — $ 428,957 +Liabilities: +Forward contract liability, current +$ — $ — $ 71,500 $ 71,500 +Derivative liability, current +— — 13,210 13,210 +Total liabilities $ — $ — $ 84,710 $ 84,710 +December 31, 2023 +Assets: +Cash equivalents Money market funds $ 59,199 $ — $ — $ 59,199 +Cash equivalents U.S. treasury bills — 27,901 — 27,901 +Cash equivalents U.S. corporate bonds — 6,001 — 6,001 +Marketable securities U.S. treasury bills 9,874 76,160 — 86,034 +Marketable securities U.S. corporate bonds — 40,210 — 40,210 +Marketable securities Foreign corporate bonds — 7,173 — 7,173 +Other non-current assets Money market funds 1,900 — — 1,900 +Total assets $ 70,973 $ 157,445 $ — $ 228,418 +The Company had no financial liabilities measured at fair value on a recurring basis as of December 31, 2023. +There were no securities transferred between Level 1, 2, and 3 during the years ended December 31, 2024 or December 31, 2023. +F-20 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +4. Fair Value of Financial Assets and Liabilities (Continued) +The following is a description, including valuation methodology, of the financial assets and liabilities measured at fair value on a recurring basis: +Cash Equivalents +Cash equivalents at December 31, 2024 consisted of cash invested in short-term money market funds that were readily convertible to known amounts of cash and redeemable daily at the election of the Company. The carrying value of cash equivalents approximates fair value due to the near term maturity of the fund's underlying security holdings resulting in an insignificant change in value because of changes in interest rates. When quoted prices are available in an active market, cash equivalents are classified in Level 1 of the fair value hierarchy. +Marketable Securities and Other Non-Current Assets +Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasury bills. The fair values of the Company’s Level 2 debt securities are obtained from quoted market prices of debt securities with similar characteristics, quoted prices from identical assets in inactive markets, or discounted cash flows to estimate fair value. +Forward Contract and Derivative Liability +In connection with the Knopp Amendment, the Company agreed to issue to Knopp additional common shares of the Company with an approximate value of $ 75,000 within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). In addition, Knopp has the option to request a one-time cash true-up payment from the Company in December 2025, as defined in the agreement (the "2025 Knopp True-up"). See Note 10, "License, Acquisitions and Other Agreements," for further details. +The following table provides a roll forward of the fair value of the Company's forward contract and derivative liability related to the 2025 Additional Consideration and 2025 Knopp True-up, respectively, for which fair value is determined by Level 3 inputs from inception of the Knopp Amendment on May 1, 2024 to December 31, 2024: +Carrying Value +Fair value at May 1, 2024 (inception) +$ 77,750 +Change in fair value of forward contract and derivative liability in other income, net +6,960 +Fair value at December 31, 2024 +$ 84,710 +The fair value of the forward contract and derivative liability recognized in connection with the Knopp Amendment was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuation is based on a Monte Carlo simulation of Biohaven's share price, which requires judgement and assumptions on the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk since the 2025 Additional Consideration is payable in a variable number of shares or potentially cash for the 2025 Knopp True-up. A summary of the unobservable inputs (Level 3 inputs) used in measuring the Company’s forward contract and derivative liability related to the 2025 Additional Consideration and 2025 Knopp True-up, respectively, as of December 31, 2024 and May 1, 2024 are as follows, presented on a weighted-average basis based on relative fair value: +As of December 31, 2024 +As of May 1, 2024 +Time to payment and potential payment (years) +0.50 1.08 +Volatility (annual) +67.5 % 80.0 % +Discount rate +12.0 % 14.8 % +Our expectations of the volatility of Biohaven's share price at the reporting date could be materially different than our actual future volatility, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. The Company expects the fair value of the forward contract to be approximately $ 75,000 on the first anniversary of the Knopp Amendment. An increase in the derivative liability related to the 2025 Knopp True-up between the reporting date and settlement date of the derivative would have a material adverse effect on the Company's financial performance. +F-21 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +5. Balance Sheet Components +Property and Equipment, Net +Property and equipment, net consisted of the following: +As of December 31, 2024 As of December 31, 2023 +Building and land $ 14,078 $ 11,728 +Leasehold improvements +824 802 +Computer hardware and software 875 875 +Office and lab equipment 11,620 9,961 +Furniture and fixtures 1,811 1,550 +$ 29,208 $ 24,916 +Accumulated depreciation ( 12,206 ) ( 8,283 ) +17,002 16,633 +Equipment not yet in service 318 558 +Property and equipment, net $ 17,320 $ 17,191 +Depreciation expense was $ 3,923 , $ 3,369 and $ 1,361 for the years ended December 31, 2024, 2023 and 2022, respectively. +Equipment not yet in service primarily consisted of lab equipment that had not been placed into service as of December 31, 2024 or 2023. +Other Non-current Assets +Other non-current assets consisted of the following: +As of December 31, 2024 As of December 31, 2023 +Operating lease right-of-use assets $ 36,391 $ 31,385 +Other 3,134 2,400 +Other non-current assets $ 39,525 $ 33,785 +Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +As of December 31, 2024 As of December 31, 2023 +Accrued clinical trial costs $ 38,432 $ 29,501 +Operating lease liability - current portion +3,802 3,308 +Other accrued expenses and other current liabilities 9,253 7,037 +Accrued expenses and other current liabilities +$ 51,487 $ 39,846 +6. Shareholders' Equity +FGFR3 Agreement +In December 2024, the Company, GeneQuantum Healthcare (Suzhou) Co. Ltd. ("GeneQuantum") and Aimed Bio, Inc. ("Aimed Bio") entered into a development and license agreement (the "FGFR3 Agreement") pursuant to which Biohaven obtained the exclusive rights to develop and commercialize GeneQuantum's and Aimed Bio's joint research fibroblast growth factor receptor 3 ("FGFR3") ADC program. As consideration for the agreement, the Company was obligated to pay +F-22 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +6. Shareholders' Equity (Continued) +an upfront payment of 222,119 common shares valued at approximately $ 8,554 as of the effective date, which were issued in January 2025. +Knopp Amendment +In May 2024, the Company entered into the Knopp Amendment under which the parties thereto agreed to revise the success-based payment and royalty payment obligations under the Membership Purchase Agreement. As consideration, the Company issued 1,872,874 Biohaven Shares to Knopp, valued at approximately $ 65,981 in May 2024. +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, the Company issued to Knopp a warrant to purchase 294,195 of the Company's common shares with a purchase price of $ 67.98 , subject to certain specified development milestones and the Company achieving a specified market capitalization. The warrant was recorded at its initial fair value of $ 3,340 within additional paid-in capital on the consolidated balance sheet during the second quarter of 2024 and is not subject to remeasurement. Refer to Note 10, "License, Acquisitions and Other Agreements" for further detail on the Knopp Amendment. +2024 Public Offerings +On April 22, 2024, the Company closed an underwritten public offering of 6,451,220 of its common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price to the public of $ 41.00 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by Biohaven, were approximately $ 247,830 . The Company intends to use the net proceeds received from the offering for general corporate purposes. +On October 2, 2024, the Company closed an underwritten public offering of 6,052,631 of its common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price to the public of $ 47.50 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by Biohaven, were approximately $ 269,935 . The Company intends to use the net proceeds received from the offering for general corporate purposes. +Pyramid Acquisition +In January 2024, the Company acquired Pyramid pursuant to the Pyramid Agreement. In consideration for the Pyramid acquisition, Biohaven made an upfront payment of 255,794 Company common shares, valued at approximately $ 10,894 . As of December 31, 2024, 253,838 of these common shares have been issued by the Company. +During the first quarter of 2024, the Company recorded $ 5,689 of research and development ("R&D") expense in the consolidated statement of operations for a developmental milestone which became due under the Pyramid Agreement, to be paid in 98,129 Company common shares. As of December 31, 2024, 97,387 of these common shares have been issued by the Company. Refer to Note 10, "License, Acquisitions and Other Agreements" for further discussion of the Pyramid acquisition. +Equity Distribution Agreement +In October 2023, the Company entered into an equity distribution agreement pursuant to which the Company may offer and sell common shares having an aggregate offering price of up to $ 150,000 from time to time through or to the sales agent, acting as its agent or principal (the "Equity Distribution Agreement"). Sales of the Company's common shares, if any, will be made in sales deemed to be “at-the-market offerings”. The sales agent is not required to sell any specific amount of securities but will act as the Company's sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company. The Company currently plans to use the net proceeds from any at-the-market offerings of its common shares for general corporate purposes. +In August 2024, the Company entered into an amendment to the Equity Distribution Agreement pursuant to which the Company may offer and sell common shares having an aggregate offering price of up to $ 450,000 from time to time through or to the sales agent, acting as its agent or principal. +As of December 31, 2024, the Company sold and issued 4,248,588 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $ 146,250 . As of December 31, 2024, additional common shares having an aggregate offering price of up to $ 300,000 remain available to be issued. +F-23 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +6. Shareholders' Equity (Continued) +Highlightll Agreement +In March 2023, the Company and Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") entered into an exclusive, worldwide (excluding People's Republic of China and its territories and possessions) license agreement (the "Highlightll Agreement") pursuant to which Biohaven obtained the right to research, develop, manufacture and commercialize Highlightll's brain penetrant dual TYK2/JAK1 inhibitor program. In connection with the Highlightll Agreement, in December 2023, the Company issued 721,136 common shares valued at $ 21,814 . See Note 10, "License, Acquisitions and Other Agreements," for further detail on the Highlightll Agreement. +2023 Public Offerings +In October 2023, the Compan y completed an underwritten public offering of 11,761,363 of its common shares, including the exercise in full of the underwriters' option to purchase additional common shares, at a price to the public of $ 22.00 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by the Company, were approximately $ 242,425 . +2022 Public Offerings +In October 2022, the Company commenced a public offering of 25,000,000 of its common shares at a price of $ 10.50 per share, pursuant to a registration statement on Form S-1 filed with the SEC, which was declared effective by the SEC on October 20, 2022. The Company also granted the underwriters a 30-day option to purchase up to an additional 3,750,000 common shares. On October 25, 2022, the Company closed the offering, including a full exercise of the underwriters' option to purchase additional shares. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by the Company, were approximately $ 282,804 . +Separation from the Former Parent +On October 3, 2022, the Former Parent completed the Distribution to holders of its common shares and the spin-off of Biohaven. Each holder of Former Parent common shares received one common share of Biohaven for every two Former Parent common shares held of record as of the close of business, New York City time, on September 26, 2022. +In the Distribution, an aggregate of 35,840,459 common shares of the Company were issued. The aggregate number of common shares issued in connection with the Distribution did not include 2,611,392 common shares issued in connection with Former Parent share options that were exercised on October 3, 2022 and 924,093 common shares issued in connection with Former Parent restricted share units that vested on October 3, 2022. See Note 8, "Non-Cash Share-Based Compensation," for discussion of the Legacy Equity Award Settlement Plan. +F-24 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +7. Accumulated Other Comprehensive Income (Loss) +Shareholders’ equity included the following activity in accumulated other comprehensive income (loss) for the years ended December 31, 2024 and 2023: +Year Ended December 31, +2024 2023 2022 +Net unrealized investment gains (losses): +Beginning of period balance $ 3 $ ( 145 ) $ — +Other comprehensive income (loss) 1) +66 109 ( 145 ) +Amounts reclassified from accumulated other comprehensive income (loss) (2) +— 39 — +Other comprehensive income (loss) +66 148 ( 145 ) +End of period balance 69 3 ( 145 ) +Foreign currency translation adjustments: +Beginning of period balance ( 68 ) 429 — +Other comprehensive income (loss) (1) +78 ( 497 ) 429 +End of period balance 10 ( 68 ) 429 +Total beginning of period accumulated other comprehensive (loss) income +( 65 ) 284 — +Total other comprehensive income (loss) +144 ( 349 ) 284 +Total end of period accumulated other comprehensive income (loss) +$ 79 $ ( 65 ) $ 284 +(1) There was no tax on other comprehensive income (loss) and immaterial tax on amounts reclassified from accumulated other comprehensive income (loss) during the period. +(2) Amounts reclassified from accumulated other comprehensive (loss) income for specifically identified debt securities are included in other income (expense), net in the consolidated statements of operations. +No amounts were reclassified from accumulated other comprehensive income (loss) during the years ended December 31, 2024 or 2022. +8. Non-Cash Share-Based Compensation +2022 Equity Incentive Plan +In September 2022, the Company's shareholders approved the 2022 Equity Incentive Plan (the "2022 Plan"), which became effective on October 3, 2022. The 2022 Plan provides for the grant of incentive share options, nonstatutory share options, share appreciation rights, restricted share awards, restricted share unit awards ("RSUs"), performance-based share awards and other share-based awards. +Upon the effectiveness of the 2022 Plan, there were 9,190,000 common shares reserved for issuance under the 2022 Plan. As of December 31, 2024, the 2022 Plan allows for a maximum of 15,162,247 shares of the Company's common shares to be reserved and available for grants. Also as of December 31, 2024, there were 726,177 shares of the Company's common shares available for future grants under the 2022 Plan. The number of shares reserved for issuance under the 2022 Plan automatically increases on January 1 of each calendar year by 4 % of total common shares outstanding as of December 31 of the prior year, beginning October 3, 2022 through January 1, 2032. In January 2025, the number of common shares reserved for future issuance under the 2022 Plan automatically increased by 4,048,879 common shares. +Legacy Equity Award Settlement Plan +In September 2022, the Company's shareholders approved the Legacy Equity Award Settlement Plan (the "Legacy Plan"), which became effective on September 29, 2022. The Legacy Plan is intended solely to provide for the grant and settlement of nonstatutory share options and RSUs, issued in respect of share options and RSUs originally granted pursuant to the Former Parent's 2017 Equity Incentive Plan and 2014 Equity Incentive Plan. +F-25 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +8. Non-Cash Share-Based Compensation (Continued) +On October 3, 2022, the Former Parent completed the Distribution and the Separation. Each Former Parent share option and RSU outstanding prior to the Distribution was converted into .5 stock options and RSUs in the Company. In total, 4,057,121 share options and 924,093 RSUs were granted and settled into 2,611,392 and 924,093 common shares, respectively, under the Legacy Plan on October 3, 2022. +Non-Cash Share-Based Compensation Expense +For periods prior to the Separation from the Former Parent, non-cash share-based compensation has been allocated to the Company by using a combination of specific identification and a proportionate cost allocation method based on employee hours or directly identified operating expenses, depending on the employee’s function. The amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company for the periods presented. +Upon the effectiveness of the Company's Spin-off from the Former Parent, each Former Parent share option and RSU outstanding vested immediately (the "Acceleration") and converted into .5 share options and RSUs in the Legacy Plan in the Company. The non-cash share-based compensation expense related to the Acceleration was then allocated to the Company using the same methodology described above and recognized immediately, resulting in $ 101,440 of non-cash share-based compensation expense recognized related to to the Acceleration in the fourth quarter of 2022. The share options and RSUs granted under the Legacy Plan also immediately vested and settled as a result of the Spin-off, and the Company determined that no incremental compensation should be recognized related to these awards. +Non-cash share-based compensation under the Former Parent’s non-cash share-based compensation plans was measured at the grant date based on the fair value of the award and was recognized as expense over the requisite service period of the award (generally three to four years ) using the straight-line method. +The Company measures non-cash share-based compensation at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three years ) using the straight-line method. Non-cash share-based compensation expense, consisting of expense for stock options, RSUs, and the 2022 Employee Share Purchase Plan (the "ESPP"), was classified in the consolidated statements of operations as follows: +Year Ended December 31, +2024 2023 2022 +Research and development expenses +Allocated from the Former Parent excluding the Acceleration +$ — $ — $ 46,976 +Allocated from the Former Parent related to the Acceleration +— — 61,749 +2022 Equity Incentive Plan 42,594 15,985 7,654 +Total research and development expenses 42,594 15,985 116,379 +General and administrative expenses +Allocated from the Former Parent excluding the Acceleration +— — 30,951 +Allocated from the Former Parent related to the Acceleration +— — 39,691 +2022 Equity Incentive Plan 29,369 12,802 6,535 +Total general and administrative expenses 29,369 12,802 77,177 +Total non-cash share-based compensation expense $ 71,963 $ 28,787 $ 193,556 +As of December 31, 2024, total unrecognized compensation cost related to the unvested share-based awards was $ 73,785 , which is expected to be recognized over a weighted average period of 1.50 years. +Share Options +All share option grants are awarded at fair value on the date of grant. The fair value of share options is estimated using the Black-Scholes option pricing model. Share options generally expire 10 years after the grant date. +The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company's common shares for those share options that had exercise prices lower than the fair value of the Company's common shares at December 31, 2024. The total intrinsic value of share options exercised +F-26 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +8. Non-Cash Share-Based Compensation (Continued) +for the years ended December 31, 2024, 2023, and 2022 was $ 33,801 , $ 7,756 , and $ 20,137 , respectively. The tax benefit from share options exercised for the years ended December 31, 2024, 2023, and 2022 was not material. +The assumptions that the Company used to determine the grant-date fair value of share options granted under the 2022 Plan were as follows, presented on a weighted average basis: +Year Ended December 31, +2024 2023 2022 +Risk-free interest rate 3.98 % 4.32 % 3.86 % +Expected term (in years) 5.74 5.93 5.75 +Expected volatility 86.31 % 84.60 % 82.05 % +Expected dividend yield — % — % — % +Exercise price $ 42.06 $ 24.57 $ 7.00 +The following table is a summary of the Company's share option activity for the year ended December 31, 2024: +Number of +Shares +Weighted +Average +Exercise +Price +Weighted +Average +Remaining +Contractual +Term +Aggregate +Intrinsic +Value +(in years) +Outstanding as of December 31, 2023 11,379,429 $ 11.48 +Granted +2,506,161 $ 42.06 +Exercised +( 918,165 ) $ 9.36 +Forfeited ( 186,341 ) $ 22.98 +Outstanding as of December 31, 2024 12,781,084 $ 17.46 8.19 $ 265,659 +Options exercisable as of December 31, 2024 7,612,676 $ 12.96 8.02 $ 188,466 +Vested and expected to vest as of December 31, 2024 12,781,084 $ 17.46 8.19 $ 265,659 +The weighted average grant date fair value per share of share options granted under the Company’s share option plans during the years ended December 31, 2024, 2023, and 2022 was $ 30.76 , $ 18.01 , and $ 4.97 , respectively. The Company expects approximately 5,168,408 of the unvested share options to vest over the requisite service period. +Restricted Share Units +As discussed above, in connection with the Distribution, on October 3, 2022, 924,093 RSUs were granted and settled into 924,093 common shares under the Legacy Equity Award Settlement Plan. +The Company’s RSUs are considered nonvested share awards and require no payment from the employee. For each RSU, employees receive one common share at the end of the vesting period. The employee can elect to receive the one common share net of taxes or pay for taxes separately and receive the entire share. Compensation cost is recorded based on the market price of the Company’s common shares on the grant date and is recognized on a straight-line basis over the requisite service period. +The total fair value of RSUs vested during the year ended December 31, 2024 was $ 3,991 . No RSUs were granted, forfeited, or vested in the year ended December 31, 2023. No fair value was assigned to the RSUs vested during the year ended December 31, 2022, as all RSUs that vested were related to the RSUs granted and settled under the Legacy Equity Award Settlement Plan. +F-27 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +8. Non-Cash Share-Based Compensation (Continued) +The following table is a summary of the RSU activity for the year ended December 31, 2024: +Number of +Shares +Weighted Average Grant Date Fair Value +Unvested as of December 31, 2023 +— $ — +Granted 381,011 $ 41.88 +Forfeited +( 8,481 ) $ 41.93 +Vested +( 95,309 ) $ 41.88 +Unvested as of December 31, 2024 +277,221 $ 41.87 +Employee Share Purchase Plan +In September 2022, the Company's board of directors approved the rules and procedures of the 2022 Employee Share Purchase Plan approved by shareholders of the Company on September 28, 2022. +The ESPP allows each eligible employee who is participating in the plan to purchase shares by authorizing payroll deductions of up to 15 % of eligible earnings. Unless the participating employee has previously withdrawn from the offering, accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25 worth of ordinary shares, valued at the start of the offering period, under the ESPP in any calendar year. There is no minimum holding period associated with shares purchased pursuant to this plan. An employee’s purchase rights terminate immediately upon termination of employment. +The number of shares reserved for issuance under the ESPP automatically increases on January 1 of each calendar year by 1 % of total common shares outstanding as of December 31 of the prior year, beginning October 3, 2022 through January 1, 2032. As of December 31, 2024, the ESPP allows for a maximum of 1,886,830 shares of the Company's common shares to be reserved and available for issuance under the ESPP. As of December 31, 2024, 1,627,399 shares remained available for future issuance under the ESPP. In January 2025, 1,012,219 additional shares were authorized to be issued under the ESPP. +The Company accounts for employee share purchases made under its ESPP using an estimate of the grant date fair value, which is determined in accordance with ASC 718, Stock Compensation. The purchase price discount and the look-back feature cause the ESPP to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period. The Company values ESPP shares using the Black-Scholes model. The Company recognized compensation expense of $ 1,249 and $ 1,341 for the years ended December 31, 2024 and 2023, respectively. The Company did not recognize material compensation expense related to the ESPP for the year ended December 31, 2022. +As of December 31, 2024, there was $ 449 of unrecognized non-cash share-based compensation expense related to the ESPP, which is expected to be recognized over the remaining offering period ending May 31, 2025. During the year ended December 31, 2024, 100,242 shares were issued under the ESPP. +F-28 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +9. Net Loss Per Share +Basic and diluted net loss per share attributable to common shareholders of Biohaven was calculated as follows: +Year Ended December 31, +2024 2023 2022 +Numerator: +Net loss +$ ( 846,422 ) $ ( 408,168 ) $ ( 570,279 ) +Denominator: +Weighted average common shares outstanding—basic and diluted +91,234,337 71,200,527 44,741,316 +Net loss per share—basic and diluted +$ ( 9.28 ) $ ( 5.73 ) $ ( 12.75 ) +The Company's potential dilutive securities include share options which have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders of the Company is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2024 2023 2022 +Options to purchase common shares 12,781,084 11,379,429 8,959,215 +Warrants to purchase common shares 294,195 — — +Restricted Share Units 277,221 — — +13,352,500 11,379,429 8,959,215 +10. License, Acquisitions and Other Agreements +The Company has entered into various licensing, developmental and acquisition agreements which provide the Company with rights to certain know-how, technology and patent rights. The agreements generally include upfront fees, milestone payments upon achievement of certain developmental, regulatory and commercial and sales milestones, as well as sales-based royalties, with percentages that vary by agreement. +License and Other Agreements +As of December 31, 2024, the Company has potential future developmental, regulatory, and commercial milestone payments under its license and other agreements of up to approximately $ 170,538 , $ 701,975 , and $ 3,185,450 , respectively. See below for a detailed discussion of these agreements. The Company has not recorded these potential contingent consideration payments as liabilities in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2024. +Yale Agreements +In September 2013, the Company entered into an exclusive license agreement (the "Yale Agreement") with Yale University to obtain a license to certain patent rights for the commercial development, manufacture, distribution, use and sale of products and processes resulting from the development of those patent rights, related to the use of riluzole in treating various neurological conditions, such as general anxiety disorder, post-traumatic stress disorder and depression. +The Yale Agreement was amended and restated in May 2019. As of December 31, 2024 under the Yale Agreement, the Company has remaining contingent regulatory milestone payments of up to $ 2,000 . The Yale Agreement includes an obligation to pay low single digit royalties on the net sales of licensed patents or from products based on troriluzole. Under the amended and restated agreement, the royalty rates are reduced as compared to the original agreement. In addition, under the amended and restated agreement, the Company may develop products based on riluzole or troriluzole. The amended and restated agreement retains a minimum annual royalty of up to $ 1,000 per year, beginning +F-29 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +10. License, Acquisitions and Other Agreements (Continued) +after the first sale of product under the agreement. If the Company grants any sublicense rights under the Yale Agreement, it must pay Yale University a low single-digit percentage of sublicense income that it receives. +For the December 31, 2024, 2023, and 2022, the Company did no t record any material expense or make any milestone or royalty payments under the Yale Agreement. +In January 2021, the Company entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel Molecular Degrader of Extracellular Protein ("MoDE") platform (the "Yale MoDE Agreement"). The platform pertains to the clearance of disease-causing protein and other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The Yale MoDE Agreement includes an obligation to pay a minimum annual royalty of up to $ 1,000 per year, and low single digit royalties on the net sales of licensed products. If the Company grants any sublicense rights under the Yale MoDE Agreement, it must pay Yale University a low single-digit percentage of sublicense income that it receives. As of December 31, 2024, under the Yale MoDE Agreement, the Company has remaining contingent development and commercial milestone payments of up to $ 538 and $ 2,950 , respectively. The Yale MoDE Agreement terminates on the later of twenty years from the effective date, twenty years from the filing date of the first investigational new drug application for a licensed product or the last to expire of a licensed patent. +For the year ended December 31, 2024, the Company recorded research and development expense of $ 263 related to the achievement of developmental milestones under the Yale MoDE Agreement. The Company did no t record any material milestone or royalty payments under the Yale MoDE Agreement for the years ended December 31, 2023, and 2022. +ALS Biopharma Agreement +In August 2015, the Company entered into an agreement (the "ALS Biopharma Agreement") with ALS Biopharma and Fox Chase Chemical Diversity Center Inc. ("FCCDC"), pursuant to which ALS Biopharma and FCCDC assigned the Company their worldwide patent rights to a family of over 300 prodrugs of glutamate modulating agents, including troriluzole, as well as other innovative technologies. Under the ALS Biopharma Agreement, the Company is obligated to use commercially reasonable efforts to commercialize and develop markets for the patent products. As of December 31, 2024, under the ALS Biopharma Agreement, the Company has remaining contingent regulatory approval milestone payments of up to $ 4,000 , as well as royalty payments of a low single-digit percentage based on net sales of products licensed under the ALS Biopharma Agreement, payable on a quarterly basis. +The ALS Biopharma Agreement terminates on a country-by-country basis as the last patent rights expire in each such country. If the Company abandons its development, research, licensing or sale of all products covered by one or more claims of any patent or patent application assigned under the ALS Biopharma Agreement, or if the Company ceases operations, it has agreed to reassign the applicable patent rights back to ALS Biopharma. +For the years ended December 31, 2024, 2023 and 2022, the Company did no t record any expense or make any milestone or royalty payments under the ALS Biopharma Agreement. +Taldefgrobep Alfa License Agreement +In February 2022, following the transfer of intellectual property, the Company announced that it entered into a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel, Phase 3-ready anti-myostatin adnectin (the "Taldefgrobep Alfa License Agreement"). +As of December 31, 2024, under the Taldefgrobep Alfa License Agreement, the Company has remaining contingent regulatory approval milestone payments of up to $ 200,000 , as well as tiered, sales-based royalty percentages from the high teens to the low twenties. There were no upfront or contingent payments to BMS related to the Taldefgrobep Alfa License Agreement. +For the years ended December 31, 2024, 2023 and 2022, the Company did no t record any material expense or make any milestone or royalty payments under the Taldefgrobep Alfa License Agreement. +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, the Company and Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") entered into an exclusive, worldwide (excluding People's Republic of China and its territories and possessions) license agreement (the +F-30 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +10. License, Acquisitions and Other Agreements (Continued) +"Highlightll Agreement") pursuant to which Biohaven obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. In connection with the Highlightll Agreement, the Company was obligated to pay Highlightll a cash payment of $ 10,000 and 721,136 common shares (collectively, "the Highlightll Upfront Payments"), upon the completion of certain post-closing activities. In December 2023, the Company entered into a second amendment to the Highlightll Agreement, which granted the Company an exclusive option and right of first refusal to any Selective TYK2 Inhibitor being developed by or on behalf of Highlightll or its affiliates and provided for the payment of the Highlightll Upfront Payments. As a result, the Company made a $ 10,000 cash payment and issued 721,136 shares, valued at $ 21,814 , to Highlightll during the fourth quarter of 2023, which was recorded as R&D expense during the year ended December 31, 2023. +As of December 31, 2024, under the Highlightll Agreement, the Company has remaining contingent development, regulatory approval, and commercial milestone payments of up to $ 75,000 , $ 37,500 , and $ 837,500 , respectively. Additionally, the Company has agreed to make tiered royalty payments as a percentage of net sales starting at mid single digits and peaking at low teens digits. During the royalty term, if the Company offers to include China clinical sites in its Phase 3 study sufficient for submission to Chinese National Medical Products Administration and Highlightll, at its sole discretion, agrees, then Highlightll will pay royalties in the low tens digits to the Company on China sales upon approval. +The Highlightll Agreement terminates on a country-by-country basis upon expiration of the royalty term and can also be terminated if certain events occur, e.g., material breach or insolvency. +Excluding the Highlightll Upfront Payments discussed above, for the years ended December 31, 2024 and 2023, the Company did no t record any material milestone or royalty payments related to the Highlightll Agreement. +Other Agreements +In addition to the agreements detailed above, the Company has entered into various other license agreements and development programs. The Company records milestones and other payments, including funding for research arrangements, which become due under these agreements to research and development expense in the consolidated statements of operations. Amounts recorded to research and development expense for the period were as follows: +Year Ended December 31, +2024 2023 2022 +Milestone Payments +$ 1,875 $ 3,250 $ 75 +Upfront Payments - Cash +6,000 — — +Upfront Payments - Issuance of Common Shares* +$ 8,554 $ — $ — +* The 2024 amount represents $ 8,554 recorded to research and development expense related to shares owed for upfront payments which were not yet issued as of December 31, 2024 and is recorded within accrued expenses and additional paid in capital on the consolidated balance sheet as of December 31, 2024. +Acquisitions +Kv7 Platform Acquisition +In April 2022, the Company closed the acquisition from Knopp of Channel Biosciences, LLC (“Channel”), a wholly owned subsidiary of Knopp owning the assets of Knopp’s Kv7 channel targeting platform (the “Kv7 Platform Acquisition”), pursuant to the Purchase Agreement, dated February 24, 2022. +Under the Purchase Agreement, the Company agreed to make success-based payments based on developmental and regulatory milestones through approvals in the United States, Europe, the Middle East and Asia ("EMEA") and Japan for the lead asset, BHV-7000 (formerly known as KB-3061), developmental and regulatory milestones for the Kv7 pipeline development in other indications and additional country approvals, and commercial sales-based milestones of BHV-7000. Additionally, the Company agreed to make scaled royalty payments in cash for BHV-7000 and the pipeline programs, with percentages starting at high single digits and peaking at low teens for BHV-7000 and starting at mid-single digits and peaking at low tens digits for the pipeline programs. +In May 2024, the Company entered into the Knopp Amendment under which the parties thereto agreed to replace the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for BHV-7000 and the pipeline programs. The parties also agreed to reduce the success-based payments payable under the +F-31 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +10. License, Acquisitions and Other Agreements (Continued) +Purchase Agreement. The Company retains the ability to pay these contingent milestone payments in cash or in the Company's common shares at Biohaven's election, subject to the same increases if the Company elects to pay in the Company's common shares. As of December 31, 2024, under the Purchase Agreement, as amended, the Company had remaining success-based payments comprised of (i) to up to $ 185,000 based on regulatory approvals in the United States and EMEA for BHV-7000 and (ii) up to an additional $ 60,000 based on regulatory approval in the United States for the other Kv7 pipeline programs. +In consideration of the revisions to the success-based payment and royalty payment obligations, the Company agreed to issue to Knopp 1,872,874 Company common shares, valued at approximately $ 75,000 , through a private placement within 60 days of the date of execution of the Knopp Amendment (the “2024 Additional Consideration”) and additional Company common shares with an approximate value of $ 75,000 within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). The Company also gave Knopp the option to request a one-time cash true-up payment from the Company in December 2024 in the event that Knopp continues to hold the Company's common shares representing the 2024 Additional Consideration and the value of such shares has declined (the "2024 Knopp True-Up"), and a one-time cash true-up payment from the Company in December 2025 in the event that Knopp continues to hold the Company's common shares representing the 2025 Additional Consideration and the value of such shares has declined (the "2025 Knopp True-Up"), in each case, subject to certain conditions. +The Company concluded that the agreement to issue the 2024 Additional Consideration at a future date represented a fixed forward contract under ASC 815 and classified the commitment as a forward contract liability on its consolidated balance sheet on the execution date of the Knopp Amendment. The Company initially measured the forward contract associated with the 2024 Additional Consideration at a fair value of $ 75,220 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statements of operations. In May 2024, the Company issued the 2024 Additional Consideration at an approximate value of $ 65,981 . The Company recognized a gain of $ 9,239 for the year ended December 31, 2024 in other income, net in its consolidated statement of operations. The gain on settlement of the 2024 Additional Consideration was due to the decline in fair value of the 2024 Additional Consideration from the execution date to the issuance date due to a decline in Biohaven's share price. +The 2024 Additional Consideration True-up represents a net cash settled written put option measured at fair value on a recurring basis. The Company has concluded that the 2024 Additional Consideration True-up represents a net cash settled written put option on the Company’s shares and is a freestanding derivative liability under ASC 815. Accordingly, the Company classified the 2024 Additional Consideration True-up as a current derivative liability on its consolidated balance sheet. The Company initially recorded the 2024 Additional Consideration True-up at a fair value of $ 15,540 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statements of operations. The Company subsequently remeasured the fair value of the derivative liability and recognized any gains or losses through other income, net in its consolidated statement of operations. The 2024 Additional Consideration True-up was considered settled as of December 2024, with no cash payment due upon expiration. The Company recognized a gain related to the 2024 Additional Consideration True-Up of $ 15,540 for the year ended December 31, 2024 in other income, net in its consolidated statement of operations. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +The Company has concluded that the agreement to issue the 2025 Additional Consideration at a future date represents a forward contract settleable in a variable number of shares under ASC 480, and classified the commitment as a current forward contract liability on its consolidated balance sheet. The Company initially measured the 2025 Additional Consideration at a fair value of $ 63,940 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statement of operations. The Company subsequently remeasures the fair value of the forward contract liability and recognizes any gains or losses through other income, net in its consolidated statement of operations. The Company recognized expense of $ 7,560 for the year ended December 31, 2024 related to the remeasurement of the 2025 Additional Consideration. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +The Company has concluded that the 2025 Additional Consideration True-up represents a net cash settled written put option on the Company’s shares and is a freestanding derivative liability under ASC 815. Accordingly, the Company classified the 2025 Additional Consideration True-up as a non-current derivative liability on its consolidated balance sheet. The Company initially recorded the 2025 Additional Consideration True-up at a fair value of $ 13,810 , which was recorded as R&D expense during the three months ended June 30, 2024. The Company subsequently remeasures the fair value of the derivative liability and recognizes any gains or losses through other income, net in its consolidated statement of operations. The Company recognized a gain of $ 600 for the year ended December 31, 2024 related to the 2025 Additional Consideration True-up. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +F-32 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +10. License, Acquisitions and Other Agreements (Continued) +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, the Company issued to Knopp a warrant (the “Warrant”) to purchase 294,195 Company common shares at a purchase price per share of $ 67.98 , subject to certain specified development milestones and the Company achieving a specified market capitalization. Refer to Note 6, "Shareholders' Equity" for further discussion. +The Company has not recorded any of the remaining contingent consideration payments to Knopp as a liability in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2024. +Pyramid Acquisition +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated January 7, 2024 ("the Pyramid Agreement"). In consideration for the Pyramid acquisition, Biohaven made an upfront payment of 255,794 Company common shares, valued at approximately $ 10,894 . +The Company accounted for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, IPR&D. The IPR&D asset has no alternative future use and relates primarily to BHV-1510. There was no material value assigned to any other assets or liabilities acquired in the acquisition. As such, the upfront payment discussed above was recorded as a charge to R&D expense in the accompanying consolidated statements of operations during the three months ended March 31, 2024. +As of December 31, 2024, under the Pyramid Agreement, the Company has remaining success-based payments comprised of (i) up to $ 5,000 based on developmental and regulatory milestones for the lead asset, BHV-1510 (formerly known as PBI-410), (ii) up to an additional $ 30,000 based on developmental and regulatory milestones for a second asset (formerly known as PBI-200) and (iii) up to $ 40,000 for commercial sales-based milestones of BHV-1510. Contingent developmental and regulatory milestone payments may be paid in cash or Biohaven common shares at the election of Biohaven and commercial sales-based milestones are to be made in cash. +The Company has not recorded any of the remaining contingent consideration payments as a liability in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2024. +During the first quarter of 2024, the Company recorded $ 5,689 of R&D expense in the consolidated statement of operations for a developmental milestone which became due under the Pyramid Agreement, to be paid in 98,129 common shares of the Company. See Note 6, "Shareholders' Equity" for discussion of common shares issued to as part of the Pyramid Agreement. +11. Commitments and Contingencies +All consideration paid by the Former Parent in association with the following agreements, certain of which were assigned by the Former Parent to the Company in connection with the Spin-Off, during the periods prior to the Separation is recorded in the consolidated financial statements of the Company. +Lease Agreements +The Company's leases primarily consist of lab and office space for use in its operations. It's leases generally have initial lease terms of 1 to 10 years, some of which include options to extend for up to 5 to 10 years or on a month-to-month basis. As of December 31, 2024, none of the Company's lease terms included the extension option as the Company has determined that it is unlikely to exercise the extension option. For periods prior to Separation, lease costs were allocated to the Company based on a proportional cost allocation method. Actual operating lease cost and allocated operating lease cost for periods prior to Separation was $ 5,884 , $ 5,874 and $ 1,158 for the years ended December 31, 2024, 2023 and 2022, respectively. +The Company currently has one short-term real estate lease with immaterial lease expense. The Company had immaterial sublease income and there are no sale-leaseback transactions. Certain of the Company’s lease agreements contain variable lease payments that are adjusted for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. +F-33 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. Commitments and Contingencies (Continued) +The following table summarizes supplemental cash flow information: +Years Ended December 31, +2024 2023 2022 +Right-of-use assets obtained in exchange for new operating lease liabilities +$ 8,492 $ — $ 31,342 +Right-of-use asset obtained in exchange for modified operating lease liability +$ 456 $ — $ — +Operating cash flows paid for operating leases were $ 5,114 , $ 4,854 and $ 780 for the years ended December 31, 2024, 2023 and 2022. +Supplemental balance sheet information related to leases is as follows: +In thousands, except remaining lease term and discount rate December 31, 2024 December 31, 2023 +Assets +Other non-current assets +$ 36,391 $ 31,385 +Liabilities +Other current liabilities $ 3,802 $ 3,308 +Long-term operating lease liability +32,782 27,569 +$ 36,584 $ 30,877 +Weighted average remaining lease term (in years) 7.94 8.21 +Weighted average discount rate 7.59 % 6.47 % +The following table summarizes maturities of operating lease liabilities as of December 31, 2024: +Operating leases +2025 $ 6,135 +2026 6,183 +2027 5,844 +2028 5,325 +2029 5,485 +Thereafter 20,332 +Total lease payments 49,304 +Less: imputed interest ( 12,720 ) +Total lease liabilities $ 36,584 +Pittsburgh Centre Avenue Lease Agreement +In March 2024, the Company entered into a lease agreement in Pittsburgh, Pennsylvania for lab space (the "Pittsburgh Centre Avenue Lease"), which will be used to support the research and development of the Company's ion channel platform and replace the Company's current operating lease in Pittsburgh. The lease is expected to commence in mid 2025 after substantial completion of building improvements to lessor assets, and has a term of 122 months, with an option to extend for one additional period of 60 months. The Company expects to record the Pittsburgh Centre Avenue Lease as an operating lease. The Company has annual commitments relating to the Pittsburgh Centre Avenue Lease ranging from $ 1,859 to $ 2,373 , excluding any additional tenant improvement allowance that would increase the base rent. +Research Commitments +The Company has entered into agreements with several CROs to provide services in connection with the Company’s preclinical studies and clinical trials. As of December 31, 2024, the Company had no research commitments in excess of one year. +F-34 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. Commitments and Contingencies (Continued) +Indemnification Agreements +In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company’s amended and restated memorandum and articles of association also provide for indemnification of directors and officers in specific circumstances. To date, the Company has not incurred any material costs as a result of such indemnification provisions. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2024 or December 31, 2023. +License, Acquisitions, and Other Agreements +The Company has entered into license, developmental, and acquisition agreements with various parties under which it is obligated to make contingent and non-contingent payments. See Note 10, "License, Acquisitions and Other Agreements," for additional details. +Other Agreements +On January 1, 2021, the Company entered into a consulting services agreement (the "Moda Agreement") with Moda Pharmaceuticals LLC ("Moda") to further the scientific advancement of technology, drug discovery platforms (including the technology licensed under the Yale MoDE Agreement), product candidates and related intellectual property owned or controlled by the Company. +Under the Moda Agreement, the Company agreed to make success-based payments based on developmental, regulatory and commercial milestones. The Moda Agreement has a term of four years and may be terminated earlier by the Company or Moda under certain circumstances including, for example, the Company's discontinuation of research on the MoDE platform or default. In August 2023, the Company entered into an amendment to the Moda Agreement with Moda. As of December 31, 2024, under the Moda Agreement, as amended, the Company had remaining contingent development, regulatory approval, and commercial milestone payments of up to $ 31,245 , $ 22,000 , and $ 104,612 , respectively. +For the year ended December 31, 2024, the Company recorded research and development expense of $ 2,125 related to developmental milestones under the Moda Agreement. The Company did not record any material research and development expense or make any milestone payments related to the Moda Agreement for the years ended December 31, 2023 and 2022. +Legal Proceedings +From time to time, in the ordinary course of business, the Company is subject to litigation and regulatory examinations as well as information gathering requests, inquiries and investigations. As of December 31, 2024, there were no matters which would have a material impact on the Company’s financial results. +12. Income Taxes +As a company incorporated in the British Virgin Islands (“BVI”), the Company is principally subject to taxation in the BVI. Under the current laws of the BVI, the Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI. +The Company, including the Former Parent for periods prior to the Separation, has historically outsourced all of the research and clinical development for its programs under a master services agreement with Biohaven Pharmaceuticals, Inc. (“BPI”). As a result of providing services under this agreement, BPI was profitable during the years ended December 31, 2024, 2023 and 2022. A similar arrangement is also in place for the Company's subsidiary, Biohaven Biosciences +F-35 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Income Taxes (Continued) +Ireland Limited ("BBIL"). The Companies are subject to taxation in the United States and Ireland, respectively, and the Company's tax provision includes the effects of consolidating the results of operations of BPI and BBIL. +At December 31, 2024 and 2023, the Company continued to maintain a full valuation allowance against its net deferred tax assets, which are comprised primarily of net operating loss carryforwards, research and development tax credit carryforwards and capitalized research and development deductions, based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized. The Company will continue to evaluate the need for a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. +The Company recorded an income tax provision during the year ended December 31, 2024 of $ 735 , an income tax benefit during the year ended December 31, 2023 of $ 1,383 , and an income tax provision during the year ended December 31, 2022 of $ 438 , which primarily represent Federal and state taxes related to the Company’s profitable operations in the U.S. and Ireland. +Loss before provision for income taxes consisted of the following: +Year Ended December 31, +2024 2023 2022 +BVI $ ( 885,508 ) $ ( 424,647 ) $ ( 598,046 ) +Foreign 39,821 15,096 28,205 +Loss before provision for income taxes $ ( 845,687 ) $ ( 409,551 ) $ ( 569,841 ) +The provision for income taxes consisted of the following: +Year Ended December 31, +2024 2023 2022 +Current income tax provision (benefit): +BVI $ — $ — $ — +Foreign 735 ( 1,383 ) 438 +Total current income tax provision (benefit) +735 ( 1,383 ) 438 +Deferred income tax provision (benefit): +BVI — — — +Foreign — — — +Total deferred income tax provision (benefit) — — — +Total provision (benefit) for income taxes +$ 735 $ ( 1,383 ) $ 438 +A reconciliation of the BVI statutory income tax rate of 0% to the Company's effective income tax rate is as follows: +Year Ended December 31, +2024 2023 2022 +BVI statutory income tax rate 0.0 % 0.0 % 0.0 % +Foreign tax rate differential 0.8 1.3 ( 12.6 ) +Tax credits ( 3.3 ) ( 12.7 ) ( 5.8 ) +Change in valuation allowance 2.7 10.6 18.5 +Other ( 0.1 ) 0.5 0.0 +Effective income tax rate 0.1 % ( 0.3 ) % 0.1 % +The Company's income tax provision primarily represents Federal and state taxes related to the profitable operations of its subsidiaries in the United States and Ireland. The income tax benefit recorded during the year ended December 31, 2023 was primarily attributable to the adoption of the guidance contained in a Notice of Proposed Rule Making issued by the United States Internal Revenue Service during the third quarter of 2023 ("the Notice"). The Notice +F-36 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Income Taxes (Continued) +indicates that BPI has the ability to immediately deduct R&D expenditures which were incurred in the U.S. and reimbursed by its foreign parent. Previously these expenditures were capitalized, as was generally required under the Tax Cuts and Jobs Act, which was effective for tax years beginning on or after January 1, 2022. Based on this guidance and its application to the Company's specific facts, Biohaven deducted these expenditures on its 2022 tax return, substantially reducing its taxable income in the U.S. and capitalized R&D expenditures, resulting in an increase to its federal net operating loss carryforward of $ 598,679 that can be carried forward indefinitely. The Company's adoption of the Notice in 2023 also increased its State net operating losses, resulting in the reversal of $ 800 of state income taxes recorded in 2022. +Net deferred tax assets (liabilities) consisted of the following: +December 31, +2024 2023 +Deferred tax assets: +Foreign net operating loss carryforwards $ 144,179 $ 138,480 +Tax credits 140,201 111,660 +R&D capitalization 5,891 887 +Other 21,878 15,944 +Valuation allowance ( 303,731 ) ( 259,448 ) +Total deferred tax assets 8,418 7,523 +Deferred tax liabilities: +Other +( 8,418 ) ( 7,523 ) +Total deferred tax liabilities ( 8,418 ) ( 7,523 ) +Net deferred tax asset (liability) $ — $ — +As of December 31, 2024 and 2023, the Company had foreign net operating loss carryforwards of $ 890,792 and $ 847,582 , respectively. As of December 31, 2024 and 2023, the Company had federal and state research and development and orphan drug credits of $ 140,201 and $ 111,660 , respectively, which begin to expire in 2035. +Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2024 and 2023 were due primarily to the acquisition of Pyramid and offset by the utilization of net operating losses and tax credit carryforwards. The change in the valuation allowance for deferred tax assets during the year ended December 31,2022 was due primarily to generation of nondeductible research expenses and tax credit carryforwards. +Year Ended December 31, +2024 2023 2022 +Valuation allowance as of beginning of year $ 259,448 $ 216,061 $ 54,224 +Increases recorded to Purchase Accounting and Net Investment from Former Parent 21,538 — 50,905 +Increases recorded to income tax provision 22,745 43,387 110,932 +Valuation allowance as of end of year $ 303,731 $ 259,448 $ 216,061 +The Company followed the authoritative guidance for recognizing and measuring uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. +F-37 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Income Taxes (Continued) +The beginning and ending amounts of unrecognized tax benefits reconciles as follows: +Year Ended December 31, +2024 2023 2022 +Beginning of period balance $ 2,200 $ 2,200 $ 3,800 +Increase for tax positions taken during the current period 100 — — +Decrease recorded to Purchase Accounting and Net Investment from Former Parent +— — ( 1,600 ) +End of period balance $ 2,300 $ 2,200 $ 2,200 +The unrecognized tax benefits relate primarily to issues common among multinational corporations. All of these unrecognized tax benefits, if recognized, would impact the Company's effective income tax rate. The Company's policy is to record interest and penalties related to income taxes, if any, as part of its income tax provision. As of December 31, 2024 and 2023, the total amount of accrued interest and penalties was not significant. +BPI, Kleo and Pyramid file income tax returns in the U.S. and certain state jurisdictions. The U.S. federal and state income tax returns are generally open to tax examinations for the tax year ended December 31, 2021 and subsequent years. BPI and Kleo are under exam by the State of Connecticut for the tax years December 31, 2017 and forward. +13. Related Party Transactions +Related Party Agreements +License Agreements with Yale +On September 30, 2013, the Company entered into the Yale Agreement with Yale (see Note 10, "License, Acquisitions and Other Agreements," for details). The Company’s Chief Executive Officer is one of the inventors of the patents that the Company has licensed from Yale and, as such, is entitled to a specified share of the glutamate product-related royalty revenues that may be received by Yale under the Yale Agreement. +In January 2021, the Company entered into the Yale MoDE Agreement with Yale (see Note 10, "License, Acquisitions and Other Agreements," for details). Under the license agreement, the Company acquired exclusive, worldwide rights to Yale's intellectual property directed to its MoDE platform. Under the Yale MoDE Agreement, the Company entered into the Yale MoDE SRA (see Note 10, "License, Acquisitions and Other Agreements," for details), which included funding of up to $ 4,000 over the life of the agreement. In May 2023, the Company entered into an additional sponsored research agreement with Yale University (the "2023 Yale SRA"), which includes funding of up to $ 612 over the life of the agreement. +For the years ended December 31, 2024, 2023 and 2022, the Company recorded $ 1,864 , $ 2,942 and $ 3,420 , respectively, in research and development expense, including certain administrative expenses, related to the Yale MoDE Agreement and the Yale MoDE SRA, the Yale Agreement, and the 2023 Yale SRA (collectively, the "Yale Agreements"). As of December 31, 2024, the Company did not owe any material amounts to Yale. +Relationship with the Former Parent +Upon the effectiveness of the Separation on October 3, 2022, the Former Parent ceased to be a related party to the Company and accordingly, no related party transactions or balances are reported subsequent to October 3, 2022. +On October 3, 2022, the Company entered into agreements with the Former Parent in connection with the Separation, including a Transition Services Agreement. For a full discussion of agreements entered into with the Former Parent, refer to Note 14, "Related Party Transactions" to the consolidated financial statements included in the 2023 Form 10-K. The Company did not record any material income for transition services provided to the Former Parent during the year ended December 31, 2024. For the years ended December 31, 2023 and 2022 the Company recorded $ 9,250 and $ 4,024 , respectively, in other income reflecting transition services provided to the Former Parent. +Relationship with the Former Parent prior to the Separation +Pursuant to the Distribution Agreement, immediately prior to the Separation the Former Parent made a cash contribution to the Company which resulted in a cash balance of approximately $ 257,799 as of October 3, 2022. +F-38 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +13. Related Party Transactions (Continued) +Prior to the Separation, the Company did not historically operate as a standalone business and the consolidated financial statements are derived from the consolidated financial statements and accounting records of the Former Parent. The following disclosure summarizes activity between the Company and the Former Parent prior to the Separation, including the affiliates of the Former Parent that were not part of the Spin-Off. +Cost Allocations +The consolidated financial statements for periods prior to the Separation reflect allocations of certain expenses from the financial statements of the Former Parent, including research and development expenses and general and administrative expenses. These allocations include, but are not limited to, executive management, employee compensation and benefits, facilities and operations, information technology, business development, financial services (such as accounting, audit, and tax), legal, insurance, and non-cash share-based compensation. +For periods prior to the Separation, these allocations to the Company are reflected in the consolidated statement of operations as follows: +Year Ended December 31, +2022 +Research and development $ 146,521 +General and administrative 82,744 +Total $ 229,265 +Management believes these cost allocations are a reasonable reflection of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, including the chosen organizational structure, what corporate functions the Company might have performed directly or outsourced and strategic decisions the Company might have made in areas such as executive management, legal and other professional services, and certain corporate overhead functions. +Non-Cash Share-Based Compensation +As discussed in Note 8, "Non-Cash Share-Based Compensation," prior to the Separation, Biohaven employees participated in the Former Parent’s non-cash share-based compensation plans, the costs of which, including those related to the Acceleration, have been allocated to the Company and recorded in research and development and general and administrative expenses in the consolidated statements of operations for periods prior to the Separation. +F-39 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +13. Related Party Transactions (Continued) +Net Transfers From Former Parent +Net transfers from Former Parent represent the net effect of transactions between the Company and the Former Parent prior to the Separation. The components of net transfers from Former Parent are as follows: +Year Ended December 31, +2022 (1) +General financing activities $ 399,231 +Corporate cost allocations, excluding non-cash share-based compensation 49,899 +Net transfers from Former Parent as reflected in the Consolidated Statement of Cash Flows 449,130 +Non-cash share-based compensation 179,367 +Issuance of Former Parent common shares to repurchase non-controlling interest in a subsidiary 60,000 +Issuance of Former Parent common shares as payment for IPR&D asset acquisition 58,747 +Issuance of Former Parent common shares as payment for license and consulting agreements 1,779 +Separation related adjustments (2) +27,811 +Other non-cash adjustments ( 204 ) +Net transfers from Former Parent as reflected in the Consolidated Statement of Changes in Equity $ 776,630 +(1) The amounts for the year ended December 31, 2022 represent activity through the date of Separation. +(2) Refer to Note 1, "Nature of the Business and Basis of Presentation," for further details on separation related adjustments. +14. Segment Information +The Company manages its operations as a single segment, focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. Our Chief Executive Officer (“CEO”), as the Company's chief operating decision maker, manages and allocates resources at a consolidated level. +Our CEO uses net loss that is also reported on the consolidated statement of operations as net loss to assess performance and decide how to allocate resources. The CEO uses net loss to evaluate the allocation of resources across functions, therapeutic areas, and research and development projects in line with our overarching long-term company-wide strategic goals as well as to monitor budget versus actual results. +The accounting policies of the Company's single operating segment are the same as those described in the summary of significant accounting policies as described in Note 2. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. In 2024 and 2023, materially all the Company's long-lived assets were held in the United States. Expenditures for the addition of long-lived assets are reported on the consolidated statements of cash flows as purchases of property and equipment. +F-40 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +14. Segment Information (continued) +Additional information about segment profit or loss and significant segment expenses is as follows: +Year Ended December 31, +2024 2023 2022 +Direct R&D program expense +BHV-4157 (Troriluzole) $ 63,983 $ 73,080 $ 58,769 +BHV-2000 (Taldefgrobep Alfa) 59,710 40,870 16,799 +BHV-7000 & BHV-7010 (Kv7) 136,422 47,327 131,956 +BHV-2100 (TRPM3 Antagonist) 29,044 12,865 8,255 +BHV-8000 (TYK2/JAK1) 12,697 39,025 — +BHV-1300 (IgG Degrader) 30,078 22,239 — +BHV-1310 (IgG Degrader) 13,341 1,962 — +BHV-1400 (IgA Degrader) 19,572 1,810 — +BHV-1600 (β1-AR AAB Degrader) 14,650 254 — +BHV-1510 (Trop2) 28,540 — — +BHV-1530 (FGFR3) 14,554 — — +Other R&D program expense 2,821 5,615 21,207 +Preclinical research programs R&D Expense +57,181 35,911 18,116 +R&D personnel expense (excluding share-based compensation) (1) +73,644 60,058 53,743 +R&D Share-based compensation expense +42,594 15,985 116,379 +R&D Knopp amendment expense +171,850 — — +G&A personnel expense (excluding share-based compensation) (1) +24,894 21,087 20,164 +G&A Share-based compensation expense +29,369 12,802 77,177 +Other segment items (2) +60,167 45,161 45,367 +Non-operating (income) expense +( 39,424 ) ( 26,500 ) 1,909 +Provision (benefit) for income taxes +735 ( 1,383 ) 438 +Segment net loss +846,422 408,168 570,279 +Reconciliation of profit or loss +Adjustments and reconciling items +— — — +Consolidated net loss +$ 846,422 $ 408,168 $ 570,279 +(1) Personnel expense includes employee payroll, bonus, and employee benefits for medical care, retirement, insurances and other. +(2) Other segment items included in Segment net loss include unallocated non-program R&D expense, legal, accounting and other professional service fees, rent and utilities expense, depreciation, and other corporate expenses. +F-41 \ No newline at end of file diff --git a/raw/filings/0001935979/2024/0001935979-25-000015/filing_metadata.csv b/raw/filings/0001935979/2024/0001935979-25-000015/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..1c17b02812c270b52ccb54e745ce8804aa8ef08c --- /dev/null +++ b/raw/filings/0001935979/2024/0001935979-25-000015/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935979,BHVN,Biohaven Ltd.,2024,10-K,2025-03-03,2024-12-31,2025-03-03T21:25:21.000Z,0001935979-25-000015,bhvn-20241231.htm,10-K,48638616,1,1,https://www.sec.gov/Archives/edgar/data/1935979/000193597925000015/bhvn-20241231.htm,https://www.sec.gov/Archives/edgar/data/1935979/000193597925000015/ diff --git a/raw/filings/0001935979/2024/0001935979-25-000015/item1.txt b/raw/filings/0001935979/2024/0001935979-25-000015/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..36dcad2cc2aca374405ce452154e183b132b7e7c --- /dev/null +++ b/raw/filings/0001935979/2024/0001935979-25-000015/item1.txt @@ -0,0 +1,539 @@ +Item 1. Business +Overview +Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. Our extensive clinical and preclinical programs include Kv7 ion channel modulation for epilepsy and mood disorders; extracellular protein degradation for immunological diseases; Transient Receptor Potential Melastatin 3 ("TRPM3") antagonism for migraine and neuropathic pain; Tyrosine Kinase 2/Janus Kinase 1 ("TYK2/JAK1") inhibition for neuroinflammatory disorders; glutamate modulation for obsessive-compulsive disorder (“OCD”) and spinocerebellar ataxia ("SCA"); myostatin inhibition for neuromuscular and metabolic diseases, including spinal muscular atrophy ("SMA") and obesity; and antibody recruiting bispecific molecules ("ARMs") and antibody drug conjugates ("ADCs") for cancer. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution (the “Distribution”) to holders of its common shares of all of the outstanding common shares of Biohaven Ltd. and the spin-off of Biohaven Ltd. from the Former Parent (the “Spin-Off”) described in Biohaven’s Information Statement attached as Exhibit 99.1 to Biohaven’s Registration Statement on Form 10, as amended (Reg. No. 001-41477). Collectively, we refer to the Distribution and Spin-Off throughout this Annual Report on Form 10-K ("Annual Report") as the "Separation." As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange (the "NYSE") on October 4, 2022. Where we describe historical business activities in this report, we do so as if the Former Parent’s activities related to such assets and liabilities had been performed by the Company. +Product Candidates +The following table summarizes our programs for our product candidates. We hold the worldwide rights to substantially all of our product candidates. +Glutamate Modulation Platform +The most advanced product candidate from our glutamate receptor antagonist platform is troriluzole (previously referred to as trigriluzole and BHV-4157), which is currently in two Phase 3 trials in OCD and, for which our new drug +1 +Table of Contents +application (“NDA”) in Spinocerebellar Ataxia and marketing authorisation application ("MAA") have been accepted and are currently under review by the U.S. FDA and European Medicines Agency ("EMA"), respectively. Troriluzole is also being evaluated by the Global Coalition for Adaptive Research ("GCAR") as part of Glioblastoma Adaptive Global Innovative Learning Environment - NCT03970447 ("GBM AGILE"), a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent glioblastoma ("GBM"). Other product candidates include BHV-5500, an antagonist of the glutamate N-methyl-D-aspartate (“NMDA”) receptor and its oral prodrug BHV-5000. +Glutamate is an important neurotransmitter present in over 90% of all brain synapses. Glutamate plays an essential role in normal brain functioning and its levels must be tightly regulated. Abnormalities in glutamate levels can disrupt nerve health and communication, and in extreme cases may lead to nerve cell death. Nerve cell dysfunction and death leads to devastating diseases, including ataxia, amyotrophic lateral sclerosis (“ALS”) and other neurodegenerative disorders. Glutamate clearance is necessary for proper synaptic activation and to prevent neuronal damage from excessive activation of glutamate receptors. Excitatory amino-acid transporters (“EAATs”) help regulate glutamate clearance, and are responsible for most of the glutamate uptake within the brain. +The mechanism of action of our glutamate platform is depicted below. Glutamate must be tightly regulated once released from a pre-synaptic neuron. It acts as a signaling neurotransmitter to stimulate the post-synaptic neuron via glutamate receptors (e.g., NMDA, alpha-amino-3-hydroxy-5-methyl-4-isoxazole-propionic acid (“AMPA”) or Kainate receptors). Glial cells surrounding the synaptic junction are predominantly responsible for clearing glutamate through transporters, specifically the EAATs. There are five distinct types of glutamate transporters. The figure below depicts the areas of modulation that are affected by our product candidates. +Adapted from Glutamate abnormalities in obsessive compulsive disorder: Neurobiology, pathophysiology, and treatment, C. Pittenger, +M. Bloch, and K. Williams +(1) As depicted in the glial cell to the right in the figure, troriluzole increases the activity and expression of the EAATs to increase the clearance of glutamate released from the pre-synaptic neuron. Troriluzole also inhibits presynaptic ion channels that may inhibit the release of glutamate from presynaptic neurons. +(2) As depicted in the postsynaptic neuron to the bottom of the figure, BHV-5500 blocks glutamate signaling that is mediated by post-synaptic NMDA receptors. Modulating glutamate also has the potential to be neuroprotective and increase the release of neurotrophic factors, including brain derived neurotrophic factor (“BDNF”) which are endogenous molecules that help to support the survival of existing neurons, and encourage the growth and differentiation of new neurons and synapses. +2 +Table of Contents +Glutamate Transporter Modulation +Abnormal glutamate release or dysfunction of glutamate clearance can cause overstimulation of glutamate receptors which can lead to a dangerous neural injury called excitotoxicity, which has been associated with a wide range of neurodegenerative diseases. The FDA has approved anti-excitotoxicity drugs that act on the glutamatergic system by blocking NMDA receptors, such as memantine (“Namenda”) for Alzheimer’s disease, lamotrigine (“Lamictal”) for epilepsy and bipolar disorder and riluzole (“Rilutek”) for ALS. Although these drugs show the therapeutic potential of glutamate receptor antagonists and other glutamate modulators in the treatment of a range of neurological diseases, these approved drugs have serious side effects and other drawbacks that we have attempted to solve with our development of troriluzole. +Troriluzole +Troriluzole is a new chemical entity (“NCE”) and tripeptide prodrug of the active metabolite, riluzole. Based on its mechanism of action, preclinical data and clinical studies, troriluzole has potential for therapeutic benefit in a range of neurological and neuropsychiatric illnesses. Initial development has focused on its use in treating SCA, an orphan neurological indication that currently has no approved drug therapies and for which the active metabolite, riluzole, has demonstrated preliminary efficacy in two prior randomized controlled trials conducted by third parties. +Ristori et al. reported a randomized, double-blind, placebo-controlled trial of 40 patients presenting with cerebellar ataxias of diverse etiologies, including SCA. Subjects were randomized to receive 8 weeks treatment with either placebo or riluzole (50 mg Riluzole tablets, twice daily). Statistically significant improvement in the riluzole treated group was demonstrated on the International Cooperative Ataxia Rating Scale (“ICARS”). The number of patients with a 5-point ICARS drop was higher in the riluzole group than in the placebo group after 4 weeks (9/19 vs 1/19; odds ratio [“OR”] =16.2; 95% confidence interval [“CI”] 1.8–147.1) and 8 weeks (13/19 vs 1/19; OR = 39.0; 95% CI 4.2– 364.2). The mean change in the riluzole group ICARS after treatment revealed a decrease (p < 0.001) in the total score (-7.05 [4.96] vs 0.16 [2.65]). +Romano et al. described results of a second randomized, placebo-controlled trial in subjects diagnosed with a hereditary ataxia (including SCAs) randomized to receive 12 months of treatment with either placebo or riluzole (50 mg, twice daily). 60 patients were randomized. Statistically significant improvement in the riluzole treated group was demonstrated on the Scale for the Assessment of Ataxia (“SARA”). The proportion with decreased SARA score was 14 (50%) of 28 patients in the riluzole group versus three (11%) of 27 in the placebo group (OR 8.00, 95% CI 1.95– 32.83; p=0.002). +We acquired troriluzole as well as an estate of over 300 prodrugs from ALS Biopharma, LLC (“ALS Biopharma”) and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”). A prodrug is a compound that, after administration, is metabolized in the body into an active drug. Troriluzole is actively transported by virtue of recognition of its tripeptide moiety by the PepT1 transporter in the gut and is responsible for the increased bioavailability of the drug. Once inside the body, the prodrug, troriluzole is cleaved by enzymes in the blood to the parent, riluzole. To mitigate the limitations of riluzole, several classes of prodrugs were designed, synthesized, and evaluated in multiple in vitro stability assays that predict in vivo drug levels. Troriluzole is a third generation of prodrug development and the product of six years of intensive chemistry efforts. +Riluzole is currently only indicated for ALS and has a number of non-desirable attributes that have limited its clinical use. Key limitations of riluzole include poor oral bioavailability, difficulty swallowing due to tablet formulation, food reducing efficacy, liver toxicity, pharmacokinetic variability, and oral numbness. +The prodrug design and selected administration pathway that was pursued with troriluzole is intended to address all of these limitations of riluzole. In addition, a prodrug can be engineered to enhance absorption and protect from diminished absorption when taken with meals. The troriluzole preclinical development strategy was based on optimizing in vivo and in vitro features, such as stability in gastrointestinal and stomach fluids; stability in liver microsomes; limiting off-target effects (particularly liver effects); metabolic cleavage in the plasma to release the active moiety; and enhanced gastrointestinal absorption properties. In in vivo studies in rodents, the intended benefits of this optimization program were observed, including delayed peak concentrations and greater exposure. +After six years of chemistry development and preclinical testing, the resulting lead prodrug from the chemistry program was troriluzole. Troriluzole is chemically comprised of riluzole linked via an amide bond to a tripeptide that is a substrate for PepT1 and which contributes to its improved bioavailability. The tripeptide moiety is cleaved by plasma aminopeptidases. We believe that the estate of compounds we acquired, combined with our internally developed intellectual property, will provide a significant protection for our innovations. The safety and tolerability of troriluzole has now been demonstrated in approximately 2000 subjects in early- and late-stage clinical studies. +3 +Table of Contents +Our Clinical Program for Troriluzole +Phase 1 Studies with Troriluzole +In July 2016, we began a Phase 1 randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability and pharmacokinetics (“PK”) of single and multiple ascending doses of troriluzole in normal healthy volunteers. 58 healthy volunteers were dosed with troriluzole and 20 were dosed with placebo. Both single and multiple doses up to 200 mg were well tolerated without evidence of novel, clinically significant safety signals or lab abnormalities. There was no apparent dose response regarding the frequency or severity of adverse events (“AEs”). In the blinded group, including subjects treated with both placebo and troriluzole, the most common AEs were headache (five subjects, two with moderate severity and three with mild severity) and constipation (two subjects). No pattern of AEs or lab abnormalities were apparent to provide specific cautions or to suggest cautions beyond what is appropriate for the active metabolite, riluzole. Commencing in December 2017, an additional single and multiple dose study was conducted to assess the safety, tolerability and PK of a 280 mg dose in 10 healthy young and elderly volunteers (eight active; two placebo). The results supported adequate safety and tolerability and yielded mean exposures comparable to what would be expected from a 200 mg dose, a dose that has been safely used in clinic populations and associated with efficacy in a range of disorders in randomized controlled trials (Huntington Study Group Neurology 2003; Lacomblez Neurology 1996). In addition, a bioequivalence study was conducted to bridge a commercial formulation with a Phase 2/3 formulation in 32 healthy volunteers. The commercial formulation was well-tolerated and provided bioequivalent exposure with the Phase 2/3 formulation. +Troriluzole for SCA +Spinocerebellar Ataxias ("SCAs") are a group of ultra-rare, dominantly inherited neurodegenerative disorders predominantly characterized by atrophy of the cerebellum, brainstem, and spinal cord. The disease course of SCA is one of relentless progression over years and inevitably leads to clinical deterioration of motor function, gait imbalance with frequent falling, severe speech impairment, swallowing difficulties, and premature death. SCAs are thought to be pathogenetically related but disease course and brain region involvement are known to vary between the different genotypes. SCA affects approximately 15,000 people in the United States and 24,000 in Europe and the United Kingdom. SCA3, also known as Machado-Joseph disease, is the most common genotype and accounts for approximately 30% to 50% of SCAs worldwide. Currently, there are no approved symptomatic or neuroprotective treatments for SCA. +Based on the results of our Phase 1 trial with troriluzole and two third-party academic trials (Ristori et al 2020, published in Neurology in 2010 and Romano et al 2015, published in The Lancet in 2015) that have shown preliminary efficacy of riluzole in cerebellar ataxias, we advanced troriluzole into development for SCA. Initially, we conducted a Phase 2b/3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 8 weeks in subjects with SCA (Study BHV4157-201). In October 2017, we announced that troriluzole at a dose of 140 mg once daily (“QD”) did not differentiate from placebo on the primary endpoint of the mean change from baseline on the SARA total score after 8 weeks of treatment. After eight weeks of treatment, troriluzole treated subjects (n = 64) demonstrated an improvement of –0.81 points [95% CI: –1.4 to –0.2] on the SARA versus –1.05 points [95% CI: –1.6 to –0.4] improvement in placebo-treated (n = 68), p-value = 0.52. In this trial, we observed a favorable safety and tolerability profile of troriluzole, with no drug-related serious adverse events (“SAEs”) and low discontinuation rates due to AEs. During open-label treatment over the open-label extension phase, however, troriluzole did show slowing of disease progression in troriluzole-treated subjects in contrast to the measurable decline expected as compared to a matched cohort of untreated patients from the U.S. natural history study (Clinical Research Consortium for the Study of Cerebellar Ataxia (“CRC-SCA”)). +Based on our learnings from the proof-of-concept Study BHV4157-201, including analyses from the open-label extension phase, we advanced troriluzole into a pivotal Phase 3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 48 weeks in subjects with SCA (Study BHV4157-206). Randomization was stratified by genotype (consisting of these three groupings: SCA1 and SCA2; SCA3; and SCA6, SCA7, SCA8, and SCA10) in order to ensure balance within each of these subgroups. We enriched this trial with specific SCA genotypes, extended the treatment period of this trial to 48 weeks, implemented the use of a modified SARA scale (“f-SARA”), and increased the dose of troriluzole to 200 mg QD. Notably, the f-SARA is a novel, 16-point scale developed in collaboration with FDA and key opinion leaders as the primary outcome measure for this trial; the scale was designed to limit subjectivity of the scale and focus on functional aspects of the disease so that significant changes would reflect a clinically meaningful change in function. +In May 2022, the Company announced top-line results from the Phase 3 clinical trial (Study BHV4157-206) evaluating the efficacy and safety of its investigational therapy, troriluzole, in adult patients with SCA. The primary endpoint, change from baseline to week 48 on the f-SARA, did not reach statistical significance in the overall SCA population as there was less than expected disease progression in the placebo arm over the course of the study. In the overall study population (n = 213), the troriluzole and placebo groups each had mean baseline scores of 4.9 on the f-SARA and the two groups showed minimal change at the 48-week endpoint with f-SARA scores of 5.1 and 5.2, respectively. Preliminary post hoc analysis of +4 +Table of Contents +efficacy measures by genotype suggested a treatment effect in patients with the SCA3 genotype . A risk reduction in falls was also observed in the SCA3 population, as well as across all SCA genotypes . Troriluzole was well tolerated with an adverse event profile similar to placebo. +In May 2023, the Company presented further analysis of Study BHV4157-206 (summarized in the figure below) by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, the most common genotype worldwide, which represented 41% of study participants. In SCA3 subjects, troriluzole 200mg QD demonstrated benefit on the f-SARA compared with placebo at 48 weeks (LS mean treatment difference = -0.56; 95% CI = -1.11, -0.01; p = 0.0450). This genotype analysis was post hoc as the All SCA study population (SCA1, SCA2, SCA3, SCA6, SCA7, SCA8, SCA 10) was the mITT population for the primary analysis. Results for the SCA3 group are based on a model with no covariates with fixed effects for treatment, visit, and visit-by-treatment interaction; p-values are descriptive. +In addition to the beneficial effects observed on the f-SARA, the forest plot below demonstrates a consistent treatment benefit of troriluzole in SCA3 genotype subjects across multiple prespecified primary, secondary, and +5 +Table of Contents +exploratory study outcome measures. The SCA3 genotype analysis of the clinician- and patient-rated endpoints in the table represent all of the prespecified endpoints in the study protocol. +As shown in the figure below, safety data from Study BHV4157-206 showed that troriluzole-treated subjects showed a substantial risk reduction in falls in the All SCA and SCA3 genotype study populations. Treatment with troriluzole for 48 weeks reduced the risk of fall events by approximately 53% in subjects in the overall (All SCA) population (p = 0.005), by approximately 54% in subjects in the SCA3 population (p = 0.023), and by approximately 68% in subjects with SCA3 who were ambulatory (i.e., baseline Gait 1 or 2) (p = 0.009). This analysis, demonstrating that subjects who were more ambulatory with less severe disease at baseline were more likely to show a benefit from troriluzole, is consistent with the early treatment paradigm for other neurodegenerative diseases. +Two independent natural history cohorts for SCA, one in the U.S. (CRC-SCA) and one in Europe (EUROSCA), have characterized disease progression in this genetically defined neurodegenerative disorder. A Matching Adjusted Indirect Comparison (“MAIC”) was performed to match natural history subjects to subjects in BHV4157-206. As demonstrated in the figure below, at years 1, 2, and 3 change from baseline in f-SARA scores was significantly better among troriluzole patients vs the matched natural history referent (combined CRC-SCA and cross-European registry of SCA patients +6 +Table of Contents +(“EUROSCA”) data - all p values ~0.0004). These results were consistent for both SCA3 only and All SCA analyses. Validation metrics from f-SARA confirm that these changes are clinically relevant and meaningful to patients. +As seen in the figure below, an additional comparative study was conducted using OLE data from up to 3 years with subjects from BHV4157-201. Using a matched control pooled from the same two independent natural history studies (U.S. and European), troriluzole-treated All SCA subjects showed clinically relevant benefit compared to expected progression from the external control at 1 year, 2 years, and 3 years. Of note, there was an administrative gap in treatment in BHV4157-201 between the end of the 48-week OLE and the resumption of treatment at the start of the 96-week period. This gap was observed to result in a decline in f-SARA scores. However, after resumption of treatment patients re-stabilized (did not progress) resulting in the estimation of compelling treatment effects at years 2 and 3. +Given these findings and the debilitating nature of SCA, in May 2023 we announced that we submitted a New Drug Application ("NDA") to the FDA for troriluzole for the treatment of SCA3. In July 2023, the FDA informed us that it would not review the submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. In followup to the regulatory decision on the NDA application, we held followup meetings with the FDA regarding the SCA data. We had constructive dialogue with the FDA regarding our SCA development program and potential future data analyses to address regulatory concerns in the previously issued refuse-to-file decision on the NDA application for SCA3. +7 +Table of Contents +In October 2023, the European Medicines Agency ("EMA") informed us that our Marketing Authorization Application ("MAA") for troriluzole (Dazluma) in the treatment of SCA3 was validated and was now under review by EMA's Committee for Medicinal Products for Human Use ("CHMP"). In the fourth quarter of 2024, we completed a clarification meeting with the CHMP Rapporteurs. The MAA documents were subsequently updated with a broader indication to include all SCA genotypes, in light of the new positive BHV4157-206-RWE study data (discussed below). +In September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. The study achieved the primary endpoint (see figure below). +Collectively, data across multiple analyses demonstrate a robust and clinically meaningful slowing of disease progression in SCA patients. These treatment benefits translate into a 50-70% slower rate of decline compared to untreated patients, representing 1.5-2.2 years delay in disease progression over the 3-year study period. Additionally, in a responder sensitivity analysis, disease progression when defined by a 2 point or greater worsening on the f-SARA at 3 years showed an odds ratio ("OR") of 4.1 (95% CI: 2.1, 8.1) for the untreated external control arm versus troriluzole treated subjects (p < 0.0001; pooled analysis). +Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study utilized Phase 3 data and an external control of matched, untreated SCA subjects from the U.S. CRC-SCA in accordance with FDA's Guidance on Real-World Evidence ("RWE") of effectiveness. All endpoints were prespecified, and both the study protocol and statistical analysis plan were submitted to, and reviewed by, FDA prior to topline data analysis. The new analysis doubled the previously available 3 year data with 63 subjects now completing 3 years of treatment with troriluzole and matched to the external control arm. Propensity Score Matching ("PSM") was used to ensure that untreated patients from the CRC-SCA study were rigorously matched to treated patients from Study BHV4157-206 on baseline characteristics. The primary objective was to examine the treatment effects of troriluzole for up to 3 years, by comparing data on the f-SARA from patients treated with troriluzole in Study BHV4157-206 to untreated patients from the natural history study. Troriluzole-treated patients demonstrated statistically significant and sustained benefits at years 1, 2 and 3 on the f-SARA compared to a rigorously matched natural history control. +Additionally, prespecified analyses in the protocol employed a separate, independent natural history control from the European SCA natural history study ("EUROSCA") for global regulatory purposes. Results using the EUROSCA patients, in addition to a pooled analysis using both CRC-SCA and EUROSCA patients, as the external controls were also statistically significant and consistent with the primary efficacy analysis at all timepoints (see figures below). The addition +8 +Table of Contents +of EUROSCA data increased the external control sample size and added to the robustness of the statistically significant treatment differences at years 1, 2, and 3, favoring troriluzole. +Based upon the topline data from Study BHV4157-206-RWE, and previous safety and efficacy data from the troriluzole development program in SCA, we submitted an NDA for the treatment of all SCA genotypes to the FDA in the fourth quarter of 2024. The troriluzole development program has generated the largest clinical trial dataset in SCA and now has follow-up in some patients treated with troriluzole for over 5 years. We previously received both Fast-Track and Orphan drug designation ("ODD") from the FDA, and ODD from the European Medicines Agency ("EMA"), for troriluzole in SCA. An NDA with ODD is eligible for priority FDA review. +In February 2025, the FDA accepted for review our NDA for troriluzole for the treatment of adult patients with SCA and granted priority review. The FDA's decision regarding the NDA is expected during the third quarter of 2025. Based on FDA priority review timelines and if ultimately approved, we are prepared to commercialize troriluzole for SCA in the U.S. in 2025. +Troriluzole for OCD +OCD is a chronic neuropsychiatric disorder characterized by symptoms of obsessions (intrusive thoughts) and compulsions (repetitive behaviors) that can interfere with patients’ functional abilities. According to the National Institute of Mental Health, the 12-month prevalence of OCD is 1% of the U.S. adult population, and approximately half of these cases are characterized as severe. First-line treatment for OCD includes cognitive behavioral therapy, selective serotonin reuptake inhibitors (“SSRIs”) and adjunctive use of atypical antipsychotics. Nonetheless, up to 60% of patients have an inadequate response to conventional intervention strategies and some seek invasive neurosurgical procedures to ameliorate symptoms. +9 +Table of Contents +We are currently developing troriluzole as a potential treatment option for patients suffering from OCD. Despite the significant public health burden, no novel mechanisms of action have been approved by the FDA for OCD in over two decades. The rationale for use of troriluzole in OCD is supported by clinical data with its active metabolite, riluzole, in populations with OCD in open-label and placebo-controlled clinical trials as well as in preclinical, genetic and neuroimaging studies implicating the glutamatergic hyperactivity in the pathogenesis of OCD. +In multiple case studies, the use of riluzole in patients with refractory OCD has commonly been associated with meaningful improvement of symptoms. A small-scale randomized controlled trial in adults with OCD conducted by a third party showed favorable trends for the use of riluzole in an outpatient setting. Another randomized controlled third-party study demonstrated statistically significant therapeutic effects with the adjunctive use of riluzole as compared to adjunctive placebo in 50 adults with refractory OCD. These clinical effects are consistent with findings such as genetic associations of glutamate transporter genes with OCD and increased glutamate concentrations in brain and cerebrospinal fluid of patients with OCD. Taken together, we believed there was a clear rationale for advancement of troriluzole, a prodrug of riluzole, into a Phase 2 proof-of-concept trial in OCD. +We commenced a Phase 2/3 double-blind, randomized controlled trial on the use of troriluzole in adults with OCD in late 2017. Results from the Phase 2/3 trial were announced in June 2020. Troriluzole 200 mg administered once daily as adjunctive therapy in OCD patients with inadequate response to standard of care treatment showed consistent numerical improvement over placebo on the Yale-Brown Obsessive Compulsive Scale (“Y-BOCS”) at all study timepoints (weeks 4 to 12) but did not meet the primary endpoint at week 12. Troriluzole treated subjects (n = 111) had a mean Y-BOCS improvement of -3.4 points from baseline versus -2.9 for placebo-treated (n = 115) subjects [difference -0.5 and p-value = 0.451] at week 4, -5.1 points (n = 96) versus -3.6 for placebo-treated (n = 108) subjects [difference -1.5 and p-value = 0.041] at week 8, and -5.9 points (n = 99) versus -4.9 for placebo-treated (n = 102) subjects [difference -1.0 and p-value = 0.220] at week 12. Troriluzole’s safety profile was generally consistent with past clinical trial experience with its active metabolite, riluzole. Treatment emergent adverse events (“TEAEs”) were mostly reported to be mild in intensity. TEAEs that occurred in at least 5% of patients in the troriluzole group, and more frequently in the troriluzole group than in the placebo group, were headache, dizziness, fatigue, somnolence, nausea and nasopharyngitis. +Given the strong signal in the Phase 2/3 proof-of-concept study and after receiving feedback from the FDA in an End of Phase 2 meeting, in December 2020, we initiated enrollment in a Phase 3 program. The Phase 3 program will have an estimated total enrollment of up to 700 participants in each trial with a primary endpoint of change from baseline on the Y-BOCS total score at week 4, 8 and 10. The two Phase 3 randomized, double-blind, placebo-controlled trials that make-up our Phase 3 program for OCD are currently ongoing. +In January 2024, we announced plans to conduct a pre-planned interim analysis ("IA") to evaluate efficacy in the first of our two Phase 3 studies in OCD. The IA was planned to be conducted by an independent Data Monitoring Committee ("DMC") after approximately 70% of subjects in the primary analysis population reached the primary endpoint. The Data Monitoring Committee convened in the second quarter of 2024 to review the IA and informed the Company that the study may continue. As such, we continue enrolling patients in the first Phase 3 study in OCD and expect that this study will be fully enrolled in the first quarter of 2025. We expect to report topline data from the first Phase 3 study in OCD in the first half of 2025. There was a similarly designed pre-planned IA for the second Phase 3 study in OCD conducted in the fourth quarter of 2024, and the DMC also informed us that this study may continue. We expect to report topline data from the second Phase 3 study in OCD in the second half of 2025. +Troriluzole for Glioblastoma +Preclinical and small-scale pilot studies are underway to explore troriluzole’s use in the treatment of a pipeline of other indications such as some cancers whose spread is thought mediated by glutamate transmission, such as melanoma and GBM. +In collaboration with Johns Hopkins University, we explored the potential applicability of troriluzole for GBM. The oncology collaboration with Johns Hopkins was based upon the mechanistic rationale that some tumors over express glutamate receptors, the central role that glutamate may have in cancer metabolism and the effect of glutamate on the tumor microenvironment. +In December 2021, GCAR selected troriluzole for evaluation in GBM AGILE. GBM AGILE is a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent GBM, the most fatal form of brain cancer. Troriluzole will be evaluated in all patient subgroups of the trial which include newly-diagnosed methylated O6-methylguanine DNA methyltransferase (“MGMT”), newly-diagnosed unmethylated MGMT, and recurrent GBM. Troriluzole was selected for inclusion in GBM AGILE based on compelling evidence showing deregulation of glutamate in GBM. The therapeutic potential of troriluzole in GBM and other oncology indications is supported by several recent clinical and translational research studies conducted with troriluzole and its active moiety. For example, Medikonda et al. showed a survival benefit with troriluzole, alone and in combination with anti-programmed cell death protein-1 (“PD-1”) immunotherapy, utilizing a frequently used murine brain tumor model. +10 +Table of Contents +C57BL/6J mice were intracranially implanted with luciferase-tagged GL261 glioma cells. Mice were randomly assigned to the control, anti-PD-1, troriluzole or combination anti-PD-1 plus troriluzole treatment arms, and median overall survival was assessed. The troriluzole treatment arm demonstrated improved survival compared with the control arm (median survival of 36% vs. 0%; p < 0.0001), as did the combination anti-PD-1 plus troriluzole treatment arm (overall survival of 80% vs. 0; p = 0.0007). +In July 2022, the Company and GCAR announced that enrollment has commenced in GBM AGILE for the evaluation of troriluzole. GBM AGILE is a multi-arm, platform trial. The evaluation of each therapy in GBM AGILE proceeds in 2 possible stages. A therapy's Stage 1 is an adaptively randomized screening stage for evaluating the therapy within patient signatures compared against a common control. A therapy in Stage 1 will stop accruing patients if it reaches its maximal sample size, drops for futility, or evinces inadequate safety. If a therapy reaches an efficacy threshold for graduation from Stage 1, it will move into Stage 2 within one of the prospectively defined signatures. The maximum sample size in Stage 1 is 150 patients. For a therapy graduating to Stage 2 there is a fixed randomization, expansion cohort. The maximum sample size in Stage 2 is 50 experimental patients in the graduating signature. The primary analysis of a regimen's effect on overall survival uses all patients in both its stages and all control patients in the trial in the graduating signature, suitably adjusted for any possible time trends. The study is ongoing. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) +In February 2022, we announced a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel Phase 3 asset. Myostatin, a negative regulator of muscle growth, is a key member of the Transforming Growth Factor ("TGF-β") superfamily. Taldefgrobep's novelty in a field of myostatin inhibitors is based on the mechanism where it binds to myostatin to both lower overall free myostatin levels, but also to function as a receptor antagonist to block myostatin signaling in skeletal muscles. Recently generated data has shown that the taldefgrobep alfa-myostatin complex is stable, and blocks myostatin signaling to both myostatin and to a lesser extent to activin A potentially for a protracted period after cessation of dosing. Blocking myostatin activity and signaling has shown to improve muscle function and strength in a number of disease models for neuromuscular wasting along with physical and metabolic changes important to individuals living with overweight and obesity. Blocking activin contributes to decreased adipose tissue and improved glucose homeostasis. Clinical studies have confirmed that taldefgrobep improved lean body mass directly through increase on contractile muscle and loss of adipose tissue as demonstrated in both normal healthy volunteers and in patients with Duchenne muscular dystrophy (“DMD”). The mechanism of increasing overall muscle size and reducing adipose tissue volume provide development opportunities in both neuromuscular disease and individuals living with overweight and obesity. +11 +Table of Contents +The advanced taldefgrobep alfa anti-myostatin development program offers extensive human safety data, especially in the pediatric population. +Previous Clinical Trials +Taldefgrobep was previously studied by Bristol Meyers Squibb ("BMS") and Roche in 4 completed clinical studies in healthy volunteers and subjects with DMD. An estimated 360 subjects received taldefgrobep; 179 healthy subjects and 181 subjects with DMD. +Completed clinical pharmacology studies in healthy adult subjects included: +• CN001001 was a randomized, placebo-controlled, Phase 1 study designed to evaluate the safety, tolerability, PK, and PD of single and multiple ascending subcutaneous doses of taldefgrobep (vial) in healthy adults. +• CN001023 was a randomized, open-label, single dose, parallel-group, Phase 1 study designed to compare the bioavailability of subcutaneous injections in the arm, thigh, and abdomen and to evaluate the safety, tolerability, PK, and immunogenicity of taldefgrobep (pre-filled syringe) in healthy adults. +Completed clinical studies in subjects with DMD included: +• CN001006 was a multi-site, randomized, placebo-controlled, double-blind, dose-ranging, Phase 1b/2 study to evaluate the safety, tolerability, and PK of taldefgrobep in ambulatory boys with DMD aged ≥ 5 to < 11 years. +• CN001016 was a randomized, double-blind, placebo-controlled, Phase 2/3 study to assess the efficacy, safety, and tolerability of 2 doses of taldefgrobep in ambulatory boys with DMD aged ≥ 6 to < 12 years. +All studies supported the safety and tolerability of taldefgrobep with fixed doses from 35 mg up to 180 mg administered weekly, subcutaneously ("SC"). The pharmacokinetics and safety data from the Phase 1 studies supported the continued development with doses of 35 mg and 50 mg administered weekly SC. +In the Phase 3 Clinical Study, CN001016, a futility analysis based on this primary endpoint, conducted after approximately 30% of subjects had completed 48 weeks of study drug treatment, did not show any statistically significant +12 +Table of Contents +treatment differences. A summary of the development and outcome from these studies are published (Neurol Ther. 2024 Feb;13(1):183-219). +There are significant differences between a neuromuscular (DMD) and neurodegenerative disease (SMA). The differences in residual muscle in SMA along with adjunctive survival of motor neuron (“SMN”) upregulation therapy support the continued development of taldefgrobep alfa in SMA. +Spinal Muscular Atrophy +SMA is a rare genetic neurodegenerative disorder characterized by the loss of motor neurons, atrophy of the voluntary muscles of the limbs and trunk and progressive muscle weakness that is often fatal and typically diagnosed in young children. The underlying pathology of SMA is caused by insufficient production of the survival of motor neuron (“SMN”) protein, essential for the survival of motor neurons, and is encoded by two genes, SMN1 and SMN2. In the U.S., SMA affects approximately 1 in 11,000 births, and about 1 in every 50 Americans is a genetic carrier. Newborn screening is now available in 48 U.S. states and covers over 94% of all births. +Our Clinical Trial for Taldefgrobep Alfa in SMA +In September 2023, we completed enrollment in a Phase 3 clinical trial assessing the efficacy and safety of taldefgrobep alfa in SMA. The Phase 3 placebo-controlled, double-blind trial was designed to evaluate the efficacy and safety of taldefgrobep as an adjunctive therapy for participants who are already taking a stable dose of nusinersen or risdiplam or have a history of treatment with onasemnogene abeparvovec-xioi, compared to placebo. The primary outcome measure of the study was efficacy of taldefgrobep alfa compared to placebo in the change in the 32 item Motor Function Measure (“MFM-32”) total score from baseline to Week 48. Scores range from 0-3 on each item, with higher scores indicating higher functioning. The study was neither restricted nor limited to patients based on ambulatory status or classification of SMA and was designed to randomize approximately 180 patients in this randomized, double-blind, placebo-controlled global trial. +In November 2024, we announced that taldefgrobep alfa showed clinically meaningful improvements in motor function at all timepoints on the MFM-32, but the treatment arm did not statistically separate on the primary outcome at Week 48 compared to the placebo+standard of care ("SOC") group. Efficacy signals were observed in clinically relevant and biomarker-defined subgroups including those related to age, ambulatory status, background therapy, and baseline myostatin level. Analyses of prespecified subgroups by race and ethnicity demonstrated that the largest study population (87% Caucasian; n=180) showed clinically meaningful improvements on the MFM-32 at all timepoints, including Week 48, compared to the corresponding placebo+SOC group (p < 0.05). Additional analyses of these subjects (n=123) who had measurable baseline myostatin (the pharmacological target of taldefgrobep) showed an improved efficacy signal within this myostatin-positive population (p=0.02). +Prespecified outcome measures in the overall study population analyzing the change from baseline in body composition at Week 48 demonstrated a greater reduction in the percent change in total body fat mass in the taldefgrobep arm compared to the placebo+SOC arm (p=0.008) as measured by dual energy x-ray absorptiometry ("DXA"). The taldefgrobep arm also showed numerically larger increases in lean muscle mass and bone density compared to the placebo+SOC arm. +Biohaven plans to engage the FDA in the first half of 2025 to discuss the potential registrational path forward and will present the study data at an upcoming conference. The optional long-term extension phase of the trial will remain ongoing pending further data analysis as well as regulatory discussions. +In February 2023, we received Fast Track designation from the FDA for taldefgrobep alfa for the treatment of SMA. Fast Track designation enables important new drugs to reach patients earlier by facilitating more frequent communications with the FDA and expeditious review of a drug which treats a serious condition and fills an unmet medical need. In December 2022, we received orphan drug designation from the FDA for taldefgrobep in the treatment of SMA and from the European Commission in July 2023. +In April 2024, we announced that the FDA granted "rare pediatric disease" designation for taldefgrobep alfa. The designation provides for the potential for taldefgrobep to receive a priority review voucher (“PRV”) if ultimately approved for the indication of SMA prior to September 30, 2026. The rare pediatric disease PRV program began to sunset in December 2024 and will not apply for approvals after September 30, 2026. +Taldefgrobep Alfa’s Role in Spinal Muscular Atrophy +In the past few years, significant advancements were made to address the underlying cause of disease in SMA with the up-regulation of SMN1 and SMN2 expression which positions taldefgrobep as a potential combination therapy to enhance muscle performance. Data from an SMA animal model study that shows advantages of combination SMN therapy with taldefgrobep and the extensive clinical data in DMD support the advancement of taldefgrobep into a SMA +13 +Table of Contents +Phase 3 study. Other indications in muscle wasting diseases may be a follow-on for taldefgrobep along with other life-cycle opportunities. +Metabolic Disorders +Obesity is a disease of excess and/or abnormal deposits of adipose tissue and a current global public health crisis. By 2030, it is expected that nearly one billion people will be living with obesity, including 50% of the adult and 25% of the adolescent U.S. population. The primary driver of obesity-related morbidity and mortality is metabolically active visceral adipose tissue and associated deposits of adipose tissue in and around organs such as the heart, liver, kidneys, and muscle. +Taldefgrobep Alfa’s Role in the Management of Overweight and Obesity +Preclinical and clinical data have demonstrated the potential for anti-myostatin therapies to produce physical and metabolic changes that are highly relevant to individuals living with overweight and obesity, including reducing total body fat and visceral adiposity, and improving insulin sensitivity and bone mineral density, while increasing lean muscle mass. Taldefgrobep’s novel mode of action and unique impact on body composition suggest it could be used as monotherapy or in combination with other anti-obesity medications. +In October 2023, we announced preclinical data demonstrating the ability of taldefgrobep to significantly reduce fat mass while increasing lean mass in an obese mouse model. In a mouse model of diet-induced obesity, untreated mice exhibited an increase in fat mass of 31%, while the mice treated with taldefgrobep demonstrated increases in lean mass of 25% from baseline (p≤.0.001) and lost 11% of their baseline fat (p≤.0.001) compared to vehicle (placebo) treated mice. Insulin and leptin levels were consistently lower in mice treated with taldefgrobep compared to the untreated mice. There was no difference in food intake over time across the taldefgrobep and untreated mice, counter to what has been observed with incretin mimetics (e.g., semaglutide) which are consistently associated with a reduction in energy intake. +Our Clinical Trial for Taldefgrobep Alfa in Obesity +In a Phase 1 MAD study conducted by BMS in normal healthy volunteers, the cohort using the projected therapeutic 45mg dose of taldefgrobep demonstrated a continued improvement in lean mass and a reduction in fat mass during the 29 day dosing period that continued to increase through the observation period at 4 weeks post dosing (see figure below). +14 +Table of Contents +In May 2024, we announced preclinical data from a diet induced obesity mouse model, which showed treatment with taldefgrobep alfa together with a glucagon-like peptide-1 ("GLP-1") agonist produced greater reductions in body weight and fat mass, and a larger increase in lean muscle mass, compared to treatment with GLP-1 alone (see figure below). +We plan to initiate a Phase 2 clinical trial of taldefgrobep in the management of metabolic disease in the first half of 2025. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +15 +Table of Contents +Ion Channel Platform +Kv7 +Kv7 Platform Acquisition +In February 2022, we announced that we entered into a definitive agreement with Channel Biosciences, LLC, a subsidiary of Knopp Biosciences, LLC, to acquire a drug discovery platform targeting Kv7 ion channels, adding the latest advances in ion channel modulation to our growing neuroscience portfolio. +Kv7’s Role in Epilepsy, Mood Disorders, and Other Central Nervous System Disorders +Because of their fundamental role in health and their aberrant role in disease, ion channels in cell membranes represent a broad and important class of drug targets. Sodium channels and potassium channels form the ionic basis of the action potential in electrically charged cells throughout the body (see figures below). The Kv7 protein in particular forms a channel that exquisitely regulates the flow of charged potassium ions (K+) across cell membranes, repolarizing nerve cells and resetting them for normal action potential firing. Kv7 channels include a family of channel subtypes, designated as Kv7.1 through Kv7.5, and they are formed by tetramers of identical or compatible subunits. Some of these channel subtypes localize in nerve cells (neurons) while others can be found in cardiac muscle, smooth muscle, and other tissue types. +The Kv7 subunits, Kv7.2 and Kv7.3, are widely expressed in the brain, notably in the cortex and hippocampus, and together they form Kv7.2/7.3 heteromeric channels that produce the M-current ( I KM ), a critical regulator of neuronal excitability (see figures below). Kv7.2/7.3 channels normally perform a natural “braking” function by regulating the electrical excitability and hyperexcitability of brain cells. Dysfunction of these channels, due to genetic mutations or other factors, increases seizure risk, while augmenting the ‘open’ activity of these channels has been demonstrated to reduce neuronal hyperexcitability and seizure frequency in electrophysiology laboratories, in animal models, and, most importantly, in patients. +White, Role of Potassium Channel Ions in Epilepsy, Medscape.org +We are synthesizing novel Kv7.2/7.3 activators that improve on the selectivity, potency, and other characteristics of ezogabine (Potiga in the U.S. and Trobalt (retigabine) in Europe), a drug approved in 2011 for the treatment of refractory epilepsy and voluntarily withdrawn from the market in 2017 because of poor tolerability and structure-related toxicities that limited its clinical use, and ezogabine-like compounds, while averting its negative attributes, including off-target activity at a different brain ion channel, gamma-aminobutyric acid (“GABA”) A receptor (“GABA A -R”). +Using a structure-based approach, supplemented by in silico modeling, we have identified structural features of our molecules critical to Kv7 activation. We have applied these analyses to the generation of proprietary chemical leads structurally distinct from known Kv7 activators, including ezogabine and flupirtine, the only other approved Kv7 modulator, approved in Europe for the treatment of acute pain. Our team has synthesized a large library of Kv7-activating molecules and are advancing them according to stringent criteria requiring improvements over ezogabine, including chemical stability, synthetic tractability, the avoidance of structural motifs associated with the generation of reactive metabolites and other unwanted, off-target activity, including GABA A -R activation. +Epilepsy, Major Depressive Disorder ("MDD"), and Bipolar Disorder are the initial indications we are targeting with activators from our Kv7 platform. In addition to their role in treating epilepsy, anti-seizure medications ("ASMs") are often +16 +Table of Contents +used in the management of bipolar disorder and Kv7 activators have recently shown great promise in the the treatment of MDD. While the use of ASMs is often accompanied by dose-limiting side effects, our Kv7 activators are specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives activators from our Kv7 platform a wide therapeutic window and is expected to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving ASMs. +BHV-7000 +BHV-7000 (formerly known as KB-3061), the lead asset from the Kv7 platform, is a potent Kv7.2/7.3 ion channel activator from a novel, bicyclic imidazole class that is structurally-distinct from other Kv7 modulators (e.g., ezogabine and related aniline compounds) with significant in vivo anticonvulsant activity and a wide therapeutic index. In the most widely used and positively-predictive preclinical model of epilepsy, the maximal electroshock (“MES”) model, data for BHV-7000 and ezogabine were collected in independent experiments (see figures below), measuring the activity of both compounds in preventing seizures (ED50) and recording the neurologic deficit five minutes prior to the MES test to calculate the tolerability index (“TI”). The neurologic deficit is a behavioral index ranging from normal activity (score of 0) to a loss of righting reflex (score of 3). As shown below, BHV-7000 was demonstrated to have an ED50 = 0.5 mg/kg with almost no impact on behavior producing a TI > 40x. In a separate rotarod experiment of preclinical tolerability, BHV-7000 had no impact on rat motor behavior up to 30 mg/kg, the highest dose tested. In contrast, ezogabine was 40x less potent (ED50 = 20 mg/kg) in the MES model with a narrow TI < 3x. The narrow preclinical TI for ezogabine is consistent with the clinical experience with the drug where side effects such as somnolence and dizziness limited its use at doses that prevented seizures in patients. +Phase 1 Clinical Development +In the second quarter of 2022, our Clinical Trial Application for BHV-7000 was approved by Health Canada, and we subsequently began phase 1 clinical development. First-in-human single ascending dose ("SAD") and multiple ascending dose ("MAD") studies have now been completed. In the SAD and MAD cohorts, 77 subjects received BHV-7000 (N=58) or placebo (N= 19). Thirty-nine SAD subjects were randomized to BHV-7000 or placebo and thirty-eight MAD subjects were +17 +Table of Contents +randomized to BHV-7000 or placebo. The rates of adverse events ("AEs") by MedDRA System Organ Class across the pooled SAD and MAD cohorts among subjects treated with BHV-7000 and placebo are presented in the tables below. +Table 1: Treatment‐emergent adverse events ("TEAEs") Occurring in ≥ 2 Subjects Receiving BHV-7000 in SAD Cohorts +All AEs reported in the SAD cohorts were mild in severity. +Table 2: TEAEs Occurring in ≥ 2 Subjects Receiving BHV-7000 in MAD Cohorts +All AEs reported in the MAD cohorts were mild in severity, except 1 case of back pain (moderate severity, 40 mg) and 1 case of dizziness (moderate severity, 80 mg). +a Data are included from a separate study evaluating higher MAD doses. +b Data are pooled across studies. +In 2023, we initiated a Phase 1 open-label electroencephalogram ("EEG") study designed to evaluate the effects of BHV-7000 on EEG parameters in healthy adults. The study’s objective was to demonstrate BHV-7000 target engagement in the cerebral cortex and to help refine dose selection for Phase 3 trials. Study measures included continuous EEG monitoring, time locked pharmacokinetic ("PK") sampling, and changes in EEG spectral power post dose. +The Phase 1 EEG study was designed to evaluate qualitative changes from baseline in EEG spectral power after administration of single doses of BHV-7000 (10, 25, or 50 mg) to 11 healthy male and female adult volunteers. EEG spectral power is a measure derived from quantitative analysis of EEG signals that assesses the amount of rhythmic activity in different frequency bands, including delta [1-3.5 Hz], theta [3.5-7.5 Hz], alpha [7.5-13 Hz], beta [13-30 Hz], and gamma [30-100 Hz]. Changes in spectral power have been used to evaluate the risk, onset and progression of seizures, assess cognitive and behavioral impairments, and characterize the effects of anti-seizure medications ("ASMs"), and they may also have utility in refining dose selection in clinical trials of ASMs. Spectral analysis was performed by Clouds of Care (Ghent, Belgium), a global leader in EEG analytics. +Interim data from the Phase 1 EEG study were presented in December 2023 at the American Epilepsy Society meeting in Orlando, Florida. BHV-7000 was well-tolerated at all doses studied, without the typical CNS AEs associated with other ASMs, such as somnolence or cognitive/mood disturbances, and EEG data showed dose-dependent increases in brain spectral power in healthy subjects (Figure 1 below). Unlike prior reports where EEG effects of a Kv7.2/7.3 activator showed the greatest power increase in the delta frequency band (Biondi et al. 2022), the highest spectral power increases with BHV-7000 were seen in alpha, beta, and gamma frequency bands (Figure 2 below). While changes in spectral power were observed across all frequency bands with BHV-7000, the minimal impact on slower frequencies (i.e., delta) is consistent with the low incidence of CNS adverse events, in particular somnolence, seen in the BHV-7000 Phase 1 +18 +Table of Contents +SAD/MAD studies. EEG delta activity is associated with somnolence, an undesirable CNS adverse event often seen with other ASMs. +Figure 1: BHV-7000 shows dose-dependent increases in spectral power over all brain regions. +Figure 2: BHV-7000 effect on spectral power in resting -state EEGs. Greatest impact observed on alpha frequency with minimal impact on delta and theta frequencies. +The preliminary EEG study results confirm the CNS activity of BHV-7000 at projected therapeutic concentrations, dose-dependent and time-dependent changes in EEG spectral power, and are consistent with the quantitative EEG effects observed with other ASMs approved for the treatment of epilepsy. +Based on the results from the EEG study and the safety profile in SAD/MAD trials, along with PK data from a new once-daily extended-release (“ER”) formulation, Biohaven is exploring three oral doses of BHV-7000 (once daily 25 mg ER, once daily 50 mg ER, and once daily 75 mg ER) in the Phase 2/3 clinical trials in epilepsy and mood disorders. This dosing +19 +Table of Contents +approach with a Kv7 activator will allow for assessment of distinct target concentrations over a wide range, above and below projected efficacious EC50 drug concentrations (Figure 3), not previously feasible with drugs in this class. +Figure 3: Predicted PK profile of BHV-7000 ER, mean predicted concentration vs. time profiles for 25 mg ER, 50 mg ER and 75 mg ER once-daily dosing at steady state relative to EC20 and EC50 (EC values from preclinical MES models). +In December 2024, t the American Epilepsy Society meeting, we presented additional safety data with the BHV-7000 once-daily extended-release formulation, which further demonstrated tolerability. +Epilepsy +Epilepsy affects approximately 3.5 million Americans, or more than 1.2% of adults and 0.6% of children in the U.S., and more than 50 million patients worldwide, according to the World Health Organization (“WHO”). It is the fourth most common neurological disorder, and many patients struggle to achieve freedom from seizures, with more than one third of patients requiring two or more medications to manage their epilepsy. While the use of anti-seizure medications is often accompanied by dose-limiting side effects, our clinical candidate BHV-7000 is specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives BHV-7000 a wide therapeutic window which we expect to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving anti-seizure medications. We aim to bring this potassium channel modulator as a potential solution to patients with epilepsy who remain uncontrolled on their current regimens. +Our Clinical Trials for BHV-7000 in Epilepsy +Focal Epilepsy +In January 2024, we completed our End-of-Phase 2 meeting with the FDA to advance to Phase 3 trials and announced that more than 110 global clinical sites have been selected in the first of two focal epilepsy trials. Enrollment in our Phase 2/3 program commenced in the first quarter of 2024. The two pivotal studies evaluating the efficacy of BHV-7000 in refractory focal epilepsy are planned as randomized, double-blind, placebo-controlled, 8- and 12-week trials with a primary endpoint of change from baseline in 28-day average seizure frequency in adults with focal epilepsy. One of the focal epilepsy studies will evaluate 25 mg and 50 mg doses of BHV-7000 and the second study will evaluate 50 mg and +20 +Table of Contents +75 mg doses of BHV-7000 (see figures below). We expect to report topline results from the first study in the first half of 2026. +Idiopathic Generalized Epilepsy +In addition to the focal epilepsy program, we initiated a Phase 2/3 study of BHV-7000 in idiopathic generalized epilepsy ("IGE") in the second quarter of 2024. The pivotal study evaluating the efficacy of BHV-7000 with IGE is planned as a randomized, double-blind, placebo-controlled 24-week time-to-event trial with a primary endpoint of time to second generalized seizure in adults and adolescents with IGE (see figure below). +Mood disorders +Approximately 1 in 5 adults in the U.S. are living with neuropsychiatric illnesses that are associated with inadequate treatment, poor quality of life, disability, and considerable direct and indirect costs. There is significant unmet need for novel and effective therapeutic options that are not limited by long latency periods to clinical effects, low response rates, and significant risks and side effects. Increasing evidence from animal models and clinical trials now suggests that Kv7.2/7.3 targeting drugs offer the potential to treat a spectrum of these neuropsychiatric diseases including, but not limited to, mood disorders such as major depressive disorder, bipolar disorder and anxiety. +Major Depressive Disorder +Major depressive disorder ("MDD") is a leading cause of morbidity. Approximately 8.3% of adults in the U.S. have had at least one major depressive episode; accordingly, there is an urgent need for more effective treatments. Within the current armamentarium of treatments nearly one third of patients fail to respond. Kv7 activation has emerged as a novel strategy to treat and prevent depressive episodes and holds significant potential as a novel treatment for patients with +21 +Table of Contents +MDD. The therapeutic role for Kv7 activation in MDD is supported by a broad range of epigenetic, mechanistic, preclinical, and clinical evidence. Multiple depression models have demonstrated the antidepressant efficacy of enhancing potassium channel activity. As preclinical studies demonstrate upregulation of Kv7 channels in mice subject to chronic stress, increasing potassium channel function either through genetic over expression or via potassium channel activation (via ezogabine) reverses depressive and anhedonic behaviors in mice across multiple studies. Recent randomized, controlled clinical trials of Kv7 activators demonstrated efficacy in MDD. Together, these data, coupled with the favorable clinical safety and tolerability profile exhibited by BHV 7000 to date, provide a compelling rationale for the evaluation of Kv7 activation with BHV-7000 in MDD. +Our Clinical Trial for BHV-7000 in Major Depressive Disorder +We initiated a Phase 2 clinical trial with BHV-7000 for the treatment of MDD in the second quarter of 2024. The study is a 6 week, randomized, double-blind, placebo-controlled trial in approximately 300 subjects, with a primary endpoint of measurement on the Montgomery-Asberg Depression Rating Scale ("MADRS"). See figure below for trial design. We expect to report topline results from the study in the second half of 2025. +Bipolar disorder +Bipolar disorder affects an estimated 4.4% of U.S. adults over their lifetime. Bipolar disorder is associated with significant morbidity, decreased quality of life and economic burden. Treatment guidelines recommend patients receive life-long treatment for bipolar disorder. However, medication adherence is typically very low in this population, due in large part to undesirable side effects that are poorly tolerated by patients. The mainstays of treatment include mood stabilizing agents that are also used as anti-seizure medicines (i.e., valproic acid, lamotrigine, and topiramate). Preclinical and pilot clinical data similarly suggest a potential therapeutic role for Kv7 activation in bipolar disorder, which is expected to result in an improved side effect profile compared to other anti-seizure medications. +Our Clinical Trial for BHV-7000 in Bipolar Disorder +We initiated a Phase 2/3 clinical trial with BHV-7000 for the treatment of bipolar disorder in the second quarter of 2024. The study was a 3 week, randomized, double-blind, placebo-controlled trial in approximately 256 subjects, with a primary endpoint of measurement on the Young Mania Rating Scale ("YMRS"). See below for trial design detail. +22 +Table of Contents +In March 2025, the Company completed a focused topline analysis of treatment with BHV-7000 in the acute treatment of manic episodes associated with bipolar disorder in a 3-week trial. BHV-7000 did not statistically differentiate from the comparator arm on the primary efficacy endpoint of improvement from Baseline to Day 21 on the YMRS. Additional analyses are ongoing, and complete study results will be presented at an upcoming scientific meeting. +BHV-7000 75 mg once daily, the highest dose of BHV-7000 being evaluated in Phase 2/3 trials, was safe and well-tolerated in this study. No adverse trends in vital signs, ECGs, or labs were noted. There were no treatment emergent serious adverse events. Most adverse events were mostly mild in intensity and resolved spontaneously. This offers a highly favorable and differentiated profile compared to other antiseizure medicines and is consistent with lack of GABA effects. +Developmental Epileptic Encephalopathies +KCNQ2 developmental epileptic encephalopathy (“KCNQ2-DEE”) is a rare pediatric epileptic encephalopathy first described in 2012 resulting from dominant-negative mutations in the KCNQ2 gene. Epileptic encephalopathies (“EE”) comprise a group of epilepsy syndromes in which onset of recurrent and medically refractory seizures are associated with cognitive and broader developmental delay or regression. Although only recently described, heterozygous de novo variants in KCNQ2 are a highly validated cause of early onset epileptic encephalopathy, and KCNQ2-DEE has emerged as a well-defined clinical entity with a characteristic neonatal presentation, including hypotonia, treatment-resistant tonic seizures, a profoundly abnormal EEG, and most often with moderate-to-profound global developmental delay. KCNQ2-DEE is thus both a seizure disorder and a developmental disorder caused by pathogenic KCNQ2 mutations. +Identification of genetic etiologies has created the opportunity to treat not just the symptoms of KCNQ2-DEE, including seizures, but also the underlying causes, including attenuating or reversing the effects of the disease-causing variants. In addition to its activity in the MES model, we explored the ability of BHV-7000 to reverse the reduced current density associated with KCNQ2-DEE and support its use as potential treatment for the disease). To determine the effects of BHV-7000 on the function of Kv7.2 and Kv7.2/7.3 channels poisoned by dominant-negative KCNQ2 mutations, four highly recurrent human missense variants known to cause KCNQ2-DEE were evaluated in an in vitro model measuring current density in cells expressing the pathologic proteins. +The figure below shows the effects of BHV-7000 on current density of wt/wt Kv7.2 channels and those formed by 1:1 coexpression of wt KCNQ2 genes with four disease-causing KCNQ2 variants (T274M, A294V, R581L, R210H). In the control condition, all pathogenic variants produced a marked reduction in current density to below wt/wt levels. BHV-7000 at either 0.3µM or 1.0 µM restored current density in all mutated channels to or beyond wt control current density (**<0.01). +BHV-7000 has been granted Rare Pediatric Disease Designation by the U.S. Food and Drug Administration ("FDA") for the treatment of KCNQ2-DEE. +Neuropathic Pain +Neuropathic pain, as defined by the International Association for the Study of Pain, is pain caused by a lesion or disease of the somatosensory nervous system and includes a collection of heterogeneous conditions that are often chronic and debilitating and for which long term therapy is difficult. In the United States, over 30 million adults are estimated to be living with neuropathic pain. Pharmacological treatments for neuropathic pain vary according to patient needs, although recommendations such as the WHO analgesic ladder, United States Centers for Disease Control (“CDC”) guidelines, and FDA guidelines are in use. Initial or first line treatment for neuropathic pain includes non-opioid analgesics, in particular, antidepressants, anticonvulsants, steroids, and anxiolytics. Second line treatment of persistent, +23 +Table of Contents +severe pain may require escalation to opiates, often less potent ones at first, followed by more potent opiates for intense refractory pain. +Accordingly, an urgent need exists for effective, non-addictive pain therapies. Flupirtine, a non-selective Kv7 activator, was previously approved in several European countries and indicated for the treatment of pain. However, the European Medicines Agency recommended withdrawal of its marketing authorization in 2018 because of the risk of serious liver injury. Selective Kv7 potassium channel activators represent a new approach in the development of non-opioid therapeutic options for neuropathic pain. In addition to leveraging the reduced abuse and addiction risk potential of potassium channel activators, our Kv7 potassium channel platform addresses the complexities of channel subtype physiology through targeted pharmacology to overcome the limitations inherent in nonselective Kv7 activators and is intended to deliver a well-tolerated, highly effective, non-opioid treatment for neuropathic pain. +Our Kv7 program research was supported in part with funding from the National Institutes of Health (“NIH”) to advance the development of novel Kv7 non-opioid therapies for the treatment of chronic pain. The NIH funding is by the NIH Helping to End Addiction Long-term Initiative (“NIH HEAL Initiative”), which aims to improve treatments for chronic pain, curb the rates of opioid use disorder and overdose, and achieve long-term recovery from opioid addiction. The goal of our Kv7 program is to discover a small-molecule activator of the Kv7.2/7.3 voltage-gated potassium channel to treat neuropathic pain. Similar to our epilepsy program, we are targeting compounds with these characteristics: +• Biased for Kv7.2/3 activation vs. Kv7.4 activation to minimize potential adverse smooth muscle effects; +• Selective against GABA A receptors to minimize potential tolerability issues; +• Selective against Kv7.1/KCNE1 (IKs) and hERG (IKr) to minimize cardiac side-effects; and +• Potent and effective across animal models of neuropathic pain. +Axonal excitability and neurotransmitter release are altered in neuropathic pain due to sodium channel plasticity, increased voltage-gated calcium channels in the spinal cord, and diminished potassium channel activity in dorsal root ganglion (“DRG”) neurons. These changes in ion channel number, distribution, and function are common to many neuropathic pain subtypes. The functional density of Kv7.2/3 channels is a key variable governing sensory DRG control of intrinsic excitability. Rose et. al demonstrated downregulation of Kv7 potassium channel mRNA in an experimental nerve injury model and further showed alleviation of neuropathic hyperalgesia with administration of flupirtine. +Using human induced pluripotent stem cell (“iPSC”)-derived DRG sensory neurons, we have assessed the physiological activity of these neurons by modulating Kv7 channels across three electrophysiologic parameters: resting membrane potential (Vm), rheobase = the current required to stimulate an action potential (“AP”), and the number of APs elicited by a suprathreshold stimulus (3x rheobase). We are currently evaluating the activity of various compounds from our proprietary series of selective Kv7.2/7.3 activators in multiple preclinical models of neuropathic pain. The Company has also initiated a sponsored research agreement with Yale to evaluate the activity of BHV-7000 in an iPSC model of inherited erythromelalgia, a severe rare genetic neuropathy. +Migraine +We are currently exploring BHV-7000 as a potential treatment for migraine. Kv7.2/7.3 openers have shown significant activity in cortical spreading depression models of migraine. +TRPM3 Ion Channel Antagonists +KU Leuven Agreement +In January 2022, we entered into an agreement with KU Leuven ("the KU Leuven Agreement") to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery and the Laboratory of Ion Channel Research at KU Leuven. Under the KU Leuven Agreement, we receive exclusive global rights to develop, manufacture and commercialize KU Leuven's portfolio of small-molecule TRPM3 antagonists. The portfolio includes the lead candidate, BHV-2100. We are continuing to support further basic and translational research on the role of TRPM3 in pain and other disorders through our collaboration with professors in Transient Receptor Potential ("TRP") biology at KU Leuven. +Efforts to target TRP Ion Channels for pain +Since the Nobel Prize-winning discovery of the capsaicin receptor TRPV1 in 1997, members of the TRP cation channel family have been elusive drug targets for the treatment of pain. Initially, there was much excitement and investment in TRPV1 antagonists due to promising preclinical efficacy and some evidence of clinical pain reduction. However, trials of most TRPV1 antagonists were terminated after the class consistently caused clinically-significant +24 +Table of Contents +hyperthermia in study participants. Several companies then made efforts to progress antagonists of TRPA1, the receptor for mustard oil. Though Glenmark’s GRC 17536 showed encouraging results in a subset of diabetic peripheral neuropathic pain subjects in a Phase 2a study, it suffers from poor physiochemical properties and pharmacokinetics like many other TRPA1 antagonists. +TRPM3 is a novel target in the TRP family. Like TRPV1 and TRPA1, preclinical data and human genetic validation support TRPM3’s role in neuropathic pain and migraine. Unlike TRPV1 antagonists, TRPM3 antagonists are unlikely to possess significant thermal liabilities, and, unlike TRPA1 antagonists, Biohaven’s TRPM3 antagonists have desirable physiochemical properties and good pharmacokinetic profiles. The figure below illustrates TRPM3 as a differentiated target for the treatment of pain in the TRP family. +Adapted from Efforts to target TRP channels for pain , Kovivisto et al. 2022 +About TRPM3 +TRPM3 is a novel druggable target in the TRP cation channel family. TRPM3 is functionally expressed in the human dorsal root ganglion, and several single nucleotide polymorphisms ("SNPs") in TRPM3 are associated with altered pain sensation in response to ultraviolet B ("UVB") (see figure below). Additionally, people with TRPM3 gain-of-function mutations experience altered pain sensation (de Sainte Agathe 2020, Dyment 2019, Van Hoeymissen 2020). Knocking out or antagonizing TRPM3 in animal models attenuates the development of various pain states, including those associated with nerve injury, chemotherapy, and diabetic peripheral neuropathy, further indicating that TRPM3 is a promising target for neuropathic pain. Lastly, preclinical evidence suggests that antagonizing TRPM3 may avoid the on-target body temperature effects and TRPV1 antagonist-induced malignant hyperthermia. +Vangeel et al, 2020 Lotsch et al, 2020 +25 +Table of Contents +BHV-2100 +BHV-2100 is an orally-bioavailable small molecule antagonist of TRPM3. TRPM3 is expressed in the relevant human tissue types for neuropathic pain, and both preclinical models and human genetics implicate TRPM3 in pain signaling. +Our Phase 1 Study with BHV-2100 +We completed a Phase 1 study of BHV-2100 in Canada. The Phase 1 study was a randomized, double-blind, placebo-controlled, SAD/MAD study in healthy subjects to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of BHV-2100. In May 2024, we reported positive pharmacokinetic and safety data from the completed Phase 1 study with BHV-2100. The results demonstrated rapid absorption with therapeutic concentrations achieved by 20 minutes. The favorable tolerability profile at single doses up to 500 mg exceeds the anticipated therapeutic dose and is well above the EC90 concentration. Based on these findings, we initiated a Phase 2 study of BHV-2100 in the acute treatment of migraine and a proof-of-concept study in pain in the fourth quarter of 2024. +Our Clinical Trial for BHV-2100 in Migraine +Nearly 40 million people in the U.S. suffer from migraine and the World Health Organization classifies migraine as one of the 10 most disabling medical illnesses. Migraine is characterized by debilitating attacks lasting four to 72 hours with multiple symptoms, including pulsating headaches of moderate to severe pain intensity that can be associated with nausea or vomiting, and/or sensitivity to sound (phonophobia) and sensitivity to light (photophobia). There is a significant unmet need for new treatments as more than 90 percent of migraine sufferers are unable to work or function normally during an attack. +In September 2024, we announced that we have initiated a Phase 2 study evaluating BH-2100 in the acute treatment of migraine. The study is a 45-day, randomized, double-blind, placebo-controlled trial in approximately 575 subjects, with primary endpoints of freedom from pain at two hours post-dose and freedom from most bothersome symptom at two hours post-dose. See figure below for trial design. Data from the proof-of-concept migraine study are expected in the first half of 2025. +Our Development of BHV-2100 for the Treatment of Neuropathic Pain +BHV-2100 is also being developed as a potential non-opioid treatment for neuropathic pain. We are evaluating the ability of BHV-2100 to reduce pain behaviors across several preclinical models of neuropathic pain, including chemotherapy induced neuropathy, diabetic neuropathy, and nerve injury.We initiated a conduct a proof-of-concept study for neuropathic pain in the fourth quarter of 2024. The study is a Phase-1b, randomized, double-blind, placebo and active reference controlled, crossover trial to assess the anti-nociceptive and anti-hyperalgesic effects of single oral doses of BHV-2100 (25 mg, 75 mg, and 150 mg) vs. placebo, in a cohort of approximately 24 healthy male volunteer participants, utilizing a laser-evoked potential experimental pain paradigm. Preliminary data from the laser-evoked hyperalgesia study demonstrated that BHV-2100 reduced laser heat-induced pain and brain evoked potentials in healthy volunteers. Preliminary data demonstrated that BHV-2100 reduced laser heat-induced pain and brain evoked potentials in healthy volunteers. Complete data from the laser-evoked potential study are expected in the first half of 2025. +26 +Table of Contents +Additional research on TRPM3-mediated disorders +Under the KU Leuven Agreement, Biohaven is supporting further basic and translational research at KU Leuven on the role of TRPM3 in pain and other disorders. In addition to BHV-2100, we are optimizing other lead compounds for TRPM3-mediated disorders of the peripheral and central nervous systems. +27 +Table of Contents +Inflammation and Immunology Platform +TYK2/JAK1 +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") (the "Highlightll Agreement"), pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +BHV-8000 +Dysregulation of the immune system has been implicated in several neurodegenerative and neuroinflammatory disorders including Parkinson's Disease, Multiple Sclerosis, Alzheimer's Disease, Amyotrophic Lateral Sclerosis and Autoimmune Encephalitis. Over-active immune cells and microglia driving chronic neuroinflammation results in release of cytokines with activation of leukocytes and is thought to contribute to neuronal injury, death, gliosis, and demyelination. The tyrosine kinase 2 ("TYK2") and Janus kinase 1 ("JAK1") signal transduction pathways mediate highly complementary immune and inflammatory signaling events. Targeted, small-molecule therapies that inhibit TYK2 or JAK kinases have separately demonstrated robust efficacy in autoimmune, dermatologic and gastrointestinal disorders. TYK2 is a validated immune target as evidenced by a recent peripheral program that gained FDA approval, and there are multiple additional peripheral non-CNS programs in clinical development. Brain penetrant inhibitors of TYK2/JAK1 have the potential to bring this validated immune target to brain disorders. There are currently no brain penetrant, selective, dual TYK2/JAK1 inhibitors approved for brain disorders. +Target indications for BHV-8000 include Parkinson's disease, Alzheimer's disease, prevention of amyloid-related imaging abnormalities ("ARIA"), and multiple sclerosis ("MS"). Biohaven completed interactions with FDA enabling registrational programs for Parkinson's disease and the prevention of ARIA. +Our Phase 1 Study with BHV-8000 +In May 2023, we began dosing with BHV-8000 (previously TLL-041), in a phase 1 study in normal healthy volunteers. In May 2024, we reported positive results from the Phase 1 single and multiple ascending dose study, including evidence of target engagement along with a safe and well tolerated profile. Phase 1 study data also confirmed cerebrospinal fluid ("CSF") exposures of BHV-8000. +We expect to initiate a pivotal trial in Parkinson's in the first half of 2025 and advance Alzheimer's, MS and ARIA programs in 2025. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +MoDE and TRAP Degraders +Molecular Degraders of Extracellular Proteins +The Molecular Degraders of Extracellular Proteins (“MoDEs”) platform harnesses selectivity, rapidity, and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE degrader is a novel bispecific molecule that targets a specific form of circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. Four INDs have been accepted by the FDA for MoDE degrader molecules in 2024 and multiple other investigational agents are in development. Three assets have been dosed in Phase 1 trials, with the fourth anticipated to be dosed in the first half of 2025. The first-of-its-kind molecule, BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1400 and BHV-1600, currently in Phase 1 clinical trials, Biohaven's first Targeted Removal of Aberrant Protein ("TRAP"™) molecules, represent next generation MoDEs targeting very specific pathogenic antibodies, while sparing healthy immunoglobulin to preserve immune function. Data from the first, and lowest, dose cohort of BHV-1400 demonstrated clear differentiation from competitors in the IgA nephropathy space, with rapid lowering of Gd-IgA1 within hours and preservation of host immunoglobulins including IgG, IgA, IgE, and IgM. Multiple new and novel investigational MoDE and +28 +Table of Contents +TRAP molecules are in development for potential treatment of diseases, such as membranous nephropathy, Graves' disease, diabetes, and IgG4-mediated diseases. +BHV-1300 +The first-of-its-kind molecule BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1300 was rationally designed to spare IgG3, potentially allowing for preservation host defense. BHV-1300 is being developed for the treatment of common immune mediated-diseases, such as Graves' Disease and Rheumatoid Arthritis ("RA"). Graves' Disease is a disease in which IgG1 autoantibodies stimulate the thyroid to produce excess thyroid hormone. Targeted removal of disease-causing IgG has the potential to eliminate the pathogenic thyroid-stimulating antibody and modify the disease. Graves' Disease is estimated to impact 1% of the population globally. RA is a chronic autoimmune disease estimated to affect 1 to 2% of the global population. RA primarily affects the joints, causing pain, swelling, stiffness, and loss of function. +We evaluated the effect of single and multiple doses of BHV-1300 in cynomolgus monkeys. In September 2023, we reported data from confirmatory studies that showed a 75-80% reduction of IgG levels two days after a single dose and over 90% of IgG lowering after three doses. +Maximal lowering across FcRn inhibitors is 60-80% within approximately 7 to 21 days after initiation of single or multiple doses, respectively, in cynomolgus. In contrast, a single dose of BHV-1300 lowers IgG by approximately 75 to 80% after approximately 2 days, and after three rapid doses to greater than 90% lowering. The length of significant exposure to BHV-1300 is approximately one day within the dosage interval compared to continuous exposure required of the FcRn inhibitors. Mechanism-related liabilities of FcRn inhibitors seen in animals and humans, including +29 +Table of Contents +hypoalbuminemia and hypercholeresterolemia, are not expected and do not occur with BHV-1300 in cynomolgus. See figures below comparing the speed and depth of lowering to FcRn inhibitors. +In January 2024, we reported preclinical pharmacodynamic single dose data with BHV-1300 which demonstrated the Biohaven IgG degrader technology allows for co-administration with Fc-containing biologics. The PK of Humira® was unaltered after being dosed 12 hours after BHV-1300 administration (see figure below). +* Adapted from BLA 761154, IND 116471, Study no. r-fkb327-01 +Our Phase 1 Study with BHV-1300 +The Phase 1 SAD study examining BHV-1300 in healthy subjects was initiated in the first quarter of 2024 and remains ongoing. In May 2024, we reported preliminary results from our Phase 1 study of BHV-1300. These results in healthy subjects demonstrated that BHV-1300 rapidly and selectively lowers IgG in a dose-dependent manner in the first 4 cohorts completed to date (see figure below). Preliminary IgG lowering data is consistent with modeling, with dose- and time-dependent IgG lowering observed even in initial low-dose cohorts. Some subjects experienced IgG reductions as low as 50 to 70% of baseline. BHV-1300 demonstrated reduction of IgG without significantly impacting LFTs, albumin, LDL cholesterol or other serum labs. BHV-1300 has been safe and well tolerated to date, with no serious or severe adverse events. Most AEs were mild, deemed unrelated to study drug and resolved spontaneously. As expected from the selectivity of the molecule for IgG, when compared to placebo, there were no meaningful reductions in average IgA, IgM or IgE levels during the week after dosing. No adverse trends have been observed in vital signs or ECGs. Modeling suggests additional +30 +Table of Contents +cohorts in the Phase 1 study will achieve greater than 70% lowering of IgG utilizing doses compatible with subcutaneous administration. +The Phase 1 study has also compared intravenous and subcutaneous administration of BHV-1300. Subcutaneous administration of BHV-1300 demonstrated an average of approximately 44% higher than expected exposure compared to the dose-equivalent intravenous formulation without injection site reactions. This new human data confirms the feasibility of our plan for convenient dosing of BHV-1300 with a patient self-administered subcutaneous autoinjector. +In the fourth quarter of 2024 we provided an update to our Phase 1 study of BHV-1300, reporting that subcutaneously administered BHV-1300 achieved deep lowering of targeted IgG (IgG1, IgG2, IgG4, over IgG3), with reductions over 60% in the lowest subcutaneous dose tested in the ongoing MAD study. Subcutaneous BHV-1300 achieved progressive reduction in IgG within hours of each weekly dose administration in the MAD, and pharmacodynamic effects were sustained relative to baseline over the four-week study period. BHV-1300 has been safe and well-tolerated across the Phase 1 study. There were no clinically significant effects on albumin or liver function, and no increases in cholesterol were noted. Further enhancing the competitive safety profile and as intentionally designed, plasma IgG3 levels were preserved through the end of study week 4 to allow for healthy immune effector functioning. All AEs were mild, any drug-related AE resolved, and there were no discontinuations due to study drug related AEs. The optimized subcutaneous formulation in the MAD also showed substantially less inter-patient variability compared to previously reported intravenous BHV-1300. In addition, we announced that we entered into an agreement with Ypsomed to develop and manufacture BHV-1300 in an easy-to-use, autoinjector for self-administration intended for commercialization. +In March 2025, we provided further updates to our ongoing Phase 1 study of BHV-1300. In the four-week Phase 1 study, subcutaneously administered BHV-1300 at a dose of 1000 mg weekly achieved rapid, deep and sustained reductions +31 +Table of Contents +in total IgG of up to 84%, with a median reduction of 80% (see Figure 1 below). Reductions occurred within hours of each dose, were progressive, and were sustained compared to baseline over the four-week period. +BHV-1300 was safe and well-tolerated in subcutaneous doses up to 2000 mg with no clinically significant increases in ALT, AST, or bilirubin, no clinically significant reductions in albumin, and no clinically significant increases in cholesterol over the four-week dosing period compared to placebo. There were no clinically significant reductions in IgG3, IgA, IgE, or IgM compared to baseline. Most AEs were mild and self-resolving, there were no discontinuations due to AEs related to study drug, and there were no serious or severe AEs. The Phase 1 study is ongoing with plans to continue to escalate multiple doses to explore deeper reductions to characterize the potential range of IgG lowering possible with MoDE technology, allowing for customization of speed and depth of IgG lowering and decreased frequency of administration across different disease indications. We plan to initiate a Phase 2 study of BHV-1300 in Graves’ disease in mid-2025. Additional follow-on studies in other autoimmune diseases will be pursued. +BHV-1310 +BHV-1310 is a next generation bispecific IgG degrader with specificity for IgG1, IgG2 and IgG4, which is initially being developed for the treatment of rare disorders including conditions like generalized myasthenia gravis ("gMG") and potentially other acute or chronic conditions, or chronic conditions with acute exacerbations or flares. MG is a neuromuscular disorder that is estimated to affect approximately 36,000 to 60,000 people in the United States. Patients with gMG develop antibodies that attack critical signaling receptor proteins at the junction between nerve and muscle cells, inhibiting communication between nerves and muscle and resulting in weakness of the skeletal muscles. BHV-1310 is completing preclinical testing prior to initiation of a Phase 1 study in the first half 2025. +32 +Table of Contents +BHV-1400 +BHV-1400 is the first TRAP degrader introduced by Biohaven, a selective MoDE which is being developed to target Gd-IgA1, an aberrant immunoglobulin that drives IgA Nephropathy (see figure below). +Specific removal of pathogenic Gd-IgA1 and associated circulating immune complexes with preservation of normal IgA potentially permits disease remission without incurring an infection risk. We shared preliminary data demonstrating the chimeric antibody-ASGPR ligand conjugate specifically mediated endocytosis of Gd-IgA1, as opposed to normal IgA1 and IgA2, in an endocytosis assay with ASGPR-expressing cell lines, and that TRAP degraders successfully internalize and degrade these immune-complexes. In mice, after deposition of Gd-IgA1 in the glomerular mesangial matrix followed by administration of BHV-1400, Gd-IgA1 is progressively removed and no longer detected by six hours. +Our Phase 1 Study with BHV-1400 +We initiated Phase 1 studies of BHV-1400 in the fourth quarter of 2024. The first-in-human ("FIH") trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1400 in healthy volunteers. In the first quarter of 2025, Biohaven announced deep and selective lowering of Gd-IgA1 with the first dose cohort tested in the SAD. Subjects achieved median Gd-IgA1 lowering of 60% within 4 hours of dose administration without clinically significant lowering of healthy immunoglobulins IgA, IgE, IgM, or IgG (see figure below). As a next generation TRAP degrader, BHV-1400 is a potential therapeutic for the treatment of IgA nephropathy, and highlights the precision of MoDE platform molecules in their ability to selectively remove a pathogenic disease-causing protein without suppressing the healthy immune system. +33 +Table of Contents +BHV-1600 +BHV-1600 is a selective TRAP designed to remove agonistic antibodies directed against myocardial beta-1 adrenergic receptor ("β-1 AR"). β-1 AR autoantibodies have been identified in serum individuals with dilated cardiomyopathies, such as peripartum cardiomyopathy, and have been shown to cause chronic stimulation and dilation of the myocardium. Peripartum cardiomyopathy is a life-threatening condition affecting mothers within the months following delivery of a child. Through elimination of the agonistic β-1 AR autoantibodies, BHV-1600 is designed to potentially treat the underlying autoimmune etiology of this disease with no approved therapy, and prevent irreversible cardiac pump dysfunction. +We initiated Phase 1 studies of BHV-1600 in the fourth quarter of 2024. The FIH trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1600. Early results from the first two dose cohorts indicate that BHV-1600 was safe and well tolerated, with no SAEs, and without clinically relevant changes in innate or adaptive immunity, including white blood cells and immunoglobulins IgG, IgA, IgE, and IgM. There were no clinically significant reductions in albumin, liver function test abnormalities, or increases in cholesterol compared to baseline. +Additional Degraders +We are currently developing additional MoDE degraders advancing towards candidate nomination. These include an IgG4 specific degrader, a phospholipase A2 receptor ("PLA2R") autoantibody degrader for membranous nephropathy, a pro-insulin autoantibody degrader for type 1 diabetes, and a Thyroid Stimulating Hormone ("TSH") receptor autoantibody degrader as a selective follow-on asset for Graves' Disease. +Oncology Platform +Antibody Recruiting Molecules +Antibody Recruiting Molecules (“ARMs”) are bispecific molecules that recruit endogenous antibodies to target cancer, virally infected cells, and disease-causing microorganisms for immune-mediated clearance. These molecules are engineered as modular components that are readily interchangeable, giving the platform tremendous flexibility for a variety of indications and therapy areas. +34 +Table of Contents +By recruiting antibodies to coat the disease cell target, ARMs mark it for removal by the body’s innate antibody-mediated immune mechanisms (antibody dependent cellular cytotoxicity and antibody dependent cellular phagocytosis). +Platform advantages +Similar to biologics, ARMs directly engage patients’ immune system to destroy disease cells by connecting target disease cells with components of the immune system. However, unlike biologics, ARMs are smaller in size than an antibody potentially allowing for enhanced tumor penetration and biodistribution, and may offer manufacturing advantages including enhanced shelf stability. +ARM™ NK Combination Therapy +BHV-1100 +The BHV-1100 program is a CD-38 targeting NK ARM engager intended for use as a combination therapy in the treatment of multiple myeloma. Due to strategic re-prioritization within both our oncology-specific and non-oncology programs, and multiple changes in the treatment landscape for multiple myeloma since the inception of the open-label single center Phase 1a/b trial of BHV-1100 and such changes negatively impacting trial enrollment, the multiple myeloma trial is planned to end shortly. Alternative trial designs in multiple myeloma and additional indications for our ARM(TM) platform are being considered for possible development. +Antibody Drug Conjugates +We are using next-generation ADC conjugation technologies, including our MATE® platform, to generate site-specific antibody drug conjugates (“ADC”s) which have shown show superior preclinical stability in comparison with those using current industry-standard methodologies. Our expectation is that the enhanced in vivo stability and expected superior physicochemical properties of these ADCs will lead to increased therapeutic indices in patients (more cytotoxic payload reaching cancer cells and less free payload that can lead to off-target toxicities in normal tissues), consistent with early in vitro and in vivo (rodent and cynomolgus monkey) studies. +BHV-1510 +In January 2024, we acquired BHV-1510 through our acquisition of Pyramid Biosciences, Inc. ("Pyramid"). BHV-1510 is a next-generation Trophoblast Cell Surface Antigen 2 ("TROP-2") directed ADC. BHV-1510 utilizes a next-generation, highly stable site-specific conjugation, resulting in a favorable preclinical PK, toxicity and manufacturability profile. The ADC targets TROP2-expressing carcinomas, which are malignant neoplasms of epithelial origin. Carcinomas account for 80 to 90 percent of all cancer cases and several examples have been successfully treated with ADCs. Abundant TROP-2 expression has been described for many carcinoma subtypes. +Preclinically, BHV-1510 has shown high plasma stability, enhanced cellular cytotoxicity, bystander killing, and immunogenic cell death with a novel topoisomerase 1 inhibitor ("TopoIx") payload, resulting in improved efficacy as monotherapy, and synergistic efficacy in combination with anti-programmed cell death protein-1 ("anti-PD1") immune checkpoint inhibitor therapy. In IND-enabling GLP toxicology studies in cynomolgus monkeys, BHV-1510 showed a differentiated safety profile that suggests a wider therapeutic margin relative to more advanced TROP-2 ADCs, including a lack of lung toxicity, that may translate to an improved clinical efficacy and safety profile. +35 +Table of Contents +Our Phase 1/2 Study with BHV-1510 +The IND for BHV-1510 was approved by the FDA in January 2024. The First-in Human, Phase 1/2 trial evaluating BHV-1510 in patients with advanced solid tumors commenced in the second quarter of 2024. This trial consists of two parts; Phase 1 dose escalation and Phase 2 dose expansion, in patients with advanced incurable cancer that have progressed on or are intolerant to standard therapy. The trial will also evaluate BHV-1510 in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). In May 2024, we announced that we entered into a clinical supply agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron") under which we will sponsor and fund the planned combination Phase 1/2 clinical trial, and Regeneron will provide Libtayo®. +The primary objective of Phase 1 is to characterize the safety profile of BHV-1510 as monotherapy and in combinations with cemiplimab, and to identify a recommended dose for expansion ("RDE") or maximum tolerated dose. Phase 1 dose escalation will be implemented based on a Bayesian optimal interval design, with the lowest dose initiated as a single patient cohort. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every two or three weeks. The Phase 2 dose expansion part of the study will consist of non-randomized efficacy finding expansion cohorts, defined by specific tumor types that will be treated at the RDE to estimate the anti-tumor activity of BHV-1510. Up to approximately 220 subjects are planned to be evaluated. +In the first quarter of 2025, we announced preliminary data from the initial Phase 1 monotherapy dose escalation cohorts of BHV-1510, which demonstrated early evidence of clinical activity, including tumor shrinkage, with a safety profile of the TopoIx payload supporting further development. Clinical activity was seen in various monotherapy dose cohorts tested to date, including the lowest dose tested of 2mg/kg once every three weeks. Early PK data demonstrate a stable ADC with low serum concentrations of free payload. Preliminary safety data showed a lack of payload-associated interstitial lung disease, gastrointestinal toxicities, or significant hematological toxicities observed in early cohorts. The main toxicity observed thus far in the study has been stomatitis, an expected on-target Trop2 class toxicity. The Phase 1/2 study of BHV-1510 is progressing, with robust enrollment in dose escalation and optimization, both as monotherapy and in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). +Based on these early results, we have entered into an expanded collaboration agreement with GeneQuantum Healthcare Co. Ltd. ("GeneQuantum"), which provides broad target exclusivity for up to 18 ADC targets incorporating the TopoIx payload. +BHV-1530 +The next ADC incorporating the TopoIx payload that we plan to move into clinical development is BHV-1530. BHV-1530 is a fibroblast growth factor receptor 3 ("FGFR3")-directed ADC with potential indications in cancers driven by FGFR3 alterations and/or upregulated FGFR3 protein expression, including urothelial cancers and other solid tumors. FGFR3 is a clinically validated target in oncology, with one small molecule inhibitor (Balversa(R), erdafitinib) approved; however, to our knowledge there are currently no FGFR3-directed ADCs in clinical development. Biohaven retains global rights for BHV-1530 under an exclusive license with GeneQuantum (the "FGFR3 Agreement"). The U.S. IND for BHV-1530 was opened in the second half of 2024, and a FIH study for solid tumors is planned to initiate in the first half of 2025. +Our Phase 1 Study with BHV-1530 +The Phase 1 study will evaluate BHV-1530 in patients with advanced solid tumors, including patients whose cancers have progressed on or are intolerant to standard therapy. The primary objective of Phase 1 is to characterize the safety profile of BHV-1530, and to identify a recommended dose or maximum tolerated dose. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every three weeks. Up to approximately 95 subjects are planned to be evaluated. +BHV-1500 +BHV-1500 is a next-generation CD30-directed ADC generated using Biohaven's proprietary MATE(R) technology, targeting CD30-expressing tumors such as Hodgkin and non-Hodgkin lymphomas. Hodgkin lymphoma ("HL") is a malignant neoplasm of B-cells. Approximately 9,000 new HL cases are diagnosed each year. HL and other CD30-expressing lymphoma are characterized by the uncontrolled growth of malignant lymphocytes or lymphoblasts. A first-generation CD30 directed ADC, Adcetris (brentuximab vedotin), has demonstrated effectiveness in the treatment of Hodgkin's Lymphoma. +In preclinical CD30 expressing murine tumor models, BHV-1500 has shown improved antitumor activity versus Adcetris, and in preliminary cynomolgus monkey studies, BHV-1500 has shown substantially improved safety, plasma stability and pharmacokinetics. A regulatory interaction with the FDA to discuss the development plans for BHV-1500 is planned for the first half of 2025. +36 +Table of Contents +Merus Agreement +In January 2025, Biohaven announced a research collaboration and license agreement with Merus N.V. ("Merus") to co-develop three novel dual-targeting ADCs, leveraging Merus’ Biclonics® technology platform, and Biohaven’s next-generation ADC conjugation and payload platform technologies (the "Merus Agreement"). Pursuant to the Merus Agreement, Merus will receive an upfront payment and license fee at ADC candidate nomination of the first program, with Merus to assume the preclinical bispecific antibody generation cost, and Biohaven to assume the preclinical ADC generation cost. Thereafter, upon mutual agreement to advance each program, the parties plan to share further development and commercialization costs. +Clinical-Stage Milestones +Our clinical-stage milestones include the following: +Competition +The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary drugs. While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their safety, efficacy, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third-party payors. +Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. +37 +Table of Contents +Manufacturing +We have an experienced chemistry and manufacturing leadership team that manages our relationships with third party manufacturers. We currently rely, and expect to continue to rely, on third parties for the development and manufacturing of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing of our products if our product candidates receive marketing approval. +We expect to continue to develop product candidates that can be produced cost-effectively at contract manufacturing facilities. +Commercialization +We intend to develop and, if approved by the FDA, commercialize our product candidates in the United States, and we may commercialize or enter into distribution or licensing arrangements for commercialization rights for other regions. With respect to troriluzole, if approved for the treatment of adult patients with SCA, we currently intend to build a neurological specialty sales force to manage commercialization, potentially in combination with a larger pharmaceutical partner, to maximize patient coverage in the United States and to support global expansion. +Members of our management team and board of directors have deep experience leading immunology, neuroscience, and oncology research, and have been involved in the development and commercialization of drugs such as Abilify, Opdivo, Nurtec ODT and Zavzpret. +Our Chief Executive Officer, Vlad Coric, M.D. was the Chief Executive Officer of the Former Parent from 2015 through the Separation, leading the Former Parent’s development and successful commercial launch of Nurtec ODT (rimegepant) in the U.S., which received FDA approval for the acute and preventative treatment of migraine in February 2020 and May 2021, respectively. Under Dr. Coric’s leadership, the Former Parent entered into several strategic arrangements, including its Collaboration and License agreement with Pfizer, Inc. for the development of rimegepant and zavegepant outside of the United States. +Intellectual Property +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection ("RDP"). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +38 +Table of Contents +Patents and Patent Applications +We have many U.S. and foreign patents and patent applications in our portfolio related to the composition of matter, methods of use, methods of manufacture or formulations of our product candidates which have been filed in major markets throughout the world, including the U.S., Europe, the United Kingdom, Japan, Korea, China, Hong Kong and Australia. +Kv7 +In April 2022, we acquired Channel Biosciences, LLC. This acquisition included Channel’s Kv7 channel targeting platform and related patents and patent applications. The patents and patent applications are directed to the composition of matter of compounds that are activators of Kv7.2/Kv7.3 and their use in treating diseases such as epilepsy. U.S. Patent 10,851,067 (the “‘067 Patent”), issued December 1, 2020, specifically claims BHV-7000 and will expire in March 2039, not including possible patent term extensions. Ex-U.S. counterparts to the ‘067 patent have been granted in Australia, Israel, Korea, Mexico and New Zealand and patent applications to the ‘067 patent are pending in Brazil, Canada, China, European Union, United Kingdom, Hong Kong, Israel, India, Japan, Republic of Korea, New Zealand, Singapore and South Africa. The ex-U.S. patents, and patent applications, if granted, will expire in March 2039, not including possible patent term extensions in countries where such extensions are available. In addition, U.S. Patent 9,481,653 (the “‘653 patent”), issued November 1, 2016, claims a class of compounds including BHV-7000 and will expire in September 2035, not including possible patent term extensions. Ex-U.S. counterparts to the ‘653 patent are granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Netherlands, Norway and Sweden. The ex-U.S. patents will expire in September 2035, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/US23/10295, PCT/US23/63111, PCT/US23/63113 and PCT/US23/63115 directed to various Kv7 activator chemotypes were filed in January and February 2023. These applications are pending in the United States and major market countries. The patent applications, if granted, will expire in January/February 2043, not including possible patent term extensions in countries where such extensions are available. Other patent application directed to the combination treatment with a Kv7 activator and N-methyl-D-aspartate ("NMDA") receptor antagonist (PCT/US23/73125), a Kv7 activator and glutamate modulator (PCT/US23/73504), and a Kv7 activator and TDP-43 binder (PCT/US23/73491) were filed in August and September 2023. These applications are pending in the United States Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. The patent applications, if granted, will expire in August/September 2043, not including possible patent term extensions in countries where such extensions are available. +Troriluzole +We have a portfolio of patents and patent applications in the U.S. and foreign countries directed to prodrugs of riluzole, including, among others, U.S. Patent 10,485,791, issued November 26, 2019, which is directed to troriluzole and other prodrugs of riluzole. This patent expires in February 2036, not including possible patent term extensions. Ex-U.S. counterparts to the ‘791 patent have been granted in Albania, Armenia, Austria, Australia, Azerbaijan, Belgium, Brazil, Bulgaria, Belarus, Canada, Switzerland, China, Cyprus, Czechia, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, India, Ireland, Israel, Italy, Japan, Kyrgyzstan, Kazakhstan, Lithuania, Luxembourg, Latvia, Monaco, North Macedonia, Macao, Malta, Mexico, Netherlands, Norway, Philippines, Poland, Portugal, Republic of Korea, Romania, Serbia, Russia, Singapore, Sweden, Slovenia, Slovakia, Tajikistan, Turkmenistan, Turkey and South Africa. The ex-U.S. patents and patent applications will expire in February 2036, not including possible patent term extensions in countries where such extensions are available. In addition, the use of these compounds for treating OCD, ALS, SCA, depression, Alzheimer’s Disease and other diseases are described and claimed in these patents and patent applications. These patent applications are subject to an agreement with ALS Biopharma and FCCDC. In addition, we have filed patent applications relating to drug product formulations containing troriluzole and methods of using the formulations to treat various diseases, including, for example, the use of troriluzole with immunotherapies to treat ataxias, including among others U.S. Patent 12,102,618, issued October 1, 2024, which expires in November 2038, not including possible patent term extensions. Ex-U.S. patents and patent applications corresponding to the '618 patent will expire in November 2038, not including possible patent term extensions in countries where such extensions are available. In addition, another patent applications directed to the treatment of SCA3 (PCT/US23/67326) was filed in May 2023 and is pending in the United States and other major market countries. These patents, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. Also, a patent application directed to the use of troriluzole for treating OCD was filed in June 2021 (PCT/US21/38789) and national applications are pending in major jurisdictions. These patents, if granted, will expire in 2041, not including possible patent term extensions in countries where such extensions are available. Another patent application directed to the treatment of glioblastoma (PCT/US23/69038) was filed June 26, 2023 and is pending in the United States and other major market countries. +MoDE Platform, ARM Technology, MATE Conjugation Technology +In January 2021, we entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel MoDEs platform. The platform pertains to the clearance of disease-causing protein and +39 +Table of Contents +other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The platform is differentiated from existing approaches in that it does not rely on ubiquitin ligases, and it allows for a broad range of targets to be degraded. The patent portfolio is directed to the composition of matter of bifunctional degraders and their use in degrading circulating proteins and treating diseases. U.S. Patent No. 11,767,301, issued September 26, 2023, and U.S. Patent No. 12,083,181, issued September 10, 2024, relate to bifunctional molecules to degrade circulating proteins, including BHV-1300. Ex-U.S. counterparts to the '301 patent and '181 patent are pending in the European Union, Canada, China and Hong Kong, and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/046221, filed October 8, 2020, relates to bifunctional small molecules to target selective degradation of circulating proteins. Ex-U.S. counterparts to the '221 application have been filed in China, European Union and Hong Kong and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768166, filed April 11, 2022, relates to bifunctional compounds as degraders of autoantibodies. Ex-U.S. counterparts to the '166 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, European Union, Israel, Japan, Republic of Korea, Mexico, Philippines, Saudi Arabia, Singapore, and South Africa and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768145, filed April 11, 2022 relates to engineered antibodies as molecular degraders through cellular receptors. Ex-U.S. counterparts to the '145 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/017319, which relates to targeted bifunctional degraders, was filed February 22, 2022, and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/019658, which relates to bifunctional degraders of galactose deficient immunoglobulins, was filed March 10, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in March 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/075527 and PCT/US2022/075535, filed August 26, 2022, which relate to difunctional degraders of pathogenic anti-β1ECII (the second extracellular loop of the β1 adrenergic receptor) autoantibodies, are pending in the United States and major jurisdictions worldwide. PCT/US2024/026709, filed April 28, 2024, which relates to degraders of immunoglobulin G, including BHV-1310, is pending in the United States PCT Receiving Office designating all PCT countries. PCT/US2024/026733, filed April 29, 2024, which relates to bifunctional degraders of galactose deficient immunoglobulins, including BHV-1400, is pending in the United States PCT Receiving Office designating all PCT countries. +We also acquired Kleo Pharmaceuticals, Inc. in January 2021. This acquisition included Kleo’s proprietary technology platforms which are modular in design and enable rapid generation of novel immunotherapies that can be optimized against specified biological targets and combined with existing cell- or antibody-based therapies. These include ARM technology and MATE conjugation technology, which complement the MoDE technology licensed from Yale. U.S. Serial No. 17/769924, filed April 18, 2022, relates to directed conjugation technologies. Ex-U.S. counterparts to the '924 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in November 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/912563, filed September 19, 2022, relates to technologies for treating COVID infections. Ex-U.S. counterparts to the '563 application are pending in major market countries. PCT/US2022/015390, which relates to technologies for preventing or treating infections, was filed February 6, 2022 and is pending in the United States. PCT/US2022/029533, which relates to compositions including conjugated therapy enhancers, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/029535, which relates to agents for directed conjugation techniques and conjugated products, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/030070, which relates to antibody drug conjugates using MATE technology for delivering cytotoxic agents, including BHV-1500, was filed May 19, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/025746, filed April 23, 2024 relates to BHV-1500 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +TRPM3 +In January 2022, we entered into an exclusive global license and research agreement to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery (“CD3”) and the Laboratory of Ion +40 +Table of Contents +Channel Research (“LICR”) at Katholieke Universiteit Leuven (KU Leuven). PCT/EP2021/082853, which relates to aryl derivatives for treating TRPM3 mediated disorders, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Union, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, Taiwan and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. PCT/EP2021/082865, which relates to heterocycle derivatives for treating TRPM3 mediated disorders, including BHV-2100, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, Eurasia, European Union, Israel, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, Singapore, Taiwan, South Africa and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. U.S. Patent 9,194,863, issued November 24, 2015, which relates to screening methods for analgesic agents, has also been granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Italy, Netherlands and Sweden. The patents, will expire in May 2032, not including possible patent term extensions in countries where such extensions are available. In addition, seven PCT applications directed to various TRPM3 antagonist chemotypes were filed in May 2023 (PCT/EP2023/063992, PCT/EP2023/063994, PCT/EP2023/063996, PCT/EP2023/063997, PCT/US2023/067443, PCT/US2023/067446, PCT/US2023/067448). The patent applications, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. +Myostatin +In December 2021, we entered into a worldwide license agreement with Bristol Myers Squibb for the global development and commercialization rights to taldefgrobep alfa (BHV-2000), a novel, Phase 3-ready anti-myostatin adnectin. Myostatin is a natural protein that limits skeletal muscle growth, an important process in healthy muscular development. +U.S. Patent 8,853,154 issued October 7, 2014, U.S. Patent 8,933,199, issued January 13, 2015, U.S. Patent 8,993,265, issued March 31, 2015, U.S. Patent 9,493,546, issued November 15, 2016, U.S. Patent 9,662,373, issued May 30, 2017, U.S. Patent 10,245,302, issued April 2, 2019, U.S. Patent 10,406,212, issued September 10, 2019, and U.S. Patent 11,813,315, issued November 14, 2023, are directed to fibronectin based scaffold domain proteins that bind to myostatin. The U.S. patents expire in September 2033, not including possible patent term extensions. Ex-U.S. counterparts to the U.S. patents have been granted in Argentina, Austria, Australia, Belgium, Bulgaria, Brazil, Canada, Switzerland, Chile, China, Colombia, Czechia, Germany, Denmark, Algeria, Egypt, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, Indonesia, Ireland, Israel, India, Italy, Japan, Republic of Korea, Lithuania, Morocco, Macao, Mexico, Malaysia, Netherlands, Norway, New Zealand, Peru, Philippines, Poland, Portugal, Romania, Serbia, Russia, Sweden, Singapore, Slovenia, Slovakia, Thailand, Tunisia, Turkey, Taiwan, Uruguay, Venezuela, Vietnam and South Africa. The ex-U.S. patents will expire in September 2033, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 16/607688, filed May 3, 2018, relates to stable formulations fibronectin based scaffold domain proteins that bind to myostatin. Ex-U.S. counterparts to the '688 application have been granted in Israel, Japan, Korea and are pending in Australia, Canada, China, European Union, Hong Kong, Mexico, Singapore and Taiwan. The ex-U.S. patents and patent applications, if granted, will expire in May 2038, not including possible patent term extensions in countries where such extensions are available. +TYK2 / JAK1 +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Highlightll pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +U.S. Patent RE49834 (the “‘834 Patent”), having an issue date of February 13, 2024, is directed to BHV-8000 and will expire in September 2037, not including possible patent term extensions. Ex-U.S. counterparts to the ‘834 patent have been granted in Australia, European Union, Israel, India, Japan, Mexico, and New Zealand, and patent applications to the ‘834 patent are pending in Brazil, Canada, Eurasia, and Republic of Korea. The ex-U.S. patents and patent applications, if granted, will expire in September 2037, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2022/113807, filed August 22, 2022, which relate to methods of treating CNS disorders with dual TYK2/JAK1 inhibitors, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. The patent applications, if granted, will expire in August 2042, not including possible patent term extensions in countries where such extensions are available. +BHV-1510 +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger, dated January 7, 2024 ("the Pyramid Agreement"). As a result of the merger, the Company acquired rights under certain patents exclusively licensed to Pyramid from GeneQuantum Healthcare (Suzhou) Co. Ltd. +41 +Table of Contents +The licensed patents include the following, among others: PCT/CN2023/107444, filed July 14, 2023, which relates to anti-TROP2 antibodies and conjugates, including BHV-1510, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. PCT/CN2024/087405, filed April 12, 2024, which relates to combinations of antibody-drug conjugates and anti-PD-1 antibodies, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. PCT/CN2025/071669, filed January 10, 2025, which relates to pharmaceutical compositions of antibody-drug conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +BHV-1530 +In December 2024, the Company entered into a Development and License Agreement with GeneQuantum Healthcare (Suzhou) Co. Ltd. and Aimed Bio, Inc. relating to certain Fibroblast Growth Factor Receptor ADCs. The licensed patents include the following, among others: WO2024002154A1, published January 4, 2024, which relates to anti-FGFR3 antibody conjugates and medical uses thereof is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. WO2022149837, published July 14, 2022, which relates to anti-FGFR3 antibodies and uses thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea and the United States. WO2023088235, published May 25, 2023, which relates to exatecan derivatives, linker-payloads and conjugates thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea, Mexico and the United States. WO2022160156, published August 4, 2022, which relates to ligase fusion proteins and applications thereof, is pending in Australia, China, the European Patent Office, Japan, Korea and the United States. +Licensing and Other Agreements +In addition to our independent efforts to develop and market products, we from time to time enter into agreements such as licensing agreements, option-to-license agreements and strategic collaborations. The licensing and other agreements typically include, among other terms and conditions, non-refundable upfront license fees, option fees and option exercise payments, milestone payments and royalties. See Note 10, "License, Acquisitions and Other Agreements," to the Consolidated Financial Statements included in this report for additional information regarding our licenses and other agreements. +Government Regulation +In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (the "FDCA") and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including imposition of a clinical hold, refusal by the FDA to approve applications, withdrawal of an approval, import/export delays, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. +The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include: +• preclinical laboratory tests and animal tests conducted under Good Laboratory Practices ("GLP"); +• the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence; +• approval by an independent institutional review board ("IRB"), representing each clinical site before each clinical trial may be initiated; +• adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication and conducted in accordance with Good Clinical Practices ("GCP"); +• the preparation and submission to the FDA of an NDA; +• FDA acceptance, review and approval of the NDA, which might include an Advisory Committee review; +• satisfactory completion of an FDA inspection of the manufacturing facilities at which the product, or components thereof, are made to assess compliance with current Good Manufacturing Practices ("cGMPs"). +42 +Table of Contents +The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. +Preclinical and Human Clinical Trials in Support of an NDA +Preclinical studies include laboratory evaluations of the product candidate, as well as in vitro and animal studies to gather information on the safety and efficacy of the product candidate. The conduct of preclinical trials is subject to federal regulations and requirements including GLP regulations. The results of the preclinical studies, together with manufacturing information and analytical data, among other things, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. The FDA may nevertheless initiate a clinical hold after the 30 days if, for example, a deficiency is found in the IND application. +Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCP requirements. Each clinical trial must be reviewed and approved by an IRB at each of the sites at which the trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. +Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap or be combined. These phases generally include the following: +Phase 1 . Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics. +Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population with a specific disease or condition to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks. +Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product approval and labeling. +Phase 4. Clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in enforcement action or withdrawal of approval. +A Phase 2/3 trial design, which we have used in our troriluzole development program, is often used in the development of pharmaceutical and biological products. The trial includes Phase 2 elements, such as an early interim analysis of safety or activity, and Phase 3 elements, such as larger patient populations with less restrictive enrollment criteria. An early interim analysis of clinical or physiologic activity and/or safety allows the study to be stopped, changed or continued before a large number of patients have been enrolled, while still allowing all data from enrolled patients to count in the analysis used to support approval. +Submission and Review of an NDA +The results of preclinical studies and clinical trials, together with detailed information on the product's manufacture, composition, quality, controls and proposed labeling, among other things, are submitted to the FDA in the form of an NDA, requesting approval to market the product. The application must be accompanied by a significant user fee payment, which typically increases annually, although waivers may be granted in limited cases. The FDA has substantial discretion in the approval process and may refuse to accept an application if they determine that the data are insufficient for approval and require additional nonclinical, clinical or other studies. +Once an NDA has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA sets a user fee goal date that informs the applicant of the specific date by which the FDA intends to complete its review and take an action on the application. A standard review typically takes 10 months from the date that the application is accepted for filing by the FDA and a priority review typically takes 6 months from the date that the application is accepted by the FDA for filing. The review process can be extended by FDA requests for additional information or clarification. The FDA reviews NDAs to +43 +Table of Contents +determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA typically will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities comply with cGMPs. Additionally, the FDA will typically inspect one or more clinical trial sites, as well as the Sponsor of the NDA, for compliance with GCP and integrity of the data supporting safety and efficacy. +During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy ("REMS") is necessary to assure the safe use of the product post approval. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as a boxed warning, to be included in the product label in order to highlight a particular safety risk. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. +On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA will issue either an approval of the NDA or a Complete Response Letter ("CRL"), detailing the deficiencies in the submission and the additional testing or information required for reconsideration of the application. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the application, or request a hearing. Even with submission of this additional information, the FDA may ultimately decide that the application does not satisfy the regulatory criteria for approval. +Post-Approval Requirements +Approved drugs that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims and some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for marketed products. +The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance programs to further assess and monitor the product's safety and effectiveness after commercialization. The FDA may also require a REMS, which could involve requirements for, among other things, medication guides, special trainings for prescribers and dispensers, patient registries, and elements to assure safe use. +In addition, entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA has promulgated specific requirements for drug cGMPs. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. +Once an approval is granted, the FDA may issue enforcement letters or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay product distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; +• fines, warning letters or holds on post-approval clinical trials; +44 +Table of Contents +• refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; or +• injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities. +Section 505(b)(2) NDAs +As an alternative path to FDA approval for modifications to formulations or uses of drugs previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments. A Section 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use from the company by or for whom the investigations were conducted. This type of application permits reliance for such approvals on literature or on an FDA finding of safety, effectiveness or both for an approved drug product. As such, under Section 505(b)(2), the FDA may rely, for approval of an NDA, on data not developed by the applicant. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for the new indication sought by the 505(b)(2) applicant. +Our clinical program for troriluzole for the treatment of SCA and the treatment of OCD is based on a regulatory pathway under section 505(b)(2) of the FDCA that allows reference to data on riluzole for the purpose of safety assessments. +Product Exclusivity - United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation at least in part for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a Biologic License Application ("BLA") is filed. The type of application filed affects regulatory data protection (“RDP”) exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an Abbreviated New Drug Application ("ANDA") with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, could be filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file +45 +Table of Contents +its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA, which includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the European Commission ("EC") and the EC then approves or denies the MAA. Regulatory approval via the centralized procedure results in a marketing authorization for the innovative pharmaceutical product in each EU member state. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed after October/November 2005 are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the +46 +Table of Contents +innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +To obtain marketing authorization of pharmaceutical products in Japan, an NDA must be submitted to the Pharmaceutical and Medical Devices Agency (“PMDA”) once safety and efficacy has been established. In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +China +To obtain marketing authorization of pharmaceutical products in China, an NDA must be submitted to the National Medical Products Administration ("NMPA") once safety and efficacy has been established in Chinese patients. For imported drugs, this means issuance of an import license. The applicant must submit evidence of foreign approval (certificate of pharmaceutical product), unless it is an innovative drug that has never been approved anywhere in the world. +In China, medicines of new chemical entities are generally afforded six years of data exclusivity for approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +South Korea +To obtain marketing authorization of pharmaceutical products in South Korea, a marketing application must be submitted to the Ministry of Food and Drug Safety ("MFDS"). The application must contain data in South Korean patients, information regarding safety and efficacy, quality, a good manufacturing practice certificate, and a certificate of pharmaceutical product in an approved country to show that the drug being imported is being sold in the approved country in accordance with the with the relevant rules and regulations in that country. +In South Korea, medicines of new chemical entities are generally afforded six years of data exclusivity for first approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +Rest of the World +In countries outside of the U.S., the EU, Japan, China and South Korea, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization ("WTO") commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +Coverage, Reimbursement and Pricing +Challenges exist that pertain to the coverage and reimbursement status of any products for which regulatory approval is sought. In the United States and foreign markets, sales of any products that receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities, such as Medicare and Medicaid, and private entities, such as managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. The latter is often informed by entities such as the Institute for Clinical and Economic Review ("ICER") which provides a reimbursement rate based on a multifactorial value assessment. Admittedly, ICER value assessments are more pertinent to the U.S. environment. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Typically, patients must "step through," or fail less expensive therapies such as generics in order to be prescribed a branded therapy. Moreover, a third-party payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor's reimbursement payment rate may not be adequate or may require patient co-payments that patients find unacceptably high. Additionally, coverage and +47 +Table of Contents +reimbursement for products can differ significantly from one payor system to the next. Private payor systems set reimbursement policy in accordance with their particular model. For example, some payor systems mandate value based pricing wherein a particular price point is premised upon achieving a particular goal. These can include an improvement in patients’ clinical course (therapeutic effectiveness), or reductions in drug and health care utilization and cost. Thus a third-party payor's decision to cover a particular product does not ensure that other payors will also provide the same level of coverage for the product, or will provide coverage at an adequate reimbursement rate. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +Third-party payors require evidence of value that are supplemental to the regulatory mandates of safety and efficacy in order to support a particular price. To obtain coverage and reimbursement for any product that might be approved for sale, there is often a need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity (based on evidence of disease burden and unmet need) and cost-effectiveness of the therapy. As mentioned, the ICER evidence review mandates such information. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, they may deem a subpopulation of eligible patients based on greater unmet need as eligible for reimbursement. Thus, obtaining and maintaining reimbursement status can be time-consuming and costly. However, drug developers accept these requirements as a condition of reimbursement, analogous to their acceptance of the level of evidence needed to obtain regulatory approval. +The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. For example, the U.S. and particularly state legislatures have implemented cost containment programs that include price controls, restrictions on reimbursement and "first use" of generic products prior to access to branded prescriptions. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("collectively, the ACA") contains provisions such as increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. The Centers for Medicare and Medicaid Services ("CMS") may develop new payment and delivery models, such as bundled payment models. For example, the U.S. Department of Health and Human Services ("HHS") moved 41% of Medicare fee-for-service payments to alternative payment models ("APMs") tied to the quality or value of services by the end of 2018. HHS has a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. These constitute significant challenges, which are analogous to the regulatory hurdles in many aspects and drug developers acknowledge these challenges as the path to providing safe and effective therapies to the patients that require them. +European Union Coverage Reimbursement and Pricing +In the European Union, pricing and reimbursement requirements can vary widely from country to country. These may range from ICER-like value assessments (e.g. NICE in the U.K. and SMC in Scotland) that include cost-effectiveness parameters to criteria that are based solely on a novel therapy’s incremental effectiveness (efficacy, safety) relative to approved standards of care. These latter criteria may require additional studies. All of these are compiled as country-specific health technology assessments ("HTAs"), that constitute a requisite for reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of access restrictions that typically target sub populations with high unmet need. Sponsors are expected to demonstrate incremental value including effectiveness in these subpopulations via additional analyses. +Healthcare Laws and Regulations +Physicians, other healthcare providers, and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Futur e arrangements wi th healthcare professionals, principal investigators, consultants, customers and third-party payors are and will be subject to various federal, state and foreign fraud and abuse laws and other healthcare laws and regulations. These laws and regulations may impact, among other things, healthcare professionals who participate in our clinical research programs, and our proposed sales, marketing, distribution, and education programs. The U.S. federal and state healthcare laws and regulations that may affect our ability to operate include, without limitation, the following: +• The federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs, such as Medicare and Medicaid. The term "remuneration" has been broadly interpreted to include anything of value; +48 +Table of Contents +• The federal civil and criminal false claims laws, including, without limitation, the federal civil monetary penalties law and the civil False Claims Act (which can be enforced by private citizens through qui tam actions), prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government; +• The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") enacted as part of the American Recovery and Reinvestment Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, on entities subject to the law, such as healthcare providers, health plans, and healthcare clearinghouses and their respective business associates to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosures; +• The federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, and other programs such as CHIP to report to HHS information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; and +• Analogous state laws and regulations, such as state anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers; and state health information privacy and data breach notification laws, which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and some of which are not pre-empted by HIPAA, thus complicating compliance efforts. +We are required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Healthcare reform legislation has strengthened these federal and state healthcare laws. For example, the ACA amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Violations of these laws can subject us to criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and reputational harm, we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business. +Healthcare Reform +The legislative landscape in the United States continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states, without specifically ruling on the ACA’s constitutionality. +The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following: +• an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; +49 +Table of Contents +• a Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; +• requirements to report certain financial arrangements with physicians and certain others, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests; +• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; +• a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; +• extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; +• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; +• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; +• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and +• establishment of the Center for Medicare Innovation at the Centers for Medicare and Medicaid Services ("CMS"), to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. In January 2021, an Executive Order entitled “Executive Order on Strengthening Medicaid and the Affordable Care Act” repealed two previous Executive Orders delaying the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that amend all or part of the ACA. +In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. +Further, there have been several Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion. In August 2022, Congress passed the Inflation Reduction Act of 2022 (the "IRA"), which, among other things, requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). Subsequently, certain pharmaceutical companies and other entities filed lawsuits in various courts against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. While some of these cases are on appeal, HHS has generally won the substantive disputes in these cases, and various federal district court judges expressed skepticism regarding the merits of the legal arguments being pursued by the pharmaceutical industry. Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results. In addition, recent administrations have released various executive orders with provisions aimed at, among other things, prescription drug pricing, lowering drug costs for Medicare and Medicaid beneficiaries and setting forth various potential policies or actions that Congress or administrative agencies could pursue. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +50 +Table of Contents +At the state level, legislatures are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. +The Foreign Corrupt Practices Act +The Foreign Corrupt Practices Act (the "FCPA") prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts. +Environmental, Social, Governance, and Human Capital +Governance and Leadership +Our commitment to integrating sustainability across our organization begins with our Board of Directors. The Nominating and Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance (“ESG”). Six of our eight directors are independent under the NYSE’s listing standards for independence. +Business Ethics +We are committed to creating an environment where we are able to excel in our business while maintaining the highest standards of conduct and ethics. Our Code of Business Conduct and Ethics (the “Code of Conduct”) reflects the business practices and principles of behavior that support this commitment, including our policies on bribery, corruption, conflicts of interest and our whistleblower program. We expect every director, officer, and employee to read, understand and comply with the Code of Conduct and its application to the performance of his or her business responsibilities. +We encourage employees to come to us with observations and complaints, and we strive to understand the severity and frequency of an event in order to escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and report. Incidents are reported up to the Board of Directors on a quarterly basis. +Environmental Commitment +We are committed to protecting the environment and attempt to mitigate negative impacts of our operations. We monitor resource use, and aim to improve efficiency, and at the same time reduce our emissions and waste. +Externally, we strive to reduce the overall impact of our product on the environment by taking steps to enhance the sustainability of our manufacturing processes for our drug substances. +In collaboration with our contract research organization partners, we apply various green chemistry methodologies to our commercial and development pipeline. We have especially focused on using biocatalysis, a technology that makes use of enzymes instead of chemicals to accomplish specific chemical reactions used to construct organic small molecules such as Active Pharmaceutical Ingredients. +We have also initiated work in removing hazardous organic solvents from certain reactions and replacing them with water. This green technology relies on the use of micelles to enable such reactions to occur in water where they would normally not occur due in part to the very poor solubility of most organic compounds in water. These greener processes create less waste and reduce the environmental impact of the manufacturing process. +Social Responsibility +For third-party vendor selection and oversight, we have adopted standard operating procedures that apply to employees and subcontractors who on our behalf, oversee and conduct research regulated by the FDA. We retain ultimate +51 +Table of Contents +authority and responsibility for the conduct of regulated research, manufacturing, and testing and we must ensure that contracted services are conducted in accordance with Good Practice Guidelines and all applicable regulations. +Human Capital Management +We foster and encourage a workplace environment that holds possibilities for everyone, with a commitment to respect and acceptance without biases. +Development and continuous feedback are priorities for our organization, which was comprised of 256 employees as of December 31, 2024. We believe each person is critical to our success and we invest in our people by supporting continuous training programs and courses. We encourage each employee to engage with their manager in developmental discussions designed to focus on feedback rather than a rating. +An important part of our talent recruitment is our robust paid internship program for high school, college and graduate-level students. This program offers opportunities to students in the community and develops a roadmap for ‘entry-level’ candidates. We evaluate the success of our recruitment program through metrics such as time to hire, offer acceptance rate, turnover rate and business results. +We strive to provide an inclusive workplace to foster growth and innovation. Biohaven engages in forward-thinking people policies to allow for our employees to thrive in our workforce. Regular attendance at an office is only required of our lab professionals, allowing over 50% of our workforce to work remotely full-time. Our vacation policy is unlimited and is aimed at giving employees the ability to achieve work/life balance in a way that is bespoke to their circumstances. +Information about Segments +We currently operate in a single business segment developing a portfolio of treatments in therapeutic areas including neuroscience, immunology and oncology. See additional information in our financial statements contained in Part II, Item 8 of this Annual Report. +Corporate Information +We are a business company limited by shares organized under the laws of the British Virgin Islands. Our registered office is located at P.O. Box 173, Road Town, Tortola, British Virgin Islands and our telephone number is +1 (284) 852-3000. Our U.S. subsidiary's office is located at 215 Church Street, New Haven, Connecticut 06510 and telephone number is (203) 404-0410. Our website address is www.biohaven.com. The information contained on our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in making an investment decision regarding our common shares. On September 16, 2022, the Company changed its name from “Biohaven Research Ltd.” to “Biohaven Ltd.” +Available Information +Our internet website address is www.biohaven.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report. +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). A copy of these reports is also available at the SEC's website (www.sec.gov). +52 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001935979/2024/0001935979-25-000015/item13.txt b/raw/filings/0001935979/2024/0001935979-25-000015/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..6107fd4cd582bb2acc8762bad13b07d8f423bbde --- /dev/null +++ b/raw/filings/0001935979/2024/0001935979-25-000015/item13.txt @@ -0,0 +1,3 @@ +Item 13 : +Certain Relationships and Related Transactions, and Director Independence +108 \ No newline at end of file diff --git a/raw/filings/0001935979/2025/0001935979-26-000020/filing.txt b/raw/filings/0001935979/2025/0001935979-26-000020/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..137a9d7d51943ffe2e5bfe8d95d6e942c00ce9ad --- /dev/null +++ b/raw/filings/0001935979/2025/0001935979-26-000020/filing.txt @@ -0,0 +1,2996 @@ +bhvn-20251231 +0001935979 2025 FY false 1 1 0.5 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+____________________________________________________________________________ +FORM 10-K +____________________________________________________________________________ +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____ to ______ +Commission File Number: 001-41477 +Biohaven Ltd. +(Exact Name of Registrant as Specified in its Charter) +____________________________________________________________________________ +British Virgin Islands +Not applicable +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +c/o Biohaven Pharmaceuticals, Inc. +215 Church Street , New Haven , Connecticut +06510 +(Address of principal executive offices) (Zip Code) +( 203 ) 404-0410 +(Registrant's telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol Name of each exchange on which registered +Common Shares, without par value BHVN New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☒ +Accelerated filer ☐ +Non-accelerated filer ☐ +Smaller reporting company +☐ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý +The aggregate market value of the registrant's common shares held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2025, based on the last reported sale price of the registrant's common shares on the New York Stock Exchange on June 30, 2025 of $14.11, was $ 1.044 billion. The calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose. As of February 26, 2026, there were 150,417,084 common shares, no par value per share, outstanding. +Documents Incorporated by Reference +Portions of the registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 for its 2024 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. +Unless the context requires otherwise, references in this report to “Biohaven,” the “Company,” “we,” “our” or “us” refer to Biohaven Ltd. and its subsidiaries. +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K, or this report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would”, or the negative of these terms or other comparable terminology. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies or state other forward-looking information. +These forward-looking statements include, but are not limited to, statements about: +• our ongoing and planned clinical trials, including discovery and proof-of-concept trials, the status of our ongoing clinical trials, commencement dates for new clinical trials, and the timing of clinical trial results; +• our plans to pursue research and development of product candidates; +• anticipated future milestones, contingent and royalty payments and lease payments (and, in each case, their expected impact on liquidity); +• our commercialization, marketing and manufacturing capabilities and strategy; and +• our estimates regarding future revenues, expenses and needs for additional financing. +Important factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook include, but are not limited to, the following: +• future business combinations or disposals; +• our ability to enter into additional collaborations with third parties; +• the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; +• our intellectual property position; +• the rate and degree of market acceptance of our products or product candidates, and our estimates regarding the potential market opportunity for our product candidates; +• our competitive position, including our competitors and competing products (including biosimilars); +• the impact of economic conditions, including volatility in interest rates and inflation, on the costs of raw materials, wages, manufacturing and clinical trials and on borrowing costs; +• the timing and anticipated amounts of future tax payments and benefits (including the potential recognition of unrecognized tax benefits), as well as the timing of conclusion of tax audits; +• the impact of disruptions at the FDA and other government agencies that could prevent new products from being developed or commercialized in a timely manner, or negatively impact the approval of an NDA, BLA or similar application; and +• other factors identified elsewhere in this Annual Report on Form 10-K and our other filings with the SEC. +Any forward-looking statements in this report reflect our current views with respect to future events and with respect to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part I, Item 1A. Risk Factors, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report. Given these uncertainties, you should not place undue reliance on any forward-looking statements. Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, even if new information becomes available in the future. +This report contains estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analyses that may, in the future, not prove to have been accurate. +Note Regarding Trademarks +We have proprietary rights to a number of registered and unregistered trademarks worldwide that we believe are important to our business. We have, in certain cases, omitted the ® and ™ designations for these and other trademarks used in this Annual Report on Form 10-K. Nevertheless, all rights to such trademarks are reserved. These and other trademarks referenced in this Annual Report on Form 10-K are the property of their respective owners. +TABLE OF CONTENTS +Page +Part I +Item 1 : +Business +1 +Item 1A : +Risk Factors +51 +Item 1B : +Unresolved Staff Comments +89 +Item 1 C: +Cybersecurity +89 +Item 2 : +Properties +90 +Item 3 : +Legal Proceedings +90 +Item 4 : +Mine Safety Disclosures +91 +Part II +Item 5 : +Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +92 +Item 6 : +Reserved +93 +Item 7 : +Management's Discussion and Analysis of Financial Condition and Results of Operations +94 +Item 7A : +Quantitative and Qualitative Disclosures About Market Risk +106 +Item 8 : +Financial Statements and Supplementary Data +106 +Item 9 : +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +106 +Item 9A : +Controls and Procedures +106 +Item 9B : +Other Information +109 +Item 9C: +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +109 +Part III +Item 10 : +Directors, Executive Officers and Corporate Governance +110 +Item 11 : +Executive Compensation +110 +Item 12 : +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +110 +Item 13 : +Certain Relationships and Related Transactions, and Director Independence +110 +Item 14 : +Principal Accountant Fees and Services +110 +Part IV +Item 15 : +Exhibit and Financial Statement Schedules +111 +Item 16 : +Form 10-K Summary +113 +Signatures +114 +Table of Contents +PART I +Item 1. Business +Overview +Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution to holders of its common shares of all of our outstanding common shares and the spin-off of Biohaven Ltd. from the Former Parent (the “Separation”). As a result of the Separation, Biohaven became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange on October 4, 2022. +In the fourth quarter of 2025, we initiated strategic portfolio and cost-optimization measures to prioritize three key, late-stage, clinical programs that we believe have the greatest potential for value generation. Our key clinical programs include Kv7 ion channel modulation for epilepsy; Molecular Degrader of Extracellular Proteins (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP") extracellular protein degradation for immunological diseases; and myostatin-activin pathway targeting agent for neuromuscular and metabolic diseases, including obesity (collectively, the "key programs"). The product candidates chart below summarizes our most advanced programs, including those that are key clinical stage programs and some of our preclinical programs that are beginning to advance to the clinic. +Product Candidates +The following table summarizes our programs for our product candidates. We hold the worldwide rights to substantially all of our product candidates. +1 +Table of Contents +Key Programs +MoDE and TRAP Degraders +Bispecific Molecular Degraders of Extracellular Proteins and TRAP Degraders +Biohaven Molecular Degrader of Extracellular Protein (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP"™) degraders harness selectivity, rapidity and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE or TRAP degrader is a novel bispecific molecule that targets a specific form of disease-causing circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. The first extracellular protein degraders in the clinic, three MoDE and TRAP degraders have now been dosed in Phase 1 trials. Our lead MoDE, BHV-1300, has demonstrated deep lowering of IgG > 80% in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. Data in the first Graves' patient dosed with BHV-1300 demonstrated complete suppression of autoantibodies targeting the TSH receptor and normalization of T3 and T4 within one month of dosing. We plan to initiate a pivotal trial in 2026. +BHV-1400 , Biohaven's first TRAP molecule, is designed to specifically target the pathogenic driver of IgAN, galactose deficient IgA1 (Gd-IgA1) without suppressing the healthy immune system. BHV-1400 has been dosed in a clinically concluded phase 1 study in normal healthy volunteers and continues to be dosed in an expansion cohort of IgAN patients with plans to initiate the pivotal study in IgAN patients in 2026. Data from the first, and lowest, dose cohort of BHV-1400 demonstrated clear differentiation from competitors in the IgA nephropathy space, with deep, rapid lowering of Gd-IgA1 within hours and preservation of host immunoglobulins ("Ig") including IgG, IgA, IgE, and IgM. These results have now been re-capitulated in the first IgAN patients dosed, with improvements noted in hematuria, proteinuria, and eGFR within the first month of dosing. +BHV-1300 +BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1300 was rationally designed to spare IgG3, potentially allowing for preservation of host defense. BHV-1300 is being developed for the treatment of common immune mediated-diseases, such as Graves' Disease and Rheumatoid Arthritis ("RA"). Graves' Disease is a disease in which IgG1 autoantibodies stimulate the thyroid to produce excess thyroid hormone. Targeted removal of disease-causing IgG has the potential to eliminate the pathogenic thyroid-stimulating antibody and modify the disease. Graves' Disease is estimated to impact 1% of the population globally. RA is a chronic autoimmune disease estimated to affect 1 to 2% of the global population. RA primarily affects the joints, causing pain, swelling, stiffness, and loss of function. +2 +Table of Contents +We evaluated the effect of single and multiple doses of BHV-1300 in cynomolgus monkeys. In September 2023, we reported data from confirmatory studies that showed a 75-80% reduction of IgG levels two days after a single dose and over 90% of IgG lowering after three doses. +Maximal lowering across FcRn inhibitors is 60-80% within approximately 7 to 21 days after initiation of single or multiple doses, respectively, in cynomolgus. In contrast, a single dose of BHV-1300 lowers IgG by approximately 75 to 80% after approximately 2 days, and after three rapid doses to greater than 90% lowering. The length of significant exposure to BHV-1300 is approximately one day within the dosage interval compared to continuous exposure required of the FcRn inhibitors. Mechanism-related liabilities of FcRn inhibitors seen in animals and humans, including hypoalbuminemia and hypercholeresterolemia, are not expected and do not occur with BHV-1300 in cynomolgus. See figures below comparing the speed and depth of lowering to FcRn inhibitors. +3 +Table of Contents +In January 2024, we reported preclinical pharmacodynamic single dose data with BHV-1300 which demonstrated the Biohaven IgG degrader technology allows for co-administration with Fc-containing biologics. The PK of Humira® was unaltered after being dosed 12 hours after BHV-1300 administration (see figure below). +* Adapted from BLA 761154, IND 116471, Study no. r-fkb327-01 +Our Phase 1 Study with BHV-1300 +The Phase 1 SAD study examining BHV-1300 in healthy subjects was initiated in the first quarter of 2024. In May 2024, we reported preliminary results from our Phase 1 study of BHV-1300. These results in healthy subjects demonstrated that BHV-1300 rapidly and selectively lowers IgG in a dose-dependent manner in the first 4 cohorts completed to date (see figure below). Preliminary IgG lowering data was consistent with modeling, with dose- and time-dependent IgG lowering observed even in initial low-dose cohorts. Some subjects experienced IgG reductions as low as 50 to 70% of baseline. BHV-1300 demonstrated reduction of IgG without significantly impacting LFTs, albumin, LDL cholesterol or other serum labs. BHV-1300 has been safe and well tolerated to date, with no serious or severe adverse events. Most adverse events ("AEs") were mild, deemed unrelated to study drug and resolved spontaneously. As expected from the selectivity of the molecule for IgG, when compared to placebo, there were no meaningful reductions in average IgA, IgM or IgE levels during the week after dosing. No adverse trends have been observed in vital signs or ECGs. Modeling suggested additional cohorts in the Phase 1 study would achieve greater than 70% lowering of IgG utilizing doses compatible with subcutaneous administration. +The Phase 1 study has also compared intravenous and subcutaneous administration of BHV-1300. Subcutaneous administration of BHV-1300 demonstrated an average of approximately 44% higher than expected exposure compared to the dose-equivalent intravenous formulation without injection site reactions. This new human data confirms the feasibility of our plan for convenient dosing of BHV-1300 with a patient self-administered subcutaneous autoinjector. +In the fourth quarter of 2024 we provided an update to our Phase 1 study of BHV-1300, reporting that subcutaneously administered BHV-1300 achieved deep lowering of targeted IgG (IgG1, IgG2, IgG4, over IgG3), with reductions over 60% in the lowest subcutaneous dose tested in the ongoing MAD study. Subcutaneous BHV-1300 achieved progressive reduction in IgG within hours of each weekly dose administration in the MAD, and pharmacodynamic effects were sustained relative to baseline over the four-week study period. BHV-1300 has been safe and well-tolerated across the Phase 1 study. There were no clinically significant effects on albumin or liver function, and no increases in cholesterol were noted. Further enhancing the competitive safety profile and as intentionally designed, plasma IgG3 levels were preserved through the end of study week 4 to allow for healthy immune effector functioning. All AEs were mild, any drug-related AE resolved, and there were no discontinuations due to study drug related AEs. The optimized subcutaneous formulation in the MAD also showed substantially less inter-patient variability compared to previously reported intravenous BHV-1300. In addition, we announced that we entered into an agreement with Ypsomed to develop and manufacture BHV-1300 in an easy-to-use, autoinjector for self-administration intended for commercialization. +In March 2025, we provided further updates to our ongoing Phase 1 study of BHV-1300. In the four-week Phase 1 study, subcutaneously administered BHV-1300 at a dose of 1000 mg weekly achieved rapid, deep and sustained reductions +4 +Table of Contents +in total IgG of up to 84%, with a median reduction of 80%. Reductions occurred within hours of each dose, were progressive, and were sustained compared to baseline over the four-week period. +In May 2025, we released new data from our clinically concluded Phase 1 study of BHV-1300. In the Phase 1 multiple-dose study, subcutaneously administered BHV-1300 achieved IgG reductions up to 87%. Median maximum reductions of 83% were achieved within 18 days (see figure below). We recently reported the 1000 mg weekly dose achieved rapid, deep and sustained reductions in total IgG of up to 84%, with a median reduction of 80% by Week 4. Reductions at all doses occurred within hours of administration, were progressive, and effects were durable between dosing intervals. The range of IgG lowering enabled by different dose levels of BHV-1300 offers tunability and flexibility in dosing paradigm, with higher doses planned for management of acute conditions, and lower, less frequent dosing planned for the management of chronic disease. +In the preliminary data reported, BHV-1300 was safe and well-tolerated in subcutaneous doses up to 2000 mg with no clinically significant increases in ALT, AST, or bilirubin, no clinically significant reductions in albumin, and no clinically significant increases in cholesterol over the four-week dosing period compared to placebo. There were no clinically significant reductions in IgG3, IgA, IgE, or IgM compared to baseline. Most AEs were mild and self-resolving, and there were no serious or severe AEs. A Phase 1b study has been initiated to evaluate the effect in participants with Graves' disease. We plan to initiate a pivotal trial of BHV-1300 in Graves’ disease in 2026 and expect to pursue additional follow-on studies in other autoimmune diseases. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +In January 2025, we announced that the first-in-patient clinical experience with BHV-1300 resulted in a complete suppression of disease-causing TSH receptor-stimulating antibodies with accompanying normalization of previously elevated thyroid hormones within weeks after dosing a patient with Graves' disease. +5 +Table of Contents +BHV-1400 +BHV-1400 is the first TRAP degrader introduced by Biohaven, a selective MoDE which is being developed to target Gd-IgA1, an aberrant immunoglobulin that drives IgA Nephropathy (see figure below). +Specific removal of pathogenic Gd-IgA1 and associated circulating immune complexes with preservation of normal IgA potentially permits disease remission without incurring an infection risk. We shared preliminary data demonstrating the chimeric antibody-ASGPR ligand conjugate specifically mediated endocytosis of Gd-IgA1, as opposed to normal IgA1 and IgA2, in an endocytosis assay with ASGPR-expressing cell lines, and that TRAP degraders successfully internalize and degrade these immune-complexes. In mice, after deposition of Gd-IgA1 in the glomerular mesangial matrix followed by administration of BHV-1400, Gd-IgA1 is progressively removed and no longer detected by six hours. +Our Phase 1 Study with BHV-1400 +We initiated Phase 1 studies of BHV-1400 in the fourth quarter of 2024. The first-in-human ("FIH") trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1400 in healthy volunteers. In the first quarter of 2025, Biohaven announced deep and selective lowering of Gd-IgA1 with the first dose cohort tested in the SAD. Subjects achieved median Gd-IgA1 lowering of 60% within 4 hours of dose administration without clinically significant lowering of healthy immunoglobulins IgA, IgE, IgM, or IgG. As a next generation TRAP degrader, BHV-1400 is a potential therapeutic for the treatment of IgA nephropathy, and highlights the precision of MoDE platform molecules in their ability to selectively remove a pathogenic disease-causing protein without suppressing the healthy immune system. +In May 2025, we announced further data from the Phase 1 study of BHV-1400. In the Phase 1 study, a single dose of BHV-1400 was subcutaneously administered at a dose of 500 mg and achieved rapid, deep and sustained reductions in +6 +Table of Contents +Gd-IgA1 of up to 81%, with a median reduction of 66% (see figure below). Reductions occurred within hours of each dose, were progressive, and were sustained for weeks after a single dose administration. Effects were selective, with no significant reductions observed in other immunoglobulins: IgA, IgG, IgE, or IgM. +BHV-1400 has been safe and well-tolerated across the ongoing Phase 1 study. Most AEs were mild and self-resolving, there were no discontinuations due to study drug related AEs, and there were no serious or severe study drug related AEs. There were no clinically significant increases in ALT, AST or bilirubin, no clinically significant reductions in albumin and no clinically significant increases in cholesterol relative to placebo over the 4-week dosing period. There were no clinically significant reductions in other immunoglobulins including IgG, IgA, IgE, or IgM relative to baseline. Based upon the rapid and deep reductions of Gd-IgA1 observed with SC BHV-1400, we have expanded our Phase 1 study of BHV-1400 in patients with IgAN, and ultimately plan to initiate a pivotal trial using urine protein-creatinine ratio as a surrogate endpoint for accelerated approval. +In the fourth quarter of 2025, we completed a meeting with the U.S. Food and Drug Administration ("FDA") to align on a pivotal IgAN study design, which we expect to initiate in the first quarter of 2026. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +In January 2025, we announced that first dosing of BHV-1400 in IgAN patients achieved early observations of both biomarker and clinical responses including: selective lowering of only the disease-causing galactose-deficient IgA1 while sparing off-target effects on healthy antibodies (IgA, IgM, IgE, IgG), resolution of blood in the urine (hematuria), deep reductions in proteinuria, and improvement in fatigue and kidney function (eGFR) within weeks. +Kv7 +Kv7 Platform Acquisition +In February 2022, we announced that we entered into a definitive agreement with Channel Biosciences, LLC, a subsidiary of Knopp Biosciences, LLC, to acquire a drug discovery platform targeting Kv7 ion channels, adding the latest advances in ion channel modulation to our growing neuroscience portfolio. +Kv7’s Role in Epilepsy, Mood Disorders, and Other Central Nervous System Disorders +Because of their fundamental role in health and their aberrant role in disease, ion channels in cell membranes represent a broad and important class of drug targets. Sodium channels and potassium channels form the ionic basis of the action potential in electrically charged cells throughout the body (see figures below). The Kv7 protein in particular forms a channel that exquisitely regulates the flow of charged potassium ions (K+) across cell membranes, repolarizing nerve cells and resetting them for normal action potential firing. Kv7 channels include a family of channel subtypes, designated as Kv7.1 through Kv7.5, and they are formed by tetramers of identical or compatible subunits. Some of these channel subtypes localize in nerve cells (neurons) while others can be found in cardiac muscle, smooth muscle, and other tissue types. +7 +Table of Contents +The Kv7 subunits, Kv7.2 and Kv7.3, are widely expressed in the brain, notably in the cortex and hippocampus, and together they form Kv7.2/7.3 heteromeric channels that produce the M-current ( I KM ), a critical regulator of neuronal excitability (see figures below). Kv7.2/7.3 channels normally perform a natural “braking” function by regulating the electrical excitability and hyperexcitability of brain cells. Dysfunction of these channels, due to genetic mutations or other factors, increases seizure risk, while augmenting the ‘open’ activity of these channels has been demonstrated to reduce neuronal hyperexcitability and seizure frequency in electrophysiology laboratories, in animal models, and, most importantly, in patients. +White, Role of Potassium Channel Ions in Epilepsy, Medscape.org +We are synthesizing novel Kv7.2/7.3 activators that improve on the selectivity, potency, and other characteristics of ezogabine (Potiga in the U.S. and Trobalt (retigabine) in Europe), a drug approved in 2011 for the treatment of refractory epilepsy and voluntarily withdrawn from the market in 2017 because of poor tolerability and structure-related toxicities that limited its clinical use, and ezogabine-like compounds, while averting its negative attributes, including off-target activity at a different brain ion channel, gamma-aminobutyric acid (“GABA”) A receptor (“GABA A -R”). +Using a structure-based approach, supplemented by in silico modeling, we have identified structural features of our molecules critical to Kv7 activation. We have applied these analyses to the generation of proprietary chemical leads structurally distinct from known Kv7 activators, including ezogabine and flupirtine, the only other approved Kv7 modulator, approved in Europe for the treatment of acute pain. Our team has synthesized a large library of Kv7-activating molecules and are advancing them according to stringent criteria requiring improvements over ezogabine, including chemical stability, synthetic tractability, the avoidance of structural motifs associated with the generation of reactive metabolites and other unwanted, off-target activity, including GABA A -R activation. +Epilepsy, Major Depressive Disorder ("MDD"), and Bipolar Disorder are the initial indications we targeted with activators from our Kv7 platform. In addition to their role in treating epilepsy, anti-seizure medications ("ASMs") are often used in the management of bipolar disorder and Kv7 activators have recently shown promise in the treatment of MDD. While the use of ASMs is often accompanied by dose-limiting side effects, our Kv7 activators are specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives activators from our Kv7 platform a wide therapeutic window and is expected to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving ASMs. +Opakalim (BHV-7000) +Opakalim (formerly referred to as BHV-7000), the lead asset from the Kv7 platform, is a potent Kv7.2/7.3 ion channel activator from a novel, bicyclic imidazole class that is structurally-distinct from other Kv7 modulators (e.g., ezogabine and related aniline compounds) with significant in vivo anticonvulsant activity and a wide therapeutic index. In the most widely used and positively-predictive preclinical model of epilepsy, the maximal electroshock (“MES”) model, data for opakalim and ezogabine were collected in independent experiments (see figures below), measuring the activity of both compounds in preventing seizures (ED50) and recording the neurologic deficit five minutes prior to the MES test to calculate the tolerability index (“TI”). The neurologic deficit is a behavioral index ranging from normal activity (score of 0) to a loss of righting reflex (score of 3). As shown below, opakalim was demonstrated to have an ED50 = 0.5 mg/kg with almost no impact on behavior producing a TI > 40x. In a separate rotarod experiment of preclinical tolerability, opakalim had no impact on rat motor behavior up to 30 mg/kg, the highest dose tested. In contrast, ezogabine was 40x less potent (ED50 = 20 mg/kg) in the MES model with a narrow TI < 3x. The narrow preclinical TI for ezogabine is consistent with the clinical +8 +Table of Contents +experience with the drug where side effects such as somnolence and dizziness limited its use at doses that prevented seizures in patients. +Phase 1 Clinical Development +In the second quarter of 2022, our Clinical Trial Application for opakalim was approved by Health Canada, and we subsequently began phase 1 clinical development. First-in-human single ascending dose ("SAD") and multiple ascending dose ("MAD") studies were completed with an immediate release formulation. In the SAD and MAD cohorts, 77 subjects received opakalim (N=58) or placebo (N= 19). Thirty-nine SAD subjects were randomized to opakalim or placebo and thirty-eight MAD subjects were randomized to opakalim or placebo. The rates of AEs by MedDRA System Organ Class +9 +Table of Contents +across the pooled SAD and MAD cohorts among subjects treated with opakalim and placebo are presented in the tables below. +Table 1: Treatment‐emergent adverse events ("TEAEs") Occurring in ≥ 2 Subjects Receiving opakalim in SAD Cohorts +All AEs reported in the SAD cohorts were mild in severity. +Table 2: TEAEs Occurring in ≥ 2 Subjects Receiving opakalim in MAD Cohorts +All AEs reported in the MAD cohorts were mild in severity, except 1 case of back pain (moderate severity, 40 mg) and 1 case of dizziness (moderate severity, 80 mg). +a Data are included from a separate study evaluating higher MAD doses. +b Data are pooled across studies. +In 2023, we initiated a Phase 1 open-label electroencephalogram ("EEG") study designed to evaluate the effects of opakalim on EEG parameters in healthy adults. The study’s objective was to demonstrate opakalim target engagement in the cerebral cortex and to help refine dose selection for Phase 3 trials. Study measures included continuous EEG monitoring, time locked pharmacokinetic ("PK") sampling, and changes in EEG spectral power post dose. +The Phase 1 EEG study was designed to evaluate qualitative changes from baseline in EEG spectral power after administration of single doses of opakalim (10, 25, or 50 mg) to 11 healthy male and female adult volunteers. EEG spectral power is a measure derived from quantitative analysis of EEG signals that assesses the amount of rhythmic activity in different frequency bands, including delta [1-3.5 Hz], theta [3.5-7.5 Hz], alpha [7.5-13 Hz], beta [13-30 Hz], and gamma [30-100 Hz]. Changes in spectral power have been used to evaluate the risk, onset and progression of seizures, assess cognitive and behavioral impairments, and characterize the effects of anti-seizure medications ("ASMs"), and they may also have utility in refining dose selection in clinical trials of ASMs. Spectral analysis was performed by Clouds of Care (Ghent, Belgium), a global leader in EEG analytics. +Interim data from the Phase 1 EEG study were presented in December 2023 at the American Epilepsy Society meeting in Orlando, Florida. Opakalim was well-tolerated at all doses studied, without the typical CNS AEs associated with other ASMs, such as somnolence or cognitive/mood disturbances, and EEG data showed dose-dependent increases in brain spectral power in healthy subjects (Figure 1 below). Unlike prior reports where EEG effects of a Kv7.2/7.3 activator showed the greatest power increase in the delta frequency band (Biondi et al. 2022), the highest spectral power increases with opakalim were seen in alpha, beta, and gamma frequency bands (Figure 2 below). While changes in spectral power were observed across all frequency bands with opakalim, the minimal impact on slower frequencies (i.e., delta) is consistent with the low incidence of CNS adverse events, in particular somnolence, seen in the opakalim Phase 1 +10 +Table of Contents +SAD/MAD studies. EEG delta activity is associated with somnolence, an undesirable CNS adverse event often seen with other ASMs. +Figure 1: Opakalim shows dose-dependent increases in spectral power over all brain regions. +Figure 2: Opakalim effect on spectral power in resting -state EEGs. Greatest impact observed on alpha frequency with minimal impact on delta and theta frequencies. +The preliminary EEG study results confirm the CNS activity of opakalim at projected therapeutic concentrations, dose-dependent and time-dependent changes in EEG spectral power, and are consistent with the quantitative EEG effects observed with other ASMs approved for the treatment of epilepsy. +Based on the results from the EEG study and the safety profile in SAD/MAD trials, along with PK data from a new once-daily extended-release (“ER”) formulation, Biohaven is exploring three oral doses of opakalim (once daily 25 mg ER, once daily 50 mg ER, and once daily 75 mg ER) in the Phase 2/3 clinical trials in epilepsy and mood disorders. This dosing approach with a Kv7 activator will allow for assessment of distinct target concentrations over a wide range. +In December 2024, t the American Epilepsy Society meeting, we presented additional safety data with the opakalim once-daily extended-release formulation, which further demonstrated tolerability. +Epilepsy +Epilepsy affects approximately 3.5 million Americans, or more than 1.2% of adults and 0.6% of children in the U.S., and more than 50 million patients worldwide, according to the World Health Organization (“WHO”). It is the fourth most common neurological disorder, and many patients struggle to achieve freedom from seizures, with more than one third of patients requiring two or more medications to manage their epilepsy. While the use of anti-seizure medications is often accompanied by dose-limiting side effects, our clinical candidate opakalim is specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives opakalim a wide therapeutic window which we expect to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving anti-seizure medications. We aim to bring this potassium channel modulator as a potential solution to patients with epilepsy who remain uncontrolled on their current regimens. +11 +Table of Contents +Our Clinical Trials for Opakalim in Epilepsy +Focal Epilepsy +In January 2024, we completed our End-of-Phase 2 meeting with the FDA to advance to Phase 3 trials and announced that more than 110 global clinical sites have been selected in the first of two focal epilepsy trials. Enrollment in our Phase 2/3 program commenced in the first quarter of 2024. The two pivotal studies evaluating the efficacy of opakalim in refractory focal epilepsy are planned as randomized, double-blind, placebo-controlled, 8- and 12-week trials with a primary endpoint of change from baseline in 28-day average seizure frequency in adults with focal epilepsy. RISE 3 is evaluating 50 mg and 75 mg doses of opakalim (see figure below). We expect to report topline results from RISE 3 in the second half of 2026. RISE 2 Part A is evaluating 25 and 50 mg doses of opakalim, whereas Part B is evaluating the 75 mg dose of opakalim (see figure below). The RISE 2 study was amended to add Part B with the higher 75 mg dose, thereby replicating the potential therapeutic benefits of the higher 75 mg dose in the RISE 3 study and optimizing the overall development plan for opakalim. The Company expects estimated enrollment in each study to be 390 participants. +In addition, Biohaven is currently conducting an open-label extension ("OLE") study to evaluate the long-term efficacy and safety of opakalim in participants who completed either parent study. Review of data from the ongoing open-label clinical trial experience with opakalim in focal epilepsy support the potential for opakalim to achieve efficacy and to deliver a favorable and differentiated safety profile. Open-label treatment with opakalim demonstrated clinically meaningful reductions in seizure frequency compared to the pretreatment baseline observation period prior to randomization. Specifically, 55% of participants showed ≥50% reductions in seizure frequency (≥50% responder rate), for those who completed at least 6 months of treatment with opakalim 75 mg once daily in the open-label study; and this result is comparable to the ≥50% responder rate published for other investigational agents in the class such azetukalner (which has reported 56% of patients with a ≥50% responder rate over any consecutive best 6-month period from its Phase 2b OLE data). Notably, the antiseizure effects of opakalim were correlated with plasma concentrations, based on a preliminary exposure-response analysis. Opakalim was well-tolerated in the open-label study with a low incidence of CNS adverse events, consistent with prior studies with opakalim. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) +In February 2022, we announced a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel Phase 3 asset. Myostatin, a negative regulator of muscle growth, is a key member of the Transforming Growth Factor ("TGF-β") superfamily. Taldefgrobep's novelty in a field of myostatin-activin pathway inhibitors is based on the mechanism where it binds to myostatin to both lower overall free myostatin levels, but also to function as a receptor antagonist to block myostatin signaling in skeletal muscles. Recently generated data has shown that the taldefgrobep alfa-myostatin complex is stable, and blocks myostatin signaling to both myostatin and to a lesser extent to activin A potentially for a protracted period after cessation of dosing. Blocking myostatin and activin signaling has been shown to improve muscle function and strength in a number of disease models for neuromuscular wasting along with physical and metabolic changes important to individuals living with overweight and obesity. Blocking activin contributes to decreased adipose tissue and improved glucose homeostasis. Clinical studies have confirmed that taldefgrobep improved lean body mass directly through increase on contractile muscle and loss of adipose tissue as demonstrated in both normal healthy volunteers and in patients with Duchenne +12 +Table of Contents +muscular dystrophy (“DMD”). The mechanism of increasing overall muscle size and reducing adipose tissue volume provide development opportunities in both neuromuscular disease and individuals living with overweight and obesity. +The advanced taldefgrobep alfa anti-myostatin development program offers extensive human safety data, especially in the pediatric population. +Metabolic Disorders +Obesity is a disease of excess and/or abnormal deposits of adipose tissue and a current global public health crisis. By 2030, it is expected that nearly one billion people will be living with obesity, including 50% of the adult and 25% of the adolescent U.S. population. The primary driver of obesity-related morbidity and mortality is metabolically active visceral adipose tissue and associated deposits of adipose tissue in and around organs such as the heart, liver, kidneys, and muscle. +Taldefgrobep Alfa’s Role in the Management of Overweight and Obesity +Preclinical and clinical data have demonstrated the potential for anti-myostatin therapies to produce physical and metabolic changes that are highly relevant to individuals living with overweight and obesity, including reducing total body fat and visceral adiposity, and improving insulin sensitivity and bone mineral density, while increasing lean muscle mass. Taldefgrobep’s novel mode of action and unique impact on body composition suggest it could be used as monotherapy or in combination with other anti-obesity medications. +In October 2023, we announced preclinical data demonstrating the ability of taldefgrobep to significantly reduce fat mass while increasing lean mass in an obese mouse model. In a mouse model of diet-induced obesity, untreated mice exhibited an increase in fat mass of 31%, while the mice treated with taldefgrobep demonstrated increases in lean mass of 25% from baseline (p≤.0.001) and lost 11% of their baseline fat (p≤.0.001) compared to vehicle (placebo) treated mice. Insulin and leptin levels were consistently lower in mice treated with taldefgrobep compared to the untreated mice. There was no difference in food intake over time across the taldefgrobep and untreated mice, counter to what has been observed with incretin mimetics (e.g., semaglutide) which are consistently associated with a reduction in energy intake. +13 +Table of Contents +Our Clinical Trial for Taldefgrobep Alfa in Obesity +In a Phase 1 MAD study conducted by BMS in normal healthy volunteers, the cohort using the projected therapeutic 45mg dose of taldefgrobep demonstrated a continued improvement in lean mass and a reduction in fat mass during the 29 day dosing period that continued to increase through the observation period at 4 weeks post dosing (see figure below). +In May 2024, we announced preclinical data from a diet induced obesity mouse model, which showed treatment with taldefgrobep alfa together with a glucagon-like peptide-1 ("GLP-1") agonist produced greater reductions in body weight and fat mass, and a larger increase in lean muscle mass, compared to treatment with GLP-1 alone (see figure below). +Based on non-clinical and clinical data, Biohaven initiated a Phase 2 study of taldefgrobep in the management of obesity in the fourth quarter of 2025 and expects to report topline results in 2026. The study will evaluate the ability of taldefgrobep to reduce fat mass and total body weight while increasing lean muscle mass. The study is a placebo-controlled study evaluating two dosing schedules of taldefgrobep versus placebo. Approximately 150 participants will be randomized to receive taldefgrobep or matching placebo over a 24-week double-blind treatment period followed by an additional 24 weeks of open-label extension during which all participants will receive taldefgrobep. Key endpoints include +14 +Table of Contents +the change in total body weight, lean mass, fat mass, and metabolic parameters, along with a comprehensive assessment of safety. See below for trial design. +Previous Clinical Trials +Taldefgrobep was previously studied by Bristol Meyers Squibb ("BMS") and Roche in 4 completed clinical studies in healthy volunteers and subjects with DMD. An estimated 360 subjects received taldefgrobep; 179 healthy subjects and 181 subjects with DMD. +Completed clinical pharmacology studies in healthy adult subjects included: +• CN001001 was a randomized, placebo-controlled, Phase 1 study designed to evaluate the safety, tolerability, PK, and PD of single and multiple ascending subcutaneous doses of taldefgrobep (vial) in healthy adults. +• CN001023 was a randomized, open-label, single dose, parallel-group, Phase 1 study designed to compare the bioavailability of subcutaneous injections in the arm, thigh, and abdomen and to evaluate the safety, tolerability, PK, and immunogenicity of taldefgrobep (pre-filled syringe) in healthy adults. +Completed clinical studies in subjects with DMD included: +• CN001006 was a multi-site, randomized, placebo-controlled, double-blind, dose-ranging, Phase 1b/2 study to evaluate the safety, tolerability, and PK of taldefgrobep in ambulatory boys with DMD aged ≥ 5 to < 11 years. +• CN001016 was a randomized, double-blind, placebo-controlled, Phase 2/3 study to assess the efficacy, safety, and tolerability of 2 doses of taldefgrobep in ambulatory boys with DMD aged ≥ 6 to < 12 years. +All studies supported the safety and tolerability of taldefgrobep with fixed doses from 35 mg up to 180 mg administered weekly, subcutaneously ("SC"). The pharmacokinetics and safety data from the Phase 1 studies supported the continued development with doses of 35 mg and 50 mg administered weekly SC. +In the Phase 3 Clinical Study, CN001016, a futility analysis based on this primary endpoint, conducted after approximately 30% of subjects had completed 48 weeks of study drug treatment, did not show any statistically significant treatment differences. A summary of the development and outcome from these studies are published (Neurol Ther. 2024 Feb;13(1):183-219). +15 +Table of Contents +Other Non-Key Programs +In the fourth quarter of 2025, we initiated a strategic reprioritization of our development platforms and are now focused on our key programs to prioritize resources. As a result, development of programs outside of our key programs (the "non-key programs") may be substantially downsized, paused or delayed. +Glutamate Modulation Platform +The most advanced product candidate from our glutamate receptor antagonist platform is troriluzole (previously referred to as trigriluzole and BHV-4157). Other product candidates include BHV-5500, an antagonist of the glutamate N-methyl-D-aspartate (“NMDA”) receptor and its oral prodrug BHV-5000. +Glutamate is an important neurotransmitter present in over 90% of all brain synapses. Glutamate plays an essential role in normal brain functioning and its levels must be tightly regulated. Abnormalities in glutamate levels can disrupt nerve health and communication, and in extreme cases may lead to nerve cell death. Nerve cell dysfunction and death leads to devastating diseases, including ataxia, amyotrophic lateral sclerosis (“ALS”) and other neurodegenerative disorders. Glutamate clearance is necessary for proper synaptic activation and to prevent neuronal damage from excessive activation of glutamate receptors. Excitatory amino-acid transporters (“EAATs”) help regulate glutamate clearance, and are responsible for most of the glutamate uptake within the brain. +The mechanism of action of our glutamate platform is depicted below. Glutamate must be tightly regulated once released from a pre-synaptic neuron. It acts as a signaling neurotransmitter to stimulate the post-synaptic neuron via glutamate receptors (e.g., NMDA, alpha-amino-3-hydroxy-5-methyl-4-isoxazole-propionic acid (“AMPA”) or Kainate receptors). Glial cells surrounding the synaptic junction are predominantly responsible for clearing glutamate through transporters, specifically the EAATs. There are five distinct types of glutamate transporters. The figure below depicts the areas of modulation that are affected by our product candidates. +Adapted from Glutamate abnormalities in obsessive compulsive disorder: Neurobiology, pathophysiology, and treatment, C. Pittenger, +M. Bloch, and K. Williams +(1) As depicted in the glial cell to the right in the figure, troriluzole increases the activity and expression of the EAATs to increase the clearance of glutamate released from the pre-synaptic neuron. Troriluzole also inhibits presynaptic ion channels that may inhibit the release of glutamate from presynaptic neurons. +(2) As depicted in the postsynaptic neuron to the bottom of the figure, BHV-5500 blocks glutamate signaling that is mediated by post-synaptic NMDA receptors. Modulating glutamate also has the potential to be neuroprotective and increase the release of neurotrophic factors, including brain derived neurotrophic factor (“BDNF”) which are endogenous molecules that help to support the survival of existing neurons, and encourage the growth and differentiation of new neurons and synapses. +16 +Table of Contents +Glutamate Transporter Modulation +Abnormal glutamate release or dysfunction of glutamate clearance can cause overstimulation of glutamate receptors which can lead to a dangerous neural injury called excitotoxicity, which has been associated with a wide range of neurodegenerative diseases. The FDA has approved anti-excitotoxicity drugs that act on the glutamatergic system by blocking NMDA receptors, such as memantine (“Namenda”) for Alzheimer’s disease, lamotrigine (“Lamictal”) for epilepsy and bipolar disorder and riluzole (“Rilutek”) for ALS. Although these drugs show the therapeutic potential of glutamate receptor antagonists and other glutamate modulators in the treatment of a range of neurological diseases, these approved drugs have serious side effects and other drawbacks that we have attempted to solve with our development of troriluzole. +Troriluzole +Troriluzole is a new chemical entity (“NCE”) and tripeptide prodrug of the active metabolite, riluzole. Based on its mechanism of action, preclinical data and clinical studies, troriluzole has potential for therapeutic benefit in a range of neurological and neuropsychiatric illnesses. Initial development has focused on its use in treating SCA, an orphan neurological indication that currently has no approved drug therapies and for which the active metabolite, riluzole, has demonstrated preliminary efficacy in two prior randomized controlled trials conducted by third parties. +Ristori et al. reported a randomized, double-blind, placebo-controlled trial of 40 patients presenting with cerebellar ataxias of diverse etiologies, including SCA. Subjects were randomized to receive 8 weeks treatment with either placebo or riluzole (50 mg Riluzole tablets, twice daily). Statistically significant improvement in the riluzole treated group was demonstrated on the International Cooperative Ataxia Rating Scale (“ICARS”). The number of patients with a 5-point ICARS drop was higher in the riluzole group than in the placebo group after 4 weeks (9/19 vs 1/19; odds ratio [“OR”] =16.2; 95% confidence interval [“CI”] 1.8–147.1) and 8 weeks (13/19 vs 1/19; OR = 39.0; 95% CI 4.2– 364.2). The mean change in the riluzole group ICARS after treatment revealed a decrease (p < 0.001) in the total score (-7.05 [4.96] vs 0.16 [2.65]). +Romano et al. described results of a second randomized, placebo-controlled trial in subjects diagnosed with a hereditary ataxia (including SCAs) randomized to receive 12 months of treatment with either placebo or riluzole (50 mg, twice daily). 60 patients were randomized. Statistically significant improvement in the riluzole treated group was demonstrated on the Scale for the Assessment of Ataxia (“SARA”). The proportion with decreased SARA score was 14 (50%) of 28 patients in the riluzole group versus three (11%) of 27 in the placebo group (OR 8.00, 95% CI 1.95– 32.83; p=0.002). +We acquired troriluzole as well as an estate of over 300 prodrugs from ALS Biopharma, LLC (“ALS Biopharma”) and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”). A prodrug is a compound that, after administration, is metabolized in the body into an active drug. Troriluzole is actively transported by virtue of recognition of its tripeptide moiety by the PepT1 transporter in the gut and is responsible for the increased bioavailability of the drug. Once inside the body, the prodrug, troriluzole is cleaved by enzymes in the blood to the parent, riluzole. To mitigate the limitations of riluzole, several classes of prodrugs were designed, synthesized, and evaluated in multiple in vitro stability assays that predict in vivo drug levels. Troriluzole is a third generation of prodrug development and the product of six years of intensive chemistry efforts. +Riluzole is currently only indicated for ALS and has a number of non-desirable attributes that have limited its clinical use. Key limitations of riluzole include poor oral bioavailability, difficulty swallowing due to tablet formulation, food reducing efficacy, liver toxicity, pharmacokinetic variability, and oral numbness. +The prodrug design and selected administration pathway that was pursued with troriluzole is intended to address all of these limitations of riluzole. In addition, a prodrug can be engineered to enhance absorption and protect from diminished absorption when taken with meals. The troriluzole preclinical development strategy was based on optimizing in vivo and in vitro features, such as stability in gastrointestinal and stomach fluids; stability in liver microsomes; limiting off-target effects (particularly liver effects); metabolic cleavage in the plasma to release the active moiety; and enhanced gastrointestinal absorption properties. In in vivo studies in rodents, the intended benefits of this optimization program were observed, including delayed peak concentrations and greater exposure. +After six years of chemistry development and preclinical testing, the resulting lead prodrug from the chemistry program was troriluzole. Troriluzole is chemically comprised of riluzole linked via an amide bond to a tripeptide that is a substrate for PepT1 and which contributes to its improved bioavailability. The tripeptide moiety is cleaved by plasma aminopeptidases. We believe that the estate of compounds we acquired, combined with our internally developed intellectual property, will provide a significant protection for our innovations. The safety and tolerability of troriluzole has now been demonstrated in approximately 2,000 subjects in early- and late-stage clinical studies. +17 +Table of Contents +Our Clinical Program for Troriluzole +Phase 1 Studies with Troriluzole +In July 2016, we began a Phase 1 randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability and pharmacokinetics (“PK”) of single and multiple ascending doses of troriluzole in normal healthy volunteers. 58 healthy volunteers were dosed with troriluzole and 20 were dosed with placebo. Both single and multiple doses up to 200 mg were well tolerated without evidence of novel, clinically significant safety signals or lab abnormalities. There was no apparent dose response regarding the frequency or severity of adverse events (“AEs”). In the blinded group, including subjects treated with both placebo and troriluzole, the most common AEs were headache (five subjects, two with moderate severity and three with mild severity) and constipation (two subjects). No pattern of AEs or lab abnormalities were apparent to provide specific cautions or to suggest cautions beyond what is appropriate for the active metabolite, riluzole. Commencing in December 2017, an additional single and multiple dose study was conducted to assess the safety, tolerability and PK of a 280 mg dose in 10 healthy young and elderly volunteers (eight active; two placebo). The results supported adequate safety and tolerability and yielded mean exposures comparable to what would be expected from a 200 mg dose, a dose that has been safely used in clinic populations and associated with efficacy in a range of disorders in randomized controlled trials (Huntington Study Group Neurology 2003; Lacomblez Neurology 1996). In addition, a bioequivalence study was conducted to bridge a commercial formulation with a Phase 2/3 formulation in 32 healthy volunteers. The commercial formulation was well-tolerated and provided bioequivalent exposure with the Phase 2/3 formulation. +Troriluzole for SCA +Spinocerebellar Ataxias ("SCAs") are a group of ultra-rare, dominantly inherited neurodegenerative disorders predominantly characterized by atrophy of the cerebellum, brainstem, and spinal cord. The disease course of SCA is one of relentless progression over years and inevitably leads to clinical deterioration of motor function, gait imbalance with frequent falling, severe speech impairment, swallowing difficulties, and premature death. SCAs are thought to be pathogenetically related but disease course and brain region involvement are known to vary between the different genotypes. SCA affects approximately 15,000 people in the United States and 24,000 in Europe and the United Kingdom. SCA3, also known as Machado-Joseph disease, is the most common genotype and accounts for approximately 30% to 50% of SCAs worldwide. Currently, there are no approved symptomatic or neuroprotective treatments for SCA. +Based on the results of our Phase 1 trial with troriluzole and two third-party academic trials (Ristori et al 2020, published in Neurology in 2010 and Romano et al 2015, published in The Lancet in 2015) that have shown preliminary efficacy of riluzole in cerebellar ataxias, we advanced troriluzole into development for SCA. Initially, we conducted a Phase 2b/3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 8 weeks in subjects with SCA (Study BHV4157-201). In October 2017, we announced that troriluzole at a dose of 140 mg once daily (“QD”) did not differentiate from placebo on the primary endpoint of the mean change from baseline on the SARA total score after 8 weeks of treatment. After eight weeks of treatment, troriluzole treated subjects (n = 64) demonstrated an improvement of –0.81 points [95% CI: –1.4 to –0.2] on the SARA versus –1.05 points [95% CI: –1.6 to –0.4] improvement in placebo-treated (n = 68), p-value = 0.52. In this trial, we observed a favorable safety and tolerability profile of troriluzole, with no drug-related serious adverse events (“SAEs”) and low discontinuation rates due to AEs. During open-label treatment over the open-label extension phase, however, troriluzole did show slowing of disease progression in troriluzole-treated subjects in contrast to the measurable decline expected as compared to a matched cohort of untreated patients from the U.S. natural history study (Clinical Research Consortium for the Study of Cerebellar Ataxia (“CRC-SCA”)). +Based on our learnings from the proof-of-concept Study BHV4157-201, including analyses from the open-label extension phase, we advanced troriluzole into a pivotal Phase 3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 48 weeks in subjects with SCA (Study BHV4157-206). Randomization was stratified by genotype (consisting of these three groupings: SCA1 and SCA2; SCA3; and SCA6, SCA7, SCA8, and SCA10) in order to ensure balance within each of these subgroups. We enriched this trial with specific SCA genotypes, extended the treatment period of this trial to 48 weeks, implemented the use of a modified SARA scale (“f-SARA”), and increased the dose of troriluzole to 200 mg QD. Notably, the f-SARA is a novel, 16-point scale developed in collaboration with FDA and key opinion leaders as the primary outcome measure for this trial; the scale was designed to limit subjectivity of the scale and focus on functional aspects of the disease so that significant changes would reflect a clinically meaningful change in function. +In May 2022, the Company announced top-line results from the Phase 3 clinical trial (Study BHV4157-206) evaluating the efficacy and safety of its investigational therapy, troriluzole, in adult patients with SCA. The primary endpoint, change from baseline to week 48 on the f-SARA, did not reach statistical significance in the overall SCA population as there was less than expected disease progression in the placebo arm over the course of the study. In the overall study population (n = 213), the troriluzole and placebo groups each had mean baseline scores of 4.9 on the f-SARA and the two groups showed minimal change at the 48-week endpoint with f-SARA scores of 5.1 and 5.2, respectively. Preliminary post hoc analysis of +18 +Table of Contents +efficacy measures by genotype suggested a treatment effect in patients with the SCA3 genotype . A risk reduction in falls was also observed in the SCA3 population, as well as across all SCA genotypes . Troriluzole was well tolerated with an adverse event profile similar to placebo. +In May 2023, the Company presented further analysis of Study BHV4157-206 (summarized in the figure below) by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, the most common genotype worldwide, which represented 41% of study participants. In SCA3 subjects, troriluzole 200mg QD demonstrated benefit on the f-SARA compared with placebo at 48 weeks (LS mean treatment difference = -0.56; 95% CI = -1.11, -0.01; p = 0.0450). This genotype analysis was post hoc as the All SCA study population (SCA1, SCA2, SCA3, SCA6, SCA7, SCA8, SCA 10) was the mITT population for the primary analysis. Results for the SCA3 group are based on a model with no covariates with fixed effects for treatment, visit, and visit-by-treatment interaction; p-values are descriptive. +In addition to the beneficial effects observed on the f-SARA, the forest plot below demonstrates a consistent treatment benefit of troriluzole in SCA3 genotype subjects across multiple prespecified primary, secondary, and +19 +Table of Contents +exploratory study outcome measures. The SCA3 genotype analysis of the clinician- and patient-rated endpoints in the table represent all of the prespecified endpoints in the study protocol. +As shown in the figure below, safety data from Study BHV4157-206 showed that troriluzole-treated subjects showed a substantial risk reduction in falls in the All SCA and SCA3 genotype study populations. Treatment with troriluzole for 48 weeks reduced the risk of fall events by approximately 53% in subjects in the overall (All SCA) population (p = 0.005), by approximately 54% in subjects in the SCA3 population (p = 0.023), and by approximately 68% in subjects with SCA3 who were ambulatory (i.e., baseline Gait 1 or 2) (p = 0.009). This analysis, demonstrating that subjects who were more ambulatory with less severe disease at baseline were more likely to show a benefit from troriluzole, is consistent with the early treatment paradigm for other neurodegenerative diseases. +Two independent natural history cohorts for SCA, one in the U.S. (CRC-SCA) and one in Europe (EUROSCA), have characterized disease progression in this genetically defined neurodegenerative disorder. A Matching Adjusted Indirect Comparison (“MAIC”) was performed to match natural history subjects to subjects in BHV4157-206. As demonstrated in the figure below, at years 1, 2, and 3 change from baseline in f-SARA scores was significantly better among troriluzole patients vs the matched natural history referent (combined CRC-SCA and cross-European registry of SCA patients +20 +Table of Contents +(“EUROSCA”) data - all p values ~0.0004). These results were consistent for both SCA3 only and All SCA analyses. Validation metrics from f-SARA confirm that these changes are clinically relevant and meaningful to patients. +As seen in the figure below, an additional comparative study was conducted using OLE data from up to 3 years with subjects from BHV4157-201. Using a matched control pooled from the same two independent natural history studies (U.S. and European), troriluzole-treated All SCA subjects showed clinically relevant benefit compared to expected progression from the external control at 1 year, 2 years, and 3 years. Of note, there was an administrative gap in treatment in BHV4157-201 between the end of the 48-week OLE and the resumption of treatment at the start of the 96-week period. This gap was observed to result in a decline in f-SARA scores. However, after resumption of treatment patients re-stabilized (did not progress) resulting in the estimation of compelling treatment effects at years 2 and 3. +Given these findings and the debilitating nature of SCA, in May 2023 we announced that we submitted a New Drug Application ("NDA") to the FDA for troriluzole for the treatment of SCA3. In July 2023, the FDA informed us that it would not review the submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. In follow-up to the regulatory decision on the NDA application, we held follow-up meetings with the FDA regarding the SCA data. We had constructive dialogue with the FDA regarding our SCA development program and potential future data analyses to address regulatory concerns in the previously issued refuse-to-file decision on the NDA application for SCA3. +21 +Table of Contents +In October 2023, the European Medicines Agency ("EMA") informed us that our Marketing Authorization Application ("MAA") for troriluzole (Dazluma) in the treatment of SCA3 was validated and was then under review by EMA's Committee for Medicinal Products for Human Use ("CHMP"). In the fourth quarter of 2024, we completed a clarification meeting with the CHMP Rapporteurs. The MAA documents were subsequently updated with a broader indication to include all SCA genotypes, in light of the new positive BHV4157-206-RWE study data (discussed below). +In March 2025, we decided to withdraw the troriluzole MAA in the EU for the treatment of adult patients with SCA. This withdrawal decision was based on feedback indicating the EMA would not be able to conclude on new active substance ("NAS") status for troriluzole due to insufficient data. NAS is an important designation recognizing and incentivizing development innovation, validating the differentiation of a new medicinal product for patients. The novelty of troriluzole has been recognized by multiple issued patents globally, and we are committed to expeditiously providing appropriate data and/or argumentation to EMA given the evidence that warrants granting NAS, in the spirit in which the designation was intended. We plan to generate data to work with EMA on next steps towards marketing authorization. +In September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. The study achieved the primary endpoint (see figure below). +Collectively, data across multiple analyses demonstrate a robust and clinically meaningful slowing of disease progression in SCA patients. These treatment benefits translate into a 50-70% slower rate of decline compared to untreated patients, representing 1.5-2.2 years delay in disease progression over the 3-year study period. Additionally, in a responder sensitivity analysis, disease progression when defined by a 2 point or greater worsening on the f-SARA at 3 years showed an odds ratio ("OR") of 4.1 (95% CI: 2.1, 8.1) for the untreated external control arm versus troriluzole treated subjects (p < 0.0001; pooled analysis). +Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study utilized Phase 3 data and an external control of matched, untreated SCA subjects from the U.S. CRC-SCA in accordance with FDA's Guidance on Real-World Evidence ("RWE") of effectiveness. All endpoints were prespecified, and both the study protocol and statistical analysis plan were submitted to, and reviewed by, FDA prior to topline data analysis. The new analysis doubled the previously available 3 year data with 63 subjects now completing 3 years of treatment with troriluzole and matched to the external control arm. Propensity Score Matching ("PSM") was used to ensure that untreated patients from the CRC-SCA study were rigorously matched to treated patients from Study BHV4157-206 on baseline characteristics. The primary objective was to examine the treatment effects of troriluzole for up to 3 years, by comparing data on the f-SARA from patients treated with troriluzole in Study BHV4157-206 to untreated patients from the natural history study. Troriluzole-treated patients demonstrated statistically significant and sustained benefits at years 1, 2 and 3 on the f-SARA compared to a rigorously matched natural history control. +Additionally, prespecified analyses in the protocol employed a separate, independent natural history control from the European SCA natural history study ("EUROSCA") for global regulatory purposes. Results using the EUROSCA patients, in addition to a pooled analysis using both CRC-SCA and EUROSCA patients, as the external controls were also statistically significant and consistent with the primary efficacy analysis at all timepoints (see figures below). The addition +22 +Table of Contents +of EUROSCA data increased the external control sample size and added to the robustness of the statistically significant treatment differences at years 1, 2, and 3, favoring troriluzole. +Based upon the topline data from Study BHV4157-206-RWE, and previous safety and efficacy data from the troriluzole development program in SCA, we submitted an NDA for the treatment of all SCA genotypes to the FDA in the fourth quarter of 2024. The troriluzole development program has generated the largest clinical trial dataset in SCA and now has follow-up in some patients treated with troriluzole for over 5 years. We previously received both Fast-Track and Orphan drug designation ("ODD") from the FDA, and ODD from the European Medicines Agency ("EMA"), for troriluzole in SCA. An NDA with ODD is eligible for priority FDA review. +In February 2025, the FDA accepted for review our NDA for troriluzole for the treatment of adult patients with SCA and granted priority review. In November 2025, we received a Complete Response Letter ("CRL") for the NDA seeking approval of troriluzole for SCA. In the CRL, the FDA recommended that we meet with the Division of Neurology 1 within the FDA's Office of Neuroscience to discuss the evidence that will be needed to support a future NDA for the treatment of SCA with troriluzole. Following receipt of the CRL, we held a Type A meeting with the FDA to initiate an appeal process, given the large number of patients who are currently being treated in the expanded access program. We remain committed to working with the FDA to find a path forward for our NDA. +Troriluzole for OCD +We commenced a Phase 2/3 double-blind, randomized, controlled trial to assess the efficacy of troriluzole in adults with obsessive-compulsive disorder ("OCD"). This trial was followed by two Phase 3 randomized, double-blind, placebo-controlled trials. The first Phase 3 study in OCD was completed with no efficacy signal detected. Given the results of the first study, enrollment in the OCD program was closed to allow resources to be applied to other development programs. +23 +Table of Contents +Troriluzole for Glioblastoma +Preclinical and small-scale pilot studies are underway to explore troriluzole’s use in the treatment of a pipeline of other indications such as some cancers whose spread is thought mediated by glutamate transmission, such as melanoma and GBM. +In collaboration with Johns Hopkins University, we explored the potential applicability of troriluzole for GBM. The oncology collaboration with Johns Hopkins was based upon the mechanistic rationale that some tumors over express glutamate receptors, the central role that glutamate may have in cancer metabolism and the effect of glutamate on the tumor microenvironment. +In December 2021, GCAR selected troriluzole for evaluation in GBM AGILE. GBM AGILE is a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent GBM, the most fatal form of brain cancer. Troriluzole will be evaluated in all patient subgroups of the trial which include newly-diagnosed methylated O6-methylguanine DNA methyltransferase (“MGMT”), newly-diagnosed unmethylated MGMT, and recurrent GBM. Troriluzole was selected for inclusion in GBM AGILE based on compelling evidence showing deregulation of glutamate in GBM. The therapeutic potential of troriluzole in GBM and other oncology indications is supported by several recent clinical and translational research studies conducted with troriluzole and its active moiety. For example, Medikonda et al. showed a survival benefit with troriluzole, alone and in combination with anti-programmed cell death protein-1 (“PD-1”) immunotherapy, utilizing a frequently used murine brain tumor model. C57BL/6J mice were intracranially implanted with luciferase-tagged GL261 glioma cells. Mice were randomly assigned to the control, anti-PD-1, troriluzole or combination anti-PD-1 plus troriluzole treatment arms, and median overall survival was assessed. The troriluzole treatment arm demonstrated improved survival compared with the control arm (median survival of 36% vs. 0%; p < 0.0001), as did the combination anti-PD-1 plus troriluzole treatment arm (overall survival of 80% vs. 0; p = 0.0007). +In July 2022, the Company and GCAR announced that enrollment has commenced in GBM AGILE for the evaluation of troriluzole. GBM AGILE is a multi-arm, platform trial. The evaluation of each therapy in GBM AGILE proceeds in 2 possible stages. A therapy's Stage 1 is an adaptively randomized screening stage for evaluating the therapy within patient signatures compared against a common control. A therapy in Stage 1 will stop accruing patients if it reaches its maximal sample size, drops for futility, or evinces inadequate safety. If a therapy reaches an efficacy threshold for graduation from Stage 1, it will move into Stage 2 within one of the prospectively defined signatures. The maximum sample size in Stage 1 is 150 patients. For a therapy graduating to Stage 2 there is a fixed randomization, expansion cohort. The maximum sample size in Stage 2 is 50 experimental patients in the graduating signature. The primary analysis of a regimen's effect on overall survival uses all patients in both its stages and all control patients in the trial in the graduating signature, suitably adjusted for any possible time trends. The study is ongoing. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) for Spinal Muscular Atrophy +SMA is a rare genetic neurodegenerative disorder characterized by the loss of motor neurons, atrophy of the voluntary muscles of the limbs and trunk and progressive muscle weakness that is often fatal and typically diagnosed in young children. The underlying pathology of SMA is caused by insufficient production of the survival of motor neuron (“SMN”) protein, essential for the survival of motor neurons, and is encoded by two genes, SMN1 and SMN2. In the U.S., SMA affects approximately 1 in 11,000 births, and about 1 in every 50 Americans is a genetic carrier. Newborn screening is now available in 48 U.S. states and covers over 94% of all births. +In February 2023, we received Fast Track designation from the FDA for taldefgrobep alfa for the treatment of SMA. We received orphan drug designation from the FDA for taldefgrobep in the treatment of SMA in December 2022 and from the European Commission in July 2023. +In April 2024, we announced that the FDA granted "rare pediatric disease" designation for taldefgrobep alfa. The designation provides for the potential for taldefgrobep to receive a priority review voucher (“PRV”) if ultimately approved for the indication of SMA prior to September 30, 2026. The rare pediatric disease PRV program began to sunset in December 2024 and will not apply for approvals after September 30, 2026. +Taldefgrobep Alfa’s Role in Spinal Muscular Atrophy +In the past few years, significant advancements were made to address the underlying cause of disease in SMA with the up-regulation of SMN1 and SMN2 expression which positions taldefgrobep as a potential combination therapy to enhance muscle performance. Data from an SMA animal model study that shows advantages of combination SMN therapy with taldefgrobep and the extensive clinical data in DMD supported the advancement of taldefgrobep into a SMA Phase 3 study. Other indications in muscle wasting diseases may be a follow-on for taldefgrobep along with other life-cycle opportunities. +24 +Table of Contents +Our Clinical Trial for Taldefgrobep Alfa in SMA +In September 2023, we completed enrollment in a Phase 3 clinical trial assessing the efficacy and safety of taldefgrobep alfa in SMA. The Phase 3 placebo-controlled, double-blind trial was designed to evaluate the efficacy and safety of taldefgrobep as an adjunctive therapy for participants who are already taking a stable dose of nusinersen or risdiplam or have a history of treatment with onasemnogene abeparvovec-xioi, compared to placebo. The primary outcome measure of the study was efficacy of taldefgrobep alfa compared to placebo in the change in the 32 item Motor Function Measure (“MFM-32”) total score from baseline to Week 48. Scores range from 0-3 on each item, with higher scores indicating higher functioning. The study was neither restricted nor limited to patients based on ambulatory status or classification of SMA and was designed to randomize approximately 180 patients in this randomized, double-blind, placebo-controlled global trial. +In November 2024, we announced that taldefgrobep alfa showed clinically meaningful improvements in motor function at all timepoints on the MFM-32, but the treatment arm did not statistically separate on the primary outcome at Week 48 compared to the placebo+standard of care ("SOC") group. Efficacy signals were observed in clinically relevant and biomarker-defined subgroups including those related to age, ambulatory status, background therapy, and baseline myostatin level. Analyses of prespecified subgroups by race and ethnicity demonstrated that the largest study population (87% Caucasian; n=180) showed clinically meaningful improvements on the MFM-32 at all timepoints, including Week 48, compared to the corresponding placebo+SOC group (p < 0.05). Additional analyses of these subjects (n=123) who had measurable baseline myostatin (the pharmacological target of taldefgrobep) showed an improved efficacy signal within this myostatin-positive population (p=0.02). +Prespecified outcome measures in the overall study population analyzing the change from baseline in body composition at Week 48 demonstrated a greater reduction in the percent change in total body fat mass in the taldefgrobep arm compared to the placebo+SOC arm (p=0.008) as measured by dual energy x-ray absorptiometry. The taldefgrobep arm also showed numerically larger increases in lean muscle mass and bone density compared to the placebo+SOC arm. +Biohaven has begun engagement with the FDA to discuss the potential registrational path forward. Data from the study was presented at the Cure SMA meeting in June 2025. The optional long-term extension phase of the trial will remain ongoing pending further data analysis as well as regulatory discussions. +Ion Channel Platform +Kv7 +Opakalim (BHV-7000) +As previously discussed, Opakalim is an activator of Kv7.2/Kv7.3, a key ion channel involved in neuronal signaling and in regulating the hyperexcitable state in epilepsy. +Mood disorders +Approximately 1 in 5 adults in the U.S. are living with neuropsychiatric illnesses that are associated with inadequate treatment, poor quality of life, disability, and considerable direct and indirect costs. There is significant unmet need for novel and effective therapeutic options that are not limited by long latency periods to clinical effects, low response rates, and significant risks and side effects. Increasing evidence from animal models and clinical trials now suggests that Kv7.2/7.3 targeting drugs offer the potential to treat a spectrum of these neuropsychiatric diseases including, but not limited to, mood disorders such as major depressive disorder, bipolar disorder and anxiety. +Major Depressive Disorder +Major depressive disorder ("MDD") is a leading cause of morbidity. With approximately 8.3% of adults in the U.S. having had at least one major depressive episode, there is an urgent need for more effective treatments. Within the current armamentarium of treatments nearly one third of patients fail to respond. Kv7 activation has emerged as a novel strategy to treat and prevent depressive episodes and holds significant potential as a novel treatment for patients with MDD. The therapeutic role for Kv7 activation in MDD is supported by a broad range of epigenetic, mechanistic, preclinical, and clinical evidence. Multiple depression models have demonstrated the antidepressant efficacy of enhancing potassium channel activity. As preclinical studies demonstrate upregulation of Kv7 channels in mice subject to chronic stress, increasing potassium channel function either through genetic over expression or via potassium channel activation (via ezogabine) reverses depressive and anhedonic behaviors in mice across multiple studies. Recent randomized, controlled clinical trials of Kv7 activators demonstrated efficacy in MDD. Together, these data, coupled with the favorable clinical safety and tolerability profile exhibited by BHV 7000 to date, provided a compelling rationale for the evaluation of Kv7 activation with opakalim in MDD. +25 +Table of Contents +Our Clinical Trial for opakalim in Major Depressive Disorder +We initiated a Phase 2 clinical trial with opakalim for the treatment of MDD in the second quarter of 2024. The study is a six week, randomized, double-blind, placebo-controlled trial in approximately 300 subjects, with a primary endpoint of measurement on the Montgomery-Asberg Depression Rating Scale ("MADRS"). In December 2025, we announced that the study did not meet its primary endpoint. Trends favoring opakalim were observed in some clinically relevant subgroups, including participants with more severe depression at screening and baseline, on primary and secondary outcome measures. Overall, BHV-7000 was safe and well-tolerated with adverse events mostly mild and moderate in intensity and largely resolved spontaneously. The only individual adverse events occurring with an incidence above 5% were headache (10.7% and 9.9% in opakalim and placebo, respectively) and nausea (4.2% and 5.6% in BHV-7000 and placebo, respectively). A low incidence of central nervous system adverse events was observed, consistent with BHV-7000's lack of GABA activity and with safety data from previously reported studies. Additional analyses are ongoing and the company plans to present the results at an upcoming scientific meeting. The company considers the depression subgroup analyses as hypothesis generating but based upon strategic prioritization of its portfolio does not plan on additional psychiatric clinical trials to keep resources focused on key priority areas. +Bipolar disorder +Bipolar disorder affects an estimated 4.4% of U.S. adults over their lifetime. Bipolar disorder is associated with significant morbidity, decreased quality of life and economic burden. Treatment guidelines recommend patients receive life-long treatment for bipolar disorder. However, medication adherence is typically very low in this population, due in large part to undesirable side effects that are poorly tolerated by patients. The mainstays of treatment include mood stabilizing agents that are also used as anti-seizure medicines (i.e., valproic acid, lamotrigine, and topiramate). Preclinical and pilot clinical data similarly suggest a potential therapeutic role for Kv7 activation in bipolar disorder, which is expected to result in an improved side effect profile compared to other anti-seizure medications. +Our Clinical Trial for opakalim in Bipolar Disorder +We initiated a Phase 2/3 clinical trial with opakalim for the acute treatment of bipolar disorder in the second quarter of 2024. The study was a 3 week, randomized, double-blind, placebo-controlled trial in approximately 256 subjects, with a primary endpoint of measurement on the Young Mania Rating Scale ("YMRS"). +In March 2025, the Company completed the Phase 2/3 clinical trial for acute treatment of manic episodes associated with bipolar disorder. Opakalim did not statistically differentiate from the comparator arm on the primary efficacy endpoint of improvement from Baseline to Day 21 on the YMRS. Additional analyses are ongoing, and complete study results will be presented at an upcoming scientific meeting. +Opakalim 75 mg once daily, the highest dose of opakalim being evaluated in Phase 2/3 trials, was safe and well-tolerated in this study. No adverse trends in vital signs, ECGs, or labs were noted. There were no treatment emergent serious adverse events. Most adverse events were mostly mild in intensity and resolved spontaneously. This offers a highly favorable and differentiated profile compared to other antiseizure medicines and is consistent with lack of GABA effects. +Developmental Epileptic Encephalopathies +KCNQ2 developmental epileptic encephalopathy (“KCNQ2-DEE”) is a rare pediatric epileptic encephalopathy first described in 2012 resulting from dominant-negative mutations in the KCNQ2 gene. Epileptic encephalopathies (“EE”) comprise a group of epilepsy syndromes in which onset of recurrent and medically refractory seizures are associated with cognitive and broader developmental delay or regression. Although only recently described, heterozygous de novo variants in KCNQ2 are a highly validated cause of early onset epileptic encephalopathy, and KCNQ2-DEE has emerged as a well-defined clinical entity with a characteristic neonatal presentation, including hypotonia, treatment-resistant tonic seizures, a profoundly abnormal EEG, and most often with moderate-to-profound global developmental delay. KCNQ2-DEE is thus both a seizure disorder and a developmental disorder caused by pathogenic KCNQ2 mutations. +Identification of genetic etiologies has created the opportunity to treat not just the symptoms of KCNQ2-DEE, including seizures, but also the underlying causes, including attenuating or reversing the effects of the disease-causing variants. In addition to its activity in the MES model, we explored the ability of opakalim to reverse the reduced current density associated with KCNQ2-DEE and support its use as potential treatment for the disease). To determine the effects of opakalim on the function of Kv7.2 and Kv7.2/7.3 channels poisoned by dominant-negative KCNQ2 mutations, four highly recurrent human missense variants known to cause KCNQ2-DEE were evaluated in an in vitro model measuring current density in cells expressing the pathologic proteins. +The figure below shows the effects of opakalim on current density of wt/wt Kv7.2 channels and those formed by 1:1 coexpression of wt KCNQ2 genes with four disease-causing KCNQ2 variants (T274M, A294V, R581L, R210H). In the control +26 +Table of Contents +condition, all pathogenic variants produced a marked reduction in current density to below wt/wt levels. Opakalim at either 0.3µM or 1.0 µM restored current density in all mutated channels to or beyond wt control current density (**<0.01). +Opakalim has been granted Rare Pediatric Disease Designation by the FDA for the treatment of KCNQ2-DEE. +Neuropathic Pain +Neuropathic pain, as defined by the International Association for the Study of Pain, is pain caused by a lesion or disease of the somatosensory nervous system and includes a collection of heterogeneous conditions that are often chronic and debilitating and for which long term therapy is difficult. In the United States, over 30 million adults are estimated to be living with neuropathic pain. Pharmacological treatments for neuropathic pain vary according to patient needs, although recommendations such as the WHO analgesic ladder, United States Centers for Disease Control (“CDC”) guidelines, and FDA guidelines are in use. Initial or first line treatment for neuropathic pain includes non-opioid analgesics, in particular, antidepressants, anticonvulsants, steroids, and anxiolytics. Second line treatment of persistent, severe pain may require escalation to opiates, often less potent ones at first, followed by more potent opiates for intense refractory pain. +Accordingly, an urgent need exists for effective, non-addictive pain therapies. Flupirtine, a non-selective Kv7 activator, was previously approved in several European countries and indicated for the treatment of pain. However, the European Medicines Agency recommended withdrawal of its marketing authorization in 2018 because of the risk of serious liver injury. Selective Kv7 potassium channel activators represent a new approach in the development of non-opioid therapeutic options for neuropathic pain. In addition to leveraging the reduced abuse and addiction risk potential of potassium channel activators, our Kv7 potassium channel platform addresses the complexities of channel subtype physiology through targeted pharmacology to overcome the limitations inherent in nonselective Kv7 activators and is intended to deliver a well-tolerated, highly effective, non-opioid treatment for neuropathic pain. +Our Kv7 program research was supported in part with funding from the National Institutes of Health (“NIH”) to advance the development of novel Kv7 non-opioid therapies for the treatment of chronic pain. The NIH funding is by the NIH Helping to End Addiction Long-term Initiative (“NIH HEAL Initiative”), which aims to improve treatments for chronic pain, curb the rates of opioid use disorder and overdose, and achieve long-term recovery from opioid addiction. The goal of our Kv7 program is to discover a small-molecule activator of the Kv7.2/7.3 voltage-gated potassium channel to treat neuropathic pain. Similar to our epilepsy program, we are targeting compounds with these characteristics: +• Biased for Kv7.2/3 activation vs. Kv7.4 activation to minimize potential adverse smooth muscle effects; +• Selective against GABA A receptors to minimize potential tolerability issues; +• Selective against Kv7.1/KCNE1 (IKs) and hERG (IKr) to minimize cardiac side-effects; and +• Potent and effective across animal models of neuropathic pain. +Axonal excitability and neurotransmitter release are altered in neuropathic pain due to sodium channel plasticity, increased voltage-gated calcium channels in the spinal cord, and diminished potassium channel activity in dorsal root ganglion (“DRG”) neurons. These changes in ion channel number, distribution, and function are common to many neuropathic pain subtypes. The functional density of Kv7.2/3 channels is a key variable governing sensory DRG control of intrinsic excitability. Rose et. al demonstrated downregulation of Kv7 potassium channel mRNA in an experimental nerve injury model and further showed alleviation of neuropathic hyperalgesia with administration of flupirtine. +27 +Table of Contents +Using human induced pluripotent stem cell (“iPSC”)-derived DRG sensory neurons, we have assessed the physiological activity of these neurons by modulating Kv7 channels across three electrophysiologic parameters: resting membrane potential (Vm), rheobase = the current required to stimulate an action potential (“AP”), and the number of APs elicited by a suprathreshold stimulus (3x rheobase). We are currently evaluating the activity of various compounds from our proprietary series of selective Kv7.2/7.3 activators in multiple preclinical models of neuropathic pain. The Company has also initiated a sponsored research agreement with Yale to evaluate the activity of opakalim in an iPSC model of inherited erythromelalgia, a severe rare genetic neuropathy. +In the fourth quarter of 2025, we initiated an exploratory study of opakalim, compared to placebo, in approximately 5 participants with inherited erythromelalgia using a crossover design to evaluate changes in pain intensity (NCT07262268). +Migraine +We are currently exploring opakalim as a potential treatment for migraine. Kv7.2/7.3 openers have shown significant activity in cortical spreading depression models of migraine. +Idiopathic Generalized Epilepsy +We initiated a Phase 2/3 study of opakalim in idiopathic generalized epilepsy ("IGE") in the second quarter of 2024. The pivotal study evaluating the efficacy of opakalim with IGE is planned as a randomized, double-blind, placebo-controlled 24-week time-to-event trial with a primary endpoint of time to second generalized seizure in adults and adolescents with IGE. Following a review of enrollment and strategic priorities, we have decided to close the IGE study to allow for a reallocation of resources to higher-priority development activities. The Kv7 development program will focus on accelerating the completion of the two adult focal epilepsy trials. +TRPM3 Ion Channel Antagonists +KU Leuven Agreement +In January 2022, we entered into an agreement with KU Leuven ("the KU Leuven Agreement") to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery and the Laboratory of Ion Channel Research at KU Leuven. Under the KU Leuven Agreement, we receive exclusive global rights to develop, manufacture and commercialize KU Leuven's portfolio of small-molecule TRPM3 antagonists. The portfolio includes the lead candidate, BHV-2100. We are continuing to support further basic and translational research on the role of TRPM3 in pain and other disorders through our collaboration with professors in Transient Receptor Potential ("TRP") biology at KU Leuven. +Efforts to target TRP Ion Channels for pain +Since the Nobel Prize-winning discovery of the capsaicin receptor TRPV1 in 1997, members of the TRP cation channel family have been elusive drug targets for the treatment of pain. Initially, there was much excitement and investment in TRPV1 antagonists due to promising preclinical efficacy and some evidence of clinical pain reduction. However, trials of most TRPV1 antagonists were terminated after the class consistently caused clinically-significant hyperthermia in study participants. Several companies then made efforts to progress antagonists of TRPA1, the receptor for mustard oil. Though Glenmark’s GRC 17536 showed encouraging results in a subset of diabetic peripheral neuropathic pain subjects in a Phase 2a study, it suffers from poor physiochemical properties and pharmacokinetics like many other TRPA1 antagonists. +TRPM3 is a novel target in the TRP family. Like TRPV1 and TRPA1, preclinical data and human genetic validation support TRPM3’s role in neuropathic pain and migraine. Unlike TRPV1 antagonists, TRPM3 antagonists are unlikely to possess significant thermal liabilities, and, unlike TRPA1 antagonists, Biohaven’s TRPM3 antagonists have desirable +28 +Table of Contents +physiochemical properties and good pharmacokinetic profiles. The figure below illustrates TRPM3 as a differentiated target for the treatment of pain in the TRP family. +Adapted from Efforts to target TRP channels for pain , Kovivisto et al. 2022 +About TRPM3 +TRPM3 is a novel druggable target in the TRP cation channel family. TRPM3 is functionally expressed in the human dorsal root ganglion, and several single nucleotide polymorphisms ("SNPs") in TRPM3 are associated with altered pain sensation in response to ultraviolet B ("UVB") (see figure below). Additionally, people with TRPM3 gain-of-function mutations experience altered pain sensation (de Sainte Agathe 2020, Dyment 2019, Van Hoeymissen 2020). Knocking out or antagonizing TRPM3 in animal models attenuates the development of various pain states, including those associated with nerve injury, chemotherapy, and diabetic peripheral neuropathy, further indicating that TRPM3 is a promising target for neuropathic pain. Lastly, preclinical evidence suggests that antagonizing TRPM3 may avoid the on-target body temperature effects and TRPV1 antagonist-induced malignant hyperthermia. +Vangeel et al, 2020 Lotsch et al, 2020 +BHV-2100 +BHV-2100 is an orally-bioavailable small molecule antagonist of TRPM3. TRPM3 is expressed in the relevant human tissue types for neuropathic pain, and both preclinical models and human genetics implicate TRPM3 in pain signaling. +Our Phase 1 Study with BHV-2100 +We completed a Phase 1 study of BHV-2100 in Canada. The Phase 1 study was a randomized, double-blind, placebo-controlled, SAD/MAD study in healthy subjects to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of BHV-2100. In May 2024, we reported positive pharmacokinetic and safety data from the completed +29 +Table of Contents +Phase 1 study with BHV-2100. The results demonstrated rapid absorption with therapeutic concentrations achieved by 20 minutes. The favorable tolerability profile at single doses up to 500 mg exceeds the anticipated therapeutic dose and is well above the EC90 concentration. Based on these findings, we initiated a Phase 2 study of BHV-2100 in the acute treatment of migraine and a proof-of-concept study in pain in the fourth quarter of 2024. +Our Clinical Trial for BHV-2100 in Migraine +Nearly 40 million people in the U.S. suffer from migraine and the World Health Organization classifies migraine as one of the 10 most disabling medical illnesses. Migraine is characterized by debilitating attacks lasting four to 72 hours with multiple symptoms, including pulsating headaches of moderate to severe pain intensity that can be associated with nausea or vomiting, and/or sensitivity to sound (phonophobia) and sensitivity to light (photophobia). There is a significant unmet need for new treatments as more than 90 percent of migraine sufferers are unable to work or function normally during an attack. +In September 2024, we announced that we had initiated a proof-of-concept study evaluating BH-2100 in the acute treatment of migraine. The study was a 45-day, randomized, double-blind, placebo-controlled trial in approximately 575 subjects, with primary endpoints of freedom from pain at two hours post-dose and freedom from most bothersome symptom at two hours post-dose. In June 2025, we reported that no efficacy signal was detected in the study. +Our Development of BHV-2100 for the Treatment of Neuropathic Pain +BHV-2100 is also being developed as a potential non-opioid treatment for neuropathic pain. We are evaluating the ability of BHV-2100 to reduce pain behaviors across several preclinical models of neuropathic pain, including chemotherapy induced neuropathy, diabetic neuropathy, and nerve injury. We initiated a conduct a proof-of-concept study for neuropathic pain in the fourth quarter of 2024. The study is a Phase-1b, randomized, double-blind, placebo and active reference controlled, crossover trial to assess the anti-nociceptive and anti-hyperalgesic effects of single oral doses of BHV-2100 (25 mg, 75 mg, and 150 mg) vs. placebo, in a cohort of approximately 24 healthy male volunteer participants, utilizing a laser-evoked potential experimental pain paradigm. +In May 2025, we presented data showing that BHV-2100 reduced laser heat-induced pain in healthy volunteers. Statistically significant pain reduction was observed in inflamed skin on the visual analog scale with low dose (p=0.036) and high dose (p=0.015). BHV-2100 numerically increased the weighted needle threshold (higher threshold suggests less mechanical pain). Moreover, BHV-2100 had no effect on body temperature or heat pain threshold. We believe BHV-2100's profile has potential across multiple pain disorders. +Additional research on TRPM3-mediated disorders +Under the KU Leuven Agreement, Biohaven evaluated the role of TRPM3 in pain and other disorders. In addition to BHV-2100, we are optimizing other lead compounds for TRPM3-mediated disorders of the peripheral and central nervous systems. +30 +Table of Contents +Inflammation and Immunology Platform +TYK2/JAK1 +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, we entered into an exclusive, worldwide (excluding China and its territories and possessions) license agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") (the "Highlightll Agreement"), pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +BHV-8000 +Dysregulation of the immune system has been implicated in several neurodegenerative and neuroinflammatory disorders including Parkinson's Disease, Multiple Sclerosis, Alzheimer's Disease, Amyotrophic Lateral Sclerosis and Autoimmune Encephalitis. Over-active immune cells and microglia driving chronic neuroinflammation results in release of cytokines with activation of leukocytes and is thought to contribute to neuronal injury, death, gliosis, and demyelination. The tyrosine kinase 2 ("TYK2") and Janus kinase 1 ("JAK1") signal transduction pathways mediate highly complementary immune and inflammatory signaling events. Targeted, small-molecule therapies that inhibit TYK2 or JAK kinases have separately demonstrated robust efficacy in autoimmune, dermatologic and gastrointestinal disorders. TYK2 is a validated immune target as evidenced by a recent peripheral program that gained FDA approval, and there are multiple additional peripheral non-CNS programs in clinical development. Brain penetrant inhibitors of TYK2/JAK1 have the potential to bring this validated immune target to brain disorders. There are currently no brain penetrant, selective, dual TYK2/JAK1 inhibitors approved for brain disorders. +Target indications for BHV-8000 include Parkinson's disease, Alzheimer's disease, prevention of amyloid-related imaging abnormalities ("ARIA"), and multiple sclerosis ("MS"). Biohaven completed interactions with FDA enabling registrational programs for Parkinson's disease and the prevention of ARIA. +Our Clinical Program for BHV-8000 +Our Phase 1 Study with BHV-8000 +In May 2023, we began dosing with BHV-8000 (previously TLL-041), in a phase 1 study in normal healthy volunteers. In May 2024, we reported positive results from the Phase 1 single and multiple ascending dose study, including evidence of target engagement along with a safe and well tolerated profile. Phase 1 study data also confirmed cerebrospinal fluid ("CSF") exposures of BHV-8000. +BHV-8000 for Parkinson's Disease ("PD") +We initiated a pivotal trial in PD in the first half of 2025. The PD study is a Phase 2/3 randomized, double-blind, placebo-controlled study designed to evaluate the efficacy, safety, and tolerability of BHV-8000 in participants diagnosed with early PD, with a time-to-event primary endpoint (≥ 2-point worsening on Movement Disorder Society – Unified Parkinson’s Disease Rating Scale ("MDS-UPDRS") -Part II). In light of current portfolio and resource considerations, we are implementing a more focused execution of the ongoing study. +MoDE and TRAP Degraders +As discussed above, Biohaven MoDE and Targeted Removal of Aberrant Protein TRAP degraders harness selectivity, rapidity and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE or TRAP degrader is a novel bispecific molecule that targets a specific form of circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. +BHV-1310 +BHV-1310 is a next generation bispecific IgG degrader with specificity for IgG1, IgG2 and IgG4, which is initially being developed for the treatment of rare disorders including conditions like generalized myasthenia gravis ("gMG") and potentially other acute or chronic conditions, or chronic conditions with acute exacerbations or flares. MG is a neuromuscular disorder that is estimated to affect approximately 36 thousand to 60 thousand people in the United States. Patients with gMG develop antibodies that attack critical signaling receptor proteins at the junction between nerve and muscle cells, inhibiting communication between nerves and muscle and resulting in weakness of the skeletal muscles. BHV-1310 is completing preclinical testing prior to initiation of a Phase 1 study. +BHV-1600 +BHV-1600 is a selective TRAP designed to remove agonistic antibodies directed against myocardial beta-1 adrenergic receptor ("β-1 AR"). β-1 AR autoantibodies have been identified in serum individuals with dilated +31 +Table of Contents +cardiomyopathies, such as peripartum cardiomyopathy, and have been shown to cause chronic stimulation and dilation of the myocardium. Peripartum cardiomyopathy is a life-threatening condition affecting mothers within the months following delivery of a child. Through elimination of the agonistic β-1 AR autoantibodies, BHV-1600 is designed to potentially treat the underlying autoimmune etiology of this disease with no approved therapy, and prevent irreversible cardiac pump dysfunction. +We initiated Phase 1 studies of BHV-1600 in the fourth quarter of 2024. The FIH trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1600. Early results from the first two dose cohorts indicate that BHV-1600 was safe and well tolerated, with no SAEs, and without clinically relevant changes in innate or adaptive immunity, including white blood cells and immunoglobulins IgG, IgA, IgE, and IgM. There were no clinically significant reductions in albumin, liver function test abnormalities, or increases in cholesterol compared to baseline. +Additional Degraders +We are currently developing additional MoDE degraders advancing towards candidate nomination. These include an IgG4 specific degrader, a phospholipase A2 receptor ("PLA2R") autoantibody degrader for membranous nephropathy, a pro-insulin autoantibody degrader for type 1 diabetes, an IgM degrader for IgM neuropathy and Waldenstrom's macroglobulinemia, and a Thyroid Stimulating Hormone ("TSH") receptor autoantibody degrader as a selective follow-on asset for Graves' Disease. +Oncology Platform +Antibody Drug Conjugates +We are using next-generation ADC conjugation technologies, including our MATE® platform, to generate site-specific antibody drug conjugates (“ADC”s) which have shown show superior preclinical stability in comparison with those using current industry-standard methodologies. Our expectation is that the enhanced in vivo stability and expected superior physicochemical properties of these ADCs will lead to increased therapeutic indices in patients (more cytotoxic payload reaching cancer cells and less free payload that can lead to off-target toxicities in normal tissues), consistent with early in vitro and in vivo (rodent and cynomolgus monkey) studies. +BHV-1510 +In January 2024, we acquired BHV-1510 through our acquisition of Pyramid Biosciences, Inc. ("Pyramid"). BHV-1510 is a next-generation Trophoblast Cell Surface Antigen 2 ("TROP-2") directed ADC. BHV-1510 utilizes a next-generation, highly stable site-specific conjugation, resulting in a favorable preclinical PK, toxicity and manufacturability profile. The ADC targets TROP2-expressing carcinomas, which are malignant neoplasms of epithelial origin. Carcinomas account for 80 to 90 percent of all cancer cases and several examples have been successfully treated with ADCs. Abundant TROP-2 expression has been described for many carcinoma subtypes. +Preclinically, BHV-1510 has shown high plasma stability, enhanced cellular cytotoxicity, bystander killing, and immunogenic cell death with a novel topoisomerase 1 inhibitor ("TopoIx") payload, resulting in improved efficacy as monotherapy, and synergistic efficacy in combination with anti-programmed cell death protein-1 ("anti-PD1") immune checkpoint inhibitor therapy. In IND-enabling GLP toxicology studies in cynomolgus monkeys, BHV-1510 showed a differentiated safety profile that suggests a wider therapeutic margin relative to more advanced TROP-2 ADCs, including a lack of lung toxicity, that may translate to an improved clinical efficacy and safety profile. +Our Phase 1/2 Study with BHV-1510 +The IND for BHV-1510 was approved by the FDA in January 2024. The First-in Human, Phase 1/2 trial evaluating BHV-1510 in patients with advanced solid tumors commenced in the second quarter of 2024. This trial consists of two parts; Phase 1 dose escalation and Phase 2 dose expansion, in patients with advanced incurable cancer that have progressed on or are intolerant to standard therapy. The trial will also evaluate BHV-1510 in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). In May 2024, we announced that we entered into a clinical supply agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron") under which we will sponsor and fund the planned combination Phase 1/2 clinical trial, and Regeneron will provide Libtayo. +The primary objective of Phase 1 is to characterize the safety profile of BHV-1510 as monotherapy and in combinations with Libtayo, and to identify a recommended dose for expansion ("RDE") or maximum tolerated dose. Phase 1 dose escalation will be implemented based on a Bayesian optimal interval design, with the lowest dose initiated as a single patient cohort. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every two or three weeks. The Phase 2 dose expansion part of the study will consist of non-randomized efficacy finding expansion cohorts, defined by specific tumor types that will be treated at the RDE to estimate the anti-tumor activity of BHV-1510. Up to approximately 220 subjects are planned to be evaluated. +32 +Table of Contents +In the first quarter of 2025, we announced preliminary data from the initial Phase 1 monotherapy dose escalation cohorts of BHV-1510, which demonstrated early evidence of clinical activity, including tumor shrinkage, with a safety profile of the TopoIx payload supporting further development. Clinical activity was seen in various monotherapy dose cohorts tested to date, including the lowest dose tested of 2mg/kg once every three weeks. Early PK data demonstrate a stable ADC with low serum concentrations of free payload. Preliminary safety data showed a lack of payload-associated interstitial lung disease, gastrointestinal toxicities, or significant hematological toxicities observed in early cohorts. The main toxicity observed thus far in the study has been stomatitis, an expected on-target Trop2 class toxicity. +In May 2025, we reported further preliminary data from the study, where BHV-1510 demonstrated encouraging early clinical activity in combination with Regeneron's anti-PD-1 antibody Libtayo. The combination of BHV-1510 and Libtayo® in the ongoing Phase 1 study showed encouraging anti-tumor activity, with tumor shrinkage in the first 6 out of 6 patients treated, including confirmed partial responses and in patients with brain metastasis. The majority of these 6 patients treated with the combination had received prior anti–PD-1/PD-L1 therapies. The combination with Libtayo was well tolerated with no dose limiting toxicity in these initial cohorts. +Based on the early results for BHV-1510, we entered into an expanded collaboration agreement with GeneQuantum Healthcare Co. Ltd. ("GeneQuantum"), which provides broad target exclusivity for up to 18 ADC targets incorporating the TopoIx payload. +In December 2025, we presented additional clinical safety and efficacy data for BHV-1510 at the 2025 European Society for Medical Oncology ("ESMO") Immuno-Oncology Congress. At the BHV-1510 dose of 2.5 mg/kg Q3W in combination with Libtayo, confirmed objective response rate ("ORR") was 72.7%. Confirmed responses were observed in 3/5 (60%) in non-small cell lung cancer ("NSCLC"), 4/4 (100%) in endometrial cancer, which included a complete response, and 1/2 (50%) in urothelial cancer. As of the clinical cutoff date on October 10, 2025, in all 23 efficacy evaluable participants treated with BHV-1510 in combination with Libtayo across dose levels, the confirmed ORR was 52.2%, with confirmed objective responses in 6 out of 14 (42.9%) in NSCLC, 4 out of 6 (66.7%) in endometrial cancer, and 1 out of 2 (50%) in urothelial cancer. A confirmed response was reported in the participant with triple negative breast cancer. The majority of participants had tumor reduction on their first scan, with a median time to response of 11.1 weeks. Participants remain on study at 6 months and beyond, 18 participants continue on the study treatment at time of the clinical cutoff date. +As of the clinical cutoff date on October 10, 2025, early results showed that BHV-1510 in combination with Libtayo was generally well tolerated. There were low rates of adverse events attributed to unconjugated payload such as hematological toxicities and diarrhea, and there were no cases of interstitial lung disease, showing a differentiated safety profile of BHV-1510 from other Trop2 ADCs. The most frequent toxicity observed was oral mucositis/stomatitis, which is a manageable, well-known class effect. An expansion cohort in with the combination has been initiated in endometrial cancer. +BHV-1530 +The next ADC incorporating the TopoIx payload that we plan to move into clinical development is BHV-1530. BHV-1530 is a fibroblast growth factor receptor 3 ("FGFR3")-directed ADC with potential indications in cancers driven by FGFR3 alterations and/or upregulated FGFR3 protein expression, including urothelial cancers and other solid tumors. FGFR3 is a clinically validated target in oncology, with one small molecule inhibitor (Balversa(R), erdafitinib) approved; however, to our knowledge there are currently no FGFR3-directed ADCs in clinical development. Biohaven retains global rights for BHV-1530 under an exclusive license with GeneQuantum (the "FGFR3 Agreement"). The U.S. IND for BHV-1530 was opened in the second half of 2024, and a FIH study for solid tumors was initiated in the second quarter of 2025. +Our Phase 1 Study with BHV-1530 +The Phase 1 study will evaluate BHV-1530 in patients with advanced solid tumors, including patients whose cancers have progressed on or are intolerant to standard therapy. The primary objective of Phase 1 is to characterize the safety profile of BHV-1530, and to identify a recommended dose or maximum tolerated dose. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every three weeks. Up to approximately 95 subjects are planned to be evaluated. +BHV-1500 +BHV-1500 is a next-generation CD30-directed ADC generated using Biohaven's proprietary MATE(R) technology, targeting CD30-expressing tumors such as Hodgkin and non-Hodgkin lymphomas. Hodgkin lymphoma ("HL") is a malignant neoplasm of B-cells. Approximately 9,000 new HL cases are diagnosed each year. HL and other CD30-expressing lymphoma are characterized by the uncontrolled growth of malignant lymphocytes or lymphoblasts. A first-generation CD30 directed ADC, Adcetris (brentuximab vedotin), has demonstrated effectiveness in the treatment of Hodgkin's Lymphoma. +33 +Table of Contents +In preclinical CD30 expressing murine tumor models, BHV-1500 has shown improved antitumor activity versus Adcetris, and in preliminary cynomolgus monkey studies, BHV-1500 has shown substantially improved safety, plasma stability and pharmacokinetics. An initial regulatory interaction with the FDA to discuss the development plans for BHV-1500 took place in first half of 2025. +Merus Agreement +In January 2025, Biohaven announced a research collaboration and license agreement with Merus N.V. ("Merus") to co-develop three novel dual-targeting ADCs, leveraging Merus’ Biclonics® technology platform, and Biohaven’s next-generation ADC conjugation and payload platform technologies (the "Merus Agreement"). In January 2026, we received notice from Merus that the development programs for the three ADCs were being terminated subsequent to the acquisition of Merus by Genmab A/S. +Clinical-Stage Milestones +Our clinical-stage milestones include the following: +Competition +The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary drugs. While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their safety, efficacy, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third-party payors. +Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. +Manufacturing +We have an experienced chemistry, manufacturing and controls leadership team that oversees and manages our relationships with development and manufacturing manufacturers. We currently rely, and expect to continue to rely, on +34 +Table of Contents +third parties for the development and manufacturing of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing of our products if our product candidates receive marketing approval. +We expect to continue to develop product candidates that can be scaled and produced cost-effectively at contract manufacturing facilities. +Commercialization +We intend to develop and, if approved by the FDA, commercialize our product candidates in the United States, and we may commercialize or enter into distribution or licensing arrangements for commercialization rights for other regions. With respect to troriluzole, if approved for the treatment of adult patients with SCA, we currently intend to build a neurological specialty sales force to manage commercialization, potentially in combination with a larger pharmaceutical partner, to maximize patient coverage in the United States and to support global expansion. +Members of our management team and board of directors have deep experience leading immunology, neuroscience, and oncology research, and have been involved in the development and commercialization of drugs such as Abilify, Opdivo, Nurtec ODT and Zavzpret. +Our Chief Executive Officer, Vlad Coric, M.D. was the Chief Executive Officer of the Former Parent from 2015 through the Separation, leading the Former Parent’s development and successful commercial launch of Nurtec ODT (rimegepant) in the U.S., which received FDA approval for the acute and preventative treatment of migraine in February 2020 and May 2021, respectively. Under Dr. Coric’s leadership, the Former Parent entered into several strategic arrangements, including its Collaboration and License agreement with Pfizer, Inc. for the development of rimegepant and zavegepant outside of the United States. +Intellectual Property +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection ("RDP"). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +Patents and Patent Applications +We have many U.S. and foreign patents and patent applications in our portfolio related to the composition of matter, methods of use, methods of manufacture or formulations of our product candidates which have been filed in major +35 +Table of Contents +markets throughout the world, including the U.S., Europe, the United Kingdom, Japan, Korea, China, Hong Kong and Australia. +Inflammation and Immunology +Degraders +In January 2021, we entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel MoDE platform. The platform pertains to the clearance of disease-causing proteins and other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The platform is differentiated from existing approaches in that it does not rely on ubiquitin ligases, and it allows for a broad range of targets to be degraded. The patent portfolio is directed to the composition of matter of bifunctional degraders and their use in degrading circulating proteins and treating diseases. U.S. Patent No. 11,767,301, issued September 26, 2023, and U.S. Patent No. 12,083,181, issued September 10, 2024, U.S. Patent No. 12,364,766, issued July 9, 2025 and U.S. Patent No. 12,485,178, issued December 2, 2025, relate to bifunctional molecules to degrade circulating proteins, including BHV-1300. Ex-U.S. counterparts to the '301 patent, '181 patent, '766 patent, and '178 patent are pending in the European Patent Office, Canada, China and Hong Kong, and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768166, filed April 11, 2022, relates to bifunctional compounds as degraders of autoantibodies. Ex-U.S. counterparts to the '166 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, European Patent Office, Israel, Japan, Republic of Korea, Mexico, Philippines, Saudi Arabia, Singapore, and South Africa and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768145, filed April 11, 2022, relates to engineered antibodies as molecular degraders through cellular receptors. Ex-U.S. counterparts to the '145 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/017319, which relates to targeted brain-penetrant bifunctional degraders, was filed February 22, 2022, and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/019658, which relates to bifunctional degraders of galactose deficient immunoglobulins, was filed March 10, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in March 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/075527 and PCT/US2022/075535, filed August 26, 2022, which relate to bifunctional degraders of pathogenic anti-β1ECII (the second extracellular loop of the β1 adrenergic receptor) autoantibodies, are pending in the United States and major jurisdictions worldwide. Two U.S. patents issued from the ‘535 application as U.S. Patent No. 12,128,105 on October 29, 2024 and U.S. Patent No. 12,234,256 on February 25, 2025. PCT/US2024/058316, which also relates to bifunctional degraders of pathogenic anti-β1ECII autoantibodies, including BHV-1600, was filed December 4, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in December 2044, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/026709, which relates to degraders of immunoglobulin G, including BHV-1310, was filed April 28, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/026733, which relates to bifunctional degraders of galactose deficient immunoglobulins, including BHV-1400, was filed April 29, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +TYK2/JAK1 +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Highlightll pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +U.S. Patent RE49834, having an issue date of February 13, 2024, is directed to BHV-8000 and will expire in September 2037, not including possible patent term extensions. Ex-U.S. counterparts to the ‘834 patent have been granted in Australia, Brazil, Canada, European Patent Office, Israel, India, Japan, Mexico, New Zealand, and Republic of Korea, and patent applications to the ‘834 patent is pending in Eurasia. The ex-U.S. patents and patent applications, if granted, will expire in September 2037, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2020/088122, related to a stable crystalline form of BHV-8000, was filed April 30, 2020, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2040, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2022/113807, which relates to methods of treating CNS disorders with dual TYK2/JAK1 inhibitors, was filed August 22, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will +36 +Table of Contents +expire in August 2042, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/IB2025/054156, filed April 21, 2025, which relates to methods of treating alpha-synucleinopathies and neuroprotection with dual TYK2/JAK1 inhibitors, is pending at the International Bureau designating all PCT countries. +Myostatin Activin +Taldefgrobep Alfa +In December 2021, we entered into a worldwide license agreement with Bristol Myers Squibb for the global development and commercialization rights to taldefgrobep alfa (BHV-2000), a novel, Phase 3-ready anti-myostatin adnectin. Myostatin is a natural protein that limits skeletal muscle growth, an important process in healthy muscular development. +U.S. Patent 8,853,154 issued October 7, 2014, U.S. Patent 8,933,199, issued January 13, 2015, U.S. Patent 8,993,265, issued March 31, 2015, U.S. Patent 9,493,546, issued November 15, 2016, U.S. Patent 9,662,373, issued May 30, 2017, U.S. Patent 10,245,302, issued April 2, 2019, U.S. Patent 10,406,212, issued September 10, 2019, and U.S. Patent 11,813,315, issued November 14, 2023, are directed to fibronectin based scaffold domain proteins that bind to myostatin. The U.S. patents expire in September 2033, not including possible patent term extensions. Ex-U.S. counterparts to the U.S. patents have been granted in Argentina, Austria, Australia, Belgium, Bulgaria, Brazil, Canada, Switzerland, Chile, China, Colombia, Czechia, Germany, Denmark, Algeria, Egypt, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, Indonesia, Ireland, Israel, India, Italy, Japan, Republic of Korea, Lithuania, Morocco, Macao, Mexico, Malaysia, Netherlands, Norway, New Zealand, Peru, Philippines, Poland, Portugal, Romania, Serbia, Russia, Sweden, Singapore, Slovenia, Slovakia, Thailand, Tunisia, Turkey, Taiwan, Uruguay, Venezuela, Vietnam and South Africa. The ex-U.S. patents will expire in September 2033, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 16/607688, filed May 3, 2018, relates to stable formulations fibronectin based scaffold domain proteins that bind to myostatin. Ex-U.S. counterparts to the '688 application have been granted in Australia, Israel, Japan, Korea, Mexico, and Taiwan, and are pending in Canada, China, European Patent Office, Hong Kong, and Singapore. The ex-U.S. patents and patent applications, if granted, will expire in May 2038, not including possible patent term extensions in countries where such extensions are available. +PCT/US2024/015292, which relates to methods of treating overweight, obesity, and related health conditions with anti-myostatin adnectins, was filed February 10, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2044, not including possible patent term extensions in countries where such extensions are available. PCT/IB2025/053898, filed April 14, 2025, which relates to methods of treating overweight, obesity, and related health conditions with anti-myostatin adnectins in combination with a GLP-1 agonist, is pending at the International Bureau designating all PCT countries. +Ion Channel +Kv7 Activator +In April 2022, we acquired Channel Biosciences, LLC. This acquisition included Channel’s Kv7 channel targeting platform and related patents and patent applications. The patents and patent applications are directed to the composition of matter of compounds that are activators of Kv7.2/Kv7.3 and their use in treating diseases such as epilepsy. U.S. Patent 10,851,067, issued December 1, 2020, claims opakalim and will expire in March 2039, not including possible patent term extensions. Ex-U.S. counterparts to the ‘067 patent have been granted in Australia, Israel, Japan, Republic of Korea, Mexico, New Zealand, Republic of Korea, and South Africa, and patent applications to the ‘067 patent are pending in Brazil, Canada, China, European Patent Office, Hong Kong, Israel, India, New Zealand, and Singapore. The ex-U.S. patents, and patent applications, if granted, will expire in March 2039, not including possible patent term extensions in countries where such extensions are available. In addition, U.S. Patent 9,481,653, issued November 1, 2016, claims a class of compounds including opakalim and will expire in September 2035, not including possible patent term extensions. Ex-U.S. counterparts to the ‘653 patent are granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Netherlands, Norway and Sweden. The ex-U.S. patents will expire in September 2035, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/US23/10295, PCT/US23/63111, PCT/US23/63113 and PCT/US23/63115 directed to various Kv7 activator chemotypes were filed in January and February 2023. These applications are pending in the United States and major market countries. The patent applications, if granted, will expire in January/February 2043, not including possible patent term extensions in countries where such extensions are available. Other patent application directed to the combination treatment with a Kv7 activator and N-methyl-D-aspartate ("NMDA") receptor antagonist (PCT/US23/73125), a Kv7 activator and glutamate modulator (PCT/US23/73504), and a Kv7 activator and TDP-43 binder (PCT/US23/73491) were filed in August and September 2023. These applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in August/September 2043, not including possible patent term extensions in countries where such extensions are available. +37 +Table of Contents +TRPM3 Antagonist +In January 2022, we entered into an exclusive global license and research agreement to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery (“CD3”) and the Laboratory of Ion Channel Research (“LICR”) at Katholieke Universiteit Leuven (KU Leuven). PCT/EP2021/082853, which relates to aryl derivatives for treating TRPM3 mediated disorders, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, Taiwan and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. PCT/EP2021/082865, which relates to heterocycle derivatives for treating TRPM3 mediated disorders, including BHV-2100, was filed November 24, 2021. In that family, U.S. Patent 12,209,081, issued January 28, 2025, and U.S. Patent 12,404,266, issued September 2, 2025, claims BHV-2100 and will expire in November 2041, not including possible patent term extensions. Related patents have been granted in Eurasian Patent Organization and Saudi Arabia, and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, European Patent Office, Israel, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Singapore, Taiwan, South Africa and the U.S. The Ex-US patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. U.S. Patent 9,194,863, issued November 24, 2015, which relates to screening methods for analgesic agents, has also been granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Italy, Netherlands and Sweden. The patents will expire in May 2032, not including possible patent term extensions in countries where such extensions are available. In addition, seven PCT applications directed to various TRPM3 antagonist chemotypes were filed in May 2023 (PCT/EP2023/063992, PCT/EP2023/063994, PCT/EP2023/063996, PCT/EP2023/063997, PCT/US2023/067443, PCT/US2023/067446, PCT/US2023/067448), and corresponding national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/041162, filed August 7, 2024, which relates to oral fast-dispersing dosage forms of TRPM3 antagonists and methods of treating pain using the same, is pending at the United States PCT Receiving Office designating all PCT countries. In addition, two PCT applications disclosing some brain-penetrant TRPM3 antagonists were filed in November 2024 (PCT/US2024/056806 and PCT/US2024/056810) and are currently pending in the United States PCT Receiving Office designating all PCT countries. +Oncology +Trop2 ADC +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger, dated January 7, 2024 ("the Pyramid Agreement"). As a result of the merger, the Company acquired rights under certain patents exclusively licensed to Pyramid from GeneQuantum Healthcare (Suzhou) Co. Ltd. +The licensed patents include the following, among others: PCT/CN2023/107444, filed July 14, 2023, which relates to anti-TROP2 antibodies and conjugates, including BHV-1510. U.S. Patent No. 12,539,336, issued February 3, 2026 from the ‘444 application, claims BHV-1510. National applications are also pending in the United Arab Emirates, Argentina, Australia, Brazil, Canada, Eurasian Patent Organization, European Patent Office, India, Indonesia, Israel, India, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Saudi Arabia, Singapore, and South Africa. The patent applications, if granted, will expire in July 2043, not including possible patent term extensions in countries where such extensions are available. PCT/CN2024/087405, which relates to combinations of antibody-drug conjugates and anti-PD-1 antibodies, was filed April 12, 2024, and the national applications are currently pending in the United Arab Emirates, Australia, Brazil, Canada, Eurasian Patent Organization, European Patent Office, India, Indonesia, Israel, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, South Africa, and the United States. PCT/CN2025/071669, filed January 10, 2025, which relates to pharmaceutical compositions of antibody-drug conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +FGFR3 ADC +In December 2024, the Company entered into a Development and License Agreement with GeneQuantum Healthcare (Suzhou) Co. Ltd. and Aimed Bio, Inc. relating to certain Fibroblast Growth Factor Receptor ADCs. The licensed patents include the following, among others: PCT/CN2023/103152, filed June 28, 2023, which relates to anti-FGFR3 antibody conjugates and medical uses thereof, was filed in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. Corresponding national applications are currently pending in the United Arab Emirates, Australia, Brazil, Canada, Colombia, Egypt, European Patent Office, India, Indonesia, Israel, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Russia, Saudi Arabia, South Africa, Singapore, South Africa, Thailand, Ukraine, the United States, and Vietnam. The patent applications, if granted, will expire in June 2043, not including possible patent term extensions in countries where such extensions are available. PCT/CN2024/142547, filed December +38 +Table of Contents +26, 2024, which relates to pharmaceutical compositions of anti-FGFR3 antibody conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +Non-exclusively licensed patents include the following: PCT/KR2022/000119, filed January 5, 2022, which relates to anti-FGFR3 antibodies and uses thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea and the United States. PCT/CN2022/131904, filed November 15, 2022, which relates to exatecan derivatives, linker-payloads and conjugates thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea, Mexico and the United States. PCT/CN2021/074082, filed January 28, 2021, which relates to ligase fusion proteins and applications thereof, is pending in Australia, China, the European Patent Office, Japan, Korea and the United States. +Troriluzole +We have a portfolio of patents and patent applications in the U.S. and foreign countries directed to prodrugs of riluzole, including, among others, U.S. Patent 10,485,791, issued November 26, 2019, which is directed to troriluzole and other prodrugs of riluzole. This patent expires in February 2036, not including possible patent term extensions. Ex-U.S. counterparts to the ‘791 patent have been granted in Albania, Armenia, Austria, Australia, Azerbaijan, Belgium, Brazil, Bulgaria, Belarus, Canada, Switzerland, China, Cyprus, Czechia, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, India, Ireland, Israel, Italy, Japan, Kyrgyzstan, Kazakhstan, Lithuania, Luxembourg, Latvia, Monaco, North Macedonia, Macao, Malta, Mexico, Netherlands, Norway, Philippines, Poland, Portugal, Republic of Korea, Romania, Serbia, Russia, Singapore, Sweden, Slovenia, Slovakia, Tajikistan, Turkmenistan, Turkey and South Africa. The ex-U.S. patents and patent applications will expire in February 2036, not including possible patent term extensions in countries where such extensions are available. In addition, the use of these compounds for treating OCD, ALS, SCA, depression, Alzheimer’s Disease and other diseases are described and claimed in these patents and patent applications. These patent applications are subject to an agreement with ALS Biopharma and FCCDC. In addition, we have filed patent applications relating to drug product formulations containing troriluzole and methods of using the formulations to treat various diseases, including, for example, the use of troriluzole with immunotherapies to treat ataxias, including among others U.S. Patent 12,102,618, issued October 1, 2024, which expires in November 2038, not including possible patent term extensions. Ex-U.S. patents and patent applications corresponding to the '618 patent will expire in November 2038, not including possible patent term extensions in countries where such extensions are available. In addition, another patent application directed to the treatment of SCA3 (PCT/US23/67326) was filed in May 2023 and is pending in the United States and other major market countries. These patents, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. Also, a patent application directed to the use of troriluzole for treating OCD was filed in June 2021 (PCT/US21/38789) and national applications are pending in major jurisdictions. These patents, if granted, will expire in 2041, not including possible patent term extensions in countries where such extensions are available. Another patent application directed to the treatment of glioblastoma (PCT/US23/69038) was filed June 26, 2023 and is pending in the United States and other major market countries. +MATE Conjugation Technology +We also acquired Kleo Pharmaceuticals, Inc. in January 2021. This acquisition included Kleo’s proprietary technology platforms which are modular in design and enable rapid generation of novel immunotherapies that can be optimized against specified biological targets and combined with existing cell- or antibody-based therapies. These include ARM technology and MATE conjugation technology, which complement the MoDE technology and our Oncology ADC technology. U.S. Serial No. 17/769924, filed April 18, 2022, relates to directed conjugation technologies. Ex-U.S. counterparts to the '924 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in November 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/912563, filed September 19, 2022, relates to technologies for treating COVID infections. Ex-U.S. counterparts to the '563 application are pending in major market countries. PCT/US2022/015390, which relates to technologies for preventing or treating infections, was filed February 6, 2022 and is pending in the United States. PCT/US2022/029533, which relates to compositions including conjugated therapy enhancers, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/029535, which relates to agents for directed conjugation techniques and conjugated products, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/030070, which relates to antibody drug conjugates using MATE technology for delivering cytotoxic agents, including BHV-1500, was filed May 19, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/025746, filed April 23, 2024, claims BHV-1500 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if +39 +Table of Contents +granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +Licensing and Other Agreements +In addition to our independent efforts to develop and market products, we from time to time enter into agreements such as licensing agreements, option-to-license agreements and strategic collaborations. The licensing and other agreements typically include, among other terms and conditions, non-refundable upfront license fees, option fees and option exercise payments, milestone payments and royalties. See Note 11, "License, Acquisitions and Other Agreements," to the Consolidated Financial Statements included in this report for additional information regarding our licenses and other agreements. +Government Regulation +In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (the "FDCA") and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including imposition of a clinical hold, refusal by the FDA to approve applications, withdrawal of an approval, import/export delays, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. +The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include: +• preclinical laboratory tests and animal tests conducted under Good Laboratory Practices ("GLP"); +• the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence; +• approval by an independent institutional review board ("IRB"), representing each clinical site before each clinical trial may be initiated; +• adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication and conducted in accordance with Good Clinical Practices ("GCP"); +• the preparation and submission to the FDA of an NDA; +• FDA acceptance, review and approval of the NDA, which might include an Advisory Committee review; +• satisfactory completion of an FDA inspection of the manufacturing facilities at which the product, or components thereof, are made to assess compliance with current Good Manufacturing Practices ("cGMPs"). +The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. +Preclinical and Human Clinical Trials in Support of an NDA +Preclinical studies include laboratory evaluations of the product candidate, as well as in vitro and animal studies to gather information on the safety and efficacy of the product candidate. The conduct of preclinical trials is subject to federal regulations and requirements including GLP regulations. The results of the preclinical studies, together with manufacturing information and analytical data, among other things, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. The FDA may nevertheless initiate a clinical hold after the 30 days if, for example, a deficiency is found in the IND application. +40 +Table of Contents +Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCP requirements. Each clinical trial must be reviewed and approved by an IRB at each of the sites at which the trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. +Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap or be combined. These phases generally include the following: +Phase 1 . Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics. +Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population with a specific disease or condition to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks. +Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product approval and labeling. +Phase 4. Clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in enforcement action or withdrawal of approval. +A Phase 2/3 trial design, which we have used in our troriluzole development program, is often used in the development of pharmaceutical and biological products. The trial includes Phase 2 elements, such as an early interim analysis of safety or activity, and Phase 3 elements, such as larger patient populations with less restrictive enrollment criteria. An early interim analysis of clinical or physiologic activity and/or safety allows the study to be stopped, changed or continued before a large number of patients have been enrolled, while still allowing all data from enrolled patients to count in the analysis used to support approval. +Submission and Review of an NDA +The results of preclinical studies and clinical trials, together with detailed information on the product's manufacture, composition, quality, controls and proposed labeling, among other things, are submitted to the FDA in the form of an NDA, requesting approval to market the product. The application must be accompanied by a significant user fee payment, which typically increases annually, although waivers may be granted in limited cases. The FDA has substantial discretion in the approval process and may refuse to accept an application if they determine that the data are insufficient for approval and require additional nonclinical, clinical or other studies. +Once an NDA has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA sets a user fee goal date that informs the applicant of the specific date by which the FDA intends to complete its review and take an action on the application. A standard review typically takes 10 months from the date that the application is accepted for filing by the FDA and a priority review typically takes 6 months from the date that the application is accepted by the FDA for filing. The review process can be extended by FDA requests for additional information or clarification. The FDA reviews NDAs to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA typically will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities comply with cGMPs. Additionally, the FDA will typically inspect one or more clinical trial sites, as well as the Sponsor of the NDA, for compliance with GCP and integrity of the data supporting safety and efficacy. +During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy ("REMS") is necessary to assure the safe use of the product post approval. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as a boxed warning, to be included in the product label in order to highlight a particular safety risk. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. +41 +Table of Contents +On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA will issue either an approval of the NDA or a Complete Response Letter ("CRL"), detailing the deficiencies in the submission and the additional testing or information required for reconsideration of the application. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the application, or request a hearing. Even with submission of this additional information, the FDA may ultimately decide that the application does not satisfy the regulatory criteria for approval. +Post-Approval Requirements +Approved drugs that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims and some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for marketed products. +The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance programs to further assess and monitor the product's safety and effectiveness after commercialization. The FDA may also require a REMS, which could involve requirements for, among other things, medication guides, special trainings for prescribers and dispensers, patient registries, and elements to assure safe use. +In addition, entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA has promulgated specific requirements for drug cGMPs. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. +Once an approval is granted, the FDA may issue enforcement letters or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay product distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; +• fines, warning letters or holds on post-approval clinical trials; +• refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; or +• injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities. +Section 505(b)(2) NDAs +As an alternative path to FDA approval for modifications to formulations or uses of drugs previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments. A Section 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not +42 +Table of Contents +conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use from the company by or for whom the investigations were conducted. This type of application permits reliance for such approvals on literature or on an FDA finding of safety, effectiveness or both for an approved drug product. As such, under Section 505(b)(2), the FDA may rely, for approval of an NDA, on data not developed by the applicant. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for the new indication sought by the 505(b)(2) applicant. +Our clinical program for troriluzole for the treatment of SCA and the treatment of OCD is based on a regulatory pathway under section 505(b)(2) of the FDCA that allows reference to data on riluzole for the purpose of safety assessments. +Product Exclusivity - United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation at least in part for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a Biologic License Application ("BLA") is filed. The type of application filed affects regulatory data protection (“RDP”) exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an Abbreviated New Drug Application ("ANDA") with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, could be filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA, which includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the +43 +Table of Contents +patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the European Commission ("EC") and the EC then approves or denies the MAA. Regulatory approval via the centralized procedure results in a marketing authorization for the innovative pharmaceutical product in each EU member state. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed after October/November 2005 are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +To obtain marketing authorization of pharmaceutical products in Japan, an NDA must be submitted to the Pharmaceutical and Medical Devices Agency (“PMDA”) once safety and efficacy has been established. In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +44 +Table of Contents +China +To obtain marketing authorization of pharmaceutical products in China, an NDA must be submitted to the National Medical Products Administration ("NMPA") once safety and efficacy has been established in Chinese patients. For imported drugs, this means issuance of an import license. The applicant must submit evidence of foreign approval (certificate of pharmaceutical product), unless it is an innovative drug that has never been approved anywhere in the world. +In China, medicines of new chemical entities are generally afforded six years of data exclusivity for approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +South Korea +To obtain marketing authorization of pharmaceutical products in South Korea, a marketing application must be submitted to the Ministry of Food and Drug Safety ("MFDS"). The application must contain data in South Korean patients, information regarding safety and efficacy, quality, a good manufacturing practice certificate, and a certificate of pharmaceutical product in an approved country to show that the drug being imported is being sold in the approved country in accordance with the with the relevant rules and regulations in that country. +In South Korea, medicines of new chemical entities are generally afforded six years of data exclusivity for first approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +Rest of the World +In countries outside of the U.S., the EU, Japan, China and South Korea, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization ("WTO") commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +Coverage, Reimbursement and Pricing +Challenges exist that pertain to the coverage and reimbursement status of any products for which regulatory approval is sought. In the United States and foreign markets, sales of any products that receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities, such as Medicare and Medicaid, and private entities, such as managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. The latter is often informed by entities such as the Institute for Clinical and Economic Review ("ICER") which provides a reimbursement rate based on a multifactorial value assessment. Admittedly, ICER value assessments are more pertinent to the U.S. environment. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Typically, patients must "step through," or fail less expensive therapies such as generics in order to be prescribed a branded therapy. Moreover, a third-party payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor's reimbursement payment rate may not be adequate or may require patient co-payments that patients find unacceptably high. Additionally, coverage and reimbursement for products can differ significantly from one payor system to the next. Private payor systems set reimbursement policy in accordance with their particular model. For example, some payor systems mandate value based pricing wherein a particular price point is premised upon achieving a particular goal. These can include an improvement in patients’ clinical course (therapeutic effectiveness), or reductions in drug and health care utilization and cost. Thus a third-party payor's decision to cover a particular product does not ensure that other payors will also provide the same level of coverage for the product, or will provide coverage at an adequate reimbursement rate. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +Third-party payors require evidence of value that are supplemental to the regulatory mandates of safety and efficacy in order to support a particular price. To obtain coverage and reimbursement for any product that might be approved for sale, there is often a need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity (based on evidence of disease burden and unmet need) and cost-effectiveness of the therapy. As mentioned, the ICER evidence review mandates such information. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, they may deem a subpopulation of eligible patients based on greater unmet need as eligible for reimbursement. Thus, obtaining and maintaining reimbursement status can +45 +Table of Contents +be time-consuming and costly. However, drug developers accept these requirements as a condition of reimbursement, analogous to their acceptance of the level of evidence needed to obtain regulatory approval. +The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. For example, the U.S. and particularly state legislatures have implemented cost containment programs that include price controls, restrictions on reimbursement and "first use" of generic products prior to access to branded prescriptions. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("collectively, the ACA") contains provisions such as increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. The Centers for Medicare and Medicaid Services ("CMS") may develop new payment and delivery models, such as bundled payment models. For example, the U.S. Department of Health and Human Services ("HHS") moved 41% of Medicare fee-for-service payments to alternative payment models ("APMs") tied to the quality or value of services by the end of 2018. HHS has a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. These constitute significant challenges, which are analogous to the regulatory hurdles in many aspects and drug developers acknowledge these challenges as the path to providing safe and effective therapies to the patients that require them. +European Union Coverage Reimbursement and Pricing +In the European Union, pricing and reimbursement requirements can vary widely from country to country. These may range from ICER-like value assessments (e.g. NICE in the U.K. and SMC in Scotland) that include cost-effectiveness parameters to criteria that are based solely on a novel therapy’s incremental effectiveness (efficacy, safety) relative to approved standards of care. These latter criteria may require additional studies. All of these are compiled as country-specific health technology assessments ("HTAs"), that constitute a requisite for reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of access restrictions that typically target sub populations with high unmet need. Sponsors are expected to demonstrate incremental value including effectiveness in these subpopulations via additional analyses. +Healthcare Laws and Regulations +Physicians, other healthcare providers, and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Futur e arrangements wi th healthcare professionals, principal investigators, consultants, customers and third-party payors are and will be subject to various federal, state and foreign fraud and abuse laws and other healthcare laws and regulations. These laws and regulations may impact, among other things, healthcare professionals who participate in our clinical research programs, and our proposed sales, marketing, distribution, and education programs. The U.S. federal and state healthcare laws and regulations that may affect our ability to operate include, without limitation, the following: +• The federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs, such as Medicare and Medicaid. The term "remuneration" has been broadly interpreted to include anything of value; +• The federal civil and criminal false claims laws, including, without limitation, the federal civil monetary penalties law and the civil False Claims Act (which can be enforced by private citizens through qui tam actions), prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government; +• The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") enacted as part of the American Recovery and Reinvestment Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, on entities subject to the law, such as healthcare providers, health plans, and healthcare clearinghouses and their respective business associates to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosures; +46 +Table of Contents +• The federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, and other programs such as CHIP to report to HHS information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; and +• Analogous state laws and regulations, such as state anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers; and state health information privacy and data breach notification laws, which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and some of which are not pre-empted by HIPAA, thus complicating compliance efforts. +We are required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Healthcare reform legislation has strengthened these federal and state healthcare laws. For example, the ACA amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Violations of these laws can subject us to criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and reputational harm, we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business. +Healthcare Reform +The legislative landscape in the United States continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states, without specifically ruling on the ACA’s constitutionality. +The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following: +• an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; +• a Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; +• requirements to report certain financial arrangements with physicians and certain others, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests; +• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; +• a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; +• extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; +47 +Table of Contents +• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; +• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; +• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and +• establishment of the Center for Medicare Innovation at the Centers for Medicare and Medicaid Services ("CMS"), to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. In January 2021, an Executive Order entitled “Executive Order on Strengthening Medicaid and the Affordable Care Act” repealed two previous Executive Orders delaying the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that amend all or part of the ACA. +In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. +Further, there have been several Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion. In August 2022, Congress passed the Inflation Reduction Act of 2022 (the "IRA"), which, among other things, requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). Subsequently, certain pharmaceutical companies and other entities filed lawsuits in various courts against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. While some of these cases are on appeal, HHS has generally won the substantive disputes in these cases, and various federal district court judges expressed skepticism regarding the merits of the legal arguments being pursued by the pharmaceutical industry. Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results. In addition, recent administrations have released various executive orders with provisions aimed at, among other things, prescription drug pricing, lowering drug costs for Medicare and Medicaid beneficiaries and setting forth various potential policies or actions that Congress or administrative agencies could pursue. In July 2025, the One Big Beautiful Act ("OBBBA") was enacted which, among other things, is directed to improving efficiencies in U.S. federal healthcare spending over the next decade, primarily within Medicaid. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +At the state level, legislatures are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. +The Foreign Corrupt Practices Act +The Foreign Corrupt Practices Act (the "FCPA") prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or +48 +Table of Contents +business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts. +Environmental, Social, Governance, and Human Capital +Governance and Leadership +Our commitment to integrating sustainability across our organization begins with our Board of Directors. The Nominating and Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance (“ESG”). Six of our eight directors are independent under the NYSE’s listing standards for independence. +Business Ethics +We are committed to creating an environment where we are able to excel in our business while maintaining the highest standards of conduct and ethics. Our Code of Business Conduct and Ethics (the “Code of Conduct”) reflects the business practices and principles of behavior that support this commitment, including our policies on bribery, corruption, conflicts of interest and our whistleblower program. We expect every director, officer, and employee to read, understand and comply with the Code of Conduct and its application to the performance of his or her business responsibilities. +We encourage employees to come to us with observations and complaints, and we strive to understand the severity and frequency of an event in order to escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and report. +Environmental Commitment +We are committed to protecting the environment and attempt to mitigate negative impacts of our operations. We monitor resource use, and aim to improve efficiency, and at the same time reduce our emissions and waste. +Externally, we strive to reduce the overall impact of our product on the environment by taking steps to enhance the sustainability of our manufacturing processes for our drug substances. +In collaboration with our contract research organization partners, we apply various green chemistry methodologies to our commercial and development pipeline. We have especially focused on using biocatalysis, a technology that makes use of enzymes instead of chemicals to accomplish specific chemical reactions used to construct organic small molecules such as Active Pharmaceutical Ingredients. +We have also initiated work in removing hazardous organic solvents from certain reactions and replacing them with water. This green technology relies on the use of micelles to enable such reactions to occur in water where they would normally not occur due in part to the very poor solubility of most organic compounds in water. These greener processes create less waste and reduce the environmental impact of the manufacturing process. +Social Responsibility +For third-party vendor selection and oversight, we have adopted standard operating procedures that apply to employees and subcontractors who on our behalf, oversee and conduct research regulated by the FDA. We retain ultimate authority and responsibility for the conduct of regulated research, manufacturing, and testing and we must ensure that contracted services are conducted in accordance with Good Practice Guidelines and all applicable regulations. +Human Capital Management +We foster and encourage a workplace environment that holds possibilities for everyone, with a commitment to respect and acceptance without biases. +Development and continuous feedback are priorities for our organization, which was comprised of 274 employees as of December 31, 2025. We believe each person is critical to our success and we invest in our people by supporting continuous training programs and courses. We encourage each employee to engage with their manager in developmental discussions designed to focus on feedback rather than a rating. +An important part of our talent recruitment is our robust paid internship program for high school, college and graduate-level students. This program offers opportunities to students in the community and develops a roadmap for +49 +Table of Contents +‘entry-level’ candidates. We evaluate the success of our recruitment program through metrics such as time to hire, offer acceptance rate, turnover rate and business results. +We strive to provide an inclusive workplace to foster growth and innovation. Biohaven engages in forward-thinking people policies to allow for our employees to thrive in our workforce. Regular attendance at an office is only required of our lab professionals, allowing over 50% of our workforce to work remotely full-time. Our vacation policy is unlimited and is aimed at giving employees the ability to achieve work/life balance in a way that is bespoke to their circumstances. +Information about Segments +We currently operate in a single business segment developing a portfolio of treatments in therapeutic areas including neuroscience, immunology and oncology. See additional information in our financial statements contained in Part II, Item 8 of this Annual Report. +Corporate Information +We are a business company limited by shares organized under the laws of the British Virgin Islands. Our registered office is located at P.O. Box 173, Road Town, Tortola, British Virgin Islands and our telephone number is +1 (284) 852-3000. Our U.S. subsidiary's office is located at 215 Church Street, New Haven, Connecticut 06510 and telephone number is (203) 404-0410. Our website address is www.biohaven.com. The information contained on our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in making an investment decision regarding our common shares. On September 16, 2022, the Company changed its name from “Biohaven Research Ltd.” to “Biohaven Ltd.” +Available Information +Our internet website address is www.biohaven.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report. +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). A copy of these reports is also available at the SEC's website (www.sec.gov). +50 +Table of Contents +Item 1A. Risk Factors +In connection with any investment decision with respect to our securities, you should carefully consider the risks described below, as well as general economic and business risks and the other information in this Annual Report on Form 10-K and in our other filings with the SEC. The occurrence of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results of operations and financial condition and could cause the trading price of our common shares to decline. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business. +SUMMARY +An investment in our common shares is subject to a number of risks, including risks related to our product candidates, risks related to our business and risks related to our common shares. The following list of risk factors is not exhaustive. Please read the information in this section captioned “1A. Risk Factors” for a more thorough description of these and other risks. +Risks Related to Our Financial Position and Need for Additional Capital +• We have a limited operating history, have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. +• Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, may have a negative impact on our business and results of operations. +• An inability to raise capital when needed or on terms favorable to us could force us to curtail our planned operations and growth strategy. +• Credit risk with respect to our investments or the financial institutions at which we deposit funds could adversely affect us. +• The terms of the Note Purchase Agreement (as defined below) and our level of indebtedness could adversely affect our business and financial condition and limit our ability to plan or, or respond to, changes in our business. +Risks Related to the Development of Our Product Candidates +• We depend entirely on the success of a limited number of product candidates. +• Clinical trials are very expensive, time consuming and difficult to design and implement, involve uncertain outcomes and may not be predictive of results of future trials. +• Regulatory approval processes in the U.S. and foreign jurisdictions are lengthy, time consuming and unpredictable. +• Our product candidates may fail to demonstrate safety and efficacy in clinical trials, or may cause serious adverse or unacceptable side effects. +• We may become exposed to costly and damaging liability claims, which may not be covered by insurance. +Risks Related to Commercialization of Our Product Candidates +• We have never commercialized a product candidate and may lack the necessary expertise, personnel and resources to successfully commercialize any product candidate that may receive regulatory approval. +• We operate in a highly competitive and rapidly changing industry. +• Failure to obtain or maintain adequate coverage and reimbursement for our approved product candidates could limit our ability to market those products and decrease our ability to generate revenue. +• Our product candidates, if approved, will be subject to ongoing regulatory oversight. +• Our approved product candidates may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +Risks Related to Our Dependence on Third Parties +• We rely on third parties to conduct our preclinical studies and clinical trials and to supply, manufacture and distribute clinical drug supplies for our product candidates, which may expose our business to risks. +• We may not establish or maintain collaborations with third parties to develop or commercialize product candidates. +51 +Table of Contents +Risks Related to Regulatory Compliance +• Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set. +• Our business operations and relationships with investigators, health care professionals, consultants, third-party payors and customers are subject to federal and state healthcare and other laws. +• We may not obtain or maintain orphan drug designation or exclusivity for our product candidates. +• Disruptions at the FDA and other government agencies could prevent new products from being developed or commercialized in a timely manner, or negatively impact the approval of an NDA, BLA or similar application. +Risks Related to Our Intellectual Property +• We could lose market exclusivity earlier than expected. +• If we were unable to obtain licenses from third parties on commercially reasonable terms or lose our rights to licensed intellectual property, we may not be able to continue developing or commercializing our product candidates. +• Patent terms may not provide exclusivity for our product candidates for an adequate amount of time to realize sufficient commercial benefits. +• Third parties may seek to invalidate our patents. +• Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +• Our future growth and ability to compete depend on, among other things, retaining key personnel and recruiting additional qualified personnel and on our ability to penetrate foreign markets. +• Laws and regulations governing our international operations may preclude us from developing, manufacturing and selling certain product candidates and products outside of the United States and require us to develop and implement costly compliance programs. +• We may encounter difficulties in managing our growth, which could disrupt our operations. +• Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in improper activities. +• Our business and operations may be materially adversely affected in the event of computer system failures or security breaches. +Risks Related to Ownership of Our Common Shares +• Substantially all of our total outstanding shares may be sold freely into the market. This could cause the market price of our common shares to drop significantly, even if our business is doing well. +• Because we do not expect to pay dividends on our common shares in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +• The trading price of our common shares has been and may continue to be volatile. +• If we are or become a passive foreign investment company, there could be adverse U.S. federal income tax consequences to U.S. holders. +• We are a British Virgin Islands ("BVI") business company limited by shares, and the rights of shareholders are more limited under BVI law than under U.S. law. It may be difficult to enforce a U.S. or foreign judgment against us, our directors and our officers outside the United States. +52 +Table of Contents +Risks Related to Our Financial Position and Need for Additional Capital +We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the success of our business to date and to assess our future viability. +We were incorporated on May 2, 2022 as a direct, wholly-owned subsidiary of the Former Parent. Our operations to date have been largely focused on organizing and staffing, raising capital and in-licensing the rights to, and advancing the development of, our product candidates, including conducting preclinical studies and clinical trials. We have not yet demonstrated an ability to obtain marketing approvals for any product candidates, manufacture products on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products. +We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We will need to eventually transition from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition. +Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our suppliers, third-party service providers and potential partners, may have a negative impact on our business and results of operations. +Our business and results of operations could be adversely affected by changes in national or global economic conditions. These conditions include, but are not limited to, volatility in inflation and interest rates, volatility in the capital markets, energy availability and costs, the negative impacts from pandemics and public health crises, negative impacts resulting from the military conflict between Russia and Ukraine, geopolitical and trade tensions between the U.S. and China or other geopolitical events, potential protectionist trade policies adopted by the U.S. and other governments, and the effects of governmental initiatives to manage economic conditions. Impacts of such conditions could be passed on to our business in the form of higher costs for labor and materials, higher investigator fees, possible reductions in pharmaceutical industry-wide spending on research and development and acquisitions and higher costs of capital. +We have incurred significant operating losses since our inception as a business of the Former Parent and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability. +Since our inception as a business of the Former Parent, we have incurred significant operating losses. Our net loss was $738.8 million, $846.4 million and $408.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. None of our product candidates has been approved for marketing in the United States, or in any other jurisdiction, and may never receive such approval. It could be several years, if ever, before we have a commercialized product that generates significant revenues. As a result, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. The net losses we incur have in the past and may in the future fluctuate significantly from quarter to quarter and year to year. Our expenses have increased, and we anticipate that our expenses will further increase substantially as we: +• initiate, continue, or complete planned or ongoing clinical trials of our current product candidates, including related support activities; +• continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies; +• make required milestone and royalty payments under the license agreements by which we acquired some of the rights to our product candidates; +• initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue; +• continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies; +• continue to develop, maintain, expand and protect our intellectual property portfolio; +• pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials; +53 +Table of Contents +• ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; +• hire additional clinical, medical, commercial, and development personnel; and +• incur additional legal, accounting and other expenses in operating as a public company. +To become and remain profitable, we must develop and eventually commercialize one or more product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, developing commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any current and future product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We are only in the preliminary stages of most of these activities and, in some cases, have not yet commenced certain of these activities. +We may never succeed in commercializing any of our product candidates and, even if we do, we may never generate sufficient revenue to achieve profitability. +Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will obtain marketing approval to commercialize any of our product candidates. If we are required by the FDA or other regulatory authorities such as the EMA to perform studies and trials in addition to those currently expected, or if there are any delays in the development, or in the completion of any planned or future preclinical studies or clinical trials of our current or future product candidates, our expenses could increase and profitability could be further delayed. +Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of the Company also could cause you to lose all or part of your investment. +We will need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed or on terms favorable to us, we could be forced to curtail our planned operations and the pursuit of our growth strategy. +Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We will require additional capital to complete our planned clinical development programs for our current product candidates to seek regulatory approval. Our expenses have increased and we expect our expenses to continue to increase in connection with our ongoing activities, particularly as we continue to develop our product candidates. Our expenses could increase beyond our current expectations if the FDA requires us to perform clinical trials and other studies in addition to those that we currently anticipate. If we receive regulatory approval for any of our product candidates, we may incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. +In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all. Additionally, if we obtain marketing approval for our product candidates, we expect to incur significant expenses related to manufacturing, marketing, sales and distribution and, with respect to certain of our product candidates, the payment of milestone and royalty fees. +As of December 31, 2025, we had cash, cash equivalents and marketable securities of $319.1 million, excluding restricted cash of $2.8 million. We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operating and financial commitments and other cash requirements for at least 12 months from the date of filing of this report. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume our available capital before that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements will depend on many factors, including: +• the scope, progress, results and costs of our ongoing and planned preclinical studies and clinical trials for our product candidates; +• the timing and amount of milestone and royalty payments we are required to make under our license agreements; +• the extent to which we in-license or acquire other product candidates and technologies; +54 +Table of Contents +• the number and development requirements of other product candidates that we may pursue, and other indications for our current product candidates that we may pursue; +• the costs, timing and outcome of regulatory review of our product candidates; +• the costs and timing of future commercialization activities, including drug manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; +• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; +• our ability to establish strategic collaborations for the development or commercialization of some of our product candidates; and +• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims brought by third parties against us. +We will require additional capital to complete our planned clinical development programs for our current product candidates to seek regulatory approval. Any additional capital-raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved. +In addition, we cannot guarantee that future financing will be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities by us, whether equity or debt, or the market perception that such issuances are likely to occur, could cause the market price of our common shares to decline. As a result, we may not be able to access the capital markets as frequently as comparable companies. If we are unable to obtain funding on a timely basis on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired. +Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams. +Until such time as we can generate substantial product revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and license and development agreements in connection with any future collaborations. We do not have any committed external source of funds. In the event we seek additional funds, we may raise additional capital through the sale of equity securities, including through our "at-the-market" equity program, or convertible debt securities. In such an event, our existing shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of the holders of our common shares. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could hurt our ability to conduct our business. +Further, if we raise additional capital through collaborations, strategic alliances, or marketing, distribution, licensing or funding arrangements with third parties, we may have to relinquish valuable rights to our intellectual property future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. +Credit risk with respect to our investments or the financial institutions at which we deposit funds could adversely affect us. +Financial instruments that expose us to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. Market conditions and changing circumstances, many of which are beyond our control, could reduce the value of our investments or impair our ability to access our existing cash, cash equivalents or other investments. For example, rising interest rates could negatively impact the value of investments that are not held to maturity. +We maintain cash deposits that are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit in FDIC-insured financial institutions. If any financial institution with which we have a banking relationship were to be placed into receivership or become insolvent in the future, we may be unable to access, temporarily or over a longer-term, or we may lose, a portion of our funds on deposit with that institution. +Any delay in our ability to access our cash, cash equivalents and investments, or the loss of some or all of such funds, could result in us not being able to pay our employees, vendors or others on a timely basis, or at all, and could hinder us from being able to enter into commercial arrangements that could be advantageous to us. Conversely, if any of +55 +Table of Contents +our counterparties are impacted by any banking failures, that could impact their ability to transact with us. Any of the foregoing could adversely impact, possibly materially, our business and operations. +The terms of the Note Purchase Agreement (as defined below) and our level of indebtedness could adversely affect our business and financial condition and limit our ability to plan for, or respond to, changes in our business. +On April 28, 2025, we and our subsidiaries, including Biohaven Therapeutics Ltd. (the “Issuer”), entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with the purchasers party thereto (the “Purchasers”) and Beetlejuice SA LLC, an affiliate of Oberland Capital Management LLC, as purchaser agent. Pursuant to the Note Purchase Agreement, the Purchasers purchased senior secured notes from the Issuer in an initial tranche for an aggregate purchase price of $250.0 million. In addition, the Purchasers may purchase additional senior secured notes from the Issuer in a second tranche in up to three purchases on or before June 30, 2026 for an aggregate purchase price of $150.0 million, subject to the satisfaction of certain conditions, including the receipt of approval from the FDA for troriluzole. The Purchasers may also purchase, at the Issuer’s option and subject to the approval of each Purchaser agreeing to participate therein, in its sole discretion, additional notes from the Issuer in up to four purchases for an aggregate purchase price of $200.0 million. In addition to the approximately $250.0 million of indebtedness that we have incurred under the Note Purchase Agreement, we may incur a significant amount of additional indebtedness under the Note Purchase Agreement, which could adversely affect our business. +As consideration under the Note Purchase Agreement, the Purchasers have the right to receive payments from us equal to, initially, 6.25% of the global net sales of troriluzole, subject to increase or decrease, following December 31, 2030, depending on whether the aggregate payments made to the Purchasers as of that date equal or exceed the Total Funded Amount (as defined in the Note Purchase Agreement). We are also obligated to pay to the Purchasers a milestone payment equal to 35% of the Funded Amount (as defined in the Note Purchase Agreement) upon the approval by the FDA or EMA of troriluzole or our other products. In addition, if the aggregate payments to the Purchasers as of December 31, 2030 do not equal or exceed the amount of the Total Funded Amount, then we will be obligated to make a one-time payment to the Purchasers in an amount equal to 100% of the Total Funded Amount as of December 31, 2030, less the aggregate amount of our previous payments, excluding any Milestone Payments made for approvals of product candidates other than troriluzole, to the Purchasers as of December 31, 2030. See Note 6, “Notes Payable,” to the accompanying consolidated financial statements included in this Form 10-K for more information about the Note Purchase Agreement. +Our level of indebtedness could affect our business in the following ways, among other things: +• make it more difficult for us to satisfy our contractual and commercial commitments; +• require us to use a substantial portion of our cash flow from operations to make payments under the Note Purchase Agreement, which would reduce funds available for working capital, capital expenditures and other general corporate purposes; +• limit our ability to complete acquisitions and limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other investments or general corporate purposes; +• heighten our vulnerability to economic downturns or downturns in our business or our industry; +• place us at a disadvantage compared to those of our competitors that may have proportionately less indebtedness; +• limit management’s discretion in operating our business; and +• limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy. +The Note Purchase Agreement could have important negative consequences to holders of our common shares. To secure our obligations under the Note Purchase Agreement, we and certain of our subsidiaries have granted the Purchaser Agent, for the benefit of the Purchasers, a security interest in our cash and equity interests and in specific assets related to troriluzole. Failure to pay amounts owed to the Purchasers when due would result in a default under the Note Purchase Agreement and could result in foreclosure on all or substantially all of those assets, which would have a material adverse effect on our business and results of operations. In addition, payment requirements under the Note Purchase Agreement will increase our cash outflows. Our business may not generate cash flows from operations in the future that are sufficient to service our indebtedness, pay the revenue interest liability, make necessary capital expenditures and support our growth strategies. If we are unable to generate such cash flows, we may be required to pursue one or more alternatives, such as obtaining additional equity capital on terms that may be onerous or highly dilutive, selling assets or restructuring our indebtedness. We may have to relinquish valuable rights to troriluzole, our intellectual property or future revenue streams, or grant licenses on terms that are not favorable to us. In addition, an increase in the royalty rate on global net sales of troriluzole under the Note Purchase Agreement could result in +56 +Table of Contents +additional payments by us to the Purchasers and, as a result, harm our cash flows, financial condition and results of operations. Our ability to refinance our indebtedness will depend on the capital and credit markets and our financial condition at such time. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the expense relating to the refinancing would increase. Any of the foregoing risks could materially adversely affect our financial condition, cash flows and results of operations. +The Note Purchase Agreement contains affirmative and negative covenants and events of default, which may prevent us from capitalizing on business opportunities and taking certain corporate actions, and includes a Put Option (as defined below) in favor of the Purchasers, which could have a material adverse effect on our business, financial condition and results of operations. +The Note Purchase Agreement contains affirmative and negative covenants and events of default, including covenants and restrictions that, among other things, restrict our ability to incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock and enter into restrictive agreements, in each case, subject to certain exceptions set forth in the Note Purchase Agreement. For example, the Note Purchase Agreement includes a financial statement delivery covenant and in the event that our audited financial statements, are subject to any qualification, emphasis of matter or statement as to “going concern” or scope of audit, subject to certain exceptions, we would be in breach of our financial statement delivery covenant. Additionally, the Purchasers have an option (the “Put Option”) to terminate the Note Purchase Agreement and to require us to repurchase the Notes upon enumerated events such as payment defaults, covenant defaults, material breaches of representations and warranties, cross defaults to material debt, bankruptcy and insolvency defaults, material judgment defaults, a key man event or a change of control. The Purchasers’ right to repayment under the Note Purchase Agreement is senior to the rights of the holders of our common shares. If the Purchasers were to exercise the Put Option or otherwise declare an event of default under the Note Purchase Agreement, that could significantly harm our business, financial condition and results of operations and could cause the price of our common shares to decline. +Risks Related to the Development of Our Product Candidates +Our current business depends entirely on the success of a limited number of product candidates, which are in clinical development. If we do not obtain or are delayed in obtaining regulatory approval for and successfully commercialize one or more of our product candidates, our business, financial condition and results of operations could be materially impacted and we may never become profitable. +Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. We do not have any products that have received regulatory approval, and therefore we have never generated any revenue from product sales, and we may never be able to develop product candidates that receive regulatory approval or are successfully commercialized after regulatory approval is received. Consequently, the revenue-generating potential of our business is unproven and uncertain. We expect that a substantial portion of our efforts and expenses over the next few years will be devoted to the development of our product candidates; specifically, completion of our Phase 2/3 studies for opakalim in epilepsy, completion of our Phase 2 clinical trial for BHV-2000 in metabolic disorders, and completion of our Phase 1 clinical trials for BHV-1300 and BHV-1400. As a result, our business currently depends heavily on the successful development, regulatory approval and, if approved, commercialization of these product candidates. We cannot be certain that we will be able to submit a new drug application (“NDA”), biologics license application (“BLA”) or comparable applications in other jurisdictions for any of our product candidates within the timeframes we expect, or that any NDA, BLA or similar application we submit will be accepted by the FDA or comparable foreign regulators for filing in a timely manner or at all. The research, testing, manufacturing, safety, efficacy, labeling, approval, sale, marketing and distribution of our product candidates are, and will remain, subject to comprehensive regulation by the FDA and similar foreign regulatory authorities. The success of our product candidates will depend on various factors, including: +• completing clinical trials that demonstrate our product candidates’ efficacy and safety; +• receiving marketing approvals from applicable regulatory authorities; +• completing any post-marketing studies required by applicable regulatory authorities; +• establishing commercial manufacturing capabilities; +• launching commercial sales, marketing and distribution operations; +• the prevalence and severity of adverse events experienced with our product candidates; +• acceptance of our product candidates by patients, the medical community and third-party payors; +• a continued acceptable safety profile following approval; +57 +Table of Contents +• obtaining and maintaining healthcare coverage and adequate reimbursement for our product candidates; +• competing effectively with other therapies, including with respect to the sales and marketing of our product candidates, if approved; and +• qualifying for, maintaining, enforcing and defending our intellectual property rights and claims. +Many of these factors are beyond our control, including the time needed to adequately complete clinical testing, the regulatory submission process, potential threats to our intellectual property rights and changes in the competitive landscape. Our failure to achieve one or more of these factors in a timely manner or at all could materially harm our business, financial condition and results of operations. +Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials. +Clinical testing is expensive and can take many years to complete, and delay or failure can occur at any time during the clinical trial process. +For example, in March 2025, we reported negative topline results from our Phase 2/3 clinical trial with opakalim for the acute treatment of manic episodes associated with bipolar disorder. No additional studies in bipolar indications are currently planned. +In addition, the results generated to date in preclinical studies or clinical trials for our product candidates do not ensure that later preclinical studies or clinical trials will demonstrate similar results. Further, we have limited clinical data for many of our product candidates. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and earlier stage clinical trials. In later-stage clinical trials, we will likely be subject to more rigorous statistical analyses than in completed earlier stage clinical trials. +In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen, and the rate of dropout among clinical trial participants. +If we fail to produce positive results in our planned preclinical studies or clinical trials of any of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be materially adversely affected. +Interim topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our reputation and business prospects. +We have limited experience in drug discovery and drug development. +Because we in-licensed some of our investigational agents from other companies, including BHV-2000 from BMS, we were not involved in and had no control over the preclinical and clinical development of these product candidates prior to entering into these in-license agreements. In addition, we are relying on the other companies from which we licensed our investigational agents to have conducted such research and development in accordance with the applicable protocol, legal, regulatory and scientific standards, accurately reported the results of all clinical trials conducted prior to our acquisition of the applicable product candidate, and correctly collected and interpreted the data from these studies and trials. To the extent any of these has not occurred, our expected development time and costs may be increased, which could adversely affect our prospects for marketing approval of, and receiving any future revenue from, these product candidates. +58 +Table of Contents +Clinical trials may be delayed, suspended or terminated for many reasons, which will increase our expenses and delay the time it takes to develop our product candidates. +We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will need to be redesigned, enroll an adequate number of patients on time or begin or be completed on schedule, if at all. The commencement and completion of clinical trials for our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including: +• the FDA or other regulators disagreeing as to the design, protocol or implementation of our clinical trials; +• the delay or refusal of regulators (including the FDA) or IRBs to authorize us to commence a clinical trial; +• regulators (including the FDA), IRBs, ethics committees of the institutions at which trials are being conducted or the data safety monitoring board for such trials requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements (including the FDA’s current GCP regulations) or our clinical protocols, safety concerns, adverse side effects, or lack of adequate funding to continue the clinical trial, among others; +• changes in regulatory requirements, policies and guidelines; +• delays or failure to reach agreement on acceptable terms with prospective clinical research organization (“CROs”) and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; delays in patient enrollment and variability in the number and types of patients available for clinical trials; +• the inability to enroll a sufficient number of patients in trials, particularly in orphan indications, to observe statistically significant treatment effects in the trial; +• having clinical sites deviate from the trial protocol or dropping out of a trial; +• negative or inconclusive results from ongoing preclinical studies or clinical trials, which may require us to conduct additional preclinical studies or clinical trials or to abandon projects that we expect to be promising; +• safety or tolerability concerns (including due to reports from testing of similar therapies) that could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks; +• regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others; +• lower than anticipated retention rates of patients and volunteers in clinical trials; +• our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial; +• delays relating to adding new clinical trial sites; +• difficulty in maintaining contact with patients after treatment, resulting in incomplete data; +• delays in establishing the appropriate dosage levels; +• the quality or stability of the product candidate falling below acceptable standards; +• the inability to produce or obtain sufficient quantities of the product candidate to commence or complete clinical trials; and +• exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials. +Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue from product sales. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. +59 +Table of Contents +The regulatory approval processes of the FDA and comparable foreign regulatory agencies are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be materially harmed. +Neither we nor any future collaborator is permitted to market any of our product candidates in the United States or abroad until we receive regulatory approval of an NDA or BLA from the FDA or approval from the EMA, NMPA or other applicable foreign regulatory agency. The time required to obtain approval by the FDA is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including those beyond our control, such as the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval is generally uncertain, may change during the course of a product candidate’s clinical development and may vary among jurisdictions. +Prior to obtaining approval to commercialize a product candidate in any jurisdiction, we must demonstrate to the satisfaction of the FDA, EMA, NMPA or any comparable foreign regulatory agency that such product candidates are safe and effective for their intended uses. The FDA, EMA, NMPA or any comparable foreign regulatory agency can delay, limit or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including: +• the FDA, EMA, NMPA or the applicable foreign regulatory agency’s disagreement with the number, design, conduct or implementation of our preclinical studies and clinical trials; +• negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA, EMA, NMPA or any comparable foreign regulatory agency for approval; +• serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates; +• our inability to demonstrate to the satisfaction of the FDA, EMA, NMPA or the applicable foreign regulatory agency that our product candidates are safe and effective for their proposed indications, or that the clinical and other benefits of our product candidates outweigh any safety or other perceived risks; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from preclinical studies or clinical trials; +• actions by the CROs that we retain to conduct our preclinical studies and clinical trials, which are outside of our control and that materially adversely impact our preclinical studies and clinical trials; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling or the specifications of our product candidates; +• the FDA’s, EMA’s, NMPA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; and +• the potential for approval policies or regulations of the FDA, EMA, NMPA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval. +For example, in our Phase 3 clinical trial ("Study BHV4157-206") evaluating the efficacy and safety of troriluzole in adult patients with SCA, the primary endpoint, change from baseline to week 48 on the modified SARA scale, did not reach statistical significance in the overall SCA population as there was less than expected disease progression over the course of the study. Post-hoc analysis of efficacy measures by genotype suggested a treatment effect in patients with the SCA Type 3 ("SCA3") genotype. In May 2023, we presented further analysis of Study BHV4157-206 by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, which represented 41% of study participants. These results were further supported by consistent results across the range of secondary and exploratory endpoints assessed in the SCA3 subgroup. In July 2023, the FDA informed us that it would not review the recently submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. Furthermore, in September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study achieved the primary endpoint and showed statistically significant improvements on the f-SARA at years 1 and 2 and 3 and we submitted an NDA to the FDA in the fourth quarter of 2024 for all of SCA. In November 2025, we received a Complete Response Letter ("CRL") for the NDA seeking approval of troriluzole for SCA. In the CRL, the FDA recommended that we meet with the Division of Neurology 1 within the FDA's Office of Neuroscience to discuss the evidence that will be needed to support a future NDA for the treatment of SCA with troriluzole. Following receipt of the CRL, we have requested a Type A meeting with the FDA to initiate an appeal process, given the large number of patients who are currently being treated in the +60 +Table of Contents +expanded access program. We remain committed to working with the FDA to find a path forward for our NDA and plan to meet with the FDA to discuss potential next steps. +We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the EU and other key global markets, which requires compliance with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdiction. Failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. +Moreover, even if we were to obtain approval to market any product candidate we develop, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates. +Our product candidates may fail to demonstrate safety and efficacy in clinical trials, or may cause serious adverse or unacceptable side effects that could prevent or delay regulatory approval and commercialization, limit the commercial profile of an approved label, increase our costs, necessitate the abandonment or limitation of the development of some of our product candidates or result in significant negative consequences following marketing approval, if any. +Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate efficacy or safety of the product candidate studied for the target indication. +For example, in March 2025, we reported negative topline results from our Phase 2/3 clinical trial with opakalim for the acute treatment of manic episodes associated with bipolar disorder. No additional studies in bipolar indications are currently planned. +Moreover, undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label, the limitation of commercial potential or the delay or denial of regulatory approval by the FDA or a foreign regulatory agency. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Accordingly, we may need to abandon the development of certain product candidates or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in preclinical or early-stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound in the tested indication. +Occurrence of serious treatment-related side effects could impede subject recruitment and clinical trial enrollment or the ability of enrolled patients to complete the trial, delay the clinical trial, and prevent receipt of regulatory approval from the FDA and other regulators. They could also adversely affect physician or patient acceptance of our product candidates or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. +If any of our product candidates receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug could be compromised. +Clinical trials of our product candidates by their nature are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. +We have monitored the subjects in our studies for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials. However, if one or more of our product candidates receives regulatory approval, and we, or others, later discover that they are less effective than previously believed, or cause undesirable side effects that had not previously been identified, a number of potentially significant negative consequences could result, including: +• withdrawal or limitation by regulatory authorities of approvals of such product; +• seizure of the product by regulatory authorities; +61 +Table of Contents +• recall of the product; +• restrictions on the marketing of the product or the manufacturing process for any component thereof; +• requirement by regulatory authorities of additional warnings on the label, such as a “black box” warning or contraindication; +• requirement that we implement a REMS or similar program or create a medication guide outlining the risks of such side effects for distribution to patients; +• commitment to expensive additional safety studies prior to approval or post-marketing studies required by regulatory authorities of such product; +• the product may become less competitive; +• initiation of regulatory investigations and government enforcement actions; +• initiation of legal action against us to hold us liable for harm caused to patients; and +• harm to our reputation and resulting harm to physician or patient acceptance of our products. +Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, financial condition, and results of operations. +We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected. +Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. If we are unable to enroll a sufficient number of patients in our clinical trials, our timelines for recruiting patients, conducting clinical trials and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of our clinical trials altogether. We cannot predict how successful we will be at enrolling patients in future clinical trials. Patient enrollment is affected by other factors including: +• the eligibility criteria for the trial in question; +• the perceived risks and benefits of the product candidate in the trial; +• clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating or drugs that may be used off-label for these indications; +• the size of the patient population required for analysis of the trial’s primary endpoints; +• competition for patients for competitive product candidates undergoing clinical trials; +• the efforts to facilitate timely enrollment in clinical trials; +• the design of the trial; +• the patient referral practices of physicians; +• the ability to monitor patients adequately during and after treatment; +• the risk that patients enrolled in clinical trials will drop out of the trials before completion; +• the ability to obtain and maintain patient consents; +• the number of patients with the indication being studied; and +• the proximity and availability of clinical trial sites for prospective patients. +We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications +62 +Table of Contents +may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. +We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all damages from such claims. +We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. The current and future use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, or others selling such products. In addition, we have agreed to indemnify the licensors of the intellectual property related to our product candidates against certain intellectual property infringement claims. Any claims against us, or with respect to which we are obligated to provide indemnification, regardless of their merit, could be difficult and costly to defend or settle, and could compromise the market acceptance of our product candidates or any prospects for commercialization of our product candidates, if approved. +Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects or identify patients who should not use our product candidates. +Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all our liabilities. We routinely review our insurance coverage in consideration of our ongoing clinical trials and anticipated commercial operations. As the expense of insurance coverage is increasing, we may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. +If serious adverse events or other undesirable side effects are identified during the use of our product candidates in trials, it may adversely affect our development of such product candidates. +Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt preclinical studies and clinical trials, or could make it more difficult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effects or unexpected characteristics of our product candidates are observed in investigator-sponsored trials, further clinical development of such product candidate may be delayed or we may not be able to continue development of such product candidate at all, and the occurrence of these events could have a material adverse effect on our business. Undesirable side effects caused by our product candidates could also result in the delay or denial of regulatory approval by the FDA or other regulatory authorities or in a more restrictive label than we expect. +Risks Related to Commercialization of Our Product Candidates +We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any of our products that receive regulatory approval on our own or together with suitable collaborators. +We have never commercialized a product candidate. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring the rights to our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We currently have no sales force, marketing or distribution capabilities. To achieve commercial success of our product candidates, if any are approved, we will have to develop our own sales, marketing and supply capabilities or outsource these activities to a third party. +Factors that may affect our ability to commercialize our product candidates on our own include: recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our product candidates, and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization requires significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization in the United States, the EU or other key global markets. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may have difficulties generating revenue from such product candidates or be able to achieve or sustain profitability. +63 +Table of Contents +To the extent that we enter into collaboration agreements with respect to marketing, sales or distribution of any approved product, our product revenue may be lower than if we directly marketed or sold such product. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third-party collaborators, which may not be successful and are generally not within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. +We operate in a highly competitive and rapidly changing industry. Failure to compete successfully could adversely affect our business, financial condition and results of operations. +Biopharmaceutical product development is highly competitive and subject to rapid and significant technological advancements. Our success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market, specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the United States, the EU and other jurisdictions. +Many of the companies which we are competing with or which we may compete with in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the biopharmaceutical industry have resulted in and could in the future result in even more resources being concentrated among our competitors. +Competition may further increase as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in the biopharmaceutical industry. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, products that are more effective or less costly than any product candidates that we may develop. +Established biopharmaceutical companies may invest heavily to accelerate research and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, and in discovering, developing, receiving FDA approval for or commercializing drugs before we do, which would have an adverse impact on our business and results of operations. +The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidates we commercialize, if any. The inability to compete with existing or subsequently introduced drugs would harm our business, financial condition and results of operations. +The successful commercialization of certain of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue. +The availability and adequacy of coverage and reimbursement by governmental healthcare programs, such as Medicare and Medicaid, private health insurers and other third-party payors, are essential for most patients to be able to afford products such as our product candidates, if approved. Our ability to achieve acceptable levels of coverage and reimbursement for products by third-party payors will have an effect on our ability to successfully commercialize our product candidates, if approved, and attract additional collaboration partners to invest in the development of our product candidates. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and adequate reimbursement in the United States, the EU or elsewhere will be available for any product that we may develop, and any reimbursement that becomes available may be decreased or eliminated in the future. +Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. Our competitors may offer their products and services on a less expensive basis to gain coverage and reimbursement from third-party payors. It is possible that a third-party payor may consider our product candidates as substitutable by less expensive therapies and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing drugs may limit the amount we will be able to charge for our product candidates, once approved. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or +64 +Table of Contents +existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. +There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such devices or therapies. +Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that further changes in these rules and regulations are likely. +Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates, if approved. We expect to experience pricing pressures in connection with the sale of any of our approved product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect: +• the demand for any products for which we may obtain regulatory approval; +• our ability to set a price that we believe is fair for our products; +• our ability to obtain coverage and adequate reimbursement approval for a product; +• our ability to generate revenues and achieve or maintain profitability; and +• the level of taxes that we are required to pay. +Even if we obtain regulatory approval for our product candidates, they will remain subject to ongoing regulatory oversight. +Even if we obtain regulatory approval for any of our product candidates, they will be subject to extensive and ongoing regulatory requirements for manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promoting, sampling and record-keeping. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCPs, for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. We may not be able to adapt to changes in existing requirements or the adoption of new requirements or policies. If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include: +• issuing warning or untitled letters; +• seeking an injunction or imposing civil or criminal penalties or monetary fines; +• suspension or imposition of restrictions on operations, including product manufacturing; +65 +Table of Contents +• seizure or detention of products, refusal to permit the import or export of products, or requesting that we initiate a product recall; +• suspension or withdrawal of our marketing authorizations; +• suspension of any ongoing clinical trials; +• refusal to approve pending applications or supplements to applications submitted by us; +• refusal to permit the import or export of products; or +• requiring us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization. +Moreover, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties. +If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expenses to comply with regulatory requirements, which could adversely affect our business, financial condition and results of operations. +Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +Even if the FDA approves the marketing of any product candidates that we develop, physicians, patients, third-party payors or the medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates. If any of our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue or any profits from operations. Because we expect sales of our product candidates, if approved, to generate substantially all of our product revenue for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business and could require us to seek additional financing. The degree of market acceptance of our product candidates that are approved for commercial sale will depend on a variety of factors, including: +• the efficacy, cost, convenience and ease of administration, and other potential advantages compared to alternative treatments, including any similar generic treatments; +• effectiveness of sales and marketing efforts; +• the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; +• the strength of marketing and distribution support; +• the availability of third-party coverage and adequate reimbursement, and patients’ willingness to pay out-of-pocket in the absence of third-party coverage or adequate reimbursement; +• the prevalence and severity of any side effects; and +• any restrictions on the use of our products, if approved, together with other medications. +In addition, the potential market opportunity for our product candidates is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions may be inaccurate. If any of the assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity, our revenue from product sales may be limited and we may be unable to achieve or maintain profitability. +66 +Table of Contents +If the FDA or comparable foreign regulatory authorities approve generic versions of any of our products that receive marketing approval, or such authorities do not grant our products sufficient periods of exclusivity before approving generic versions of our products, the sales of our products could be adversely affected. +Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications (“ANDAs”) in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product. +The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDCA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical element (“NCE”). Specifically, in cases where such exclusivity has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference listed drug. +While we believe that troriluzole, a prodrug of riluzole will be treated as an NCE under current FDA interpretations and, therefore, if approved, should be afforded five years of data exclusivity, the FDA may disagree with that conclusion and may approve generic products after a period that is less than five years. Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if we still have patent protection for our product. +Competition that our products may face from generic versions of our products could materially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates. +Risks Related to Our Dependence on Third Parties +We rely on third parties to conduct our preclinical studies and clinical trials and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed. +We have historically conducted, and we intend to continue to conduct our clinical trials using our own clinical resources, while also leveraging expertise and assistance from medical institutions, clinical investigators, contract laboratories and other third parties, such as contract research organizations as appropriate. We are reliant upon such third parties to assist us in conducting GCP-compliant clinical trials on our product candidates properly and on time, and may not currently have all of the necessary contractual relationships in place to do so. Once we have established contractual relationships with such third-parties, we will have only limited control over their actual performance of these activities. +We and our CROs and other vendors are required to comply with cGMP, GCP and GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EU and any comparable foreign regulatory authorities for all of our product candidates in preclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators, clinical trial sites and other contractors. Although we rely on CROs to conduct any current or planned GLP-compliant preclinical studies and GCP-compliant clinical trials and have limited influence over their actual performance, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or any comparable foreign regulatory agency may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory agency, such regulatory agency will determine that all of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced under cGMP requirements. Our failure to comply with these requirements may require us to repeat clinical trials, which would delay the regulatory approval process. +While we will have agreements governing their activities, we are not, and will not be, able to control whether or not our CROs devote sufficient time and resources to our future preclinical and clinical programs. These CROs may also have +67 +Table of Contents +relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our business. If our CROs do not successfully carry out their contractual duties or obligations, or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed or terminated, the clinical data generated in our clinical trials may be deemed unreliable, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenue could be delayed. +If our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus, and could delay development and commercialization of our product candidates. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can negatively impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business and financial condition. +We rely completely on third-party contractors to supply, manufacture and distribute clinical drug supplies for our product candidates, including certain sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing and distribution if any of our product candidates receive regulatory approval; and we expect to rely on third parties for supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates. +We do not currently have, nor do we plan to acquire, the internal infrastructure or capability to supply, manufacture or distribute preclinical, clinical or commercial quantities of drug substances or products. +Our ability to develop our product candidates depends and our ability to commercially supply our products will depend, in part, on our ability to successfully obtain the active pharmaceutical ingredients (“APIs”) and other substances and materials used in our product candidates from third parties and to have finished products manufactured by third parties in accordance with regulatory requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to continue to develop or commercialize our product candidates. In addition, our results of operations and cash flows could be adversely impacted by any inability to obtain favorable terms from our suppliers, including any acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements. +While we have auditing rights with all our current manufacturing counterparties, we do not have direct control over the ability of our contract suppliers and manufacturers to maintain adequate capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. Although we are ultimately responsible for ensuring compliance with regulatory requirements such as cGMPs, we are dependent on our contract suppliers and manufacturers for day-to-day compliance with cGMPs for production of both APIs and finished products. Facilities used by our contract suppliers and manufacturers to produce the APIs and other substances and materials or finished products for commercial sale must pass inspection and be approved by the FDA and other relevant regulatory authorities. Our contract suppliers and manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. If our contract suppliers or manufacturers fail to achieve and maintain compliance with applicable laws and regulatory requirements, our business could be adversely affected in a number of ways, and cause, among other things: +• an inability to initiate or continue clinical trials of our product candidates under development; +• delay in submitting regulatory applications, or receiving regulatory approvals, for our product candidates; +• subjecting third-party manufacturing facilities or our own facilities to additional inspections by regulatory authorities; +• requirements to cease distribution or to recall batches of our product candidates; +• suspension of manufacturing of our product candidates; +• revocation of obtained approvals; and +• inability to meet commercial demands for our product candidates in the event of approval. +Further, if the safety of any product or product candidate or component is compromised due to a failure to adhere to applicable laws and regulatory requirements, or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable for injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies, clinical trials or regulatory +68 +Table of Contents +submissions or approvals of our product candidates, and could entail higher costs or result in our being unable to effectively commercialize our approved products on a timely basis, or at all. +We may rely on certain third parties as the sole source of the materials they supply or the finished products they manufacture. We may also have sole-source suppliers for one or more of our other product candidates. Some of the APIs and other substances and materials used in our product candidates are currently available only from one or a limited number of domestic or foreign suppliers and foreign manufacturers and certain of our finished product candidates are manufactured by one or a limited number of contract manufacturers. +In the event an existing supplier or manufacturer fails to supply or manufacture, as applicable, product on a timely basis or in the requested amount, fails to meet regulatory requirements or our specifications, becomes unavailable through business interruption or financial insolvency or loses its regulatory status as an approved source, or if we or our manufacturers are unable to renew current supply agreements when such agreements expire and we do not have a second supplier, we likely would incur added costs and delays in identifying or qualifying replacement suppliers, manufacturers and materials and there can be no assurance that replacements would be available to us on a timely basis, on acceptable terms or at all. In certain cases, we may be required to get regulatory approval to use alternative suppliers and manufacturers, and this process of approval could delay production of our products or development of product candidates indefinitely. We and our manufacturers do not currently maintain inventory of these APIs and other substances and materials. Any interruption in the supply of an API or other substance or material or in the manufacture of a finished product could have a material adverse effect on our business, financial condition, operating results and prospects. +In addition, these contract manufacturers are or may be engaged with other companies to supply and manufacture materials or products for such companies, which also exposes our suppliers and manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract supplier’s or manufacturer’s facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative supply or manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval of or market our product candidates, if approved. +We expect to continue to depend on third-party contract suppliers and manufacturers for the foreseeable future, but supply and manufacturing arrangements do not guarantee that a contract supplier or manufacturer will provide services adequate for our needs. We and our contract suppliers and manufacturers may attempt to improve production processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. While we attempt to build in certain contractual obligations on such third-party suppliers and manufacturers, we may not be able to ensure that such third parties comply with these obligations. Depending on the extent of any difficulties encountered, we could experience an interruption in clinical or commercial supply, with the result that the development, regulatory approval or commercialization of our product candidates may be delayed or interrupted. In addition, third-party suppliers and manufacturers may have the ability to increase the price payable by us for the supply of the APIs and other substances and materials used in our product candidates, in some cases without our consent. +Additionally, any damages to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to have our product candidates manufactured on a timely basis. Furthermore, if a contract manufacturer or supplier becomes financially distressed or insolvent, or discontinues our relationship beyond the term of any existing agreement for any other reason, this could result in substantial management time and expense to identify, qualify and transfer processes to alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply. +In addition, the manufacturing facilities of certain of our suppliers are located outside of the United States. This may give rise to difficulties in importing our products or product candidates or their components into the United States or other countries as a result of, among other things, regulatory agency approval requirements or import inspections, incomplete or inaccurate import documentation or defective packaging. +We, or third-party manufacturers on whom we rely, may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any. +As we prepare for later-stage clinical trials and potential commercialization, we will need to take steps to increase the scale of production of our product candidates, which may include transferring production to new third-party suppliers or manufacturers. In order to conduct larger or late-stage scale clinical trials for our product candidates and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, our contract manufacturers and suppliers will need to produce our product candidates in larger quantities, more cost effectively and, in certain cases, at higher yields than they currently achieve. We, or our manufacturers, may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective +69 +Table of Contents +manner, or at all. In addition, quality issues may arise during scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of the APIs or the finished product. If we, or any of our manufacturers, are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing, and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business. If we are unable to obtain or maintain third-party manufacturing for commercial supply of our product candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully. +We may in the future enter into collaborations with third parties to develop and commercialize our product candidates. If these collaborations are not successful, or if we are not able to establish or maintain these collaborations, our business could be harmed. +Our product development programs and the potential commercialization of our product candidates will require substantial additional capital to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the future development and potential commercialization of those product candidates. Furthermore, we may find that our programs require the use of proprietary rights held by third parties, and the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. Collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, and the terms of any collaborations or other arrangements that we may establish may not be favorable to us. +We face significant competition in seeking appropriate collaborators, and a number of more established companies may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, competing or alternative products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. We may also be restricted under existing license agreements from entering into agreements on certain terms with potential collaborators. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the same rights and compete with us. +The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, including for example, that the collaborators may not: adequately perform their obligations under the collaboration agreement; devote sufficient resources to the collaboration to ensure success; or agree with us on the strategy or tactical aspects of the collaboration. +If any such potential future collaborations do not result in the successful development and commercialization of product candidates, or if one of our future collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, the development of our product candidates could be delayed and we may need additional resources to develop our product candidates. In addition, if one of our future collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization apply to the activities of our potential future collaborators. +Risks Related to Regulatory Compliance +We are required to comply with a wide variety of laws and regulations, and are subject to regulation by various federal, state and foreign agencies, and our failure to comply with existing and future regulatory requirements could adversely affect our results of operations and financial condition. Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set. +Our operations are subject to a broad array of regulatory requirements globally. We are subject to federal, state, local, international and transnational laws and regulations, including the operating, quality and security standards of the FDA, the U.S. Department of Health and Human Services (“HHS”), and other regulatory authorities such as the EMA, and in the future, any changes to such laws and regulations could adversely affect us. In particular, changes in the FDA’s +70 +Table of Contents +regulation of drug discovery and development or manufacturing processes could adversely affect our results of operations and financial condition. We may be required to register for permits and/or licenses with the FDA, HHS, or other regulatory authorities such as the EMA, and there can be no assurance that we will be able to maintain or renew existing permits, licenses or other regulatory approvals or obtain, without significant delay, future permits, licenses or other approvals needed for the operation of our business. Any noncompliance by us with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on our results of operations and financial condition. +In the United States, the EU, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the "ACA") was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. +Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS is developing new payment and delivery models, such as bundled payment models. HHS moved 30% of Medicare payments to alternative payment models tied to the quality or value of services in 2016. Additionally, HHS has set a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +Our products, if they receive regulatory approval, will subject to pressures from pharmaceutical market access and pricing controls in the U.S., the EU and other regions around the world that may result in lower prices and lower reimbursement rates. Our future revenues and profit margins could be negatively affected as a result of laws and regulations relating to the pricing and reimbursement of pharmaceutical products. For example, the Inflation Reduction Act of 2022 (the “IRA”) directs (i) the federal government to negotiate prices for select high-cost Medicare Part D (beginning in 2026) and Part B (beginning in 2028) drugs that are more than nine years (for small-molecule drugs) or 13 years (for biologics) from their initial FDA approval, (ii) manufacturers to pay a rebate for Medicare Part B and Part D drugs when prices increase faster than inflation and (iii) the formation of the Part D Manufacturer Program which replaced the Part D CGDP and established a two thousand dollar cap for out-of-pocket costs for Medicare beneficiaries as of January 2025, with manufacturers being responsible for 10% of costs up to the two thousand dollar cap and 20% after that cap is reached. If any of our products receive FDA approval, it is possible that they could be selected by the U.S. Department of Health and Human Services (“HHS”) for price negotiation. In the case of medicines that treat rare diseases, the IRA, as amended by the One Big Beautiful Bill Act (“OBBBA”), excludes from the price negotiation any drug or biologic that is designated for one or more rare diseases or conditions under section 360bb of title 21 of the Federal Food, Drug, and Cosmetic Act and for which the only approved indication (or indications) is for one or more such rare diseases or conditions (“Orphan Drug Exclusion status”). We will continue to evaluate the impact of the IRA, OBBBA, and HSS actions on our products, including with respect to Orphan Drug Exclusion status, in the U.S. as well as similar government price erosion mechanisms in Europe, Japan and in other countries that may result in reductions in pharmaceutical product pricing. +At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects. +Further, the Supreme Court struck down the Chevron doctrine in June 2024 in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce . The Chevron doctrine gave deference to regulatory agencies in litigation against the FDA and other agencies. As a result, more companies may bring lawsuits against the FDA to challenge +71 +Table of Contents +longstanding decisions and policies of the FDA, which could undermine the FDA’s authority, lead to uncertainties in the industry and disrupt the FDA’s normal operations, which could delay the FDA’s review of our applications. +In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize any of our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business. +Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors and customers will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. +Although we do not currently have any products on the market, if we obtain FDA approval for our product candidates, and begin commercializing those products in the United States, our operations may be directly, or indirectly through our prescribers, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws and Physician Payments Sunshine Act and regulations. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our current business operations, including our clinical research activities proposed sales and marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers, physicians and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The U.S. laws that may affect our ability to operate include: +• the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +• the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; +• the U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; +72 +Table of Contents +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) enacted as part of the American Recovery and Reinvestment Act of 2009, and its implementing regulations, and as amended again by the Modifications to the HIPAA Privacy, Security, Enforcement and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to the HIPAA Rules, commonly referred to as the Final HIPAA Omnibus Rule, published in January 2013, which imposes certain obligations, including mandatory contractual terms, on covered entities subject to HIPAA (i.e., health plans, healthcare clearinghouses and certain healthcare providers), as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information, to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosure; +• the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; +• the U.S. federal Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members; +• analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; +• state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; +• state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; +• state and local laws that require the registration of pharmaceutical sales representatives; and +• state laws governing the privacy and security of personal information, including personal health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. +Ensuring that our internal operations and current and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. +We may not be able to obtain or maintain orphan drug designation or exclusivity for our product candidates. +We have obtained orphan drug designation in the United States for troriluzole in SCA and for taldefgrobep alfa in SMA and in the EU for taldefgrobep alfa in SMA. We may seek orphan drug designation for other product candidates in the future. Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. +73 +Table of Contents +Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for the same indication during that time period. The applicable period is seven years in the United States and ten years in the EU. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. +We cannot assure you that any future application for orphan drug designation with respect to any other product candidate will be granted. If we are unable to obtain orphan drug designation with respect to other product candidates in the United States, we will not be eligible to obtain the period of market exclusivity that could result from orphan drug designation or be afforded the financial incentives associated with orphan drug designation. Even when we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve a later drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law, including the laws of the BVI. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +Disruptions at the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products from being developed or commercialized in a timely manner, or otherwise prevent those agencies from performing normal business functions, which could negatively impact our business and the approval of an NDA, BLA or similar application. +The ability of the FDA to review and approve new products can be affected by a variety of factors, including the ability to hire and retain key personnel, including senior leadership, government budget and funding levels and related government shutdowns, the ability to accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the FDA and other government agencies on which our operations may rely is subject to the impacts of political events, which are inherently fluid and unpredictable. +Disruptions at the FDA and other agencies may slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If a prolonged government shutdown occurs in the future, it could significantly impact the ability of the FDA to timely review and process our submissions. +In addition, FDA-regulated industries, such as ours, face substantial uncertainty in regard to the regulatory environment we will face as we proceed with research and development efforts under the current presidential Administration in the U.S. For example, recent personnel reduction measures have significantly impacted and could continue to impact the FDA’s ability to hire and retain key personnel, which could result in delays or limitations on our ability to obtain guidance from the FDA on our product candidates in development and obtain the requisite regulatory approvals in the future. Moreover, during 2025 there was significant disruption and uncertainty in NIH funding and related research support as a result of federal budget proposals and policy changes. The Administration’s fiscal year 2026 budget request proposed substantial reductions in NIH’s overall funding levels and caps on indirect cost reimbursements that, if implemented, would have markedly reduced the number of new research grants and support for ongoing studies. Although Congress did not adopt the most severe cuts as proposed, funding uncertainties, pauses in grant awards, and legal challenges to proposed policies contributed to delays and disruptions in NIH grantmaking and research support. +74 +Table of Contents +These developments could in turn decrease the ability of facilities that rely on NIH funding to enroll and conduct clinical trials or increase the costs to us of conducting clinical trials. State governments may attempt to address or react to changes at the federal level with changes to their own regulatory frameworks in a manner that is adverse to our operations. If we become negatively impacted by future governmental orders, regulations, policies or guidance, there could be a material adverse effect on us and our business. +Changes to legislation or regulations in the British Virgin Islands could lead to increased costs for us to comply with additional regulatory and reporting requirements. +As the global regulatory and tax environment evolves, we may be subject to new or different statutory and regulatory requirements. For example, on January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 of the British Virgin Islands (the “Economic Substance Act”) came into force and was amended on October 1, 2019 and June 29, 2021 and remains subject to further amendments, additional regulations and guidance on interpretation from the regulator. We strive to conduct our business in a manner that is in compliance with the Economic Substance Act. However, the imposition of additional requirements due to further amendments, additional regulations or new guidance on interpretation of these laws may create additional costs that may be borne by us or otherwise affect our management and operation. +Risks Related to Our Intellectual Property +We could lose market exclusivity earlier than expected. +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection (“RDP”). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, the United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +Product Exclusivity – United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation, at least in part, for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy +75 +Table of Contents +data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a BLA is filed. The type of application filed affects RDP exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an ANDA with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, are filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full Biologics License Application ("BLA"). After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the EU and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +76 +Table of Contents +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the EC and the EC then approves or denies the MAA. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +Rest of the World +In countries outside of the U.S., the EU and Japan, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization (“WTO”) commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +We are dependent on licensed intellectual property in our business. If we are unable to obtain licenses from third parties on commercially reasonable terms or lose our rights to such licensed intellectual property, or if our rights are determined to be narrower than we understand them to be, we may not be able to continue developing or commercializing our product candidates. +We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our business, including, for example, an agreement with ALS Biopharma and Fox Chase Chemical Diversity Center, Inc., pursuant to which we were assigned intellectual property rights relating to troriluzole, a license agreement with Yale University, pursuant to which we were granted certain patent rights to develop and commercialize riluzole-based products, another license agreement with Yale University pursuant to which we acquired exclusive, worldwide rights to Yale's intellectual property directed to its MoDE platform, a license agreement with Highlightll, pursuant to which we were granted exclusive rights to develop and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program, a license agreement with Bristol-Myers Squibb, pursuant to which we were granted exclusive rights to develop and commercialize taldefgrobep alfa, and a license agreement with KU Leuven, pursuant to which we were granted an exclusive license to develop and commercialize the TRPM3 antagonist platform, a license agreement +77 +Table of Contents +with GeneQuantum pursuant to which we acquired exclusive worldwide rights, excluding China, to develop and commercialize BHV-1510, a license agreement with GeneQuantum and Aimed pursuant to which we acquired exclusive worldwide rights to develop and commercialize BHV-1530 . We may enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations, such as non-compete periods for certain collaboration targets and rights of first negotiation for development of certain programs. Typically, in our licenses, we have control over the filing, prosecution, maintenance and enforcement of the licensed intellectual property. However, in some cases, we do not control prosecution of the licensed intellectual property, or do not have the first right to enforce such intellectual property. In those cases, we may not be able to adequately influence patent prosecution or enforcement, or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. +If we fail to comply with any of our obligations under a current or future license agreement, the licensor may allege that we have breached our license agreement, and may seek to terminate our license. Termination of any of our current or future licenses could result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop, manufacture or commercialize a product candidate or product, if approved, as well as harm our competitive business position and our business prospects. Under some license agreements, termination may also result in the transfer of or granting of rights under certain of our intellectual property and information related to the product candidate being developed under the license, such as regulatory information. If our licensors fail to comply with their obligations under these agreements, such as, for example, by failing to maintain or enforce patents licensed to us, exclusivity relating to the products covered by the license may be diminished or lost. Our rights under license agreements could be determined to be narrower than we understand them to be. Also, if it is found that our licensors were not the original inventors of the licensed intellectual property, or were not the first to file patent applications, then we may lose rights to the licensed intellectual property. +Licensing of intellectual property is important to our business and involves complex legal, business and scientific issues. Disputes between us and our licensors have arisen and may arise in the future. For example, disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including: +• the scope of rights granted under the license agreement and other interpretation-related issues, including our right to sublicense patents and other rights to third parties; +• whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; +• our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; +• the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; +• our right to transfer or assign the license; and +• the effects of termination. +If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop, manufacture or commercialize the affected product candidates. +It may be necessary or desirable for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would seek to obtain a license from these third parties. If we are unable to license such technology, or if we are forced to license such technology on unfavorable terms, our business could be harmed. If we are unable to obtain a necessary license, we may be unable to develop or commercialize the affected product candidates, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales or payment of royalties and/or other forms of compensation. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. +Patent terms may not provide exclusivity for our product candidates for an adequate amount of time for us to realize commercial benefits. +Patents have a limited lifespan. In the United States and most of the world, the statutory expiration of a patent is generally 20 years from the first filing date. Even if patents covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive products, including generic products. Given the amount of time required for the development, testing and regulatory review of new product +78 +Table of Contents +candidates, patents protecting such product candidates may not provide us with exclusivity for an adequate amount of time for us to realize commercial benefits. +Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process, subject to a statutory maximum of fourteen (14) years from the regulatory approval and an additional six months of pediatric exclusivity if available. Similar regulations regarding patent term extensions, or supplementary protection certificates, are available in some countries such as the EU, United Kingdom, Japan and Korea. +However, we may not receive a patent term restoration, a supplementary protection certificate or extension if we fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain a patent term restoration, a supplementary protection certificate or extension, or the term is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. +Third parties may seek to invalidate our patents. +Once granted, patents may remain open to invalidity challenges including opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation actions in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims which are the subject of the challenge, or may lose the allowed or granted claims altogether. +Generic manufacturers seeking to launch a generic substitute of small molecule drug in the U.S. typically engage in patent challenges. We expect that as early as four (4) years after the approval of our products, one or more generic manufactures may allege that one or more of the patents listed in the Orange Book under our NDA is either invalid or not infringed (a Paragraph IV certification). Similarly, with respect to biologics, we may face patent challenges from applicants seeking approval for biosimilar products under the Biologic Price Competition and Innovation Act ("BPCIA") as early as four (4) years after our BLA is approved, although the FDA cannot approve the biosimilar application until twelve (12) years after our BLA approval. We then must decide whether to file a patent infringement suit against such generic manufacturer(s). Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. +Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our technology, such as our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license. +Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. If, in the context of seeking approval for one of our product candidates subject to approval via Section 505(b)(2), we were required to file a Paragraph IV certification against any patents of a third party, we would additionally be at risk of an automatic stay if litigation is initiated, thereby potentially delaying our approval or market entry. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of resources from our business. +In the event of a successful claim of infringement against us, we may have to pay substantial damages, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. +In addition to claims of infringement made by third parties against us, we have in the past and may again in the future file claims of infringement and/or trade secret misappropriation against third parties who infringe, or misappropriate, our patents and/or trade secrets or those of our licensors. This can occur as a counter claim in an +79 +Table of Contents +infringement suit against us or as a direct claim against the third party. Our adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we can. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable or claims challenging the scope of the intellectual property rights we own or control. The outcome following legal assertions of invalidity and enforceability is unpredictable. +During the course of any intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions or other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product candidates, programs or intellectual property could be diminished and the market price of our common stock could decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business. +We are subject to other risks relating to our intellectual property. +In addition to the risk factors described above, we consider the items below to be relevant for consideration in the assessment of the Company’s intellectual property position. +• Changes in intellectual property laws or regulations in the U.S. or other countries could negatively affect our business. Similarly, changes in the interpretation of such laws or regulations could have an impact on our business. For example, U.S. Supreme Court has ruled on several patent cases in recent years, such as Impression Products, Inc. v. Lexmark International, Inc., Association for Molecular Pathology v. Myriad Genetics, Inc., Mayo Collaborative Services v. Prometheus Laboratories, Inc., and Alice Corporation Pty. Ltd. v. CLS Bank International, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, decisions by courts may lead to legislation impacting our ability to obtain or enforce our intellectual property. +• Our ability to enforce our intellectual property outside of the U.S. is dependent on the laws of jurisdiction in which the alleged infringement occurred, the ability to engage in discovery to obtain evidence and the availability of meaningful recoveries, e.g., damages and injunctions. The laws of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights. As a result, our business may be harmed by limitations on our ability to protect our technology through the enforcement of our intellectual property in certain countries outside the U.S. +• The U.S. government may seek to exercise its rights under the Bayh-Dole Act of 1980 in programs that have received government funding. This exercise of rights could require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party the U.S. Government determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). +• We rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into confidentiality agreements with parties who have access to them, such as our employees, third party collaborators, contract manufacturers, consultants, advisors and other third parties. An unauthorized disclosure or use of our trade secrets can have an adverse impact on our business. In March 2023, we and Yale University filed suit against Avilar Therapeutics, Inc. and RA Capital Management GP, LLC in Delaware US District Court alleging misappropriation of trade secrets and breach of contract. The litigation is ongoing. +• Other innovator companies may independently develop alternative technologies to our technologies without infringing our intellectual property rights, such as, for example, by developing compounds that function according to the same mechanism of action as our compounds, but are chemically distinct from ours and are not covered by the claims of the patents that we own or control. +• Litigation involving intellectual property can be generally time consuming and expensive. Litigation or other legal proceedings relating to intellectual property claims is unpredictable and generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results +80 +Table of Contents +of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on our valuation. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel. +We are highly dependent on the management, development, clinical, financial and business development experience of our senior management. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or employees. +The competition for qualified personnel in the biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could harm our business. +In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. +Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. +Our future profitability will depend, in part, on our ability to commercialize our product candidates in markets outside of the United States and the EU. If we commercialize our product candidates in foreign markets, we will be subject to additional risks and uncertainties, including: +• economic weakness, including inflation, or political instability in particular economies and markets; +• the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, many of which vary between countries; +• different medical practices and customs in foreign countries affecting acceptance in the marketplace; +• tariffs and trade barriers; +• other trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or foreign governments; +• longer accounts receivable collection times; +• longer lead times for shipping; +• compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; +• workforce uncertainty in countries where labor unrest is common; +• language barriers for technical training; +• reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics; +• foreign currency exchange rate fluctuations and currency controls; +• differing foreign reimbursement landscapes; +• uncertain and potentially inadequate reimbursement of our products; and +• the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. +Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs. +81 +Table of Contents +Our business and operations may be materially adversely affected in the event of computer system failures or security breaches. +Despite the implementation of security measures, our internal computer systems, and those of our CROs, CMOs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyberattacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Although we have not experienced a material security breach or disruption to date, we may experience a material security breach or disruption in the future in the event such security breach or disruption results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including individually identifiable health information or the personal data of employees or former employees, access to our clinical data or disruption of the manufacturing process. We are also vulnerable to cybersecurity incidents through cyberattacks by hackers, user error, phishing scams or other malfeasance, as well as cybersecurity incidents involving our employees, business partners, collaborators or other third parties. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business, reputation, financial condition, results of operations or result in legal proceedings. +Additionally, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including date concerning health, is subject to the EU General Data Protection Regulation, or GDPR. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing data concerning health and other sensitive data, obtaining consent of the individuals to whom the personal data relates to process their personal data, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global turnover, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. +Various U.S. states and other governmental authorities around the world have imposed or are considering similar types of laws and regulations, data breach reporting and penalties for non-compliance and increasing security requirements. These laws and regulations are broad in scope and are subject to evolving interpretation and we have in the past been, and in the future could be, required to incur substantial costs to monitor compliance or to alter our practices. Moreover, these new laws and regulations could diverge and conflict with each other in certain respects. As new privacy-related laws and regulations are implemented, the time and resources needed for us to comply with such laws and regulations, as well as our potential liability for non-compliance and reporting obligations in the case of data breaches, have increased and may further increase. +Laws and regulations governing our international operations may preclude us from developing, manufacturing and selling certain product candidates and products outside of the United States and require us to develop and implement costly compliance programs. +As we expand our operations outside of the United States, we will be required to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. We are subject to U.S. laws governing international business activities, including U.S. economic sanctions, export controls and anti-corruption laws, including the FCPA, compliance with which is expensive and difficult, particularly in countries in which corruption is a recognized problem. As a result, these laws may preclude us from developing, manufacturing or selling certain product candidates outside of the United States, which could limit our growth potential and increase our development costs. If our employees or agents violate our policies or we fail to maintain adequate record keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Violations of U.S. economic sanctions, export controls and anti-corruption laws, or allegations of such acts, could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees which could adversely affect our business, consolidated financial condition and results of operations. +82 +Table of Contents +We have expanded and expect to further expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +As our clinical development progresses, we have experienced and expect to continue to experience growth in the number of our employees and the scope of our operations, particularly in the areas of clinical operations, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements. +We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA, the EMA and other similar regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. +Although we have adopted a code of business conduct and ethics, it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. +We may be subject to securities litigation, which is expensive and could divert management attention. +Our share price has been and may continue to be volatile, and in the past companies that have experienced volatility in the market price of their shares have been subject to securities class action litigation. This risk is especially relevant for us because biotechnology companies have experienced significant share price volatility in recent years. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming, and could divert our management’s attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our common shares. Any of the foregoing could seriously harm our business. In July 2025, a class action law suit was filed in the US District court of Connecticut against the Company and certain executive officers asserting claims under US securities laws. We believe that the allegations are without merit and plan to defend ourself vigorously. The litigation is ongoing. +83 +Table of Contents +Risks Related to Ownership of Our Common Shares +The trading price of our common shares has in the past been and could in the future be volatile and fluctuate due to factors beyond our control, and purchasers of our common shares could incur substantial losses. +Our share price has in the past been and could in the future be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our shareholders and investors may not be able to sell their common shares at or above the price paid for the shares. The market price for our common shares may be influenced by many factors, including: +• positive or negative results, including preliminary or topline results, of preclinical studies and clinical trials reported by us, strategic partners or competitors; +• any progress or delay in the commencement, enrollment and the ultimate completion of clinical trials; +• technological innovations or commercial product introductions by us or competitors; +• failure to successfully develop and commercialize any of our product candidates; +• developments, announcements or changes in government regulations relating to drug products, including related to drug pricing, reimbursement and healthcare coverage; +• delays in in-licensing or acquiring additional complementary product candidates; +• developments concerning proprietary rights, including patents and litigation matters; +• public concern relating to the commercial value or safety of any of our product candidates; +• financing or other corporate transactions, or inability to obtain additional funding; +• announcements relating to our arrangements with strategic partners; +• failure to meet or exceed expectations of the investment community; +• actual or anticipated variations in our operating results; +• changes in financial estimates by us or by any securities analysts who might cover our shares; +• announcements by therapeutic drug product providers related to pricing of therapeutics; +• announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors; +• publication of research reports or comments by securities or industry analysts; +• failure to attract or retain key personnel; +• sales of our common shares, including sales by our directors and officers or specific shareholders; +• general market or regulatory conditions in the pharmaceutical industry or in the economy as a whole; +• other events and factors, many of which are beyond our control; and +• other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. +These and other market and industry factors have caused and may in the future cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their common shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common shares. +If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could decline. +The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. Equity research analysts may elect not to initiate, and our current equity research analysts may not elect to continue to provide research coverage of our common shares, and such lack of research coverage may adversely affect the market price of our common shares. We do not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity +84 +Table of Contents +research analysts downgrade our shares or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause our share price or trading volume to decline. +Anti-takeover provisions in our amended memorandum and articles of association (“Amended Memorandum and Articles of Association”) could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our common shares. +Provisions in our Amended Memorandum and Articles of Association may discourage, delay or prevent a merger, acquisition or other change in control of us that shareholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for our common shares, thereby depressing the market price of our common shares. In addition, because our Board is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our Board. Among other things, these provisions: +• establish a classified Board such that not all members of the Board are elected at one time; +• allow the authorized number of our directors to be changed only by resolution of our Board; +• limit the manner in which shareholders can remove directors from the Board; +• establish advance notice requirements for shareholder proposals that can be acted on at shareholder meetings and nominations to our Board; +• require that shareholder actions must be effected at a duly called shareholder meeting and prohibit actions by our shareholders by written consent; +• limit the ability of members to requisition and convene general meetings of members; and +• authorize our Board to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our members without shareholder approval, which could be used to institute a shareholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board. +Any provision of our Amended Memorandum and Articles of Association or BVI law that has the effect of delaying or deterring a change of control could limit the opportunity for our shareholders to receive a premium for their common shares, and could also affect the price that some investors are willing to pay for our common shares. +Substantially all of our total outstanding shares may be sold freely into the market. This could cause the market price of our common shares to drop significantly, even if our business is doing well. +Sales of substantially all of our common shares in the public market, or the perception that these sales might occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. Substantially all of our common shares are freely tradable, without restrictions or further registration under the Securities Act, subject to certain restrictions applicable to shares held by our affiliates as defined in Rule 144 under the Securities Act. +Because we do not expect to pay dividends on our common shares in the foreseeable future, capital appreciation, if any, would be your sole source of gain. +We have never declared or paid any dividends on our common shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. The decision to pay future dividends to shareholders will be at the discretion of our Board after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. Accordingly, investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares. +85 +Table of Contents +We are a BVI business company limited by shares and the holders of our common shares may have fewer protections as a shareholder of our company, because judicial precedent regarding the rights of shareholders is more limited under BVI law than that under U.S. law. +Our corporate affairs are governed by our Amended Memorandum and Articles of Association as amended and restated from time to time, the BVI Business Companies Act (As Revised) (the “BVI Act”) and the common law of the BVI. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under BVI law are to a large extent governed by the common law of the BVI. The common law of the BVI is derived in part from comparatively limited judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. The rights of our shareholders and the fiduciary responsibilities of our directors under BVI law therefore are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the BVI has a less exhaustive body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the BVI. There is no statutory recognition in the BVI of judgments obtained in the U.S., although the courts of the BVI will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. +As a result of all of the above, holders of our common shares may have more difficulty in protecting their interests through actions against our management, directors or controlling shareholders than they would as shareholders of a U.S. company. They may have greater difficulty securing legal advice about the law of the BVI than they would U.S. and state law, and the relatively less developed nature of the BVI’s securities law may leave investors with less certainty about the validity and strength of any claims they believe they may have against us. In addition, other differences between BVI and U.S. law, as well as the terms of our Amended Memorandum and Articles of Association, may result in shareholders having different potential influence than they would under various U.S. state laws with respect to matters such as officer and director actions, mergers and acquisitions, dispositions of assets, takeover efforts, and other corporate decision making. +Shareholders in BVI business companies may not be able to initiate shareholder derivative actions, thereby depriving a shareholder of the ability to protect its interests. +While statutory provisions do exist in BVI law for derivative actions to be brought in certain circumstances, shareholders in BVI business companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI business company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to: (i) recognize or enforce against us judgments of courts in the United States based on certain civil liability provisions of U.S. securities law; or (ii) to impose liabilities against us, in original actions brought in the BVI, based on certain civil liability provisions of U.S. securities laws that are penal in nature or that relate to taxes or similar fiscal or revenue obligations or would be viewed as contrary to BVI public policy or the proceedings pursuant to which judgment was obtained were contrary to natural justice. +There is no statutory recognition in the BVI of judgments obtained in the United States. However, the courts of the BVI will in certain circumstances recognize such a foreign judgment and treat it as a cause of action in itself which may be sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that: +• the U.S. court issuing the judgment had jurisdiction in the matter and the company either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process; +• the judgment is final and for a liquidated sum; +• the judgment given by the U.S. court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations of the company; +• in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court; +• recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public policy; and +• the proceedings pursuant to which judgment was obtained were not contrary to natural justice. +The British Virgin Islands courts are unlikely: +• to recognize or enforce against the Company, judgments of courts of the U.S. predicated upon the civil liability provisions of the securities law of the U.S.; and +86 +Table of Contents +• to impose liabilities against the Company, predicated upon the certain civil liability provisions of the securities laws of the U.S. so far as the liabilities imposed by those provisions are penal in nature. +The laws of the BVI relating to the protection of minority shareholders differ from those under U.S. law and, in some circumstances, may offer less protection. +The BVI Act includes the following statutory remedies which minority shareholders in the company can rely upon: +• If the company or a director of the company engages in or proposes to engage in conduct, that contravenes the BVI Act or our Amended Memorandum and Articles of Association, a shareholder may apply to the BVI court for an order directing the company or its director(s) to comply with or restraining the company or a director from engaging in conduct that contravenes the BVI Act or our Amended Memorandum and Articles of Association. +• Under the BVI Act, minority shareholders have a statutory right to bring a derivative action in the name of and on behalf of the company in circumstances where the company has a cause of action against its directors. This remedy is available at the discretion of the BVI court which will take a number of factors into account before granting or refusing a leave to proceed to the relevant shareholder, including whether such action is in the interests of the company, the cost of such action and whether there are alternative remedies that the shareholder concerned may rely upon. +• A shareholder of the company may bring an action against the company for breach of duty owed to him or her as a shareholder. This would typically be relevant in a situation where a shareholder is aggrieved by the company for breach of an entitlement or right under the company’s memorandum and articles of association. +• A shareholder of the company who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order to remedy the situation. Again, this is a discretionary remedy and the BVI court will only award it if they are satisfied that it is just and equitable to do so. +• A shareholder may, in certain circumstances, apply for liquidators to be appointed over the affairs of a company under the BVI’s Insolvency Act 2003 (as amended) (the “BVI Insolvency Act”). Shareholders can also by resolution appoint a liquidator of a BVI business company under the BVI Act if the company is solvent or under the BVI Insolvency Act if the company is insolvent. +In addition to the statutory rights outlined above, there are common law rights for the protection of shareholders that may be invoked, largely dependent on English common law. Under the general rule pursuant to English common law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the Board. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s Amended Memorandum and Articles of Association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of the shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States. +Having regard to the above, the protection available to minority shareholders under BVI law may be more limited than under the laws of some jurisdictions in the United States. +It may be difficult to enforce a U.S. or foreign judgment against us, our directors and our officers outside the United States, or to assert U.S. securities laws claims outside of the United States. +As a BVI business company, it may be difficult for a shareholder to effect service of process within the United States upon us, our directors and officers, or to enforce against us, or them, judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state therein. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. Accordingly, it may be difficult or impossible for you to bring an action against us in the BVI if you believe your rights under the U.S. securities laws have been infringed. In addition, there is uncertainty as to whether the +87 +Table of Contents +courts of the BVI would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state and it is uncertain whether such British Virgin Islands courts would hear original actions brought in the British Virgin Islands against us or such persons predicated upon the securities laws of the U.S. or any state. +Changes in tax law, determinations by tax authorities or changes in our effective tax rates may adversely affect our business and financial results. +Under current law, we expect to be treated as a non-U.S. corporation for U.S. federal income tax purposes. The tax laws applicable to our business activities, however, are subject to change and uncertain interpretation. Our tax position could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business. Our actual tax rate may vary from our expectation and that variance may be material. A number of factors may increase our future effective tax rates, including: (1) the jurisdictions in which profits are determined to be earned and taxed; (2) the resolution of issues arising from any future tax audits with various tax authorities; (3) changes in the valuation of our deferred tax assets and liabilities; (4) our ability to use net operating loss carryforwards to offset future taxable income and any adjustments to the amount of the net operating loss carryforwards we can utilize; and (5) changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles. We may also become subject to income, withholding or other taxes in jurisdictions by reason of our activities and operations, and it is possible that taxing authorities in such jurisdictions could assert that we are subject to greater taxation than we currently anticipate. In particular, the Organization for Economic Co-operation and Development and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the “Inclusive Framework”) has put forth two proposals—Pillar One and Pillar Two—that revise the existing profit allocation and nexus rules and ensure a minimal level of taxation, respectively. On December 12, 2022, the European Union member states agreed to implement the Inclusive Framework’s global corporate minimum tax rate of 15%, and various countries (both within and outside the European Union) have enacted new law implementing Pillar Two or have draft legislation proposed for adoption. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation anticipated in 2024. We are continuing to evaluate the potential impact on future periods of the Inclusive Framework, pending legislative adoption by individual countries, which could have an adverse impact on our effective tax rate, income tax expense and cash flows. +If we are or become a passive foreign investment company, there could be adverse U.S. federal income tax consequences to U.S. holders. +If we are or become a passive foreign investment company (“PFIC”) for any taxable year during which a U.S. holder holds our shares, the U.S. holder would be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. +Under the Code, we would be a PFIC for any taxable year in which (1) 75% or more of our gross income consisted of passive income or (2) 50% or more of the average quarterly value of our assets consisted of assets that produce, or are held for the production of, passive income. For purposes of these tests, passive income includes, but is not limited to, dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations and subject to certain exceptions, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. +Although we believe our common shares should not currently be stock of a PFIC for U.S. federal income tax purposes and do not expect to become a PFIC in the foreseeable future, we cannot provide any assurances regarding our PFIC status for any current or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies which in some circumstances are unclear and subject to varying interpretation. In particular, the determination of whether we are a PFIC and the characterization of our assets as active or passive may depend in part on (i) our current and intended future business plans which are subject to change, and (ii) the application of certain “look-through” rules. For our current and future taxable years, the total value of our assets for PFIC testing purposes may fluctuate considerably from time to time, and is dependent on our application (which inherently involves an element of judgment) of the relevant valuation assumptions and methodologies. Under the income test, our status as a PFIC depends on the composition of our income which, in our current and future taxable years, we may not be able to fully control, for example, with respect to income attributed to us from entities owned 25% or more by us. The composition of our income and assets is also affected by how, and how quickly, we spend the cash we raise in any offering. Therefore, we cannot provide any assurance regarding our PFIC status for any past, current or future taxable years. +In certain circumstances, a U.S. holder of shares in a PFIC may alleviate some of the adverse tax consequences described above by making a “qualified electing fund” (“QEF”) election to include in income its pro rata share of the corporation’s income on a current basis. However, a U.S. holder may make a QEF election with respect to our common +88 +Table of Contents +shares only if we agree to furnish such U.S. holder annually with a PFIC annual information statement as specified in the applicable U.S. Treasury Regulations. We currently do not intend to prepare or provide the information that would enable U.S. holders to make a QEF election if we are treated as a PFIC for any taxable year, and U.S. holders of our common shares should assume that a QEF election will not be available. +U.S. holders should consult their own tax advisors with respect to the operation of the PFIC rules and related reporting requirements in light of their particular circumstances, including the advisability of making any election that may be available. +Mail addressed to us may not reach us in a timely manner. +Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by Company to be dealt with. None of the Company, its directors, officers, advisors or service providers (including the organization which provides registered office services in the BVI) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address. Such risk will be borne solely by the Company’s shareholders. +Our Amended Memorandum and Articles of Association provide that unless we consent in writing to the selection of an alternative forum, the courts of the British Virgin Islands shall, with certain limited exceptions, be the sole and exclusive forum for certain disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. +Our Amended Memorandum and Articles of Association provide that unless we consent in writing to the selection of an alternative forum, the courts of the British Virgin Islands shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s members, (iii) any action asserting a claim arising pursuant to any provision of British Virgin Islands law or the Amended Memorandum and Articles of Association, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine, and that each shareholder consents to the exclusive jurisdiction of the courts of the British Virgin Islands over all such claims or disputes. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over actions brought under the Securities Act or the rules and regulations promulgated thereunder. Furthermore, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the forum selection provision in our Amended Memorandum and Articles of Association will not apply to actions or suits brought to enforce any liability or duty created by the Securities Act, Exchange Act or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States of America, the sole and exclusive forum for determination of such a claim. +This choice of forum provision may increase a shareholder’s cost, impose additional litigation costs and limit the shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees, although our shareholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder and may therefore bring certain claims in another appropriate forum. Any person or entity purchasing or otherwise acquiring any of our shares or other securities, whether by transfer, sale, operation of law or otherwise, shall be deemed to have notice of and have irrevocably agreed and consented to these provisions. It is possible that a court could find such a choice of forum provision to be inapplicable or unenforceable, and if a court were to find this provision in our Amended Memorandum and Articles of Association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have an adverse effect on our business, results of operations and financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. Our cybersecurity program is aligned with industry standards and best practices, such as the National Institute of Standards and Technology Cybersecurity Framework. Our measures to prevent, detect and mitigate cyber threats include training for employees, multi-factor authentication, backup servers, threat monitoring, periodic strategy review and penetration testing performed by a third-party advisory firm, and coverage under an information security risk insurance policy. Third-party suppliers are pre-screened as part of our vendor onboarding process to evaluate their cybersecurity programs and assess risk. As a part of our pre-screening process, we evaluate each vendor's overall cybersecurity risk profile relative to the services they provide for the Company, +89 +Table of Contents +including questions relating to cybersecurity insurance, security operations and access and management of our data. Cybersecurity incidents involving third-party supplier systems are evaluated for their impact on the Company and managed through our cyber incident management process. In addition, our employees are required to complete an annual cybersecurity training managed through our internal compliance training system. +Governance +The Board recognizes the importance of cybersecurity in maintaining the trust and confidence of our stakeholders, patients and employees. Our Audit Committee is central to the Board's oversight of cybersecurity and bears the primary responsibility for overseeing risks associated with our information systems and technology, including cybersecurity. +Our Chief Technology Officer ("CTO") is tasked with updating the Board and Audit Committee on cybersecurity risks. Our CTO provides comprehensive briefings to our Audit Committee on a quarterly basis regarding our strategy for managing and mitigating cybersecurity and technology-related risks. Our CTO also provides such comprehensive briefings to the Board on an annual basis. Our CTO has been in the position for over five years and has over three decades of industry experience focusing on large scale business transformations leveraging technology, cybersecurity, and technical operations excellence. Our CTO has held various senior technology leadership roles at other companies prior to joining the Company. +Cybersecurity Risks +Although cybersecurity risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we are subject to various cybersecurity risks, which could, in the future, be material. For more information about the cybersecurity risks we face, see the risk factor entitled "Our business and operations may be materially adversely affected in the event of computer system failures or security breaches" in Item 1A, "Risk Factors." +Item 2. Properties +Our U.S. headquarters is located in New Haven, Connecticut. Details of our leased and owned facilities, which include our U.S. headquarters and consist of office, lab, research, chemistry, and discovery facilities, are as follows: +Location Type +Approximate Square Feet +Lease Expiration +New Haven, Connecticut +Office Space +68,000 N/A +Pittsburgh, Pennsylvania +Office, Lab, & Research Space +56,000 +October, 2028 and May, 2035 +Cambridge, Massachusetts Office & Lab Space 27,000 October, 2032 +Yardley, Pennsylvania Office Space 18,000 September, 2027 +Dublin, Ireland Office Space 6,000 April, 2027 +West Palm Beach, Florida Office Space 5,000 +December, 2034 +New Haven, Connecticut Chemistry & Discovery Facilities 3,000 +February, 2028 +New Haven, Connecticut +Vivarium & Office Space +2,000 +November, 2028 +We believe that our current facilities are suitable and adequate to meet our current needs and we believe that suitable additional or substitute space will be available as needed to accommodate any future expansions. +Item 3. Legal Proceedings +From time to time, we may be subject to litigation and claims arising in the ordinary course of business. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows. Please see the matter noted below and within Note 12, "Commitments and Contingencies," to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Excluding the matter noted therein, we are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition. +Shareholder Complaint +On July 14, 2025, a lawsuit was filed in the United States District Court for the District of Connecticut against Biohaven Ltd. and certain of our officers alleging federal securities law violations on behalf of a putative class of purchasers of our stock between March 24, 2023 and May 14, 2025. cc The complaint alleges that Biohaven and the officer defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 based on alleged misstatements or omissions in certain Biohaven press releases and SEC filings concerning, among other things, (i) the outlook for and clinical data supporting troriluzole as a treatment for SCA spinocerebellar ataxia and (ii) opakalim’s efficacy and clinical prospects as a treatment for bipolar disorder. Plaintiffs also claim the +90 +Table of Contents +individual defendants are liable for the alleged securities violations through derivative “control person” claims under Section 20(a) of the Exchange Act. The defendants have not yet answered or otherwise responded to the complaint. +Item 4. Mine Safety Disclosures +Not applicable. +91 +Table of Contents +PART II +Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common shares began trading on the New York Stock Exchange under the symbol "BHVN" on October 4, 2022. +Stock Performance Graph +_______________________________________________________________________________ +* $100 invested on October 4, 2022 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. +Shareholders +As of February 26, 2026, there were 51 shareholders of record of our common shares. The actual number of holders of our common shares is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities. +Dividend Policy +We have never declared or paid dividends on our share capital. We do not expect to pay any cash dividends on our common shares in the foreseeable future. All decisions regarding the payment of dividends will be made by our Board of Directors from time to time in accordance with applicable law. +Recent Sales of Unregistered Securities +None. +Securities Authorized for Issuance Under Equity Compensation Plans +See Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters" of this report. +92 +Table of Contents +Issuer Purchases of Equity Securities +We did not purchase any of our registered equity securities during the period covered by this report. +Item 6. Reserved +93 +Table of Contents +Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or this Annual Report. Discussions of 2023 items and year-to-year comparisons between the years ended December 31, 2024 and 2023 that are not included in this Form 10-K can be found within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report. +Overview +We are a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. In the fourth quarter of 2025, we initiated a strategic reprioritization of our clinical development programs are now focused on three key areas to prioritize resources. Our key clinical programs include Kv7 ion channel modulation for epilepsy; Molecular Degrader of Extracellular Proteins (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP") extracellular protein degradation for immunological diseases; and myostatin-activin pathway targeting agent for neuromuscular and metabolic diseases, including obesity (collectively, the "key programs"). +For a full discussion of our programs, including recent developments, refer to "Item 1. Business" included in this Annual Report on Form 10-K. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, the Former Parent completed the Separation from Biohaven Ltd. As a result of the Separation, Biohaven Ltd. became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol "BHVN" on the NYSE on October 4, 2022. +Biohaven is a British Virgin Islands ("BVI") corporation and was a wholly owned subsidiary of the Former Parent prior to the Separation. +Agreements with the Former Parent +We had entered into a Distribution Agreement and various other agreements relating to transition services, licenses and certain other matters with the Former Parent. These agreements govern our relationship with the Former Parent and include the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the Separation. For additional information regarding these agreements, see Note 14, "Related Party Transactions," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. +Recent Developments +The following is a summary of key developments affecting our business in 2025 (excluding updates to our programs, which are discussed in "Item 1. Business" included in this Annual Report on Form 10-K): +Note Purchase Agreement +On April 28, 2025 (the “Closing Date”), the Company and certain of its subsidiaries entered into a Note Purchase Agreement (the “Note Purchase Agreement” or "NPA"), by and among Biohaven Therapeutics Ltd., as issuer (the “Issuer”), the Company and certain subsidiaries of the Company, as obligors (together with the Issuer, the “Obligors”), the purchasers party thereto (the “Purchasers”) and Beetlejuice SA LLC, an affiliate of Oberland Capital Management LLC ("Oberland"), as purchaser agent (the “Purchaser Agent”). Pursuant to the Note Purchase Agreement, the Purchasers agreed to purchase senior secured notes from the Issuer (i) subject to the satisfaction of certain customary closing conditions, in an initial tranche shortly after the Closing Date for an aggregate purchase price of $250 million (the “First Notes”) and (ii) subject to the satisfaction of certain conditions, including the receipt of approval from the U.S. Food and Drug Administration (the “FDA”) for troriluzole, in a second tranche in up to three purchases on or before June 30, 2026 for an aggregate purchase price of $150 million (the “Second Notes”). The proceeds from the sale of the First Notes and the Second Notes may be used for working capital and permitted business purposes. The Issuer may also sell to the Purchasers, at the Issuer’s option and subject to the approval of each Purchaser agreeing to participate therein, in its sole discretion, additional notes in up to four purchases for an aggregate purchase price of $200 million (the “Third Notes” and, together with the First Notes and the Second Notes, the “Notes”), the proceeds of which may be used solely to fund +94 +Table of Contents +permitted acquisitions and related costs and expenses. We received approximately $250 million in proceeds from the sale of the First Notes in April 2025. +The Purchasers will be entitled to receive payments (the “Revenue Payments”) equal to, initially, 6.25% of the global net sales of troriluzole (“Net Sales”), which will increase pro rata upon the purchase of any of the Second Notes. If the aggregate amount of Revenue Payments (if troriluzole has received FDA approval) and any Milestone Payment (as defined below) made by the Issuer to the Purchasers pursuant to the Note Purchase Agreement as of December 31, 2030 (the “Test Date”) equals or exceeds the amount of the aggregate purchase price for the Notes paid by the Purchasers (the “Total Funded Amount”) to the Issuer pursuant to the Note Purchase Agreement (the “Test Date Condition”), the then-applicable percentage of Net Sales payable as Revenue Payments will automatically decrease by 60% for all subsequent years. If the Test Date Condition is not satisfied by the Test Date, the then-applicable percentage of Net Sales payable as Revenue Payments will automatically increase for all subsequent years to the lesser of (i) a rate that would have provided the Purchasers with 100% of the Total Funded Amount as of the Test Date had such rate applied from the Closing Date through and including the Test Date and (ii) 80%. The Revenue Payments will become payable to the Purchasers on a quarterly basis after the Closing Date. +The Issuer will also be obligated to pay to the Purchasers a milestone payment (the “Milestone Payment”) equal to 35% of the Funded Amount upon the approval by the FDA or European Medicines Agency (“EMA”) of troriluzole or other Company products. The Milestone Payment will be payable in equal quarterly installments starting in the quarter after the approval is received or, if the Milestone Payment is earned after the Test Date, in one single payment on the 10 th Business Day after the date the approval is received. +In addition to the Revenue Payments and the Milestone Payment discussed above, if the Test Date Condition is not satisfied, then the Company will be obligated to make a one-time payment to the Purchasers equal to 100% of the Total Funded Amount as of the Test Date less the aggregate Revenue Payments and Milestone Payments made to the Purchasers as of the Test Date (the “True-Up Payment”). If troriluzole has not received FDA approval for the treatment of obsessive compulsive disorder or spinocerebellar ataxia as of the Test Date, any Milestone Payments shall be excluded in calculating the True-Up Payment. +The Purchasers’ right to receive the Revenue Payments shall terminate on the date on which the Purchasers have received Revenue Payments and Milestone Payments (the “Total Payments”), together with any True-Up Payment paid by the Issuer to the Purchasers, in an aggregate amount equal to the then-applicable Cap Amount, unless the Note Purchase Agreement is terminated prior to such date. The “Cap Amount” means an amount equal to the Total Funded Amount multiplied by (x) on or prior to the earlier of the Test Date and the date the Test Date Condition is satisfied, 1.65 with respect to the Second Notes and 1.95 with respect to the First Notes and any Third Notes, and (y) after the earlier of the Test Date and the date the Test Date Condition is satisfied, (a) with respect to the First Notes and Third Notes, (i) if the Test Date Condition is satisfied, 1.60, (ii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are equal to or greater than 90% of the Total Funded Amount, 1.80, (iii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 90% but equal to or greater than 50% of the Total Funded Amount, 1.95, (iv) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 50% of the Total Funded Amount, 2.10 if on or prior to the 8 th anniversary of the Closing Date and 2.25 if after the 8 th anniversary of the Closing Date, and (b) with respect to the Second Notes, (i) if the Test Date Condition is satisfied, 1.40, (ii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are equal to or greater than 50% of the Funded Amount, 1.65, and (iii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 50% of the Funded Amount, 1.75. +If the Purchasers have not received Total Payments equal to the then-applicable Cap Amount as of the 10 th anniversary of the Closing Date (or, if no products of the Company have been approved by the FDA or EMA on or before the Test Date, the 8 th anniversary of the Closing Date), the Issuer will be obligated to pay to the Purchasers an amount equal to the Cap Amount less the Total Payments made as of such date. +Under the Note Purchase Agreement, the Issuer has an option (the “Call Option”) to terminate the Note Purchase Agreement and repurchase the Notes in full at any time upon advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the Note Purchase Agreement and to require the Company to repurchase the Notes in full upon certain enumerated events, including, but not limited to, payment defaults, covenant defaults, material breaches of representations and warranties, cross defaults to material debt, bankruptcy and insolvency defaults, material judgment defaults, key man event or a change of control. The required purchase price with respect to the Call Option and the Put Option, as applicable, shall be (a) with respect to the portion of the Total Funded Amount relating to the First Notes and the Third Notes, (i) 120% of such amount if Purchasers exercise the Put Option (other than in connection with a change of control or in connection with a sale of all or substantially all assets relating to troriluzole under certain conditions) on or prior to the first anniversary of the Closing Date, (ii) 135% of such amount if the First Notes and Third Notes are repurchased voluntarily or in connection with a change of control on or prior to the date that is 18 months after the Closing Date or in connection with a definitive agreement for the sale of all or substantially all assets relating to +95 +Table of Contents +troriluzole by August 31, 2025 and the repurchase of the Notes by September 30, 2025 and provided that, in either case, no Default or Event of Default is continuing at such time, (iii) 150% of such amount if the First Notes and Third Notes are repurchased on or prior to the date that is 18 months after the Closing Date and the prior clauses (i) and (ii) do not apply, (iv) 175% of such amount if the First Notes and Third Notes are repurchased from and after the date that is 18 months after the Closing Date and prior to the third anniversary of the Closing Date and (v) 195% of such amount if the First Notes and Third Notes are repurchased after the third anniversary of the Closing Date, provided that if the Total Payments as of the Test Date are less than 50% of the Total Funded Amount, the required purchase price shall be 210% of such amount if such purchase price is paid on or prior to the 8 th anniversary of the Closing Date, and 225% of such amount if such purchase price is paid after the 8 th anniversary of the Closing Date, and (b) with respect to the portion of the Total Funded Amount relating to the Second Notes, (i) 120% of such amount if the Second Notes are repurchased on or prior to the first anniversary of the first purchase date for such Second Notes, (ii) 135% of such amount if the Second Notes are repurchased after the first anniversary but on or prior to the second anniversary of the first purchase date for such Second Notes and (iii) 175% of such amount if the Second Notes are repurchased after the second anniversary of the first purchase date for such Second Notes, except in the event that the Total Payments as of the Test Date are equal to or greater than 50% of the Total Funded Amount, in which case the required purchase price shall be 165% of such amount, minus in each case in the preceding clauses (a) and (b), the aggregate Total Payments and any True-Up Payment made to the Purchasers prior to such date. +The Issuer’s obligations under the Note Purchase Agreement are guaranteed by the Company and certain of its subsidiaries (the “Guarantors”). To secure the Issuer’s obligations under the Note Purchase Agreement and the Guarantors’ obligations under the guarantees, the Obligors have granted the Purchaser Agent, for the benefit of the Purchasers, a security interest in the Obligors’ cash and equity interests and in specific assets related to troriluzole. +The Note Purchase Agreement contains affirmative and negative covenants, including covenants that limit or restrict the Obligors’ and their subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock and enter into restrictive agreements, in each case subject to certain exceptions set forth in the Note Purchase Agreement. Refer to "Part I, Item 1A. Risk Factors" of this Form 10-K for further discussion on the covenants set forth in the Note Purchase Agreement. +Components of Our Results of Operations +Revenue +To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, then we may generate revenue in the future from product sales. +Operating Expenses +Research and Development Expenses +Research and development ("R&D") expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include: +• expenses incurred under agreements with contract research organizations (“CROs”) or contract manufacturing organizations (“CMOs”), as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services; +• manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches; +• employee-related expenses, including salaries, benefits, travel and non-cash share-based compensation expense for employees engaged in research and development functions; +• costs related to compliance with regulatory requirements; +• development milestone payments incurred prior to regulatory approval of the product candidate; +• rent and operating expenses incurred for leased lab facilities and equipment; and +• payments made in cash, equity securities or other forms of consideration under third-party licensing or other agreements prior to regulatory approval of the product candidate. +96 +Table of Contents +We recognize external development costs based on an evaluation of the progress to completion of specific tasks using estimates from our clinical personnel and information provided to us by our service providers. +Our external direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees and certain development milestones incurred under license agreements. We do not allocate employee costs, or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and development as well as for managing our preclinical development, process development, manufacturing and clinical development activities. +Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain significant over the next several years as we increase personnel costs, conduct late-stage clinical trials, and prepare regulatory filings for our product candidates. We also expect to incur additional expenses related to milestones payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates. +The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of: +• the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities; +• establishment of an appropriate safety profile with IND-enabling studies; +• successful patient enrollment in, and the initiation and completion of, clinical trials; +• the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; +• establishment of commercial manufacturing capabilities or making arrangements with third-party manufacturers; +• development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; +• acquisition, maintenance, defense and enforcement of patent claims and other intellectual property rights; +• significant and changing government regulation; +• initiation of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and +• maintenance of a continued acceptable safety profile of the product candidates following approval. +General and Administrative Expenses +General and administrative ("G&A") expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, corporate development and other administrative functions; and non-cash share-based compensation expense. General and administrative expenses also include facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies; and for public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property. +We anticipate that our general and administrative expenses, including payroll and related expenses, will remain significant in the future as we continue to support our research and development activities and prepare for potential commercialization of our product candidates, if successfully developed and approved. We also anticipate increased expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure, and office-related costs, such as information technology costs, and certain costs to establish ourself as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company. +97 +Table of Contents +Other Income +Other Income, Net +Other income, net during the year ended December 31, 2025 primarily consists of changes in the fair value of our forward contract and derivative liabilities, net investment income, and the changes in fair value of our note payable liability under the Note Purchase Agreement. +Prior to settlement, the fair value of the forward contracts and derivative liabilities recognized in connection with the Knopp Amendment (as defined below) was determined using a Monte Carlo simulation of the Company's stock price over the respective duration and terms of each instrument being valued. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" to the accompanying consolidated financial statements included in this Form 10-K for detail on valuation inputs and methodology. The fair value of these liabilities were recorded on the consolidated balance sheets with changes in fair value recorded in other income, net in the consolidated statements of operations. +Net investment income is comprised of interest income and net accretion and amortization on investments in addition to realized gains and losses. Refer to Note 3, "Marketable Securities," for further discussion of our investments. +As permitted under ASC 825, "Financial Instruments," we elected the fair value option for our note payable liability under the Note Purchase Agreement. Accordingly, the note payable was initially measured at issuance based on an estimated fair value and is subsequently remeasured on a recurring basis at each reporting period date. Changes in fair value, other than those attributed to changes in instrument-specific credit risk, are recorded within other (expense) income, net on our consolidated statements of operations and comprehensive loss. Refer to Note 4, "Fair Value of Financial Assets and Liabilities," to the accompanying consolidated financial statements included in this Form 10-K for detail on valuation inputs and methodology and Note 6, "Notes Payable," to the accompanying consolidated financial statements included in this Form 10-K for further discussion of the terms of the Note Purchase Agreement. +Other income, net during the year ended December 31, 2024 primarily consisted of changes in the fair value of our forward contract and derivative liabilities and net investment income. +Provision (Benefit) for Income Taxes +As a company incorporated in the BVI, we are principally subject to taxation in the BVI. Under the current laws of the BVI, the Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI. +We have historically outsourced all of the research and clinical development for our programs under a master services agreement with our subsidiaries, Biohaven Pharmaceuticals, Inc. ("BPI") and Biohaven Biosciences Ireland Limited ("BBIL"). Under these arrangements, both companies were profitable during the years ended December 31, 2025, 2024, and 2023.BPI and BBIL are subject to taxation in the United States and Ireland, respectively. As such, in each reporting period, the tax provision includes the effects of the results of profitable operations of BPI and BBIL. +At December 31, 2025 and 2024, we continued to maintain a full valuation allowance against our net deferred tax assets, comprised primarily of research and development tax credit carryforwards, and net operating loss carryforwards, based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized. +Our income tax provision (benefit) primarily relates to the profitable operations of our subsidiaries in the United States and Ireland. +98 +Table of Contents +Results of Operations +Comparison of the Years Ended December 31, 2025 and 2024 +The following table summarizes our results of operations for the years ended December 31, 2025 and 2024: +Year Ended December 31, +In thousands 2025 2024 Change +Operating expenses: +Research and development $ 635,065 $ 795,871 $ (160,806) +General and administrative 110,313 89,240 21,073 +Total operating expenses 745,378 885,111 (139,733) +Loss from operations (745,378) (885,111) 139,733 +Other income, net: +Other income, net +7,998 39,424 (31,426) +Total other income, net +7,998 39,424 (31,426) +Loss before provision (benefit) for income taxes (737,380) (845,687) 108,307 +Provision (benefit) for income taxes 1,442 735 707 +Net loss $ (738,822) $ (846,422) $ 107,600 +Research and Development Expenses +Year Ended December 31, +In thousands 2025 2024 Change +Direct research and development expenses by program: +BHV-4157 (Troriluzole) +$ 49,241 $ 63,983 $ (14,742) +BHV-2000 (Taldefgrobep Alfa) +23,481 59,710 (36,229) +BHV-7000 & BHV-7010 (Kv7) +115,269 136,422 (21,153) +BHV-2100 (TRPM3) +27,716 29,044 (1,328) +BHV-8000 (TYK2/JAK1) +34,864 12,697 22,167 +BHV-1300 (IgG Degrader) +36,277 30,078 6,199 +BHV-1310 (IgG Degrader) +5,486 13,341 (7,855) +BHV-1400 (IgA Degrader) +27,860 19,572 8,288 +BHV-1600 (β1-AR AAB Degrader) +6,935 14,650 (7,715) +BHV-1510 (Trop2) +37,582 28,540 9,042 +BHV-1530 (FGFR3) +22,670 14,554 8,116 +Knopp amendment expense +— 171,850 (171,850) +Other programs 1,850 2,821 (971) +Unallocated research and development costs: +Personnel related (including non-cash share-based compensation) 150,007 116,238 33,769 +Preclinical research programs 70,203 57,181 13,022 +Other 25,624 25,190 434 +Total research and development expenses $ 635,065 $ 795,871 $ (160,806) +99 +Table of Contents +R&D expenses, including non-cash share-based compensation costs, were $635.1 million for the year ended December 31, 2025, compared to $795.9 million for the year ended December 31, 2024. The decrease of $160.8 million was primarily due to a one-time non-cash expense during the year ended December 31, 2024 of $171.9 million paid to Knopp for a milestone and royalty buyback related to the BHV-7000 and broader Kv7 platform (the buyback reduced our potential future milestone payments by $867.5 million and replaced the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for the Kv7 programs). The decrease was also due to decreased program expense for BHV-2000, BHV-4157 (troriluzole), and BHV-7000 & BHV-7010 (Kv7). These decreases were partially offset by increased direct program spend for advancing clinical trials and preclinical research programs in 2025, including one-time developmental milestone payments of $15.0 million, $12.0 million, and $10.0 million for our BHV-8000, BHV-1510 and BHV-1530 programs, respectively, as well as increased non-cash share-based compensation expense. The increase in program expense for BHV-1510 during the year ended December 31, 2025 was partially offset by a $10.9 million non-cash upfront payment for the acquisition of Pyramid Biosciences, Inc. during the first quarter of 2024 and a $5.7 million non-cash developmental milestone for BHV-1510 which became due during the first quarter of 2024. The increase in preclinical research programs during the year ended December 31, 2025 was primarily due to an upfront share payment valued at $4.9 million and $4.4 million of expense recorded for an upfront cash payment related to agreements entered into during the first quarter of 2025. +Non-cash share-based compensation expense was $72.8 million for the year ended December 31, 2025, an increase of $30.2 million as compared to the same period in 2024. Non-cash share-based compensation expense was higher in 2025 primarily due to our annual equity incentive awards granted in the first quarter of 2025. +General and Administrative Expenses +General and administrative expenses were $110.3 million for the year ended December 31, 2025, compared to $89.2 million for the year ended December 31, 2024. The increase of $21.1 million was primarily due to increased non-cash share-based compensation expense and increased expenses related to fees incurred in connection with the Note Purchase Agreement and other legal costs. Non-cash share-based compensation expense was $39.6 million for the year ended December 31, 2025, an increase of $10.2 million as compared to the same period in 2024. Non-cash share-based compensation expense was higher in 2025 primarily due to our annual equity incentive awards granted in the first quarter of 2025. +Other Income, Net +Other income, net was other income of $8.0 million for the year ended December 31, 2025, compared to other income of $39.4 million for the year ended December 31, 2024. The decrease of $31.4 million was primarily due to an increase of $27.2 million in losses recorded for the non-cash changes in the fair value of our forward contracts and derivative liabilities recorded in connection with the Knopp Amendment, a $6.7 million decrease in investment income, and other expense of $5.9 million recognized to write-off an impaired asset related to the NPA during the year ended December 31, 2025. This was partially offset by an increase in non-cash gains of $8.7 million related to changes in fair value of our notes payable liability under the NPA. See Note 2, "Summary of Significant Accounting Policies," and Note 6, "Notes Payable," to the accompanying consolidated financial statements included in this Form 10-K for discussion of the NPA and Note 4, "Fair Value of Financial Assets and Liabilities," and Note 11, "License, Acquisitions and Other Agreements, " for discussion of the forward contract and derivative liabilities recorded in connection with the Knopp Amendment. +Provision for Income Taxes +We recorded income tax provisions of $1.4 million and $0.7 million for the year ended December 31, 2025 and 2024, respectively. +Liquidity and Capital Resources +Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from operations. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval and pursue commercialization of any approved product candidate. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, regulatory and commercial milestones and royalty payments. In addition, we may incur expenses in connection with the in-license or acquisition of additional product candidates. +Historically, we have funded our operations primarily with funding from the Former Parent, including a cash contribution received at the Separation, proceeds from the sale of our common shares, and proceeds from the sale of senior secured notes under our Note Purchase Agreement. The Company has incurred recurring losses since its inception and expects to continue to generate operating losses for the foreseeable future. +100 +Table of Contents +As of December 31, 2025, we had cash and cash equivalents of $230.0 million and marketable securities of $89.2 million. Cash in excess of immediate requirements is invested in marketable securities and money market funds with a view to liquidity and capital preservation. We continuously assess our working capital needs, capital expenditure requirements, and future investments or acquisitions. +Cash Flows +The following table summarizes our cash flows for each of the periods presented: +Year Ended December 31, +In thousands 2025 2024 +Net cash used in operating activities $ (609,438) $ (582,453) +Net cash provided by (used in) investing activities +300,561 (244,974) +Net cash provided by financing activities 439,117 677,774 +Effect of exchange rate changes on cash and cash equivalents and restricted cash (3) 75 +Net increase (decrease) in cash, cash equivalents and restricted cash +$ 130,237 $ (149,578) +Operating Activities +Net cash used in operating activities was $609.4 million in 2025 and $582.5 million in 2024. The $27.0 million increase in net cash used in operating activities in 2025 was driven primarily by: +• an increase in cash payments for research and development to advance clinical trials and preclinical research programs primarily due to one-time development milestone payments of $15.0 million, $12.0 million, and $10.0 million for BHV-8000, BHV-1510, and BHV-1530, respectively, and a one-time upfront payment of $3.8 million related to an agreement entered into in 2025; +• an increase in cash payments for general and administrative professional services; and +• a decrease in cash payments for employee compensation due to our 2025 employee bonus being paid in the first quarter of 2026, mostly offset by a decrease in tax refunds. +Investing Activities +Net cash provided by investing activities was $300.6 million in 2025, compared to net cash used in investing activities of $245.0 million in 2024. The $545.5 million increase in net cash provided by investing activities in 2025 was driven primarily by an increase in maturities of marketable securities and a decrease in purchases of marketable securities in 2025 (see Note 3, "Marketable Securities," to the Consolidated Financial Statements), as compared to the prior year. +Financing Activities +Net cash provided by financing activities was $439.1 million in 2025 and $677.8 million in 2024. The $238.7 million decrease in net cash provided by financing activities in 2025 was driven primarily by a decrease in proceeds from the issuance of common shares in 2025 as compared to the same period in the prior year, related to proceeds from our April 2024 and October 2024 public equity offerings and at-the-market sales of common shares in connection with our Equity Distribution Agreement in 2024. This was partially offset by proceeds from the issuance of notes payable in 2025 related to our Note Purchase Agreement, and proceeds from our November 2025 public equity offering. +2025 Public Offering +On November 13, 2025, we closed an underwritten public offering of 26,833,334 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at the price of $7.50 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $188.7 million. We intend to use the net proceeds received from the offering for general corporate purposes. +Note Purchase Agreement +In April 2025, we received $250.0 million in gross proceeds from the sale of senior secured notes under our Note Purchase Agreement. Pursuant to the Note Purchase Agreement, the Purchasers also agreed to purchase additional senior secured notes from the Issuer, at the Company's option and in up to three purchases on or before June 30, 2026 for an aggregate purchase price of $150.0 million, subject to the satisfaction of certain conditions, including the receipt of approval from the FDA for troriluzole. The Issuer may also sell to the Purchasers, at the Issuer’s option and subject to the approval of each Purchaser agreeing to participate therein, in its sole discretion, additional notes in up to four purchases +101 +Table of Contents +for an aggregate purchase price of $200.0 million, the proceeds of which may be used solely to fund permitted acquisitions and related costs and expenses. +In the event that by the reporting deadline of March 2, 2026, our audited financial statements for the year ended December 31, 2025 or any year thereafter for the term of the agreement, are subject to any qualification, emphasis of matter or statement as to “going concern” or scope of audit, subject to certain exceptions, we would be in breach of our financial statement delivery covenant under the Note Purchase Agreement. In such event, if such requirement was not amended or waived by the Purchasers, the Purchasers could have the right to exercise their remedies under the Note Purchase Agreement, which could include, but not be limited to, declaring an event of default and accelerating payment of outstanding amounts thereunder (which amounted to $250.0 million as of December 31, 2025), plus a required premium. +Refer to Note 6, "Notes Payable", to the accompanying consolidated financial statements included in this Form 10-K for further discussion of the Note Purchase Agreement. +2024 Public Offerings +On April 22, 2024, we closed an underwritten public offering of 6,451,220 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at the price of $41.00 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $247.8 million. We used the net proceeds received from the offering for general corporate purposes. +On October 2, 2024, we closed an underwritten public offering of 6,052,631 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price of $47.50 per share. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by us, were approximately $269.9 million. We used the net proceeds received from the offering for general corporate purposes. +Equity Distribution Agreement +In October 2023, we entered into an equity distribution agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $150.0 million from time to time through or to the sales agent, acting as our agent or principal (the "Equity Distribution Agreement"). Sales of our common shares, if any, will be made in sales deemed to be “at-the-market offerings”. The sales agent is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and us. We currently plan to use the net proceeds from any at-the-market offerings of our common shares for general corporate purposes. +In August 2024, we entered into an Amendment to the Equity Distribution Agreement pursuant to which we may offer and sell common shares having an aggregate offering price of up to $450.0 million from time to time through or to the sales agent, acting as its agent or principal. +As of December 31, 2025, we have issued and sold 4,248,588 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $146.3 million. As of December 31, 2025, additional common shares having an aggregate offering price of up to $300.0 million remain available to be issued. +Subsequent to December 31, 2025, we issued and sold an additional 17,164,940 common shares for net proceeds of $178.9 million. As of March 2, 2026, the date of this report, we have issued and sold 21,413,528 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $325.1 million. As of March 2, 2026, additional common shares having an aggregate offering price of up to $118.7 million remain available to be issued. +Knopp Amendment +In May 2024, we entered into the Knopp Amendment which reduced our milestone payments by $867.5 million and replaced the high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for our Kv7 programs. As consideration, we agreed to issue to Knopp the 2024 Additional Consideration and 2025 Additional Consideration, both non-cash common share payments, as well as agreed to one-time cash true-ups for both the 2024 Additional Consideration and 2025 Additional Consideration. +On May 30, 2024, we issued 1,872,874 common shares valued at $66.0 million to Knopp to settle the forward contract liability related to the 2024 Additional Consideration and recognized a non-cash gain of $9.2 million on settlement. In addition, the 2024 Additional Consideration True-up was considered settled as of December 2024, with no cash payment due upon expiration. The Company recognized a gain related to the 2024 Additional Consideration True-Up of $15.5 million. +On June 25, 2025, we issued an additional 3,588,688 shares valued at $51.4 million to Knopp to settle the forward contract liability related to the 2025 Additional Consideration and recognized a non-cash gain of $23.6 million on +102 +Table of Contents +settlement. In December 2025, the 2025 Additional Consideration True-up was considered settled, and an additional cash payment of $42.7 million was owed to Knopp and was subsequently paid in January 2026. +Knopp Warrant +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, we issued to Knopp a warrant to purchase 294,195 of our common shares with a purchase price of $67.98, subject to certain specified development milestones and the Company achieving a specified market capitalization. In December 2025, Knopp elected to surrender the warrants to the Company for cancellation. +Funding Requirements +We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our product candidates. Our costs will also increase as we: +• continue to advance and expand the development of our discovery programs and clinical-stage assets; +• continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies; +• initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue; +• continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies; +• make required milestone, royalty, or other payments under new or existing contractual agreements; +• continue to develop, maintain, expand and protect our intellectual property portfolio; +• pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials; +• establish and support our sales, marketing and distribution infrastructure to commercialize any future product candidates for which we may obtain marketing approval; and +• hire additional clinical, medical, commercial, and development personnel. +We expect that our cash, cash equivalents and marketable securities, as of the date of this Annual Report on Form 10-K, will be sufficient to fund operating and financial commitments, and other cash requirements for at least one year after the issuance date of these financial statements. +To execute our business plans, we will require funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales or royalties, if ever, we expect to finance our operations through the sale of public or private equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of our shareholders. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. +We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for our product candidates, we expect to incur commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own. +Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including: +• the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials; +• the costs, timing and outcome of regulatory review of our product candidates; +103 +Table of Contents +• the costs and timing of hiring new employees to support our continued growth; +• the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; +• the extent to which we acquire or in-license other product candidates and technologies; +• the costs associated with milestone, royalty, or other payments under new or existing contractual agreements; +• the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any; and +• other capital expenditures, working capital requirements, and other general corporate activities. +Future Cash Requirements +Contractual Obligations +The following table summarizes estimated material contractual obligations as of December 31, 2025: +Payments Due by Period +In thousands Total 2026 +2027-2028 +2029-2030 +Thereafter +Operating lease liabilities (1) +$ 63,075 $ 9,138 $ 16,740 $ 14,103 $ 23,094 +Purchase obligations: +Research commitments (2) +20,784 20,784 — — — +Total $ 83,859 $ 29,922 $ 16,740 $ 14,103 $ 23,094 +(1) Refer to Note 12, "Commitments and Contingencies," to the Consolidated Financial Statements included in this 10-K for additional information on future minimum rental commitments under non-cancelable operating leases. +(2) Research commitments are primarily CRO agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee. In addition to the amounts above, as of December 31, 2025, the Company had remaining maximum research commitments of approximately $1,610, which are variable based on number of trial participants and contingent upon the achievement of certain milestones of the clinical trials covered under the agreements. Since the achievement of these milestones is uncertain and the timing unpredictable, the Company did not include the additional research commitments in the table above. If all related milestones are achieved, the Company expects these amounts to be paid over approximately one year. +In addition to the contractual obligations in the table above, under various agreements with third-party licensors, collaborators, and creditors, we have agreed to make milestone, royalty, and other payments. We have not included any contingent payment obligations, such as milestones, royalties, or other payments, or potential payments under the NPA in the table above as the amount, timing and likelihood of such payments are not known. For additional details on potential payments under the NPA and contingent milestone and royalty payments, see Note 6, "Notes Payable", Note 11, "License, Acquisitions and Other Agreements", and Note 12, "Commitments and Contingencies", to the Consolidated Financial Statements. +Critical Accounting Policies and Significant Judgments and Estimates +Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the consolidated financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. +While our significant accounting policies are described in more detail in Note 2, "Summary of Significant Accounting Policies," in the notes to our financial statements appearing at the end of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements. +104 +Table of Contents +Accrued Research and Development Expenses +As part of the process of preparing the consolidated financial statements, we are required to estimate accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We confirm the accuracy of these estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to: +• vendors, including central laboratories, in connection with preclinical development activities; +• CROs and investigative sites in connection with preclinical and clinical studies; and +• CMOs in connection with drug substance and drug product formulation of preclinical and clinical trial materials. +Valuation of Forward Contract and Derivative Liabilities +We have accounted for certain consideration agreed to in connection with the Knopp Amendment as forward contracts and derivative liabilities. The fair value of these liabilities have been determined based on Monte Carlo simulations of Biohaven's share price, which requires judgment and assumptions on the volatility of our share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk as they are payable in either cash or a variable number of shares. +Valuation of Note Purchase Agreement +In April 2025, we entered into a Note Purchase Agreement (the "NPA") whereby the Purchasers may purchase up to $600.0 million of our senior secured notes, $250.0 million of which were issued and sold in the second quarter of 2025, $150.0 million may be issued and sold at our option contingent upon FDA approval of troriluzole, and subject to the satisfaction of certain additional conditions, $200.0 million may be issued and sold upon the mutual agreement of the parties for permitted strategic acquisitions and related costs and expenses. See Note 6, "Notes Payable," and Note 4, "Fair Value of Financial Assets and Liabilities," to the notes to our financial statements appearing elsewhere in this Annual Report. +We assessed the terms and features of the NPA and determined that we are eligible to elect the fair value option under ASC 825, "Financial Instruments." The NPA contains various embedded features and the election of the fair value option allows us to bypass analysis of potential embedded derivatives and further analysis of bifurcation of any recognized financial liabilities. Under the fair value option, the financial liability, which is recorded as Notes payable on the consolidated balance sheet, is initially measured at its fair value on the issuance date and subsequently remeasured at estimated fair value on a recurring basis at each reporting date. Subsequent changes in fair value, excluding the impact of the change in fair value attributable to instrument-specific credit risk, are separately presented as a component of other income (expense), net in the consolidated statements of operations. The portion of the fair value adjustment attributed to a change in the instrument-specific credit risk is recognized and separately presented as a component of other comprehensive income (loss). The portion of total changes in fair value attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income (loss) in the accompanying consolidated statements of comprehensive loss. +As we elected to account for the NPA under the fair value option, debt issuance costs, which were not material, were immediately expensed within general and administrative expense in the consolidated statements of operations. Additionally, we have elected not to present interest expense separately from changes in fair value and therefore will not separately present interest expense associated with the Note Purchase Agreement. +The fair value of the NPA represents the present value of estimated future payme nts under the agreement. The fair value of the NPA is calculated using a scenario-based discounted cash flow model. The fair value measurement is based o n significant Level 3 unobservable inputs such as management's assumptions on the probability and timing of regulatory approvals for troriluzole and other product candidates, probability and timing of an early redemption of all obligations under the agreement, and discount rate using a risk-free rate plus Biohaven-specific senior secured credit risk. +If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. For additional information on our election of the fair value option for the Note Purchase Agreement, see Note 6, "Notes Payable," and +105 +Table of Contents +Note 4, "Fair Value of Financial Assets and Liabilities," to the notes to our financial statements appearing elsewhere in this Annual Report. +Recently Issued Accounting Pronouncements +A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements appearing at the end of this Annual Report. +Item 7A. Quantitative and Qualitative Disclosures about Market Risks +Foreign Currency Translation +Our operations include activities in countries outside the U.S. As a result, our financial results are impacted by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets where we operate. Our monetary exposures on our consolidated balance sheets were immaterial to our financial position as of December 31, 2025 and 2024. +We do not engage in any hedging activities against changes in foreign currency exchange rates. +Interest Rate Risk +As of December 31, 2025, our excess cash balances were invested in short-term money market funds and short-term debt securities issued by the United States government. We seek to diversify our investments and limit the amount of investment concentrations for individual corporate institutions, maturities and investment types. Most of our interest-bearing securities are subject to interest rate risk and could decline in value if interest rates fluctuate. Based on the type and duration of securities we hold, we do not believe a change in interest rates would have a material impact on our financial statements. If interest rates were to increase or decrease by 1.00%, the fair value of our investment portfolio would (decrease) increase by approximately $0.2 million and $0.2 million, respectively. For further discussion of our investments in marketable securities, refer to Note 3, "Marketable Securities," of the Notes to the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. +We do not engage in any hedging activities against changes in interest rates. +Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. The Company maintains a portion of its cash deposits in government insured institutions in excess of government insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and have not experienced any losses on such accounts. The Company's cash management policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, supranational and sovereign obligations, certain qualifying money market mutual funds, certain repurchase agreements, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash in excess of government insured limits and in the event of default by corporations and governments in which it holds investments in cash equivalents and short-term debt securities, to the extent recorded on the consolidated balance sheet. +We have not experienced any credit losses or recorded any allowance for credit losses related to our cash, cash equivalents, and short-term debt securities. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +The consolidated financial statements and supplementary data of the Company required in this item are set forth beginning on page F-1. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. +106 +Table of Contents +Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. +In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. +Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2025, our disclosure controls and procedures were effective at the reasonable assurance level. +Management's Report on Internal Control over Financial Reporting +Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2025 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2025. +107 +Table of Contents +Report of Independent Registered Public Accounting Firm +The effectiveness of our internal control over financial reporting as of December 31, 2025 has been audited by Ernst & Young LLP., an independent registered public accounting firm, as stated in their report, which is included below. +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Biohaven Ltd. +Opinion on Internal Control Over Financial Reporting +We have audited Biohaven Ltd.’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Biohaven Ltd. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated March 2, 2026 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Stamford, Connecticut +March 2, 2026 +108 +Table of Contents +Changes in Internal Controls over Financial Reporting +There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION +During the year ended December 31, 2025, none of our directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K. +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not applicable. +109 +Table of Contents +PART III +We will file a definitive Proxy Statement for our 2026 Annual Meeting of Shareholders (the "2026 Proxy Statement") with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10 ‑ K. Only those sections of the 2026 Proxy Statement that specifically address the items set forth herein are incorporated by reference. +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this Item is incorporated herein by reference to the information that will be contained in our 2026 Proxy Statement under the captions "Information Regarding the Board of Directors and Corporate Governance," "Insider Trading Policy," "Election of Directors," and "Executive Officers." +Item 11. Executive Compensation +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2026 Proxy Statement under the captions "Executive Compensation" and "Director Compensation." +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2026 Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance under Equity Compensation Plans." +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2026 Proxy Statement under the captions "Transactions with Related Persons" and "Independence of the Board of Directors." +Item 14. Principal Accountant Fees and Services +The information required by this Item is incorporated herein by reference to the information that will be contained in the 2026 Proxy Statement under the caption "Ratification of Selection of Independent Auditors." +110 +Table of Contents +PART IV +Item 15. Exhibit and Financial Statement Schedules +a. The following documents are filed as part of this report: +(1) Financial Statements: +The financial statements required by this item are submitted in a separate section beginning on page F-1 of this report. +(2) Financial Statement Schedules: +All other financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the consolidated financial statements or the notes thereto. +(3) Exhibits. +Exhibit +Number +Description of Document +2.1 +Separation and Distribution Agreement, dated as of May 9, 2022, by and among Pfizer Inc., Bulldog (BVI) Ltd. and Biohaven Pharmaceutical Holding Company Ltd. (incorporated by reference to Exhibit 2.1 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022) . +2.2 +Agreement and Plan of Merger, dated as of May 9, 2022, by and among Pfizer Inc., Bulldog (BVI) Ltd. and Biohaven Pharmaceutical Holding Company Ltd. (incorporated by reference to Exhibit 2.2 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +2.3 # +Membership Interest Purchase Agreement, dated as of February 24, 2022, by and among Biohaven Therapeutics LTD., Knopp Biosciences LLC, Channel Biosciences, LLC and Biohaven Pharmaceutical Holding Company Ltd., solely for the purpose of Section 9.14 (incorporated by reference to Exhibit 2.3 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +2.4 +# +Amendment to Membership Interest Purchase Agreement, dated as of May 1, 2024, by and among the Company, BTL, BPI and Knopp (incorporated by reference to Exhibit 2.1 to the Company's Form 10-Q (File No. 001-41477) filed on August 9, 2024). +2.5 +Second Amendment to Membership Interest Purchase Agreement, dated as of Dec ember 16, 202 5 , by and among the Company, BTL, BPI and Knopp . +3.1 +Amended & Restated Memorandum and Articles of Association of Biohaven Ltd. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 001-41477) filed on October 3, 2022). +4.1 +# +Warrant, dated as of May 1, 2024, by and between the Company and Knopp (incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q (File No. 001-41477) filed on August 9, 2024). +4.2 +Warrant Surrender Agreement, dated as of December 16, 2025, by and between the Company and Knopp. +4.3 +Description of Biohaven Ltd.’s Securities Registered Under Section 12 of the Exchange Act . +10.1 # +Amended and Restated Agreement, by and between the Registrant and Yale University, dated as of May 6, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 001-41477) filed on October 3, 2022). +10.2 # +License Agreement, by and between the Registrant and AstraZeneca AB, dated as of September 4, 2018 (incorporated by reference to Exhibit 10.2 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.3 # +License Agreement between Biohaven Therapeutics LTD. and Bristol-Myers Squibb Company, dated as of December 23, 2021 (incorporated by reference to Exhibit 10.3 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.4 # +ALS Biopharma Agreement, by and among the registrant, ALS Biopharma, LLC and Fox Chase Chemical Diversity Center Inc., dated as of August 10, 2015 (incorporated by reference to Exhibit 10.4 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.5 +Amendment and Assignment, by and among the Registrant, ALS Biopharma, LLC, Fox Chase Chemical Diversity Center and Biohaven Therapeutics Ltd, dated as of May 29, 2019 (incorporated by reference to Exhibit 10.5 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.6 + +Employment Agreement dated May 9, 2017 by and between Biohaven Pharmaceuticals, Inc. and Vlad Coric (incorporated by reference to Exhibit 10.6 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.7 + +Employment Agreement, dated December 8, 2021, between Biohaven Pharmaceuticals, Inc. and Matthew Buten (incorporated by reference to Exhibit 10.7 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.8 + +Employment Agreement dated February 1, 2014 by and between Biohaven Pharmaceuticals, Inc. and Kimberly A. Gentile (incorporated by reference to Exhibit 10.9 to the Company's Form 10 (File No. 001-41477) filed on August 10, 2022). +10.9 + +2022 Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to Company’s Registration Statement on Form S-8 filed on October 11, 2022). +111 +Table of Contents +10.10 + +Form of Restricted Share Unit Grant Notice and Restricted Share Unit Award Agreement under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.11 + +Form of Share Option Grant Notice and Share Option Agreement under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.12 + +2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 4.3 to Company’s Registration Statement on Form S-8 filed on October 11, 2022). +10.13 + +Form of Employment Agreement by and between Biohaven Ltd. and Vladimir Coric (incorporated by reference to Exhibit 10.16 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.14 + +Form of Employment Agreement by and between Biohaven Ltd. and Matthew Buten (incorporated by reference to Exhibit 10.17 to the Company's Form 10 (File No. 001-41477) filed on September 7, 2022). +10.15 + +Amended and Restated Offer of Employment, by and between Biohaven Pharmaceuticals, Inc. and Bruce Car (Incorporated by reference to Exhibit 10.18 to the Company's Form 10-K (File No. 001-41477) filed on March 23, 2023). +10.16 +# +Development and License Agreement, dated as of March 21, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.17 +# +Amendment to Development and License Agreement dated March 21, 2023, dated as of April 14, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.18 + +Form of Nonstatutory Share Option Grant Notice (Early Exercise) and Share Option Agreement under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.19 + +Form of Amendment to Share Option Grant Notice and Option Agreement under the 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q (File No. 001-41477) filed on May 12, 2023). +10.20 +# +Second Amendment to Development and License Agreement dated March 21, 2023, dated as of December 10, 2023, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD. (Incorporated by reference to Exhibit 10.22 to the Company's Form 10-K (File No. 001-41477) filed on February 29, 2024). +10.21 +Note Purchase Agreement, dated April 28, 2025, between Biohaven Therapeutics Ltd., the Company and the other obligors party thereto, the purchasers party thereto and Beetlejuice SA LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-41477) filed on April 28, 2025). +10.22 +# +Third Amendment to Development and License Agreement dated March 21, 2023, dated as of July 16, 2025, by and between Hangzhou Highlightll Pharmaceutical Co. Ltd. and Biohaven Therapeutics LTD ( i ncorporated by reference to Exhibit 10. 2 to the Company's Form 10-Q (File No. 001-41477) filed on August 11, 2025 ). +10.23 +Agreement for the Assignment of Notes, dated September 19, 2025, to the Note Purchase Agreement, dated April 28, 2025, between Biohaven Therapeutics Ltd., the Company and the other obligors party thereto, the purchasers party thereto and Beetlejuice SA LLC (incorporated by reference to Exhibit 10. 1 to the Company's Form 10-Q (File No. 001-41477) filed on November 10 , 2025) . +19 +Insider Trading Policy (Incorporated by reference to Exhibit 19 to the Company's Form 10-K (File No. 001-41477) filed on March 3, 2025). +21.1 +Subsidiaries of the Registrant. +23.1 +Consent of Ernst & Young LLP. +24.1 +Power of Attorney (contained on signature page hereto). +31.1 +Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act. +31.2 +Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act. +32.1 * +Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act. +97 +Incentive Compensation Recovery Policy (Incorporated by reference to Exhibit 97 to the Company's Form 10-K (File No. 001-41477) filed on February 29, 2024). +101 +The following materials from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2025 formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Shareholders' Equity, (v) the Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements, and (vi) Cover Page, tagged as blocks of text. +104 +The cover page from the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, formatted in Inline XBRL (included as Exhibit 101). +_______________________________________________________________________________ +# Portions of this exhibit (indicated by asterisks) have been omitted as such information is (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. ++ Indicates management contract or compensatory plan. +112 +Table of Contents +* These certifications are being furnished solely to accompany this Annual Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. +Item 16. Form 10-K Summary +Not applicable. +113 +Table of Contents +SIGNATURES +Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. +BIOHAVEN LTD. +Dated: March 2, 2026 +By: /s/ VLAD CORIC, M.D. +Vlad Coric, M.D. +Chief Executive Officer +(On behalf of the Registrant and as the Principal Executive Officer) +By: /s/ MATTHEW BUTEN +Matthew Buten +Chief Financial Officer +(Principal Financial Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vlad Coric as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K of Biohaven Ltd., and any or all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +114 +Table of Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ VLAD CORIC, M.D. +Chief Executive Officer and Director +(Principal Executive Officer) +March 2, 2026 +Vlad Coric, M.D. +/s/ MATTHEW BUTEN Chief Financial Officer +(Principal Financial Officer) March 2, 2026 +Matthew Buten +/s/ GEORGE C. CLARK Chief Accounting Officer +(Principal Accounting Officer) March 2, 2026 +George C. Clark +/s/ GREGORY H. BAILEY, M.D. Director March 2, 2026 +Gregory H. Bailey, M.D. +/s/ JOHN W. CHILDS Director March 2, 2026 +John W. Childs +/s/ JULIA P. GREGORY Director March 2, 2026 +Julia P. Gregory +/s/ MICHAEL HEFFERNAN Director March 2, 2026 +Michael Heffernan +/s/ ROBERT J. HUGIN Director March 2, 2026 +Robert J. Hugin +/s/ KISHEN MEHTA Director March 2, 2026 +Kishen Mehta +/s/ IRINA ANTONIJEVIC Director March 2, 2026 +Irina Antonijevic +115 +Table of Contents +Biohaven Ltd. +Financial Statements +For the Years Ended December 31, 2025, 2024 and 2023 +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +2 +Consolidated Balance Sheets +4 +Consolidated Statements of Operations +5 +Consolidated Statements of Comprehensive Loss +6 +Consolidated Statements of Shareholders' Equity +7 +Consolidated Statements of Cash Flows +8 +Notes to Consolidated Financial Statements +9 +F-1 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Biohaven Ltd. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Biohaven Ltd. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2026 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +F-2 +Table of Contents +Valuation of Notes Payable +Description of the Matter +As discussed in Note 6 to the consolidated financial statements, in April 2025, the Company and certain of its subsidiaries entered into a Note Purchase Agreement (“NPA”) with Beetlejuice SA LLC, an affiliate of Oberland Capital Management LLC. The Company has elected to account for the NPA under the fair value option as permitted by ASC 825, “Financial Instruments”. The financial liability, which is recorded as notes payable, was initially measured at a fair value of $255.8 million on the issuance date and subsequently remeasured at fair value on a quarterly basis. As of December 31, 2025, the fair value of the notes payable recorded by the Company was $238.9 million. The fair value of the notes payable is based on a scenario-based discounted cash flow model. The fair value measurement utilizes significant Level 3 unobservable inputs such as the probability and timing of regulatory approvals of product candidates, the probability and timing of certain early redemption events, and the Company-specific senior secured credit risk rate. +Auditing the fair value of the notes payable was challenging due to the judgmental nature of the assumptions utilized in the model, especially the probability and timing of regulatory approvals of product candidates, the probability and timing of certain early redemption events, and the determination of the Company-specific senior secured credit risk rate. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant controls over the Company’s process to account for the notes payable, including controls over the determination and review of the above assumptions. +To test the Company’s estimate of the fair value of the notes payable, our audit procedures included, among others, the use of our valuation specialists to perform a comparative calculation of the scenario-based discounted cash flow model, evaluate the Company-specific senior secured credit risk rate, and perform sensitivity analyses on the above assumptions. We assessed the Company’s estimated probability and timing of regulatory approvals of product candidates and certain early redemption events through various procedures which included, among others, inquiries of Company executives and employees responsible for clinical operations, independent verification of the industry publication used by the Company, challenged the above assumptions through searches for contrary evidence, and assessed consistency of the above assumptions with evidence obtained in other areas of our audit. We also verified the scenarios utilized in the model align with the NPA terms and verified the above assumptions were accurately included in the model. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 2022. +Stamford, Connecticut +March 2, 2026 +F-3 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED BALANCE SHEETS +(Amounts in thousands, except share amounts) +December 31, +2025 2024 +Assets +Current assets: +Cash and cash equivalents $ 229,957 $ 99,134 +Marketable securities 89,180 386,857 +Prepaid expenses 47,022 49,376 +Other current assets 2,170 3,105 +Total current assets 368,329 538,472 +Property and equipment, net 15,964 17,320 +Intangible assets 18,400 18,400 +Goodwill 1,390 1,390 +Other non-current assets 47,364 39,525 +Total assets $ 451,447 $ 615,107 +Liabilities and Shareholders' Equity +Current liabilities: +Accounts payable $ 11,643 $ 18,029 +Accrued expenses and other current liabilities 104,291 51,487 +Forward contract and derivative liability +— 84,710 +Total current liabilities 115,934 154,226 +Non-current operating lease liability +39,958 32,782 +Notes payable 238,900 — +Other non-current liabilities 4,583 4,663 +Total liabilities 399,375 191,671 +Commitments and contingencies (Note 12) +Shareholders' Equity: +Preferred shares, no par value; 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2025 and 2024 +— — +Common shares, no par value; 200,000,000 shares authorized as of December 31, 2025 and 2024; 132,775,113 and 101,221,989 shares issued and outstanding as of December 31, 2025 and 2024, respectively +1,934,276 1,656,702 +Additional paid-in capital 193,984 112,369 +Accumulated deficit ( 2,084,536 ) ( 1,345,714 ) +Accumulated other comprehensive income +8,348 79 +Total shareholders' equity 52,072 423,436 +Total liabilities and shareholders' equity $ 451,447 $ 615,107 +The accompanying notes are an integral part of these consolidated financial statements. +F-4 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF OPERATIONS +(Amounts in thousands, except share and per share amounts) +Year Ended December 31, +2025 2024 2023 +Operating expenses: +Research and development $ 635,065 $ 795,871 $ 373,281 +General and administrative 110,313 89,240 62,770 +Total operating expenses 745,378 885,111 436,051 +Loss from operations ( 745,378 ) ( 885,111 ) ( 436,051 ) +Other income: +Other income, net +7,998 39,424 26,500 +Total other income, net +7,998 39,424 26,500 +Loss before provision (benefit) for income taxes +( 737,380 ) ( 845,687 ) ( 409,551 ) +Provision (benefit) for income taxes +1,442 735 ( 1,383 ) +Net loss $ ( 738,822 ) $ ( 846,422 ) $ ( 408,168 ) +Net loss per share — basic and diluted $ ( 6.86 ) $ ( 9.28 ) $ ( 5.73 ) +Weighted average common shares outstanding—basic and diluted 107,624,885 91,234,337 71,200,527 +The accompanying notes are an integral part of these consolidated financial statements. +F-5 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS +(Amounts in thousands) +Year Ended December 31, +2025 2024 2023 +Net loss $ ( 738,822 ) $ ( 846,422 ) $ ( 408,168 ) +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments ( 3 ) 78 ( 497 ) +Net unrealized (loss) gain related to available-for-sale debt securities +( 8 ) 66 148 +Change in instrument-specific credit risk of liabilities measured at fair value +8,280 — — +Other comprehensive income (loss) +8,269 144 ( 349 ) +Comprehensive loss $ ( 730,553 ) $ ( 846,278 ) $ ( 408,517 ) +The accompanying notes are an integral part of these consolidated financial statements. +F-6 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY +(Amounts in thousands, except share amounts) +Common Shares +Shares Amount Additional Paid-in Capital Accumulated Deficit +Accumulated Other Comprehensive (Loss) Income +Total Shareholders' Equity +Balances as of December 31, 2022 68,190,479 615,742 13,869 ( 91,124 ) 284 538,771 +Net loss — — — ( 408,168 ) — ( 408,168 ) +Issuance of common shares, net of offering costs 11,761,363 242,425 — — — 242,425 +Issuance of common shares as payment for license agreement +721,136 21,814 — — — 21,814 +Issuance of common shares under 2022 Equity Incentive Plan and employee share purchase plan +442,745 7,547 ( 2,852 ) — — 4,695 +Non-cash share-based compensation expense — — 28,787 — — 28,787 +Other comprehensive loss +— — — — ( 349 ) ( 349 ) +Balances as of December 31, 2023 +81,115,723 887,528 39,804 ( 499,292 ) ( 65 ) 427,975 +Net loss +— — — ( 846,422 ) — ( 846,422 ) +Issuance of common shares, net of offering costs +16,752,439 664,015 — — — 664,015 +Issuance of common shares as payment for IPR&D asset +253,838 10,811 — — — 10,811 +Issuance of common shares as payment under license and other agreements +1,970,261 71,627 — — — 71,627 +Obligation to issue common shares as payment under license and other agreements +— — 8,554 — — 8,554 +Issuance of common shares under 2022 Equity Incentive Plan and 2022 Employee Share Purchase Plan +1,129,728 22,721 ( 11,292 ) — — 11,429 +Issuance of warrant as payment under license agreement +— — 3,340 — — 3,340 +Non-cash share-based compensation expense +— — 71,963 — — 71,963 +Other comprehensive income +— — — — 144 144 +Balances as of December 31, 2024 +101,221,989 1,656,702 112,369 ( 1,345,714 ) 79 423,436 +Net loss +— — — ( 738,822 ) — ( 738,822 ) +Issuance of common shares, net of offering costs +26,833,334 188,725 — — — 188,725 +Issuance of common shares as payment under license and other agreements +3,943,507 64,824 ( 8,554 ) — — 56,270 +Issuance of common shares under 2022 Equity Incentive Plan and 2022 Employee Share Purchase Plan +776,283 24,025 ( 22,192 ) — — 1,833 +Non-cash share-based compensation expense +— — 112,361 — — 112,361 +Other comprehensive income +— — — — 8,269 8,269 +Balances as of December 31, 2025 +132,775,113 $ 1,934,276 $ 193,984 $ ( 2,084,536 ) $ 8,348 $ 52,072 +The accompanying notes are an integral part of these consolidated financial statements. +F-7 +Table of Contents +BIOHAVEN LTD. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(Amounts in thousands) +Year ended December 31, +2025 2024 2023 +Cash flows from operating activities: +Net loss $ ( 738,822 ) $ ( 846,422 ) $ ( 408,168 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Non-cash share-based compensation 112,361 71,963 28,787 +Acquisition of IPR&D asset — 10,811 — +Depreciation and amortization 9,922 7,855 6,912 +Issuance of common shares as payment for license agreement +4,844 71,627 21,814 +Change in fair value of notes payable +( 8,700 ) — — +Obligation to issue common shares as payment for license agreements and other arrangements +— 8,554 — +Fair value of forward contract and derivative liabilities under license agreement +— 102,529 — +Change in fair value of forward contract and derivative liabilities +9,426 ( 17,819 ) — +Issuance of warrant under license agreement +— 3,340 — +Other non-cash items 174 ( 11,702 ) ( 5,683 ) +Changes in operating assets and liabilities: +Prepaid expenses, income tax receivable, and other current and non-current assets +3,531 8,043 27,176 +Accounts payable ( 6,386 ) 710 4,874 +Accrued expenses and other current and non-current liabilities +4,212 8,058 ( 7,437 ) +Net cash used in operating activities $ ( 609,438 ) $ ( 582,453 ) $ ( 331,725 ) +Cash flows from investing activities: +Proceeds from maturities of marketable securities +570,000 504,364 322,079 +Proceeds from sales of marketable securities +— — 4,920 +Purchases of marketable securities ( 266,875 ) ( 745,680 ) ( 194,121 ) +Purchases of property and equipment ( 715 ) ( 4,049 ) ( 3,048 ) +Cash acquired from acquisition of IPR&D asset +— 391 — +Other investing activities +( 1,849 ) — — +Net cash provided by (used in) investing activities +$ 300,561 $ ( 244,974 ) $ 129,830 +Cash flows from financing activities: +Change in restricted cash due to Former Parent +— — ( 35,212 ) +Proceeds from issuance of notes payable +250,000 — — +Proceeds from issuance of common shares 189,175 666,165 243,225 +Payments of issuance costs ( 1,697 ) ( 2,150 ) ( 800 ) +Proceeds from issuance of common shares under 2022 Equity Incentive Plan and 2022 Employee Share Purchase Plan +1,833 11,501 4,695 +Other financing activities +( 194 ) 2,258 — +Net cash provided by financing activities $ 439,117 $ 677,774 $ 211,908 +Effect of exchange rates on cash, cash equivalents and restricted cash ( 3 ) 75 ( 497 ) +Net increase (decrease) in cash, cash equivalents and restricted cash +130,237 ( 149,578 ) 9,516 +Cash, cash equivalents and restricted cash at beginning of period 102,542 252,120 242,604 +Cash, cash equivalents and restricted cash at end of period $ 232,779 $ 102,542 $ 252,120 +Supplemental disclosure of cash flow information: +Cash paid for interest $ 216 $ 125 $ — +The accompanying notes are an integral part of these consolidated financial statements. +F-8 +Table of Contents +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +1. Nature of the Business and Basis of Presentation +Biohaven Ltd. (“we,” “us," "our," "Biohaven" or the “Company”) was incorporated in Tortola, British Virgin Islands in May 2022. Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. The Company is advancing its innovative portfolio of therapeutics, leveraging its proven drug development experience and multiple, proprietary drug development platforms. Biohaven's key clinical and preclinical programs include Kv7 ion channel modulation for epilepsy; Molecular Degrader of Extracellular Proteins (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP") extracellular protein degradation for immunological diseases; and myostatin-activin pathway targeting agent for neuromuscular and metabolic diseases, including obesity. +The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development ("R&D") efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts may require additional capital, additional personnel and infrastructure, and further regulatory and other capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +Separation from Biohaven Pharmaceutical Holding Company Ltd. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution to holders of its common shares of all of our outstanding common shares and the spin-off of Biohaven from the Former Parent (the “Separation”). As a result of the Separation, Biohaven became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange on October 4, 2022. +In connection with the Separation, the Company entered into various agreements relating to transition services, licenses and certain other matters with the Former Parent. For additional information regarding these agreements, see Note 14, "Related Party Transactions." +Basis of Presentation +The financial statements for all periods presented have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of Biohaven Ltd. and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. +Going Concern +In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. +Through March 2, 2026, the Company has funded its operations primarily with funding from the Former Parent, including a cash contribution received at the Separation, proceeds from the sale of its common shares, and proceeds from the sale of senior secured notes under its Note Purchase Agreement (as defined in Note 2, "Summary of Significant Accounting Policies" and described in Note 6, "Notes Payable"). The Company has incurred recurring losses since its inception and expects to continue to generate operating losses for the foreseeable future. +As of the date of issuance of these consolidated financial statements, the Company expects its existing cash, cash equivalents and marketable securities will be sufficient to fund operating and financial commitments, and other cash requirements for at least one year after the issuance date of these financial statements. +F-9 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +1. Nature of the Business and Basis of Presentation (Continued) +To execute its business plans, the Company will require funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales or royalties, if ever, it expects to finance its operations through the sale of public or private equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. However, there can be no assurance that such funding will be available on acceptable terms, in a timely manner, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. +2. Summary of Significant Accounting Policies +Use of Estimates +The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, valuation of forward contract and derivative liability, and valuation of notes payable. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. +Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. The Company's cash equivalents are comprised of short-term money market funds and marketable securities that are highly liquid and readily convertible to known amounts of cash. +Restricted Cash +Restricted cash included in other current assets consists primarily of employee contributions to the Company's employee share purchase plan held for future purchases of the Company's outstanding shares. See Note 9, "Non-Cash Share-Based Compensation," for additional information on the Company's employee share purchase plan. +Restricted cash included in other non-current assets in the consolidated balance sheets primarily represents collateral held by banks for a letter of credit ("LOC") issued in connection with the leased office space in Yardley, Pennsylvania and LOCs issued in connection with the leased office and lab spaces in Cambridge, Massachusetts and Pittsburgh, Pennsylvania. See Note 12, "Commitments and Contingencies," for additional information on the real estate leases. +The following represents a reconciliation of cash and cash equivalents in the consolidated balance sheets to total cash, cash equivalents and restricted cash for the years ended December 31, 2025, 2024 and 2023, respectively, in the consolidated statements of cash flows: +December 31, +2025 2024 2023 +Cash and cash equivalents $ 229,957 $ 99,134 $ 248,402 +Restricted cash (included in other current assets) 527 275 1,318 +Restricted cash (included in other non-current assets) 2,295 3,133 2,400 +Total cash, cash equivalents and restricted cash at the end of the period in the consolidated statement of cash flows $ 232,779 $ 102,542 $ 252,120 +Marketable Securities +We invest our excess cash balances in marketable securities of highly rated financial institutions, which consist of investment-grade debt instruments. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as +F-10 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +available-for-sale and, accordingly, record such securities at fair value on the consolidated balance sheets. We classify these securities as current assets as these investments are intended to be available to the Company for use in funding current operations. +Unrealized gains and losses on our marketable debt securities that are deemed temporary are included in accumulated other comprehensive income as a separate component of shareholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we evaluate the extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to our consolidated statement of operations. Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating to other factors recorded in accumulated other comprehensive income. +Forward Contracts and Derivative Liabilities +The Company evaluates certain of its financial and business development transactions to determine the accounting classification of equity linked instruments issued in those transactions. The Company first assesses whether a freestanding equity linked instrument meets liability classification in accordance with ASC 480-10 Distinguishing Liabilities from Equity and ASC 815-40 Derivatives and Hedging - Contracts in Entity's Own Equity . Under ASC 480-10 an instrument is considered liability classified if the instrument is mandatorily redeemable, obligate the issuer to settle an instrument or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares. +If an instrument does not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require net cash settlement are liabilities recorded at fair value. If the instrument does not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the instrument is indexed to its common stock and whether the instrument is classified as equity under ASC 815-40 or other applicable GAAP. +Equity linked instruments that are accounted for in accordance with ASC 815-40 are reported as liabilities on the consolidated balance sheets at fair value. Any change in fair value, as determined at each measurement period, is recorded as a component of other income, net on the consolidated statements of operations. Changes in fair value are reported on the consolidated statements of cash flows as change in fair value of forward contract and derivative liabilities. +The Company accounted for certain consideration agreed to in connection with the amendment, dated as of May 1, 2024 (the "Knopp Amendment"), to the Membership Interest Purchase Agreement, dated as of February 24, 2022 (the "Purchase Agreement") entered into with Knopp Biosciences, LLC ("Knopp") as derivative liabilities under ASC 815 (see Notes 4, "Fair Value of Financial Assets and Liabilities" and 11, "License, Acquisitions and Other Agreements"). +Warrants +The Company evaluates warrants issued as either equity instruments, liabilities or derivative liabilities in accordance with ASC 480 and/or ASC 815, depending on the specific terms of the warrant agreement. +The Company assessed the warrants issued to Knopp in May 2024 (the "Knopp Warrants") and concluded that they met the criteria for equity classification under ASC 480 and ASC 815. Accordingly, the Knopp Warrants were recorded within additional paid-in capital on the consolidated balance sheet at the time of issuance and are not subject to remeasurement. See Note 7, "Shareholders' Equity," for further detail on the Knopp Warrants. +Acquisitions +Our consolidated financial statements include the operations of acquired businesses after the completion of the acquisitions. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired In-Process Research and Development ("IPR&D") be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration in a business acquisition is included as part of the consideration transferred and is recognized at fair value as of the acquisition date. Fair value of IPR&D and contingent consideration is generally estimated by using a probability-weighted discounted cash flow approach. +F-11 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +Property and Equipment, Net +Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the respective assets. As of December 31, 2025 and December 31, 2024, the Company's property and equipment consisted of building and land, office and lab equipment, computer hardware and software, furniture and fixtures, and leasehold improvements. +The fixed assets have the following useful lives: +Building 30 years +Office equipment +3 - 5 years +Computer hardware and software +3 - 5 years +Lab equipment 3 years +Furniture and fixtures 3 years +Leasehold improvements +Shorter of the useful life or remaining lease term +Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. Property and equipment are monitored regularly for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. +Intangible Assets +Acquired In-Process Research and Development +IPR&D that the Company acquires in conjunction with the acquisition of a business represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the asset is classified as a definite-lived intangible and the Company will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. +The Company reviews amounts capitalized as acquired IPR&D for impairment annually, as of November 30, and whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. If impairment indicators are present, the Company performs a quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value. If the fair value is less than the carrying amount, an impairment loss is recognized in operating results. +The Company did not record any impairment charges relating to its acquired IPR&D for the years ended December 31, 2025, 2024 or 2023. +If the Company acquires an asset or group of assets that do not meet the definition of a business under applicable accounting standards, the acquired IPR&D is expensed on its acquisition date, unless it has an alternative future use. Future costs to develop these assets are recorded to research and development expense as they are incurred. +In January 2021, in connection with the Company's acquisition of Kleo Pharmaceuticals, Inc. (“Kleo”), it recorded intangible assets consisting of IPR&D assets of $ 18,400 , which included an oncology therapeutic candidate entering Phase I clinical trials (BHV-1100) and a Multimodal Antibody Therapy Enhancer ("MATE") conjugation asset in the planning stage for clinical development, and goodwill of $ 1,390 . +Impairment of Definite-lived Assets +The Company reviews its definite-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the +F-12 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. +The Company did not record any impairment charges relating to its definite-lived assets for the years ended December 31, 2025, 2024 or 2023. +Fair Value Measurements +Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• Level 1— Quoted prices in active markets for identical assets or liabilities. +• Level 2— Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. +• Level 3— Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. +The carrying values of other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. +The Company has accounted for certain consideration agreed to in connection with the Knopp Amendment as forward contract liabilities, which are recorded on the consolidated balance sheets at fair value. Any changes in fair value, as determined each measurement period, are recorded as a component of other income, net on the consolidated statements of operations. The fair value of the forward contract liabilities is determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The valuations are based on a Monte Carlo simulation of the Company's share price, which requires judgment and assumption on the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven specific credit risk since payable in a variable number of shares. (see Notes 4, "Fair Value of Financial Assets and Liabilities" and 11, "License, Acquisitions and Other Agreements"). +The Company has also elected to account for its NPA (as defined below) using the fair value option. See discussion below, "Valuation of Note Purchase Agreement," as well as Note 6, "Notes Payable," and Note 4, "Fair Value of Financial Assets and Liabilities" for further detail on the NPA. +Leases +The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. If the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based on market sources including interest rates for companies with similar credit quality for agreements of similar duration, determined by class of underlying asset, to discount the lease payments. The right-of-use assets also include lease payments made before commencement and exclude lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these short-term leases are expensed as incurred over the term of the lease. +Certain real estate leases require additional payments including reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other real estate leases contain one +F-13 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. +For its real estate leases, which are accounted for as operating leases, the Company has elected the practical expedient to include both the lease and non-lease components as a single component. In addition, payments made by the Company for improvements to the underlying asset, if the payment relates to an asset of the lessor, are recorded as prepaid rent within other non-current assets in the consolidated balance sheets prior to lease commencement and on commencement, reclassified to the right-of-use asset. As of December 31, 2025, the Company had restricted cash of $ 2,295 included in other non-current assets in the consolidated financial statements, which represents collateral held by banks for letters of credit issued in connection with the leased office space in Yardley, Pennsylvania and leased office and lab spaces in Cambridge, Massachusetts and Pittsburgh, Pennsylvania. Restricted cash is generally invested in time deposits and short-term money market funds. See Note 12, "Commitments and Contingencies," for additional information on real estate leases. +Valuation of Note Purchase Agreement +On April 28, 2025 the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement” or "NPA") with Beetlejuice SA LLC, an affiliate of Oberland Capital Management LLC ("Oberland"), certain subsidiaries of the Company, as obligors and the purchasers party thereto (the "Purchasers"), as described in further detail in Note 6, "Notes Payable." In addition to secured notes in the principal amount of $ 250,000 , which were issued in April 2025, Oberland has agreed to purchase, at the option of the Company and subject to the satisfaction of certain conditions, including the receipt of approval from the U.S. Food and Drug Administration (the “FDA”) for troriluzole, a second tranche of secured notes in up to three purchases on or before June 30, 2026 for an aggregate purchase price of $ 150,000 . The Company may also sell, at its option and subject to the approval of each Purchaser agreeing to participate therein, in its sole discretion, additional secured notes in up to four purchases for an aggregate purchase price of $ 200,000 , the proceeds of which may be used solely to fund permitted acquisitions and related costs and expenses. Under the NPA, the Company will be obligated to make Revenue Payments (as defined in Note 6) based on a percentage of global net sales of troriluzole and make a Milestone Payment (as defined in Note 6), equal to 35 % of the total funded amount, upon regulatory approval of any drug candidate. +The Company assessed the terms and features of the NPA and determined that the Company is eligible to elect the fair value option under ASC 825, "Financial Instruments." The NPA contains various embedded features and the election of the fair value option allows the Company to bypass analysis of potential embedded derivatives and further analysis of bifurcation of any recognized financial liabilities. +Under the fair value option, the financial liability, which is recorded as Notes Payable on the consolidated balance sheet, is initially measured at its fair value on the issuance date and subsequently remeasured at estimated fair value on a recurring basis at each reporting date. Subsequent changes in fair value, excluding the impact of the change in fair value attributable to instrument-specific credit risk, are separately presented as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. The portion of the fair value adjustment attributed to a change in the instrument-specific credit risk is recognized and separately presented as a component of other comprehensive income (loss). The portion of total changes in fair value attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income (loss) in the accompanying consolidated statements of operations and comprehensive loss. +As the Company elected to account for the NPA under the fair value option, debt issuance costs, which were not material, were immediately expensed within general and administrative expense in the consolidated statements of operations and comprehensive loss. Additionally, the Company has elected not to present interest expense separately from changes in fair value and therefore will not separately present interest expense associated with the NPA. +The fair value of the NPA represents the present value of estimated future payme nts under the NPA. The fair value of the NPA is calculated using a scenario-based discounted cash flow model. The fair value measurement is based o n significant Level 3 unobservable inputs such as management's assumptions on the probability and timing of regulatory approvals for troriluzole and other product candidates, probability and timing of an early redemption of all obligations under the NPA, and discount rate using a risk-free rate plus Biohaven-specific senior secured credit risk . +F-14 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +Research and Development Costs +Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, non-cash share-based compensation and benefits, third-party license fees, rent and operating expenses for leased lab facilities, and external costs of vendors engaged to conduct clinical development activities and clinical trials as well as to manufacture clinical trial materials. Prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. +The Company has entered into various research and development-related contracts. These agreements are cancellable, and related expenses are recorded as research and development expenses are incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Certain judgments and estimates are made in determining the accrued balances at the end of any reporting period. +Foreign Currency +The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for shareholders’ equity and weighted average exchange rates for operating results. The resulting translation gains and losses are included in accumulated other comprehensive (loss) income, net of tax, in shareholders’ equity. +For U.S. dollar functional currency subsidiaries, foreign currency assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates, except for nonmonetary balance sheet accounts which are remeasured at historical exchange rates. Revenues and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the nonmonetary balance sheet amounts which are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in other income (expense), net in the consolidated statement of operations. +The Company's aggregate foreign currency transaction gains and losses and effects of foreign currency remeasurements were immaterial for the years ended December 31, 2025, 2024 and 2023. +Non-Cash Share-Based Compensation +The Company measures share options and restricted share unit awards granted to employees, non-employees, and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. Generally, the Company issues share options and restricted share units with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company also issues share options with performance-based vesting conditions and records expense for these awards when the Company concludes that it is probable that the performance condition will be achieved. +The Company classifies non-cash share-based compensation expense in its consolidated statement of operations in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified. +The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option-pricing model. In prior fiscal years, the Company lacked a sufficient history of company-specific historical and implied volatility information for its shares. Therefore, it estimated its expected share price volatility based on the historical volatility of publicly traded peer companies. Beginning on January 1, 2025, the Company determined that it had sufficient trading activity to use company-specific trading data within the assumption of expected share price volatility, and expected volatility was estimated using a blend of the Company's historical price volatility and the historical price volatility of publicly traded peer companies. The Company expects to continue to apply this approach until such time that it has sufficient historical data regarding the volatility of its own traded share price that is consistent with the expected term of the option grants. The expected term of all of the Company's share options has been determined utilizing the "simplified" method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is +F-15 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future. +Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company's tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. +The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The provision for income taxes includes the effects of applicable tax reserves, or unrecognized tax benefits, as well as the related net interest and penalties. +Net Loss per Share +Basic net loss per common share is calculated by dividing net loss by the weighted-average shares outstanding during the period. For purposes of the diluted net loss per share calculation, common share options are considered to be common share equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented. +Concentrations of Credit Risk +Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash, cash equivalents, and short-term debt securities. The Company maintains a portion of its cash deposits in government insured institutions in excess of government insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts. The Company's cash management policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, supranational and sovereign obligations, certain qualifying money market mutual funds, certain repurchase agreements, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash in excess of government insured limits and in the event of default by corporations and governments in which it holds investments in cash equivalents and short-term debt securities, to the extent recorded on the consolidated balance sheets. +Segment Information +The Company manages its operations as a single segment, focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology for the purposes of assessing performance and making operating decisions. Consistent with our operational structure, the Company’s Chief Operating Decision Maker ("CODM") manages and allocates resources at a consolidated level. See Note 15, "Segment Information" for further detail. +Recently Adopted Accounting Pronouncements +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The Company has adopted ASU 2023-09 for the fiscal year ending December 31, 2025 and applied a retroactive approach for the prior year disclosures. The primary impact of the Company's adoption of ASU 2023-09 was expansion the Company's effective +F-16 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +2. Summary of Significant Accounting Policies (Continued) +income tax rate reconciliation table as well as the addition of a tabular disclosure to provide income taxes paid, net of refunds received, by jurisdiction. See Note 13, " Income Taxes." +Recently Issued Accounting Pronouncements +In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure, in the notes to the financial statements, of specified information about certain costs and expenses. This ASU is effective for public entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact ASU 2024-03 will have on its consolidated financial statements. +3. Marketable Securities +The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of debt securities available-for-sale by type of security at December 31, 2025 and December 31, 2024 is as follows: +Amortized Cost Allowance for Credit Losses Net Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value +December 31, 2025 +Debt securities +U.S. treasury bills $ 114,109 $ — $ 114,109 $ 61 $ — $ 114,170 +Total $ 114,109 $ — $ 114,109 $ 61 $ — $ 114,170 +December 31, 2024 +Debt securities +U.S. treasury bills 312,262 — 312,262 82 ( 47 ) 312,297 +U.S. treasury bonds +74,526 — 74,526 34 — 74,560 +Total $ 386,788 $ — $ 386,788 $ 116 $ ( 47 ) $ 386,857 +The fair values of debt securities available-for-sale by classification in the consolidated balance sheets were as follows: +December 31, 2025 December 31, 2024 +Cash and cash equivalents $ 24,990 $ — +Marketable securities 89,180 386,857 +Total $ 114,170 $ 386,857 +The net amortized cost and fair value of debt securities available-for-sale at December 31, 2025 and December 31, 2024 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity. +December 31, 2025 December 30, 2024 +Net Amortized Cost Fair Value Net Amortized Cost Fair Value +Due to mature: +Less than one year $ 114,109 $ 114,170 $ 386,788 $ 386,857 +F-17 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +3. Marketable Securities (Continued) +The Company did not have any investments that were in an unrealized loss position as of December 31, 2025 Summarized below are the debt securities available-for-sale the Company held at December 31, 2024 that were in an unrealized loss position, aggregated by the length of time the investments have been in that position: +Less than 12 months +Number of Securities Fair Value Unrealized Losses +December 31, 2024 +Debt securities +U.S. treasury bills 4 58,988 ( 47 ) +The Company did no t have any investments in a continuous unrealized loss position for more than twelve months as of December 31, 2025 or December 31, 2024. +The Company reviewed the securities in the table above and concluded that they are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the credit quality of the investment security based on research performed by external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. As of December 31, 2025, the Company did not intend to sell these securities and did not believe it was more likely than not that it would be required to sell these securities prior to the anticipated recovery of their amortized cost basis. +Net Investment Income +Gross investment income includes interest income from debt securities available-for-sale, money-market funds, cash, and restricted cash. Net investment income included in other income, net in the consolidated statements of operations for the years ended December 31, 2025, December 31, 2024, and December 31, 2023 were as follows: +2025 2024 2023 +Debt securities (including realized losses) +$ 9,638 $ 14,477 $ 10,490 +Other investments +5,082 7,034 7,432 +Gross investment income (including realized losses) +14,720 21,511 17,922 +Investment expenses ( 135 ) ( 177 ) ( 236 ) +Net investment income $ 14,585 $ 21,334 $ 17,686 +We utilize the specific identification method in computing realized gains and losses on sales of debt securities. The Company had no sales of debt securities available-for-sale during the years ended December 31, 2025 or 2024. Proceeds from the sale of debt securities available-for-sale and the related gross realized losses for the year ended 2023 were $ 4,920 and $ 39 , respectively. +4. Fair Value of Financial Assets and Liabilities +The preparation of the Company’s consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. In this note, the Company provides details on the fair value of financial assets and liabilities and how it determines those fair values. +Financial Instruments Measured at Fair Value on the Consolidated Balance Sheets +Certain of the Company’s financial instruments are measured at fair value on the consolidated balance sheets on a recurring basis. The fair values of these instruments are based on valuations that include inputs that can be classified within one of three levels of a hierarchy established by GAAP. See Fair Value Measurements in Note 2, "Summary of Significant Accounting Policies," for a brief description of the type of valuation information (“valuation inputs”) that qualifies a financial asset or liability for each level. +F-18 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +4. Fair Value of Financial Assets and Liabilities (Continued) +Financial assets and liabilities measured at fair value on a recurring basis on the consolidated balance sheets at December 31, 2025 and December 31, 2024 were as follows: +Fair Value Measurement Using: +Balance Sheet Classification Type of Instrument Level 1 Level 2 Level 3 Total +December 31, 2025 +Assets: +Cash and cash equivalents +Money market funds $ 195,265 $ — $ — $ 195,265 +Cash and cash equivalents +U.S. treasury bills — 24,990 — 24,990 +Marketable securities U.S. treasury bills — 89,180 — 89,180 +Other current assets +Money market funds +250 — — 250 +Other non-current assets +Money market funds +3,017 — — 3,017 +Total assets $ 198,532 $ 114,170 $ — $ 312,702 +Liabilities: +Notes payable +Notes payable, non-current $ — $ — $ 238,900 $ 238,900 +Total liabilities +$ — $ — $ 238,900 $ 238,900 +December 31, 2024 +Assets: +Cash and cash equivalents +Money market funds $ 38,967 $ — $ — $ 38,967 +Marketable securities U.S. treasury bills 29,707 282,590 — 312,297 +Marketable securities +U.S. treasury bonds +— 74,560 — 74,560 +Other non-current assets Money market funds 3,133 — — 3,133 +Total assets $ 71,807 $ 357,150 $ — $ 428,957 +Liabilities: +Forward contract liability, current +$ — $ — $ 71,500 $ 71,500 +Derivative liability, current +— — 13,210 13,210 +Total liabilities $ — $ — $ 84,710 $ 84,710 +There were no securities transferred between Level 1, 2, and 3 during the years ended December 31, 2025 or December 31, 2024. +The following is a description, including valuation methodology, of the financial assets and liabilities measured at fair value on a recurring basis: +Cash and Cash Equivalents, Other Current Assets, and Other Non-Current Assets +Financial assets measured at fair value on a recurring basis classified within cash and cash equivalents, other current assets, and other non-current assets at December 31, 2025 and 2024 consisted of cash invested in U.S. treasury bills with original maturities of three months or less at time of purchase and short-term money market funds that are readily convertible to known amounts of cash and redeemable daily at the election of the Company. The carrying value for these financial assets approximates fair value due to the near term maturities of the U.S. treasury bills and money market fund's underlying security holdings resulting in an insignificant change in value because of changes in interest rates. When quoted prices are available in an active market, these assets are classified in Level 1 of the fair value hierarchy and consisted of short-term money market funds. +F-19 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +4. Fair Value of Financial Assets and Liabilities (Continued) +Marketable Securities +At December 31, 2025 and 2024, the fair value of the Company's Level 2 debt securities are obtained from quoted market prices of debt securities with similar characteristics, quoted prices from identical assets in inactive markets, or discounted cash flows to estimate fair value. The Company's Level 2 marketable securities consisted of off-the-run U.S. treasury bills and treasury bonds. +Forward Contract and Derivative Liability +In connection with the amendment, dated as of May 1, 2024 (the "Knopp Amendment"), to the Membership Interest Purchase Agreement, dated as of February 24, 2022 (as amended, the "Knopp Agreement"), entered into with Knopp Biosciences, LLC ("Knopp"), Knopp requested the one-time cash true-up payment from the Company in December 2025, as defined in the Knopp Agreement (the "2025 Additional Consideration True-Up"). See Note 11, "License, Acquisitions and Other Agreements," for further details. +The following table provides a roll forward of the fair value of the Company's forward contract and derivative liability related to the 2025 Additional Consideration (as defined in Note 11) and the 2025 Additional Consideration True-Up, respectively, for which fair value is determined by Level 3 inputs from December 31, 2024 to December 31, 2025: +Carrying Value +Fair value at December 31, 2024 +$ 84,710 +Loss on change in fair value of forward contract and derivative liability in other income, net +3,610 +Fair value at March, 31 2025 +88,320 +Gain on change in fair value of forward contract and derivative liability in other income, net +( 10,924 ) +Settlement of 2025 Additional Consideration at fair value ( 51,426 ) +Fair value at June 30, 2025 +25,970 +Gain on change in fair value of derivative liability in other income, net +( 3,960 ) +Fair value at September 30, 2025 +22,010 +Loss on change in fair value of derivative liability in other income, net +$ 20,700 +Settlement of 2025 Additional Consideration True-up at fair value to other current liabilities +( 42,710 ) +Fair value at December 31, 2025 +$ — +The fair value of the 2025 Additional Consideration and 2025 Additional Consideration True-up recognized in connection with the Knopp Amendment was determined based on significant inputs not observable in the market, and therefore represented a Level 3 measurement within the fair value hierarchy. The valuation was based on a Monte Carlo simulation of Biohaven's share price, which required judgment and assumptions regarding the volatility of Biohaven's share price, discounted to present value using a risk-free rate plus Biohaven-specific subordinate unsecured credit risk since potentially payable in cash. Both the 2025 Additional Consideration and 2025 Additional Consideration True-up were settled during 2025. +Note Purchase Agreement +On April 28, 2025, the Company entered into an NPA as described in further detail in Note 6, "Notes Payable." The Company elected to account for the NPA under the fair value option as permitted by ASC 825, "Financial Instruments." +The Company determined the fair value of the First Notes (as defined in Note 6) on April 28, 2025 was $ 255,880 . The difference between the fair value at execution and the principal of $ 250,000 was due to a purchased loan commitment for the Second Notes (as defined in Note 6). The purchased loan commitment resulted in a $ 5,880 offsetting asset recorded at its fair value within other current assets on the consolidated balance sheet. At December 31, 2025, the asset related to the purchased loan commitment was determined to be impaired and the Company recorded a $ 5,880 expense to other +F-20 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +4. Fair Value of Financial Assets and Liabilities (Continued) +income, net on the consolidated statement of operations. The following table provides a roll forward of the fair value of the First Notes for which fair value is determined by Level 3 inputs from April 28, 2025 to December 31, 2025: +Carrying Value +Fair value at April 28, 2025 +$ 255,880 +Loss on change in fair value reported in other income, net +1,190 +Fair value at June 30, 2025 +$ 257,070 +Loss on change in fair value reported in other income, net +11,200 +Fair value at September 30,2025 +$ 268,270 +Gain on change in fair value reported in other income, net +( 21,090 ) +Gain on change in fair value reported in other comprehensive income +( 8,280 ) +Fair value at December 31,2025 +$ 238,900 +The fair value of the First Notes represents the present value of estimated future payments under the NPA for the First Notes. The fair value of the First Notes is calculated using a scenario-based discounted cash flow model. The fair value measurement is based on significant Level 3 unobservable inputs such as management's assumptions on the probability and timing of regulatory approvals for troriluzole and other product candidates, probability and timing of an early redemption of all obligations under the NPA for the First Notes, and discount rate using a risk-free rate plus Biohaven-specific senior secured credit risk. +Actual probability and timing of regulatory approvals, future revenue for troriluzole, probability and timing of an early redemption event at the reporting date, and Biohaven-specific senior secured credit risk could be materially different than our assumptions, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined. An increase in the liability related to the First Notes between the reporting date and settlement date of the liability would have a material adverse effect on the Company's financial performance. +At December 31, 2025, the difference between the aggregate fair value and the aggregate unpaid principal balance of the First Notes was a discount of $ 11,100 . +5. Balance Sheet Components +Property and Equipment, Net +Property and equipment, net consisted of the following: +As of December 31, 2025 As of December 31, 2024 +Building and land $ 14,078 $ 14,078 +Leasehold improvements +2,697 824 +Computer hardware and software 854 875 +Office and lab equipment 12,437 11,620 +Furniture and fixtures 2,024 1,811 +$ 32,090 $ 29,208 +Accumulated depreciation ( 16,126 ) ( 12,206 ) +15,964 17,002 +Equipment not yet in service — 318 +Property and equipment, net $ 15,964 $ 17,320 +Depreciation expense was $ 4,140 , $ 3,923 and $ 3,369 for the years ended December 31, 2025, 2024 and 2023, respectively. +Equipment not yet in service primarily consisted of lab equipment that had not been placed into service as of December 31, 2025 or 2024. +F-21 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +Other Non-current Assets +Other non-current assets consisted of the following: +As of December 31, 2025 As of December 31, 2024 +Operating lease right-of-use assets $ 45,058 $ 36,391 +Other 2,306 3,134 +Other non-current assets $ 47,364 $ 39,525 +Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +As of December 31, 2025 As of December 31, 2024 +Accrued employee compensation and benefits $ 16,781 $ 154 +Accrued clinical trial costs 30,437 38,432 +Operating lease liability - current portion +5,756 3,802 +2025 Additional Consideration True-Up liability +42,710 — +Other accrued expenses and other current liabilities 8,607 9,099 +Accrued expenses and other current liabilities +$ 104,291 $ 51,487 +6. Notes Payable +Note Purchase Agreement +On April 28, 2025 (the “Closing Date”), the Company and certain of its subsidiaries entered into the Note Purchase Agreement, by and among Biohaven Therapeutics Ltd., as issuer (the “Issuer”), the Company and certain subsidiaries of the Company, as obligors (together with the Issuer, the “Obligors”), the Purchasers and Beetlejuice SA LLC, an affiliate of Oberland, as purchaser agent (the “Purchaser Agent”). Pursuant to the Note Purchase Agreement, the Purchasers agreed to purchase senior secured notes from the Issuer (i) in an initial tranche shortly after the Closing Date for an aggregate purchase price of $ 250,000 (the “First Notes”) and (ii) at the Company's option and subject to the satisfaction of certain conditions, including the receipt of approval from the FDA for troriluzole, in a second tranche in up to three purchases on or before June 30, 2026 for an aggregate purchase price of $ 150,000 (the “Second Notes”). The proceeds from the sale of the First Notes and the Second Notes may be used for working capital and permitted business purposes. The Issuer may also sell to the Purchasers, at the Issuer’s option and subject to the approval of each Purchaser agreeing to participate therein, in its sole discretion, additional notes in up to four purchases for an aggregate purchase price of $ 200,000 (the “Third Notes” and, together with the First Notes and the Second Notes, the “Notes”), the proceeds of which may be used solely to fund permitted acquisitions and related costs and expenses. The Company received approximately $ 250,000 in proceeds from the sale of the First Notes in April 2025. +The Purchasers will be entitled to receive payments (the “Revenue Payments”) equal to, initially, 6.25 % of the global net sales of troriluzole (“Net Sales”), which will increase pro rata upon the purchase of any of the Second Notes. If the aggregate amount of Revenue Payments (if troriluzole has received FDA approval) and any Milestone Payment made by the Issuer to the Purchasers pursuant to the Note Purchase Agreement as of December 31, 2030 (the “Test Date”) equals or exceeds the amount of the aggregate purchase price for the Notes paid by the Purchasers (the “Total Funded Amount”) to the Issuer pursuant to the Note Purchase Agreement (the “Test Date Condition”), the then-applicable percentage of Net Sales payable as Revenue Payments will automatically decrease by 60 % for all subsequent years. If the Test Date Condition is not satisfied by the Test Date, the then-applicable percentage of Net Sales payable as Revenue Payments will automatically increase for all subsequent years to the lesser of (i) a rate that would have provided the Purchasers with 100 % of the Total Funded Amount as of the Test Date had such rate applied from the Closing Date through and including the Test Date and (ii) 80 %. The Revenue Payments will become payable to the Purchasers on a quarterly basis after the Closing Date. +F-22 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +The Issuer will also be obligated to pay to the Purchasers a milestone payment (the “Milestone Payment”) equal to 35 % of the Funded Amount upon the approval by the FDA or European Medicines Agency (“EMA”) of troriluzole or other Company products. The Milestone Payment will be payable in equal quarterly installments starting in the quarter after the approval is received or, if the Milestone Payment is earned after the Test Date, in one single payment on the 10 th Business Day after the date the approval is received. +In addition to the Revenue Payments and the Milestone Payment discussed above, if the Test Date Condition is not satisfied, then the Company will be obligated to make a one-time payment to the Purchasers equal to 100 % of the Total Funded Amount as of the Test Date less the aggregate Revenue Payments and Milestone Payments made to the Purchasers as of the Test Date (the “True-Up Payment”). If troriluzole has not received FDA approval for the treatment of obsessive compulsive disorder or spinocerebellar ataxia as of the Test Date, any Milestone Payments shall be excluded in calculating the True-Up Payment. +The Purchasers’ right to receive the Revenue Payments shall terminate on the date on which the Purchasers have received Revenue Payments and Milestone Payments (the “Total Payments”), together with any True-Up Payment paid by the Issuer to the Purchasers, in an aggregate amount equal to the then-applicable Cap Amount, unless the Note Purchase Agreement is terminated prior to such date. The “Cap Amount” means an amount equal to the Total Funded Amount multiplied by (x) on or prior to the earlier of the Test Date and the date the Test Date Condition is satisfied, 1.65 with respect to the Second Notes and 1.95 with respect to the First Notes and any Third Notes, and (y) after the earlier of the Test Date and the date the Test Date Condition is satisfied, (a) with respect to the First Notes and Third Notes, (i) if the Test Date Condition is satisfied, 1.60 , (ii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are equal to or greater than 90 % of the Total Funded Amount, 1.80 , (iii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 90 % but equal to or greater than 50 % of the Total Funded Amount, 1.95 , (iv) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 50 % of the Total Funded Amount, 2.10 if on or prior to the 8 th anniversary of the Closing Date and 2.25 if after the 8 th anniversary of the Closing Date, and (b) with respect to the Second Notes, (i) if the Test Date Condition is satisfied, 1.40 , (ii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are equal to or greater than 50 % of the Funded Amount, 1.65 , and (iii) if the Test Date Condition is not satisfied and the Total Payments as of the Test Date are less than 50 % of the Funded Amount, 1.75 . +If the Purchasers have not received Total Payments equal to the then-applicable Cap Amount as of the 10 th anniversary of the Closing Date (or, if no products of the Company have been approved by the FDA or EMA on or before the Test Date, the 8 th anniversary of the Closing Date), the Issuer will be obligated to pay to the Purchasers an amount equal to the Cap Amount less the Total Payments made as of such date. +Under the Note Purchase Agreement, the Issuer has an option (the “Call Option”) to terminate the Note Purchase Agreement and repurchase the Notes in full at any time upon advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the Note Purchase Agreement and to require the Company to repurchase the Notes in full upon certain enumerated events, including, but not limited to, payment defaults, covenant defaults, material breaches of representations and warranties, cross defaults to material debt, bankruptcy and insolvency defaults, material judgment defaults, key man event or a change of control. The required purchase price with respect to the Call Option and the Put Option, as applicable, shall be (a) with respect to the portion of the Total Funded Amount relating to the First Notes and the Third Notes, (i) 120 % of such amount if Purchasers exercise the Put Option (other than in connection with a change of control or in connection with a sale of all or substantially all assets relating to troriluzole under certain conditions) on or prior to the first anniversary of the Closing Date, (ii) 135 % of such amount if the First Notes and Third Notes are repurchased voluntarily or in connection with a change of control on or prior to the date that is 18 months after the Closing Date or in connection with a definitive agreement for the sale of all or substantially all assets relating to troriluzole by August 31, 2025 and the repurchase of the Notes by September 30, 2025 and provided that, in either case, no Default or Event of Default is continuing at such time, (iii) 150 % of such amount if the First Notes and Third Notes are repurchased on or prior to the date that is 18 months after the Closing Date and the prior clauses (i) and (ii) do not apply, (iv) 175 % of such amount if the First Notes and Third Notes are repurchased from and after the date that is 18 months after the Closing Date and prior to the third anniversary of the Closing Date and (v) 195 % of such amount if the First Notes and Third Notes are repurchased after the third anniversary of the Closing Date, provided that if the Total Payments as of the Test Date are less than 50 % of the Total Funded Amount, the required purchase price shall be 210 % of such amount if such purchase price is paid on or prior to the 8 th anniversary of the Closing Date, and 225 % of such amount if such purchase price is paid after the 8 th anniversary of the Closing Date, and (b) with respect to the portion of the Total Funded Amount relating to the Second Notes, (i) 120 % of such amount if the Second Notes are repurchased on or prior to the first anniversary of the first purchase date for such Second Notes, (ii) 135 % of such amount if the Second Notes are +F-23 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +repurchased after the first anniversary but on or prior to the second anniversary of the first purchase date for such Second Notes and (iii) 175 % of such amount if the Second Notes are repurchased after the second anniversary of the first purchase date for such Second Notes, except in the event that the Total Payments as of the Test Date are equal to or greater than 50 % of the Total Funded Amount, in which case the required purchase price shall be 165 % of such amount, minus in each case in the preceding clauses (a) and (b), the aggregate Total Payments and any True-Up Payment made to the Purchasers prior to such date. +The Issuer’s obligations under the Note Purchase Agreement are guaranteed by the Company and certain of its subsidiaries (the “Guarantors”). To secure the Issuer’s obligations under the Note Purchase Agreement and the Guarantors’ obligations under the guarantees, the Obligors have granted the Purchaser Agent, for the benefit of the Purchasers, a security interest in the Obligors’ cash and equity interests and in specific assets related to troriluzole. +The Note Purchase Agreement contains affirmative and negative covenants, including covenants that limit or restrict the Obligors’ and their subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions, repurchase stock and enter into restrictive agreements, in each case subject to certain exceptions set forth in the Note Purchase Agreement. +In the event that by the reporting deadline of March 2, 2026, the Company's audited financial statements for the year ended December 31, 2025 or any year thereafter for the term of the agreement, are subject to any qualification, emphasis of matter or statement as to “going concern” or scope of audit, subject to certain exceptions, the Company would be in breach of its financial statement delivery covenant under the Note Purchase Agreement. In such event, if such requirement was not amended or waived by the Purchasers, the Purchasers could have the right to exercise their remedies under the Note Purchase Agreement, which could include, but not be limited to, declaring an event of default and accelerating payment of outstanding amounts thereunder (which amounted to $ 250,000 as of December 31, 2025), plus a required premium as noted above. +The Company elected to account for the Note Purchase Agreement using the fair value option as permitted by ASC 825. See Note 2, "Summary of Significant Accounting Policies" and Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +7. Shareholders' Equity +2025 Public Offering +On November 13, 2025, the Company closed an underwritten public offering of 26,833,334 of our common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price to the public of $ 7.50 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by Biohaven, were approximately $ 188,725 . The Company intends to use the net proceeds received from the offering for general corporate purposes. +FGFR3 Agreement +In December 2024, the Company, GeneQuantum Healthcare (Suzhou) Co. Ltd. ("GeneQuantum") and Aimed Bio, Inc. ("Aimed Bio") entered into a development and license agreement (the "FGFR3 Agreement") pursuant to which Biohaven obtained the exclusive rights to develop and commercialize GeneQuantum's and Aimed Bio's joint research fibroblast growth factor receptor 3 ("FGFR3") ADC program. As consideration under the FGFR3 Agreement, the Company paid an upfront payment of 222,119 common shares valued at approximately $ 8,554 as of the effective date, which was recognized as R&D expense in the fourth quarter of 2024 and the obligation to issue common shares was recorded to additional paid-in capital on the consolidated balance sheet. The shares were issued in January 2025. +Knopp Amendment +In May 2024, the Company entered into the Knopp Amendment under which the parties thereto agreed to revise the success-based payment and royalty payment obligations under the Knopp Agreement. As partial consideration, the Company issued 1,872,874 of the Company's common shares to Knopp, valued at approximately $ 65,981 . As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, the Company issued to Knopp a warrant to purchase 294,195 of the Company's common shares with a purchase price of $ 67.98 , subject to certain specified development milestones and the Company achieving a specified market capitalization, valued at approximately $ 3,340 . In June 2025, as remaining share consideration, the Company issued 3,588,688 Company +F-24 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +7. Shareholders' Equity (Continued) +common shares to Knopp, valued at approximately $ 51,426 . In December 2025, Knopp elected to surrender the 294,195 warrants to the Company for cancellation. Refer to Note 10, "License, Acquisitions and Other Agreements" for further detail on the Knopp Amendment. +Merus Agreement +In January 2025, the Company entered into a research, co-development and collaboration agreement (the "Merus Agreement") with Merus N.V. ("Merus") to co-develop three novel dual-targeting antibody drug conjugates ("ADCs"), leveraging Merus' Biclonics® technology platform, and Biohaven's next-generation ADC conjugation and payload platform technologies. As consideration under the Merus Agreement, the Company paid an upfront payment of 132,700 common shared valued at approximately $ 4,844 as of the effective date, which were issued in February 2025. The upfront payment was recognized as R&D expense in the first quarter of 2025. +2024 Public Offerings +On April 22, 2024, the Company closed an underwritten public offering of 6,451,220 of its common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price to the public of $ 41.00 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by Biohaven, were approximately $ 247,830 . +On October 2, 2024, the Company closed an underwritten public offering of 6,052,631 of its common shares, which included the exercise in full of the underwriters' option to purchase additional shares, at a price to the public of $ 47.50 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by Biohaven, were approximately $ 269,935 . +Pyramid Acquisition +In January 2024, the Company acquired Pyramid Biosciences Inc. ("Pyramid") pursuant to an Agreement and Plan of Merger, dated January 7, 2024 (the "Pyramid Agreement"). In consideration for the Pyramid acquisition, Biohaven made an upfront payment of 255,794 Company common shares, valued at approximately $ 10,894 . As of December 31, 2025, 253,838 of these common shares have been issued by the Company, and the Company no longer has an obligation to issue the remaining shares, in accordance with the Pyramid Agreement. +During the first quarter of 2024, the Company recorded $ 5,689 of research and development ("R&D") expense in the consolidated statement of operations for a developmental milestone which became due under the Pyramid Agreement, to be paid in 98,129 Company common shares. As of December 31, 2025, 97,387 of these common shares have been issued by the Company, and the Company no longer has an obligation to issue the remaining shares, in accordance with the Pyramid Agreement. Refer to Note 10, "License, Acquisitions and Other Agreements" for further discussion of the Pyramid acquisition. +Equity Distribution Agreement +In October 2023, the Company entered into an equity distribution agreement (the "Equity Distribution Agreement") contemplating the offer and sale of common shares having an aggregate offering price of up to $ 150,000 from time to time through or to the sales agent, acting as its agent or principal. The sales agent is not required to sell any specific amount of securities but will act as the Company's sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company. +In August 2024, the Company entered into an amendment to the Equity Distribution Agreement contemplating the offer and sale of common shares having an aggregate offering price of up to $ 450,000 from time to time through or to the sales agent, acting as its agent or principal. Sales of the Company's common shares, if any, will be made in sales deemed to be "at-the-market offerings." The net proceeds from any at-the-market offerings of the Company common shares are to be used for general corporate purposes. +As of December 31, 2025, the Company has sold and issued 4,248,588 common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $ 146,250 , all during 2024. As of December 31, 2025, additional common shares having an aggregate offering price of up to $ 300,000 remained available to be issued. +Subsequent to December 31, 2025, the Company issued and sold an additional 17,164,940 common shares for net proceeds of $ 178,884 . As of March 2, 2026, the date of this report, the Company issued and sold a total of 21,413,528 +F-25 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +7. Shareholders' Equity (Continued) +common shares under the Equity Distribution Agreement, as amended, for total net proceeds of approximately $ 325,134 . As of March 2, 2026, additional common shares having an aggregate offering price of up to $ 118,694 remain available to be issued. +Highlightll Agreement +In March 2023, the Company and Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") entered into an exclusive, worldwide (excluding People's Republic of China and its territories and possessions) license agreement (the "Highlightll Agreement") pursuant to which Biohaven obtained the right to research, develop, manufacture and commercialize Highlightll's brain penetrant dual TYK2/JAK1 inhibitor program. In connection with the Highlightll Agreement, in December 2023, the Company issued 721,136 common shares valued at $ 21,814 . See Note 11, "License, Acquisitions and Other Agreements," for further detail on the Highlightll Agreement. +2023 Public Offerings +In October 2023, the Compan y completed an underwritten public offering of 11,761,363 of its common shares, including the exercise in full of the underwriters' option to purchase additional common shares, at a price to the public of $ 22.00 per share, pursuant to a registration statement on Form S-3 filed with the SEC. The net proceeds raised in the offering, after deducting underwriting discounts and expenses of the offering payable by the Company, were approximately $ 242,425 . +F-26 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +8. Accumulated Other Comprehensive Income (Loss) +Shareholders’ equity included the following activity in accumulated other comprehensive income (loss) for the years ended December 31, 2025 and 2024: +Year Ended December 31, +2025 2024 2023 +Net unrealized investment gains (losses): +Beginning of period balance $ 69 $ 3 $ ( 145 ) +Other comprehensive (loss) income 1) +( 9 ) 66 109 +Amounts reclassified from accumulated other comprehensive income (2) +— — 39 +Other comprehensive (loss) income +( 9 ) 66 148 +End of period balance 60 69 3 +Foreign currency translation adjustments: +Beginning of period balance 10 ( 68 ) 429 +Other comprehensive (loss) income (1) +( 2 ) 78 ( 497 ) +End of period balance 8 10 ( 68 ) +Instrument-specific credit risk of liabilities measured at fair value: +Beginning of period balance +— — — +Other comprehensive income (1) +8,280 — — +End of period balance +8,280 — — +Total beginning of period accumulated other comprehensive income (loss) +79 ( 65 ) 284 +Total other comprehensive income (loss) +8,269 144 ( 349 ) +Total end of period accumulated other comprehensive income (loss) +$ 8,348 $ 79 $ ( 65 ) +(1) There was no tax on other comprehensive income (loss) and immaterial tax on amounts reclassified from accumulated other comprehensive income (loss) during the period. +(2) Amounts reclassified from accumulated other comprehensive income for specifically identified debt securities are included in other income (expense), net in the consolidated statements of operations. +No amounts were reclassified from accumulated other comprehensive income (loss) during the years ended December 31, 2025 or 2024. +9. Non-Cash Share-Based Compensation +2022 Equity Incentive Plan +In September 2022, the Company's shareholders approved the 2022 Equity Incentive Plan (the "2022 Plan"), which became effective on October 3, 2022. The 2022 Plan provides for the grant of incentive share options, nonstatutory share options, share appreciation rights, restricted share awards, restricted share unit awards ("RSUs"), performance-based share awards and other share-based awards. +Upon the effectiveness of the 2022 Plan, there were 9,190,000 common shares reserved for issuance under the 2022 Plan. As of December 31, 2025, the 2022 Plan allows for a maximum of 19,211,126 shares of the Company's common shares to be reserved and available for grants. Also as of December 31, 2025, there were 127,993 shares of the Company's common shares available for future grants under the 2022 Plan. The number of shares reserved for issuance under the 2022 Plan automatically increases on January 1 of each calendar year by 4 % of total common shares outstanding as of December 31 of the prior year, beginning October 3, 2022 through January 1, 2032. In January 2026, the number of common shares reserved for future issuance under the 2022 Plan automatically increased by 5,311,004 common shares. +F-27 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +9. Non-Cash Share-Based Compensation (Continued) +Non-Cash Share-Based Compensation Expense +The Company measures non-cash share-based compensation at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three years ) using the straight-line method. Non-cash share-based compensation expense, consisting of expense for stock options, RSUs, and the 2022 Employee Share Purchase Plan (the "ESPP"), was classified in the consolidated statements of operations as follows: +Year Ended December 31, +2025 2024 2023 +Research and development expenses 72,787 42,594 15,985 +General and administrative expenses 39,574 29,369 12,802 +Total non-cash share-based compensation expense $ 112,361 $ 71,963 $ 28,787 +As of December 31, 2025, total unrecognized compensation cost related to the unvested share-based awards was $ 99,218 , which is expected to be recognized over a weighted average period of 1.58 years. +Share Options +All share option grants are awarded at fair value on the date of grant. The fair value of share options is estimated using the Black-Scholes option pricing model. Share options generally expire 10 years after the grant date. +The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company's common shares for those share options that had exercise prices lower than the fair value of the Company's common shares at December 31, 2025. The total intrinsic value of share options exercised for the years ended December 31, 2025, 2024, and 2023 was $ 2,121 , $ 33,801 , and $ 7,756 , respectively. The tax benefit from share options exercised for the years ended December 31, 2025, 2024, and 2023 was not material. +The assumptions that the Company used to determine the grant-date fair value of share options granted under the 2022 Plan were as follows, presented on a weighted average basis: +Year Ended December 31, +2025 2024 2023 +Risk-free interest rate 4.37 % 3.98 % 4.32 % +Expected term (in years) 5.71 5.74 5.93 +Expected volatility 76.06 % 86.31 % 84.60 % +Expected dividend yield — % — % — % +Exercise price $ 35.64 $ 42.06 $ 24.57 +F-28 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +9. Non-Cash Share-Based Compensation (Continued) +The following table is a summary of the Company's share option activity for the year ended December 31, 2025: +Number of +Shares +Weighted +Average +Exercise +Price +Weighted +Average +Remaining +Contractual +Term +Aggregate +Intrinsic +Value +(in years) +Outstanding as of December 31, 2024 12,781,084 $ 17.46 +Granted +3,205,435 $ 35.64 +Exercised +( 139,233 ) $ 7.15 +Forfeited ( 197,772 ) $ 34.54 +Outstanding as of December 31, 2025 15,649,514 $ 21.06 7.47 $ 32,095 +Options exercisable as of December 31, 2025 11,565,685 $ 15.79 7.08 $ 32,095 +Vested and expected to vest as of December 31, 2025 15,649,514 $ 21.06 7.47 $ 32,095 +The weighted average grant date fair value per share of share options granted under the Company’s share option plans during the years ended December 31, 2025, 2024, and 2023 was $ 24.25 , $ 30.76 , and $ 18.01 , respectively. The Company expects approximately 4,083,829 of the unvested share options to vest over the requisite service period. +Restricted Share Units +The Company’s RSUs are considered nonvested share awards and require no payment from the employee. For each RSU, employees receive one common share at the end of the vesting period. Compensation cost is recorded based on the market price of the Company’s common shares on the grant date and is recognized on a straight-line basis over the requisite service period. +The total fair value of RSUs vested during the years ended December 31, 2025 and 2024 was $ 19,425 and $ 3,991 , respectively. No RSUs were granted, forfeited, or vested in the year ended December 31, 2023. +The following table is a summary of the RSU activity for the year ended December 31, 2025: +Number of +Shares +Weighted Average Grant Date Fair Value +Unvested as of December 31, 2024 +277,221 $ 41.87 +Granted 1,687,087 $ 37.74 +Forfeited +( 32,729 ) $ 39.00 +Vested +( 528,883 ) $ 37.85 +Unvested as of December 31, 2025 +1,402,696 $ 38.48 +Employee Share Purchase Plan +In September 2022, the Company's board of directors approved the rules and procedures of the 2022 Employee Share Purchase Plan approved by shareholders of the Company on September 28, 2022. +The ESPP allows each eligible employee who is participating in the plan to purchase shares by authorizing payroll deductions of up to 15 % of eligible earnings. Unless the participating employee has previously withdrawn from the offering, accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25 worth of ordinary shares, valued at the start of the offering period, under the ESPP in any calendar year. There is no minimum holding period associated with shares purchased pursuant to this plan. An employee’s purchase rights terminate immediately upon termination of employment. +F-29 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +9. Non-Cash Share-Based Compensation (Continued) +The number of shares reserved for issuance under the ESPP automatically increases on January 1 of each calendar year by 1 % of total common shares outstanding as of December 31 of the prior year, beginning October 3, 2022 through January 1, 2032. As of December 31, 2025, the ESPP allows for a maximum of 2,899,049 shares of the Company's common shares to be reserved and available for issuance under the ESPP. As of December 31, 2025, 2,512,521 shares remained available for future issuance under the ESPP. In January 2026, 1,327,751 additional shares were authorized to be issued under the ESPP. +The Company accounts for employee share purchases made under its ESPP using an estimate of the grant date fair value, which is determined in accordance with ASC 718, Stock Compensation. The purchase price discount and the look-back feature cause the ESPP to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period. The Company values ESPP shares using the Black-Scholes model. The Company recognized compensation expense of $ 1,477 , $ 1,249 , and $ 1,341 for the years ended December 31, 2025, 2024, and 2023, respectively. +As of December 31, 2025, there was $ 494 of unrecognized non-cash share-based compensation expense related to the ESPP, which is expected to be recognized over the remaining offering period ending May 31, 2026. During the year ended December 31, 2025, 127,097 shares were issued under the ESPP. +10. Net Loss Per Share +Basic and diluted net loss per share attributable to common shareholders of Biohaven was calculated as follows: +Year Ended December 31, +2025 2024 2023 +Numerator: +Net loss +$ ( 738,822 ) $ ( 846,422 ) $ ( 408,168 ) +Denominator: +Weighted average common shares outstanding—basic and diluted +107,624,885 91,234,337 71,200,527 +Net loss per share—basic and diluted +$ ( 6.86 ) $ ( 9.28 ) $ ( 5.73 ) +The Company's potential dilutive securities include share options which have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders of the Company is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2025 2024 2023 +Options to purchase common shares 15,649,514 12,781,084 11,379,429 +Warrants to purchase common shares — 294,195 — +Restricted Share Units 1,402,696 277,221 — +17,052,210 13,352,500 11,379,429 +11. License, Acquisitions and Other Agreements +The Company has entered into various licensing, developmental and acquisition agreements which provide the Company with rights to certain know-how, technology and patent rights. The agreements generally include upfront fees, milestone payments upon achievement of certain developmental, regulatory and commercial and sales milestones, as well as sales-based royalties, with percentages that vary by agreement. +License and Other Agreements +As of December 31, 2025, the Company had potential future developmental, regulatory, and commercial milestone payments under its license and other agreements of up to approximately $ 138,538 , $ 701,600 , and $ 3,185,450 , +F-30 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. License, Acquisitions and Other Agreements (Continued) +respectively. See below for a detailed discussion of these agreements. The Company has not recorded these potential contingent consideration payments as liabilities in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2025. +Yale Agreements +In September 2013, the Company entered into an exclusive license agreement (the "Yale Agreement") with Yale University to obtain a license to certain patent rights for the commercial development, manufacture, distribution, use and sale of products and processes resulting from the development of those patent rights, related to the use of riluzole in treating various neurological conditions, such as general anxiety disorder, post-traumatic stress disorder and depression. +The Yale Agreement was amended and restated in May 2019. As of December 31, 2025, under the amended Yale Agreement, the Company had remaining contingent regulatory approval milestone payments of up to $ 2,000 and annual royalty payments of a low single-digit percentage based on net sales of riluzole-based products from the licensed patents or from products based on troriluzole. Under the amended and restated agreement, the royalty rates are reduced as compared to the original agreement. In addition, under the amended and restated agreement, the Company may develop products based on riluzole or troriluzole. The amended and restated agreement retains a minimum annual royalty of up to $ 1,000 per year, beginning after the first sale of product under the agreement. If the Company grants any sublicense rights under the Yale Agreement, it must pay Yale University a low single-digit percentage of sublicense income that it receives. +For the years ended December 31, 2025, 2024, and 2023, the Company did no t record any material expense or make any milestone or royalty payments under the Yale Agreement. +In January 2021, the Company entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel Molecular Degrader of Extracellular Protein ("MoDE") platform (the "Yale MoDE Agreement"). The platform pertains to the clearance of disease-causing protein and other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The Yale MoDE Agreement includes an obligation to pay a minimum annual royalty of up to $ 1,000 per year, and low single digit royalties on the net sales of licensed products. If the Company grants any sublicense rights under the Yale MoDE Agreement, it must pay Yale University a low single-digit percentage of sublicense income that it receives. As of December 31, 2025, under the Yale MoDE Agreement, the Company has remaining contingent development and commercial milestone payments of up to $ 538 and $ 2,950 , respectively. The Yale MoDE Agreement terminates on the later of twenty years from the effective date, twenty years from the filing date of the first investigational new drug application for a licensed product or the last to expire of a licensed patent. +The Company did no t record any material milestone or royalty payments under the Yale MoDE Agreement for the years ended December 31, 2025, 2024, and 2023. +ALS Biopharma Agreement +In August 2015, the Company entered into an agreement (the "ALS Biopharma Agreement") with ALS Biopharma and Fox Chase Chemical Diversity Center Inc. ("FCCDC"), pursuant to which ALS Biopharma and FCCDC assigned the Company their worldwide patent rights to a family of over 300 prodrugs of glutamate modulating agents, including troriluzole, as well as other innovative technologies. Under the ALS Biopharma Agreement, the Company is obligated to use commercially reasonable efforts to commercialize and develop markets for the patent products. As of December 31, 2025, under the ALS Biopharma Agreement, the Company has remaining contingent regulatory approval milestone payments of up to $ 4,000 , as well as royalty payments of a low single-digit percentage based on net sales of products licensed under the ALS Biopharma Agreement, payable on a quarterly basis. +The ALS Biopharma Agreement terminates on a country-by-country basis as the last patent rights expire in each such country. If the Company abandons its development, research, licensing or sale of all products covered by one or more claims of any patent or patent application assigned under the ALS Biopharma Agreement, or if the Company ceases operations, it has agreed to reassign the applicable patent rights back to ALS Biopharma. +For the years ended December 31, 2025, 2024 and 2023, the Company did no t record any expense or make any milestone or royalty payments under the ALS Biopharma Agreement. +F-31 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. License, Acquisitions and Other Agreements (Continued) +Taldefgrobep Alfa License Agreement +In February 2022, following the transfer of intellectual property, the Company announced that it entered into a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel, Phase 3-ready anti-myostatin adnectin (the "Taldefgrobep Alfa License Agreement"). +As of December 31, 2025, under the Taldefgrobep Alfa License Agreement, the Company has remaining contingent regulatory approval milestone payments of up to $ 200,000 , as well as tiered, sales-based royalty percentages from the high teens to the low twenties. There were no upfront or contingent payments to BMS related to the Taldefgrobep Alfa License Agreement. +For the years ended December 31, 2025, 2024 and 2023, the Company did no t record any material expense or make any milestone or royalty payments under the Taldefgrobep Alfa License Agreement. +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, the Company and Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") entered into an exclusive, worldwide (excluding People's Republic of China and its territories and possessions) license agreement (the "Highlightll Agreement") pursuant to which Biohaven obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. In connection with the Highlightll Agreement, the Company was obligated to pay Highlightll a cash payment of $ 10,000 and 721,136 common shares (collectively, "the Highlightll Upfront Payments"), upon the completion of certain post-closing activities. In December 2023, the Company entered into a second amendment to the Highlightll Agreement, which granted the Company an exclusive option and right of first refusal to any Selective TYK2 Inhibitor being developed by or on behalf of Highlightll or its affiliates and provided for the payment of the Highlightll Upfront Payments. As a result, the Company made a $ 10,000 cash payment and issued 721,136 shares, valued at $ 21,814 , to Highlightll during the fourth quarter of 2023, which was recorded as R&D expense during the year ended December 31, 2023. +As of December 31, 2025, under the Highlightll Agreement, the Company has remaining contingent development, regulatory approval, and commercial milestone payments of up to $ 60,000 , $ 37,500 , and $ 837,500 , respectively. Additionally, the Company has agreed to make tiered royalty payments as a percentage of net sales starting at mid-single digits and peaking at low-teens digits. During the royalty term, if the Company offers to include China clinical sites in its Phase 3 study sufficient for submission to Chinese National Medical Products Administration and Highlightll, at its sole discretion, agrees, then Highlightll will pay royalties in the low tens digits to the Company on China sales upon approval. +The Highlightll Agreement terminates on a country-by-country basis upon expiration of the royalty term and can also be terminated if certain events occur, e.g., material breach or insolvency. +In July 2025, the Highlightll Agreement was amended to permit the Company to conduct clinical trials for BHV-8000 in China and its territories and possessions (the "Highlightll Territory") and seek marketing authorization in the Highlightll Territory. Any marketing authorizations obtained by the Company for BHV-8000 in the Highlightll Territory would be transferred to Highlightll for commercialization and Highlightll would pay royalties to the Company as noted above. In addition, the amendment provides for a low single digit reduction in the royalties payable by the Company to Highlightll. +For the year ended December 31, 2025, the Company recorded research and development expense of $ 15,000 related to the achievement of a development milestone under the Highlightll Agreement. Excluding the Highlightll Upfront Payments discussed above, for the years ended December 31, 2024 and 2023, the Company did no t record any material milestone or royalty payments related to the Highlightll Agreement. +Other Agreements +In addition to the agreements detailed above, the Company has entered into various other license agreements and development programs. The Company records milestones and other payments, including funding for research +F-32 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. License, Acquisitions and Other Agreements (Continued) +arrangements, which become due under these agreements to research and development expense in the consolidated statements of operations. Amounts recorded to research and development expense for the period were as follows: +Year Ended December 31, +2025 2024 2023 +Milestone Payments +$ 22,375 $ 1,875 $ 3,250 +Upfront Payments - Cash 4,375 6,000 — +Upfront Payments - Issuance of Common Shares* $ 4,884 $ 8,554 $ — +* The amount for the year ended December 31, 2024 represents $ 8,554 recorded to research and development expense related to shares owed for upfront payments which were not yet issued as of December 31, 2024 and were recorded within additional paid in capital on the consolidated balance sheet as of December 31, 2024.The shares were issued in the first quarter of 2025. +Acquisitions +Kv7 Platform Acquisition +In April 2022, the Company closed the acquisition from Knopp of Channel Biosciences, LLC (“Channel”), a wholly owned subsidiary of Knopp owning the assets of Knopp’s Kv7 channel targeting platform (the “Kv7 Platform Acquisition”), pursuant to the Purchase Agreement, dated February 24, 2022. +Under the Purchase Agreement, the Company agreed to make success-based payments based on developmental and regulatory milestones through approvals in the United States, Europe, the Middle East and Asia ("EMEA") and Japan for the lead asset, opakalim (formerly known as KB-3061 and also referred to as BHV-7000), developmental and regulatory milestones for the Kv7 pipeline development in other indications and additional country approvals, and commercial sales-based milestones of opakalim. Additionally, the Company agreed to make scaled royalty payments in cash for opakalim and the pipeline programs, with percentages starting at high single digits and peaking at low teens for opakalim and starting at mid-single digits and peaking at low tens digits for the pipeline programs. +In May 2024, the Company entered into the Knopp Amendment under which the parties thereto agreed to replace the scaled high single digit to low teens royalty payment obligations with a flat royalty payment in the mid-single digits for opakalim and the pipeline programs. The parties also agreed to reduce the success-based payments payable under the Purchase Agreement. The Company retains the ability to pay these contingent milestone payments in cash or in the Company's common shares at Biohaven's election, subject to the same increases if the Company elects to pay in the Company's common shares. As of December 31, 2025, under the Purchase Agreement, as amended, the Company had remaining success-based payments comprised of (i) to up to $ 185,000 based on regulatory approvals in the United States and EMEA for opakalim and (ii) up to an additional $ 60,000 based on regulatory approval in the United States for the other Kv7 pipeline programs. +In consideration of the revisions to the success-based payment and royalty payment obligations, the Company agreed to issue to Knopp 1,872,874 Company common shares, valued at approximately $ 75,000 , through a private placement within 60 days of the date of execution of the Knopp Amendment (the “2024 Additional Consideration”) and additional Company common shares with an approximate value of $ 75,000 within 60 days of the first anniversary of execution of the Knopp Amendment (the “2025 Additional Consideration”). On May 1, 2025, the total number of common shares to be issued for the 2025 Additional Consideration was determined to be 3,588,688 . The Company had also given Knopp the option to request a one-time cash true-up payment from the Company in December 2024 in the event that Knopp continued to hold the Company's common shares representing the 2024 Additional Consideration and the value of such shares had declined (the "2024 Additional Consideration True-Up"), and a one-time cash true-up payment from the Company in December 2025 in the event that Knopp continued to hold the Company's common shares representing the 2025 Additional Consideration and the value of such shares had declined (the "2025 Additional Consideration True-Up"), in each case, subject to certain conditions. +The Company concluded that the agreement to issue the 2024 Additional Consideration at a future date represented a fixed forward contract under ASC 815 and classified the commitment as a forward contract liability on its consolidated balance sheet on the execution date of the Knopp Amendment. The Company initially measured the forward contract associated with the 2024 Additional Consideration at a fair value of $ 75,220 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statements of operations. In May 2024, the Company issued the 2024 Additional Consideration at an approximate value of $ 65,981 . The Company recognized a gain of $ 9,239 for the year +F-33 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. License, Acquisitions and Other Agreements (Continued) +ended December 31, 2024 in other income, net in its consolidated statement of operations. The gain on settlement of the 2024 Additional Consideration was due to the decline in fair value of the 2024 Additional Consideration from the execution date to the issuance date due to a decline in Biohaven's share price. +The Company concluded that the 2024 Additional Consideration True-Up represented a net cash settled written put option on the Company’s shares and was a freestanding derivative liability under ASC 815. Accordingly, the Company classified the 2024 Additional Consideration True-Up as a current derivative liability on its consolidated balance sheet. The Company initially recorded the 2024 Additional Consideration True-Up at a fair value of $ 15,540 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statements of operations. The Company subsequently remeasured the fair value of the derivative liability and recognized any gains or losses through other income, net in its consolidated statement of operations. The 2024 Additional Consideration True-Up was considered settled as of December 2024, with no cash payment due upon expiration. The Company recognized a gain of $ 15,540 for the year ended December 31, 2024 related to the 2024 Additional Consideration True-Up in other income, net in its consolidated statement of operations. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +The Company concluded that the agreement to issue the 2025 Additional Consideration at a future date represented a forward contract settleable in a variable number of shares under ASC 480, and classified the commitment as a current forward contract liability on its consolidated balance sheet. The Company initially measured the 2025 Additional Consideration at a fair value of $ 63,940 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statement of operations. The Company subsequently remeasured the fair value of the forward contract liability and recognized any gains or losses through other income, net in its consolidated statement of operations. In June 2025, the Company issued the 2025 Additional Consideration at an approximate value of $ 51,426 . The Company recognized a gain of $ 20,074 and a loss of $ 7,560 for the years ended December 31, 2025 and 2024, respectively, related to the 2025 Additional Consideration. The gain on settlement of the 2025 Additional Consideration was due to the decline in fair value of the 2025 Additional Consideration from the one year anniversary of the execution date to the issuance date due to a decline in Biohaven's share price. Refer to Note 4, "Fair Value of Financial Assets and Liabilities" for further discussion. +The Company concluded that the 2025 Additional Consideration True-Up represented a net cash settled written put option on the Company’s shares and was a freestanding derivative liability under ASC 815. Accordingly, the Company classified the 2025 Additional Consideration True-Up as a non-current derivative liability on its consolidated balance sheet. The Company initially recorded the 2025 Additional Consideration True-Up at a fair value of $ 13,810 , which was recorded as R&D expense during the three months ended June 30, 2024 in its consolidated statements of operations. The Company subsequently remeasured the fair value of the derivative liability and recognized any gains or losses through other income, net in its consolidated statement of operations. In December 2025, the 2025 Additional Consideration True-up was considered settled, and a cash payment of $ 42,710 was owed to Knopp upon settlement. This payment remained outstanding as of December 31, 2025, and was recorded within accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2025. The payment was made to Knopp in the first quarter of 2026. The Company recognized a loss of $ 29,500 and a gain of $ 600 for the years ended December 31, 2025 and 2024, respectively, related to the 2025 Additional Consideration True-Up. +As further consideration for the revisions to the success-based payment and royalty payment obligations in the Knopp Amendment, the Company issued to Knopp a warrant (the “Warrant”) to purchase 294,195 Company common shares at a purchase price per share of $ 67.98 , subject to certain specified development milestones and the Company achieving a specified market capitalization. In December 2025, Knopp elected to surrender the warrants to the Company for cancellation. Refer to Note 7, "Shareholders' Equity" for further discussion. +The Company has not recorded any of the remaining contingent consideration payments to Knopp as a liability in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2025. +Pyramid Acquisition +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated January 7, 2024 ("the Pyramid Agreement"). In consideration for the Pyramid acquisition, Biohaven made an upfront payment of 255,794 Company common shares, valued at approximately $ 10,894 . +F-34 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +11. License, Acquisitions and Other Agreements (Continued) +The Company accounted for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, IPR&D. The IPR&D asset has no alternative future use and relates primarily to BHV-1510. There was no material value assigned to any other assets or liabilities acquired in the acquisition. As such, the upfront payment discussed above was recorded as a charge to R&D expense in the accompanying consolidated statements of operations during the three months ended March 31, 2024. +As of December 31, 2025, under the Pyramid Agreement, the Company has remaining success-based payments comprised of (i) up to $ 5,000 based on developmental and regulatory milestones for the lead asset, BHV-1510 (formerly known as PBI-410), (ii) up to an additional $ 30,000 based on developmental and regulatory milestones for a second asset (formerly known as PBI-200) and (iii) up to $ 40,000 for commercial sales-based milestones of BHV-1510. Contingent developmental and regulatory milestone payments may be paid in cash or Biohaven common shares at the election of Biohaven and commercial sales-based milestones are to be made in cash. +The Company has not recorded any of the remaining contingent consideration payments as a liability in the accompanying consolidated balance sheet as none of the future events which would trigger a milestone payment were considered probable of occurring at December 31, 2025. +For the year ended December 31, 2025, the Company did no t record any material milestone payments related to the Pyramid Agreement. During the year ended December 31, 2024, the Company recorded $ 5,689 of R&D expense in the consolidated statement of operations and comprehensive loss for a developmental milestone which became due under the Pyramid Agreement, to be paid in 98,129 common shares of the Company. See Note 7, "Shareholders' Equity," for discussion of common shares issued as part of the Pyramid Agreement. +12. Commitments and Contingencies +Lease Agreements +The Company's leases primarily consist of lab and office space for use in its operations. It's leases generally have initial lease terms of 1 to 10 years, some of which include options to extend for up to 3 to 10 years or on a month-to-month basis. As of December 31, 2025, none of the Company's lease terms included the extension option as the Company has determined that it is unlikely to exercise the extension option. Operating lease costs were $ 8,883 , $ 5,884 and $ 5,874 for the years ended December 31, 2025, 2024 and 2023, respectively. +The Company currently has one immaterial short-term real estate lease. The Company had no sublease income and no sale-leaseback transactions. Certain of the Company’s lease agreements contain variable lease payments that are adjusted for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. +The following table summarizes supplemental cash flow information: +Years Ended December 31, +2025 2024 2023 +Right-of-use assets obtained in exchange for new operating lease liabilities +$ 16,433 $ 8,492 $ — +Net (decrease) increase in right-of-use assets from operating lease modifications +$ ( 1,984 ) $ 456 $ — +Operating cash flows paid for operating leases were $ 8,381 , $ 5,114 and $ 4,854 for the years ended December 31, 2025, 2024 and 2023. +F-35 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Commitments and Contingencies (Continued) +Supplemental balance sheet information related to operating leases is as follows: +In thousands, except remaining lease term and discount rate December 31, 2025 December 31, 2024 +Assets +Other non-current assets +$ 45,058 $ 36,391 +Liabilities +Other current liabilities $ 5,756 $ 3,802 +Long-term operating lease liability +39,958 32,782 +$ 45,714 $ 36,584 +Weighted average remaining lease term (in years) 7.32 7.94 +Weighted average discount rate 8.80 % 7.59 % +The following table summarizes maturities of operating lease liabilities as of December 31, 2025: +Operating leases +2026 $ 9,138 +2027 9,239 +2028 7,501 +2029 6,950 +2030 7,153 +Thereafter 23,094 +Total lease payments 63,075 +Less: imputed interest ( 17,361 ) +Total lease liabilities $ 45,714 +Pittsburgh Wharton Street Lease Amendment +In October 2025, the Company entered into an amendment to its existing agreement for office and laboratory space in Pittsburgh, Pennsylvania ("Pittsburgh Wharton Street Lease Amendment"), which supports the research and development of the Company's ion channel platform. The amendment extended the lease term by approximately three years and includes an option to extend for one additional period of 36 months. Base annual rent under the amendment is $ 565 , subject to annual escalations of 3 %. +The amendment resulted in an increase in the operating lease right of use asset by approximately $ 1,487 , with a corresponding increase in the operating lease liability. +New Haven College Street Lease Agreement +In February 2025, the Company entered into a lease agreement in New Haven for office and laboratory space ("New Haven College Street Lease"), to support research and development of the Company's degrader technology. The lease commenced in February 2025 and has an initial term of three years , with an option to extend for one additional period of 36 months. +Upon lease commencement, the Company recognized an operating lease right-of-use asset and a corresponding operating lease liability of approximately $ 3,667 . Base annual rent under the lease is approximately $ 105 , subject to annual escalations of 3 %. In addition, an initial payment of $ 375 was paid at lease commencement. +Pittsburgh Centre Avenue Lease Agreement +In March 2024, the Company entered into a lease agreement in Pittsburgh, Pennsylvania for laboratory space (the "Pittsburgh Centre Avenue Lease") to support the research and development of the Company's ion channel platform. The +F-36 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Commitments and Contingencies (Continued) +Company determined the lease to have commenced in August 2025 and has an initial term of 122 months, with an option to extend for one additional period of 60 months. +Upon lease commencement, the Company recognized an operating lease right-of-use asset and a corresponding operating lease liability of $ 12,504 . Base annual rent under the lease ranges from $ 1,859 to $ 2,373 , excluding any additional tenant improvement allowance available at the Company's option that would increase the base rent. +West Palm Beach Lease Agreement +In June 2022, the Company entered into a lease agreement in West Palm Beach, Florida for office space (the "West Palm Beach Lease") for general office purposes. The lease commenced in late 2024 after substantial completion of building improvements, and has a term of 120 months, with an option to extend for two additional periods of 60 months each. +In January 2025, the Company amended the West Palm Beach Lease to reduce the leased office space. The amendment resulted in a decrease in the operating lease right-of-use asset of approximately $ 3,477 , with a corresponding decrease in the operating lease liability. Annual minimum commitments relating to the amended West Palm Beach Lease range from $ 757 to $ 988 . +Research Commitments +The Company has entered into agreements with several CMOs and CROs to provide products and services in connection with the Company’s preclinical studies and clinical trials. As of December 31, 2025, the Company had no research commitments in excess of one year. +Indemnification Agreements +In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company’s amended and restated memorandum and articles of association also provide for indemnification of directors and officers in specific circumstances. To date, the Company has not incurred any material costs as a result of such indemnification provisions. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2025 or December 31, 2024. +License, Acquisitions, and Other Agreements +The Company has entered into license, developmental, and acquisition agreements with various parties under which it is obligated to make contingent and non-contingent payments. See Note 11, "License, Acquisitions and Other Agreements," for additional details. +Other Agreements +On January 1, 2021, the Company entered into a consulting services agreement (the "Moda Agreement") with Moda Pharmaceuticals LLC ("Moda") to further the scientific advancement of technology, drug discovery platforms (including the technology licensed under the Yale MoDE Agreement), product candidates and related intellectual property owned or controlled by the Company. +Under the Moda Agreement, the Company agreed to make success-based payments based on developmental, regulatory and commercial milestones. The Moda Agreement has a term of four years and may be terminated earlier by the Company or Moda under certain circumstances including, for example, the Company's discontinuation of research on the MoDE platform or default. In August 2023, the Company entered into an amendment to the Moda Agreement with Moda. As of December 31, 2025, under the Moda Agreement, as amended, the Company had remaining contingent development, regulatory approval, and commercial milestone payments of up to $ 31,245 , $ 22,000 , and $ 104,612 , respectively. +F-37 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +12. Commitments and Contingencies (Continued) +The Company did no t record any material research and development expense or make any milestone payments related to the Moda agreement for the year ended December 31, 2025 or 2023. For the year ended December 31, 2024, the Company recorded research and development expense of $ 2,125 related to developmental milestones under the Moda Agreement. +Legal Proceedings +From time to time, in the ordinary course of business, the Company is subject to litigation and regulatory examinations as well as information gathering requests, inquiries and investigations. In accordance with ASC 450, "Contingencies," if a loss contingency associated with a legal matter is probable to be incurred and the amount of loss can be reasonably estimated, an accrual is recorded on the consolidated balance sheet. As of December 31, 2025, excluding the below, there were no matters which would have a material impact on the Company’s financial results. +Shareholder Complaint +On July 14, 2025, a lawsuit was filed in the United States District Court for the District of Connecticut against Biohaven Ltd. and certain of its officers alleging federal securities law violations on behalf of a putative class of purchasers of Biohaven stock between March 24, 2023 and May 14, 2025. The Company believes that the allegations are without merit and plans to defend itself vigorously. The complaint alleges that Biohaven and the officer defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 based on alleged misstatements or omissions in certain Biohaven press releases and SEC filings concerning, among other things, (i) the outlook for and clinical data supporting troriluzole as a treatment for SCA spinocerebellar ataxia and (ii) opakalim’s efficacy and clinical prospects as a treatment for bipolar disorder. Plaintiffs also claim the individual defendants are liable for the alleged securities violations through derivative “control person” claims under Section 20(a) of the Exchange Act. The defendants have not yet answered or otherwise responded to the complaint. +13. Income Taxes +As a company incorporated in the British Virgin Islands (“BVI”), the Company is principally subject to taxation in the BVI. Under the current laws of the BVI, the Company and all dividends, interest, rents, royalties, compensation and other amounts paid by the Company to persons who are not resident in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of the Company by persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI. +The Company has historically outsourced all of the research and clinical development for its programs under a master services agreement with Biohaven Pharmaceuticals, Inc. (“BPI”). As a result of providing services under this agreement, BPI was profitable during the years ended December 31, 2025, 2024 and 2023. A similar arrangement is also in place for the Company's subsidiary, Biohaven Biosciences Ireland Limited ("BBIL"). The Companies are subject to taxation in the United States and Ireland, respectively, and the Company's tax provision includes the effects of consolidating the results of operations of BPI and BBIL. +At December 31, 2025 and 2024, the Company continued to maintain a full valuation allowance against its net deferred tax assets, which are comprised primarily of net operating loss carryforwards and research and development tax credit carryforwards, based on management’s assessment that it is more likely than not that the deferred tax assets will not be realized. The Company will continue to evaluate the need for a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. +The Company recorded an income tax provision during the year ended December 31, 2025 of $ 1,442 , an income tax provision during the year ended December 31, 2024 of $ 735 , and an income tax benefit during the year ended December 31, 2023 of $ 1,383 , which primarily represent Federal and state taxes related to the Company’s profitable operations in the U.S. and Ireland. +F-38 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +13. Income Taxes (Continued) +Loss before provision for income taxes consisted of the following: +Year Ended December 31, +2025 2024 2023 +BVI $ ( 783,270 ) $ ( 885,508 ) $ ( 424,647 ) +Foreign 45,890 39,821 15,096 +Loss before provision for income taxes $ ( 737,380 ) $ ( 845,687 ) $ ( 409,551 ) +The provision for income taxes consisted of the following: +Year Ended December 31, +2025 2024 2023 +Current income tax provision (benefit): +BVI $ — $ — $ — +Foreign 1,442 735 ( 1,383 ) +Total current income tax provision (benefit) +1,442 735 ( 1,383 ) +Deferred income tax provision (benefit): +BVI — — — +Foreign — — — +Total deferred income tax provision (benefit) — — — +Total provision (benefit) for income taxes +$ 1,442 $ 735 $ ( 1,383 ) +A reconciliation of the BVI statutory income tax rate of 0% to the Company's effective income tax rate is as follows: +Year Ended December 31, +2025 2024 2023 +Federal Statutory Tax Rate $ — 0.0 % $ — 0.0 % $ — 0.0 % +Foreign Tax Effects +United States +Statutory tax rate difference between U.S. and BVI 11,624 1.6 6,262 0.7 5,144 1.3 +Changes in U.S. Federal valuation allowance 11,169 1.5 17,230 2.0 26,332 6.4 +U.S. Federal Tax Credits ( 21,683 ) ( 2.9 ) ( 23,518 ) ( 2.8 ) ( 30,546 ) ( 7.4 ) +Changes in State valuation allowance ( 1,775 ) ( 0.2 ) 2,513 0.3 16,940 4.1 +U.S. State Tax Credits 322 0.0 ( 4,150 ) ( 0.5 ) ( 21,382 ) ( 5.2 ) +Other 1,426 0.2 2,121 0.4 1,983 0.5 +Other foreign jurisdictions 359 0.0 277 0.0 146 0.0 +Effective income tax rate $ 1,442 0.2 % $ 735 0.1 % $ ( 1,383 ) ( 0.3 ) % +The Company's income tax provision primarily represents Federal and state taxes related to the profitable operations of its subsidiaries in the United States and Ireland. On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into U.S. law, which contains a broad range of tax reform provisions impacting businesses that apply beginning in 2025. The OBBBA has not materially impacted the Company's effective tax rate. +The income tax benefit recorded during the year ended December 31, 2023 was primarily attributable to the adoption of the guidance contained in a Notice of Proposed Rule Making issued by the United States Internal Revenue Service during the third quarter of 2023 ("the Notice"). The Notice indicates that BPI has the ability to immediately deduct R&D expenditures which were incurred in the U.S. and reimbursed by its foreign parent. Previously these expenditures were capitalized, as was generally required under the Tax Cuts and Jobs Act, which was effective for tax years beginning on or after January 1, 2022. +F-39 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +13. Income Taxes (Continued) +Net deferred tax assets (liabilities) consisted of the following: +December 31, +2025 2024 +Deferred tax assets: +Foreign net operating loss carryforwards $ 120,704 $ 144,179 +Tax credits 158,931 140,201 +R&D capitalization 2,372 5,891 +Other 39,184 21,878 +Valuation allowance ( 313,353 ) ( 303,731 ) +Total deferred tax assets 7,838 8,418 +Deferred tax liabilities: +Other +( 7,838 ) ( 8,418 ) +Total deferred tax liabilities ( 7,838 ) ( 8,418 ) +Net deferred tax asset (liability) $ — $ — +As of December 31, 2025 and 2024, the Company had foreign net operating loss carryforwards of $ 780,531 and $ 890,792 , respectively, which begin to expire in 2037. As of December 31, 2025 and 2024, the Company had federal and state research and development and orphan drug credits of $ 158,931 and $ 140,201 , respectively, which begin to expire in 2040. +Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2025 were primarily due to increased deferred employee stock compensation deductions and research and development tax credits, partially offset by a decrease in the write-off of capitalized research and development costs capitalized and net operating losses in the US. Changes in the valuation allowance for deferred tax assets during the year ended December 31, 2024 were due primarily to the acquisition of Pyramid offset by the utilization of net operating losses and tax credit carryforwards. The change in the valuation allowance for deferred tax assets during the year ended December 31, 2023 was due primarily to generation of net operating losses and tax credit carryforwards. +Year Ended December 31, +2025 2024 2023 +Valuation allowance as of beginning of year $ 303,731 $ 259,448 $ 216,061 +Increases recorded to Purchase Accounting and Net Investment from Former Parent — 21,538 — +Increases recorded to income tax provision 9,622 22,745 43,387 +Valuation allowance as of end of year $ 313,353 $ 303,731 $ 259,448 +The Company followed the authoritative guidance for recognizing and measuring uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. +The beginning and ending amounts of unrecognized tax benefits reconciles as follows: +Year Ended December 31, +2025 2024 2023 +Beginning of period balance $ 2,300 $ 2,200 $ 2,200 +Increase for tax positions taken during the current period 300 100 — +End of period balance $ 2,600 $ 2,300 $ 2,200 +The unrecognized tax benefits relate primarily to issues common among multinational corporations. All of these unrecognized tax benefits, if recognized, would impact the Company's effective income tax rate. The Company's policy is to record interest and penalties related to income taxes, if any, as part of its income tax provision. As of December 31, 2025 and 2024, the total amount of accrued interest and penalties was not significant. +F-40 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +13. Income Taxes (Continued) +BPI, Kleo and Pyramid file income tax returns in the U.S. and certain state jurisdictions. The U.S. federal and state income tax returns are generally open to tax examinations for the tax year ended December 31, 2022 and subsequent years. BPI and Kleo are under exam by the State of Connecticut for the tax years December 31, 2017 and forward. +A summary of the income taxes paid, net of funds received, are as follows: +Year Ended December 31, +2025 2024 2023 +US Federal +$ ( 172 ) $ ( 2,456 ) $ ( 32,953 ) +US State and Local +California +* ( 719 ) * +Illinois +* ( 1,967 ) * +Massachusetts +* ( 729 ) * +New York +* ( 2,182 ) * +Virginia +( 44 ) * * +Other +( 53 ) ( 2,391 ) ( 347 ) +Total US State and Local +( 97 ) ( 7,988 ) ( 347 ) +Ireland +402 * * +Total income taxes paid, net of refunds received +$ 133 $ ( 10,444 ) $ ( 33,300 ) +*The amount of income taxes paid or refunded during the year does not meet the 5% disaggregation threshold. +14. Related Party Transactions +Related Party Agreements +License Agreements with Yale +On September 30, 2013, the Company entered into the Yale Agreement with Yale (see Note 11, "License, Acquisitions and Other Agreements," for details). The Company’s Chief Executive Officer is one of the inventors of the patents that the Company has licensed from Yale and, as such, is entitled to a specified share of the glutamate product-related royalty revenues that may be received by Yale under the Yale Agreement. +In January 2021, the Company entered into the Yale MoDE Agreement with Yale (see Note 11, "License, Acquisitions and Other Agreements," for details). Under the license agreement, the Company acquired exclusive, worldwide rights to Yale's intellectual property directed to its MoDE platform. Under the Yale MoDE Agreement, the Company entered into the Yale MoDE SRA (see Note 11, "License, Acquisitions and Other Agreements," for details), which included funding of up to $ 4,000 over the life of the agreement. In May 2023, the Company entered into an additional sponsored research agreement with Yale University (the "2023 Yale SRA"), which includes funding of up to $ 612 over the life of the agreement. +For the years ended December 31, 2025, 2024 and 2023, the Company recorded $ 1,490 , $ 1,864 and $ 2,942 , respectively, in research and development expense, including certain administrative expenses, related to the Yale MoDE Agreement and the Yale MoDE SRA, the Yale Agreement, and the 2023 Yale SRA (collectively, the "Yale Agreements"). As of December 31, 2025, the Company did not owe any material amounts to Yale. +Relationship with the Former Parent +Upon the effectiveness of the Separation on October 3, 2022, the Former Parent ceased to be a related party to the Company and accordingly, no related party transactions or balances are reported subsequent to October 3, 2022. +On October 3, 2022, the Company entered into agreements with the Former Parent in connection with the Separation, including a Transition Services Agreement. For a full discussion of agreements entered into with the Former Parent, refer to Note 14, "Related Party Transactions" to the consolidated financial statements included in the 2023 Form 10-K. The Company did not record any material income for transition services provided to the Former Parent during the years ended December 31, 2025 or 2024. For the year ended December 31, 2023, the Company recorded $ 9,250 in other income reflecting transition services provided to the Former Parent. +F-41 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amount +15. Segment Information +The Company manages its operations as a single segment, focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. Our Chief Executive Officer (“CEO”), as the Company's chief operating decision maker, manages and allocates resources at a consolidated level. +Our CEO uses net loss that is also reported on the consolidated statement of operations as net loss to assess performance and decide how to allocate resources. The CEO uses net loss to evaluate the allocation of resources across functions, therapeutic areas, and research and development projects in line with our overarching long-term company-wide strategic goals as well as to monitor budget versus actual results. +The accounting policies of the Company's single operating segment are the same as those described in the summary of significant accounting policies as described in Note 2. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. In 2025 and 2024, materially all the Company's long-lived assets were held in the United States. Expenditures for the addition of long-lived assets are reported on the consolidated statements of cash flows as purchases of property and equipment. +F-42 +BIOHAVEN LTD. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Amounts in thousands, except share and per share amounts) +15. Segment Information (continued) +Additional information about segment profit or loss and significant segment expenses is as follows: +Year Ended December 31, +2025 2024 2023 +Direct R&D program expense +BHV-4157 (Troriluzole) $ 49,241 $ 63,983 $ 73,080 +BHV-2000 (Taldefgrobep Alfa) 23,481 59,710 40,870 +BHV-7000 & BHV-7010 (Kv7) 115,269 136,422 47,327 +BHV-2100 (TRPM3 Antagonist) 27,716 29,044 12,865 +BHV-8000 (TYK2/JAK1) 34,864 12,697 39,025 +BHV-1300 (IgG Degrader) 36,277 30,078 22,239 +BHV-1310 (IgG Degrader) 5,486 13,341 1,962 +BHV-1400 (IgA Degrader) 27,860 19,572 1,810 +BHV-1600 (β1-AR AAB Degrader) 6,935 14,650 254 +BHV-1510 (Trop2) 37,582 28,540 — +BHV-1530 (FGFR3) 22,670 14,554 — +Other R&D program expense 1,850 2,821 5,615 +Preclinical research programs R&D Expense +70,203 57,181 35,911 +R&D personnel expense (excluding share-based compensation) (1) +77,220 73,644 60,058 +R&D Share-based compensation expense +72,787 42,594 15,985 +R&D Knopp amendment expense +— 171,850 — +G&A personnel expense (excluding share-based compensation) (1) +22,756 24,894 21,087 +G&A Share-based compensation expense +39,574 29,369 12,802 +Other segment items (2) +73,607 60,167 45,161 +Non-operating (income) expense +( 7,998 ) ( 39,424 ) ( 26,500 ) +Provision (benefit) for income taxes +1,442 735 ( 1,383 ) +Segment net loss +738,822 846,422 408,168 +Reconciliation of profit or loss +Adjustments and reconciling items +— — — +Consolidated net loss +$ 738,822 $ 846,422 $ 408,168 +(1) Personnel expense includes employee payroll, bonus, and employee benefits for medical care, retirement, insurances and other. +(2) Other segment items included in Segment net loss include unallocated non-program R&D expense, legal, accounting and other professional service fees, rent and utilities expense, depreciation, and other corporate expenses. +F-43 \ No newline at end of file diff --git a/raw/filings/0001935979/2025/0001935979-26-000020/filing_metadata.csv b/raw/filings/0001935979/2025/0001935979-26-000020/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..4b192b9e082da975fc1a5dc3ae17872f8bcfaa23 --- /dev/null +++ b/raw/filings/0001935979/2025/0001935979-26-000020/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001935979,BHVN,Biohaven Ltd.,2025,10-K,2026-03-02,2025-12-31,2026-03-02T21:09:33.000Z,0001935979-26-000020,bhvn-20251231.htm,10-K,49949075,1,1,https://www.sec.gov/Archives/edgar/data/1935979/000193597926000020/bhvn-20251231.htm,https://www.sec.gov/Archives/edgar/data/1935979/000193597926000020/ diff --git a/raw/filings/0001935979/2025/0001935979-26-000020/item1.txt b/raw/filings/0001935979/2025/0001935979-26-000020/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..59db1e5a45763760c3dda29a11ff3da4444574a1 --- /dev/null +++ b/raw/filings/0001935979/2025/0001935979-26-000020/item1.txt @@ -0,0 +1,550 @@ +Item 1. Business +Overview +Biohaven is a biopharmaceutical company focused on the discovery, development, and commercialization of life-changing treatments in key therapeutic areas, including immunology, neuroscience, and oncology. We are advancing our innovative portfolio of therapeutics, leveraging our proven drug development experience and multiple proprietary drug development platforms. +On October 3, 2022, Biohaven Pharmaceutical Holding Company Ltd. (the “Former Parent”) completed the distribution to holders of its common shares of all of our outstanding common shares and the spin-off of Biohaven Ltd. from the Former Parent (the “Separation”). As a result of the Separation, Biohaven became an independent, publicly traded company as of October 3, 2022, and commenced regular way trading under the symbol “BHVN”’ on the New York Stock Exchange on October 4, 2022. +In the fourth quarter of 2025, we initiated strategic portfolio and cost-optimization measures to prioritize three key, late-stage, clinical programs that we believe have the greatest potential for value generation. Our key clinical programs include Kv7 ion channel modulation for epilepsy; Molecular Degrader of Extracellular Proteins (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP") extracellular protein degradation for immunological diseases; and myostatin-activin pathway targeting agent for neuromuscular and metabolic diseases, including obesity (collectively, the "key programs"). The product candidates chart below summarizes our most advanced programs, including those that are key clinical stage programs and some of our preclinical programs that are beginning to advance to the clinic. +Product Candidates +The following table summarizes our programs for our product candidates. We hold the worldwide rights to substantially all of our product candidates. +1 +Table of Contents +Key Programs +MoDE and TRAP Degraders +Bispecific Molecular Degraders of Extracellular Proteins and TRAP Degraders +Biohaven Molecular Degrader of Extracellular Protein (“MoDE”) and Targeted Removal of Aberrant Protein ("TRAP"™) degraders harness selectivity, rapidity and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE or TRAP degrader is a novel bispecific molecule that targets a specific form of disease-causing circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. The first extracellular protein degraders in the clinic, three MoDE and TRAP degraders have now been dosed in Phase 1 trials. Our lead MoDE, BHV-1300, has demonstrated deep lowering of IgG > 80% in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. Data in the first Graves' patient dosed with BHV-1300 demonstrated complete suppression of autoantibodies targeting the TSH receptor and normalization of T3 and T4 within one month of dosing. We plan to initiate a pivotal trial in 2026. +BHV-1400 , Biohaven's first TRAP molecule, is designed to specifically target the pathogenic driver of IgAN, galactose deficient IgA1 (Gd-IgA1) without suppressing the healthy immune system. BHV-1400 has been dosed in a clinically concluded phase 1 study in normal healthy volunteers and continues to be dosed in an expansion cohort of IgAN patients with plans to initiate the pivotal study in IgAN patients in 2026. Data from the first, and lowest, dose cohort of BHV-1400 demonstrated clear differentiation from competitors in the IgA nephropathy space, with deep, rapid lowering of Gd-IgA1 within hours and preservation of host immunoglobulins ("Ig") including IgG, IgA, IgE, and IgM. These results have now been re-capitulated in the first IgAN patients dosed, with improvements noted in hematuria, proteinuria, and eGFR within the first month of dosing. +BHV-1300 +BHV-1300 has demonstrated deep lowering of IgG1, 2 and 4 in Phase 1 clinical trials and is being developed as a proprietary subcutaneous formulation in conjunction with an autoinjector for easy-to-use self-administration. BHV-1300 was rationally designed to spare IgG3, potentially allowing for preservation of host defense. BHV-1300 is being developed for the treatment of common immune mediated-diseases, such as Graves' Disease and Rheumatoid Arthritis ("RA"). Graves' Disease is a disease in which IgG1 autoantibodies stimulate the thyroid to produce excess thyroid hormone. Targeted removal of disease-causing IgG has the potential to eliminate the pathogenic thyroid-stimulating antibody and modify the disease. Graves' Disease is estimated to impact 1% of the population globally. RA is a chronic autoimmune disease estimated to affect 1 to 2% of the global population. RA primarily affects the joints, causing pain, swelling, stiffness, and loss of function. +2 +Table of Contents +We evaluated the effect of single and multiple doses of BHV-1300 in cynomolgus monkeys. In September 2023, we reported data from confirmatory studies that showed a 75-80% reduction of IgG levels two days after a single dose and over 90% of IgG lowering after three doses. +Maximal lowering across FcRn inhibitors is 60-80% within approximately 7 to 21 days after initiation of single or multiple doses, respectively, in cynomolgus. In contrast, a single dose of BHV-1300 lowers IgG by approximately 75 to 80% after approximately 2 days, and after three rapid doses to greater than 90% lowering. The length of significant exposure to BHV-1300 is approximately one day within the dosage interval compared to continuous exposure required of the FcRn inhibitors. Mechanism-related liabilities of FcRn inhibitors seen in animals and humans, including hypoalbuminemia and hypercholeresterolemia, are not expected and do not occur with BHV-1300 in cynomolgus. See figures below comparing the speed and depth of lowering to FcRn inhibitors. +3 +Table of Contents +In January 2024, we reported preclinical pharmacodynamic single dose data with BHV-1300 which demonstrated the Biohaven IgG degrader technology allows for co-administration with Fc-containing biologics. The PK of Humira® was unaltered after being dosed 12 hours after BHV-1300 administration (see figure below). +* Adapted from BLA 761154, IND 116471, Study no. r-fkb327-01 +Our Phase 1 Study with BHV-1300 +The Phase 1 SAD study examining BHV-1300 in healthy subjects was initiated in the first quarter of 2024. In May 2024, we reported preliminary results from our Phase 1 study of BHV-1300. These results in healthy subjects demonstrated that BHV-1300 rapidly and selectively lowers IgG in a dose-dependent manner in the first 4 cohorts completed to date (see figure below). Preliminary IgG lowering data was consistent with modeling, with dose- and time-dependent IgG lowering observed even in initial low-dose cohorts. Some subjects experienced IgG reductions as low as 50 to 70% of baseline. BHV-1300 demonstrated reduction of IgG without significantly impacting LFTs, albumin, LDL cholesterol or other serum labs. BHV-1300 has been safe and well tolerated to date, with no serious or severe adverse events. Most adverse events ("AEs") were mild, deemed unrelated to study drug and resolved spontaneously. As expected from the selectivity of the molecule for IgG, when compared to placebo, there were no meaningful reductions in average IgA, IgM or IgE levels during the week after dosing. No adverse trends have been observed in vital signs or ECGs. Modeling suggested additional cohorts in the Phase 1 study would achieve greater than 70% lowering of IgG utilizing doses compatible with subcutaneous administration. +The Phase 1 study has also compared intravenous and subcutaneous administration of BHV-1300. Subcutaneous administration of BHV-1300 demonstrated an average of approximately 44% higher than expected exposure compared to the dose-equivalent intravenous formulation without injection site reactions. This new human data confirms the feasibility of our plan for convenient dosing of BHV-1300 with a patient self-administered subcutaneous autoinjector. +In the fourth quarter of 2024 we provided an update to our Phase 1 study of BHV-1300, reporting that subcutaneously administered BHV-1300 achieved deep lowering of targeted IgG (IgG1, IgG2, IgG4, over IgG3), with reductions over 60% in the lowest subcutaneous dose tested in the ongoing MAD study. Subcutaneous BHV-1300 achieved progressive reduction in IgG within hours of each weekly dose administration in the MAD, and pharmacodynamic effects were sustained relative to baseline over the four-week study period. BHV-1300 has been safe and well-tolerated across the Phase 1 study. There were no clinically significant effects on albumin or liver function, and no increases in cholesterol were noted. Further enhancing the competitive safety profile and as intentionally designed, plasma IgG3 levels were preserved through the end of study week 4 to allow for healthy immune effector functioning. All AEs were mild, any drug-related AE resolved, and there were no discontinuations due to study drug related AEs. The optimized subcutaneous formulation in the MAD also showed substantially less inter-patient variability compared to previously reported intravenous BHV-1300. In addition, we announced that we entered into an agreement with Ypsomed to develop and manufacture BHV-1300 in an easy-to-use, autoinjector for self-administration intended for commercialization. +In March 2025, we provided further updates to our ongoing Phase 1 study of BHV-1300. In the four-week Phase 1 study, subcutaneously administered BHV-1300 at a dose of 1000 mg weekly achieved rapid, deep and sustained reductions +4 +Table of Contents +in total IgG of up to 84%, with a median reduction of 80%. Reductions occurred within hours of each dose, were progressive, and were sustained compared to baseline over the four-week period. +In May 2025, we released new data from our clinically concluded Phase 1 study of BHV-1300. In the Phase 1 multiple-dose study, subcutaneously administered BHV-1300 achieved IgG reductions up to 87%. Median maximum reductions of 83% were achieved within 18 days (see figure below). We recently reported the 1000 mg weekly dose achieved rapid, deep and sustained reductions in total IgG of up to 84%, with a median reduction of 80% by Week 4. Reductions at all doses occurred within hours of administration, were progressive, and effects were durable between dosing intervals. The range of IgG lowering enabled by different dose levels of BHV-1300 offers tunability and flexibility in dosing paradigm, with higher doses planned for management of acute conditions, and lower, less frequent dosing planned for the management of chronic disease. +In the preliminary data reported, BHV-1300 was safe and well-tolerated in subcutaneous doses up to 2000 mg with no clinically significant increases in ALT, AST, or bilirubin, no clinically significant reductions in albumin, and no clinically significant increases in cholesterol over the four-week dosing period compared to placebo. There were no clinically significant reductions in IgG3, IgA, IgE, or IgM compared to baseline. Most AEs were mild and self-resolving, and there were no serious or severe AEs. A Phase 1b study has been initiated to evaluate the effect in participants with Graves' disease. We plan to initiate a pivotal trial of BHV-1300 in Graves’ disease in 2026 and expect to pursue additional follow-on studies in other autoimmune diseases. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +In January 2025, we announced that the first-in-patient clinical experience with BHV-1300 resulted in a complete suppression of disease-causing TSH receptor-stimulating antibodies with accompanying normalization of previously elevated thyroid hormones within weeks after dosing a patient with Graves' disease. +5 +Table of Contents +BHV-1400 +BHV-1400 is the first TRAP degrader introduced by Biohaven, a selective MoDE which is being developed to target Gd-IgA1, an aberrant immunoglobulin that drives IgA Nephropathy (see figure below). +Specific removal of pathogenic Gd-IgA1 and associated circulating immune complexes with preservation of normal IgA potentially permits disease remission without incurring an infection risk. We shared preliminary data demonstrating the chimeric antibody-ASGPR ligand conjugate specifically mediated endocytosis of Gd-IgA1, as opposed to normal IgA1 and IgA2, in an endocytosis assay with ASGPR-expressing cell lines, and that TRAP degraders successfully internalize and degrade these immune-complexes. In mice, after deposition of Gd-IgA1 in the glomerular mesangial matrix followed by administration of BHV-1400, Gd-IgA1 is progressively removed and no longer detected by six hours. +Our Phase 1 Study with BHV-1400 +We initiated Phase 1 studies of BHV-1400 in the fourth quarter of 2024. The first-in-human ("FIH") trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1400 in healthy volunteers. In the first quarter of 2025, Biohaven announced deep and selective lowering of Gd-IgA1 with the first dose cohort tested in the SAD. Subjects achieved median Gd-IgA1 lowering of 60% within 4 hours of dose administration without clinically significant lowering of healthy immunoglobulins IgA, IgE, IgM, or IgG. As a next generation TRAP degrader, BHV-1400 is a potential therapeutic for the treatment of IgA nephropathy, and highlights the precision of MoDE platform molecules in their ability to selectively remove a pathogenic disease-causing protein without suppressing the healthy immune system. +In May 2025, we announced further data from the Phase 1 study of BHV-1400. In the Phase 1 study, a single dose of BHV-1400 was subcutaneously administered at a dose of 500 mg and achieved rapid, deep and sustained reductions in +6 +Table of Contents +Gd-IgA1 of up to 81%, with a median reduction of 66% (see figure below). Reductions occurred within hours of each dose, were progressive, and were sustained for weeks after a single dose administration. Effects were selective, with no significant reductions observed in other immunoglobulins: IgA, IgG, IgE, or IgM. +BHV-1400 has been safe and well-tolerated across the ongoing Phase 1 study. Most AEs were mild and self-resolving, there were no discontinuations due to study drug related AEs, and there were no serious or severe study drug related AEs. There were no clinically significant increases in ALT, AST or bilirubin, no clinically significant reductions in albumin and no clinically significant increases in cholesterol relative to placebo over the 4-week dosing period. There were no clinically significant reductions in other immunoglobulins including IgG, IgA, IgE, or IgM relative to baseline. Based upon the rapid and deep reductions of Gd-IgA1 observed with SC BHV-1400, we have expanded our Phase 1 study of BHV-1400 in patients with IgAN, and ultimately plan to initiate a pivotal trial using urine protein-creatinine ratio as a surrogate endpoint for accelerated approval. +In the fourth quarter of 2025, we completed a meeting with the U.S. Food and Drug Administration ("FDA") to align on a pivotal IgAN study design, which we expect to initiate in the first quarter of 2026. We are evaluating and have not yet finalized potential clinical trial designs, including size and primary and secondary endpoints. +In January 2025, we announced that first dosing of BHV-1400 in IgAN patients achieved early observations of both biomarker and clinical responses including: selective lowering of only the disease-causing galactose-deficient IgA1 while sparing off-target effects on healthy antibodies (IgA, IgM, IgE, IgG), resolution of blood in the urine (hematuria), deep reductions in proteinuria, and improvement in fatigue and kidney function (eGFR) within weeks. +Kv7 +Kv7 Platform Acquisition +In February 2022, we announced that we entered into a definitive agreement with Channel Biosciences, LLC, a subsidiary of Knopp Biosciences, LLC, to acquire a drug discovery platform targeting Kv7 ion channels, adding the latest advances in ion channel modulation to our growing neuroscience portfolio. +Kv7’s Role in Epilepsy, Mood Disorders, and Other Central Nervous System Disorders +Because of their fundamental role in health and their aberrant role in disease, ion channels in cell membranes represent a broad and important class of drug targets. Sodium channels and potassium channels form the ionic basis of the action potential in electrically charged cells throughout the body (see figures below). The Kv7 protein in particular forms a channel that exquisitely regulates the flow of charged potassium ions (K+) across cell membranes, repolarizing nerve cells and resetting them for normal action potential firing. Kv7 channels include a family of channel subtypes, designated as Kv7.1 through Kv7.5, and they are formed by tetramers of identical or compatible subunits. Some of these channel subtypes localize in nerve cells (neurons) while others can be found in cardiac muscle, smooth muscle, and other tissue types. +7 +Table of Contents +The Kv7 subunits, Kv7.2 and Kv7.3, are widely expressed in the brain, notably in the cortex and hippocampus, and together they form Kv7.2/7.3 heteromeric channels that produce the M-current ( I KM ), a critical regulator of neuronal excitability (see figures below). Kv7.2/7.3 channels normally perform a natural “braking” function by regulating the electrical excitability and hyperexcitability of brain cells. Dysfunction of these channels, due to genetic mutations or other factors, increases seizure risk, while augmenting the ‘open’ activity of these channels has been demonstrated to reduce neuronal hyperexcitability and seizure frequency in electrophysiology laboratories, in animal models, and, most importantly, in patients. +White, Role of Potassium Channel Ions in Epilepsy, Medscape.org +We are synthesizing novel Kv7.2/7.3 activators that improve on the selectivity, potency, and other characteristics of ezogabine (Potiga in the U.S. and Trobalt (retigabine) in Europe), a drug approved in 2011 for the treatment of refractory epilepsy and voluntarily withdrawn from the market in 2017 because of poor tolerability and structure-related toxicities that limited its clinical use, and ezogabine-like compounds, while averting its negative attributes, including off-target activity at a different brain ion channel, gamma-aminobutyric acid (“GABA”) A receptor (“GABA A -R”). +Using a structure-based approach, supplemented by in silico modeling, we have identified structural features of our molecules critical to Kv7 activation. We have applied these analyses to the generation of proprietary chemical leads structurally distinct from known Kv7 activators, including ezogabine and flupirtine, the only other approved Kv7 modulator, approved in Europe for the treatment of acute pain. Our team has synthesized a large library of Kv7-activating molecules and are advancing them according to stringent criteria requiring improvements over ezogabine, including chemical stability, synthetic tractability, the avoidance of structural motifs associated with the generation of reactive metabolites and other unwanted, off-target activity, including GABA A -R activation. +Epilepsy, Major Depressive Disorder ("MDD"), and Bipolar Disorder are the initial indications we targeted with activators from our Kv7 platform. In addition to their role in treating epilepsy, anti-seizure medications ("ASMs") are often used in the management of bipolar disorder and Kv7 activators have recently shown promise in the treatment of MDD. While the use of ASMs is often accompanied by dose-limiting side effects, our Kv7 activators are specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives activators from our Kv7 platform a wide therapeutic window and is expected to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving ASMs. +Opakalim (BHV-7000) +Opakalim (formerly referred to as BHV-7000), the lead asset from the Kv7 platform, is a potent Kv7.2/7.3 ion channel activator from a novel, bicyclic imidazole class that is structurally-distinct from other Kv7 modulators (e.g., ezogabine and related aniline compounds) with significant in vivo anticonvulsant activity and a wide therapeutic index. In the most widely used and positively-predictive preclinical model of epilepsy, the maximal electroshock (“MES”) model, data for opakalim and ezogabine were collected in independent experiments (see figures below), measuring the activity of both compounds in preventing seizures (ED50) and recording the neurologic deficit five minutes prior to the MES test to calculate the tolerability index (“TI”). The neurologic deficit is a behavioral index ranging from normal activity (score of 0) to a loss of righting reflex (score of 3). As shown below, opakalim was demonstrated to have an ED50 = 0.5 mg/kg with almost no impact on behavior producing a TI > 40x. In a separate rotarod experiment of preclinical tolerability, opakalim had no impact on rat motor behavior up to 30 mg/kg, the highest dose tested. In contrast, ezogabine was 40x less potent (ED50 = 20 mg/kg) in the MES model with a narrow TI < 3x. The narrow preclinical TI for ezogabine is consistent with the clinical +8 +Table of Contents +experience with the drug where side effects such as somnolence and dizziness limited its use at doses that prevented seizures in patients. +Phase 1 Clinical Development +In the second quarter of 2022, our Clinical Trial Application for opakalim was approved by Health Canada, and we subsequently began phase 1 clinical development. First-in-human single ascending dose ("SAD") and multiple ascending dose ("MAD") studies were completed with an immediate release formulation. In the SAD and MAD cohorts, 77 subjects received opakalim (N=58) or placebo (N= 19). Thirty-nine SAD subjects were randomized to opakalim or placebo and thirty-eight MAD subjects were randomized to opakalim or placebo. The rates of AEs by MedDRA System Organ Class +9 +Table of Contents +across the pooled SAD and MAD cohorts among subjects treated with opakalim and placebo are presented in the tables below. +Table 1: Treatment‐emergent adverse events ("TEAEs") Occurring in ≥ 2 Subjects Receiving opakalim in SAD Cohorts +All AEs reported in the SAD cohorts were mild in severity. +Table 2: TEAEs Occurring in ≥ 2 Subjects Receiving opakalim in MAD Cohorts +All AEs reported in the MAD cohorts were mild in severity, except 1 case of back pain (moderate severity, 40 mg) and 1 case of dizziness (moderate severity, 80 mg). +a Data are included from a separate study evaluating higher MAD doses. +b Data are pooled across studies. +In 2023, we initiated a Phase 1 open-label electroencephalogram ("EEG") study designed to evaluate the effects of opakalim on EEG parameters in healthy adults. The study’s objective was to demonstrate opakalim target engagement in the cerebral cortex and to help refine dose selection for Phase 3 trials. Study measures included continuous EEG monitoring, time locked pharmacokinetic ("PK") sampling, and changes in EEG spectral power post dose. +The Phase 1 EEG study was designed to evaluate qualitative changes from baseline in EEG spectral power after administration of single doses of opakalim (10, 25, or 50 mg) to 11 healthy male and female adult volunteers. EEG spectral power is a measure derived from quantitative analysis of EEG signals that assesses the amount of rhythmic activity in different frequency bands, including delta [1-3.5 Hz], theta [3.5-7.5 Hz], alpha [7.5-13 Hz], beta [13-30 Hz], and gamma [30-100 Hz]. Changes in spectral power have been used to evaluate the risk, onset and progression of seizures, assess cognitive and behavioral impairments, and characterize the effects of anti-seizure medications ("ASMs"), and they may also have utility in refining dose selection in clinical trials of ASMs. Spectral analysis was performed by Clouds of Care (Ghent, Belgium), a global leader in EEG analytics. +Interim data from the Phase 1 EEG study were presented in December 2023 at the American Epilepsy Society meeting in Orlando, Florida. Opakalim was well-tolerated at all doses studied, without the typical CNS AEs associated with other ASMs, such as somnolence or cognitive/mood disturbances, and EEG data showed dose-dependent increases in brain spectral power in healthy subjects (Figure 1 below). Unlike prior reports where EEG effects of a Kv7.2/7.3 activator showed the greatest power increase in the delta frequency band (Biondi et al. 2022), the highest spectral power increases with opakalim were seen in alpha, beta, and gamma frequency bands (Figure 2 below). While changes in spectral power were observed across all frequency bands with opakalim, the minimal impact on slower frequencies (i.e., delta) is consistent with the low incidence of CNS adverse events, in particular somnolence, seen in the opakalim Phase 1 +10 +Table of Contents +SAD/MAD studies. EEG delta activity is associated with somnolence, an undesirable CNS adverse event often seen with other ASMs. +Figure 1: Opakalim shows dose-dependent increases in spectral power over all brain regions. +Figure 2: Opakalim effect on spectral power in resting -state EEGs. Greatest impact observed on alpha frequency with minimal impact on delta and theta frequencies. +The preliminary EEG study results confirm the CNS activity of opakalim at projected therapeutic concentrations, dose-dependent and time-dependent changes in EEG spectral power, and are consistent with the quantitative EEG effects observed with other ASMs approved for the treatment of epilepsy. +Based on the results from the EEG study and the safety profile in SAD/MAD trials, along with PK data from a new once-daily extended-release (“ER”) formulation, Biohaven is exploring three oral doses of opakalim (once daily 25 mg ER, once daily 50 mg ER, and once daily 75 mg ER) in the Phase 2/3 clinical trials in epilepsy and mood disorders. This dosing approach with a Kv7 activator will allow for assessment of distinct target concentrations over a wide range. +In December 2024, t the American Epilepsy Society meeting, we presented additional safety data with the opakalim once-daily extended-release formulation, which further demonstrated tolerability. +Epilepsy +Epilepsy affects approximately 3.5 million Americans, or more than 1.2% of adults and 0.6% of children in the U.S., and more than 50 million patients worldwide, according to the World Health Organization (“WHO”). It is the fourth most common neurological disorder, and many patients struggle to achieve freedom from seizures, with more than one third of patients requiring two or more medications to manage their epilepsy. While the use of anti-seizure medications is often accompanied by dose-limiting side effects, our clinical candidate opakalim is specifically designed to target subtypes of Kv7 potassium channels without engagement of GABA A receptors. The lack of GABA A -R activity potentially gives opakalim a wide therapeutic window which we expect to result in an improved side effect profile, limiting the somnolence and fatigue often seen in patients receiving anti-seizure medications. We aim to bring this potassium channel modulator as a potential solution to patients with epilepsy who remain uncontrolled on their current regimens. +11 +Table of Contents +Our Clinical Trials for Opakalim in Epilepsy +Focal Epilepsy +In January 2024, we completed our End-of-Phase 2 meeting with the FDA to advance to Phase 3 trials and announced that more than 110 global clinical sites have been selected in the first of two focal epilepsy trials. Enrollment in our Phase 2/3 program commenced in the first quarter of 2024. The two pivotal studies evaluating the efficacy of opakalim in refractory focal epilepsy are planned as randomized, double-blind, placebo-controlled, 8- and 12-week trials with a primary endpoint of change from baseline in 28-day average seizure frequency in adults with focal epilepsy. RISE 3 is evaluating 50 mg and 75 mg doses of opakalim (see figure below). We expect to report topline results from RISE 3 in the second half of 2026. RISE 2 Part A is evaluating 25 and 50 mg doses of opakalim, whereas Part B is evaluating the 75 mg dose of opakalim (see figure below). The RISE 2 study was amended to add Part B with the higher 75 mg dose, thereby replicating the potential therapeutic benefits of the higher 75 mg dose in the RISE 3 study and optimizing the overall development plan for opakalim. The Company expects estimated enrollment in each study to be 390 participants. +In addition, Biohaven is currently conducting an open-label extension ("OLE") study to evaluate the long-term efficacy and safety of opakalim in participants who completed either parent study. Review of data from the ongoing open-label clinical trial experience with opakalim in focal epilepsy support the potential for opakalim to achieve efficacy and to deliver a favorable and differentiated safety profile. Open-label treatment with opakalim demonstrated clinically meaningful reductions in seizure frequency compared to the pretreatment baseline observation period prior to randomization. Specifically, 55% of participants showed ≥50% reductions in seizure frequency (≥50% responder rate), for those who completed at least 6 months of treatment with opakalim 75 mg once daily in the open-label study; and this result is comparable to the ≥50% responder rate published for other investigational agents in the class such azetukalner (which has reported 56% of patients with a ≥50% responder rate over any consecutive best 6-month period from its Phase 2b OLE data). Notably, the antiseizure effects of opakalim were correlated with plasma concentrations, based on a preliminary exposure-response analysis. Opakalim was well-tolerated in the open-label study with a low incidence of CNS adverse events, consistent with prior studies with opakalim. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) +In February 2022, we announced a worldwide license agreement with BMS for the development and commercialization rights to taldefgrobep alfa (also known as BMS-986089), a novel Phase 3 asset. Myostatin, a negative regulator of muscle growth, is a key member of the Transforming Growth Factor ("TGF-β") superfamily. Taldefgrobep's novelty in a field of myostatin-activin pathway inhibitors is based on the mechanism where it binds to myostatin to both lower overall free myostatin levels, but also to function as a receptor antagonist to block myostatin signaling in skeletal muscles. Recently generated data has shown that the taldefgrobep alfa-myostatin complex is stable, and blocks myostatin signaling to both myostatin and to a lesser extent to activin A potentially for a protracted period after cessation of dosing. Blocking myostatin and activin signaling has been shown to improve muscle function and strength in a number of disease models for neuromuscular wasting along with physical and metabolic changes important to individuals living with overweight and obesity. Blocking activin contributes to decreased adipose tissue and improved glucose homeostasis. Clinical studies have confirmed that taldefgrobep improved lean body mass directly through increase on contractile muscle and loss of adipose tissue as demonstrated in both normal healthy volunteers and in patients with Duchenne +12 +Table of Contents +muscular dystrophy (“DMD”). The mechanism of increasing overall muscle size and reducing adipose tissue volume provide development opportunities in both neuromuscular disease and individuals living with overweight and obesity. +The advanced taldefgrobep alfa anti-myostatin development program offers extensive human safety data, especially in the pediatric population. +Metabolic Disorders +Obesity is a disease of excess and/or abnormal deposits of adipose tissue and a current global public health crisis. By 2030, it is expected that nearly one billion people will be living with obesity, including 50% of the adult and 25% of the adolescent U.S. population. The primary driver of obesity-related morbidity and mortality is metabolically active visceral adipose tissue and associated deposits of adipose tissue in and around organs such as the heart, liver, kidneys, and muscle. +Taldefgrobep Alfa’s Role in the Management of Overweight and Obesity +Preclinical and clinical data have demonstrated the potential for anti-myostatin therapies to produce physical and metabolic changes that are highly relevant to individuals living with overweight and obesity, including reducing total body fat and visceral adiposity, and improving insulin sensitivity and bone mineral density, while increasing lean muscle mass. Taldefgrobep’s novel mode of action and unique impact on body composition suggest it could be used as monotherapy or in combination with other anti-obesity medications. +In October 2023, we announced preclinical data demonstrating the ability of taldefgrobep to significantly reduce fat mass while increasing lean mass in an obese mouse model. In a mouse model of diet-induced obesity, untreated mice exhibited an increase in fat mass of 31%, while the mice treated with taldefgrobep demonstrated increases in lean mass of 25% from baseline (p≤.0.001) and lost 11% of their baseline fat (p≤.0.001) compared to vehicle (placebo) treated mice. Insulin and leptin levels were consistently lower in mice treated with taldefgrobep compared to the untreated mice. There was no difference in food intake over time across the taldefgrobep and untreated mice, counter to what has been observed with incretin mimetics (e.g., semaglutide) which are consistently associated with a reduction in energy intake. +13 +Table of Contents +Our Clinical Trial for Taldefgrobep Alfa in Obesity +In a Phase 1 MAD study conducted by BMS in normal healthy volunteers, the cohort using the projected therapeutic 45mg dose of taldefgrobep demonstrated a continued improvement in lean mass and a reduction in fat mass during the 29 day dosing period that continued to increase through the observation period at 4 weeks post dosing (see figure below). +In May 2024, we announced preclinical data from a diet induced obesity mouse model, which showed treatment with taldefgrobep alfa together with a glucagon-like peptide-1 ("GLP-1") agonist produced greater reductions in body weight and fat mass, and a larger increase in lean muscle mass, compared to treatment with GLP-1 alone (see figure below). +Based on non-clinical and clinical data, Biohaven initiated a Phase 2 study of taldefgrobep in the management of obesity in the fourth quarter of 2025 and expects to report topline results in 2026. The study will evaluate the ability of taldefgrobep to reduce fat mass and total body weight while increasing lean muscle mass. The study is a placebo-controlled study evaluating two dosing schedules of taldefgrobep versus placebo. Approximately 150 participants will be randomized to receive taldefgrobep or matching placebo over a 24-week double-blind treatment period followed by an additional 24 weeks of open-label extension during which all participants will receive taldefgrobep. Key endpoints include +14 +Table of Contents +the change in total body weight, lean mass, fat mass, and metabolic parameters, along with a comprehensive assessment of safety. See below for trial design. +Previous Clinical Trials +Taldefgrobep was previously studied by Bristol Meyers Squibb ("BMS") and Roche in 4 completed clinical studies in healthy volunteers and subjects with DMD. An estimated 360 subjects received taldefgrobep; 179 healthy subjects and 181 subjects with DMD. +Completed clinical pharmacology studies in healthy adult subjects included: +• CN001001 was a randomized, placebo-controlled, Phase 1 study designed to evaluate the safety, tolerability, PK, and PD of single and multiple ascending subcutaneous doses of taldefgrobep (vial) in healthy adults. +• CN001023 was a randomized, open-label, single dose, parallel-group, Phase 1 study designed to compare the bioavailability of subcutaneous injections in the arm, thigh, and abdomen and to evaluate the safety, tolerability, PK, and immunogenicity of taldefgrobep (pre-filled syringe) in healthy adults. +Completed clinical studies in subjects with DMD included: +• CN001006 was a multi-site, randomized, placebo-controlled, double-blind, dose-ranging, Phase 1b/2 study to evaluate the safety, tolerability, and PK of taldefgrobep in ambulatory boys with DMD aged ≥ 5 to < 11 years. +• CN001016 was a randomized, double-blind, placebo-controlled, Phase 2/3 study to assess the efficacy, safety, and tolerability of 2 doses of taldefgrobep in ambulatory boys with DMD aged ≥ 6 to < 12 years. +All studies supported the safety and tolerability of taldefgrobep with fixed doses from 35 mg up to 180 mg administered weekly, subcutaneously ("SC"). The pharmacokinetics and safety data from the Phase 1 studies supported the continued development with doses of 35 mg and 50 mg administered weekly SC. +In the Phase 3 Clinical Study, CN001016, a futility analysis based on this primary endpoint, conducted after approximately 30% of subjects had completed 48 weeks of study drug treatment, did not show any statistically significant treatment differences. A summary of the development and outcome from these studies are published (Neurol Ther. 2024 Feb;13(1):183-219). +15 +Table of Contents +Other Non-Key Programs +In the fourth quarter of 2025, we initiated a strategic reprioritization of our development platforms and are now focused on our key programs to prioritize resources. As a result, development of programs outside of our key programs (the "non-key programs") may be substantially downsized, paused or delayed. +Glutamate Modulation Platform +The most advanced product candidate from our glutamate receptor antagonist platform is troriluzole (previously referred to as trigriluzole and BHV-4157). Other product candidates include BHV-5500, an antagonist of the glutamate N-methyl-D-aspartate (“NMDA”) receptor and its oral prodrug BHV-5000. +Glutamate is an important neurotransmitter present in over 90% of all brain synapses. Glutamate plays an essential role in normal brain functioning and its levels must be tightly regulated. Abnormalities in glutamate levels can disrupt nerve health and communication, and in extreme cases may lead to nerve cell death. Nerve cell dysfunction and death leads to devastating diseases, including ataxia, amyotrophic lateral sclerosis (“ALS”) and other neurodegenerative disorders. Glutamate clearance is necessary for proper synaptic activation and to prevent neuronal damage from excessive activation of glutamate receptors. Excitatory amino-acid transporters (“EAATs”) help regulate glutamate clearance, and are responsible for most of the glutamate uptake within the brain. +The mechanism of action of our glutamate platform is depicted below. Glutamate must be tightly regulated once released from a pre-synaptic neuron. It acts as a signaling neurotransmitter to stimulate the post-synaptic neuron via glutamate receptors (e.g., NMDA, alpha-amino-3-hydroxy-5-methyl-4-isoxazole-propionic acid (“AMPA”) or Kainate receptors). Glial cells surrounding the synaptic junction are predominantly responsible for clearing glutamate through transporters, specifically the EAATs. There are five distinct types of glutamate transporters. The figure below depicts the areas of modulation that are affected by our product candidates. +Adapted from Glutamate abnormalities in obsessive compulsive disorder: Neurobiology, pathophysiology, and treatment, C. Pittenger, +M. Bloch, and K. Williams +(1) As depicted in the glial cell to the right in the figure, troriluzole increases the activity and expression of the EAATs to increase the clearance of glutamate released from the pre-synaptic neuron. Troriluzole also inhibits presynaptic ion channels that may inhibit the release of glutamate from presynaptic neurons. +(2) As depicted in the postsynaptic neuron to the bottom of the figure, BHV-5500 blocks glutamate signaling that is mediated by post-synaptic NMDA receptors. Modulating glutamate also has the potential to be neuroprotective and increase the release of neurotrophic factors, including brain derived neurotrophic factor (“BDNF”) which are endogenous molecules that help to support the survival of existing neurons, and encourage the growth and differentiation of new neurons and synapses. +16 +Table of Contents +Glutamate Transporter Modulation +Abnormal glutamate release or dysfunction of glutamate clearance can cause overstimulation of glutamate receptors which can lead to a dangerous neural injury called excitotoxicity, which has been associated with a wide range of neurodegenerative diseases. The FDA has approved anti-excitotoxicity drugs that act on the glutamatergic system by blocking NMDA receptors, such as memantine (“Namenda”) for Alzheimer’s disease, lamotrigine (“Lamictal”) for epilepsy and bipolar disorder and riluzole (“Rilutek”) for ALS. Although these drugs show the therapeutic potential of glutamate receptor antagonists and other glutamate modulators in the treatment of a range of neurological diseases, these approved drugs have serious side effects and other drawbacks that we have attempted to solve with our development of troriluzole. +Troriluzole +Troriluzole is a new chemical entity (“NCE”) and tripeptide prodrug of the active metabolite, riluzole. Based on its mechanism of action, preclinical data and clinical studies, troriluzole has potential for therapeutic benefit in a range of neurological and neuropsychiatric illnesses. Initial development has focused on its use in treating SCA, an orphan neurological indication that currently has no approved drug therapies and for which the active metabolite, riluzole, has demonstrated preliminary efficacy in two prior randomized controlled trials conducted by third parties. +Ristori et al. reported a randomized, double-blind, placebo-controlled trial of 40 patients presenting with cerebellar ataxias of diverse etiologies, including SCA. Subjects were randomized to receive 8 weeks treatment with either placebo or riluzole (50 mg Riluzole tablets, twice daily). Statistically significant improvement in the riluzole treated group was demonstrated on the International Cooperative Ataxia Rating Scale (“ICARS”). The number of patients with a 5-point ICARS drop was higher in the riluzole group than in the placebo group after 4 weeks (9/19 vs 1/19; odds ratio [“OR”] =16.2; 95% confidence interval [“CI”] 1.8–147.1) and 8 weeks (13/19 vs 1/19; OR = 39.0; 95% CI 4.2– 364.2). The mean change in the riluzole group ICARS after treatment revealed a decrease (p < 0.001) in the total score (-7.05 [4.96] vs 0.16 [2.65]). +Romano et al. described results of a second randomized, placebo-controlled trial in subjects diagnosed with a hereditary ataxia (including SCAs) randomized to receive 12 months of treatment with either placebo or riluzole (50 mg, twice daily). 60 patients were randomized. Statistically significant improvement in the riluzole treated group was demonstrated on the Scale for the Assessment of Ataxia (“SARA”). The proportion with decreased SARA score was 14 (50%) of 28 patients in the riluzole group versus three (11%) of 27 in the placebo group (OR 8.00, 95% CI 1.95– 32.83; p=0.002). +We acquired troriluzole as well as an estate of over 300 prodrugs from ALS Biopharma, LLC (“ALS Biopharma”) and Fox Chase Chemical Diversity Center, Inc. (“FCCDC”). A prodrug is a compound that, after administration, is metabolized in the body into an active drug. Troriluzole is actively transported by virtue of recognition of its tripeptide moiety by the PepT1 transporter in the gut and is responsible for the increased bioavailability of the drug. Once inside the body, the prodrug, troriluzole is cleaved by enzymes in the blood to the parent, riluzole. To mitigate the limitations of riluzole, several classes of prodrugs were designed, synthesized, and evaluated in multiple in vitro stability assays that predict in vivo drug levels. Troriluzole is a third generation of prodrug development and the product of six years of intensive chemistry efforts. +Riluzole is currently only indicated for ALS and has a number of non-desirable attributes that have limited its clinical use. Key limitations of riluzole include poor oral bioavailability, difficulty swallowing due to tablet formulation, food reducing efficacy, liver toxicity, pharmacokinetic variability, and oral numbness. +The prodrug design and selected administration pathway that was pursued with troriluzole is intended to address all of these limitations of riluzole. In addition, a prodrug can be engineered to enhance absorption and protect from diminished absorption when taken with meals. The troriluzole preclinical development strategy was based on optimizing in vivo and in vitro features, such as stability in gastrointestinal and stomach fluids; stability in liver microsomes; limiting off-target effects (particularly liver effects); metabolic cleavage in the plasma to release the active moiety; and enhanced gastrointestinal absorption properties. In in vivo studies in rodents, the intended benefits of this optimization program were observed, including delayed peak concentrations and greater exposure. +After six years of chemistry development and preclinical testing, the resulting lead prodrug from the chemistry program was troriluzole. Troriluzole is chemically comprised of riluzole linked via an amide bond to a tripeptide that is a substrate for PepT1 and which contributes to its improved bioavailability. The tripeptide moiety is cleaved by plasma aminopeptidases. We believe that the estate of compounds we acquired, combined with our internally developed intellectual property, will provide a significant protection for our innovations. The safety and tolerability of troriluzole has now been demonstrated in approximately 2,000 subjects in early- and late-stage clinical studies. +17 +Table of Contents +Our Clinical Program for Troriluzole +Phase 1 Studies with Troriluzole +In July 2016, we began a Phase 1 randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability and pharmacokinetics (“PK”) of single and multiple ascending doses of troriluzole in normal healthy volunteers. 58 healthy volunteers were dosed with troriluzole and 20 were dosed with placebo. Both single and multiple doses up to 200 mg were well tolerated without evidence of novel, clinically significant safety signals or lab abnormalities. There was no apparent dose response regarding the frequency or severity of adverse events (“AEs”). In the blinded group, including subjects treated with both placebo and troriluzole, the most common AEs were headache (five subjects, two with moderate severity and three with mild severity) and constipation (two subjects). No pattern of AEs or lab abnormalities were apparent to provide specific cautions or to suggest cautions beyond what is appropriate for the active metabolite, riluzole. Commencing in December 2017, an additional single and multiple dose study was conducted to assess the safety, tolerability and PK of a 280 mg dose in 10 healthy young and elderly volunteers (eight active; two placebo). The results supported adequate safety and tolerability and yielded mean exposures comparable to what would be expected from a 200 mg dose, a dose that has been safely used in clinic populations and associated with efficacy in a range of disorders in randomized controlled trials (Huntington Study Group Neurology 2003; Lacomblez Neurology 1996). In addition, a bioequivalence study was conducted to bridge a commercial formulation with a Phase 2/3 formulation in 32 healthy volunteers. The commercial formulation was well-tolerated and provided bioequivalent exposure with the Phase 2/3 formulation. +Troriluzole for SCA +Spinocerebellar Ataxias ("SCAs") are a group of ultra-rare, dominantly inherited neurodegenerative disorders predominantly characterized by atrophy of the cerebellum, brainstem, and spinal cord. The disease course of SCA is one of relentless progression over years and inevitably leads to clinical deterioration of motor function, gait imbalance with frequent falling, severe speech impairment, swallowing difficulties, and premature death. SCAs are thought to be pathogenetically related but disease course and brain region involvement are known to vary between the different genotypes. SCA affects approximately 15,000 people in the United States and 24,000 in Europe and the United Kingdom. SCA3, also known as Machado-Joseph disease, is the most common genotype and accounts for approximately 30% to 50% of SCAs worldwide. Currently, there are no approved symptomatic or neuroprotective treatments for SCA. +Based on the results of our Phase 1 trial with troriluzole and two third-party academic trials (Ristori et al 2020, published in Neurology in 2010 and Romano et al 2015, published in The Lancet in 2015) that have shown preliminary efficacy of riluzole in cerebellar ataxias, we advanced troriluzole into development for SCA. Initially, we conducted a Phase 2b/3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 8 weeks in subjects with SCA (Study BHV4157-201). In October 2017, we announced that troriluzole at a dose of 140 mg once daily (“QD”) did not differentiate from placebo on the primary endpoint of the mean change from baseline on the SARA total score after 8 weeks of treatment. After eight weeks of treatment, troriluzole treated subjects (n = 64) demonstrated an improvement of –0.81 points [95% CI: –1.4 to –0.2] on the SARA versus –1.05 points [95% CI: –1.6 to –0.4] improvement in placebo-treated (n = 68), p-value = 0.52. In this trial, we observed a favorable safety and tolerability profile of troriluzole, with no drug-related serious adverse events (“SAEs”) and low discontinuation rates due to AEs. During open-label treatment over the open-label extension phase, however, troriluzole did show slowing of disease progression in troriluzole-treated subjects in contrast to the measurable decline expected as compared to a matched cohort of untreated patients from the U.S. natural history study (Clinical Research Consortium for the Study of Cerebellar Ataxia (“CRC-SCA”)). +Based on our learnings from the proof-of-concept Study BHV4157-201, including analyses from the open-label extension phase, we advanced troriluzole into a pivotal Phase 3, randomized, double-blind, placebo-controlled, parallel-group study to assess the safety and efficacy of troriluzole over 48 weeks in subjects with SCA (Study BHV4157-206). Randomization was stratified by genotype (consisting of these three groupings: SCA1 and SCA2; SCA3; and SCA6, SCA7, SCA8, and SCA10) in order to ensure balance within each of these subgroups. We enriched this trial with specific SCA genotypes, extended the treatment period of this trial to 48 weeks, implemented the use of a modified SARA scale (“f-SARA”), and increased the dose of troriluzole to 200 mg QD. Notably, the f-SARA is a novel, 16-point scale developed in collaboration with FDA and key opinion leaders as the primary outcome measure for this trial; the scale was designed to limit subjectivity of the scale and focus on functional aspects of the disease so that significant changes would reflect a clinically meaningful change in function. +In May 2022, the Company announced top-line results from the Phase 3 clinical trial (Study BHV4157-206) evaluating the efficacy and safety of its investigational therapy, troriluzole, in adult patients with SCA. The primary endpoint, change from baseline to week 48 on the f-SARA, did not reach statistical significance in the overall SCA population as there was less than expected disease progression in the placebo arm over the course of the study. In the overall study population (n = 213), the troriluzole and placebo groups each had mean baseline scores of 4.9 on the f-SARA and the two groups showed minimal change at the 48-week endpoint with f-SARA scores of 5.1 and 5.2, respectively. Preliminary post hoc analysis of +18 +Table of Contents +efficacy measures by genotype suggested a treatment effect in patients with the SCA3 genotype . A risk reduction in falls was also observed in the SCA3 population, as well as across all SCA genotypes . Troriluzole was well tolerated with an adverse event profile similar to placebo. +In May 2023, the Company presented further analysis of Study BHV4157-206 (summarized in the figure below) by prespecified genotype strata that revealed consistent treatment effects of troriluzole in SCA3, the most common genotype worldwide, which represented 41% of study participants. In SCA3 subjects, troriluzole 200mg QD demonstrated benefit on the f-SARA compared with placebo at 48 weeks (LS mean treatment difference = -0.56; 95% CI = -1.11, -0.01; p = 0.0450). This genotype analysis was post hoc as the All SCA study population (SCA1, SCA2, SCA3, SCA6, SCA7, SCA8, SCA 10) was the mITT population for the primary analysis. Results for the SCA3 group are based on a model with no covariates with fixed effects for treatment, visit, and visit-by-treatment interaction; p-values are descriptive. +In addition to the beneficial effects observed on the f-SARA, the forest plot below demonstrates a consistent treatment benefit of troriluzole in SCA3 genotype subjects across multiple prespecified primary, secondary, and +19 +Table of Contents +exploratory study outcome measures. The SCA3 genotype analysis of the clinician- and patient-rated endpoints in the table represent all of the prespecified endpoints in the study protocol. +As shown in the figure below, safety data from Study BHV4157-206 showed that troriluzole-treated subjects showed a substantial risk reduction in falls in the All SCA and SCA3 genotype study populations. Treatment with troriluzole for 48 weeks reduced the risk of fall events by approximately 53% in subjects in the overall (All SCA) population (p = 0.005), by approximately 54% in subjects in the SCA3 population (p = 0.023), and by approximately 68% in subjects with SCA3 who were ambulatory (i.e., baseline Gait 1 or 2) (p = 0.009). This analysis, demonstrating that subjects who were more ambulatory with less severe disease at baseline were more likely to show a benefit from troriluzole, is consistent with the early treatment paradigm for other neurodegenerative diseases. +Two independent natural history cohorts for SCA, one in the U.S. (CRC-SCA) and one in Europe (EUROSCA), have characterized disease progression in this genetically defined neurodegenerative disorder. A Matching Adjusted Indirect Comparison (“MAIC”) was performed to match natural history subjects to subjects in BHV4157-206. As demonstrated in the figure below, at years 1, 2, and 3 change from baseline in f-SARA scores was significantly better among troriluzole patients vs the matched natural history referent (combined CRC-SCA and cross-European registry of SCA patients +20 +Table of Contents +(“EUROSCA”) data - all p values ~0.0004). These results were consistent for both SCA3 only and All SCA analyses. Validation metrics from f-SARA confirm that these changes are clinically relevant and meaningful to patients. +As seen in the figure below, an additional comparative study was conducted using OLE data from up to 3 years with subjects from BHV4157-201. Using a matched control pooled from the same two independent natural history studies (U.S. and European), troriluzole-treated All SCA subjects showed clinically relevant benefit compared to expected progression from the external control at 1 year, 2 years, and 3 years. Of note, there was an administrative gap in treatment in BHV4157-201 between the end of the 48-week OLE and the resumption of treatment at the start of the 96-week period. This gap was observed to result in a decline in f-SARA scores. However, after resumption of treatment patients re-stabilized (did not progress) resulting in the estimation of compelling treatment effects at years 2 and 3. +Given these findings and the debilitating nature of SCA, in May 2023 we announced that we submitted a New Drug Application ("NDA") to the FDA for troriluzole for the treatment of SCA3. In July 2023, the FDA informed us that it would not review the submitted NDA application for troriluzole given that the study's primary endpoint was not met and thus, would not permit a substantive review. In follow-up to the regulatory decision on the NDA application, we held follow-up meetings with the FDA regarding the SCA data. We had constructive dialogue with the FDA regarding our SCA development program and potential future data analyses to address regulatory concerns in the previously issued refuse-to-file decision on the NDA application for SCA3. +21 +Table of Contents +In October 2023, the European Medicines Agency ("EMA") informed us that our Marketing Authorization Application ("MAA") for troriluzole (Dazluma) in the treatment of SCA3 was validated and was then under review by EMA's Committee for Medicinal Products for Human Use ("CHMP"). In the fourth quarter of 2024, we completed a clarification meeting with the CHMP Rapporteurs. The MAA documents were subsequently updated with a broader indication to include all SCA genotypes, in light of the new positive BHV4157-206-RWE study data (discussed below). +In March 2025, we decided to withdraw the troriluzole MAA in the EU for the treatment of adult patients with SCA. This withdrawal decision was based on feedback indicating the EMA would not be able to conclude on new active substance ("NAS") status for troriluzole due to insufficient data. NAS is an important designation recognizing and incentivizing development innovation, validating the differentiation of a new medicinal product for patients. The novelty of troriluzole has been recognized by multiple issued patents globally, and we are committed to expeditiously providing appropriate data and/or argumentation to EMA given the evidence that warrants granting NAS, in the spirit in which the designation was intended. We plan to generate data to work with EMA on next steps towards marketing authorization. +In September 2024, we announced positive topline results from pivotal Study BHV4157-206-RWE (NCT06529146) demonstrating the efficacy of troriluzole on the mean change from baseline in the f-SARA after 3 years of treatment. The study achieved the primary endpoint (see figure below). +Collectively, data across multiple analyses demonstrate a robust and clinically meaningful slowing of disease progression in SCA patients. These treatment benefits translate into a 50-70% slower rate of decline compared to untreated patients, representing 1.5-2.2 years delay in disease progression over the 3-year study period. Additionally, in a responder sensitivity analysis, disease progression when defined by a 2 point or greater worsening on the f-SARA at 3 years showed an odds ratio ("OR") of 4.1 (95% CI: 2.1, 8.1) for the untreated external control arm versus troriluzole treated subjects (p < 0.0001; pooled analysis). +Study BHV4157-206-RWE was designed, in discussion with the FDA, to assess the effectiveness of troriluzole in SCA after 3 years of treatment as measured by the change from baseline in the f-SARA. The study utilized Phase 3 data and an external control of matched, untreated SCA subjects from the U.S. CRC-SCA in accordance with FDA's Guidance on Real-World Evidence ("RWE") of effectiveness. All endpoints were prespecified, and both the study protocol and statistical analysis plan were submitted to, and reviewed by, FDA prior to topline data analysis. The new analysis doubled the previously available 3 year data with 63 subjects now completing 3 years of treatment with troriluzole and matched to the external control arm. Propensity Score Matching ("PSM") was used to ensure that untreated patients from the CRC-SCA study were rigorously matched to treated patients from Study BHV4157-206 on baseline characteristics. The primary objective was to examine the treatment effects of troriluzole for up to 3 years, by comparing data on the f-SARA from patients treated with troriluzole in Study BHV4157-206 to untreated patients from the natural history study. Troriluzole-treated patients demonstrated statistically significant and sustained benefits at years 1, 2 and 3 on the f-SARA compared to a rigorously matched natural history control. +Additionally, prespecified analyses in the protocol employed a separate, independent natural history control from the European SCA natural history study ("EUROSCA") for global regulatory purposes. Results using the EUROSCA patients, in addition to a pooled analysis using both CRC-SCA and EUROSCA patients, as the external controls were also statistically significant and consistent with the primary efficacy analysis at all timepoints (see figures below). The addition +22 +Table of Contents +of EUROSCA data increased the external control sample size and added to the robustness of the statistically significant treatment differences at years 1, 2, and 3, favoring troriluzole. +Based upon the topline data from Study BHV4157-206-RWE, and previous safety and efficacy data from the troriluzole development program in SCA, we submitted an NDA for the treatment of all SCA genotypes to the FDA in the fourth quarter of 2024. The troriluzole development program has generated the largest clinical trial dataset in SCA and now has follow-up in some patients treated with troriluzole for over 5 years. We previously received both Fast-Track and Orphan drug designation ("ODD") from the FDA, and ODD from the European Medicines Agency ("EMA"), for troriluzole in SCA. An NDA with ODD is eligible for priority FDA review. +In February 2025, the FDA accepted for review our NDA for troriluzole for the treatment of adult patients with SCA and granted priority review. In November 2025, we received a Complete Response Letter ("CRL") for the NDA seeking approval of troriluzole for SCA. In the CRL, the FDA recommended that we meet with the Division of Neurology 1 within the FDA's Office of Neuroscience to discuss the evidence that will be needed to support a future NDA for the treatment of SCA with troriluzole. Following receipt of the CRL, we held a Type A meeting with the FDA to initiate an appeal process, given the large number of patients who are currently being treated in the expanded access program. We remain committed to working with the FDA to find a path forward for our NDA. +Troriluzole for OCD +We commenced a Phase 2/3 double-blind, randomized, controlled trial to assess the efficacy of troriluzole in adults with obsessive-compulsive disorder ("OCD"). This trial was followed by two Phase 3 randomized, double-blind, placebo-controlled trials. The first Phase 3 study in OCD was completed with no efficacy signal detected. Given the results of the first study, enrollment in the OCD program was closed to allow resources to be applied to other development programs. +23 +Table of Contents +Troriluzole for Glioblastoma +Preclinical and small-scale pilot studies are underway to explore troriluzole’s use in the treatment of a pipeline of other indications such as some cancers whose spread is thought mediated by glutamate transmission, such as melanoma and GBM. +In collaboration with Johns Hopkins University, we explored the potential applicability of troriluzole for GBM. The oncology collaboration with Johns Hopkins was based upon the mechanistic rationale that some tumors over express glutamate receptors, the central role that glutamate may have in cancer metabolism and the effect of glutamate on the tumor microenvironment. +In December 2021, GCAR selected troriluzole for evaluation in GBM AGILE. GBM AGILE is a revolutionary patient-centered, adaptive platform trial for registration that tests multiple therapies for patients with newly-diagnosed and recurrent GBM, the most fatal form of brain cancer. Troriluzole will be evaluated in all patient subgroups of the trial which include newly-diagnosed methylated O6-methylguanine DNA methyltransferase (“MGMT”), newly-diagnosed unmethylated MGMT, and recurrent GBM. Troriluzole was selected for inclusion in GBM AGILE based on compelling evidence showing deregulation of glutamate in GBM. The therapeutic potential of troriluzole in GBM and other oncology indications is supported by several recent clinical and translational research studies conducted with troriluzole and its active moiety. For example, Medikonda et al. showed a survival benefit with troriluzole, alone and in combination with anti-programmed cell death protein-1 (“PD-1”) immunotherapy, utilizing a frequently used murine brain tumor model. C57BL/6J mice were intracranially implanted with luciferase-tagged GL261 glioma cells. Mice were randomly assigned to the control, anti-PD-1, troriluzole or combination anti-PD-1 plus troriluzole treatment arms, and median overall survival was assessed. The troriluzole treatment arm demonstrated improved survival compared with the control arm (median survival of 36% vs. 0%; p < 0.0001), as did the combination anti-PD-1 plus troriluzole treatment arm (overall survival of 80% vs. 0; p = 0.0007). +In July 2022, the Company and GCAR announced that enrollment has commenced in GBM AGILE for the evaluation of troriluzole. GBM AGILE is a multi-arm, platform trial. The evaluation of each therapy in GBM AGILE proceeds in 2 possible stages. A therapy's Stage 1 is an adaptively randomized screening stage for evaluating the therapy within patient signatures compared against a common control. A therapy in Stage 1 will stop accruing patients if it reaches its maximal sample size, drops for futility, or evinces inadequate safety. If a therapy reaches an efficacy threshold for graduation from Stage 1, it will move into Stage 2 within one of the prospectively defined signatures. The maximum sample size in Stage 1 is 150 patients. For a therapy graduating to Stage 2 there is a fixed randomization, expansion cohort. The maximum sample size in Stage 2 is 50 experimental patients in the graduating signature. The primary analysis of a regimen's effect on overall survival uses all patients in both its stages and all control patients in the trial in the graduating signature, suitably adjusted for any possible time trends. The study is ongoing. +Myostatin Platform +Taldefgrobep Alfa (BHV-2000) for Spinal Muscular Atrophy +SMA is a rare genetic neurodegenerative disorder characterized by the loss of motor neurons, atrophy of the voluntary muscles of the limbs and trunk and progressive muscle weakness that is often fatal and typically diagnosed in young children. The underlying pathology of SMA is caused by insufficient production of the survival of motor neuron (“SMN”) protein, essential for the survival of motor neurons, and is encoded by two genes, SMN1 and SMN2. In the U.S., SMA affects approximately 1 in 11,000 births, and about 1 in every 50 Americans is a genetic carrier. Newborn screening is now available in 48 U.S. states and covers over 94% of all births. +In February 2023, we received Fast Track designation from the FDA for taldefgrobep alfa for the treatment of SMA. We received orphan drug designation from the FDA for taldefgrobep in the treatment of SMA in December 2022 and from the European Commission in July 2023. +In April 2024, we announced that the FDA granted "rare pediatric disease" designation for taldefgrobep alfa. The designation provides for the potential for taldefgrobep to receive a priority review voucher (“PRV”) if ultimately approved for the indication of SMA prior to September 30, 2026. The rare pediatric disease PRV program began to sunset in December 2024 and will not apply for approvals after September 30, 2026. +Taldefgrobep Alfa’s Role in Spinal Muscular Atrophy +In the past few years, significant advancements were made to address the underlying cause of disease in SMA with the up-regulation of SMN1 and SMN2 expression which positions taldefgrobep as a potential combination therapy to enhance muscle performance. Data from an SMA animal model study that shows advantages of combination SMN therapy with taldefgrobep and the extensive clinical data in DMD supported the advancement of taldefgrobep into a SMA Phase 3 study. Other indications in muscle wasting diseases may be a follow-on for taldefgrobep along with other life-cycle opportunities. +24 +Table of Contents +Our Clinical Trial for Taldefgrobep Alfa in SMA +In September 2023, we completed enrollment in a Phase 3 clinical trial assessing the efficacy and safety of taldefgrobep alfa in SMA. The Phase 3 placebo-controlled, double-blind trial was designed to evaluate the efficacy and safety of taldefgrobep as an adjunctive therapy for participants who are already taking a stable dose of nusinersen or risdiplam or have a history of treatment with onasemnogene abeparvovec-xioi, compared to placebo. The primary outcome measure of the study was efficacy of taldefgrobep alfa compared to placebo in the change in the 32 item Motor Function Measure (“MFM-32”) total score from baseline to Week 48. Scores range from 0-3 on each item, with higher scores indicating higher functioning. The study was neither restricted nor limited to patients based on ambulatory status or classification of SMA and was designed to randomize approximately 180 patients in this randomized, double-blind, placebo-controlled global trial. +In November 2024, we announced that taldefgrobep alfa showed clinically meaningful improvements in motor function at all timepoints on the MFM-32, but the treatment arm did not statistically separate on the primary outcome at Week 48 compared to the placebo+standard of care ("SOC") group. Efficacy signals were observed in clinically relevant and biomarker-defined subgroups including those related to age, ambulatory status, background therapy, and baseline myostatin level. Analyses of prespecified subgroups by race and ethnicity demonstrated that the largest study population (87% Caucasian; n=180) showed clinically meaningful improvements on the MFM-32 at all timepoints, including Week 48, compared to the corresponding placebo+SOC group (p < 0.05). Additional analyses of these subjects (n=123) who had measurable baseline myostatin (the pharmacological target of taldefgrobep) showed an improved efficacy signal within this myostatin-positive population (p=0.02). +Prespecified outcome measures in the overall study population analyzing the change from baseline in body composition at Week 48 demonstrated a greater reduction in the percent change in total body fat mass in the taldefgrobep arm compared to the placebo+SOC arm (p=0.008) as measured by dual energy x-ray absorptiometry. The taldefgrobep arm also showed numerically larger increases in lean muscle mass and bone density compared to the placebo+SOC arm. +Biohaven has begun engagement with the FDA to discuss the potential registrational path forward. Data from the study was presented at the Cure SMA meeting in June 2025. The optional long-term extension phase of the trial will remain ongoing pending further data analysis as well as regulatory discussions. +Ion Channel Platform +Kv7 +Opakalim (BHV-7000) +As previously discussed, Opakalim is an activator of Kv7.2/Kv7.3, a key ion channel involved in neuronal signaling and in regulating the hyperexcitable state in epilepsy. +Mood disorders +Approximately 1 in 5 adults in the U.S. are living with neuropsychiatric illnesses that are associated with inadequate treatment, poor quality of life, disability, and considerable direct and indirect costs. There is significant unmet need for novel and effective therapeutic options that are not limited by long latency periods to clinical effects, low response rates, and significant risks and side effects. Increasing evidence from animal models and clinical trials now suggests that Kv7.2/7.3 targeting drugs offer the potential to treat a spectrum of these neuropsychiatric diseases including, but not limited to, mood disorders such as major depressive disorder, bipolar disorder and anxiety. +Major Depressive Disorder +Major depressive disorder ("MDD") is a leading cause of morbidity. With approximately 8.3% of adults in the U.S. having had at least one major depressive episode, there is an urgent need for more effective treatments. Within the current armamentarium of treatments nearly one third of patients fail to respond. Kv7 activation has emerged as a novel strategy to treat and prevent depressive episodes and holds significant potential as a novel treatment for patients with MDD. The therapeutic role for Kv7 activation in MDD is supported by a broad range of epigenetic, mechanistic, preclinical, and clinical evidence. Multiple depression models have demonstrated the antidepressant efficacy of enhancing potassium channel activity. As preclinical studies demonstrate upregulation of Kv7 channels in mice subject to chronic stress, increasing potassium channel function either through genetic over expression or via potassium channel activation (via ezogabine) reverses depressive and anhedonic behaviors in mice across multiple studies. Recent randomized, controlled clinical trials of Kv7 activators demonstrated efficacy in MDD. Together, these data, coupled with the favorable clinical safety and tolerability profile exhibited by BHV 7000 to date, provided a compelling rationale for the evaluation of Kv7 activation with opakalim in MDD. +25 +Table of Contents +Our Clinical Trial for opakalim in Major Depressive Disorder +We initiated a Phase 2 clinical trial with opakalim for the treatment of MDD in the second quarter of 2024. The study is a six week, randomized, double-blind, placebo-controlled trial in approximately 300 subjects, with a primary endpoint of measurement on the Montgomery-Asberg Depression Rating Scale ("MADRS"). In December 2025, we announced that the study did not meet its primary endpoint. Trends favoring opakalim were observed in some clinically relevant subgroups, including participants with more severe depression at screening and baseline, on primary and secondary outcome measures. Overall, BHV-7000 was safe and well-tolerated with adverse events mostly mild and moderate in intensity and largely resolved spontaneously. The only individual adverse events occurring with an incidence above 5% were headache (10.7% and 9.9% in opakalim and placebo, respectively) and nausea (4.2% and 5.6% in BHV-7000 and placebo, respectively). A low incidence of central nervous system adverse events was observed, consistent with BHV-7000's lack of GABA activity and with safety data from previously reported studies. Additional analyses are ongoing and the company plans to present the results at an upcoming scientific meeting. The company considers the depression subgroup analyses as hypothesis generating but based upon strategic prioritization of its portfolio does not plan on additional psychiatric clinical trials to keep resources focused on key priority areas. +Bipolar disorder +Bipolar disorder affects an estimated 4.4% of U.S. adults over their lifetime. Bipolar disorder is associated with significant morbidity, decreased quality of life and economic burden. Treatment guidelines recommend patients receive life-long treatment for bipolar disorder. However, medication adherence is typically very low in this population, due in large part to undesirable side effects that are poorly tolerated by patients. The mainstays of treatment include mood stabilizing agents that are also used as anti-seizure medicines (i.e., valproic acid, lamotrigine, and topiramate). Preclinical and pilot clinical data similarly suggest a potential therapeutic role for Kv7 activation in bipolar disorder, which is expected to result in an improved side effect profile compared to other anti-seizure medications. +Our Clinical Trial for opakalim in Bipolar Disorder +We initiated a Phase 2/3 clinical trial with opakalim for the acute treatment of bipolar disorder in the second quarter of 2024. The study was a 3 week, randomized, double-blind, placebo-controlled trial in approximately 256 subjects, with a primary endpoint of measurement on the Young Mania Rating Scale ("YMRS"). +In March 2025, the Company completed the Phase 2/3 clinical trial for acute treatment of manic episodes associated with bipolar disorder. Opakalim did not statistically differentiate from the comparator arm on the primary efficacy endpoint of improvement from Baseline to Day 21 on the YMRS. Additional analyses are ongoing, and complete study results will be presented at an upcoming scientific meeting. +Opakalim 75 mg once daily, the highest dose of opakalim being evaluated in Phase 2/3 trials, was safe and well-tolerated in this study. No adverse trends in vital signs, ECGs, or labs were noted. There were no treatment emergent serious adverse events. Most adverse events were mostly mild in intensity and resolved spontaneously. This offers a highly favorable and differentiated profile compared to other antiseizure medicines and is consistent with lack of GABA effects. +Developmental Epileptic Encephalopathies +KCNQ2 developmental epileptic encephalopathy (“KCNQ2-DEE”) is a rare pediatric epileptic encephalopathy first described in 2012 resulting from dominant-negative mutations in the KCNQ2 gene. Epileptic encephalopathies (“EE”) comprise a group of epilepsy syndromes in which onset of recurrent and medically refractory seizures are associated with cognitive and broader developmental delay or regression. Although only recently described, heterozygous de novo variants in KCNQ2 are a highly validated cause of early onset epileptic encephalopathy, and KCNQ2-DEE has emerged as a well-defined clinical entity with a characteristic neonatal presentation, including hypotonia, treatment-resistant tonic seizures, a profoundly abnormal EEG, and most often with moderate-to-profound global developmental delay. KCNQ2-DEE is thus both a seizure disorder and a developmental disorder caused by pathogenic KCNQ2 mutations. +Identification of genetic etiologies has created the opportunity to treat not just the symptoms of KCNQ2-DEE, including seizures, but also the underlying causes, including attenuating or reversing the effects of the disease-causing variants. In addition to its activity in the MES model, we explored the ability of opakalim to reverse the reduced current density associated with KCNQ2-DEE and support its use as potential treatment for the disease). To determine the effects of opakalim on the function of Kv7.2 and Kv7.2/7.3 channels poisoned by dominant-negative KCNQ2 mutations, four highly recurrent human missense variants known to cause KCNQ2-DEE were evaluated in an in vitro model measuring current density in cells expressing the pathologic proteins. +The figure below shows the effects of opakalim on current density of wt/wt Kv7.2 channels and those formed by 1:1 coexpression of wt KCNQ2 genes with four disease-causing KCNQ2 variants (T274M, A294V, R581L, R210H). In the control +26 +Table of Contents +condition, all pathogenic variants produced a marked reduction in current density to below wt/wt levels. Opakalim at either 0.3µM or 1.0 µM restored current density in all mutated channels to or beyond wt control current density (**<0.01). +Opakalim has been granted Rare Pediatric Disease Designation by the FDA for the treatment of KCNQ2-DEE. +Neuropathic Pain +Neuropathic pain, as defined by the International Association for the Study of Pain, is pain caused by a lesion or disease of the somatosensory nervous system and includes a collection of heterogeneous conditions that are often chronic and debilitating and for which long term therapy is difficult. In the United States, over 30 million adults are estimated to be living with neuropathic pain. Pharmacological treatments for neuropathic pain vary according to patient needs, although recommendations such as the WHO analgesic ladder, United States Centers for Disease Control (“CDC”) guidelines, and FDA guidelines are in use. Initial or first line treatment for neuropathic pain includes non-opioid analgesics, in particular, antidepressants, anticonvulsants, steroids, and anxiolytics. Second line treatment of persistent, severe pain may require escalation to opiates, often less potent ones at first, followed by more potent opiates for intense refractory pain. +Accordingly, an urgent need exists for effective, non-addictive pain therapies. Flupirtine, a non-selective Kv7 activator, was previously approved in several European countries and indicated for the treatment of pain. However, the European Medicines Agency recommended withdrawal of its marketing authorization in 2018 because of the risk of serious liver injury. Selective Kv7 potassium channel activators represent a new approach in the development of non-opioid therapeutic options for neuropathic pain. In addition to leveraging the reduced abuse and addiction risk potential of potassium channel activators, our Kv7 potassium channel platform addresses the complexities of channel subtype physiology through targeted pharmacology to overcome the limitations inherent in nonselective Kv7 activators and is intended to deliver a well-tolerated, highly effective, non-opioid treatment for neuropathic pain. +Our Kv7 program research was supported in part with funding from the National Institutes of Health (“NIH”) to advance the development of novel Kv7 non-opioid therapies for the treatment of chronic pain. The NIH funding is by the NIH Helping to End Addiction Long-term Initiative (“NIH HEAL Initiative”), which aims to improve treatments for chronic pain, curb the rates of opioid use disorder and overdose, and achieve long-term recovery from opioid addiction. The goal of our Kv7 program is to discover a small-molecule activator of the Kv7.2/7.3 voltage-gated potassium channel to treat neuropathic pain. Similar to our epilepsy program, we are targeting compounds with these characteristics: +• Biased for Kv7.2/3 activation vs. Kv7.4 activation to minimize potential adverse smooth muscle effects; +• Selective against GABA A receptors to minimize potential tolerability issues; +• Selective against Kv7.1/KCNE1 (IKs) and hERG (IKr) to minimize cardiac side-effects; and +• Potent and effective across animal models of neuropathic pain. +Axonal excitability and neurotransmitter release are altered in neuropathic pain due to sodium channel plasticity, increased voltage-gated calcium channels in the spinal cord, and diminished potassium channel activity in dorsal root ganglion (“DRG”) neurons. These changes in ion channel number, distribution, and function are common to many neuropathic pain subtypes. The functional density of Kv7.2/3 channels is a key variable governing sensory DRG control of intrinsic excitability. Rose et. al demonstrated downregulation of Kv7 potassium channel mRNA in an experimental nerve injury model and further showed alleviation of neuropathic hyperalgesia with administration of flupirtine. +27 +Table of Contents +Using human induced pluripotent stem cell (“iPSC”)-derived DRG sensory neurons, we have assessed the physiological activity of these neurons by modulating Kv7 channels across three electrophysiologic parameters: resting membrane potential (Vm), rheobase = the current required to stimulate an action potential (“AP”), and the number of APs elicited by a suprathreshold stimulus (3x rheobase). We are currently evaluating the activity of various compounds from our proprietary series of selective Kv7.2/7.3 activators in multiple preclinical models of neuropathic pain. The Company has also initiated a sponsored research agreement with Yale to evaluate the activity of opakalim in an iPSC model of inherited erythromelalgia, a severe rare genetic neuropathy. +In the fourth quarter of 2025, we initiated an exploratory study of opakalim, compared to placebo, in approximately 5 participants with inherited erythromelalgia using a crossover design to evaluate changes in pain intensity (NCT07262268). +Migraine +We are currently exploring opakalim as a potential treatment for migraine. Kv7.2/7.3 openers have shown significant activity in cortical spreading depression models of migraine. +Idiopathic Generalized Epilepsy +We initiated a Phase 2/3 study of opakalim in idiopathic generalized epilepsy ("IGE") in the second quarter of 2024. The pivotal study evaluating the efficacy of opakalim with IGE is planned as a randomized, double-blind, placebo-controlled 24-week time-to-event trial with a primary endpoint of time to second generalized seizure in adults and adolescents with IGE. Following a review of enrollment and strategic priorities, we have decided to close the IGE study to allow for a reallocation of resources to higher-priority development activities. The Kv7 development program will focus on accelerating the completion of the two adult focal epilepsy trials. +TRPM3 Ion Channel Antagonists +KU Leuven Agreement +In January 2022, we entered into an agreement with KU Leuven ("the KU Leuven Agreement") to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery and the Laboratory of Ion Channel Research at KU Leuven. Under the KU Leuven Agreement, we receive exclusive global rights to develop, manufacture and commercialize KU Leuven's portfolio of small-molecule TRPM3 antagonists. The portfolio includes the lead candidate, BHV-2100. We are continuing to support further basic and translational research on the role of TRPM3 in pain and other disorders through our collaboration with professors in Transient Receptor Potential ("TRP") biology at KU Leuven. +Efforts to target TRP Ion Channels for pain +Since the Nobel Prize-winning discovery of the capsaicin receptor TRPV1 in 1997, members of the TRP cation channel family have been elusive drug targets for the treatment of pain. Initially, there was much excitement and investment in TRPV1 antagonists due to promising preclinical efficacy and some evidence of clinical pain reduction. However, trials of most TRPV1 antagonists were terminated after the class consistently caused clinically-significant hyperthermia in study participants. Several companies then made efforts to progress antagonists of TRPA1, the receptor for mustard oil. Though Glenmark’s GRC 17536 showed encouraging results in a subset of diabetic peripheral neuropathic pain subjects in a Phase 2a study, it suffers from poor physiochemical properties and pharmacokinetics like many other TRPA1 antagonists. +TRPM3 is a novel target in the TRP family. Like TRPV1 and TRPA1, preclinical data and human genetic validation support TRPM3’s role in neuropathic pain and migraine. Unlike TRPV1 antagonists, TRPM3 antagonists are unlikely to possess significant thermal liabilities, and, unlike TRPA1 antagonists, Biohaven’s TRPM3 antagonists have desirable +28 +Table of Contents +physiochemical properties and good pharmacokinetic profiles. The figure below illustrates TRPM3 as a differentiated target for the treatment of pain in the TRP family. +Adapted from Efforts to target TRP channels for pain , Kovivisto et al. 2022 +About TRPM3 +TRPM3 is a novel druggable target in the TRP cation channel family. TRPM3 is functionally expressed in the human dorsal root ganglion, and several single nucleotide polymorphisms ("SNPs") in TRPM3 are associated with altered pain sensation in response to ultraviolet B ("UVB") (see figure below). Additionally, people with TRPM3 gain-of-function mutations experience altered pain sensation (de Sainte Agathe 2020, Dyment 2019, Van Hoeymissen 2020). Knocking out or antagonizing TRPM3 in animal models attenuates the development of various pain states, including those associated with nerve injury, chemotherapy, and diabetic peripheral neuropathy, further indicating that TRPM3 is a promising target for neuropathic pain. Lastly, preclinical evidence suggests that antagonizing TRPM3 may avoid the on-target body temperature effects and TRPV1 antagonist-induced malignant hyperthermia. +Vangeel et al, 2020 Lotsch et al, 2020 +BHV-2100 +BHV-2100 is an orally-bioavailable small molecule antagonist of TRPM3. TRPM3 is expressed in the relevant human tissue types for neuropathic pain, and both preclinical models and human genetics implicate TRPM3 in pain signaling. +Our Phase 1 Study with BHV-2100 +We completed a Phase 1 study of BHV-2100 in Canada. The Phase 1 study was a randomized, double-blind, placebo-controlled, SAD/MAD study in healthy subjects to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of BHV-2100. In May 2024, we reported positive pharmacokinetic and safety data from the completed +29 +Table of Contents +Phase 1 study with BHV-2100. The results demonstrated rapid absorption with therapeutic concentrations achieved by 20 minutes. The favorable tolerability profile at single doses up to 500 mg exceeds the anticipated therapeutic dose and is well above the EC90 concentration. Based on these findings, we initiated a Phase 2 study of BHV-2100 in the acute treatment of migraine and a proof-of-concept study in pain in the fourth quarter of 2024. +Our Clinical Trial for BHV-2100 in Migraine +Nearly 40 million people in the U.S. suffer from migraine and the World Health Organization classifies migraine as one of the 10 most disabling medical illnesses. Migraine is characterized by debilitating attacks lasting four to 72 hours with multiple symptoms, including pulsating headaches of moderate to severe pain intensity that can be associated with nausea or vomiting, and/or sensitivity to sound (phonophobia) and sensitivity to light (photophobia). There is a significant unmet need for new treatments as more than 90 percent of migraine sufferers are unable to work or function normally during an attack. +In September 2024, we announced that we had initiated a proof-of-concept study evaluating BH-2100 in the acute treatment of migraine. The study was a 45-day, randomized, double-blind, placebo-controlled trial in approximately 575 subjects, with primary endpoints of freedom from pain at two hours post-dose and freedom from most bothersome symptom at two hours post-dose. In June 2025, we reported that no efficacy signal was detected in the study. +Our Development of BHV-2100 for the Treatment of Neuropathic Pain +BHV-2100 is also being developed as a potential non-opioid treatment for neuropathic pain. We are evaluating the ability of BHV-2100 to reduce pain behaviors across several preclinical models of neuropathic pain, including chemotherapy induced neuropathy, diabetic neuropathy, and nerve injury. We initiated a conduct a proof-of-concept study for neuropathic pain in the fourth quarter of 2024. The study is a Phase-1b, randomized, double-blind, placebo and active reference controlled, crossover trial to assess the anti-nociceptive and anti-hyperalgesic effects of single oral doses of BHV-2100 (25 mg, 75 mg, and 150 mg) vs. placebo, in a cohort of approximately 24 healthy male volunteer participants, utilizing a laser-evoked potential experimental pain paradigm. +In May 2025, we presented data showing that BHV-2100 reduced laser heat-induced pain in healthy volunteers. Statistically significant pain reduction was observed in inflamed skin on the visual analog scale with low dose (p=0.036) and high dose (p=0.015). BHV-2100 numerically increased the weighted needle threshold (higher threshold suggests less mechanical pain). Moreover, BHV-2100 had no effect on body temperature or heat pain threshold. We believe BHV-2100's profile has potential across multiple pain disorders. +Additional research on TRPM3-mediated disorders +Under the KU Leuven Agreement, Biohaven evaluated the role of TRPM3 in pain and other disorders. In addition to BHV-2100, we are optimizing other lead compounds for TRPM3-mediated disorders of the peripheral and central nervous systems. +30 +Table of Contents +Inflammation and Immunology Platform +TYK2/JAK1 +Agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. +In March 2023, we entered into an exclusive, worldwide (excluding China and its territories and possessions) license agreement with Hangzhou Highlightll Pharmaceutical Co. Ltd. ("Highlightll") (the "Highlightll Agreement"), pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +BHV-8000 +Dysregulation of the immune system has been implicated in several neurodegenerative and neuroinflammatory disorders including Parkinson's Disease, Multiple Sclerosis, Alzheimer's Disease, Amyotrophic Lateral Sclerosis and Autoimmune Encephalitis. Over-active immune cells and microglia driving chronic neuroinflammation results in release of cytokines with activation of leukocytes and is thought to contribute to neuronal injury, death, gliosis, and demyelination. The tyrosine kinase 2 ("TYK2") and Janus kinase 1 ("JAK1") signal transduction pathways mediate highly complementary immune and inflammatory signaling events. Targeted, small-molecule therapies that inhibit TYK2 or JAK kinases have separately demonstrated robust efficacy in autoimmune, dermatologic and gastrointestinal disorders. TYK2 is a validated immune target as evidenced by a recent peripheral program that gained FDA approval, and there are multiple additional peripheral non-CNS programs in clinical development. Brain penetrant inhibitors of TYK2/JAK1 have the potential to bring this validated immune target to brain disorders. There are currently no brain penetrant, selective, dual TYK2/JAK1 inhibitors approved for brain disorders. +Target indications for BHV-8000 include Parkinson's disease, Alzheimer's disease, prevention of amyloid-related imaging abnormalities ("ARIA"), and multiple sclerosis ("MS"). Biohaven completed interactions with FDA enabling registrational programs for Parkinson's disease and the prevention of ARIA. +Our Clinical Program for BHV-8000 +Our Phase 1 Study with BHV-8000 +In May 2023, we began dosing with BHV-8000 (previously TLL-041), in a phase 1 study in normal healthy volunteers. In May 2024, we reported positive results from the Phase 1 single and multiple ascending dose study, including evidence of target engagement along with a safe and well tolerated profile. Phase 1 study data also confirmed cerebrospinal fluid ("CSF") exposures of BHV-8000. +BHV-8000 for Parkinson's Disease ("PD") +We initiated a pivotal trial in PD in the first half of 2025. The PD study is a Phase 2/3 randomized, double-blind, placebo-controlled study designed to evaluate the efficacy, safety, and tolerability of BHV-8000 in participants diagnosed with early PD, with a time-to-event primary endpoint (≥ 2-point worsening on Movement Disorder Society – Unified Parkinson’s Disease Rating Scale ("MDS-UPDRS") -Part II). In light of current portfolio and resource considerations, we are implementing a more focused execution of the ongoing study. +MoDE and TRAP Degraders +As discussed above, Biohaven MoDE and Targeted Removal of Aberrant Protein TRAP degraders harness selectivity, rapidity and patient-friendly self-administration to remove disease-causing proteins from the body to potentially treat a range of diseases. Each MoDE or TRAP degrader is a novel bispecific molecule that targets a specific form of circulating protein and directs it to the liver for degradation by the endosomal/lysosomal pathway. +BHV-1310 +BHV-1310 is a next generation bispecific IgG degrader with specificity for IgG1, IgG2 and IgG4, which is initially being developed for the treatment of rare disorders including conditions like generalized myasthenia gravis ("gMG") and potentially other acute or chronic conditions, or chronic conditions with acute exacerbations or flares. MG is a neuromuscular disorder that is estimated to affect approximately 36 thousand to 60 thousand people in the United States. Patients with gMG develop antibodies that attack critical signaling receptor proteins at the junction between nerve and muscle cells, inhibiting communication between nerves and muscle and resulting in weakness of the skeletal muscles. BHV-1310 is completing preclinical testing prior to initiation of a Phase 1 study. +BHV-1600 +BHV-1600 is a selective TRAP designed to remove agonistic antibodies directed against myocardial beta-1 adrenergic receptor ("β-1 AR"). β-1 AR autoantibodies have been identified in serum individuals with dilated +31 +Table of Contents +cardiomyopathies, such as peripartum cardiomyopathy, and have been shown to cause chronic stimulation and dilation of the myocardium. Peripartum cardiomyopathy is a life-threatening condition affecting mothers within the months following delivery of a child. Through elimination of the agonistic β-1 AR autoantibodies, BHV-1600 is designed to potentially treat the underlying autoimmune etiology of this disease with no approved therapy, and prevent irreversible cardiac pump dysfunction. +We initiated Phase 1 studies of BHV-1600 in the fourth quarter of 2024. The FIH trial is a randomized, open-label, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, PK, and PD of BHV-1600. Early results from the first two dose cohorts indicate that BHV-1600 was safe and well tolerated, with no SAEs, and without clinically relevant changes in innate or adaptive immunity, including white blood cells and immunoglobulins IgG, IgA, IgE, and IgM. There were no clinically significant reductions in albumin, liver function test abnormalities, or increases in cholesterol compared to baseline. +Additional Degraders +We are currently developing additional MoDE degraders advancing towards candidate nomination. These include an IgG4 specific degrader, a phospholipase A2 receptor ("PLA2R") autoantibody degrader for membranous nephropathy, a pro-insulin autoantibody degrader for type 1 diabetes, an IgM degrader for IgM neuropathy and Waldenstrom's macroglobulinemia, and a Thyroid Stimulating Hormone ("TSH") receptor autoantibody degrader as a selective follow-on asset for Graves' Disease. +Oncology Platform +Antibody Drug Conjugates +We are using next-generation ADC conjugation technologies, including our MATE® platform, to generate site-specific antibody drug conjugates (“ADC”s) which have shown show superior preclinical stability in comparison with those using current industry-standard methodologies. Our expectation is that the enhanced in vivo stability and expected superior physicochemical properties of these ADCs will lead to increased therapeutic indices in patients (more cytotoxic payload reaching cancer cells and less free payload that can lead to off-target toxicities in normal tissues), consistent with early in vitro and in vivo (rodent and cynomolgus monkey) studies. +BHV-1510 +In January 2024, we acquired BHV-1510 through our acquisition of Pyramid Biosciences, Inc. ("Pyramid"). BHV-1510 is a next-generation Trophoblast Cell Surface Antigen 2 ("TROP-2") directed ADC. BHV-1510 utilizes a next-generation, highly stable site-specific conjugation, resulting in a favorable preclinical PK, toxicity and manufacturability profile. The ADC targets TROP2-expressing carcinomas, which are malignant neoplasms of epithelial origin. Carcinomas account for 80 to 90 percent of all cancer cases and several examples have been successfully treated with ADCs. Abundant TROP-2 expression has been described for many carcinoma subtypes. +Preclinically, BHV-1510 has shown high plasma stability, enhanced cellular cytotoxicity, bystander killing, and immunogenic cell death with a novel topoisomerase 1 inhibitor ("TopoIx") payload, resulting in improved efficacy as monotherapy, and synergistic efficacy in combination with anti-programmed cell death protein-1 ("anti-PD1") immune checkpoint inhibitor therapy. In IND-enabling GLP toxicology studies in cynomolgus monkeys, BHV-1510 showed a differentiated safety profile that suggests a wider therapeutic margin relative to more advanced TROP-2 ADCs, including a lack of lung toxicity, that may translate to an improved clinical efficacy and safety profile. +Our Phase 1/2 Study with BHV-1510 +The IND for BHV-1510 was approved by the FDA in January 2024. The First-in Human, Phase 1/2 trial evaluating BHV-1510 in patients with advanced solid tumors commenced in the second quarter of 2024. This trial consists of two parts; Phase 1 dose escalation and Phase 2 dose expansion, in patients with advanced incurable cancer that have progressed on or are intolerant to standard therapy. The trial will also evaluate BHV-1510 in combination with the anti-PD1 monoclonal antibody Libtayo® (cemiplimab-rwlc). In May 2024, we announced that we entered into a clinical supply agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron") under which we will sponsor and fund the planned combination Phase 1/2 clinical trial, and Regeneron will provide Libtayo. +The primary objective of Phase 1 is to characterize the safety profile of BHV-1510 as monotherapy and in combinations with Libtayo, and to identify a recommended dose for expansion ("RDE") or maximum tolerated dose. Phase 1 dose escalation will be implemented based on a Bayesian optimal interval design, with the lowest dose initiated as a single patient cohort. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every two or three weeks. The Phase 2 dose expansion part of the study will consist of non-randomized efficacy finding expansion cohorts, defined by specific tumor types that will be treated at the RDE to estimate the anti-tumor activity of BHV-1510. Up to approximately 220 subjects are planned to be evaluated. +32 +Table of Contents +In the first quarter of 2025, we announced preliminary data from the initial Phase 1 monotherapy dose escalation cohorts of BHV-1510, which demonstrated early evidence of clinical activity, including tumor shrinkage, with a safety profile of the TopoIx payload supporting further development. Clinical activity was seen in various monotherapy dose cohorts tested to date, including the lowest dose tested of 2mg/kg once every three weeks. Early PK data demonstrate a stable ADC with low serum concentrations of free payload. Preliminary safety data showed a lack of payload-associated interstitial lung disease, gastrointestinal toxicities, or significant hematological toxicities observed in early cohorts. The main toxicity observed thus far in the study has been stomatitis, an expected on-target Trop2 class toxicity. +In May 2025, we reported further preliminary data from the study, where BHV-1510 demonstrated encouraging early clinical activity in combination with Regeneron's anti-PD-1 antibody Libtayo. The combination of BHV-1510 and Libtayo® in the ongoing Phase 1 study showed encouraging anti-tumor activity, with tumor shrinkage in the first 6 out of 6 patients treated, including confirmed partial responses and in patients with brain metastasis. The majority of these 6 patients treated with the combination had received prior anti–PD-1/PD-L1 therapies. The combination with Libtayo was well tolerated with no dose limiting toxicity in these initial cohorts. +Based on the early results for BHV-1510, we entered into an expanded collaboration agreement with GeneQuantum Healthcare Co. Ltd. ("GeneQuantum"), which provides broad target exclusivity for up to 18 ADC targets incorporating the TopoIx payload. +In December 2025, we presented additional clinical safety and efficacy data for BHV-1510 at the 2025 European Society for Medical Oncology ("ESMO") Immuno-Oncology Congress. At the BHV-1510 dose of 2.5 mg/kg Q3W in combination with Libtayo, confirmed objective response rate ("ORR") was 72.7%. Confirmed responses were observed in 3/5 (60%) in non-small cell lung cancer ("NSCLC"), 4/4 (100%) in endometrial cancer, which included a complete response, and 1/2 (50%) in urothelial cancer. As of the clinical cutoff date on October 10, 2025, in all 23 efficacy evaluable participants treated with BHV-1510 in combination with Libtayo across dose levels, the confirmed ORR was 52.2%, with confirmed objective responses in 6 out of 14 (42.9%) in NSCLC, 4 out of 6 (66.7%) in endometrial cancer, and 1 out of 2 (50%) in urothelial cancer. A confirmed response was reported in the participant with triple negative breast cancer. The majority of participants had tumor reduction on their first scan, with a median time to response of 11.1 weeks. Participants remain on study at 6 months and beyond, 18 participants continue on the study treatment at time of the clinical cutoff date. +As of the clinical cutoff date on October 10, 2025, early results showed that BHV-1510 in combination with Libtayo was generally well tolerated. There were low rates of adverse events attributed to unconjugated payload such as hematological toxicities and diarrhea, and there were no cases of interstitial lung disease, showing a differentiated safety profile of BHV-1510 from other Trop2 ADCs. The most frequent toxicity observed was oral mucositis/stomatitis, which is a manageable, well-known class effect. An expansion cohort in with the combination has been initiated in endometrial cancer. +BHV-1530 +The next ADC incorporating the TopoIx payload that we plan to move into clinical development is BHV-1530. BHV-1530 is a fibroblast growth factor receptor 3 ("FGFR3")-directed ADC with potential indications in cancers driven by FGFR3 alterations and/or upregulated FGFR3 protein expression, including urothelial cancers and other solid tumors. FGFR3 is a clinically validated target in oncology, with one small molecule inhibitor (Balversa(R), erdafitinib) approved; however, to our knowledge there are currently no FGFR3-directed ADCs in clinical development. Biohaven retains global rights for BHV-1530 under an exclusive license with GeneQuantum (the "FGFR3 Agreement"). The U.S. IND for BHV-1530 was opened in the second half of 2024, and a FIH study for solid tumors was initiated in the second quarter of 2025. +Our Phase 1 Study with BHV-1530 +The Phase 1 study will evaluate BHV-1530 in patients with advanced solid tumors, including patients whose cancers have progressed on or are intolerant to standard therapy. The primary objective of Phase 1 is to characterize the safety profile of BHV-1530, and to identify a recommended dose or maximum tolerated dose. Patients are expected to be dosed in escalating cohorts, with dosing regimens administered intravenously every three weeks. Up to approximately 95 subjects are planned to be evaluated. +BHV-1500 +BHV-1500 is a next-generation CD30-directed ADC generated using Biohaven's proprietary MATE(R) technology, targeting CD30-expressing tumors such as Hodgkin and non-Hodgkin lymphomas. Hodgkin lymphoma ("HL") is a malignant neoplasm of B-cells. Approximately 9,000 new HL cases are diagnosed each year. HL and other CD30-expressing lymphoma are characterized by the uncontrolled growth of malignant lymphocytes or lymphoblasts. A first-generation CD30 directed ADC, Adcetris (brentuximab vedotin), has demonstrated effectiveness in the treatment of Hodgkin's Lymphoma. +33 +Table of Contents +In preclinical CD30 expressing murine tumor models, BHV-1500 has shown improved antitumor activity versus Adcetris, and in preliminary cynomolgus monkey studies, BHV-1500 has shown substantially improved safety, plasma stability and pharmacokinetics. An initial regulatory interaction with the FDA to discuss the development plans for BHV-1500 took place in first half of 2025. +Merus Agreement +In January 2025, Biohaven announced a research collaboration and license agreement with Merus N.V. ("Merus") to co-develop three novel dual-targeting ADCs, leveraging Merus’ Biclonics® technology platform, and Biohaven’s next-generation ADC conjugation and payload platform technologies (the "Merus Agreement"). In January 2026, we received notice from Merus that the development programs for the three ADCs were being terminated subsequent to the acquisition of Merus by Genmab A/S. +Clinical-Stage Milestones +Our clinical-stage milestones include the following: +Competition +The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary drugs. While we believe that our knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their safety, efficacy, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third-party payors. +Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. +Manufacturing +We have an experienced chemistry, manufacturing and controls leadership team that oversees and manages our relationships with development and manufacturing manufacturers. We currently rely, and expect to continue to rely, on +34 +Table of Contents +third parties for the development and manufacturing of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing of our products if our product candidates receive marketing approval. +We expect to continue to develop product candidates that can be scaled and produced cost-effectively at contract manufacturing facilities. +Commercialization +We intend to develop and, if approved by the FDA, commercialize our product candidates in the United States, and we may commercialize or enter into distribution or licensing arrangements for commercialization rights for other regions. With respect to troriluzole, if approved for the treatment of adult patients with SCA, we currently intend to build a neurological specialty sales force to manage commercialization, potentially in combination with a larger pharmaceutical partner, to maximize patient coverage in the United States and to support global expansion. +Members of our management team and board of directors have deep experience leading immunology, neuroscience, and oncology research, and have been involved in the development and commercialization of drugs such as Abilify, Opdivo, Nurtec ODT and Zavzpret. +Our Chief Executive Officer, Vlad Coric, M.D. was the Chief Executive Officer of the Former Parent from 2015 through the Separation, leading the Former Parent’s development and successful commercial launch of Nurtec ODT (rimegepant) in the U.S., which received FDA approval for the acute and preventative treatment of migraine in February 2020 and May 2021, respectively. Under Dr. Coric’s leadership, the Former Parent entered into several strategic arrangements, including its Collaboration and License agreement with Pfizer, Inc. for the development of rimegepant and zavegepant outside of the United States. +Intellectual Property +We own or license patents in the U.S. and foreign countries that protect our products, their methods of use and manufacture, as well as other innovations relating to the advancement of our science to help bring new therapies to patients. We also develop brand names and trademarks for our products to differentiate them in the marketplace. We consider the overall protection of our patents, trademarks, licenses and other intellectual property rights to be of material value and act to protect these rights from infringement. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our products and development programs. +In the biopharmaceutical industry, a substantial portion of an innovative product’s commercial value is usually realized during the period in which the product has market exclusivity. A product’s market exclusivity is generally determined by two forms of intellectual property: patent rights held by the innovator company and any regulatory forms of exclusivity to which the innovative drug is entitled. +Patents are a key determinant of market exclusivity for most pharmaceuticals. Patents provide the innovator with the right to exclude others from practicing an invention related to the medicine. Patents may cover, among other things, the active ingredient(s), various uses of a drug product, discovery tools, pharmaceutical formulations, drug delivery mechanisms and processes for (or intermediates useful in) the manufacture of products. Protection for individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country. +Market exclusivity can also be influenced by regulatory data protection ("RDP"). Many developed countries provide certain non-patent incentives for the development of medicines. For example, in the U.S., the EU, United Kingdom, Japan, and certain other countries, RDP intellectual property rights are offered to: (i) provide a time period of data protection during which a generic company is not allowed to rely on the innovator’s data in seeking approval; (ii) restore patent term lost during drug development and approval; and (iii) provide incentives for research on medicines for rare diseases, or orphan drugs, and on medicines useful in treating pediatric patients. These incentives can extend the market exclusivity period on a product beyond the patent term. +Patents and Patent Applications +We have many U.S. and foreign patents and patent applications in our portfolio related to the composition of matter, methods of use, methods of manufacture or formulations of our product candidates which have been filed in major +35 +Table of Contents +markets throughout the world, including the U.S., Europe, the United Kingdom, Japan, Korea, China, Hong Kong and Australia. +Inflammation and Immunology +Degraders +In January 2021, we entered into a worldwide, exclusive license agreement with Yale University for the development and commercialization of a novel MoDE platform. The platform pertains to the clearance of disease-causing proteins and other biomolecules by targeting them for lysosomal degradation using multi-functional molecules. The platform is differentiated from existing approaches in that it does not rely on ubiquitin ligases, and it allows for a broad range of targets to be degraded. The patent portfolio is directed to the composition of matter of bifunctional degraders and their use in degrading circulating proteins and treating diseases. U.S. Patent No. 11,767,301, issued September 26, 2023, and U.S. Patent No. 12,083,181, issued September 10, 2024, U.S. Patent No. 12,364,766, issued July 9, 2025 and U.S. Patent No. 12,485,178, issued December 2, 2025, relate to bifunctional molecules to degrade circulating proteins, including BHV-1300. Ex-U.S. counterparts to the '301 patent, '181 patent, '766 patent, and '178 patent are pending in the European Patent Office, Canada, China and Hong Kong, and, if granted, will expire in April 2039, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768166, filed April 11, 2022, relates to bifunctional compounds as degraders of autoantibodies. Ex-U.S. counterparts to the '166 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, European Patent Office, Israel, Japan, Republic of Korea, Mexico, Philippines, Saudi Arabia, Singapore, and South Africa and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/768145, filed April 11, 2022, relates to engineered antibodies as molecular degraders through cellular receptors. Ex-U.S. counterparts to the '145 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in October 2040, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/017319, which relates to targeted brain-penetrant bifunctional degraders, was filed February 22, 2022, and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/019658, which relates to bifunctional degraders of galactose deficient immunoglobulins, was filed March 10, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in March 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/075527 and PCT/US2022/075535, filed August 26, 2022, which relate to bifunctional degraders of pathogenic anti-β1ECII (the second extracellular loop of the β1 adrenergic receptor) autoantibodies, are pending in the United States and major jurisdictions worldwide. Two U.S. patents issued from the ‘535 application as U.S. Patent No. 12,128,105 on October 29, 2024 and U.S. Patent No. 12,234,256 on February 25, 2025. PCT/US2024/058316, which also relates to bifunctional degraders of pathogenic anti-β1ECII autoantibodies, including BHV-1600, was filed December 4, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in December 2044, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/026709, which relates to degraders of immunoglobulin G, including BHV-1310, was filed April 28, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/026733, which relates to bifunctional degraders of galactose deficient immunoglobulins, including BHV-1400, was filed April 29, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +TYK2/JAK1 +In March 2023, we entered into an exclusive, worldwide (excluding People’s Republic of China and its territories and possessions) license agreement with Highlightll pursuant to which we obtained the right to research, develop, manufacture and commercialize Highlightll’s brain penetrant dual TYK2/JAK1 inhibitor program. +U.S. Patent RE49834, having an issue date of February 13, 2024, is directed to BHV-8000 and will expire in September 2037, not including possible patent term extensions. Ex-U.S. counterparts to the ‘834 patent have been granted in Australia, Brazil, Canada, European Patent Office, Israel, India, Japan, Mexico, New Zealand, and Republic of Korea, and patent applications to the ‘834 patent is pending in Eurasia. The ex-U.S. patents and patent applications, if granted, will expire in September 2037, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2020/088122, related to a stable crystalline form of BHV-8000, was filed April 30, 2020, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in April 2040, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/CN2022/113807, which relates to methods of treating CNS disorders with dual TYK2/JAK1 inhibitors, was filed August 22, 2022, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will +36 +Table of Contents +expire in August 2042, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/IB2025/054156, filed April 21, 2025, which relates to methods of treating alpha-synucleinopathies and neuroprotection with dual TYK2/JAK1 inhibitors, is pending at the International Bureau designating all PCT countries. +Myostatin Activin +Taldefgrobep Alfa +In December 2021, we entered into a worldwide license agreement with Bristol Myers Squibb for the global development and commercialization rights to taldefgrobep alfa (BHV-2000), a novel, Phase 3-ready anti-myostatin adnectin. Myostatin is a natural protein that limits skeletal muscle growth, an important process in healthy muscular development. +U.S. Patent 8,853,154 issued October 7, 2014, U.S. Patent 8,933,199, issued January 13, 2015, U.S. Patent 8,993,265, issued March 31, 2015, U.S. Patent 9,493,546, issued November 15, 2016, U.S. Patent 9,662,373, issued May 30, 2017, U.S. Patent 10,245,302, issued April 2, 2019, U.S. Patent 10,406,212, issued September 10, 2019, and U.S. Patent 11,813,315, issued November 14, 2023, are directed to fibronectin based scaffold domain proteins that bind to myostatin. The U.S. patents expire in September 2033, not including possible patent term extensions. Ex-U.S. counterparts to the U.S. patents have been granted in Argentina, Austria, Australia, Belgium, Bulgaria, Brazil, Canada, Switzerland, Chile, China, Colombia, Czechia, Germany, Denmark, Algeria, Egypt, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, Indonesia, Ireland, Israel, India, Italy, Japan, Republic of Korea, Lithuania, Morocco, Macao, Mexico, Malaysia, Netherlands, Norway, New Zealand, Peru, Philippines, Poland, Portugal, Romania, Serbia, Russia, Sweden, Singapore, Slovenia, Slovakia, Thailand, Tunisia, Turkey, Taiwan, Uruguay, Venezuela, Vietnam and South Africa. The ex-U.S. patents will expire in September 2033, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 16/607688, filed May 3, 2018, relates to stable formulations fibronectin based scaffold domain proteins that bind to myostatin. Ex-U.S. counterparts to the '688 application have been granted in Australia, Israel, Japan, Korea, Mexico, and Taiwan, and are pending in Canada, China, European Patent Office, Hong Kong, and Singapore. The ex-U.S. patents and patent applications, if granted, will expire in May 2038, not including possible patent term extensions in countries where such extensions are available. +PCT/US2024/015292, which relates to methods of treating overweight, obesity, and related health conditions with anti-myostatin adnectins, was filed February 10, 2024, and is pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in February 2044, not including possible patent term extensions in countries where such extensions are available. PCT/IB2025/053898, filed April 14, 2025, which relates to methods of treating overweight, obesity, and related health conditions with anti-myostatin adnectins in combination with a GLP-1 agonist, is pending at the International Bureau designating all PCT countries. +Ion Channel +Kv7 Activator +In April 2022, we acquired Channel Biosciences, LLC. This acquisition included Channel’s Kv7 channel targeting platform and related patents and patent applications. The patents and patent applications are directed to the composition of matter of compounds that are activators of Kv7.2/Kv7.3 and their use in treating diseases such as epilepsy. U.S. Patent 10,851,067, issued December 1, 2020, claims opakalim and will expire in March 2039, not including possible patent term extensions. Ex-U.S. counterparts to the ‘067 patent have been granted in Australia, Israel, Japan, Republic of Korea, Mexico, New Zealand, Republic of Korea, and South Africa, and patent applications to the ‘067 patent are pending in Brazil, Canada, China, European Patent Office, Hong Kong, Israel, India, New Zealand, and Singapore. The ex-U.S. patents, and patent applications, if granted, will expire in March 2039, not including possible patent term extensions in countries where such extensions are available. In addition, U.S. Patent 9,481,653, issued November 1, 2016, claims a class of compounds including opakalim and will expire in September 2035, not including possible patent term extensions. Ex-U.S. counterparts to the ‘653 patent are granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Netherlands, Norway and Sweden. The ex-U.S. patents will expire in September 2035, not including possible patent term extensions in countries where such extensions are available. In addition, PCT/US23/10295, PCT/US23/63111, PCT/US23/63113 and PCT/US23/63115 directed to various Kv7 activator chemotypes were filed in January and February 2023. These applications are pending in the United States and major market countries. The patent applications, if granted, will expire in January/February 2043, not including possible patent term extensions in countries where such extensions are available. Other patent application directed to the combination treatment with a Kv7 activator and N-methyl-D-aspartate ("NMDA") receptor antagonist (PCT/US23/73125), a Kv7 activator and glutamate modulator (PCT/US23/73504), and a Kv7 activator and TDP-43 binder (PCT/US23/73491) were filed in August and September 2023. These applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in August/September 2043, not including possible patent term extensions in countries where such extensions are available. +37 +Table of Contents +TRPM3 Antagonist +In January 2022, we entered into an exclusive global license and research agreement to develop and commercialize TRPM3 antagonists to address the growing proportion of people worldwide living with chronic pain disorders. The TRPM3 antagonist platform was discovered at the Centre for Drug Design and Discovery (“CD3”) and the Laboratory of Ion Channel Research (“LICR”) at Katholieke Universiteit Leuven (KU Leuven). PCT/EP2021/082853, which relates to aryl derivatives for treating TRPM3 mediated disorders, was filed November 24, 2021 and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, Taiwan and the U.S. The patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. PCT/EP2021/082865, which relates to heterocycle derivatives for treating TRPM3 mediated disorders, including BHV-2100, was filed November 24, 2021. In that family, U.S. Patent 12,209,081, issued January 28, 2025, and U.S. Patent 12,404,266, issued September 2, 2025, claims BHV-2100 and will expire in November 2041, not including possible patent term extensions. Related patents have been granted in Eurasian Patent Organization and Saudi Arabia, and national applications are pending in the United Arab Emirates, Australia, Brazil, Canada, China, European Patent Office, Israel, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Singapore, Taiwan, South Africa and the U.S. The Ex-US patent applications, if granted, will expire in November 2041, not including possible patent term extensions in countries where such extensions are available. U.S. Patent 9,194,863, issued November 24, 2015, which relates to screening methods for analgesic agents, has also been granted in Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Italy, Netherlands and Sweden. The patents will expire in May 2032, not including possible patent term extensions in countries where such extensions are available. In addition, seven PCT applications directed to various TRPM3 antagonist chemotypes were filed in May 2023 (PCT/EP2023/063992, PCT/EP2023/063994, PCT/EP2023/063996, PCT/EP2023/063997, PCT/US2023/067443, PCT/US2023/067446, PCT/US2023/067448), and corresponding national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/041162, filed August 7, 2024, which relates to oral fast-dispersing dosage forms of TRPM3 antagonists and methods of treating pain using the same, is pending at the United States PCT Receiving Office designating all PCT countries. In addition, two PCT applications disclosing some brain-penetrant TRPM3 antagonists were filed in November 2024 (PCT/US2024/056806 and PCT/US2024/056810) and are currently pending in the United States PCT Receiving Office designating all PCT countries. +Oncology +Trop2 ADC +In January 2024, the Company acquired Pyramid Biosciences, Inc. (“Pyramid”), pursuant to an Agreement and Plan of Merger, dated January 7, 2024 ("the Pyramid Agreement"). As a result of the merger, the Company acquired rights under certain patents exclusively licensed to Pyramid from GeneQuantum Healthcare (Suzhou) Co. Ltd. +The licensed patents include the following, among others: PCT/CN2023/107444, filed July 14, 2023, which relates to anti-TROP2 antibodies and conjugates, including BHV-1510. U.S. Patent No. 12,539,336, issued February 3, 2026 from the ‘444 application, claims BHV-1510. National applications are also pending in the United Arab Emirates, Argentina, Australia, Brazil, Canada, Eurasian Patent Organization, European Patent Office, India, Indonesia, Israel, India, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Saudi Arabia, Singapore, and South Africa. The patent applications, if granted, will expire in July 2043, not including possible patent term extensions in countries where such extensions are available. PCT/CN2024/087405, which relates to combinations of antibody-drug conjugates and anti-PD-1 antibodies, was filed April 12, 2024, and the national applications are currently pending in the United Arab Emirates, Australia, Brazil, Canada, Eurasian Patent Organization, European Patent Office, India, Indonesia, Israel, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa, Singapore, South Africa, and the United States. PCT/CN2025/071669, filed January 10, 2025, which relates to pharmaceutical compositions of antibody-drug conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +FGFR3 ADC +In December 2024, the Company entered into a Development and License Agreement with GeneQuantum Healthcare (Suzhou) Co. Ltd. and Aimed Bio, Inc. relating to certain Fibroblast Growth Factor Receptor ADCs. The licensed patents include the following, among others: PCT/CN2023/103152, filed June 28, 2023, which relates to anti-FGFR3 antibody conjugates and medical uses thereof, was filed in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. Corresponding national applications are currently pending in the United Arab Emirates, Australia, Brazil, Canada, Colombia, Egypt, European Patent Office, India, Indonesia, Israel, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Philippines, Russia, Saudi Arabia, South Africa, Singapore, South Africa, Thailand, Ukraine, the United States, and Vietnam. The patent applications, if granted, will expire in June 2043, not including possible patent term extensions in countries where such extensions are available. PCT/CN2024/142547, filed December +38 +Table of Contents +26, 2024, which relates to pharmaceutical compositions of anti-FGFR3 antibody conjugates, is pending in the CNIPA Receiving Office of the Patent Cooperation Treaty and all countries were designated for filing. +Non-exclusively licensed patents include the following: PCT/KR2022/000119, filed January 5, 2022, which relates to anti-FGFR3 antibodies and uses thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea and the United States. PCT/CN2022/131904, filed November 15, 2022, which relates to exatecan derivatives, linker-payloads and conjugates thereof, is pending in Australia, Canada, China, the European Patent Office, Japan, Korea, Mexico and the United States. PCT/CN2021/074082, filed January 28, 2021, which relates to ligase fusion proteins and applications thereof, is pending in Australia, China, the European Patent Office, Japan, Korea and the United States. +Troriluzole +We have a portfolio of patents and patent applications in the U.S. and foreign countries directed to prodrugs of riluzole, including, among others, U.S. Patent 10,485,791, issued November 26, 2019, which is directed to troriluzole and other prodrugs of riluzole. This patent expires in February 2036, not including possible patent term extensions. Ex-U.S. counterparts to the ‘791 patent have been granted in Albania, Armenia, Austria, Australia, Azerbaijan, Belgium, Brazil, Bulgaria, Belarus, Canada, Switzerland, China, Cyprus, Czechia, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Hong Kong, Croatia, Hungary, India, Ireland, Israel, Italy, Japan, Kyrgyzstan, Kazakhstan, Lithuania, Luxembourg, Latvia, Monaco, North Macedonia, Macao, Malta, Mexico, Netherlands, Norway, Philippines, Poland, Portugal, Republic of Korea, Romania, Serbia, Russia, Singapore, Sweden, Slovenia, Slovakia, Tajikistan, Turkmenistan, Turkey and South Africa. The ex-U.S. patents and patent applications will expire in February 2036, not including possible patent term extensions in countries where such extensions are available. In addition, the use of these compounds for treating OCD, ALS, SCA, depression, Alzheimer’s Disease and other diseases are described and claimed in these patents and patent applications. These patent applications are subject to an agreement with ALS Biopharma and FCCDC. In addition, we have filed patent applications relating to drug product formulations containing troriluzole and methods of using the formulations to treat various diseases, including, for example, the use of troriluzole with immunotherapies to treat ataxias, including among others U.S. Patent 12,102,618, issued October 1, 2024, which expires in November 2038, not including possible patent term extensions. Ex-U.S. patents and patent applications corresponding to the '618 patent will expire in November 2038, not including possible patent term extensions in countries where such extensions are available. In addition, another patent application directed to the treatment of SCA3 (PCT/US23/67326) was filed in May 2023 and is pending in the United States and other major market countries. These patents, if granted, will expire in May 2043, not including possible patent term extensions in countries where such extensions are available. Also, a patent application directed to the use of troriluzole for treating OCD was filed in June 2021 (PCT/US21/38789) and national applications are pending in major jurisdictions. These patents, if granted, will expire in 2041, not including possible patent term extensions in countries where such extensions are available. Another patent application directed to the treatment of glioblastoma (PCT/US23/69038) was filed June 26, 2023 and is pending in the United States and other major market countries. +MATE Conjugation Technology +We also acquired Kleo Pharmaceuticals, Inc. in January 2021. This acquisition included Kleo’s proprietary technology platforms which are modular in design and enable rapid generation of novel immunotherapies that can be optimized against specified biological targets and combined with existing cell- or antibody-based therapies. These include ARM technology and MATE conjugation technology, which complement the MoDE technology and our Oncology ADC technology. U.S. Serial No. 17/769924, filed April 18, 2022, relates to directed conjugation technologies. Ex-U.S. counterparts to the '924 application have been filed in the United Arab Emirates, Australia, Brazil, Canada, China, countries of the Eurasian Patent Organization, European Patent Office, Israel, India, Japan, Republic of Korea, Mexico, New Zealand, Philippines, Saudi Arabia, South Africa and Singapore and, if granted, will expire in November 2040, not including possible patent term extensions in countries where such extensions are available. U.S. Serial No. 17/912563, filed September 19, 2022, relates to technologies for treating COVID infections. Ex-U.S. counterparts to the '563 application are pending in major market countries. PCT/US2022/015390, which relates to technologies for preventing or treating infections, was filed February 6, 2022 and is pending in the United States. PCT/US2022/029533, which relates to compositions including conjugated therapy enhancers, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/029535, which relates to agents for directed conjugation techniques and conjugated products, was filed May 17, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2022/030070, which relates to antibody drug conjugates using MATE technology for delivering cytotoxic agents, including BHV-1500, was filed May 19, 2022 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if granted, will expire in May 2042, not including possible patent term extensions in countries where such extensions are available. PCT/US2024/025746, filed April 23, 2024, claims BHV-1500 and national applications are pending in the United States and major jurisdictions worldwide. The patent applications, if +39 +Table of Contents +granted, will expire in April 2044, not including possible patent term extensions in countries where such extensions are available. +Licensing and Other Agreements +In addition to our independent efforts to develop and market products, we from time to time enter into agreements such as licensing agreements, option-to-license agreements and strategic collaborations. The licensing and other agreements typically include, among other terms and conditions, non-refundable upfront license fees, option fees and option exercise payments, milestone payments and royalties. See Note 11, "License, Acquisitions and Other Agreements," to the Consolidated Financial Statements included in this report for additional information regarding our licenses and other agreements. +Government Regulation +In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act (the "FDCA") and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including imposition of a clinical hold, refusal by the FDA to approve applications, withdrawal of an approval, import/export delays, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. +The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include: +• preclinical laboratory tests and animal tests conducted under Good Laboratory Practices ("GLP"); +• the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials commence; +• approval by an independent institutional review board ("IRB"), representing each clinical site before each clinical trial may be initiated; +• adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication and conducted in accordance with Good Clinical Practices ("GCP"); +• the preparation and submission to the FDA of an NDA; +• FDA acceptance, review and approval of the NDA, which might include an Advisory Committee review; +• satisfactory completion of an FDA inspection of the manufacturing facilities at which the product, or components thereof, are made to assess compliance with current Good Manufacturing Practices ("cGMPs"). +The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. +Preclinical and Human Clinical Trials in Support of an NDA +Preclinical studies include laboratory evaluations of the product candidate, as well as in vitro and animal studies to gather information on the safety and efficacy of the product candidate. The conduct of preclinical trials is subject to federal regulations and requirements including GLP regulations. The results of the preclinical studies, together with manufacturing information and analytical data, among other things, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. The FDA may nevertheless initiate a clinical hold after the 30 days if, for example, a deficiency is found in the IND application. +40 +Table of Contents +Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCP requirements. Each clinical trial must be reviewed and approved by an IRB at each of the sites at which the trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. +Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap or be combined. These phases generally include the following: +Phase 1 . Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics. +Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population with a specific disease or condition to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks. +Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product approval and labeling. +Phase 4. Clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in enforcement action or withdrawal of approval. +A Phase 2/3 trial design, which we have used in our troriluzole development program, is often used in the development of pharmaceutical and biological products. The trial includes Phase 2 elements, such as an early interim analysis of safety or activity, and Phase 3 elements, such as larger patient populations with less restrictive enrollment criteria. An early interim analysis of clinical or physiologic activity and/or safety allows the study to be stopped, changed or continued before a large number of patients have been enrolled, while still allowing all data from enrolled patients to count in the analysis used to support approval. +Submission and Review of an NDA +The results of preclinical studies and clinical trials, together with detailed information on the product's manufacture, composition, quality, controls and proposed labeling, among other things, are submitted to the FDA in the form of an NDA, requesting approval to market the product. The application must be accompanied by a significant user fee payment, which typically increases annually, although waivers may be granted in limited cases. The FDA has substantial discretion in the approval process and may refuse to accept an application if they determine that the data are insufficient for approval and require additional nonclinical, clinical or other studies. +Once an NDA has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA sets a user fee goal date that informs the applicant of the specific date by which the FDA intends to complete its review and take an action on the application. A standard review typically takes 10 months from the date that the application is accepted for filing by the FDA and a priority review typically takes 6 months from the date that the application is accepted by the FDA for filing. The review process can be extended by FDA requests for additional information or clarification. The FDA reviews NDAs to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA typically will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities comply with cGMPs. Additionally, the FDA will typically inspect one or more clinical trial sites, as well as the Sponsor of the NDA, for compliance with GCP and integrity of the data supporting safety and efficacy. +During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy ("REMS") is necessary to assure the safe use of the product post approval. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as a boxed warning, to be included in the product label in order to highlight a particular safety risk. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. +41 +Table of Contents +On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA will issue either an approval of the NDA or a Complete Response Letter ("CRL"), detailing the deficiencies in the submission and the additional testing or information required for reconsideration of the application. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. If a CRL is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the application, or request a hearing. Even with submission of this additional information, the FDA may ultimately decide that the application does not satisfy the regulatory criteria for approval. +Post-Approval Requirements +Approved drugs that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims and some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for marketed products. +The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance programs to further assess and monitor the product's safety and effectiveness after commercialization. The FDA may also require a REMS, which could involve requirements for, among other things, medication guides, special trainings for prescribers and dispensers, patient registries, and elements to assure safe use. +In addition, entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA has promulgated specific requirements for drug cGMPs. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. +Once an approval is granted, the FDA may issue enforcement letters or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay product distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; +• fines, warning letters or holds on post-approval clinical trials; +• refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +• product seizure or detention, or refusal to permit the import or export of products; or +• injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities. +Section 505(b)(2) NDAs +As an alternative path to FDA approval for modifications to formulations or uses of drugs previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments. A Section 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not +42 +Table of Contents +conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use from the company by or for whom the investigations were conducted. This type of application permits reliance for such approvals on literature or on an FDA finding of safety, effectiveness or both for an approved drug product. As such, under Section 505(b)(2), the FDA may rely, for approval of an NDA, on data not developed by the applicant. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the approved branded reference drug. The FDA may then approve the new product candidate for the new indication sought by the 505(b)(2) applicant. +Our clinical program for troriluzole for the treatment of SCA and the treatment of OCD is based on a regulatory pathway under section 505(b)(2) of the FDCA that allows reference to data on riluzole for the purpose of safety assessments. +Product Exclusivity - United States +In the United States, biopharmaceutical products are protected by patents with varying terms depending on the type of patent and the filing date. A significant portion of a product’s patent life, however, is lost during the time it takes an innovative company to develop and obtain regulatory approval of a new drug. As compensation at least in part for the lost patent term due to regulatory review periods, the innovator may, depending on a number of factors, apply to the government to restore lost patent term by extending the expiration date of one patent up to a maximum term of five years, provided that the extension cannot cause the patent to be in effect for more than 14 years from the date of drug approval. A company seeking to market an innovative pharmaceutical in the U.S. must submit a complete set of safety and efficacy data to the FDA. If the innovative pharmaceutical is a chemical product, the company files an NDA. If the medicine is a biological product, a Biologic License Application ("BLA") is filed. The type of application filed affects regulatory data protection (“RDP”) exclusivity rights. +Small Molecule Products +A competitor seeking to launch a generic substitute of small molecule drug in the U.S. must file an Abbreviated New Drug Application ("ANDA") with the FDA. In the ANDA, the generic manufacturer needs to demonstrate only “bioequivalence” between the generic substitute and the approved NDA drug. The ANDA relies upon the safety and efficacy data previously filed by the innovator in its NDA. An innovator company is required to list certain of its patents covering the medicine with the FDA in what is commonly known as the FDA’s Orange Book. The FDA cannot approve an ANDA until after the innovator’s listed patents expire unless there is a successful patent challenge. However, after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA and allege that one or more of the patents listed in the Orange Book under an innovator’s NDA is either invalid or not infringed (a Paragraph IV certification). The innovator then must decide whether to file a patent infringement suit against the generic manufacturer. From time to time, ANDAs, including Paragraph IV certifications, could be filed with respect to certain of our products. +In addition to patent protection, certain innovative pharmaceutical products can receive periods of regulatory exclusivity. An NDA that is designated as an orphan drug can receive seven years of exclusivity for the orphan indication. During this time period, neither NDAs nor ANDAs for the same drug product can be approved for the same orphan use. A company may also earn six months of additional exclusivity for a drug where specific clinical studies are conducted at the written request of the FDA to study the use of the medicine to treat pediatric patients, and submission to the FDA is made prior to the loss of basic exclusivity. Medicines approved under an NDA can also receive several types of RDP. An innovative chemical pharmaceutical product is entitled to five years of RDP in the U.S., during which the FDA cannot approve generic substitutes. If an innovator’s patent is challenged, as described above, a generic manufacturer may file its ANDA after the fourth year of the five-year RDP period. A pharmaceutical drug product that contains an active ingredient that has been previously approved in an NDA, but is approved in a new formulation, but not for the drug itself, or for a new indication on the basis of new clinical studies, may receive three years of RDP for that formulation or indication. +Biologic products +The ACA, which includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar version may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the +43 +Table of Contents +patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA. +In the U.S., the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the U.S. limit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. +Foreign Regulation +In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others. +European Union +A typical route used by innovator companies to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a MAA with the EMA. After the EMA evaluates the MAA, it provides a recommendation to the European Commission ("EC") and the EC then approves or denies the MAA. Regulatory approval via the centralized procedure results in a marketing authorization for the innovative pharmaceutical product in each EU member state. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure,” in which an application is made to a single member state, and if the member state approves the pharmaceutical product under a national procedure, then the applicant may submit that approval to the mutual recognition procedure of some or all other member states. After obtaining marketing authorization approval, a company must obtain pricing and reimbursement for the pharmaceutical product, which is typically subject to member state law. In certain EU countries, this process can take place simultaneously while the product is marketed but in other EU countries, this process must be completed before the company can market the new product. The pricing and reimbursement procedure can take months and sometimes years to complete. Throughout the EU, all products for which marketing authorizations have been filed after October/November 2005 are subject to an “8+2+1” regime. Eight years after the innovator has received its first community authorization for a medicinal product, a generic company may file a MAA for that product with the health authorities. If the MAA is approved, the generic company may not commercialize the product until after either 10 or 11 years have elapsed from the initial marketing authorization granted to the innovator. The possible extension to 11 years is available if the innovator, during the first eight years of the marketing authorization, obtains an additional indication that is of significant clinical benefit in comparison with existing treatments. For products that were filed prior to October/November 2005, there is a 10-year period of data protection under the centralized procedures and a period of either six or 10 years under the mutual recognition procedure (depending on the member state). In contrast to the U.S., patents in the EU are not listed with regulatory authorities. Generic versions of pharmaceutical products can be approved after data protection expires, regardless of whether the innovator holds patents covering its drug. Thus, it is possible that an innovator may be seeking to enforce its patents against a generic competitor that is already marketing its product. Also, the European patent system has an opposition procedure in which generic manufacturers may challenge the validity of patents covering innovator products within nine months of grant. In general, EU law treats chemically-synthesized drugs and biologically-derived drugs the same with respect to intellectual property and data protection. In addition to the relevant legislation and annexes related to biologic medicinal products, the EMA has issued guidelines that outline the additional information to be provided for biosimilar products, also known as generic biologics, in order to review an application for marketing approval. +Japan +To obtain marketing authorization of pharmaceutical products in Japan, an NDA must be submitted to the Pharmaceutical and Medical Devices Agency (“PMDA”) once safety and efficacy has been established. In Japan, medicines of new chemical entities are generally afforded eight years of data exclusivity for approved indications and dosage. Patents on pharmaceutical products are enforceable. Generic copies can receive regulatory approval after data exclusivity and patent expirations. As in the U.S., patents in Japan may be extended to compensate for the patent term lost during the regulatory review process. In general, Japanese law treats chemically-synthesized and biologically-derived drugs the same with respect to intellectual property and market exclusivity. +44 +Table of Contents +China +To obtain marketing authorization of pharmaceutical products in China, an NDA must be submitted to the National Medical Products Administration ("NMPA") once safety and efficacy has been established in Chinese patients. For imported drugs, this means issuance of an import license. The applicant must submit evidence of foreign approval (certificate of pharmaceutical product), unless it is an innovative drug that has never been approved anywhere in the world. +In China, medicines of new chemical entities are generally afforded six years of data exclusivity for approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +South Korea +To obtain marketing authorization of pharmaceutical products in South Korea, a marketing application must be submitted to the Ministry of Food and Drug Safety ("MFDS"). The application must contain data in South Korean patients, information regarding safety and efficacy, quality, a good manufacturing practice certificate, and a certificate of pharmaceutical product in an approved country to show that the drug being imported is being sold in the approved country in accordance with the with the relevant rules and regulations in that country. +In South Korea, medicines of new chemical entities are generally afforded six years of data exclusivity for first approved indications and dosage. Generic copies can receive regulatory approval after data exclusivity and patent expirations. +Rest of the World +In countries outside of the U.S., the EU, Japan, China and South Korea, there is a wide variety of legal systems with respect to intellectual property and market exclusivity of pharmaceuticals. Most other developed countries utilize systems similar to either the U.S. or the EU. Among developing countries, some have adopted patent laws and/or regulatory exclusivity laws, while others have not. Some developing countries have formally adopted laws in order to comply with World Trade Organization ("WTO") commitments, but have not taken steps to implement these laws in a meaningful way. Enforcement of WTO actions is a long process between governments, and there is no assurance of the outcome. +Coverage, Reimbursement and Pricing +Challenges exist that pertain to the coverage and reimbursement status of any products for which regulatory approval is sought. In the United States and foreign markets, sales of any products that receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities, such as Medicare and Medicaid, and private entities, such as managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. The latter is often informed by entities such as the Institute for Clinical and Economic Review ("ICER") which provides a reimbursement rate based on a multifactorial value assessment. Admittedly, ICER value assessments are more pertinent to the U.S. environment. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Typically, patients must "step through," or fail less expensive therapies such as generics in order to be prescribed a branded therapy. Moreover, a third-party payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor's reimbursement payment rate may not be adequate or may require patient co-payments that patients find unacceptably high. Additionally, coverage and reimbursement for products can differ significantly from one payor system to the next. Private payor systems set reimbursement policy in accordance with their particular model. For example, some payor systems mandate value based pricing wherein a particular price point is premised upon achieving a particular goal. These can include an improvement in patients’ clinical course (therapeutic effectiveness), or reductions in drug and health care utilization and cost. Thus a third-party payor's decision to cover a particular product does not ensure that other payors will also provide the same level of coverage for the product, or will provide coverage at an adequate reimbursement rate. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +Third-party payors require evidence of value that are supplemental to the regulatory mandates of safety and efficacy in order to support a particular price. To obtain coverage and reimbursement for any product that might be approved for sale, there is often a need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity (based on evidence of disease burden and unmet need) and cost-effectiveness of the therapy. As mentioned, the ICER evidence review mandates such information. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, they may deem a subpopulation of eligible patients based on greater unmet need as eligible for reimbursement. Thus, obtaining and maintaining reimbursement status can +45 +Table of Contents +be time-consuming and costly. However, drug developers accept these requirements as a condition of reimbursement, analogous to their acceptance of the level of evidence needed to obtain regulatory approval. +The U.S. and foreign governments regularly consider reform measures that affect health care coverage and costs. For example, the U.S. and particularly state legislatures have implemented cost containment programs that include price controls, restrictions on reimbursement and "first use" of generic products prior to access to branded prescriptions. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("collectively, the ACA") contains provisions such as increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. The Centers for Medicare and Medicaid Services ("CMS") may develop new payment and delivery models, such as bundled payment models. For example, the U.S. Department of Health and Human Services ("HHS") moved 41% of Medicare fee-for-service payments to alternative payment models ("APMs") tied to the quality or value of services by the end of 2018. HHS has a developmental goal to increase the percentage of Medicare health care dollars tied to APMs incorporating downside risk, with a target of 55% for fiscal year 2024 and 60% for fiscal year 2025. These constitute significant challenges, which are analogous to the regulatory hurdles in many aspects and drug developers acknowledge these challenges as the path to providing safe and effective therapies to the patients that require them. +European Union Coverage Reimbursement and Pricing +In the European Union, pricing and reimbursement requirements can vary widely from country to country. These may range from ICER-like value assessments (e.g. NICE in the U.K. and SMC in Scotland) that include cost-effectiveness parameters to criteria that are based solely on a novel therapy’s incremental effectiveness (efficacy, safety) relative to approved standards of care. These latter criteria may require additional studies. All of these are compiled as country-specific health technology assessments ("HTAs"), that constitute a requisite for reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of access restrictions that typically target sub populations with high unmet need. Sponsors are expected to demonstrate incremental value including effectiveness in these subpopulations via additional analyses. +Healthcare Laws and Regulations +Physicians, other healthcare providers, and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Futur e arrangements wi th healthcare professionals, principal investigators, consultants, customers and third-party payors are and will be subject to various federal, state and foreign fraud and abuse laws and other healthcare laws and regulations. These laws and regulations may impact, among other things, healthcare professionals who participate in our clinical research programs, and our proposed sales, marketing, distribution, and education programs. The U.S. federal and state healthcare laws and regulations that may affect our ability to operate include, without limitation, the following: +• The federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs, such as Medicare and Medicaid. The term "remuneration" has been broadly interpreted to include anything of value; +• The federal civil and criminal false claims laws, including, without limitation, the federal civil monetary penalties law and the civil False Claims Act (which can be enforced by private citizens through qui tam actions), prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government; +• The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; +• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") enacted as part of the American Recovery and Reinvestment Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, on entities subject to the law, such as healthcare providers, health plans, and healthcare clearinghouses and their respective business associates to safeguard the privacy, security and transmission of individually identifiable health information from any unauthorized use or disclosures; +46 +Table of Contents +• The federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, and other programs such as CHIP to report to HHS information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; and +• Analogous state laws and regulations, such as state anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers; and state health information privacy and data breach notification laws, which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and some of which are not pre-empted by HIPAA, thus complicating compliance efforts. +We are required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Healthcare reform legislation has strengthened these federal and state healthcare laws. For example, the ACA amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. +Violations of these laws can subject us to criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and reputational harm, we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business. +Healthcare Reform +The legislative landscape in the United States continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states, without specifically ruling on the ACA’s constitutionality. +The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following: +• an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; +• a Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; +• requirements to report certain financial arrangements with physicians and certain others, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests; +• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; +• a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; +• extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; +47 +Table of Contents +• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; +• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; +• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and +• establishment of the Center for Medicare Innovation at the Centers for Medicare and Medicaid Services ("CMS"), to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA. In January 2021, an Executive Order entitled “Executive Order on Strengthening Medicaid and the Affordable Care Act” repealed two previous Executive Orders delaying the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that amend all or part of the ACA. +In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 (known as Medicare sequestration) and subsequent extensions, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. +Further, there have been several Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion. In August 2022, Congress passed the Inflation Reduction Act of 2022 (the "IRA"), which, among other things, requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). Subsequently, certain pharmaceutical companies and other entities filed lawsuits in various courts against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. While some of these cases are on appeal, HHS has generally won the substantive disputes in these cases, and various federal district court judges expressed skepticism regarding the merits of the legal arguments being pursued by the pharmaceutical industry. Litigation involving these and other provisions of the IRA will continue with unpredictable and uncertain results. In addition, recent administrations have released various executive orders with provisions aimed at, among other things, prescription drug pricing, lowering drug costs for Medicare and Medicaid beneficiaries and setting forth various potential policies or actions that Congress or administrative agencies could pursue. In July 2025, the One Big Beautiful Act ("OBBBA") was enacted which, among other things, is directed to improving efficiencies in U.S. federal healthcare spending over the next decade, primarily within Medicaid. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. +At the state level, legislatures are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. +The Foreign Corrupt Practices Act +The Foreign Corrupt Practices Act (the "FCPA") prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or +48 +Table of Contents +business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts. +Environmental, Social, Governance, and Human Capital +Governance and Leadership +Our commitment to integrating sustainability across our organization begins with our Board of Directors. The Nominating and Governance Committee of the Board has oversight of strategy and risk management related to Environmental, Social and Governance (“ESG”). Six of our eight directors are independent under the NYSE’s listing standards for independence. +Business Ethics +We are committed to creating an environment where we are able to excel in our business while maintaining the highest standards of conduct and ethics. Our Code of Business Conduct and Ethics (the “Code of Conduct”) reflects the business practices and principles of behavior that support this commitment, including our policies on bribery, corruption, conflicts of interest and our whistleblower program. We expect every director, officer, and employee to read, understand and comply with the Code of Conduct and its application to the performance of his or her business responsibilities. +We encourage employees to come to us with observations and complaints, and we strive to understand the severity and frequency of an event in order to escalate and assess accordingly. Our Chief Compliance Officer strives to ensure accountability, objectivity, and compliance with our Code of Conduct. If a complaint is financial in nature, the Audit Committee Chair is notified concurrently, which triggers an investigation, action and report. +Environmental Commitment +We are committed to protecting the environment and attempt to mitigate negative impacts of our operations. We monitor resource use, and aim to improve efficiency, and at the same time reduce our emissions and waste. +Externally, we strive to reduce the overall impact of our product on the environment by taking steps to enhance the sustainability of our manufacturing processes for our drug substances. +In collaboration with our contract research organization partners, we apply various green chemistry methodologies to our commercial and development pipeline. We have especially focused on using biocatalysis, a technology that makes use of enzymes instead of chemicals to accomplish specific chemical reactions used to construct organic small molecules such as Active Pharmaceutical Ingredients. +We have also initiated work in removing hazardous organic solvents from certain reactions and replacing them with water. This green technology relies on the use of micelles to enable such reactions to occur in water where they would normally not occur due in part to the very poor solubility of most organic compounds in water. These greener processes create less waste and reduce the environmental impact of the manufacturing process. +Social Responsibility +For third-party vendor selection and oversight, we have adopted standard operating procedures that apply to employees and subcontractors who on our behalf, oversee and conduct research regulated by the FDA. We retain ultimate authority and responsibility for the conduct of regulated research, manufacturing, and testing and we must ensure that contracted services are conducted in accordance with Good Practice Guidelines and all applicable regulations. +Human Capital Management +We foster and encourage a workplace environment that holds possibilities for everyone, with a commitment to respect and acceptance without biases. +Development and continuous feedback are priorities for our organization, which was comprised of 274 employees as of December 31, 2025. We believe each person is critical to our success and we invest in our people by supporting continuous training programs and courses. We encourage each employee to engage with their manager in developmental discussions designed to focus on feedback rather than a rating. +An important part of our talent recruitment is our robust paid internship program for high school, college and graduate-level students. This program offers opportunities to students in the community and develops a roadmap for +49 +Table of Contents +‘entry-level’ candidates. We evaluate the success of our recruitment program through metrics such as time to hire, offer acceptance rate, turnover rate and business results. +We strive to provide an inclusive workplace to foster growth and innovation. Biohaven engages in forward-thinking people policies to allow for our employees to thrive in our workforce. Regular attendance at an office is only required of our lab professionals, allowing over 50% of our workforce to work remotely full-time. Our vacation policy is unlimited and is aimed at giving employees the ability to achieve work/life balance in a way that is bespoke to their circumstances. +Information about Segments +We currently operate in a single business segment developing a portfolio of treatments in therapeutic areas including neuroscience, immunology and oncology. See additional information in our financial statements contained in Part II, Item 8 of this Annual Report. +Corporate Information +We are a business company limited by shares organized under the laws of the British Virgin Islands. Our registered office is located at P.O. Box 173, Road Town, Tortola, British Virgin Islands and our telephone number is +1 (284) 852-3000. Our U.S. subsidiary's office is located at 215 Church Street, New Haven, Connecticut 06510 and telephone number is (203) 404-0410. Our website address is www.biohaven.com. The information contained on our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in making an investment decision regarding our common shares. On September 16, 2022, the Company changed its name from “Biohaven Research Ltd.” to “Biohaven Ltd.” +Available Information +Our internet website address is www.biohaven.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report. +Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). A copy of these reports is also available at the SEC's website (www.sec.gov). +50 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001935979/2025/0001935979-26-000020/item13.txt b/raw/filings/0001935979/2025/0001935979-26-000020/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..7cca05884a4d23309b0b3efd243fabb30e8d2562 --- /dev/null +++ b/raw/filings/0001935979/2025/0001935979-26-000020/item13.txt @@ -0,0 +1,3 @@ +Item 13 : +Certain Relationships and Related Transactions, and Director Independence +110 \ No newline at end of file diff --git a/raw/filings/0001936224/2024/0000950170-25-043326/filing.txt b/raw/filings/0001936224/2024/0000950170-25-043326/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..0fa0181d0e9fb9b333164f48ba0d2888f8db5f63 --- /dev/null +++ b/raw/filings/0001936224/2024/0000950170-25-043326/filing.txt @@ -0,0 +1,5380 @@ +10-K +false 831 0001936224 FY .0446 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us-gaap:RedeemableConvertiblePreferredStockMember 2024-12-31 srfm:Aircrafts utr:Rate xbrli:pure xbrli:shares srfm:Segment iso4217:USD srfm:Aircrafts srfm:Tranche srfm:Agreement srfm:ConvertiblePreferredShares srfm:Caravan iso4217:USD iso4217:USD xbrli:shares +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO +Commission File Number 001-41759 +Surf Air Mobility Inc. +(Exact name of Registrant as specified in its Charter) +Delaware +36-5025592 +(State or other jurisdiction of +incorporation or organization) +(I.R.S. Employer +Identification No.) +12111 S. Crenshaw Blvd . +Hawthorne , CA +90250 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code: ( 424 ) 332-5480 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading +Symbol(s) +Name of each exchange on which registered +Common stock, $0.0001 par value per share +SRFM +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of voting stock held by non-affiliates of the Registrant on the last business day of the Registrant’s most recently completed second fiscal quarter , based on the closing price of $2.69 per share of the Registrant’s common stock as reported by the New York Stock Exchange, was approximately $ 31.7 million. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose. +The number of shares of Registrant’s common stock outstanding as of March 14, 2025 was 16,946,981 . +Table of Contents +Page +PART I +Item 1. +Business +7 +Item 1A. +Risk Factors +15 +Item 1B. +Unresolved Staff Comments +51 +Item 1C. +Cybersecurity +51 +Item 2. +Properties +54 +Item 3. +Legal Proceedings +54 +Item 4. +Mine Safety Disclosures +54 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +55 +Item 6. +[Reserved] +55 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +56 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +69 +Item 8. +Financial Statements and Supplementary Data +70 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +118 +Item 9A. +Controls and Procedures +118 +Item 9B. +Other Information +120 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +120 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +121 +Item 11. +Executive Compensation +124 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +129 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +131 +Item 14. +Principal Accountant Fees and Services +134 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +135 +Item 16. +Form 10-K Summary +140 +Signatures +141 +2 +SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. All statements other than statements of historical facts contained in this Annual Report on Form 10-K may be forward-looking statements. Forward-looking statements may be identified by the use of words such as “estimate”, “plan”, “project”, “forecast”, “intend”, “will”, “expect”, “anticipate”, “believe”, “seek”, “target”, “designed to” or other similar expressions that predict or indicate future events or trends, although the absence of these words does not mean that a statement is not forward-looking. The Company cautions readers of this Annual Report on Form 10-K that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control, that could cause the actual results to differ materially from the expected results. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of financial and performance metrics, projections of market opportunity and market share, potential benefits and the commercial attractiveness to its customers of the Company’s products and services and the dependence on third-party partnerships in the development of fully-electric and hybrid-electric powertrains, and the potential success of the Company’s marketing and expansion strategies. These statements are based on various assumptions, whether or not identified in this Annual Report on Form 10-K, and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied upon by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. These forward-looking statements are subject to a number of risks and uncertainties, including: +• +the Company’s future ability to pay contractual obligations and liquidity, which will depend on operating performance, cash flow and ability to secure adequate financing; +• +the Company’s ability to meet the requirements of its term loan credit facility or other debt obligations; +• +the Company’s limited operating history and that the Company has not yet commercialized software platforms for third-party sales or manufactured any fully-electric or hybrid-electric aircraft; +• +the powertrain technology the Company plans to develop does not yet exist and remains subject to approval by regulators; +• +the Company’s ability to maintain and strengthen the Company’s brand and its reputation as a regional airline; +• +any accidents or incidents involving aircraft including those involving fully-electric or hybrid-electric aircraft; +• +the Company’s ability to accurately forecast demand for products and manage product inventory in an effective and efficient manner; +• +the dependence on third-party partners and suppliers for the components and collaboration in the Company’s development of software technology platforms, fully-electric and hybrid-electric powertrains, and other products and services, and any interruptions, disagreements or delays with those partners and suppliers; +• +the Company’s ability to execute business objectives and growth strategies successfully or sustain the Company’s growth; +• +risks from the integration of business acquisitions that could adversely affect the Company’s business, divert the attention of management, and dilute shareholder value; +• +increased costs as a result of operating as a public company, and the requirement that management devote substantial time to comply with the Company’s public company responsibilities and corporate governance practices; +• +the ability of the Company’s customers and potential customers to pay for the Company’s services; +• +the Company’s ability to obtain additional financing or access the capital markets to fund its ongoing operations on acceptable terms and conditions; +• +the outcome of any legal proceedings that might be instituted against the Company; and +3 +• +risks associated with the Company’s ability to comply with applicable laws, government regulations and rules and standards of the New York Stock Exchange as well as with changes in applicable laws or regulations, and the impact of the regulatory environment. +All forward-looking statements included herein attributable to the Company or any person acting on any party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, the Company undertakes no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events. +4 +SUMMARY RISK FACTORS +Investing in our common stock involves numerous risks, including the risks described in “Part I, Item 1A. Risk Factors” of this Annual Report. You should carefully consider these risks before making an investment. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects. +• +There is substantial doubt about our ability to continue as a going concern. We will need additional financing to execute our business plan, to fund our operations and to continue as a going concern. +• +We have incurred significant losses since our inception and we expect to incur significant expenses and continuing losses for the foreseeable future. We may not be able to achieve or maintain profitability or positive cash flows. +• +We will need to obtain sufficient financing or other capital to operate successfully. We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing or access the capital markets to fund our ongoing operations and execute on our growth strategy on acceptable terms and conditions. +• +It is not possible to predict the actual number of shares we will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, we may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet our existing obligations . +• +We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur. +• +Our ability to utilize our NOLs and other carryforwards may be limited. +• +We may never realize the full value of our intangible assets or our long-lived assets causing us to record impairments that may negatively affect our financial condition and operating results. +• +Our contractual obligations could impair our liquidity and materially adversely affect our business, results of operations and financial condition. +• +Our management has identified material weaknesses in our internal controls over financial reporting. +• +If we experience harm to our reputation and brands, our business, financial condition and results of operations could be adversely affected. +• +We may not realize the expected return on our investment in SurfOS due to development delays, technical challenges, or lack of market acceptance, which could undermine our performance and competitive position. +• +The success of our business will be highly dependent on our ability to effectively market and sell our air mobility solutions as a substitute for alternative methods of transportation. +• +Our prospects and operations may be adversely affected by changes in consumer preferences, discretionary spending and other economic conditions that affect demand for our services. +• +We expect to face intense competition in the regional air mobility industry. +• +We will be dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting and/or retaining highly qualified personnel, we may not be able to successfully implement our business strategy. +• +We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy. +• +The planned fully-electric and hybrid-electric powertrain solutions may not result in the operating cost savings we anticipate, which could negatively impact the future economics of our network operations as well as our ability to successfully sell and market our planned future Aircraft-as-a-Service initiative. +• +Our future fully-electric and hybrid-electric aircraft may require maintenance at frequencies or at costs which are unexpected and could adversely affect our business and operations. +• +The supply of pilots to the airline industry is limited and may negatively affect our operations and financial +5 +condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may have a material adverse effect on our business, financial condition and results of operations. +• +We are subject to legal, regulatory and physical risks associated with climate change, including the potential increased impacts of severe weather events on our operations and infrastructure. +• +We are exposed to operational disruptions due to maintenance. +• +Crashes, accidents or incidents of aircraft involving us or our competitors could have a material adverse effect on our business, financial condition and results of operations. +• +We, as well as our development and supply chain partners, have limited experience to date in the development and manufacturing of fully-electric and hybrid-electric powertrains and integrating those newly developed powertrains into existing certified airframes, and we may never develop or manufacture any fully-electric and hybrid-electric powertrains. +• +We are substantially dependent upon our relationships with our strategic partners, and we are or may be subject to risks associated with such strategic alliances. Our reliance on these arrangements, and the loss of any such alliances or arrangements or failure to identify future opportunities could affect our growth plans. +• +Our competitors may commercialize their technology before us, either in general or in specific markets, or we may otherwise not be able to fully capture the first mover advantage that we anticipate. +• +If we are unable to obtain and maintain access to adequate facilities and infrastructure in desirable locations, including securing access to key infrastructure such as airports, we may be unable to offer our service in a way that is useful to passengers. +• +Our operations are currently concentrated in a small number of metropolitan areas and airports which makes our business particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas. +• +The profitability of our current operations is dependent on the availability and pricing of aircraft fuel. Periods of significant disruption in the supply of aircraft fuel or elevated pricing could have a significant negative impact on our results of operations and liquidity. +• +If our third-party aircraft operators are unable to support our operations or the growth of our business, or we are unable to add alternative third-party aircraft operators to meet demand, our costs may increase and our business, financial condition and results of operations could be adversely affected. +• +We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation. +• +If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose market share, generate reduced revenue and incur costly litigation to protect our rights. +• +Our business will be subject to a variety of extensive and evolving laws and regulations, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel and competitive disadvantages. +• +Continued access to Essential Air Service revenue is of critical importance to us. +• +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. +• +We may fail to qualify for continued listing on the New York Stock Exchange (“NYSE”), which could make it more difficult for our stockholders to sell their shares. +• +Our management has limited prior experience in operating a public company. +• +Our shareholders may experience dilution from several different sources. +6 +PART 1 +ITEM 1: BUSINESS +Overview +Surf Air Mobility Inc. (“Surf Air Mobility”, the “Company”, “us”, “we” or “our”) is a regional air mobility platform that aims to transform regional flying. The Company is currently comprised of its Air Mobility business, and has a goal of further developing and enhancing its service and technology offerings through its Air Technology business. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to develop proprietary aviation software, aircraft electrification powertrain technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the NYSE. For 2024, the Company served over 370,000 passengers with approximately 72,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional Air Mobility business. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Our acquisition of Southern Airways in July 2023 has resulted in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Founded in 2013, Southern is one of the largest commuter airlines in the United States and the largest passenger operator of Cessna Grand Caravan EXs (“Cessna Caravans”) in the United States by scheduled departures. Southern has multi-year contracts with the U.S. federal government to operate Essential Air Service (“EAS”) routes, which helps small communities in the United States maintain a minimum level of scheduled air services. +At the heart of our strategy is our aim of commercializing green regional aviation at scale. We firmly believe that regional air mobility can displace driving from its predominant position in 100-500 mile travel. There are approximately 5,000 public use airports in the U.S. creating the possibility of a dense point-to-point air network using regional aircraft. We believe that electrified aircraft, which could boast lower operating costs and emissions could be the key to unlock this electrified air-mobility market. +Surf Air Mobility (through its subsidiary airlines Southern Airways and Mokulele Airlines) is one of the largest commuter airlines in the United States by scheduled departures, serving numerous communities across the U.S. mainland and Hawaii. In addition, we have commercial relationships with over 400 air operators that provide on-demand charter services to our customers. In the future, these charter operators will be ideal customers for our AI-enhanced software operating system, SurfOS, and for hybrid and electric aircraft, all of which we expect to launch, commercialize and/or scale through our relationships with Textron Aviation, Electra, REGENT and others. +Our Strategy +We have several strategic differentiators which form our competitive advantage in the regional air mobility market. +• +Scale: we are one of the largest commuter airlines in the U.S. by scheduled departures. +• +Experience: we have over a decade of experience operating in the highly regulated aviation industry and we have flown millions of passengers millions of miles. +7 +• +Depth: we have deep – and unique – ties across the industry with exclusive relationships with Textron Aviation – manufacturer of the Cessna Caravan aircraft that we operate, and with Palantir Technologies a global leader in AI, enterprise data analytics, and business intelligence that we have partnered with to power the SurfOS operating system. +• +Reach: we have expansive reach and relationships with over 400 regional air operators who have operated charter flights via our marketplace and are expected to form the initial customer base of our SurfOS software. In addition, we have interline agreements with United, American, Alaska and Hawaiian Airlines that extend our reach to their combined 430 million annual passengers. +• +Technology: we are developing AI-enhanced software, in partnership with Palantir, to drive our growth and profitability and, in the future, we plan to offer this technology to other charter brokers, air operators, and aircraft owners. +• +Execution: we have brought together leaders and experts in aviation, software and electrification to help us synergistically execute our vision, drive profitable growth over time, and create shareholder value. +Given our leadership position in the regional air mobility sector, we believe we are uniquely qualified to understand the needs of industry participants and to develop software and hardware solutions to enhance efficiency, productivity, and profitability. Today, through our exclusive partnership with Palantir, we are developing an AI-enhanced software operating system, SurfOS. SurfOS is currently in the implementation phase across our Company, and we are already seeing improved productivity and efficiency through these tools. SurfOS aims to apply leverage to our commercial initiatives by streamlining our sales, sourcing, and distribution. Additionally, the software impacts critical functions of the airline operation such as crew scheduling, maintenance, and resource planning. We believe revenue management features such as dynamic pricing and flight distribution are key to maximizing revenue. Moreover, SurfOS is designed to empower a “connected aircraft,” which is expected to allow for near real-time insight into airplane health, maintenance needs, pilot performance, and flight tracking. We currently anticipate that we will begin rolling out SurfOS to launch customers in 2025, before widening distribution to other third-party operators, charter brokers, and owners over time. +The regional air mobility industry is expected to grow into a $75 billion to $115 billion global market by 2035. This market is expected to undergo massive transformation due to the emergence of new technologies such as electrification that seek to greatly reduce the cost of air travel, particularly for smaller regional planes that serve point-to-point routes from more convenient regional airports. In addition, electric and hybrid aircraft are expected to substantially reduce the carbon emissions of flying. +We believe Surf Air Mobility is uniquely positioned to lead the transformation of the regional air mobility industry. We intend to deploy electrified aircraft, when available, across our scheduled service routes. The Company is also pursuing Supplemental Type Certificates (“STCs”) for proprietary powertrain technology for the Cessna Grand Caravan aircraft. The Company has an exclusive sales and marketing relationship with the aircraft manufacturer, Textron Aviation, for distribution of electrified and hybrid powered aircraft, and we have MOU agreements with 7 operators globally with approximately 100 aircraft under management to potentially upgrade to our proprietary powertrains, once certified. +In addition, Surf Air Mobility’s platform will also help other electrification technologies go to market with access to the Company’s network and distribution potential. The Company is exploring relationships with other industry participants to bring innovative solutions to the regional air mobility market and accelerate the adoption of electrified aircraft potentially through the formation of joint ventures which may be separately capitalized. +Sources of Air Mobility Revenue +We generate revenue from two categories of air mobility services: +Scheduled Air Service - We generate revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, as well as through membership subscriptions. +8 +Of our combined fleet of 57 aircraft, 46 are Cessna Caravans as of December 31, 2024. For the year ended December 31, 2024, our total fleet averaged approximately 190 daily departures. We believe we are one of the largest commuter air carriers by both size of Cessna Caravan fleet and number of scheduled departures of Cessna Caravans in the United States and we believe that in the future our scale could result in an increase in the number of average daily departures, fares and load factor compared to today. With our EP1 fully-electric powertrain expected to enter service shortly after we receive certification, which we anticipate to occur early in 2027, we believe we can be the first to operate an electrified fleet of aircraft in commuter operations. +We generate revenue from EAS revenue awards from the Department of Transportation (“ DOT ”). +The EAS program was put into place in the United States following the Airline Deregulation Act of 1978 to ensure that small communities continued to receive a minimal level of air service. EAS revenue awards are guaranteed revenue contracts issued by the DOT with revenue earned for completed flights. The EAS program subsidizes scheduled flights to connect underserved communities with larger airline hubs. These contracts help add predictable stability to Southern’s operations from both a route and revenue planning perspective. As of October, 1 2024, the EAS market size for annual contract subsidy rates was approximately $550 million. +We are a leader in securing and renewing EAS contracts, which we believe will be a critical differentiator as we work to expand our point-to-point short haul regional air mobility network. We work with key stakeholders in the communities in which we intend to serve as well as the DOT, and we have been able to tailor air travel solutions that are responsive to the key needs of these smaller, underserved communities. We have consistently been able to differentiate ourselves to win contracts by leveraging our large scale and depth of operational expertise to offer a low cost, highly reliable service proposal. +On-Demand - We generate revenue from on-demand flights created for customers on an ad-hoc, by request basis. A small number of the on-demand flights are operated on our fleet; the majority are delivered on third-party turboprops or small jets. For the year ended December 31, 2024, we generated revenue of $28.7 million from on-demand operations. +Today, we offer on-demand flight booking capabilities on our consumer platform enabled by our Surf Air mobile app, which is a capital light source of revenue. +We believe there is significant value to be created by leveraging our ability to serve both customers and operators within the regional flying ecosystem. We believe this will accelerate the demand for green regional flying. By enabling new demand through our digital marketplace operations and catalyzing new supply through new technology and financing solutions, we believe we can create an ongoing cycle of growth. +We plan to invest in creating a scheduled network connecting many of the underutilized regional airports in the United States. We have developed a regional air mobility network growth plan based on mobile device and various demographic data layers, which resulted in a network growth plan across approximately 30 U.S. regional networks with approximately 200 “tier 1” routes. We intend to pursue this plan using our own air operations and by leveraging third-party air operators. +We have extensive experience using third-party operators in our scheduled and on-demand operations. As a result, we believe we will have in-depth knowledge of the success factors and key challenges facing independent operators and can facilitate operator relationships by deploying our Aircraft-as-a-Service strategy. Aircraft-as-a-Service is the product we intend to offer operators. Aircraft-as-a-Service encapsulates bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software purchase or rental for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream. +9 +Customer Experience +We believe that the customer experience that we have developed is a meaningful differentiating advantage. We have strived to create an exceptional flying experience solving the greatest pain points of regional commercial flying. Through our large scale, we have a substantial customer service operation to support our travelers. We intend to give our customers a stress-free and time-saving airport and travel experience. +Seamless Booking. Our customer journey begins digitally through both our booking app and website, creating a personalized air travel experience. Using the mobile app and website, customers have access to a real-time digital marketplace, which we believe enhances and simplifies the user experience. Customers can conveniently purchase tickets on existing scheduled flights or create private charters. Customers have access to an array of available aircraft to meet various travel needs. +Local Airports & Private Terminals. We operate scheduled and on-demand flights in and out of small airports and private terminals. This provides our customers with the convenience of an accessible airport closer to their origin and/or destination and the convenience of a private terminal experience. We believe that local airports can transform into centers for pilot training, community job growth, and growth for local businesses. +Reduced Travel Times. Operating in and out of regional airports and private terminals reduces travel time for our customers. On a typical commercial flight, major airlines recommend customers arrive two hours before their departure time. In contrast, our customers typically only need to arrive 30 minutes before their flight, which results in our passengers saving approximately 1.4 to 1.6 hours per departure. +Hassle Free Experience. Our customer services and station teams offer all customers a direct touchpoint to help manage any travel related needs leading up to and on the day of the flight. Southern currently has interline agreements with major commercial airlines, including United Airlines, Inc., American Airlines, Inc., Alaska Airlines, Inc. and Hawaiian Airlines, Inc, which help coordinate baggage claim for customers who fly different airlines on various legs of their trip, assisting in a hassle free experience. +Pilot Shortage Solution. Recent and longer-term trends in the airline industry have led to a large disruption in the supply of available aircraft pilots. A reliable, predictable and adequate availability of pilots is an integral part of any airline’s ability to maintain consistent scheduling of their operations. We believe that our business model, flying under Part 135 regulation and using primarily single-engine aircraft, will enable us to be a solution to the pilot shortage by providing pilots to certify as first officers and captains earlier, and creating a talent pool that does not compete with other airlines that operate multi-engine aircraft. Furthermore, with our pilot partnership with SkyWest, we are able to ensure that hiring and retention costs are offset in part by promoting pilot career flow into the regional airline industry. +As we plan to transition to fully-electric flight, we believe we are well-positioned to manage programs designed for training pilots for any new requirements related to the operation of electrified aircraft. Through our combined leverage as suppliers of new electrified aircraft and facilitators of a pilot training pipeline, we believe we can create a program that helps to ensure an adequate supply of pilots for the introduction of electrified flight. +10 +We believe that our current and future experience and knowledge, generated by operating our own large scheduled fleet and charter operation, combined with our partnerships and interactions with operators, brokers, lessors and OEMs puts us in a strong position to identify, create and commercialize the best electrification products and services for our evolving industry. +Government Regulation +The Company is subject to government regulation at local, state, national and international levels. The scope of these regulations is exceedingly broad, covering a wide range of subjects that includes, but is not limited to, those summarized below. Given the dynamic and rapidly evolving nature of the regulatory environment, the conduct of our business will always include a measure of risk and we may not be able to predict or control how new regulations might be written, or predict how existing regulations may be interpreted, or enforced. +Various aspects of our business, including scheduled and on-demand air service and electrification, are all impacted by interrelated but distinct regulatory frameworks. +Principal Domestic Regulatory Authorities +DOT +The U.S. Department of Transportation (the “DOT”) is the principal regulator of economic and consumer protection matters in the U.S. commercial aviation industry. The DOT licenses and oversees the operations of all carriers. This includes economic authority to conduct business as a type of air carrier, as well as consumer protection and insurance requirements that are applied to the conduct of such business. The DOT also oversees the marketing, sale and performance of public charter flights (charter flights which are sold by the seat) that may be arranged by an indirect air carrier (i.e., an entity that does not operate aircraft but contracts as a principal with a direct air carrier to do so on its behalf), for the purpose of offering its chartered flights to the public that will be performed by an identified direct air carrier at a predetermined date and time (in contrast to the on-demand, or as-needed/where-needed, character of certain of our services). The DOT oversees and regulates how airlines advertise and hold out services. The DOT also oversees the sale, holding out and arrangement of single-entity charter air transportation (charter of the entire capacity of an aircraft, in contrast to public charter flights which are sold by the seat). The DOT has authority to enforce laws and regulations against engaging in “unfair” or “deceptive” practices in the sale or provision of air transportation. The DOT promulgates and enforces various other consumer protection laws and regulations to which we are subject, including requirements related to non-discriminatory access to air transportation for disabled passengers, data reporting, recordkeeping, advertising and ticket sales, among others. The DOT is also responsible for monitoring and assuring that U.S. air carriers remain fit, willing and able at all times to provide the services for which they are licensed, and that such carriers qualify continuously as citizens of the United States within the meaning of U.S. aeronautical laws and regulations. +The Company is subject to U.S. laws regarding privacy of passenger and employee data, including as enforced by the DOT, that are not consistent in all jurisdictions where we operate and which are continually evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with privacy and information security obligations, the challenging and uncertain regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement and legal claims or proceedings. +FAA +The Federal Aviation Administration (“FAA”) is an operating administration of the DOT and the principal regulator of safety matters in the U.S. aviation industry. The FAA’s regulations touch on many aspects of civil aviation, such as the design and manufacture of aircraft, engines, propellers, avionics and other components, including applicability of engine noise and other environmental standards; the inspection, maintenance, repair and registration of aircraft; the training, licensing or authorizing and performance of duties by pilots, flight attendants and maintenance technicians; the testing of safety-sensitive personnel for prohibited drug use or alcohol consumption; the design, construction and maintenance of runways and other airport facilities; the operation of air traffic control systems, including the management of complex air traffic at busy airport facilities; the safety certification and oversight of air carriers including their operations and maintenance; the establishment and use of safety management systems by air carriers; the promotion of voluntary systems to encourage the disclosure of data that may aid in enhancing safety; and +11 +the oversight and operational control of air carriers by their accountable managers, directors of operations, directors of maintenance and other key personnel. +TSA +The Transportation Security Administration (the “TSA”) is an administration within the U.S. Department of Homeland Security which issues security programs to air carriers and ensures that air carriers operate in a manner consistent with any security program and other requirements issued to the carrier. +Facilities +Our headquarters is located in a leased 5,500 square foot facility in Hawthorne, California. The lease of this facility expires in August 2026. +Southern’s headquarters is located in a leased workspace in Palm Beach, Florida. The lease of this facility expires in April 2025. +In February 2025, the Company relocated its air operations center to Addison, Texas. The lease of this facility expires in January 2028. +Human Capital/Team +As of December 31, 2024, we had 703 employees, of which 556 were full-time and 147 were part-time. +We have not experienced any work stoppages and consider our relationship with our employees to be good. Our employees are divided across various core business functions, including operations, sales and marketing, research and development, customer service and finance and administration. +None of our employees are subject to a collective bargaining agreement or represented by a labor union. +Commitment to Environmental, Social and Governance (“ESG”) Leadership +We are seeking to build a regional air mobility ecosystem that will sustainably connect communities. We intend to accelerate the adoption of green flying, bringing electrified aircraft to market at scale in order to substantially reduce the cost and environmental impact of regional flying. In so doing, we believe we can make a meaningful contribution to tackling the dual challenges of congestion and climate change. We are working to build a dedicated, and inclusive workforce to achieve this goal while striving to adhere to best practices in risk assessment, mitigation and corporate governance. +Our ESG efforts consist of focusing on the following: +• +Environmental. Being a good steward of the natural environment through the production and development of innovative designs that reduce resource use and energy consumption. +• +Social. Promoting inclusion, while underpinning all of our activities with a core focus on health and safety. +• +Governance. Upholding our commitment to ethical business conduct, integrity and corporate responsibility, and integrating strong governance and enterprise risk management oversight across all aspects of our business. +Inclusion +We work diligently to create an inclusive work environment. We strive to provide equal opportunities for growth, success, promotion, learning and development, and aim to achieve parity in the way we organize, assign and manage projects in a way that provides equal opportunities for all. We are focused on building support across all teams and individuals, with the aim that everyone has a voice, and treats each other with respect. +12 +Intellectual Property +Our ability to protect our material intellectual property is important to our business. We seek to protect our intellectual property (including our technology and confidential information) through a combination of trademarks and trade secret protections, as well as contractual commitments and security procedures. We generally require employees and consultants to enter into confidentiality and assignment of inventions agreements and certain third parties to enter into nondisclosure agreements. +We regularly review our technology development efforts and branding strategy to identify and assess the protection of new intellectual property. We own certain trademarks important to our business, such as the “Surf Air” and “Mokulele Airlines” trademarks in the United States. +We currently own the “surfair.com” Internet domain-name registration and the “iflysouthern.com” and “mokuleleairlines.com” domain-name registrations. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name “Surf Air” or “Southern” or are otherwise relevant to or descriptive of our business. +We have chosen to rely primarily on copyright and trade secret law in order to protect our software and have chosen not to register any copyrights in these works. However, in the United States, copyrights must be registered in order to bring a claim for infringement and to obtain certain types of remedies. Even if we decide to register a copyright in our software to bring an infringement action, the remedies and damages available to us for unauthorized use of our software may be limited. +Intellectual property laws, contractual commitments and security procedures provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, trade secrets, know-how and other materials may be independently developed by our competitors or revealed to the public or our competitors and no longer provide protection. In addition, intellectual property laws vary from country to country. We may therefore be unable to protect certain of our technology, brands or other intellectual property in the U.S. or other jurisdictions. +We regularly review our development efforts to assess the existence and patentability of new inventions, and we are prepared to file patent applications when we determine it would benefit our business to do so. +Privacy and Data Protection +There are many requirements regarding the collection, use, transfer, security, storage, destruction and other processing of personally identifiable information and other data relating to individuals. Because our technology platform is an integral aspect of our business, compliance with laws governing the use, collection and processing of personal data is necessary for us to achieve our objective of continuously enhancing the user experience of our mobile application and marketing site. +We receive collect, store, process, transmit, share and use personal information and other customer data, including passenger data, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share and use such personal information, including payment information. A variety of federal, state, local, municipal and foreign laws and regulations, as well as industry standards (such as the payment card industry standards) govern the collection, storage, processing, sharing, use, retention and security of this information. +Corporate Information +We were originally founded in 2011 and incorporated in 2021 in Delaware. Our principal executive offices are located at 12111 S. Crenshaw Blvd., Hawthorne, CA 90250, and our telephone number is (424) 332-5480. Our website address is www.surfair.com. Our common stock is listed on the New York Stock Exchange under the symbol “SRFM”. +Available Information +Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our website at investor.surfair.com or at +13 +www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also use our website as a tool to disclose important information about the Company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance guidelines, code of business conduct and ethics and Board committee charters are also posted on the Investor Relations section of our website. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report we file with, or furnish to, the SEC. +14 +ITEM 1A: RISK FACTORS +You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. If any of the risks and uncertainties described below actually occur or continue to occur, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including, but not limited to, overall economic and industry conditions and additional risks not currently known to us or that we presently deem immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations or the trading price of our common stock. Moreover, some of the factors, events, and contingencies discussed below may have occurred in the past, but the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past, and instead reflect our beliefs and opinions as to the factors, events, or contingencies that could materially and adversely affect us in the future. +Risks Related to Our Financial Position and Capital Requirements +There is substantial doubt about our ability to continue as a going concern. We will need additional financing to execute our business plan, to fund our operations and to continue as a going concern. +We have incurred losses from operations, negative cash flows from operating activities and have a working capital deficit. We are currently in default of certain excise and property taxes, as well as certain debt, tax and other contractual obligations as further described in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and “- Risks Related to Our Financial Position and Capital Requirements - We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur ”. There can be no assurances that we can cure any defaults that remain outstanding, or if cured, that we will not default on future obligations. +Our success is largely dependent on the ability to raise debt and equity capital, increase our membership base, increase passenger loads, and continue to expand into regions profitably throughout the United States. +We have funded our operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities and preferred and common share financing arrangements. A significant amount of funding to date has been provided by entities affiliated with a co-founder of the Company. We will need additional financing to implement our full business plan, including our plans to electrify our fleet, which is a core part of our growth strategy, and to service our ongoing operations. We are evaluating, and will continue to evaluate, strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt, entering into other financing arrangements, or restructuring of operations to grow revenues and decrease expenses. +If we are unable to raise sufficient financing when needed or events or circumstances occur such that we do not meet our strategic plans, we will be required to seek other sources of liquidity or to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, restructuring our operations and possibly divesting all or a portion of our business, reducing spending on payroll, marketing, station rent and aircraft purchases necessary for our planned network, altering or scaling back development plans, including plans to equip regional airline operations with fully-electric and hybrid electric aircraft and reducing funding or deferring of capital expenditures, any of which could have a material adverse effect on our financial position, results of operations, cash flows and ability to achieve our business objectives. These factors raise substantial doubt about our ability to continue as a going concern. +Our prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect our business, results of operations or financial condition include, but are not limited to the ability to: (i) raise additional capital (or financing) to fund operating losses, (ii) refinance our current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to our business model. +15 +Moreover, some of our vendors and suppliers likewise rely on capital raising activities to fund their operations and capital expenditures, which may be more difficult or expensive in the event of downturns in the economy or disruptions in the financial and credit markets (including as a result of the aforementioned factors that have impacted our operations). If such vendors or suppliers are unable to raise adequate capital to fund their business plans, they may not be able to comply with their obligations to us, which could have a material adverse effect on our business, financial condition and results of operations. +We have incurred significant losses since our inception and expect to incur significant expenses and continuing losses for the foreseeable future. We may not be able to achieve or maintain profitability or positive cash flows. +We have incurred significant losses since the Company’s inception. We incurred net losses of $74.9 million and $250.7 million for the years ended December 31, 2024 and 2023, respectively. We expect our operating expenses to increase over the next several years as we endeavor to increase our flight cadence, hire more employees and fund third-party research and development efforts relating to the development of our electrification technology, as well as due to macroeconomic factors such as rising inflation rates. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we continue to have negative cash flow or losses resulting from our investment in increasing our member base and passenger loads or expanding our operations into regions throughout the United States, our business, financial condition and results of operations could be materially adversely affected. Going forward, our future losses may be larger than anticipated, and we may not achieve profitability when expected, or at all. Even if we achieve profitability, we may not be able to maintain or increase profitability. +The continued growth of our business will require significant investments in the development of our SurfOS software platform, fully-electric and hybrid-electric powertrains, our aircraft fleet, ground-based infrastructure, information technology and marketing and sales efforts. Our current cash flow has not been sufficient to support these needs to date. We have historically had negative cash flows and a working capital deficit, and have funded our operations and capital needs to date through the proceeds received from the issuance of various debt and equity instruments. Going forward, our ability to effectively manage growth and expansion of our operations will also require us to enhance various systems, including in relation to research and development, operations and internal controls and reporting. These enhancements will require significant capital expenditures and allocation of valuable management and employee resources. If our business does not generate the level of available cash flow required to support these operations and investments, and we are not able to determine an alternative solution to obtain the funding needed for our future operations, there may be a material adverse effect on our business, financial condition and results of operations. +It is not possible to predict the actual number of shares we will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, we may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet its existing obligations. +Pursuant to the Share Purchase Agreement with GEM Global Yield LLC SCS, as amended, (the “Share Subscription Facility”), upon the terms of and subject to the satisfaction of certain conditions, we have the right from time to time at our option to direct GEM to purchase up to a specified maximum amount of shares of our common stock, up to a maximum aggregate purchase price equal to $400 million over the term of the Share Subscription Facility. We may request advances from GEM (“GEM Advances”) at any time in an aggregate amount of up to $100 million, consisting of incremental advances of up to $25 million each provided that the first GEM Advance may not exceed $7.5 million without the consent of GEM. Any GEM Advance will reduce amounts that we can request for future draw downs. We have drawn upon the GEM Advances in 2024 and may continue to draw upon the GEM Advances in 2025 to augment our capital resources to address our capital needs. +The failure to satisfy the specified conditions under the Share Subscription Facility may result in our inability to request any or all of the GEM Advances or other draw downs pursuant to the Share Subscription Facility. In addition, upon requesting any GEM Advance under the Share Subscription Facility, we have agreed to deposit into escrow an amount of shares of common stock equal to two times the number of shares of common stock set out in the applicable advance request for a GEM Advance. There can be no assurances that we will be able to accurately estimate the number of shares of our common stock to be deposited since we will need to determine this number prior to the trading period of our common stock that will determine the actual purchase price for a GEM Advance. GEM will not be obligated to (but may, at its option, choose to) purchase shares of our common stock to the extent such purchase would result in +16 +beneficial ownership (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by GEM, together with its affiliates, of more than 9.99% of our issued and outstanding common stock. Such beneficial ownership limitation will not apply to the GEM Advances. In addition, the amount requested for each draw down (other than a GEM Advance) available under the Share Subscription Facility may not exceed 400% of the average daily trading volume for the 30 trading days immediately preceding any draw down. There can be no guarantee that we will be able to access any or all of the GEM Advances or other draw downs available under the Share Subscription Facility. Our inability to access a portion or the remaining amounts available under the Share Subscription Facility, in the absence of any other financing sources, will have a material adverse effect on our business and our ability to operate as a going concern. +The purchase price per share to be paid by GEM for the shares of our common stock that we may elect to sell to GEM under the Share Subscription Facility pursuant to the GEM Advances or draw downs, if any, will fluctuate based on the volume weighted average trading price of our common stock during the applicable period for each purchase made pursuant to the Share Subscription Facility. Accordingly, it is not possible to predict, prior to any such sales, the number of shares of our common stock that we will sell to GEM under the Share Subscription Facility, the purchase price per share that GEM will pay for shares purchased from us under the Share Subscription Facility, or the aggregate gross proceeds that we will receive from those purchases by GEM (other than a GEM Advance) under the Share Subscription Facility, if any. Therefore, sales to GEM by us in order to utilize the GEM Advance will, and any future draw downs under the Share Subscription Facility could, result in substantial dilution to the interests of other holders of its shares of our common stock. +Sales of shares of our common stock, if any, to GEM under the Share Subscription Facility will be determined by us from time to time in our sole discretion and will depend on a variety of factors, many of which are outside of our control, including, among other things, market conditions and the terms, conditions and limitations set forth in the Share Subscription Facility (subject to certain limitations on the obligation of GEM to purchase shares including, among other things, beneficial ownership limitations (other than in respect of the GEM Advances)). We may ultimately decide to sell to GEM all, some or none of the shares of our common stock that may be available for us to sell to GEM pursuant to the Share Subscription Facility. Depending on market liquidity at the time, resales of those shares by GEM may cause the public trading price of our common stock to decrease. +As a result of the above factors, it is possible that we may need to issue and sell more than the number of shares that we initially expect to issue to GEM under the Share Subscription Facility in order to receive aggregate gross proceeds equal to GEM’s $400 million total aggregate purchase commitment under the Share Subscription Facility, which could cause additional substantial dilution to holders of our common stock. The number of shares of our common stock ultimately offered for sale by GEM is dependent upon the number of shares of our common stock we ultimately sell to GEM under the Share Subscription Facility. +We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur. +As of December 31, 2024, we had $122.6 million in debt outstanding, representing principal related to term loans, related party promissory notes and convertible notes. The incurrence of existing or future indebtedness could have important consequences on our business, including, but not limited to: +• +increasing our vulnerability to general adverse economic and industry conditions; +• +requiring us to dedicate a substantial portion of our cash flow from operations to servicing our debt, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes; +• +limiting our flexibility in planning for, or reacting to, challenges and opportunities, and changes in our businesses and the markets in which we operate; and +• +leading to the possibility of default on future debt obligations. +17 +Our ability to service our debt will depend on our future operating performance and financial results, which may be subject to factors beyond our control, including general economic, financial and business conditions. If we do not have sufficient cash flow to service our debt, we may need to refinance all or part of our existing debt, borrow more money or sell securities or assets, some or all of which may not be available at acceptable terms or at all. In addition, we may need to incur additional debt in the future in the ordinary course of business. Our current debt and any future additional debt we may incur may impose significant operating and financial restrictions. A breach of any of these restrictions could result in a default. If a default occurs, the relevant lenders could elect to accelerate payments due. If our operating performance declines, or if we are unable to comply with any restrictions, we may need to obtain amendments to our existing debt documents or waivers from the lenders to avoid default. These factors could have a material adverse effect on our business. +Further, if there were an event of default under our debt instruments or a change of control, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately and may be cross-defaulted to other debt. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, and there is no guarantee that we would be able to repay, refinance or restructure the payments on those debt securities. +We have previously defaulted on various debt and other obligations. Further, we are currently in default of certain excise and property taxes. See the section titled “Liquidity and Going Concern” in Note 1, Description of Business in the accompanying consolidated financial statements for further information. +Our past financial results may not be a reliable indicator of our future results. Further, our results of operations may fluctuate significantly, which makes our future results of operations difficult to predict and could cause our results of operations to fall below expectations or any guidance it may provide. +Our past financial results may not be a reliable indicator of our future results, particularly given our expected move toward fully-electric and hybrid-electric powertrain technology. Further, our quarterly and annual results of operations may fluctuate significantly, which makes it difficult for us to predict our future results of operations. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. +This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance it may provide. +Loss carryforwards and certain other tax attributes to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of common stock, or if taxable income does not reach sufficient levels. +Our ability to use Net Operating Loss (“ NOL ”) carryforwards and certain other tax attributes will depend on the amount of taxable income we generate in future periods and, as a result, certain of our NOL carryforwards and other tax attributes may expire before we can generate sufficient taxable income to use them in full. In addition, our ability to use NOL carryforwards and certain other tax attributes to offset future taxable income may be limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). Potential future transactions involving the sale or issuance of common stock may increase the possibility that we will experience a future “ownership change” under Section 382. Such transactions may include the exercise of warrants, the issuance of common stock for cash, the conversion of any future convertible debt, the repurchase of any debt with common stock, the acquisition or disposition of any stock by a stockholder owning 5% or more of the outstanding shares of common stock, or a combination of the foregoing. +We may never realize the full value of our intangible assets or our long-lived assets causing us to record impairments that may negatively affect our financial condition and operating results. +In accordance with applicable accounting standards, we are required to test indefinite-lived intangible assets for impairment on an annual basis, or more frequently where there is an indication of impairment, and certain other assets for impairment where there is any indication that an asset may be impaired. We may be required to recognize losses in +18 +the future due to, among other factors, extreme fuel price volatility, tight credit markets, government regulatory changes, decline in the fair values of certain tangible or intangible assets. +Our contractual obligations could impair our liquidity and materially adversely affect our business, results of operations and financial condition. +We have significant long-term lease obligations primarily relating to our aircraft fleet. As of December 31, 2024, we had 40 aircraft under operating leases, with an average remaining lease term of approximately 4.29 years. As of December 31, 2024, future minimum lease payments due under all long-term operating leases were approximately $17.3 million. Our future ability to pay our contractual obligations and our liquidity will depend on our operating performance, cash flow and our ability to secure adequate financing, which will in turn depend on, among other things, the success of our business strategy, U.S. and global economic conditions, the availability and cost of financing, as well as general economic and political conditions and other factors that are beyond our control. If our liquidity is materially diminished, there may be a material adverse effect on our cash flow available to fund working capital requirements, capital expenditures and business development efforts. +We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing or access the capital markets to fund our ongoing operations and execute on our growth strategy on acceptable terms and conditions. +We will need to raise capital in the future to fund our operations and to execute on our anticipated growth strategy, including the development of our planned electrification technology. For example, the cost of aircraft is a significant portion of our operating costs and is subject to change. As part of our agreement with TAI, we have committed to the purchase of 90 Cessna Caravans over a five-year period beginning in 2024, with an option for up to 25 additional Cessna Caravans, which we believe are currently competitively priced, but which may increase in price pursuant to price escalation clauses by the time we execute the purchase. Historically, we have financed our operations and capital expenditures primarily through private financing rounds and the issuance of debt and equity. A significant amount of our funding to date has been provided by entities affiliated with a co-founder of the Company. +We may utilize the GEM Advances, as necessary, in 2025 to address our capital needs. We may also seek additional capital through a combination of equity and debt financings. +There are a number of factors that may limit our ability to raise financing or access capital markets in the future, including current and future debt and contractual obligations, our liquidity and credit status, our operating cash flows, market conditions in the aviation industry, U.S. and global economic conditions, the financial impact of global events such as wars and pandemics, the general state of the banking system and capital markets and the financial position of the major providers of aircraft and other aviation industry financing. Any additional financing required by us may not be available on terms acceptable to us, or at all. If we are unable to source financing on acceptable terms, or unable to source financing at all, our business could be materially adversely affected. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure. +If, in the future, we raise additional funds by issuing equity securities (including the GEM Advances), convertible debt or other similar securities, investors may experience significant dilution of their ownership interest, and these newly issued securities may have rights senior to those of the holders of common stock. Our current and any future financing arrangements, that we may enter into from time to time, involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and currently, and in the future, could impair our operational flexibility, including restricting our ability to pursue our business strategy, increase our expenses, require that our assets secure such debt, or provide for high interest rates, discounted conversion prices, or other unfavorable terms. Higher interest rates could increase debt service requirements on our current variable rate indebtedness, and on any debt we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we need to repay debt during periods of rising interest rates, we could be required to refinance our then-existing debt on unfavorable terms or liquidate one or more of our assets to repay such debt at times which may not permit realization of the maximum return on such assets and could result in a loss. The occurrence of such events could materially and adversely affect our profitability, cash flows and results of operations. If we are unable to obtain additional financing, including the GEM Advances, when needed or on acceptable terms, we will need to restructure our operations, and possibly divest all or a portion of our business. We may be required to cease operations which could result in our stockholders losing all or most of their investment. +19 +Agreements governing our debt obligations include financial and other covenants that provide limitations on our business and operations under certain circumstances, and failure to comply with any of the covenants in such agreements could adversely impact us. +Our current and any future financing agreements that we may enter into from time to time, contain certain affirmative, negative and financial covenants, and other customary events of default. Under certain circumstances, such covenants require us to maintain minimum liquidity levels, limit our ability to enter into certain strategic transactions, make certain investments, pay dividends and make certain other specified restricted payments. Certain covenants in our financing agreements are subject to important exceptions, qualifications and cure rights, including, under limited circumstances, the requirement to provide additional collateral or prepay or redeem certain obligations. In addition, certain of our financing agreements are cross-collateralized, such that an event of default or acceleration of indebtedness under one agreement could result in an event of default under other financing agreements. If we fail to comply with such covenants, if any other events of default occur for which no waiver or amendment is obtained, or if we are unable to timely refinance the debt obligations subject to such covenants or take other mitigating actions, the holders of our indebtedness could, among other things, declare outstanding amounts immediately due and payable and, subject to the terms of relevant financing agreements, repossess or foreclose on collateral, including certain of our aircraft or other assets used in our business. The acceleration of significant indebtedness or actions to repossess or foreclose on collateral may cause us to renegotiate, repay or refinance the affected obligations, and there is no assurance that such efforts would be successful or on terms we deem attractive. In addition, any acceleration or actions to repossess or foreclose on collateral under our financing agreements could result in a downgrade of any credit ratings then applicable to us, which could result in additional events of default or limit our ability to obtain additional financing. +Risks Related to Our Business and Industry +The market for regional air mobility has not been established with precision, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected. +The regional air mobility market is still emerging and has not been established with precision. It is uncertain to what extent market acceptance will grow, if at all. We have historically operated in a limited number of regional areas. The success of the regional markets in which we operate and the opportunity for future growth in such markets may not be representative of the potential market for regional air mobility in other regional areas. Our success will depend to a substantial extent on the willingness of commuters and travelers to widely adopt regional air mobility, particularly point-to-point versus the currently predominant hub-and-spoke industry configuration, as an alternative for ground transportation. Although we believe our ability to develop AI-enhanced software to drive our growth and profitability and, in the future, to offer to other charter brokers, air operators, and aircraft owners to improve their operating efficiencies, will be a key factor in our future growth, if we are unable to develop our software solutions to meet the needs of our commercial partners, the actual operating efficiencies from using our software are less than anticipated, or charter brokers, air operators and aircraft owners do not adopt our software, then the market for our offerings may not develop, may develop more slowly than we expect or may not achieve the growth potential we expect. In addition, although we believe our ability to develop and integrate hybrid-electric and electric technology with our commercial partners to present a cost-effective solution to address the needs of consumers in this market will also be a key factor to the success of our future growth, if the market that we seek to address does not perceive electrification as beneficial, or chooses not to adopt electrification as a result of concerns regarding safety, affordability, value proposition or for other reasons, then the market for our offerings may not develop, may develop more slowly than we expect or may not achieve the growth potential we expect. As a result, the number of potential customers using our future services and the number of operators adopting our planned fully-electric and hybrid-electric powertrains cannot be predicted with any degree of certainty, and we cannot provide assurance that we will be able to operate in a profitable manner in any of our current or targeted future markets. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. +Our prospects and operations may be adversely affected by changes in consumer preferences, discretionary spending and other economic conditions that affect demand for our services. +Our business is concentrated on air mobility, which is vulnerable to changes in consumer preferences, discretionary spending and other market changes impacting luxury goods and discretionary purchases (including as a result of concerns regarding the impact of a global recession). The global economy has in the past, and may in the future, experience recessionary periods and periods of economic instability, such as uncertainty in the banking system, rising fuel costs and ongoing business disruptions and related financial impacts resulting from public health crises such as pandemics, including changes in inflation and interest rates, and disruptions in manufacturing, delivery and overall supply chain. In particular, as a result of the current international trade environment (including uncertainties in global trade policies, +20 +potential escalation of tensions under the new U.S. administration, and the unpredictable impact of tariffs and trade restrictions), the conflict between Russia and Ukraine and any potential increase in hostilities in the Middle East and rising prices and interest rates, many market observers anticipate that the global economy could face a recession in the foreseeable future. During such periods, our customers have chosen not to make discretionary purchases or to reduce overall spending on discretionary purchases. Such changes could result in reduced consumer demand for air transportation, including our air mobility services, or could shift demand from our air mobility services to other methods of air or ground transportation for which we do not offer a competing service. If we are unable to generate demand or there is a future shift in consumer spending away from air mobility, there could be a material adverse effect on our business, financial condition and results of operations. +We expect to face intense competition in the regional air mobility industry. +The regional air mobility industry is still developing and evolving, but we expect it to be highly competitive. We have a number of competitors in the regional air mobility market. For example, we compete against existing on-demand mobility air travel services, as well as ground transportation alternatives. Additionally, for certain of our longer routes, we compete against providers, including legacy commercial airlines, which have larger aircraft. We compete against companies that use technology that differs from the technology we intend to deploy in our aircraft in the future. For example, we will likely compete against other companies that utilize and develop fixed-wing electrification aircraft as well as competitors that pursue electric vertical takeoff and landing aircraft. Our potential competitors may be able to devote greater resources to the development of their current and future technologies or the promotion and sale of their offerings, or offer lower prices. Our potential competitors also may establish cooperative or strategic relationships among themselves or with third parties, including regional or national airport operations that we rely on to offer our air mobility services, which may further enhance their resources and offerings. It is possible that domestic or foreign companies or governments, some with greater experience in the air mobility industry or greater financial resources than we possess, will seek to provide products or services that compete directly or indirectly with ours in the future. Any such foreign competitor could benefit from subsidies or other protective measures provided by its home country. +We believe our ability to compete successfully as an air mobility service will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, consumer confidence in the safety of our offerings, consumer satisfaction for the experiences we offer and the routes, frequency of flights and availability of seats offered through our platform. If we are unable to compete successfully, there could be a material adverse effect on our business, financial condition and results of operations. +If we are not able to successfully enter into new markets, offer new routes and services and enhance our existing offerings, our business, financial condition and results of operations could be adversely affected. +Our growth will depend in part on our ability to successfully enter into new markets, create and introduce new routes, and expand our existing routes by adding more frequent flights. Significant changes to our existing routes or the introduction of new and unproven routes may require us to obtain and maintain applicable permits, authorizations or other regulatory approvals. If these new or expanded routes are unsuccessful or fail to attract a sufficient number of customers to be profitable, or we are unable to bring new or expanded routes to market efficiently, our business, financial condition and results of operations could be adversely affected. Further, new third-party aircraft operator or flier demands regarding our services, including the availability of superior routes or a deterioration in the quality of our existing routes, could adversely affect the attractiveness of our platform and the economics of our business and require us to make substantial changes to and additional investments in our routes or our business model. +Developing and launching new routes or enhancements to routes historically flown by us involves significant risks and uncertainties, including risks related to the reception of such routes by existing and potential future third-party aircraft operators and customers, increases in operational complexity, unanticipated delays or challenges in implementing such routes or enhancements, increased strain on our operational and internal resources (including an impairment of our ability to accurately forecast flier demand and the number of third-party aircraft operators using our platform) and negative publicity in the event such new or enhanced routes are perceived to be unsuccessful. Significant new initiatives have in the past resulted in similar operational challenges, and our growth strategy contemplates scaling our business rapidly, such as through acquisitions. In addition, developing and launching new routes and enhancements to our existing routes may involve significant upfront investment, such as additional marketing and terminal build-out, and such investments may not generate a return. Any of the foregoing risks and challenges could have a material adverse effect on our business, financial condition and results of operations. +21 +Our long-term growth strategy includes the establishment of a regional air travel ecosystem, including the implementation of our Aircraft-as-a-Service initiative. This involves (1) expanding the existing platform and brand to become the commercialization path for current and future sustainable air mobility technology, including sustainable aviation fuel flights, (2) providing bundled aircraft leasing, powertrain maintenance and operating software for conventional internal combustion and, in the future, our planned electrified aircraft, (3) once developed and certified, selling or leasing our electrification technology to other operators regardless of which network they serve and (4) working in close partnership with selected aircraft manufacturers and manufacturers of components of fully-electric and hybrid-electric propulsion systems to design and build the technology required to develop, and apply to obtain STCs for, the fully-electric and hybrid-electric propulsion systems that we intend to develop with our commercial partners. This ecosystem is complex and involves risk at each stage of implementation. There can be no assurance that we will successfully implement each stage of our regional air travel ecosystem or that the establishment of this ecosystem will result in the market opportunities we anticipate, and our failure to successfully achieve part or all of this ecosystem could have a material adverse effect on our business, financial condition and results of operations. +If we experience harm to our reputation and brands, our business, financial condition and results of operations could be adversely affected. +We must continue to increase the strength of our reputation and brands as reliable, experience-driven and cost-effective air mobility providers in order to attract and retain qualified third-party aircraft operators and customers. In addition, our growth strategy includes, among other things, exploring complementary strategic mergers and acquisitions, as well as strategic partnerships, to expand our capabilities and market opportunities, all of which benefit from our reputation and brand recognition. The successful development of our reputation and brands will depend on a number of factors, many of which are outside of our control. Negative perception of our business or platform may have a material adverse effect on our reputation and brands, including as a result of: +• +complaints or negative publicity or reviews about us, our third-party aircraft operators or customers, our air mobility services, certain other brands or events we associate with or our flight operations policies ( e.g. , cancellation or baggage fee policies), even if factually incorrect or based on isolated incidents; +• +general safety concerns or specific perceptions of the safety and performance of certain types of aircraft, such as single-engine versus twin-engine aircraft or propeller-powered aircraft versus jet-powered aircraft, or if companies have policies that prevent them from utilizing our services due to the aircraft we operate; +• +changes to our flight operations, safety and security, data privacy or other policies that users or others perceive as overly restrictive, unclear or inconsistent with our values; +• +a failure to enforce our flight operations policies in a manner that users perceive as effective, fair and transparent; +• +illegal, negligent, reckless or otherwise inappropriate behavior by our customers, our third-party aircraft operators or other third parties involved in the operation of our business or by our management team or other employees; +• +flight delays or a failure to provide routes and flight schedules sought by customers; +• +actual or perceived disruptions or defects in our platform or other technology development, such as data privacy or security incidents, platform outages, payment processing disruptions or other incidents that impact the availability, reliability or security of our offerings; +• +litigation over, or investigations by regulators into, our operations or those of our third-party aircraft operators; +• +inadequate or unsatisfactory customer support service experiences; +• +negative responses by third-party aircraft operators or customers to new mobility offerings on our platform; +• +perception of our treatment of employees, contractors or third-party aircraft operators and our response to their sentiment related to political or social causes or actions of management; +• +disputes with any of our strategic partners; +• +problems in engagement with aircraft certification bodies or other regulators, communities, target demographics or other positioning in the market; or +22 +• +any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or the aviation industry as a whole, and particularly if we are unable to adequately differentiate our brand, services and aircraft from others in the market. +In addition, changes we may make to enhance and improve our offerings, and to balance the needs and interests of our third-party aircraft operators and customers may be viewed positively from one group’s perspective (such as customers) but negatively from another’s perspective (such as third-party aircraft operators), or may be viewed negatively by either third-party aircraft operators or customers. If we fail to balance the interests of third-party aircraft operators and customers or make changes that they view negatively, third-party aircraft operators and customers may stop using our platform or take fewer flights, any of which could have a material adverse effect on our reputation, brands, business, financial condition and results of operations. Moreover, we may fail to adequately differentiate our brand, services, and aircraft from others in the market, which could impact our ability to attract customers or engage with other key stakeholders. +We may be unable to reduce end-user pricing for our air mobility services over time at rates sufficient to stimulate demand and drive expected growth for our air mobility services. +We may not be able to successfully reduce end-user pricing for our air mobility services over time to increase demand, address new market segments and develop a significantly broader customer base. Our end-user pricing may be most applicable to relatively affluent consumers who are willing to purchase our services, and we will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we intend for our air mobility services to be economically accessible to a broad segment of the population and appeal to the customers of existing on-demand mobility air travel services in addition to ground-based travel services, taxis and other methods of transportation. +Reducing end-user pricing in a timely manner is dependent on management accurately estimating the unit economics of our aircraft and the corresponding service. For example, if management’s estimates are inaccurate regarding utilization rates, demand elasticity, operating conditions, production costs, indirect cost of goods sold, landing fees, charging fees, electricity availability and/or other operating expenses, we may be unable to offer our service at end-user pricing that is sufficiently compelling to initiate the local network effects that we are predicting. This could negatively impact our reputation or brand and have a material adverse effect on our business, financial condition and results of operations. +From time to time, the aircraft industry has experienced periods of oversupply during which lease rates and aircraft values have declined, and any future oversupply could materially adversely affect our financial results and growth prospects. +Historically, the aircraft leasing business has experienced periods of aircraft oversupply. The oversupply of a specific type of aircraft is likely to depress the lease rates for and the value of that type of aircraft. The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are outside of our control, including: +• +passenger and air cargo demand; +• +fuel costs and general economic conditions; +• +geopolitical events, including war, prolonged armed conflict and acts of terrorism; +• +outbreaks of communicable diseases and natural disasters; +• +governmental regulation; +• +interest rates; +• +the availability of credit; +• +airline restructurings and bankruptcies; +• +manufacturer production levels and technological innovation; +• +manufacturers merging or exiting the industry or ceasing to produce aircraft types; +• +retirement and obsolescence of aircraft models; +• +reintroduction into service of aircraft previously in storage; and +23 +• +airport and air traffic control infrastructure constraints. +In addition, due to the recent economic downturn and increased financial pressures, a number of operating lessors may be sold or merged with other operating lessors. The sale of any of these operating lessors (which may include a reduction in their aircraft fleets) and, in particular, their aircraft portfolios, could increase supply levels of used and older aircraft in the market. +These factors may produce sharp and prolonged decreases in aircraft lease rates and values and have a material adverse effect on our ability to lease or re-lease the commercial aircraft that we ultimately acquire and on our ability to sell such aircraft and parts at acceptable prices. Any of these factors could materially and adversely affect our financial results and growth prospects. +Any failure to offer high-quality customer support may harm our relationships with customers and could adversely affect our reputation, brands, business, financial condition and results of operations. +Through our marketing, advertising and communications with customers, we intend to set the tone for our brands as aspirational but also within reach. We strive to create high levels of customer satisfaction through the experience we provide in our terminal lounges and the support provided by our team and representatives. The ease and reliability of our offerings, including our ability to provide high-quality flier support, helps us attract and retain customers. Customers depend on our team to resolve any issues relating to our services, such as lost luggage and personal belongings, flight cancellations or scheduling changes. Our ability to provide effective and timely support is largely dependent on our ability to attract and retain skilled employees who can support customers and are sufficiently knowledgeable about our services. As we grow our business and improve our air mobility service platform, we will face challenges related to providing quality support at scale. Any failure to provide efficient flier support, or a market perception that we do not maintain high-quality support, could have a material adverse effect on our reputation, brands, business, financial condition and results of operations. +The success of our business will be highly dependent on our ability to effectively market and sell our air mobility solutions as a substitute for alternate methods of transportation. +We currently generate substantially all of our revenue from the sale of air transportation. Our success will depend in part on our ability to cost-effectively attract new customers, retain existing customers and increase utilization of our platform by existing customers. Our growth is highly dependent upon the adoption by charter brokers, air operators and aircraft owners of our SurfOS software solutions, the adoption by consumers of an enhanced form of mobility offered by our fully-electric and hybrid-electric aircraft, and those of others, once developed, and the growth of the regional air mobility industry. This market is new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, new aircraft announcements and changing consumer demands and behaviors. If customers do not broadly adopt this new form of mobility or are not willing to pay the prices we anticipate for our air mobility services, our business, including our planned Aircraft-as-a-Service initiative, may never materialize and there could be a material adverse effect on our prospects, financial condition and results of operations. +Passengers have a wide variety of options for transportation, including business aviation, commercial airlines, private aircraft operators, personal vehicles, rental cars, taxis, public transit and ridesharing offerings. To expand our customer base, we must appeal to new customers who have historically used other forms of transportation for regional travel. If customers do not perceive our air mobility services to be reliable, safe and cost-effective, or if we fail to offer new and relevant services and features on our platform, we may not be able to attract or retain customers or increase their utilization of our platform. If we fail to grow our customer base, retain existing customers or increase the overall utilization of our platform, there could be a material adverse effect on our business, financial condition and results of operations. +Our success in a given market will also depend on our ability to maintain and further develop our network of customers and accurately assess and predict customer demand and price sensitivity. Demand and price sensitivity may fluctuate based on a variety of factors, including macroeconomic factors, quality of service, negative publicity, safety incidents, corporate reporting related to safety, quality of customer service and support, perceived political or geopolitical affiliations and dissatisfaction with our products and offerings in general. If we fail to attract new customers or fail to accurately predict demand and price sensitivity, it may harm our financial performance, and our competitors’ services and products may achieve greater market adoption and as a result may grow at a faster rate than our service. +24 +We expect that a large driver of customer demand for our service will be time savings when compared with alternative modes of transportation. If we are unable to deliver a sufficient level of time savings for our customers or if expected time savings are impacted by delays or cancellations, it may reduce demand for our services. If we are unable to generate demand or demand falls, there could be a material adverse effect on our business, financial condition and results of operations. +We will be dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting and/or retaining highly qualified personnel, we may not be able to successfully implement our business strategy. +Our success will depend, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly skilled personnel, including finance, marketing, sales and technology and support personnel. The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have an adverse effect on our business, financial condition and results of operations. If we are unable to attract and retain skilled employees to support our operations and growth, there could be a material adverse effect on our financial condition and results of operations. +As part of our growth strategy, we are engaging in, and may in the future engage in, acquisitions that could disrupt our business and have a material adverse effect on our financial condition. +We intend to explore potential strategic acquisitions of businesses, as well as strategic partnerships, to expand our capabilities and market opportunities, as well as the establishment of a wholly-owned or joint venture aircraft and powertrain financing company. There can be no assurance that any future acquisitions or partnerships will be consummated successfully, if at all. We may also not be successful in identifying appropriate targets for such transactions. In addition, we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership. We may have potential write-offs of acquired assets and/or an impairment of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition, including the acquisition of Southern, or the establishment of a partnership or joint venture may divert management’s time and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition, partnership or joint venture may not result in anticipated synergies or cost savings over time, may reduce our cash reserves, may negatively affect our earnings and financial performance, to the extent financed with the proceeds of debt, may increase our indebtedness and to the extent financed with the proceeds of equity, and may result in dilution to our existing equity holders. We cannot ensure that any acquisition or partnership we make will not have a material adverse effect on our business, financial condition and results of operations. +We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy. +If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales, marketing, operations and the number of aircraft operators with whom we do business. Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training and managing an increasing number of employees. These difficulties may result in the erosion of our brand image, divert the attention of management and key employees and impact our financial condition and results of operations. In addition, in order to continue to increase our presence, we expect to incur substantial expenses as we continue to attempt to increase our route offerings, flight frequency, passenger terminal footprint and employee base. The continued expansion of our business may also require additional space for administrative support. If we are unable to drive commensurate growth, these costs, which include lease commitments, marketing costs and headcount, could result in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations. +Risks Related to the Development of the SurfOS Software Platform +25 +We may not realize the expected return on our significant investment in SurfOS due to development delays, technical challenges, or lack of market acceptance, which could undermine our financial performance and competitive position. +We have invested, and will continue to invest, significant time, effort, and financial resources into the development and implementation of SurfOS, our AI-enhanced software operating system. The success of SurfOS is critical to our strategy of enhancing operational efficiency and providing advanced technological solutions to our customers. However, there are several risks associated with this initiative. The development of SurfOS involves complex software engineering and integration with our existing systems and operations. Any delays or technical challenges in the development process could postpone the deployment of SurfOS, potentially leading to increased costs and missed market opportunities. Additionally, unforeseen technical issues could arise, requiring further investment and resources to resolve. Even if SurfOS is successfully developed and deployed, its success depends on market acceptance and adoption by our customers and partners. If SurfOS does not meet the expectations of our customers or fails to deliver the anticipated benefits, we may not achieve the desired return on our investment. This could adversely affect our financial performance and competitive position. +The joint venture to develop SurfOS creates risks through technology dependence, potential partner misalignment, relationship challenges, and funding uncertainties that could significantly impact the company's business. +Our joint venture with Palantir to develop SurfOS and other software solutions introduces additional risks that could impact our business. The success of SurfOS is heavily reliant on Palantir's proprietary software platforms and their implementation engineering services. Any disruption in Palantir's ability to deliver these services, or any deterioration in our relationship with Palantir, could adversely affect the development and functionality of SurfOS. Additionally, any changes in Palantir's business strategy or priorities could impact their commitment to the joint venture. The joint venture requires close collaboration and alignment between us and Palantir. Any misalignment in strategic goals, operational processes, or management decisions could hinder the progress of SurfOS development and its subsequent commercialization. Furthermore, disagreements or conflicts between the parties could lead to delays, increased costs, or even the dissolution of the joint venture. The joint venture is expected to be capitalized by outside third-party investors. If we are unable to secure sufficient funding or if the capital raised is inadequate to support the development and commercialization of SurfOS, the project may face significant setbacks. Additionally, the allocation of resources between SurfOS and other business priorities could strain our financial and operational capabilities. In summary, while SurfOS represents a significant opportunity for innovation and growth, it also carries substantial risks related to its development, market acceptance, and the dynamics of our joint venture with Palantir. These risks could materially and adversely affect our business, financial condition, and results of operations. +Risks Related to the Development of Electrification Technology +We, as well as our development and supply chain partners, have limited experience to date in the development and manufacturing of fully-electric and hybrid-electric powertrains and integrating those newly developed powertrains into existing certified airframes, and we may never develop or manufacture any fully-electric and hybrid-electric powertrains. +Our business depends in large part on our ability to execute our plans to develop, produce, assemble, market, sell, install and service our fully-electric and hybrid-electric powertrain solutions. Our ability to develop and produce fully-electric and hybrid-electric powertrain solutions of sufficient quality and appeal to customers on schedule and at scale is unproven. We have no prior experience or operating history in the development and manufacturing of electrification technology. We have entered into agreements with development and supply chain partners, such as TAI and AeroTEC, who each have limited experience in the development and manufacturing of the fully-electric and hybrid-electric powertrains that we are planning to produce, as well as in the integration of this newly developed technology into existing certified airframes. Our fully-electric and hybrid-electric powertrains are currently in the developmental stage. We do not expect to successfully commercialize our first fully-electric powertrains before early 2027 and the hybrid-electric powertrains before the end of 2027, if at all. There can be no assurance as to whether our current or future third-party partners will be able to develop efficient, automated, low-cost production capabilities and processes and/or obtain reliable sources of component supply to allow us to meet the quality, price, engineering, design and production standards and production volumes required to successfully develop, manufacture and market our fully-electric and hybrid-electric powertrains before the end of 2027. Moreover, unlike the market for electric automobiles, the commercialization of electric and hybrid-electric aircraft remains unproven. Although we believe that the component technology to electrify small aircraft exists today, there is currently no other producer of fully-electric or hybrid-electric aircraft in the industry. +26 +Any delay in the development, manufacture and launch of electrification technology could adversely affect our brand, operations and the delivery of our growth strategy, particularly if it results in a failure to expand our market share in the regional air mobility market as anticipated. Any such delays could require us to incur additional costs. Even if we and our third-party partners are successful in developing our fully-electric and hybrid-electric powertrains and reliably sourcing our component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, force majeure events, delays in meeting commercialization schedules, or failure to satisfy the requirements of customers and potential customers. Any such failure could have a material adverse effect on our business, financial condition and results of operations. +As a new entrant into the nascent market of hybrid-electric and battery electric aircraft, we anticipate that we will face risks and significant challenges that would impact our ability to, among other things: +• +design and produce safe, reliable and quality fully-electric and hybrid-electric powertrains on an ongoing basis; +• +obtain necessary regulatory approvals in a timely manner, or at all; +• +build a well-recognized and respected brand; +• +attract and maintain core commercial partnerships; +• +establish and expand our customer base; +• +successfully service our aircraft after sales and maintain a good flow of spare parts and customer goodwill; +• +improve and maintain our operational efficiency; +• +predict our future revenues and appropriately budget for our expenses; +• +attract, retain and motivate talented employees; +• +anticipate trends that may emerge and affect our business; +• +anticipate and adapt to changing market conditions, including technological developments and changes in our competitive landscape; and +• +navigate an evolving and complex regulatory environment. +If we fail to adequately address any or all of these risks and challenges, our business, financial condition and results of operations may be materially and adversely affected. +Our competitors may commercialize their technology before us, either in general or in specific markets, or we may otherwise not be able to fully capture the first mover advantage that we anticipate. +While we strive to be the first to market providing air mobility services with a hybrid-electric aircraft, we expect this industry to be increasingly competitive and it is possible that our competitors could get to market before us, either generally or in specific markets. The timing of our production ramp is dependent upon finalizing certain aspects of the design, engineering, component procurement, testing, build out and manufacturing plans in a timely manner, and our ability to execute these plans within the current timeline and upon regulatory approval by the FAA, which can be a lengthy and unpredictable process. +Even if we are first to market with fully-electric or hybrid-electric aircraft, we may not fully realize the benefits we anticipate, and we may not receive any competitive advantage or may be overcome by other competitors. New companies or existing aerospace companies may launch competing solutions, including fully-electric and hybrid-electric aircraft in the markets in which we intend to operate, or fully-electric or hybrid-electric aircraft utilizing different technologies such as hydrogen fuel cells, and obtain large scale capital investment, which may result in increased competition. +Additionally, our competitors may benefit from our efforts in developing consumer and community acceptance for hybrid-electric aircraft and air mobility, making it easier for them to obtain the permits and authorizations required to operate an air mobility service in the markets in which we intend to launch or in other markets. In the event we do not capture the first mover advantage that we anticipate, it could have a material adverse effect on our business, financial condition, results of operations and prospects. +27 +The planned fully-electric and hybrid-electric powertrain solutions may not result in the operating cost savings we anticipate, which could negatively impact the future economics of our network operations as well as our ability to successfully sell and market our planned future Aircraft-as-a-Service initiative. +In developing our business strategy for future aircraft electrification and network expansion, we have assumed implementing fully-electric technology will result in operating cost savings of approximately 50% compared to current combustion powertrain technologies, with more limited range and payload characteristics, and hybrid-electric technology will result in operating cost savings of approximately 25% compared to current internal combustion powertrain technologies, while maintaining similar performance characteristics. If these assumptions change by a material amount, our network expansion plans could be negatively impacted and we would be unlikely to be able to develop significant future revenues and earnings from our planned Aircraft-as-a-Service initiative. +Our future fully-electric and hybrid-electric aircraft may require maintenance at frequencies or at costs which are unexpected and could adversely affect our business and operations. +Our future fully-electric and hybrid-electric aircraft will be highly technical products that will require maintenance and support. We are still developing our understanding of the long-term maintenance profile of the fully-electric and hybrid-electric aircraft, and if useful lifetimes are shorter than expected, this may lead to greater maintenance costs than previously anticipated. If our future fully-electric and hybrid-electric aircraft and related equipment require maintenance more frequently than we plan for or at costs that exceed our estimates, that would disrupt the operation of our service and could have a material adverse effect on our business, financial condition and results of operations. +Risks Related to Our Operations and Infrastructure +If we are unable to obtain and maintain access to adequate facilities and infrastructure in desirable locations, including securing access to key infrastructure such as airports, we may be unable to offer our service in a way that is useful to passengers. +Our air mobility service will depend on our ability to operate in desirable metropolitan and regional locations. This will require permits and approvals from federal, state and local regulatory authorities and government bodies and our ability to operate our service will depend on such permits and approvals, as well as our ability to lease and license access to passenger terminal infrastructure. We lease and license access to passenger terminal infrastructure, such as hangars, from airport operators in certain of the markets in which they operate. These lease agreements have termination dates ranging from two to three years, and often include the right to extend on a month to month basis. We may face competition for capacity at passenger facilities in our preferred locations, which may impact our ability to service customers effectively. We also cannot predict whether we will receive any such permits and approvals, whether we will receive them for desirable locations or whether we will receive them in a timely manner. If we are prohibited, restricted or delayed from developing and operating desirable locations, there could be a material adverse effect on our business. +Our operations are currently concentrated in a small number of metropolitan areas and airports which makes our business particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas. +We currently derive revenues from regional flights operated in Hawaii and the Mid-Atlantic, Gulf South, Rocky Mountains, West Coast and New England regions. As a result of this geographic concentration, our business historically has been particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances applicable to metropolitan areas. A significant interruption or disruption in service at an airport where we have a significant volume of flights could result in the cancellation or delay of a significant portion of our flights and, as a result, could have an adverse effect on our business, financial condition and results of operations. In addition, any changes to local laws or regulations within key metropolitan areas that affect our ability to operate or increase our operating expenses in these markets could have a material adverse effect on our business, financial condition and results of operations. +Disruption of operations at airports, whether caused by natural disasters including tornados, hurricanes, floods, volcanic eruptions and earthquakes, and severe weather conditions, such as heavy rains, strong winds, dense fog, blizzards or snowstorms, or labor relations, utility or communications issues, power outages, or changes in federal, state and local regulatory requirements could have a material adverse effect on our business. +28 +Our aircraft utilization may be lower than expected and our aircraft may be limited in performance during certain weather conditions. We are vulnerable to delays, cancellations or flight rescheduling, as we will rely on maintaining a high daily aircraft usage rate, and need to aggregate customers on our by-the-seat flights to lower direct costs to third-party operators. +Our aircraft may not be able to fly safely in poor weather conditions, including snowstorms, thunderstorms, lightning, hail, known icing conditions or fog. The aircraft models that we have flown to date and the smaller airports out of which they operate are more vulnerable to delays of this nature and we have experienced delays and disruptions as a result of extreme weather. Our inability to operate in these conditions in the future will reduce our aircraft utilization and cause delays and disruptions in our services. We intend to maintain a high daily aircraft utilization rate which is the amount of time our aircraft spend in the air carrying passengers. High daily aircraft utilization is achieved in part by reducing turnaround times at airports so we can fly more hours on average in a day. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our control, including adverse weather conditions, security requirements, air traffic congestion and unscheduled maintenance events. The success of our business is dependent, in part, on the utilization rate of our aircraft and reductions in utilization will have a material adverse effect on our financial condition as well as cause passenger dissatisfaction. +Our success also depends on our ability to generate more revenue per flight by maintaining high customer utilization rates ( i.e. , the number of seats purchased on each flight). Customer utilization rates may be reduced by a variety of factors, including the introduction of new routes or schedules. In some cases, we may choose to offer flights with low customer utilization rates to increase or maintain customer satisfaction, brand recognition, and for marketing or other purposes. We have utilized monthly and annual commuter passes and annual corporate bulk purchasing options to increase our customer utilization rates in the past; however, these products may be less appealing following COVID-19. +While historically we have maintained daily aircraft and customer utilization rates sufficient to offset the costs we pay to operators, we may be unable maintain and increase utilization rates as our business grows and expands. The risk of delays, cancellations and flight rescheduling, which could negatively impact our utilization rates, may increase as we expand our business to include new markets and destinations, more frequent flights on current routes and expanded facilities. +The supply of pilots to the airline industry is limited and may negatively affect our operations and financial condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may have a material adverse effect on our business, financial condition and results of operations. +Our pilots are subject to stringent pilot qualification and crew member flight training standards (“ FAA Qualification Standards ”), which among other things require minimum flight time for pilots and mandate strict rules to minimize pilot fatigue. The existence of such requirements effectively limits the supply of qualified pilot candidates and increases pilot salaries and related labor costs. Such requirements also impact pilot scheduling, work hours and the number of pilots required to be employed for our operations, all of which could have a material adverse effect our business, results of operation and financial condition. +We have a pilot pipeline agreement with SkyWest to hire, train and provide a pipeline of pilots for our operations and a potential subsequent transition into SkyWest’s operations, and we intend to continue this arrangement going forward. However, this potentially exposes us to a number of risks. This arrangement may not be sufficient to offset a significant or prolonged shortage of pilots, and we will be increasingly reliant on this partnership as we look to expand our operations. If this pipeline is unable to provide us with pilots in the expected numbers or at the appropriate times, or if the agreement with SkyWest were to be terminated, we would be required to incur significant labor costs to find replacement or substitute pilots, which would result in a material reduction in our earnings. If we are unable to find a sufficient supply of pilots to fly our routes, we may be forced to cancel flights. In addition, our competitors may seek to use this training program as a way to generate negative publicity about us, which could have a material adverse effect on our reputation, business and results of operation. +In addition, our operations and financial condition may be negatively impacted if we are unable to train pilots in a timely manner. Due to an industry-wide shortage of qualified pilots, driven by the flight hours requirements under the FAA Qualification Standards and attrition resulting from the hiring needs of other industry participants, pilot training timelines have significantly increased and stressed the availability of flight simulators, instructors and related training equipment. As a result, the training of our pilots may not be accomplished in a cost-efficient manner or in a manner timely enough to support our operational needs. +29 +We are subject to legal, regulatory and physical risks associated with climate change, including the potential increased impacts of severe weather events on our operations and infrastructure. +We are subject to federal, state, and local laws and regulations relating to the protection of the environment and noise, including those relating to emissions to the air, discharges (including storm water and de-icing fluid discharges) to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. Certain legislative bodies and regulatory authorities are increasingly focused on climate change and have taken actions to implement additional laws, regulations, and programs intended to protect the environment. For example, the federal government, as well as several state and local governments, have implemented legislative and regulatory proposals and voluntary measures intended to reduce greenhouse gas emissions. Compliance with laws, regulations, and other programs intended to reduce emissions or otherwise protect the environment may require us to reduce our emissions secure carbon offset credits or otherwise pay for emissions, or make capital investments to modify certain aspects of our operations to reduce emissions. Future policy, legal, and regulatory developments relating to the protection of the environment, including modifications to or reversals of such developments, could increase our costs and have a material adverse effect on our operations. Additionally, we may be subject to risks associated with climate change litigation, and to avoid the risks associated with climate change litigation, we would be required to manage our climate impacts responsibly, which may result in considerable expenses being incurred. +Moreover, the potential physical effects of climate change, such as increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events, could affect our operations, infrastructure and financial results. Operational impacts, such as the delay or cancellation of flights, could result in loss of revenue. In addition, certain of our terminals are in locations susceptible to the impacts of storm-related flooding and sea-level rise, which could result in costs and loss of revenue. We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change. +Our business may be adversely affected by union activities. +Although none of our employees are currently represented by a labor union, it is common throughout the airline industry generally for many employees to belong to a union, which can result in higher employee costs and increased risk of work stoppages. As we expand our business there can be no assurances that our employees will not join or form a labor union or that we will not be required to become a union signatory. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers, and work stoppages or strikes organized by such unions could have a material adverse effect on our business, financial condition or results of operations. If a work stoppage occurs, it could delay the manufacture and sale of our performance hybrid-electric vehicles and could have a material adverse effect on our business, financial condition or results of operations. +Our or our third-party aircraft operators’ insurance may become too difficult or expensive to obtain. Increases in insurance costs or reductions in insurance coverage may have a material adverse effect on our financial condition and results of operations. +Hazards are inherent in the aviation industry and may result in loss of life and property, potentially exposing us to substantial liability claims arising from the operation of aircraft. Safe operation of aircraft is the responsibility of ourselves and our third-party operators who are held liable for accidents, thus incidents related to aircraft operation are covered by ours and our third-party operators’ insurance. We maintain general liability aviation insurance policies. Additionally, we maintain directors and officers insurance, as well as other insurance policies, and we believe our level of coverage is customary in the industry and adequate to protect against claims. A limited number of hull and liability insurance underwriters provide coverage for our third-party aircraft operators. Insurance underwriters are required by various federal and state regulations to maintain minimum levels of reserves for known and expected claims. However, there can be no assurance that our or third-party aircraft operators’ insurance policies will be sufficient to cover potential claims or that present levels of coverage will be available in the future at reasonable cost, or that underwriters have established adequate reserves to fund existing and future claims. Further, we expect our insurance needs and costs to increase as we grow our commercial operations, add routes, increase flight and passenger volumes and expand into new markets. It is too early to determine what impact, if any, the commercial operation of our future hybrid-electric aircraft will have on our insurance costs. +Accordingly, we may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including +30 +premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. +The number of air medical or tourism accidents, as well as the number of insured losses within the commercial airline industry, and the impact of general economic conditions on underwriters may result in increases in premiums above the rate of inflation. If our third-party aircraft operators’ insurance costs increase, such operators are likely to pass the increased costs to us, which could cause us to increase the prices paid by our customers. Such cost increases could adversely affect demand for our services and harm our business. Additionally, under all aircraft operating agreements, our third-party aircraft operators have agreed to indemnify us against liability arising from the operation of aircraft and to maintain insurance covering such liability. However, there can be no assurance there will be no challenge to the indemnification rights or that the aircraft operator will have sufficient assets or insurance coverage to fulfill its indemnity obligations. +We may incur substantial maintenance costs as part of our leased aircraft return obligations. +Some of our aircraft lease agreements contain provisions that require us to return aircraft airframes and engines to the lessor in a specified condition or pay an amount to the lessor based on the actual return condition of the equipment. These lease return costs are recorded in the period in which they are incurred. On our financial statements, we estimate the cost of maintenance lease return obligations and accrue such costs over the remaining lease term when the expense is probable and can be reasonably estimated. Any unexpected increase in maintenance return costs may have a material adverse effect on our financial condition and results of operations. +We are exposed to operational disruptions due to maintenance. +Our fleet requires regular maintenance work, which can cause operational disruption. Our inability to perform timely maintenance and repairs could result in our aircraft being underutilized which could have an adverse effect on our business, financial condition and results of operations. For example, during 2023 we were required to perform additional maintenance and repairs due to unforeseen weather conditions and, to a larger extent, supply chain disruptions, which resulted in lower utilization of aircraft and a decrease in scheduled flight hours, which negatively impacted scheduled revenue. In addition, we have experienced an increase in maintenance as a result of an increase in flight hours on our aircraft, which resulted in an increase in maintenance and repair costs. A prolonged period of maintenance or repair work would result in disruptions to our routes lower revenues and/or increased costs. On occasion, airframe manufacturers or regulatory authorities may require mandatory or recommended modifications to be made across a particular fleet which may mean having to ground a particular type of aircraft. This may cause operational disruption to and impose significant costs on us. Furthermore, our operations in remote locations, where delivery of components and parts could take a significant period of time, could result in delays in our ability to maintain and repair our aircraft. Any such delays may pose a risk to our business, financial condition and results of operations. Moreover, as our aircraft base increases, our maintenance costs could potentially increase. We have no historical experience maintaining fully-electric and hybrid-electric powertrains. While we believe the newly developed powertrains will require reduced maintenance activity per flight hour, our operations could be negatively impacted if our assumptions on reliability or cost of maintenance prove incorrect. +The profitability of our current operations is dependent on the availability and pricing of aircraft fuel. Periods of significant disruption in the supply of aircraft fuel or elevated pricing could have a significant negative impact on our results of operations and liquidity. +Although our current operations and those of third-party aircraft operators, in the limited circumstances, such as operations in Hawaii, where we purchase fuel directly, are currently able to obtain adequate supplies of aircraft fuel, we cannot predict the future availability. Natural disasters (including hurricanes or similar events in the southeast United States and on the Gulf Coast where a significant portion of domestic refining capacity is located), political disruptions or wars involving oil-producing countries, economic sanctions imposed against oil-producing countries or specific industry participants, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, changes in the cost to transport or store petroleum products, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages or distribution challenges in the future leading to volatile aircraft fuel pricing. Any of these factors or events could cause a disruption in or increased demands on oil production, refinery operations, pipeline capacity or terminal access and possibly result in diminished availability of aircraft fuel supply for our third-party aircraft operators. The impact of such events may limit our third-party aircraft +31 +operators’ ability to perform our flights, which could result in loss of revenue and adversely affect our ability to provide our services. +Additionally, high fuel prices or significant disruptions in the supply of aircraft fuel could have an adverse effect on our financial condition and results of operations. During the years ended December 31, 2024 and 2023, our fuel expense was $14.0 million and $7.2 million, respectively. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources as well as related service and delivery infrastructure. Although we have some ability to cover short-term fuel supply disruptions, we depend significantly on the continued performance of our third-party service providers to maintain supply integrity. Consequently, we can neither predict nor guarantee the continued timely availability of aircraft fuel throughout our operations. +Unsatisfactory safety performance of our aircraft could have a material adverse effect on our business, financial condition and results of operations. +While we intend to maintain operational processes designed to ensure that the design, testing, manufacture, performance, operation and servicing of our aircraft meet rigorous quality standards, there can be no assurance that we will not experience operational or process failures and other problems, including through flight test accidents or incidents, manufacturing or design defects, pilot error, cyber-attacks or other inadvertent or intentional acts or omissions, that could result in potential safety risks. Any actual or perceived safety issues may result in significant reputational harm to our business, in addition to tort liability, maintenance, increased safety infrastructure and other costs that may arise. Such issues could result in delaying or cancelling planned flights, increased regulation or other systemic consequences. Our inability to meet our safety standards or adverse publicity affecting our reputation as a result of accidents, mechanical or operational failures, or other safety incidents could have a material adverse effect on our business, financial condition and results of operation. In addition, our aircraft may be grounded by regulatory authorities due to safety concerns that could have a material adverse effect on our business, financial condition, results of operations and prospects. +Crashes, accidents or incidents of aircraft involving us or our competitors could have a material adverse effect on our business, financial condition and results of operations. +The operation of aircraft is subject to various risks, and we expect demand for our air mobility services to be impacted by accidents or other safety issues regardless of whether such accidents or issues involve our aircraft. +Crashes, accidents or incidents involving our aircraft, or involving aircraft operating our powertrains, once developed, are possible. Any such occurrence would negatively impact our business, financial condition and results of operations in a number of ways. An accident or incident involving an aircraft operated by us or by a third-party operator on our behalf or using our powertrains, could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. For example, in January 2024, a Southern flight was forced to make an emergency landing following take-off in severe weather from Dulles International Airport in Virginia. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured or due to reasons not attributable to us or our operations or products, could result in negative public perception that our operations are less safe or reliable than other providers and have a material adverse effect on our reputation, business and results of operations. Safety issues experienced by a particular model of aircraft could impact consumer confidence in that particular aircraft type or the air transportation services industry as a whole, or result in a regulatory body grounding that particular aircraft model. If we or other operators experience accidents with aircraft models that we operate, obligating us to take such aircraft out of service until the cause of such accidents is determined and rectified, we might lose revenues and might lose customers. The value of the aircraft model might also be permanently reduced in the secondary market if the model were to be considered less desirable for future service. +Moreover, such accidents or incidents could also have a material impact on our ability to obtain or maintain FAA certification for our aircraft in a timely manner, or at all. +If our personnel, third-party contractors with whom we have arrangements, our aircraft, other types of aircraft or other companies in the industry are involved in a public incident, accident, catastrophe or regulatory enforcement action, we could be exposed to significant reputational harm and/or potential legal liability. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident, catastrophe or action. In the event that our insurance is inapplicable or inadequate, we may be forced to bear substantial losses from an incident or accident. +32 +Further, as we develop and manufacture fully-electric and hybrid-electric powertrains and as these powertrains are implemented in aircraft that we sell to other operators, we may be exposed to additional risks and demand for our newly developed products will be negatively impacted by accidents or incidents involving the powertrains, including during test flights of prototypes. Such events could impact confidence in not just our products, but the development of electrification technology as a whole. This could have a material adverse effect on our future growth, financial condition and results of operations. +Risks Related to Our Dependence on Third Parties +We are substantially dependent upon our relationships with our strategic partners, and we are or may be subject to risks associated with such strategic alliances. Our reliance on these arrangements, and the loss of any such alliances or arrangements or failure to identify future opportunities could affect our growth plans. +We intend to collaborate with leading aerospace OEMs and industry leading engineering-for-hire firms to develop a set of fully-electric and hybrid-electric powertrains. We have entered into agreements with TAI for, among other things, the purchase of 90 new Cessna Caravans, with an option for up to 25 additional Cessna Caravans, as well as the provision of certain services, in anticipation of the development of fully-electric and hybrid-electric powertrains. We have also entered into an agreement with AeroTEC to develop, and to apply for STCs from the FAA for, fully-electric and hybrid-electric variants of the Cessna Caravan, as well as the development and supply of aircraft electric propulsion units (“EPUs”) for fully-electric and hybrid-electric powertrains, to be initially designed for the Cessna Caravan. +Some of our current arrangements are contingent upon certain conditions or the entry into definitive documentation in the future. Our agreements with TAI are subject to certain milestones that, if we do not meet, may result in TAI’s option to terminate the agreements. See the section titled “Licensing, Exclusivity and Aircraft Purchase Arrangements - Textron Agreement” in Note 15, Commitments and Contingencies in the accompanying consolidated financial statements for further details on our agreements with TAI . +We have entered into a joint venture agreement with Palantir for the development of SurfOS. The joint venture introduces significant risks for us, including technology dependence on Palantir's proprietary software platforms, potential misalignment and relationship challenges with Palantir, and uncertainties in securing adequate funding, all of which could adversely impact the Company's business operations and financial stability. +Such strategic business relationships will be a critical component in the growth and success of our business and, in particular, our ability to develop and commercialize fully-electric and hybrid-electric powertrains and related aircraft. However, there are no assurances that we will be able to timely meet all of the conditions of these agreements, if at all, maintain these relationships or continue to identify or secure suitable business relationship opportunities in the future, or that our competitors will not capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. +If any conflicts arise between our strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our business strategies, which could impact our projected production timelines and number of powertrains produced or aircraft modified. Our strategic partners may also develop, either alone or with others, products in related fields that are competitive with our products. Specifically, conflicts with our key strategic partners, including TAI and AeroTEC, could adversely impact our ability to develop and manufacture our planned powertrain and our planned subsequent modification of aircraft, which, in turn could have a material adverse effect on our prospects, business, financial condition and results of operation. +If we are unable to successfully maintain, source and execute on strategic relationship opportunities in the future related to electrification or other technologies relevant to our competitive position, or if any of our agreements with our strategic partners were to be terminated, our overall growth could be impaired, and there could be a material adverse effect on our business, financial condition and results of operations. +Our success will depend on our ability to economically outsource the production, assembly and installation of our fully-electric and hybrid-electric powertrain solutions at scale, and our suppliers for the parts and components of these powertrains are an important part of our business model. +We plan to outsource the majority of the production, assembly and installation of our fully-electric and hybrid-electric powertrain solutions. As such, our suppliers, including single source suppliers for certain components, are a key +33 +part of our business model in order to manufacture our planned fully-electric and hybrid-electric powertrains for the Cessna Caravan. We have strategically partnered with companies that we believe to be industry leaders in order to supply the highest quality components for, and to help us develop, our fully-electric and hybrid-electric powertrains. Many of the components for our planned fully-electric and hybrid-electric powertrains will be custom made for us, which may expose us to additional risks if one or more components become unavailable. This supply chain exposes us to multiple potential sources of delivery failure or component shortages for our future powertrain, most of which are out of our control, including shortages of, or disruptions in the supply of, the raw materials used by our suppliers in the manufacturing of components, disruptions to our suppliers’ workforce (such as strikes or labor shortfalls) and disruptions to, or capacity constraints affecting, shipping and logistics. +Moreover, we anticipate that a significant concentration of the production, assembly and installation of certain components will be performed by a small number of outsourcing partners. While these arrangements can lower operating costs, they also reduce our direct control over production and distribution. Such diminished control may have an adverse effect on the quality or quantity of products or services, or our flexibility to respond to changing conditions. We expect to rely on single-source suppliers to supply and produce many components. Any failure of these suppliers or outsourcing partners to perform could require us to seek alternative suppliers or to expand our production capabilities, which could incur additional costs and have a negative impact on our cost or supply of components or finished goods. +While we believe that we may be able to establish alternative supply relationships and obtain replacement components, we may be unable to do so in the short-term or at all at prices that are acceptable to us or we may need to re-certify components. If we need to find alternative suppliers for any of the key components of our planned fully-electric and hybrid-electric powertrains, then this could increase our costs and adversely affect our ability to receive such components on a timely basis, or at all, which could cause significant delays in our overall projected timelines for the delivery of our powertrain and could have a material adverse effect on our future relationships with our customers. +In addition, production or logistics in supply or production areas or transit to final destinations can be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues or international trade disputes. Any failure to develop such production processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, financial condition and results of operations. +Further, if we are unable to successfully manage our relationships with our suppliers, the quality and availability of our powertrain and modified aircraft may be harmed. Our suppliers could, under some circumstances, decline to accept new purchase orders from, or otherwise reduce their business, with us. Any disruptions in the supply of components from our suppliers could lead to delays in both prototype and commercial powertrain production and subsequent modification of aircraft, which could have a material adverse effect on our business, financial condition and results of operations. +We have not yet selected manufacturers and suppliers of certain components of the proposed fully-electric and hybrid-electric powertrains for the Cessna Caravan, or entered into any agreements in relation to the development and manufacture of these components. Delays or difficulties in selecting and entering agreements with such manufacturers and suppliers may impact the timelines we envisage for developing the powertrain, and adversely affect the results of our operations. +Our collaboration with TAI for our development of hybrid-electric and battery electric powertrains for the Cessna Caravan and our relationship with TAI as its exclusive supplier of certain fully-electric and hybrid-electric powertrains for the Cessna Caravan are subject to a number of conditions and milestones. If the conditions and milestones in the TAI agreements governing our relationship with TAI are not met, or if the agreements or exclusive relationship are canceled, modified or delayed, our prospects, business, financial condition and results of operations will be harmed. +The agreements governing our collaboration with TAI for our development of its proprietary fully-electric and hybrid-electric powertrains to power the Cessna Caravan aircraft are subject to a number of conditions and milestones, including the issuance of an STC for the powertrain by the FAA within 60 months of the initial listing date of our shares of common stock as part of the STC for installation of that powertrain in the Cessna Caravan aircraft and meeting certain design and performance objectives upon the timeline specified in the agreements with TAI. In the event that we are unable to meet these conditions and objectives as verified by TAI, the obligations of TAI to us under the agreements can be terminated by TAI. In addition, our relationship as the exclusive supplier of certain electrified and hybrid-electric powertrains to TAI can be terminated by TAI if the conditions and milestones relating to our agreements with TAI are not met. In connection with the agreements governing our collaboration with TAI, we must pay certain fees, including fees under the Data License Agreement. In the event that we fail to pay these fees when due, the Data License Agreement +34 +may be terminated by TAI, which could, in turn result in the termination of the other TAI Agreements. If either our agreements or our exclusive relationship with TAI are canceled, modified or delayed, or otherwise not consummated, or if we are otherwise unable to convert our strategic relationship with TAI into revenue, our prospects, business, financial condition and results of operations will be adversely affected. +If our third-party aircraft operators are unable to support our operations or the growth of our business, or we are unable to add alternative third-party aircraft operators to meet demand, our costs may increase and our business, financial condition and results of operations could be adversely affected. +We are dependent on a finite number of certificated third-party aircraft operators to provide a significant portion of our network services. We have, in the past, experienced delays, cancellations and difficulties engaging third-party operators with sufficient capacity to operate the number of routes necessary to meet demand. This risk is exacerbated when there is a transition between operators, which we experienced from May to August 2022 when transitioning to Southern as our operator for scheduled routes in the West Coast, resulting in a significant number of canceled and delayed flights. +In the event potential competitors establish cooperative or strategic relationships with third-party aircraft operators in the markets we serve, offer to pay third-party aircraft operators more attractive rates or guarantee a higher volume of flights than we offer, we may not have access to the necessary number of aircraft to achieve our planned growth. Though we have successfully incentivized our operators to add aircraft to support our growth in the past, there is no guarantee we will be able to continue doing so without incurring significant additional costs. Increased use of private aircraft since the outbreak of the COVID-19 pandemic has added competitive pressure for access to aircraft, which may make it more difficult or costly for third-party operators to expand to meet our needs. If our third-party aircraft operators are unable or unwilling to add aircraft, or are only able to do so at significantly increased expense, or otherwise do not have capacity or desire to support our growth, or we are unable to add new operators on reasonable terms, or at all, our business and results of operations could be adversely affected. As the air mobility market grows, we expect competition for third-party aircraft operators to increase. Further, we expect that as competition in the air mobility market grows, the use of exclusive contractual arrangements with third-party aircraft operators, sometimes requiring volume guarantees, may increase, as may the cost of securing their services. +If we encounter problems, such as workforce disruptions, with any of our third-party aircraft operators or third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services. +Many of our flight operations are conducted by third-party aircraft operators on our behalf and we rely on third-party service providers to support our operations . Due to our reliance on third parties to provide these services going forward, we are subject to the risk of disruptions to their operations, such as the impact of adverse economic conditions and the inability of third parties to hire or retain skilled personnel, including pilots and mechanics, as well as any failure to deliver services at the level expected of them. We have, in the past, experienced issues with third-party aircraft operators. For example, in June 2018 we terminated a charter and aircraft sublease agreement we had with a key third-party scheduled aircraft operator in California because the operator had been providing increasingly unreliable and substandard service quality, resulting in frequent and last minute flight cancellations, while overcharging us and refusing to provide the requisite financial and operating data transparency. This had a negative impact on our results of operations and required approximately eight months to re-establish revenue levels similar to those prior to this event. Several of these third-party operators provide significant capacity that we would be unable to replace in a short period of time should that operator fail to perform its obligations. Disruptions to capital markets, shortages of skilled personnel and adverse economic conditions in general, have subjected certain of these third-party regional operators to significant financial and operational pressures, which have in the past and could in the future result in the temporary or permanent cessation of their operations. +Union strikes or staff shortages among airport workers or certain pilots of third-party aircraft operators may result in disruptions of our air mobility service and thus could have a material adverse effect on our business, financial condition and results of operations. Any significant disruption to our operations as a result of problems with any of our third-party aircraft operators could have a material adverse effect on our business, financial condition and results of operations. +In addition, we have entered into agreements with contractors to provide various facilities and services required for our operations. Because we will rely on others to provide such services, our ability to control the efficiency and timeliness of such services will be limited. Similar agreements may be entered into in any new markets we decide to serve. If any of these service providers cease operations, there is no guarantee that we could replace these providers on +35 +a timely basis with comparably priced providers, or at all. Any material problems with the efficiency and timeliness of contract services, resulting from financial hardships or otherwise, could have a material adverse effect on our business, financial condition and results of operations. +We rely on third-party web service providers to deliver our offerings to users on our platform, and any disruption of or interference with our use of third-party web services could adversely affect our business, financial condition and results of operations. +Our platform’s continuing and uninterrupted performance is critical to our success. We currently host our platforms and support our operations using third-party providers of cloud infrastructure services. While we have engaged reputable vendors to provide these services, we do not have control over the operations of the facilities used by their third-party providers and their facilities may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, human error, terrorist attacks, power outages and similar events or acts of misconduct. In addition, any changes to the service levels from these third-party cloud infrastructure providers may adversely affect our future ability to meet the requirements of users to search for flights and book travel. While we expect to implement reasonable backup and disaster recovery plans, we have experienced interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Sustained or repeated system failures would reduce the attractiveness of our offerings. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as we expand our service offerings. Any negative publicity or user dissatisfaction arising from these disruptions could harm our reputation and brands and could have a material adverse effect on our business, financial condition and results of operation. +Aircraft purchase agreements are often subject to indexed price escalation clauses which could subject us to unanticipated expenses. +Commercial aircraft sales contracts are often entered into years before the aircraft are delivered. In order to help account for economic fluctuations between the contract date and delivery date, aircraft pricing generally consists of a fixed amount as modified by price escalation formulas derived from labor, commodity and other price indices, the actual escalation amounts of which are outside of the purchaser’s control. Escalation factors can fluctuate significantly from period to period and changes in escalation amounts can significantly impact expenses and operating margins. The terms and conditions of the aircraft purchase agreement with TAI do contain price escalation clauses and future purchase orders with other suppliers may also contain price escalation clauses yet to be determined, and there is no assurance that they will be determined in a manner that will mitigate the risks described above. +Risks Related to Our Intellectual Property and Information Technology +If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose market share, generate reduced revenue and incur costly litigation to protect our rights. +Our success depends in part on our ability to protect our intellectual property rights, including trademarks and service marks applicable to our operating entities and, in the future once developed, certain technologies and software that we expect to be deployed in our aircraft or that we expect to utilize in arranging air transportation. To date, we have relied primarily on trademarks to distinguish us from our competitors, and trade secrets and other forms of legal protection and contractual agreements to establish and protect our proprietary rights. +Although we plan to control the STC once certified, and may own certain intellectual property rights relating to the powertrain, we do not anticipate owning intellectual property rights in any particular component of the fully-electric and hybrid-electric powertrains to be produced. Under our agreement with AeroTEC, it will provide services for us to obtain one or more STCs that relate to the powertrains. Such an STC would provide us the right to operate and otherwise commercialize Cessna Caravans modified with such a powertrain. However, an STC does not provide an exclusive right to commercialize the component that the STC describes, and other companies may file for and obtain an STC to modify a Cessna Caravan or other light aircraft with a substantially similar or superior powertrain compared to the powertrains we plan to develop with our commercial partners. Moreover, there is no guarantee that we will obtain an STC for our planned fully-electric and hybrid-electric powertrains, through our collaboration with our commercial partners or otherwise. Any reference to “our proprietary powertrain technology” or similar phrases herein refer to our anticipated rights in one or more STCs relating to such technology, and not to any intellectual property rights in such technology. +36 +We expect that in the future we will rely on patents and trade secrets to protect any proprietary technology we develop. We routinely enter into agreements with employees, consultants, third parties and other relevant persons and take other measures to protect our intellectual property rights, such as limiting access to our trade secrets and other confidential information. However, we cannot guarantee that we have entered into or will enter into such an agreement with each person that has access to such information or that the steps we take to protect our intellectual property will otherwise be adequate. For example, unauthorized parties may attempt to obtain and use information that we regard as proprietary and, if successful, may potentially harm our ability to compete, accelerate the development programs of our competitors, and/or our competitive position in the market. Moreover, our agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to ours, and there can be no assurance that our counterparties will comply with the terms of these agreements, or that we will be able to successfully enforce such agreements or obtain sufficient remedies if they are breached. There can be no assurance that the intellectual property rights we own or license will offer us meaningful protection for our business, provide competitive advantages or will not be challenged or circumvented by our competitors. +Further, obtaining and maintaining patent and trademark protection can be costly, and we may choose not to, or may fail to, pursue or maintain such forms of protection for our technology, products or services in the United States or foreign jurisdictions, which could harm our ability to obtain or maintain a competitive advantage in such jurisdictions. It is also possible that we will fail to identify patentable aspects of our technology before it is too late to obtain patent protection, that we will be unable to devote the resources needed to file and prosecute patent applications for such technology, or that we will inadvertently abandon them by failing to comply with all procedural, documentary, payment, and similar obligations during the patent prosecution process. Even if we obtain patent protection in future, we cannot assure you that such patents would be sufficiently broad to protect our proprietary technology to prevent competitors or other third parties from using the same or similar technologies. Failure to comply with legal requirements to maintain a patent or trademark registration can result in lapse or cancellation of the patent or trademark registration, which could result in the loss of patent or trademark rights. If this occurs, we may not be able to exclude our competitors from using patented technology that we have developed or our trademarks. Also, patents and trademark registrations may be challenged in court or administrative proceedings. +The laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate to prevent other parties from infringing our proprietary technology. To the extent we expand our international activities, our exposure to unauthorized use of our technologies and proprietary information may increase. We may also fail to detect unauthorized use of our intellectual property, or be required to expend significant resources to monitor and protect our intellectual property rights, including engaging in litigation, which may be costly, time-consuming, and divert the attention of management and resources, and may not ultimately be successful. If we fail to meaningfully establish, maintain, protect and enforce our intellectual property rights, there could be a material adverse effect on our business, financial condition and results of operations. +We may need to defend ourselves against intellectual property infringement claims or misappropriation claims, which may be time-consuming and expensive and, if adversely determined, could limit our ability to commercialize our aircraft. +Third parties, including our competitors, may own or obtain patents, trademarks or other proprietary rights that could prevent or limit our ability to operate under our current branding, provide air mobility services or to make, use, develop or deploy our aircraft, the powertrain we are developing with our commercial partners or other aircraft components, which could harm our business. +For example, third parties owning patents or other intellectual property rights relating to airline services or aircraft components (e.g., battery packs, electric motors, aircraft configurations, fly-by-wire flight control software, electronic power management systems or other components) may allege infringement or misappropriation of such rights. In response to a determination that we have infringed upon or misappropriated a third-party’s intellectual property rights, we may be required to do one or more of the following: +• +cease development, sales or use of its or our products or services; +• +trade under a different name or rebrand our services; +• +pay substantial damages; +37 +• +obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or available at all; or +• +re-design one or more aspects or systems of its or our aircraft or other offerings. +A successful claim of infringement or misappropriation against us could adversely affect our business, financial condition and results of operations. Even if we are successful in defending against these claims, litigation could result in substantial costs, business disruption and demand on management resources. +We will rely on our information technology systems to manage numerous aspects of our business. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation. +We will rely on information technology networks and systems to operate and manage our business. Our information technology networks and systems process, transmit and store personal and financial information, proprietary information of our business, and also allow us to coordinate our business across our operation bases and allow us to communicate with our employees and externally with customers, suppliers, partners and other third parties. To date, we have not implemented comprehensive security measures to secure these information technology networks and systems and the data processed, transmitted, and stored on them, and the integration of these two separate information technology systems following the merger will be more challenging as a result. These networks, systems, and data will be susceptible to cyberattacks, viruses, malware or other unauthorized access or damage (including by environmental, malicious or negligent acts), which could result in unauthorized access to, or the release and public exposure of, our proprietary information or our users’ personal information. In addition, cyberattacks, viruses, malware, or other damage or unauthorized access to our information technology networks and systems, would result in damage, disruptions or shutdowns to our platform. Any of the foregoing could cause substantial harm to our business, require us to make notifications to our customers, governmental authorities, or the media, and could result in litigation, investigations or inquiries by government authorities, and subject us to penalties, fines, and other losses relating to the investigation and remediation of such an attack or other unauthorized access or damage to our information technology systems and networks. +We may in the future be subject to data breaches. A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or data foreign privacy laws, regulations or other principles or orders to which we may be subject could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities, litigation, including class action litigation, from our customers, fines, penalties, or other liabilities, or require us to change our operations or cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users, law enforcement, government authorities, payment companies, consumer reporting agencies or the media about the incident and may be required to expend additional resources in connection with investigating and remediating such an incident, and otherwise complying with applicable privacy and data security laws. +System failures, defects, errors or vulnerabilities in our website, applications, backend systems or other technology systems or those of third-party technology providers could harm our reputation and brand and adversely affect our business, financial condition and results of operations. +Our systems, or those of third parties upon which we rely, may experience service interruptions, outages or degradation because of hardware and software defects or malfunctions, human error or malfeasance by third parties or our employees, contractors, service providers, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, cyberattacks, ransomware attacks or other events. We do not carry cyber insurance, which may expose us to certain potential losses for damages or result in penalization with fines in an amount exceeding our resources. As we do not currently have insurance protection for cybersecurity breaches, we may not have sufficient remedies available to us from our third-party service providers to cover all of our losses that may result from such interruptions, outages or degradations. +Our software and the third-party software that we incorporate into our platform may be subject to errors, defects or vulnerabilities. Any errors, defects or vulnerabilities discovered in our platform, whether in our code or that of third-party software on which our software relies, could result in negative publicity, a loss of customers or loss of revenue, access or other performance issues, security incidents or other liabilities. Errors, defects and vulnerabilities could also prevent customers from booking flights, which would adversely affect our flyer utilization rates, or disrupt communications within the company ( e.g. , flight schedules or passenger manifests), which could affect our on-time +38 +performance. We may need to expend significant financial and development resources to analyze, correct, eliminate or work around errors or defects or to address and eliminate vulnerabilities. Any failure to timely and effectively resolve any such errors, defects or vulnerabilities could negatively impact our reputation or brand, and could have a material adverse effect on our business, financial condition and results of operations. +In addition, our transition of our workforce to a hybrid work environment, where our employees are often working remotely, could also increase our vulnerability to risks related to our hardware and software systems, including risks of phishing and other cybersecurity attacks. Our systems may be subject to additional risk introduced by software that we license from third parties. This licensed software may introduce vulnerabilities within our own operations as it is integrated with our systems, or as we provide services to our customers. +We are subject to cyberattacks, system failures and other events or conditions that can interrupt the availability or reduce or affect the speed or functionality of our technology platform, especially because we are in the process of maturing our security programs and have not yet implemented the expected security controls to prevent such disruptions. These events could result in losses of revenue due to increased difficulty of booking services through our technology platform, impacts to on-time performance and resultant errors in operating our business. A prolonged interruption in the availability or reduction in the availability or other functionality of our platform can adversely affect our business and reputation and could result in the loss of customers. For example, in 2022, Southern experienced a prolonged interruption in its platform functionality as a result of a ransomware attack on a third-party service provider, which caused two flights to be canceled and the need to revert to manual processes. Moreover, to the extent that any system failure or similar event results in harm or losses to the customers using our platform, such as the inability to book or change flights because of a system failure, we may make voluntary payments to compensate for such harm or the affected users could seek monetary recourse or contractual remedies from us for their losses and such claims, even if unsuccessful, would likely be time consuming and costly for us to address. +It is also possible our security controls over personal and other data may not prevent unauthorized access to, or destruction, loss, theft, misappropriation or release of personally identifiable or other proprietary, confidential, sensitive or valuable information of ours or others; this access could lead to potential unauthorized disclosure of confidential personal, Company or customer information that others could use to compete against us or for other disruptive, destructive or harmful purposes and outcomes. Any such disclosure or damage to our networks and systems could subject us to third-party claims against us and reputational harm, including statutory damages under California or other state law, regulatory penalties and significant costs of breach investigation, remediation and notification. If these events occur, our ability to attract new clients may be impaired or we may be subjected to damages or penalties. +We will continue to rely on mobile operating systems and application marketplaces to make our app available to users of our platform. If we do not effectively operate with or receive favorable placements within such application marketplaces and maintain high user reviews, our usage or brand recognition could decline and our business, financial results and results of operations could be adversely affected. +We depend in part on mobile operating systems, such as Android and iOS, and their respective application marketplaces to make their respective platforms available to customers. The majority of our flights are booked through our app. In the future, these mobile operating systems or application marketplaces could limit or prohibit us from making our current and future apps available to customers, make changes that degrade their functionality, increase the difficulty of using them, impose terms of use unsatisfactory to us or users, or modify search or ratings algorithms in ways that are detrimental to us. Additionally, if any future competitor’s placement in such mobile operating system’s application marketplace is more prominent than the placement of our current and future apps, overall growth in our customer base could slow and the usage of our platform could be adversely affected. The Surf Air app has experienced fluctuations in the number of downloads in the past, and we anticipate similar fluctuations in the future. Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. +As new mobile devices and mobile platforms are released, there is no guarantee that certain mobile devices will continue to support our platform or effectively roll out updates to our current and future apps. Additionally, in order to deliver high-quality apps, we need to ensure that our offerings are designed to work effectively with a range of mobile technologies, systems, networks and standards. We may not be successful in developing or maintaining relationships with key participants in the mobile technology industry to make, or continue to make, such technologies, systems, networks or standards available to our customers. If users on our platform encounter any difficulty accessing or using our apps on their mobile devices or if we are unable to adapt to changes in popular mobile operating systems, there could be a material adverse effect on our business, financial condition and results of operations. +39 +We will need to improve our financial and operational systems to manage our growth effectively and support our business arrangements, and an inability to do so could harm our business, financial condition and results of operations. +To manage our growth and business operations, especially as we expand our network and work with our commercial partners to electrify our fleet, we will need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense. In particular, we are in the process of replacing our legacy enterprise resource planning (“ ERP ”) systems in order to accommodate our expanding operations and address our deficiencies in IT general controls for information systems. We cannot be certain that we will successfully institute, in a timely or efficient manner or at all, our new ERP system or the improvements to our managerial, operational and financial systems and procedures necessary to support our anticipated increased levels of operations. Problems associated with, or disruptions resulting from, any improvement or expansion of our operational and financial systems could adversely affect our relationships with our customers, commercial partners and suppliers, inhibit our ability to expand or take advantage of market opportunities, cause harm to our reputation, result in errors in our financial and other reporting and affect our ability to maintain an effective internal control environment and meet our external reporting obligations, any of which could harm our business, financial condition and results of operations. +Legal and Regulatory Risks Related to Our Business +Our business will be subject to a variety of extensive and evolving laws and regulations, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel and competitive disadvantages. +We are subject to a wide variety of laws and regulations relating to various aspects of our business, including employment and labor, health care, tax, securities and exchange laws, data privacy and data security, safety and environmental issues. Laws and regulations at the foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future legal or regulatory changes. We will monitor these developments closely, and ensure that adequate resources are dedicated to compliance. Moreover, changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts our business could require us to change the way we operate or limit our ability to expand into certain jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations. +Our operations are highly regulated by several U.S. government agencies, including the DOT, the FAA and the TSA. Requirements imposed by these regulators (and others) may restrict the ways we may conduct our business, as well as the operations of our third-party aircraft operator customers. Failure to comply with such requirements in the future may result in fines and other enforcement actions by the regulators. For example, the TSA is responsible for civil aviation security matters, including passenger and baggage screening at U.S. airports. If the TSA were to impose additional or more burdensome security requirements, demand for our services could decrease and/or the costs required to comply with these requirements could increase. In addition, the FAA can assess civil penalties or seek criminal sanctions for failure to comply with FAA regulations, as well as modify, suspend or revoke licenses granted to us for our operations. In the future, any new regulatory requirements, particularly requirements that limit our third-party aircraft operators’ ability to operate or new maintenance directives or mandatory orders related to airworthiness, could have a material adverse effect on us and the industry. +For example, on March 7, 2023, the TSA issued a new cybersecurity amendment on an emergency basis to the security programs of aircraft operators, consistent with the efforts of the U.S. Department of Homeland Security to increase cybersecurity resilience of U.S. critical infrastructure. The emergency amendment requires operators in the aviation sector to develop approved implementation plans, and to assess the effectiveness of those measures, in addition to current regulatory requirements to report significant cybersecurity incidents to the Cybersecurity and Infrastructure Security Agency, establish a cybersecurity point of contact, develop and adopt a cybersecurity incident response plan and complete a cybersecurity vulnerability assessment. +Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations, reduce revenues or otherwise impact our business. The industry is heavily taxed. Additional taxes and fees, if implemented, could negatively impact our results of operations. +In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, +40 +such as the aircraft used in our operations, at such airports. The imposition of any limits on the use of such aircraft at any airport at which we operate could have a material adverse effect on our operations. +Our results of operations and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including: +• +changes in law or regulation that affect the services that can be offered by us in particular markets or at particular airports, or the types of fares offered or fees that can be charged; +• +changes in law or regulation that specifically address hybrid-electric, all-electric or alternative fuel aircraft that could delay our ability to deliver products, implement aircraft modifications or launch service; +• +the adoption of new passenger security standards or regulations that impact customer processing or service; +• +restrictions on airport operations, such as restrictions on the use of particular airports; and +• +the adoption of new or increased aircraft noise restrictions. +We receive, collect, store, process, transmit, share and use personal information, including passenger data, and rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share, and use such personal information, including payment information. Each additional regulation or other form of expanded regulatory oversight increases costs, adds greater complexity to operations and, in some cases, may reduce the demand for air travel. There can be no assurance that the increased costs or greater complexity associated with compliance with new or expanded rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us. Failure to comply with data privacy laws and regulations could have a material adverse effect on our reputation, financial condition or results of operations, or have other adverse consequences. +We and other U.S. carriers are subject to U.S. and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate and which are continuously evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with data privacy obligations, this challenging regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement, and legal claims or proceedings. +Even when we believe we are in complete compliance, a regulatory agency may determine that we are not. Failure to comply with legal and regulatory requirements, such as obtaining and maintaining licenses, certificates, authorizations and permits critical for the operation of our business, may result in civil penalties or private lawsuits, or the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating all or significant portions of our business. +We may be unable to obtain or maintain relevant regulatory approvals for the commercialization of our electrification of aircraft. +The development and commercialization of new fully-electric and hybrid-electric powertrains to be used in aircraft and the operation of an air mobility service requires multiple regulatory authorizations and certifications, including STCs, and an air carrier certificate issued by the FAA under Part 119 with Part 135 operations specifications. We are striving for FAA certification of our fully-electric powertrain to occur in early 2027 and the hybrid-electric powertrain at a later date, followed by the commercialization of the technology. The timing of our production ramp is dependent on being able to timely obtain STCs from the FAA. In addition, we will also need to do extensive testing to ensure that the propulsion system is in compliance with applicable FAA safety regulations and other relevant regulations prior to our suppliers beginning mass production. Production approval involves initial FAA manufacturing approval and extensive ongoing oversight of mass produced aircraft components. If we are unable to obtain production approval for the hybrid-electric propulsion system, or the FAA imposes unanticipated restrictions as a condition of approval, our projected costs of production could increase substantially. +While we anticipate being able to meet the requirements of such authorizations and certifications, we may be unable to obtain or maintain such authorizations and certifications, or to do so on the timeline we project. The failure to obtain any of the required authorizations or certificates, or do so in a timely manner, or if any of these authorizations or certificates are modified, suspended or revoked after we obtain them, may render us unable to develop our powertrains +41 +and implement our plans to install them in aircraft on the timelines we project, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. +An STC will be issued by the FAA only if: (i) the pertinent technical data from the manufacturer has been examined and found satisfactory by the FAA; (ii) all necessary tests and compliance inspections have been completed; and (iii) the alteration has been found to conform with the technical data. There are a number of steps involved in obtaining an STC, including FAA application, preliminary type certification board (“TCB”) meetings, development of certification program plans, establishment of certification basis by the FAA, data submission, FAA design evaluation, interim type certification meetings, FAA conformity inspections, pre-flight TCB meeting, ground inspections, ground tests, flight tests, FAA review of in-flight test results, issuance of Type Inspection Authorization, FAA conformity inspections, witnessing of tests and performance of official certification flight tests, flight standards evaluations, functional and reliability testing, FAA approval of flight manual supplement or supplemental flight manual, and final TCB meeting and Aircraft Evaluation Group completion of continuing airworthiness determination. Failure to achieve any of these milestones in a timely manner will delay our ability to attain the requisite STCs on the expected timeline or could result in failure to obtain STC approval at all. Furthermore, the FAA may determine that the modification requested by the STC is so complex that a new (rather than supplemental) aircraft type certification process must be undertaken instead. The process to obtain a TC is typically longer, more complex and more capital intensive than the process to obtain an STC. +Our agreement with AeroTEC contemplates that it will apply for and obtain STCs for the fully-electric and hybrid-electric powertrains for Cessna Caravan aircraft, and transfer the STCs to us. If the FAA issues AeroTEC such an STC, FAA consent will be required for AeroTEC to transfer the STC to us, and we will still be required to comply with certain requirements in order to maintain that regulatory approval, including obligations to: (i) report failures, malfunctions and defects; (ii) make the type certificate and underlying data available to FAA and National Transportation Safety Board upon request; (iii) make instructions for continued airworthiness available to aircraft owners and operators; (iv) make required design changes to address Airworthiness Directives issued by FAA and make them available to aircraft owners and operators; and (v) make flight manual supplements and supplemental flight manuals available with each alteration. Failure to continue to comply with these and other requirements may result in the suspension or revocation of the STC or other licenses, certificates, authorizations or permits required to operate our business. +We may be unable to comply with relevant regulations applicable to our on-demand business. +We provide a technology platform to match air passengers with seats on certified aircraft. Depending on how this platform and our business evolves, it is possible that, as a result of our on-demand services, the DOT may view us as operating as either an “air charter broker” and/or a “charter operator”. Each of these roles carries with it varying levels of regulatory obligations. To the extent applicable, failure to comply with the regulations applicable to each of these roles could result in the imposition of fines and/or civil penalties, and, in severe cases, the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating all or a significant portion of our business. +Continued access to Essential Air Service revenue is of critical importance to us. +Southern has historically received EAS subsidies as compensation for providing essential air service to numerous small communities. Over the last decade, overall funding of the EAS program by the U.S. government has increased from $193 million in 2012 to $466.4 million in 2022, which includes an increase in Congressional appropriation from $143 million in 2012 to $350 million in 2022. For the year ended December 31, 2024, EAS revenue was $49.5 million, or approximately 41% of the Company’s total revenue. The total amount of EAS revenue ultimately received by us will be determined by, among other things, the number of subsidized flights flown by Southern, overall funding levels of the EAS program by the U.S. Congress (which could be reduced) and competitive bids for EAS revenue awards by other carriers (which could cause us to lose EAS revenue to competitors). The EAS program was initially intended to last ten years from 1978 but has been modified and extended in the years since. The EAS program may continue to be modified or changed or may be canceled in the future, or we may be unable to continue to participate successfully in the EAS program. Any such developments could materially adversely affect our business. EAS revenue awards generally have a term of two years, during which time, a carrier is paid a subsidy amount in accordance with the maximum allowances stipulated in the EAS revenue award and is paid monthly in arrears on a per-flight-completed basis. The DOT has the right to terminate a route for breach of contract or in exceptional circumstances. The DOT, which administers the EAS program, has the right to cancel EAS revenue rewards if it deems that the communities served by such arrangements are no longer eligible. There can be no assurance that current EAS legislation will remain unchanged, or that Congress will continue to provide funding for the EAS program at any particular level. A reduction of EAS revenue, a loss of EAS +42 +revenue awards either due to termination or failure to renew at the end of the two-year term or a change to or termination of the EAS program could have a material adverse effect on our business, financial condition and results of operation. +We may fail to continue to meet the requirements necessary to operate our air services. +Regional airline services are currently regulated by both the DOT, which provides the economic authority to operate as an airline, and the FAA, which provides the safety authority. Southern currently holds a Commuter Air Carrier Authorization issued by the DOT under 14 C.F.R. Part 298 (“Part 298”) and an Air Carrier Certificate issued by the FAA under 14 C.F.R. Part 119 with Operations Specifications issued under 14 C.F.R. Part 135 (“Part 135”). The requirements of Part 298 and Part 135 are continuing in nature and we must comply with them at all times, with a failure to meet any relevant requirements could subject us to possible penalties and/or certificate actions. +We must comply continuously with Fitness and Citizenship requirements administered by the DOT to perform scheduled air transportation . +As a carrier, we must be found to be fit, willing, and able to perform the air transportation for which we are licensed by the DOT. This involves a DOT evaluation of the citizenship, competence and compliance disposition of the airline and its management as well as an evaluation of the financial viability of the carrier and its ability to carry out its operations without putting customers’ money at unnecessary risk. In connection with DOT review of our acquisition of Southern, we are undergoing a continuing fitness review by the DOT keyed to these factors. DOT review is ongoing. To the extent the DOT were to raise concerns about any of these matters, we may have to make adjustments to our operating team, management or ownership structure in order to address the concerns. A protracted failure to address any DOT concerns might result in the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating our business. +Risks Related to Our Operating as a Public Company +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. +As a public company, we are subject to the rules and requirements of the Exchange Act as well as other rules and regulations of the SEC, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd Frank Wall Street Reform and Consumer Protection Act and any rules and regulations thereunder, as well as under the Jumpstart Our Business Startups Act of 2012 (the “ JOBS Act ”), and the rules of the NYSE. New and changing laws, regulations, and standards relating to corporate governance and public disclosure have created uncertainty for public companies and will increase the costs and the time that our board for directors and management must devote to complying with these rules and regulations. The requirements of these rules and regulations will increase our legal and accounting compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required, and, as a result, management’s attention may be diverted from other business concerns. These rules and regulations can also make it more difficult for us to attract and retain qualified independent members of our Board. As a public company, we expect to increase the coverage limits of our director and officer liability insurance from $2.5 million to in excess of $50 million, which will likely result in materially higher insurance premiums. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements could have a material adverse effect on our operations, business, financial condition or results of operations. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. +Our management has limited prior experience in operating a public company. +Our executive officers have limited prior experience in the management of a publicly traded company. Our management team may not be able to effectively manage our responsibilities as a public company subject to significant regulatory oversight and reporting obligations under federal securities laws. Their lack of experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage, as an increasing amount of their time may be devoted to these activities, resulting in less time being devoted to the management and growth of our business and operations. We may not have adequate personnel with the appropriate level of knowledge, experience +43 +and training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States. We are in the process of upgrading our finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact our ability or prevent it from timely reporting our results of operations, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act (“ Section 404 ”). The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods. +If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. +As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the NYSE. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, as a result of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our common stock. +As a private company, we had not endeavored to establish and maintain internal control over financial reporting meeting the standards required of public companies. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective as a result of a material weakness(es) in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities. +We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. See the sections entitled “ - Risks Related to Our Operating as a Public Company - Our management has identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. At this time, we cannot predict whether our efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time”. In order to develop, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related and audit-related costs and significant management oversight. +Our management has identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. At this time, we cannot predict whether our efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time. +Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. As of December 31, 2024, material weaknesses continued to exist in our internal control over financial reporting, as discussed further in Item 9A, “Controls and Procedures - Material Weaknesses in Internal Control Over Financial Reporting.” A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. +44 +Our management has developed a plan to remediate these material weaknesses, as discussed in Item 9A, “Controls and Procedures - Material Weaknesses in Internal Control Over Financial Reporting.” We have begun to implement aspects of this remediation plan, however, the remediation measures will be ongoing and it is expected that these will result in future costs for us. However, the material weaknesses will not be considered remediated until management completes the design and implementation of the processes and controls described above and the controls operate for a sufficient period of time and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot predict the success of such efforts or the outcome of future assessments of the remediation efforts. Our efforts may not remediate these material weaknesses in internal control over financial reporting, and may not prevent additional material weaknesses from being identified in the future. Failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a revision or restatement of our consolidated financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us, negatively impact the trading price of our common stock and cause a decline in our equity value. Additionally, ineffective internal control over financial reporting could expose us to an increased risk of financial reporting fraud and the misappropriation of assets, and may further subject us to potential delisting from the stock exchange on which we list, or to other regulatory investigations, litigation and civil or criminal sanctions. Restatements or revisions of our consolidated financial statements could cause our management’s attention to be diverted from the operation of the business and could also cause us to incur additional expenses. +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company until December 31, 2028, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year and would become an accelerated filer. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (a) (1) the market value of our ordinary shares held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues equal or exceeded $100 million during such completed fiscal year or (b) the market value of our ordinary shares held by non-affiliates equals or exceeds +45 +$700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +We may be subject to securities litigation, which is expensive and could divert management attention. +The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could have a material adverse effect on our business. +Additionally, in connection with their prior experience, certain of our directors have been named defendants in litigation or other legal proceedings, we cannot provide assurance that these prior legal proceedings or future legal proceedings involving our directors will not cause reputational harm for us. +Investors’ expectations of our performance relating to ESG factors may impose additional costs and expose us to new risks. +There is an increasing focus from investors, employees, customers and other stakeholders concerning corporate responsibility, specifically related to ESG matters. Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to corporate responsibility are inadequate. The growing investor demand for measurement of non-financial performance is addressed by third-party providers of sustainability assessment and ratings on companies. The criteria by which our corporate responsibility practices are assessed may change due to the constant evolution of the sustainability landscape, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies and/or actions with respect to corporate social responsibility are inadequate. At the same time, stakeholders and regulators have increasingly expressed or pursued opposing views, legislation, and investment expectations with respect to sustainability initiatives, including the enactment or proposal of “anti-ESG” legislation or policies. We may face reputational damage in the event that we do not meet the ESG standards set by various constituencies. +Further, in the event that we communicate certain initiatives and goals regarding ESG matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, customers, employees and other stakeholders or our initiatives are not executed as planned, our reputation and business, operating results and financial condition could be adversely impacted. +Delaware law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable. +Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and the Delaware General Corporation Law (as amended, the “DGCL”) all contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, and therefore depress the trading price of our common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of our Board or taking other corporate actions, including effecting changes in our management. Among other things, the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions: +• +establishing a classified board of directors with staggered, three-year terms; +• +authorizing our Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; +• +prohibiting cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +• +limiting the liability of, and providing for the indemnification of, our directors and officers; +46 +• +authorizing our Board to amend the bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and +• +establishing advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. +These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management. +Our Amended and Restated Bylaws and our Amended and Restated Certificate of Incorporation limit voting rights of certain foreign persons. +Our Amended and Restated Bylaws and our Amended and Restated Certificate of Incorporation provide that the persons or entities who are not citizens of the United States (“Non-Citizens”), shall not, in the aggregate, own and or control more than 25.0% of our total voting interest. Additionally, our Amended and Restated Bylaws provide that Non-Citizens who are residents of countries that are not party to “open-skies” agreements with the United States (“NOS Non-Citizens”) shall not, in the aggregate, own more than 25.0% of the total number of our outstanding equity securities, and that all Non-Citizens (including any NOS Non-Citizens) shall not, in the aggregate, own more than 49.0% of the total number of our outstanding equity securities. To comply with this legally-required provision, if Non-Citizens own (beneficially or of record) more than 25.0% of the total voting power of our common stock, only permitted Non-Citizens holders consisting of Kuzari Investor 94647 LLC and our co-founders, Sudhin Shahani and Liam Fayed, and their respective affiliates will be entitled to vote. Any other Non-Citizens that own (beneficially or of record) or have voting control over any shares of our capital stock, will have their voting rights subject to automatic suspension. As of December 31, 2024, (i) the Permitted Holders beneficially own 16.1% of the total voting power of our common stock and the total number of our outstanding equity securities, or 17.8% of the total voting power and the total number of our outstanding equity securities assuming the vesting in full of 180,000 PRSUs to each of Mr. Fayed and Mr. Shahani, and (ii) Non-Citizens beneficially own 17.7% of the total voting power of our common stock and the total number of our outstanding equity securities. +The provisions of our Amended and Restated Certificate of Incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers. +Our Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of ours to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. However, our Amended and Restated Certificate of Incorporation provides that federal district courts will be the sole and exclusive forum for claims under the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision in our Amended and Restated Certificate of Incorporation will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. +These provisions may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in the proposed certificate of incorporation to be inapplicable or unenforceable in +47 +such action. In this regard, stockholders may not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder, including Section 22 of the Securities Act. +Risks Related to Ownership of Our Common Stock +The trading price of our common stock may be volatile. +The trading price of our common stock, may fluctuate due to a variety of factors, including: +• +changes in the industries in which we and our customers operate; +• +developments involving our competitors; +• +changes in laws and regulations affecting our business; +• +variations in our operating performance and the performance of our competitors in general; +• +actual or anticipated fluctuations in our quarterly or annual results of operations; +• +publication of research reports by securities analysts about us or our competitors or our industry; +• +the public’s reaction to our press releases, our other public announcements and our filings with the SEC; +• +actions by stockholders, including the sale by the third-party investors of any of their shares of common stock; +• +additions and departures of key personnel; +• +commencement of, or involvement in, litigation involving the combined company; +• +changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; +• +the volume of shares of common stock available for public sale; and +• +general economic and political conditions, such as the effects of public health threats, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism. +These market and industry factors may materially reduce the market price of our common stock regardless of our operating performance. Furthermore, an active trading market for our securities may never develop, or, if developed, may not be sustained. Holders of our securities may be unable to sell their securities unless a market can be established or sustained. +In addition, stock markets with respect to newly public companies, particularly companies in the mobility and technology industry, have experienced significant price and volume fluctuations that have affected and continue to affect the stock prices of these companies. Stock prices of many companies, including mobility and technology companies, have fluctuated in a manner often unrelated to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for our common stock given that we are a newly public company. In the past, companies that have experienced volatility in the trading price for their stock have been subject to securities class action litigation. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, and financial condition. +Our shareholders may experience dilution from several different sources after our initial listing. +Our shareholders may experience dilution from several sources to varying degrees, namely as shares of our common stock are issued and sold in subsequent offerings. +For example, if, in the future, we raise additional funds by issuing equity securities (including the GEM Advances), convertible debt or other similar securities, investors may experience significant dilution of their ownership interest. In addition, if we issue shares of our common stock for the remainder of the undrawn amounts under the Share Subscription Facility, the purchase price per share to be paid by GEM for the shares of our common stock that we may elect to sell to GEM under the Share Subscription Facility will fluctuate based on the volume weighted average trading price of our common stock. Accordingly, it is not possible for us to predict prior to any such sales, the number of shares of our +48 +common stock that we will sell pursuant to the Share Subscription Facility, and such sales could result in substantial dilution to the interests of other holders of our common stock. +We do not intend to pay cash dividends for the foreseeable future. +Our Board currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on the Company’s financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our Board deems relevant. +If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline. +The trading market for our common stock will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If few analysts cover us, demand for common stock could decrease and our common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly. +Sales of substantial amounts of our common stock in the public markets or the perception that sales might occur, could cause the trading price of our common stock to decline. +In addition to the supply and demand and volatility risk factors discussed above, sales of a substantial number of shares of our common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur in large quantities, could cause the trading price of our common stock to decline. +Further, assuming the continued availability of certain public information about us, (i) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of common stock, and (ii) our directors, executive officers, and other affiliates who have beneficially owned our common stock for at least six months, including certain of the shares of our common stock covered by this prospectus to the extent not sold hereunder, will be entitled to sell their shares of our common stock subject to volume limitations under Rule 144 and any applicable restrictions under our insider trading policy. +In addition, we have filed a registration statement on Form S-8 under the Securities Act to register all shares subject to outstanding stock options or reserved for future issuance under our equity compensation plans. As of December 31, 2024, we had 2,689,131 options outstanding that, if fully exercised, would result in the issuance of 2,689,131 shares of common stock. As of December 31, 2024, we had 745,234 RSU and PRSU awards granted prior to December 31, 2024 for which the time-based and/or performance-based vesting condition had not been satisfied as of such date that, upon vesting, would result in the issuance of 745,234 shares of common stock. These shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144. +Moreover, depending on market liquidity at the time, resales by GEM of any shares we sell to GEM under the Share Subscription Facility may cause the public trading price of our common stock to decrease. +Our business and financial performance may differ from any projections that we disclose or any information that may be attributed to us by third parties. +From time to time, we may provide guidance via public disclosures regarding our projected business or financial performance. However, any such projections involve risks, assumptions, and uncertainties, and our actual results could differ materially from such projections. Factors that could cause or contribute to such differences include, but are not limited to, those identified in these risk factors, some or all of which are not predictable or within our control. Other unknown or unpredictable factors also could adversely impact our performance, and we undertake no obligation to update or revise any projections, whether as a result of new information, future events, or otherwise. In addition, various news sources, bloggers, and other publishers often make statements regarding our historical or projected business or financial performance, and you should not rely on any such information even if it is attributed directly or indirectly to us. +49 +We may fail to qualify for continued listing on the NYSE, which could make it more difficult for our stockholders to sell their shares. +Our common stock is listed on the NYSE under the symbol “SRFM.” We are required to satisfy the continued listing requirements of the NYSE to maintain such listing, including, among other things, the maintenance of a certain market capitalization and average closing price of our common stock. +On April 2, 2024, we received formal notice from the NYSE indicating that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock was less than $1.00 over a consecutive 30 trading-day period. We subsequently notified the NYSE of our intent to regain compliance with the requirements of Section 802.01C. We are able to regain compliance at any time within the six-month period following receipt of the notice if, on the last trading day of any calendar month during this cure period (or the last trading day of this cure period), we have a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the prior 30 trading-day period. The Company regained compliance with the requirements of Section 802.01C as of September 30, 2024. However, if the Company were to again fall below the continued listing criteria, the Company would be subject to immediate review under the requirements of Section 802.01C. +Additionally, on May 20, 2024, we received formal notice from the NYSE indicating that we were no longer in compliance with Section 802.01B of the NYSE Listed Company Manual because our average total market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, our stockholders’ equity was less than $50 million. We subsequently submitted a plan within 45 days of the notice advising the NYSE of definitive action we have taken or will take to be in compliance with Section 802.01B within 18 months of receipt of the notice. The NYSE accepted our plan on August 21, 2024. As a result, our common stock will continue to be listed and traded on the NYSE during the 18-month cure period, subject to our compliance with the plan and other continued listing standards. The NYSE will review us on a quarterly basis to confirm compliance with the plan. If we fail to comply with the plan or do not meet the continued listing standards at the end of the 18-month cure period, we will be subject to the prompt initiation of NYSE suspension and delisting procedures. +There can be no assurance that we will be able to regain compliance with the NYSE’s continued listing requirements. If our stock price does not increase and if our market capitalization or stockholders’ equity does not meet the minimum standards, we may not be able to meet the standards for continued listing on the NYSE within the compliance period. In the event that we do not regain compliance with the NYSE continued listing standards, we and our stockholders could face significant material adverse consequences, including: +• +being delisted from the NYSE; +• +a limited availability of market quotations for our common stock; +• +an adverse effect on the market price of our common stock; +• +loss of confidence from stakeholders, employees and potential business partners; +• +reduced liquidity with respect to our common stock; +• +a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, and which may limit demand for our common stock among certain investors; +• +a limited amount, or complete absence, of news and analyst coverage for our company; and +• +a decreased ability, or inability, to issue additional securities or obtain additional financing in the future. +General Risk Factors +An overall decline in the health of the economy and other factors impacting consumer spending, such as recessionary conditions, governmental instability, inclement weather, and natural disasters, may affect consumer purchases, which could reduce demand for our products and harm our business, financial condition, and results of operations. +Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world could adversely affect us and our vendors and suppliers, which could have a material adverse effect on our business, financial condition and results of operations. Our business depends on consumer demand for our services and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, +50 +unemployment, legislative and regulatory changes, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather and climate change, natural disasters, terrorism, uncertainty in the banking system, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security. Unfavorable economic conditions can lead consumers to forgo our services and consumer demand for our services may not grow as we expect. We believe perceived recessionary risks will continue to impact our results of operation in 2025. For example, perceived recessionary risks may cause companies and individuals to reduce travel for either professional or personal reasons and drive higher prices in the supply chains we rely upon. +We are exposed to the impact of rising inflation rates, which could negatively affect our results of operations and our ability to invest and hold our cash. +The United States has recently experienced historically high levels of inflation. Additionally, recent trade disputes between the United States and other countries resulting in the imposition of increased tariffs on products imported into the U.S., and the ongoing conflicts between Russia and Ukraine and in the Middle East, have contributed to higher inflation. +The Consumer Price Index for All Urban Consumers, a widely followed inflation gauge published by the U.S. Bureau of Labor Statistics, increased by 2.8% from February 2024 to February 2025. The general effects of inflation on the global economy can be wide-ranging, evidenced by rising wages and rising costs of consumer goods and necessities. If the inflation rate continues to increase, this will result in, for example, increases in the cost of fuel, labor and other costs, which will adversely affect our expenses, such as employee compensation which accounts for a significant portion of our operating expenses. +Our fuel purchase, labor and airport operations contracts generally do not provide meaningful price protection against increases in costs. Our current policy is not to enter into transactions to hedge our fuel costs, although we review this policy from time to time based on market conditions and other factors. Accordingly, as of December 31, 2024 and December 31, 2023, we did not have any fuel hedging contracts outstanding to hedge our fuel costs. Additionally, we do not typically enter long-term labor agreements with our pilots or ground service personnel to fix our employee-related costs. We do not intend in the foreseeable future to enter into any future transactions to hedge the cost of fuel, and assuming we do not otherwise fix our labor costs, we will continue to be fully exposed to fluctuations in prices of material operating costs. +If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected. +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the sections entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates ”. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses. Significant estimates and judgments involve: valuation of our share-based compensation, fair value measurements of our debt and equity transactions; and income taxes. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock. +ITEM 1B: UNRESOLVED STAFF COMMENTS +None. +ITEM 1C: CYBERSECURITY +We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. We have implemented and planned several cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage such material risks. +51 +As part of our overall approach to managing risks, we have implemented the following: +• +Cybersecurity incident response plan and procedures +• +Change management and software development life cycle (“SDLC”) workflow across the Engineering release team +• +Role-based access controls across enterprise systems +• +Work with partners that have SOC1/SOC2 compliance standards around the management and processing of payment card industry (“PCI”) and personally identifiable information (“PII”) data +• +Use of multi-factor authentication for accessing digital content across important roles in the enterprise +• +Implementation of security frameworks to guard against business email compromise and device security to protect against malware, ransomware, and other risks across employees’ devices +• +Device management tools to centrally manage and update company-owned hardware assets +• +Implementation of vulnerability scanning frameworks across digital and hardware assets across the enterprise +Also on our planned roadmap are the below-listed activities: +• +Undertake regular reviews of our consumer-facing policies and statements related to cybersecurity +• +Implement cybersecurity management and incident training for employees +• +Conduct regular phishing email simulations for all employees and contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats +• +Iterate our internal processes and response plans to calibrate with emerging threats/trends +As part of our overall approach to enhance our cybersecurity posture, we plan to regularly engage with assessors, consultants, and other third parties to assess and review our program to help identify areas for continued focus, improvement, and/or compliance. Additionally, we are working towards a comprehensive cybersecurity-specific risk assessment process, which helps identify our cybersecurity threat risks by mapping our processes to standards set by the National Institute of Standards and Technology (“NIST”) and plan to align our digital assets to Center for Internet Security (“CIS”) standards, as well as planned engagement with external entities to penetration test our information systems. +As of December 31, 2024, we have not experienced any material cybersecurity incidents and risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have no t materially affected the Company, including its business strategy, results of operations or financial condition. The expenses incurred from cybersecurity incidents, in which our SaaS infrastructure providers were targeted in larger attacks, were immaterial. This includes penalties and settlements, of which there were none. Additional information on cybersecurity risks we face can be found in Part I, Item 1A “Risk Factors” of this Report under the headings “We will rely on our information technology systems to manage numerous aspects of our business. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation” and “System failures, defects, errors or vulnerabilities in our website, applications, backend systems or other technology systems or those of third-party technology providers could harm our reputation and brand and adversely affect our business, financial condition and results of operations,” which should be read in conjunction with the foregoing information. +Cybersecurity is an integral part of our risk management processes and an area of increasing focus for our Board and management. Our Board oversees the Company’s enterprise risk management process, including the management of risks arising from cybersecurity threats. +Our Technology Steering Committee comprising executive leadership, business leaders, and IT is responsible for the oversight of risks from cybersecurity threats. The Technology Steering Committee meets regularly to discuss the risk management measures implemented by the Company to identify and mitigate data protection and cybersecurity risks. We have instituted a quarterly update to our Board members with an overview of the management of our cybersecurity threat risk and strategy processes covering topics such as security posture, progress towards risk-mitigation-related goals, +52 +and emerging threat risks or incidents and developments, as well as the steps management has taken to respond to such risks, if any . Pursuant to our cybersecurity incident response framework, we have protocols by which certain cybersecurity incidents that meet established reporting thresholds are escalated within the Company and, where appropriate, reported promptly to the Board, as well as ongoing updates regarding any such incident until it has been addressed. Members of the Board and the Technology Steering Committee are also encouraged to regularly engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. +Our cybersecurity risk management and strategy processes are managed in collaboration between Technology and IT teams in close association with business team leads and the executive team. The global IT team is led by our VP of IT at the Company in collaboration with the VP of Technology at Southern. Such individuals collectively have 25 years of prior work experience in various roles involving managing information security, developing cybersecurity strategies, and implementing effective information and cybersecurity programs. We also work very closely with a Senior Advisor to the Board who has a CISSP certification for collaborating on strategies regarding cybersecurity risk management and mitigation. +We have a regular cadence between IT and Tech teams to collaborate on cybersecurity topics. In addition, we encourage communication and participation across the enterprise on cybersecurity-related topics and observations/recommendations. The cybersecurity incident response framework is updated as needed for alignment with current processes and communications. +53 +ITEM 2: PROPERTIES +As of December 31, 2024, we leased aircraft, airport passenger terminal space, portions of and full aircraft hangars and other airport facilities in 45 U.S. airports. We lease our main office and all of the properties on which we operate air mobility services. Our main office is located in a 5,500 square foot facility at 12111 S. Crenshaw Blvd, Hawthorne, CA 90250. The lease of this facility expires in August 2026. Southern’s headquarters is located in a leased workspace in Palm Beach, Florida. The lease of this facility expires in April 2025. In February 2025, the Company relocated its air operations center to Addison, Texas. The lease of this facility expires in January 2028. +ITEM 3: LEGAL PROCEEDINGS +From time to time, we have in the past and may in the future become subject to legal proceedings or claims arising in the ordinary course of our business. Other than as set out in Item 8 of Part II, “Financial Statements and Supplementary Data - Note 15 - Commitments and Contingencies - Legal Contingencies,” we are not currently a party to any legal proceedings, the outcome of which, if determined adversely, we believe would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations. +ITEM 4. MINE SAFETY DISCLOSURES +Not applicable. +54 +PART II +ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Our common stock is listed on the New York Stock Exchange under the symbol “SRFM.” +Holders of Record +As of March 14, 2025, there were approximately 228 stockholders of record of our common stock. The number of record does not include persons who held shares of our common stock in nominee or “street name” accounts through brokers. +Dividend Policy +The payment of cash dividends in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition. Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. The payment of any cash dividends will be within the discretion of our board of directors. +Stock Performance Graph +The following performance graph shows a comparison from July 27, 2023 (the date our common stock commenced trading on the New York Stock Exchange) through December 31, 2024, of the cumulative total return for our common stock, the NYSE Composite Index and the S&P 500 Airlines Industry Index. +ITEM 6. [RESERVED] +55 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following discussion and analysis reflects the historical results of operations and financial position of Surf Air Mobility Inc., and its consolidated subsidiaries. Prior to the Internal Reorganization (as defined below) on July 21, 2023, these results comprised the operations of Surf Air Global Limited, the predecessor to Surf Air Mobility Inc. References in this section to the “Company”, “we” or “our” refer to Surf Air Mobility Inc. and its consolidated subsidiaries, including Southern Airways Corporation. Unless otherwise indicated, all dollar amounts are set forth in thousands, except share and per share data. +The following discussion and analysis is intended to help the reader understand the Company’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, the information included in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. The Company’s actual results and outcomes, and the timing of its results and outcomes, may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included within this Annual Report on Form 10-K. +Overview of the Business +Surf Air Mobility Inc. (“Surf Air Mobility”, the “Company”, “us”, “we” or “our”) is a regional air mobility platform that aims to transform regional flying. The Company is currently comprised of its Air Mobility business, with the goal of further developing and enhancing its service and technology offerings through its Air Technology business. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to drive an innovative platform developing a proprietary, AI-enhanced aviation software operating system as well as technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the New York Stock Exchange (“NYSE”). For 2024, the Company’s combined network served over 370,000 passengers with approximately 72,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional air mobility platform. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Internal Reorganization +On July 21, 2023, SAGL Merger Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Surf Air, after which Surf Air became a wholly-owned subsidiary of the Company (the “Internal Reorganization”). +Pursuant to the Internal Reorganization, all ordinary shares of Surf Air outstanding as of immediately prior to the closing, were canceled in exchange for the right to receive shares of the Company’s common stock and all rights to receive ordinary shares of Surf Air (after giving effect to the conversions) were exchanged for shares of the Company’s common stock (or warrants, options or RSUs to acquire the Company’s common stock, as applicable) at a ratio of 22.4 Surf Air shares to 1 share of the Company’s common stock. Such conversions, as they relate to the ordinary shares of Surf Air, and all rights to receive ordinary shares, have been reflected as of all periods presented herein. +On July 27, 2023, the Company’s common stock was listed for trading on the NYSE. +As the Internal Reorganization took place on July 21, 2023, the financial statements presented herein reflect the financial position, results of operations and cash flows of Surf Air, the predecessor to the Company, for all periods prior to July 21, 2023. Following the Internal Reorganization, the financial position, results of operations and cash flows are those of the Company. +56 +Reverse Stock Split +On August 16, 2024, the Company effected a seven-for-one reverse stock split for all shares of the Company’s common stock issued and outstanding. As a result of the reverse stock split, every seven shares of the Company’s old common stock were converted into one share of the Company’s new common stock. Fractional shares resulting from the reverse stock split were settled by cash payment. +Options, and other like awards, to purchase the Company’s common stock were also adjusted in accordance with their terms to reflect the reverse stock split. +Adjustments resulting from the reverse stock split have been retroactively reflected as of all periods presented herein. +Southern Acquisition +On July 27, 2023 (the “Acquisition Date”), immediately prior to the Company’s listing on the NYSE and after the consummation of the Internal Reorganization, the Company effected the acquisition of all equity interests of Southern Airways Corporation (“Southern”), whereby a wholly-owned subsidiary of the Company merged with and into Southern, after which Southern became a wholly-owned subsidiary of the Company (the “Southern Acquisition”). Pursuant to the agreement to acquire Southern, Southern stockholders were to receive 2,321,428 shares of the Company's common stock, which was based on the aggregate merger consideration of $81.25 million at the $35.00 per share opening price on the first day of trading of the Company's common stock. In total, 2,321,423 shares of Company common stock were issued to former Southern shareholders while the remaining amount was paid out in cash in lieu of fractional shares to those shareholders on a pro rata basis. +Southern is a scheduled service commuter airline serving cities across the United States that is headquartered in Palm Beach, Florida and commenced flight operations in June 2013. It is a certified Part 135 operator that operates a fleet of over 50 aircraft, including the Cessna Caravan, the Cessna Grand Caravan, the Pilatus PC-12, and the Tecnam Traveller. Southern provides both seasonal and full-year scheduled passenger air transportation service in the Mid-Atlantic and Gulf regions, Rockies and West Coast, and Hawaii, with select routes subsidized by the United States Department of Transportation (“U.S. DOT”) under the Essential Air Service (“EAS”) program. +Following the Southern Acquisition, the Company operates a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. +The results of operations of Southern are included in the Company’s consolidated financial statements from the date of acquisition, July 27, 2023, through December 31, 2024. For historical financial information of Southern prior to the Acquisition Date, refer to the sections entitled “Unaudited Condensed Consolidated Financial Statements for Southern Airways Corporation” and “Audited Financial Statements for Southern Airways Corporation as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022 and 2021” in the Form 8-K/A filed August 29, 2023. +2024 Operating Environment +Since 2020, the Company has been incurring expenses to support the development of the technology of its digital platform with the aim of enabling the regional air mobility market to operate at scale and to enhance the user’s ability to make informed decisions based on multiple first and third party data sources as well as connected aircraft, and the Company expects these development expenses to continue to be incurred. Additionally, the Company is developing fully-electric and hybrid-electric powertrain technologies with its commercial partners to electrify existing fleets and new aircraft. As a result, the Company expects to incur significant costs in the future to support the development of this technology. +In addition to incremental costs incurred in the execution of the Company’s near and long-term business strategy, the Company has experienced inflationary pressures, which have materially increased the Company’s costs for aircraft fuel, wages and benefits and other goods and services critical to its operations during 2023 and 2024 and believes perceived recessionary risks have impacted the 2024 results. For example, perceived recessionary risks may cause companies and individuals to reduce travel for either professional or personal reasons, and drive higher prices in the supply chain the Company relies upon. In addition, the Company incurred greater than expected losses and negative cash flows from operating activities during 2024 due to inefficient aircraft utilization, primarily caused by an underutilization of pilots and a shortage of maintenance personnel and critical aircraft components, which, in aggregate, have challenged the Company’s ability to serve its customers as desired and, in turn, cover expenses, specifically related to its scheduled service offerings. +As such, the extent to which global events and market inflationary impacts will affect our financial condition, liquidity and future results of operations is uncertain. Given the uncertainty regarding the length, and intensity, of these factors, the Company cannot reasonably estimate their impact on its future results of operations, cash flows or financial condition. The Company continues to actively +57 +monitor its financial condition, liquidity, operations, suppliers, industry and workforce. As the Company does not currently, and does not intend in the foreseeable future to, enter into any transactions to hedge fuel costs, or otherwise fix labor costs, the Company will continue to be fully exposed to fluctuations in prices of material operating costs. +During January 2025, the Company utilized an abundance of caution and voluntarily cancelled a significant number of scheduled flights due to maintenance concerns. The Company took actions to mitigate these concerns and returned its operations to full schedule during the first quarter of 2025. The most significant financial impacts of these cancellations have been lost revenues, lost operating income, decreased operating cash flows, and unplanned maintenance costs. +Key Operating Measures +In addition to the data presented in our consolidated financial statements, we use the following key operating measures commonly used throughout the air transport industry to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. The following table summarizes key operating measures for each period presented below, which are unaudited. +Year Ended December 31, +Change +2024 +2023 +Increase/ +Decrease +% +Scheduled Flight Hours (1) +67,918 +34,388 +33,530 +98 +% +On-Demand Flights (2) +3,515 +2,831 +684 +24 +% +Scheduled Passengers (3) +353,077 +176,131 +176,946 +100 +% +Headcount (4) +703 +833 +(130 +) +(16 +)% +Scheduled Departures (5) +69,000 +31,476 +37,524 +119 +% +(1) Scheduled Flight Hours represent actual flight time from takeoff through landing that were flown in the period and excludes departures for maintenance or repositioning events. This metric only measures flight hours for flights that generated scheduled revenue and does not include flight hours for flights that generated on-demand revenue. +(2) On-Demand Flights represent the number of flights that generate on-demand revenue taken by customers on the Company's aircraft or third-party operated aircraft during the period. +(3) Scheduled Passengers represent the number of passengers flown during the period for scheduled service. +(4) Headcount represents all full-time and part-time employees at the end of the period. +(5) Scheduled Departures represent the number of takeoffs in the period, agnostic of operator and excludes departures for maintenance or repositioning events. This metric only measures takeoffs that generated scheduled revenue and does not include takeoffs that generated on-demand revenue. +Results of Operations +Results of the Company’s Operations for the Years Ended December 31, 2024 and 2023 +The following table sets forth our consolidated statements of operations data for the years ended December 31, 2024 and 2023 ( in thousands, except percentages ): +Year Ended December 31, +Change +2024 +2023 +$ +% +Revenue +$ +119,425 +$ +60,505 +$ +58,920 +97 +% +Operating expenses: +Cost of revenue, exclusive of depreciation and amortization +109,934 +61,918 +48,016 +78 +% +Technology and development +24,041 +20,850 +3,191 +15 +% +Sales and marketing +7,514 +10,028 +(2,514 +) +(25 +)% +General and administrative +29,851 +100,669 +(70,818 +) +(70 +)% +Depreciation and amortization +8,341 +3,762 +4,579 +122 +% +Impairment of goodwill +— +60,045 +(60,045 +) +(100 +)% +Total operating expenses +179,681 +257,272 +(77,591 +) +(30 +)% +Operating loss +(60,256 +) +(196,767 +) +136,511 +(69 +)% +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +(11,732 +) +(50,230 +) +38,498 +(77 +)% +Interest expense +(8,617 +) +(2,969 +) +(5,648 +) +(190 +)% +Gain (loss) on extinguishment of debt +5,398 +(326 +) +5,724 +(1,756 +)% +Other income (expense) +12 +(3,708 +) +3,720 +(100 +)% +Total other income (expense), net +(14,939 +) +(57,233 +) +42,294 +(74 +)% +Loss before income taxes +(75,195 +) +(254,000 +) +178,805 +(70 +)% +Income tax benefit +287 +3,304 +(3,017 +) +(91 +)% +Net loss +$ +(74,908 +) +$ +(250,696 +) +$ +175,788 +(70 +)% +58 +Revenue +Revenue increased by $58.9 million, 97%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in revenue was attributable to the following changes in on-demand and scheduled revenues (in thousands, except percentages): +Year Ended December 31, +Change +2024 +2023 +$ +% +Scheduled +$ +90,735 +$ +39,397 +$ +51,338 +130 +% +On-Demand +28,690 +21,108 +7,582 +36 +% +Total revenue +$ +119,425 +$ +60,505 +$ +58,920 +97 +% +Scheduled revenue increased by $51.3 million, or 130%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Absent the impact of the Southern Acquisition, the total scheduled revenue decreased by $0.6 million, or -17%, which was primarily attributable to a decline in our membership subscription base. +The impact of the Southern Acquisition contributed an increase of $52 million, or 146%, to scheduled revenue primarily related to EAS revenue of $30.3 million, passenger revenue of $20.2 million, and other revenue of $1.5 million, due to the results of Southern only being included for the period from July 27 to December 31, 2023 for purposes of the Company’s 2023 financial results. +On-demand revenue increased by $7.6 million, or 36%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Of the total 3,515 on-demand charter flights, absent the impact of the Southern Acquisition, the Company conducted 2,478 on-demand charter flights during the year ended December 31, 2024 compared to 2,282 on-demand charter flights during the year ended December 31, 2023. +The increase in on-demand charter flights, absent the impact of the acquisition of Southern, was driven by increases in marketing efforts for our on-demand products and other service offerings, and was the primary driver accounting for roughly $5.5 million of the total on-demand revenue increase period over period. +The impact of the Southern Acquisition was to contribute an increase of $1.6 million to on-demand revenue during the year ended December 31, 2024 for trips in the Hawaii-based operations focusing on providing route services for construction crews, school events and leisure travel. +Operating Expenses +Cost of Revenue, exclusive of depreciation and amortization +Cost of revenue increased by $48 million, or 78%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. Of the total 3,515 on-demand charter flights, absent the impact of the acquisition of Southern, the Company conducted 2,478 on-demand charter flights in the year ended December 31, 2024 an increase from 2,282 for the year ended December 31, 2023, which resulted in a $5.8 million increase in cost of revenue associated with Company on-demand charter flights. +The Southern Acquisition contributed to an increase in cost of revenue of $43.9 million, or 129%, during the year ended December 31, 2024 primarily due to aircraft expenses of $25.2 million, pilot expenses of $10.9 million, customer care expenses of $5.4 million, station expenses of $1.9 million, reservation systems of $0.9 million, and passenger re-accommodation expenses of $0.5 million. +Technology and Development +Technology and development expenses increased by $3.2 million, or 15%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was driven primarily by an increase in expenses related to software development work with Palantir of $4.1 million. These increases were partially offset by a decrease in labor and labor related expenses for the technology team of $0.9 million due to a decrease in headcount. +Sales and Marketing +Sales and marketing expenses decreased by $2.5 million, or -25%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a decrease in brand awareness and strategic digital marketing expenses of $0.5 million and a $2.0 million decrease in management incentive plan expenses. +59 +General and Administrative +General and administrative expenses decreased by $70.8 million, or -70%, for the year ended December 31, 2024, compared to the year ended December 31, 2023. The primary drivers of the decrease in general and administrative expenses were a decrease in stock-based compensation expense of $54.3 million and decreases in transaction related costs associated with the Company’s public listing, of $22.0 million. These decreases were partially offset by an increase in professional fees not associated with the Company’s public listing of $3.5 million due to a higher volume of corporate transactions during the year ended December 31, 2024. +Depreciation and Amortization +Depreciation and amortization expenses increased by $4.6 million, or 122%, for the year ended December 31, 2024, compared to the year ended December 31, 2023 primarily due to depreciation of engines and aircraft, as well as amortization of intangibles acquired in the Southern Acquisition for the full twelve months during year ended December 31, 2024. +Impairment of Goodwill +The Company recorded impairment charges to previously recorded goodwill of its Southern business unit of $60.0 million during the year ended December 31, 2023 as a result of the identification of impairment indicators during the fourth quarter of 2023. No such charges were recorded during the year ended December 31, 2024. +Other Income/(Expense) +Other expense, net decreased by $42.3 million, or -74%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. There are two primary drivers for the decrease in other expense: +• +$38.5 million decrease in changes in fair value of financial instruments due to valuation adjustments recorded during the first half of 2023, and upon settlement of convertible notes and SAFEs as part of the Company’s direct listing; +• +$3.7 million decrease in other expense, primarily due to a stock-based expense of $3.2 million to Tuscan Holdings in full satisfaction of the termination of a business combination agreement during the year ended December 31, 2024. +Net Loss +The total decrease in net loss of $175.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 is primarily due to a reduction of expenses as described above, including reductions in goodwill impairment of $60.0 million, decreases in general and administrative expenses of $70.8 million, and decreases in other expenses of $42.3 million. +Cash Flow Analysis +The following table presents a summary of our cash flows ( in thousands ): +Year Ended December 31, +2024 +2023 +Net cash provided by (used in): +Operating activities +$ +(54,322 +) +$ +(64,371 +) +Investing activities +(3,609 +) +(7,100 +) +Financing activities +77,175 +72,990 +Net change in cash and cash equivalents +$ +19,244 +$ +1,519 +Cash Flow from Operating Activities +For the year ended December 31, 2024, net cash used in operating activities was $54.3 million, driven by a net loss of $74.9 million, net reversals of $6.0 million in non-cash stock-based compensation, and a $4.3 million reduction in deferred revenue. These operating outflows were partially offset by changes in fair value of financial instruments of $11.7 million, increases in accrued expenses and other current liabilities of $8.4 million, and depreciation and amortization expenses of $8.3 million. +For the year ended December 31, 2023, net cash used in operating activities was $64.4 million, driven by a net loss of $250.7 million and a $2.1 million reduction in operating lease liabilities. These operating outflows were partially offset by non-cash changes in fair value of financial instruments of $50.2 million, non-cash impairment of goodwill of $60.0 million, non-cash stock-based compensation expenses of $48.3 million, increases in accounts payable and other liabilities of $28.6 million, increases in depreciation and amortization of $1.1 million, and increases in prepaid expenses and other current assets of $0.7 million. +60 +In 2023, the Southern Acquisition resulted in net cash outflows from operating activities of $3.9 million. This was primarily driven by a $3.3 million reduction in deferred income taxes and a net loss of $4.6 million. These were mostly offset by increases in depreciation and amortization of $2.7 million, and non-cash operating leases of $1.5 million. +Net cash used in operating activities decreased period over period by $10.1 million, driven by a $175.8 million decrease in net loss. This was largely offset by a decrease of $38.5 million in non-cash changes in fair value of financial instruments, a decrease of $60.0 million in impairment of goodwill charges, decreases of $54.2 million in non-cash stock-based compensation expenses, and a decrease of $10.5 million in changes in accrued expenses and other liabilities. +Cash Flow from Investing Activities +For the year ended December 31, 2024, net cash used in investing activities was $3.6 million, a decrease of $3.5 million compared to the year ended December 31, 2023, driven by an increase of $10.5 million in cash from sales of fixed assets and partially offset by an increase in fixed asset purchases of $4.2 million and $2.2 million in internal use software development costs. Totals for 2023 include $0.7 million in net cash received from the Southern Acquisition. +Cash Flow from Financing Activities +For the year ended December 31, 2024, net cash provided by financing activities was $77.2 million due to proceeds from borrowings under long term debt agreements, net of repayments, of $36.2 million, borrowings from related parties of $34.5 million, net proceeds of $2.8 million from collateralized borrowings, and proceeds from the GEM share purchase agreement of $3.9 million. +For the year ended December 31, 2023, net cash provided by financing activities was $73.0 million from proceeds from the issuance of preferred shares, common stock, and exercise of share options of $30.2 million, proceeds from borrowings of SAFE and convertible notes of $11.7 million, proceeds from borrowings due to related parties of $22.4 million, and proceeds from the GEM share purchase agreement of $10.2 million. These factors were offset by $1.5 million due to payments on long-term debt and amounts due under finance leases acquired from Southern. +Net cash provided by financing activities increased period over period by $4.2 million, primarily driven by increases in net borrowings of long term debt of $37.5 million and a $12.0 million increase in borrowings from related parties. These increases were partially offset by reductions in proceeds from the GEM Purchase of $25.0 million, reductions in proceeds from the Share Purchase Agreement of $6.3 million, an $8.0 million reduction in borrowings under convertible note agreements, and a $3.7 million reduction in proceeds from SAFE instruments and the sale of convertible preferred shares. +Liquidity and Capital Resources +The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. In addition, the Company is currently in default of certain excise and property taxes as well as certain debt obligations. These tax and debt obligations are classified as current liabilities on the Company’s Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023. As discussed in Note 15, Commitments and Contingencies , on May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $7.7 million included in accrued expenses and other current liabilities on the Consolidated Balance Sheet as of December 31, 2024. The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is approximately $1.6 million as of December 31, 2024. Additionally, Los Angeles County has imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. As of December 31, 2024, the amount of property tax, interest and penalties related to the Los Angeles County tax lien for all unpaid tax years was approximately $1.1 million. The Company is in the process of remediating the late filing and payment of the property taxes due to Los Angeles County. As of December 31, 2024, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”) note, where the note matured in July 2019 (see Note 11, Financing Arrangements ). The SAFE-T note is subordinate to the Company’s Convertible Note Purchase Agreement (see Note 11, Financing Arrangements ); therefore, the Company cannot pay the outstanding balance prior to paying amounts due under the Convertible Note Purchase Agreement. The SAFE-T note had an outstanding principal amount of $0.5 million as of December 31, 2024 and December 31, 2023. +61 +The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. +The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and continue to expand into regions profitably throughout the United States. +The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to the ability to (i) raise additional capital (or financing) to fund operating losses, (ii) refinance its current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v)attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to the business model. +The Company has historically funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities, related party funding, and preferred and common share financing arrangements. During the year ended December 31, 2023, the Company received $8 million under a convertible note purchase agreement with Partners for Growth V, L.P. (“PFG”), $25.0 million through the Share Purchase Agreement with GEM Global Yield LLC SCS (“GEM”) and $10.2 million in advances and draws under the second amended and restated Share Purchase Agreement with GEM (see Note 12, Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security ). During the year ended December 31, 2024, the Company received an additional $2.5 million in advances under the second amended and restated Share Purchase Agreement with GEM. The Company had previously filed a Form S-1 registration statement (File No. 333-275434) with the SEC, registering up to 42,857,143 shares of the Company’s common stock, which represents the balance of the full amount of shares of common stock that the Company estimated could be issued and sold to GEM for advances under the Share Purchase Agreement, plus the amount of shares the Company estimated could be sold to GEM for $50.0 million under the Share Purchase Agreement, (the “Prior Registration Statement”). In connection with the GEM Mandatory Convertible Security (see Note 12, Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security ), the Company deregistered all of the shares registered but unsold under the Prior Registration Statement on June 4, 2024. The combined 46,428,571 shares contemplated under the Prior Registration Statement have been included in a Form S-1 Registration Statement (File No. 333-279929), which was declared effective by the SEC on August 7, 2024. As of December 31, 2024, the contractual terms allow the Company to make further advances of up to $97.5 million under the Share Purchase Agreement. Additionally, the Company has the ability to draw an additional $298.6 million under the Share Purchase Agreement, subject to daily volume limitations and GEM’s requirement to hold less than 10% of the fully-diluted shares of the Company. As of December 31, 2024, GEM held 0% of the then fully-diluted shares of the Company. At December 31, 2024, the daily volume limitations under the Share Purchase Agreement significantly restricted our ability to take additional draws under the Share Purchase Agreement to approximately 293 thousand shares per draw. Additionally, the Company’s ability to draw upon the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange. The Company is currently attempting to resolve one listing requirement violation with the New York Stock Exchange. While not currently subject to de-listing, the Company’s inability to cure this listing requirement violation would impact its ability to raise capital through the Share Purchase Agreement. +Additionally, during the year ended December 31, 2024, the Company entered into a credit agreement with certain affiliates of Comvest Partners, as lenders, pursuant to which the Company borrowed $44.5 million under a four-year term loan, and $5.5 million of delayed draw commitments. +The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations. In parallel, the Company is advancing its technology initiatives, including its software technology platform and Caravan electrification programs. In addition, the Company continues to evaluate strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, forming joint venture and other partnerships, and restructuring of operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans, or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans or, the Company will be required to take additional measures to conserve liquidity, which could include, but not necessarily limited to, reducing certain spending, altering or scaling back development plans, including plans to equip regional airline operations with fully-electric or hybrid-electric aircraft, or reducing funding of capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments +62 +to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. +The Company’s capital expenditures in 2024 and in 2023 were limited to payments made for aircraft purchases under the TAI Aircraft Supply Agreement, aircraft supply deposits, aircraft parts, engines, immaterial purchases and internally developed software. The Company intends to invest significantly in expansion of its network footprint and in development of electrified powertrain technology and its commercial platform. Expansion of the network will require acquisition of aircraft over the next five years with an expected cost of approximately $0.3 billion. The Company has an order in place with TAI for 90 Cessna Grand Caravan aircraft with an option for an additional 26 Cessna Grand Caravan aircraft, with expected delivery taken over the next five years. The Company took delivery of four aircraft under this agreement during 2024. As of December 31, 2024, the Company had made deposits of $2.0 million for aircraft that are scheduled to be delivered in 2026. The Company may finance these aircraft through Jetstream Aviation Capital, with which the Company currently has a sale-leaseback financing arrangement of up to $450 million, and additional debt facilities that it intends to obtain. See the section entitled “ Risk Factors — Risks Related to Our Financial Position and Capital Requirements — Our past financial results may not be a reliable indicator of our future results. ” The Company has engaged AeroTEC to develop fully-electric and hybrid-electric Supplemental Type Certificates (“STCs”) for the Cessna Grand Caravan in partnership with TAI. +Commitments +The Company has entered into various contractual arrangements related to the build-out of the Company’s air service fleet, the development of its proprietary hybrid and electric aircraft technology, and the build out of its aircraft as a service platform. These arrangements include commitments for payments pursuant to licensing agreements, which routinely contain provisions for guarantees or minimum expenditures during the terms of the contracts. The Company also enters into long-term debt arrangements that include periodic interest and principal payments. Additionally, the Company routinely enters into noncancelable lease agreements for aircraft and operating locations, which contain minimum rental payments. +The following table summarizes the Company’s contractual commitments and obligations (in thousands) : +Total +2025 +2026 +2027 +2028 +2029 +Thereafter +Long-term debt +$ +64,593 +$ +2,543 +$ +2,676 +$ +12,032 +$ +45,669 +$ +421 +$ +1,252 +Operating leases +20,690 +6,561 +4,603 +3,158 +2,219 +2,218 +1,931 +Finance leases +1,537 +389 +372 +336 +264 +176 +— +Repayment of related party term loans +50,000 +— +— +— +50,000 +— +— +Repayment of convertible notes +8,034 +— +— +— +8,034 +— +— +Minimum payments under aircraft supply agreements +283,800 +3,000 +13,200 +13,200 +13,200 +62,700 +178,500 +Minimum payments under data license agreements +9,500 +9,500 +— +— +— +— +— +Minimum payments under sales and marketing agreements +40,000 +15,000 +10,000 +10,000 +5,000 +— +— +Minimum payments under technology development agreements +27,400 +8,400 +8,000 +8,000 +3,000 +— +— +Total +$ +505,554 +$ +45,393 +$ +38,851 +$ +46,726 +$ +127,386 +$ +65,515 +$ +181,683 +Critical Accounting Policies and Estimates +The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). +Use of Estimates +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reported period. +63 +Our management believes that the accounting estimates listed below are those that are most critical to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. +Goodwill +We have made acquisitions in the past that included goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized but is subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on its estimated fair value. We test more frequently if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill may not be recoverable. Examples of such events and circumstances that we would consider include the following: +• +macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; +• +industry and market considerations such as a deterioration in the environment in which we operate, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for our products or services, or a regulatory or political development; +• +cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows; +• +overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; and +• +other relevant entity-specific events such as changes in management, key personnel, strategy, or customers. +An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. Goodwill is tested at a level of reporting referred to as “the reporting unit.” Following the Southern Acquisition, we created a new reporting unit for Southern on the basis of the availability of discrete financial information and the timing of integrating the operations of Southern into our operations. All goodwill originally recorded for the Southern Acquisition was allocated to this reporting unit. +Shortly after the Southern Acquisition, the Company performed its annual goodwill impairment assessment on a qualitative basis as of October 1, 2023, and concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. This conclusion was primarily based on the operations of Southern being consistent with forecasts existing as of the acquisition date and the Company’s plans to re-fleet and expand Southern’s operations. Subsequent to this analysis, the Company identified indicators of impairment of the Southern reporting unit as of December 31, 2023. This was based on operational challenges that were expected to be remediated in the fourth quarter, such as: additional delays of aircraft maintenance due to the unavailability of parts, which resulted in a higher cancellation rate of scheduled flights. These delays were expected to, and did, continue into 2024. Additionally, we incurred higher cash requirements than expected to fund the operations of the Southern reporting unit during the fourth quarter of 2023, primarily due to higher maintenance costs. Further, unplanned delays in aircraft deliveries under the Textron aircraft supply agreement, including December 2023 cancellations of both firm deliveries and additional purchase options, have delayed re-fleeting efforts. Indicators of impairment also include a decline in the market price of our common stock and corresponding continued decline in our market capitalization from the date of the Southern Acquisition. As a result, we determined that it was more likely than not that the fair value of the Southern reporting unit was lower than its carrying value. As a result, the Company performed a quantitative assessment to compare the fair value of the reporting unit to its carrying amount as of December 31, 2023. The Company concluded that the carrying value of the Southern reporting unit exceeded its fair value and, as such, recorded a $60.0 million impairment of goodwill in its Southern reporting unit during the fourth quarter of 2023. +As of December 31, 2024, we had no remaining goodwill balance. The fair value of goodwill in the impairment test was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to their respective present values, and a market approach. The valuation methodology and underlying financial information included in our determination of fair value required significant judgments by management. The principal assumptions used in our discounted cash flow analysis consisted of (a) long-term projections of financial performance, inclusive of scheduled completion factors and prospective operating cost assumptions and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to us and the industry in which we operate. Under the market approach, the principal assumption included an estimate of a control premium. +64 +Stock-Based Compensation +We grant stock options, warrants, restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) to certain employees, as well as non-employees (including directors and others who provide services to us) under our stock plans. We recognize compensation expense resulting from stock-based payments over the period for which the requisite services are provided. +Stock Options and Warrants +We use the Black-Scholes option pricing model to estimate the fair value of the stock options and warrants at the measurement date. The grant date is deemed to be the appropriate measurement date for stock options issued to employees and non-employees. We have elected to account for forfeitures as they occur. +The use of the Black-Scholes option pricing model requires the use of subjective assumptions, including the following: +• +Fair Value of Common Stock —Prior to the Company’s direct listing, the absence of an active market for our common stock required us to estimate the fair value of our common stock. See the subsection titled “common stock Valuations” below. For valuations completed subsequent to the direct listing, the fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date immediately preceding the date of grant. +• +Risk-Free Interest Rate —The yield on actively traded non-inflation indexed U.S. Treasury notes with the same maturity as the expected term of the underlying options was used as the average risk-free interest rate. +• +Expected Term —The expected term of options granted to employees was determined based on management’s expectations of the options granted, which are expected to remain outstanding. Where appropriate, we calculated the expected term using the simplified method for “plain vanilla” stock option awards. +• +Expected Volatility —Given our limited trading history subsequent to the direct listing, there is limited substantive share price history to calculate volatility and, as such, we have elected to use an approximation based on the volatility of other comparable public companies, which compete directly with us, over the expected term of the options. +• +Dividend Yield —We have not issued regular dividends on common shares in the past nor do we expect to issue dividends in the future. As such, the dividend yield has been estimated to be zero. +We will continue to use judgment in evaluating the expected volatility and expected terms utilized in our stock-based compensation expense calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future stock-based compensation expense. Additionally, had we arrived at different assumptions of stock price volatility or expected lives of our stock options, our stock-based compensation expense and results of operations may be materially different. +Restricted Stock Units +The fair value of RSUs is estimated based on the fair value of our common stock on the grant date. Estimating the grant date fair value of the common stock underlying RSU grants prior to our direct listing was highly judgmental due to the lack of an observable market for our common stock. Prior to our direct listing, the fair value of the Company’s common stock was determined by considering a number of objective and subjective factors including: contemporaneous third-party valuations of our common stock, sales of our redeemable convertible preferred stock to outside investors in arms-length transactions, the Company’s operating and financial performance, the lack of marketability, and the general and industry-specific economic outlook, amongst other factors. Estimating the grant date fair value of the RSUs, including the PSUs discussed below, was highly sensitive due to the volume of RSUs granted and increasing fair value of our common stock as we approached our direct listing. For RSUs granted prior to the Company’s direct listing, all awards were deemed to have vested upon the satisfaction of both a service-based vesting condition and a liquidity event-related performance vesting condition tied to the direct listing. +Subsequent to our direct listing, the fair value of our RSUs is based on the stock price on the day immediately preceding the date of grant, there will no longer be a significant level of judgment involved that could impact the fair value of the RSUs or expense incurred. +Performance-Based Restricted Stock Units +In July 2023, we granted PRSUs to each of our three founders (“Founder PRSUs”). In October 2023, we granted 28,571 additional PRSUs as part of a hiring grant to an executive under the 2023 Plan. These and the Founder PRSUs will vest upon the satisfaction of a service condition and the achievement of certain stock price goals. We estimate the grant date fair value of PRSUs using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the stock price goals may not be satisfied. A Monte Carlo simulation model requires the use of various assumptions, including the +65 +underlying stock price, volatility, expiration term, and the risk-free interest rate as of the valuation date, corresponding to the length of time remaining in the performance period, and expected dividend yield. The derived service period calculation also requires the cost of equity assumption to be used in the Monte Carlo simulation model. Term and volatility are typically the primary drivers of this valuation. The average grant date fair value of the Founder PRSUs were estimated to be $15.82 per share, and we will recognize total stock-based compensation expense of approximately $6.3 million over the derived service period. The weighted-average grant date fair value of the PRSUs granted in October was $5.67 per share for the 7,143 RSUs vesting upon an Average Closing Price equaling or exceeding $35 per share, $3.85 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $70 per share, and $2.73 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $105 per share. We will recognize total stock-based compensation expense of $0.1 million over the derived service period. If the stock price goals are met sooner than the derived service period, we will adjust our stock-based compensation expense to reflect the cumulative expense associated with the vested award. Provided that each founder/ employee individually stays employed with the Company, we will recognize stock-based compensation expense over the requisite service period, regardless of whether the stock price goals are achieved. Had we arrived at different assumptions of underlying stock price or volatility our stock-based compensation expense and results of operations may be materially different. +Common Stock Valuations +Prior to our direct listing, given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation (the “Practice Aid”), our board of directors exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our common stock, including: +• +independent third-party valuations of our common stock; +• +the prices at which we sold shares of our preferred stock; +• +the rights, preferences and privileges of our preferred stock relative to those of our common stock; +• +our capital resources and financial condition; +• +the likelihood and timing of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions; +• +our historical operating and financial performance as well as our estimates of future financial performance; +• +valuations of comparable companies; +• +the hiring of key personnel; +• +the relative lack of marketability of our common stock; +• +industry information such as market growth and volume and macro-economic events; and +• +additional objective and subjective factors relating to our business. +The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. +In accordance with the Practice Aid, for our historical valuations performed, we concluded the Hybrid Method was the most appropriate method for determining the fair value of our common stock given our stage of development and other relevant factors. The Hybrid Method is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future financing events, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. +The assumptions underlying these valuations represent our board of directors’ best estimates at the time they were made, which involve inherent uncertainties and the application of the judgment of our board of directors. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. +Subsequent to the direct listing, the fair market value of our common stock is based on its closing price as reported on the date of grant on the NYSE. +66 +Fair Value Measurements +The Company has a significant number of debt and equity transactions that are recorded at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The assumptions used in the Company’s valuation models represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s results could reflect material fluctuation in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statement of Operations. +Fair value measurements are based on a fair value hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following: +Level 1 +Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. +Level 2 +Inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. +Level 3 +Inputs are unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. +Assets and liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. +The Company measures the fair value of certain long-lived assets including finite-lived intangible assets on a nonrecurring basis, when such assets are required to be written down to fair value if impaired. Such fair values are classified within Level 3 of the fair value hierarchy, as the valuations contain significant unobservable inputs, including assumptions of the present value of future cash flows, the use of these assets, as well as estimated disposition value. +The Company’s convertible securities and Simple Agreements for Future Equity (“SAFE”) notes are carried at fair value . SAFE notes are financial instruments whereby an investor provides an investment into the Company, and the note is subsequently converted into a preferred equity security at a discount to the price paid by other investors when and if a preferred equity is issued through a qualifying capital raise. Due to certain provisions included in the agreements for these instruments, they are classified as liabilities. Additionally, the Company elected the fair value option for certain convertible notes and SAFE notes, which requires them to be remeasured to fair value each period. If factors change and different assumptions are used, the Company’s results could reflect material fluctuation in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. As a result of the Internal Reorganization and settlements of SAFE notes as part of the Company’s direct listing, these balances have been significantly reduced as of December 31, 2024. +The Company has accounted for the Mandatory Convertible Security with GEM at fair value. The fair value of the liability was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Company will not be able to satisfy the liability through the issuance of shares of common stock. Significant inputs in determining period end fair values of the Mandatory Convertible Security are as follows: +• +Remaining par amount; +• +Entity specific probability of default; +• +Implied volatility +• +Applicable discount rate +• +Share price at the measurement date +Income Taxes +The determination of tax strategies and positions, along with accounting for related income taxes requires interpretation of various federal and state tax policies and assessment of the likelihood of various outcomes. Management believes that accounting for income taxes requires difficult, subjective and complex judgments and defenses. Income taxes are accounted for under the asset and liability +67 +method in accordance with U.S. GAAP. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a valuation allowance is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset will not be realized. +Deferred tax assets and liabilities are calculated at the beginning and end of the period. The change in the sum of the deferred tax asset, valuation allowance and deferred tax liability during the period generally is recognized as a deferred tax expense or benefit. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. +The Company determines whether a tax position taken or expected to be taken in a tax return is to be recognized in the consolidated financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The amount recognized is subject to estimation and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. For tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Surf Air recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its income tax expense in the accompanying Consolidated Statement of Operations. +JOBS Act +The Company currently qualifies as an “emerging growth company” under the JOBS Act. Accordingly, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. The Company’s utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act. +68 +ITEM 7A. QUANTITATIVE AND QUALITITATIVE DISCLOSURES ABOUT MARKET RISK +We have operations solely within the United States, and we are exposed to market risks in the ordinary course of our business. The primary risks we face are commodity price risks and macroeconomic risks. +Commodity Price Risks +We are exposed to commodity price risks. Our air mobility services require a significant amount of aircraft fuel, critical spare parts, and specialized maintenance that are affected by the price of other commodities, exchange rates, inflation, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers to obtain a consistent supply of aircraft fuel and the scheduling of aircraft maintenance. Generally, we do not engage in forward purchase commitments for aircraft fuel, or for the supply of critical spare parts, outside of that held in inventory. Increases in the price of fuel, critical spare parts, and/or maintenance services could adversely affect our results if we choose for competitive or other reasons not to increase passenger ticket prices at the same rate at which operating costs increase, or if passenger ticket increases result in customer resistance. We also could experience shortages of aircraft fuel, critical spare parts, and specialized maintenance if our suppliers need to close or restrict operations due to unforeseen events. +Due to the recent pace of inflation and other global supply chain risks, including extreme weather conditions, suppliers and distributors have, and could continue to, attempt to increase prices, as well as assess certain fuel surcharges. These changes could have a negative impact on our commodity prices. For example, during 2024, as a result of global supply chain issues and extreme weather conditions, we experienced supply chain disruptions for critical spare parts and major maintenance, which resulted in higher prices and delayed delivery for those products. We continue to assess the current environment, work with our suppliers and maintenance providers and create certain contingency plans to mitigate any negative impact. +Macroeconomic Risks and the Impact of the COVID-19 Pandemic +Current macroeconomic conditions, such as inflation and increasing interest rates, increase the risk of an economic downturn. These macroeconomic conditions also negatively impact consumer discretionary spend and coupled with slower than expected increases in business and leisure travel, including as a result of many workplaces adopting remote or hybrid models, led to slowed revenue growth during 2024. Additionally, as a result of continued inflation, we have seen an increase in wage rates and costs of revenue during fiscal year 2024, which has had a negative impact on our financial results. In order to mitigate these risks, we have implemented and may in the future have to implement additional cost cutting measures, as described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Business.” +69 +ITEM 8. Financial Statements and Supplementary Data +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238 ) +71 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +72 +Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 +73 +Consolidated Statement of Changes in Redeemable Convertible Preferred Shares and Shareholders’ Equity/(Deficit) +for the Years Ended December 31, 2024 and 2023 +74 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +75 +Notes to Consolidated Financial Statements +76 +70 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Surf Air Mobility Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Surf Air Mobility Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, of changes in redeemable convertible preferred shares and shareholders’ equity/(deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt About the Company's Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/PricewaterhouseCoopers LLP +Los Angeles, California +March 21, 202 5 +We have served as the Company’s auditor since 2021. +71 +Surf Air Mobility Inc. +Con solidated Balance Sheets +December 31, 2024 and December 31, 2023 +(in thousands, except share and per share data) +December 31, +2024 +December 31, +2023 +Assets: +Current assets: +Cash +$ +21,107 +$ +1,720 +Accounts receivable, net +4,257 +4,965 +Prepaid expenses and other current assets +8,511 +11,051 +Total current assets +33,875 +17,736 +Restricted cash +568 +711 +Property and equipment, net +42,213 +45,991 +Intangible assets, net +23,118 +26,663 +Operating lease right-of-use assets +17,046 +12,818 +Finance lease right-of-use assets +1,115 +1,343 +Other assets +6,123 +5,727 +Total assets +$ +124,058 +$ +110,989 +Liabilities and Shareholders’ Deficit: +Current liabilities: +Accounts payable +$ +17,976 +$ +18,854 +Accrued expenses and other current liabilities +45,496 +59,582 +Deferred revenue +17,393 +19,011 +Current maturities of long-term debt +2,543 +5,177 +Operating lease liabilities, current +4,120 +4,104 +Finance lease liabilities, current +265 +215 +SAFE notes at fair value, current +13 +25 +Convertible notes at fair value, current +— +7,715 +Due to related parties, current +1,804 +25,431 +Total current liabilities +89,610 +140,114 +Long-term debt, net of current maturities +59,883 +20,617 +Convertible notes at fair value, long term +7,347 +— +Operating lease liabilities, long term +11,540 +5,507 +Finance lease liabilities, long term +948 +1,137 +Due to related parties, long term +50,457 +1,673 +Other long-term liabilities +24,270 +19,426 +Total liabilities +$ +244,055 +$ +188,474 +Commitments and contingencies (Note 15): +Shareholders’ deficit: +Preferred Stock, $ 0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2024 and December 31, 2023 +— +— +Common stock, $ 0.0001 par value; 800,000,000 shares authorized as of both December 31, 2024 and December 31, 2023; 16,933,692 shares issued and outstanding as of December 31, 2024 and 10,878,633 shares issued and outstanding as of December 31, 2023 +2 +1 +Additional paid-in capital +557,444 +525,049 +Accumulated deficit +( 677,443 +) +( 602,535 +) +Total shareholders’ deficit +$ +( 119,997 +) +$ +( 77,485 +) +Total liabilities and shareholders’ deficit +$ +124,058 +$ +110,989 +The accompanying notes are an integral part of these consolidated financial statements. +72 +Surf Air Mobility Inc. +Co nsolidated Statements of Operations +Years Ended December 31, 2024 and 2023 +(in thousands, except share and per share data) +Year Ended +December 31, +2024 +2023 +Revenue +$ +119,425 +$ +60,505 +Operating expenses: +Cost of revenue, exclusive of depreciation and amortization +109,934 +61,918 +Technology and development +24,041 +20,850 +Sales and marketing +7,514 +10,028 +General and administrative +29,851 +100,669 +Depreciation and amortization +8,341 +3,762 +Impairment of goodwill +— +60,045 +Total operating expenses +179,681 +257,272 +Operating loss +$ +( 60,256 +) +$ +( 196,767 +) +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +$ +( 11,732 +) +$ +( 50,230 +) +Interest expense +( 8,617 +) +( 2,969 +) +Gain (loss) on extinguishment of debt +5,398 +( 326 +) +Other income (expense) +12 +( 3,708 +) +Total other income (expense), net +$ +( 14,939 +) +$ +( 57,233 +) +Loss before income taxes +( 75,195 +) +( 254,000 +) +Income tax benefit +287 +3,304 +Net loss +$ +( 74,908 +) +$ +( 250,696 +) +Net loss per share applicable to common shareholders, basic and diluted +$ +( 5.80 +) +$ +( 44.46 +) +Weighted-average number of common shares used in net loss per share applicable to common shareholders, basic and diluted +12,910,341 +5,638,128 +The accompanying notes are an integral part of these consolidated financial statements. +73 +Surf Air Mobility Inc. +Consolidated Statement of Changes in Redeemable Convertible Preferred Shares and Shareholders ’ Equity/(Deficit) +Years Ended December 31, 2024 and 2023 +(in thousands, except share data) +Stockholders’ Equity (Deficit) +Redeemable Convertible Preferred Shares +Class B-6s Convertible +Preferred Shares +Common Shares +Number of +Shares +Amount +Number of +Shares +Amount +Number of +Shares +Amount +Additional Paid-In Capital +Accumulated +Deficit +Total Shareholders' Deficit +Balance at January 1, 2023 +229,144,283 +$ +130,667 +71,478,742 +$ +3,414 +1,783,919 +$ +— +$ +126,336 +$ +( 351,839 +) +$ +( 222,089 +) +Issuance of Class B-6a redeemable convertible preferred shares +5,711,720 +3,000 +— +— +— +— +— +— +— +Conversion of outstanding payables to Class B-6s convertible preferred shares +— +— +486,402 +202 +— +— +— +— +202 +Conversion of related party promissory note to Class B-6s convertible preferred shares +— +— +9,932,241 +4,418 +— +— +842 +— +5,260 +Exercise of warrants +— +— +— +— +672,509 +— +128 +— +128 +Issuance of related party SAFEs +— +— +— +— +— +— +( 444 +) +— +( 444 +) +Exercise of share options +— +— +— +— +23,013 +— +191 +— +191 +Issuance of Class B-6s to service providers +— +— +1,921,778 +855 +— +— +— +— +855 +Conversion of convertible notes to Class B-5 redeemable convertible preferred shares +8,282,432 +3,253 +— +— +— +— +— +— +— +Conversion of convertible notes to Class B-6a redeemable convertible preferred shares +1,385,905 +543 +— +— +— +— +— +— +— +Conversion of convertible notes to Class B-6s redeemable convertible preferred shares +— +— +23,560,301 +10,494 +— +— +— +— +10,494 +Conversion of redeemable convertible preferred shares to common shares +( 244,524,340 +) +( 137,463 +) +— +— +1,559,456 +— +137,463 +— +137,463 +Conversion of class B-6s convertible preferred shares to common shares +( 107,379,464 +) +( 19,383 +) +684,814 +— +19,383 +— +— +Issuance of common stock related to restricted shares +166,809 +— +— +— +— +Issuance of common shares to settle SAFEs +— +— +— +— +2,480,765 +1 +86,826 +— +86,827 +Issuance of Common Stock for business acquisition +2,321,423 +— +81,250 +— +81,250 +Issuance of Common Stock related to contract termination +— +— +— +— +90,714 +— +3,175 +— +3,175 +Issuance of Common Stock under Software License Agreement +250,736 +— +2,000 +— +2,000 +Issuance of Common Stock in settlement of advisor accrual +— +— +— +— +2,142 +— +75 +— +75 +Issuance of common shares under GEM Purchase +— +— +— +— +142,857 +— +25,000 +— +25,000 +Issuance of common shares under Share Purchase Agreement +— +— +— +— +757,142 +— +13,020 +— +13,020 +Shares repurchased for employee tax withholding +— +— +— +— +( 57,666 +) +— +( 1,273 +) +— +( 1,273 +) +Stock-based compensation expense +— +— +— +— +— +— +31,077 +— +31,077 +Net loss +— +— +— +— +— +— +— +( 250,696 +) +( 250,696 +) +Balance at December 31, 2023 +— +— +— +— +10,878,633 +1 +525,049 +( 602,535 +) +( 77,485 +) +Issuance of common stock related to restricted shares +— +— +— +— +430,540 +— +— +— +— +Issuance of common stock related to stock option exercises +— +— +— +— +5,379 +— +20 +— +20 +Issuance of common stock under software license agreement +— +— +— +— +2,990,386 +1 +9,574 +— +9,575 +Issuance of common stock under marketing agreement +— +— +— +— +26,144 +— +187 +— +187 +Issuance of common shares under Share Purchase Agreement +— +— +— +— +1,547,770 +— +4,326 +— +4,326 +Shares received as consideration for Mandatory Convertible Security +— +— +— +— +( 900,000 +) +— +( 1,796 +) +— +( 1,796 +) +Conversion of Mandatory Convertible Security to common shares +— +— +— +— +1,142,857 +— +1,621 +— +1,621 +Conversion of LamVen Note +— +— +— +— +750,000 +— +7,473 +7,473 +Issuance of common stock to settle maintenance accruals +— +— +— +— +61,983 +— +300 +— +300 +Stock-based compensation expense +— +— +— +— +— +— +10,690 +— +10,690 +Net loss +— +— +— +— +— +— +— +( 74,908 +) +( 74,908 +) +Balance at December 31, 2024 +— +$ +— +— +$ +— +16,933,692 +$ +2 +$ +557,444 +$ +( 677,443 +) +$ +( 119,997 +) +The accompanying notes are an integral part of these consolidated financial statements. +74 +Surf Air Mobility Inc. +Consol idated Statements of Cash Flows +Years Ended December 31, 2024 and 2022 +(in thousands) +Year Ended December 31, +2024 +2023 +Cash flows from operating activities: +Net loss +$ +( 74,908 +) +$ +( 250,696 +) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation and amortization +8,341 +3,762 +Gain on sale of fixed assets +( 743 +) +— +Impairment of goodwill +— +60,045 +Non-cash operating lease expense +5,690 +2,147 +Loss (gain) on extinguishment of debt +( 5,398 +) +326 +Stock-based compensation expense +( 5,976 +) +48,252 +Changes in fair value of financial instruments carried at fair value, net +11,732 +50,230 +Amortization of debt discounts and debt issuance costs +252 +97 +Deferred income taxes +( 287 +) +( 3,321 +) +Changes in operating assets and liabilities: +Accounts receivable, net +708 +( 262 +) +Prepaid expenses and other current assets +977 +( 959 +) +Intangible assets, net +— +( 336 +) +Other assets +( 396 +) +( 126 +) +Accounts payable +9,530 +2,656 +Due to a related party +( 3,351 +) +4,189 +Accrued expenses and other current liabilities +9,416 +18,953 +Deferred revenue +( 4,334 +) +2,884 +Operating lease liabilities +( 5,554 +) +( 2,179 +) +Other liabilities +( 21 +) +( 33 +) +Cash flows used in operating activities +$ +( 54,322 +) +$ +( 64,371 +) +Cash flows from investing activities: +Purchase of property and equipment +( 11,758 +) +( 7,588 +) +Proceeds from the sale of fixed assets +10,495 +— +Net cash received from Southern Acquisition +— +678 +Internal-use software development costs +( 2,346 +) +( 190 +) +Net cash used in investing activities +$ +( 3,609 +) +$ +( 7,100 +) +Cash flows from financing activities: +Proceeds from borrowings of long-term debt +44,234 +— +Payments of borrowings on convertible notes +— +( 40 +) +Principal payments on long-term debt +( 6,566 +) +( 1,349 +) +Proceeds from borrowings of SAFE notes +— +3,716 +Proceeds from advances under Share Purchase Agreement +3,894 +10,200 +Proceeds from collateralized borrowings, net of repayment +2,793 +( 33 +) +Proceeds from borrowings on convertible notes +— +8,000 +Proceeds from borrowings from related parties +34,522 +22,502 +Payments of debt issuance costs +( 1,488 +) +— +Payments of borrowings from related parties +— +( 114 +) +Payment of finance lease obligations +( 234 +) +( 113 +) +Proceeds from the issuance of Class B-6a redeemable convertible preferred shares +— +3,000 +Proceeds from sale of Common Stock +— +25,000 +Common Stock repurchases for employee tax withholding +— +( 1,273 +) +Common Stock issued for contract termination +— +3,175 +Proceeds from the exercise of Common Stock warrants +— +128 +Proceeds from exercise of stock options +20 +191 +Net cash provided by financing activities +$ +77,175 +$ +72,990 +Increase in cash, cash equivalents and restricted cash +19,244 +1,519 +Cash, cash equivalents and restricted cash at beginning of period +2,431 +912 +Cash, cash equivalents and restricted cash at end of period +$ +21,675 +$ +2,431 +The accompanying notes are an integral part of these consolidated financial statements. +75 +Surf Air Mobility Inc. +N otes to Consolidated Financial Statements +Note 1. Description of Business +Organization +Surf Air Mobility Inc. (the “Company”), a Delaware corporation, is a regional air mobility platform that aims to transform regional flying. The Company is currently comprised of its Air Mobility business, and has a goal of further developing and enhancing its service and technology offerings through its Air Technology business. +Surf Air Global Limited (“Surf Air”) is a British Virgin Islands holding company and was formed on August 15, 2016. Surf Air is a technology-enabled regional air travel network, offering daily scheduled flights and on-demand charter flights. Its customers consist of regional business and leisure travelers. Headquartered in Hawthorne, California, Surf Air commenced flight operations in June 2013. +Internal Reorganization +On July 21, 2023, SAGL Merger Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Surf Air, after which Surf Air became a wholly-owned subsidiary of the Company (the “Internal Reorganization”). +Pursuant to the Internal Reorganization, all ordinary shares of Surf Air outstanding as of immediately prior to the closing, were canceled in exchange for the right to receive shares of the Company’s common stock and all rights to receive ordinary shares of Surf Air (after giving effect to the conversions) were exchanged for shares of the Company’s common stock (or warrants, options or restricted stock units (“RSUs”) to acquire the Company’s common stock, as applicable) at a ratio of 22.4 Surf Air shares to 1 share of the Company’s common stock. Such conversions, as they relate to the ordinary shares of Surf Air, and all rights to receive ordinary shares, have been reflected as of all periods presented herein. +On July 27, 2023, the Company’s common stock was listed for trading on the NYSE. +As the Internal Reorganization took place on July 21, 2023, the financial statements presented herein reflect the financial position, results of operations and cash flows of Surf Air, the predecessor to the Company, for all periods prior to July 21, 2023. Following the Internal Reorganization, the financial position, results of operations and cash flows are those of the Company. +Reverse Stock Split +On August 16, 2024, the Company effected a seven-for-one reverse stock split for all shares of the Company’s common stock issued and outstanding. As a result of the reverse stock split, every seven shares of the Company’s old common stock were converted into one share of the Company’s new common stock. Fractional shares resulting from the reverse stock split were settled by cash payment. +Options, and other like awards, to purchase the Company’s common stock were also adjusted in accordance with their terms to reflect the reverse stock split. +Adjustments resulting from the reverse stock split have been retroactively reflected as of all periods presented herein. +Southern Acquisition +On July 27, 2023 (the “Acquisition Date”), immediately prior to the Company’s listing on the NYSE and after the consummation of the Internal Reorganization, the Company effected the acquisition of all equity interests of Southern Airways Corporation (“Southern”), whereby a wholly-owned subsidiary of the Company merged with and into Southern, after which Southern became a wholly-owned subsidiary of the Company (the “Southern Acquisition”). Pursuant to the agreement to acquire Southern, Southern stockholders were to receive 2,321,428 shares of the Company's common stock, which was based on the aggregate merger consideration of $ 81.25 million at the $ 35.00 per share opening price on the first day of trading of the Company's common stock. In total, 2,321,423 shares of Company common stock were issued to former Southern shareholders while the remaining amount was paid out in cash in lieu of fractional shares to those shareholders on a pro rata basis. +Southern is a scheduled service commuter airline serving cities across the United States that is headquartered in Palm Beach, Florida and commenced flight operations in June 2013. It is a certified Part 135 operator that operates a fleet of over 50 aircraft, including the Cessna Caravan, the Cessna Grand Caravan, the Pilatus PC-12, and the Tecnam Traveller. Southern provides both seasonal and +76 +full-year scheduled passenger air transportation service in the Mid-Atlantic and Gulf regions, Rockies and West Coast, and Hawaii, with select routes subsidized by the United States Department of Transportation (“U.S. DOT”) under the Essential Air Service (“EAS”) program. +Following the Southern Acquisition, the Company operates a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. +Liquidity and Going Concern +The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. In addition, the Company is currently in default of certain excise and property taxes as well as certain debt obligations. These tax and debt obligations are classified as current liabilities on the Company’s Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023. As discussed in Note 15, Commitments and Contingencies , on May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $ 1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $ 7.7 million included in accrued expenses and other current liabilities on the Consolidated Balance Sheet as of December 31, 2024 . The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is approximately $ 1.6 million as of December 31, 2024. Additionally, Los Angeles County has imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. As of December 31, 2024, the amount of property tax, interest and penalties related to the Los Angeles County tax lien for all unpaid tax years was approximatel y $ 1.1 million. The Company is in the process of remediating the late filing and payment of the property taxes due to Los Angeles County. As of December 31, 2024, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”) note, where the note matured in July 2019 (see Note 11, Financing Arrangements ). The SAFE-T note is subordinate to the Company’s Convertible Note Purchase Agreement (see Note 11, Financing Arrangements ); therefore, the Company cannot pay the outstanding balance prior to paying amounts due under the Convertible Note Purchase Agreement. The SAFE-T note had an outstanding principal amount of $ 0.5 million as of December 31, 2024 and December 31, 2023. +The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. +The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and continue to expand into regions profitably throughout the United States. +The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to the ability to (i) raise additional capital (or financing) to fund operating losses, (ii) refinance its current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v) attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to the business model. +The Company has historically funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities, related party funding, and preferred and common stock financing arrangements. During the year ended December 31, 2023, the Company received $ 8 million under a convertible note purchase agreement with Partners for Growth V, L.P. (“PFG”), $ 25.0 million through the Share Purchase Agreement with GEM Global Yield LLC SCS (“GEM”) and $ 10.2 million in advances and draws under the second amended and restated Share Purchase Agreement with GEM (see Note 12, Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security ). During the year ended December 31, 2024, the Company received an additional $ 2.5 million in advances under the second amended and restated Share Purchase Agreement with GEM. The Company had previously filed a Form S-1 registration statement (File No. 333-275434) with the SEC, registering up to 42,857,143 shares of the Company’s common stock, which represents the balance of the full amount of shares of common stock that the Company estimated could be issued and sold to GEM for advances under the Share Purchase Agreement, plus the amount of shares the Company estimated could be sold to GEM for $ 50 million under the Share Purchase Agreement, (the “Prior Registration Statement”). In connection with the GEM Mandatory Convertible Security (see Note 12, Share Purchase Agreement, GEM Purchase, and Mandatory +77 +Convertible Security ), the Company deregistered all of the shares registered but unsold under the Prior Registration Statement on June 4, 2024. The combined 46,428,571 shares contemplated under the Prior Registration Statement have been included in a Form S-1 Registration Statement (File No. 333-279929), which was declared effective by the SEC on August 7, 2024. As of December 31, 2024, the contractual terms allow the Company to make further advances of up to $ 97.5 million under the Share Purchase Agreement. Additionally, the Company has the ability to draw an additional $ 298.6 million under the Share Purchase Agreement, subject to daily volume limitations and GEM’s requirement to hold less than 10 % of the fully-diluted shares of the Company. As of December 31, 2024, GEM held 0 % of the then fully-diluted shares of the Company. At December 31, 2024, the daily volume limitations under the Share Purchase Agreement significantly restricted our ability to take additional draws under the Share Purchase Agreement to approximately 293 thousand shares per draw. Additionally, the Company’s ability to draw upon the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange. The Company is currently attempting to resolve one listing requirement violation with the New York Stock Exchange. While not currently subject to de-listing, the Company’s inability to cure this listing requirement violation would impact its ability to raise capital through the Share Purchase Agreement. +Additionally, during the year ended December 31, 2024, the Company entered into a 4-year credit agreement with certain affiliates of Comvest Partners, as lenders, pursuant to which the Company borrowed $ 44.5 million under a four-year term loan, and $ 5.5 million of delayed draw commitments. +The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations. In parallel, the Company is advancing its technology initiatives, including its software technology platform and Caravan electrification programs. In addition, the Company continues to evaluate strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, forming joint venture and other partnerships, and restructuring of operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans, or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans or, the Company will be required to take additional measures to conserve liquidity, which could include, but not necessarily limited to, reducing certain spending, altering or scaling back development plans, including plans to equip regional airline operations with fully-electric or hybrid-electric aircraft, or reducing funding of capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation and Principles of Consolidation +The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” ). The consolidated financial statements include the assets, liabilities and operating results of the Company. All intercompany balances and transactions have been eliminated in consolidation. Other than net loss, the Company does not have any other elements of comprehensive income or loss for the years ended December 31, 2024 and 2023. +Use of Estimates +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting period. +On an ongoing basis, the Company evaluates its estimates using historical experience and other factors including the current economic and regulatory environment as well as management’s judgment. Items subject to such estimates and assumptions include: revenue recognition and related allowances, valuation allowance on deferred tax assets, certain accrued liabilities, useful lives and recoverability of long-lived assets, fair value of assets acquired and liabilities assumed in acquisitions, legal contingencies, assumptions underlying convertible notes and convertible securities carried at fair value and stock-based compensation. These estimates may change as new events occur and additional information is obtained and such changes are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s consolidated financial statements. +78 +Concentration of Risk +The financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. All of the Company’s cash deposits are held at financial institutions that management believes to be of high credit quality. The Company’s cash deposit accounts may exceed federally insured limits at times. The Company has not experienced any losses on cash deposits to date. For the years ended December 31, 2024 and 2023, the US DOT accounted for 39 % and 32 %, respectively, of the Company's consolidated revenues. +We are dependent on part suppliers to deliver necessary airplane components in a timely manner at prices and quality levels acceptable to us. Our inability to efficiently manage these suppliers could have a material adverse effect on our business, prospects, financial condition and operating results. +Business Combination +The Company is required to use the acquisition method of accounting for business combinations. The acquisition method of accounting requires the Company to allocate the purchase consideration to the assets acquired and liabilities assumed from the acquiree based on their respective fair values as of the Acquisition Date. The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future revenue growth and margins, and discount rates. Fair value estimates are based on the assumptions that management believes a market participant would use in pricing the asset or liability. These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made. As a result, during the measurement period of up to one year from the Acquisition Date, the Company may record fair value adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired and liabilities assumed in an acquisition, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations. +Cash and Restricted Cash +Cash and restricted cash consists of cash on hand held in commercial bank accounts. The Company classifies all cash with use limited by contractual provisions as restricted cash. As of December 31, 2024 and 2023 the Company had restricted cash of $ 0.6 million and $ 0.7 million, resp ec tively, consisting of collateral against a corporate credit card. The Company has classified the restricted cash as long term, which represents the expected lapse of the restriction. +Accounts Receivable, net +Accounts receivable primarily consist of amounts due from U.S. DOT in relation to certain air routes served by the Company under the Essential Air Service (“EAS”) program, amounts due from airline business partners, and pending transactions with credit card processors. Receivables from the U.S. DOT and our business partners are typically settled within 30 days. All accounts receivable are reported net of an allowance for credit losses, which was not material as of December 31, 2024 , and December 31, 2023. The Company has considered past and future financial and qualitative factors, including the age of unpaid receivables, payment history and other credit monitoring indicators, when establishing the allowance for credit losses. +Collateralized Borrowings +On August 9, 2024, the Company entered into a new revolving accounts receivable financing arrangement that will allow the Company to borrow a designated percentage of eligible accounts receivable, as defined, up to a maximum unsettled amount of $ 5.0 million. The agreement is secured by a first security interest in all assets of Southern Airways Express, a subsidiary of Southern. The financing arrangement is uncommitted, and upon funding does not qualify for sale accounting as the Company does not relinquish control of the receivables based on, among other things, the nature and extent of the Company’s continuing involvement. +Accordingly, the accounts receivable remain on the Company’s Consolidated Balance Sheets until paid by the customer and cash proceeds from the financing arrangement are recorded as collateralized borrowing in Accrued expenses and other current liabilities on the Consolidated Balance Sheets, with attributable interest expense recognized over the life of the related transactions. Interest expense and contractual fees associated with the collateralized borrowings are included in interest expense and other expense, net, respectively, in the accompanying Consolidated Statements of Operations. +79 +Property and Equipment +Property and equipment are stated at cost less accumulated depreciation. Expenditures for major additions, equipment purchase deposits, renewals, and modifications are capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset’s life, are expensed as incurred. The Company capitalizes expenditures for software developed or obtained for internal use. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software development projects, and external direct costs of consultants and materials for developing the software. Software development costs that do not qualify for capitalization as well as costs related to minor upgrades and enhancements are expensed as incurred and recorded in the Consolidated Statements of Operations. +Maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, or, in the case of leasehold improvements, over the term of the lease or economic life, whichever is shorter as follows: +Assets +Depreciable Life +Aircraft, equipment and rotable spares +3 to 20 years +Leasehold improvements +Shorter of the estimated lease term or 5 years +Office, vehicles and ground equipment +3 years and 5 years +Internal-use software +3 years +Depreciation of property and equipment is included within Depreciation and amortization on the Consolidated Statements of Operations. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the Consolidated Statements of Operations. +Intangible Assets +Intangible assets consist primarily of EAS contracts, tradenames and trademarks and software acquired in an asset acquisition. The Company capitalizes expenditures for major software purchases. +The Company amortizes finite-lived intangible assets on a straight-line basis over their estimated useful lives, which range from two to ten years . The straight-line recognition method approximates the manner in which the expected benefits will be derived. +Impairment of Long-Lived Assets +Long-lived assets such as property and equipment, finite-lived intangible assets, and right of use assets are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. +The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as appropriate. No impairment charges were recorded during the years ended December 31, 2024 and 2023. +Goodwill +Goodwill, which represents the excess of the cost of an acquired entity over the fair value of the acquired net assets, has an indefinite life and, accordingly, is not amortized. The Company tests goodwill for impairment annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset may be impaired. +The Company assesses goodwill for impairment utilizing either a qualitative assessment or a quantitative assessment by comparing the fair value of its reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of its reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the quantitative assessment, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds its reporting unit’s fair value. +80 +The Company performed its annual goodwill impairment assessment on a qualitative basis as of October 1, 2023, and concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. This conclusion was primarily based on the operations of Southern being consistent with forecasts existing as of the acquisition date and the Company’s plans to re-fleet and expand Southern’s operations. Subsequent to this analysis, the Company identified indicators of impairment of the Southern reporting unit as of December 31, 2023. This was based on operational challenges that were expected to be remediated in the fourth quarter, such as: additional delays of aircraft maintenance due to the unavailability of parts, which resulted in a higher cancellation rate of scheduled flights. These delays were expected to, and did, continue into 2024. Additionally, the Company incurred higher cash requirements than expected to fund the operations of Southern during the fourth quarter of 2023, primarily due to higher maintenance costs. Further, unplanned delays in aircraft deliveries under the Textron aircraft supply agreement, including December 2023 cancellations of both firm deliveries and additional purchase options, have delayed re-fleeting efforts. Indicators of impairment also include a decline in the market price of our common stock and corresponding continued decline in our market capitalization from the date of the Southern Acquisition. As a result, the Company performed a quantitative assessment to compare the fair value of the reporting unit to its carrying amount as of December 31, 2023.The Company concluded that the carrying value of the Southern reporting unit exceeded its fair value and, as such, recorded a $ 60.0 million impairment of goodwill in its Southern reporting unit during the fourth quarter of 2023. +The Company estimated the fair value of its reporting units utilizing both a market approach and an income approach (discounted cash flow) and the significant assumptions used to measure fair value include discount rate, terminal value factors, revenue and EBITDA multiples, and control premiums. We evaluate our estimates under the income approach by reconciling the estimated fair value of the reporting unit determined under the income approach to our market capitalization and estimated fair value determined under the market approach.  +This impairment charge is presented within impairment of goodwill on the Company’s Consolidated Statements of Operations. As of December 31, 2024 and 2023, the Company had no goodwill balance. +Deferred Revenue +The Company records deferred revenue (contract liabilities) when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts. The Company generally collects payments from customers in advance of services being provided. The Company recognizes the deferred revenue as revenue when it meets the applicable revenue recognition criteria, which is usually either over the contract term, or when services have been provided. The Company generally meets performance obligations associated with all revenues deferred during the succeeding 12-month period. Accordingly, deferred revenue is classified within current liabilities in the accompanying Consolidated Balance Sheets. +Leases +The Company leases aircraft, airport passenger terminal space, portions of and full aircraft hangars and other airport facilities, other commercial real estate and office space. +Operating Leases +Operating lease right-of-use assets and liabilities are recognized at the lease commencement date, which is the date the Company takes possession of the asset. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease right-of-use assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the appropriate term and information available at lease commencement in determining the present value of lease payments including reasonably certain renewal periods. The Company recognizes the lease cost for operating leases on a straight-line basis over the lease term. Aggregate lease cost is recorded in Cost of Revenue and General and Administrative expenses on the Consolidated Statements of Operations. Additionally, tenant incentives used to fund leasehold improvements or any rent abatements are recognized when earned and reduce the operating right-of-use asset related to the lease. +Finance Leases +The Company measures finance lease right-of-use assets and finance lease liabilities initially at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding that portion of the payments representing executory costs (such as insurance, maintenance, and taxes to be paid by the lessor) including any profit thereon, with the corresponding liability recorded within the liabilities section of the balance sheet. During the lease term, each minimum lease payment is allocated by the lessee between a reduction of the liability and interest expense to produce a constant periodic rate of interest on the +81 +remaining balance of the liability (the interest method). Finance lease right-of-use assets are depreciated in accordance with the Company’s property and equipment policy and is included within Depreciation and amortization on the Consolidated Statements of Operations. The corresponding lease liabilities are reduced as lease payments are made. +Revenue Recognition +Scheduled Revenue +Scheduled revenue is derived from scheduled passenger flights under the EAS program, membership subscriptions, and through passenger single seat sales. +The Company provides scheduled passenger flight service on certain routes which is subsidized by the U.S. DOT under the EAS program. The EAS program is enacted to ensure that small communities in the U.S. have the ability to maintain a minimum level of scheduled air services. The Company has contracts with the U.S. DOT that are typically in duration of 2-4 years and include commitments for the Company to provide passenger air service to certain locations for a specific number of times annually to each location. The Company generally bills the U.S. DOT on the first of the month following the prior month’s completed flights, and typically collects from the U.S. DOT within 12 to 14 days after billing. Revenue is recognized on a per-flight basis when the Company has fulfilled its commitment, generally as the flights are completed. +The Company offers Pay-As-You-Fly (“PAYF”) memberships to members. The members pay an annual membership fee, which enables the member to purchase single use vouchers for travel on the Company’s scheduled routes. Vouchers are sold in a package and generally expire twelve months after the purchase date. Vouchers are nonrefundable, not exchangeable for cash and may not be used for other Company services. The Company recognizes the upfront annual membership fee as well as amounts paid by members for the purchase of vouchers as flights are completed or expiration, where applicable, of the vouchers. The Company has determined the PAYF membership and vouchers to represent a single performance obligation. +The Company earns revenue from the passenger for scheduled flight service through sales of tickets for single seats. These sales are generally paid by credit card. The Company also earns revenue generated by third-party travel booking sites or travel agencies. Tickets are refundable within 24 hours of purchase for flights scheduled to take place more than one week out, or when flights or services are changed, interrupted, or otherwise canceled by the Company. The Company recognizes revenue when it meets the applicable recognition criteria, which is at the point in time when a flight is completed or when tickets expire (generally within one year from the date of purchase). +On-demand Revenue +The Company earns revenue from the passenger for charter flight services, operated through a combination of its own aircraft and those of third party operators. These sales are generally paid for by credit card or wire transfer. The Company generally does not offer refunds after 24 hours of purchase. The Company recognizes revenue when it meets the applicable recognition criteria, which is at the point in time when a flight is completed or when tickets expire (generally within one year from the date of purchase). +Other Revenue +The Company also earns revenue from various ancillary services such as those relating to baggage fees, reservation change fees, package freight fees, and pet-travel (carry-on) fees. These fees are earned when the services are performed, generally at the time of travel. +Principal vs Agent +The Company evaluates whether it is a principal or an agent in contracts involving more than one party by assessing whether it controls the specified flight services before they are transferred to its customers. In transactions where the Company directs third-party air carriers to provide flights service to its customers, the Company determined it acts as the principal as it controls the services provided to the customers. In these instances, the Company is primarily responsible for fulfillment of the obligation in the contract, has pricing discretion, has the authority to direct the key components of the service on behalf of the member or customer regardless of which third-party is used. Therefore, the Company reports revenue and the associated costs on a gross basis in the Consolidated Statements of Operations. +When the Company is not primarily responsible for the fulfillment of the flight services, it acts as an agent and therefore recognized revenue in the Consolidated Statements of Operations is net of amounts paid to third-party air carriers and operators that provide the services. +82 +In transactions where the Company operates aircraft on behalf of a third party, the Company determined it acts as the agent as it solely carries out the services based on the direction of the third party in exchange for a fixed service fee as determined by the related services agreement. In these instances, the Company reports the service fee as fee revenue net of any operating costs incurred by the Company to perform these services. +Operating Expenses +Cost of Revenue +Cost of revenue consists of costs that are directly related to delivering the Company’s services and certain facility costs. Delivery of the Company’s services primarily comprise of aircraft maintenance, fuel, airport-related expenses, and fees paid to third-party air carriers for operating aircraft in providing flight services and platform infrastructure costs. Cost of revenue also includes facility costs representing leases expenses and operating costs for stations throughout the service network and personnel related costs, primarily salary and bonus. Cost of revenue excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +Sales and Marketing +Sales and marketing expense consists primarily of personnel related and other costs in connection with the Company’s sales and marketing efforts. Advertising costs are expensed as incurred and were not material for the years ended December 31, 2024 and 2023, respectively. Sales and marketing excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +Technology and Development +Technology and development expense consists of personnel and other costs related to technology development and management efforts including costs for third-party development resources, and allocations of overhead and facility costs. Technology cost also includes research and development cost associated with the Company’s hybrid electrification strategy. The Company’s technology and development efforts are focused on enhancing the ease of use and functionality of its Surf OS platform by adding new core functionality, services and other improvements, as well as the development of new products and services. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with internal-use software development that qualify for capitalization, which are then recorded within Property and Equipment, net on the Company’s consolidated balance sheets. Technology and development excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +General and Administrative +General and administrative expense consists of personnel related costs including salary, bonus, and share-based compensation for the Company’s executive, finance, facilities, and human resource teams and facility costs. General and administrative expenses also include professional fees and other corporate related expenses. General and administrative expenses exclude the depreciation on property and equipment and amortization of finite-lived intangible assets. +Share-Based Compensation +Options, RSPAs, and Warrants +The Company accounts for the issuance of stock options, restricted share purchase agreements (“RSPAs”), and warrants in the consolidated financial statements based on the grant date fair value of the awards. Issuances of RSPAs with promissory notes are accounted for as share options and are measured based on the grant date fair value of the option. The Company estimates the fair value of these awards using the Black-Scholes option pricing model. The grant date fair value of share-based awards with service-only conditions is recognized as expense on a straight-line basis in the consolidated statement of operations over the requisite service period, which is generally the vesting period ranging from 12 to 48 months. Forfeitures are recorded as they occur. For awards with performance conditions, the Company records compensation expense on a graded-vesting basis when it is deemed probable that the performance condition will be met. For awards with market conditions, the effect of the market conditions is reflected in the fair value measurement and expense, using an option pricing model, recognized on a graded-vesting basis, is not reversed to the extent that the market condition is not achieved. Additionally, awards granted to non-employees are accounted for using their grant date fair value, using Black Scholes option pricing model and are accounted for in the same manner as awards granted to employees. +Determining the fair value of share-based awards requires judgment. The Company’s use of option pricing models requires the input of subjective assumptions, including the fair value of shares of the Company’s common stock underlying the option award, the expected term of the option, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in the Company’s option pricing model represent management’s best +83 +estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used the Company’s share-based compensation expense could be materially different in the future. +Awards granted prior to the Company's direct listing were valued using the historical volatility of the stock price of similar publicly traded peer companies. The expected term of options granted represents the period for which the options are expected to be outstanding and is estimated based on a midpoint between the end of the requisite service period and the contractual term of the options granted. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the date of grant. The Company has no t declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero . The Company’s assumptions may change for future grants. +For awards granted prior to the Company’s direct listing, because there was no public market for the Company’s common stock, the board of directors determined the fair value of the shares of common stock by considering a number of objective and subjective factors including the results of third-party valuations, the Company’s actual operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones in the Company, the likelihood of achieving a liquidity event and transactions involving the Company’s preferred or common shares, among other factors. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation . +Restricted Stock Unit Awards +The grant date fair value of RSUs is estimated based on the fair value of the Company’s common stock on the date of grant. Prior to the Company’s direct listing in July 2023, RSUs granted by the Company vested upon the satisfaction of both service-based vesting conditions and liquidity event-related performance vesting conditions. The liquidity event-related performance vesting conditions were achieved upon the consummation of the Company's direct listing. Stock-based compensation related to such awards was recorded in full, as of the date of the Company’s direct listing. Since the Company’s direct listing in July 2023, the Company has only granted RSUs that vest upon the satisfaction of a service-based vesting condition and the compensation expense for these RSUs is recognized on a straight-line basis from the date of grant over the requisite service period. +The Company has granted founder performance-based restricted stock units (“founder PRSUs”) that contain a market condition in the form of future stock price targets. The grant date fair value of the founder PRSUs was determined using a Monte Carlo simulation model and the Company estimates the derived service period of the founder PRSUs. The grant date fair value of founder PRSUs containing a market condition is recorded as stock-based compensation over the derived service period. Provided that each founder continues to be employed by the Company, either directly or as a non-employee consultant, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock price goals are achieved. If the stock price goals are met sooner than the derived service period, any unrecognized compensation expenses related to the founder PRSUs will be expensed during the period in which the stock price targets are achieved. +Warrants +The Company assesses whether warrants issued to purchase the Company’s common stock are liability or equity-classified based on the terms of the warrants. If the warrants are determined to be liability-classified, then the warrants are remeasured to fair value each period with changes in fair value recorded within Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. The Company recognizes the fair value of liability-classified warrants within Other liabilities in its Consolidated Balance Sheets. If the warrants are determined to be equity-classified, then the initial fair value is recorded in Additional paid-in capital and the warrants are not remeasured thereafter. +The Company estimates the fair value of warrants to purchase its common stock and redeemable convertible preferred shares using the Black-Scholes option pricing model. Warrants are principally issued to lenders and non-employees, some of whom are related parties, in connection with debt and equity fundraising and debt restructuring activities. +Income Taxes +Income taxes are accounted for under the asset and liability method in accordance with U.S. GAAP. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a +84 +valuation allowance is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset will not be realized. +The Company determines whether a tax position taken or expected to be taken in a tax return is to be recognized in the consolidated financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The amount recognized is subject to estimation and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. For tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its income tax provision in the accompanying Consolidated Statements of Operations. +Net Loss Per Share Applicable to Common Shareholders, Basic and Diluted +The Company calculates basic and diluted net loss per share applicable to common shareholders using the two-class method required for companies with participating securities. The Company considers preferred stock to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common shares. +Under the two-class method, basic net loss per share applicable to common shareholders was calculated by dividing the net loss available to common shareholders by the weighted-average number of shares of common shares outstanding during the period. For purposes of determining the number of weighted-average common shares outstanding, the Company has included issued and outstanding common shares, penny common share warrants, and vested RSPAs. Diluted net loss per share available to common shareholders was computed by giving effect to all potentially dilutive common share equivalents outstanding for the period. For purposes of this calculation, preferred stock, unvested RSUs, unvested RSPAs, stock options and warrants to purchase common shares were considered common share equivalents but had been excluded from the calculation of diluted net loss per share applicable to common shareholders as their effect was anti-dilutive. In periods in which the Company reports a net loss applicable to common shareholders, diluted net loss per share available to common shareholders is the same as basic net loss per share applicable to common shareholders, since dilutive common shares are not assumed to have been outstanding if their effect is anti-dilutive. The Company reported net loss applicable to common shareholders for the years ended December 31, 2024 and 2023. +Fair Value Measurements +Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company elected the fair value option to account for its debt instruments because the Company’s debt instruments contain a number of complex features that would have otherwise required bifurcated derivative accounting. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a fair value hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following: +Level 1 Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. +Level 2 Inputs other than quoted prices included in Level I, that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. +Level 3 Inputs are unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. +Assets and liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. +The Company measures the fair value of certain long-lived assets including finite-lived intangible assets on a nonrecurring basis, when such assets are acquired in a business combination or are required to be written down to fair value if impaired. Such fair values are classified within the fair value hierarchy, as the valuations contain significant unobservable inputs, including assumptions of the present value of future cash flows, the use of these assets, as well as estimated disposition value. +85 +There were no assets measured at fair value on a recurring basis as of December 31, 2024 and 2023. +The carrying amounts of certain financial assets and liabilities, including restricted cash, other current assets, accounts receivable, accounts payable, accrued expenses, and amounts due to related parties approximate fair value because of the short maturity and liquidity of those instruments. +SAFE and Convertible Notes at Fair Value +The Company’s Simple Agreements for Future Equity notes (“SAFE”) and Simple Agreement for Future Equity with Tokens (“SAFE-T”) are financial instruments whereby an investor provides an investment into the Company, and the note is subsequently converted into a preferred equity security at a discount to the price paid by other investors when and if a preferred equity is issued through a qualifying capital raise. Due to certain provisions included in the agreements for these instruments, they are classified as liabilities as of December 31, 2024 and 2023. +The Company elected the fair value option for the convertible notes and SAFE financial instruments, which requires them to be remeasured to fair value each reporting period with changes in fair value recorded in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations, except for change in the fair value that results from a change in the instrument specific credit risk which is presented separately within other comprehensive income. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The decision to elect the fair value option is determined on an instrument-by-instrument basis on the date the instrument is initially recognized, is applied to the entire instrument, and is irrevocable once elected. For instruments measured at fair value, embedded conversion or other features are not required to be separated from the host instrument. Issuance costs related to convertible securities carried at fair value are not deferred and are recognized as incurred within Interest expense on the Consolidated Statements of Operations. +For instruments measured at fair value granted before the Company’s direct listing, the fair values were based on the estimated values of the notes, warrants, and derivative upon conversion including adjustments to the conversion rates, which were weighted probability associated with certain events, such as a sale of the Company or becoming a public company. The estimated fair values of these financial liabilities were determined utilizing the Probability-Weighted Expected Return Method and is co nsidered a Level 3 fair value measurement. +Recent Accounting Pronouncements +Adopted +In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting , which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for fiscal periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 as of January 1, 2024. +Not Yet Adopted +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its financial statements. +In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires public entities to disaggregate, in a tabular presentation, certain income statement expenses into different categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The guidance is effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and may be applied retrospectively. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures. +Note 3. Business Combination +On July 27, 2023 , the Company completed the acquisition of all issued and outstanding shares of Southern. The acquisition of Southern expands the Company’s regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Total consideration is comprised of $ 81.25 million of equity consideration, through the issuance of 2,321,423 shares of the Company’s common stock on close of the Southern Acquisition and $ 699 thousand of payments made by the Company to settle debt obligations of Southern, which were not assumed as part of the acquisition. As the transaction +86 +closed prior to the Company’s listing on the NYSE on July 27, 2023, the fair value of the common stock issued to Southern stockholders was based on the opening trading price of the Company’s common stock on July 27, 2023 of $ 35.00 per share. +Subsequent to the issuance of shares of the Company’s common stock as purchase consideration, the Company repurchased 57,666 shares from employees for $ 1.3 million in satisfaction of employee tax withholdings related to such issuance. +The results of operations of Southern are included in the Company’s consolidated financial statements from the date of acquisition, July 27, 2023, through December 31, 2024. +The purchase consideration was preliminarily allocated and adjusted as follows ( in thousands ): +Preliminary Balance +Measurement Period Adjustments +Adjusted Balance +Cash +$ +1,377 +$ +1,377 +Accounts receivable, net +4,155 +396 +4,551 +Prepaid expenses and other current assets +4,326 +4,326 +Property and equipment, net +37,372 +( 264 +) +37,108 +Operating lease right-of-use assets +13,214 +13,214 +Finance lease right-of-use assets +303 +303 +Acquisition-related intangibles +28,150 +( 1,100 +) +27,050 +Other assets +3,604 +3,604 +Total assets +$ +92,501 +$ +( 968 +) +$ +91,533 +Accounts payable +5,649 +5,649 +Accrued expenses and other current liabilities +10,405 +10,405 +Deferred revenue +7,329 +8 +7,337 +Current maturities of long-term debt +2,923 +2,923 +Operating lease liabilities, current +3,624 +3,624 +Finance lease liabilities, current +147 +147 +Due to related parties, current +1,853 +1,853 +Long-term debt, net of current maturities +24,123 +24,123 +Operating lease liabilities, long term +6,836 +6,836 +Finance lease liabilities, long term +175 +175 +Due to related parties, long term +1,864 +1,864 +Deferred tax liability +3,750 +906 +4,656 +Other noncurrent liabilities +37 +37 +Total liabilities +$ +68,715 +$ +914 +$ +69,629 +Fair value of net assets acquired +23,786 +( 1,882 +) +21,904 +Goodwill +58,163 +1,882 +60,045 +Total Purchase Consideration +$ +81,949 +$ +— +$ +81,949 +The Company provisionally allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management using the best available information. +Measurement period adjustments +The Company recorded measurement period adjustments to the provisional purchase price allocation due to additional information received since the acquisition date of July 27, 2023. The significant adjustments included a reduction to identified intangible assets for EAS route contracts and tradenames of $ 1.1 million, reductions in plant, property, and equipment of $ 0.3 million, increases in accounts receivable of $ 0.4 million, and an increase in deferred income tax liabilities of $ 0.9 million resulting from new information available to management that impacted the fair value of the assets acquired. +Goodwill represents purchase consideration in excess of the fair value of net assets acquired. Factors that contribute to the recognition of goodwill include increased synergies expected to be achieved from the integration of Southern, as well as the acquisition of a talented workforce. None of the goodwill, as initially recorded, is expected to be deductible for income tax purposes. +During the fourth quarter of 2023, the Company recorded an impairment of the goodwill initially recorded due to the identification of impairment indicators, such as additional delays of aircraft maintenance due to the unavailability of parts, which resulted in a higher cancellation rate of scheduled flights. These delays were expected to, and did, continue into 2024. Additionally, the Company incurred +87 +higher cash requirements than expected to fund the operations of the Southern reporting unit during the fourth quarter of 2023, primarily due to higher maintenance costs. Further, unplanned delays in aircraft deliveries under the Textron aircraft supply agreement, including December 2023 cancellations of both firm deliveries and additional purchase options, have delayed re-fleeting efforts. The resulting goodwill impairment charge of $ 60.0 million was the result of comparing the fair value of the Southern reporting unit to its carrying value. +Following are details of the purchase consideration allocated to acquired intangible assets: +Asset +Fair Value +Weighted- Average +Estimated Useful Life +EAS Contracts (1) +$ +25,770 +10 years +Tradename and Trademarks (2) +1,280 +4 years +Total +$ +27,050 +(1) +The fair value of EAS route contracts were determined using the income approach, specifically, the multi-period excess earnings method. +(2) +Corporate trade name and trademarks primarily relate to the Southern brand and related trademarks, respectively, and the fair values were determined by applying the income approach, specifically, the relief from royalty method . +The fair value of the identified intangible assets will be amortized over the assets’ estimated useful lives based on the pattern in which the economic benefits are expected to be received to depreciation and amortization expense. +The Consolidated Statement of Operations include the following revenue and net loss attributable to Southern from the date of acquisition, July 27, 2023, to December 31, 2023: +July 27, 2023 through December 31, 2023 +Revenue +$ +37,371 +Net Loss +$ +( 4,870 +) +Unaudited Supplemental Pro Forma Information +Following are the supplemental consolidated financial results of the Company on an unaudited pro forma basis, as if the Southern Acquisition had been consummated as of January 1, 2022: +Year Ended December 31, +2023 +Revenue +$ +112,869 +Net loss +$ +( 184,596 +) +The unaudited pro forma financial information presented above has been calculated after adjusting the results of operations of the Company to reflect certain business combination effects, including the amortization of the acquired intangible assets, associated income tax impacts, incremental financing costs, and one-time acquisition-related costs incurred by the Company as though the Southern Acquisition occurred as of January 1, 2022. The pro forma financial information is for informational purposes only and not indicative of the results of operations that would have been achieved if this business combination had taken place as of January 1, 2022, nor is it indicative of future results of operations. +88 +Note 4. Prepaids and Other Current Assets +Prepaid expenses and other current assets consisted of the following (in thousands): +December 31, +2024 +December 31, +2023 +Prepaid insurance +$ +766 +$ +2,306 +Prepaid software +2,177 +2,647 +Prepaid marketing +2,434 +2,406 +Engine reserves +1,667 +1,150 +Vendor operator prepayments +744 +634 +Prepaid fuel +39 +301 +Other +684 +1,607 +Total prepaid expenses and other current assets +$ +8,511 +$ +11,051 +Note 5. Property, Plant and Equipment, Net +Property and equipment, net, consists of the following (in thousands): +December 31, +2024 +December 31, +2023 +Aircraft, equipment and rotable spares +$ +40,290 +$ +39,196 +Equipment purchase deposits +2,000 +5,000 +Leasehold improvements +2,301 +2,479 +Office, vehicles and ground equipment +1,158 +1,179 +Internal-use software +2,729 +508 +Property and equipment, gross +48,478 +48,362 +Accumulated depreciation +( 6,265 +) +( 2,371 +) +Property and equipment, net +$ +42,213 +$ +45,991 +The Company recorded depreciation expense of $ 4.7 million and $ 1.8 million for the years ended December 31, 2024 and 2023, respectively. Depreciation expense is recognized as a component of Depreciation and Amortization expense in the accompanying Consolidated Statement of Operations. +For the years ended December 31, 2024 and 2023, the Company recorded gains on disposal of property and equipment of $ 743 thousand and $ 0 , respectively. For the gains recorded during the year ended December 31, 2024, $ 379 thousand was the result of sale-leaseback transactions (see Note 9, Leases ). +Note 6. Intangible Assets, Net +Intangibles assets, net, consists of the following (in thousands): +December 31, +2024 +December 31, +2023 +EAS contracts +$ +25,770 +$ +25,770 +Tradenames and trademarks +8,340 +8,340 +Software +3,122 +3,122 +Other intangibles +225 +242 +Intangible assets, gross +37,457 +37,474 +Accumulated amortization +( 14,339 +) +( 10,811 +) +Intangible assets, net +$ +23,118 +$ +26,663 +The Company recorded amortization expense of $ 3.5 million and $ 1.8 million for the year ended December 31, 2024 and 2023, respectively. Amortization expense is recognized as a component of Depreciation and Amortization expense in the accompanying Consolidated Statement of Operations. +89 +Expected future amortization as of December 31, 2024 is as follows (in thousands): +Amount +2025 +$ +3,051 +2026 +2,915 +2027 +2,764 +2028 +2,577 +2029 +2,577 +Thereafter +9,234 +Total +$ +23,118 +Note 7. Goodwill +The change in Goodwill is presented in the following table (in thousands): +December 31, +2024 +December 31, +2023 +Beginning of period +$ +— +$ +— +Addition from Southern Acquisition +— +60,045 +Impairment +— +( 60,045 +) +End of period +$ +— +$ +— +The impairment during the year ended December 31, 2023 is presented within impairment of goodwill on the Company’s Consolidated Statements of Operations. +Note 8. Other Assets +Other assets consists of the following (in thousands): +December 31, +2024 +December 31, +2023 +Security deposits - aircraft operating leases +$ +1,971 +$ +1,037 +Cloud-hosted software +1,921 +1,829 +Credit card holdback +1,255 +1,748 +Security deposits - other +566 +590 +Other +410 +523 +Total other assets +$ +6,123 +$ +5,727 +Note 9. Leases +Operating Leases +Supplemental balance sheet information related to operating leases is as follows (in thousands): +Operating Leases +Classification +December 31, +2024 +December 31, +2023 +Assets +Right-of-use assets +Operating lease right-of-use assets +$ +17,046 +$ +12,818 +Liabilities +Lease liabilities, current +Operating lease liabilities, current +$ +4,120 +$ +4,104 +Lease liabilities, current +Due to related parties, current +1,216 +1,686 +Lease liabilities, long term +Operating lease liabilities, long term +11,540 +5,507 +Lease liabilities, long term +Due to related parties, long term +457 +1,673 +Total lease liabilities +$ +17,333 +$ +12,970 +90 +Lease term and discount rate were as follows: +December 31, +2024 +December 31, +2023 +Weighted average remaining lease term +4.29 years +2.55 years +Weighted average discount rate +8.68 +% +7.96 +% +The components of lease cost are as follows (in thousands): +Year ended December 31, +Lease Cost +Classification +2024 +2023 +Operating lease cost - aircraft +Cost of revenue +$ +11,123 +$ +3,469 +Operating lease cost - non-aircraft +Cost of revenue +781 +163 +Operating lease cost - non-aircraft +General and administrative +607 +333 +Lease cost, short term +Cost of revenue +548 +1,827 +Lease cost, short term +General and administrative +181 +156 +Engine reserves +Cost of revenue +3,475 +1,518 +Total lease cost +$ +16,715 +$ +7,466 +Supplemental disclosures of cash flow and other information related to leases are as follows (in thousands): +Year Ended December 31, +2024 +2023 +Cash paid for operating lease liabilities +$ +7,889 +$ +3,044 +Non-cash transactions - operating lease assets obtained in exchange for operating lease liabilities +$ +11,606 +$ +1,858 +Maturities of operating lease liabilities are as follows as of December 31, 2024 (in thousands): +Amount +2025 +$ +6,561 +2026 +4,603 +2027 +3,158 +2028 +2,219 +2029 +2,218 +Thereafter +1,931 +Total lease payment, undiscounted +20,690 +Less: imputed interest +3,357 +Total +$ +17,333 +Sale-leaseback transactions +During the year ended December 31, 2024, the Company entered into three sale-leaseback transactions for the Company’s owned aircraft. Sales proceeds totaled $ 8.7 million, which resulted in the addition of corresponding operating use right of use assets and operating lease liabilities. The Company recorded a gain of $ 379 thousand as a result of the sale transactions. The leases will carry a term of six years . +Finance Leases +The Company’s finance lease assets include an aircraft, an aircraft engine, and other equipment. +91 +Supplemental balance sheet information related to finance leases is as follows (in thousands): +December 31, +2024 +December 31, +2023 +Assets +Finance lease right-of-use assets +$ +1,115 +$ +1,343 +Liabilities +Finance lease liabilities, current +$ +265 +$ +215 +Finance lease liabilities, long term +948 +1,137 +Total finance lease liabilities +$ +1,213 +$ +1,352 +Lease term and discount rate are as follows: +December 31, +2024 +December 31, +2023 +Weighted average remaining lease term +4.2 years +5.3 years +Weighted average discount rate +11.37 +% +11.45 +% +Supplemental disclosures of cash flow and other information related to leases are as follows (in thousands): +Year Ended December 31, +2024 +2023 +Cash paid for finance lease liabilities +$ +234 +$ +113 +Non-cash transactions - Finance lease assets obtained in exchange for finance lease liabilities +$ +95 +$ +1,143 +Maturities of finance lease liabilities are as follows as of December 31, 2024 (in thousands): +Amount +2025 +$ +389 +2026 +372 +2027 +336 +2028 +264 +2029 +176 +Thereafter +— +Total lease payment, undiscounted +1,537 +Less: imputed interest +324 +Total +$ +1,213 +92 +Note 10. Accrued Expenses and Other Current Liabilities +As of December 31, 2024 and December 31, 2023, accrued expenses and other current liabilities consisted of the following (in thousands): +December 31, +2024 +December 31, +2023 +Accrued compensation and benefits +$ +5,940 +$ +26,751 +Accrued professional services +10,431 +11,473 +Excise and franchise taxes payable +7,729 +7,672 +Collateralized borrowings +5,842 +2,977 +Software license fee payable +9,953 +2,000 +Aircraft contract termination payable +— +1,454 +Accrued Monarch legal settlement +1,314 +1,314 +Insurance premium liability +— +1,131 +Accrued major maintenance +427 +980 +Interest and commitment fee payable +114 +190 +Statutory penalties +88 +520 +Other accrued liabilities +3,658 +3,120 +Total accrued expenses and other current liabilities +$ +45,496 +$ +59,582 +Collateralized Borrowings +The Company has a revolving accounts receivable financing arrangement that currently allows the Company to borrow a designated percentage of eligible accounts receivable, as defined in the agreement, up to a maximum unsettled amount of $ 5 million. The agreement is secured by a first security interest in all assets of Southern Airways Express, LLC, a subsidiary of Southern. The related interest rate is the prime rate plus 1 % per annum. Additionally, the Company pays certain ancillary fees associated with each borrowing that vary depending on the borrowed amount and duration, which is generally no more than 45 days. +For the year ended December 31, 2024, the Company borrowed a total of $ 50.3 million under this financing facility, of which $ 47.5 million was settled through the transfer of pledged receivables. Interest expense incurred on these borrowings for the year ended December 31, 2024, amounted to $ 471 thousand, and are included in interest expense in the accompanying Consolidated Statements of Operations. +As of December 31, 2024 the outstanding amount due under this facility amounted to $ 2.8 million . As of December 31, 2024 the Company was in compliance with all covenants under this financing facility. +In addition, during the year ended December 31, 2024, the Company received an advance payment of $ 3.0 million from a financing institution related to an expected future payment under the IRS’ Employee Retention Credit Program, As of December 31, 2024, the Company has recorded $ 3.0 million within Collateralized borrowings. Such amounts are collateralized against the value of the credits to be received, as well as other assets of Southern Airways Express, a subsidiary of Southern. +Accrued Professional Services +During the fourth quarter of 2024, the Company entered into agreements with several professional service firms engaged in support of the Company’s July 27, 2023 direct listing on the NYSE. These agreements modify the payment terms of prior service agreements to be contingent on future equity or debt financing by the Company. The Company estimates that a total of $ 7.1 million will be due under these agreements over the next five years. Given the uncertainty regarding the timing and amount of payment, all amounts have been classified as current liabilities with the Company’s consolidated balance sheet. +93 +Note 11. Financing Arrangements +The Company’s long-term debt obligations consist of the following (in thousands) : +December 31, +2024 +December 31, +2023 +Note payable to a financing company, fixed interest rate of 7.60 %, due November 2024 +$ +— +$ +257 +Note payable to bank, fixed interest rate of 4.65 %, due November 2025 +8 +15 +Note payable to a financing company, fixed interest rate of 5.49 %, due December 2026 +120 +184 +Notes payable to Clarus Capital, fixed interest rate of 8.66 %, due April , June and September 2027 +14,022 +16,476 +Note payable to Skywest, fixed interest rates of 4 %, due April 2028 +2,497 +5,656 +Note payable to Tecnam, fixed interest rate of 6.75 %, due July and August 2032 +2,962 +3,206 +Credit Agreement to ComVest Partners, floating interest rate of SOFR + 5 %, due November 2028 +44,984 +— +Debt issuance costs +( 2,167 +) +0 +Long-term debt, gross +62,426 +25,794 +Current maturities of long-term debt +( 2,543 +) +( 5,177 +) +Long-term debt, net of current maturities +$ +59,883 +$ +20,617 +Future maturities of total long-term debt as of December 31, 2024 are as follows (in thousands) : +Amount +2025 +$ +2,543 +2026 +2,676 +2027 +12,032 +2028 +45,669 +2029 +421 +Thereafter +1,252 +Total +$ +64,593 +The Company is subject to customary affirmative covenants and negative covenants on all of the above notes payable. As of December 31, 2024, the Company was in compliance with all covenants in the loan agreements. +Credit Agreement +On November 14, 2024, the Company entered into a 4-year credit agreement with certain affiliates of Comvest Partners, as lenders (the “Credit Agreement”), pursuant to which the Company borrowed $ 44.5 million as a term loan, and $ 5.5 million of delayed draw commitments, which the Company will use to fund monthly interest payments over the first eighteen months of the Credit Agreement. Borrowings under the delayed draw commitments totaled $ 0.5 million as of December 31, 2024. This resulted in net proceeds of $ 42.7 million after funding debt issuance costs. +The loans under the Credit Agreement accrue interest at a rate of (x) SOFR (subject to a 1.00 % floor) plus (y) 5.00 %, and are subject to a prepayment premium for 18 months after the initial funding date. There was a 1.50 % fee on the aggregate loans and commitments, paid at the initial funding. The loans under the Credit Agreement have no payments due other than interest, in advance of the maturity date on November 14, 2028 . +The obligations of the Company under the Credit Agreement are subject to a security interest on assets of the Company, subject to certain exceptions. +The Credit Agreement is fully backstopped by a letter of credit issued by HSBC Bank USA, N.A. and arranged by Park Lane, a related party, and in connection therewith, the Company has entered into a reimbursement agreement with Park Lane (see Note 21, Related Party Balances and Transactions ). +The Credit Agreement contains certain representations and warranties, covenants and events of default. Upon the occurrence of certain events of default, the lenders would have the right to draw upon the letter of credit referenced above. +94 +Fair Value of Convertible Instruments +The Company has elected the fair value option for the convertible notes, which requires them to be remeasured to fair value each reporting period with changes in fair value recorded in changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations, except for change in fair value that results from a change in the instrument specific credit risk which is presented separately within other comprehensive income. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. +On April 30, 2023, the Company amended the terms of the 2020 Convertible Note to extend the maturity date from May 1, 2023 to November 1, 2023. All other terms of the note remained the same, bearing compound interest at a rate of 6.25 % per annum and a monthly payment of $ 5 thousand. On June 27, 2023, the Company entered into a conditional exercise agreement for the 2020 Convertible Note to convert upon the merger of Surf Air into a subsidiary of the Company. The merger occurred on July 21, 2023, and all principal and accrued interest associated with the 2020 Convertible Note were converted into 1,383,342 convertible preferred shares, which were simultaneously cancelled and converted into 8,822 shares of the Company's common stock. +On June 1, 2023, the Company amended the terms of the 2017 Convertible Notes to extend the maturity date from May 31, 2023 to December 31, 2023. All other terms of the note remained the same. On June 27, 2023, the Company entered into a conditional exercise agreement for the 2017 Convertible Notes to convert upon the merger of Surf Air into a subsidiary of the Company. The merger occurred on July 21, 2023, and all principal and accrued interest associated with the 2017 Convertible Notes were converted into 31,842,737 convertible preferred shares, which were simultaneously cancelled and converted into 203,094 shares of the Company's common stock. +On June 21, 2023, the Company entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with PFG for a senior unsecured convertible promissory note for an aggregate principal amount of $ 8.0 million. The note bears interest at a rate of 9.75 % and matures on December 31, 2024 . All unpaid principal and interest balances may be converted into shares of the Company’s common stock, at the option of the holder, at a price equal to 120 % of the opening trading price of the Company’s common stock on the date of its direct listing on the NYSE. +On July 27, 2023, the Company received $ 8 million in funding under the Convertible Note Purchase Agreement, following satisfaction of all conditions precedent outlined. Based on the $ 35.00 per share opening price on the first day of listing of the Company’s common stock, the principal of the Convertible Note Purchase Agreement would be convertible into 196,476 shares of the Company’s common stock. +On November 14, 2024, the Company amended the existing Convertible Note Purchase Agreement with PFG, which had an outstanding principal amount of $ 8.0 million issued to PFG upon amendment. +The Convertible Note Purchase Agreement will accrue interest at the greater of (x) SOFR (subject to a 1.00 % floor) plus 5.00 % and (y) 9.75 %. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings is required to be applied to repay the obligations under the Convertible Note Purchase Agreement. The maturity of the Convertible Note Purchase Agreement is December 31, 2028, which may be accelerated upon the occurrence of certain events of default. +PFG has the right to convert, at its option, the amounts outstanding under the Convertible Note Purchase Agreement into common stock of Company, at a conversion price of $ 42.00 per share. +The obligations under the Convertible Note Purchase Agreement are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +As of December 31, 2024, the Company was in compliance with all covenants under the Convertible Note Purchase Agreement. +Fair value of convertible notes (in thousands) : +Fair Value at +December 31, 2024 +December 31, 2023 +Convertible Note Purchase Agreement +7,347 +7,715 +Total +$ +7,347 +$ +7,715 +95 +Fair Value of SAFE Notes +The Company’s SAFE and SAFE-T notes are carried at fair value, with fair value determined using Level 3 inputs. The Company determined that the SAFE and SAFE-T instruments should be classified as liabilities based on evaluating the characteristics of the instruments, which contained both debt and equity-like features. The SAFE notes mature between May 2024 and June 2025. The SAFE-T instrument matured in July 2019, but the holder has elected not to effect an equity conversion of the instrument. Subsequent changes in the fair value of the SAFE and SAFE-T notes are recorded as part of changes in fair value of financial instruments carried at fair value, net within the Consolidated Statements of Operations. +Each of the SAFE notes previously converted into shares of the Company’s common stock, concurrent with the Company's listing on the NYSE (see Note 12, Fair Value Measurements ). +Fair value of SAFE and SAFE-T notes (in thousands) : +Fair Value at +December 31, 2024 +December 31, 2023 +SAFE-T +13 +25 +Total +$ +13 +$ +25 +Less: SAFE notes at fair value, current +( 13 +) +( 25 +) +SAFE notes at fair value, long term +$ +— +$ +— +On January 31, 2023, the Company entered into a SAFE note whereby the Company agreed to sell an investor up to a number of shares of the Company’s common stock having an aggregate value of $ 0.3 million in exchange for cash received in 2023. The resulting conversion prices were based on a contractually defined discount of 20 % of the per share consideration payable to shareholders of the Company’s common stock, in the event of a change in control or qualified financing, and a 35 % discount to the price per share of common shares issued in the event of a de-SPAC transaction, IPO, or direct listing. +On June 15, 2023, the Company entered into a SAFE note with LamJam LLC (“LamJam”), a related party, for $ 6.9 million, in consideration of the cancellation of a $ 3.47 million promissory note, including principal and interest, payable by the Company to LamVen LLC (“LamVen”), a related party of LamJam, and $ 3.47 million received in cash from LamJam. The resulting conversion prices were based on a contractually defined discount of 20 % of the per share consideration payable to shareholders of the Company’s common stock, in the event of a change in control or qualified financing, and a 35 % discount to the price per share of common shares issued in the event of a de-SPAC transaction, IPO, or direct listing. +On June 26, 2023, the Company entered into an agreement with holders of the SAFE notes to transfer all of Surf Air’s rights, interests, and obligations under the SAFE notes to the Company upon the merger of Surf Air into a subsidiary of the Company, which occurred on July 21, 2023. +On July 27, 2023, concurrent with the first day of listing of the Company’s common stock, the Company issued 2,480,765 shares of common stock in satisfaction of $ 56.4 million of outstanding principal on SAFE notes. Share settlements were based on the contractual 35 % discount to the $ 35.00 per share opening price on the first day of listing of the Company’s common shares. +Note 12. Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security +Share Purchase Agreement +During 2020, the Company entered into a Share Purchase Agreement (“SPA”) with GEM Global Yield LLC SCS (“GEM”) and an entity affiliated with GEM to provide incremental financing in the event the Company completed a business combination transaction with a SPAC, IPO, or direct listing. On May 17, 2022, February 8, 2023, and September 18, 2023, the SPA was amended to increase the maximum aggregate shares of the Company’s common stock that may be required to be purchased by GEM from $ 200 million to $ 400.0 million (the “Aggregate Limit”) and amend the commitment fee required under the SPA from $ 4 million to 571,429 shares of the Company’s common stock. Pursuant to the amended and restated SPA, and subject to the satisfaction of certain conditions, the Company will have the right from time to time at its option to direct GEM to purchase up to the Aggregate Limit of shares of the Company’s common stock over the term of the amended and restated SPA. Upon its public listing, the Company may request GEM to provide advances under the SPA in an aggregate amount of up to $ 100.0 million, provided that individual advances are not to exceed $ 25.0 million each, with the first advance not to exceed $ 7.5 million. Each advance will reduce the amount that the Company can request for future purchases under the SPA. On September 29, 2023, the Company received its first advance under the SPA in the amount of $ 4.5 million, on a total request of $ 7.5 million, with the remaining $ 3.0 million being received on October 3, 2023. Concurrent with the +96 +receipt of funds, the Company issued 571,429 shares of its common stock to GEM in full satisfaction of the commitment fee. Following an advance or draw, the number of shares to be transferred to GEM will be based on an average of the volume-weighted average trading price of the Company’s common stock over a period of fifteen trading days following the receipt of an advance, subject to a 15 day extension in certain circumstances. This average price will be subject to a contractual discount of 10 %. Additionally, contractual provisions within the SPA provide that in no event may GEM receive a share issuance, from a draw under the SPA, that would raise their share ownership percentage above 10 % of the Company. This provision may impact the Company’s ability to request additional purchases under the SPA. +On June 15, 2023, July 21, 2023, and July 24, 2023, the SPA was further amended to modify the number of shares of the Company’s common stock to be issued to GEM at the time of a public listing transaction of the Company from an amount equal to 0.75 % of the Company’s fully-diluted shares of common stock outstanding to a fixed 185,714 shares of the Company’s common stock. The amendments to the SPA also modified certain registration requirements whereby the Company was obligated to file a re-sale registration statement within 5 business days of the Company’s public listing. On July 27, 2023, concurrent with the Company’s direct listing, the Company issued 185,714 shares of the Company’s common stock to GEM in full satisfaction of this provision. Pursuant to GEM’s associated registration rights, the Company filed a re-sale registration statement, covering the 185,714 shares, on August 2, 2023, which was declared effective by the SEC on September 28, 2023. +The Company has accounted for the shares issuance contracts under the SPA, as amended, as derivative financial instruments which are recorded at fair value within Other long-term liabilities on the Consolidated Balance Sheets. During the year ended December 31, 2024, the Company settled $ 2.5 million in advances received from GEM through the issuance of 1,311,235 shares of the Company’s common stock. The Company also received total proceeds of $ 1.4 million during the year ended December 31, 2024, through draws under the SPA. This resulted in the issuance of 236,535 shares of the Company’s common stock. Additionally, liabilities related to advances received under the SPA prior to March 1, 2024 were reclassified as part of the Mandatory Convertible Security, as discussed below. +As a result of this activity, the fair value of the GEM liability was $ 0 and $ 11.3 million as of December 31, 2024 and December 31, 2023, respectively. Changes in fair value were recorded in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. +GEM Purchase +On June 15, 2023, and amended on July 21, 2023, and July 24, 2023, the Company and GEM entered into the SPA whereby GEM would purchase 142,857 shares of the Company’s common stock for cash consideration of $ 25.0 million upon the successful public listing of the Company’s shares. Under the terms of the agreement, the Company is obligated to file a re-sale registration statement, covering the 142,857 shares issued, within five business days of the Company’s public listing. On July 27, 2023, concurrent with the Company’s direct listing, the Company received the $ 25.0 million cash consideration contemplated in the SPA, in exchange for the issuance of 142,857 shares of the Company’s common stock. Pursuant to the associated registration rights, the Company filed a re-sale registration statement, covering the 142,857 shares, on August 2, 2023, which was declared effective by the SEC on September 28, 2023. +GEM Mandatory Convertible Security +On March 1, 2024, Company entered into a mandatory convertible security purchase agreement (the “MCSPA”) with GEM. Pursuant to the MCSPA, the Company has agreed to issue and sell to GEM, and GEM has agreed to purchase from the Company, a mandatory convertible security with a par amount of up to $ 35,200,000 (the “Mandatory Convertible Security”), which shall be convertible into a maximum of 1,142,857 shares of the Company’s common stock, par value $ 0.0001 per share, subject to adjustment as described in the MCSPA. +The Company issued the Mandatory Convertible Security on August 7, 2024 (the “Closing Date”). The Mandatory Convertible Security will mature on August 7, 2029 (the “Maturity Date”), unless earlier converted or redeemed pursuant to the terms set forth in the Mandatory Convertible Security. As partial consideration for GEM’s purchase of the Mandatory Convertible Security, GEM delivered to the Company 900,000 shares of the Company’s common stock. In addition, the MCSPA restored the number of shares of the Company’s common stock that may be required to be purchased by GEM under the SPA to $ 300.0 million and $ 100.0 million of advances, thus restoring the maximum aggregate shares of the Company’s common stock that may be required to be purchased by GEM to $ 400.0 million The respective formulas that the Company and GEM used to determine the par amount of the Mandatory Convertible Security and the consideration for GEM’s purchase of the Mandatory Convertible Security are each set forth in the MCSPA. +On the Maturity Date, the Company will pay to GEM, at the Company’s option, cash or shares of the Company’s common stock in an amount equal to the then outstanding par amount of the Mandatory Convertible Security divided by the lesser of (a) $ 31.15 (the +97 +“Fixed Conversion Price”) and (b) the average of the five lowest volume-weighted average prices per share for the Company’s common stock trading on the NYSE during the 30 trading days immediately preceding the Maturity Date (the “Floating Conversion Price”). +Prior to the Maturity Date, GEM will have the option to convert any portion of the Mandatory Convertible Security into shares of the Company’s common stock at a conversion rate equal to the portion of the par amount to be converted into shares of the Company’s common stock divided by the lesser of (a) the Fixed Conversion Price and (b) the Floating Conversion Price. If, following the conversion by GEM of any portion of the Mandatory Convertible Security into 1,142,857 shares of the Company’s common stock at any time prior to the Maturity Date, any par amount of the Mandatory Convertible Security remains outstanding, the Company will have the option to (x) increase the maximum number of shares of the Company’s common stock into which the Mandatory Convertible Security may convert, with such increase to be at the Company’s sole discretion, (y) pay to GEM an amount in cash equal to 115 % of the remaining outstanding par amount or (z) increase the remaining outstanding par amount by 15 % of the amount outstanding immediately after issuance of the 1,142,857 shares of the Company’s common stock. GEM may not convert any portion of the Mandatory Convertible Security into shares of the Company’s common stock to the extent that GEM (together with its affiliates and any other parties whose holdings would be aggregated with those of GEM for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended) would beneficially own more than 4.99 % of the shares of the Company’s common stock outstanding after such conversion; provided, however, that GEM may increase or decrease such maximum limitation percentage to not more than 9.99 % upon 61 days’ notice to the Company. +The Company may, at its option, redeem the Mandatory Convertible Security, in whole or in part, in cash at a price equal to 115 % of the outstanding par amount to be redeemed. +Pursuant to the terms of the MCSPA and the Mandatory Convertible Security, GEM has agreed that, beginning March 1, 2024 and for so long as any shares of the Company’s common stock are beneficially owned by GEM (together with its affiliates and any entity managed by GEM, the “GEM Entities”), the GEM Entities will limit the daily volume of sales of shares of the Company’s common stock then beneficially owned by the GEM Entities to no more than 1/10th of the daily trading volume of shares of the Company’s common stock on the NYSE on the trading day immediately preceding the applicable date of such sales. +During the year ended December 31, 2024, GEM converted $ 1.6 million of the par amount of the Mandatory Convertible Security, through the issuance of 1,142,857 shares of the Company’s common stock. Following the conversion of the maximum number of shares allowed under the terms of the Mandatory Convertible Security, the Company informed GEM of its intention to increase the remaining par amount by 15 % of the amount outstanding immediately after issuance of the maximum conversion amount, +A liability of $ 16.4 million associated with the Mandatory Convertible Security was recorded as of the Closing Date. The fair value of the liability was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Company will not be able to satisfy the liability through the issuance of shares of common stock and taking into account the value of the consideration transferred to the Company upon closing of the MCSPA . This was inclusive of the value of the shares returned to the Company and the cancellation of the share transfers due in settlement of the GEM derivative liability (see Note 13. Fair Value Measurements). For the year ended December 31, 2024, the Company recorded a change in fair value of $ 11.7 million related to the Mandatory Convertible Security, resulting in a liability of $ 23.2 million as of December 31, 2024, which was included as part of other long-term liabilities within the Consolidated Balance Sheets. Significant inputs in determining period end fair values of the Mandatory Convertible Security are as follows: +August 7, 2024 +December 31, 2024 +Par amount +35,200 +38,615 +Probability of default +15.8 +% +— +% +Expected volatility +130.6 +% +155.7 +% +Discount rate +3.8 +% +4.3 +% +Share price +$ +1.995 +$ +5.390 +Note 13. Fair Value Measurements +The fair values of the convertible notes, SAFE instruments, preferred stock warrant liabilities, and derivative liability were based on the estimated values of the notes, SAFE instruments, warrants, and derivatives upon conversion including adjustments to the conversion rates, which were probability weighted associated with certain events, such as a sale of the Company or the Company becoming a public company. The estimated fair values of these financial liabilities were determined utilizing the Probability-Weighted Expected Return Method and is considered a Level 3 fair value measurement. +98 +Assets and liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. +The following tables summarize the Company’s financial liabilities that are measured at fair value on a recurring basis in the consolidated financial statements (in thousands) : +Fair Value Measurements at December 31, 2024 Using: +Level 1 +Level 2 +Level 3 +Total +Liabilities: +Convertible notes at fair value +$ +- +$ +- +$ +7,347 +$ +7,347 +SAFE notes at fair value +— +— +13 +13 +LamVen Note +— +— +50,000 +50,000 +Mandatory Convertible Security +— +— +23,221 +23,221 +Total financial liabilities +$ +— +$ +— +$ +80,581 +$ +80,581 +Fair Value Measurements at December 31, 2023 Using: +Level 1 +Level 2 +Level 3 +Total +Liabilities: +Convertible notes at fair value +$ +- +$ +- +$ +7,715 +$ +7,715 +SAFE notes at fair value +— +— +25 +25 +GEM derivative liability +— +— +11,333 +11,333 +Total financial liabilities +$ +— +$ +— +$ +19,073 +$ +19,073 +The following table provides a reconciliation of activity and changes in fair value for the Company’s convertible loans and redeemable convertible preferred stock warrant liability using inputs classified as Level 3 (in thousands) : +Convertible Notes at Fair Value +SAFE Notes +LamVen Note +Mandatory Convertible Security +GEM Derivative Liability +Balance at December 31, 2023 +$ +7,715 +$ +25 +$ +— +$ +— +$ +11,333 +Advances received on share purchase agreement +— +— +— +— +2,500 +Draws on share purchase agreement +— +— +— +— +1,393 +LamVen Note exchange +— +— +50,000 +— +— +Borrowings on convertible notes +34 +— +— +— +— +Settlement in common shares +— +— +— +( 1,621 +) +( 4,326 +) +Change in fair value +( 402 +) +( 12 +) +— +11,713 +433 +Issuance of Mandatory Convertible Security +— +— +— +13,129 +( 11,333 +) +Balance at December 31, 2024 +$ +7,347 +$ +13 +$ +50,000 +$ +23,221 +$ +— +Long-Term Debt +The carrying amounts and fair values of the Company’s long-term debt obligations were as follows: +As of December 31, 2024 +As of December 31, 2023 +Carrying Amount +Fair Value +Carrying Amount +Fair Value +Long-term debt, including current maturities +$ +64,593 +$ +64,707 +$ +25,794 +$ +26,036 +In assessing the fair value of the Company’s long-term debt, including current maturities, the Company primarily uses an estimation of discounted future cash flows of the debt at rates currently applicable to the Company for similar debt instruments of comparable maturities and comparable collateral requirements. +99 +Note 14. Warrants +Preferred Share Warrants +There were no preferred share warrants issued in the year ended December 31, 2024 . Previously issued convertible preferred share warrants totalled 805,823 shares of Class B-2 preferred warrants; 410,123 shares of Class B-3 preferred warrants; and 1,493,015 shares of Class B-4 preferred warrants. On July 21, 2023, as a condition of the Internal Reorganization, all preferred share warrants were converted into 17,276 warrants for the purchase of the Company’s common stock. The exercise price for all warrants is $ 267.61 per share. +Ordinary Share Warrants +Prior to the Internal Reorganization, ordinary share warrants were issued by Surf Air in connection with debt and equity capital raising transactions, as well as part of debt restructuring activities. The warrants were exercisable at any time, or from time to time, in whole or in part at any time on or prior to the expiration date, which was seven to ten years from the issuance date. The warrants terminated on the earlier of the expiration date or change in control upon the effectiveness of the Company’s registration statement or upon the closing of a deemed liquidation event. If there was no change in control, the warrants without a stated expiration date would never expire. On July 21, 2023, Surf Air merged into a subsidiary of the Company as part of an Internal Reorganization. The change in control resulted in all outstanding ordinary share warrants being re-issued into warrants to purchase shares of the Company’s common stock. +During the year ended December 31, 2023, the Company issued a total of 20,487 ordinary warrants due to the conversion of amounts due under the 2017 Convertible Notes (See Note 11, Financing Arrangements). Prior to the Company’s direct listing on the NYSE on July 27, 2023, ordinary warrant holders exercised all then outstanding ordinary share warrants, with exercise prices ranging from $ 1.54 to $ 32.90 per share, on a combination of cash-based and cashless exercises. This resulted in the issuance of 672,509 shares of common stock for total proceeds of $ 128 thousand. +Note 15. Commitments and Contingencies +Software License Agreements +On May 18, 2021, the Company executed two agreements with Palantir Technologies Inc. to license a suite of software for the term of seven years commencing on the effective date. The agreements identify two phases where Palantir provides services to customize the software: an Initial Term from May 18, 2021 through June 30, 2023 with a cost of $ 11.0 million and an Enterprise Term from July 1, 2023 to May 7, 2028 with a cost of $ 39.0 million, for a total cost of $ 50.0 million. As of December 31, 2024 and December 31, 2023, the Company capitalized $ 3.1 million and $ 2.5 million, respectively, related to the software that Palantir has provided to the Company. During the year ended December 31, 2024, the Company settled $ 9.6 million in outstanding payables to Palantir through the issuance of 2,990,386 shares of the Company's common stock. As of December 31, 2024, the Company had $ 27.4 million in remaining commitments under this agreement. +Licensing, Exclusivity and Aircraft Purchase Arrangements +Textron Agreement +On September 15, 2022, the Company entered into agreements with Textron Aviation Inc. and one of its affiliates (collectively, “TAI”), for engineering services and licensing, sales and marketing, and aircraft purchases, which became effective as of the Company’s direct listing on July 27, 2023 (“TAI Effective Date”). +The engineering services and licensing agreement provides, among other things, that TAI will provide the Company with certain services in furtherance of development of an electrified powertrain technology (the “SAM System”). The engineering agreement requires payment by the Company as such services are provided by TAI. Under this agreement, the Company agrees to meet certain development milestones by specified dates, including issuance of a supplemental type certificate by the Federal Aviation Administration (“FAA”). Should the Company fail to meet certain development milestones, TAI has the right to terminate the collaboration agreement. The Company is currently complying with necessary development milestones under this agreement. +The licensing agreement grants the Company a nonexclusive license to certain technical information and intellectual property for the purpose of developing an electrified propulsion system for the Cessna Caravan aircraft, and to assist in obtaining STC from the FAA, including any foreign validation by any other aviation authority, for electrified propulsion upfits/retrofits of the Cessna Caravan aircraft. The licensing agreement provides for payment by the Company of license fees aggregating $ 60.0 million over a multi-year period, with +100 +an initial $ 12.5 million in deposits being made as of December 31, 2023. The $ 12.5 million of deposits were recorded to technology and development expenses within the Company’s consolidated statements of operations during the fourth quarter of 2023. During the year ended December 31, 2024, the Company and TAI agreed to apply a previous deposit under the aircraft purchase agreement to amounts due under the licensing agreement. Remaining payments due under the initial license fees of $ 9.5 million are due in 2025. The remaining $ 35 million of payments under the licensing agreement will be due, via annual payments, following the Company’s receipt of the STC, which the company continues to actively pursue. +Under the sales and marketing agreement, the parties agreed to develop marketing, promotional and sales strategies for the specifically configured Cessna Grand Caravans and further agreed to: (a) include Cessna Grand Caravans fitted with the SAM System (the “SAM Aircraft”) in sales and marketing materials (print and digital) distributed to authorized dealers, (b) prominently display the SAM Aircraft on their respective websites and social media, (c) include representatives of the Company and TAI at trade show booths, (d) market the SAM Aircraft and conversions to SAM Aircraft to all owners of pre-owned Cessna Grand Caravans, and (e) not advertise or offer any third-party-developed electrified variants of the Cessna Grand Caravan. Certain technologies for aircraft propulsion are specifically carved out from TAI’s agreement to exclusively promote the SAM System for Cessna Grand Caravans. The sales and marketing agreement provides for payment by the Company of exclusivity fees aggregating $ 40.0 million, with certain amounts deferred such that the aggregate fee is payable over four years commencing on the earlier of the year after the Company obtains an STC for the SAM System on the Cessna Grand Caravan or the 5 th anniversary of the TAI Effective Date. The Company’s obligation to pay exclusivity fees in any year may be offset, in whole or in part, based on the achievement of certain sales milestones of SAM Aircraft and Cessna Grand Caravans subsequently converted to a SAM System. +Under the aircraft purchase agreement, the Company may purchase from TAI 90 specifically configured Cessna Caravans at prevailing market rates whereby the aggregate purchase price could be approximately $ 297.0 million, with an option to purchase an additional 26 specifically configured Cessna Caravans having an aggregate purchase price in excess of $ 85.8 million, over the course of 7 years . The final price to be paid by the Company will be dependent upon a number of factors, including the final specifications of such aircraft and any price escalations. During the year ended December 31, 2024, the Company and TAI agreed to apply a previous deposit under the aircraft purchase agreement to amounts due under the licensing agreement. As of December 31, 2024, the Company has made deposits of $ 2.0 million under this agreement, with the Company being required to make an additional deposits of $ 8.0 million during 2025. The Company accepted delivery of four aircraft under the aircraft purchase agreement during 2024. +Jetstream Agreement +On October 10, 2022, the Company and Jetstream Aviation Capital, LLC (“Jetstream”) entered into an agreement (the “Jetstream Agreement”) that provides for a sale and/or assignment of purchase rights of aircraft from the Company to Jetstream and the leaseback of such aircraft from Jetstream to the Company within a maximum aggregate purchase amount of $ 450.0 million, including a $ 120.0 million total minimum usage obligation by the Company. The Jetstream Agreement may be terminated: (i) upon a termination notice by either party in the event that a material adverse change in the business of the other party is not resolved within 30 days of such notice; and (ii) as mutually agreed in writing by the parties. No transactions have been executed under this agreement as of December 31, 2024. +Palantir Joint Venture +On August 9, 2024, the Company entered into a joint venture agreement (the “JV Agreement”) with Palantir. Pursuant to the JV Agreement, the Company expects to establish Surf Air Technologies LLC (“Surf Air Technologies”), a subsidiary of the Company, in order to help develop, market, sell, maintain, and support an artificial intelligence-powered software platform for the advanced air mobility industry, which is expected to be powered by Palantir, to provide operators of all types of aircraft, amongst other software products and solutions, with systems for the management of planes, airline operations, and customer facing applications (the “Software Platform”). +The JV Agreement provides that the Company will assign certain agreements regarding subscription access to certain of Palantir’s proprietary commercial software platforms (the “Palantir Platforms”) to Surf Air Technologies. The Company has agreed to contribute the software and intellectual property the Company has developed relating to the Software Platform; the data and know-how from its operations on an ongoing basis to support the development, maintenance, support, and operation of the Software Platform; and the employees and contractors directly involved in developing the Software Platform. Palantir has agreed to contribute a service contract to provide implementation engineering services in support of Surf Air Technologies’ use of the Palantir Platforms, which may include its interface to Software Platform. Surf Air Technologies is also expected to be capitalized by outside third-party investors sourced by the Company and Palantir, with an initial target raise of not less than $ 5 million. +The closing of the JV Agreement is anticipated to occur no later than May 31, 2025 and is subject to certain customary conditions, including the following: establishment of Surf Air Technologies as a Delaware limited liability company, signing of an operating +101 +agreement, contributions by each party to Surf Air Technologies, the securing and funding of outside capital, and receipt of internal approvals by the Company and Palantir. +Under the JV Agreement, the Company is expected to be entitled to designate four of the five members of the board of directors of Surf Air Technologies and Palantir is entitled to designate one board member. The JV Agreement also provides that the Company will be primarily responsible for oversight of Surf Air Technologies and shall designate the Chair of the board of directors, the legal representative, and the General Manager of Surf Air Technologies. +The JV Agreement also provides that the Company and Palantir have certain rights in connection with Surf Air Technologies, including pre-emptive rights if Surf Air Technologies proposes to increase its registered capital, a right of first refusal to purchase equity in Surf Air Technologies that the other party may propose to transfer to a third party, the Company’s right to buy out Palantir’s stake in Surf Air Technologies, Palantir’s right to exchange shares in the Company for equity in Surf Air Technologies, and the right to purchase all of the other party’s equity in the event of bankruptcy of the other party. +Business Combination Agreements +On May 17, 2022, the Company entered into a business combination agreement (the “Merger Agreement”) with Tuscan Holdings Corp II (“Tuscan”). On November 14, 2022, the Company and Tuscan mutually terminated the Merger Agreement. Pursuant to the terms of the mutually terminated Merger Agreement, the Company was obligated to issue to Tuscan 90,714 shares of the Company’s common stock or a combination of 85,714 shares of the Company’s common stock and $ 0.7 million in cash upon a triggering event, which was defined as a direct listing, IPO or a business combination with a special purpose acquisition corporation (“SPAC”). +On July 27, 2023, concurrent with the first day of listing of the Company’s common stock, the Company issued 90,714 shares of common stock to Tuscan in satisfaction of the terms of the mutually terminated Merger Agreement. Based on the $ 35.00 opening price of the Company’s common stock, such shares have resulted in $ 3.2 million of contract termination expense, included as part of other expense in the Company’s Consolidated Statement of Operations for the year ended December 31, 2023. +Guarantees +The Company indemnifies its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential future amount the Company could be required to pay under these indemnification agreements is unlimited. The Company believes its insurance would cover any liability that may arise from the acts of its officers and directors and as of December 31, 2024 the Company is not aware of any pending claims or liabilities. +The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, typically with business partners, contractors, customers, landlords and investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of its activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions sometimes include indemnifications relating to representations the Company has made with regards to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential future amount the Company could be required to pay under these indemnification provisions is unlimited. +Legal Contingencies +In 2017, the Company acquired Rise U.S. Holdings, LLC (“Rise”). Prior to the close of the acquisition, Rise Alpha, LLC and Rise Management, LLC (both of which are wholly-owned subsidiaries of Rise and hereinafter referred to as the “Rise Parties”), were served with a petition for judgment by Menagerie Enterprises, Inc. (“Monarch Air”), relating to breach of contract for failure to pay Monarch Air pursuant to the terms and conditions of a flight services agreement with Monarch Air, which occurred prior to the Company’s acquisition of Rise. The Rise Parties filed numerous counterclaims against Monarch Air, including fraud, breach of contract and breach of fiduciary duty. Rise, a subsidiary of the Company, was named as a party in the lawsuit. During 2018 and 2019, certain summary judgments were granted in favor of Monarch Air. +On November 8, 2021, the Rise Parties entered into a final judgment in respect of litigation to finally resolve all claims raised by Monarch Air and the Rise Parties agreed to pay actual damages of $ 1.0 million, pre-judgment interest of $ 0.2 million, attorneys’ fees of $ 0.06 million and court costs of approximately $ 0.003 million. Since then, Monarch Air has been conducting post-judgment discovery. The full settlement had been accrued within Accrued expenses and other current liabilities on the Consolidated Balance Sheets by the Company as of December 31, 2024 and December 31, 2023. +102 +The Company is also a party to various other claims and matters of litigation incidental to the normal course of its business, none of which were considered to have a potential material impact as of December 31, 2024. However, the resolution of, or increase in any accruals for, one or more matters may have a material adverse effect on the Company’s results of operations and cash flows. +FAA Matters +Our operations are highly regulated by several U.S. government agencies, including the U.S. DOT, the FAA and the Transportation Security Administration. Requirements imposed by these regulators (and others) may restrict the ways we may conduct our business, as well as the operations of our third-party aircraft operator customers. Failure to comply with such requirements may result in fines and other enforcement actions by the regulators. +On February 23, 2024, the FAA notified the Company that it was seeking a proposed civil penalty of $ 0.3 million against the Company for alleged non-compliance with respect to certain regulatory requirements relating to flight officer certifications and required competence checks for flights flown during the fourth quarter of 2022. In December 2024, the Company reached a settlement in the amount of $ 88 thousand for full resolution of this matter. +On October 17, 2023, the Company received a letter of intent from the FAA regarding an investigation into the Company’s Hawaii operations, whereby the Company is alleged to have operated flights beyond their required maintenance intervals during the fourth quarter of 2023. Each violation was subject to a civil penalty not to exceed $ 14,950 per flight. In May 2024, the Company reached a settlement in the amount of $ 16 thousand for full resolution of this matter. +Tax Commitment +On May 15, 2018, the Company received notice of a tax lien filing from the IRS for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $ 1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (“Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company’s total outstanding federal excise tax liability, including accrued penalties and interest, is recorded in Accrued expenses and other current liabilities on the Consolidated Balance Sheets and is in the amount of $ 7.7 million and $ 7.6 million as of December 31, 2024 and December 31, 2023, respectively. In June 2024, the Company submitted a formal offer-in-compromise (“OIC”) to the IRS, seeking to resolve all consolidated excise tax liabilities. Under the terms of the OIC, all collection actions against the Company, in relation to these matters, were abated and the Company made $ 34 thousand monthly payments on historical excise tax liabilities through November 2024. In December 2024, the Company received notice from the IRS that the OIC had been rejected. The Company will continue to explore available options regarding settlement of its federal excise tax liability, including the submission of additional OICs. +During 2018, the Company defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is $ 1.6 million and $ 1.9 million as of December 31, 2024 and December 31, 2023, respectively. +Note 16. Disaggregated Revenue +The disaggregated revenue fo r the years ended December 31, 2024 and 2023 were as follows (in thousands) : +Year Ended December 31, +2024 +2023 +Scheduled +$ +90,735 +$ +39,397 +On-Demand +$ +28,690 +21,108 +Total revenue +$ +119,425 +$ +60,505 +103 +The long-term performance obligations for contractually committed revenues, all of which is related to on-demand revenue, is recorded in Other long-term liabilities as of December 31, 2024 , and December 31, 2023 in the amount of $ 0 and $ 2.7 million, respectively. +Year Ended December 31, +2024 +2023 +Deferred revenue, beginning of period +$ +21,725 +$ +9,568 +Acquired deferred revenue +— +7,329 +Revenue deferred +62,546 +45,712 +Revenue recognized +( 66,878 +) +( 40,884 +) +Deferred revenue, end of period +$ +17,393 +$ +21,725 +Deferred revenue principally represents tickets sold for future travel on the Company’s flights. The balance fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one to two years . Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12-24 months. For 2024, $ 15.5 million of revenue was recognized in passenger revenue that was included in our deferred revenue liability at December 31, 2023. For 2023, $ 7.6 million of revenue was recognized in passenger revenue that was included in our deferred revenue liability at December 31, 2022. +Note 17. Redeemable Convertible Preferred Shares and Convertible Preferred Shares +Redeemable Convertible Preferred Shares +On June 2, 2023, the Company received $ 3.0 million cash from an existing investor in connection with the issuance of 5,665,722 shares of Class B-6a redeemable convertible preferred shares. +In connection with the Internal Reorganization, on July 21, 2023, 234,856,003 redeemable convertible preferred shares were cancelled and re-issued into 1,497,797 shares of the Company's common stock. +Class B-6s Convertible Preferred Shares +On June 15, 2023, the Company converted the LamJam term notes in the amount of $ 5.3 million into 9,932,241 Class B-6s convertible preferred shares (see Note 21, Related Party Balances and Transactions ). +On June 30, 2023, the Company awarded 1,921,778 Class B-6s convertible preferred shares to prior employees and service providers in connection with past services provided. The Company recorded $ 0.9 million of stock-based compensation expense for the issuance of these awards. +In June 2023, the Company settled outstanding debt of $ 0.2 million with 486,402 shares of Class B-6s convertible preferred shares. +In connection with the Internal Reorganization, on July 21, 2023, 83,819,163 Class B-6s convertible preferred shares were cancelled and re-issued into 534,558 shares of the Company's common stock. +There were no redeemable convertible preferred shares authorized, issued, or outstanding as of December 31, 2024 and December 31, 2023. +Note 18. Stock-Based Compensation +2023 Equity Incentive Plan +On July 27, 2023, concurrent with the Company’s direct listing, the Company’s board of directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”). A total of 1,071,429 shares of the Company’s common stock were initially authorized for issuance with respect to awards granted under the 2023 Plan. In addition, the shares authorized for grant will automatically increase on the first trading day in January of each year (commencing with 2024) by an amount equal to the lesser of (1) 5.0 % of the total number of our outstanding shares on the last trading day in December in the prior year, or (2) such number as determined by our board of directors. Any shares subject to awards that are not paid, delivered or exercised before they expire or are canceled or terminated, fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2023 Plan. Shares subject to outstanding awards granted under the 2016 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated will be available for award grants under the 2023 Plan. +Awards under the 2023 Plan may be in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards. +104 +The Company issues shares of common stock upon the vesting and settlement of RSUs and upon the exercises of stock options under the 2023 Plan. The 2023 Plan is administered by the Company’s board of directors, or a duly authorized committee of the Company’s board of directors. +2016 Equity Incentive Plan +Prior to the Company’s direct listing, the Company granted stock options, RSUs, RSPAs, and restricted share grant agreements (“RSGAs”) to its employees, as well as nonemployees (including directors and others who provide substantial services to the Company) under the Company’s 2016 Equity Incentive Plan (the “2016 Plan”). Concurrent with the Internal Reorganization, all rights under previously granted RSPAs and RSGAs were converted into shares of the Company’s common stock, at a ratio of 22.4 RSPA/ RSGA to 1 share of the Company's common stock, with the Company retaining certain rights of repurchase with respect to unvested RSPAs to coincide with grant-date service-conditions. Additionally, based on the original terms of the underlying awards, all RSUs granted under the 2016 Plan fully vested as of July 27, 2023. +No further stock awards will be granted under the 2016 Plan now that the 2023 Plan is effective; however, awards outstanding under the 2016 Plan will continue to be governed by their existing terms. +2023 Employee Stock Purchase Plan +In conjunction with the Company’s direct listing, the Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2023 employee stock purchase plan (the “ESPP”). The Company’s ESPP initially authorizes the issuance of 114,285 shares of the Company’s common stock under purchase rights granted to the Company’s employees or to the employees of any of its designated affiliates. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each year for a period of 10 years, beginning January 1, 2024, by the lesser of (i) 1 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year; and (ii) 114,285 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). +As of December 31, 2024, there had been no offering period or purchase period under the ESPP, and no such period will begin unless and until determined by the administrator, which is the Company’s board of directors or a duly authorized committee of the Company’s board of directors. +Management Incentive Bonus Plan +In conjunction with the Southern Acquisition, the Company adopted the Southern Management Incentive Bonus Plan (the “Incentive Bonus Plan”). The Incentive Bonus Plan provides select employees, consultants and service providers of the Company who were direct or indirect shareholders of Southern an incentive to contribute fully to the Company’s business achievement goals and success. The Incentive Bonus Plan provides for two tranches of bonus pools to be allocated, based on participation units, which vest, contingent upon each employee’s continued employment by the Company and the achievement of certain revenue targets. Payments of awards which might become due under the Incentive Bonus Plan may be made in cash or common stock, at the Company’s option. Any shares of common stock issued in payment of amounts due under the Incentive Bonus Plan will be charged against the share limit of the Company’s 2023 Plan. In addition, any shares which might be issued under the Incentive Bonus Plan are excluded from the Company’s common stock issued and outstanding until the satisfaction of these vesting conditions and are not considered a participating security for purposes of calculating net loss per share attributable to common stockholders. +During the year ended December 31, 2024, the Company offered the holders of the participation units underlying the Incentive Bonus Plan restricted stock units in exchange for the termination of all existing and future rights under the Incentive Bonus Plan. The offer is for a total pool of 571,429 restricted stock units in exchange for liabilities existing under the Incentive Bonus Plan. During the year ended December 31, 2024, the Company settled approximately 54 % of the participation units under the Incentive Bonus Plan through the issuance of 317,663 restricted stock units, of which 158,834 were fully vested at grant and the remainder will vest twelve months from the grant date. Additionally, o n December 6, 2024, the Company's board of directors, acting as “Administrator” under the Incentive Bonus Plan, determined that certain targets under the Incentive Bonus Plan were not met, and no payment is due under the terms of the plan. These actions resulted in a $ 32.3 million reversal of previously accrued stock-based compensation expense, which is included in general and administrative expenses in the Consolidated Statements of Operations. +The Company has recorded a net reduction of $ 16.6 million in stock based compensation expense related to the Incentive Bonus Plan during the year ended December 31, 2024. As of December 31, 2024, a total of $ 0 has been accrued under the Incentive Bonus Plan. +Stock Options +105 +A summary of stock option activity for the year ended December 31, 2024 is set forth below: +Number +of Stock Options +Outstanding +Weighted Average Contractual Term (in years) +Aggregate Intrinsic Value (in thousands) +Weighted +Average +Exercise Price Per Share +Outstanding at December 31, 2023 +229,451 +8.04 +$ +687 +$ +28.81 +Granted +2,467,536 +9.43 +1,200 +5.87 +Exercised +( 5,379 +) +— +— +3.68 +Canceled +( 2,477 +) +— +— +34.16 +Outstanding at December 31, 2024 +2,689,131 +9.21 +1,353 +7.80 +Exercisable at December 31, 2024 +871,317 +7.56 +441 +8.16 +During the year ended December 31, 2024, the Company granted 2,467,536 stock options for purchase of the Company’s common stock to employees, of which 25 % vested on the grant date and 25 % will vest upon each anniversary over the ensuing three-year period. +As of December 31, 2024, unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximatel y $ 2.3 million with a weighted-average remaining vesting period of approxima tely 2.15 years. +The following table provides supplemental data on stock options for the years ended December 31, 2024 and 2023 ( in $ thousands, except for weighted average figures ): +For The Year Ended December 31, +2024 +2023 +Weighted average grant date fair value per option granted +$ +1 +$ +8 +Fair value of options vested +$ +3,815 +$ +2,907 +Cash from participants to exercise stock options +$ +20 +$ +191 +Intrinsic value of options exercised +$ +5 +$ +41 +The assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2024 and 2023 were as follows: +For The Year Ended December 31, +2024 +2023 +Risk-free interest rate +3.97 - 4.25 % +3.55 %- 3.74 % +Expected term (in years) +3.5 - 5.8 +5.80 +Dividend yield +— +— +Expected volatility +55.69 % - 59.07 % +61 %- 155 % +Warrants +During the year ended December 31, 2024, the Company issued 5,461,502 warrants for purchase of the Company’s common stock to non-employee consultants, of which most awards were granted fully vested in partial satisfaction of the term notes with LamVen (see Note 21, Related Party Balances and Transactions ). Remaining awards will vest 25 % on the grant date and 25 % upon each anniversary over the ensuing three-year period or only upon the achievement of certain market-based metrics. +A summary of warrant activity for the year ended December 31, 2024 is set forth below: +106 +Number of Warrants Outstanding +Weighted Average Contractual Term (in years) +Aggregate Intrinsic Value (in thousands) +Weighted +Average +Exercise Price Per Share +Outstanding at December 31, 2023 +— +— +$ +— +$ +— +Granted +5,461,502 +9.73 +12,296 +2.87 +Exercised +— +— +— +— +Canceled +( 911,544 +) +— +— +6.17 +Outstanding at December 31, 2024 +4,549,958 +9.73 +12,296 +2.87 +Exercisable at December 31, 2024 +3,497,343 +9.73 +12,296 +1.92 +As of December 31, 2024, unrecognized compensation expense related to the unvested portion of the Company’s common stock warrants was approximately $ 0.6 million which is expected to be recognized over the weighted-average remaining vesting period of approximately 2.25 years. +The assumptions used to estimate the fair value of warrants granted during the year ended December 31, 2024 and 2023 and were as follows: +For The Year Ended December 31, +2024 +2023 +Risk-free interest rate +3.52 % - 4.43 % +— +Expected term (in years) +5.0 - 10.0 +— +Dividend yield +— +— +Expected volatility +47 % - 147 % +— +Restricted Stock Units +During the year ended December 31, 2023, the Company issued 31,489 shares of common stock for total compensation expense of $ 0.8 million as a result of the vesting of RSUs then outstanding at the time of the Company’s direct listing. +During the year ended December 31, 2024 , the Company issued 636,765 RSUs under the 2023 Plan to employees and non-employee directors, which vest upon the satisfaction of certain service periods. The fair value of these RSUs was determined based on the Company’s stock price the business day immediately preceding the grant date. The service period of these RSUs is satisfied over a range of 12 months to 2 years. +A summary of RSU activity for the year ended December 31, 2024 is set forth below: +Number of RSUs +Weighted +Average +Grant Date Fair Value per RSU +Unvested RSUs at December 31, 2023 +110,438 +$ +20.58 +Granted +636,765 +3.53 +Vested/shares issued +( 430,540 +) +7.10 +Forfeited, cancelled, or expired +— +— +Unvested RSUs at December 31, 2024 +316,663 +$ +4.52 +107 +Restricted Share Purchase Agreement +A summary of RSPA activity for the year ended December 31, 2024 is set forth below: +Number +of RSPA +Weighted +Average +Grant Date Fair Value per RSPA +Unvested RSPAs at December 31, 2023 +60,377 +$ +29.05 +Granted +— +— +Vested +( 23,470 +) +29.29 +Forfeited +— +— +Unvested RSPAs at December 31, 2024 +36,907 +29.13 +Prior to the year ended December 31, 2023, the Company issued RSPAs for cash while others were issued for promissory notes. The executed promissory note creates an option for the RSPA holder, since they will repay the loan when the fair value of the common stock is greater than the amount of the note. The promissory note contains prepayment features and therefore can be repaid at any time. The maturity date of the RSPAs is five years from the grant date. The grant date fair value is based on the terms of the promissory note, since the promissory notes creates the option value. The related expense is recorded over the service vesting terms of the RSPA. +On May 26, 2023, the Company approved the forgiveness of certain promissory notes associated with the issuance of RSPAs to executives and directors. The Company also provided cash bonuses to pay for interest and tax associated with the issuance of these shares in the amount of $ 0.1 million. The forgiveness of these promissory notes resulted in an immaterial additional stock-based compensation expense for the year ended December 31, 2023. +During 2020, an executive received an award of RSPAs for a promissory note which included three tranches. The first tranche was to vest based on service conditions only, and vest ratably over each continuous month of service. The second tranche became subject to service vesting after a performance condition were met. Subject to the performance vesting conditions, the awards were to vest ratably for each continuous month of service. The third tranche was to vest immediately upon satisfaction of performance conditions and market conditions such as the Company achieving a certain valuation prior to an IPO. For these awards, the repurchase option terminated upon vesting (either immediately or over a service vesting term). +Prior to the Company’s direct listing, the Company’s board of directors determined that the remaining vesting requirements applicable to previously granted executive RSPA awards had been satisfied in connection with the Company’s direct listing. This resulted in the recognition of $ 21.8 million in previously unrecognized stock-based compensation expense during the year ended December 31, 2023. +As of December 31, 2024, the unrecognized compensation expense related to the unvested portion of the Company’s RSPAs was $ 1.1 million, which i s expected to be recognized over a weighted average perio d of 1.4 years. +Performance-Based Restricted Stock Units +In July 2023, the Company granted a total of 400,000 performance-based restricted stock units (“PRSUs”) to the Company’s founders (“Founder PRSUs”) under the 2023 Plan. +The Founder PRSUs will vest only if (i) the per-share closing price of the Company’s common stock over a period of 10 consecutive trading days within five years from the date of the Company’s direct listing is greater than $ 70 per share and (ii) each founder’s service to the Company, either through being an employee or non-employee consultant to the Company, or one of its subsidiaries, continues through the date such stock price goal is achieved, subject to certain conditions. +In October 2023, the Company granted 28,571 PRSUs as part of a hiring grant to an executive under the 2023 Plan. These PRSUs will vest upon the satisfaction of a service condition and the achievement of certain stock price goals. These PRSUs will vest based on the average daily closing price of the Company’s common stock on a rolling fifteen trading day basis (the “Average Closing Price”): (i) 7,143 RSUs will vest when the Average Closing Price equals or exceeds $ 35 per share, (ii) 10,714 RSUs will vest when the Average Closing Price equals or exceeds $ 70 per share, and (iii) 10,714 RSUs will vest when the Average Closing Price equals or exceeds $ 105 per share. +The Company estimated the grant date fair value of the PRSUs based on multiple stock price paths developed through the use of a Monte Carlo simulation model. A Monte Carlo simulation model also calculates a derived service period based on the expected time +108 +to achieve the defined stock price target, as described above. A Monte Carlo simulation model requires the use of various assumptions, including the underlying stock price, volatility, expiration term, and the risk-free interest rate as of the valuation date, corresponding to the length of time remaining in the performance period, and expected dividend yield. The derived service period calculation also requires the cost of equity assumption to be used in the Monte Carlo simulation model. Term and volatility are typically the primary drivers of this valuation. +For Founder PRSUs, an expiration term of 5 years (as defined in the grant agreements) was utilized. A volatility of 71.0 percent was determined, based on an established peer group over the maximum term to expiration. The weighted-average grant date fair value of the Founders PRSUs was $ 15.82 per share. The Company will recognize total stock-based compensation expense of $ 6.3 million over the derived service period of 2.1 years as the founders satisfy the service-based vesting condition. +For the PRSUs granted in October 2023, an expiration term of 5 years (as defined in the grant agreements) was utilized. A volatility of 71.0 percent was determined, based on an established peer group over the maximum term to expiration. The weighted-average grant date fair value of the PRSUs was $ 5.67 per share for the 7,143 RSUs vesting upon an Average Closing Price equaling or exceeding $ 35 per share, $ 3.85 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $ 70 per share, and $ 2.73 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $ 105 per share. The Company will recognize total stock-based compensation expense of $ 0.1 million over the derived service period of 2.6 to 3.6 years as the employee satisfies the service-based vesting condition. +A summary of PRSU activity for the year ended December 31, 2024 is set forth below: +Number +of PRSUs +Weighted +Average +Grant Date Fair Value per PRSU +PRSUs at December 31, 2023 +428,571 +$ +14.74 +Granted +— +— +Shares issued +— +— +Forfeited, cancelled, or expired +— +— +PRSUs at December 31, 2024 +428,571 +$ +14.74 +The following table represents the various price targets included in the PRSU awards and the number of PRSUs that will vest upon achievement of such price targets: +Company Price Target +Number of PRSUs Eligible to Vest +$ +35.00 +7,143 +70.00 +410,714 +105.00 +10,714 +A summary of stock-based compensation expense recognized for the years ended December 31, 2024 and December 31, 2023 is as follows (in thousands) : +For The Year Ended December 31, +2024 +2023 +Stock Options +$ +3,815 +$ +2,907 +RSUs +2,703 +3,230 +RSPAs +687 +23,287 +PRSUs +3,083 +1,306 +Warrants +403 +— +Management Incentive Bonus Plan +( 16,667 +) +16,667 +Other +— +855 +Total Stock Based Compensation +$ +( 5,976 +) +$ +48,252 +109 +Note 19. Segments +The Company and its chief operating decision maker (“CODM”), which is the Company’s chief executive officer , organize and manage the Company on a consolidated basis, and, accordingly, the Company operates as a single operating and reportable segment, namely its Air Mobility segment. +The Air Mobility segment derives revenues from two categories of services: +Scheduled Air Service - revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, and through subsidized EAS revenue awards from the Department of Transportation. +On-Demand - revenue from on-demand flights created for customers on an ad-hoc, by request basis. +The accounting policies of the Air Mobility segment are the same as those described in the summary of significant accounting policies. The CODM assesses performance for the Air Mobility segment and decides how to allocate resources based on net loss as reported on the Consolidated Statements of Operations. The measure of segment assets is reported on the balance sheet as total consolidated assets. +In addition to consolidated financial metrics used in assessing the Air Mobility segment, the CODM also regularly reviews additional significant expense categories, which comprise cost of revenue, exclusive of depreciation and amortization within the Company’s Consolidated Statements of Operations. Such cost categories are determined to be those most relevant in providing flight services, and are aligned with cost designations measured by other carriers. All other financial statement metrics are reviewed and/or considered on a consolidated basis: +Year Ended December 31, +2024 +2023 +Revenue +$ +119,425 +$ +60,505 +Operating Expenses: +Aircraft expenses +$ +76,164 +$ +45,657 +Pilot expenses +18,390 +7,532 +Other (1) +15,380 +8,729 +Cost of revenue, exclusive of depreciation and amortization +109,934 +61,918 +Technology and development +24,041 +20,850 +Sales and marketing +7,514 +10,028 +General and administrative +29,851 +100,669 +Depreciation and amortization +8,341 +3,762 +Impairment of goodwill +- +60,045 +Total operating expenses +179,681 +257,272 +Operating loss +$ +( 60,256 +) +$ +( 196,767 +) +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +$ +( 11,732 +) +$ +( 50,230 +) +Interest expense +( 8,617 +) +( 2,969 +) +Gain (loss) on extinguishment of debt +5,398 +( 326 +) +Other income (expense) +12 +( 3,708 +) +Total other income (expense), net +$ +( 14,939 +) +$ +( 57,233 +) +Loss before income taxes +( 75,195 +) +( 254,000 +) +Income tax benefit +287 +3,304 +Net loss +$ +( 74,908 +) +$ +( 250,696 +) +(1) - Other costs of revenue are comprised of personnel costs related to customer service operations, station expenses, reservation systems and passenger re-accommodation/ re-booking on other carriers. +The CODM uses net loss to evaluate income (loss) generated from segment assets (return on assets) in deciding how to allocate resources. Consolidated net loss is used to monitor budget versus actual results. The monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation. +110 +The Company does not have intra-entity sales or transfers. All of the Company’s long-lived assets are located in the United States and revenue is substantially earned from flights throughout the United States. +Note 20. Income Taxes +Income from continuing operations before provision for income taxes for the Company's domestic and international operations was as follows ( in thousands ): +December 31, +2024 +2023 +Domestic +$ +( 72,132 +) +$ +( 216,682 +) +International +( 3,063 +) +( 37,318 +) +Loss before provision for income taxes +$ +( 75,195 +) +$ +( 254,000 +) +Significant components of the provision for income taxes consist of the following (in thousands) : +Year Ended December 31, +2024 +2023 +Current: +Federal +$ +— +$ +— +State +8 +17 +Total +8 +17 +Deferred: +Federal +( 235 +) +( 2,622 +) +State +( 60 +) +( 699 +) +Total +( 295 +) +( 3,321 +) +Total tax expense (benefit) +$ +( 287 +) +$ +( 3,304 +) +Income taxes in our consolidated financial statements have been calculated on a consolidated tax return basis. The following table presents the principal reasons for the difference between the effective tax rate and the federal statutory income tax rate ( in thousands ): +Year Ended December 31, +2024 +2023 +Pretax loss +$ +( 15,791 +) +21.00 +% +$ +( 53,340 +) +21.00 +% +State tax benefit +( 2,910 +) +3.87 +% +( 2,132 +) +0.84 +% +Foreign rate differential +— +— +% +6,962 +( 2.74 +)% +Goodwill impairment +— +— +% +12,395 +( 4.88 +)% +Transaction costs +— +— +% +3,712 +( 1.46 +)% +Share based compensation +592 +( 0.79 +)% +5,373 +( 2.12 +)% +Change in fair value of financial instruments +2,464 +( 3.28 +)% +4,153 +( 1.63 +)% +Permanent difference +1,422 +( 1.89 +)% +4,128 +( 1.63 +)% +Uncertain tax positions +1,453 +( 1.93 +)% +31,855 +( 12.54 +)% +Change in valuation allowance +12,483 +( 16.60 +)% +( 16,410 +) +6.46 +% +Effective income tax rate +$ +( 287 +) +0.38 +% +$ +( 3,304 +) +1.30 +% +111 +Significant components of deferred tax assets and liabilities are as follows ( in thousands ): +As of December 31, +2024 +2023 +Accrued expenses and reserves +2,082 +2,642 +Stock compensation +1,316 +3,518 +Interest expense carryforward +3,229 +1,565 +Net operating loss carryforward +54,169 +44,860 +Capitalized research costs +5,102 +2,946 +Lease liabilities - operating leases +4,164 +2,551 +Deferred revenues +1,444 +— +Other +156 +— +Deferred Tax Assets, Gross +71,662 +58,082 +Valuation Allowance +( 57,548 +) +( 45,065 +) +Deferred Tax Assets, Net of Valuation Allowance +14,114 +13,017 +Depreciation and amortization differences +( 10,302 +) +( 10,473 +) +ROU assets - operating leases +( 4,532 +) +( 3,404 +) +Prepaid expenses +( 321 +) +( 369 +) +Other +— +( 106 +) +Total Deferred Tax Liabilities +( 15,155 +) +( 14,352 +) +Total Deferred Tax Assets (Liabilities), net +$ +( 1,041 +) +$ +( 1,335 +) +As of December 31, 2024, the Company has approximately $ 327.5 million of gross federal net operating loss (“NOL”) carryforwards, of which $ 90.5 million will begin to expire in 2030. The federal NOLs generated after 2017 can be carried forward indefinitely and be used to offset up to 80 % of future taxable income. Additionally, as of December 31, 2024, the Company has approximately $ 306.6 million of gross state NOL carryforwards, which will begin to expire in 2027. The described carryforwards are included in the Company's calculation of its deferred tax asset; however, realization of the deferred tax asset is dependent on the Company generating sufficient taxable income prior to expiration of the NOL carryforwards. Also, utilization of the operating losses and tax credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 under Section 382 and similar state provisions. As of December 31, 2024 and 2023, the Company recorded a valuation allowance of approximately $ 57.5 million and $ 45.1 million, respectively, on the net deferred tax assets, as management does not believe it is more likely than not that the tax assets will ultimately be realized. The valuation allowance increased by $ 12.5 million during the year primarily due to the increase in the Company’s net operating losses during the period. +Section 382 of the Internal Revenue Code, or Section 382, imposes limitations on a corporation's ability to utilize its NOL carryforwards, if it experiences an “ownership change” as defined. In general terms, an ownership change may result from transactions increasing the ownership percentage of certain stockholders in the stock of the corporation by more than 50 % over a three-year period. In the event of an ownership change, utilization of the NOL carryforwards would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate. We have not completed a Section 382 study at this time; however, should a study be completed, certain NOL carryforwards may be subject to such limitations. Any future annual limitation may result in the expiration of NOL carryforwards before utilization. +As a result of the Southern Acquisition in 2023, the Company recorded $ 4.7 million in acquired net deferred tax liabilities, primarily related to the excess of book basis over tax basis of the acquired intangible assets. In recording the deferred tax liability , the Company recorded a partial release of the valuation allowance on the Company's net deferred tax assets resulting in a deferred tax benefit for federal and state income taxes of $ 2.6 million and $ 0.7 million, respectively, for the year ended December 31, 2023. +ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Furthermore, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of ASC 740-10 and in subsequent periods. +The following is a tabular reconciliation of the total amount of the Company's unrecognized tax benefits for the year ( in thousands ): +112 +2024 +2023 +Unrecognized tax benefits at January 1, +$ +37,146 +$ +— +Additions for tax positions of prior years +1,833 +36,857 +Acquired tax positions +— +289 +Unrecognized tax benefits at December 31, +$ +38,979 +$ +37,146 +As of December 31, 2024 and December 31, 2023, the Company had $ 39.0 million and $ 37.1 million of unrecognized tax benefits, respectively, none of which would result in a reduction of the Company's effective tax rate, if recognized, due to the valuation recorded within the U.S. federal and state jurisdictions. Furthermore, in the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits could change due to the resolution of certain tax matters related to the substantiation of federal and state NOL's. We do not expect these resolutions to have a material change to our unrecognized tax benefits over the next twelve months. We had no accrued interest or penalties related to uncertain tax positions as of December 31, 2024 and 2023. +The Company is subject to income tax examinations by the U.S. federal and state tax authorities. There are no ongoing income tax examinations as of December 31, 2024. Tax years 2011 and forward remain open to audit for U.S. federal and state income tax purposes. +Note 21. Related Party Balances and Transactions +Convertible Notes at Fair Value +On July 21, 2023, in connection with the Internal Reorganization, the 2017 Convertible Note was converted per the conditional conversion agreement dated June 27, 2023. The outstanding principal and interest converted into 28,332,454 convertible preferred shares, which were simultaneously cancelled and converted into 180,690 shares of the Company's common stock. (see Note 11, Financing Arrangements ). +SAFE Notes at Fair Value +On July 21, 2023, in connection with the Internal Reorganization, the SAFE notes issued to LamVen and Park Lane, entities affiliated with a co-founder of the Company, with aggregate principal amount of $ 15.0 million were converted per the conditional conversion agreement dated June 27, 2023 i nto 103,385,325 convertible preferred shares, which were simultaneously cancelled and converted into 659,340 shares of the Company's common stock. (see Note 11, Financing Arrangements ). +On June 15, 2023, the Company issued a SAFE note to LamJam, an entity affiliated with a co-founder of the company, with aggregate principal amount of $ 6.9 million. On July 21, 2023, in connection with the Internal Reorganization, the SAFE was converted per the conditional conversion agreement dated June 27, 2023 int o 47,770,712 convertible preferred shares, which were simultaneously cancelled and converted into 304,658 shares of the Company's common stock. (see Note 11, Financing Arrangements ). +Term Notes +The Company entered into term note agreements with LamVen, a related party, with aggregate principal amounts of $ 4.5 million and $ 1.0 million, an effective date of November 30, 2022 and January 18, 2023, respectively, and bearing an interest rate of 8.25 % per annum. Both term notes were exchanged for cash and scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest for the notes are payable in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024 . On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024 , with an effective date of January 15, 2024. On April 28, 2024, the term notes were further amended to extend the maturity date to May 15, 2024 , with an effective date of April 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024 , with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +On May 22, 2023, the Company entered into an additional term note agreement in exchange for $ 4.6 million in cash from LamVen. The note was scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0 % per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024 . On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024 , with an effective date of January 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024 , with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +113 +On June 15, 2023, the Company entered into a $ 5.0 million note agreement with LamVen. The note was scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0 % per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the note was amended to extend the maturity date to January 15, 2024 and to increase the principal amount of the note to $ 10.0 million. The Company received $ 8.5 million in cash as of December 31, 2023, with the remaining $ 1.5 million under the note received in 2024. On January 26, 2024, the note was further amended to extend the maturity date to February 9, 2024 and the principal amount increased to $ 15.0 million, effective as of January 15, 2024. On April 28, 2024, the note was further amended to extend the maturity date to May 15, 2024 and the principal amount increased to $ 25.0 million, effective as of April 15, 2024. The Company received $ 38.2 million as of September 30, 2024. In October 2024, the Company received an additional $ 4.9 million under this note agreement, for an aggregate total of $ 43.1 million cash received under the note since inception. In November 2024, the note was exchanged for a new secured convertible promissory note with LamVen. +On June 15, 2023, the LamVen term note dated April 1, 2023 for $ 3.5 million, including principal and interest, was converted, via a payoff letter, into the LamJam SAFE note (see Note 11, Financing Arrangements ). +On June 15, 2023, the term notes with LamJam, an entity affiliated with a co-founder of the Company, in the amount of $ 5.3 million principal and interest were converted into 9,932,241 Class B-6s convertible preferred shares. The resulting shares were further converted into shares of the Company’s common stock as part of the direct listing on July 27, 2023. +LamVen Note +On November 14, 2024, the Company entered into a secured convertible promissory note (the “LamVen Note”) in aggregate principal amount of $ 50.0 million to LamVen, to refinance certain existing notes. +The LamVen Note will accrue interest at the greater of (x) SOFR (subject to a 1.00 % floor) plus 5.00 % and (y) 9.75 %. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings and the net cash proceeds from certain asset sales are required to be applied to repay the obligations under the LamVen Note. The scheduled maturity of the LamVen Note is December 31, 2028, which may be accelerated upon the occurrence of certain events of default. +At the election of LamVen from time to time, on one or more occasions, the outstanding principal amount of the LamVen Note (or any portion thereof), together with all accrued but unpaid interest thereon, can be converted into a number of shares of common stock, using a conversion price per share equal to the Minimum Price, as defined in New York Stock Exchange Listed Company Manual Section 312.04(h) (the “Minimum Price”); provided, however, that LamVen shall not be able to convert the LamVen Note if so doing would increase LamVen’s beneficial ownership interest in the Company to 10% or more of the Company’s then outstanding common stock. +In addition, on November 14, 2024, outstanding principal and interest of existing LamVen notes of $ 7,473,131 was exchanged for (i) 750,000 shares of common stock of the Company issued to LamVen at $ 1.83 per share, which represents the official closing price of the Company’s common stock on the New York Stock Exchange on the date immediately preceding November 14, 2024, and (ii) 3,389,398 warrants to purchase common stock of the Company issued to LamVen with a strike price of $ 1.83 per share. +The obligations under the LamVen Note are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +The conversion feature embedded in the LamVen Note failed to satisfy the requirements for the derivative scope exception for contracts indexed in the Company’s own stock. The conversion feature of the LamVen Note required bifurcation from the host contract. The embedded derivative was initially measured at fair value of $ 6.8 million, with a corresponding debt discount of $ 6.8 million being recorded as the excess of the principal amount of LamVen Note over the fair value of the host contract. The debt discount will be amortized to interest expense using the effective interest rate over the term of the LamVen Note. +Park Lane Reimbursement Agreement +On November 14, 2024, in connection with the letter of credit backstopping the Credit Agreement, the Company entered into a Reimbursement Agreement with Park Lane (the “Reimbursement Agreement”), such that if the letter of credit is drawn upon, the Company will be required to reimburse Park Lane for the drawn amount of the letter of credit and pay interest to Park Lane at 15.00 % per annum on such drawn amounts (subject to increase in the event of default). The Company is separately obligated to pay a fee of 1.00 % per annum to Park Lane on the outstanding face amount of the backstop letter of credit. In the event the Company raises capital +114 +in certain equity offerings, a portion of the net cash proceeds from such equity offerings is required to be remitted to Park Lane to be held in trust in accordance with the Reimbursement Agreement. +The obligations under the Reimbursement Agreement are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. The Reimbursement Agreement contains certain representations and warranties, covenants and events of default. +In connection with the Reimbursement Agreement, Park Lane will have the right to appoint a board observer with respect to the Company. +Other Transactions +As of December 31, 2024 , the Company continues to lease four aircraft from Park Lane, for a monthly lease payment of $ 0.025 million per aircraft. The lease for the four planes was extended on a month to month basis as of January 31, 2025. +JA Flight Services and BAJ Flight Services +As of December 31, 2024 , the Company leased a total of three aircraft from JA Flight Services (“JAFS”) and one aircraft from BAJ Flight Services (“BAJFS”) under short-term operating leases. JAFS is 50 % owned by Bruce A. Jacobs (“BAJ”), an employee and shareholder of the Company, and BAJFS is 100 % owned by BAJ. +The Company recorded approximately $ 1,306 thousand in combined lease and engine reserve expense attributable to JAFS and BAJFS during year ended December 31, 2024 . Accounts payable of $ 74 thousand owed to JAFS and BAJFS as of December 31, 2024, is included in Due to Related Parties, current on the Consolidated Balance Sheet. +Schuman Aviation +As of December 31, 2024 , the Company leased six aircraft from Schuman Aviation Ltd. (“Schuman”), an entity which is owned by an employee and shareholder of the Company. All leases consist of 60 -month terms, fixed monthly lease payments and are all eligible for extension at the end of the lease term. All the leases are also subject to monthly engine, propeller and other reserve payment requirements, based on actual flight activity incurred on the subject aircraft engine. +The Company recorded approximately $ 1,719 thousand in combined lease and engine reserve expense attributable to Schuman for the year ended December 31, 2024. As of December 31, 2024 , the Company owed approximately $ 214 thousand to Schuman, which is included in Due to Related Parties, current on the Consolidated Balance Sheet. +Additionally, the Company has an existing agreement with Schuman, whereby Schuman agreed not to fly any of its Makani Kai airline routes servicing the Hawaiian Island commuter airspace for a period of 10 years. Remaining amounts due under this agreement represent the final two annual installment payments, of $ 100 thousand each, which will be paid over the next two years. +Advisory Services Agreement with Proxima Centauri, LLC +Proxima Centauri, LLC, an entity wholly-owned by David Anderman, a director of the Company, provides advisory services to the Company for a monthly fee of $ 20,000 per month pursuant to an Advisory Services Agreement entered into on December 16, 2024. As additional compensation, the Company issued a warrant to Proxima Centauri to purchase up to 142,857 shares of Common Stock. +115 +Note 22. Supplemental Cash Flows +Supplemental Cash Flows for the year ended December 31, 2024 and 2023 (in thousands): +Year Ended December 31, +2024 +2023 +Supplemental cash flow information +Cash paid for interest +$ +3,410 +$ +577 +Supplemental schedule of non-cash investing and financing activities: +Issuance of SAFE notes +$ +— +$ +4,354 +Conversion of convertible notes to Class B-6a redeemable convertible preferred shares +$ +— +$ +543 +Conversion of convertible notes to Class B-5 redeemable convertible preferred shares +$ +— +$ +3,253 +Conversion of convertible notes to Class B-6s redeemable convertible preferred shares +$ +— +$ +10,494 +Conversion of redeemable convertible preferred shares to common shares +$ +— +$ +137,463 +Issuance of Class B-6s convertible preferred shares in exchange for outstanding payables +$ +— +$ +202 +Conversion of SAFE notes to common shares +$ +— +$ +63,509 +Conversion of promissory notes to Class B-6s convertible preferred shares +$ +— +$ +5,260 +Common stock issued under Share Purchase Agreement +$ +— +$ +13,020 +Common stock issued for the acquisition of Southern +$ +— +$ +81,250 +Common stock issued as settlement of advisor accrual +$ +— +$ +75 +Common stock issued under Software License Agreement +$ +9,574 +$ +2,000 +Reclassification of aircraft deposits to data license fees +$ +3,000 +$ +— +Shares received as consideration for Mandatory Convertible Security +$ +1,796 +$ +— +Conversion of Mandatory Convertible Security to common shares +$ +1,621 +$ +— +Conversion of LamVen Term Notes +$ +7,473 +$ +— +Capitalized Interest on Convertible Notes +$ +34 +$ +— +Right-of-use assets obtained in exchange for new operating lease liabilities +$ +10,144 +$ +1,656 +Right-of-use assets obtained in exchange for new finance lease liabilities +$ +95 +$ +1,143 +Purchases of property and equipment included in accounts payable +$ +326 +$ +382 +Prepaid expense and other current assets accrued in other current liabilities +$ +— +$ +1,989 +Note 23. Net Loss per Share Applicable to Common Shareholders, Basic and Diluted +The Company calculates basic and diluted net loss per share attributable to common shareholders using the two-class method required for companies with participating securities. The Company considers preferred stock to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common shares. As outlined in “Internal Reorganization” and “Reverse Stock Split” in Note 1, Description of Business, the effects of conversions at a ratio of 22.4 Surf Air shares to 1 share of the Company’s common stock, and the subsequent seven-for-one reverse stock split for all shares of the Company’s common stock then issued and outstanding, have been applied to outstanding shares of common stock and rights to receive shares of common stock for all periods presented in calculating earnings per share and for presentation within the Statement of Changes in Redeemable Convertible Preferred Shares and Shareholders’ Equity/ (Deficit). +The following table sets forth the computation of net loss per share applicable to common shareholders (in thousands, except share data) : +Year Ended December 31, +2024 +2023 +Net loss +$ +( 74,908 +) +$ +( 250,696 +) +Weighted-average number of common shares used in net loss per share applicable to common shareholders, basic and diluted +12,910,341 +5,638,128 +Net loss per share applicable to common shareholders, basic and diluted +$ +( 5.80 +) +$ +( 44.46 +) +116 +The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2024 +2023 +Excluded securities: +Options to purchase common shares +2,689,131 +229,451 +Warrants to purchase common shares +4,549,958 +— +Restricted stock units +745,234 +539,009 +Unvested RSPAs +36,907 +60,377 +Convertible notes (as converted to common shares) +9,802,974 +190,476 +Mandatory Convertible Security +9,887,756 +— +Total common shares equivalents +27,711,960 +1,019,313 +117 +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES +None. +ITEM 9A. CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. It should be noted that, because of inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met. +As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2024 due to material weaknesses in our internal control over financial reporting described below. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and the dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with appropriate authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on its financial statements. +Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 based on the criteria described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of December 31, 2024 due to the material weaknesses described below. +As of December 31, 2024, material weaknesses existed in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows: +• +We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient complement of resources resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. +• +We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting. +These material weaknesses contributed to the following additional material weaknesses: +• +We did not design and maintain effective controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP of such transactions. Specifically, we did +118 +not design and maintain effective controls to timely identify and account for capitalizable costs, revenue, stock-based compensation, and debt and equity financing transactions. +• +We did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, we did not design and maintain effective controls over the preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties. +• +We did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that program and data changes are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored; and (iv) program development controls to ensure that new software development is tested, authorized and implemented appropriately. +• +We did not design and maintain effective controls to achieve complete, accurate and timely accounting for debt, deferred liabilities, leases, property and equipment, redeemable convertible preferred shares, accounts payable, and accrued liabilities. +These material weaknesses resulted in audit adjustments to substantially all of our accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021 and 2020 and for the years then ended, and as of June 30, 2022 and 2021 and for the six-month periods then ended. Subsequently, these material weaknesses also resulted in misstatements to revenue, deferred revenue, accrued expenses, additional paid-in capital and stock-based compensation expense to the consolidated financial statements as of December 31, 2022 and 2023 and for the years then ended. These material weaknesses also resulted in misstatements to prepaid expenses and other current assets and sales and marketing to the consolidated financial statements as of and for the quarter ended September 30, 2023. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. +This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as we are an “emerging growth company” as defined in the JOBS Act. For as long as we remain an “emerging growth company,” we are exempt from the auditor attestation requirement in the assessment of the effectiveness of our internal control over financial reporting. +Remediation Plans to Address Material Weaknesses +As of the date of this Annual Report, we have executed on the following remediation actions: +• +Adding key personnel with sufficient technical knowledge for the proper application of U.S. GAAP and the assessment of complex transactions; +• +Integration and alignment of enterprise wide accounting operations under uniform financial systems and processes; and +• +Engagement of a third party in the identification of risks of material misstatement and the designing and implementing of key controls to address the identified risks of material misstatement. +Our remediation plan includes the following actions that are ongoing: +• +further segregate key duties, and actively monitor such duties, to reduce risks that could present a reasonable possibility of material misstatements; +• +developing and executing action plans to address control deficiencies identified within certain key financial processes, prioritized by potential financial impact and risk; +• +develop procedures promoting the consistent operation and evidencing of IT general controls specific to all key systems supporting financial reporting, including program change management, computer operations, program development, and user access reviews; and +• +formalize our risk assessment process and accounting policies and provide training to relevant personnel on the importance of internal controls and compliance with policies. +119 +We are prioritizing the above actions to complete our remediation plan. We believe that these actions, when fully implemented, will remediate the deficiencies described above. The deficiencies will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. As we continue to evaluate and improve the applicable controls, management may take additional remedial measures or modify the remediation plan described above. +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. +Inherent Limitation on the Effectiveness of Internal Control over Financial Reporting and Disclosure Controls and Procedures +Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected or preventable. +ITEM 9B. OTHER INFORMATION +(a) None. +(b) During the three months ended December 31, 2024, our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated the contracts, instructions or written plans for the purchase or sale of our securities set forth in the table below: +Type of Trading Agreement +Name +Position +Action +Adoption/ Termination Date +Intended to Satisfy Rule 10b5-1* +Not Intended to Satisfy Rule 10b5-1** +Total Share of Common Stock to be Sold +Total Shares of Common Stock to be Purchased +Duration +Tyler Painter +Director +Adoption +12/20/2024 +X +66,000 +- +3/25/2025 - 3/31/2027 +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not Applicable. +120 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Set forth below is a table identifying our directors and executive officers as of March 14, 2025: +Name +Age +Position +Deanna White +59 +Chief Executive Officer and Chief Operating Officer +Oliver Reeves +46 +Chief Financial Officer +Carl Albert +83 +Chairman of the Board +David Anderman +55 +Director +Tyrone Bland +54 +Director +John D'Agostino +49 +Director +Bruce Hack +76 +Director +Ed Mady +72 +Director +Tyler Painter +53 +Director +Sudhin Shahani +42 +Director +Deanna White has served as the Company’s Chief Executive Officer and Chief Operating Officer since December 2024, after having served as Interim Chief Executive Officer and Chief Operating Officer from May 2024 to December 2024, and after previously serving as Chief Financial Officer of the Company from July 2023 to December 2023. Ms. White served as the Chief Financial Officer of Surf Air Global Limited, a subsidiary of the Company, from May 2022 to July 2023, and prior to that, she served as Chief Administrative Officer of Surf Air Global Limited from January 2021 to May 2022. Ms. White served as COO at Kitty Hawk/Cora, an aerospace company, from December 2017 to October 2019, where she led the business operations and commercialization of an R&D eVTOL aircraft program. Ms. White also served as CFO and CEO of Bombardier Flexjet from October 2005 to March 2015. Ms. White holds a BS in accounting from the University of Tampa, and an MBA and MA in Cybersecurity from the University of Dallas. +Oliver Reeves has served as Chief Financial Officer of the Company since January 2024. Oliver brings with him his deep experience with capital markets strategy. Oliver most recently served as Chief Strategy Officer of Xinuos, Inc., the developer and licensor of the UnixWare and OpenServer operating systems, from May 2019 to December 2023. Earlier in his career, Mr. Reeves gained investment experience by holding several asset management positions: first as an Investment Analyst at Coliseum Capital Management, then as a Vice President at Gerson Global Advisors, and finally as a Senior Vice President at Phoenix Star Capital. Mr. Reeves received his MBA from Columbia Business School and graduated Summa Cum Laude from Babson College. +Carl Albert has served as the Chairman of the Board of the Company since July 2023. Mr. Albert served on the board of Surf Air Global Limited, a subsidiary of the Company, from 2021 until the Company’s direct listing on the NYSE. Mr. Albert has been Chairman and Chief Executive Officer of Fairchild Venture Capital Corporation, a privately held investment firm, since 2000 and General Partner of Positano Premiere Properties, a privately held firm engaged in investment in real estate development and management and other investment activities, since 2003. Mr. Albert was Chairman of the Board for Boise, Inc. (NYSE: BZ) from February 2008 to November 2013. Mr. Albert was a member of the Board of Great Lakes Dredge and Dock (NASDAQ: GLDD) from July 2010 to May 2019. While a member of GLDD board, Mr. Albert served as Audit Committee Chair and member of Compensation and Nominating & Governance Committees. Mr. Albert was the Chairman and Chief Executive Officer of Fairchild Aircraft and Fairchild Aerospace, the parent company of Fairchild Aircraft and Dornier Luftfahrt, from 1990 to 2000. Mr. Albert served as principal venture capital investor, and then Chairman, CEO and President of Wings West Airlines, managing the growth of the airline and initial public offering from 1984 to the 1988 acquisition of the company by AMR Corporation, the parent company of American Airlines. Prior to his work in the airline and aircraft manufacturing industries, Mr. Albert was an attorney specializing in business matters. Mr. Albert received his LLB at the University of California, Los Angeles, School of Law and his B.A. at the University of California, Los Angeles. Mr. Albert is qualified to serve as Chair of the Board based on his extensive business experience and industry knowledge. +David Anderman has served as a director of the Company since December 2024, after previously serving as Chief Legal Officer of the Company from June 2023 to May 2024. Mr. Anderman currently serves as President of Proxima Centauri, LLC, a business advisory firm, advising venture funds on strategy and operations. Mr. Anderman is the Co-Founder and Operating Partner of Stellar Ventures, a venture fund investing in the next generation of space entrepreneurs. Mr. Anderman was General Counsel of SpaceX, a space technology company, from June 2019 to December 2020, during which time he supported the launch of satellite internet network Starlink and aided the SpaceX launch of NASA astronauts to the International Space Station. Mr. Anderman served 16 years at Lucasfilm Ltd., starting as a junior lawyer and rising through the ranks to become General Counsel and Chief Operating Officer. He has held C-level positions at a series of technology startups. Mr. Anderman began his career as an intellectual property litigator in Silicon Valley. Mr. Anderman is qualified to serve on the Board based on his extensive business experience and industry knowledge. +121 +Tyrone Bland has served as a director of the Company since July 2023. Mr. Bland has served as a Managing Partner at Porter Tellus, LLC, a strategic advising firm since May 2023. Prior to his role at Porter Tellus, LLC, Mr. Bland served as the Head of Global Government Affairs for Creative Artists Agency, LLC (“CAA”), a talent agency, from October 2020 to May 2023. Prior to CAA, Mr. Bland was Vice President of State and Local Government Relations for Herbalife Nutrition, a marketer of dietary supplements, from January 2016 to October 2020 and Managing Partner for Porter Tellus, LLC from January 2007 to January 2016. Mr. Bland received his B.A. from University of California at Los Angeles. Mr. Bland is qualified to serve on the Board based on his extensive business experience and industry knowledge. +John D’Agostino has served as a director of the Company since July 2023. Mr. D’Agostino has served as Senior Advisor at Coinbase Institutional, a digital currency asset manager, since June 2021. Prior to his role at Coinbase Institutional, Mr. D’Agostino was the US Managing Director at Waystone Governance, a provider of institutional governance, risk and compliance services to the asset management industry, from May 2015 to September 2021. From May 2017 to December 2021, Mr. D’Agostino served as a director of Midpoint Holdings Ltd., an international payments company. In 2021, Mr. D’Agostino was named Fellow of the AIF Institute Financial Innovation Center of Excellence. Mr. D’Agostino received his MBA from Harvard Business School, and his B.A. from Williams College. Mr. D’Agostino is qualified to serve on the Board based on his extensive business experience and industry knowledge. +Bruce Hack has served as a director of the Company since July 2023. Mr. Hack has served as the founder and Chief Executive Officer of BLH Venture, LLC, a strategic and financial advisory firm, since 2010. Prior to founding BLH Venture, LLC, Mr. Hack served as an Executive Vice Chairman of Activision Blizzard from 2008 to 2009 and Chief Executive Officer of Vivendi Games from 2004 to 2008. Mr. Hack also served as Vice-Chairman of the Board of Directors for Universal Music Group, Inc. from 1998 to 2001 and Chief Financial Officer of Universal Studios, Inc. from 1995 to 1998. In addition, Mr. Hack served as the Executive Chairman of PowerUP Acquisition Corporation from January 2021 to August 2023, was previously Director then Chairman of Technicolor, Inc. from 2010 to 2019, and served as director of Mimedx Group, Inc. from 2010 to 2019. Mr. Hack received his B.A. from Cornell University and his M.B.A from the University of Chicago. Mr. Hack is qualified to serve on the Board based on his extensive business experience and industry knowledge. +Edward Mady has served as a director of the Company since July 2023. Mr. Mady served as Senior Advisor and Advisory Board Member to Surf Air Global Limited from January 2017 to July 2023. Mr. Mady has served as President and COO of The Masterpiece Collection Ltd., a luxury hospitality company, since December 2023. Mr. Mady served as General Manager of The Beverly Hills Hotel and Regional Director for Dorchester Collection, a luxury hotel operator, also overseeing Hotel Bel-Air from July 2011 to February 2022. Prior to that role, Mr. Mady worked as the General Manager at the New York Palace From June 2009 to June 2011. Prior to that role, Mr. Mady worked at The Ritz-Carlton Hotel Company as a Vice President and Area General Manager from November 1988 to May 2009. Mr. Mady has also served as the Principal to Edward Mady LLC, a consultancy serving leaders of travel-based organizations including hospitality and aviation brands, since December 2016. Mr. Mady studied Hotel Restaurant Management at St. Clair College. Mr. Mady is qualified to serve on the Board based on his extensive business experience and industry knowledge. +Tyler Painter has served as a director of the Company since July 2023. Mr. Painter has served as the CFO and COO of Wisk Aero, an aerospace company, since April 2022. Prior to becoming the CFO of Wisk Aero, Mr. Painter served as a Senior Advisor and acting CFO for the Company from August 2020 to April 2022. From January 2018 to October 2019, Mr. Painter served as CFO of Fair Financial Corporation. Mr. Painter served as the CFO of Solazyme from September 2007 through October 2014 and expanded his role to include CFO and COO from October 2014 through October 2017. In August 2017, Solazyme, which had been re-named TerraVia Holdings, Inc., was acquired in a sale process conducted under Section 363 of the U.S. Bankruptcy Code. Prior to Solazyme, Mr. Painter served as Corporate Treasurer and VP of Finance and Investor Relations for Wind River Systems from September 2000 through April 2007. Earlier in his career, Mr. Painter held various finance roles at Cars Direct and Gap Inc. Mr. Painter holds a B.S. in business with concentration in finance from California Polytechnic University, San Luis Obispo. Mr. Painter is qualified to serve on the Board based on his extensive business experience and industry knowledge. +Sudhin Shahani has served as a director of the Company since July 2023. Mr. Shahani is the co-founder and served as the Chief Executive Officer of Surf Air Global Limited from 2013 to July 2023. Prior to his role at Surf Air, Mr. Shahani was an Entrepreneur in Residence at Anthem Ventures, an early-stage venture capital firm, where he worked with a number of portfolio companies, led investments, and served on the board of Madefire from July 2013 to December 2018 and Panna from March 2012 to April 2019 (until their sale to Discovery Networks). Prior to his role at Anthem Ventures, Mr. Shahani co-founded Musicane, a digital music and social shopping network from 2004 to 2009. Mr. Shahani holds a B.S. with honors in Business Administration & Entrepreneurship from Babson College. Mr. Shahani is qualified to serve on the Board based on his extensive business experience and industry knowledge. +122 +Term of Office for Directors +Our Board of Directors (the “Board”) is currently comprised of eight directors. Under our amended and restated certificate of incorporation (the “Certificate of Incorporation”), our Board is divided into three classes, each serving a staggered three-year term, with one class being elected at each year’s annual meeting of stockholders as follows: +• +the Class A directors are Tyrone Bland and Bruce Hack, and their terms will expire at the 2027 annual meeting of stockholders; +• +the Class B directors are John D’Agostino, Edward Mady, and David Anderman, and their terms will expire at the 2025 annual meeting of stockholders; and +• +the Class C directors are Carl Albert, Tyler Painter and Sudhin Shahani, and their terms will expire at the 2026 annual meeting of stockholders. +Audit Committee +Our Board determined that each of Carl Albert, John D’Agostino and Bruce Hack, who comprise our Audit Committee, satisfy the independence standards for such committee established by applicable SEC rules and the listing standards of the NYSE. Additionally, our Board has determined that each of John D’Agostino and Carl Albert is an “audit committee financial expert” as defined by applicable SEC rules. The Audit Committee is appointed by our Board of Directors to assist our Board of Directors in: +• +Appointing, compensating, retaining and overseeing the work of our independent registered public accounting firm. +• +Evaluating the performance, independence and qualifications of our independent registered public accounting firm. +• +Overseeing the quality and integrity of our financial statements and our compliance with applicable legal and regulatory requirements, including accounting, financial reporting, and public disclosure requirements. +• +Reviewing the performance of our system of internal control over financial reporting and the function of the internal audit department. +• +Preparing the audit committee report required by the SEC to be included in our annual proxy statement. +• +Discussing independent registered public accounting firm’s annual audit plan, including the timing and scope of audit activities, and monitoring such plan’s progress and results. +• +Reviewing with management and the independent registered public accounting firm our annual and quarterly financial statements. +• +Establishing procedures for employees to submit concerns anonymously about questionable accounting or auditing matters. +• +Reviewing our guidelines and policies on risk assessment and risk management. +• +Reviewing and approving related party transactions. +• +Obtaining and reviewing a report by our independent registered public accounting firm at least annually that describes our independent registered public accounting firm’s internal quality control procedures, any material issues raised by review under such procedures, and any steps taken to deal with such issues. +• +Approving (or, in its sole discretion, approving in advance) all audit and permitted non-audit engagements and relationships between us and our independent registered public accounting firm. +The Audit Committee may form subcommittees and delegate to its subcommittees such power and authority as it deems appropriate to the extent consistent with the Company’s charter and bylaws, applicable law, rules and regulations and the rules of NYSE. The Audit Committee has no current intention to delegate any of its responsibilities to a subcommittee. +Code of Ethics +We have adopted a written code of conduct and ethics that applies to each of our employees, officers and directors, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted under “Governance” on our website at https://investors.surfair.com/ . To the extent required by rules adopted by the SEC and the NYSE, we intend to promptly disclose future amendments to certain provisions of the code, or waivers of such provisions granted to executive officers and directors, on our website at https://investors.surfair.com/. +123 +Policies and Procedures Governing Insider Trading +Our Insider Trading Policy sets forth policies and procedures governing the purchase, sale, and other transactions in Company securities by directors, officers, and employees. These policies and procedures, as well as procedures that the Company follows, are reasonably designed to promote compliance with insider trading laws, rules, and regulations and applicable listing standards. +ITEM 11. EXECUTIVE COMPENSATION +Our named executive officers (“NEOs”), for 2024, are: +• +Deanna White, our Chief Executive Officer, or CEO, and Chief Operating Officer; +• +Oliver Reeves, our Chief Financial Officer; +• +Stan Little, our former Chief Executive Officer and former member of our Board. +Summary Compensation Table +The following table sets forth for each of the NEOs, as applicable: (i) the dollar value of base salary and bonus earned during the years ended December 31, 2024 and 2023; (ii) the aggregate grant date fair value of stock and option awards granted during 2024 and 2023, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 (R); (iii) all other compensation for 2024 and 2023; and, finally, (iv) the dollar value of total compensation for 2024 and 2023. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock Awards ($)(1) +Option Awards ($)(1) +All Other Compensation ($) +Total ($) +Deanna White, +2024 +$ +650,000 +$ +- +$ +- +$ +324,084 +(3 +) +$ +10,562 +$ +984,646 +Chief Executive Officer and Chief Operating Officer +2023 +$ +579,723 +$ +545,834 +$ +- +$ +- +$ +39,223 +$ +1,164,780 +Oliver Reeves, +Chief Financial Officer (started 1/1/2024) +2024 +$ +650,000 +$ +- +$ +66,001 +(2 +) +$ +1,254,000 +(4 +) +$ +27,015 +$ +1,997,016 +Stan Little, +2024 +$ +718,750 +$ +- +$ +- +$ +- +$ +- +$ +718,750 +Former Chief Executive Officer +2023 +$ +852,493 +$ +- +$ +2,548,942 +$ +- +$ +446,243 +$ +3,847,678 +1. +Amounts shown in these columns represent the aggregate grant date fair value (calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718) of stock awards and stock options granted during the year. A description of the methodologies and assumptions we use to value equity awards and the manner in which we recognize the related expense are described in Note 18 to our consolidated financial statements, Stock-Based Compensation. These amounts may not correspond to the actual value eventually realized by each NEO because the value depends on the market value of our common stock at the time the award vests or is exercised. +2. +Mr. Reeves was granted 7,143 fully vested RSUs on January 8, 2024. +3. +Ms. White was granted stock option awards of 125,151 shares on April 3, 2024 that were contingent on stockholder approval of an increase in shares under our equity plan, which was received on June 25, 2024. and 157,143 shares on June 25, 2024. +4. +Mr. Reeves was granted stock option awards of 257,143 shares on January 8, 2024 and 107,143 shares on April 3, 2024 that were contingent on stockholder approval of an increase in shares under our equity plan, which was received on June 25, 2024. +For a description of the material terms of employment agreements with our named executive officers, see “Employment Agreements” below. +124 +Outstanding Equity Awards at 2024 Fiscal Year-End +The following table sets forth information on outstanding option and stock awards held by the named executive officers at December 31, 2024, including the number of shares underlying both exercisable and unexercisable portions of each stock option as well as the exercise price and expiration date of each outstanding option. +Option Awards +Stock Awards +Name +Number of Securities Underlying Unexercised Options Exercisable +Number of Securities Underlying Unexercised Options Unexercisable +Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options +Option +Exercise +Price +Option +Expiration +Date +Number of Shares or Units of Stock That Have Not Vested +Market Value of Shares or Units of Stock That Have Not Vested ($) +Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested +Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) +Deanna White +41,925 +- +- +$ +3.68 +3/1/2032 +- +- +- +- +40,761 +(1 +) +1,164 +- +$ +40.08 +11/12/2032 +- +- +- +- +39,286 +(2 +) +117,857 +- +$ +6.17 +4/3/2034 +- +- +- +- +31,289 +(4 +) +93,862 +- +$ +2.59 +6/25/2034 +- +- +- +- +Oliver Reeves +- +(4 +) +257,143 +- +$ +9.24 +1/8/2034 +- +- +- +- +26,787 +(2 +) +80,356 +- +$ +6.17 +4/3/2034 +- +- +- +- +Stan Little +- +- +- +- +- +- +$ +- +36,757 +(5 +) +$ +198,120 +1. +These stock options vest monthly over a three-year period measured from January 1, 2022. +2. +25% of these stock options were vested as of the grant date of April 3, 2024, with the remaining 75% vesting over a three-year period thereafter. +3. +25% of these stock options were vested as of the grant date of June 25, 2024, with the remaining 75% vesting over a three-year period thereafter. +4. +These stock options vest annually over a three-year period measured from January 1, 2024. +5. +These shares vest subject to the achievement of certain revenue goals, subject to continued service through the date of achievement. +Executive Employment and Severance Agreements +On December 19, 2022, we entered into an employment agreement with Ms. White to serve as our Chief Financial Officer. The agreement became effective on the consummation of our direct listing (the “Effective Date”) and had an initial three-year term. Ms. White voluntarily resigned as our Chief Financial Officer effective as of December 31, 2023. The agreement provided that Ms. White would receive an initial annual base salary of $650,000 and was eligible for an annual discretionary bonus as determined by the Compensation Committee (with a target incentive equal to 200% of her base salary). The agreement also provided for her to receive an additional bonus equal to the sum of $179,167 plus the amount by which the base salary she would have received for the period from October 1, 2022 through the Effective Date at an annual rate of $650,000 exceeded the amount of base salary she received for her services during that period. She was also eligible to participate in the Company’s benefit plans made available to employees generally and was provided a hybrid, electrified, or all electric automobile and use of Company aircraft, each in accordance with Company policies applicable to senior executives. Ms. White was not eligible for any severance benefits in connection with her transition to an advisory role to the Board of Directors from January 1, 2024 to May 31, 2024. +On May 17, 2024, we entered into an employment agreement with Ms. White to serve as our Chief Executive Officer and Chief Operating Officer. The agreement became effective on May 15, 2024 and has an initial three-year term. The agreement provides that Ms. White will receive an initial annual base salary of $650,000 and is eligible for an annual discretionary bonus as determined by the Compensation Committee (with a target incentive equal to 200% of her base salary). The agreement also provided for her to receive an option grant for the purchase of up to 157,143 shares of common stock of the Company. She is also eligible to participate in the Company’s benefit plans made available to employees generally and was provided a hybrid, electrified, or all electric automobile and use of Company aircraft, each in accordance with Company policies applicable to senior executives. If Ms. White’s employment with the Company is terminated by the Company without “cause” or by her for “good reason” (as defined in the agreement), she will receive severance of twelve months of her base salary (payable in installments over such period), payment of her COBRA premiums for up to 18 months, and 6 months’ accelerated vesting of any time-based vesting component of her then-outstanding and unvested equity awards granted by the Company. In addition, she will receive a lump sum payment of a pro-rated amount of her target bonus for the fiscal year in which her termination occurs. Ms. White’s right to receive these severance benefits is subject to her providing a release of claims to the Company and her continued compliance with her confidentiality, non-solicitation (which shall continue for 12 months following termination), and other covenants in favor of the Company. If her employment with the Company terminates due to her death or disability, the Company will pay her (or her estate) a pro-rated target bonus for the year in which such termination occurs. If any payments under Ms. White’s employment agreement would otherwise trigger the excise tax imposed by Section 4999 of the Internal +125 +Revenue Code, the payments will be reduced as provided in the agreement to a level that does not trigger the excise tax if the reduction results in her retaining a greater amount of the payments on an after-tax basis than if such reduction were not made. +On December 31, 2023, we entered into an employment agreement with Mr. Reeves to serve as our Chief Financial Officer. The agreement became effective on January 1, 2024 and has an initial three-year term. The agreement provides that Mr. Reeves will receive an initial annual base salary of $650,000 and is eligible for an annual discretionary bonus as determined by the Compensation Committee (with a target incentive equal to 200% of his base salary). The agreement also provided for him to receive an option grant for the purchase of up to 257,143 shares of common stock of the Company. He is also eligible to participate in the Company’s benefit plans made available to employees generally and was provided a hybrid, electrified, or all electric automobile and use of Company aircraft, each in accordance with Company policies applicable to senior executives. If Mr. Reeves’ employment with the Company is terminated by the Company without “cause” or by him for “good reason” (as defined in the agreement), he will receive severance of twelve months of his base salary (payable in installments over such period), payment of his COBRA premiums for up to 18 months, and 6 months’ accelerated vesting of any time-based vesting component of his then-outstanding and unvested equity awards granted by the Company. In addition, he will receive a lump sum payment of a pro-rated amount of his target bonus for the fiscal year in which his termination occurs. Mr. Reeves’ right to receive these severance benefits is subject to his providing a release of claims to the Company and his continued compliance with his confidentiality, non-solicitation (which shall continue for 12 months following termination), and other covenants in favor of the Company. If his employment with the Company terminates due to his death or disability, the Company will pay him (or his estate) a pro-rated target bonus for the year in which such termination occurs. If any payments under Mr. Reeves’ employment agreement would otherwise trigger the excise tax imposed by Section 4999 of the Internal Revenue Code, the payments will be reduced as provided in the agreement to a level that does not trigger the excise tax if the reduction results in his retaining a greater amount of the payments on an after-tax basis than if such reduction were not made. +On May 16, 2022, we entered into an employment agreement with Mr. Little, which was amended on October 23, 2022 to provide that Mr. Little would serve as our Chief Executive Officer as of the Effective Date and had an initial five-year term. Mr. Little voluntarily resigned as our Chief Executive Officer effective as of May 15, 2024. The agreement provided that Mr. Little would receive an initial annual base salary of $975,000 and be eligible for an annual discretionary bonus as determined by the Compensation Committee (with a target incentive equal to 200% of his base salary). He was also eligible to participate in the Company’s benefit plans made available to employees generally and is provided a hybrid, electrified, or all electric automobile and use of Company aircraft, each in accordance with Company policies applicable to senior executives. Pursuant to the agreement, Mr. Little was granted the right to purchase 92,474 of our restricted shares on May 13, 2022 that vest over a three-year period. +401(k) Savings Plan +As part of our overall compensation program, we provide all full-time employees, including each of the NEOs currently employed with us, with the opportunity to participate in a defined contribution 401(k) plan. The plan is intended to qualify under Section 401 of the Internal Revenue Code so that employee contributions and income earned on such contributions are not taxable to employees until withdrawn. Employees may elect to defer a percentage of their eligible compensation (not to exceed the statutorily prescribed annual limit) in the form of elective deferral contributions to the plan. The 401(k) plan also has a “catch-up contribution” feature for employees aged 50 or older (including those who qualify as “highly compensated” employees) who can defer amounts over the statutory limit that applies to all other employees. The Company does not currently make any matching or other contributions to participants’ accounts under the 401(k) plan. Prior to the Company’s acquisition of Southern, Mr. Little participated in Southern’s 401(k) plan, which had provisions similar to those described above. +Pension Benefits +We do not sponsor any qualified or non-qualified defined benefit plans. +Nonqualified Deferred Compensation +We do not maintain any non-qualified defined contribution or deferred compensation plans. The Compensation Committee, which is comprised solely of “outside directors” as defined for purposes of Section 162(m) of the Internal Revenue Code, may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the compensation committee determines that doing so is in our best interests. +Incentive Compensation Clawback Policy +We have adopted a Compensation Recoupment (Clawback) Policy, which is intended to comply with the requirements of Section 303A.14 of the New York Stock Exchange Listed Company Manual implementing Rule 10D-1 under the Exchange Act. In the event the Company is required to prepare an accounting restatement of the Company’s financial statements due to material non-compliance +126 +with any financial reporting requirement under the federal securities laws, the Company will recover, on a reasonably prompt basis, the excess incentive-based compensation received by any covered executive during the prior three fiscal years that exceeds the amount that the executive otherwise would have received had the incentive-based compensation been determined based on the restated financial statements. +Stock Ownership Guidelines +The Compensation Committee and our Board of Directors adopted the following stock ownership guidelines for our executive officers to better align the interests of our executive officers with those of our stockholders: +• +Our chief executive officer must maintain a minimum holding of company stock with a fair market value equal to five times (5x) their annual base salary; +• +Our chief financial officer must maintain a minimum holding of company stock with a fair market value equal to three times (3x) their annual base salary; +• +Our other Section 16 officers must maintain a minimum holding of company stock with a fair market value equal to two times (2x) their annual base salary; and +• +Our executive officers will have five years to reach the minimum holding level. +As of March 14, 2025, all of our executive officers had either met their stock ownership requirement or had remaining time to do so. +Equity Award Grant Practices +The Compensation Committee approves all equity award grants, including to our NEOs, on or before the grant date, except to the extent the Compensation Committee or the Board has delegated to management the authority to grant such awards to certain employees. Annual equity awards are typically determined , reviewed and approved at the first Compensation Committee meeting of the fiscal year. On occasion, the Compensation Committee may grant equity awards outside of our annual grant cycle for new hires, promotions, recognition, retention or other purposes. In 2024, the Compensation Committee did no t take into account material non-public information when determining the timing or terms of equity awards, nor did we time disclosure of material non-public information for the purpose of affecting the value of executive compensation. During fiscal year 2024, the Company did grant stock option awards to NEOs during the period beginning four business days before and ending one business day after the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of any Company Form 8-K that disclosed any material non-public information (other than a current report on Form 8-K disclosing a material new stock option award under Item 5.02(e) of such Form 8-K). The following information regarding such option grants is provided in accordance with SEC rules: +Name +Grant Date +Number of Securities Underlying Award +Exercise Price +Grant Date Fair Value +Percentage Change in the Closing Market Price of the Securities Underlying the Award Between the Trading Day Ending Immediately Prior to the Disclosure of Material Nonpublic Information and the Trading Day Beginning Immediately Following the Disclosure of Material +Nonpublic Information +Deanna White +4/3/2024 +157,143 +6.17 +0.90 +- 6.40 +% +Oliver Reeves +4/3/2024 +107,143 +6.17 +0.90 +- 6.40 +% +127 +Director Compensation +We adopted a policy for compensating our non-employee directors with a combination of cash and equity, with such equity awards being subject to the terms and conditions of the 2023 Plan. +Annual Cash Retainers +At the time of our direct listing in July 2023, all non-employee directors were entitled to receive a $50,000 ($60,000 for our Lead Independent Director) annual cash retainer for serving as a member of the Board. On December 3, 2024, the Nominating and Governance Committee of the Board approved a reduction of the annual cash retainer for serving as a member of the Board by 30%, to $35,000 for non-employee directors and $42,000 for our Lead Independent Director. Non-employee directors are also eligible for the following additional annual cash retainers for their Board committee service: +Chair +Member +Audit Committee +$ +25,000 +$ +12,500 +Compensation Committee +20,000 +10,000 +Nominating Committee +15,000 +7,500 +Each annual cash retainer is paid quarterly in arrears after the end of each fiscal quarter. We reimburse all of our directors for their reasonable out-of-pocket expenses, including travel, food, and lodging, incurred in attending meetings of our Board and/or its committees. +Equity Compensation +At the time of our direct listing in July 2023, new non-employee directors were entitled to receive an initial equity grant with a target grant date fair value of $330,000 awarded in the form of restricted stock units. On July 25, 2023, each non-employee director was awarded 13,409 restricted stock units, (the “July 2023 RSUs”), based on an assumed opening price of our common stock as of the date of our direct listing of $24.61 per common share. The actual opening price of our common stock as of July 27, 2023, the date of our direct listing, was $5.00 per common share, and the closing price of our common stock as of such date was $3.15 per common share. On April 3, 2024 each non-employee director was awarded an additional 91,353 restricted stock units, (the “April 2024 RSUs”), which, together with the original grant of 13,409 restricted stock units previously granted to each non-employee director, represented $330,000 based on the $3.15 per share closing price on July 27, 2023, the date of our direct listing. As disclosed in last year’s proxy statement, the April 2024 RSUs appear as awards in this year’s Director Compensation Table in accordance with SEC rules. Subject to the director’s continued service, initial equity awards vest on the one-year anniversary of the date of grant, provided that, because the April 2024 RSUs were intended to constitute part of the initial grant along with the July 2023 RSUs, the April 2024 RSUs vested in July 2024 along with the July 2023 RSUs. In addition, in subsequent years,on or around our annual meeting of the stockholders, each non-employee director is entitled to receive an annual equity grant with a target grant date fair value of $165,000 awarded in the form of restricted stock units. The annual equity awards vest in full on the one-year anniversary of the date of grant subject to the director’s continued service through such date. On December 3, 2024, the Nominating and Governance Committee of the Board approved a reduction of the target grant date fair values of the initial equity grant and annual equity grants to non-employee directors by 30%, to $231,000 and $115,500, respectively. +Director Stock Ownership Guidelines +The Compensation Committee and our Board of Directors adopted the following stock ownership guidelines for our non-employee directors to better align the interests of our non-employee directors with those of our stockholders: +• Directors must maintain a minimum holding of company stock with a fair market value equal to five times (5x) such director’s annual cash retainer (excluding annual retainers for service on committees of the Board); and +• Directors will have five years to reach the minimum holding level. +As of March 14, 2025, all of our non-employee directors had either met their stock ownership requirement or had remaining time to do so. +Fiscal Year 2024 Director Compensation Table +The following table sets forth information regarding the compensation received by each of our non-employee directors serving during the year ended December 31, 2024. Stan Little and Sudhin Shahani, who received compensation as employees and/or consultants of the Company, do not receive any compensation for their service on the Board, but, in accordance with SEC rules, Sudhin Shahani’s compensation for the year is included in the table below: +128 +Name +Fees Earned or Paid in Cash($) +Stock Awards ($)(1) +Option Awards ($)(1) +All Other Compensation ($)(1) +Total ($) +Carl Albert +$ +51,613 +$ +80,519 +$ +155,095 +(3 +) +$ +- +$ +287,224 +David Anderman +$ +- +$ +- +$ +28,871 +(4 +) +$ +- +$ +28,867 +Tyrone Bland +$ +16,563 +$ +80,519 +$ +- +$ +- +$ +97,082 +John D'Agostino +$ +28,875 +$ +80,519 +$ +- +$ +- +$ +109,394 +Bruce Hack +$ +21,875 +$ +80,519 +$ +12,856 +(5 +) +$ +- +$ +115,245 +Ed Mady +$ +21,000 +$ +80,519 +$ +- +$ +- +$ +101,519 +Tyler Painter +$ +17,500 +$ +80,519 +$ +- +$ +- +$ +98,019 +Sudhin Shahani (2) +$ +- +$ +- +$ +820,298 +(6 +) +$ +714,795 +$ +1,535,087 +(1) Amounts shown in these columns represent the aggregate grant date fair value (calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 “Compensation – Stock Compensation”) of stock awards and stock options granted during the year. A description of the methodologies and assumptions we use to value equity awards and the manner in which we recognize the related expense are described in Note 18 to our consolidated financial statements. These amounts may not correspond to the actual value eventually realized by each director because the value depends on the market value of our common stock at the time the award vests or is exercised. +(2). Represents amounts paid to Mr. Shahani while still an employee of the Company and for services performed as a non-employee consultant of the Company. +(3) Mr. Albert was granted a stock option award of 172,340 shares on June 25, 2024, of which 25% of these stock options were vested as of the grant date of June 25, 2024, with the remaining 75% vesting over a three-year period thereafter. +(4) As part of a separate consulting agreement, Mr. Anderman was granted warrants to purchase up to 142,857 shares of common stock. +(5) Mr. Hack was granted a stock option award of 14,286 shares on June 25, 2024, of which 25% of these stock options were vested as of the grant date of June 25, 2024, with the remaining 75% vesting over a three-year period thereafter. +(6) Mr. Shahani was granted a stock option award of 911,544 shares on April 3, 2024, of which 25% of these stock options were vested as of the grant date of June 25, 2024, with the remaining 75% vesting over a three-year period thereafter. +Indemnification Agreements +We have entered into indemnification agreements with our officers and directors. These agreements, among other things, require the Company to indemnify its officers and directors for certain expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by an officer or director in any action or proceeding arising out of their services as one of the Company’s officers or directors or any other company or enterprise to which the person provides services at the Company’s request. +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 14, 2025 by: +• +each person known by us to be a beneficial owner of more than 5.0% of our outstanding common stock; +• +each of our directors; +• +each of our named executive officers; and +• +all of our directors and executive officers as a group. +We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act. +We have based our calculation of the percentage of beneficial ownership on 16,933,692 shares of our common stock outstanding as of March 14, 2025. In accordance with SEC rules, we have deemed shares of our common stock subject to stock options or warrants that are currently exercisable or exercisable within sixty (60) days of March 14, 2025, and shares of our common stock underlying RSUs that are currently releasable or releasable within sixty (60) days of March 14, 2025, to be outstanding and to be beneficially owned by the person holding the common stock, options, warrants or RSUs for the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. +129 +Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Surf Air Mobility Inc., 12111 S. Crenshaw Boulevard, Hawthorne, California 90250. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted. +Name +Number of Shares of Common Stock +Percent of Outstanding Common Stock +5% Stockholders +Liam Fayed (1) +4,963,247 +27 +% +Palantir Technologies Inc. (2) +3,176,996 +19 +% +Directors and Executive Officers +Deanna White +193,712 +1 +% +Oliver Reeves (3) +157,726 +* +Stan Little (4) +370,826 +2 +% +Carl Albert (5) +176,114 +1 +% +David Anderman (6) +53,080 +* +Tyrone Bland +28,016 +* +John D'Agostino +34,038 +* +Bruce Hack +35,160 +* +Ed Mady +39,786 +* +Tyler Painter +94,198 +* +Sudhin Shahani +816,649 +5 +% +All directors and executive officers as a group (10 persons) +1,628,479 +10 +% +1. +Based on information provided in a Schedule 13G filed with the SEC on February 14, 2024, as of December 31, 2023, the number of shares consists of (i) 200,737 shares of the Company’s Common Stock held by Liam Fayed and (ii) 620,870 shares of the Company’s Common Stock held by LamVen LLC, which is an entity affiliated with Mr. Fayed, as of December 31, 2023. Based on the Schedule 13G and the Company’s records, Mr. Fayed has sole voting power with respect to 200,737 of the reported shares, shared voting power with respect to 1,370,870 of the reported shares, shared investment power with respect to 200,738 of the reported shares, and shared investment power with respect to 620,870 of the reported shares. Also included are 2,241 shares issuable pursuant to outstanding stock options, held by Mr. Fayed, which are exercisable currently or within 60 days of March 14, 2025. Additionally, during the year ended December 31, 2024, the Company issued to LamVen (i) 750,000 shares and (ii) 3,389,398 shares issuable pursuant to outstanding warrants, which are exercisable currently or within 60 days of March 14, 2025, in exchange for amounts owed under existing term loans. Such amounts were not included in the referenced Schedule 13G. Mr. Fayed’s address is 53 Greenwich Avenue, Second Floor, Greenwich, CT 06830. +2. +Based on information provided in a Schedule 13G filed with the SEC on February 14, 2025, Palantir Technologies held 3,176,996 shares of Common Stock as of December 31, 2024. Palantir Technologies’ address is 1200 17th Street, Floor 15 Denver, Colorado 80202. +3. +Consists of (i) 4,714 shares held by Mr. Reeves, (ii) 13,724 shares held in a joint account by Mr. Reeves and his spouse, and (iii) 139,288 shares issuable pursuant to outstanding stock options, held by Mr. Reeves, which are exercisable currently or within 60 days of March 14, 2025. +4. +Consists of (i) 220,431 shares held by Stan Little, and (ii) 118,074 shares of restricted stock held by The Little 2021 Family Trust dated November 15, 2021 (“The Little 2021 Family Trust”), of which Mr. Little is Trustee, and (iii) 32,321 shares held by the MML 2021 Irrevocable Trust, of which Mr. Little’s spouse is Trustee. Mr. Little may be deemed to have voting or dispositive power over the shares held by The Little 2021 Family Trust. The reporting person disclaims any pecuniary interest in the shares held by the MML 2021 Irrevocable Trust consists of (i) 220,431 shares held by Stan Little, and (ii) 118,074 shares of restricted stock held by The Little 2021 Family Trust dated November 15, 2021 (“The Little 2021 Family Trust”), of which Mr. Little is Trustee, and (iii) 32,321 shares held by the MML 2021 Irrevocable Trust, of which Mr. Little’s spouse is Trustee. Mr. Little may be deemed to have voting or dispositive power over the shares held by The Little 2021 Family Trust. The reporting person disclaims any pecuniary interest in the shares held by the MML 2021 Irrevocable Trust. Mr. Little was no longer a director of the Company as of December 31, 2024. +5. +Consists of (i) 14,966 shares held by Carl Albert, (2) 61,928 shares held by The Carl Albert Trust dated June 7, 1991 (“The Carl Albert Trust”), of which Carl Albert is Trustee, and (iii) 99,220 shares issuable pursuant to outstanding stock options, held by Mr. Albert, which are exercisable currently or within 60 days of March 14, 2025. Mr. Albert may be deemed to have voting or dispositive power over the shares held by The Carl Albert Trust. +6. +Consists of (i) 23,225 shares held by Mr. Anderman (ii) 1,284 shares issuable pursuant to outstanding stock options, held by Mr. Anderman, which are exercisable currently or within 60 days of March 14, 2025, and (iii) 28,571 shares issuable pursuant to outstanding warrants, held by Proxima Centauri LLC, which is an entity affiliated with Mr. Anderman, which are exercisable currently or within 60 days of March 14, 2025. Mr. Anderman may be deemed to have voting or dispositive power over the shares held by Proxima Centauri LLC. +Equity Compensation Plan Information +Our executive officers, directors, and all of our employees are allowed to participate in our equity incentive plans. We believe that providing them with the ability to participate in such plans provides them with a further incentive towards ensuring our success and accomplishing our corporate goals. +130 +The following table provides information regarding the securities authorized for issuance under our equity compensation plans as of December 31, 2024: +Plan Category +Number of Securities +to Be Issued Upon +Exercise of +Outstanding +Options, RSUs, PRSUs +and Rights +(a) +Weighted Average +Exercise Price of +Outstanding +Options, RSUs, PRSUs +and Rights +(b) (1) +Number of Securities +Remaining Available for +Future Issuance Under Equity +Compensation Plans +(Excluding Securities +Reflected in Column (a) (c) (2) +Equity compensation plans approved by +stockholders +3,471,272 +7.80 +- +Equity compensation plans not approved +by stockholders +- +- +- +(1) The weighted average exercise price excludes restricted stock units and performance stock units, which have no exercise price. +(2) Excludes 846,685 shares and 114,285 shares that were added to our 2023 Plan and our ESPP, respectively, on January 1, 2025 pursuant to the evergreen provisions thereunder that provide for automatic annual increases on January 1 of each year for the terms of the plans equal to 5% and 1%, respectively, of our outstanding shares as of the preceding December 31 (or, in the case of the ESPP, 114,285 shares, if less, or, in the case of either plan, such lesser amounts as approved by the Board). +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +Certain Relationships and Related Transactions +Term Notes +The Company entered into term note agreements with LamVen, an entity owned by Liam Fayed, an officer and co-founder of Surf Air Global Limited, a subsidiary of the Company, and recorded the notes in Due to related parties at carrying value on the Consolidated Balance Sheets. +The LamVen notes with aggregate principal amounts of $4.5 million and $1.0 million, an effective date of November 30, 2022 and January 18, 2023, respectively, and bearing an interest rate of 8.25% per annum, remained outstanding as of March 31, 2023. Both term notes were exchanged for cash and scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest for the notes are payable in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024. On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024, with an effective date of January 15, 2024. On April 28, 2024, the term notes were further amended to extend the maturity date to May 15, 2024, with an effective date of April 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024, with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +On May 22, 2023, the Company entered into an additional term note agreement in exchange for $4.6 million in cash from LamVen. The note is scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0% per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024. On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024, with an effective date of January 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024, with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +On June 15, 2023, the Company entered into a $5.0 million note agreement with LamVen. The note is scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0% per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the note was amended to extend the maturity date to January 15, 2024 and to increase the principal amount of the note to $10.0 million. The Company received $8.5 million in cash as of December 31, 2023, with the remaining $1.5 million under the note received in 2024. On January 26, 2024, the note was further amended to extend the maturity date to February 9, 2024 and the principal amount increased to $15.0 million, effective as of January 15, 2024. On April 28, 2024, the note was further amended to extend the maturity date to May 15, 2024 and the principal amount increased to $25.0 million, effective as of April 15, 2024. The Company received $38.2 million as of September 30, 2024. Subsequent to September 30, 2024, the Company received an additional $4.9 million under this note +131 +agreement, for an aggregate total of $43.1 million cash received under the note since inception. In November 2024, the note was exchanged for a new secured convertible promissory note with LamVen. +LamVen Note +On November 14, 2024, the Company entered into a note exchange agreement with LamVen pursuant to which the Company issued a secured convertible promissory note (the “LamVen Note”) in aggregate principal amount of $50.0 million to LamVen, to refinance certain existing notes. +The LamVen Note will accrue interest at the greater of (x) SOFR (subject to a 1.00% floor) plus 5.00% and (y) 9.75%. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings and the net cash proceeds from certain asset sales are required to be applied to repay the obligations under the LamVen Note. The scheduled maturity of the LamVen Note is December 31, 2028, which may be accelerated upon the occurrence of certain events of default. +At the election of LamVen from time to time, on one or more occasions, the outstanding principal amount of the LamVen Note (or any portion thereof), together with all accrued but unpaid interest thereon, can be converted into a number of shares of common stock, using a conversion price per share equal to the Minimum Price, as defined in New York Stock Exchange Listed Company Manual Section 312.04(h) (the “Minimum Price”); provided, however, that LamVen shall not be able to convert the LamVen Note if so doing would increase LamVen’s beneficial ownership interest in the Company to 10% or more of the Company’s then outstanding common stock. +In addition, on November 14, 2024, a portion of the principal of existing LamVen notes being refinanced equal to $7,473,131 was exchanged for (i) 750,000 shares of common stock of the Company issued to LamVen at $1.83 per share, which represents the official closing price of the Company’s common stock on the New York Stock Exchange on the date immediately preceding November 14, 2024 (the “LamVen Shares”), and (ii) 3,389,398 warrants to purchase common stock of the Company issued to LamVen with a strike price of $1.83 per share (the “LamVen Warrants”). +The obligations under the LamVen Note are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +The conversion feature embedded in the LamVen Note failed to satisfy the requirements for the derivative scope exception for contracts indexed in the Company’s own stock. The conversion feature of the LamVen Note required bifurcation from the host contract. The embedded derivative was initially measured at fair value of $6.8 million, with a corresponding debt discount of $6.8 million being recorded as the excess of the principal amount of LamVen Note over the fair value of the host contract. The debt discount will be amortized to interest expense using the effective interest rate over the term of the LamVen Note. +Advisory Services Agreement with Proxima Centauri, LLC +Proxima Centauri, LLC, an entity wholly-owned by David Anderman, a director of the Company, provides advisory services to the Company for a monthly fee of $20,000 per month pursuant to an Advisory Services Agreement entered into on December 16, 2024. As additional compensation, the Company issued a warrant to Proxima Centauri to purchase up to 142,857 shares of Common Stock. +Park Lane Reimbursement Agreement +On November 14, 2024, in connection with the letter of credit backstopping the Credit Agreement, the Company entered into a Reimbursement Agreement with Park Lane, an entity owned by a family member of Mr. Fayed (the “Reimbursement Agreement”), which contains certain representations and warranties, covenants and events of default. +If the backstop letter of credit is drawn upon, the Company will be required to reimburse Park Lane for the drawn amount of the letter of credit, pay interest to Park Lane at 15.00% per annum on such drawn amounts (subject to increase in the event of default). The Company is separately obligated to pay a fee of 1.00% per annum to Park Lane on the outstanding face amount of the backstop letter of credit. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings is required to be remitted to Park Lane to be held in trust in accordance with the Reimbursement Agreement. +The obligations under the Reimbursement Agreement are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +In connection with the Reimbursement Agreement, Park Lane will have the right to appoint a board observer with respect to the Company. +132 +Other Transactions +As of December 31, 2024, the Company continues to lease four aircraft from Park Lane, for a monthly lease payment of $0.025 million per aircraft. The lease term for the four aircraft expire on July 31, 2023. On June 16, 2023, the Company amended the lease agreements with Park Lane to extend the expiration date for a 6-month term of August 1, 2023 through January 31, 2024. All other terms of the agreements remain the same. The lease for the four planes was extended on a month to month basis as of January 31, 2025. +JA Flight Services and BAJ Flight Services +As of December 31, 2024, the Company leased a total of three aircraft from JA Flight Services (“JAFS”) and one aircraft from BAJ Flight Services (“BAJFS”) under short-term operating leases. JAFS is 50% owned by Bruce A. Jacobs (“BAJ”), an employee and shareholder of the Company, and BAJFS is 100% owned by BAJ. +The Company recorded approximately $1,306 thousand in combined lease and engine reserve expense attributable to JAFS and BAJFS during year ended December 31, 2024. Accounts payable of $74 thousand owed to JAFS and BAJFS as of December 31, 2024, is included in Due to Related Parties, current on the Consolidated Balance Sheet. +Schuman Aviation +As of December 31, 2024, the Company leased six aircraft from Schuman Aviation Ltd. (“Schuman”), an entity which is owned by an employee and shareholder of the Company. All leases consist of 60-month terms, fixed monthly lease payments and are all eligible for extension at the end of the lease term. All the leases are also subject to monthly engine, propeller and other reserve payment requirements, based on actual flight activity incurred on the subject aircraft engine. +The Company recorded approximately $1,719 thousand in combined lease and engine reserve expense attributable to Schuman for the year ended December 31, 2024. As of December 31, 2024, the Company owed approximately $214 thousand to Schuman, which is included in Due to Related Parties, current on the Consolidated Balance Sheet. +Additionally, the Company has an existing agreement with Schuman, whereby Schuman agreed not to fly any of its Makani Kai airline routes servicing the Hawaiian Island commuter airspace for a period of 10 years. Remaining amounts due under this agreement represent the final two annual installment payments, of $100 thousand each, which will be paid over the next two years. +Indemnification Agreements +Our Amended and Restated Certificate of Incorporation contains provisions limiting the liability of directors to the fullest extent permitted by Delaware law, and our Amended and Restated Bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted under Delaware law. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws also provide our board of directors with discretion to indemnify our employees and other agents when determined appropriate by the board. In addition, we have entered or will enter into an indemnification agreement with each of our directors and executive officers, which requires us to indemnify them in certain circumstances. +Loans to Officers and Directors +On May 26, 2023, the Company approved the forgiveness of certain promissory notes associated with the issuance of restricted stock purchase agreements (“RSPAs”) to executives and directors. The Company also provided bonuses to pay for interest and tax associated with the issuance of these shares in the amount of $0.1 million. The forgiveness of these promissory notes resulted in an immaterial additional stock-based compensation expense as of June 30, 2023. +Subsequent to June 30, 2023, and prior to the Company’s direct listing, the Company’s board of directors determined that the remaining vesting requirements applicable to previously granted executive RSPA awards had been satisfied, in connection our direct listing. This resulted in the recognition of $21.8 million in previously unrecognized stock-based compensation expense during the third quarter of 2023. +Policies and Procedures Regarding Related Party Transactions +Our Board has adopted a written Related Person Transactions Policy that sets forth the Company’s policies and procedures regarding the identification, review, consideration and oversight of “related person transactions.” For purposes of our policy, a “related person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in +133 +which (i) the Company (including any of its subsidiaries) was, is or will be a participant, (ii) the aggregate amount involved exceeds or may be expected to exceed the lesser of $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years and (iii) a related person has or will have a direct or indirect material interest. +Subject to certain limitations, transactions involving compensation for services provided to the Company as an employee or director will not be considered related person transactions under this policy. A related person is any executive officer, director, nominee to become a director or a holder of more than 5% of any class of our voting securities (including the common stock), including any of their immediate family members and affiliates, including entities owned or controlled by such persons. A related person is also someone who has a position or relationship with any firm, corporation or other entity that engages in the transaction if (i) such person is employed or is a general partner or principal or in a similar position with significant decision making influence, or (ii) the direct or indirect ownership by such person and all other foregoing persons, in the aggregate, is 10% or greater in another person that is party to the transaction. +Under the policy, any related person, or any director, officer or employee of the Company who knows of the transaction, must report the information regarding the proposed related person transaction to our Chief Financial Officer and chairperson of the Audit Committee for review. To identify related person transactions in advance, we will rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related person transactions, the Audit Committee will take into account the relevant available facts and circumstances, which may include, but are not limited to: +• +the nature of the related person’s interest in the transaction; +• +the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated; +• +the terms of the transaction; +• +the availability of other sources for comparable services or products; and +• +the terms available to or from, as the case may be, unrelated third parties. +Director Independence +Under the rules of the New York Stock Exchange (“NYSE”) and our Corporate Governance Guidelines, independent directors must comprise a majority of our Board. Under the NYSE rules, a director will only qualify as an “independent director” if our Board affirmatively determines that the director, in the opinion of our Board, does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. +Our Board reviewed its composition and the independence of our directors and considered whether any director has a relationship with us that could interfere with his or her ability to exercise independent judgment in carrying out his or her responsibilities. In addition, the Board annually evaluates and determines the independence of each our non-employee directors under the NYSE listing standards. As a part of the evaluation process, and as part of the independence determination by the Board, the Board considers, in addition to such other factors as they may deem appropriate, each director’s occupation, personal and affiliate transactions with the Company, and other relevant direct and indirect relationships with the Company that may affect independence. Based upon information requested from and provided by each director concerning his or her background, employment, and affiliations, including family relationships, our Board has determined that each of Mr. Albert, Mr. Bland, Mr. D’Agostino, Mr. Hack and Mr. Mady qualify as independent directors, as defined under the listing rules of the NYSE, and that our Board consists of a majority of “independent directors,” as defined under the rules of the SEC and NYSE. Our Board has also determined that each of the members of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee satisfy the independence standards for such committee established by applicable SEC rules and the listing standards of the NYSE. In making these determinations, our Board considered the relationships that each non-employee director has with us and all other facts and circumstances our Board deemed relevant in determining independence. Sudhin Shahani is not considered an independent director as a result of his employment by the Company. Tyler Painter and David Anderman are not considered independent directors as a result of their prior employment by the Company. +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The aggregate fees billed to us for the fiscal year ended December 31, 2024 and 2023 by our independent registered public accounting firm, PricewaterhouseCoopers LLP , are as follows: +134 +Fee Category +2024 +2023 +Audit Fees (1) +2,525 +5,278 +Audit-Related Fees +- +- +Tax Fees +- +- +All Other Fees (2) +5 +2 +Total Fees +2,530 +5,280 +(1) Audit fees consist of fees for the audit of our consolidated financial statements, the review of the unaudited interim financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with regulatory filings or engagements. +(2) All other Fees consist of subscription fees for use of the PricewaterhouseCoopers LLP research tool +The Audit Committee is required to pre-approve the audit and non-audit services performed by our independent registered public accounting firm in order to assure that the provision of such services does not impair the firm’s independence. The Audit Committee at least annually reviews and provides general pre-approval for the services that may be provided by the independent registered public accounting firm. +All services performed and related fees billed by PricewaterhouseCoopers LLP during fiscal 2024 and fiscal 2023 were pre-approved by the Audit Committee pursuant to the foregoing pre-approval policy of the Audit Committee. +PART IV +ITEM 15. EXHIBITS, FINA NCIAL STATEMENT SCHEDULES +(a) List of Documents Filed as part of this Form 10-K: +1. Consolidated Financial Statements +See Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. +2. Financial Statement Schedules +All schedules have been omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto. +3. Exhibits +The following is a list of exhibits filed, furnished or incorporated by reference as a part of this Annual Report on Form 10-K. +Exhibit Index +The following exhibits are included herein or incorporated herein by reference: +Exhibit +Number +Description of Document +2.1+ +Acquisition Agreement, dated as of March 17, 2021, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.2 +Amendment No. 1 to Acquisition Agreement, dated as of August 22, 2021, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.2 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.3 +Amendment No. 2 to Acquisition Agreement, dated as of May 17, 2022, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.3 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +135 +2.4 +Amendment No. 3 to Acquisition Agreement, dated as of November 11, 2022, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.4 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.5 +Amendment No. 4 to Acquisition Agreement, dated as of May 25, 2023, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.5 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.6 +Amendment No. 5 to Acquisition Agreement, dated as of June 21, 2023, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.6 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.7 +Agreement and Plan of Merger, dated as of June 21, 2023, by and among Surf Air Global Limited, Surf Air Mobility Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 2.7 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +3.1 +Amended and Restated Certificate of Incorporation of SAM (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2024) . +3.2 +Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 19, 2024) . +3.3 +Amended and Restated Bylaws of SAM (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2024) . +4.1 +Description of Securities (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K, filed with the SEC on March 29, 2024) +10.1 +Form of Grant Agreement for grants of PRSUs to employees and non-employee directors under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2023) . +10.2# +Employment Agreement dated December 21, 2023, by and between Surf Air Mobility Inc. and Oliver Reeves (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the SEC on December 27, 2023) . +10.3 +Binding Term Sheet dated as of December 21, 2023, by and between Surf Air Mobility Inc. and GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the SEC on December 28, 2023). +10.4 +Security Purchase Agreement, dated March 1, 2024, between Surf Air Mobility, Inc. and GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the SEC on March 6, 2024). +10.5 +Form of Grant Agreement for grants of RSUs to employees and non-employee directors under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2023). +10.6 +Share Purchase Agreement, dated as of June 15, 2023, by and among Surf Air Mobility, Inc., GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.4 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 25, 2023) . +10.7 +Form of SAFE Agreement (incorporated by reference to Exhibit 2.7 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.8 +Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.9+++ +Collaboration & Engineering Services Agreement, dated as of September 15, 2022, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.5 to the Company's Form S-1 Registration Statement, filed on June 5, 2023) . +10.10+++ +Amended Collaboration & Engineering Services Agreement, dated as of May 24, 2023, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.6 to the Company's Form S-1, filed on June 5, 2023) . +136 +10.11+++ +Amended and Restated Sales and Marketing Agreement, dated as of September 27, 2022, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.7 to the Company's Form S-1 Registration Statement, filed on June 5, 2023) . +10.12+++ +First Amended and Restated Sales and Marketing Agreement, dated as of May 24, 2023, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.8 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.13+++ +Data License Agreement, dated as of September 15, 2022, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.9 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.14+++ +Amendment to Data License Agreement, dated as of May 24, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.15++ +Pilot Pathway Agreement, dated as of July 17, 2019, by and between SkyWest Airlines, Inc. and Southern Airways Corporation. (incorporated by reference to Exhibit 10.11 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.16 +Amendment No. 1 to Pilot Pathway Agreement, dated as of October 1, 2020, by and between SkyWest Airlines, Inc. and Southern Airways Corporation. (incorporated by reference to Exhibit 10.12 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.17 +Amendment No. 2 to Pilot Pathway Agreement, dated as of March 1, 2022, by and between SkyWest Airlines, Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 10.13 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.18++ +Amendment No. 3 to Pilot Pathway Agreement, dated as of March 6, 2023, by and between SkyWest Airlines, Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 10.14 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.19+++ +Master Agreement, dated as of October 10, 2022, by and between Jetstream Aviation Capital, LLC and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.15 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.20++ +Business Combination Agreement, dated as of May 17, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited. (incorporated by reference to Exhibit 10.16 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.21 +Amendment No. 1 to Business Combination Agreement, dated as of September 1, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 10.17 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023). +10.22 +Mutual Termination and Release Agreement, dated as of November 14, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 10.18 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023). +10.23# +Employment Agreement, dated as of May 16, 2022, by and among Surf Air Mobility Inc., Surf Air Global Limited and R. Stanley Little (incorporated by reference to Exhibit 10.19 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.24# +Amendment to Employee Agreement, dated as of October 23, 2022, by and between Surf Air Mobility Inc. and R. Stanley Little (incorporated by reference to Exhibit 10.20 to the Company’s Form S-1, filed with the SEC on June 5, 2023) . +137 +10.25# +Employment Agreement, dated as of December 19, 2022, by and among Surf Air Mobility Inc., Surf Air Global Limited and Deanna White (incorporated by reference to Exhibit 10.21 to the Company’s Form S-1, filed with the SEC on June 5, 2023) . +10.26# +Employment Agreement, dated as of August 20, 2021, by and among Surf Air Mobility Inc., Surf Air Global Limited and Sudhin Shahani (incorporated by reference to Exhibit 10.22 to the Company’s to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.27# +Amendment to Employment Agreement, dated as of January 20, 2023, by and between Surf Air Mobility Inc. and Sudhin Shahani (incorporated by reference to Exhibit 10.23 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.28# +2016 Equity Incentive Plan as amended (incorporated by reference to Exhibit 10.24 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +10.29# +Surf Air Mobility Inc. Amended and Restated 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 25, 2024) . +10.30# +Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.28 to the Company’s Amendment No. 1 Form S-1 and Form S-4 Registration Statement, filed with the SEC on June 22, 2023) . +10.31 +Convertible Note Purchase Agreement, dated as of June 15, 2023, between Surf Air Mobility Inc. and Partners for Growth V, L.P., conformed for Consent and Amendment, dated November 14, 2024 among the Company, the subsidiaries of the Company party thereto and Partners for Growth V, L.P. (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed with the SEC on November 14, 2024) . +10.32 +Second Amendment to Data License Agreement, dated as of June 30, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.30 to the Company’s Amendment No. 3 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 12, 2023) . +10.33 +Third Amendment to Data License Agreement, dated as of September 18, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.31 to the Company’s Form S-1 Registration Statement, filed with the SEC on September 19, 2023) . +10.34# +Southern Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to the Company’s Form S-1 Registration Statement, filed with the SEC on July 21, 2023) . +10.35 +Amendment No. 2 to the Second Amended and Restated Share Purchase Agreement, dated as of July 21, 2023, among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.32 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 21, 2023) . +10.36 +Amendment No. 1 to the Share Purchase Agreement, dated as of July 21, 2023, by and among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.33 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 21, 2023) . +10.37 +Amendment No. 3 to the Second Amended and Restated Share Purchase Agreement, dated as of July 24, 2023, among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.34 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 25, 2023) . +10.38 +Amendment No. 2 to the Share Purchase Agreement, dated as of July 24, 2023, by and among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.35 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on July 25, 2023) . +10.39 +Amendment No. 4 to the Amended and Restated Share Purchase Agreement, dated as of September 19, 2023, by and among Surf Air Mobility Inc., Surf Air Global Ltd., GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.35 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed with the SEC on September 19, 2023). +138 +10.40 +Fourth Amendment to Data License Agreement, dated as of December 8, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K, filed with the SEC on March 29, 2024) . +10.41# +Amendment to Employee Agreement, dated as of May 20, 2024, but effective as of May 15, 2024, by and between Surf Air Mobility Inc. and R. Stanley Little (incorporated by reference to Exhibit 10.42 to the Company’s Registration Statement on Form S-1/A, filed on July 11, 2024) . +10.42# +Amended and Restated Employment Agreement dated May 17, 2024, but effective as of May 15, 2024, by and between Surf Air Mobility Inc. and Deanna White (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 20, 2024) . +10.43# +Amendment to Employment Agreement dated May 20, 2024, by and between Surf Air Mobility Inc. and Oliver Reeves (incorporated by reference to Exhibit 10.47 to the Company’s Registration Statement on Form S-1/A, filed on July 11, 2024) . +10.44#** +Amendment to Amended and Restated Employment Agreement dated February 4, 2025, but effective as of January 1, 2025, by and between Surf Air Mobility Inc. and Deanna White +10.45#** +Second Amendment to Employment Agreement dated February 4, 2025, but effective as of January 1, 2025, by and between Surf Air Mobility Inc. and Oliver Reeves +10.46 +Mandatory Convertible Security, dated August 7, 2024, between Surf Air Mobility, Inc. and GEM Global Yield LLC SCS (incorporated by reference as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 9 2024) . +10.47 +Joint Venture Agreement, dated August 9, 2024, between Surf Air Mobility Inc. and Palantir Technologies, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 13, 2024) . +10.48 +Credit Agreement, dated November 14, 2024, 2024, among the Company as borrower, the lenders party thereto, and CCP Agency, LLC as agent (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q, filed with the SEC on November 14, 2024) . +10.49 +Reimbursement Agreement, dated November 14, 2024, among the Company, the subsidiaries of the Company party thereto and Park Lane Investments LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q, filed with the SEC on November 14, 2024) . +10.50 +Secured Promissory Note, dated November 14, 2024, among the Company, the subsidiaries of the Company party thereto and LamVen LLC (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q, filed with the SEC on November 14, 2024) . +10.51 +Fifth Amendment to Data License Agreement dated September 26, 2024 (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q, filed with the SEC on November 14, 2024) . +10.53# +Advisory Services Agreement, dated as of December 16, 2024, by and between Surf Air Mobility Inc. and Proxima Centauri, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed with the SEC on December 19, 2024) . +10.54** +Form of Grant Agreement for grants of RSUs to employees for Incentive Bonus Plan settlements under the 2023 Equity Incentive Plan. +10.55** +Form of Grant Agreement for grants of RSUs to non-employee consultants for Incentive Bonus Plan settlements under the 2023 Equity Incentive Plan. +10.56** +Form of Warrant Agreement +14.1 +Code of Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company's Form 10-Q, filed November 14, 2023). +19.1* +Insider Trading Policy +139 +21.1 +List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company’s Form S-1 Registration Statement, filed with the SEC on June 5, 2023) . +23.1* +Consent of PricewaterhouseCoopers LLP +31.1* +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Principal Financial and Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Clawback Policy (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2024). +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document). +* Filed herewith. +**Furnished herewith +++ Schedules to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5) promulgated under the Exchange Act. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. ++++ Specific provisions or terms to this Exhibit omitted pursuant to Regulation S-K Item 601(b)(10)(iv) promulgated under the Exchange Act. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. +# Indicates management contract or compensatory plan or arrangement. +ITEM 16. FORM 10-K SUMMARY +None. +140 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . +Surf Air Mobility Inc. +Date: March 21, 2025 +By: +/s/ Deanna White +Deanna White +Chief Executive Officer and Chief Operating Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ Deanna White +Chief Executive Officer and Chief Operating Officer +March 21, 2025 +Deanna White +(Principal Executive Officer) +/s/ Oliver Reeves +Chief Financial Officer +March 21, 2025 +Oliver Reeves +(Principal Financial Officer and Principal Accounting Officer) +/s/ Sudhin Shahani +Co-Founder and Director +March 21, 2025 +Sudhin Shahani +/s/ Carl Albert +Director +March 21, 2025 +Carl Albert +(Chairman) +/s/ Tyronne Bland +Director +March 21, 2025 +Tyronne Bland +/s/ John D'Agostino +Director +March 21, 2025 +John D'Agostino +/s/ Bruce Hack +Director +March 21, 2025 +Bruce Hack +/s/ Edward Mady +Director +March 21, 2025 +Edward Mady +/s/ David Anderman +Director +March 21, 2025 +David Anderman +/s/ Tyler Painter +Director +March 21, 2025 +Tyler Painter +141 \ No newline at end of file diff --git a/raw/filings/0001936224/2024/0000950170-25-043326/filing_metadata.csv b/raw/filings/0001936224/2024/0000950170-25-043326/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..d7d3d9c093f485d990f1d074447e27f305e6b706 --- /dev/null +++ b/raw/filings/0001936224/2024/0000950170-25-043326/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001936224,SRFM,SURF AIR MOBILITY INC.,2024,10-K,2025-03-21,2024-12-31,2025-03-21T21:01:59.000Z,0000950170-25-043326,srfm-20241231.htm,10-K,23747067,1,1,https://www.sec.gov/Archives/edgar/data/1936224/000095017025043326/srfm-20241231.htm,https://www.sec.gov/Archives/edgar/data/1936224/000095017025043326/ diff --git a/raw/filings/0001936224/2024/0000950170-25-043326/item1.txt b/raw/filings/0001936224/2024/0000950170-25-043326/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..7b5e34c8345fdc43c67d02cce9d67f6df056d8bf --- /dev/null +++ b/raw/filings/0001936224/2024/0000950170-25-043326/item1.txt @@ -0,0 +1,102 @@ +ITEM 1: BUSINESS +Overview +Surf Air Mobility Inc. (“Surf Air Mobility”, the “Company”, “us”, “we” or “our”) is a regional air mobility platform that aims to transform regional flying. The Company is currently comprised of its Air Mobility business, and has a goal of further developing and enhancing its service and technology offerings through its Air Technology business. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to develop proprietary aviation software, aircraft electrification powertrain technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the NYSE. For 2024, the Company served over 370,000 passengers with approximately 72,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional Air Mobility business. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Our acquisition of Southern Airways in July 2023 has resulted in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Founded in 2013, Southern is one of the largest commuter airlines in the United States and the largest passenger operator of Cessna Grand Caravan EXs (“Cessna Caravans”) in the United States by scheduled departures. Southern has multi-year contracts with the U.S. federal government to operate Essential Air Service (“EAS”) routes, which helps small communities in the United States maintain a minimum level of scheduled air services. +At the heart of our strategy is our aim of commercializing green regional aviation at scale. We firmly believe that regional air mobility can displace driving from its predominant position in 100-500 mile travel. There are approximately 5,000 public use airports in the U.S. creating the possibility of a dense point-to-point air network using regional aircraft. We believe that electrified aircraft, which could boast lower operating costs and emissions could be the key to unlock this electrified air-mobility market. +Surf Air Mobility (through its subsidiary airlines Southern Airways and Mokulele Airlines) is one of the largest commuter airlines in the United States by scheduled departures, serving numerous communities across the U.S. mainland and Hawaii. In addition, we have commercial relationships with over 400 air operators that provide on-demand charter services to our customers. In the future, these charter operators will be ideal customers for our AI-enhanced software operating system, SurfOS, and for hybrid and electric aircraft, all of which we expect to launch, commercialize and/or scale through our relationships with Textron Aviation, Electra, REGENT and others. +Our Strategy +We have several strategic differentiators which form our competitive advantage in the regional air mobility market. +• +Scale: we are one of the largest commuter airlines in the U.S. by scheduled departures. +• +Experience: we have over a decade of experience operating in the highly regulated aviation industry and we have flown millions of passengers millions of miles. +7 +• +Depth: we have deep – and unique – ties across the industry with exclusive relationships with Textron Aviation – manufacturer of the Cessna Caravan aircraft that we operate, and with Palantir Technologies a global leader in AI, enterprise data analytics, and business intelligence that we have partnered with to power the SurfOS operating system. +• +Reach: we have expansive reach and relationships with over 400 regional air operators who have operated charter flights via our marketplace and are expected to form the initial customer base of our SurfOS software. In addition, we have interline agreements with United, American, Alaska and Hawaiian Airlines that extend our reach to their combined 430 million annual passengers. +• +Technology: we are developing AI-enhanced software, in partnership with Palantir, to drive our growth and profitability and, in the future, we plan to offer this technology to other charter brokers, air operators, and aircraft owners. +• +Execution: we have brought together leaders and experts in aviation, software and electrification to help us synergistically execute our vision, drive profitable growth over time, and create shareholder value. +Given our leadership position in the regional air mobility sector, we believe we are uniquely qualified to understand the needs of industry participants and to develop software and hardware solutions to enhance efficiency, productivity, and profitability. Today, through our exclusive partnership with Palantir, we are developing an AI-enhanced software operating system, SurfOS. SurfOS is currently in the implementation phase across our Company, and we are already seeing improved productivity and efficiency through these tools. SurfOS aims to apply leverage to our commercial initiatives by streamlining our sales, sourcing, and distribution. Additionally, the software impacts critical functions of the airline operation such as crew scheduling, maintenance, and resource planning. We believe revenue management features such as dynamic pricing and flight distribution are key to maximizing revenue. Moreover, SurfOS is designed to empower a “connected aircraft,” which is expected to allow for near real-time insight into airplane health, maintenance needs, pilot performance, and flight tracking. We currently anticipate that we will begin rolling out SurfOS to launch customers in 2025, before widening distribution to other third-party operators, charter brokers, and owners over time. +The regional air mobility industry is expected to grow into a $75 billion to $115 billion global market by 2035. This market is expected to undergo massive transformation due to the emergence of new technologies such as electrification that seek to greatly reduce the cost of air travel, particularly for smaller regional planes that serve point-to-point routes from more convenient regional airports. In addition, electric and hybrid aircraft are expected to substantially reduce the carbon emissions of flying. +We believe Surf Air Mobility is uniquely positioned to lead the transformation of the regional air mobility industry. We intend to deploy electrified aircraft, when available, across our scheduled service routes. The Company is also pursuing Supplemental Type Certificates (“STCs”) for proprietary powertrain technology for the Cessna Grand Caravan aircraft. The Company has an exclusive sales and marketing relationship with the aircraft manufacturer, Textron Aviation, for distribution of electrified and hybrid powered aircraft, and we have MOU agreements with 7 operators globally with approximately 100 aircraft under management to potentially upgrade to our proprietary powertrains, once certified. +In addition, Surf Air Mobility’s platform will also help other electrification technologies go to market with access to the Company’s network and distribution potential. The Company is exploring relationships with other industry participants to bring innovative solutions to the regional air mobility market and accelerate the adoption of electrified aircraft potentially through the formation of joint ventures which may be separately capitalized. +Sources of Air Mobility Revenue +We generate revenue from two categories of air mobility services: +Scheduled Air Service - We generate revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, as well as through membership subscriptions. +8 +Of our combined fleet of 57 aircraft, 46 are Cessna Caravans as of December 31, 2024. For the year ended December 31, 2024, our total fleet averaged approximately 190 daily departures. We believe we are one of the largest commuter air carriers by both size of Cessna Caravan fleet and number of scheduled departures of Cessna Caravans in the United States and we believe that in the future our scale could result in an increase in the number of average daily departures, fares and load factor compared to today. With our EP1 fully-electric powertrain expected to enter service shortly after we receive certification, which we anticipate to occur early in 2027, we believe we can be the first to operate an electrified fleet of aircraft in commuter operations. +We generate revenue from EAS revenue awards from the Department of Transportation (“ DOT ”). +The EAS program was put into place in the United States following the Airline Deregulation Act of 1978 to ensure that small communities continued to receive a minimal level of air service. EAS revenue awards are guaranteed revenue contracts issued by the DOT with revenue earned for completed flights. The EAS program subsidizes scheduled flights to connect underserved communities with larger airline hubs. These contracts help add predictable stability to Southern’s operations from both a route and revenue planning perspective. As of October, 1 2024, the EAS market size for annual contract subsidy rates was approximately $550 million. +We are a leader in securing and renewing EAS contracts, which we believe will be a critical differentiator as we work to expand our point-to-point short haul regional air mobility network. We work with key stakeholders in the communities in which we intend to serve as well as the DOT, and we have been able to tailor air travel solutions that are responsive to the key needs of these smaller, underserved communities. We have consistently been able to differentiate ourselves to win contracts by leveraging our large scale and depth of operational expertise to offer a low cost, highly reliable service proposal. +On-Demand - We generate revenue from on-demand flights created for customers on an ad-hoc, by request basis. A small number of the on-demand flights are operated on our fleet; the majority are delivered on third-party turboprops or small jets. For the year ended December 31, 2024, we generated revenue of $28.7 million from on-demand operations. +Today, we offer on-demand flight booking capabilities on our consumer platform enabled by our Surf Air mobile app, which is a capital light source of revenue. +We believe there is significant value to be created by leveraging our ability to serve both customers and operators within the regional flying ecosystem. We believe this will accelerate the demand for green regional flying. By enabling new demand through our digital marketplace operations and catalyzing new supply through new technology and financing solutions, we believe we can create an ongoing cycle of growth. +We plan to invest in creating a scheduled network connecting many of the underutilized regional airports in the United States. We have developed a regional air mobility network growth plan based on mobile device and various demographic data layers, which resulted in a network growth plan across approximately 30 U.S. regional networks with approximately 200 “tier 1” routes. We intend to pursue this plan using our own air operations and by leveraging third-party air operators. +We have extensive experience using third-party operators in our scheduled and on-demand operations. As a result, we believe we will have in-depth knowledge of the success factors and key challenges facing independent operators and can facilitate operator relationships by deploying our Aircraft-as-a-Service strategy. Aircraft-as-a-Service is the product we intend to offer operators. Aircraft-as-a-Service encapsulates bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software purchase or rental for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream. +9 +Customer Experience +We believe that the customer experience that we have developed is a meaningful differentiating advantage. We have strived to create an exceptional flying experience solving the greatest pain points of regional commercial flying. Through our large scale, we have a substantial customer service operation to support our travelers. We intend to give our customers a stress-free and time-saving airport and travel experience. +Seamless Booking. Our customer journey begins digitally through both our booking app and website, creating a personalized air travel experience. Using the mobile app and website, customers have access to a real-time digital marketplace, which we believe enhances and simplifies the user experience. Customers can conveniently purchase tickets on existing scheduled flights or create private charters. Customers have access to an array of available aircraft to meet various travel needs. +Local Airports & Private Terminals. We operate scheduled and on-demand flights in and out of small airports and private terminals. This provides our customers with the convenience of an accessible airport closer to their origin and/or destination and the convenience of a private terminal experience. We believe that local airports can transform into centers for pilot training, community job growth, and growth for local businesses. +Reduced Travel Times. Operating in and out of regional airports and private terminals reduces travel time for our customers. On a typical commercial flight, major airlines recommend customers arrive two hours before their departure time. In contrast, our customers typically only need to arrive 30 minutes before their flight, which results in our passengers saving approximately 1.4 to 1.6 hours per departure. +Hassle Free Experience. Our customer services and station teams offer all customers a direct touchpoint to help manage any travel related needs leading up to and on the day of the flight. Southern currently has interline agreements with major commercial airlines, including United Airlines, Inc., American Airlines, Inc., Alaska Airlines, Inc. and Hawaiian Airlines, Inc, which help coordinate baggage claim for customers who fly different airlines on various legs of their trip, assisting in a hassle free experience. +Pilot Shortage Solution. Recent and longer-term trends in the airline industry have led to a large disruption in the supply of available aircraft pilots. A reliable, predictable and adequate availability of pilots is an integral part of any airline’s ability to maintain consistent scheduling of their operations. We believe that our business model, flying under Part 135 regulation and using primarily single-engine aircraft, will enable us to be a solution to the pilot shortage by providing pilots to certify as first officers and captains earlier, and creating a talent pool that does not compete with other airlines that operate multi-engine aircraft. Furthermore, with our pilot partnership with SkyWest, we are able to ensure that hiring and retention costs are offset in part by promoting pilot career flow into the regional airline industry. +As we plan to transition to fully-electric flight, we believe we are well-positioned to manage programs designed for training pilots for any new requirements related to the operation of electrified aircraft. Through our combined leverage as suppliers of new electrified aircraft and facilitators of a pilot training pipeline, we believe we can create a program that helps to ensure an adequate supply of pilots for the introduction of electrified flight. +10 +We believe that our current and future experience and knowledge, generated by operating our own large scheduled fleet and charter operation, combined with our partnerships and interactions with operators, brokers, lessors and OEMs puts us in a strong position to identify, create and commercialize the best electrification products and services for our evolving industry. +Government Regulation +The Company is subject to government regulation at local, state, national and international levels. The scope of these regulations is exceedingly broad, covering a wide range of subjects that includes, but is not limited to, those summarized below. Given the dynamic and rapidly evolving nature of the regulatory environment, the conduct of our business will always include a measure of risk and we may not be able to predict or control how new regulations might be written, or predict how existing regulations may be interpreted, or enforced. +Various aspects of our business, including scheduled and on-demand air service and electrification, are all impacted by interrelated but distinct regulatory frameworks. +Principal Domestic Regulatory Authorities +DOT +The U.S. Department of Transportation (the “DOT”) is the principal regulator of economic and consumer protection matters in the U.S. commercial aviation industry. The DOT licenses and oversees the operations of all carriers. This includes economic authority to conduct business as a type of air carrier, as well as consumer protection and insurance requirements that are applied to the conduct of such business. The DOT also oversees the marketing, sale and performance of public charter flights (charter flights which are sold by the seat) that may be arranged by an indirect air carrier (i.e., an entity that does not operate aircraft but contracts as a principal with a direct air carrier to do so on its behalf), for the purpose of offering its chartered flights to the public that will be performed by an identified direct air carrier at a predetermined date and time (in contrast to the on-demand, or as-needed/where-needed, character of certain of our services). The DOT oversees and regulates how airlines advertise and hold out services. The DOT also oversees the sale, holding out and arrangement of single-entity charter air transportation (charter of the entire capacity of an aircraft, in contrast to public charter flights which are sold by the seat). The DOT has authority to enforce laws and regulations against engaging in “unfair” or “deceptive” practices in the sale or provision of air transportation. The DOT promulgates and enforces various other consumer protection laws and regulations to which we are subject, including requirements related to non-discriminatory access to air transportation for disabled passengers, data reporting, recordkeeping, advertising and ticket sales, among others. The DOT is also responsible for monitoring and assuring that U.S. air carriers remain fit, willing and able at all times to provide the services for which they are licensed, and that such carriers qualify continuously as citizens of the United States within the meaning of U.S. aeronautical laws and regulations. +The Company is subject to U.S. laws regarding privacy of passenger and employee data, including as enforced by the DOT, that are not consistent in all jurisdictions where we operate and which are continually evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with privacy and information security obligations, the challenging and uncertain regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement and legal claims or proceedings. +FAA +The Federal Aviation Administration (“FAA”) is an operating administration of the DOT and the principal regulator of safety matters in the U.S. aviation industry. The FAA’s regulations touch on many aspects of civil aviation, such as the design and manufacture of aircraft, engines, propellers, avionics and other components, including applicability of engine noise and other environmental standards; the inspection, maintenance, repair and registration of aircraft; the training, licensing or authorizing and performance of duties by pilots, flight attendants and maintenance technicians; the testing of safety-sensitive personnel for prohibited drug use or alcohol consumption; the design, construction and maintenance of runways and other airport facilities; the operation of air traffic control systems, including the management of complex air traffic at busy airport facilities; the safety certification and oversight of air carriers including their operations and maintenance; the establishment and use of safety management systems by air carriers; the promotion of voluntary systems to encourage the disclosure of data that may aid in enhancing safety; and +11 +the oversight and operational control of air carriers by their accountable managers, directors of operations, directors of maintenance and other key personnel. +TSA +The Transportation Security Administration (the “TSA”) is an administration within the U.S. Department of Homeland Security which issues security programs to air carriers and ensures that air carriers operate in a manner consistent with any security program and other requirements issued to the carrier. +Facilities +Our headquarters is located in a leased 5,500 square foot facility in Hawthorne, California. The lease of this facility expires in August 2026. +Southern’s headquarters is located in a leased workspace in Palm Beach, Florida. The lease of this facility expires in April 2025. +In February 2025, the Company relocated its air operations center to Addison, Texas. The lease of this facility expires in January 2028. +Human Capital/Team +As of December 31, 2024, we had 703 employees, of which 556 were full-time and 147 were part-time. +We have not experienced any work stoppages and consider our relationship with our employees to be good. Our employees are divided across various core business functions, including operations, sales and marketing, research and development, customer service and finance and administration. +None of our employees are subject to a collective bargaining agreement or represented by a labor union. +Commitment to Environmental, Social and Governance (“ESG”) Leadership +We are seeking to build a regional air mobility ecosystem that will sustainably connect communities. We intend to accelerate the adoption of green flying, bringing electrified aircraft to market at scale in order to substantially reduce the cost and environmental impact of regional flying. In so doing, we believe we can make a meaningful contribution to tackling the dual challenges of congestion and climate change. We are working to build a dedicated, and inclusive workforce to achieve this goal while striving to adhere to best practices in risk assessment, mitigation and corporate governance. +Our ESG efforts consist of focusing on the following: +• +Environmental. Being a good steward of the natural environment through the production and development of innovative designs that reduce resource use and energy consumption. +• +Social. Promoting inclusion, while underpinning all of our activities with a core focus on health and safety. +• +Governance. Upholding our commitment to ethical business conduct, integrity and corporate responsibility, and integrating strong governance and enterprise risk management oversight across all aspects of our business. +Inclusion +We work diligently to create an inclusive work environment. We strive to provide equal opportunities for growth, success, promotion, learning and development, and aim to achieve parity in the way we organize, assign and manage projects in a way that provides equal opportunities for all. We are focused on building support across all teams and individuals, with the aim that everyone has a voice, and treats each other with respect. +12 +Intellectual Property +Our ability to protect our material intellectual property is important to our business. We seek to protect our intellectual property (including our technology and confidential information) through a combination of trademarks and trade secret protections, as well as contractual commitments and security procedures. We generally require employees and consultants to enter into confidentiality and assignment of inventions agreements and certain third parties to enter into nondisclosure agreements. +We regularly review our technology development efforts and branding strategy to identify and assess the protection of new intellectual property. We own certain trademarks important to our business, such as the “Surf Air” and “Mokulele Airlines” trademarks in the United States. +We currently own the “surfair.com” Internet domain-name registration and the “iflysouthern.com” and “mokuleleairlines.com” domain-name registrations. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name “Surf Air” or “Southern” or are otherwise relevant to or descriptive of our business. +We have chosen to rely primarily on copyright and trade secret law in order to protect our software and have chosen not to register any copyrights in these works. However, in the United States, copyrights must be registered in order to bring a claim for infringement and to obtain certain types of remedies. Even if we decide to register a copyright in our software to bring an infringement action, the remedies and damages available to us for unauthorized use of our software may be limited. +Intellectual property laws, contractual commitments and security procedures provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, trade secrets, know-how and other materials may be independently developed by our competitors or revealed to the public or our competitors and no longer provide protection. In addition, intellectual property laws vary from country to country. We may therefore be unable to protect certain of our technology, brands or other intellectual property in the U.S. or other jurisdictions. +We regularly review our development efforts to assess the existence and patentability of new inventions, and we are prepared to file patent applications when we determine it would benefit our business to do so. +Privacy and Data Protection +There are many requirements regarding the collection, use, transfer, security, storage, destruction and other processing of personally identifiable information and other data relating to individuals. Because our technology platform is an integral aspect of our business, compliance with laws governing the use, collection and processing of personal data is necessary for us to achieve our objective of continuously enhancing the user experience of our mobile application and marketing site. +We receive collect, store, process, transmit, share and use personal information and other customer data, including passenger data, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share and use such personal information, including payment information. A variety of federal, state, local, municipal and foreign laws and regulations, as well as industry standards (such as the payment card industry standards) govern the collection, storage, processing, sharing, use, retention and security of this information. +Corporate Information +We were originally founded in 2011 and incorporated in 2021 in Delaware. Our principal executive offices are located at 12111 S. Crenshaw Blvd., Hawthorne, CA 90250, and our telephone number is (424) 332-5480. Our website address is www.surfair.com. Our common stock is listed on the New York Stock Exchange under the symbol “SRFM”. +Available Information +Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our website at investor.surfair.com or at +13 +www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also use our website as a tool to disclose important information about the Company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance guidelines, code of business conduct and ethics and Board committee charters are also posted on the Investor Relations section of our website. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report we file with, or furnish to, the SEC. +14 \ No newline at end of file diff --git a/raw/filings/0001936224/2024/0000950170-25-043326/item13.txt b/raw/filings/0001936224/2024/0000950170-25-043326/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..eb364c8f0b86fedb1b823c83e0a4774c48c01c43 --- /dev/null +++ b/raw/filings/0001936224/2024/0000950170-25-043326/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +131 \ No newline at end of file diff --git a/raw/filings/0001936224/2025/0001193125-26-104468/filing.txt b/raw/filings/0001936224/2025/0001193125-26-104468/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d8c3740be675ee5d8d686366b6bf55f968dace5b --- /dev/null +++ b/raw/filings/0001936224/2025/0001193125-26-104468/filing.txt @@ -0,0 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20549 +FORM 10-K +(Mark One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO +Commission File Number 001-41759 +Surf Air Mobility Inc. +(Exact name of Registrant as specified in its Charter) +Delaware +36-5025592 +(State or other jurisdiction of +incorporation or organization) +(I.R.S. Employer +Identification No.) +12111 S. Crenshaw Blvd . +Hawthorne , CA +90250 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code: ( 424 ) 332-5480 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading +Symbol(s) +Name of each exchange on which registered +Common stock, $0.0001 par value per share +SRFM +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of voting stock held by non-affiliates of the Registrant on the last business day of the Registrant’s most recently completed second fiscal quarter , based on the closing price of $3.69 per share of the Registrant’s common stock as reported by the New York Stock Exchange, was approximately $ 114.7 million. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose. +The number of shares of Registrant’s common stock outstanding as of March 6, 2026 was 76,993,252 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the Surf Air Mobility Inc. 2026 Proxy Statement, to be filed with the Securities and Exchange Commission (“SEC”) within 120 days after the closing of the +registrant's fiscal year are incorporated into Part III to the extent stated herein. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof. +Table of Contents +Page +PART I +Item 1. +Business +8 +Item 1A. +Risk Factors +15 +Item 1B. +Unresolved Staff Comments +52 +Item 1C. +Cybersecurity +52 +Item 2. +Properties +55 +Item 3. +Legal Proceedings +55 +Item 4. +Mine Safety Disclosures +55 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +56 +Item 6. +[Reserved] +56 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +57 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +68 +Item 8. +Financial Statements and Supplementary Data +69 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +112 +Item 9A. +Controls and Procedures +112 +Item 9B. +Other Information +114 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +114 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +115 +Item 11. +Executive Compensation +115 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +115 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +115 +Item 14. +Principal Accountant Fees and Services +115 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +116 +Item 16. +Form 10-K Summary +121 +Signatures +122 +3 +SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. All statements other than statements of historical facts contained in this Annual Report on Form 10-K may be forward-looking statements. Forward-looking statements may be identified by the use of words such as “estimate”, “plan”, “project”, “forecast”, “intend”, “will”, “expect”, “anticipate”, “believe”, “seek”, “target”, “designed to” or other similar expressions that predict or indicate future events or trends, although the absence of these words does not mean that a statement is not forward-looking. The Company cautions readers of this Annual Report on Form 10-K that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control, that could cause the actual results to differ materially from the expected results. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of financial and performance metrics, projections of market opportunity and market share, potential benefits and the commercial attractiveness to its customers of the Company’s products and services and the dependence on third-party partnerships in the development of fully-electric and hybrid-electric powertrains, and the potential success of the Company’s marketing and expansion strategies. These statements are based on various assumptions, whether or not identified in this Annual Report on Form 10-K, and on the current expectations of the Company’s management and are not predictions of actual results or outcomes. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied upon by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. These forward-looking statements are subject to a number of risks and uncertainties, including: +• +the Company’s future ability to pay contractual obligations, pay excise taxes, including resolving its tax liens, and liquidity, which will depend on operating performance, cash flow and ability to secure adequate financing; +• +the Company’s ability to meet the requirements of its term loan credit facility or other debt obligations; +• +the Company’s limited operating history and the powertrain technology the Company plans to develop or deploy does not yet exist and remains subject to approval by regulators; +• +the impact of changes in the U.S. or foreign trade policies, including the imposition of tariffs and other protectionist trade measures, and other factors beyond our control; +• +the Company’s ability to maintain and strengthen the Company’s brand and its reputation as a regional airline; +• +any accidents or incidents involving aircraft including those involving fully-electric or hybrid-electric powertrains; +• +the Company’s ability to accurately forecast demand for products and manage product inventory in an effective and efficient manner; +• +the dependence on third-party partners and suppliers for the components and collaboration in the Company’s development of software technology platforms, fully-electric and hybrid-electric powertrains, and other products and services, and any interruptions, disagreements or delays with those partners and suppliers; +• +the Company’s ability to execute business objectives and growth strategies successfully or sustain the Company’s growth; +• +risks from the integration of business acquisitions that could adversely affect the Company’s business, divert the attention of management, and dilute shareholder value; +• +increased costs as a result of operating as a public company, and the requirement that management devote substantial time to comply with the Company’s public company responsibilities and corporate governance practices; +• +the ability of the Company’s customers and potential customers to pay for the Company’s services; +• +the Company’s ability to obtain additional financing or access the capital markets to fund its ongoing operations on acceptable terms and conditions; +• +whether EAS funding will continue without interruption or appropriations will be made on a timely basis and also whether the DOT will restore and fund EAS obligations retroactively; +4 +• +the outcome of any legal proceedings that might be instituted against the Company; +• +risks associated with the Company’s ability to comply with applicable laws, government regulations and rules and standards of the New York Stock Exchange as well as with changes in applicable laws or regulations, and the impact of the regulatory environment; and +• +the risks set forth in “Part I, Item 1A, Risk Factors” of this Annual Report. +All forward-looking statements included herein attributable to the Company or any person acting on any party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, the Company undertakes no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events. +5 +SUMMARY RISK FACTORS +Investing in our common stock involves numerous risks, including the risks described in “Part I, Item 1A. Risk Factors” of this Annual Report. You should carefully consider these risks before making an investment. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects. +• +There is substantial doubt about our ability to continue as a going concern. We will need additional financing to execute our business plan, to fund our operations and to continue as a going concern. +• +We have incurred significant losses since our inception and we expect to incur significant expenses and continuing losses for the foreseeable future. We may not be able to achieve or maintain profitability or positive cash flows. +• +We will need to obtain sufficient financing or other capital to operate successfully. We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing or access the capital markets to fund our ongoing operations and execute on our growth strategy on acceptable terms and conditions. +• +It is not possible to predict the actual number of shares we will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, we may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet our existing obligations . +• +We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur. +• +Our ability to utilize our NOLs and other carryforwards may be limited. +• +We may never realize the full value of our intangible assets or our long-lived assets causing us to record impairments that may negatively affect our financial condition and operating results. +• +Our contractual obligations could impair our liquidity and materially adversely affect our business, results of operations and financial condition. +• +Our management has identified material weaknesses in our internal controls over financial reporting. +• +If we experience harm to our reputation and brands, our business, financial condition and results of operations could be adversely affected. +• +We may not realize the expected return on our investment in SurfOS due to development delays, technical challenges, or lack of market acceptance, which could undermine our performance and competitive position. +• +The success of our business will be highly dependent on our ability to effectively market and sell our air mobility solutions as a substitute for alternative methods of transportation. +• +Our prospects and operations may be adversely affected by changes in consumer preferences, discretionary spending and other economic conditions that affect demand for our services. +• +We expect to face intense competition in the regional air mobility industry. +• +We are dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting and/or retaining highly qualified personnel, we may not be able to successfully implement our business strategy. +• +We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy. +• +The planned fully-electric and hybrid-electric powertrain solutions may not result in the operating cost savings we anticipate, which could negatively impact the future economics of our network operations as well as our ability to successfully sell and market our planned future Aircraft-as-a-Service strategy. +• +Our future fully-electric and hybrid-electric aircraft may require maintenance at frequencies or at costs which are unexpected and could adversely affect our business and operations. +• +The supply of pilots to the airline industry is limited and may negatively affect our operations and financial +6 +condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may have a material adverse effect on our business, financial condition and results of operations. +• +We are subject to legal, regulatory and physical risks associated with the environment and climate change, including the potential increased impacts of severe weather events on our operations and infrastructure. +• +We are exposed to operational disruptions due to maintenance. +• +Crashes, accidents or incidents of aircraft involving us or our competitors could have a material adverse effect on our business, financial condition and results of operations. +• +We, as well as our development and supply chain partners, have limited experience to date in the development and manufacturing of fully-electric and hybrid-electric powertrains and integrating those newly developed powertrains into existing certified airframes, and we may fail to realize the desired return on our investments with respect to fully-electric and hybrid-electric powertrains. +• +We are substantially dependent upon our relationships with our strategic partners, and we are or may be subject to risks associated with such strategic alliances. Our reliance on these arrangements, and the loss of any such alliances or arrangements or failure to identify future opportunities could affect our growth plans. +• +Our competitors may commercialize their technology before us, either in general or in specific markets, or we may otherwise not be able to fully capture a first mover advantage. +• +If we are unable to obtain and maintain access to adequate facilities and infrastructure in desirable locations, including securing access to key infrastructure such as airports, we may be unable to offer our service in a way that is useful to passengers. +• +Our operations are currently concentrated in a small number of metropolitan areas and airports which makes our business particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas. +• +The profitability of our current operations is dependent on the availability and pricing of aircraft fuel. Periods of significant disruption in the supply of aircraft fuel or elevated pricing could have a significant negative impact on our results of operations and liquidity. +• +If our third-party aircraft operators are unable to support our operations or the growth of our business, or we are unable to add alternative third-party aircraft operators to meet demand, our costs may increase and our business, financial condition and results of operations could be adversely affected. +• +We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation. +• +If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose market share, generate reduced revenue and incur costly litigation to protect our rights. +• +Our business will be subject to a variety of extensive and evolving laws and regulations, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel and competitive disadvantages. +• +Continued access to Essential Air Service revenue is of critical importance to us. +• +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. +• +We may fail to qualify for continued listing on the New York Stock Exchange (“NYSE”), which could make it more difficult for our stockholders to sell their shares. +• +Our management has limited prior experience in operating a public company. +• +Our shareholders may experience dilution from several different sources. +7 +PART 1 +ITEM 1: BUSINESS +Overview +Surf Air Mobility Inc. (the “Company”), a Delaware corporation, is a regional air mobility platform that aims to transform regional flying. The Company currently operates one of the largest commuter airlines in the United States by scheduled departures as well as an expanding on-demand charter marketplace for passengers in the U.S. and globally. The Company’s operations provide scale, distribution and real-world operating data to validate and, eventually, deploy the software and technology offerings it is currently developing to support the modernization of air operations and the adoption of next-generation aircraft. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to develop proprietary aviation software, aircraft electrification powertrain technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the NYSE. For 2025, the Company served over 300,000 passengers with approximately 62,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional Air Mobility business. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Our acquisition of Southern Airways in July 2023 has resulted in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Founded in 2013, Southern is one of the largest commuter airlines in the United States and the largest passenger operator of Cessna Grand Caravan EXs (“Cessna Caravans”) in the United States by scheduled departures. Southern has multi-year contracts with the U.S. federal government to operate Essential Air Service (“EAS”) routes, which helps small communities in the United States maintain a minimum level of scheduled air services. +At the heart of our strategy is our aim of commercializing electric aviation at scale. We firmly believe that regional air mobility can displace driving from its predominant position in 100-500 mile travel. There are approximately 5,000 public use airports in the U.S. creating the possibility of a dense point-to-point air network using regional aircraft. We believe that electrified aircraft, which could boast lower operating costs and emissions could be the key to unlock this electrified air-mobility market. +Surf Air Mobility (through its subsidiary airlines Southern Airways and Mokulele Airlines) is one of the largest commuter airlines in the United States by scheduled departures, serving numerous communities across the U.S. mainland and Hawaii. In addition, we have commercial relationships with over 400 air operators that provide on-demand charter services to our customers. In the future, these charter operators will be ideal customers for our AI-enhanced software operating system, SurfOS, and for hybrid and electric aircraft, all of which we expect to launch, commercialize and/or scale through our relationships with Textron Aviation, Electra, REGENT, BETA and others. +Our Strategy +We have several strategic differentiators which form our competitive advantage in the regional air mobility market. +• +Scale: we are one of the largest commuter airlines in the U.S. by scheduled departures. +8 +• +Experience: we have over a decade of experience operating in the highly regulated aviation industry and we have flown millions of passengers millions of miles. +• +Depth: we have deep – and unique – ties across the industry with exclusive relationships with Textron Aviation, manufacturer of the Cessna Caravan aircraft that we operate, and with Palantir Technologies a global leader in AI, enterprise data analytics, and business intelligence with whom we are collaborating to power the SurfOS operating system. +• +Reach: we have expansive reach and relationships with over 400 regional air operators who have operated charter flights via our marketplace and are expected to form the initial customer base of our SurfOS software. In addition, we have interline agreements with United, American, Alaska, Hawaiian and Japan Airlines that extend our reach to more than 430 million annual passengers combined. +• +Technology: we are developing AI-enhanced software, in collaboration with Palantir, to drive our growth and profitability and, in the future, we plan to offer this technology to other charter brokers, air operators, and aircraft owners. +• +Execution: we have brought together leaders and experts in aviation, software and electrification to help us synergistically execute our vision, drive profitable growth over time, and create shareholder value. +Given our leadership position in the regional air mobility sector, we believe we are uniquely qualified to understand the needs of industry participants and to develop software and hardware solutions to enhance efficiency, productivity, and profitability. Today, in collaboration with third parties, including our exclusive relationship with Palantir, we are developing an AI-enhanced software operating system, SurfOS. SurfOS is currently in the implementation phase across our Company, and we are already seeing improved productivity and efficiency through these tools. SurfOS aims to apply leverage to our commercial initiatives by streamlining our sales, sourcing, and distribution. Additionally, the software impacts critical functions of the airline operation such as crew scheduling, maintenance, and resource planning. We believe revenue management features such as dynamic pricing and flight distribution are key to maximizing revenue. Moreover, SurfOS is designed to empower a “connected aircraft,” which is expected to allow for near real-time insight into airplane health, maintenance needs, pilot performance, and flight tracking. We currently anticipate that we will begin rolling out SurfOS to launch customers in 2026, before widening distribution to other third-party operators, charter brokers, and owners over time. +The regional air mobility industry is expected to grow into a $75 billion to $115 billion global market by 2035. This market is expected to undergo massive transformation due to the emergence of new technologies such as electrification that seek to greatly reduce the cost of air travel, particularly for smaller regional planes that serve point-to-point routes from more convenient regional airports. In addition, electric and hybrid aircraft are expected to substantially reduce the carbon emissions of flying. +We believe Surf Air Mobility is uniquely positioned to lead the transformation of the regional air mobility industry. We intend to deploy electrified aircraft, when available, across our scheduled service routes. The Company is also pursuing Supplemental Type Certificates (“STCs”) for proprietary powertrain technology for the Cessna Grand Caravan aircraft. The Company has an exclusive sales and marketing relationship with the aircraft manufacturer, Textron Aviation, for distribution of electrified and hybrid powered aircraft, and we have MOU agreements with 7 operators globally with approximately 100 aircraft under management to potentially upgrade to our proprietary powertrains, once certified. +In addition, Surf Air Mobility’s platform will also help other electrification technologies go to market with access to the Company’s network and distribution potential. The Company is exploring relationships with other industry participants to bring innovative solutions to the regional air mobility market and accelerate the adoption of electrified aircraft potentially through the formation of joint ventures which may be separately capitalized. +Sources of Air Mobility Revenue +We generate revenue from two categories of air mobility services: +Scheduled Air Service - We generate revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, as well as through membership subscriptions. +9 +Of our combined fleet of 41 aircraft, 39 are Cessna Caravans as of December 31, 2025. For the year ended December 31, 2025, our total fleet averaged approximately 170 daily departures. We believe we are one of the largest commuter air carriers by both size of fleet and number of scheduled departures in the United States and we believe that in the future our scale could result in an increase in the number of average daily departures, fares and load factor compared to today. Through our EP1 fully-electric powertrain certification and collaborations with third parties on other technologies we believe we can be the first to operate an electrified fleet of aircraft in commuter operations. +We generate revenue from EAS revenue awards from the Department of Transportation (“ DOT ”). +The EAS program was put into place in the United States following the Airline Deregulation Act of 1978 to ensure that small communities continued to receive a minimal level of air service. EAS revenue awards are guaranteed revenue contracts issued by the DOT with revenue earned for completed flights. The EAS program subsidizes scheduled flights to connect underserved communities with larger airline hubs. These contracts help add predictable stability to Southern’s operations from both a route and revenue planning perspective. As of October, 1 2025, the EAS market size for annual contract subsidy rates was approximately $627 million. +We are a leader in securing and renewing EAS contracts, which we believe will be a critical differentiator as we work to expand our point-to-point short haul regional air mobility network. We work with key stakeholders in the communities in which we intend to serve as well as the DOT, and we have been able to tailor air travel solutions that are responsive to the key needs of these smaller, underserved communities. We have consistently been able to differentiate ourselves to win contracts by leveraging our large scale and depth of operational expertise to offer a low cost, highly reliable service proposal. +On-Demand - We generate revenue from on-demand flights created for customers on an ad-hoc, by request basis. A small number of the on-demand flights are operated on our fleet; the majority are delivered on third-party turboprops or small jets. For the year ended December 31, 2025, we generated revenue of $29.6 million from on-demand operations. +Today, we offer on-demand flight booking capabilities on our consumer platform enabled by our Surf Air mobile app, which is a capital light source of revenue. +We believe there is significant value to be created by leveraging our ability to serve both customers and operators within the regional flying ecosystem. We believe this will accelerate the demand for electric regional flying. By enabling new demand through our digital marketplace operations and catalyzing new supply through new technology and financing solutions, we believe we can create an ongoing cycle of growth. +We plan to invest in creating a scheduled network connecting many of the underutilized regional airports in the United States. We have developed a regional air mobility network growth plan based on mobile device and various demographic data layers, which resulted in a network growth plan across approximately 30 U.S. regional networks with approximately 200 “tier 1” routes. We intend to pursue this plan using our own air operations and by leveraging third-party air operators. +We have extensive experience using third-party operators in our scheduled and on-demand operations. As a result, we believe we will have in-depth knowledge of the success factors and key challenges facing independent operators and can facilitate operator relationships by deploying our Aircraft-as-a-Service strategy. Aircraft-as-a-Service is the product we intend to offer operators. Aircraft-as-a-Service encapsulates bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software purchase or rental for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream. +10 +Customer Experience +We believe that the customer experience that we have developed is a meaningful differentiating advantage. We have strived to create an exceptional flying experience solving the greatest pain points of regional commercial flying. Through our large scale, we have a substantial customer service operation to support our travelers. We intend to give our customers a stress-free and time-saving airport and travel experience. +Seamless Booking. Our customer journey begins digitally through both our booking app and website, creating a personalized air travel experience. Using the mobile app and website, customers have access to a real-time digital marketplace, which we believe enhances and simplifies the user experience. Customers can conveniently purchase tickets on existing scheduled flights or create private charters. Customers have access to an array of available aircraft to meet various travel needs. +Local Airports & Private Terminals. We operate scheduled and on-demand flights in and out of small airports and private terminals. This provides our customers with the convenience of an accessible airport closer to their origin and/or destination and the convenience of a private terminal experience. We believe that local airports can transform into centers for pilot training, community job growth, and growth for local businesses. +Reduced Travel Times. Operating in and out of regional airports and private terminals reduces travel time for our customers. On a typical commercial flight, major airlines recommend customers arrive two hours before their departure time. In contrast, our customers typically only need to arrive 30 minutes before their flight, which results in our passengers saving approximately 1.4 to 1.6 hours per departure. +Hassle Free Experience. Our customer services and station teams offer all customers a direct touchpoint to help manage any travel related needs leading up to and on the day of the flight. Southern currently has interline agreements with major commercial airlines, including United Airlines, Inc., American Airlines, Inc., Alaska Airlines, Inc., Hawaiian Airlines, Inc, and Japan Airlines, which help coordinate baggage claim for customers who fly different airlines on various legs of their trip, assisting in a hassle free experience. +Pilot Shortage Solution. Recent and longer-term trends in the airline industry have led to a large disruption in the supply of available aircraft pilots. A reliable, predictable and adequate availability of pilots is an integral part of any airline’s ability to maintain consistent scheduling of their operations. We believe that our business model, flying under Part 135 regulation and using primarily single-engine aircraft, will enable us to be a solution to the pilot shortage by providing pilots to certify as first officers and captains earlier, and creating a talent pool that does not compete with other airlines that operate multi-engine aircraft. Furthermore, with our pilot partnership with SkyWest, we are able to ensure that hiring and retention costs are offset in part by promoting pilot career flow into the regional airline industry. +As we plan to transition to fully-electric flight, we believe we are well-positioned to manage programs designed for training pilots for any new requirements related to the operation of electrified aircraft. Through our combined leverage as suppliers of new electrified aircraft and facilitators of a pilot training pipeline, we believe we can create a program that helps to ensure an adequate supply of pilots for the introduction of electrified flight. +11 +We believe that our current and future experience and knowledge, generated by operating our own large scheduled fleet and charter operation, combined with our partnerships and interactions with operators, brokers, lessors and OEMs puts us in a strong position to identify, create and commercialize the best electrification products and services for our evolving industry. +Government Regulation +The Company is subject to government regulation at local, state, national and international levels. The scope of these regulations is exceedingly broad, covering a wide range of subjects that includes, but is not limited to, those summarized below. Given the dynamic and rapidly evolving nature of the regulatory environment, the conduct of our business will always include a measure of risk and we may not be able to predict or control how new regulations might be written, or predict how existing regulations may be interpreted, or enforced. +Various aspects of our business, including scheduled and on-demand air service and electrification, are all impacted by interrelated but distinct regulatory frameworks. +Principal Domestic Regulatory Authorities +DOT +The U.S. Department of Transportation (the “DOT”) is the principal regulator of economic and consumer protection matters in the U.S. commercial aviation industry. The DOT licenses and oversees the operations of all carriers. This includes economic authority to conduct business as a type of air carrier, as well as consumer protection and insurance requirements that are applied to the conduct of such business. The DOT also oversees the marketing, sale and performance of public charter flights (charter flights which are sold by the seat) that may be arranged by an indirect air carrier (i.e., an entity that does not operate aircraft but contracts as a principal with a direct air carrier to do so on its behalf), for the purpose of offering its chartered flights to the public that will be performed by an identified direct air carrier at a predetermined date and time (in contrast to the on-demand, or as-needed/where-needed, character of certain of our services). The DOT oversees and regulates how airlines advertise and hold out services. The DOT also oversees the sale, holding out and arrangement of single-entity charter air transportation (charter of the entire capacity of an aircraft, in contrast to public charter flights which are sold by the seat). The DOT has authority to enforce laws and regulations against engaging in “unfair” or “deceptive” practices in the sale or provision of air transportation. The DOT promulgates and enforces various other consumer protection laws and regulations to which we are subject, including requirements related to non-discriminatory access to air transportation for disabled passengers, data reporting, recordkeeping, advertising and ticket sales, among others. The DOT is also responsible for monitoring and assuring that U.S. air carriers remain fit, willing and able at all times to provide the services for which they are licensed, and that such carriers qualify continuously as citizens of the United States within the meaning of U.S. aeronautical laws and regulations. +The Company is subject to U.S. laws regarding privacy of passenger and employee data, including as enforced by the DOT, that are not consistent in all jurisdictions where we operate and which are continually evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with privacy and information security obligations, the challenging and uncertain regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement and legal claims or proceedings. +FAA +The Federal Aviation Administration (“FAA”) is an operating administration of the DOT and the principal regulator of safety matters in the U.S. aviation industry. The FAA’s regulations touch on many aspects of civil aviation, such as the design and manufacture of aircraft, engines, propellers, avionics and other components, including applicability of engine noise and other environmental standards; the inspection, maintenance, repair and registration of aircraft; the training, licensing or authorizing and performance of duties by pilots, flight attendants and maintenance technicians; the testing of safety-sensitive personnel for prohibited drug use or alcohol consumption; the design, construction and maintenance of runways and other airport facilities; the operation of air traffic control systems, including the management of complex air traffic at busy airport facilities; the safety certification and oversight of air carriers including their operations and maintenance; the establishment and use of safety management systems by air carriers; the promotion of voluntary systems to encourage the disclosure of data that may aid in enhancing safety; and +12 +the oversight and operational control of air carriers by their accountable managers, directors of operations, directors of maintenance and other key personnel. +TSA +The Transportation Security Administration (the “TSA”) is an administration within the U.S. Department of Homeland Security which issues security programs to air carriers and ensures that air carriers operate in a manner consistent with any security program and other requirements issued to the carrier. +Facilities +Our headquarters is located in a leased 5,500 square foot facility in Hawthorne, California. The lease of this facility expires in August 2026. +In February 2025, the Company relocated our air operations center to Addison, Texas. The lease of this facility expires in January 2028. +Human Capital/Team +As of December 31, 2025, we had 573 employees, of which 467 were full-time and 106 were part-time. +We have not experienced any work stoppages and consider our relationship with our employees to be good. Our employees are divided across various core business functions, including operations, sales and marketing, research and development, customer service and finance and administration. +None of our employees are subject to a collective bargaining agreement or represented by a labor union. +Commitment to Environmental, Social and Governance (“ESG”) Leadership +We are seeking to build a regional air mobility ecosystem that will sustainably connect communities. We intend to accelerate the adoption of electric flying, bringing electrified aircraft to market at scale in order to substantially reduce the cost and environmental impact of regional flying. In so doing, we believe we can make a meaningful contribution to tackling the dual challenges of congestion and climate change. We are working to build a dedicated workforce to achieve this goal while striving to adhere to best practices in risk assessment, mitigation and corporate governance. +Our ESG efforts consist of focusing on the following: +• +Environmental. Being a good steward of the natural environment through the production and development of innovative designs that reduce resource use and energy consumption. +• +Social. Underpinning all of our activities with a core focus on health and safety. +• +Governance. Upholding our commitment to ethical business conduct, integrity and corporate responsibility, and integrating strong governance and enterprise risk management oversight across all aspects of our business. +Intellectual Property +Our ability to protect our material intellectual property is important to our business. We seek to protect our intellectual property (including our technology and confidential information) through a combination of trademarks and trade secret protections, as well as contractual commitments and security procedures. We generally require employees and consultants to enter into confidentiality and assignment of inventions agreements and certain third parties to enter into nondisclosure agreements. +We regularly review our technology development efforts and branding strategy to identify and assess the protection of new intellectual property. We own certain trademarks important to our business, such as the “Surf Air” and “Mokulele Airlines” trademarks in the United States. +13 +We currently own the “surfair.com” Internet domain-name registration and the “iflysouthern.com” and “mokuleleairlines.com” domain-name registrations. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name “Surf Air” or “Southern” or are otherwise relevant to or descriptive of our business. +We have chosen to rely primarily on copyright and trade secret law in order to protect our software and have chosen not to register any copyrights in these works. However, in the United States, copyrights must be registered in order to bring a claim for infringement and to obtain certain types of remedies. Even if we decide to register a copyright in our software to bring an infringement action, the remedies and damages available to us for unauthorized use of our software may be limited. +Intellectual property laws, contractual commitments and security procedures provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, trade secrets, know-how and other materials may be independently developed by our competitors or revealed to the public or our competitors and no longer provide protection. In addition, intellectual property laws vary from country to country. We may therefore be unable to protect certain of our technology, brands or other intellectual property in the U.S. or other jurisdictions. +We regularly review our development efforts to assess the existence and patentability of new inventions, and we are prepared to file patent applications when we determine it would benefit our business to do so. +Privacy and Data Protection +There are many requirements regarding the collection, use, transfer, security, storage, destruction and other processing of personally identifiable information and other data relating to individuals. Because our technology platform is an integral aspect of our business, compliance with laws governing the use, collection and processing of personal data is necessary for us to achieve our objective of continuously enhancing the user experience of our mobile application and marketing site. +We receive collect, store, process, transmit, share and use personal information and other customer data, including passenger data, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share and use such personal information, including payment information. A variety of federal, state, local, municipal and foreign laws and regulations, as well as industry standards (such as the payment card industry standards) govern the collection, storage, processing, sharing, use, retention and security of this information. +Corporate Information +We were originally founded in 2011 and incorporated in 2021 in Delaware. Our principal executive offices are located at 12111 S. Crenshaw Blvd., Hawthorne, CA 90250, and our telephone number is (424) 332-5480. Our website address is www.surfair.com. Our common stock is listed on the New York Stock Exchange under the symbol “SRFM”. +Available Information +Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our website at investor.surfair.com or at www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also use our website as a tool to disclose important information about the Company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance guidelines, code of business conduct and ethics and Board committee charters are also posted on the Investor Relations section of our website. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report we file with, or furnish to, the SEC. +14 +ITEM 1A: RISK FACTORS +You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. If any of the risks and uncertainties described below actually occur or continue to occur, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including, but not limited to, overall economic and industry conditions and additional risks not currently known to us or that we presently deem immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations or the trading price of our common stock. Moreover, some of the factors, events, and contingencies discussed below may have occurred in the past, but the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past, and instead reflect our beliefs and opinions as to the factors, events, or contingencies that could materially and adversely affect us in the future. +Risks Related to Our Financial Position and Capital Requirements +There is substantial doubt about our ability to continue as a going concern. We will need additional financing to execute our business plan, to fund our operations and to continue as a going concern. +We have incurred losses from operations, negative cash flows from operating activities and have a working capital deficit. We are currently in default of certain excise and property taxes, as well as certain debt, tax and other contractual obligations as further described in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and “- Risks Related to Our Financial Position and Capital Requirements - We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur ”. There can be no assurances that we can cure any defaults that remain outstanding, or if cured, that we will not default on future obligations. +Our success is largely dependent on the ability to raise debt and equity capital, increase passenger loads, continue to expand into regions profitably throughout the United States and ultimately, successfully develop our Air Technology business. +We have funded our operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities and preferred and common share financing arrangements. A significant amount of funding to date has been provided by a small number of entities, including entities affiliated with a co-founder of the Company. We will need additional financing to implement our full business plan, including our plans to develop our software technology platforms and to electrify our fleet, which is a core part of our growth strategy, and to service our ongoing operations. We are evaluating, and will continue to evaluate, strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt, entering into other financing arrangements, or restructuring of operations to grow revenues and decrease expenses. +If we are unable to raise sufficient financing when needed or events or circumstances occur such that we do not meet our strategic plans, we will be required to seek other sources of liquidity or to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, restructuring our operations and possibly divesting all or a portion of our business, reducing spending on payroll, marketing, station rent and aircraft purchases necessary for our planned network, altering or scaling back development plans, including plans to equip regional airline operations with fully-electric and hybrid electric aircraft and reducing funding or deferring of capital expenditures, any of which could have a material adverse effect on our financial position, results of operations, cash flows and ability to achieve our business objectives. These factors raise substantial doubt about our ability to continue as a going concern. +Our prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect our business, results of operations or financial condition include, but are not limited to the ability to: (i) raise additional capital (or financing) to fund operating losses, (ii) refinance our current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v) attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to our business model. +15 +Moreover, some of our vendors and suppliers likewise rely on capital raising activities to fund their operations and capital expenditures, which may be more difficult or expensive in the event of downturns in the economy or disruptions in the financial and credit markets (including as a result of the aforementioned factors and those mentioned below that have impacted our operations). If such vendors or suppliers are unable to raise adequate capital to fund their business plans, they may not be able to comply with their obligations to us, which could have a material adverse effect on our business, financial condition and results of operations. +We have incurred significant losses since our inception and expect to incur significant expenses and continuing losses for the foreseeable future. We may not be able to achieve or maintain profitability or positive cash flows. +We have incurred significant losses since the Company’s inception. We incurred net losses of $110.6 million and $74.9 million for the years ended December 31, 2025 and 2024, respectively. We expect our operating expenses to increase over the next several years as we invest in our Air Mobility and Air Technology businesses, including through increasing our flight cadence and growing our scheduled network, hiring more employees and funding SurfOS development and third-party research and development efforts relating to the development of aircraft electrification technology, as well as due to macroeconomic factors such as inflation. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we continue to have negative cash flow or losses resulting from our investment in increasing our member base and passenger loads or expanding our operations into regions throughout the United States, our business, financial condition and results of operations could be materially adversely affected. Going forward, our future losses may be larger than anticipated, and we may not achieve profitability when expected, or at all. Even if we achieve profitability, we may not be able to maintain or increase profitability. +The continued growth of our business will require significant investments in the development of our SurfOS software platform, fully-electric and hybrid-electric powertrains, our aircraft fleet, ground-based infrastructure, information technology and marketing and sales efforts. Our current cash flow has not been sufficient to support these needs to date. We have historically had negative cash flows and a working capital deficit, and have funded our operations and capital needs to date through the proceeds received from the issuance of various debt and equity instruments. Going forward, our ability to effectively manage growth and expansion of our operations will also require us to enhance various systems, including in relation to research and development, operations and internal controls and reporting. These enhancements will require significant capital expenditures and allocation of valuable management and employee resources. If our business does not generate the level of available cash flow required to support these operations and investments, and we are not able to determine an alternative solution to obtain the funding needed for our future operations, there may be a material adverse effect on our business, financial condition and results of operations. +It is not possible to predict the actual number of shares we will need to sell under the Share Subscription Facility to GEM in order to draw down under such facility. Further, we may not have access to the full amount available under the Share Subscription Facility, or may not be able to draw down under the Share Subscription Facility in a timely manner (or at all) in order to meet its existing obligations. +Pursuant to the Share Purchase Agreement with GEM Global Yield LLC SCS, as amended, (the “Share Subscription Facility”), upon the terms of and subject to the satisfaction of certain conditions, we have the right from time to time at our option to direct GEM to purchase up to a specified maximum amount of shares of our common stock, up to a maximum aggregate purchase price equal to $400 million over the term of the Share Subscription Facility. We may request advances from GEM (“GEM Advances”) at any time in an aggregate amount of up to $100 million, consisting of incremental advances of up to $25 million each provided that the first GEM Advance may not exceed $7.5 million without the consent of GEM. Any GEM Advance will reduce amounts that we can request for future draw downs. We have drawn upon the GEM Advances in 2024 and 2025 and may continue to draw upon the GEM Advances in 2026 to augment our capital resources to address our capital needs. +The failure to satisfy the specified conditions under the Share Subscription Facility may result in our inability to request any or all of the GEM Advances or other draw downs pursuant to the Share Subscription Facility. In addition, upon requesting any GEM Advance under the Share Subscription Facility, we have agreed to deposit into escrow an amount of shares of common stock equal to two times the number of shares of common stock set out in the applicable advance request for a GEM Advance. There can be no assurances that we will be able to accurately estimate the number of shares of our common stock to be deposited since we will need to determine this number prior to the trading period of our common stock that will determine the actual purchase price for a GEM Advance. GEM will not be obligated to +16 +(but may, at its option, choose to) purchase shares of our common stock to the extent such purchase would result in beneficial ownership (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder) by GEM, together with its affiliates, of more than 9.99% of our issued and outstanding common stock. Such beneficial ownership limitation will not apply to the GEM Advances. In addition, the amount requested for each draw down (other than a GEM Advance) available under the Share Subscription Facility may not exceed 400% of the average daily trading volume for the 30 trading days immediately preceding any draw down. There can be no guarantee that we will be able to access any or all of the GEM Advances or other draw downs available under the Share Subscription Facility. Our inability to access a portion or the remaining amounts available under the Share Subscription Facility, in the absence of any other financing sources, will have a material adverse effect on our business and our ability to operate as a going concern. +The purchase price per share to be paid by GEM for the shares of our common stock that we may elect to sell to GEM under the Share Subscription Facility pursuant to the GEM Advances or draw downs, if any, will fluctuate based on the volume weighted average trading price of our common stock during the applicable period for each purchase made pursuant to the Share Subscription Facility. Accordingly, it is not possible to predict, prior to any such sales, the number of shares of our common stock that we will sell to GEM under the Share Subscription Facility, the purchase price per share that GEM will pay for shares purchased from us under the Share Subscription Facility, or the aggregate gross proceeds that we will receive from those purchases by GEM (other than a GEM Advance) under the Share Subscription Facility, if any. Therefore, sales to GEM by us in order to utilize the GEM Advance will, and any future draw downs under the Share Subscription Facility could, result in substantial dilution to the interests of other holders of its shares of our common stock. +Sales of shares of our common stock, if any, to GEM under the Share Subscription Facility will be determined by us from time to time in our sole discretion and will depend on a variety of factors, many of which are outside of our control, including, among other things, market conditions and the terms, conditions and limitations set forth in the Share Subscription Facility (subject to certain limitations on the obligation of GEM to purchase shares including, among other things, beneficial ownership limitations (other than in respect of the GEM Advances)). We may ultimately decide to sell to GEM all, some or none of the remaining shares of our common stock that may be available for us to sell to GEM pursuant to the Share Subscription Facility. Depending on market liquidity at the time, resales of those shares by GEM may cause the public trading price of our common stock to decrease. +As a result of the above factors, it is possible that we may need to issue and sell more than the number of shares that we initially expect to issue to GEM under the Share Subscription Facility in order to receive aggregate gross proceeds equal to GEM’s $400 million total aggregate purchase commitment under the Share Subscription Facility, which could cause additional substantial dilution to holders of our common stock. The number of shares of our common stock ultimately offered for sale by GEM is dependent upon the number of shares of our common stock we ultimately sell to GEM under the Share Subscription Facility. +We have previously defaulted on our debt and other obligations and there can be no assurance that we will be able to fulfill our obligations under any current or future indebtedness we may incur. +As of December 31, 2025, we had $97.1 million in debt outstanding, representing principal related to term loans, related party promissory notes and convertible notes. The incurrence of existing or future indebtedness could have important consequences on our business, including, but not limited to: +• +increasing our vulnerability to general adverse economic and industry conditions; +• +requiring us to dedicate a substantial portion of our cash flow from operations to servicing our debt, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes; +• +limiting our flexibility in planning for, or reacting to, challenges and opportunities, and changes in our businesses and the markets in which we operate; and +• +leading to the possibility of default on future debt obligations. +17 +Our ability to service our debt will depend on our future operating performance and financial results, which may be subject to factors beyond our control, including general economic, financial and business conditions. If we do not have sufficient cash flow to service our debt, we may need to refinance all or part of our existing debt, borrow more money or sell securities or assets, some or all of which may not be available at acceptable terms or at all. In addition, we may need to incur additional debt in the future in the ordinary course of business. Our current debt and any future additional debt we may incur may impose significant operating and financial restrictions. A breach of any of these restrictions could result in a default. If a default occurs, the relevant lenders could elect to accelerate payments due. If our operating performance declines, or if we are unable to comply with any restrictions, we may need to obtain amendments to our existing debt documents or waivers from the lenders to avoid default. These factors could have a material adverse effect on our business. +Further, if there were an event of default under our debt instruments or a change of control, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately and may be cross-defaulted to other debt. Our assets or cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, and there is no guarantee that we would be able to repay, refinance or restructure the payments on those debt securities. +We have previously defaulted on various debt and other obligations. Further, we are currently in default of certain excise and property taxes. See the section titled “Liquidity and Going Concern” in Note 1, Description of Business in the accompanying consolidated financial statements for further information. +Our past financial results may not be a reliable indicator of our future results. Further, our results of operations may fluctuate significantly, which makes our future results of operations difficult to predict and could cause our results of operations to fall below expectations or any guidance we may provide. +Our past financial results may not be a reliable indicator of our future results, particularly given our development and commercialization of SurfOS and expected move toward fully-electric and hybrid-electric powertrain technology. Further, our quarterly and annual results of operations may fluctuate significantly, which makes it difficult for us to predict our future results of operations. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. +This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide. +Loss carryforwards and certain other tax attributes to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of common stock, or if taxable income does not reach sufficient levels. +Our ability to use Net Operating Loss (“ NOL ”) carryforwards and certain other tax attributes will depend on the amount of taxable income we generate in future periods and, as a result, certain of our NOL carryforwards and other tax attributes may expire before we can generate sufficient taxable income to use them in full. In addition, our ability to use NOL carryforwards and certain other tax attributes to offset future taxable income may be limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). Potential future transactions involving the sale or issuance of common stock may increase the possibility that we will experience a future “ownership change” under Section 382. Such transactions may include the exercise of warrants, the issuance of common stock for cash, the conversion of any future convertible debt, the repurchase of any debt with common stock, the acquisition or disposition of any stock by a stockholder owning 5% or more of the outstanding shares of common stock, or a combination of the foregoing. +We may never realize the full value of our intangible assets or our long-lived assets causing us to record impairments that may negatively affect our financial condition and operating results. +In accordance with applicable accounting standards, we are required to test indefinite-lived intangible assets for impairment on an annual basis, or more frequently where there is an indication of impairment, and certain other assets for impairment where there is any indication that an asset may be impaired. We may be required to recognize losses in +18 +the future due to, among other factors, extreme fuel price volatility, tight credit markets, government regulatory changes, decline in the fair values of certain tangible or intangible assets. +Our contractual obligations could impair our liquidity and materially adversely affect our business, results of operations and financial condition. +We have significant long-term lease obligations primarily relating to our aircraft fleet. As of December 31, 2025, we had 21 aircraft under operating leases, with an average remaining lease term of approximately 3.94 years. As of December 31, 2025, future minimum lease payments due under all long-term operating leases were approximately $12.8 million. Our future ability to pay our contractual obligations and our liquidity will depend on our operating performance, cash flow and our ability to secure adequate financing, which will in turn depend on, among other things, the success of our business strategy, U.S. and global economic conditions, the availability and cost of financing, as well as general economic and political conditions and other factors that are beyond our control. If our liquidity is materially diminished, there may be a material adverse effect on our cash flow available to fund working capital requirements, capital expenditures and business development efforts. +We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing or access the capital markets to fund our ongoing operations and execute on our growth strategy on acceptable terms and conditions. +We will need to raise capital in the future to fund our operations and to execute on our anticipated growth strategy, including development and commercialization of SurfOS and the development of aircraft electrification technology. For example, the cost of aircraft is a significant portion of our operating costs and is subject to change. As part of our agreement with TAI, we have committed to the purchase of four Cessna Caravans in 2026, which we believe are currently competitively priced, but which may increase in price pursuant to price escalation clauses by the time we execute the purchase. Historically, we have financed our operations and capital expenditures primarily through private financing rounds and the issuance of debt and equity. A significant amount of our funding to date has been provided by entities affiliated with a co-founder of the Company. +We may utilize the GEM Advances, as necessary, in 2026 to address our capital needs. We may also seek additional capital through a combination of equity and debt financings. +There are a number of factors that may limit our ability to raise financing or access capital markets in the future, including current and future debt and contractual obligations, our cash position and credit status, our operating cash flows, a lack of liquidity in our stock, market conditions in the aviation industry, U.S. and global economic conditions, the financial impact of global events such as wars and pandemics, the general state of the banking system and capital markets and the financial position of the major providers of aircraft and other aviation industry financing. Any additional financing required by us may not be available on terms acceptable to us, or at all. If we are unable to source financing on acceptable terms, or unable to source financing at all, our business could be materially adversely affected. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay or cancel our planned activities or substantially change our corporate structure. +If, in the future, we raise additional funds by issuing equity securities (including the GEM Advances), convertible debt or other similar securities, investors may experience significant dilution of their ownership interest, and these newly issued securities may have rights senior to those of the holders of common stock. Our current and any future financing arrangements, that we may enter into from time to time, involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and currently, and in the future, could impair our operational flexibility, including restricting our ability to pursue our business strategy, increase our expenses, require that our assets secure such debt, or provide for high interest rates, discounted conversion prices, or other unfavorable terms. Higher interest rates could increase debt service requirements on our current variable rate indebtedness, and on any debt we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we need to repay debt during periods of rising interest rates, we could be required to refinance our then-existing debt on unfavorable terms or liquidate one or more of our assets to repay such debt at times which may not permit realization of the maximum return on such assets and could result in a loss. The occurrence of such events could materially and adversely affect our profitability, cash flows and results of operations. If we are unable to obtain additional financing, including the GEM Advances, when needed or on acceptable terms, we will need to restructure our operations, and possibly divest all or a portion of our business. We may be required to cease operations which could result in our stockholders losing all or most of their investment. +19 +Agreements governing our debt obligations include financial and other covenants that provide limitations on our business and operations under certain circumstances, and failure to comply with any of the covenants in such agreements could adversely impact us. +Our current and any future financing agreements that we may enter into from time to time, contain certain affirmative, negative and financial covenants, and other customary events of default. Under certain circumstances, such covenants require us to maintain minimum liquidity levels, limit our ability to enter into certain strategic transactions, make certain investments, pay dividends and make certain other specified restricted payments. Certain covenants in our financing agreements are subject to important exceptions, qualifications and cure rights, including, under limited circumstances, the requirement to provide additional collateral or prepay or redeem certain obligations. In addition, certain of our financing agreements are cross-collateralized, such that an event of default or acceleration of indebtedness under one agreement could result in an event of default under other financing agreements. If we fail to comply with such covenants, if any other events of default occur for which no waiver or amendment is obtained, or if we are unable to timely refinance the debt obligations subject to such covenants or take other mitigating actions, the holders of our indebtedness could, among other things, declare outstanding amounts immediately due and payable and, subject to the terms of relevant financing agreements, repossess or foreclose on collateral, including certain of our aircraft or other assets used in our business. The acceleration of significant indebtedness or actions to repossess or foreclose on collateral may cause us to renegotiate, repay or refinance the affected obligations, and there is no assurance that such efforts would be successful or on terms we deem attractive. In addition, any acceleration or actions to repossess or foreclose on collateral under our financing agreements could result in a downgrade of any credit ratings then applicable to us, which could result in additional events of default or limit our ability to obtain additional financing. +Risks Related to Our Business and Industry +The market for regional air mobility has not been established with precision, is still emerging and may not achieve the growth potential we expect or may grow more slowly than expected. +The regional air mobility market is still emerging and has not been established with precision. It is uncertain to what extent market acceptance will grow, if at all. We have historically operated in a limited number of regional areas. The success of the regional markets in which we operate and the opportunity for future growth in such markets may not be representative of the potential market for regional air mobility in other regional areas. Our success will depend to a substantial extent on the willingness of commuters and travelers to widely adopt regional air mobility, particularly point-to-point versus the currently predominant hub-and-spoke industry configuration, as an alternative for ground transportation. If we are unable to develop our SurfOS software solutions to meet the needs of our commercial partners, the actual operating efficiencies from using our software are less than anticipated, or charter brokers, air operators and aircraft owners do not adopt our software, then the market for our offerings may not develop, may develop more slowly than we expect or may not achieve the growth potential we expect. In addition, although we believe our ability to develop and integrate hybrid-electric and electric technology with our commercial partners to present a cost-effective solution to address the needs of consumers in this market will also be a key factor to the success of our future growth, if the market that we seek to address does not perceive electrification as beneficial, or chooses not to adopt electrification as a result of concerns regarding safety, affordability, value proposition or for other reasons, then the market for our offerings may not develop, may develop more slowly than we expect or may not achieve the growth potential we expect. As a result, the number of potential customers using our future services and technology cannot be predicted with any degree of certainty, and we cannot provide assurance that we will be able to operate in a profitable manner in any of our current or targeted future markets. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. +Our prospects and operations may be adversely affected by changes in consumer preferences, discretionary spending and other economic conditions that affect demand for our services. +Our business is concentrated on regional air mobility, which is vulnerable to changes in consumer preferences, discretionary spending and other market changes impacting luxury goods and discretionary purchases (including as a result of concerns regarding the impact of a global recession). The global economy has in the past, and may in the future, experience recessionary periods and periods of economic instability, such as uncertainty in the banking system, rising fuel costs and ongoing business disruptions and related financial impacts, including resulting from public health crises such as pandemics, changes in inflation and interest rates, and disruptions in manufacturing, delivery and overall supply chain. In particular, as a result of the current international trade environment (including uncertainties in global trade policies, potential escalation of tensions under the current U.S. administration, and the unpredictable impact of tariffs and trade restrictions), the conflict between Russia and Ukraine and hostilities in the Middle East and South America and rising prices and interest rates, many market observers anticipate that the global economy could face a recession in +20 +the foreseeable future. During such periods, our customers have chosen not to make discretionary purchases or to reduce overall spending on discretionary purchases. Such changes could result in reduced consumer demand for air transportation, including our air mobility services, or could shift demand from our air mobility services to other methods of air or ground transportation for which we do not offer a competing service. Any reduction in consumer demand for air transportation could also reduce demand for, or revenue from, our SurfOS software. If we are unable to generate demand or there is a future shift in consumer spending away from air mobility, there could be a material adverse effect on our business, financial condition and results of operations. +We expect to face intense competition in the regional air mobility industry. +The regional air mobility industry is still developing and evolving, but we expect it to be highly competitive. We have a number of competitors in the regional air mobility market. For example, we compete against existing on-demand mobility air travel services, as well as ground transportation alternatives. Additionally, for certain of our longer routes, we compete against providers, including legacy commercial airlines, which have larger aircraft. We compete against companies that use technology that differs from the technology we intend to deploy in our aircraft in the future. For example, we will likely compete against other companies that utilize and develop fixed-wing electrification aircraft as well as competitors that pursue electric vertical takeoff and landing aircraft. We also face competition for our SurfOS software solutions. Our potential competitors may be able to devote greater resources to the development of their current and future technologies or the promotion and sale of their offerings, or offer lower prices. Our potential competitors also may establish cooperative or strategic relationships among themselves or with third parties, including regional or national airport operations that we rely on to offer our air mobility services, which may further enhance their resources and offerings. It is possible that domestic or foreign companies or governments, some with greater experience in the air mobility industry or greater financial resources than we possess, will seek to provide products or services that compete directly or indirectly with ours in the future. Any such foreign competitor could benefit from subsidies or other protective measures provided by its home country. In addition, our potential customers may build their own software solutions rather than subscribe to our SurfOS software. +In addition, legal and regulatory changes may increase our competition. For example, following the passage of the FAA Reauthorization Act of 2024, and resulting changes to the administration of the EAS program, we have been subject to increased competition for certain subsidized routes. As a result, we expect to face increased and continued competition when bidding for or renewing EAS contracts, which could impact our ability to retain existing routes or the level of subsidy associated with those routes. +We believe our ability to compete successfully as an air mobility service will depend on a number of factors, which may change in the future due to increased competition, including the price of our offerings, consumer confidence in the safety of our offerings, consumer satisfaction for the experiences we offer and the routes, frequency of flights and availability of seats offered through our platform. If we are unable to compete successfully, there could be a material adverse effect on our business, financial condition and results of operations. +If we are not able to successfully enter into new markets, offer new routes and services and enhance our existing offerings, our business, financial condition and results of operations could be adversely affected. +Our growth will depend in part on our ability to successfully enter into new markets, create and introduce new routes, and expand our existing routes by adding more frequent flights. Significant changes to our existing routes or the introduction of new and unproven routes may require us to obtain and maintain applicable permits, authorizations or other regulatory approvals. If these new or expanded routes are unsuccessful or fail to attract a sufficient number of customers to be profitable, or we are unable to bring new or expanded routes to market efficiently, our business, financial condition and results of operations could be adversely affected. Further, new third-party aircraft operator or flier demands regarding our services, including the availability of superior routes or a deterioration in the quality of our existing routes, could adversely affect the attractiveness of our platform and the economics of our business and require us to make substantial changes to and additional investments in our routes or our business model. +Developing and launching new routes or enhancements to routes historically flown by us involves significant risks and uncertainties, including risks related to the reception of such routes by existing and potential future third-party aircraft operators and customers, increases in operational complexity, unanticipated delays or challenges in implementing such routes or enhancements, increased strain on our operational and internal resources (including an impairment of our ability to accurately forecast flier demand and the number of third-party aircraft operators using our platform) and negative publicity in the event such new or enhanced routes are perceived to be unsuccessful. Significant new initiatives have in the past resulted in similar operational challenges, and our growth strategy contemplates scaling our business rapidly, +21 +such as through acquisitions. In addition, developing and launching new routes and enhancements to our existing routes may involve significant upfront investment, such as additional marketing and terminal build-out, and such investments may not generate a return. Any of the foregoing risks and challenges could have a material adverse effect on our business, financial condition and results of operations. +Our long-term growth strategy includes the transformation of the regional air mobility industry. This includes developing software and hardware solutions to enhance efficiency, productivity, and profitability, creating a scheduled network connecting many underutilized regional airports in the United States, and deploying electrified aircraft, when available. The air mobility industry is complex and each stage of implementation of our strategic goals involves risk. There can be no assurance that we will successfully implement this transformation, or that it will result in the market opportunities we anticipate, and our failure to successfully achieve part or all of this transformation could have a material adverse effect on our business, financial condition and results of operations. +If we experience harm to our reputation and brands, our business, financial condition and results of operations could be adversely affected. +We must continue to increase the strength of our reputation and brands as reliable, experience-driven and cost-effective air mobility solutions providers in order to attract and retain qualified third-party aircraft operators and customers. In addition, our growth strategy includes, among other things, exploring complementary strategic mergers and acquisitions, as well as strategic partnerships, to expand our capabilities and market opportunities, all of which benefit from our reputation and brand recognition. The successful development of our reputation and brands will depend on a number of factors, many of which are outside of our control. Negative perception of our business, platform, or products may have a material adverse effect on our reputation and brands, including as a result of: +• +complaints or negative publicity or reviews about us, our third-party aircraft operators or customers, our air mobility services, certain other brands or events we associate with or our flight operations policies ( e.g. , cancellation or baggage fee policies), even if factually incorrect or based on isolated incidents; +• +general safety concerns or specific perceptions of the safety and performance of certain types of aircraft, such as single-engine versus twin-engine aircraft or propeller-powered aircraft versus jet-powered aircraft, or if companies have policies that prevent them from utilizing our services due to the aircraft we operate; +• +changes to our flight operations, safety and security, data privacy or other policies that users or others perceive as overly restrictive, unclear or inconsistent with our values; +• +a failure to enforce our flight operations policies in a manner that users perceive as effective, fair and transparent; +• +illegal, negligent, reckless or otherwise inappropriate behavior by our customers, our third-party aircraft operators or other third parties involved in the operation of our business or by our management team or other employees; +• +flight delays or a failure to provide routes and flight schedules sought by customers; +• +actual or perceived disruptions or defects in our platform or other technology development, such as data privacy or security incidents, platform outages, payment processing disruptions or other incidents that impact the availability, reliability or security of our offerings; +• +litigation over, or investigations by regulators into, our operations or those of our third-party aircraft operators; +• +inadequate or unsatisfactory customer support service experiences; +• +negative responses by third-party aircraft operators or customers to new mobility offerings on our platform; +• +perception of our treatment of employees, contractors or third-party aircraft operators and our response to their sentiment related to political or social causes or actions of management; +• +disputes with any of our strategic partners; +• +problems in engagement with aircraft certification bodies or other regulators, communities, target demographics or other positioning in the market; or +22 +• +any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or the aviation industry as a whole, and particularly if we are unable to adequately differentiate our brand, services and aircraft from others in the market. +In addition, changes we may make to enhance and improve our offerings, and to balance the needs and interests of our third-party aircraft operators and customers may be viewed positively from one group’s perspective (such as customers) but negatively from another’s perspective (such as third-party aircraft operators), or may be viewed negatively by either third-party aircraft operators or customers. If we fail to balance the interests of third-party aircraft operators and customers or make changes that they view negatively, third-party aircraft operators and customers may stop using our platform or take fewer flights, or not adopt our software solutions, any of which could have a material adverse effect on our reputation, brands, business, financial condition and results of operations. Moreover, we may fail to adequately differentiate our brand, services, and aircraft from others in the market, which could impact our ability to attract customers or engage with other key stakeholders. +We may be unable to reduce end-user pricing for our air mobility services over time at rates sufficient to stimulate demand and drive expected growth for our air mobility services. +We may not be able to successfully reduce end-user pricing for our air mobility services over time to increase demand, address new market segments and develop a significantly broader customer base. Our end-user pricing may be most applicable to relatively affluent consumers who are willing to purchase our services, and we will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we intend for our air mobility services to be economically accessible to a broad segment of the population and appeal to the customers of existing on-demand mobility air travel services in addition to ground-based travel services, taxis and other methods of transportation. +Reducing end-user pricing in a timely manner is dependent on management accurately estimating the unit economics of our aircraft and the corresponding service. For example, if management’s estimates are inaccurate regarding utilization rates, demand elasticity, operating conditions, production costs, indirect cost of goods sold, landing fees, charging fees, electricity availability and/or other operating expenses, we may be unable to offer our service at end-user pricing that is sufficiently compelling to initiate the local network effects that we are predicting. This could negatively impact our reputation or brand and have a material adverse effect on our business, financial condition and results of operations. +From time to time, the aircraft industry has experienced periods of oversupply during which lease rates and aircraft values have declined, and any future oversupply could materially adversely affect our financial results and growth prospects. +Historically, the aircraft leasing business has experienced periods of aircraft oversupply. The oversupply of a specific type of aircraft is likely to depress the lease rates for and the value of that type of aircraft. The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are outside of our control, including: +• +passenger and air cargo demand; +• +fuel costs and general economic conditions; +• +geopolitical events, including war, prolonged armed conflict and acts of terrorism; +• +outbreaks of communicable diseases and natural disasters; +• +governmental regulation; +• +interest rates; +• +the availability of credit; +• +airline restructurings and bankruptcies; +• +manufacturer production levels and technological innovation; +• +manufacturers merging or exiting the industry or ceasing to produce aircraft types; +• +retirement and obsolescence of aircraft models; +• +reintroduction into service of aircraft previously in storage; and +23 +• +airport and air traffic control infrastructure constraints. +In addition, due to the recent economic downturn and increased financial pressures, a number of operating lessors may be sold or merged with other operating lessors. The sale of any of these operating lessors (which may include a reduction in their aircraft fleets) and, in particular, their aircraft portfolios, could increase supply levels of used and older aircraft in the market. +These factors may produce sharp and prolonged decreases in aircraft lease rates and values and have a material adverse effect on our ability to lease or re-lease the commercial aircraft that we ultimately acquire and on our ability to sell such aircraft and parts at acceptable prices. Any of these factors could materially and adversely affect our financial results and growth prospects. +Any failure to offer high-quality customer support may harm our relationships with customers and could adversely affect our reputation, brands, business, financial condition and results of operations. +Through our marketing, advertising and communications with customers, we intend to set the tone for our brands as aspirational but also within reach. We strive to create high levels of customer satisfaction through the experience we provide in our terminal lounges and the support provided by our team and representatives. The ease and reliability of our offerings, including our ability to provide high-quality flier support, helps us attract and retain customers. Customers depend on our team to resolve any issues relating to our services, such as lost luggage and personal belongings, flight cancellations or scheduling changes. Our ability to provide effective and timely support is largely dependent on our ability to attract and retain skilled employees who can support customers and are sufficiently knowledgeable about our services. As we grow our business and improve our air mobility service platform, we will face challenges related to providing quality support at scale. Any failure to provide efficient flier support, or a market perception that we do not maintain high-quality support, could have a material adverse effect on our reputation, brands, business, financial condition and results of operations. +The success of our business will be highly dependent on our ability to effectively market and sell our air mobility solutions as a substitute for alternate methods of transportation. +We currently generate substantially all of our revenue from the sale of air transportation. Our success will depend in part on our ability to cost-effectively attract new customers, retain existing customers and increase utilization of our platform by existing customers. Our growth is highly dependent upon the adoption by charter brokers, air operators and aircraft owners of our SurfOS software solutions, the adoption by consumers of an enhanced form of mobility offered by fully-electric and hybrid-electric aircraft, and the growth of the regional air mobility industry. This market is new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, new aircraft announcements and changing consumer demands and behaviors. If customers do not broadly adopt this new form of mobility or are not willing to pay the prices we anticipate for our air mobility services, our business, including our planned Aircraft-as-a-Service initiative, may never materialize and there could be a material adverse effect on our prospects, financial condition and results of operations. +Passengers have a wide variety of options for transportation, including business aviation, commercial airlines, private aircraft operators, personal vehicles, rental cars, taxis, public transit and ridesharing offerings. To expand our customer base, we must appeal to new customers who have historically used other forms of transportation for regional travel. If customers do not perceive our air mobility services to be reliable, safe and cost-effective, or if we fail to offer new and relevant services and features on our platform, we may not be able to attract or retain customers or increase their utilization of our platform. If we fail to grow our customer base, retain existing customers or increase the overall utilization of our platform, there could be a material adverse effect on our business, financial condition and results of operations. +Our success in a given market will also depend on our ability to maintain and further develop our network of customers and accurately assess and predict customer demand and price sensitivity. Demand and price sensitivity may fluctuate based on a variety of factors, including macroeconomic factors, quality of service, negative publicity, safety incidents, corporate reporting related to safety, quality of customer service and support, perceived political or geopolitical affiliations and dissatisfaction with our products and offerings in general. If we fail to attract new customers or fail to accurately predict demand and price sensitivity, it may harm our financial performance, and our competitors’ services and products may achieve greater market adoption and as a result may grow at a faster rate than our service. +24 +We expect that a large driver of customer demand for our service will be time savings when compared with alternative modes of transportation. If we are unable to deliver a sufficient level of time savings for our customers or if expected time savings are impacted by delays or cancellations, it may reduce demand for our services. If we are unable to generate demand or demand falls, there could be a material adverse effect on our business, financial condition and results of operations. +We are dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting and/or retaining highly qualified personnel, we may not be able to successfully implement our business strategy. +Our success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly skilled personnel, including finance, marketing, sales and technology and support personnel. The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have an adverse effect on our business, financial condition and results of operations. If we are unable to attract and retain skilled employees to support our operations and growth, there could be a material adverse effect on our financial condition and results of operations. +As part of our growth strategy, we are engaging in, and may in the future engage in, acquisitions that could disrupt our business and have a material adverse effect on our financial condition. +We intend to explore potential strategic acquisitions of businesses, as well as strategic partnerships, to expand our capabilities and market opportunities, as well as the establishment of a wholly-owned or joint venture aircraft and powertrain financing company. There can be no assurance that any future acquisitions or partnerships will be consummated successfully, if at all. We may also not be successful in identifying appropriate targets for such transactions. In addition, we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we acquire or with which we form a partnership. We may have potential write-offs of acquired assets and/or an impairment of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition, for example the acquisition of Southern, or the establishment of a partnership or joint venture may divert management’s time and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition, partnership or joint venture may not result in anticipated synergies or cost savings over time, may reduce our cash reserves, may negatively affect our earnings and financial performance, to the extent financed with the proceeds of debt, may increase our indebtedness and to the extent financed with the proceeds of equity, may result in dilution to our existing equity holders. We cannot ensure that any acquisition or partnership we make will not have a material adverse effect on our business, financial condition and results of operations. +We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy. +If our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales, marketing and operations departments and the number of aircraft operators with whom we do business. Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training and managing an increasing number of employees. These difficulties may result in the erosion of our brand image, divert the attention of management and key employees and impact our financial condition and results of operations. In addition, in order to continue to increase our presence, we expect to incur substantial expenses as we continue to attempt to increase our route offerings, flight frequency, passenger terminal footprint and employee base. The continued expansion of our business may also require additional space for administrative support. If we are unable to drive commensurate growth, these costs, which include lease commitments, marketing costs and headcount, could result in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations. +25 +Risks Related to the Development of the SurfOS Software Platform +We may not realize the expected return on our significant investment in SurfOS due to development delays, technical challenges, or lack of market acceptance, which could undermine our financial performance and competitive position. +We have invested, and will continue to invest, significant time, effort, and financial resources into the development, implementation and commercialization of SurfOS, our AI-enhanced software operating system. The success of SurfOS is critical to our strategy of enhancing operational efficiency and providing advanced technological solutions to our customers. However, there are several risks associated with this initiative. The development of SurfOS involves complex software engineering and integration with our existing systems and operations. Any delays or technical challenges in the development process could postpone the deployment of SurfOS, potentially leading to increased costs and missed market opportunities. Additionally, unforeseen technical issues could arise, requiring further investment and resources to resolve. Even if SurfOS is successfully developed and deployed, its success depends on market acceptance and adoption by our customers and partners. If SurfOS does not meet the expectations of our customers or fails to deliver the anticipated benefits, we may not achieve the desired return on our investment. Additionally, there are a limited number of customers who may utilize SurfOS, and we may not be able to generate sufficient revenue to achieve the desired return on our investment. The foregoing could adversely affect our financial performance and competitive position. +Our collaborations to develop SurfOS create risks through technology dependence, potential collaborator misalignment, relationship challenges, and funding uncertainties that could significantly impact the Company's business. +Our collaborations with third parties to develop SurfOS and other software solutions introduce additional risks that could impact our business. The success of SurfOS is heavily reliant on third-party proprietary software platforms, including Palantir’s, and their implementation engineering services. Any disruption in our third-party collaborators’ ability to deliver these services, or any deterioration in our relationship with one or more of them, could adversely affect the development and functionality of SurfOS. Additionally, any changes in our collaborators’ business strategy or priorities could impact their commitment to our commercial relationships, which requires close collaboration and alignment. Any misalignment in strategic goals, operational processes, or management decisions could hinder the progress of SurfOS development and its subsequent commercialization. Furthermore, disagreements or conflicts between the parties could lead to delays, increased costs, or even the dissolution of the collaboration. If we are unable to secure sufficient funding or if the capital raised is inadequate to support the development and commercialization of SurfOS, the project may face significant setbacks. Additionally, the allocation of resources between SurfOS and other business priorities could strain our financial and operational capabilities. The foregoing risks could materially and adversely affect our business, financial condition, and results of operations. +Issues raised by the use of AI in SurfOS may result in harm or liability. +As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore the further development and commercialization of the AI-enhanced SurfOS. AI algorithms and models may be flawed. Datasets in AI training, development, or operations may be insufficient, of poor quality, or raise other legal concerns (e.g. copyright protections). If the recommendations, forecasts, or analyses that AI applications assist in producing are deficient, unreliable, or inaccurate, whether or not they are incorporated into SurfOS, we could be subject to competitive harm, potential legal liability, and brand or reputational harm. The rapid evolution of AI and its evolving regulatory landscape may also require additional resources to develop, test, and maintain SurfOS to ensure that AI is implemented appropriately to minimize unintended or harmful impacts, and may subject us to additional heightened legal, regulatory, or other challenges, any of which could negatively impact the commercialization of SurfOS and our business. Because much of our AI compatibility is reliant on third-party proprietary software, we may be limited in our ability to mitigate any of the foregoing risks. +Risks Related to the Development of Electrification Technology +We, as well as our development and supply chain partners, have limited experience to date in the development and manufacturing of fully-electric and hybrid-electric powertrains and integrating those newly developed powertrains +26 +into existing certified airframes, and we may fail to realize the desired return on our investments with respect to fully-electric and hybrid-electric powertrains. +If we fail to execute our plans to develop, produce, assemble, market, sell, install and service our fully-electric and hybrid-electric powertrain solutions then we may not be able to generate sufficient revenue to achieve the desired return on our investment. Our ability, including with development and supply chain collaborators, such as TAI and AeroTec, to develop and produce fully-electric and hybrid-electric powertrain solutions of sufficient quality and appeal to customers on schedule and at scale is unproven. There can be no assurance as to whether we or our current or future third-party collaborators will be able to develop efficient, automated, low-cost production capabilities and processes and/or obtain reliable sources of component supply to allow us to meet the quality, price, engineering, design and production standards and production volumes required to successfully develop, manufacture and market fully-electric and hybrid-electric powertrains. Moreover, unlike the market for electric automobiles, the commercialization of electric and hybrid-electric aircraft remains unproven. Although we believe that the component technology to electrify small aircraft exists today, there is currently no other producer of fully-electric or hybrid-electric aircraft in the industry. Any delay in the development, manufacture and launch of electrification technology could adversely affect our brand, operations and the delivery of our growth strategy, particularly if it results in a failure to expand our market share in the regional air mobility market as anticipated and could require us to incur additional costs. Even if we and our third-party collaborators are successful in developing fully-electric and hybrid-electric powertrains and reliably sourcing component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, force majeure events, delays in meeting commercialization schedules, or failure to satisfy the requirements of customers and potential customers. Any such failure could have a material adverse effect on our business, financial condition and results of operations. +As a new entrant into the nascent market of hybrid-electric and battery electric aircraft, we anticipate that we will face risks and significant challenges that would impact our ability to, among other things: +• +design, produce and source safe, reliable and quality fully-electric and hybrid-electric powertrains on an ongoing basis; +• +obtain necessary regulatory approvals in a timely manner, or at all; +• +build a well-recognized and respected brand; +• +attract and maintain core commercial partnerships; +• +establish and expand our customer base; +• +successfully service our aircraft after sales and maintain a good flow of spare parts and customer goodwill; +• +improve and maintain our operational efficiency; +• +predict our future revenues and appropriately budget for our expenses; +• +attract, retain and motivate talented employees; +• +anticipate trends that may emerge and affect our business; +• +anticipate and adapt to changing market conditions, including technological developments and changes in our competitive landscape; and +• +navigate an evolving and complex regulatory environment. +If we fail to adequately address any or all of these risks and challenges, our business, financial condition and results of operations may be materially and adversely affected. +Our competitors may commercialize their technology before us, either in general or in specific markets, or we may otherwise not be able to fully capture a first mover advantage. +While we strive to be the first to market providing air mobility services with electrified aircraft, we expect this industry to be increasingly competitive and it is possible that our competitors could get to market before us, either generally or in specific markets. The timing of our production ramp is dependent upon finalizing certain aspects of the design, engineering, component procurement, testing, build out and manufacturing plans in a timely manner, upon our +27 +ability to execute these plans within the current timeline and upon regulatory approval by the FAA, which can be a lengthy and unpredictable process. +Even if we or our collaborators are first to market with fully-electric or hybrid-electric aircraft, we may not fully realize the benefits we anticipate, and we may not receive any competitive advantage or may be overcome by other competitors. New companies or existing aerospace companies may launch competing solutions, including fully-electric and hybrid-electric aircraft in the markets in which we intend to operate, or fully-electric or hybrid-electric aircraft utilizing different technologies such as hydrogen fuel cells, and obtain large scale capital investment, which may result in increased competition. +Additionally, our competitors may benefit from our efforts in developing consumer and community acceptance for electrified aircraft and air mobility, making it easier for them to obtain the permits and authorizations required to operate an air mobility service in the markets in which we intend to launch or in other markets. If our competitors get to market before us, or we are overcome by other competitors, it could have a material adverse effect on our business, financial condition, results of operations and prospects. +The planned fully-electric and hybrid-electric powertrain solutions may not result in the operating cost savings we anticipate, which could negatively impact the future economics of our network operations as well as our ability to successfully sell and market our planned future Aircraft-as-a-Service strategy. +In developing our business strategy for future aircraft electrification and network expansion, we have assumed implementing fully-electric technology will result in operating cost savings of approximately 50% compared to current combustion powertrain technologies, with more limited range and payload characteristics, and hybrid-electric technology will result in operating cost savings of approximately 25% compared to current internal combustion powertrain technologies, while maintaining similar performance characteristics. If these assumptions change by a material amount, our network expansion plans could be negatively impacted and we would be unlikely to be able to develop significant future revenues and earnings from our planned Aircraft-as-a-Service initiative. +Our future fully-electric and hybrid-electric aircraft may require maintenance at frequencies or at costs which are unexpected and could adversely affect our business and operations. +Our future fully-electric and hybrid-electric aircraft will be highly technical products that will require maintenance and support. We are still developing our understanding of the long-term maintenance profile of the fully-electric and hybrid-electric aircraft, and if useful lifetimes are shorter than expected, this may lead to greater maintenance costs than previously anticipated. If our future fully-electric and hybrid-electric aircraft and related equipment require maintenance more frequently than we plan for or at costs that exceed our estimates, that would disrupt the operation of our service and could have a material adverse effect on our business, financial condition and results of operations. +Risks Related to Our Operations and Infrastructure +If we are unable to obtain and maintain access to adequate facilities and infrastructure in desirable locations, including securing access to key infrastructure such as airports, we may be unable to offer our service in a way that is useful to passengers. +Our air mobility service will depend on our ability to operate in desirable metropolitan and regional locations. This will require permits and approvals from federal, state and local regulatory authorities and government bodies and our ability to operate our service will depend on such permits and approvals, as well as our ability to lease and license access to passenger terminal infrastructure. We lease and license access to passenger terminal infrastructure, such as hangars, from airport operators in certain of the markets in which they operate. These lease agreements have termination dates ranging from two to three years, and often include the right to extend on a month to month basis. We may face competition for capacity at passenger facilities in our preferred locations, which may impact our ability to service customers effectively. We also cannot predict whether we will receive any such permits and approvals, whether we will receive them for desirable locations or whether we will receive them in a timely manner. If we are prohibited, restricted or delayed from developing and operating desirable locations, there could be a material adverse effect on our business. +28 +Our operations are currently concentrated in a small number of metropolitan areas and airports which makes our business particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances affecting these metropolitan areas. +We currently derive revenues from regional flights operated in Hawaii and the Mid-Atlantic, Gulf South, Rocky Mountains, West Coast and New England regions. As a result of this geographic concentration, our business historically has been particularly susceptible to natural disasters, outbreaks and pandemics, growth constraints, economic, social, weather and regulatory conditions or other circumstances applicable to metropolitan areas. A significant interruption or disruption in service at an airport where we have a significant volume of flights could result in the cancellation or delay of a significant portion of our flights and, as a result, could have an adverse effect on our business, financial condition and results of operations. In addition, any changes to local laws or regulations within key metropolitan areas that affect our ability to operate or increase our operating expenses in these markets could have a material adverse effect on our business, financial condition and results of operations. +Disruption of operations at airports, whether caused by natural disasters including fires, tornados, hurricanes, floods, volcanic eruptions and earthquakes, and severe weather conditions, such as heavy rains, strong winds, dense fog, blizzards or snowstorms, or labor relations, utility or communications issues, government shutdowns or other disruptions at the FAA, power outages, or changes in federal, state and local regulatory requirements could have a material adverse effect on our business. +Our aircraft utilization may be lower than expected and our aircraft may be limited in performance during certain weather conditions. We are vulnerable to delays, cancellations or flight rescheduling, as we rely on maintaining a high daily aircraft utilization rate. +Our aircraft may not be able to fly safely in poor weather or environmental conditions, including snowstorms, thunderstorms, lightning, hail, known icing conditions or fog or during extreme heat or smoky conditions from fires. The aircraft models that we have flown to date and the smaller airports out of which they operate are more vulnerable to delays of this nature and we have experienced delays and disruptions as a result of extreme weather. Our inability to operate in these conditions in the future may reduce our aircraft utilization and cause delays and disruptions in our services. We intend to maintain a high daily aircraft utilization rate which is the amount of time our aircraft spend in the air carrying passengers. High daily aircraft utilization is achieved in part by reducing turnaround times at airports so we can fly more hours on average in a day. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our control, including adverse weather conditions, security requirements, air traffic congestion and unscheduled maintenance events. The success of our business is dependent, in part, on the utilization rate of our aircraft and reductions in utilization will have a material adverse effect on our financial condition as well as cause passenger dissatisfaction. +Our success also depends on our ability to generate more revenue per flight by maintaining high customer utilization rates ( i.e. , the number of seats purchased on each flight). Customer utilization rates may be reduced by a variety of factors, including the introduction of new routes or schedules. In some cases, we may choose to offer flights with low customer utilization rates to increase or maintain customer satisfaction, brand recognition, and for marketing or other purposes. We have utilized monthly and annual commuter passes and annual corporate bulk purchasing options to increase our customer utilization rates in the past; however, demand for these products may decline for reasons outside of our control, including economic uncertainty or downturns. +While historically we have maintained daily aircraft and customer utilization rates sufficient to offset the costs we pay to operators, we may be unable maintain and increase utilization rates as our business grows and expands. The risk of delays, cancellations and flight rescheduling, which could negatively impact our utilization rates, may increase as we expand our business to include new markets and destinations, more frequent flights on current routes and expanded facilities. +The supply of pilots to the airline industry is limited and may negatively affect our operations and financial condition. Increases in our labor costs, which constitute a substantial portion of our total operating costs, may have a material adverse effect on our business, financial condition and results of operations. +Our pilots are subject to stringent pilot qualification and crew member flight training standards (“ FAA Qualification Standards ”), which among other things require minimum flight time for pilots and mandate strict rules to minimize pilot fatigue. The existence of such requirements effectively limits the supply of qualified pilot candidates and increases pilot salaries and related labor costs. Such requirements also impact pilot scheduling, work hours and the +29 +number of pilots required to be employed for our operations, all of which could have a material adverse effect on our business, results of operation and financial condition. +We have a pilot pipeline agreement with SkyWest to hire, train and provide a pipeline of pilots for our operations and a potential subsequent transition into SkyWest’s operations, and we intend to continue this arrangement going forward. However, this potentially exposes us to a number of risks. This arrangement may not be sufficient to offset a significant or prolonged shortage of pilots, and we will be increasingly reliant on this partnership as we look to expand our operations. If this pipeline is unable to provide us with pilots in the expected numbers or at the appropriate times, or if the agreement with SkyWest were to be terminated, we would be required to incur significant labor costs to find replacement or substitute pilots, which would result in a material reduction in our earnings. If we are unable to find a sufficient supply of pilots to fly our routes, we may be forced to cancel flights. In addition, our competitors may seek to use this training program as a way to generate negative publicity about us, which could have a material adverse effect on our reputation, business and results of operation. +In addition, our operations and financial condition may be negatively impacted if we are unable to train pilots in a timely manner. Due to an industry-wide shortage of qualified pilots, driven by the flight hours requirements under the FAA Qualification Standards and attrition resulting from the hiring needs of other industry participants, pilot training timelines have significantly increased and stressed the availability of flight simulators, instructors and related training equipment. As a result, the training of our pilots may not be accomplished in a cost-efficient manner or in a manner timely enough to support our operational needs. +We are subject to legal, regulatory and physical risks associated with the environment and climate change, including the potential increased impacts of severe weather events on our operations and infrastructure. +We are subject to federal, state, and local laws and regulations relating to the protection of the environment and noise, including those relating to emissions to the air, discharges (including storm water and de-icing fluid discharges) to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. Federal, state and local laws, regulations, and enforcement priorities related to the environment and climate change continue to evolve and remain inconsistent. Compliance with laws, regulations, and other programs may require us to make capital investments to modify certain aspects of our operations. Future policy, legal, and regulatory developments, including enforcement actions or investigations, relating to the protection of the environment, including modifications to or reversals of such developments, could expose us to additional legal, financial, or reputational risks and unpredictable reporting obligations or business requirements, increase our costs and have a material adverse effect on our operations. Additionally, we may be subject to risks associated with climate change litigation, which may result in considerable expenses being incurred. +Moreover, the potential physical effects of climate change, such as increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events, could affect our operations, infrastructure and financial results. Operational impacts, such as the delay or cancellation of flights, could result in loss of revenue. In addition, certain of our terminals are in locations susceptible to the impacts of storm-related flooding and sea-level rise, which could result in costs and loss of revenue. We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change. +Our business may be adversely affected by union activities. +Although none of our employees are currently represented by a labor union, it is common throughout the airline industry generally for many employees to belong to a union, which can result in higher employee costs and increased risk of work stoppages. There can be no assurances that our employees will not join or form a labor union or that we will not be required to become a union signatory. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers, and work stoppages or strikes organized by such unions could have a material adverse effect on our business, financial condition or results of operations. If a work stoppage occurs, it could delay the manufacture and sale of our performance hybrid-electric vehicles and could have a material adverse effect on our business, financial condition or results of operations. +30 +Our or our third-party aircraft operators’ insurance may become too difficult or expensive to obtain. Increases in insurance costs or reductions in insurance coverage may have a material adverse effect on our financial condition and results of operations. +Hazards are inherent in the aviation industry and may result in loss of life and property, potentially exposing us to substantial liability claims arising from the operation of aircraft. Safe operation of aircraft is the responsibility of ourselves and our third-party operators who are held liable for accidents, thus incidents related to aircraft operation are covered by ours and our third-party operators’ insurance. We maintain general liability aviation insurance policies. Additionally, we maintain directors and officers insurance, as well as other insurance policies, and we believe our level of coverage is customary in the industry and adequate to protect against claims. A limited number of hull and liability insurance underwriters provide coverage for our third-party aircraft operators. Insurance underwriters are required by various federal and state regulations to maintain minimum levels of reserves for known and expected claims. However, there can be no assurance that our or third-party aircraft operators’ insurance policies will be sufficient to cover potential claims or that present levels of coverage will be available in the future at reasonable cost, or that underwriters have established adequate reserves to fund existing and future claims. Further, we expect our insurance needs and costs to increase as we grow our commercial operations, add routes, increase flight and passenger volumes and expand into new markets. It is too early to determine what impact, if any, the commercial operation of electric aircraft will have on our insurance costs. +Accordingly, we may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. +The number of air medical or tourism accidents, as well as the number of insured losses within the commercial airline industry, and the impact of general economic conditions on underwriters may result in increases in premiums above the rate of inflation. If our third-party aircraft operators’ insurance costs increase, such operators are likely to pass the increased costs to us, which could cause us to increase the prices paid by our customers. Such cost increases could adversely affect demand for our services and harm our business. Additionally, under all aircraft operating agreements, our third-party aircraft operators have agreed to indemnify us against liability arising from the operation of aircraft and to maintain insurance covering such liability. However, there can be no assurance there will be no challenge to the indemnification rights or that the aircraft operator will have sufficient assets or insurance coverage to fulfill its indemnity obligations. +We may incur substantial maintenance costs as part of our leased aircraft return obligations. +Some of our aircraft lease agreements contain provisions that require us to return aircraft airframes and engines to the lessor in a specified condition or pay an amount to the lessor based on the actual return condition of the equipment. These lease return costs are recorded in the period in which they are incurred. On our financial statements, we estimate the cost of maintenance lease return obligations and accrue such costs over the remaining lease term when the expense is probable and can be reasonably estimated. Any unexpected increase in maintenance return costs may have a material adverse effect on our financial condition and results of operations. +We are exposed to operational disruptions due to maintenance. +Our fleet requires regular maintenance work, which can cause operational disruption. Our inability to perform timely maintenance and repairs could result in our aircraft being underutilized which could have an adverse effect on our business, financial condition and results of operations. For example, in January 2025, the Company voluntarily cancelled a number of scheduled flights to address maintenance concerns regarding certain aircraft. While flights returned to full schedule in the first quarter of 2025, the cancellations resulted in lost revenues and operating income and additional unplanned maintenance costs. In addition, when flight hours of our aircraft increase we have an increase in maintenance, which results in an increase in maintenance and repairs and corresponding costs. A prolonged period of maintenance or repair work would result in disruptions to our routes, lower revenues and/or increased costs. On occasion, airframe manufacturers or regulatory authorities may require mandatory or recommended modifications to be made across a particular fleet which may mean having to ground a particular type of aircraft. This may cause operational disruption to and impose significant costs on us. Furthermore, our operations in remote locations, where delivery of components and parts could take a significant period of time, could result in delays in our ability to maintain and repair our aircraft. Any such delays may pose a risk to our business, financial condition and results of operations. Moreover, as our aircraft base +31 +increases, our maintenance costs could potentially increase. We have no historical experience maintaining fully-electric and hybrid-electric powertrains. While we believe the newly developed powertrains will require reduced maintenance activity per flight hour, our operations could be negatively impacted if our assumptions on reliability or cost of maintenance prove incorrect. +The profitability of our current operations is dependent on the availability and pricing of aircraft fuel. Periods of significant disruption in the supply of aircraft fuel or elevated pricing could have a significant negative impact on our results of operations and liquidity. +Although our current operations and those of third-party aircraft operators, in the limited circumstances, such as operations in Hawaii, where we purchase fuel directly, are currently able to obtain adequate supplies of aircraft fuel, we cannot predict the future availability. Natural disasters (including hurricanes or similar events in the southeast United States and on the Gulf Coast where a significant portion of domestic refining capacity is located), political disruptions or wars involving oil-producing countries, economic sanctions imposed against oil-producing countries or specific industry participants, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, changes in the cost to transport or store petroleum products, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages or distribution challenges in the future leading to volatile aircraft fuel pricing. Any of these factors or events could cause a disruption in or increased demands on oil production, refinery operations, pipeline capacity or terminal access and possibly result in diminished availability of aircraft fuel supply for our third-party aircraft operators. The impact of such events may limit our third-party aircraft operators’ ability to perform our flights, which could result in loss of revenue and adversely affect our ability to provide our services. +Additionally, high fuel prices or significant disruptions in the supply of aircraft fuel could have an adverse effect on our financial condition and results of operations. During the years ended December 31, 2025 and 2024, our fuel expense was $11.3 million and $14.0 million, respectively. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources as well as related service and delivery infrastructure. Although we have some ability to cover short-term fuel supply disruptions, we depend significantly on the continued performance of our third-party service providers to maintain supply integrity. Consequently, we can neither predict nor guarantee the continued timely availability of aircraft fuel throughout our operations. +Unsatisfactory safety performance of our aircraft could have a material adverse effect on our business, financial condition and results of operations. +While we intend to maintain operational processes designed to ensure that the design, testing, manufacture, performance, operation and servicing of our aircraft meet rigorous quality standards, there can be no assurance that we will not experience operational or process failures and other problems, including through flight test accidents or incidents, manufacturing or design defects, pilot error, cyber-attacks or other inadvertent or intentional acts or omissions, that could result in potential safety risks. Any actual or perceived safety issues may result in significant reputational harm to our business, in addition to tort liability, maintenance, increased safety infrastructure and other costs that may arise. Such issues could result in delaying or canceling planned flights, increased regulation or other systemic consequences. Our inability to meet our safety standards or adverse publicity affecting our reputation as a result of accidents, mechanical or operational failures, or other safety incidents could have a material adverse effect on our business, financial condition and results of operation. In addition, our aircraft may be grounded by regulatory authorities due to safety concerns that could have a material adverse effect on our business, financial condition, results of operations and prospects. +Crashes, accidents or incidents of aircraft involving us or our competitors could have a material adverse effect on our business, financial condition and results of operations. +The operation of aircraft is subject to various risks, and we expect demand for our air mobility services to be impacted by accidents or other safety issues regardless of whether such accidents or issues involve our aircraft. +Crashes, accidents or incidents involving our aircraft, or involving aircraft operating our powertrains, once developed, are possible. Any such occurrence would negatively impact our business, financial condition and results of operations in a number of ways. An accident or incident involving an aircraft operated by us or by a third-party operator on our behalf or using our powertrains, could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. For example, in January 2024, a Southern flight was forced to make an emergency landing following take-off in severe +32 +weather from Dulles International Airport in Virginia. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured or due to reasons not attributable to us or our operations or products, could result in negative public perception that our operations are less safe or reliable than other providers and have a material adverse effect on our reputation, business and results of operations. Safety issues experienced by a particular model of aircraft could impact consumer confidence in that particular aircraft type or the air transportation services industry as a whole, or result in a regulatory body grounding that particular aircraft model. If we or other operators experience accidents with aircraft models that we operate, obligating us to take such aircraft out of service until the cause of such accidents is determined and rectified, we might lose revenues and might lose customers. The value of the aircraft model might also be permanently reduced in the secondary market if the model were to be considered less desirable for future service. +Moreover, such accidents or incidents could also have a material impact on our ability to obtain or maintain FAA certification for our aircraft in a timely manner, or at all. +If our personnel, third-party contractors with whom we have arrangements, our aircraft, other types of aircraft or other companies in the industry are involved in a public incident, accident, catastrophe or regulatory enforcement action, we could be exposed to significant reputational harm and/or potential legal liability. The insurance we carry may be inapplicable or inadequate to cover any such incident, accident, catastrophe or action. In the event that our insurance is inapplicable or inadequate, we may be forced to bear substantial losses from an incident or accident. +Further, as we develop and manufacture fully-electric and hybrid-electric powertrains and as these powertrains are implemented in aircraft that we sell to other operators, we may be exposed to additional risks and demand for our newly developed products will be negatively impacted by accidents or incidents involving the powertrains, including during test flights of prototypes. Such events could impact confidence in not just our products, but the development of electrification technology as a whole. This could have a material adverse effect on our future growth, financial condition and results of operations. +Risks Related to Our Dependence on Third Parties +We are substantially dependent upon our relationships with our strategic partners, and we are or may be subject to risks associated with such strategic alliances. Our reliance on these arrangements, and the loss of any such alliances or arrangements or failure to identify future opportunities could affect our growth plans. +We intend to collaborate with leading aerospace OEMs and industry leading engineering-for-hire firms to develop a set of fully-electric and hybrid-electric aircraft. We have entered into agreements with TAI for, among other things, the purchase of four new Cessna Caravans, as well as the provision of certain services, in anticipation of the development of fully-electric and hybrid-electric aircraft. We have also entered into an agreement with AeroTEC to develop, and to apply for STCs from the FAA for, fully-electric and hybrid-electric variants of the Cessna Caravan, as well as the development and supply of aircraft electric propulsion units (“EPUs”) for fully-electric and hybrid-electric powertrains, to be initially designed for the Cessna Caravan. +Some of our current arrangements are contingent upon certain conditions or the entry into definitive documentation in the future. Our agreements with TAI are subject to certain milestones that, if we do not meet, may result in TAI’s option to terminate the agreements. See the section titled “Licensing, Exclusivity and Aircraft Purchase Arrangements - Textron Agreement” in Note 13, Commitments and Contingencies in the accompanying consolidated financial statements for further details on our agreements with TAI . +We have entered into collaborations with third parties for the development of SurfOS, as more fully described in “ Risks Related to the Development of the SurfOS Software Platform - Our collaborations to develop SurfOS create risks through technology dependence, potential collaborator misalignment, relationship challenges, and funding uncertainties that could significantly impact the Company’s business. ” +Such strategic business relationships will be a critical component in the growth and success of our business and, in particular, our ability to develop and commercialize SurfOS and deploy fully-electric and hybrid-electric powertrains and related aircraft within our fleet. However, there are no assurances that we will be able to timely meet all of the conditions of these agreements, if at all, maintain these relationships or continue to identify or secure suitable business relationship opportunities in the future, or that our competitors will not capitalize on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. +33 +If any conflicts arise between our strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our business strategies, which could impact our projected business timelines. Our strategic partners may also develop, either alone or with others, products in related fields that are competitive with our products. Specifically, conflicts with our key strategic partners, including TAI and AeroTEC, could adversely impact our ability to develop and manufacture our planned powertrain and our planned subsequent modification of aircraft, which, in turn could have a material adverse effect on our prospects, business, financial condition and results of operation. +If we are unable to successfully maintain, source and execute on strategic relationship opportunities in the future related to electrification or other technologies relevant to our competitive position, or if any of our agreements with our strategic partners were to be terminated, our overall growth could be impaired, and there could be a material adverse effect on our business, financial condition and results of operations. +If we are unable to economically outsource the production, assembly and installation of our fully-electric and hybrid-electric powertrain solutions at scale or source the parts and components of these powertrains then we may not realize the benefit of our investment in these technologies. +We plan to outsource the majority of the production, assembly and installation of our fully-electric and hybrid-electric powertrain solutions. As such, our suppliers, including single source suppliers for certain components, are a key part of our business model in order to manufacture our planned fully-electric and hybrid-electric powertrains for the Cessna Caravan. We have strategically partnered with companies that we believe to be industry leaders in order to supply the highest quality components for, and to help us develop, our fully-electric and hybrid-electric powertrains. Many of the components for our planned fully-electric and hybrid-electric powertrains will be custom made for us, which may expose us to additional risks if one or more components become unavailable. This supply chain exposes us to multiple potential sources of delivery failure or component shortages for our future powertrain, most of which are out of our control, including shortages of, or disruptions in the supply of, the raw materials used by our suppliers in the manufacturing of components, disruptions to our suppliers’ workforce (such as strikes or labor shortfalls) and disruptions to, or capacity constraints affecting, shipping and logistics. +Moreover, we anticipate that a significant concentration of the production, assembly and installation of certain components will be performed by a small number of outsourcing partners. While these arrangements can lower operating costs, they also reduce our direct control over production and distribution. Such diminished control may have an adverse effect on the quality or quantity of products or services, or our flexibility to respond to changing conditions. We expect to rely on single-source suppliers to supply and produce many components. Any failure of these suppliers or outsourcing partners to perform could require us to seek alternative suppliers or to expand our production capabilities, which could incur additional costs and have a negative impact on our cost or supply of components or finished goods. +While we believe that we may be able to establish alternative supply relationships and obtain replacement components, we may be unable to do so in the short-term or at all at prices that are acceptable to us or we may need to re-certify components. If we need to find alternative suppliers for any of the key components of our planned fully-electric and hybrid-electric powertrains, then this could increase our costs and adversely affect our ability to receive such components on a timely basis, or at all, which could cause significant delays in our overall projected timelines for the delivery of our powertrain and could have a material adverse effect on our future relationships with our customers. +In addition, production or logistics in supply or production areas or transit to final destinations can be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues or international trade disputes. Any failure to develop such production processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, financial condition and results of operations. +Further, if we are unable to successfully manage our relationships with our suppliers, the quality and availability of our powertrain and modified aircraft may be harmed. Our suppliers could, under some circumstances, decline to accept new purchase orders from, or otherwise reduce their business, with us. Any disruptions in the supply of components from our suppliers could lead to delays in both prototype and commercial powertrain production and subsequent modification of aircraft, which could have a material adverse effect on our business, financial condition and results of operations. +We have not yet selected manufacturers and suppliers of certain components of the proposed fully-electric and hybrid-electric powertrains for the Cessna Caravan, or entered into any agreements in relation to the development and manufacture of these components. Delays or difficulties in selecting and entering agreements with such manufacturers +34 +and suppliers may impact the timelines we envisage for developing the powertrain, and adversely affect the results of our operations. +Our collaboration with TAI for our development of hybrid-electric and battery electric powertrains for the Cessna Caravan and our relationship with TAI as its exclusive supplier of certain fully-electric and hybrid-electric powertrains for the Cessna Caravan are subject to a number of conditions and milestones. If the conditions and milestones in the TAI agreements governing our relationship with TAI are not met, or if the agreements or exclusive relationship are canceled, modified or delayed, our prospects, business, financial condition and results of operations will be harmed. +The agreements governing our collaboration with TAI for our development of its proprietary fully-electric and hybrid-electric powertrains to power the Cessna Caravan aircraft are subject to a number of conditions and milestones, including the issuance of an STC for the powertrain by the FAA within 60 months of the initial listing date of our shares of common stock as part of the STC for installation of that powertrain in the Cessna Caravan aircraft and meeting certain design and performance objectives upon the timeline specified in the agreements with TAI. In the event that we are unable to meet these conditions and objectives as verified by TAI, the obligations of TAI to us under the agreements can be terminated by TAI. In addition, our relationship as the exclusive supplier of certain electrified and hybrid-electric powertrains to TAI can be terminated by TAI if the conditions and milestones relating to our agreements with TAI are not met. In connection with the agreements governing our collaboration with TAI, we must pay certain fees, including fees under the Data License Agreement. In the event that we fail to pay these fees when due, the Data License Agreement may be terminated by TAI, which could, in turn result in the termination of the other TAI Agreements. If either our agreements or our exclusive relationship with TAI are canceled, modified or delayed, or otherwise not consummated, or if we are otherwise unable to convert our strategic relationship with TAI into revenue, our prospects, business, financial condition and results of operations will be adversely affected. +If our third-party aircraft operators are unable to support our operations or the growth of our business, or we are unable to add alternative third-party aircraft operators to meet demand, our costs may increase and our business, financial condition and results of operations could be adversely affected. +We are dependent on a finite number of certificated third-party aircraft operators to provide a significant portion of our network services. We have, in the past, experienced delays, cancellations and difficulties engaging third-party operators with sufficient capacity to operate the number of routes necessary to meet demand. This risk is exacerbated when there is a transition between operators, which we experienced from May to August 2022 when transitioning to Southern as our operator for scheduled routes in the West Coast, resulting in a significant number of canceled and delayed flights. +In the event potential competitors establish cooperative or strategic relationships with third-party aircraft operators in the markets we serve, offer to pay third-party aircraft operators more attractive rates or guarantee a higher volume of flights than we offer, we may not have access to the necessary number of aircraft to achieve our planned growth. Though we have successfully incentivized our operators to add aircraft to support our growth in the past, there is no guarantee we will be able to continue doing so without incurring significant additional costs. Increased use of private aircraft has added competitive pressure for access to aircraft, which may make it more difficult or costly for third-party operators to expand to meet our needs. If our third-party aircraft operators are unable or unwilling to add aircraft, or are only able to do so at significantly increased expense, or otherwise do not have capacity or desire to support our growth, or we are unable to add new operators on reasonable terms, or at all, our business and results of operations could be adversely affected. As the air mobility market grows, we expect competition for third-party aircraft operators to increase. Further, we expect that as competition in the air mobility market grows, the use of exclusive contractual arrangements with third-party aircraft operators, sometimes requiring volume guarantees, may increase, as may the cost of securing their services. +If we encounter problems, such as workforce disruptions, with any of our third-party aircraft operators or third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services. +Many of our flight operations are conducted by third-party aircraft operators on our behalf and we rely on third-party service providers to support our operations . Due to our reliance on third parties to provide these services going forward, we are subject to the risk of disruptions to their operations, such as the impact of adverse economic conditions and the inability of third parties to hire or retain skilled personnel, including pilots and mechanics, as well as any failure to deliver services at the level expected of them. We have, in the past, experienced issues with third-party aircraft operators. For example, in June 2018 we terminated a charter and aircraft sublease agreement we had with a key third-party scheduled aircraft operator in California because the operator had been providing increasingly unreliable and +35 +substandard service quality, resulting in frequent and last minute flight cancellations, while overcharging us and refusing to provide the requisite financial and operating data transparency. This had a negative impact on our results of operations and required approximately eight months to re-establish revenue levels similar to those prior to this event. Several of these third-party operators provide significant capacity that we would be unable to replace in a short period of time should that operator fail to perform its obligations. Disruptions to capital markets, shortages of skilled personnel and adverse economic conditions in general, have subjected certain of these third-party regional operators to significant financial and operational pressures, which have in the past and could in the future result in the temporary or permanent cessation of their operations. +Union strikes or staff shortages among airport workers or certain pilots of third-party aircraft operators may result in disruptions of our air mobility service and thus could have a material adverse effect on our business, financial condition and results of operations. Any significant disruption to our operations as a result of problems with any of our third-party aircraft operators could have a material adverse effect on our business, financial condition and results of operations. +In addition, we have entered into agreements with contractors to provide various facilities and services required for our operations. Because we will rely on others to provide such services, our ability to control the efficiency and timeliness of such services will be limited. Similar agreements may be entered into in any new markets we decide to serve. If any of these service providers cease operations, there is no guarantee that we could replace these providers on a timely basis with comparably priced providers, or at all. Any material problems with the efficiency and timeliness of contract services, resulting from financial hardships or otherwise, could have a material adverse effect on our business, financial condition and results of operations. +We rely on third-party web service providers to deliver our offerings to users on our platform, and any disruption of or interference with our use of third-party web services could adversely affect our business, financial condition and results of operations. +Our platform’s continuing and uninterrupted performance is critical to our success. We currently host our platforms and support our operations using third-party providers of cloud infrastructure services. While we have engaged reputable vendors to provide these services, we do not have control over the operations of the facilities used by their third-party providers and their facilities may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, human error, terrorist attacks, power outages and similar events or acts of misconduct. In addition, any changes to the service levels from these third-party cloud infrastructure providers may adversely affect our future ability to meet the requirements of users to search for flights and book travel. While we expect to implement reasonable backup and disaster recovery plans, we have experienced interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Sustained or repeated system failures would reduce the attractiveness of our offerings. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times, as we expand our service offerings. Any negative publicity or user dissatisfaction arising from these disruptions could harm our reputation and brands and could have a material adverse effect on our business, financial condition and results of operation. +Aircraft purchase agreements are often subject to indexed price escalation clauses which could subject us to unanticipated expenses. +Commercial aircraft sales contracts are often entered into years before the aircraft are delivered. In order to help account for economic fluctuations between the contract date and delivery date, aircraft pricing generally consists of a fixed amount as modified by price escalation formulas derived from labor, commodity and other price indices, the actual escalation amounts of which are outside of the purchaser’s control. Escalation factors can fluctuate significantly from period to period and changes in escalation amounts can significantly impact expenses and operating margins. The terms and conditions of the aircraft purchase agreement with TAI do contain price escalation clauses and future purchase orders with other suppliers may also contain price escalation clauses yet to be determined, and there is no assurance that they will be determined in a manner that will mitigate the risks described above. +Risks Related to Our Intellectual Property and Information Technology +If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose market share, generate reduced revenue and incur costly litigation to protect our rights. +36 +Our success depends in part on our ability to protect our intellectual property rights, including trademarks and service marks applicable to our operating entities and, in the future once developed, certain technologies and software that we expect to be deployed in our aircraft or that we expect to utilize in arranging air transportation. To date, we have relied primarily on trademarks to distinguish us from our competitors, and trade secrets and other forms of legal protection and contractual agreements to establish and protect our proprietary rights. +Although we plan to control the STC once certified, and may own certain intellectual property rights relating to the powertrain, we do not anticipate owning intellectual property rights in any particular component of the fully-electric and hybrid-electric powertrains to be produced. Under our agreement with AeroTEC, it will provide services for us to obtain one or more STCs that relate to the powertrains. Such an STC would provide us the right to operate and otherwise commercialize Cessna Caravans modified with such a powertrain. However, an STC does not provide an exclusive right to commercialize the component that the STC describes, and other companies may file for and obtain an STC to modify a Cessna Caravan or other light aircraft with a substantially similar or superior powertrain compared to the powertrains we plan to develop with our commercial partners. Moreover, there is no guarantee that we will obtain an STC for our planned fully-electric and hybrid-electric powertrains, through our collaboration with our commercial partners or otherwise. Any reference to “our proprietary powertrain technology” or similar phrases herein refer to our anticipated rights in one or more STCs relating to such technology, and not to any intellectual property rights in such technology. +We expect that in the future we will rely on patents, copyrights, and trade secrets to protect any proprietary technology we develop. We routinely enter into agreements with employees, consultants, third parties and other relevant persons and take other measures to protect our intellectual property rights, such as limiting access to our trade secrets and other confidential information. However, we cannot guarantee that we have entered into or will enter into such an agreement with each person that has access to such information or that the steps we take to protect our intellectual property will otherwise be adequate. For example, unauthorized parties may attempt to obtain and use information that we regard as proprietary and, if successful, may potentially harm our ability to compete, accelerate the development programs of our competitors, and/or our competitive position in the market. Moreover, our agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to ours, and there can be no assurance that our counterparties will comply with the terms of these agreements, or that we will be able to successfully enforce such agreements or obtain sufficient remedies if they are breached. There can be no assurance that the intellectual property rights we own or license will offer us meaningful protection for our business, provide competitive advantages or will not be challenged or circumvented by our competitors. +Further, obtaining and maintaining patent, copyright, and trademark protection can be costly, and we may choose not to, or may fail to, pursue or maintain such forms of protection for our technology, products or services in the United States or foreign jurisdictions, which could harm our ability to obtain or maintain a competitive advantage in such jurisdictions. It is also possible that we will fail to identify patentable aspects of our technology before it is too late to obtain patent protection, that we will be unable to devote the resources needed to file and prosecute patent applications for such technology, or that we will inadvertently abandon them by failing to comply with all procedural, documentary, payment, and similar obligations during the patent prosecution process. Even if we obtain patent protection in future, we cannot assure you that such patents would be sufficiently broad to protect our proprietary technology to prevent competitors or other third parties from using the same or similar technologies. Failure to comply with legal requirements to maintain a patent, copyright, or trademark registration can result in lapse or cancellation of the patent, copyright, or trademark registration, which could result in the loss of patent or trademark rights. If this occurs, we may not be able to exclude our competitors from using patented technology that we have developed or our trademarks. Also, patents, copyrights, and trademark registrations may be challenged in court or administrative proceedings. +The laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate to prevent other parties from infringing our proprietary technology. To the extent we expand our international activities, our exposure to unauthorized use of our technologies and proprietary information may increase. We may also fail to detect unauthorized use of our intellectual property, or be required to expend significant resources to monitor and protect our intellectual property rights, including engaging in litigation, which may be costly, time-consuming, and divert the attention of management and resources, and may not ultimately be successful. If we fail to meaningfully establish, maintain, protect and enforce our intellectual property rights, there could be a material adverse effect on our business, financial condition and results of operations. +37 +We may need to defend ourselves against intellectual property infringement claims or misappropriation claims, which may be time-consuming and expensive and, if adversely determined, could limit our ability to commercialize our software solutions or our aircraft. +Third parties, including our competitors, may own or obtain patents, trademarks or other proprietary rights that could prevent or limit our ability to operate under our current branding, provide air mobility services or to make, use, develop or deploy our software solutions, aircraft, the powertrain we are developing with our commercial partners or other aircraft components, which could harm our business. +For example, third parties owning patents or other intellectual property rights relating to airline services or aircraft components (e.g., battery packs, electric motors, aircraft configurations, fly-by-wire flight control software, electronic power management systems or other components) may allege infringement or misappropriation of such rights. In response to a determination that we have infringed upon or misappropriated a third-party’s intellectual property rights, we may be required to do one or more of the following: +• +cease development, sales or use of its or our products or services; +• +trade under a different name or rebrand our services; +• +pay substantial damages; +• +obtain a license from the owner of the asserted intellectual property right, which license may not be available on reasonable terms or available at all; or +• +re-design one or more aspects or systems of its or our aircraft or other offerings. +A successful claim of infringement or misappropriation against us or our commercial partners could adversely affect our business, financial condition and results of operations. Even if we or our commercial partners are successful in defending against these claims, litigation could result in substantial costs, business disruption and demand on management resources. +We will rely on our information technology systems to manage numerous aspects of our business. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation. +We will rely on information technology networks and systems to operate and manage our business. Our information technology networks and systems process, transmit and store personal and financial information, proprietary information of our business, and also allow us to coordinate our business across our operation bases and allow us to communicate with our employees and externally with customers, suppliers, partners and other third parties. To date, we have not implemented comprehensive security measures to secure these information technology networks and systems and the data processed, transmitted, and stored on them. These networks, systems, and data will be susceptible to cyberattacks, viruses, malware or other unauthorized access or damage (including by environmental, malicious or negligent acts), which could result in unauthorized access to, or the release and public exposure of, our proprietary information or our users’ personal information. In addition, cyberattacks, viruses, malware, or other damage or unauthorized access to our information technology networks and systems, would result in damage, disruptions or shutdowns to our platform. Additionally, the prevalence and increasing sophistication of AI may increase the frequency or efficacy of cyberattacks against us, and the use of AI by us or third parties on which we depend to operate our business may create new cybersecurity vulnerabilities, including those which may not be recognized at this time. Any of the foregoing could cause substantial harm to our business, require us to make notifications to our customers, governmental authorities, or the media, and could result in litigation, investigations or inquiries by government authorities, and subject us to penalties, fines, and other losses relating to the investigation and remediation of such an attack or other unauthorized access or damage to our information technology systems and networks. +We may in the future be subject to data breaches. A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or data foreign privacy laws, regulations or other principles or orders to which we may be subject could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities, litigation, including class action litigation, from our customers, fines, penalties, or other liabilities, or require us to change our operations or cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users, law enforcement, government authorities, payment companies, consumer reporting agencies or the media about the incident and may be +38 +required to expend additional resources in connection with investigating and remediating such an incident, and otherwise complying with applicable privacy and data security laws. +System failures, defects, errors or vulnerabilities in our website, applications, backend systems or other technology systems or those of third-party technology providers could harm our reputation and brand and adversely affect our business, financial condition and results of operations. +Our systems, or those of third parties upon which we rely, may experience service interruptions, outages or degradation because of hardware and software defects or malfunctions, human error or malfeasance by third parties or our employees, contractors, service providers, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, cyberattacks, ransomware attacks or other events. We do not carry cyber insurance, which may expose us to certain potential losses for damages or result in penalization with fines in an amount exceeding our resources. As we do not currently have insurance protection for cybersecurity breaches, we may not have sufficient remedies available to us from our third-party service providers to cover all of our losses that may result from such interruptions, outages or degradations. +Our software and the third-party software that we incorporate into our platform may be subject to errors, defects or vulnerabilities. Any errors, defects or vulnerabilities discovered in our platform, whether in our code or that of third-party software on which our software relies, could result in negative publicity, a loss of customers or loss of revenue, access or other performance issues, security incidents or other liabilities. Errors, defects and vulnerabilities could also prevent customers from booking flights, which would adversely affect our flyer utilization rates, or disrupt communications within the Company ( e.g. , flight schedules or passenger manifests), which could affect our on-time performance. We may need to expend significant financial and development resources to analyze, correct, eliminate or work around errors or defects or to address and eliminate vulnerabilities. Any failure to timely and effectively resolve any such errors, defects or vulnerabilities could negatively impact our reputation or brand, and could have a material adverse effect on our business, financial condition and results of operations. +In addition, we have a hybrid work environment, where our employees are often working remotely, which could also increase our vulnerability to risks related to our hardware and software systems, including risks of phishing and other cybersecurity attacks. Our systems may be subject to additional risk introduced by software that we license from third parties. This licensed software may introduce vulnerabilities within our own operations as it is integrated with our systems, or as we provide services to our customers. +We are subject to cyberattacks, system failures and other events or conditions that can interrupt the availability or reduce or affect the speed or functionality of our technology platform, especially because we are in the process of maturing our security programs and have not yet implemented the expected security controls to prevent such disruptions. These events could result in losses of revenue due to increased difficulty of booking services through our technology platform, impacts to on-time performance and resultant errors in operating our business. A prolonged interruption in the availability or reduction in the availability or other functionality of our platform can adversely affect our business and reputation and could result in the loss of customers. For example, in 2022, Southern experienced a prolonged interruption in its platform functionality as a result of a ransomware attack on a third-party service provider, which caused two flights to be canceled and the need to revert to manual processes. Moreover, to the extent that any system failure or similar event results in harm or losses to the customers using our platform, such as the inability to book or change flights because of a system failure, we may make voluntary payments to compensate for such harm or the affected users could seek monetary recourse or contractual remedies from us for their losses and such claims, even if unsuccessful, would likely be time consuming and costly for us to address. +It is also possible our security controls over personal and other data may not prevent unauthorized access to, or destruction, loss, theft, misappropriation or release of personally identifiable or other proprietary, confidential, sensitive or valuable information of ours or others; this access could lead to potential unauthorized disclosure of confidential personal, Company or customer information that others could use to compete against us or for other disruptive, destructive or harmful purposes and outcomes. Any such disclosure or damage to our networks and systems could subject us to third-party claims against us and reputational harm, including statutory damages under California or other state law, regulatory penalties and significant costs of breach investigation, remediation and notification. If these events occur, our ability to attract new clients may be impaired or we may be subjected to damages or penalties. +39 +We will continue to rely on mobile operating systems and application marketplaces to make our app available to users of our platform. If we do not effectively operate with or receive favorable placements within such application marketplaces and maintain high user reviews, our usage or brand recognition could decline and our business, financial results and results of operations could be adversely affected. +We depend in part on mobile operating systems, such as Android and iOS, and their respective application marketplaces to make their respective platforms available to customers. The majority of our flights are booked through our app. In the future, these mobile operating systems or application marketplaces could limit or prohibit us from making our current and future apps available to customers, make changes that degrade their functionality, increase the difficulty of using them, impose terms of use unsatisfactory to us or users, or modify search or ratings algorithms in ways that are detrimental to us. Additionally, if any future competitor’s placement in such mobile operating system’s application marketplace is more prominent than the placement of our current and future apps, overall growth in our customer base could slow and the usage of our platform could be adversely affected. The Surf Air app has experienced fluctuations in the number of downloads in the past, and we anticipate similar fluctuations in the future. Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. +As new mobile devices and mobile platforms are released, there is no guarantee that certain mobile devices will continue to support our platform or effectively roll out updates to our current and future apps. Additionally, in order to deliver high-quality apps, we need to ensure that our offerings are designed to work effectively with a range of mobile technologies, systems, networks and standards. We may not be successful in developing or maintaining relationships with key participants in the mobile technology industry to make, or continue to make, such technologies, systems, networks or standards available to our customers. If users on our platform encounter any difficulty accessing or using our apps on their mobile devices or if we are unable to adapt to changes in popular mobile operating systems, there could be a material adverse effect on our business, financial condition and results of operations. +We will need to improve our financial and operational systems to manage our growth effectively and support our business arrangements, and an inability to do so could harm our business, financial condition and results of operations. +To manage our growth and business operations, especially as we expand our network and work with our commercial partners to electrify our fleet, we will need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense. In particular, we are in the process of replacing our legacy enterprise resource planning (“ ERP ”) systems in order to accommodate our expanding operations and address our deficiencies in IT general controls for information systems. We cannot be certain that we will successfully institute, in a timely or efficient manner or at all, our new ERP system or the improvements to our managerial, operational and financial systems and procedures necessary to support our anticipated increased levels of operations. Problems associated with, or disruptions resulting from, any improvement or expansion of our operational and financial systems could adversely affect our relationships with our customers, commercial partners and suppliers, inhibit our ability to expand or take advantage of market opportunities, cause harm to our reputation, result in errors in our financial and other reporting and affect our ability to maintain an effective internal control environment and meet our external reporting obligations, any of which could harm our business, financial condition and results of operations. +Legal and Regulatory Risks Related to Our Business +Our business will be subject to a variety of extensive and evolving laws and regulations, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel and competitive disadvantages. +We are subject to a wide variety of laws and regulations relating to various aspects of our business, including employment and labor, health care, tax, securities and exchange laws, data privacy and data security, safety and environmental issues. Laws and regulations at the foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future legal or regulatory changes. Moreover, changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts our business could require us to change the way we operate or limit our ability to expand into certain jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations. +Our operations are highly regulated by several U.S. government agencies, including the DOT, the FAA and the TSA. Requirements imposed by these regulators (and others) may restrict the ways we may conduct our business, as well as the operations of our third-party aircraft operator customers. Failure to comply with such requirements in the future +40 +may result in fines and other enforcement actions by the regulators. For example, the TSA is responsible for civil aviation security matters, including passenger and baggage screening at U.S. airports. If the TSA were to impose additional or more burdensome security requirements, demand for our services could decrease and/or the costs required to comply with these requirements could increase. In addition, the FAA can assess civil penalties or seek criminal sanctions for failure to comply with FAA regulations, as well as modify, suspend or revoke licenses granted to us for our operations. In the future, any new regulatory requirements, particularly requirements that limit our third-party aircraft operators’ ability to operate or new maintenance directives or mandatory orders related to airworthiness, could have a material adverse effect on us and the industry. +For example, in March 2023, the TSA issued a cybersecurity amendment on an emergency basis to the security programs of aircraft operators, consistent with the efforts of the U.S. Department of Homeland Security to increase cybersecurity resilience of U.S. critical infrastructure. The emergency amendment requires operators in the aviation sector to develop approved implementation plans, and to assess the effectiveness of those measures, in addition to current regulatory requirements to report significant cybersecurity incidents to the Cybersecurity and Infrastructure Security Agency, establish a cybersecurity point of contact, develop and adopt a cybersecurity incident response plan and complete a cybersecurity vulnerability assessment. +Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations, reduce revenues or otherwise impact our business. The industry is heavily taxed. Additional taxes and fees, if implemented, could negatively impact our results of operations. +In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as the aircraft used in our operations, at such airports. The imposition of any limits on the use of such aircraft at any airport at which we operate could have a material adverse effect on our operations. +Our results of operations and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including: +• +changes in law or regulation that affect the services that can be offered by us in particular markets or at particular airports, or the types of fares offered or fees that can be charged; +• +changes in law or regulation that specifically address hybrid-electric, all-electric or alternative fuel aircraft that could delay our ability to deliver products, implement aircraft modifications or launch service; +• +the adoption of new passenger security standards or regulations that impact customer processing or service; +• +restrictions on airport operations, such as restrictions on the use of particular airports; and +• +the adoption of new or increased aircraft noise restrictions. +We receive, collect, store, process, transmit, share and use personal information, including passenger data, and rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share, and use such personal information, including payment information. Each additional regulation or other form of expanded regulatory oversight increases costs, adds greater complexity to operations and, in some cases, may reduce the demand for air travel. There can be no assurance that the increased costs or greater complexity associated with compliance with new or expanded rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us. Failure to comply with data privacy laws and regulations could have a material adverse effect on our reputation, financial condition or results of operations, or have other adverse consequences. +We and other U.S. carriers are subject to U.S. and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate and which are continuously evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with data privacy obligations, this challenging regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement, and legal claims or proceedings. +Even when we believe we are in complete compliance, a regulatory agency may determine that we are not. Failure to comply with legal and regulatory requirements, such as obtaining and maintaining licenses, certificates, authorizations and permits critical for the operation of our business, may result in civil penalties or private lawsuits, or the suspension +41 +or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating all or significant portions of our business. +We may be unable to obtain or maintain relevant regulatory approvals for the commercialization of our electrification of aircraft. +The development and commercialization of new fully-electric and hybrid-electric powertrains to be used in aircraft and the operation of an air mobility service requires multiple regulatory authorizations and certifications, including STCs, and an air carrier certificate issued by the FAA under Part 119 with Part 135 operations specifications. We are continuing to work on FAA certification of our fully-electric powertrain and hybrid-electric powertrain, followed by the commercialization of the technology, potentially through third party collaborations. The timing of our production ramp is dependent on being able to timely obtain STCs from the FAA. In addition, we will also need to do extensive testing to ensure that the propulsion system is in compliance with applicable FAA safety regulations and other relevant regulations prior to our suppliers beginning mass production. Production approval involves initial FAA manufacturing approval and extensive ongoing oversight of mass produced aircraft components. If we are unable to obtain production approval for the hybrid-electric propulsion system, or the FAA imposes unanticipated restrictions as a condition of approval, our projected costs of production could increase substantially. +We may be unable to obtain or maintain such authorizations and certifications, or to do so on the timeline we project. The failure to obtain any of the required authorizations or certificates, or do so in a timely manner, or if any of these authorizations or certificates are modified, suspended or revoked after we obtain them, may render us unable to develop our powertrains and implement our plans to install them in aircraft on the timelines we project, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. +An STC will be issued by the FAA only if: (i) the pertinent technical data from the manufacturer has been examined and found satisfactory by the FAA; (ii) all necessary tests and compliance inspections have been completed; and (iii) the alteration has been found to conform with the technical data. There are a number of steps involved in obtaining an STC, including FAA application, preliminary type certification board (“TCB”) meetings, development of certification program plans, establishment of certification basis by the FAA, data submission, FAA design evaluation, interim type certification meetings, FAA conformity inspections, pre-flight TCB meeting, ground inspections, ground tests, flight tests, FAA review of in-flight test results, issuance of Type Inspection Authorization, FAA conformity inspections, witnessing of tests and performance of official certification flight tests, flight standards evaluations, functional and reliability testing, FAA approval of flight manual supplement or supplemental flight manual, and final TCB meeting and Aircraft Evaluation Group completion of continuing airworthiness determination. Failure to achieve any of these milestones in a timely manner will delay our ability to attain the requisite STCs on the expected timeline or could result in failure to obtain STC approval at all. Furthermore, the FAA may determine that the modification requested by the STC is so complex that a new (rather than supplemental) aircraft type certification process must be undertaken instead. The process to obtain a TCB is typically longer, more complex and more capital intensive than the process to obtain an STC. +Our agreement with AeroTEC contemplates that it will apply for and obtain STCs for the fully-electric and hybrid-electric powertrains for Cessna Caravan aircraft, and transfer the STCs to us. If the FAA issues AeroTEC such an STC, FAA consent will be required for AeroTEC to transfer the STC to us, and we will still be required to comply with certain requirements in order to maintain that regulatory approval, including obligations to: (i) report failures, malfunctions and defects; (ii) make the type certificate and underlying data available to FAA and National Transportation Safety Board upon request; (iii) make instructions for continued airworthiness available to aircraft owners and operators; (iv) make required design changes to address Airworthiness Directives issued by FAA and make them available to aircraft owners and operators; and (v) make flight manual supplements and supplemental flight manuals available with each alteration. Failure to continue to comply with these and other requirements may result in the suspension or revocation of the STC or other licenses, certificates, authorizations or permits required to operate our business. +We may be unable to comply with relevant regulations applicable to our on-demand business. +We provide a technology platform to match air passengers with seats on certified aircraft. Depending on how this platform and our business evolves, it is possible that, as a result of our on-demand services, the DOT may view us as operating as either an “air charter broker” and/or a “charter operator”. Each of these roles carries with it varying levels of regulatory obligations. To the extent applicable, failure to comply with the regulations applicable to each of these roles could result in the imposition of fines and/or civil penalties, and, in severe cases, the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating all or a significant portion of our business. +42 +Continued access to Essential Air Service revenue is of critical importance to us. +We have historically received EAS subsidies as compensation for providing essential air service to numerous small communities. For the year ended December 31, 2025, EAS revenue was $44.8 million, or approximately 42% of the Company’s total revenue. The total amount of EAS revenue ultimately received by us will be determined by, among other things, the number of subsidized flights flown, overall funding levels of the EAS program by the U.S. Congress (which could be reduced) and competitive bids for EAS revenue awards by other carriers (which could cause us to lose EAS revenue to competitors). The EAS program was initially intended to last ten years from 1978 but has been modified and extended in the years since. The EAS program may continue to be modified or changed or may be canceled in the future, or we may be unable to continue to participate successfully in the EAS program. Any such developments could materially adversely affect our business. EAS revenue awards generally have a term of two years, during which time, a carrier is paid a subsidy amount in accordance with the maximum allowances stipulated in the EAS revenue award and is paid monthly in arrears on a per-flight-completed basis. The DOT, which administers the EAS program, has the right to terminate a route for breach of contract or in exceptional circumstances and has the right to cancel EAS revenue awards if it deems that the communities served by such arrangements are no longer eligible. +There can be no assurance that current EAS legislation will remain unchanged, or that Congress will continue to provide funding for the EAS program at any particular level. For example, following the passage of the FAA Reauthorization Act of 2024, and resulting changes to the administration of the EAS program, we have been subject to increased competition for certain subsidized routes. As a result, we expect to face increased and continued competition when bidding for or renewing EAS contracts, which could impact our ability to retain existing routes or the level of subsidy associated with those routes. Additionally, during October 2025, the DOT issued public notices regarding a potential lapse in appropriated funding for the EAS program as a result of the federal government shutdown, followed by an amended notice extending temporary funding authority through November 18, 2025. While the DOT has historically restored and funded EAS obligations retroactively following prior government shutdowns, there can be no assurance that Congress will authorize retroactive reimbursement for service provided during a lapse. Interruptions, reductions, or delays in federal appropriations for the EAS program -- or changes in related legislation, regulations, or administrative practices - could affect the timing and amount of subsidy payments and increase the Company’s working capital requirements to the extent it elects to continue operating EAS routes during a funding lapse. A reduction of EAS revenue, a loss of EAS revenue awards either due to termination or failure to renew at the end of the two-year term or a change to or termination of the EAS program could have a material adverse effect on our business, financial condition and results of operation. +Essential Air Service Program and Federal Funding Developments +Interruptions, reductions, or delays in federal appropriations for the EAS program—or changes in related legislation, regulations, or administrative practices—could affect the timing and amount of subsidy payments and increase the Company’s working capital requirements to the extent it elects to continue operating EAS routes during a funding lapse. The Company monitors these developments closely and will continue to assess their potential impact on liquidity, operating results, and overall business strategy. +We may fail to continue to meet the requirements necessary to operate our air services. +Regional airline services are currently regulated by both the DOT, which provides the economic authority to operate as an airline, and the FAA, which provides the safety authority. Southern currently holds a Commuter Air Carrier Authorization issued by the DOT under 14 C.F.R. Part 298 (“Part 298”) and an Air Carrier Certificate issued by the FAA under 14 C.F.R. Part 119 with Operations Specifications issued under 14 C.F.R. Part 135 (“Part 135”). The requirements of Part 298 and Part 135 are continuing in nature and we must comply with them at all times, and a failure to meet any relevant requirements could subject us to possible penalties and/or certificate actions. +We must comply continuously with Fitness and Citizenship requirements administered by the DOT to perform scheduled air transportation . +As a carrier, we must be found to be fit, willing, and able to perform the air transportation for which we are licensed by the DOT. This involves a DOT evaluation of the citizenship, competence and compliance disposition of the airline and its management as well as an evaluation of the financial viability of the carrier and its ability to carry out its operations without putting customers’ money at unnecessary risk. In connection with DOT review of our acquisition of Southern, we are undergoing a continuing fitness review by the DOT keyed to these factors. DOT review is ongoing. To the extent the DOT were to raise concerns about any of these matters, we may have to make adjustments to our operating team, management or ownership structure in order to address the concerns. A protracted failure to address any DOT concerns +43 +might result in the suspension or revocation of licenses, certificates, authorizations or permits, which would prevent us from operating our business. +Risks Related to Our Operating as a Public Company +The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. +As a public company, we are subject to the rules and requirements of the Exchange Act as well as other rules and regulations of the SEC, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd Frank Wall Street Reform and Consumer Protection Act and any rules and regulations thereunder, as well as under the Jumpstart Our Business Startups Act of 2012 (the “ JOBS Act ”), and the rules of the NYSE. New and changing laws, regulations, and standards relating to corporate governance and public disclosure have created uncertainty for public companies and will increase the costs and the time that our Board of Directors and management must devote to complying with these rules and regulations. The requirements of these rules and regulations will increase our legal and accounting compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight are required, and, as a result, management’s attention may be diverted from other business concerns. These rules and regulations can also make it more difficult for us to attract and retain qualified independent members of our Board. The increased costs of compliance with public company reporting requirements and our potential failure to satisfy these requirements could have a material adverse effect on our operations, business, financial condition or results of operations. Further, the need to establish and maintain the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. +Our management has limited prior experience in operating a public company. +Our executive officers have limited prior experience in the management of a publicly traded company. Our management team may not be able to effectively manage our responsibilities as a public company subject to significant regulatory oversight and reporting obligations under federal securities laws. Their lack of experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage, as an increasing amount of their time may be devoted to these activities, resulting in less time being devoted to the management and growth of our business and operations. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States. We are in the process of upgrading our finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact our ability or prevent us from timely reporting our results of operations, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act (“ Section 404 ”). The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods. +If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. +As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the applicable listing standards of the NYSE. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, as a result of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our common stock. +As a private company, we had not endeavored to establish and maintain internal control over financial reporting meeting the standards required of public companies. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we +44 +are unable to conclude that our internal control over financial reporting is effective as a result of a material weakness(es) in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities. +We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. See the section entitled “- Risks Related to Our Operating as a Public Company - Our management has identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. At this time, we cannot predict whether our efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time”. In order to develop, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related and audit-related costs and significant management oversight. +Our management has identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner. At this time, we cannot predict whether our efforts to remediate the identified material weaknesses will be successful, and it is expected that some or all of these material weaknesses will continue to persist for an extended period of time. +Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. As of December 31, 2025, material weaknesses continued to exist in our internal control over financial reporting, as discussed further in Item 9A, “Controls and Procedures - Material Weaknesses in Internal Control Over Financial Reporting.” A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. +Our management has developed a plan to remediate these material weaknesses, as discussed in Item 9A, “Controls and Procedures - Material Weaknesses in Internal Control Over Financial Reporting.” We have begun to implement aspects of this remediation plan; however, the remediation measures will be ongoing and it is expected that these will result in future costs for us. However, the material weaknesses will not be considered remediated until management completes the design and implementation of the processes and controls described above and the controls operate for a sufficient period of time and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot predict the success of such efforts or the outcome of future assessments of the remediation efforts. Our efforts may not remediate these material weaknesses in internal control over financial reporting, and may not prevent additional material weaknesses from being identified in the future. Failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a revision or restatement of our consolidated financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us, negatively impact the trading price of our common stock and cause a decline in our equity value. Additionally, ineffective internal control over financial reporting could expose us to an increased risk of financial reporting fraud and the misappropriation of assets, and may further subject us to potential delisting from the stock exchange on which we list, or to other regulatory investigations, litigation and civil or criminal sanctions. Restatements or revisions of our consolidated financial statements could cause our management’s attention to be diverted from the operation of the business and could also cause us to incur additional expenses. +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +45 +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company until December 31, 2028, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year and would become an accelerated filer. We cannot predict whether investors will find our securities less attractive because we rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (a) (1) the market value of our ordinary shares held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues equal or exceed $100 million during such completed fiscal year or (b) the market value of our ordinary shares held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +We may be subject to securities litigation, which is expensive and could divert management attention. +The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could have a material adverse effect on our business. +Additionally, in connection with their prior experience, certain of our directors have been named defendants in litigation or other legal proceedings, and we cannot provide assurance that these prior legal proceedings or future legal proceedings involving our directors will not cause reputational harm for us. +Investors’ expectations of our performance relating to ESG factors may impose additional costs and expose us to new risks. +There is an increasing focus, both positive and negative, from investors, employees, customers and other stakeholders concerning corporate responsibility, specifically related to ESG matters. Some investors may use these non-financial performance factors, including third-party scores, to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to corporate responsibility are inadequate or inappropriate. The criteria by which our corporate responsibility practices are assessed may change due to the constant evolution of the sustainability landscape, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. +46 +Further, in the event that we communicate certain initiatives and goals regarding ESG matters, we could fail, or be perceived to fail, in our achievement or maintenance of such initiatives or goals, or we could be criticized for the pursuit of or scope of such initiatives or goals. We also may be unable to satisfy all stakeholders in light of their varied and sometimes conflicting views regarding sustainability and other corporate responsibility matters. If we fail to satisfy the evolving expectations of investors, customers, employees and other stakeholders our reputation and business, operating results and financial condition could be adversely impacted. +Delaware law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable. +Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and the Delaware General Corporation Law (as amended, the “DGCL”) all contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, and therefore depress the trading price of our common stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of our Board or taking other corporate actions, including effecting changes in our management. Among other things, the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws include provisions: +• +establishing a classified board of directors with staggered, three-year terms; +• +authorizing our Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; +• +prohibiting cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; +• +limiting the liability of, and providing for the indemnification of, our directors and officers; +• +authorizing our Board to amend the bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and +• +establishing advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. +These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management. +Our Amended and Restated Bylaws and our Amended and Restated Certificate of Incorporation limit voting rights of certain foreign persons. +Our Amended and Restated Bylaws and our Amended and Restated Certificate of Incorporation provide that persons or entities who are not citizens of the United States (“Non-Citizens”), shall not, in the aggregate, own and or control more than 25.0% of our total voting interest. Additionally, our Amended and Restated Bylaws provide that Non-Citizens who are residents of countries that are not party to “open-skies” agreements with the United States (“NOS Non-Citizens”) shall not, in the aggregate, own more than 25.0% of the total number of our outstanding equity securities, and that all Non-Citizens (including any NOS Non-Citizens) shall not, in the aggregate, own more than 49.0% of the total number of our outstanding equity securities. To comply with this legally-required provision, if Non-Citizens own (beneficially or of record) more than 25.0% of the total voting power of our common stock, only permitted Non-Citizens holders consisting of Kuzari Investor 94647 LLC and our co-founders, Sudhin Shahani and Liam Fayed, and their respective affiliates (“the Permitted Holders”) will be entitled to vote. Any other Non-Citizens that own (beneficially or of record) or have voting control over any shares of our capital stock, will have their voting rights subject to automatic suspension. +47 +The provisions of our Amended and Restated Certificate of Incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers. +Our Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of ours to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. However, our Amended and Restated Certificate of Incorporation provides that federal district courts will be the sole and exclusive forum for claims under the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision in our Amended and Restated Certificate of Incorporation will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. +These provisions may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in such action. In this regard, stockholders may not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder, including Section 22 of the Securities Act. +Risks Related to Ownership of Our Common Stock +The trading price of our common stock may be volatile. +The trading price of our common stock, may fluctuate due to a variety of factors, including: +• +changes in the industries in which we and our customers operate; +• +developments involving our competitors; +• +changes in laws and regulations affecting our business; +• +variations in our operating performance and the performance of our competitors in general; +• +actual or anticipated fluctuations in our quarterly or annual results of operations; +• +publication of research reports by securities analysts about us or our competitors or our industry; +• +the public’s reaction to our press releases, our other public announcements and our filings with the SEC; +• +actions by stockholders, including the sale by the third-party investors of any of their shares of common stock; +• +additions and departures of key personnel; +• +commencement of, or involvement in, litigation involving us; +• +changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; +• +the volume of shares of common stock available for public sale; and +• +general economic and political conditions, such as the effects of public health threats, recessions, interest rates, inflation, government shutdowns, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism. +48 +These market and industry factors may materially reduce the market price of our common stock regardless of our operating performance. Furthermore, an active trading market for our securities may never develop, or, if developed, may not be sustained. Holders of our securities may be unable to sell their securities unless a market can be established or sustained. +In addition, stock markets with respect to newly public companies, particularly companies in the mobility and technology industry, have experienced significant price and volume fluctuations that have affected and continue to affect the stock prices of these companies. Stock prices of many companies, including mobility and technology companies, have fluctuated in a manner often unrelated to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for our common stock given that we are a newly public company. In the past, companies that have experienced volatility in the trading price for their stock have been subject to securities class action litigation. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, and financial condition. +Our shareholders may experience dilution from several different sources. +Our shareholders may experience dilution from several sources to varying degrees, namely as shares of our common stock are issued and sold in subsequent offerings. +For example, if, in the future, we raise additional funds by issuing equity securities (including the GEM Advances), convertible debt or other similar securities, investors may experience significant dilution of their ownership interest. In addition, if we issue shares of our common stock for the remainder of the undrawn amounts under the Share Subscription Facility, the purchase price per share to be paid by GEM for the shares of our common stock that we may elect to sell to GEM under the Share Subscription Facility will fluctuate based on the volume weighted average trading price of our common stock. Accordingly, it is not possible for us to predict prior to any such sales, the number of shares of our common stock that we will sell pursuant to the Share Subscription Facility, and such sales could result in substantial dilution to the interests of other holders of our common stock. +We do not intend to pay cash dividends for the foreseeable future. +Our Board currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on the Company’s financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our Board deems relevant. +If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline. +The trading market for our common stock will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If few analysts cover us, demand for common stock could decrease and our common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly. +Sales of substantial amounts of our common stock in the public markets or the perception that sales might occur, could cause the trading price of our common stock to decline. +In addition to the supply and demand and volatility risk factors discussed above, sales of a substantial number of shares of our common stock into the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur in large quantities, could cause the trading price of our common stock to decline. +Further, assuming the continued availability of certain public information about us, (i) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of common stock, and (ii) our directors, executive officers, and other affiliates who have beneficially owned our common stock for at least +49 +six months, are entitled to sell their shares of our common stock subject to volume limitations under Rule 144 and any applicable restrictions under our insider trading policy . +We have filed a registration statement on Form S-8 under the Securities Act to register all shares subject to outstanding stock options or shares reserved for future issuance under our equity compensation plans. As of December 31, 2025, we had 2,332,762 options outstanding that, if fully exercised, would result in the issuance of 2,332,762 shares of common stock. As of December 31, 2025, we had 13,486 unvested RSPAs outstanding that, if fully exercised, would result in the issuance of 13,486 shares of common stock. As of December 31, 2025, we had 2,438,437 RSU and PRSU awards granted prior to December 31, 2025 for which the time-based and/or performance-based vesting condition had not been satisfied as of such date that, upon vesting, would result in the issuance of 2,438,437 shares of common stock. These shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144. +In addition, as of December 31, 2025, we had 11,163,825 warrants outstanding that, if fully exercised, would result in the issuance of 11,163,825 shares of common stock. These shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144. +Moreover, depending on market liquidity at the time, resales by GEM of any shares we sell to GEM under the Share Subscription Facility may cause the public trading price of our common stock to decrease. +Our business and financial performance may differ from any projections that we disclose or any information that may be attributed to us by third parties. +From time to time, we may provide guidance via public disclosures regarding our projected business or financial performance. However, any such projections involve risks, assumptions, and uncertainties, and our actual results could differ materially from such projections. Factors that could cause or contribute to such differences include, but are not limited to, those identified in these risk factors, some or all of which are not predictable or within our control. Other unknown or unpredictable factors also could adversely impact our performance, and we undertake no obligation to update or revise any projections, whether as a result of new information, future events, or otherwise. In addition, various news sources, bloggers, and other publishers often make statements regarding our historical or projected business or financial performance, and you should not rely on any such information even if it is attributed directly or indirectly to us. +We may fail to qualify for continued listing on the NYSE, which could make it more difficult for our stockholders to sell their shares. +Our common stock is listed on the NYSE under the symbol “SRFM.” We are required to satisfy the continued listing requirements of the NYSE to maintain such listing, including, among other things, the maintenance of a certain market capitalization and average closing price of our common stock. +On April 2, 2024, we received formal notice from the NYSE indicating that we were not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock was less than $1.00 over a consecutive 30 trading-day period. We subsequently notified the NYSE of our intent to regain compliance with the requirements of Section 802.01C. We were able to regain compliance at any time within the six-month period following receipt of the notice if, on the last trading day of any calendar month during this cure period (or the last trading day of this cure period), we had a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the prior 30 trading-day period. The Company regained compliance with the requirements of Section 802.01C as of September 30, 2024. However, if the Company were to again fall below the continued listing criteria, the Company would be subject to immediate review under the requirements of Section 802.01C. +Additionally, on May 20, 2024, we received formal notice from the NYSE indicating that we were no longer in compliance with Section 802.01B of the NYSE Listed Company Manual because our average total market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, our stockholders’ equity was less than $50 million. We subsequently submitted a plan within 45 days of the notice advising the NYSE of definitive action we have taken or will take to be in compliance with Section 802.01B within 18 months of receipt of the notice. We regained compliance with the requirements of Section 802.01B as of November 20, 2025. However, if the Company were to again fall below the continued listing criteria within 12 months of November 20, 2025, the NYSE may either truncate the compliance procedures or immediately initiate delisting procedures. +50 +There can be no assurance that we will maintain compliance with the NYSE’s continued listing requirements. In the event that we do not maintain compliance with the NYSE continued listing standards, we and our stockholders could face significant material adverse consequences, including: +• +being delisted from the NYSE; +• +being in violation of restrictive covenants in the Company’s debt agreements; +• +a limited availability of market quotations for our common stock; +• +an adverse effect on the market price of our common stock; +• +loss of confidence from stakeholders, employees and potential business partners; +• +reduced liquidity with respect to our common stock; +• +a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, and which may limit demand for our common stock among certain investors; +• +a limited amount, or complete absence, of news and analyst coverage for our company; and +• +a decreased ability, or inability, to issue additional securities or obtain additional financing in the future. +General Risk Factors +An overall decline in the health of the economy and other factors impacting consumer spending, such as recessionary conditions, governmental instability, inclement weather, and natural disasters, may affect consumer purchases, which could reduce demand for our products and harm our business, financial condition, and results of operations. +Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world could adversely affect us and our vendors and suppliers, which could have a material adverse effect on our business, financial condition and results of operations. Our business depends on consumer demand for our services and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, legislative and regulatory changes, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather and climate change, natural disasters, terrorism, uncertainty in the banking system, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security. Unfavorable economic conditions can lead consumers to forgo our services and consumer demand for our services may not grow as we expect. We believe perceived recessionary risks will continue to impact our results of operation in 2026. For example, perceived recessionary risks may cause companies and individuals to reduce travel for either professional or personal reasons and drive higher prices in the supply chains we rely upon. +We are exposed to the impact of rising inflation rates, which could negatively affect our results of operations and our ability to invest and hold our cash. +The United States has recently experienced historically high levels of inflation. Additionally, recent trade disputes between the United States and other countries resulting in the imposition of increased tariffs on products imported into the U.S., and the ongoing conflicts between Russia and Ukraine and in the Middle East, have contributed to higher inflation in recent years. +The general effects of inflation on the global economy can be wide-ranging, evidenced by rising wages and rising costs of consumer goods and necessities. If the inflation rate increases, this will result in, for example, increases in the cost of fuel, labor and other costs, which will adversely affect our expenses, such as employee compensation which accounts for a significant portion of our operating expenses. +51 +Our fuel purchase, labor and airport operations contracts generally do not provide meaningful price protection against increases in costs. Our current policy is not to enter into transactions to hedge our fuel costs, although we review this policy from time to time based on market conditions and other factors. Accordingly, as of December 31, 2025 and December 31, 2024, we did not have any fuel hedging contracts outstanding to hedge our fuel costs. Additionally, we do not typically enter long-term labor agreements with our pilots or ground service personnel to fix our employee-related costs. We do not intend in the foreseeable future to enter into any future transactions to hedge the cost of fuel, and assuming we do not otherwise fix our labor costs, we will continue to be fully exposed to fluctuations in prices of material operating costs. +Changes in U.S. or foreign trade policies, including the imposition of tariffs and other protectionist trade measures, and other factors beyond our control may adversely impact our business, financial condition, and results of operations. +Since January 2025, the United States has announced significant new tariffs on imports from a wide range of countries, including China, which was followed by retaliatory tariffs by China and a number of countries and a cycle of further retaliatory tariff announcements and trade actions. Certain of the tariffs have been and may be delayed, but others have taken or may take effect. Further, tariffs announced or imposed by the United States could be altered or delayed through presidential action, bilateral negotiations, judicial orders or congressional action, and tariffs announced or imposed by other countries can be affected by similar developments. These and future changes in tariffs and trade policies by the United States or China, or trade actions by or directed toward other countries, such as Mexico or Canada, or retaliatory trade measures in response, may continue to result in additional costs and pricing pressures, supply chain disruptions, volatile or unpredictable customer spending patterns, and increased economic or geopolitical risks, any or all of which could adversely impact our business, financial condition, and results of operations, perhaps materially or in ways that we cannot predict. For example, we plan to outsource the majority of the production, assembly and installation of our fully-electric and hybrid-electric solutions, and international trade disputes and tariffs may increase costs of production and/or otherwise disrupt production, supply, or transit of products to their final destination. In addition, macroeconomic uncertainty tends to make consumers and businesses hesitant about discretionary purchases, which could result in reduced customer demand for air transportation, including our air mobility services, or could shift demand from our air mobility services to other methods of air or ground transportation for which we do not offer a competing service. +We are actively monitoring and evaluating these developments and the potential impacts of trade policy and tariffs on our business and results of operations. If tariffs continue to be maintained at current levels, and/or the U.S. government or foreign governments impose further retaliatory tariffs or other trade restrictive measures in response, we expect that such actions could negatively impact our revenue growth and margins in future periods through increased costs, decreased demand and other adverse economic impacts. The net effect of these actions on our business will depend on our ability to successfully mitigate and offset their impact, which efforts may not be effective. If we are unable to mitigate these risks through supply chain adjustments or other measures, our business could be negatively affected. +If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected. +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the sections entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates ”. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses. Significant estimates and judgments involve: valuation of our share-based compensation; fair value measurements of our debt and equity transactions; and income taxes. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock. +ITEM 1B: UNRESOLVED STAFF COMMENTS +None. +ITEM 1C: CYBERSECURITY +52 +We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. We have implemented and planned several cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage such material risks. +Cybersecurity Risk Management and Strategy +As part of our overall risk management framework, we have implemented the following cybersecurity measures: +• +Cybersecurity incident response plan and procedures +• +Change management and software development life cycle (“SDLC”) workflow across the Engineering release team +• +Role-based access controls across enterprise systems +• +Work with partners that have SOC1/SOC2 compliance standards around the management and processing of payment card industry (“PCI”) and personally identifiable information (“PII”) data +• +Use of multi-factor authentication for accessing digital content across important roles in the enterprise +• +Security controls designed to mitigate risks related to business email compromise, malware, ransomware, and other cybersecurity threats across employee devices +• +Centralized device management tools to centrally manage and update company-owned hardware assets +• +Vulnerability scanning frameworks across digital and hardware assets across the enterprise +In addition, our cybersecurity roadmap includes the following planned initiatives: +• +Periodic reviews of our consumer-facing policies and statements related to cybersecurity +• +Cybersecurity management and incident training for employees +• +Regular phishing email simulations for all employees and contractors with access to corporate email systems to enhance awareness and responsiveness +• +Ongoing evaluation and refinement of internal processes and response plans to address evolving cybersecurity threats and trends +To further enhance our cybersecurity posture, we engage , and plan to continue engaging, external assessors, consultants, and other third parties to review elements of our cybersecurity program and identify areas for improvement or enhanced compliance. We are also working toward a more comprehensive cybersecurity risk assessment process aligned to standards published by the National Institute of Standards and Technology (NIST) and plan to align certain controls with the Center for Internet Security (CIS) benchmarks. In addition, we anticipate engaging third-party providers to perform penetration testing of our information systems. +As of December 31, 2025 , we have not experienced any material cybersecurity incidents. Risks from cybersecurity threats, including any prior incidents, have no t materially affected the Company’s business strategy, results of operations or financial condition. Certain third-party SaaS infrastructure providers used by the Company have experienced cybersecurity events as part of broader industry-wide incidents; however, the impact to the Company was immaterial, and no penalties or settlements were incurred. +Additional information on cybersecurity risks we face can be found in Part I, Item 1A “Risk Factors” of this Report under the headings “We will rely on our information technology systems to manage numerous aspects of our business. A cyber-attack of these systems could disrupt our ability to deliver services to our customers and could lead to increased overhead costs, decreased sales and harm to our reputation” and “System failures, defects, errors or vulnerabilities in our website, applications, backend systems or other technology systems or those of third-party technology providers could harm our reputation and brand and adversely affect our business, financial condition and results of operations,” which should be read in conjunction with the foregoing information. +53 +Governance and Oversight +Cybersecurity is an integral part of the Company’s enterprise risk management processes and an area of increasing focus for our Board of Directors. The Board oversees the Company’s enterprise risk management process, including the management of risks arising from cybersecurity threats. +Management oversight of cybersecurity risk is supported by the Information Technology Steering Committee, which includes executive leadership, business leaders, and information technology leadership. The Information Technology Steering Committee meets regularly to review cybersecurity risks, mitigation strategies, and related initiatives. Management provides the Board with periodic updates regarding cybersecurity risk management and strategy, including the Company’s security posture, progress toward risk-mitigation initiatives, and emerging threat developments. +Pursuant to the Company’s cybersecurity incident response framework, certain cybersecurity incidents that meet established escalation thresholds are reported internally and, where appropriate, escalated to the Board. Management provides updates regarding any such incident until it has been addressed . Members of the Board and the Information Technology Steering Committee also engage in periodic discussions with management regarding cybersecurity-related developments and risk management activities. +The Company’s cybersecurity risk management and strategy processes are led by the Director of IT, in coordination with executive leadership. Collectively, management has over 25 years of experience across roles involving information security management, cybersecurity strategy development, and the implementation of information security programs. In addition, the Company’s Chief Executive Officer, who holds CISSP certification, provides executive oversight and strategic guidance related to cybersecurity risk management and mitigation. +54 +ITEM 2: PROPERTIES +As of December 31, 2025, we leased aircraft, airport passenger terminal space, portions of and full aircraft hangars and other airport facilities in 45 U.S. airports. We lease our main office and all of the properties on which we operate air mobility services. Our main office is located in a 5,500 square foot facility at 12111 S. Crenshaw Blvd, Hawthorne, CA 90250. The lease of this facility expires in August 2026. In February 2025, the Company relocated its air operations center to Addison, Texas. The lease of this facility expires in January 2028. +ITEM 3: LEGAL PROCEEDINGS +From time to time, we have in the past and may in the future become subject to legal proceedings or claims arising in the ordinary course of our business. Other than as set out in Item 8 of Part II, “Financial Statements and Supplementary Data - Note 13 - Commitments and Contingencies - Legal Contingencies ,” we are not currently a party to any legal proceedings, the outcome of which, if determined adversely, we believe would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations. +ITEM 4. MINE SAFETY DISCLOSURES +Not applicable. +55 +PART II +ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Our common stock is listed on the New York Stock Exchange under the symbol “SRFM.” +Holders of Record +As of March 6, 2026, there were approximately 207 stockholders of record of our common stock. The number of record does not include persons who held shares of our common stock in nominee or “street name” accounts through brokers. +Dividend Policy +The payment of cash dividends in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition. Our board of directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business and does not intend to pay cash dividends on our common stock for the foreseeable future. The payment of any cash dividends will be within the discretion of our board of directors. +Stock Performance Graph +The following performance graph shows a comparison from July 27, 2023 (the date our common stock commenced trading on the New York Stock Exchange) through December 31, 2025, of the cumulative total return for our common stock, the NYSE Composite Index and the S&P 500 Airlines Industry Index. +ITEM 6. [RESERVED] +56 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following discussion and analysis reflects the historical results of operations and financial position of Surf Air Mobility Inc., and its consolidated subsidiaries. References in this section to the “Company”, “we” or “our” refer to Surf Air Mobility Inc. and its consolidated subsidiaries, including Southern Airways Corporation. Unless otherwise indicated, all dollar amounts are set forth in thousands, except share and per share data. +The following discussion and analysis is intended to help the reader understand the Company’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, the information included in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. The Company’s actual results and outcomes, and the timing of its results and outcomes, may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included within this Annual Report on Form 10-K. +Overview of the Business +Surf Air Mobility Inc. (“Surf Air Mobility”, the “Company”, “us”, “we” or “our”), a Delaware corporation, is a regional air mobility platform that aims to transform regional flying. The Company currently operates one of the largest commuter airlines in the United States by scheduled departures as well as an expanding on-demand charter marketplace for passengers in the U.S. and globally. The Company’s operations provide scale, distribution and real-world operating data to validate and, eventually, deploy the software and technology offerings it is currently developing to support the modernization of air operations and the adoption of next-generation aircraft. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to drive an innovative platform developing a proprietary, AI-enhanced aviation software operating system as well as technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the New York Stock Exchange (“NYSE”). For 2025, the Company’s combined network served over 300,000 passengers with approximately 62,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional air mobility platform. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Reverse Stock Split +On August 16, 2024, the Company effected a seven-for-one reverse stock split for all shares of the Company’s common stock issued and outstanding. As a result of the reverse stock split, every seven shares of the Company’s old common stock were converted into one share of the Company’s new common stock. Fractional shares resulting from the reverse stock split were settled by cash payment. +Options, and other like awards, to purchase the Company’s common stock were also adjusted in accordance with their terms to reflect the reverse stock split. +Adjustments resulting from the reverse stock split have been retroactively reflected as of all periods presented herein. +Southern Acquisition +On July 27, 2023 (the “Acquisition Date”), immediately prior to the Company’s listing on the NYSE and after the consummation of the Internal Reorganization, the Company effected the acquisition of all equity interests of Southern Airways Corporation (“Southern”), whereby a wholly-owned subsidiary of the Company merged with and into Southern, after which Southern became a +57 +wholly-owned subsidiary of the Company (the “Southern Acquisition”). Pursuant to the agreement to acquire Southern, Southern stockholders were to receive 2,321,428 shares of the Company's common stock, which was based on the aggregate merger consideration of $81.25 million at the $35.00 per share opening price on the first day of trading of the Company's common stock. In total, 2,321,423 shares of Company common stock were issued to former Southern shareholders while the remaining amount was paid out in cash in lieu of fractional shares to those shareholders on a pro rata basis. +Southern is a scheduled service commuter airline serving cities across the United States and commenced flight operations in June 2013. It is a certified Part 135 operator that operates a fleet of over 50 aircraft, including the Cessna Caravan, the Cessna Grand Caravan, the Pilatus PC-12, and the Tecnam Traveller. Southern provides both seasonal and full-year scheduled passenger air transportation service in the Mid-Atlantic and Gulf regions, Rockies and West Coast, and Hawaii, with select routes subsidized by the United States Department of Transportation (“U.S. DOT”) under the Essential Air Service (“EAS”) program. +Following the Southern Acquisition, the Company operates a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. +The results of operations of Southern are included in the Company’s consolidated financial statements from the date of acquisition, July 27, 2023, through December 31, 2025. For historical financial information of Southern prior to the Acquisition Date, refer to the sections entitled “Unaudited Condensed Consolidated Financial Statements for Southern Airways Corporation” and “Audited Financial Statements for Southern Airways Corporation as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022 and 2021” in the Form 8-K/A filed August 29, 2023. +2025 Operating Environment +Since 2020, the Company has been incurring expenses to support the development of the technology of its digital platform with the aim of enabling the regional air mobility market to operate at scale and to enhance the user’s ability to make informed decisions based on multiple first and third party data sources as well as connected aircraft, and the Company expects these development expenses to continue to be incurred. Additionally, the Company is developing fully-electric and hybrid-electric powertrain technologies with its commercial partners to electrify existing fleets and new aircraft. As a result, the Company expects to incur significant costs in the future to support the development of this technology. +In addition to incremental costs incurred in the execution of the Company’s near and long-term business strategy, the Company has experienced inflationary pressures, which have materially increased the Company’s costs for aircraft fuel, wages and benefits and other goods and services critical to its operations during 2024 and 2025 and believes perceived recessionary risks have impacted the 2025 results. For example, perceived recessionary risks, as a result of tariff or trade uncertainty or otherwise, as well as shifting travel patterns, may cause companies and individuals to reduce travel for either professional or personal reasons, and drive higher prices in the supply chain the Company relies upon. In addition, the Company incurred greater than expected losses and negative cash flows from operating activities during 2025 due to inefficient aircraft utilization, primarily caused by an underutilization of pilots and a shortage of maintenance personnel and critical aircraft components, which, in aggregate, have challenged the Company’s ability to serve its customers as desired and, in turn, cover expenses, specifically related to its scheduled service offerings. +As such, the extent to which global events and market inflationary impacts will affect our financial condition, liquidity and future results of operations is uncertain. Given the uncertainty regarding the length, and intensity, of these factors, the Company cannot reasonably estimate their impact on its future results of operations, cash flows or financial condition. The Company continues to actively monitor its financial condition, liquidity, operations, suppliers, industry and workforce. As the Company does not currently, and does not intend in the foreseeable future to, enter into any transactions to hedge fuel costs, or otherwise fix labor costs, the Company will continue to be fully exposed to fluctuations in prices of material operating costs. +During January 2025, the Company utilized an abundance of caution and voluntarily cancelled a significant number of scheduled flights due to maintenance concerns. The Company took actions to mitigate these concerns and returned its operations to full schedule during the first quarter of 2025. The most significant financial impacts of these cancellations were lost revenues, lost operating income, decreased operating cash flows, and unplanned maintenance costs. +Following the passage of the FAA Reauthorization Act of 2024, and resulting changes to the administration of the Essential Air Service Program, we have been subject to increased competition for certain subsidized routes. As a result, we expect to face increased and continued competition when bidding for or renewing Essential Air Service contracts, which could impact our ability to retain existing routes or the level of subsidy associated with those routes. +Key Operating Measures +58 +In addition to the data presented in our consolidated financial statements, we use the following key operating measures commonly used throughout the air transport industry to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions. The following table summarizes key operating measures for each period presented below, which are unaudited. +Year Ended December 31, +Change +2025 +2024 +Increase/ +Decrease +% +Scheduled Flight Hours (1) +56,022 +67,918 +(11,896 +) +(18 +)% +On-Demand Flights (2) +2,929 +3,515 +(586 +) +(17 +)% +Scheduled Passengers (3) +299,639 +353,077 +(53,438 +) +(15 +)% +Headcount (4) +573 +703 +(130 +) +(18 +)% +Scheduled Departures (5) +60,117 +69,000 +(8,883 +) +(13 +)% +(1) Scheduled Flight Hours represent actual flight time from takeoff through landing that were flown in the period and excludes departures for maintenance or repositioning events. This metric only measures flight hours for flights that generated scheduled revenue and does not include flight hours for flights that generated on-demand revenue. +(2) On-Demand Flights represent the number of flights that generate on-demand revenue taken by customers on the Company's aircraft or third-party operated aircraft during the period. +(3) Scheduled Passengers represent the number of passengers flown during the period for scheduled service. +(4) Headcount represents all full-time and part-time employees at the end of the period. +(5) Scheduled Departures represent the number of takeoffs in the period, agnostic of operator and excludes departures for maintenance or repositioning events. This metric only measures takeoffs that generated scheduled revenue and does not include takeoffs that generated on-demand revenue. +Results of Operations +Results of the Company’s Operations for the Years Ended December 31, 2025 and 2024 +The following table sets forth our consolidated statements of operations data for the years ended December 31, 2025 and 2024 ( in thousands, except percentages ): +Year Ended December 31, +Change +2025 +2024 +$ +% +Revenue +$ +106,557 +$ +119,425 +$ +(12,868 +) +(11 +)% +Operating expenses: +Cost of revenue, exclusive of depreciation and amortization +102,376 +109,934 +(7,558 +) +(7 +)% +Technology and development +10,299 +24,041 +(13,742 +) +(57 +)% +Sales and marketing +8,177 +7,514 +663 +9 +% +General and administrative +53,285 +29,851 +23,434 +79 +% +Depreciation and amortization +9,294 +8,341 +953 +11 +% +Total operating expenses +183,431 +179,681 +3,750 +2 +% +Operating loss +(76,874 +) +(60,256 +) +(16,618 +) +28 +% +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +(8,574 +) +(11,732 +) +3,158 +(27 +)% +Interest expense +(13,205 +) +(8,617 +) +(4,588 +) +53 +% +Gain (loss) on extinguishment of debt +(3,904 +) +5,398 +(9,302 +) +(172 +)% +Other income (expense) +(8,379 +) +12 +(8,391 +) +n/m +Total other expense, net +(34,062 +) +(14,939 +) +(19,123 +) +128 +% +Loss before income taxes +(110,936 +) +(75,195 +) +(35,741 +) +48 +% +Income tax benefit +380 +287 +93 +32 +% +Net loss +$ +(110,556 +) +$ +(74,908 +) +$ +(35,648 +) +48 +% +n/m - not meaningful +59 +Revenue +Revenue decreased by $12.9 million, or 11%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease in revenue was attributable to the following changes in on-demand and scheduled revenues (in thousands, except percentages): +Year Ended December 31, +Change +2025 +2024 +$ +% +Scheduled +$ +76,989 +$ +90,735 +$ +(13,746 +) +(15 +)% +On-Demand +29,568 +28,690 +878 +3 +% +Total revenue +$ +106,557 +$ +119,425 +$ +(12,868 +) +(11 +)% +Scheduled revenue decreased by $13.7 million, or 15%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease in scheduled revenue was primarily related to the exiting of unprofitable routes, partially offset by higher completion factors. +On-demand revenue increased by $0.9 million, or 3%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase in on-demand revenue was related to a greater recent focus on larger jet charter sales, partially offset by the exiting of several on-demand products to focus on profitability rather than near-term market penetration. +Operating Expenses +Cost of Revenue, exclusive of depreciation and amortization +Cost of revenue decreased by $7.6 million, or 7%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease of $7.0 million in Scheduled cost of revenue was attributable to lower volume of flying due to the exiting of unprofitable routes, partially offset by higher completion factors, and higher unit cost as a result of investments in operational improvements. The decrease of $0.8 million in on-demand cost of revenue was primarily attributable to exiting several on-demand products to focus on profitability. +Technology and Development +Technology and development expenses decreased by $13.7 million, or 57%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease was driven primarily by a decrease of $12.5 million in expenses associated with the Textron data license agreement and a reduction in expenses related to software development work with Palantir of $1.3 million. +Sales and Marketing +Sales and marketing expenses increased by $0.7 million, or 9%, for the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to an increase in brand awareness and strategic digital marketing expenses during the year ended December 31, 2025. +General and Administrative +General and administrative expenses increased by $23.4 million, or 79%, for the year ended December 31, 2025, compared to the year ended December 31, 2024. The primary drivers of the increase in general and administrative expenses were an increase in stock-based compensation expense of $16.0 million, an increase in transaction-related costs, associated with the Company’s convertible note financing in November 2025, of $6.4 million, and an increase in incentive bonus plan accruals of $4.2 million. These increases were partially offset by a decrease in non-transaction professional fees of $2.1 million and decreases in other general expenses of $1.1 million during the year ended December 31, 2025. +Depreciation and Amortization +Depreciation and amortization expenses increased by $1.0 million, or 11%, for the year ended December 31, 2025, compared to the year ended December 31, 2024 primarily due to depreciation of engines and aircraft. +Other Income/(Expense) +Other expense, net increased by $19.1 million, or 128%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. There are two primary drivers for the increase in other expense: +60 +• +$9.3 million increase in loss on extinguishment of debt due to a $3.9 million loss recorded on the early repayment of the Comvest Credit Agreement, as compared to a gain of $5.4 million recorded in 2024 associated with the extinguishment of deferred maintenance obligations; +• +$8.4 million increase in other expense, primarily due to $5.4 million of contract settlement expense, paid in shares of the Company’s common stock, $2.5 million in finance charges associated with past federal excise tax and trade payables, and $0.9 million in losses on disposal of fixed assets. +Net Loss +The total increase in net loss of $36.0 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 is primarily due to the $12.9 million decrease in revenues and $19.1 million increase in other expenses, as described above. +Cash Flow Analysis +The following table presents a summary of our cash flows ( in thousands ): +Year Ended December 31, +2025 +2024 +Net cash provided by (used in): +Operating activities +$ +(64,160 +) +$ +(54,322 +) +Investing activities +(5,711 +) +(3,609 +) +Financing activities +70,959 +77,175 +Net change in cash, cash equivalents and restricted cash +$ +1,088 +$ +19,244 +Cash Flow from Operating Activities +For the year ended December 31, 2025, net cash used in operating activities was $64.2 million, driven by a net loss of $110.6 million and net reversals of $10.1 million in non-cash stock-based compensation. These operating outflows were partially offset by $10.1 million in non-cash stock-based compensation, non-cash lease expense of $10.4 million, loss on extinguishment of debt of $3.9 million, changes in fair value of financial instruments of $8.6 million, increases in accrued expenses and other current liabilities of $3.4 million, and depreciation and amortization expenses of $9.3 million. +For the year ended December 31, 2024, net cash used in operating activities was $54.3 million, driven by a net loss of $74.9 million, net reversals of $6.0 million in non-cash stock-based compensation, and a $4.3 million reduction in deferred revenue. These operating outflows were partially offset by changes in fair value of financial instruments of $11.7 million, increases in accrued expenses and other current liabilities of $8.4 million, and depreciation and amortization expenses of $8.3 million. +Net cash used in operating activities increased period over period by $9.8 million, driven by a $36.0 million increase in net loss and a decrease of $6.0 million in changes in accrued expenses and other liabilities. This was largely offset by an increase of $16.0 million in non-cash stock-based compensation expenses, a $9.3 million increase in loss on extinguishment of debt, and a $5.4 million increase in non-cash contract settlement expense. +Cash Flow from Investing Activities +For the year ended December 31, 2025, net cash used in investing activities was $5.7 million, an increase of $2.1 million compared to the year ended December 31, 2024, driven by a decrease of $7.8 million in cash from sales of fixed assets and partially offset by an increase in fixed asset purchases of $5.8 million. +Cash Flow from Financing Activities +For the year ended December 31, 2025, net cash provided by financing activities was $71.0 million primarily due to proceeds from borrowings under convertible note agreements of $65 million, proceeds from the issuance of common stock of $51.4 million, and proceeds of $47.2 million under the GEM Share Purchase Agreement. These proceeds were partially off-set by $49.9 million of repayments under long-term debt agreements, net of new borrowings, $38.6 million of repayments under the GEM Mandatory Convertible Security, and $4 million of repayments under convertible note agreements. +For the year ended December 31, 2024, net cash provided by financing activities was $77.2 million primarily due to proceeds from borrowings under long term debt agreements, net of repayments, of $36.2 million, borrowings from related parties of $34.5 million, net proceeds of $2.8 million from collateralized borrowings, and proceeds from the GEM share purchase agreement of $3.9 million. +61 +Net cash provided by financing activities decreased period over period by $6.2 million, primarily driven by a $121 million decrease in borrowings under long-term debt and related party lending agreements, compounded by $38.6 million of repayments under the GEM Mandatory Convertible Security, and $4 million of repayments under convertible note agreements. These outflows were partially offset by $65 million in borrowings under convertible note agreements, proceeds from the issuance of common stock of $51.4 million, and proceeds of $47.2 million under the GEM Share Purchase Agreement. +Liquidity and Capital Resources +The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. In addition, the Company is currently in default of certain excise and property taxes as well as certain debt obligations. These tax and debt obligations are classified as current liabilities on the Company’s Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024. As discussed in Note 13, Commitments and Contingencies , on May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $9.9 million included in accrued expenses and other current liabilities on the Consolidated Balance Sheet as of December 31, 2025. The Company is currently considering available options regarding settlement of its federal excise tax liability. The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is approximately $0.9 million as of December 31, 2025. Additionally, Los Angeles County had previously imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. During the year ended December 31, 2025, the Los Angeles County tax liens were released as the Company finalized remediation of the late filing, inclusive of the completion of county audits, and made payments of $1.0 million on all property taxes due to Los Angeles County that were underlying the prior aircraft liens. As of December 31, 2025, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”) note, where the note matured in July 2019 (see Note 9, Financing Arrangements ). The SAFE-T note is subordinate to most of the Company’s debt obligations (see Note 9, Financing Arrangements ); therefore, the Company cannot pay the outstanding balance prior to paying amounts due under more senior debt obligations. The SAFE-T note had an outstanding principal amount of $0.5 million as of December 31, 2025 and December 31, 2024. +The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. +The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and continue to expand into regions profitably throughout the United States. +The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to the ability to (i) raise additional capital (or financing) to fund operating losses, (ii) refinance its current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v) attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to the business model. +The Company historically has funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities, related party funding, and preferred and common stock financing arrangements and expects to continue to do so, as available. In particular, as market conditions permit, the Company may raise additional funds through sales of equity (including through the second amended and restated Share Purchase Agreement (the “Share Purchase Agreement”) with GEM Global Yield LLC SCS (“GEM”)) or convertible debt, using proceeds (as available) to strengthen the Company’s balance sheet, among other things. +During the year ended December 31, 2025, the Company received net proceeds of $51.4 million through the issuance and sale of 19,640,424 shares of its common stock and warrants through various direct and private offerings (see Note 12, Shareholders’ Deficit ). The Company received net proceeds of $65 million from a convertible note offering in November 2025, of which $50.4 million was used to repay principal and interest due under the 4-year credit agreement with certain affiliates of Comvest Partners, as lenders (the “Credit Agreement”) and $4 million was used to repay principal due under a convertible note purchase agreement with Partners for Growth V, L.P. (“PFG”). Additionally, during the year ended December 31, 2025, the Company received $47.2 million from draws +62 +under the Share Purchase Agreement with GEM, through the issuance of 13,450,000 shares of the Company’s common stock. As of December 31, 2025, the contractual terms allow the Company to make further advances of up to $97.5 million under the Share Purchase Agreement. Additionally, the Company has the ability to draw an additional $251.4 million under the Share Purchase Agreement, subject to daily volume limitations and GEM’s requirement to hold less than 10% of the fully-diluted shares of the Company. As of December 31, 2025, GEM held 0% of the then fully-diluted shares of the Company. At December 31, 2025, the daily volume limitations under the Share Purchase Agreement significantly restricted our ability to take additional draws under the Share Purchase Agreement to approximately 13.9 million shares per draw. Additionally, the Company’s ability to draw upon the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange. +The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations. In parallel, the Company is advancing its technology initiatives, including its software technology platform and Caravan electrification programs. In addition, the Company continues to evaluate strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, forming joint venture and other partnerships, and restructuring operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans, or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, reducing certain spending, altering or scaling back development plans, including plans to further develop our software technology platforms and to further develop our software technology platforms and to equip our regional airline operations with fully-electric or hybrid-electric aircraft, or reducing funding of capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. +The Company’s capital expenditures in 2025 and in 2024 were limited to payments made for aircraft parts, engines, and internally developed software. The Company intends to invest significantly in expansion of its network footprint and in development of electrified powertrain technology and its commercial platform. Expansion of the network will require acquisition of aircraft over the next five years with an expected cost of approximately $0.3 billion. The Company has an order in place with TAI for delivery of four Cessna Grand Caravan aircraft in 2026 with an option for additional purchases, pending the Company placing a deposit and the parties agreement on a delivery schedule. The Company took delivery of four aircraft under this agreement during 2024. As of December 31, 2025, the Company had made deposits of $2.0 million for aircraft that are scheduled to be delivered in 2026. The Company may finance these aircraft through Jetstream Aviation Capital, with which the Company currently has a sale-leaseback financing arrangement of up to $450 million, and additional debt facilities that it intends to obtain. See the section entitled “ Risk Factors — Risks Related to Our Financial Position and Capital Requirements — Our past financial results may not be a reliable indicator of our future results. ” The Company has engaged AeroTEC to develop fully-electric and hybrid-electric Supplemental Type Certificates (“STCs”) for the Cessna Grand Caravan in partnership with TAI. +Commitments +The Company has entered into various contractual arrangements related to the build-out of the Company’s air service fleet, the development of its proprietary hybrid and electric aircraft technology, and the build out of its aircraft as a service platform. These arrangements include commitments for payments pursuant to licensing agreements, which routinely contain provisions for guarantees or minimum expenditures during the terms of the contracts. The Company also enters into long-term debt arrangements that include periodic interest and principal payments. Additionally, the Company routinely enters into noncancelable lease agreements for aircraft and operating locations, which contain minimum rental payments. +63 +The following table summarizes the Company’s contractual commitments and obligations (in thousands) : +Total +2026 +2027 +2028 +2029 +2030 +Thereafter +Long-term debt +$ +17,101 +$ +2,712 +$ +12,029 +$ +685 +$ +157 +$ +450 +$ +1,068 +Operating leases +15,041 +5,011 +3,524 +2,358 +2,219 +1,929 +— +Finance leases +1,147 +371 +336 +264 +176 +— +— +Repayment of related party term loans +100 +— +— +— +100 +— +— +Repayment of convertible notes +79,909 +50,034 +28,000 +— +1,875 +— +— +Minimum payments under aircraft supply agreements +283,800 +13,200 +13,200 +13,200 +13,200 +62,700 +168,300 +Minimum payments under data license agreements +9,500 +9,500 +— +— +— +— +— +Minimum payments under sales and marketing agreements +40,000 +15,000 +10,000 +10,000 +5,000 +— +— +Minimum payments under technology development agreements +12,583 +4,083 +2,250 +2,500 +2,500 +1,250 +— +Total +$ +459,181 +$ +99,911 +$ +69,339 +$ +29,007 +$ +25,227 +$ +66,329 +$ +169,368 +Critical Accounting Policies and Estimates +The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). +Use of Estimates +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reported period. +Our management believes that the accounting estimates listed below are those that are most critical to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. +Stock-Based Compensation +We grant stock options, warrants, restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) to certain employees, as well as non-employees (including directors and others who provide services to us) under our stock plans. We recognize compensation expense resulting from stock-based payments over the period for which the requisite services are provided. +Stock Options and Warrants +We use the Black-Scholes option pricing model to estimate the fair value of the stock options and warrants at the measurement date. The grant date is deemed to be the appropriate measurement date for stock options issued to employees and non-employees. We have elected to account for forfeitures as they occur. +The use of the Black-Scholes option pricing model requires the use of subjective assumptions, including the following: +• +Fair Value of Common Stock —the fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date immediately preceding the date of grant. +• +Risk-Free Interest Rate —The yield on actively traded non-inflation indexed U.S. Treasury notes with the same maturity as the expected term of the underlying options was used as the average risk-free interest rate. +• +Expected Term —The expected term of options granted to employees was determined based on management’s expectations of the options granted, which are expected to remain outstanding. Where appropriate, we calculated the expected term using the simplified method for “plain vanilla” stock option awards. +• +Expected Volatility —The Company estimates the expected volatility of its common stock using historical volatility. Historical volatility is calculated based on the daily closing prices of the Company’s common stock over a period commensurate with the expected term of the related instrument. +64 +• +Dividend Yield —We have not issued regular dividends on common shares in the past nor do we expect to issue dividends in the future. As such, the dividend yield has been estimated to be zero. +We will continue to use judgment in evaluating the expected volatility and expected terms utilized in our stock-based compensation expense calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future stock-based compensation expense. Additionally, had we arrived at different assumptions of stock price volatility or expected lives of our stock options, our stock-based compensation expense and results of operations may be materially different. +Restricted Stock Units +The fair value of RSUs is estimated based on the fair value of our common stock on the grant date, which is based on the stock price on the day immediately preceding the date of grant. +Performance-Based Restricted Stock Units +In July 2023, we granted PRSUs to each of our three founders (“Founder PRSUs”). In October 2023, we granted 28,571 additional PRSUs as part of a hiring grant to an executive under the 2023 Plan. These and the Founder PRSUs will vest upon the satisfaction of a service condition and the achievement of certain stock price goals. We estimate the grant date fair value of PRSUs using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the stock price goals may not be satisfied. A Monte Carlo simulation model requires the use of various assumptions, including the underlying stock price, volatility, expiration term, and the risk-free interest rate as of the valuation date, corresponding to the length of time remaining in the performance period, and expected dividend yield. The derived service period calculation also requires the cost of equity assumption to be used in the Monte Carlo simulation model. Term and volatility are typically the primary drivers of this valuation. The average grant date fair value of the Founder PRSUs were estimated to be $15.82 per share, and we will recognize total stock-based compensation expense of approximately $6.3 million over the derived service period. The weighted-average grant date fair value of the PRSUs granted in October was $5.67 per share for the 7,143 RSUs vesting upon an Average Closing Price equaling or exceeding $35 per share, $3.85 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $70 per share, and $2.73 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $105 per share. If the stock price goals are met sooner than the derived service period, we will adjust our stock-based compensation expense to reflect the cumulative expense associated with the vested award. Provided that each founder/ employee individually stays employed with the Company, we will recognize stock-based compensation expense over the requisite service period, regardless of whether the stock price goals are achieved. Had we arrived at different assumptions of underlying stock price or volatility our stock-based compensation expense and results of operations may be materially different. +During the year ended December 31, 2025, Company granted PRSUs to employees. The compensation expense associated with such awards is based on the grant date fair value of the awards, which will vest upon the achievement of an adjusted EBITDA metric for the year ending December 31, 2025 as well as a service period of four years from the date of grant. Expense attribution for these awards is based on a probability assessment regarding the achievement of the financial metric and the Company will record cumulative catch-up adjustments to reflect the value of shares expected to vest over the service period of each award. +Fair Value Measurements +The Company has a significant number of debt and equity transactions that are recorded at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The assumptions used in the Company’s valuation models represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s results could reflect material fluctuation in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statement of Operations. +Fair value measurements are based on a fair value hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following: +Level 1 +Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. +65 +Level 2 +Inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. +Level 3 +Inputs are unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. +Assets and liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. +The Company measures the fair value of certain long-lived assets including finite-lived intangible assets on a nonrecurring basis, when such assets are required to be written down to fair value if impaired. Such fair values are classified within Level 3 of the fair value hierarchy, as the valuations contain significant unobservable inputs, including assumptions of the present value of future cash flows, the use of these assets, as well as estimated disposition value. +The Company’s convertible notes are carried at fair value . The Company elected the fair value option for certain convertible notes, which requires them to be remeasured to fair value each period. If factors change and different assumptions are used, the Company’s results could reflect material fluctuation in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. The fair value of the High Trail Convertible Note was estimated using a binomial lattice model which projects the potential future movements of the underlying liability over the remaining term from that point in time. It then calculates the value of the instrument considering the optimal exercise/conversion/redemption/call action at each node, working backward through the lattice to determine the present value at each step and node. In this lattice model, both the Company and the note holder are assumed to act optimally at each decision point. The fair value at a given node represents the expected present value of the convertible note, considering its potential outcomes at the next period. This present value calculation employs a blended discount rate, combining the risk-free rate and the debt discount rate. The weighting of these rates is determined by the respective probabilities of conversion into stock (risk-free rate) and remaining as a potentially default-prone note (debt discount rate). +The Company has accounted for the Mandatory Convertible Security with GEM at fair value. The fair value of the liability was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Company will not be able to satisfy the liability through the issuance of shares of common stock. Significant inputs in determining period end fair values of the Mandatory Convertible Security are as follows: +• +Remaining par amount; +• +Entity specific probability of default; +• +Implied volatility +• +Applicable discount rate +• +Share price at the measurement date +The fair value of liability classified warrants has been estimated using a Monte Carlo simulation model due to the Company’s ability to force exercise when the price exceeds 150% of the exercise for 20 consecutive trading days. This model is determined to be the appropriate methodology because it captures the path dependent nature of this feature, which standard closed form or binomial models cannot reliably address. The simulation generates numerous share price paths using a stochastic process (e.g., Geometric Brownian Motion) and evaluates the forced exercise condition on each trading day prior to the expiration date. For each simulated path and each trading day, if the applicable forced exercise condition is met, the model calculates the payoff to that series of warrants as the maximum of 0 or the stock price minus the exercise price on the applicable date. If the forced exercise condition is not met, the payoff is instead calculated on the expiration date as the maximum of 0 or the stock price minus the exercise price. In all cases, the resulting payoff is discounted to present value using the risk‑free rate. +Income Taxes +The determination of tax strategies and positions, along with accounting for related income taxes requires interpretation of various federal and state tax policies and assessment of the likelihood of various outcomes. Management believes that accounting for income taxes requires difficult, subjective and complex judgments and defenses. Income taxes are accounted for under the asset and liability method in accordance with U.S. GAAP. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to +66 +apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a valuation allowance is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset will not be realized. +Deferred tax assets and liabilities are calculated at the beginning and end of the period. The change in the sum of the deferred tax asset, valuation allowance and deferred tax liability during the period generally is recognized as a deferred tax expense or benefit. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. +The Company determines whether a tax position taken or expected to be taken in a tax return is to be recognized in the consolidated financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The amount recognized is subject to estimation and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. For tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Surf Air recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its income tax expense in the accompanying Consolidated Statement of Operations. +JOBS Act +The Company currently qualifies as an “emerging growth company” under the JOBS Act. Accordingly, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. The Company’s utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act. +67 +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We have operations solely within the United States, and we are exposed to market risks in the ordinary course of our business. The primary risks we face are commodity price risks and macroeconomic risks. +Commodity Price Risks +We are exposed to commodity price risks. Our air mobility services require a significant amount of aircraft fuel, critical spare parts, and specialized maintenance that are affected by the price of other commodities, exchange rates, inflation, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers to obtain a consistent supply of aircraft fuel and the scheduling of aircraft maintenance. Generally, we do not engage in forward purchase commitments for aircraft fuel, or for the supply of critical spare parts, outside of that held in inventory. Increases in the price of fuel, critical spare parts, and/or maintenance services could adversely affect our results if we choose for competitive or other reasons not to increase passenger ticket prices at the same rate at which operating costs increase, or if passenger ticket increases result in customer resistance. We also could experience shortages of aircraft fuel, critical spare parts, and specialized maintenance if our suppliers need to close or restrict operations due to unforeseen events. +Due to the recent pace of inflation and other global supply chain risks, including extreme weather conditions, suppliers and distributors have, and could continue to, attempt to increase prices, as well as assess certain fuel surcharges. These changes could have a negative impact on our commodity prices. For example, during 2024, as a result of global supply chain issues and extreme weather conditions, we experienced supply chain disruptions for critical spare parts and major maintenance, which resulted in higher prices and delayed delivery for those products. We continue to assess the current environment, work with our suppliers and maintenance providers and create certain contingency plans to mitigate any negative impact. +Macroeconomic Risks +Current macroeconomic conditions, such as inflation and increasing interest rates, increase the risk of an economic downturn. These macroeconomic conditions also negatively impact consumer discretionary spend and coupled with slower than expected increases in business and leisure travel, including as a result of many workplaces adopting remote or hybrid models, led to slowed revenue growth during 2025. Additionally, as a result of continued inflation, we have seen continued increases in wage rates and costs of revenue during fiscal year 2025, which has had a negative impact on our financial results. In order to mitigate these risks, we have implemented and may in the future have to implement additional cost cutting measures, as described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Business.” +68 +ITEM 8. Financial Statements and Supplementary Data +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238 ) +70 +Consolidated Balance Sheets as of December 31, 2025 and 2024 +71 +Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 +72 +Consolidated Statement of Changes in Shareholders’ Deficit for the Years Ended December 31, 2025 and 2024 +73 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +74 +Notes to Consolidated Financial Statements +75 +69 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Surf Air Mobility Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Surf Air Mobility Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations, of changes in shareholders’ deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt About the Company's Ability to Continue as a Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ PricewaterhouseCoopers LLP +Los Angeles, California +March 12 , 2026 +We have served as the Company’s auditor since 2021. +70 +Surf Air Mobility Inc. +Con solidated Balance Sheets +December 31, 2025 and December 31, 2024 +(in thousands, except share and per share data) +December 31, +2025 +December 31, +2024 +Assets: +Current assets: +Cash +$ +12,672 +$ +21,107 +Accounts receivable, net +3,929 +4,257 +Prepaid expenses and other current assets +14,320 +8,511 +Total current assets +30,921 +33,875 +Restricted cash +10,091 +568 +Property and equipment, net +45,595 +42,213 +Intangible assets, net +20,067 +23,118 +Operating lease right-of-use assets +12,510 +17,046 +Finance lease right-of-use assets +809 +1,115 +Other assets +11,688 +6,123 +Total assets +$ +131,681 +$ +124,058 +Liabilities and Shareholders’ Deficit: +Current liabilities: +Accounts payable +$ +18,437 +$ +17,976 +Accrued expenses and other current liabilities +47,702 +45,496 +Deferred revenue +17,924 +17,393 +Current maturities of long-term debt +2,712 +2,543 +Operating lease liabilities, current +3,636 +4,120 +Finance lease liabilities, current +277 +265 +SAFE notes at fair value, current +5 +13 +Convertible notes at fair value, current +42,274 +— +Due to related parties, current +643 +1,804 +Total current liabilities +133,610 +89,610 +Long-term debt, net of current maturities +14,389 +59,883 +Convertible notes at fair value, long term +25,183 +7,347 +Operating lease liabilities, long term +8,714 +11,540 +Finance lease liabilities, long term +670 +948 +Due to related parties, long term +100 +50,457 +Other long-term liabilities +3,872 +24,270 +Total liabilities +$ +186,538 +$ +244,055 +Commitments and contingencies (Note 13): +Shareholders’ deficit: +Preferred Stock, $ 0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2025 and December 31, 2024 +— +— +Common stock, $ 0.0001 par value; 800,000,000 shares authorized as of both December 31, 2025 and December 31, 2024; 73,082,025 shares issued and outstanding as of December 31, 2025 and 16,933,692 shares issued and outstanding as of December 31, 2024 +7 +2 +Additional paid-in capital +733,135 +557,444 +Accumulated deficit +( 787,999 +) +( 677,443 +) +Total shareholders’ deficit +$ +( 54,857 +) +$ +( 119,997 +) +Total liabilities and shareholders’ deficit +$ +131,681 +$ +124,058 +The accompanying notes are an integral part of these consolidated financial statements. +71 +Surf Air Mobility Inc. +Co nsolidated Statements of Operations +Years Ended December 31, 2025 and 2024 +(in thousands, except share and per share data) +Year Ended +December 31, +2025 +2024 +Revenue +$ +106,557 +$ +119,425 +Operating expenses: +Cost of revenue, exclusive of depreciation and amortization +102,376 +109,934 +Technology and development +10,299 +24,041 +Sales and marketing +8,177 +7,514 +General and administrative +53,285 +29,851 +Depreciation and amortization +9,294 +8,341 +Total operating expenses +183,431 +179,681 +Operating loss +$ +( 76,874 +) +$ +( 60,256 +) +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +$ +( 8,574 +) +$ +( 11,732 +) +Interest expense +( 13,205 +) +( 8,617 +) +Gain (loss) on extinguishment of debt +( 3,904 +) +5,398 +Other income (expense), net +( 8,379 +) +12 +Total other income (expense), net +$ +( 34,062 +) +$ +( 14,939 +) +Loss before income taxes +( 110,936 +) +( 75,195 +) +Income tax benefit +380 +287 +Net loss +$ +( 110,556 +) +$ +( 74,908 +) +Net loss per share applicable to common shareholders, basic and diluted +$ +( 3.15 +) +$ +( 5.80 +) +Weighted-average number of common shares used in net loss per share applicable to common shareholders, basic and diluted +35,101,792 +12,910,341 +The accompanying notes are an integral part of these consolidated financial statements. +72 +Surf Air Mobility Inc. +Consolidated Statement of Changes in Shareholders ’ Deficit +Years Ended December 31, 2025 and 2024 +(in thousands, except share data) +Common Shares +Number of +Shares +Amount +Additional Paid-In Capital +Accumulated +Deficit +Total Shareholders' Deficit +Balance at January 1, 2024 +10,878,633 +$ +1 +$ +525,049 +$ +( 602,535 +) +$ +( 77,485 +) +Issuance of common stock related to restricted shares +430,540 +— +— +— +— +Issuance of common stock related to stock option exercises +5,379 +— +20 +— +20 +Issuance of common stock under software license agreement +2,990,386 +1 +9,574 +— +9,575 +Issuance of common stock under marketing agreement +26,144 +— +187 +— +187 +Issuance of common shares under Share Purchase Agreement +1,547,770 +— +4,326 +— +4,326 +Shares received as consideration for Mandatory Convertible Security +( 900,000 +) +— +( 1,796 +) +— +( 1,796 +) +Conversion of Mandatory Convertible Security to common shares +1,142,857 +— +1,621 +— +1,621 +Conversion of LamVen Note +750,000 +— +7,473 +7,473 +Issuance of common stock to settle maintenance accruals +61,983 +— +300 +— +300 +Stock-based compensation expense +— +— +10,690 +— +10,690 +Net loss +— +— +— +( 74,908 +) +( 74,908 +) +Balance at December 31, 2024 +16,933,692 +2 +557,444 +( 677,443 +) +( 119,997 +) +Issuance of common stock related to restricted shares +1,329,823 +— +— +— +— +Issuance of common stock related to performance-based restricted shares +365,625 +— +— +— +— +Issuance of common stock related to stock option exercises +49,570 +— +255 +— +255 +Issuance of common stock related to warrant exercises +265,725 +— +830 +— +830 +Issuance of common stock in private placements +2,864,521 +— +6,834 +— +6,834 +Issuance of common shares in direct offerings +16,775,903 +2 +37,274 +— +37,276 +Issuance of warrants to placement agents in direct offerings +— +— +1,494 +— +1,494 +Issuance of common stock under Share Purchase Agreement +13,450,000 +1 +47,182 +— +47,183 +Issuance of common stock for aircraft lease settlements +1,200,000 +— +5,376 +— +5,376 +Issuance of common stock as consideration for credit support +2,025,000 +— +5,954 +— +5,954 +Issuance of common stock in settlement of vendor payables +224,364 +— +760 +— +760 +Issuance of common stock under software license agreement +3,769,385 +— +11,789 +— +11,789 +Issuance of common stock related to convertible note conversions +14,025,167 +2 +48,262 +— +48,264 +Shares repurchased for employee tax withholding +( 196,750 +) +— +( 380 +) +— +( 380 +) +Stock-based compensation expense +— +— +10,061 +— +10,061 +Net loss +— +— +— +( 110,556 +) +( 110,556 +) +Balance at December 31, 2025 +73,082,025 +$ +7 +$ +733,135 +$ +( 787,999 +) +$ +( 54,857 +) +The accompanying notes are an integral part of these consolidated financial statements. +73 +Surf Air Mobility Inc. +Consol idated Statements of Cash Flows +Years Ended December 31, 2025 and 2024 +(in thousands) +Year Ended December 31, +2025 +2024 +Cash flows from operating activities: +Net loss +$ +( 110,556 +) +$ +( 74,908 +) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation and amortization +9,294 +8,341 +Loss (gain) on sale of fixed assets +954 +( 743 +) +Non-cash operating lease expense +5,054 +5,690 +Loss (gain) on extinguishment of debt +3,904 +( 5,398 +) +Stock-based compensation expense +10,061 +( 5,976 +) +Changes in fair value of financial instruments carried at fair value, net +8,574 +11,732 +Non-cash credit support expense +265 +— +Non-cash lease settlement expense +5,376 +— +Amortization of debt discounts and debt issuance costs +1,727 +252 +Deferred income taxes +( 380 +) +( 287 +) +Changes in operating assets and liabilities: +Accounts receivable, net +328 +708 +Prepaid expenses and other current assets +191 +977 +Other assets +124 +( 396 +) +Accounts payable +2,487 +9,530 +Due to a related party +( 403 +) +( 3,351 +) +Accrued expenses and other current liabilities +3,361 +9,416 +Deferred revenue +531 +( 4,334 +) +Operating lease liabilities +( 5,043 +) +( 5,554 +) +Other liabilities +( 9 +) +( 21 +) +Cash flows used in operating activities +$ +( 64,160 +) +$ +( 54,322 +) +Cash flows from investing activities: +Purchase of property and equipment +( 5,936 +) +( 11,758 +) +Proceeds from the sale of fixed assets +2,681 +10,495 +Internal-use software development costs +( 2,456 +) +( 2,346 +) +Net cash used in investing activities +$ +( 5,711 +) +$ +( 3,609 +) +Cash flows from financing activities: +Proceeds from borrowings on convertible notes +65,000 +— +Payments of borrowings on convertible notes +( 4,000 +) +— +Proceeds from borrowings on long-term debt +3,056 +44,234 +Principal payments on long-term debt +( 52,955 +) +( 6,566 +) +Principal payments on Mandatory Convertible Security +( 38,615 +) +— +Proceeds from issuance of common stock +51,387 +— +Common shares repurchases for employee tax withholding +( 380 +) +— +Proceeds from sales and advances under Share Purchase Agreement +47,183 +3,894 +Proceeds from (payments on) collateralized borrowings, net of repayment +( 536 +) +2,793 +Proceeds from borrowings from related parties +— +34,522 +Payments of debt issuance costs +— +( 1,488 +) +Payment of finance lease obligations +( 266 +) +( 234 +) +Proceeds from exercise of warrants +830 +— +Proceeds from exercise of stock options +255 +20 +Net cash provided by financing activities +$ +70,959 +$ +77,175 +Increase in cash, cash equivalents and restricted cash +1,088 +19,244 +Cash, cash equivalents and restricted cash at beginning of period +21,675 +2,431 +Cash, cash equivalents and restricted cash at end of period +$ +22,763 +$ +21,675 +The accompanying notes are an integral part of these consolidated financial statements. +74 +Surf Air Mobility Inc. +N otes to Consolidated Financial Statements +Note 1. Description of Business +Organization +Surf Air Mobility Inc. (the “Company”), a Delaware corporation, is a regional air mobility platform that aims to transform regional flying. The Company currently operates one of the largest commuter airlines in the United States by scheduled departures as well as an expanding on-demand charter marketplace for passengers in the U.S. and globally. The Company’s operations provide scale, distribution and real-world operating data to validate and, eventually, deploy the software and technology offerings it is currently developing to support the modernization of air operations and the adoption of next-generation aircraft. +Surf Air Global Limited (“Surf Air”) is a British Virgin Islands holding company and was formed on August 15, 2016. Surf Air is a technology-enabled regional air travel network, offering on-demand charter flights. Its customers consist of regional business and leisure travelers. Headquartered in Hawthorne, California, Surf Air commenced flight operations in June 2013. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the New York Stock Exchange (“NYSE”). +Reverse Stock Split +On August 16, 2024, the Company effected a seven-for-one reverse stock split for all shares of the Company’s common stock issued and outstanding. As a result of the reverse stock split, every seven shares of the Company’s old common stock were converted into one share of the Company’s new common stock. Fractional shares resulting from the reverse stock split were settled by cash payment. +Options, and other like awards, to purchase the Company’s common stock were also adjusted in accordance with their terms to reflect the reverse stock split. +Adjustments resulting from the reverse stock split have been retroactively reflected as of all periods presented herein. +Liquidity and Going Concern +The Company has incurred losses from operations, negative cash flows from operating activities and has a working capital deficit. In addition, the Company is currently in default of certain excise and property taxes as well as certain debt obligations. These tax and debt obligations are classified as current liabilities on the Company’s Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024. As discussed in Note 13, Commitments and Contingencies , on May 15, 2018, the Company received a notice of a tax lien filing from the Internal Revenue Service (“IRS”) for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $ 1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (the “Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company is currently in default of these obligations, with a total outstanding federal excise tax liability, including accrued penalties and interest, of $ 9.9 million included in accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2025 . The Company has also defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is approximately $ 0.9 million as of December 31, 2025. Additionally, Los Angeles County had previously imposed a tax lien on four of the Company’s aircraft due to the late filing of the Company’s 2022 property tax return. During the year ended December 31, 2025 , the Los Angeles County tax liens were released as the Company finalized remediation of the late filing, inclusive of the completion of county audits, and made payments of $ 1.0 million on all property taxes due to Los Angeles County that were underlying the prior aircraft liens. As of December 31, 2025, the Company was also in default of the Simple Agreements for Future Equity with Token allocation (“SAFE-T”) note, where the note matured in July 2019 (see Note 9, Financing Arrangements ). The SAFE-T note is subordinate to most of the Company’s debt obligations (see Note 9, Financing Arrangements ); therefore, the Company cannot pay the outstanding balance prior to paying amounts due under more senior debt obligations. The SAFE-T note had an outstanding principal amount of $ 0.5 million as of December 31, 2025 and December 31, 2024. +The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. +75 +The airline industry and the Company’s operations are cyclical and highly competitive. The Company’s success is largely dependent on the ability to raise debt and equity capital, achieve a high level of aircraft and crew utilization, increase flight services and the number of passengers flown, and continue to expand into regions profitably throughout the United States. +The Company’s prospects and ongoing business activities are subject to the risks and uncertainties frequently encountered by companies in new and rapidly evolving markets. Risks and uncertainties that could materially and adversely affect the Company’s business, results of operations or financial condition include, but are not limited to the ability to (i) raise additional capital (or financing) to fund operating losses, (ii) refinance its current outstanding debt, (iii) maintain efficient aircraft utilization, primarily through the proper utilization of pilots and managing market shortages of maintenance personnel and critical aircraft components, (iv) sustain ongoing operations, (v) attract and maintain customers, (vi) integrate, manage and grow recent acquisitions and new business initiatives, (vii) obtain and maintain relevant regulatory approvals, and (viii) measure and manage risks inherent to the business model. +The Company historically has funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities, related party funding, and preferred and common stock financing arrangements and expects to continue to do so, as available. In particular, as market conditions permit, the Company may raise additional funds through sales of equity (including through the Share Purchase Agreement (the “Share Purchase Agreement”) with GEM Global Yield LLC SCS (“GEM”)) or convertible debt, using proceeds (as available) to strengthen the Company’s balance sheet, among other things. +During the year ended December 31, 2025 , the Company received net proceeds of $ 51.4 million through the issuance and sale of 19,640,424 shares of its common stock and warrants through various direct and private offerings (see Note 12, Shareholders’ Deficit ). The Company received net proceeds of $ 65 million from a convertible note offering in November 2025, of which $ 50.4 million was used to repay principal, prepayment penalties, and interest due under the 4-year credit agreement with certain affiliates of Comvest Partners, as lenders (the “Credit Agreement”) and $ 4 million was used to repay principal due under a convertible note purchase agreement with Partners for Growth V, L.P. (“PFG”). Additionally, during the year ended December 31, 2025 , the Company received $ 47.2 million from draws under the Share Purchase Agreement with GEM, through the issuance of 13,450,000 shares of the Company’s common stock. As of December 31, 2025 , the contractual terms allow the Company to make further advances of up to $ 97.5 million under the Share Purchase Agreement. Additionally, the Company has the ability to draw an additional $ 251.4 million under the Share Purchase Agreement, subject to daily volume limitations and GEM’s requirement to hold less than 10 % of the fully-diluted shares of the Company. As of December 31, 2025 , GEM held 0 % of the then fully-diluted shares of the Company. At December 31, 2025 , the daily volume limitations under the Share Purchase Agreement significantly restricted our ability to take additional draws under the Share Purchase Agreement to approximately 13.9 million shares per draw. Additionally, the Company’s ability to draw upon the Share Purchase Agreement is contingent on the Company’s common stock being listed on a national exchange. +The Company is currently implementing operational improvements and stringent operating expenses management to improve the profitability of its airline operations. In parallel, the Company is advancing its technology initiatives, including its software technology platform and electrification programs. In addition, the Company continues to evaluate strategies to obtain additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, forming joint venture and other partnerships, and restructuring operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans, or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all. If the Company is unable to raise sufficient financing when needed or events or circumstances occur such that the Company does not meet its strategic plans, the Company will be required to take additional measures to conserve liquidity, which could include, but are not necessarily limited to, reducing certain spending, altering or scaling back development plans, including plans to further develop our software technology platforms and to equip our regional airline operations with fully-electric or hybrid-electric aircraft, or reducing funding of capital expenditures, which could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation and Principles of Consolidation +The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the assets, liabilities and operating results of the Company. All intercompany balances and transactions have been eliminated in consolidation. Other than net loss, the Company does not have any other elements of comprehensive income or loss for the years ended December 31, 2025 and 2024 . +76 +Use of Estimates +The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting period. +On an ongoing basis, the Company evaluates its estimates using historical experience and other factors including the current economic and regulatory environment as well as management’s judgment. Items subject to such estimates and assumptions include: revenue recognition and related allowances, valuation allowance on deferred tax assets, certain accrued liabilities, useful lives and recoverability of long-lived assets, fair value of assets acquired and liabilities assumed in acquisitions, legal contingencies, assumptions underlying convertible notes and convertible securities carried at fair value and stock-based compensation. These estimates may change as new events occur and additional information is obtained and such changes are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s consolidated financial statements. +Concentration of Risk +The financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. All of the Company’s cash deposits are held at financial institutions that management believes to be of high credit quality. The Company’s cash deposit accounts may exceed federally insured limits at times. The Company has not experienced any losses on cash deposits to date. For the years ended December 31, 2025 and 2024, the United States Department of Transportation (“U.S. DOT”) accounted for 38 % and 39 %, respectively, of the Company's consolidated revenues. +We are dependent on part suppliers to deliver necessary airplane components in a timely manner at prices and quality levels acceptable to us. Our inability to efficiently manage these suppliers could have a material adverse effect on our business, prospects, financial condition and operating results. +Cash and Restricted Cash +Cash and restricted cash consists of cash on hand held in commercial bank accounts. The Company classifies all cash with use limited by contractual provisions as restricted cash. As of December 31, 2025 and 2024 the Company had restricted cash of $ 10.1 million and $ 0.6 million, resp ectively, primarily consisting of funds restricted under the terms of the High Trail Convertible Note for the year ended December 31, 2025, (see Note 9, Financing Agreements ), and collateral against a corporate credit card for the year ended December 31, 2024 . The Company has classified the restricted cash as long term, which represents the expected lapse of the restriction. +Accounts Receivable, net +Accounts receivable primarily consist of amounts due from the U.S. DOT in relation to certain air routes served by the Company under the Essential Air Service (“EAS”) program, amounts due from airline business partners, and pending transactions with credit card processors. Receivables from the U.S. DOT and our business partners are typically settled within 30 days. All accounts receivable are reported net of an allowance for credit losses, which was not material as of December 31, 2025 and December 31, 2024 . The Company has considered past and future financial and qualitative factors, including the age of unpaid receivables, payment history and other credit monitoring indicators, when establishing the allowance for credit losses. +Collateralized Borrowings +The Company has a revolving accounts receivable financing arrangement that allows the Company to borrow a designated percentage of eligible accounts receivable, as defined, up to a maximum unsettled amount of $ 5.0 million. The agreement is secured by a first security interest in all assets of Southern Airways Express (“SAE”), a subsidiary of Southern. The financing arrangement is uncommitted, and upon funding does not qualify for sale accounting as the Company does not relinquish control of the receivables based on, among other things, the nature and extent of the Company’s continuing involvement. +Accordingly, the accounts receivable remain on the Company’s Consolidated Balance Sheets until paid by the customer and cash proceeds from the financing arrangement are recorded as collateralized borrowing in Accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets, with attributable interest expense recognized over the life of the related transactions. Interest expense and contractual fees associated with the collateralized borrowings are included in interest expense and other expense, net, respectively, in the accompanying Consolidated Statements of Operations. +77 +Property and Equipment +Property and equipment are stated at cost less accumulated depreciation. Expenditures for major additions, equipment purchase deposits, renewals, and modifications are capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset’s life, are expensed as incurred. The Company capitalizes expenditures for software developed or obtained for internal use. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software development projects, and external direct costs of consultants and materials for developing the software. Software development costs that do not qualify for capitalization as well as costs related to minor upgrades and enhancements are expensed as incurred and recorded in the Consolidated Statements of Operations. +Maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, or, in the case of leasehold improvements, over the term of the lease or economic life, whichever is shorter as follows: +Assets +Depreciable Life +Aircraft, equipment and rotable spares +3 to 20 years +Leasehold improvements +Shorter of the estimated lease term or 5 years +Office, vehicles and ground equipment +3 years and 5 years +Internal-use software +3 years +Depreciation of property and equipment is included within Depreciation and amortization on the Consolidated Statements of Operations. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the Consolidated Statements of Operations. +Intangible Assets +Intangible assets consist primarily of EAS contracts, tradenames and trademarks and software acquired in an asset acquisition. The Company capitalizes expenditures for major software purchases. +The Company amortizes finite-lived intangible assets on a straight-line basis over their estimated useful lives, which range from two to ten years . The straight-line recognition method approximates the manner in which the expected benefits will be derived. +Impairment of Long-Lived Assets +Long-lived assets such as property and equipment, finite-lived intangible assets, and right of use assets are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. +The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as appropriate. No impairment charges were recorded during the years ended December 31, 2025 and 2024 . +Deferred Revenue +The Company records deferred revenue (contract liabilities) when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts. The Company generally collects payments from customers in advance of services being provided. The Company recognizes the deferred revenue as revenue when it meets the applicable revenue recognition criteria, which is usually either over the contract term, or when services have been provided. The Company generally meets performance obligations associated with all revenues deferred during the succeeding 12-month period. Accordingly, deferred revenue is classified within current liabilities in the accompanying Consolidated Balance Sheets. +Leases +The Company leases aircraft, airport passenger terminal space, portions of and full aircraft hangars and other airport facilities, other commercial real estate and office space. +78 +Operating Leases +Operating lease right-of-use assets and liabilities are recognized at the lease commencement date, which is the date the Company takes possession of the asset. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease right-of-use assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the appropriate term and information available at lease commencement in determining the present value of lease payments including reasonably certain renewal periods. The Company recognizes the lease cost for operating leases on a straight-line basis over the lease term. Aggregate lease cost is recorded in Cost of Revenue and General and Administrative expenses on the Consolidated Statements of Operations. Additionally, tenant incentives used to fund leasehold improvements or any rent abatements are recognized when earned and reduce the operating right-of-use asset related to the lease. +Finance Leases +The Company measures finance lease right-of-use assets and finance lease liabilities initially at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding that portion of the payments representing executory costs (such as insurance, maintenance, and taxes to be paid by the lessor) including any profit thereon, with the corresponding liability recorded within the liabilities section of the Company’s Consolidated Balance Sheet. During the lease term, each minimum lease payment is allocated by the lessee between a reduction of the liability and interest expense to produce a constant periodic rate of interest on the remaining balance of the liability (the interest method). Finance lease right-of-use assets are depreciated in accordance with the Company’s property and equipment policy and is included within Depreciation and amortization on the Consolidated Statements of Operations. The corresponding lease liabilities are reduced as lease payments are made. +Revenue Recognition +Scheduled Revenue +Scheduled revenue is derived from scheduled passenger flights under the EAS program and through passenger single seat sales. +The Company provides scheduled passenger flight service on certain routes which is subsidized by the U.S. DOT under the EAS program. The EAS program is enacted to ensure that small communities in the U.S. have the ability to maintain a minimum level of scheduled air services. The Company has contracts with the U.S. DOT that are typically in duration of 2-4 years and include commitments for the Company to provide passenger air service to certain locations for a specific number of times annually to each location. The Company generally bills the U.S. DOT on the first of the month following the prior month’s completed flights, and typically collects from the U.S. DOT within 12 to 14 days after billing. Revenue is recognized on a per-flight basis when the Company has fulfilled its commitment, generally as the flights are completed. +The Company earns revenue from the passenger for scheduled flight service through sales of tickets for single seats. These sales are generally paid by credit card. The Company also earns revenue generated by third-party travel booking sites or travel agencies. Tickets are refundable within 24 hours of purchase for flights scheduled to take place more than one week out, or when flights or services are changed, interrupted, or otherwise canceled by the Company. The Company recognizes revenue when it meets the applicable recognition criteria, which is at the point in time when a flight is completed or when tickets expire (generally within one year from the date of purchase). +On-demand Revenue +The Company earns revenue from the passenger for charter flight services, operated through a combination of its own aircraft and those of third party operators. These sales are generally paid for by credit card or wire transfer. The Company generally does not offer refunds after 24 hours of purchase. The Company recognizes revenue when it meets the applicable recognition criteria, which is at the point in time when a flight is completed or when tickets expire (generally within one year from the date of purchase). +Other Revenue +The Company also earns revenue from various ancillary services such as those relating to baggage fees, reservation change fees, package freight fees, and pet-travel (carry-on) fees. These fees are earned when the services are performed, generally at the time of travel. +79 +Principal vs Agent +The Company evaluates whether it is a principal or an agent in contracts involving more than one party by assessing whether it controls the specified flight services before they are transferred to its customers. In transactions where the Company directs third-party air carriers to provide flights service to its customers, the Company determined it acts as the principal as it controls the services provided to the customers. In these instances, the Company is primarily responsible for fulfillment of the obligation in the contract, has pricing discretion, has the authority to direct the key components of the service on behalf of the member or customer regardless of which third-party is used. Therefore, the Company reports revenue and the associated costs on a gross basis in the Consolidated Statements of Operations. +When the Company is not primarily responsible for the fulfillment of the flight services, it acts as an agent and therefore recognized revenue in the Consolidated Statements of Operations is net of amounts paid to third-party air carriers and operators that provide the services. +In transactions where the Company operates aircraft on behalf of a third party, the Company determined it acts as the agent as it solely carries out the services based on the direction of the third party in exchange for a fixed service fee as determined by the related services agreement. In these instances, the Company reports the service fee as fee revenue net of any operating costs incurred by the Company to perform these services. +Operating Expenses +Cost of Revenue +Cost of revenue consists of costs that are directly related to delivering the Company’s services and certain facility costs. Delivery of the Company’s services primarily comprise of aircraft maintenance, fuel, airport-related expenses, and fees paid to third-party air carriers for operating aircraft in providing flight services and platform infrastructure costs. Cost of revenue also includes facility costs representing leases expenses and operating costs for stations throughout the service network and personnel related costs, primarily salary and bonus. Cost of revenue excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +Sales and Marketing +Sales and marketing expense consists primarily of personnel related and other costs in connection with the Company’s sales and marketing efforts . Advertising costs are expensed as incurred and were $ 3.5 million and $ 2.2 million for the years ended December 31, 2025 and 2024, respectively. Sales and marketing excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +Technology and Development +Technology and development expense consists of personnel and other costs related to technology development and management efforts including costs for third-party development resources, and allocations of overhead and facility costs. Technology cost also includes research and development cost associated with the Company’s hybrid electrification strategy. The Company’s technology and development efforts are focused on enhancing the ease of use and functionality of its Surf OS platform by adding new core functionality, services and other improvements, as well as the development of new products and services. Technology and development costs are expensed as incurred, except to the extent that such costs are associated with internal-use software development that qualify for capitalization, which are then recorded within Property and Equipment, net on the Company’s consolidated balance sheets. Technology and development excludes depreciation on property and equipment and amortization of finite-lived intangible assets. +General and Administrative +General and administrative expense consists of personnel related costs including salary, bonus, and share-based compensation for the Company’s executive, finance, facilities, and human resource teams and facility costs. General and administrative expenses also include professional fees and other corporate related expenses. General and administrative expenses exclude the depreciation on property and equipment and amortization of finite-lived intangible assets. +Share-Based Compensation +Options, RSPAs, and Warrants +The Company accounts for the issuance of stock options, restricted share purchase agreements (“RSPAs”), and warrants in the consolidated financial statements based on the grant date fair value of the awards. Issuances of RSPAs with promissory notes are accounted for as share options and are measured based on the grant date fair value of the option. The Company estimates the fair value +80 +of these awards using the Black-Scholes option pricing model. The grant date fair value of share-based awards with service-only conditions is recognized as expense on a straight-line basis in the Consolidated Statement of Operations over the requisite service period, which is generally the vesting period ranging from 12 to 48 months. Forfeitures are recorded as they occur. For awards with performance conditions, the Company records compensation expense on a graded-vesting basis when it is deemed probable that the performance condition will be met. For awards with market conditions, the effect of the market conditions is reflected in the fair value measurement and expense, using an option pricing model, recognized on a graded-vesting basis, is not reversed to the extent that the market condition is not achieved. Additionally, awards granted to non-employees are accounted for using their grant date fair value, using Black Scholes option pricing model and are accounted for in the same manner as awards granted to employees. +Determining the fair value of share-based awards requires judgment. The Company’s use of option pricing models requires the input of subjective assumptions, including the fair value of shares of the Company’s common stock underlying the option award, the expected term of the option, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The assumptions used in the Company’s option pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used the Company’s share-based compensation expense could be materially different in the future. +Restricted Stock Unit Awards +The grant date fair value of restricted stock units (“RSUs”) is estimated based on the fair value of the Company’s common stock on the date of grant. RSUs vest upon the satisfaction of a service-based vesting condition and the compensation expense for these RSUs is recognized on a straight-line basis from the date of grant over the requisite service period. +Performance-Based Restricted Stock Units +During the year ended December 31, 2025, Company granted performance-based restricted stock unit (“PRSUs”) to employees, which will vest upon the achievement of an adjusted EBITDA metric for the year ending December 31, 2025 as well as a service period of four years from the date of grant. The grant date fair value of these PRSUs was determined based on the Company’s stock price the business day immediately preceding the grant date. Expense attribution for these awards is based on a probability assessment regarding the achievement of the financial metric. The Company will record compensation expense on a cumulative basis to reflect the grant date fair value of shares expected to vest over the service period of each award. +The Company granted founder PRSUs (“founder PRSUs”) that contain a market condition in the form of future stock price targets. The grant date fair value of the founder PRSUs was determined using a Monte Carlo simulation model and the Company estimates the derived service period of the founder PRSUs. The grant date fair value of founder PRSUs containing a market condition is recorded as stock-based compensation over the derived service period. Provided that each founder continues to be employed by the Company, either directly or as a non-employee consultant, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock price goals are achieved. If the stock price goals are met sooner than the derived service period, any unrecognized compensation expenses related to the founder PRSUs will be expensed during the period in which the stock price targets are achieved. +Warrants +The Company assesses whether warrants issued to purchase the Company’s common stock are liability or equity-classified based on the terms of the warrants. If the warrants are determined to be liability-classified, then the warrants are remeasured to fair value each period with changes in fair value recorded within Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. The Company recognizes the fair value of liability-classified warrants within Other liabilities in its Consolidated Balance Sheets. If the warrants are determined to be equity-classified, then the initial fair value is recorded in Additional paid-in capital and the warrants are not remeasured thereafter. +The Company estimates the fair value of warrants to purchase its common stock using the Black-Scholes option pricing model. Warrants are principally issued to lenders and non-employees, some of whom are related parties, in connection with debt and equity fundraising and debt restructuring activities. +Income Taxes +Income taxes are accounted for under the asset and liability method in accordance with U.S. GAAP. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period +81 +that includes the enactment date. The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a valuation allowance is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset will not be realized. +The Company determines whether a tax position taken or expected to be taken in a tax return is to be recognized in the consolidated financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The amount recognized is subject to estimation and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. For tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements is reduced by the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its income tax provision in the accompanying Consolidated Statements of Operations. +Net Loss Per Share Applicable to Common Shareholders, Basic and Diluted +The Company calculates basic and diluted net loss per share applicable to common shareholders using the two-class method required for companies with participating securities. The Company considers preferred stock to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common shares. +Under the two-class method, basic net loss per share applicable to common shareholders was calculated by dividing the net loss available to common shareholders by the weighted-average number of shares of common shares outstanding during the period. For purposes of determining the number of weighted-average common shares outstanding, the Company has included issued and outstanding common shares, penny common share warrants, and vested RSPAs. Diluted net loss per share available to common shareholders was computed by giving effect to all potentially dilutive common share equivalents outstanding for the period. For purposes of this calculation, preferred stock, unvested RSUs, unvested RSPAs, stock options and warrants to purchase common shares were considered common share equivalents but had been excluded from the calculation of diluted net loss per share applicable to common shareholders as their effect was anti-dilutive. In periods in which the Company reports a net loss applicable to common shareholders, diluted net loss per share available to common shareholders is the same as basic net loss per share applicable to common shareholders, since dilutive common shares are not assumed to have been outstanding if their effect is anti-dilutive. The Company reported net loss applicable to common shareholders for the years ended December 31, 2025 and 2024 . +Fair Value Measurements +Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company elected the fair value option to account for its debt instruments because the Company’s debt instruments contain a number of complex features that would have otherwise required bifurcated derivative accounting. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a fair value hierarchy, based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following: +Level 1 Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. +Level 2 Inputs other than quoted prices included in Level I, that are observable for the asset or liability, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. +Level 3 Inputs are unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. +Assets and liabilities are classified in the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. +The Company measures the fair value of certain long-lived assets including finite-lived intangible assets on a nonrecurring basis, when such assets are acquired in a business combination or are required to be written down to fair value if impaired. Such fair values are classified within the fair value hierarchy, as the valuations contain significant unobservable inputs, including assumptions of the present value of future cash flows, the use of these assets, as well as estimated disposition value. +82 +There were no assets measured at fair value on a recurring basis as of December 31, 2025 and 2024. +The carrying amounts of certain financial assets and liabilities, including restricted cash, other current assets, accounts receivable, accounts payable, accrued expenses, and amounts due to related parties approximate fair value because of the short maturity and liquidity of those instruments. +SAFE and Convertible Notes at Fair Value +The Company’s Simple Agreement for Future Equity with Tokens (“SAFE-T”) are financial instruments whereby an investor provides an investment into the Company, and the note is subsequently converted into a preferred equity security at a discount to the price paid by other investors when and if a preferred equity is issued through a qualifying capital raise. Due to certain provisions included in the agreements for these instruments, they are classified as liabilities as of December 31, 2025 and 2024. +The Company elected the fair value option for the convertible notes and SAFE-T financial instruments, which requires them to be remeasured to fair value each reporting period with changes in fair value recorded in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations, except for change in the fair value that results from a change in the instrument specific credit risk which is presented separately within other comprehensive income. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The decision to elect the fair value option is determined on an instrument-by-instrument basis on the date the instrument is initially recognized, is applied to the entire instrument, and is irrevocable once elected. For instruments measured at fair value, embedded conversion or other features are not required to be separated from the host instrument. Issuance costs related to convertible securities carried at fair value are not deferred and are recognized as incurred within their original expense categories on the Consolidated Statements of Operations. +Recent Accounting Pronouncements +Adopted +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted the guidance prospectively effective December 31, 2025. +Not Yet Adopted +In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires public entities to disaggregate, in a tabular presentation, certain income statement expenses into different categories, such as purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The guidance is effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and may be applied retrospectively. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures. +In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU simplifies the capitalization guidance by removing all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout ASC 350-40. The ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those fiscal years. Adoption of this ASU can be applied prospectively for reporting periods after its effective date; or follow a modified transition approach that is based on the status of the respective projects and whether software costs were capitalized before the date of adoption; or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures. +83 +Note 3. Prepaids and Other Current Assets +Prepaid expenses and other current assets consisted of the following (in thousands): +December 31, +2025 +December 31, +2024 +Prepaid software +$ +5,188 +$ +2,177 +Prepaid marketing +2,395 +2,434 +Engine reserves +2,213 +1,667 +Prepaid interest +1,983 +— +Vendor operator prepayments +811 +744 +Prepaid insurance +624 +766 +Other +1,106 +723 +Total prepaid expenses and other current assets +$ +14,320 +$ +8,511 +Note 4. Property, Plant and Equipment, Net +Property and equipment, net, consists of the following (in thousands): +December 31, +2025 +December 31, +2024 +Aircraft, equipment and rotable spares +$ +45,519 +$ +40,290 +Equipment purchase deposits +2,000 +2,000 +Leasehold improvements +2,192 +2,301 +Office, vehicles and ground equipment +1,245 +1,158 +Internal-use software +4,993 +2,729 +Property and equipment, gross +55,949 +48,478 +Accumulated depreciation +( 10,354 +) +( 6,265 +) +Property and equipment, net +$ +45,595 +$ +42,213 +The Company recorded depreciation expense of $ 5.7 million and $ 4.7 million for the years ended December 31, 2025 and 2024, respectively. Depreciation expense is recognized as a component of Depreciation and Amortization expense in the accompanying Consolidated Statement of Operations. +For the years ended December 31, 2025 and 2024 , the Company recorded losses on disposal of property and equipment of $ 1.0 million and gains on disposal of property of $ 0.7 million, respectively. For the gains recorded during the year ended December 31, 2024, $ 0.4 million was the result of sale-leaseback transactions (see Note 7, Leases ). +Note 5. Intangible Assets, Net +Intangibles assets, net, consists of the following (in thousands): +December 31, +2025 +December 31, +2024 +EAS contracts +$ +25,770 +$ +25,770 +Tradenames and trademarks +8,340 +8,340 +Software +3,122 +3,122 +Other intangibles +225 +225 +Intangible assets, gross +37,457 +37,457 +Accumulated amortization +( 17,390 +) +( 14,339 +) +Intangible assets, net +$ +20,067 +$ +23,118 +The Company recorded amortization expense of $ 3.1 million and $ 3.5 million for the year ended December 31, 2025 and 2024, respectively. Amortization expense is recognized as a component of Depreciation and Amortization expense in the accompanying Consolidated Statement of Operations. +84 +Expected future amortization as of December 31, 2025 is as follows (in thousands): +Amount +2026 +$ +2,915 +2027 +2,764 +2028 +2,577 +2029 +2,577 +2030 +2,577 +Thereafter +6,657 +Total +$ +20,067 +Note 6. Other Assets +Other assets consists of the following (in thousands): +December 31, +2025 +December 31, +2024 +Credit support fee +$ +3,706 +$ +— +Security deposits - aircraft operating leases +1,971 +1,971 +Long-term technology contracts +1,883 +— +Cloud-hosted software +1,645 +1,921 +Credit card holdback +1,255 +1,255 +Security deposits - other +704 +566 +Long-term maintenance contracts +487 +— +Other +37 +410 +Total other assets +$ +11,688 +$ +6,123 +Note 7. Leases +Operating Leases +Supplemental balance sheet information related to operating leases is as follows (in thousands): +Operating Leases +Classification +December 31, +2025 +December 31, +2024 +Assets +Right-of-use assets +Operating lease right-of-use assets +$ +12,510 +$ +17,046 +Liabilities +Lease liabilities, current +Operating lease liabilities, current +$ +3,636 +$ +4,120 +Lease liabilities, current +Due to related parties, current +457 +1,216 +Lease liabilities, long term +Operating lease liabilities, long term +8,714 +11,540 +Lease liabilities, long term +Due to related parties, long term +— +457 +Total lease liabilities +$ +12,807 +$ +17,333 +Lease term and discount rate were as follows: +December 31, +2025 +December 31, +2024 +Weighted average remaining lease term +3.82 years +4.29 years +Weighted average discount rate +8.82 +% +8.68 +% +85 +The components of lease cost are as follows (in thousands): +Year ended December 31, +Lease Cost +Classification +2025 +2024 +Operating lease cost - aircraft +Cost of revenue +$ +7,248 +$ +11,123 +Operating lease cost - non-aircraft +Cost of revenue +22 +781 +Operating lease cost - non-aircraft +General and administrative +802 +607 +Lease cost, short term - aircraft +Cost of revenue +433 +548 +Lease cost, short term - non-aircraft +Cost of revenue +2,719 +— +Lease cost, short term +General and administrative +29 +181 +Engine reserves +Cost of revenue +3,526 +3,475 +Total lease cost +$ +14,779 +$ +16,715 +Supplemental disclosures of cash flow and other information related to leases are as follows (in thousands): +Year Ended December 31, +2025 +2024 +Cash paid for operating lease liabilities +$ +6,788 +$ +7,889 +Non-cash transactions - operating lease assets obtained in exchange for operating lease liabilities +$ +1,103 +$ +11,606 +Maturities of operating lease liabilities are as follows as of December 31, 2025 (in thousands): +Amount +2026 +$ +5,011 +2027 +3,524 +2028 +2,358 +2029 +2,219 +2030 +1,929 +Thereafter +— +Total lease payment, undiscounted +15,041 +Less: imputed interest +2,234 +Total +$ +12,807 +Sale-leaseback transactions +During the year ended December 31, 2024, the Company entered into three sale-leaseback transactions for the Company’s owned aircraft. Sales proceeds totaled $ 8.7 million, which resulted in the addition of corresponding operating use right of use assets and operating lease liabilities. The Company recorded a gain of $ 0.4 million as a result of the sale transactions. The leases will carry a term of six years . +Finance Leases +The Company’s finance lease assets include an aircraft, an aircraft engine, and other equipment. Supplemental balance sheet information related to finance leases is as follows (in thousands): +December 31, +2025 +December 31, +2024 +Assets +Finance lease right-of-use assets +$ +809 +$ +1,115 +Liabilities +Finance lease liabilities, current +$ +277 +$ +265 +Finance lease liabilities, long term +670 +948 +Total finance lease liabilities +$ +947 +$ +1,213 +86 +Lease term and discount rate are as follows: +December 31, +2025 +December 31, +2024 +Weighted average remaining lease term +3.3 years +4.2 years +Weighted average discount rate +11.48 +% +11.37 +% +Supplemental disclosures of cash flow and other information related to leases are as follows (in thousands): +Year Ended December 31, +2025 +2024 +Cash paid for finance lease liabilities +$ +266 +$ +234 +Non-cash transactions - Finance lease assets obtained in exchange for finance lease liabilities +$ +— +$ +95 +Maturities of finance lease liabilities are as follows as of December 31, 2025 (in thousands): +Amount +2026 +$ +371 +2027 +336 +2028 +264 +2029 +176 +2030 +— +Thereafter +— +Total lease payment, undiscounted +1,147 +Less: imputed interest +( 200 +) +Total +$ +947 +Note 8. Accrued Expenses and Other Current Liabilities +A ccrued expenses and other current liabilities consisted of the following (in thousands): +December 31, +2025 +December 31, +2024 +Accrued compensation and benefits +$ +8,767 +$ +5,940 +Accrued professional services +9,195 +10,431 +Excise and franchise taxes payable +10,054 +7,729 +Collateralized borrowings +2,264 +5,842 +Software license fee payable +9,547 +9,953 +Accrued Monarch legal settlement +1,314 +1,314 +Accrued major maintenance +3,669 +427 +Interest and commitment fee payable +140 +114 +Other accrued liabilities +2,752 +3,746 +Total accrued expenses and other current liabilities +$ +47,702 +$ +45,496 +Collateralized Borrowings +The Company has a revolving accounts receivable financing arrangement that allows the Company to borrow a designated percentage of eligible accounts receivable, as defined in the agreement, up to a maximum unsettled amount of $ 5 million. The agreement is secured by a first security interest in all assets of Southern Airways Express, LLC, a subsidiary of Southern. The related interest rate is the prime rate plus 1 % per annum. Additionally, the Company pays certain ancillary fees associated with each borrowing that vary depending on the borrowed amount and duration, which is generally no more than 45 days. +For the year ended December 31, 2025, the Company borrowed a total of $ 36.1 million under this financing facility, of which $ 33.9 million was settled through the transfer of pledged receivables. Interest expense incurred on these borrowings for the year ended December 31, 2025, amounted to $ 0.5 million , and is included in interest expense in the accompanying Consolidated Statements of Operations. +87 +As of December 31, 2025 the Company was in compliance with all covenants under this financing facility. +In addition, during the year ended December 31, 2024, the Company received an advance payment of $ 3.0 million from a financing institution related to an expected future payment under the IRS’ Employee Retention Credit Program. Such amounts were collateralized against the value of the credits to be received, as well as other assets of Southern Airways Express, a subsidiary of Southern. During the year ended December 31, 2025, the Company received payments under the IRS’ Employee Retention Credit Program totalling $ 3.6 million, which were fully off-set against the collateralized borrowing, with the associated benefit recorded against associated payroll costs within the Company’s Consolidated Statement of Operations. As of December 31, 2025 and December 31, 2024 , the Company has recorded $ 0 and $ 3.0 million within collateralized borrowings. +Accrued Professional Services +During the fourth quarter of 2024, the Company entered into agreements with several professional service firms engaged in support of the Company’s July 27, 2023 direct listing on the NYSE. These agreements modify the payment terms of prior service agreements to be contingent on future equity or debt financing by the Company. The Company originally estimated that a total of $ 7.1 million would be due under these agreements over a five year period. Given the uncertainty regarding the timing and amount of payment, all amounts have been classified as current liabilities within the Company’s consolidated balance sheet. During the year ended December 31, 2025, the Company has continued to make contractual payments against certain of these liabilities, with $ 6.8 million remaining as a current liability within the Company’s consolidated balance sheet as of December 31, 2025. +Note 9. Financing Arrangements +The Company’s long-term debt obligations consist of the following (in thousands) : +December 31, +2025 +December 31, +2024 +Note payable to bank, fixed interest rate of 4.65 %, due November 2025 +4 +8 +Note payable to a financing company, fixed interest rate of 5.49 %, due December 2026 +60 +120 +Notes payable to Clarus Capital, fixed interest rate of 8.66 %, due April , June and September 2027 +12,543 +14,022 +Note payable to Skywest, fixed interest rates of 4 %, due April 2028 +1,802 +2,497 +Note payable to Tecnam, fixed interest rate of 6.75 %, due July and August 2032 +2,692 +2,962 +Credit Agreement to ComVest Partners, floating interest rate of SOFR + 5 %, due November 2028 +— +44,984 +Debt Issuance Costs +— +( 2,167 +) +Long-term debt, gross +17,101 +62,426 +Current maturities of long-term debt +( 2,712 +) +( 2,543 +) +Long-term debt, net of current maturities +$ +14,389 +$ +59,883 +Future maturities of total long-term debt as of December 31, 2025 are as follows (in thousands) : +Amount +2026 +$ +2,712 +2027 +12,029 +2028 +685 +2029 +157 +2030 +450 +Thereafter +1,068 +Total +$ +17,101 +The Company is subject to customary affirmative covenants and negative covenants on all of the above notes payable. As of December 31, 2025, the Company was in compliance with all covenants in the loan agreements. +Credit Agreement +On November 14, 2024, the Company entered into a 4-year credit agreement with certain affiliates of Comvest Partners, as lenders (the “Credit Agreement”), pursuant to which the Company borrowed $ 44.5 million as a term loan, and $ 5.5 million of delayed draw +88 +commitments, which the Company will use to fund monthly interest payments under the Credit Agreement. This resulted in net proceeds of $ 42.7 million after funding debt issuance costs. Borrowings under the delayed draw commitments totaled $ 3.1 million and $ 0.5 million for the years ended December 31, 2025 and 2024, respectively. +The loans under the Credit Agreement accrued interest at a rate of (x) SOFR (subject to a 1.00 % floor) plus (y) 5.00 %, and were subject to a prepayment premium for 18 months after the initial funding date. There was a 1.50 % fee on the aggregate loans and commitments, paid at the initial funding. The loans under the Credit Agreement have no payments due other than interest, in advance of the original maturity date on November 14, 2028 . +The Credit Agreement was fully backstopped by a letter of credit issued by HSBC Bank USA, N.A. and arranged by Park Lane, a related party, and in connection therewith, the Company had entered into a reimbursement agreement with Park Lane (see Note 18, Related Party Balances and Transactions ). +During November 2025, the Company made full repayment of all principal and interest due under the Credit Agreement, in addition to an additional $ 2.2 million due under the prepayment premium defined in the Credit Agreement. The Company recorded a loss on extinguishment of debt of $ 3.9 million associated with this repayment. +Fair Value of Convertible Instruments +The Company has elected the fair value option for convertible notes described below, which requires them to be remeasured to fair value each reporting period with changes in fair value recorded in changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations, except for change in fair value that results from a change in the instrument specific credit risk which is presented separately within other comprehensive income. The fair value estimate includes significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. +High Trail Convertible Note +On November 12, 2025, the Company closed a $ 74 million aggregate principal amount of senior secured convertible notes (the “Note”) in a private placement with High Trail Capital (the “Holder”). The Note will be the senior secured obligation of the Company, guaranteed by certain of the Company’s subsidiaries. The Note was sold at 87.8 % of its principal amount, with the Company receiving $ 65 million of proceeds before expenses. The Note will not accrue interest except in the event of an event of default, which will accrue interest at a rate of 15 % per annum. The Note will mature on October 31, 2028, unless earlier converted, redeemed or repurchased. Repayment of any principal amount remaining outstanding at maturity will be required to be made at 105 % of such principal amount. +The Note may be converted at an initial conversion price of approximately $ 3.98 per share of the Company’s common stock, representing an aggregate of 18,574,297 shares of the Company’s common stock that could be converted under the Note. +Subject to specified conditions, the Company may force the Holder to convert the Note at any time if the last reported sale price per share of the Company’s common stock equals or exceeds 150 % of the then current conversion price on each of the immediately preceding 20 consecutive trading days, in amounts (i) not less than the lesser of (x) $ 10,000,000 and (y) the remaining outstanding principal amount of the Note, but (ii) not greater than 2.5 times the average dollar daily trading volume during the related 20 trading day measurement period. +The Holder will have the option to require the Company to partially redeem the Note on the first and fifteenth day of each month beginning March 1, 2026 in an amount equal to the greater of (a) 5.0 % of the aggregate dollar trading volume of the Company’s common stock, (b) an amount equal to (i) $ 2,000,000 , minus (ii) the cumulative sum of the amounts by which the principal amounts partially redeemed have exceeded $ 2,000,000 for all prior redemption periods, less any amounts that have previously been applied by the Company pursuant to this clause (ii) to reduce partial redemption amounts, if any, and (c) $ 750,000 . The Holder may elect to receive shares in an amount determined by applying the conversion rate to the redemption payment otherwise due. Any such partial redemption payment (whether in cash or in shares) shall reduce the principal amount by such paid amount divided by one hundred five percent ( 105 %). The maximum number of shares issuable under the Note (if the entire Note were redeemed on this basis) would be 19,503,012 . +Further, on March 1, 2026, the Holder of the Note will have the right to require the Company to redeem a principal amount of the Note equal to up to 50 % of the gross proceeds from any equity financings (including from our equity line of credit or any future at-the-market program) since issuance of the Note, provided that in no event will such amount exceed $ 6,000,000 . +The Company is subject to comprehensive negative and affirmative covenants, including, inter alia, restrictions on its ability to incur indebtedness, create liens, make investments, declare or pay cash dividends or repurchase equity, and transfer or sell material assets, in each case subject to certain enumerated exceptions. The Company must also maintain a minimum liquidity of $ 10,000,000 in unrestricted cash and cash equivalents in controlled accounts. The Company also must obtain prior written consent from a majority of holders of the Note before issuing additional debt or securities that would cause a default under the Note or restrict the Company’s ability to pay the principal amount thereon. In addition, the Company must maintain a required reserve of authorized and unissued +89 +common stock calculated pursuant to a specified formula set forth in the Note, and deliver and maintain a letter of credit to backstop the Note. The Company must also maintain at least $ 30,000,000 in available capacity under either an equity line of credit or an “at-the-market” offering within the meaning of Rule 415(a)(4) of the Securities Act pursuant to which the Company may issue and sell shares of common stock from time to time. This requirement will be met through continued access to the Share Purchase Agreement with GEM (see Note 10, Share Purchase Agreement, GEM Purchase, and Mandatory Convertible Security). Additional affirmative covenants require the Company to maintain its business within existing lines, preserve its corporate existence, properties and intellectual property rights, maintain adequate insurance and ensure affiliate transactions are on arm’s length terms. +The Note is partially backstopped by a letter of credit issued by HSBC Bank USA, N.A. and arranged by Park Lane, a related party, and in connection therewith, the Company had entered into an amended reimbursement agreement with Park Lane (see Note 18, Related Party Balances and Transactions ). +LamVen Note +During the year ended December 31, 2025, LamVen transferred $ 49.9 million of the outstanding principal due under the LamVen Note (see Note 18, Related Party Balances and Transactions ) to a non-affiliated third party under terms identical to the original LamVen Note (the “New Convertible Note”). Subsequent to these transfers, the holder of the New Convertible Note converted $ 48.0 million of the principal amount, inclusive of then accrued interest, to 14,025,167 shares of the Company’s common stock. As a result, as of December 31, 2025 , LamVen retained a principal balance of $ 0.1 million (the “New LamVen Note”), with $ 1.9 million outstanding under the New Convertible Note. +During January 2026, the holder of the New Convertible Note converted the remaining $ 1.9 million of the principal amount, inclusive of then accrued interest, to 967,018 shares of the Company’s common stock. +PFG Convertible Note Purchase Agreement +On June 21, 2023, the Company entered into a convertible note purchase agreement (the “Convertible Note Purchase Agreement”) with PFG for a senior unsecured convertible promissory note for an aggregate principal amount of $ 8.0 million. The note interest rate of 9.75 % and matured on December 31, 2024 . All unpaid principal and interest balances may be converted into shares of the Company’s common stock, at the option of the holder, at a price equal to 120 % of the opening trading price of the Company’s common stock on the date of its direct listing on the NYSE. Based on the $ 35.00 per share opening price on the first day of listing of the Company’s common stock, the principal of the Convertible Note Purchase Agreement would be convertible into 196,476 shares of the Company’s common stock. +On November 14, 2024, the Company amended the existing Convertible Note Purchase Agreement with PFG, which had an outstanding principal amount of $ 8.0 million upon amendment. +The Convertible Note Purchase Agreement will accrue interest at the greater of (x) SOFR (subject to a 1.00 % floor) plus 5.00 % and (y) 9.75 %. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings is required to be applied to repay the obligations under the Convertible Note Purchase Agreement. The maturity of the Convertible Note Purchase Agreement is December 31, 2028, which may be accelerated upon the occurrence of certain events of default. +During the year ended December 31, 2025, the Company made principal payments of $ 4 million against the Convertible Note Purchase Agreement. The obligations under the Convertible Note Purchase Agreement are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +As of December 31, 2025, the Company was in compliance with all covenants under the Note and the Convertible Note Purchase Agreement. +90 +Fair value of convertible notes (in thousands) : +Fair Value at +December 31, 2025 +December 31, 2024 +High Trail Note +61,600 +— +New Convertible Note +1,875 +— +Convertible Note Purchase Agreement +3,982 +7,347 +Total +67,457 +7,347 +Convertible notes at fair value, current +( 42,274 +) +— +Convertible notes at fair value, long-term +$ +25,183 +$ +7,347 +Fair Value of SAFE-T Notes +The Company’s SAFE-T notes are carried at fair value, with fair value determined using Level 3 inputs. The Company determined that the SAFE-T instruments should be classified as liabilities based on evaluating the characteristics of the instruments, which contained both debt and equity-like features. The SAFE-T instrument matured in July 2019, but the holder has elected not to effect an equity conversion of the instrument. Subsequent changes in the fair value of the SAFE-T notes are recorded as part of changes in fair value of financial instruments carried at fair value, net within the Consolidated Statements of Operations. As of December 31, 2025 and 2024, the value of the SAFE-T notes was $ 5 thousand and $ 13 thousand, respectively. +Note 10. Share Purchase Agreement and GEM Mandatory Convertible Security +Share Purchase Agreement +During 2020, the Company entered into a Share Purchase Agreement (“SPA”) with GEM Global Yield LLC SCS (“GEM”) and an entity affiliated with GEM to provide incremental financing in the event the Company completed a business combination transaction with a SPAC, IPO, or direct listing. On May 17, 2022, February 8, 2023, and September 18, 2023, the SPA was amended to increase the maximum aggregate shares of the Company’s common stock that may be required to be purchased by GEM from $ 200 million to $ 400.0 million (the “Aggregate Limit”) and amend the commitment fee required under the SPA from $ 4 million to 571,429 shares of the Company’s common stock. Pursuant to the amended and restated SPA, and subject to the satisfaction of certain conditions, the Company will have the right from time to time at its option to direct GEM to purchase up to the Aggregate Limit of shares of the Company’s common stock over the term of the amended and restated SPA. Upon its public listing, the Company may request GEM to provide advances under the SPA in an aggregate amount of up to $ 100.0 million, provided that individual advances are not to exceed $ 25.0 million each, with the first advance not to exceed $ 7.5 million. Each advance will reduce the amount that the Company can request for future purchases under the SPA. On September 29, 2023, the Company received its first advance under the SPA in the amount of $ 4.5 million, on a total request of $ 7.5 million, with the remaining $ 3.0 million being received on October 3, 2023. Concurrent with the receipt of funds, the Company issued 571,429 shares of its common stock to GEM in full satisfaction of the commitment fee. Following an advance or draw, the number of shares to be transferred to GEM will be based on an average of the volume-weighted average trading price of the Company’s common stock over a period of fifteen trading days following the receipt of an advance, subject to a 15 day extension in certain circumstances. This average price will be subject to a contractual discount of 10 %. Additionally, contractual provisions within the SPA provide that in no event may GEM receive a share issuance, from a draw under the SPA, that would raise their share ownership percentage above 10 % of the Company. This provision may impact the Company’s ability to request additional purchases under the SPA. +On June 15, 2023, July 21, 2023, and July 24, 2023, the SPA was further amended to modify the number of shares of the Company’s common stock to be issued to GEM at the time of a public listing transaction of the Company from an amount equal to 0.75 % of the Company’s fully-diluted shares of common stock outstanding to a fixed 185,714 shares of the Company’s common stock. The amendments to the SPA also modified certain registration requirements whereby the Company was obligated to file a re-sale registration statement within 5 business days of the Company’s public listing. On July 27, 2023, concurrent with the Company’s direct listing, the Company issued 185,714 shares of the Company’s common stock to GEM in full satisfaction of this provision. Pursuant to GEM’s associated registration rights, the Company filed a re-sale registration statement, covering the 185,714 shares, on August 2, 2023, which was declared effective by the SEC on September 28, 2023. +The Company has accounted for the shares issuance contracts under the SPA, as amended, as derivative financial instruments which are recorded at fair value within Other long-term liabilities on the Consolidated Balance Sheets. During the year ended December 31, 2024, the Company settled $ 2.5 million in advances received from GEM through the issuance of 1,311,235 shares of the Company’s common stock. The Company also received total proceeds of $ 1.4 million during the year ended December 31, 2024, through draws under the SPA. This resulted in the issuance of 236,535 shares of the Company’s common stock. Additionally, liabilities related to +91 +advances received under the SPA prior to March 1, 2024 were reclassified as part of the Mandatory Convertible Security, as discussed below. +During the year ended December 31, 2025, the Company received total proceeds of $ 47.2 million through completed draws under the SPA, resulting in the issuance of 13,450,000 shares of the Company’s common stock. As of December 31, 2025, the Company had $ 251.4 million in remaining availability for draws under the SPA. +The fair value of the liability related to the SPA was $ 0 and $ 0 as of both December 31, 2025 and 2024, as there was no unsettled draws or advances under the SPA. Changes in fair value were recorded in Changes in fair value of financial instruments carried at fair value, net on the Consolidated Statements of Operations. +GEM Purchase +On June 15, 2023, and amended on July 21, 2023, and July 24, 2023, the Company and GEM entered into the SPA whereby GEM would purchase 142,857 shares of the Company’s common stock for cash consideration of $ 25.0 million upon the successful public listing of the Company’s shares. Under the terms of the agreement, the Company is obligated to file a re-sale registration statement, covering the 142,857 shares issued, within five business days of the Company’s public listing. On July 27, 2023, concurrent with the Company’s direct listing, the Company received the $ 25.0 million cash consideration contemplated in the SPA, in exchange for the issuance of 142,857 shares of the Company’s common stock. Pursuant to the associated registration rights, the Company filed a re-sale registration statement, covering the 142,857 shares, on August 2, 2023, which was declared effective by the SEC on September 28, 2023. +GEM Mandatory Convertible Security +On March 1, 2024, Company entered into a mandatory convertible security purchase agreement (the “MCSPA”) with GEM. Pursuant to the MCSPA, the Company has agreed to issue and sell to GEM, and GEM has agreed to purchase from the Company, a mandatory convertible security with a par amount of up to $ 35,200,000 (the “Mandatory Convertible Security”), which shall be convertible into a maximum of 1,142,857 shares of the Company’s common stock, par value $ 0.0001 per share, subject to adjustment as described in the MCSPA. +The Company issued the Mandatory Convertible Security on August 7, 2024 (the “Closing Date”). The Mandatory Convertible Security will mature on August 7, 2029 (the “Maturity Date”), unless earlier converted or redeemed pursuant to the terms set forth in the Mandatory Convertible Security. As partial consideration for GEM’s purchase of the Mandatory Convertible Security, GEM delivered to the Company 900,000 shares of the Company’s common stock. In addition, the MCSPA restored the number of shares of the Company’s common stock that may be required to be purchased by GEM under the SPA to $ 300.0 million and $ 100.0 million of advances, thus restoring the maximum aggregate shares of the Company’s common stock that may be required to be purchased by GEM to $ 400.0 million The respective formulas that the Company and GEM used to determine the par amount of the Mandatory Convertible Security and the consideration for GEM’s purchase of the Mandatory Convertible Security are each set forth in the MCSPA. +On the Maturity Date, the Company will pay to GEM, at the Company’s option, cash or shares of the Company’s common stock in an amount equal to the then outstanding par amount of the Mandatory Convertible Security divided by the lesser of (a) $ 31.15 (the “Fixed Conversion Price”) and (b) the average of the five lowest volume-weighted average prices per share for the Company’s common stock trading on the NYSE during the 30 trading days immediately preceding the Maturity Date (the “Floating Conversion Price”). +Prior to the Maturity Date, GEM will have the option to convert any portion of the Mandatory Convertible Security into shares of the Company’s common stock at a conversion rate equal to the portion of the par amount to be converted into shares of the Company’s common stock divided by the lesser of (a) the Fixed Conversion Price and (b) the Floating Conversion Price. If, following the conversion by GEM of any portion of the Mandatory Convertible Security into 1,142,857 shares of the Company’s common stock at any time prior to the Maturity Date, any par amount of the Mandatory Convertible Security remains outstanding, the Company will have the option to (x) increase the maximum number of shares of the Company’s common stock into which the Mandatory Convertible Security may convert, with such increase to be at the Company’s sole discretion, (y) pay to GEM an amount in cash equal to 115 % of the remaining outstanding par amount or (z) increase the remaining outstanding par amount by 15 % of the amount outstanding immediately after issuance of the 1,142,857 shares of the Company’s common stock. GEM may not convert any portion of the Mandatory Convertible Security into shares of the Company’s common stock to the extent that GEM (together with its affiliates and any other parties whose holdings would be aggregated with those of GEM for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended) would beneficially own more than 4.99 % of the shares of the Company’s common stock outstanding after such conversion; provided, however, that GEM may increase or decrease such maximum limitation percentage to not more than 9.99 % upon 61 days’ notice to the Company. +92 +The Company may, at its option, redeem the Mandatory Convertible Security, in whole or in part, in cash at a price equal to 115 % of the outstanding par amount to be redeemed. +Pursuant to the terms of the MCSPA and the Mandatory Convertible Security, GEM has agreed that, beginning March 1, 2024 and for so long as any shares of the Company’s common stock are beneficially owned by GEM (together with its affiliates and any entity managed by GEM, the “GEM Entities”), the GEM Entities will limit the daily volume of sales of shares of the Company’s common stock then beneficially owned by the GEM Entities to no more than 1/10th of the daily trading volume of shares of the Company’s common stock on the NYSE on the trading day immediately preceding the applicable date of such sales. +During the year ended December 31, 2025, t he Company made payments against the outstanding principal of the Mandatory Convertible Security totaling $ 38.6 million, which represented full settlement of the Mandatory Convertible Security. The outstanding principal balance of the Mandatory Convertible Security at December 31, 2025 and December 31, 2024 was $ 0 and $ 38.6 million, respectively. +The fair value of the Mandatory Convertible Security liability was estimated using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Company will not be able to satisfy the liability through the issuance of shares of common stock and taking into account the value of the consideration transferred to the Company upon closing of the MCSPA. This was inclusive of the value of the shares returned to the Company and the cancellation of the share transfers due in settlement of the GEM derivative liability (see Note 11 , Fair Value Measurements). For the years ended December 31, 2025 and 2024, the Company recorded losses on the change in fair value of financial instruments carried at fair value of $ 15.4 million and $ 11.7 million, respectively, related to the Mandatory Convertible Security, resulting in a liability of $ 0 and $ 23.2 million as of December 31, 2025 and 2024, respectively, which was included as part of other long-term liabilities within the Consolidated Balance Sheets. Significant inputs in determining period end fair value of the Mandatory Convertible Security as of December 31, 2024 were as follows: +December 31, 2024 +Par amount +38,615 +Probability of default +— +% +Expected volatility +155.7 +% +Discount rate +4.3 +% +Share price +$ +5.39 +Note 11. Fair Value Measurements +The following tables summarize the Company’s financial liabilities that are measured at fair value on a recurring basis in the consolidated financial statements (in thousands) : +Fair Value Measurements at December 31, 2025 Using: +Level 1 +Level 2 +Level 3 +Total +Liabilities: +Convertible notes at fair value +$ +— +$ +— +$ +67,457 +$ +67,457 +SAFE-T notes at fair value +— +— +5 +5 +LamVen Note +— +— +100 +100 +Liability classified warrants +— +— +2,831 +2,831 +Total financial liabilities +$ +— +$ +— +$ +70,393 +$ +70,393 +Fair Value Measurements at December 31, 2024 Using: +Level 1 +Level 2 +Level 3 +Total +Liabilities: +Convertible notes at fair value +$ +— +$ +— +$ +7,347 +$ +7,347 +SAFE-T notes at fair value +— +— +13 +13 +LamVen Note +— +— +50,000 +50,000 +GEM derivative liability +— +— +23,221 +23,221 +Total financial liabilities +$ +— +$ +— +$ +80,581 +$ +80,581 +93 +The following table provides a reconciliation of activity and changes in fair value for the Company’s convertible loans and redeemable convertible preferred stock warrant liability using inputs classified as Level 3 (in thousands) : +Convertible Notes at Fair Value +SAFE Notes +LamVen Note +Mandatory Convertible Security +Liability Classified Warrants +Balance at December 31, 2024 +$ +7,347 +$ +13 +$ +50,000 +$ +23,221 +$ +— +Change in fair value +( 2,765 +) +( 8 +) +— +15,379 +( 2,952 +) +Debt and equity financing issuances +65,000 +5,783 +Transfers +49,900 +— +( 49,900 +) +— +— +Conversions into common stock +( 48,025 +) +— +— +— +— +Payments +( 4,000 +) +— +— +( 38,600 +) +— +Balance at December 31, 2025 +$ +67,457 +$ +5 +$ +100 +$ +— +$ +2,831 +Long-Term Debt +The carrying amounts and fair values of the Company’s long-term debt obligations were as follows: +As of December 31, 2025 +As of December 31, 2024 +Carrying Amount +Fair Value +Carrying Amount +Fair Value +Long-term debt, including current maturities +$ +17,101 +$ +16,988 +$ +64,593 +$ +64,707 +In assessing the fair value of the Company’s long-term debt, including current maturities, the Company primarily uses an estimation of discounted future cash flows of the debt at rates currently applicable to the Company for similar debt instruments of comparable maturities and comparable collateral requirements. +Note 12. Shareholders’ Deficit +Registered Direct Offerings +On March 31, 2025, the Company entered into a securities purchase agreement with an investor relating to the offering and sale in a registered direct offering of an aggregate of 1,860,000 shares of the Company’s common stock, at an offering price of $ 2.50 per share, and pre-funded warrants to purchase up to 140,000 shares of the Company’s common stock, at an offering price of $ 2.4999 per share, which were all exercised concurrent with the closing of the offering on April 1, 2025, and are included as shares issued with the remainder of the offering. As part of this offering, the Company issued warrants to purchase up to 100,000 shares of the Company’s common stock to an advisor who assisted with the offerings. These warrants have an exercise price equal to $ 3.125 per share and are exercisable for five years from the commencement of sales in the offerings. +On June 25, 2025, the Company entered into a securities purchase agreement with certain investors relating to the offering and sale in a registered direct offering of an aggregate of 10,800,002 shares of the Company’s common stock, at an offering price of $ 2.50 per share, including pre-funded warrants to purchase up to 926,668 shares of common stock, at an offering price of $ 2.4999 per share, which were all exercised concurrent with the closing of the offering on June 26, 2025. As part of this offering, the Company issued warrants to purchase up to 540,000 shares of the Company’s common stock to an advisor who assisted with the offerings. These warrants have an exercise price equal to $ 3.125 per share and are exercisable for five years from the commencement of sales in the offerings. +On November 10, 2025, the Company entered into a securities purchase agreement with certain investors relating to the offering and sale in a registered direct offering of an aggregate of 3,975,901 shares of the Company’s common stock, at an offering price of $ 3.32 per share. Concurrent with the closing of the offering on November 12, 2025, the Company issued warrants to purchase up to 3,975,901 shares of the Company’s common stock to the associated investors. These warrants have an exercise price equal to $ 3.32 per share and are exercisable for two years from the commencement of the offering. Due to settlement provisions included in the warrant agreements, such amounts have been classified as a liability, carried at fair value, with changes in such fair values recorded through earnings at each reporting period. +The Company received gross proceeds from these offerings of $ 45.2 million, which resulted in approximately $ 42.6 million of net proceeds after deducting placement agent fees and direct offering expenses totaling $ 2.6 million. These proceeds have been allocated between the common stock, equity classified warrants, and liability classified warrants issued as part of the offerings. +94 +In addition, the Company issued 1,000,000 shares of common stock (the “Palantir Shares”) on November 10, 2025 at a price of $ 3.32 per share as a prepayment of consideration for license fees and related professional services to be rendered by Palantir Technologies Inc. (“Palantir”) pursuant to the Company’s existing software license agreement with Palantir (See Note 13, Commitments and Contingencies) . In addition, the Company delivered 881,579 additional shares of its common stock to Palantir as consideration for license fees and related professional services pursuant to the license agreement on an unregistered basis on November 12, 2025, representing a total payment in shares of the Company’s common stock of approximately $ 6 million (together, the “Palantir Placement”). +Private Placements +During May 2025, the Company sold 816,326 shares of the Company’s common stock in private placements for gross proceeds of $ 2.0 million. Such sales were effected at a purchase price of $ 2.45 per share, which was the minimum price, under New York Stock Exchange regulations, as of May 22, 2025. +On November 10, 2025, the Company entered into a securities purchase agreement with certain investors relating to the offering and sale in a private placement of an aggregate of 2,048,195 shares of the Company’s common stock, at an offering price of $ 3.32 per share for total proceeds of $ 6.8 million. Concurrent with the closing of the offering on November 12, 2025, the Company issued warrants to purchase up to 2,048,195 shares of the Company’s common stock to the associated investors. These warrants have an exercise price equal to $ 3.32 per share and are exercisable for two years from the commencement of the offering. Due to settlement provisions included in the warrant agreements, such amounts have been classified as a liability, carried at fair value, with changes in such fair values recorded through earnings at each reporting period. +The Company received net proceeds from these private placement offerings of $ 8.8 million. These proceeds have been allocated between the common stock and liability classified warrants issued as part of the offerings. +Warrants +A summary of warrant activity associated with equity financings for the year ended December 31, 2025 is set forth below: +Number of Warrants Outstanding +Weighted Average Contractual Term (in years) +Aggregate Intrinsic Value (in thousands) +Weighted +Average +Exercise Price Per Share +Outstanding at December 31, 2024 +3,389,398 +9.87 +$ +12,296 +$ +1.83 +Granted +6,664,096 +4.45 +— +3.30 +Exercised +( 265,725 +) +— +— +3.13 +Canceled +— +— +— +— +Outstanding at December 31, 2025 +9,787,769 +6.24 +373 +2.80 +Exercisable at December 31, 2025 +9,787,769 +6.24 +373 +2.80 +The assumptions used to estimate the fair value of warrants granted during the year ended December 31, 2025 and 2024 and were as follows: +For The Year Ended December 31, +2025 +2024 +Risk-free interest rate +3.56 % - 3.91 % +4.43 % +Expected term (in years) +2.0 - 5.0 +10.0 +Dividend yield +— +— +Expected volatility +77.11 %- 153.17 % +146.5 % +95 +Note 13. Commitments and Contingencies +Software License Agreements +On May 18, 2021, and later modified during July 2025 and November 2025, the Company executed four agreements with Palantir Technologies Inc. (“Palantir”) to license a suite of software for a combined term of nine years , commencing on the effective date. The agreements identify two phases where Palantir provides services to customize the software: an initial term from May 18, 2021 through June 30, 2023 with a cost of $ 11.0 million and an enterprise term from July 1, 2023 to June 30, 2030 with a cost of $ 30.7 million, for a total cost of $ 41.7 million. +As of December 31, 2025 and December 31, 2024 the Company capital ized $ 3.4 million and $ 3.1 million, respectively, related to the software that Palantir has provided to the Company. During the year ended December 31, 2025, the Company settled $ 11.8 million in invoiced amounts from Palantir through the issuance of 3,769,385 s hares of the Company's common stock. As of December 31, 2025 , the Company had $ 12.6 million in remaining commitments under these agreements, of which $ 5.1 million has been prepaid through the issuance of shares of the Company’s common stock. +In July 2025, the Company and Palantir modified the enterprise term of the existing software license agreement. In addition to a two-year extension, the Company is Palantir’s exclusive partner with respect to the configuration and sale of software to part 135 operators and charter brokers. Furthermore, the Company will have the ability to sub-license certain of its rights under the agreement to third-party clients. Palantir has the right to receive equity in Surf Air Technologies, a wholly owned subsidiary of the Company, versus that of the Company, at its election, in exchange for its services and contributions under the modified software license agreement. +Licensing, Exclusivity and Aircraft Purchase Arrangements +Textron Agreement +On September 15, 2022, the Company entered into agreements with Textron Aviation Inc. and one of its affiliates (collectively, “TAI”), for engineering services and licensing, sales and marketing, and aircraft purchases, which became effective as of the Company’s direct listing on July 27, 2023 (“TAI Effective Date”). +The engineering services and licensing agreement provides, among other things, that TAI will provide the Company with certain services in furtherance of development of an electrified powertrain technology (the “SAM System”). The engineering agreement requires payment by the Company as such services are provided by TAI. Under this agreement, the Company agrees to meet certain development milestones by specified dates, including issuance of a supplemental type certificate by the Federal Aviation Administration (“FAA”). Should the Company fail to meet certain development milestones, TAI has the right to terminate the collaboration agreement. The Company is currently complying with necessary development milestones under this agreement. +The licensing agreement grants the Company a nonexclusive license to certain technical information and intellectual property for the purpose of developing an electrified propulsion system for the Cessna Caravan aircraft, and to assist in obtaining Supplemental Type Certificates (“STCs”) from the FAA, including any foreign validation by any other aviation authority, for electrified propulsion upfits/retrofits of the Cessna Caravan aircraft. The licensing agreement provides for payment by the Company of license fees aggregating $ 60.0 million over a multi-year period, with an initial $ 12.5 million in deposits being made as of December 31, 2023. The $ 12.5 million of deposits were recorded to technology and development expenses within the Company’s consolidated statements of operations during the fourth quarter of 2023. During the year ended December 31, 2024, the Company and TAI agreed to apply a previous deposit under the aircraft purchase agreement to amounts due under the licensing agreement. Remaining payments due under the initial license fees of $ 9.5 million are due as of December 31, 2025 and are included as part of accrued expenses on the Company’s Consolidated Balance Sheet. The remaining $ 35 million of payments under the licensing agreement will be due, via annual payments, following the Company’s receipt of the STC, which the company continues to actively pursue. +Under the sales and marketing agreement, the parties agreed to develop marketing, promotional and sales strategies for the specifically configured Cessna Grand Caravans and further agreed to: (a) include Cessna Grand Caravans fitted with the SAM System (the “SAM Aircraft”) in sales and marketing materials (print and digital) distributed to authorized dealers, (b) prominently display the SAM Aircraft on their respective websites and social media, (c) include representatives of the Company and TAI at trade show booths, (d) market the SAM Aircraft and conversions to SAM Aircraft to all owners of pre-owned Cessna Grand Caravans, and (e) not advertise or offer any third-party-developed electrified variants of the Cessna Grand Caravan. Certain technologies for aircraft propulsion are specifically carved out from TAI’s agreement to exclusively promote the SAM System for Cessna Grand Caravans. The sales and marketing agreement provides for payment by the Company of exclusivity fees aggregating $ 40.0 million, with certain amounts deferred such that the aggregate fee is payable over four years commencing on the earlier of the year after the Company obtains an STC for the SAM System on the Cessna Grand Caravan or the 5 th anniversary of the TAI Effective Date. The Company’s obligation to pay exclusivity fees in any year may be offset, in whole or in part, based on the achievement of certain sales milestones of SAM Aircraft and Cessna Grand Caravans subsequently converted to a SAM System. +96 +Under the aircraft purchase agreement, the Company may purchase from TAI 90 specifically configured Cessna Caravans at prevailing market rates whereby the aggregate purchase price could be approximately $ 297.0 million, with an option to purchase an additional 26 specifically configured Cessna Caravans having an aggregate purchase price in excess of $ 85.8 million, over the course of seven years (see Note 21, Subsequent Events). The final price to be paid by the Company will be dependent upon a number of factors, including the final specifications of such aircraft and any price escalations. During the year ended December 31, 2024, the Company and TAI agreed to apply a previous deposit under the aircraft purchase agreement to amounts due under the licensing agreement. As of December 31, 2025, the Company has made deposits of $ 2.0 million under this agreement , for aircraft to be delivered during 2026. +Jetstream Agreement +On October 10, 2022, the Company and Jetstream Aviation Capital, LLC (“Jetstream”) entered into an agreement (the “Jetstream Agreement”) that provides for a sale and/or assignment of purchase rights of aircraft from the Company to Jetstream and the leaseback of such aircraft from Jetstream to the Company within a maximum aggregate purchase amount of $ 450.0 million, including a $ 120.0 million total minimum usage obligation by the Company. The Jetstream Agreement may be terminated: (i) upon a termination notice by either party in the event that a material adverse change in the business of the other party is not resolved within 30 days of such notice; and (ii) as mutually agreed in writing by the parties. No transactions have been executed under this agreement as of December 31, 2025. +Palantir Joint Venture +On August 9, 2024, the Company entered into a joint venture agreement (the “JV Agreement”) with Palantir. Pursuant to the JV Agreement, the Company established Surf Air Technologies Inc. (“Surf Air Technologies”), a subsidiary of the Company, in order to develop, market, sell, maintain, and support an artificial intelligence-powered software platform for the advanced air mobility industry, to provide operators of all types of aircraft, amongst other software products and solutions, with systems for the management of planes, airline operations, and customer facing applications. +Instead of consummating the joint venture contemplated by the JV Agreement, o n July 2, 2025, the Company and Palantir modified their existing software license agreement, as an expansion and enhancement of the overall relationship between the companies. In addition to a two-year extension, the Company will be Palantir’s exclusive partner with respect to the configuration and sale of software to part 135 operators and charter brokers. Furthermore, the Company will have the ability to sub-license certain of its rights under the agreement to third-party clients. Palantir has the right to receive equity in Surf Air Technologies, versus that of the Company, at its election, in exchange for its services and contributions under the modified software license agreement, as discussed above. +Guarantees +The Company indemnifies its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential future amount the Company could be required to pay under these indemnification agreements is unlimited. The Company believes its insurance would cover any liability that may arise from the acts of its officers and directors and as of December 31, 2025 the Company is not aware of any pending claims or liabilities. +The Company enters into indemnification provisions under agreements with other parties in the ordinary course of business, typically with business partners, contractors, customers, landlords and investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of its activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions sometimes include indemnifications relating to representations the Company has made with regards to intellectual property rights. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential future amount the Company could be required to pay under these indemnification provisions is unlimited. +Legal Contingencies +In 2017, the Company acquired Rise U.S. Holdings, LLC (“Rise”). Prior to the close of the acquisition, Rise Alpha, LLC and Rise Management, LLC (both of which are wholly-owned subsidiaries of Rise and hereinafter referred to as the “Rise Parties”), were served with a petition for judgment by Menagerie Enterprises, Inc. (“Monarch Air”), relating to breach of contract for failure to pay Monarch Air pursuant to the terms and conditions of a flight services agreement with Monarch Air, which occurred prior to the Company’s acquisition of Rise. The Rise Parties filed numerous counterclaims against Monarch Air, including fraud, breach of contract and breach of fiduciary duty. Rise, a subsidiary of the Company, was named as a party in the lawsuit. During 2018 and 2019, certain summary judgments were granted in favor of Monarch Air. +On November 8, 2021, the Rise Parties entered into a final judgment in respect of litigation to finally resolve all claims raised by Monarch Air and the Rise Parties agreed to pay actual damages of $ 1.0 million, pre-judgment interest of $ 0.2 million, attorneys’ fees of +97 +$ 0.06 million and court costs of approximately $ 0.003 million. The full settlement had been accrued within Accrued expenses and other current liabilities on the Consolidated Balance Sheets by the Company as of December 31, 2025 and December 31, 2024. +The Company is also a party to various other claims and matters of litigation incidental to the normal course of its business, none of which were considered to have a potential material impact as of December 31, 2025. However, the resolution of, or increase in any accruals for, one or more matters may have a material adverse effect on the Company’s results of operations and cash flows. +FAA Matters +Our operations are highly regulated by several U.S. government agencies, including the U.S. DOT, the Federal Aviation Administration (“FAA”) and the Transportation Security Administration. Requirements imposed by these regulators (and others) may restrict the ways we may conduct our business, as well as the operations of our third-party aircraft operators. Failure to comply with such requirements may result in fines and other enforcement actions by the regulators. +Tax Commitment +On May 15, 2018, the Company received notice of a tax lien filing from the IRS for unpaid federal excise taxes for the quarterly periods from October 2016 through September 2017 in the amount of $ 1.9 million, including penalties and interest as of the date of the notice. The Company agreed to a payment plan (“Installment Plan”) whereby the IRS would take no further action and remove such liens at the time such amounts have been paid. In 2019, the Company defaulted on the Installment Plan. Defaulting on the Installment Plan can result in the IRS nullifying such plan, placing the Company in default and taking collection action against the Company for any unpaid balance. The Company’s total outstanding federal excise tax liability, including accrued penalties and interest, is recorded in Accrued expenses and other current liabilities on the Consolidated Balance Sheets and is in the amount of $ 9.9 million and $ 7.7 million as of December 31, 2025 and December 31, 2024, respectively. In June 2024, the Company submitted a formal offer-in-compromise (“OIC”) to the IRS, seeking to resolve all consolidated excise tax liabilities. Under the terms of the OIC, all collection actions against the Company, in relation to these matters, were abated and the Company made $ 34 thousand monthly payments on historical excise tax liabilities through November 2024. In December 2024, the Company received notice from the IRS that the OIC had been rejected. In December 2025, the Company submitted a request for reconsideration to the IRS regarding the previously filed OIC. Along with this request, the Company will continue to explore available options regarding settlement of its federal excise tax liability, including the submission of additional OICs. +During 2018, the Company defaulted on its property tax obligations in various California counties in relation to fixed assets, plane usage and aircraft leases. The Company’s total outstanding property tax liability including penalties and interest is $ 0.9 million and $ 1.6 million as of December 31, 2025 and December 31, 2024 , respectively. +Note 14. Disaggregated Revenue +The disaggregated revenue fo r the years ended December 31, 2025 and 2024 were as follows (in thousands) : +Year Ended December 31, +2025 +2024 +Scheduled +$ +76,989 +$ +90,735 +On-Demand +$ +29,568 +28,690 +Total revenue +$ +106,557 +$ +119,425 +The revenue deferred and recognized for the years ended December 31, 2025 and 2024 were as follows (in thousands) : +Year Ended December 31, +2025 +2024 +Deferred revenue, beginning of period +$ +17,393 +$ +21,725 +Revenue deferred +60,515 +62,546 +Revenue recognized +( 59,984 +) +( 66,878 +) +Deferred revenue, end of period +$ +17,924 +$ +17,393 +Deferred revenue principally represents tickets sold for future travel on the Company’s flights. The balance fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one to two years . Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12-24 months, when the tickets are either used by passengers or expired pursuant to their terms. For the year ended December 31, 2025, $ 11.1 million of revenue was recognized in passenger revenue that was +98 +included in our deferred revenue liability at December 31, 2024. For the year ended December 31, 2024 , $ 15.5 million of revenue was recognized in passenger revenue that was included in our deferred revenue liability at December 31, 2023 . +Note 15. Stock-Based Compensation +2023 Equity Incentive Plan +On July 27, 2023, concurrent with the Company’s direct listing, the Company’s board of directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”). A total of 1,071,429 shares of the Company’s common stock were initially authorized for issuance with respect to awards granted under the 2023 Plan. In addition, the shares authorized for grant will automatically increase on the first trading day in January of each year (commencing with 2024) by an amount equal to the lesser of (1) 5.0 % of the total number of our outstanding shares on the last trading day in December in the prior year, or (2) such number as determined by our board of directors. Any shares subject to awards that are not paid, delivered or exercised before they expire or are canceled or terminated, fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2023 Plan. Shares subject to outstanding awards granted under the Company’s prior plan, the 2016 Plan, that are not paid, delivered or exercised before they expire or are canceled or terminated will be available for award grants under the 2023 Plan. +Awards under the 2023 Plan may be in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards. +The Company issues shares of common stock upon the vesting and settlement of RSUs and PRSUs and upon the exercises of stock options under the 2023 Plan. The 2023 Plan is administered by the Company’s board of directors, or a duly authorized committee of the Company’s board of directors. +2016 Equity Incentive Plan +No further stock awards will be granted under the 2016 Plan; however, awards outstanding under the 2016 Plan will continue to be governed by their existing terms. +2023 Employee Stock Purchase Plan +In conjunction with the Company’s direct listing, the Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2023 employee stock purchase plan (the “ESPP”). The Company’s ESPP initially authorizes the issuance of 114,285 shares of the Company’s common stock under purchase rights granted to the Company’s employees or to the employees of any of its designated affiliates. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each year for a period of 10 years, beginning January 1, 2024, by the lesser of (i) 1 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year; and (ii) 114,285 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). +As of December 31, 2025, there had been no offering period or purchase period under the ESPP, and no such period will begin unless and until determined by the administrator, which is the Company’s board of directors or a duly authorized committee of the Company’s board of directors. +Management Incentive Bonus Plan +In conjunction with the Southern Acquisition, the Company adopted the Southern Management Incentive Bonus Plan (the “Incentive Bonus Plan”). The Incentive Bonus Plan provides select employees, consultants and service providers of the Company who were direct or indirect shareholders of Southern an incentive to contribute fully to the Company’s business achievement goals and success. The Incentive Bonus Plan provides for two tranches of bonus pools to be allocated, based on participation units, which vest, contingent upon each employee’s continued employment by the Company and the achievement of certain revenue targets. Payments of awards which might become due under the Incentive Bonus Plan may be made in cash or common stock, at the Company’s option. Any shares of common stock issued in payment of amounts due under the Incentive Bonus Plan will be charged against the share limit of the Company’s 2023 Plan. In addition, any shares which might be issued under the Incentive Bonus Plan are excluded from the Company’s common stock issued and outstanding until the satisfaction of these vesting conditions and are not considered a participating security for purposes of calculating net loss per share attributable to common stockholders. +During the year ended December 31, 2024, the Company offered the holders of the participation units underlying the Incentive Bonus Plan restricted stock units in exchange for the termination of all existing and future rights under the Incentive Bonus Plan. The +99 +offer is for a total pool of 571,429 restricted stock units in exchange for liabilities existing under the Incentive Bonus Plan. During the year ended December 31, 2024, the Company settled approximately 54 % of the participation units under the Incentive Bonus Plan through the issuance of 317,663 restricted stock units, of which 158,834 were fully vested at grant and the remainder will vest twelve months from the grant date. Additionally, o n December 6, 2024, the Company's board of directors, acting as “Administrator” under the Incentive Bonus Plan, determined that certain targets under the Incentive Bonus Plan were not met, and no payment is due under the terms of the plan. These actions resulted in a $ 32.3 million reversal of previously accrued stock-based compensation expense, which is included in general and administrative expenses in the Consolidated Statements of Operations. +The Company recorded a net reduction of $ 16.6 million in stock based compensation expense related to the Incentive Bonus Plan during the year ended December 31, 2024. The Company recorded no additional stock-based compensation expense associated with the Incentive Bonus Plan during the year ended December 31, 2025. As of December 31, 2025 and 2024, a total of $ 0 was outstanding under the Incentive Bonus Plan. +Stock Options +A summary of stock option activity for the year ended December 31, 2025 is set forth below: +Number +of Stock Options +Outstanding +Weighted Average Contractual Term (in years) +Aggregate Intrinsic Value (in thousands) +Weighted +Average +Exercise Price Per Share +Outstanding at December 31, 2024 +2,689,131 +9.21 +$ +1,353 +$ +7.80 +Granted +— +— +— +— +Exercised +( 49,570 +) +— +— +5.09 +Canceled +( 306,799 +) +— +— +6.22 +Outstanding at December 31, 2025 +2,332,762 +8.24 +11 +8.07 +Exercisable at December 31, 2025 +1,206,243 +8.09 +11 +9.78 +No stock options were granted during the year ended December 31, 2025. +As of December 31, 2025, unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximatel y $ 0.6 million with a weighted-average remaining vesting period of approxima tely 1.29 years. +The following table provides supplemental data on stock options for the years ended December 31, 2025 and 2024 ( in $ thousands, except for weighted average figures ): +For The Year Ended December 31, +2025 +2024 +Weighted average grant date fair value per option granted +$ +— +$ +1 +Fair value of options vested +$ +1,431 +$ +3,815 +Cash from participants to exercise stock options +$ +255 +$ +20 +Intrinsic value of options exercised +$ +142 +$ +5 +The assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2025 and 2024 were as follows: +For The Year Ended December 31, +2025 +2024 +Risk-free interest rate +— +3.97 - 4.25 % +Expected term (in years) +— +3.5 - 5.8 +Dividend yield +— +— +Expected volatility +— +55.69 % - 59.07 % +100 +Warrants +During the year ended December 31, 2025, the Company issued 1,127,040 warrants for purchase of the Company’s common stock. Awards to non-employee consultants will vest 25 % on the grant date and 25 % upon each anniversary over the ensuing three-year period or only upon the achievement of certain market-based metrics. +A summary of warrant activity for the year ended December 31, 2025 is set forth below: +Number of Warrants Outstanding +Weighted Average Contractual Term (in years) +Aggregate Intrinsic Value (in thousands) +Weighted +Average +Exercise Price Per Share +Outstanding at December 31, 2024 +1,160,560 +9.71 +$ +230 +$ +5.92 +Granted +1,127,040 +4.87 +— +6.12 +Exercised +— +— +— +— +Canceled +( 911,544 +) +— +— +6.17 +Outstanding at December 31, 2025 +1,376,056 +5.30 +— +5.91 +Exercisable at December 31, 2025 +564,790 +5.30 +373 +5.54 +As of December 31, 2025 , unrecognized compensation expense related to the unvested portion of the Company’s common stock warrants was approximately $ 0.6 million which is expected to be recognized over the weighted-average remaining vesting period of approximately 1.30 years. +The assumptions used to estimate the fair value of warrants granted during the year ended December 31, 2025 and 2024 and were as follows: +For The Year Ended December 31, +2025 +2024 +Risk-free interest rate +3.57 % - 4.08 % +3.52 % - 4.43 % +Expected term (in years) +5.0 - 10.0 +5.0 - 10.0 +Dividend yield +— +— +Expected volatility +153.12 % - 157.11 % +47 % - 147 % +Equity-based awards granted in the form of warrants are not considered granted under the terms of the 2023 Plan and are often subject to separate registration rights that those included under the 2023 Plan. +The Company has also granted warrants as a component of equity financing transactions, which were granted fully vested as of the respective transaction dates (see Note 12, Shareholders’ Deficit ). No compensation expense has been recorded for these transactions. +Restricted Stock Units +During the year ended December 31, 2025 , the Company issued 2,316,380 RSUs under the 2023 Plan to employees and non-employee directors, which vest upon the satisfaction of certain service periods. The fair value of these RSUs was determined based on the Company’s stock price the business day immediately preceding the grant date. The service period of these RSUs is satisfied over a range of 12 months to 4 years. +101 +A summary of RSU activity for the year ended December 31, 2025 is set forth below: +Number of RSUs +Weighted +Average +Grant Date Fair Value per RSU +Unvested RSUs at December 31, 2024 +316,663 +$ +4.52 +Granted +2,316,380 +2.72 +Vested/shares issued +( 1,209,823 +) +3.00 +Forfeited, cancelled, or expired +( 115,854 +) +2.66 +Unvested RSUs at December 31, 2025 +1,307,366 +$ +2.89 +During the year ended December 31, 2025, the Company repurchased 196,750 shares from employees for $ 0.4 million in satisfaction of employee tax withholdings related the issuance of shares under RSU awards. +Restricted Share Purchase Agreement +A summary of RSPA activity for the year ended December 31, 2025 is set forth below: +Number +of RSPA +Weighted +Average +Grant Date Fair Value per RSPA +Unvested RSPAs at December 31, 2024 +36,907 +$ +29.13 +Granted +— +— +Vested +( 23,421 +) +29.13 +Forfeited +— +— +Unvested RSPAs at December 31, 2025 +13,486 +29.13 +As of December 31, 2025, the unrecognized compensation expense related to the unvested portion of the Company’s RSPAs was $ 0.4 million, which is expected to be recognized over a weighted average perio d of 0.4 years. +Performance-Based Restricted Stock Units +In July 2023, the Company granted a total of 400,000 performance-based restricted stock units (“PRSUs”) to the Company’s founders (“Founder PRSUs”) under the 2023 Plan. +The Founder PRSUs will vest only if (i) the per-share closing price of the Company’s common stock over a period of 10 consecutive trading days within five years from the date of the Company’s direct listing is greater than $ 70 per share and (ii) each founder’s service to the Company, either through being an employee or non-employee consultant to the Company, or one of its subsidiaries, continues through the date such stock price goal is achieved, subject to certain conditions. +In October 2023, the Company granted 28,571 PRSUs as part of a hiring grant to an executive under the 2023 Plan. These PRSUs will vest upon the satisfaction of a service condition and the achievement of certain stock price goals. These PRSUs will vest based on the average daily closing price of the Company’s common stock on a rolling fifteen trading day basis (the “Average Closing Price”): (i) 7,143 RSUs will vest when the Average Closing Price equals or exceeds $ 35 per share, (ii) 10,714 RSUs will vest when the Average Closing Price equals or exceeds $ 70 per share, and (iii) 10,714 RSUs will vest when the Average Closing Price equals or exceeds $ 105 per share. +The Company estimated the grant date fair value of the PRSUs with market conditions based on multiple stock price paths developed through the use of a Monte Carlo simulation model. A Monte Carlo simulation model also calculates a derived service period based on the expected time to achieve the defined stock price target, as described above. A Monte Carlo simulation model requires the use of various assumptions, including the underlying stock price, volatility, expiration term, and the risk-free interest rate as of the valuation date, corresponding to the length of time remaining in the performance period, and expected dividend yield. The derived service period calculation also requires the cost of equity assumption to be used in the Monte Carlo simulation model. Term and volatility are typically the primary drivers of this valuation. +For Founder PRSUs, granted with market conditions, an expiration term of 5 years (as defined in the grant agreements) was utilized. A volatility of 71.0 percent was determined, based on an established peer group over the maximum term to expiration. The +102 +weighted-average grant date fair value of the Founders PRSUs was $ 15.82 per share. The Company will recognize total stock-based compensation expense of $ 6.3 million over the derived service period of 2.1 years as the founders satisfy the service-based vesting condition. +For the PRSUs, with market conditions, granted in October 2023, an expiration term of 5 years (as defined in the grant agreements) was utilized. A volatility of 71.0 percent was determined, based on an established peer group over the maximum term to expiration. The weighted-average grant date fair value of the PRSUs was $ 5.67 per share for the 7,143 RSUs vesting upon an Average Closing Price equaling or exceeding $ 35 per share, $ 3.85 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $ 70 per share, and $ 2.73 per share for the 10,714 RSUs vesting upon an Average Closing Price equaling or exceeding $ 105 per share. The Company will recognize total stock-based compensation expense of $ 0.1 million over the derived service period of 2.6 to 3.6 years as the employee satisfies the service-based vesting conditions. +During the year ended December 31, 2025, the Company issued 1,142,500 PRSUs under the 2023 Plan to employees and non-employee consultants. The PRSUs granted will vest upon the achievement of an adjusted EBITDA metric for the year ending December 31, 2025 as well as a service period of four years from the date of grant. The fair value of these PRSUs was determined based on the Company’s stock price the business day immediately preceding the grant date. +A summary of PRSU activity for the year ended December 31, 2025 is set forth below: +Number +of PRSUs +Weighted +Average +Grant Date Fair Value per PRSU +PRSUs at December 31, 2024 +428,571 +$ +14.74 +Granted +1,142,500 +2.57 +Shares issued +( 365,625 +) +15.61 +Forfeited, cancelled, or expired +( 74,375 +) +2.32 +PRSUs at December 31, 2025 +1,131,071 +$ +3.09 +During the year ended December 31, 2025 the Company accelerated the vesting of approximately 360,000 Founder PRSU awards. In connection with this share vesting, the Company recognized $ 653 thousand in additional stock-based compensation expense pertaining to the remaining grant date fair value of the awards. +The following table represents the various price targets included in the PRSU awards with market conditions and the number of PRSUs that will vest upon achievement of such price targets: +Company Price Target +Number of PRSUs Eligible to Vest +$ +35.00 +7,143 +70.00 +50,713 +105.00 +10,714 +A summary of stock-based compensation expense recognized is as follows (in thousands) : +For The Year Ended December 31, +2025 +2024 +Stock Options +$ +1,431 +$ +3,815 +RSUs +3,932 +2,703 +RSPAs +675 +687 +PRSUs +2,973 +3,083 +Warrants +546 +403 +Management Incentive Bonus Plan +— +( 16,667 +) +Other +504 +— +Total Stock Based Compensation +$ +10,061 +$ +( 5,976 +) +103 +Note 16. Segments +The Company and its chief operating decision maker (“CODM”), which is the Company’s chief executive officer , organize and manage the Company on a consolidated basis, and, accordingly, the Company operates as a single operating and reportable segment, namely its Air Mobility segment. +The Air Mobility segment derives revenues from two categories of services: +Scheduled Air Service - revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, and through subsidized EAS revenue awards from the Department of Transportation. +On-Demand - revenue from on-demand flights created for customers on an ad-hoc, by request basis. +The accounting policies of the Air Mobility segment are the same as those described in the summary of significant accounting policies. The CODM assesses performance for the Air Mobility segment and decides how to allocate resources based on net loss as reported on the Consolidated Statements of Operations. The measure of segment assets is reported on the balance sheet as total consolidated assets. +In addition to consolidated financial metrics used in assessing the Air Mobility segment, the CODM also regularly reviews additional significant expense categories, which comprise cost of revenue, exclusive of depreciation and amortization within the Company’s Consolidated Statements of Operations. Such cost categories are determined to be those most relevant in providing flight services, and are aligned with cost designations measured by other carriers. All other financial statement metrics are reviewed and/or considered on a consolidated basis: +Year Ended December 31, +2025 +2024 +Revenue +$ +106,557 +$ +119,425 +Operating Expenses: +Aircraft expenses +$ +76,812 +$ +76,164 +Pilot expenses +13,709 +18,390 +Other (1) +11,855 +15,380 +Cost of revenue, exclusive of depreciation and amortization +102,376 +109,934 +Technology and development +10,299 +24,041 +Sales and marketing +8,177 +7,514 +General and administrative +53,285 +29,851 +Depreciation and amortization +9,294 +8,341 +Total operating expenses +183,431 +179,681 +Operating loss +$ +( 76,874 +) +$ +( 60,256 +) +Other income (expense): +Changes in fair value of financial instruments carried at fair value, net +$ +( 8,574 +) +$ +( 11,732 +) +Interest expense +( 13,205 +) +( 8,617 +) +Gain (loss) on extinguishment of debt +( 3,904 +) +5,398 +Other income (expense), net +( 8,379 +) +12 +Total other income (expense), net +$ +( 34,062 +) +$ +( 14,939 +) +Loss before income taxes +( 110,936 +) +( 75,195 +) +Income tax benefit +380 +287 +Net loss +$ +( 110,556 +) +$ +( 74,908 +) +(1) Other costs of revenue are comprised of personnel costs related to customer service operations, station expenses, reservation systems and passenger re-accommodation/ re-booking on other carriers. +The CODM uses net loss to evaluate income (loss) generated from segment assets (return on assets) in deciding how to allocate resources. Consolidated net loss is used to monitor budget versus actual results. The monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation. +104 +The Company does not have intra-entity sales or transfers. All of the Company’s long-lived assets are located in the United States and revenue is substantially earned from flights throughout the United States. +Note 17. Income Taxes +Income from continuing operations before provision for income taxes for the Company's domestic and international operations was as follows ( in thousands ): +December 31, +2025 +2024 +Domestic +$ +( 110,276 +) +$ +( 72,132 +) +International +( 660 +) +( 3,063 +) +Loss before provision for income taxes +$ +( 110,936 +) +$ +( 75,195 +) +Significant components of the provision for income taxes consist of the following (in thousands) : +Year Ended December 31, +2025 +2024 +Current: +Federal +$ +— +$ +— +State +15 +8 +Total +15 +8 +Deferred: +Federal +( 262 +) +( 235 +) +State +( 133 +) +( 60 +) +Total +( 395 +) +( 295 +) +Total tax expense (benefit) +$ +( 380 +) +$ +( 287 +) +Income taxes in our consolidated financial statements have been calculated on a consolidated tax return basis. The following tables present the principal reasons for the difference between the effective tax rate and the federal statutory income tax rate ( in thousands ): +Year Ended December 31, 2025 +Federal income taxes at statutory rate +$ +( 23,296 +) +21.00 +% +State and local income taxes, net of federal benefit (1) +( 241 +) +0.22 +% +Foreign tax effects +Foreign rate differential +139 +( 0.12 +)% +Nontaxable or nondeductible items +Share based compensation +1,489 +( 1.34 +)% +Change in fair value of financial instruments +2,515 +( 2.27 +)% +Other +329 +( 0.30 +)% +Other provision adjustments +349 +( 0.31 +)% +Uncertain tax positions +177 +( 0.16 +)% +Change in valuation allowance +18,159 +( 16.37 +)% +Effective income tax rate +$ +( 380 +) +0.34 +% +Year Ended December 31, 2024 +Federal income taxes at statutory rate +$ +( 15,791 +) +21.00 +% +State tax benefit +( 2,910 +) +3.87 +% +Share based compensation +592 +( 0.79 +)% +Change in fair value of financial instruments +2,464 +( 3.28 +)% +Permanent difference +1,422 +( 1.89 +)% +Uncertain tax positions +1,453 +( 1.93 +)% +Change in valuation allowance +12,483 +( 16.60 +)% +Effective income tax rate +$ +( 287 +) +0.38 +% +(1) 50% of more of our state tax provision relates to the California state taxing jurisdiction(s). +105 +Significant components of deferred tax assets and liabilities are as follows ( in thousands ): +As of December 31, +2025 +2024 +Accrued expenses and reserves +1,107 +2,082 +Stock compensation +1,157 +1,316 +Interest expense carryforward +6,800 +3,229 +Net operating loss carryforward +72,248 +54,169 +Capitalized research costs +4,007 +5,102 +Lease liabilities - operating leases +3,200 +4,164 +Deferred revenues +961 +1,444 +Other +( 1,191 +) +156 +Deferred Tax Assets, Gross +88,289 +71,662 +Valuation Allowance +( 76,280 +) +( 57,548 +) +Deferred Tax Assets, Net of Valuation Allowance +12,009 +14,114 +Depreciation and amortization differences +( 9,153 +) +( 10,302 +) +ROU assets - operating leases +( 3,242 +) +( 4,532 +) +Prepaid expenses +( 396 +) +( 321 +) +Other +— +— +Total Deferred Tax Liabilities +( 12,791 +) +( 15,155 +) +Total Deferred Tax Assets (Liabilities), net +$ +( 782 +) +$ +( 1,041 +) +As of December 31, 2025 , the Company has approximately $ 403.4 million of gross federal net operating loss (“NOL”) carryforwards, of which $ 90.5 million will begin to expire in 2030. The federal NOLs generated after 2017 can be carried forward indefinitely and be used to offset up to 80 % of future taxable income. Additionally, as of December 31, 2025 , the Company has approximately $ 355.4 million of gross state NOL carryforwards, which will begin to expire in 2030. The described carryforwards are included in the Company's calculation of its deferred tax asset; however, realization of the deferred tax asset is dependent on the Company generating sufficient taxable income prior to expiration of the NOL carryforwards. Also, utilization of the operating losses and tax credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 under Section 382 and similar state provisions. As of December 31, 2025 and 2024 , the Company recorded a valuation allowance of approximately $ 76.3 million and $ 57.5 million, respectively, on the net deferred tax assets, as management does not believe it is more likely than not that the tax assets will ultimately be realized. The valuation allowance increased by $ 18.7 million during the year primarily due to the increase in the Company’s net operating losses during the period. +Section 382 of the Internal Revenue Code, or Section 382, imposes limitations on a corporation's ability to utilize its NOL carryforwards, if it experiences an “ownership change” as defined. In general terms, an ownership change may result from transactions increasing the ownership percentage of certain stockholders in the stock of the corporation by more than 50 % over a three-year period. In the event of an ownership change, utilization of the NOL carryforwards would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate. We have not completed a Section 382 study at this time; however, should a study be completed, certain NOL carryforwards may be subject to such limitations. Any future annual limitation may result in the expiration of NOL carryforwards before utilization. +ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Furthermore, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of ASC 740-10 and in subsequent periods. +The following is a tabular reconciliation of the total amount of the Company's unrecognized tax benefits for the year ( in thousands ): +2025 +2024 +Unrecognized tax benefits at January 1, +$ +38,979 +$ +37,146 +Additions for tax positions of prior years +217 +1,833 +Unrecognized tax benefits at December 31, +$ +39,196 +$ +38,979 +As of December 31, 2025 and December 31, 2024 , the Company had $ 39.2 million and $ 39.0 million of unrecognized tax benefits, respectively, none of which would result in a reduction of the Company's effective tax rate, if recognized, due to the valuation recorded +106 +within the U.S. federal and state jurisdictions. We had no accrued interest or penalties related to uncertain tax positions as of December 31, 2025 and 2024. +The Company is subject to income tax examinations by the U.S. federal and state tax authorities. There are no ongoing income tax examinations as of December 31, 2025. Tax years 2011 and forward remain open to audit for U.S. federal and state income tax purposes. +On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. The OBBBA includes corporate provisions that make 100% bonus depreciation permanent, allow for the expensing of domestic research costs, and modifies the business interest expense limitation calculation. These changes were incorporated into the Company's income tax provision for the year ended December 31, 2025, resulting in no impact to the fiscal year 2025 effective tax rate and net deferred tax assets as the Company maintains a full valuation allowance. +Note 18. Related Party Balances and Transactions +Term Notes +The Company entered into term note agreements with LamVen, a related party, with aggregate principal amounts of $ 4.5 million and $ 1.0 million, an effective date of November 30, 2022 and January 18, 2023, respectively, and bearing an interest rate of 8.25 % per annum. Both term notes were exchanged for cash and scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest for the notes are payable in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024 . On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024 , with an effective date of January 15, 2024. On April 28, 2024, the term notes were further amended to extend the maturity date to May 15, 2024 , with an effective date of April 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024 , with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +On May 22, 2023, the Company entered into an additional term note agreement in exchange for $ 4.6 million in cash from LamVen. The note was scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0 % per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the term notes were amended to extend the maturity date to January 15, 2024 . On January 26, 2024, the term notes were amended to extend the maturity date to February 9, 2024 , with an effective date of January 15, 2024. On July 31, 2024, the term notes were further amended to extend the maturity date to August 20, 2024 , with an effective date of May 15, 2024. In November 2024, the term notes were exchanged for a new secured convertible promissory note with LamVen. +On June 15, 2023, the Company entered into a $ 5.0 million note agreement with LamVen. The note was scheduled to mature on the earlier of December 31, 2023 or the date on which the note is otherwise accelerated as provided for in the agreement. Interest is due upon maturity at a rate of 10.0 % per annum until the note is paid in full at maturity or upon acceleration by prepayment. On December 29, 2023, the note was amended to extend the maturity date to January 15, 2024 and to increase the principal amount of the note to $ 10.0 million. The Company received $ 8.5 million in cash as of December 31, 2023, with the remaining $ 1.5 million under the note received in 2024. On January 26, 2024, the note was further amended to extend the maturity date to February 9, 2024 and the principal amount increased to $ 15.0 million, effective as of January 15, 2024. On April 28, 2024, the note was further amended to extend the maturity date to May 15, 2024 and the principal amount increased to $ 25.0 million, effective as of April 15, 2024. The Company received $ 38.2 million as of September 30, 2024. In October 2024, the Company received an additional $ 4.9 million under this note agreement, for an aggregate total of $ 43.1 million cash received under the note since inception. In November 2024, the note was exchanged for a new secured convertible promissory note with LamVen. +107 +LamVen Note +On November 14, 2024, the Company entered into a secured convertible promissory note (the “LamVen Note”) in aggregate principal amount of $ 50.0 million to LamVen, to refinance certain existing notes. +The LamVen Note will accrue interest at the greater of (x) SOFR (subject to a 1.00 % floor) plus 5.00 % and (y) 9.75 %. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings and the net cash proceeds from certain asset sales are required to be applied to repay the obligations under the LamVen Note. The scheduled maturity of the LamVen Note is December 31, 2028, which may be accelerated upon the occurrence of certain events of default. +At the election of LamVen from time to time, on one or more occasions, the outstanding principal amount of the LamVen Note (or any portion thereof), together with all accrued but unpaid interest thereon, can be converted into a number of shares of common stock, using a conversion price per share equal to the Minimum Price, as defined in New York Stock Exchange Listed Company Manual Section 312.04(h) (the “Minimum Price”); provided, however, that LamVen shall not be able to convert the LamVen Note if so doing would increase LamVen’s beneficial ownership interest in the Company to 10% or more of the Company’s then outstanding common stock. +In addition, on November 14, 2024, outstanding principal and interest of existing LamVen notes of $ 7,473,131 was exchanged for (i) 750,000 shares of common stock of the Company issued to LamVen at $ 1.83 per share, which represents the official closing price of the Company’s common stock on the New York Stock Exchange on the date immediately preceding November 14, 2024, and (ii) 3,389,398 warrants to purchase common stock of the Company issued to LamVen with a strike price of $ 1.83 per share (Note 12. Shareholders’ Deficit) . +The obligations under the LamVen Note are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. +The conversion feature embedded in the LamVen Note failed to satisfy the requirements for the derivative scope exception for contracts indexed in the Company’s own stock. The conversion feature of the LamVen Note required bifurcation from the host contract. The embedded derivative was initially measured at fair value of $ 6.8 million, with a corresponding debt discount of $ 6.8 million being recorded as the excess of the principal amount of the LamVen Note over the fair value of the host contract. The debt discount will be amortized to interest expense using the effective interest rate over the term of the LamVen Note. During the year ended December 31, 2025, the Company recorded $ 1.1 million of interest expense related to the amortization of this discount. +During the year ended December 31, 2025, LamVen transferred $ 49.9 million of the outstanding principal due under the LamVen Note to a non-affiliated third party under terms identical to the original LamVen Note. Subsequent to the transfer, the holder of the New Convertible Note converted $ 48.0 million of the principal amount, inclusive of then accrued interest, to 14,025,167 shares of the Company’s common stock. As a result, as of December 31, 2025, LamVen retained a principal balance of $ 0.1 million (the “New LamVen Note”), with $ 1.9 million (the “New Convertible Note”) held by a non-related party. +Park Lane Reimbursement Agreement +On November 14, 2024, in connection with the letter of credit backstopping the Credit Agreement, the Company entered into a Reimbursement Agreement with Park Lane, an entity affiliated with a co-founder of the Company (the “Reimbursement Agreement”), such that if the letter of credit is drawn upon, the Company will be required to reimburse Park Lane for the drawn amount of the letter of credit and pay interest to Park Lane at 15.00 % per annum on such drawn amounts (subject to increase in the event of default). The Company is separately obligated to pay a fee of 1.00 % per annum to Park Lane on the outstanding face amount of the backstop letter of credit. In the event the Company raises capital in certain equity offerings, a portion of the net cash proceeds from such equity offerings is required to be remitted to Park Lane to be held in trust in accordance with the Reimbursement Agreement. +The obligations under the Reimbursement Agreement are guaranteed by certain of the Company’s subsidiaries, and subject to a security interest on assets of the Company and the subsidiary guarantors, subject to certain exceptions. The Reimbursement Agreement contains certain representations and warranties, covenants and events of default. +Park Lane appointed an observer to the Company’s board of directors, a right that was granted in the Reimbursement Agreement. +On November 12, 2025, the Company entered into an amendment to the Reimbursement Agreement, to add the letter of credit, used in support of the High Trail Convertible Note (Note 9. Financing Arrangements) to the scope of the Reimbursement Agreement. +108 +As consideration for Park Lane’s commitment to provide credit support for the letter of credit over a three year period, the Company issued 2,025,000 shares of the Company’s common stock to Park Lane on November 12, 2025. Such amount has been capitalized as a credit enhancement asset of the Company and will be amortized to interest expense over the three year term of the credit support commitment. +Other Transactions +The Company previously leased four aircraft from Park Lane, for a monthly lease payment of $ 25 thousand per aircraft. The lease for the four planes was extended on a month to month basis as of January 31, 2025. In October 2025, the parties entered into a settlement agreement with respect to return conditions under the leases. As consideration, the Company issued 1,200,000 shares ( 300,000 shares per aircraft) of its common stock to Park Lane and subsequently terminated the respective aircraft leases thereto. As a result of this issuance, the Company recorded the $ 5.4 million fair value of the shares issued as a settlement expense for the year ended December 31, 2025, which was included as part of other income (expense), net within the Company’s Consolidated Statement of Operations. +JA Flight Services and BAJ Flight Services +As of December 31, 2025 , the Company leased a total of three aircraft from JA Flight Services (“JAFS”) and one aircraft from BAJ Flight Services (“BAJFS”) under short-term operating leases. JAFS is 50 % owned by Bruce A. Jacobs (“BAJ”), an employee and shareholder of the Company, and BAJFS is 100 % owned by BAJ. +The Company recorded approximately $ 0.3 million and $ 1.3 million in combined lease and engine reserve expense attributable to JAFS and BAJFS during years ended December 31, 2025 and December 31, 2024, respectively. +Schuman Aviation +As of December 31, 2025 , the Company leased six aircraft from Schuman Aviation Ltd. (“Schuman”), an entity which is owned by an employee and shareholder of the Company. All leases consist of 60 -month terms, fixed monthly lease payments and are all eligible for extension at the end of the lease term. All leases are also subject to monthly engine, propeller and other reserve payment requirements, based on actual flight activity incurred on the subject aircraft engine. +The Company recorded approximately $ 1.7 million in combined lease and engine reserve expense attributable to Schuman for both the year ended December 31, 2025 and the year ended December 31, 2024. As of December 31, 2025 , the Company owed approximately $ 0.5 million to Schuman, which is included in Due to Related Parties, current on the Consolidated Balance Sheet. +Additionally, the Company has an existing agreement with Schuman obtained in conjunction with the acquisition of Schuman in 2020, whereby Schuman agreed not to fly any of its Makani Kai airline routes servicing the Hawaiian Island commuter airspace for a period of 10 years. +Advisory Services Agreement with Proxima Centauri, LLC +Proxima Centauri, LLC, an entity wholly-owned by David Anderman, a director of the Company, provides advisory services to the Company for a monthly fee of $ 20,000 per month pursuant to an Advisory Services Agreement entered into on December 16, 2024. As additional compensation, the Company issued a warrant to Proxima Centauri to purchase up to 142,857 shares of the Company’s common stock. +109 +Note 19. Supplemental Cash Flows +Supplemental Cash Flows for the year ended December 31, 2025 and 2024 (in thousands): +Year Ended December 31, +2025 +2024 +Supplemental cash flow information +Cash paid for interest +$ +9,116 +$ +3,410 +Supplemental schedule of non-cash investing and financing activities: +Common stock issued under Software License Agreement +$ +11,789 +$ +9,574 +Issuance of Common shares related to Convertible Notes conversions +$ +48,264 +$ +— +Purchases of property and equipment included in accounts payable +$ +5,112 +$ +326 +Issuance of Common shares in settlement of vendor payables +$ +760 +$ +— +Reclassification of aircraft deposits to data license fees +$ +— +$ +3,000 +Shares received as consideration for Mandatory Convertible Security +$ +— +$ +1,796 +Conversion of Mandatory Convertible Security to common shares +$ +— +$ +1,621 +Conversion of LamVen Term Notes +$ +— +$ +7,473 +Capitalized Interest on Convertible Notes +$ +— +$ +34 +Right-of-use assets obtained in exchange for new operating lease liabilities +$ +— +$ +10,144 +Right-of-use assets obtained in exchange for new finance lease liabilities +$ +— +$ +95 +Note 20. Net Loss per Share Applicable to Common Shareholders, Basic and Diluted +The Company calculates basic and diluted net loss per share attributable to common shareholders using the two-class method required for companies with participating securities. The Company considers preferred stock to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common shares. +The following table sets forth the computation of net loss per share applicable to common shareholders (in thousands, except share data) : +Year Ended December 31, +2025 +2024 +Net loss +$ +( 110,556 +) +$ +( 74,908 +) +Weighted-average number of common shares used in net loss per share applicable to common shareholders, basic and diluted +35,101,792 +12,910,341 +Net loss per share applicable to common shareholders, basic and diluted +$ +( 3.15 +) +$ +( 5.80 +) +The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: +Year Ended December 31, +2025 +2024 +Excluded securities: +Options to purchase common shares +2,332,762 +2,689,131 +Warrants to purchase common shares +11,163,825 +4,549,958 +Restricted stock units +2,432,187 +745,234 +Unvested RSPAs +13,486 +36,907 +Convertible notes (as converted to common shares) +19,322,698 +9,802,974 +Mandatory Convertible Security +— +9,887,756 +Total common shares equivalents +35,264,958 +27,711,960 +110 +Note 21. Subsequent Events +BETA Aircraft Purchase and Strategic Agreements +In March 2026, the Company entered into an agreement with BETA Technologies (“BETA”) to purchase 25 BETA CX300 all-electric ALIA aircraft with the option to add up to 75 additional CX300 all-electric ALIA aircraft through 2030. Deliveries are scheduled to commence in 2028 and represent firm purchase commitments in excess of $ 90.0 million. With this, and other, strategic agreements, the Company will combine its operating expertise, existing passenger demand, and established airport infrastructure with BETA’s electric aircraft with the goal of launching the first commercial electric passenger service in Hawaii. +TAI Aircraft Purchase Agreement +In February 2026, the Company and TAI amended their aircraft purchase agreement, pursuant to which commitments for firm deliveries of 90 specifically configured Cessna Caravans, and the option to purchase an additional 26 specifically configured Cessna Caravans, were reduced to a commitment for firm deliveries of four specifically configured Cessna Caravans slated for delivery in 2026. Following this amendment, remaining firm commitments under the TAI aircraft purchase agreement have been reduced from $ 283.8 million to $ 13.2 million. Previously made deposits of $ 2 million will be applied against these deliveries. The Company may elect to purchase additional specifically configured Cessna Caravans, on terms consistent with the original aircraft purchase agreement, with mutual agreement from TAI and the payment of a $ 0.5 million deposit for each aircraft. +High Trail Convertible Note +In March 2026, the Company and High Trail Capital entered into an agreement, by which the Company issued 3,510,638 shares of its common stock (the “HT Shares”) to High Trail Capital valued at $6.6 million as of the closing price on the day before issuance (the “Issuance Price”), in satisfaction of $6 million in cash payments due pursuant to the terms of the High Trail Convertible Note (see Note 9, Financing Arrangements ). The Company agreed to file a registration statement with respect to the registration of the HT Shares by March 17, 2026. The Company has agreed to provide additional cash payments based on the average daily volume-weighted average price of the Company’s common stock (the “Average VWAP”) in the following circumstances: (i) if the Average VWAP falls below the Issuance Price during the 45 trading days following the day after the issuance (the Average VWAP during such period, the “Initial Adjustment Price”); and (ii) if the Average VWAP falls below the lesser of the Issuance Price and the Initial Adjustment Price during the 45 trading days after the effectiveness of the registration statement with respect to the HT Shares. In addition, if there are delays or interruptions in the effectiveness of the registration statement the Company will be subject to liquidated damages and High Trail Capital will have the right to put some or all of the HT Shares back to the Company at the Issuance Price. +111 +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES +None. +ITEM 9A. CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. It should be noted that, because of inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met. +As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025 due to material weaknesses in our internal control over financial reporting described below. +Management’s Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and the dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with appropriate authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on its financial statements. +Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025 based on the criteria described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of December 31, 2025 due to the material weaknesses described below. +As of December 31, 2025, material weaknesses existed in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows: +• +We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient complement of resources resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. +• +We did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting. +These material weaknesses contributed to the following additional material weaknesses: +• +We did not design and maintain effective controls related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S. GAAP of such transactions. Specifically, we did +112 +not design and maintain effective controls to timely identify and account for capitalizable costs, revenue, stock-based compensation, and debt and equity financing transactions. +• +We did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, we did not design and maintain effective controls over the preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties. +• +We did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls to ensure that program and data changes are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored; and (iv) program development controls to ensure that new software development is tested, authorized and implemented appropriately. +• +We did not design and maintain effective controls to achieve complete, accurate and timely accounting for debt, deferred liabilities, leases, property and equipment, redeemable convertible preferred shares, accounts payable, and accrued liabilities. +These material weaknesses resulted in audit adjustments to substantially all of our accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021 and 2020 and for the years then ended, and as of June 30, 2022 and 2021 and for the six-month periods then ended. Subsequently, these material weaknesses also resulted in misstatements to revenue, deferred revenue, accrued expenses, additional paid-in capital and stock-based compensation expense to the consolidated financial statements as of December 31, 2022 and 2023 and for the years then ended. These material weaknesses also resulted in misstatements to prepaid expenses and other current assets and sales and marketing to the consolidated financial statements as of and for the quarter ended September 30, 2023. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. +This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as we are an “emerging growth company” as defined in the JOBS Act. For as long as we remain an “emerging growth company,” we are exempt from the auditor attestation requirement in the assessment of the effectiveness of our internal control over financial reporting. +Remediation Plans to Address Material Weaknesses +As of the date of this Annual Report, we have executed on the following remediation actions: +• +Adding key personnel with sufficient technical knowledge for the proper application of U.S. GAAP and the assessment of complex transactions; +• +Integration and alignment of enterprise wide accounting operations under uniform financial systems and processes; and +• +Engagement of a third party in the identification of risks of material misstatement and the designing and implementing of key controls to address the identified risks of material misstatement. +Our remediation plan includes the following actions that are ongoing: +• +further segregate key duties, and actively monitor such duties, to reduce risks that could present a reasonable possibility of material misstatements; +• +developing and executing action plans to address control deficiencies identified within certain key financial processes, prioritized by potential financial impact and risk; +• +develop procedures promoting the consistent operation and evidencing of IT general controls specific to all key systems supporting financial reporting, including program change management, computer operations, program development, and user access reviews; and +• +formalize our risk assessment process and accounting policies and provide training to relevant personnel on the importance of internal controls and compliance with policies. +113 +We are prioritizing the above actions to complete our remediation plan. We believe that these actions, when fully implemented, will remediate the deficiencies described above. The deficiencies will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. As we continue to evaluate and improve the applicable controls, management may take additional remedial measures or modify the remediation plan described above. +Changes in Internal Control over Financial Reporting +Other than the remediation actions described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. +Inherent Limitation on the Effectiveness of Internal Control over Financial Reporting and Disclosure Controls and Procedures +Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected or preventable. +ITEM 9B. OTHER INFORMATION +(a) Reference is made to the disclosure contained in Note 21, Subsequent Events to the consolidated financial statements, which disclosure is incorporated herein by reference. +(b) During the three months ended December 31, 2025, none of our directors or officers (as defined in Section 16 of the Exchange Act), adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K of the Exchange Act). +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not Applicable. +114 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Information required by this item regarding directors and director nominees, executive officers, the board of directors and its committees, and certain corporate governance matters is incorporated by reference to the information set forth under the captions “Proposal 1 – Election of Directors,” “Corporate Governance,” “Executive Officers of the Company” and “Delinquent Section 16(a) Reports” in the definitive proxy statement for our 2026 annual meeting of stockholders, which will be filed no later than 120 days after December 31, 2025 (the “2026 Proxy Statement”). +Our written code of business conduct and ethics (the “Code of Conduct”) applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The Code of Conduct is available on our corporate website at investor.surfair.com in the Governance section under “Governance Documents.” If we make any substantive amendments to our Code of Conduct or grant any of our directors or executive officers any waiver, including any implicit waiver, from a provision of our Code of Conduct, we will disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K. +ITEM 11. EXECUTIVE COMPENSATION +Information required by this item regarding executive compensation is incorporated by reference to the information set forth under the captions “Executive Compensation,” “Non-Employee Director Compensation” and “Board and Corporate Governance Highlights” in the 2026 Proxy Statement. +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +Information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2026 Proxy Statement. +Information required by this item regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to the information set forth under the caption “Equity Compensation Plan Information” in the 2026 Proxy Statement. +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +Information required by this item regarding certain relationships and related transactions is incorporated by reference to the information set forth under the caption “Transactions with Related Persons” in the 2026 Proxy Statement. +Information required by this item regarding director independence is incorporated by reference to the information set forth under the caption “Corporate Governance” in the 2026 Proxy Statement. +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +Information required by this item regarding principal accounting fees and services is incorporated by reference to the information set forth under the caption “Proposal 2 – Ratification of Independent Registered Public Accounting Firm” in the 2026 Proxy Statement. +115 +PART IV +ITEM 15. EXHIBITS, FINA NCIAL STATEMENT SCHEDULES +(a) List of Documents Filed as part of this Form 10-K: +1. Consolidated Financial Statements +See Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. +2. Financial Statement Schedules +All schedules have been omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto. +3. Exhibits +The following is a list of exhibits filed, furnished or incorporated by reference as a part of this Annual Report on Form 10-K. +Exhibit Index +The following exhibits are included herein or incorporated herein by reference: +Exhibit +Number +Description of Document +2.1+ +Acquisition Agreement, dated as of March 17, 2021, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.2 +Amendment No. 1 to Acquisition Agreement, dated as of August 22, 2021, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.2 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.3 +Amendment No. 2 to Acquisition Agreement, dated as of May 17, 2022, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.3 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.4 +Amendment No. 3 to Acquisition Agreement, dated as of November 11, 2022, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.4 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.5 +Amendment No. 4 to Acquisition Agreement, dated as of May 25, 2023, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.5 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.6 +Amendment No. 5 to Acquisition Agreement, dated as of June 21, 2023, by and between Surf Air Mobility Inc., Surf Air Global Limited, Surf Air Inc., SAC Merger Sub Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 2.6 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +2.7 +Agreement and Plan of Merger, dated as of June 21, 2023, by and among Surf Air Global Limited, Surf Air Mobility Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 2.7 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +3.1 +Amended and Restated Certificate of Incorporation of SAM (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed on March 29, 2024) . +116 +3.2 +Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 19, 2024) . +3.3 +Amended and Restated Bylaws of SAM (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K, filed on March 29, 2024) . +4.1 +Description of Securities (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K, filed on March 29, 2024) +10.1 +Form of Grant Agreement for grants of PRSUs to employees and non-employee directors under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2023) . +10.2# +Employment Agreement dated December 21, 2023, by and between Surf Air Mobility Inc. and Oliver Reeves (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on December 27, 2023) . +10.3 +Binding Term Sheet dated as of December 21, 2023, by and between Surf Air Mobility Inc. and GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on December 28, 2023). +10.4 +Security Purchase Agreement, dated March 1, 2024, between Surf Air Mobility, Inc. and GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on March 6, 2024). +10.5 +Form of Grant Agreement for grants of RSUs to employees and non-employee directors under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, filed on November 14, 2023). +10.6 +Share Purchase Agreement, dated as of June 15, 2023, by and among Surf Air Mobility, Inc., GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.4 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on July 25, 2023) . +10.7 +Form of SAFE Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.8 +Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.9+++ +Collaboration & Engineering Services Agreement, dated as of September 15, 2022, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.5 to the Company's Form S-1 Registration Statement, filed on June 5, 2023) . +10.10+++ +Amended Collaboration & Engineering Services Agreement, dated as of May 24, 2023, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.6 to the Company's Form S-1, filed on June 5, 2023) . +10.11+++ +Amended and Restated Sales and Marketing Agreement, dated as of September 27, 2022, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.7 to the Company's Form S-1 Registration Statement, filed on June 5, 2023) . +10.12+++ +First Amended and Restated Sales and Marketing Agreement, dated as of May 24, 2023, by and between Textron Aviation Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.8 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.13+++ +Data License Agreement, dated as of September 15, 2022, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.9 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.14+++ +Amendment to Data License Agreement, dated as of May 24, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.10 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.15++ +Pilot Pathway Agreement, dated as of July 17, 2019, by and between SkyWest Airlines, Inc. and Southern Airways Corporation. (incorporated by reference to Exhibit 10.11 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +117 +10.16 +Amendment No. 1 to Pilot Pathway Agreement, dated as of October 1, 2020, by and between SkyWest Airlines, Inc. and Southern Airways Corporation. (incorporated by reference to Exhibit 10.12 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.17 +Amendment No. 2 to Pilot Pathway Agreement, dated as of March 1, 2022, by and between SkyWest Airlines, Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 10.13 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.18++ +Amendment No. 3 to Pilot Pathway Agreement, dated as of March 6, 2023, by and between SkyWest Airlines, Inc. and Southern Airways Corporation (incorporated by reference to Exhibit 10.14 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.19+++ +Master Agreement, dated as of October 10, 2022, by and between Jetstream Aviation Capital, LLC and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.15 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.20++ +Business Combination Agreement, dated as of May 17, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited. (incorporated by reference to Exhibit 10.16 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.21 +Amendment No. 1 to Business Combination Agreement, dated as of September 1, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 10.17 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023). +10.22 +Mutual Termination and Release Agreement, dated as of November 14, 2022, by and among Tuscan Holdings Corp. II, Surf Air Global Limited, Surf Air Mobility Inc., THCA Merger Sub Inc. and SAGL Merger Sub Limited (incorporated by reference to Exhibit 10.18 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023). +10.23# +Employment Agreement, dated as of May 16, 2022, by and among Surf Air Mobility Inc., Surf Air Global Limited and R. Stanley Little (incorporated by reference to Exhibit 10.19 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.24# +Amendment to Employee Agreement, dated as of October 23, 2022, by and between Surf Air Mobility Inc. and R. Stanley Little (incorporated by reference to Exhibit 10.20 to the Company’s Form S-1, filed on June 5, 2023) . +10.25# +Employment Agreement, dated as of December 19, 2022, by and among Surf Air Mobility Inc., Surf Air Global Limited and Deanna White (incorporated by reference to Exhibit 10.21 to the Company’s Form S-1, filed on June 5, 2023) . +10.26# +Employment Agreement, dated as of August 20, 2021, by and among Surf Air Mobility Inc., Surf Air Global Limited and Sudhin Shahani (incorporated by reference to Exhibit 10.22 to the Company’s to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.27# +Amendment to Employment Agreement, dated as of January 20, 2023, by and between Surf Air Mobility Inc. and Sudhin Shahani (incorporated by reference to Exhibit 10.23 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.28# +2016 Equity Incentive Plan as amended (incorporated by reference to Exhibit 10.24 to the Company’s Form S-1 Registration Statement, filed on June 5, 2023) . +10.29# +Surf Air Mobility Inc. Amended and Restated 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 25, 2024) . +10.30# +Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.28 to the Company’s Amendment No. 1 Form S-1 and Form S-4 Registration Statement, filed on June 22, 2023) . +10.31 +Convertible Note Purchase Agreement, dated as of June 15, 2023, between Surf Air Mobility Inc. and Partners for Growth V, L.P., conformed for Consent and Amendment, dated November 14, 2024 among the Company, the subsidiaries of the Company party thereto and Partners for Growth V, L.P. (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on November 14, 2024) . +118 +10.32 +Second Amendment to Data License Agreement, dated as of June 30, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.30 to the Company’s Amendment No. 3 Form S-1 and Form S-4 Registration Statement, filed on July 12, 2023) . +10.33 +Third Amendment to Data License Agreement, dated as of September 18, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc. (incorporated by reference to Exhibit 10.31 to the Company’s Form S-1 Registration Statement, filed on September 19, 2023) . +10.34# +Southern Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to the Company’s Form S-1 Registration Statement, filed on July 21, 2023) . +10.35 +Amendment No. 2 to the Second Amended and Restated Share Purchase Agreement, dated as of July 21, 2023, among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.32 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on July 21, 2023) . +10.36 +Amendment No. 1 to the Share Purchase Agreement, dated as of July 21, 2023, by and among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.33 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on July 21, 2023) . +10.37 +Amendment No. 3 to the Second Amended and Restated Share Purchase Agreement, dated as of July 24, 2023, among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.34 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on July 25, 2023) . +10.38 +Amendment No. 2 to the Share Purchase Agreement, dated as of July 24, 2023, by and among Surf Air Global Limited, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.35 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on July 25, 2023) . +10.39 +Amendment No. 4 to the Amended and Restated Share Purchase Agreement, dated as of September 19, 2023, by and among Surf Air Mobility Inc., Surf Air Global Ltd., GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.35 to the Company’s Amendment No. 5 Form S-1 and Form S-4 Registration Statement, filed on September 19, 2023). +10.40 +Fourth Amendment to Data License Agreement, dated as of December 8, 2023, among Textron Aviation Inc., Textron Innovations Inc. and Surf Air Mobility Inc (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K, filed on March 29, 2024) . +10.41# +Amendment to Employee Agreement, dated as of May 20, 2024, but effective as of May 15, 2024, by and between Surf Air Mobility Inc. and R. Stanley Little (incorporated by reference to Exhibit 10.42 to the Company’s Registration Statement on Form S-1/A, filed on July 11, 2024) . +10.42# +Amended and Restated Employment Agreement dated May 17, 2024, but effective as of May 15, 2024, by and between Surf Air Mobility Inc. and Deanna White (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 20, 2024) . +10.43# +Amendment to Employment Agreement dated May 20, 2024, by and between Surf Air Mobility Inc. and Oliver Reeves (incorporated by reference to Exhibit 10.47 to the Company’s Registration Statement on Form S-1/A, filed on July 11, 2024) . +10.44# +Amendment to Amended and Restated Employment Agreement dated February 4, 2025, but effective as of January 1, 2025, by and between Surf Air Mobility Inc. and Deanna White +10.45# +Second Amendment to Employment Agreement dated February 4, 2025, but effective as of January 1, 2025, by and between Surf Air Mobility Inc. and Oliver Reeves +10.46 +Mandatory Convertible Security, dated August 7, 2024, between Surf Air Mobility, Inc. and GEM Global Yield LLC SCS (incorporated by reference as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 9 2024) . +10.47 +Joint Venture Agreement, dated August 9, 2024, between Surf Air Mobility Inc. and Palantir Technologies, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 13, 2024) . +119 +10.48 +Credit Agreement, dated November 14, 2024, 2024, among the Company as borrower, the lenders party thereto, and CCP Agency, LLC as agent (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q, filed on November 14, 2024) . +10.49 +Reimbursement Agreement, dated November 14, 2024, among the Company, the subsidiaries of the Company party thereto and Park Lane Investments LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q, filed on November 14, 2024) . +10.50 +Secured Promissory Note, dated November 14, 2024, among the Company, the subsidiaries of the Company party thereto and LamVen LLC (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q, filed on November 14, 2024) . +10.51 +Fifth Amendment to Data License Agreement dated September 26, 2024 (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q, filed on November 14, 2024) . +10.53# +Advisory Services Agreement, dated as of December 16, 2024, by and between Surf Air Mobility Inc. and Proxima Centauri, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on December 19, 2024) . +10.54 +Form of Grant Agreement for grants of RSUs to employees for Incentive Bonus Plan settlements under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.54 to the Company’s Form 10-K, filed on March 20, 2025) . +10.55 +Form of Grant Agreement for grants of RSUs to non-employee consultants for Incentive Bonus Plan settlements under the 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.55 to the Company’s Form 10-K, filed on March 20, 2025) . +10.56 +Form of Warrant Agreement (incorporated by reference to Exhibit 10.56 to the Company’s Form 10-K, filed on March 20, 2025) . +10.57 +Form of Securities Purchase Agreement (incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 1 2025). +10.58 +Form of Pre-Funded Warrant (incorporated by reference as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 1, 2025). +10.59 +Form of Placement Agent Warrant (incorporated by reference as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 1, 2025). +10.60 +Form of Securities Purchase Agreement dated June 25, 2025 (incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 26, 2025). +10.61 +Form of Pre-Funded Warrant dated June 25, 2025 (incorporated by reference as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 26, 2025). +10.62 +Form of Placement Agent Warrant dated June 25, 2025 (incorporated by reference as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 26, 2025). +10.63 +Surf Air Mobility Inc. Amended and Restated 2023 Equity Incentive Plan (incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 27, 2025). +10.64 +Form of Securities Purchase Agreement ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 12, 2025 . +10.65 +Form of Warrant (Registered) ( incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on November 12, 2025 ) . +10.66 +Form of Warrant (Private Placement) ( incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on November 12, 2025 ) . +10.67 +Senior Secured Convertible Note due 2028 ( incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on November 12, 2025 ). +120 +10.68 +First Amendment to Reimbursement Agreement ( incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on November 12, 2025 ). +14.1 +Code of Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company's Form 10-Q, filed November 14, 2023). +19.1* +Insider Trading Policy +21.1* +List of Subsidiaries +23.1* +Consent of PricewaterhouseCoopers LLP +31.1* +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Principal Financial and Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Clawback Policy (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K, filed on March 29, 2024). +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document). +* Filed herewith. +**Furnished herewith +++ Schedules to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5) promulgated under the Exchange Act. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. ++++ Specific provisions or terms to this Exhibit omitted pursuant to Regulation S-K Item 601(b)(10)(iv) promulgated under the Exchange Act. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. +# Indicates management contract or compensatory plan or arrangement. +ITEM 16. FORM 10-K SUMMARY +None. +121 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . +Surf Air Mobility Inc. +Date: March 12, 2026 +By: +/s/ Deanna White +Deanna White +Chief Executive Officer and Chief Operating Officer +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ Deanna White +Chief Executive Officer and Chief Operating Officer +March 12, 2026 +Deanna White +(Principal Executive Officer) +/s/ Oliver Reeves +Chief Financial Officer +March 12, 2026 +Oliver Reeves +(Principal Financial Officer and Principal Accounting Officer) +/s/ Sudhin Shahani +Co-Founder and Director +March 12, 2026 +Sudhin Shahani +/s/ Carl Albert +Director +March 12, 2026 +Carl Albert +(Chairman) +/s/ John D'Agostino +Director +March 12, 2026 +John D'Agostino +/s/ Bruce Hack +Director +March 12, 2026 +Bruce Hack +/s/ Edward Mady +Director +March 12, 2026 +Edward Mady +/s/ David Anderman +Director +March 12, 2026 +David Anderman +/s/ Tyler Painter +Director +March 12, 2026 +Tyler Painter +/s/ Shawn Pelsinger +Director +March 12, 2026 +Shawn Pelsinger +122 \ No newline at end of file diff --git a/raw/filings/0001936224/2025/0001193125-26-104468/filing_metadata.csv b/raw/filings/0001936224/2025/0001193125-26-104468/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..9989ac5928a529d0563e750623fb49971f32ee8b --- /dev/null +++ b/raw/filings/0001936224/2025/0001193125-26-104468/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001936224,SRFM,SURF AIR MOBILITY INC.,2025,10-K,2026-03-12,2025-12-31,2026-03-12T21:29:47.000Z,0001193125-26-104468,srfm-20251231.htm,10-K,22382512,1,1,https://www.sec.gov/Archives/edgar/data/1936224/000119312526104468/srfm-20251231.htm,https://www.sec.gov/Archives/edgar/data/1936224/000119312526104468/ diff --git a/raw/filings/0001936224/2025/0001193125-26-104468/item1.txt b/raw/filings/0001936224/2025/0001193125-26-104468/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..8849bfe5e2bbb835e782c76eee6c42d34c1ff387 --- /dev/null +++ b/raw/filings/0001936224/2025/0001193125-26-104468/item1.txt @@ -0,0 +1,97 @@ +ITEM 1: BUSINESS +Overview +Surf Air Mobility Inc. (the “Company”), a Delaware corporation, is a regional air mobility platform that aims to transform regional flying. The Company currently operates one of the largest commuter airlines in the United States by scheduled departures as well as an expanding on-demand charter marketplace for passengers in the U.S. and globally. The Company’s operations provide scale, distribution and real-world operating data to validate and, eventually, deploy the software and technology offerings it is currently developing to support the modernization of air operations and the adoption of next-generation aircraft. +The Air Mobility business is an established regional air mobility platform providing scheduled service and an on-demand charter marketplace to passengers in the U.S. and globally. Current initiatives surrounding the Air Technology business seek to develop proprietary aviation software, aircraft electrification powertrain technology and services to enable electrification across the regional air mobility sector. +The Company was incorporated in 2021 and became the ultimate parent of both Surf Air Global Limited (“Surf Air”) and Southern Airways Corporation (“Southern”) in July of 2023 following the Company’s public listing on the NYSE. For 2025, the Company served over 300,000 passengers with approximately 62,000 scheduled departures. We expect the combination of our legacy networks will continue to provide the basis for our expanded, nationwide regional Air Mobility business. +Our predecessor company, Surf Air, was formed in 2016 and prior to its reorganization into Surf Air Mobility, aimed to expand the category of regional air travel, connecting underutilized regional airports and private terminals to create a “shared private” customer experience and a high frequency “commercial-like” air service, using small turboprop aircraft. Surf Air provided both scheduled routes and on-demand charter flights operated by third parties that operate under Part 135 of Title 14 of the U.S. Code of Federal Regulations (“Part 135”). Surf Air drove the early stages of development of our current efforts to develop electrified powertrain technology, including the establishment of relationships with key commercial partners who, as a group, we believe can deliver novel hardware and software solutions that can make electrified flight possible for operators across the Part 135 industry, starting with our owned and operated fleet. +Our acquisition of Southern Airways in July 2023 has resulted in a combined regional airline network servicing U.S. cities across the Mid-Atlantic, Gulf South, Midwest, Rocky Mountains, West Coast, New England and Hawaii. Founded in 2013, Southern is one of the largest commuter airlines in the United States and the largest passenger operator of Cessna Grand Caravan EXs (“Cessna Caravans”) in the United States by scheduled departures. Southern has multi-year contracts with the U.S. federal government to operate Essential Air Service (“EAS”) routes, which helps small communities in the United States maintain a minimum level of scheduled air services. +At the heart of our strategy is our aim of commercializing electric aviation at scale. We firmly believe that regional air mobility can displace driving from its predominant position in 100-500 mile travel. There are approximately 5,000 public use airports in the U.S. creating the possibility of a dense point-to-point air network using regional aircraft. We believe that electrified aircraft, which could boast lower operating costs and emissions could be the key to unlock this electrified air-mobility market. +Surf Air Mobility (through its subsidiary airlines Southern Airways and Mokulele Airlines) is one of the largest commuter airlines in the United States by scheduled departures, serving numerous communities across the U.S. mainland and Hawaii. In addition, we have commercial relationships with over 400 air operators that provide on-demand charter services to our customers. In the future, these charter operators will be ideal customers for our AI-enhanced software operating system, SurfOS, and for hybrid and electric aircraft, all of which we expect to launch, commercialize and/or scale through our relationships with Textron Aviation, Electra, REGENT, BETA and others. +Our Strategy +We have several strategic differentiators which form our competitive advantage in the regional air mobility market. +• +Scale: we are one of the largest commuter airlines in the U.S. by scheduled departures. +8 +• +Experience: we have over a decade of experience operating in the highly regulated aviation industry and we have flown millions of passengers millions of miles. +• +Depth: we have deep – and unique – ties across the industry with exclusive relationships with Textron Aviation, manufacturer of the Cessna Caravan aircraft that we operate, and with Palantir Technologies a global leader in AI, enterprise data analytics, and business intelligence with whom we are collaborating to power the SurfOS operating system. +• +Reach: we have expansive reach and relationships with over 400 regional air operators who have operated charter flights via our marketplace and are expected to form the initial customer base of our SurfOS software. In addition, we have interline agreements with United, American, Alaska, Hawaiian and Japan Airlines that extend our reach to more than 430 million annual passengers combined. +• +Technology: we are developing AI-enhanced software, in collaboration with Palantir, to drive our growth and profitability and, in the future, we plan to offer this technology to other charter brokers, air operators, and aircraft owners. +• +Execution: we have brought together leaders and experts in aviation, software and electrification to help us synergistically execute our vision, drive profitable growth over time, and create shareholder value. +Given our leadership position in the regional air mobility sector, we believe we are uniquely qualified to understand the needs of industry participants and to develop software and hardware solutions to enhance efficiency, productivity, and profitability. Today, in collaboration with third parties, including our exclusive relationship with Palantir, we are developing an AI-enhanced software operating system, SurfOS. SurfOS is currently in the implementation phase across our Company, and we are already seeing improved productivity and efficiency through these tools. SurfOS aims to apply leverage to our commercial initiatives by streamlining our sales, sourcing, and distribution. Additionally, the software impacts critical functions of the airline operation such as crew scheduling, maintenance, and resource planning. We believe revenue management features such as dynamic pricing and flight distribution are key to maximizing revenue. Moreover, SurfOS is designed to empower a “connected aircraft,” which is expected to allow for near real-time insight into airplane health, maintenance needs, pilot performance, and flight tracking. We currently anticipate that we will begin rolling out SurfOS to launch customers in 2026, before widening distribution to other third-party operators, charter brokers, and owners over time. +The regional air mobility industry is expected to grow into a $75 billion to $115 billion global market by 2035. This market is expected to undergo massive transformation due to the emergence of new technologies such as electrification that seek to greatly reduce the cost of air travel, particularly for smaller regional planes that serve point-to-point routes from more convenient regional airports. In addition, electric and hybrid aircraft are expected to substantially reduce the carbon emissions of flying. +We believe Surf Air Mobility is uniquely positioned to lead the transformation of the regional air mobility industry. We intend to deploy electrified aircraft, when available, across our scheduled service routes. The Company is also pursuing Supplemental Type Certificates (“STCs”) for proprietary powertrain technology for the Cessna Grand Caravan aircraft. The Company has an exclusive sales and marketing relationship with the aircraft manufacturer, Textron Aviation, for distribution of electrified and hybrid powered aircraft, and we have MOU agreements with 7 operators globally with approximately 100 aircraft under management to potentially upgrade to our proprietary powertrains, once certified. +In addition, Surf Air Mobility’s platform will also help other electrification technologies go to market with access to the Company’s network and distribution potential. The Company is exploring relationships with other industry participants to bring innovative solutions to the regional air mobility market and accelerate the adoption of electrified aircraft potentially through the formation of joint ventures which may be separately capitalized. +Sources of Air Mobility Revenue +We generate revenue from two categories of air mobility services: +Scheduled Air Service - We generate revenue from operating scheduled commercial air service flights which are sold to the public primarily on a per seat basis, as well as through membership subscriptions. +9 +Of our combined fleet of 41 aircraft, 39 are Cessna Caravans as of December 31, 2025. For the year ended December 31, 2025, our total fleet averaged approximately 170 daily departures. We believe we are one of the largest commuter air carriers by both size of fleet and number of scheduled departures in the United States and we believe that in the future our scale could result in an increase in the number of average daily departures, fares and load factor compared to today. Through our EP1 fully-electric powertrain certification and collaborations with third parties on other technologies we believe we can be the first to operate an electrified fleet of aircraft in commuter operations. +We generate revenue from EAS revenue awards from the Department of Transportation (“ DOT ”). +The EAS program was put into place in the United States following the Airline Deregulation Act of 1978 to ensure that small communities continued to receive a minimal level of air service. EAS revenue awards are guaranteed revenue contracts issued by the DOT with revenue earned for completed flights. The EAS program subsidizes scheduled flights to connect underserved communities with larger airline hubs. These contracts help add predictable stability to Southern’s operations from both a route and revenue planning perspective. As of October, 1 2025, the EAS market size for annual contract subsidy rates was approximately $627 million. +We are a leader in securing and renewing EAS contracts, which we believe will be a critical differentiator as we work to expand our point-to-point short haul regional air mobility network. We work with key stakeholders in the communities in which we intend to serve as well as the DOT, and we have been able to tailor air travel solutions that are responsive to the key needs of these smaller, underserved communities. We have consistently been able to differentiate ourselves to win contracts by leveraging our large scale and depth of operational expertise to offer a low cost, highly reliable service proposal. +On-Demand - We generate revenue from on-demand flights created for customers on an ad-hoc, by request basis. A small number of the on-demand flights are operated on our fleet; the majority are delivered on third-party turboprops or small jets. For the year ended December 31, 2025, we generated revenue of $29.6 million from on-demand operations. +Today, we offer on-demand flight booking capabilities on our consumer platform enabled by our Surf Air mobile app, which is a capital light source of revenue. +We believe there is significant value to be created by leveraging our ability to serve both customers and operators within the regional flying ecosystem. We believe this will accelerate the demand for electric regional flying. By enabling new demand through our digital marketplace operations and catalyzing new supply through new technology and financing solutions, we believe we can create an ongoing cycle of growth. +We plan to invest in creating a scheduled network connecting many of the underutilized regional airports in the United States. We have developed a regional air mobility network growth plan based on mobile device and various demographic data layers, which resulted in a network growth plan across approximately 30 U.S. regional networks with approximately 200 “tier 1” routes. We intend to pursue this plan using our own air operations and by leveraging third-party air operators. +We have extensive experience using third-party operators in our scheduled and on-demand operations. As a result, we believe we will have in-depth knowledge of the success factors and key challenges facing independent operators and can facilitate operator relationships by deploying our Aircraft-as-a-Service strategy. Aircraft-as-a-Service is the product we intend to offer operators. Aircraft-as-a-Service encapsulates bundling certain aircraft ownership related costs, potentially including leasing, insurance, powertrain maintenance and operating software purchase or rental for both conventional internal combustion and/or electrified aircraft to operators with the goal of creating a recurring revenue stream. +10 +Customer Experience +We believe that the customer experience that we have developed is a meaningful differentiating advantage. We have strived to create an exceptional flying experience solving the greatest pain points of regional commercial flying. Through our large scale, we have a substantial customer service operation to support our travelers. We intend to give our customers a stress-free and time-saving airport and travel experience. +Seamless Booking. Our customer journey begins digitally through both our booking app and website, creating a personalized air travel experience. Using the mobile app and website, customers have access to a real-time digital marketplace, which we believe enhances and simplifies the user experience. Customers can conveniently purchase tickets on existing scheduled flights or create private charters. Customers have access to an array of available aircraft to meet various travel needs. +Local Airports & Private Terminals. We operate scheduled and on-demand flights in and out of small airports and private terminals. This provides our customers with the convenience of an accessible airport closer to their origin and/or destination and the convenience of a private terminal experience. We believe that local airports can transform into centers for pilot training, community job growth, and growth for local businesses. +Reduced Travel Times. Operating in and out of regional airports and private terminals reduces travel time for our customers. On a typical commercial flight, major airlines recommend customers arrive two hours before their departure time. In contrast, our customers typically only need to arrive 30 minutes before their flight, which results in our passengers saving approximately 1.4 to 1.6 hours per departure. +Hassle Free Experience. Our customer services and station teams offer all customers a direct touchpoint to help manage any travel related needs leading up to and on the day of the flight. Southern currently has interline agreements with major commercial airlines, including United Airlines, Inc., American Airlines, Inc., Alaska Airlines, Inc., Hawaiian Airlines, Inc, and Japan Airlines, which help coordinate baggage claim for customers who fly different airlines on various legs of their trip, assisting in a hassle free experience. +Pilot Shortage Solution. Recent and longer-term trends in the airline industry have led to a large disruption in the supply of available aircraft pilots. A reliable, predictable and adequate availability of pilots is an integral part of any airline’s ability to maintain consistent scheduling of their operations. We believe that our business model, flying under Part 135 regulation and using primarily single-engine aircraft, will enable us to be a solution to the pilot shortage by providing pilots to certify as first officers and captains earlier, and creating a talent pool that does not compete with other airlines that operate multi-engine aircraft. Furthermore, with our pilot partnership with SkyWest, we are able to ensure that hiring and retention costs are offset in part by promoting pilot career flow into the regional airline industry. +As we plan to transition to fully-electric flight, we believe we are well-positioned to manage programs designed for training pilots for any new requirements related to the operation of electrified aircraft. Through our combined leverage as suppliers of new electrified aircraft and facilitators of a pilot training pipeline, we believe we can create a program that helps to ensure an adequate supply of pilots for the introduction of electrified flight. +11 +We believe that our current and future experience and knowledge, generated by operating our own large scheduled fleet and charter operation, combined with our partnerships and interactions with operators, brokers, lessors and OEMs puts us in a strong position to identify, create and commercialize the best electrification products and services for our evolving industry. +Government Regulation +The Company is subject to government regulation at local, state, national and international levels. The scope of these regulations is exceedingly broad, covering a wide range of subjects that includes, but is not limited to, those summarized below. Given the dynamic and rapidly evolving nature of the regulatory environment, the conduct of our business will always include a measure of risk and we may not be able to predict or control how new regulations might be written, or predict how existing regulations may be interpreted, or enforced. +Various aspects of our business, including scheduled and on-demand air service and electrification, are all impacted by interrelated but distinct regulatory frameworks. +Principal Domestic Regulatory Authorities +DOT +The U.S. Department of Transportation (the “DOT”) is the principal regulator of economic and consumer protection matters in the U.S. commercial aviation industry. The DOT licenses and oversees the operations of all carriers. This includes economic authority to conduct business as a type of air carrier, as well as consumer protection and insurance requirements that are applied to the conduct of such business. The DOT also oversees the marketing, sale and performance of public charter flights (charter flights which are sold by the seat) that may be arranged by an indirect air carrier (i.e., an entity that does not operate aircraft but contracts as a principal with a direct air carrier to do so on its behalf), for the purpose of offering its chartered flights to the public that will be performed by an identified direct air carrier at a predetermined date and time (in contrast to the on-demand, or as-needed/where-needed, character of certain of our services). The DOT oversees and regulates how airlines advertise and hold out services. The DOT also oversees the sale, holding out and arrangement of single-entity charter air transportation (charter of the entire capacity of an aircraft, in contrast to public charter flights which are sold by the seat). The DOT has authority to enforce laws and regulations against engaging in “unfair” or “deceptive” practices in the sale or provision of air transportation. The DOT promulgates and enforces various other consumer protection laws and regulations to which we are subject, including requirements related to non-discriminatory access to air transportation for disabled passengers, data reporting, recordkeeping, advertising and ticket sales, among others. The DOT is also responsible for monitoring and assuring that U.S. air carriers remain fit, willing and able at all times to provide the services for which they are licensed, and that such carriers qualify continuously as citizens of the United States within the meaning of U.S. aeronautical laws and regulations. +The Company is subject to U.S. laws regarding privacy of passenger and employee data, including as enforced by the DOT, that are not consistent in all jurisdictions where we operate and which are continually evolving, requiring ongoing monitoring and updates to our privacy and information security programs. Although we dedicate resources to manage compliance with privacy and information security obligations, the challenging and uncertain regulatory environment may pose material risks to our business, including increased operational burdens and costs, regulatory enforcement and legal claims or proceedings. +FAA +The Federal Aviation Administration (“FAA”) is an operating administration of the DOT and the principal regulator of safety matters in the U.S. aviation industry. The FAA’s regulations touch on many aspects of civil aviation, such as the design and manufacture of aircraft, engines, propellers, avionics and other components, including applicability of engine noise and other environmental standards; the inspection, maintenance, repair and registration of aircraft; the training, licensing or authorizing and performance of duties by pilots, flight attendants and maintenance technicians; the testing of safety-sensitive personnel for prohibited drug use or alcohol consumption; the design, construction and maintenance of runways and other airport facilities; the operation of air traffic control systems, including the management of complex air traffic at busy airport facilities; the safety certification and oversight of air carriers including their operations and maintenance; the establishment and use of safety management systems by air carriers; the promotion of voluntary systems to encourage the disclosure of data that may aid in enhancing safety; and +12 +the oversight and operational control of air carriers by their accountable managers, directors of operations, directors of maintenance and other key personnel. +TSA +The Transportation Security Administration (the “TSA”) is an administration within the U.S. Department of Homeland Security which issues security programs to air carriers and ensures that air carriers operate in a manner consistent with any security program and other requirements issued to the carrier. +Facilities +Our headquarters is located in a leased 5,500 square foot facility in Hawthorne, California. The lease of this facility expires in August 2026. +In February 2025, the Company relocated our air operations center to Addison, Texas. The lease of this facility expires in January 2028. +Human Capital/Team +As of December 31, 2025, we had 573 employees, of which 467 were full-time and 106 were part-time. +We have not experienced any work stoppages and consider our relationship with our employees to be good. Our employees are divided across various core business functions, including operations, sales and marketing, research and development, customer service and finance and administration. +None of our employees are subject to a collective bargaining agreement or represented by a labor union. +Commitment to Environmental, Social and Governance (“ESG”) Leadership +We are seeking to build a regional air mobility ecosystem that will sustainably connect communities. We intend to accelerate the adoption of electric flying, bringing electrified aircraft to market at scale in order to substantially reduce the cost and environmental impact of regional flying. In so doing, we believe we can make a meaningful contribution to tackling the dual challenges of congestion and climate change. We are working to build a dedicated workforce to achieve this goal while striving to adhere to best practices in risk assessment, mitigation and corporate governance. +Our ESG efforts consist of focusing on the following: +• +Environmental. Being a good steward of the natural environment through the production and development of innovative designs that reduce resource use and energy consumption. +• +Social. Underpinning all of our activities with a core focus on health and safety. +• +Governance. Upholding our commitment to ethical business conduct, integrity and corporate responsibility, and integrating strong governance and enterprise risk management oversight across all aspects of our business. +Intellectual Property +Our ability to protect our material intellectual property is important to our business. We seek to protect our intellectual property (including our technology and confidential information) through a combination of trademarks and trade secret protections, as well as contractual commitments and security procedures. We generally require employees and consultants to enter into confidentiality and assignment of inventions agreements and certain third parties to enter into nondisclosure agreements. +We regularly review our technology development efforts and branding strategy to identify and assess the protection of new intellectual property. We own certain trademarks important to our business, such as the “Surf Air” and “Mokulele Airlines” trademarks in the United States. +13 +We currently own the “surfair.com” Internet domain-name registration and the “iflysouthern.com” and “mokuleleairlines.com” domain-name registrations. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name “Surf Air” or “Southern” or are otherwise relevant to or descriptive of our business. +We have chosen to rely primarily on copyright and trade secret law in order to protect our software and have chosen not to register any copyrights in these works. However, in the United States, copyrights must be registered in order to bring a claim for infringement and to obtain certain types of remedies. Even if we decide to register a copyright in our software to bring an infringement action, the remedies and damages available to us for unauthorized use of our software may be limited. +Intellectual property laws, contractual commitments and security procedures provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, trade secrets, know-how and other materials may be independently developed by our competitors or revealed to the public or our competitors and no longer provide protection. In addition, intellectual property laws vary from country to country. We may therefore be unable to protect certain of our technology, brands or other intellectual property in the U.S. or other jurisdictions. +We regularly review our development efforts to assess the existence and patentability of new inventions, and we are prepared to file patent applications when we determine it would benefit our business to do so. +Privacy and Data Protection +There are many requirements regarding the collection, use, transfer, security, storage, destruction and other processing of personally identifiable information and other data relating to individuals. Because our technology platform is an integral aspect of our business, compliance with laws governing the use, collection and processing of personal data is necessary for us to achieve our objective of continuously enhancing the user experience of our mobile application and marketing site. +We receive collect, store, process, transmit, share and use personal information and other customer data, including passenger data, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to receive, collect, store, process, transmit, share and use such personal information, including payment information. A variety of federal, state, local, municipal and foreign laws and regulations, as well as industry standards (such as the payment card industry standards) govern the collection, storage, processing, sharing, use, retention and security of this information. +Corporate Information +We were originally founded in 2011 and incorporated in 2021 in Delaware. Our principal executive offices are located at 12111 S. Crenshaw Blvd., Hawthorne, CA 90250, and our telephone number is (424) 332-5480. Our website address is www.surfair.com. Our common stock is listed on the New York Stock Exchange under the symbol “SRFM”. +Available Information +Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the SEC, are publicly available free of charge on the Investor Relations section of our website at investor.surfair.com or at www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also use our website as a tool to disclose important information about the Company and comply with our disclosure obligations under Regulation Fair Disclosure. Our corporate governance guidelines, code of business conduct and ethics and Board committee charters are also posted on the Investor Relations section of our website. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report we file with, or furnish to, the SEC. +14 \ No newline at end of file diff --git a/raw/filings/0001936224/2025/0001193125-26-104468/item13.txt b/raw/filings/0001936224/2025/0001193125-26-104468/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c9fe262eff96a3993bc003779c01a7e698e453e7 --- /dev/null +++ b/raw/filings/0001936224/2025/0001193125-26-104468/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +115 \ No newline at end of file diff --git a/raw/filings/0001936258/2024/0000950170-25-027339/filing.txt b/raw/filings/0001936258/2024/0000950170-25-027339/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..9083476a327cdf053c9d0abc5eee3ce39fe2368b --- /dev/null +++ b/raw/filings/0001936258/2024/0000950170-25-027339/filing.txt @@ -0,0 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0001936258 nams:UnderwrittenPublicOfferingMember 2024-12-13 0001936258 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember nams:PrivatePlacementWarrantsMember us-gaap:DerivativeMember 2023-12-31 iso4217:EUR nams:Vote xbrli:pure nams:Number xbrli:shares iso4217:USD xbrli:shares iso4217:EUR xbrli:shares nams:Segment iso4217:USD nams:Security +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, DC 20549 +FORM 10-K +☒ +ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _______ to _______ +Commission File Number 001-41562 +NewAmsterdam Pharma Company N.V. +(Exact Name of Registrant as Specified in Its Charter) +The Netherlands +N/A +(State or Other Jurisdiction of +Incorporation or Organization) +(IRS Employer +Identification No.) +Gooimeer 2-35 +1411 DC Naarden +The Netherlands +(Address of Principal Executive Offices) ++31 (0) 35 206 2971 +(Registrant’s Telephone Number, Including Area Code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which +registered +Ordinary shares, nominal value €0.12 per share +NAMS +The Nasdaq Stock Market LLC +Warrants to purchase ordinary shares +NAMSW +The Nasdaq Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerate filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): +Large Accelerated Filer +☑ +Accelerated Filer +☐ +Non- Accelerated Filer +☐ +Smaller Reporting Company +☐ +Emerging Growth Company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ +The aggregate market value of the registrant’s ordinary shares held by non-affiliates was $ 1,051,390,348 as of June 30, 2024 (the last business day of the registrant’s most recently completed second fiscal quarter), based on a total of 54,731,408 ordinary shares held by non-affiliates and a closing price of $19.21 as reported on the Nasdaq Global Market on June 30, 2024. +As of February 18, 2025, there were 109,817,812 of the registrant’s ordinary shares, nominal value €0.12 per share, outstanding. +1 +NewAmsterdam Pharma Company N.V. +ANNUAL REPORT ON FORM 10-K +FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024 +TAB LE OF CO NTENTS +Page +PART I +Item 1. +Business +7 +Item 1A. +Risk Factors +42 +Item 1B. +Unresolved Staff Comments +87 +Item 1C. +Cybersecurity +87 +Item 2. +Properties +88 +Item 3. +Legal Proceedings +88 +Item 4. +Mine Safety Disclosures +88 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +89 +Item 6. +[Reserved] +89 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +90 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +98 +Item 8. +Financial Statements and Supplementary Data +99 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +99 +Item 9A. +Controls and Procedures +99 +Item 9B. +Other Information +101 +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +101 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +102 +Item 11. +Executive Compensation +106 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +123 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +126 +Item 14. +Principal Accountant Fees and Services +128 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +129 +Item 16. +Form 10-K Summary +130 +Signatures +131 +Financial Statements +F- 1 +2 +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements. Forward-looking statements provide the Company’s current expectations or forecasts of future events. Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements in this Annual Report include, but are not limited to, statements regarding the Company’s disclosure concerning its operations, cash flows, financial position and dividend policy. +Forward-looking statements in this Annual Report and in any document incorporated by reference in this Annual Report may include, for example, statements about: +• +the potential liquidity and trading of the Company’s public securities; +• +the Company’s ability to raise additional capital in sufficient amounts or on terms acceptable to it; +• +the efficacy and safety of the Company’s product candidate, obicetrapib, as well as potential reimbursement and anticipated market size and market opportunity; +• +the Company’s dependence on the success of obicetrapib, including the obtaining of regulatory approval to market obicetrapib; +• +the timing, progress and results of clinical trials for obicetrapib, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work and the period during which results of trials will become available and marketing submissions made; +• +the Company’s ability to attract and retain senior management and key scientific personnel; +• +the Company’s limited experience in marketing or distributing products; +• +managing the risks related to the Company’s international operations; +• +the Company’s ability to achieve the broad degree of physician adoption and use and market acceptance necessary for commercial success; +• +the Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing; +• +developments regarding the Company’s competitors and the Company’s industry; +• +the impact of government laws and regulations; +• +the Company’s reliance on third parties for all aspects of the manufacturing of obicetrapib for clinical trials; and +• +the Company’s efforts to obtain, protect or enforce its patents and other intellectual property rights related to the Company’s product candidate. +Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section titled “ Risk Factors ” in this Annual Report. Accordingly, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. The Company undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Annual Report or to reflect the occurrence of unanticipated events, except as specifically required by law. You should, however, review the factors and risks that the Company describes in the reports it files from time to time with the U.S. Securities and Exchange Commission (the “SEC”). +In addition, statements that “we believe” and similar statements reflect the Company’s beliefs and opinions on the relevant subject. These statements are based on information available to the Company as of the date of this Annual Report. And while the Company believes that information provides a reasonable basis for these statements, that information may be limited or incomplete. The Company’s statements should not be read to indicate that it has conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely on these statements. +Although the Company believes the expectations reflected in the forward-looking statements were reasonable at the time made, it cannot guarantee future results, level of activity, performance or achievements. You should carefully consider the cautionary statements contained or referred to in this section in connection with the forward-looking statements contained in this Annual Report and any subsequent written or oral forward-looking statements that may be issued by the Company or persons acting on its behalf. +3 +Unless otherwise stated or the context otherwise indicates, (i) references to “we,” “our,” “us” or the “Company” refer to NewAmsterdam Pharma Company N.V., together with its subsidiaries and (ii) references to “NewAmsterdam Pharma” refer solely to NewAmsterdam Pharma Holding B.V., a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) incorporated under the laws of the Netherlands and its subsidiaries. +4 +SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS +Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “ Risk Factors ” in Part I, Item 1A of this Annual Report. Some of the more significant risks include the following: +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +• +We are a clinical-stage company with limited operating history, no approved products and no historical product revenues, which makes it difficult to assess our future prospects and financial results. We have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any product revenue or become profitable or, if we achieve profitability, may not be able to sustain it. +• +We may require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed and on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations. +Risks Related to Our Product Development, Regulatory Approval and Commercialization +• +We are dependent on the success of our only product candidate, obicetrapib, and cannot guarantee that obicetrapib will successfully complete clinical development, receive regulatory approval or, if approved, be successfully commercialized. +• +Clinical drug development involves a lengthy and expensive process with uncertain outcomes. Results of earlier studies and trials may not be predictive of future trial results and our clinical trials may fail to adequately demonstrate the safety and efficacy of obicetrapib. +• +The regulatory approval processes of the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”) and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for obicetrapib, our business will be substantially harmed. +• +Obicetrapib may produce undesirable side effects that we may not have detected in our previous preclinical studies and clinical trials. This could prevent us from gaining approval or market acceptance, including broad physician adoption, for our product candidate if approved, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations. +• +We are developing obicetrapib in combination with other therapies, and safety of supply issues with combination products may delay or prevent development and approval of our combination product candidate. +• +Even if we receive regulatory approval for obicetrapib or our future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses, force us to limit or withdraw regulatory approval and subject us to penalties if we fail to comply with applicable regulatory requirements. +• +Obicetrapib, if approved, will face significant competition from competing therapies and our failure to compete effectively may prevent us from achieving significant market penetration. +• +We currently intend to rely on our collaboration with A. Menarini International Licensing S.A., part of Menarini Group ("Menarini") for the commercialization of obicetrapib, if approved, in certain European areas. Failure or delay of Menarini to fulfill all or part of its obligations to us under the exclusive license agreement , dated June 23, 2022, with Menarini (the "Menarini License"), a breakdown in collaboration between the parties or a complete or partial loss of this relationship could materially harm our business if obicetrapib is approved in the relevant jurisdictions. +Risks Related to Our Business and Strategy +• +We have expanded and expect to continue expanding our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +• +Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations; we may also be exposed to significant foreign exchange risk. +Risks Related to Our Intellectual Property +• +We may not be successful in obtaining all of the necessary intellectual property rights to allow us to develop and commercialize our product candidate, obicetrapib. If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to our product candidates and technologies are not adequate, including due to the risk that we are unaware of prior art that may affect the validity of our patents, we may not be able to compete effectively in our market and we otherwise may be harmed. +5 +• +Third-party claims alleging intellectual property infringement may adversely affect our business, and we may be subject to lawsuits claiming that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which could be expensive and time consuming, delay or prevent the development and commercialization of our products and product candidates, or subject future sales to royalty payments, which could damage our business. +Risks Related to Ownership of Our Securities +• +Sales of a substantial number of our securities in the public market by certain of our securityholders pursuant to a registration statement we filed and/or by our existing securityholders could cause the price of our Ordinary Shares and our warrants, each representing the right to purchase one Ordinary Share at an exercise price of $11.50, to fall. +• +We no longer qualify as an “emerging growth company” as of December 31, 2024 and, as a result, we are no longer able to avail ourselves of certain reduced disclosure requirements applicable to emerging growth companies and therefore expect to incur increased expenses due to increased disclosure requirements. +6 +PART I +Item 1. Business +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient low-density lipoprotein cholesterol (“LDL-C”) lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective cholesterol ester transfer protein (“CETP”) inhibitor, alone or as a fixed-dose combination with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of cardiovascular disease (“CVD”) with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. In addition to LDL-C, obicetrapib has shown significant reductions in lipoprotein(a) ("Lp(a)") and small LDL particles, all with safety comparable to placebo. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering with side effects similar in frequency and severity to placebo including muscle-related side effects and drug-related treatment-emergent serious adverse events (“TESAEs”). We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with low or moderately elevated LDL-C levels (“dyslipidemia”) in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with major adverse cardiovascular events (“MACE”) benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial, we observed a 21% reduction in the exploratory MACE endpoint (coronary heart disease death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization) and we are performing a Phase 3 cardiovascular outcomes trial (“CVOT”), PREVAIL, to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, apolipoprotein B (“ApoB”), and small dense lipoprotein particles (“sdLDL-P”). In our clinical trials, we have also observed reductions in Lp(a), which is believed to be an independent MACE risk factor, along with reductions in total lipoprotein (“LDL”) particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. Atherosclerotic cardiovascular disease (“ASCVD”) is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and heterozygous familial hypercholesterolemia (“HeFH”) outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and a fixed-dose combination therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe, in the majority of European countries, if approved. Subject to receipt of marketing approval, our current plan is to pursue development and commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and the European Union (the “EU”), including in Japan and China. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also continually evaluating the potential acquisition or license of new product candidates. +7 +The following table summarizes our current clinical programs: +* Other than as noted, the pipeline represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. The timing of regulatory submissions is subject to additional discussions with regulators. +We conducted two Phase 3 pivotal clinical trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and or HeFH. We announced topline results for BROOKLYN in July 2024 and for BROADWAY in December 2024, both of which met the primary endpoint for the study with safety and tolerability comparable to placebo. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We currently expect to report additional data from each study over the course of 2025. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization in at least 9,000 patients. We completed enrollment in PREVAIL in April 2024 and expect to complete the study by the end of 2026. +We are also investigating obicetrapib as a fixed-dose combination with ezetimibe, an oral cholesterol absorption inhibitor and LDL-C lowering therapy, and plan to seek approval for this fixed-dose combination in parallel with obicetrapib monotherapy. In our Phase 3 TANDEM trial, we evaluated the efficacy and safety of 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents. In November 2024, we reported data from the Phase 3 TANDEM trial, which met its primary and secondary endpoints, with safety and tolerability comparable to placebo. +Our goal is to submit a New Drug Application (“NDA”) for the fixed-dose combination shortly after submitting an NDA for obicetrapib as a monotherapy. We expect that efficacy and safety data from BROADWAY and BROOKLYN will be described in the fixed-dose combination product label, if approved. +We plan to seek approval of obicetrapib in the United States, the EU, Japan, China and the United Kingdom. We conducted multiple Phase 3 trials simultaneously, with clinical plans that incorporate feedback from the FDA, the EMA, the Japan Pharmaceuticals and Medical Devices Agency (“PMDA”) and the China National Medical Products Administration (“NMPA”). +We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease or diabetes. Evidence suggests that cholesterol accumulation in the brain is a precursor to Alzheimer’s disease. For example, rodents lack the CETP gene and are resistant to Alzheimer’s disease. In early preclinical studies, when the human CETP gene is knocked into a mouse, the cholesterol content of the mouse brain was observed to increase by 25%; when combined with the gene for the amyloid precursor protein, hypothesized to be a driver of Alzheimer’s disease, the risk of developing disease analogous to Alzheimer’s disease was observed to greatly increase in the double transgenic mice. In a preclinical study, we observed that CETP inhibition promoted cholesterol removal from the brain and improved cognition. We commenced a Phase 2a open-label and single-arm trial in early 2022 in patients with early Alzheimer’s disease and the apolipoprotein E4 (“ApoE4”) naturally occurring variant to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the cerebrospinal fluid (“CSF”) compared to baseline. In addition, an increase of 8% compared to baseline in the +8 +Aβ42/40 ratio in patients’ plasma was observed and pTau181 levels were observed to be stable. Overall, obicetrapib was observed to be well-tolerated. No serious adverse events (“AEs”) were reported, nor were any AEs considered to be related to the trial drug. +Clinically demonstrated anti-diabetic benefits have been observed with CETP inhibition in Phase 3 CVOTs that, if seen in obicetrapib, would differentiate it from current treatment alternatives, especially statin therapy. We are planning preclinical studies to examine the potential of obicetrapib for patients suffering from diabetes and have included new onset of type 2 diabetes as an endpoint in our PREVAIL CVOT, as measured by AEs indicating Type 2 diabetes, initiation of anti-diabetes medication after confirmed diabetes diagnosis or high levels of hemoglobin A1c and fasting plasma glucose. In the Phase 3 BROADWAY trial, we observed a statistically significant improvement in these prespecified AEs of special interest after one year of treatment that we hope to reconfirm in the PREVAIL CVOT trial. +Our Management Team and Investors +We are led by a world-class team of industry veterans, including some of the world’s preeminent cardiometabolic experts. Dr. Michael Davidson, our Chief Executive Officer and a member of our board of directors (the “Board of Directors”), is a leading expert in the field of lipidology and is a seasoned executive who served as founder and Chief Executive Officer of Corvidia Therapeutics, Inc. and founder and Chief Medical Officer of Omthera Pharmaceuticals, Inc. In addition, Dr. Davidson is board-certified in internal medicine, cardiology and clinical lipidology and has extensive experience designing, managing and evaluating clinical research. Dr. John Kastelein, our founder and Chief Scientific Officer and a member of the Board of Directors, is Emeritus Professor of Medicine at the Department of Vascular Medicine at the Academic Medical Center of the University of Amsterdam. Dr. Kastelein was a co-founder of uniQure N.V. and Xenon Pharmaceuticals Inc. His clinical research on the development of novel therapies for CVD and the genetic basis of dyslipidemia is widely published, and he serves as the Chief Executive Officer of the Vascular Research Network, a site maintenance organization comprising dozens of hospitals in the Netherlands that are involved in clinical trials for cardiometabolic disease. Douglas Kling, our Chief Operating Officer, is an expert in the development of drugs to treat dyslipidemia and CVD, and has managed clinical operations at both Corvidia Therapeutics, Inc. and Omthera Pharmaceuticals, Inc. Ian Somaiya, our Chief Financial Officer, has nearly three decades of experience in senior leadership roles in the biopharmaceutical industry. Mr. Somaiya, our Chief Financial Officer, most recently served as CFO and Chief Business Officer of Elucida Oncology and, before that, as CFO of TCR 2 Therapeutics, where he guided the company through its initial public offering and two subsequent follow-on offerings, as well as led the company’s finance, reporting, business development and investor relations functions. Prior to joining TCR 2 Therapeutics, Mr. Somaiya was a managing director and head of biotechnology research at BMO Capital Markets. He also served as a Managing Director and equity analyst at Nomura Securities, Piper Jaffray and Thomas Weisel Partners. BJ Jones, our Chief Commercial Officer, has three decades of commercial and launch experience in both large pharmaceutical and small biotech companies. Most recently, he served as CCO, Migraine & Common Diseases at Biohaven Pharmaceuticals, and led the commercial enterprise that launched Biohaven’s Nurtec® ODT. Earlier in his career, Mr. Jones held leadership roles of increasing responsibility at Takeda Pharmaceuticals, AstraZeneca, Bristol-Myers Squibb, Boehringer Ingelheim and NitroMed, during which time he supported mass market product launches for notable brands including Excedrin Migraine®, Farxiga®, Pradaxa®, BiDil®, and Abilify®. +In addition, we are backed by leading life sciences investors, including Frazier Life Sciences, Bain Capital, Forbion, RA Capital and Viking Global. Prospective investors should not rely on the past investment decisions of our investors, as our investors may have different risk tolerances and may have received their securities in prior offerings at a significant discount to the market price. +Cardiovascular Disease and Hyperlipidemia +Market Overview and Unmet Medical Need +According to the World Health Organization, CVD is a leading cause of death globally and was responsible for approximately 19 million deaths, or approximately 32% of all global deaths, in 2020. Hyperlipidemia, more commonly known as high cholesterol, has been observed to nearly double the risk of developing CVD compared to those with normal total cholesterol levels. D espite the availability of lipid lowering therapies, CVD events are on the rise. This increase despite aggressive secondary prevention efforts speaks to the concept known as “residual cardiovascular risk,” defined as the risk of CVD events that persists despite treatment for, or achievement of targets for risk factors such as LDL-C. +LDL-C is the primary cause of ASCVD, and the target of many interventions aimed at reducing risk of cardiovascular events. An LDL-centric approach to risk reduction, namely with lipid lowering therapies, including statins, serves as the foundation for reducing residual cardiovascular risk. Data from a number of cardiovascular outcomes trials suggests that LDL-C is one of the most modifiable risk factors of ASCVD. Currently available strategies for LDL-C-lowering include lifestyle interventions and drug therapies including oral statins, ezetimibe, bempedoic acid, and injectable PCSK9 inhibitor therapies. +Lowering LDL-C has been observed to reduce morbidity and mortality in those with, or at risk of, CVD. The Cholesterol Treatment Trialists Collaboration (“CTT”) showed that lowering of LDL cholesterol by about 40 mg/dL with standard statin regimens safely reduced the 5-year incidence of major coronary events, revascularizations, and ischemic strokes by 22% . They also noted that a more pronounced absolute reduction of LDL-C may lead to substantially greater relative reduction in cardiovascular events. Furthermore, as seen in the Heart Protection +9 +Study and the CTT collaboration, benefit was seen in each tertile of baseline LDL-C. Similar relationships have also been documented in non-statin CVOTs for ezetimibe, two PCSK9 inhibitors, evolocumab and alirocumab, and the CETP inhibitor, anacetrapib. These trials have provided evidence that absolute LDL-C reduction and duration of therapy form a consistent model for predicting improved outcomes in patients with established ASCVD. +Despite the availability of current lipid lowering therapies, many patients are unable to achieve their risk-based LDL-C goals. In the United States, we estimate that approximately 30 million patients remain above their risk-based LDL-C goal despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Additionally, we estimate that approximately 10 million patients diagnosed with hypercholesterolemia are receiving no therapy at all. +Patients unable to achieve treatment goals with maximally tolerated statin therapy require additional lipid-lowering therapy. Cholesterol absorption inhibitors, ezetimibe, bempedoic acid or PCSK9 inhibitors are all prescribed as alternatives or adjuncts to statins. However, there are several limitations with these lines of therapy, such as limited efficacy, route of administration, market access hurdles and side effects. Because PCSK9 inhibitors are injectable, they pose a less attractive option for patients who broadly prefer oral medications, and they have not received the expected utilization by clinicians or patients. The two non-statin oral LDL-C-lowering therapies, ezetimibe and bempedoic acid, often do not provide the efficacy required for many patients, including high-risk ASCVD patients, that have more aggressive LDL-C goals, and bempedoic acid has label warnings of hyperuricemia and tendon rupture. Therefore, there remains a significant unmet medical need for therapies to reduce LDL-C levels and residual cardiovascular risk in a convenient dosage form, and with a more favorable tolerability and safety profile to encourage long-term use and patient compliance. We believe that a potent, convenient, safe and well-tolerated low-dose oral medication to reduce LDL-C could fulfill this unmet need. +Our Solution: Enhanced LDL-C Lowering Through CETP Inhibition with Obicetrapib +We believe that CETP inhibition with obicetrapib has the potential, if approved, to provide patients and physicians with a new oral therapy option to robustly reduce LDL-C. Obicetrapib is designed to be a next-generation, oral, low-dose, highly selective CETP inhibitor with powerful LDL-C lowering capability. We are developing obicetrapib as both a monotherapy and a fixed-dose combination therapy with ezetimibe and have structured our obicetrapib program to overcome the safety, potency, trial design and commercial viability limitations of prior CETP inhibitors. Further, we believe that obicetrapib’s oral delivery, demonstrated activity in low doses, chemical properties and potential tolerability make it well-suited for combination approaches. +Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable properties as a drug candidate compared to prior CETP inhibitors. We have observed a favorable tolerability profile for obicetrapib in an aggregate of over 3,500 patients with dyslipidemia from Phase 1 through Phase 3 clinical trials. We conducted two Phase 3 pivotal trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We completed enrollment for BROADWAY in July 2023 and for BROOKLYN in April 2023. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We reported top-line data from BROOKLYN in July 2024 and from BROADWAY in December 2024, and currently expect to report additional data from each study over the course of 2025. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial +10 +infarction, non-fatal stroke and non-elective coronary revascularization. We completed enrollment in PREVAIL in April 2024 and expect to complete the trial by the end of 2026. +We also continue investigating obicetrapib as a fixed-dose combination with ezetimibe following the announcement of data from our Phase 3 TANDEM trial. In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and announced topline data in November 2024. +We believe that obicetrapib has the potential to significantly impact the existing treatment paradigm for patients with ASCVD and/or HeFH and elevated levels of LDL-C, and that the key differentiating attributes of our product candidate include the following: +• +Enhanced LDL-C reduction capability. We believe that obicetrapib’s physical, pharmacokinetic and biopharmaceutical properties position it to potentially demonstrate more favorable potency and enhanced LDL-C lowering capability than previous CETP inhibitors. In previously conducted clinical trials in patients with moderately high LDL-C levels with or without prior statin therapy, obicetrapib has been observed to lower LDL-C both as a monotherapy and a combination therapy with ezetimibe (an approved LDL-C-lowering medication). In our Phase 3 BROADWAY and BROOKLYN clinical trials, we observed a mean LDL-C reduction capability of 33% and 36%, respectively, compared to placebo in patients treated with 10 mg obicetrapib on top of high-intensity statins. In our Phase 3 TANDEM clinical trial, we observed a mean LDL-C reduction of 52% in patients treated with a combination of 10 mg obicetrapib and 10 mg of ezetimibe as an adjunct to high-intensity statins, when compared to placebo. +• +Promising tolerability profile. Patients are often non-compliant with existing cholesterol-lowering therapies, particularly statin therapy, due to their side effect profiles, which could result in suboptimal treatment outcomes and disease progression. In three of our Phase 3 and five of our Phase 2 clinical trials of obicetrapib, we observed statistically significant LDL-lowering activity combined with a similar incidence of generally moderate side effects compared to placebo and no drug-related, treatment-emergent serious AEs. In addition, CETP inhibitors previously under development were observed to produce anti-diabetic benefits in Phase 3 CVOTs, which was also shown in obicetrapib, and could make it a potentially attractive adjunct for patients who are concerned about the risks of diabetes associated with statin therapy. +• +Convenience. We believe that obicetrapib’s simple once-daily, low-dose oral formulation can improve patient adherence, thereby amplifying its cholesterol-lowering impact. Additionally, unlike injectable PCSK9 inhibitors, obicetrapib, an oral small molecule, is better suited for combination with other oral treatments as oral fixed-dose combination products. +• +Patient access. In addition, payor confidence is essential to ensuring access for patients. Based on the LDL-lowering activity of obicetrapib and oral route of administration, we believe payors will perceive the LDL-C lowering capability of obicetrapib to be on par with PCSK9 inhibitors, which are administered by injection, and to exceed the LDL-lowering capabilities of other existing oral therapies and will ultimately prefer obicetrapib to existing treatment alternatives. +• +Effect on other predictors of disease risk. Like other types of LDL-C lowering therapies, i.e., statins and PCSK9 inhibitors, CETP inhibition enhances the removal of ApoB, a protein found in lipoprotein particles that contributes to atherosclerosis. However, unlike statins, based on observations from our Phase 2 and Phase 3 clinical trials, obicetrapib also decreases the presence of Lp(a), an important biomarker for CVD risk reduction. +Lowering LDL-C Through CETP Inhibition +Hyperlipidemia, and in particular hypercholesterolemia, or high cholesterol, is a major risk factor for atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. This is because LDL-C (“a package” of cholesterol contained within a particle that contains ApoB) has the tendency to penetrate the inner lining of the arterial wall becoming trapped leading to a build-up of fatty material, which in turn elicits a pro-inflammatory response and causes the arterial walls to stiffen. Left untreated, these deposits of fatty material can result in ulceration of the vessel wall which causes acute clotting of the blood and a heart attack or a stroke. Another lipoprotein particle, Lp(a), functions in the circulation as a “sink” for oxidized phospholipids and is also prone, like ApoB, to becoming trapped in the arterial wall, attached to proteoglycans of the extracellular matrix. Subsequently, these particles build up and contribute to plaque formation and inflammation. Because of the tendency of LDL-C to build up in the arteries, LDL-C is often referred to as “bad cholesterol” and is one of the most prominent risk factors for the development of CVD. +LDL-C and ApoB levels are mainly regulated by the liver through a surface protein known as the LDL receptor. Most current LDL-C lowering therapies work, at least in part, by increasing the number of LDL receptors, and thereby increasing the clearance of LDL particles from the blood. Statin therapy is the current standard of care for patients with ASCVD or HeFH and elevated levels of LDL-C. Statin therapy reduces cholesterol in the blood by blocking a key enzyme, HMG-CoA-Reductase, necessary for the synthesis of cholesterol, which reduces the amount of cholesterol made by the liver; in addition, statins upregulate the LDL receptor, resulting in lower blood cholesterol. PCSK9 +11 +inhibitors, another LDL-C-lowering treatment, also increase the presence of LDL receptors by inhibiting PCSK9, an enzyme involved in the degradation of LDL receptors. Two other LDL-C lowering therapies, ezetimibe and Nexletol/Nexlizet, also work by upregulating LDL receptors. CETP is a plasma glycoprotein produced in the liver that circulates in the blood primarily bound to a high-density lipoprotein cholesterol (“HDL-C” or “HDL”) particle. CETP can also attach to an LDL particle and form a bridge to transfer cholesterol from HDL to LDL, as shown in the figure below. Consequently, CETP inhibitors, including obicetrapib, reduce the cholesterol concentration of LDL particles and increase the cholesterol concentration of HDL particles. This results in a decrease of the cholesterol pool in the liver as a result of the augmented excretion of cholesterol via the liver into the bile and ultimately the feces. The liver also produces more LDL receptors thereby resulting in more LDL-C particles and ApoB being cleared from the bloodstream. In animal models, CETP inhibition has been shown to block the transfer of cholesterol from HDL particles to LDL particles and to upregulate LDL receptors, thereby reducing the development of atherosclerosis and risk of ASCVD. +Although it was previously believed that the HDL-raising effects of CETP inhibition would be its primary contributor to decreased CVD risk, LDL-reduction is now known to be the most significant factor for lowering CVD risk. In a population with CETP loss of function genotypes, a 16% reduction in CVD risk was observed for every 10 mg/dL decrease in LDL-C levels. The relationship between genomic loss of CETP function and lower LDL-C levels and CVD risk is consistent with other mechanisms of genomic LDL-C reduction such as HMG-CoA reductase (statins), NPC1L1 (ezetimibe), ATP-citrate lyase (Nexletol/Nexlizet) and PCSK9 (PCSK9 inhibitors). Multiple genetic studies provide support that specific mutations associated with lifelong lower LDL-C levels reduce the risk of CVD. +CETP inhibition also increases the removal of ApoB. Apolipoproteins are proteins that are involved in packaging different types of large lipid-particle complexes that store cholesterol in the body. As shown in the figure below, the primary effect of CETP inhibition is a reduced rate of transfer of cholesteryl esters from HDL into triglyceride-rich lipoproteins, including LDL, which in turn leads to an increased concentration of cholesteryl esters in HDL particles and the formation of larger HDL particles. Consequently, we have observed an increase in the excretion of cholesterol via the liver into digestive tract and an upregulation of LDL receptors on the liver, resulting in an enhanced clearances of LDL or ApoB-containing lipoproteins from the body. In addition, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines directly contributing to the reduced cholesterol levels in the liver thus maintaining upregulation of LDL receptors. +sdLDL-P are also believed to be an important predictor of CVD risk, with lower levels of sdLDL-P having been observed to correlate closely to lower cardiovascular risk. The measurement of using LDL particle (“LDL-P”) size and particles numbers is an alternative approach to determining CVD risk assessment and research suggest that LDL-P size, density and numbers may be more closely correlated to CVD risk than LDL-C. Increased levels of LDL-P suggest an increased presence of sdLDL-P which may have a greater potential to develop into arterial plaque due to their increased time in circulation compared to larger LDL-P and greater ability to become trapped in the arterial wall. Research has suggested that treatments lowering LDL-C alone may trigger a disconnect between LDL-C and LDL-P, which, given the observed strong connection between LDL-P and CVD risk, suggests there is a need for a drug which lowers both. +12 +Limitations of Current Non-Statin Therapies +Increased attention by physicians to aggressive LDL-C lowering for high-risk CVD patients has led to the increased use of non-statin therapies with LDL-C lowering capabilities, including ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors, either on their own or in conjunction with statins. +However, the needs of patients at very high risk to experience a future cardiovascular event with elevated levels of LDL-C despite being treated with maximally tolerated statin therapy remain largely unaddressed by current non-statin treatment options, which have only modest efficacy or are inconveniently administered through an injection. In a cross-sectional study of over 20 thousand patients on lipid-lowering medication, current treatments including statins, ezetimibe, PCSK9 inhibitors or a combination of the foregoing resulted in fewer than 3% of patients reaching recommended cholesterol goals of lower than 1.8 mmol/L (70 mg/dL). +• +Ezetimibe. The non-statin cholesterol absorption inhibitor ezetimibe functions by preventing the absorption of cholesterol in the intestines by blocking the NPC1L1 protein. Although these drugs are administered at a low dose, which contributes to their safety and tolerability, and are generic and broadly available, they have been shown to only moderately reduce LDL-C. Ezetimibe as monotherapy or when given in combination with statin therapy has been observed to reduce LDL-C by approximately 13% to 20%. Despite its modest efficacy, ezetimibe is the most prescribed non-statin lipid lowering therapy with approximately 11% market share. +• +Nexletol/Nexlizet. The other currently available oral non-statin therapy, Nexletol/Nexlizet, which inhibits the enzyme ATP citrate lyase, an enzyme involved in cholesterol synthesis, shows only relatively modest improvement in lowering LDL-C. Along with its relatively modest efficacy, Nexletol/Nexlizet’s label contains safety warnings that include tendon rupture and gout. Given that Nexletol/Nexlizet’s efficacy profile is comparable to generic ezetimibe, payors are reluctant to cover it, thus limiting its access and slowing uptake. +• +PCSK9 Inhibitors. The PCSK9 inhibitors on the market are injectable monoclonal antibodies and small interfering RNA that have been observed to reduce LDL-C levels by approximately 50% compared to baseline. While PCSK9 inhibitors have demonstrated their effectiveness at reducing LDL-C when used alone and as an adjunct to statin therapy, we believe their injectable route of administration makes them inconvenient for patients, and their access is further limited by their associated high cost and low rates of prescription approval by payors. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Limitations of Prior Attempts to Develop CETP Inhibitors +As described above, CETP inhibitors, including obicetrapib, are designed to work by blocking the transfer of cholesteryl esters from HDL to LDL particles, thereby reducing LDL-C levels in the body. We believe that obicetrapib can improve upon existing therapies by providing a combination of potent LDL-C lowering activity favorable tolerability and the ability to be administered orally. +Other CETP inhibitors have reached varying stages of clinical development, but none have been approved or otherwise able to generate a potent, safe and well-tolerated low-dose oral option. We believe that the prior CETP inhibitor programs did not select optimal compounds because they focused on exploring the prominent increase in HDL-C rather than the potential for lowering LDL-C. Given the focus on HDL-C raising, we believe their clinical trial designs were suboptimal. Nevertheless, anacetrapib, the latest of the prior CETP inhibitors, provided clinical support for the proposition that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes. +The focus on HDL-C raising by developers of prior CETP inhibitors likely resulted in the selection of chemical compounds that were not optimized for LDL-C lowering, which we believe in turn resulted in only modest reductions to CVD risk. In addition, one CETP inhibitor, torcetrapib, experienced off-target toxicity resulting in increased blood pressure and elevated aldosterone concentration in Phase 2 clinical trials. While another CETP inhibitor, dalcetrapib, did not experience the off-target toxicity as observed with torcetrapib, the drug had no LDL-C lowering activity and therefore no effect on reducing major adverse cardiovascular outcomes. +Given the emphasis on the HDL-C raising capabilities of the prior CETP inhibitors in development, the associated CETP inhibitor programs also used CVOTs designed to evaluate patients with controlled rather than elevated LDL-C levels. Therefore, we believe these study designs minimized the potential to observe relative reductions in CVD risk. In addition, we believe the evacetrapib CVOT was too short (a median duration of only two years) and most likely the sample size too low for the full magnitude of MACE benefits to be observed based on the modest reduction in LDL-C achieved. Similar CVOTs with other agents that lowered LDL-C by a similar magnitude required at least three years to demonstrate a MACE benefit, including the CVOTs of the CETP inhibitor anacetrapib. +In the Phase 3 REVEAL CVOT investigating the efficacy of anacetrapib in approximately 30,000 patients with ASCVD receiving intensive atorvastatin therapy, there was an observed correlation between MACE benefits for anacetrapib and the magnitude of the LDL-C reduction, suggesting that CETP inhibitors work according to the same principle as statin therapy in reducing MACE. The REVEAL trial began enrollment in August 2011 and completed its long-term follow-up in April 2019. A median four-year follow-up of the REVEAL trial showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. We believe the REVEAL results provide clinical support showing that the absolute reduction +13 +in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). In addition, anacetrapib’s commercial viability was limited by its lipophilicity, which caused it to accumulate in fat tissue over time. +We selected obicetrapib 10 mg for our Phase 3 development program given its observed LDL-C-lowering activity and safety profile and designed our CVOT to avoid the shortcomings of prior CETP inhibitor programs and to ultimately fulfill the unmet need of ASCVD or HeFH patients with elevated LDL-C levels despite being treated with currently available optimal lipid lowering therapy. Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable physical, pharmacokinetic and biopharmaceutical properties as a drug candidate compared to other CETP inhibitors. +Clinical Development Plan +We conducted two Phase 3 pivotal trials – our BROADWAY and BROOKLYN trials – designed to measure obicetrapib’s ability to reduce LDL-C as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy. Following our end of Phase 2 meeting with the FDA in the fourth quarter of 2021, we also commenced our Phase 3 PREVAIL CVOT for obicetrapib as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy in early 2022. In our Phase 2 ROSE2 trial, we evaluated the effect of a fixed-dose combination of obicetrapib 10 mg with ezetimibe 10 mg on top of high-intensity statin therapy on reduction in LDL-C. In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe. We initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and released topline data in November 2024. +Based on the lipid-modifying effects of CETP inhibition we have observed in our clinical trials for obicetrapib to date, we have conducted preclinical assessments of obicetrapib to test its potential for the prevention and treatment of Alzheimer’s disease. Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for this indication, and we commenced a Phase 2a clinical trial in early 2022 in patients with early Alzheimer’s disease to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. We announced initial data from this trial in September 2023. +We have set forth below our current obicetrapib clinical development pipeline. +*Other than as noted, the pipeline represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. The timing of regulatory submissions is subject to additional discussions with regulators. +Obicetrapib for Cardiovascular Disease +There is broad scientific consensus that elevation in LDL-C is a primary causal factor for ASCVD, and CVD outcomes in high-risk populations improve as the level of LDL-C achieved on therapy decreases. A study published in the Journal of the American Medicine in 2017 found that genetic variants related to lower LDL-C levels were significantly associated with a lower risk of CVD. Specifically, the study concluded that the quantum of reduced genetic risk for CVD associated with CETP mutations was almost identical to the genetic risk of CVD +14 +observed in patients with genetically reduced levels of the proteins targeted by statins, PCSK9 inhibitors and ezetimibe. We believe the consistency of benefit across genotypes observed in all target genes is predictive of the clinical efficacy of CETP-induced LDL-C lowering on CVD. +The direct correlation between LDL-C reduction and decrease in atherosclerotic cardiovascular events has been documented for both statin, as well as non-statin, therapies in CVOTs for ezetimibe, the PCSK9 inhibitors evolocumab and alirocumab, and for the CETP inhibitor anacetrapib. Most notably, a median four-year follow-up of the REVEAL Phase 3 trial of anacetrapib showed that CETP inhibition resulted in a nine percent reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). After approximately six and a half years of total follow-up, the REVEAL clinical trial showed additional MACE reduction of 20%. The table below shows the reduction in MACE and each component of MACE in the in-trial and post-trial periods. +We believe the REVEAL results provide clinical support for the hypothesis that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. Specifically, the decrease in MACE observed in the REVEAL trial of anacetrapib is consistent with the findings of the CTT Collaboration, illustrated in the graphic below. The CTT collaboration conducted a meta-analysis of 26 statin clinical trials and showed that there is a consistent, linear decrease in MACE for every absolute unit of non-HDL (which is primarily composed of LDL-C) cholesterol reduction. The MACE reduction observed in REVEAL falls on the meta-regression line – specifically, the CTT metaregression line predicts that an absolute reduction of non-HDL of 17 mg/dl, as seen in REVEAL, would correspond to the 11% reduction in coronary death and myocardial infarction observed in REVEAL. +*The graphic above presents a linear prediction of MACE benefit, as discussed above. Actual results may differ materially. +15 +With these learnings in mind, we are executing a phase 3 clinical development plan for obicetrapib focused on patients with elevated baseline LDL-C and that is designed to support a broad CVD label, if successful. To date, we have completed seven Phase 1 trials, five Phase 2 trials and three Phase 3 trials of obicetrapib, and we are currently conducting a Phase 3 PREVAIL CVOT trial. +Planned and Ongoing Clinical Trials for Cardiovascular Disease +Phase 3 PREVAIL Cardiovascular Outcomes Trial +We have initiated our PREVAIL trial (TA-8995-304), our Phase 3 CVOT, to evaluate the effects of 10 mg obicetrapib in participants with ASCVD on MACE, including cardiovascular death, myocardial infarction, stroke and non-elective coronary revascularization. We enrolled over 9,500 participants at sites in the United States, Canada, Europe, Asia, and Australia with established ASCVD and an LDL-C level of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL, whose LDL-C levels are not adequately controlled despite maximally tolerated lipid-modifying therapies. The planned median trial follow-up is expected to be approximately 42 months, and the treatment period will continue until the last participant has been followed for a minimum of 2.5 years after the last patient has been randomized or until the target number of primary endpoint events (i.e., cardiovascular death, non-fatal myocardial infarction, non-fatal stroke, or non-elective coronary revascularization) have occurred, whichever is later. +We designed our PREVAIL trial based on insights gained from analyzing failures of prior CVOTs for other CETP inhibitors. Our trial design targets patients above their LDL-C risk-based goal, despite treatment with maximally tolerated lipid modifying therapies, which we believe creates potential for greater observed absolute LDL-C reduction, particularly given the observed median LDL-lowering activity of 51% in our Phase 2b ROSE clinical trial. We are focused on patients with elevated LDL-C levels and who have at least one other risk enhancer (including recent myocardial infarction, Type 2 diabetes, high triglyceride levels or low HDL-C), compared to prior CVOTs for CETP inhibitors that enrolled patients with low baseline LDL-C. We are planning for longer duration of follow-up to maximize opportunities to observe MACE reduction, with all patients to be followed for a minimum of 2.5 years. We believe that the inclusion of a patient population with established ASCVD who are at very high risk to experience a future cardiovascular event given their elevated LDL-C levels despite being treated with maximum lipid lowering therapy and who have other additional risk enhancers increases the likelihood that the trial will accrue sufficient primary endpoint events over time and potentially result in a strong relative risk reduction in the treatment arm. +Phase 3 REMBRANDT Imaging Trial +We have initiated REMBRANDT, a Phase 3 cardiovascular computed tomography angiography imaging trial to evaluate the effect of obicetrapib and ezetimibe in fixed-dose combination ("FDC") on coronary plaque. The placebo-controlled, double-blind, randomized, Phase 3 study is being conducted in adult participants with high-risk ASCVD who are not adequately controlled by their maximally tolerated lipid-modifying therapy, to assess the impact of the obicetrapib 10 mg and ezetimibe 10 mg FDC daily on coronary plaque and inflammation characteristics. The study is expected to enroll 300 patients. +Phase 2 VINCENT Trial +VINCENT is a Phase 2 clinical study to evaluate the effects of obicetrapib alone and in combination with evolocumab on Lp(a) in patients with mild dyslipidemia. The single arm study will treat patients with obicetrapib 10 mg daily for 8 weeks followed by obicetrapib 10 mg daily plus evolocumab 140 mg/dL every other week for 8 weeks. There will be two cohorts in the study. The first cohort will include 39 participants with Lp(a) levels greater than 50 mg/dL or 125 nmol/L, and the second cohort will include 30 participants with Lp(a) levels greater than 20 mg/dL or 50 nmol/L but less than 50 mg/dL or 125 nmol/L. +Completed Phase 3 Clinical Trials +We have completed three Phase 3 clinical trials of obicetrapib for the treatment of cardiometabolic disease. TANDEM evaluated 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination, while BROADWAY and BROOKLYN were designed to measure the effect of obicetrapib 10 mg as monotherapy on top of maximally tolerated lipid-modifying therapy. +16 +Phase 3 TANDEM Fixed-Dose Combination Trial +We completed TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents in November 2024. We enrolled approximately 400 patients in the United States that had a baseline LDL-C of ≥ 70 mg/dL. Following a 14-day screening period, patients were randomized 1:1:1:1 to obicetrapib 10 mg and ezetimibe 10 mg FDC, obicetrapib 10 mg monotherapy, ezetimibe 10 mg monotherapy or placebo for an 84-day treatment period. +TANDEM’s co-primary endpoints were percent change from baseline in LDL-C of the fixed-dose combination compared to each monotherapy arm after 84 days and obicetrapib 10 mg compared to placebo after day 84. Secondary endpoints incorporated percent changes from baseline in other biomarkers, including Lp(a), non-HDL-C and ApoB. The TANDEM trial met all co-primary endpoints. The safety and tolerability profile of the fixed-dose combination was observed to be comparable to placebo in the trial. +We believe that the stronger observed LDL-C lowering among patients receiving the combination therapy as compared with those receiving ezetimibe in combination with statin therapy is potentially due to the synergistic mechanisms of action for each of obicetrapib and ezetimibe. While obicetrapib is designed to promote the expression of LDL receptors in the liver, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines, where ezetimibe is designed to block cholesterol reabsorption into the body. Therefore, the combined mechanism is expected to synergistically enhance fecal sterol removal of cholesterol. We believe that LDL-C lowering effects of ezetimibe can be enhanced by introducing obicetrapib to help facilitate this synergistic mechanism of action. +LDL-C percentage change: +Ezetimibe +(n=101) +Obicetrapib (n=102) +Obicetrapib and Ezetimibe FDC +(n=102) +Day 84 – from placebo +Mean % +-23.3 +-35.5 +-52.2 +Median % +-22.6 +-37.2 +-54.0 +LS mean % +-20.7 +-31.9 +-48.6 +Comparison to pbo +- +(p<0.0001) +(p<0.0001) +Comparison to eze 10 mg +- +- +(p<0.0001) +Comparison to obi 10 mg +- +- +(p=0.0007) +Phase 3 BROADWAY and BROOKLYN Lipid Trials +17 +We conducted two Phase 3 pivotal trials designed to measure obicetrapib’s LDL-C lowering capability and enrolled patients across both trials who require additional LDL-lowering on top of their maximum tolerated lipid-modifying therapies. BROADWAY, which completed enrollment in July 2023 and for which topline results were announced in December 2024, randomized approximately 2,500 patients in the United States, Europe and Asia with HeFH (individuals genetically predisposed to very high cholesterol) or established ASCVD, and who have baseline LDL-C of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL (including other abnormal biometrics, a recent myocardial infarction or Type 2 diabetes). BROOKLYN, which completed enrollment in April 2023 and for which topline results were announced in July 2024, enrolled HeFH patients in the United States, Canada, Europe and Africa who had baseline LDL-C of at least 70 mg/dL. Obicetrapib was administered in a once-daily 10 mg dose as an adjunct to diet (for regulatory purposes in the EU) and maximally tolerated lipid-modifying therapy, for a 52-week treatment period. Such lipid-modifying therapies included statins or, for statin-intolerant patients, ezetimibe, Nexletol/Nexlizet, PCSK9 inhibitors, or fibrates (a class of drugs which increase HDL-C without significantly reducing LDL-C). +The primary endpoint of both trials was percent change from baseline in LDL-C of obicetrapib 10 mg compared to placebo after 84 days. Secondary endpoints also included percent changes from baseline of obicetrapib 10 mg compared to placebo after 84 days in Lp(a), ApoB, HDL-C and non-HDL-C (representing total cholesterol minus HDL-C), and for BROADWAY, LDL-C levels at days 180 and 365, total cholesterol and triglycerides. For BROADWAY, other exploratory outcome measures included time from randomization until first confirmed occurrence of MACE in the obicetrapib arm compared to placebo. The safety and tolerability profile of obicetrapib was comparable to placebo in both trials (which included a broad representation of adult males and females of all ages, including elderly and very elderly participants), assessed by AEs, vital signs, clinical laboratory values and electrocardiogram (“ECG”) measurements. In addition, we evaluated obicetrapib’s effects on blood pressure and no difference from placebo was shown. +The tables below summarize data from each study: +LDL-C LS mean percentage change in BROOKLYN trial: +% Change from Baseline +Obicetrapib % Change +Placebo (n=118) +Obicetrapib (n=236) +Compared to Placebo +p-value +Day 84 ++0.3% +-36.1% +-36.3% +<0.0001 +Day 365 ++10.3% +-31.1% +-41.5% +<0.0001 +LDL-C percentage change at day 84 in BROADWAY trial: +Placebo +(n = 844) +Obicetrapib 10 mg +(n = 1686) +Difference +Mean +-2% +-35% +-33% +Median +-4% +-40% +-36% +LS mean (with imputation) ++3% +-30% +-33% +While BROADWAY was not designed or powered to measure MACE benefit, MACE was evaluated as an exploratory endpoint and as part of our safety analysis. Despite the limitations of the trial design, we observed a 21% reduction in MACE favoring obicetrapib after one year. +MACE from BROADWAY: +Placebo +(n = 844) +Obicetrapib 10 mg +(n= 1686) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +12 (1.4) +19 (1.1) +0.83 +(0.40-1.71) +Coronary heart death – no. (%) +5 (0.6) +8 (0.5) +0.80 +(0.26-2.44) +First 4-point MACE – no. (%) +44 (5.2) +70 (4.2) +0.79 +(0.54-1.15) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY trial. +Pooled MACE from BROADWAY and BROOKLYN: +Placebo +(n = 962) +Obicetrapib 10 mg +(n= 1920) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +14 (1.5) +20 (1.0) +0.78 +(0.39-1.58) +18 +Coronary heart death – no. (%) +7 (0.7) +9 (0.5) +0.63 +(0.24-1.70) +First 4-point MACE – no. (%) +49 (5.1) +75 (3.9) +0.75 +(0.53-1.08) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY or BROOKLYN trials. +Neither the BROADWAY nor BROOKLYN trials were designed to assess MACE as the primary or secondary endpoints and as a result there are limitations on the results presented above. We are conducting PREVAIL, our Phase 3 cardiovascular outcomes trial designed to assess the MACE benefit of obicetrapib, to provide support for obicetrapib’s potential MACE benefit. +Overall, obicetrapib was observed to be well-tolerated compared to placebo. Treatment-emergent adverse events (“TEAEs”) were reported by 1,007 (59.8%) patients in the obicetrapib 10 mg group compared to 513 (60.9%) patients in the placebo group. Most TEAEs were mild or moderate. Treatment-emergent serious adverse events (“TESAEs”) were observed in 13.9% of the placebo group and in 12.5% of the obicetrapib group. The following table summarizes the safety results from the BROADWAY trial: +Placebo +N= 843 +n (%) +Obicetrapib 10 mg +N= 1,685 +n (%) +Any TEAEs +513 ( 60.9) +1,007 ( 59.8) +Any TEAEs by maximum severity +Mild +228 ( 27.0) +481 ( 28.5) +Moderate +217 ( 25.7) +408 ( 24.2) +Severe +68 ( 8.1) +118 ( 7.0) +Any trial drug related TEAEs +39 ( 4.6) +76 ( 4.5) +Any trial drug-related TEAEs by maximum severity +Mild +25 ( 3.0) +51 ( 3.0) +Moderate +14 ( 1.7) +23 ( 1.4) +Severe +0 ( 0.0) +2 ( 0.1) +Any TEAEs leading to discontinuation of trial drug +43 ( 5.1) +68 ( 4.0) +Any TESAEs +117 ( 13.9) +211 ( 12.5) +Any treatment-emergent non-serious AEs +495 ( 58.7) +959 ( 56.9) +Any trial drug-related TESAEs +0 ( 0.0) +1 ( 0.1) +Any TEAEs leading to death +12 ( 1.4) +19 ( 1.1) +Completed Phase 2 Clinical Trials +We have completed five Phase 2 trials of obicetrapib for the treatment of cardiometabolic disease. In our Phase 2 trials obicetrapib was observed to robustly lower LDL-C and increase HDL-C from baseline across various treatment settings. Obicetrapib was also observed to be well-tolerated compared to placebo, in both the 5 mg and 10 mg doses and as a combination therapy with ezetimibe. The majority of TEAEs were mild or moderate in severity and there were no drug-related, treatment-emergent serious AEs. The graphs below summarize the results of our Phase 1 MAD and Phase 2 trials, with 10 mg of obicetrapib. +19 +Phase 2b ROSE Trial +In our Phase 2b ROSE trial, we observed that obicetrapib has robust LDL-C lowering capability as an adjunct to high-intensity statins at both 5 mg and 10 mg dosages. Based on our ROSE trial, we are using a 10 mg dosage for our Phase 3 trials. In our Phase 2a TULIP trial, we observed that a daily dose of up to 10 mg of obicetrapib alone significantly reduced LDL-C and increased HDL-C. Based on observations from our Phase 2b OCEAN trial, we believe that obicetrapib is at least additive for LDL lowering as a combination therapy with ezetimibe. +Phase 2a TULIP Trial +A Phase 2a TULIP trial of obicetrapib, which was completed in 2014, was a randomized, double-blind placebo-controlled trial among 364 patients with mild dyslipidemia and not on lipid-altering therapy at screening and involved once-daily oral dosing of obicetrapib up to 10 mg or a placebo alone and as a combination therapy with statins. The primary endpoints were the percent changes in LDL-C and HDL-C levels from baseline to week 12 of the trial, which were met for both doses. The 5 mg dose of obicetrapib resulted in a mean reduction of LDL-C by 45% and increased HDL-C by 161%, compared to placebo. In patients treated with 10 mg obicetrapib plus statin therapy (20 mg atorvastatin or 10 mg rosuvastatin), LDL-C levels were approximately 50% lower and HDL-C levels were approximately 140% higher, respectively, than those observed in patients receiving statin therapy alone. +A total of 284 (78.2%) patients experienced at least one TEAE, of which 95 (26.2%) experienced a suspected trial drug-related TEAE. For all treatment groups, the most common TEAEs were the common cold and headache (22.9% and 13.2%, respectively). Most TEAEs were mild or moderate in severity with only 13 (3.6%) patients experiencing a severe TEAE, two of which were suspected to be related to the trial drug (one subject in the placebo group and one subject in the atorvastatin 20 mg and obicetrapib 10 mg combination). Prevalence, incidence and severity of TEAEs were similar across all treatment groups. There were eight patients with a TESAE, none of which were trial drug related, and no deaths occurred during the trial. +Phase 2b ROSE Trial +Our Phase 2b ROSE trial, which was completed in August 2021, was a randomized, double-blind placebo-controlled trial among 120 patients with mild dyslipidemia who were already receiving high-intensity statin therapy. The trial involved a once-daily oral dose of obicetrapib at either 5 mg or 10 mg dose level for eight weeks. The primary endpoint of this clinical trial was LDL-C reduction from baseline and was met for both doses. Obicetrapib had a rapid effect, with LDL-C levels dropping dramatically in the first four weeks of the trial and remaining relatively steady for the remaining four weeks of the trial. At the 5 mg dose level, approximately 20% of patients experienced a decrease in median LDL-C levels of over 60%; at the 10 mg dose level, that percentage nearly doubled. +Overall, obicetrapib as an adjunct to high-intensity statin therapy at both doses was observed to be well-tolerated compared to placebo. TEAEs were reported by 15 (37.5%) subjects in the 5 mg group and 8 (20.0%) subjects in the 10 mg group, compared with 19 (47.5%) subjects in the placebo group. For all treatment groups, the most common TEAEs were fatigue (4.2%), arthralgia (2.5%), nausea (2.5%) and headache (2.5%). All other TEAEs were experienced by only one or no subjects in each treatment group. TEAEs that were considered by the investigator +20 +to be related to trial treatment were reported by three subjects (two subjects in the 5 mg group and one subject in the 10 mg group), compared with four subjects in the placebo group. There were no TEAEs leading to death. One subject in the placebo group had a TEAE leading to discontinuation. The majority of TEAEs were mild and moderate in severity; one subject in the placebo group had a severe TEAE. There were two serious TEAEs, both of which occurred in the placebo group. +Based on our ROSE trial and the enhanced LDL-C reduction capability of a 10 mg dose compared with 5 mg and the safety profile we observed, we selected a 10 mg dose for our Phase 3 lipid trials and CVOT. +Phase 2b OCEAN Trial +Our Phase 2b OCEAN trial, which we completed in June 2021, evaluated the effect of obicetrapib as a combination therapy with ezetimibe on LDL-C levels. This randomized, double-blind placebo-controlled trial among 100 patients with mild dyslipidemia involved once-daily oral 5 mg dose of obicetrapib alone and as a combination therapy with 10 mg of ezetimibe, compared to both placebo and ezetimibe alone, for eight weeks. +The primary endpoint of the trial was percent change in LDL-C compared to baseline, which was met. We observed that obicetrapib 5 mg, ezetimibe 10 mg and their combination each significantly reduced LDL-C from baseline and compared with placebo, with statistically significant reductions compared to baseline measured at 34.4%, 14.8% and 52.0%, respectively, compared to a 1.4% reduction in the placebo group. +Obicetrapib 5 mg alone and as a combination therapy with ezetimibe 10 mg taken once daily for eight weeks displayed a favorable tolerability profile. TEAEs were reported by 4 (14.3%) subjects in the obicetrapib 5 mg group and 9 (33.3%) subjects in the combination group, compared with 8 (28.6%) subjects in the ezetimibe 10 mg group and six subjects in the placebo group. For all treatment groups, the most common TEAEs were diarrhea (3.6%), headache (3.6%), myalgia (1.8%) and constipation (1.8%). All other TEAEs were experienced by one or no subjects in each treatment group. TEAEs that were considered to be related to trial treatment were reported by one subject and three subjects in the obicetrapib 5 mg and combination groups, respectively, compared with three subjects and four subjects in the ezetimibe 10 mg and placebo groups, respectively. There were no TEAEs leading to death. One subject in the ezetimibe 10 mg group had a TEAE leading to discontinuation of the trial drug, compared to no subjects in the 5 mg group and two subjects in the combination group. The majority of TEAEs were mild and moderate in severity, and one subject in the ezetimibe 10 mg group had a severe TEAE. +ROSE2 Clinical Trial +On June 3, 2023, we announced full results from our Phase 2 ROSE2 trial, our clinical trial evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy. ROSE2 met its primary and secondary endpoints, with statistically significant reductions in LDL-C and ApoB observed. Statistically significant improvements in non-HDL-C and total and small LDL-P were also observed. We also observed significant improvements in Lp(a). In addition, the combination of obicetrapib and ezetimibe was observed to be well-tolerated, with a safety profile observed to be comparable to placebo. +ROSE2 was designed as a placebo-controlled, double-blind, randomized Phase 2 clinical trial to evaluate the efficacy, safety and tolerability of obicetrapib 10 mg in combination with ezetimibe 10 mg as an adjunct to high-intensity statin therapy. Patients were randomized to receive combination therapy, obicetrapib 10 mg or placebo for a 12 week treatment period. A total of 119 patients enrolled in ROSE2, of whom 97 were included in the on-treatment analysis. Certain patients were excluded from the on treatment population as a result of suspected non-adherence to the trial protocol. Patients presented at baseline with a fasting LDL-C greater than 70 mg/dL and triglycerides less than 400 mg/dL and all were receiving a stable dose of high-intensity statin therapy. +The primary endpoint was the percent change from baseline to week 12 in Friedewald-calculated LDL-C for the obicetrapib plus ezetimibe combination treatment group compared with placebo. Secondary efficacy endpoints included the percent changes from baseline to week 12 in LDL-C for obicetrapib monotherapy compared with placebo and in ApoB for the obicetrapib plus ezetimibe combination compared with placebo and the obicetrapib monotherapy compared with placebo. Exploratory endpoints included the percent changes from baseline to week 12 in lipoprotein(a), non-HDL-C, HDL-C, total and small LDL-P assessed by NMR, and the proportion of patients at the end of treatment who achieved LDL-C levels below 100 mg/dL, 70 mg/dL and 55 mg/dL for the obicetrapib plus ezetimibe combination and obicetrapib monotherapy groups compared with placebo. +Overall, obicetrapib alone and in combination with ezetimibe was observed to be well-tolerated compared to placebo. TEAEs were reported by 11 (27.5%) subjects in the combination group, 8 (20.5%) subjects in the monotherapy group and 16 (40.0%) subjects in the placebo group. For all treatment groups, the most common AEs nausea (3.4%), urinary tract infection (2.5%), and headache (2.5%). Overall, no drug-related, TESAEs were observed, and there were no TEAEs leading to death. One subject in the combination group had a TEAE leading to discontinuation of the trial drug, compared to two in the monotherapy group and two in the placebo group. There were two severe TEAEs in the placebo group (both nervous system disorders) and one in the monotherapy group (a cardiac disorder). +In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we have selected a +21 +formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalent patients, in the first quarter of 2024 and released topline data in November 2024. +Japan Phase 2b Clinical Trial +On June 5, 2023, we announced topline results from our Phase 2b Japan trial evaluating the effects of three doses of obicetrapib (2.5 mg, 5 mg, and 10 mg) on LDL-C levels. This was a randomized, double-blind, placebo controlled trial designed to evaluate the efficacy, safety and tolerability of obicetrapib as an adjunct to stable statin therapy in Japanese patients. The trial was conducted at hospitals and clinics across Japan. The primary endpoint was the percent change from baseline to end of treatment (day 56) in LDL-C for each obicetrapib group compared to placebo. The trial enrolled 102 adult participants, who were randomized 1:1:1:1 to receive obicetrapib 2.5 mg, 5 mg, 10 mg or placebo for the 56-day treatment period. Patients treated with obicetrapib 2.5 mg, 5 mg or 10 mg achieved a median reduction in LDL-C of 24.8%, 31.9%, and 45.8%, respectively, as compared to patients treated with placebo, who achieved a median reduction in LDL-C of 0.9%. In addition, patients treated with obicetrapib 10 mg achieved a median reduction in ApoB of 29.7%, compared to a 0.4% reduction in patients treated with placebo, and a median reduction in non-HDL-C of 37.0%, as compared to a 0.4% reduction in patients treated with placebo. The p-value for each endpoint in the obicetrapib arms of the trial compared to placebo was <0.0001. Overall, the different dosages of obicetrapib were observed to be generally well-tolerated, with a safety profile comparable to placebo. TEAEs were reported by 15 (57.7%) subjects in the 10 mg obicetrapib group, 7 (28.0%) subjects in the 5 mg obicetrapib group, 9 (36.0%) subjects in the 2.5 mg group and 15 (57.7%) subjects in the placebo group. AEs observed to date were primarily mild. One TESAE was observed in the 5 mg group, but it was not considered by the investigator to be related to trial treatment. Overall, no drug-related TESAEs were observed, and there were no TEAEs leading to death. +Obicetrapib for Other Therapeutic Areas +Alzheimer’s disease +According to the World Health Organization, Alzheimer’s disease and other dementias affect approximately 55 million people as of 2021, and this is expected to increase to 78 million in 2030 and 139 million in 2050. Alzheimer’s disease is the most prevalent form of dementia, resulting in the generalized degeneration of the brain. +In a healthy brain, excess cholesterol levels in the neurons and amyloid-beta (“Aβ”) peptide removal from brain parenchyma are regulated properly. The brain is the most cholesterol-rich organ in the body; comprising only two percent of the body’s mass, it contains approximately 20% of the body’s cholesterol, which is recycled and redistributed through an ApoE-mediated lipoprotein pathway. Inside populations of cells called astrocytes, ApoE binds with cholesterol that has been released into the brain by neurons and converts it into a different form of cholesterol that is transported out of the brain into the systemic circulation. In addition to ApoE, the protein associated with HDL, ApoA1, also acts as the brain’s “vacuum cleaner,” by removing toxic cholesterol from peripheral tissue to promote healthy cell function and survival. In addition, small HDL particles that transverse the blood brain barrier remove excess Ab peptides in brain parenchyma for ultimate conversion and transport out of the brain. +Alzheimer’s disease, however, is characterized in part by the aggregation of Aβ peptides into amyloid plaques in brain parenchyma, facilitated by the presence of excess cholesterol in cell membranes. Thus, the accumulation of cholesterol in cell membranes and the ineffective clearance of Aβ plaques by ApoE and ApoA1 in their HDL forms is associated with the development of Alzheimer’s disease. Importantly, certain forms of ApoE (in particular, ApoE4) are worse at Ab transport than others, such as ApoE2, and are known to be associated with an increased risk of Alzheimer’s disease. Further, CETP activity has been detected in astrocytes, the cells where ApoE bind with cholesterol, indicating the potential for a CETP inhibitor to function in the brain similarly to its lipid-modifying effects in the cardiovascular system. Genetic studies have shown that CETP loss of function mutations mitigate the risk of Alzheimer’s disease in patients with the ApoE4 genotype. +Based on these observations as well as the marked increases of ApoA1 in the circulation observed in our Phase 2 clinical trials and the increases in ApoE in the circulation observed in the TULIP trial, we have conducted preclinical assessments of obicetrapib for the prevention and treatment of Alzheimer’s disease. +Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for the prevention and treatment of Alzheimer’s disease. We commenced a Phase 2a open-label and single-arm clinical trial in early 2022 in patients with early Alzheimer’s disease and the ApoE4 mutation to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the CSF compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patient’s plasma was observed and pTau181 levels were observed to be stable. Increases in 24-hydroxycholesterol and 27-hydroxycholesterol over time have been observed previously to lead to a rise in cognitive and related functional impairment. We believe reductions of these oxysterols in the CSF may indicate improved cholesterol metabolism in the brain and may lead to improved cognitive function. In addition, this trial assessed the Aβ42/40 ratio and plasma pTau181, also believed to be biomarkers of Alzheimer’s disease, with lower levels of Aβ42/40 and increased +22 +levels of pTau181 having been associated with a greater risk of Alzheimer’s disease. Overall, obicetrapib was observed to be well-tolerated. No serious AEs were reported, nor were any AEs considered to be related to the trial drug. +Manufacturing and Supply +We currently have no manufacturing facilities and instead rely on several contract manufacturers to produce drug substance and drug products. The production is overseen by an experienced group of personnel. Obicetrapib and obicetrapib and ezetimibe FDC tablets are manufactured and tested in accordance with current good manufacturing practices (“cGMPs”) at facilities in the United States, Canada and Austria. In preparation for commercial supply, we are in the process of expanding our supply network to support a commercial launch of obicetrapib, if approved. +Marketing and Sales +While we do not currently have the internal marketing, sales or distribution capabilities necessary to commercialize obicetrapib or any future product candidates, if approved for commercial sale, we are currently developing our own commercial infrastructure and capabilities in the United States and have entered, and expect to continue entering, into arrangements with third parties to perform these services outside of the United States. We may also opportunistically seek strategic collaborations to maximize the commercial opportunities for our future product candidates inside and outside the United States. We entered into the Menarini License, pursuant to which Menarini has been granted the exclusive rights to commercialize obicetrapib 10 mg either as a sole active ingredient product or in a fixed-dose combination with ezetimibe in the majority of European countries, if approved. As any future product candidates near regulatory approval and potential commercial launch, we plan to assess our options for commercializing each respective product candidate and may choose to commercialize themselves ourselves or with a partner. +Menarini License +We entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib in a single unit dose of 10 mg or less, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe (the “Licensed Products”), for any use in the majority of European countries (the “Menarini Territory”). We retained all rights to obicetrapib in all other territories and in other dosages. +We are solely responsible for conducting the development activities to obtain regulatory approval for obicetrapib. Menarini may conduct market access studies, medical affairs activities, non-registration studies and Phase IV clinical trials in the Menarini Territory. Menarini will be responsible for submitting and obtaining the required regulatory approvals to commercialize obicetrapib (at the licensed dosage) in the Menarini Territory and will own the regulatory approvals, if received. Menarini will also be solely responsible for commercializing obicetrapib (at the licensed dosage), if approved, and will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Pursuant to the Menarini License, Menarini made an upfront payment to us of €115.0 million. Menarini has also committed to providing €27.5 million in funding for our research and development activities over several years, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to an additional €863 million upon the achievement of various clinical, regulatory and commercial milestones, of which a total of €30 million has been received to date. If obicetrapib is approved and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party intellectual property payments. +The Menarini License will expire on the last to expire royalty term, which is determined on a Licensed Product-by-Licensed Product and country-by-country basis, and is the later of (i) the expiration of the last to expire licensed patent that includes a valid claim in the country, (ii) expiration of regulatory exclusivity granted by the prevailing governmental authority for the Licensed Product in the country or (iii) 12 years from the first commercial sale of the Licensed Product in the country. +In addition, Menarini is expected to purchase obicetrapib and obicetrapib and ezetimibe FDC tablets from us in accordance with a supply agreement to be entered into by Menarini and us (the “Supply Agreement”). We will supply all required quantities of products for the Menarini Territory as set forth in the Supply Agreement. +In the year ended December 31, 2024, we received one milestone payment from Menarini under the Menarini License upon the achievement of a clinical milestone. +Intellectual Property +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without +23 +infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +We strive to protect and enhance our proprietary inventions and improvements that we consider commercially important to the development of our business, including by seeking, maintaining, and defending U.S. and foreign patent rights. All of the issued patents and pending patent applications in our patent portfolio are owned by our subsidiary, NewAmsterdam Pharma B.V., Dutch Chamber of Commerce registry number 55971946. As of December 31, 2024, we owned 10 issued U.S. patents and 17 pending U.S. patent applications. We also owned 132 granted European patents and five pending European patent applications, two granted Chinese patents and 12 pending Chinese patent applications. In addition, we owned 77 granted patents and 70 pending patent applications in other foreign jurisdictions, including international applications under the PCT. +The patent positions of pharmaceutical companies are generally uncertain and can involve complex legal, scientific, and factual issues. We cannot predict whether any patent applications we pursue will issue as patents in any particular jurisdiction, or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. +In addition, the coverage claimed in a patent application may be significantly reduced before a patent is granted, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot guarantee that any of our products will be protected or remain protectable by enforceable patents. Moreover, any patents that we license or may own in the future may be challenged, circumvented, or invalidated by third parties. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before our product candidate can be commercialized successfully, any related patents may expire or remain in force for only a short period following commercial launch, thereby limiting the protection such patent would afford the applicable product and any competitive advantage such patent may provide. +For any individual patent, the term depends on the applicable law in the country in which the patent is issued. In most countries where we have patents and patent applications, including the United States, patents have a term of 20 years from the application filing date or earliest claimed nonprovisional priority date. In the United States, the patent term may be shortened if a patent is terminally disclaimed over another patent that expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment that is awarded by the USPTO, in order to address administrative delays by the USPTO in examining and granting a patent. +In the United States, the term of a patent that covers an FDA-approved drug may be eligible for patent term extension in order to restore the period of a patent term lost during the premarket FDA regulatory review process. Specifically, the Hatch-Waxman Amendments permits a patent term extension of up to five years beyond the natural expiration of the patent (but the total patent term, including the extension period, must not exceed 14 years following FDA approval). The patent term extension period granted on a patent covering a product is typically one-half the time between the effective date of the IND for the first investigation involving human beings and the submission date of an NDA seeking FDA approval, plus the entire time from submission date of the NDA to the ultimate approval date. Only one patent applicable to an approved product is eligible for patent term extension, and only those claims covering the approved product, an approved method for using the approved product, or a method for manufacturing it may be extended. The application for patent term extension must be submitted prior to the expiration of the patent. The USPTO reviews and approves the application for any Patent Term Extension in consultation with the FDA. +Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO and other patent offices may be significantly revised before issuance, if granted at all. +For more information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related to Our Intellectual Property .” +The issued patents and pending patent applications for obicetrapib as of December 31, 2024 are detailed below. +Obicetrapib First Generation Patents +The patent portfolio for obicetrapib composition of matter includes a first generation patent family directed generally to compounds, pharmaceutical compositions comprising the compounds, and methods of treatment using the compounds and pharmaceutical compositions. We have two granted patents in the United States covering a genus of compounds that includes obicetrapib and claims that more narrowly cover the obicetrapib compound, pharmaceutical compositions, and methods of treatment. In Europe, we have 17 granted patents. In Asia, we have one granted patent in China, two granted patents in Japan, one granted patent in the Republic of Korea, one granted patent in Taiwan and one granted patent in Singapore. We also have one granted patent in India. In North America outside of the United States, we have one granted patent in Canada and one granted patent in Mexico. In addition, we have 13 granted patents in other foreign jurisdictions. Patents are expected to expire between April 2025 and August 2027, without taking potential patent term extensions into account. The first generation portfolio also includes a patent family covering a method of synthesizing obicetrapib. We have one patent in the United States, five patents in Europe +24 +including the United Kingdom, and one patent in Japan in this latter patent family. Patents in this family are expected to expire between March 29, 2027 and March 31, 2029, not including patent term extensions. +Obicetrapib Second Generation Patents +Our second generation obicetrapib patent portfolio includes a patent family directed to solid oral dosage forms containing 5 to 10 mg of obicetrapib, including tablet forms, and methods of treatment comprising administration of 1 to 25 mg of obicetrapib daily. We have four granted patents in the United States and a pending application. We have 39 granted patents in Europe. In Asia, we have no granted patents in China, one granted patent in the Republic of Korea, one granted patent in Japan, one granted patent in Taiwan, one granted patent in Singapore and one granted patent in Hong Kong. We have one granted patent in India. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have 15 granted patents in other foreign jurisdictions. Patent applications are pending in Argentina, Brazil, China, Hong Kong, Colombia, Costa Rica, Egypt, Libya, Peru, Thailand and Venezuela. Patents, and patent applications, if granted, are expected to expire in February 2034, without taking potential patent term extensions or patent term adjustment into account. +We also have a patent family directed to compositions that contain obicetrapib and a statin, methods of treating with compositions that contain obicetrapib and a statin, and in various foreign jurisdictions, methods of use in which obicetrapib and a statin are separately administered. We have one granted patent in the United States. This patent is expected to expire in February 2034. We have no granted patents in Europe. In Asia, we have no granted patents in China, two granted patents in Japan, one granted patent in the Republic of Korea and two granted patents in Taiwan. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have two granted patents in other foreign jurisdictions. Patent applications are pending in China, Hong Kong, Thailand and Venezuela. Outside the United States, patents and patent applications, if granted, are expected to expire in August 2035, without taking potential patent term extensions or patent term adjustment into account. +In addition, we have a patent family that claims a synthetic intermediate used in a synthetic process we intend to use commercially, as well as processes to make that intermediate. We have one issued US patent and 39 granted patents in Europe. In Asia, we have one granted patent in China, one granted patent in Hong Kong, one granted patent in Japan, one granted patent in Singapore, one granted patent in Republic of Korea and one granted patent in Taiwan. We also have one granted patent in India. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have 15 granted patents in other foreign jurisdictions. Patent applications are pending in Europe, Hong Kong and Venezuela. Patents, and patent applications if granted, are expected to expire in July 2035, without taking potential patent term extensions or patent term adjustment into account. +Obicetrapib Third Generation Patents +We have a third generation patent family covering the solid salt form of obicetrapib that we intend to commercialize, a process for its commercial synthesis and a novel intermediate used in that synthetic process. In the United States, we have an issued patent with claims covering the solid salt form of obicetrapib, and a pending application. Patent applications are pending worldwide in over 40 jurisdictions. Our U.S. patent, and patents if granted on the pending applications, are expected to expire in July 2043, without taking potential patent term adjustment or extensions into account. +We also have patent families directed to various compositions and methods of use of obicetrapib as a combination therapy. These families all consist of pending applications. Seven of these families are directed to combinations with ezetimibe, several of which cover the formulation of our intended commercial fixed-dose combination product. Two of these families further include the commercial formulation of our intended obicetrapib single active product. Patents if granted are expected to expire between February 2042 and November 2045, without taking potential patent term adjustment or extensions into account. Another family is directed to a combination with statins, for use in certain subpopulations. Patents if granted are expected to expire in July 2042, without taking potential patent term adjustment or extensions into account. We also have two families directed to combinations with SGLT2 inhibitors. If granted, these patents are expected to expire in December 2042 and April 2044, without taking potential patent term adjustment or extensions into account. +We have an additional patent family directed to a new process for synthesis of an intermediate in the manufacture of obicetrapib. This family currently consists of a U.S. provisional application. Any patents, if granted, are expected to expire about November 2045. +We have two patent families respectively covering treatment of the patient populations enrolled in our BROOKLYN and BROADWAY trials. These families currently consist of pending applications. Patents if granted on these applications are expected to expire approximately in September 2044 and September 2045. We also have a patent family directed to reductions in atherosclerotic plaque which currently consists of a pending PCT application. Patents if granted in this family are expected to expire in December 2044. +In addition, we have two patent families covering methods of using obicetrapib to treat neurodegenerative diseases. The first of these families includes 31 granted patents in Europe, one granted patent in Hong Kong and one granted patent in Israel. We also have patent applications pending in this family in the United States, Europe, China and other jurisdictions. The granted patents, and patent applications if granted, are expected to expire in March 2042, without taking potential patent term adjustment or extensions into account. The second family consists of a PCT application and a pending U.S. provisional application. Any patents that grant from this second family are expected to expire in September 2044, without taking potential patent term adjustments or patent term extensions into account. +25 +Finally, we have three patent families drawn to treatment of other clinical indications. Patents if granted from these families will expire in about October 2044, without taking potential patent term adjustments or patent term extensions into account. +Trade Secrets +We also rely on trade secrets, know-how, confidential information and continuing technological innovation to develop, strengthen and maintain our proprietary position in our field and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. However, trade secrets can be difficult to protect. While we take measures to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. We seek to protect our proprietary information, in part, using confidentiality agreements and invention assignment agreements with our collaborators, employees and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties. Furthermore, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors and other third parties, or misused by any collaborator to whom we disclose such information. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For more information regarding the risks related to our intellectual property, please see “ Risk Factors — Risks Related to Our Intellectual Property .” +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of drug products. We, along with any third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies, clinical trials or seek approval of our products and product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), as amended, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States, and this process generally involves the following: +• +completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (“GLP”) requirements and other applicable regulations; +• +submission to the FDA of an Investigational New Drug (“IND”) application, which must become effective before human clinical trials may begin and must be updated annually and when certain changes are made; +• +approval by an independent investigational review board (“IRB”) or independent ethics committee (“EC”) at each clinical site before each trial may be initiated; +• +performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) regulations, to establish the safety and efficacy of the proposed drug for its intended use; +• +preparation of and submission to the FDA of an NDA after completion of pivotal trials; +• +a determination by the FDA within 60 days of its receipt of an NDA to file the application for review; +• +satisfactory completion of an FDA advisory committee review, if applicable; +• +satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• +potential FDA audit of the nonclinical study and/or clinical trials sites that generated data in support of the NDA; and +• +FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical trials. The IND also includes results of animal and in vitro +26 +studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product; chemistry, manufacturing and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial or not allowing it to commence on the terms originally specified in the IND. +Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the trial until completed. Some trials also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board, which provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. +A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the clinical trial complies with regulatory requirements if the data is to be used in support of NDA approval. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection, if deemed necessary. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• +Phase 1 : The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage tolerance, absorption, metabolism, excretion and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. +• +Phase 2 : The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. +• +Phase 3 : The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and labeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA. +In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 trials may be conducted after initial marketing approval and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected AEs, findings from other trials suggesting a significant risk to humans exposed +27 +to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug. +U.S. Review and Approval Process +Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical, and other nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including trials initiated by independent investigators. To support marketing approval, the data submitted must be sufficient to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once accepted for filing, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality, and purity. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete its initial review and act on a standard NDA for a drug that is a new molecular entity, and of ten months from the date of NDA receipt to review and act on a standard NDA for a drug that is not a new molecular entity. The FDA does not always meet its PDUFA goal dates, and the review process is often extended by FDA requests for additional information or clarification. +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. +Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within designated specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs and assure the integrity of the clinical data submitted to the FDA. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. +If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post-marketing trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing trials or surveillance programs. +28 +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or fails to submit a request for approval of a pediatric formulation. +U.S. Expedited Development and Review Programs +The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a Fast Track designated product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. A Fast Track-designated product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted. Rolling review may occur if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or as a combination therapy with one or more other drugs may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +A marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review. A product candidate is eligible for priority review if it is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, or with respect to non-new-molecular-entity NDAs, within six months of the NDA receipt date. +Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may utilize an accelerated approval pathway upon a determination that the product has an effect on (1) a surrogate endpoint that is reasonably likely to predict clinical benefit or (2) a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to withdrawal of its approval if, for example, the sponsor fails to conduct the required post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the pre-approval review period, which could adversely impact the timing of the commercial launch of the product. +Fast Track designation, Breakthrough Therapy designation, priority review designation, and the accelerated approval pathway do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval, but may expedite the development or review process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +U.S. Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDA provides periods of non-patent regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace. Five years of exclusivity are available to new chemical entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent, or not involving +29 +the sharing of electron pairs between atoms, derivatives, such as a complex (i.e., formed by the chemical interaction of two compounds), chelate (i.e., a chemical compound), or clathrate (i.e., a polymer framework that traps molecules), of the molecule, responsible for the physiological or pharmacological activity of the drug substance. During the exclusivity period, the FDA may not accept for review or approve an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted by another company that contains the same active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a Paragraph IV certification of patent invalidity, unenforceability, or non-infringement is filed. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active ingredient for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a 505(b)(1) NDA; however, an applicant submitting a 505(b)(1) NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy. +The FDA may also grant pediatric exclusivity, which provides a six-month extension to existing regulatory or patent exclusivity. To be eligible for pediatric exclusivity, the FDA must issue a Written Request detailing the trials to be performed and the timeframe for their completion. If an applicant agrees to perform the trials as outlined in the Written Request, the applicant must submit trial reports at least nine months prior to the expiry of the exclusivity that is to be extended. The trial reports must demonstrate that the applicant has met the conditions of the Written Request. +U.S. Post-approval Requirements +Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. In rare cases, pre-approval of promotional materials may be required. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. Further, for certain modifications to the drug, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain prior FDA approval of a new NDA or NDA supplement, which may require the development and submission of additional data. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements in the event of a deviation. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and other tracking requirements and must notify the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market trials or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• +restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• +fines, warning letters or untitled letters; +• +clinical holds on clinical trials; +• +refusal of the FDA to approve pending applications or supplements to approved applications or suspension or revocation of product approvals; +• +product seizure or detention or refusal to permit the import or export of products; +• +consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• +mandated modification of promotional materials and labeling and the issuance of corrective information; +30 +• +the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• +injunctions or the imposition of civil or criminal penalties. +The FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s promotional communications on the subject of off-label use of their products. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labeling. +Other Healthcare Laws +In the United States, drug manufacturers and sponsors are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, and other healthcare fraud and abuse laws, as follows: +The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving, or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for, or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federal healthcare programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +The federal false claims laws, including the federal False Claims Act (the “FCA”), prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil FCA may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil FCA. +In addition, the civil monetary penalties statute, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program. +The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” and their respective subcontractors that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information. +The federal Physician Payments Sunshine Act requires applicable manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals including physician assistants and nurse practitioners, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. +There are federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, and such reported prices may be used in the calculation of reimbursement and/or discounts on approved products. +31 +Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing information and marketing expenditures or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws and other applicable healthcare fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. +Coverage and Reimbursement +Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. In the United States, no uniform policy exists for coverage and reimbursement for pharmaceutical products among third-party payors. Therefore, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The process for determining whether a third-party payor will provide coverage for a product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. +Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, and they often require us to provide scientific and clinical support for the use of our products to each payor separately, which can be a time- consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Additionally, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. +Moreover, as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid, we are subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain price reporting metrics to the government, such as Medicaid Average Manufacturer Price (“AMP”), and Best Price, Medicare Average Sales Price, the 340B Ceiling Price and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with such laws and regulations require significant resources and any findings of non-compliance may have a material adverse effect on our revenues. +Healthcare Reform +In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system and the reimbursement of drug products. For example, on August 16, 2022, President Biden signed the Inflation Reduction Act (the "IRA") into law which sets forth meaningful changes to drug product reimbursement by Medicare. The IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered Medicare and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions began to take effect in 2023, although several significant challenges concerning the provisions for Medicare price negotiations are currently pending before federal appeals courts. With respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B or Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or D drugs in 2028 and 20 Part B or Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least 7 years and biologics that have been licensed for 11 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. CMS may establish a maximum price for these products in price negotiations. +The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increased the price of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in +32 +2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +These provisions of the IRA may heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products. +In addition as a result of the Budget Control Act of 2011, health care providers are subject to Medicare payment reductions of 2% per fiscal year. This 2% reductions was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. In November 2019, CMS issued a final rule finalizing the changes to the Medicare Quality Payment Program. +There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the first Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. In addition, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate price cap as of January 1, 2024. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug price reform. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions by HHS. No legislative or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. +Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs and suppliers will be included in their healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. +We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act) that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act, the California Privacy Rights Act and the European General Data Protection Regulation 2016/679 (“GDPR”), govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Privacy and security laws, regulations and other obligations are +33 +constantly evolving, and these may conflict with each other which makes compliance efforts more challenging. Failure to comply with these laws, where applicable, can result in (i) the imposition of significant civil claims; (ii) private litigation; (iii) regulatory investigations and proceedings; (iv) significant penalties imposed by regulators; (v) enforcement notices and restrictions on data processing, requiring us to stop or change the way we use personal information; and (vi) negative publicity, reputational harm and a potential loss of business and goodwill. +Regulation and Procedures Governing Approval of Medicinal Products in the EU +In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales, manufacturing and distribution of our product candidates to the extent we choose to sell any of our product candidates outside of the United States. Whether or not we obtain FDA approval for a product, we or our third-party partners must obtain approval of a product by equivalent competent authorities in foreign jurisdictions before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that is approved outside the United States. +Medicinal products in the EU must be granted a marketing authorization (“MA”) before they can be marketed and sold in any EU member state. The process to obtain an MA requires the satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety, quality and efficacy of the medicinal product for each proposed therapeutic indication. It also requires the submission to the relevant competent authorities of an EU marketing authorization application (“MAA”) and granting of an MA by these authorities. The aforementioned EU rules are applicable in the European Economic Area (“EEA”), which consists of the 27 EU member states, as well as Norway, Liechtenstein and Iceland. +Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, the authorization of medicinal products and marketing of such products, both before and after grant of the MA, or with other applicable regulatory requirements may result in administrative, civil, or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal, or variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. +EU Non-Clinical Studies and Clinical Trials +Similar to the United States, the various phases of non-clinical research in the EU are subject to significant regulatory controls. +Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical substances. Non-clinical health and environmental safety studies must be conducted in compliance with the principles of GLP, as set forth in Directive 2004/10/EC. In particular, non-clinical health and environmental safety studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements. Research involving animals conducted within the EEA must comply with relevant national implementations of Directive 2010/63/EU, requiring that such testing is carried out in licensed facilities with appropriate staff and in compliance with animal welfare standards. +Until recently, the Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP, the Directive 2003/94/EC on GMP and the related national implementing provisions of the individual EU member states governed the system for the approval of clinical trials and the investigational medicinal product supply chain in the EU. As of January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 took effect and replaced the Clinical Trials Directive 2001/20/EC. Commission Implementing Regulation (EU) 2017/556 replaces the GCP Directive 2005/28/EC, and Commission Delegated Regulation (EU) 2017/1569 replaces the GMP Directive 2003/94/EC with respect to investigational medicinal products. Pursuant to transitional provisions under the Regulation, qualifying trials could continue to be governed by the national implementations of the Directives until January 31, 2025 if (i) a request for approval was submitted prior to January 31, 2022 or (ii) a request for approval was submitted prior to January 31, 2023 and the sponsor elected to follow the national implementations of the Directives instead of the Regulation. All ongoing clinical trials in the EU will be subject to the requirements of the Regulation after January 31, 2025. +The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of the regulation include: a streamlined application procedure via a single-entry point, the Clinical Trials Information System; a single set of documents to be prepared and submitted for the application, as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is jointly assessed by the competent authorities of all EU member states in which an application for authorization of a clinical trial has been submitted (member states concerned). Part II is assessed separately by each member state concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU member state. However, overall related timelines are defined by the Clinical Trials Regulation. +34 +Under either the Clinical Trials Directive or the Clinical Trials Regulation, clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and, if intended for regulatory submissions, the International Conference on Harmonization (“ICH”), guidelines on GCP, as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EEA, it must appoint an entity within the EEA to act as its legal representative. +Under the Clinical Trials Directive, the sponsor was obliged to take out a clinical trial insurance policy and/or maintain an appropriate indemnity or compensation scheme for clinical trial subjects, and in most EU member states, the sponsor was liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial. Similarly, the Clinical Trials Regulation prescribes that member states must implement a scheme providing for compensation for damage caused by participation in clinical trials within their territory in the form of insurance, a guarantee, or a similar arrangement that is equivalent as regards its purpose and which is appropriate to the nature and the extent of the risk. +Under the applicable regulatory system, an applicant must obtain prior approval from the competent national authority of the EEA member states in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific trial site after the competent ethics committee has issued a related favorable opinion. The application for authorization of a clinical trial must be accompanied by, among other documents, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation as prescribed by the Clinical Trials Regulation (EU) No 536/2014 and the Implementing Regulation (EU) 2017/556, as applicable, and further detailed in applicable guidance documents. Any substantial changes to the trial protocol or to other information submitted with the clinical trial application must be notified to or approved by the relevant competent national authorities and ethics committees. Medicinal products used in clinical trials must be manufactured in accordance with GMP, including in accordance with Commission Delegated Regulation (EU) 2017/1569. +EU Marketing Authorizations +To obtain an MA for a product in the EU, an applicant must submit an MAA either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in the EEA member states (decentralized procedure, national procedure, or mutual recognition procedure). An MA may be granted only to an applicant established in the EEA. +The centralized procedure comprises a single application, evaluation and authorization and provides for the grant of a single MA by the European Commission that is valid for all EU member states, and by extension also in the three EEA states. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for (i) medicinal products derived from biotechnological processes, (ii) products designated as orphan medicinal products, (iii) advanced therapy medicinal products and (iv) products with a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, auto-immune and other immune dysfunctions and viral diseases. For products with a new active substance indicated for the treatment of other diseases and products that are a significant therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients, the centralized procedure may be optional. +Under the centralized procedure, the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing MA. +Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of 210 days will be reduced to 150 days (not including clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. +Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as the Priority Medicines ("PRIME") scheme, which provides incentives similar to the breakthrough therapy designation in the United States. PRIME is a voluntary scheme aimed at enhancing the EMA's support for the development of medicinal products that show the potential to target unmet medical needs. It permits increased interaction and early dialogue with companies developing promising medicinal products, to optimize their product development plans and speed up their evaluation to help the product reach patients as early as possible. Product developers that benefit from PRIME designation are potentially eligible for accelerated assessment of their MAA although this is not guaranteed. Benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated MAA assessment once a dossier has been submitted. +Unlike the centralized authorization procedure, the decentralized MA procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU member state in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU member state prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report +35 +and related materials are submitted to the concerned EU member states who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU member state cannot approve the assessment report and related materials due to concerns relating to a potentially serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralised Procedures—Human ("CMDh") for review. The CMDh seeks to resolve the issue by achieving a negotiated consensus amongst participating member states. If that is not possible, the issue may be referred to the CHMP. The CHMP will allow submissions from the applicant and, having considered the relevant issues and data, will issue an opinion by majority vote. The Committee will then send the opinion to the European Commission, which will adopt a decision that is binding on the applicant and all EU relevant member states. +The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU member state to apply for this authorization to be recognized by the competent authorities in other EU member states. Like the decentralized procedure, the mutual recognition procedure is based on the acceptance by the competent authorities of the EU member states of the MA of a medicinal product by the competent authorities of other EU member states. The holder of a national MA may submit an application to the competent authority of an EU member state requesting that this authority recognize the MA delivered by the competent authority of another EU member state. +In principle, any EU MA has an initial validity of five years. The MA may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU member state in which the original MA was granted. To support the application, the MA holder must provide the EMA or the competent authority with a consolidated version of the Common Technical Document, providing up-to-date data concerning the quality, safety and efficacy of the product, including all variations introduced since the MA was granted, at least nine months before the MA ceases to be valid. The European Commission or the competent authorities of the EU member states may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year renewal period for the MA. Once subsequently definitively renewed, the MA shall be valid for an unlimited period. Any authorization that is not followed by the actual placing of the medicinal product on the EU market (in case of centralized procedure) or on the market of the authorizing EU member state within three years after authorization ceases to be valid (the so-called sunset clause). +In the EU, a “conditional” MA may be granted to meet the unmet medical needs of patients for medicinal products intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening diseases in cases where all the required safety and efficacy data are not yet available. The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once the specific obligations under the conditional MA are fulfilled (such as the completion of certain ongoing or new trials) and the complete data confirm that the medicinal product’s benefits continue to outweigh its risks, the conditional MA can be converted into a standard MA. However, if the specific obligations are not fulfilled within the timeframe set by the EMA, the conditional MA may cease to be renewed. +An MA may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to provide comprehensive information or when generating data may be contrary to generally accepted ethical principles. Like a conditional MA, an MA granted in exceptional circumstances is reserved for medicinal products intended to be authorized for the treatment of rare diseases or unmet medical needs for which the applicant does not hold a complete data set that is required for the grant of a standard MA. While an MA under exceptional circumstances may be subject to an obligation to conduct post-approval studies, unlike the conditional MA, an applicant for authorization in exceptional circumstances is not required to provide the missing data on the medicinal product’s efficacy and safety necessary to convert the conditional MA into a standard MA. Subject to renewal after five years (as with all standard MAs), the MA “under exceptional circumstances” is granted definitively, but the risk-benefit balance of the medicinal product is reviewed annually and the MA is withdrawn in case the risk-benefit ratio is no longer favorable. +In addition to an MA, various other requirements apply to the manufacturing and placing on the EU market of medicinal products. Manufacture of medicinal products in the EEA requires a manufacturing authorization, and import of medicinal products into the EEA requires a manufacturing authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance. These requirements include compliance with EU GMP standards when manufacturing medicinal products and active pharmaceutical ingredients (“API”), including the manufacture of APIs outside of the EU with the intention to import the APIs into the EU. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws, regulations and guidelines, including good distribution practice (“GDP”) standards and the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU member states. MA holders, manufacturing and import authorization (“MIA”) holders or distribution authorization holders may be subject to civil, criminal or administrative sanctions, including suspension of the MA, MIA or distribution authorization, in case of non-compliance with the EU or EU member states’ requirements applicable to the manufacturing, import and distribution of medicinal products. +EU Data and Market Exclusivity +The EU provides opportunities for data and market exclusivity related to MAs. Upon receiving an initial MA, innovative medicinal products that comprise a new active substance are entitled to eight years of data exclusivity and ten years of market exclusivity. Data exclusivity, if granted, prevents generic or biosimilar product manufacturers from referencing the innovator’s preclinical and clinical data in +36 +generic or biosimilar MAAs for eight years from the date of authorization of the innovative product, after which a generic or biosimilar MAA can be submitted, and the innovator’s data may be referenced. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until ten years have elapsed from the initial MA of the reference product in the EU. The overall ten-year period may, occasionally, be extended for a further year to a maximum of 11 years if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, there is no guarantee that an innovative medicinal product will be considered by the EU’s regulatory authorities to be a new active substance eligible for data and market exclusivity. These periods of data and market exclusivity may also be granted for a new MA for an existing active substance if the applicant is unrelated to the original MA holder and the MAA comprises a full free-standing dossier with relevant preclinical and clinical data +In the EU, there is a special regime for biosimilars products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials regarding biosimilarity must be provided in support of an MAA. +In April 2023, the European Commission proposed widespread changes to the existing pharmaceutical legislation that would, among other things, alter the data exclusivity periods available to MA holders if adopted into EU law. +EU Post-Approval Requirements +Where an MA is granted in relation to a medicinal product in the EU, the holder of the MA is required to comply with a range of regulatory requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. +Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission or the competent regulatory authorities of the individual EU member states. The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”). +All new MAAs must include a risk management plan describing the risk management system the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety trials. +In the EU, the advertising and the promotion of medicinal products are subject to both EU and EU member states’ laws governing promotion of medicinal products, interactions with physicians and other healthcare professionals or organizations, misleading and comparative advertising and unfair commercial practices. Although the general requirements for the advertising and the promotion of medicinal products are established under EU directives, the details are governed by laws and regulations in each member state and can differ from one country to another. For example, applicable laws prohibit pre-authorization and misleading advertising and require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with an MA. The SmPC is the document that provides information to physicians concerning the safe and effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of prescription medicinal products is also prohibited in the EU. There is also a prohibition on the offer or supply of inappropriate inducements to prescribe, subject to exemptions in certain jurisdictions, such as benefits that are inexpensive and relevant to the practice of medicine. +Proposals to amend EU pharmaceutical laws +In April 2023, the European Commission released proposals to amend the current EU pharmaceutical regulatory framework. The proposals seek to achieve a balance between supporting innovation and increasing the affordability and geographic availability of medicines. The potential reforms include shortening and modulating the periods of regulatory and/or marketing protections available for innovative products, requiring applicants to include environmental impact assessments in MAAs, increasing transparency and disclosure requirements, and restructuring the EMA’s scientific committees. The European Parliament adopted its position on the proposals on April 10, 2024 and the European Council is expected to adopt its position in 2025. Further trialogue negotiations between the European Commission, European Parliament and the European Council will then begin before the proposed reforms can enter into force under EU legislative procedures. Depending on the progress of these negotiations, legislative changes, if any, are not expected to come into force until 2026 at the earliest. It is also expected that there will further transition periods for most, if not all, of the new rules once the necessary legislation becomes effective. +Japanese Drug Regulation +Japan is a member of the ICH, and has pharmaceutical law and regulations that are similar in many respects those of the United States and the EU. Those requirements are embodied in the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (also known as the Pharmaceuticals and Medical Devices Act) and related cabinet orders, Ministerial ordinances, and guidelines. +37 +Clinical trials of medicinal products in Japan must be conducted in accordance with Japanese regulations and the ICH GCP guidelines. If the sponsor of the clinical trial is not an entity within Japan, it must appoint a domestic entity to act as its agent and carry out obligations on the overseas sponsor’s behalf. The sponsor must hold a clinical trial insurance policy, and in accordance with industry practice, should establish a compensation policy for the injuries from the trial. +Prior to the commencement of human drug clinical trial, the sponsor must complete a preclinical safety evaluation of the investigative product and submit a clinical trial notification, including the clinical trial protocol, to the Ministry of Health Labor and Welfare’s PMDA. This notification must be submitted after obtaining agreement of the IRB in relevant clinical trial institution(s). If the authorities do not raise an issue or comment on the notification application within 30 days, the sponsor may proceed to conclude clinical trial agreement(s) with the site(s) and commence the clinical trial. +Any substantial changes to the trial protocol or other information submitted must be cleared by the IRB and notified to the authorities. Medicines used in clinical trials must be manufactured in accordance with Japan’s cGMPs. +Non-clinical studies performed to demonstrate the safety of new chemical or biological substance must be conducted in compliance with the principles of Japanese GLP which reflect the Organization for Economic Co-operation and Development (“OECD”) requirements. Currently, Japan and EU have a mutual recognition agreement for GLP, and data generated compliant with EU requirements will be accepted by the Japanese authorities. There is no similar agreement with the United States, but this is not a significant issue because of the OECD arrangement. +To market an innovative medicinal product in Japan, domestic or overseas applicant must obtain government approval (or marketing authorization) through a new drug application. If the product is designed for treating certain difficult diseases or those for which the patient population is limited and demonstrates unique therapeutic value, the applicant may be able to obtain designation as an orphan drug product. There are also expedited programs for (i) truly innovative products for grave diseases with a unique mechanism of action (provided that development in Japan is concurrent or ahead of other jurisdictions) and (ii) products that satisfy certain unmet medical needs. +The evaluation of new drug applications is based on PMDA’s assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Once PMDA completes its review, the matter is considered by the advisory committee of experts, and the government grants approval upon any positive recommendation from the committee. If foreign data are part of the application, a dose response clinical trial for Japanese subjects may be required to ensure that data can be extrapolated to Japan’s population. +Separate from the approval requirement, it is also mandatory that the marketing authorization holder or its partner in Japan possess a drug marketing license. Companies in Japan that actually manufacture drugs must possess a drug manufacturing license, and overseas manufacturers must obtain a manufacturing certification. +People’s Republic of China (“PRC”) Drug Regulation +China heavily regulates the development, approval, manufacturing, and distribution of drugs, including biologics. For purposes of the below description of drug regulation in China, Hong Kong, Macao and Taiwan, which are governed by separate drug laws, are excluded. The regulatory requirements applicable depend, in part, on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval or “registration” category of the drug. For both imported and domestically manufactured drugs, China requires regulatory approval for a clinical trial application (“CTA”) to conduct clinical trials in China and submit China clinical trial data, prior to submitting an application for marketing approval. For imported drugs, the sponsor and marketing authorization holder must be an overseas company that, if the drug is already approved abroad, holds a marketing authorization in another country. +China also prioritizes review and approval of drugs and improvements to drugs (e.g., new indications, routes of administration) that have not yet been approved in any other jurisdiction (i.e., new to the world). In addition, China has created a set of expedited programs for drugs in high priority disease areas and drugs that more effectively treat life-threatening illnesses or that are needed for national emergencies. +The framework law in the drug space in China is the PRC Drug Administration Law (“DAL”). The DAL is implemented by various regulations and rules. The primary drug authority that regulates the life cycle of drugs is the NMPA. The NMPA has its own set of regulations, rules and guidelines further implementing the DAL. The rule governing CTAs, marketing approval, and post-approval amendment and renewal is known as the Drug Registration Regulation (“DRR”). +NMPA’s Center for Drug Evaluation (“CDE”) approves clinical trials and conducts the technical evaluation of each drug and biologic marketing application to assess safety and efficacy. Provincial-level medical products administrations help to enforce these rules, and issue entity licenses to domestic companies, such as drug manufacturing and distribution licenses. +The National Health Commission of the PRC (“NHC”) is China’s primary healthcare regulatory agency. It is responsible for regulating the health care system, including the licensure of medical institutions, which also serve as clinical trial sites, and credentialing of medical personnel. +38 +PRC Breakthrough Therapy Designation by the NMPA +Among other expedited programs, China administers a Breakthrough Therapy Designation. To qualify, a drug must be new to the world, intended to treat a life-threatening disease or one that can seriously impact quality of life, and for which there is no existing therapy in China or a demonstrated substantial improvement over available therapies. Drugs that are designated as breakthrough therapies will receive priority in meeting scheduling, enhanced guidance from CDE to expedite drug development, and may also qualify for other expedited programs, such as priority review and conditional approval. +PRC Non-Clinical Research +The NMPA requires preclinical data to support registration applications for imported and domestic drugs. For domestic laboratories, NMPA oversees an accreditation program pursuant to China’s GLP. If the preclinical research is conducted outside of China, then the applicant must sign and submit a certification with its CTA and marketing application stating that such research was conducted in accordance with applicable good laboratory practice rules. +PRC Clinical Trials and Regulatory Approval +Upon completion of preclinical studies, a sponsor will often need to conduct clinical trials in China to support registration. The materials required for a clinical trial application are substantial even at the CTA stage, including detailed manufacturing information. Drug registration trials in China many only be conducted after obtaining approval of a CTA submitted to CDE, approval of the ethics committee at each accredited hospital site, and human genetic resource approval (“HGR”), which is required for the collection of samples and certain associated data. CTAs may be approved in 60 business days if there is no comment from CDE, and the other applications can take approximately 3-4 months each. Prior to consenting subjects, information about clinical trials must be registered on a CDE-administered platform and continually updated during the trial, and certain information, not including the protocol, is made publicly available on the platform. +PRC Trial Exemptions and Acceptance of Foreign Data +The NMPA may reduce requirements for clinical trials and data, depending on the drug and the existing data. In some cases, NMPA has granted waivers for certain phases of trials and has stated that it will accept data generated abroad (even if not part of a global study with a site in China), including early phase data, that meets its requirements. According to the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data the data from foreign clinical trials must meet China’s authenticity, completeness, accuracy, and traceability requirements, and be obtained consistent with the relevant requirements under the China’s Drug GCP. Sponsors must be attentive to potentially meaningful ethnic differences in the subject populations. +PRC Clinical Trial Process and Good Clinical Practices +Pre-market drug clinical trials may have three phases, which can each require a CTA (unless one CTA covers all three). These clinical trials must be conducted in accordance with a protocol that NMPA, various ethics committees at different sites, and the Ministry of Science and Technology (which grants HGR approvals) all review as part of the aforementioned approvals, and in accordance with applicable drug rules, including China’s Drug GCP, issued jointly by NMPA and NHC. Trials must also be conducted at sites that have received credentials from the NHC and NMPA. +China is a member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“ICH”), so its GCP resemble the ICH GCP in a great many respects. However, there are some differences. For example, under China’s GCP the sponsor must provide legal and economic guarantee to the investigator for clinical trial-related injuries, but harm or death caused by medical negligence is excluded. The drug rules contain procedures for amending the clinical trial approval, including obtaining approval for safety-related protocol amendments. NMPA (specifically, its Center for Food and Drug Inspections) has the power to audit trials and sites for GCP compliance during and after the clinical trial. +PRC Drug Marketing Application and Approval +Upon completion of the development process, the applicant may submit a marketing authorization application to CDE. CDE will organize pharmaceutical, medical, and other technical personnel to conduct a review of the safety, efficacy, and quality controllability of the drug based on the application materials submitted, and the results of a verification and inspection (if required). If NMPA decides to approve the drug based on CDE’s opinion, it will issue a drug registration certificate (i.e., a marketing authorization). A marketing authorization must be renewed every five years. +As the marketing authorization holder (“MAH”), a drug company is responsible for the life cycle of the product, including development, production and distribution, post-market trials, routine annual reporting, and safety monitoring and reporting of adverse drug reactions, among other obligations. The MAH may engage third parties to fulfill some of these obligations, such as appropriately-qualified manufacturers and distributors. If the MAH is overseas, as is required for imported drugs, the MAH must appoint an agent, which must be an entity in China that assists with meeting regulatory obligations. Marketing authorizations can be transferred to entities with the required capacity. +39 +Both investigational and marketed drugs must be made in accordance with China GMPs. Domestic manufacturers must have a drug manufacturing license, and overseas manufacturers must certify that they will make drugs in accordance with GMP and meet their home country’s requirements. Drugs must be distributed in China by licensed drug distributors. +Competition +The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical companies, smaller biotechnology and specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial and technical human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA-approved drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete. +We believe the key competitive factors that will affect the development and commercial success of our obicetrapib product candidate, if approved, will be its enhanced LDL-lowering capability as a monotherapy or as a combination therapy, tolerability profile, convenience of oral dosing and availability of reimbursement from governmental and other third-party payors, and effect on other predictors of disease risk. +We are currently developing obicetrapib primarily for the treatment of patients at high cardiovascular risk with elevated levels of LDL-C as an adjunct to statins. If approved, obicetrapib would compete with approved non-statin treatments such as ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors such as Repatha, Praluent and Leqvio. There are also a number of product candidates in clinical development by third parties, such as Amryt Pharma, Arrowhead Pharmaceuticals, AstraZeneca, CVI Pharmaceuticals, Innovent Biologics, Ionis Pharmaceuticals, Matinas BioPharma, Merck, Novartis, Novo Nordisk, Regeneron Pharmaceuticals, Verve Therapeutics and others, that are intended to treat CVD. +Employees and Human Capital Resources +As of December 31, 2024, we had 68 employees, consisting of clinical, research and development, business development, regulatory, finance and operational personnel. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good. In addition, as of December 31, 2024, we engaged a total of 13 independent contractors. These independent contractors provide a diverse array of services, which includes assisting with our clinical development, manufacturing activities and regulatory obligations. +No Works Council or other employee representative body ( personeelsvertegenwoordiging ) is established within the Company, NewAmsterdam Pharma Holding B.V. or NewAmsterdam Pharma B.V. +We recognize that our continued ability to attract, retain and motivate exceptional employees is vital to ensuring our long-term competitive advantage. Our employees are critical to our long-term success and are essential to helping us meet our goals. Among other things, we support and incentivize our employees in the following ways: +• +Talent development, compensation and retention : We strive to provide our employees with a rewarding work environment, including the opportunity for growth, success and professional development. We provide a competitive compensation and benefits package, including bonus and equity incentive plans and a 401(k) plan for US employees—all designed to attract and retain a skilled and diverse workforce. +• +Health and safety : We support the health and safety of our employees by providing comprehensive insurance benefits, company-paid holidays, a personal time-off program and other additional benefits which are intended to assist employees to manage their well-being. +• +Inclusion and diversity : We are committed to efforts to increase diversity and foster an inclusive work environment that supports our workforce. +Corporate Information +Our legal and commercial name is NewAmsterdam Pharma Company N.V. We were incorporated as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands on June 10, 2022, solely for the purpose of effectuating the Business Combination. As part of the Business Combination, we converted our legal form to a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on November 21, 2022. The Company is registered with the Dutch Trade Register under number 86649051. The address of our registered office is Gooimeer 2-35 1411 DC Naarden, the Netherlands and the telephone number of the Company is +31 (0) 35 206 2971. Our agent in the United States is our subsidiary, NewAmsterdam Pharma Corporation. NewAmsterdam Pharma Corporation’s address is 20803 Biscayne Blvd, Suite #105, Aventura, Florida. +On November 22, 2022 (the “Closing Date”), we consummated a business combination pursuant to the Business Combination Agreement, dated as of July 25, 2022 (the “Business Combination Agreement”), by and among the Company, Frazier Lifesciences Acquisition +40 +Corporation, a Cayman Islands exempted company (“FLAC”), NewAmsterdam Pharma, and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company (“Merger Sub”). +Beginning on the day immediately prior to the Closing Date and finishing on the day immediately after the Closing Date, the following transactions occurred pursuant to the terms of the Business Combination Agreement (collectively, the “Business Combination”): +• +The shareholders of NewAmsterdam Pharma (“Participating Shareholders”) contributed all outstanding shares in the capital of NewAmsterdam Pharma to the Company in exchange for the issuance of ordinary shares, nominal value €0.12 per share (the “Ordinary Shares”), in the share capital of the Company (the “Exchange”); +• +Immediately after giving effect to the Exchange, the Company’s legal form was converted from a Dutch private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) to a Dutch public limited liability company ( naamloze vennootschap ); +• +After giving effect to the Exchange, Merger Sub merged with and into FLAC (the “Merger”), with FLAC surviving the merger as a wholly owned subsidiary of the Company; +• +In connection with the Merger, each issued and outstanding ordinary share of FLAC was canceled and extinguished in exchange for a claim for an Ordinary Share, and such claim was then contributed into the Company against the issuance of a corresponding Ordinary Share; +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms; +• +Each NewAmsterdam Pharma option that was outstanding and unexercised (“NewAmsterdam Pharma Options”) remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Options became options to purchase, and will when exercised be settled in Ordinary Shares; and +• +On the day following the Closing Date, FLAC changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). +Upon the achievement of a certain clinical development milestone, we will issue to the Participating Shareholders (including Saga Investments Coöperatief U.A. (“Amgen”), an affiliate of Amgen, Inc., and Mitsubishi Tanabe Pharma Corporation (“MTPC”) for this purpose) and holders of NewAmsterdam Pharma Options prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma as of the date of the Business Combination Agreement and who are at the time of achievement of such milestone providing services to the Company or its subsidiaries (the “Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders will take the form of awards of restricted stock units under the LTIP. As of December 31, 2024, 1,743,135 Earnout Shares and 143,002 Earnout Shares were allocated to Participating Shareholders and Participating Optionholders, respectively. The development milestone consists of the achievement and public announcement of Positive Phase 3 Data (as defined in the Business Combination Agreement) for each of NewAmsterdam Pharma’s BROADWAY clinical trial and BROOKLYN clinical trial at any time during the period beginning on the date immediately prior to the Closing Date and ending on the date that is five years after the date immediately after the Closing Date, or November 23, 2027. As a result, no Earnout Shares will be issuable if the applicable milestone is not achieved within five years of the Closing Date. +Prior to the Business Combination, we did not conduct any material activities other than those incident to our formation and certain matters related to the Business Combination, such as the making of certain required securities law filings. Upon the closing of the Business Combination, NewAmsterdam Pharma became our direct, wholly owned subsidiary, and holds all of our material assets and conducts all of our business activities and operations. +Available Information +Our website address is www.newamsterdampharma.com . Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. We file reports with the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Our website also includes our Annual Report on Form 20-F and information furnished on Form 6-K filed while we were a foreign private issuer. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. +41 +Item 1A. Risk Factors +An investment in our Ordinary Shares is risky. In addition to the other information in this Annual Report on Form 10-K, you should carefully consider the following risk factors in evaluating us and our business. If any of the events described in the following risk factors were to occur, our business, financial condition, results of operation and future growth prospects would likely be materially and adversely affected. In that event, the trading price of our Ordinary Shares could decline, and you could lose all or a part of your investment in our Ordinary Shares. Therefore, we urge you to carefully review this entire report and consider the risk factors discussed below. Moreover, the risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, financial condition, operating results or prospects. Additional risks that we currently do not know about, or that we currently believe to be immaterial, may also impair our business. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this Annual Report. +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +We are a clinical-stage company with limited operating history, no approved products and no historical product revenues, which makes it difficult to assess our future prospects and financial results. We have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any product revenue or become profitable or, if we achieve profitability, may not be able to sustain it. +We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing and undertaking clinical trials of our product candidate, obicetrapib. We are not profitable and have not generated product revenue from operations. We have historically incurred net losses since we commenced operations in October 2019. For the year ended December 31, 2024, we incurred a net loss of $241.6 million and as of December 31, 2024, we had an accumulated deficit of $558.6 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, considering the current research and development stage of our activities, as we do not have products approved for commercial sale. Our ability to ultimately achieve recurring product revenues and profitability is dependent upon our ability to successfully complete the development of obicetrapib and obtain necessary regulatory approvals for, and successfully manufacture, market and commercialize, our product together with our partners. +We believe that we will continue to expend substantial resources in the foreseeable future for the clinical development of obicetrapib or any additional product candidates and indications that we may choose to pursue in the future. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and payments for third-party manufacturing and supply, as well as sales and marketing of obicetrapib or any of our future product candidates if they are approved for sale by regulatory authorities. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of obicetrapib and any other drug candidates that we may develop in the future. Other unanticipated costs may also arise. +Our future capital requirements depend on many factors, including: +• +the timing of, and the costs involved in, clinical development and obtaining regulatory approvals for our product candidate; +• +changes in regulatory requirements during the development phase that can delay or force us to stop our activities related to obicetrapib or any of our future product candidates; +• +the cost of commercialization activities if obicetrapib is approved for sale, including marketing, sales and distribution costs; +• +the cost of third-party manufacturing of our product candidate; +• +the number and characteristics of any other product candidates we develop or acquire; +• +our ability to establish and maintain strategic collaborations, licensing or other commercialization arrangements, and the terms and timing of such arrangements; +• +the extent and rate of market acceptance of any future approved products; +• +the expenses needed to attract and retain skilled personnel; +• +the costs associated with being a public company, including additional costs associated with no longer qualifying as an emerging growth company; +• +the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including potential litigation costs and the outcome of such litigation; +• +the timing, receipt and amount of sales of, or royalties on, future approved products, if any; +• +any product liability or other lawsuits related to obicetrapib or any future product; +42 +• +scientific breakthroughs in the field of treatment for cardiometabolic diseases that could significantly diminish the need for our product candidate or make it obsolete; and +• +changes in reimbursement policies that could have a negative impact on our future revenue stream. +We may require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed and on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations. +Since our inception, almost all of our resources have been dedicated to the clinical development of obicetrapib. While we have been successful in the past in obtaining financing, we expect to continue to spend substantial amounts to continue the clinical development of our product candidate and on commercial readiness and establishment of sufficient commercial manufacturing capacity. As of December 31, 2024, we had cash and cash equivalents of $771.7 million. +We may require additional capital to pursue clinical activities, complete clinical trials, and obtain regulatory approval for and commercialize obicetrapib. In addition, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, convertible debt or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. Even if we believe that we will have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. +Any additional fundraising efforts may divert the attention of our management from day-to-day activities, which may adversely affect our ability to develop and commercialize obicetrapib. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us or the possibility of such issuance may cause the market price of our Ordinary Shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. +If adequate funds are not available to us on a timely basis, we may be required or choose to: +• +delay, limit, reduce or terminate clinical trials or other development activities for obicetrapib or any of our future product candidates; +• +delay, limit, reduce or terminate our other research and development activities; or +• +delay, limit, reduce or terminate our establishment or expansion of manufacturing, sales and marketing or distribution capabilities or other activities that may be necessary to commercialize obicetrapib or any of our future product candidates. +We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could harm our business, financial condition and results of operations. +Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies or current or future product candidates. +Unless and until we can generate substantial revenue, we expect to finance our future cash needs through public or private equity offerings, debt financings, collaborations, strategic alliances, license agreements and marketing or distribution arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. To the extent that we raise such additional capital through the sale of equity or convertible debt securities, our shareholders’ ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring and distributing dividends, and may be secured by all or a portion of our assets. +If we raise funds by entering into collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish additional valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us, any of which may harm our business, financial condition, operating results and prospects. If we are unable to raise additional funds through public or private equity offerings, debt financings, collaborations, strategic alliances, license agreements, or marketing or distribution arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or cease operations altogether. +We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”) and the Dutch Deposit Guarantee Scheme, the loss of which would have a severe negative affect on our operations and liquidity. +We currently maintain substantially all of our funds in cash deposit accounts at three financial institutions. The amounts held in our deposit accounts are, and in the future, may be, in excess of the insurance limit of $250,000 and €100,000 provided by the FDIC and Dutch +43 +Deposit Guarantee Scheme, respectively. In the event of a failure of any of these financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds such limitations, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. +Risks Related to Our Product Development, Regulatory Approval and Commercialization +We are dependent on the success of our only product candidate, obicetrapib, and cannot guarantee that obicetrapib will successfully complete clinical development, receive regulatory approval or, if approved, be successfully commercialized. +We have invested almost all of our efforts and financial resources in the research and development of obicetrapib. Our future success, including our ability to generate revenue, depends on our ability to develop, commercialize, market and sell obicetrapib. However, obicetrapib has yet to receive marketing approval from the FDA, the EMA or other comparable regulatory authorities. We currently generate no revenue from the sale of any products, and we may never be able to develop or commercialize a marketable product. +Obicetrapib’s marketability and commercialization are subject to significant risks associated with successfully completing current and future clinical trials, including: +• +our ability to successfully complete our clinical trials, including timely patient enrollment and acceptable safety and efficacy data and our ability to demonstrate the safety and efficacy of obicetrapib; +• +unless we have received a deferral or waiver, our ability to complete successfully any pediatric clinical trials agreed pursuant to the PREA or its EU equivalent; +• +that the Phase 3 clinical trials, even if successfully completed, will be sufficient to support an NDA submission; +• +the prevalence and severity of AEs associated with obicetrapib; +• +whether we are required by the FDA, the EMA or other comparable regulatory authorities to conduct additional preclinical studies or clinical trials, and the scope and nature of such studies or trials, prior to approval to market our product, such as a cardiovascular outcomes trial; +• +the timely receipt of necessary marketing approvals from the FDA, the EMA and other comparable regulatory authorities, including pricing and reimbursement determinations; +• +the ability to successfully commercialize obicetrapib, if approved, for marketing and sale by the FDA, the EMA or other comparable regulatory authorities; +• +our ability and the ability of our third-party manufacturing partners to timely and satisfactorily manufacture quantities of obicetrapib at quality levels necessary to meet regulatory requirements and at a scale sufficient to meet anticipated demand at a cost that allows us to achieve profitability; +• +our success in educating healthcare providers and patients about the benefits, risks, administration and use of obicetrapib, if approved; +• +acceptance of obicetrapib, if approved, as safe and effective by patients and the healthcare community; +• +the maintenance of an acceptable safety profile of our product following any approval; +• +the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing treatments for the indications addressed by obicetrapib; +• +entering into, on favorable terms, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize obicetrapib; +• +the effectiveness of our and any current or future collaborators’ marketing, sales and distribution strategy, and operations; +• +our ability to obtain, protect and enforce our intellectual property rights with respect to obicetrapib; and +• +our ability to implement strategies to minimize the impact of pandemics or other health epidemics to our business, including with respect to initiating, enrolling, conducting or completing our planned and ongoing clinical trials of obicetrapib and addressing any potential disruption or delays to the supply of our product candidates. +Many of these clinical, regulatory and commercial risks are beyond our control. Accordingly, we cannot assure you that we will be able to advance obicetrapib successfully through clinical development, or to obtain regulatory approval of, or commercialize, obicetrapib or any future product candidates. If we fail to achieve these objectives or overcome the challenges presented above, we could experience significant delays or an inability to successfully commercialize obicetrapib. Accordingly, we may not be able to generate sufficient revenues through the sale of obicetrapib to enable us to continue our business. +44 +We have never obtained approval for, or commercialized, any product candidate, and may be unable to do so successfully. +As a company, we have never progressed a product candidate through to regulatory approval. We have not previously submitted an NDA, an MAA or any similar drug approval filing to the FDA, the EMA or any comparable regulatory authority for any product candidate, and we cannot be certain that obicetrapib will be successful in clinical trials or receive regulatory approval. Further, obicetrapib may not receive regulatory approval even if it is successful in clinical trials. Even if we successfully obtain regulatory approvals to market our product candidate, our revenues will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights or share in revenues from the exercise of such rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved. In addition, there are, in general, relatively limited sources that can provide commercial product supply. While we believe our existing suppliers are sufficient to support our estimated target commercial market, and that alternative sources of supply exist if needed, there is no guarantee that our current and projected supply would be sufficient to support our commercials needs, if approved, especially if the market for obicetrapib is larger than we expected. +Further, our clinical trials may require more time and incur greater costs than we anticipate. We cannot be certain that our planned clinical trials will begin or conclude on time, if at all. Large-scale trials require significant financial and management resources. Third-party clinical investigators do not operate under our control. Any performance failure on the part of such third parties could delay the clinical development of obicetrapib or delay or prevent us from obtaining regulatory approval or commercializing obicetrapib or future product candidates, depriving us of potential product revenue and resulting in additional losses. +Clinical drug development involves a lengthy and expensive process with uncertain outcomes. Results of earlier studies and trials may not be predictive of future trial results and our clinical trials may fail to adequately demonstrate the safety and efficacy of obicetrapib. +Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Trial costs have increased significantly following the COVID-19 pandemic. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. We do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed, suspended or terminated for a variety of reasons, including failure to: +• +obtain allowance from the FDA or comparable foreign regulatory authorities in order to commence a trial; +• +identify, recruit and train suitable clinical investigators; +• +reach agreement on acceptable terms with prospective contract research organizations (“CROs”), and clinical trial sites, and have such CROs and sites effect the proper and timely conduct of our clinical trials; +• +obtain and maintain IRB approval, or comparable EC approval in foreign jurisdictions, at each clinical trial site; +• +identify, recruit and enroll suitable patients to participate in a trial; +• +have a sufficient number of patients complete a trial or return for post-treatment follow-up; +• +ensure patient compliance with the trial protocols; +• +ensure clinical investigators and clinical trial sites observe trial protocol or continue to participate in a trial; +• +address any patient safety concerns that arise during the course of a trial; +• +address any conflicts with new or existing laws or regulations; +• +add a sufficient number of clinical trial sites; +• +manufacture sufficient quantities at the required quality of obicetrapib for use in clinical trials; +• +obtain accurate and complete data collected by our clinical trial sites; +• +retain a sufficient number of subjects to complete our clinical trials; or +• +raise sufficient capital to fund a trial. +Product candidates like obicetrapib in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and earlier clinical trials, especially given the large number of patients enrolled and the extended timeline to complete such trials, including late-stage CVOT trials. In addition to the safety and efficacy traits of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and it is possible that we will as well. Based upon negative or inconclusive results, including with respect to our ongoing Phase 3 PREVAIL trial, we may decide, or regulators may require us, to conduct +45 +additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. +We may also encounter delays if a clinical trial is suspended or terminated by us or the IRBs or ECs of the institutions in which such trials are being conducted, the trial’s data safety monitoring board (the “DSMB”), the FDA, the EMA or other comparable regulatory authorities. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA or other comparable regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, a finding that the participants are being exposed to an unacceptable benefit-risk ratio, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. +If we experience delays in the initiation, enrollment or completion of any clinical trial of obicetrapib, or if any clinical trials of obicetrapib are cancelled or fail to adequately demonstrate the safety and efficacy of obicetrapib, the commercial prospects of obicetrapib may be materially adversely affected, and our ability to generate product revenues will be delayed or not realized at all. In addition, any delays in completing our clinical trials may increase our costs and slow down our product candidate development and approval process. Any of these delays may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of obicetrapib. +We depend on enrollment and retention of subjects in our clinical trials for obicetrapib. If we experience delays or difficulties enrolling or retaining subjects in our clinical trials, our research and development efforts and business, financial condition and results of operations could be materially adversely affected. +If we experience delays or difficulties in the enrollment and retention of subjects in our ongoing or future clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented. The enrollment of subjects depends on many additional factors, including: +• +the subject eligibility criteria defined in the protocol; +• +the general willingness of subjects to enroll in the trial; +• +patient compliance with the trial protocols; +• +the sample size of the subjects required for analysis of the trial’s primary endpoints; +• +the proximity of subjects to trial sites; +• +the design of the trial; +• +our ability to recruit clinical trial investigators with the appropriate competencies and experience; +• +clinicians’ and subjects’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new therapies that may be approved for the indications we are investigating; +• +the clinical site’s ability to obtain and maintain subject consents; and +• +clinical trial participants may not comply with clinical trial protocol procedures and instructions. +Our clinical trials may also compete with other clinical trials for product candidates that seek to treat cardiometabolic diseases, and this competition will reduce the number and types of subjects available to us. In addition, our clinical trials, in particular the Phase 3 CVOT PREVAIL trial, are being conducted over the course of several years, during which new clinical trials by our competitors may be initiated. Even if we are able to enroll a sufficient number of subjects in our clinical trials, such subjects may later opt to enroll in a clinical trial that is initiated by one of our competitors. The number of subjects available for our clinical trials at certain clinical trial sites may also be reduced due to the limited number of qualified clinical investigators, which may lead us to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use. +Delays in subject enrollment and difficulties in subject retention may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of obicetrapib. +Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we have disclosed and in the future may publicly disclose preliminary or “topline” data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or clinical trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the “topline” or preliminary results that we report may differ from future results of the same studies, or different conclusions or +46 +considerations may qualify such results, once additional data have been received and fully evaluated. “Topline” data also remain subject to audit and verification procedures that may result in the final data being materially different from the data we previously published. As a result, “topline” data should be viewed with caution until the final data are available. +Additionally, we have disclosed and in the future may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our Ordinary Shares. +Further, others, including regulatory authorities and collaboration or regional partners, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of our particular program, the approvability or commercialization of obicetrapib or any future product candidate and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. +If the interim, “topline,” or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, obicetrapib may be harmed, which could significantly harm our business, financial condition, results of operations and prospects. +The regulatory approval processes of the FDA, the EMA and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for obicetrapib, our business will be substantially harmed. +The research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval monitoring and reporting, and export and import of drug products are subject to extensive regulation by the FDA, the EMA and other comparable regulatory authorities in other countries. These regulations differ from country to country. We have not yet obtained regulatory approval to market obicetrapib in the United States or any other country, but plan to seek approval of obicetrapib in the United States, the EU, the United Kingdom, Japan and China. To gain approval to market obicetrapib, we must provide clinical trial data that adequately demonstrate the safety and efficacy of the product for the intended indication. +We cannot be certain of the timely completion or outcome of any of our current and future clinical studies, if any, on obicetrapib. We cannot be sure that the FDA, local regulatory authorities in the EU or other comparable regulatory authorities (including the Medicines and Healthcare products Regulatory Agency in the United Kingdom (“MHRA”), the PMDA and the NMPA) will accept the outcome of our clinical trial data as sufficient to support the submission of an IND, clinical trial authorizations (“CTAs”) or similar applications for any of our programs which may result in us being unable to submit INDs, CTAs or similar applications or result in FDA, local regulatory authorities in the EU or other comparable regulatory authority refusing to allow clinical trials to begin. Furthermore, Phase 3 clinical trials often produce unsatisfactory results even though prior clinical trials were successful. Moreover, the results of clinical trials may be unsatisfactory to the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities even if we believe those clinical trials to be successful. The FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may suspend one or all of our clinical trials or require that we conduct additional clinical, preclinical, manufacturing, validation or drug product quality studies and submit that data before considering or reconsidering any NDA or comparable foreign regulatory application that we may submit. Depending on the extent of these additional studies, approval of any applications that we submit may be significantly delayed or may cause the termination of such programs, or may require us to expend more resources than we have available. The FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities can delay, limit or deny approval of our product candidate for many reasons, including: +• +our inability to satisfactorily demonstrate that obicetrapib is safe and effective for the target indication; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may disagree with our clinical trial protocol, the interpretation of data from preclinical studies or clinical trials, or adequate conduct and control of clinical trials; +• +the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities for approval; +• +the population studied in the clinical trials may not be sufficiently broad or representative to assess safety in the patient population for which we seek approval; +• +the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities for approval; +• +our inability to demonstrate that clinical or other benefits of obicetrapib outweigh any safety or other perceived risks; +47 +• +determination by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities that additional preclinical studies or clinical trials are required or that additional data must be included; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to approve of the formulation, labeling or the specifications of obicetrapib; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to accept the manufacturing processes or facilities of third-party manufacturers with which we contract; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or such processes or facilities may not pass a pre-approval inspection; +• +the potential for approval policies or regulations of the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities to significantly change or differ from another in a manner rendering our clinical data insufficient for approval; or +• +resistance to approval from the FDA’s advisory committee for any reason including safety or efficacy concerns. +The FDA, the EMA or other comparable regulatory authorities may also approve obicetrapib for a more limited indication or a narrower patient population than we originally requested, and the FDA, the EMA or other comparable regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successful commercialization of obicetrapib. To the extent we seek regulatory approval in other foreign countries, we may face challenges similar to those described above with regulatory authorities in applicable jurisdictions. +We and our collaborator(s) are not permitted to market or promote obicetrapib before we receive regulatory approval from the FDA, the EMA, the MHRA, the PMDA, the NMPA or comparable regulatory authorities in other countries, and we may never receive such regulatory approval for obicetrapib to allow us to successfully commercialize our product candidate. If we do not receive regulatory approval with the necessary conditions to allow successful commercialization, we will not be able to generate revenue from obicetrapib in the United States or other countries in the foreseeable future, or at all. Any delay in obtaining, or inability to obtain, applicable regulatory approval for obicetrapib would delay or prevent commercialization of our obicetrapib and could thus negatively impact our business, results of operations and prospects. +Our ongoing clinical trials may be subject to delays or failures, which could result in increased costs to us and could delay, prevent or limit our ability to obtain regulatory approval for obicetrapib, which could have an adverse impact on our business. +In addition to our Phase 3 lipid-lowering clinical trials for obicetrapib, we are currently conducting a CVOT, in patients with ASCVD. The completion of these clinical trials or any of our other ongoing or future clinical trials may be delayed for a number of reasons, including: +• +the FDA, EMA or any other regulatory authority may not agree with the clinical trial design or overall program; +• +the FDA, EMA or any other regulatory authority may place a clinical trial on hold; +• +delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; +• +inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials; +• +difficulties or delays obtaining IRB or EC approval to conduct a clinical trial at a prospective site or sites; +• +severe or unexpected drug-related side effects experienced by patients in a clinical trial, including instances of muscle pain or weakness or other side effects; +• +reports from preclinical or clinical testing of other cardiometabolic therapies that raise safety or efficacy concerns; and +• +difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trial, lack of efficacy, side effects, personal issues or loss of interest. +In addition, a clinical trial may be suspended or terminated by us, the FDA, the EMA, the IRBs or ECs at the sites where the IRBs or ECs are overseeing a clinical trial, a DSMB overseeing the clinical trial at issue or any other regulatory authorities due to a number of factors, including, among others: +• +failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; +• +inspection of the clinical trial operations or clinical trial sites by the FDA, EMA or any other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a clinical hold; +• +unforeseen safety issues; +48 +• +changes in government regulations or administrative actions; +• +problems with clinical supply materials; and +• +lack of adequate funding to continue the clinical trial. +Any such delays in our clinical trials could result in increased costs to us and delay, prevent or limit our ability to obtain regulatory approvals. Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may materially harm our business and results of operations. +Obicetrapib may produce undesirable side effects that we may not have detected in our previous preclinical studies and clinical trials. This could prevent us from gaining approval or market acceptance, including broad physician adoption, for our product candidate, if approved, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations. +As with most pharmaceutical products, use of obicetrapib may be associated with side effects or AEs that can vary in severity and frequency. Side effects or AEs associated with the use of obicetrapib may be observed at any time, including in clinical trials or once a product is commercialized, and any such side effects or AEs may negatively affect our ability to obtain regulatory approval or market obicetrapib. We cannot assure you that we will not observe drug-related serious AEs in the future or that the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities will not determine them to be as such. Side effects such as toxicity or other safety issues associated with the use of obicetrapib could require us to perform additional trials or halt development or sale of obicetrapib or expose us to product liability lawsuits, which will harm our business. +Furthermore, our current Phase 3 clinical trials for obicetrapib, especially our PREVAIL CVOT, involve a larger patient base than that previously studied, and the commercial marketing of obicetrapib, if approved, will further expand the clinical exposure of the drug to a wider and more diverse group of patients than those participating in the clinical trials, which may identify undesirable side effects caused by our product candidate that were not previously observed or reported. +We may fail to report AEs that the FDA, the EMA and other comparable regulatory authority regulations require that we report certain information about adverse medical events if our product may have caused or contributed to those AEs. The timing of our obligation to report would be triggered by the date upon which we become aware of the AE as well as the nature and severity of the event. We may also fail to appreciate that we have become aware of a reportable AE, especially if it is not reported to us as an AE or if it is an AE that is unexpected or removed in time from the use of our product. If we fail to comply with our reporting obligations, the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authority could take action including enforcing a hold on or cessation of clinical trials, withdrawal of approved drugs from the market, criminal prosecution, the imposition of civil monetary penalties or seizure of our product. +Additionally, in the event we discover the existence of adverse medical events or side effects caused by obicetrapib, a number of other potentially significant negative consequences could result, including: +• +our inability to file an NDA or similar application for obicetrapib because of insufficient benefit-risk profile, or the denial of such application by the FDA, the EMA or other comparable regulatory authorities; +• +the FDA, the EMA or other comparable regulatory authorities suspending or withdrawing their approval of the product; +• +the FDA, the EMA or other comparable regulatory authorities requiring the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions; +• +the FDA, the EMA or other comparable regulatory authorities requiring us to issue specific communications to healthcare professionals, such as letters alerting them to new safety information about our product, changes in dosage or other important information; +• +the FDA, the EMA or other comparable regulatory authorities issuing negative publicity regarding the affected product, including safety communications; +• +our being limited with respect to the safety-related claims that we can make in our marketing or promotional materials; +• +our being required to change the way the product is administered, conduct additional preclinical studies or clinical trials, or restrict or cease the distribution or use of the product; and +• +our being sued and held liable for harm caused to patients. +Any of these events could prevent us from achieving approval or market acceptance of obicetrapib and could substantially increase commercialization costs or even force us to cease operations. We cannot assure you that we will resolve any issues related to any product-related AEs to the satisfaction of the FDA, the EMA or other comparable regulatory authority in a timely manner or ever, which could harm our business, prospects and financial condition. +49 +We conduct clinical trials for our product candidate outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials, in which case our development plans in the United States and applicable foreign jurisdictions may be delayed, which could materially harm our business. +Our ongoing clinical trials are being conducted both within and outside the United States, and we intend to conduct portions of our future clinical trials outside the United States. The acceptance of clinical trial data by the FDA, EMA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions, or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In cases where data from foreign clinical trials are intended to serve as the basis for marketing authorizations in the EU, the EMA and/or local regulatory authorities in EU member states require that such clinical trials follow the principles that are equivalent to the clinical trial requirements set out under relevant EU legislation, including with respect to ethical and GCP standards. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that any U.S. or foreign regulatory authority would accept data from clinical trials conducted outside of its applicable jurisdiction. If the FDA, EMA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction. +Disruptions at the FDA and other regulatory agencies caused by funding shortages or future global health crises could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new products or modifications to be approved by government agencies, which would adversely affect our business. Over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory authorities, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process its regulatory submissions or provide feedback with respect to our planned clinical trials, which could have a material adverse effect on our business. +If a prolonged government shutdown occurs, or if global health crises prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. +In addition, the new presidential administration has indicated that it may pursue significant changes to the operation of the FDA and other agencies, including significantly reducing the size of the workforce at the FDA. The effect of these changes, if adopted, is not clear at this time. There is a risk that the changes will disrupt the functioning of the FDA in ways that effect the review of our submissions. +Even if we receive regulatory approval for obicetrapib or our future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses, limit or withdraw regulatory approval and subject us to penalties if we fail to comply with applicable regulatory requirements. +Any regulatory approvals that we receive for obicetrapib or future product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, risk mitigation and surveillance to monitor the safety and efficacy of the product candidate, and we may be required to include labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings. Such requirements could negatively impact us by reducing revenues or increasing expenses, and cause the approved product not to be commercially viable. Absence of long-term safety data may further limit the approved uses of our product, if any. +If the FDA, the EMA or other comparable regulatory authority approves obicetrapib, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. For certain commercial prescription drug products, manufacturers and other parties involved in the supply chain must also meet chain of distribution requirements and build electronic, interoperable systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or other products that are otherwise unfit for distribution in the United States. The EU similarly has in force falsified medicines rules, which require appropriate packaging, labeling, registration and tracking of certain medicinal products to ensure the +50 +detection of counterfeit medicinal products, and associated reporting requirements. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: +• +suspension or imposition of restrictions on operations, including costly new manufacturing requirements; +• +restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary product recalls; +• +fines, untitled or warning letters or holds on clinical trials; +• +refusal by the FDA, the EMA or other comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals; +• +product seizure or detention, or refusal to permit the import or export of products; and +• +injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates the promotional claims that may be made about drug products. In particular, the FDA prohibits the pre-approval promotion of drugs as safe and effective for the purposes for which they are under investigation. Similarly, the FDA prohibits the promotion of approved drugs for new or unapproved indications. Comparable restrictions apply in the EU, where, in addition, the advertising of prescription only medications to the general public is prohibited . If we are found to have improperly engaged in pre-approval promotion or to have improperly promoted off-label uses of our product candidates, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions, which would materially adversely affect our business and financial condition. The FDA could issue a public untitled or warning letter to us. We could also be subject to FDA prohibition on the sale or marketing of our product candidates or significant fines and penalties. The imposition of these sanctions could affect our reputation and position within the industry. Additionally, if the FDA believes we have improperly promoted an investigational product pre-approval, it is possible that it could lead the FDA to be more strict in their review of our application, including our proposed labeling for a drug. +Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize obicetrapib, and harm our business, financial condition and results of operations. +In addition, the policies of the FDA, the EMA, the MHRA, the PMDA, the NMPA and other comparable regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of obicetrapib. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect our business, financial condition and results of operations. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. +The FDA, the EMA or other comparable regulatory authorities strictly regulate the promotional claims that may be made about prescription drug products, such as obicetrapib, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or other comparable regulatory authorities as reflected in the product’s approved labeling. For example, if we receive marketing approval for obicetrapib for cardiometabolic disease, physicians, in their professional medical judgment, may nevertheless prescribe obicetrapib to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label use, we may become subject to significant liability under the FDCA and other statutory authorities, such as laws prohibiting false claims for reimbursement. The federal government in the United States has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred and our reputation could be damaged. The U.S. government has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to prohibitions on the sale or marketing of our products or significant fines and penalties, and the imposition of these sanctions could also affect our reputation with physicians, patients and caregivers, and our position within the industry. +We are developing obicetrapib in combination with other therapies, and safety or supply issues with combination products may delay or prevent development and approval of our combination product candidate. +We are developing obicetrapib as both a monotherapy and in combination with one or more approved therapies. For example, we are evaluating obicetrapib in combination with ezetimibe, including the combination on top of high intensity statin therapy. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with +51 +any of those existing therapies. If the therapies we use in combination with our product candidate are replaced as the standard of care for the indications we choose for any of our product candidate, the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own product, if approved, being removed from the market or being less successful commercially. +We also may evaluate our product candidate or any future product candidates in combination with one or more therapies that have not yet been approved for marketing by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities. We will not be able to market and sell any product candidate we develop in combination with an unapproved therapy if that unapproved therapy does not ultimately obtain marketing approval. In addition, unapproved therapies face the same risks described with respect to our product candidate currently in development, including the potential for serious adverse effects, lack of efficacy, delay in their clinical trials and lack of FDA, EMA, MHRA, PMDA or NMPA approval. +If the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities do not approve these other therapies or revoke their approval of, or if safety, efficacy, manufacturing or supply issues arise with, the therapies we choose to evaluate in combination with our product candidates, we may be unable to obtain approval of or market any such product candidate. +If we are not successful in our efforts to discover, in-license or acquire and develop additional product candidates, we may be unable to grow our business. +We may elect to build a pipeline of product candidates and progress these product candidates through clinical development for the treatment of a variety of diseases. We also intend to evaluate additional potential indications for obicetrapib and may choose to in-license or acquire other product candidates or commercial products to treat patients suffering from other cardiometabolic or other diseases with significant unmet medical needs. Efforts to identify, in-license or acquire, and develop or continue to develop, product candidates require substantial technical, financial and human resources, whether or not any such product candidates are ultimately advanced. Even if we are successful in building our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects, lack of efficacy, or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. Further, in-licensing early-stage product candidates can be particularly risky as it requires substantial additional development efforts prior to potential regulatory approval and commercial sale, including extensive clinical testing, all of which may be unsuccessful. Acquiring and developing early-stage assets would divert resources that otherwise could be used to develop and commercialize obicetrapib. +In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives. We may opportunistically pursue a strategy that would entail in-licensing additional product candidates or utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We may also become reliant on the research efforts of third parties for any such product candidates that we do not intend to conduct preclinical studies or early-stage clinical trials for. If we do not successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm to our financial position and potential for growth and adversely affect the price of the Ordinary Shares. +We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +Because we have limited financial and management resources, we are currently primarily focused on the development of obicetrapib for cardiometabolic diseases and we may forego or delay pursuit of opportunities with other product candidates or for other indications for obicetrapib that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial product candidates or profitable market opportunities. Our spending on current and future development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. +Even if we obtain and maintain approval for our current and future product candidates from a regulatory authority in one or more jurisdictions, we may nevertheless be unable to obtain approval for our product candidates outside of those jurisdictions, which would limit our market opportunities and could harm our business. +Approval of a product candidate by one regulatory authority in any jurisdiction does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions. Even if one regulatory authority grants marketing approval for a product candidate, comparable regulatory authorities of other countries also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that +52 +we intend to charge for any product candidates, if approved, is also subject to approval. Obtaining approval for obicetrapib or any future product candidate in the EU from the European Commission following the opinion of the EMA or in other foreign jurisdictions, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. Even if a product candidate is approved, the FDA, the EMA or other foreign regulatory authorities, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of obicetrapib or any future product candidate in certain countries. +Obicetrapib, if approved, will face significant competition from competing therapies and our failure to compete effectively may prevent us from achieving significant market penetration. +The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Our potential competitors include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in obtaining marketing approvals from the FDA, the EMA and other comparable regulatory authorities. These companies may develop new drugs to treat the indications that we target, or seek to have existing drugs approved for use for the treatment of the indications that we target. +If obicetrapib is approved, our main competition will come from current LDL-C lowering therapies on the market for use on top of maximally tolerated statins, such as PSCK9 inhibitor injectables from Amgen Inc., Regeneron Pharmaceuticals, Inc. and Novartis International AG. We may also face competition from oral therapeutics containing bempedoic acid from Esperion. We are aware that Merck has decided to advance its oral PSCK9 inhibitor, MK-0616, into Phase 3 development and AstraZeneca has advanced its oral PSCK9 inhibitor, AZD0780, into Phase 2 development. If approved, MK-0616 and/or AZD0780 could pose additional competition for obicetrapib. +Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in this industry. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective or less costly than our product candidate. +Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success. +Even if we obtain FDA, EMA or other foreign regulatory approvals for our product candidate, the commercial success of obicetrapib will depend significantly on the broad adoption and use by physicians for approved indications. The degree and rate of physician and patient adoption of obicetrapib, if approved, will depend on a number of factors, including: +• +the clinical indications for which obicetrapib is approved; +• +the prevalence and severity of adverse side effects; +• +the pricing and extent to which the costs of obicetrapib are reimbursed by third-party payors, and patients’ willingness to pay for obicetrapib; +• +physicians’ satisfaction with, and acceptance by the medical community and patients of, the efficacy and safety results of obicetrapib results as demonstrated in clinical trials; +• +patient satisfaction with the results and administration of obicetrapib and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects; +• +the extent to which physicians recommend obicetrapib to patients; +• +physicians’ and patients’ willingness to adopt new therapies in lieu of other products or treatments; +• +the timing of market introduction of obicetrapib as well as competitive products; +• +the convenience of prescribing and initiating patients on obicetrapib; +• +relative convenience and ease of administration of obicetrapib; +• +the cost of treatment, safety and efficacy in relation to alternative treatments, including any similar generic treatments; +• +the revenues and profitability that obicetrapib will offer physicians as compared to alternative therapies; and +• +the effectiveness of our sales and marketing efforts. +If obicetrapib is approved for use but fails to achieve the broad degree of physician adoption and market acceptance necessary for commercial success, we will not be able to generate significant revenues, and we may not become or remain profitable. +Risks Related to Our Collaboration With or Reliance on Third Parties +53 +We currently contract with third-party contractors for all aspects of the manufacturing of obicetrapib for clinical trials, and expect to continue to do so to support commercial scale production of obicetrapib, if approved. There are significant risks associated with contracting with third-party suppliers, including their ability to meet the increased need that may result from our potential commercialization efforts. This increases the risk that we will not have sufficient quantities of obicetrapib or be able to obtain such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts. +We currently rely on third-party contract manufacturing organizations (“CMOs”) and suppliers for all of our required raw materials, active ingredients and finished products for our clinical trials. Because there are a limited number of suppliers for the raw materials that we use to manufacture our product candidate, we may need to engage alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidate for our clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the availability of raw materials. If we or our manufacturers are unable to purchase these raw materials on acceptable terms, at sufficient quality levels or in adequate quantities, if at all, the development and commercialization of our product candidate or any future product candidates would be delayed, or there would be a shortage in supply, which would impair our ability to meet our development objectives for our product candidates or generate revenues from the sale of any approved products. We currently rely on several CMOs to produce both drug substances and drug products required for our clinical trials. While we believe our existing suppliers are sufficient and that alternative sources of supply exist if needed, there can be no assurance that we will be able to quickly establish additional or replacement sources if needed, and a reduction or interruption in supply could adversely affect our ability to manufacture our product candidate in a timely or cost-effective manner. In addition, some of our CMOs and suppliers are located outside of the United States. As such, we are also subject to any global supply chain disruption that may arise as a result of geopolitical factors, public health crises, natural disasters or the potential impacts of global climate change. Global supply chain disruptions could lead to interruptions in our suppliers’ production, which could impact our ability to obtain sufficient quantities of obicetrapib at an acceptable cost for our clinical trials and commercial sale, if approved. +We expect to continue to rely on our current or other subcontractors and suppliers to support our commercial requirements if obicetrapib, or any future product candidate, is approved for marketing by the FDA, the EMA or other comparable regulatory authorities. We plan to continue to rely on third parties for the raw materials, compounds and components necessary to produce our product candidates for our clinical trials. +Our continuing reliance on third-party CMOs and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing or supply agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third-party CMOs and suppliers may not be able to comply with cGMP requirements, or similar regulatory requirements outside the United States. If any of these risks transpire, we may be unable to timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disrupt and delay our clinical trials or the manufacture and commercial sale of our product candidate, if approved. +Our failure or the failure of our third-party CMOs and suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of obicetrapib or any other product candidates that we may develop. Any failure or refusal to supply or any interruption in supply of the components for obicetrapib or any other product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. +The manufacture of pharmaceutical products is complex and manufacturers often encounter difficulties in production. If we or any of our third-party manufacturers encounter any difficulties, our ability to provide obicetrapib or any future product candidates for clinical trials, or to patients if approved, and the development or commercialization of obicetrapib or any future product candidates could be delayed or stopped. +The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our CMOs must comply with cGMP requirements. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination controls. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. +We cannot assure you that any stability or other issues relating to the manufacture of obicetrapib or any future product candidate will not occur in the future. As the manufacturing processes are scaled up, they may reveal manufacturing challenges or previously unknown impurities that could require resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of obicetrapib or any other products candidates we may develop. In the future, we may identify manufacturing issues or impurities that could result in delays in the clinical program and regulatory approval for obicetrapib or any future product candidate, increases in our operating +54 +expenses or failure to obtain or maintain approval for obicetrapib or any future product candidate. Our reliance on third-party manufacturers entails risks, including the following: +• +the inability to meet our product candidate specifications, including product formulation, and quality requirements consistently; +• +a delay or inability to procure or expand sufficient manufacturing capacity; +• +manufacturing and product quality issues, including those related to scale-up of manufacturing; +• +costs and validation of new equipment and facilities required for scale-up; +• +a failure to comply with cGMP and similar quality standards; +• +the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; +• +termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; +• +the reliance on a limited number of sources, and in some cases, single sources for key materials, such that if we are unable to secure a sufficient supply of these key materials, we will be unable to manufacture and sell obicetrapib in a timely fashion, in sufficient quantities or under acceptable terms; +• +the lack of qualified backup suppliers for those materials that are currently or in the future purchased from a sole or single source supplier; +• +operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; +• +resource constraints, including as a result of labor disputes or unstable political environments; +• +carrier disruptions or increased costs that are beyond our control; and +• +the failure to deliver our products under specified storage conditions and in a timely manner. +If we or our third-party manufacturers were to encounter any of these difficulties, and in particular where we rely on a single manufacturer, our ability to provide obicetrapib or any future product candidate to patients in clinical trials and products to patients, once approved, would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the initiation or completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. These events could impact our ability to obtain regulatory approval or successfully commercialize obicetrapib or any future product candidate. Some of these events could be the basis for FDA, EMA or other comparable regulatory authorities’ action, including injunction, recall, seizure, or total or partial suspension of production. Any adverse developments affecting clinical or commercial manufacturing of obicetrapib or any future product candidate may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our product candidates. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of obicetrapib or any future product candidate and could have a material adverse effect on our business, prospects, financial condition and results of operations. +We rely, and expect to continue to rely, on third parties and consultants to assist us in conducting our clinical trials, including our Phase 3 clinical trials for obicetrapib. If these third parties or consultants do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize obicetrapib, if approved. +We do not have the ability to independently conduct many of our clinical trials. We rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct clinical trials on obicetrapib. Third parties play a significant role in the conduct of our clinical trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for remedies available to us under our agreements, we have limited ability to control the amount or timing of resources that any such third party will devote to our clinical trials. If our CROs or any other third parties upon which we rely for administration and conduct of our clinical trials do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, or if they otherwise perform in a substandard manner, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to complete development of, obtain regulatory approval for, or successfully commercialize obicetrapib. +We and the third parties upon whom we rely are required to comply with GCP, which are regulations and guidelines enforced by regulatory authorities around the world for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or our third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the regulatory authorities may require us to perform additional clinical trials before approving our marketing +55 +applications. We cannot assure you that, upon inspection, a regulatory authority will determine that any of our clinical trials comply or complied with applicable GCP regulations. In addition, our clinical trials must be conducted with material produced under current cGMP regulations, which are enforced by regulatory authorities. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be impacted if our CROs, clinical investigators or other third parties violate federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. +In order for our clinical trials to be carried out effectively and efficiently, it is imperative that our CROs and other third parties communicate and coordinate with one another. Moreover, our CROs and other third parties may also have relationships with other commercial entities, some of which may compete with us. Our CROs and other third parties may terminate their agreements with us immediately under certain circumstances, such as upon 30 days’ notice or immediately upon a material breach. If our CROs or other third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements with alternative CROs, clinical investigators or other third parties. We may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. Switching or adding CROs, clinical investigators or other third parties can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can impact our ability to meet our desired clinical development timelines. Although we carefully manage our relationship with our CROs, clinical investigators and other third parties, there can be no assurance that we will not encounter such challenges or delays in the future or that these delays or challenges will not have a negative impact on our business, prospects, financial condition or results of operations. +We currently intend to rely on our collaboration with Menarini for the process of obtaining EMA approval for obicetrapib and the commercialization of obicetrapib, if approved, in certain European areas. Failure or delay of Menarini to fulfill all or part of its obligations to us under the Menarini License, a breakdown in collaboration between the parties or a complete or partial loss of this relationship could materially harm our business if obicetrapib is approved in the relevant jurisdictions. +While we currently plan to commercialize our own products, if approved, in the United States, we entered into the Menarini License to obtain and maintain regulatory approvals, commercialize and undertake local development, in each case with respect to obicetrapib either as a sole active ingredient product or in a fixed dose combination with ezetimibe for any use, in certain areas of Europe. Our collaboration with Menarini is critical in these areas, as we do not currently have the internal capacity to market, sell and distribute obicetrapib, if approved, in Europe. Pursuant to the Menarini License, Menarini is responsible for submitting, obtaining and maintaining EMA approvals and for communications with regulatory authorities for the commercialization and local development of obicetrapib in certain areas of Europe, if approved, and other collaborative activities. Menarini must commercialize obicetrapib pursuant to a commercialization plan agreed between the parties and is obligated to use commercially reasonable efforts to commercialize obicetrapib so as to maximize net sales, provided that Menarini has sole discretion to set the price of the products. +Either party has the right in certain circumstances to terminate the collaboration pursuant to the terms of the Menarini License, including in the case (i) of a material breach by the other party, (ii) that a relevant regulatory authority prohibits Menarini to pursue the commercialization of obicetrapib due to safety or efficacy concerns, or (iii) of insolvency of either party. If Menarini delays or fails to perform its obligations under the Menarini License, such as failure to obtain EMA approval for obicetrapib or a delay in the anticipated commercial launch of obicetrapib, disagrees with our interpretation of the terms of the collaboration or terminates the Menarini License, the commercialization of obicetrapib, if approved, could be significantly adversely affected and our prospects in Europe will be materially harmed. +We may not be able to meet our obligations under the Menarini License. Additionally, if we do not reach certain milestones as set forth in the Menarini License, we will not receive the milestone payments, which could require us to seek funding additional capital to complete clinical trials. +Menarini has also entered into collaborations with third parties addressing targets and disease indications outside the scope of our collaboration. As a result, Menarini may have competing interests with respect to their priorities and resources. We may have disagreements with Menarini with respect to the interpretation of the Menarini License, use of resources or otherwise that could cause our relationship with Menarini to deteriorate. As a result, Menarini may reduce their focus on, and resources allocated to, our commercialization, potentially delaying or terminating our ability to commercialize obicetrapib in Europe, if approved. However, as stated above, Menarini must commercialize obicetrapib pursuant to a commercialization plan agreed between the parties and is obligated to use commercially reasonable efforts to commercialize obicetrapib so as to maximize net sales. Additionally, should we decide to move forward with development of a combination of obicetrapib with a certain inhibitor in the areas of Europe covered by the Menarini License for patients suffering from diabetes, we will need to offer Menarini the opportunity to co-develop that product with us, provided that if Menarini does, we will negotiate with Menarini the economics and other terms in respect of such co-development and the subsequent commercialization of such combination product in such areas of Europe. If Menarini does not wish to co-develop such combination product, that would prevent our ability to, and our ability to license or authorize a third party to, seek regulatory approval for or promote such combination product, in the areas of Europe covered by the Menarini License. +56 +Should the Menarini License be terminated, we will need to either build marketing, sales, distribution, managerial and other non-technical capabilities or contract with third parties to obtain these capabilities in Europe. +We have limited experience in marketing or distributing products and no internal capability to do so, and an inability to market, distribute and commercialize obicetrapib once approved would prevent us from achieving significant sales and reduce the commercial value of obicetrapib. If we are unable to establish sales, marketing and distribution capabilities for obicetrapib, if approved, or our future product candidates, or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing our product candidates, if and when they are approved. +Although we have hired a chief commercial officer, we do not have a complete sales or marketing infrastructure and, as a Company have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any product candidate for which we may obtain marketing approval, we will need to establish a sales and marketing organization or enter into collaboration, distribution and other marketing arrangements with one or more third parties to commercialize such product candidate. In the United States, we intend to build a commercial organization to target areas with the greatest incidence of high cardiovascular risk with residual elevation of LDL-C and recruit experienced sales, marketing and distribution professionals. The development of sales, marketing, and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. We may decide to work with regional specialty pharmacies, distributors and/or multi-national pharmaceutical companies to leverage their commercialization capabilities to commercialize any product candidate for which we may obtain regulatory approval outside of the United States or certain areas of Europe. +If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force in the United States that is sufficient in size or has adequate expertise to target the areas that we intend to target. If we are unable to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected. +Factors that may inhibit our efforts to commercialize our drugs on our own include: +• +our inability to recruit, train, and retain adequate numbers of effective sales and marketing personnel; +• +the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; +• +the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage compared to companies with more extensive product lines; +• +unforeseen costs and expenses associated with creating an independent sales and marketing organization; and +• +unforeseen costs and limitations with regard to setting up a distribution network. +If we are unable to establish our own sales, marketing and distribution capabilities in the United States and other jurisdictions in which obicetrapib or any future product candidates are approved, other than in the jurisdictions covered by the Menarini License, we will be required to enter into arrangements with third parties to perform these services. As a result, our revenues and profitability, if any, are likely to be lower than if we were to sell, market and distribute any product candidates that we develop ourselves. We may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing any product candidates. +We expect to enter into collaborations with third parties for the development or commercialization of obicetrapib or future product candidates, which involve risks that could impact our liquidity, increase our expenses and present significant distractions to our management, and we may not be able to capitalize on the market potential of obicetrapib or any future product candidate if our collaborations are not successful. +In addition to the Menarini License, we may utilize a variety of types of collaboration, distribution and other marketing arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements. +Any future collaborations that we enter into may pose a number of risks, including the following: +• +collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to these collaborations; +• +collaborators may not perform their obligations as expected; +57 +• +product candidates developed by collaborators may not perform sufficiently in clinical trials to be determined to be safe and effective, thereby delaying or terminating the drug approval process and reducing or eliminating milestone payments to which we would otherwise be entitled if the product candidates had successfully met their endpoints and/or received FDA or EMA approval; +• +collaborators may not pursue development and commercialization of our product candidates that receive marketing approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• +collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; +• +collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; +• +product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; +• +a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products; +• +disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive; +• +collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; +• +collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and +• +collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. +Collaboration agreements may not lead to the development or commercialization of product candidates in the most efficient manner, or at all. If any future collaborations that we enter into do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates. All of the risks relating to product development, regulatory approval and commercialization described in herein also apply to the activities of our collaborators. +Additionally, subject to its contractual obligations to us, if a collaborator of ours were to be involved in a business combination, it might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be harmed. +Our employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us or harm our reputation. +We are exposed to the risk that our employees, independent contractors, clinical investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct, breach of contract or disclosure of unauthorized activities to us that violates regulations of the FDA, the EMA or other comparable regulatory authorities, including those laws requiring the reporting of true, complete and accurate information; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws; or laws that require the reporting of financial information or data accurately. +Specifically, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, education, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of business conduct and ethics and train our employees on +58 +these topics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, even if we are successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and reputation. Violations of such laws subject us to numerous penalties, including, but not limited to, the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. +If we, or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business. +Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. +Risks Related to Our Business and Strategy +If we fail to manage our growth effectively, our business could be disrupted. +As of December 31, 2024, we had 68 employees and 13 consultants. We expect to continue to expand our development, quality, sales, managerial, operational, finance, marketing and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize obicetrapib, if approved. In addition, if we receive regulatory approval for obicetrapib, we expect to need to significantly expand our workforce to ensure a successful commercial launch of obicetrapib. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our expansion strategy requires that we: +• +manage our clinical trials effectively; +• +identify, recruit, retain, incentivize and integrate additional employees; +• +manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and +• +continue to improve our operational, financial and management controls, reporting systems and procedures. +Due to our limited experience in managing a larger public company, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage expansion could delay the execution of our development and strategic objectives, or disrupt our operations; and if we are not successful in commercializing our product candidate, either on our own or through collaborations with one or more third parties, our revenues will suffer and we would incur significant additional losses. +If obicetrapib or our future product candidates receive approval for marketing, and if physicians misuse our products, we may become subject to product liability claims, and our image and reputation within the industry and marketplace could be harmed. +Physicians may also misuse our products or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our products are misused or used with improper technique, we may become subject to costly litigation. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance. We currently carry product liability insurance covering our clinical trials with policy limits that we believe are customary for similarly situated companies and adequate to provide us with coverage for foreseeable risks. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Furthermore, the use of our products for conditions other than those approved by the FDA may not effectively treat such conditions, which could harm our reputation in the +59 +marketplace among physicians and patients. If we cannot successfully manage the promotion of obicetrapib or any future product candidate, if approved, we could become subject to significant liability, which would harm our reputation and negatively impact our financial condition. +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of obicetrapib or any future products we may develop. +We face an inherent risk of product liability as a result of the clinical testing of obicetrapib and will face an even greater risk if we commercialize it or any future product candidate. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: +• +decreased demand for our product candidate or any future product candidates we develop; +• +injury to our reputation and significant negative media attention; +• +withdrawal of clinical trial participants or delay or cancellation of clinical trials; +• +costs to defend the related litigation, which may be only partially recoverable even in the event of successful defenses; +• +a diversion of management’s time and our resources; +• +substantial monetary awards to clinical trial participants or patients; +• +regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; +• +loss of revenues; +• +exhaustion of any available insurance and our capital resources; and +• +the inability to commercialize our product, if approved. +Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of any products that we may develop. We currently carry general clinical trial product liability insurance in an amount that we believe is adequate to cover the scope of our ongoing clinical programs. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing obicetrapib or any other product candidate, we intend to expand our insurance coverage to include the commercialization of obicetrapib or any other approved product that we may have; however, we may be unable to obtain this liability insurance on commercially reasonable terms. +If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully develop our product candidate, conduct our clinical trials and, if approved, commercialize our product candidate or any other products we may develop. +Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of members of our senior management, as well as our senior scientists and other members of our management team, especially our Chief Executive Officer, Dr. Michael Davidson, our Chief Scientific Officer, Dr. John Kastelein, our Chief Operating Officer, Douglas Kling, and our Chief Financial Officer, Ian Somaiya. We are not aware of any present intention of any of these individuals to leave our company. The loss of services of any of these individuals and certain other key employees, though, could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of obicetrapib. Although we have agreements with our officers and employees, these agreements do not prevent them from terminating their employment or service arrangement with us as described in the agreements. +Although we have not historically experienced unique difficulties in attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the pharmaceutical field is intense due to the limited number of individuals who possess the skills and experience required by our industry. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles, diverse opportunities including for career advancement and a longer history in the industry than we do. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from +60 +competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. +Misclassification or reclassification of our independent contractors or employees could increase our costs and adversely impact our business. +Our workers are classified as either employees or independent contractors, and if employees, as either exempt from overtime or non-exempt (and therefore overtime eligible). The tests governing whether a service provider is an independent contractor or an employee are typically highly fact sensitive and can vary by governing law. Laws and regulations that govern the status and misclassification of independent contractors are also subject to divergent interpretations by various authorities, which can create uncertainty and unpredictability. Regulatory authorities and private parties have recently asserted within several industries that some independent contractors should be classified as employees and that some exempt employees should be classified as nonexempt based upon the applicable facts and circumstances and their interpretations of existing rules and regulations. If we are found to have misclassified employees as independent contractors or non-exempt employees as exempt, we could face penalties and have additional exposure under tax (including federal and state tax), workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee overtime and benefits and tax withholdings. Legislative, judicial or regulatory (including tax) authorities could also introduce proposals or assert interpretations of existing rules and regulations that would change the classification of a number of independent contractors doing business with us from independent contractor to employee and a number of exempt employees to non-exempt. A reclassification in either case could result in an increase in employment-related costs such as wages, benefits and taxes. The costs associated with employee misclassification, including any related regulatory action or litigation, could therefore have an adverse effect on our results of operations and our financial position. +Under applicable employment laws, we may not be able to enforce covenants not to compete. +We generally include non-competition provisions as part of our agreements with our officers, employees and consultants. These agreements generally prohibit our officers, employees or consultants, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these provisions under the laws of the jurisdictions in which our officers, employees or consultants work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former officers, employees or consultants developed while working for us. +We have expanded and expect to continue expanding our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +We have expanded and expect to continue experiencing significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, manufacturing, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +Inflation may adversely affect our operations, including increases in the prices of goods and services required for our operations. +High rates of inflation resulting from global events may adversely affect our operations in the event of increased prices of goods and services, such as energy and other operating costs, labor costs, materials costs and shipping costs, all of which may impact our direct costs. We are also experiencing increases in the cost of services provided by CMOs, CROs and other third parties with whom we do business, including significant increases in the cost of non-human primates required for studies. Such high inflation rates may result in unexpected and unbudgeted cost increases and may require changes to planned investments. +Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations and we may be exposed to significant foreign exchange risk. +We face significant operational risks as a result of doing business internationally, such as: +• +fluctuations in foreign currency exchange rates; +• +differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls; +• +potentially adverse and/or unexpected tax consequences, including penalties due to the challenge by tax authorities on the basis of transfer pricing and liabilities imposed from inconsistent enforcement, as well as compliance with potentially conflicting and changing tax laws of taxing jurisdictions, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; +61 +• +potential changes to the accounting standards, which may influence our financial situation and results; +• +becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations; +• +reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries; +• +difficulties in attracting and retaining qualified personnel; +• +restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modification of contracts; +• +rapid changes in global government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events, and potential failure in confidence of our suppliers or customers due to such changes or events; and +• +tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers. +Additionally, we incur portions of our expenses, and may in the future derive revenues, in currencies other than the U.S. dollar, in particular, the Euro. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. Therefore, for example, an increase in the value of the U.S. dollar against the Euro could be expected to have a negative impact on our revenue and earnings as Euro revenue and earnings, if any, would be translated into U.S. dollars at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows. +Negative economic conditions, including as a result of commodity price inflation or supply chain constraints, widespread health crises, the conflict between Russia and Ukraine, the conflict in the Middle East, relations between the United States and China, and any other international conflicts or internal foreign conflicts, particularly in countries with clinical trial sites, may adversely impact our results of operations. +An unforeseen production shortage resulting from any event, including interruptions to business operations and supply chain disruption as a result of worldwide economic and political disruptions including the impacts of and the conflict in the Middle East and war between Russia and Ukraine affecting raw material and or intermediate supply or manufacturing capabilities abroad and domestically could adversely impact our business. For example, our supply chain may be disrupted, limiting our ability to manufacture our product candidates for our clinical trials and research and development operations, or our cost base may be increased. Furthermore, economic growth is expected to slow, including due to supply chain disruption, the recent surge in inflation and related actions by central banks and geopolitical conditions, with a significant risk of recession in many parts of the worlds in the near term. This may also prolong tight credit markets and potentially cause such conditions to become more severe. These issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions, may make it difficult to obtain financing. +Our expectations about our business, future performance and other matters are subject to significant risks, assumptions, estimates and uncertainties. As a result, our expectations regarding cash and cash burn, market size and market share, clinical trial completions, regulatory submissions and potential regulatory approvals, and our expectations regarding efficacy levels and benefits of our product candidates, may differ materially from actual results. +The estimates and assumptions included in this Annual Report and the exhibits attached, include, among others: expectations regarding our cash runway; estimates of the total addressable market for cardiometabolic disease patients with significant unmet need; assumptions regarding our ability to obtain reimbursement for our product candidate, if approved; assumptions regarding performance under existing partner agreements, including the Menarini License; and assumptions regarding our ability to obtain regulatory approval and the timing of obtaining such approvals, if ever. These estimates and assumptions are subject to various factors beyond our control, including, for example, changes in the supply of drug products required for our clinical trials, increased costs for such drugs, changes in the regulatory or competitive environment, delays in our clinical trials or in obtaining regulatory approvals, lower than expected rates of reimbursement on our product candidate, if approved, the imposition or heightening of sanctions or other economic or military measures in relation to the wars in Ukraine and Israel, and changes in our executive team. Accordingly, our future financial condition and results of operations may differ materially from our estimates. +We may undertake strategic acquisitions, in-licenses or other strategic transactions in the future and any difficulties from integrating such acquisitions could adversely affect our share price, operating results and results of operations. +We may acquire companies, businesses and products, or in-license additional product candidates, that complement or augment our existing business. Any product candidate or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA, the EMA and other comparable regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the +62 +possibility that the product candidate, or product developed based on in-licensed technology, will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we may not be able to integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business or product could be expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial, operational and financial resources, result in loss of key personnel and could prove to be more difficult or expensive than we predict. The diversion of our management’s attention and any delay or difficulties encountered in connection with any future acquisitions or in-licenses that we may consummate could result in the disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or products, which may result in dilution for shareholders or the incurrence of indebtedness. +In addition, we may not be able to manufacture economically or successfully commercialize any product candidate that we develop based on acquired or in-licensed technology that is granted regulatory approval, and such products may not gain wide acceptance or be competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may be materially harmed. +As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we would conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. For example, if intellectual property related to product candidates or technologies we in-license or acquire is not adequate, we may not be able to commercialize the affected products even after expending resources on their development. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have consummated in the past, whether as a result of unidentified risks or liabilities, integration difficulties, regulatory setbacks, litigation with current or former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these potential transactions. +In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions, in-licenses or other strategic transactions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a transaction, substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular periods. +Cyberattacks or other failures in the telecommunications or information technology systems used by us or our third-party vendors, contractors or consultants, could result in information theft, compromise, or other unauthorized access, data corruption and significant disruption of our business operations, and could harm our reputation and subject us to liability, lawsuits and actions from governmental authorities. +Despite the implementation of security measures, including the implementation of information technology protocols to control access to our systems and information, security awareness trainings, proactive patching of known vulnerabilities, reviewing our system against specified security metrics, monitoring our third-party vendors and partners, participating in threat intelligence sharing and developing mechanisms designed to detect deviations in our systems, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from cybersecurity threats, including computer viruses, harmful code and unauthorized access, cyber-attacks (including ransomware), hacking, theft, phishing, employee error, denial-of-service attacks, social engineering schemes, sophisticated nation-state and nation-state-supported actors unauthorized accesses, natural disasters, fire, terrorism, war and telecommunication and electrical failures. We and certain of our service providers are from time to time subject to actual and attempted cyberattacks and security incidents. We do not believe that we have experienced any such material system failure or security breach to date. If a disruption event were to occur and cause interruptions in our operations or those of our third-party service providers, it could result in a material disruption to our drug development programs, and/or otherwise jeopardize the performance of our software and information technology systems, and could expose us to financial and reputational harm. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of obicetrapib could be delayed. Similarly, if an actual or attempted security incident were to occur we may be required to disclose such event and, in addition to reputational damage, we could face investigations and fines from regulators, as well as litigation. Furthermore, if we are required to disclose the occurrence of a cybersecurity incident, the price of our Ordinary Shares may be negatively impacted, whether warranted or not. +Successful and attempted attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques +63 +used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. +Global health crises may adversely affect our business and that of our suppliers, CROs or other third parties relevant to our business. +The COVID-19 pandemic impacted worldwide economic activity and future global health crises may pose the same risks, including the risk that we or our employees, contractors, suppliers, or other partners may be prevented or delayed from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities, which could have an adverse impact on our business, financial results and operations, as well as those of third parties on which we rely. +Risks Related to Our Intellectual Property +We may not be successful in obtaining all of the necessary intellectual property rights to allow us to develop and commercialize our product candidate, obicetrapib. If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to our product candidates and technologies are not adequate, including due to the risk that we are unaware of prior art that may affect the validity of our patents, we may not be able to compete effectively in our market and we otherwise may be harmed. +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we enter into confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, CROs, CMOs, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. +While we have sought and continue to actively seek patent protection for obicetrapib, our patent coverage is limited, and we can provide no assurance that any of our current or future patent applications will result in issued patents or that any issued patents will provide us with any competitive advantage. +The patent applications that we own or license may fail to result in issued patents in the United States or granted patents in foreign jurisdictions. Our ability to obtain and maintain valid and enforceable patents depends on various factors, including determination that our patent claims are patentable over prior art. We may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office (the “USPTO”) or foreign patent offices, and such prior art may prevent issuance of claims that would provide us with a competitive advantage. We cannot be certain that we and respective patent offices have identified all relevant prior art at the time of issuance, and later identification of undiscovered prior art may provide basis for later invalidating our issued patent claims. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to the treatment of cardiometabolic disease, Alzheimer’s disease, or other indications using obicetrapib or (ii) conceive and reduce to practice any of the compositions or methods claimed in our patents or patent applications, including patents or patent applications related to obicetrapib and any of our future product candidates. +Patent applications and patents granted from them are complex, lengthy and highly technical documents that are often prepared under time constraints and may not be free from errors. The existence of errors in a patent may have an adverse effect on the patent, its scope and its enforceability. Even if our pending and future patent applications issue as patents in relevant jurisdictions, they may not issue in a form that will provide us with any meaningful protection for our technology or product candidates, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Even if our pending and future patent applications issue as patents in relevant jurisdictions, changes in law or in interpretation of existing law may provide a basis for competitors to challenge the validity and/or enforceable scope of our patents. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial +64 +value of patent rights are highly uncertain. Our pending and future owned or in-licensed patent applications may not result in patents being issued which protect our technology or product candidates, effectively prevent others from commercializing competitive technologies and products or otherwise provide any competitive advantage. In addition, the scope of claims of an issued patent can be reinterpreted after issuance, and changes in either the patent laws or interpretation of the patent laws in the United States and other jurisdictions may diminish the value of our patent rights or narrow the scope of our patent protection. +Additionally, limitations on the scope of our intellectual property rights may limit our ability to prevent third parties from designing around such rights and competing against us. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or product candidates in a non-infringing manner. Other parties may compete with us, for example, by independently developing or obtaining competing solid forms of obicetrapib, including crystalline forms and alternative salts of obicetrapib, or by independently developing or obtaining competing synthetic processes for synthesis of obicetrapib or synthetic intermediates that allow competitors to design around our patent claims but which result in the same active ingredient. +In addition, our competitors may seek to invalidate our patents. We may become involved in proceedings brought by competitors in the USPTO or applicable foreign offices challenging our patent rights, such as inter partes review, post grant review, derivation proceedings, interference proceedings, opposition proceedings, revocation proceedings or ex parte reexamination. Patent offices may take a different view on patentability during post-grant challenges than during initial examination, and courts in litigation may take a different view about validity than did the respective patent office. An adverse determination in any such submission, proceeding or litigation could result in loss of exclusivity, patent claims being narrowed, invalidated or held unenforceable, in whole or in part, or could result in limits of the scope or duration of the patent protection of our technologies or product candidates, all of which could limit our ability to stop others from using or commercializing similar or identical product candidates or technology to compete directly with us, without payment to us. +Furthermore, even if they are not challenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. To meet such challenges, which are part of the risks and uncertainties of developing and marketing product candidates, we may need to evaluate third-party intellectual property rights and, if appropriate, to seek licenses for such third-party intellectual property or to challenge such third-party intellectual property, which may be costly and may or may not be successful, which could also have an adverse effect on the commercial potential for obicetrapib and any of our other product candidates. +Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent prosecution process. When related patents are pursued concurrently in multiple jurisdictions, international treaties may impose additional procedural, documentary, fee payment and other provisions. Additionally, when inventions are made by joint inventors of different nationalities, or where inventive acts were performed in multiple countries, concurrent and potentially conflicting requirements imposed by the laws of multiple jurisdictions may be applicable. We may have failed to adhere to all such provisions during examination of our patent applications or following issuance. +Periodic maintenance or annuity fees and various other governmental fees on any issued patent and/or pending patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent or patent application. Our outside counsel have systems in place to remind us to pay these fees, and we rely on our outside counsel and their third-party vendors to pay these fees. While an inadvertent lapse may sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are many situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications directed to our product candidates, our competitors might be able to enter the market earlier than should otherwise have been the case, which could harm our business, financial condition, results of operations, and prospects. +Uncertainty and instability resulting from the conflict between Russia and Ukraine could negatively impact our ability to maintain our patents in Russia. +Sanctions imposed on Russia by the United States and the European Union have made it difficult to pay required annual fees, or annuities, to maintain pending patent applications and granted patents in Russia, increasing the risk that our patents may not grant in Russia or, having granted, will lapse through nonpayment of annuities. In addition, the Russian government issued a decree in March 2022 that owners of Russian patents from countries that Russia considers to be unfriendly are no longer entitled to any compensation for compulsory licensing of their patents, increasing the risk that our competitors will be granted a compulsory license under our Russian patents, allowing them to infringe without making any payments to us. +65 +We may receive only limited protection, or no protection, from our issued patents and patent applications and such patents could be narrowed, found invalid or unenforceable if challenged in court or before administrative bodies. +Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its earliest priority U.S. utility application was filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. If we encounter delays in our clinical trials or regulatory approval of obicetrapib, the period of time during which we could market obicetrapib under patent protection could be reduced. +The patent application process, also known as patent prosecution, is expensive and time consuming, and we or any future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or any future licensors or licensees will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, etc., although we are unaware of any such defects that we believe are of material import. If we or any future licensors or licensees fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business. +The strength of patents in the pharmaceutical field involves complex legal and scientific questions and can be uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of issued patents. The USPTO or other foreign patent offices may change their interpretation of existing statutes or regulations with potential retroactive effects. The patent applications that we own or in-license may fail to result in issued patents in the United States or foreign countries with claims that cover our product candidates. Even if patents do successfully issue from the patent applications that we own or in-license, third parties may challenge the validity, enforceability or scope of such patents, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be challenged, also known as opposed, by any person within nine months from the publication of their grant. In addition, post grant review in the USPTO begins with a third party filing a petition on or prior to the date that is nine months after the grant of the patent or issuance of a reissue patent. Third parties can also challenge a patent in the USPTO by way of inter partes review, ex parte reexamination, derivation, or interference proceedings. Any successful challenge to our patents could deprive us of exclusive rights necessary for the successful commercialization of our product candidates. Even if such challenges to our patents are unsuccessful, the proceedings could be expensive and time consuming and may divert the efforts and attention of our technical and management personnel. Furthermore, even if they are unchallenged, our patents may not adequately protect our product candidates, provide exclusivity for our product candidates, or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize our product candidates. +If we do not obtain patent term extension for our product candidates, if needed, our business may be harmed. +Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”) which amended the FDCA, a company may file an ANDA seeking approval of a generic version of an approved innovator product. Depending upon the timing, duration and specifics of any FDA marketing approval of our product candidates and our technology, one or more of our U.S. patents that we may own in the future may be eligible for limited patent term extension under Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. Only one patent may be extended and only those claims covering the approved product, a method for using it or a method for manufacturing it may be extended. The application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +We may not be able to protect our intellectual property rights throughout the world, or we may choose not to pursue patent rights in jurisdictions that later become important to our business, thus harming our ability to compete in those jurisdictions. +66 +Filing, prosecuting, maintaining, and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. In countries in which we elect to pursue patent rights, the requirements for patentability may differ, particularly in developing countries. For example, China often applies a heightened requirement for patentability, with heightened requirements for experimental data in the patent application. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. For example, some foreign countries do not permit claims to therapeutic methods. +Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection in order to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement against infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. +Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. +Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. +In addition, some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. +Changes in U.S. or foreign patent law, including changes in patent office interpretation of applicable rules and statutes, changes effected by judicial holdings, and changes effected by legislation, including changes that may have retroactive effect, could diminish the value of patents in general and our patents in particular, thereby impairing our ability to protect our products. +As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the Leahy-Smith America Invents Act (the “AIA”) which was passed on September 16, 2011, resulted in significant changes to the U.S. patent system. Further, U.S. Supreme Court rulings in recent years have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. +The significant changes to U.S. patent law under the AIA include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. For our U.S. patent applications that contain or contained at any time a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. The USPTO has developed and continues to develop regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business and financial condition. It is not clear what other, if any, impact the AIA will have on the operation of our business. +An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patent applications on our inventions. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our patents or patent applications. +Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued from applications filed before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in United States federal court, a third party could potentially provide evidence in a USPTO +67 +proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. +Depending on decisions by the U.S. Congress, the federal courts, the USPTO, and foreign patent offices, the laws and regulations governing patents could change in unpredictable ways, including with potential retroactive effect, that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. +We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive and time consuming, with no certainty of success, and could delay or prevent the development and commercialization of our products and product candidates, or put our patents and other proprietary rights at risk. +Third parties may infringe or misappropriate our intellectual property, including our existing patents and patents that may issue to us in the future. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. Further, we may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. +Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. If we file an infringement action against such a generic drug manufacturer, that company may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. +For example, if we initiated legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidates is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. +In addition, within and outside of the United States, there has been a substantial amount of litigation and administrative proceedings, including inter partes review, post grant review, interference or derivation proceedings, and ex parte reexamination proceedings before the USPTO or other comparable proceedings in various foreign jurisdictions, regarding patent and other intellectual property rights in the pharmaceutical industry. These proceedings bring uncertainty to the possibility of challenges to our patents in the future, including challenges by competitors who perceive our patents as blocking entry into the market for their products, and the outcome of such challenges. +Such litigation and administrative proceedings could result in revocation of our patents or amendment of our patents such that they do not cover our product candidates. They may also put our pending patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. Additionally, it is also possible that prior art of which we are aware, such as may arise during preclinical studies and clinical trials, but which we do not believe affects the validity or enforceability of a claim, may, nonetheless, ultimately be found by a court of law or an administration panel to affect the validity or enforceability of a claim. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a negative impact on our business. +Enforcing our intellectual property rights through litigation would be very expensive, particularly for a company of our size, time-consuming, and inherently uncertain. Some of our competitors may be able to sustain the costs of litigation more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also divert technical and management personnel from their normal responsibilities. +Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business, financial condition or results of operations. +Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of litigation or administrative proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price of our Ordinary Shares could be significantly harmed. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +In addition to the protection afforded by patents, we may also rely on trade secret protection or confidentiality agreements to protect proprietary know-how, technology and other proprietary information that may not be patentable or that we elect not to patent, processes for which patents may be difficult to obtain or enforce, and any other elements of our product candidates, and our product development processes (such as manufacturing and formulation technologies) that involve proprietary know-how, information or technology that is not covered by patents. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in the market. +68 +Trade secrets, confidential information, and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology, in part, by requiring all of our employees, consultants, advisors, and any other third parties that have access to our proprietary know-how, information or technology to execute confidentiality agreements upon the commencement of their relationships with us. We cannot be certain that we have or will obtain these agreements in all circumstances and we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secrets. +Despite our efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets. Adequate remedies may not exist in the event of unauthorized use or disclosure of our trade secrets. In addition, in some situations, these confidentiality agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, or advisors have previous employment or consulting relationships. To the extent that our employees, consultants or contractors use any intellectual property owned by third parties in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Any misappropriation or unauthorized disclosure of our trade secrets could have an adverse effect on our business, impact our ability to establish or maintain a competitive advantage in our market, or otherwise harm our business, operating results and financial condition. +Furthermore, trade secret protection and confidentiality agreements do not prevent competitors from independently developing substantially equivalent information and techniques and we cannot guarantee that our competitors will not independently develop substantially equivalent information and techniques. The FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. +There is an increasing trend in the EU toward greater transparency and, while the manufacturing or quality information contained in an MAA is currently generally protected as confidential information, the EMA and national regulatory authorities may disclose much of the nonclinical and clinical information in MAAs, including the full clinical trial reports, in response to freedom of information requests after the marketing authorization has been granted. Similarly, as of January 31, 2022 under the EU Clinical Trials Regulation (EU) No 536/2014, the EU clinical trials information system allows the public to access MAA data submitted to the EMA or national regulatory authorities (excluding any commercially confidential information). There may be a risk that information that we consider to be trade secrets or other proprietary information becomes publicly available, including to our competitors, under such transparency requirements in the EU. +Third-party claims alleging intellectual property infringement may adversely affect our business, and we may be subject to lawsuits claiming that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which could be expensive and time consuming, delay or prevent the development and commercialization of our products and product candidates, or subject future sales to royalty payments, which could damage our business. +Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties, for example, the intellectual property rights of competitors. Our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents owned or controlled by third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our activities related to our product candidates may give rise to claims of infringement of the patent rights of others. We cannot assure you that our product candidates will not infringe existing or future patents. We may not be aware of patents that have already issued that a third party might assert are infringed by our product candidates. It is also possible that patents of which we are aware, but which we do not believe are relevant to our product candidates, could nevertheless be found to be infringed by our product candidates. Nevertheless, we are not aware of any issued patents that we believe would prevent us or our licensee(s) from marketing our product candidates, if approved. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the intellectual property rights of third parties. +Third parties making claims against us for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. Defense of these claims, regardless of their merit, would cause us to incur substantial expenses and, and would be a substantial diversion of management time and employee resources from our business. In the event of a successful claim of infringement against us by a third party, we may have to (i) pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed the third party’s patents; (ii) obtain one or more licenses from the third party; (iii) pay royalties to the third party; and/or (iv) redesign any infringing products. Redesigning any infringing products may be impossible or require substantial time and monetary expenditure. Further, we cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that we could not obtain a license, we may be unable to further develop and commercialize our product candidates, which could harm our business significantly. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into +69 +licenses on acceptable terms. Furthermore, even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly. +Defending ourselves in litigation is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business, financial condition or results of operations. +We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information or alleged trade secrets of third parties or competitors or are in breach of non-competition or non-solicitation agreements with our competitors. +We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information or trade secrets of these third parties or our employees’ former employers. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a negative impact on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation proceedings could adversely affect our ability to compete in the marketplace. +We may not be able to build name recognition in our markets of interest if our trademarks and trade names are not adequately protected and our business may be adversely affected. +Our future trademark applications in the United States and other foreign jurisdictions may not be allowed or may be subsequently opposed. Once filed and registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects. +Disputes over intellectual property subject to the Menarini License may materially impact our ability to commercialize obicetrapib. +The licensing of intellectual property in the Menarini License is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to the Menarini License, including: +• +the scope of rights granted under the Menarini License and other interpretation-related issues; +• +the extent to which Menarini’s technology and processes infringe our intellectual property that is not subject to the Menarini License; +• +claims that our technology infringes third-party intellectual property; +• +the sublicensing of patent and other rights; +• +our diligence obligations and what activities satisfy those diligence obligations; and +70 +• +the ownership of inventions and know-how resulting from the joint creation or use of intellectual property. +If disputes over intellectual property we have licensed to Menarini prevent or impair our ability to maintain the Menarini License on acceptable terms, we may be unable to successfully develop and commercialize obicetrapib. +Risks Related to Government Regulation +Current and future legislation affecting the healthcare industry, including healthcare reform, may impact our business generally and may increase limitations on reimbursement, rebates and other payments, which could adversely affect third-party coverage of our products, our operations and/or how much or under what circumstances healthcare providers will prescribe or administer obicetrapib, if approved. +The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell obicetrapib profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. +For example, in March 2010, President Obama signed into law the ACA, a law intended, among other things, to broaden access to health insurance, improve quality of care, and reduce or constrain the growth of healthcare spending. The ACA, among other things, imposed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extended the rebate program to individuals enrolled in Medicaid managed care organizations, added a provision to increase the Medicaid rebate for line extensions or reformulated drugs, established annual fees on manufacturers and importers of certain branded prescription drugs and biologic agents, promoted a new Medicare Part D coverage gap discount program, expanded the entities eligible for discounts under the Public Health Service Act pharmaceutical pricing program; and imposed a number of substantial new compliance provisions related to pharmaceutical companies’ interactions with healthcare practitioners. The ACA also expanded eligibility for Medicaid programs and introduced a new Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research and a new Center for Medicare & Medicaid Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending. +Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. In December 2017, Congress repealed the tax penalty, effective January 1, 2019, for an individual’s failure to maintain ACA-mandated health insurance as part of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). President Biden issued an Executive Order that instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. Further, there have been a number of health reform initiatives by the Biden administration that have impacted the ACA. For example, on August 16, 2022, President Biden signed the IRA into law, which sets forth meaningful changes to drug product reimbursement by Medicare. Among other actions, the IRA permits HHS to engage in price-capped negotiation to set the price of certain drugs and biologics reimbursed under Medicare Part B and Part D. The IRA contains statutory exclusions to the negotiation program, including for certain orphan designated drugs for which the only approved indication (or indications) is for the orphan disease or condition. Should our product candidates be approved and covered by Medicare Part B or Part D, and fail to fall within a statutory exclusion, such as that for an orphan drug, those products could, after a period of time, be selected for negotiation and become subject to prices representing a significant discount from average prices to wholesalers and direct purchasers. The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increased the cost of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. For example, as a result of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year, which went into effect on April 1, 2013. This 2% reduction was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five +71 +years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. In November 2019, CMS issued a final rule finalizing the changes to the Medicare Quality Payment Program. On May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. +Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. +On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate price cap, currently set at 100% of a drug’s average manufacturer price for single source and innovator multiple source products, beginning on January 1, 2024. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug price reform. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions by HHS. No legislative or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. Additionally, the IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated “maximum fair price” under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. Nonetheless, since CMS may establish a maximum price for these products in price negotiations, we would be fully at risk of government action if our products are the subject of Medicare price negotiations. Moreover, given the risk that could be the case, these provisions of the IRA may also further heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products if prices are set after such products have been on the market for nine years. +These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be effectuated but is likely to have a significant impact on the pharmaceutical industry. If healthcare policies or reforms intended to curb healthcare costs are adopted, or if we experience negative publicity with respect to the pricing of obicetrapib, if approved, or any future product or the pricing of pharmaceutical drugs generally, the prices that we charge for any approved products may be limited, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted. +If we obtain regulatory approval and commence commercialization of obicetrapib or any of our future product candidates, these laws may result in additional reductions in healthcare funding, which could have an adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of obicetrapib or our future product candidates may be. +Although we cannot predict the full effect on our business of the implementation of existing legislation or the enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, obicetrapib, if approved, or any of our future products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could adversely affect our business by reducing our ability to generate +72 +revenues, raise capital, obtain licenses and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales. +In April 2023, the EU Commission released proposals to amend the current EU pharmaceutical regulatory framework. The potential reforms include shortening the periods of regulatory and/or marketing protections available for innovative products. Depending on the final wording of these reforms (if adopted), a reduction in the periods of regulatory and/or marketing protections available for obicetrapib or any of our future product candidates may adversely affect the commercial viability of such products in the EU. These changes could adversely affect our business by reducing our protection against generic competitors entering the EU market. Depending on the progress of the EU Parliament and Council, changes to EU pharmaceutical legislation are not expected to come into force until 2025 or 2026 and additional transitional periods mean that the changes will most likely not take effect until 2027 or 2028. +Our relationships with healthcare professionals, independent contractors, clinical investigators, CROs, consultants and vendors in connection with our current and future business activities may be subject to federal, state and foreign healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties. +We may currently be or may become subject to various federal, state and foreign healthcare laws, including those intended to prevent healthcare fraud and abuse. +The federal Anti-Kickback Statute prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid Remuneration has been broadly defined to include anything of value, including, but not limited to, cash, improper discounts, and free or reduced price items and services. +Much like the federal Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of EU member states. Infringement of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU member states. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the EU member states. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment. +Federal false claims laws, including the FCA and civil monetary penalties law impose penalties against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or making a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. The FCA has been used to, among other things, prosecute persons and entities submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. +Many states have similar fraud and abuse statutes and regulations that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. State and federal authorities have aggressively targeted medical technology companies for, among other things, alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. +HIPAA among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. +Our operations will also be subject to the federal transparency requirements under the ACA, which require certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to annually report to the CMS an agency within HHS information related to payments and other transfers of value provided to physicians, teaching hospitals, certain ownership and investment interests held by physicians and their immediate family members and certain non-physician providers (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified-nurse midwives). On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation (“MFN”) executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As a result of litigation, challenging the MFN model on August 10, 2021, CMS published a proposed rule that seeks to rescind the MFN model interim rule. In addition, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate price cap, currently set at 100% of a drug’s average manufacturer price for single source and innovator multiple source +73 +products, beginning on January 1, 2024. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug price reform. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions by HHS. No legislative or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. Additionally, the IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subject drug manufacturers to civil monetary penalties and a potential excise tax by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. +We may also be subject to federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved products, and similar laws in other jurisdictions. +We are subject to stringent privacy laws, information security policies and contractual obligations governing the use, processing, and cross-border transfer of personal information and our data privacy and security practices. +We receive, generate and store sensitive information, including employee and patient data, and are subject to a variety of federal, state, local and foreign laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of data in the jurisdictions in which we operate, including comprehensive regulatory systems in the United States and the EU. Legal requirements relating to data processing continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement, sanctions and increased costs of compliance. An actual or perceived failure to comply with laws and regulations governing personal information could result in government investigations and enforcement actions against us, fines, claims for damages by affected third parties, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. +EU data protection laws including the GDPR impose strict requirements relating to the processing of personal data, including special protections for “special categories of personal data” which includes, without limitation, health and genetic information of data subjects residing in the EU. The GDPR also generally prohibits the transfer of personal information from the EU to the United States and most other foreign jurisdictions unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information. There is uncertainty regarding how to ensure that transfers of personal information from the EU to the United States comply with the GDPR. As such, any transfers by us, or our vendors, of personal information from the EU may not comply with EU data protection laws; may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions; and may reduce demand for our services from companies subject to EU data protection laws. Loss of our ability to transfer personal information from the EU may also require us to increase our data processing capabilities in those relevant jurisdictions at significant expense. +Similar privacy and data security requirements are either in place or have been proposed in the United States. There are numerous data protection laws that may be applicable to our activities, and a range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state Attorneys General are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered or have been implemented at both the state and federal levels. +Further, regulations promulgated pursuant to HIPAA impose privacy, security and breach notification obligations on health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors. HIPAA establishes privacy and security standards that limit the use and disclosure of protected health information (“PHI”) and requires the implementation of administrative, physical and technological safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI. Most healthcare providers, including research institutions from which we obtain patient health information, are subject to HIPAA. We do not believe that we are currently acting as a covered entity or business associate under HIPAA and thus are not directly subject to its requirements. However, any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information. +Complying with the GDPR and other U.S. and foreign data protection laws and regulations may cause us to incur substantial operational costs or require us to change our business practices in a manner adverse to our business. +Moreover, complying with these various laws could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Despite our efforts to bring our practices into compliance with these laws and regulations, we may not be successful in our efforts to achieve compliance either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Failure to comply with U.S. and international data +74 +protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), other administrative actions or litigation. For example, the GDPR sets out substantial fines for breaches of the data protection rules, increased powers for regulators, enhanced rights for individuals, and new rules on judicial remedies and collective redress. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business, results of operations and financial condition. +Our marketing efforts may be subject to a variety of regulations. +We may choose to conduct marketing activities, directly and indirectly, via text (SMS) messages, email, and/or through other online and offline marketing channels. Numerous foreign, federal, and state regulations may govern such marketing activities, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act (“TCPA”), state and federal Do-Not-Call regulations and other state telemarketing laws, federal and state privacy laws, the CAN-SPAM Act, and the Federal Trade Commission Act and its accompanying regulations and guidelines, among others. These laws not only allow action to be brought by regulatory agencies, but some of these laws, like the TCPA, allow private individuals to bring litigation against companies for breach of these laws. If we conduct marketing activities regulated by these laws, then we may depend on third-party partners to comply with these laws. Any lawsuit brought by private individuals, or action by a regulatory agency, for an actual or alleged violation of applicable law or regulation by us or our third-party partners may have an adverse effect on our business, results of operations, and financial condition. +We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws, export and import controls, sanctions, embargoes, and anti-money laundering laws and regulations. +Various of our activities may be subject to anti-bribery, export control and import laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the jurisdictions in which we conduct activities. Anti-corruption laws have been interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. These laws are complex and far-reaching in nature, and, as a result, we cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our intermediaries, or that we would not be required in the future to alter one or more of our practices to mitigate risk under these laws or to be responsive to any changes in these laws or the interpretation thereof. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. Furthermore, because we engage, and expect to continue to engage, third parties in connection with our clinical trials and other development and commercialization activities, we can be held liable for the corrupt or other illegal activities of our personnel, agents or collaborators, even if we do not explicitly authorize or have prior knowledge of such activities. Other companies in the biopharmaceutical field have faced criminal or civil penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with individuals in the public or private sector. +Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition, or results of operations or our reputation. We could also suffer severe penalties, including substantial criminal and civil penalties, imprisonment, disgorgement, reputational harm and other remedial measures. +It may be difficult for us to profitably sell obicetrapib or any future product candidate in the United States, if approved, if coverage and reimbursement for these products is limited by government authorities and/or third-party payor policies. +Market acceptance and sales of obicetrapib and our other product candidates, if approved, will depend on the coverage and reimbursement policies of government authorities and third-party payors, in addition to any healthcare reform measures that may affect reimbursement. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and establish reimbursement and co-payment levels. Such authorities and other third-party payors are increasingly challenging the prices charged for healthcare products, examining the cost effectiveness of drugs in addition to their safety and efficacy, and limiting or attempting to limit both coverage and the level of reimbursement for prescription drugs. We cannot be sure that coverage will be available for obicetrapib or our other product candidates, if approved, or, if coverage is available, the level of reimbursement. +There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by CMS, an agency within HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors often follow CMS. It is difficult to predict what CMS as well as other payors will decide with respect to reimbursement. +Reimbursement may impact the demand for, and/or the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their +75 +prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA, the EMA or other comparable regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Reimbursement by a third-party payor may depend upon a number of factors including the third-party payor’s determination that use of a product is: +• +a covered benefit under its health plan; +• +safe, effective and medically necessary; +• +appropriate for the specific patient; +• +cost-effective; and +• +neither experimental nor investigational. +Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. We may not be able to provide data sufficient to gain acceptance with respect to coverage and/or sufficient reimbursement levels. +We cannot be sure that coverage or adequate reimbursement will be available for obicetrapib or any of our future product candidates, if approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future products, which would in turn negatively affect revenues from any future sales. If reimbursement is not available, or is available only to limited levels that are not commercially attractive to us or our collaborators, we may not be able to commercialize obicetrapib or our other product candidates, or achieve profitability, even if approved. +Marketing and reimbursement regulations may materially affect our ability to market and receive coverage for our products in foreign jurisdictions. +We intend to seek approval to market our current and future product candidates in the United States, the EU and selected other foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some countries, particularly certain EU member states, the pricing of drugs is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future healthcare reform measures. +In the EU, the requirements governing drug pricing and reimbursement vary widely between EU member states. Some EU member states provide that products may be marketed only after a reimbursement price has been agreed. Some EU member states may require the completion of additional studies that compare the cost effectiveness of a particular product candidate to currently available therapies (so called health technology assessments) in order to obtain reimbursement or pricing approval. Moreover, at the national level, EU member states may restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other EU member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many EU member states have increased the amount of discounts required on pharmaceuticals and these efforts could continue as EU member states attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescription products, has become significant. As a result, increasingly high barriers are being erected to the entry of new products in the marketplace. Political, economic and regulatory developments in the EU may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states and parallel trade (arbitrage between low-priced and high-priced member states) can further reduce prices. Acceptance of any medicinal product for reimbursement may come with cost, use and often volume restrictions, which again can vary by country. In addition, results based rules of reimbursement may apply. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if +76 +approved in those countries. Historically, products launched in the EU do not follow price structures of the United States and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales and the potential profitability of any of our product candidates in those countries would be negatively affected. In April 2023, the EU Commission released proposals to amend the current EU pharmaceutical regulatory framework. The potential reforms, if adopted, and depending on their final form, may cause additional pressure on pricing issues across the EU. For example, certain additional periods of regulatory exclusivity will only be available to medicinal products that are released and continuously supplied in a sufficient quantity and in the presentations necessary to cover the needs of the patients in every member state within two years of authorization (for products authorized through the centralized procedure). The potential commercial value of such a benefit may disproportionately affect pricing negotiations in member states that may otherwise be lower priority markets. However, the EU Parliament and Council are yet to agree on the final wording of any proposed legislation. Depending on the progress of the EU Parliament and Council, any changes to EU pharmaceutical legislation are not expected to come into force until 2025 or 2026 at the earliest. Additional transitional periods mean that the changes will most likely not take effect until 2027 or 2028. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of noncompliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, who are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in increased selling, general and administrative expenses. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. For example, as of December 31, 2024, we no longer qualify as an emerging growth company and as a result will be subject to more stringent reporting and compliance requirements applicable to larger companies. +Legislative or regulatory healthcare reforms in the United States or abroad may make it more difficult and costly for us to obtain regulatory clearance or approval of obicetrapib or any of our future product candidates now or in the future and to produce, market and distribute our products after clearance or approval is obtained. +From time to time, legislation is drafted and introduced in Congress or by governments in foreign jurisdictions that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA, EMA or other comparable regulatory authority regulations and guidance are often revised or reinterpreted by the FDA, the EMA or other comparable regulatory authorities in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of obicetrapib or any of our other product candidates now or in the future. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: +• +changes to manufacturing methods; +• +change in protocol design; +• +additional treatment arm (control); +• +recall, replacement, or discontinuance of one or more of our products; and +• +additional recordkeeping. +Each of these would likely entail substantial time and cost and could harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for obicetrapib or any future products would harm our business, financial condition and results of operations. +Risks Related to Our Financial Position +Our ability to use our tax losses to offset future taxable income may be subject to certain limitations. +Our ability to utilize tax losses and tax loss carryforwards is conditioned upon it attaining profitability and generating taxable income. We have incurred significant tax losses since inception and it is anticipated that we will continue to incur significant losses. As of December 31, 2024, we disclosed unused tax losses of $570.6 million. Additionally, our ability to utilize tax losses and tax loss carryforwards to offset future taxable income may be subject to certain limitations. In this respect, as of January 1, 2022, tax losses can be carried back one year and carried forward indefinitely in the Netherlands. However, both the carry back and carry forward tax loss relief will be limited to 50% of the taxable profit to the extent it exceeds EUR 1 million, calculated per financial year. As a result of transitional law, tax losses incurred in the financial +77 +years that started on or after January 1, 2013 (our oldest tax loss year as of December 31, 2023) and that are still available for carry forward as of January 1, 2025 also fall under the new scheme that entered into effect on January 1, 2022 and will therefore be indefinite. In addition, pursuant to Article 20a of the Dutch Corporate Income Tax, tax loss carryforwards can no longer be offset against future taxable profits if the ultimate ownership in a Dutch taxpayer has changed by an amount equal to or greater than 30%, unless certain counter evidence rules are met. In this respect, we believe and have taken the position that the tax losses of NewAmsterdam Pharma B.V. available for carry forward have not been forfeited as a result of the change of ownership back in 2020, when NewAmsterdam Pharma acquired all shares in the capital of NewAmsterdam Pharma B.V. (formerly Dezima Pharma B.V.), and that the tax losses of NewAmsterdam Pharma and NewAmsterdam Pharma B.V. have not been forfeited as a result of the Business Combination. On May 25, 2022, we filed a ruling request with the Dutch Tax Authorities to confirm that the change of ownership back in 2020 (described above) did not result in the loss of the tax losses of NewAmsterdam Pharma B.V. available for carry forward at that time. However, as of the date hereof, the Dutch Tax Authorities had not yet decided on our request. We currently expect, but can in no way guarantee or enforce, that the Dutch Tax Authority will grant our request. +We are a holding company with no operations and rely on operating subsidiaries to provide it with funds necessary to meet our financial obligations. +We are a holding company that does not conduct any business operations of its own. As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for dividends or payments in respect of any indebtedness we may incur, from our subsidiaries to meet its obligations. +Any agreements governing indebtedness that we or our subsidiaries enter into may impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from such subsidiaries. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us. +United States tax authorities could treat us as a PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders. +Based on current estimates of the composition of the income and assets of the Company and its subsidiaries for the taxable year ended December 31, 2024, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the 2024 taxable year. We have not yet determined whether we expect to be a PFIC for any future taxable years. Under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a non-U.S. corporation is classified as a PFIC for U.S. federal income tax purposes in the applicable tax year if, after the application of certain “look-through” rules with respect to subsidiaries, (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is “passive income” or (ii) at least 50% of the value of its assets in a taxable year, ordinarily determined on the basis of quarterly averages, is attributable to assets that produce or are held for the production of “passive income.” The determination of whether the Company or any of its non-U.S. subsidiaries is a PFIC is made annually and thus subject to change, and it generally cannot be made until the end of the taxable year. Additionally, any taxpayer who held a share of a class of our stock during a year in which we were treated as a PFIC will be required to continue to treat such class of stock as stock in a PFIC, unless the taxpayer made a timely “qualified electing fund” or “mark-to-market” election, as described below, or if the taxpayer makes a deemed sale or deemed dividend election. +Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. Cash is a passive asset for PFIC purposes, even if held as working capital. For this purpose, a non-U.S. corporation is generally treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which it owns, directly or indirectly, at least 25% (by value) of the stock. Accordingly, the Company will be treated as owning the cash and other cash-equivalent items of FLAC. +A U.S. Holder (as defined below) generally will be subject to additional U.S. federal income taxes and interest charges on the gain from a sale of Ordinary Shares and on receipt of an “excess distribution” with respect to Ordinary Shares or any of its non-U.S. subsidiaries. Under proposed regulations, a U.S. Holder may also be subject to additional U.S. federal income taxes and interest charges on the gain from the sale of the Public Warrants (as defined below), and the warrants to purchase Ordinary Shares initially issued as part of a unit issued in a private placement concurrently with the closing of FLAC’s initial public offering (the “Private Placement Warrants”). A U.S. Holder of stock of a PFIC generally may mitigate these adverse U.S. federal income tax consequences, however, by making a “qualified electing fund” election or a “mark-to-market” election. If we determine that we and/or any of our subsidiaries is a PFIC for any taxable year, we intend to provide a U.S. Holder such information as the United States Internal Revenue Service (the “IRS”) may require, including a PFIC Annual Information Statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election with respect to the Company and/or such non-U.S. subsidiaries, but there can be no assurance that we will be able to timely provide such required information. +U.S. Holders generally will not be able to make a qualified electing fund election solely with respect to the Warrants. +A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of securities and is: +• +an individual who is a citizen or individual resident of the United States; +78 +• +a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; +• +an estate the income of which is subject to U.S. federal income taxation regardless of its source; or +• +a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election to be treated as a U.S. person under applicable U.S. Treasury Regulations. +Risks Related to Ownership of Our Securities +Sales of a substantial number of our securities in the public market by certain of our securityholders pursuant to a registration statement we filed and/or by our existing securityholders could cause the price of our Ordinary Shares and Warrants to fall. +We filed a registration statement on Form F-1 (Registration No. 333-268888) registering up to 60,724,388 Ordinary Shares (the “Resale Shares”) for resale by certain of our securityholders. The Resale Shares represent a substantial percentage of our outstanding Ordinary Shares and Warrants, and the sales of such securities, or the perception that those sales might occur, could depress the market price of our Ordinary Shares and Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Ordinary Shares and Warrants but the sale of a large number of securities could result in a significant decline in the public trading price of our securities. +We are a Dutch public limited liability company. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of other jurisdictions and may not protect investors in a similar fashion afforded by incorporation in such other jurisdiction. +In connection with the Business Combination, the Company was converted into a public limited liability company ( naamloze vennootschap ) under Dutch law. Our corporate affairs are governed by our articles of association (the “Articles of Association”), the rules of the Board of Directors, our other internal rules and policies and by Dutch law. There can be no assurance that Dutch law will not change in the future or that it will serve to protect shareholders in a similar fashion afforded under corporate law principles in other jurisdictions, which could adversely affect the rights of our shareholders. +In the performance of their duties, our directors are required by Dutch law to consider the interests of the Company, its shareholders, its employees and other stakeholders, in all cases with due regard to the principles of reasonableness and fairness. It is possible that some of these stakeholders will have interests that are different from, or in addition to, your interests as a shareholder. +For more information on relevant provisions of Dutch corporation law and of the Articles of Association, see the description of our capital stock included in Exhibit 4.4 and our Articles of Association filed as Exhibit 3.1 to this Annual Report. +The market price and trading volume of the Ordinary Shares and Public Warrants may be volatile and could decline significantly. +The Nasdaq Global Market on which we have listed the Ordinary Shares and warrants to purchase Ordinary Shares (the “Public Warrants”) under the symbols “NAMS” and “NAMSW,” respectively, have from time to time experienced significant price and volume fluctuations. There may not be an active trading market for Ordinary Shares, which may make it difficult to sell such shares. Even if an active, liquid and orderly trading market develops and is sustained for the Ordinary Shares and Public Warrants, the market price of the Ordinary Shares and Public Warrants may be volatile and could decline significantly. In addition, the trading volume in the Ordinary Shares and Public Warrants may fluctuate and cause significant price variations to occur. If the market price of the Ordinary Shares and Public Warrants decline significantly, you may be unable to resell your shares or warrants at or above the price at which you acquired the Ordinary Shares and/or Public Warrants. We cannot assure you that the market price of the Ordinary Shares and Public Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following: +• +the realization of any of the risk factors presented in herein; +• +adverse results, or perceived adverse results, or delays in our clinical trials, +• +additions and departures of key personnel; +• +failure to comply with the requirements of Nasdaq; +• +failure to comply with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) or other laws or regulations; +• +future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases, of Ordinary Shares, including due to the expiration of contractual lock-up agreements; +• +publication of research reports about the Company; +• +failure to meet expectations of investors or securities analysts; +79 +• +the performance and market valuations of other similar companies; +• +new laws, regulations, subsidies, or credits or new interpretations of existing laws applicable to the Company; +• +commencement of, or involvement in, litigation involving the Company; +• +broad disruptions in the financial markets, including sudden disruptions in the credit markets; +• +speculation in the press or investment community; +• +actual, potential or perceived control, accounting or reporting problems; +• +actual or anticipated differences in the Company’s estimates, or in the estimates of analysts, for the Company’s revenues, results of operations, liquidity or financial condition; +• +changes in accounting principles, policies and guidelines; +• +general economic conditions in the United States and abroad, including high interest rates, rising inflation, the liquidity concerns at certain financial institutions, and the potential for local and/or global economic recession; and +• +other events or factors, including those resulting from infectious diseases, health epidemics and pandemics, natural disasters, war, acts of terrorism or responses to these events. +In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us. +There can be no assurance that the Ordinary Shares or the Public Warrants will be able to comply with the continued listing standards of Nasdaq. +Our Ordinary Shares are traded on Nasdaq under the symbol “NAMS” and our Public Warrants are traded on Nasdaq under the symbol “NAMSW.” If we fail to satisfy the continued listing requirements of Nasdaq such as the minimum closing bid price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In such a delisting, we and our shareholders could face significant material adverse consequences including: +• +a limited availability of market quotations for our securities; +• +reduced liquidity for our securities; +• +a determination that our stock is a “penny stock” which will require brokers trading in our stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our stock; +• +a limited amount of analyst coverage; and +• +a decreased ability to issue additional securities or obtain additional financing in the future. +In the event of a delisting, we can provide no assurance that any action taken by it to restore compliance with listing requirements would allow its securities to become listed again, stabilize the market price or improve the liquidity of its securities, prevent its securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if they were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. +If securities or industry analysts do not publish or cease publishing research or reports about the Company, our business, or the market in which we operate, or if they change their recommendations regarding the Ordinary Shares adversely, then the price and trading volume of the Ordinary Shares could decline. +The trading market for our Ordinary Shares and Public Warrants will be influenced by the research and reports that industry or financial analysts publish about our business. We do not control these analysts, or the content and opinions included in their reports. If any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding the Company, the price of the Ordinary Shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on it regularly, our visibility in the financial markets could decrease, which in turn could cause its share price or trading volume to decline. +We do not intend to pay dividends for the foreseeable future. Accordingly, you may not receive any return on investment unless you sell your Ordinary Shares for a price greater than the price you paid for them. +80 +We have never declared or paid any cash dividends on its shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on the Ordinary Shares in the foreseeable future. Consequently, you may be unable to realize a gain on your investment except by selling such shares after price appreciation, which may never occur. +The Board of Directors may only pay dividends and other distributions from the Company’s reserves to the extent the Company’s shareholders’ equity ( eigen vermogen ) exceeds the sum of the paid-in and called-up share capital plus the reserves it must maintain under Dutch law or the Articles of Association and (if it concerns a distribution of profits) after adoption of its statutory annual accounts by its general meeting of its shareholders (the “General Meeting”) from which it appears that such dividend distribution is allowed. Subject to those restrictions, any future determination to pay dividends or other distributions from the Company’s reserves will be at the discretion of the Board of Directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the Board of Directors deems relevant. +Under the Articles of Association, the Board of Directors may decide that all or part of the profits shown in the Company’s adopted statutory annual accounts will be added to its reserves. After reservation of any such profits, any remaining profits will be at the disposal of the General Meeting at the proposal of the Board of Directors for distribution on Ordinary Shares, subject to applicable restrictions of Dutch law. The Board of Directors is permitted, subject to certain requirements and applicable restrictions of Dutch law, to declare interim dividends without the approval of the General Meeting. Dividends and other distributions will be made payable no later than a date determined by the Company. Claims to dividends and other distributions not made within five years from the date that such dividends or distributions became payable will lapse and any such amounts will be considered to have been forfeited to us ( verjaring ). +Our management team has limited experience managing a public company. +Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern public companies. As a public company, we are subject to significant obligations relating to reporting, procedures and internal controls, in both the United States and the Netherlands, and our management team may not successfully or efficiently manage such obligations. These obligations and scrutiny will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations. In connection with the Business Combination, the Company’s legal form was converted from a private company with limited liability to a public limited liability company in the Netherlands. Additional burdens were imposed on our management team as a result of such conversion. +Investors may have difficulty enforcing civil liabilities against the Company or the members of the Board of Directors. +We are organized and existing under the laws of the Netherlands. As such, under Dutch private international law, the rights and obligations of our shareholders vis-à-vis the Company originating from Dutch corporate law and our Articles of Association, as well as the civil liability of our officers ( functionarissen ) including our directors and executive officers are governed in certain respects by the laws of the Netherlands. +We are not a resident of the United States and our officers may also not all be residents of the United States. As a result, depending on the subject matter of the action brought against us and/or our officers, United States courts may not have jurisdiction. If a Dutch court has jurisdiction with respect to such action, that court will apply Dutch procedural law and Dutch private international law to determine the law applicable to that action. Depending on the subject matter of the relevant action, a competent Dutch court may apply another law than the laws of the United States. +Also, service of process against non-residents of the United States can in principle (absent, for example, a valid choice of domicile) not be effected in the United States. +On the date of this Annual Report, (i) there is no treaty in force between the United States and the Netherlands for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters and (ii) both the Hague Convention on Choice of Court Agreements (2005) and the Hague Judgments Convention (2019) have entered into force for the Netherlands, but have not entered into force for the United States. Consequently, a judgment rendered by a court in the United States will not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to that United States judgment if (i) the jurisdiction of the United States court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the United States court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards ( behoorlijke rechtspleging ), (iii) binding effect of such United States judgment is not contrary to Dutch public order ( openbare orde ) and (iv) the judgment by the United States court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a United States judgment is given binding effect, a claim based thereon may, however, still be rejected if the United States judgment is not or no longer formally enforceable. Moreover, if the United States judgment is not +81 +final (for instance when appeal is possible or pending) a competent Dutch court may postpone recognition until the United States judgment will have become final and refuse recognition, under the understanding that recognition can be asked again once the United States judgment will have become final, or impose as a condition for recognition that security is posted. +A competent Dutch court may deny the recognition and enforcement of punitive damages or other awards. Moreover, a competent Dutch court may reduce the amount of damages granted by a United States court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Finally, there may be specific other instances, including pursuant to anti-boycott rules and regulations, where Dutch law prohibits the recognition and enforcement of a United States judgment. Thus, United States investors may not be able, or may experience difficulty, to enforce a judgment obtained in a United States court against us or our officers. +The Articles of Association provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which could limit the ability of our securityholders to choose a favorable judicial forum for disputes with we or our directors, officers or employees. +The Articles of Association provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act or the Exchange Act, to the fullest extent permitted by applicable law, shall be the U.S. federal district courts. This choice of forum provision may increase a securityholder’s cost and limit the securityholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers and other employees. Our shareholders will not be deemed to have waived compliance with the U.S. federal securities laws and the rules and regulations thereunder as a result of the exclusive forum provision. Any person or entity purchasing or otherwise acquiring any of the Ordinary Shares or other securities, whether by transfer, sale, operation of law or otherwise, will be deemed to have notice of and have irrevocably agreed and consented to this provision. There is uncertainty as to whether a court would enforce such provision. The Securities Act provides that state courts and federal courts will have concurrent jurisdiction over claims under the Securities Act, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable, and if a court were to find this provision in the Articles of Association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on our business and financial performance. +Our principal shareholders and management own a significant percentage of our Ordinary Shares and have representation on the Board of Directors and will be able to control matters subject to shareholder approval. +As of December 31, 2024, our executive officers, directors and holders of 5% or more of our capital stock beneficially owned approximately 49.7% of our outstanding Ordinary Shares (assuming that none of the 1,886,137 Earnout Shares have been issued). Certain of our directors are also affiliated with certain of our greater than 5% shareholders. As a result of the foregoing, these shareholders may be able to significantly influence the outcome of matters submitted for director action, subject to obligation of the Board of Directors to act in the interest of all of our stakeholders, and for shareholder action, including the designation and appointment of the Board of Directors and approval of significant corporate transactions, including business combinations, consolidations and mergers. The influence of these shareholders over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of the Company, which could cause the market price of our Ordinary Shares to decline or prevent our shareholders from realizing a premium over the market price for their Ordinary Shares. Investors in our Ordinary Shares should consider that the interests of these shareholders may differ from their interests in material respects. +If we fail to maintain an effective system of internal control over financial reporting or disclosure controls, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which is likely to negatively affect our business and the market price of the Ordinary Shares and Public Warrants. +Our management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). As a result of becoming a public company, we were required, pursuant to Sarbanes-Oxley, to maintain internal control over financial reporting. Effective internal control over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, prevent fraud and comply with our Exchange Act reporting obligations, and efforts to ensure that there are effective internal control over financial reporting and disclosure controls are costly, time-consuming, and need to be re-evaluated frequently. Any failure to implement required new or improved controls, or difficulties encountered in our implementation could cause us to fail to meet our reporting obligations. In addition, any testing conducted by us, or any testing conducted by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of the Ordinary Shares. +82 +We are required to disclose changes made in our internal controls and procedures on an annual basis and our management will be required to assess the effectiveness of these controls annually beginning with our fiscal year ending December 31, 2023. However, for as long as we are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley. Because the market value of our Ordinary Shares held by non-affiliates exceeded $700 million as of June 30, 2024, we ceased to qualify as an emerging growth company as of December 31, 2024 after which our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. +Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of the Ordinary Shares. +We have identified material weaknesses in our internal control over financial reporting in the past. If we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the price of our securities. +In connection with the preparation of our financial statements at and for the years ended December 31, 2023, 2022 and 2021, our management identified material weaknesses in the design of our internal control over financial reporting across the principles for each component of the COSO framework at the entity level (i.e. control environment, risk assessment, monitoring, information & communication and control activities) and accordingly, across its business and IT processes. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be detected or prevented on a timely basis. Specifically, the material weaknesses that were identified, individually or in the aggregate, included the following: +• +a lack of consistent and documented risk assessment procedures and control activities related to financial reporting, with a sufficient level of management review and approval, and adequate application of controls over information technology; and +• +failure to maintain a sufficient complement of personnel commensurate with its accounting and reporting requirements as it continues to grow as a company, and ability to: (i) design and maintain formal accounting policies, including maintaining appropriate segregation of duties; (ii) design and maintain controls over the preparation and review of journal entries and financial statements, including the fair presentation and disclosure of complex accounting matters. +As a result of these material weaknesses in our internal control over financial reporting, our management concluded that as of December 31, 2023, our disclosure controls and procedures were not effective. As described in more detail in Item 9A of Part II of this Annual Report, our management, under the oversight of the Audit Committee, took steps to remediate the identified material weaknesses, which steps consisted primarily of engaging additional personnel and establishing the internal control framework. As of the date of this Annual Report, the identified material weaknesses have been remediated. +There can be no assurance that the measures we have taken to date, and actions we may take in the future, will be sufficient to prevent or avoid potential future material weaknesses. If we identify future material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, the market price of our Ordinary Shares may decline as a result, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem all outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, if, among other things, the closing price of the Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of the redemption is given to the warrant holders (the “Reference Value”). If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants as described above could force you to (i) exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants. None of the Private Placement Warrants will be redeemable by us so long as they are held by Frazier Lifesciences Sponsor LLC or its permitted transferees. +83 +In addition, we have the ability to redeem the outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the Reference Value equals or exceeds $10.00 per share (as adjusted for share sub-divisions, share dividends, rights issuances, reorganizations, recapitalizations and the like) and the former holders of the Private Placement Warrants have also been called for redemption, subject to certain limitations as set forth in the Warrant Assignment, Assumption and Amendment Agreement, dated November 22, 2022, between us, Continental Stock Transfer & Trust Company and FLAC (the “Warrant Assumption Agreement”). In such a case, the holders will be able to exercise their Warrants prior to redemption for a number of Ordinary Shares determined based on the redemption date and the fair market value of the Ordinary Shares. The value received upon exercise of the Warrants (1) may be less than the value the holders would have received if they had exercised their Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Warrants, including because the number of Ordinary Shares received is capped at 0.361 shares of the Ordinary Shares per warrant (subject to adjustment) irrespective of the remaining life of the warrants. +Warrants and options to purchase Ordinary Shares will become exercisable for Ordinary Shares, which would increase the number of shares eligible for future resale in the public market and result in dilution to shareholders. +As of December 31, 2024, Warrants to purchase an aggregate of 2,632,581 Ordinary Shares and Pre-Funded Warrants to purchase an aggregate of 7,514,231 Ordinary Shares were outstanding and are exercisable in accordance with the terms of the Warrant Assumption Agreement. The exercise price of the Warrants is $11.50 per share. To the extent such warrants are exercised, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and increase the number of Ordinary Shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such Warrants and Pre-Funded Warrants may be exercised could adversely affect the market price of Ordinary Shares. To the extent that the Warrants are “out-of-the-money” we do not expect that all of the Warrant holders will exercise their Warrants. As such, there is no guarantee that the Warrants will ever be exercised. As of December 31, 2024, there were 19,029,056 Ordinary Shares issuable upon the exercise of options granted under the LTIP, Rollover Plan, Supplementary LTIP and Inducement Plan at a weighted average exercise price of $10.04. If the options are exercised, there may be additional Ordinary Shares offered which may further adversely affect the market price of our Ordinary Shares. +There is no guarantee that the Warrants will be in the money, and they may expire worthless. +Pursuant to the terms of the Warrant Assumption Agreement, the Warrants will expire on November 23, 2027, at 5:00 p.m., Eastern Standard Time. The exercise price of our Warrants is $11.50 per Ordinary Share, subject to adjustment. The exercise price of the Warrants has at times exceeded the market price of the Ordinary Shares. To the extent the price of our Ordinary Shares remains below $11.50, we believe that Warrant holders will be unlikely to cash exercise their warrants, resulting in little to no cash proceeds to us. There is no guarantee the exercise price of our Warrants will ever remain below the price of our Ordinary Shares and, as such, our Warrants may expire worthless. +The terms of the Public Warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then outstanding Public Warrants approve of such amendment. +The Warrant Assumption Agreement provides that (i) the terms of the Warrants may be amended without the consent of any holder for the purpose of (a) curing any ambiguity or correct any mistake, including to conform the provisions of the Warrant Assumption Agreement to the description of the terms of such warrants and the Warrant Assumption Agreement set forth in this Annual Report, or defective provision, (b) amending the definition of “Ordinary Cash Dividend” as contemplated by and in accordance with the Warrant Assumption Agreement or (c) adding or changing any provisions with respect to matters or questions arising under the Warrant Assumption Agreement as the parties to the Warrant Assumption Agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of such warrants under the Warrant Assumption Agreement and (ii) all other modifications or amendments require the vote or written consent of at least 65% of the then outstanding Public Warrants; provided that any amendment that solely affects the terms of the Private Placement Warrants or any provision of the Warrant Assumption Agreement solely with respect to the Private Placement Warrants will require at least 50% of the then outstanding Private Placement Warrants. +Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding Public Warrants approve of such amendment. Although the ability to amend the terms of the Public Warrants with the consent of at least 65% of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of Ordinary Shares purchasable upon exercise of a warrant. +The Warrant Assumption Agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of Warrants, which could limit the ability of Warrant holders to obtain a favorable judicial forum for disputes with us. +The Warrant Assumption Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Assumption Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we will irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. +84 +Notwithstanding the foregoing, these provisions of the Warrant Assumption Agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of the Warrants will be deemed to have notice of and to have consented to the forum provisions in the Warrant Assumption Agreement. If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Assumption Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of Warrants, such holder will be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such Warrant holder. +This choice-of-forum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Assumption Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect its business, financial condition and results of operations and result in a diversion of the time and resources of management and the Board of Directors. +Our shareholders may not have any preemptive rights in respect of future issuances of Ordinary Shares, and, as a result, may experience substantial dilution upon future issuances of Ordinary Shares or grants of rights to subscribe for such shares. +In the event of an issuance of Ordinary Shares or a grant of rights to subscribe for Ordinary Shares, subject to certain exceptions, each shareholder will have a pro rata pre-emption right in proportion to the aggregate nominal value of such holder’s Ordinary Shares. These pre-emption rights may be restricted or excluded by a resolution of the General Meeting or by another corporate body designated by the General Meeting. The Board of Directors is authorized for a period of five years from November 21, 2022 to issue Ordinary Shares or grant rights to subscribe for Ordinary Shares up to the Company’s authorized share capital from time to time and to limit or exclude pre-emption rights in connection therewith. This issuance of Ordinary Shares or grant of rights to subscribe for Ordinary Shares without pre-emptive rights for existing shareholders could cause existing shareholders to experience substantial dilution of their interest in the Company. +We are not obligated to, and do not, comply with all best practice provisions of the Dutch Corporate Governance Code. +We are subject to the Dutch Corporate Governance Code (the “DCGC”). The DCGC contains principles and best practice provisions on corporate governance that regulate relations between the board and the general meeting and matters in respect of financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies must disclose in their statutory annual reports whether they comply with the provisions of the DCGC. If a company subject to the DCGC does not comply with those provisions, that company would be required to give the reasons for such non-compliance. We do not comply with all best practice provisions of the DCGC. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC. +Provisions of our Articles of Association or Dutch corporate law might deter acquisition bids for the Company that might be considered favorable and prevent, delay or frustrate any attempt to replace or dismiss directors. +Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law. +In this respect, certain provisions of the Articles of Association may make it more difficult for a third-party to acquire control of us or effect a change in the composition of the Board of Directors. These include: +• +a provision that the Company’s directors can only be appointed on the basis of a binding nomination prepared by the Board of Directors which can only be overruled by a two-thirds majority of votes cast representing more than half of our issued share capital; +• +a provision that the Company’s directors can only be dismissed by the General Meeting by a two-thirds majority of votes cast representing more than half of our issued share capital, unless the dismissal is proposed by the Board of Directors in which latter case a simple majority of the votes cast would be sufficient; +• +a provision allowing, among other matters, the former chairperson of the Board of Directors or the Company’s former Chief Executive Officer to manage the Company’s affairs if all of its directors are dismissed and to appoint others to be charged with our affairs, including the preparation of a binding nomination for our directors as discussed above, until new directors are appointed by the General Meeting on the basis of such binding nomination; and +• +a requirement that certain matters, including an amendment of the Articles of Association, may only be resolved upon by the General Meeting if proposed by the Board of Directors. +Dutch law also allows for, and we have adopted, staggered multi-year terms of our directors, as a result of which only part of the Board of Directors will be subject to appointment or re-appointment in any given year. +85 +Furthermore, in accordance with the DCGC, shareholders who have the right to put an item on the agenda for the General Meeting or to request the convening of a General Meeting shall not exercise such rights until after they have consulted the Board of Directors. If exercising such rights may result in a change in our strategy (for example, through the dismissal of one or more directors), the Board of Directors must be given the opportunity to invoke a reasonable period of up to 180 days to respond to the shareholders’ intentions. If invoked, the Board of Directors must use such response period for further deliberation and constructive consultation, in any event with the shareholder(s) concerned and exploring alternatives. At the end of the response time, the Board of Directors shall report on this consultation and the exploration of alternatives to the General Meeting. The response period may be invoked only once for any given General Meeting and shall not apply (i) in respect of a matter for which a response period or a statutory cooling-off period (as discussed below) has been previously invoked or (ii) in situations where a shareholder holds at least 75% of our issued share capital as a consequence of a successful public bid. +Moreover, the Board of Directors can invoke a cooling-off period of up to 250 days when shareholders, using their right to have items added to the agenda for a General Meeting or their right to request a General Meeting, propose an agenda item for the General Meeting to dismiss, suspend or appoint one or more directors (or to amend any provision in the Articles of Association dealing with those matters) or when a public offer for the Company is made or announced without our support, provided, in each case, that the Board of Directors believes that such proposal or offer materially conflicts with the interests of the Company and its business. During a cooling-off period, the General Meeting cannot dismiss, suspend or appoint directors (or amend the provisions in the Articles of Association dealing with those matters) except at the proposal of the Board of Directors. During a cooling-off period, the Board of Directors must gather all relevant information necessary for a careful decision-making process and at least consult with shareholders representing 3% or more of our issued share capital at the time the cooling-off period was invoked, as well as with our Dutch works council (if we or, under certain circumstances, any of our subsidiaries would have one). Formal statements expressed by these stakeholders during such consultations must be published on our website to the extent these stakeholders have approved that publication. Ultimately, one week following the last day of the cooling-off period, the Board of Directors must publish a report in respect of its policy and conduct of affairs during the cooling-off period on our website. This report must remain available for inspection by shareholders and others with meeting rights under Dutch law at our office and must be tabled for discussion at the next General Meeting. Shareholders representing at least 3% of our issued share capital may request the Enterprise Chamber ( Ondernemingskamer ) of the Amsterdam Court of Appeal (the “Enterprise Chamber”), for early termination of the cooling-off period. The Enterprise Chamber must rule in favor of the request if the shareholders can demonstrate that: +• +the Board of Directors, in light of the circumstances at hand when the cooling-off period was invoked, could not reasonably have concluded that the relevant proposal or hostile offer constituted a material conflict with the interests of us and our business; +• +the Board of Directors cannot reasonably believe that a continuation of the cooling-off period would contribute to careful policy-making; or +• +other defensive measures, having the same purpose, nature and scope as the cooling-off period, have been activated during the cooling-off period and have not since been terminated or suspended within a reasonable period at the relevant shareholders’ request (i.e., no “stacking” of defensive measures). +As of January 1, 2024, we are no longer a foreign private issuer, and we are required to comply with the provisions of the Exchange Act and the rules of Nasdaq applicable to U.S. domestic issuers, which will continue to require us to incur significant expenses and expend time and resources. significant additional costs and expenses and subject us to increased regulatory requirements. +We determined on June 30, 2023 that we no longer satisfied the requirements for retaining our foreign private issuer status which means that as of January 1, 2024 we are required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. The Exchange Act reporting and other requirements applicable to U.S. domestic issuers, including periodic reporting requirements and the U.S. federal proxy rules, are more detailed and extensive than the requirements for foreign private issuers. We were required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. We were also required to begin preparing our financial statements in accordance with U.S. GAAP which resulted in financial statements that are different than our historical financial statements and which may make it difficult for investors to compare our financial performance over time. Our officers, directors and principal shareholders became subject to the reporting and short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. As a U.S. listed public company that is not a foreign private issuer, we expect to incur significant additional legal, accounting and other expenses that we did not incur as a foreign private issuer. We also expect that complying with the rules and regulations applicable to U.S. domestic issuers may make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our management team and Board of Directors. Complying with the Exchange Act rules applicable to a domestic company will require additional time from management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations. may also distract our management team and impact our operations. +Dutch and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws. +86 +As a Dutch public limited liability company, we are subject to Dutch insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings. Should courts in another EU member state determine that our center of main interests (“COMI”) is situated in that member state, the courts in that member state will in principle have jurisdiction over the insolvency proceedings initiated against us and the insolvency laws of that member state will in principle apply to us, in accordance with and subject to such EU regulations. Insolvency laws in the Netherlands or the relevant other EU member state, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for our shareholders to recover the amount they could expect to recover in a liquidation or restructuring under U.S. insolvency laws. +We no longer qualify as an “emerging growth company” as of December 31, 2024 and, as a result, we are no longer able to avail ourselves of certain reduced disclosure requirements applicable to emerging growth companies. +As of December 31, 2024, we no longer qualify as an emerging growth company within the meaning of Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company. These requirements include, but are not limited to: +• +the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; +• +compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, including critical audit matters; +• +the requirement that we provide full and more detailed disclosures regarding executive compensation; and +• +the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved. +The loss of EGC status and compliance has increased and may continue to increase our legal and financial compliance costs, and may cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +As part of our ongoing company-wide risk assessment, our management team has identified several key categories of cybersecurity risk to which we are exposed, including, (i) data security risks, (ii) malware and phishing attacks, (iii) insider and third-party risks, (iv) infrastructure and network risks and (v) regulatory and compliance risks. We identified the above risks based on an analysis of our business and a technical analysis by our information and communications technology (“ICT”) consultants of our most critical business activities and associated vulnerabilities. We review our systems against specified security metrics to ensure they are satisfactory, monitor our third-party vendors and partners, participate in threat intelligence sharing, have developed mechanisms designed to detect deviations in our systems, have implemented information technology protocols to control access to our systems and information, provide security awareness trainings, and proactively patch known vulnerabilities. We are working with third-party consultants to build our cybersecurity incident detection processes , including taking the steps described above, and are also working with our vendors and partners to ensure that we are made aware of any cybersecurity incident they experience that may impact our business promptly. In addition, we maintain policies and processes to assess and manage risks relating to third-party service providers, including based on the nature of the engagement with the third party and based on the information and information systems to which the third party will have access. We maintain policies to conduct due diligence before onboarding new service providers and maintain ongoing evaluations to ensure compliance with our security standards. Our management team, along with ICT consultants and other advisors, will conduct a risk assessment on at least an annual basis in order to ensure we are appropriately managing known cybersecurity risks and discovering any potentially new risks. To date, we have not identified any material impact on our business strategy, results of operations or financial condition resulting from the cybersecurity risks described above. However, there can be no assurances that the steps we take will be sufficient to avoid a cybersecurity incident and, if an incident were to occur, our business may be materially impacted as a result of any costs associated with remediating a cybersecurity incident or resolving litigation or regulatory enforcement actions as a result such incident, or potential delays to our clinical trials or release of data as a result of an incident impacting our internal systems or those of the CROs on whom we rely to conduct our clinical trials and gather data from such trials. Furthermore, the realization of any of the risks described above could seriously harm our reputation making it more difficult to recruit patients and CROs, conduct clinical trials, obtain regulatory approvals for our current or future product candidates or generate partnering opportunities. +Our Audit Committee oversees the application of our ICT systems and all risks relating to cybersecurity. Cybersecurity is a standing agenda item at each of the Audit Committee’s regularly scheduled meetings and the committee may engage any external advisor as needed to +87 +advise on cybersecurity matters. The Audit Committee periodically reports on such matters to the Board of Directors as part of our overall risk management and oversight framework. We have also established a management-level disclosure committee (the “Disclosure Committee”). The Disclosure Committee, which consists of employees representing our legal, finance, IT, regulatory and clinical departments, is responsible for overseeing the preparation of our public disclosure materials and assessing the materiality of events within the Company. The Disclosure Committee is also responsible for conducting our cybersecurity risk assessment and ensures constituencies from across the Company are represented in such assessment. The Disclosure Committee monitors cybersecurity incidents and risk on an ongoing basis and may engage outside consultants as needed to assess and respond to cybersecurity incidents. The Disclosure Committee reports to the Audit Committee on a variety of matters, including cybersecurity risks. In addition, our Senior Vice President of Information Technology has significant experience managing IT departments, including with regard to cybersecurity risk management and compliance. We have also engaged a third party to provide technical information technology experience to the Disclosure Committee, Audit Committee and Board of Directors. +Item 2. Properties +We have our corporate headquarters at Gooimeer 2-35, 1411 DC, Naarden, the Netherlands, where we lease a small office space pursuant to a lease agreement entered into on July 3, 2020 which will continue until terminated by either us or the landlord upon one-month prior written notice. This facility houses our operations, human resources, information technology, finance, clinical operations and program management functions. +We also lease an administrative office of approximately 1,375 square feet, located at 20803 Biscayne Blvd., Suite #105, Aventura, FL 33180. This office space houses our U.S. administration, human resources, information technology, finance, clinical operations and program management functions. +We believe that these existing facilities will be adequate for our near-term needs. If required, we believe that suitable additional or alternative space would be available in the future on commercially reasonable terms. We are not aware of any environmental issues or other constraints that would materially impact the intended use of our facilities. +Item 3. Legal Proceedings +From time to time, we may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not party to any legal proceedings material to our operations or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by a government authority. +The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. +Item 4. Mine Safety Disclosures +Not applicable. +88 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities +Market for Ordinary Shares +Our Ordinary Shares trade on the Nasdaq Global Market under the symbol “NAMS.” +Record Holders +As of February 18, 2025, we had approximately 26 holders of record of our Ordinary Shares, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”). Ordinary Shares that are held by financial institutions as nominees for beneficial owners or in “street name” are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one shareholder. +Dividends +We have never declared or paid a cash dividend on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. +Unregistered Sales of Securities +We did not sell or issue any equity securities during the fiscal year ended December 31, 2024 that were not registered under the Securities Act. +Stock Price Performance Graph +The following performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act. +The following graph shows a comparison from November 23, 2022, the date on which our Ordinary Shares first began trading on Nasdaq, through December 31, 2024 of the cumulative total return for our Ordinary Shares, the Nasdaq Biotechnology Index, and the Standard & Poor’s 500 Stock Index (the “S&P 500”) each of which assumes an initial investment of $100 and reinvestment of all dividends. Such returns are based on historical results and are not intended to suggest future performance. +The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our Ordinary Shares. +Item 6. [Reserved] +89 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under “Risk Factors” included in Part I, Item 1A and under “Special Note Regarding Forward-Looking Statements” or in other parts of this Annual Report on Form 10-K. +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient LDL-C lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective CETP inhibitor, alone or as a fixed-dose combination with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of CVD with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib, is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. In addition to LDL-C, obicetrapib has shown significant reductions in Lp(a) and small LDL particles, all with safety comparable to placebo. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering with side effects similar in frequency and severity to placebo including muscle-related side effects and drug-related TESAEs. We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with dyslipidemia in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with MACE benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial we observed a positive trend in the exploratory MACE endpoint and we are performing a Phase 3 CVOT PREVAIL trial to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, ApoB, and sdLDL-P. In our clinical trials, we have also observed reductions in Lp(a), which is believed to be an independent MACE risk factor, along with reductions in total LDL particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. ASCVD is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and a fixed-dose combination therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe, in the majority of European countries, if approved. Subject to receipt of marketing approval, our current plan is to pursue development and commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and the EU, including in Japan and China. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other +90 +arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also continually evaluating the potential acquisition or license of new product candidates. +As of December 31, 2024, we had cash and cash equivalents of $771.7 million as compared to $340.5 million as of December 31, 2023. The increase in cash is primarily driven by the proceeds of the February 2024 Offering (as defined below), the December 2024 Offering (as defined below), Warrant exercises, exercises of options and the achievement of a clinical development milestone, partially offset by cash outflows related to research and development costs as we continue development of obicetrapib and increased spending on selling, general and administrative expenses to support our growing organization.. As of December 31, 2024, we no longer qualify as an “emerging growth company,” and, as a result, we are no longer able to avail ourselves of certain reduced reporting requirements applicable to emerging growth companies, and we expect to incur increased expenses as a result. +Recent Developments +December 2024 Follow-On Offering +On December 13, 2024, the Company completed an underwritten public offering (the “December 2024 Offering”) of 14,667,347 Ordinary Shares at a public offering price of $24.50 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,882,653 Ordinary Shares at a public offering price of $24.4999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 14,667,347 Ordinary Shares issued and sold in the offering, 2,550,000 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the December 2024 Offering were $453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. +Positive Topline Data from Pivotal Phase 3 BROADWAY Clinical Trial +On December 10, 2024, we announced positive topline data from our Phase 3 BROADWAY clinical trial. The primary endpoint was the least-squares mean of the percent change in LDL-C from baseline to day 84 for obicetrapib 10 mg compared to placebo, using imputation for missing data. The primary endpoint was achieved with statistical significance with an LDL-C reduction of 33% (p<0.0001). As part of the safety analysis, the trial adjudicated MACE as an exploratory endpoint, including death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization. In addition, a 21% reduction in MACE favoring obicetrapib was observed. The observed changes in other biomarkers, including HDL-C, non-HDL-C, Lp(a), ApoB, and Apolipoprotein A1 (ApoA1) were consistent with data reported in our prior clinical trials. As part of the safety analysis, key AEs of special interests were monitored. Among these AEs, glycemic control and renal function were monitored and each of the events favored obicetrapib. Overall, obicetrapib was also observed to be well-tolerated, with safety results, including blood pressure, comparable to placebo. +Positive Topline Data from Pivotal Phase 3 TANDEM Clinical Trial +On November 20, 2024, we announced positive topline data from our Phase 3 TANDEM clinical trial. The co-primary endpoints were percent change from baseline in LDL-C of the fixed-dose combination compared to each monotherapy arm after 84 days and obicetrapib 10 mg compared to placebo after day 84. Secondary endpoints incorporated percent changes from baseline in other biomarkers, including Lp(a), non-HDL-C and ApoB. The TANDEM trial met all co-primary endpoints, including the obicetrapib-ezetimibe fixed dose combination achieving an LS mean reduction of 48.6% (p < 0.0001) compared to placebo at day 84. In the trial, the fixed-dose combination of obicetrapib and ezetimibe was observed to be well tolerated, with safety results comparable to placebo. +Positive Topline Data from Pivotal Phase 3 BROOKLYN Clinical Trial +On November 18, 2024, we announced additional positive data from our Phase 3 BROOKLYN clinical trial. The trial met its primary endpoint of percent change from baseline in LDL-C of obicetrapib 10 mg compared to placebo after 84 days. The trial also met several of its prespecified secondary endpoints with statistical significance and observed results consistent with our prior clinical trials. Key secondary endpoints included percent changes from baseline of obicetrapib 10 mg compared to placebo after 84 days in Lp(a), ApoB, HDL-C and non-HDL-C. The p-value for the LS mean for all secondary endpoints compared to placebo was <0.0001 following 84 days of treatment with obicetrapib. Obicetrapib was also observed to be well tolerated, with safety results in the treatment arm comparable to placebo and no observed increase in blood pressure. +Components of our Results of Operations +Revenue +To date, we have not generated any revenue from the sale of pharmaceutical products. Our revenue has been solely derived from our license agreement with Menarini. Two performance obligations for the Menarini license were identified at contract inception, comprising a license to use the Company's intellectual property (the "license performance obligation") and a promise to continue the development activities for the licensed compound (the "R&D performance obligation"). Pursuant to the Menarini License, we received a non-refundable, non-creditable upfront amount of $120.9 million (€115.0 million) from Menarini on July 7, 2022, of which $98.6 million (€93.5 million) was +91 +attributed to the license performance obligation and recognized as revenue upon the execution of the Menarini License on June 23, 2022. The remaining $22.3 million (€21.5 million) was attributed to the R&D performance obligation and initially recognized as deferred revenue. +Additionally, in partial contribution to our costs of development of the Licensed Products, Menarini may pay us €27.5 million, payable in two equal annual installments. Due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials, which is out of our control, the fixed €27.5 million was considered constrained at contract execution and is not initially recognized within the transaction price until it becomes highly probable of no significant revenue reversal. At the end of each reporting period, we assess the probability of significant reversals for any amounts that become likely to be realized prior to recognizing the constrained amounts associated with these payments within the transaction price. +Under the Menarini License, we are also entitled to receive certain cost sharing payments, sales-based royalties and payments based upon the achievement of defined development, regulatory and commercial milestones linked to the enhanced value of the license performance obligation. These milestones are contingent payments and represent variable considerations that are not initially recognized within the transaction price, due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials. Our ability to receive and generate revenue from these payments is dependent upon a number of factors, including our ability to successfully complete the development of and obtain regulatory approval for obicetrapib within the Menarini Territory. The uncertainty of achieving these milestones significantly impacts our ability to generate revenue. At the end of each reporting period, we assess the probability of significant reversals for any amounts that become likely to be realized prior to recognizing the variable consideration associated with these payments within the transaction price. +We do not expect to generate any revenue from product sales for the foreseeable future. Any revenue generated from potential future collaborations may vary due to the many uncertainties in the development of obicetrapib and other factors. +Research and Development Expenses +Research and development expenses are recognized as an expense when incurred and are typically made up of costs from our clinical and preclinical activities, drug development and manufacturing costs, and costs for CROs and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data provided by vendors of their actual costs incurred. At each balance sheet date, we estimate the level of services provided by vendors and the associated expenditure incurred for the services performed. +All such costs are for the purpose of advancing our product candidate to successfully complete clinical development, attain regulatory approval and, if approved, commercialize our product candidate. Much of our current focus in our ongoing trials is on patient recruitment and retention and data cleaning. Research and development expenses consist of the following: +• +clinical expenses primarily incurred by CROs assisting with our sponsored clinical trials and including clinical investigator costs, patient enrollments and costs of clinical sites; +• +manufacturing expenses arising from API and drug product development as performed by our CMOs, which are used in our clinical trials and research and development activities; +• +costs associated with obtaining potential regulatory approval of our product candidate, including preparation and submission of filings, ongoing monitoring and compliance with comments and recommendations provided by regulatory authorities, and regulatory-related advisory fees; +• +contracted personnel and employment costs attributed to research and development efforts, which includes management fees, salaries, share-based compensation expenses, bonus plans and payments to contractors who work for us for a fixed number of hours per week or per month; +• +preclinical and nonclinical research and development expenses of the product candidate; and +• +other clinical costs such as clinical trial insurance and other consultancy fees. +We expect our research and development expenses to be significant as we advance obicetrapib through clinical trials and pursue regulatory approval. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming. Clinical trials generally become larger and more costly to conduct as they advance into later stages and, in the future, we will be required to make estimates for expense accruals related to clinical trial expenses. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of obicetrapib. See the section entitled “ Risk Factors—Risks Related to Our Product Development, Regulatory Approval and Commercialization ” for more information regarding the risks associated with clinical development. +Selling, General and Administrative Expenses +92 +We recognize selling, general and administrative expenses on the accrual basis when incurred. These expenses mainly relate to consultant fees, employee costs, legal costs, marketing and communication, intellectual property costs due to increased efforts to drug patent development and protection globally, and general overhead costs. +Due to the general growth of the organization associated with administering ongoing and planned clinical trials and our focus on commercial preparedness, we expect that our selling, general and administrative expenses may increase. We will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, if and when a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expenses as a result of our preparation for commercial operations. +Interest Income +Interest income is recognized using the effective interest rate method. Finance income for the year ended December 31, 2024 is related to interest earned on cash, cash equivalents and marketable securities. +Net Foreign Exchange Gain/Loss +Our exchange gain/loss relates mainly to cash balances denominated in foreign currencies, but also to transactions denominated in foreign currencies. Our foreign currency exposure is mainly related to the Euro. As of December 31, 2024, our net exposure to foreign currency risk was $108.6 million compared to $114.3 million as of December 31, 2023, mainly related to the Euro. +Income Tax +We have a history of losses and therefore have de minimis amounts of corporate tax. We expect to continue incurring losses as we continue to invest in our clinical and preclinical development programs. Consequently, any deferred tax assets are fully offset by a valuation allowance on our balance sheet. +Results of Operations +Comparison of the Years Ended December 31, 2024 and December 31, 2023 +The following table summarizes our consolidated statements of operations for the periods indicated: +For the year ended December 31, +(In thousands of USD) +2024 +2023 +Change +Revenue +45,563 +14,090 +31,473 +Operating Expenses: +Research and development expenses +151,406 +159,424 +(8,018 +) +Selling, general and administrative expenses +70,446 +37,633 +32,813 +Total operating expenses +221,852 +197,057 +24,795 +Operating Loss +(176,289 +) +(182,967 +) +6,678 +Other income (expense): +Interest income +16,881 +11,283 +5,598 +Fair value change - earnout +(37,010 +) +(266 +) +(36,744 +) +Fair value change - warrants +(38,583 +) +(10,018 +) +(28,565 +) +Foreign exchange gains/(losses) +(6,598 +) +5,058 +(11,656 +) +Loss before tax +(241,599 +) +(176,910 +) +(64,689 +) +Income tax expense +(1 +) +27 +(28 +) +Loss for the year +(241,598 +) +(176,937 +) +(64,661 +) +Revenue +Revenue increased by $31.5 million, or 223.4%, to $45.6 million for the year ended December 31, 2024 compared to $14.1 million for the year ended December 31, 2023. This change is largely due to $27.3 million of revenue recognized in the year ended December 31, 2024 related to the license performance obligation under the Menarini License for a clinical success milestone compared to $5.4 million of such revenue recognized in the year ended December 31, 2023. The remainder of the change is due to an increase of $9.5 million in the revenue recognized related to the R&D performance obligation in the year ended December 31, 2024 as compared to the year ended December 31, 2023. This increase in revenue related to the R&D performance obligation is composed of the following: +• +recognition of $11.9 million of revenue for a general development cost reimbursement in the year ended December 31, 2024 while no such cost reimbursement was recognized in the year ended December 31, 2023; and +• +an offsetting decrease of $2.3 million in recognition of deferred revenues in the year ended December 31, 2024 as compared to the year ended December 31, 2023 due to differences in the percentage of completion achieved in each respective year related to the performance obligation. +93 +Research and Development Expenses +Research and development expenses decreased by $8.0 million, or 5.0%, to $151.4 million for the year ended December 31, 2024 compared to $159.4 million for the year ended December 31, 2023. This was primarily driven by: +• +a $10.2 million decrease in manufacturing costs; +• +a $1.1 million decrease in non-clinical expenses related to preclinical studies; +• +a $0.9 million decrease in clinical expenses due to clinical trial which are complete or nearing completion; +• +a partially offsetting $0.9 million increase in regulatory expenses; and +• +a partially offsetting $3.1 million increase in personnel expenses. +The following table summarizes our research and development expenses for the periods indicated: +For the year ended December 31, +(In thousands of USD) +2024 +2023 +Change +Clinical expenses +105,904 +106,770 +(866 +) +Non-clinical expenses +1,859 +2,917 +(1,058 +) +Personnel expenses +24,019 +20,877 +3,142 +Manufacturing costs +17,188 +27,430 +(10,242 +) +Regulatory expenses +2,186 +1,297 +889 +Other research and development costs +250 +133 +117 +Total research and development expenses +151,406 +159,424 +(8,018 +) +Selling, General and Administrative Expenses +Selling, general and administrative expenses increased by $32.8 million, or 87.2%, to $70.4 million for the year ended December 31, 2024 compared to $37.6 million for the year ended December 31, 2023. This was primarily driven by: +• +a $25.9 million increase in personnel expenses related to selling, general and administrative expenses, of which our share-based compensation arrangements account for $10.3 million. The remainder is largely due to increased recruitment and employment costs for individuals involved with administrative and commercial preparedness activities to support the growth of the organization; +• +a $10.9 million increase in marketing and communication expenses related to startup costs as we begin to build capabilities to support our planned commercial launch of obicetrapib, if approved; and +• +a partially offsetting $3.5 million decrease in finance and administration expenses primarily due to costs incurred in 2023 in connection with an underwritten public offering of Ordinary Shares by certain of our shareholders. We did not sell any Ordinary Shares in the offering and did not receive any proceeds from the offering. +Interest Income +Interest income increased by $5.6 million, to $16.9 million for the year ended December 31, 2024 compared to $11.3 million for the year ended December 31, 2023. This increase was primarily driven by greater cash balances and investments in marketable securities during the year ended December 31, 2024 as compared to cash balances during the year ended December 31, 2023. +Fair Value Change - Earnout +Fair value change - earnout was a loss of $37.0 million for the year ended December 31, 2024 compared to a loss of $0.3 million for the year ended December 31, 2023. The change is driven by changes in the market price during the period for Ordinary Shares and an increase in the estimated probability of achieving the earnout milestone from 40% as of December 31, 2023 to 100% as of December 31, 2024. +Fair Value Change - Warrants +Fair value change - warrants was a loss of $38.6 million for the year ended December 31, 2024 compared to a loss of $10.0 million for the year ended December 31, 2023. The change is driven by changes in the market price during the period for the Warrants, which trade under the symbol "NAMSW." +Foreign Exchange Gains/(Losses) +Net foreign exchange gains/(losses) were a loss of $6.6 million for the year ended December 31, 2024 compared to a gain of $5.1 million for the year ended December 31, 2023. This change was largely driven by a weakening of the Euro against the U.S. Dollar. +94 +Loss for the Year +Loss for the year increased by $64.7 million, to $241.6 million for the year ended December 31, 2024 compared to $176.9 million for the year ended December 31, 2023. The individual components of the change are described above. +Comparison of the Years Ended December 31, 2023 and December 31, 2022 +Please refer to the section titled “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a comparative discussion of our fiscal years ended December 31, 2023 and December 31, 2022. +Liquidity and Capital Resources +We are a clinical-stage biopharmaceutical company and, since inception, we have incurred significant operating losses and expect to continue to do so for the foreseeable future. Since inception, we have not generated any product revenues or net positive cash flows from operating activities. We will not receive any product revenues or net positive cash flows from operating activities until we successfully develop a product candidate, obtain regulatory approval, and successfully commercialize it. +To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and conducting clinical trials of obicetrapib. As a result, we are not yet profitable and have incurred losses in each annual period since our inception. As of December 31, 2024, we had an accumulated loss of $558.6 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will relate primarily to, and increase substantially as a result of: +• +the progress and costs of our discovery, preclinical and non-clinical development; +• +the progress and costs of our clinical trials, including costs related to clinical sites, clinical investigators and CROs that are assisting with our sponsored clinical trials, and other research and development activities; +• +the costs and timing of obtaining regulatory approval, including the expenses of filing NDAs and MAAs, and the related expenses involved in validating our manufacturing processes; +• +the costs associated with any future investigator-sponsored preclinical studies and clinical trials; +• +the costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property rights; +• +the costs and timing of obtaining sufficient quantities of our product candidate for clinical trials by establishing production capacities through contracts with CMOs; +• +the terms and timing of any collaborative, licensing and other arrangements that we may establish; +• +compensation expenses associated with increased headcount; +• +the costs of preparing for launch and commercialization of our product candidate; +• +losing our status as an emerging growth company; and +• +the costs of operating as a public company in the United States. +We may encounter unforeseen expenses, difficulties, complications, delays and other factors that may adversely affect our business. The magnitude of our future net losses will depend on the rate of future growth of our expenses combined with our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital unless and until eliminated by revenue generation and growth. +We have historically funded our operations primarily through private placements and public offerings of shares, the sale of convertible notes, proceeds from the Menarini License and the proceeds from the Business Combination. As of December 31, 2024, we had cash and cash equivalents of $771.7 million. Until we can generate substantial revenue, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, convertible loans, warrants, collaborations, or other means. We may consider raising additional capital to take advantage of favorable market conditions or for other strategic considerations even if we have sufficient funds for planned operations. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or privately placed equity offerings of securities, the terms of these securities or offerings may include liquidation or other preferences that adversely affect our other shareholders’ rights. To the extent that we raise additional funds by issuing and selling equity or +95 +equity-linked securities, shareholders will experience dilution. If we raise additional capital through debt financing, we would likely be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, licensing or selling assets, making capital expenditures or declaring dividends. Capital may become difficult or impossible to obtain due to poor market or other conditions outside of our control. If we are unable to raise sufficient additional funds on favorable terms as and when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others any of our potential future product candidates that we would prefer to develop and commercialize ourselves. See the section titled “ Risk Factors ” for additional detail regarding these risks. +We plan to utilize our existing cash and other financial assets on hand primarily to fund our research and development initiatives to continue or commence clinical trials and seek regulatory approval for obicetrapib. We also expect to make capital expenditures to support our anticipated growth. Cash in excess of immediate requirements is invested in accordance with our investment policy which has the primary purpose of capital preservation and liquidity. We are also continually evaluating the potential acquisition or license of new product candidates. +Sources of Liquidity +December 2024 Follow-on Offering +On December 13, 2024, we completed the December 2024 Offering of 14,667,347 Ordinary Shares at a public offering price of $24.50 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,882,653 Ordinary Shares at a public offering price of $24.4999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 14,667,347 Ordinary Shares issued and sold in the December 2024 Offering, 2,550,000 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the December 2024 Offering were $453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. +February 2024 Follow-on Offering +On February 16, 2024, we completed an underwritten public offering (the “February 2024 Offering”) of 5,871,909 Ordinary Shares at a public offering price of $19.00 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,736,841 Ordinary Shares at a public offering price of $18.9999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares less the $0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 5,871,909 Ordinary Shares issued and sold in the February 2024 Offering, 1,383,750 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the February 2024 Offering were $190.0 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. +Menarini License +On June 23, 2022, we entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize the Licensed Products, for any use in the Menarini Territory. Pursuant to the Menarini License, Menarini made a non-refundable, non-creditable upfront payment to us of €115 million. Menarini has also committed to providing us €27.5 million in funding for the research and development activities related to the Licensed Products over two years, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to €863 million upon the achievement of various clinical, regulatory and commercial milestones, €30 million of which has been received to date. If obicetrapib is approved, and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double-digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party IP payments. See the section titled “ Business—Commercial ” for a full description of the Menarini License. +As of December 31, 2024, we have received a total of €30 million in milestone payments from Menarini, €25 million of which was received in the year ended December 31, 2024. +Warrants +In the year ended December 31, 2024, 1,384,640 Warrants were exercised at an exercise price of $11.50 per Ordinary Share, generating gross proceeds of $13.8 million. As of December 31, 2024, we had another 2,632,581 outstanding Warrants to purchase 2,632,581 Ordinary Shares, exercisable at an exercise price of $11.50 per share, which will expire on November 23, 2027, at 5:00 p.m., Eastern Standard Time. Based on the exercise price of the Warrants, we may receive up to $30.3 million, assuming the exercise of all Warrants outstanding as of December 31, 2024. The exercise of the Warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Ordinary Shares and the spread between the exercise price of the Warrant and the price of an Ordinary Share at the time of exercise. For example, to the extent that the trading price of the Ordinary Shares exceeds $11.50 per share, it is more likely that holders of our Warrants will exercise their Warrants. If the trading price of the Ordinary Shares is less than $11.50 per share, it is unlikely that such holders will exercise their Warrants. The exercise price of the Warrants has at times exceeded the market price of the Ordinary Shares. To the extent that the price of our Ordinary Shares is below $11.50, we believe that the Warrant holders will be unlikely to cash exercise their warrants, resulting in little to +96 +no cash proceeds to us. There can be no assurance that our Warrants will be in the money prior to their expiration and, as such, certain unexercised Warrants may expire worthless. As such, it is possible that we may never generate any additional cash proceeds from the exercise of our Warrants. We have not included, and do not intend to include, any potential cash proceeds from the exercise of our Warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability that the Warrants are exercised over the life of our Warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity projections. +Business Combination and PIPE Financing +In July 2022, we entered into a Business Combination Agreement with FLAC, NewAmsterdam Pharma and Merger Sub, which closed on November 22, 2022. +Concurrently with the execution of the Business Combination Agreement, we and FLAC also entered into subscription agreements with certain investors (the "PIPE Investors"), pursuant to which the PIPE Investors agreed to subscribe for and purchase from us, and we agreed to issue and sell to such PIPE Investors in a private placement, an aggregate of 23,460,000 Ordinary Shares at $10.00 per share for gross proceeds of $234.6 million (the "PIPE Financing"). The PIPE Financing closed substantially concurrently with the Business Combination. +We received an aggregate of $306.3 million from the Business Combination and associated PIPE Financing at the closing of the Business Combination, prior to deducting the $2.6 million of transaction costs directly attributable to these financing activities. +Cash Flows +The following is a summary of cash flows for the years ended December 31, 2024, 2023 and 2022: +For the year +ended December 31, +(In thousands of USD) +2024 +2023 +2022 +Net cash (used in)/provided by operating activities +(158,564 +) +(141,218 +) +10,665 +Net cash used in investing activities +(62,848 +) +(24 +) +(221 +) +Net cash provided by financing activities +659,507 +8,912 +391,905 +Foreign exchange differences +(6,802 +) +5,052 +5,248 +Cash and cash equivalents at the beginning of the year +340,450 +467,728 +60,131 +Cash and cash equivalents at the end of the year +771,743 +340,450 +467,728 +Net Cash Flows Provided By/Used In Operating Activities +Net cash used in operating activities increased by $17.4 million from $141.2 million in 2023 to $158.6 million in 2024. This change was primarily due to an increase in operating expenditures, the underlying reasons for which are described above, partially offset by an increase in the amount of cash received related to the achievement of clinical development milestones in the current period as compared to the same period in the prior year. +Net Cash Flows Provided By/Used In Investing Activities +Net cash flows used in investing activities increased by $62.8 million from $0.0 million in 2023 to $62.8 million in 2024. This change was primarily due to investments in marketable securities. +Net Cash Flows Provided By Financing Activities +Net cash flows provided by financing activities was $659.5 million in 2024 compared to $8.9 million in 2023, an increase of $650.6 million. This change was primarily related to the February 2024 Offering and the December 2024 Offering, which together generated net proceeds of $645.0 million after deducting underwriting discounts and commissions and offering expenses paid by the Company. The remaining change is due to a $5.1 million increase in the proceeds received from the exercise of Warrants and a $0.5 increase in net proceeds from the exercise of options. +Operating Capital and Capital Expenditure Requirements +Third-Party Service Agreements +We have entered into a variety of agreements and financial commitments in the normal course of business with CROs, CMOs, and other third parties for preclinical and clinical development and manufacturing services. The terms generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation. However, some of our service providers also charge cancellation fees upon cancellation. The amount and timing of such payments are not known, but at December 31, 2024 they are estimated to be a maximum of $11.8 million due within +97 +one year and $2.4 million due in more than a year. As of December 31, 2024, we had cash and cash equivalents of $771.7 million, which is sufficient to fund these obligations. +Leases +We are party to a services agreement (the "Naarden Lease") pursuant to which an affiliate of Forbion leased us office space; an office lease agreement with Renaissance Aventura LLC, dated May 24, 2021, as amended April 9, 2024 (as amended, the “Miami Lease”); and an office sublease agreement with GR8 People, Inc., dated April 2, 2024 (the “Yardley Lease”). Under the Naarden Lease, we are obligated to pay €40 thousand per year in rent. The Naarden Lease will continue until terminated by either us or the landlord. Pursuant to the Miami Lease, we are required to pay annual rent ranging from $75 thousand to $82 thousand, increasing from the low end of the range to the higher end of the range for each year of the lease. The Miami Lease will expire by its terms on October 31, 2027, unless terminated earlier by either party pursuant to the terms of the Miami Lease. Pursuant to the Yardley Lease, we are required to pay annual rent ranging from $189 thousand to $194 thousand, increasing from the low end of the range to the higher end of the range for each year of the lease. The Yardley Lease will expire by its terms on April 3, 2026, unless terminated earlier by either party pursuant to the terms of the Yardley Lease. +Menarini License +We will be responsible for the development and commercialization costs related to Licensed Products other than those in the Menarini Territory. In addition, under specified conditions of the agreement, we agreed to bear 50% of certain development costs incurred by the other party in the development of the Licensed Products in the Menarini Territory. Please see “ Business—Marketing and Sales ” above for a description of the Menarini License. +Critical Accounting Policies and Estimates +Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. Prior to 2023, we prepared our financial statements in accordance with the IFRS as permitted in the United States based on our qualification as a foreign private issuer under the rules and regulations of the SEC. In connection with the loss of our status as a foreign private issuer effective on January 1, 2024, we, as a domestic filer, prepared our financial statements in accordance with U.S. GAAP. The transition was made retrospectively for all periods from our inception. +The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We based our estimates on historical experience, known trends and other market-specific or other relevant factors that we believe to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. If actual results differ from our estimates, or to the extent these estimates are adjusted in future periods, our results of operations could either benefit from, or be adversely affected by, any such change in estimate. +See Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our consolidated financial statements. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Our principal financial liabilities consist of trade and other payables lease liability, derivative warrant liabilities and derivative earnout liability. The main purpose of these financial liabilities is to finance our day-to-day operations. Our financial assets consist of prepayments and other receivables and cash, that are derived from our operating activities and funding. +We are exposed to market risk, credit risk and liquidity risk. Our senior management oversees the management of these risks. The Board of Directors reviews and approves policies for managing each of these risks, which are summarized below. +Market Risk +Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises interest rate risk, foreign currency risk and other price risks. +Interest Rate Risk +We are exposed to interest rate risk primarily through our cash, cash equivalents and marketable securities. Changes in interest rates may cause variations in interest income and expense resulting from short-term interest-bearing assets. We invest in high-quality financial instruments, primarily money market funds and U.S. government and agency securities with maturities of less than one year, which we believe are subject to limited credit risk. We regularly review our investments and monitor the financial markets and we do not currently hedge interest rate exposure. Due to the nature of our investments, we do not believe an immediate 100 basis point change in interest rates would have a +98 +material effect on our financial condition. We do not believe that we have any material exposure to interest rate risk or changes in credit ratings arising from our investments. +Foreign Currency Risk +Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to cash and trade and other payables denominated in currencies other than our functional currency, the U.S. Dollar. As of December 31, 2024, our net exposure to foreign currency risk was $108.6 million, mainly related to the Euro. As of December 31, 2024, the effect of a hypothetical 1% change in exchange rates on currencies denominated in other than our functional currency would result in a potential change in future earnings in our consolidated statement of operations of approximately $1.1 million. +We partly manage our foreign currency risk by selectively holding foreign currency in our cash to offset foreign currency exposures from lease liabilities and trade and other payables. We plan to use this cash to settle future expenses we expect to incur in those foreign currencies. +Other Market Price Risk +As a result of the Business Combination, we have derivative warrant liabilities and a derivative earnout liability which are measured at fair value through profit or loss. As at December 31, 2024, the fair value of the derivative warrant liabilities and the derivative earnout liability were $37.5 million and $44.8 million, respectively. The value of the derivative warrant liability is directly correlated to the market price of a publicly traded Warrant which is traded under the symbol NAMSW. With all other variables held constant, a 1% change in the market price of NAMSW would change the value of the derivative warrant liability by 1% or $0.4 million. The value of the derivative earnout liability is directly correlated to the market price of a publicly traded Ordinary Share which is traded under the symbol NAMS. With all other variables held constant, a 1% change in the market price of NAMS would change the value of the derivative earnout liability by 1% or $0.4 million. +Credit Risk +Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. We are exposed to credit risk primarily from our treasury activities, including deposits with banks and financial institutions and have limited credit risk exposure from our operating activities. We hold available cash in bank accounts with banks which have investment grade credit ratings. Management periodically reviews the creditworthiness of the banks with which it holds assets. +We perform research and development activities and do not yet have any sales. We are able to reclaim VAT, which is recoverable from tax authorities. Management periodically reviews the recoverability of the balance of input value added tax and believes it is fully recoverable. +Item 8. Financial Statements and Supplementary Data +The financial statements of the Company begin on page F-1 of this Annual Report and are incorporated herein by reference. +Selected quarterly financial data is presented below for each quarter in fiscal year 2023 to reflect the Company’s material retrospective change due to its conversion from IFRS to U.S. GAAP. +For the three months ended +March 31, +2023 +June 30, +2023 +September 30, 2023 +December 31, 2023 +(In thousands of USD, except per share amounts) +Revenue +8,629 +1,717 +2,941 +803 +Operating expenses: +Research and development expenses +40,420 +34,341 +43,371 +41,292 +Selling, general and administrative expenses +8,062 +9,858 +9,128 +10,585 +Total operating expenses +48,482 +44,199 +52,499 +51,877 +Operating loss +(39,853 +) +(42,482 +) +(49,558 +) +(51,074 +) +Loss for the period +(42,018 +) +(38,292 +) +(47,132 +) +(49,495 +) +Net loss per ordinary share +Basic and diluted +$ +(0.51 +) +$ +(0.47 +) +$ +(0.57 +) +$ +(0.60 +) +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Disclosure Controls and Procedures +99 +Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures have been designed to meet, and management believes that they meet, reasonable assurance standards. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded disclosure controls and procedures were effective as of December 31, 2024. +Management’s Annual Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. +Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established in “Internal Control-Integrated Framework (2013)", issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2024. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. +Limitations on Effectiveness of Controls and Procedures +In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Remediation +As discussed in our Form 10-K for the year ended December 31, 2023, our management identified material weaknesses in our internal control over financial reporting related to: +• +a lack of consistent and documented risk assessment procedures and control activities related to financial reporting, with a sufficient level of management review and approval, and adequate application of controls over information technology; and +• +failure to maintain a sufficient complement of personnel commensurate with its accounting and reporting requirements as it continues to grow as a company, and ability to: (i) design and maintain formal accounting policies, including maintaining appropriate segregation of duties; (ii) design and maintain controls over the preparation and review of journal entries and financial statements, including the fair presentation and disclosure of complex accounting matters. +Throughout the years ended December 31, 2023 and December 31, 2024, our management, under the oversight of the Audit Committee, executed the previously disclosed remediation plan which included the following measures: +• +performed a detailed risk assessment; +• +hired additional internal and external accounting resources, including third-party internal control advisors and technical accounting advisors; +• +redesigned and documented critical processes and controls associated with internal control over financial reporting; +• +designed and maintained formal accounting policies, procedures and controls over the fair presentation of our financial statements; +• +implemented a new enterprise resource planning system; +• +established proper segregation of duties and management review and approvals across all key business processes, applications and controls over information technology; +• +designed, implemented and maintained controls over the preparation and review of journal entries and financial statements; +100 +• +designed, implemented and tested the operating effectiveness of internal controls over financial reporting and information technology; and +• +implemented management audit tooling to monitor control performance. +Management implemented the majority of the remediation plan in the year ended December 31, 2023 and further tested, strengthened and improved the Internal Control Framework in the year ended December 31, 2024, including performing operating effectiveness testing. +Our management completed operating effectiveness testing over the implemented remediation procedures and controls during the year ended December 31, 2024, and found them to be operating effectively. As a result, management has concluded that the material weaknesses in internal control over financial reporting have been remediated as of December 31, 2024. +Attestation Report of the Registered Public Accounting Firm +Deloitte Accountants B.V., our independent registered public accounting firm, issued an attestation report on our internal control over financial reporting. The report of Deloitte Accountants B.V. is contained in Item 15 of Part IV of this Annual Report. +Changes in Internal Control over Financial Reporting +Other than the remediation activities described above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2024, identified in connection with the evaluation required by Rules 13a‑15(d) and 15d‑15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +Securities Trading Plans of Directors and Executive Officers +During the three months ended December 31, 2024 , none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +101 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Current Directors and Executive Officers +The Board of Directors +Set forth below are the names and certain information about each of our directors as of February 26, 2025. The information presented includes each director’s age, term and principal occupation. Biographical information for each director is included below the table. +Name +Positions and Offices Held +Year in which +Term Expires +Age +Employee Directors +Michael Davidson, M.D. +Chief Executive Officer, Director +2025 +68 +John Kastelein, M.D. +Chief Scientific Officer, Non-Executive Director +2027 +71 +Non-Employee Directors +William H. Lewis, J.D., M.B.A. +Chair, Non-Executive Director +2028 +56 +Mark C. McKenna * +Vice Chair, Non-Executive Director +N/A +45 +Nicholas Downing, M.D. +Non-Executive Director +2027 +39 +Wouter Joustra * +Non-Executive Director +N/A +36 +Louis Lange, M.D., Ph.D. +Non-Executive Director +2028 +76 +John W. Smither +Non-Executive Director +2026 +72 +James N. Topper, M.D., Ph.D. +Non-Executive Director +2025 +63 +Janneke van der Kamp +Non-Executive Director +2026 +49 +* Mark C. McKenna and Wouter Joustra were appointed by the Board of Directors as temporary non-executive directors on July 16, 2024 to fulfill vacant positions within the Board of Directors until their formal appointment at the next annual General Meeting. +Employee Directors +Dr. Michael Davidson . Michael Davidson, M.D., has served as our Chief Executive Officer and executive director since November 2022. Dr. Davidson served NewAmsterdam Pharma as its Chief Executive Officer and an executive director from August 2020 to November 2022. Prior to joining NewAmsterdam Pharma, Dr. Davidson was the founder and Chief Executive Officer of Corvidia Therapeutics, Inc. from January 2016 until April 2018 and the Chief Science/Medical Officer from April 2018 until July 2020, when Corvidia was acquired by Novo Nordisk A/S for up to $2.1 billion. Dr. Davidson, who is a leading expert in the field of lipidology and was named in The Best Doctors in America for the past 15 years, is also currently a professor of medicine and director of the lipid clinic at the University of Chicago. Dr. Davidson co-founded and served as the Chief Medical Officer of Omthera Pharmaceuticals, Inc. in 2008, which was later acquired by AstraZeneca Pharmaceuticals in 2013 for up to $443 million. His research background encompasses both pharmaceutical and nutritional clinical trials including extensive research on statins, novel lipid-lowering drugs, and omega-3 fatty acids. Dr. Davidson is board-certified in internal medicine, cardiology, and clinical lipidology and served as President of the National Lipid Association from 2010 to 2011. Dr. Davidson currently serves on the board of directors of Tenax Therapeutics, Inc. (Nasdaq: TENX), Silence Therapeutics plc (Nasdaq: SLN) and BioAge Labs, Inc. (Nasdaq: BIOA). Dr. Davidson also serves on the boards of four private biotechnology companies, Sonothera, NanoPhoria Bioscience, Jocasta Neuroscience and Abcentra. Dr. Davidson received his B.A. and M.S. from Northwestern University and his M.D. from The Ohio State University School of Medicine. +We believe Dr. Davidson’s extensive experience in the field of cardiology and his prior management experience provide him the qualifications and skills to serve on the Board of Directors. +Dr. John Kastelein . John Kastelein, M.D., Ph. D. FESC, has served as our Chief Scientific Officer and non-executive director since November 2022. Dr. Kastelein co-founded NewAmsterdam Pharma in 2020 served as its Chief Scientific Officer and an executive director from January 1, 2020 to November 2022. Dr. Kastelein has also served as the chief executive officer of Vascular Research Network Inc. (“VRN”) since January 2013 and as the Chief Medical Officer of Staten Biotechnology B.V. since January 2018. Dr. Kastelein also serves as emeritus professor of medicine and was the chair of the department of vascular medicine at the Academic Medical Center of the University of Amsterdam. He serves on the advisory board of the Dutch Atherosclerosis Society. In 2011 he received the ZonMw Pearl for his research in the field of gene therapy. Dr. Kastelein also serves on the board of directors of North Sea Therapeutics Inc., VRN and Oxitope Pharma Inc. Dr. Kastelein also serves as an advisor to a number of biotech and pharmaceutical companies. Dr. Kastelein was awarded a doctorate in medicine (with honors) from the University of Amsterdam, trained in internal medicine at the Academic Medical Center of the University of Amsterdam, and trained in lipidology and molecular biology at the University of British Columbia in Vancouver. Dr. Kastelein published his first clinical research on CETP-inhibition in the New England Journal of Medicine in 1997. +102 +We believe Dr. Kastelein’s deep scientific and medical knowledge about NewAmsterdam Pharma’s product candidate and his experience in senior management, provide Dr. Kastelein with the qualifications and skills to serve on the Board of Directors. +Non-Employee Directors +William H. Lewis, J.D., M.B.A. William H. Lewis has served as a member of the Board of Directors and Chair since January 2024. Mr. Lewis has more than 30 years of executive experience in the pharmaceutical and finance industries both in the United States and internationally. Mr. Lewis has served as President, Chief Executive Officer and director at Insmed Incorporated (“Insmed”) since 2012 and has served as Chair of Insmed’s board of directors since November 2018. Prior to joining Insmed in 2012, Mr. Lewis served as Co-Founder, President, and Chief Financial Officer of Aegerion Pharmaceuticals, Inc. from 2005 until 2011. Prior to Mr. Lewis’ time at Aegerion, he spent approximately 10 years working in investment banking in the United States and Europe. He also previously worked for the U.S. government. Mr. Lewis holds a J.D. with Honors and an M.B.A., both from Case Western Reserve University, and a B.A., cum laude , from Oberlin College. He is a member of the Board of Trustees of Case Western Reserve University and of BioNJ, the life sciences association for New Jersey. +We believe that Mr. Lewis’ significant experience as a public company executive in the life sciences industry and his other professional experience in the finance industry provide him the qualifications and skills to serve on the Board of Directors. +Mark C. McKenna . Mark C. McKenna has served as a member of the Board of Directors since July 2024. Mr. McKenna is the founder, Chairman and Chief Executive Officer of Mirador Therapeutics, and currently serves as Chairman of the board of directors of Apogee Therapeutics, Inc. (Nasdaq: APGE) and a director at Spyre Therapeutics, Inc. (Nasdaq: SYRE). In addition, Mr. McKenna serves as a venture partner at Arch Venture Partners and Senior Advisor at Fairmount Funds. Previously, Mr. McKenna was President, Chief Executive Officer and Chairman of the Board of Directors of Prometheus Biosciences, Inc., which was acquired by Merck & Co, Inc. in June 2023. Earlier, Mr. McKenna was a corporate officer of Bausch Health and served as President of its subsidiary, Salix Pharmaceuticals, Inc. Prior to Salix Pharmaceuticals, Mr. McKenna spent more than a decade in various roles with Bausch + Lomb, also a division of Bausch Health, most recently as Senior Vice President and General Manager of its U.S. Vision Care business. Mr. McKenna was Ernst & Young’s Entrepreneur of the Year in 2023 and holds a B.S. in marketing from Arizona State University and an M.B.A. from Azusa Pacific University. +We believe that Mr. McKenna’s significant experience as a public company executive in the life sciences industry and his other professional experiences provide him the qualifications and skills to serve on the Board of Directors. +Dr. Nicholas S. Downing . Nicholas S. Downing, M.D., has served as a member of the Board of Directors since November 2022. Dr. Downing currently serves as a Managing Director of Bain Capital Life Sciences, L.P., a private equity fund that invests in biopharmaceutical, specialty pharmaceutical, medical device, diagnostics and enabling life science technology companies globally, which he joined in 2018. Prior to joining Bain Capital, Dr. Downing was a resident physician at the Brigham and Women’s Hospital in Boston, where he cared for patients on the inpatient medical service and in the outpatient clinic. Throughout his medical career, Dr. Downing has been an active health policy researcher and is the author of more than 40 articles in peer-reviewed scientific literature. Prior to his medical career, Dr. Downing was a consultant at McKinsey and Company where he worked with clients in the pharmaceutical, hospital and financial services industries on a wide range of strategic problems. Dr. Downing graduated from Harvard College magna cum laude with a degree in chemistry. He received an M.D. cum laude from Yale University School of Medicine. +We believe that Dr. Downing’s medical experience, as well as his experience investing and serving on the boards of life science companies provide Dr. Downing with the qualifications and skills to serve on the Board of Directors. +Wouter Joustra. Wouter Joustra has served as a member of the Board of Directors since July 2024. Mr. Joustra currently serves as a General Partner at Forbion, a leading global life sciences venture capital firm with deep expertise in Europe, where his responsibilities include deal origination, general portfolio management and divestment strategies. Prior to joining Forbion in 2019, Mr. Joustra was a Senior Trader and Executive Board member of the life sciences franchise at Kempen, a European boutique investment bank, where he was responsible for managing Kempen’s trading portfolio and was involved in deal structuring, equity capital markets transactions, and larger block trades. Mr. Joustra currently serves on the board of directors of VectorY Therapeutics, Beacon Therapeutics, EnGene Holdings Inc. (Nasdaq: ENGN), Navigator Medicines and Verdiva Bio. Mr. Joustra previously served as a member of the board of directors of several companies, including Gyroscope Therapeutics Holdings plc until the closing of its acquisition by Novartis AG in February 2022, VectivBio AG (Nasdaq: VECT) from December 2022 until the closing of its acquisition by Ironwood Pharmaceuticals, Inc. in December 2023, Aiolos Bio, Inc. until the closing of its acquisition by GSK plc in February 2024 and Forbion European Acquisition Corporation, a special purpose acquisition company, until its completion of the business combination with EnGene Holdings Inc. in October 2023. Mr. Joustra holds an M.Sc. in Business Administration and a B.Sc. in International Business and Management from the University of Groningen. +We believe that Mr. Joustra’s board experience and significant experience as an investor in the life sciences industry provide him the qualifications and skills to serve on the Board of Directors. +Dr. Louis Lange . Louis Lange, M.D., Ph.D., has served as a member of the Board of Directors since November 2022. Dr. Lange previously served on the NewAmsterdam Pharma board from 2021 to November 2022. Dr. Lange previously served as the chief of cardiology and a professor of medicine at the Washington University School of Medicine and was one of the early academicians in molecular cardiology. Dr. Lange founded and served as the chief executive officer and chairman of CV Therapeutics, Inc. (Nasdaq: CVTX) from 1990 until 2019, +103 +and as a senior advisor to Gilead Sciences, Inc. from 2009 until 2019, following its acquisition of CV Therapeutics. Dr. Lange currently serves as a general partner with Asset Management Ventures. Dr. Lange also serves on the board of directors of private companies Stealth Biotherapeutics Corp., Amygdala Neurosciences, Inc. and Incendia Therapeutics, Inc. Dr. Lange previously served on the board of directors of Audentes Therapeutics, Inc. (sold to Astellas Pharma Inc.) and CymaBay Therapeutics (acquired by Gilead). Dr. Lange has a Bachelor’s degree from the University of Rochester, an M.D. from Harvard University and a Ph.D. in Biological Chemistry, also from Harvard University. +We believe that Dr. Lange’s board experience, medical background and experience as a public company officer, provide Dr. Lange with the qualifications and skills to serve on the Board of Directors. +John W. Smither . John Smither has served as a member of the Board of Directors since January 2023. Mr. Smither previously served as the Chief Financial Officer of Arcutis Biotherapeutics, Inc. (Nasdaq: ARQT) from May 2019 until March 2021, and again as Interim Chief Financial Officer from September 2023 to April 2024, and the Chief Financial Officer of Sienna Biopharmaceuticals, Inc. (Nasdaq: SNNA) from April 2018 until March 2019. Mr. Smither also served as the interim Chief Financial Officer at Kite Pharma (a Gilead Sciences, Inc. company) from October 2017 until April 2018 during its integration with Gilead. Mr. Smither presently serves on the board of directors of Genelux serving as chair of its compensation committee and as a member of its audit committee. Mr. Smither also served on the board of directors and audit committee chair of eFFECTOR Therapeutics, Inc. (Nasdaq: EFTR) from March 2018 to September 2023 and Applied Molecular Transport, Inc. (Nasdaq: AMTI) from January 2022 to December 2023. Mr. Smither also served as a member of the nomination and corporate governance committee of eFFECTOR Therapeutics and the compensation committee of Applied Molecular Transport. Mr. Smither previously served on the board of directors of Achaogen, Inc. and Principia Biopharma Inc and as the chair of their audit committees. Mr. Smither also has 15 years’ experience as a practicing CPA (inactive), including time spent as an audit partner with Ernst & Young LLP. +We believe that Mr. Smither’s experience as the Chief Financial Officer for a number of public companies and his experience serving on the board of directors and audit committees of other public life science companies provide Mr. Smither with the qualifications and skills to serve on the Board of Directors. +Dr. James N. Topper . James N. Topper, M.D., Ph.D., has served as a member of the Board of Directors since November 2022. Dr. Topper previously served as FLAC’s Chief Executive Officer and Chairman of the FLAC Board of Directors from October 2020 until November 2022. Dr. Topper currently serves as a Managing Partner of Frazier Life Sciences (“Frazier”). He joined Frazier in 2003 and opened Frazier’s Menlo Park office in the same year. Throughout his tenure as a Managing Partner, Dr. Topper has invested across over 35 companies encompassing a broad spectrum of life science and biopharmaceutical companies. Dr. Topper has led and served as a board member for many of Frazier’s successful life sciences investments, including Acerta Pharma BV (sold to AstraZeneca), Alpine Immune Sciences (sold to Vertex), Amunix Pharmaceuticals, Inc. (sold to Sanofi), Aptinyx Inc. (Nasdaq: APTX), Calistoga Pharmaceuticals, Inc. (co-founder, sold to Gilead Sciences), Entasis Therapeutics Holdings Inc. (sold to Innoviva), Frazier Lifesciences Acquisition Corporation, Mavupharma (sold to AbbVie), Rempex (sold to The Medicines Company), Incline (co-founder, sold to The Medicines Company), Alnara (sold to Lilly), Portola, Inc. (co-founder, Nasdaq: PTLA), Phathom Pharmaceuticals Inc. (Nasdaq: PHAT), CoTherix, Inc (sold to Actelion), and Threshold Pharmaceutical, Inc. (Nasdaq: THLD). He currently represents Frazier on the boards of companies such as Phathom Pharmaceuticals, Inc. (Nasdaq: PHAT), Lassen Therapeutics, Seraxis Holdings, Inc., Enlaza Therapeutics, Inc., Attovia Therapeutics, Inc., Architect Therapeutics and Serum Detect, Inc. In 2011 and 2016, Dr. Topper was named to the Midas List of leading venture capitalists, and in 2013, Dr. Topper was recognized by Forbes as a top ten healthcare investor. Dr. Topper received his M.D. and Ph.D. in Biophysics from Stanford and his B.S. from the University of Michigan. +We believe that Dr. Topper’s experience overseeing Frazier’s investments in biotechnology, his experience in senior management positions and his significant knowledge of industry, medical and scientific matters, provide Dr. Topper with the qualifications and skills to serve on the Board of Directors. +Janneke van der Kamp . Janneke van der Kamp has served as a member of the Board of Directors since April 2023. Ms. van der Kamp currently serves as the Chief Executive Officer of Norgine. Prior to this, she was Chief Commercial Officer of Grünenthal and previously spent two decades in roles of increasing responsibility at Novartis, ultimately serving on the Pharma Executive Committee as Global Head of Product & Portfolio Strategy from 2016 to 2018 and then Head of Pharma Region Europe from 2019 until 2022. While at Novartis, Ms. van der Kamp supported the launch of Novartis’ key cardiovascular disease medicines, as well as the company’s efforts in immunology, dermatology, neuroscience, ophthalmology, and respiratory disease. Ms. van der Kamp received her M.S. in chemistry from Utrecht University and M.B.A. from INSEAD. +We believe that Ms. van der Kamp’s operational experience in the pharmaceutical industry and business development experience provide Ms. van der Kamp that qualifications and skills to serve on the Board of Directors. +Arrangements and Understandings +Drs. Topper and Downing were designated to serve on the Board of Directors by FLAC, and Dr. Davidson, Dr. Kastelein and Dr. Lange were initially designated by NewAmsterdam Pharma pursuant to the terms of the Business Combination Agreement. +104 +Our Executive Officers +The following table sets forth certain information concerning our executive officers as of February 26, 2025. +Name +Position +Age +Michael Davidson, M.D. +Chief Executive Officer +68 +Juliette Audet +Chief Business Officer +39 +William "BJ" Jones +Chief Commercial Officer +61 +John Kastelein, M.D., Ph.D. FESC +Chief Scientific Officer +71 +Douglas Kling +Chief Operating Officer +51 +Louise Kooij +Chief Accounting Officer +49 +Ian Somaiya +Chief Financial Officer +51 +Dr. Michael Davidson . Dr. Davidson’s biography is included in the section above titled “—The Board of Directors.” +Juliette Audet. Juliette Audet has served as the Company’s Chief Business Officer since April 2024. Ms. Audet previously served on the NewAmsterdam Pharma board from November 2020 until April 2024. Prior to joining NewAmsterdam Pharma, Ms. Audet was a partner at Forbion from January 2021 until March 2024 and before that, a principal at Forbion from October 2019 until December 2020. Prior to joining Forbion, Ms. Audet was a Principal at Novartis Venture Fund based in Cambridge, Massachusetts from January 2018 until July 2019. Ms. Audet received an M.B.A., with distinction, from Harvard Business School and her M.Sc in physics from EPFL (Lausanne, Swiss Federal Institute of Technology). +William "BJ" Jones. BJ Jones joined the Company in August 2023 as its Chief Commercial Officer where he is responsible for building and leading all commercial and medical affairs functions, including marketing, market access, sales, medical science engagement and enterprise operations. Prior to joining the Company, Mr. Jones most recently served as Chief Commercial Officer, Migraine and Common Diseases of Biohaven Pharmaceuticals Holding Company Ltd., a biopharmaceutical company, from April 2019 to December 2022, where he was responsible for building the company’s commercial capability and launching its first FDA-approved product (Nurtec ODT), including through Biohaven’s acquisition by Pfizer in October 2022. Prior to Biohaven, Mr. Jones served as Vice President, Head of Sales and Commercial Operations for the general medicine business unit of Takeda Pharmaceutical Company Limited (NYSE: TAK) from January 2016 to March 2019. Mr. Jones currently serves on the board of directors of Apogee Therapeutics, Inc. (Nasdaq: APGE) and Annexon Biosciences, Inc. (Nasdaq: ANNX). Mr. Jones received a B.S. in human factors engineering from the U.S. Air Force Academy, an M.S. in industrial engineering from Texas A&M University and an M.B.A. from the Stanford University Graduate School of Business. +Dr. John Kastelein . Dr. Kastelein’s biography is included in the section above titled “—The Board of Directors.” +Douglas Kling . Douglas Kling joined the Company in March 2021 as its Chief Operating Officer. Prior to joining NewAmsterdam Pharma, Mr. Kling served as the Senior Vice President of Clinical Development at Corvidia Therapeutics, Inc. from December 2017 until February 2021. From March 2015 until November 2017, Mr. Kling served as the Senior Vice President, Clinical Development at Matinas BioPharma Holdings, Inc. Mr. Kling earned a B.S. from Duke University and an M.B.A. from Rutgers Business School. +Louise Kooij . Louise Kooij joined the Company as its Chief Financial Officer in May 2020. In January 2023, Ms. Kooij was appointed as the Company’s Chief Accounting Officer and served in that role until March 2023 when she was appointed Interim Chief Financial Officer. In October 2023 Ms. Kooij was appointed as the Company's Chief Accounting Officer. Ms. Kooij previously spent 18 years working in various finance roles at Genzyme Europe B.V. ("Genzyme"), a multinational biotechnology company. During her tenure at Genzyme, she led the European and Global FP&A team, many European finance projects, the European integration of Genzyme into Sanofi, the integration of acquisitions into Sanofi, the European Business Operations Team as well as the Rare Disease unit in Central and Eastern Europe. Before joining Genzyme, Ms. Kooij worked as a certified auditor at PricewaterhouseCoopers as well as other audit firms for seven years. Since May 2020, Ms. Kooij has also served as an independent consultant in the role of chief financial officer to other private biotechnology start-ups. Ms. Kooij received a master’s degree from Nyenrode Business University and her auditing degree from Hogeschool Markus Verbeek. +Ian Somaiya . Ian Somaiya joined the Company in October 2023 as its Chief Financial Officer. Mr. Somaiya has over 25 years of experience in finance and biotechnology. Most recently, Mr. Somaiya served as the Chief Financial and Business Officer at Elucida Oncology, Inc. from November 2021 until July 2023, were he was responsible for fundraising and overall corporate strategy. From April 2018 until November 2021, Mr. Somaiya served as the Chief Financial Officer of TCR 2 Therapeutics, Inc. (“TCR2”) where he successfully navigated the company through its initial public offering and two follow-on equity financings, raising more than $350 million in the aggregate. During his tenure at TCR2, Mr. Somaiya led the company’s finance and public company reporting functions, as well as the business development and investor relations functions. Prior to joining TCR2, Mr. Somaiya spent over 20 years on Wall Street where he conducted extensive research on more than 100 biotechnology companies across diverse therapeutic areas, technology platforms and stages of development. Mr. Somaiya served as a Managing Director and Head of Biotechnology Research at BMO Capital Markets and served as a Managing Director and Equity Analyst at Nomura Securities Co. Ltd., Piper Jaffray Companies and Thomas Weisel Partners Group, Inc. Mr. Somaiya began his career as a research analyst at Morgan Stanley and Prudential Securities and was recognized as “Best on the Street” by the Wall Street Journal for his +105 +coverage on biotechnology in 2006, 2007 and 2008. Mr. Somaiya received a Bachelor of Arts degree in biology and neuroscience from New York university. +Family Relationships +There are no family relationships among any of our executive officers or directors. +Code of Business Conduct and Ethics +We have adopted a code of business conduct and ethics which outlines the principles of legal and ethical business conduct under which we will do business. The code of business conduct and ethics includes a provision that provides for a process by which employees and directors can report potential irregularities. The code of business conduct and ethics also provides protection from retaliation or discrimination by the Company against whistleblowers due to reporting issues relating to compliance with applicable laws and regulations. This code applies to all of our employees, officers and directors. Our code of business conduct and ethics is available on our website at https://ir.newamsterdampharma.com/corporate-governance/governance-overview . Our website and its contents are not incorporated into this annual report. +Insider Trading Policies and Procedures +The Company has an insider trading policy and procedures governing the purchase, sale and/or other dispositions of the Company’s securities that applies to all directors, officers, employees and certain other persons. It is also the Company’s policy to take appropriate steps to comply with applicable federal and state securities laws and regulations, as well as applicable stock exchange listing standards, when the Company engages in transactions in the Company’s securities. The Company believes that its insider trading policy and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Annual Report. +Director Nomination Process +Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. The nomination and corporate governance committee does not have a formal policy with respect to director candidates recommended by shareholders but may consider candidates it deems qualified from any source. The Board of Directors believes retaining the flexibility to consider a director candidate or ignore a director candidate if it determines doing so is in the best interest of the Company. If the nomination and corporate governance committee approves a candidate for further review they will establish an interview process for the candidate. The nomination and corporate governance committee will also take into consideration the candidate’s personal attributes, including, without limitation, personal integrity, loyalty, ability to apply sound and independent business judgment, awareness of a director’s vital part in our good corporate citizenship and image, time available for meetings and consultation on our matters and willingness to assume broad, fiduciary responsibility. +Audit Committee +The Audit Committee consists of John W. Smither, William H. Lewis and Mark C. McKenna. Mr. Smither serves as chairperson of the Audit Committee. The Audit Committee assists the Board of Directors in, among other things: +• +overseeing the Company’s accounting, financial reporting and internal controls processes; +• +overseeing the Company’s compliance with legal and regulatory requirement, including related to cybersecurity and compliance with the code of business conduct and ethics; +• +overseeing the selection, qualifications, independence, and performance of the Company’s independent registered public accounting firm; and +• +pre-approving of all permitted non-audit services to be performed by the independent registered public accounting firm. +The Audit Committee has the authority to retain independent counsel and advisors to assist in carrying out its responsibilities. +Each member of the Audit Committee is an “independent director,” as such term is defined in Nasdaq Rule 5605(a)(2) and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. The Board of Directors has also determined that each of the Audit Committee members is able to read and understand fundamental financial statements and that at least one member of the Audit Committee has past employment experience in finance or accounting. The Board of Directors has determined that Mr. Smither qualifies as an “audit committee financial expert,” as such term is defined in the rules of the SEC. +Item 11. Executive Compensation +Compensation Discussion and Analysis +106 +This Compensation Discussion and Analysis (“CD&A”) describes the philosophy, objectives, process, components and additional aspects of our executive compensation program for the fiscal year ended December 31, 2024. This CD&A is intended to be read in conjunction with the compensation tables that immediately follow this section, which provide historical compensation information for our following named executive officers ("NEOs"): +Name +Position +Michael Davidson, M.D. +Chief Executive Officer +Ian Somaiya +Chief Financial Officer +John Kastelein, M.D., Ph.D. FESC +Chief Scientific Officer +Juliette Audet +Chief Business Officer +Douglas Kling +Chief Operating Officer +Executive Compensation Philosophy and Objectives +We maintain a shareholder-approved, formal, written compensation policy consistent with Dutch law. The compensation policy provides that the amount, level and structure of compensation should contribute to the Company's strategy, long-term interests and sustainability by: +• +attracting, retaining and motivating highly skilled individuals with the qualities, capabilities, profile and experience needed to support and promote the growth and sustainable success of the Company and its business; +• +driving strong business performance, promoting accountability and incentivizing the achievement of short and long-term performance targets with the objective of furthering long-term value creation in a manner consistent with the Company's identity, mission and values; +• +assuring that the interests of the Company's directors are closely aligned to those of the Company, its business and its stakeholders; and +• +ensuring overall market competitiveness of the compensation packages, while providing the Board of Directors sufficient flexibility to tailor the Company's compensation practices on a case-by-case basis, depending on the market conditions from time to time. +To achieve these objectives, the Compensation Committee of the Board of Directors (the “Compensation Committee”) regularly evaluates our executive compensation program to determine components of compensation and establish compensation levels that are appropriate based on each executive’s level of experience, performance, growth potential, job responsibility and criticality of role, and that align with the Company's size and stage. +Executive Compensation Components +Our executive compensation program generally consists of, and is intended to strike a balance among, the following three principal components: base salary, annual performance-based cash bonuses and long-term incentive equity grants. We also provide our executive officers with severance and change-in-control benefits, as well as other benefits available to all our employees, including retirement benefits under the Company’s U.S. 401(k) plan, retirement arrangements for employees in other countries and participation in employee benefit plans. The following chart summarizes the key features and objectives of the three main elements of compensation. +Element +Description +Objectives +Base Salary +• +Fixed cash compensation.  +• +Determined based on each executive officer’s role, individual skills, experience, performance, and external market value. +• +Provide stable compensation to executive officers, allow the Company to attract and retain skilled executive talent and maintain a stable leadership team. +Short-Term Incentives: Annual Bonus Plan +• +Variable cash compensation based on the level of achievement of pre-determined annual corporate goals and personal performance. +• +Promote and reward the achievement of key annual strategic, business and operational goals. +107 +Long-Term Incentives: Equity-Based Compensation +• +Variable equity-based compensation. +• +Share options: Right to purchase shares at a price equal to the share price on the grant date. +• +Motivate and reward achievement of multi-year strategic goals and delivery of sustained long-term value to shareholders, as well as attract and retain executive officers. +Compensation Program Governance +The Compensation Committee assesses the effectiveness of our executive compensation program from time to time and reviews risk mitigation and governance matters, which includes maintaining the following best practices: +What We Do +​☑ +Pay for Performance +The majority of total executive compensation is variable and at-risk. +☑ +Balance Short- and Long-Term Compensation +The allocation of incentives among annual cash incentives and long-term equity incentives does not over-emphasize short-term performance at the expense of achieving long-term goals. +☑ +Combination of Balanced Performance Metrics +We use a diverse set of milestone performance metrics in our annual performance bonus plan to ensure that no single measure affects compensation disproportionately. +☑ +Independent Compensation Consultant +The Compensation Committee has engaged an independent compensation consultant to provide information and advice for use in Compensation Committee decision-making. +☑ +Peer Data +We develop a peer group of companies based on industry, development stage, therapeutic focus, research and development expense, market capitalization, employee headcount, and number of years as a public company to reference for compensation decisions. +☑ +Clawback +We maintain a clawback policy compliant with SEC and Nasdaq rules. +☑ +Double Trigger Change-in-Control Provisions +We entered into agreements with each of the NEOs that provide certain financial benefits if there is both a change in control and a termination of employment (a “double trigger”). A change in control alone would not trigger cash severance pay. +What We Don’t Do +✘ +No Hedging or Pledging of Company Securities +We prohibit officers and non-employee directors from engaging in hedging, pledging or short sale transactions in Company securities. +✘ +No Perks +We do not provide material perquisites to executive officers. +✘ +No Excise Tax Gross-Ups +We do not provide excise tax gross-ups. +✘ +No Share Options Below Fair Market Value +We do not grant share options with an exercise price below fair market value. +✘ +No Guaranteed Compensation +We do not have agreements with our NEOs that provide any guarantees relating to base salary increases or the amounts of any annual cash incentive awards or long-term equity awards. +108 +✘ +No Special Retirement Benefits +We do not provide defined benefit pension arrangements or post-retirement health coverage for our executive officers or employees. Our NEOs and other executives are eligible to participate in our 401(k) plan (U.S.) or personal pension plan on the same basis as our other employees. +✘ +No Share Option Repricing +We do not permit repricing of share options or share appreciation rights without shareholder approval. +Compensation Determination Process +Role of our Shareholders +Our shareholders have adopted a formal, written compensation policy in accordance with Dutch law. Changes to the compensation policy will require a vote of the General Meeting by simple majority of votes cast. The Board of Directors and the Compensation Committee determine the compensation of individual directors and executive officers with due observance of the compensation policy to the extent applicable. +We did not consider the results of any shareholder advisory vote on the 2024 compensation of our NEOs, as no such vote was required due to our status as an “emerging growth company” as of December 31, 2024. +Role of the Compensation Committee +The Compensation Committee establishes the compensation philosophy and objectives (in accordance with the compensation policy), determines the structure, components and other elements of executive compensation, and reviews and approves the compensation of the NEOs or recommends it for approval by the Board of Directors. The Compensation Committee structures the executive compensation program to accomplish its articulated compensation objectives in light of the compensation philosophy described above. +The Compensation Committee annually reviews compensation policies and procedures to determine if any updates are needed. The Compensation Committee also approves, or recommends to the Board of Directors for approval, the corporate objectives associated with our annual performance-based cash incentive program, as well as assessing the Company’s performance against those corporate objectives after the end of the year or making a recommendation to the Board of Directors as to the extent to which the Company has met those corporate objectives. +The Compensation Committee meets periodically throughout the year to manage and evaluate our executive compensation program, and generally determines executive compensation on an annual basis, typically at the beginning of each fiscal year; however, decisions may occur during the year for new hires, promotions or other special circumstances as the Compensation Committee determines appropriate. +Role of the CEO and Management +The Compensation Committee generally seeks the input of our Chief Executive Officer ("CEO") when discussing the performance of, and compensation for, our executive officers, including the NEOs other than the CEO. Our CEO is instrumental in developing both our annual and long-term strategic objectives and goals, which are reviewed and approved by the Compensation Committee and the Board of Directors. Our CEO is also instrumental in providing perspective on our performance against those goals. +Our CEO reviews the performance of the other executive officers, including the other NEOs, annually and presents his conclusions to the Compensation Committee. Our CEO then provides corresponding compensation recommendations, including as to base salary adjustments, annual performance-based cash compensation targets and payouts, and equity awards. The Compensation Committee considers the CEO’s input as one factor in its deliberations to determine the compensation of our executive officers, including the other NEOs. The Compensation Committee gives significant weight to the recommendations of the CEO in light of his greater familiarity with the day-to-day performance of his direct reports and the importance of incentive compensation in driving the execution of managerial initiatives developed and led by the CEO. +While the CEO may attend Compensation Committee meetings, the CEO may not be present during voting or deliberations on his compensation and does not play a role in determining his compensation. +In addition, other members of management may attend Compensation Committee meetings to provide background information or advice, or to answer questions posed by members of the Compensation Committee, including with respect to the financial, accounting, tax and retention implications of various compensation decisions. +109 +Role of the Independent Compensation Consultant +The Compensation Committee recognizes that there is value in procuring independent, objective expertise in connection with fulfilling its duties, and pursuant to its charter, the Compensation Committee has the authority to select and retain advisors to assist it with carrying out its duties and responsibilities. +The Compensation Committee has engaged the services of an independent compensation consultant, the Human Capital Solutions practice of Aon plc (“Aon”), to assist it in connection with making executive compensation decisions. The Compensation Committee has worked with Aon to develop a peer group, to provide a competitive market analysis of the base salary, annual performance-based cash incentive awards and long-term incentive compensation of our executive officers compared against the peer group, and to review other market practices and trends with respect to executive compensation. +The Compensation Committee annually assesses the independence of Aon pursuant to SEC and Nasdaq rules. In 2024, the Compensation Committee assessed the independence of Aon consistent with Nasdaq listing standards and concluded that the engagement of Aon does not raise any conflict of interest. +While the Compensation Committee took into consideration the review and recommendations of Aon when making decisions about our executive compensation program, ultimately, the Compensation Committee made its own independent decisions in determining our executives’ compensation. +Consideration of Comparative Market Data +The Compensation Committee believes that obtaining relevant market and benchmark data is important to making determinations about executive compensation. This information provides a solid reference point and helpful context for making compensation decisions, even though, relative to other companies, there are differences and unique aspects of the Company. +With Aon’s assistance and input, the Compensation Committee annually adopts a peer group of companies that it uses as a reference group to provide a broad perspective on competitive pay levels and practices. +In doing so, the Compensation Committee seeks to approve a peer group that is representative of the sector in which we operate and includes companies within an appropriate defined range in terms of key attributes. +In October 2023, the Compensation Committee determined that our peer group for determining the compensation of our NEOs in 2024 would consist of Phase 2 and Phase 3 biopharmaceutical/biotechnology companies. In general, the selection criteria consisted of the following: +• +market capitalizations between one-third and three times the market capitalization of the Company; +• +annual revenues less than $100 million; +• +fewer than 150 employees; and +• +preference given to companies that went public within the last five years. +Based on these criteria, the peer group for setting 2024 compensation consisted of the following 24 companies: +4D Molecular Therapeutics, Inc. +Humacyte, Inc. +PMV Pharmaceuticals, Inc. +89bio, Inc. +IDEAYA Biosciences, Inc. +Replimune Group, Inc. +Akero Therapeutics, Inc. +Immunovant, Inc. +Scholar Rock Holding Corporation +Belite Bio, Inc. +Inhibrx, Inc. +Structure Therapeutics Inc. +Cogent Biosciences, Inc. +Keros Therapeutics, Inc. +Tarsus Pharmaceuticals, Inc. +Crinetics Pharmaceuticals, Inc. +Krystal Biotech, Inc. +Ventyx Biosciences, Inc. +Cullinan Oncology, Inc. +Madrigal Pharmaceuticals, Inc. +Vera Therapeutics, Inc. +Erasca, Inc. +Pliant Therapeutics, Inc. +Viking Therapeutics, Inc. +The Compensation Committee utilizes the compensation of executive officers of the companies in this peer group as one reference point in the compensation-setting process along with various other factors, such as the executive’s performance, experience, and competitive market conditions. +Additionally, when considering the establishment of 2024 compensation levels for our NEOs, the Compensation Committee, upon recommendation from Aon, supplemented the 2024 peer group long-term incentive market data with data derived from the Radford 2023 Global Life Science Survey for public pre-commercial biopharma companies with under 150 employees. This survey data was used to obtain a general understanding of the compensation practices of companies similar to ours at the time. +110 +The Compensation Committee believes that the compensation practices of our peer group, together with the data derived from the Radford 2023 Global Life Science Survey, provided us with appropriate compensation reference points for evaluating and determining the compensation of our NEOs during 2024. +2024 Executive Compensation Program +Our executive compensation program generally consists of, and is intended to strike a balance among, the following three principal components: base salary, annual performance-based cash bonus, and long-term incentive equity compensation. +CEO and NEO Pay Mix +Though the Compensation Committee has not adopted any formal or informal policies or guidelines that specify the allocation of compensation between these three elements, consistent with our “pay-for-performance” philosophy, the Compensation Committee has determined that NEO compensation packages must include an emphasis on and substantial portion of variable, at-risk pay while ensuring adequate base salary to attract and retain talent. The Compensation Committee considers compensation to be at-risk if it is subject to performance-based payment or vesting conditions or if its value depends on share price appreciation. +Our executive compensation is linked strongly to the performance of the business, with a majority of annual target compensation being variable and at-risk. In 2024, 90% of the total target compensation for the CEO was at-risk and 77% of the total target compensation for all other NEOs was at-risk. The following pay mix pie chart graphics illustrate our emphasis on variable, at-risk pay and long-term incentives. +The percentages of target total direct compensation as calculated above are based on the annualized 2024 base salary, the 2024 annual cash incentive compensation opportunity (assuming achievement at the target level), and the grant date fair value of the annual option grants to NEOs. Each compensation element is described in this section and outlined in more detail in the Summary Compensation Table and Grants of Plan-Based Awards table below. +Base Salary +We provide our executive officers with fixed cash compensation in the form of a base salary. In establishing base salaries, the Compensation Committee exercises its judgment and discretion and considers several factors, including the performance of the individual executive officer, the officer’s potential to contribute to our long-term strategic goals, the officer’s role and scope of responsibilities within our Company, individual experience and skills, the officer’s compensation as compared to similarly situated executives at comparable companies in our peer group, competitive market dynamics for the position, and (with respect to other NEOs) the input of our CEO. None of our NEOs is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary. +Annual base salaries for our NEOs for the positions they held as of December 31, 2024, as compared with their annual base salaries as of December 31, 2023, were as follows: +NEO +2024 Base Salary +($) +2023 Base Salary +($) +% Change +Michael Davidson, M.D. +621,300 +569,000 +9 +% +Ian Somaiya (1) +468,000 +450,000 +4 +% +John Kastelein, M.D., Ph.D. FESC (2) +486,046 +459,346 +6 +% +Juliette Audet (3) +429,672 +N/A +N/A +Douglas Kling +500,000 +N/A +N/A +(1) +The 2023 Base Salary for Mr. Somaiya represents his annualized compensation. Mr. Somaiya was paid a pro rata amount for the portion of the year he served, which started from October 2023. +111 +(2) +Dr. Kastelein is paid his salary and bonus in Euros. The table above presents Dr. Kastelein’s compensation converted into USD at a rate of $1.0824 per Euro, which was the average exchange rate as published by the European Central Bank for 2024. +(3) +Ms. Audet is paid her salary and bonus in Swiss francs. The table above presents Ms. Audet’s annualized compensation converted into USD at a rate of $1.1337 per Swiss franc, based upon a nine-month average rate during the period from April 1, 2024 through December 31, 2024. +Annual Performance-Based Cash Bonus +The annual cash incentive bonus plan (the “Annual Bonus Plan”) is a cash-based plan that rewards executive officers for the achievement of key short-term objectives. The structure of the Annual Bonus Plan incentivizes executive officers to achieve research, clinical, operational, and organizational results that the Compensation Committee views as critical to the execution of our business strategy. +For the NEOs, the amount of the payout, if any, under the Annual Bonus Plan is based on operational performance as well as individual performance. The Annual Bonus Plan gives considerable weight to achievement of key corporate and individual goals, while providing the Compensation Committee with the ability to exercise its best judgment in determining the overall level of achievement of such goals. +Target Opportunities. The Compensation Committee determines the target cash incentive opportunity available to each NEO by taking the individual’s annual base salary in effect for the year and multiplying it by the individual’s target incentive percentage. Among other factors, the target incentive percentages are determined with reference to the peer group company percentages of salary for the respective positions and the proportion of total direct compensation represented by the annual cash incentive. For 2024, our NEOs had the following annual cash bonus targets: +NEO +2024 Target Annual Bonus Opportunity as a % of Base Salary +Michael Davidson, M.D. +50 +% +Ian Somaiya +45 +% +John Kastelein, M.D., Ph.D. FESC +40 +% +Juliette Audet +40 +% +Douglas Kling +40 +% +Corporate Performance Goals. As a pre-commercial biopharmaceutical company, we do not have material revenue or profits at this stage, and our success is measured by achievement of research and development milestones and other key strategic and operational goals. +In evaluating corporate performance, the Compensation Committee considered our achievement against the 2024 corporate goals as follows: +• +Clinical development goals to progress our product candidate (relative weighting 40%, or plus 75% upon achievement of stretch goals); +• +Chemistry, Manufacturing and Controls goals relating to on-time supply for clinical trials and launch readiness (5%); +• +Finance goals of assuring adequate funding for current activities and a reasonable runway (20%); +• +Intellectual Property, Operations and Business Development goals related to patents, trademarks and regulatory requirements, hiring for new key positions, and initiating various business development activities (15%, or plus 25% upon achievement of stretch goals); and +• +Commercial / Medical Affairs goals, including the development and execution of launch plan in multiple markets (20%). +Corporate Performance Goals and Related Payouts. If we do not achieve an objective of corporate performance, there is no corresponding amount to be included in the payout related to that element. If we achieve the objective, the Compensation Committee will authorize a payout of the portion of the overall opportunity allocated to that element; if we exceed the objective by achieving a stretch goal, the Compensation Committee may, in its discretion, authorize a higher payout, but the total payout will not exceed 200% of an executive’s overall target incentive. +2024 Achievement of Corporate Goals. In January 2025, the Compensation Committee met to consider how the Company had performed against corporate performance goals. While the Compensation Committee considered management’s views regarding their 2024 achievements, the Compensation Committee made an independent determination regarding corporate performance, which included consideration of the following: +Clinical Research +In 2024, we announced updated clinical results for the following: +112 +• +In April, we announced that we met the enrollment target for PREVAIL, the Phase 3 clinical trial evaluating obicetrapib in adult patients with a history of ASCVD, whose LDL-C is not adequately controlled, despite being on maximally tolerated lipid-lowering therapy. Driven by strong patient and physician interest globally, we extended enrollment to the end of April and randomized over 9,500 patients. +• +In May, we announced the initiation of REMBRANDT, a Phase 3 clinical trial evaluating obicetrapib and ezetimibe against placebo on coronary atherosclerotic plaque characteristics in adults with or at high-risk for atherosclerotic cardiovascular disease. +• +In July, we announced positive statistically significant results from BROOKLYN, the first of two pivotal Phase 3 trials of obicetrapib. This trial evaluated the efficacy and safety of 10 mg obicetrapib compared to placebo and showed that obicetrapib has a substantial and rapid effect on LDL levels. Obicetrapib was also observed to be well tolerated, with safety results comparable to placebo and no increase in blood pressure. +• +In November, we announced positive topline results from TANDEM, the Phase 3 trial evaluating obicetrapib and ezetimibe fixed-dose combination. These results will support our global regulatory filings for the 10 mg obicetrapib and 10 mg ezetimibe fixed-dose combination in adult patients with HeFH and/or ASCVD or multiple ASCVD risk factors, which will potentially offer a simple, once-daily treatment capable of significantly reducing LDL-C and improve cardiovascular outcomes. +• +In December, we announced positive topline data from a pivotal Phase 3 BROADWAY clinical trial evaluating obicetrapib in patients with atherosclerotic cardiovascular disease and/or heterozygous familial hypercholesterolemia. +Corporate +• +In February, we completed an upsized public offering of 5,871,909 ordinary shares and 4,736,841 pre-funded warrants, generating net proceeds of $190.0 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. The offering attracted several new and existing investors. +• +In April, we appointed Juliette Audet as Chief Business Officer. +• +In June, we announced the USPTO issued U.S. Patent No. 12,006,305, titled “Salts of Obicetrapib and Processes for their Manufacture and Intermediates Thereof.” The patent contains claims covering amorphous obicetrapib hemicalcium, the solid form that will be used in the Company’s products and will be listed in the FDA’s “Orange Book” as a drug substance patent, if approved. The issuance of this composition of matter patent provides intellectual property protection for obicetrapib until July 2043. +• +In December, we completed an upsized public offering of 14,667,347 ordinary shares and 4,882,653 pre-funded warrants, generating net proceeds of $453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. The offering attracted several new and existing investors. +Individual Performance. In determining Annual Bonus Plan payouts, the Compensation Committee also evaluated the individual performance of our NEOs. The Compensation Committee views the inclusion of individual performance as an important component of the annual cash bonus plan because it motivates the NEOs for individual performance, even if overall corporate performance is lower. In assessing the individual performance of our NEOs, the Compensation Committee, with the input of our CEO for the non-CEO NEOs, considered each such officer’s individual contributions to the achievement of our 2024 goals, and the officer’s individual performance in helping to execute on our strategic and operating initiatives. +Overall Payouts. Based on the assessment described above, the Compensation Committee recommended, and the Board of Directors determined, that the Company’s corporate performance exceeded the 2024 goals. The Compensation Committee determined an overall 2024 performance level, as determined with reference to both corporate performance and individual performance. The amounts of the annual bonus awards for 2024 were determined as follows: +NEO +Base Salary +($) +Target Annual Bonus % +Target Incentive Amount +($) +Overall Performance % +Payout +($) +Michael Davidson, M.D. +621,300 +50 +% +310,650 +160 +% +497,040 +Ian Somaiya +468,000 +45 +% +210,600 +175 +% +368,550 +John Kastelein, M.D., Ph.D. FESC (1) +486,046 +40 +% +186,946 +175 +% +327,031 +Juliette Audet (2)(3) +424,480 +40 +% +169,792 +150 +% +188,406 +Douglas Kling +500,000 +40 +% +200,000 +200 +% +399,974 +(1) +The 2024 target incentive and payout amounts for Mr. Kastelein have been converted from Euros to USD at an exchange rate of 1 Euro to $1.0404 USD. +(2) +The 2024 target incentive and payout amounts for Ms. Audet have been converted from Swiss francs to USD at an exchange rate of 1 Swiss franc to $1.1047 USD. +(3) +The payout amount for Ms. Audet is pro rata for the portion of the year that she served, which was the last nine months. +113 +Equity-Based Incentive Awards +The third and largest component of the executive compensation program is long-term equity incentives. The Compensation Committee designed the long-term incentive opportunity for the NEOs to motivate and reward executive officers to achieve multiyear strategic goals and deliver sustained long-term value to shareholders. +We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our shareholders. Long-term equity incentives also promote retention because executive officers will only receive value if they remain employed by us over the required term. +Grants to our NEOs and other employees are made at the discretion of the Compensation Committee and are generally made upon commencement of employment, promotion or annually during the first quarter of each year. We believe that our equity awards are an important retention tool for our executive officers, as well as for our other employees. +We have used stock option grants as our primary equity vehicle because we believe that they are an effective means by which to align the long-term interests of our executive officers with those of our shareholders. Among companies that are similar to ours in terms of stage of development, options are very common as the form of equity awards. Share options can motivate stock price appreciation over the long term because they deliver value only if the stock price increases. The use of share options also can provide tax and other advantages to our executive officers relative to other forms of equity compensation. +In determining the number of options to be granted to an NEO, the Compensation Committee takes into account equally both the range of long-term incentive award values granted to executive officers at the companies in the peer group and the range of grant size as a percent of the companies in the peer group. +The annual option incentive awards granted to our NEOs are set forth in the table below: +NEO +Share Options +(#) +Share Options +($)(1) +Michael Davidson, M.D. +1,039,939 +5,347,060 +Ian Somaiya +80,000 +411,337 +John Kastelein, M.D., Ph.D. FESC +500,000 +2,570,852 +Juliette Audet +250,000 +2,602,746 +Douglas Kling +323,771 +1,664,729 +(1) +The amounts reflect the grand date fair value of the options granted. +The exercise price of all share option awards to NEOs is equal to the closing price of our shares on the date of the grant, and all share options granted in 2024 have a ten-year term. The options are subject to time-based vesting, with 25% of the total number of shares underlying the award vesting on the first anniversary of the date of grant and thereafter in equal monthly installments for 36 months, subject to the applicable NEO's continued service through each such vesting date. +Additional Elements of Compensation +Employee Benefits +Our NEOs are eligible to participate in all our employee benefit plans, such as medical, dental, vision, group life, short and long-term disability and our 401(k) plan for U.S. employees, in each case on the same basis as other employees, subject to applicable laws. Under our 401(k) plan, the Company currently makes matching contributions of 100% of the first 3% and then 50% of the next 2% of employee contributions. We believe these benefits are important to attracting and retaining experienced employees, including our executives. +Ms. Audet resides in Switzerland and is employed by the Company in Switzerland. In 2024, the Company made contributions to Ms. Audet’s statutory Swiss pension plan account in accordance with Swiss law. +Perquisites +We do not provide material perquisites to our executive officers. +Severance and Change in Control Arrangements +We have entered into employment agreements with all our NEOs that provide for at-will employment without any specific term. Each of the agreements sets forth the NEO’s severance benefits payable upon a qualifying termination of employment or change in control of the Company. The “Potential Payments Upon Termination or Change in Control” section below describes and quantifies the severance and other benefits potentially payable to the NEOs in further detail. +These agreements provide for a combination of a cash severance payment, continued health benefits and acceleration of vesting on outstanding equity awards in specified circumstances. Acceleration of vesting is subject to a “double trigger” arrangement, meaning that +114 +vesting acceleration occurs only in the event of a change in control of the Company in connection with or followed by a termination of employment without cause by us, or with good reason by the NEO. +Given the industry in which we participate and the range of strategic initiatives that we may explore, we believe reasonable and competitive severance and change-in-control payment and benefit arrangements are an essential element of our executive compensation package and assist us in recruiting and retaining a talented executive team. We also believe such payments and benefits are in the best interests of our shareholders because they incentivize senior executives to continue to strive to achieve shareholder value in connection with change-in-control situations, particularly where the possibility of a change-in-control and the related uncertainty may lead to the departure or distraction of senior executives to the detriment of our Company and our shareholders. +We do not provide any excise tax gross ups in connection with severance paid upon termination without cause or relating to a change-in-control transaction. All change-in-control cash payments are structured to be on a “double-trigger” basis, requiring a termination without cause by us, or with good reason by the NEO, in connection with the change-in-control transaction. +Additional Compensation Policies and Practices +Clawback Policy +In 2023, the Compensation Committee of our Board adopted our Incentive Compensation Recoupment Policy (the “Clawback Policy”), designed to comply with Rule 10D-1 of the Exchange Act and Nasdaq Listing Rule 5608, which provides for recoupment of incentive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the relevant securities laws. The policy applies to our current and former executive officers. Compensation that is granted, earned or vested based wholly or in part upon attainment of a Financial Reporting Measure (as defined in the Clawback Policy) that is determined to have been paid erroneously given the restatement is subject to recoupment. +Equity Granting Practices +The Compensation Committee does not grant stock options or similar equity awards during periods in which there is material nonpublic information about our Company, including (1) outside a “trading window” established in connection with the public release of quarterly results information or (2) at any time during the four business days prior to or the one business day following the filing of our periodic reports or the filing or furnishing of a Form 8-K that discloses material nonpublic information. The Compensation Committee does not take material nonpublic information into account when determining the timing and terms of equity awards. Stock options may occasionally be awarded on an off-cycle basis, including to new hires. The Company has not timed the disclosure of material nonpublic information to affect the value of executive compensation. +Anti-Hedging and Anti-Pledging Policies +We have a policy that prohibits our executive officers, directors and other employees from engaging in short sales, transactions in put or call options, or other inherently speculative transactions with respect to our shares. In addition, our insider trading policy prohibits pledging Company securities as collateral for a loan or ownership of Company securities in a margin account. Any violation of these policies may result in disciplinary action, including dismissal for cause. +Tax Considerations; Section 162(m) +When reviewing compensation matters, the Compensation Committee considers the anticipated tax consequences to us (and, when relevant, to our executive officers) of the various payments under our compensation programs. Section 162(m) of the Code generally disallows a tax deduction for any publicly held corporation for individual compensation of more than $1.0 million to certain executive officers in any taxable year. The Compensation Committee may provide compensation to executive officers that may not be tax deductible if it believes that providing that compensation is in the best interests of our Company and its shareholders. +Accounting Policies for Stock-Priced Compensation +We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC 718”) for our stock-based compensation awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of share options under our equity incentive award plans are accounted for under ASC 718. Our Board or Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. +Report of the Compensation Committee on Executive Compensation +115 +This Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act or the Exchange Act, notwithstanding any general statement contained in any such filing incorporating this Annual Report by reference, except to the extent the Company incorporates such Report by specific reference. +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management of the Company. Based on this review and these discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and the Company’s proxy statement. +The preceding report has been furnished by the following members of the Compensation Committee: +Louis Lange, M.D., Ph.D. – Chair +William Lewis, J.D., M.B.A. +Mark McKenna +Executive Compensation Tables +Summary Compensation Table +The following table sets forth information required under SEC rules concerning the compensation paid to our NEOs in respect of fiscal years ended December 31, 2024 and 2023. +Name and Principal Position +Year +Salary(1) +($) +Bonus +($) +Option Awards (2) +($) +Non-Equity Incentive Plan Compensation (3) +($) +All Other Compensation (4) +($) +Total +($) +Michael Davidson, M.D. +2024 +621,300 +5,347,060 +497,040 +3,897 +6,469,297 +Chief Executive Officer +2023 +569,000 +313,000 +4,923,558 +5,805,558 +Ian Somaiya +2024 +468,000 +411,337 +368,550 +4,688 +1,252,575 +Chief Financial Officer +2023 +90,576 +40,000 +3,422,493 +3,553,069 +John Kastelein, M.D., Ph.D. FESC +2024 +486,046 +2,570,852 +327,031 +3,383,929 +Chief Scientific Officer +2023 +459,346 +218,412 +2,300,813 +2,978,571 +Juliette Audet (5) +2024 +322,254 +2,602,746 +188,406 +25,068 +3,138,474 +Chief Business Officer +2023 +Douglas Kling +2024 +499,968 +1,664,729 +399,974 +13,800 +2,578,471 +Chief Operating Officer +2023 +(1) +The U.S. dollar amount reported for 2024 for Dr. Kastelein from Euros (“EUR”) using the 2024 average exchange rate of $1.0824 per EUR. The U.S. dollar amount reported for 2024 for Ms. Audet were converted from Swiss Francs ("CHF") using the average exchange rate of $1.1337 per CHF during the 9-month period starting April 1, 2024, through December 31, 2024. +(2) +Represents the aggregate fair value of awards on the date they were granted in accordance with ASC Topic 718. See the Notes to the Consolidated Financial Statements included herein for the assumptions used to calculate grant date fair value. +(3) +The amounts reported are comprised of amounts paid in respect of our annual performance-based cash bonus plan, as determined by the Compensation Committee. Payments pursuant to the plan are generally made early in the year following the year in which they are earned. The U.S. dollar amount reported for 2024 for Ms. Audet were converted from CHF using the average exchange rate of $1.1337 per CHF during the 9-month period starting April 1, 2024, through December 31, 2024. +(4) +The amounts reported in this column represent the amount of fees Dr. Davidson received for service on the Board of Directors in 2024, the amounts of Company contributions under our 401(k) plan for Messrs. Somaiya and Kling, and the Company pension contribution for Ms. Audet. The Company pension contribution for Ms. Audet was converted from CHF to U.S. dollars using the average exchange rate of $1.1337 per CHF during the 9-month period starting April 1, 2024, through December 31, 2024. +(5) +Ms. Audet joined the Company as Chief Business Officer in April 2024. Her compensation included in the table above represents her pro-rata base salary and bonus and her initial equity award. +Grants of Plan Based Awards +The following table sets forth certain information regarding grants of plan-based awards to our NEOs during the year ended December 31, 2024: +116 +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +Option Awards: Securities Underlying Options +(#)(2) +Exercise or Base Price of Option Awards +($/Sh) +Grant Date Fair Value of Stock and Option Awards +($) +Name +Threshold +($) +Target +($) +Maximum +($) +Michael Davidson, M.D. +— +310,650 +621,300 +1,039,939 +11.17 +5,347,060 +Ian Somaiya +— +210,600 +421,200 +80,000 +11.17 +411,337 +John Kastelein, M.D., Ph.D. FESC +— +194,418 +388,837 +500,000 +11.17 +2,570,852 +Juliette Audet +— +171,869 +343,738 +250,000 +21.37 +2,602,746 +Douglas Kling +— +200,000 +400,000 +323,771 +11.17 +1,664,729 +(1) +The amounts disclosed in these columns reflect the threshold, target and maximum annual cash incentive opportunities of our NEOs. The amounts of the annual cash incentive opportunities are set based on a percentage of the base salary for the calendar year by each NEO. Below or at threshold performance results in 0% payout. See “Compensation Discussion and Analysis—Compensation Program Components—Annual Performance-Based Cash Bonus” for a detailed description of our annual cash incentive plan, including the criteria for determining the amounts payable. Actual annual cash incentive plan results are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The maximum payout is 200% of target. +(2) +Amounts disclosed in this column reflect the number of shares underlying share option awards granted to our NEOs. The exercise price of all share option grants to NEOs is equal to the closing price of our shares on the date of the grant, and all share options granted in 2024 have a ten-year term. The options are subject to time-based vesting, with 25% of the total number of shares underlying the award vesting on the first anniversary of the date of grant and thereafter in equal monthly installments for 36 months, subject to the applicable NEO's continued service through each such vesting date. +Outstanding Equity Awards at Fiscal Year-End Table +The table below reflects outstanding equity awards held by our NEOs as of December 31, 2024. +Number of Securities Underlying Unexercised Options +Name +Grant Date +Exercisable +(#) +Unexercisable +(#) +Option Exercise Price +Option Expiration Date +Michael Davidson, M.D. +11/22/2022 +(1)(2) +989,267 +1.21 +7/6/2031 +11/22/2022 +(2) +1,271,125 +1,169,413 +10.00 +11/22/2032 +1/1/2023 +(2) +489,463 +532,022 +10.90 +1/1/2033 +1/1/2024 +(2) +1,039,939 +11.17 +1/1/2034 +Ian Somaiya +11/1/2023 +(2) +240,536 +584,161 +9.26 +11/1/2033 +1/1/2024 +(2) +80,000 +11.17 +1/1/2034 +John Kastelein, M.D., Ph.D. FESC +11/22/2022 +(1)(2) +970,229 +1.21 +7/6/2031 +11/22/2022 +(2) +506,125 +465,601 +10.00 +11/22/2032 +1/1/2023 +(2) +228,732 +248,615 +10.90 +1/1/2033 +1/1/2024 +(2) +500,000 +11.17 +1/1/2034 +Juliette Audet +4/1/2024 +(2) +250,000 +21.37 +4/1/2034 +Douglas Kling +11/22/2022 +(1)(2) +407,138 +19,007 +1.21 +7/6/2031 +11/22/2022 +(2) +345,225 +317,593 +10.00 +11/22/2032 +1/1/2023 +(2) +138,589 +144,624 +10.90 +1/1/2033 +1/1/2023 +(3) +5,996 +10.90 +1/1/2033 +1/1/2024 +(2) +323,771 +11.17 +1/1/2034 +(1) +The exercise price of the option is Euro 1.16392 and has been converted into USD in the table above at a rate of $1.0389 per Euro, which was the exchange rate as of December 31, 2024 as published by European Central Bank. +(2) +One-fourth of the shares subject to the option vested on the one-year anniversary of the vesting start date, and the remaining vest in 36 substantially equal monthly installments thereafter. +(3) +All shares subject to the option vest on the fourth anniversary of the vesting start date. +Option Exercises and Stock Vested Table +The following table sets forth information concerning options exercised by our NEOs during the fiscal year ended December 31, 2024. No stock awards held by our NEOs vested in 2024. +117 +Option Awards +Name +Number of Shares Acquired on Exercise +(#)(1) +Value Realized on Exercise +($)(2) +John Kastelein, M.D., Ph.D. FESC +201,673 +4,094,829 +(1) +The amounts shown in this column represent the number of shares underlying the stock options exercised during 2024. +(2) +The amounts shown in this column reflect the value realized upon exercise of stock options, as calculated based on the price of our shares on the exercise date less the exercise price, multiplied by the number of shares underlying the stock options exercised. +Potential Payments Upon Termination or Change-in-Control +We have entered into employment agreements with each of our NEOs. These agreements set forth the initial terms and conditions of each executive’s employment with us, including base salary, target annual bonus opportunity, standard employee benefit plan participation, and for all NEOs, severance benefits upon a qualifying termination of employment or change-in-control of the Company. +Employment Agreement with Michael Davidson, M.D. +We entered into an employment agreement with Dr. Davidson, our Chief Executive Officer, on January 25, 2023 (the “Davidson Agreement”). Pursuant to the Davidson Agreement, in the event Dr. Davidson’s employment is terminated by the Company without Cause (as defined in the Davidson Agreement) or by him for Good Reason (as defined in the Davidson Agreement), we would be required, subject to customary conditions, to pay Dr. Davidson, in addition to certain Accrued Obligations (as defined in the Davidson Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a pro-rated bonus for the calendar year in which the termination occurred, and premium reimbursement equal to the monthly employer contribution that the Company would have made to provide health coverage under the Consolidated Omnibus Budget Reconciliation Act for a maximum of 12 months (“COBRA Premium Reimbursement”). Dr. Davidson will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Dr. Davidson’s employment is terminated by the Company without Cause or by Dr. Davidson for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control (as defined in the Davidson Agreement) or during the 12 months following such Change-in-Control, Dr. Davidson will be entitled to receive the severance payments and benefits described above. In addition, all of Dr. Davidson’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Dr. Davidson is entitled to a base salary and annual performance bonus in cash targeted at 50% of his base salary, at our discretion and subject to Dr. Davidson's continued employment through the payment date of such bonus. Dr. Davidson is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our full-time U.S.-based executives. Dr. Davidson is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with Ian Somaiya +We entered into an employment agreement with Mr. Somaiya, our Chief Financial Officer, dated October 6, 2023 (the “Somaiya Agreement”). Pursuant to the Somaiya Agreement, in the event Mr. Somaiya’s employment is terminated by the Company without Cause (as defined in the Somaiya Agreement) or by him for Good Reason (as defined in the Somaiya Agreement), we would be required, subject to customary conditions, to pay Mr. Somaiya, in addition to certain Accrued Obligations (as defined in the Somaiya Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and COBRA Premium Reimbursement. Mr. Somaiya will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Mr. Somaiya’s employment is terminated by the Company without Cause or by Mr. Somaiya for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control (as defined in the Somaiya Agreement) or during the 12 months following such Change-in-Control, Mr. Somaiya will be entitled to receive the severance payments and benefits described above. In addition, all of Mr. Somaiya’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Mr. Somaiya is entitled to a base salary and annual performance bonus in cash targeted at 45% of his base salary, at our discretion and subject to Mr. Somaiya's continued employment through the payment date of such bonus. Mr. Somaiya is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our full-time U.S.-based executives. Mr. Somaiya is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +118 +Employment Agreement with John Kastelein, M.D., Ph.D FESC +We entered into an employment agreement with Dr. Kastelein, our Chief Scientific Officer, dated November 18, 2022 (the “Kastelein Agreement”). Pursuant to the Kastelein Agreement, in the event Dr. Kastelein’s employment is terminated by the Company without Cause (as defined in the Kastelein Agreement), we would be required, subject to customary conditions, to pay Dr. Kastelein an amount equal to 12 months of his base salary. +Dr. Kastelein is entitled to a base salary and annual performance bonus in cash targeted at 40% of his base salary, at our discretion and subject to Dr. Kastelein's continued employment through the payment date of such bonus. Dr. Kastelein is eligible to participate in our equity incentive plans, including the LTIP, and other employee benefits and insurance programs offered by us. Dr. Kastelein is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with Douglas Kling +We entered into an employment agreement with Mr. Kling, our Chief Operating Officer, dated January 24, 2023 (the “Kling Agreement”). Pursuant to the Kling Agreement, in the event Mr. Kling’s employment is terminated by the Company without Cause (as defined in the Kling Agreement) or by him for Good Reason (as defined in the Kling Agreement), we would be required, subject to customary conditions, to pay Mr. Kling, in addition to certain Accrued Obligations (as defined in the Kling Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and COBRA Premium Reimbursement. Mr. Kling will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Mr. Kling’s employment is terminated by the Company without Cause or by Mr. Kling for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control (as defined in the Somaiya Agreement) or during the 12 months following such Change-in-Control, Mr. Kling will be entitled to receive the severance payments and benefits described above. In addition, all of Mr. Kling’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Mr. Kling is entitled to a base salary and annual performance bonus in cash targeted at 40% of his base salary, at our discretion and subject to Mr. Kling's continued employment through the payment date of such bonus. Mr. Kling is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our full-time U.S.-based executives. Mr. Kling is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with Juliette Audet +In connection with Ms. Audet’s employment with the Company as our Chief Business Officer, Ms. Audet entered into an employment agreement with Globalization Partners Switzerland SA, a labor leasing company, in her country of residence, dated March 21, 2024, which sets forth terms relating to her employment with us (the “Audet Employment Agreement”). Pursuant to the Audet Employment Agreement, Ms. Audet is entitled to a base salary and an annual bonus and is eligible to participate in our equity incentive plans, including the LTIP, and other employee benefits and insurance programs offered by us. +The Company also entered into a separate letter agreement with Ms. Audet that has additional provisions with respect to her eligibility for certain severance benefits (the “Audet Letter Agreement”). Under the Audet Letter Agreement, if Ms. Audet’s employment is terminated by us without Cause or by her for Good Reason (each as defined in the Audet Letter Agreement), we would be obligated to pay her a severance amount equal to 12 months of her base salary, any bonus earned or payable and a pro rata bonus for the calendar year in which the termination occurred. If Ms. Audet's employment is terminated by us without Cause or by her for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control (as defined in the Audet Letter Agreement) or during the 12 months following such Change-in-Control, she will be entitled to receive the severance payments and benefits described above. In addition, all of Ms. Audet's time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date, and the exercise period for certain vested options will be extended. +The table below provides the potential payments and benefits to which our NEOs would be entitled, assuming their employment was terminated as of December 31, 2024, including in connection with a change in control, based on the termination benefits in effect as of December 31, 2024. +119 +Name and Principal Position +Compensation Component +Involuntary or Good Reason Termination without a Change-in-Control ($) +Involuntary or Good Reason Termination in Connection with a Change-in-Control ($) +Michael Davidson, M.D. +(1) +Cash Severance +931,950 +931,950 +Long-term Incentives +— +41,344,023 +Benefits and Perquisites +23,871 +23,871 +Total: +955,821 +42,299,844 +Ian Somaiya +(1) +Cash Severance +678,600 +678,600 +Long-term Incentives +— +10,766,007 +Benefits and Perquisites +35,711 +35,711 +Total: +714,311 +11,480,318 +John Kastelein, M.D., Ph.D. FESC +(2) +Cash Severance +486,046 +486,046 +Long-term Incentives +— +— +Benefits and Perquisites +— +— +Total: +486,046 +486,046 +Juliette Audet +(3) +Cash Severance +601,541 +601,541 +Long-term Incentives +— +1,082,500 +Benefits and Perquisites +— +— +Total: +601,541 +1,684,041 +Douglas Kling +(1) +Cash Severance +700,000 +700,000 +Long-term Incentives +— +12,385,275 +Benefits and Perquisites +35,711 +35,711 +Total: +735,711 +13,120,986 +(1) +Under the employment agreements between us and Dr. Davidson, Mr. Somaiya and Mr. Kling, respectively, if their employment is terminated by us without Cause or by them for Good Reason, we would be obligated to pay them an severance amount equal to 12 months of their base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and premium reimbursement equal to the monthly employer contribution that we would have made to provide health coverage under the Consolidated Omnibus Budget Reconciliation Act for a maximum of 12 months. If their employment is terminated by us without Cause or by them for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control or during the 12 months following such Change-in-Control, they will be entitled to receive the severance payments and benefits described above. In addition, all of their time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +(2) +Under the employment agreement between us and Dr. Kastelein, if his employment is terminated by us without Cause, we would be obligated to pay him a severance amount equal to 12 months of his base salary. +(3) +Under the Audet Letter Agreement, if Ms. Audet’s employment is terminated by us without Cause or by her for Good Reason, we would be obligated to pay her a severance amount equal to 12 months of her base salary, any bonus earned or payable and a pro rata bonus for the calendar year in which the termination occurred. If Ms. Audet's employment is terminated by us without Cause or by her for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control or during the 12 months following such Change-in-Control, she will be entitled to receive the severance payments and benefits described above. In addition, all of Ms. Audet's time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Equity Incentive Plans +LTIP +We have established our LTIP, under which we may grant options, restricted shares, restricted share units, share appreciation rights and other equity and equity-based awards. As of December 31, 2024, the total number of Ordinary Shares underlying awards granted under the LTIP (other than awards granted as Earnout RSUs in accordance with the Business Combination Agreements or as replacement awards in connection with a merger or business combination) will not exceed 17,772,578; provided that the number of Ordinary Shares reserved for grant under the LTIP will increase annually on January 1 of each calendar year by 5% of the-then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +The LTIP is administered by the Board of Directors and the Compensation Committee. The Board of Directors has delegated authority to grant awards under the LTIP to the Compensation Committee for awards to eligible participants not then serving on the Compensation Committee. The Board of Directors has also delegated the authority to grant awards under the LTIP to non-executive officers to Dr. Davidson who will determine when to grant equity awards and the terms of such awards. We may grant awards under the LTIP to our directors, employees, consultants or other advisors. The Board of Directors or the Compensation Committee may condition awards under the LTIP upon the achievement or satisfaction of performance criteria and/or continued service with the Company and determines the vesting conditions for awards under the LTIP. The LTIP includes provisions for good leavers and bad leavers as well as for change-in-control. +Rollover Option Plan +We also established a rollover option plan (the “Rollover Plan”) in connection with the closing of the Business Combination, under which we assumed the outstanding options of certain optionholders of NewAmsterdam Pharma Holding B.V. who held their options through entities +120 +in exchange for a grant of options to acquire Ordinary Shares. The total number of Ordinary Shares underlying the options covered by the Rollover Plan is 1,736,545. Any Ordinary Shares underlying options granted under the Rollover Plan that are forfeited, canceled or otherwise terminated will become available for issuance under the LTIP. +The Rollover Plan is administered by the Board of Directors and the Compensation Committee. The Rollover Plan includes provisions applicable in the event of a change-in-control. +Supplementary LTIP +We have also established our supplementary long-term incentive plan (the “Supplementary LTIP”), under which we may grant options, restricted shares, restricted share units, share appreciation rights and other equity and equity-based awards to our employees and consultants (but not our directors). The total number of Ordinary Shares underlying awards that may be granted under the Supplementary LTIP (other than awards granted as replacement awards in connection with a merger or business combination) will not exceed 1,040,233. +The Supplementary LTIP is administered by the Board of Directors and the Compensation Committee. The Board of Directors has delegated authority to grant awards under the Supplementary LTIP to the Compensation Committee for awards to anyone not then serving on the Compensation Committee. The Board of Directors has also delegated the authority to grant awards under the Supplementary LTIP to non-executive officers to Dr. Davidson, who will determine when to grant equity awards and the terms of such awards. The awards issued under the Supplementary LTIP will have terms substantially similar to those issued under the LTIP. The Supplementary LTIP includes provisions applicable in the event of a change-in-control. +Inducement Plan +We have also established our inducement plan (the “Inducement Plan”), under which we may grant options, restricted shares, restricted share units, share appreciation rights and other equity-based awards to our newly-hired (or newly-hired, after a bona fide period of non-employment) employees (but not directors). The total number of Ordinary Shares underlying awards that may be granted under the Inducement Plan will not exceed 1,500,000. +The Inducement Plan is administered exclusively by the Compensation Committee. The Inducement Plan includes provisions applicable in the event of a change-in-control. +Limitation of Liability and Indemnification +Under Dutch law, our directors may be held liable for damages in the event of improper or negligent performance of their duties. They may be held liable for damages to the Company and to third parties for infringement of the Articles of Association or of certain provisions of Dutch law. In certain circumstances, they may also incur other specific civil, administrative and criminal liabilities. Subject to certain exceptions, the Articles of Association provide for indemnification of our current and former directors and other current and former officers and employees as designated by the Board of Directors. No indemnification under the Articles of Association will be given to an indemnified person: +• +if a competent court or arbitral tribunal has established, without having (or no longer having) the possibility for appeal, that the acts or omissions of such indemnified person that led to the financial losses, damages, expenses, suit, claim, action or legal proceedings as described above are of an unlawful nature (including acts or omissions which are considered to constitute malice, gross negligence, intentional recklessness and/or serious culpability attributable to such indemnified person); +• +to the extent that his or her financial losses, damages and expenses are covered under insurance and the relevant insurer has settled, or has provided reimbursement for, these financial losses, damages and expenses (or has irrevocably undertaken to do so); +• +in relation to proceedings brought by such indemnified person against us, except for proceedings brought to enforce indemnification to which he or she is entitled pursuant to the Articles of Association, pursuant to an agreement between such indemnified person and us, which has been approved by us or pursuant to insurance taken out by us for the benefit of such indemnified person; and +• +for any financial losses, damages or expenses incurred in connection with a settlement of any proceedings effected without our prior consent. +Under the Articles of Association, the Board of Directors may stipulate additional terms, conditions and restrictions in relation to the indemnification described above. +We have also entered into indemnification agreements with each of our directors and executive officers providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to us or, at our request, service to other entities, as officers or directors to the maximum extent permitted by Dutch law and subject to the exceptions provided in such agreements. +Compensation Committee Interlocks and Insider Participation +121 +The Compensation Committee consists of Louis Lange, M.D., Ph.D., William H. Lewis and Mark C. McKenna. All members of the compensation committee are independent directors, and none of our executive officers or former executive officers served on the compensation committee or on the board of any company that employed any member of the compensation committee or the Board of Directors during the year ended December 31, 2024. +Director Compensation +Director Compensation +The Board of Directors and the Compensation Committee determine the compensation of individual directors in accordance with our compensation policy to the extent applicable. All non-employee directors are paid an annual retainer of $43,000. Non-employee directors may receive further compensation ranging from $5,000 to $20,000 for serving as chair or member of committees (i.e., Audit Committee or Compensation Committee). We have also granted and expect to continue granting certain non-employee directors, other than those affiliated with our significant shareholders, options to purchase Ordinary Shares as compensation for their service on the Board of Directors. +Director Service Agreement +We entered into services agreements with all of our directors which regulate their services as our directors. These services agreements, except for James N. Topper’s services agreement, contain non-competition and non-solicitation arrangements, as well as a requirement to assign and transfer to us any intellectual and industrial property rights originating from the director’s services as a director or inventor for us, but do not provide for compensation. +Director Indemnification Agreements +The Articles of Association require us to indemnify our current and former directors to the fullest extent permitted by law, subject to certain exceptions. We entered into indemnification agreements with all of our directors providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from their service to us or, at our request, service to other entities, as directors or officers to the maximum extent permitted by law. +Director Compensation Table +The following table sets forth information regarding the compensation earned for service on the Board of Directors by our non-employee directors during the year ended December 31, 2024. We reimburse members of the Board of Directors for reasonable travel and out-of-pocket expenses incurred in connection with attending Board of Directors and committee meetings. +Name +Fees Earned or Paid in Cash +($) +Option Awards +($)(1) +All Other Compensation +($) +Total +($) +Non-Employee Directors +William H. Lewis, J.D., M.B.A. +105,500 +555,345 +— +660,845 +Mark C. McKenna (2) +26,250 +661,252 +— +687,502 +Juliette Audet (2) +10,000 +— +— +10,000 +Nicholas Downing, M.D. +44,000 +— +— +44,000 +Wouter Joustra (2) +20,000 +— +— +20,000 +Louis Lange, M.D., Ph.D. +57,750 +51,417 +— +109,167 +Sander Slootweg (2) +20,000 +— +— +20,000 +John W. Smither +57,500 +51,417 +— +108,917 +James N. Topper, M.D., Ph.D. +40,000 +— +— +40,000 +Janneke van der Kamp +46,375 +51,417 +— +97,792 +(1) The amounts reported in these columns reflect the aggregate grant date fair value of the stock options granted to our directors as computed in accordance with ASC 718. See Note 8 to the Consolidated Financial Statements in this Annual Report for a discussion of assumptions made by us in determining the aggregate grant date fair value of our option awards and stock awards. Note that the amounts reported in these columns do not reflect the actual economic value that may be realized by the directors. +(2) Juliette Audet and Sander Slootweg resigned as members of the Board of Directors effective April 1, 2024 and July 1, 2024, respectively. Mark McKenna and Wouter Joustra joined the Board of Directors effective July 16, 2024. +The following table provides information regarding the aggregate number of shares underlying option awards granted to our non-employee directors that were outstanding as of December 31, 2024: +122 +Name +Option Awards +(#) +William H. Lewis, J.D., M.B.A. +100,000 +Mark C. McKenna +72,500 +Louis Lange, M.D., Ph.D. +237,769 +John W. Smither +28,600 +Janneke van der Kamp +28,000 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Securities Authorized For Issuance Under Equity Compensation Plans +Our LTIP and Rollover Plan are our only equity compensation plans approved by our shareholders. The Supplementary LTIP and the Inducement Plan were approved by the Board of Directors but were not approved by our shareholders. The following table sets forth certain information as of December 31, 2024 with respect to our LTIP, Rollover Plan, Supplementary LTIP and Inducement Plan: +Plan Category +Number of Securities to be Issued Upon Exercise of Outstanding Options (A) +Weighted-Average Exercise Price of Outstanding Options (B) +Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) +Equity compensation plans approved by shareholders: +17,308,526 +$ +9.46 +315,414 +LTIP (1) +16,070,224 +$ +10.10 +315,414 +Rollover Plan +1,238,302 +$ +1.2092 (3) +- +Equity compensation plans not approved by shareholders: +1,720,530 +15.84 +789,419 +Supplementary LTIP (2) +958,730 +$ +13.63 +51,219 +Inducement Plan +761,800 +$ +18.62 +738,200 +Total: +19,029,056 +$ +10.04 +1,104,833 +(1) +The number of Ordinary Shares reserved for grant under the LTIP will increase annually on January 1 of each calendar year by 5% of the then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +(2) +See the section titled “ Executive Compensation—Equity Incentive Plans ” and Note 10 to the Consolidated Financial Statements included in this Annual Report for a brief description of the terms of the Supplementary LTIP. +(3) +The exercise price of the options included in the Rollover Plan is Euro 1.16392 and has been converted into USD in the table above at a rate of $1.0389 per Euro, which was the exchange rate as of December 31, 2024 as published by European Central Bank. +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information regarding the actual beneficial ownership of Ordinary Shares as of February 18, 2025, by: +• +each person, or group of affiliated persons, known by the Company to beneficially own more than 5% of outstanding Ordinary Shares; +• +each of our executive officers or directors; and +• +all of our executive officers and directors, as a group. +The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, Ordinary Shares subject to options or other rights (as set forth above) held by that person that are currently exercisable, or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Each person named in the table has sole voting and investment power with respect to all of the Ordinary Shares shown as beneficially owned by such person, except as otherwise indicated in the table or footnotes below. +123 +The beneficial ownership of Ordinary Shares is based on 109,817,812 Ordinary Shares issued and outstanding, as of February 18, 2025. Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by them. To our knowledge, no Ordinary Shares beneficially owned by any executive officer, director or director nominee have been pledged as security. None of our shareholders has different voting rights from other shareholders. +Number of Shares Beneficially Owned +Percentage of Ordinary Shares Beneficially Owned (%) +Name of Beneficial Owner +Shares +% +Named Executive Officers, Directors and Director Nominees +Michael Davidson, M.D. (1) +4,216,060 +3.72% +Ian Somaiya (2) +272,385 +* +John Kastelein, M.D., Ph.D. FESC (3) +1,961,852 +1.76% +Douglas Kling (4) +782,515 +* +Juliette Audet (5) +1,104 +* +Nicholas Downing, M.D. (6) +— +— +Louis Lange, M.D., Ph.D. (7) +235,699 +* +William H. Lewis, J.D., M.B.A. (8) +31,252 +* +John W. Smither (9) +13,597 +* +James N. Topper, M.D., Ph.D. (10) +16,416,751 +14.88% +Janneke van der Kamp (11) +12,127 +* +Mark McKenna +— +— +Wouter Joustra (12) +— +— +All executive officers and directors as a group (15 persons) +24,943,411 +21.14% +Number of Shares Beneficially Owned +Percentage of Ordinary Shares Beneficially Owned (%) +Name of Beneficial Owner +Shares +% +Other 5% Shareholders +Entities affiliated with Forbion (13) +10,656,172 +9.70% +Frazier Lifesciences Sponsor LLC and affiliates (14) +16,416,751 +14.88% +Entities affiliated with Bain Capital Life Sciences Investors, LLC (15) +11,143,891 +9.99% +RA Capital Healthcare Fund, L.P. (16) +8,397,333 +7.62% +Viking Global Investors LP (17) +8,024,565 +7.31% +* Indicates beneficial ownership of less than 1% of total outstanding Ordinary Shares . +(1) +Consists of (i) 209,784 Ordinary Shares, (ii) options to purchase 3,312,497 Ordinary Shares, exercisable within 60 days of February 18, 2025, (iii) Warrants to purchase 85,000 Ordinary Shares, exercisable within 60 days of February 16, 2024 and (iv) 608,779 Ordinary Shares subject to forfeiture underlying depositary receipts issued by Stichting Administratiekantoor EPNAP (“STAK EPNAP”). STAK EPNAP has sole voting and investment power over the securities described in (iv) while underlying the depositary receipts and are presented here because the depositary receipts can be cancelled by the board of directors of STAK EPNAP at any time as a consequence of which the shareholder will become the beneficial owner of the securities underlying the depositary receipts. +(2) +Consists of options to purchase 272,385 Ordinary Shares, exercisable within 60 days of February 18, 2025. +(3) +Consists of (i) options to purchase 970,229 Ordinary Shares held by Futurum B.V. through PoolCo and (ii) options to purchase 991,623 Ordinary Shares held by Dr. Kastelein directly, each exercisable within 60 days of February 18, 2025. +(4) +Consists of options to purchase 782,515 Ordinary Shares, exercisable within 60 days of February 18, 2025. +(5) +Consists of 1,104 Ordinary Shares. +(6) +Does not include Ordinary Shares held by the Bain Capital Life Sciences Entities (as defined below). Dr. Downing serves as a Managing Director of Bain Capital Life Sciences Investors, LLC. +(7) +Consists of (i) 24,878 Ordinary Shares (ii) Warrants to purchase 44,619 Ordinary Shares, exercisable within 60 days of February 18, 2025 and (iii) options to purchase 166,202 Ordinary Shares, exercisable within 60 days of February 18, 2025. +(8) +Consists of options to purchase 31,252 Ordinary Shares, exercisable within 60 days of February 18, 2025. +(9) +Consists of options to purchase 13,597 Ordinary Shares, exercisable within 60 days of February 18, 2025. +124 +(10) +Consists of the shares described in Note 14. Dr. Topper disclaims beneficial ownership of the shares referenced in Note 14, except to the extent of his pecuniary interest therein, if any. +(11) +Consists of options to purchase 12,127 Ordinary Shares, exercisable within 60 days of February 18, 2025. +(12) +See Note 13. Mr. Joustra is a member of the Board of Directors and is a partner of Forbion Growth Management B.V. (“Growth Management”) and a member of the investment committee of Growth Management, but does not have beneficial ownership of the securities referenced in Note 13. +(13) +Consists of (i) 5,976,287 Ordinary Shares beneficially owned by Forbion Capital Fund IV Coöperatief U.A. (“Forbion IV”) through ForGrowth NAP B.V. (“ForGrowth”) that are held directly by NAP PoolCo B.V. (“PoolCo”), (ii) 4,027,712 Ordinary Shares beneficially owned by Forbion Growth Opportunities Fund I Coöperatief U.A. (“Forbion Growth”) through ForGrowth that are held directly by PoolCo and (iii) 652,173 Ordinary Shares held directly by ForGrowth. ForGrowth is a joint-investment vehicle wholly owned by Forbion IV and Forbion Growth. PoolCo is a Dutch limited liability company that holds Ordinary Shares on behalf of its shareholders. The governing documents of PoolCo vest voting and investment control over the Ordinary Shares held by PoolCo in PoolCo’s shareholders and, as a result, PoolCo disclaims beneficial ownership of such Ordinary Shares. The information herein is based solely on the Form 4 filed by the holders on January 2, 2025. The address for the Forbion entities is Gooimeer 2-35, 1411 DC Naarden, the Netherlands. +Forbion IV Management B.V. (“Forbion IV Management”) may be deemed to have voting and dispositive power over the Ordinary Shares beneficially owned by Forbion IV. Investment decisions with respect to the Ordinary Shares held by Forbion IV are made by its investment committee which may delegate such powers to the authorized representatives of Forbion IV Management. Mssrs. Slootweg, van Osch, Mulder, van Houten, van Deventer, Reithinger, Kersten and Boorsma are partners of Forbion IV Management, which is the director of and acts as the investment advisor to Forbion IV. +Growth Management may be deemed to have voting and dispositive power over the Ordinary Shares beneficially owned by Forbion Growth. Investment decisions with respect to the Ordinary Shares held by Forbion Growth are made by its investment committee which may delegate such powers to the authorized representatives of Growth Management. Mssrs. Slootweg, van Osch, Mulder, van Houten, van Deventer, Reithinger, Kersten, Joustra, Bos en Lüneborg and Boorsma are partners of Growth Management, which is the director of and acts as the investment advisor to Forbion Growth. +(14) +Consists of 3,801,000 Ordinary Shares and Warrants to purchase 167,000 Ordinary Shares held by Frazier Lifesciences Sponsor LLC (the “Sponsor”). The sole member of the Sponsor is Frazier Life Sciences X, L.P. (“FLS X”). FHMLS X, L.P. is the general partner of FLS X and FHMLS X, L.L.C. is the general partner of FHMLS X, L.P. Patrick J. Heron and James N. Topper are the members of FHMLS X, L.L.C. and managers of each of FLS X, FHMLS X, L.P. and FHMLS X, L.L.C. +Also included in the total number are (i) 3,008,429 Ordinary Shares and Warrants to purchase 333,333 Ordinary Shares held by FLS X, (ii) 1,131,077 Ordinary Shares held by Frazier Life Sciences XI, L.P. (“FLS XI”), (iii) 5,134,071 Ordinary Shares held by Frazier Life Sciences Public Fund, L.P. (“FLSPF”) and (iv) 2,841,841 Ordinary Shares held by Frazier Life Sciences Overage Fund, L.P. (“FLSOF”). FHMLS XI, L.P. is the general partner of FLS XI and FHMLS XI, L.L.C. is the general partner of FHMLS XI, L.P. Patrick J. Heron, Dan Estes and James N. Topper are the members of FHMLS XI, L.L.C. and managers of each of FLS XI, FHMLS XI, L.P. and FHMLS XI, L.L.C. FHMLSP, L.P. is the general partner of FLSPF and FHMLSP, L.L.C. is the general partner of FHMLSP, L.P. Patrick J. Heron, James N. Topper, Albert Cha and James Brush are the members of FHMLSP, L.L.C. and managers of each of FLSPF, FHMLSP, L.P. and FHMLSP, L.L.C. FHMLSP Overage, L.P., is the general partner of FLSOF and FHMLSP Overage, L.L.C. is the general partner of FHMLSP Overage, L.P. Patrick J. Heron, James N. Topper, Albert Cha and James Brush are the members of FHMLSP Overage, L.L.C. and managers of each of FLSOF, FHMLSP Overage, L.P. and FHMLSP Overage, L.L.C. The information herein is based on the Schedule 13D/A filed by Sponsor, FLS X, FLS XI, FLSPF, FLSOF, FHMLS X, L.P., FHMLS X, L.L.C., FHMLS XI, L.P., FHMLS XI, L.L.C., FHMLSP, L.P., FHMLSP, L.L.C., FHMLSP Overage, L.P., FHMLSP Overage, L.L.C., Mr. Cha, Mr. Brush, Mr. Heron, Mr. Estes and Mr. James Topper on December 17, 2024. The address of these holders is Two Union Square, 601 Union St., Suite 3200, Seattle, WA 98101. +(15) +Consists of (i) 4,797,557 Ordinary Shares held by BCLS II Investco, LP (“BCLS II Investco”), (ii) 5,376,356 Ordinary Shares held by BCLS Fund III Investments, LP (“BCLS Fund III”), (iii) 267,429 Ordinary Shares and Warrants to purchase 89,143 Ordinary Shares held by Bain Capital Life Sciences Fund II, L.P. (“BCLS Fund II”), (iv) 32,571 Ordinary Shares and Warrants to purchase 10,857 Ordinary Shares held by BCIP Life Sciences Associates, LP (“BCIPLS”) and (v) 1,257,141 Ordinary Shares issuable upon exercise of a pre-funded warrant (the “Pre-Funded Warrant”) held by Bain Capital Life Sciences Opportunities III GP, LLC (“BCLS Fund III Opportunities”) and 375,512 Ordinary Shares issuable upon exercise of a Pre-Funded Warrant held by BCLS II Equity Opportunities, LP (“BCLS Fund II Opportunities,” and, together with BCIPLS, BCLS II Investco, BCLS Fund III and BCLS Fund II, the “Bain Capital Life Sciences Entities”), which are currently exercisable, except to the extent such exercise is restricted by a blocker provision which restricts the exercise of such warrant if, as a result of such exercise, the holder, together with its affiliates and any other persons whose beneficial ownership would be aggregated with the holder for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 9.99% of the total number of Ordinary Shares then outstanding immediately following such exercise (the “Warrant Beneficial Ownership Limitation”). Excludes 1,062,675 Ordinary Shares issuable upon exercise of a Pre-Funded Warrant held by BCLS Fund III Opportunities +125 +and BCLS Fund II Opportunities, which is currently exercisable, but such shares have been excluded because the exercise thereof is restricted by the Warrant Beneficial Ownership Limitation. Bain Capital Life Sciences Investors, LLC (“BCLSI”) (a) is the manager of Bain Capital Life Sciences Investors II, LLC, which is the general partner of BCLS Fund II, which is the managing member of BCLS II Investco (GP), LLC, which is the general partner of BCLS II Investco, (b) is the manager of Bain Capital Life Sciences III General Partner, LLC, which is the general partner of Bain Capital Life Sciences Fund III, L.P., which is the managing member of BCLS Fund III Investments GP, LLC, which is the general partner of BCLS Fund III, and (c) governs the investment strategy and decision-making process with respect to investments held by BCIPLS. As a result, BCLSI may be deemed to share voting and dispositive power with respect to the securities held by the Bain Capital Life Sciences Entities. The address of the Bain Capital Life Sciences entities is c/o Bain Capital Life Sciences, LP, 200 Clarendon Street, Boston, MA 02116. The information herein is based solely on the Schedule 13D/A filed by certain of Bain Capital Life Sciences Entities on December 17, 2024 and the Form 4 filed by certain of Bain Capital Life Sciences Entities on December 17, 2024. +(16) +Consists of 8,064,000 Ordinary Shares and Warrants to purchase 333,333 Ordinary Shares held by RA Capital Healthcare Fund, L.P. (“RACHF”). RA Capital Management, L.P. (“RA Capital”) is the investment manager for RACHF. The general partner of RA Capital is RA Capital Management GP, LLC, of which Peter Kolchinsky and Rajeev Shah are the managing members. Each of Mr. Kolchinsky and Mr. Shah may be deemed to have voting and investment power over the Ordinary Shares held by RACHF. Mr. Kolchinsky and Mr. Shah disclaim beneficial ownership of such shares, except to the extent of any pecuniary interest therein. RA Capital serves as investment adviser for RACHF and may be deemed a beneficial owner of the securities described herein as held by RACHF. RACHF has delegated to RA Capital the sole power to vote and the sole power to dispose of all securities held in RACHF’s portfolios, including the Ordinary Shares reported herein. Because RACHF has divested itself of voting and investment power over the reported securities they hold and may not revoke that delegation on less than 61 days’ notice, RACHF disclaims beneficial ownership of the securities they hold. The business address of the persons and entities set forth herein is 200 Berkeley Street, 18th Floor, Boston, MA 02116. The information herein is based solely on the Schedule 13G/A filed by RACHF, RA Capital, Mr. Kolchinsky and Mr. Shah on November 14, 2024. +(17) +Consists of 5,376,459 Ordinary Shares and 2,648,106 Ordinary Shares owned by Viking Global Opportunities Illiquid Investments Sub-Master LP (“VGOP”) and Viking Global Opportunities Drawdown (Aggregator) LP (“VGOD”), respectively. Viking Global Investors LP (“VGI”) provides managerial services to VGOP and VGOD and has the authority to dispose of and vote the Ordinary Shares that VGOP and VGOD directly own to and as a result may be deemed to beneficially own the Ordinary Shares that VGOP and VGOD directly. Viking Global Opportunities Parent GP LLC (“Opportunities Parent”) is the sole member of Viking Global Opportunities GP LLC (“Opportunities GP”), which has the authority to dispose of and vote the Ordinary Shares controlled by Viking Global Opportunities Portfolio GP LLC (“Opportunities Portfolio GP”) (which consists of the Ordinary Shares that VGOP directly owns) and is the sole member of Viking Global Opportunities Drawdown GP LLC (“VGOD GP”), which has the authority to dispose of and vote the Ordinary Shares controlled by Viking Global Opportunities Drawdown Portfolio GP LLC (“VGOD Portfolio GP”) (which consists of the Ordinary Shares that VGOD directly owns). Opportunities Parent does not directly own any Ordinary Shares. Opportunities GP serves as the sole member of Opportunities Portfolio GP and has the authority to dispose of and vote the Ordinary Shares controlled by Opportunities Portfolio GP. Opportunities Portfolio GP serves as the general partner of VGOP and has the authority to dispose of and vote the Ordinary Shares that VGOP directly owns. VGOD GP serves as the sole member of VGOD Portfolio GP and has the authority to dispose of and vote the Ordinary Shares controlled by VGOD Portfolio GP. VGOD Portfolio GP serves as the general partner of VGOD and has the authority to dispose of and vote the Ordinary Shares that VGOD directly owns. O. Andreas Halvorsen, David C. Ott and Rose S. Shabet, as Executive Committee Members of Viking Global Partners LLC (general partner of VGI) and Opportunities Parent, have shared authority to dispose of and vote the Ordinary Shares beneficially owned by VGI and Opportunities Parent. None of Mr. Halvorsen, Mr. Ott and Ms. Shabet directly owns any Ordinary Shares. Each of Mr. Halvorsen, Mr. Ott and Ms. Shabet may be deemed to beneficially own the Ordinary Shares that VGOP and VGOD directly own. The business address of the persons and entities set forth herein is 55 Railroad Avenue, Greenwich, Connecticut 06830. The information herein is based solely on the Schedule 13G/A filed by VGI, Opportunities Parent, Opportunities GP, Opportunities Portfolio GP, VGOP, VGOD GP, VGOD Portfolio GP, VGOD, Mr. Halvorsen, Mr. Ott and Ms. Shabet on February 14, 2024. +Item 13. Certain Relationships and Related Transactions, and Director Independence +Independence of the Board of Directors +The nomination and corporate governance committee and Board of Directors have undertaken a review of the independence of our directors and considered whether any director has a relationship that, in the opinion of such committee or the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a member of the Board of Directors. Based upon information requested from and provided by each director concerning such director’s background, employment and affiliations, including family relationships, the Board of Directors has determined that all of our directors, other than Dr. Davidson and Dr. Kastelein, are “independent directors,” as such term is defined in Nasdaq Rule 5605(a)(2). In making these determinations, the Board of Directors considered the current and prior relationships that each director has with the Company and all other facts and circumstances that the Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each director. +126 +Certain Relationships and Related Transactions +Review, Approval or Ratification of Transactions with Related Persons +We adopted a related party transaction policy that requires the review and, if applicable, approval or ratification of any related party transaction by the Board of Directors, the Audit Committee or another designated committee consisting solely of independent directors. Our Audit Committee will review this related party transaction policy periodically and will recommend changes to the Board of Directors as appropriate. +In addition, under Dutch law and the Articles of Association, our directors may not take part in any discussion or decision-making that involves a subject or transaction in relation to which he or she has a direct or indirect personal conflict of interest with us. Such a conflict of interest would generally arise if the director concerned is unable to serve our interests and the business connected with us with the required level of integrity and objectivity due to the existence of the conflicting personal interest. The Articles of Association provide that if as a result of conflicts of interests no resolution of the Board of Directors can be adopted, the resolution may nonetheless be adopted by the Board of Directors as if none of our directors had a conflict of interest. In that latter case, each of our director is entitled to participate in the discussion and decision-making process and to cast a vote. +A related party transaction is generally any transaction in which the Company or its subsidiaries is or will be a participant, in which the amount involved exceeds $120,000, and a director (or nominee), executive officer, immediate family member, or any beneficial owner of more than 5% of our Ordinary Shares, has or will have a direct or indirect material interest. +Certain Related Party Transactions +Investor Rights Agreement +In connection with the closing of the Business Combination, we entered into the Investor Rights Agreement, dated November 22, 2022 (the “Investor Rights Agreement”), with the Sponsor and the former FLAC directors (the “FLAC Initial Shareholders”), and certain NewAmsterdam Pharma shareholders agreed not to sell, assign, offer to sell, contract, pledge, grant, or otherwise dispose of or enter into any swap or other similar arrangement, with respect to the Ordinary Shares such persons received in connection with the Business Combination for six months from the date the Domestication became effective (the “Final Closing Date”), subject to certain limited exceptions. In addition, the FLAC Initial Shareholders agreed not to sell, assign, offer to sell, contract, pledge, grant, or otherwise dispose of or enter into any swap or other similar arrangement, with respect to the Ordinary Shares they received in connection with the Business Combination for a period beginning on the Final Closing Date and ending one year after the Final Closing Date. Notwithstanding the foregoing, the restrictions above ended with respect to the Ordinary Shares held by the NewAmsterdam Pharma shareholders and 50% of the Ordinary Shares held by the FLAC Initial Shareholders, as the case may be, received in connection with the Business Combination, on May 22, 2023 according to the terms of the Investor Rights Agreement. The restrictions on the remaining 50% of the Ordinary Shares of the FLAC Initial Shareholders received in connection with the Business Combination ended on November 23, 2023, one year after the Final Closing Date. An aggregate of 44,914,642 Ordinary Shares held by former NewAmsterdam Pharma shareholders (including Amgen and MTPC) had registration rights pursuant to the terms of the Investor Rights Agreement. +In June 2023, certain of our selling securityholders (the “Selling Securityholders”) exercised their right pursuant to the Investor Rights Agreement to demand an underwritten shelf takedown of Ordinary Shares. On June 6, 2023, the Company and certain of the Selling Securityholders, including affiliates of Forbion, entered into an Underwriting Agreement (the “Underwriting Agreement”) with Jefferies LLC and SVB Securities LLC, as representatives of the several underwriters named therein (the “Underwriters”). The Underwriting Agreement related to an underwritten public offering of 13,857,415 Ordinary Shares by those certain Selling Securityholders at a public offering price of $11.50 per Ordinary Share (the “Secondary Offering”). In connection with the Secondary Offering, certain of the participating Selling Securityholders granted the Underwriters a 30-day option to purchase an additional 2,078,612 Ordinary Shares at the public offering price, less underwriting discounts and commissions, which option was partially exercised for 1,930,280 additional Ordinary Shares in connection with the closing of the Secondary Offering. The Company did not sell any Ordinary Shares in the Secondary Offering and did not receive any proceeds from the Secondary Offering. +Indemnification Agreements +The Articles of Association provide for certain indemnification rights for our current and former directors and other current and former officers and employees as designated by the Board of Directors (the “Indemnified Persons”). Specifically, we indemnify the Indemnified Persons against any financial losses or damages and any expense reasonably paid or incurred in connection with any threatened, pending or completed suit, to the extent these relate to such Indemnified Persons’ current or former position with the Company as permitted by applicable law. +We have also entered into indemnification agreements with each of our directors and executive officers providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to us or, at our request, service to other entities, as officers or directors to the maximum extent permitted by Dutch law and subject to the exceptions provided in such agreements. +127 +Employment Agreements +See the section titled “ Executive Compensation—Employment Agreements and Change of Control Agreements ” above for a further discussion of these arrangements. +Item 14. Principal Accountant Fees and Services +Principal Accountant Fees and Services +The following table presents the aggregate fees billed by Deloitte Accountants B.V. for the years ended December 31, 2024 and 2023. +For the Years Ended December 31, +(In thousands of USD) +2024 +2023 +Audit Fees +1,433 +1,525 +Audit-Related Fees +— +— +Tax Fees +— +— +All Other Fees +— +— +Total Fees +1,433 +1,525 +Audit fees include the standard audit work performed each fiscal year necessary to allow the auditor to issue an opinion on our financial statements and to issue an opinion on the local statutory financial statements. Audit fees also include services such as reviews of quarterly financial results and review of securities offering documents. +Audit-related fees consisted of fees billed for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements or for services that were traditionally performed by the external auditor. +Tax fees are fees billed for professional services for tax compliance, tax advice and tax planning. +Audit Committee Pre-Approval Policies +The Audit Committee evaluates the qualifications, independence and performance of the independent auditor as well as pre-approves and reviews the engagement and the provision of all audit and non-audit services to be performed by the independent auditor. In accordance with this policy, all services performed by and fees paid to Deloitte Accountants B.V. were pre-approved by the Audit Committee. +128 +PART IV +Item 15. Exhibits, Financial Statement Schedules +(1) Financial Statements: +The Financial Statements required to be filed by Item 8 of this Annual Report, and filed in this Item 15, are as follows: +Page +Report of Independent Registered Public Accounting Firm (Deloitte Accountants B.V.; PCAOB ID: 1243) +F- 2 +Consolidated Balance Sheets as at December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022 +F-4 +Consolidated Statements of Mezzanine Equity and Shareholders' Equity (Deficit) for the Years Ended December 31, 2024, 2023 and 2022 +F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 +F-6 +Notes to Consolidated Financial Statements +F-7 +(2) Financial Statement Schedules: +Schedules are omitted because they are not applicable, or are not required, or because the information is included in the financial statements and notes thereto. +(3) Exhibits: +Exhibit No. +Description of Document +2.1 +Business Combination Agreement, dated as of July 25, 2022, by and among Frazier Lifesciences Acquisition Corporation, NewAmsterdam Pharma Holding B.V., NewAmsterdam Pharma Company B.V. and NewAmsterdam Pharma Investment Corporation (incorporated by reference to Annex A to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +2.2 +Plan of Merger (incorporated by reference to Annex B to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +3.1 +English translation of the Deed of Conversion and Articles of Association of NewAmsterdam Pharma Company N.V. (incorporated by reference to Exhibit 1.1 to the Shell Company Report on Form 20-F (File No. 001-41562), filed with the SEC on November 28, 2022). +4.1 +Warrant Assignment, Assumption and Amendment Agreement, among Continental Stock Transfer & Trust Company, NewAmsterdam Pharma Company B.V. and Frazier Lifesciences Acquisition Corporation (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +4.2 +Warrant Agreement, between Frazier Lifesciences Acquisition Corporation and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-1 (File No. 333-250858), filed by Frazier Lifesciences Acquisition Corporation with the SEC on November 20, 2020). +4.3 +Warrant Certificate of NewAmsterdam Pharma Company N.V (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +4.4 +Description of Share Capital and Articles of Association. +10.1 +Form of Subscription Agreement (incorporated by reference to Annex C to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +10.2 +Investor Rights Agreement, dated November 22, 2022, by and among NewAmsterdam Pharma Company N.V. and certain of its shareholders (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form F-1 (File No. 333-268888), filed with the SEC on January 17, 2023). +10.3+ +Form of Director & Officer Indemnity Agreement (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +10.4+ +NewAmsterdam Pharma Company N.V. Long-term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.5+ +NewAmsterdam Pharma Company N.V. Rollover Option Plan (incorporated by reference to Exhibit 4.16 to the Shell Company Report on Form 20-F (File No. 001-41562), filed with the SEC on November 28, 2022). +10.6+ +NewAmsterdam Pharma Company N.V. Supplementary Long-term Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form F-1 (File No. 333-268888), filed with the SEC on January 17, 2023). +10.7+ +NewAmsterdam Pharma Company N.V. Inducement Plan (incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 (File No. 333-280689), filed with the SEC on July 3, 2024). +129 +10.8+* +Employment Agreement, dated January 25, 2023, between NewAmsterdam Pharma Corporation and Michael Davidson (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.9+* +Employment Agreement, dated November 18, 2022, between NewAmsterdam Pharma B.V. and John Kastelein (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.10+* +Employment Agreement, dated October 6, 2023, between NewAmsterdam Pharma Corporation and Ian Somaiya (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.11+* +Employment Agreement, dated March 22, 2024, between Globalization Partners Switzerland SA and Juliette Audet. +10.12+ +Letter Agreement, dated March 22, 2024, between NewAmsterdam Pharma Company N.V. and Juliette Audet. +10.13+* +Employment Agreement, dated January 24, 2023, between NewAmsterdam Pharma Corporation and Douglas Kling. +10.14+ +Form of Option Award Agreement (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.15† +License Agreement, dated June 23, 2022, between A. Menarini International Licensing S.A. and NewAmsterdam Pharma B.V. (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form F-4/A (File No. 333-266510), filed with the SEC on September 13, 2022). +10.16† +Amendment to License Agreement, dated January 15, 2024, between NewAmsterdam Pharma B.V. and A. Menarini International Licensing S.A. +19.1 +Insider Trading Policy of the Company +21.1 +List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form F-1 (File No. 333-268888), filed with the SEC on January 17, 2023). +23.1 +Consent of Deloitte Accountant B.V., independent registered public accounting firm. +24.1 +Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K). +31.1 +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1 +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2 +Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Policy Relating to Recovery of Erroneously Awarded Compensation of NewAmsterdam Pharma Company N.V. (incorporated by reference to Exhibit 97.1 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File-the cover page interactive data is embedded within the Inline XBRL document or included within the Exhibit 101 attachments ++ Indicates management contract or compensatory plan. +* Portions of this document (indicated by “[***]”) have been omitted in accordance with Item 601(a)(5) of Regulation S-K. +† Portions of this document (indicated by “[***]”) have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K because such information is not material and is the type of information that the registrant treats as private or confidential. +Item 16. Form 10-K Summary +None. +130 +SIGN ATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +NewAmsterdam Pharma Company N.V. +Date: February 26, 2025 +By: +/s/ Michael Davidson +Michael Davidson, M.D. +Chief Executive Officer and Director +(Principal Executive Officer) +Date: February 26, 2025 +By: +/s/ Ian Somaiya +Ian Somaiya +Chief Financial Officer +(Principal Financial Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Davidson and Ian Somaiya, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +131 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Michael Davidson +Dr. Michael Davidson +Chief Executive Officer and Director (Principal Executive Officer) +February 26, 2025 +/s/ Ian Somaiya +Ian Somaiya +Chief Financial Officer (Principal Financial Officer) +February 26, 2025 +/s/ Louise Kooij +Louise Kooij +Chief Accounting Officer ( Principal Accounting Officer ) +February 26, 2025 +/s/ William H. Lewis +William H. Lewis +Chair and Director +February 26, 2025 +/s/ Nicholas S. Downing +Dr. Nicholas S. Downing +Director +February 26, 2025 +/s/ John Kastelein +Dr. John Kastelein +Chief Scientific Officer, Director +February 26, 2025 +/s/ Wouter Joustra +Wouter Joustra +Director +February 26, 2025 +/s/ Louis Lange +Dr. Louis Lange +Director +February 26, 2025 +/s/ Mark C. McKenna +Mark C. McKenna +Director +February 26, 2025 +/s/ John W. Smither +John W. Smither +Director +February 26, 2025 +/s/ James N. Topper +Dr. James N. Topper +Director +February 26, 2025 +/s/ Janneke van der Kamp +Janneke van der Kamp +Director +February 26, 2025 +132 +NewAmsterdam Pharma Company N.V. +Index to Financial Statements +Page +Report of Independent Registered Public Accounting Firm (Deloitte Accountants B.V.; PCAOB ID: 1243 ) +F- 2 +Consolidated Balance Sheets as at December 31, 2024 and 2023 +F- 5 +Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022 +F- 6 +Consolidated Statements of Mezzanine Equity and Shareholders' Equity (Deficit) for the Years Ended December 31, 2024, 2023 and 2022 +F- 7 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 +F- 8 +Notes to Consolidated Financial Statements +F- 9 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of NewAmsterdam Pharma Company N.V. +Opinion on the Financial Statements +We have audited the accompanying Consolidated Balance Sheets of NewAmsterdam Pharma Company N.V. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related Consolidated Statements of Operations and Comprehensive Income (Loss), Mezzanine Equity and Shareholders’ Equity (Deficit) and Cash Flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2025, expressed an unqualified opinion on the Company’s internal control over financial reporting. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Research and development accruals and prepayments – Refer to Notes 2, 7 and 8 to the financial statements +Critical Audit Matter Description +As disclosed in Note 2 to the financial statements, the Company records research and development accruals and prepayments for clinical trials based on estimates of the progress to completion of specific research and development tasks using data including information provided by vendors on their actual costs incurred. For certain vendors involved in clinical trials, the actual progress of the research and development activities may significantly differ from timing and value of invoices received and/or payments remitted under the terms of the agreements. Estimates of expenses incurred are further determined through discussions with both internal personnel and vendors as to the status of progress of completion of the specified research and development tasks. Expenses incurred in excess of amounts invoiced are recorded as accruals. Payments made in excess of expenses incurred are recorded as prepayments. +We identified the research and development accruals and prepayments of certain vendors in clinical trials as a critical audit matter because of the significant judgment required by management in estimating the progress of the research and development activities conducted, as the progress is not directly observable. This required a high degree of auditor judgment and an increased extent of effort when performing procedures to audit management's estimates of progress and evaluating the results of those procedures. +How the Critical Audit Matter Was Addressed in the Audit +Our audit procedures related to the research and development accruals and prepayments included the following, among others: +• +Evaluating the Company’s process, methodology, and significant assumptions made in estimating the value of expenses incurred for which the invoice has not been received and the payments made for which underlying procedures had not been carried out. +F- 2 +• +Testing the completeness and accuracy of the data underlying the measurement and recognition of the accruals and prepayments including sending direct confirmations with the vendors. +• +Inspecting selected research agreements, as well as amendments thereto, to evaluate whether the progress of the clinical trials reflects all relevant contractual elements. +• +Assessing publicly available information, such as press releases and investor presentations, and board’s meeting minutes regarding the status of clinical trial activities and comparing this information to the judgments applied in recording of the accruals and prepayments. +• +Performing retrospective analysis of accruals at the end of the prior period to current year activity for a selection of contracts to assess the accuracy of the Company’s estimation methodology. +• +Performing inquiries with Company personnel outside of the finance department who are responsible for overseeing the activities performed by the Company’s contracted third-party vendors, which include the vendor’s estimate of the progress of a selection of clinical trials. +/s/ Deloitte Accountants B.V . +Eindhoven, The Netherlands +February 26, 2025 +We have served as the Company's auditor since 2020. +F- 3 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of NewAmsterdam Pharma Company N.V. +Opinion on Internal Control over Financial Reporting +We have audited the internal control over financial reporting of NewAmsterdam Pharma Company N.V. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 26, 2025, expressed an unqualified opinion on those financial statements. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Deloitte Accountants B.V. +Eindhoven, The Netherlands +February 26, 2025 +F- 4 +NewAmsterdam Pharma Company N.V. +Consolidated Balance Sheets +As at December 31, +2024 +2023 +(In thousands of USD) +Assets +Current assets: +Cash and cash equivalents +771,743 +340,450 +Prepayments and other receivables +24,272 +6,341 +Employee receivables +4,951 +— +Marketable securities +62,447 +— +Total current assets +863,413 +346,791 +Property, plant and equipment, net +242 +46 +Operating right of use asset +431 +55 +Intangible assets +534 +170 +Long term prepaid expenses +— +35 +Total assets +864,620 +347,097 +Liabilities and Shareholders' Equity +Current liabilities: +Accounts payable +4,744 +16,923 +Accrued expenses and other current liabilities +13,608 +11,398 +Deferred revenue, current +6,008 +8,942 +Lease liability, current +246 +60 +Derivative earnout liability, current +44,798 +— +Derivative warrant liabilities +37,514 +12,574 +Total current liabilities +106,918 +49,897 +Deferred revenue, net of current portion +— +1,019 +Lease liability, net of current portion +202 +— +Derivative earnout liability, net of current portion +— +7,788 +Total liabilities +107,120 +58,704 +Commitments and contingencies (Note 13) +Shareholders' Equity: +Ordinary shares, € 0.12 par value; 400,000,000 shares authorized; 108,064,340 and 82,469,768 shares issued and outstanding at December 31, 2024 and 2023, respectively +13,444 +10,173 +Additional paid-in capital +1,298,160 +590,771 +Accumulated loss +( 558,571 +) +( 316,973 +) +Accumulated other comprehensive income +4,467 +4,422 +Total shareholders' equity +757,500 +288,393 +Total liabilities and shareholders' equity +864,620 +347,097 +See notes to consolidated financial statements. +F- 5 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Operations and Comprehensive Income (Loss) +For the year ended December 31, +2024 +2023 +2022 +(In thousands of USD, except per share amounts) +Revenue +45,563 +14,090 +102,694 +Operating expenses: +Research and development expenses +151,406 +159,424 +86,744 +Selling, general and administrative expenses +70,446 +37,633 +19,507 +Total operating expenses +221,852 +197,057 +106,251 +Operating loss +( 176,289 +) +( 182,967 +) +( 3,557 +) +Other income (expense): +Interest income +16,881 +11,283 +— +Interest expense +— +— +( 287 +) +Fair value change – earnout +( 37,010 +) +( 266 +) +( 707 +) +Fair value change – warrants +( 38,583 +) +( 10,018 +) +( 334 +) +Fair value change – profit rights +— +— +( 12,390 +) +Fair value change – tranche rights +— +— +4,388 +Foreign exchange gains/(losses) +( 6,598 +) +5,058 +( 9,747 +) +Loss before tax +( 241,599 +) +( 176,910 +) +( 22,634 +) +Income tax expense (benefit) +( 1 +) +27 +— +Loss for the year +( 241,598 +) +( 176,937 +) +( 22,634 +) +Other comprehensive income/(loss) +Foreign currency translation adjustments +— +— +11,126 +Unrealized gain on available-for-sale securities +45 +— +— +Income tax effects of other comprehensive income/(loss) +— +— +— +Total comprehensive loss for the year, net of tax +( 241,553 +) +( 176,937 +) +( 11,508 +) +Net loss per ordinary share +Basic and diluted +$ +( 2.56 +) +$ +( 2.15 +) +$ +( 1.19 +) +See notes to consolidated financial statements. +F- 6 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Mezzanine Equity and Shareholders' Equity (Deficit) +Mezzanine Equity +Shareholders' Equity +(In thousands of USD, except share amounts) +Shares +Amount +Shares +Amount +Additional Paid-In Capital +Accumulated Loss +Accumulated other comprehensive income (loss) +Total Shareholders' Equity +Opening balance at January 1, 2022 +6,039,728 +84,541 +5,285,714 +58 +3,417 +( 110,587 +) +( 6,704 +) +( 113,816 +) +Equity contribution (Series A - Tranche II) +5,691,430 +90,468 +— +— +— +— +— +— +Repayment of loan (CEO Restricted Share Award) +— +— +— +— +747 +— +— +747 +Elimination of old shares +(NewAmsterdam Pharma shareholders) +( 11,731,158 +) +( 175,009 +) +( 5,285,714 +) +( 58 +) +( 4,164 +) +— +— +( 4,222 +) +Equity contribution (NewAmsterdam Pharma +shareholders) +— +— +36,258,312 +4,470 +174,761 +— +— +179,231 +Equity contribution (FLAC shareholders) +— +— +13,185,138 +1,625 +66,252 +— +— +67,877 +Equity contribution (PIPE Financing) +— +— +23,460,000 +2,892 +231,708 +— +— +234,600 +Equity contribution (Amgen & MTPC shareholders) +— +— +8,656,330 +1,068 +84,371 +— +— +85,439 +Transaction costs on issue of shares +— +— +— +— +( 5,794 +) +— +— +( 5,794 +) +Earnout obligation upon Closing (NewAmsterdam +Pharma shareholders) +— +— +— +— +— +( 6,815 +) +— +( 6,815 +) +Share-based compensation +— +— +— +— +4,327 +— +— +4,327 +Total profit or loss and comprehensive loss for the year +— +— +— +— +— +( 22,634 +) +11,126 +( 11,508 +) +As at December 31, 2022 +— +— +81,559,780 +10,055 +555,625 +( 140,036 +) +4,422 +430,066 +Exercise of warrants +— +— +749,741 +97 +10,116 +— +— +10,213 +Exercise of stock options +— +— +160,247 +21 +269 +— +— +290 +Share-based compensation +— +— +— +— +24,761 +— +— +24,761 +Total profit or loss and comprehensive loss for the year +— +— +— +— +— +( 176,937 +) +— +( 176,937 +) +As at December 31, 2023 +— +— +82,469,768 +10,173 +590,771 +( 316,973 +) +4,422 +288,393 +February 2024 Issuance of Ordinary Shares and Pre-Funded Warrants, net of issuance costs +— +— +5,871,909 +759 +189,206 +— +— +189,965 +December 2024 Issuance of Ordinary Shares and Pre-Funded Warrants, net of issuance costs +14,667,347 +1,851 +451,564 +— +— +453,415 +Exercise of Pre-Funded Warrants +— +— +2,105,248 +279 +( 279 +) +— +— +- +Exercise of warrants +— +— +1,288,790 +168 +27,673 +— +— +27,841 +Exercise of stock options +— +— +1,661,278 +214 +5,496 +— +— +5,710 +Share-based compensation +— +— +— +— +33,729 +— +— +33,729 +Total loss and comprehensive loss for the period +— +— +— +— +— +( 241,598 +) +45 +( 241,553 +) +As at December 31, 2024 +— +— +108,064,340 +13,444 +1,298,160 +( 558,571 +) +4,467 +757,500 +See notes to consolidated financial statements. +F- 7 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Cash Flows +For the year ended December 31, +2024 +2023 +2022 +(In thousands of USD) +Operating activities: +Loss for the year +( 241,598 +) +( 176,937 +) +( 22,634 +) +Non-cash adjustments to reconcile loss before tax to net cash flows: +Depreciation and amortization +113 +49 +9 +Non-cash rent expense +12 +6 +10 +Fair value change - tranche rights +— +— +( 4,388 +) +Fair value change - IPR&D +— +— +12,390 +Fair value change - derivative earnout and warrants +75,593 +10,284 +1,041 +Foreign exchange (gains)/losses +6,598 +( 5,058 +) +9,747 +Amortization of premium/discount on available-for-sale debt securities +( 227 +) +— +— +Share-based compensation +33,619 +24,572 +4,117 +Changes in working capital: +Changes in prepayments (current and non-current) and other receivables +( 17,459 +) +4,031 +( 4,185 +) +Changes in accounts payable +( 12,948 +) +5,070 +4,809 +Changes in accrued expenses and other current liabilities +1,686 +5,470 +( 8,679 +) +Changes in deferred revenue +( 3,953 +) +( 8,705 +) +18,428 +Net cash (used in)/provided by operating activities +( 158,564 +) +( 141,218 +) +10,665 +Investing activities: +Purchase of property, plant and equipment, including internal use software +( 672 +) +( 24 +) +( 221 +) +Purchase of available-for-sale debt securities +( 62,176 +) +— +— +Net cash used in investing activities +( 62,848 +) +( 24 +) +( 221 +) +Financing activities: +Proceeds from issuing equity securities (Series A) +— +— +90,469 +Proceeds from issuing equity securities (FLAC shareholders) +— +— +71,883 +Proceeds from issuing equity securities (PIPE Financing) +— +— +234,600 +Transaction costs on issue of equity securities +— +— +( 5,794 +) +Proceeds from payment of shareholder loan +— +— +747 +Proceeds from February 2024 offering of Ordinary Shares and Pre-Funded Warrants +190,481 +— +— +Transaction costs on February 2024 issue of Ordinary Shares and Pre-Funded Warrants +( 515 +) +— +— +Proceeds from December 2024 offering of Ordinary Shares and Pre-Funded Warrants +455,026 +— +— +Transaction costs on December 2024 issue of Ordinary Shares and Pre-Funded Warrants +( 25 +) +— +— +Proceeds from exercise of warrants +13,761 +8,622 +— +Proceeds from exercise of options +1,768 +290 +— +Payment of withholding taxes related to net share settlement of exercised options +( 989 +) +— +— +Net cash provided by financing activities +659,507 +8,912 +391,905 +Net change in cash and cash equivalents +438,095 +( 132,330 +) +402,349 +Foreign exchange differences +( 6,802 +) +5,052 +5,248 +Cash and cash equivalents at the beginning of the year +340,450 +467,728 +60,131 +Cash and cash equivalents at the end of the year +771,743 +340,450 +467,728 +Noncash financing and investing activities +Derivative earnout obligation recognized related to the Business Combination (as defined in Note 3) +— +— +6,815 +Liabilities assumed in the Business Combination (as defined in Note 3) +— +— +( 4,006 +) +Contribution of interest in NewAmsterdam Pharma Holding B.V. by Participating Shareholders (as defined in Note 3) +— +— +( 179,231 +) +Issuance of Ordinary Shares to Participating Shareholders (as defined in Note 3) +— +— +179,231 +Recognition of ROU asset +562 +— +— +Supplemental cash flow disclosures +Cash paid for interest +— +— +277 +Cash paid for income taxes +1 +27 +— +See notes to consolidated financial statements +F- 8 +NewAmsterdam Pharma Company N.V. +Notes to Consolidated Financial Statements +Note 1. The Company +NewAmsterdam Pharma Company N.V. (“NewAmsterdam Pharma” or the “Company”) is a late-stage biopharmaceutical company whose mission is to improve patient care in populations with metabolic diseases where currently approved therapies have not been adequate or well-tolerated. The Company was incorporated in the Netherlands as a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the name NewAmsterdam Pharma Company B.V. on June 10, 2022. On November 21, 2022, the Company’s corporate form was converted to a Dutch public limited liability company (naamloze vennootschap) and its name was changed to NewAmsterdam Pharma Company N.V. The Company’s ordinary shares, nominal value € 0.12 per share (the "Ordinary Shares") are listed on the Nasdaq Global Market and trade under the symbol “NAMS.” +In November 2022, the Company conducted an internal reorganization for the purpose of participating in the merger of the acquired company, Frazier Lifesciences Acquisition Corporation (“FLAC”) as described in Note 3. As a result of the internal restructuring and merger, NewAmsterdam Pharma Holding B.V., FLAC and NewAmsterdam Pharma Investment Corporation, a new Cayman-based exempted company, became wholly-owned subsidiaries of the Company. +The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, development by competitors of more advanced or effective therapies, dependence on key executives, protection of and dependence on intellectual property, compliance with government regulations and ability to secure additional capital to fund operations. Significant additional research and development efforts and regulatory approval will be required prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +Going Concern +The Company has incurred net operating losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 558.6 million as of December 31, 2024. As of December 31, 2024 the Company had cash and cash equivalents of $ 771.7 million. Management believes that the existing financial resources are sufficient to continue operating activities for at least the twelve-month period following the issuance of these consolidated financial statements. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Any reference in these notes to the applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board ("FASB"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. +Functional and Reporting Currency +The functional currency of the Company and its subsidiaries has been the United States Dollar (“USD” or “$”) since January 1, 2023. Prior to that the functional currency of the Company and its subsidiaries was the Euro (“EUR” or “€”). Significant elements involved in the determination of the functional currency change included a shift in the Company’s sources of financing from EUR to USD given its access to the U.S. public market and an increase of +F- 9 +operating costs incurred in USD due to Phase 3 trials taking place predominantly in the United States, among other factors. Given these significant changes, management concluded that the majority of the factors supported the determination of the USD as the functional currency. +The reporting currency of the Company is USD. +Consolidation +The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Subsidiaries are all entities over which the Company has a controlling financial interest either through variable interest or through voting interest. Currently, the Company has no involvement with variable interest entities and all subsidiaries are wholly-owned. Intercompany transactions, balances, income, and expenses are eliminated in consolidation. Profits and losses resulting from intercompany transactions that are recognized in assets are also eliminated. +Use of Estimates +The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, assumptions related to the Company’s revenue recognition, accrual of research and development expenses, valuation of stock option awards and valuation of derivative instruments. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate. +Fair Value Measurements +Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP either upon initial recognition or for subsequent accounting and reporting. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• +Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. +• +Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. +• +Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. +If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. +For assets and liabilities that are recognized in the consolidated financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing +F- 10 +categorization (based on the lowest level input that is significant to the fair value measurement as a whole), at the end of each reporting period. +Segment Information +Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results, and plans for levels or components below the consolidated unit level. Accordingly, the Company has one operating segment and, therefore, one reportable segment, which comprises the discovery, development and commercialization of transformative therapies for cardio-metabolic diseases. +Cash and Cash Equivalents +Cash comprises checking and savings deposits. The carrying amount of these assets is approximately equal to their fair value due to their short-term nature. The Company maintains certain deposits which exceed the amounts covered by insurance provided by the government of the country in which the deposits are held. The Company has not experienced any losses related to amounts held in excess of such limits. +The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. +Marketable Securities +Marketable securities consist of investments in U.S. government and U.S. government agency obligations that are classified as available-for-sale. All marketable securities have a maturity of less than one year from the date of purchase. Further, since these securities are highly liquid and available to fund current operations, they are classified as current assets on the consolidated balance sheets. +The Company adjusts the cost of available-for-sale debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion as a component of interest income, net based on the effective interest method. Realized gains and losses and declines in value, if any, that the Company judges to be the result of impairment or as a result of recognizing an allowance for credit losses on available-for-sale securities are reported as a component of interest income, net. To determine whether an impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. During the year ended December 31, 2024 the Company determined it did no t have any securities that were other-than-temporarily impaired. Prior to 2024 the Company held no marketable securities. +Marketable securities are stated at fair value, excluding accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. During the years ended December 31, 2024, 2023 and 2022 , the Company did no t have any realized gains or losses on marketable securities. +Property Plant and Equipment, Net +Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method and is recorded in Selling, general, and administrative expense over the estimated useful lives of the assets. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon disposal of an asset, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss on the transaction is recognized. +The estimated useful lives of property and equipment are as follows: +F- 11 +Estimated Useful Life (in years) +Computer equipment +5 +Office furniture and equipment +5 +Impairment of Long-Lived Assets +The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the assets from the expected future cash flows (undiscounted and without interest expense) of the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss for the difference between the estimated fair value and carrying value is recorded. To date, the Company has not recorded any material impairment losses on long-lived assets. +Leases +In accordance with ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), the Company classifies leases at the lease commencement date. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year will be recognized on the consolidated balance sheets as right-of-use assets (“ROU”), lease liabilities, and if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Lease liabilities and the corresponding ROU are recorded based on the present values of lease payments over the terms. The Company determines the discount rate based on the implicit rate in the contract and if not readily determinable, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to ROUs may be required for items such as initial direct costs paid, incentives received, or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability using revised inputs as of the reassessment date, and adjust the ROU. Lease agreements with a noncancelable term of less than 12 months and no purchase option that the Company is reasonably certain to exercise are not recorded on the Company’s consolidated balance sheet. Costs related to such lease agreements are operating cash flows and recorded in selling, general and administrative expenses. +Derivative Warrants Liability +The Company accounts for the public warrants and private placement warrants in accordance with the guidance contained in ASC 480, Distinguishing Liabilities from Equity ASC 815-40, Derivatives and Hedging—Contracts in Entity's Own Equity , under which the public warrants and private placement warrants do not meet the criteria for equity treatment and must be recorded as liabilities carried at fair value. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as (expense)/income in the consolidated statements of operations and comprehensive loss. The public warrants are valued based on the quoted market price as of each relevant reporting date, which is a Level 1 fair value measurement. The private warrants were initially and subsequently determined to have value equal to the public warrants as the terms of the instruments are substantially equivalent. The valuation of the private warrants is considered to be a Level 2 fair value measurement. +Derivative Earnout Liability +The Company accounts for the Earnout Shares (as defined below) allocated to Participating Shareholders (as defined below) in accordance with the guidance contained in ASC 480, Distinguishing Liabilities from Equity ASC 815-40, Derivatives and Hedging—Contracts in Entity's Own Equity , under which the Earnout Shares allocated to Participating Shareholders do not meet the criteria for equity treatment and must be recorded as liabilities carried at fair value. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in +F- 12 +fair value is recognized as (expense)/income in the consolidated statements of operations and comprehensive loss. The liability is valued utilizing the Black-Scholes model, taking into account the probability of achieving the applicable milestone. The valuation of the Earnout Shares allocated to Participating Shareholders is considered to be a Level 3 fair value measurement. +Tranche Rights +On December 30, 2020, we entered into the Series A Subscription Agreement to issue Series A Preferred Shares for up to an aggregate amount of € 160 million, occurring in two tranches. The first tranche closed in January 2021 (the “First Closing”). The Series A subscription agreement entitled us to cause the investors to subscribe for the second tranche Series A Preferred Shares upon the occurrence of certain clinical development and business development milestones. +As part of the Series A subscription agreement, investors were entitled to participate in the second tranche earlier, if they elect. This tranche right was determined to be a “freestanding financial instrument” as defined in the ASC Master Glossary because the tranche rights were transferable, and they did not need to be transferred with the related Series A shares. Further, upon the exercise of tranche rights, Series A shares held by investors remain outstanding. Management assessed the freestanding financial instrument under ASC 480, Distinguishing Liabilities from Equity , and determined that the tranche rights should be accounted for as a liability at fair value and revalued at each reporting period until settlement, with changes in the fair value recorded in the consolidated statements of operations and comprehensive loss. This determination was made because the tranche rights were exercisable at the investor’s election, and therefore future issuance of Series A shares were a contingent event that was not in the Company’s control. +We issued the second tranche of Series A Preferred Shares in February 2022. This exercise of the tranche rights resulted in cash proceeds to the company, derecognition of the tranche right liability, and Series A Preferred Shares recognized at fair value, with the difference recorded to the consolidated statements of operations and comprehensive loss. +Profit rights - Dezima acquisition +On April 9, 2020, the Company entered into a purchase agreement with Saga Investments Coöperatief U.A., an affiliate of Amgen (“Amgen”) (the “2020 SPA”), to acquire all of the outstanding share capital of Dezima, a company whose principal activity was to develop compounds that treat cardiovascular disease related to dyslipidemia. The principal reason for this acquisition was to secure the intellectual property, licensing and know-how of the patented drug Obicetrapib and the in-process research and development (“IPR&D”). The Company paid consideration of € 1 for the IPR&D asset and could potentially make an additional contingent payment depending on future qualifying exit events, if they occurred. In connection with the 2020 SPA, the Company and Amgen entered into a profit right and waiver agreement with Mitsubishi Tanabe Pharma Corporation (“MTPC”) (the “Profit Right Agreement”) in consideration for the waiver of certain rights held by MTPC prior to the Dezima transaction. +The Company evaluates acquisitions of assets and other similar transactions in accordance with ASC 805, Business Combinations, to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. The acquisition of Dezima was accounted for as an asset acquisition because substantially all of the fair value of the gross assets acquired is concentrated in the IPR&D of Obicetrapib. Additionally, the Company determined that as of the acquisition date, the IPR&D did not have an alternative future use by which the economic benefits could be anticipated and estimated. Therefore, it did not meet the definition of an asset and was expensed as incurred. +The aggregate contingent consideration to be paid to Amgen and MTPC would become payable upon a traditional underwritten public offering or an exit event, as defined in the 2020 SPA. These rights were recognized as a contingent consideration liability. Contingent consideration in an asset acquisition is measured and recognized when payment becomes probable and a reliable estimate can be made. Subsequent changes in the accrued amount of +F- 13 +contingent consideration are measured and recognized at the end of each reporting period and upon settlement as an adjustment to the cost basis of the acquired asset or group of assets. However, as the acquired asset in the Dezima transaction was IPR&D with no alternative future use, any adjustment to the cost is expensed during the period and not capitalized. +The execution of the Menarini License (as defined in Note 4), in combination with the FLAC Merger (as defined in Note 3), qualified as an exit event pursuant to the 2020 SPA. As a result, on the Closing Date (as defined in Note 3), pursuant to the Profit Right Agreement, Amgen and MTPC each received their respective contingent payments in the form of Ordinary Shares. Immediately prior to the closing of the Business Combination, the value of the financial liability was adjusted to equal the fair value of the Ordinary Shares to be issued to Amgen and MPTC at the closing of the Business Combination with the change in fair value recognized through earnings in the consolidated statement of operations and comprehensive loss. Finally, the liability was derecognized with the corresponding offset to equity to record the issuance of the Ordinary Shares to Amgen and MTPC. +Revenue Recognition +The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers , and subsequent amendments (collectively, “ASC 606”). +Under ASC 606, to determine the recognition of revenue, the Company performs the following five steps: +1. +identify the contract(s) with the customer; +2. +identify the performance obligations in the in the contract; +3. +determine the transaction price; +4. +allocate the transaction price to the performance obligations in the contract; and +5. +recognize revenue when (or as) the Company satisfies a performance obligation. +The Company performs an analysis to identify the performance obligations for its license agreement. Where a license agreement comprises several promises, it must be assessed whether these promises are capable of being distinct within the context of the contract. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources, and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. +The Company estimates the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is highly probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. +F- 14 +After the transaction price is determined, it is allocated to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation. +Revenue is recognized when the customer obtains control of the goods and/or services as provided in the license agreement. The control can be transferred over time or at a point in time – which results in the recognition of revenue over time or at a point in time. The Company recognizes revenue over time as the customer simultaneously receive the benefits provided by the Company’s performance, satisfied over time. +Upfront licensing payments are recognized as revenue at the point in time when the Company transfers control of the license only if the license is determined to be a separate performance obligation from other undelivered performance obligations. Contingent development costs and milestone payments are generally included in the transaction price at the amount stipulated in the respective agreement and recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. +The Company will recognize royalty revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) +Research and Development Expense +Research and development costs are recognized as an expense when incurred and are typically made up of clinical and preclinical activities, drug development and manufacturing costs, and include costs for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided by vendors on their actual costs incurred. The determination of the level of services performed by the vendors and the associated expenditure incurred for the services provided is made at each balance sheet date. +Quantification of the research and development expenses incurred during the period requires judgment based on key estimates comprising of non-financial data, because the progress of activities is not directly observable and therefore the precise timing of the research and development activities may not be entirely certain. In estimating progress toward completion of specific tasks, the Company therefore uses non-financial data such as number of patient screenings, patient visits, patient enrollment, clinical site activations and vendor information of actual costs incurred. This data is obtained through reports from outside service providers as to the progress or state of completion of trials or the completion of services and reviewed by Company personnel. +The costs of intangibles that are purchased from others for a particular research and development project and that have no alternative future uses are expensed as research and development costs at the time the costs are incurred or at the time when no alternative future use is identified. +Selling, General and Administrative Expenses +Expenses are recognized on the accrual basis when incurred. +Personnel Expenses +Wages and salaries, social security contributions, payroll taxes, bonuses, and other employee benefits are recognized on the accrual basis in which the employee provides the associated services. +F- 15 +The Company’s pension plans are classified as defined contribution plans, and, accordingly, no pension obligations are recognized in the balance sheet. Costs relating to defined contribution plans are included in the statement of operations and comprehensive loss in the period in which they are incurred, and outstanding contributions are included in trade and other payables. +Share-Based Compensation +The Company accounts for its share-based compensation in accordance with ASC 178 – Compensation – Stock Compensation ("ASC 718") . Share-based compensation is measured based on the grant date fair value of the equity awards using the Black-Scholes option pricing model. Share-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards. Forfeitures and modifications are accounted for as they occur. The Company classifies share-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s salary and related costs are classified. +Net Loss Per Share +Basic net loss per share is calculated by dividing the net loss by the weighted-average number of Ordinary Shares outstanding during the period. For the purposes of calculating the weighted-average number of Ordinary Shares outstanding, the Ordinary Shares underlying the Pre-Funded Warrants issued in the February 2024 Offering and the December 2024 Offering (as defined in Note 9 below) are included. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. +Foreign Currency and Currency Translation +Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. +Prior to January 1, 2023 the functional currency of the Company and its subsidiaries was the Euro. The reporting currency of the Company is USD. The Company translated assets and liabilities in prior periods at the exchange rate +F- 16 +in effect on the balance sheet date. Revenues and expenses are translated at the exchange rate prevailing at the date of the transaction. Unrealized translation gains and losses are recorded as cumulative translation adjustments which are included in the Company’s balance sheet within accumulated other comprehensive income (loss). +Recently Issued Accounting Pronouncements +In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which requires entities to enhance disclosures around segment reporting. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 , with early adoption permitted. The Company adopted and applied the amendments of this ASU to its disclosures. The application of this ASU did no t have a material impact on the Company's financial position, results of operations or cash flows. +In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which requires entities to enhance disclosures around income taxes. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)" which requires entities to enhance disclosures around the nature of expenses included in the income statement. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +Note 3. FLAC Merger +Prior to November 22, 2022, NewAmsterdam Pharma Company N.V. was a shell company with no active trade or business, and all relevant assets and liabilities, as well as income and expenses, were borne by NewAmsterdam Pharma Holding B.V. FLAC was a special purpose acquisition company incorporated on October 7, 2020 as a Cayman Islands exempted company formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or a similar business combination. FLAC completed its initial public offering on December 11, 2020 and listed on the Nasdaq. +On July 25, 2022 , FLAC entered into a Business Combination Agreement (“Business Combination Agreement”) with NewAmsterdam Pharma Holding B.V., the Company, and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company. +On November 22, 2022 (the “Closing Date”), Pursuant to the terms of the Business Combination Agreement, the following transactions occurred (collectively, the “Business Combination”). +• +On the date prior to the Closing Date, the shareholders of NewAmsterdam Pharma Holding B.V. (“Participating Shareholders”) exchanged their interest for Ordinary Shares such that the Company became the direct parent of NewAmsterdam Pharma Holding B.V. (the “Exchange”). In connection with the Exchange, 17,016,872 NewAmsterdam Pharma Holding B.V. shares of € 0.01 par value were exchanged at a ratio of approximately 2.13 for 36,258,312 Ordinary Shares, € 0.12 par value per share. +• +Immediately after giving effect to the Exchange, a subsidiary of the Company merged with and into FLAC (the “Merger”), with FLAC surviving as a wholly owned subsidiary of the Company. +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $ 0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms which resulted in the issuance of 167,000 private placement warrants and 4,600,000 public warrants (collectively, the “Warrants”). +F- 17 +• +Each NewAmsterdam Pharma Holding B.V. option that was outstanding and unexercised remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Holding B.V. options became options to purchase, and will when exercised be settled in Ordinary Shares. +• +In addition to the transactions described above, 8,656,330 Ordinary Shares were issued to Amgen and MTPC pursuant to their profit rights granted upon the acquisition of Dezima. +The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting FLAC was treated as the acquired company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, NewAmsterdam Pharma Holding B.V.'s shareholders had the majority of the voting power of the combined entity, NewAmsterdam Pharma Holding B.V. comprised all of the ongoing operations of the combined entity, NewAmsterdam Pharma Holding B.V.’s shareholders had the ability to appoint a majority of the governing body of the combined entity, and NewAmsterdam Pharma Holding B.V.’s senior management comprised all of the senior management of the combined entity. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Company, immediately following the Exchange, issuing shares for the net assets of FLAC. As of the Closing Date the net assets of FLAC totaled $ 67.9 million which consisted of $ 71.9 million of cash, less liabilities assumed of $ 4.0 million. The Company provided consideration with fair value of $ 130.1 million in the form of Ordinary Shares. The difference between consideration paid and net assets acquired is recorded within additional paid in capital. No goodwill or intangibles were recorded. Operations prior to the Business Combination are those of NewAmsterdam Pharma Holding B.V. +Following the Merger, upon the achievement of a certain clinical development milestone, the Company will issue to the Participating Shareholders, Amgen, MTPC and holders of options to purchase shares of NewAmsterdam Pharma Holding B.V. prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma as of the date of the Business Combination Agreement and who are at the time of achievement of such milestone still providing services to the Company (the “Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders will take the form of awards of restricted stock units. +The Company raised an additional $ 234.6 million in net equity proceeds through a private placement of Ordinary Shares with existing shareholders of NewAmsterdam Pharma Holding B.V., FLAC and other new investors (the “PIPE Financing”). +Both the Merger and PIPE Financing closed as of November 22, 2022. Upon consummation of the transactions, the Company’s Ordinary Shares began trading on the Nasdaq under the ticker NAMS. The Public Warrants are traded under the ticker NAMSW. The Company also amended existing share-based compensation agreements held by employees of NewAmsterdam Pharma Holding B.V. prior to the Merger in addition to making additional share-based payments. +Note 4. Revenue +On June 23, 2022, NewAmsterdam Pharma Holding B.V. entered into a licensing agreement with A. Menarini International Licensing S.A. (“Menarini”) (the “Menarini License”), pursuant to which it granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of its intellectual property and its regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe (the “Licensed Products”), for any use in the majority of European Countries (“Menarini Territory”). +The Company remains responsible for the development and commercialization costs related to Licensed Products, excluding local development, regulatory and commercialization costs incurred by Menarini in the Menarini Territory. In addition, Menarini is expected to purchase the Licensed Products from the Company in accordance with a supply agreement that is to be executed following the execution of the Menarini License and prior to +F- 18 +commercialization. As such, the Company determined that the agreements should not be combined as a single contract pursuant to the guidance prescribed in ASC 606. +The Menarini License includes a non-refundable upfront payment, fixed reimbursements for the Company’s continued development costs, payments based upon the achievement of defined development, regulatory and commercial milestones, sales-based royalties, and certain cost sharing payments made by Menarini to the Company and by the Company to Menarini. +The Company has evaluated the Menarini License based on the requirements of ASC 606 and has concluded the following: +Within the license performance obligation described below, there are various licenses granted under the Menarini License which do not currently represent distinct performance obligations in themselves, as the licenses are highly interrelated and Menarini would likely be unable to derive significant benefits from their access to these licenses on an individual basis. +• +The Company, considering that (i) there are no material restrictions included in the contract which would prevent Menarini to direct the use of, and obtain substantially all of the remaining benefits and (ii) the majority of the Company’s remaining development activities are in late-stage development and are not expected to significantly affect the functionality of the underlying intellectual property, concludes that the license as of the effective date of the contract has standalone value. As such, the Company concluded that the promise in granting the licenses to Menarini is to provide a right to use the Company’s intellectual property as it exists at the point in time at which the license is granted and therefore, revenue accrued and allocated to this performance obligation has been recognized at a point in time. +• +The Company has also identified an additional performance obligation that consists of the research and development activities related to the general development and commercialization costs related to Licensed Products. The Company determined that this performance obligation is satisfied over time as Menarini simultaneously receives and consumes the benefits of the services provided as they are performed. This is based on the fact that Menarini is receiving status of the research periodically which allows it to make informed decisions in its local development activities. The Company further considered that the licenses and the research and development services are not highly interdependent or highly interrelated because the Company is able to fulfill its promise to transfer the licenses regardless of fulfilling its promise to perform the remaining research and development services. The Company also concluded that the licenses are considered distinct as Menarini could benefit from the licenses together with readily available resources other than the Company’s research and development services. The Company utilizes a cost-based input method to measure its progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Menarini. In applying the cost-based input method of revenue recognition, the Company uses actual clinical study enrollment figures as well as actual costs incurred relative to budgeted costs expected to be incurred attributable to the Menarini Territory for the performance obligation. These costs consist primarily of third-party contract costs relative to the level of patient enrollment in the studies. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligation. +As such, two performance obligations for the Menarini License were identified at contract inception, comprising a license to use the Company’s intellectual property (the “license performance obligation”) and a promise to continue the development activities for the licensed compound (the “R&D performance obligation”). +The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the non-refundable, upfront payment of $ 120.9 million that was received by the Company in July 2022. The Company considers this non-refundable fee to be the initial transaction price. +The Company has allocated the transaction price to each performance obligation identified on a relative stand-alone selling price basis. The Company has used a combination of methods to calculate the stand-alone selling prices, using the expected cost plus a margin approach to calculate the standalone selling price of the research and +F- 19 +development services required in the Menarini License and needed to commercialize obicetrapib in the Menarini Territory and the residual approach to calculate the stand-alone selling price for the license based on the fair value of the total promised goods and services in the Menarini License considering that the Company has not yet established a price for licenses, has not historically sold licenses on a stand-alone basis (i.e., the selling price is uncertain), and the amount allocated is consistent with the allocation objective as the Company believes the stated upfront amount is consistent with a risk-adjusted price that a market participant would be willing to pay for the licenses. +In 2022, at contract inception, the Company allocated $ 98.6 million to the license performance obligation which was immediately recognized as revenue in its consolidated statement of operations and comprehensive loss and $ 22.3 million to the R&D performance obligation, which was initially recognized as deferred revenue in the consolidated balance sheet. The revenue related to the R&D performance obligation is recognized over time as costs are incurred in connection with fulfilling the obligation. At each reporting date the Company reviews the total costs incurred to date and the total expected costs necessary to fulfill the R&D performance obligation. Revenue related to the R&D performance obligation is recognized based upon the percentage of total costs expected costs incurred to date based upon the latest information available to management. +The Menarini License also provides for certain milestone payments from Menarini to the Company upon the achievement of specified development, regulatory and commercial milestones linked to the enhanced value of the license performance obligation. More specifically, the Company is eligible to receive up to an additional € 863 million upon the achievement of various clinical, regulatory and commercial milestones, € 30 million of which has been received as of December 31, 2024. These milestones are contingent payments that represent variable consideration that are not initially recognized within the transaction price, due to the scientific uncertainties around the continued development and commercialization of the Licensed Products based on the success of clinical trials. At the end of each reporting period, the Company assessed the probability of significant reversals for any amounts that became likely to be realized prior to recognizing the variable consideration associated with these payments within the transaction price. +In the years ended December 31, 2024, 2023 and 2022 the Company recognized revenues of $ 27.3 million, $ 5.4 million and nil, respectively, related to the achievement of clinical milestones. Revenues related to the achievement of milestones under the Menarini License are attributed to the license performance obligation and are recognized when the milestone is achieved. +Additionally, in partial contribution to our costs of development of the Licensed Products, Menarini may pay us € 27.5 million, payable in two equal annual installments. These development cost contributions are considered to be linked to the R&D performance obligation. Due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials, which is not within the control of the Company, the fixed € 27.5 million is considered constrained at contract inception and is not initially recognized within the transaction price until it becomes highly probable of no significant revenue reversal. +In the year ended December 31, 2024, it was determined that the first installment of the development cost reimbursements was probable to be realized with no significant reversals. As such, the amount of the first installment was added to the transaction price. Based on the percentage of completion of the R&D performance obligation, as described above, $ 11.9 million was recognized as revenue as a cumulative catchup and the remaining $ 2.4 million was recognized as deferred revenue. +The deferred revenue is recognized within current and non-current liabilities based on the expected timing of the associated research and development services. In connection with the Menarini License, the company recognizes as current liabilities the amount for which it expects to perform the associated services within twelve months after the reporting period and the remaining amounts are recognized as non-current liabilities. +Lastly, the Company is entitled to receive tiered royalty payments based on annual aggregate net sales of all Licensed Products in the Menarini Territory, subject to specified reductions upon commercialization. The royalty term begins for each Licensed Product on a country-by-country basis upon the first commercial sale of such product in such country and ends on the later of (i) the expiration of the last-to-expire patent that includes a valid claim, (ii) +F- 20 +the expiration of regulatory exclusivity in such country for such Licensed Product and (iii) a specified number of years after the first commercial sale of such Licensed Product in such country (the term of the agreement). In accordance with ASC 606, the Company recognizes revenue from royalty payments at the later of (i) the occurrence of the subsequent sale; or (ii) the performance obligation to which some or all of the sales-based milestone or royalty payments has been allocated has been satisfied. The Company anticipates recognizing these royalty payments if and when subsequent sales are generated from the Licensed Products. +To date the Menarini License has been the only source of revenue to the Company and all such revenues derive from Italy. +Revenue consisted of the following: +Year ended December 31, +(In thousands of USD) +2024 +2023 +2022 +License revenue attributed from license performance obligation +27,325 +5,385 +98,613 +License revenue attributed from R&D performance obligation +18,238 +8,705 +4,081 +Total revenue +45,563 +14,090 +102,694 +The following table presents changes in the balance of the Company’s deferred revenue: +(In thousands of USD) +2024 +2023 +Beginning balance on January 1 +9,961 +18,666 +Addition of deferred revenue under the Menarini License +2,412 +— +Revenue recognized under the Menarini License during the period +( 6,365 +) +( 8,705 +) +Ending balance on December 31 +6,008 +9,961 +Note 5. Cash, cash equivalents and marketable securities +A summary of cash, cash equivalents and marketable securities held by the Company as of December 31, 2024 and 2023 is as follows: +As at December 31, 2024 +(In thousands of USD) +Amortized Cost +Unrealized gains +Unrealized losses +Fair Value +Cash and cash equivalents: +Cash +733,826 +— +— +733,826 +Money market funds (Level 1) +25,444 +— +— +25,444 +US government agency securities (Level 2) +12,473 +— +— +12,473 +Total cash and cash equivalents +771,743 +— +— +771,743 +Marketable securities +US government securities due within one year (Level 1) +37,711 +34 +— +37,745 +US government agency securities due within one year (Level 2) +24,691 +11 +— +24,702 +Total marketable securities +62,402 +45 +— +62,447 +As at December 31, 2023 +(In thousands of USD) +Amortized Cost +Unrealized gains +Unrealized losses +Fair Value +Cash and cash equivalents: +Cash +340,450 +— +— +340,450 +Total cash and cash equivalents +340,450 +— +— +340,450 +Note 6. Fair Value Measurements +F- 21 +As of December 31, 2024 and 2023, the Company’s financial liabilities recognized at fair value on a recurring basis consisted of the following: +As at December 31, 2024 +(In thousands of USD) +Level 1 +Level 2 +Level 3 +Total +Derivative warrant liability (Public Warrants) +35,134 +— +— +35,134 +Derivative warrant liability (Private Placement Warrants) +— +2,380 +— +2,380 +Derivative earnout liability +— +— +44,798 +44,798 +Total financial liabilities +35,134 +2,380 +44,798 +82,312 +As at December 31, 2023 +(In thousands of USD) +Level 1 +Level 2 +Level 3 +Total +Derivative warrant liability (Public Warrants) +12,051 +— +— +12,051 +Derivative warrant liability (Private Placement Warrants) +— +523 +— +523 +Derivative earnout liability +— +— +7,788 +7,788 +Total financial liabilities +12,051 +523 +7,788 +20,362 +The estimated fair value of the Earnout Shares to Participating Shareholders was determined using Level 3 inputs, other than the Company's share price as a Level 1 input, as no observable market inputs were available. The Earnout Shares allocated to Participating Shareholders have been measured at fair value using a Black-Scholes pricing model. Given the assumed zero dividend rate and the fact that no strike price exists that would have led to any volatility measure relative to the Company's share price, the fair value of the Earnout Shares allocated to Participating Shareholders resulting from the Black-Scholes pricing model is entirely driven by the Company’s closing share price as a Level 1 input and the probability of milestone completion as a Level 3 input. As such, the relevant inputs to the fair value of the derivative earnout liability are as follows: +December 31, 2024 +December 31, 2023 +Share value (USD) +25.70 +11.17 +Probability of milestone completion +100 +% +40 +% +Dividend yield +0 +% +0 +% +Strike price (USD) +0.00 +0.00 +During the year ended December 31, 2024 the Company announced positive topline results from its Phase 3 BROOKLYN and BROADWAY clinical trials. Completion of and positive results from the BROOKLYN and BROADWAY trials are the main components of the milestone which is required in order for the Earnout Shares to be issued, excepting completion of certain study reports. The Company has determined that the completion of the BROOKLYN and BROADWAY clinical trial with both clinical trials meeting their primary endpoints increases the estimated probability of achieving the milestone from 40 % as of December 31, 2023 to 100 % as of December 31, 2024. +The following table presents a reconciliation of the earnout liability measured on a recurring basis using Level 3 inputs as of December 31, 2024 and 2023: +Balance on December 31, 2022 +7,522 +Change in fair value recognized through earnings +266 +Balance on December 31, 2023 +7,788 +Balance on December 31, 2023 +7,788 +Change in fair value recognized through earnings +37,010 +Balance on December 31, 2024 +44,798 +F- 22 +All changes in fair value recognized in the statement of operations are unrealized. There were no sales, purchases, settlements or transfers into or out of Level 3 of the fair value hierarchy related to the earnout liability during the years ended December 31, 2024 and 2023 . +Note 7. Prepayments and Other Receivables +Prepayments and other receivables consisted of the following: +As at December 31, +(In thousands of USD) +2024 +2023 +Prepaid research and development costs +5,704 +2,337 +Other prepaid expenses +2,214 +2,123 +License fee receivable +14,285 +— +Value added tax receivable +321 +1,006 +Other receivables +1,748 +875 +Total prepayments and other receivables +24,272 +6,341 +Note 8. Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +As at December 31, +(in thousands of USD) +2024 +2023 +Accrued research and development materials and services +2,069 +5,945 +Accrued compensation and benefits +8,721 +3,384 +Accrued professional fees and other +2,818 +2,069 +Total accrued expenses and other current liabilities +13,608 +11,398 +Note 9. Shareholders’ Equity +The Company has an authorized share capital of 400,000,000 Ordinary Shares each with a nominal value of € 0.12 . The following summarizes the main rights of holders of Ordinary Shares: +• +each holder of Ordinary Shares is entitled to one vote per share on all matters to be voted on by shareholders generally, including the appointment of our directors; +• +there are no cumulative voting rights; +• +the holders of Ordinary Shares are entitled to dividends and other distributions as may be declared from time to time by us out of funds legally available for that purpose, if any; +• +upon our liquidation and dissolution, the holders of Ordinary Shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities; and +• +the holders of Ordinary Shares have pre-emption rights in case of share issuances or the grant of rights to subscribe for shares, except if such rights are limited or excluded by the corporate body authorized to do so and except in such cases as provided by Dutch law and the Articles of Association +FLAC Merger +On November 21, 2022 in connection with the Exchange, as described in Note 3, all the outstanding share capital of NewAmsterdam Pharma Holding B.V., consisting of 11,731,158 Series A Preferred Shares and 5,285,714 ordinary shares, was exchanged for Ordinary Shares of the Company at a ratio of approximately 2.13 per share. The Series A Preferred Shares were classified in accordance with ASC 480, Distinguishing Liabilities from Equity which required that the shares be classified outside of permanent shareholders’ equity. Accordingly, the Series A Preferred Shares were classified as Mezzanine Equity in the applicable periods. +F- 23 +February 2024 Follow-on Offering +On February 16, 2024, the Company completed an underwritten public offering (the “February 2024 Offering”) of 5,871,909 Ordinary Shares at a public offering price of $ 19.00 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 4,736,841 Ordinary Shares at a public offering price of $ 18.9999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $ 0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 5,871,909 Ordinary Shares issued and sold in the February 2024 Offering, 1,383,750 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the February 2024 Offering were $ 190.0 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. As of December 31, 2024 a total of 2,105,248 of the Pre-Funded Warrants issued in connection with the February 2024 Offering have been exercised, resulting in the issuance of 2,105,248 Ordinary Shares. +December 2024 Follow-on Offering +On December 13, 2024, the Company completed an underwritten public offering (the “December 2024 Offering”) of 14,667,347 Ordinary Shares at a public offering price of $ 24.50 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,882,653 Ordinary Shares at a public offering price of $ 24.4999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $ 0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 14,667,347 Ordinary Shares issued and sold in the December 2024 Offering, 2,550,000 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the December 2024 Offering were $ 453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. As of December 31, 2024 none of the Pre-Funded Warrants issued in connection with the December 2024 Offering have been exercised. +Employee Receivables Due Upon Exercise of Company Options +As of December 31, 2024 the amount reported on the consolidated balance sheet for employee receivables included amounts which were due to the Company for Company Options which had been exercised, but for which the exercise price had not yet been remitted. All such receivables were paid to the Company prior to the issuance of this report. +As of December 31, 2024 and 2023 only Ordinary Shares were outstanding or authorized. +Note 10. Share-Based Compensation +The Company has four Share-based payment plans and one restricted share award in place as at December 31, 2023: +• +The Company’s Long-Term Incentive Plan (the “Plan”); +• +The Company’s Supplementary Long-Term Incentive Plan (the “Supplementary Plan”); +• +The Company’s Rollover Option Plan (the “Rollover Plan,”); +• +The Company’s Inducement Plan (the “Inducement Plan,” together with the Plan, the Supplementary Plan and the Rollover Plan, the “Plans”); and +• +Chief Executive Officer Restricted Share Award. +Long Term Incentive Plans +The Plans are equity-settled, and the Company may grant various forms of equity awards, including the granting of options to purchase Ordinary Shares (“Company Options”) and restricted stock units (“RSUs”), pursuant to the Plans. In total, as of December 31, 2024 a maximum of 22,049,356 Ordinary Shares may be reserved for issuance pursuant to the Plans. The number of Ordinary Shares reserved for grant under the Plan will increase annually on +F- 24 +January 1 of each calendar year by 5 % of the then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +The contractual term is 10 years from grant date for options granted under the Plans. In general, each Company Option granted in 2023 has a four-year vesting period with 25 % vesting after one year and the remaining 75 % vesting in equal monthly installments over the next following three years . +Modification of Options +In 2024, a total of 399,153 Company Options granted to one employee were modified. For 210,655 of the modified Company Options the vesting period was shortened, of which 200,655 such modified Company Options also had the exercise period extended. For the other 188,498 modified Company Options only the exercise period was extended. The total fair value of the 210,655 modified Company Options for which the vesting period was shortened is equal to $ 1.2 million. Any expense previously recognized for such Company Options was reversed on the modification date and the full fair value of the modified Company Options was recognized over the new applicable service period. For the 188,498 modified Company Options for which only the exercise period was extended the total fair value of the modification is equal to $ 0.1 million, all of which is recognized on the modification date. +In 2023, the vesting period was shortened for 490,067 Company Options granted to an employee in relation with the signing of an employment separation agreement. At the modification date, 255,243 Company Options were expected to vest both under the original and the modified vesting conditions. For these Company Options, the modification did not result in any incremental compensation cost. For the 234,824 Company Options that were not probable to vest as of the modification date based on the original terms, the incremental fair value granted is equal to the fair value of the modified award of $ 12.19 (i.e., the value of the modified award, as determined on the modification date, compared to its prior zero value). In 2023, the total incremental fair value of $ 2.9 million has been fully recognized over the remaining modified requisite service period. +The changes for the year ended December 31, 2024 in the number of Company Options outstanding related to Ordinary Shares and their related weighted average exercise prices are as follows: +Number of options +Weighted average exercise price +Weighted average remaining contractual term +(in years) +Aggregate intrinsic value +(in thousands of USD) +Outstanding as at December 31, 2023 +15,783,509 +$ +7.98 +Granted +5,275,448 +$ +14.28 +Exercised +( 1,755,220 +) +$ +3.93 +Forfeited +( 274,681 +) +$ +10.68 +Outstanding as at December 31, 2024 +19,029,056 +$ +10.04 +8.2 +297,977 +Options exercisable as at December 31, 2024 +7,884,500 +$ +7.14 +7.5 +146,330 +The weighted average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $ 6.70 , $ 4.70 and $ 4.32 per option for options granted during the years ended December 31, 2024, 2023 and 2022, respectively. The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the years ended December 31, 2024 and 2023 was $ 27.2 million and $ 1.7 million, respectively. No stock options were exercised in 2022. Weighted average assumptions used to apply this pricing model were as follows: +Year ended December 31, +2024 +2023 +2022 +Expected life (years) +6.1 +6.1 +6.0 +Risk-free rate +3.9 +% +4.1 +% +3.9 +% +Volatility +41.8 +% +38.1 +% +38.8 +% +Dividend yield +0.0 +% +0.0 +% +0.0 +% +F- 25 +Expected Term +The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company utilizes this method due to lack of historical exercise data and the plain-vanilla nature of the Company’s stock-based awards. +Expected Volatility +Since the Company was privately held through November 2022, it alone does not have sufficient relevant company-specific historical data to support its expected volatility alone. In prior periods, due to the insufficiency of historical volatility data on the Company’s own securities, the expected volatility input was determined using comparable companies alone. Beginning on January 1, 2024 expected volatility input was determined using a weighted average calculation considering the volatility of the Company’s own securities and the volatilities of a representative group of publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. Initially, the volatility of the Company’s Ordinary Shares is assigned a weighting of 10 %. This weighting will be increased by 5 % per calendar quarter (i.e. to 15 % in Q2 2024, 20 % in Q3 2024 and 25 % in Q4 2024), until the expected volatility input is based entirely on the historical volatility of the Company’s Ordinary Shares. For purposes of identifying comparable companies, the Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. +Risk-Free Interest Rate +The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant, with a term that approximates the expected life of the option. +Expected Dividend +The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its ordinary shares. +Restricted Stock Units (“RSUs”) +As at December 31, 2024 and 2023 the Company had allocated 143,002 and 143,002 Earnout Shares, respectively, to be granted to Participating Optionholders if and when a certain clinical development milestone is achieved during the earnout period. These Earnout Shares will be delivered in the form of awards of RSUs (the "Earnout RSUs") granted pursuant to the Plan to such Participating Optionholders who are, at the time of achievement of such milestone, still providing services to the Company. +The development milestone consists of the achievement and public announcement of Positive Phase 3 Data for each of the Company’s BROADWAY clinical trial and BROOKLYN clinical trial at any time during the period beginning on November 22, 2022 and ending on the date that is five years after such date. +Prior to 2024 no expense was recognized in relation to the Earnout RSUs as the milestone was not deemed probable to occur. During 2024 the probability of the milestone completion was reassessed and the milestone was deemed probable to occur. Therefore, the Company began to recognize expense in relation to the Earnout RSUs in accordance with ASC 718. +The following summarizes the share-based payment expensed recognized by type of award and line-item: +F- 26 +Year ended December 31, +(in thousands of USD) +2024 +2023 +2022 +Share-based compensation expense by type of award +Share options +32,363 +24,572 +4,178 +Restricted stock units +1,256 +— +— +Total share-based compensation expense +33,619 +24,572 +4,178 +Share-based compensation expense by line-item +Research and development expenses +13,306 +14,521 +2,408 +Selling, general and administrative expenses +20,313 +10,051 +1,770 +Total share-based compensation expense +33,619 +24,572 +4,178 +As of December 31, 2024, there was $ 27.1 million and $ 0.2 million of unrecognized compensation cost related to Company Options and Earnout RSUs that have not yet vested, respectively. These costs are expected to be recognized over a weighted average remaining vesting period of 2.9 years and 0.3 years for the Company Options and the Earnout RSUs, respectively. +Chief Executive Officer Restricted Share Award +In July 2021, our chief executive officer, Michael Davidson, M.D., paid the fair market value of the underlying ordinary shares (in aggregate $ 838,806 ) when he made an investment in restricted shares issued through Depositary Receipts. The total fair value of these equity-settled share-based payment awards amounts to nil and there will be no expenses recognized in the income statement. This award had a four year vesting period with 25 % vesting on August 1, 2021 and the remaining 75 % vesting in equal monthly installments over the following three years . +In connection with the award arrangement, if Dr. Davidson leaves the Company, all unvested Ordinary Shares will be cancelled against payment by the Company to him of the lower of the (i) the purchase price paid and (ii) the fair market value of such Ordinary Shares at the time of forfeiture. In order to reflect the consideration paid and the possibility that the Ordinary Shares would be repurchased if Dr. Davidson becomes a "Good Leaver" (as such term is defined in the award agreement) during the vesting period, the Company has recognized the consideration as a financial liability until the award has fully vested, at which time it will be reclassified to equity provided that Dr. Davidson remains with the Company. This liability is measured at the lower of (i) the purchase price paid and (ii) the fair market value of the Ordinary Shares at the end of the reporting period. The liability for unvested Ordinary Shares as at December 31, 2024 and 2023 amounted to nil and $ 0.1 million, respectively. +For the year ended December 31, 2024, the movements in the number of Ordinary Shares outstanding are as follows: +Outstanding as at December 31, 2023 +608,779 +Granted/purchased during the year +— +Outstanding as at December 31, 2024 +608,779 +As of December 31, 2024 and 2023, a total of 608,779 and 519,999 Ordinary Shares had vested, respectively. +Note 11. Segment Information +The Company has one operating segment and, therefore, one reportable segment, which comprises the discovery, development and commercialization of transformative therapies for cardio-metabolic diseases. +To date the Menarini License has been the only source of revenue to the Company and all such revenues derive from Italy. The nature of the revenues are described in detail in Note 4 - Revenue. +The chief operating decision maker assesses performance and decides how to allocate resources based on consolidated net loss and earnings/(loss) before tax, adjusted for certain non-cash and non-operating items such as share-based compensation, change in fair value of derivatives and foreign currency gains or losses. Adjusted +F- 27 +earnings/(loss) before taxes is used to monitor budget versus actuals and evaluate the operations of the Company. The measure of segment assets is reported on the balance sheet as total consolidated assets. The future prospects of the Company are highly dependent upon the results of its ongoing clinical trials and interactions with regulatory agencies. Such results and interactions are utilized together with assessment of the comparison of budget versus actuals in order to make decisions regarding the allocation of resources. +The following table presents the adjusted earnings/(loss) before taxes for the Company's single segment for each of the years ended December 31, 2024, 2023 and 2022: +Year ended December 31, +(In thousands of USD) +2024 +2023 +2022 +Revenue +45,563 +14,090 +102,694 +Interest income +16,881 +11,283 +— +Less: +Personnel expense +33,391 +14,475 +7,067 +External R&D expense +108,012 +109,820 +64,474 +Manufacturing expense +17,188 +27,430 +15,852 +Regulatory expense +2,186 +1,297 +878 +Commercial programs +12,719 +3,025 +134 +General and administrative expense +14,438 +16,323 +13,594 +Depreciation and amortization +299 +115 +74 +Interest expense +— +— +287 +Segment adjusted loss before tax +( 125,789 +) +( 147,112 +) +334 +Reconciliation to consolidated net loss +Share-based compensation expense +( 33,619 +) +( 24,572 +) +( 4,178 +) +Change in fair value - derivatives +( 75,593 +) +( 10,284 +) +( 9,043 +) +Foreign exchange gains/(losses) +( 6,598 +) +5,058 +( 9,747 +) +Income tax expense (benefit) +1 +( 27 +) +— +Consolidated net loss for the period +( 241,598 +) +( 176,937 +) +( 22,634 +) +Note 12. Income Taxes +The Company’s breakdown of its income before provision for income taxes for the years ended December 31, 2024, 2023 and 2022 is as follows: +Year ended December 31, +(In thousands of USD) +2024 +2023 +2022 +U.S. +( 101,367 +) +( 107,555 +) +( 604 +) +Netherlands +( 140,232 +) +( 69,355 +) +( 22,030 +) +Total +( 241,599 +) +( 176,910 +) +( 22,634 +) +The components of our provision for income taxes for the years ended December 31, 2024, 2023 and 2022, are as follows: +F- 28 +Year ended December 31, +(In thousands of USD) +2024 +2023 +2022 +Current: +State +— +— +— +Federal +( 1 +) +27 +— +Total current +( 1 +) +27 +— +Deferred: +State +— +— +— +Federal +— +— +— +Total deferred +— +— +— +Provision for income taxes +( 1 +) +27 +— +A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: +Year ended December 31, +2024 +2023 +2022 +Income tax at the federal statutory rate +25.80 +% +25.80 +% +25.80 +% +Foreign rate differential +( 2.01 +%) +( 2.94 +%) +( 0.13 +%) +State taxes, net of federal benefit +1.30 +% +0.71 +% +( 0.03 +%) +FDII deduction +— +— +0.24 +% +Warrants +— +( 1.50 +%) +( 1.19 +%) +162(m) Executive Compensation +( 0.43 +%) +— +— +Tax credits +0.78 +% +5.31 +% +0.73 +% +Transaction costs +— +— +24.59 +% +Share listing expense +— +— +6.96 +% +Change in valuation allowance +( 25.44 +%) +( 27.40 +%) +( 57.30 +%) +Other +— +— +0.33 +% +Effective tax rate +0.00 +% +( 0.02 +%) +0.00 +% +Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows as of December 31, 2024 and 2023: +Year ended December 31, +(In thousands of USD) +2024 +2023 +Deferred tax assets: +Amortization and depreciation +25,426 +21,176 +Accruals +135 +509 +Net operating loss carryforwards +133,595 +75,686 +Lease liability +109 +13 +IPR&D +22,884 +22,884 +Tax credit, federal +1,904 +6,904 +Tax credit, Massachusetts +685 +2,685 +Gross deferred tax assets +184,738 +129,857 +Valuation allowance +( 184,633 +) +( 129,845 +) +Deferred tax assets net of valuation allowance +105 +12 +Deferred tax liabilities: +Right-of-use-asset +( 105 +) +( 12 +) +Net deferred tax assets +— +— +Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future +F- 29 +growth. On the basis of this evaluation, as at December 31, 2024, December 31, 2023 and December 31, 2022, a full valuation allowance has been recorded against our net deferred tax asset. As of December 31, 2024, and December 31, 2023 , the Company had a valuation allowance of $ 184.6 million and $ 129.8 million, respectively, representing an increase of $54.8 million. The valuation allowance is recorded on the balance sheet. A valuation allowance is a non-cash charge, and does not limit the Company’s ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. +As of December 31, 2024 , we had net operating loss carryforwards for Netherlands fiscal unity, US, and state income tax purposes of $ 420.3 million, $ 111.1 million, and $ 39.2 million, respectively. We also have federal research and development tax credit carryforwards of approximately $ 1.9 million that expire beginning in 2043 and state research and development tax credit carryforwards of approximately $ 0.7 million which can be carried forward indefinitely. +The future utilization of net operating loss and tax credit carryforwards and credits may be subject to an annual limitation, due to Dutch and US tax law and as a result of ownership changes that may have occurred previously or that could occur in the future. Due to the existence of the valuation allowance, limitations will not impact our effective tax rate. +We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. As of December 31, 2024 we have no t identified any unrecognized tax benefits that should be recorded. +We have elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2024, 2023 and 2022 , we did no t recognize accrued interest and penalties related to unrecognized tax benefits. Although the timing and outcome of an income tax audit is highly uncertain, we do not anticipate that the amount of existing unrecognized tax benefits will significantly change during the next 12 months. +With an effective date of November 21, 2022, NewAmsterdam Pharma Company N.V. formed a fiscal unity with NewAmsterdam Pharma Holding B.V. and NewAmsterdam Pharma B.V. for corporate income tax purposes. A company and its subsidiaries that are part of the fiscal unity are jointly and severally liable for the tax payable by the fiscal unity. +We are subject to taxation in the United States, the Netherlands and various state jurisdictions. As of December 31, 2024 , the tax years for 2021, 2022, and 2023 are subject to examination by the tax authorities in the United States and the tax year for 2023 is subject to examination by the tax authorities in the Netherlands. Due to our net operating loss and tax credit carryforwards, the income tax returns remain open to U.S. federal and state tax examinations. The Company is not currently under examination in any tax jurisdiction. +Note 13. Net Loss per Ordinary Share +As discussed in Note 3, in connection with the Business Combination the Participating Shareholders exchanged their interest in the outstanding shares of NewAmsterdam Pharma Holding B.V. for shares in the Company at a ratio of approximately 2.13 . In order to present net loss per ordinary share on a comparable basis across all periods, the number of ordinary shares outstanding prior to the Business Combination have been adjusted for the exchange ratio of approximately 2.13 for the purposes of calculating the number of weighted average shares outstanding. +Basic and diluted net loss per ordinary share was calculated as follows: +F- 30 +Year ended December 31, +(In thousands of USD, except share and per share amounts) +2024 +2023 +2022 +Net loss +( 241,598 +) +( 176,937 +) +( 22,634 +) +Weighted average ordinary shares outstanding, basic and diluted +94,358,067 +82,161,956 +18,966,235 +Net loss per ordinary share, basic and diluted +( 2.56 +) +( 2.15 +) +( 1.19 +) +The following potentially dilutive securities have been excluded from the computation of diluted weighted-average ordinary shares outstanding as they would be anti-dilutive: +Year ended December 31, +2024 +2023 +2022 +Stock options +19,029,056 +15,783,509 +11,146,861 +Restricted Stock Units +143,002 +— +— +Outstanding warrants +2,632,581 +4,017,221 +4,767,000 +Total +21,804,639 +19,800,730 +15,913,861 +Note 14. Benefit Plans +The Company sponsors a 401(k) retirement plan for its U.S. employees (the "US Plan") and a defined contribution pension plan for its employees in the Netherlands (the "NL Plan"). The US Plan allows eligible employees to voluntarily defer a portion of their annual compensation on a pre-tax basis, subject to the maximum annual amounts as set periodically by the IRS. The Company makes matching contributions of 100 % of the first 3 % of employee contributions and 50 % of the next 2 % of employee contributions. The NL Plan provides for a monthly, pre-tax contribution by the Company of 15 % of an employee's gross income, subject to statutory maximums. The Company made matching contributions of $ 0.5 million, $ 0.1 million and $ 0.1 million for the years ended December 31, 2024, 2023 and 2022 , respectively. Company contributions vest immediately for each participant. +Note 15. Commitments and Contingencies +Commitments +The Company has entered into a variety of agreements financial commitments in the normal course of business with contract research organizations, contract manufacturing organizations, and other third parties for preclinical and clinical development and manufacturing services. The terms generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. However, some of our service providers also charge cancellation fees upon cancellation. The amount and timing of such payments are not known, but at December 31, 2024 they are estimated to be a maximum of $ 14.2 million. +According to the terms of the Menarini License the Company will be responsible for development and commercialization costs related to Licensed Products other than those in the Menarini Territory. In addition, under specified conditions of the agreement, we agreed to bear 50 % of certain development costs incurred by the other party in the development of the Licensed Products in the Menarini Territory. +Note 16. Related Parties +In the ordinary course of business, the Company may enter into transactions with entities that are associated with a party that meets the criteria of a related party of the Company. These transactions are reviewed quarterly and to date have not been material to the Company’s consolidated financial statements. +Note 17. Subsequent Events +None. +F- 31 \ No newline at end of file diff --git a/raw/filings/0001936258/2024/0000950170-25-027339/filing_metadata.csv b/raw/filings/0001936258/2024/0000950170-25-027339/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..40502024adc8736e0d55930ec6058d921a3da76f --- /dev/null +++ b/raw/filings/0001936258/2024/0000950170-25-027339/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001936258,NAMSW,NewAmsterdam Pharma Co N.V.,2024,10-K,2025-02-26,2024-12-31,2025-02-26T13:00:31.000Z,0000950170-25-027339,nams-20241231.htm,10-K,18124540,1,1,https://www.sec.gov/Archives/edgar/data/1936258/000095017025027339/nams-20241231.htm,https://www.sec.gov/Archives/edgar/data/1936258/000095017025027339/ diff --git a/raw/filings/0001936258/2024/0000950170-25-027339/item1.txt b/raw/filings/0001936258/2024/0000950170-25-027339/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..d381cfb01cc9559673948eb7cc74616dd8b31ee1 --- /dev/null +++ b/raw/filings/0001936258/2024/0000950170-25-027339/item1.txt @@ -0,0 +1,581 @@ +Item 1. Business +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient low-density lipoprotein cholesterol (“LDL-C”) lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective cholesterol ester transfer protein (“CETP”) inhibitor, alone or as a fixed-dose combination with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of cardiovascular disease (“CVD”) with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. In addition to LDL-C, obicetrapib has shown significant reductions in lipoprotein(a) ("Lp(a)") and small LDL particles, all with safety comparable to placebo. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering with side effects similar in frequency and severity to placebo including muscle-related side effects and drug-related treatment-emergent serious adverse events (“TESAEs”). We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with low or moderately elevated LDL-C levels (“dyslipidemia”) in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with major adverse cardiovascular events (“MACE”) benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial, we observed a 21% reduction in the exploratory MACE endpoint (coronary heart disease death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization) and we are performing a Phase 3 cardiovascular outcomes trial (“CVOT”), PREVAIL, to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, apolipoprotein B (“ApoB”), and small dense lipoprotein particles (“sdLDL-P”). In our clinical trials, we have also observed reductions in Lp(a), which is believed to be an independent MACE risk factor, along with reductions in total lipoprotein (“LDL”) particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. Atherosclerotic cardiovascular disease (“ASCVD”) is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and heterozygous familial hypercholesterolemia (“HeFH”) outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and a fixed-dose combination therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe, in the majority of European countries, if approved. Subject to receipt of marketing approval, our current plan is to pursue development and commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and the European Union (the “EU”), including in Japan and China. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also continually evaluating the potential acquisition or license of new product candidates. +7 +The following table summarizes our current clinical programs: +* Other than as noted, the pipeline represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. The timing of regulatory submissions is subject to additional discussions with regulators. +We conducted two Phase 3 pivotal clinical trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and or HeFH. We announced topline results for BROOKLYN in July 2024 and for BROADWAY in December 2024, both of which met the primary endpoint for the study with safety and tolerability comparable to placebo. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We currently expect to report additional data from each study over the course of 2025. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization in at least 9,000 patients. We completed enrollment in PREVAIL in April 2024 and expect to complete the study by the end of 2026. +We are also investigating obicetrapib as a fixed-dose combination with ezetimibe, an oral cholesterol absorption inhibitor and LDL-C lowering therapy, and plan to seek approval for this fixed-dose combination in parallel with obicetrapib monotherapy. In our Phase 3 TANDEM trial, we evaluated the efficacy and safety of 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents. In November 2024, we reported data from the Phase 3 TANDEM trial, which met its primary and secondary endpoints, with safety and tolerability comparable to placebo. +Our goal is to submit a New Drug Application (“NDA”) for the fixed-dose combination shortly after submitting an NDA for obicetrapib as a monotherapy. We expect that efficacy and safety data from BROADWAY and BROOKLYN will be described in the fixed-dose combination product label, if approved. +We plan to seek approval of obicetrapib in the United States, the EU, Japan, China and the United Kingdom. We conducted multiple Phase 3 trials simultaneously, with clinical plans that incorporate feedback from the FDA, the EMA, the Japan Pharmaceuticals and Medical Devices Agency (“PMDA”) and the China National Medical Products Administration (“NMPA”). +We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease or diabetes. Evidence suggests that cholesterol accumulation in the brain is a precursor to Alzheimer’s disease. For example, rodents lack the CETP gene and are resistant to Alzheimer’s disease. In early preclinical studies, when the human CETP gene is knocked into a mouse, the cholesterol content of the mouse brain was observed to increase by 25%; when combined with the gene for the amyloid precursor protein, hypothesized to be a driver of Alzheimer’s disease, the risk of developing disease analogous to Alzheimer’s disease was observed to greatly increase in the double transgenic mice. In a preclinical study, we observed that CETP inhibition promoted cholesterol removal from the brain and improved cognition. We commenced a Phase 2a open-label and single-arm trial in early 2022 in patients with early Alzheimer’s disease and the apolipoprotein E4 (“ApoE4”) naturally occurring variant to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the cerebrospinal fluid (“CSF”) compared to baseline. In addition, an increase of 8% compared to baseline in the +8 +Aβ42/40 ratio in patients’ plasma was observed and pTau181 levels were observed to be stable. Overall, obicetrapib was observed to be well-tolerated. No serious adverse events (“AEs”) were reported, nor were any AEs considered to be related to the trial drug. +Clinically demonstrated anti-diabetic benefits have been observed with CETP inhibition in Phase 3 CVOTs that, if seen in obicetrapib, would differentiate it from current treatment alternatives, especially statin therapy. We are planning preclinical studies to examine the potential of obicetrapib for patients suffering from diabetes and have included new onset of type 2 diabetes as an endpoint in our PREVAIL CVOT, as measured by AEs indicating Type 2 diabetes, initiation of anti-diabetes medication after confirmed diabetes diagnosis or high levels of hemoglobin A1c and fasting plasma glucose. In the Phase 3 BROADWAY trial, we observed a statistically significant improvement in these prespecified AEs of special interest after one year of treatment that we hope to reconfirm in the PREVAIL CVOT trial. +Our Management Team and Investors +We are led by a world-class team of industry veterans, including some of the world’s preeminent cardiometabolic experts. Dr. Michael Davidson, our Chief Executive Officer and a member of our board of directors (the “Board of Directors”), is a leading expert in the field of lipidology and is a seasoned executive who served as founder and Chief Executive Officer of Corvidia Therapeutics, Inc. and founder and Chief Medical Officer of Omthera Pharmaceuticals, Inc. In addition, Dr. Davidson is board-certified in internal medicine, cardiology and clinical lipidology and has extensive experience designing, managing and evaluating clinical research. Dr. John Kastelein, our founder and Chief Scientific Officer and a member of the Board of Directors, is Emeritus Professor of Medicine at the Department of Vascular Medicine at the Academic Medical Center of the University of Amsterdam. Dr. Kastelein was a co-founder of uniQure N.V. and Xenon Pharmaceuticals Inc. His clinical research on the development of novel therapies for CVD and the genetic basis of dyslipidemia is widely published, and he serves as the Chief Executive Officer of the Vascular Research Network, a site maintenance organization comprising dozens of hospitals in the Netherlands that are involved in clinical trials for cardiometabolic disease. Douglas Kling, our Chief Operating Officer, is an expert in the development of drugs to treat dyslipidemia and CVD, and has managed clinical operations at both Corvidia Therapeutics, Inc. and Omthera Pharmaceuticals, Inc. Ian Somaiya, our Chief Financial Officer, has nearly three decades of experience in senior leadership roles in the biopharmaceutical industry. Mr. Somaiya, our Chief Financial Officer, most recently served as CFO and Chief Business Officer of Elucida Oncology and, before that, as CFO of TCR 2 Therapeutics, where he guided the company through its initial public offering and two subsequent follow-on offerings, as well as led the company’s finance, reporting, business development and investor relations functions. Prior to joining TCR 2 Therapeutics, Mr. Somaiya was a managing director and head of biotechnology research at BMO Capital Markets. He also served as a Managing Director and equity analyst at Nomura Securities, Piper Jaffray and Thomas Weisel Partners. BJ Jones, our Chief Commercial Officer, has three decades of commercial and launch experience in both large pharmaceutical and small biotech companies. Most recently, he served as CCO, Migraine & Common Diseases at Biohaven Pharmaceuticals, and led the commercial enterprise that launched Biohaven’s Nurtec® ODT. Earlier in his career, Mr. Jones held leadership roles of increasing responsibility at Takeda Pharmaceuticals, AstraZeneca, Bristol-Myers Squibb, Boehringer Ingelheim and NitroMed, during which time he supported mass market product launches for notable brands including Excedrin Migraine®, Farxiga®, Pradaxa®, BiDil®, and Abilify®. +In addition, we are backed by leading life sciences investors, including Frazier Life Sciences, Bain Capital, Forbion, RA Capital and Viking Global. Prospective investors should not rely on the past investment decisions of our investors, as our investors may have different risk tolerances and may have received their securities in prior offerings at a significant discount to the market price. +Cardiovascular Disease and Hyperlipidemia +Market Overview and Unmet Medical Need +According to the World Health Organization, CVD is a leading cause of death globally and was responsible for approximately 19 million deaths, or approximately 32% of all global deaths, in 2020. Hyperlipidemia, more commonly known as high cholesterol, has been observed to nearly double the risk of developing CVD compared to those with normal total cholesterol levels. D espite the availability of lipid lowering therapies, CVD events are on the rise. This increase despite aggressive secondary prevention efforts speaks to the concept known as “residual cardiovascular risk,” defined as the risk of CVD events that persists despite treatment for, or achievement of targets for risk factors such as LDL-C. +LDL-C is the primary cause of ASCVD, and the target of many interventions aimed at reducing risk of cardiovascular events. An LDL-centric approach to risk reduction, namely with lipid lowering therapies, including statins, serves as the foundation for reducing residual cardiovascular risk. Data from a number of cardiovascular outcomes trials suggests that LDL-C is one of the most modifiable risk factors of ASCVD. Currently available strategies for LDL-C-lowering include lifestyle interventions and drug therapies including oral statins, ezetimibe, bempedoic acid, and injectable PCSK9 inhibitor therapies. +Lowering LDL-C has been observed to reduce morbidity and mortality in those with, or at risk of, CVD. The Cholesterol Treatment Trialists Collaboration (“CTT”) showed that lowering of LDL cholesterol by about 40 mg/dL with standard statin regimens safely reduced the 5-year incidence of major coronary events, revascularizations, and ischemic strokes by 22% . They also noted that a more pronounced absolute reduction of LDL-C may lead to substantially greater relative reduction in cardiovascular events. Furthermore, as seen in the Heart Protection +9 +Study and the CTT collaboration, benefit was seen in each tertile of baseline LDL-C. Similar relationships have also been documented in non-statin CVOTs for ezetimibe, two PCSK9 inhibitors, evolocumab and alirocumab, and the CETP inhibitor, anacetrapib. These trials have provided evidence that absolute LDL-C reduction and duration of therapy form a consistent model for predicting improved outcomes in patients with established ASCVD. +Despite the availability of current lipid lowering therapies, many patients are unable to achieve their risk-based LDL-C goals. In the United States, we estimate that approximately 30 million patients remain above their risk-based LDL-C goal despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Additionally, we estimate that approximately 10 million patients diagnosed with hypercholesterolemia are receiving no therapy at all. +Patients unable to achieve treatment goals with maximally tolerated statin therapy require additional lipid-lowering therapy. Cholesterol absorption inhibitors, ezetimibe, bempedoic acid or PCSK9 inhibitors are all prescribed as alternatives or adjuncts to statins. However, there are several limitations with these lines of therapy, such as limited efficacy, route of administration, market access hurdles and side effects. Because PCSK9 inhibitors are injectable, they pose a less attractive option for patients who broadly prefer oral medications, and they have not received the expected utilization by clinicians or patients. The two non-statin oral LDL-C-lowering therapies, ezetimibe and bempedoic acid, often do not provide the efficacy required for many patients, including high-risk ASCVD patients, that have more aggressive LDL-C goals, and bempedoic acid has label warnings of hyperuricemia and tendon rupture. Therefore, there remains a significant unmet medical need for therapies to reduce LDL-C levels and residual cardiovascular risk in a convenient dosage form, and with a more favorable tolerability and safety profile to encourage long-term use and patient compliance. We believe that a potent, convenient, safe and well-tolerated low-dose oral medication to reduce LDL-C could fulfill this unmet need. +Our Solution: Enhanced LDL-C Lowering Through CETP Inhibition with Obicetrapib +We believe that CETP inhibition with obicetrapib has the potential, if approved, to provide patients and physicians with a new oral therapy option to robustly reduce LDL-C. Obicetrapib is designed to be a next-generation, oral, low-dose, highly selective CETP inhibitor with powerful LDL-C lowering capability. We are developing obicetrapib as both a monotherapy and a fixed-dose combination therapy with ezetimibe and have structured our obicetrapib program to overcome the safety, potency, trial design and commercial viability limitations of prior CETP inhibitors. Further, we believe that obicetrapib’s oral delivery, demonstrated activity in low doses, chemical properties and potential tolerability make it well-suited for combination approaches. +Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable properties as a drug candidate compared to prior CETP inhibitors. We have observed a favorable tolerability profile for obicetrapib in an aggregate of over 3,500 patients with dyslipidemia from Phase 1 through Phase 3 clinical trials. We conducted two Phase 3 pivotal trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We completed enrollment for BROADWAY in July 2023 and for BROOKLYN in April 2023. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We reported top-line data from BROOKLYN in July 2024 and from BROADWAY in December 2024, and currently expect to report additional data from each study over the course of 2025. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial +10 +infarction, non-fatal stroke and non-elective coronary revascularization. We completed enrollment in PREVAIL in April 2024 and expect to complete the trial by the end of 2026. +We also continue investigating obicetrapib as a fixed-dose combination with ezetimibe following the announcement of data from our Phase 3 TANDEM trial. In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and announced topline data in November 2024. +We believe that obicetrapib has the potential to significantly impact the existing treatment paradigm for patients with ASCVD and/or HeFH and elevated levels of LDL-C, and that the key differentiating attributes of our product candidate include the following: +• +Enhanced LDL-C reduction capability. We believe that obicetrapib’s physical, pharmacokinetic and biopharmaceutical properties position it to potentially demonstrate more favorable potency and enhanced LDL-C lowering capability than previous CETP inhibitors. In previously conducted clinical trials in patients with moderately high LDL-C levels with or without prior statin therapy, obicetrapib has been observed to lower LDL-C both as a monotherapy and a combination therapy with ezetimibe (an approved LDL-C-lowering medication). In our Phase 3 BROADWAY and BROOKLYN clinical trials, we observed a mean LDL-C reduction capability of 33% and 36%, respectively, compared to placebo in patients treated with 10 mg obicetrapib on top of high-intensity statins. In our Phase 3 TANDEM clinical trial, we observed a mean LDL-C reduction of 52% in patients treated with a combination of 10 mg obicetrapib and 10 mg of ezetimibe as an adjunct to high-intensity statins, when compared to placebo. +• +Promising tolerability profile. Patients are often non-compliant with existing cholesterol-lowering therapies, particularly statin therapy, due to their side effect profiles, which could result in suboptimal treatment outcomes and disease progression. In three of our Phase 3 and five of our Phase 2 clinical trials of obicetrapib, we observed statistically significant LDL-lowering activity combined with a similar incidence of generally moderate side effects compared to placebo and no drug-related, treatment-emergent serious AEs. In addition, CETP inhibitors previously under development were observed to produce anti-diabetic benefits in Phase 3 CVOTs, which was also shown in obicetrapib, and could make it a potentially attractive adjunct for patients who are concerned about the risks of diabetes associated with statin therapy. +• +Convenience. We believe that obicetrapib’s simple once-daily, low-dose oral formulation can improve patient adherence, thereby amplifying its cholesterol-lowering impact. Additionally, unlike injectable PCSK9 inhibitors, obicetrapib, an oral small molecule, is better suited for combination with other oral treatments as oral fixed-dose combination products. +• +Patient access. In addition, payor confidence is essential to ensuring access for patients. Based on the LDL-lowering activity of obicetrapib and oral route of administration, we believe payors will perceive the LDL-C lowering capability of obicetrapib to be on par with PCSK9 inhibitors, which are administered by injection, and to exceed the LDL-lowering capabilities of other existing oral therapies and will ultimately prefer obicetrapib to existing treatment alternatives. +• +Effect on other predictors of disease risk. Like other types of LDL-C lowering therapies, i.e., statins and PCSK9 inhibitors, CETP inhibition enhances the removal of ApoB, a protein found in lipoprotein particles that contributes to atherosclerosis. However, unlike statins, based on observations from our Phase 2 and Phase 3 clinical trials, obicetrapib also decreases the presence of Lp(a), an important biomarker for CVD risk reduction. +Lowering LDL-C Through CETP Inhibition +Hyperlipidemia, and in particular hypercholesterolemia, or high cholesterol, is a major risk factor for atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. This is because LDL-C (“a package” of cholesterol contained within a particle that contains ApoB) has the tendency to penetrate the inner lining of the arterial wall becoming trapped leading to a build-up of fatty material, which in turn elicits a pro-inflammatory response and causes the arterial walls to stiffen. Left untreated, these deposits of fatty material can result in ulceration of the vessel wall which causes acute clotting of the blood and a heart attack or a stroke. Another lipoprotein particle, Lp(a), functions in the circulation as a “sink” for oxidized phospholipids and is also prone, like ApoB, to becoming trapped in the arterial wall, attached to proteoglycans of the extracellular matrix. Subsequently, these particles build up and contribute to plaque formation and inflammation. Because of the tendency of LDL-C to build up in the arteries, LDL-C is often referred to as “bad cholesterol” and is one of the most prominent risk factors for the development of CVD. +LDL-C and ApoB levels are mainly regulated by the liver through a surface protein known as the LDL receptor. Most current LDL-C lowering therapies work, at least in part, by increasing the number of LDL receptors, and thereby increasing the clearance of LDL particles from the blood. Statin therapy is the current standard of care for patients with ASCVD or HeFH and elevated levels of LDL-C. Statin therapy reduces cholesterol in the blood by blocking a key enzyme, HMG-CoA-Reductase, necessary for the synthesis of cholesterol, which reduces the amount of cholesterol made by the liver; in addition, statins upregulate the LDL receptor, resulting in lower blood cholesterol. PCSK9 +11 +inhibitors, another LDL-C-lowering treatment, also increase the presence of LDL receptors by inhibiting PCSK9, an enzyme involved in the degradation of LDL receptors. Two other LDL-C lowering therapies, ezetimibe and Nexletol/Nexlizet, also work by upregulating LDL receptors. CETP is a plasma glycoprotein produced in the liver that circulates in the blood primarily bound to a high-density lipoprotein cholesterol (“HDL-C” or “HDL”) particle. CETP can also attach to an LDL particle and form a bridge to transfer cholesterol from HDL to LDL, as shown in the figure below. Consequently, CETP inhibitors, including obicetrapib, reduce the cholesterol concentration of LDL particles and increase the cholesterol concentration of HDL particles. This results in a decrease of the cholesterol pool in the liver as a result of the augmented excretion of cholesterol via the liver into the bile and ultimately the feces. The liver also produces more LDL receptors thereby resulting in more LDL-C particles and ApoB being cleared from the bloodstream. In animal models, CETP inhibition has been shown to block the transfer of cholesterol from HDL particles to LDL particles and to upregulate LDL receptors, thereby reducing the development of atherosclerosis and risk of ASCVD. +Although it was previously believed that the HDL-raising effects of CETP inhibition would be its primary contributor to decreased CVD risk, LDL-reduction is now known to be the most significant factor for lowering CVD risk. In a population with CETP loss of function genotypes, a 16% reduction in CVD risk was observed for every 10 mg/dL decrease in LDL-C levels. The relationship between genomic loss of CETP function and lower LDL-C levels and CVD risk is consistent with other mechanisms of genomic LDL-C reduction such as HMG-CoA reductase (statins), NPC1L1 (ezetimibe), ATP-citrate lyase (Nexletol/Nexlizet) and PCSK9 (PCSK9 inhibitors). Multiple genetic studies provide support that specific mutations associated with lifelong lower LDL-C levels reduce the risk of CVD. +CETP inhibition also increases the removal of ApoB. Apolipoproteins are proteins that are involved in packaging different types of large lipid-particle complexes that store cholesterol in the body. As shown in the figure below, the primary effect of CETP inhibition is a reduced rate of transfer of cholesteryl esters from HDL into triglyceride-rich lipoproteins, including LDL, which in turn leads to an increased concentration of cholesteryl esters in HDL particles and the formation of larger HDL particles. Consequently, we have observed an increase in the excretion of cholesterol via the liver into digestive tract and an upregulation of LDL receptors on the liver, resulting in an enhanced clearances of LDL or ApoB-containing lipoproteins from the body. In addition, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines directly contributing to the reduced cholesterol levels in the liver thus maintaining upregulation of LDL receptors. +sdLDL-P are also believed to be an important predictor of CVD risk, with lower levels of sdLDL-P having been observed to correlate closely to lower cardiovascular risk. The measurement of using LDL particle (“LDL-P”) size and particles numbers is an alternative approach to determining CVD risk assessment and research suggest that LDL-P size, density and numbers may be more closely correlated to CVD risk than LDL-C. Increased levels of LDL-P suggest an increased presence of sdLDL-P which may have a greater potential to develop into arterial plaque due to their increased time in circulation compared to larger LDL-P and greater ability to become trapped in the arterial wall. Research has suggested that treatments lowering LDL-C alone may trigger a disconnect between LDL-C and LDL-P, which, given the observed strong connection between LDL-P and CVD risk, suggests there is a need for a drug which lowers both. +12 +Limitations of Current Non-Statin Therapies +Increased attention by physicians to aggressive LDL-C lowering for high-risk CVD patients has led to the increased use of non-statin therapies with LDL-C lowering capabilities, including ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors, either on their own or in conjunction with statins. +However, the needs of patients at very high risk to experience a future cardiovascular event with elevated levels of LDL-C despite being treated with maximally tolerated statin therapy remain largely unaddressed by current non-statin treatment options, which have only modest efficacy or are inconveniently administered through an injection. In a cross-sectional study of over 20 thousand patients on lipid-lowering medication, current treatments including statins, ezetimibe, PCSK9 inhibitors or a combination of the foregoing resulted in fewer than 3% of patients reaching recommended cholesterol goals of lower than 1.8 mmol/L (70 mg/dL). +• +Ezetimibe. The non-statin cholesterol absorption inhibitor ezetimibe functions by preventing the absorption of cholesterol in the intestines by blocking the NPC1L1 protein. Although these drugs are administered at a low dose, which contributes to their safety and tolerability, and are generic and broadly available, they have been shown to only moderately reduce LDL-C. Ezetimibe as monotherapy or when given in combination with statin therapy has been observed to reduce LDL-C by approximately 13% to 20%. Despite its modest efficacy, ezetimibe is the most prescribed non-statin lipid lowering therapy with approximately 11% market share. +• +Nexletol/Nexlizet. The other currently available oral non-statin therapy, Nexletol/Nexlizet, which inhibits the enzyme ATP citrate lyase, an enzyme involved in cholesterol synthesis, shows only relatively modest improvement in lowering LDL-C. Along with its relatively modest efficacy, Nexletol/Nexlizet’s label contains safety warnings that include tendon rupture and gout. Given that Nexletol/Nexlizet’s efficacy profile is comparable to generic ezetimibe, payors are reluctant to cover it, thus limiting its access and slowing uptake. +• +PCSK9 Inhibitors. The PCSK9 inhibitors on the market are injectable monoclonal antibodies and small interfering RNA that have been observed to reduce LDL-C levels by approximately 50% compared to baseline. While PCSK9 inhibitors have demonstrated their effectiveness at reducing LDL-C when used alone and as an adjunct to statin therapy, we believe their injectable route of administration makes them inconvenient for patients, and their access is further limited by their associated high cost and low rates of prescription approval by payors. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Limitations of Prior Attempts to Develop CETP Inhibitors +As described above, CETP inhibitors, including obicetrapib, are designed to work by blocking the transfer of cholesteryl esters from HDL to LDL particles, thereby reducing LDL-C levels in the body. We believe that obicetrapib can improve upon existing therapies by providing a combination of potent LDL-C lowering activity favorable tolerability and the ability to be administered orally. +Other CETP inhibitors have reached varying stages of clinical development, but none have been approved or otherwise able to generate a potent, safe and well-tolerated low-dose oral option. We believe that the prior CETP inhibitor programs did not select optimal compounds because they focused on exploring the prominent increase in HDL-C rather than the potential for lowering LDL-C. Given the focus on HDL-C raising, we believe their clinical trial designs were suboptimal. Nevertheless, anacetrapib, the latest of the prior CETP inhibitors, provided clinical support for the proposition that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes. +The focus on HDL-C raising by developers of prior CETP inhibitors likely resulted in the selection of chemical compounds that were not optimized for LDL-C lowering, which we believe in turn resulted in only modest reductions to CVD risk. In addition, one CETP inhibitor, torcetrapib, experienced off-target toxicity resulting in increased blood pressure and elevated aldosterone concentration in Phase 2 clinical trials. While another CETP inhibitor, dalcetrapib, did not experience the off-target toxicity as observed with torcetrapib, the drug had no LDL-C lowering activity and therefore no effect on reducing major adverse cardiovascular outcomes. +Given the emphasis on the HDL-C raising capabilities of the prior CETP inhibitors in development, the associated CETP inhibitor programs also used CVOTs designed to evaluate patients with controlled rather than elevated LDL-C levels. Therefore, we believe these study designs minimized the potential to observe relative reductions in CVD risk. In addition, we believe the evacetrapib CVOT was too short (a median duration of only two years) and most likely the sample size too low for the full magnitude of MACE benefits to be observed based on the modest reduction in LDL-C achieved. Similar CVOTs with other agents that lowered LDL-C by a similar magnitude required at least three years to demonstrate a MACE benefit, including the CVOTs of the CETP inhibitor anacetrapib. +In the Phase 3 REVEAL CVOT investigating the efficacy of anacetrapib in approximately 30,000 patients with ASCVD receiving intensive atorvastatin therapy, there was an observed correlation between MACE benefits for anacetrapib and the magnitude of the LDL-C reduction, suggesting that CETP inhibitors work according to the same principle as statin therapy in reducing MACE. The REVEAL trial began enrollment in August 2011 and completed its long-term follow-up in April 2019. A median four-year follow-up of the REVEAL trial showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. We believe the REVEAL results provide clinical support showing that the absolute reduction +13 +in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). In addition, anacetrapib’s commercial viability was limited by its lipophilicity, which caused it to accumulate in fat tissue over time. +We selected obicetrapib 10 mg for our Phase 3 development program given its observed LDL-C-lowering activity and safety profile and designed our CVOT to avoid the shortcomings of prior CETP inhibitor programs and to ultimately fulfill the unmet need of ASCVD or HeFH patients with elevated LDL-C levels despite being treated with currently available optimal lipid lowering therapy. Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable physical, pharmacokinetic and biopharmaceutical properties as a drug candidate compared to other CETP inhibitors. +Clinical Development Plan +We conducted two Phase 3 pivotal trials – our BROADWAY and BROOKLYN trials – designed to measure obicetrapib’s ability to reduce LDL-C as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy. Following our end of Phase 2 meeting with the FDA in the fourth quarter of 2021, we also commenced our Phase 3 PREVAIL CVOT for obicetrapib as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy in early 2022. In our Phase 2 ROSE2 trial, we evaluated the effect of a fixed-dose combination of obicetrapib 10 mg with ezetimibe 10 mg on top of high-intensity statin therapy on reduction in LDL-C. In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe. We initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and released topline data in November 2024. +Based on the lipid-modifying effects of CETP inhibition we have observed in our clinical trials for obicetrapib to date, we have conducted preclinical assessments of obicetrapib to test its potential for the prevention and treatment of Alzheimer’s disease. Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for this indication, and we commenced a Phase 2a clinical trial in early 2022 in patients with early Alzheimer’s disease to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. We announced initial data from this trial in September 2023. +We have set forth below our current obicetrapib clinical development pipeline. +*Other than as noted, the pipeline represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. The timing of regulatory submissions is subject to additional discussions with regulators. +Obicetrapib for Cardiovascular Disease +There is broad scientific consensus that elevation in LDL-C is a primary causal factor for ASCVD, and CVD outcomes in high-risk populations improve as the level of LDL-C achieved on therapy decreases. A study published in the Journal of the American Medicine in 2017 found that genetic variants related to lower LDL-C levels were significantly associated with a lower risk of CVD. Specifically, the study concluded that the quantum of reduced genetic risk for CVD associated with CETP mutations was almost identical to the genetic risk of CVD +14 +observed in patients with genetically reduced levels of the proteins targeted by statins, PCSK9 inhibitors and ezetimibe. We believe the consistency of benefit across genotypes observed in all target genes is predictive of the clinical efficacy of CETP-induced LDL-C lowering on CVD. +The direct correlation between LDL-C reduction and decrease in atherosclerotic cardiovascular events has been documented for both statin, as well as non-statin, therapies in CVOTs for ezetimibe, the PCSK9 inhibitors evolocumab and alirocumab, and for the CETP inhibitor anacetrapib. Most notably, a median four-year follow-up of the REVEAL Phase 3 trial of anacetrapib showed that CETP inhibition resulted in a nine percent reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). After approximately six and a half years of total follow-up, the REVEAL clinical trial showed additional MACE reduction of 20%. The table below shows the reduction in MACE and each component of MACE in the in-trial and post-trial periods. +We believe the REVEAL results provide clinical support for the hypothesis that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. Specifically, the decrease in MACE observed in the REVEAL trial of anacetrapib is consistent with the findings of the CTT Collaboration, illustrated in the graphic below. The CTT collaboration conducted a meta-analysis of 26 statin clinical trials and showed that there is a consistent, linear decrease in MACE for every absolute unit of non-HDL (which is primarily composed of LDL-C) cholesterol reduction. The MACE reduction observed in REVEAL falls on the meta-regression line – specifically, the CTT metaregression line predicts that an absolute reduction of non-HDL of 17 mg/dl, as seen in REVEAL, would correspond to the 11% reduction in coronary death and myocardial infarction observed in REVEAL. +*The graphic above presents a linear prediction of MACE benefit, as discussed above. Actual results may differ materially. +15 +With these learnings in mind, we are executing a phase 3 clinical development plan for obicetrapib focused on patients with elevated baseline LDL-C and that is designed to support a broad CVD label, if successful. To date, we have completed seven Phase 1 trials, five Phase 2 trials and three Phase 3 trials of obicetrapib, and we are currently conducting a Phase 3 PREVAIL CVOT trial. +Planned and Ongoing Clinical Trials for Cardiovascular Disease +Phase 3 PREVAIL Cardiovascular Outcomes Trial +We have initiated our PREVAIL trial (TA-8995-304), our Phase 3 CVOT, to evaluate the effects of 10 mg obicetrapib in participants with ASCVD on MACE, including cardiovascular death, myocardial infarction, stroke and non-elective coronary revascularization. We enrolled over 9,500 participants at sites in the United States, Canada, Europe, Asia, and Australia with established ASCVD and an LDL-C level of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL, whose LDL-C levels are not adequately controlled despite maximally tolerated lipid-modifying therapies. The planned median trial follow-up is expected to be approximately 42 months, and the treatment period will continue until the last participant has been followed for a minimum of 2.5 years after the last patient has been randomized or until the target number of primary endpoint events (i.e., cardiovascular death, non-fatal myocardial infarction, non-fatal stroke, or non-elective coronary revascularization) have occurred, whichever is later. +We designed our PREVAIL trial based on insights gained from analyzing failures of prior CVOTs for other CETP inhibitors. Our trial design targets patients above their LDL-C risk-based goal, despite treatment with maximally tolerated lipid modifying therapies, which we believe creates potential for greater observed absolute LDL-C reduction, particularly given the observed median LDL-lowering activity of 51% in our Phase 2b ROSE clinical trial. We are focused on patients with elevated LDL-C levels and who have at least one other risk enhancer (including recent myocardial infarction, Type 2 diabetes, high triglyceride levels or low HDL-C), compared to prior CVOTs for CETP inhibitors that enrolled patients with low baseline LDL-C. We are planning for longer duration of follow-up to maximize opportunities to observe MACE reduction, with all patients to be followed for a minimum of 2.5 years. We believe that the inclusion of a patient population with established ASCVD who are at very high risk to experience a future cardiovascular event given their elevated LDL-C levels despite being treated with maximum lipid lowering therapy and who have other additional risk enhancers increases the likelihood that the trial will accrue sufficient primary endpoint events over time and potentially result in a strong relative risk reduction in the treatment arm. +Phase 3 REMBRANDT Imaging Trial +We have initiated REMBRANDT, a Phase 3 cardiovascular computed tomography angiography imaging trial to evaluate the effect of obicetrapib and ezetimibe in fixed-dose combination ("FDC") on coronary plaque. The placebo-controlled, double-blind, randomized, Phase 3 study is being conducted in adult participants with high-risk ASCVD who are not adequately controlled by their maximally tolerated lipid-modifying therapy, to assess the impact of the obicetrapib 10 mg and ezetimibe 10 mg FDC daily on coronary plaque and inflammation characteristics. The study is expected to enroll 300 patients. +Phase 2 VINCENT Trial +VINCENT is a Phase 2 clinical study to evaluate the effects of obicetrapib alone and in combination with evolocumab on Lp(a) in patients with mild dyslipidemia. The single arm study will treat patients with obicetrapib 10 mg daily for 8 weeks followed by obicetrapib 10 mg daily plus evolocumab 140 mg/dL every other week for 8 weeks. There will be two cohorts in the study. The first cohort will include 39 participants with Lp(a) levels greater than 50 mg/dL or 125 nmol/L, and the second cohort will include 30 participants with Lp(a) levels greater than 20 mg/dL or 50 nmol/L but less than 50 mg/dL or 125 nmol/L. +Completed Phase 3 Clinical Trials +We have completed three Phase 3 clinical trials of obicetrapib for the treatment of cardiometabolic disease. TANDEM evaluated 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination, while BROADWAY and BROOKLYN were designed to measure the effect of obicetrapib 10 mg as monotherapy on top of maximally tolerated lipid-modifying therapy. +16 +Phase 3 TANDEM Fixed-Dose Combination Trial +We completed TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents in November 2024. We enrolled approximately 400 patients in the United States that had a baseline LDL-C of ≥ 70 mg/dL. Following a 14-day screening period, patients were randomized 1:1:1:1 to obicetrapib 10 mg and ezetimibe 10 mg FDC, obicetrapib 10 mg monotherapy, ezetimibe 10 mg monotherapy or placebo for an 84-day treatment period. +TANDEM’s co-primary endpoints were percent change from baseline in LDL-C of the fixed-dose combination compared to each monotherapy arm after 84 days and obicetrapib 10 mg compared to placebo after day 84. Secondary endpoints incorporated percent changes from baseline in other biomarkers, including Lp(a), non-HDL-C and ApoB. The TANDEM trial met all co-primary endpoints. The safety and tolerability profile of the fixed-dose combination was observed to be comparable to placebo in the trial. +We believe that the stronger observed LDL-C lowering among patients receiving the combination therapy as compared with those receiving ezetimibe in combination with statin therapy is potentially due to the synergistic mechanisms of action for each of obicetrapib and ezetimibe. While obicetrapib is designed to promote the expression of LDL receptors in the liver, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines, where ezetimibe is designed to block cholesterol reabsorption into the body. Therefore, the combined mechanism is expected to synergistically enhance fecal sterol removal of cholesterol. We believe that LDL-C lowering effects of ezetimibe can be enhanced by introducing obicetrapib to help facilitate this synergistic mechanism of action. +LDL-C percentage change: +Ezetimibe +(n=101) +Obicetrapib (n=102) +Obicetrapib and Ezetimibe FDC +(n=102) +Day 84 – from placebo +Mean % +-23.3 +-35.5 +-52.2 +Median % +-22.6 +-37.2 +-54.0 +LS mean % +-20.7 +-31.9 +-48.6 +Comparison to pbo +- +(p<0.0001) +(p<0.0001) +Comparison to eze 10 mg +- +- +(p<0.0001) +Comparison to obi 10 mg +- +- +(p=0.0007) +Phase 3 BROADWAY and BROOKLYN Lipid Trials +17 +We conducted two Phase 3 pivotal trials designed to measure obicetrapib’s LDL-C lowering capability and enrolled patients across both trials who require additional LDL-lowering on top of their maximum tolerated lipid-modifying therapies. BROADWAY, which completed enrollment in July 2023 and for which topline results were announced in December 2024, randomized approximately 2,500 patients in the United States, Europe and Asia with HeFH (individuals genetically predisposed to very high cholesterol) or established ASCVD, and who have baseline LDL-C of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL (including other abnormal biometrics, a recent myocardial infarction or Type 2 diabetes). BROOKLYN, which completed enrollment in April 2023 and for which topline results were announced in July 2024, enrolled HeFH patients in the United States, Canada, Europe and Africa who had baseline LDL-C of at least 70 mg/dL. Obicetrapib was administered in a once-daily 10 mg dose as an adjunct to diet (for regulatory purposes in the EU) and maximally tolerated lipid-modifying therapy, for a 52-week treatment period. Such lipid-modifying therapies included statins or, for statin-intolerant patients, ezetimibe, Nexletol/Nexlizet, PCSK9 inhibitors, or fibrates (a class of drugs which increase HDL-C without significantly reducing LDL-C). +The primary endpoint of both trials was percent change from baseline in LDL-C of obicetrapib 10 mg compared to placebo after 84 days. Secondary endpoints also included percent changes from baseline of obicetrapib 10 mg compared to placebo after 84 days in Lp(a), ApoB, HDL-C and non-HDL-C (representing total cholesterol minus HDL-C), and for BROADWAY, LDL-C levels at days 180 and 365, total cholesterol and triglycerides. For BROADWAY, other exploratory outcome measures included time from randomization until first confirmed occurrence of MACE in the obicetrapib arm compared to placebo. The safety and tolerability profile of obicetrapib was comparable to placebo in both trials (which included a broad representation of adult males and females of all ages, including elderly and very elderly participants), assessed by AEs, vital signs, clinical laboratory values and electrocardiogram (“ECG”) measurements. In addition, we evaluated obicetrapib’s effects on blood pressure and no difference from placebo was shown. +The tables below summarize data from each study: +LDL-C LS mean percentage change in BROOKLYN trial: +% Change from Baseline +Obicetrapib % Change +Placebo (n=118) +Obicetrapib (n=236) +Compared to Placebo +p-value +Day 84 ++0.3% +-36.1% +-36.3% +<0.0001 +Day 365 ++10.3% +-31.1% +-41.5% +<0.0001 +LDL-C percentage change at day 84 in BROADWAY trial: +Placebo +(n = 844) +Obicetrapib 10 mg +(n = 1686) +Difference +Mean +-2% +-35% +-33% +Median +-4% +-40% +-36% +LS mean (with imputation) ++3% +-30% +-33% +While BROADWAY was not designed or powered to measure MACE benefit, MACE was evaluated as an exploratory endpoint and as part of our safety analysis. Despite the limitations of the trial design, we observed a 21% reduction in MACE favoring obicetrapib after one year. +MACE from BROADWAY: +Placebo +(n = 844) +Obicetrapib 10 mg +(n= 1686) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +12 (1.4) +19 (1.1) +0.83 +(0.40-1.71) +Coronary heart death – no. (%) +5 (0.6) +8 (0.5) +0.80 +(0.26-2.44) +First 4-point MACE – no. (%) +44 (5.2) +70 (4.2) +0.79 +(0.54-1.15) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY trial. +Pooled MACE from BROADWAY and BROOKLYN: +Placebo +(n = 962) +Obicetrapib 10 mg +(n= 1920) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +14 (1.5) +20 (1.0) +0.78 +(0.39-1.58) +18 +Coronary heart death – no. (%) +7 (0.7) +9 (0.5) +0.63 +(0.24-1.70) +First 4-point MACE – no. (%) +49 (5.1) +75 (3.9) +0.75 +(0.53-1.08) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY or BROOKLYN trials. +Neither the BROADWAY nor BROOKLYN trials were designed to assess MACE as the primary or secondary endpoints and as a result there are limitations on the results presented above. We are conducting PREVAIL, our Phase 3 cardiovascular outcomes trial designed to assess the MACE benefit of obicetrapib, to provide support for obicetrapib’s potential MACE benefit. +Overall, obicetrapib was observed to be well-tolerated compared to placebo. Treatment-emergent adverse events (“TEAEs”) were reported by 1,007 (59.8%) patients in the obicetrapib 10 mg group compared to 513 (60.9%) patients in the placebo group. Most TEAEs were mild or moderate. Treatment-emergent serious adverse events (“TESAEs”) were observed in 13.9% of the placebo group and in 12.5% of the obicetrapib group. The following table summarizes the safety results from the BROADWAY trial: +Placebo +N= 843 +n (%) +Obicetrapib 10 mg +N= 1,685 +n (%) +Any TEAEs +513 ( 60.9) +1,007 ( 59.8) +Any TEAEs by maximum severity +Mild +228 ( 27.0) +481 ( 28.5) +Moderate +217 ( 25.7) +408 ( 24.2) +Severe +68 ( 8.1) +118 ( 7.0) +Any trial drug related TEAEs +39 ( 4.6) +76 ( 4.5) +Any trial drug-related TEAEs by maximum severity +Mild +25 ( 3.0) +51 ( 3.0) +Moderate +14 ( 1.7) +23 ( 1.4) +Severe +0 ( 0.0) +2 ( 0.1) +Any TEAEs leading to discontinuation of trial drug +43 ( 5.1) +68 ( 4.0) +Any TESAEs +117 ( 13.9) +211 ( 12.5) +Any treatment-emergent non-serious AEs +495 ( 58.7) +959 ( 56.9) +Any trial drug-related TESAEs +0 ( 0.0) +1 ( 0.1) +Any TEAEs leading to death +12 ( 1.4) +19 ( 1.1) +Completed Phase 2 Clinical Trials +We have completed five Phase 2 trials of obicetrapib for the treatment of cardiometabolic disease. In our Phase 2 trials obicetrapib was observed to robustly lower LDL-C and increase HDL-C from baseline across various treatment settings. Obicetrapib was also observed to be well-tolerated compared to placebo, in both the 5 mg and 10 mg doses and as a combination therapy with ezetimibe. The majority of TEAEs were mild or moderate in severity and there were no drug-related, treatment-emergent serious AEs. The graphs below summarize the results of our Phase 1 MAD and Phase 2 trials, with 10 mg of obicetrapib. +19 +Phase 2b ROSE Trial +In our Phase 2b ROSE trial, we observed that obicetrapib has robust LDL-C lowering capability as an adjunct to high-intensity statins at both 5 mg and 10 mg dosages. Based on our ROSE trial, we are using a 10 mg dosage for our Phase 3 trials. In our Phase 2a TULIP trial, we observed that a daily dose of up to 10 mg of obicetrapib alone significantly reduced LDL-C and increased HDL-C. Based on observations from our Phase 2b OCEAN trial, we believe that obicetrapib is at least additive for LDL lowering as a combination therapy with ezetimibe. +Phase 2a TULIP Trial +A Phase 2a TULIP trial of obicetrapib, which was completed in 2014, was a randomized, double-blind placebo-controlled trial among 364 patients with mild dyslipidemia and not on lipid-altering therapy at screening and involved once-daily oral dosing of obicetrapib up to 10 mg or a placebo alone and as a combination therapy with statins. The primary endpoints were the percent changes in LDL-C and HDL-C levels from baseline to week 12 of the trial, which were met for both doses. The 5 mg dose of obicetrapib resulted in a mean reduction of LDL-C by 45% and increased HDL-C by 161%, compared to placebo. In patients treated with 10 mg obicetrapib plus statin therapy (20 mg atorvastatin or 10 mg rosuvastatin), LDL-C levels were approximately 50% lower and HDL-C levels were approximately 140% higher, respectively, than those observed in patients receiving statin therapy alone. +A total of 284 (78.2%) patients experienced at least one TEAE, of which 95 (26.2%) experienced a suspected trial drug-related TEAE. For all treatment groups, the most common TEAEs were the common cold and headache (22.9% and 13.2%, respectively). Most TEAEs were mild or moderate in severity with only 13 (3.6%) patients experiencing a severe TEAE, two of which were suspected to be related to the trial drug (one subject in the placebo group and one subject in the atorvastatin 20 mg and obicetrapib 10 mg combination). Prevalence, incidence and severity of TEAEs were similar across all treatment groups. There were eight patients with a TESAE, none of which were trial drug related, and no deaths occurred during the trial. +Phase 2b ROSE Trial +Our Phase 2b ROSE trial, which was completed in August 2021, was a randomized, double-blind placebo-controlled trial among 120 patients with mild dyslipidemia who were already receiving high-intensity statin therapy. The trial involved a once-daily oral dose of obicetrapib at either 5 mg or 10 mg dose level for eight weeks. The primary endpoint of this clinical trial was LDL-C reduction from baseline and was met for both doses. Obicetrapib had a rapid effect, with LDL-C levels dropping dramatically in the first four weeks of the trial and remaining relatively steady for the remaining four weeks of the trial. At the 5 mg dose level, approximately 20% of patients experienced a decrease in median LDL-C levels of over 60%; at the 10 mg dose level, that percentage nearly doubled. +Overall, obicetrapib as an adjunct to high-intensity statin therapy at both doses was observed to be well-tolerated compared to placebo. TEAEs were reported by 15 (37.5%) subjects in the 5 mg group and 8 (20.0%) subjects in the 10 mg group, compared with 19 (47.5%) subjects in the placebo group. For all treatment groups, the most common TEAEs were fatigue (4.2%), arthralgia (2.5%), nausea (2.5%) and headache (2.5%). All other TEAEs were experienced by only one or no subjects in each treatment group. TEAEs that were considered by the investigator +20 +to be related to trial treatment were reported by three subjects (two subjects in the 5 mg group and one subject in the 10 mg group), compared with four subjects in the placebo group. There were no TEAEs leading to death. One subject in the placebo group had a TEAE leading to discontinuation. The majority of TEAEs were mild and moderate in severity; one subject in the placebo group had a severe TEAE. There were two serious TEAEs, both of which occurred in the placebo group. +Based on our ROSE trial and the enhanced LDL-C reduction capability of a 10 mg dose compared with 5 mg and the safety profile we observed, we selected a 10 mg dose for our Phase 3 lipid trials and CVOT. +Phase 2b OCEAN Trial +Our Phase 2b OCEAN trial, which we completed in June 2021, evaluated the effect of obicetrapib as a combination therapy with ezetimibe on LDL-C levels. This randomized, double-blind placebo-controlled trial among 100 patients with mild dyslipidemia involved once-daily oral 5 mg dose of obicetrapib alone and as a combination therapy with 10 mg of ezetimibe, compared to both placebo and ezetimibe alone, for eight weeks. +The primary endpoint of the trial was percent change in LDL-C compared to baseline, which was met. We observed that obicetrapib 5 mg, ezetimibe 10 mg and their combination each significantly reduced LDL-C from baseline and compared with placebo, with statistically significant reductions compared to baseline measured at 34.4%, 14.8% and 52.0%, respectively, compared to a 1.4% reduction in the placebo group. +Obicetrapib 5 mg alone and as a combination therapy with ezetimibe 10 mg taken once daily for eight weeks displayed a favorable tolerability profile. TEAEs were reported by 4 (14.3%) subjects in the obicetrapib 5 mg group and 9 (33.3%) subjects in the combination group, compared with 8 (28.6%) subjects in the ezetimibe 10 mg group and six subjects in the placebo group. For all treatment groups, the most common TEAEs were diarrhea (3.6%), headache (3.6%), myalgia (1.8%) and constipation (1.8%). All other TEAEs were experienced by one or no subjects in each treatment group. TEAEs that were considered to be related to trial treatment were reported by one subject and three subjects in the obicetrapib 5 mg and combination groups, respectively, compared with three subjects and four subjects in the ezetimibe 10 mg and placebo groups, respectively. There were no TEAEs leading to death. One subject in the ezetimibe 10 mg group had a TEAE leading to discontinuation of the trial drug, compared to no subjects in the 5 mg group and two subjects in the combination group. The majority of TEAEs were mild and moderate in severity, and one subject in the ezetimibe 10 mg group had a severe TEAE. +ROSE2 Clinical Trial +On June 3, 2023, we announced full results from our Phase 2 ROSE2 trial, our clinical trial evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy. ROSE2 met its primary and secondary endpoints, with statistically significant reductions in LDL-C and ApoB observed. Statistically significant improvements in non-HDL-C and total and small LDL-P were also observed. We also observed significant improvements in Lp(a). In addition, the combination of obicetrapib and ezetimibe was observed to be well-tolerated, with a safety profile observed to be comparable to placebo. +ROSE2 was designed as a placebo-controlled, double-blind, randomized Phase 2 clinical trial to evaluate the efficacy, safety and tolerability of obicetrapib 10 mg in combination with ezetimibe 10 mg as an adjunct to high-intensity statin therapy. Patients were randomized to receive combination therapy, obicetrapib 10 mg or placebo for a 12 week treatment period. A total of 119 patients enrolled in ROSE2, of whom 97 were included in the on-treatment analysis. Certain patients were excluded from the on treatment population as a result of suspected non-adherence to the trial protocol. Patients presented at baseline with a fasting LDL-C greater than 70 mg/dL and triglycerides less than 400 mg/dL and all were receiving a stable dose of high-intensity statin therapy. +The primary endpoint was the percent change from baseline to week 12 in Friedewald-calculated LDL-C for the obicetrapib plus ezetimibe combination treatment group compared with placebo. Secondary efficacy endpoints included the percent changes from baseline to week 12 in LDL-C for obicetrapib monotherapy compared with placebo and in ApoB for the obicetrapib plus ezetimibe combination compared with placebo and the obicetrapib monotherapy compared with placebo. Exploratory endpoints included the percent changes from baseline to week 12 in lipoprotein(a), non-HDL-C, HDL-C, total and small LDL-P assessed by NMR, and the proportion of patients at the end of treatment who achieved LDL-C levels below 100 mg/dL, 70 mg/dL and 55 mg/dL for the obicetrapib plus ezetimibe combination and obicetrapib monotherapy groups compared with placebo. +Overall, obicetrapib alone and in combination with ezetimibe was observed to be well-tolerated compared to placebo. TEAEs were reported by 11 (27.5%) subjects in the combination group, 8 (20.5%) subjects in the monotherapy group and 16 (40.0%) subjects in the placebo group. For all treatment groups, the most common AEs nausea (3.4%), urinary tract infection (2.5%), and headache (2.5%). Overall, no drug-related, TESAEs were observed, and there were no TEAEs leading to death. One subject in the combination group had a TEAE leading to discontinuation of the trial drug, compared to two in the monotherapy group and two in the placebo group. There were two severe TEAEs in the placebo group (both nervous system disorders) and one in the monotherapy group (a cardiac disorder). +In parallel with the ROSE2 trial, we formulated two prototype fixed-dose combination tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we have selected a +21 +formulation for a fixed-dose combination tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as a fixed-dose combination used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalent patients, in the first quarter of 2024 and released topline data in November 2024. +Japan Phase 2b Clinical Trial +On June 5, 2023, we announced topline results from our Phase 2b Japan trial evaluating the effects of three doses of obicetrapib (2.5 mg, 5 mg, and 10 mg) on LDL-C levels. This was a randomized, double-blind, placebo controlled trial designed to evaluate the efficacy, safety and tolerability of obicetrapib as an adjunct to stable statin therapy in Japanese patients. The trial was conducted at hospitals and clinics across Japan. The primary endpoint was the percent change from baseline to end of treatment (day 56) in LDL-C for each obicetrapib group compared to placebo. The trial enrolled 102 adult participants, who were randomized 1:1:1:1 to receive obicetrapib 2.5 mg, 5 mg, 10 mg or placebo for the 56-day treatment period. Patients treated with obicetrapib 2.5 mg, 5 mg or 10 mg achieved a median reduction in LDL-C of 24.8%, 31.9%, and 45.8%, respectively, as compared to patients treated with placebo, who achieved a median reduction in LDL-C of 0.9%. In addition, patients treated with obicetrapib 10 mg achieved a median reduction in ApoB of 29.7%, compared to a 0.4% reduction in patients treated with placebo, and a median reduction in non-HDL-C of 37.0%, as compared to a 0.4% reduction in patients treated with placebo. The p-value for each endpoint in the obicetrapib arms of the trial compared to placebo was <0.0001. Overall, the different dosages of obicetrapib were observed to be generally well-tolerated, with a safety profile comparable to placebo. TEAEs were reported by 15 (57.7%) subjects in the 10 mg obicetrapib group, 7 (28.0%) subjects in the 5 mg obicetrapib group, 9 (36.0%) subjects in the 2.5 mg group and 15 (57.7%) subjects in the placebo group. AEs observed to date were primarily mild. One TESAE was observed in the 5 mg group, but it was not considered by the investigator to be related to trial treatment. Overall, no drug-related TESAEs were observed, and there were no TEAEs leading to death. +Obicetrapib for Other Therapeutic Areas +Alzheimer’s disease +According to the World Health Organization, Alzheimer’s disease and other dementias affect approximately 55 million people as of 2021, and this is expected to increase to 78 million in 2030 and 139 million in 2050. Alzheimer’s disease is the most prevalent form of dementia, resulting in the generalized degeneration of the brain. +In a healthy brain, excess cholesterol levels in the neurons and amyloid-beta (“Aβ”) peptide removal from brain parenchyma are regulated properly. The brain is the most cholesterol-rich organ in the body; comprising only two percent of the body’s mass, it contains approximately 20% of the body’s cholesterol, which is recycled and redistributed through an ApoE-mediated lipoprotein pathway. Inside populations of cells called astrocytes, ApoE binds with cholesterol that has been released into the brain by neurons and converts it into a different form of cholesterol that is transported out of the brain into the systemic circulation. In addition to ApoE, the protein associated with HDL, ApoA1, also acts as the brain’s “vacuum cleaner,” by removing toxic cholesterol from peripheral tissue to promote healthy cell function and survival. In addition, small HDL particles that transverse the blood brain barrier remove excess Ab peptides in brain parenchyma for ultimate conversion and transport out of the brain. +Alzheimer’s disease, however, is characterized in part by the aggregation of Aβ peptides into amyloid plaques in brain parenchyma, facilitated by the presence of excess cholesterol in cell membranes. Thus, the accumulation of cholesterol in cell membranes and the ineffective clearance of Aβ plaques by ApoE and ApoA1 in their HDL forms is associated with the development of Alzheimer’s disease. Importantly, certain forms of ApoE (in particular, ApoE4) are worse at Ab transport than others, such as ApoE2, and are known to be associated with an increased risk of Alzheimer’s disease. Further, CETP activity has been detected in astrocytes, the cells where ApoE bind with cholesterol, indicating the potential for a CETP inhibitor to function in the brain similarly to its lipid-modifying effects in the cardiovascular system. Genetic studies have shown that CETP loss of function mutations mitigate the risk of Alzheimer’s disease in patients with the ApoE4 genotype. +Based on these observations as well as the marked increases of ApoA1 in the circulation observed in our Phase 2 clinical trials and the increases in ApoE in the circulation observed in the TULIP trial, we have conducted preclinical assessments of obicetrapib for the prevention and treatment of Alzheimer’s disease. +Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for the prevention and treatment of Alzheimer’s disease. We commenced a Phase 2a open-label and single-arm clinical trial in early 2022 in patients with early Alzheimer’s disease and the ApoE4 mutation to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the CSF compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patient’s plasma was observed and pTau181 levels were observed to be stable. Increases in 24-hydroxycholesterol and 27-hydroxycholesterol over time have been observed previously to lead to a rise in cognitive and related functional impairment. We believe reductions of these oxysterols in the CSF may indicate improved cholesterol metabolism in the brain and may lead to improved cognitive function. In addition, this trial assessed the Aβ42/40 ratio and plasma pTau181, also believed to be biomarkers of Alzheimer’s disease, with lower levels of Aβ42/40 and increased +22 +levels of pTau181 having been associated with a greater risk of Alzheimer’s disease. Overall, obicetrapib was observed to be well-tolerated. No serious AEs were reported, nor were any AEs considered to be related to the trial drug. +Manufacturing and Supply +We currently have no manufacturing facilities and instead rely on several contract manufacturers to produce drug substance and drug products. The production is overseen by an experienced group of personnel. Obicetrapib and obicetrapib and ezetimibe FDC tablets are manufactured and tested in accordance with current good manufacturing practices (“cGMPs”) at facilities in the United States, Canada and Austria. In preparation for commercial supply, we are in the process of expanding our supply network to support a commercial launch of obicetrapib, if approved. +Marketing and Sales +While we do not currently have the internal marketing, sales or distribution capabilities necessary to commercialize obicetrapib or any future product candidates, if approved for commercial sale, we are currently developing our own commercial infrastructure and capabilities in the United States and have entered, and expect to continue entering, into arrangements with third parties to perform these services outside of the United States. We may also opportunistically seek strategic collaborations to maximize the commercial opportunities for our future product candidates inside and outside the United States. We entered into the Menarini License, pursuant to which Menarini has been granted the exclusive rights to commercialize obicetrapib 10 mg either as a sole active ingredient product or in a fixed-dose combination with ezetimibe in the majority of European countries, if approved. As any future product candidates near regulatory approval and potential commercial launch, we plan to assess our options for commercializing each respective product candidate and may choose to commercialize themselves ourselves or with a partner. +Menarini License +We entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib in a single unit dose of 10 mg or less, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe (the “Licensed Products”), for any use in the majority of European countries (the “Menarini Territory”). We retained all rights to obicetrapib in all other territories and in other dosages. +We are solely responsible for conducting the development activities to obtain regulatory approval for obicetrapib. Menarini may conduct market access studies, medical affairs activities, non-registration studies and Phase IV clinical trials in the Menarini Territory. Menarini will be responsible for submitting and obtaining the required regulatory approvals to commercialize obicetrapib (at the licensed dosage) in the Menarini Territory and will own the regulatory approvals, if received. Menarini will also be solely responsible for commercializing obicetrapib (at the licensed dosage), if approved, and will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Pursuant to the Menarini License, Menarini made an upfront payment to us of €115.0 million. Menarini has also committed to providing €27.5 million in funding for our research and development activities over several years, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to an additional €863 million upon the achievement of various clinical, regulatory and commercial milestones, of which a total of €30 million has been received to date. If obicetrapib is approved and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party intellectual property payments. +The Menarini License will expire on the last to expire royalty term, which is determined on a Licensed Product-by-Licensed Product and country-by-country basis, and is the later of (i) the expiration of the last to expire licensed patent that includes a valid claim in the country, (ii) expiration of regulatory exclusivity granted by the prevailing governmental authority for the Licensed Product in the country or (iii) 12 years from the first commercial sale of the Licensed Product in the country. +In addition, Menarini is expected to purchase obicetrapib and obicetrapib and ezetimibe FDC tablets from us in accordance with a supply agreement to be entered into by Menarini and us (the “Supply Agreement”). We will supply all required quantities of products for the Menarini Territory as set forth in the Supply Agreement. +In the year ended December 31, 2024, we received one milestone payment from Menarini under the Menarini License upon the achievement of a clinical milestone. +Intellectual Property +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without +23 +infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +We strive to protect and enhance our proprietary inventions and improvements that we consider commercially important to the development of our business, including by seeking, maintaining, and defending U.S. and foreign patent rights. All of the issued patents and pending patent applications in our patent portfolio are owned by our subsidiary, NewAmsterdam Pharma B.V., Dutch Chamber of Commerce registry number 55971946. As of December 31, 2024, we owned 10 issued U.S. patents and 17 pending U.S. patent applications. We also owned 132 granted European patents and five pending European patent applications, two granted Chinese patents and 12 pending Chinese patent applications. In addition, we owned 77 granted patents and 70 pending patent applications in other foreign jurisdictions, including international applications under the PCT. +The patent positions of pharmaceutical companies are generally uncertain and can involve complex legal, scientific, and factual issues. We cannot predict whether any patent applications we pursue will issue as patents in any particular jurisdiction, or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. +In addition, the coverage claimed in a patent application may be significantly reduced before a patent is granted, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot guarantee that any of our products will be protected or remain protectable by enforceable patents. Moreover, any patents that we license or may own in the future may be challenged, circumvented, or invalidated by third parties. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before our product candidate can be commercialized successfully, any related patents may expire or remain in force for only a short period following commercial launch, thereby limiting the protection such patent would afford the applicable product and any competitive advantage such patent may provide. +For any individual patent, the term depends on the applicable law in the country in which the patent is issued. In most countries where we have patents and patent applications, including the United States, patents have a term of 20 years from the application filing date or earliest claimed nonprovisional priority date. In the United States, the patent term may be shortened if a patent is terminally disclaimed over another patent that expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment that is awarded by the USPTO, in order to address administrative delays by the USPTO in examining and granting a patent. +In the United States, the term of a patent that covers an FDA-approved drug may be eligible for patent term extension in order to restore the period of a patent term lost during the premarket FDA regulatory review process. Specifically, the Hatch-Waxman Amendments permits a patent term extension of up to five years beyond the natural expiration of the patent (but the total patent term, including the extension period, must not exceed 14 years following FDA approval). The patent term extension period granted on a patent covering a product is typically one-half the time between the effective date of the IND for the first investigation involving human beings and the submission date of an NDA seeking FDA approval, plus the entire time from submission date of the NDA to the ultimate approval date. Only one patent applicable to an approved product is eligible for patent term extension, and only those claims covering the approved product, an approved method for using the approved product, or a method for manufacturing it may be extended. The application for patent term extension must be submitted prior to the expiration of the patent. The USPTO reviews and approves the application for any Patent Term Extension in consultation with the FDA. +Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO and other patent offices may be significantly revised before issuance, if granted at all. +For more information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related to Our Intellectual Property .” +The issued patents and pending patent applications for obicetrapib as of December 31, 2024 are detailed below. +Obicetrapib First Generation Patents +The patent portfolio for obicetrapib composition of matter includes a first generation patent family directed generally to compounds, pharmaceutical compositions comprising the compounds, and methods of treatment using the compounds and pharmaceutical compositions. We have two granted patents in the United States covering a genus of compounds that includes obicetrapib and claims that more narrowly cover the obicetrapib compound, pharmaceutical compositions, and methods of treatment. In Europe, we have 17 granted patents. In Asia, we have one granted patent in China, two granted patents in Japan, one granted patent in the Republic of Korea, one granted patent in Taiwan and one granted patent in Singapore. We also have one granted patent in India. In North America outside of the United States, we have one granted patent in Canada and one granted patent in Mexico. In addition, we have 13 granted patents in other foreign jurisdictions. Patents are expected to expire between April 2025 and August 2027, without taking potential patent term extensions into account. The first generation portfolio also includes a patent family covering a method of synthesizing obicetrapib. We have one patent in the United States, five patents in Europe +24 +including the United Kingdom, and one patent in Japan in this latter patent family. Patents in this family are expected to expire between March 29, 2027 and March 31, 2029, not including patent term extensions. +Obicetrapib Second Generation Patents +Our second generation obicetrapib patent portfolio includes a patent family directed to solid oral dosage forms containing 5 to 10 mg of obicetrapib, including tablet forms, and methods of treatment comprising administration of 1 to 25 mg of obicetrapib daily. We have four granted patents in the United States and a pending application. We have 39 granted patents in Europe. In Asia, we have no granted patents in China, one granted patent in the Republic of Korea, one granted patent in Japan, one granted patent in Taiwan, one granted patent in Singapore and one granted patent in Hong Kong. We have one granted patent in India. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have 15 granted patents in other foreign jurisdictions. Patent applications are pending in Argentina, Brazil, China, Hong Kong, Colombia, Costa Rica, Egypt, Libya, Peru, Thailand and Venezuela. Patents, and patent applications, if granted, are expected to expire in February 2034, without taking potential patent term extensions or patent term adjustment into account. +We also have a patent family directed to compositions that contain obicetrapib and a statin, methods of treating with compositions that contain obicetrapib and a statin, and in various foreign jurisdictions, methods of use in which obicetrapib and a statin are separately administered. We have one granted patent in the United States. This patent is expected to expire in February 2034. We have no granted patents in Europe. In Asia, we have no granted patents in China, two granted patents in Japan, one granted patent in the Republic of Korea and two granted patents in Taiwan. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have two granted patents in other foreign jurisdictions. Patent applications are pending in China, Hong Kong, Thailand and Venezuela. Outside the United States, patents and patent applications, if granted, are expected to expire in August 2035, without taking potential patent term extensions or patent term adjustment into account. +In addition, we have a patent family that claims a synthetic intermediate used in a synthetic process we intend to use commercially, as well as processes to make that intermediate. We have one issued US patent and 39 granted patents in Europe. In Asia, we have one granted patent in China, one granted patent in Hong Kong, one granted patent in Japan, one granted patent in Singapore, one granted patent in Republic of Korea and one granted patent in Taiwan. We also have one granted patent in India. In North America outside of the United States, we have one granted patent in Mexico and one granted patent in Canada. In addition, we have 15 granted patents in other foreign jurisdictions. Patent applications are pending in Europe, Hong Kong and Venezuela. Patents, and patent applications if granted, are expected to expire in July 2035, without taking potential patent term extensions or patent term adjustment into account. +Obicetrapib Third Generation Patents +We have a third generation patent family covering the solid salt form of obicetrapib that we intend to commercialize, a process for its commercial synthesis and a novel intermediate used in that synthetic process. In the United States, we have an issued patent with claims covering the solid salt form of obicetrapib, and a pending application. Patent applications are pending worldwide in over 40 jurisdictions. Our U.S. patent, and patents if granted on the pending applications, are expected to expire in July 2043, without taking potential patent term adjustment or extensions into account. +We also have patent families directed to various compositions and methods of use of obicetrapib as a combination therapy. These families all consist of pending applications. Seven of these families are directed to combinations with ezetimibe, several of which cover the formulation of our intended commercial fixed-dose combination product. Two of these families further include the commercial formulation of our intended obicetrapib single active product. Patents if granted are expected to expire between February 2042 and November 2045, without taking potential patent term adjustment or extensions into account. Another family is directed to a combination with statins, for use in certain subpopulations. Patents if granted are expected to expire in July 2042, without taking potential patent term adjustment or extensions into account. We also have two families directed to combinations with SGLT2 inhibitors. If granted, these patents are expected to expire in December 2042 and April 2044, without taking potential patent term adjustment or extensions into account. +We have an additional patent family directed to a new process for synthesis of an intermediate in the manufacture of obicetrapib. This family currently consists of a U.S. provisional application. Any patents, if granted, are expected to expire about November 2045. +We have two patent families respectively covering treatment of the patient populations enrolled in our BROOKLYN and BROADWAY trials. These families currently consist of pending applications. Patents if granted on these applications are expected to expire approximately in September 2044 and September 2045. We also have a patent family directed to reductions in atherosclerotic plaque which currently consists of a pending PCT application. Patents if granted in this family are expected to expire in December 2044. +In addition, we have two patent families covering methods of using obicetrapib to treat neurodegenerative diseases. The first of these families includes 31 granted patents in Europe, one granted patent in Hong Kong and one granted patent in Israel. We also have patent applications pending in this family in the United States, Europe, China and other jurisdictions. The granted patents, and patent applications if granted, are expected to expire in March 2042, without taking potential patent term adjustment or extensions into account. The second family consists of a PCT application and a pending U.S. provisional application. Any patents that grant from this second family are expected to expire in September 2044, without taking potential patent term adjustments or patent term extensions into account. +25 +Finally, we have three patent families drawn to treatment of other clinical indications. Patents if granted from these families will expire in about October 2044, without taking potential patent term adjustments or patent term extensions into account. +Trade Secrets +We also rely on trade secrets, know-how, confidential information and continuing technological innovation to develop, strengthen and maintain our proprietary position in our field and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. However, trade secrets can be difficult to protect. While we take measures to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. We seek to protect our proprietary information, in part, using confidentiality agreements and invention assignment agreements with our collaborators, employees and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties. Furthermore, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors and other third parties, or misused by any collaborator to whom we disclose such information. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For more information regarding the risks related to our intellectual property, please see “ Risk Factors — Risks Related to Our Intellectual Property .” +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of drug products. We, along with any third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies, clinical trials or seek approval of our products and product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), as amended, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States, and this process generally involves the following: +• +completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (“GLP”) requirements and other applicable regulations; +• +submission to the FDA of an Investigational New Drug (“IND”) application, which must become effective before human clinical trials may begin and must be updated annually and when certain changes are made; +• +approval by an independent investigational review board (“IRB”) or independent ethics committee (“EC”) at each clinical site before each trial may be initiated; +• +performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) regulations, to establish the safety and efficacy of the proposed drug for its intended use; +• +preparation of and submission to the FDA of an NDA after completion of pivotal trials; +• +a determination by the FDA within 60 days of its receipt of an NDA to file the application for review; +• +satisfactory completion of an FDA advisory committee review, if applicable; +• +satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• +potential FDA audit of the nonclinical study and/or clinical trials sites that generated data in support of the NDA; and +• +FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical trials. The IND also includes results of animal and in vitro +26 +studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product; chemistry, manufacturing and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial or not allowing it to commence on the terms originally specified in the IND. +Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the trial until completed. Some trials also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board, which provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. +A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the clinical trial complies with regulatory requirements if the data is to be used in support of NDA approval. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection, if deemed necessary. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• +Phase 1 : The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage tolerance, absorption, metabolism, excretion and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. +• +Phase 2 : The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. +• +Phase 3 : The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and labeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA. +In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 trials may be conducted after initial marketing approval and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected AEs, findings from other trials suggesting a significant risk to humans exposed +27 +to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug. +U.S. Review and Approval Process +Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical, and other nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including trials initiated by independent investigators. To support marketing approval, the data submitted must be sufficient to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once accepted for filing, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality, and purity. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete its initial review and act on a standard NDA for a drug that is a new molecular entity, and of ten months from the date of NDA receipt to review and act on a standard NDA for a drug that is not a new molecular entity. The FDA does not always meet its PDUFA goal dates, and the review process is often extended by FDA requests for additional information or clarification. +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. +Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within designated specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs and assure the integrity of the clinical data submitted to the FDA. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. +If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post-marketing trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing trials or surveillance programs. +28 +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or fails to submit a request for approval of a pediatric formulation. +U.S. Expedited Development and Review Programs +The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a Fast Track designated product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. A Fast Track-designated product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted. Rolling review may occur if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or as a combination therapy with one or more other drugs may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +A marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review. A product candidate is eligible for priority review if it is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, or with respect to non-new-molecular-entity NDAs, within six months of the NDA receipt date. +Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may utilize an accelerated approval pathway upon a determination that the product has an effect on (1) a surrogate endpoint that is reasonably likely to predict clinical benefit or (2) a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to withdrawal of its approval if, for example, the sponsor fails to conduct the required post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the pre-approval review period, which could adversely impact the timing of the commercial launch of the product. +Fast Track designation, Breakthrough Therapy designation, priority review designation, and the accelerated approval pathway do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval, but may expedite the development or review process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +U.S. Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDA provides periods of non-patent regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace. Five years of exclusivity are available to new chemical entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent, or not involving +29 +the sharing of electron pairs between atoms, derivatives, such as a complex (i.e., formed by the chemical interaction of two compounds), chelate (i.e., a chemical compound), or clathrate (i.e., a polymer framework that traps molecules), of the molecule, responsible for the physiological or pharmacological activity of the drug substance. During the exclusivity period, the FDA may not accept for review or approve an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted by another company that contains the same active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a Paragraph IV certification of patent invalidity, unenforceability, or non-infringement is filed. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active ingredient for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a 505(b)(1) NDA; however, an applicant submitting a 505(b)(1) NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy. +The FDA may also grant pediatric exclusivity, which provides a six-month extension to existing regulatory or patent exclusivity. To be eligible for pediatric exclusivity, the FDA must issue a Written Request detailing the trials to be performed and the timeframe for their completion. If an applicant agrees to perform the trials as outlined in the Written Request, the applicant must submit trial reports at least nine months prior to the expiry of the exclusivity that is to be extended. The trial reports must demonstrate that the applicant has met the conditions of the Written Request. +U.S. Post-approval Requirements +Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. In rare cases, pre-approval of promotional materials may be required. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. Further, for certain modifications to the drug, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain prior FDA approval of a new NDA or NDA supplement, which may require the development and submission of additional data. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements in the event of a deviation. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and other tracking requirements and must notify the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market trials or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• +restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• +fines, warning letters or untitled letters; +• +clinical holds on clinical trials; +• +refusal of the FDA to approve pending applications or supplements to approved applications or suspension or revocation of product approvals; +• +product seizure or detention or refusal to permit the import or export of products; +• +consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• +mandated modification of promotional materials and labeling and the issuance of corrective information; +30 +• +the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• +injunctions or the imposition of civil or criminal penalties. +The FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s promotional communications on the subject of off-label use of their products. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labeling. +Other Healthcare Laws +In the United States, drug manufacturers and sponsors are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, and other healthcare fraud and abuse laws, as follows: +The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving, or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for, or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federal healthcare programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +The federal false claims laws, including the federal False Claims Act (the “FCA”), prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil FCA may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil FCA. +In addition, the civil monetary penalties statute, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program. +The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” and their respective subcontractors that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information. +The federal Physician Payments Sunshine Act requires applicable manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”), information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals including physician assistants and nurse practitioners, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. +There are federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, and such reported prices may be used in the calculation of reimbursement and/or discounts on approved products. +31 +Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing information and marketing expenditures or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws and other applicable healthcare fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. +Coverage and Reimbursement +Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. In the United States, no uniform policy exists for coverage and reimbursement for pharmaceutical products among third-party payors. Therefore, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The process for determining whether a third-party payor will provide coverage for a product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. +Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, and they often require us to provide scientific and clinical support for the use of our products to each payor separately, which can be a time- consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Additionally, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. +Moreover, as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid, we are subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain price reporting metrics to the government, such as Medicaid Average Manufacturer Price (“AMP”), and Best Price, Medicare Average Sales Price, the 340B Ceiling Price and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with such laws and regulations require significant resources and any findings of non-compliance may have a material adverse effect on our revenues. +Healthcare Reform +In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system and the reimbursement of drug products. For example, on August 16, 2022, President Biden signed the Inflation Reduction Act (the "IRA") into law which sets forth meaningful changes to drug product reimbursement by Medicare. The IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered Medicare and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions began to take effect in 2023, although several significant challenges concerning the provisions for Medicare price negotiations are currently pending before federal appeals courts. With respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B or Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or D drugs in 2028 and 20 Part B or Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least 7 years and biologics that have been licensed for 11 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. CMS may establish a maximum price for these products in price negotiations. +The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increased the price of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in +32 +2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +These provisions of the IRA may heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products. +In addition as a result of the Budget Control Act of 2011, health care providers are subject to Medicare payment reductions of 2% per fiscal year. This 2% reductions was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. In November 2019, CMS issued a final rule finalizing the changes to the Medicare Quality Payment Program. +There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the first Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. In addition, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate price cap as of January 1, 2024. Further, in July 2021, the Biden administration released an executive order that included multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug price reform. The plan sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions by HHS. No legislative or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. +Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs and suppliers will be included in their healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. +We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act) that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act, the California Privacy Rights Act and the European General Data Protection Regulation 2016/679 (“GDPR”), govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Privacy and security laws, regulations and other obligations are +33 +constantly evolving, and these may conflict with each other which makes compliance efforts more challenging. Failure to comply with these laws, where applicable, can result in (i) the imposition of significant civil claims; (ii) private litigation; (iii) regulatory investigations and proceedings; (iv) significant penalties imposed by regulators; (v) enforcement notices and restrictions on data processing, requiring us to stop or change the way we use personal information; and (vi) negative publicity, reputational harm and a potential loss of business and goodwill. +Regulation and Procedures Governing Approval of Medicinal Products in the EU +In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales, manufacturing and distribution of our product candidates to the extent we choose to sell any of our product candidates outside of the United States. Whether or not we obtain FDA approval for a product, we or our third-party partners must obtain approval of a product by equivalent competent authorities in foreign jurisdictions before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that is approved outside the United States. +Medicinal products in the EU must be granted a marketing authorization (“MA”) before they can be marketed and sold in any EU member state. The process to obtain an MA requires the satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety, quality and efficacy of the medicinal product for each proposed therapeutic indication. It also requires the submission to the relevant competent authorities of an EU marketing authorization application (“MAA”) and granting of an MA by these authorities. The aforementioned EU rules are applicable in the European Economic Area (“EEA”), which consists of the 27 EU member states, as well as Norway, Liechtenstein and Iceland. +Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, the authorization of medicinal products and marketing of such products, both before and after grant of the MA, or with other applicable regulatory requirements may result in administrative, civil, or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal, or variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. +EU Non-Clinical Studies and Clinical Trials +Similar to the United States, the various phases of non-clinical research in the EU are subject to significant regulatory controls. +Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical substances. Non-clinical health and environmental safety studies must be conducted in compliance with the principles of GLP, as set forth in Directive 2004/10/EC. In particular, non-clinical health and environmental safety studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements. Research involving animals conducted within the EEA must comply with relevant national implementations of Directive 2010/63/EU, requiring that such testing is carried out in licensed facilities with appropriate staff and in compliance with animal welfare standards. +Until recently, the Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP, the Directive 2003/94/EC on GMP and the related national implementing provisions of the individual EU member states governed the system for the approval of clinical trials and the investigational medicinal product supply chain in the EU. As of January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 took effect and replaced the Clinical Trials Directive 2001/20/EC. Commission Implementing Regulation (EU) 2017/556 replaces the GCP Directive 2005/28/EC, and Commission Delegated Regulation (EU) 2017/1569 replaces the GMP Directive 2003/94/EC with respect to investigational medicinal products. Pursuant to transitional provisions under the Regulation, qualifying trials could continue to be governed by the national implementations of the Directives until January 31, 2025 if (i) a request for approval was submitted prior to January 31, 2022 or (ii) a request for approval was submitted prior to January 31, 2023 and the sponsor elected to follow the national implementations of the Directives instead of the Regulation. All ongoing clinical trials in the EU will be subject to the requirements of the Regulation after January 31, 2025. +The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of the regulation include: a streamlined application procedure via a single-entry point, the Clinical Trials Information System; a single set of documents to be prepared and submitted for the application, as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is jointly assessed by the competent authorities of all EU member states in which an application for authorization of a clinical trial has been submitted (member states concerned). Part II is assessed separately by each member state concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU member state. However, overall related timelines are defined by the Clinical Trials Regulation. +34 +Under either the Clinical Trials Directive or the Clinical Trials Regulation, clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and, if intended for regulatory submissions, the International Conference on Harmonization (“ICH”), guidelines on GCP, as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EEA, it must appoint an entity within the EEA to act as its legal representative. +Under the Clinical Trials Directive, the sponsor was obliged to take out a clinical trial insurance policy and/or maintain an appropriate indemnity or compensation scheme for clinical trial subjects, and in most EU member states, the sponsor was liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial. Similarly, the Clinical Trials Regulation prescribes that member states must implement a scheme providing for compensation for damage caused by participation in clinical trials within their territory in the form of insurance, a guarantee, or a similar arrangement that is equivalent as regards its purpose and which is appropriate to the nature and the extent of the risk. +Under the applicable regulatory system, an applicant must obtain prior approval from the competent national authority of the EEA member states in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific trial site after the competent ethics committee has issued a related favorable opinion. The application for authorization of a clinical trial must be accompanied by, among other documents, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation as prescribed by the Clinical Trials Regulation (EU) No 536/2014 and the Implementing Regulation (EU) 2017/556, as applicable, and further detailed in applicable guidance documents. Any substantial changes to the trial protocol or to other information submitted with the clinical trial application must be notified to or approved by the relevant competent national authorities and ethics committees. Medicinal products used in clinical trials must be manufactured in accordance with GMP, including in accordance with Commission Delegated Regulation (EU) 2017/1569. +EU Marketing Authorizations +To obtain an MA for a product in the EU, an applicant must submit an MAA either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in the EEA member states (decentralized procedure, national procedure, or mutual recognition procedure). An MA may be granted only to an applicant established in the EEA. +The centralized procedure comprises a single application, evaluation and authorization and provides for the grant of a single MA by the European Commission that is valid for all EU member states, and by extension also in the three EEA states. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for (i) medicinal products derived from biotechnological processes, (ii) products designated as orphan medicinal products, (iii) advanced therapy medicinal products and (iv) products with a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, auto-immune and other immune dysfunctions and viral diseases. For products with a new active substance indicated for the treatment of other diseases and products that are a significant therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients, the centralized procedure may be optional. +Under the centralized procedure, the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing MA. +Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of 210 days will be reduced to 150 days (not including clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. +Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as the Priority Medicines ("PRIME") scheme, which provides incentives similar to the breakthrough therapy designation in the United States. PRIME is a voluntary scheme aimed at enhancing the EMA's support for the development of medicinal products that show the potential to target unmet medical needs. It permits increased interaction and early dialogue with companies developing promising medicinal products, to optimize their product development plans and speed up their evaluation to help the product reach patients as early as possible. Product developers that benefit from PRIME designation are potentially eligible for accelerated assessment of their MAA although this is not guaranteed. Benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated MAA assessment once a dossier has been submitted. +Unlike the centralized authorization procedure, the decentralized MA procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU member state in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU member state prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report +35 +and related materials are submitted to the concerned EU member states who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU member state cannot approve the assessment report and related materials due to concerns relating to a potentially serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralised Procedures—Human ("CMDh") for review. The CMDh seeks to resolve the issue by achieving a negotiated consensus amongst participating member states. If that is not possible, the issue may be referred to the CHMP. The CHMP will allow submissions from the applicant and, having considered the relevant issues and data, will issue an opinion by majority vote. The Committee will then send the opinion to the European Commission, which will adopt a decision that is binding on the applicant and all EU relevant member states. +The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU member state to apply for this authorization to be recognized by the competent authorities in other EU member states. Like the decentralized procedure, the mutual recognition procedure is based on the acceptance by the competent authorities of the EU member states of the MA of a medicinal product by the competent authorities of other EU member states. The holder of a national MA may submit an application to the competent authority of an EU member state requesting that this authority recognize the MA delivered by the competent authority of another EU member state. +In principle, any EU MA has an initial validity of five years. The MA may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU member state in which the original MA was granted. To support the application, the MA holder must provide the EMA or the competent authority with a consolidated version of the Common Technical Document, providing up-to-date data concerning the quality, safety and efficacy of the product, including all variations introduced since the MA was granted, at least nine months before the MA ceases to be valid. The European Commission or the competent authorities of the EU member states may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year renewal period for the MA. Once subsequently definitively renewed, the MA shall be valid for an unlimited period. Any authorization that is not followed by the actual placing of the medicinal product on the EU market (in case of centralized procedure) or on the market of the authorizing EU member state within three years after authorization ceases to be valid (the so-called sunset clause). +In the EU, a “conditional” MA may be granted to meet the unmet medical needs of patients for medicinal products intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening diseases in cases where all the required safety and efficacy data are not yet available. The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once the specific obligations under the conditional MA are fulfilled (such as the completion of certain ongoing or new trials) and the complete data confirm that the medicinal product’s benefits continue to outweigh its risks, the conditional MA can be converted into a standard MA. However, if the specific obligations are not fulfilled within the timeframe set by the EMA, the conditional MA may cease to be renewed. +An MA may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to provide comprehensive information or when generating data may be contrary to generally accepted ethical principles. Like a conditional MA, an MA granted in exceptional circumstances is reserved for medicinal products intended to be authorized for the treatment of rare diseases or unmet medical needs for which the applicant does not hold a complete data set that is required for the grant of a standard MA. While an MA under exceptional circumstances may be subject to an obligation to conduct post-approval studies, unlike the conditional MA, an applicant for authorization in exceptional circumstances is not required to provide the missing data on the medicinal product’s efficacy and safety necessary to convert the conditional MA into a standard MA. Subject to renewal after five years (as with all standard MAs), the MA “under exceptional circumstances” is granted definitively, but the risk-benefit balance of the medicinal product is reviewed annually and the MA is withdrawn in case the risk-benefit ratio is no longer favorable. +In addition to an MA, various other requirements apply to the manufacturing and placing on the EU market of medicinal products. Manufacture of medicinal products in the EEA requires a manufacturing authorization, and import of medicinal products into the EEA requires a manufacturing authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance. These requirements include compliance with EU GMP standards when manufacturing medicinal products and active pharmaceutical ingredients (“API”), including the manufacture of APIs outside of the EU with the intention to import the APIs into the EU. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws, regulations and guidelines, including good distribution practice (“GDP”) standards and the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU member states. MA holders, manufacturing and import authorization (“MIA”) holders or distribution authorization holders may be subject to civil, criminal or administrative sanctions, including suspension of the MA, MIA or distribution authorization, in case of non-compliance with the EU or EU member states’ requirements applicable to the manufacturing, import and distribution of medicinal products. +EU Data and Market Exclusivity +The EU provides opportunities for data and market exclusivity related to MAs. Upon receiving an initial MA, innovative medicinal products that comprise a new active substance are entitled to eight years of data exclusivity and ten years of market exclusivity. Data exclusivity, if granted, prevents generic or biosimilar product manufacturers from referencing the innovator’s preclinical and clinical data in +36 +generic or biosimilar MAAs for eight years from the date of authorization of the innovative product, after which a generic or biosimilar MAA can be submitted, and the innovator’s data may be referenced. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until ten years have elapsed from the initial MA of the reference product in the EU. The overall ten-year period may, occasionally, be extended for a further year to a maximum of 11 years if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, there is no guarantee that an innovative medicinal product will be considered by the EU’s regulatory authorities to be a new active substance eligible for data and market exclusivity. These periods of data and market exclusivity may also be granted for a new MA for an existing active substance if the applicant is unrelated to the original MA holder and the MAA comprises a full free-standing dossier with relevant preclinical and clinical data +In the EU, there is a special regime for biosimilars products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials regarding biosimilarity must be provided in support of an MAA. +In April 2023, the European Commission proposed widespread changes to the existing pharmaceutical legislation that would, among other things, alter the data exclusivity periods available to MA holders if adopted into EU law. +EU Post-Approval Requirements +Where an MA is granted in relation to a medicinal product in the EU, the holder of the MA is required to comply with a range of regulatory requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. +Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission or the competent regulatory authorities of the individual EU member states. The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”). +All new MAAs must include a risk management plan describing the risk management system the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety trials. +In the EU, the advertising and the promotion of medicinal products are subject to both EU and EU member states’ laws governing promotion of medicinal products, interactions with physicians and other healthcare professionals or organizations, misleading and comparative advertising and unfair commercial practices. Although the general requirements for the advertising and the promotion of medicinal products are established under EU directives, the details are governed by laws and regulations in each member state and can differ from one country to another. For example, applicable laws prohibit pre-authorization and misleading advertising and require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with an MA. The SmPC is the document that provides information to physicians concerning the safe and effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of prescription medicinal products is also prohibited in the EU. There is also a prohibition on the offer or supply of inappropriate inducements to prescribe, subject to exemptions in certain jurisdictions, such as benefits that are inexpensive and relevant to the practice of medicine. +Proposals to amend EU pharmaceutical laws +In April 2023, the European Commission released proposals to amend the current EU pharmaceutical regulatory framework. The proposals seek to achieve a balance between supporting innovation and increasing the affordability and geographic availability of medicines. The potential reforms include shortening and modulating the periods of regulatory and/or marketing protections available for innovative products, requiring applicants to include environmental impact assessments in MAAs, increasing transparency and disclosure requirements, and restructuring the EMA’s scientific committees. The European Parliament adopted its position on the proposals on April 10, 2024 and the European Council is expected to adopt its position in 2025. Further trialogue negotiations between the European Commission, European Parliament and the European Council will then begin before the proposed reforms can enter into force under EU legislative procedures. Depending on the progress of these negotiations, legislative changes, if any, are not expected to come into force until 2026 at the earliest. It is also expected that there will further transition periods for most, if not all, of the new rules once the necessary legislation becomes effective. +Japanese Drug Regulation +Japan is a member of the ICH, and has pharmaceutical law and regulations that are similar in many respects those of the United States and the EU. Those requirements are embodied in the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (also known as the Pharmaceuticals and Medical Devices Act) and related cabinet orders, Ministerial ordinances, and guidelines. +37 +Clinical trials of medicinal products in Japan must be conducted in accordance with Japanese regulations and the ICH GCP guidelines. If the sponsor of the clinical trial is not an entity within Japan, it must appoint a domestic entity to act as its agent and carry out obligations on the overseas sponsor’s behalf. The sponsor must hold a clinical trial insurance policy, and in accordance with industry practice, should establish a compensation policy for the injuries from the trial. +Prior to the commencement of human drug clinical trial, the sponsor must complete a preclinical safety evaluation of the investigative product and submit a clinical trial notification, including the clinical trial protocol, to the Ministry of Health Labor and Welfare’s PMDA. This notification must be submitted after obtaining agreement of the IRB in relevant clinical trial institution(s). If the authorities do not raise an issue or comment on the notification application within 30 days, the sponsor may proceed to conclude clinical trial agreement(s) with the site(s) and commence the clinical trial. +Any substantial changes to the trial protocol or other information submitted must be cleared by the IRB and notified to the authorities. Medicines used in clinical trials must be manufactured in accordance with Japan’s cGMPs. +Non-clinical studies performed to demonstrate the safety of new chemical or biological substance must be conducted in compliance with the principles of Japanese GLP which reflect the Organization for Economic Co-operation and Development (“OECD”) requirements. Currently, Japan and EU have a mutual recognition agreement for GLP, and data generated compliant with EU requirements will be accepted by the Japanese authorities. There is no similar agreement with the United States, but this is not a significant issue because of the OECD arrangement. +To market an innovative medicinal product in Japan, domestic or overseas applicant must obtain government approval (or marketing authorization) through a new drug application. If the product is designed for treating certain difficult diseases or those for which the patient population is limited and demonstrates unique therapeutic value, the applicant may be able to obtain designation as an orphan drug product. There are also expedited programs for (i) truly innovative products for grave diseases with a unique mechanism of action (provided that development in Japan is concurrent or ahead of other jurisdictions) and (ii) products that satisfy certain unmet medical needs. +The evaluation of new drug applications is based on PMDA’s assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Once PMDA completes its review, the matter is considered by the advisory committee of experts, and the government grants approval upon any positive recommendation from the committee. If foreign data are part of the application, a dose response clinical trial for Japanese subjects may be required to ensure that data can be extrapolated to Japan’s population. +Separate from the approval requirement, it is also mandatory that the marketing authorization holder or its partner in Japan possess a drug marketing license. Companies in Japan that actually manufacture drugs must possess a drug manufacturing license, and overseas manufacturers must obtain a manufacturing certification. +People’s Republic of China (“PRC”) Drug Regulation +China heavily regulates the development, approval, manufacturing, and distribution of drugs, including biologics. For purposes of the below description of drug regulation in China, Hong Kong, Macao and Taiwan, which are governed by separate drug laws, are excluded. The regulatory requirements applicable depend, in part, on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval or “registration” category of the drug. For both imported and domestically manufactured drugs, China requires regulatory approval for a clinical trial application (“CTA”) to conduct clinical trials in China and submit China clinical trial data, prior to submitting an application for marketing approval. For imported drugs, the sponsor and marketing authorization holder must be an overseas company that, if the drug is already approved abroad, holds a marketing authorization in another country. +China also prioritizes review and approval of drugs and improvements to drugs (e.g., new indications, routes of administration) that have not yet been approved in any other jurisdiction (i.e., new to the world). In addition, China has created a set of expedited programs for drugs in high priority disease areas and drugs that more effectively treat life-threatening illnesses or that are needed for national emergencies. +The framework law in the drug space in China is the PRC Drug Administration Law (“DAL”). The DAL is implemented by various regulations and rules. The primary drug authority that regulates the life cycle of drugs is the NMPA. The NMPA has its own set of regulations, rules and guidelines further implementing the DAL. The rule governing CTAs, marketing approval, and post-approval amendment and renewal is known as the Drug Registration Regulation (“DRR”). +NMPA’s Center for Drug Evaluation (“CDE”) approves clinical trials and conducts the technical evaluation of each drug and biologic marketing application to assess safety and efficacy. Provincial-level medical products administrations help to enforce these rules, and issue entity licenses to domestic companies, such as drug manufacturing and distribution licenses. +The National Health Commission of the PRC (“NHC”) is China’s primary healthcare regulatory agency. It is responsible for regulating the health care system, including the licensure of medical institutions, which also serve as clinical trial sites, and credentialing of medical personnel. +38 +PRC Breakthrough Therapy Designation by the NMPA +Among other expedited programs, China administers a Breakthrough Therapy Designation. To qualify, a drug must be new to the world, intended to treat a life-threatening disease or one that can seriously impact quality of life, and for which there is no existing therapy in China or a demonstrated substantial improvement over available therapies. Drugs that are designated as breakthrough therapies will receive priority in meeting scheduling, enhanced guidance from CDE to expedite drug development, and may also qualify for other expedited programs, such as priority review and conditional approval. +PRC Non-Clinical Research +The NMPA requires preclinical data to support registration applications for imported and domestic drugs. For domestic laboratories, NMPA oversees an accreditation program pursuant to China’s GLP. If the preclinical research is conducted outside of China, then the applicant must sign and submit a certification with its CTA and marketing application stating that such research was conducted in accordance with applicable good laboratory practice rules. +PRC Clinical Trials and Regulatory Approval +Upon completion of preclinical studies, a sponsor will often need to conduct clinical trials in China to support registration. The materials required for a clinical trial application are substantial even at the CTA stage, including detailed manufacturing information. Drug registration trials in China many only be conducted after obtaining approval of a CTA submitted to CDE, approval of the ethics committee at each accredited hospital site, and human genetic resource approval (“HGR”), which is required for the collection of samples and certain associated data. CTAs may be approved in 60 business days if there is no comment from CDE, and the other applications can take approximately 3-4 months each. Prior to consenting subjects, information about clinical trials must be registered on a CDE-administered platform and continually updated during the trial, and certain information, not including the protocol, is made publicly available on the platform. +PRC Trial Exemptions and Acceptance of Foreign Data +The NMPA may reduce requirements for clinical trials and data, depending on the drug and the existing data. In some cases, NMPA has granted waivers for certain phases of trials and has stated that it will accept data generated abroad (even if not part of a global study with a site in China), including early phase data, that meets its requirements. According to the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data the data from foreign clinical trials must meet China’s authenticity, completeness, accuracy, and traceability requirements, and be obtained consistent with the relevant requirements under the China’s Drug GCP. Sponsors must be attentive to potentially meaningful ethnic differences in the subject populations. +PRC Clinical Trial Process and Good Clinical Practices +Pre-market drug clinical trials may have three phases, which can each require a CTA (unless one CTA covers all three). These clinical trials must be conducted in accordance with a protocol that NMPA, various ethics committees at different sites, and the Ministry of Science and Technology (which grants HGR approvals) all review as part of the aforementioned approvals, and in accordance with applicable drug rules, including China’s Drug GCP, issued jointly by NMPA and NHC. Trials must also be conducted at sites that have received credentials from the NHC and NMPA. +China is a member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“ICH”), so its GCP resemble the ICH GCP in a great many respects. However, there are some differences. For example, under China’s GCP the sponsor must provide legal and economic guarantee to the investigator for clinical trial-related injuries, but harm or death caused by medical negligence is excluded. The drug rules contain procedures for amending the clinical trial approval, including obtaining approval for safety-related protocol amendments. NMPA (specifically, its Center for Food and Drug Inspections) has the power to audit trials and sites for GCP compliance during and after the clinical trial. +PRC Drug Marketing Application and Approval +Upon completion of the development process, the applicant may submit a marketing authorization application to CDE. CDE will organize pharmaceutical, medical, and other technical personnel to conduct a review of the safety, efficacy, and quality controllability of the drug based on the application materials submitted, and the results of a verification and inspection (if required). If NMPA decides to approve the drug based on CDE’s opinion, it will issue a drug registration certificate (i.e., a marketing authorization). A marketing authorization must be renewed every five years. +As the marketing authorization holder (“MAH”), a drug company is responsible for the life cycle of the product, including development, production and distribution, post-market trials, routine annual reporting, and safety monitoring and reporting of adverse drug reactions, among other obligations. The MAH may engage third parties to fulfill some of these obligations, such as appropriately-qualified manufacturers and distributors. If the MAH is overseas, as is required for imported drugs, the MAH must appoint an agent, which must be an entity in China that assists with meeting regulatory obligations. Marketing authorizations can be transferred to entities with the required capacity. +39 +Both investigational and marketed drugs must be made in accordance with China GMPs. Domestic manufacturers must have a drug manufacturing license, and overseas manufacturers must certify that they will make drugs in accordance with GMP and meet their home country’s requirements. Drugs must be distributed in China by licensed drug distributors. +Competition +The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical companies, smaller biotechnology and specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial and technical human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA-approved drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete. +We believe the key competitive factors that will affect the development and commercial success of our obicetrapib product candidate, if approved, will be its enhanced LDL-lowering capability as a monotherapy or as a combination therapy, tolerability profile, convenience of oral dosing and availability of reimbursement from governmental and other third-party payors, and effect on other predictors of disease risk. +We are currently developing obicetrapib primarily for the treatment of patients at high cardiovascular risk with elevated levels of LDL-C as an adjunct to statins. If approved, obicetrapib would compete with approved non-statin treatments such as ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors such as Repatha, Praluent and Leqvio. There are also a number of product candidates in clinical development by third parties, such as Amryt Pharma, Arrowhead Pharmaceuticals, AstraZeneca, CVI Pharmaceuticals, Innovent Biologics, Ionis Pharmaceuticals, Matinas BioPharma, Merck, Novartis, Novo Nordisk, Regeneron Pharmaceuticals, Verve Therapeutics and others, that are intended to treat CVD. +Employees and Human Capital Resources +As of December 31, 2024, we had 68 employees, consisting of clinical, research and development, business development, regulatory, finance and operational personnel. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good. In addition, as of December 31, 2024, we engaged a total of 13 independent contractors. These independent contractors provide a diverse array of services, which includes assisting with our clinical development, manufacturing activities and regulatory obligations. +No Works Council or other employee representative body ( personeelsvertegenwoordiging ) is established within the Company, NewAmsterdam Pharma Holding B.V. or NewAmsterdam Pharma B.V. +We recognize that our continued ability to attract, retain and motivate exceptional employees is vital to ensuring our long-term competitive advantage. Our employees are critical to our long-term success and are essential to helping us meet our goals. Among other things, we support and incentivize our employees in the following ways: +• +Talent development, compensation and retention : We strive to provide our employees with a rewarding work environment, including the opportunity for growth, success and professional development. We provide a competitive compensation and benefits package, including bonus and equity incentive plans and a 401(k) plan for US employees—all designed to attract and retain a skilled and diverse workforce. +• +Health and safety : We support the health and safety of our employees by providing comprehensive insurance benefits, company-paid holidays, a personal time-off program and other additional benefits which are intended to assist employees to manage their well-being. +• +Inclusion and diversity : We are committed to efforts to increase diversity and foster an inclusive work environment that supports our workforce. +Corporate Information +Our legal and commercial name is NewAmsterdam Pharma Company N.V. We were incorporated as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands on June 10, 2022, solely for the purpose of effectuating the Business Combination. As part of the Business Combination, we converted our legal form to a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on November 21, 2022. The Company is registered with the Dutch Trade Register under number 86649051. The address of our registered office is Gooimeer 2-35 1411 DC Naarden, the Netherlands and the telephone number of the Company is +31 (0) 35 206 2971. Our agent in the United States is our subsidiary, NewAmsterdam Pharma Corporation. NewAmsterdam Pharma Corporation’s address is 20803 Biscayne Blvd, Suite #105, Aventura, Florida. +On November 22, 2022 (the “Closing Date”), we consummated a business combination pursuant to the Business Combination Agreement, dated as of July 25, 2022 (the “Business Combination Agreement”), by and among the Company, Frazier Lifesciences Acquisition +40 +Corporation, a Cayman Islands exempted company (“FLAC”), NewAmsterdam Pharma, and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company (“Merger Sub”). +Beginning on the day immediately prior to the Closing Date and finishing on the day immediately after the Closing Date, the following transactions occurred pursuant to the terms of the Business Combination Agreement (collectively, the “Business Combination”): +• +The shareholders of NewAmsterdam Pharma (“Participating Shareholders”) contributed all outstanding shares in the capital of NewAmsterdam Pharma to the Company in exchange for the issuance of ordinary shares, nominal value €0.12 per share (the “Ordinary Shares”), in the share capital of the Company (the “Exchange”); +• +Immediately after giving effect to the Exchange, the Company’s legal form was converted from a Dutch private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) to a Dutch public limited liability company ( naamloze vennootschap ); +• +After giving effect to the Exchange, Merger Sub merged with and into FLAC (the “Merger”), with FLAC surviving the merger as a wholly owned subsidiary of the Company; +• +In connection with the Merger, each issued and outstanding ordinary share of FLAC was canceled and extinguished in exchange for a claim for an Ordinary Share, and such claim was then contributed into the Company against the issuance of a corresponding Ordinary Share; +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms; +• +Each NewAmsterdam Pharma option that was outstanding and unexercised (“NewAmsterdam Pharma Options”) remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Options became options to purchase, and will when exercised be settled in Ordinary Shares; and +• +On the day following the Closing Date, FLAC changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). +Upon the achievement of a certain clinical development milestone, we will issue to the Participating Shareholders (including Saga Investments Coöperatief U.A. (“Amgen”), an affiliate of Amgen, Inc., and Mitsubishi Tanabe Pharma Corporation (“MTPC”) for this purpose) and holders of NewAmsterdam Pharma Options prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma as of the date of the Business Combination Agreement and who are at the time of achievement of such milestone providing services to the Company or its subsidiaries (the “Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders will take the form of awards of restricted stock units under the LTIP. As of December 31, 2024, 1,743,135 Earnout Shares and 143,002 Earnout Shares were allocated to Participating Shareholders and Participating Optionholders, respectively. The development milestone consists of the achievement and public announcement of Positive Phase 3 Data (as defined in the Business Combination Agreement) for each of NewAmsterdam Pharma’s BROADWAY clinical trial and BROOKLYN clinical trial at any time during the period beginning on the date immediately prior to the Closing Date and ending on the date that is five years after the date immediately after the Closing Date, or November 23, 2027. As a result, no Earnout Shares will be issuable if the applicable milestone is not achieved within five years of the Closing Date. +Prior to the Business Combination, we did not conduct any material activities other than those incident to our formation and certain matters related to the Business Combination, such as the making of certain required securities law filings. Upon the closing of the Business Combination, NewAmsterdam Pharma became our direct, wholly owned subsidiary, and holds all of our material assets and conducts all of our business activities and operations. +Available Information +Our website address is www.newamsterdampharma.com . Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. We file reports with the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Our website also includes our Annual Report on Form 20-F and information furnished on Form 6-K filed while we were a foreign private issuer. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. +41 \ No newline at end of file diff --git a/raw/filings/0001936258/2024/0000950170-25-027339/item13.txt b/raw/filings/0001936258/2024/0000950170-25-027339/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..041f263b58bea7a400704a6635fa642d03054a55 --- /dev/null +++ b/raw/filings/0001936258/2024/0000950170-25-027339/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +126 \ No newline at end of file diff --git a/raw/filings/0001936258/2025/0001193125-26-056029/filing.txt b/raw/filings/0001936258/2025/0001193125-26-056029/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..3e283953afb02664938a55e3775350ae00577fba --- /dev/null +++ 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iso4217:USD nams:Security +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, DC 20549 +FORM 10-K +☒ +ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _______ to _______ +Commission File Number 001-41562 +NewAmsterdam Pharma Company N.V. +(Exact Name of Registrant as Specified in Its Charter) +The Netherlands +N/A +(State or Other Jurisdiction of +Incorporation or Organization) +(IRS Employer +Identification No.) +Gooimeer 2-35 +1411 DC Naarden +The Netherlands +(Address of Principal Executive Offices) ++31 (0) 35 206 2971 +(Registrant’s Telephone Number, Including Area Code) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which +registered +Ordinary shares, nominal value €0.12 per share +NAMS +The Nasdaq Stock Market LLC +Warrants to purchase ordinary shares +NAMSW +The Nasdaq Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerate filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): +Large Accelerated Filer +☑ +Accelerated Filer +☐ +Non- Accelerated Filer +☐ +Smaller Reporting Company +☐ +Emerging Growth Company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ +The aggregate market value of the registrant’s ordinary shares held by non-affiliates was $ 1,345,893,076 as of June 30, 2025 (the last business day of the registrant’s most recently completed second fiscal quarter), based on a total of 74,317,674 ordinary shares held by non-affiliates and a closing price of $18.11 as reported on the Nasdaq Global Market on June 30, 2025. +As of February 5, 2026, there were 114,975,422 of the registrant’s ordinary shares, nominal value €0.12 per share, outstanding. +1 +NewAmsterdam Pharma Company N.V. +ANNUAL REPORT ON FORM 10-K +FOR THE FISCAL YEAR ENDED DECEMBER 31, 2025 +TAB LE OF CO NTENTS +Page +PART I +Item 1. +Business +7 +Item 1A. +Risk Factors +44 +Item 1B. +Unresolved Staff Comments +89 +Item 1C. +Cybersecurity +89 +Item 2. +Properties +90 +Item 3. +Legal Proceedings +90 +Item 4. +Mine Safety Disclosures +90 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +91 +Item 6. +[Reserved] +92 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +93 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +101 +Item 8. +Financial Statements and Supplementary Data +102 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +102 +Item 9A. +Controls and Procedures +102 +Item 9B. +Other Information +103 +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +103 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +104 +Item 11. +Executive Compensation +109 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +127 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +131 +Item 14. +Principal Accountant Fees and Services +133 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +134 +Item 16. +Form 10-K Summary +135 +Signatures +136 +Financial Statements +F- 1 +____________________ +Unless otherwise stated or the context otherwise indicates, references to “we,” “our,” “us” or the “Company” refer to NewAmsterdam Pharma Company N.V., together with its subsidiaries. +2 +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K (“Annual Report”) contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide the Company’s current expectations or forecasts of future events. Forward-looking statements include statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will” and “would,” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. +Forward-looking statements in this Annual Report and in any document incorporated by reference in this Annual Report may include, for example, statements about: +• +the potential liquidity and trading of the Company’s public securities; +• +the Company’s ability to raise additional capital in sufficient amounts or on terms acceptable to it; +• +the efficacy and safety of the Company’s product candidate, obicetrapib (as a monotherapy and as a fixed dose combination with ezetimibe), as well as potential reimbursement and anticipated market size and market opportunity; +• +the Company’s dependence on the success of obicetrapib, including the obtaining of regulatory approval to market obicetrapib; +• +the timing, progress and results of clinical trials for obicetrapib, including statements regarding the timing of initiation, enrollment and completion of studies or trials and related preparatory work and the period during which results of trials will become available and marketing submissions made; +• +the Company’s ability to attract and retain senior management and key scientific personnel; +• +the Company’s limited experience in marketing or distributing products; +• +managing the risks related to the Company’s international operations; +• +the Company’s ability to achieve the broad degree of physician adoption and use and market acceptance necessary for commercial success; +• +the Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing; +• +developments regarding the Company’s competitors and the Company’s industry; +• +the impact of government laws and regulations; +• +the Company’s reliance on third parties for all aspects of the manufacturing of obicetrapib and for clinical trials; +• +the Company’s efforts to obtain, protect or enforce its patents and other intellectual property rights related to the Company’s product candidate; and +• +other statements relating to the Company's future operations, financial performance and financial condition, prospects, strategies, objectives and other future events. +Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the section titled “ Risk Factors ” in this Annual Report. Accordingly, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. The Company undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Annual Report or to reflect the occurrence of unanticipated events, except as specifically required by law. You should, however, review the factors and risks that the Company describes in the reports it files from time to time with the U.S. Securities and Exchange Commission (the “SEC”). +In addition, statements that “we believe” and similar statements reflect the Company’s beliefs and opinions on the relevant subject. These statements are based on information available to the Company as of the date of this Annual Report. And while the Company believes that information provides a reasonable basis for these statements, that information may be limited or incomplete. The Company’s statements should not be read to indicate that it has conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely on these statements. +Although the Company believes the expectations reflected in the forward-looking statements were reasonable at the time made, it cannot guarantee future results, level of activity, performance or achievements. You should carefully consider the cautionary statements contained or +3 +referred to in this section in connection with the forward-looking statements contained in this Annual Report and any subsequent written or oral forward-looking statements that may be issued by the Company or persons acting on its behalf. +4 +SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS +Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “ Risk Factors ” in Part I, Item 1A of this Annual Report. Some of the more significant risks include the following: +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +• +We are a clinical-stage company with limited operating history, no approved products and no significant historical product revenues, which makes it difficult to assess our future prospects and financial results. We have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate significant product revenue or become profitable or, if we achieve profitability, may not be able to sustain it. +• +We may require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed and on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations. +Risks Related to Our Product Development, Regulatory Approval and Commercialization +• +We are dependent on the success of our only product candidate, obicetrapib, and cannot guarantee that obicetrapib will successfully complete clinical development, receive regulatory approval or, if approved, be successfully commercialized. +• +Clinical drug development involves a lengthy and expensive process with uncertain outcomes. Results of earlier studies and trials may not be predictive of future trial results and our clinical trials may fail to adequately demonstrate the safety and efficacy of obicetrapib. +• +The regulatory approval processes of the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”) and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for obicetrapib, our business will be substantially harmed. +• +Obicetrapib may produce undesirable side effects that we may not have detected in our previous preclinical studies and clinical trials. This could prevent us from gaining approval or market acceptance, including broad physician adoption, for our product candidate if approved, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations. +• +We are developing obicetrapib in combination with other therapies, and safety of supply issues with combination products may delay or prevent development and approval of our combination product candidate. +• +Even if we receive regulatory approval for obicetrapib or our future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses, force us to limit or withdraw regulatory approval and subject us to penalties if we fail to comply with applicable regulatory requirements. +• +Obicetrapib, if approved, will face significant competition from competing therapies and our failure to compete effectively may prevent us from achieving significant market penetration. +• +We currently intend to rely on our collaboration with A. Menarini International Licensing S.A., part of Menarini Group ("Menarini") for the commercialization of obicetrapib, if approved, in certain European areas. Failure or delay of Menarini to fulfill all or part of its obligations to us under the exclusive license agreement , dated June 23, 2022, with Menarini (the "Menarini License"), a breakdown in collaboration between the parties or a complete or partial loss of this relationship could materially harm our business if obicetrapib is approved in the relevant jurisdictions. +Risks Related to Our Business and Strategy +• +We have expanded and expect to continue expanding our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +• +Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations; we may also be exposed to significant foreign exchange risk. +Risks Related to Our Intellectual Property +• +We may not be successful in obtaining all of the necessary intellectual property rights to allow us to develop and commercialize our product candidate, obicetrapib. If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to our product candidates and technologies are not adequate, including due to the risk that we are unaware of prior art that may affect the validity of our patents, we may not be able to compete effectively in our market and we otherwise may be harmed. +5 +• +Third-party claims alleging intellectual property infringement may adversely affect our business, and we may be subject to lawsuits claiming that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which could be expensive and time consuming, delay or prevent the development and commercialization of our products and product candidates, or subject future sales to royalty payments, which could damage our business. +Risks Related to Ownership of Our Securities +• +Sales of a substantial number of our securities in the public market by certain of our securityholders pursuant to a registration statement we filed and/or by our existing securityholders could cause the price of our Ordinary Shares and our warrants, each representing the right to purchase one Ordinary Share at an exercise price of $11.50, to fall. +6 +PART I +Item 1. Business +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient low-density lipoprotein cholesterol (“LDL-C”) lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective cholesteryl ester transfer protein (“CETP”) inhibitor, alone or as a fixed-dose combination (“FDC”) with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of cardiovascular disease (“CVD”) with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. Additionally, we believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering. In each of these trials, side effects were similar in frequency and severity to placebo including muscle-related side effects and drug-related treatment-emergent serious adverse events (“TESAEs”). We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with low or moderately elevated LDL-C levels (“dyslipidemia”) in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with major adverse cardiovascular events (“MACE”) benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial, we observed a 21% reduction in the exploratory MACE endpoint (coronary heart disease death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization) and we are performing a Phase 3 cardiovascular outcomes trial (“CVOT”), PREVAIL, to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, apolipoprotein B (“ApoB”), and small dense lipoprotein particles (“sdLDL-P”). In our clinical trials, we have also observed reductions in lipoprotein(a) (“Lp(a)”), which is believed to be an independent MACE risk factor, along with reductions in total lipoprotein (“LDL”) particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. Atherosclerotic cardiovascular disease (“ASCVD”) is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and heterozygous familial hypercholesterolemia (“HeFH”) outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and an FDC therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in an FDC with ezetimibe, in the majority of European countries (the "Menarini Territory"), if approved. In August 2025, the EMA accepted for review the Marketing Authorization Applications ("MAAs") submitted by Menarini for obicetrapib 10 mg monotherapy and the FDC of 10 mg obicetrapib plus 10 mg ezetimibe for the treatment of primary hypercholesterolemia, including heterozygous familial and non-familial or mixed dyslipidemia. Subsequently, MAAs were also submitted to regulators in the United Kingdom ("UK") and Switzerland and accepted for review. The submissions are supported by data from the BROADWAY, BROOKLYN, and TANDEM pivotal Phase 3 trials. We anticipate that Menarini will receive decisions on the MAAs from each of the regulators in the second half of 2026. If the +7 +MAAs are approved by the regulators, Menarini will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Our current plan is to pursue development and, subject to the receipt of marketing approval, commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and Europe, including in Japan and China. We conducted multiple Phase 3 trials simultaneously, with clinical plans that incorporate feedback from the FDA, the EMA, the Japan Pharmaceuticals and Medical Devices Agency (“PMDA”) and the China National Medical Products Administration (“NMPA”). In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also regularly evaluating the potential acquisition or license of new product candidates. +The following table summarizes our current clinical programs: +* PREVAIL will continue until the last participant has been followed up for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +Note: Other than as noted, this graphic represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. Other than as noted, the timing of regulatory submissions is subject to additional discussions with regulators. +We conducted two Phase 3 pivotal clinical trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We announced topline results for BROOKLYN in July 2024 and for BROADWAY in December 2024, both of which met the primary endpoint for the study with safety and tolerability comparable to placebo. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization in at least 9,000 patients. We completed enrollment in PREVAIL in April 2024. PREVAIL will continue until the last participant has been followed for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +We are also investigating obicetrapib as an FDC with ezetimibe, an oral cholesterol absorption inhibitor and LDL-C lowering therapy, and plan to seek approval for this FDC in parallel with obicetrapib monotherapy. In our Phase 3 TANDEM trial, we evaluated the efficacy and safety of 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents. In November 2024, we reported data from the Phase 3 TANDEM trial, which met its primary and secondary endpoints, with safety and tolerability comparable to placebo. +8 +Our goal is to submit a New Drug Application (“NDA”) in the U.S. for the FDC shortly after submitting an NDA for obicetrapib as a monotherapy. We expect that efficacy and safety data from BROADWAY and BROOKLYN will be described in the FDC product label, if approved. +We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease or diabetes. Evidence suggests that cholesterol accumulation in the brain is a precursor to Alzheimer’s disease. For example, rodents lack the CETP gene and are resistant to Alzheimer’s disease. In early preclinical studies, when the human CETP gene is knocked into a mouse, the cholesterol content of the mouse brain was observed to increase by 25%; when combined with the gene for the amyloid precursor protein, hypothesized to be a driver of Alzheimer’s disease, the risk of developing disease analogous to Alzheimer’s disease was observed to greatly increase in the double transgenic mice. In a preclinical study, we observed that CETP inhibition promoted cholesterol removal from the brain and improved cognition. We commenced a Phase 2a open-label and single-arm trial in early 2022 in patients with early Alzheimer’s disease and the apolipoprotein E4 (“ApoE4”) naturally occurring variant to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the cerebrospinal fluid (“CSF”) compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patients’ plasma was observed and pTau181 levels were observed to be stable. Overall, obicetrapib was observed to be well-tolerated. No serious adverse events (“AEs”) were reported, nor were any AEs considered to be related to the trial drug. +Additionally, in July 2025, we announced data from the prespecified Alzheimer’s disease biomarker analysis in our BROADWAY clinical trial. This analysis evaluated the effect of obicetrapib on plasma biomarkers of Alzheimer’s disease in 1,727 patients with established ASCVD and/or HeFH whose apolipoprotein E (“ApoE”) status was able to be determined based on phenotypic testing, including 367 ApoE4 carriers. Safety in this population was not evaluated independently from the overall BROADWAY study population, where obicetrapib was observed to be well-tolerated, with safety results comparable to placebo. Because this analysis was based on a subset of patients from BROADWAY, it was not controlled for baseline differences between the treatment and placebo population. +In this analysis, treatment with obicetrapib 10 mg daily for 12 months resulted in statistically significant lower absolute changes in plasma p-tau217, a key biomarker of Alzheimer’s disease pathology, in both the analysis set of patients with baseline and end of study datapoints above the lower limit of quantification (p=0.0019; n=1,515) and in ApoE4 carriers (p=0.0215; n=367). Favorable trends were also observed across additional biomarkers, including neurofilament light chain (“NFL”), glial fibrillary acidic protein (“GFAP”), p-tau181, and the Aβ42/40 ratio, in the full analysis set and in ApoE4 carriers, with the greatest effect generally observed in carriers of two E4 proteins. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Clinically demonstrated anti-diabetic benefits have also been observed with CETP inhibition in Phase 3 CVOTs that, if seen in obicetrapib, would differentiate it from current treatment alternatives, especially statin therapy. We are planning preclinical studies to examine the potential of obicetrapib for patients suffering from diabetes and have included new onset of Type 2 diabetes as an endpoint in our PREVAIL CVOT, as measured by AEs indicating Type 2 diabetes, initiation of anti-diabetes medication after confirmed diabetes diagnosis or high levels of hemoglobin A1c and fasting plasma glucose. In the Phase 3 BROADWAY trial, we observed a statistically significant improvement in these prespecified AEs of special interest after one year of treatment that we hope to reconfirm in the PREVAIL CVOT trial. +Our Management Team and Investors +We are led by a world-class team of industry veterans, including some of the world’s preeminent cardiometabolic experts. Dr. Michael Davidson, our Chief Executive Officer and a member of our board of directors (the “Board of Directors”), is a leading expert in the field of lipidology and is a seasoned executive who served as founder and Chief Executive Officer of Corvidia Therapeutics, Inc. and founder and Chief Medical Officer of Omthera Pharmaceuticals, Inc. In addition, Dr. Davidson is board-certified in internal medicine, cardiology and clinical lipidology and has extensive experience designing, managing and evaluating clinical research. Dr. John Kastelein, our founder and Chief Scientific Officer and a member of the Board of Directors, is Emeritus Professor of Medicine at the Department of Vascular Medicine at the Academic Medical Center of the University of Amsterdam. Dr. Kastelein was a co-founder of uniQure N.V. and Xenon Pharmaceuticals Inc. His clinical research on the development of novel therapies for CVD and the genetic basis of dyslipidemia is widely published, and he serves as the Chief Executive Officer of the Vascular Research Network, a site maintenance organization comprising dozens of hospitals in the Netherlands that are involved in clinical trials for cardiometabolic disease. Douglas Kling, our Chief Operating Officer, is an expert in the development of drugs to treat dyslipidemia and CVD, and has managed clinical operations at both Corvidia Therapeutics, Inc. and Omthera Pharmaceuticals, Inc. Ian Somaiya, our Chief Financial Officer, has nearly three decades of experience in senior leadership roles in the biopharmaceutical industry. Mr. Somaiya, our Chief Financial Officer, most recently served as CFO and Chief Business Officer of Elucida Oncology and, before that, as CFO of TCR 2 Therapeutics, where he guided the company through its initial public offering and two subsequent follow-on offerings, as well as led the company’s finance, reporting, business development and investor relations functions. Prior to joining TCR 2 Therapeutics, Mr. Somaiya was a managing director and head of biotechnology research at BMO Capital Markets. He also served as a Managing Director and equity analyst at Nomura Securities, Piper Jaffray and Thomas Weisel Partners. BJ Jones, our Chief Commercial Officer, has three decades of commercial and launch experience in both large pharmaceutical and small biotech companies. Most recently, he served as CCO, Migraine & Common Diseases at Biohaven Pharmaceuticals, and led the commercial enterprise that launched Biohaven’s +9 +Nurtec® ODT. Earlier in his career, Mr. Jones held leadership roles of increasing responsibility at Takeda Pharmaceuticals, AstraZeneca, Bristol-Myers Squibb, Boehringer Ingelheim and NitroMed, during which time he supported mass market product launches for notable brands including Excedrin Migraine®, Farxiga®, Pradaxa®, BiDil®, and Abilify®. +In addition, we are backed by leading life sciences investors, including Frazier Life Sciences, Bain Capital, Forbion, RA Capital and Viking Global. Prospective investors should not rely on the past investment decisions of our investors, as our investors may have different risk tolerances and may have received their securities in prior offerings at a significant discount to the market price. +Cardiovascular Disease and Hyperlipidemia +Market Overview and Unmet Medical Need +According to the World Health Organization, CVD is the leading cause of death globally and was responsible for approximately 20 million deaths, or approximately 32% of all global deaths, in 2022. Hyperlipidemia, more commonly known as high cholesterol, has been observed to nearly double the risk of developing CVD compared to those with normal total cholesterol levels. D espite the availability of lipid lowering therapies, CVD events are on the rise. This increase despite aggressive secondary prevention efforts speaks to the concept known as “residual cardiovascular risk,” defined as the risk of CVD events that persists despite treatment for, or achievement of targets for risk factors such as LDL-C. +LDL-C is the primary cause of ASCVD, and the target of many interventions aimed at reducing risk of cardiovascular events. An LDL-centric approach to risk reduction, namely with lipid lowering therapies, including statins, serves as the foundation for reducing residual cardiovascular risk. Data from a number of cardiovascular outcomes trials suggests that LDL-C is one of the most modifiable risk factors of ASCVD. Currently available strategies for LDL-C-lowering include lifestyle interventions and drug therapies including oral statins, ezetimibe, bempedoic acid, and injectable PCSK9 inhibitor therapies. +Lowering LDL-C has been observed to reduce morbidity and mortality in those with, or at risk of, CVD. The Cholesterol Treatment Trialists Collaboration (“CTT”) showed that lowering of LDL cholesterol by about 40 mg/dL with standard statin regimens safely reduced the 5-year incidence of major coronary events, revascularizations, and ischemic strokes by 23% . They also noted that a more pronounced absolute reduction of LDL-C may lead to substantially greater relative reduction in cardiovascular events. Furthermore, as seen in the Heart Protection Study and the CTT collaboration, benefit was seen in each tertile of baseline LDL-C. Similar relationships have also been documented in non-statin CVOTs for ezetimibe, two PCSK9 inhibitors, evolocumab and alirocumab, and the CETP inhibitor, anacetrapib. These trials have provided evidence that absolute LDL-C reduction and duration of therapy form a consistent model for predicting improved outcomes in patients with established ASCVD. +Despite the availability of current lipid lowering therapies, many patients are unable to achieve their risk-based LDL-C goals. In the United States, we estimate that approximately 30 million patients remain above their risk-based LDL-C goal despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Additionally, we estimate that approximately 10 million patients diagnosed with hypercholesterolemia are receiving no therapy at all. +Patients unable to achieve treatment goals with maximally tolerated statin therapy require additional lipid-lowering therapy. Cholesterol absorption inhibitors, ezetimibe, bempedoic acid or PCSK9 inhibitors are all prescribed as alternatives or adjuncts to statins. However, there are several limitations with these lines of therapy, such as limited efficacy, route of administration, market access hurdles and side effects. +10 +Because PCSK9 inhibitors are injectable, they pose a less attractive option for patients who broadly prefer oral medications, and they have not received the expected utilization by clinicians or patients. The two non-statin oral LDL-C-lowering therapies, ezetimibe and bempedoic acid, often do not provide the efficacy required for many patients, including high-risk ASCVD patients, that have more aggressive LDL-C goals, and bempedoic acid has label warnings of hyperuricemia and tendon rupture. Therefore, there remains a significant unmet medical need for therapies to reduce LDL-C levels and residual cardiovascular risk in a convenient dosage form, and with a more favorable tolerability and safety profile to encourage long-term use and patient compliance. We believe that a potent, convenient, safe and well-tolerated low-dose oral medication to reduce LDL-C could fulfill this unmet need. +Our Solution: Enhanced LDL-C Lowering Through CETP Inhibition with Obicetrapib +We believe that CETP inhibition with obicetrapib has the potential, if approved, to provide patients and physicians with a new oral therapy option to robustly reduce LDL-C. Obicetrapib is designed to be a next-generation, oral, low-dose, highly selective CETP inhibitor with powerful LDL-C lowering capability. We are developing obicetrapib as both a monotherapy and an FDC with ezetimibe and have structured our obicetrapib program to overcome the safety, potency, trial design and commercial viability limitations of prior CETP inhibitors. Further, we believe that obicetrapib’s oral delivery, demonstrated activity in low doses, chemical properties and potential tolerability make it well-suited for combination approaches. +Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable properties as a drug candidate compared to prior CETP inhibitors. We have observed a favorable tolerability profile for obicetrapib in an aggregate of over 3,500 patients with dyslipidemia from Phase 1 through Phase 3 clinical trials. We conducted two Phase 3 pivotal trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We completed enrollment for BROADWAY in July 2023 and for BROOKLYN in April 2023. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We reported top-line data from BROOKLYN in July 2024 and from BROADWAY in December 2024. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization. We completed enrollment in PREVAIL in April 2024. PREVAIL will continue until the last participant has been followed for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +We also continue investigating obicetrapib as an FDC with ezetimibe following the announcement of data from our Phase 3 TANDEM trial. In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for an FDC tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and announced topline data in November 2024. +We believe that obicetrapib has the potential to significantly impact the existing treatment paradigm for patients with ASCVD and/or HeFH and elevated levels of LDL-C, and that the key differentiating attributes of our product candidate include the following: +• +Enhanced LDL-C reduction capability. We believe that obicetrapib’s physical, pharmacokinetic and biopharmaceutical properties position it to potentially demonstrate more favorable potency and enhanced LDL-C lowering capability than previous CETP inhibitors. In previously conducted clinical trials in patients with moderately high LDL-C levels with or without prior statin therapy, obicetrapib has been observed to lower LDL-C both as a monotherapy and a combination therapy with ezetimibe (an approved LDL-C-lowering medication). In our Phase 3 BROADWAY and BROOKLYN clinical trials, we observed a mean LDL-C reduction capability of 33% and 36%, respectively, compared to placebo in patients treated with 10 mg obicetrapib on top of high-intensity statins. In our Phase 3 TANDEM clinical trial, we observed a mean LDL-C reduction of 52% in patients treated with a combination of 10 mg obicetrapib and 10 mg of ezetimibe as an adjunct to high-intensity statins, when compared to placebo. +• +Promising tolerability profile. Patients are often non-compliant with existing cholesterol-lowering therapies, particularly statin therapy, due to their side effect profiles, which could result in suboptimal treatment outcomes and disease progression. In three of our Phase 3 and five of our Phase 2 clinical trials of obicetrapib, we observed statistically significant LDL-lowering activity combined with a similar incidence of generally moderate side effects compared to placebo and no drug-related, treatment-emergent serious AEs. In addition, CETP inhibitors previously under development were observed to produce anti-diabetic benefits in Phase 3 CVOTs, which has also been observed with obicetrapib, and could make it a potentially attractive adjunct for patients who are concerned about the risks of diabetes associated with statin therapy. +• +Convenience. We believe that obicetrapib’s simple once-daily, low-dose oral formulation can improve patient adherence, thereby amplifying its cholesterol-lowering impact. Additionally, unlike injectable PCSK9 inhibitors, obicetrapib, an oral small molecule, is better suited for combination with other oral treatments as oral FDC products. +11 +• +Patient access. In addition, payor confidence is essential to ensuring access for patients. Based on the LDL-lowering activity of obicetrapib and oral route of administration, we believe payors will perceive the LDL-C lowering capability of obicetrapib to be on par with PCSK9 inhibitors, which are administered by injection, and to exceed the LDL-lowering capabilities of other existing oral therapies and will ultimately prefer obicetrapib to existing treatment alternatives. +• +Effect on other predictors of disease risk. Like other types of LDL-C lowering therapies, i.e., statins and PCSK9 inhibitors, CETP inhibition enhances the removal of ApoB, a protein found in lipoprotein particles that contributes to atherosclerosis. However, unlike statins, based on observations from our Phase 2 and Phase 3 clinical trials, obicetrapib also decreased the presence of Lp(a), an important biomarker for CVD risk reduction. +Lowering LDL-C Through CETP Inhibition +Hyperlipidemia, and in particular hypercholesterolemia, or high cholesterol, is a major risk factor for atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. This is because LDL-C (“a package” of cholesterol contained within a particle that contains ApoB) has the tendency to penetrate the inner lining of the arterial wall becoming trapped leading to a build-up of fatty material, which in turn elicits a pro-inflammatory response and causes the arterial walls to stiffen. Left untreated, these deposits of fatty material can result in ulceration of the vessel wall which causes acute clotting of the blood and a heart attack or a stroke. Another lipoprotein particle, Lp(a), functions in the circulation as a “sink” for oxidized phospholipids and is also prone, like ApoB, to becoming trapped in the arterial wall, attached to proteoglycans of the extracellular matrix. Subsequently, these particles build up and contribute to plaque formation and inflammation. Because of the tendency of LDL-C to build up in the arteries, LDL-C is often referred to as “bad cholesterol” and is one of the most prominent risk factors for the development of CVD. +LDL-C and ApoB levels are mainly regulated by the liver through a surface protein known as the LDL receptor. Most current LDL-C lowering therapies work, at least in part, by increasing the number of LDL receptors, and thereby increasing the clearance of LDL particles from the blood. Statin therapy is the current standard of care for patients with ASCVD or HeFH and elevated levels of LDL-C. Statin therapy reduces cholesterol in the blood by blocking a key enzyme, HMG-CoA-Reductase, necessary for the synthesis of cholesterol, which reduces the amount of cholesterol made by the liver; in addition, statins upregulate the LDL receptor, resulting in lower blood cholesterol. PCSK9 inhibitors, another LDL-C-lowering treatment, also increase the presence of LDL receptors by inhibiting PCSK9, an enzyme involved in the degradation of LDL receptors. Two other LDL-C lowering therapies, ezetimibe and Nexletol/Nexlizet, also work by upregulating LDL receptors. CETP is a plasma glycoprotein produced in the liver that circulates in the blood primarily bound to a high-density lipoprotein cholesterol (“HDL-C” or “HDL”) particle. CETP can also attach to an LDL particle and form a bridge to transfer cholesterol from HDL to LDL, as shown in the figure below. Consequently, CETP inhibitors, including obicetrapib, reduce the cholesterol concentration of LDL particles and increase the cholesterol concentration of HDL particles. This results in a decrease of the cholesterol pool in the liver as a result of the augmented excretion of cholesterol via the liver into the bile and ultimately the feces. The liver also produces more LDL receptors thereby resulting in more LDL-C particles and ApoB being cleared from the bloodstream. In animal models, CETP inhibition has been shown to block the transfer of cholesterol from HDL particles to LDL particles and to upregulate LDL receptors, thereby reducing the development of atherosclerosis and risk of ASCVD. +Although it was previously believed that the HDL-raising effects of CETP inhibition would be its primary contributor to decreased CVD risk, LDL-reduction is now known to be the most significant factor for lowering CVD risk. In a population with CETP loss of function genotypes, a 16% reduction in CVD risk was observed for every 10 mg/dL decrease in LDL-C levels. The relationship between genomic loss of CETP function and lower LDL-C levels and CVD risk is consistent with other mechanisms of genomic LDL-C reduction such as HMG-CoA reductase (statins), NPC1L1 (ezetimibe), ATP-citrate lyase (Nexletol/Nexlizet) and PCSK9 (PCSK9 inhibitors). Multiple genetic studies provide support that specific mutations associated with lifelong lower LDL-C levels reduce the risk of CVD. +CETP inhibition also increases the removal of ApoB. Apolipoproteins are proteins that are involved in packaging different types of large lipid-particle complexes that store cholesterol in the body. As shown in the figure below, the primary effect of CETP inhibition is a reduced rate of transfer of cholesteryl esters from HDL into triglyceride-rich lipoproteins, including LDL, which in turn leads to an increased concentration of cholesteryl esters in HDL particles and the formation of larger HDL particles. Consequently, we have observed an increase in +12 +the excretion of cholesterol via the liver into digestive tract and an upregulation of LDL receptors on the liver, resulting in enhanced clearances of LDL or ApoB-containing lipoproteins from the body. In addition, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines directly contributing to the reduced cholesterol levels in the liver thus maintaining upregulation of LDL receptors. +sdLDL-P are also believed to be an important predictor of CVD risk, with lower levels of sdLDL-P having been observed to correlate closely to lower cardiovascular risk. The measurement of using LDL particle (“LDL-P”) size and particles numbers is an alternative approach to determining CVD risk assessment and research suggest that LDL-P size, density and numbers may be more closely correlated to CVD risk than LDL-C. Increased levels of LDL-P suggest an increased presence of sdLDL-P which may have a greater potential to develop into arterial plaque due to their increased time in circulation compared to larger LDL-P and greater ability to become trapped in the arterial wall. Research has suggested that treatments lowering LDL-C alone may trigger a disconnect between LDL-C and LDL-P, which, given the observed strong connection between LDL-P and CVD risk, suggests there is a need for a drug which lowers both. +Limitations of Current Non-Statin Therapies +Increased attention by physicians to aggressive LDL-C lowering for high-risk CVD patients has led to the increased use of non-statin therapies with LDL-C lowering capabilities, including ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors, either on their own or in conjunction with statins. +However, the needs of patients at very high risk to experience a future cardiovascular event with elevated levels of LDL-C despite being treated with maximally tolerated statin therapy remain largely unaddressed by current non-statin treatment options, which have only modest efficacy or are inconveniently administered through an injection. In a cross-sectional study of over 20 thousand patients on lipid-lowering medication, current treatments including statins, ezetimibe, PCSK9 inhibitors or a combination of the foregoing resulted in fewer than 3% of patients reaching recommended cholesterol goals of lower than 1.8 mmol/L (70 mg/dL). +• +Ezetimibe. The non-statin cholesterol absorption inhibitor ezetimibe functions by preventing the absorption of cholesterol in the intestines by blocking the NPC1L1 protein. Although these drugs are administered at a low dose, which contributes to their safety and tolerability, and are generic and broadly available, they have been shown to only moderately reduce LDL-C. Ezetimibe as monotherapy or when given in combination with statin therapy has been observed to reduce LDL-C by approximately 13% to 20% and reduce MACE by 7%. Despite its modest efficacy, ezetimibe is the most prescribed non-statin lipid lowering therapy with approximately 11% market share. +• +Nexletol/Nexlizet. The other currently available oral non-statin therapy, Nexletol/Nexlizet (Esperion Therapeutics), which inhibits the enzyme ATP citrate lyase, an enzyme involved in cholesterol synthesis, shows only relatively modest improvement in lowering LDL-C by approximately 17% as a monotherapy and a MACE reduction of 13%. Along with its relatively modest efficacy, Nexletol/Nexlizet’s label contains safety warnings that include tendon rupture and gout. We believe Nexletol/Nexlizet’s access and uptake have been limited because its efficacy profile is comparable to generic ezetimibe. +• +PCSK9 Inhibitors. The PCSK9 inhibitors on the market, such as Repatha (Amgen Inc.), Praluent (Regeneron Pharmaceuticals, Inc.) and Leqvio (Novartis International AG), are injectable monoclonal antibodies and small interfering RNA that have been observed to reduce LDL-C levels by approximately 50% compared to baseline and MACE by 15%. While PCSK9 inhibitors have demonstrated their effectiveness at reducing LDL-C when used alone and as an adjunct to statin therapy, we believe their injectable route of administration makes them inconvenient for patients, and their access is further limited by their associated high cost and low rates of prescription approval by payors. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Limitations of Prior Attempts to Develop CETP Inhibitors +As described above, CETP inhibitors, including obicetrapib, are designed to work by blocking the transfer of cholesteryl esters from HDL to LDL particles, thereby reducing LDL-C levels in the body. We believe that obicetrapib can improve upon existing therapies by providing a combination of potent LDL-C lowering activity favorable tolerability and the ability to be administered orally. +13 +Other CETP inhibitors have reached varying stages of clinical development, but none have been approved or otherwise able to generate a potent, safe and well-tolerated low-dose oral option. We believe that the prior CETP inhibitor programs did not select optimal compounds because they focused on exploring the prominent increase in HDL-C rather than the potential for lowering LDL-C. Given the focus on HDL-C raising, we believe their clinical trial designs were suboptimal. Nevertheless, anacetrapib, the latest of the prior CETP inhibitors, provided clinical support for the proposition that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes. +The focus on HDL-C raising by developers of prior CETP inhibitors likely resulted in the selection of chemical compounds that were not optimized for LDL-C lowering, which we believe in turn resulted in only modest reductions to CVD risk. In addition, one CETP inhibitor, torcetrapib, experienced off-target toxicity resulting in increased blood pressure and elevated aldosterone concentration in Phase 2 clinical trials. While another CETP inhibitor, dalcetrapib, did not experience the off-target toxicity as observed with torcetrapib, the drug had no LDL-C lowering activity and therefore no effect on reducing major adverse cardiovascular outcomes. +Given the emphasis on the HDL-C raising capabilities of the prior CETP inhibitors in development, the associated CETP inhibitor programs also used CVOTs designed to evaluate patients with controlled rather than elevated LDL-C levels. Therefore, we believe these study designs minimized the potential to observe relative reductions in CVD risk. In addition, we believe the evacetrapib CVOT was too short (a median duration of only two years) and most likely the sample size too low for the full magnitude of MACE benefits to be observed based on the modest reduction in LDL-C achieved. Similar CVOTs with other agents that lowered LDL-C by a similar magnitude required at least three years to demonstrate a MACE benefit, including the CVOTs of the CETP inhibitor anacetrapib. +In the Phase 3 REVEAL CVOT investigating the efficacy of anacetrapib in approximately 30,000 patients with ASCVD receiving intensive atorvastatin therapy, there was an observed correlation between MACE benefits for anacetrapib and the magnitude of the LDL-C reduction, suggesting that CETP inhibitors work according to the same principle as statin therapy in reducing MACE. The REVEAL trial began enrollment in August 2011 and completed its long-term follow-up in April 2019. A median four-year follow-up of the REVEAL trial showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. We believe the REVEAL results provide clinical support showing that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). In addition, anacetrapib’s potential commercial viability was limited by its lipophilicity, which caused it to accumulate in fat tissue over time. +We selected obicetrapib 10 mg for our Phase 3 development program given its observed LDL-C-lowering activity and safety profile and designed our CVOT to avoid the shortcomings of prior CETP inhibitor programs and to ultimately fulfill the unmet need of ASCVD or HeFH patients with elevated LDL-C levels despite being treated with currently available optimal lipid lowering therapy. Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable physical, pharmacokinetic and biopharmaceutical properties as a drug candidate compared to other CETP inhibitors. +Clinical Development Plan +We conducted two Phase 3 pivotal trials – our BROADWAY and BROOKLYN trials – designed to measure obicetrapib’s ability to reduce LDL-C as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy. Following our end of Phase 2 meeting with the FDA in the fourth quarter of 2021, we also commenced our Phase 3 PREVAIL CVOT for obicetrapib as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy in early 2022. In our Phase 2 ROSE2 trial, we evaluated the effect of an FDC of obicetrapib 10 mg with ezetimibe 10 mg on top of high-intensity statin therapy on reduction in LDL-C. In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for an FDC tablet of obicetrapib and ezetimibe. We initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and released topline data in November 2024. +We have set forth below our current obicetrapib clinical development programs. +14 +* PREVAIL will continue until the last participant has been followed up for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +Note: Other than as noted, this graphic represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. Other than as noted, the timing of regulatory submissions is subject to additional discussions with regulators. +Additionally, based on the lipid-modifying effects of CETP inhibition we have observed in our clinical trials for obicetrapib to date, we have conducted preclinical and early clinical assessments of obicetrapib to test its potential for the prevention and treatment of Alzheimer’s disease. Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for this indication, and we commenced a Phase 2a clinical trial in early 2022 in patients with early Alzheimer’s disease to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. We announced initial data from this trial in September 2023. In July 2025, we announced data from a prespecified analysis in BROADWAY that evaluated the effects of longer duration of therapy (12 months) on certain biomarkers associated with Alzheimer's disease with a prespecified population of ApoE3/4 or 4/4 carriers, based on phenotypic analysis. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Obicetrapib for Cardiovascular Disease +There is broad scientific consensus that elevation in LDL-C is a primary causal factor for ASCVD, and CVD outcomes in high-risk populations improve as the level of LDL-C achieved on therapy decreases. A study published in the Journal of the American Medicine in 2017 found that genetic variants related to lower LDL-C levels were significantly associated with a lower risk of CVD. Specifically, the study concluded that the quantum of reduced genetic risk for CVD associated with CETP mutations was almost identical to the genetic risk of CVD observed in patients with genetically reduced levels of the proteins targeted by statins, PCSK9 inhibitors and ezetimibe. We believe the consistency of benefit across genotypes observed in all target genes is predictive of the clinical efficacy of CETP-induced LDL-C lowering on CVD. +The direct correlation between LDL-C reduction and decrease in atherosclerotic cardiovascular events has been documented for both statin, as well as non-statin, therapies in CVOTs for ezetimibe, the PCSK9 inhibitors evolocumab and alirocumab, and for the CETP inhibitor anacetrapib. Most notably, a median four-year follow-up of the REVEAL Phase 3 trial of anacetrapib showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). After approximately six and a half years of total follow-up, the REVEAL clinical trial showed additional MACE reduction of 20%. The table below shows the reduction in MACE and each component of MACE in the in-trial and post-trial periods. +15 +We believe the REVEAL results provide clinical support for the hypothesis that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. Specifically, the decrease in MACE observed in the REVEAL trial of anacetrapib is consistent with the findings of the CTT Collaboration, illustrated in the graphic below. The CTT collaboration conducted a meta-analysis of 26 statin clinical trials and showed that there is a consistent, linear decrease in MACE for every absolute unit of non-HDL (which is primarily composed of LDL-C) cholesterol reduction. The MACE reduction observed in REVEAL falls on the meta-regression line – specifically, the CTT metaregression line predicts that an absolute reduction of non-HDL of 17 mg/dl, as seen in REVEAL, would correspond to the 11% reduction in coronary death and myocardial infarction observed in REVEAL. +*The graphic above presents a linear prediction of MACE benefit, as discussed above. Actual results may differ materially. +With these learnings in mind, we are executing a Phase 3 clinical development plan for obicetrapib focused on patients with elevated baseline LDL-C and that is designed to support a broad CVD label, if successful. To date, we have completed seven Phase 1 trials, five Phase 2 trials and three Phase 3 trials of obicetrapib, and we are currently conducting a Phase 3 PREVAIL CVOT trial. +Planned and Ongoing Clinical Trials for Cardiovascular Disease +Phase 3 PREVAIL Cardiovascular Outcomes Trial +We have initiated our PREVAIL trial (TA-8995-304), our Phase 3 CVOT, to evaluate the effects of 10 mg obicetrapib in participants with ASCVD on MACE, including cardiovascular death, myocardial infarction, stroke and non-elective coronary revascularization. We enrolled over 9,500 participants at sites in the United States, Canada, Europe, Asia, and Australia with established ASCVD and an LDL-C level of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL, whose LDL-C levels are not adequately controlled despite maximally tolerated lipid-modifying therapies. The planned median trial follow-up is expected to be approximately 42 +16 +months, and the treatment period will continue until the last participant has been followed for a minimum of 2.5 years after the last patient has been randomized or until the target number of primary endpoint events (i.e., coronary heart disease death, non-fatal myocardial infarction, fatal or non-fatal ischemic stroke, or coronary revascularization) have occurred, whichever is later. +We designed our PREVAIL trial based on insights gained from analyzing failures of prior CVOTs for other CETP inhibitors. Our trial design targets patients above their LDL-C risk-based goal, despite treatment with maximally tolerated lipid modifying therapies, which we believe creates potential for greater observed absolute LDL-C reduction, particularly given the observed median LDL-lowering activity observed in our clinical trials. We are focused on patients with elevated LDL-C levels and who have at least one other risk enhancer (including recent myocardial infarction, Type 2 diabetes, high triglyceride levels or low HDL-C), compared to prior CVOTs for CETP inhibitors that enrolled patients with low baseline LDL-C. We are planning for longer duration of follow-up to maximize opportunities to observe MACE reduction, with all patients to be followed for a minimum of 2.5 years. We believe that the inclusion of a patient population with established ASCVD who are at very high risk to experience a future cardiovascular event given their elevated LDL-C levels despite being treated with maximum lipid lowering therapy and who have other additional risk enhancers increases the likelihood that the trial will accrue sufficient primary endpoint events over time and potentially result in a strong relative risk reduction in the treatment arm. +Phase 3 REMBRANDT Imaging Trial +We have initiated REMBRANDT, a Phase 3 cardiovascular computed tomography angiography imaging trial to evaluate the effect of obicetrapib and ezetimibe in FDC on coronary plaque. The placebo-controlled, double-blind, randomized, Phase 3 study is being conducted in adult participants with high-risk ASCVD who are not adequately controlled by their maximally tolerated lipid-modifying therapy, to assess the impact of the obicetrapib 10 mg and ezetimibe 10 mg FDC daily on coronary plaque and inflammation characteristics. The study is expected to complete enrollment of approximately 300 patients in 2026. +Phase 3 RUBENS Trial +RUBENS is a placebo-controlled, double-blind, randomized, 12-week study conducted in adult participants with Type 2 diabetes and/or Metabolic Syndrome on stable, guideline- recommended lipid lowering therapy to evaluate the LDL-C lowering of obicetrapib alone, or obicetrapib and ezetimibe in FDC. Participants completing the 12-week double-blind treatment will enter a 9-month open label extension with obicetrapib and ezetimibe in FDC. The study is expected to enroll approximately 300 patients, with topline data expected by the end of 2026. +Phase 2 VINCENT Trial +VINCENT is a Phase 2 clinical study to evaluate the effects of obicetrapib alone and in combination with evolocumab on Lp(a) in patients with mild dyslipidemia. The single arm study will treat patients with obicetrapib 10 mg daily for 8 weeks followed by obicetrapib 10 mg daily plus evolocumab 140 mg/dL every other week for 8 weeks. There will be two cohorts in the study. The first cohort will include 39 participants with Lp(a) levels greater than 50 mg/dL or 125 nmol/L, and the second cohort will include 30 participants with Lp(a) levels greater than 20 mg/dL or 50 nmol/L but less than 50 mg/dL or 125 nmol/L. +Completed Phase 3 Clinical Trials +We have completed three Phase 3 clinical trials of obicetrapib for the treatment of cardiometabolic disease. TANDEM evaluated 10 mg obicetrapib and 10 mg ezetimibe as an FDC, while BROADWAY and BROOKLYN were designed to measure the effect of obicetrapib 10 mg as monotherapy on top of maximally tolerated lipid-modifying therapy. +17 +Phase 3 TANDEM Fixed-Dose Combination Trial +We completed TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents in November 2024. We enrolled approximately 400 patients in the United States that had a baseline LDL-C of ≥ 70 mg/dL. Following a 14-day screening period, patients were randomized 1:1:1:1 to obicetrapib 10 mg and ezetimibe 10 mg FDC, obicetrapib 10 mg monotherapy, ezetimibe 10 mg monotherapy or placebo for an 84-day treatment period. +TANDEM’s co-primary endpoints were percent change from baseline in LDL-C of the FDC compared to each monotherapy arm after 84 days and obicetrapib 10 mg compared to placebo after day 84. Secondary endpoints incorporated percent changes from baseline in other biomarkers, including Lp(a), non-HDL-C and ApoB. The TANDEM trial met all co-primary endpoints. Overall, the FDC was observed to be well-tolerated compared to placebo in this trial. For all treatment groups, the most common treatment-emergent adverse events (“TEAEs”) were hypertension (4.4%), arthralgia (4.2%), upper respiratory tract infection (3.4%), diarrhea (2.5%), and fatigue (2.5%). +We believe that the stronger observed LDL-C lowering among patients receiving the combination therapy as compared with those receiving ezetimibe in combination with statin therapy is potentially due to the synergistic mechanisms of action for each of obicetrapib and ezetimibe. While obicetrapib is designed to promote the expression of LDL receptors in the liver, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines, where ezetimibe is designed to block cholesterol reabsorption into the body. Therefore, the combined mechanism is expected to synergistically enhance fecal sterol removal of cholesterol. We believe that LDL-C lowering effects of ezetimibe can be enhanced by introducing obicetrapib to help facilitate this synergistic mechanism of action. +LDL-C percentage change: +Ezetimibe +(n=101) +Obicetrapib (n=102) +Obicetrapib and Ezetimibe FDC +(n=102) +Day 84 – from placebo +Mean % +-23.3 +-35.5 +-52.2 +Median % +-22.6 +-37.2 +-54.0 +LS mean % +-20.7 +-31.9 +-48.6 +Comparison to pbo +- +(p<0.0001) +(p<0.0001) +Comparison to eze 10 mg +- +- +(p<0.0001) +Comparison to obi 10 mg +- +- +(p=0.0007) +Phase 3 BROADWAY and BROOKLYN Lipid Trials +18 +We conducted two Phase 3 pivotal trials designed to measure obicetrapib’s LDL-C lowering capability and enrolled patients across both trials who require additional LDL-lowering on top of their maximum tolerated lipid-modifying therapies. BROADWAY, which completed enrollment in July 2023 and for which topline results were announced in December 2024, randomized approximately 2,500 patients in the United States, Europe and Asia with HeFH (individuals genetically predisposed to very high cholesterol) or established ASCVD, and who have baseline LDL-C of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL (including other abnormal biometrics, a recent myocardial infarction or Type 2 diabetes). BROOKLYN, which completed enrollment in April 2023 and for which topline results were announced in July 2024, enrolled HeFH patients in the United States, Canada, Europe and Africa who had baseline LDL-C of at least 70 mg/dL. Obicetrapib was administered in a once-daily 10 mg dose as an adjunct to diet (for regulatory purposes in the European Union) and maximally tolerated lipid-modifying therapy, for a 52-week treatment period. Such lipid-modifying therapies included statins or, for statin-intolerant patients, ezetimibe, Nexletol/Nexlizet, PCSK9 inhibitors, or fibrates (a class of drugs which increase HDL-C without significantly reducing LDL-C). +The primary endpoint of both trials was percent change from baseline in LDL-C of obicetrapib 10 mg compared to placebo after 84 days. Secondary endpoints also included percent changes from baseline of obicetrapib 10 mg compared to placebo after 84 days in Lp(a), ApoB, HDL-C and non-HDL-C (representing total cholesterol minus HDL-C), and for BROADWAY, LDL-C levels at days 180 and 365, total cholesterol and triglycerides. For BROADWAY, other exploratory outcome measures included time from randomization until first confirmed occurrence of MACE in the obicetrapib arm compared to placebo. The safety and tolerability profile of obicetrapib was comparable to placebo in both trials (which included a broad representation of adult males and females of all ages, including elderly and very elderly participants), assessed by AEs, vital signs, clinical laboratory values and electrocardiogram measurements. In addition, we evaluated obicetrapib’s effects on blood pressure and no difference from placebo was shown. +The tables below summarize data from each study: +LDL-C LS mean percentage change in BROOKLYN trial: +% Change from Baseline +Obicetrapib % Change +Placebo (n=118) +Obicetrapib (n=236) +Compared to Placebo +p-value +Day 84 ++0.3% +-36.1% +-36.3% +<0.0001 +Day 365 ++10.3% +-31.1% +-41.5% +<0.0001 +LDL-C percentage change at day 84 in BROADWAY trial: +Placebo +(n = 844) +Obicetrapib 10 mg +(n = 1686) +Difference +Mean +-2% +-35% +-33% +Median +-4% +-40% +-36% +LS mean (with imputation) ++3% +-30% +-33% +While BROADWAY was not designed or powered to measure MACE benefit, MACE was evaluated as an exploratory endpoint and as part of our safety analysis. Despite the limitations of the trial design, we observed a 21% reduction in MACE favoring obicetrapib after one year. +MACE from BROADWAY: +Placebo +(n = 844) +Obicetrapib 10 mg +(n= 1686) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +12 (1.4) +19 (1.1) +0.83 +(0.40-1.71) +Coronary heart death – no. (%) +5 (0.6) +8 (0.5) +0.80 +(0.26-2.44) +First 4-point MACE – no. (%) +44 (5.2) +70 (4.2) +0.79 +(0.54-1.15) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY trial. +Pooled MACE from BROADWAY and BROOKLYN: +Placebo +(n = 962) +Obicetrapib 10 mg +(n= 1920) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +14 (1.5) +20 (1.0) +0.78 +(0.39-1.58) +19 +Coronary heart death – no. (%) +7 (0.7) +9 (0.5) +0.63 +(0.24-1.70) +First 4-point MACE – no. (%) +49 (5.1) +75 (3.9) +0.75 +(0.53-1.08) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY or BROOKLYN trials. +Neither the BROADWAY nor BROOKLYN trials were designed to assess MACE as the primary or secondary endpoints and as a result there are limitations on the results presented above. We are conducting PREVAIL, our Phase 3 cardiovascular outcomes trial designed to assess the MACE benefit of obicetrapib, to provide support for obicetrapib’s potential MACE benefit. +Overall, obicetrapib was observed to be well-tolerated compared to placebo in the BROADWAY trial. TEAEs in BROADWAY were reported by 1,007 (59.8%) patients in the obicetrapib 10 mg group compared to 513 (60.9%) patients in the placebo group. Most TEAEs were mild or moderate. TESAEs were observed in 13.9% of the placebo group and in 12.5% of the obicetrapib group. For all treatment groups, the most common TEAEs were COVID-19 (5.1%), hypertension (4.5%), upper respiratory tract infection (3.2%), hyperglycemia (2.8%), and nasopharyngitis (2.6%). +The following table summarizes the safety results from the BROADWAY trial: +Placebo +N= 843 +n (%) +Obicetrapib 10 mg +N= 1,685 +n (%) +Any TEAEs +513 ( 60.9) +1,007 ( 59.8) +Any TEAEs by maximum severity +Mild +228 ( 27.0) +481 ( 28.5) +Moderate +217 ( 25.7) +408 ( 24.2) +Severe +68 ( 8.1) +118 ( 7.0) +Any trial drug related TEAEs +39 ( 4.6) +76 ( 4.5) +Any trial drug-related TEAEs by maximum severity +Mild +25 ( 3.0) +51 ( 3.0) +Moderate +14 ( 1.7) +23 ( 1.4) +Severe +0 ( 0.0) +2 ( 0.1) +Any TEAEs leading to discontinuation of trial drug +43 ( 5.1) +68 ( 4.0) +Any TESAEs +117 ( 13.9) +211 ( 12.5) +Any treatment-emergent non-serious AEs +495 ( 58.7) +959 ( 56.9) +Any trial drug-related TESAEs +0 ( 0.0) +1 ( 0.1) +Any TEAEs leading to death +12 ( 1.4) +19 ( 1.1) +Overall, obicetrapib was also observed to be well-tolerated compared to placebo in the BROOKLYN trial. TEAEs were reported by 149 (63.7%) patients in BROOKLYN in the obicetrapib 10 mg group compared to 83 (70.3%) patients in the placebo group. Most TEAEs were mild or moderate. TESAEs were observed in 6.8% of the placebo group and in 5.6% of the obicetrapib group. For all treatment groups, the most common TEAEs were influenza (8.0%), COVID-19 (6.5%), hypertension (6.3%), nasopharyngitis (5.7%), and diarrhea (4.8%). +The following table summarizes the safety results from the BROOKLYN trial: +Placebo +N= 118 +n (%) +Obicetrapib 10 mg +N= 234 +n (%) +Total +N= 352 +n (%) +Any TEAEs +83 (70.3) +149 (63.7) +232 (65.9) +20 +Any trial drug related TEAEs +8 (6.8) +10 (4.3) +18 (5.1) +Any TEAEs leading to discontinuation of trial drug +8 (6.8) +10 (4.3) +18 (5.1) +Any TESAEs +8 (6.8) +13 (5.6) +21 (6.0) +Completed Phase 2 Clinical Trials +We have completed five Phase 2 trials of obicetrapib for the treatment of cardiometabolic disease. In our Phase 2 trials obicetrapib was observed to robustly lower LDL-C and increase HDL-C from baseline across various treatment settings. Obicetrapib was also observed to be well-tolerated compared to placebo, in both the 5 mg and 10 mg doses and as a combination therapy with ezetimibe. The majority of TEAEs were mild or moderate in severity and there were no drug-related, TESAEs. The graphs below summarize the results of our Phase 1 multiple ascending dose and Phase 2 trials, with 10 mg of obicetrapib. +Phase 2b ROSE Trial +In our Phase 2b ROSE trial, we observed that obicetrapib has robust LDL-C lowering capability as an adjunct to high-intensity statins at both 5 mg and 10 mg dosages. Based on our ROSE trial, we are using a 10 mg dosage for our Phase 3 trials. In our Phase 2a TULIP trial, we observed that a daily dose of up to 10 mg of obicetrapib alone significantly reduced LDL-C and increased HDL-C. Based on observations from our Phase 2b OCEAN trial, we believe that obicetrapib is at least additive for LDL lowering as a combination therapy with ezetimibe. +Phase 2a TULIP Trial +A Phase 2a TULIP trial of obicetrapib, which was completed in 2014, was a randomized, double-blind placebo-controlled trial among 364 patients with mild dyslipidemia and not on lipid-altering therapy at screening and involved once-daily oral dosing of obicetrapib up to 10 mg or a placebo alone and as a combination therapy with statins. The primary endpoints were the percent changes in LDL-C and HDL-C levels from baseline to week 12 of the trial, which were met for both doses. The 5 mg dose of obicetrapib resulted in a mean reduction of LDL-C by 45% and increased HDL-C by 161%, compared to placebo. In patients treated with 10 mg obicetrapib plus statin therapy (20 mg atorvastatin or 10 mg rosuvastatin), LDL-C levels were approximately 50% lower and HDL-C levels were approximately 140% higher, respectively, than those observed in patients receiving statin therapy alone. +A total of 284 (78.2%) patients experienced at least one TEAE, of which 95 (26.2%) experienced a suspected trial drug-related TEAE. For all treatment groups, the most common TEAEs were the common cold and headache (22.9% and 13.2%, respectively). Most TEAEs were mild or moderate in severity with only 13 (3.6%) patients experiencing a severe TEAE, two of which were suspected to be related to the trial drug (one subject in the placebo group and one subject in the atorvastatin 20 mg and obicetrapib 10 mg combination). Prevalence, incidence +21 +and severity of TEAEs were similar across all treatment groups. There were eight patients with a TESAE, none of which were trial drug related, and no deaths occurred during the trial. +Phase 2b ROSE Trial +Our Phase 2b ROSE trial, which was completed in August 2021, was a randomized, double-blind placebo-controlled trial among 120 patients with mild dyslipidemia who were already receiving high-intensity statin therapy. The trial involved a once-daily oral dose of obicetrapib at either 5 mg or 10 mg dose level for eight weeks. The primary endpoint of this clinical trial was LDL-C reduction from baseline and was met for both doses. Obicetrapib had a rapid effect, with LDL-C levels dropping dramatically in the first four weeks of the trial and remaining relatively steady for the remaining four weeks of the trial. At the 5 mg dose level, approximately 20% of patients experienced a decrease in median LDL-C levels of over 60%; at the 10 mg dose level, that percentage nearly doubled. +Overall, obicetrapib as an adjunct to high-intensity statin therapy at both doses was observed to be well-tolerated compared to placebo. TEAEs were reported by 15 (37.5%) subjects in the 5 mg group and 8 (20.0%) subjects in the 10 mg group, compared with 19 (47.5%) subjects in the placebo group. For all treatment groups, the most common TEAEs were fatigue (4.2%), arthralgia (2.5%), nausea (2.5%) and headache (2.5%). All other TEAEs were experienced by only one or no subjects in each treatment group. TEAEs that were considered by the investigator to be related to trial treatment were reported by three subjects (two subjects in the 5 mg group and one subject in the 10 mg group), compared with four subjects in the placebo group. There were no TEAEs leading to death. One subject in the placebo group had a TEAE leading to discontinuation. The majority of TEAEs were mild and moderate in severity; one subject in the placebo group had a severe TEAE. There were two serious TEAEs, both of which occurred in the placebo group. +Based on our ROSE trial and the enhanced LDL-C reduction capability of a 10 mg dose compared with 5 mg and the safety profile we observed, we selected a 10 mg dose for our Phase 3 lipid trials and CVOT. +Phase 2b OCEAN Trial +Our Phase 2b OCEAN trial, which we completed in June 2021, evaluated the effect of obicetrapib as a combination therapy with ezetimibe on LDL-C levels. This randomized, double-blind placebo-controlled trial among 100 patients with mild dyslipidemia involved once-daily oral 5 mg dose of obicetrapib alone and as a combination therapy with 10 mg of ezetimibe, compared to both placebo and ezetimibe alone, for eight weeks. +The primary endpoint of the trial was percent change in LDL-C compared to baseline, which was met. We observed that obicetrapib 5 mg, ezetimibe 10 mg and their combination each significantly reduced LDL-C from baseline and compared with placebo, with statistically significant reductions compared to baseline measured at 34.4%, 14.8% and 52.0%, respectively, compared to a 1.4% reduction in the placebo group. +Obicetrapib 5 mg alone and as a combination therapy with ezetimibe 10 mg taken once daily for eight weeks displayed a favorable tolerability profile. TEAEs were reported by 4 (14.3%) subjects in the obicetrapib 5 mg group and 9 (33.3%) subjects in the combination group, compared with 8 (28.6%) subjects in the ezetimibe 10 mg group and six subjects in the placebo group. For all treatment groups, the most common TEAEs were diarrhea (3.6%), headache (3.6%), myalgia (1.8%) and constipation (1.8%). All other TEAEs were experienced by one or no subjects in each treatment group. TEAEs that were considered to be related to trial treatment were reported by one subject and three subjects in the obicetrapib 5 mg and combination groups, respectively, compared with three subjects and four subjects in the ezetimibe 10 mg and placebo groups, respectively. There were no TEAEs leading to death. One subject in the ezetimibe 10 mg group had a TEAE leading to discontinuation of the trial drug, compared to no subjects in the 5 mg group and two subjects in the combination group. The majority of TEAEs were mild and moderate in severity, and one subject in the ezetimibe 10 mg group had a severe TEAE. +ROSE2 Clinical Trial +In June 2023, we announced full results from our Phase 2 ROSE2 trial, our clinical trial evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy. ROSE2 met its primary and secondary endpoints, with statistically significant reductions in LDL-C and ApoB observed. Statistically significant improvements in non-HDL-C and total and small LDL-P were also observed. We also observed significant improvements in Lp(a). In addition, the combination of obicetrapib and ezetimibe was observed to be well-tolerated, with a safety profile observed to be comparable to placebo. +ROSE2 was designed as a placebo-controlled, double-blind, randomized Phase 2 clinical trial to evaluate the efficacy, safety and tolerability of obicetrapib 10 mg in combination with ezetimibe 10 mg as an adjunct to high-intensity statin therapy. Patients were randomized to receive combination therapy, obicetrapib 10 mg or placebo for a 12 week treatment period. A total of 119 patients enrolled in ROSE2, of whom 97 were included in the on-treatment analysis. Certain patients were excluded from the on treatment population as a result of suspected non-adherence to the trial protocol. Patients presented at baseline with a fasting LDL-C greater than 70 mg/dL and triglycerides less than 400 mg/dL and all were receiving a stable dose of high-intensity statin therapy. +22 +The primary endpoint was the percent change from baseline to week 12 in Friedewald-calculated LDL-C for the obicetrapib plus ezetimibe combination treatment group compared with placebo. Secondary efficacy endpoints included the percent changes from baseline to week 12 in LDL-C for obicetrapib monotherapy compared with placebo and in ApoB for the obicetrapib plus ezetimibe combination compared with placebo and the obicetrapib monotherapy compared with placebo. Exploratory endpoints included the percent changes from baseline to week 12 in lipoprotein(a), non-HDL-C, HDL-C, total and small LDL-P assessed by nuclear magnetic resonance (NMR), and the proportion of patients at the end of treatment who achieved LDL-C levels below 100 mg/dL, 70 mg/dL and 55 mg/dL for the obicetrapib plus ezetimibe combination and obicetrapib monotherapy groups compared with placebo. +Overall, obicetrapib alone and in combination with ezetimibe was observed to be well-tolerated compared to placebo. TEAEs were reported by 11 (27.5%) subjects in the combination group, 8 (20.5%) subjects in the monotherapy group and 16 (40.0%) subjects in the placebo group. For all treatment groups, the most common AEs nausea (3.4%), urinary tract infection (2.5%), and headache (2.5%). Overall, no drug-related, TESAEs were observed, and there were no TEAEs leading to death. One subject in the combination group had a TEAE leading to discontinuation of the trial drug, compared to two in the monotherapy group and two in the placebo group. There were two severe TEAEs in the placebo group (both nervous system disorders) and one in the monotherapy group (a cardiac disorder). +In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we have selected a formulation for an FDC tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalent patients, in the first quarter of 2024 and released topline data in November 2024. +Japan Phase 2b Clinical Trial +In June 2023, we announced topline results from our Phase 2b Japan trial evaluating the effects of three doses of obicetrapib (2.5 mg, 5 mg, and 10 mg) on LDL-C levels. This was a randomized, double-blind, placebo controlled trial designed to evaluate the efficacy, safety and tolerability of obicetrapib as an adjunct to stable statin therapy in Japanese patients. The trial was conducted at hospitals and clinics across Japan. The primary endpoint was the percent change from baseline to end of treatment (day 56) in LDL-C for each obicetrapib group compared to placebo. The trial enrolled 102 adult participants, who were randomized 1:1:1:1 to receive obicetrapib 2.5 mg, 5 mg, 10 mg or placebo for the 56-day treatment period. Patients treated with obicetrapib 2.5 mg, 5 mg or 10 mg achieved a median reduction in LDL-C of 24.8%, 31.9%, and 45.8%, respectively, as compared to patients treated with placebo, who achieved a median reduction in LDL-C of 0.9%. In addition, patients treated with obicetrapib 10 mg achieved a median reduction in ApoB of 29.7%, compared to a 0.4% reduction in patients treated with placebo, and a median reduction in non-HDL-C of 37.0%, as compared to a 0.4% reduction in patients treated with placebo. The p-value for each endpoint in the obicetrapib arms of the trial compared to placebo was <0.0001. Overall, the different dosages of obicetrapib were observed to be generally well-tolerated, with a safety profile comparable to placebo. TEAEs were reported by 15 (57.7%) subjects in the 10 mg obicetrapib group, 7 (28.0%) subjects in the 5 mg obicetrapib group, 9 (36.0%) subjects in the 2.5 mg group and 15 (57.7%) subjects in the placebo group. AEs observed to date were primarily mild. One TESAE was observed in the 5 mg group, but it was not considered by the investigator to be related to trial treatment. Overall, no drug-related TESAEs were observed, and there were no TEAEs leading to death. +Obicetrapib for Other Therapeutic Areas +Alzheimer’s disease +According to the World Health Organization, Alzheimer’s disease and other dementias affect approximately 55 million people as of 2021, and this is expected to increase to 78 million in 2030 and 139 million in 2050. Alzheimer’s disease is the most prevalent form of dementia, resulting in the generalized degeneration of the brain. +In a healthy brain, excess cholesterol levels in the neurons and amyloid-beta (“Aβ”) peptide removal from brain parenchyma are regulated properly. The brain is the most cholesterol-rich organ in the body; comprising only two percent of the body’s mass, it contains approximately 20% of the body’s cholesterol, which is recycled and redistributed through an ApoE-mediated lipoprotein pathway. Inside populations of cells called astrocytes, ApoE binds with cholesterol that has been released into the brain by neurons and converts it into a different form of cholesterol that is transported out of the brain into the systemic circulation. In addition to ApoE, the protein associated with HDL, ApoA1, also acts as the brain’s “vacuum cleaner,” by removing toxic cholesterol from peripheral tissue to promote healthy cell function and survival. In addition, small HDL particles that transverse the blood brain barrier remove excess Ab peptides in brain parenchyma for ultimate conversion and transport out of the brain. +Alzheimer’s disease, however, is characterized in part by the aggregation of Aβ peptides into amyloid plaques in brain parenchyma, facilitated by the presence of excess cholesterol in cell membranes. Thus, the accumulation of cholesterol in cell membranes and the ineffective clearance of Aβ plaques by ApoE and ApoA1 in their HDL forms is associated with the development of Alzheimer’s disease. Importantly, certain forms of ApoE (in particular, ApoE4) are worse at Ab transport than others, such as ApoE2, and are known to be associated with an increased risk of Alzheimer’s disease. Further, CETP activity has been detected in astrocytes, the cells where ApoE bind with cholesterol, +23 +indicating the potential for a CETP inhibitor to function in the brain similarly to its lipid-modifying effects in the cardiovascular system. Genetic studies have shown that CETP loss of function mutations mitigate the risk of Alzheimer’s disease in patients with the ApoE4 genotype. +Based on these observations as well as the marked increases of ApoA1 in the circulation observed in our Phase 2 clinical trials and the increases in ApoE in the circulation observed in the TULIP trial, we have conducted preclinical assessments of obicetrapib for the prevention and treatment of Alzheimer’s disease. +Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for the prevention and treatment of Alzheimer’s disease. We commenced a Phase 2a open-label and single-arm clinical trial in early 2022 in patients with early Alzheimer’s disease and the ApoE4 mutation to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the CSF compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patient’s plasma was observed and pTau181 levels were observed to be stable. Increases in 24-hydroxycholesterol and 27-hydroxycholesterol over time have been observed previously to lead to a rise in cognitive and related functional impairment. We believe reductions of these oxysterols in the CSF may indicate improved cholesterol metabolism in the brain and may lead to improved cognitive function. In addition, this trial assessed the Aβ42/40 ratio and plasma pTau181, also believed to be biomarkers of Alzheimer’s disease, with lower levels of Aβ42/40 and increased levels of pTau181 having been associated with a greater risk of Alzheimer’s disease. Overall, obicetrapib was observed to be well-tolerated. No serious AEs were reported, nor were any AEs considered to be related to the trial drug. +In BROADWAY, a pre-specified Alzheimer's disease analysis was designed to assess plasma Alzheimer's disease biomarkers in patients enrolled in the BROADWAY trial and evaluated the effects of longer duration of therapy (12 months) with a prespecified population of ApoE3/4 or 4/4 carriers, based on phenotypic analysis. The analysis included 1,515 patients, including 367 ApoE4 carriers, whose ApoE status was able to be determined. Because this analysis was based on a subset of patients from BROADWAY (which was designed to evaluate LDL-C reductions in an ASCVD and/or HeFH population), the Alzheimer's disease analysis was not controlled for baseline differences between the treatment and placebo population. The primary outcome measure was p-tau217 absolute and percent change over 12 months, among patients with baseline and end of study datapoints above the lower limit of quantitation. Additional outcome measures included NFL, GFAP, p-tau181, and Aβ42/40 ratio absolute and percent change over 12 months. We observed statistically significant lower absolute changes in p-tau217 compared to placebo over 12 months in both the full analysis set (p=0.0019; n=1,515) and in ApoE4 carriers (p=0.0215; n=367). Although a safety analysis was not performed in the Alzheimer's disease study population, in BROADWAY obicetrapib was observed to be well-tolerated, with safety results comparable to placebo. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Manufacturing and Supply +We currently have no manufacturing facilities and instead rely on several contract manufacturers to produce drug substance and drug products. The production is overseen by an experienced group of personnel. Obicetrapib and obicetrapib and ezetimibe FDC tablets are manufactured and tested in accordance with current good manufacturing practices (“cGMPs”) at facilities in the United States, Canada, Austria and India. In preparation for commercial supply, we are in the process of expanding our supply network to support a commercial launch of obicetrapib, if approved. +Marketing and Sales +While we do not currently have the internal marketing, sales or distribution capabilities necessary to commercialize obicetrapib or any future product candidates, if approved for commercial sale, we are currently developing our own commercial infrastructure and capabilities in the United States and have entered, and expect to continue entering, into arrangements with third parties to perform these services outside of the United States. We may also opportunistically seek strategic collaborations to maximize the commercial opportunities for our future product candidates inside and outside the United States. We entered into the Menarini License, pursuant to which we granted Menarini the exclusive rights to commercialize obicetrapib 10 mg either as a sole active ingredient product or in an FDC with ezetimibe in the majority of European countries, if approved. As any future product candidates near regulatory approval and potential commercial launch, we plan to assess our options for commercializing each respective product candidate and may choose to commercialize themselves ourselves or with a partner. +Menarini License +We entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib in a single unit dose of 10 mg or less, either as a sole active ingredient product or in an FDC with ezetimibe (the “Licensed Products”), for any use in the Menarini Territory. We retained all rights to obicetrapib in all other territories and in other dosages. +We are solely responsible for conducting the development activities to obtain regulatory approval for obicetrapib. Menarini may conduct market access studies, medical affairs activities, non-registration studies and Phase IV clinical trials in the Menarini Territory. Menarini is responsible for submitting and obtaining the required regulatory approvals to commercialize obicetrapib (at the licensed dosage) in the +24 +Menarini Territory and will own the regulatory approvals, if received. In August 2025, the EMA accepted for review the MAAs submitted by Menarini for obicetrapib 10 mg monotherapy and the FDC of 10 mg obicetrapib plus 10 mg ezetimibe for the treatment of primary hypercholesterolemia, including heterozygous familial and non-familial or mixed dyslipidemia. If the MAAs are approved by the EMA, Menarini will also be solely responsible for commercializing obicetrapib monotherapy and the FDC of obicetrapib plus ezetimibe (at the licensed dosage) and will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Pursuant to the Menarini License, Menarini made an upfront payment to us of €115.0 million. Menarini has also committed to providing €27.5 million in funding for our research and development activities over several years, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to an additional €863 million upon the achievement of various clinical, regulatory and commercial milestones, of which a total of €30 million has been received to date. If obicetrapib is approved and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party intellectual property payments. +The Menarini License will expire on the last to expire royalty term, which is determined on a Licensed Product-by-Licensed Product and country-by-country basis, and is the later of (i) the expiration of the last to expire licensed patent that includes a valid claim in the country, (ii) expiration of regulatory exclusivity granted by the prevailing governmental authority for the Licensed Product in the country or (iii) 12 years from the first commercial sale of the Licensed Product in the country. +In addition, we have entered into a supply agreement with Menarini pursuant to which we will supply Menarini with obicetrapib monotherapy and with the FDC of obicetrapib plus ezetimibe finished product in bulk tablet form (the “Drug Products”). We will initially be Menarini’s exclusive supplier of the Drug Products and fulfill purchase orders based on periodic volume forecasts that Menarini is required to provide, a portion of which will be binding. The price to be paid by Menarini will be based on a specified mark-up to our “cost of goods sold” for the supplied Drug Products (as determined in accordance with the supply agreement), subject to periodic adjustments. +The term of the supply agreement continues for the duration of the term of the Menarini License unless terminated earlier. We may terminate the supply agreement for convenience upon advance 120 days’ written notice to Menarini, provided that the effective date of such a termination must follow the earlier of (i) completion of a process to transfer manufacturing of the Drug Products to Menarini or a designated third-party contract manufacturer, and (ii) two years after the initiation of such transfer. Either party may terminate the supply agreement for uncured material breaches of the supply agreement, if the other party becomes insolvent, or if a force majeure event continues for six months or longer. +Intellectual Property +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +We strive to protect and enhance our proprietary inventions and improvements that we consider commercially important to the development of our business, including by seeking, maintaining, and defending U.S. and foreign patent rights. All of the issued patents and pending patent applications in our patent portfolio are owned by our subsidiary, NewAmsterdam Pharma B.V., Dutch Chamber of Commerce registry number 55971946. As of December 31, 2025, we owned: +• +10 issued U.S. patents and 25 pending U.S. patent applications, +• +114 granted European patents and 10 pending European patent applications, +• +1 granted Chinese patent and 14 pending Chinese patent applications, +• +5 granted Japanese patents and 6 pending Japanese patent applications, and +• +54 granted patents and about 139 pending patent applications in other foreign jurisdictions, including international applications under the Patent Cooperation Treaty (“PCT”). +The patent positions of pharmaceutical companies are generally uncertain and can involve complex legal, scientific, and factual issues. We cannot predict whether any patent applications we pursue will issue as patents in any particular jurisdiction, or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. In addition, the coverage claimed in a patent application may be significantly reduced before a patent is granted, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot +25 +guarantee that any of our products will be protected or remain protectable by enforceable patents. Moreover, any patents that we license or may own in the future may be challenged, circumvented, or invalidated by third parties. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before our product candidate can be commercialized successfully, any related patents may expire or remain in force for only a short period following commercial launch, thereby limiting the protection such patent would afford the applicable product and any competitive advantage such patent may provide. +For any individual patent, the term depends on the applicable law in the country in which the patent is issued. In most countries where we have patents and patent applications, including the United States, patents have a term of 20 years from the application filing date or earliest claimed nonprovisional priority date. In the United States, the patent term may be shortened if a patent is terminally disclaimed over another patent that expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment that is awarded by the USPTO, in order to address administrative delays by the USPTO in examining and granting a patent. +In the United States, the term of a patent that covers an FDA-approved drug may be eligible for patent term extension in order to restore the period of a patent term lost during the premarket FDA regulatory review process. Specifically, the Hatch-Waxman Amendments permits a patent term extension of up to five years beyond the natural expiration of the patent (but the total patent term, including the extension period, must not exceed 14 years following FDA approval). The patent term extension period granted on a patent covering a product is typically one-half the time between the effective date of the IND for the first investigation involving human beings and the submission date of an NDA seeking FDA approval, plus the entire time from submission date of the NDA to the ultimate approval date. Only one patent applicable to an approved product is eligible for patent term extension, and only those claims covering the approved product, an approved method for using the approved product, or a method for manufacturing it may be extended. The application for patent term extension must be submitted prior to the expiration of the patent. The USPTO reviews and approves the application for any Patent Term Extension in consultation with the FDA. +Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO and other patent offices may be significantly revised before issuance, if granted at all. +For more information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related to Our Intellectual Property. ” +The issued patents and pending patent applications for obicetrapib as of December 31, 2025 are detailed below. We have segregated these patents into three groups for ease of reference: First Generation Patents, Second Generation Patents and Third Generation Patents based on the patent application filing dates and subject matter. +Obicetrapib First Generation Patents +Our first generation obicetrapib patent portfolio includes: +• +a patent family directed generally to compounds, pharmaceutical compositions comprising the compounds, and methods of treatment using the compounds and pharmaceutical compositions. We have 1 granted patent in the United States in this patent family covering a genus of compounds that includes obicetrapib and claims that more narrowly cover the obicetrapib compound and pharmaceutical compositions thereof. This United States patent is expected to expire in August 2027, without taking potential patent term extension into account. +• +a patent family covering a method of synthesizing obicetrapib. In this patent family, we have 1 granted patent in the United States, 5 granted patents in Europe including the United Kingdom, and 1 granted patent in Japan. Patents in this family are expected to expire between March 29, 2027 and March 31, 2029, not including potential patent term extensions. +Obicetrapib Second Generation Patents +Our second generation obicetrapib patent portfolio includes: +• +a patent family directed to solid oral dosage forms containing 5 to 10 mg of obicetrapib, including tablet forms, and methods of treatment comprising administration of 1 to 25 mg of obicetrapib daily which includes 4 granted patents and 2 pending patent applications in the United States, 39 granted patents in Europe, 1 granted patent in Japan, 6 pending patent applications in China, and 22 granted patents and 13 pending patent applications in other foreign jurisdictions. These patents, and patent applications if granted, are expected to expire in February 2034, without taking potential patent term extensions or patent term adjustment into account. +• +a patent family directed to compositions that contain obicetrapib and a statin, methods of treating with compositions that contain obicetrapib and a statin, and in various foreign jurisdictions, methods of use in which obicetrapib and a statin are separately administered which include 1 granted patent in the United States (expected to expire in February 2034), 2 granted patents in Japan, 2 pending patent applications in China, and 7 granted patents and 3 pending patent applications in other foreign jurisdictions. Outside the United States, patents, and patent applications if granted, are expected to expire in August 2035, without taking potential patent term extensions or patent term adjustment into account. +26 +• +a patent family that claims a synthetic intermediate used in a synthetic process we intend to use commercially, as well as processes to make that intermediate, which includes 1 granted patent in the United States, 39 granted patents and 1 pending patent application in Europe, 1 granted patent in China, 1 granted patent in Japan, and 22 granted patents and 2 pending patent applications in other foreign jurisdictions. Patents, and patent applications if granted, are expected to expire in July 2035, without taking potential patent term extensions or patent term adjustment into account. +Obicetrapib Third Generation Patents +Our third generation obicetrapib patent portfolio includes: +• +a patent family covering the solid salt form of obicetrapib that we intend to commercialize, a process for its commercial synthesis, and a novel intermediate used in that synthetic process. In the United States, we have 2 granted patents including a granted patent with claims covering the solid salt form of obicetrapib, and 2 pending applications. Patent applications are pending in Europe, China, Japan, and in over 40 other foreign jurisdictions. Our United States patents, and patents if granted on the pending applications worldwide, are expected to expire in July 2043, without taking potential patent term adjustment or extensions into account. +• +patent families directed to the combination of obicetrapib with ezetimibe, including patent families covering methods of treatment, fixed dose combinations, and the formulation of our intended FDC product. Certain patent families directed to formulations also include the commercial formulation of our intended single-active product. Patents in these families, if granted, are expected to expire from February 2042 to November 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to the combination of obicetrapib with statins for use in certain subpopulations, the combination of obicetrapib with SGLT2 inhibitors, and the combination of obicetrapib with PCSK9 inhibitors. Patents in these families, if granted, are expected to expire from July 2042 to April 2046, without taking potential patent term adjustment or extensions into account. +• +patent families directed to methods of using obicetrapib to treat neurodegenerative diseases. Granted patents in these families, and patent applications if granted, are expected to expire from March 2042 to September 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to treatment of patient populations enrolled in our Phase 3 clinical trials, or directed to other clinical indications. Patents in these families, if granted, are expected to expire from September 2044 to September 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to other aspects of obicetrapib and related molecules, such as synthesis processes, solid forms and formulations, and methods of preparation and use thereof. Patents in these families, if granted, are expected to expire from November 2045 to November 2046, without taking potential patent term adjustment or extensions into account. +Trade Secrets +We also rely on trade secrets, know-how, confidential information and continuing technological innovation to develop, strengthen and maintain our proprietary position in our field and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. However, trade secrets can be difficult to protect. While we take measures to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. We seek to protect our proprietary information, in part, using confidentiality agreements and invention assignment agreements with our collaborators, employees and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties. Furthermore, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors and other third parties, or misused by any collaborator to whom we disclose such information. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For more information regarding the risks related to our intellectual property, please see “ Risk Factors — Risks Related to Our Intellectual Property .” +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of drug products. We, along with any third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies, clinical trials or seek approval of our products and product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. +27 +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), as amended, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States, and this process generally involves the following: +• +completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (“GLP”) requirements and other applicable regulations; +• +submission to the FDA of an Investigational New Drug application (“IND”), which must become effective before human clinical trials may begin and must be updated annually and when certain changes are made; +• +approval by an independent investigational review board (“IRB”) or independent ethics committee (“EC”) at each clinical site before each trial may be initiated; +• +performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) requirements, to establish the safety and efficacy of the proposed drug for its intended use; +• +preparation of and submission to the FDA of an NDA after completion of pivotal trials; +• +a determination by the FDA within 60 days of its receipt of an NDA to file the application for review; +• +satisfactory completion of an FDA advisory committee review, if applicable; +• +satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• +potential FDA audit of the nonclinical study and/or clinical trials sites that generated data in support of the NDA; and +• +FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product; chemistry, manufacturing and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial or not allowing it to commence on the terms originally specified in the IND. +Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the trial until completed. Some trials also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or data monitoring committee, which provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. +A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the clinical trial complies with regulatory requirements if the data is to be used in support of NDA approval. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, the FDA is able to validate the data through an onsite inspection, if deemed necessary, and the FDA determines that the data is applicable to the U.S. patient population. +28 +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• +Phase 1 : The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage tolerance, absorption, metabolism, excretion and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. +• +Phase 2 : The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. +• +Phase 3 : The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and labeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA, although this may vary and in some instances hybrid trials may be conducted that meet the criteria for multiple phases under one trial design. +In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 trials may be conducted after initial marketing approval and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected AEs, findings from other trials suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug. +U.S. Review and Approval Process +Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical, and other nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including trials initiated by independent investigators. To support marketing approval, the data submitted must be sufficient to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may refuse to file the application if the application is not sufficiently complete to permit substantive review and request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once accepted for filing, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality, and purity. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete its initial review and act on a standard NDA for a drug that is a new molecular entity, and of ten months from the date of NDA receipt to review and act on a standard NDA for a drug that is not a new molecular entity. The FDA does not always meet its PDUFA goal dates, and the review process is often extended by FDA requests for additional information or clarification. +29 +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it has considered such recommendations carefully when making decisions. +Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within designated specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs and assure the integrity of the clinical data submitted to the FDA. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter, a tentative approval letter (in the case of, for example, certain types of NDAs referred to as 505(b)(2) NDAs that rely in whole or in part on other company’s approvals), or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific conditions of use, including specific indications. A tentative approval letter is notification that an NDA otherwise meets the requirements for approval but cannot be approved because of exclusivity or patent reasons. A drug product that is granted tentative approval is not an approved drug and will not be approved until FDA issues an approval letter after any necessary additional review of the NDA. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA will refuse approval of an NDA if applicable statutory and regulatory criteria are not satisfied and may require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. +If regulatory approval of a product is granted, such approval will be granted for particular conditions of use, including particular indications, and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post-marketing trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing trials or surveillance programs. +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or fails to submit a request for approval of a pediatric formulation. In addition, failure to fulfill the requirement to submit a pediatric study plan with an application may be grounds for refusal to file an application. +U.S. Expedited Development and Review Programs +The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to a particular product for the specific qualifying disease or condition. The sponsor of a Fast Track designated product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. A Fast Track-designated product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted. Rolling review may occur if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. FDA may also only commence its review upon submission of the final section of the NDA. +30 +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or as a combination therapy with one or more other drugs may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +A marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review. A product candidate is eligible for priority review if it is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, or with respect to non-new-molecular-entity NDAs, within six months of the NDA receipt date. +Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may utilize an accelerated approval pathway upon a determination that the product has an effect on (1) a surrogate endpoint that is reasonably likely to predict clinical benefit or (2) a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to withdrawal of its approval if, for example, the sponsor fails to conduct the required post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the pre-approval review period, which could adversely impact the timing of the commercial launch of the product. +Fast Track designation, Breakthrough Therapy designation, priority review designation, and the accelerated approval pathway do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval, but may expedite the development or review process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +U.S. Marketing and Data Exclusivity +Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDA provides periods of non-patent regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace. Five years of exclusivity are available to new chemical entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt (including a salt with hydrogen or coordination bonds), or other noncovalent derivative (such as a complex, chelate, or clathrate) of the molecule, responsible for the physiological or pharmacological activity of the drug substance. During the exclusivity period, an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA that contains the same active moiety may not be submitted. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a Paragraph IV certification of patent invalidity, unenforceability, or non-infringement is filed. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, containing a previously approved active moiety, if FDA determines that it contains reports of new clinical investigations (other than bioavailability studies) essential to the approval of the application and conducted or sponsored by the applicant. New indications, dosages or strengths of an existing active moiety may be eligible for three-year exclusivity. If eligible, FDA may not approve an ANDA or 505(b)(2) application containing the same active moieties (or combination of active moieties) for the same conditions of approval protected by the exclusivity for three years after approval of the eligible NDA or supplement. This three-year exclusivity protects only the modification for which the drug received approval on the basis of the new clinical investigations and often can be “carved out” of the labeling of the ANDA or 505(b)(2) application to permit approval. This exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active moiety (or combination of active moieties) for previously approved, unprotected conditions of use. Five-year and three-year exclusivity will not delay the submission or approval of a 505(b)(1) NDA. +Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat rare diseases or conditions affecting fewer than 200,000 individuals in the United States. If a product with orphan drug designation receives FDA approval for an indication within the designated disease, the FDA generally may not approve another marketing application for the same drug for the same approved indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority by a subsequent product or if the holder of the orphan drug exclusivity is unable to assure sufficient quantities of the product to meet patient needs. +31 +The FDA may also grant pediatric exclusivity, which provides a six-month extension to existing regulatory or patent exclusivity. To be eligible for pediatric exclusivity, the FDA must issue a Written Request detailing the studies to be performed and the timeframe for their completion. If an applicant agrees to perform the studies as outlined in the Written Request, the applicant must submit study reports at least fifteen months prior to the expiry of the exclusivity that is to be extended. To be eligible for pediatric exclusivity, FDA must determine that the studies fairly respond to the Written Request, have been conducted in accordance with commonly accepted scientific principles and protocols, and have been reported in accordance with the requirements for filing. +U.S. Post-approval Requirements +Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. After approval, for certain modifications to the drug or the labeling of the drug, including changes in indications, other prescribing information or manufacturing processes or facilities, the applicant may be required to submit and obtain prior FDA approval of a new NDA or NDA supplement, which may require the development and submission of additional data. A limited category of changes made be made 30 days after submission of an NDA supplement or at the same time as an NDA supplement is submitted. These are known as “changes being effected” supplements. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements in the event of a deviation involving distributed product. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and other tracking requirements and must notify the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production, quality and distribution control to maintain compliance with cGMP and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. If new or increased safety risks are identified, there may be required revisions to the approved labeling, imposition of post-market trials or clinical trials, or imposition of distribution restrictions or other restrictions under a REMS program. A failure to meet applicable regulatory requirements can result in potential consequences to include, among other things: +• +restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• +fines, warning letters or untitled letters; +• +clinical holds on clinical trials; +• +refusal of the FDA to approve pending applications or supplements to approved applications or suspension or revocation of product approvals; +• +product seizure or detention or refusal to permit the import or export of products; +• +consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• +mandated modification of promotional materials and labeling and the issuance of corrective information; +• +the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• +injunctions or the imposition of civil or criminal penalties. +The FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and other advertising and promotion requirements. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. +Other Healthcare Laws +In the United States, drug manufacturers and sponsors are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, and other healthcare fraud and abuse laws, as follows: +32 +The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving, or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for, or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federal healthcare programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +The federal false claims laws, including the federal False Claims Act (the “FCA”), prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil FCA may be brought by the U.S. Department of Justice or as a qui tam action by a private individual in the name of the government. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil FCA. +In addition, the Civil Monetary Penalties statute, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program. +The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” and their respective subcontractors that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information. +The federal Physician Payments Sunshine Act requires applicable manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals including physician assistants and nurse practitioners, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. +There are federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, and such reported prices may be used in the calculation of reimbursement and/or discounts on approved products. +Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s otherwise voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing information and marketing expenditures or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws and other applicable healthcare fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. +Coverage and Reimbursement +Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of +33 +reimbursement for such product by third-party payors. In the United States, no uniform policy exists for coverage and reimbursement for pharmaceutical products among third-party payors. Therefore, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The process for determining whether a third-party payor will provide coverage for a product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. +Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, and they often require us to provide scientific and clinical support for the use of our products to each payor separately, which can be a time- consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Additionally, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. +Moreover, as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid, we will be subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain price reporting metrics to the government, such as Medicaid Average Manufacturer Price (“AMP”), and Best Price, Medicare Average Sales Price, the 340B Ceiling Price and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with such laws and regulations require significant resources and any findings of non-compliance may have a material adverse effect on our revenues. +Healthcare Reform +In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system and the reimbursement of drug products. For example, the Inflation Reduction Act of 2022 (the “IRA”) sets forth meaningful changes to drug product reimbursement by Medicare. The IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered by Medicare and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions began to take effect in 2023, although several significant challenges concerning the provisions for Medicare price negotiations are currently pending before federal appeals courts. With respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B or Part D. CMS negotiated prices for ten high-cost drugs paid for by Medicare Part D effective in 2026 and 15 Part D drugs effective in 2027. CMS will negotiate prices for 15 Part B or D drugs effective in 2028 and 20 Part B or Part D drugs effective in 2029 and each year thereafter. This provision applies to drug products that have been approved for at least 7 years and biologics that have been licensed for 11 years, but it does not apply to drugs and biologics that have been approved only for rare diseases or conditions. +The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increase the price of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D as of 2025, significantly lowers the beneficiary maximum out-of-pocket cost, and requires manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +These provisions of the IRA may heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products. +In addition as a result of the Budget Control Act of 2011, health care providers are subject to Medicare payment reductions of 2% per fiscal year. This 2% reductions was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. +There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the Trump Administration (the “Administration”) has issued Executive Orders relating to prescription drug pricing and letters to pharmaceutical +34 +manufacturers that direct drug manufacturers to, among other things, offer most favored nation (“MFN”) pricing in Medicaid, offer MFN pricing for all newly launched drugs; repatriate increased revenue from abroad to lower drug prices in the United States, and implement direct-to-consumer and direct-to-business distribution of their products at MFN pricing. The Administration has warned that manufacturers that fail to make “significant progress” toward MFN pricing will face enumerated regulatory and enforcement consequences. In September 2025, the Administration began announcing deals with specific manufacturers to address the Administration’s MFN goals. +Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. +Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs and suppliers will be included in their healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. +We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act) that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act, the California Privacy Rights Act and the European General Data Protection Regulation 2016/679 (“GDPR”), govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Privacy and security laws, regulations and other obligations are constantly evolving, and these may conflict with each other which makes compliance efforts more challenging. Failure to comply with these laws, where applicable, can result in (i) the imposition of significant civil claims; (ii) private litigation; (iii) regulatory investigations and proceedings; (iv) significant penalties imposed by regulators; (v) enforcement notices and restrictions on data processing, requiring us to stop or change the way we use personal information; and (vi) negative publicity, reputational harm and a potential loss of business and goodwill. +Regulation and Procedures Governing Approval of Medicinal Products in the European Union +In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales, manufacturing and distribution of our product candidates to the extent we choose to sell any of our product candidates outside of the United States. Whether or not we obtain FDA approval for a product, we or our third-party partners must obtain approval of a product by equivalent competent authorities in foreign jurisdictions before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that is approved outside the United States. +Medicinal products in the European Union (the “EU”) must be granted a marketing authorization (“MA”) before they can be marketed and sold in any EU member state. The process to obtain an MA requires the satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety, quality and efficacy of the medicinal product for each proposed therapeutic indication. It also requires the submission to the relevant competent authorities of an EU MAA and granting of an MA by these authorities. The aforementioned EU rules are applicable in the European Economic Area (“EEA”), which consists of the 27 EU member states, as well as Norway, Liechtenstein and Iceland. +Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, the authorization of medicinal products and marketing of such products, both before and after grant of the MA, or with other applicable regulatory requirements may result in administrative, civil, or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal, or variation of the MA, total or partial +35 +suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. +EU Non-Clinical Studies and Clinical Trials +Similar to the United States, the various phases of non-clinical research in the EU are subject to significant regulatory controls. +Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical substances. Non-clinical health and environmental safety studies must be conducted in compliance with the principles of GLP, as set forth in Directive 2004/10/EC. In particular, non-clinical health and environmental safety studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements. Research involving animals conducted within the EEA must comply with relevant national implementations of Directive 2010/63/EU, requiring that such testing is carried out in licensed facilities with appropriate staff and in compliance with animal welfare standards. +The Clinical Trials Regulation (EU) No 536/2014 (which replaced the previous Clinical Trials Directive 2001/20/EC) governs the system for the approval of clinical trials and the investigational medicinal product supply chain in the EU. The main characteristics of the Clinical Trials Regulation include: a streamlined application procedure for clinical trial authorization via a single-entry point, the Clinical Trials Information System; a single set of documents to be prepared and submitted for the application, as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is jointly assessed by the competent authorities of all EU member states in which an application for authorization of a clinical trial has been submitted (member states concerned). Part II is assessed separately by each member state concerned, and applicant may only start a clinical trial at a specific trial site after the competent ethics committee has issued a related favorable opinion. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU member state. However, overall related timelines are defined by the Clinical Trials Regulation. +The application for authorization of a clinical trial must be accompanied by, among other documents, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation as prescribed by the Clinical Trials Regulation, and further detailed in applicable guidance documents. Any substantial changes to the trial protocol or to other information submitted with the clinical trial application must be notified to or approved by the relevant competent national authorities and ethics committees through the Clinical Trials Information System. Medicinal products used in clinical trials must be manufactured in accordance with GMP, including in accordance with Commission Delegated Regulation (EU) 2017/1569. EU clinical trials must be conducted in accordance with EU and national regulations and, if intended for regulatory submissions, the International Conference on Harmonization (“ICH”) guidelines on GCP, as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EEA, it must appoint an entity within the EEA to act as its legal representative. +The Clinical Trials Regulation additionally prescribes that member states must implement a scheme providing for compensation for damage caused by participation in clinical trials within their territory in the form of insurance, a guarantee, or a similar arrangement that is equivalent as regards its purpose and which is appropriate to the nature and the extent of the risk. +EU Marketing Authorizations +To obtain an MA for a product in the EU, an applicant must submit an MAA either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in the EEA member states (decentralized procedure, national procedure, or mutual recognition procedure). An MA may be granted only to an applicant established in the EEA. +The centralized procedure comprises a single application, evaluation and authorization and provides for the grant of a single MA by the European Commission that is valid for all EU member states, and by extension also in the three EEA states. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for (i) medicinal products derived from biotechnological processes, (ii) products designated as orphan medicinal products, (iii) advanced therapy medicinal products and (iv) products with a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, auto-immune and other immune dysfunctions and viral diseases. For products with a new active substance indicated for the treatment of other diseases and products that are a significant therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients, the centralized procedure may be optional. +Under the centralized procedure, the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing MA. +Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. +36 +Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of 210 days will be reduced to 150 days (not including clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. +Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as the Priority Medicines ("PRIME") scheme, which provides incentives similar to the breakthrough therapy designation in the United States. PRIME is a voluntary scheme aimed at enhancing the EMA's support for the development of medicinal products that are not authorized in the EU and show the potential to target unmet medical needs. It permits increased interaction and early dialogue with companies developing promising medicinal products, to optimize their product development plans and speed up their evaluation under the centralized procedure to help the product reach patients as early as possible. Product developers that benefit from PRIME designation are potentially eligible for accelerated assessment of their MAA although this is not guaranteed. Benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated MAA assessment once a dossier has been submitted under the centralized procedure. +Unlike the centralized authorization procedure, the decentralized MA procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU member state in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU member state prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report and related materials are submitted to the concerned EU member states who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU member state cannot approve the assessment report and related materials due to concerns relating to a potentially serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralised Procedures—Human ("CMDh") for review. The CMDh seeks to resolve the issue by achieving a negotiated consensus amongst participating member states. If that is not possible, the issue may be referred to the CHMP. The CHMP will allow submissions from the applicant and, having considered the relevant issues and data, will issue an opinion by majority vote. The Committee will then send the opinion to the European Commission, which will adopt a decision that is binding on the applicant and all EU relevant member states. +The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU member state under national procedures to apply for this authorization to be recognized by the competent authorities in other EU member states. Like the decentralized procedure, the mutual recognition procedure is based on the acceptance by the competent authorities of the EU member states of the MA of a medicinal product by the competent authorities of other EU member states. The holder of a national MA may submit an application to the competent authority of an EU member state requesting that this authority recognize the MA delivered by the competent authority of another EU member state. +In principle, any EU MA has an initial validity of five years. The MA may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU member state in which the original MA was granted. To support the application, the MA holder must provide the EMA or the competent authority with a consolidated version of the Common Technical Document, providing up-to-date data concerning the quality, safety and efficacy of the product, including all variations introduced since the MA was granted, at least nine months before the MA ceases to be valid. The European Commission or the competent authorities of the EU member states may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year renewal period for the MA. Once subsequently definitively renewed, the MA shall be valid for an unlimited period. Any authorization that is not followed by the actual placing of the medicinal product on the EU market (in case of centralized procedure) or on the market of the authorizing EU member state within three years after authorization ceases to be valid (the so-called sunset clause). +In the EU, a “conditional” MA may be granted to meet the unmet medical needs of patients for medicinal products intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening diseases in cases where all the required safety and efficacy data are not yet available. The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once the specific obligations under the conditional MA are fulfilled (such as the completion of certain ongoing or new trials) and the complete data confirm that the medicinal product’s benefits continue to outweigh its risks, the conditional MA can be converted into a standard MA. However, if the specific obligations are not fulfilled within the timeframe set by the EMA, the conditional MA may cease to be renewed. +An MA may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to provide comprehensive information or when generating data may be contrary to generally accepted ethical principles. Like a conditional MA, an MA granted in exceptional circumstances is reserved for medicinal products intended to be authorized for the treatment of rare diseases or unmet medical needs for which the applicant does not hold a complete data set that is required for the grant of a standard MA. While an MA under exceptional circumstances may be subject to an obligation to conduct post-approval studies, unlike the conditional MA, an applicant for authorization in exceptional circumstances is not required to provide the missing data on +37 +the medicinal product’s efficacy and safety necessary to convert the conditional MA into a standard MA. Subject to renewal after five years (as with all standard MAs), the MA “under exceptional circumstances” is granted definitively, but the risk-benefit balance of the medicinal product is reviewed annually and the MA can be withdrawn if the risk-benefit ratio is no longer favorable. +In addition to an MA, various other requirements apply to the manufacturing and placing on the EU market of medicinal products. Manufacture of medicinal products in the EEA requires a manufacturing authorization, and import of medicinal products into the EEA requires a manufacturing authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance. These requirements include compliance with EU GMP standards when manufacturing medicinal products and active pharmaceutical ingredients (“API”), including the manufacture of APIs outside of the EU with the intention to import the APIs into the EU. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws, regulations and guidelines, including good distribution practice standards and the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU member states. MA holders, manufacturing and import authorization (“MIA”) holders or distribution authorization holders may be subject to civil, criminal or administrative sanctions, including suspension of the MA, MIA or distribution authorization, in case of non-compliance with the EU or EU member states’ requirements applicable to the manufacturing, import and distribution of medicinal products. +EU Data and Market Exclusivity +The EU provides opportunities for data and market exclusivity related to MAs. Upon receiving an initial MA, innovative medicinal products that comprise a new active substance are entitled to eight years of data exclusivity and ten years of market exclusivity. Data exclusivity, if granted, prevents generic or biosimilar product manufacturers from referencing the innovator’s preclinical and clinical data in generic or biosimilar MAAs for eight years from the date of authorization of the innovative product, after which a generic or biosimilar MAA can be submitted, and the innovator’s data may be referenced. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until ten years have elapsed from the initial MA of the reference product in the EU. The overall ten-year period may, occasionally, be extended for a further year to a maximum of 11 years if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, there is no guarantee that an innovative medicinal product will be considered by the EU’s regulatory authorities to be a new active substance eligible for data and market exclusivity. These periods of data and market exclusivity may also be granted for a new MA for an existing active substance if the applicant is unrelated to the original MA holder and the MAA comprises a full free-standing dossier with relevant preclinical and clinical data. +In the EU, there is a special regime for biosimilars products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials regarding biosimilarity must be provided in support of an MAA. +In December 2025, the European Parliament and the Council of the European Union reached a provisional agreement to amend existing EU pharmaceutical legislation that will, among other things, alter the conditions and periods for data exclusivity available to MA holders when adopted into EU law. The final text of the new legislation is due to be released in early 2026 and expected transitional provisions mean that it will most likely apply from mid-2028. +EU Post-Approval Requirements +Where an MA is granted in relation to a medicinal product in the EU, the holder of the MA is required to comply with a range of regulatory requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. +Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission or the competent regulatory authorities of the individual EU member states. The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”). +All new MAAs must include a risk management plan describing the risk management system the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety trials. +In the EU, the advertising and the promotion of medicinal products are subject to both EU and EU member states’ laws governing promotion of medicinal products, interactions with physicians and other healthcare professionals or organizations, misleading and comparative advertising and unfair commercial practices. Although the general requirements for the advertising and the promotion of medicinal products are established under EU directives, the details are governed by laws and regulations in each member state and can differ from one country to another. For example, applicable laws prohibit pre-authorization and misleading advertising and require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with an MA. The SmPC is the document that provides information to physicians concerning the safe and +38 +effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of prescription medicinal products is also prohibited in the EU. There is also a prohibition on the offer or supply of inappropriate inducements to prescribe, subject to exemptions in certain jurisdictions, such as benefits that are inexpensive and relevant to the practice of medicine. +Proposals to amend EU pharmaceutical laws +In December 2025, the European Parliament and the Council of the European Union reached a provisional agreement on legislation to amend the current EU pharmaceutical regulatory framework. The legislative reforms are intended to achieve a balance between supporting innovation and increasing the affordability and geographic availability of medicines. The text of the new legislation is due to be released in early 2026. Such legislation is likely to include altering the conditions and periods of marketing protections available for innovative products, requiring applicants to include environmental impact assessments in MAAs, increasing transparency and disclosure requirements, and restructuring the EMA’s scientific committees. Legislative changes are not expected to come into force until early 2026 and the expected transitional provisions mean that such changes will most likely apply from mid-2028. +Japanese Drug Regulation +Japan is a member of the ICH, and has pharmaceutical law and regulations that are similar in many respects those of the United States and the EU. Those requirements are embodied in the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (also known as the Pharmaceuticals and Medical Devices Act) and related cabinet orders, Ministerial ordinances, and guidelines. +Clinical trials of medicinal products in Japan must be conducted in accordance with Japanese regulations and the ICH GCP guidelines. If the sponsor of the clinical trial is not an entity within Japan, it must appoint a domestic entity to act as its agent and carry out obligations on the overseas sponsor’s behalf. The sponsor must hold a clinical trial insurance policy, and in accordance with industry practice, should establish a compensation policy for the injuries from the trial. +Prior to the commencement of human drug clinical trial, the sponsor must complete a preclinical safety evaluation of the investigative product and submit a clinical trial notification, including the clinical trial protocol, to the Ministry of Health Labor and Welfare’s PMDA. This notification must be submitted after obtaining agreement of the IRB in relevant clinical trial institution(s). If the authorities do not raise an issue or comment on the notification application within 30 days, the sponsor may proceed to conclude clinical trial agreement(s) with the site(s) and commence the clinical trial. +Any substantial changes to the trial protocol or other information submitted must be cleared by the IRB and notified to the authorities. Medicines used in clinical trials must be manufactured in accordance with Japan’s cGMPs. +Non-clinical studies performed to demonstrate the safety of new chemical or biological substance must be conducted in compliance with the principles of Japanese GLP which reflect the Organization for Economic Co-operation and Development (“OECD”) requirements. Currently, Japan and EU have a mutual recognition agreement for GLP, and data generated compliant with EU requirements will be accepted by the Japanese authorities. There is no similar agreement with the United States, but this is not a significant issue because of the OECD arrangement. +To market an innovative medicinal product in Japan, domestic or overseas applicant must obtain government approval (or marketing authorization) through a new drug application. If the product is designed for treating certain difficult diseases or those for which the patient population is limited and demonstrates unique therapeutic value, the applicant may be able to obtain designation as an orphan drug product. There are also expedited programs for (i) truly innovative products for grave diseases with a unique mechanism of action (provided that development in Japan is concurrent or ahead of other jurisdictions) and (ii) products that satisfy certain unmet medical needs. +The evaluation of new drug applications is based on PMDA’s assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Once PMDA completes its review, the matter is considered by the advisory committee of experts, and the government grants approval upon any positive recommendation from the committee. If foreign data are part of the application, a dose response clinical trial for Japanese subjects may be required to ensure that data can be extrapolated to Japan’s population. +Separate from the approval requirement, it is also mandatory that the marketing authorization holder or its partner in Japan possess a drug marketing license. Companies in Japan that actually manufacture drugs must possess a drug manufacturing license, and overseas manufacturers must obtain a manufacturing certification. +People’s Republic of China (“PRC”) Drug Regulation +China heavily regulates the development, approval, manufacturing, and distribution of drugs, including biologics. For purposes of the below description of drug regulation in China, Hong Kong, Macao and Taiwan, which are governed by separate drug laws, are excluded. The regulatory requirements applicable depend, in part, on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval +39 +or “registration” category of the drug. For both imported and domestically manufactured drugs, China requires regulatory approval for a clinical trial application (“CTA”) to conduct clinical trials in China and submit China clinical trial data, prior to submitting an application for marketing approval. For imported drugs, the sponsor and marketing authorization holder must be an overseas company that, if the drug is already approved abroad, holds a marketing authorization in another country. +China also prioritizes review and approval of drugs and improvements to drugs (e.g., new indications, routes of administration) that have not yet been approved in any other jurisdiction (i.e., new to the world). In addition, China has created a set of expedited programs for drugs in high priority disease areas and drugs that more effectively treat life-threatening illnesses or that are needed for national emergencies. +The framework law in the drug space in China is the PRC Drug Administration Law (“DAL”). The DAL is implemented by various regulations and rules. The primary drug authority that regulates the life cycle of drugs is the NMPA. The NMPA has its own set of regulations, rules and guidelines further implementing the DAL. The rule governing CTAs, marketing approval, and post-approval amendment and renewal is known as the Drug Registration Regulation (“DRR”). +NMPA’s Center for Drug Evaluation (“CDE”) approves clinical trials and conducts the technical evaluation of each drug and biologic marketing application to assess safety and efficacy. Provincial-level medical products administrations help to enforce these rules, and issue entity licenses to domestic companies, such as drug manufacturing and distribution licenses. +The National Health Commission of the PRC (“NHC”) is China’s primary healthcare regulatory agency. It is responsible for regulating the health care system, including the licensure of medical institutions, which also serve as clinical trial sites, and credentialing of medical personnel. +PRC Breakthrough Therapy Designation by the NMPA +Among other expedited programs, China administers a Breakthrough Therapy Designation. To qualify, a drug must be new to the world, intended to treat a life-threatening disease or one that can seriously impact quality of life, and for which there is no existing therapy in China or a demonstrated substantial improvement over available therapies. Drugs that are designated as breakthrough therapies will receive priority in meeting scheduling, enhanced guidance from CDE to expedite drug development, and may also qualify for other expedited programs, such as priority review and conditional approval. +PRC Non-Clinical Research +The NMPA requires preclinical data to support registration applications for imported and domestic drugs. For domestic laboratories, NMPA oversees an accreditation program pursuant to China’s GLP. If the preclinical research is conducted outside of China, then the applicant must sign and submit a certification with its CTA and marketing application stating that such research was conducted in accordance with applicable good laboratory practice rules. +PRC Clinical Trials and Regulatory Approval +Upon completion of preclinical studies, a sponsor will often need to conduct clinical trials in China to support registration. The materials required for a clinical trial application are substantial even at the CTA stage, including detailed manufacturing information. Drug registration trials in China many only be conducted after obtaining approval of a CTA submitted to CDE, approval of the ethics committee at each accredited hospital site, and human genetic resource approval (“HGR”), which is required for the collection of samples and certain associated data. CTAs may be approved in 60 business days if there is no comment from CDE, and the other applications can take approximately 3-4 months each. Prior to consenting subjects, information about clinical trials must be registered on a CDE-administered platform and continually updated during the trial, and certain information, not including the protocol, is made publicly available on the platform. +PRC Trial Exemptions and Acceptance of Foreign Data +The NMPA may reduce requirements for clinical trials and data, depending on the drug and the existing data. In some cases, NMPA has granted waivers for certain phases of trials and has stated that it will accept data generated abroad (even if not part of a global study with a site in China), including early phase data, that meets its requirements. According to the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data the data from foreign clinical trials must meet China’s authenticity, completeness, accuracy, and traceability requirements, and be obtained consistent with the relevant requirements under the China’s Drug GCP. Sponsors must be attentive to potentially meaningful ethnic differences in the subject populations. +PRC Clinical Trial Process and Good Clinical Practices +Pre-market drug clinical trials may have three phases, which can each require a CTA (unless one CTA covers all three). These clinical trials must be conducted in accordance with a protocol that NMPA, various ethics committees at different sites, and the Ministry of Science and Technology (which grants HGR approvals) all review as part of the aforementioned approvals, and in accordance with applicable drug rules, including China’s Drug GCP, issued jointly by NMPA and NHC. Trials must also be conducted at sites that have received credentials from the NHC and NMPA. +40 +China is a member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“International Council for Harmonisation”), so its GCP resemble the International Council for Harmonisation GCP in a great many respects. However, there are some differences. For example, under China’s GCP the sponsor must provide legal and economic guarantee to the investigator for clinical trial-related injuries, but harm or death caused by medical negligence is excluded. The drug rules contain procedures for amending the clinical trial approval, including obtaining approval for safety-related protocol amendments. NMPA (specifically, its Center for Food and Drug Inspections) has the power to audit trials and sites for GCP compliance during and after the clinical trial. +PRC Drug Marketing Application and Approval +Upon completion of the development process, the applicant may submit a marketing authorization application to CDE. CDE will organize pharmaceutical, medical, and other technical personnel to conduct a review of the safety, efficacy, and quality controllability of the drug based on the application materials submitted, and the results of a verification and inspection (if required). If NMPA decides to approve the drug based on CDE’s opinion, it will issue a drug registration certificate (i.e., a marketing authorization). A marketing authorization must be renewed every five years. +As the marketing authorization holder (“MAH”), a drug company is responsible for the life cycle of the product, including development, production and distribution, post-market trials, routine annual reporting, and safety monitoring and reporting of adverse drug reactions, among other obligations. The MAH may engage third parties to fulfill some of these obligations, such as appropriately-qualified manufacturers and distributors. If the MAH is overseas, as is required for imported drugs, the MAH must appoint an agent, which must be an entity in China that assists with meeting regulatory obligations. Marketing authorizations can be transferred to entities with the required capacity. +Both investigational and marketed drugs must be made in accordance with China GMPs. Domestic manufacturers must have a drug manufacturing license, and overseas manufacturers must certify that they will make drugs in accordance with GMP and meet their home country’s requirements. Drugs must be distributed in China by licensed drug distributors. +Competition +The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical companies, smaller biotechnology and specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial and technical human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA-approved drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete. +We believe the key competitive factors that will affect the development and commercial success of our obicetrapib product candidate, if approved, will be its enhanced LDL-lowering capability as a monotherapy or as a combination therapy, tolerability profile, convenience of oral dosing and availability of reimbursement from governmental and other third-party payors, and effect on other predictors of disease risk. +We are currently developing obicetrapib primarily for the treatment of patients at high cardiovascular risk with elevated levels of LDL-C as an adjunct to statins. If approved, obicetrapib would compete with approved non-statin treatments such as ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors such as Repatha, Praluent and Leqvio. We are also aware of two orally administered small molecule product candidates that target the PCSK9 protein as a mechanism to lower LDL-C and reduce the risk of ASCVD in various stages of clinical development. These consist of MK-0616 (Enlicitide) from Merck & Co., Inc, for which Merck released data from completed Phase 3 trials of adult patients with hypercholesterolemia in November 2025 and, if approved, has the potential to enter the U.S. market in 2026, and AZD0780 from AstraZeneca, which is being evaluated in an ongoing Phase 3 clinical trial. There are also a number of other product candidates in clinical development by third parties, such as Arrowhead Pharmaceuticals, CVI Pharmaceuticals, Innovent Biologics, Ionis Pharmaceuticals, Lib Therapeutics, Novartis, Novo Nordisk, Regeneron Pharmaceuticals, Verve Therapeutics and others, that are intended to treat ASCVD by lowering LDL-C and/or Lp(a). +Employees and Human Capital Resources +As of December 31, 2025, we had 100 employees, consisting of clinical, research and development, business development, regulatory, finance and operational personnel. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good. In addition, as of December 31, 2025, we engaged a total of 12 independent contractors. These independent contractors provide a diverse array of services, which includes assisting with our clinical development, manufacturing activities and regulatory obligations. +No Works Council or other employee representative body ( personeelsvertegenwoordiging ) is established within the Company or its subsidiaries. +41 +We recognize that our continued ability to attract, retain and motivate exceptional employees is vital to ensuring our long-term competitive advantage. Our employees are critical to our long-term success and are essential to helping us meet our goals. Among other things, we support and incentivize our employees in the following ways: +• +Talent development, compensation and retention : We strive to provide our employees with a rewarding work environment, including the opportunity for growth, success and professional development. We provide a competitive compensation and benefits package, including bonus and equity incentive plans and a 401(k) plan for US employees—all designed to attract and retain a skilled and diverse workforce. +• +Health and safety : We support the health and safety of our employees by providing comprehensive insurance benefits, company-paid holidays, a personal time-off program and other additional benefits which are intended to assist employees to manage their well-being. +• +Inclusion and diversity : We are committed to efforts to increase diversity and foster an inclusive work environment that supports our workforce. +Corporate Information +Our legal and commercial name is NewAmsterdam Pharma Company N.V. We were incorporated as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands on June 10, 2022, solely for the purpose of effectuating the Business Combination (as defined below). As part of the Business Combination, we converted our legal form to a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on November 21, 2022. The Company is registered with the Dutch Trade Register under number 86649051. The address of our registered office is Gooimeer 2-35 1411 DC Naarden, the Netherlands, and the telephone number of the Company is +31 (0) 35 206 2971. Our agent in the United States is our subsidiary, NewAmsterdam Pharma Corporation, a corporation organized under the laws of the State of Delaware. NewAmsterdam Pharma Corporation’s address is 20803 Biscayne Blvd, Suite #105, Aventura, Florida. +On November 22, 2022 (the “Closing Date”), we consummated a business combination pursuant to the Business Combination Agreement, dated as of July 25, 2022 (the “Business Combination Agreement”), by and among the Company, Frazier Lifesciences Acquisition Corporation, a Cayman Islands exempted company (“FLAC”), NewAmsterdam Pharma Holding B.V., and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company (“Merger Sub”). +Beginning on the day immediately prior to the Closing Date and finishing on the day immediately after the Closing Date, the following transactions occurred pursuant to the terms of the Business Combination Agreement (collectively, the “Business Combination”): +• +The shareholders of NewAmsterdam Pharma Holding B.V. (“Participating Shareholders”) contributed all outstanding shares in the capital of NewAmsterdam Pharma Holding B.V. to the Company in exchange for the issuance of ordinary shares, nominal value €0.12 per share (the “Ordinary Shares”), in the share capital of the Company (the “Exchange”); +• +Immediately after giving effect to the Exchange, the Company’s legal form was converted from a Dutch private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) to a Dutch public limited liability company ( naamloze vennootschap ); +• +After giving effect to the Exchange, Merger Sub merged with and into FLAC (the “Merger”), with FLAC surviving the merger as a wholly owned subsidiary of the Company; +• +In connection with the Merger, each issued and outstanding ordinary share of FLAC was canceled and extinguished in exchange for a claim for an Ordinary Share, and such claim was then contributed into the Company against the issuance of a corresponding Ordinary Share; +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms; +• +Each NewAmsterdam Pharma Holding B.V. option that was outstanding and unexercised (“NewAmsterdam Pharma Options”) remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Options became options to purchase, and will when exercised be settled in Ordinary Shares; and +• +On the day following the Closing Date, FLAC changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). +Upon the achievement of a certain clinical development milestone, pursuant to the Business Combination Agreement, in March 2025 we issued to the Participating Shareholders (including Saga Investments Coöperatief U.A. (“Amgen”), an affiliate of Amgen, Inc., and Mitsubishi Tanabe Pharma Corporation (“MTPC”) for this purpose) and holders of NewAmsterdam Pharma Options prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma Holding B.V. as of the date of the Business Combination Agreement and who were at the time of achievement of such milestone providing services to the Company or its subsidiaries (the +42 +“Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders took the form of awards of 143,001 restricted stock units (the “Earnout RSUs”) in the aggregate under the LTIP. +Prior to the Business Combination, we did not conduct any material activities other than those incident to our formation and certain matters related to the Business Combination, such as the making of certain required securities law filings. Upon the closing of the Business Combination, NewAmsterdam Pharma Holding B.V. became our direct, wholly owned subsidiary, and holds all of our material assets and conducts all of our business activities and operations. +Available Information +Our website address is www.newamsterdampharma.com . Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. We file reports with the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Our website also includes our Annual Report on Form 20-F and information furnished on Form 6-K filed while we were a foreign private issuer. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC. +43 +Item 1A. Risk Factors +An investment in our Ordinary Shares is risky. In addition to the other information in this Annual Report on Form 10-K, you should carefully consider the following risk factors in evaluating us and our business. If any of the events described in the following risk factors were to occur, our business, financial condition, results of operation and future growth prospects would likely be materially and adversely affected. In that event, the trading price of our Ordinary Shares could decline, and you could lose all or a part of your investment in our Ordinary Shares. Therefore, we urge you to carefully review this entire report and consider the risk factors discussed below. Moreover, the risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, financial condition, operating results or prospects. Additional risks that we currently do not know about, or that we currently believe to be immaterial, may also impair our business. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this Annual Report. +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +We are a clinical-stage company with limited operating history, no approved products and no significant historical product revenues, which makes it difficult to assess our future prospects and financial results. We have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate significant product revenue or become profitable or, if we achieve profitability, may not be able to sustain it. +We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing and undertaking clinical trials of our product candidate, obicetrapib. We are not profitable and have not generated significant product revenue from operations. We have historically incurred net losses since we commenced operations in October 2019. For the year ended December 31, 2025, we incurred a net loss of $203.8 million and as of December 31, 2025, we had an accumulated deficit of $762.4 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, considering the current research and development stage of our activities, as we do not have products approved for commercial sale. Our ability to ultimately achieve recurring product revenues and profitability is dependent upon our ability to successfully complete the development of obicetrapib and obtain necessary regulatory approvals for, and successfully manufacture, market and commercialize, our product together with our partners. +We believe that we will continue to expend substantial resources in the foreseeable future for the clinical development of obicetrapib or any additional product candidates and indications that we may choose to pursue in the future. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and payments for third-party manufacturing and supply, as well as sales and marketing of obicetrapib or any of our future product candidates if they are approved for sale by regulatory authorities. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of obicetrapib and any other drug candidates that we may develop in the future. Other unanticipated costs may also arise. +Our future capital requirements depend on many factors, including: +• +the timing of, and the costs involved in, clinical development and obtaining regulatory approvals for our product candidate; +• +changes in regulatory requirements during the development phase that can delay or force us to stop our activities related to obicetrapib or any of our future product candidates; +• +the cost of commercialization activities if obicetrapib is approved for sale, including marketing, sales and distribution costs; +• +the cost of third-party manufacturing of our product candidate; +• +the number and characteristics of any other product candidates we develop or acquire; +• +our ability to establish and maintain strategic collaborations, licensing or other commercialization arrangements, and the terms and timing of such arrangements; +• +the extent and rate of market acceptance of any future approved products; +• +the expenses needed to attract and retain skilled personnel; +• +the costs associated with being a public company; +• +the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including potential litigation costs and the outcome of such litigation; +• +the timing, receipt and amount of sales of, or royalties on, future approved products, if any; +• +any product liability or other lawsuits related to obicetrapib or any future product; +44 +• +scientific breakthroughs in the field of treatment for cardiometabolic diseases that could significantly diminish the need for our product candidate or make it obsolete; and +• +changes in reimbursement policies that could have a negative impact on our future revenue stream. +We may require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed and on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations. +Since our inception, almost all of our resources have been dedicated to the clinical development of obicetrapib. While we have been successful in the past in obtaining financing, we expect to continue to spend substantial amounts to continue the clinical development of our product candidate and on commercial readiness and establishment of sufficient commercial manufacturing capacity. As of December 31, 2025, we had cash, cash equivalents and marketable securities of $728.9 million. +We may require additional capital to pursue clinical activities, complete clinical trials, and obtain regulatory approval for and commercialize obicetrapib. In addition, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, convertible debt or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. Even if we believe that we will have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. +Any additional fundraising efforts may divert the attention of our management from day-to-day activities, which may adversely affect our ability to develop and commercialize obicetrapib. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the rights of our shareholders, and the issuance of additional securities, whether equity or debt, by us or the possibility of such issuance may cause the market price of our Ordinary Shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. +If adequate funds are not available to us on a timely basis, we may be required or choose to: +• +delay, limit, reduce or terminate clinical trials or other development activities for obicetrapib or any of our future product candidates; +• +delay, limit, reduce or terminate our other research and development activities; or +• +delay, limit, reduce or terminate our establishment or expansion of manufacturing, sales and marketing or distribution capabilities or other activities that may be necessary to commercialize obicetrapib or any of our future product candidates. +We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could harm our business, financial condition and results of operations. +Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies or current or future product candidates. +Unless and until we can generate substantial revenue, we expect to finance our future cash needs through public or private equity offerings, debt financings, collaborations, strategic alliances, license agreements and marketing or distribution arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. To the extent that we raise such additional capital through the sale of equity or convertible debt securities, our shareholders’ ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring and distributing dividends, and may be secured by all or a portion of our assets. +If we raise funds by entering into collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish additional valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us, any of which may harm our business, financial condition, operating results and prospects. If we are unable to raise additional funds through public or private equity offerings, debt financings, collaborations, strategic alliances, license agreements, or marketing or distribution arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or cease operations altogether. +We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”) and the Dutch Deposit Guarantee Scheme, the loss of which would have a severe negative affect on our operations and liquidity. +We currently maintain substantially all of our funds in cash deposit accounts at three financial institutions. The amounts held in our deposit accounts are, and in the future, may be, in excess of the insurance limit of $250,000 and €100,000 provided by the FDIC and Dutch +45 +Deposit Guarantee Scheme, respectively. In the event of a failure of any of these financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds such limitations, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. +Risks Related to Our Product Development, Regulatory Approval and Commercialization +We are dependent on the success of our only product candidate, obicetrapib, and cannot guarantee that obicetrapib will successfully complete clinical development, receive regulatory approval or, if approved, be successfully commercialized. +We have invested almost all of our efforts and financial resources in the research and development of obicetrapib. Our future success, including our ability to generate revenue, depends on our ability to develop, commercialize, market and sell obicetrapib. However, obicetrapib has yet to receive marketing approval from the FDA, the EMA or other comparable regulatory authorities. We currently do not generate significant revenue from the sale of any products, and we may never be able to develop or commercialize a marketable product. +Obicetrapib’s marketability and commercialization are subject to significant risks associated with successfully completing current and future clinical trials, including: +• +our ability to successfully complete our clinical trials, including timely patient enrollment and acceptable safety and efficacy data and our ability to demonstrate the safety and efficacy of obicetrapib; +• +our ability to agree upon an initial pediatric study plan with the FDA and, unless we have received a deferral or waiver, our ability to complete successfully any pediatric clinical trials agreed pursuant to the PREA or its EU equivalent; +• +that the Phase 3 clinical trials, even if successfully completed, will be sufficient to support an NDA submission; +• +the prevalence and severity of AEs associated with obicetrapib; +• +whether we are required by the FDA, the EMA or other comparable regulatory authorities to conduct additional preclinical studies or clinical trials, and the scope and nature of such studies or trials, prior to approval to market our product, such as a cardiovascular outcomes trial; +• +the timely receipt of necessary marketing approvals from the FDA, the EMA and other comparable regulatory authorities, including pricing and reimbursement determinations; +• +the ability to successfully commercialize obicetrapib, if approved, for marketing and sale by the FDA, the EMA or other comparable regulatory authorities; +• +our ability and the ability of our third-party manufacturing partners to timely and satisfactorily manufacture quantities of obicetrapib at quality levels necessary to meet regulatory requirements and at a scale sufficient to meet anticipated demand at a cost that allows us to achieve profitability; +• +our success in educating healthcare providers and patients about the benefits, risks, administration and use of obicetrapib, if approved; +• +acceptance of obicetrapib, if approved, as safe and effective by patients and the healthcare community; +• +the maintenance of an acceptable safety profile of our product following any approval; +• +the availability, perceived advantages, relative cost, safety and efficacy of alternative and competing treatments for the indications addressed by obicetrapib; +• +entering into, on favorable terms, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize obicetrapib; +• +the effectiveness of our and any current or future collaborators’ marketing, sales and distribution strategy, and operations; +• +our ability to obtain, protect and enforce our intellectual property rights with respect to obicetrapib; and +• +our ability to implement strategies to minimize the impact of pandemics or other health epidemics to our business, including with respect to initiating, enrolling, conducting or completing our planned and ongoing clinical trials of obicetrapib and addressing any potential disruption or delays to the supply of our product candidates. +Many of these clinical, regulatory and commercial risks are beyond our control. Accordingly, we cannot assure you that we will be able to advance obicetrapib successfully through clinical development, or to obtain regulatory approval of, or commercialize, obicetrapib or any future product candidates. If we fail to achieve these objectives or overcome the challenges presented above, we could experience significant delays or an inability to successfully commercialize obicetrapib. Accordingly, we may not be able to generate sufficient revenues through the sale of obicetrapib to enable us to continue our business. +46 +We have never obtained approval for, or commercialized, any product candidate, and may be unable to do so successfully. +As a company, we have never progressed a product candidate through to regulatory approval. Other than our submission to the EMA and the EMA’s acceptance of MAAs for review for obicetrapib in August 2025, we have not previously submitted an NDA, an MAA or any similar drug approval filing to the FDA, the EMA or any comparable regulatory authority for any product candidate, and we cannot be certain that obicetrapib will be successful in clinical trials or receive regulatory approval. Further, obicetrapib may not receive regulatory approval even if it is successful in clinical trials. Even if we successfully obtain regulatory approvals to market our product candidate, our revenues will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights or share in revenues from the exercise of such rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved. In addition, there are, in general, relatively limited sources that can provide commercial product supply. While we believe our existing suppliers are sufficient to support our estimated target commercial market, and that alternative sources of supply exist if needed, there is no guarantee that our current and projected supply would be sufficient to support our commercials needs, if approved, especially if the market for obicetrapib is larger than we expected. +Further, our clinical trials may require more time and incur greater costs than we anticipate. We cannot be certain that our planned clinical trials will begin or conclude on time, if at all. Large-scale trials require significant financial and management resources. Third-party clinical investigators do not operate under our control. Any performance failure on the part of such third parties could delay the clinical development of obicetrapib or delay or prevent us from obtaining regulatory approval or commercializing obicetrapib or future product candidates, depriving us of potential product revenue and resulting in additional losses. +Clinical drug development involves a lengthy and expensive process with uncertain outcomes. Results of earlier studies and trials may not be predictive of future trial results and our clinical trials may fail to adequately demonstrate the safety and efficacy of obicetrapib. +Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Trial costs have increased significantly following the COVID-19 pandemic. A failure of one or more of our clinical trials can occur at any time during the clinical trial process. We do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed, suspended or terminated for a variety of reasons, including failure to: +• +obtain allowance from the FDA or comparable foreign regulatory authorities in order to commence a trial; +• +identify, recruit and train suitable clinical investigators; +• +reach agreement on acceptable terms with prospective contract research organizations (“CROs”), and clinical trial sites, and have such CROs and sites effect the proper and timely conduct of our clinical trials; +• +obtain and maintain IRB approval, or comparable EC approval in foreign jurisdictions, at each clinical trial site; +• +identify, recruit and enroll suitable patients to participate in a trial; +• +have a sufficient number of patients complete a trial or return for post-treatment follow-up; +• +ensure patient compliance with the trial protocols; +• +ensure clinical investigators and clinical trial sites observe trial protocol or continue to participate in a trial; +• +address any patient safety concerns that arise during the course of a trial; +• +address any conflicts with new or existing laws or regulations; +• +add a sufficient number of clinical trial sites; +• +manufacture sufficient quantities at the required quality of obicetrapib for use in clinical trials; +• +obtain accurate and complete data collected by our clinical trial sites; +• +retain a sufficient number of subjects to complete our clinical trials; or +• +raise sufficient capital to fund a trial. +Product candidates like obicetrapib in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and earlier clinical trials, especially given the large number of patients enrolled and the extended timeline to complete such trials, including late-stage CVOT trials. In addition to the safety and efficacy traits of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and it is possible that we will as well. Based upon negative or inconclusive results, including with respect to our ongoing Phase 3 PREVAIL trial, we may decide, or regulators may require us, to conduct +47 +additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. +We may also encounter delays if a clinical trial is suspended or terminated by us or the IRBs or ECs of the institutions in which such trials are being conducted, the trial’s data safety monitoring board or data monitoring committee (the “DSMB”), the FDA, the EMA or other comparable regulatory authorities. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA or other comparable regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, a finding that the participants are being exposed to an unacceptable benefit-risk ratio, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. +If we experience delays in the initiation, enrollment or completion of any clinical trial of obicetrapib, or if any clinical trials of obicetrapib are cancelled or fail to adequately demonstrate the safety and efficacy of obicetrapib, the commercial prospects of obicetrapib may be materially adversely affected, and our ability to generate significant product revenues will be delayed or not realized at all. In addition, any delays in completing our clinical trials may increase our costs and slow down our product candidate development and approval process. Any of these delays may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of obicetrapib. +We depend on enrollment and retention of subjects in our clinical trials for obicetrapib. If we experience delays or difficulties enrolling or retaining subjects in our clinical trials, our research and development efforts and business, financial condition and results of operations could be materially adversely affected. +If we experience delays or difficulties in the enrollment and retention of subjects in our ongoing or future clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented. The enrollment of subjects depends on many additional factors, including: +• +the subject eligibility criteria defined in the protocol; +• +the general willingness of subjects to enroll in the trial; +• +patient compliance with the trial protocols; +• +the sample size of the subjects required for analysis of the trial’s primary endpoints; +• +the proximity of subjects to trial sites; +• +the design of the trial; +• +our ability to recruit clinical trial investigators with the appropriate competencies and experience; +• +clinicians’ and subjects’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new therapies that may be approved for the indications we are investigating; +• +the clinical site’s ability to obtain and maintain subject consents; and +• +non-compliance of clinical trial participants with clinical trial protocol procedures and instructions. +Our clinical trials may also compete with other clinical trials for product candidates that seek to treat cardiometabolic diseases, and this competition will reduce the number and types of subjects available to us. In addition, our clinical trials, in particular the Phase 3 CVOT PREVAIL trial, are being conducted over the course of several years, during which new clinical trials by our competitors may be initiated. Even if we are able to enroll a sufficient number of subjects in our clinical trials, such subjects may later opt to enroll in a clinical trial that is initiated by one of our competitors. The number of subjects available for our clinical trials at certain clinical trial sites may also be reduced due to the limited number of qualified clinical investigators, which may lead us to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use. +Delays in subject enrollment and difficulties in subject retention may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of obicetrapib. +Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we have disclosed and in the future may publicly disclose preliminary or “topline” data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or clinical trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a +48 +result, the “topline” or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. “Topline” data also remain subject to audit and verification procedures that may result in the final data being materially different from the data we previously published. As a result, “topline” data should be viewed with caution until the final data are available. +Additionally, we have disclosed and in the future may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our Ordinary Shares. +Further, others, including regulatory authorities and collaboration or regional partners, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of our particular program, the approvability or commercialization of obicetrapib or any future product candidate and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. +If the interim, “topline,” or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, obicetrapib may be harmed, which could significantly harm our business, financial condition, results of operations and prospects. +The regulatory approval processes of the FDA, the EMA and other comparable regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for obicetrapib, our business will be substantially harmed. +The research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval monitoring and reporting, and export and import of drug products are subject to extensive regulation by the FDA, the EMA and other comparable regulatory authorities in other countries. These regulations differ from country to country. We have not yet obtained regulatory approval to market obicetrapib in the United States or any other country, but plan to seek approval of obicetrapib in the United States, the EU, the United Kingdom, Switzerland, Japan and China. To gain approval to market obicetrapib, we must provide clinical trial data that adequately demonstrate the safety and efficacy of the product for the intended indication. +We cannot be certain of the timely completion or outcome of any of our current and future clinical studies, if any, on obicetrapib. We cannot be sure that the FDA, local regulatory authorities in the EU or other comparable regulatory authorities (including the Medicines and Healthcare Products Regulatory Agency in the United Kingdom (“MHRA”), the PMDA and the NMPA) will accept the outcome of our clinical trial data as sufficient to support the submission of an IND, clinical trial authorizations (“CTAs”) or similar applications for any of our programs which may result in us being unable to submit INDs, CTAs or similar applications or result in FDA, local regulatory authorities in the EU or other comparable regulatory authority refusing to allow clinical trials to begin. Furthermore, Phase 3 clinical trials often produce unsatisfactory results even though prior clinical trials were successful. Moreover, the results of clinical trials may be unsatisfactory to the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities even if we believe those clinical trials to be successful. The FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may suspend one or all of our clinical trials or require that we conduct additional clinical, preclinical, manufacturing, validation or drug product quality studies and submit that data before considering or reconsidering any NDA or comparable foreign regulatory application that we may submit. Depending on the extent of these additional studies, approval of any applications that we submit may be significantly delayed or may cause the termination of such programs, or may require us to expend more resources than we have available. The FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities can delay, limit or deny approval of our product candidate for many reasons, including: +• +our inability to satisfactorily demonstrate that obicetrapib is safe and effective for the target indication; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may disagree with our clinical trial protocol, the interpretation of data from preclinical studies or clinical trials, or adequate conduct and control of clinical trials; +• +the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities for approval; +• +the population studied in the clinical trials may not be sufficiently broad or representative to assess safety in the patient population for which we seek approval; +• +the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities for approval; +• +our inability to demonstrate that clinical or other benefits of obicetrapib outweigh any safety or other perceived risks; +49 +• +determination by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities that additional preclinical studies or clinical trials are required or that additional data must be included; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to approve of the formulation, labeling or the specifications of obicetrapib; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to accept the manufacturing processes or facilities of third-party manufacturers with which we contract; +• +the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or such processes or facilities may not pass a pre-approval inspection; +• +the potential for approval policies or regulations of the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities to significantly change or differ from another in a manner rendering our clinical data insufficient for approval; or +• +resistance to approval from the FDA’s advisory committee for any reason including safety or efficacy concerns. +The FDA, the EMA or other comparable regulatory authorities may also approve obicetrapib for a more limited indication or a narrower patient population than we originally requested, and the FDA, the EMA or other comparable regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successful commercialization of obicetrapib. To the extent we seek regulatory approval in other foreign countries, we may face challenges similar to those described above with regulatory authorities in applicable jurisdictions. +We and our collaborator(s) are not permitted to market or promote obicetrapib before we receive regulatory approval from the FDA, the EMA, the MHRA, the PMDA, the NMPA or comparable regulatory authorities in other countries, and we may never receive such regulatory approval for obicetrapib to allow us to successfully commercialize our product candidate. If we do not receive regulatory approval with the necessary conditions to allow successful commercialization, we will not be able to generate significant revenue from obicetrapib in the United States or other countries in the foreseeable future, or at all. Any delay in obtaining, or inability to obtain, applicable regulatory approval for obicetrapib would delay or prevent commercialization of our obicetrapib and could thus negatively impact our business, results of operations and prospects. +Our ongoing clinical trials may be subject to delays or failures, which could result in increased costs to us and could delay, prevent or limit our ability to obtain regulatory approval for obicetrapib, which could have an adverse impact on our business. +In addition to our Phase 3 lipid-lowering clinical trials for obicetrapib, we are currently conducting a CVOT in patients with ASCVD. The completion of these clinical trials or any of our other ongoing or future clinical trials may be delayed for a number of reasons, including: +• +the FDA, EMA or any other regulatory authority may not agree with the clinical trial design or overall program; +• +the FDA, EMA or any other regulatory authority may place a clinical trial on hold; +• +delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; +• +inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials; +• +difficulties or delays obtaining IRB or EC approval to conduct a clinical trial at a prospective site or sites; +• +severe or unexpected drug-related side effects experienced by patients in a clinical trial, including instances of muscle pain or weakness or other side effects; +• +reports from preclinical or clinical testing of other cardiometabolic therapies that raise safety or efficacy concerns; and +• +difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trial, lack of efficacy, side effects, personal issues or loss of interest. +In addition, a clinical trial may be suspended or terminated by us, the FDA, the EMA, the IRBs or ECs at the sites where the IRBs or ECs are overseeing a clinical trial, a DSMB overseeing the clinical trial at issue or any other regulatory authorities due to a number of factors, including, among others: +• +failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; +• +inspection of the clinical trial operations or clinical trial sites by the FDA, EMA or any other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a clinical hold; +• +unforeseen safety issues; +50 +• +changes in government regulations or administrative actions; +• +problems with clinical supply materials; and +• +lack of adequate funding to continue the clinical trial. +Any such delays in our clinical trials could result in increased costs to us and delay, prevent or limit our ability to obtain regulatory approvals. Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may materially harm our business and results of operations. +Obicetrapib may produce undesirable side effects that we may not have detected in our previous preclinical studies and clinical trials. This could prevent us from gaining approval or market acceptance, including broad physician adoption, for our product candidate, if approved, or from maintaining such approval and acceptance, and could substantially increase commercialization costs and even force us to cease operations. +As with most pharmaceutical products, use of obicetrapib may be associated with side effects or AEs that can vary in severity and frequency. Side effects or AEs associated with the use of obicetrapib may be observed at any time, including in clinical trials or once a product is commercialized, and any such side effects or AEs may negatively affect our ability to obtain regulatory approval or market obicetrapib. We cannot assure you that we will not observe drug-related serious AEs in the future or that the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities will not determine them to be as such. Side effects such as toxicity or other safety issues associated with the use of obicetrapib could require us to perform additional trials or halt development or sale of obicetrapib or expose us to product liability lawsuits, which will harm our business. +Furthermore, our current Phase 3 clinical trials for obicetrapib, especially our PREVAIL CVOT, involve a larger patient base than that previously studied, and the commercial marketing of obicetrapib, if approved, will further expand the clinical exposure of the drug to a wider and more diverse group of patients than those participating in the clinical trials, which may identify undesirable side effects caused by our product candidate that were not previously observed or reported. +We are subject to complex requirements to report AEs, and there is a risk that the FDA, the EMA and other comparable regulatory authority regulations may determine that we failed to report certain information about adverse medical events if our product may have caused or contributed to those AEs. The timing of our obligation to report would be triggered by the date upon which we become aware of the AE as well as the nature and severity of the event. We may also fail to appreciate that we have become aware of a reportable AE, especially if it is not reported to us as an AE or if it is an AE that is unexpected or removed in time from the use of our product. If we fail to comply with our reporting obligations, the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authority could take action including enforcing a hold on or cessation of clinical trials, withdrawal of approved drugs from the market, criminal prosecution, the imposition of civil monetary penalties or seizure of our product. +Additionally, in the event we discover the existence of adverse medical events or side effects caused by obicetrapib, a number of other potentially significant negative consequences could result, including: +• +our inability to file an NDA or similar application for obicetrapib because of insufficient benefit-risk profile, or the denial of such application by the FDA, the EMA or other comparable regulatory authorities; +• +the FDA, the EMA or other comparable regulatory authorities suspending or withdrawing their approval of the product; +• +the FDA, the EMA or other comparable regulatory authorities requiring the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions; +• +the FDA, the EMA or other comparable regulatory authorities requiring us to issue specific communications to healthcare professionals, such as letters alerting them to new safety information about our product, changes in dosage or other important information; +• +the FDA, the EMA or other comparable regulatory authorities issuing negative publicity regarding the affected product, including safety communications; +• +our being limited with respect to the safety-related claims that we can make in our marketing or promotional materials; +• +our being required to change the way the product is administered, conduct additional preclinical studies or clinical trials, or restrict or cease the distribution or use of the product; and +• +our being sued and held liable for harm caused to patients. +Any of these events could prevent us from achieving approval or market acceptance of obicetrapib and could substantially increase commercialization costs or even force us to cease operations. We cannot assure you that we will resolve any issues related to any +51 +product-related AEs to the satisfaction of the FDA, the EMA or other comparable regulatory authority in a timely manner or ever, which could harm our business, prospects and financial condition. +We conduct clinical trials for our product candidate outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials, in which case our development plans in the United States and applicable foreign jurisdictions may be delayed, which could materially harm our business. +Our ongoing clinical trials are being conducted both within and outside the United States, and we intend to conduct portions of our future clinical trials outside the United States. The acceptance of clinical trial data by the FDA, EMA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions, or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP requirements. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In cases where data from foreign clinical trials are intended to serve as the basis for marketing authorizations in the EU, the EMA and/or local regulatory authorities in EU member states require that such clinical trials follow the principles that are equivalent to the clinical trial requirements set out under relevant EU legislation, including with respect to ethical and GCP standards. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that any U.S. or foreign regulatory authority would accept data from clinical trials conducted outside of its applicable jurisdiction. If the FDA, EMA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction. +Disruptions at the FDA and other regulatory agencies caused by funding shortages or future global health crises could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new products or modifications to be approved by government agencies, which would adversely affect our business. Over the last several years, including for 43 days beginning on October 1, 2025 and for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory authorities, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process its regulatory submissions or provide feedback with respect to our planned clinical trials, which could have a material adverse effect on our business. In 2025, the FDA also experienced significant reductions in force that have impacted, and may continue to impact, its ability to review applications in a timely manner. +If a prolonged government shutdown or further reductions in force occur, or if global health crises prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. +Even if we receive regulatory approval for obicetrapib or our future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses, limit or withdraw regulatory approval and subject us to penalties if we fail to comply with applicable regulatory requirements. +Any regulatory approvals that we receive for obicetrapib or future product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, risk mitigation and surveillance to monitor the safety and efficacy of the product candidate, and we may be required to include labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings. Such requirements could negatively impact us by reducing revenues or increasing expenses, and cause the approved product not to be commercially viable. Absence of long-term safety data may further limit the approved uses of our product, if any. +If the FDA, the EMA or other comparable regulatory authority approves obicetrapib, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, continued compliance with cGMPs and compliance with GCPs for any clinical trials that we conduct post-approval. For certain commercial prescription drug products, manufacturers and other parties involved in the supply chain must also meet chain of distribution +52 +requirements and build electronic, interoperable systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or other products that are otherwise unfit for distribution in the United States. The EU similarly has in force falsified medicines rules, which require appropriate packaging, labeling, registration and tracking of certain medicinal products to ensure the detection of counterfeit medicinal products, and associated reporting requirements. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: +• +suspension or imposition of restrictions on operations, including costly new manufacturing requirements; +• +restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary product recalls; +• +fines, untitled or warning letters or holds on clinical trials; +• +refusal by the FDA, the EMA or other comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals; +• +product seizure or detention, or refusal to permit the import or export of products; and +• +injunctions or the imposition of civil or criminal penalties. +The FDA strictly regulates the promotional claims that may be made about drug products. In particular, the FDA prohibits the pre-approval promotion of drugs as safe and effective for the purposes for which they are under investigation. Similarly, the FDA prohibits the promotion of approved drugs for unapproved use, and requires that claims of a product’s benefits be presented with balanced information about its risks and any limitations of use. Comparable restrictions apply in the EU, where, in addition, the advertising of prescription only medications to the general public is prohibited. If we are found to have improperly engaged in pre-approval promotion or to have improperly promoted off-label and other uses of our product candidates, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions, which would materially adversely affect our business and financial condition. The FDA could issue a public untitled or warning letter to us. We could also be subject to FDA prohibition on the sale or marketing of our product candidates or significant fines and penalties. The imposition of these sanctions could affect our reputation and position within the industry. Additionally, if the FDA believes we have improperly promoted an investigational product pre-approval, it is possible that it could lead the FDA to be more strict in their review of our application, including our proposed labeling for a drug. +Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The federal government in the United States has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred and our reputation could be damaged. The U.S. government has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are determined by the U.S. government to have engaged in the promotion of our products for off-label use, or otherwise not met applicable advertising and promotion requirements, we could be subject to prohibitions on the sale or marketing of our products or significant fines and penalties, and the imposition of these sanctions could also affect our reputation with physicians, patients and caregivers, and our position within the industry. +In addition, the policies of the FDA, the EMA, the MHRA, the PMDA, the NMPA and other comparable regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of obicetrapib. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect our business, financial condition and results of operations. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. +We are developing obicetrapib in combination with other therapies, and safety or supply issues with combination products may delay or prevent development and approval of our combination product candidate. +We are developing obicetrapib as both a monotherapy and in combination with one or more approved therapies. For example, we are evaluating obicetrapib in combination with ezetimibe, including the combination on top of high intensity statin therapy. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies. If the therapies we use in combination with our product candidate are replaced as the standard of care for the indications we choose for any of our product candidate, the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own product, if approved, being removed from the market or being less successful commercially. +53 +We also may evaluate our product candidate or any future product candidates in combination with one or more therapies that have not yet been approved for marketing by the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities. We will not be able to market and sell any product candidate we develop in combination with an unapproved therapy if that unapproved therapy does not ultimately obtain marketing approval. In addition, unapproved therapies face the same risks described with respect to our product candidate currently in development, including the potential for serious adverse effects, lack of efficacy, delay in their clinical trials and lack of FDA, EMA, MHRA, PMDA or NMPA approval. +If the FDA, the EMA, the MHRA, the PMDA, the NMPA or other comparable regulatory authorities do not approve these other therapies or revoke their approval of, or if safety, efficacy, manufacturing or supply issues arise with, the therapies we choose to evaluate in combination with our product candidates, we may be unable to obtain approval of or market any such product candidate. +If we are not successful in our efforts to discover, in-license or acquire and develop additional product candidates, we may be unable to grow our business. +We may elect to build a pipeline of product candidates and progress these product candidates through clinical development for the treatment of a variety of diseases. We also intend to evaluate additional potential indications for obicetrapib and may choose to in-license or acquire other product candidates or commercial products to treat patients suffering from other cardiometabolic or other diseases with significant unmet medical needs. Efforts to identify, in-license or acquire, and develop or continue to develop, product candidates require substantial technical, financial and human resources, whether or not any such product candidates are ultimately advanced. Even if we are successful in building our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects, lack of efficacy, or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. Further, in-licensing early-stage product candidates can be particularly risky as it requires substantial additional development efforts prior to potential regulatory approval and commercial sale, including extensive clinical testing, all of which may be unsuccessful. Acquiring and developing early-stage assets would divert resources that otherwise could be used to develop and commercialize obicetrapib. +In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives. We may opportunistically pursue a strategy that would entail in-licensing additional product candidates or utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We may also become reliant on the research efforts of third parties for any such product candidates that we do not intend to conduct preclinical studies or early-stage clinical trials for. If we do not successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm to our financial position and potential for growth and adversely affect the price of the Ordinary Shares. +We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. +Because we have limited financial and management resources, we are currently primarily focused on the development of obicetrapib for cardiometabolic diseases and we may forego or delay pursuit of opportunities with other product candidates or for other indications for obicetrapib that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial product candidates or profitable market opportunities. Our spending on current and future development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. +We are planning a dedicated trial evaluating obicetrapib as a preventative treatment for Alzheimer's disease. There has been limited success in drug development for Alzheimer's disease, which makes it difficult to predict the time and cost of development and regulatory approval for obicetrapib as a treatment for Alzheimer's disease. Further, obicetrapib's mechanism of action has not previously used for Alzheimer's disease treatment, which also makes it difficult to predict the time and cost of development and regulatory approval. +We reported positive data from our Alzheimer's disease biomarker analysis in our BROADWAY trial and we are planning a dedicated trial evaluating obicetrapib as a preventative treatment for Alzheimer's disease. However, there has been limited success in drug development for Alzheimer's disease, and there are few FDA-approved disease modifying therapeutic options available for patients with Alzheimer's disease. The majority of drugs approved by the FDA to treat Alzheimer's disease to date only address the diseases’ symptoms, they do not reverse or cure the disease. There are no approved preventative treatments for Alzheimer's disease. Only a small number of new treatments have been approved for Alzheimer's disease since 2003. It has been reported that Alzheimer's disease drug candidates have a failure rate of over 95%, as compared to 50% to 80% for other drug candidates. As a result, the FDA has a limited set of products to rely on in evaluating obicetrapib, and no comparable products for the prevention of Alzheimer's disease. This could result in a longer than expected regulatory review process, increased expected development costs or the delay or prevention of commercialization of obicetrapib for the treatment of Alzheimer's disease. +54 +As a result, the design and conduct of clinical trials evaluating obicetrapib as a preventative treatment for Alzheimer's disease may take longer, be more costly or be less effective as a result of the novelty of development in this disease. We cannot be certain that our approach will lead to the development of an approvable or marketable product. +Our Alzheimer's disease trial may use endpoints or methodologies that regulatory authorities may not consider to be clinically meaningful, and any such regulatory authority may require evaluation of additional or different clinical endpoints in our clinical trials or ultimately determine that these clinical endpoints do not support marketing approval. In addition, if we are required to use additional or different clinical endpoints by regulatory authorities, obicetrapib may not achieve or meet such clinical endpoints in our clinical trials. Even if a regulatory authority finds our clinical trial success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoint to a degree of statistical significance in any pivotal or other clinical trials we may conduct for the treatment or prevention of Alzheimer's disease. Further, even if we do achieve the pre-specified criteria, our trials may produce results that are unpredictable or inconsistent with the results of other efficacy endpoints in the trial. Regulatory authorities also could give overriding weight to other efficacy endpoints over a primary endpoint even if we achieve statistically significant results on that primary endpoint if we do not do so on our secondary efficacy endpoints. Regulatory authorities also weigh the benefits of a product against its risks and may view the efficacy results in the context of safety as not being supportive of approval.We cannot be sure that obicetrapib as a treatment for Alzheimer's disease, or any other product candidate we develop for Alzheimer's disease, will ultimately prove to be safe and effective, scalable or profitable. +Even if we obtain and maintain approval for our current and future product candidates from a regulatory authority in one or more jurisdictions, we may nevertheless be unable to obtain approval for our product candidates outside of those jurisdictions, which would limit our market opportunities and could harm our business. +Approval of a product candidate by one regulatory authority in any jurisdiction does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions. Even if one regulatory authority grants marketing approval for a product candidate, comparable regulatory authorities of other countries also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject to approval. Obtaining approval for obicetrapib or any future product candidate in the EU from the European Commission following the opinion of the EMA or in other foreign jurisdictions, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. Even if a product candidate is approved, the FDA, the EMA or other foreign regulatory authorities, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of obicetrapib or any future product candidate in certain countries. +Obicetrapib, if approved, will face significant competition from competing therapies and our failure to compete effectively may prevent us from achieving significant market penetration. +The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical companies, smaller biotechnology and specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial and technical human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA-approved drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete. +If obicetrapib is approved, our main competition will come from currently approved LDL-C lowering therapies for use on top of maximally tolerated statins, such as ezetimibe, Nexletol/Nexlizet (Esperion) and injectable PCSK9 inhibitors such as Repatha (Amgen Inc.), Praluent (Regeneron Pharmaceuticals, Inc.) and Leqvio (Novartis International AG). We are also aware of two orally administered small molecule product candidates that target the PCSK9 protein as a mechanism to lower LDL-C and reduce the risk of ASCVD in various stages of clinical development. These consist of MK-0616 (Enlicitide) from Merck & Co., Inc, for which Merck released data from completed Phase 3 trials of adult patients with hypercholesterolemia in November 2025 and, if approved, could enter the U.S. market in 2026, and AZD0780 from AstraZeneca, which is being evaluated in an ongoing Phase 3 clinical trial. There are also a number of other product candidates in clinical development by third parties, such as Arrowhead Pharmaceuticals, CVI Pharmaceuticals, Innovent Biologics, Ionis Pharmaceuticals, Lib Therapeutics, Novartis, Novo Nordisk, Regeneron Pharmaceuticals, Verve Therapeutics and others, that are intended to treat ASCVD by lowering LDL-C and/or Lp(a). If approved, these products would pose additional competition for obicetrapib. +55 +Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in this industry. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis products that are more effective or less costly than our product candidate. +Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success. +Even if we obtain FDA, EMA or other foreign regulatory approvals for our product candidate, the commercial success of obicetrapib will depend significantly on the broad adoption and use by physicians for approved indications. The degree and rate of physician and patient adoption of obicetrapib, if approved, will depend on a number of factors, including: +• +the clinical indications for which obicetrapib is approved; +• +the prevalence and severity of adverse side effects; +• +the pricing and extent to which the costs of obicetrapib are reimbursed by third-party payors, and patients’ willingness to pay for obicetrapib; +• +physicians’ satisfaction with, and acceptance by the medical community and patients of, the efficacy and safety results of obicetrapib results as demonstrated in clinical trials; +• +patient satisfaction with the results and administration of obicetrapib and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects; +• +the extent to which physicians recommend obicetrapib to patients; +• +physicians’ and patients’ willingness to adopt new therapies in lieu of other products or treatments; +• +the timing of market introduction of obicetrapib as well as competitive products; +• +the convenience of prescribing and initiating patients on obicetrapib; +• +relative convenience and ease of administration of obicetrapib; +• +the cost of treatment, safety and efficacy in relation to alternative treatments, including any similar generic treatments; +• +the revenues and profitability that obicetrapib will offer physicians as compared to alternative therapies; and +• +the effectiveness of our sales and marketing efforts. +If obicetrapib is approved for use but fails to achieve the broad degree of physician adoption and market acceptance necessary for commercial success, we will not be able to generate significant revenues, and we may not become or remain profitable. +Risks Related to Our Collaboration With or Reliance on Third Parties +We currently contract with third-party contractors for all aspects of the manufacturing of obicetrapib for clinical trials, and expect to continue to do so to support commercial scale production of obicetrapib, if approved. There are significant risks associated with contracting with third-party suppliers, including their ability to meet the increased need that may result from our potential commercialization efforts. This increases the risk that we will not have sufficient quantities of obicetrapib or be able to obtain such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts. +We currently rely on third-party contract manufacturing organizations (“CMOs”) and suppliers for all of our required raw materials, active ingredients and finished products for our clinical trials. Because there are a limited number of suppliers for the raw materials that we use to manufacture our product candidate, we may need to engage alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidate for our clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the availability of raw materials. If we or our manufacturers are unable to purchase these raw materials on acceptable terms, at sufficient quality levels or in adequate quantities, if at all, the development and commercialization of our product candidate or any future product candidates would be delayed, or there would be a shortage in supply, which would impair our ability to meet our development objectives for our product candidates or generate revenues from the sale of any approved products. We currently rely on several CMOs to produce both drug substances and drug products required for our clinical trials. While we believe our existing suppliers are sufficient and that alternative sources of supply exist if needed, there can be no assurance that we will be able to quickly establish additional or replacement sources if needed, and a reduction or interruption in supply could adversely affect our ability to manufacture our product candidate in a timely or cost-effective manner. In addition, some of our CMOs and suppliers are located outside of the United States. As such, we are also subject to any global supply chain disruption that may arise as a result of geopolitical factors, public health crises, natural disasters or the potential impacts of global climate change. Global supply chain disruptions could lead to interruptions in our suppliers’ production, which could impact our ability to obtain sufficient quantities of obicetrapib at an acceptable cost for our clinical trials and commercial sale, if approved. +56 +We expect to continue to rely on our current or other subcontractors and suppliers to support our commercial requirements if obicetrapib, or any future product candidate, is approved for marketing by the FDA, the EMA or other comparable regulatory authorities. We plan to continue to rely on third parties for the raw materials, compounds and components necessary to produce our product candidates for our clinical trials. +Our continuing reliance on third-party CMOs and suppliers entails a number of risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing or supply agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third-party CMOs and suppliers may not be able to comply with cGMP requirements, or similar regulatory requirements outside the United States. If any of these risks transpire, we may be unable to timely retain alternate subcontractors or suppliers on acceptable terms and with sufficient quality standards and production capacity, which may disrupt and delay our clinical trials or the manufacture and commercial sale of our product candidate, if approved. +Our failure or the failure of our third-party CMOs and suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of obicetrapib or any other product candidates that we may develop. Any failure or refusal to supply or any interruption in supply of the components for obicetrapib or any other product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. +The manufacture of pharmaceutical products is complex and manufacturers often encounter difficulties in production. If we or any of our third-party manufacturers encounter any difficulties, our ability to provide obicetrapib or any future product candidates for clinical trials, or to patients if approved, and the development or commercialization of obicetrapib or any future product candidates could be delayed or stopped. +The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our CMOs must comply with cGMP requirements. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination controls. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. +We cannot assure you that any stability or other issues relating to the manufacture of obicetrapib or any future product candidate will not occur in the future. As the manufacturing processes are scaled up, they may reveal manufacturing challenges or previously unknown impurities that could require resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of obicetrapib or any other products candidates we may develop. In the future, we may identify manufacturing issues or impurities that could result in delays in the clinical program and regulatory approval for obicetrapib or any future product candidate, increases in our operating expenses or failure to obtain or maintain approval for obicetrapib or any future product candidate. Our reliance on third-party manufacturers entails risks, including the following: +• +the inability to meet our product candidate specifications, including product formulation, and quality requirements consistently; +• +a delay or inability to procure or expand sufficient manufacturing capacity; +• +manufacturing and product quality issues, including those related to scale-up of manufacturing; +• +costs and validation of new equipment and facilities required for scale-up; +• +a failure to comply with cGMP and similar quality standards; +• +the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; +• +termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; +• +the reliance on a limited number of sources, and in some cases, single sources for key materials, such that if we are unable to secure a sufficient supply of these key materials, we will be unable to manufacture and sell obicetrapib in a timely fashion, in sufficient quantities or under acceptable terms; +• +the lack of qualified backup suppliers for those materials that are currently or in the future purchased from a sole or single source supplier; +• +operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; +57 +• +resource constraints, including as a result of labor disputes or unstable political environments; +• +carrier disruptions or increased costs that are beyond our control; and +• +the failure to deliver our products under specified storage conditions and in a timely manner. +If we or our third-party manufacturers were to encounter any of these difficulties, and in particular where we rely on a single manufacturer, our ability to provide obicetrapib or any future product candidate to patients in clinical trials and products to patients, once approved, would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the initiation or completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. These events could impact our ability to obtain regulatory approval or successfully commercialize obicetrapib or any future product candidate. Some of these events could be the basis for FDA, EMA or other comparable regulatory authorities’ action, including injunction, recall, seizure, or total or partial suspension of production. Any adverse developments affecting clinical or commercial manufacturing of obicetrapib or any future product candidate may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our product candidates. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of obicetrapib or any future product candidate and could have a material adverse effect on our business, prospects, financial condition and results of operations. +We rely, and expect to continue to rely, on third parties and consultants to assist us in conducting our clinical trials, including our Phase 3 clinical trials for obicetrapib. If these third parties or consultants do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize obicetrapib, if approved. +We do not have the ability to independently conduct many of our clinical trials. We rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct clinical trials on obicetrapib. Third parties play a significant role in the conduct of our clinical trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for remedies available to us under our agreements, we have limited ability to control the amount or timing of resources that any such third party will devote to our clinical trials. If our CROs or any other third parties upon which we rely for administration and conduct of our clinical trials do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, or if they otherwise perform in a substandard manner, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to complete development of, obtain regulatory approval for, or successfully commercialize obicetrapib. +We and the third parties upon whom we rely are required to comply with GCP, which are regulations and guidelines enforced by regulatory authorities around the world for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or our third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, a regulatory authority will determine that any of our clinical trials comply or complied with applicable GCP regulations. In addition, our clinical trials must be conducted with material produced under current cGMP regulations, which are enforced by regulatory authorities. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be impacted if our CROs, clinical investigators or other third parties violate federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. +In order for our clinical trials to be carried out effectively and efficiently, it is imperative that our CROs and other third parties communicate and coordinate with one another. Moreover, our CROs and other third parties may also have relationships with other commercial entities, some of which may compete with us. Our CROs and other third parties may terminate their agreements with us immediately under certain circumstances, such as upon 30 days’ notice or immediately upon a material breach. If our CROs or other third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to conduct additional clinical trials or enter into new arrangements with alternative CROs, clinical investigators or other third parties. We may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. Switching or adding CROs, clinical investigators or other third parties can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can impact our ability to meet our desired clinical development timelines. Although we carefully manage our relationship with our CROs, clinical investigators and other third parties, there can be no assurance that we will not encounter such challenges or delays in the future or that these delays or challenges will not have a negative impact on our business, prospects, financial condition or results of operations. +We currently intend to rely on our collaboration with Menarini for the process of obtaining EMA approval for obicetrapib and the commercialization of obicetrapib, if approved, in certain European areas. Failure or delay of Menarini to fulfill all or part of its obligations +58 +to us under the Menarini License, a breakdown in collaboration between the parties or a complete or partial loss of this relationship could materially harm our business if obicetrapib is approved in the relevant jurisdictions. +While we currently plan to commercialize our own products, if approved, in the United States, we entered into the Menarini License to obtain and maintain regulatory approvals, commercialize and undertake local development, in each case with respect to obicetrapib either as a sole active ingredient product or in a fixed dose combination with ezetimibe for any use, in certain areas of Europe. Our collaboration with Menarini is critical in these areas, as we do not currently have the internal capacity to market, sell and distribute obicetrapib, if approved, in Europe. Pursuant to the Menarini License, Menarini is responsible for submitting, obtaining and maintaining EMA approvals and for communications with regulatory authorities for the commercialization and local development of obicetrapib in certain areas of Europe, if approved, and other collaborative activities. Menarini must commercialize obicetrapib pursuant to a commercialization plan agreed between the parties and is obligated to use commercially reasonable efforts to commercialize obicetrapib so as to maximize net sales, provided that Menarini has sole discretion to set the price of the products. +Either party has the right in certain circumstances to terminate the collaboration pursuant to the terms of the Menarini License, including in the case (i) of a material breach by the other party, (ii) that a relevant regulatory authority prohibits Menarini to pursue the commercialization of obicetrapib due to safety or efficacy concerns, or (iii) of insolvency of either party. If Menarini delays or fails to perform its obligations under the Menarini License, such as failure to obtain EMA approval for obicetrapib or a delay in the anticipated commercial launch of obicetrapib, disagrees with our interpretation of the terms of the collaboration or terminates the Menarini License, the commercialization of obicetrapib, if approved, could be significantly adversely affected and our prospects in Europe will be materially harmed. +We may not be able to meet our obligations under the Menarini License. Additionally, if we do not reach certain milestones as set forth in the Menarini License, we will not receive the milestone payments, which could require us to seek funding additional capital to complete clinical trials. +Menarini has also entered into collaborations with third parties addressing targets and disease indications outside the scope of our collaboration. As a result, Menarini may have competing interests with respect to their priorities and resources. We may have disagreements with Menarini with respect to the interpretation of the Menarini License, use of resources or otherwise that could cause our relationship with Menarini to deteriorate. As a result, Menarini may reduce their focus on, and resources allocated to, our commercialization, potentially delaying or terminating our ability to commercialize obicetrapib in Europe, if approved. However, as stated above, Menarini must commercialize obicetrapib pursuant to a commercialization plan agreed between the parties and is obligated to use commercially reasonable efforts to commercialize obicetrapib so as to maximize net sales. Additionally, should we decide to move forward with development of a combination of obicetrapib with a certain inhibitor in the areas of Europe covered by the Menarini License for patients suffering from diabetes, we will need to offer Menarini the opportunity to co-develop that product with us, provided that if Menarini does, we will negotiate with Menarini the economics and other terms in respect of such co-development and the subsequent commercialization of such combination product in such areas of Europe. If Menarini does not wish to co-develop such combination product, that would prevent our ability to, and our ability to license or authorize a third party to, seek regulatory approval for or promote such combination product, in the areas of Europe covered by the Menarini License. +Should the Menarini License be terminated, we will need to either build marketing, sales, distribution, managerial and other non-technical capabilities or contract with third parties to obtain these capabilities in Europe. +We have limited experience in marketing or distributing products and no internal capability to do so, and an inability to market, distribute and commercialize obicetrapib once approved would prevent us from achieving significant sales and reduce the commercial value of obicetrapib. If we are unable to establish sales, marketing and distribution capabilities for obicetrapib, if approved, or our future product candidates, or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing our product candidates, if and when they are approved. +Although we have hired a chief commercial officer, we do not have a complete sales or marketing infrastructure and, as a company have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any product candidate for which we may obtain marketing approval, we will need to establish a sales and marketing organization or enter into collaboration, distribution and other marketing arrangements with one or more third parties to commercialize such product candidate. In the United States, we intend to build a commercial organization to target areas with the greatest incidence of high cardiovascular risk with residual elevation of LDL-C and Alzheimer's disease and recruit experienced sales, marketing and distribution professionals. The development of sales, marketing, and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. We may decide to work with regional specialty pharmacies, distributors and/or multi-national pharmaceutical companies to leverage their commercialization capabilities to commercialize any product candidate for which we may obtain regulatory approval outside of the United States or certain areas of Europe. +If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to +59 +hire a sales force in the United States that is sufficient in size or has adequate expertise to target the areas that we intend to target. If we are unable to establish a sales force and marketing and distribution capabilities, our operating results may be adversely affected. +Factors that may inhibit our efforts to commercialize our drugs on our own include: +• +our inability to recruit, train, and retain adequate numbers of effective sales and marketing personnel; +• +the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; +• +the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage compared to companies with more extensive product lines; +• +unforeseen costs and expenses associated with creating an independent sales and marketing organization; and +• +unforeseen costs and limitations with regard to setting up a distribution network. +If we are unable to establish our own sales, marketing and distribution capabilities in the United States and other jurisdictions in which obicetrapib or any future product candidates are approved, other than in the jurisdictions covered by the Menarini License, we will be required to enter into arrangements with third parties to perform these services. As a result, our revenues and profitability, if any, are likely to be lower than if we were to sell, market and distribute any product candidates that we develop ourselves. We may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing any product candidates. +We expect to enter into collaborations with third parties for the development or commercialization of obicetrapib or future product candidates, which involve risks that could impact our liquidity, increase our expenses and present significant distractions to our management, and we may not be able to capitalize on the market potential of obicetrapib or any future product candidate if our collaborations are not successful. +In addition to the Menarini License, we may utilize a variety of types of collaboration, distribution and other marketing arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements. +Any future collaborations that we enter into may pose a number of risks, including the following: +• +collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to these collaborations; +• +collaborators may not perform their obligations as expected; +• +product candidates developed by collaborators may not perform sufficiently in clinical trials to be determined to be safe and effective, thereby delaying or terminating the drug approval process and reducing or eliminating milestone payments to which we would otherwise be entitled if the product candidates had successfully met their endpoints and/or received FDA or EMA approval; +• +collaborators may not pursue development and commercialization of our product candidates that receive marketing approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• +collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; +• +collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; +• +product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; +• +a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products; +60 +• +disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive; +• +collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; +• +collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and +• +collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. +Collaboration agreements may not lead to the development or commercialization of product candidates in the most efficient manner, or at all. If any future collaborations that we enter into do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates. All of the risks relating to product development, regulatory approval and commercialization described in herein also apply to the activities of our collaborators. +Additionally, subject to its contractual obligations to us, if a collaborator of ours were to be involved in a business combination, it might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be harmed. +Our employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us or harm our reputation. +We are exposed to the risk that our employees, independent contractors, clinical investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct, breach of contract or disclosure of unauthorized activities to us that violates regulations of the FDA, the EMA or other comparable regulatory authorities, including those laws requiring the reporting of true, complete and accurate information; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws; or laws that require the reporting of financial information or data accurately. +Specifically, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, education, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of business conduct and ethics and train our employees on these topics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, even if we are successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and reputation. Violations of such laws subject us to numerous penalties, including, but not limited to, the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. +If we, or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business. +Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, business operations and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste +61 +products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. +Risks Related to Our Business and Strategy +If we fail to manage our growth effectively, our business could be disrupted. +As of December 31, 2025, we had 100 employees and 12 consultants. We expect to continue to expand our development, quality, sales, managerial, operational, finance, marketing and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize obicetrapib, if approved. In addition, if we receive regulatory approval for obicetrapib, we expect to need to significantly expand our workforce to ensure a successful commercial launch of obicetrapib. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our expansion strategy requires that we: +• +manage our clinical trials effectively; +• +identify, recruit, retain, incentivize and integrate additional employees; +• +manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and +• +continue to improve our operational, financial and management controls, reporting systems and procedures. +Due to our limited experience in managing a larger public company, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage expansion could delay the execution of our development and strategic objectives, or disrupt our operations; and if we are not successful in commercializing our product candidate, either on our own or through collaborations with one or more third parties, our revenues will suffer and we would incur significant additional losses. +If obicetrapib or our future product candidates receive approval for marketing, and if physicians misuse our products, we may become subject to product liability claims, and our image and reputation within the industry and marketplace could be harmed. +Physicians may also misuse our products or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our products are misused or used with improper technique, we may become subject to costly litigation. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance. We currently carry product liability insurance covering our clinical trials with policy limits that we believe are customary for similarly situated companies and adequate to provide us with coverage for foreseeable risks. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Furthermore, the use of our products for conditions other than those approved by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients. If we cannot successfully manage the promotion of obicetrapib or any future product candidate, if approved, we could become subject to significant liability, which would harm our reputation and negatively impact our financial condition. +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of obicetrapib or any future products we may develop. +We face an inherent risk of product liability as a result of the clinical testing of obicetrapib and will face an even greater risk if we commercialize it or any future product candidate. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: +• +decreased demand for our product candidate or any future product candidates we develop; +• +injury to our reputation and significant negative media attention; +• +withdrawal of clinical trial participants or delay or cancellation of clinical trials; +• +costs to defend the related litigation, which may be only partially recoverable even in the event of successful defenses; +• +a diversion of management’s time and our resources; +62 +• +substantial monetary awards to clinical trial participants or patients; +• +regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions; +• +loss of revenues; +• +exhaustion of any available insurance and our capital resources; and +• +the inability to commercialize our product, if approved. +Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of any products that we may develop. We currently carry general clinical trial product liability insurance in an amount that we believe is adequate to cover the scope of our ongoing clinical programs. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing obicetrapib or any other product candidate, we intend to expand our insurance coverage to include the commercialization of obicetrapib or any other approved product that we may have; however, we may be unable to obtain this liability insurance on commercially reasonable terms. +If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully develop our product candidate, conduct our clinical trials and, if approved, commercialize our product candidate or any other products we may develop. +Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of members of our senior management, as well as our senior scientists and other members of our management team, especially our Chief Executive Officer, Dr. Michael Davidson. We are not aware of any present intention of any of these individuals to leave our company. The loss of services of any of these individuals and certain other key employees, though, could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of obicetrapib. Although we have agreements with our officers and employees, these agreements do not prevent them from terminating their employment or service arrangement with us as described in the agreements. +Although we have not historically experienced unique difficulties in attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the pharmaceutical field is intense due to the limited number of individuals who possess the skills and experience required by our industry. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles, diverse opportunities including for career advancement and a longer history in the industry than we do. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. +Misclassification or reclassification of our independent contractors or employees could increase our costs and adversely impact our business. +Our workers are classified as either employees or independent contractors, and if employees, as either exempt from overtime or non-exempt (and therefore overtime eligible). The tests governing whether a service provider is an independent contractor or an employee are typically highly fact sensitive and can vary by governing law. Laws and regulations that govern the status and misclassification of independent contractors are also subject to divergent interpretations by various authorities, which can create uncertainty and unpredictability. Regulatory authorities and private parties have recently asserted within several industries that some independent contractors should be classified as employees and that some exempt employees should be classified as nonexempt based upon the applicable facts and circumstances and their interpretations of existing rules and regulations. The Dutch (tax) authorities have intensified the supervision and enforcement of the classification as an employee or independent contractor as of 1 January 2025. If we are found to have misclassified employees as independent contractors or non-exempt employees as exempt, we could face penalties and have additional exposure under tax (including federal and state tax), social security contributions, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee overtime and benefits, including pensions, and tax withholdings. Legislative, judicial or regulatory (including tax) authorities could also introduce proposals or assert interpretations of existing rules and regulations that would change the classification of a number of independent contractors doing business with us from independent contractor to employee and a number of exempt employees to non-exempt. A reclassification in either case could result in an increase in employment-related costs such as wages, benefits and taxes. The costs associated with employee misclassification, including any related regulatory action or litigation, could therefore have an adverse effect on our results of operations and our financial position. +63 +Under applicable employment laws, we may not be able to enforce covenants not to compete. +We generally include non-competition provisions as part of our agreements with our officers, employees and consultants. These agreements generally prohibit our officers, employees or consultants, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these provisions under the laws of the jurisdictions in which our officers, employees or consultants work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former officers, employees or consultants developed while working for us. +We have expanded and expect to continue expanding our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations. +We have expanded and expect to continue experiencing significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, manufacturing, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. +Inflation may adversely affect our operations, including increases in the prices of goods and services required for our operations. +High rates of inflation resulting from global events may adversely affect our operations in the event of increased prices of goods and services, such as energy and other operating costs, labor costs, materials costs and shipping costs, all of which may impact our direct costs. We are also experiencing increases in the cost of services provided by CMOs, CROs and other third parties with whom we do business, including significant increases in the cost of non-human primates required for studies. Such high inflation rates may result in unexpected and unbudgeted cost increases and may require changes to planned investments. +Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations and we may be exposed to significant foreign exchange risk. +We face significant operational risks as a result of doing business internationally, such as: +• +fluctuations in foreign currency exchange rates; +• +differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls; +• +potentially adverse and/or unexpected tax consequences, including penalties due to the challenge by tax authorities on the basis of transfer pricing and liabilities imposed from inconsistent enforcement, as well as compliance with potentially conflicting and changing tax laws of taxing jurisdictions, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws; +• +potential changes to the accounting standards, which may influence our financial situation and results; +• +becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations; +• +reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries; +• +difficulties in attracting and retaining qualified personnel; +• +restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modification of contracts; +• +rapid changes in global government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events, and potential failure in confidence of our suppliers or customers due to such changes or events; and +• +tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers. +Additionally, we incur portions of our expenses, and may in the future derive revenues, in currencies other than the U.S. dollar, in particular, the Euro. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. Therefore, for example, an increase in the value of the U.S. dollar against the Euro could be expected to have a negative impact on our revenue and earnings as Euro revenue and earnings, if any, would be +64 +translated into U.S. dollars at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows. +Negative economic conditions, including as a result of commodity price inflation or supply chain constraints, widespread health crises, the conflict between Russia and Ukraine, the conflict in the Middle East, relations between the United States and China, and any other international conflicts or internal foreign conflicts, particularly in countries with clinical trial sites, may adversely impact our results of operations. +An unforeseen production shortage resulting from any event, including interruptions to business operations and supply chain disruption as a result of worldwide economic and political disruptions including the impacts of and the conflict in the Middle East and war between Russia and Ukraine affecting raw material and or intermediate supply or manufacturing capabilities abroad and domestically could adversely impact our business. For example, our supply chain may be disrupted, limiting our ability to manufacture our product candidates for our clinical trials and research and development operations, or our cost base may be increased. Furthermore, economic growth is expected to slow, including due to supply chain disruption, the recent surge in inflation and related actions by central banks and geopolitical conditions, with a significant risk of recession in many parts of the worlds in the near term. This may also prolong tight credit markets and potentially cause such conditions to become more severe. These issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions, may make it difficult to obtain financing. +Our expectations about our business, future performance and other matters are subject to significant risks, assumptions, estimates and uncertainties. As a result, our expectations regarding cash and cash burn, market size and market share, clinical trial completions, regulatory submissions and potential regulatory approvals, and our expectations regarding efficacy levels and benefits of our product candidates, may differ materially from actual results. +The estimates and assumptions included in this Annual Report and the exhibits attached, include, among others: expectations regarding our cash runway; estimates of the total addressable market for cardiometabolic disease patients with significant unmet need; assumptions regarding our ability to obtain reimbursement for our product candidate, if approved; assumptions regarding performance under existing partner agreements, including the Menarini License; and assumptions regarding our ability to obtain regulatory approval and the timing of obtaining such approvals, if ever. These estimates and assumptions are subject to various factors beyond our control, including, for example, changes in the supply of drug products required for our clinical trials, increased costs for such drugs, changes in the regulatory or competitive environment, delays in our clinical trials or in obtaining regulatory approvals, lower than expected rates of reimbursement on our product candidate, if approved, the imposition or heightening of sanctions or other economic or military measures in relation to the wars in Ukraine and Israel, and changes in our executive team. Accordingly, our future financial condition and results of operations may differ materially from our estimates. +We may undertake strategic acquisitions, in-licenses or other strategic transactions in the future and any difficulties from integrating such acquisitions could adversely affect our share price, operating results and results of operations. +We may acquire companies, businesses and products, or in-license additional product candidates, that complement or augment our existing business. Any product candidate or technologies we in-license or acquire will likely require additional development efforts prior to commercial sale, including extensive preclinical or clinical testing, or both, and approval by the FDA, the EMA and other comparable regulatory authorities, if any. All product candidates are prone to risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate, or product developed based on in-licensed technology, will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we may not be able to integrate any acquired business successfully or operate any acquired business profitably. Integrating any newly acquired business or product could be expensive and time-consuming. Integration efforts often take a significant amount of time, place a significant strain on managerial, operational and financial resources, result in loss of key personnel and could prove to be more difficult or expensive than we predict. The diversion of our management’s attention and any delay or difficulties encountered in connection with any future acquisitions or in-licenses that we may consummate could result in the disruption of our on-going business or inconsistencies in standards and controls that could negatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public or private debt or equity financing, or issue additional shares, to acquire any businesses or products, which may result in dilution for shareholders or the incurrence of indebtedness. +In addition, we may not be able to manufacture economically or successfully commercialize any product candidate that we develop based on acquired or in-licensed technology that is granted regulatory approval, and such products may not gain wide acceptance or be competitive in the marketplace. Moreover, integrating any newly acquired or in-licensed product candidates could be expensive and time-consuming. If we cannot effectively manage these aspects of our business strategy, our business may be materially harmed. +As part of our efforts to acquire companies, business or product candidates or to enter into other significant transactions, we would conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. For example, if intellectual property related to product candidates or technologies we in-license or acquire is not adequate, we may not be able to commercialize the affected products even after expending resources on their development. If we fail to realize the expected benefits from acquisitions we may consummate in the future or have consummated in the past, whether as a result of +65 +unidentified risks or liabilities, integration difficulties, regulatory setbacks, litigation with current or former employees and other events, our business, results of operations and financial condition could be adversely affected. If we acquire product candidates, we will also need to make certain assumptions about, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these potential transactions. +In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions, in-licenses or other strategic transactions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur, as part of a transaction, substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular periods. +Cyberattacks or other failures in the telecommunications or information technology systems used by us or our third-party vendors, contractors or consultants, could result in information theft, compromise, or other unauthorized access, data corruption and significant disruption of our business operations, and could harm our reputation and subject us to liability, lawsuits and actions from governmental authorities. +Despite the implementation of security measures, including the implementation of information technology protocols to control access to our systems and information, security awareness trainings, proactive patching of known vulnerabilities, reviewing our system against specified security metrics, monitoring our third-party vendors and partners, participating in threat intelligence sharing and developing mechanisms designed to detect deviations in our systems, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from cybersecurity threats, including computer viruses, harmful code and unauthorized access, cyber-attacks (including ransomware), hacking, theft, phishing, employee error, denial-of-service attacks, social engineering schemes, sophisticated nation-state and nation-state-supported actors unauthorized accesses, natural disasters, fire, terrorism, war and telecommunication and electrical failures. We and certain of our service providers are from time to time subject to actual and attempted cyberattacks and security incidents. We do not believe that we have experienced any such material system failure or security breach to date. If a disruption event were to occur and cause interruptions in our operations or those of our third-party service providers, it could result in a material disruption to our drug development programs, and/or otherwise jeopardize the performance of our software and information technology systems, and could expose us to financial and reputational harm. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of obicetrapib could be delayed. Similarly, if an actual or attempted security incident were to occur we may be required to disclose such event and, in addition to reputational damage, we could face investigations and fines from regulators, as well as litigation. Furthermore, if we are required to disclose the occurrence of a cybersecurity incident, the price of our Ordinary Shares may be negatively impacted, whether warranted or not. +Successful and attempted attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. +Global health crises may adversely affect our business and that of our suppliers, CROs or other third parties relevant to our business. +The COVID-19 pandemic impacted worldwide economic activity and future global health crises may pose the same risks, including the risk that we or our employees, contractors, suppliers, or other partners may be prevented or delayed from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities, which could have an adverse impact on our business, financial results and operations, as well as those of third parties on which we rely. +Risks Related to Our Intellectual Property +We may not be successful in obtaining all of the necessary intellectual property rights to allow us to develop and commercialize our product candidate, obicetrapib. If our efforts to obtain, protect or enforce our patents and other intellectual property rights related to our product candidates and technologies are not adequate, including due to the risk that we are unaware of prior art that may affect the validity of our patents, we may not be able to compete effectively in our market and we otherwise may be harmed. +66 +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we enter into confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, CROs, CMOs, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. +While we have sought and continue to actively seek patent protection for obicetrapib, our patent coverage is limited, and we can provide no assurance that any of our current or future patent applications will result in issued patents or that any issued patents will provide us with any competitive advantage. +The patent applications that we own or license may fail to result in issued patents in the United States or granted patents in foreign jurisdictions. Our ability to obtain and maintain valid and enforceable patents depends on various factors, including determination that our patent claims are patentable over prior art. We may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office (the “USPTO”) or foreign patent offices, and such prior art may prevent issuance of claims that would provide us with a competitive advantage. We cannot be certain that we and respective patent offices have identified all relevant prior art at the time of issuance, and later identification of undiscovered prior art may provide basis for later invalidating our issued patent claims. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to the treatment of cardiometabolic disease, Alzheimer’s disease, or other indications using obicetrapib or (ii) conceive and reduce to practice any of the compositions or methods claimed in our patents or patent applications, including patents or patent applications related to obicetrapib and any of our future product candidates. +Patent applications and patents granted from them are complex, lengthy and highly technical documents that are often prepared under time constraints and may not be free from errors. The existence of errors in a patent may have an adverse effect on the patent, its scope and its enforceability. Even if our pending and future patent applications issue as patents in relevant jurisdictions, they may not issue in a form that will provide us with any meaningful protection for our technology or product candidates, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Even if our pending and future patent applications issue as patents in relevant jurisdictions, changes in law or in interpretation of existing law may provide a basis for competitors to challenge the validity and/or enforceable scope of our patents. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of patent rights are highly uncertain. Our pending and future owned or in-licensed patent applications may not result in patents being issued which protect our technology or product candidates, effectively prevent others from commercializing competitive technologies and products or otherwise provide any competitive advantage. In addition, the scope of claims of an issued patent can be reinterpreted after issuance, and changes in either the patent laws or interpretation of the patent laws in the United States and other jurisdictions may diminish the value of our patent rights or narrow the scope of our patent protection. +Additionally, limitations on the scope of our intellectual property rights may limit our ability to prevent third parties from designing around such rights and competing against us. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or product candidates in a non-infringing manner. Other parties may compete with us, for example, by independently developing or obtaining competing solid forms of obicetrapib, including crystalline forms and alternative salts of obicetrapib, or by independently developing or obtaining competing synthetic processes for synthesis of obicetrapib or synthetic intermediates that allow competitors to design around our patent claims but which result in the same active ingredient. +In addition, our competitors may seek to invalidate our patents. We may become involved in proceedings brought by competitors in the USPTO or applicable foreign offices challenging our patent rights, such as inter partes review, post grant review, derivation proceedings, interference proceedings, opposition proceedings, revocation proceedings or ex parte reexamination. Patent offices may take a different view on patentability during post-grant challenges than during initial examination, and courts in litigation may take a different view about validity than did the respective patent office. An adverse determination in any such submission, proceeding or litigation could result in loss of exclusivity, patent claims being narrowed, invalidated or held unenforceable, in whole or in part, or could result in limits of the scope or +67 +duration of the patent protection of our technologies or product candidates, all of which could limit our ability to stop others from using or commercializing similar or identical product candidates or technology to compete directly with us, without payment to us. +Furthermore, even if they are not challenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. To meet such challenges, which are part of the risks and uncertainties of developing and marketing product candidates, we may need to evaluate third-party intellectual property rights and, if appropriate, to seek licenses for such third-party intellectual property or to challenge such third-party intellectual property, which may be costly and may or may not be successful, which could also have an adverse effect on the commercial potential for obicetrapib and any of our other product candidates. +Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent prosecution process. When related patents are pursued concurrently in multiple jurisdictions, international treaties may impose additional procedural, documentary, fee payment and other provisions. Additionally, when inventions are made by joint inventors of different nationalities, or where inventive acts were performed in multiple countries, concurrent and potentially conflicting requirements imposed by the laws of multiple jurisdictions may be applicable. We may have failed to adhere to all such provisions during examination of our patent applications or following issuance. +Periodic maintenance or annuity fees and various other governmental fees on any issued patent and/or pending patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent or patent application. Our outside counsel have systems in place to remind us to pay these fees, and we rely on our outside counsel and their third-party vendors to pay these fees. While an inadvertent lapse may sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are many situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications directed to our product candidates, our competitors might be able to enter the market earlier than should otherwise have been the case, which could harm our business, financial condition, results of operations, and prospects. +Uncertainty and instability resulting from the conflict between Russia and Ukraine could negatively impact our ability to maintain our patents in Russia. +Sanctions imposed on Russia by the United States and the European Union have made it difficult to pay required annual fees, or annuities, to maintain pending patent applications and granted patents in Russia, increasing the risk that our patents may not grant in Russia or, having granted, will lapse through nonpayment of annuities. In addition, the Russian government issued a decree in March 2022 that owners of Russian patents from countries that Russia considers to be unfriendly are no longer entitled to any compensation for compulsory licensing of their patents, increasing the risk that our competitors will be granted a compulsory license under our Russian patents, allowing them to infringe without making any payments to us. +We may receive only limited protection, or no protection, from our issued patents and patent applications and such patents could be narrowed, found invalid or unenforceable if challenged in court or before administrative bodies. +Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its earliest priority U.S. utility application was filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. If we encounter delays in our clinical trials or regulatory approval of obicetrapib, the period of time during which we could market obicetrapib under patent protection could be reduced. +The patent application process, also known as patent prosecution, is expensive and time consuming, and we or any future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or any future licensors or licensees will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, etc., although we are unaware of any such defects that we believe are of material import. If we or any future licensors or licensees fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form or preparation of our patents or patent +68 +applications, such patents or applications may be invalid and unenforceable. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business. +The strength of patents in the pharmaceutical field involves complex legal and scientific questions and can be uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of issued patents. The USPTO or other foreign patent offices may change their interpretation of existing statutes or regulations with potential retroactive effects. The patent applications that we own or in-license may fail to result in issued patents in the United States or foreign countries with claims that cover our product candidates. Even if patents do successfully issue from the patent applications that we own or in-license, third parties may challenge the validity, enforceability or scope of such patents, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be challenged, also known as opposed, by any person within nine months from the publication of their grant. In addition, post grant review in the USPTO begins with a third party filing a petition on or prior to the date that is nine months after the grant of the patent or issuance of a reissue patent. Third parties can also challenge a patent in the USPTO by way of inter partes review, ex parte reexamination, derivation, or interference proceedings. Any successful challenge to our patents could deprive us of exclusive rights necessary for the successful commercialization of our product candidates. Even if such challenges to our patents are unsuccessful, the proceedings could be expensive and time consuming and may divert the efforts and attention of our technical and management personnel. Furthermore, even if they are unchallenged, our patents may not adequately protect our product candidates, provide exclusivity for our product candidates, or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize our product candidates. +If we do not obtain patent term extension for our product candidates, if needed, our business may be harmed. +Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”), which amended the FDCA, one or more of our U.S. patents that we may own in the future may be eligible for limited patent term extension, depending upon the timing, duration and specifics of any FDA marketing approval of our product candidates and our technology. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. Only one patent may be extended and only those claims covering the approved product, a method for using it or a method for manufacturing it may be extended. The application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +We may not be able to protect our intellectual property rights throughout the world, or we may choose not to pursue patent rights in jurisdictions that later become important to our business, thus harming our ability to compete in those jurisdictions. +Filing, prosecuting, maintaining, and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. In countries in which we elect to pursue patent rights, the requirements for patentability may differ, particularly in developing countries. For example, China often applies a heightened requirement for patentability, with heightened requirements for experimental data in the patent application. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. For example, some foreign countries do not permit claims to therapeutic methods. +Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection in order to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement against infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. +Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. +Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. +69 +In addition, some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. +Changes in U.S. or foreign patent law, including changes in patent office interpretation of applicable rules and statutes, changes effected by judicial holdings, and changes effected by legislation, including changes that may have retroactive effect, could diminish the value of patents in general and our patents in particular, thereby impairing our ability to protect our products. +As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the Leahy-Smith America Invents Act (the “AIA”) which was passed on September 16, 2011, resulted in significant changes to the U.S. patent system. Further, U.S. Supreme Court rulings in recent years have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. +The significant changes to U.S. patent law under the AIA include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. For our U.S. patent applications that contain or contained at any time a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. The USPTO has developed and continues to develop regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business and financial condition. It is not clear what other, if any, impact the AIA will have on the operation of our business. +An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patent applications on our inventions. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our patents or patent applications. +Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued from applications filed before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in United States federal court, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. +Depending on decisions by the U.S. Congress, the federal courts, the USPTO, and foreign patent offices, the laws and regulations governing patents could change in unpredictable ways, including with potential retroactive effect, that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. +We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive and time consuming, with no certainty of success, and could delay or prevent the development and commercialization of our products and product candidates, or put our patents and other proprietary rights at risk. +Third parties may infringe or misappropriate our intellectual property, including our existing patents and patents that may issue to us in the future. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. Further, we may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. +Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. If we file an infringement action against such a generic drug manufacturer, that company may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. +70 +For example, if we initiated legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidates is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. +In addition, within and outside of the United States, there has been a substantial amount of litigation and administrative proceedings, including inter partes review, post grant review, interference or derivation proceedings, and ex parte reexamination proceedings before the USPTO or other comparable proceedings in various foreign jurisdictions, regarding patent and other intellectual property rights in the pharmaceutical industry. These proceedings bring uncertainty to the possibility of challenges to our patents in the future, including challenges by competitors who perceive our patents as blocking entry into the market for their products, and the outcome of such challenges. +Such litigation and administrative proceedings could result in revocation of our patents or amendment of our patents such that they do not cover our product candidates. They may also put our pending patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. Additionally, it is also possible that prior art of which we are aware, such as may arise during preclinical studies and clinical trials, but which we do not believe affects the validity or enforceability of a claim, may, nonetheless, ultimately be found by a court of law or an administration panel to affect the validity or enforceability of a claim. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a negative impact on our business. +Enforcing our intellectual property rights through litigation would be very expensive, particularly for a company of our size, time-consuming, and inherently uncertain. Some of our competitors may be able to sustain the costs of litigation more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also divert technical and management personnel from their normal responsibilities. +Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business, financial condition or results of operations. +Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of litigation or administrative proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price of our Ordinary Shares could be significantly harmed. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +In addition to the protection afforded by patents, we may also rely on trade secret protection or confidentiality agreements to protect proprietary know-how, technology and other proprietary information that may not be patentable or that we elect not to patent, processes for which patents may be difficult to obtain or enforce, and any other elements of our product candidates, and our product development processes (such as manufacturing and formulation technologies) that involve proprietary know-how, information or technology that is not covered by patents. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in the market. +Trade secrets, confidential information, and know-how can be difficult to protect. We seek to protect these trade secrets and other proprietary technology, in part, by requiring all of our employees, consultants, advisors, and any other third parties that have access to our proprietary know-how, information or technology to execute confidentiality agreements upon the commencement of their relationships with us. We cannot be certain that we have or will obtain these agreements in all circumstances and we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary information. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secrets. +Despite our efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets. Adequate remedies may not exist in the event of unauthorized use or disclosure of our trade secrets. In addition, in some situations, these confidentiality agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, or advisors have previous employment or consulting relationships. To the extent that our employees, consultants or contractors use any intellectual property owned by third parties in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Any misappropriation or unauthorized disclosure of our trade secrets could have an adverse effect on our business, impact our ability to establish or maintain a competitive advantage in our market, or otherwise harm our business, operating results and financial condition. +Furthermore, trade secret protection and confidentiality agreements do not prevent competitors from independently developing substantially equivalent information and techniques and we cannot guarantee that our competitors will not independently develop substantially equivalent information and techniques. While there are U.S. laws prohibiting the use or disclosure of trade secret information by government employees, the FDA, as part of its Transparency Initiative, has taken steps to make additional information publicly available on a routine basis, +71 +including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change further in the future. +There is an increasing trend in the EU toward greater transparency and, while the manufacturing or quality information contained in an MAA is currently generally protected as confidential information, the EMA and national regulatory authorities may disclose much of the nonclinical and clinical information in MAAs, including the full clinical trial reports, in response to freedom of information requests after the marketing authorization has been granted. Similarly, as of January 31, 2022 under the EU Clinical Trials Regulation (EU) No 536/2014, the EU clinical trials information system allows the public to access MAA data submitted to the EMA or national regulatory authorities (excluding any commercially confidential information). There may be a risk that information that we consider to be trade secrets or other proprietary information becomes publicly available, including to our competitors, under such transparency requirements in the EU. +Third-party claims alleging intellectual property infringement may adversely affect our business, and we may be subject to lawsuits claiming that we infringe, misappropriate or otherwise violate the intellectual property rights of third parties, which could be expensive and time consuming, delay or prevent the development and commercialization of our products and product candidates, or subject future sales to royalty payments, which could damage our business. +Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties, for example, the intellectual property rights of competitors. Our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents owned or controlled by third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our activities related to our product candidates may give rise to claims of infringement of the patent rights of others. We cannot assure you that our product candidates will not infringe existing or future patents. We may not be aware of patents that have already issued that a third party might assert are infringed by our product candidates. It is also possible that patents of which we are aware, but which we do not believe are relevant to our product candidates, could nevertheless be found to be infringed by our product candidates. Nevertheless, we are not aware of any issued patents that we believe would prevent us or our licensee(s) from marketing our product candidates, if approved. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the intellectual property rights of third parties. +Third parties making claims against us for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. Defense of these claims, regardless of their merit, would cause us to incur substantial expenses and, and would be a substantial diversion of management time and employee resources from our business. In the event of a successful claim of infringement against us by a third party, we may have to (i) pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed the third party’s patents; (ii) obtain one or more licenses from the third party; (iii) pay royalties to the third party; and/or (iv) redesign any infringing products. Redesigning any infringing products may be impossible or require substantial time and monetary expenditure. Further, we cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that we could not obtain a license, we may be unable to further develop and commercialize our product candidates, which could harm our business significantly. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. Furthermore, even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly. +Defending ourselves in litigation is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could harm our business, financial condition or results of operations. +If we fail to obtain or maintain regulatory exclusivity for our product candidates, our business may be materially harmed. +We may be unable to obtain, or may not be able to maintain, regulatory exclusivity for our product candidates, including exclusivity under the Hatch-Waxman Act, orphan drug exclusivity, or pediatric exclusivity. Even if granted, such exclusivity may be limited in scope or duration and may not prevent competitors from developing or marketing competing products. The loss or expiration of any exclusivity period +72 +could allow competitors to introduce generic or other competing products, which could significantly reduce our revenues, if our product candidates are approved, and adversely affect our business, financial condition, and results of operations. +Generic competition following the expiration or loss of exclusivity could significantly reduce our revenues, if our product candidates are approved. +Our product candidates, if approved, may become subject to competition from generic or follow-on drug manufacturers who seek approval through the ANDA or 505(b)(2) application process. Manufacturers may file ANDAs or 505(b)(2) applications seeking approval to market follow-on versions of our products prior to the expiration of our patents or regulatory exclusivities, including by filing Paragraph IV certifications alleging that our patents are invalid, unenforceable, or not infringed. Such challenges could result in costly and time-consuming litigation, and if successful, could lead to earlier-than-anticipated generic competition, which would materially and adversely affect our revenues and profitability, if our product candidates are approved. +We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information or alleged trade secrets of third parties or competitors or are in breach of non-competition or non-solicitation agreements with our competitors. +We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information or trade secrets of these third parties or our employees’ former employers. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a negative impact on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation proceedings could adversely affect our ability to compete in the marketplace. +We may not be able to build name recognition in our markets of interest if our trademarks and trade names are not adequately protected and our business may be adversely affected. +Our future trademark applications in the United States and other foreign jurisdictions may not be allowed or may be subsequently opposed. Once filed and registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects. +Disputes over intellectual property subject to the Menarini License may materially impact our ability to commercialize obicetrapib. +The licensing of intellectual property in the Menarini License is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to the Menarini License, including: +• +the scope of rights granted under the Menarini License and other interpretation-related issues; +• +the extent to which Menarini’s technology and processes infringe our intellectual property that is not subject to the Menarini License; +• +claims that our technology infringes third-party intellectual property; +73 +• +the sublicensing of patent and other rights; +• +our diligence obligations and what activities satisfy those diligence obligations; and +• +the ownership of inventions and know-how resulting from the joint creation or use of intellectual property. +If disputes over intellectual property we have licensed to Menarini prevent or impair our ability to maintain the Menarini License on acceptable terms, we may be unable to successfully develop and commercialize obicetrapib. +Risks Related to Government Regulation +Current and future legislation and executive actions affecting the healthcare industry, including healthcare reform, may impact our business generally and may increase limitations on reimbursement, rebates and other payments, which could adversely affect third-party coverage of our products, our operations and/or how much or under what circumstances healthcare providers will prescribe or administer obicetrapib, if approved. +The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell obicetrapib profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives and executive actions. +For example, the IRA sets forth meaningful changes to drug product reimbursement by Medicare. The IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare, and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated “maximum fair price” under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D, effective in 2026, followed by 15 Part D drugs, effective in 2027, 15 Part B or Part D drugs, effective in 2028, and 20 Part B or Part D drugs, effective in 2029 and each year thereafter. This provision applies to drug products that have been approved for at least 7 years and biologics that have been licensed for 11 years, but it does not apply to drugs and biologics that have been approved only for rare diseases or conditions. Nonetheless, because CMS may establish a maximum price for these products in price negotiations, we may be exposed to government action if our product candidates, if approved, become the subject of Medicare price negotiations. Moreover, these provisions of the IRA may further heighten the risk that, if our product candidates are approved, we would not be able to achieve the expected return on such product candidates or realize the full value of the patents protecting them, including if prices are set after such product candidates have been on the market for seven years. +The IRA permits HHS to engage in price-capped negotiation to set the price of certain drugs and biologics reimbursed under Medicare Part B and Part D. The IRA contains statutory exclusions to the negotiation program, including for certain orphan designated drugs for which the only approved indication (or indications) is for the orphan disease or condition. Should our product candidates be approved and covered by Medicare Part B or Part D and fail to fall within a statutory exclusion, such as that for an orphan drug, those products could, after a period of time, be selected for negotiation and become subject to prices representing a significant discount from average prices to wholesalers and direct purchasers. The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increase the cost of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D beginning in 2025, significantly lowers the beneficiary maximum out-of-pocket cost, and requires manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +In addition, as a result of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year, which went into effect on April 1, 2013. This 2% reduction was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. +Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, +74 +the Trump Administration has issued executive orders relating to prescription drug pricing and letters to pharmaceutical manufacturers that direct drug manufacturers to, among other things, offer MFN pricing in Medicaid, offer MFN pricing for all newly launched drugs; repatriate increased revenue from abroad to lower drug prices in the United States, and implement direct-to-consumer and direct-to-business distribution of their products at MFN pricing. The Trump Administration has warned that manufacturers that fail to make “significant progress” toward MFN pricing will face enumerated regulatory and enforcement consequences. In September 2025, the Administration began announcing deals with specific manufacturers to address the Administration’s MFN goals. +The Administration has also proposed three payment models that would test MFN pricing in Medicaid, Medicare Part D, and Medicare Part B. Participation in the Medicaid model, announced in November 2025, is voluntary for pharmaceutical manufacturers. Under the proposed rules for the Medicare Part D and Medicare Part B models published in December 2025, participation would be mandatory, and pharmaceutical manufacturers would be required to pay MFN-based rebates on eligible products for 25% of eligible Medicare beneficiaries during the applicable testing period. If these models are finalized and we obtain regulatory approval and commence commercialization of obicetrapib or any of our future product candidates during the testing period, we may be required to participate in these models. Moreover, pursuant to the Menarini License, Menarini is responsible for the commercialization and local development of obicetrapib in certain areas of Europe, if approved, and has sole discretion to set the price of the products in certain European markets. Since these markets may serve as benchmarks for any mandatory MFN pricing models, we may be unable to control the MFN price that must be paid under the announced payment models or in any future efforts to adopt MFN pricing. As a result, these payment models and other efforts to impose MFN pricing could have a material adverse effect on our business, financial condition or results of operations including the net sales potential of obicetrapib, if approved. +Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. +If we obtain regulatory approval and commence commercialization of obicetrapib or any of our future product candidates, these laws could have an adverse effect on the market opportunities for obicetrapib or any of our future product candidates and may result in additional reductions in healthcare funding, which could have an adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether additional executive actions will be taken, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of obicetrapib or our future product candidates may be. +Although we cannot predict the full effect on our business of the implementation of existing legislation or the enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, obicetrapib, if approved, or any of our future products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could adversely affect our business by reducing our ability to generate revenues, raise capital, obtain licenses and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales. +In December 2025, the European Parliament and the Council of the European Union reached a provisional agreement on legislation to amend the current EU pharmaceutical regulatory framework. The text of the new legislation is due to be released in early 2026. The potential reforms include altering the conditions and periods of regulatory and/or marketing protections available for innovative products. Depending on the final wording of these reforms, a reduction in the potential period of marketing protection available for obicetrapib or any of our future product candidates may adversely affect the commercial viability of such products in the EU. These changes could adversely affect our business by reducing our protection against generic competitors entering the EU market. Depending on the progress of the EU Parliament and Council to finalize the text of the legislation, changes to EU pharmaceutical legislation are not expected to come into force until early 2026 and additional transitional periods mean that the changes will most likely not take effect until mid-2028. +Our relationships with healthcare professionals, independent contractors, clinical investigators, CROs, consultants and vendors in connection with our current and future business activities may be subject to federal, state and foreign healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties. +We may currently be or may become subject to various federal, state and foreign healthcare laws, including those intended to prevent healthcare fraud and abuse. +The federal Anti-Kickback Statute prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid Remuneration has +75 +been broadly defined to include anything of value, including, but not limited to, cash, improper discounts, and free or reduced price items and services. +Much like the federal Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of EU member states. Infringement of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU member states. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the EU member states. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment. +Federal false claims laws, including the FCA and civil monetary penalties law impose penalties against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or making a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. The FCA has been used to, among other things, prosecute persons and entities submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. +Many states have similar fraud and abuse statutes and regulations that may be broader in scope and may apply regardless of payor (i.e., for items and services reimbursed by private payors, as well as under Medicaid and other state programs). State and federal authorities have aggressively targeted medical technology companies for, among other things, alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. +HIPAA among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. +Our operations will also be subject to the federal transparency requirements, which require certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, to annually report to CMS information related to payments and other transfers of value provided to physicians, other prescribers, and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family members. +We may also be subject to federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved products, and similar laws in other jurisdictions. +We are subject to stringent privacy laws, information security policies and contractual obligations governing the use, processing, and cross-border transfer of personal information and our data privacy and security practices. +We receive, generate and store sensitive information, including employee and patient data, and are subject to a variety of federal, state, local and foreign laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of data in the jurisdictions in which we operate, including comprehensive regulatory systems in the United States and the EU. Legal requirements relating to data processing continue to evolve and may result in ever-increasing public scrutiny and escalating levels of enforcement, sanctions and increased costs of compliance. An actual or perceived failure to comply with laws and regulations governing personal information could result in government investigations and enforcement actions against us, fines, claims for damages by affected third parties, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects. +EU data protection laws including the GDPR impose strict requirements relating to the processing of personal data, including special protections for “special categories of personal data” which includes, without limitation, health and genetic information of data subjects residing in the EU. The GDPR also generally prohibits the transfer of personal information from the EU to the United States and most other foreign jurisdictions unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information. There remains practical complexity in ensuring that transfers of personal information from the EU to the United States comply with the GDPR. As such, any transfers by us, or our vendors, of personal information from the EU may not comply with EU data protection laws; may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions; and may reduce demand for our services from companies subject to EU data protection laws. Loss of our ability to transfer personal information from the EU may also require us to increase our data processing capabilities in those relevant jurisdictions at significant expense. +Similar privacy and data security requirements are either in place or have been proposed in the United States. There are numerous data protection laws that may be applicable to our activities, and a range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The Federal Trade Commission and state +76 +Attorneys General are aggressive in reviewing privacy and data security protections for consumers. New laws also are being considered or have been implemented at both the state and federal levels. +Further, regulations promulgated pursuant to HIPAA impose privacy, security and breach notification obligations on health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, as well as their business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered entities, and their covered subcontractors. HIPAA establishes privacy and security standards that limit the use and disclosure of protected health information (“PHI”) and requires the implementation of administrative, physical and technological safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI. Most healthcare providers, including research institutions from which we obtain patient health information, are subject to HIPAA. We do not believe that we are currently acting as a covered entity or business associate under HIPAA and thus are not directly subject to its requirements. However, any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research institution that has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information. +Complying with the GDPR and other U.S. and foreign data protection laws and regulations may cause us to incur substantial operational costs or require us to change our business practices in a manner adverse to our business. +Moreover, complying with these various laws could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Despite our efforts to bring our practices into compliance with these laws and regulations, we may not be successful in our efforts to achieve compliance either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), other administrative actions or litigation. For example, the GDPR sets out substantial fines for breaches of the data protection rules, increased powers for regulators, enhanced rights for individuals, and new rules on judicial remedies and collective redress. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business, results of operations and financial condition. +Our marketing efforts may be subject to a variety of regulations. +We may choose to conduct marketing activities, directly and indirectly, via text (SMS) messages, email, and/or through other online and offline marketing channels. Numerous foreign, federal, and state regulations may govern such marketing activities, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act (“TCPA”), state and federal Do-Not-Call regulations and other state telemarketing laws, federal and state privacy laws, the CAN-SPAM Act, and the Federal Trade Commission Act and its accompanying regulations and guidelines, among others. These laws not only allow action to be brought by regulatory agencies, but some of these laws, like the TCPA, allow private individuals to bring litigation against companies for breach of these laws. If we conduct marketing activities regulated by these laws, then we may depend on third-party partners to comply with these laws. Any lawsuit brought by private individuals, or action by a regulatory agency, for an actual or alleged violation of applicable law or regulation by us or our third-party partners may have an adverse effect on our business, results of operations, and financial condition. +We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws, export and import controls, sanctions, embargoes, and anti-money laundering laws and regulations. +Various of our activities may be subject to anti-bribery, export control and import laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the jurisdictions in which we conduct activities. Anti-corruption laws have been interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. These laws are complex and far-reaching in nature, and, as a result, we cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our intermediaries, or that we would not be required in the future to alter one or more of our practices to mitigate risk under these laws or to be responsive to any changes in these laws or the interpretation thereof. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. Furthermore, because we engage, and expect to continue to engage, third parties in connection with our clinical trials and other development and commercialization activities, we can be held liable for the corrupt or other illegal activities of our personnel, agents or collaborators, even if we do not explicitly authorize or have prior knowledge of such activities. Other companies in the biopharmaceutical field have faced criminal or civil penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with individuals in the public or private sector. +77 +Any violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition, or results of operations or our reputation. We could also suffer severe penalties, including substantial criminal and civil penalties, imprisonment, disgorgement, reputational harm and other remedial measures. +It may be difficult for us to profitably sell obicetrapib or any future product candidate in the United States, if approved, if coverage and reimbursement for these products is limited by government authorities and/or third-party payor policies. +Market acceptance and sales of obicetrapib and our other product candidates, if approved, will depend on the coverage and reimbursement policies of government authorities and third-party payors, in addition to any healthcare reform measures that may affect reimbursement. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and establish reimbursement and co-payment levels. Such authorities and other third-party payors are increasingly challenging the prices charged for healthcare products, examining the cost effectiveness of drugs in addition to their safety and efficacy, and limiting or attempting to limit both coverage and the level of reimbursement for prescription drugs. We cannot be sure that coverage will be available for obicetrapib or our other product candidates, if approved, or, if coverage is available, the level of reimbursement. +There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by CMS, an agency within HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors often follow CMS. It is difficult to predict what CMS as well as other payors will decide with respect to reimbursement. +Reimbursement may impact the demand for, and/or the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement are critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA, the EMA or other comparable regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. +Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is: +• +a covered benefit under its health plan; +• +safe, effective and medically necessary; +• +appropriate for the specific patient; +• +cost-effective; and +• +neither experimental nor investigational. +Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. We may not be able to provide data sufficient to gain acceptance with respect to coverage and/or sufficient reimbursement levels. +We cannot be sure that coverage or adequate reimbursement will be available for obicetrapib or any of our future product candidates, if approved. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our future products, which would in turn negatively affect revenues from any future sales. If reimbursement is not available, or is available only to limited levels that are not commercially attractive to us or our collaborators, we may not be able to commercialize obicetrapib or our other product candidates, or achieve profitability, even if approved. +Marketing and reimbursement regulations may materially affect our ability to market and receive coverage for our products in foreign jurisdictions. +We intend to seek approval to market our current and future product candidates in the United States, the EU and selected other foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations +78 +in those jurisdictions. In some countries, particularly certain EU member states, the pricing of drugs is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future healthcare reform measures. +In the EU, the requirements governing drug pricing and reimbursement vary widely between EU member states. Some EU member states provide that products may be marketed only after a reimbursement price has been agreed. Some EU member states may require the completion of additional studies that compare the cost effectiveness of a particular product candidate to currently available therapies (so called health technology assessments) in order to obtain reimbursement or pricing approval. Moreover, at the national level, EU member states may restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. EU member states may approve a specific price for a product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other EU member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many EU member states have increased the amount of discounts required on pharmaceuticals and these efforts could continue as EU member states attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescription products, has become significant. This is likely to increase as a result of the EU Health Technology Assessment Regulation (EU) 2021/2282. This legislation will apply to all new active substances approved via the EU centralized procedure from 2030. It already applies for new active substance oncology products and advanced therapy medicinal products, i.e., gene and cell therapy products, as well as tissue engineered products. It will apply to all orphan medicinal products from January 2028. The EU will prepare joint clinical assessment (“JCA”) reports in parallel with the marketing authorization review processes. The JCA will report on the relative or “added value” effectiveness of the product in comparison with existing health technologies. While EU member states remain responsible for pricing and reimbursement decisions, they must take “due consideration” of JCA and it is likely that more and more member states will factor the added clinical value offered by new products into their market access decisions. Accordingly, increasingly high barriers are being erected to the entry of new products in the marketplace in the EU. Political, economic and regulatory developments in the EU may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states and parallel trade (arbitrage between low-priced and high-priced member states) can further reduce prices. Acceptance of any medicinal product for reimbursement may come with cost, use and often volume restrictions, which again can vary by country. In addition, results based rules of reimbursement may apply. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products, if approved in those countries. Historically, products launched in the EU do not follow price structures of the United States and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales and the potential profitability of any of our product candidates in those countries would be negatively affected. In December 2025, the EU Parliament and Council reached political agreement on the proposals to amend the current EU pharmaceutical regulatory framework. As discussed above, the final agreed text is likely to be released during the first half of 2026, but it is generally expected that it will contain provisions that may cause additional pressure on pricing issues across the EU. For example, it is expected that the legislation will give EU member states the power, within one year of marketing authorization, to request that the marketing authorization holder places a product benefiting from regulatory data exclusivity protection on its market in sufficient quantities and in the presentations necessary to cover patient needs. The request must be “proportionate” and may include: submission of a valid pricing and reimbursement application; participating in public procurement procedures; and establishing a roll-out plan. Failure to comply with the request within four years of marketing authorization would mean that regulatory data exclusivity no longer applies in that member state and that the member state or EMA are able to validate generic/biosimilar applications after six years. However, the regulator cannot grant the marketing authorization until regulatory exclusivity has expired. It is possible that this could result in companies being forced to engage with member states that may otherwise be lower priority markets, which may result in downward pressure on price. Any changes to EU pharmaceutical legislation are not expected to come into force until early 2026. Additional transitional periods mean that the changes will most likely not take effect until mid-2028. +We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of noncompliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, who are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in increased selling, general and administrative expenses. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +79 +Legislative or regulatory healthcare reforms in the United States or abroad may make it more difficult and costly for us to obtain regulatory approval of obicetrapib or any of our future product candidates now or in the future and to produce, market and distribute our products after approval is obtained. +From time to time, legislation is drafted and introduced in Congress or by governments in foreign jurisdictions that could significantly change the statutory provisions governing the regulatory approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, the FDA, EMA or other comparable regulatory authority regulations and guidance are often revised or reinterpreted by the FDA, the EMA or other comparable regulatory authorities in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of obicetrapib or any of our other product candidates now or in the future. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: +• +changes to manufacturing methods; +• +change in protocol design; +• +additional treatment arm (control); +• +recall, replacement, or discontinuance of one or more of our products; and +• +additional recordkeeping. +Each of these would likely entail substantial time and cost and could harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for obicetrapib or any future products would harm our business, financial condition and results of operations. +Changes in U.S. government policies including increased tariffs could adversely affect our business. +Significant political, trade, or regulatory developments in the jurisdictions in which we may sell our product, if approved, such as those stemming from the change in U.S. federal administration, are difficult to predict and may have a material adverse effect on us. Similarly, changes in U.S. federal policy that affect the geopolitical landscape could give rise to circumstances outside our control that could have negative impacts on our business operations. For example, policy actions by the Administration, including the imposition of new tariffs on imported materials and goods from certain non-U.S. countries, may have an adverse impact on our business. +In April 2025, the Administration imposed a baseline ten percent tariff on imports from all nations importing goods to the United States, with that baseline supplemented in certain cases by additional tariffs that vary by nation, product or industry. Retaliatory tariffs on U.S. goods have been imposed by, among others, China and Canada. On July 28, 2025, the Administration announced a trade agreement with the EU that included a 15% tariff on most imports from the EU. Furthermore, on September 25, 2025, the Administration announced a 100% tariff on certain imported branded pharmaceuticals, subject to certain exceptions. While tariffs with certain countries have been temporarily reduced or paused—for example, on October 30, 2025, the United States and China agreed to extend a temporarily reduced 10% reciprocal tariff rate through November 10, 2026—the imposition of tariffs generally has historically led to increased trade and political tensions between the United States and other countries in the international community. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. Any changes in political, trade, regulatory, and economic conditions could have a material adverse effect on our financial condition or results of operations. In addition, increased tariffs on critical raw materials, components, and finished goods could raise our production costs and disrupt our supply chain, which could adversely affect our clinical development activities. +If these or similar policy changes continue or expand, we may face increased costs. Although we cannot predict the full extent of these impacts, any prolonged disruption could adversely affect our business, financial condition, and results of operations. +Risks Related to Our Financial Position +Our ability to use our tax losses to offset future taxable income may be subject to certain limitations. +Our ability to utilize tax losses and tax loss carryforwards is conditioned upon us attaining profitability and generating taxable income. We have incurred significant tax losses since inception and it is anticipated that we will continue to incur significant losses. As of December 31, 2025, we disclosed unused tax losses of $588.4 million. Additionally, our ability to utilize tax losses and tax loss carryforwards to offset future taxable income may be subject to certain limitations. In this respect, tax losses can be carried back one year and carried forward indefinitely in the Netherlands. However, both the carry back and carry forward tax loss relief will be limited to 50% of the taxable profit to the extent it exceeds EUR 1 million, calculated per financial year. In addition, pursuant to Article 20a of the Dutch Corporate Income Tax Act, tax loss carryforwards can no longer be offset against future taxable profits if the ultimate ownership in a Dutch taxpayer has changed by an amount equal to or greater than 30%, unless certain counter evidence rules are met. In this respect, we believe and have taken the position that the tax losses of NewAmsterdam Pharma B.V. available for carry forward have not been forfeited as a result of the change of ownership back +80 +in 2020, when NewAmsterdam Pharma acquired all shares in the capital of NewAmsterdam Pharma B.V. (formerly Dezima Pharma B.V.), and that the tax losses of NewAmsterdam Pharma and NewAmsterdam Pharma B.V. have not been forfeited as a result of the Business Combination. On May 25, 2022, we filed a ruling request with the Dutch Tax Authorities to confirm that the change of ownership back in 2020 (described above) did not result in the loss of the tax losses of NewAmsterdam Pharma B.V. available for carry forward at that time. However, as of the date hereof, the Dutch Tax Authorities have not yet decided on our request. We currently expect, but can in no way guarantee or enforce, that the Dutch Tax Authorities will grant our request. +We are a holding company with no operations and rely on operating subsidiaries to provide it with funds necessary to meet our financial obligations. +We are a holding company that does not conduct any business operations of its own. As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for dividends or payments in respect of any indebtedness we may incur, from our subsidiaries to meet its obligations. +Any agreements governing indebtedness that we or our subsidiaries enter into may impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from such subsidiaries. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us. +United States tax authorities could treat us as a PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders. +Based on current estimates of the composition of the income and assets of the Company and its subsidiaries for the taxable year ended December 31, 2025, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the 2025 taxable year. We have not yet determined whether we expect to be a PFIC for any future taxable years. Under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a non-U.S. corporation is classified as a PFIC for U.S. federal income tax purposes in the applicable tax year if, after the application of certain “look-through” rules with respect to subsidiaries, (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is “passive income” or (ii) at least 50% of the value of its assets in a taxable year, ordinarily determined on the basis of quarterly averages, is attributable to assets that produce or are held for the production of “passive income.” The determination of whether the Company or any of its non-U.S. subsidiaries is a PFIC is made annually and thus subject to change, and it generally cannot be made until the end of the taxable year. Additionally, any taxpayer who held a share of a class of our stock during a year in which we were treated as a PFIC will be required to continue to treat such class of stock as stock in a PFIC, unless the taxpayer made a timely “qualified electing fund” or “mark-to-market” election, as described below, or if the taxpayer makes a deemed sale or deemed dividend election. +Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. Cash is a passive asset for PFIC purposes, even if held as working capital. For this purpose, a non-U.S. corporation is generally treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which it owns, directly or indirectly, at least 25% (by value) of the stock. Accordingly, the Company will be treated as owning the cash and other cash-equivalent items of FLAC. +A U.S. Holder (as defined below) generally will be subject to additional U.S. federal income taxes and interest charges on the gain from a sale of Ordinary Shares and on receipt of an “excess distribution” with respect to Ordinary Shares or any of its non-U.S. subsidiaries. Under proposed regulations, a U.S. Holder may also be subject to additional U.S. federal income taxes and interest charges on the gain from the sale of the Public Warrants (as defined below), and the warrants to purchase Ordinary Shares initially issued as part of a unit issued in a private placement concurrently with the closing of FLAC’s initial public offering (the “Private Placement Warrants”). A U.S. Holder of stock of a PFIC generally may mitigate these adverse U.S. federal income tax consequences, however, by making a “qualified electing fund” election or a “mark-to-market” election. If we determine that we and/or any of our subsidiaries is a PFIC for any taxable year, we intend to provide a U.S. Holder such information as the United States Internal Revenue Service (the “IRS”) may require, including a PFIC Annual Information Statement, in order to enable the U.S. Holder to make and maintain a “qualified electing fund” election with respect to the Company and/or such non-U.S. subsidiaries, but there can be no assurance that we will be able to timely provide such required information. +U.S. Holders generally will not be able to make a qualified electing fund election solely with respect to the Warrants. +A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of securities and is: +• +an individual who is a citizen or individual resident of the United States; +• +a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; +• +an estate the income of which is subject to U.S. federal income taxation regardless of its source; or +81 +• +a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election to be treated as a U.S. person under applicable U.S. Treasury Regulations. +Risks Related to Ownership of Our Securities +Sales of a substantial number of our securities in the public market by certain of our securityholders pursuant to a registration statement we filed and/or by our existing securityholders could cause the price of our Ordinary Shares and Warrants to fall. +We filed a registration statement on Form F-1 (Registration No. 333-268888), as amended by Post-Effective Amendment No. 1 on Form F-1 filed on April 17, 2023, Post-Effective Amendment No. 2 on Form F-1 filed on August 7, 2023 and Post-Effective Amendment No. 3 filed on Form S-3 filed on February 28, 2024, registering up to 64,017,688 Ordinary Shares and 167,000 Private Placement Warrants (the “Resale Securities”) for resale by certain of our securityholders. The Resale Securities represent a substantial percentage of our outstanding Ordinary Shares and Warrants, and the sales of such securities, or the perception that those sales might occur, could depress the market price of our Ordinary Shares and Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Ordinary Shares and Warrants but the sale of a large number of securities could result in a significant decline in the public trading price of our securities. +We are a Dutch public limited liability company. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of other jurisdictions and may not protect investors in a similar fashion afforded by incorporation in such other jurisdiction. +In connection with the Business Combination, the Company was converted into a public limited liability company ( naamloze vennootschap ) under Dutch law. Our corporate affairs are governed by our articles of association (the “Articles of Association”), the rules of the Board of Directors, our other internal rules and policies and by Dutch law. There can be no assurance that Dutch law will not change in the future or that it will serve to protect shareholders in a similar fashion afforded under corporate law principles in other jurisdictions, which could adversely affect the rights of our shareholders. +In the performance of their duties, our directors are required by Dutch law to consider the interests of the Company, its shareholders, its employees and other stakeholders, in all cases with due regard to the principles of reasonableness and fairness. It is possible that some of these stakeholders will have interests that are different from, or in addition to, your interests as a shareholder. +For more information on relevant provisions of Dutch corporation law and of the Articles of Association, see the description of our capital stock included in Exhibit 4.4 and our Articles of Association filed as Exhibit 3.1 to this Annual Report. +The market price and trading volume of the Ordinary Shares and Public Warrants may be volatile and could decline significantly. +The Nasdaq Global Market on which we have listed the Ordinary Shares and warrants to purchase Ordinary Shares (the “Public Warrants”) under the symbols “NAMS” and “NAMSW,” respectively, have from time to time experienced significant price and volume fluctuations. There may not be an active trading market for Ordinary Shares, which may make it difficult to sell such shares. Even if an active, liquid and orderly trading market develops and is sustained for the Ordinary Shares and Public Warrants, the market price of the Ordinary Shares and Public Warrants may be volatile and could decline significantly. In addition, the trading volume in the Ordinary Shares and Public Warrants may fluctuate and cause significant price variations to occur. If the market price of the Ordinary Shares and Public Warrants decline significantly, you may be unable to resell your shares or warrants at or above the price at which you acquired the Ordinary Shares and/or Public Warrants. We cannot assure you that the market price of the Ordinary Shares and Public Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following: +• +the realization of any of the risk factors presented in herein; +• +adverse results, or perceived adverse results, or delays in our clinical trials, +• +additions and departures of key personnel; +• +failure to comply with the requirements of The Nasdaq Stock Market LLC (“Nasdaq”); +• +failure to comply with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) or other laws or regulations; +• +future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases, of Ordinary Shares, including due to the expiration of contractual lock-up agreements; +• +publication of research reports about the Company; +• +failure to meet expectations of investors or securities analysts; +• +the performance and market valuations of other similar companies; +82 +• +new laws, regulations, subsidies, or credits or new interpretations of existing laws applicable to the Company; +• +commencement of, or involvement in, litigation involving the Company; +• +broad disruptions in the financial markets, including sudden disruptions in the credit markets; +• +speculation in the press or investment community; +• +actual, potential or perceived control, accounting or reporting problems; +• +actual or anticipated differences in the Company’s estimates, or in the estimates of analysts, for the Company’s revenues, results of operations, liquidity or financial condition; +• +changes in accounting principles, policies and guidelines; +• +general economic conditions in the United States and abroad, including high interest rates, rising inflation, the liquidity concerns at certain financial institutions, and the potential for local and/or global economic recession; and +• +other events or factors, including those resulting from infectious diseases, health epidemics and pandemics, natural disasters, war, acts of terrorism or responses to these events. +In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us. +There can be no assurance that the Ordinary Shares or the Public Warrants will be able to comply with the continued listing standards of Nasdaq. +Our Ordinary Shares are traded on Nasdaq under the symbol “NAMS” and our Public Warrants are traded on Nasdaq under the symbol “NAMSW.” If we fail to satisfy the continued listing requirements of Nasdaq such as the minimum closing bid price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In such a delisting, we and our shareholders could face significant material adverse consequences including: +• +a limited availability of market quotations for our securities; +• +reduced liquidity for our securities; +• +a determination that our stock is a “penny stock” which will require brokers trading in our stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our stock; +• +a limited amount of analyst coverage; and +• +a decreased ability to issue additional securities or obtain additional financing in the future. +In the event of a delisting, we can provide no assurance that any action taken by it to restore compliance with listing requirements would allow its securities to become listed again, stabilize the market price or improve the liquidity of its securities, prevent its securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if they were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. +If securities or industry analysts do not publish or cease publishing research or reports about the Company, our business, or the market in which we operate, or if they change their recommendations regarding the Ordinary Shares adversely, then the price and trading volume of the Ordinary Shares could decline. +The trading market for our Ordinary Shares and Public Warrants will be influenced by the research and reports that industry or financial analysts publish about our business. We do not control these analysts, or the content and opinions included in their reports. If any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding the Company, the price of the Ordinary Shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on it regularly, our visibility in the financial markets could decrease, which in turn could cause its share price or trading volume to decline. +We do not intend to pay dividends for the foreseeable future. Accordingly, you may not receive any return on investment unless you sell your Ordinary Shares for a price greater than the price you paid for them. +83 +We have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on the Ordinary Shares in the foreseeable future. Consequently, you may be unable to realize a gain on your investment except by selling such shares after price appreciation, which may never occur. +Under Dutch law, we may only pay dividends and other distributions from our reserves to the extent our shareholders’ equity ( eigen vermogen ) exceeds the sum of our paid-in and called-up share capital plus the reserves it must maintain under Dutch law or the Articles of Association and (if it concerns a distribution of profits) after adoption of our statutory annual accounts by its general meeting of its shareholders (the “General Meeting”) from which it appears that such dividend distribution is allowed. Subject to those restrictions, any future determination to pay dividends or other distributions from our reserves will be at the discretion of the Board of Directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the Board of Directors deems relevant. +Under the Articles of Association, the Board of Directors may decide that all or part of the profits shown in our adopted statutory annual accounts will be added to our reserves. After reservation of any such profits, any remaining profits will be at the disposal of the General Meeting at the proposal of the Board of Directors for distribution on Ordinary Shares, subject to applicable restrictions of Dutch law. The Board of Directors is permitted, subject to certain requirements and applicable restrictions of Dutch law, to declare interim dividends without the approval of the General Meeting. Dividends and other distributions will be made payable no later than a date determined by us. Claims to dividends and other distributions not made within five years from the date that such dividends or distributions became payable will lapse and any such amounts will be considered to have been forfeited ( verjaring ) to us. +Our management team has limited experience managing a public company. +Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that govern public companies. As a public company, we are subject to significant obligations relating to reporting, procedures and internal controls, in both the United States and the Netherlands, and our management team may not successfully or efficiently manage such obligations. These obligations and scrutiny will require significant attention from our management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations. In connection with the Business Combination, the Company’s legal form was converted from a private company with limited liability to a public limited liability company in the Netherlands. Additional burdens were imposed on our management team as a result of such conversion. +Investors may have difficulty enforcing civil liabilities against the Company or the members of the Board of Directors. +We are organized and existing under the laws of the Netherlands. As such, under Dutch private international law, the rights and obligations of our shareholders vis-à-vis the Company originating from Dutch corporate law and our Articles of Association, as well as the civil liability of our officers ( functionarissen ) including our directors and executive officers are governed in certain respects by the laws of the Netherlands. +We are not a resident of the United States and our officers may also not all be residents of the United States. As a result, depending on the subject matter of the action brought against us and/or our officers, United States courts may not have jurisdiction. If a Dutch court has jurisdiction with respect to such action, that court will apply Dutch procedural law and Dutch private international law to determine the law applicable to that action. Depending on the subject matter of the relevant action, a competent Dutch court may apply another law than the laws of the United States. +Also, service of process against non-residents of the United States can in principle (absent, for example, a valid choice of domicile) not be effected in the United States. +On the date of this Annual Report, (i) there is no treaty in force between the United States and the Netherlands for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters and (ii) both the Hague Convention on Choice of Court Agreements (2005) and the Hague Judgments Convention (2019) have entered into force for the Netherlands, but have not entered into force for the United States. Consequently, a judgment rendered by a court in the United States will not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to that United States judgment if (i) the jurisdiction of the United States court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the United States court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards ( behoorlijke rechtspleging ), (iii) binding effect of such United States judgment is not contrary to Dutch public order ( openbare orde ) and (iv) the judgment by the United States court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a United States judgment is given binding effect, a claim based thereon may, however, still be rejected if the United States judgment is not or no longer formally enforceable. Moreover, if the United States judgment is not +84 +final (for instance when appeal is possible or pending) a competent Dutch court may postpone recognition until the United States judgment will have become final and refuse recognition, under the understanding that recognition can be asked again once the United States judgment will have become final, or impose as a condition for recognition that security is posted. +A competent Dutch court may deny the recognition and enforcement of punitive damages or other awards. Moreover, a competent Dutch court may reduce the amount of damages granted by a United States court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Finally, there may be specific other instances, including pursuant to anti-boycott rules and regulations, where Dutch law prohibits the recognition and enforcement of a United States judgment. Thus, United States investors may not be able, or may experience difficulty, to enforce a judgment obtained in a United States court against us or our officers. +The Articles of Association provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which could limit the ability of our securityholders to choose a favorable judicial forum for disputes with we or our directors, officers or employees. +The Articles of Association provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act or the Exchange Act, to the fullest extent permitted by applicable law, shall be the U.S. federal district courts. This choice of forum provision may increase a securityholder’s cost and limit the securityholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers and other employees. Our shareholders will not be deemed to have waived compliance with the U.S. federal securities laws and the rules and regulations thereunder as a result of the exclusive forum provision. Any person or entity purchasing or otherwise acquiring any of the Ordinary Shares or other securities, whether by transfer, sale, operation of law or otherwise, will be deemed to have notice of and have irrevocably agreed and consented to this provision. There is uncertainty as to whether a court would enforce such provision. The Securities Act provides that state courts and federal courts will have concurrent jurisdiction over claims under the Securities Act, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find this type of provisions to be inapplicable or unenforceable, and if a court were to find this provision in the Articles of Association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could have adverse effect on our business and financial performance. +Our principal shareholders and management own a significant percentage of our Ordinary Shares and have representation on the Board of Directors and will be able to control matters subject to shareholder approval. +As of February 5, our executive officers, directors and holders of 5% or more of our capital stock beneficially owned approximately 62% of our Ordinary Shares. Certain of our directors are also affiliated with certain of our greater than 5% shareholders. As a result of the foregoing, these shareholders may be able to significantly influence the outcome of matters submitted for director action, subject to obligation of the Board of Directors to act in the interest of all of our stakeholders, and for shareholder action, including the designation and appointment of the Board of Directors and approval of significant corporate transactions, including business combinations, consolidations and mergers. The influence of these shareholders over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of the Company, which could cause the market price of our Ordinary Shares to decline or prevent our shareholders from realizing a premium over the market price for their Ordinary Shares. Investors in our Ordinary Shares should consider that the interests of these shareholders may differ from their interests in material respects. +If we fail to maintain an effective system of internal control over financial reporting or disclosure controls, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which is likely to negatively affect our business and the market price of the Ordinary Shares and Public Warrants. +Our management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). As a result of becoming a public company, we were required, pursuant to Sarbanes-Oxley, to maintain internal control over financial reporting. Effective internal control over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, prevent fraud and comply with our Exchange Act reporting obligations, and efforts to ensure that there are effective internal control over financial reporting and disclosure controls are costly, time-consuming, and need to be re-evaluated frequently. Any failure to implement required new or improved controls, or difficulties encountered in our implementation could cause us to fail to meet our reporting obligations. In addition, any testing conducted by us, or any testing conducted by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of the Ordinary Shares. +85 +We are required to disclose changes made in our internal controls and procedures on an annual basis and our management is required to assess the effectiveness of these controls annually. Additionally, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. +Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of the Ordinary Shares. +In connection with the preparation of our financial statements at and for the year ended December 31, 2023, our management identified material weaknesses in the design of our internal control over financial reporting across the principles for each component of the COSO framework at the entity level (i.e. control environment, risk assessment, monitoring, information & communication and control activities) and accordingly, across its business and IT processes. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be detected or prevented on a timely basis. As described in more detail in Item 9A of Part II of the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our management, under the oversight of the Audit Committee of the Board of Directors (the “Audit Committee”), took steps to remediate the identified material weaknesses, which steps consisted primarily of engaging additional personnel and establishing the internal control framework. As of December 31, 2024, the identified material weaknesses have been remediated. +There can be no assurance that the measures we have taken to date, and actions we may take in the future, will be sufficient to prevent or avoid potential future material weaknesses. If we identify future material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, the market price of our Ordinary Shares may decline as a result, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem all outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, if, among other things, the closing price of the Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of the redemption is given to the warrant holders (the “Reference Value”). If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants as described above could force you to (i) exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants. None of the Private Placement Warrants will be redeemable by us so long as they are held by Frazier Lifesciences Sponsor LLC or its permitted transferees. +In addition, we have the ability to redeem the outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the Reference Value equals or exceeds $10.00 per share (as adjusted for share sub-divisions, share dividends, rights issuances, reorganizations, recapitalizations and the like) and the former holders of the Private Placement Warrants have also been called for redemption, subject to certain limitations as set forth in the Warrant Assignment, Assumption and Amendment Agreement, dated November 22, 2022, between us, Continental Stock Transfer & Trust Company and FLAC (the “Warrant Assumption Agreement”). In such a case, the holders will be able to exercise their Warrants prior to redemption for a number of Ordinary Shares determined based on the redemption date and the fair market value of the Ordinary Shares. The value received upon exercise of the Warrants (1) may be less than the value the holders would have received if they had exercised their Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Warrants, including because the number of Ordinary Shares received is capped at 0.361 shares of the Ordinary Shares per warrant (subject to adjustment) irrespective of the remaining life of the warrants. +Warrants and options to purchase Ordinary Shares will become exercisable for Ordinary Shares, which would increase the number of shares eligible for future resale in the public market and result in dilution to shareholders. +As of December 31, 2025, Warrants to purchase an aggregate of 2,490,104 Ordinary Shares and Pre-Funded Warrants to purchase an aggregate of 6,220,287 Ordinary Shares were outstanding and are exercisable in accordance with the terms of the Warrant Assumption Agreement. The exercise price of the Warrants is $11.50 per share. To the extent such warrants are exercised, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and increase the number of Ordinary Shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such Warrants and Pre-Funded Warrants may be exercised could adversely affect the market price of Ordinary Shares. To the extent that the Warrants are “out-of-the-money” we do not expect +86 +that all of the Warrant holders will exercise their Warrants. As such, there is no guarantee that the Warrants will ever be exercised. As of December 31, 2025, there were 20,625,368 Ordinary Shares issuable upon the exercise of options granted under the LTIP, Rollover Plan, Supplementary LTIP and Inducement Plan (each as defined in the section titled “ Executive Compensation—Equity Incentive Plans ”) at a weighted average exercise price of $13.62. If the options are exercised, there may be additional Ordinary Shares offered which may further adversely affect the market price of our Ordinary Shares. In addition, as of December 31, 2025, there were 728,283 restricted share units (“RSUs”) outstanding. Upon vesting, additional Ordinary Shares will be issued, which will result in dilution to the holders of Ordinary Shares and increase the number of Ordinary Shares eligible for resale in the public market, and could adversely affect the market price of our Ordinary Shares. +There is no guarantee that the Warrants will be in the money, and they may expire worthless. +Pursuant to the terms of the Warrant Assumption Agreement, the Warrants will expire on November 23, 2027, at 5:00 p.m., Eastern Standard Time. The exercise price of our Warrants is $11.50 per Ordinary Share, subject to adjustment. The exercise price of the Warrants has at times exceeded the market price of the Ordinary Shares. To the extent the price of our Ordinary Shares remains below $11.50, we believe that Warrant holders will be unlikely to cash exercise their warrants, resulting in little to no cash proceeds to us. There is no guarantee the exercise price of our Warrants will ever remain below the price of our Ordinary Shares and, as such, our Warrants may expire worthless. +The terms of the Public Warrants may be amended in a manner adverse to a holder if holders of at least 65% of the then outstanding Public Warrants approve of such amendment. +The Warrant Assumption Agreement provides that (i) the terms of the Warrants may be amended without the consent of any holder for the purpose of (a) curing any ambiguity or correct any mistake, including to conform the provisions of the Warrant Assumption Agreement to the description of the terms of such warrants and the Warrant Assumption Agreement set forth in this Annual Report, or defective provision, (b) amending the definition of “Ordinary Cash Dividend” as contemplated by and in accordance with the Warrant Assumption Agreement or (c) adding or changing any provisions with respect to matters or questions arising under the Warrant Assumption Agreement as the parties to the Warrant Assumption Agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of such warrants under the Warrant Assumption Agreement and (ii) all other modifications or amendments require the vote or written consent of at least 65% of the then outstanding Public Warrants; provided that any amendment that solely affects the terms of the Private Placement Warrants or any provision of the Warrant Assumption Agreement solely with respect to the Private Placement Warrants will require at least 50% of the then outstanding Private Placement Warrants. +Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding Public Warrants approve of such amendment. Although the ability to amend the terms of the Public Warrants with the consent of at least 65% of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of Ordinary Shares purchasable upon exercise of a warrant. +The Warrant Assumption Agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of Warrants, which could limit the ability of Warrant holders to obtain a favorable judicial forum for disputes with us. +The Warrant Assumption Agreement provides that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Assumption Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we will irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. +Notwithstanding the foregoing, these provisions of the Warrant Assumption Agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of the Warrants will be deemed to have notice of and to have consented to the forum provisions in the Warrant Assumption Agreement. If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Assumption Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of Warrants, such holder will be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such Warrant holder. +This choice-of-forum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Assumption Agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect its business, financial condition and results of operations and result in a diversion of the time and resources of management and the Board of Directors. +87 +Our shareholders may not have any preemptive rights in respect of future issuances of Ordinary Shares, and, as a result, may experience substantial dilution upon future issuances of Ordinary Shares or grants of rights to subscribe for such shares. +In the event of an issuance of Ordinary Shares or a grant of rights to subscribe for Ordinary Shares, subject to certain exceptions, each shareholder will have a pro rata pre-emption right in proportion to the aggregate nominal value of such holder’s Ordinary Shares. These pre-emption rights may be restricted or excluded by a resolution of the General Meeting or by another corporate body designated by the General Meeting. The Board of Directors is authorized for a period of five years from November 21, 2022 to issue Ordinary Shares or grant rights to subscribe for Ordinary Shares up to the Company’s authorized share capital from time to time and to limit or exclude pre-emption rights in connection therewith. This issuance of Ordinary Shares or grant of rights to subscribe for Ordinary Shares without pre-emptive rights for existing shareholders could cause existing shareholders to experience substantial dilution of their interest in the Company. +We are not obligated to, and do not, comply with all best practice provisions of the Dutch Corporate Governance Code. +We are subject to the Dutch Corporate Governance Code (the “DCGC”). The DCGC contains principles and best practice provisions on corporate governance that regulate relations between the board and the general meeting and matters in respect of financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies must disclose in their statutory annual reports whether they comply with the provisions of the DCGC. If a company subject to the DCGC does not comply with those provisions, that company would be required to give the reasons for such non-compliance. We do not comply with all best practice provisions of the DCGC. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC. +Provisions of our Articles of Association or Dutch corporate law might deter acquisition bids for the Company that might be considered favorable and prevent, delay or frustrate any attempt to replace or dismiss directors. +Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law. +In this respect, certain provisions of the Articles of Association may make it more difficult for a third-party to acquire control of us or effect a change in the composition of the Board of Directors. These include: +• +a provision that the Company’s directors can only be appointed on the basis of a binding nomination prepared by the Board of Directors which can only be overruled by a two-thirds majority of votes cast representing more than half of our issued share capital; +• +a provision that the Company’s directors can only be dismissed by the General Meeting by a two-thirds majority of votes cast representing more than half of our issued share capital, unless the dismissal is proposed by the Board of Directors in which latter case a simple majority of the votes cast would be sufficient; +• +a provision allowing, among other matters, the former chairperson of the Board of Directors or the Company’s former Chief Executive Officer to manage the Company’s affairs if all of its directors are dismissed and to appoint others to be charged with our affairs, including the preparation of a binding nomination for our directors as discussed above, until new directors are appointed by the General Meeting on the basis of such binding nomination; and +• +a requirement that certain matters, including an amendment of the Articles of Association, may only be resolved upon by the General Meeting if proposed by the Board of Directors. +Dutch law also allows for, and we have adopted, staggered multi-year terms of our directors, as a result of which only part of the Board of Directors will be subject to appointment or re-appointment in any given year. +Furthermore, in accordance with the DCGC, shareholders who have the right to put an item on the agenda for the General Meeting or to request the convening of a General Meeting shall not exercise such rights until after they have consulted the Board of Directors. If exercising such rights may result in a change in our strategy (for example, through the dismissal of one or more directors), the Board of Directors must be given the opportunity to invoke a reasonable period of up to 180 days to respond to the shareholders’ intentions. If invoked, the Board of Directors must use such response period for further deliberation and constructive consultation, in any event with the shareholder(s) concerned and exploring alternatives. At the end of the response time, the Board of Directors shall report on this consultation and the exploration of alternatives to the General Meeting. The response period may be invoked only once for any given General Meeting and shall not apply (i) in respect of a matter for which a response period or a statutory cooling-off period (as discussed below) has been previously invoked or (ii) in situations where a shareholder holds at least 75% of our issued share capital as a consequence of a successful public bid. +Moreover, the Board of Directors can invoke a cooling-off period of up to 250 days when shareholders, using their right to have items added to the agenda for a General Meeting or their right to request a General Meeting, propose an agenda item for the General Meeting to dismiss, suspend or appoint one or more directors (or to amend any provision in the Articles of Association dealing with those matters) or when a public offer for the Company is made or announced without our support, provided, in each case, that the Board of Directors believes that such proposal or offer materially conflicts with the interests of the Company and its business. During a cooling-off period, the General Meeting cannot dismiss, suspend or appoint directors (or amend the provisions in the Articles of Association dealing with those matters) except at the proposal of the Board of Directors. During a cooling-off period, the Board of Directors must gather all relevant information necessary for a +88 +careful decision-making process and at least consult with shareholders representing 3% or more of our issued share capital at the time the cooling-off period was invoked, as well as with our Dutch works council (if we or, under certain circumstances, any of our subsidiaries would have one). Formal statements expressed by these stakeholders during such consultations must be published on our website to the extent these stakeholders have approved that publication. Ultimately, one week following the last day of the cooling-off period, the Board of Directors must publish a report in respect of its policy and conduct of affairs during the cooling-off period on our website. This report must remain available for inspection by shareholders and others with meeting rights under Dutch law at our office and must be tabled for discussion at the next General Meeting. Shareholders representing at least 3% of our issued share capital may request the Enterprise Chamber ( Ondernemingskamer ) of the Amsterdam Court of Appeal (the “Enterprise Chamber”), for early termination of the cooling-off period. The Enterprise Chamber must rule in favor of the request if the shareholders can demonstrate that: +• +the Board of Directors, in light of the circumstances at hand when the cooling-off period was invoked, could not reasonably have concluded that the relevant proposal or hostile offer constituted a material conflict with the interests of us and our business; +• +the Board of Directors cannot reasonably believe that a continuation of the cooling-off period would contribute to careful policy-making; or +• +other defensive measures, having the same purpose, nature and scope as the cooling-off period, have been activated during the cooling-off period and have not since been terminated or suspended within a reasonable period at the relevant shareholders’ request (i.e., no “stacking” of defensive measures). +Dutch and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws. +As a Dutch public limited liability company, we are subject to Dutch insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings. Should courts in another EU member state determine that our center of main interests (“COMI”) is situated in that member state, the courts in that member state will in principle have jurisdiction over the insolvency proceedings initiated against us and the insolvency laws of that member state will in principle apply to us, in accordance with and subject to such EU regulations. Insolvency laws in the Netherlands or the relevant other EU member state, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for our shareholders to recover the amount they could expect to recover in a liquidation or restructuring under U.S. insolvency laws. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +As part of our ongoing company-wide risk assessment, our management team has identified several key categories of cybersecurity risk to which we are exposed, including, (i) data security risks, (ii) malware and phishing attacks, (iii) insider and third-party risks, (iv) infrastructure and network risks and (v) regulatory and compliance risks. We identified the above risks based on an analysis of our business and a technical analysis by our information and communications technology (“ICT”) consultants of our most critical business activities and associated vulnerabilities. We review our systems against specified security metrics to ensure they are satisfactory, monitor our third-party vendors and partners, participate in threat intelligence sharing, have developed mechanisms designed to detect deviations in our systems, have implemented information technology protocols to control access to our systems and information, provide security awareness trainings, and proactively patch known vulnerabilities. We are working with third-party consultants to build our cybersecurity incident detection processes , including taking the steps described above, and are also working with our vendors and partners to ensure that we are made aware of any cybersecurity incident they experience that may impact our business promptly. In addition, we maintain policies and processes to assess and manage risks relating to third-party service providers, including based on the nature of the engagement with the third party and based on the information and information systems to which the third party will have access. We maintain policies to conduct due diligence before onboarding new service providers and maintain ongoing evaluations to ensure compliance with our security standards. Our management team, along with ICT consultants and other advisors, will conduct a risk assessment on at least an annual basis in order to ensure we are appropriately managing known cybersecurity risks and discovering any potentially new risks. To date, we have not identified any material impact on our business strategy, results of operations or financial condition resulting from the cybersecurity risks described above. However, there can be no assurances that the steps we take will be sufficient to avoid a cybersecurity incident and, if an incident were to occur, our business may be materially impacted as a result of any costs associated with remediating a cybersecurity incident or resolving litigation or regulatory enforcement actions as a result such incident, or potential delays to our clinical trials or release of data as a result of an incident impacting our internal systems or those of the CROs on whom we rely to conduct our clinical trials and gather data from such trials. Furthermore, the realization of any of the risks described above could seriously harm our reputation making it more difficult to recruit patients and CROs, conduct clinical trials, obtain regulatory approvals for our current or future product candidates or generate partnering opportunities. +89 +Our Audit Committee oversees the application of our ICT systems and all risks relating to cybersecurity. Cybersecurity is a standing agenda item at each of the Audit Committee’s regularly scheduled meetings and the committee may engage any external advisor as needed to advise on cybersecurity matters. The Audit Committee periodically reports on such matters to the Board of Directors as part of our overall risk management and oversight framework. We have also established a management-level disclosure committee (the “Disclosure Committee”). The Disclosure Committee, which consists of employees representing our legal, finance, IT, regulatory and clinical departments, is responsible for overseeing the preparation of our public disclosure materials and assessing the materiality of events within the Company. The Disclosure Committee is also responsible for conducting our cybersecurity risk assessment and ensures constituencies from across the Company are represented in such assessment. The Disclosure Committee monitors cybersecurity incidents and risk on an ongoing basis and may engage outside consultants as needed to assess and respond to cybersecurity incidents. The Disclosure Committee reports to the Audit Committee on a variety of matters, including cybersecurity risks. In addition, our Senior Vice President of Information Technology has significant experience managing IT departments, including with regard to cybersecurity risk management and compliance . We have also engaged a third party to provide technical information technology experience to the Disclosure Committee, Audit Committee and Board of Directors. +Item 2. Properties +We have our corporate headquarters at Gooimeer 2-35, 1411 DC, Naarden, the Netherlands, where we lease a small office space pursuant to a lease agreement entered into on July 3, 2020 which will continue until terminated by either us or the landlord upon one-month prior written notice. This facility houses our operations, human resources, information technology, finance, clinical operations and program management functions. +We also lease an administrative office of approximately 1,375 square feet, located at 20803 Biscayne Blvd., Suite #105, Aventura, FL 33180. This office space houses our U.S. administration, human resources, information technology, finance, clinical operations and program management functions. +We believe that these existing facilities will be adequate for our near-term needs. If required, we believe that suitable additional or alternative space would be available in the future on commercially reasonable terms. We are not aware of any environmental issues or other constraints that would materially impact the intended use of our facilities. +Item 3. Legal Proceedings +From time to time, we may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not party to any legal proceedings material to our operations or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by a government authority. +The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. +Item 4. Mine Safety Disclosures +Not applicable. +90 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities +Market for Ordinary Shares +Our Ordinary Shares trade on the Nasdaq Global Market under the symbol “NAMS.” +Record Holders +As of February 5, 2026, we had approximately 22 holders of record of our Ordinary Shares, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”). Ordinary Shares that are held by financial institutions as nominees for beneficial owners or in “street name” are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one shareholder. +Dividends +We have never declared or paid a cash dividend on our Ordinary Shares and do not anticipate paying any cash dividends in the foreseeable future. +Unregistered Sales of Securities +We did not sell or issue any equity securities during the fiscal year ended December 31, 2025 that were not registered under the Securities Act. +Stock Price Performance Graph +The following performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of the Exchange Act or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act. +The following graph shows a comparison from November 23, 2022, the date on which our Ordinary Shares first began trading on Nasdaq, through December 31, 2025 of the cumulative total return for our Ordinary Shares, the Nasdaq Biotechnology Index, and the Standard & Poor’s 500 Stock Index (the “S&P 500”) each of which assumes an initial investment of $100 and reinvestment of all dividends. Such returns are based on historical results and are not intended to suggest future performance. +The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our Ordinary Shares. +91 +Item 6. [Reserved] +92 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under “Risk Factors” included in Part I, Item 1A and under “Special Note Regarding Forward-Looking Statements” or in other parts of this Annual Report on Form 10-K. +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient LDL-C lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective CETP inhibitor, alone or as an FDC with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of CVD with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. Additionally, we believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib, is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering. In each of these trials, side effects were similar in frequency and severity to placebo including muscle-related side effects and drug-related TESAEs. We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with dyslipidemia in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with MACE benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial, we observed a 21% reduction in the exploratory MACE endpoint (coronary heart disease death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization) and we are performing a Phase 3 CVOT, PREVAIL, to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, ApoB, and sdLDL-P. In our clinical trials, we have also observed reductions in Lp(a), which is believed to be an independent MACE risk factor, along with reductions in total LDL particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. ASCVD is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and an FDC therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in an FDC with ezetimibe, in the Menarini Territory, if approved. In August 2025, the EMA accepted for review the MAAs submitted by Menarini for obicetrapib 10 mg monotherapy and the FDC of 10 mg obicetrapib plus 10 mg ezetimibe for the treatment of primary hypercholesterolemia, including heterozygous familial and non-familial or mixed dyslipidemia. Subsequently, MAAs were also submitted to regulators in the UK and Switzerland and accepted for review. The submissions are supported by data from the BROADWAY, +93 +BROOKLYN, and TANDEM pivotal Phase 3 trials. We anticipate that Menarini will receive decisions on the MAAs from each of the regulators in the second half of 2026. If the MAAs are approved, Menarini will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Our current plan is to pursue development and, subject to the receipt of marketing approval, commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and Europe, including in Japan and China. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also regularly evaluating the potential acquisition or license of new product candidates. +In addition to our cardiometabolic program, we are exploring the potential application of CETP inhibition in other indications, including Alzheimer’s disease. Based on the lipid-modifying effects of CETP inhibition observed in our clinical trials for obicetrapib to date, we have conducted preclinical and early clinical evaluations of obicetrapib in this area. We initiated a Phase 2a clinical trial in patients with early Alzheimer’s disease to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib, and announced initial data from this trial in September 2023. In July 2025, we announced data from the prespecified Alzheimer’s disease biomarker analysis in our BROADWAY clinical trial. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +As of December 31, 2025, we had cash, cash equivalents and marketable securities of $728.9 million as compared to $834.2 million as of December 31, 2024. +Components of our Results of Operations +Revenue +To date, we have not generated significant revenue from the sale of pharmaceutical products. Our revenue has been primarily derived from our license agreement with Menarini. Two performance obligations for the Menarini License were identified at contract inception, comprising a license to use the Company's intellectual property (the "license performance obligation") and a promise to continue the development activities for the licensed compound (the "R&D performance obligation"). Pursuant to the Menarini License, we received a non-refundable, non-creditable upfront amount of $120.9 million (€115.0 million) from Menarini on July 7, 2022, of which $98.6 million (€93.5 million) was attributed to the license performance obligation and recognized as revenue upon the execution of the Menarini License on June 23, 2022. The remaining $22.3 million (€21.5 million) was attributed to the R&D performance obligation and initially recognized as deferred revenue. As of December 31, 2025, the R&D performance obligation had been deemed to be completely satisfied and all deferred revenue related to such performance obligation was recognized. +Additionally, in partial contribution to our costs of development of the Licensed Products, Menarini may pay us €27.5 million, payable in two equal annual installments. Due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials, which is out of our control, the fixed €27.5 million was considered constrained at contract execution and is not initially recognized within the transaction price until it becomes highly probable of no significant revenue reversal. As of December 31, 2025, both annual development cost contributions had been recognized within the transaction price. +Under the Menarini License, we are also entitled to receive certain cost sharing payments, sales-based royalties and payments based upon the achievement of defined development, regulatory and commercial milestones linked to the enhanced value of the license performance obligation. These milestones are contingent payments and represent variable considerations that are not initially recognized within the transaction price, due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials. Our ability to receive and generate revenue from these payments is dependent upon a number of factors, including our ability to successfully complete the development of and obtain regulatory approval for obicetrapib within the Menarini Territory. The uncertainty of achieving these milestones significantly impacts our ability to generate revenue. At the end of each reporting period, we assess the probability of significant reversals for any amounts that become likely to be realized prior to recognizing the variable consideration associated with these payments within the transaction price. +In addition, we entered into the Menarini Supply Agreement to provide commercial supply of obicetrapib monotherapy and obicetrapib and ezetimibe fixed-dose combination finished products in bulk tablet form (the “Drug Products”) for distribution by Menarini in specified European territories. +We recognize revenue from the sale of Drug Products, and from the sale of active pharmaceutical ingredients to Menarini for the manufacturer of such tablets. Our product supply revenue is recognized at a point in time when the performance obligation is satisfied by transferring control of the promised goods or services to the customer and it is probable that we will collect the consideration to which we are entitled. In accordance with the terms of the Menarini Supply Agreement, control of the product is transferred upon the conveyance of title, which occurs when the product is made available to Menarini. The transaction price is contractually fixed at a markup of the actual cost of goods sold. Due to the cost-based nature of the agreement, the pricing structure includes a variable component which is measured using the expected value method. At each reporting period end, we update our estimate of the transaction price using actual cost data and forecasted expenses. We state revenues net of any taxes collected from customers that are required to be remitted to various government agencies. +94 +Any revenue generated from potential future collaborations or product sales may vary due to the many uncertainties in the development of obicetrapib and other factors. +Research and Development Expenses +Research and development expenses are recognized as an expense when incurred and are typically made up of costs from our clinical and preclinical activities, drug development and manufacturing costs, and costs for CROs and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data provided by vendors of their actual costs incurred. At each balance sheet date, we estimate the level of services provided by vendors and the associated expenditure incurred for the services performed. +All such costs are for the purpose of advancing our product candidates to successfully complete clinical development, attain regulatory approval and, if approved, commercialize our product candidates. Much of our current focus in our ongoing trials is on patient recruitment and retention and data cleaning. Research and development expenses consist of the following: +• +clinical expenses primarily incurred by CROs assisting with our sponsored clinical trials and including clinical investigator costs, patient enrollments and costs of clinical sites; +• +manufacturing expenses arising from investments in commercial manufacturing capabilities and API and drug product development as performed by our CMOs; +• +costs associated with obtaining potential regulatory approval of our product candidates, including preparation and submission of filings, ongoing monitoring and compliance with comments and recommendations provided by regulatory authorities, and regulatory-related advisory fees; +• +contracted personnel and employment costs attributed to research and development efforts, which includes management fees, salaries, share-based compensation expenses, bonus plans and payments to contractors who work for us for a fixed number of hours per week or per month; +• +preclinical and nonclinical research and development expenses of our product candidates; and +• +other clinical costs such as clinical trial insurance and other consultancy fees. +We expect our research and development expenses to be significant as we advance our product candidates through clinical trials and pursue regulatory approval. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming. Clinical trials generally become larger and more costly to conduct as they advance into later stages and, in the future, we will be required to make estimates for expense accruals related to clinical trial expenses. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. See the section titled “ Risk Factors—Risks Related to Our Product Development, Regulatory Approval and Commercialization ” for more information regarding the risks associated with clinical development. +Selling, General and Administrative Expenses +We recognize selling, general and administrative expenses on the accrual basis when incurred. These expenses mainly relate to consultant fees, employee costs, legal costs, marketing and communication, intellectual property costs due to increased efforts to drug patent development and protection globally, and general overhead costs. +Due to the general growth of the organization associated with administering ongoing and planned clinical trials and our focus on commercial preparedness, we expect that our selling, general and administrative expenses may increase. We will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, if and when a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expenses as a result of our preparation for commercial operations. +Interest Income +Interest income is recognized using the effective interest rate method. Interest income for the year ended December 31, 2025 is related to interest earned on cash, cash equivalents and marketable securities. +Net Foreign Exchange Gain/Loss +Our exchange gain/loss relates mainly to cash balances denominated in foreign currencies, but also to transactions denominated in foreign currencies. Our foreign currency exposure is mainly related to the Euro. As of December 31, 2025, our net exposure to foreign currency risk was $95.6 million compared to $108.6 million as of December 31, 2024, mainly related to the Euro. +Income Tax +95 +We have a history of losses and therefore have de minimis amounts of corporate tax. We expect to continue incurring losses as we continue to invest in our clinical and preclinical development programs. Consequently, any deferred tax assets are fully offset by a valuation allowance on our balance sheet. +Results of Operations +Comparison of the Years Ended December 31, 2025 and December 31, 2024 +The following table summarizes our consolidated statements of operations for the periods indicated: +For the year ended December 31, +(In thousands of USD) +2025 +2024 +Change +Revenue +22,503 +45,563 +(23,060 +) +Operating Expenses: +Research and development expenses +141,832 +151,406 +(9,574 +) +Selling, general and administrative expenses +106,354 +70,446 +35,908 +Total operating expenses +248,186 +221,852 +26,334 +Operating Loss +(225,683 +) +(176,289 +) +(49,394 +) +Other income (expense): +Interest income +27,592 +16,881 +10,711 +Fair value change - earnout +3,992 +(37,010 +) +41,002 +Fair value change - warrants +(22,775 +) +(38,583 +) +15,808 +Foreign exchange gains/(losses) +13,055 +(6,598 +) +19,653 +Loss before tax +(203,819 +) +(241,599 +) +37,780 +Income tax expense (benefit) +— +(1 +) +1 +Loss for the year +(203,819 +) +(241,598 +) +37,779 +Revenue +Revenue decreased by $23.1 million, or 50.6%, to $22.5 million for the year ended December 31, 2025 compared to $45.6 million for the year ended December 31, 2024. This decrease was largely due to the recognition of $27.3 million of revenue from the Menarini License related to a clinical development milestone which was earned in the year ended December 31, 2024 while there were no clinical milestones earned in the year ended December 31, 2025. The decrease in revenue related to clinical development milestones pursuant to the Menarini License was partially offset by an increase in the amount of revenue recognized in the current period related to the development cost contributions under the Menarini License. +Research and Development Expenses +Research and development expenses decreased by $9.6 million, or 6.3%, to $141.8 million for the year ended December 31, 2025 compared to $151.4 million for the year ended December 31, 2024. This was primarily driven by: +• +a $30.5 million decrease in clinical expenses mainly due to the completion of several Phase 3 clinical trials in the second half of 2024 and cost phasing in ongoing clinical trials; +partially offset by: +• +an $8.3 million increase in non-clinical expenses due to greater activity related to pipeline expansion and product lifecycle management; +• +a $6.1 million increase in manufacturing expense driven by investments in commercial manufacturing capabilities; +• +a $5.0 million increase in personnel expenses primarily driven by an increase in share-based compensation expense; and +• +a $1.5 million increase in regulatory expenses primarily driven by the preparation and planned submission of regulatory applications for obicetrapib. +The following table summarizes our research and development expenses for the periods indicated: +96 +For the year ended December 31, +(In thousands of USD) +2025 +2024 +Change +Clinical expenses +75,396 +105,904 +(30,508 +) +Non-clinical expenses +10,117 +1,859 +8,258 +Personnel expenses +29,031 +24,019 +5,012 +Manufacturing costs +23,290 +17,188 +6,102 +Regulatory expenses +3,686 +2,186 +1,500 +Other research and development costs +312 +250 +62 +Total research and development expenses +141,832 +151,406 +(9,574 +) +Selling, General and Administrative Expenses +Selling, general and administrative expenses increased by $36.0 million, or 51.0%, to $106.4 million for the year ended December 31, 2025 compared to $70.4 million for the year ended December 31, 2024. This was primarily driven by: +• +a $28.2 million increase in personnel expenses related to selling, general and administrative expenses, of which our share-based compensation arrangements account for $19.5 million. The remainder is largely due to increased recruitment and employment costs for individuals involved with administrative and commercial preparedness activities to support the growth of the organization; +• +a $5.1 million increase in marketing and communication expenses related to startup costs as we began to build capabilities to support our planned commercial launch of obicetrapib, if approved; and +• +a $1.5 million increase in costs related to our intellectual property primarily driven by worldwide patent filings. +Interest Income +Interest income increased by $10.7 million, to $27.6 million for the year ended December 31, 2025 compared to $16.9 million for the year ended December 31, 2024. This increase was primarily driven by greater cash balances and investments in marketable securities during the year ended December 31, 2025 as compared to cash balances during the year ended December 31, 2024. +Fair Value Change - Earnout +Fair value change - earnout was a gain of $4.0 million for the year ended December 31, 2025 compared to a loss of $37.0 million for the year ended December 31, 2024. The earnout liability was settled in March 2025. +Fair Value Change - Warrants +Fair value change - warrants was a loss of $22.8 million for the year ended December 31, 2025 compared to a loss of $38.6 million for the year ended December 31, 2024. The change is primarily driven by changes in the market price during the period for the Warrants, which trade under the symbol "NAMSW." +Foreign Exchange Gains/(Losses) +Net foreign exchange gains/(losses) were a gain of $13.1 million for the year ended December 31, 2025 compared to a loss of $6.6 million for the year ended December 31, 2024. This change was largely driven by movements in the exchange rate for Euros which is our primary foreign currency exposure. +Loss for the Year +Loss for the year decreased by $37.8 million, to $203.8 million for the year ended December 31, 2025 compared to $241.6 million for the year ended December 31, 2024. The individual components of the change are described above. +Comparison of the Years Ended December 31, 2024 and December 31, 2023 +Please refer to the section titled “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for a comparative discussion of our fiscal years ended December 31, 2024 and December 31, 2023. +Liquidity and Capital Resources +We are a clinical-stage biopharmaceutical company and, since inception, we have incurred significant operating losses and expect to continue to do so for the foreseeable future. Since inception, we have not generated significant product revenues or net positive cash flows from operating activities. We do not expect to receive significant product revenues or achieve net positive cash flows from operating activities until we successfully develop a product candidate, obtain regulatory approval, and successfully commercialize it. +97 +To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and conducting clinical trials of obicetrapib. As a result, we are not yet profitable and have incurred losses in each annual period since our inception. As of December 31, 2025, we had an accumulated loss of $762.4 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will relate primarily to, and increase substantially as a result of: +• +the progress and costs of our discovery, preclinical and non-clinical development; +• +the progress and costs of our clinical trials, including costs related to clinical sites, clinical investigators and CROs that are assisting with our sponsored clinical trials, and other research and development activities; +• +the costs and timing of obtaining regulatory approval, including the expenses of filing NDAs and MAAs, and the related expenses involved in validating our manufacturing processes; +• +the costs associated with any future investigator-sponsored preclinical studies and clinical trials; +• +the costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property rights; +• +the costs and timing of obtaining sufficient quantities of our product candidates for clinical trials by establishing production capacities through contracts with CMOs; +• +the terms and timing of any collaborative, licensing and other arrangements that we may establish; +• +compensation expenses associated with increased headcount; +• +the costs of preparing for launch and commercialization of our product candidates; and +• +the costs of operating as a public company in the United States. +We may encounter unforeseen expenses, difficulties, complications, delays and other factors that may adversely affect our business. The magnitude of our future net losses will depend on the rate of future growth of our expenses combined with our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital unless and until eliminated by revenue generation and growth. +We have historically funded our operations primarily through private placements and public offerings of shares, the sale of convertible notes, proceeds from the Menarini License and the proceeds from the Business Combination. As of December 31, 2025, we had cash, cash equivalents and marketable securities of $728.9 million which management believes is sufficient to fund operating activities for at least the twelve-month period following the issuance of the consolidated financial statements accompanying this Annual Report. Until we can generate substantial revenue, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, convertible loans, warrants, collaborations, or other means. We may consider raising additional capital to take advantage of favorable market conditions or for other strategic considerations even if we have sufficient funds for planned operations. In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or privately placed equity offerings of securities, the terms of these securities or offerings may include liquidation or other preferences that adversely affect our other shareholders’ rights. To the extent that we raise additional funds by issuing and selling equity or equity-linked securities, shareholders will experience dilution. If we raise additional capital through debt financing, we would likely be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, licensing or selling assets, making capital expenditures or declaring dividends. Capital may become difficult or impossible to obtain due to poor market or other conditions outside of our control. If we are unable to raise sufficient additional funds on favorable terms as and when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others any of our potential future product candidates that we would prefer to develop and commercialize ourselves. See the section titled “ Risk Factors ” for additional detail regarding these risks. +We plan to utilize our existing cash and other financial assets on hand primarily to fund our research and development initiatives to continue or commence clinical trials and seek regulatory approval for obicetrapib. We also expect to make capital expenditures to support our anticipated growth. Cash in excess of immediate requirements is invested in accordance with our investment policy which has the primary purpose of capital preservation and liquidity. We are also continually evaluating the potential acquisition or license of new product candidates. +Sources of Liquidity +Menarini License and Menarini Supply Agreement +98 +On June 23, 2022, we entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize the Licensed Products, for any use in the Menarini Territory. Pursuant to the Menarini License, Menarini made a non-refundable, non-creditable upfront payment to us of €115 million. Menarini has also committed to providing us €27.5 million in funding for the research and development activities related to the Licensed Products over two years, of which €13.8 million has been received to date, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to €863 million upon the achievement of various clinical, regulatory and commercial milestones, €30 million of which has been received to date. If obicetrapib is approved, and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double-digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party intellectual property payments. See the section titled “ Business—Commercial ” for a full description of the Menarini License. +As of December 31, 2025, we have received a total of €30 million in milestone payments from Menarini, none of which was received in the year ended December 31, 2025. +On August 12, 2025, we entered into a supply agreement with Menarini pursuant to which we will supply Menarini with the Drug Products. We will initially be Menarini’s exclusive supplier of the Drug Products and fulfill purchase orders based on periodic volume forecasts that Menarini is required to provide, a portion of which will be binding. The price to be paid by Menarini will be based on a specified mark-up to our “cost of goods sold” for the supplied Drug Products (as determined in accordance with the supply agreement), subject to periodic adjustments. +December 2024 Follow-on Offering +On December 13, 2024, we completed an underwritten public offering (the “December 2024 Offering”) of 14,667,347 Ordinary Shares at a public offering price of $24.50 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,882,653 Ordinary Shares at a public offering price of $24.4999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 14,667,347 Ordinary Shares issued and sold in the December 2024 Offering, 2,550,000 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the December 2024 Offering were $453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. +February 2024 Follow-on Offering +On February 16, 2024, we completed an underwritten public offering (the “February 2024 Offering”) of 5,871,909 Ordinary Shares at a public offering price of $19.00 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,736,841 Ordinary Shares at a public offering price of $18.9999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares less the $0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 5,871,909 Ordinary Shares issued and sold in the February 2024 Offering, 1,383,750 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the February 2024 Offering were $190.0 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. +At-the-Market Offering +On August 9, 2024, we entered into an amended and restated sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“TD Cowen”), pursuant to which we may issue and sell from time to time up to $250 million of our Ordinary Shares through or to TD Cowen as our sales agent or acting as principal in any method deemed to be an “at the market offering.” TD Cowen will receive a commission of up to 3.0% of the gross proceeds of any Ordinary Shares sold pursuant to the Sales Agreement. During the year ended December 31, 2025, we did not sell any Ordinary Shares pursuant to the Sales Agreement. +Warrants +In the year ended December 31, 2025, 142,477 Warrants were exercised at an exercise price of $11.50 per Ordinary Share, generating gross proceeds of $1.6 million. As of December 31, 2025, we had another 2,490,104 outstanding Warrants to purchase 2,490,104 Ordinary Shares, exercisable at an exercise price of $11.50 per share, which will expire on November 23, 2027, at 5:00 p.m., Eastern Standard Time. Based on the exercise price of the Warrants, we may receive up to $28.6 million, assuming the exercise of all Warrants outstanding as of December 31, 2025. The exercise of the Warrants, and any proceeds we may receive from their exercise, are highly dependent on the price of our Ordinary Shares and the spread between the exercise price of the Warrant and the price of an Ordinary Share at the time of exercise. For example, to the extent that the trading price of the Ordinary Shares exceeds $11.50 per share, it is more likely that holders of our Warrants will exercise their Warrants. If the trading price of the Ordinary Shares is less than $11.50 per share, it is unlikely that such holders will exercise their Warrants. The exercise price of the Warrants has at times exceeded the market price of the Ordinary Shares. To the extent that the price of our Ordinary Shares is below $11.50, we believe that the Warrant holders will be unlikely to cash exercise their warrants, resulting in little to no cash proceeds to us. There can be no assurance that our Warrants will be in the money prior to their expiration and, as such, certain +99 +unexercised Warrants may expire worthless. As such, it is possible that we may never generate any additional cash proceeds from the exercise of our Warrants. We have not included, and do not intend to include, any potential cash proceeds from the exercise of our Warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability that the Warrants are exercised over the life of our Warrants and the merit of including potential cash proceeds from the exercise thereof in our liquidity projections. +Cash Flows +The following is a summary of cash flows for the years ended December 31, 2025, 2024 and 2023: +For the year +ended December 31, +(In thousands of USD) +2025 +2024 +2023 +Net cash used in operating activities +(147,783 +) +(158,564 +) +(141,218 +) +Net cash used in investing activities +(174,916 +) +(62,848 +) +(24 +) +Net cash provided by financing activities +29,520 +659,507 +8,912 +Foreign exchange differences +12,759 +(6,802 +) +5,052 +Cash, cash equivalents and restricted cash at the beginning of the year +771,743 +340,450 +467,728 +Cash, cash equivalents and restricted cash at the end of the year +491,323 +771,743 +340,450 +Net Cash Flows Used In Operating Activities +Net cash used in operating activities decreased by $10.8 million from $158.6 million in 2024 to $147.8 million in 2025. This change was primarily driven by: +• +a $24.8 million favorable change in total adjustments for changes in working capital from a net unfavorable adjustment of $32.7 million in 2024 to a net unfavorable adjustment of $7.9 million in 2025; and +• +a $37.8 million decrease in net loss for the year; +partially offset by: +• +a $51.7 million unfavorable change in total non-cash adjustments to reconcile loss for the year to net cash flows from a net favorable adjustment of $115.7 million in 2024 to a net favorable adjustment of $64.0 million in 2025. +Net Cash Flows Used In Investing Activities +Net cash flows used in investing activities increased by $112.1 million from $62.8 million in 2024 to $174.9 million in 2025. This change was primarily due to cash flows related to investments in marketable securities. In 2024, purchases of marketable securities totaled $62.2 million, compared to purchases of marketable securities of $296.7 million, partially offset by $122.1 million of maturities of marketable securities during 2025. +Net Cash Flows Provided By Financing Activities +Net cash flows provided by financing activities decreased by $630.0 million from $659.5 million in 2024 to $29.5 million in 2025. This change was primarily related to the receipt of net proceeds totaling $645.0 million from the February 2024 Offering and the December 2024 Offering in the prior year and a $12.1 million decrease in proceeds from the exercise of warrants, partially offset by a $27.7 million increase in proceeds received from the exercise of options. +Operating Capital and Capital Expenditure Requirements +Third-Party Service Agreements +We have entered into a variety of agreements and financial commitments in the normal course of business with CROs, CMOs, and other third parties for preclinical and clinical development and manufacturing services. The terms generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation. However, some of our service providers also charge cancellation fees upon cancellation. The amount and timing of such payments are not known, but at December 31, 2025 they are estimated to be a maximum of $25.2 million due within one year and $13.9 million due in more than one year. As of December 31, 2025, we had cash, cash equivalents and marketable securities of $728.9 million, which is sufficient to fund these obligations. +Leases +We are party to a services agreement (the "Naarden Lease") pursuant to which an affiliate of Forbion leased us office space; an office lease agreement with Renaissance Aventura LLC, dated May 24, 2021, as amended April 9, 2024 (as amended, the “Miami Lease”); and an +100 +office sublease agreement with GR8 People, Inc., dated April 2, 2024 (the “Yardley Lease”). Under the Naarden Lease, we are obligated to pay €40 thousand per year in rent. The Naarden Lease will continue until terminated by either us or the landlord. Pursuant to the Miami Lease, we are required to pay annual rent ranging from $75 thousand to $82 thousand, increasing from the low end of the range to the higher end of the range for each year of the lease. The Miami Lease will expire by its terms on October 31, 2027, unless terminated earlier by either party pursuant to the terms of the Miami Lease. Pursuant to the Yardley Lease, we are required to pay annual rent ranging from $189 thousand to $194 thousand, increasing from the low end of the range to the higher end of the range for each year of the lease. The Yardley Lease will expire by its terms on April 3, 2026, unless terminated earlier by either party pursuant to the terms of the Yardley Lease. +Menarini License +We will be responsible for the development and commercialization costs related to Licensed Products other than those in the Menarini Territory. In addition, under specified conditions of the agreement, we agreed to bear 50% of certain development costs incurred by the other party in the development of the Licensed Products in the Menarini Territory. Please see “ Business—Marketing and Sales ” above for a description of the Menarini License. +Critical Accounting Policies and Estimates +Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. Prior to 2023, we prepared our financial statements in accordance with the IFRS as permitted in the United States based on our qualification as a foreign private issuer under the rules and regulations of the SEC. In connection with the loss of our status as a foreign private issuer effective on January 1, 2024, we, as a domestic filer, prepared our financial statements in accordance with U.S. GAAP. The transition was made retrospectively for all periods from our inception. +The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We based our estimates on historical experience, known trends and other market-specific or other relevant factors that we believe to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. If actual results differ from our estimates, or to the extent these estimates are adjusted in future periods, our results of operations could either benefit from, or be adversely affected by, any such change in estimate. +See Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our consolidated financial statements. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Our principal financial liabilities consist of trade and other payables lease liability, derivative warrant liabilities and derivative earnout liability. The main purpose of these financial liabilities is to finance our day-to-day operations. Our financial assets consist of prepayments and other receivables and cash, that are derived from our operating activities and funding. +We are exposed to market risk, credit risk and liquidity risk. Our senior management oversees the management of these risks. Our Board of Directors reviews and approves policies for managing each of these risks, which are summarized below. +Market Risk +Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises interest rate risk, foreign currency risk and other price risks. +Interest Rate Risk +We are exposed to interest rate risk primarily through our cash, cash equivalents and marketable securities. Changes in interest rates may cause variations in interest income and expense resulting from short-term interest-bearing assets. We invest in high-quality financial instruments, primarily money market funds and U.S. government and agency securities with maturities of less than one year, which we believe are subject to limited credit risk. We regularly review our investments and monitor the financial markets and we do not currently hedge interest rate exposure. Due to the nature of our investments, we do not believe an immediate 100 basis point change in interest rates would have a material effect on our financial condition. We do not believe that we have any material exposure to interest rate risk or changes in credit ratings arising from our investments. +Foreign Currency Risk +Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to cash and trade and other payables denominated in currencies other than our functional currency, the U.S. Dollar. As of December 31, 2025, our net exposure to foreign currency +101 +risk was $95.6 million, mainly related to the Euro. As of December 31, 2025, the effect of a hypothetical 1% change in exchange rates on currencies denominated in other than our functional currency would result in a potential change in future earnings in our consolidated statement of operations of approximately $1.0 million. +We partly manage our foreign currency risk by selectively holding foreign currency in our cash to offset foreign currency exposures from lease liabilities and trade and other payables. We plan to use this cash to settle future expenses we expect to incur in those foreign currencies. +Other Market Price Risk +As a result of the Business Combination, we have derivative warrant liabilities, which are measured at fair value through profit or loss. As of December 31, 2025, the fair value of the derivative warrant liabilities totaled $57.3 million. The value of the derivative warrant liability is directly correlated to the market price of a publicly traded Warrant which is traded under the symbol NAMSW. With all other variables held constant, a 1% change in the market price of NAMSW would change the value of the derivative warrant liability by 1% or $0.6 million. +Credit Risk +Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. We are exposed to credit risk primarily from our treasury activities, including deposits with banks and financial institutions and have limited credit risk exposure from our operating activities. We hold available cash in bank accounts with banks which have investment grade credit ratings. Management periodically reviews the creditworthiness of the banks with which it holds assets. +We perform research and development activities and do not yet have significant sales. We are able to reclaim VAT, which is recoverable from tax authorities. Management periodically reviews the recoverability of the balance of input value added tax and believes it is fully recoverable. +Item 8. Financial Statements and Supplementary Data +The financial statements of the Company begin on page F-1 of this Annual Report and are incorporated herein by reference. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Disclosure Controls and Procedures +Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures have been designed to meet, and management believes that they meet, reasonable assurance standards. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded disclosure controls and procedures were effective as of December 31, 2025. +Management’s Annual Report on Internal Control over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. +Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established in “Internal Control-Integrated Framework (2013)", issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2025. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. +102 +Limitations on Effectiveness of Controls and Procedures +In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Changes in Internal Control over Financial Reporting +No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +Attestation Report of the Registered Public Accounting Firm +Deloitte Accountants B.V., our independent registered public accounting firm, issued an attestation report on our internal control over financial reporting. The report of Deloitte Accountants B.V. is contained in Item 15 of Part IV of this Annual Report. +Item 9B. Other Information +Securities Trading Plans of Directors and Executive Officers +Except as set forth below, during the three months ended December 31, 2025 , no ne of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement. ” +On December 4, 2025 , John Kastelein , our Chief Scientific Officer and a member of our Board of Directors , adopted a Rule 10b5-1 trading arrangement for the potential sale of up to 300,000 Ordinary Shares, subject to certain price thresholds and other conditions. The arrangement's expiration date is March 12, 2026 . +There were no “non-Rule 10b5-1 trading arrangements,” as defined in Item 408(c) of Regulation S-K, entered into or terminated during the three months ended December 31, 2025 . +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +103 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Current Directors and Executive Officers +The Board of Directors +Biographical information as of February 18, 2026 and the experience, qualifications, attributes and skills that led our Nomination and Corporate Governance Committee and our Board of Directors to determine that each individual should continue to serve on the Board are discussed below. +Name +Positions and Offices Held +Year in which +Term Expires +Age +Employee Directors +Michael Davidson, M.D. +Chief Executive Officer, Director +2029 +69 +John Kastelein, M.D. +Chief Scientific Officer, Non-Executive Director +2027 +72 +Non-Employee Directors +William H. Lewis, J.D., M.B.A. +Chair, Non-Executive Director +2028 +57 +Mark C. McKenna +Vice Chair, Non-Executive Director +2028 +46 +Adele Gulfo +Non-Executive Director +2029 +63 +Wouter Joustra +Non-Executive Director +2027 +37 +Louis Lange, M.D., Ph.D. +Non-Executive Director +2028 +77 +John W. Smither +Non-Executive Director +2026 +73 +James N. Topper, M.D., Ph.D. +Non-Executive Director +2029 +64 +Janneke van der Kamp +Non-Executive Director +2026 +50 +Employee Directors +Dr. Michael Davidson . Michael Davidson, M.D., has served as our Chief Executive Officer and executive director since November 2022. Dr. Davidson served NewAmsterdam Pharma as its Chief Executive Officer and an executive director from August 2020 to November 2022. Prior to joining NewAmsterdam Pharma, Dr. Davidson was the founder and Chief Executive Officer of Corvidia Therapeutics, Inc. from January 2016 until April 2018 and the Chief Science/Medical Officer from April 2018 until July 2020, when Corvidia was acquired by Novo Nordisk A/S for up to $2.1 billion. Dr. Davidson, who is a leading expert in the field of lipidology and was named in The Best Doctors in America for the past 15 years, is also currently a professor of medicine and director of the lipid clinic at the University of Chicago. Dr. Davidson co-founded and served as the Chief Medical Officer of Omthera Pharmaceuticals, Inc. in 2008, which was later acquired by AstraZeneca Pharmaceuticals in 2013 for up to $443 million. His research background encompasses both pharmaceutical and nutritional clinical trials including extensive research on statins, novel lipid-lowering drugs, and omega-3 fatty acids. Dr. Davidson is board-certified in internal medicine, cardiology, and clinical lipidology and served as President of the National Lipid Association from 2010 to 2011. Dr. Davidson currently serves on the board of directors of Tenax Therapeutics, Inc. (Nasdaq: TENX), and BioAge Labs, Inc. (Nasdaq: BIOA). Dr. Davidson also serves on the boards of four private biotechnology companies, Sonothera, Jocasta Neuroscience and Abcentra. Dr. Davidson received his B.A. and M.S. from Northwestern University and his M.D. from The Ohio State University School of Medicine. +Our Nomination and Corporate Governance Committee and our Board believe Dr. Davidson’s extensive experience in the field of cardiology and his prior management experience provide him the qualifications and skills to serve on the Board of Directors. +Dr. John Kastelein . John Kastelein, M.D., Ph. D. FESC, has served as our Chief Scientific Officer and non-executive director since November 2022. Dr. Kastelein co-founded NewAmsterdam Pharma in 2020 served as its Chief Scientific Officer and an executive director from January 1, 2020 to November 2022. Dr. Kastelein has also served as the chief executive officer of Vascular Research Network Inc. (“VRN”) since January 2013 and as the Chief Medical Officer of Staten Biotechnology B.V. since January 2018. Dr. Kastelein also serves as emeritus professor of medicine and was the chair of the department of vascular medicine at the Academic Medical Center of the University of Amsterdam. He serves on the advisory board of the Dutch Atherosclerosis Society. In 2011 he received the ZonMw Pearl for his research in the field of gene therapy. Dr. Kastelein also serves on the board of directors of North Sea Therapeutics Inc., VRN and Oxitope Pharma Inc. Dr. Kastelein also serves as an advisor to a number of biotech and pharmaceutical companies. Dr. Kastelein was awarded a doctorate in medicine (with honors) from the University of Amsterdam, trained in internal medicine at the Academic Medical Center of the University of Amsterdam, and trained in lipidology and molecular biology at the University of British Columbia in Vancouver. Dr. Kastelein published his first clinical research on CETP-inhibition in the New England Journal of Medicine in 1997. +Our Nomination and Corporate Governance Committee and our Board believe Dr. Kastelein’s deep scientific and medical knowledge about NewAmsterdam Pharma’s product candidate and his experience in senior management, provide Dr. Kastelein with the qualifications and skills to serve on the Board of Directors. +104 +Non-Employee Directors +William H. Lewis, J.D., M.B.A. William H. Lewis has served as a member of the Board of Directors and Chair since January 2024. Will joined Insmed in 2012 as President and Chief Executive Officer and as a member of the board of directors. He became Chair of the Board of Directors in November 2018. Will is the former Co-Founder, President, and Chief Financial Officer of Aegerion Pharmaceuticals, Inc. (Nasdaq: AEGR), and previously spent more than 10 years working in investment banking in the U.S. and Europe. He also previously worked for the U.S. government. Will holds a Bachelor of Arts degree cum laude from Oberlin College as well as a Master of Business Administration and a Juris Doctor with Honors from Case Western Reserve University. +Our Nomination and Corporate Governance Committee and our Board believe that Mr. Lewis’ significant experience as a public company executive in the life sciences industry and his other professional experience in the finance industry provide him the qualifications and skills to serve on the Board of Directors. +Mark C. McKenna . Mark C. McKenna has served as a member of the Board of Directors since July 2024. Mr. McKenna is the founder, Chairman and Chief Executive Officer of Mirador Therapeutics, and currently serves as Chairman of the board of directors of Apogee Therapeutics, Inc. (Nasdaq: APGE) and a director at Spyre Therapeutics, Inc. (Nasdaq: SYRE). In addition, Mr. McKenna serves as a venture partner at Arch Venture Partners and Senior Advisor at Fairmount Funds. Previously, Mr. McKenna was President, Chief Executive Officer and Chairman of the Board of Directors of Prometheus Biosciences, Inc., which was acquired by Merck & Co, Inc. in June 2023. Earlier, Mr. McKenna was a corporate officer of Bausch Health and served as President of its subsidiary, Salix Pharmaceuticals, Inc. Prior to Salix Pharmaceuticals, Mr. McKenna spent more than a decade in various roles with Bausch + Lomb, also a division of Bausch Health, most recently as Senior Vice President and General Manager of its U.S. Vision Care business. Mr. McKenna was Ernst & Young’s Entrepreneur of the Year in 2023 and holds a B.S. in marketing from Arizona State University and an M.B.A. from Azusa Pacific University. +Our Nomination and Corporate Governance Committee and our Board believe that Mr. McKenna’s significant experience as a public company executive in the life sciences industry and his other professional experiences provide him the qualifications and skills to serve on the Board of Directors. +Adele Gulfo . Adele Gulfo has served as a member of the Board of Directors since April 2025. Adele Gulfo has served as a member of the Board of Directors since April 2025. Ms. Gulfo currently serves on the Board of Directors of Tyra Biosciences, Inc. (NASDAQ: TYRA), a publicly traded biotechnology company, and Enpro Inc. (NYSE: NPO), a publicly traded industrial technology firm. She also serves on the board of Battelle, a $13B applied science and technology organization and one of the world’s largest independent research and development enterprises, supporting mission-critical innovation across national security, health, advanced engineering, and government and commercial sectors. In addition, she is a member of the Innovation Growth Board at Mass General Brigham, the largest hospital-based research enterprise in the United States. Ms. Gulfo most recently served as Chief Executive Officer of the Biopharma Commercial Unit at Sumitomo Pharma America, Inc. (“Sumitomo”), where she led the organization through strong revenue growth and meaningful profit improvement across a diverse portfolio spanning oncology, rare disease, urology, neurology, and women’s health. Previously, she served as Chief Commercial and Business Development Officer at Sumitovant Biopharma, Inc. (“Sumitovant”) from 2020 to 2023 until its integration into Sumitomo. Prior to that, she served as Chief Commercial Development Officer at Roivant Sciences Ltd., where she played a key role in the formation of Sumitovant and was instrumental in launch preparations and commercialization for several key brands, including ORGOVYX®, GEMTESA®, RETHYMIC®, and MYFEMBREE®. Earlier in her career, Ms. Gulfo held several senior leadership roles at Pfizer Inc. (“Pfizer”), including President and General Manager of Pfizer’s U.S. Primary Care Business Unit and Country Manager for Pfizer’s U.S. Biopharma Business, where she oversaw market access and commercial operations across the Primary Care, Specialty, and Oncology divisions, and led the launch of LIPITOR®. Ms. Gulfo holds a B.S. in Biology from Seton Hall University and an M.B.A. in Marketing from Fairleigh Dickinson University. +Our Nomination and Corporate Governance Committee and our Board believe that Ms. Gulfo’s extensive experience as an executive in the life sciences industry and in particular her experience with the commercial launch of multiple therapies, provide her the qualifications and skills to serve on the Board of Directors. +Wouter Joustra. Wouter Joustra has served as a member of the Board of Directors since July 2024. Wouter Joustra is a General Partner at Forbion, a leading European life sciences venture capital firm. At Forbion, Mr. Joustra is responsible for general fund management, private, cross-over and public investments. Mr. Joustra focuses on Forbion’s Growth Opportunities Funds, which concentrates on investing in late-stage life sciences companies. Prior to joining Forbion in 2019, Mr. Joustra previously was a Senior Trader, as well as Executive Board member of the Life Sciences franchise at Kempen, a European boutique investment bank. Mr. Joustra also served as a member of the board of directors of Gyroscope Therapeutics until the closing of its acquisition by Novartis in February 2022 for up to $1.5 billion, the board of directors of VectivBio (NASDAQ: VECT) from December 2022 until the closing of its $1.2 billion acquisition by Ironwood Pharmaceuticals in December 2023, the board of directors of Aiolos Bio until the closing of its acquisition by GSK plc in February 2024 for up to $1.4 billion and the board of Forbion’s SPAC vehicle until the completion of the business combination of enGene Holdings Inc. (NASDAQ: ENGN) in October 2023. Currently Mr. Joustra serves on the board of directors of VectorY Therapeutics, NewAmsterdam Pharma N.V. (NASDAQ: NAMS), Beacon Therapeutics, Navigator Medicines, Verdiva Bio and VOR Biopharma (NASDAQ: VOR). Mr. Joustra holds an M.Sc. in Business Administration from the University of Groningen, and a B.Sc. in International Business and Management from this same university. +Our Nomination and Corporate Governance Committee and our Board believe that Mr. Joustra’s board experience and significant experience as an investor in the life sciences industry provide him the qualifications and skills to serve on the Board of Directors. +105 +Dr. Louis Lange . Louis Lange, M.D., Ph.D., has served as a member of the Board of Directors since November 2022. Dr. Lange previously served on the NewAmsterdam Pharma board from 2021 to November 2022. Dr. Lange previously served as the chief of cardiology and a professor of medicine at the Washington University School of Medicine and was one of the early academicians in molecular cardiology. Dr. Lange founded and served as the chief executive officer and chairman of CV Therapeutics, Inc. (Nasdaq: CVTX) from 1990 until 2019, and as a senior advisor to Gilead Sciences, Inc. from 2009 until 2019, following its acquisition of CV Therapeutics. Dr. Lange currently serves as a general partner with Asset Management Ventures. Dr. Lange also serves on the board of directors of private companies Stealth Biotherapeutics Corp., Amygdala Neurosciences, Inc. and Incendia Therapeutics, Inc. Dr. Lange previously served on the board of directors of Audentes Therapeutics, Inc. (sold to Astellas Pharma Inc.) and CymaBay Therapeutics (acquired by Gilead). Dr. Lange has a Bachelor’s degree from the University of Rochester, an M.D. from Harvard University and a Ph.D. in Biological Chemistry, also from Harvard University. +Our Nomination and Corporate Governance Committee and our Board believe that Dr. Lange’s board experience, medical background and experience as a public company officer, provide Dr. Lange with the qualifications and skills to serve on the Board of Directors. +John W. Smither . John Smither has served as a member of the Board of Directors since January 2023. Mr. Smither previously served as the Chief Financial Officer of Arcutis Biotherapeutics, Inc. (Nasdaq: ARQT) from May 2019 until March 2021, and again as Interim Chief Financial Officer from September 2023 to April 2024, and the Chief Financial Officer of Sienna Biopharmaceuticals, Inc. (Nasdaq: SNNA) from April 2018 until March 2019. Mr. Smither also served as the interim Chief Financial Officer at Kite Pharma (a Gilead Sciences, Inc. company) from October 2017 until April 2018 during its integration with Gilead. Mr. Smither presently serves on the board of directors of Genelux serving as chair of its compensation committee and as a member of its audit committee. Mr. Smither also served on the board of directors and audit committee chair of eFFECTOR Therapeutics, Inc. (Nasdaq: EFTR) from March 2018 to September 2023 and Applied Molecular Transport, Inc. (Nasdaq: AMTI) from January 2022 to December 2023. Mr. Smither also served as a member of the nomination and corporate governance committee of eFFECTOR Therapeutics and the compensation committee of Applied Molecular Transport. Mr. Smither previously served on the board of directors of Achaogen, Inc. and Principia Biopharma Inc and as the chair of their audit committees. Mr. Smither also has 15 years’ experience as a practicing CPA (inactive), including time spent as an audit partner with Ernst & Young LLP. +Our Nomination and Corporate Governance Committee and our Board believe that Mr. Smither’s experience as the Chief Financial Officer for a number of public companies and his experience serving on the board of directors and audit committees of other public life science companies provide Mr. Smither with the qualifications and skills to serve on the Board of Directors. +Dr. James N. Topper . James N. Topper, M.D., Ph.D., has served as a member of the Board of Directors since November 2022. Dr. Topper previously served as FLAC’s Chief Executive Officer and Chairman of the FLAC Board of Directors from October 2020 until November 2022. Dr. Topper currently serves as a Managing Partner of Frazier Life Sciences (“Frazier”). He joined Frazier in 2003 and opened Frazier’s Menlo Park office in the same year. Throughout his tenure as a Managing Partner, Dr. Topper has invested across over 35 companies encompassing a broad spectrum of life science and biopharmaceutical companies. Dr. Topper has led and served as a board member for many of Frazier’s successful life sciences investments, including Acerta Pharma BV (sold to AstraZeneca), Alpine Immune Sciences (sold to Vertex), Amunix Pharmaceuticals, Inc. (sold to Sanofi), Aptinyx Inc. (Nasdaq: APTX), Calistoga Pharmaceuticals, Inc. (co-founder, sold to Gilead Sciences), Entasis Therapeutics Holdings Inc. (sold to Innoviva), Frazier Lifesciences Acquisition Corporation, Mavupharma (sold to AbbVie), Rempex (sold to The Medicines Company), Incline (co-founder, sold to The Medicines Company), Alnara (sold to Lilly), Portola, Inc. (co-founder, Nasdaq: PTLA), Phathom Pharmaceuticals Inc. (Nasdaq: PHAT), CoTherix, Inc (sold to Actelion), and Threshold Pharmaceutical, Inc. (Nasdaq: THLD). He currently represents Frazier on the boards of companies such as Phathom Pharmaceuticals, Inc. (Nasdaq: PHAT), Diagonal Therapeutics, Inc., Counterakt Therapeutics, Inc., Enlaza Therapeutics, Inc., Attovia Therapeutics, Inc., and Architect Therapeutics, Inc. In 2011 and 2016, Dr. Topper was named to the Midas List of leading venture capitalists, and in 2013, Dr. Topper was recognized by Forbes as a top ten healthcare investor. Dr. Topper received his M.D. and Ph.D. in Biophysics from Stanford and his B.S. from the University of Michigan. +Our Nomination and Corporate Governance Committee and our Board believe that Dr. Topper’s experience overseeing Frazier’s investments in biotechnology, his experience in senior management positions and his significant knowledge of industry, medical and scientific matters, provide Dr. Topper with the qualifications and skills to serve on the Board of Directors. +Janneke van der Kamp . Janneke van der Kamp has served as a member of the Board of Directors since April 2023. Ms. van der Kamp currently serves as the Chief Executive Officer of Norgine. Prior to this, she was Chief Commercial Officer of Grünenthal and previously spent two decades in roles of increasing responsibility at Novartis, ultimately serving on the Pharma Executive Committee as Global Head of Product & Portfolio Strategy from 2016 to 2018 and then Head of Pharma Region Europe from 2019 until 2022. While at Novartis, Ms. van der Kamp supported the launch of Novartis’ key cardiovascular disease medicines, as well as the company’s efforts in immunology, dermatology, neuroscience, ophthalmology, and respiratory disease. Ms. van der Kamp received her M.S. in chemistry from Utrecht University and M.B.A. from INSEAD. +Our Nomination and Corporate Governance Committee and our Board believe that Ms. van der Kamp’s operational experience in the pharmaceutical industry and business development experience provide Ms. van der Kamp that qualifications and skills to serve on the Board of Directors. +Arrangements Related to Election or Nomination of Directors +106 +Dr. Topper was initially designated to serve on our Board by FLAC, and Drs. Davidson, Kastelein and Lange were initially designated by NewAmsterdam Pharma pursuant to the terms of the Business Combination Agreement. Other than the initial appointments of Drs. Topper, Davidson, Kastelein and Lange pursuant to the Business Combination Agreement, there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director, and there are no such arrangements or understandings pursuant to which any person is presently being nominated as a director. +107 +Our Executive Officers +Biographical information regarding our executive officers as of February 18, 2026 is set forth below. Our executive officers are appointed by, and serve at the pleasure of, our Board of Directors. +Name +Position +Age +Michael Davidson, M.D. +Chief Executive Officer +69 +Ian Somaiya +Chief Financial Officer +52 +Louise Kooij +Chief Accounting Officer +50 +Dr. Michael Davidson . Dr. Davidson’s biography is included in the section above titled “—The Board of Directors.” +Ian Somaiya . Ian Somaiya joined the Company in October 2023 as its Chief Financial Officer. Mr. Somaiya has over 25 years of experience in finance and biotechnology. Most recently, Mr. Somaiya served as the Chief Financial and Business Officer at Elucida Oncology, Inc. from November 2021 until July 2023, where he was responsible for fundraising and overall corporate strategy. From April 2018 until November 2021, Mr. Somaiya served as the Chief Financial Officer of TCR 2 Therapeutics, Inc. (“TCR2”) where he successfully navigated the company through its initial public offering and two follow-on equity financings, raising more than $350 million in the aggregate. During his tenure at TCR2, Mr. Somaiya led the company’s finance and public company reporting functions, as well as the business development and investor relations functions. Prior to joining TCR2, Mr. Somaiya spent over 20 years on Wall Street where he conducted extensive research on more than 100 biotechnology companies across diverse therapeutic areas, technology platforms and stages of development. Mr. Somaiya served as a Managing Director and Head of Biotechnology Research at BMO Capital Markets and served as a Managing Director and Equity Analyst at Nomura Securities Co. Ltd., Piper Jaffray Companies and Thomas Weisel Partners Group, Inc. Mr. Somaiya began his career as a research analyst at Morgan Stanley and Prudential Securities and was recognized as “Best on the Street” by the Wall Street Journal for his coverage on biotechnology in 2006, 2007 and 2008. Mr. Somaiya received a Bachelor of Arts degree in biology and neuroscience from New York University. +Louise Kooij . Louise Kooij joined the Company as its Chief Financial Officer in May 2020. In January 2023, Ms. Kooij was appointed as the Company’s Chief Accounting Officer and served in that role until March 2023 when she was appointed Interim Chief Financial Officer. In October 2023 Ms. Kooij was appointed as the Company's Chief Accounting Officer. Ms. Kooij previously spent 18 years working in various finance roles at Genzyme Europe B.V. ("Genzyme"), a multinational biotechnology company. During her tenure at Genzyme, she led the European and Global FP&A team, many European finance projects, the European integration of Genzyme into Sanofi, the integration of acquisitions into Sanofi, the European Business Operations Team as well as the Rare Disease unit in Central and Eastern Europe. Before joining Genzyme, Ms. Kooij worked as a certified auditor at PricewaterhouseCoopers as well as other audit firms for seven years. Since May 2020, Ms. Kooij has also served as an independent consultant in the role of chief financial officer to other private biotechnology start-ups. Ms. Kooij received a master’s degree from Nyenrode Business University and her auditing degree from Hogeschool Markus Verbeek. +Family Relationships +There are no family relationships among any of our executive officers or directors. +Code of Business Conduct and Ethics +We have adopted a written Code of Business Conduct and Ethics ("Code of Conduct") which outlines the principles of legal and ethical business conduct under which we will do business. The Code of Conduct includes a provision that provides for a process by which employees and directors can report potential irregularities. The Code of Conduct also provides protection from retaliation or discrimination by the Company against whistleblowers due to reporting issues relating to compliance with applicable laws and regulations. The Code of Conduct applies to all of our employees, officers and directors. The Code of Conduct is available on our website at https://ir.newamsterdampharma.com/corporate-governance/governance-overview . Our website and its contents are not incorporated into this annual report. +Our Chief Legal Officer and Nomination and Corporate Governance Committee are responsible for overseeing the Code of Conduct. Any waiver of the Code of Conduct for our executive officers or directors must be approved by the Nomination and Corporate Governance Committee, and any waiver for any other employee must be approved by the Chief Legal Officer. We intend to disclose any future amendments to, or waivers from, our Code of Conduct within four business days of the waiver or amendment through a posting on our website. +Insider Trading Policies and Procedures +The Company has an insider trading policy and procedures governing the purchase, sale and/or other dispositions of the Company’s securities that applies to all directors, officers, employees and certain other persons. It is also the Company’s policy to take appropriate steps to comply with applicable federal and state securities laws and regulations, as well as applicable stock exchange listing standards, when the Company engages in transactions in the Company’s securities. The Company believes that its insider trading policy and procedures are +108 +reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Annual Report. +Director Nomination Process +Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. Our Nomination and Corporate Governance Committee does not have a formal policy with respect to director candidates recommended by shareholders but may consider candidates it deems qualified from any source. The Board believes retaining the flexibility to consider a director candidate or ignore a director candidate if it determines doing so, is in the best interest of the Company. If our Nomination and Corporate Governance Committee approves a candidate for further review they will establish an interview process for the candidate. Our Nomination and Corporate Governance Committee will also take into consideration the candidate’s personal attributes, including, without limitation, personal integrity, loyalty, ability to apply sound and independent business judgment, awareness of a director’s vital part in our good corporate citizenship and image, time available for meetings and consultation on our matters and willingness to assume broad, fiduciary responsibility. +Audit Committee +The Audit Committee consists of John W. Smither, William H. Lewis and Mark C. McKenna. Mr. Smither serves as chairperson of the Audit Committee. The Audit Committee assists the Board of Directors in, among other things: +• +overseeing the Company’s accounting, financial reporting and internal controls processes; +• +overseeing the Company’s compliance with legal and regulatory requirements, including related to cybersecurity, and the Company's whistleblower hotline; +• +overseeing the selection, qualifications, independence, and performance of the Company’s independent registered public accounting firm; and +• +pre-approving of all permitted non-audit services to be performed by the independent registered public accounting firm. +The Audit Committee has the authority to retain independent counsel and advisors to assist in carrying out its responsibilities. +Each member of the Audit Committee is an “independent director,” as such term is defined in Nasdaq Listing Rule 5605(a)(2) and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. The Board of Directors has also determined that each of the Audit Committee members is able to read and understand fundamental financial statements. The Board of Directors has determined that Mr. Smither qualifies as an “audit committee financial expert,” as such term is defined in the rules of the SEC. +Item 11. Executive Compensation +Compensation Discussion and Analysis +This Compensation Discussion and Analysis (“CD&A”) describes the philosophy, objectives, process, components and additional aspects of our executive compensation program for the fiscal year ended December 31, 2025. This CD&A is intended to be read in conjunction with the compensation tables that immediately follow this section, which provide historical compensation information for our following named executive officers ("NEOs"): +Name +Position +Michael Davidson, M.D. +Chief Executive Officer +Ian Somaiya +Chief Financial Officer +Louise Kooij +Chief Accounting Officer +John Kastelein, M.D., Ph.D. FESC +Chief Scientific Officer +Douglas Kling +Chief Operating Officer +Executive Compensation Philosophy and Objectives +We maintain a shareholder-approved, formal, written compensation policy consistent with Dutch law. The compensation policy provides that the amount, level and structure of compensation should contribute to the Company's strategy, long-term interests and sustainability by: +• +attracting, retaining and motivating highly skilled individuals with the qualities, capabilities, profile and experience needed to support and promote the growth and sustainable success of the Company and its business; +• +driving strong business performance, promoting accountability and incentivizing the achievement of short and long-term performance targets with the objective of furthering long-term value creation in a manner consistent with the Company's identity, mission and values; +109 +• +assuring that the interests of the Company's directors are closely aligned to those of the Company, its business and its stakeholders; and +• +ensuring overall market competitiveness of the compensation packages, while providing the Board of Directors sufficient flexibility to tailor the Company's compensation practices on a case-by-case basis, depending on the market conditions from time to time. +To achieve these objectives, the Compensation Committee of the Board of Directors (the “Compensation Committee”) regularly evaluates our executive compensation program to determine components of compensation and establish compensation levels that are appropriate based on each executive’s level of experience, performance, growth potential, job responsibility and criticality of role, and that align with the Company's size and stage. +Executive Compensation Components +Our executive compensation program generally consists of, and is intended to strike a balance among, the following three principal components: base salary, annual performance-based cash bonuses and long-term incentive equity grants. We also provide our executive officers with severance and change-in-control benefits, as well as other benefits available to all our employees, including retirement benefits under the Company’s U.S. 401(k) plan, retirement arrangements for employees in other countries and participation in employee benefit plans. The following chart summarizes the key features and objectives of the three main elements of compensation. +Element +Description +Objectives +Base Salary +• +Fixed cash compensation.  +• +Determined based on each executive officer’s role, individual skills, experience, performance, and external market value. +• +Provide stable compensation to executive officers, allow the Company to attract and retain skilled executive talent and maintain a stable leadership team. +Short-Term Incentives: Annual Bonus Plan +• +Variable cash compensation based on the level of achievement of pre-determined annual corporate goals, contribution to the corporate goals and personal performance. +• +Promote and reward the achievement of key annual strategic, business and operational goals. +Long-Term Incentives: Equity-Based Compensation +• +Variable equity-based compensation. +• +Share options: Right to purchase shares at a price equal to the share price on the grant date. +• +Restricted share units. +• +Motivate and reward achievement of multi-year strategic goals and delivery of sustained long-term value to shareholders, as well as attract and retain executive officers. +Compensation Program Governance +The Compensation Committee assesses the effectiveness of our executive compensation program from time to time and reviews risk mitigation and governance matters, which includes maintaining the following best practices: +110 +What We Do +☑ +Pay for Performance +The majority of total executive compensation is variable and at-risk. +☑ +Balance Short- and Long-Term Compensation +The allocation of incentives among annual cash incentives and long-term equity incentives does not over-emphasize short-term performance at the expense of achieving long-term goals. +☑ +Combination of Balanced Performance Metrics +We use a diverse set of milestone performance metrics in our annual performance bonus plan to ensure that no single measure affects compensation disproportionately. +☑ +Independent Compensation Consultant +The Compensation Committee has engaged an independent compensation consultant to provide information and advice for use in Compensation Committee decision-making. +☑ +Peer Data +We develop a peer group of companies based on industry, development stage, therapeutic focus, market capitalization, employee headcount, and number of years as a public company to reference for compensation decisions. +☑ +Clawback +We maintain a clawback policy compliant with SEC and Nasdaq rules. +☑ +Double Trigger Change-in-Control Provisions +We entered into agreements with each of the NEOs that provide certain financial benefits if there is both a change in control and a termination of employment (a “double trigger”). A change in control alone would not trigger cash severance pay. +What We Don’t Do +✘ +No Hedging or Pledging of Company Securities +We prohibit officers and directors from engaging in hedging, pledging or short sale transactions in Company securities. +✘ +No Perks +We do not provide material perquisites to executive officers. +✘ +No Excise Tax Gross-Ups +We do not provide excise tax gross-ups. +✘ +No Share Options Below Fair Market Value +We do not grant share options with an exercise price below fair market value. +✘ +No Guaranteed Compensation +We do not have agreements with our NEOs that provide any guarantees relating to base salary increases or the amounts of any annual cash incentive awards or long-term equity awards. +✘ +No Special Retirement Benefits +We do not provide defined benefit pension arrangements or post-retirement health coverage for our executive officers or employees. Our NEOs and other executives are eligible to participate in our 401(k) plan (U.S.) or personal pension plan on the same basis as our other employees. +✘ +No Share Option Repricing +We do not permit repricing of share options or share appreciation rights without shareholder approval. +Compensation Determination Process +111 +Role of our Shareholders +Our shareholders have adopted a formal, written compensation policy in accordance with Dutch law. Changes to the compensation policy will require a vote of the General Meeting by simple majority of votes cast. The Board of Directors and the Compensation Committee determine the compensation of individual directors and executive officers with due observance of the compensation policy to the extent applicable. +At our 2025 General Meeting, our shareholders approved the compensation of our named executive officers by a non-binding, advisory vote with over 98% of the votes cast on the proposal voting "FOR" approval. The Compensation Committee and Board considered the results of this advisory vote in connection with its annual review of our executive compensation practices. +Role of the Compensation Committee +The Compensation Committee establishes the compensation philosophy and objectives (in accordance with the compensation policy), determines the structure, components and other elements of executive compensation, and reviews and approves the compensation of the NEOs or recommends it for approval by the Board of Directors. The Compensation Committee structures the executive compensation program to accomplish its articulated compensation objectives in light of the compensation philosophy described above. +The Compensation Committee annually reviews compensation policies and procedures to determine if any updates are needed. The Compensation Committee also approves, or recommends to the Board of Directors for approval, the corporate objectives associated with our annual performance-based cash incentive program, as well as assessing the Company’s performance against those corporate objectives after the end of the year or making a recommendation to the Board of Directors as to the extent to which the Company has met those corporate objectives. +The Compensation Committee meets periodically throughout the year to manage and evaluate our executive compensation program, and generally determines executive compensation on an annual basis, typically at the beginning of each fiscal year; however, decisions may occur during the year for new hires, promotions or other special circumstances as the Compensation Committee determines appropriate. +Role of the Chief Executive Officer and Management +The Compensation Committee generally seeks the input of our Chief Executive Officer when discussing the performance of, and compensation for, our executive officers, including the NEOs other than the Chief Executive Officer. Our Chief Executive Officer is instrumental in developing both our annual and long-term strategic objectives and goals, which are reviewed and approved by the Compensation Committee and the Board of Directors. Our Chief Executive Officer is also instrumental in providing perspective on our performance against those goals. +Our Chief Executive Officer reviews the performance of the other executive officers, including the other NEOs, annually and presents his assessments to the Compensation Committee. Our Chief Executive Officer then provides corresponding compensation recommendations, including as to base salary adjustments, annual performance-based cash compensation targets and payouts, and equity awards. The Compensation Committee considers the Chief Executive Officer’s input as one factor in its deliberations to determine the compensation of our executive officers, including the other NEOs. The Compensation Committee gives significant weight to the recommendations of the Chief Executive Officer in light of his greater familiarity with the day-to-day performance of his direct reports and the importance of incentive compensation in driving the execution of managerial initiatives developed and led by the Chief Executive Officer. +While the Chief Executive Officer may attend Compensation Committee meetings, the Chief Executive Officer may not be present during voting or deliberations on his compensation and does not play a role in determining his compensation. +In addition, other members of management may attend Compensation Committee meetings to provide background information or advice, or to answer questions posed by members of the Compensation Committee, including with respect to the financial, accounting, tax, legal and retention implications of various compensation decisions. +Role of the Independent Compensation Consultant +The Compensation Committee recognizes that there is value in procuring independent, objective expertise in connection with fulfilling its duties, and pursuant to its charter, the Compensation Committee has the authority to select and retain advisors to assist it with carrying out its duties and responsibilities. +The Compensation Committee has engaged the services of an independent compensation consultant, the Human Capital Solutions practice of Aon plc (“Aon”), to assist it in connection with making executive compensation decisions. The Compensation Committee has worked with Aon to develop a peer group, to provide a competitive market analysis of the base salary, annual performance-based cash incentive awards and long-term incentive compensation of our executive officers compared against the peer group, and to review other market practices and trends with respect to executive compensation. +112 +The Compensation Committee annually assesses the independence of Aon pursuant to SEC and Nasdaq rules. The Compensation Committee assessed the independence of Aon consistent with Nasdaq listing standards and concluded that the engagement of Aon does not raise any conflict of interest. +While the Compensation Committee took into consideration the review and recommendations of Aon when making decisions about our executive compensation program in 2025, ultimately, the Compensation Committee made its own independent decisions in determining our executives’ compensation. +Consideration of Comparative Market Data +The Compensation Committee believes that obtaining relevant market and benchmark data is important to making determinations about executive compensation. This information provides a solid reference point and helpful context for making compensation decisions, even though, relative to other companies, there are differences and unique aspects of the Company. +With Aon’s assistance and input, the Compensation Committee annually adopts a peer group of companies that it uses as a reference group to provide a broad perspective on competitive pay levels and practices. +In doing so, the Compensation Committee seeks to approve a peer group that is representative of the sector in which we operate and includes companies within an appropriate defined range in terms of key attributes. +In October 2024, the Compensation Committee determined that our peer group for determining the compensation of our NEOs in 2025 would consist of Phase 2, Phase 3 and NDA/BLA biopharmaceutical/biotechnology companies. In general, the selection criteria consisted of the following: +• +market capitalizations between one-third and three times the market capitalization of the Company; +• +annual revenues less than $100 million; +• +fewer than 150 employees; and +• +preference given to companies that went public within the last 5 years. +Based on these criteria, the peer group for setting 2025 compensation consisted of the following 24 companies: +4D Molecular Therapeutics, Inc. +Geron Corporation +Pliant Therapeutics, Inc. +89bio, Inc. +Humacyte, Inc. +Scholar Rock Holding Corporation +Akero Therapeutics, Inc. +IDEAYA Biosciences, Inc. +SpringWorks Therapeutics, Inc. +Belite Bio, Inc. +Immunovant, Inc. +Structure Therapeutics Inc. +Biohaven Ltd. +Iovance Biotherapeutics, Inc. +Summit Therapeutics, Inc. +Cogent Biosciences, Inc. +Keros Therapeutics, Inc. +Tarsus Pharmaceuticals, Inc. +Crinetics Pharmaceuticals, Inc. +Krystal Biotech, Inc. +Vera Therapeutics, Inc. +Cullinan Oncology, Inc. +Madrigal Pharmaceuticals, Inc. +Viking Therapeutics, Inc. +The Compensation Committee utilizes the compensation of executive officers of the companies in this peer group as one reference point in the compensation-setting process along with various other factors, such as the executive’s performance, experience, and competitive market conditions. +Additionally, when considering the establishment of 2025 compensation levels for our NEOs, the Compensation Committee, upon recommendation from Aon, supplemented the 2025 peer group long-term incentive market data with data derived from the Radford 2024 Global Life Science Survey for public pre-commercial biopharma companies. This survey data was used to obtain a general understanding of the compensation practices of companies similar to ours at the time. +The Compensation Committee believes that the compensation practices of our peer group, together with the data derived from the Radford 2024 Global Life Science Survey, provided us with appropriate compensation reference points for evaluating and determining the compensation of our NEOs during 2025. +2025 Executive Compensation Program +Our executive compensation program generally consists of, and is intended to strike a balance among, the following three principal components: base salary, annual performance-based cash bonus, and long-term incentive equity compensation. +CEO and NEO Pay Mix +Though the Compensation Committee has not adopted any formal or informal policies or guidelines that specify the allocation of compensation between these three elements, consistent with our “pay-for-performance” philosophy, the Compensation Committee has +113 +determined that NEO compensation packages must include an emphasis on and substantial portion of variable, at-risk pay while ensuring adequate base salary to attract and retain talent. The Compensation Committee considers compensation to be at-risk if it is subject to performance-based payment or vesting conditions or if its value depends on share price appreciation. +Our executive compensation is linked strongly to the performance of the business, with a majority of annual target compensation being variable and at-risk. In 2025, 95% of the total target compensation for the CEO was at-risk and 88% of the total target compensation for all other NEOs was at-risk. The following pay mix pie chart graphics illustrate our emphasis on variable, at-risk pay and long-term incentives. +The percentages of target total direct compensation as calculated above are based on the annualized 2025 base salary, the 2025 annual cash incentive compensation opportunity (assuming achievement at the target level), and the grant date fair value of the annual equity grants to NEOs. Each compensation element is described in this section and outlined in more detail in the Summary Compensation Table and Grants of Plan-Based Awards table below. +Base Salary +We provide our executive officers with fixed cash compensation in the form of a base salary. In establishing base salaries, the Compensation Committee exercises its judgment and discretion and considers several factors, including the performance of the individual executive officer, the officer’s potential to contribute to our long-term strategic goals, the officer’s role and scope of responsibilities within our Company, individual experience and skills, the officer’s compensation as compared to similarly situated executives at comparable companies in our peer group, competitive market dynamics for the position, and (with respect to other NEOs) the input of our Chief Executive Officer. None of our NEOs is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary. +Annual base salaries for our NEOs as of December 31, 2025, as compared with their annual base salaries as of December 31, 2024, were as follows: +NEO +2025 Base Salary +($) +2024 Base Salary +($) +% Change +Michael Davidson, M.D. +646,152 +621,300 +4 +% +Ian Somaiya +486,720 +468,000 +4 +% +Louise Kooij (1) +452,217 +N/A +N/A +John Kastelein, M.D., Ph.D. FESC (1) +537,866 +486,043 +6 +% +Douglas Kling +519,967 +500,000 +4 +% +(1) +Ms. Kooij and Dr. Kastelein are paid their salaries and bonuses in Euros. The table above presents Ms. Kooij and Dr. Kastelein's compensation converted into USD at a rate of $1.130 per Euro, which was the average exchange rate as published by the European Central Bank for 2025. +Annual Performance-Based Cash Bonus +The annual cash incentive bonus plan (the “Annual Bonus Plan”) is a cash-based plan that rewards executive officers for the achievement of key short-term objectives. The structure of the Annual Bonus Plan incentivizes executive officers to achieve research, clinical, operational, and organizational results that the Compensation Committee views as critical to the execution of our business strategy. +For the NEOs, the amount of the payout, if any, under the Annual Bonus Plan is based on operational performance as well as individual performance. The Annual Bonus Plan gives considerable weight to achievement of key corporate and individual goals, while providing the Compensation Committee with the ability to exercise its best judgment in determining the overall level of achievement of such goals. +Target Opportunities. The Compensation Committee determines the target cash incentive opportunity available to each NEO by taking the individual’s annual base salary in effect for the year and multiplying it by the individual’s target incentive percentage. Among other factors, +114 +the target incentive percentages are determined with reference to the peer group company percentages of salary for the respective positions and the proportion of total direct compensation represented by the annual cash incentive. For 2025, our NEOs had the following annual cash bonus targets: +NEO +2025 Target Annual Bonus Opportunity as a % of Base Salary +Michael Davidson, M.D. +60 +% +Ian Somaiya +45 +% +Louise Kooij +40 +% +John Kastelein, M.D., Ph.D. FESC +40 +% +Douglas Kling +40 +% +Corporate Performance Goals. As a pre-commercial biopharmaceutical company, we do not have material revenue or profits at this stage, and our success is measured by achievement of research and development milestones and other key strategic and operational goals. These goals were reviewed and approved by the Compensation Committee (and the Board, with respect to our Chief Executive Officer) in February 2025 and then later revised by the Compensation Committee in August 2025 (and the Board, with respect to our Chief Executive Officer) solely to adjust the weighting of certain of the goals based on the Compensation Committee's view of the importance of such goals at the time. +The Compensation Committee (and the Board, with respect to our Chief Executive Officer) approved the following corporate goals and weightings for 2025. While each area had specific goals, the goals themselves are not disclosed below due to commercial and business sensitivities: +• +Launch Readiness : goals that progress the work in regulatory, supply chain and commercial related to potential commercial launch in various markets (weighted 25%); +• +Clinical Development : goals that progress our product candidates with a particular focus on execution and quality for PREVAIL (weighted 25%); +• +Scientific Leadership : goals that position our product candidates as innovative in the therapeutic area (weighted 25%); +• +Financial Sustainability and Corporate Strategies : goals that advance long-term company growth (weighted 15%); and +• +Employee Experience and Engagement : goals that ensure a focus on employees and a positive work environment (weighted 10%). +Corporate Performance Goals and Related Payouts. If we do not achieve an objective of corporate performance, there is no corresponding amount to be included in the payout related to that element. If we achieve the objective, the Compensation Committee will authorize a payout of the portion of the overall opportunity allocated to that element, and if we exceed the objective by achieving a stretch goal, the Compensation Committee may, in its discretion, authorize a higher payout, but the total payout will not exceed 200% of an executive’s overall target incentive. +2025 Achievement of Corporate Goals. In January 2026, the Compensation Committee (and the Board, with respect to our Chief Executive Officer) met to assess the Company’s performance against the corporate performance goals for 2025. While the Compensation Committee considered the Chief Executive Officer’s views regarding the Company’s 2025 performance, the Compensation Committee (and the Board, with respect to our Chief Executive Officer) made an independent determination regarding corporate performance, which included consideration of, among others, the key achievements set forth below. Based on this assessment, the Compensation Committee (and the Board, with respect to our Chief Executive Officer) determined that the overall corporate achievement level was 122.5%. +115 +Launch Readiness: +Significant achievements in the supply chain, meeting both US and EMA standards. +Filings for EMA approval submitted in summer of 2025 ahead of schedule. +Clinical Development: +Quality metrics for PREVAIL trail exceeded goal. +Leveraged enhanced data modeling capability for study projections. +Scientific Leadership: +35 abstracts presented, 7 published articles in top tier journals. +In June and July 2025, announced positive data from the prespecified Alzheimer's disease biomarker analysis in the BROADWAY clinical trial and presented at the 2025 Alzheimer’s Association International Conference. +Financial Sustainability / Corporate Strategies: +Year-end cash, cash equivalents and marketable securities balance of approximately $729 million favorable to budget. +Expansion of worldwide patent portfolio. +Execution of drug product supply agreement with Menarini. +Employee Engagement: +Exceeded expectations with respect to limiting/eliminating voluntary turnover for the year. +Exceeded targets for interview slates with employee referrals. +Individual Performance. In determining Annual Bonus Plan payouts, the Compensation Committee also evaluated the individual performance of our NEOs. The Compensation Committee views the inclusion of individual performance as an important component of the annual cash bonus plan because it motivates the NEOs for individual performance, even if overall corporate performance is lower. In assessing the individual performance of our NEOs, the Compensation Committee, with the input of our Chief Executive Officer for the other NEOs, considered each such officer’s individual contributions to the achievement of our 2025 goals, and the officer’s individual performance in helping to execute on our strategic and operating initiatives. Each non-Chief Executive Officer NEO is paid 75% of their bonus based upon the corporate achievement and 25% of their bonus based on individual contribution to goals. The Chief Executive Officer's bonus is based on corporate achievement alone. +Overall Payouts. Based on the assessment described above, the Compensation Committee recommended, and the Board of Directors determined, that the Company’s corporate performance exceeded the 2025 goals. The Compensation Committee determined an overall 2025 performance level, as determined with reference to both corporate performance and individual performance. The amounts of the annual bonus awards for 2025 were determined as follows: +Allocation of Bonus +Actual Bonus Achievement +NEO +Base Salary +($) +Target Annual Bonus +(%) +Corporate Goals +(%) +Individual Contribution +(%) +Corporate Goals +(%) +Individual Contribution +(%) +Payout +($) +Michael Davidson, M.D. +646,152 +60 +% +100 +% +— +122.5 +% +— +474,922 +Ian Somaiya +486,720 +45 +% +75 +% +25 +% +122.5 +% +125 +% +269,673 +Louise Kooij (1) +452,217 +40 +% +75 +% +25 +% +122.5 +% +120 +% +220,455 +John Kastelein, M.D., Ph.D. FESC (1) +537,866 +40 +% +75 +% +25 +% +122.5 +% +135 +% +270,277 +Douglas Kling +519,967 +40 +% +75 +% +25 +% +122.5 +% +125 +% +256,084 +(1) +The 2025 target incentive and payout amounts for Ms. Kooij and Dr. Kastelein have been converted from Euros to USD at an exchange rate of 1 Euro to $1.130 USD. +Dr. Kastelein and Mr. Kling contributed heavily to the achievement of goals focused on scientific excellence and clinical operations, which exceeded expectations hence earning them above target bonus awards. Mr. Somaiya and Ms. Kooij contributed heavily to the achievement of goals related to financial sustainability which exceeded expectations hence earning them above target bonus awards. +Equity-Based Incentive Awards +The third and largest component of the executive compensation program is long-term equity incentives. The Compensation Committee designed the long-term incentive opportunity for the NEOs to motivate and reward executive officers to achieve multiyear strategic goals and deliver sustained long-term value to shareholders, as well as attract and retain executive officers. +We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our shareholders. Long-term equity incentives also promote retention because executive officers will only receive value if they remain employed by us over the required term. +116 +Grants to our NEOs and other employees are made at the discretion of the Compensation Committee and are generally made upon commencement of employment, promotion or annually during the first quarter of each year. We believe that our equity awards are an important compensation and retention tool for our executive officers, as well as for our other employees. +Prior to 2025, we used share options as our primary equity vehicle because we believe that they are an effective means by which to align the long-term interests of our executive officers with those of our shareholders. Share options motivate stock price appreciation over the long term because they deliver value only if the stock price increases. The use of share options also can provide tax and other advantages to our executive officers relative to other forms of equity compensation. +Commencing in 2025, we introduced RSUs as part of the annual grants to all employees. This decision was primarily based on keeping in line with the practices of our refreshed peer group. +In determining the number of share options and RSUs to be granted to an NEO in 2025, the Compensation Committee (and the Board, with respect to our Chief Executive Officer) took into account both the range of the grant date fair values of awards granted to executive officers at the companies in the peer group and the range of grant size as a percent of the companies in the peer group. +The annual equity-based incentive awards granted to our NEOs are set forth in the table below: +NEO +Share Awards +(#) +Share Awards +($)(1) +Share Options +(#) +Share Options +($)(1) +Michael Davidson, M.D. +123,529 +3,193,225 +670,467 +8,931,566 +Ian Somaiya +38,000 +986,480 +220,000 +2,941,030 +Louise Kooij +15,000 +389,400 +80,000 +1,069,465 +John Kastelein, M.D., Ph.D. FESC +34,000 +882,640 +200,000 +2,673,664 +Douglas Kling +44,000 +1,142,240 +250,000 +3,342,080 +(1) +The amounts reflect the grant date fair value of the equity-based incentive awards pursuant to ASC Topic 718. +The exercise price of the share options awarded to our NEOs is equal to the closing price of our shares on the date of the grant, and all share options granted in 2025 had a ten-year term. The options are subject to time-based vesting, with 25% of the total number of shares underlying the award vesting on the one-year anniversary of the vesting start date and thereafter in equal monthly installments for 36 months, subject to the applicable NEO's continued service through each such vesting date. The RSUs are also subject to time-based vesting, with 1/3 of the total number of shares underlying the award vesting on one-year, two-year and three-year anniversary of the vesting start date, subject to the applicable NEO's continued service through each such vesting date. +Earnout RSUs +Pursuant to the terms of the Business Combination Agreement that we entered into in July 2022, we were required to issue Earnout RSUs to Participating Optionholders upon the achievement of a certain clinical development milestone. In March 2025, it was determined that the earnout milestone triggering event set forth in the Business Combination Agreement had occurred and, as a result, the Earnout RSUs were granted on March 26, 2025. Dr. Davidson received 38,394 Earnout RSUs with a total grant date fair value of $377,922, Ms. Kooij received 8,269 Earnout RSUs with a total grant date fair value of $81,395, Dr. Kastelein received 45,481 Earnout RSUs with a total grant date fair value of $447,684 and Mr. Kling received 16,539 Earnout RSUs with a total grant date fair value of $162,797. Mr. Somaiya was not a Participating Optionholder and therefore did not receive any Earnout RSUs. All of the Earnout RSUs granted to the above listed NEOs were fully vested as of the March 26, 2025 grant date. The fair value of the Earnout RSUs were determined in accordance with the Financial Accounting Standards Codification Topic 718 (“ASC 718”), whereby the grant date for valuation purposes was determined to be November 22, 2022. +Additional Elements of Compensation +Employee Benefits +Our NEOs are eligible to participate in all our employee benefit plans, such as medical, dental, vision, group life, short and long-term disability and our 401(k) plan for U.S. employees, in each case on the same basis as other employees, subject to applicable laws. Under our 401(k) plan, the Company currently makes matching contributions of 100% of the first 3% and then 50% of the next 2% of employee contributions. We believe these benefits are important to attracting and retaining experienced employees, including our executives. +Ms. Kooij resides in the Netherlands and is employed by the Company in the Netherlands. Employees in the Netherlands are eligible to participate in a defined contribution pension plan which provides for a monthly, pre-tax contribution by the Company of 15% of an employee's gross income, subject to statutory maximums. In 2025, the Company made contributions to Ms. Kooij’s pension plan in accordance with the terms of the plan and statutory maximums. +Perquisites +We do not provide material perquisites to our executive officers. +117 +Severance and Change in Control Arrangements +We have entered into employment agreements with all our NEOs that provide for at-will employment without any specific term. Each of the agreements sets forth the NEO’s severance benefits payable upon a qualifying termination of employment or change in control of the Company. The “Potential Payments Upon Termination or Change in Control” section below describes and quantifies the severance and other benefits potentially payable to the NEOs in further detail. +These agreements provide for a combination of a cash severance payment, continued health benefits and acceleration of vesting on outstanding equity awards in specified circumstances. Acceleration of vesting is subject to a “double trigger” arrangement, meaning that vesting acceleration occurs only in the event of a change in control of the Company in connection with or followed by a termination of employment without cause by us, or with good reason by the NEO. +Given the industry in which we participate and the range of strategic initiatives that we may explore, we believe reasonable and competitive severance and change-in-control payment and benefit arrangements are an essential element of our executive compensation package and assist us in recruiting and retaining a talented executive team. We also believe such payments and benefits are in the best interests of our shareholders because they incentivize senior executives to continue to strive to achieve shareholder value in connection with change-in-control situations, particularly where the possibility of a change-in-control and the related uncertainty may lead to the departure or distraction of senior executives to the detriment of our Company and our shareholders. +We do not provide any excise tax gross ups in connection with severance paid upon termination without cause or relating to a change-in-control transaction. All change-in-control cash payments are structured to be on a “double-trigger” basis, requiring a termination without cause by us, or with good reason by the NEO, in connection with the change-in-control transaction. +Additional Compensation Policies and Practices +Clawback Policy +In 2023, the Compensation Committee adopted our Incentive Compensation Recoupment Policy (the “Clawback Policy”), designed to comply with Rule 10D-1 of the Exchange Act and Nasdaq Listing Rule 5608, which provides for recoupment of incentive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the relevant securities laws. The policy applies to our current and former executive officers. Compensation that is granted, earned or vested based wholly or in part upon attainment of a Financial Reporting Measure (as defined in the Clawback Policy) that is determined to have been paid erroneously given the restatement is subject to recoupment. +Equity Granting Practices +The Compensation Committee does not have a policy prohibiting the grant of share options, RSUs or other equity awards during periods in which there is material nonpublic information about our Company, including (1) outside a “trading window” established in connection with the public release of quarterly financial results, or (2) at any time during the four business days prior to, or the one business day following, the filing of our periodic reports or the filing or furnishing of a Form 8-K that discloses material nonpublic information. The Compensation Committee does not take material nonpublic information into account when determining the timing and terms of equity awards, and has not timed the disclosure of material nonpublic information to affect the value of executive compensation. Equity awards may occasionally be awarded on an off-cycle basis, including to new hires. +Pursuant to Item 402(x) of Regulation S-K under the Exchange Act, we are providing the following information regarding awards granted to NEO on the following dates: +• +Consistent with our historical timing on annual equity awards, we granted share options to the following NEO on January 6, 2025, which was four business days before the filing of a Current Report on Form 8-K with which the Company furnished a press release announcing the Company’s strategic priorities for the upcoming year. +Name +Grant Date +Number of Securities Underlying the Award +Exercise Price of the Award ($/Sh) +Grant Date Fair Value of the Award +Percentage +change +in +market price (1) +Michael Davidson, M.D. +01/06/2025 +670,467 +$ 25.85 +$ 8,931,566 +( 2.29 )% +(1) Indicates percentage change in the closing market price of the securities underlying the award between the trading day ending immediately prior to the disclosure of material nonpublic information and the trading day beginning immediately following the disclosure of material nonpublic information. +Anti-Hedging and Anti-Pledging Policies +We have a policy that prohibits our executive officers, directors and other employees from engaging in short sales, transactions in put or call options, or other inherently speculative transactions with respect to our shares. In addition, our insider trading policy prohibits pledging +118 +Company securities as collateral for a loan or ownership of Company securities in a margin account. Any violation of these policies may result in disciplinary action, including dismissal for cause. +Tax Considerations; Section 162(m) +When reviewing compensation matters, the Compensation Committee considers the anticipated tax consequences to us (and, when relevant, to our executive officers) of the various payments under our compensation programs. Section 162(m) of the Code generally disallows a tax deduction for any publicly held corporation for individual compensation of more than $1.0 million to certain executive officers in any taxable year. The Compensation Committee may provide compensation to executive officers that may not be tax deductible if it believes that providing that compensation is in the best interests of our Company and its shareholders. +Accounting Policies for Stock-Priced Compensation +We follow ASC 718 for our stock-based compensation awards. ASC 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of share options and RSUs under our equity incentive award plans are accounted for under ASC 718. The Board or Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. +Report of the Compensation Committee on Executive Compensation +This Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act or the Exchange Act, notwithstanding any general statement contained in any such filing incorporating this Annual Report by reference, except to the extent the Company incorporates such Report by specific reference. +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management of the Company. Based on this review and these discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and the Company’s proxy statement. +The preceding report has been furnished by the following members of the Compensation Committee: +Louis Lange, M.D., Ph.D. – Chair +William Lewis, J.D., M.B.A. +Mark McKenna +Executive Compensation Tables +Summary Compensation Table +The following table sets forth information required under SEC rules concerning the compensation paid to our NEOs in respect of fiscal years ended December 31, 2025, 2024 and 2023. +Name and Principal Position +Year +Salary(1) +($) +Bonus +($) +Stock Awards (2) +($) +Option Awards (2) +($) +Non-Equity Incentive Plan Compensation (3) +($) +All Other Compensation (4) +($) +Total +($) +Michael Davidson, M.D. +2025 +646,152 +3,571,146 +8,931,566 +474,922 +18,068 +13,641,854 +2024 +621,300 +5,347,060 +497,040 +3,897 +6,469,297 +Chief Executive Officer +2023 +569,000 +313,000 +4,923,558 +5,805,558 +Ian Somaiya +2025 +486,720 +986,480 +2,941,030 +269,673 +14,000 +4,697,903 +2024 +468,000 +411,337 +368,550 +4,688 +1,252,575 +Chief Financial Officer +2023 +90,576 +40,000 +3,422,493 +3,553,069 +Louise Kooij +2025 +452,217 +470,795 +1,069,465 +220,455 +22,747 +2,235,679 +Chief Accounting Officer +John Kastelein, M.D., Ph.D. FESC +2025 +537,866 +1,330,324 +2,673,664 +270,277 +4,812,131 +Chief Scientific Officer +2024 +486,046 +2,570,852 +327,031 +3,383,929 +2023 +459,346 +218,412 +2,300,813 +2,978,571 +Douglas Kling +2025 +519,967 +1,305,037 +3,342,080 +256,084 +14,000 +5,437,168 +Chief Operating Officer +2024 +499,968 +1,664,729 +399,974 +13,800 +2,578,471 +119 +(1) +The U.S. dollar amounts reported for 2025 for Ms. Kooij and Dr. Kastelein were converted from EUR using the 2025 average exchange rate of $1.130 per EUR. +(2) +Represents the aggregate fair value of awards on the date they were granted in accordance with ASC 718. See the Notes to the Consolidated Financial Statements included herein for the assumptions used to calculate grant date fair value. +(3) +The amounts reported are comprised of amounts paid in respect of our annual performance-based cash bonus plan, as determined by the Compensation Committee. Payments pursuant to the plan are generally made early in the year following the year to which they relate. The U.S. dollar amounts reported for 2025 for Ms. Kooij and Dr. Kastelein were converted using the 2025 average exchange rate of $1.130 per EUR. +(4) +For Dr. Davidson, the amounts reported in this column consist of $4,068 of fees Dr. Davidson received for service on the Board of Directors in 2025 and $14,000 of Company contributions under our 401(k) plan. For Mssrs. Somaiya and Kling the amounts consist of Company contributions under our 401(k) plan. For Ms. Kooij, the amount consists of the Company pension contribution. Dr. Davidson's fees for service on the Board and the Company pension contribution for Ms. Kooij was converted from EUR to U.S. dollars using the 2025 average exchange rate of $1.350 per EUR. +Grants of Plan Based Awards +The following table sets forth certain information regarding grants of plan-based awards to our NEOs during the year ended December 31, 2025: +Grant Date +Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) +Stock Awards: Securities Number of Shares of Stock or Units +(#)(2) +Option Awards: Securities Underlying Options +(#)(3) +Exercise or Base Price of Option Awards +($/Sh) +Grant Date Fair Value of Stock and Option Awards +($) +Name +Threshold +($) +Target +($) +Maximum +($) +Michael Davidson, M.D. +1/6/2025 +— +387,691 +775,382 +123,529 +670,467 +25.85 +12,124,790 +3/26/2025 +— +— +— +38,394 +— +— +377,922 +Ian Somaiya +1/2/2025 +— +219,024 +438,048 +38,000 +220,000 +25.96 +3,927,510 +Louise Kooij +1/2/2025 +— +180,887 +361,774 +15,000 +80,000 +25.96 +1,458,865 +3/26/2025 +— +— +— +8,269 +— +— +81,395 +John Kastelein, M.D., Ph.D. FESC +1/2/2025 +— +215,147 +430,293 +34,000 +200,000 +25.96 +3,556,304 +3/26/2025 +— +— +— +45,481 +— +— +447,684 +Douglas Kling +1/2/2025 +— +207,987 +415,974 +44,000 +250,000 +25.96 +4,484,320 +3/26/2025 +— +— +— +16,539 +— +— +162,797 +(1) +The amounts disclosed in these columns reflect the threshold, target and maximum annual cash incentive opportunities of our NEOs. The amounts of the annual cash incentive opportunities are set based on a percentage of the base salary for the calendar year by each NEO. Below or at threshold performance results in 0% payout. See “Compensation Discussion and Analysis—Compensation Program Components—Annual Performance-Based Cash Bonus” for a detailed description of our annual cash incentive plan, including the criteria for determining the amounts payable. Actual annual cash incentive plan results are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The maximum payout is 200% of target. +(2) +Amounts disclosed in this column reflect the number of shares underlying RSUs granted to our NEOs. In general, each RSU, other than the Earnout RSUs, has a three-year vesting period with one-third vesting on each one-year anniversary of the vesting start date. Each of the Earnout RSUs granted to NEOs were fully vested on the March 26, 2025 grant date. In accordance with ASC Topic 718, the grant date of the Earnout RSUs for the purposes of determining the fair value of the award was determined to be November 22, 2022. See the Notes to the Consolidated Financial Statements included herein for the assumptions used to calculate grant date fair value. +(3) +Amounts disclosed in this column reflect the number of shares underlying share option awards granted to our NEOs. The exercise price of all share option grants to NEOs is equal to the closing price of our shares on the date of the grant, and all share options granted in 2025 have a ten-year term. The options are subject to time-based vesting, with 25% of the total number of shares underlying the award vesting on the first anniversary of the date of grant and thereafter in equal monthly installments for 36 months, subject to the applicable NEO's continued service through each such vesting date. +Outstanding Equity Awards at Fiscal Year-End Table +The table below reflects outstanding equity awards held by our NEOs as of December 31, 2025. +120 +Option Awards +Share Awards +Name +Grant Date +Number of Securities Underlying Unexercised Options +(#) +Exercisable +Number of Securities Underlying Unexercised Options +(#) +Unexercisable +Option Exercise Price +Option Expiration Date +Number of Seucurities Underlying Share Awards That Have Not Vested +(#) +Market Value of Seucurities Underlying Share Awards That Have Not Vested +($) +Michael Davidson, M.D. +11/22/2022 +(1)(2) +989,267 +1.21 +7/6/2031 +11/22/2022 +(2) +1,881,265 +559,273 +10.00 +11/22/2032 +1/1/2023 +(2) +744,835 +276,650 +10.90 +1/1/2033 +1/1/2024 +(2) +498,311 +541,628 +11.17 +1/1/2034 +1/6/2025 +(2)(3) +670,467 +25.85 +1/6/2035 +123,529 +4,333,397 +Ian Somaiya +11/1/2023 +(2) +384,827 +377,987 +9.26 +11/1/2033 +1/1/2024 +(2) +38,333 +41,667 +11.17 +1/1/2034 +1/2/2025 +(2)(3) +220,000 +25.96 +1/2/2035 +38,000 +1,333,040 +Louise Kooij +11/22/2022 +(2) +41,483 +98,532 +10.00 +11/22/2032 +1/1/2023 +(2) +157,711 +60,423 +10.90 +1/1/2033 +5/18/2023 +(2) +36,466 +13,534 +11.90 +5/18/2033 +1/1/2024 +(2) +72,120 +78,374 +11.17 +1/1/2034 +1/2/2025 +(2)(3) +80,000 +25.96 +1/2/2035 +15,000 +526,200 +John Kastelein, M.D., Ph.D. FESC +11/22/2022 +(1)(2) +820,229 +1.21 +7/6/2031 +11/22/2022 +(2) +749,065 +222,661 +10.00 +11/22/2032 +1/1/2023 +(2) +348,072 +129,275 +10.90 +1/1/2033 +1/1/2024 +(2) +239,587 +260,413 +11.17 +1/1/2034 +1/2/2025 +(2)(3) +200,000 +25.96 +1/2/2035 +34,000 +1,192,720 +Douglas Kling +11/22/2022 +(1)(2) +38,033 +1.21 +7/6/2031 +11/22/2022 +(2) +220,944 +151,885 +10.00 +11/22/2032 +1/1/2023 +(2) +90,390 +72,312 +10.90 +1/1/2033 +1/1/2023 +(3) +5,996 +10.90 +1/1/2033 +1/1/2024 +(2) +155,149 +168,622 +11.17 +1/1/2034 +1/2/2025 +(2)(3) +250,000 +25.96 +1/2/2035 +44,000 +1,543,520 +(1) +The exercise price of the option is Euro 1.16392 and has been converted into USD in the table above at a rate of $1.750 per Euro, which was the exchange rate as of December 31, 2025 as published by European Central Bank. +(2) +One-fourth of the shares subject to the option vested on the one-year anniversary of the vesting start date, and the remaining vest in 36 substantially equal monthly installments thereafter. +(3) +All shares subject to the option vest on the fourth anniversary of the vesting start date. +Option Exercises and Stock Vested Table +The following table sets forth information concerning options exercised by our NEOs during the fiscal year ended December 31, 2025. No stock awards held by our NEOs vested in 2025 other than the Earnout RSUs received by certain of our NEOs. +Option Awards +Share Awards +Name +Number of Shares Acquired on Exercise +(#)(1) +Value Realized on Exercise +($)(2) +Number of Shares Acquired on Vesting +(#)(3) +Value Realized on Vesting +($)(4) +Michael Davidson +— +— +38,394 +866,169 +Ian Somaiya +61,883 +827,723 +— +— +Louise Kooij +463,073 +9,576,082 +8,269 +186,549 +John Kastelein, M.D., Ph.D. FESC +150,000 +3,196,231 +45,481 +1,026,051 +Douglas Kling +798,612 +11,558,026 +16,539 +373,120 +(1) +The amounts shown in this column represent the number of shares underlying the stock options exercised during 2025. +(2) +The amounts shown in this column reflect the value realized upon exercise of stock options, as calculated based on the price of our shares on the exercise date less the exercise price, multiplied by the number of shares underlying the stock options exercised. +121 +(3) +The amounts shown in this column represent the number of RSUs vested during 2025. +(4) +The amounts shown in this column reflect the value realized upon vesting of RSUs, as calculated based on the closing price of our shares on the vesting date, multiplied by the number of RSUs vested. +Potential Payments Upon Termination or Change-in-Control +We have entered into employment agreements with each of our NEOs. These agreements set forth the initial terms and conditions of each executive’s employment with us, including base salary, target annual bonus opportunity, standard employee benefit plan participation, and for all NEOs, severance benefits upon a qualifying termination of employment or change-in-control of the Company. +Employment Agreement with Michael Davidson, M.D. +We entered into an employment agreement with Dr. Davidson, our Chief Executive Officer, on January 25, 2023 (the “Davidson Agreement”). Pursuant to the Davidson Agreement, in the event Dr. Davidson’s employment is terminated by the Company without Cause (as defined in the Davidson Agreement) or by him for Good Reason (as defined in the Davidson Agreement), we would be required, subject to customary conditions, to pay Dr. Davidson, in addition to certain Accrued Obligations (as defined in the Davidson Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a pro-rated bonus for the calendar year in which the termination occurred, and premium reimbursement equal to the monthly employer contribution that the Company would have made to provide health coverage under the Consolidated Omnibus Budget Reconciliation Act for a maximum of 12 months (“COBRA Premium Reimbursement”). Dr. Davidson will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Dr. Davidson’s employment is terminated by the Company without Cause at the request of a third party within three months prior to a Change in Control (as defined in the Davidson Agreement) or in the event Dr. Davidson’s employment is terminated by the Company without Cause or by Dr. Davidson for Good Reason during the 12 months following such Change in Control, Dr. Davidson will be entitled to receive the severance payments and benefits described above, subject to the same customary conditions. In addition, all of Dr. Davidson’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Dr. Davidson is entitled to a base salary and annual performance bonus in cash targeted at 60% of his base salary in fiscal year 2026, at our discretion and subject to Dr. Davidson's continued employment through the payment date of such bonus. Dr. Davidson is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our full-time U.S.-based executives. Dr. Davidson is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with Ian Somaiya +We entered into an employment agreement with Mr. Somaiya, our Chief Financial Officer, dated October 6, 2023 (the “Somaiya Agreement”). Pursuant to the Somaiya Agreement, in the event Mr. Somaiya’s employment is terminated by the Company without Cause (as defined in the Somaiya Agreement) or by Mr. Somaiya for Good Reason (as defined in the Somaiya Agreement), we would be required, subject to customary conditions, to pay Mr. Somaiya, in addition to certain Accrued Obligations (as defined in the Somaiya Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and COBRA Premium Reimbursement. Mr. Somaiya will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Mr. Somaiya’s employment is terminated by the Company without Cause at the request of a third party within three months prior to a Change in Control (as defined in the Somaiya Agreement) or in the event Mr. Somaiya’s employment is terminated by the Company without Cause or by him for Good Reason during the 12 months following such Change in Control, Mr. Somaiya will be entitled to receive the severance payments and benefits described above, subject to the same customary conditions. In addition, all of Mr. Somaiya’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Mr. Somaiya is entitled to a base salary and annual performance bonus in cash targeted at 45% of his base salary in fiscal year 2026, at our discretion and subject to Mr. Somaiya's continued employment through the payment date of such bonus. Mr. Somaiya is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our full-time U.S.-based executives. Mr. Somaiya is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +122 +Employment Agreement with Louise Kooij +We entered into an employment agreement with Ms. Kooij, our Chief Accounting Officer, dated July 1, 2025 (the “Kooij Agreement”). Pursuant to the Kooij Agreement, in the event Ms. Kooij’s employment is terminated by the Company without Cause (as defined in the Kooij Agreement), we would be required to pay Ms. Kooij a termination fee equal to 12 months of her base salary, any short-term incentive (“STI”) earned or otherwise payable with respect to the calendar year ended prior to the termination of the Kooij Agreement and a prorated STI for the calendar year of the termination of the Kooij Agreement. +In the event Ms. Kooij’s employment is terminated by the Company without Cause at the request of a third party within three months prior to a Change in Control (as defined in the Kooij Agreement) or in the event Ms. Kooij’s employment is terminated by the Company without Cause or by Ms. Kooij for Good Reason during the 12 months following such Change in Control, Ms. Kooij will be entitled to receive the severance payments and benefits described above. In addition, all of Ms. Kooij’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Ms. Kooij is entitled to a base salary and annual performance bonus in cash targeted at 45% of her base salary in fiscal year 2026, at our discretion and subject to Ms. Kooij's continued employment through the payment date of such bonus. Ms. Kooij is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits generally made available to our full-time Netherlands-based executives. Ms. Kooij is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with John Kastelein, M.D., Ph.D. FESC +We entered into an employment agreement with Dr. Kastelein, our Chief Scientific Officer, dated July 1, 2025 (the “Kastelein Agreement”). Pursuant to the Kastelein Agreement, in the event Dr. Kastelein’s employment is terminated by the Company without Cause (as defined in the Kastelein Agreement), we would be required to pay Dr. Kastelein a termination fee equal to 12 months of his base salary, STI earned or otherwise payable with respect to the calendar year ended prior to the termination of the Kastelein Agreement and a prorated STI for the calendar year of the termination of the Kastelein Agreement. +In the event Dr. Kastelein’s employment is terminated by the Company without Cause at the request of a third party within three months prior to a Change in Control (as defined in the Kastelein Agreement) or in the event Dr. Kastelein’s employment is terminated by the Company without Cause or by Dr. Kastelein for Good Reason during the 12 months following such Change in Control, Dr. Kastelein will be entitled to receive the severance payments and benefits described above. In addition, all of Dr. Kastelein’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Dr. Kastelein is entitled to a base salary and annual performance bonus in cash targeted at 45% of his base salary for fiscal year 2026, at our discretion and subject to Dr. Kastelein's continued employment through the payment date of such bonus. Dr. Kastelein is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits generally made available to our full-time Netherlands-based executives. Dr. Kastelein is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +Employment Agreement with Douglas Kling +We entered into an employment agreement with Mr. Kling, our Chief Operating Officer, dated January 24, 2023 (the “Kling Agreement”). Pursuant to the Kling Agreement, in the event Mr. Kling’s employment is terminated by the Company without Cause (as defined in the Kling Agreement) or by him for Good Reason (as defined in the Kling Agreement), we would be required, subject to customary conditions, to pay Mr. Kling, in addition to certain Accrued Obligations (as defined in the Kling Agreement), an amount equal to 12 months of his base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and COBRA Premium Reimbursement. Mr. Kling will receive only the Accrued Obligations and not be eligible for further compensation if his employment ends for reasons other than termination by the Company without Cause or termination by him for Good Reason. +In the event Mr. Kling’s employment is terminated by the Company without Cause at the request of a third party within three months prior to a Change in Control (as defined in the Kling Agreement) or in the event Mr. Kling’s employment is terminated by the Company without Cause or by Mr. Kling for Good Reason during the 12 months following such Change in Control, Mr. Kling will be entitled to receive the severance payments and benefits described above, subject to the same customary conditions. In addition, all of Mr. Kling’s time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +Mr. Kling is entitled to a base salary and annual performance bonus in cash targeted at 45% of his base salary for fiscal year 2026, at our discretion and subject to Mr. Kling's continued employment through the payment date of such bonus. Mr. Kling is eligible to participate in our equity incentive plans, including the Company’s LTIP, and other employee benefits and insurance programs generally made available to our +123 +full-time U.S.-based executives. Mr. Kling is also party to a Confidentiality and Assignment of Inventions Agreement, which includes certain customary non-competition, non-solicitation, confidentiality and assignment of inventions obligations in favor of the Company. +The table below provides the potential payments and benefits to which our NEOs would be entitled, assuming their employment was terminated as of December 31, 2025, including in connection with a change in control, based on the termination benefits in effect as of December 31, 2025. +Name +Compensation Component +Involuntary or Good Reason Termination without a Change-in-Control ($) +Involuntary or Good Reason Termination in Connection with a Change-in-Control ($) +Michael Davidson, M.D. +(1) +Cash Severance +646,152 +646,152 +Long-term Incentives +— +44,188,097 +Benefits and Perquisites +26,606 +26,606 +Total: +672,758 +44,860,855 +Ian Somaiya +(1) +Cash Severance +486,721 +486,721 +Long-term Incentives +— +14,095,322 +Benefits and Perquisites +39,543 +39,543 +Total: +526,265 +14,621,587 +Louise Kooij +(1) +Cash Severance +452,218 +452,218 +Long-term Incentives +— +7,375,651 +Benefits and Perquisites +— +— +Total: +452,218 +7,827,869 +John Kastelein, M.D., Ph.D. FESC +(1) +Cash Severance +537,868 +537,868 +Long-term Incentives +— +45,598,317 +Benefits and Perquisites +— +— +Total: +537,868 +46,136,185 +Douglas Kling +(1) +Cash Severance +519,968 +519,968 +Long-term Incentives +— +13,558,035 +Benefits and Perquisites +39,543 +39,543 +Total: +559,512 +14,117,547 +(1) +Under the employment agreements between us and Dr. Davidson, Mr. Somaiya, Ms. Kooij, Mr. Kastelein and Mr. Kling, respectively, if their employment is terminated by us without Cause or by them for Good Reason, we would be obligated to pay them a severance amount equal to 12 months of their base salary, any bonus earned or payable and a prorated bonus for the calendar year in which the termination occurred, and premium reimbursement equal to the monthly employer contribution that we would have made to provide health coverage under the Consolidated Omnibus Budget Reconciliation Act for a maximum of 12 months. If their employment is terminated by us without Cause or by them for Good Reason (if termination is requested by a third party) within three months prior to a Change-in-Control or during the 12 months following such Change-in-Control, they will be entitled to receive the severance payments and benefits described above. In addition, all of their time-based stock options and equity awards will accelerate, becoming fully exercisable and nonforfeitable as of the termination date and the exercise period for certain vested options will be extended. +CEO Pay Ratio +As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the median annual total compensation of our employees and the annual total compensation of Dr. Davidson, our Chief Executive Officer. As permitted by Item 402(u) of Regulation S-K, we may identify the median employee once every three years unless there has been a change in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change in pay ratio disclosure. The pay ratio included in this section is calculated in a manner consistent with Item 402(u) of Regulation S-K. +• +For 2025, the median of the annual total compensation of all employees (other than Dr. Davidson) was determined to be $704,848. +• +For 2025, the annual total compensation of Dr. Davidson, as reported in the Summary Compensation Table, was $13,641,854. +Based on this information, the ratio of the median of the annual total compensation of all employees (other than Dr. Davidson) to the annual total compensation of Dr. Davidson was 1 to 19.35. +To identify the median of the annual total compensation of all of our employees (other than Dr. Davidson), as well as to determine the annual total compensation of our median employee, we took the following steps: +1. +We determined that, as of December 31, 2025, our employee population, excluding Dr. Davidson, consisted of approximately 99 individuals. This population consisted of our full-time and part-time employees and, as permitted by SEC rules, excluded independent contractors or similar non-employee workers during 2025. We did not exclude any non-US employees from these calculations. +124 +2. +To identify the “median employee” from our employee population, we compared the sum of each employee’s wages, aggregate fair value of equity awards, and target cash bonus for 2025. In doing so, we annualized the salary and target cash bonus of all permanent employees who were hired in 2025 but did not work for us the entire fiscal year. The grant date fair value of option and restricted share unit awards granted during 2025 was calculated using the Black-Scholes valuation model pursuant to the assumptions described in Note 10, “Share-Based Compensation” of the consolidated financial statements included in this Annual Report. We did not make any cost-of-living adjustments in identifying the median employee. +3. +After identifying the median employee, we calculated annual total compensation for the employee using the same methodology we use for our NEOs, as set forth in the Summary Compensation Table. This process resulted in a median employee with annual total compensation of $704,848 for 2025. +The SEC’s rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratios reported by other companies may not be comparable to our pay ratio, reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios. +Equity Incentive Plans +LTIP +We have established our long term incentive plan ("LTIP"), under which we may grant share options, restricted shares, RSUs, share appreciation rights and other equity and equity-based awards. As of December 31, 2025, the total number of Ordinary Shares underlying awards granted under the LTIP (other than awards granted as Earnout RSUs in accordance with the Business Combination Agreements or as replacement awards in connection with a merger or business combination) will not exceed 23,158,577; provided that the number of Ordinary Shares reserved for grant under the LTIP will increase annually on January 1 of each calendar year by 5% of the-then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +The LTIP is administered by the Board of Directors and the Compensation Committee. The Board of Directors has delegated authority to grant awards under the LTIP to the Compensation Committee for awards to eligible participants not then serving on the Compensation Committee. The Board of Directors has also delegated the authority to grant awards under the LTIP to non-executive officers to Dr. Davidson who will determine when to grant equity awards and the terms of such awards. We may grant awards under the LTIP to our directors, employees, consultants or other advisors. The Board of Directors or the Compensation Committee may condition awards under the LTIP upon the achievement or satisfaction of performance criteria and/or continued service with the Company and determines the vesting conditions for awards under the LTIP. The LTIP includes provisions for good leavers and bad leavers as well as for change-in-control. +Rollover Option Plan +We also established a rollover option plan (the “Rollover Plan”) in connection with the closing of the Business Combination, under which we assumed the outstanding options of certain optionholders of NewAmsterdam Pharma Holding B.V. who held their options through entities in exchange for a grant of options to acquire Ordinary Shares. The total number of Ordinary Shares underlying the options covered by the Rollover Plan is 1,736,545. Any Ordinary Shares underlying options granted under the Rollover Plan that are forfeited, canceled or otherwise terminated will become available for issuance under the LTIP. +The Rollover Plan is administered by the Board of Directors and the Compensation Committee. The Rollover Plan includes provisions applicable in the event of a change-in-control. +Supplementary LTIP +We have also established our supplementary long-term incentive plan (the “Supplementary LTIP”), under which we may grant options, restricted shares, restricted share units, share appreciation rights and other equity and equity-based awards to our employees and consultants (but not our directors). The total number of Ordinary Shares underlying awards that may be granted under the Supplementary LTIP (other than awards granted as replacement awards in connection with a merger or business combination) will not exceed 1,040,233. +The Supplementary LTIP is administered by the Board of Directors and the Compensation Committee. The Board of Directors has delegated authority to grant awards under the Supplementary LTIP to the Compensation Committee for awards to anyone not then serving on the Compensation Committee. The Board of Directors has also delegated the authority to grant awards under the Supplementary LTIP to non-executive officers to Dr. Davidson, who will determine when to grant equity awards and the terms of such awards. The awards issued under the Supplementary LTIP will have terms substantially similar to those issued under the LTIP. The Supplementary LTIP includes provisions applicable in the event of a change-in-control. +Inducement Plan +125 +We have also established our inducement plan (the “Inducement Plan”), under which we may grant options, restricted shares, restricted share units, share appreciation rights and other equity-based awards to our newly-hired (or newly-hired, after a bona fide period of non-employment) employees (but not directors) who satisfy the standards for inducement grants under Nasdaq Listing Rule 5635(c)(4). The total number of Ordinary Shares underlying awards that may be granted under the Inducement Plan will not exceed 2,500,000. +The Inducement Plan is administered exclusively by the Compensation Committee. The Inducement Plan includes provisions applicable in the event of a change-in-control. +Limitation of Liability and Indemnification +Under Dutch law, our directors may be held liable for damages in the event of improper or negligent performance of their duties. They may be held liable for damages to the Company and to third parties for infringement of the Articles of Association or of certain provisions of Dutch law. In certain circumstances, they may also incur other specific civil, administrative and criminal liabilities. Subject to certain exceptions, the Articles of Association provide for indemnification of our current and former directors and other current and former officers and employees as designated by the Board of Directors. No indemnification under the Articles of Association will be given to an indemnified person: +• +if a competent court or arbitral tribunal has established, without having (or no longer having) the possibility for appeal, that the acts or omissions of such indemnified person that led to the financial losses, damages, expenses, suit, claim, action or legal proceedings as described above are of an unlawful nature (including acts or omissions which are considered to constitute malice, gross negligence, intentional recklessness and/or serious culpability attributable to such indemnified person); +• +to the extent that his or her financial losses, damages and expenses are covered under insurance and the relevant insurer has settled, or has provided reimbursement for, these financial losses, damages and expenses (or has irrevocably undertaken to do so); +• +in relation to proceedings brought by such indemnified person against us, except for proceedings brought to enforce indemnification to which he or she is entitled pursuant to the Articles of Association, pursuant to an agreement between such indemnified person and us, which has been approved by us or pursuant to insurance taken out by us for the benefit of such indemnified person; and +• +for any financial losses, damages or expenses incurred in connection with a settlement of any proceedings effected without our prior consent. +Under the Articles of Association, the Board of Directors may stipulate additional terms, conditions and restrictions in relation to the indemnification described above. +We have also entered into indemnification agreements with each of our directors and executive officers providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to us or, at our request, service to other entities, as officers or directors to the maximum extent permitted by Dutch law and subject to the exceptions provided in such agreements. +Compensation Committee Interlocks and Insider Participation +The Compensation Committee consists of Louis Lange, M.D., Ph.D., William H. Lewis and Mark C. McKenna. All members of the compensation committee are independent directors, and none of our executive officers or former executive officers served on the compensation committee or on the board of any company that employed any member of the compensation committee or the Board of Directors during the year ended December 31, 2025. +Director Compensation +Director Compensation +The Board of Directors and the Compensation Committee determine the compensation of individual directors in accordance with our compensation policy to the extent applicable. All non-employee directors are paid an annual retainer of $43,000. Non-employee directors may receive further compensation ranging from $5,000 to $20,000 for serving as chair or member of committees (i.e., Audit Committee or Compensation Committee). We have also granted, and expect to continue granting, our non-employee directors who are not affiliated with our significant shareholders, share option and RSU awards as compensation for their service on the Board of Directors. +Director Service Agreement +We entered into services agreements with all of our directors which regulate their services as our directors. These services agreements, except for James N. Topper’s services agreement, contain non-competition and non-solicitation arrangements, as well as a requirement to assign and transfer to us any intellectual and industrial property rights originating from the director’s services as a director or inventor for us. These services agreements also provide that compensation, if any, for service on the Board of Directors shall be determined by the Board, subject to applicable law and the Company's compensation policy, as amended from time time. +126 +Director Indemnification Agreements +Our Articles of Association require us to indemnify our current and former directors to the fullest extent permitted by law, subject to certain exceptions. We have also entered into indemnification agreements with all of our directors providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from their service to us or, at our request, service to other entities, as directors or officers to the maximum extent permitted by law. +Director Compensation Table +The following table sets forth information regarding the compensation earned for service on the Board of Directors by our non-employee directors during the year ended December 31, 2025. In addition, we reimburse members of the Board of Directors for reasonable travel and out-of-pocket expenses incurred in connection with attending Board of Directors and committee meetings. +Name +Fees Earned or Paid in Cash +($) +Stock Awards +($)(1) +Option Awards +($)(1) +All Other Compensation +($) +Total +($) +Non-Employee Directors +William H. Lewis, J.D., M.B.A. +90,500 +179,916 +423,505 +— +693,921 +Mark C. McKenna +60,500 +179,916 +423,505 +— +663,921 +Nicholas Downing, M.D. (2) +40,000 +— +— +— +40,000 +Adele Gulfo (2) +32,250 +174,412 +413,357 +— +620,019 +Wouter Joustra +43,000 +— +— +— +43,000 +Louis Lange, M.D., Ph.D. +70,500 +179,916 +423,505 +— +673,921 +John W. Smither +73,000 +179,916 +423,505 +— +676,421 +James N. Topper, M.D., Ph.D. +43,000 +— +— +— +43,000 +Janneke van der Kamp +48,000 +179,916 +423,505 +— +651,421 +(1) The amounts reported in these columns reflect the aggregate grant date fair value of the stock and option awards granted to our directors as computed in accordance with ASC 718. See Note 8 to the Consolidated Financial Statements in this Annual Report for a discussion of assumptions made by us in determining the aggregate grant date fair value of our stock awards and option awards. Note that the amounts reported in these columns do not reflect the actual economic value that may be realized by the directors. +(2) Adele Gulfo joined the Board of Directors effective April 17, 2025. Nicholas Downing, M.D. resigned as members of the Board of Directors effective November 5, 2025. +The following table provides information regarding the aggregate number of shares underlying option awards granted to our non-employee directors that were outstanding as of December 31, 2025: +Name +Option Awards +(#) +William H. Lewis, J.D., M.B.A. +132,500 +Mark C. McKenna +105,000 +Adele Gulfo +50,700 +Louis Lange, M.D., Ph.D. +270,269 +John W. Smither +61,100 +Janneke van der Kamp +60,500 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Securities Authorized For Issuance Under Equity Compensation Plans +Our LTIP and Rollover Plan are our only equity compensation plans approved by our shareholders. The Supplementary LTIP and the Inducement Plan were approved by our Board of Directors but were not approved by our shareholders. The following table sets forth certain information as of December 31, 2025 with respect to our LTIP, Rollover Plan, Supplementary LTIP and Inducement Plan: +Plan Category +Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights (A) (1) +Weighted-Average Exercise Price of Outstanding Options and Rights (B) (2) +Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) +Equity compensation plans approved by shareholders: +19,158,323 +$ +13.02 +1,122,893 +LTIP (3) +18,338,094 +$ +13.56 +1,122,893 +127 +Rollover Plan +820,229 +$ +1.3676 (5) +- +Equity compensation plans not approved by shareholders: +2,195,328 +18.75 +1,030,910 +Supplementary LTIP (4) +758,329 +$ +14.35 +51,219 +Inducement Plan +1,436,999 +$ +21.12 +979,691 +Total: +21,353,651 +$ +13.62 +2,153,803 +(1) +Represents shares of Common Stock issuable upon the exercise of outstanding stock options and vesting of outstanding RSUs. +(2) +Does not include outstanding RSUs, which do not require the payment of any exercise price upon their vesting. +(3) +The number of Ordinary Shares reserved for grant under the LTIP will increase annually on January 1 of each calendar year by 5% of the then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +(4) +See the section titled “ Executive Compensation—Equity Incentive Plans ” and Note 10 to the Consolidated Financial Statements included in this Annual Report for a brief description of the terms of the Supplementary LTIP. +(5) +The exercise price of the options included in the Rollover Plan is Euro 1.16392 and has been converted into USD in the table above at a rate of $1.1750 per Euro, which was the exchange rate as of December 31, 2025 as published by European Central Bank. +Security Ownership of Certain Beneficial Owners and Management +The following table sets forth information regarding the beneficial ownership of Ordinary Shares as of February 5, 2026, by: +• +each person, or group of affiliated persons, known by the Company to beneficially own more than 5% of outstanding Ordinary Shares; +• +each of our named executive officers; +• +each of our directors; and +• +all of our executive officers and directors, as a group. +The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, Ordinary Shares subject to options or other rights (as set forth above) held by that person that are currently exercisable, or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Each person named in the table has sole voting and investment power with respect to all of the Ordinary Shares shown as beneficially owned by such person, except as otherwise indicated in the table or footnotes below. +128 +The beneficial ownership of Ordinary Shares is based on 114,975,422 Ordinary Shares issued and outstanding, as of February 5, 2026. Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by them. To our knowledge, no Ordinary Shares beneficially owned by any executive officer, director or director nominee have been pledged as security. None of our shareholders has different voting rights from other shareholders. +Beneficial Owner +Number of +Ordinary Shares +Percentage of All +Ordinary +Shares +Named Executive Officers and Directors +Michael Davidson, M.D. (1) +5,637,808 +4.71 +% +Ian Somaiya (2) +457,671 +* +Louise Kooij (3) +252,317 +* +John Kastelein, M.D., Ph.D, FESC (4) +2,481,753 +2.12 +% +Douglas Kling (5) +583,957 +* +William H. Lewis, J.D., M.B.A. (6) +72,123 +* +Mark C. McKenna (7) +56,142 +* +Adele Gulfo +— +— +Wouter Joustra (8) +— +— +Louis Lange, M.D., Ph.D. (9) +295,487 +* +John W. Smither (10) +36,233 +* +James N. Topper, M.D., Ph.D. (11) +7,329,857 +6.35 +% +Janneke van der Kamp (12) +34,998 +* +All executive officers and directors as a group +(12 persons) +16,654,389 +13.46 +% +Beneficial Owner +Number of +Ordinary Shares +Percentage of All +Ordinary +Shares +Other 5% Shareholders +Frazier Lifesciences Sponsor LLC and affiliates (13) +17,202,289 +14.90 +% +RA Capital Healthcare Fund, L.P. (14) +11,635,557 +9.99 +% +Capital World Investors (15) +9,822,711 +8.54 +% +Entities affiliated with Forbion (16) +9,316,914 +8.10 +% +Entities affiliated with Bain Capital Life Sciences Investors, LLC (17) +7,406,565 +6.35 +% +Viking Global Investors LP (18) +6,978,534 +6.07 +% +FMR LLC (19) +6,412,984 +5.58 +% +* Indicates beneficial ownership of less than 1% of total outstanding Ordinary Shares . +(1) +Consists of (i) 905,286 Ordinary Shares, (ii) options to purchase 4,627,522 Ordinary Shares, exercisable within 60 days of February 5, 2026, and (iii) Warrants to purchase 85,000 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(2) +Consists of (i) 7,549 Ordinary Shares and (ii) options to purchase 450,122 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(3) +Consists of (i) 2,353 Ordinary Shares and (ii) options to purchase 249,964 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(4) +Consists of (i) 50,815 Ordinary Shares, (ii) 69,302 Ordinary Shares held by Futurum B.V. through NAP PoolCo B.V.(“PoolCo”), (iii) options to purchase 830,229 Ordinary Shares held by Futurum B.V. through PoolCo, and (iv) options to purchase 1,541,407 Ordinary Shares held by Dr. Kastelein directly, exercisable within 60 days of February 5, 2026. +(5) +Consists of (i) 8,801 Ordinary Shares and (ii) options to purchase 575,156 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(6) +Consists of (i) 2,320 Ordinary Shares and (ii) options to purchase 69,803 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(7) +Consists of (i) 2,320 Ordinary Shares and (ii) options to purchase 53,822 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(8) +See Note 16. Mr. Joustra is a member of the Board of Directors and is a partner of Forbion Growth Management B.V. (“Growth Management”) and a member of the investment committee of Growth Management, but does not have beneficial ownership of the securities referenced in Note 16. +129 +(9) +Consists of (i) 28,186 Ordinary Shares held through LGLange III Trust, (ii) 2,320 Ordinary Shares, (iii) Warrants to purchase 44,619 Ordinary Shares, exercisable within 60 days of February , 2026 and (iv) options to purchase 220,362 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(10) +Consists of (i) 2,320 Ordinary Shares and (ii) options to purchase 33,913 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(11) +Consists of the Ordinary Shares and Warrants directly held by Frazier Lifesciences Sponsor LLC (the “Sponsor”) and Frazier Life Sciences X, L.P. (“FLS X”), as described in Note 12. Dr. Topper disclaims beneficial ownership of the shares he holds, except to the extent of his pecuniary interest therein, if any. +(12) +Consists of (i) 2,320 Ordinary Shares and (ii) options to purchase 32,678 Ordinary Shares, exercisable within 60 days of February 5, 2026. +(13) +Consists of 3,801,000 Ordinary Shares and Warrants to purchase 167,000 Ordinary Shares held by the Sponsor. The sole member of the Sponsor is FLS X. FHMLS X, L.P. is the general partner of FLS X and FHMLS X, L.L.C. is the general partner of FHMLS X, L.P. Patrick J. Heron and James N. Topper are members of FHMLS X, L.L.C. and James N. Topper serves as a manager of the Sponsor. +Also included in the total number are (i) 3,028,524 Ordinary Shares and Warrants to purchase 333,333 Ordinary Shares held by FLS X, (ii) 1,179,926 Ordinary Shares held by Frazier Life Sciences XI, L.P. (“FLS XI”), (iii) 8,623,939 Ordinary Shares held by Frazier Life Sciences Public Fund, L.P. (“FLSPF”), and (iv) 68,567 Ordinary Shares held by Frazier Life Sciences XII, L.P. (“FLS XII”). FHMLS XI, L.P. is the general partner of FLS XI and the general partner of FHMLS XI, L.P. is FHMLS XI, L.L.C., which is managed by an investment committee of three that acts by majority vote. FHMLSP, L.P. is the general partner of FLSPF and the general partner of FHMLSP, L.P. is FHMLSP, L.L.C., which is managed by an investment committee of four that acts by majority vote. FHMLS XII, L.P. is the general partner of FLS XII and the general partner of FHMLS XII, L.P is FHMLS XII, L.L.C., which is managed by an investment committee of three that acts by majority vote. The information herein is based on the Schedule 13D/A filed by Sponsor, FLS X, FLS XI, FLSPF, FLS XII, FHMLS X, L.P., FHMLS X, L.L.C., FHMLS XI, L.P., FHMLS XI, L.L.C., FHMLSP, L.P., FHMLSP, L.L.C., FHMLS XII, L.P., FHMLS XII, L.L.C., James N. Topper and Patrick J. Heron on November 4, 2025. The address of these holders is c/o Frazier Life Sciences Management, L.P., 70 Willow Road, Suite 200, Menlo Park, CA 94025. +(14) +Consists of (i) 10,138,938 Ordinary Shares, (ii) Warrants to purchase 333,333 Ordinary Shares and (iii) 4,587,578 Ordinary Shares issuable upon exercise of pre-funded warrants (the “Pre-funded Warrants”) held by RA Capital Healthcare Fund, L.P. (“RACHF”). Each of the Warrants and Pre-funded Warrants contains a provision which precludes exercise of the Warrants and Pre-funded Warrants to the extent that, following exercise, RACHF, together with its affiliates and other attribution parties, would own more than 9.99% of the outstanding Ordinary Shares. RACHF is currently prohibited from exercising a portion of the Warrants and Pre-funded Warrants to the extent that such exercise would result in beneficial ownership of more than 11,635,557 Ordinary Shares, based upon 114,975,422 Ordinary Shares outstanding as of February 5, 2026. +RA Capital Management, L.P. (“RA Capital”) serves as investment adviser for RACHF and may be deemed a beneficial owner of the securities described herein as held by RACHF. The general partner of RA Capital is RA Capital Management GP, LLC, of which Peter Kolchinsky and Rajeev Shah are the controlling persons. Each of Dr. Kolchinsky and Mr. Shah may be deemed to have voting and investment power over the Ordinary Shares held by RACHF. Dr. Kolchinsky and Mr. Shah disclaim beneficial ownership of such shares, except to the extent of any pecuniary interest therein. RA Capital Healthcare Fund GP, LLC is the general partner of RACHF. RACHF has delegated to RA Capital the sole power to vote and the sole power to dispose of all securities held in RACHF’s portfolios, including the Ordinary Shares reported herein. Because RACHF has divested itself of voting and investment power over the reported securities it holds and may not revoke that delegation on less than 61 days’ notice, RACHF disclaims beneficial ownership of the securities it holds. The business address of the persons and entities set forth herein is 200 Berkeley Street, 18th Floor, Boston, MA 02116. The information herein is based solely on the Schedule 13G/A filed by RACHF, RA Capital, Dr. Kolchinsky and Mr. Shah on May 15, 2025. +(15) +Consists of 9,822,711 Ordinary Shares. The address of Capital World Investors (“CWI”) is 333 South Hope Street, 55th Floor, Los Angeles, California 90071. The information herein is based solely on the Schedule 13G/A filed by CWI on November 13, 2025. +(16) +Consists of (i) 4,668,889 Ordinary Shares beneficially owned by Forbion Capital Fund IV Coöperatief U.A. (“Forbion IV”) through ForGrowth NAP B.V. (“ForGrowth”) and (ii) 4,648,025 Ordinary Shares beneficially owned by Forbion Growth Opportunities Fund I Coöperatief U.A. (“Forbion Growth I”) through ForGrowth. ForGrowth is a joint-investment vehicle wholly owned by Forbion IV and Forbion Growth I. Forbion Growth Management B.V. may be deemed to have voting and dispositive power over the Ordinary Shares beneficially owned by Forbion Growth I. Forbion IV Management B.V. may be deemed to have voting and dispositive power over the Ordinary Shares beneficially owned by Forbion IV. The information herein is based solely on the Schedule 13D/A filed by the holders on September 30, 2025. The address for the Forbion entities is Gooimeer 2-35, 1411 DC Naarden, the Netherlands. +(17) +Consists of (i) 297,557 Ordinary Shares held by BCLS II Investco, LP (“BCLS II Investco”), (ii) 5,376,356 Ordinary Shares held by BCLS Fund III Investments, LP (“BCLS Fund III”), (iii) Warrants to purchase 89,142 Ordinary Shares held by Bain Capital Life Sciences Fund II, L.P. (“BCLS Fund II”), (iv) Warrants to purchase 10,857 Ordinary Shares held by BCIP Life Sciences Associates, LP (“BCIPLS”), (v) 1,257,141 Ordinary Shares issuable upon exercise of a pre-funded warrant (the “Pre-Funded Warrant”) held by Bain Capital Life Sciences Opportunities III LP (“BCLS Fund III Opportunities”), and (vi) 375,512 Ordinary Shares issuable upon exercise of a Pre-Funded Warrant +130 +held by BCLS II Equity Opportunities, LP (“BCLS Fund II Opportunities,” and, together with BCLS Fund III Opportunities, BCIPLS, BCLS II Investco, BCLS Fund III and BCLS Fund II, the “Bain Capital Life Sciences Entities”). +Bain Capital Life Sciences Investors, LLC (“BCLSI”) (a) is the manager of Bain Capital Life Sciences Investors II, LLC, which is the general partner of BCLS Fund II, which is the managing member of BCLS II Investco (GP), LLC, which is the general partner of BCLS II Investco, (b) is the manager of Bain Capital Life Sciences III General Partner, LLC, which is the general partner of Bain Capital Life Sciences Fund III, L.P. (“BCLS III”), which is the managing member of BCLS Fund III Investments GP, LLC, which is the general partner of BCLS Fund III, and (c) governs the investment strategy and decision-making process with respect to investments held by BCIPLS. BCLS Fund II is the manager of BCLS II Equity Opportunities GP, LLC, which is the general partner of BCLS Fund II Opportunities, and BCLS III is the sole member of Bain Capital Lift Sciences Opportunities III GP, LLC, which is the general partner of BCLS Fund III Opportunities As a result, BCLSI may be deemed to share voting and dispositive power with respect to the securities held by the Bain Capital Life Sciences Entities. The address of the Bain Capital Life Sciences entities is c/o Bain Capital Life Sciences, LP, 200 Clarendon Street, Boston, MA 02116. The information herein is based solely on the Schedule 13D/A filed by certain of Bain Capital Life Sciences Entities on December 04, 2025. +(18) +Consists of 4,675,619 Ordinary Shares and 2,302,915 Ordinary Shares owned by Viking Global Opportunities Illiquid Investments Sub-Master LP (“VGOP”) and Viking Global Opportunities Drawdown (Aggregator) LP (“VGOD”), respectively. Viking Global Investors LP (“VGI”) provides managerial services to VGOP and VGOD and has the authority to dispose of and vote the Ordinary Shares that VGOP and VGOD directly own to and as a result may be deemed to beneficially own the Ordinary Shares that VGOP and VGOD directly. Viking Global Opportunities Parent GP LLC (“Opportunities Parent”) is the sole member of Viking Global Opportunities GP LLC (“Opportunities GP”), which has the authority to dispose of and vote the Ordinary Shares controlled by Viking Global Opportunities Portfolio GP LLC (“Opportunities Portfolio GP”) (which consists of the Ordinary Shares that VGOP directly owns) and is the sole member of Viking Global Opportunities Drawdown GP LLC (“VGOD GP”), which has the authority to dispose of and vote the Ordinary Shares controlled by Viking Global Opportunities Drawdown Portfolio GP LLC (“VGOD Portfolio GP”) (which consists of the Ordinary Shares that VGOD directly owns). Opportunities Parent does not directly own any Ordinary Shares. Opportunities GP serves as the sole member of Opportunities Portfolio GP and has the authority to dispose of and vote the Ordinary Shares controlled by Opportunities Portfolio GP. Opportunities Portfolio GP serves as the general partner of VGOP and has the authority to dispose of and vote the Ordinary Shares that VGOP directly owns. VGOD GP serves as the sole member of VGOD Portfolio GP and has the authority to dispose of and vote the Ordinary Shares controlled by VGOD Portfolio GP. VGOD Portfolio GP serves as the general partner of VGOD and has the authority to dispose of and vote the Ordinary Shares that VGOD directly owns. O. Andreas Halvorsen, David C. Ott and Rose S. Shabet, as Executive Committee Members of Viking Global Partners LLC (general partner of VGI) and Opportunities Parent, have shared authority to dispose of and vote the Ordinary Shares beneficially owned by VGI and Opportunities Parent. None of Mr. Halvorsen, Mr. Ott and Ms. Shabet directly owns any Ordinary Shares. Each of Mr. Halvorsen, Mr. Ott and Ms. Shabet may be deemed to beneficially own the Ordinary Shares that VGOP and VGOD directly own. The business address of the persons and entities set forth herein is 600 Washington Boulevard, Floor 11, Stamford, Connecticut 06901. The information herein is based solely on the Schedule 13G/A filed by VGI, Opportunities Parent, Opportunities GP, Opportunities Portfolio GP, VGOP, VGOD GP, VGOD Portfolio GP, VGOD, Mr. Halvorsen, Mr. Ott and Ms. Shabet on February 14, 2025. +(19) +Consists of 6,412,984 Ordinary Shares. The address of FMR LLC is 245 Summer Street, Boston, MA 02210. The information herein is based solely on the Schedule 13G filed by FMR LLC on February 5, 2026. +Item 13. Certain Relationships and Related Transactions, and Director Independence +Independence of the Board of Directors +The Nomination and Corporate Governance Committee of our Board of Directors (the “Nominating and Corporate Governance Committee”) and Board of Directors have undertaken a review of the independence of our directors and considered whether any director has a relationship that, in the opinion of such committee or the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a member of the Board of Directors. Based upon information requested from and provided by each director concerning such director’s background, employment and affiliations, including family relationships, the Board of Directors has determined that all of our directors, other than Dr. Davidson and Dr. Kastelein, are “independent directors,” as such term is defined in Nasdaq Listing Rule 5605(a)(2). In making these determinations, the Board of Directors considered the current and prior relationships that each director has with the Company and all other facts and circumstances that the Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each director and, to the extent applicable, any affiliation the director has with any known beneficial holder of more than 5% of our outstanding Ordinary Shares. +Certain Relationships and Related Transactions +Review, Approval or Ratification of Transactions with Related Persons +We adopted a related party transaction policy that requires the review and, if applicable, approval or ratification of any related party transaction by the Board of Directors, the Audit Committee or another designated committee consisting solely of independent directors. Our +131 +Audit Committee will review this related party transaction policy periodically and will recommend changes to the Board of Directors as appropriate. +In addition, under Dutch law and the Articles of Association, our directors may not take part in any discussion or decision-making that involves a subject or transaction in relation to which he or she has a direct or indirect personal conflict of interest with us. Such a conflict of interest would generally arise if the director concerned is unable to serve our interests and the business connected with us with the required level of integrity and objectivity due to the existence of the conflicting personal interest. The Articles of Association provide that if as a result of conflicts of interests no resolution of the Board of Directors can be adopted, the resolution may nonetheless be adopted by the Board of Directors as if none of our directors had a conflict of interest. In that latter case, each of our directors is entitled to participate in the discussion and decision-making process and to cast a vote. +A related party transaction is generally any transaction in which the Company or its subsidiaries is or will be a participant, in which the amount involved exceeds $120,000, and a director (or nominee), executive officer, immediate family member, or any beneficial owner of more than 5% of our Ordinary Shares, has or will have a direct or indirect material interest. +Certain Related Party Transactions +Investor Rights Agreement +In connection with the closing of the Business Combination, we entered into the Investor Rights Agreement, dated November 22, 2022 (the “Investor Rights Agreement”), with the Sponsor and the former FLAC directors (the “FLAC Initial Shareholders”), and certain NewAmsterdam Pharma shareholders agreed not to sell, assign, offer to sell, contract, pledge, grant, or otherwise dispose of or enter into any swap or other similar arrangement, with respect to the Ordinary Shares such persons received in connection with the Business Combination for six months from the date the Domestication became effective (the “Final Closing Date”), subject to certain limited exceptions. In addition, the FLAC Initial Shareholders agreed not to sell, assign, offer to sell, contract, pledge, grant, or otherwise dispose of or enter into any swap or other similar arrangement, with respect to the Ordinary Shares they received in connection with the Business Combination for a period beginning on the Final Closing Date and ending one year after the Final Closing Date. Notwithstanding the foregoing, the restrictions above ended with respect to the Ordinary Shares held by the NewAmsterdam Pharma shareholders and 50% of the Ordinary Shares held by the FLAC Initial Shareholders, as the case may be, received in connection with the Business Combination, on May 22, 2023 according to the terms of the Investor Rights Agreement. The restrictions on the remaining 50% of the Ordinary Shares of the FLAC Initial Shareholders received in connection with the Business Combination ended on November 23, 2023, one year after the Final Closing Date. An aggregate of 44,914,642 Ordinary Shares held by former NewAmsterdam Pharma shareholders (including Amgen and MTPC) had registration rights pursuant to the terms of the Investor Rights Agreement. +In June 2023, certain of our selling securityholders (the “Selling Securityholders”) exercised their right pursuant to the Investor Rights Agreement to demand an underwritten shelf takedown of Ordinary Shares. On June 6, 2023, the Company and certain of the Selling Securityholders, including affiliates of Forbion, entered into an Underwriting Agreement (the “Underwriting Agreement”) with Jefferies LLC and SVB Securities LLC, as representatives of the several underwriters named therein (the “Underwriters”). The Underwriting Agreement related to an underwritten public offering of 13,857,415 Ordinary Shares by those certain Selling Securityholders at a public offering price of $11.50 per Ordinary Share (the “Secondary Offering”). In connection with the Secondary Offering, certain of the participating Selling Securityholders granted the Underwriters a 30-day option to purchase an additional 2,078,612 Ordinary Shares at the public offering price, less underwriting discounts and commissions, which option was partially exercised for 1,930,280 additional Ordinary Shares in connection with the closing of the Secondary Offering. The Company did not sell any Ordinary Shares in the Secondary Offering and did not receive any proceeds from the Secondary Offering. +Indemnification Agreements +The Articles of Association provide for certain indemnification rights for our current and former directors and other current and former officers and employees as designated by the Board of Directors (the “Indemnified Persons”). Specifically, we indemnify the Indemnified Persons against any financial losses or damages and any expense reasonably paid or incurred in connection with any threatened, pending or completed suit, to the extent these relate to such Indemnified Persons’ current or former position with the Company as permitted by applicable law. +We have also entered into indemnification agreements with each of our directors and executive officers providing for procedures for indemnification and advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to us or, at our request, service to other entities, as officers or directors to the maximum extent permitted by Dutch law and subject to the exceptions provided in such agreements. +Employment Agreements +See the section titled “ Executive Compensation—Employment Agreements and Change of Control Agreements ” above for a further discussion of these arrangements. +132 +Item 14. Principal Accountant Fees and Services +Principal Accountant Fees and Services +The following table presents the aggregate fees billed by Deloitte Accountants B.V. for the years ended December 31, 2025 and 2024. +For the Years Ended December 31, +(In thousands of USD) +2025 +2024 +Audit Fees +1,071 +1,433 +Audit-Related Fees +— +— +Tax Fees +— +— +All Other Fees +— +— +Total Fees +1,071 +1,433 +Audit fees include the standard audit work performed each fiscal year necessary to allow the auditor to issue an opinion on our financial statements and to issue an opinion on the local statutory financial statements. Audit fees also include services such as reviews of quarterly financial results and review of securities offering documents. +Audit-related fees consisted of fees billed for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements or for services that were traditionally performed by the external auditor. +Tax fees are fees billed for professional services for tax compliance, tax advice and tax planning. +Audit Committee Pre-Approval Policies +The Audit Committee evaluates the qualifications, independence and performance of the independent auditor as well as pre-approves and reviews the engagement and the provision of all audit and non-audit services to be performed by the independent auditor. In accordance with this policy, all services performed by and fees paid to Deloitte Accountants B.V. were pre-approved by the Audit Committee. +133 +PART IV +Item 15. Exhibits, Financial Statement Schedules +(1) Financial Statements: +The Financial Statements required to be filed by Item 8 of this Annual Report, and filed in this Item 15, are as follows: +Page +Report of Independent Registered Public Accounting Firm (Deloitte Accountants B.V.; PCAOB ID: 1243) +F- 2 +Consolidated Balance Sheets as at December 31, 2025 and 2024 +F-3 +Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2025, 2024 and 2023 +F-4 +Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2025, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 +F-6 +Notes to Consolidated Financial Statements +F-7 +(2) Financial Statement Schedules: +Schedules are omitted because they are not applicable, or are not required, or because the information is included in the financial statements and notes thereto. +(3) Exhibits: +Exhibit No. +Description of Document +2.1 +Business Combination Agreement, dated as of July 25, 2022, by and among Frazier Lifesciences Acquisition Corporation, NewAmsterdam Pharma Holding B.V., NewAmsterdam Pharma Company B.V. and NewAmsterdam Pharma Investment Corporation (incorporated by reference to Annex A to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +2.2 +Plan of Merger (incorporated by reference to Annex B to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +3.1 +English translation of the Deed of Conversion and Articles of Association of NewAmsterdam Pharma Company N.V. (incorporated by reference to Exhibit 1.1 to the Shell Company Report on Form 20-F (File No. 001-41562), filed with the SEC on November 28, 2022). +4.1 +Warrant Assignment, Assumption and Amendment Agreement, among Continental Stock Transfer & Trust Company, NewAmsterdam Pharma Company B.V. and Frazier Lifesciences Acquisition Corporation (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +4.2 +Warrant Agreement, between Frazier Lifesciences Acquisition Corporation and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-1 (File No. 333-250858), filed by Frazier Lifesciences Acquisition Corporation with the SEC on November 20, 2020). +4.3 +Warrant Certificate of NewAmsterdam Pharma Company N.V (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +4.4 +Description of Share Capital and Articles of Association (incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K, filed with the SEC on February 26, 2025). +10.1 +Form of Subscription Agreement (incorporated by reference to Annex C to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +10.2 +Investor Rights Agreement, dated November 22, 2022, by and among NewAmsterdam Pharma Company N.V. and certain of its shareholders (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form F-1 (File No. 333-268888), filed with the SEC on January 17, 2023). +10.3+ +Form of Director & Officer Indemnity Agreement (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form F-4 (File No. 333-266510), filed with the SEC on October 13, 2022). +10.4+ +NewAmsterdam Pharma Company N.V. Long-term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.5+ +NewAmsterdam Pharma Company N.V. Rollover Option Plan (incorporated by reference to Exhibit 4.16 to the Shell Company Report on Form 20-F (File No. 001-41562), filed with the SEC on November 28, 2022). +10.6+ +NewAmsterdam Pharma Company N.V. Supplementary Long-term Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form F-1 (File No. 333-268888), filed with the SEC on January 17, 2023). +10.7+ +NewAmsterdam Pharma Company N.V. Inducement Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2025). +10.8+ +NewAmsterdam Pharma Company N.V. Form of Award Agreement for Option Grants under Long-term Incentive Plan, Supplementary Long-term Incentive Plan, and Inducement Plan. +134 +10.9+ +NewAmsterdam Pharma Company N.V. Form of Award Agreement for Restricted Share Unit Grants under Long-term Incentive Plan and Inducement Plan. +10.10+ +Employment Agreement, dated January 25, 2023, between NewAmsterdam Pharma Corporation and Michael Davidson (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.11+ +Employment Agreement, dated July 1, 2025, between NewAmsterdam Pharma B.V. and Dr. John Kastelein (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-Q, filed with the SEC on August 6, 2025). +10.12+ +Employment Agreement, dated October 6, 2023, between NewAmsterdam Pharma Corporation and Ian Somaiya (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +10.13+ +Employment Agreement, dated July 1, 2025, between NewAmsterdam Pharma B.V. and Louise Kooij. +10.14+ +Employment Agreement, dated January 24, 2023, between NewAmsterdam Pharma Corporation and Douglas Kling (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K, filed with the SEC on February 26, 2025). +10.15+ +Form of Pre-funded Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on December 13, 2024). +10.16+ +Form of Pre-funded Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on February 15, 2024). +10.17† +License Agreement, dated June 23, 2022, between A. Menarini International Licensing S.A. and NewAmsterdam Pharma B.V. (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form F-4/A (File No. 333-266510), filed with the SEC on September 13, 2022). +10.18† +Amendment to License Agreement, dated January 15, 2024, between NewAmsterdam Pharma B.V. and A. Menarini International Licensing S.A. (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K, filed with the SEC on February 26, 2025) +10.19† +Supply Agreement, dated August 12, 2025, between A. Menarini International Licensing S.A. and NewAmsterdam Pharma B.V. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2025). +19.1 +Insider Trading Policy of the Company . +21.1 +List of Subsidiaries. +23.1 +Consent of Deloitte Accountant B.V., independent registered public accounting firm. +24.1 +Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K). +31.1 +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1 +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2 +Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Policy Relating to Recovery of Erroneously Awarded Compensation of NewAmsterdam Pharma Company N.V. (incorporated by reference to Exhibit 97.1 to the Annual Report on Form 10-K, filed with the SEC on February 28, 2024). +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File-the cover page interactive data is embedded within the Inline XBRL document or included within the Exhibit 101 attachments ++ Indicates management contract or compensatory plan. +† Portions of this document (indicated by “[***]”) have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K because such information is not material and is the type of information that the registrant treats as private or confidential. +Item 16. Form 10-K Summary +None. +135 +SIGN ATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +NewAmsterdam Pharma Company N.V. +Date: February 18, 2026 +By: +/s/ Michael Davidson +Michael Davidson, M.D. +Chief Executive Officer and Director +(Principal Executive Officer) +Date: February 18, 2026 +By: +/s/ Ian Somaiya +Ian Somaiya +Chief Financial Officer +(Principal Financial Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Davidson and Ian Somaiya, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. +136 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Michael Davidson +Dr. Michael Davidson +Chief Executive Officer and Director +(Principal Executive Officer) +February 18, 2026 +/s/ Ian Somaiya +Ian Somaiya +Chief Financial Officer +(Principal Financial Officer) +February 18, 2026 +/s/ Louise Kooij +Louise Kooij +Chief Accounting Officer +( Principal Accounting Officer ) +February 18, 2026 +/s/ William H. Lewis +William H. Lewis +Chairman of the Board of Directors +February 18, 2026 +/s/ Adele Gulfo +Adele Gulfo +Director +February 18, 2026 +/s/ Wouter Joustra +Wouter Joustra +Director +February 18, 2026 +/s/ John Kastelein +Dr. John Kastelein +Chief Scientific Officer and Director +February 18, 2026 +/s/ Louis Lange +Dr. Louis Lange +Director +February 18, 2026 +/s/ Mark C. McKenna +Mark C. McKenna +Director +February 18, 2026 +/s/ John W. Smither +John W. Smither +Director +February 18, 2026 +/s/ James N. Topper +Dr. James N. Topper +Director +February 18, 2026 +/s/ Janneke van der Kamp +Janneke van der Kamp +Director +February 18, 2026 +137 +NewAmsterdam Pharma Company N.V. +Index to Financial Statements +Page +Report of Independent Registered Public Accounting Firm (Deloitte Accountants B.V.; PCAOB ID: 1243 ) +F- 2 +Consolidated Balance Sheets as at December 31, 2025 and 2024 +F- 5 +Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2025, 2024 and 2023 +F- 6 +Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2025, 2024 and 2023 +F- 7 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 +F- 8 +Notes to Consolidated Financial Statements +F- 9 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of NewAmsterdam Pharma Company N.V. +Opinion on the Financial Statements +We have audited the accompanying Consolidated Balance Sheets of NewAmsterdam Pharma Company N.V. and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related Consolidated Statements of Operations and Comprehensive Loss, Shareholders’ Equity and Cash Flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2026, expressed an unqualified opinion on the Company’s internal control over financial reporting. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Research and development accruals and prepayments – Refer to Notes 2, 7 and 8 to the financial statements +Critical Audit Matter Description +As disclosed in Note 2 to the financial statements, the Company records research and development accruals and prepayments for clinical trials based on estimates of the progress to completion of specific research and development tasks using data including information provided by vendors on their actual costs incurred. For certain vendors involved in clinical trials, the actual progress of the research and development activities may significantly differ from timing and value of invoices received and/or payments remitted under the terms of the agreements. Estimates of expenses incurred are further determined through discussions with both internal personnel and vendors as to the status of progress of completion of the specified research and development tasks. Expenses incurred in excess of amounts invoiced are recorded as accruals. Payments made in excess of expenses incurred are recorded as prepayments. +We identified the research and development accruals and prepayments of certain vendors in clinical trials as a critical audit matter because of the significant judgment required by management in estimating the progress of the research and development activities conducted, as the progress is not directly observable. This required a high degree of auditor judgment and an increased extent of effort when performing procedures to audit management's estimates of progress and evaluating the results of those procedures. +How the Critical Audit Matter Was Addressed in the Audit +Our audit procedures related to the research and development accruals and prepayments included the following, among others: +• +Testing the effectiveness of controls over the recording of research and development accruals and prepayments, including management’s controls over tracking the progress of clinical trials. +F- 2 +• +Evaluating the Company’s process, methodology, and significant assumptions made in estimating the value of expenses incurred for which the invoice had not been received and the payments made for which underlying procedures had not been carried out. +• +Testing the completeness and accuracy of the data underlying the measurement and recognition of the accruals and prepayments including sending direct confirmations with the vendors. +• +Inspecting selected research agreements, as well as amendments thereto, to evaluate whether the progress of the clinical trials reflects all relevant contractual elements. +• +Assessing publicly available information, such as press releases and investor presentations, and board’s meeting minutes regarding the status of clinical trial activities and comparing this information to the judgments applied in recording of the accruals and prepayments. +• +Performing retrospective analysis of accruals at the end of the prior period to current year activity for a selection of contracts to assess the accuracy of the Company’s estimation methodology. +• +Performing inquiries with Company personnel outside of the finance department who are responsible for overseeing the activities performed by the Company’s contracted third-party vendors. +/s/ Deloitte Accountants B.V . +Eindhoven, The Netherlands +February 18, 2026 +We have served as the Company's auditor since 2020. +F- 3 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and the Board of Directors of NewAmsterdam Pharma Company N.V. +Opinion on Internal Control over Financial Reporting +We have audited the internal control over financial reporting of NewAmsterdam Pharma Company N.V. and subsidiaries (the “Company”) as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 18, 2026, expressed an unqualified opinion on those financial statements. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Deloitte Accountants B.V. +Eindhoven, The Netherlands +February 18, 2026 +F- 4 +NewAmsterdam Pharma Company N.V. +Consolidated Balance Sheets +As at December 31, +2025 +2024 +(In thousands of USD) +Assets +Current assets: +Cash and cash equivalents +490,002 +771,743 +Prepayments and other receivables +38,138 +24,272 +Employee receivables +— +4,951 +Marketable securities, current +146,239 +62,447 +Restricted cash +1,321 +— +Total current assets +675,700 +863,413 +Marketable securities, net of current portion +92,609 +— +Property, plant and equipment, net +383 +242 +Operating right of use asset +185 +431 +Intangible assets +407 +534 +Total assets +769,284 +864,620 +Liabilities and Shareholders' Equity +Current liabilities: +Accounts payable +8,970 +4,744 +Accrued expenses and other current liabilities +15,422 +13,608 +Deferred revenue, current +3,987 +6,008 +Lease liability, current +136 +246 +Derivative earnout liability, current +— +44,798 +Derivative warrant liabilities +57,272 +37,514 +Total current liabilities +85,787 +106,918 +Lease liability, net of current portion +66 +202 +Total liabilities +85,853 +107,120 +Commitments and contingencies (Note 13) +Shareholders' Equity: +Ordinary shares, € 0.12 par value; 400,000,000 shares authorized; 114,399,326 and 108,064,340 shares issued and outstanding at December 31, 2025 and 2024, respectively +14,278 +13,444 +Additional paid-in capital +1,426,750 +1,298,160 +Accumulated loss +( 762,390 +) +( 558,571 +) +Accumulated other comprehensive income +4,793 +4,467 +Total shareholders' equity +683,431 +757,500 +Total liabilities and shareholders' equity +769,284 +864,620 +See notes to consolidated financial statements. +F- 5 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Operations and Comprehensive Loss +For the year ended December 31, +2025 +2024 +2023 +(In thousands of USD, except per share amounts) +Revenue +22,503 +45,563 +14,090 +Operating expenses: +Research and development expenses +141,832 +151,406 +159,424 +Selling, general and administrative expenses +106,354 +70,446 +37,633 +Total operating expenses +248,186 +221,852 +197,057 +Operating loss +( 225,683 +) +( 176,289 +) +( 182,967 +) +Other income (expense): +Interest income +27,592 +16,881 +11,283 +Fair value change – earnout +3,992 +( 37,010 +) +( 266 +) +Fair value change – warrants +( 22,775 +) +( 38,583 +) +( 10,018 +) +Foreign exchange gains/(losses) +13,055 +( 6,598 +) +5,058 +Loss before tax +( 203,819 +) +( 241,599 +) +( 176,910 +) +Income tax expense (benefit) +— +( 1 +) +27 +Loss for the year +( 203,819 +) +( 241,598 +) +( 176,937 +) +Other comprehensive income/(loss) +Unrealized gain on available-for-sale securities, net of tax +326 +45 +— +Total comprehensive loss for the year, net of tax +( 203,493 +) +( 241,553 +) +( 176,937 +) +Net loss per ordinary share +Basic and diluted +$ +( 1.72 +) +$ +( 2.56 +) +$ +( 2.15 +) +See notes to consolidated financial statements. +F- 6 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Shareholders' Equity +(In thousands of USD, except share amounts) +Shares +Amount +Additional Paid-In Capital +Accumulated Loss +Accumulated other comprehensive income (loss) +Total Shareholders' Equity +Opening balance at January 1, 2023 +81,559,780 +10,055 +555,625 +( 140,036 +) +4,422 +430,066 +Exercise of warrants +749,741 +97 +10,116 +— +— +10,213 +Exercise of stock options +160,247 +21 +269 +— +— +290 +Share-based compensation +- +- +24,761 +— +— +24,761 +Total loss and comprehensive loss for the year +- +— +— +( 176,937 +) +— +( 176,937 +) +As at December 31, 2023 +82,469,768 +10,173 +590,771 +( 316,973 +) +4,422 +288,393 +February 2024 Issuance of Ordinary Shares and Pre-Funded Warrants, net of issuance costs +5,871,909 +759 +189,206 +— +— +189,965 +December 2024 Issuance of Ordinary Shares and Pre-Funded Warrants, net of issuance costs +14,667,347 +1,851 +451,564 +— +— +453,415 +Exercise of Pre-Funded Warrants +2,105,248 +279 +( 279 +) +— +— +— +Exercise of warrants +1,288,790 +168 +27,673 +— +— +27,841 +Exercise of stock options +1,661,278 +214 +5,496 +— +— +5,710 +Share-based compensation +— +— +33,729 +— +— +33,729 +Total loss and comprehensive loss for the year +— +— +— +( 241,598 +) +45 +( 241,553 +) +As at December 31, 2024 +108,064,340 +13,444 +1,298,160 +( 558,571 +) +4,467 +757,500 +Issuance of Earnout Shares +1,743,136 +226 +40,581 +— +— +40,807 +Exercise of Pre-Funded Warrants +1,293,938 +162 +( 162 +) +— +— +- +Exercise of warrants +142,477 +19 +4,636 +— +— +4,655 +Exercise of stock options +3,012,434 +408 +24,129 +— +— +24,537 +Vesting of RSUs +143,001 +19 +( 19 +) +— +— +- +Share-based compensation +— +— +59,425 +— +— +59,425 +Total loss and comprehensive loss for the year +— +— +— +( 203,819 +) +326 +( 203,493 +) +As at December 31, 2025 +114,399,326 +14,278 +1,426,750 +( 762,390 +) +4,793 +683,431 +See notes to consolidated financial statements. +F- 7 +NewAmsterdam Pharma Company N.V. +Consolidated Statements of Cash Flows +For the year ended December 31, +2025 +2024 +2023 +(In thousands of USD) +Operating activities: +Loss for the year +( 203,819 +) +( 241,598 +) +( 176,937 +) +Non-cash adjustments to reconcile loss for the year to net cash flows: +Depreciation and amortization +220 +113 +49 +Non-cash rent expense +— +12 +6 +Fair value change - derivative earnout and warrants +18,783 +75,593 +10,284 +Loss on disposal of property, plant and equipment +12 +— +— +Foreign exchange (gains)/losses +( 13,055 +) +6,598 +( 5,058 +) +Amortization of premium/discount on available-for-sale debt securities +( 1,405 +) +( 227 +) +— +Share-based compensation +59,425 +33,619 +24,572 +Changes in working capital: +Changes in prepayments (current and non-current) and other receivables +( 13,280 +) +( 17,459 +) +4,031 +Changes in accounts payable +4,909 +( 12,948 +) +5,070 +Changes in accrued expenses and other current liabilities +2,448 +1,686 +5,470 +Changes in deferred revenue +( 2,021 +) +( 3,953 +) +( 8,705 +) +Net cash used in operating activities +( 147,783 +) +( 158,564 +) +( 141,218 +) +Investing activities: +Purchase of property, plant and equipment, including internal use software +( 246 +) +( 672 +) +( 24 +) +Maturities of marketable securities +122,063 +— +— +Purchases of marketable securities +( 296,733 +) +( 62,176 +) +— +Net cash used in investing activities +( 174,916 +) +( 62,848 +) +( 24 +) +Financing activities: +Proceeds from February 2024 offering of Ordinary Shares and Pre-Funded Warrants +— +190,481 +— +Transaction costs on February 2024 issue of Ordinary Shares and Pre-Funded Warrants +— +( 515 +) +— +Proceeds from December 2024 offering of Ordinary Shares and Pre-Funded Warrants +— +455,026 +— +Transaction costs on December 2024 issue of Ordinary Shares and Pre-Funded Warrants +( 1,586 +) +( 25 +) +— +Proceeds from exercise of warrants +1,638 +13,761 +8,622 +Proceeds from exercise of options +29,468 +1,768 +290 +Payment of withholding taxes related to net share settlement of exercised options +— +( 989 +) +— +Net cash provided by financing activities +29,520 +659,507 +8,912 +Net change in cash, cash equivalents and restricted cash +( 293,179 +) +438,095 +( 132,330 +) +Foreign exchange differences +12,759 +( 6,802 +) +5,052 +Cash, cash equivalents and restricted cash at the beginning of the year +771,743 +340,450 +467,728 +Cash, cash equivalents and restricted cash at the end of the year +491,323 +771,743 +340,450 +Noncash financing and investing activities +Recognition of ROU asset +— +562 +— +Issuance of earnout shares +40,807 +— +— +Supplemental cash flow disclosures +Cash paid for income taxes +— +1 +27 +Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheets +Cash and cash equivalents +490,002 +771,743 +340,450 +Restricted cash +1,321 +— +— +491,323 +771,743 +340,450 +See notes to consolidated financial statements +F- 8 +NewAmsterdam Pharma Company N.V. +Notes to Consolidated Financial Statements +Note 1. The Company +NewAmsterdam Pharma Company N.V. (“NewAmsterdam Pharma” or the “Company”) is a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardio-metabolic diseases where currently approved therapies have not been adequate or well-tolerated. The Company was incorporated in the Netherlands as a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the name NewAmsterdam Pharma Company B.V. on June 10, 2022. On November 21, 2022, the Company’s corporate form was converted to a Dutch public limited liability company (naamloze vennootschap) and its name was changed to NewAmsterdam Pharma Company N.V. The Company’s ordinary shares, nominal value € 0.12 per share (the "Ordinary Shares") are listed on the Nasdaq Global Market and trade under the symbol “NAMS.” +In November 2022, the Company conducted an internal reorganization for the purpose of participating in the merger of the acquired company, Frazier Lifesciences Acquisition Corporation (“FLAC”) as described in Note 3. As a result of the internal restructuring and merger, NewAmsterdam Pharma Holding B.V., FLAC and NewAmsterdam Pharma Investment Corporation, a new Cayman-based exempted company, became wholly-owned subsidiaries of the Company. +On September 24, 2025, NewAmsterdam Pharma Holding B.V., a non-operating, wholly-owned subsidiary of the Company, merged with and into NewAmsterdam Pharma Company N.V. On the same date, Frazier Life Sciences Acquisition Corporation, a non-operation, wholly-owned subsidiary of the Company, merged with and into NewAmsterdam Pharma Corporation, a wholly-owned subsidiary of the Company. The transactions represent combinations between entities under common control. NewAmsterdam Pharma Holding B.V. and Frazier Life Sciences Acquisition Corporation had no material operations and the mergers had no impact on the consolidated financial statements of the Company. As such, no separate pre-combination results are presented. +The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, development by competitors of more advanced or effective therapies, dependence on key executives, protection of and dependence on intellectual property, compliance with government regulations and ability to secure additional capital to fund operations. Significant additional research and development efforts and regulatory approval will be required prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. +Going Concern +The Company has incurred net operating losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 762.4 million as of December 31, 2025. As of December 31, 2025 the Company had cash, cash equivalents and marketable securities of $ 728.9 million. Management believes that the existing financial resources are sufficient to continue operating activities for at least the twelve-month period following the issuance of these consolidated financial statements. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Any reference in these notes to the applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board ("FASB"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. +F- 9 +Functional and Reporting Currency +The functional currency of the Company and its subsidiaries has been the United States Dollar (“USD” or “$”) since January 1, 2023. Prior to that the functional currency of the Company and its subsidiaries was the Euro (“EUR” or “€”). Significant elements involved in the determination of the functional currency change included a shift in the Company’s sources of financing from EUR to USD given its access to the U.S. public market and an increase of operating costs incurred in USD due to Phase 3 trials taking place predominantly in the United States, among other factors. Given these significant changes, management concluded that the majority of the factors supported the determination of the USD as the functional currency. +The reporting currency of the Company is USD. +Consolidation +The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Subsidiaries are all entities over which the Company has a controlling financial interest either through variable interest or through voting interest. Currently, the Company has no involvement with variable interest entities and all subsidiaries are wholly-owned. Intercompany transactions, balances, income, and expenses are eliminated in consolidation. Profits and losses resulting from intercompany transactions that are recognized in assets are also eliminated. +Use of Estimates +The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, assumptions related to the Company’s revenue recognition, accrual of research and development expenses, valuation of stock option awards and valuation of derivative instruments. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate. +Fair Value Measurements +Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP either upon initial recognition or for subsequent accounting and reporting. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: +• +Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. +• +Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. +• +Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. +F- 10 +If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. +For assets and liabilities that are recognized in the consolidated financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole), at the end of each reporting period. +The Company estimates that the carrying amounts of the cash and cash equivalents, prepayments and other receivables, other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair values. +Segment Information +Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results, and plans for levels or components below the consolidated unit level. Accordingly, the Company has one operating segment and, therefore, one reportable segment, which comprises the discovery, development and commercialization of transformative therapies for cardio-metabolic diseases. +Cash and Cash Equivalents +Cash comprises checking and savings deposits. The carrying amount of these assets is approximately equal to their fair value due to their short-term nature. The Company maintains certain deposits which exceed the amounts covered by insurance provided by the government of the country in which the deposits are held. The Company has not experienced any losses related to amounts held in excess of such limits. +The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. +Restricted Cash +The Company maintains certain cash balances restricted to withdrawal or use. Restricted cash includes cash held as collateral for certain contractual agreements. +Marketable Securities +Marketable securities consist of investments in U.S. government and U.S. government agency obligations that are classified as available-for-sale. Marketable securities are classified as current if their expected maturity is within one year of the balance sheet date and non-current if their maturity is beyond one year of the balance sheet date. +The Company adjusts the cost of available-for-sale debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion as a component of interest income, net based on the effective interest method. Realized gains and losses and declines in value, if any, that the Company judges to be the result of impairment or as a result of recognizing an allowance for credit losses on available-for-sale securities are reported as a component of interest income, net. To determine whether an impairment exists, the Company considers whether it intends to sell the debt security and, if the Company does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. During the years ended December 31, 2025 and 2024 , the Company determined it did no t have any securities that were other-than-temporarily impaired. Prior to 2024, the Company held no marketable securities. +F- 11 +Marketable securities are stated at fair value, excluding accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. During the years ended December 31, 2025, 2024 and 2023 , the Company did no t have any realized gains or losses on marketable securities. +Property Plant and Equipment, Net +Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method and is recorded in Selling, general, and administrative expense over the estimated useful lives of the assets. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon disposal of an asset, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss on the transaction is recognized. +The estimated useful lives of property and equipment are as follows: +Estimated Useful Life (in years) +Computer equipment +5 +Office furniture and equipment +5 +Impairment of Long-Lived Assets +The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the assets from the expected future cash flows (undiscounted and without interest expense) of the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss for the difference between the estimated fair value and carrying value is recorded. To date, the Company has not recorded any material impairment losses on long-lived assets. +Leases +In accordance with ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), the Company classifies leases at the lease commencement date. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year will be recognized on the consolidated balance sheets as right-of-use assets (“ROU”), lease liabilities, and if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Lease liabilities and the corresponding ROU are recorded based on the present values of lease payments over the terms. The Company determines the discount rate based on the implicit rate in the contract and if not readily determinable, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to ROUs may be required for items such as initial direct costs paid, incentives received, or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability using revised inputs as of the reassessment date, and adjust the ROU. Lease agreements with a noncancelable term of less than 12 months and no purchase option that the Company is reasonably certain to exercise are not recorded on the Company’s consolidated balance sheet. Costs related to such lease agreements are operating cash flows and recorded in selling, general and administrative expenses. +Derivative Warrants Liability +The Company accounts for the public warrants and private placement warrants in accordance with the guidance contained in ASC 480, Distinguishing Liabilities from Equity ASC 815-40, Derivatives and Hedging—Contracts in Entity's Own Equity , under which the public warrants and private placement warrants do not meet the criteria for equity treatment and must be recorded as liabilities carried at fair value. This liability is subject to re-measurement at +F- 12 +each balance sheet date until exercised, and any change in fair value is recognized as (expense)/income in the consolidated statements of operations and comprehensive loss. The public warrants are valued based on the quoted market price as of each relevant reporting date, which is a Level 1 fair value measurement. The private warrants were initially and subsequently determined to have value equal to the public warrants as the terms of the instruments are substantially equivalent. The valuation of the private warrants is considered to be a Level 2 fair value measurement. +Derivative Earnout Liability +The Company accounts for the Earnout Shares (as defined below) allocated to Participating Shareholders (as defined below) in accordance with the guidance contained in ASC 480, Distinguishing Liabilities from Equity ASC 815-40, Derivatives and Hedging—Contracts in Entity's Own Equity , under which the Earnout Shares allocated to Participating Shareholders do not meet the criteria for equity treatment and must be recorded as liabilities carried at fair value. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as (expense)/income in the consolidated statements of operations and comprehensive loss. The liability is valued utilizing the Black-Scholes model, taking into account the probability of achieving the applicable milestone. The valuation of the Earnout Shares allocated to Participating Shareholders is considered to be a Level 3 fair value measurement. +Revenue Recognition +The Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers , and subsequent amendments (collectively, “ASC 606”). +Under ASC 606, to determine the recognition of revenue, the Company performs the following five steps: +1. +identify the contract(s) with the customer; +2. +identify the performance obligations in the in the contract; +3. +determine the transaction price; +4. +allocate the transaction price to the performance obligations in the contract; and +5. +recognize revenue when (or as) the Company satisfies a performance obligation. +The Company has entered into License and Supply agreements with customers. Upon entering into these agreements, the Company performs an analysis to identify the performance obligations. Where an agreement comprises several promises, it must be assessed whether these promises are capable of being distinct within the context of the contract. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources, and (ii) the promised good or service is separately identifiable from other promises in the contract. +The Company estimates the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is highly probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. +F- 13 +After the transaction price is determined, it is allocated to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation. +Revenue is recognized when the customer obtains control of the goods and/or services as provided in the agreements. The control can be transferred over time or at a point in time – which results in the recognition of revenue over time or at a point in time. Consideration received in advance of satisfying the related performance obligations is recorded as deferred revenue until those obligations are fulfilled. +License Agreements: +In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises. +The Company recognizes revenue over time as the customer simultaneously receive the benefits provided by the Company’s performance, satisfied over time. Upfront licensing payments are recognized as revenue at the point in time when the Company transfers control of the license only if the license is determined to be a separate performance obligation from other undelivered performance obligations. Contingent development costs and milestone payments are generally included in the transaction price at the amount stipulated in the respective agreement and recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. +The Company will recognize royalty revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) +Supply Agreements: +Revenue is made pursuant to purchase orders and is recognized at a point in time when the control of the product has been transferred to the customer which aligns with shipping terms. In the normal course of business, the Company does not accept product returns and does not provide customers with the right to a refund. +Research and Development Expense +Research and development costs are recognized as an expense when incurred and are typically made up of clinical and preclinical activities, drug development and manufacturing costs, and include costs for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided by vendors on their actual costs incurred. The determination of the level of services performed by the vendors and the associated expenditure incurred for the services provided is made at each balance sheet date. +Quantification of the research and development expenses incurred during the period requires judgment based on key estimates comprising of non-financial data, because the progress of activities is not directly observable and therefore the precise timing of the research and development activities may not be entirely certain. In estimating progress +F- 14 +toward completion of specific tasks, the Company therefore uses non-financial data such as number of patient screenings, patient visits, patient enrollment, clinical site activations and vendor information of actual costs incurred. This data is obtained through reports from outside service providers as to the progress or state of completion of trials or the completion of services and reviewed by Company personnel. +The costs of intangibles that are purchased from others for a particular research and development project and that have no alternative future uses are expensed as research and development costs at the time the costs are incurred or at the time when no alternative future use is identified. +The Company receives government incentives intended to support its research and development activities. These incentives are administered through payroll tax programs that reduce the amount of wage‑related taxes owed. Benefits received under these programs are recorded as a reduction of research and development expenses in the period in which they are realized. As of December 31, 2025, the Company had no unfulfilled conditions or contingencies related to these incentives. +Selling, General and Administrative Expenses +Expenses are recognized on the accrual basis when incurred. +Personnel Expenses +Wages and salaries, social security contributions, payroll taxes, bonuses, employee benefits and other personnel-related expenses are recognized on the accrual basis in which the employee provides the associated services or as costs are incurred. +The Company’s pension plans are classified as defined contribution plans, and, accordingly, no pension obligations are recognized in the balance sheet. Costs relating to defined contribution plans are included in the statement of operations and comprehensive loss in the period in which they are incurred, and outstanding contributions are included in trade and other payables. +Share-Based Compensation +The Company accounts for its share-based compensation in accordance with ASC 718 – Compensation – Stock Compensation (“ASC 718”) . Share-based compensation is measured based on the grant date fair value of the equity awards using the Black-Scholes option pricing model. Share-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards. Forfeitures and modifications are accounted for as they occur. The Company classifies share-based compensation expense in its consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s salary and related costs are classified. +Net Loss Per Share +Basic net loss per share is calculated by dividing the net loss by the weighted-average number of Ordinary Shares outstanding during the period. For the purposes of calculating the weighted-average number of Ordinary Shares outstanding, the Ordinary Shares underlying the Pre-Funded Warrants issued in the February 2024 Offering and the December 2024 Offering (as defined in Note 9 below) are included. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented. +Income Taxes +The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its +F- 15 +deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. +Foreign Currency and Currency Translation +Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. +Prior to January 1, 2023 the functional currency of the Company and its subsidiaries was the Euro. The reporting currency of the Company is USD. The Company translated assets and liabilities in prior periods at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the exchange rate prevailing at the date of the transaction. Unrealized translation gains and losses are recorded as cumulative translation adjustments which are included in the Company’s balance sheet within accumulated other comprehensive income (loss). +Recently Issued Accounting Pronouncements +In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" which requires entities to enhance disclosures around income taxes. The guidance is effective for annual periods beginning after December 15, 2024 , with early adoption permitted. The Company adopted and applied the amendments of this ASU to its disclosures. The application of this ASU did no t have a material impact on the Company's financial position, results of operations or cash flows. +In November 2024, the FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)" which requires entities to enhance disclosures around the nature of expenses included in the income statement. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +In July 2025, the FASB issued ASU-2025-05, "Financial Instruments—Credit Losses (Topic 326)" which require entities to enhance the measurement of credit losses for accounts receivables and contract assets. The guidance is effective for annual periods beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +In September 2025, the FASB issued ASU-2025-06, "Intangibles—Goodwill and Other—Internal-use software (Subtopic 350-40)" which modernizes the accounting for software costs under Subtopic 350-40. The guidance is effective for annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +F- 16 +In December 2025, the FASB issued ASU-2025-10, "Government Grants (Topic 832)" which establishes authoritative guidance on the accounting for government grants received by business entities. The guidance is effective for annual periods beginning after December 15, 2028, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. +Note 3. FLAC Merger +Prior to November 22, 2022, NewAmsterdam Pharma Company N.V. was a shell company with no active trade or business, and all relevant assets and liabilities, as well as income and expenses, were borne by NewAmsterdam Pharma Holding B.V. FLAC was a special purpose acquisition company incorporated on October 7, 2020 as a Cayman Islands exempted company formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or a similar business combination. FLAC completed its initial public offering on December 11, 2020 and listed on the Nasdaq. +On July 25, 2022 , FLAC entered into a Business Combination Agreement (“Business Combination Agreement”) with NewAmsterdam Pharma Holding B.V., the Company, and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company. +On November 22, 2022 (the “Closing Date”), Pursuant to the terms of the Business Combination Agreement, the following transactions occurred (collectively, the “Business Combination”). +• +On the date prior to the Closing Date, the shareholders of NewAmsterdam Pharma Holding B.V. (“Participating Shareholders”) exchanged their interest for Ordinary Shares such that the Company became the direct parent of NewAmsterdam Pharma Holding B.V. (the “Exchange”). In connection with the Exchange, 17,016,872 NewAmsterdam Pharma Holding B.V. shares of € 0.01 par value were exchanged at a ratio of approximately 2.13 for 36,258,312 Ordinary Shares, € 0.12 par value per share. +• +Immediately after giving effect to the Exchange, a subsidiary of the Company merged with and into FLAC (the “Merger”), with FLAC surviving as a wholly owned subsidiary of the Company. +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $ 0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms which resulted in the issuance of 167,000 private placement warrants and 4,600,000 public warrants (collectively, the “Warrants”). +• +Each NewAmsterdam Pharma Holding B.V. option that was outstanding and unexercised remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Holding B.V. options became options to purchase, and will when exercised be settled in Ordinary Shares. +• +In addition to the transactions described above, 8,656,330 Ordinary Shares were issued to Amgen and MTPC pursuant to their profit rights granted upon the acquisition of Dezima. +The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting FLAC was treated as the acquired company for financial reporting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, NewAmsterdam Pharma Holding B.V.'s shareholders had the majority of the voting power of the combined entity, NewAmsterdam Pharma Holding B.V. comprised all of the ongoing operations of the combined entity, NewAmsterdam Pharma Holding B.V.’s shareholders had the ability to appoint a majority of the governing body of the combined entity, and NewAmsterdam Pharma Holding B.V.’s senior management comprised all of the senior management of the combined entity. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Company, immediately following the Exchange, issuing shares for the net assets of FLAC. As of the Closing +F- 17 +Date the net assets of FLAC totaled $ 67.9 million which consisted of $ 71.9 million of cash, less liabilities assumed of $ 4.0 million. The Company provided consideration with fair value of $ 130.1 million in the form of Ordinary Shares. The difference between consideration paid and net assets acquired is recorded within additional paid in capital. No goodwill or intangibles were recorded. Operations prior to the Business Combination are those of NewAmsterdam Pharma Holding B.V. +Following the Merger, upon the achievement of a certain clinical development milestone, the Company will issue to the Participating Shareholders, Amgen, MTPC and holders of options to purchase shares of NewAmsterdam Pharma Holding B.V. prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma as of the date of the Business Combination Agreement and who are at the time of achievement of such milestone still providing services to the Company (the “Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders will take the form of awards of restricted stock units ( the “Earnout RSUs”) . In March 2025, it was determined that the earnout milestone triggering event set forth in the Business Combination Agreement had occurred and, as a result, a total of 1,743,136 Earnout Shares and 143,001 Earnout RSUs were issued to Participating Shareholders and Participating Optionholders, respectively. +The Company raised an additional $ 234.6 million in net equity proceeds through a private placement of Ordinary Shares with existing shareholders of NewAmsterdam Pharma Holding B.V., FLAC and other new investors (the “PIPE Financing”). +Both the Merger and PIPE Financing closed as of November 22, 2022. Upon consummation of the transactions, the Company’s Ordinary Shares began trading on the Nasdaq under the ticker NAMS. The Public Warrants are traded under the ticker NAMSW. The Company also amended existing share-based compensation agreements held by employees of NewAmsterdam Pharma Holding B.V. prior to the Merger in addition to making additional share-based payments. +Note 4. Revenue +Menarini License Agreement +On June 23, 2022, NewAmsterdam Pharma Holding B.V. entered into a licensing agreement with A. Menarini International Licensing S.A. (“Menarini”) (the “Menarini License”), pursuant to which it granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of its intellectual property and its regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib, either as a sole active ingredient product or in a fixed-dose combination with ezetimibe (the “Licensed Products”), for any use in the majority of European Countries (“Menarini Territory”). +The Company remains responsible for the development and commercialization costs related to Licensed Products, excluding local development, regulatory and commercialization costs incurred by Menarini in the Menarini Territory. In addition, Menarini is expected to purchase the Licensed Products from the Company in accordance with a supply agreement that is to be executed following the execution of the Menarini License and prior to commercialization. As such, the Company determined that the agreements should not be combined as a single contract pursuant to the guidance prescribed in ASC 606. +The Menarini License includes a non-refundable upfront payment, fixed reimbursements for the Company’s continued development costs, payments based upon the achievement of defined development, regulatory and commercial milestones, sales-based royalties, and certain cost sharing payments made by Menarini to the Company and by the Company to Menarini. +The Company has evaluated the Menarini License based on the requirements of ASC 606 and has concluded the following: +Within the license performance obligation described below, there are various licenses granted under the Menarini License which do not currently represent distinct performance obligations in themselves, as the licenses are highly +F- 18 +interrelated and Menarini would likely be unable to derive significant benefits from their access to these licenses on an individual basis. +• +The Company, considering that (i) there are no material restrictions included in the contract which would prevent Menarini to direct the use of, and obtain substantially all of the remaining benefits and (ii) the majority of the Company’s remaining development activities are in late-stage development and are not expected to significantly affect the functionality of the underlying intellectual property, concludes that the license as of the effective date of the contract has standalone value. As such, the Company concluded that the promise in granting the licenses to Menarini is to provide a right to use the Company’s intellectual property as it exists at the point in time at which the license is granted and therefore, revenue accrued and allocated to this performance obligation has been recognized at a point in time. +• +The Company has also identified an additional performance obligation that consists of the research and development activities related to the general development and commercialization costs related to Licensed Products. The Company determined that this performance obligation is satisfied over time as Menarini simultaneously receives and consumes the benefits of the services provided as they are performed. This is based on the fact that Menarini is receiving status of the research periodically which allows it to make informed decisions in its local development activities. The Company further considered that the licenses and the research and development services are not highly interdependent or highly interrelated because the Company is able to fulfill its promise to transfer the licenses regardless of fulfilling its promise to perform the remaining research and development services. The Company also concluded that the licenses are considered distinct as Menarini could benefit from the licenses together with readily available resources other than the Company’s research and development services. The Company utilizes a cost-based input method to measure its progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Menarini. In applying the cost-based input method of revenue recognition, the Company uses actual clinical study enrollment figures as well as actual costs incurred relative to budgeted costs expected to be incurred attributable to the Menarini Territory for the performance obligation. These costs consist primarily of third-party contract costs relative to the level of patient enrollment in the studies. Revenue will be recognized based on the level of costs incurred relative to the total budgeted costs for the performance obligation. +As such, two performance obligations for the Menarini License were identified at contract inception, comprising a license to use the Company’s intellectual property (the “license performance obligation”) and a promise to continue the development activities for the licensed compound (the “R&D performance obligation”). +The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the non-refundable, upfront payment of $ 120.9 million that was received by the Company in July 2022. The Company considers this non-refundable fee to be the initial transaction price. +The Company has allocated the transaction price to each performance obligation identified on a relative stand-alone selling price basis. The Company has used a combination of methods to calculate the stand-alone selling prices, using the expected cost plus a margin approach to calculate the standalone selling price of the research and development services required in the Menarini License and needed to commercialize obicetrapib in the Menarini Territory and the residual approach to calculate the stand-alone selling price for the license based on the fair value of the total promised goods and services in the Menarini License considering that the Company has not yet established a price for licenses, has not historically sold licenses on a stand-alone basis (i.e., the selling price is uncertain), and the amount allocated is consistent with the allocation objective as the Company believes the stated upfront amount is consistent with a risk-adjusted price that a market participant would be willing to pay for the licenses. +In 2022, at contract inception, the Company allocated $ 98.6 million to the license performance obligation which was immediately recognized as revenue in its consolidated statement of operations and comprehensive loss and $ 22.3 million to the R&D performance obligation, which was initially recognized as deferred revenue in the consolidated balance sheet. The revenue related to the R&D performance obligation is recognized over time as costs are incurred in connection with fulfilling the obligation. At each reporting date the Company reviews the total costs incurred to +F- 19 +date and the total expected costs necessary to fulfill the R&D performance obligation. Revenue related to the R&D performance obligation is recognized based upon the percentage of total costs expected costs incurred to date based upon the latest information available to management. During the year ended December 31, 2025 it was determined that the R&D performance obligation was satisfied in full and, as such, all of the deferred revenue on the consolidated balance sheet as of January 1, 2025 has been recognized as revenue during the year. +The Menarini License also provides for certain milestone payments from Menarini to the Company upon the achievement of specified development, regulatory and commercial milestones linked to the enhanced value of the license performance obligation. More specifically, the Company is eligible to receive up to an additional € 863 million upon the achievement of various clinical, regulatory and commercial milestones, € 30 million of which has been received as of December 31, 2025. These milestones are contingent payments that represent variable consideration that are not initially recognized within the transaction price, due to the scientific uncertainties around the continued development and commercialization of the Licensed Products based on the success of clinical trials. At the end of each reporting period, the Company assessed the probability of significant reversals for any amounts that became likely to be realized prior to recognizing the variable consideration associated with these payments within the transaction price. +In the years ended December 31, 2025, 2024 and 2023 the Company recognized revenues of nil, $ 27.3 million and $ 5.4 million, respectively, related to the achievement of clinical milestones. Revenues related to the achievement of milestones under the Menarini License are attributed to the license performance obligation and are recognized when the milestone is achieved. +Additionally, in partial contribution to our costs of development of the Licensed Products, Menarini may pay us € 27.5 million, payable in two equal annual installments. These development cost contributions are considered to be linked to the R&D performance obligation. Due to the scientific uncertainties around the commercialization of the Licensed Products based on the success of clinical trials, which is not within the control of the Company, the fixed € 27.5 million was considered constrained at contract inception and was not initially recognized within the transaction price until it became highly probable of no significant revenue reversal. +As of December 31, 2025 , both installments had been determined to be probable to be realized with no significant reversals. As such, the full € 27.5 million is included in the transaction price and, based on the percentage of completion of the R&D performance obligation, as described above, has been fully recognized as revenue. +Lastly, the Company is entitled to receive tiered royalty payments based on annual aggregate net sales of all Licensed Products in the Menarini Territory, subject to specified reductions upon commercialization. The royalty term begins for each Licensed Product on a country-by-country basis upon the first commercial sale of such product in such country and ends on the later of (i) the expiration of the last-to-expire patent that includes a valid claim, (ii) the expiration of regulatory exclusivity in such country for such Licensed Product and (iii) a specified number of years after the first commercial sale of such Licensed Product in such country (the term of the agreement). In accordance with ASC 606, the Company recognizes revenue from royalty payments at the later of (i) the occurrence of the subsequent sale; or (ii) the performance obligation to which some or all of the sales-based milestone or royalty payments has been allocated has been satisfied. The Company anticipates recognizing these royalty payments if and when subsequent sales are generated from the Licensed Products. +Menarini Supply Agreement +On August 12, 2025, NewAmsterdam Pharma B.V. entered into a supply agreement with A. Menarini International Licensing S.A. (“Menarini”) to provide commercial supply of Products (as defined below) for distribution in specified European territories (the “Menarini Supply Agreement”). +The Company recognizes revenue from the sale of obicetrapib tablets, as a monotherapy and as a fixed-dose combination therapy with ezetimibe, or from the sale of active pharmaceutical ingredients for the manufacture of such tablets (collectively, “Products”). The Company’s product supply revenue is recognized at a point in time when the performance obligation is satisfied by transferring control of the promised goods or services to the customer and it is probable that it will collect the consideration to which it is entitled. In accordance with the terms of the +F- 20 +Menarini Supply Agreement, control of the product is transferred upon the conveyance of title, which occurs when the product is made available to the customer. +The transaction price is contractually fixed at a markup of the actual cost of goods sold. Due to the cost-based nature of the agreement, the pricing structure includes a variable component which is measured using the expected value method. At each reporting period end, the Company updates its estimate of the transaction price using actual cost data and forecasted expenses. The Company considers the variable consideration constraint under ASC 606 to ensure that it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company will invoice the customer upon the acceptance of purchase orders and is not adjusted for a significant financing component as the period between the transfer of goods and payment is less than one year. Consideration received prior to the satisfaction of performance obligations are deferred until the date of satisfaction. The Company states revenues net of any taxes collected from customers that are required to be remitted to various government agencies. The amount of taxes collected from customers and payable to governmental entities is included on the balance sheet as part of accrued expenses and other current liabilities. +To date, the Menarini License and the Menarini Supply Agreement have been the only sources of revenue to the Company and all such revenues derive from Italy. +Revenue consisted of the following: +Year ended December 31, +(In thousands of USD) +2025 +2024 +2023 +License revenue attributed from license performance obligation +— +27,325 +5,385 +License revenue attributed from R&D performance obligation +22,123 +18,238 +8,705 +Supply Revenue +380 +— +— +Total revenue +22,503 +45,563 +14,090 +The following table presents changes in the balance of the Company’s deferred revenue: +(In thousands of USD) +2025 +2024 +Beginning balance on January 1 +6,008 +9,961 +Addition of deferred revenue during the period +3,987 +2,412 +Revenue recognized during the period +( 6,008 +) +( 6,365 +) +Ending balance on December 31 +3,987 +6,008 +Note 5. Cash, cash equivalents and marketable securities +A summary of cash, cash equivalents and marketable securities held by the Company as at December 31, 2025 and 2024 is as follows: +F- 21 +As at December 31, 2025 +(In thousands of USD) +Amortized cost +Unrealized gains +Unrealized losses +Fair value +Cash and cash equivalents: +Cash +219,394 +— +— +219,394 +Money market funds (Level 1) +270,608 +— +— +270,608 +Total cash and cash equivalents +490,002 +— +— +490,002 +Marketable securities +US government securities due within one year (Level 1) +138,083 +206 +— +138,289 +US government agency securities due within one year (Level 2) +7,946 +5 +( 1 +) +7,950 +US government securities due between one and two years (Level 1) +70,701 +131 +( 2 +) +70,830 +US government agency securities due between one and two years (Level 2) +21,747 +33 +( 1 +) +21,779 +Total marketable securities +238,477 +375 +( 4 +) +238,848 +As at December 31, 2024 +(In thousands of USD) +Amortized cost +Unrealized gains +Unrealized losses +Fair value +Cash and cash equivalents: +Cash +733,826 +— +— +733,826 +Money market funds (Level 1) +25,444 +— +— +25,444 +US government agency securities (Level 2) +12,473 +— +— +12,473 +Total cash and cash equivalents +771,743 +— +— +771,743 +Marketable securities +US government securities due within one year (Level 1) +37,711 +34 +— +37,745 +US government agency securities due within one year (Level 2) +24,691 +11 +— +24,702 +Total marketable securities +62,402 +45 +— +62,447 +Note 6. Fair Value Measurements +As at December 31, 2025 and 2024, the Company’s financial liabilities recognized at fair value on a recurring basis consisted of the following: +As at December 31, 2025 +(In thousands of USD) +Level 1 +Level 2 +Level 3 +Total +Derivative warrant liability (Public Warrants) +53,431 +— +— +53,431 +Derivative warrant liability (Private Placement Warrants) +— +3,841 +— +3,841 +Derivative earnout liability +— +— +— +— +Total financial liabilities +53,431 +3,841 +— +57,272 +As at December 31, 2024 +(In thousands of USD) +Level 1 +Level 2 +Level 3 +Total +Derivative warrant liability (Public Warrants) +35,134 +— +— +35,134 +Derivative warrant liability (Private Placement Warrants) +— +2,380 +— +2,380 +Derivative earnout liability +— +— +44,798 +44,798 +Total financial liabilities +35,134 +2,380 +44,798 +82,312 +The estimated fair value of the Earnout Shares to Participating Shareholders was determined using Level 3 inputs, other than the Company's share price as a Level 1 input, as no observable market inputs were available. The Earnout +F- 22 +Shares allocated to Participating Shareholders have been measured at fair value using a Black-Scholes pricing model. Given the assumed zero dividend rate and the fact that no strike price exists that would have led to any volatility measure relative to the Company's share price, the fair value of the Earnout Shares allocated to Participating Shareholders resulting from the Black-Scholes pricing model is entirely driven by the Company’s closing share price as a Level 1 input and the probability of milestone completion as a Level 3 input. As such, the relevant inputs to the fair value of the derivative earnout liability are as follows: +At settlement +December 31, 2024 +Share value (USD) +23.41 +25.70 +Probability of milestone completion +100 +% +100 +% +Dividend yield +0 +% +0 +% +Strike price (USD) +0.00 +0.00 +As management's judgment of the probability of milestone completion remained constant, the change in fair value resulted from the Company’s price per share between valuation dates. +The following table presents a reconciliation of the earnout liability measured on a recurring basis using Level 3 inputs as of December 31, 2025 and 2024: +Balance on December 31, 2023 +7,788 +Change in fair value recognized through earnings +37,010 +Balance on December 31, 2024 +44,798 +Balance on December 31, 2024 +44,798 +Change in fair value recognized through earnings +( 3,992 +) +Settlement of derivative earnout liability upon achievement of milestone +( 40,806 +) +Balance on December 31, 2025 +— +In March 2025, it was determined that the earnout milestone triggering event set forth in the Business Combination Agreement had occurred. As a result, the derivative earnout liability was settled in full, with a total of 1,743,136 Ordinary Shares issued in accordance with the terms of the Business Combination Agreement. +Note 7. Prepayments and Other Receivables +Prepayments and other receivables consisted of the following: +As at December 31, +(In thousands of USD) +2025 +2024 +Prepaid research and development costs +13,149 +5,704 +Other prepaid expenses +1,837 +2,214 +License fee receivable +16,156 +14,285 +Value added tax receivable +231 +321 +Other receivables +6,765 +1,748 +Total prepayments and other receivables +38,138 +24,272 +Note 8. Accrued Expenses and Other Current Liabilities +Accrued expenses and other current liabilities consisted of the following: +As at December 31, +(in thousands of USD) +2025 +2024 +Accrued research and development materials and services +4,322 +2,069 +Accrued compensation and benefits +9,355 +8,721 +Accrued professional fees and other +1,745 +2,818 +Total accrued expenses and other current liabilities +15,422 +13,608 +F- 23 +Note 9. Shareholders’ Equity +The Company has an authorized share capital of 400,000,000 Ordinary Shares each with a nominal value of € 0.12 . The following summarizes the main rights of holders of Ordinary Shares: +• +each holder of Ordinary Shares is entitled to one vote per share on all matters to be voted on by shareholders generally, including the appointment of our directors; +• +there are no cumulative voting rights; +• +the holders of Ordinary Shares are entitled to dividends and other distributions as may be declared from time to time by us out of funds legally available for that purpose, if any; +• +upon our liquidation and dissolution, the holders of Ordinary Shares will be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities; and +• +the holders of Ordinary Shares have pre-emption rights in case of share issuances or the grant of rights to subscribe for shares, except if such rights are limited or excluded by the corporate body authorized to do so and except in such cases as provided by Dutch law and the Articles of Association +February 2024 Follow-on Offering +On February 16, 2024, the Company completed an underwritten public offering (the “February 2024 Offering”) of 5,871,909 Ordinary Shares at a public offering price of $ 19.00 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 4,736,841 Ordinary Shares at a public offering price of $ 18.9999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $ 0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 5,871,909 Ordinary Shares issued and sold in the February 2024 Offering, 1,383,750 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the February 2024 Offering were $ 190.0 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. As of December 31, 2025 a total of 2,105,263 of the Pre-Funded Warrants issued in connection with the February 2024 Offering have been exercised, resulting in the issuance of 2,105,248 Ordinary Shares. +December 2024 Follow-on Offering +On December 13, 2024, the Company completed an underwritten public offering (the “December 2024 Offering”) of 14,667,347 Ordinary Shares at a public offering price of $ 24.50 per Ordinary Share and, in lieu of Ordinary Shares to certain investors, Pre-Funded Warrants to purchase 4,882,653 Ordinary Shares at a public offering price of $ 24.4999 per Pre-Funded Warrant, which represents the per share public offering price for the Ordinary Shares, less the $ 0.0001 per share exercise price for each such Pre-Funded Warrant. Of the 14,667,347 Ordinary Shares issued and sold in the December 2024 Offering, 2,550,000 Ordinary Shares were issued and sold pursuant to the exercise of the underwriters’ option to purchase additional Ordinary Shares at the public offering price per share. The net proceeds to the Company from the December 2024 Offering were $ 453.4 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. As of December 31, 2025 a total of 1,293,944 of the Pre-Funded Warrants issued in connection with the December 2024 Offering have been exercised, resulting in the issuance of 1,293,938 Ordinary Shares. +At-the-Market Offering +On August 9, 2024, the Company entered into an amended and restated sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“TD Cowen”), pursuant to which the Company may issue and sell from time to time up to $ 250 million of its Ordinary Shares through or to TD Cowen as the Company's sales agent or acting as principal in any method deemed to be an “at the market offering.” TD Cowen will receive a commission of up to +F- 24 +3.0 % of the gross proceeds of any Ordinary Shares sold pursuant to the Sales Agreement. During the year ended December 31, 2025 , the Company did no t sell any Ordinary Shares pursuant to the Sales Agreement. +Issuance of Earnout Shares +In March 2025, it was determined that the earnout milestone triggering event set forth in the Business Combination Agreement had occurred and, as a result, a total of 1,743,136 Ordinary Shares were issued in accordance with the terms of the Business Combination Agreement. +Employee Receivables Due Upon Exercise of Company Options +As of December 31, 2024 the amount reported on the consolidated balance sheet for employee receivables included amounts which were due to the Company for Company Options which had been exercised, but for which the exercise price had not yet been remitted. All such receivables were paid to the Company prior to the issuance of this report. +As of December 31, 2025 and 2024 only Ordinary Shares were outstanding or authorized. +Note 10. Share-Based Compensation +The Company has four Share-based payment plans and one restricted share award in place as at December 31, 2025: +• +The Company’s Long-Term Incentive Plan (the “Plan”); +• +The Company’s Supplementary Long-Term Incentive Plan (the “Supplementary Plan”); +• +The Company’s Rollover Option Plan (the “Rollover Plan,”); +• +The Company’s Inducement Plan (the “Inducement Plan,” together with the Plan, the Supplementary Plan and the Rollover Plan, the “Plans”); and +• +Chief Executive Officer Restricted Share Award. +Long Term Incentive Plans +The Plans are equity-settled, and the Company may grant various forms of equity awards, including the granting of options to purchase Ordinary Shares (“Company Options”) and restricted share units (“RSUs”), pursuant to the Plans. In total, as of December 31, 2025 a maximum of 28,435,355 Ordinary Shares may be reserved for issuance pursuant to the Plans. The number of Ordinary Shares reserved for grant under the Plan will increase annually on January 1 of each calendar year by 5 % of the then issued and outstanding Ordinary Shares or such lower number as may be determined by the Board of Directors. +The contractual term is 10 years from grant date for options granted under the Plans. In general, each Company Option granted in 2025 has a four-year vesting period with 25 % vesting after one year and the remaining 75 % vesting in equal monthly installments over the next following three years . +In general, each RSU, other than the Earnout RSUs, has a three-year vesting period with one-third vesting on each one-year anniversary of the vesting start date. +Modification of Options +In 2024, a total of 399,153 Company Options granted to one employee were modified. For 210,655 of the modified Company Options the vesting period was shortened, of which 200,655 such modified Company Options also had the exercise period extended. For the other 188,498 modified Company Options only the exercise period was extended. The total fair value of the 210,655 modified Company Options for which the vesting period was shortened is equal to $ 1.2 million. Any expense previously recognized for such Company Options was reversed on the modification date and the full fair value of the modified Company Options was recognized over the new applicable service +F- 25 +period. For the 188,498 modified Company Options for which only the exercise period was extended the total fair value of the modification is equal to $ 0.1 million, all of which is recognized on the modification date. +In 2023, the vesting period was shortened for 490,067 Company Options granted to an employee in relation with the signing of an employment separation agreement. At the modification date, 255,243 Company Options were expected to vest both under the original and the modified vesting conditions. For these Company Options, the modification did not result in any incremental compensation cost. For the 234,824 Company Options that were not probable to vest as of the modification date based on the original terms, the incremental fair value granted is equal to the fair value of the modified award of $ 12.19 (i.e., the value of the modified award, as determined on the modification date, compared to its prior zero value). In 2023, the total incremental fair value of $ 2.9 million has been fully recognized over the remaining modified requisite service period. +The changes for the year ended December 31, 2025 in the number of Company Options outstanding related to Ordinary Shares and their related weighted average exercise prices are as follows: +Number of options +Weighted average exercise price +Weighted average remaining contractual term +(in years) +Aggregate intrinsic value +(in thousands of USD) +Outstanding as at December 31, 2024 +19,029,056 +$ +10.04 +Granted +4,789,058 +$ +24.56 +Exercised +( 3,012,434 +) +$ +8.18 +Forfeited +( 180,312 +) +$ +20.43 +Outstanding as at December 31, 2025 +20,625,368 +$ +13.62 +7.6 +442,893 +Options exercisable as at December 31, 2025 +10,083,846 +$ +9.40 +7.0 +258,989 +The weighted average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $ 12.66 , $ 6.70 and $ 4.70 per option for options granted during the years ended December 31, 2025, 2024 and 2023, respectively. The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the years ended December 31, 2025, 2024 and 2023 was $ 59.9 million, $ 27.2 million and $ 1.7 million, respectively. Weighted average assumptions used to apply this pricing model were as follows: +Year ended December 31, +2025 +2024 +2023 +Expected term (years) +6.1 +6.1 +6.1 +Risk-free interest rate +4.3 +% +3.9 +% +4.1 +% +Expected volatility +47.7 +% +41.8 +% +38.1 +% +Expected dividend yield +0.0 +% +0.0 +% +0.0 +% +Expected Term +The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company utilizes this method due to lack of historical exercise data and the plain-vanilla nature of the Company’s stock-based awards. +Expected Volatility +Since the Company was privately held through November 2022, it alone does not have sufficient relevant company-specific historical data to support its expected volatility alone. Prior to 2024, due to the insufficiency of historical volatility data on the Company’s own securities, the expected volatility input was determined using comparable companies alone. Beginning on January 1, 2024 expected volatility input was determined using a weighted average +F- 26 +calculation considering the volatility of the Company’s own securities and the volatilities of a representative group of publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. Initially, the volatility of the Company’s Ordinary Shares is assigned a weighting of 10 %. This weighting will be increased by 5 % per calendar quarter (i.e. 45 % in Q4 2025), until the expected volatility input is based entirely on the historical volatility of the Company’s Ordinary Shares. For purposes of identifying comparable companies, the Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. +Risk-Free Interest Rate +The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant, with a term that approximates the expected life of the option. +Expected Dividend Yield +The expected dividend yield is zero as the Company currently has no history or expectation of declaring dividends on its ordinary shares. +Restricted Share Units (“RSUs”) +As at December 31, 2024 , the Company had allocated 143,002 Earnout Shares to be granted to Participating Optionholders if and when a certain clinical development milestone is achieved during the earnout period. In March 2025, it was determined that the earnout milestone triggering event set forth in the Business Combination Agreement had occurred and, as a result, Earnout Shares were delivered in the form of awards of RSUs (the “Earnout RSUs”) granted pursuant to the LTIP Plan to such Participating Optionholders who were, at the time of achievement of such milestone, still providing services to the Company. In total, 143,001 Earnout RSUs were granted, all of which have vested. Though the Earnout RSUs were only legally granted upon the achievement of the milestone triggering event, in accordance with ASC 718, the Company determined the grant date of such Earnout RSUs to be November 22, 2022 for accounting purposes and began recognizing the associated share-based compensation expenses once the milestone was deemed probable to occur. +The changes for the year ended December 31, 2025 in the number of RSUs outstanding are as follows: +Number of RSUs +Weighted average fair value per share +Outstanding as at December 31, 2024 +143,002 +$ +9.84 +Granted +738,444 +$ +25.29 +Vested +( 143,001 +) +$ +9.84 +Forfeited/Cancelled +( 10,162 +) +$ +25.96 +Outstanding as at December 31, 2025 +728,283 +$ +25.28 +The following summarizes the share-based payment expensed recognized by type of award and line-item: +Year ended December 31, +(in thousands of USD) +2025 +2024 +2023 +Share-based compensation expense by type of award +Share options +48,615 +32,363 +24,572 +Restricted share units +10,810 +1,256 +— +Total share-based compensation expense +59,425 +33,619 +24,572 +Share-based compensation expense by line-item +Research and development expenses +19,567 +13,306 +14,521 +Selling, general and administrative expenses +39,858 +20,313 +10,051 +Total share-based compensation expense +59,425 +33,619 +24,572 +F- 27 +As of December 31, 2025, there was $ 37.3 million and $ 7.8 million of unrecognized compensation cost related to Company Options and RSUs that have not yet vested, respectively. These costs are expected to be recognized over a weighted average remaining vesting period of 2.8 years and 2.1 years for the Company Options and the RSUs, respectively. +Note 11. Segment Information +The Company has one operating segment and, therefore, one reportable segment, which comprises the discovery, development and commercialization of transformative therapies for cardio-metabolic diseases. +To date the Menarini License and the Menarini Supply Agreement have been the only source of revenue to the Company and all such revenues derive from Italy. The nature of the revenues are described in detail in Note 4 - Revenue. +The chief operating decision maker assesses performance and decides how to allocate resources based on consolidated net loss and loss before tax, adjusted for certain non-cash and non-operating items such as share-based compensation, change in fair value of derivatives and foreign currency gains or losses. Adjusted loss before taxes is used to monitor budget versus actuals and evaluate the operations of the Company. The measure of segment assets is reported on the balance sheet as total consolidated assets. The future prospects of the Company are highly dependent upon the results of its ongoing clinical trials and interactions with regulatory agencies. Such results and interactions are utilized together with assessment of the comparison of budget versus actuals in order to make decisions regarding the allocation of resources. +The following table presents the adjusted loss before taxes for the Company's single segment for each of the years ended December 31, 2025, 2024 and 2023: +Year ended December 31, +(In thousands of USD) +2025 +2024 +2023 +Revenue +22,503 +45,563 +14,090 +Interest income +27,592 +16,881 +11,283 +Less: +Personnel expense +40,788 +33,391 +14,475 +External R&D expense +85,845 +108,012 +109,820 +Manufacturing expense +23,301 +17,188 +27,430 +Regulatory expense +3,679 +2,186 +1,297 +Commercial programs +19,296 +12,719 +3,025 +General and administrative expense +15,374 +14,438 +16,323 +Depreciation and amortization +478 +299 +115 +Interest expense +— +— +— +Segment adjusted loss before tax +( 138,666 +) +( 125,789 +) +( 147,112 +) +Reconciliation to consolidated net loss +Share-based compensation expense +( 59,425 +) +( 33,619 +) +( 24,572 +) +Change in fair value - derivatives +( 18,783 +) +( 75,593 +) +( 10,284 +) +Foreign exchange gains/(losses) +13,055 +( 6,598 +) +5,058 +Income tax expense (benefit) +— +1 +( 27 +) +Consolidated net loss for the period +( 203,819 +) +( 241,598 +) +( 176,937 +) +Note 12. Income Taxes +The Company’s breakdown of its income before provision for income taxes for the years ended December 31, 2025, 2024 and 2023 is as follows: +F- 28 +Year ended December 31, +(In thousands of USD) +2025 +2024 +2023 +U.S. +( 57,803 +) +( 101,367 +) +( 107,555 +) +Netherlands +( 146,016 +) +( 140,232 +) +( 69,355 +) +Total +( 203,819 +) +( 241,599 +) +( 176,910 +) +The components of our provision for income taxes for the years ended December 31, 2025, 2024 and 2023, are as follows: +Year ended December 31, +(In thousands of USD) +2025 +2024 +2023 +Current: +State +— +— +— +Federal +— +( 1 +) +27 +Total current +— +( 1 +) +27 +Deferred: +State +— +— +— +Federal +— +— +— +Total deferred +— +— +— +Provision for income taxes +— +( 1 +) +27 +As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the actual provision for income taxes, net differs from the expected provision for income taxes computed at the Netherlands Federal statutory tax rate of 25.8 % due to the following: +Year ended December 31, +2024 +2023 +Income tax at the federal statutory rate +25.80 +% +25.80 +% +Foreign rate differential +( 2.01 +%) +( 2.94 +%) +State taxes, net of federal benefit +1.30 +% +0.71 +% +FDII deduction +— +— +Warrants +— +( 1.50 +%) +162(m) Executive Compensation +( 0.43 +%) +— +Tax credits +0.78 +% +5.31 +% +Transaction costs +— +— +Share listing expense +— +— +Change in valuation allowance +( 25.44 +%) +( 27.40 +%) +Other +— +— +Effective tax rate +0.00 +% +( 0.02 +%) +The company has adopted ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, on January 1, 2025 prospectively. The following table is a reconciliation of the Netherlands federal statutory rate of +F- 29 +25.8 % to Company’s effective rate of the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09: +Year ended December 31, 2025 +Amount +Percent +NL federal statutory rate +( 52,585 +) +25.80 +% +Foreign tax effects +United States +Statutory tax rate difference between United States and Netherlands +2,775 +( 1.36 +%) +Research and development tax credits +( 2,838 +) +1.39 +% +162(m) Executive Compensation +30 +( 0.01 +%) +Changes in valuation allowances +16,248 +( 7.98 +%) +State and local income tax, net of federal (national) income tax effect (1) +( 1,302 +) +0.64 +% +Change in valuation allowance +22,340 +( 10.96 +%) +Nontaxable or nondeductible items +Share-based compensation +15,332 +( 7.52 +%) +Changes in unrecognized tax benefits +— +— +Other adjustments +— +— +Total +— +— +(1) Deferred state taxes in Florida made up the majority of the tax effect in this category. +Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows as of December 31, 2025 and 2024: +As at December 31, +(In thousands of USD) +2025 +2024 +Deferred tax assets: +Amortization and depreciation +59,330 +25,426 +Accruals +— +135 +Net operating loss carryforwards +128,873 +133,595 +Lease liability +47 +109 +IPR&D +22,884 +22,884 +Tax credit, federal +4,163 +1,904 +Tax credit, Massachusetts +1,751 +685 +Gross deferred tax assets +217,048 +184,738 +Valuation allowance +( 217,005 +) +( 184,633 +) +Deferred tax assets net of valuation allowance +43 +105 +Deferred tax liabilities: +Right-of-use-asset +( 43 +) +( 105 +) +Net deferred tax assets +— +— +Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as at December 31, 2025, December 31, 2024 and December 31, 2023, a full valuation allowance has been recorded against our net deferred tax asset. As of December 31, 2025, and December 31, 2024 , the Company had a valuation allowance of $ 217.0 million and $ 184.6 million, respectively, recorded on the balance sheet. A valuation allowance is a non-cash charge, and does not limit the Company’s ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form +F- 30 +of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. +As of December 31, 2025 , we had net operating loss carryforwards for Netherlands fiscal unity, US, and state income tax purposes of $ 362.5 million, $ 153.1 million, and $ 72.8 million, respectively. These balances have been updated to reflect ongoing discussions with the Dutch Tax Authorities. It is currently expected that the outcome of these discussions will result in an amortizable IP asset in exchange for the carry-forward losses through April 8, 2020. A deferred tax asset has been recorded accordingly. +We also have federal research and development tax credit carryforwards of approximately $ 4.2 million that expire beginning in 2043 and state research and development tax credit carryforwards of approximately $ 1.8 million which can be carried forward indefinitely. +The future utilization of net operating loss and tax credit carryforwards and credits may be subject to an annual limitation, due to Dutch and US tax law and as a result of ownership changes that may have occurred previously or that could occur in the future. Due to the existence of the valuation allowance, limitations will not impact our effective tax rate. +We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. As of December 31, 2025 we have no t identified any unrecognized tax benefits that should be recorded. +We have elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2025, 2024 and 2023 , we did no t recognize accrued interest and penalties related to unrecognized tax benefits. Although the timing and outcome of an income tax audit is highly uncertain, we do not anticipate that the amount of existing unrecognized tax benefits will significantly change during the next 12 months. +With an effective date of November 21, 2022, NewAmsterdam Pharma Company N.V. formed a fiscal unity with NewAmsterdam Pharma Holding B.V. and NewAmsterdam Pharma B.V. for corporate income tax purposes. A company and its subsidiaries that are part of the fiscal unity are jointly and severally liable for the tax payable by the fiscal unity. +We are subject to taxation in the United States, the Netherlands and various state jurisdictions. As of December 31, 2025 , the tax years for 2022, 2023 and 2024 are subject to examination by the tax authorities in the United States and the tax years for 2023 and 2024 are subject to examination by the tax authorities in the Netherlands. Due to our net operating loss and tax credit carryforwards, the income tax returns remain open to U.S. federal and state tax examinations. The Company is not currently under examination in any tax jurisdiction. +Note 13. Net Loss per Ordinary Share +Basic and diluted net loss per ordinary share was calculated as follows: +Year ended December 31, +(In thousands of USD, except share and per share amounts) +2025 +2024 +2023 +Net loss +( 203,819 +) +( 241,598 +) +( 176,937 +) +Weighted average ordinary shares outstanding, basic and diluted +118,424,231 +94,358,067 +82,161,956 +Net loss per ordinary share, basic and diluted +( 1.72 +) +( 2.56 +) +( 2.15 +) +The following potentially dilutive securities have been excluded from the computation of diluted weighted-average ordinary shares outstanding as they would be anti-dilutive: +F- 31 +Year ended December 31, +2025 +2024 +2023 +Stock options +20,625,368 +19,029,056 +15,783,509 +Restricted share units +728,283 +143,002 +— +Outstanding warrants +2,490,104 +2,632,581 +4,017,221 +Total +23,843,755 +21,804,639 +19,800,730 +Note 14. Benefit Plans +The Company sponsors a 401(k) retirement plan for its U.S. employees (the "US Plan") and a defined contribution pension plan for its employees in the Netherlands (the "NL Plan"). The US Plan allows eligible employees to voluntarily defer a portion of their annual compensation on a pre-tax basis, subject to the maximum annual amounts as set periodically by the IRS. The Company makes matching contributions of 100 % of the first 3 % of employee contributions and 50 % of the next 2 % of employee contributions. The NL Plan provides for a monthly, pre-tax contribution by the Company of 15 % of an employee's gross income, subject to statutory maximums. The Company made matching contributions of $ 1.0 million, $ 0.5 million and $ 0.1 million for the years ended December 31, 2025, 2024 and 2023 , respectively. Company contributions vest immediately for each participant. +Note 15. Commitments and Contingencies +Commitments +The Company has entered into a variety of agreements financial commitments in the normal course of business with contract research organizations, contract manufacturing organizations, and other third parties for preclinical and clinical development and manufacturing services. The terms generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. However, some of our service providers also charge cancellation fees upon cancellation. The amount and timing of such payments are not known, but at December 31, 2025 they are estimated to be a maximum of $ 39.1 million. +According to the terms of the Menarini License the Company will be responsible for development and commercialization costs related to Licensed Products other than those in the Menarini Territory. In addition, under specified conditions of the agreement, we agreed to bear 50 % of certain development costs incurred by the other party in the development of the Licensed Products in the Menarini Territory. +Note 16. Related Parties +In the ordinary course of business, the Company may enter into transactions with entities that are associated with a party that meets the criteria of a related party of the Company. These transactions are reviewed quarterly and to date have not been material to the Company’s consolidated financial statements. +Note 17. Subsequent Events +None. +F- 32 \ No newline at end of file diff --git a/raw/filings/0001936258/2025/0001193125-26-056029/filing_metadata.csv b/raw/filings/0001936258/2025/0001193125-26-056029/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..12e191634e676d149df4ce9db857c5fedcf8685d --- /dev/null +++ b/raw/filings/0001936258/2025/0001193125-26-056029/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001936258,NAMSW,NewAmsterdam Pharma Co N.V.,2025,10-K,2026-02-18,2025-12-31,2026-02-18T12:00:55.000Z,0001193125-26-056029,nams-20251231.htm,10-K,18359026,1,1,https://www.sec.gov/Archives/edgar/data/1936258/000119312526056029/nams-20251231.htm,https://www.sec.gov/Archives/edgar/data/1936258/000119312526056029/ diff --git a/raw/filings/0001936258/2025/0001193125-26-056029/item1.txt b/raw/filings/0001936258/2025/0001193125-26-056029/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..fb285adec50f9745ce3b7c0815f4c847c7a458c1 --- /dev/null +++ b/raw/filings/0001936258/2025/0001193125-26-056029/item1.txt @@ -0,0 +1,640 @@ +Item 1. Business +Overview +We are a late-stage biopharmaceutical company whose mission is to improve patient care in populations with cardiometabolic diseases where currently approved therapies have not been adequate or well tolerated. We seek to fill a significant unmet need for a safe, well tolerated and convenient low-density lipoprotein cholesterol (“LDL-C”) lowering therapy. In multiple Phase 3 trials, we have investigated obicetrapib, an oral, low-dose, once-daily, highly selective cholesteryl ester transfer protein (“CETP”) inhibitor, alone or as a fixed-dose combination (“FDC”) with ezetimibe, as preferred LDL-C lowering therapies to be used as an adjunct to statin therapy for patients at risk of cardiovascular disease (“CVD”) with elevated LDL-C, for whom existing therapies are not sufficiently effective or well tolerated. Additionally, we believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease. +Obicetrapib is a next-generation, oral, low-dose, highly selective CETP inhibitor that we are developing to potentially overcome the limitations of current LDL-C lowering treatments. We believe that obicetrapib has the potential to be a once-daily oral CETP inhibitor for lowering LDL-C, if approved. In each of our Phase 3 clinical trials, BROADWAY and BROOKLYN, evaluating obicetrapib as an adjunct to high-intensity statin therapy, obicetrapib met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In our Phase 3 TANDEM clinical trial, evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy, obicetrapib in combination with ezetimibe met its primary and secondary endpoints, with statistically significant reductions in LDL-C observed. In five of our Phase 2 clinical trials, TULIP, ROSE, OCEAN, ROSE2 and our Japan Phase 2b clinical trial, evaluating obicetrapib as a monotherapy or a combination therapy with ezetimibe 10 mg, we observed statistically significant LDL-C lowering. In each of these trials, side effects were similar in frequency and severity to placebo including muscle-related side effects and drug-related treatment-emergent serious adverse events (“TESAEs”). We have observed obicetrapib to be well tolerated in an aggregate of over 3,500 patients with low or moderately elevated LDL-C levels (“dyslipidemia”) in our clinical trials to date. Furthermore, we believe that obicetrapib’s oral delivery, demonstrated activity at low doses, chemical properties and tolerability make it well-suited for combination approaches. +Lowering of LDL-C, has been associated with major adverse cardiovascular events (“MACE”) benefit in trials of LDL-C lowering drugs, including the REVEAL trial with the CETP inhibitor, anacetrapib. In our Phase 3 BROADWAY clinical trial, we observed a 21% reduction in the exploratory MACE endpoint (coronary heart disease death, non-fatal myocardial infarction, non-fatal stroke and coronary revascularization) and we are performing a Phase 3 cardiovascular outcomes trial (“CVOT”), PREVAIL, to reconfirm this relationship. +Obicetrapib has shown to not only reduce LDL-C but also several additional biomarkers associated with MACE. To date, obicetrapib has shown reductions in non-HDL-C, apolipoprotein B (“ApoB”), and small dense lipoprotein particles (“sdLDL-P”). In our clinical trials, we have also observed reductions in lipoprotein(a) (“Lp(a)”), which is believed to be an independent MACE risk factor, along with reductions in total lipoprotein (“LDL”) particles and more specifically small LDL particles, which are believed to be more atherogenic particles. +CVD is a leading cause of death worldwide. Atherosclerotic cardiovascular disease (“ASCVD”) is primarily caused by atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. Atherosclerosis is the primary cause of heart attacks, strokes and peripheral vascular disease. One of the most important risk factors for ASCVD is hypercholesterolemia, which refers to elevated LDL-C levels within the body, commonly known as high cholesterol. +A significant proportion of patients with high cholesterol do not achieve acceptable LDL-C levels using statin therapy alone. We estimate that in the United States there are approximately 30 million patients that are not at their risk-based LDL-C goals despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Existing non-statin treatment options have been largely unable to address the needs of patients with high cholesterol due to limited efficacy, an inconvenient injectable administration route and, in the past, market access restrictions. It is estimated that over 75% of ASCVD and heterozygous familial hypercholesterolemia (“HeFH”) outpatients prefer oral drugs to injectable therapies. +Our goal is to develop and commercialize an LDL-C lowering monotherapy and an FDC therapy, which offers the advantage of a single, low dose, once-daily oral pill, and fulfills the significant unmet need for an effective and convenient LDL-C lowering therapy. If we obtain marketing approval, we intend to commercialize obicetrapib for patients with ASCVD and/or HeFH and elevated levels of LDL-C despite being treated with currently available optimal lipid lowering therapy. +We have partnered with Menarini, providing them with the exclusive rights to commercialize obicetrapib 10 mg, either as a sole active ingredient product or in an FDC with ezetimibe, in the majority of European countries (the "Menarini Territory"), if approved. In August 2025, the EMA accepted for review the Marketing Authorization Applications ("MAAs") submitted by Menarini for obicetrapib 10 mg monotherapy and the FDC of 10 mg obicetrapib plus 10 mg ezetimibe for the treatment of primary hypercholesterolemia, including heterozygous familial and non-familial or mixed dyslipidemia. Subsequently, MAAs were also submitted to regulators in the United Kingdom ("UK") and Switzerland and accepted for review. The submissions are supported by data from the BROADWAY, BROOKLYN, and TANDEM pivotal Phase 3 trials. We anticipate that Menarini will receive decisions on the MAAs from each of the regulators in the second half of 2026. If the +7 +MAAs are approved by the regulators, Menarini will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Our current plan is to pursue development and, subject to the receipt of marketing approval, commercialization of obicetrapib in the United States ourselves, and to consider additional partners for jurisdictions outside of the United States and Europe, including in Japan and China. We conducted multiple Phase 3 trials simultaneously, with clinical plans that incorporate feedback from the FDA, the EMA, the Japan Pharmaceuticals and Medical Devices Agency (“PMDA”) and the China National Medical Products Administration (“NMPA”). In addition to our partnership with Menarini, we may in the future utilize a variety of types of collaboration, license, monetization, distribution and other arrangements with other third parties relating to the development or commercialization, once approved, of obicetrapib or future product candidates or indications. We are also regularly evaluating the potential acquisition or license of new product candidates. +The following table summarizes our current clinical programs: +* PREVAIL will continue until the last participant has been followed up for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +Note: Other than as noted, this graphic represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. Other than as noted, the timing of regulatory submissions is subject to additional discussions with regulators. +We conducted two Phase 3 pivotal clinical trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We announced topline results for BROOKLYN in July 2024 and for BROADWAY in December 2024, both of which met the primary endpoint for the study with safety and tolerability comparable to placebo. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization in at least 9,000 patients. We completed enrollment in PREVAIL in April 2024. PREVAIL will continue until the last participant has been followed for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +We are also investigating obicetrapib as an FDC with ezetimibe, an oral cholesterol absorption inhibitor and LDL-C lowering therapy, and plan to seek approval for this FDC in parallel with obicetrapib monotherapy. In our Phase 3 TANDEM trial, we evaluated the efficacy and safety of 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents. In November 2024, we reported data from the Phase 3 TANDEM trial, which met its primary and secondary endpoints, with safety and tolerability comparable to placebo. +8 +Our goal is to submit a New Drug Application (“NDA”) in the U.S. for the FDC shortly after submitting an NDA for obicetrapib as a monotherapy. We expect that efficacy and safety data from BROADWAY and BROOKLYN will be described in the FDC product label, if approved. +We believe that CETP inhibition may also play a role in other indications by potentially mitigating the risk of developing diseases such as Alzheimer’s disease or diabetes. Evidence suggests that cholesterol accumulation in the brain is a precursor to Alzheimer’s disease. For example, rodents lack the CETP gene and are resistant to Alzheimer’s disease. In early preclinical studies, when the human CETP gene is knocked into a mouse, the cholesterol content of the mouse brain was observed to increase by 25%; when combined with the gene for the amyloid precursor protein, hypothesized to be a driver of Alzheimer’s disease, the risk of developing disease analogous to Alzheimer’s disease was observed to greatly increase in the double transgenic mice. In a preclinical study, we observed that CETP inhibition promoted cholesterol removal from the brain and improved cognition. We commenced a Phase 2a open-label and single-arm trial in early 2022 in patients with early Alzheimer’s disease and the apolipoprotein E4 (“ApoE4”) naturally occurring variant to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the cerebrospinal fluid (“CSF”) compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patients’ plasma was observed and pTau181 levels were observed to be stable. Overall, obicetrapib was observed to be well-tolerated. No serious adverse events (“AEs”) were reported, nor were any AEs considered to be related to the trial drug. +Additionally, in July 2025, we announced data from the prespecified Alzheimer’s disease biomarker analysis in our BROADWAY clinical trial. This analysis evaluated the effect of obicetrapib on plasma biomarkers of Alzheimer’s disease in 1,727 patients with established ASCVD and/or HeFH whose apolipoprotein E (“ApoE”) status was able to be determined based on phenotypic testing, including 367 ApoE4 carriers. Safety in this population was not evaluated independently from the overall BROADWAY study population, where obicetrapib was observed to be well-tolerated, with safety results comparable to placebo. Because this analysis was based on a subset of patients from BROADWAY, it was not controlled for baseline differences between the treatment and placebo population. +In this analysis, treatment with obicetrapib 10 mg daily for 12 months resulted in statistically significant lower absolute changes in plasma p-tau217, a key biomarker of Alzheimer’s disease pathology, in both the analysis set of patients with baseline and end of study datapoints above the lower limit of quantification (p=0.0019; n=1,515) and in ApoE4 carriers (p=0.0215; n=367). Favorable trends were also observed across additional biomarkers, including neurofilament light chain (“NFL”), glial fibrillary acidic protein (“GFAP”), p-tau181, and the Aβ42/40 ratio, in the full analysis set and in ApoE4 carriers, with the greatest effect generally observed in carriers of two E4 proteins. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Clinically demonstrated anti-diabetic benefits have also been observed with CETP inhibition in Phase 3 CVOTs that, if seen in obicetrapib, would differentiate it from current treatment alternatives, especially statin therapy. We are planning preclinical studies to examine the potential of obicetrapib for patients suffering from diabetes and have included new onset of Type 2 diabetes as an endpoint in our PREVAIL CVOT, as measured by AEs indicating Type 2 diabetes, initiation of anti-diabetes medication after confirmed diabetes diagnosis or high levels of hemoglobin A1c and fasting plasma glucose. In the Phase 3 BROADWAY trial, we observed a statistically significant improvement in these prespecified AEs of special interest after one year of treatment that we hope to reconfirm in the PREVAIL CVOT trial. +Our Management Team and Investors +We are led by a world-class team of industry veterans, including some of the world’s preeminent cardiometabolic experts. Dr. Michael Davidson, our Chief Executive Officer and a member of our board of directors (the “Board of Directors”), is a leading expert in the field of lipidology and is a seasoned executive who served as founder and Chief Executive Officer of Corvidia Therapeutics, Inc. and founder and Chief Medical Officer of Omthera Pharmaceuticals, Inc. In addition, Dr. Davidson is board-certified in internal medicine, cardiology and clinical lipidology and has extensive experience designing, managing and evaluating clinical research. Dr. John Kastelein, our founder and Chief Scientific Officer and a member of the Board of Directors, is Emeritus Professor of Medicine at the Department of Vascular Medicine at the Academic Medical Center of the University of Amsterdam. Dr. Kastelein was a co-founder of uniQure N.V. and Xenon Pharmaceuticals Inc. His clinical research on the development of novel therapies for CVD and the genetic basis of dyslipidemia is widely published, and he serves as the Chief Executive Officer of the Vascular Research Network, a site maintenance organization comprising dozens of hospitals in the Netherlands that are involved in clinical trials for cardiometabolic disease. Douglas Kling, our Chief Operating Officer, is an expert in the development of drugs to treat dyslipidemia and CVD, and has managed clinical operations at both Corvidia Therapeutics, Inc. and Omthera Pharmaceuticals, Inc. Ian Somaiya, our Chief Financial Officer, has nearly three decades of experience in senior leadership roles in the biopharmaceutical industry. Mr. Somaiya, our Chief Financial Officer, most recently served as CFO and Chief Business Officer of Elucida Oncology and, before that, as CFO of TCR 2 Therapeutics, where he guided the company through its initial public offering and two subsequent follow-on offerings, as well as led the company’s finance, reporting, business development and investor relations functions. Prior to joining TCR 2 Therapeutics, Mr. Somaiya was a managing director and head of biotechnology research at BMO Capital Markets. He also served as a Managing Director and equity analyst at Nomura Securities, Piper Jaffray and Thomas Weisel Partners. BJ Jones, our Chief Commercial Officer, has three decades of commercial and launch experience in both large pharmaceutical and small biotech companies. Most recently, he served as CCO, Migraine & Common Diseases at Biohaven Pharmaceuticals, and led the commercial enterprise that launched Biohaven’s +9 +Nurtec® ODT. Earlier in his career, Mr. Jones held leadership roles of increasing responsibility at Takeda Pharmaceuticals, AstraZeneca, Bristol-Myers Squibb, Boehringer Ingelheim and NitroMed, during which time he supported mass market product launches for notable brands including Excedrin Migraine®, Farxiga®, Pradaxa®, BiDil®, and Abilify®. +In addition, we are backed by leading life sciences investors, including Frazier Life Sciences, Bain Capital, Forbion, RA Capital and Viking Global. Prospective investors should not rely on the past investment decisions of our investors, as our investors may have different risk tolerances and may have received their securities in prior offerings at a significant discount to the market price. +Cardiovascular Disease and Hyperlipidemia +Market Overview and Unmet Medical Need +According to the World Health Organization, CVD is the leading cause of death globally and was responsible for approximately 20 million deaths, or approximately 32% of all global deaths, in 2022. Hyperlipidemia, more commonly known as high cholesterol, has been observed to nearly double the risk of developing CVD compared to those with normal total cholesterol levels. D espite the availability of lipid lowering therapies, CVD events are on the rise. This increase despite aggressive secondary prevention efforts speaks to the concept known as “residual cardiovascular risk,” defined as the risk of CVD events that persists despite treatment for, or achievement of targets for risk factors such as LDL-C. +LDL-C is the primary cause of ASCVD, and the target of many interventions aimed at reducing risk of cardiovascular events. An LDL-centric approach to risk reduction, namely with lipid lowering therapies, including statins, serves as the foundation for reducing residual cardiovascular risk. Data from a number of cardiovascular outcomes trials suggests that LDL-C is one of the most modifiable risk factors of ASCVD. Currently available strategies for LDL-C-lowering include lifestyle interventions and drug therapies including oral statins, ezetimibe, bempedoic acid, and injectable PCSK9 inhibitor therapies. +Lowering LDL-C has been observed to reduce morbidity and mortality in those with, or at risk of, CVD. The Cholesterol Treatment Trialists Collaboration (“CTT”) showed that lowering of LDL cholesterol by about 40 mg/dL with standard statin regimens safely reduced the 5-year incidence of major coronary events, revascularizations, and ischemic strokes by 23% . They also noted that a more pronounced absolute reduction of LDL-C may lead to substantially greater relative reduction in cardiovascular events. Furthermore, as seen in the Heart Protection Study and the CTT collaboration, benefit was seen in each tertile of baseline LDL-C. Similar relationships have also been documented in non-statin CVOTs for ezetimibe, two PCSK9 inhibitors, evolocumab and alirocumab, and the CETP inhibitor, anacetrapib. These trials have provided evidence that absolute LDL-C reduction and duration of therapy form a consistent model for predicting improved outcomes in patients with established ASCVD. +Despite the availability of current lipid lowering therapies, many patients are unable to achieve their risk-based LDL-C goals. In the United States, we estimate that approximately 30 million patients remain above their risk-based LDL-C goal despite treatment with lipid lowering therapy, including approximately 13 million with ASCVD. Additionally, we estimate that approximately 10 million patients diagnosed with hypercholesterolemia are receiving no therapy at all. +Patients unable to achieve treatment goals with maximally tolerated statin therapy require additional lipid-lowering therapy. Cholesterol absorption inhibitors, ezetimibe, bempedoic acid or PCSK9 inhibitors are all prescribed as alternatives or adjuncts to statins. However, there are several limitations with these lines of therapy, such as limited efficacy, route of administration, market access hurdles and side effects. +10 +Because PCSK9 inhibitors are injectable, they pose a less attractive option for patients who broadly prefer oral medications, and they have not received the expected utilization by clinicians or patients. The two non-statin oral LDL-C-lowering therapies, ezetimibe and bempedoic acid, often do not provide the efficacy required for many patients, including high-risk ASCVD patients, that have more aggressive LDL-C goals, and bempedoic acid has label warnings of hyperuricemia and tendon rupture. Therefore, there remains a significant unmet medical need for therapies to reduce LDL-C levels and residual cardiovascular risk in a convenient dosage form, and with a more favorable tolerability and safety profile to encourage long-term use and patient compliance. We believe that a potent, convenient, safe and well-tolerated low-dose oral medication to reduce LDL-C could fulfill this unmet need. +Our Solution: Enhanced LDL-C Lowering Through CETP Inhibition with Obicetrapib +We believe that CETP inhibition with obicetrapib has the potential, if approved, to provide patients and physicians with a new oral therapy option to robustly reduce LDL-C. Obicetrapib is designed to be a next-generation, oral, low-dose, highly selective CETP inhibitor with powerful LDL-C lowering capability. We are developing obicetrapib as both a monotherapy and an FDC with ezetimibe and have structured our obicetrapib program to overcome the safety, potency, trial design and commercial viability limitations of prior CETP inhibitors. Further, we believe that obicetrapib’s oral delivery, demonstrated activity in low doses, chemical properties and potential tolerability make it well-suited for combination approaches. +Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable properties as a drug candidate compared to prior CETP inhibitors. We have observed a favorable tolerability profile for obicetrapib in an aggregate of over 3,500 patients with dyslipidemia from Phase 1 through Phase 3 clinical trials. We conducted two Phase 3 pivotal trials, BROADWAY and BROOKLYN, to evaluate obicetrapib as a monotherapy used as an adjunct to maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with ASCVD and/or HeFH. We completed enrollment for BROADWAY in July 2023 and for BROOKLYN in April 2023. Over 2,500 patients were randomized in the BROADWAY trial and over 350 patients were randomized in the BROOKLYN trial. We reported top-line data from BROOKLYN in July 2024 and from BROADWAY in December 2024. In March 2022, we commenced our Phase 3 PREVAIL CVOT, which is designed to assess the potential of obicetrapib to reduce occurrences of MACE, including cardiovascular death, non-fatal myocardial infarction, non-fatal stroke and non-elective coronary revascularization. We completed enrollment in PREVAIL in April 2024. PREVAIL will continue until the last participant has been followed for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +We also continue investigating obicetrapib as an FDC with ezetimibe following the announcement of data from our Phase 3 TANDEM trial. In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for an FDC tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-C lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and announced topline data in November 2024. +We believe that obicetrapib has the potential to significantly impact the existing treatment paradigm for patients with ASCVD and/or HeFH and elevated levels of LDL-C, and that the key differentiating attributes of our product candidate include the following: +• +Enhanced LDL-C reduction capability. We believe that obicetrapib’s physical, pharmacokinetic and biopharmaceutical properties position it to potentially demonstrate more favorable potency and enhanced LDL-C lowering capability than previous CETP inhibitors. In previously conducted clinical trials in patients with moderately high LDL-C levels with or without prior statin therapy, obicetrapib has been observed to lower LDL-C both as a monotherapy and a combination therapy with ezetimibe (an approved LDL-C-lowering medication). In our Phase 3 BROADWAY and BROOKLYN clinical trials, we observed a mean LDL-C reduction capability of 33% and 36%, respectively, compared to placebo in patients treated with 10 mg obicetrapib on top of high-intensity statins. In our Phase 3 TANDEM clinical trial, we observed a mean LDL-C reduction of 52% in patients treated with a combination of 10 mg obicetrapib and 10 mg of ezetimibe as an adjunct to high-intensity statins, when compared to placebo. +• +Promising tolerability profile. Patients are often non-compliant with existing cholesterol-lowering therapies, particularly statin therapy, due to their side effect profiles, which could result in suboptimal treatment outcomes and disease progression. In three of our Phase 3 and five of our Phase 2 clinical trials of obicetrapib, we observed statistically significant LDL-lowering activity combined with a similar incidence of generally moderate side effects compared to placebo and no drug-related, treatment-emergent serious AEs. In addition, CETP inhibitors previously under development were observed to produce anti-diabetic benefits in Phase 3 CVOTs, which has also been observed with obicetrapib, and could make it a potentially attractive adjunct for patients who are concerned about the risks of diabetes associated with statin therapy. +• +Convenience. We believe that obicetrapib’s simple once-daily, low-dose oral formulation can improve patient adherence, thereby amplifying its cholesterol-lowering impact. Additionally, unlike injectable PCSK9 inhibitors, obicetrapib, an oral small molecule, is better suited for combination with other oral treatments as oral FDC products. +11 +• +Patient access. In addition, payor confidence is essential to ensuring access for patients. Based on the LDL-lowering activity of obicetrapib and oral route of administration, we believe payors will perceive the LDL-C lowering capability of obicetrapib to be on par with PCSK9 inhibitors, which are administered by injection, and to exceed the LDL-lowering capabilities of other existing oral therapies and will ultimately prefer obicetrapib to existing treatment alternatives. +• +Effect on other predictors of disease risk. Like other types of LDL-C lowering therapies, i.e., statins and PCSK9 inhibitors, CETP inhibition enhances the removal of ApoB, a protein found in lipoprotein particles that contributes to atherosclerosis. However, unlike statins, based on observations from our Phase 2 and Phase 3 clinical trials, obicetrapib also decreased the presence of Lp(a), an important biomarker for CVD risk reduction. +Lowering LDL-C Through CETP Inhibition +Hyperlipidemia, and in particular hypercholesterolemia, or high cholesterol, is a major risk factor for atherosclerosis, which involves the build-up of fatty material within the inner walls of the arteries. This is because LDL-C (“a package” of cholesterol contained within a particle that contains ApoB) has the tendency to penetrate the inner lining of the arterial wall becoming trapped leading to a build-up of fatty material, which in turn elicits a pro-inflammatory response and causes the arterial walls to stiffen. Left untreated, these deposits of fatty material can result in ulceration of the vessel wall which causes acute clotting of the blood and a heart attack or a stroke. Another lipoprotein particle, Lp(a), functions in the circulation as a “sink” for oxidized phospholipids and is also prone, like ApoB, to becoming trapped in the arterial wall, attached to proteoglycans of the extracellular matrix. Subsequently, these particles build up and contribute to plaque formation and inflammation. Because of the tendency of LDL-C to build up in the arteries, LDL-C is often referred to as “bad cholesterol” and is one of the most prominent risk factors for the development of CVD. +LDL-C and ApoB levels are mainly regulated by the liver through a surface protein known as the LDL receptor. Most current LDL-C lowering therapies work, at least in part, by increasing the number of LDL receptors, and thereby increasing the clearance of LDL particles from the blood. Statin therapy is the current standard of care for patients with ASCVD or HeFH and elevated levels of LDL-C. Statin therapy reduces cholesterol in the blood by blocking a key enzyme, HMG-CoA-Reductase, necessary for the synthesis of cholesterol, which reduces the amount of cholesterol made by the liver; in addition, statins upregulate the LDL receptor, resulting in lower blood cholesterol. PCSK9 inhibitors, another LDL-C-lowering treatment, also increase the presence of LDL receptors by inhibiting PCSK9, an enzyme involved in the degradation of LDL receptors. Two other LDL-C lowering therapies, ezetimibe and Nexletol/Nexlizet, also work by upregulating LDL receptors. CETP is a plasma glycoprotein produced in the liver that circulates in the blood primarily bound to a high-density lipoprotein cholesterol (“HDL-C” or “HDL”) particle. CETP can also attach to an LDL particle and form a bridge to transfer cholesterol from HDL to LDL, as shown in the figure below. Consequently, CETP inhibitors, including obicetrapib, reduce the cholesterol concentration of LDL particles and increase the cholesterol concentration of HDL particles. This results in a decrease of the cholesterol pool in the liver as a result of the augmented excretion of cholesterol via the liver into the bile and ultimately the feces. The liver also produces more LDL receptors thereby resulting in more LDL-C particles and ApoB being cleared from the bloodstream. In animal models, CETP inhibition has been shown to block the transfer of cholesterol from HDL particles to LDL particles and to upregulate LDL receptors, thereby reducing the development of atherosclerosis and risk of ASCVD. +Although it was previously believed that the HDL-raising effects of CETP inhibition would be its primary contributor to decreased CVD risk, LDL-reduction is now known to be the most significant factor for lowering CVD risk. In a population with CETP loss of function genotypes, a 16% reduction in CVD risk was observed for every 10 mg/dL decrease in LDL-C levels. The relationship between genomic loss of CETP function and lower LDL-C levels and CVD risk is consistent with other mechanisms of genomic LDL-C reduction such as HMG-CoA reductase (statins), NPC1L1 (ezetimibe), ATP-citrate lyase (Nexletol/Nexlizet) and PCSK9 (PCSK9 inhibitors). Multiple genetic studies provide support that specific mutations associated with lifelong lower LDL-C levels reduce the risk of CVD. +CETP inhibition also increases the removal of ApoB. Apolipoproteins are proteins that are involved in packaging different types of large lipid-particle complexes that store cholesterol in the body. As shown in the figure below, the primary effect of CETP inhibition is a reduced rate of transfer of cholesteryl esters from HDL into triglyceride-rich lipoproteins, including LDL, which in turn leads to an increased concentration of cholesteryl esters in HDL particles and the formation of larger HDL particles. Consequently, we have observed an increase in +12 +the excretion of cholesterol via the liver into digestive tract and an upregulation of LDL receptors on the liver, resulting in enhanced clearances of LDL or ApoB-containing lipoproteins from the body. In addition, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines directly contributing to the reduced cholesterol levels in the liver thus maintaining upregulation of LDL receptors. +sdLDL-P are also believed to be an important predictor of CVD risk, with lower levels of sdLDL-P having been observed to correlate closely to lower cardiovascular risk. The measurement of using LDL particle (“LDL-P”) size and particles numbers is an alternative approach to determining CVD risk assessment and research suggest that LDL-P size, density and numbers may be more closely correlated to CVD risk than LDL-C. Increased levels of LDL-P suggest an increased presence of sdLDL-P which may have a greater potential to develop into arterial plaque due to their increased time in circulation compared to larger LDL-P and greater ability to become trapped in the arterial wall. Research has suggested that treatments lowering LDL-C alone may trigger a disconnect between LDL-C and LDL-P, which, given the observed strong connection between LDL-P and CVD risk, suggests there is a need for a drug which lowers both. +Limitations of Current Non-Statin Therapies +Increased attention by physicians to aggressive LDL-C lowering for high-risk CVD patients has led to the increased use of non-statin therapies with LDL-C lowering capabilities, including ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors, either on their own or in conjunction with statins. +However, the needs of patients at very high risk to experience a future cardiovascular event with elevated levels of LDL-C despite being treated with maximally tolerated statin therapy remain largely unaddressed by current non-statin treatment options, which have only modest efficacy or are inconveniently administered through an injection. In a cross-sectional study of over 20 thousand patients on lipid-lowering medication, current treatments including statins, ezetimibe, PCSK9 inhibitors or a combination of the foregoing resulted in fewer than 3% of patients reaching recommended cholesterol goals of lower than 1.8 mmol/L (70 mg/dL). +• +Ezetimibe. The non-statin cholesterol absorption inhibitor ezetimibe functions by preventing the absorption of cholesterol in the intestines by blocking the NPC1L1 protein. Although these drugs are administered at a low dose, which contributes to their safety and tolerability, and are generic and broadly available, they have been shown to only moderately reduce LDL-C. Ezetimibe as monotherapy or when given in combination with statin therapy has been observed to reduce LDL-C by approximately 13% to 20% and reduce MACE by 7%. Despite its modest efficacy, ezetimibe is the most prescribed non-statin lipid lowering therapy with approximately 11% market share. +• +Nexletol/Nexlizet. The other currently available oral non-statin therapy, Nexletol/Nexlizet (Esperion Therapeutics), which inhibits the enzyme ATP citrate lyase, an enzyme involved in cholesterol synthesis, shows only relatively modest improvement in lowering LDL-C by approximately 17% as a monotherapy and a MACE reduction of 13%. Along with its relatively modest efficacy, Nexletol/Nexlizet’s label contains safety warnings that include tendon rupture and gout. We believe Nexletol/Nexlizet’s access and uptake have been limited because its efficacy profile is comparable to generic ezetimibe. +• +PCSK9 Inhibitors. The PCSK9 inhibitors on the market, such as Repatha (Amgen Inc.), Praluent (Regeneron Pharmaceuticals, Inc.) and Leqvio (Novartis International AG), are injectable monoclonal antibodies and small interfering RNA that have been observed to reduce LDL-C levels by approximately 50% compared to baseline and MACE by 15%. While PCSK9 inhibitors have demonstrated their effectiveness at reducing LDL-C when used alone and as an adjunct to statin therapy, we believe their injectable route of administration makes them inconvenient for patients, and their access is further limited by their associated high cost and low rates of prescription approval by payors. It is estimated that over 75% of ASCVD and HeFH outpatients prefer oral drugs to injectable therapies. +Limitations of Prior Attempts to Develop CETP Inhibitors +As described above, CETP inhibitors, including obicetrapib, are designed to work by blocking the transfer of cholesteryl esters from HDL to LDL particles, thereby reducing LDL-C levels in the body. We believe that obicetrapib can improve upon existing therapies by providing a combination of potent LDL-C lowering activity favorable tolerability and the ability to be administered orally. +13 +Other CETP inhibitors have reached varying stages of clinical development, but none have been approved or otherwise able to generate a potent, safe and well-tolerated low-dose oral option. We believe that the prior CETP inhibitor programs did not select optimal compounds because they focused on exploring the prominent increase in HDL-C rather than the potential for lowering LDL-C. Given the focus on HDL-C raising, we believe their clinical trial designs were suboptimal. Nevertheless, anacetrapib, the latest of the prior CETP inhibitors, provided clinical support for the proposition that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes. +The focus on HDL-C raising by developers of prior CETP inhibitors likely resulted in the selection of chemical compounds that were not optimized for LDL-C lowering, which we believe in turn resulted in only modest reductions to CVD risk. In addition, one CETP inhibitor, torcetrapib, experienced off-target toxicity resulting in increased blood pressure and elevated aldosterone concentration in Phase 2 clinical trials. While another CETP inhibitor, dalcetrapib, did not experience the off-target toxicity as observed with torcetrapib, the drug had no LDL-C lowering activity and therefore no effect on reducing major adverse cardiovascular outcomes. +Given the emphasis on the HDL-C raising capabilities of the prior CETP inhibitors in development, the associated CETP inhibitor programs also used CVOTs designed to evaluate patients with controlled rather than elevated LDL-C levels. Therefore, we believe these study designs minimized the potential to observe relative reductions in CVD risk. In addition, we believe the evacetrapib CVOT was too short (a median duration of only two years) and most likely the sample size too low for the full magnitude of MACE benefits to be observed based on the modest reduction in LDL-C achieved. Similar CVOTs with other agents that lowered LDL-C by a similar magnitude required at least three years to demonstrate a MACE benefit, including the CVOTs of the CETP inhibitor anacetrapib. +In the Phase 3 REVEAL CVOT investigating the efficacy of anacetrapib in approximately 30,000 patients with ASCVD receiving intensive atorvastatin therapy, there was an observed correlation between MACE benefits for anacetrapib and the magnitude of the LDL-C reduction, suggesting that CETP inhibitors work according to the same principle as statin therapy in reducing MACE. The REVEAL trial began enrollment in August 2011 and completed its long-term follow-up in April 2019. A median four-year follow-up of the REVEAL trial showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. We believe the REVEAL results provide clinical support showing that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). In addition, anacetrapib’s potential commercial viability was limited by its lipophilicity, which caused it to accumulate in fat tissue over time. +We selected obicetrapib 10 mg for our Phase 3 development program given its observed LDL-C-lowering activity and safety profile and designed our CVOT to avoid the shortcomings of prior CETP inhibitor programs and to ultimately fulfill the unmet need of ASCVD or HeFH patients with elevated LDL-C levels despite being treated with currently available optimal lipid lowering therapy. Obicetrapib has intrinsic properties, such as ionizable features and substantially reduced lipophilicity, that we believe give it more favorable physical, pharmacokinetic and biopharmaceutical properties as a drug candidate compared to other CETP inhibitors. +Clinical Development Plan +We conducted two Phase 3 pivotal trials – our BROADWAY and BROOKLYN trials – designed to measure obicetrapib’s ability to reduce LDL-C as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy. Following our end of Phase 2 meeting with the FDA in the fourth quarter of 2021, we also commenced our Phase 3 PREVAIL CVOT for obicetrapib as a monotherapy administered as an adjunct to maximally tolerated lipid-modifying therapy in early 2022. In our Phase 2 ROSE2 trial, we evaluated the effect of an FDC of obicetrapib 10 mg with ezetimibe 10 mg on top of high-intensity statin therapy on reduction in LDL-C. In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we selected a formulation for an FDC tablet of obicetrapib and ezetimibe. We initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents, in the first quarter of 2024 and released topline data in November 2024. +We have set forth below our current obicetrapib clinical development programs. +14 +* PREVAIL will continue until the last participant has been followed up for a minimum of 2.5 years and the target number of MACE events have occurred. As a result, the earliest the trial could conclude based on the minimum follow-up period is the end of 2026. However, we will continue the trial until the target number of MACE events occur, which could likely require the trial to continue beyond this point. +Note: Other than as noted, this graphic represents trials that are currently ongoing. Projections are subject to inherent limitations. Actual results may differ from expectations. Other than as noted, the timing of regulatory submissions is subject to additional discussions with regulators. +Additionally, based on the lipid-modifying effects of CETP inhibition we have observed in our clinical trials for obicetrapib to date, we have conducted preclinical and early clinical assessments of obicetrapib to test its potential for the prevention and treatment of Alzheimer’s disease. Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for this indication, and we commenced a Phase 2a clinical trial in early 2022 in patients with early Alzheimer’s disease to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. We announced initial data from this trial in September 2023. In July 2025, we announced data from a prespecified analysis in BROADWAY that evaluated the effects of longer duration of therapy (12 months) on certain biomarkers associated with Alzheimer's disease with a prespecified population of ApoE3/4 or 4/4 carriers, based on phenotypic analysis. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Obicetrapib for Cardiovascular Disease +There is broad scientific consensus that elevation in LDL-C is a primary causal factor for ASCVD, and CVD outcomes in high-risk populations improve as the level of LDL-C achieved on therapy decreases. A study published in the Journal of the American Medicine in 2017 found that genetic variants related to lower LDL-C levels were significantly associated with a lower risk of CVD. Specifically, the study concluded that the quantum of reduced genetic risk for CVD associated with CETP mutations was almost identical to the genetic risk of CVD observed in patients with genetically reduced levels of the proteins targeted by statins, PCSK9 inhibitors and ezetimibe. We believe the consistency of benefit across genotypes observed in all target genes is predictive of the clinical efficacy of CETP-induced LDL-C lowering on CVD. +The direct correlation between LDL-C reduction and decrease in atherosclerotic cardiovascular events has been documented for both statin, as well as non-statin, therapies in CVOTs for ezetimibe, the PCSK9 inhibitors evolocumab and alirocumab, and for the CETP inhibitor anacetrapib. Most notably, a median four-year follow-up of the REVEAL Phase 3 trial of anacetrapib showed that CETP inhibition resulted in a 9% reduction in MACE (first major coronary event, a composite of coronary death, myocardial infarction or coronary revascularization) compared to placebo. However, due to a very low baseline level of LDL-C (61 mg/dl), the trial showed only a modest absolute LDL-C lowering of 11 mg/dl (17%). After approximately six and a half years of total follow-up, the REVEAL clinical trial showed additional MACE reduction of 20%. The table below shows the reduction in MACE and each component of MACE in the in-trial and post-trial periods. +15 +We believe the REVEAL results provide clinical support for the hypothesis that the absolute reduction in LDL-C over time by CETP inhibition confers a predictable benefit in the prevalence of adverse cardiovascular outcomes, as measured by MACE. Specifically, the decrease in MACE observed in the REVEAL trial of anacetrapib is consistent with the findings of the CTT Collaboration, illustrated in the graphic below. The CTT collaboration conducted a meta-analysis of 26 statin clinical trials and showed that there is a consistent, linear decrease in MACE for every absolute unit of non-HDL (which is primarily composed of LDL-C) cholesterol reduction. The MACE reduction observed in REVEAL falls on the meta-regression line – specifically, the CTT metaregression line predicts that an absolute reduction of non-HDL of 17 mg/dl, as seen in REVEAL, would correspond to the 11% reduction in coronary death and myocardial infarction observed in REVEAL. +*The graphic above presents a linear prediction of MACE benefit, as discussed above. Actual results may differ materially. +With these learnings in mind, we are executing a Phase 3 clinical development plan for obicetrapib focused on patients with elevated baseline LDL-C and that is designed to support a broad CVD label, if successful. To date, we have completed seven Phase 1 trials, five Phase 2 trials and three Phase 3 trials of obicetrapib, and we are currently conducting a Phase 3 PREVAIL CVOT trial. +Planned and Ongoing Clinical Trials for Cardiovascular Disease +Phase 3 PREVAIL Cardiovascular Outcomes Trial +We have initiated our PREVAIL trial (TA-8995-304), our Phase 3 CVOT, to evaluate the effects of 10 mg obicetrapib in participants with ASCVD on MACE, including cardiovascular death, myocardial infarction, stroke and non-elective coronary revascularization. We enrolled over 9,500 participants at sites in the United States, Canada, Europe, Asia, and Australia with established ASCVD and an LDL-C level of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL, whose LDL-C levels are not adequately controlled despite maximally tolerated lipid-modifying therapies. The planned median trial follow-up is expected to be approximately 42 +16 +months, and the treatment period will continue until the last participant has been followed for a minimum of 2.5 years after the last patient has been randomized or until the target number of primary endpoint events (i.e., coronary heart disease death, non-fatal myocardial infarction, fatal or non-fatal ischemic stroke, or coronary revascularization) have occurred, whichever is later. +We designed our PREVAIL trial based on insights gained from analyzing failures of prior CVOTs for other CETP inhibitors. Our trial design targets patients above their LDL-C risk-based goal, despite treatment with maximally tolerated lipid modifying therapies, which we believe creates potential for greater observed absolute LDL-C reduction, particularly given the observed median LDL-lowering activity observed in our clinical trials. We are focused on patients with elevated LDL-C levels and who have at least one other risk enhancer (including recent myocardial infarction, Type 2 diabetes, high triglyceride levels or low HDL-C), compared to prior CVOTs for CETP inhibitors that enrolled patients with low baseline LDL-C. We are planning for longer duration of follow-up to maximize opportunities to observe MACE reduction, with all patients to be followed for a minimum of 2.5 years. We believe that the inclusion of a patient population with established ASCVD who are at very high risk to experience a future cardiovascular event given their elevated LDL-C levels despite being treated with maximum lipid lowering therapy and who have other additional risk enhancers increases the likelihood that the trial will accrue sufficient primary endpoint events over time and potentially result in a strong relative risk reduction in the treatment arm. +Phase 3 REMBRANDT Imaging Trial +We have initiated REMBRANDT, a Phase 3 cardiovascular computed tomography angiography imaging trial to evaluate the effect of obicetrapib and ezetimibe in FDC on coronary plaque. The placebo-controlled, double-blind, randomized, Phase 3 study is being conducted in adult participants with high-risk ASCVD who are not adequately controlled by their maximally tolerated lipid-modifying therapy, to assess the impact of the obicetrapib 10 mg and ezetimibe 10 mg FDC daily on coronary plaque and inflammation characteristics. The study is expected to complete enrollment of approximately 300 patients in 2026. +Phase 3 RUBENS Trial +RUBENS is a placebo-controlled, double-blind, randomized, 12-week study conducted in adult participants with Type 2 diabetes and/or Metabolic Syndrome on stable, guideline- recommended lipid lowering therapy to evaluate the LDL-C lowering of obicetrapib alone, or obicetrapib and ezetimibe in FDC. Participants completing the 12-week double-blind treatment will enter a 9-month open label extension with obicetrapib and ezetimibe in FDC. The study is expected to enroll approximately 300 patients, with topline data expected by the end of 2026. +Phase 2 VINCENT Trial +VINCENT is a Phase 2 clinical study to evaluate the effects of obicetrapib alone and in combination with evolocumab on Lp(a) in patients with mild dyslipidemia. The single arm study will treat patients with obicetrapib 10 mg daily for 8 weeks followed by obicetrapib 10 mg daily plus evolocumab 140 mg/dL every other week for 8 weeks. There will be two cohorts in the study. The first cohort will include 39 participants with Lp(a) levels greater than 50 mg/dL or 125 nmol/L, and the second cohort will include 30 participants with Lp(a) levels greater than 20 mg/dL or 50 nmol/L but less than 50 mg/dL or 125 nmol/L. +Completed Phase 3 Clinical Trials +We have completed three Phase 3 clinical trials of obicetrapib for the treatment of cardiometabolic disease. TANDEM evaluated 10 mg obicetrapib and 10 mg ezetimibe as an FDC, while BROADWAY and BROOKLYN were designed to measure the effect of obicetrapib 10 mg as monotherapy on top of maximally tolerated lipid-modifying therapy. +17 +Phase 3 TANDEM Fixed-Dose Combination Trial +We completed TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalents in November 2024. We enrolled approximately 400 patients in the United States that had a baseline LDL-C of ≥ 70 mg/dL. Following a 14-day screening period, patients were randomized 1:1:1:1 to obicetrapib 10 mg and ezetimibe 10 mg FDC, obicetrapib 10 mg monotherapy, ezetimibe 10 mg monotherapy or placebo for an 84-day treatment period. +TANDEM’s co-primary endpoints were percent change from baseline in LDL-C of the FDC compared to each monotherapy arm after 84 days and obicetrapib 10 mg compared to placebo after day 84. Secondary endpoints incorporated percent changes from baseline in other biomarkers, including Lp(a), non-HDL-C and ApoB. The TANDEM trial met all co-primary endpoints. Overall, the FDC was observed to be well-tolerated compared to placebo in this trial. For all treatment groups, the most common treatment-emergent adverse events (“TEAEs”) were hypertension (4.4%), arthralgia (4.2%), upper respiratory tract infection (3.4%), diarrhea (2.5%), and fatigue (2.5%). +We believe that the stronger observed LDL-C lowering among patients receiving the combination therapy as compared with those receiving ezetimibe in combination with statin therapy is potentially due to the synergistic mechanisms of action for each of obicetrapib and ezetimibe. While obicetrapib is designed to promote the expression of LDL receptors in the liver, there is evidence that CETP inhibition also promotes cholesterol excretion into the intestines, where ezetimibe is designed to block cholesterol reabsorption into the body. Therefore, the combined mechanism is expected to synergistically enhance fecal sterol removal of cholesterol. We believe that LDL-C lowering effects of ezetimibe can be enhanced by introducing obicetrapib to help facilitate this synergistic mechanism of action. +LDL-C percentage change: +Ezetimibe +(n=101) +Obicetrapib (n=102) +Obicetrapib and Ezetimibe FDC +(n=102) +Day 84 – from placebo +Mean % +-23.3 +-35.5 +-52.2 +Median % +-22.6 +-37.2 +-54.0 +LS mean % +-20.7 +-31.9 +-48.6 +Comparison to pbo +- +(p<0.0001) +(p<0.0001) +Comparison to eze 10 mg +- +- +(p<0.0001) +Comparison to obi 10 mg +- +- +(p=0.0007) +Phase 3 BROADWAY and BROOKLYN Lipid Trials +18 +We conducted two Phase 3 pivotal trials designed to measure obicetrapib’s LDL-C lowering capability and enrolled patients across both trials who require additional LDL-lowering on top of their maximum tolerated lipid-modifying therapies. BROADWAY, which completed enrollment in July 2023 and for which topline results were announced in December 2024, randomized approximately 2,500 patients in the United States, Europe and Asia with HeFH (individuals genetically predisposed to very high cholesterol) or established ASCVD, and who have baseline LDL-C of at least 55 mg/dL, and an additional risk enhancer in participants with an LDL-C level below 100 mg/dL (including other abnormal biometrics, a recent myocardial infarction or Type 2 diabetes). BROOKLYN, which completed enrollment in April 2023 and for which topline results were announced in July 2024, enrolled HeFH patients in the United States, Canada, Europe and Africa who had baseline LDL-C of at least 70 mg/dL. Obicetrapib was administered in a once-daily 10 mg dose as an adjunct to diet (for regulatory purposes in the European Union) and maximally tolerated lipid-modifying therapy, for a 52-week treatment period. Such lipid-modifying therapies included statins or, for statin-intolerant patients, ezetimibe, Nexletol/Nexlizet, PCSK9 inhibitors, or fibrates (a class of drugs which increase HDL-C without significantly reducing LDL-C). +The primary endpoint of both trials was percent change from baseline in LDL-C of obicetrapib 10 mg compared to placebo after 84 days. Secondary endpoints also included percent changes from baseline of obicetrapib 10 mg compared to placebo after 84 days in Lp(a), ApoB, HDL-C and non-HDL-C (representing total cholesterol minus HDL-C), and for BROADWAY, LDL-C levels at days 180 and 365, total cholesterol and triglycerides. For BROADWAY, other exploratory outcome measures included time from randomization until first confirmed occurrence of MACE in the obicetrapib arm compared to placebo. The safety and tolerability profile of obicetrapib was comparable to placebo in both trials (which included a broad representation of adult males and females of all ages, including elderly and very elderly participants), assessed by AEs, vital signs, clinical laboratory values and electrocardiogram measurements. In addition, we evaluated obicetrapib’s effects on blood pressure and no difference from placebo was shown. +The tables below summarize data from each study: +LDL-C LS mean percentage change in BROOKLYN trial: +% Change from Baseline +Obicetrapib % Change +Placebo (n=118) +Obicetrapib (n=236) +Compared to Placebo +p-value +Day 84 ++0.3% +-36.1% +-36.3% +<0.0001 +Day 365 ++10.3% +-31.1% +-41.5% +<0.0001 +LDL-C percentage change at day 84 in BROADWAY trial: +Placebo +(n = 844) +Obicetrapib 10 mg +(n = 1686) +Difference +Mean +-2% +-35% +-33% +Median +-4% +-40% +-36% +LS mean (with imputation) ++3% +-30% +-33% +While BROADWAY was not designed or powered to measure MACE benefit, MACE was evaluated as an exploratory endpoint and as part of our safety analysis. Despite the limitations of the trial design, we observed a 21% reduction in MACE favoring obicetrapib after one year. +MACE from BROADWAY: +Placebo +(n = 844) +Obicetrapib 10 mg +(n= 1686) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +12 (1.4) +19 (1.1) +0.83 +(0.40-1.71) +Coronary heart death – no. (%) +5 (0.6) +8 (0.5) +0.80 +(0.26-2.44) +First 4-point MACE – no. (%) +44 (5.2) +70 (4.2) +0.79 +(0.54-1.15) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY trial. +Pooled MACE from BROADWAY and BROOKLYN: +Placebo +(n = 962) +Obicetrapib 10 mg +(n= 1920) +Hazard Ratio +95% CI +All-cause mortality – no. (%) +14 (1.5) +20 (1.0) +0.78 +(0.39-1.58) +19 +Coronary heart death – no. (%) +7 (0.7) +9 (0.5) +0.63 +(0.24-1.70) +First 4-point MACE – no. (%) +49 (5.1) +75 (3.9) +0.75 +(0.53-1.08) +4-point MACE: CHD death, non-fatal myocardial infarction, non-fatal stroke, coronary revascularization. MACE was not a primary or secondary endpoint of the BROADWAY or BROOKLYN trials. +Neither the BROADWAY nor BROOKLYN trials were designed to assess MACE as the primary or secondary endpoints and as a result there are limitations on the results presented above. We are conducting PREVAIL, our Phase 3 cardiovascular outcomes trial designed to assess the MACE benefit of obicetrapib, to provide support for obicetrapib’s potential MACE benefit. +Overall, obicetrapib was observed to be well-tolerated compared to placebo in the BROADWAY trial. TEAEs in BROADWAY were reported by 1,007 (59.8%) patients in the obicetrapib 10 mg group compared to 513 (60.9%) patients in the placebo group. Most TEAEs were mild or moderate. TESAEs were observed in 13.9% of the placebo group and in 12.5% of the obicetrapib group. For all treatment groups, the most common TEAEs were COVID-19 (5.1%), hypertension (4.5%), upper respiratory tract infection (3.2%), hyperglycemia (2.8%), and nasopharyngitis (2.6%). +The following table summarizes the safety results from the BROADWAY trial: +Placebo +N= 843 +n (%) +Obicetrapib 10 mg +N= 1,685 +n (%) +Any TEAEs +513 ( 60.9) +1,007 ( 59.8) +Any TEAEs by maximum severity +Mild +228 ( 27.0) +481 ( 28.5) +Moderate +217 ( 25.7) +408 ( 24.2) +Severe +68 ( 8.1) +118 ( 7.0) +Any trial drug related TEAEs +39 ( 4.6) +76 ( 4.5) +Any trial drug-related TEAEs by maximum severity +Mild +25 ( 3.0) +51 ( 3.0) +Moderate +14 ( 1.7) +23 ( 1.4) +Severe +0 ( 0.0) +2 ( 0.1) +Any TEAEs leading to discontinuation of trial drug +43 ( 5.1) +68 ( 4.0) +Any TESAEs +117 ( 13.9) +211 ( 12.5) +Any treatment-emergent non-serious AEs +495 ( 58.7) +959 ( 56.9) +Any trial drug-related TESAEs +0 ( 0.0) +1 ( 0.1) +Any TEAEs leading to death +12 ( 1.4) +19 ( 1.1) +Overall, obicetrapib was also observed to be well-tolerated compared to placebo in the BROOKLYN trial. TEAEs were reported by 149 (63.7%) patients in BROOKLYN in the obicetrapib 10 mg group compared to 83 (70.3%) patients in the placebo group. Most TEAEs were mild or moderate. TESAEs were observed in 6.8% of the placebo group and in 5.6% of the obicetrapib group. For all treatment groups, the most common TEAEs were influenza (8.0%), COVID-19 (6.5%), hypertension (6.3%), nasopharyngitis (5.7%), and diarrhea (4.8%). +The following table summarizes the safety results from the BROOKLYN trial: +Placebo +N= 118 +n (%) +Obicetrapib 10 mg +N= 234 +n (%) +Total +N= 352 +n (%) +Any TEAEs +83 (70.3) +149 (63.7) +232 (65.9) +20 +Any trial drug related TEAEs +8 (6.8) +10 (4.3) +18 (5.1) +Any TEAEs leading to discontinuation of trial drug +8 (6.8) +10 (4.3) +18 (5.1) +Any TESAEs +8 (6.8) +13 (5.6) +21 (6.0) +Completed Phase 2 Clinical Trials +We have completed five Phase 2 trials of obicetrapib for the treatment of cardiometabolic disease. In our Phase 2 trials obicetrapib was observed to robustly lower LDL-C and increase HDL-C from baseline across various treatment settings. Obicetrapib was also observed to be well-tolerated compared to placebo, in both the 5 mg and 10 mg doses and as a combination therapy with ezetimibe. The majority of TEAEs were mild or moderate in severity and there were no drug-related, TESAEs. The graphs below summarize the results of our Phase 1 multiple ascending dose and Phase 2 trials, with 10 mg of obicetrapib. +Phase 2b ROSE Trial +In our Phase 2b ROSE trial, we observed that obicetrapib has robust LDL-C lowering capability as an adjunct to high-intensity statins at both 5 mg and 10 mg dosages. Based on our ROSE trial, we are using a 10 mg dosage for our Phase 3 trials. In our Phase 2a TULIP trial, we observed that a daily dose of up to 10 mg of obicetrapib alone significantly reduced LDL-C and increased HDL-C. Based on observations from our Phase 2b OCEAN trial, we believe that obicetrapib is at least additive for LDL lowering as a combination therapy with ezetimibe. +Phase 2a TULIP Trial +A Phase 2a TULIP trial of obicetrapib, which was completed in 2014, was a randomized, double-blind placebo-controlled trial among 364 patients with mild dyslipidemia and not on lipid-altering therapy at screening and involved once-daily oral dosing of obicetrapib up to 10 mg or a placebo alone and as a combination therapy with statins. The primary endpoints were the percent changes in LDL-C and HDL-C levels from baseline to week 12 of the trial, which were met for both doses. The 5 mg dose of obicetrapib resulted in a mean reduction of LDL-C by 45% and increased HDL-C by 161%, compared to placebo. In patients treated with 10 mg obicetrapib plus statin therapy (20 mg atorvastatin or 10 mg rosuvastatin), LDL-C levels were approximately 50% lower and HDL-C levels were approximately 140% higher, respectively, than those observed in patients receiving statin therapy alone. +A total of 284 (78.2%) patients experienced at least one TEAE, of which 95 (26.2%) experienced a suspected trial drug-related TEAE. For all treatment groups, the most common TEAEs were the common cold and headache (22.9% and 13.2%, respectively). Most TEAEs were mild or moderate in severity with only 13 (3.6%) patients experiencing a severe TEAE, two of which were suspected to be related to the trial drug (one subject in the placebo group and one subject in the atorvastatin 20 mg and obicetrapib 10 mg combination). Prevalence, incidence +21 +and severity of TEAEs were similar across all treatment groups. There were eight patients with a TESAE, none of which were trial drug related, and no deaths occurred during the trial. +Phase 2b ROSE Trial +Our Phase 2b ROSE trial, which was completed in August 2021, was a randomized, double-blind placebo-controlled trial among 120 patients with mild dyslipidemia who were already receiving high-intensity statin therapy. The trial involved a once-daily oral dose of obicetrapib at either 5 mg or 10 mg dose level for eight weeks. The primary endpoint of this clinical trial was LDL-C reduction from baseline and was met for both doses. Obicetrapib had a rapid effect, with LDL-C levels dropping dramatically in the first four weeks of the trial and remaining relatively steady for the remaining four weeks of the trial. At the 5 mg dose level, approximately 20% of patients experienced a decrease in median LDL-C levels of over 60%; at the 10 mg dose level, that percentage nearly doubled. +Overall, obicetrapib as an adjunct to high-intensity statin therapy at both doses was observed to be well-tolerated compared to placebo. TEAEs were reported by 15 (37.5%) subjects in the 5 mg group and 8 (20.0%) subjects in the 10 mg group, compared with 19 (47.5%) subjects in the placebo group. For all treatment groups, the most common TEAEs were fatigue (4.2%), arthralgia (2.5%), nausea (2.5%) and headache (2.5%). All other TEAEs were experienced by only one or no subjects in each treatment group. TEAEs that were considered by the investigator to be related to trial treatment were reported by three subjects (two subjects in the 5 mg group and one subject in the 10 mg group), compared with four subjects in the placebo group. There were no TEAEs leading to death. One subject in the placebo group had a TEAE leading to discontinuation. The majority of TEAEs were mild and moderate in severity; one subject in the placebo group had a severe TEAE. There were two serious TEAEs, both of which occurred in the placebo group. +Based on our ROSE trial and the enhanced LDL-C reduction capability of a 10 mg dose compared with 5 mg and the safety profile we observed, we selected a 10 mg dose for our Phase 3 lipid trials and CVOT. +Phase 2b OCEAN Trial +Our Phase 2b OCEAN trial, which we completed in June 2021, evaluated the effect of obicetrapib as a combination therapy with ezetimibe on LDL-C levels. This randomized, double-blind placebo-controlled trial among 100 patients with mild dyslipidemia involved once-daily oral 5 mg dose of obicetrapib alone and as a combination therapy with 10 mg of ezetimibe, compared to both placebo and ezetimibe alone, for eight weeks. +The primary endpoint of the trial was percent change in LDL-C compared to baseline, which was met. We observed that obicetrapib 5 mg, ezetimibe 10 mg and their combination each significantly reduced LDL-C from baseline and compared with placebo, with statistically significant reductions compared to baseline measured at 34.4%, 14.8% and 52.0%, respectively, compared to a 1.4% reduction in the placebo group. +Obicetrapib 5 mg alone and as a combination therapy with ezetimibe 10 mg taken once daily for eight weeks displayed a favorable tolerability profile. TEAEs were reported by 4 (14.3%) subjects in the obicetrapib 5 mg group and 9 (33.3%) subjects in the combination group, compared with 8 (28.6%) subjects in the ezetimibe 10 mg group and six subjects in the placebo group. For all treatment groups, the most common TEAEs were diarrhea (3.6%), headache (3.6%), myalgia (1.8%) and constipation (1.8%). All other TEAEs were experienced by one or no subjects in each treatment group. TEAEs that were considered to be related to trial treatment were reported by one subject and three subjects in the obicetrapib 5 mg and combination groups, respectively, compared with three subjects and four subjects in the ezetimibe 10 mg and placebo groups, respectively. There were no TEAEs leading to death. One subject in the ezetimibe 10 mg group had a TEAE leading to discontinuation of the trial drug, compared to no subjects in the 5 mg group and two subjects in the combination group. The majority of TEAEs were mild and moderate in severity, and one subject in the ezetimibe 10 mg group had a severe TEAE. +ROSE2 Clinical Trial +In June 2023, we announced full results from our Phase 2 ROSE2 trial, our clinical trial evaluating obicetrapib in combination with ezetimibe as an adjunct to high-intensity statin therapy. ROSE2 met its primary and secondary endpoints, with statistically significant reductions in LDL-C and ApoB observed. Statistically significant improvements in non-HDL-C and total and small LDL-P were also observed. We also observed significant improvements in Lp(a). In addition, the combination of obicetrapib and ezetimibe was observed to be well-tolerated, with a safety profile observed to be comparable to placebo. +ROSE2 was designed as a placebo-controlled, double-blind, randomized Phase 2 clinical trial to evaluate the efficacy, safety and tolerability of obicetrapib 10 mg in combination with ezetimibe 10 mg as an adjunct to high-intensity statin therapy. Patients were randomized to receive combination therapy, obicetrapib 10 mg or placebo for a 12 week treatment period. A total of 119 patients enrolled in ROSE2, of whom 97 were included in the on-treatment analysis. Certain patients were excluded from the on treatment population as a result of suspected non-adherence to the trial protocol. Patients presented at baseline with a fasting LDL-C greater than 70 mg/dL and triglycerides less than 400 mg/dL and all were receiving a stable dose of high-intensity statin therapy. +22 +The primary endpoint was the percent change from baseline to week 12 in Friedewald-calculated LDL-C for the obicetrapib plus ezetimibe combination treatment group compared with placebo. Secondary efficacy endpoints included the percent changes from baseline to week 12 in LDL-C for obicetrapib monotherapy compared with placebo and in ApoB for the obicetrapib plus ezetimibe combination compared with placebo and the obicetrapib monotherapy compared with placebo. Exploratory endpoints included the percent changes from baseline to week 12 in lipoprotein(a), non-HDL-C, HDL-C, total and small LDL-P assessed by nuclear magnetic resonance (NMR), and the proportion of patients at the end of treatment who achieved LDL-C levels below 100 mg/dL, 70 mg/dL and 55 mg/dL for the obicetrapib plus ezetimibe combination and obicetrapib monotherapy groups compared with placebo. +Overall, obicetrapib alone and in combination with ezetimibe was observed to be well-tolerated compared to placebo. TEAEs were reported by 11 (27.5%) subjects in the combination group, 8 (20.5%) subjects in the monotherapy group and 16 (40.0%) subjects in the placebo group. For all treatment groups, the most common AEs nausea (3.4%), urinary tract infection (2.5%), and headache (2.5%). Overall, no drug-related, TESAEs were observed, and there were no TEAEs leading to death. One subject in the combination group had a TEAE leading to discontinuation of the trial drug, compared to two in the monotherapy group and two in the placebo group. There were two severe TEAEs in the placebo group (both nervous system disorders) and one in the monotherapy group (a cardiac disorder). +In parallel with the ROSE2 trial, we formulated two prototype FDC tablets of obicetrapib and ezetimibe. These formulations were compared to the co-administration of obicetrapib and ezetimibe in a pilot bioequivalence trial, which was completed in the first half of 2023. Based on the results of this pilot bioequivalence trial and the data and learnings from our ROSE2 trial, we have selected a formulation for an FDC tablet of obicetrapib and ezetimibe and initiated TANDEM, a Phase 3 pivotal trial, to evaluate 10 mg obicetrapib and 10 mg ezetimibe as an FDC used as an adjunct to diet and maximally tolerated lipid-lowering therapies to potentially enhance LDL-lowering in patients with HeFH, ASCVD or ASCVD risk equivalent patients, in the first quarter of 2024 and released topline data in November 2024. +Japan Phase 2b Clinical Trial +In June 2023, we announced topline results from our Phase 2b Japan trial evaluating the effects of three doses of obicetrapib (2.5 mg, 5 mg, and 10 mg) on LDL-C levels. This was a randomized, double-blind, placebo controlled trial designed to evaluate the efficacy, safety and tolerability of obicetrapib as an adjunct to stable statin therapy in Japanese patients. The trial was conducted at hospitals and clinics across Japan. The primary endpoint was the percent change from baseline to end of treatment (day 56) in LDL-C for each obicetrapib group compared to placebo. The trial enrolled 102 adult participants, who were randomized 1:1:1:1 to receive obicetrapib 2.5 mg, 5 mg, 10 mg or placebo for the 56-day treatment period. Patients treated with obicetrapib 2.5 mg, 5 mg or 10 mg achieved a median reduction in LDL-C of 24.8%, 31.9%, and 45.8%, respectively, as compared to patients treated with placebo, who achieved a median reduction in LDL-C of 0.9%. In addition, patients treated with obicetrapib 10 mg achieved a median reduction in ApoB of 29.7%, compared to a 0.4% reduction in patients treated with placebo, and a median reduction in non-HDL-C of 37.0%, as compared to a 0.4% reduction in patients treated with placebo. The p-value for each endpoint in the obicetrapib arms of the trial compared to placebo was <0.0001. Overall, the different dosages of obicetrapib were observed to be generally well-tolerated, with a safety profile comparable to placebo. TEAEs were reported by 15 (57.7%) subjects in the 10 mg obicetrapib group, 7 (28.0%) subjects in the 5 mg obicetrapib group, 9 (36.0%) subjects in the 2.5 mg group and 15 (57.7%) subjects in the placebo group. AEs observed to date were primarily mild. One TESAE was observed in the 5 mg group, but it was not considered by the investigator to be related to trial treatment. Overall, no drug-related TESAEs were observed, and there were no TEAEs leading to death. +Obicetrapib for Other Therapeutic Areas +Alzheimer’s disease +According to the World Health Organization, Alzheimer’s disease and other dementias affect approximately 55 million people as of 2021, and this is expected to increase to 78 million in 2030 and 139 million in 2050. Alzheimer’s disease is the most prevalent form of dementia, resulting in the generalized degeneration of the brain. +In a healthy brain, excess cholesterol levels in the neurons and amyloid-beta (“Aβ”) peptide removal from brain parenchyma are regulated properly. The brain is the most cholesterol-rich organ in the body; comprising only two percent of the body’s mass, it contains approximately 20% of the body’s cholesterol, which is recycled and redistributed through an ApoE-mediated lipoprotein pathway. Inside populations of cells called astrocytes, ApoE binds with cholesterol that has been released into the brain by neurons and converts it into a different form of cholesterol that is transported out of the brain into the systemic circulation. In addition to ApoE, the protein associated with HDL, ApoA1, also acts as the brain’s “vacuum cleaner,” by removing toxic cholesterol from peripheral tissue to promote healthy cell function and survival. In addition, small HDL particles that transverse the blood brain barrier remove excess Ab peptides in brain parenchyma for ultimate conversion and transport out of the brain. +Alzheimer’s disease, however, is characterized in part by the aggregation of Aβ peptides into amyloid plaques in brain parenchyma, facilitated by the presence of excess cholesterol in cell membranes. Thus, the accumulation of cholesterol in cell membranes and the ineffective clearance of Aβ plaques by ApoE and ApoA1 in their HDL forms is associated with the development of Alzheimer’s disease. Importantly, certain forms of ApoE (in particular, ApoE4) are worse at Ab transport than others, such as ApoE2, and are known to be associated with an increased risk of Alzheimer’s disease. Further, CETP activity has been detected in astrocytes, the cells where ApoE bind with cholesterol, +23 +indicating the potential for a CETP inhibitor to function in the brain similarly to its lipid-modifying effects in the cardiovascular system. Genetic studies have shown that CETP loss of function mutations mitigate the risk of Alzheimer’s disease in patients with the ApoE4 genotype. +Based on these observations as well as the marked increases of ApoA1 in the circulation observed in our Phase 2 clinical trials and the increases in ApoE in the circulation observed in the TULIP trial, we have conducted preclinical assessments of obicetrapib for the prevention and treatment of Alzheimer’s disease. +Following a Type B meeting in June 2021, the FDA confirmed that our preclinical data are sufficient to support a proposed clinical trial of obicetrapib for the prevention and treatment of Alzheimer’s disease. We commenced a Phase 2a open-label and single-arm clinical trial in early 2022 in patients with early Alzheimer’s disease and the ApoE4 mutation to evaluate the pharmacodynamic and pharmacokinetic effects, safety and tolerability of obicetrapib. A total of 13 patients were given 10 mg obicetrapib and followed for 24 weeks. In September 2023, we announced initial data from this trial. We observed reductions in the levels of 24-hydroxycholesterol and 27-hydroxycholestrol of 11% and 12%, respectively, in the CSF compared to baseline. In addition, an increase of 8% compared to baseline in the Aβ42/40 ratio in patient’s plasma was observed and pTau181 levels were observed to be stable. Increases in 24-hydroxycholesterol and 27-hydroxycholesterol over time have been observed previously to lead to a rise in cognitive and related functional impairment. We believe reductions of these oxysterols in the CSF may indicate improved cholesterol metabolism in the brain and may lead to improved cognitive function. In addition, this trial assessed the Aβ42/40 ratio and plasma pTau181, also believed to be biomarkers of Alzheimer’s disease, with lower levels of Aβ42/40 and increased levels of pTau181 having been associated with a greater risk of Alzheimer’s disease. Overall, obicetrapib was observed to be well-tolerated. No serious AEs were reported, nor were any AEs considered to be related to the trial drug. +In BROADWAY, a pre-specified Alzheimer's disease analysis was designed to assess plasma Alzheimer's disease biomarkers in patients enrolled in the BROADWAY trial and evaluated the effects of longer duration of therapy (12 months) with a prespecified population of ApoE3/4 or 4/4 carriers, based on phenotypic analysis. The analysis included 1,515 patients, including 367 ApoE4 carriers, whose ApoE status was able to be determined. Because this analysis was based on a subset of patients from BROADWAY (which was designed to evaluate LDL-C reductions in an ASCVD and/or HeFH population), the Alzheimer's disease analysis was not controlled for baseline differences between the treatment and placebo population. The primary outcome measure was p-tau217 absolute and percent change over 12 months, among patients with baseline and end of study datapoints above the lower limit of quantitation. Additional outcome measures included NFL, GFAP, p-tau181, and Aβ42/40 ratio absolute and percent change over 12 months. We observed statistically significant lower absolute changes in p-tau217 compared to placebo over 12 months in both the full analysis set (p=0.0019; n=1,515) and in ApoE4 carriers (p=0.0215; n=367). Although a safety analysis was not performed in the Alzheimer's disease study population, in BROADWAY obicetrapib was observed to be well-tolerated, with safety results comparable to placebo. Based on these results, we expect to initiate a new clinical trial evaluating obicetrapib in patients with early Alzheimer’s disease in 2026. +Manufacturing and Supply +We currently have no manufacturing facilities and instead rely on several contract manufacturers to produce drug substance and drug products. The production is overseen by an experienced group of personnel. Obicetrapib and obicetrapib and ezetimibe FDC tablets are manufactured and tested in accordance with current good manufacturing practices (“cGMPs”) at facilities in the United States, Canada, Austria and India. In preparation for commercial supply, we are in the process of expanding our supply network to support a commercial launch of obicetrapib, if approved. +Marketing and Sales +While we do not currently have the internal marketing, sales or distribution capabilities necessary to commercialize obicetrapib or any future product candidates, if approved for commercial sale, we are currently developing our own commercial infrastructure and capabilities in the United States and have entered, and expect to continue entering, into arrangements with third parties to perform these services outside of the United States. We may also opportunistically seek strategic collaborations to maximize the commercial opportunities for our future product candidates inside and outside the United States. We entered into the Menarini License, pursuant to which we granted Menarini the exclusive rights to commercialize obicetrapib 10 mg either as a sole active ingredient product or in an FDC with ezetimibe in the majority of European countries, if approved. As any future product candidates near regulatory approval and potential commercial launch, we plan to assess our options for commercializing each respective product candidate and may choose to commercialize themselves ourselves or with a partner. +Menarini License +We entered into the Menarini License, pursuant to which we granted Menarini an exclusive, royalty-bearing, sublicensable license under certain of our intellectual property and our regulatory documentation to undertake post approval development activities and commercialize multiple brands of obicetrapib in a single unit dose of 10 mg or less, either as a sole active ingredient product or in an FDC with ezetimibe (the “Licensed Products”), for any use in the Menarini Territory. We retained all rights to obicetrapib in all other territories and in other dosages. +We are solely responsible for conducting the development activities to obtain regulatory approval for obicetrapib. Menarini may conduct market access studies, medical affairs activities, non-registration studies and Phase IV clinical trials in the Menarini Territory. Menarini is responsible for submitting and obtaining the required regulatory approvals to commercialize obicetrapib (at the licensed dosage) in the +24 +Menarini Territory and will own the regulatory approvals, if received. In August 2025, the EMA accepted for review the MAAs submitted by Menarini for obicetrapib 10 mg monotherapy and the FDC of 10 mg obicetrapib plus 10 mg ezetimibe for the treatment of primary hypercholesterolemia, including heterozygous familial and non-familial or mixed dyslipidemia. If the MAAs are approved by the EMA, Menarini will also be solely responsible for commercializing obicetrapib monotherapy and the FDC of obicetrapib plus ezetimibe (at the licensed dosage) and will be required to use commercially reasonable efforts to commercialize obicetrapib in the Menarini Territory. +Pursuant to the Menarini License, Menarini made an upfront payment to us of €115.0 million. Menarini has also committed to providing €27.5 million in funding for our research and development activities over several years, together with bearing 50% of any development costs incurred in respect of the pediatric population in the Menarini Territory. We are also eligible to receive up to an additional €863 million upon the achievement of various clinical, regulatory and commercial milestones, of which a total of €30 million has been received to date. If obicetrapib is approved and successfully commercialized by Menarini, we will be entitled to tiered royalties ranging from the low double digits to the mid-twenties as a percentage of net sales in the Menarini Territory, with royalty step-downs in the event of generic entrance or in respect of required third-party intellectual property payments. +The Menarini License will expire on the last to expire royalty term, which is determined on a Licensed Product-by-Licensed Product and country-by-country basis, and is the later of (i) the expiration of the last to expire licensed patent that includes a valid claim in the country, (ii) expiration of regulatory exclusivity granted by the prevailing governmental authority for the Licensed Product in the country or (iii) 12 years from the first commercial sale of the Licensed Product in the country. +In addition, we have entered into a supply agreement with Menarini pursuant to which we will supply Menarini with obicetrapib monotherapy and with the FDC of obicetrapib plus ezetimibe finished product in bulk tablet form (the “Drug Products”). We will initially be Menarini’s exclusive supplier of the Drug Products and fulfill purchase orders based on periodic volume forecasts that Menarini is required to provide, a portion of which will be binding. The price to be paid by Menarini will be based on a specified mark-up to our “cost of goods sold” for the supplied Drug Products (as determined in accordance with the supply agreement), subject to periodic adjustments. +The term of the supply agreement continues for the duration of the term of the Menarini License unless terminated earlier. We may terminate the supply agreement for convenience upon advance 120 days’ written notice to Menarini, provided that the effective date of such a termination must follow the earlier of (i) completion of a process to transfer manufacturing of the Drug Products to Menarini or a designated third-party contract manufacturer, and (ii) two years after the initiation of such transfer. Either party may terminate the supply agreement for uncured material breaches of the supply agreement, if the other party becomes insolvent, or if a force majeure event continues for six months or longer. +Intellectual Property +Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions, to obtain and maintain know-how related to our business, including our product candidates, to defend and enforce our intellectual property rights, in particular our patent rights, to preserve the confidentiality of our trade secrets, and to operate without infringing, misappropriating, or violating the valid and enforceable patents and other intellectual property rights of third parties. Our ability to preclude or restrict third parties from making, using, selling, offering to sell, or importing competing molecules to our products may depend on the extent to which we have rights under valid and enforceable patents and trade secrets that cover these activities. +We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +We strive to protect and enhance our proprietary inventions and improvements that we consider commercially important to the development of our business, including by seeking, maintaining, and defending U.S. and foreign patent rights. All of the issued patents and pending patent applications in our patent portfolio are owned by our subsidiary, NewAmsterdam Pharma B.V., Dutch Chamber of Commerce registry number 55971946. As of December 31, 2025, we owned: +• +10 issued U.S. patents and 25 pending U.S. patent applications, +• +114 granted European patents and 10 pending European patent applications, +• +1 granted Chinese patent and 14 pending Chinese patent applications, +• +5 granted Japanese patents and 6 pending Japanese patent applications, and +• +54 granted patents and about 139 pending patent applications in other foreign jurisdictions, including international applications under the Patent Cooperation Treaty (“PCT”). +The patent positions of pharmaceutical companies are generally uncertain and can involve complex legal, scientific, and factual issues. We cannot predict whether any patent applications we pursue will issue as patents in any particular jurisdiction, or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. In addition, the coverage claimed in a patent application may be significantly reduced before a patent is granted, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot +25 +guarantee that any of our products will be protected or remain protectable by enforceable patents. Moreover, any patents that we license or may own in the future may be challenged, circumvented, or invalidated by third parties. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before our product candidate can be commercialized successfully, any related patents may expire or remain in force for only a short period following commercial launch, thereby limiting the protection such patent would afford the applicable product and any competitive advantage such patent may provide. +For any individual patent, the term depends on the applicable law in the country in which the patent is issued. In most countries where we have patents and patent applications, including the United States, patents have a term of 20 years from the application filing date or earliest claimed nonprovisional priority date. In the United States, the patent term may be shortened if a patent is terminally disclaimed over another patent that expires earlier. The term of a U.S. patent may also be lengthened by a patent term adjustment that is awarded by the USPTO, in order to address administrative delays by the USPTO in examining and granting a patent. +In the United States, the term of a patent that covers an FDA-approved drug may be eligible for patent term extension in order to restore the period of a patent term lost during the premarket FDA regulatory review process. Specifically, the Hatch-Waxman Amendments permits a patent term extension of up to five years beyond the natural expiration of the patent (but the total patent term, including the extension period, must not exceed 14 years following FDA approval). The patent term extension period granted on a patent covering a product is typically one-half the time between the effective date of the IND for the first investigation involving human beings and the submission date of an NDA seeking FDA approval, plus the entire time from submission date of the NDA to the ultimate approval date. Only one patent applicable to an approved product is eligible for patent term extension, and only those claims covering the approved product, an approved method for using the approved product, or a method for manufacturing it may be extended. The application for patent term extension must be submitted prior to the expiration of the patent. The USPTO reviews and approves the application for any Patent Term Extension in consultation with the FDA. +Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO and other patent offices may be significantly revised before issuance, if granted at all. +For more information regarding the risks related to our intellectual property, please see “ Risk Factors—Risks Related to Our Intellectual Property. ” +The issued patents and pending patent applications for obicetrapib as of December 31, 2025 are detailed below. We have segregated these patents into three groups for ease of reference: First Generation Patents, Second Generation Patents and Third Generation Patents based on the patent application filing dates and subject matter. +Obicetrapib First Generation Patents +Our first generation obicetrapib patent portfolio includes: +• +a patent family directed generally to compounds, pharmaceutical compositions comprising the compounds, and methods of treatment using the compounds and pharmaceutical compositions. We have 1 granted patent in the United States in this patent family covering a genus of compounds that includes obicetrapib and claims that more narrowly cover the obicetrapib compound and pharmaceutical compositions thereof. This United States patent is expected to expire in August 2027, without taking potential patent term extension into account. +• +a patent family covering a method of synthesizing obicetrapib. In this patent family, we have 1 granted patent in the United States, 5 granted patents in Europe including the United Kingdom, and 1 granted patent in Japan. Patents in this family are expected to expire between March 29, 2027 and March 31, 2029, not including potential patent term extensions. +Obicetrapib Second Generation Patents +Our second generation obicetrapib patent portfolio includes: +• +a patent family directed to solid oral dosage forms containing 5 to 10 mg of obicetrapib, including tablet forms, and methods of treatment comprising administration of 1 to 25 mg of obicetrapib daily which includes 4 granted patents and 2 pending patent applications in the United States, 39 granted patents in Europe, 1 granted patent in Japan, 6 pending patent applications in China, and 22 granted patents and 13 pending patent applications in other foreign jurisdictions. These patents, and patent applications if granted, are expected to expire in February 2034, without taking potential patent term extensions or patent term adjustment into account. +• +a patent family directed to compositions that contain obicetrapib and a statin, methods of treating with compositions that contain obicetrapib and a statin, and in various foreign jurisdictions, methods of use in which obicetrapib and a statin are separately administered which include 1 granted patent in the United States (expected to expire in February 2034), 2 granted patents in Japan, 2 pending patent applications in China, and 7 granted patents and 3 pending patent applications in other foreign jurisdictions. Outside the United States, patents, and patent applications if granted, are expected to expire in August 2035, without taking potential patent term extensions or patent term adjustment into account. +26 +• +a patent family that claims a synthetic intermediate used in a synthetic process we intend to use commercially, as well as processes to make that intermediate, which includes 1 granted patent in the United States, 39 granted patents and 1 pending patent application in Europe, 1 granted patent in China, 1 granted patent in Japan, and 22 granted patents and 2 pending patent applications in other foreign jurisdictions. Patents, and patent applications if granted, are expected to expire in July 2035, without taking potential patent term extensions or patent term adjustment into account. +Obicetrapib Third Generation Patents +Our third generation obicetrapib patent portfolio includes: +• +a patent family covering the solid salt form of obicetrapib that we intend to commercialize, a process for its commercial synthesis, and a novel intermediate used in that synthetic process. In the United States, we have 2 granted patents including a granted patent with claims covering the solid salt form of obicetrapib, and 2 pending applications. Patent applications are pending in Europe, China, Japan, and in over 40 other foreign jurisdictions. Our United States patents, and patents if granted on the pending applications worldwide, are expected to expire in July 2043, without taking potential patent term adjustment or extensions into account. +• +patent families directed to the combination of obicetrapib with ezetimibe, including patent families covering methods of treatment, fixed dose combinations, and the formulation of our intended FDC product. Certain patent families directed to formulations also include the commercial formulation of our intended single-active product. Patents in these families, if granted, are expected to expire from February 2042 to November 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to the combination of obicetrapib with statins for use in certain subpopulations, the combination of obicetrapib with SGLT2 inhibitors, and the combination of obicetrapib with PCSK9 inhibitors. Patents in these families, if granted, are expected to expire from July 2042 to April 2046, without taking potential patent term adjustment or extensions into account. +• +patent families directed to methods of using obicetrapib to treat neurodegenerative diseases. Granted patents in these families, and patent applications if granted, are expected to expire from March 2042 to September 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to treatment of patient populations enrolled in our Phase 3 clinical trials, or directed to other clinical indications. Patents in these families, if granted, are expected to expire from September 2044 to September 2045, without taking potential patent term adjustment or extensions into account. +• +patent families directed to other aspects of obicetrapib and related molecules, such as synthesis processes, solid forms and formulations, and methods of preparation and use thereof. Patents in these families, if granted, are expected to expire from November 2045 to November 2046, without taking potential patent term adjustment or extensions into account. +Trade Secrets +We also rely on trade secrets, know-how, confidential information and continuing technological innovation to develop, strengthen and maintain our proprietary position in our field and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. However, trade secrets can be difficult to protect. While we take measures to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. We seek to protect our proprietary information, in part, using confidentiality agreements and invention assignment agreements with our collaborators, employees and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties. Furthermore, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors and other third parties, or misused by any collaborator to whom we disclose such information. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For more information regarding the risks related to our intellectual property, please see “ Risk Factors — Risks Related to Our Intellectual Property .” +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of drug products. We, along with any third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies, clinical trials or seek approval of our products and product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. +27 +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), as amended, and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States, and this process generally involves the following: +• +completion of preclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (“GLP”) requirements and other applicable regulations; +• +submission to the FDA of an Investigational New Drug application (“IND”), which must become effective before human clinical trials may begin and must be updated annually and when certain changes are made; +• +approval by an independent investigational review board (“IRB”) or independent ethics committee (“EC”) at each clinical site before each trial may be initiated; +• +performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) requirements, to establish the safety and efficacy of the proposed drug for its intended use; +• +preparation of and submission to the FDA of an NDA after completion of pivotal trials; +• +a determination by the FDA within 60 days of its receipt of an NDA to file the application for review; +• +satisfactory completion of an FDA advisory committee review, if applicable; +• +satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• +potential FDA audit of the nonclinical study and/or clinical trials sites that generated data in support of the NDA; and +• +FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product; chemistry, manufacturing and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial or not allowing it to commence on the terms originally specified in the IND. +Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, dosing procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the trial until completed. Some trials also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or data monitoring committee, which provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries. +A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the clinical trial complies with regulatory requirements if the data is to be used in support of NDA approval. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, the FDA is able to validate the data through an onsite inspection, if deemed necessary, and the FDA determines that the data is applicable to the U.S. patient population. +28 +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• +Phase 1 : The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition. These trials are designed to test the safety, dosage tolerance, absorption, metabolism, excretion and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. +• +Phase 2 : The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages, and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. +• +Phase 3 : The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and labeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA, although this may vary and in some instances hybrid trials may be conducted that meet the criteria for multiple phases under one trial design. +In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 trials may be conducted after initial marketing approval and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected AEs, findings from other trials suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new drug. +U.S. Review and Approval Process +Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, preclinical, and other nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including trials initiated by independent investigators. To support marketing approval, the data submitted must be sufficient to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. +The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may refuse to file the application if the application is not sufficiently complete to permit substantive review and request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once accepted for filing, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality, and purity. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete its initial review and act on a standard NDA for a drug that is a new molecular entity, and of ten months from the date of NDA receipt to review and act on a standard NDA for a drug that is not a new molecular entity. The FDA does not always meet its PDUFA goal dates, and the review process is often extended by FDA requests for additional information or clarification. +29 +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it has considered such recommendations carefully when making decisions. +Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within designated specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs and assure the integrity of the clinical data submitted to the FDA. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter, a tentative approval letter (in the case of, for example, certain types of NDAs referred to as 505(b)(2) NDAs that rely in whole or in part on other company’s approvals), or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific conditions of use, including specific indications. A tentative approval letter is notification that an NDA otherwise meets the requirements for approval but cannot be approved because of exclusivity or patent reasons. A drug product that is granted tentative approval is not an approved drug and will not be approved until FDA issues an approval letter after any necessary additional review of the NDA. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA will refuse approval of an NDA if applicable statutory and regulatory criteria are not satisfied and may require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. +If regulatory approval of a product is granted, such approval will be granted for particular conditions of use, including particular indications, and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post-marketing trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further marketing of the product based on the results of these post-marketing trials or surveillance programs. +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current, or fails to submit a request for approval of a pediatric formulation. In addition, failure to fulfill the requirement to submit a pediatric study plan with an application may be grounds for refusal to file an application. +U.S. Expedited Development and Review Programs +The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to a particular product for the specific qualifying disease or condition. The sponsor of a Fast Track designated product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an NDA is submitted, the product candidate may be eligible for priority review. A Fast Track-designated product may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted. Rolling review may occur if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. FDA may also only commence its review upon submission of the final section of the NDA. +30 +A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or as a combination therapy with one or more other drugs may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers. +A marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review. A product candidate is eligible for priority review if it is designed to treat a serious condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, or with respect to non-new-molecular-entity NDAs, within six months of the NDA receipt date. +Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may utilize an accelerated approval pathway upon a determination that the product has an effect on (1) a surrogate endpoint that is reasonably likely to predict clinical benefit or (2) a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to withdrawal of its approval if, for example, the sponsor fails to conduct the required post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the pre-approval review period, which could adversely impact the timing of the commercial launch of the product. +Fast Track designation, Breakthrough Therapy designation, priority review designation, and the accelerated approval pathway do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval, but may expedite the development or review process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. +U.S. Marketing and Data Exclusivity +Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDA provides periods of non-patent regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace. Five years of exclusivity are available to new chemical entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt (including a salt with hydrogen or coordination bonds), or other noncovalent derivative (such as a complex, chelate, or clathrate) of the molecule, responsible for the physiological or pharmacological activity of the drug substance. During the exclusivity period, an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA that contains the same active moiety may not be submitted. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a Paragraph IV certification of patent invalidity, unenforceability, or non-infringement is filed. +The FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, containing a previously approved active moiety, if FDA determines that it contains reports of new clinical investigations (other than bioavailability studies) essential to the approval of the application and conducted or sponsored by the applicant. New indications, dosages or strengths of an existing active moiety may be eligible for three-year exclusivity. If eligible, FDA may not approve an ANDA or 505(b)(2) application containing the same active moieties (or combination of active moieties) for the same conditions of approval protected by the exclusivity for three years after approval of the eligible NDA or supplement. This three-year exclusivity protects only the modification for which the drug received approval on the basis of the new clinical investigations and often can be “carved out” of the labeling of the ANDA or 505(b)(2) application to permit approval. This exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active moiety (or combination of active moieties) for previously approved, unprotected conditions of use. Five-year and three-year exclusivity will not delay the submission or approval of a 505(b)(1) NDA. +Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat rare diseases or conditions affecting fewer than 200,000 individuals in the United States. If a product with orphan drug designation receives FDA approval for an indication within the designated disease, the FDA generally may not approve another marketing application for the same drug for the same approved indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority by a subsequent product or if the holder of the orphan drug exclusivity is unable to assure sufficient quantities of the product to meet patient needs. +31 +The FDA may also grant pediatric exclusivity, which provides a six-month extension to existing regulatory or patent exclusivity. To be eligible for pediatric exclusivity, the FDA must issue a Written Request detailing the studies to be performed and the timeframe for their completion. If an applicant agrees to perform the studies as outlined in the Written Request, the applicant must submit study reports at least fifteen months prior to the expiry of the exclusivity that is to be extended. To be eligible for pediatric exclusivity, FDA must determine that the studies fairly respond to the Written Request, have been conducted in accordance with commonly accepted scientific principles and protocols, and have been reported in accordance with the requirements for filing. +U.S. Post-approval Requirements +Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product, which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. After approval, for certain modifications to the drug or the labeling of the drug, including changes in indications, other prescribing information or manufacturing processes or facilities, the applicant may be required to submit and obtain prior FDA approval of a new NDA or NDA supplement, which may require the development and submission of additional data. A limited category of changes made be made 30 days after submission of an NDA supplement or at the same time as an NDA supplement is submitted. These are known as “changes being effected” supplements. There also are continuing, annual program fees for any marketed products. Drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements in the event of a deviation involving distributed product. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and other tracking requirements and must notify the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production, quality and distribution control to maintain compliance with cGMP and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. If new or increased safety risks are identified, there may be required revisions to the approved labeling, imposition of post-market trials or clinical trials, or imposition of distribution restrictions or other restrictions under a REMS program. A failure to meet applicable regulatory requirements can result in potential consequences to include, among other things: +• +restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• +fines, warning letters or untitled letters; +• +clinical holds on clinical trials; +• +refusal of the FDA to approve pending applications or supplements to approved applications or suspension or revocation of product approvals; +• +product seizure or detention or refusal to permit the import or export of products; +• +consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +• +mandated modification of promotional materials and labeling and the issuance of corrective information; +• +the issuance of safety alerts, Dear Healthcare Provider letters, press releases, and other communications containing warnings or other safety information about the product; or +• +injunctions or the imposition of civil or criminal penalties. +The FDA closely regulates the marketing, labeling, advertising, and promotion of drug products. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by the FDA and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and other advertising and promotion requirements. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties. +Other Healthcare Laws +In the United States, drug manufacturers and sponsors are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, and other healthcare fraud and abuse laws, as follows: +32 +The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving, or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for, or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federal healthcare programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +The federal false claims laws, including the federal False Claims Act (the “FCA”), prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease, or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil FCA may be brought by the U.S. Department of Justice or as a qui tam action by a private individual in the name of the government. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil FCA. +In addition, the Civil Monetary Penalties statute, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program. +The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” and their respective subcontractors that create, receive, maintain, or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information. +The federal Physician Payments Sunshine Act requires applicable manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain other healthcare professionals including physician assistants and nurse practitioners, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. +There are federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, and such reported prices may be used in the calculation of reimbursement and/or discounts on approved products. +Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, such as state anti-kickback and false claims laws, which may apply to business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s otherwise voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing information and marketing expenditures or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; and state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws and other applicable healthcare fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. +Coverage and Reimbursement +Sales of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of +33 +reimbursement for such product by third-party payors. In the United States, no uniform policy exists for coverage and reimbursement for pharmaceutical products among third-party payors. Therefore, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. The process for determining whether a third-party payor will provide coverage for a product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. +Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, and they often require us to provide scientific and clinical support for the use of our products to each payor separately, which can be a time- consuming process, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Additionally, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. +Moreover, as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid, we will be subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain price reporting metrics to the government, such as Medicaid Average Manufacturer Price (“AMP”), and Best Price, Medicare Average Sales Price, the 340B Ceiling Price and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with such laws and regulations require significant resources and any findings of non-compliance may have a material adverse effect on our revenues. +Healthcare Reform +In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system and the reimbursement of drug products. For example, the Inflation Reduction Act of 2022 (the “IRA”) sets forth meaningful changes to drug product reimbursement by Medicare. The IRA, among other things, (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered by Medicare and subjects drug manufacturers to civil monetary penalties and a potential excise tax for offering a price that is not equal to or less than the negotiated "maximum fair price" under the law, and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions began to take effect in 2023, although several significant challenges concerning the provisions for Medicare price negotiations are currently pending before federal appeals courts. With respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B or Part D. CMS negotiated prices for ten high-cost drugs paid for by Medicare Part D effective in 2026 and 15 Part D drugs effective in 2027. CMS will negotiate prices for 15 Part B or D drugs effective in 2028 and 20 Part B or Part D drugs effective in 2029 and each year thereafter. This provision applies to drug products that have been approved for at least 7 years and biologics that have been licensed for 11 years, but it does not apply to drugs and biologics that have been approved only for rare diseases or conditions. +The IRA also establishes a rebate obligation for drug manufacturers that increase prices of Medicare Part B and Part D covered drugs at a rate greater than the rate of inflation. The inflation rebates may require us to pay rebates if we increase the price of a covered Medicare Part B or Part D approved product faster than the rate of inflation. In addition, the law eliminates the “donut hole” under Medicare Part D as of 2025, significantly lowers the beneficiary maximum out-of-pocket cost, and requires manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum and 20% once the out-of-pocket maximum has been reached. Our cost-sharing responsibility for any approved product covered by Medicare Part D could be significantly greater under the newly designed Part D benefit structure compared to the pre-IRA benefit design. Additionally, manufacturers that fail to comply with certain provisions of the IRA may be subject to penalties, including civil monetary penalties. The IRA is anticipated to have significant effects on the pharmaceutical industry and may reduce the prices we can charge and reimbursement we can receive for our products, among other effects. +These provisions of the IRA may heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products. +In addition as a result of the Budget Control Act of 2011, health care providers are subject to Medicare payment reductions of 2% per fiscal year. This 2% reductions was temporarily suspended during the COVID-19 pandemic, but has since been reinstated and, unless Congress and/or the Executive Branch take additional action, will begin to increase gradually starting in April 2030, reaching 4% in April 2031, until sequestration ends in October 2031. +There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for products. At the federal level, the Trump Administration (the “Administration”) has issued Executive Orders relating to prescription drug pricing and letters to pharmaceutical +34 +manufacturers that direct drug manufacturers to, among other things, offer most favored nation (“MFN”) pricing in Medicaid, offer MFN pricing for all newly launched drugs; repatriate increased revenue from abroad to lower drug prices in the United States, and implement direct-to-consumer and direct-to-business distribution of their products at MFN pricing. The Administration has warned that manufacturers that fail to make “significant progress” toward MFN pricing will face enumerated regulatory and enforcement consequences. In September 2025, the Administration began announcing deals with specific manufacturers to address the Administration’s MFN goals. +Further, on November 30, 2020, HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The IRA delayed the implementation of the rule to January 1, 2032. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers; the implementation of these provisions has also been delayed by the IRA until January 1, 2032. +Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine which drugs and suppliers will be included in their healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. +We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act) that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act, the California Privacy Rights Act and the European General Data Protection Regulation 2016/679 (“GDPR”), govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Privacy and security laws, regulations and other obligations are constantly evolving, and these may conflict with each other which makes compliance efforts more challenging. Failure to comply with these laws, where applicable, can result in (i) the imposition of significant civil claims; (ii) private litigation; (iii) regulatory investigations and proceedings; (iv) significant penalties imposed by regulators; (v) enforcement notices and restrictions on data processing, requiring us to stop or change the way we use personal information; and (vi) negative publicity, reputational harm and a potential loss of business and goodwill. +Regulation and Procedures Governing Approval of Medicinal Products in the European Union +In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales, manufacturing and distribution of our product candidates to the extent we choose to sell any of our product candidates outside of the United States. Whether or not we obtain FDA approval for a product, we or our third-party partners must obtain approval of a product by equivalent competent authorities in foreign jurisdictions before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that is approved outside the United States. +Medicinal products in the European Union (the “EU”) must be granted a marketing authorization (“MA”) before they can be marketed and sold in any EU member state. The process to obtain an MA requires the satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety, quality and efficacy of the medicinal product for each proposed therapeutic indication. It also requires the submission to the relevant competent authorities of an EU MAA and granting of an MA by these authorities. The aforementioned EU rules are applicable in the European Economic Area (“EEA”), which consists of the 27 EU member states, as well as Norway, Liechtenstein and Iceland. +Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, the authorization of medicinal products and marketing of such products, both before and after grant of the MA, or with other applicable regulatory requirements may result in administrative, civil, or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal, or variation of the MA, total or partial +35 +suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties. +EU Non-Clinical Studies and Clinical Trials +Similar to the United States, the various phases of non-clinical research in the EU are subject to significant regulatory controls. +Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical substances. Non-clinical health and environmental safety studies must be conducted in compliance with the principles of GLP, as set forth in Directive 2004/10/EC. In particular, non-clinical health and environmental safety studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements. Research involving animals conducted within the EEA must comply with relevant national implementations of Directive 2010/63/EU, requiring that such testing is carried out in licensed facilities with appropriate staff and in compliance with animal welfare standards. +The Clinical Trials Regulation (EU) No 536/2014 (which replaced the previous Clinical Trials Directive 2001/20/EC) governs the system for the approval of clinical trials and the investigational medicinal product supply chain in the EU. The main characteristics of the Clinical Trials Regulation include: a streamlined application procedure for clinical trial authorization via a single-entry point, the Clinical Trials Information System; a single set of documents to be prepared and submitted for the application, as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is jointly assessed by the competent authorities of all EU member states in which an application for authorization of a clinical trial has been submitted (member states concerned). Part II is assessed separately by each member state concerned, and applicant may only start a clinical trial at a specific trial site after the competent ethics committee has issued a related favorable opinion. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU member state. However, overall related timelines are defined by the Clinical Trials Regulation. +The application for authorization of a clinical trial must be accompanied by, among other documents, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation as prescribed by the Clinical Trials Regulation, and further detailed in applicable guidance documents. Any substantial changes to the trial protocol or to other information submitted with the clinical trial application must be notified to or approved by the relevant competent national authorities and ethics committees through the Clinical Trials Information System. Medicinal products used in clinical trials must be manufactured in accordance with GMP, including in accordance with Commission Delegated Regulation (EU) 2017/1569. EU clinical trials must be conducted in accordance with EU and national regulations and, if intended for regulatory submissions, the International Conference on Harmonization (“ICH”) guidelines on GCP, as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EEA, it must appoint an entity within the EEA to act as its legal representative. +The Clinical Trials Regulation additionally prescribes that member states must implement a scheme providing for compensation for damage caused by participation in clinical trials within their territory in the form of insurance, a guarantee, or a similar arrangement that is equivalent as regards its purpose and which is appropriate to the nature and the extent of the risk. +EU Marketing Authorizations +To obtain an MA for a product in the EU, an applicant must submit an MAA either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in the EEA member states (decentralized procedure, national procedure, or mutual recognition procedure). An MA may be granted only to an applicant established in the EEA. +The centralized procedure comprises a single application, evaluation and authorization and provides for the grant of a single MA by the European Commission that is valid for all EU member states, and by extension also in the three EEA states. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for (i) medicinal products derived from biotechnological processes, (ii) products designated as orphan medicinal products, (iii) advanced therapy medicinal products and (iv) products with a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, auto-immune and other immune dysfunctions and viral diseases. For products with a new active substance indicated for the treatment of other diseases and products that are a significant therapeutic, scientific or technical innovation or for which a centralized process is in the interest of patients, the centralized procedure may be optional. +Under the centralized procedure, the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing MA. +Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. +36 +Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of 210 days will be reduced to 150 days (not including clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. +Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as the Priority Medicines ("PRIME") scheme, which provides incentives similar to the breakthrough therapy designation in the United States. PRIME is a voluntary scheme aimed at enhancing the EMA's support for the development of medicinal products that are not authorized in the EU and show the potential to target unmet medical needs. It permits increased interaction and early dialogue with companies developing promising medicinal products, to optimize their product development plans and speed up their evaluation under the centralized procedure to help the product reach patients as early as possible. Product developers that benefit from PRIME designation are potentially eligible for accelerated assessment of their MAA although this is not guaranteed. Benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated MAA assessment once a dossier has been submitted under the centralized procedure. +Unlike the centralized authorization procedure, the decentralized MA procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU member state in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU member state prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report and related materials are submitted to the concerned EU member states who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU member state cannot approve the assessment report and related materials due to concerns relating to a potentially serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralised Procedures—Human ("CMDh") for review. The CMDh seeks to resolve the issue by achieving a negotiated consensus amongst participating member states. If that is not possible, the issue may be referred to the CHMP. The CHMP will allow submissions from the applicant and, having considered the relevant issues and data, will issue an opinion by majority vote. The Committee will then send the opinion to the European Commission, which will adopt a decision that is binding on the applicant and all EU relevant member states. +The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU member state under national procedures to apply for this authorization to be recognized by the competent authorities in other EU member states. Like the decentralized procedure, the mutual recognition procedure is based on the acceptance by the competent authorities of the EU member states of the MA of a medicinal product by the competent authorities of other EU member states. The holder of a national MA may submit an application to the competent authority of an EU member state requesting that this authority recognize the MA delivered by the competent authority of another EU member state. +In principle, any EU MA has an initial validity of five years. The MA may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU member state in which the original MA was granted. To support the application, the MA holder must provide the EMA or the competent authority with a consolidated version of the Common Technical Document, providing up-to-date data concerning the quality, safety and efficacy of the product, including all variations introduced since the MA was granted, at least nine months before the MA ceases to be valid. The European Commission or the competent authorities of the EU member states may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year renewal period for the MA. Once subsequently definitively renewed, the MA shall be valid for an unlimited period. Any authorization that is not followed by the actual placing of the medicinal product on the EU market (in case of centralized procedure) or on the market of the authorizing EU member state within three years after authorization ceases to be valid (the so-called sunset clause). +In the EU, a “conditional” MA may be granted to meet the unmet medical needs of patients for medicinal products intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening diseases in cases where all the required safety and efficacy data are not yet available. The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once the specific obligations under the conditional MA are fulfilled (such as the completion of certain ongoing or new trials) and the complete data confirm that the medicinal product’s benefits continue to outweigh its risks, the conditional MA can be converted into a standard MA. However, if the specific obligations are not fulfilled within the timeframe set by the EMA, the conditional MA may cease to be renewed. +An MA may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to provide comprehensive information or when generating data may be contrary to generally accepted ethical principles. Like a conditional MA, an MA granted in exceptional circumstances is reserved for medicinal products intended to be authorized for the treatment of rare diseases or unmet medical needs for which the applicant does not hold a complete data set that is required for the grant of a standard MA. While an MA under exceptional circumstances may be subject to an obligation to conduct post-approval studies, unlike the conditional MA, an applicant for authorization in exceptional circumstances is not required to provide the missing data on +37 +the medicinal product’s efficacy and safety necessary to convert the conditional MA into a standard MA. Subject to renewal after five years (as with all standard MAs), the MA “under exceptional circumstances” is granted definitively, but the risk-benefit balance of the medicinal product is reviewed annually and the MA can be withdrawn if the risk-benefit ratio is no longer favorable. +In addition to an MA, various other requirements apply to the manufacturing and placing on the EU market of medicinal products. Manufacture of medicinal products in the EEA requires a manufacturing authorization, and import of medicinal products into the EEA requires a manufacturing authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance. These requirements include compliance with EU GMP standards when manufacturing medicinal products and active pharmaceutical ingredients (“API”), including the manufacture of APIs outside of the EU with the intention to import the APIs into the EU. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws, regulations and guidelines, including good distribution practice standards and the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU member states. MA holders, manufacturing and import authorization (“MIA”) holders or distribution authorization holders may be subject to civil, criminal or administrative sanctions, including suspension of the MA, MIA or distribution authorization, in case of non-compliance with the EU or EU member states’ requirements applicable to the manufacturing, import and distribution of medicinal products. +EU Data and Market Exclusivity +The EU provides opportunities for data and market exclusivity related to MAs. Upon receiving an initial MA, innovative medicinal products that comprise a new active substance are entitled to eight years of data exclusivity and ten years of market exclusivity. Data exclusivity, if granted, prevents generic or biosimilar product manufacturers from referencing the innovator’s preclinical and clinical data in generic or biosimilar MAAs for eight years from the date of authorization of the innovative product, after which a generic or biosimilar MAA can be submitted, and the innovator’s data may be referenced. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until ten years have elapsed from the initial MA of the reference product in the EU. The overall ten-year period may, occasionally, be extended for a further year to a maximum of 11 years if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. However, there is no guarantee that an innovative medicinal product will be considered by the EU’s regulatory authorities to be a new active substance eligible for data and market exclusivity. These periods of data and market exclusivity may also be granted for a new MA for an existing active substance if the applicant is unrelated to the original MA holder and the MAA comprises a full free-standing dossier with relevant preclinical and clinical data. +In the EU, there is a special regime for biosimilars products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials regarding biosimilarity must be provided in support of an MAA. +In December 2025, the European Parliament and the Council of the European Union reached a provisional agreement to amend existing EU pharmaceutical legislation that will, among other things, alter the conditions and periods for data exclusivity available to MA holders when adopted into EU law. The final text of the new legislation is due to be released in early 2026 and expected transitional provisions mean that it will most likely apply from mid-2028. +EU Post-Approval Requirements +Where an MA is granted in relation to a medicinal product in the EU, the holder of the MA is required to comply with a range of regulatory requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. +Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission or the competent regulatory authorities of the individual EU member states. The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports (“PSURs”). +All new MAAs must include a risk management plan describing the risk management system the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety trials. +In the EU, the advertising and the promotion of medicinal products are subject to both EU and EU member states’ laws governing promotion of medicinal products, interactions with physicians and other healthcare professionals or organizations, misleading and comparative advertising and unfair commercial practices. Although the general requirements for the advertising and the promotion of medicinal products are established under EU directives, the details are governed by laws and regulations in each member state and can differ from one country to another. For example, applicable laws prohibit pre-authorization and misleading advertising and require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with an MA. The SmPC is the document that provides information to physicians concerning the safe and +38 +effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of prescription medicinal products is also prohibited in the EU. There is also a prohibition on the offer or supply of inappropriate inducements to prescribe, subject to exemptions in certain jurisdictions, such as benefits that are inexpensive and relevant to the practice of medicine. +Proposals to amend EU pharmaceutical laws +In December 2025, the European Parliament and the Council of the European Union reached a provisional agreement on legislation to amend the current EU pharmaceutical regulatory framework. The legislative reforms are intended to achieve a balance between supporting innovation and increasing the affordability and geographic availability of medicines. The text of the new legislation is due to be released in early 2026. Such legislation is likely to include altering the conditions and periods of marketing protections available for innovative products, requiring applicants to include environmental impact assessments in MAAs, increasing transparency and disclosure requirements, and restructuring the EMA’s scientific committees. Legislative changes are not expected to come into force until early 2026 and the expected transitional provisions mean that such changes will most likely apply from mid-2028. +Japanese Drug Regulation +Japan is a member of the ICH, and has pharmaceutical law and regulations that are similar in many respects those of the United States and the EU. Those requirements are embodied in the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (also known as the Pharmaceuticals and Medical Devices Act) and related cabinet orders, Ministerial ordinances, and guidelines. +Clinical trials of medicinal products in Japan must be conducted in accordance with Japanese regulations and the ICH GCP guidelines. If the sponsor of the clinical trial is not an entity within Japan, it must appoint a domestic entity to act as its agent and carry out obligations on the overseas sponsor’s behalf. The sponsor must hold a clinical trial insurance policy, and in accordance with industry practice, should establish a compensation policy for the injuries from the trial. +Prior to the commencement of human drug clinical trial, the sponsor must complete a preclinical safety evaluation of the investigative product and submit a clinical trial notification, including the clinical trial protocol, to the Ministry of Health Labor and Welfare’s PMDA. This notification must be submitted after obtaining agreement of the IRB in relevant clinical trial institution(s). If the authorities do not raise an issue or comment on the notification application within 30 days, the sponsor may proceed to conclude clinical trial agreement(s) with the site(s) and commence the clinical trial. +Any substantial changes to the trial protocol or other information submitted must be cleared by the IRB and notified to the authorities. Medicines used in clinical trials must be manufactured in accordance with Japan’s cGMPs. +Non-clinical studies performed to demonstrate the safety of new chemical or biological substance must be conducted in compliance with the principles of Japanese GLP which reflect the Organization for Economic Co-operation and Development (“OECD”) requirements. Currently, Japan and EU have a mutual recognition agreement for GLP, and data generated compliant with EU requirements will be accepted by the Japanese authorities. There is no similar agreement with the United States, but this is not a significant issue because of the OECD arrangement. +To market an innovative medicinal product in Japan, domestic or overseas applicant must obtain government approval (or marketing authorization) through a new drug application. If the product is designed for treating certain difficult diseases or those for which the patient population is limited and demonstrates unique therapeutic value, the applicant may be able to obtain designation as an orphan drug product. There are also expedited programs for (i) truly innovative products for grave diseases with a unique mechanism of action (provided that development in Japan is concurrent or ahead of other jurisdictions) and (ii) products that satisfy certain unmet medical needs. +The evaluation of new drug applications is based on PMDA’s assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. Once PMDA completes its review, the matter is considered by the advisory committee of experts, and the government grants approval upon any positive recommendation from the committee. If foreign data are part of the application, a dose response clinical trial for Japanese subjects may be required to ensure that data can be extrapolated to Japan’s population. +Separate from the approval requirement, it is also mandatory that the marketing authorization holder or its partner in Japan possess a drug marketing license. Companies in Japan that actually manufacture drugs must possess a drug manufacturing license, and overseas manufacturers must obtain a manufacturing certification. +People’s Republic of China (“PRC”) Drug Regulation +China heavily regulates the development, approval, manufacturing, and distribution of drugs, including biologics. For purposes of the below description of drug regulation in China, Hong Kong, Macao and Taiwan, which are governed by separate drug laws, are excluded. The regulatory requirements applicable depend, in part, on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval +39 +or “registration” category of the drug. For both imported and domestically manufactured drugs, China requires regulatory approval for a clinical trial application (“CTA”) to conduct clinical trials in China and submit China clinical trial data, prior to submitting an application for marketing approval. For imported drugs, the sponsor and marketing authorization holder must be an overseas company that, if the drug is already approved abroad, holds a marketing authorization in another country. +China also prioritizes review and approval of drugs and improvements to drugs (e.g., new indications, routes of administration) that have not yet been approved in any other jurisdiction (i.e., new to the world). In addition, China has created a set of expedited programs for drugs in high priority disease areas and drugs that more effectively treat life-threatening illnesses or that are needed for national emergencies. +The framework law in the drug space in China is the PRC Drug Administration Law (“DAL”). The DAL is implemented by various regulations and rules. The primary drug authority that regulates the life cycle of drugs is the NMPA. The NMPA has its own set of regulations, rules and guidelines further implementing the DAL. The rule governing CTAs, marketing approval, and post-approval amendment and renewal is known as the Drug Registration Regulation (“DRR”). +NMPA’s Center for Drug Evaluation (“CDE”) approves clinical trials and conducts the technical evaluation of each drug and biologic marketing application to assess safety and efficacy. Provincial-level medical products administrations help to enforce these rules, and issue entity licenses to domestic companies, such as drug manufacturing and distribution licenses. +The National Health Commission of the PRC (“NHC”) is China’s primary healthcare regulatory agency. It is responsible for regulating the health care system, including the licensure of medical institutions, which also serve as clinical trial sites, and credentialing of medical personnel. +PRC Breakthrough Therapy Designation by the NMPA +Among other expedited programs, China administers a Breakthrough Therapy Designation. To qualify, a drug must be new to the world, intended to treat a life-threatening disease or one that can seriously impact quality of life, and for which there is no existing therapy in China or a demonstrated substantial improvement over available therapies. Drugs that are designated as breakthrough therapies will receive priority in meeting scheduling, enhanced guidance from CDE to expedite drug development, and may also qualify for other expedited programs, such as priority review and conditional approval. +PRC Non-Clinical Research +The NMPA requires preclinical data to support registration applications for imported and domestic drugs. For domestic laboratories, NMPA oversees an accreditation program pursuant to China’s GLP. If the preclinical research is conducted outside of China, then the applicant must sign and submit a certification with its CTA and marketing application stating that such research was conducted in accordance with applicable good laboratory practice rules. +PRC Clinical Trials and Regulatory Approval +Upon completion of preclinical studies, a sponsor will often need to conduct clinical trials in China to support registration. The materials required for a clinical trial application are substantial even at the CTA stage, including detailed manufacturing information. Drug registration trials in China many only be conducted after obtaining approval of a CTA submitted to CDE, approval of the ethics committee at each accredited hospital site, and human genetic resource approval (“HGR”), which is required for the collection of samples and certain associated data. CTAs may be approved in 60 business days if there is no comment from CDE, and the other applications can take approximately 3-4 months each. Prior to consenting subjects, information about clinical trials must be registered on a CDE-administered platform and continually updated during the trial, and certain information, not including the protocol, is made publicly available on the platform. +PRC Trial Exemptions and Acceptance of Foreign Data +The NMPA may reduce requirements for clinical trials and data, depending on the drug and the existing data. In some cases, NMPA has granted waivers for certain phases of trials and has stated that it will accept data generated abroad (even if not part of a global study with a site in China), including early phase data, that meets its requirements. According to the Technical Guidance Principles on Accepting Foreign Drug Clinical Trial Data the data from foreign clinical trials must meet China’s authenticity, completeness, accuracy, and traceability requirements, and be obtained consistent with the relevant requirements under the China’s Drug GCP. Sponsors must be attentive to potentially meaningful ethnic differences in the subject populations. +PRC Clinical Trial Process and Good Clinical Practices +Pre-market drug clinical trials may have three phases, which can each require a CTA (unless one CTA covers all three). These clinical trials must be conducted in accordance with a protocol that NMPA, various ethics committees at different sites, and the Ministry of Science and Technology (which grants HGR approvals) all review as part of the aforementioned approvals, and in accordance with applicable drug rules, including China’s Drug GCP, issued jointly by NMPA and NHC. Trials must also be conducted at sites that have received credentials from the NHC and NMPA. +40 +China is a member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“International Council for Harmonisation”), so its GCP resemble the International Council for Harmonisation GCP in a great many respects. However, there are some differences. For example, under China’s GCP the sponsor must provide legal and economic guarantee to the investigator for clinical trial-related injuries, but harm or death caused by medical negligence is excluded. The drug rules contain procedures for amending the clinical trial approval, including obtaining approval for safety-related protocol amendments. NMPA (specifically, its Center for Food and Drug Inspections) has the power to audit trials and sites for GCP compliance during and after the clinical trial. +PRC Drug Marketing Application and Approval +Upon completion of the development process, the applicant may submit a marketing authorization application to CDE. CDE will organize pharmaceutical, medical, and other technical personnel to conduct a review of the safety, efficacy, and quality controllability of the drug based on the application materials submitted, and the results of a verification and inspection (if required). If NMPA decides to approve the drug based on CDE’s opinion, it will issue a drug registration certificate (i.e., a marketing authorization). A marketing authorization must be renewed every five years. +As the marketing authorization holder (“MAH”), a drug company is responsible for the life cycle of the product, including development, production and distribution, post-market trials, routine annual reporting, and safety monitoring and reporting of adverse drug reactions, among other obligations. The MAH may engage third parties to fulfill some of these obligations, such as appropriately-qualified manufacturers and distributors. If the MAH is overseas, as is required for imported drugs, the MAH must appoint an agent, which must be an entity in China that assists with meeting regulatory obligations. Marketing authorizations can be transferred to entities with the required capacity. +Both investigational and marketed drugs must be made in accordance with China GMPs. Domestic manufacturers must have a drug manufacturing license, and overseas manufacturers must certify that they will make drugs in accordance with GMP and meet their home country’s requirements. Drugs must be distributed in China by licensed drug distributors. +Competition +The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical companies, smaller biotechnology and specialty pharmaceutical companies and generic drug companies. Many of our potential competitors have greater financial and technical human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our potential competitors may be more successful than us in obtaining FDA-approved drugs and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete. +We believe the key competitive factors that will affect the development and commercial success of our obicetrapib product candidate, if approved, will be its enhanced LDL-lowering capability as a monotherapy or as a combination therapy, tolerability profile, convenience of oral dosing and availability of reimbursement from governmental and other third-party payors, and effect on other predictors of disease risk. +We are currently developing obicetrapib primarily for the treatment of patients at high cardiovascular risk with elevated levels of LDL-C as an adjunct to statins. If approved, obicetrapib would compete with approved non-statin treatments such as ezetimibe, Nexletol/Nexlizet and PCSK9 inhibitors such as Repatha, Praluent and Leqvio. We are also aware of two orally administered small molecule product candidates that target the PCSK9 protein as a mechanism to lower LDL-C and reduce the risk of ASCVD in various stages of clinical development. These consist of MK-0616 (Enlicitide) from Merck & Co., Inc, for which Merck released data from completed Phase 3 trials of adult patients with hypercholesterolemia in November 2025 and, if approved, has the potential to enter the U.S. market in 2026, and AZD0780 from AstraZeneca, which is being evaluated in an ongoing Phase 3 clinical trial. There are also a number of other product candidates in clinical development by third parties, such as Arrowhead Pharmaceuticals, CVI Pharmaceuticals, Innovent Biologics, Ionis Pharmaceuticals, Lib Therapeutics, Novartis, Novo Nordisk, Regeneron Pharmaceuticals, Verve Therapeutics and others, that are intended to treat ASCVD by lowering LDL-C and/or Lp(a). +Employees and Human Capital Resources +As of December 31, 2025, we had 100 employees, consisting of clinical, research and development, business development, regulatory, finance and operational personnel. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good. In addition, as of December 31, 2025, we engaged a total of 12 independent contractors. These independent contractors provide a diverse array of services, which includes assisting with our clinical development, manufacturing activities and regulatory obligations. +No Works Council or other employee representative body ( personeelsvertegenwoordiging ) is established within the Company or its subsidiaries. +41 +We recognize that our continued ability to attract, retain and motivate exceptional employees is vital to ensuring our long-term competitive advantage. Our employees are critical to our long-term success and are essential to helping us meet our goals. Among other things, we support and incentivize our employees in the following ways: +• +Talent development, compensation and retention : We strive to provide our employees with a rewarding work environment, including the opportunity for growth, success and professional development. We provide a competitive compensation and benefits package, including bonus and equity incentive plans and a 401(k) plan for US employees—all designed to attract and retain a skilled and diverse workforce. +• +Health and safety : We support the health and safety of our employees by providing comprehensive insurance benefits, company-paid holidays, a personal time-off program and other additional benefits which are intended to assist employees to manage their well-being. +• +Inclusion and diversity : We are committed to efforts to increase diversity and foster an inclusive work environment that supports our workforce. +Corporate Information +Our legal and commercial name is NewAmsterdam Pharma Company N.V. We were incorporated as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands on June 10, 2022, solely for the purpose of effectuating the Business Combination (as defined below). As part of the Business Combination, we converted our legal form to a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on November 21, 2022. The Company is registered with the Dutch Trade Register under number 86649051. The address of our registered office is Gooimeer 2-35 1411 DC Naarden, the Netherlands, and the telephone number of the Company is +31 (0) 35 206 2971. Our agent in the United States is our subsidiary, NewAmsterdam Pharma Corporation, a corporation organized under the laws of the State of Delaware. NewAmsterdam Pharma Corporation’s address is 20803 Biscayne Blvd, Suite #105, Aventura, Florida. +On November 22, 2022 (the “Closing Date”), we consummated a business combination pursuant to the Business Combination Agreement, dated as of July 25, 2022 (the “Business Combination Agreement”), by and among the Company, Frazier Lifesciences Acquisition Corporation, a Cayman Islands exempted company (“FLAC”), NewAmsterdam Pharma Holding B.V., and NewAmsterdam Pharma Investment Corporation, a Cayman Islands exempted company and wholly owned subsidiary of the Company (“Merger Sub”). +Beginning on the day immediately prior to the Closing Date and finishing on the day immediately after the Closing Date, the following transactions occurred pursuant to the terms of the Business Combination Agreement (collectively, the “Business Combination”): +• +The shareholders of NewAmsterdam Pharma Holding B.V. (“Participating Shareholders”) contributed all outstanding shares in the capital of NewAmsterdam Pharma Holding B.V. to the Company in exchange for the issuance of ordinary shares, nominal value €0.12 per share (the “Ordinary Shares”), in the share capital of the Company (the “Exchange”); +• +Immediately after giving effect to the Exchange, the Company’s legal form was converted from a Dutch private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) to a Dutch public limited liability company ( naamloze vennootschap ); +• +After giving effect to the Exchange, Merger Sub merged with and into FLAC (the “Merger”), with FLAC surviving the merger as a wholly owned subsidiary of the Company; +• +In connection with the Merger, each issued and outstanding ordinary share of FLAC was canceled and extinguished in exchange for a claim for an Ordinary Share, and such claim was then contributed into the Company against the issuance of a corresponding Ordinary Share; +• +Immediately following the Merger, each outstanding warrant to purchase a Class A ordinary share, par value $0.0001 per share, of FLAC became a warrant to purchase one Ordinary Share, on the same contractual terms; +• +Each NewAmsterdam Pharma Holding B.V. option that was outstanding and unexercised (“NewAmsterdam Pharma Options”) remained outstanding, and to the extent unvested, such option will continue to vest in accordance with its applicable terms, and at the time of the Exchange, such NewAmsterdam Pharma Options became options to purchase, and will when exercised be settled in Ordinary Shares; and +• +On the day following the Closing Date, FLAC changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and domesticated as a corporation incorporated under the laws of the State of Delaware (the “Domestication”). +Upon the achievement of a certain clinical development milestone, pursuant to the Business Combination Agreement, in March 2025 we issued to the Participating Shareholders (including Saga Investments Coöperatief U.A. (“Amgen”), an affiliate of Amgen, Inc., and Mitsubishi Tanabe Pharma Corporation (“MTPC”) for this purpose) and holders of NewAmsterdam Pharma Options prior to the closing of the Business Combination, who were directors, officers, employees or consultants of NewAmsterdam Pharma Holding B.V. as of the date of the Business Combination Agreement and who were at the time of achievement of such milestone providing services to the Company or its subsidiaries (the +42 +“Participating Optionholders”), 1,886,137 additional Ordinary Shares (the “Earnout Shares”), which in the case of the Participating Optionholders took the form of awards of 143,001 restricted stock units (the “Earnout RSUs”) in the aggregate under the LTIP. +Prior to the Business Combination, we did not conduct any material activities other than those incident to our formation and certain matters related to the Business Combination, such as the making of certain required securities law filings. Upon the closing of the Business Combination, NewAmsterdam Pharma Holding B.V. became our direct, wholly owned subsidiary, and holds all of our material assets and conducts all of our business activities and operations. +Available Information +Our website address is www.newamsterdampharma.com . Our website and information included in or linked to our website are not part of this Annual Report on Form 10-K. We file reports with the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Our website also includes our Annual Report on Form 20-F and information furnished on Form 6-K filed while we were a foreign private issuer. 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+_________________________ +FORM 10-K +_________________________ +(Mark One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ___________to ___________ +Commission file number: 001-41535 +_________________________ +ZYMEWORKS INC. +(Exact name of registrant as specified in its charter) +_________________________ +Delaware +88-3099146 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification Number) +108 Patriot Drive — Suite A +Middletown , Delaware 19709 +(Address of principal executive offices, including zip code) +Registrant’s telephone number, including area code: ( 302 ) 274-8744 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.00001 par value per share ZYME The Nasdaq Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None +_________________________ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒ +The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common shares on the last business day of its most recently completed second fiscal quarter, as reported on the Nasdaq Stock Market LLC, was approximately $ 488.1 million. +The number of outstanding shares of common stock of the registrant, $0.00001 par value per share, as of March 3, 2025 was 69,576,883 . +DOCUMENTS INCORPORATED BY REFERENCE +None . +Table of Contents +ZYMEWORKS INC. +FORM 10-K +For the Fiscal Year Ended December 31, 2024 +Table of Contents +PART I +7 +Item 1. +Business +7 +Item 1A. +Risk Factors +30 +Item 1B. +Unresolved Staff Comments +77 +Item 1C . +Cybersecurity +77 +Item 2. +Properties +78 +Item 3. +Legal Proceedings +79 +Item 4. +Mine Safety Disclosures +79 +PART II +80 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +80 +Item 6. +Reserved +81 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operation +82 +Item 7A. +Quantitative and Qualitative Disclosure About Market Risk +93 +Item 8. +Financial Statements and Supplementary Data +94 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +135 +Item 9A. +Controls and Procedures +135 +Item 9B. +Other Information +135 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +135 +PART III +136 +Item 10. +Directors, Executive Officers and Corporate Governance +136 +Item 11. +Executive Compensation +142 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +162 +Item 13. +Certain Relationships and Related Transactions and Director Independence +165 +Item 14. +Principal Accounting Fees and Services +168 +PART IV +168 +Item 15. +Exhibits, Financial Statement Schedules +169 +Item 16. +Form 10-K Summary +173 +SIGNATURES +174 +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K includes “forward-looking statements” or information within the meaning of applicable securities legislation, including Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements can often be identified by the use of terminology such as “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to, statements about: +• the size of our addressable markets and our ability to commercialize product candidates; +• the achievement of advances in and expansion of our therapeutic platforms and antibody engineering expertise; +• the likelihood of product candidate development and clinical trial progression, initiation or success; and +• our ability to predict and manage government regulation. +All forward-looking statements, including, without limitation, those related to our examination of historical operating trends, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include: +• our ability to manage our growth effectively; +• the absence of material adverse changes in our industry or the global economy; +• our ability to understand and predict trends in our industry and markets; +• our ability to enter into and maintain good business relationships with our strategic partners; +• our ability to comply with current and future regulatory standards; +• our ability to protect our intellectual property rights; +• our continued compliance with third-party license terms and the non-infringement of third-party intellectual property rights; +• our ability to manage and integrate any acquisitions we may pursue; +• our ability to retain key personnel; and +• our ability to raise sufficient debt, equity, or non-dilutive financing to support our continued growth. +We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those referred to in the section titled “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements: +• our or our partners’ ability to obtain regulatory approval for product candidates without significant delays; +• the predictive value of our current or planned clinical trials; +• delays with respect to the development and commercialization of our product candidates, which may cause increased costs or delay receipt of product revenue; +• our or any of our partners’ ability to enroll subjects in clinical trials and thereby complete trials on a timely basis; +• the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States; +• our ability to achieve milestones and receive associated milestone payments and royalties pursuant to the terms of our collaboration agreements, including the Amended Jazz Collaboration Agreement (as defined below); +3 +Table of Contents +• the extent to which our business may be adversely affected by pandemics or other health crises; +• global economic and political conditions, including as a result of the Russian invasion of Ukraine and the conflicts in Israel and the broader Middle East, a s well as social and political unrest in the locations where our clinical trials are held, and the related impact on our business and the markets generally; +• unanticipated tax consequences in connection with the Redomicile Transactions (as defined below); +• the Fast Track and Breakthrough Therapy designations for any of our product candidates may not expedite regulatory review or approval; +• the U.S. Food and Drug Administration (the “FDA”) may not accept data from trials we conduct outside the United States; +• disruptions at the FDA and other government agencies caused by funding shortages, global health concerns or the change in Presidential administration; +• our discretion to discontinue or reprioritize the development of any of our product candidates; +• the potential for our product candidates to have undesirable side effects; +• no regulatory agency has made a determination that any of our product candidates are safe or effective for use by the general public or for any indication; +• our ability to face significant competition, including biosimilar products; +• the likelihood of broad market acceptance of our product candidates; +• our ability to obtain Orphan Drug Designation or exclusivity for some or all of our product candidates; +• our ability to commercialize products outside of the United States; +• the outcome of reimbursement decisions by third-party payors relating to our products; +• our expectations with respect to the market opportunities for any product that we or our strategic partners develop; +• our ability to pursue product candidates that may be profitable or have a high likelihood of success; +• our ability to use and expand our therapeutic platforms to build a pipeline of product candidates; +• our ability to meet the requirements of ongoing regulatory review; +• the threat of product liability lawsuits against us or any of our strategic partners; +• changes in product candidate manufacturing or formulation that may result in additional costs or delay; +• the potential disruption of our business and dilution of our shareholdings associated with acquisitions and joint ventures; +• the potential for foreign governments to impose strict price controls; +• the risk of security breaches and incidents or data loss, which could compromise sensitive business or health information; +• current and future legislation that may increase the difficulty and cost of commercializing our product candidates; +• economic, political, regulatory and other risks associated with international operations; +• our exposure to legal and reputational penalties as a result of any of our current and future relationships with various third parties; +• our ability to comply with export control and import laws and regulations; +• our history of significant losses since inception; +• our ability to generate revenue from product sales and achieve profitability; +• our requirement for substantial additional funding; +• the potential dilution to our stockholders associated with future financings; +• restrictions on our ability to seek financing, which may be imposed by future debt; +• unstable market and economic conditions; +4 +Table of Contents +• currency fluctuations and changes in foreign currency exchange rates; +• our ability to maintain existing and future strategic partnerships; +• our ability to realize the anticipated benefits of our strategic partnerships; +• our ability to secure future strategic partners; +• our or a third party’s ability to successfully develop any companion diagnostic tests for our product candidates without significant delays; +• our reliance on third-party manufacturers to produce our product candidate supplies and on other third parties to monitor and transport bulk drug substance and drug product; +• our reliance on third parties to oversee clinical trials of our product candidates and, in some cases, maintain regulatory files for those product candidates; +• risks related to the manufacture of product candidates and difficulties in production; +• our reliance on third parties for various operational and administrative aspects of our business including our reliance on third parties’ cloud-based software platforms; +• our reliance on the performance of independent clinical investigators and contract research organizations (“CROs”); +• our ability to operate without infringing the patents and other proprietary rights of third parties; +• our ability to obtain and enforce patent protection for our product candidates and related technology; +• our patents could be found invalid or unenforceable if challenged; +• our intellectual property rights may not necessarily provide us with competitive advantages; +• we may become involved in expensive and time-consuming patent lawsuits; +• the risk that the duration of our patents will not adequately protect our competitive position; +• our ability to obtain protection under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”) and similar foreign legislation; +• we may be unable to protect the confidentiality of our proprietary information; +• our ability to comply with procedural and administrative requirements relating to our patents; +• the risk of claims challenging the inventorship of our patents and other intellectual property; +• our intellectual property rights for some of our product candidates are dependent on the abilities of third parties to assert and defend such rights; +• patent reform legislation and court decisions can diminish the value of patents in general, thereby impairing our ability to protect our products; +• we may not be able to protect our intellectual property rights throughout the world; +• we will require FDA approval for any proposed product candidate names and any failure or delay associated with such approval may adversely affect our business; +• our election to rely on certain reduced reporting and disclosure requirements available to smaller reporting companies may make our common stock less attractive to investors; +• the risk of employee misconduct including noncompliance with regulatory standards and insider trading; +• our ability to market our products in a manner that does not violate the law and subject us to civil or criminal penalties; +• if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected; +• our ability to retain key executives and attract and retain qualified personnel; +• our ability to manage any organizational growth; +• our exposure to potential securities class action litigation; and +• if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline. +5 +Table of Contents +Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by law. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. +In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. +We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Our registered trademarks include Azymetric, Zymeworks, ZymeCAD, EFECT, ZymeLink and the phrase “Building Better Biologics”. The other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this Annual Report on Form 10-K are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames. +We express all amounts in this Annual Report on Form 10-K in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars. +Unless the context otherwise requires or otherwise expressly states, all references in this Annual Report on Form 10-K to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until the Redomicile Transactions, refer to Zymeworks BC Inc. and its subsidiaries and (ii) for periods after the Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries . +6 +Table of Contents +PART I +Item 1. Business +Overview +Zymeworks is a clinical-stage biotechnology company developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases such as cancer, autoimmune and inflammatory diseases (“AIID”). Zymeworks’ complementary therapeutic platforms and fully integrated drug development engine provide the flexibility and compatibility to precisely engineer and develop highly differentiated antibody-based therapeutic candidates from preclinical candidate screening through to registrational clinical trials. +We believe our strategic development priorities position us as thought leaders in our therapeutic areas of interest, driven by a patient-centric approach, scientific innovation, and operational excellence. Our research and development strategy centers on three key pillars: +• Target Selection: Our data-driven target strategy is informed by target expression, target biology (including internalization rate), tumor biology, clinical precedence and differentiation to prior therapeutic programs. For example, mesothelin (“MSLN”), folate receptor-⍺ (“FR⍺”) and sodium-dependent phosphate transporter 2b (“NaPi2b”) are each expressed at higher levels than other targets pursued in ovarian cancer or non-small cell lung cancer (“NSCLC”). +• Therapeutic Modality: By utilizing our proprietary platforms and in-house expertise, we have the ability to take a modality-agnostic approach to drug development for our selected targets. We are therefore able to tailor the therapeutic modality – whether antibody drug conjugates (“ADCs”), bispecific T cell engagers (“TCEs”), or trispecific T cell engagers (“TriTCEs”) – with the goal of maximizing efficacy for each target. +• Patient-Centric: We integrate patient needs and biological diversity into every stage of development, helping to ensure that our therapies have the potential to improve both survival outcomes and quality of life. As we advance our mission, we aim to deliver life-changing therapies while creating value for all stakeholders. +Our protein engineering expertise and proprietary structure-guided molecular modeling capabilities enable our therapeutic platforms. Together with our access to both internal and external antibody discovery and generation technologies, we have established a fully integrated drug development engine and toolkit capable of rapidly delivering a steady pipeline of next-generation product candidates in oncology and AIID. +Our first internally developed product candidate, zanidatamab, is a novel bispecific antibody that targets two distinct domains of the human epidermal growth factor receptor 2 (“HER2”). Through rigorous scientific investigation, innovative protein engineering, and our proprietary Azymetric bispecific platform technology, we developed the unique binding mechanism of zanidatamab which enables it to bind to two extracellular sites on HER2. Zanidatamab’s unique binding properties result in multiple mechanisms of action that may enable it to address unmet need in patient populations with HER2-expressing cancers. We have entered into separate agreements with BeiGene, Ltd. (“BeiGene”) and Jazz Pharmaceuticals Ireland Limited (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”), granting to each of BeiGene and Jazz exclusive rights to develop and commercialize zanidatamab in different territories. Zanidatamab is currently being evaluated in multiple global clinical trials as a potential best-in-class treatment for patients with HER2-expressing cancers. +The FDA granted accelerated approval of Ziihera® (zanidatamab-hrii) 50mg/mL for injection for intravenous use for the treatment of adults with previously-treated, unresectable or metastatic HER2-positive (“HER2+”) (IHC 3+) second-line biliary tract cancer (“BTC”). Ziihera® is the first and only dual HER2-targeted bispecific antibody approved for HER2+ BTC in the U.S. A Biologics License Application (“BLA”) submitted by our partner, BeiGene, has also been accepted for review by the Center for Drug Evaluation (the “CDE”) of the National Medical Products Administration (the “NMPA”) in China, and the European Medicines Agency (the “EMA”) has validated our partner Jazz’s marketing authorization application for zanidatamab in second-line BTC. With initial uptake in BTC in the United States, we look forward to reporting on the outcomes of pending regulatory actions in the European Union and China as early as 2Q-2025 with our partners Jazz Pharmaceuticals and BeiGene, as well as the top-line results from the HERIZON-GEA-01 study of Ziihera® expected in 2H-2025. Zanidatamab is also under development for multiple HER2-expressing indications. For additional information regarding these agreements with BeiGene and Jazz, see the section titled “Strategic Partnerships and Collaborations” below.  +7 +Table of Contents +Wholly-Owned Pipeline +Our wholly-owned programs include novel ADC and multispecific antibody therapeutics (“MSAT”) candidates, such as TCEs, focusing on highly-expressed targets which provide opportunities for benchmarking in preclinical development and expected clinical differentiation. Our ADC candidates exploit our proprietary topoisomerase 1 inhibitor (“TOPO1i”) payload, ZD06519, while exploring alternate mechanisms of action for longer-term development and leveraging validated peptide-cleavable linkers and stochastic conjugations. With potential for enhanced activity compared to combination therapy, our current MSAT candidates are developed with 2+1 bispecific or trispecific (with co-stimulation or checkpoint inhibition) TCE engineering. These approaches are designed to optimize tumor cell engagement and enhance T cell activation to increase anti-tumor activity while also minimizing cytokine release and off-tumor toxicities. +Solid Tumors in Oncology: Antibody Drug Conjugates (ADCs) +ZW191: A clinical-stage ADC that targets FRα-expressing tumors including ovarian cancer, endometrial cancer, and NSCLC, is built using our novel, bystander active, TOPO1i payload technology, ZD06519. The FRα-targeting monoclonal antibody incorporated in ZW191 was selected based on compelling internalization characteristics to enable targeting of high, mid, and low levels of FRα expression. A drug-antibody-ratio (“DAR”) of eight was selected due to the restricted expression profile of FRα in normal tissues and to enhance our ability to deliver payload to tumors with lower levels of FRα. FRα is a clinically validated target, found in approximately 75% of high-grade serous ovarian carcinomas, 50% of endometrial cancers, and in 70% of NSCLC. Preclinical data demonstrate strong ZW191 activity across a range of FRα-expressing patient-derived xenografts, including models with low levels of FRα. The ability to target lower levels of FRα is in part due to the DAR-eight format and the observed superior internalization, payload delivery, and tissue penetration derived from the ZW191 monoclonal antibody compared to other FRα monoclonal antibodies used in ADCs currently or previously in development. In a good laboratory practices (“GLP”) toxicology study, ZW191 achieved a highest non-severely toxic dose (“HNSTD”) in non-human primates of 60 mg/kg, which presents a compelling profile and enables the expectation of potentially achieving an efficacious dose level in the Phase 1 clinical trial. We are optimistic about the prospects of ZW191 and we believe the design features and preclinical profile support the potential of ZW191 to target cancers with lower levels of FRα. This would allow ZW191 to potentially unlock efficacy for both ovarian cancer patients who are unable to receive Elahere, as it is only approved in FRα-high platinum-resistant ovarian cancer (“PROC”), and other indications including endometrial and NSCLC which typically express lower levels of FRα. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW191, registered under NCT06555744 on clinicaltrials.gov. The study aims to enroll 145 participants with advanced solid tumors, including ovarian, endometrial, and non-small cell lung cancers, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW191. +ZW251: A potential first-in-class ADC molecule designed for the treatment of glypican 3 (“GPC3”)-expressing hepatocellular carcinoma (“HCC”), incorporates the same Zymeworks proprietary bystander-active TOPO1i payload utilized in ZW191 (anti-FRα) and ZW220 (anti-NaPi2b), ZD06519. The GPC3-targeting monospecific antibody incorporated in ZW251 was selected based on favorable binding and internalization properties to enable targeting of a range of GPC3-expressing tumors. A DAR of four was selected for this program as a lower DAR potentially could unlock a broader range of dose levels, a potential benefit as HCC patients are commonly challenged by impairment of liver function as a result of chronic liver disease and cirrhosis. GPC3, a glycosylphosphatidylinositol (“GPI”)-anchored cell surface oncofetal antigen, is over-expressed in most HCC patients (>75%), and displays minimal normal adult tissue expression, making it an appealing ADC target. In preclinical studies, anti-tumor activity for ZW251 was observed in multiple patient-derived xenograft models of HCC reflecting a range of GPC3 over-expression. In non-GLP non-human primate studies, ZW251 was tolerated at doses up to 120 mg/kg, suggesting the potential for high doses in humans. We are encouraged by published research demonstrating the potential of targeting GPC3 with an antibody in HCC patients as evidenced by tumor localization of iodine radio-labeled condrituzumab, a clinical-stage anti-GPC3 monoclonal antibody, and believe that ADC-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC. We expect to submit an IND to commence Phase 1 clinical studies for ZW251 by mid-2025, with equivalent non-U.S. applications to be submitted thereafter. +ZW220: An ADC that targets NaPi2b-expressing NSCLC and ovarian cancer, is built, like ZW191, using our proprietary bystander active TOPO1i payload technology, ZD06519. The strong and persistent bystander effect of the ZD06519 payload that we have observed in preclinical studies may help overcome NaPi2b heterogeneity across different cancers. The NaPi2b-targeting monospecific antibody incorporated in ZW220 was selected based on a favorable binding profile and enhanced internalization properties to enable targeting of both Napi2b-high and NaPi2b-low expressing tumors. Distinct from ZW191, ZW220 utilizes a DAR-four format paired with mutations in the fragment crystallizable (“Fc”) region to attenuate binding to Fc-gamma family receptors. These features were incorporated in ZW220 with the goal of minimizing potential toxicities associated with expression of NaPi2b in normal lung tissue. NaPi2b is expressed in approximately 83% of ovarian (serous) +8 +Table of Contents +cancer, 81% of endometrial cancer, and 77% of adenocarcinoma NSCLC. Preclinical data demonstrate that ZW220 is active in models of ovarian cancer and NSCLC with strong anti-tumor activity observed in patient-derived xenograft models and growth inhibition observed in three-dimensional spheroid models. ZW220 is tolerated at high doses in non-GLP animal studies with a maximum tolerated dose (“MTD”) ≥90 mg/kg in non-human primates and ≥200 mg/kg in rats, suggesting the potential for high doses in humans. NaPi2b is a compelling ADC target, and we believe the design of ZW220 may overcome some of the challenges encountered with other NaPi2b-targeted ADCs, including Lifa-V, UpRi, and XMT-1592, and may potentially provide a safe and meaningful benefit to patients with NaPi2b-expressing tumors. We have made the decision to pause the preparations for the commencement of a Phase 1 study of ZW220 to help facilitate the accelerated development of ZW251. However, we believe ZW220 remains a highly differentiated, IND-ready asset with strong clinical, commercial, and partnership potential. +Solid Tumors in Oncology: Multispecific Antibody Therapeutics (MSATs) +ZW171: A clinical-stage multispecific antibody built using our Azymetric platform, is a novel 2 + 1 format TCE targeting MSLN-expressing cancers. ZW171 has a unique geometry, with two single-chain fragment variable arms targeting MSLN and one Fab arm targeting the cluster of differentiation 3 protein (“CD3”) component of the T cell receptor, to redirect the body’s natural immune system to fight cancer cells. Preclinical data demonstrated in vivo anti-tumor activity, with engagement in high-expressing cells but not low-expressing cells, mitigating the risk of on-target, off-tumor toxicities. MSLN has strong expression in ovarian cancer (~84%), with moderate to strong expression in NSCLC (~36%), making it an appealing target for therapeutic development with our proprietary TCE technology. In preclinical studies, ZW171 has demonstrated potent preferential killing of tumor cells expressing relatively medium to high thresholds of MSLN while sparing cell line models representative of normal tissue MSLN expression, demonstrating reduced potential for on-target-off tumor toxicity. Incorporation of a low affinity anti-CD3 binding domain further mitigates the risk of peripheral T cell activation and cytokine release syndrome. Preclinical data demonstrated that ZW171 exhibits greater anti-tumor activity compared to benchmark in MSLN-expressing tumor models and is well tolerated in cynomolgus monkeys up to 30 mg/kg. We are actively recruiting patients in the global Phase 1, open-label, multicenter study of ZW171, registered under NCT06523803 on clinicaltrials.gov. The study aims to enroll 160 adult patients with advanced MSLN-expressing cancers in North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW171. +ZW209: A novel TriTCE targeting Delta-like ligand 3 (“DLL3”)-expressing tumor cells, is designed using our clinically validated Azymetric and EFECT platforms. By leveraging obligate cis-T cell binding and conditional cluster of differentiation 28 (“CD28”) engagement, this potentially first-in-class molecule has been designed to prevent unintended T cell activation, while enabling tumor-targeted cytotoxicity. The innovative design has demonstrated differentiated long-term cytotoxicity in vitro at low E:T (effector to target) ratios, with enhanced T cell proliferation and survival, offering significant potential to increase durability of responses in DLL3-expressing cancers. We expect to submit an IND to commence Phase 1 clinical studies for ZW209 in 1H-2026, with equivalent non-U.S. applications to be submitted thereafter. +Autoimmune and Inflammatory Diseases (AIID) +ZW1528: Our first program in AIID, is a novel IL-4R⍺ x IL-33 bispecific molecule designed to address respiratory inflammation such as mixed-type chronic obstructive pulmonary disease (“COPD”) by inhibiting multiple pathways. By blocking three cytokines (IL-4, IL-13 and IL-33) in a single biologic, ZW1528 offers a unique approach to inhibit clinically validated pathways. The bispecific antibody is designed to provide complete, prolonged IL-4R⍺ blockade with simultaneous blockade of IL-33. Based on non-clinical in vitro studies, the bispecific can independently suppress IL-13, IL-4 and IL-33 driven cell signaling equivalent to that achieved with anti-IL-4R⍺ monoclonal antibody (“mAb”) or anti-IL-33 clinical benchmarks mAbs. Furthermore, in preclinical studies, ZW1528-mediated blockade of cytokine-driven activation of human epithelial cells was superior to that achieved with mAbs targeting either IL-4R⍺ or IL-33, indicating potential benefits of dual blockade. Additionally, preclinical studies with human peripheral blood mononuclear cells (“PBMCs”) demonstrate ZW1528 provides blockade of IL-33 mediated effects beyond that achievable with an anti-IL33 benchmark mAb. With native Immunoglobulin G (“IgG”)-like geometry, ZW1528 demonstrates the potential for high manufacturability and incorporates half-life extending Fc modifications. We expect to submit an IND to commence Phase 1 clinical studies for ZW1528 in 2H-2026, with equivalent non-U.S. applications to be submitted thereafter. +Continued Pipeline Development +We continue to develop and advance additional product candidates in multiple different product formats for selected therapeutic indications in solid tumors, hematological cancers, and AIID, with further potential IND applications in 2027 and beyond. With +9 +Table of Contents +these candidates, we intend to continue innovating with increased novelty in targets and unique mechanisms of action through bispecific or biparatopic ADCs, dual-payload ADCs, multi-specific immune cell engagers and immune-oncology.  +Our Proprietary Therapeutic Platforms +Our expertise in protein engineering has enabled the development of our proprietary therapeutic platforms, a complementary suite of highly tailored biologics solutions. Our therapeutic platforms can be used alone or in combination to develop multifunctional fit-for-purpose biotherapeutics with bispecific capabilities (Azymetric), targeted cytotoxin payload delivery and linker technologies (drug conjugate platforms), finely tuned immune function modulation (EFECT), and tumor-specific immune co-stimulation (ProTECT). The modular design and ease of use of our therapeutic platforms allow for the design and evaluation of multiple candidates with different formats to determine the optimal therapeutic combination early in development. We continue to leverage these therapeutic platforms to expand our pipeline of next-generation multispecific and ADCs that we believe could represent significant improvements to the standard of care in multiple cancer types and other serious diseases. +Azymetric Multispecific Antibody Platform +The Azymetric multispecific antibody platform is our foundation platform, which can produce either the backbone of our ADCs or be the base of our multispecific therapeutics that can be combined with both our TriTCE technology and our ProTECT platform to develop potential best-in-class trispecifics. The FDA approval of zanidatamab in 2024 provides validation of our proprietary Azymetric technology and capabilities for design and development of novel medicines. The Azymetric platform consists of a library of proprietary amino acid substitutions that enable the transformation of monospecific antibodies into bispecific or trispecific antibodies, which gives them the ability to simultaneously bind two non-overlapping epitopes. The Azymetric platform enables the development of biotherapeutics with dual-targeting of receptors/ligands and simultaneous blockade of multiple signaling pathways, increasing tumor-specific targeting and efficacy while reducing toxicities and the potential for drug resistance. In preclinical studies, the dual targeting of Azymetric antibodies has demonstrated synergistic activity relative to the application of an equivalent dose of the corresponding monospecific antibodies. Azymetric multispecifics can also be engineered to enhance internalization of the antibody into the tumor cell and consequently increase the delivery of cytotoxins. Azymetric multispecifics retain the desirable drug-like qualities of monoclonal antibodies, including long half-life, stability and low immunogenic potential, which increases their probability of success. Azymetric multispecifics are also compatible with standard manufacturing processes with high production yields and purity. +The Azymetric platform is the foundation for the development of trispecific and trivalent antibodies. Our complementary suite of technologies can incorporate multiple targets and mechanisms of action within a single antibody-based therapeutic. To achieve efficacy and durability in a difficult tumor microenvironment, we have developed a TriTCE strategy that integrates checkpoint inhibition (“TriTCE-CPI”) and costimulatory technologies (“TriTCE-costim”). TriTCE-CPI technology is designed to navigate suppressive tumor microenvironments and enhance the activity of TCEs through incorporation of a checkpoint pathway binder to restore and enhance T cell engagement and overcome secondary resistance to provide durable responses. TriTCE-costim technology can increase T cell fitness, activation and proliferation via tumor-dependent T cell co-stimulation. Further, TCE technologies can integrate with ProTECT, a technology built to mask an antibody arm to improve selectivity to minimize off-target, and mitigate on-target, adverse events. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including both topoisomerase and microtubulin inhibiting toxins), stable linkers, and conjugation technologies that are compatible with and complementary to our product candidates and enable delivery of cytotoxins directly to target cells. We believe that our platforms provide multiple competitive advantages over existing ADC approaches, including optimized activity and tolerability profiles through increased drug delivery to target cells with reduced off-target effects, as well as improved pharmacokinetics and stability. Our drug conjugate platforms can be used in conjunction with our other therapeutic platforms to potentially increase safety and efficacy as compared to existing ADC platforms. +Our TOPO1i ADC platform is one of several proprietary Zymeworks linker-payload platforms. TOPO1i-based technologies have shown meaningful clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets. Our novel camptothecin ZD06519 (FD1) has been specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-7 and C-10 positions of the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug-linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a free molecule and as an antibody conjugate, which include moderate free payload potency (~1 nanomolar +10 +Table of Contents +(“nM”)), low hydrophobicity, strong bystander activity, robust plasma stability, and high-monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive efficacy in multiple cell-derived xenograft models and noteworthy tolerability in healthy mice, rats, and non-human primates. +EFECT Antibody Effector Function Modulation Platform +The EFECT platform consists of sets of modifications to the Fc region of antibodies that enable the selective modulation of recruited cytotoxic immune cells for diverse therapeutic applications. This allows us to rationally tailor the selective enhancement or suppression of immune effector function to optimize product candidates. +ProTECT Tumor-Specific Immune Co-stimulation Platform +The ProTECT platform is a novel conditionally active antibody technology that can simultaneously increase the tolerability and efficacy for therapeutics, thereby potentially enhancing therapeutic window and clinical utility. Functional, natural immunomodulatory heterodimers are introduced to sterically block antigen binding outside the tumor, enabling therapeutics with limited activity in normal healthy tissue, avoiding on-target, off-tumor toxicities. Once in the tumor microenvironment, specific proteases cleave and release one half of the functional block activating both the targeting antibody and the immunomodulatory function. The resulting activated multifunctional therapeutic enables immune modulation in concert with antigen binding, which enables an overall increase in the therapeutic window through selective tumor activity and enhanced potency. +Strategic Partnerships and Collaborations +Our novel product candidates, together with our combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutics. +Thr ough c ollaboration agreements with Jazz and BeiGene relating to our programs for zanidatamab and zanidatamab zovodotin, we have received $446.0 million through December 31, 2024 in the form of non-refundable upfront payments and milestone payments. In addition, through these partnerships with Jazz and BeiGene with respect to zanidatamab, as of December 31, 2024, we remain eligible to receive up to $1.55 billion in potential regulatory, development and commercial milestone payments, as well as tiered royalties on potential future product sales, pending receipt of applicable regulatory approvals. These partnerships have provided us with a significant source of non-dilutive funding and provide for additional future funding for our lead asset, zanidatamab. These partnerships also leverage our partners’ commercial infrastructure, helping accelerate the development and expanding the potential reach of our lead product candidates. +Product Partnerships +Jazz +In October 2022, we entered into a license and collaboration agreement with Jazz (“Original Jazz Collaboration Agreement”; as amended in April 2023, “Amended Jazz Collaboration Agreement” and collectively with the Original Jazz Collaboration Agreement, the “Jazz Collaboration Agreement”). Under the Jazz Collaboration Agreement, Jazz is solely responsible for all development and commercialization rights for zanidatamab throughout the world, excluding existing Asia-Pacific territories (other than Japan) already governed by Zymeworks BC’s agreement with BeiGene (“Territory”). +As part of our collaboration, we granted to Jazz certain exclusive and non-exclusive licenses, under our intellectual property, to research, develop, manufacture, and commercialize pharmaceutical products containing or incorporating zanidatamab or certain related antibodies excluding ADCs (such antibodies, collectively, “Licensed Antibodies”, and such pharmaceutical products, “Licensed Products”). +Jazz also granted us certain licenses, under Jazz’s intellectual property, to develop, commercialize, and manufacture the Licensed Antibodies and Licensed Products including to make and have made such antibodies for incorporation into zanidatamab zovodotin for development and commercialization purposes. +11 +Table of Contents +During the Term (as defined below), Jazz and its affiliates are prohibited from performing any clinical development of, or commercialization of, any pharmaceutical product containing a bispecific antibody directed to the ECD2 and ECD4 domains of HER2 in the Territory, other than Licensed Products. During the Term, Zymeworks BC and its affiliates are prohibited from (i) performing any preclinical development (except for certain independent, internal preclinical development by Zymeworks BC or its affiliates) or clinical development of, or commercializing, any pharmaceutical product that is directed to HER2 in the Territory (each, a “Zymeworks Competing Product”), other than Licensed Products and (ii) using clinical data resulting from certain clinical trials regarding zanidatamab that were being conducted or initiated by Zymeworks BC (the “Program”) to perform any pre-clinical development or clinical development, or commercialization of, any pharmaceutical product that is directed to HER2; provided that zanidatamab zovodotin is excluded from each restriction. Zymeworks BC retains the right to grant third parties rights to apply any of Zymeworks BC’s platforms to derive or generate, without any assistance from Zymeworks BC, antibodies directed to any biological target where Zymeworks BC is not aware of the identity of any such target, and Zymeworks BC retains the right to fulfill its obligations under agreements with its existing platform partners; provided, however, that Zymeworks BC cannot generate, or grant development or commercialization licenses to, Zymeworks Competing Products in new platform-based agreements entered into after the effective date of the Original Jazz Collaboration Agreement. +Jazz is required to use commercially reasonable efforts to develop and obtain regulatory approval for a Licensed Product in certain major market countries for the treatment of certain diseases. Jazz will be the holder of regulatory approvals and regulatory submissions for Licensed Products in the Territory. +Zymeworks BC will continue to supply zanidatamab and Licensed Product to certain clinical sites pursuant to the terms of the Jazz Collaboration Agreement. +Jazz shall be solely responsible for commercializing the Licensed Products in the Territory and use commercially reasonable efforts to commercialize in each specified major market country each Licensed Product that obtains regulatory approval in such country. Jazz shall conduct such commercialization at its sole cost and expense. +Under the Jazz Collaboration Agreement, as of December 31, 2024 we have received (i) a non-refundable $50.0 million upfront payment following receipt of HSR Clearance and delivery of licenses and technology transfer to Jazz and (ii) a further payment of $325.0 million following Jazz’s decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01, in addition to our delivery of other data, analyses and other information. As of December 31, 2024, we were also eligible to receive up to an aggregate of $525.0 million in certain regulatory milestones payments and up to an aggregate of $862.5 million in potential commercial milestone payments. As a result of the FDA’s approval of Ziihera®, $ 25.0 million of regulatory milestone revenue was recognized in November 2024, and we received this $25.0 million milestone payment in the first quarter of 2025. W e are eligible to receive tiered royalties between 10% and 20% on annual net sales of Licensed Products in the Territory, with customary reductions in specified circumstances. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country basis until the latest of (i) ten years after the first commercial sale of such Licensed Product in such country, (ii) the expiration of the last valid licensed patent claim within the licensed Zymeworks BC intellectual property covering such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity of such Licensed Product in such country. +The term of the Amended Jazz Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the royalty term for such Licensed Product in such country (the “Term”). The Amended Jazz Collaboration Agreement contains customary termination rights for Jazz and us, including the right for Jazz to terminate the agreement in its sole discretion with advance notice to us. We may also terminate the Amended Jazz Collaboration Agreement if Jazz or its affiliates file or initiate a patent challenge against us. +In May 2023, we also entered into a stock and asset purchase agreement with Jazz Pharmaceuticals, Inc. ( “ Jazz Inc. ” ) (as amended, the “Transfer Agreement”) to provide for a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz Inc. by transferring certain assets, contracts and employees associated with the clinical trials for zanidatamab to Jazz Inc. and its affiliates. +Pursuant to the Transfer Agreement, at the closing thereunder , (i) Jazz acquired from Zymeworks Biopharmaceuticals Inc. ( “ ZBI ”) 100% of the issued and outstanding capital stock of Zymeworks Zanidatamab Inc. ( “ ZZI ”, a subsidiary of ZBI); (ii) Jazz engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and the Company transferred to Jazz or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that worked on the Program; (iii) Jazz and its affiliates acquired from Zymeworks BC and ZBI and their affiliates the Acquired Assets (as defined in the Transfer Agreement); and (iv) Jazz and its affiliates assumed certain liabilities arising following the closing under the Transfer Agreement related to the Acquired Assets and the Program, including with respect to the transferred service providers, in each case subject to the terms and conditions of the Transfer Agreement. No shares of the Company’s common stock were sold by the Company or acquired by Jazz Inc. and its affiliates in connection with such transactions under the Transfer Agreement. +12 +Table of Contents +BeiGene +In November 2018, we entered into agreements with BeiGene whereby we granted BeiGene royalty-bearing exclusive licenses for the research, development, and commercialization of zanidatamab and zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia, and New Zealand (such agreement relating to z anidatamab, as amended, the “Zanidatamab Agreement,” and such agreement relating to zanidatamab zovodotin, the “Zovodotin Agreement”). In September 2023, Zymeworks BC and BeiGene entered into a termination agreement relating to the Zovodotin Agreement (the “Termination Agreement”). +For the research, development and commercialization licenses to zanidatamab and zanidatamab zovodotin, we received an upfront payment of $40.0 million. Under the Zanidatamab Agreement, as of December 31, 2024 we have received milestone payme nts of $31.0 million, including an $8.0 million milestone payment received from BeiGene in July 2024 in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC. As of December 31, 2024, we remain eligible to receive development and commercial milestone payments of u p to $164.0 million, together with tiered royalties of up to 19.5% of net sales in BeiGene territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit million s of dollars. +Under the Zanidatamab Agreement, Zymeworks and BeiGene are collaborating on certain global clinical studies and both Zymeworks and BeiGene will independently conduct other clinical studies in their own respective territories. Each of Zymeworks and BeiGene are responsible for all of the development and commercialization costs in their own territories. Unless earlier terminated, the Zanidatamab Agreement will terminate on a licensed product-by-product and country-by-country basis upon the expiration of the royalty term in such country for such licensed product. The Zanidatamab Agreement may be terminated by BeiGene upon prior written notice or by either party upon the other party’s bankruptcy or uncured material breach. +As noted above, the Zovodotin Agreement was terminated under the Termination Agreement. The Termination Agreement does not relieve us or BeiGene from obligations under the Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeiGene intellectual property with respect to zanidatamab zovodotin. +Platform Partnerships +In addition to the payments we have received through our collaboration agreements with Jazz and BeiGene relating to zanidatamab and zanidatamab zovodotin, as of December 31, 2024, we have received approximately $183.5 million in the form of non-refundable upfront and milestone payments from platform partnership and collaboration agreements. We continue to have revenue-generating strategic partnerships and collaborations with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms with the following pharmaceutical companies: Celgene Corporation and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company, “BMS”), GlaxoSmithKline Intellectual Property Development Limited (“GSK”), Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”), Janssen Biotech, Inc. (“Janssen”), and Merck Sharp & Dohme Research GmbH (“Merck”). As of December 31, 2024, we remain eligible to receive up to $1.03 billion in preclinical and development milestone payments and up to $3.08 billion in commercial milestone payments, as well as tiered royalties on potential future product sales, pending regulatory approval. It is possible, however, that our strategic partners’ programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets using our platforms. +13 +Table of Contents +The table below summarizes the stage of each of our platform partners’ most advanced publicly disclosed program. +BMS +In December 2014, we entered into a collaboration agreement with Celgene (now BMS) to research, develop and commercialize bispecific antibodies generated through the use of our Azymetric platform. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. Under the terms of the agreement, we granted BMS a right to exercise options to worldwide, royalty-bearing, antibody sequence pair-specific exclusive licenses to research, develop and commercialize certain licensed products. We received an upfront payment of $8.0 million and an expansion fee of $4.0 million . As of December 31, 2024, BMS had exercised one commercial license option and we received a $7.5 million option payment, but in 2023 BMS stopped development of such program. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period . As at December 31, 2024, BMS remains eligible to exercise its one remaining option, and we remain eligible to receive up to $320.5 million for the two remaining programs (or $164.0 million not including the one program for which BMS stopped development in 2023), comprised of a commercial license option payment of $7.5 million for the one remaining program, development milestone payments of up to $101.5 million per program, and commercial milestone payments of up to $55.0 million per program. In addition, we are eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +In June 2020, our existing collaboration agreement with BMS was amended to expand the license grant to include the use of our EFECT platform for the development of therapeutic candidates and to extend the research term. We received an upfront expansion fee of $12.0 million and all other financial terms were unchanged. +The agreement contains customary termination rights for BMS and us, including the right of BMS to terminate the agreement in its entirety or on a product-by-product basis in its sole discretion with advance notice to us. The agreement will terminate on a product-by-product and country-by-country basis upon the later of the expiration of the last-expiring patent related to the BMS licensed product, or ten years after the first commercial sale of the BMS licensed product in such a country. If BMS does not exercise its option for the commercial license, the agreement will terminate on a product-by-product basis for which the option was not exercised. +GSK +In December 2015, we entered into a collaboration and license agreement with GSK to research, develop and commercialize up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of our EFECT and Azymetric platforms. Under the terms of the agreement, we granted GSK a worldwide, royalty-bearing antibody target-exclusive license to new intellectual property generated to the EFECT platform under this collaboration and a non-exclusive license to the Azymetric platform to research, develop and commercialize future licensed products. We are eligible to receive up to $1.1 billion, including research, development and commercial milestone payments of up to $110.0 million for each product. In addition, we are eligible to receive tiered royalties in the low single digits on net sales of products. No development or commercial milestone payments or royalties have been received as of December 31, 2024. We retained the right to develop up to four products, free of royalties, using the new intellectual property generated in this collaboration, and after a period of time, to grant licenses to such intellectual property for development of additional products by third parties. Under this agreement, we are sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. After the conclusion of the research period, each party will be solely responsible for the further research, development, manufacturing and commercialization of its own respective +14 +Table of Contents +products. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate on the earlier of (i) the end of the research period if GSK does not elect to advance one or more products incorporating intellectual property generated under the research period for further research and development or (ii) on a product-by-product and country-by-country basis upon the latter of the product being no longer covered by a patent related to the GSK licensed product, or ten years after the first commercial sale of the GSK licensed product in such a country. +In April 2016, we entered into a platform technology transfer and license agreement with GSK to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. Under the terms of this 2016 agreement, we granted GSK a worldwide, royalty-bearing antibody sequence pair-specific exclusive license to research, develop and commercialize licensed products. In May 2019, this agreement was expanded to provide GSK access to Zymeworks’ unique heavy-light chain pairing technology under the Azymetric platform. Under the expanded agreement, we are eligible to receive up to $1.1 billion in milestone and other payments. As of December 31, 2024, we have received an upfront technology access fee payment of $6.0 million and a milestone payment of $2.5 million in relation to a sequence pair nomination by GSK. As of December 31, 2024, we remain eligible to receive research milestone payments of up to $35.0 million, development milestone payments of up to $182.5 million and commercial milestone payments of up to $867.0 million. In addition, we are eligible to receive tiered royalties in the low to mid-single digits on product sales. GSK bears all responsibility and costs associated with research, development and commercialization of products generated using the Azymetric platform. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. Termination provisions allow for GSK to terminate the agreement or specific antibody sequence pairs due to an incurable material breach by us, and under specific conditions, GSK shall have certain rights to continue the research, development, and commercialization of products with their license payment, milestone, and royalty obligations reduced by 50%. +Daiichi Sankyo +2016 Agreement +In September 2016, we entered into a collaboration and cross-license agreement (“Collaboration and Cross License Agreement”) with Daiichi Sankyo to research, develop and commercialize one bispecific antibody generated through the use of our Azymetric and EFECT platforms. Under this agreement, we received an upfront technology access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million. Under this agreement, w e also gained non-exclusive rights to develop and commercialize up to three products (revised to up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies, with royalties in the low single digits to be paid to Daiichi Sankyo on sales of such products. +In March 2023, we entered into a termination and license agreement (the “Termination and License Agreement”) relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the Termination and License Agreement, we granted to Daiichi Sankyo a non-exclusive, worldwide, royalty-free right and license, with the right to sublicense, to certain intellectual property to perform additional research in accordance with the terms of the Termination and License Agreement during the term of the Termination and License Agreement, which is from February 28, 2023 until the earlier of (i) the day that we receive written notice from Daiichi Sankyo confirming that Daiichi Sankyo has completed such additional research and (ii) August 27, 2025, unless earlier terminated (including by advance written notice to us from Daiichi Sankyo). The Termination and License Agreement has no impact on our separate license agreement with Daiichi Sankyo, which we entered into in 2018, as described below. +2018 Agreement +In May 2018, we entered into a license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of our Azymetric and EFECT platforms. This agreement did not alter or amend the initial 2016 agreement. Under the terms of this 2018 agreement, we granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $484.7 million in various milestone and other payments. As of December 31, 2024, we have received an upfront technology access fee payment of $18.0 million, and we remain eligible to receive development milestone payments totaling up to $63.4 million and commercial milestone payments of up to $170.0 million. In addition, we are eligible to receive tiered royalties ranging from the low single digits up to 10% on product sales. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for +15 +Table of Contents +Daiichi Sankyo and us, including the right for Daiichi Sankyo to terminate the rights to our therapeutic platforms in its sole discretion with advance notice to us. The agreement shall terminate, with respect to Daiichi Sankyo’s licenses, on a product-by-product basis, with the last payment obligation for the respective product. +Janssen +In November 2017, we entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric and EFECT platforms. Under the terms of the agreement, we granted Janssen a worldwide, royalty-bearing, antibody sequence group-specific exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $1.45 billion in various license and milestone payments. As of December 31, 2024, we have received an upfront payment of $50.0 million and development milestones totaling $8.0 million in connection with the initiation of clinical trials of two bispecific antibodies. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. As a result, we remain eligible to receive development milestone payments of up to $86.0 million and commercial milestone payments of up to $373.0 million ($43.0 million and $186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). In addition, we are eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. Janssen has the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to buy down the royalty relating to such product by one percentage point with a payment of $10.0 million. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on Janssen’s performance. Janssen is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for Janssen and us, including the right for Janssen to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate, on a product-by-product basis, on the expiry of the royalty term for the product. +Other Collaborations - Merck +We have collaborated with Merck since 2011. In July 2020, we entered into a new licensing agreement with Merck granting Merck a worldwide, royalty- bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field usin g our Azymetric and EFECT platforms. We are eligible to receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +Intellectual Property +Our business success will depend significantly on our ability to: +• secure, maintain and enforce patent and other proprietary protection for our core technologies, inventions and know-how; +• obtain and maintain licenses to key third-party intellectual property owned by such third parties; +• preserve the confidentiality of our trade secrets; and +• operate without infringing upon valid, enforceable third-party patents and other rights. +We seek to secure and maintain patent protection for the composition of matter, manufacturing processes and methods of use for our drug candidates and for our underlying protein engineering capabilities and therapeutic platforms including Azymetric, EFECT, ZymeCAD and ProTECT. We also utilize trade secrets, careful monitoring and limited disclosure of our proprietary information where patent protection is not appropriate. We also protect our proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and assignment of inventions prior to their engagement. We intend to continue to expand our intellectual property holdings by seeking patent protection for new compositions of matter, new features and applications of our core therapeutic platforms, and innovative new therapeutic platforms, in the United States and other jurisdictions. We also intend to supplement internal innovation through in-licensing of new technologies and compositions of matter as appropriate. We intend to take advantage of any available data exclusivity, market exclusivity, patent term adjustment and patent term extensions. +We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we identify any such disclosures, evaluate them and take appropriate courses of action. +16 +Table of Contents +As of December 31, 2024, our patent portfolio includes more than 40 patent families related to our therapeutic antibody product (zanidatamab), our preclinical and clinical stage product candidates, and our therapeutic platform technologies. As of December 31, 2024, from these patent families we have more than 260 issued patents, 36 of which are U.S. patents. Additional patent families in our patent portfolio relate to other earlier stage potential product candidates or platforms that we do not consider material to our business at this time. +Therapeutic Antibody Portfolio +Our therapeutic antibody patent portfolio is directed to specific compositions of matter, methods of using and compositions used in manufacturing our approved products and product candidates . +Approved Product +Zanidatamab: As of December 31, 2024, we own U.S. and foreign patents and patent applications directed to compositions of matter of zanidatamab, compositions used in the manufacture of zanidatamab, and methods of using zanidatamab. Issued patents and patent applications, if granted, directed to compositions of matter of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to compositions used in the manufacture of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to methods of using zanidatamab are anticipated to expire between 2034 and 2042, absent any patent term adjustments or extensions. +Zanidatamab is also protected by our patent families directed to Azymetric Fc, as described below. +Clinical Stage Product Candidates +ZW191: As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW191, compositions used in the manufacture of ZW191, and methods of using ZW191. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW191 is also protected by a patent family directed to our TOPO1i technology. +ZW171: As of December 31, 2024, we own patent applications filed in the United States and internationally under the Patent Cooperation Treaty (“PCT”) directed to compositions of matter of ZW171, compositions used in the manufacture of ZW171, and methods of using ZW171. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW171 is also protected by patent families relating to Azymetric Fc. +L ead Preclinical Product Candidates +ZW251: As of December 31, 2024, we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW251 and methods of using ZW251. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW251 is also protected by a patent family directed to our TOPO1i technology. +ZW209: As of December 31, 2024, we own U.S. provisional patent applications directed to compositions of matter of ZW209, compositions used in the manufacture of ZW209, and methods of using ZW209. If converted to non-provisional applications and granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. +ZW1528: As of December 31, 2024, we own U.S. provisional patent applications directed to compositions of matter of ZW1528, compositions used in the manufacture of ZW1528 and methods of using ZW1528. If converted to non-provisional applications and granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. +ZW220: As of December 31, 2024, we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW220, compositions used in the manufacture of ZW220, and methods of using ZW220. If granted, these patent applications are anticipated to expire between 2043 and 2044, absent any patent term adjustments or extensions. ZW220 is also protected by a patent family directed to our TOPO1i technology. +Therapeutic Platform Technology Portfolio +Our therapeutic platform technology portfolio includes biological formats and variants thereof, including the Azymetric platform, our drug conjugate platforms (including our TOPO1i technology), the EFECT platform, and specific applications, manufacturing methods and assays related to the platform constructs and underlying computational chemistry. +17 +Table of Contents +Azymetric +We own patents and patent applications relating to the Azymetric platform for engineering Fc and Fab constructs for the development of bispecific antibodies. +Azymetric Fc: As of December 31, 2024, we own U.S. and foreign patents and patent applications directed to our Azymetric Fc platform. Patents and patent applications, if granted, directed to compositions of matter of engineered antibody Fc regions, methods of engineering antibody Fc regions to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fc regions are expected to expire between 2031 and 2033, absent any adjustments or extensions. +Azymetric Fab : As of December 31, 2024, we own U.S and foreign patents and patent applications directed to our Azymetric Fab platform. Patents and patent applications, if granted, directed to compositions of matter, methods of engineering antibody Fabs to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fabs are expected to expire between 2033 and 2036 absent any adjustments or extensions. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including TOPO1i), stable linkers, and conjugation technologies that are compatible with and complementary to our antibody product candidates and enable delivery of cytotoxins directly to target cells. +TOPO1i Platform: As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to novel TOPO1i compounds (including ZD06519), TOPO1i-linker compositions and antibody-TOPO1i conjugates. If granted, these patent applications are expected to expire in 2042, absent any adjustments or extensions. +EFECT +As of December 31, 2024, we own U.S and foreign patents and patent applications directed to engineering Fc constructs with modulated FcγR-binding and Fc effector function, including compositions of matter and methods of making Fc constructs with altered FcγR-binding and Fc effector function, and compositions of matter and methods of making Fc constructs that lack FcγR-binding. These patents and patent applications, if granted, are expected to expire between 2031 and 2042, absent any adjustments or extensions. +ProTECT +As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter, methods of making and methods of using conditionally active antibody constructs comprising immunomodulatory ligands and their cognate receptors derived from the immunoglobulin superfamily (such as PDL1 and PD1) fused to the antibody variable heavy and light chain region termini. If granted, these patent applications are expected to expire in 2041, absent any adjustments or extensions. +Computational Chemistry +As of December 31, 2024, we own U.S and foreign patents and patent applications directed to computational and algorithmic advances incorporated into our ZymeCAD TM platform, including advances in general molecular modeling, conformational dynamics, docking, distal mutations, and molecular packing, as well as parallelization and graphical data analysis. These patents and patent applications, if granted, are expected to expire between 2026 and 2042, absent any adjustments or extensions. +Technology Licensing and In-Licensed Intellectual Property +Daiichi Sankyo +As noted above under “ Strategic Partnerships and Collaborations – Platform Partnerships – Daiichi Sankyo – 2016 Agreement, ” in September 2016, we entered into the Collaboration and Cross License Agreement with Daiichi Sankyo under which we gained non-exclusive rights to develop and commercialize up to three products (up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies. In March 2023, we entered into the Termination and License Agreement relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration +18 +Table of Contents +and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products, such as ZW171 and ZW209, using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the surviving terms of the Collaboration and Cross License Agreement , pending receipt of regulatory approval, we may be required to make future low single-digit royalty payments on the net sales of such products. +Phanes +In November 2021, we entered into a lic ense agreement with Phanes Therapeutics, Inc. (“Phanes”). Phanes granted Zymeworks an exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable, royalty-bearing license to research, develop, commercialize, and otherwise exploit certain antibody products incorporating proprietary Phanes binders in the field of oncology. In December 2023, this license agreement was partially terminated only with respect to a specific set of such products. All other rights and obligations under this license agreement remain in full force and effect. +Under the license agreement, we may be required to make future payments to Phanes upon the direct achievement of certain clinical development milestones for products, such as ZW251, that incorporate certain Phanes intellectual property. In addition, subject to receipt of regulatory approval, we may be required to make future payments to Phanes upon direct achievement of certain commercial milestones and certain sales milestones, as well as up to low single-digit royalty payments on net sales of such products. +ProBioGen +In February 2016, we entered into a master services and master license agreement with ProBioGen AG ( “ ProBioGen ” ). ProBioGen provided certain development and manufacturing services and granted us a non-exclusive, worldwide, sublicensable license to research, develop, manufacture and commercialize our product candidates (which include Ziihera® (zanidatamab-hrii)) using ProBioGen’s platforms, including their proprietary GlymaxX technology for generating afucosylated antibodies. This license includes certain additional non-exclusive patent rights sub-licensed by ProBioGen. Licensing terms include preclinical, clinical and commercial milestones. In connection with the first commercial sale of Ziihera®, we expect to pay to ProBioGen €3.95 million for achievement of the first commercial sale milestone. In addition, subject to achievement of certain commercial sales thresholds of Ziihera®, we are required to make additional future payments to ProBioGen. +Chugai +In June 2020, we entered into a patent license agreement with Chugai Pharmaceuticals Co., Ltd (“Chugai”). Chugai granted Zymeworks a non-exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable license under certain patents to research, develop, manufacture and commercialize certain antibody products covered by such patents. Under the license agreement, we are required to pay an immaterial annual fee for so long as there is a valid claim within the licensed patents covering certain antibody products. +Manufacturing +We rely on third-party contract manufacturing organizations to provide manufacturing, linker-toxin conjugation, and fill-finish services in order to generate all of the therapeutic antibody supply required for our clinical studies and other research and development activities. To retain focus on our expertise in developing new product candidates, we do not currently plan to develop or operate in-house manufacturing capacity. Our multispecific therapeutic antibody and ADC candidates require standard chemistry, manufacturing and control (“CMC”) processes typical of those required for monoclonal antibody manufacturing. We therefore expect to continue to be able to develop product candidates that can be manufactured in a cost-effective fashion by our network of qualified third-party contract manufacturing organizations. +Through our contract manufacturing organizations, we currently have sufficient supply of our product candidates to carry out ongoing and planned preclinical studies. For zanidatamab, we also have sufficient current good manufacturing practices (“cGMP”)-grade supply to continue ongoing clinical trials. Our strategic partners are responsible for the commercial manufacture of zanidatamab. For our clinical stage product candidates, we have sufficient cGMP-grade supply to complete our ongoing clinical trials. For ZW251, our preclinical stage product candidate for which we expect to submit an IND in mid-2025, we expect to have sufficient cGMP-grade supply, through additional manufacturing runs, to commence clinical trials. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty +19 +Table of Contents +pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may be able to access rare families and identify targets before we do. +Many of the companies against which we compete or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, recruiting patients for clinical trials, and by acquiring technologies complementary to, or necessary for, our programs. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience and price, the effectiveness of alternative products, the level of competition and the availability of coverage, and adequate reimbursement from government and other third-party payors. +Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products. +Zanidatamab is being developed for patients with solid tumors that express HER2, including patients with tumors expressing low levels of HER2. Competing approved HER2-targeted therapies include F. Hoffmann-La Roche Ltd.’s Herceptin, Perjeta, Phesgo, and Kadcyla as well as Novartis Pharmaceuticals Corporation’s Tykerb, Puma Biotechnology, Inc.’s Nerlynx, AstraZeneca PLC / Daiichi Sankyo’s Enhertu, Seagen Inc.’s Tukysa, MacroGenics, Inc.’s Margenza, Jiangsu HengRui Medicine Co., Ltd.’s Pyrotinib, Pfizer’s disitamab, Alphamab’s anbenitamab, BioNTech’s trastuzumab pamirtecan, Boehringer’s Zongertinib, Bayer’s BAY2927088 and various trastuzumab biosimilars, as well as other candidates in late-stage development. +ZW191 is being developed for patients with solid tumors that express FRα. Competing approved FRα -targeted therapies include ImmunoGen/AbbVie’s Elahere. ADCs under development include Sutro’s Luveltamab tazevibulin, Eisai’s Farletuzumab ecteribulin, Coherent Bio’s CBP-1008, Bio-Thera’s BAT8006, ProfoundGenmab’s PRO1184, AstraZeneca’s AZD5335, Eli Lilly’s MBK-103, Multitude’s AMT-151 and ImmunoGen/AbbVie’s IMGN151. +ZW171 is being developed for patients with solid tumors that express MSLN. TCEs under development include Amgen’s AMG 305, Janssen’s JNJ-79032421, RemeGen’s RC88, and Light Chain Bio’s NI-1801. +ZW251 is being developed for patients with solid tumors that express GPC3. Competing GPC3-targeted ADCs include Lepu/Miracogen’s MRG006 and BioCity’s BC2027. Alternative approaches targeting GPC3 include cell therapies, TCEs, radioconjugates and monoclonal antibodies exemplified by AstraZeneca’s AZD5851 (C-CAR031), Legend Biotech’s LB2101, Sotio’s BOXR1030, Eureka Therapeutics’ ECT204, CARsgen’s CT011; AstraZeneca’s AZD9793 & Keymed’s CM350; BMS’ RYZ801; and Roche’s codrituzumab. +The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our product candidates are effective. No regulatory agency has made any such determination that any of our product candidates are effective for use by the general public for any indication. +Government Regulation +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our ADC product candidates are comprised of both a drug product and a biologic +20 +Table of Contents +product, and will therefore be subject to regulation in the United States as combination products. If marketed individually, each component would be subject to different regulatory pathways and would require approval of independent marketing applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our ADCs, we believe that the primary mode of action is attributable to the biologic component of the product. Thus, our product candidates are regulated as therapeutic biologics, with the FDA’s Center for Drug Evaluation and Research having primary jurisdiction over premarket development. Our antibody therapeutics, including MSATs, are regulated as biologics by the FDA. +Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local and foreign statutes and regulations. Our product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. +U.S. Biological Products Development Process +The process required by the FDA before a biologic may be marketed in the United States generally involves the following: +• completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests and preclinical animal trials and applicable requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations, including GLP; +• submission to the FDA of an IND application, which must become effective before human clinical trials may begin; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as current good clinical practice (“cGCP”) regulations and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or noncompliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. +• submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity; +• potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and +• FDA review and approval, or licensure, of the BLA. +Human clinical trials are typically conducted in sequential phases that may overlap or be combined: +• Phase 1. The biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labelling. +During all phases of clinical development, regulatory agencies require extensive reporting, monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. +A sponsor, an institutional review board (“IRB”) or independent ethics committee, the FDA or other regulatory or monitoring authorities may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk, failure to conduct the clinical trial in accordance with regulatory +21 +Table of Contents +requirements or clinical protocols, failure to demonstrate a benefit from using the investigational drug, changes in government regulations or administrative actions. +Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to submit a summary of the results of their clinical trials after completion of a trial, unless an extension or a certification permitting delayed submission is obtained from the government. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the biological product. When a BLA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed. Upon accepting the BLA for filing, the FDA will conduct an in-depth review of the BLA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the product candidate. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed. +The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. In particular, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track designated products, sponsors may have a higher number of interactions with the FDA and may be eligible for “rolling review” where review of sections of a Fast Track product’s New Drug Application or BLA is initiated before the full New Drug Application or BLA application is complete. The FDA has granted two Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing gastroesophageal adenocarcinomas (“GEA”) in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. +The FDA also may designate a product as a Breakthrough Therapy if it is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically important endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as a Breakthrough Therapy, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products designated as a Breakthrough Therapy by the FDA can also be eligible for accelerated approval. The FDA has granted Breakthrough Therapy designation for zanidatamab in HER2 gene-amplified BTC patients who have received prior systemic chemotherapy. In December 2022, the Consolidated Appropriations Act, 2023, including the Food and Drug Omnibus Reform Act (“FDORA”), was signed into law. FDORA made several changes to the FDA’s authorities and its regulatory framework, including, among other changes, reforms to the accelerated approval pathway, such as requiring the FDA to specify conditions for post-approval study requirements and setting forth procedures for the FDA to withdraw a product on an expedited basis for non-compliance with post-approval requirements. +Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at a company’s request or by the FDA’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug or other elements to assure safe use, depending on what the FDA considers necessary for the safe use of the drug. +Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and cGCP requirements. +22 +Table of Contents +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the applicant interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor (for example, requiring labeling changes) or major (for example, requiring additional clinical trials). Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States at the time of the request for orphan designation. If a sponsor demonstrates that a drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants Orphan Drug Designation to the product for that use. The FDA has granted zanidatamab Orphan Drug Designation for the treatment of BTC and GEA. +The benefits of Orphan Drug Designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. However, the FDA Reauthorization Act, which was enacted in 2017, requires, among other things, that certain orphan drugs for cancer be tested for children. The government has also increased focus on the potential misuse of the orphan drug approval process to increase the price of orphan drugs. +In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition. In January 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the agency will continue tying the scope of orphan drug exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain approval of a drug for new uses or indications within the same orphan designated disease or condition that have not yet been approved. It is unclear how future litigation, legislation, agency decisions, and administrative actions will impact the scope of the orphan drug exclusivity. +Further, in June 2024, the U.S. Supreme Court overruled the Chevron doctrine, which gives deference to regulatory agencies’ statutory interpretations in litigation against federal government agencies, such as the FDA, where the law is ambiguous. This Supreme Court decision may invite various stakeholders to bring lawsuits against the FDA to challenge longstanding decisions and policies, which could lead to uncertainties in the industry. Changes in the leadership of the FDA and other federal agencies under the new Presidential administration may lead to new policies and changes in the regulations that may impact our clinical development plans. +Post-Approval Requirements +Even if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with cGMP. Adverse events reported after approval of a drug can result in additional restrictions on the use of a marketed product or requirements for additional post-marketing studies or clinical trials. +23 +Table of Contents +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP requirements. Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacture or promotion of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as significant administrative, civil or criminal sanctions. +Biosimilars and Exclusivity +The 2010 Patient Protection and Affordable Care Act (“PPACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. +Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as the first interchangeable for biologic products. +Canadian Review and Approval Process +In Canada, our biologic product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the rules and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and government review and approval of experimental results prior to giving approval to sell drug products, including biologic drug products. Regulators also typically require that rigorous and specific standards such as cGMP, GLP and cGCP are followed in the manufacture, testing and clinical development, respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. +The principal steps required for drug approval in Canada are as follows: +Preclinical Toxicology Studies and Clinical Trials +Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance with applicable laws and GLP. +In Canada, the process of conducting clinical trials with a new drug cannot begin until a Clinical Trial Application (“CTA”) is submitted and the required number of days has lapsed without objection from Health Canada. Biological drugs carry additional risks, as compared to traditional small-molecule drugs, associated with complexity and variability in manufacturing that can contribute to increased lot-to-lot variation of the final product, and with the potential for adventitious agents. Therefore, the content requirements for the quality information for biological drugs to be used in clinical trials are different from those for standard small-molecule pharmaceutical drugs (for example, the inclusion of information on manufacturing facilities is required for biological drugs). In addition, it is necessary to have more stringent controls on the release of biologic drug lots used in authorized clinical trials. +24 +Table of Contents +Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards (“REBs”), instead of IRBs, are used to review and approve clinical trial plans. Human clinical trials are typically conducted in three sequential phases, as discussed above in the context of government regulation in the United States. +The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into Canada are also subject to regulation by Health Canada relating to their labeling and distribution. Progress reports detailing the results of the clinical trials must generally be submitted at least annually to Health Canada and/or the applicable REBs, and more frequently if serious adverse events occur. +New Drug Submission +Upon successful completion of Phase 3 clinical trials, the company sponsoring a new drug then assembles all the preclinical and clinical data and other testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission (“NDS”). The NDS is then reviewed by Health Canada for approval to market the drug. +The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Biologic drugs, such as our candidates, differ from standard small-molecule drugs in that applicants must include more detailed chemistry and manufacturing information. This is necessary to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired microorganism. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Health Canada may not grant approval of an NDS on a timely basis, or at all. +Even if Health Canada approves a product candidate, it may limit the approved indications for use of the product candidate, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms. +Biologic products in particular are monitored post-approval by being placed on a lot-release schedule tailored to their potential risk, manufacturing, testing and inspection history as of the date of this report. With higher-risk biologics, each lot is tested before being released for sale in Canada. Moderate-risk biologics are periodically tested at the discretion of Health Canada while manufacturers of low-risk biologics usually only need to contact Health Canada regarding lots being sold or for providing certification of complete and satisfactory testing. Products are carefully scrutinized before they are placed in any level of the lot-release process, and the testing regime for a biologic may be altered at any time. On December 17, 2022, the Minister of Health in Canada published proposed amendments to the Food and Drug Regulations, and several of the amendments relate to biologic drugs. The purpose of the amendments is to modernize the biologics regulatory regime by repealing outdated requirements and replacing them with those that reflect current safety practices. Proposed amendments include enabling Health Canada to require certain labelling statements for safety reasons on a case-by-case basis, and clarifying the Minister’s authority to consider information or material obtained during on-site evaluations. Other proposed amendments include clarifying the record retention expectations for market authorization holders, and providing a general framework to minimize the potential for contamination of drugs, active ingredients and biological source material between processes. The proposed amendments are still in draft form. +Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing, product labeling or regulatory notification may be required. +Canadian Biosimilars and Exclusivity +The term biosimilar is used by Health Canada to describe a biologic drug that enters the market subsequent to a version previously authorized in Canada and with demonstrated similarity to a reference biologic drug. Accordingly, a biosimilar (previously known in Canada as a subsequent entry biologic or SEB) will in all instances be a subsequent entrant onto the Canadian market. +Based on Health Canada guidance documents, a biosimilar can rely in part on prior information regarding safety and efficacy that is deemed relevant due to the demonstration of similarity to the reference biologic drug and which influences the amount +25 +Table of Contents +and type of original data required. Generic drugs are chemically derived products that are pharmaceutically equivalent to innovative drugs, whereas biosimilars are products of a biologic nature that are similar to innovative biologics. According to Health Canada, it is not currently possible to demonstrate that two biologic drugs are pharmaceutically equivalent, and therefore the regulatory approval process for generics and biosimilars is different: biosimilars are approved using the standard NDS pathway with some allowances made for reduced safety and efficacy information set out in guidance documents, while generic drugs are approved using an abbreviated new drug submission pathway set out in guidance and law. In part because it continues to be set out only in guidance and not law, the pathway for receiving biosimilar approval is somewhat in flux and subject to some uncertainty. +As discussed above, all biosimilars enter the market subsequent to a biologic drug product previously approved in Canada and to which the biosimilar is considered similar. As such, biosimilars are subject to existing laws and regulations outlined in the Patented Medicines (Notice of Compliance) Regulations and the Food and Drug Regulations , and related guidance documents. +Similar to the Hatch-Waxman Amendments in the United States, Canada has the Patented Medicines (Notice of Compliance) Regulations, which require a company that files a drug submission that references a patented product to address any relevant patents listed on the Patent Register prior to being able to receive approval from Health Canada. The Canadian regime is similar to the U.S. regime, but a number of distinctions do exist. +Like the United States, Canada also has data protection in addition to patent protection, but again differences exist between the two jurisdictions. For example, Canada’s data protection applies to “innovative drugs” (i.e., a drug that contains a medicinal ingredient not previously approved in a drug by the Minister of Health and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph) and, where it exists, lasts for eight years in most (but not all) circumstances. In general biologics can be considered innovative drugs but biosimilars are not. +Additional Regulation +In addition to the foregoing, provincial, state and federal U.S. and Canadian laws regarding environmental protection and hazardous substances affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +Government Regulation Outside of the United States and Canada +In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. +Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the EU, in January 2022, the Clinical Trials Regulation (CTR) repealed the Clinical Trials Directive (EC) No. 2001/20/EC and national implementing legislation in the EU Member States. The CTR harmonizes the processes for assessment and supervision of clinical trials throughout the EU. From January 2023 onwards, clinical trial sponsors must apply to start a new clinical trial via the Clinical Trials Information System (CTIS), and beginning January 2025, any trials approved under the Clinical Trials Directive that continue running need to comply with the CTR and their sponsors must have recorded information on them in CTIS. National regulators in the EU Member States and EU/EEA countries use the CTIS. +The requirements and process governing the conduct of clinical studies, product licensing, coverage, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. +Pharmaceutical Coverage, Pricing and Reimbursement +Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on pricing and the availability of coverage and adequate reimbursement from third-party payors. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if +26 +Table of Contents +they determine that the product or therapy was not medically appropriate or necessary. Third-party payors may attempt to control costs by limiting coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication, requiring pre-approval of coverage for new or innovative drug therapies before they will reimburse healthcare providers who use such therapies, and by limiting the amount of reimbursement for particular procedures or drug treatments. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. The Medicare and Medicaid programs are often used as models by private payors and other governmental payors to develop their coverage and reimbursement policies for drugs and biologics. However, one third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the product, or will provide coverage at an adequate reimbursement rate. +The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products to obtain third-party payor coverage, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably. +In international markets, pricing, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. +Healthcare Reform +The United States and some other jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Only high-expenditure single-source drugs that have been approved for at least seven years (11 years for single-source biologics) can qualify for negotiation, with the negotiated price taking effect two years after the selection year. For 2026, the first year in which negotiated prices become effective, the Centers for Medicare & Medicaid Services (“CMS”) selected ten high-cost Medicare Part D drugs in 2023, negotiations began in 2024, and the negotiated maximum fair price for each drug has been announced. CMS has selected 15 additional Medicare Part D drugs for negotiated maximum fair pricing in 2027. For 2028, up to an additional 15 drugs, which may be covered under either Medicare Part B or Part D, will be selected, and for 2029 and subsequent years, up to 20 additional Part B or Part D drugs will be selected. The impact of these legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the Trump administration on us and the pharmaceutical industry as a whole is unclear. +We expect that the PPACA, as well as reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in +27 +Table of Contents +payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once regulatory approval is obtained. +Other Healthcare Laws and Compliance Requirements +In the United States, the research, manufacturing, distribution, sale and promotion of drug products are subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state attorneys general, and other state and local government agencies. +If our operations are found to be in violation of any of the U.S. federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. We may also be subject to additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement with a governmental entity to resolve allegations that we have violated these laws. To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-approval requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Sales and Marketing +As a clinical-stage biopharmaceutical company, we do not currently possess the commercial infrastructure required to launch and market our product candidates. For zanidatamab, we have entered into a development and commercialization agreement with BeiGene whereby BeiGene is responsible for certain clinical development activities and all commercial activities in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. For zanidatamab, under the Amended Jazz Collaboration Agreement, Jazz is responsible for all development and commercial activities with respect to the Licensed Products in the Territory. There are no other agreements granting commercialization rights to zanidatamab or any of our other product candidates. +To access the sales, marketing and distribution capacity required to market our drug candidates, we plan to selectively establish additional partnerships with biotechnology and pharmaceutical companies having established commercial capabilities in relevant indications. The timing and nature of such agreements will be determined by market size and complexity, access to pre-commercial and commercial infrastructure and our resource availability for developing a commercial organization. For product candidates targeting patient populations that can be serviced by a small, specialized commercial effort, we may seek out co-development and co-promotion agreements granting commercialization rights to an established commercial partner in some jurisdictions while allowing us to build these capabilities in other jurisdictions. We also evaluate opportunities to retain rights further into development for certain drug candidates, providing flexibility around future commercialization strategies. This approach includes the potential to retain commercial rights in one or more geographic jurisdictions, allowing us the option to independently commercialize and launch product(s) in the future. +Human Capital Resources +As of December 31, 2024, we had 286 employees, including 280 full-time employees, 203 of whom were primarily engaged in research and development activities and 53 of whom hold an M.D. or Ph.D. degree. 192 of our full-time employees were based in Canada, 75 were based in the United States, and 13 were based in Singapore, Ireland and United Kingdom (the “ UK ” ) combined. +Our ability to achieve our mission is dependent upon attracting and retaining the right talent. We seek to provide what we consider to be a competitive mix of compensation and benefits for all our employees, including participation in our equity programs. +We believe everyone belongs at Zymeworks and we are committed to providing equal opportunities for our employees. This means ensuring we have good representation in our workforce from within the communities in which we operate, conducting training to remove biases in our processes and activities, and respecting all employees’ rights, cultures, diversity, and dignity. +28 +Table of Contents +We consider our employees to be an essential driver of our business and key to our future prospects and believe that we have a good relationship with our employees. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement. +Corporate History +Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”). Zymeworks Inc. was incorporated under the laws of the State of Delaware in June 2022. Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709, and our telephone number is (302) 274-8744. Our predecessor, now named Zymeworks BC Inc., was originally incorporated on September 8, 2003 under the Canada Business Corporations Act under the name “Zymeworks Inc.” On October 22, 2003, our predecessor was registered as an extra-provincial company under the Company Act (British Columbia), the predecessor to the Business Corporations Act (British Columbia) (“BCBCA”). Our predecessor continued to British Columbia under the BCBCA on May 2, 2017. +Available Information +This Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as appropriate, with the SEC and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website, www.zymeworks.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the Canadian regulatory authorities. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this document is an inactive textual reference. +Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca. +29 +Table of Contents +Item 1A. Risk Factors. +You should carefully consider the following risk factors, in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results and financial condition could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements.” The risks below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations, and/or prospects. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. +Summary of Risk Factors +Below is a summary of the principal factors that make an investment in shares of our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC, before making an investment decision regarding shares of our common stock. +• We have a limited number of product candidates, which are still in preclinical or clinical development. If we do not obtain regulatory approval of our product candidates, or experience significant delays in doing so, our business will be materially adversely affected. +• Clinical trials are expensive, time consuming, difficult to design and implement, and involve uncertain outcomes. Furthermore, the results of previous preclinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States. +• Our long-term prospects depend in part upon discovering, developing and commercializing additional product candidates, which may fail in development or suffer delays that adversely affect their commercial viability. +• Our product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales. +• We face significant competition, and if our competitors develop and market products that are more effective, safer and/or less expensive than our product candidates, our commercial opportunities will be negatively impacted. +• If zanidatamab or any of our product candidates that receives regulatory approval in the future does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, revenue generated from royalties or sales would be limited. +• We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates. +• If any product liability lawsuits are successfully brought against us or any of our strategic partners, we may incur substantial liabilities and commercialization efforts of zanidatamab or our product candidates may need to be limited. +• Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. +• Current and future legislation may increase the difficulty and cost for us or our strategic partners to commercialize any approved products that we or our strategic partners develop and affect the prices that may be obtained. +• We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one product approved for commercial sale, and, as of December 31, 2024, we have not received any revenue or profit from product sales. We may never achieve or sustain profitability. +• We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development programs or operations. +• Our effective tax rate may change in the future. +30 +Table of Contents +• We depend on our collaborative relationship with Jazz to further develop and commercialize zanidatamab, and if our relationship is not successful or is terminated, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab, which could have a material adverse effect on our business. +• Our existing strategic partnerships are important to our business, and future strategic partnerships will likely also be important to us. If we are unable to maintain our strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected. +• We rely on third-party manufacturers to produce our product candidates and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product. We and our third-party partners may encounter difficulties with respect to these activities that could delay or impair our ability to initiate or complete our clinical trials or commercialize products. +• We rely on third parties to monitor, support, conduct and oversee clinical trials of the product candidates that we are developing and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our product candidates or commercialize any products that may result from our development efforts if we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us. +• If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed. +• If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected. +• Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders. +• Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock. +Risk Factors +Risks Related to Our Business and the Development and Commercialization of Our Product Candidates +We have a limited number of product candidates, which are still in preclinical or clinical development. If we do not obtain regulatory approval of our product candidates, or experience significant delays in doing so, our business will be materially adversely affected. +Our strategic partner Jazz has received accelerated approval from the FDA for Ziihera® (zanidatamab-hrii) for the treatment of adults with previously-treated, unresectable or metastatic HER2+ BTC. Ziihera® is the first product candidate from one of our therapeutic platforms to receive regulatory approval. Our other product candidates are in preclinical or clinical development and we have not submitted an application, or received marketing approval, for any other product candidates, and we may never be able to achieve such regulatory approval. In addition, although Jazz is developing zanidatamab for regulatory approval in additional indications, such regulatory approval may never be achieved. +Obtaining regulatory approval and commercializing any approved product candidates depends on many factors, including: +• successfully completing clinical trials that demonstrate the pre-specified efficacy endpoints and acceptable safety profile of the product candidate in the indication for which approval is sought; +• preparation and submission to the appropriate regulatory authorities of an application for marketing approval that includes substantial evidence of safety, purity and potency from results of nonclinical testing and clinical trials; +• establishing adequate commercial manufacturing arrangements and maintaining a consistent, quality supply of product or establishing our own commercial manufacturing capabilities or reliable arrangements with third-party contract manufacturers; +• potential pre-approval audits of nonclinical sites, clinical trial sites, and third-party manufacturing sites that generated the data and product in support of the marketing application; and +• launching commercial sales, marketing and distribution operations. +31 +Table of Contents +Many of these factors are wholly or partially beyond our control, including clinical advancement, the regulatory submission process and changes in the competitive landscape. If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to develop our product candidates at all. +Clinical trials are expensive, time consuming, difficult to design and implement, and involve uncertain outcomes. Furthermore, the results of previous preclinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States. +Although our strategic partner Jazz has submitted a BLA with respect to zanidatamab, we have not submitted a BLA to the FDA or similar marketing applications to foreign health authorities with respect to any of our other product candidates. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and efficacy for each desired indication. The BLA must also include significant information regarding the manufacturing controls for the product. The novel nature of our product candidates may introduce uncertain, complex, expensive and lengthy challenges that could impact regulatory approval. Even if we eventually complete clinical testing and receive approval of any regulatory filing for our product candidates, the FDA or foreign health authorities may approve our product candidates for a more limited indication or a narrower patient population than we originally requested. +There is typically an extremely high rate of attrition from the failure of product candidates proceeding through preclinical studies and clinical trials. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Our clinical trials may produce negative or inconclusive results, and we or any of our current and future strategic partners may decide, or regulators may require us, to conduct additional clinical or preclinical testing. In some instances, there can be significant variability in safety or efficacy results between different preclinical studies and clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Patients treated with our product candidates also may experience side effects or adverse events that are unrelated to our product candidates but may still impact the success of our clinical trials. The inclusion of patients with significant co-morbidities in our clinical trials may result in deaths or other adverse medical events due to an underlying condition or other therapies or medications that such patients may be using. Any of these events could prevent us from obtaining regulatory approval or achieving or maintaining market acceptance and impair our ability to commercialize our product candidates. +Moreover, success in preclinical studies or early-stage clinical trials does not mean that future clinical trials or registrational clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable regulatory authorities outside the United States, despite having progressed through preclinical studies and initial clinical trials. Product candidates that have shown promising results in early clinical trials may suffer significant setbacks in subsequent clinical trials or registrational clinical trials. Similarly, interim results of a clinical trial do not necessarily predict final results. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy. +Applications for our product candidates could fail to receive regulatory approval for many reasons, including: +• the FDA or foreign health authorities may disagree with the design, implementation or data analyses of clinical trials; +• the FDA or foreign health authorities may determine that the product candidate(s) do not have adequate risk-benefit ratio or have undesirable or unintended side effects, toxicities or other characteristics that preclude obtaining marketing approval or prevent or limit commercial use; +• the population studied in the clinical program may not be sufficiently broad or representative to assure efficacy and safety in the full population for which approval is sought; +• the FDA or foreign regulators may disagree with our interpretation of data from preclinical studies or clinical trials; +• the data collected from clinical trials of the product candidates may not be sufficient to support the submission of a BLA or other submission or to obtain regulatory approval in the United States or elsewhere; +• the FDA or foreign health authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers providing our clinical and commercial supplies; and +32 +Table of Contents +• the approval policies or regulations of the FDA or foreign health authorities may significantly change in a manner rendering clinical data insufficient for approval. +We have conducted, and may in the future conduct, clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA and its determination that the trials complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any clinical trials conducted outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or halt development of any future product candidates. +Even if regulatory approval is obtained for a particular indication, there is no guarantee that additional indications will be approved, which could materially limit the commercial potential of any approved product. For example, while Jazz intends to seek approval of zanidatamab in additional indications, we cannot be certain that such approvals will be obtained. If additional indications are not approved, our ability to achieve additional milestone payments and royalties on sales of zanidatamab will be materially and negatively impacted. +If clinical trials for product candidates are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize product candidates on a timely basis, or at all, which could require us to incur additional costs and delay our receipt of any product revenue. +We currently have two clinical-stage product candidates, ZW171 and ZW191. We have licensed zanidatamab to our strategic partner Jazz, which has been responsible for completing its clinical development in the United States and other jurisdictions not covered by our license to BeiGene. In November 2024, Jazz announced the FDA granted accelerated approval for Ziihera ® for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera ® related to the accelerated approval. If the confirmatory trial fails to demonstrate a clinical benefit, the FDA may remove Ziihera ® from the market, which would negatively impact our ability to earn milestone payments and royalties under our arrangement with Jazz. +Following the transfer of the zanidatamab development program to Jazz and the discontinuation of our zanidatamab zovodotin clinical development program following a strategic business review, we have been focused on the development of our early-stage product candidates and general discovery efforts. Following the clearance of our IND applications for both ZW171 and ZW191, we are actively progressing with additional submissions in selected non-U.S. countries in relation to our Phase 1 study sites in North America, Europe, and the Asia-Pacific region. +The commencement or completion of ongoing or planned clinical trials could be substantially delayed or prevented by many factors, including: +• further discussions with the FDA or other regulatory agencies regarding the scope or design of our clinical trials; +• the limited number of, and competition for, suitable sites and patients required to conduct our clinical trials, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as our product candidates; +• any delay or failure to obtain approval or agreement to commence a clinical trial in any of the countries where enrollment is planned; +• inability to obtain sufficient funds required for a clinical trial; +• inability to recruit clinical operations personnel and other personnel with later-stage development experience; +• clinical holds on, or other regulatory objections to, a new or ongoing clinical trial; +• delay or failure to manufacture sufficient supplies of the product candidate for our clinical trials; +• delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs; +• delay or failure to obtain institutional review board (“IRB”) approval to conduct a clinical trial at a prospective site; +• slower than expected rates of patient recruitment and enrollment; +• failure of patients to complete the clinical trial or to be lost to follow up; +33 +Table of Contents +• the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically significant treatment effects; +• unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths; +• lack of efficacy during clinical trials; +• termination of our clinical trials by one or more clinical trial sites; +• inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols; +• inability to monitor patients adequately during or after treatment by us or our CROs; +• our CROs or clinical study sites failing to comply with the trial protocol or regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a study; +• the inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial; +• third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or foreign health authorities for violations of applicable regulatory requirements; +• delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including due to a facility manufacturing any of our product candidates or any of their components being ordered by the FDA or foreign health authorities to temporarily or permanently shut down due to violations of cGMP regulations or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process; +• the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing; +• our clinical trials may be suspended or terminated upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future strategic partners that have responsibility for the clinical development of any of our product candidates; and +• receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to modify the design of a trial. +Furthermore, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or by the FDA or foreign health authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or foreign health authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue. +Changes in regulatory requirements, policies and guidelines may also occur and we may need to significantly amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. These changes may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us. +Any failure or significant delay in commencing or completing clinical trials would adversely affect our ability to obtain regulatory approval, and our commercial prospects and ability to generate product revenue will be diminished. In addition, even if trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA or foreign health authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. We cannot guarantee that the FDA or foreign health authorities will view any of our product candidates as having adequate safety and efficacy profiles even if favorable results are observed in these clinical trials, and we may receive unexpected or unfavorable feedback from the FDA or foreign health authorities regarding satisfaction of safety, purity and potency (including clinical efficacy), amongst other factors. To the extent the results of the trials are not satisfactory to the FDA or foreign health authorities for support of a marketing application, approval of our +34 +Table of Contents +product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. +Our long-term prospects depend in part upon discovering, developing and commercializing additional product candidates, which may fail in development or suffer delays that adversely affect their commercial viability. +Our future operating results are dependent in part on our ability to successfully discover, develop, obtain regulatory approval for and commercialize product candidates beyond zanidatamab and the product candidates we currently have in clinical and preclinical development. A product candidate can unexpectedly fail at any stage of preclinical and clinical development. Our investments in our early-stage research and development efforts may not yield any promising product candidates. Even if our research and development efforts yield product candidates that advance into clinical studies, the historical failure rate for product candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care and other unpredictable variables. The results from preclinical testing or early clinical trials of a product candidate may not be predictive of the results that will be obtained in later stage clinical trials of the product candidate. +The success of other product candidates we may develop will depend on many factors, including generating sufficient data to support the initiation or continuation of clinical trials and obtaining regulatory permission to initiate clinical trials. Even if we successfully advance any other product candidates into clinical development, their success will be subject to all of the clinical, regulatory and commercial risks described elsewhere in this “Risk Factors” section. We cannot assure you that we will ever be able to discover, develop, obtain regulatory approval of, commercialize or generate significant revenue from our other product candidates. +If we, or any of our strategic partners, are unable to enroll patients in clinical trials, we will be unable to complete these trials on a timely basis or at all. +Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled subjects will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. In particular, we are developing certain of our product candidates for the treatment of rare diseases, which have limited pools of patients from which to draw for clinical testing. If we, or any of our strategic partners that perform clinical tests for our product candidates, are unable to enroll a sufficient number of patients to complete clinical testing, we will be unable to gain marketing approval for such product candidates and our business will be harmed. Additionally, projections of addressable patient populations that have the potential to benefit from treatment with our or our strategic partners’ product candidates are based on estimates, and, if such estimates are inaccurate, could have an adverse material impact on our business. +In addition, the U.S. federal Right to Try Act, among other things, provides a framework for patients to access certain investigational new drug products that have completed a Phase 1 clinical trial. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA approval under the FDA expanded access program. While there is no obligation to make product candidates available to eligible patients as a result of the Right to Try Act, new and emerging legislation regarding expanded access to unapproved drugs could negatively impact enrollment in our clinical trials and our business in the future. +The design or our execution of clinical trials may not support regulatory approval. +The design or execution of a clinical trial can determine whether its results will support regulatory approval, and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our strategic partners may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates. +Further, the FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in any Phase 3 clinical trials or registration trials. The FDA or other non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies +35 +Table of Contents +and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in FDA or other agencies’ approval. In addition, any of these regulatory authorities may approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our product candidates. +Interim, preliminary or top-line data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publish interim, preliminary or top-line data from clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or top-line data previously published. As a result, interim, preliminary and top-line data should be viewed with caution until the final data is available. Adverse differences between interim, preliminary or top-line data and final data could significantly harm our reputation and business prospects. Moreover, preliminary, interim and top-line data are subject to the risk that one or more of the clinical outcomes may materially change as more patient data become available when patients mature on study, patient enrollment continues or as other ongoing or future clinical trials with a product candidate further develop. Past results of clinical trials may not be predictive of future results. +The information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically more extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. Similarly, even if we are able to complete our planned and ongoing preclinical studies and clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results. +Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical and other nonclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory approval. +The Fast Track and Breakthrough Therapy designations received for zanidatamab may not result in faster development, regulatory review or approval process. +The FDA has granted Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing GEA in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. While the FDA granted accelerated approval in November 2024 for Ziihera ® for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ BTC (IHC 3+), these Fast Track designations do not ensure that zanidatamab will experience a faster development, regulatory review or approval process compared to conventional FDA procedures or that zanidatamab will ultimately obtain regulatory approval for additional indications. The FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from the zanidatamab clinical development program. The FDA also granted Breakthrough Therapy designation for zanidatamab for treatment of patients with previously treated HER2 gene-amplified locally advanced/unresectable or metastatic BTC. Designation as a Breakthrough Therapy is within the discretion of the FDA and the FDA may decide to rescind a Breakthrough Therapy designation if it believes that a designated product candidate no longer meets the conditions for qualification of this program. If a clinical development program is suspended, terminated, or put on clinical hold due to unexpected adverse events or other issues, including clinical supply issues, the benefits associated with the Fast Track or Breakthrough Therapy designations may not be realized by us or our strategic partners. Furthermore, Fast Track designation does not change the standards for approval, and the designation alone does not guarantee qualification for the FDA’s priority review procedures. Zanidatamab has also been granted Breakthrough Therapy designation from the CDE in China for treating patients with BTC who have failed prior systemic therapies. This designation alone does not guarantee faster approval of zanidatamab in China. +36 +Table of Contents +Development of product candidates in combination with other therapies could expose us to additional risks. +We are subject to risks that the FDA, the EMA or other comparable foreign regulatory authorities could revoke approval of any therapies used in combination with zanidatamab or any other product candidate that receives marketing approval. We are also subject to the risk that safety, efficacy, manufacturing or supply issues could arise with such therapies. In addition, it is possible that existing therapies with which zanidatamab or our product candidates are approved for use could themselves fall out of favor or be relegated to later lines of treatment, which could result in such products being removed from the market or being less successful commercially. We may also evaluate our product candidates in combination with one or more other therapies that have not yet been approved for marketing by the FDA, EMA or comparable foreign regulatory authorities. We will not be able to market and sell any product candidate in combination with any such unapproved therapies that do not ultimately obtain marketing approval. If the FDA, EMA or other comparable foreign regulatory authorities do not approve or revoke their approval of these other therapies, or if safety, efficacy, commercial adoption, manufacturing or supply issues arise with the therapies we choose to evaluate in combination with any other product candidate, we may be unable to obtain approval of or successfully market any one or all of the product candidates we develop. +Additionally, if the third-party providers of therapies or therapies in development used in combination with zanidatamab or our product candidates are unable to produce sufficient quantities for clinical trials or for commercialization of our product candidates, or if the cost of combination therapies is prohibitive, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects. +If we are unable to successfully develop any required companion diagnostic tests for our product candidates, or experience significant delays in doing so, or rely on third parties in the development of such companion diagnostic tests, we may not realize the full commercial potential of our product candidates. +If we develop a product candidate for which there are no commercially available diagnostic tests for identifying the appropriate patient population to ensure safe and effective use of such candidate, the FDA may require us to develop a companion diagnostic plan in conjunction with clinical development and regulatory approval for our product candidate. Lack of a reliable commercially available companion diagnostic can introduce uncertainties in the regulatory process for our product candidate. Developing a companion diagnostic or working with a third party to develop such companion diagnostic for our product candidate will require more resources and could expose us to additional liabilities related to government regulation of companion diagnostics. If the FDA expects to review and approve simultaneously marketing submissions for a therapeutic candidate and its companion diagnostic, any delay in diagnostic marketing clearance or approval could delay the drug approval. +In particular, in April 2020, the FDA issued guidance on developing and labeling companion diagnostics for a specific group of oncology therapeutic products, including recommendations to support a broader labeling claim rather than individual therapeutic products. In June 2023, the FDA announced a voluntary pilot program through which drug manufacturers can provide to the FDA the diagnostic test performance information used to enroll patients into clinical trials for drug approval. Based on assessment of the performance information, the FDA will publish the minimum performance characteristics recommended for similar tests that may be used to select patients for treatment with the approved drug to help laboratories identify specific biomarkers for their development of laboratory-developed tests (“LDTs”), and to ensure more consistent performance of these tests for drug selection and improved cancer patient care. In May 2024, the FDA issued a final rule that phases out its enforcement discretion for most LDTs and amends the FDA’s regulations to make explicit that in vitro diagnostics are medical devices under the Federal Food, Drug, and Cosmetic Act, including when the manufacturer of the diagnostic product is a laboratory. This final rule is subject to ongoing judicial challenges. Changes in the leadership of the FDA and other federal agencies under the new Trump administration can result in changes in policies and new regulations that impact the regulation of LDTs and our companion diagnostic development plans. We will continue to evaluate the impact of this rule on our companion diagnostic development and strategy. Any future issuances from the FDA and other regulatory authorities, including changes in the FDA’s regulation of diagnostic tests and LDTs, may impact our development of a companion diagnostic for our product candidates and result in delays in regulatory approval. We may be required to conduct additional studies to support a broader claim. Also, to the extent other approved diagnostics are able to broaden their labeling claims to include our approved drug products, we may be forced to abandon any of our companion diagnostic development plans, or we may not be able to compete effectively upon approval, which could adversely impact our ability to generate revenue from the sale of approved products and our business operations. +We may rely on third parties for the design, development and manufacture of companion diagnostic tests for our product candidates that require such tests. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. If we or such third parties are unable to successfully develop companion diagnostics, or experience delays in doing so, we may be unable to enroll enough patients for our current and planned clinical +37 +Table of Contents +trials, the development of our product candidates may be adversely affected or we may not obtain marketing approval, and we may not realize the full commercial potential of our product candidates. +Disruptions at the FDA and other government agencies caused by funding shortages, reductions in staff or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified product candidates from being developed, or approved or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA to review and clear or approve new product candidates can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies, including delays or disruptions due to pandemics or other health crises, travel restrictions, staffing shortages, government shutdowns and furloughs, may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. Additionally, the current Presidential administration is pursuing significant reductions in the number of federal employees across numerous agencies. A significant reduction in the number of FDA personnel as a result of this initiative could materially impact review timelines and negatively and adversely impact our business. +Successful development of our current and future product candidates is uncertain and we may discontinue or reprioritize the development of any of our product candidates at any time, at our discretion. +Before obtaining regulatory approval for the commercial distribution of our product candidates, we must conduct, at our own expense, extensive preclinical tests and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Additionally, the results from nonclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in subsequent human clinical trials of that product candidate. There is a high failure rate for drugs proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in any future clinical development could have a material adverse effect on our business and operating results. Alternatively, management may elect to discontinue development of certain product candidates to accommodate a shift in corporate strategy, despite positive clinical results. Based on our operating results and business strategy, among other factors, we may discontinue the development of any of our other product candidates under development or reprioritize our focus on other product candidates at any time and at our discretion. +Because we have limited financial and managerial resources, we focus on research programs, therapeutic platforms and product candidates that we identify for specific indications. As a result, we may forgo or delay pursuit of opportunities with other therapeutic platforms or product candidates or for other indications that later prove to have greater commercial potential. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights. +Our product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales. +Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. As our product candidates are evaluated in clinical trials, the results of such clinical trials may show that our product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings, limited patient populations or potential product liability claims. Even if we believe that our clinical trials and preclinical studies demonstrate the safety and efficacy of our product candidates, only the FDA and other comparable regulatory agencies may ultimately make such determination. +If we or others later identify undesirable or unacceptable side effects caused by zanidatamab or other product candidates that receive marketing approval: +• regulatory authorities may require the approved product to be taken off the market; +38 +Table of Contents +• regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies, or impose a risk evaluation and mitigation strategy that includes restrictions and conditions on product distribution, prescribing and/or dispensing; +• we or our partners may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product; +• we or our partners may be subject to limitations on how we may promote the product; +• sales of the product may decrease significantly; +• we may be subject to litigation or product liability claims; and +• our reputation may suffer. +Any of these events could prevent us or our current or future strategic partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating revenue from the sale of any future products. +We face significant competition, and if our competitors develop and market products that are more effective, safer and/or less expensive than our product candidates, our commercial opportunities will be negatively impacted. +The life sciences industry is highly competitive and subject to rapid and significant technological change. We are developing biotherapeutics that will compete with other drugs and therapies that currently exist or are being developed. Products we may develop in the future are also likely to face competition from other drugs and therapies, some of which we may not currently be aware. We have competitors in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection or FDA approval or discovering, developing and commercializing products in our field before we do. Specifically, there are a large number of companies developing or marketing treatments for cancer and AIID, including many major pharmaceutical and biotechnology companies. These treatments consist both of small-molecule drug products, as well as biologics that work by using various antibody therapeutic platforms to address specific targets. +Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market. +Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical. +We expect to compete with biosimilar versions of already approved products, and even if additional product candidates achieve marketing approval, they may be challenged to achieve a price premium over competitive biosimilar products and will compete for market share with them. +The Biologics Price Competition and Innovation Act of 2009, which is included in the 2010 Patient Protection and Affordable Care Act (“ PPACA ”) , authorized the FDA to approve similar versions of innovative biologics, commonly known as biosimilars. Under the PPACA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biologic product or “reference product.” Manufacturers may not submit an +39 +Table of Contents +application for a biosimilar to the FDA until four years following approval of the reference product, and the FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if our product candidates, if approved, are deemed to be reference products eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. Additionally, from time to time, there are proposals to repeal or modify the PPACA, including proposals that could significantly shorten the exclusivity period for biologics. +If zanidatamab or any of our product candidates that receives regulatory approval in the future does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, revenue generated from royalties or sales would be limited. +The commercial success of zanidatamab or our product candidates will depend upon their acceptance among physicians, patients and the medical community. The degree of market acceptance of zanidatamab or our product candidates will depend on a number of factors, including: +• limitations or warnings contained in the approved labeling; +• changes in the standard of care for the targeted indications; +• limitations in the approved clinical indications; +• demonstrated clinical safety and efficacy compared to other products; +• sales, marketing and distribution support; +• availability of coverage and the extent of access and reimbursement from managed care plans and other third-party payors; +• timing of market introduction and perceived effectiveness of competitive products; +• availability of alternative therapies at similar or lower cost; +• the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations; +• whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular diseases; +• whether the product can be used effectively with other therapies to achieve higher response rates; +• adverse publicity about the product or favorable publicity about competitive products; +• convenience and ease of administration of the product; and +• potential product liability claims. +If zanidatamab or any of our product candidates that are approved in the future do not achieve an adequate level of acceptance by physicians, patients and the medical community, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of zanidatamab or our product candidates may require significant resources and may never be successful. +We or our strategic partners may be unable to obtain orphan drug exclusivity in specific indications for zanidatamab or in future product candidates that we may develop. If our competitors are able to obtain orphan product exclusivity for their products in specific indications, we may not be able to have competing products approved in those indications by the applicable regulatory authority for a significant period of time. +The FDA has granted Orphan Drug Designation to zanidatamab for the treatment of BTC and gastric cancer, including cancer of the gastroesophageal junction, the EMA has granted Orphan Drug Designation to zanidatamab for the treatment of gastric cancer and BTC, and we or our strategic partners may seek Orphan Drug Designation for zanidatamab or other product candidates for additional indications in the future. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. +Generally, if a product candidate with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug for the same indication for that time period. +40 +Table of Contents +The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for Orphan Drug Designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. The loss of Orphan Drug Designation could have a negative effect on our ability to successfully commercialize our product candidates, earn revenues and achieve profitability. +Even if orphan drug exclusivity for zanidatamab is obtained, or is obtained for any other product candidates that receive an Orphan Drug Designation in the future, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Further, in the United States, even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition submitted by a competitor if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. If we or our strategic partners are unable to manufacture sufficient supply of a product to meet the needs of patients, the FDA can withdraw orphan exclusive marketing rights or approve another marketing application for the same drug product before the expiration of the exclusivity period. +Further, in Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition. In January 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the agency will continue tying the scope of orphan drug exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain approval of a drug for new uses or indications within the same orphan designated disease or condition that have not yet been approved. The U.S Supreme Court’s recent Chevron decision may invite lawsuits against the FDA to challenge longstanding decisions and policies of the FDA, including the FDA’s statutory interpretations of market exclusivities, which could undermine the FDA’s authority, lead to uncertainty in the industry, and disrupt the FDA’s normal operations. Further, the Trump administration, along with new leadership at the FDA, may issue new policies and regulations. Executive actions under the Trump administration, such as layoffs, a hiring freeze and budget cuts, may also disrupt the normal operations of federal agencies. It is unclear how future litigation, legislation, agency decisions, and administrative actions will impact the scope of the orphan drug exclusivity. +Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such product candidates outside of the United States, which would limit our ability to realize their full market potential. +In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs and may require additional preclinical studies or clinical trials, which would be costly and time consuming. Regulatory requirements can vary widely from country to country and region to region and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. Our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. Zanidatamab is the only product developed using our therapeutic platforms to have received FDA approval, and as of the date of this report, no approvals in international markets have been obtained. Such approval was received by our strategic partner Jazz, and we do not have experience in obtaining regulatory approval in the United States or international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed. +Our ability to eventually generate significant revenues from product sales will depend on a number of factors, including: +• successful completion of preclinical studies; +• submission of IND and non-U.S. applications, or other regulatory applications, for our planned clinical trials or future clinical trials and authorizations from regulators to initiate clinical studies; +• successful enrollment in, and completion of, clinical trials; +• achieving favorable results from clinical trials; +41 +Table of Contents +• receipt of marketing approvals from applicable regulatory authorities; +• establishing and maintaining sufficient manufacturing capabilities, for clinical and commercial supply; +• obtaining pricing, reimbursement, and hospital formulary access; +• establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in combination with other products; +• sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials and commercialization activities; +• effectively competing with other therapies; +• developing and implementing successful marketing and reimbursement strategies; +• obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and +• maintaining a continued acceptable safety profile of any product following approval, if any. +If we do not achieve one or more of these requirements in a timely manner, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. To become and remain profitable, we must develop, obtain approval for and eventually commercialize products, if approved, that generate significant revenue. Even if we obtain approval and begin commercializing one or more of our product candidates, we may never generate revenue that is significant or large enough to achieve profitability. +Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development, manufacturing and other expenditures to develop and market additional product candidates. Our failure to become or remain profitable would decrease the value of the Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. +Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that our products will be widely used. +The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Many countries require approval of the sale price of a drug before it can be marketed. The pricing review period begins after marketing or product licensing approval is granted in most cases. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country. In many countries, particularly those in the EU, prescription drug pricing and reimbursement is subject to governmental control. In those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our strategic partners may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. +Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other third-party payors. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. If we are not currently capturing the scientific and clinical data that will be required for reimbursement approval, we may be required to conduct additional trials, which may delay or suspend reimbursement approval. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of a product candidate that receives regulatory approval to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. +Even if our product candidates are approved for sale by the appropriate regulatory authorities, market acceptance and sales of these products will depend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs +42 +Table of Contents +they will reimburse and establish payment levels. We cannot be certain that reimbursement will be available for any products that we develop. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize any approved products. +We expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. In August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Only high-expenditure single-source drugs that have been approved for at least seven years (11 years for single-source biologics) can qualify for negotiation, with the negotiated price taking effect two years after the selection year. Various industry stakeholders have initiated lawsuits against the federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. The impact of these judicial challenges, future challenges in view of the U.S. Supreme Court’s overruling of the Chevron doctrine, changes in the leadership of the federal agencies, legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the government on us and the pharmaceutical industry as a whole is unclear. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved. +There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA, EMA or other regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that currently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our or any collaborator’s inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we or our strategic partners develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates and our overall financial condition. +We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates. +We intend to use our therapeutic platforms to build a pipeline of product candidates and progress these product candidates through clinical development for the treatment of a variety of diseases. Although our research and development efforts as of the date of this report have resulted in a pipeline of product candidates directed at various cancers and AIID, we may not be able to develop product candidates that are safe and effective. Although we expect that our therapeutic platforms will allow us to develop further product candidates, they may not prove to be successful at doing so. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenue in future periods, which could result in significant harm to our financial position and adversely affect our stock price. +Even if we receive regulatory approval to commercialize any of the product candidates that we develop, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. +Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or subject to certain conditions of approval, and may contain requirements for potentially costly post-approval trials, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the marketed product. For example, in November 2024 the FDA granted accelerated approval for Ziihera® for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. However, continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial. +43 +Table of Contents +For any approved product, we will be subject to ongoing regulatory obligations and extensive oversight by regulatory authorities, including with respect to manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-approval information and reports, as well as continued compliance with cGMP and good clinical practice (“GCP”), for any clinical trials that we or our strategic partners conduct after approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: +• restrictions on the marketing or manufacturing of the product; +• withdrawal of the product from the market or voluntary or mandatory product recalls; +• fines, warning letters or holds on clinical trials; +• refusal by the FDA, EMA or another applicable regulatory authority to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals; +• product seizure or detention, or refusal to permit the import or export of products; and +• injunctions or the imposition of civil or criminal penalties. +Occurrence of any of the foregoing could have a material and adverse effect on our business and results of operations. Our business also may be impacted by new policies and leadership at the FDA and other federal agencies under the new Presidential administration. Such changes and transition to the Trump administration may delay our interactions and submissions with the FDA, our clinical development timeline, or result in increased compliance costs. Further, the FDA’s or other ex-U.S. regulators’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We also cannot predict the full impact of the U.S. Supreme Court's recent decision overruling the Chevron doctrine, future judicial challenges brought against the FDA, or the nature or extent of government regulation that may arise from future legislation or administrative action. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. +The FDA strictly regulates manufacturers’ promotional claims of drug products. In particular, a drug product may not be promoted by manufacturers for uses that are not approved by the FDA, as reflected in the FDA-approved labeling, although healthcare professionals are permitted to use drug products for off-label uses. The FDA, among other government agencies, actively enforce the laws and regulations prohibiting manufacturers’ promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including large civil and criminal fines, penalties, and enforcement actions. The FDA has also imposed consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed for companies that engaged in such prohibited activities. If we cannot successfully manage the promotion of any approved product candidates, we could become subject to significant liability, which would materially adversely affect our business and financial condition. +If any product liability lawsuits are successfully brought against us or any of our strategic partners, we may incur substantial liabilities and commercialization efforts of zanidatamab or our product candidates may need to be limited. +We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients, and face an even greater risk as a result of commercialization of any approved product candidates. Product liability claims may be brought against us or our strategic partners by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our current or future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claims may result in: +• decreased demand for any current or future approved products; +• injury to our reputation; +• limitations placed on our promotional activities; +• withdrawal of clinical trial participants; +• termination of clinical trial sites or entire trial programs; +• increased regulatory scrutiny; +44 +Table of Contents +• significant litigation costs; +• substantial monetary awards to, or costly settlement with, patients or other claimants; +• product recalls or a change in the indications for which they may be used; +• loss of revenue; +• diversion of management and scientific resources from our business operations; and +• the inability to commercialize approved products. +We may need to have in place increased product liability coverage when we begin the commercialization of any product candidates. Insurance coverage is becoming increasingly expensive and we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of operation. +Patients with cancer and other diseases targeted by zanidatamab and our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to zanidatamab or our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end the opportunity to receive or maintain regulatory approval to market zanidatamab or our product candidates, or require us or our strategic partners to suspend or abandon commercialization efforts. Even in circumstances in which we do not believe that an adverse event is related to zanidatamab or our product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals zanidatamab or our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations. +If we, our strategic partners or any of our third-party manufacturers encounter manufacturing difficulties, our ability to provide supply of our product candidates for clinical trials or any approved products for patients could be delayed or prevented. +The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques, process and quality controls. Manufacturers of biologic products often encounter difficulties in production and sourcing, particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing processes (including the absence of contamination), in light of variations and supply constraints of key components. These problems include logistics and shipping, difficulties with production costs and yields, quality control, including consistency, stability, purity and efficacy of the product, product testing, operator error and availability of qualified personnel, as well as compliance with applicable federal, state and foreign regulations. If contaminants are discovered in the supply of our products or product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability, purity, and efficacy failures, deficiencies, or other issues relating to the manufacture of our products or product candidates will not occur in the future. Even if any of our product candidates is approved, these manufacturing difficulties and supply chain risks will persist and an inability to source sufficient commercial supply would materially and negatively impact our commercialization efforts and financial results. Our research and development activities also involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our third-party manufacturers. While we currently outsource all manufacturing to third parties, we and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures relating to these laws comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury, and any related liability, resulting from medical or hazardous materials. In addition, manufacturing methods and formulation changes for product candidates advancing towards commercialization carry the risk that such product candidates may perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. While such changes are common and intended to help optimize processes and results during the development process, any of these changes could increase costs, cause delays and impact our ability, or our strategic partners’ ability, to commence product sales and generate revenue. +45 +Table of Contents +Strategic transactions could disrupt our business, cause dilution to our stockholders and otherwise harm our business. +We actively evaluate various strategic transactions on an ongoing basis. For example, we may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, investments in complementary businesses, out-licensing and in-licensing agreements, divestitures or other transactions. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including: +• disruption in our relationships with existing strategic partners or suppliers as a result of such a transaction; +• unanticipated liabilities related to acquired companies; +• difficulties integrating acquired personnel, technologies and operations into our existing business; +• retention of key employees; +• diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges; +• risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals; +• increases in our expenses and reductions in our cash available for operations and other uses; and +• possible write-offs or impairment charges relating to acquired businesses. +Also, the anticipated benefit of any strategic transaction may not materialize or such strategic transaction may be prohibited. Any future acquisitions or dispositions could result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of any future strategic alliances, joint ventures, investments, acquisitions, divestitures or other strategic transactions, or the effect that any such transactions might have on our operating results. +Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. +In the ordinary course of our business, we and our CROs and other service providers collect, store and otherwise process petabytes of sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information owned or controlled by ourselves or our strategic partners. We manage and maintain our applications and data by using a combination of on-site systems, managed data center systems and cloud-based data center systems. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information and business and financial information. We face four primary risks relative to protecting this critical information: loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of being unable to adequately monitor our controls over the first three risks. +Although we take measures designed to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure and those that our CROs and our other third-party service providers may use in the past have been subject to, and may be vulnerable to, attacks by hackers or other third parties, viruses, ransomware or other malicious code, or other breaches, incidents, outages, interruptions, compromises or vulnerabilities due to inadvertent or intentional actions by our employees, contractors, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including supply chain cyber-attacks or the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of systems or information). The risks of these types of incidents and other matters occurring may be heightened in connection with geopolitical events. Any such breach, incident, outage, interruption, compromise or vulnerability could compromise systems and networks used in our business and lead to system and other operational outages, interruptions and disruptions and the loss, destruction, alteration, prevention of access to, disclosure, or dissemination of, or damage or unauthorized access to, our data (including trade secrets or other confidential information, intellectual property, proprietary business information, and personal information) or data that is maintained or otherwise processed on our behalf, or other assets, which could result in financial, legal, business and reputational harm to us. Any such event could result in legal claims, demands and litigation or governmental investigations or other proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and regulatory penalties and other liabilities. Although we have implemented security measures and a formal enterprise security program designed to prevent unauthorized access to sensitive data, and make use of third-party service providers to perform certain operational and security functions on our behalf, +46 +Table of Contents +there is no guarantee that we or our third-party service providers ca n, or have been able to, protect our systems or networks or other systems or networks used in our business from security breaches, incidents, outages, interruptions, compromises, or vulnerabilities, or that we or they have been or will be able to identify, identify the cause of or otherwise respond to any actual or potential security breach, incident, outage, interruption, compromise or vulnerability. We have engaged in efforts to improve our security measures, and we expect to continue to incur additional expenses in further efforts to do so, whether in response to actual or perceived security breaches or incidents, compromises, outages, interruptions, vulnerabilities or otherwise. Any loss, destruction, alteration, prevention of access to, disclosure, or dissemination of, or damage or unauthorized access to, our data or other data that is processed or maintained on our behalf could also disrupt our operations (including our ability to conduct our analyses, pay providers, conduct research and development activities, collect, process and prepare company financial information, provide information about any future products, and manage the administrative aspects of our business) and damage our reputation, any of which could adversely affect our business. +HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, impose certain requirements relating to the privacy, security, transmission and breach reporting of individually identifiable health information. Penalties for HIPAA violations can be significant, and criminal and monetary penalties, as well as injunctive relief, may be imposed for HIPAA violations. Most drug manufacturers are not directly subject to HIPAA, but prosecutors increasingly are using HIPAA-related theories of liability against drug manufacturers and their agents and we also could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. +Furthermore, HIPAA regulations impose specific reporting requirements to regulators, individuals impacted by the breach, as defined by HIPAA, and, in some cases, the media. Issuing such notifications can be costly, time and resource intensive, and can generate significant negative publicity. In addition to HIPAA, other applicable data privacy and security obligations may require us to notify relevant stakeholders of any security breaches or incidents that result in the unauthorized disclosure, or dissemination of, personal information. Such disclosures are costly, and the disclosures or the failure to comply with such requirements, could lead to adverse impacts. +Furthermore, the loss, corruption, or unavailability of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems or otherwise relating to their collection, storage, or processing of data could also have a material adverse effect on our business. +We are subject to stringent and changing obligations related to privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm and other adverse business consequences. +U.S. states have enacted and are considering enacting laws relating to the protection of personal information (including health and other data of patients, research subjects, and other individuals), which may be more rigorous than, or impose additional requirements beyond those required by, HIPAA. For example, the California Consumer Privacy Act (“CCPA”), which became effective in January 2020, gives California consumers expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation) as well as a limited private right of action for data breaches. The California Privacy Rights Act of 2020, which went into effect in January 2023, expanded the CCPA in numerous ways and established a new California Privacy Protection Agency to implement and enforce the new law. Many other privacy and security laws have been proposed at the federal level and in other states, certain of which impose obligations similar to the CCPA. Other privacy and security laws address specific subject matter, such as Washington’s My Health, My Data Act, which, among other things, provides for a private right of action. While limited exemptions to some of these laws may apply to portions of our business, these laws’ recent enactment and evolving interpretations may increase our compliance costs and potential liability. These or other proposed or enacted laws relating to privacy and security could similarly increase our compliance obligations and costs in the future. +We may also become subject to laws and regulations in non-U.S. countries covering privacy and security and the protection of health-related and other personal information. In particular, the European Economic Area (“EEA”), the UK, and Switzerland have adopted laws and regulations addressing privacy, data protection and security that impose significant compliance obligations. These laws and regulations are subject to frequent revisions and differing interpretations, and have generally become more stringent over time. +47 +Table of Contents +The General Data Protection Regulation 2016/679 (“GDPR”) applies to the processing of personal information and imposes numerous requirements, including, for example, high standards for obtaining consent, requirements for more robust disclosures to individuals and strengthened individual data rights, required data breach notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymized (i.e., key-coded) data and additional obligations when contracting third-party data processors. The GDPR allows EEA countries to make additional laws and regulations further limiting the processing of genetic, biometric or health data. The GDPR provides for fines of up to €20.0 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties; further, the GDPR permits other forms of relief and recovery, and other national and local data protection laws provide for additional penalties and relief. Furthermore, adverse publicity relating to actual or alleged GDPR noncompliance could cause a loss of goodwill, which could have an adverse effect on our reputation, brand, business and financial condition. The UK has implemented legislation similar to the GDPR, referred to as the UK GDPR, which provides for fines of up to the greater of £17.5 million or 4% of global turnover. +Certain jurisdictions, including the EEA, have enacted laws and regulations governing cross-border personal information transfer and providing for data localization in certain cases. For example, absent appropriate safeguards or other circumstances, the GDPR and laws in Switzerland and the UK generally restrict the transfer of personal information to countries outside the EEA, Switzerland and the UK, such as the United States. In July 2023, the European Commission adopted its adequacy decision for the EU-U.S. Data Privacy Framework, and generally permits personal information to flow from the EU to the United States by companies participating in the EU-U.S. Data Privacy Framework. We are not certified under the EU-U.S. Data Privacy Framework, and instead rely on other data transfer tools such as the EU standard contractual clauses (“EU SCCs”) and the UK addendum to the EU SCCs to transfer personal information to third countries outside the EEA and the UK, taking into consideration related obligations. To the extent we transfer personal information from other jurisdictions to the United States, we may not be able to implement or maintain an appropriate data transfer mechanism to continue such transfers. The U.S. Department of Justice also has issued rules regarding certain bulk sensitive personal data transfers. The interpretation of data transfer requirements, regulatory guidance and opinions, and other developments relating to cross-border data transfer may require us to implement additional contractual and technical safeguards for any personal information transferred out of the EEA, Switzerland, the UK, the United States, or other regions, which may increase compliance costs, lead to increased regulatory scrutiny or liability, and may require additional contractual negotiations, which may adversely impact our business, financial condition, and operating results. +We expect an increase in regulatory requirements relating to privacy, data protection and cybersecurity that may apply to our business. For instance, the EU has enacted numerous laws and regulations addressing cybersecurity, including substantial revisions to its Network and Information Security directive that EU member states are required to reflect in national law. Requirements for hosting health data will vary by jurisdiction within EEA countries and the UK, and we may be or become subject to other national healthcare regulations or regulatory requirements. For example, France requires hosts of health data to obtain a prior certification with the competent certification body. +The interpretation and application of consumer, health-related and privacy, data protection and security laws in the United States, the EEA, Switzerland, the UK and elsewhere are often uncertain, contradictory and in flux. Any failure or perceived failure to comply with federal, state or foreign laws or regulations, contractual or other legal obligations related to privacy or security may result in claims, warnings, communications, requests or investigations from individuals, supervisory authorities or other legal or regulatory authorities in relation to our processing of personal information, and regulatory investigations or other proceedings. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. These privacy regulations vary between states, may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. +Current and future legislation may increase the difficulty and cost for us or our strategic partners to commercialize any approved products that we or our strategic partners develop and affect the prices that may be obtained. +The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change healthcare systems in ways that could affect our or our strategic partners’ ability to sell any of our product candidates profitably, if such product candidates are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. +48 +Table of Contents +In March 2010, the PPACA became law in the United States. The PPACA may affect the operational results of companies in the pharmaceutical industry, including us, by imposing on them additional costs. For example, effective January 2010, PPACA increased the minimum Medicaid drug rebates for pharmaceutical companies and imposed an annual fee on certain branded prescription drugs and biologics. Since the enactment of PPACA, there have been executive, judicial and Congressional challenges to certain aspects of the PPACA, including judicial challenges in the Fifth Circuit Court and the United States Supreme Court. In June 2021, the U.S. Supreme Court held that Texas and other challengers had no legal standing to challenge the PPACA, dismissing the case without specifically ruling on the constitutionality of the PPACA. Accordingly, the PPACA remains in effect in its current form. It is unclear how future litigation or healthcare measures promulgated by the Trump administration will impact our business, financial condition and results of operations. Complying with any new legislation or changes in healthcare regulation could be time-intensive and expensive, resulting in a material adverse effect on our business. +Other legislative changes have been proposed and adopted since the PPACA was enacted. For example, the Bipartisan Budget Act of 2018, among other things, amended the PPACA, effective January 2019, to close the coverage gap in most Medicare drug plans. The Budget Control Act of 2011, which calls for aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, began in 2013 and, due to subsequent legislative amendments, will remain in effect through 2032 unless Congress takes further action. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on potential customers for zanidatamab or our product candidates, if approved, and, accordingly, our future financial operations. We are unable to predict the future course of federal or state health care legislation or foreign regulations relating to the marketing, pricing and reimbursement of pharmaceutical products. +There have been U.S. Congressional inquiries, presidential executive orders, and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. For example, under the American Rescue Plan Act of 2021, effective January 1, 2024, Medicaid statutory rebates are no longer be capped at 100% of AMP (average manufacturer price). Elimination of this cap may require pharmaceutical manufacturers to pay more in rebates than it receives on the sale of products, which could have a material impact on our business. As discussed above, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs. The implementation of cost containment measures, including the prescription drug provisions under the Inflation Reduction Act, as well as other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved. Complying with any new legislation and regulatory changes could be time-intensive and expensive, resulting in a material adverse effect on our business. +Further, many states have proposed or enacted legislation and administrative actions that seek to indirectly or directly regulate pharmaceutical drug pricing, such as by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on pharmaceutical products purchased by state agencies. For example, the FDA has authorized the state of Florida to develop a drug importation program to import certain prescription drugs from Canada for a limited period to help reduce drug costs, provided that Florida’s Agency for Health Care Administration meets the requirements set forth by the FDA. Other states may follow Florida. Additionally, a number of states are considering or have enacted state drug price transparency and reporting laws that could substantially increase compliance burdens and expose us to greater liability under such state laws once we begin commercialization after obtaining regulatory approval for any of our products candidates. We cannot be sure to what extent these and future legislative and regulatory efforts, whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. Increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate, if approved, is prescribed or used. +In the EU similar political, economic and regulatory developments may affect our ability to profitably commercialize any future products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. In +49 +Table of Contents +international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. Our future products, if any, might not be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, an adequate level of reimbursement might not be available for such products, and third-party payors’ reimbursement policies might adversely affect our or our strategic partners’ ability to sell any future products profitably. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we or our strategic partners are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our strategic partners are not able to maintain regulatory compliance, any approved products may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business. +Our business may become subject to economic, political, regulatory and other risks associated with international operations. +Our business, financial condition, and stock price may be adversely affected by economic downturns, a volatile business environment, or large-scale unpredictable or unstable or unfavorable market conditions, including a prolonged government shutdown, geopolitical events, or a global pandemic. If events like these occur, our business may be materially and adversely impacted, including making any necessary debt or equity financing more difficult, more costly and more dilutive. +Our business is subject to risks associated with conducting business internationally. We have physical operations and personnel in North America, Europe and Asia. In addition, some of our suppliers and collaborative and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including: +• economic instability or weakness, including inflation, reduced growth, diminished credit availability, weakened consumer confidence or increased unemployment; +• insta bility in the international geopolitical environment, including as a result of the Russian invasion of Ukraine and the conflicts in Israel and the broader Middle East; +• sociopolitical instability in particular foreign economies and markets; +• differing regulatory requirements for drug approvals in foreign countries; +• potentially reduced protection for intellectual property rights; +• difficulties in compliance with non-U.S. laws and regulations; +• c hanges in non-U.S. regulations and customs, tariffs and trade barriers, including any changes that China may impose as a result of political tensions between Canada and China or the United States and China; +• changes in non-U.S. currency exchange rates and currency controls; +• trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments; +• restrictions on cross-border data exchanges; +• differing reimbursement regimes, including price controls; +• negative consequences from changes in tax laws; +• workforce uncertainty in countries where labor unrest is more common than in the United States; +• production shortages resulting from any events affecting raw material supply or manufacturing capabilities outside the United States; +• business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires; and +• supply and other disruptions resulting from the impact of public health epidemics on our strategic partners, third-party manufacturers, suppliers and other third parties upon which we rely. +In particular, there is currently significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs, treatment of intellectual property, taxes, and other limitations on cross-border operations, including but not limited to the provision of services and the exchange of data. The U.S. government has made and continues to make significant additional changes in U.S. trade policy and may continue to take +50 +Table of Contents +future actions that could negatively impact U.S. trade. For example, there have been legislative proposals that would limit the extension of certain specific types of government contracts or renewals, loans, or grants, to companies that may do business with select Chinese biotechnology equipment or service providers. If enacted, such legislation will preclude certain U.S. biotechnology companies from using equipment or services produced or provided by those Chinese biotechnology companies when performing on specified types of agreements with the U.S. government. Others in Congress have advocated for the use of existing executive branch authorities to limit certain Chinese service providers’ ability to engage in business in the United States. We cannot predict whether any proposed legislation will be enacted, what executive actions may implicate these kinds of service relationships, or what other actions may ultimately be taken with respect to trade relations between the United States and China or other countries, including countries which the U.S. government has identified as a foreign adversary that poses national security risks to the United States. +Relatedly, the United States has recently enacted and proposed to enact significant new tariffs. President Trump has directed various federal agencies to further evaluate key aspects of U.S. trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. There continues to exist significant uncertainty about the future relationship between the United States and other countries with respect to such trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our access to third party services as well as disrupt the supply chain for the sourcing of our product candidates. If we or our partners are unable to obtain or use services from existing service providers, unable to source supplies of product candidates or approved drugs, or unable to export or sell approved products our business, liquidity, financial condition, and/or results of operations would be materially and adversely affected. +Our business has been in the past and may in the future be adversely affected by public health outbreaks and pandemics. +Our business has been in the past and may in the future be adversely affected by public health outbreaks and pandemics. If a public health outbreak or pandemic, including a resurgence of COVID-19 cases, leads to disruptions in our industry or to our service providers, particularly in regions where we or our strategic partners and suppliers do business, we could experience disruptions that could significantly impact our current and planned clinical trials, preclinical research and other business activities, including: +• disruption to and delays in preclinical research activities due to extended closure or reduced capacity of lab facilities; +• delays or difficulties in enrolling patients in our ongoing and planned clinical trials; +• patients discontinuing their treatment or follow-up visits; +• delays or difficulties in clinical site initiation, including limitations on access to sites, limitations to site initiation activities that can be carried out remotely, and limitations on the number of clinical site staff on site from time to time; +• interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others; +• shortages, disruptions in supply, logistics or other activities related to the procurement of materials and other supplies, which could have a negative impact on our ability to conduct preclinical research, initiate or complete our clinical trials or commercialize our product candidates; +• diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of clinical trials; +• interruption of key business activities due to illness and/or quarantine of key individuals and delays associated with recruiting, hiring and training new temporary or permanent replacements for such key individuals, both internally and at our third-party service providers and strategic partners; +• limitations in resources that would otherwise be focused on the conduct of our business or our current or planned clinical trials or preclinical research, including because of sickness, the desire to avoid contact with large groups of people, restrictions on travel, or prolonged stay-at-home or similar working arrangements; +• delays in receiving approvals from regulatory authorities to initiate our planned clinical trials; +• changes in regulations as part of a response to public health outbreaks, pandemics, or a resurgence of COVID-19 cases and related disruptions, which may require us to change the ways in which our clinical trials are conducted and incur unexpected costs, or require us to discontinue clinical trials altogether; +51 +Table of Contents +• delays in necessary interactions with regulators (including the FDA), ethics committees and other important agencies and contractors due to limitations in employee resources or furlough of government or contractor personnel; +• disruptions to our strategic partners’ operations, which could delay the development of our product candidates in certain geographical regions and thereby affect the timing of development and commercial milestone payments and royalties on potential future product sales we may receive; and +• limitations on our ability to recruit any necessary preclinical research, clinical, regulatory and other professional staff on the timeframe required to support our research and development programs. +The impact of such disruptions would be highly uncertain and would depend on factors such as the location, duration and severity, travel restrictions and social distancing, business closures or disruptions, and the effectiveness of actions taken to contain and treat the disease and to address its impact, including on financial markets. Public health outbreaks, pandemics, and related disruptions could disrupt the global financial markets, reducing our ability to access capital, which could negatively affect our liquidity and could heighten the volatility of the financial markets, which could adversely impact the value of our common stock. +Our business and current and future relationships with customers and third-party payors in the United States and elsewhere will be subject, directly or indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings. +Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of zanidatamab and any product candidates for which we obtain marketing approval. +Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers, and third-party payors and other entities may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we conduct clinical research on product candidates and market, sell and distribute any approved products. In addition, we may be subject to transparency laws and patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include the following: +• the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid; +• federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, impose criminal or civil penalties, as applicable, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government (including the Medicare and Medicaid programs) or other third-party payor claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; +• HIPAA established the federal offense of health care fraud, which among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g. public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters; +• HIPAA, as amended by HITECH, and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without the appropriate authorization by entities subject to the law, such as health plans, healthcare clearinghouses and healthcare providers and their respective business associates and their covered subcontractors; +• the federal Open Payments program under the Physician Payments Sunshine Act, created under Section 6002 of the PPACA and its implementing regulations, requires applicable group purchasing organizations and manufacturers of +52 +Table of Contents +drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to HHS information related to “payments or other transfers of value” made in the previous year to covered recipients, including physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors, other health care professionals (such as nurse practitioners and physician assistants) and teaching hospitals, and information regarding ownership and investment interests held by physicians (as defined above) or their immediate family members; and +• analogous and similar state and foreign laws and regulations, including: state anti-kickback and false claims laws that may apply to our business practices (including research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by state governmental and non-governmental third-party payors, including private insurers); state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government; state laws that require drug manufacturers to track gifts and other remuneration and items of value provided to healthcare professionals and entities and file reports relating to pricing and marketing information; and state and foreign laws that govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. +Because of the breadth of these laws and the narrowness of any available statutory exceptions and safe harbors, it is possible that some of our current and future business activities could be subject to challenge under one or more of such laws. +Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. Any failure or perceived failure by us to comply with such laws, regulations, or case law may result in governmental investigations or enforcement actions, litigation, claims and other proceedings, harm our reputation, and could result in significant liability. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we expect to do business, including our strategic partners, is found not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business. +We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations that can harm our business. +In addition to potential risks discussed above at the risk factor entitled “ Our business may become subject to economic, political, regulatory and other risks associated with international operations ”, we are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the UK Bribery Act 2010, the Proceeds of Crime Act 2002, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We currently engage third parties for clinical trials outside of the United States and we may in the future engage third parties to sell our products outside of the United States once we enter a commercialization phase, or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violation of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. +53 +Table of Contents +Third-party manufacturers may not be able to comply with U.S. export control regulations, cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in a necessity to replace current third parties, resulting in the possibility of supply delays, clinical holds on our trials, sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or medicines, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business, financial condition, results of operations and growth prospects. +Risks Related to Our Financial Position and Need for Additional Capital +We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one product approved for commercial sale, and, as of December 31, 2024, we have not received any revenue or profit from product sales. We may never achieve or sustain profitability. +We have incurred significant losses since our inception. Our net losses for the years ended December 31, 2024 and 2023 were $122.7 million and $118.7 million, respectively, while our net income for the year ended December 31, 2022 was $124.3 million, which was driven in large part by our entry into the Original Jazz Collaboration Agreement (as defined below) and the receipt of certain payments thereunder, and we do not anticipate being net income positive on a regular basis for the foreseeable future. As of December 31, 2024, our accumulated deficit was $830.3 million. We expect to continue to incur losses for the foreseeable future as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin to commercialize any approved product candidates and add infrastructure, which may include personnel, to support our product development efforts. In addition, inflationary pressure could adversely impact our financial results. The net losses and negative cash flows incurred as of December 31, 2024, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue, including through the receipt of royalties from our strategic partners. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. +To become and remain profitable, we or our strategic partners must succeed in developing and commercializing product candidates with significant market potential. This will require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing product candidates, obtaining regulatory approval for such product candidates, and manufacturing, marketing and selling those product candidates for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenue from product sales or royalties that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment. +Biopharmaceutical prod uct development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never received any revenue from product sales and may never be profitable. +We have devoted substantially all of our financial resources and efforts to developing our proprietary therapeutic platforms, identifying potential product candidates and conducting preclinical studies and clinical trials. Zanidatamab is the only product candidate developed with our therapeutic platforms that has received regulatory approval, and we and our strategic partners are still developing other product candidates. Our revenue as of December 31, 2024 has been primarily revenue from the license of our proprietary therapeutic platforms for the development of product candidates by others or revenue from our strategic partners. Our ability to generate revenue and achieve profitability depends in large part on our ability, alone or with our strategic partners, to achieve milestones and to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. While we anticipate receiving royalties from sales of zanidatamab, we do not anticipate generating revenue from sales of our wholly-owned product candidates in the near term. +We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development programs or operations. +We currently have two clinical-stage product candidates, ZW171 and ZW191. We have licensed zanidatamab to our strategic partner Jazz, which has been responsible for completing its clinical development in the United States and other jurisdictions not covered by our license to BeiGene. In November 2024, Jazz announced the FDA granted accelerated approval for Ziihera ® for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera ® related to the accelerated approval. If the confirmatory trial fails to +54 +Table of Contents +demonstrate a clinical benefit, FDA may remove Ziihera ® from the market, which would negatively impact our ability to earn milestone payments and royalties under our arrangement with Jazz. We are focused on the development of our early-stage product candidates and general discovery efforts. Following the clearance of our IND applications for both ZW171 and ZW191, we are actively progressing with additional submissions in selected non-U.S. countries in relation to our Phase 1 study sites in North America, Europe, and the Asia-Pacific region. +D eveloping pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. In order to obtain regulatory approval, we will be required to conduct clinical trials for each indication for each of our product candidates. Although our collaboration agreements with Jazz and BeiGene provide for additional future funding for zanidatamab, we will continue to require additional funding to advan ce and complete the development of our other product candidates, and such funding may not be available on acceptable terms or at all. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, scale back or eliminate one or more of our development programs or our business operations. +Our future funding requirements will depend on many factors, including: +• the number and characteristics of other product candidates that we pursue; +• the scope, progress, timing, cost and results of research, preclinical development, and clinical trials; +• the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals; +• the costs associated with manufacturing our product candidates and establishing sales, marketing and distribution capabilities; +• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights; +• our ability to hire when needed additional management, scientific and medical personnel; +• the effect of competing products that may limit market penetration of our product candidates; +• our need to implement additional internal systems and infrastructure, including financial and reporting systems; and +• the economic and other terms, timing of and success of our existing strategic partnerships, and any collaboration, asset monetization, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements. +Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through a combination of public and private equity offerings, debt financings, asset monetization, strategic partnerships and grant funding. +Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights. +To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect our stockholders’ rights as common stockholders. For example, from time to time, we have entered into “at-the-market” equity offering programs to sell shares of our common stock including in August 2024, our entry into the Cowen Sales Agreement with TD Cowen as sales agent to sell shares of our common stock, subject to a maximum aggregate dollar amount registered pursuant to an applicable prospectus supplement. As part of the ongoing management of our operations and related funding needs, we evaluate various financing vehicles, including “at-the-market” equity offering programs, and may enter into similar “at-the-market” equity offering programs in the future, as well as other financing transactions. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through partnerships, collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us. We cannot assure that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. +55 +Table of Contents +Our effective tax rate may change in the future. +We are subject to U.S. federal income taxes on our earnings and the earnings of our non-U.S. subsidiaries in a manner that may adversely impact our effective tax rate. For example, we have had to include additional amounts in income (such as interest income) under the so-called “global intangible low-taxed income” regime and may be required to do so in the future under the “global intangible low-taxed income” regime or as a result of the application of “controlled foreign corporation” rules. The United States has enacted the Inflation Reduction Act, which, among other changes, imposes a 1% excise tax on certain stock buybacks and an alternative minimum tax on adjusted financial statement income. In addition, our Canadian tax attributes (including net operating loss and tax credit carryforwards and deductible Scientific Research and Experimental Development Expenditure carryforwards) will generally not be available to offset U.S. income and may be subject to limitation. Further, our future operations and business structure may result in increased tax burden. For example, changes in our clinical development plans and business or commercialization strategies may result in an increased effective tax rate. Taxation of international business operations and intercompany transactions, including transactions between us and non-U.S. subsidiaries, is complicated and our expenses may increase as a result of any steps we take to enhance our compliance efforts. Any changes in the U.S. or non-U.S. taxation of such activities may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations. +Risks Related to Our Dependence on Third Parties +We depend on our collaborative relationship with Jazz to further develop and commercialize zanidatamab, and if our relationship is not successful or is terminated, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab, which could have a material adverse effect on our business. +In October 2022, Zymeworks BC entered into a License and Collaboration Agreement (the “Original Jazz Collaboration Agreement”) with Jazz, under which Jazz obtained development and commercialization rights of zanidatamab throughout the world, but excluding certain territories already covered by Zymeworks BC’s agreement with BeiGene. In April 2023, certain of our subsidiaries entered into a stock and asset purchase agreement with Jazz Inc. (as amended, the “Transfer Agreement”). Pursuant to the terms of the Transfer Agreement, we took a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz by transferring certain assets, contracts and employees associated with our zanidatamab development program to Jazz and its affiliates (the “Program”). As part of the transactions contemplated by the Transfer Agreement, at the closing of the Transfer Agreement in May 2023, Zymeworks BC and Jazz amended and restated the Original Jazz Collaboration Agreement to reflect the transfer of responsibility for the Program (as amended, the “Amended Jazz Collaboration Agreement”). Under the Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously disclosed, were unchanged, except that the costs of the Program (including ongoing costs related to the service providers transferred to Jazz purs uant to the Transfer Agreement) incurred following the closing of the Transfer Agreement are directly borne by Jazz instead of being incurred by us and charged back to Jazz for reimbursement, though Zymeworks BC remains eligible for reimbursement of certain costs for activities where Zymeworks BC maintains responsibility under the Amended Jazz Collaboration Agreement. Other material terms in the Amended Jazz Collaboration Agreement also remain substantially similar to the terms of the Original Jazz Collaboration Agreement, including commercialization, term and termination, and certain other customary terms and conditions, including mutual representations and warranties, indemnification, and confidentiality provisions. We cannot be certain that our amended arrangement with Jazz will simplify, focus, or potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz. We continue to depend on Jazz to collaborate with us to develop and commercialize zanidatamab in the territories covered by the Amended Jazz Collaboration Agreement and, as a result, the eventual success or commercial viability of zanidatamab is largely beyond our control. Any future financial returns to us depend in large part on achievement of regulatory and commercialization milestones, plus a share of any revenue from sales. Therefore, our success, and any associated financial returns to us and our investors, will depend in significant part on Jazz’s performance under the Amended Jazz Collaboration Agreement. +We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Jazz, including: +• adverse decisions by Jazz regarding the development and commercialization of zanidatamab; +• Jazz’s ability to manufacture, directly or through third parties, commercially required quantities of zanidatamab in a timely manner or at all; +• Jazz’s compliance with ongoing post-marketing obligations, including completion of the confirmatory trial for zanidatamab; +56 +Table of Contents +• possible disagreements as to the timing, nature and extent of development plans, including clinical trials or regulatory approval strategy; +• loss of significant rights if we fail to meet our obligations under the agreement; +• changes in key management personnel at Jazz; +• possible disagreements with Jazz regarding the agreement, for example, with regard to ownership of intellectual property rights or program costs and reimbursement matters; and +• Jazz may not perform its obligations as expected. +In November 2024, Jazz announced the FDA granted accelerated approval for Ziihera ® for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera ® related to the accelerated approval. If the confirmatory trial fails to demonstrate a clinical benefit, the FDA may remove Ziihera ® from the market, which would negatively impact our ability to earn milestone payments and royalties under our arrangement with Jazz. In addition, although Jazz is developing zanidatamab for regulatory approval in additional indications, such regulatory approval may never be achieved. If additional indications are not approved, our ability to achieve additional milestone payments and royalties on sales of zanidatamab will be materially and negatively impacted. Jazz is also subject to the risks relating to development and commercialization of product candidates or approved products discussed elsewhere in this “Risk Factors” section, which could restrict Jazz’s ability to further develop and commercialize zanidatamab and negatively impact our ability to achieve milestone payments and royalties. +If either we or Jazz fail to perform our respective obligations, any clinical trial, regulatory approval or development progress could be significantly delayed or halted, could result in costly or time-consuming litigation or arbitration and could have a material adverse effect on our business. In addition, we depend on Jazz to provide certain information to us regarding the Program, and any delay by Jazz in fulfilling its information-sharing obligations under the Amended Collaboration Agreement could impact our understanding of the status of the Program, as well as result in potential delays or inaccuracies in our disclosures relating to the Program. +Decisions by Jazz to emphasize other drug candidates currently in its portfolio ahead of zanidatamab, or to add competitive agents to its portfolio could result in a decision to terminate the agreement, in which event, among other things, we may be responsible for paying any remaining costs of ongoing or future clinical trials. If Jazz decides to terminate the Amended Jazz Collaboration Agreement, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab, which could have a material adverse effect on our business. Any of the above discussed scenarios could adversely affect the timing and extent of the development and commercialization activities related to zanidatamab, which could materially and adversely impact our business. +Our existing strategic partnerships are important to our business, and future strategic partnerships will likely also be important to us. If we are unable to maintain our strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected. +We have limited capabilities for drug development and commercialization of our product candidates, if approved. Accordingly, we have entered into strategic partnerships with other companies that we believe can provide such capabilities, including our collaboration and license agreements with Jazz, BeiGene, BMS, GSK, Daiichi Sankyo, Janssen and Merck. These relationships also have provided us with non-dilutive funding for our wholly-owned pipeline and therapeutic platforms and we expect to receive additional funding under these strategic partnerships in the future. Our existing strategic partnerships, and any future strategic partnerships we enter into, may pose a number of risks, including the following: +• strategic partners have significant discretion in determining the efforts and resources that they will apply to these partnerships; +• strategic partners may not perform their obligations as expected; +• strategic partners may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the partners’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• strategic partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; +57 +Table of Contents +• strategic partners could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the strategic partners believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than our product candidates; +• product candidates discovered in collaboration with us may be viewed by our strategic partners as competitive with their own product candidates or products, which may cause strategic partners to cease to devote resources to the commercialization of our product candidates; +• a strategic partner with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product candidates; +• disagreements with strategic partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; +• we may be dependent on strategic partners to provide certain information to us regarding the development of product candidates, and any delay by our strategic partners to full information-sharing obligations could impact our understanding of such development, as well as result in potential delays or inaccuracies in our disclosures; +• strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; +• strategic partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; +• strategic partnerships may be terminated for the convenience of the partner and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. For example, each of our collaboration and license agreements with Jazz, BeiGene, BMS, GSK, Daiichi Sankyo, Janssen and Merck may be terminated for convenience upon the completion of a specified notice period; +• we may elect to enter into additional licensing or collaboration agreements to partner our product candidates in territories we currently retain, and in the event we grant exclusive rights to such partners, we would be precluded from potential commercialization of our product candidates within the territories in which we have a partner; and +• strategic partners may not have the ability or the development capabilities to perform their obligations as expected, including as a result of the impact of a pandemic or epidemic on our strategic partners’ operations or business. +In addition, our strategic partners are subject to the risks relating to development and commercialization of product candidates discussed elsewhere in this “Risk Factors” section, which could limit their ability to develop and commercialize product candidates and negatively impact our ability to achieve milestone, royalty or other contractual payments. +If our strategic partnerships do not result in the successful development and commercialization of product candidates or if one of our partners terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under our strategic partnership agreements, our development of our therapeutic platforms and product candidates could be delayed and we may need additional resources to develop product candidates and our therapeutic platforms. +We face significant competition in seeking new strategic partners. +For some of our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic products. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The strategic partner may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. +58 +Table of Contents +Strategic partnerships are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future strategic partners. If we are unable to reach agreements with suitable strategic partners on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay one or more of our other development programs, delay potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into strategic partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our therapeutic platforms and our business may be materially and adversely affected. +We rely on third-party manufacturers to produce our product candidates and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product. We and our third-party partners may encounter difficulties with respect to these activities that could delay or impair our ability to initiate or complete our clinical trials or commercialize products. +We do not currently own or operate any manufacturing facilities. We rely on our strategic partners to manufacture product candidates licensed to them or work with multiple third-party contract manufacturers to produce sufficient quantities of materials required for the manufacture of our product candidates for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards, and intend to do so for the commercial manufacture of our products. If we are unable to arrange for such third-party manufacturing sources, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business. +The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. The process of manufacturing our product candidates is susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the third-party manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. All of our engineered antibodies are manufactured in accordance with cGMP by utilizing cells that are stored in a cell bank. We have one master cell bank and one working cell bank for zanidatama b and one master cell bank for each of ZW191 and ZW171. S hould any cell bank be lost in a catastrophic event, it is possible that we could lose part of a cell bank and have our manufacturing potentially impacted by the need to replace the cell bank. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. +Furthermore, reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third party for regulatory compliance and quality control and assurance, volume production, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to manufacture our product candidates in accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to us. In addition, the FDA, EMA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other foreign authorities. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our strategic partners, may result in restrictions on the product or on the manufacturing or laboratory facility, including marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the drug from the market. We may have little to no control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. +59 +Table of Contents +In addition to third-party manufacturers, we rely on other third parties to store, monitor and transport bulk drug substance and drug product. If we are unable to arrange for such third-party sources, or fail to do so on commercially reasonable terms, we may not be able to successfully supply sufficient product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business. +In addition, disruptions to ports and other shipping infrastructure, as were experienced during the COVID-19 pandemic, may result in shortages or delays impacting the availability of materials and other supplies, which could negatively impact our manufacturers, suppliers and other third parties on whom we rely. While we did not suffer any direct, material negative impacts from these supply chain disruptions, we cannot be certain that we will not be impacted by similar disruptions in the future, which could increase our costs or negatively impact our development timelines. +We rely on third parties to monitor, support, conduct and oversee clinical trials of the product candidates that we are developing and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our product candidates or commercialize any products that may result from our development efforts if we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us. +We rely on entities outside of our control, which may include academic institutions, CROs, hospitals, clinics and other third-party strategic partners, to monitor, support, conduct and oversee preclinical studies and clinical trials of our current and future product candidates. We also rely on third parties to perform clinical trials on our current and future product candidates when they reach that stage. As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials with our own personnel. +If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as required by our contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding our product candidates. These third parties, in turn, may face their own constraints in obtaining the resources and personnel needed to perform the work for which we engage them. If these third parties fail to meet expected deadlines, fail to transfer to us any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our product candidates may be extended or delayed with additional costs incurred, or our data may be rejected by the FDA, EMA or other regulatory agencies. +Ultimately, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. +We and our CROs are required to comply with GCP regulations and guidelines enforced by the FDA, the competent authorities of the member states of the EU and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the FDA may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA could determine that any of our clinical trials fail or have failed to comply with applicable GCP regulations. In addition, our clinical trials must be conducted with product produced under the cGMP regulations enforced by the FDA, and our clinical trials may require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and increase our costs. Moreover, our business may be implicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. +If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. Further, if our relationship with any of our CROs is terminated, we may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. +60 +Table of Contents +Switching or adding CROs or other suppliers can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO or supplier commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. If we are required to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable replacement could materially and adversely impact our business. +We rely on third parties for various operational and administrative aspects of our business, including for certain cloud-based software platforms, which impact our financial, operational and research activities. If any of these third parties fail to provide timely, accurate and ongoing service or if the cloud-based platforms suffer outages that we are unable to mitigate, our business may be adversely affected. +We currently rely upon third-party consultants and contractors to provide certain operational and administrative services, including external financial, legal, information technology, clinical and research consultation. The failure of any of these third parties to provide accurate and timely service may adversely impact our business operations. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, or increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs until an equivalent provider could be found, if at all, or we could develop internal capabilities, if ever. If we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial performance. +Further, our operations depend on the continuing and efficient operation of our information technology and communications systems and infrastructure, and specifically on “cloud-based” platforms. These platforms are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks, floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate attempts to harm the systems. The occurrence of a natural or intentional disaster, any decision to close a facility we are using without adequate notice, or particularly an unanticipated problem at our cloud-based virtual server facility, could result in harmful interruptions in our service, resulting in adverse effects to our business. +Risks Related to Our Intellectual Property +Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. +Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. For example, certain patents and patent applications held by third parties cover Fab and Fc region engineering methods for bispecific antibodies, and antibodies having mutations in Fab heavy and light chain regions and Fc regions to generate correctly paired bispecific antibodies. If our products or our strategic partners’ products incorporate any Fab or Fc region mutations covered by any claims of these patents or patents that may issue from these applications, and if licenses for them are not available on commercially reasonable terms or at all, and we are unable to invalidate or render unenforceable those patents, our business could be materially harmed. +There is no assurance that there are not third-party patents or patent applications of which we are aware, but which we do not believe are relevant to our business, which may, nonetheless, ultimately be found to limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. +Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any patent covering any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any patent covering any technology that we require may also materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation. +In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights are commonplace. Any such lawsuits and proceedings could be costly and could affect our results of operations and divert the attention of our management and scientific personnel. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. There is a risk that a court would decide that we or our strategic partners are infringing a third party’s patents and would order us or our strategic partners to stop the activities or stop the manufacture, use, or sale of any product covered by the +61 +Table of Contents +patents. In that event, we or our strategic partners may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court would order us or our strategic partners to pay third-party damages or some other monetary award, depending upon the jurisdiction. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed, and we may be required to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business. +If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed. +Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we have licensed from third parties. Therefore, our owned or in-licensed patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our current and future product candidates in the United States or in other countries. +Moreover, the patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation. The issuance of a patent does not ensure that it is valid or enforceable. Third parties may challenge the validity, enforceability or scope of our issued patents, and such patents may be narrowed, invalidated, circumvented, or deemed unenforceable. In addition, changes in law may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. If our patents are narrowed, invalidated or held unenforceable, third parties may be able to commercialize our technology or products and compete directly with us without payment to us. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and such prior art could potentially invalidate one or more of our patents or prevent a patent from issuing from one or more of our pending patent applications. There is also no assurance that there is not prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. +Furthermore, even if our patents are unchallenged, they may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of other countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the issuance, validity, enforceability, scope and commercial value of our patents in the United States and in other countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. +Our patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged. +Any of our intellectual property rights could be challenged or invalidated despite measures we take to obtain patent and other intellectual property protection with respect to our product candidates and proprietary technology. These challenges could be +62 +Table of Contents +initiated in the courts or administratively in various patent offices. For example, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable or file an administrative action to invalidate our patent. In patent litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material information from the U.S. Patent and Trademark Office (“USPTO”) or the applicable foreign counterpart, or made a misleading statement, during prosecution. A litigant or the USPTO itself could challenge our patents on this basis even if we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith. The outcome following such a challenge is unpredictable. +With respect to challenges to the validity of our patents, for example, there might be invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The cost of defending such a challenge, and any resulting loss of patent protection, could have a material adverse impact on one or more of our product candidates and our business. +Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly to defend and could require us to pay substantial damages, cease the use, manufacture, or sale of certain products or enter into a license agreement and pay royalties (which may not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel. +Our intellectual property rights will not necessarily provide us with competitive advantages. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: +• others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we or our strategic partners own or have exclusively licensed; +• others may independently develop similar or alternative technologies without infringing our intellectual property rights; +• issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; +• we may obtain patents for certain compounds many years before we obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of our patents may be limited; +• our competitors might conduct research and development activities in countries where we do not have patent rights and use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we may fail to develop additional proprietary technologies that are patentable; +• the laws of certain countries may not protect our intellectual property rights to the same extent as the laws of the United States, or we may fail to apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and +• the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product candidates for one or more indications. +Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business. +63 +Table of Contents +We may become involved in lawsuits to protect or enforce our patents and trade secrets, which could be expensive, time consuming and unsuccessful. +Third parties may seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our product candidates. In these circumstances, we may need to defend or assert our patents, including by filing lawsuits alleging patent infringement. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives. +Even after they have issued, our patents and any patents that we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. +The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us: +• we or our strategic partners may initiate litigation or other proceedings against third parties to enforce our patent or trade secret rights; +• third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us; +• third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our strategic partners and/or licensors to participate in such proceedings to defend the validity and scope of our patents; +• there may be a challenge or dispute regarding inventorship or ownership of patents or trade secrets currently identified as being solely or co-owned by us or by a licensor who has granted a license to us; +• the USPTO may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our strategic partners and/or licensors to participate in an interference proceeding to determine the priority of invention, which could jeopardize our patent rights; or +• third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement. +These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. Adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. There is a risk that a court or administrative body would decide that our patents are invalid, unenforceable or not infringed or trade secrets not misappropriated by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents or trade secrets could limit our ability to assert our patents or trade secrets against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. +We may not be able to prevent, alone or with our licensors or licensees, infringement or misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees. +Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. +64 +Table of Contents +The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example: +• others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents; +• others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents; +• we might not have been the first to make the inventions covered by patents or pending patent applications; +• we might not have been the first to file patent applications for these inventions; +• any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or +• we may not develop additional proprietary technologies that are patentable or that afford meaningful trade secret protection. +Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. +Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Further, judicial decisions in the United States raised questions regarding the award of patent term adjustment (“PTA”) for patents in families where related patents have issued without PTA. Thus, it cannot be said with certainty how PTA will be viewed in the future and whether patent expiration dates may be impacted. +If we do not obtain protection under the Hatch-Waxman Amendments and similar legislation in other countries for extending the term of patents covering each of our product candidates, our business may be materially harmed. +Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. +If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected. +In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. For example, we treat our confidential and proprietary computational technologies, including unpatented know-how and other proprietary information, as trade secrets. We enter into confidentiality agreements with our employees, consultants, strategic partners and others upon the commencement of their relationships with us. These agreements provide that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. We cannot guarantee that we have entered into such agreements with each party that has or may have had access to, or houses or hosts, our trade secrets or proprietary information or that has +65 +Table of Contents +been involved in the development of intellectual property. Further, despite such agreements, such inventions or confidential information may become disclosed or assigned to third parties. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in such technology or know-how or in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all. +We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems and cloud storage sources, but such security measures may be breached, including through cyber-hacking or cyberattacks, and we may not have adequate remedies for any breach. +Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and competitive position could be harmed. Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. +As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Such trade secrets or other proprietary information could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. +Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our patents or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. +We may be subject to claims challenging the inventorship of our patents and other intellectual property. +Although we are not currently experiencing any claims challenging the inventorship or ownership of our patents, we may in the future be subject to claims that former employees, strategic partners or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be +66 +Table of Contents +involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. For example, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. +Patent protection and patent prosecution for some of our product candidates may be dependent on, and the ability to assert patents and defend them against claims of invalidity may be maintained by, third parties. +There may be times when certain patents that relate to our product candidates or any approved products are controlled by our licensees or licensors. Although we may, under such arrangements, have rights to consult with our strategic partners on actions taken as well as back-up rights of prosecution and enforcement, we have in the past and may in the future relinquish rights to prosecute and maintain patents and patent applications within our portfolio as well as the ability to assert such patents against infringers. +If any current or future licensee or licensor with rights to prosecute, assert or defend patents related to our product candidates fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner that adversely affects such coverage, our ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. +Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products. +The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or found to be enforceable in our patents, in our strategic partners’ patents or in third-party patents. U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this has created uncertainty with respect to the validity, scope and value of patents, once obtained. +In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act (“AIA”), was signed into law. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties disclosing or claiming the same invention. A third party that has filed, or files a patent application in the USPTO after March 16, 2013, but before us, could be awarded a patent covering a given invention, even if we had made the invention before it was made by the third party. This requires us to be cognizant of the time from invention to filing of a patent application. +Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future. For example, the U.S. Supreme Court held in Amgen v. Sanofi (2023) that a functionally claimed genus was invalid for failing to comply with the enablement requirement of the Patent Act. As such, any of our patent rights with functional claims may be vulnerable to third party challenges seeking to invalidate these claims for lacking enablement or adequate support in the specification. +We may not be able to protect our intellectual property rights throughout the world. +Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries +67 +Table of Contents +outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our current or future products, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. U.S. Supreme Court cases have narrowed the scope of what is considered patentable subject matter, for example, in the areas of software and diagnostic methods involving the association between treatment outcome and biomarkers. This could impact our ability to patent certain aspects of our technology in the United States. +Many companies have encountered significant problems in protecting and defending intellectual property rights in jurisdictions other than the United States. The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. +The requirements for patentability may differ in certain countries, which may make it more difficult for us to obtain sufficient claim scope to protect our products in those jurisdictions. India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. +Geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors or licensees and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors or licensees. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. +As another example, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary patent system was introduced on June 1, 2023, which will significantly impact European patents, including those granted before the introduction of this system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which is subject to the jurisdiction of the Unitary Patent Court (the “ UPC ” ). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC are potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. +We use open source software in connection with our internal research and development programs, which could negatively affect our ability to develop products and subject us to litigation or other actions. +We use open source software in connection with our internal research and development programs. The terms of many open source licenses have not been interpreted by U.S. courts or courts outside of the United States, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to use this software. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software, or claiming that software we developed using such open source software is a derivative work of open source software and demanding the release of portions of our source code, or otherwise seeking to enforce the terms of the applicable open source license. Litigation could be costly for us to defend, have a negative effect on our financial condition and results of operations or require us to devote additional research and development resources to change our platform and offerings. +If we were to combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to relea se the source code of our proprietary software to the public. If we inappropriately use open +68 +Table of Contents +source software, or if the license terms for open source software that we use change, we may be required to re-engineer our platform, incur additional costs, discontinue the use of some or all of our platform or take other remedial actions. +In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, because open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. Many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business, financial condition and results of operations. +We will need to obtain FDA approval for any proposed product candidate names, and any failure or delay associated with such approval may adversely affect our business. +Any proprietary name or trademark we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the USPTO. The FDA typically conducts a review of proposed product candidate names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies certain medical claims or contributes to an overstatement of efficacy. If the FDA objects to any product candidate names we propose, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of any existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates. +Risks Related to Additional Legal and Compliance Matters +Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, insider trading, and noncompliance with our policies and procedures. +We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Conduct and Business Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. In addition, employees may become subject of allegations of gender discrimination and other misconduct that are not in compliance with our policies and procedures, which, regardless of the ultimate outcome, may result in adverse publicity that could materially harm our brand, reputation and business. +If we or our contractors or agents market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws and transparency laws, we may be subject to civil or criminal penalties. +In addition to FDA restrictions on the marketing of pharmaceutical products, federal and state healthcare laws restrict certain business practices in the biopharmaceutical industry. If our product candidates are approved and we begin commercialization, we will be subject to additional healthcare laws and regulations enforced by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. These state and federal healthcare laws, commonly referred to as “fraud and abuse” laws, have been applied to restrict certain marketing practices in the pharmaceutical industry, and include anti-kickback, false claims, data privacy and security and transparency statutes and regulations. +Federal false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false +69 +Table of Contents +claim paid. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which may apply to items such as pharmaceutical products and services reimbursed by private insurers. Administrative, civil and criminal sanctions may be imposed under these federal and state laws. +The federal civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. +HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services. +We may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business, including HIPAA, as amended by HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable information. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways. These state laws may not have the same effect and often are not preempted by HIPAA, thus complicating compliance efforts. +The PPACA also included the federal Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other transfers of value made in the previous year to covered recipients, including physicians and teaching hospitals, including certain ownership and investment interests held by physicians or their immediate family members. Failure to comply with the required reporting requirements could subject applicable reporting entities such as manufacturers to substantial civil monetary penalties. +Many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Certain states require pharmaceutical companies to implement a comprehensive compliance program that includes a limit or outright ban on expenditures for, or payments to, individual medical or health professionals and/or require pharmaceutical companies to track and report gifts and other payments made to physicians and other healthcare providers. +If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected. +Our research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by certain jurisdictions in which we operate to cover us for costs and expenses we may +70 +Table of Contents +incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations. +We may be subject to certain costs and inefficiencies as a result of our 2022 Redomicile Transactions. +We became a Delaware corporation in October 2022 as a result of the Redomicile Transactions. Pursuant to the agreements governing the Redomicile Transactions, we agreed to use reasonable efforts to take certain corporate steps and actions, as may be necessary or desirable, to effect and implement certain post-arrangement transactions, including the internal reorganization of certain subsidiaries (the “Post-Arrangement Transactions”). Following the entry into the Original Jazz Collaboration Agreement subsequent to the Redomicile Transactions, we determined that completing the Post-Arrangement Transactions as originally contemplated would result in negative tax consequences. As a result, we do not currently intend to complete the Post-Arrangement Transactions. While we expect to manage any tax and operational inefficiencies that may result under our current organizational structure, and we may pursue additional internal reorganizations in the future, certain tax and operational inefficiencies may persist notwithstanding our management and/or additional reorganization that could adversely affect our business, financial condition and results of operations (including, for example, the requirement to recognize certain income (such as interest income) under the “global intangible low-taxed income” regime). +We incurred a number of non-recurring costs associated with the Redomicile Transactions, and the associated reorganization of our corporate structure may result in additional and unforeseen expenses in the future. While it is expected that benefits of the Redomicile Transactions will offset these transaction costs over time, this net benefit may not be achieved in the short-term or at all. These combined factors could adversely affect our business and overall financial condition. +Risks Related to Employee Matters and Managing Growth +Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. +We are highly dependent on key members of our senior management team, including Kenneth Galbraith, the Chair of our board of directors, President, and Chief Executive Officer, Leone Patterson, our Chief Business Officer and Chief Financial Officer, Paul Moore, our Chief Scientific Officer, Jeffrey Smith, our Chief Medical Officer, and other key members of our senior management, scientific and clinical teams. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. The loss of the services of our key senior managers and employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. +Retention and any future recruitment of qualified scientific, technical, clinical, manufacturing and sales and marketing personnel will also be critical to our success. If we are successful in advancing the development of our early-stage candidates, we will need to evaluate any organizational hiring needs. In addition, we will need to effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates. Furthermore, replacing key senior managers and employees may be difficult and may take an extended period of time because of the limited talent pool in our industry due to the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Intense competition for attracting key skill-sets and the impact of inflationary pressure on wages may limit our ability to attract, retain and motivate key personnel on acceptable terms. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our business strategy will be limited. +As we advance our development and commercialization plans and strategies, we may need to grow or modify our organization, and we may experience difficulty in managing such change, which could disrupt our operations. +As of December 31, 2024, we had 280 full-time employees. As we advance our development and commercialization plans and strategies in the future, we anticipate that we may need to expand or modify our employee base. As our product candidates enter and advance through preclinical studies and any clinical trials, we may need to expand or modify our development, manufacturing, regulatory sales and marketing capabilities or contract with other organizations to provide these capabilities for +71 +Table of Contents +us. We believe the need for future expansion or modification in these areas will increase a s our product candidates reach later stages of preclinical and clinical development. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing any necessary growth activities. We may not be able to effectively manage an expansion or modification of our operations, which may result in weaknesses in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity amongst remaining employees. Any growth or organizational modification could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively manage any needed growth or organizational modifications, our expenses may increase more than expected, our ability to generate or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively with others in our industry will depend on our ability to effectively manage any future growth or organizational modification. +Risks Related to Our Common Stock +Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders. +Investors should consider an investment in our common stock as risky and invest only if they can withstand a significant loss and wide fluctuations in the market value of their investment. Investors may be unable to sell their common stock at or above the price they paid for such stock due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. Factors that may cause the market price of our common stock to fluctuate include: +• results and timing of our clinical trials and clinical trials of our competitors’ products; +• failure or discontinuation of any of our development programs; +• the success of our partnerships; +• our ability to achieve milestones and receive associated milestone payments pursuant to the terms of our partnerships; +• issues in manufacturing our product candidates or future approved products; +• regulatory developments or enforcement in the United States and foreign countries with respect to our product candidates or our competitors’ products; +• competition from existing products or new products that may emerge; +• developments or disputes concerning patents or other proprietary rights; +• introduction of technological innovations or new commercial products by us or our competitors; +• announcements by us, our strategic partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; +• actions taken by industry or securities analysts that cover our company or common stock, including changes in estimates or recommendations, inaccurate or unfavorable research or a decision to drop coverage; +• fluctuations in the valuation of companies in the biotechnology industry or otherwise perceived by investors to be comparable to us; +• additional instances of stockholder activism, including unsolicited takeover proposals or proxy contests; +• public concern over our product candidates or any future approved products; +• litigation; +• future sales of our common stock or the perception that such sales could occur; +• stock price and volume fluctuations attributable to inconsistent trading volume levels of our common stock; +• additions or departures of key personnel; +• our ability to execute on our key strategic priorities; +• changes in the structure of health care payment systems in the United States or other countries; +• failure of zanidatamab or our product candidates, if approved, to achieve commercial success; +72 +Table of Contents +• economic and other external factors or other disasters or crises, including pandemics; +• period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements; +• general market conditions and market conditions for biopharmaceutical stocks; +• potential disagreements or disputes with certain of our stockholders; +• our ability to effectively address environmental, social, and governance matters affecting our business that are a focus of certain investors, environmental activists, the media, and governmental and nongovernmental organizations; +• overall fluctuations in U.S. equity markets; +• purchases under our Repurchase Program; and +• other factors that may be unanticipated or out of our control. +The stock market in general, and the stock of biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies, which has resulted in increased volatility and decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments, may negatively affect the market price of our common stock, regardless of our actual operating performance. Securities class action litigation has often been brought against companies following a decline in the market price of their securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a material adverse effect on the market price of our common stock. +An active trading market for our common stock may not be sustained. +If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their stock without depressing the market price for the common stock or sell their common stock at or above the prices at which they acquired their common stock or sell their common stock at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling common stock and may impair our ability to acquire other companies or technologies by using our common stock as consideration. +We may fail to meet the continued listing requirements of the Nasdaq Stock Market LLC (“Nasdaq”). If Nasdaq delists our shares of common stock from trading on its exchange, we could face significant material adverse consequences, including: +• significant impairment of the liquidity for our common stock, which may substantially decrease the market price of our common stock; +• a limited availability of market quotations for our securities; +• a determination that our common stock qualifies as a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock; +• a limited amount of news and analyst coverage for our company; and +• a decreased ability to issue additional securities or obtain additional financing in the future. +Our management team has broad discretion to use the net proceeds from our financing activities as well as funds received pursuant to our strategic collaborations, and its investment of these proceeds may not yield a favorable return. They may invest the proceeds in ways with which our stockholders disagree. +Our management team has broad discretion in the applicatio n of the proceeds we receive from our financing activities and from our strategic collaborations, and we could spend or invest the proceeds in ways with which our stockholders disagree. Accordingly, stockholders will need to rely on our management team’s judgment with respect to the use of these proceeds. The failure by management to apply these funds effectively could negatively affect our ability to operate and grow our business. We cannot specify with certainty all of the particular uses for the net proceeds received from our fundraising efforts or for funds received pursuant to our strategic collaborations and our actual expenditures will depend upon numerous factors. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. +73 +Table of Contents +We do not anticipate paying cash dividends for the foreseeable future, and accordingly, stockholders must rely on stock appreciation for any return on their investment. +We have never paid any dividends on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our business and do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be the sole source of gain on investment in our common stock for the foreseeable future. Investors seeking cash dividends should not invest in our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon many factors, and, as a result, future dividends payable to investors are not guaranteed. +Our principal stockholders, in aggregate, could exert substantial influence over us which could delay or prevent a change in corporate control or result in the entrenchment of management or the board of directors. +Our principal stockholders, being our stockholders that beneficially own 5% or more of our common stock, together with their affiliates and related persons, in aggregate, beneficially owned approximately 53.9% of our outstanding common stock as of December 31, 2024. Our directors and executive officers beneficially owned, in the aggregate, approximately 2.3% of our outstanding common stock as of December 31, 2024. Our principal stockholders, if acting together (with or without our directors and executive officers), may have the ability to exert substantial influence over the outcome of matters submitted to our stockholders for approval, including the election and remova l of directors and any merger or sale of all or substantially all of our assets. In addition, our principal stockholders, if acting together (with or without our directors and executive officers), may have the ability to exert substantial influence over the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common stock by: +• delaying, deferring, or preventing a change in control; +• entrenching our management or the board of directors; +• impeding a merger, takeover, or other business combination involving us; or +• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. +We qualify as a smaller reporting company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to such companies could make our common stock less attractive to investors. +We qualify as a “smaller reporting company,” as defined under the Exchange Act, and, for as long as we continue to be a smaller reporting company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies. +In addition, we are a “non-accelerated filer” as defined under the Exchange Act. For as long as we continue to be a non-accelerated filer, we are eligible to take advantage of an exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. For this Annual Report on Form 10-K for the year ending December 31, 2024, we are relying on this exemption and have not obtained an attestation from our independent registered public accounting firm. Our decision to rely on this exemption may have a detrimental impact on our ability to maintain the adequacy of our internal control over financial reporting, and any failure to maintain adequacy, or inability to produce accurate financial statements or other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. As a result of our decision to rely on certain of these disclosure exemptions, the information we provide stockholders will be different than the information that is available with respect to other public companies and some investors may find our shares of common stock less attractive, which may result in a less active trading market for our common stock. +If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. +Under the Sarbanes-Oxley Act of 2002, we are required to establish and maintain effective internal control over financial reporting and adequate disclosure controls and procedures. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the +74 +Table of Contents +level at which our internal controls are documented, designed, implemented or reviewed. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. +We plan to transition to a new enterprise resource planning system in 2025, which we believe will lead to improvements in our internal control over financial reporting; however, the full impact of this transition is not yet known. If, during the evaluation and testing process of our internal controls, we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses in our internal controls over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. Furthermore, if we cannot provide reliable financial reports or prevent fraud, including as a result of remote working by our employees, our business and results of operations would likely be materially and adversely affected. +Holders of our Exchangeable Shares are subject to additional risks. +Pursuant to the Redomicile Transactions, certain holders of common shares of our predecessor company exchanged their common shares for exchangeable shares (“Exchangeable Shares”) in the capital of our subsidiary Zymeworks ExchangeCo Ltd. (“ExchangeCo”). Exchangeable Shares are exchangeable at the option of the holder for shares of our common stock. +Exchangeable Shares are subject to additional risks, including: +• The Exchangeable Shares are not and will not be listed on any stock exchange. There is no market through which the Exchangeable Shares may be sold, and holders may not be able to sell their Exchangeable Shares. +• Holders of Exchangeable Shares who request an exchange may not receive shares of our common stock until a period of time after the applicable request is received. During this period, the market price of our common stock may increase or decrease. Any such increase or decrease would affect the value of the consideration to be received by such a holder of Exchangeable Shares upon a subsequent sale of shares of our common stock received in the exchange. +• Exchangeable Shares may be subject to different tax consequences under Canadian law depending on whether the exchangeable shares are disposed of in a redemption or an acquisition by one of our subsidiaries, and such transaction may not be within the control of the holder. +• The tax treatment of Exchangeable Shares for non-Canadian tax purposes, including U.S. federal income tax purposes, is uncertain. +Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock. +Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of Zymeworks more difficult or delay or prevent changes in control of its management. Among other things, these provisions: +• authorize our board of directors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval; +• permit only the board of directors to establish the number of directors and fill vacancies and newly created directorships on the board, provided that the board of directors’ ability to increase the size of the board and fill vacancies and newly created directorships will be subject to the restrictions in our amended and restated certificate of incorporation and amended and restated bylaws; +• establish that members of our board of directors serve in one of three staggered terms of three years each; +• provide that our directors may only be removed by the affirmative vote of at least 66 2/3% of the voting power of the shares cast on such proposal; +• permit stockholders to only take actions at a duly called annual or special meeting and not by written consent; +75 +Table of Contents +• require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings; +• not provide for cumulative voting rights in the election of directors; +• provide that special meetings of Zymeworks’ stockholders may be called only by the board of directors, the chairperson of the board of directors, Zymeworks’ chief executive officer, president or the secretary upon request from holders of no less than 20% of our outstanding voting stock, subject to the limitations and requirements set forth in our amended and restated bylaws; and +• require a super-majority vote of stockholders to amend some of the provisions described above. +In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a period of three years following the date on which the stockholder became an “interested stockholder” unless certain conditions are met. +These provisions, alone or together, could delay, discourage or prevent a transaction involving a change in control of Zymeworks. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause Zymeworks to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of common stock, and could also affect the price that some investors are willing to pay for our common stock. +Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between Zymeworks and its stockholders, and also provide that the federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit our stockholders’ ability to choose the judicial forum for disputes with Zymeworks or its directors, officers, stockholders or employees. +Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers or other employees to Zymeworks or our stockholders, (3) any action arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction. This provision does not apply to any action brought to enforce a duty or liability created by the Exchange Act and the rules and regulations thereunder. +Section 22 of the Securities Act establishes concurrent jurisdiction for federal and state courts over Securities Act claims. Accordingly, both state and federal courts have jurisdiction to hear such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. +Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be deemed to have notice of and consented to the foregoing bylaw provisions. Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our current or former directors, officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and other employees. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions. +The enforceability of similar exclusive forum provisions in other companies’ organizational documents have been challenged in legal proceedings, and, while certain courts have determined these provisions are enforceable, it is possible that a court of law +76 +Table of Contents +could rule that these types of provisions are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find either exclusive forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur significant additional costs associated with resolving such action in other jurisdictions, which could harm our financial condition and results of operations. +There can be no assurance that we will repurchase additional shares of our common stock or that we will repurchase shares at favorable prices. +In August 2024, our board of directors approved the Repurchase Program, pursuant to which we are authorized to repurchase up to $60.0 million of our common stock from time to time through open market transactions, or other means in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act. As of December 31, 2024, we have repurchased 2,545,402 shares of our common stock under the Repurchase Program. The timing, number of shares repurchased, and prices paid for any additional shares of stock repurchased under this program will depend on general business and market conditions as well as corporate and regulatory limitations, prevailing stock prices, and other considerations. Our Repurchase Program may be suspended or discontinued at any time, and does not obligate us to acquire any additional shares of common stock. +Our ability to make share repurchases will depend upon market conditions, cash balances and future capital requirements, results of operations, financial condition, compliance with applicable legal requirements and other factors that we may deem relevant and which may be beyond our control. In addition, we can provide no assurance that we will repurchase stock at favorable prices. As a result, there can be no guarantee around the timing of our share repurchases. Any failure to repurchase additional shares of stock, a reduction in the frequency of repurchases, or the completion of our Repurchase Program could have a negative effect on our reputation, investor confidence in us and our stock price. +The existence of our Repurchase Program could cause our stock price to be higher than it otherwise would be and could potentially reduce the market liquidity for our stock. Although our Repurchase Program is intended to enhance long-term stockholder value, there is no assurance that it will do so because the market price of our common stock may decline below the levels at which we repurchase shares, and short-term stock price fluctuations could reduce the effectiveness of the program. +Repurchasing our common stock reduces the amount of cash we have available, and we may fail to realize the anticipated long-term stockholder value of any share repurchase program. +Item 1B. Unresolved Staff Comments. +Not applicable. +Item 1C. Cybersecurity. +Our board of directors is responsible for overseeing our risk management program, and cybersecurity is a critical element that has been integrated into our overall risk management program . Management is responsible for the day-to-day administration of our risk management program and our cybersecurity policies, processes, and practices. +We aim to incorporate industry practices throughout our cybersecurity program. Our cybersecurity strategy focuses on implementing effective and efficient controls, technologies, and other processes to assess, identify, and manage cybersecurity risks. Our cybersecurity program is informed by applicable industry standards and is assessed regularly by independent third-party auditors. +Cybersecurity Risk Management and Strategy +Our cybersecurity risk management strategy focuses on several areas: +• Identification and Escalation: We have implemented a cross-functional approach to assessing, identifying and managing cybersecurity threats and incidents. Our program includes controls and procedures to identify, classify and escalate certain cybersecurity incidents to provide management visibility and obtain direction from management. +• Technical Safeguards: We implement technical safeguards that are designed to protect our information systems from cybersecurity threats, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence, as well as outside audits. +77 +Table of Contents +• Incident Response and Recovery Planning: We have established and maintain an incident response plan and a business continuity and disaster recovery plan designed to address our response to a cybersecurity incident. +• Third-Party Risk Management: We maintain a risk-based approach to identifying and overseeing cybersecurity threats presented by third parties, including vendors, service providers, and other external users of our systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems, including any outside auditors or consultants who advise on our cybersecurity systems. +• Education and Awareness: We provide regular, mandatory training for all employees regarding cybersecurity threats as a means to equip our employees with tools to make employees aware of and to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes, and practices. +We, like any company operating in the current environment, have experienced cybersecurity incidents in the past. However, we have not experienced a cybersecurity event that was determined to be material. For additional information regarding whether any risks from cybersecurity threats are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, see Item 1A, “Risk Factors”, of this Annual Report on Form 10-K, including the risk factor titled “ Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. ” +Governance +Our board of directors, in coordination with the audit committee of our board of directors, oversees our risk management program, including the management of cybersecurity threats. Our board of directors and our audit committee receive prompt and timely information regarding cybersecurity risks, as well as ongoing updates regarding any such risk, from senior management. +Our Vice President of Information Technology and Facilities, who has over 20 years’ experience with cybersecurity at public companies, in coordination with senior management including our Executive Vice President, Chief Business and Financial Officer, works collaboratively across our company to implement a program designed to protect our information systems from cybersecurity threats and to promptly respond to cybersecurity incidents in accordance with our incident response and recovery plans. To facilitate the success of our cybersecurity program, a cross-functional team throughout our company addresses cybersecurity threats and responds to cybersecurity incidents. Through ongoing communications with this team, the Vice President of Information Technology and Facilities and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Audit Committee when appropriate. +Item 2. Properties. +Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709. We maintain physical operations and personnel in Canada, the United States, Ireland and Singapore. +Our Vancouver offices are located in a single building containing office and laboratory space at 114 East 4th Avenue, Suite 800, Vancouver, British Columbia, Canada, V5T 1G4. The lease for our Vancouver location, which we entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. +Our primary U.S. office is located in Bellevue, Washington at 777 108th Avenue NE, Suite 1700, Bellevue, Washington, 98004. We entered into a sublease for this location in August 2023, which expired in December 2024. In November 2023, we entered into a direct lease for this location that has a term that commenced in January 2025 and that expires in June 2026, with one five-year extension option. +We also have an office in Redwood City, California at 555 Twin Dolphin Drive, Suite 360, Redwood City, California, 94065. The lease for this location, which we entered into in November 2023, has an expiration date in August 2027, with one five-year extension option. +Our Ireland office is located in Dublin at Digital Office Centre - Dublin Airport, Office 104, Balheary Demense, Balheary Road, Swords, Dublin, Ireland. The original license to occupy this space, which we entered into in December 2022, had an original expiration date in November 2023, but automatically renewed until November 2024. In December 2024, we entered +78 +Table of Contents +into a new license to occupy this space with a term expiring in November 2025, which automatically renews for subsequent 12-month terms unless we provide two months ’ prior written notice that we do not want to renew. +Our Singapore office is located at #01-08 Science Park 1, 2 Science Park Drive, Singapore, 118222. The license to occupy this space, which we entered into in March 2023, has a term expiring in April 2025, which automatically renews for subsequent six-month periods unless we provide six months’ prior written notice that we do not want to renew. +In addition, a significant number of employees work remotely. Our executive officers and directors are located in several jurisdictions, including the United States, Canada, Ireland and the UK. Our personnel in the UK have access to a co-working space in the UK. +We believe that our existing facilities are adequate for our immediate needs and our anticipated growth. We believe that, should it be needed, additional space can be leased to accommodate any future growth. +Item 3. Legal Proceedings +From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. As of December 31, 2024, we are not a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. +Item 4. Mine Safety Disclosures +Not applicable. +79 +Table of Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock, $0.00001 par value per share, is traded on Nasdaq under the symbol “ZYME.” Prior to December 16, 2022, our common stock was traded on the NYSE under the symbol “ZYME”. +Holders +As of March 3, 2025, we had 80 stockholders of record holding our common stock. A substantially greater number of holders of Zymeworks’ common stock are “street name” or beneficial holders whose shares of record are held by banks, brokers, and other financial institutions. +Dividends +We have never paid any dividends on our common stock or any of our other securities. We currently intend to retain any future earnings to finance the growth and development of our business, and we do not anticipate that we will declare or pay any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, restrictions under any future indebtedness and other factors the board of directors deems relevant. +Performance Graph +As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, and pursuant to Instruction 6 to Item 201(e) of Regulation S-K, we are not required to provide the stock performance graph. +Recent Sales of Unregistered Securities +We di d not sell securities without registration under the Securities Act during the fiscal year ended December 31, 2024. +Issuer Repurchases of Equity Securities +On August 1, 2024, our board of directors authorized the Repurchase Program, whereby we may repurchase up to $60.0 million of our outstanding common stock, par value $0.00001 per share. In the fourth quarter of 2024, shares of common stock purchased under the authorization consisted of the following: +Period +Total number of shares purchased +Average price paid per share (1) +Total number of shares purchased as part of publicly announced plans or programs +Approximate dollar value of shares that may yet be purchased under publicly announced plans or programs (in millions) +October 1, 2024 - October 31, 2024 726,872 $ 12.95 726,872 $ 30.0 +November 1, 2024 – November 30, 2024 +— — — 30.0 +December 1, 2024 – December 31, 2024 — — — 30.0 +726,872 $ 12.95 726,872 $ 30.0 +________________________ +(1) Average price paid per share excludes commission expense and estimated excise tax. +As of October 31, 2024, we completed the initial $30.0 million of the Repurchase Program for 2,545,402 shares of our common stock at an average price per share of $11.79 (exclusive of commission expense and estimated exci se tax). +80 +Table of Contents +Item 6. Reserved +81 +Table of Contents +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and the Exchange Act. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this Annual Report on Form 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K. The discussion regarding our financial condition and results of operations for fiscal 2023 as compared to fiscal 2022 has been omitted from this Annual Report on Form 10-K and is incorporated by reference from our Annual Report on 10-K for the fiscal year ended December 31, 2023, filed with the SEC and with the securities commissions in all provinces and territories of Canada on March 6, 2024, under the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +Unless the context otherwise requires or otherwise expressly states, all references in this Annual Report on Form 10-K to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until completion of the Redomicile Transactions, refer to Zymeworks BC and its subsidiaries and (ii) for periods after completion of the Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries. +Overview +Zymeworks is a clinical-stage biotechnology company developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases such as cancer, and AIID. Our complementary therapeutic platforms and fully integrated drug development engine provide the flexibility and compatibility to precisely engineer and develop highly differentiated antibody-based therapeutic candidates from preclinical candidate screening through to registrational clinical trials. +We commenced operations in 2003 and have since devoted substantially all of our resources to research and development activities including developing our therapeutic platforms, identifying and developing potential product candidates and undertaking preclinical studies and clinical trials. Additionally, we have supported our research and development activities with general and administrative support, as well as by raising capital, conducting business planning and protecting our intellectual property. We have not generated any revenue from the sale of approved products as of December 31, 2024, and, other than the anticipated receipt of royalties relating to sales of zanidatamab, we do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our product candidates. We cannot be certain of the timing or success of approval of our product candidates. +Since our initial public offering (“IPO”) in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, and payments received under our license and collaboration agreements. Payments received or receivables from our license and collaboration agreements include upfront fees, milestone and royalty payments, as well as research support and reimbursement payments. Prior to our IPO, we also received financing from private equity placements and the issuance of convertible debt, which was subsequently converted into equity securities, and a credit facility. From inception to December 31, 2024, we received $1,003.0 million, net of equity issuance costs, from these sources of financing including proceeds from exercises of stock options and employee stock purchase plans. As of December 31, 2024, we had $324.2 million of cash resources consisting of cash, cash equivalents and marketable securities. +Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our existing cash and cash equivalents and marketable securities as of December 31, 2024, will enable us to fund our operating expenditures and capital expenditure requirements for at least the next twelve months from the date of this Annual Report on Form 10-K is filed with the SEC. +We reported a net loss of $122.7 million for the year ended December 31, 2024, and through December 31, 2024, we had an accumulated deficit of $830.3 million. Over the next several years, we expect to continue to incur losses as we increase our research and development expenditures in connection with the ongoing development of our product candidates and other clinical, preclinical and regulatory activities. +82 +Table of Contents +Recent Developments +Wholly-Owned Programs +In November 2024, we announced that the first patient has been dosed in our first-in-human Phase 1 trial (NCT06555744) to evaluate the safety and tolerability of the investigational therapy ZW191 in the treatment of advanced FR⍺-expressing solid tumors including ovarian, endometrial, and NSCLC cancers. The Phase 1 trial is a two-part, multi-center, global study that aims to enroll 145 adult patients with advanced FR⍺-expressing cancers. We are currently enrolling patients at investigator sites in North America, Europe, and the Asia-Pacific region. Recruitment in the dose escalation portion of the study remains ongoing to evaluate the safety and tolerability of ZW191 in patients with advanced ovarian, endometrial, and NSCLC cancers, with secondary endpoints assessing pharmacokinetics and confirmed objective response rate. +In November 2024, at the annual Society for Immunotherapy of Cancer (“SITC”) Conference we shared a poster presentation titled “Mechanistic QSP modeling and translational strategy for determining a First-In-Human dose for ZW171, a bispecific 2+1 TCE molecule targeting mesothelin and CD3” (Abstract #: 1062), which demonstrates how a Quantitative System Pharmacology (“QSP”) model was developed for ZW171 using in vitro data, pharmacokinetics (“PK”) data from cynomolgus monkey, and literature data (e.g., CD3 receptors per T cells, number of T cells in central and peripheral compartments, and clinical PK data of MSLN-targeting TCE) to facilitate the selection of the ZW171 starting dose for our Phase 1 clinical study. Recruitment in the dose escalation portion of the clinical study remains ongoing in patients with advanced ovarian and NSCLC cancers. +In December 2024, we hosted an R&D day highlighting continued clinical progress on our solid tumor programs in oncology and expansion into AIID. Key highlights from the event included: +• Nomination of ZW209, a novel TriTCE, as fifth development candidate in our “5 by 5” solid tumor portfolio. We expect to submit an IND to commence Phase 1 clinical studies for ZW209 in 1H-2026, with equivalent non-U.S. applications submitted thereafter. +• Expansion into AIID and hematology oncology leverages our clinically validated Azymetric technology platform and expertise in multispecific therapeutics. +• Nomination of ZW1528, our first development candidate in AIID, demonstrates dual blockade of two complementary pathways of respiratory inflammation and offers potential benefit in mixed-type COPD. We expect to submit an IND to commence Phase 1 clinical studies for ZW1528 in 2H-2026, with equivalent non-U.S. applications submitted thereafter. +In March 2025, we announced that, based on our encouraging preclinical results and the unique potential opportunity to help hepatocellular carcinoma patients, we have decided to reprioritize resources for the advancement of ZW251, for which an IND submission is now planned for mid-2025. As a result, we have paused preparations for the commencement of Phase 1 studies of ZW220 at this time. However, we believe ZW220 remains a highly differentiated, IND-ready ADC with encouraging preclinical data and strong commercial rationale with partnership potential. We remain on track to deliver five IND applications as part of our “5 by 5” solid tumor strategy, including ZW220, which remains IND-ready. +Zanidatamab Clinical Program +In November 2024, the FDA granted U.S. Approval of Ziihera® (zanidatamab-hrii) for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Under the terms of the Jazz license and collaboration agreement, we have earned a milestone payment of $25.0 million based on the FDA approval in BTC. We are also eligible to receive up to a further $500 million in regulatory milestone payments and up to $862.5 million in commercial milestone payments, as well as tiered royalties between 10% to 20% of net sales by Jazz. +Ziihera® net product sales by Jazz were $1.1 million in 2024 and 4Q-2024 after the initial product launch and availability in December 2024 following FDA approval in November 2024. Our royalties from net sales by Jazz have been reflected in our income statement in 4Q-2024. +The Phase 3 HERIZON-BTC-302 confirmatory trial is ongoing to evaluate zanidatamab in combination with standard-of-care therapy versus standard-of-care therapy alone in the first-line setting for patients with HER2+ BTC. Zanidatamab is also being investigated in a number of additional tumor types, including Phase 3 trials in GEA and metastatic breast cancer (“mBC”). The HERIZON-GEA-01 trial is evaluating the potential of zanidatamab plus chemotherapy with or without tislelizumab as first-line treatment for patients with advanced/metastatic HER2+ GEA and top-line progression-free survival data from this study is expected to be available in 2H-2025. The EmpowHER-303 trial is evaluating the potential of zanidatamab in combination with +83 +Table of Contents +physician’s choice chemotherapy for the treatment of HER2+ mBC for patients who have progressed on, or are intolerant to, previous trastuzumab deruxtecan treatment. +Oth er Matters +On February 18, 2025, we announced the appointment of Mr. Oleg Nodelman to our board of directors effective February 17, 2025. +In January 2025, we achieved a $14.0 million cash research milestone associated with a clinical milestone under our 2016 platform technology transfer and license agreement with GSK. Under the terms of this agreement, we previously received an upfront technology access fee payment and we remain eligible to receive research, development, and commercial milestone payments of up to $1.1 billion. In addition, we are eligible to receive tiered royalties on worldwide sales. +Financial Operations Overview +Revenue +Our revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding, milestone payments and royalties earned under collaboration and license agreements. We expect that collaboration revenue from our strategic partnerships will be our primary source of revenue for the foreseeable future. +Operating Expenses +Our operating expenses consist primarily of research and development expenses and general and administrative expenses. Personnel costs, including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate certain indirect expenses associated with our facilities, information technology, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee. +Research and Development Expense +Research and development expenses consist of expenses incurred in performing research and development activities such as conducting clinical trials and preclinical research studies, technical and manufacturing operations, regulatory affairs and other indirect expenses in support of advancing our product candidates and therapeutic platforms. Research and development expenses include third-party program costs, internal personnel costs and other indirect costs as follows: +• fees paid to CROs, consultants, subcontractors and other third-party vendors for work performed for our clinical trials, preclinical studies and regulatory activities; +• fees paid to third-party manufacturers to produce our product candidate supplies; +• amounts paid to vendors and suppliers for laboratory supplies; +• fees, milestone payments and other expenses incurred in connection with license agreements and amendments; +• employee-related expenses such as salaries and benefits and stock-based compensation; +• depreciation of laboratory equipment, computers and leasehold improvements; and +• overhead expenses such as facilities, information technology and other allocated items. +It is difficult to determine with certainty the duration and completion costs of our current or future clinical trials and preclinical programs of our product candidates, or if, when or to what extent we will generate revenue other than zanidatamab royalties from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our current or future product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of clinical trials and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product +84 +Table of Contents +candidate’s commercial potential. We expect our research and development expenses to increase in the future, subject to periodic fluctuations, as we continue to advance, expand and complete the clinical development of our product candidates, support our ongoing collaborations, and conduct our ongoing preclinical research activities. +General and Administrative Expense +General and administrative expenses consist of salaries, benefits and stock-based compensation costs for employees in our executive, finance, legal, intellectual property, business development, human resources and other support functions, as well as legal and professional fees, business insurance, facilities and information technology costs and other expenses. Our general and administrative expenses may increase in the future as we expand or modify our infrastructure to support our ongoing research and development activities. +Other Income (Expense) +Other income (expense) primarily consists of interest income and foreign exchange gain (loss). +Critical Accounting Policies and Significant Judgments and Estimates +Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that are inherently uncertain that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an ongoing basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenue and expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate. +For a summary of our significant accounting policies, see Note 2 to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” We consider the following accounting policies to be critical to an understanding of our financial condition and results of operations because these policies require the most subjective or complex judgments on the part of management in their application. There have been no material changes to our critical accounting policies during the year ended December 31, 2024. +Revenue Recognition +Our revenue consists of amounts earned under research and development license and collaboration agreements with our strategic partners. Promised deliverables within these agreements may include grants of licenses, or options to obtain licenses, to our intellectual property, research and development services, drug product manufacturing, and participation on joint research and/or development committees. +In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606 ” ), we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808 ” ), we apply the revenue recognition model under ASC 606 to part or all of the arrangements, when deemed appropriate. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we determine which elements of the arrangement are within the scope of ASC 808 and which elements are within the scope of ASC 606, which may require application of judgment. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation and when collectability is probable. If the expectation at contract inception is such that the period between payment by the licensee and the completion of related performance obligations will be one year or less, we assume that the contract does not have a significant financing component. +When applying the revenue recognition criteria of ASC 606 to license and collaboration agreements, management may be required to apply significant judgment when evaluating whether contractual obligations represent distinct performance obligations including understanding the nature and significance of the contractual obligations and their standalone selling prices, determining when performance obligations have been met, assessing the recognition and future reversal of variable +85 +Table of Contents +consideration, and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time. The accounting for the modification to existing contracts with customers arising from licensing and collaboration arrangements requires management to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance obligations remaining in the amended collaboration agreement. These judgments are discussed in more detail in the following paragraphs for each type of payment received by us under the terms of the license and collaborations agreements. +Licenses of intellectual property including platform technology access: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, we apply judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the related revenue recognition accordingly. +Milestone payments: At the inception of each arrangement that includes research, development or regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or that of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand- alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. +At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. The process of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a significant risk that we may not earn all of the milestone payments from each of our strategic partners. We apply significant judgment when assessing the likelihood of whether milestones are considered probable of being achieved and when allocating the transaction price to each performance obligation for revenue recognition purposes. +Supply of clinical trial drugs and comparator drugs: Amounts receivable by the Company for the provision of drugs to licensee or to clinical trials on behalf of licensee are recognized in revenue at a point in time when title to drugs has transferred to the licensee, which generally occurs upon shipment or delivery, depending on contractual terms. +Royalties and commercial milestones: For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee. Since inception to date, we have not recognized any royalty revenue or commercial milestones from any of our out-licensing arrangements, other than zanidatamab royalties from Jazz. +Research support and other payments: Payments by the licensees in exchange for research activities performed by us on behalf of the licensee are recognized as revenue upon performance of such activities at rates consistent with prevailing market rates. Payments for research supplies provided are recognized as revenue upon delivery of the supplies. +Contract assets and liabilities +Contract assets are mainly comprised of accrued revenue for which one or more performance obligations has been completed but not yet billed, which includes amounts billed and currently due from customers. +Contract liabilities are mainly comprised of deferred revenues. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated financial statements. Amounts not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue. +86 +Table of Contents +Modifications of contracts with customers +We account for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the addition of promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the stand-alone selling price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to the existing contract, either prospectively or through a cumulative catch-up adjustment. We account for a contract modification prospectively if the remaining goods or services are distinct from the goods or services transferred before the modification, but the consideration for those goods or services does not reflect their stand-alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to remaining goods or services are recognized as a cumulative catch-up adjustment +Research and Development Costs and Related Accrued Expenses +Research and development costs are expensed as incurred and include costs that we incur for our own and for our strategic partners’ research and development activities. These costs primarily consist of employee-related expenses, including salaries and benefits, expenses incurred under agreements with CROs on our behalf, costs associated with investigative sites and consultants that conduct our clinical trials, the cost of acquiring and manufacturing clinical trial materials and other allocated expenses, share-based compensation expense, and costs associated with nonclinical activities and regulatory approvals. +Clinical trial expenses represent a significant component of research and development expenses and we outsource a significant portion of these activities to third-party CROs. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs and other trial-related vendor costs. As part of preparing the consolidated financial statements, we estimate accrued liabilities for services that have been performed by clinical research organizations or investigator sites but have not yet been invoiced to us. When making these estimates, we use operational and contractual information from third party service providers and operational data from internal personnel. +Impairment of Long-Lived Assets +Goodwill and IPR&D assets classified as indefinite-lived are not amortized, but are evaluated for impairment annually or more frequently if impairment indicators arise. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. For definite-lived intangible assets, if there is a major event indicating that the carrying value may be impaired, then management will perform an impairment test. +Impairment tests for goodwill and intangibles assets involve considerable use of judgment and require management to make estimates and assumptions. The fair values of reporting units are derived from valuation models, which consider various factors such as discount rates, future earnings and growth rates. Changes in estimates and assumptions can affect the reported value of goodwill and intangible assets. +As at December 31, 2024, we performed a qualitative assessment for our annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, the quantitative impairment test was not required. We concluded that there were no impairment indicators related to goodwill or other intangible assets as of December 31, 2024. +Stock-Based Compensation +We recognize stock-based compensation expense on certain stock-based awards granted to employees and members of the board of directors based on their estimated fair values using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires assumptions for various inputs to measure fair value, including expected term of the awards, underlying share price volatility, forfeiture rates, risk-free interest rate and expected dividend yields of our common stock. Management uses judgement to determine the inputs to the Black-Scholes option pricing model and changes in these assumptions could have a material impact to the fair value calculations and the amount and timing of stock-based compensation expense recognized in earnings. +Recent Accounting Pronouncements +A summary of recent accounting pronouncements is presented in Note 3 of our Annual Consolidated Financial Statements for the year ended December 31, 2024 within this Annual Report on Form 10-K. +87 +Table of Contents +Results of Operations for the Years Ended December 31, 2024, 2023 and 2022 +Revenue +Year Ended December 31, +(dollars in millions) 2024 2023 2022 +Change 2024 – 2023 +Revenue from research and development collaborations $ 76.3 $ 76.0 $ 412.5 $ 0.3 — % +Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements. +Total revenue increased by $0.3 million in 2024 compared to 2023. Revenue for 2024 included $25.0 million of milestone revenue from Jazz in relation to the FDA approval of Ziihera® (zanidatamab-hrii) for the treatment of HER2+ BTC, $37.5 million for development support and drug supply revenue from Jazz, $8.0 million of milestone revenue from BeiGene in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC, $2.5 million of milestone revenue from GSK in relation to the sequence pair nomination under the 2016 licensing agreement, $3.0 million from BeiGene for drug supply and other research support payments and $0.2 million from our other partners for research support and other payments. Revenue for 2023 included $91.6 million for development support and drug supply revenue from Jazz, which was partially offset by a $20.1 million credit issued to Jazz for contractual amendments to our collaboration arrangement, $1.6 million from BeiGene for drug supply and other research support payments and $2.9 million from our other partners for research support and other payments. The decrease in revenue from Jazz in 2023 and 2024 compared to 2022 reflects the transfer of responsibility for certain clinical trials regarding zanidatamab to Jazz pursuant to the Transfer Agreement and the Amended Jazz Collaboration Agreement, with such future costs to be borne by Jazz i nstead of being incurred by us and reimbursed by Jazz. We expect that revenue in future periods for development support from Jazz will continue to decrease, although we remain eligible for reimbursement of certain costs for activities where we maintain responsibility under the Amended Jazz Collaboration Agreement. We expect that royalty revenue in future periods for sales of Ziihera® by Jazz will increase as Jazz’s commercialization efforts continue, though we cannot predict the magnitude or timing of such royalty revenue. +Research and Development Expense +Year Ended December 31, +(dollars in millions) 2024 2023 2022 +Change 2024 – 2023 +Third-party research and development program expenses: +Zanidatamab $ 11.9 $ 44.8 $ 117.4 $ (32.9) (73) % +Zanidatamab zovodotin 6.6 8.0 4.8 (1.4) (18) % +ZW171 7.1 10.7 1.9 (3.6) (34) % +ZW191 8.4 11.7 0.9 (3.3) (28) % +ZW220 +13.8 1.6 0.2 12.2 763 % +ZW251 +8.1 0.7 0.3 7.4 1,057 % +Other preclinical and research programs 17.4 7.8 7.0 9.6 123 % +73.3 85.3 132.5 (12.0) (14) % +Unallocated departmental research and development expenses: +Salaries and benefits 33.7 33.3 53.0 0.4 1 % +Stock-based compensation expense 8.7 2.4 2.4 6.3 263 % +Other unallocated expenses 18.9 22.6 20.7 (3.7) (16) % +Research and development expense (1) +$ 134.6 $ 143.6 $ 208.6 $ (9.0) (6) % +________________________ +(1) Excluding zanidatamab and zanidatamab zovodotin, we expect research and development expenditures to increase over time, subject to +88 +Table of Contents +periodic fluctuations, in line with the advancement, expansion and completion of the clinical development of our product candidates, support of our ongoing collaborations, and our ongoing preclinical research activities . +Research and development expense decreased by $9.0 million in 2024 compared to 2023. The decrease in research and development expense was primarily due to a decrease in expenses for zanidatamab, as a result of transfer of responsibility for this program to Jazz per our Transfer Agreement and the Amended Jazz Collaboration Agreement, and a decrease in expenses for ZW171 and ZW191 as the majority of manufacturing and IND enabling studies were completed in 2023 prior to filing of IND applications in 2024. This decrease was partially offset by an increase in manufacturing and IND enabling supporting activities for ZW220 and ZW251, along with other preclinical and research activities. Stock-based compensation expense increased primarily due to new grants during 2024 and a lower expense in 2023 as a result of the cancellation and modification of awards in respect of employees transferred to Jazz per the Transfer Agreement. +Our research and development expenses relating to zanidatamab, following the May 2023 transfer of responsibility for the zanidatamab development program to Jazz, have decreased compared to the years ended December 31, 2023 and 2022. We expect to continue incurring research and development expenses for activities over which we maintain responsibility under the Amended Jazz Collaboration Agreement. We are eligible for reimbursement of these expenses from Jazz and expect to recognize these reimbursements as revenue from research and collaborations. We similarly expect that research and development expenses relating to zanidatamab zovodotin will continue to decrease in future periods following our decision to discontinue the zanidatamab zovodotin clinical development program. +General and Administrative Expense +Year Ended December 31, +2024 2023 2022 +Change 2024 – 2023 +(dollars in millions) +Salaries and benefits $ 17.0 $ 17.0 $ 22.6 $ — — % +Stock-based compensation expense +9.1 5.3 1.2 3.8 72 % +Professional fees, consulting and business insurance 19.3 29.1 35.6 (9.8) (34) % +Other general and administrative expenses 16.1 19.0 14.0 (2.9) (15) % +General and administrative expense $ 61.5 $ 70.4 $ 73.4 $ (8.9) (13) % +General and administrative expense decreased by $8.9 million in 2024 compared to 2023. The decrease in general and administrative expense was primarily due to a decrease in external consulting expenses for information technology, legal fees, and other expenses for advisory services, insurance and depreciation and amortization expenses compared to 2023. This was partially offset by costs incurred due to the termination of our long-term facility lease in Seattle in 2024 and an increase in stock-based compensation expense over 2023, primarily due to new grants during 2024 and reversal of compensation expense for options cancellations and modifications in 2023. +Impairment on Acquired IPR&D +Year Ended December 31, +2024 2023 2022 +Change 2024 – 2023 +(dollars in millions) +Impairment on acquired IPR&D $ 17.3 $ — $ — $ 17.3 NM +During the year ended December 31, 2024, we recorded an impairment charge of $17.3 million as a result of our decision to discontinue the zanidatamab zovodotin clinical development program which utilized the technology represented by acquired IPR&D assets. +89 +Table of Contents +Other Income, net +Year Ended December 31, +2024 2023 2022 +Change 2024 – 2023 +(dollars in millions) +Other income, net $ 20.5 $ 18.8 $ 4.7 $ 1.7 9 % +Other income, net increased by $1.7 million in 2024 compared to 2023. Other income, net for 2024 included $19.9 million of interest income and $0.8 million of foreign exchange gains, partially offset by other miscellaneous charges. Other income, net for 2023 included $19.7 million of interest income and $0.3 million of miscellaneous income, partially offset by $1.2 million of foreign exchange losses. +Income Tax +Year Ended December 31, +2024 2023 2022 +Change 2024 – 2023 +(dollars in millions) +Current income tax expense +$ (5.4) $ (0.2) $ (9.0) $ (5.2) (2,600) % +Deferred income tax (expense) recovery +(0.7) 0.8 (1.9) (1.5) (188) % +Income tax (expense) recovery +$ (6.1) $ 0.6 $ (10.9) $ (6.7) (1,117) % +Income tax expense increased by $6.7 million in 2024 compared to 2023, primarily due to an increase in U.S. taxes under the Subpart F income rules and due to an increase in deferred income tax expense due to changes in net deferred tax assets and liabilities and the valuation allowance in respect of these. +Liquidity and Capital Resources +Sources of Liquidity +Since our IPO in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, as well as from upfront fees, milestone payments, and research support payments generated from our strategic collaborations and licensing agreements. +In January 2022, we completed a public offering pursuant to which we sold (i) 11,035,000 common shares (including the sale of 1,875,000 common shares to the underwriters upon their full exercise of their over-allotment option) at $8.00 per common share and (ii) 3,340,000 pre-funded warrants in lieu of common shares at $7.9999 per pre-funded warrant. We received gross proceeds of $115.0 million and net proceeds were $107.6 million, after underwriting discounts, commissions and estimated offering expenses. +In November 2022, we entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of our common stock subject to a maximum aggregate dollar amount registered pursuant to an applicable prospectus supplement, from time to time, through an “at-the-market” equity offering program under which Cantor would act as our sales agent. In June 2023, we sold an aggregate of 3,350,000 shares of common stock at $8.12 per share under the Sales Agreement. We received gross proceeds of $27.2 million and net cash proceeds of $26.2 million, after underwriting commissions and offering expenses. In July 2024, we notified Cantor of our decision to terminate the Sales Agreement effective July 31, 2024. +In August 2024, we entered into a sales agreement (the “Cowen Sales Agreement”) with TD Securities (USA) LLC. (“TD Cowen”) to sell shares of our common stock subject to a maximum aggregate dollar amount registered pursuant to an applicable prospectus supplement, from time to time, through an “at-the-market” equity offering program under which TD Cowen will act as our sales agent. Sales of shares of common stock through TD Cowen, if any, will be made by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act. As of the date of this report, no shares of our common stock have been sold under the Cowen Sales Agreement. As part of the ongoing management of our operations and related funding needs, we evaluate various financing vehicles, including “at-the-market” equity offering programs, and may enter into similar “at-the-market” equity offering programs in the future, as well as other financing transactions. +90 +Table of Contents +In December 2023, we completed a private placement pursuant to which we sold 5,086,521 pre-funded warrants at a price of $9.8299 per pre-funded warrant. We received gross proceeds of $50.0 million, and net proceeds were $49.9 million, after expenses. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrants. +As of December 31, 2024, we had $324.2 million of cash, cash equivalents, and marketable securities, comprised of $66.1 million in cash and cash equivalents and $258.1 million in marketable securities. +Cash Flows +The following table represents a summary of our cash flows for the years ended December 31, 2024, 2023 and 2022: +Year Ended +December 31, +2024 2023 2022 +(dollars in millions) +Net cash (used in) provided by: +Operating activities $ (110.0) $ (118.3) $ 144.1 +Financing activities (20.5) 81.8 108.6 +Investing activities 38.8 (207.3) (53.8) +Effect of exchange rate changes on cash and cash equivalents 0.3 0.4 0.2 +Net (decrease) increase in cash and cash equivalents $ (91.5) $ (243.4) $ 199.0 +Operating Activities +In 2024, cash used in operating activities was $110.0 million as opposed to $118.3 million cash provided by operating activities in 2023. The decrease in net cash used in operating activities was primarily due to a decrease in cash expenditures for operations as a result of transfer of responsibility over the zanidatamab program to Jazz and a reduction in general and administration costs compared to 2023, partially offset by an increase in research and development costs for other programs. The reduction in the net cash used in operating activities was partly offset by an overall negative movement in working capital compared to 2023, primarily due to an increase in our accounts receivable position as at December 31, 2024. +Financing Activities +Net cash used in financing activities in 2024 included $30.1 million used for the Repurchase Program partially offset by net proceeds of $8.9 million from stock option exercises and $0.9 million from the issuance of shares of common stock under our employee stock purchase plan. Net cash provided by financing activities in 2023 included net proceeds of $49.9 million from issuance of pre-funded warrants pursuant to a private placement, $26.2 million from our share issuance pursuant to the Sales Agreement, $5.0 million from stock option exercises and $0.8 million from the issuance of shares of common stock in relation to our employee stock purchase plan. +Investing Activities +Net cash provided by investing activities in 2024 was primarily related to redemptions, net of purchases, of investments in marketable securities of $41.8 million partially offset by cash outflows of $3.1 million for the acquisition of property and equipment in our office and laboratory spaces in Canada and the United States and software implementation. Net cash used in investing activities in 2023 is primarily related to purchases, net of redemptions of marketable securities of $203.2 million and cash outflows of $4.1 million for the acquisition of property and equipment for our office and lab spaces and for software implementation. +Funding Requirements +In the quarter ended December 31, 2024, we began recognizing royalty revenue from sales of zanidatamab by our partner Jazz. However, we have not generated revenue from sales of any of our wholly-owned product candidates as of December 31, 2024 and we do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our current or future product candidates. As we are currently in the clinical and preclinical stages of development, it will be some time before we expect to achieve this, and it is uncertain that we ever will. We expect that we will continue to increase our operating +91 +Table of Contents +expenses, subject to periodic fluctuations, in connection with ongoing clinical trials and preclinical activities and the development of product candidates in our pipeline. In addition, inflation generally may affect us by increasing our cost of labor, outside services, manufacturing and clinical trial expenses. Our funding requirements in the short-term and long-term will consist of the operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations including future minimum lease payments under non-cancelable operating leases as presented in note 14 and other commitments and contingencies as presented in note 15 to the annual consolidated financial statements. Because of the inherent risks and uncertainties associated with the development and commercialization of our drug candidates, it is difficult to predict the amounts of capital outflows and operating expenditures associated with our current and anticipated clinical trials and preclinical studies. +Although it is difficult to predict our funding requirements, based on our current operating plan, we anticipate that our existing cash and cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months from the date this Annual Report on Form 10-K is filed with the SEC. We have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses, capital expenditures and our cash runway. The successful development of our product candidates and the achievement of milestones by our strategic partners is uncertain, and therefore it is difficult to predict the actual funds we will require to complete the research, development and commercialization of product candidates. See Item 1A, “Risk Factors - Risks Related to Our Business and the Development and Commercialization of Our Product Candidates” and “Risk Factors - Risks Related to Our Dependence on Third Parties.” +Additionally, on August 1, 2024, our board of directors authorized the Repurchase Program, under which we may repurchase up to $60.0 million of our common stock. As of the date of this report, there is $30.0 million of remaining capacity under the Repurchase Program. The shares may be repurchased from time to time in open market transactions, or other means in accordance with Rule 10b5-1 of the Exchange Act and Rule 10b-18 of the Exchange Act. As of December 31, 2024, we have repurchased 2,545,402 shares of our common stock under the Repurchase Program. The timing, number of shares repurchased, and prices paid for any additional shares of the stock repurchased under this program will depend on general business and market conditions as well as corporate and regulatory limitations, prevailing stock prices, and other considerations. The Repurchase Program may be suspended or discontinued at any time and does not obligate us to acquire any additional shares of common stock. +We will need substantial additional funding to support our continuing operations and pursue our long-term business plans. Accordingly, our future funding requirements will depend on many factors, including but not limited to: +• the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities; +• our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements as well as our ability to enter into new arrangements; +• the timing and the costs of obtaining regulatory approvals for any of our current or future drug candidates; +• the cost of commercialization activities if any of our current or future drug candidates are approved for sale, including marketing, sales and distribution costs; +• the amount of royalties and sales-based milestones, if any, received from our collaboration partners for commercial sales of drug candidates, for any such drug candidates that receive marketing approval; and +• the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval. +If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and commercial expansion programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. A deterioration in the equity or credit markets may make any necessary debt or equity financing more difficult, more costly and more dilutive. +92 +Table of Contents +Segment Reporting +We view our operations and manage our business in one segment, which is the development of next-generation multifunctional biotherapeutics. +Outstanding Share Data +Our authorized share capital consists of 1,000,000,000 shares of stock, consisting of 900,000,000 shares of common stock, par value $0.00001 per share, and 100,000,000 shares of preferred stock, par value 0.00001 per share. As of March 3, 2025, 69,576,883 shares of common stock were issued and outstanding. In addition, as of March 3, 2025, we had 5,086,521 shares of common stock issuable pursuant to 5,086,521 pre-funded warrants, 4,669,479 shares of common stock issuable pursuant to 4,669,479 exercisable outstanding stock options, 5,108,359 shares of common stock issuable pursuant to 5,108,359 outstanding options that were not exercisable at that date, and 1,979,321 shares of common stock issuable upon vesting of outstanding restricted stock units. +In connection with the Plan of Arrangement (as defined in note 1 of our annual consolidated financial statements as of and for the year ended December 31, 2024 within this Annual Report on Form 10-K), we issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of our preferred stock, par value $0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding, enabling the Share Trustee to exercise voting rights for the benefit of the holders of Exchangeable Shares. In connection with the consummation of the Plan of Arrangement, 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. We will issue shares of our common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by ExchangeCo, when ExchangeCo redeems Exchangeable Shares from the holder, or when Zymeworks CallCo ULC (“CallCo”) purchases Exchangeable Shares from the holder of Exchangeable Shares under CallCo’s overriding call rights. +As of March 3, 2025, 854,126 Exchangeable Shares have been exchanged on a one-to-one basis for 854,126 shares of our common stock and 570,407 Exchangeable Shares are held by former Zymeworks BC shareholders and are exchangeable on a one-to-one basis, subject to adjustment, for up to 570,407 shares of our common stock. +Item 7A. Quantitative and Qualitative Disclosure About Market Risk +As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk. +93 +Table of Contents +Item 8. Financial Statements and Supplementary Data +Zymeworks Inc. +Index to Consolidated Financial Statements +Year ended December 31, 2024 +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 85 ) +95 +Consolidated Balance Sheets as at December 31, 202 4 and 20 23 +97 +Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the years ended December 31, 2024, 2023 and 2022 +98 +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024, 202 3 and 2022 +99 +Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 +100 +Notes to the Consolidated Financial Statements +101 +94 +Table of Contents +REPORT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +To the Stockholders and Board of Directors +Zymeworks Inc.: +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of Zymeworks Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of (loss) income and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Revenue recognition from drug supply for ongoing studies from Jazz Pharmaceuticals Ireland Limited (Jazz) +As discussed in Note 11 to the consolidated financial statements, the Company recognized revenue from Jazz related to drug supply for ongoing studies of $19,228 thousand for the year ended December 31, 2024. As discussed in Note 2, amounts receivable by the Company for the provision of drugs to clinical trials on behalf of the customer are recognized in revenue at a point in time when title to drugs has transferred to the customer, which generally occurs upon shipment or delivery, depending on contractual terms. +95 +Table of Contents +We identified the sufficiency of audit evidence relating to revenue recognition from drug supply for ongoing studies with Jazz as a critical audit matter. Subjective auditor judgment was required to evaluate the sufficiency of audit evidence obtained related to the Company’s revenue from drug supply for ongoing studies because of the involvement of clinical research support organizations in tracking and fulfilment of the drugs provided across multiple locations. +The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and implementation of internal controls over the Company’s revenue recognition process. We obtained a confirmation from the customer on invoices billed related to goods and services provided for the year ended December 31, 2024 and agreed the quantity of drugs invoiced to the Company’s records. We assessed the recorded revenue by selecting a sample of revenue transactions and comparing the amounts recognized for consistency with relevant underlying documentation. We evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of the procedures performed, including the appropriateness of the nature and extent of such evidence. +/s/ KPMG LLP +Chartered Professional Accountants +We have served as the Company’s auditor since 2015. +Vancouver, Canada +March 5, 2025 +96 +Table of Contents +ZYMEWORKS INC. +Consolidated Balance Sheets +(Expressed in thousands of U.S. dollars except share data) +December 31, +2024 2023 +Assets +Current assets: +Cash and cash equivalents $ 66,103 $ 157,557 +Short-term marketable securities (note 5) +159,673 216,770 +Accounts receivable 55,815 19,477 +Prepaid expenses and other current assets 18,860 19,122 +Total current assets 300,451 412,926 +Long-term marketable securities (note 5) +98,428 81,930 +Long-term prepaids and other assets +8,919 7,566 +Deferred tax asset (note 13) +4,385 3,615 +Property and equipment, net (note 7) 17,650 19,847 +Operating lease right-of-use assets (note 14) +16,666 17,696 +Intangible assets, net (note 8) 4,576 7,656 +Acquired in-process research and development assets (“IPR&D”) (note 6) +— 17,628 +Goodwill (note 6) 12,016 12,016 +Total assets $ 463,091 $ 580,880 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable and accrued liabilities (note 9) $ 59,838 $ 45,992 +Income tax payable (note 13) +128 1,811 +Current portion of operating lease liability (note 14) +2,740 4,261 +Deferred revenue and other consideration (note 11) +25,588 3,699 +Total current liabilities 88,294 55,763 +Long-term portion of operating lease liability (note 14) +15,738 22,369 +Deferred revenue (note 11) +14,607 32,941 +Other long-term liabilities (note 9) 923 1,701 +Deferred tax liability (note 13) +4,761 3,300 +Total liabilities 124,323 116,074 +Stockholders’ equity: +Common shares, $ 0.00001 par value; 900,000,000 authorized shares of common stock at December 31, 2024 and December 31, 2023 ( 68,964,319 and 70,115,997 shares issued and outstanding at December 31, 2024 and 2023, respectively (note 10b). +1,015,618 997,227 +Preferred shares, $ 0.00001 par value; 100,000,000 authorized shares of preferred stock, out of which, one share of preferred stock is a share of Special Voting Preferred Stock and outstanding as of December 31, 2024 and December 31, 2023 (note 10b). +— — +Exchangeable shares, no par value, 570,637 issued and outstanding shares at December 31, 2024 (December 31, 2023: 651,219 ) (note 10b). +8,188 9,345 +Additional paid-in capital 152,249 142,274 +Accumulated other comprehensive loss ( 6,952 ) ( 6,603 ) +Accumulated deficit ( 830,335 ) ( 677,437 ) +Total stockholders’ equity 338,768 464,806 +Total liabilities and stockholders’ equity $ 463,091 $ 580,880 +Research collaboration and licensing agreements (note 11) +Commitments and contingencies (note 15) +Subsequent event (note 17) +97 +Table of Contents +ZYMEWORKS INC. +Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income +(Expressed in thousands of U.S. dollars except share and per share data) +Year Ended December 31, +2024 2023 2022 +Revenue: +Research and development collaborations (note 11) +$ 76,304 $ 76,012 $ 412,482 +Operating expenses: +Research and development 134,621 143,619 208,596 +General and administrative 61,506 70,446 73,358 +Impairment on IPR&D (note 6) +17,287 — — +Total operating expenses 213,414 214,065 281,954 +(Loss) income from operations ( 137,110 ) ( 138,053 ) 130,528 +Other income: +Interest income 19,941 19,705 3,596 +Other income (expense), net (note 12) +558 ( 894 ) 1,110 +Total other income, net 20,499 18,811 4,706 +(Loss) income before income taxes ( 116,611 ) ( 119,242 ) 135,234 +Income tax (expense) recovery (note 13) +( 6,084 ) 568 ( 10,893 ) +Net (loss) income +$ ( 122,695 ) $ ( 118,674 ) $ 124,341 +Other comprehensive income: +Unrealized (loss) income on available for sale securities, net of tax of nil (note 5) +( 349 ) 56 — +Total other comprehensive (loss) income +( 349 ) 56 — +Comprehensive (loss) income $ ( 123,044 ) $ ( 118,618 ) $ 124,341 +Net (loss) income per common share (note 4): +Basic $ ( 1.62 ) $ ( 1.72 ) $ 1.91 +Diluted $ ( 1.62 ) $ ( 1.72 ) $ 1.90 +Weighted-average common stock outstanding (note 4): +Basic 75,846,681 68,863,010 65,194,775 +Diluted 75,878,738 68,863,010 65,249,184 +98 +Table of Contents +ZYMEWORKS INC. +Consolidated Statements of Changes in Stockholders’ Equity (Note 1) (Expressed in thousands of U.S. dollars except share data) +Preferred stock Exchangeable shares Common stock Accumulated +deficit Accumulated +other +comprehensive +loss Additional +paid-in +capital Total +stockholders' +equity +Shares Amount Shares Amount Shares Amount +Balance at December 31, 2021 — $ — — $ — 46,633,935 $ 741,147 $ ( 683,104 ) $ ( 6,659 ) $ 197,710 $ 249,094 +Issuance of common stock on exercise of stock options (note 10f) +— — — — 39,220 359 — — ( 79 ) 280 +Issuance of common stock through employee stock purchase plan (note 10g) +— — — — 179,238 2,191 — — — 2,191 +Issuance of common stock upon vesting of restricted stock units ("RSUs") (note 10f) +— — — — 93,966 2,350 — — ( 2,350 ) — +Issuance of common stock upon exercise of pre-funded warrants (note 10d) +— — — — 6,502,675 78,168 — — ( 78,168 ) — +The Redomicile Transactions (note 1, note 10b) 1 — 1,424,533 20,442 ( 1,424,533 ) ( 20,442 ) — — — — +Issuance of common stock and pre-funded warrants in connection with public offering, net of offering costs (note 10a and 10d) +— — — — 11,035,000 82,549 — — 24,985 107,534 +Stock-based compensation — — — — — — — — 9,516 9,516 +Net loss — — — — — — 124,341 — — 124,341 +Balance at December 31, 2022 1 $ — 1,424,533 $ 20,442 63,059,501 $ 886,322 $ ( 558,763 ) $ ( 6,659 ) $ 151,614 $ 492,956 +Issuance of common stock on exercise stock options (note 10f) +— — — — 641,129 6,958 — — ( 1,736 ) 5,222 +Issuance of common stock through employee stock purchase plan (note 10g) +— — — — 111,911 955 — — — 955 +Issuance of common stock upon vesting of RSUs (note 10f) +— — — — 100,949 1,887 — — ( 1,887 ) — +Issuance of common stock upon exercise of pre-funded warrants (note 10d) +— — — — 2,079,193 63,775 — — ( 63,775 ) — +Issuance of common stock for retracted exchangeable shares +— — ( 773,314 ) ( 11,097 ) 773,314 11,097 — — — — +Issuance of common stock in connection with At-The-Market ("ATM") sale (note 10a) — — — — 3,350,000 26,233 — — — 26,233 +Private placement (note 10a and 10d) +— — — — — — — — 49,862 49,862 +Stock-based compensation — — — — — — — — 8,196 8,196 +Net income — — — — — — ( 118,674 ) — — ( 118,674 ) +Other comprehensive income +— — — — — — — 56 — 56 +Balance at December 31, 2023 1 $ — 651,219 $ 9,345 70,115,997 $ 997,227 $ ( 677,437 ) $ ( 6,603 ) $ 142,274 $ 464,806 +Issuance of common stock on exercise of stock options (note 10f) +— — — — 959,906 13,952 — — ( 4,770 ) 9,182 +Issuance of common stock through employee share purchase plan (note 10g) +— — — — 128,232 1,311 — — — 1,311 +Issuance of common stock upon vesting of RSUs (note 10f) +— — — — 225,004 1,971 — — ( 1,971 ) — +Issuance of common stock for retracted exchangeable shares +— — ( 80,582 ) ( 1,157 ) 80,582 1,157 — — — — +Stock-based compensation — — — — — — — — 16,716 16,716 +Purchase and retirement of common stock (10c) +— — — — ( 2,545,402 ) — ( 30,051 ) — — ( 30,051 ) +Excise tax on repurchase of common stock — — — — — — ( 152 ) — — ( 152 ) +Net loss — — — — — — ( 122,695 ) — — ( 122,695 ) +Other comprehensive loss +— — — — — — — ( 349 ) — ( 349 ) +Balance at December 31, 2024 1 $ — 570,637 $ 8,188 68,964,319 $ 1,015,618 $ ( 830,335 ) $ ( 6,952 ) $ 152,249 $ 338,768 +99 +Table of Contents +ZYMEWORKS INC. +Consolidated Statements of Cash Flows +(Expressed in thousands of U.S. dollars) +Year Ended December 31, +2024 2023 2022 +Cash flows from operating activities: +Net (loss) income $ ( 122,695 ) $ ( 118,674 ) $ 124,341 +Items not involving cash: +Depreciation of property and equipment (note 7) 4,188 7,462 6,220 +Amortization of intangible assets (note 8) 4,496 2,702 1,015 +Stock-based compensation (note 10f) +17,792 8,102 4,015 +Amortization and impairment of operating lease right-of-use assets 2,509 7,141 4,769 +Impairment of acquired IPR&D (note 6) 17,287 — — +Deferred income tax expense (recovery) (note 13) +691 ( 757 ) 1,940 +Change in fair value of contingent consideration liability (note 15) +( 1,878 ) 630 ( 250 ) +Change in fair value of investments in equity instruments — 667 — +Unrealized foreign exchange gain ( 1,481 ) ( 31 ) ( 1,956 ) +Changes in non-cash operating working capital: +Accounts receivable ( 36,359 ) 13,922 ( 17,509 ) +Prepaid expenses and other current assets ( 2,489 ) 4,295 ( 2,059 ) +Accounts payable and accrued liabilities 14,335 ( 44,768 ) 26,479 +Operating lease liabilities ( 8,313 ) ( 3,663 ) ( 3,736 ) +Deferred revenue and other consideration 3,555 3,699 — +Income taxes payable ( 1,682 ) 970 840 +Net cash (used in) / provided by operating activities $ ( 110,044 ) $ ( 118,303 ) $ 144,109 +Cash flows from financing activities: +Proceeds from issuance of common stock under at-the-market program and from public offerings, net of issuance costs (notes 10a) — 26,233 107,534 +Private placement (note 10a) — 49,862 — +Issuance of common stock on exercise of stock options (note 10f) +8,857 5,006 255 +Issuance of common stock through employee stock purchase plan (note 10g) +930 820 1,403 +Purchases of common stock for retirement (note 10c) +( 30,051 ) — — +Deferred financing fees ( 174 ) ( 53 ) ( 596 ) +Finance lease payments ( 14 ) ( 21 ) ( 14 ) +Net cash (used in) / provided by financing activities +$ ( 20,452 ) $ 81,847 $ 108,582 +Cash flows from investing activities: +Purchases of marketable securities ( 283,743 ) ( 553,249 ) ( 113,005 ) +Proceeds from marketable securities 325,565 350,073 72,281 +Acquisition of property and equipment ( 1,991 ) ( 2,474 ) ( 8,150 ) +Acquisition of intangible assets ( 1,075 ) ( 1,603 ) ( 4,975 ) +Net cash provided by / (used in) investing activities +$ 38,756 $ ( 207,253 ) $ ( 53,849 ) +Effect of exchange rate changes on cash and cash equivalents 286 354 203 +Net change in cash and cash equivalents ( 91,454 ) ( 243,355 ) 199,045 +Cash and cash equivalents, beginning of year 157,557 400,912 201,867 +Cash and cash equivalents, end of year $ 66,103 $ 157,557 $ 400,912 +Supplemental cash flow information: +Net cash paid during the year for income taxes +$ 3,179 $ 165 $ 10,000 +Supplemental disclosure of non-cash investing and finance items: +Leased assets obtained in exchange for operating lease liabilities $ 644 $ 1,900 $ 72 +Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities — 122 957 +The accompanying notes are an integral part of these financial statements +100 +Table of Contents +ZYMEWORKS INC. +Notes to the Consolidated Financial Statements +(Expressed in thousands of U.S. dollars except share and per share data) +1. Nature of Operations +Zymeworks Inc. together with its subsidiaries (collectively the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks BC Inc. (“Zymeworks BC”), (previously known as “Zymeworks Inc.”) was incorporated on September 8, 2003 under the laws of the Canada Business Corporations Act. On October 22, 2003, the Company was registered as an extra-provincial company under the Company Act (British Columbia). On May 2, 2017, the Company continued under the Business Corporations Act (British Columbia). +Since its inception, the Company has devoted substantially all of its resources to research and development activities, including developing its therapeutic platforms and identifying and developing potential product candidates by undertaking preclinical studies and clinical trials. The Company supports these activities through general and administrative support, as well as by raising capital, conducting business planning and protecting its intellectual property. +On October 13, 2022, the Company completed an internal reorganization transaction resulting in a Delaware incorporated entity becoming the listed company (the “Redomicile Transactions”). Prior to the Redomicile Transactions, the shares of Zymeworks BC Inc. (formerly known as Zymeworks Inc.) were publicly listed. Unless the context otherwise requires or otherwise expressly states, all references in the accompanying consolidated financial statements to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until completion of the Redomicile Transactions, refer to Zymeworks BC Inc. and its subsidiaries and (ii) for periods after completion of the Redomicile Transactions, refer to Zymeworks Inc. (formerly known as Zymeworks Delaware Inc.) and its subsidiaries. +To effect the Redomicile Transactions, the Company conducted a share exchange, pursuant to which holders of the Company’s common shares exchanged their common shares in the Company for shares of common stock of Zymeworks Inc. (formerly known as Zymeworks Delaware Inc.) or, at their election with respect to all or a portion of their common shares in the Company and subject to applicable eligibility criteria and an overall cap, exchangeable shares (the “Exchangeable Shares”) in the capital of a newly formed indirect subsidiary of Zymeworks Inc. A special meeting of Company security holders was held on October 7, 2022 to approve the Redomicile Transactions. The Redomicile Transactions were governed by a transaction agreement dated July 14, 2022, as restated and amended on August 18, 2022 (the “Restated and Amended Transaction Agreement”), by and among the Company and its direct or indirect subsidiaries Zymeworks Inc., Zymeworks CallCo ULC (“CallCo”) and Zymeworks ExchangeCo Ltd., (“ExchangeCo”) including a plan of arrangement included as Exhibit A to the Restated and Amended Transaction Agreement (the “Plan of Arrangement”). +2. Summary of Significant Accounting Policies +Basis of Presentation +The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Zymeworks Inc. and its wholly owned subsidiaries, Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Pharmaceuticals Limited (Ireland), Zymeworks Lifesciences Pte. Ltd. (Singapore), Zymeworks CallCo ULC, Zymeworks ExchangeCo Ltd., Zymeworks Managemen t Inc. (including this entity's branch in the United Kingdom) and Zymeworks Zanidatamab Inc. (refer to note 11). All inter-company accounts and transactions have been eliminated on consolidation. +All amounts expressed in the consolidated financial statements of the Company and the accompanying notes thereto are expressed in thousands of U.S. dollars, except for share and per share data and where otherwise indicated. References to “$” are to U.S. dollars and references to “C$” are to Canadian dollars. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. +Foreign Currency +The functional currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are translated at the approximate exchange rate prevailing on the date of the transaction. At period end, monetary assets and liabilities denominated +101 +Table of Contents +in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Resulting foreign exchange gains and losses are reflected in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. +Use of Estimates +The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, most notably those related to revenue recognition including estimated timing of completion of performance obligations required to meet revenue recognition criteria, accrual of expenses including clinical and preclinical study expense accruals, stock-based compensation, valuation allowance for deferred taxes, measurement of contingent consideration liabilities, and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates. +Revenue Recognition +Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606, the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. +The Company applied ASC 606 to all revenue arrangements to date. For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company applies the revenue recognition model under ASC 606 to part or all of the arrangements, when deemed appropriate. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company determines which elements of the arrangement are within the scope of ASC 808 and which elements are within the scope of ASC 606, which may require application of judgment. +In accordance with ASC 606, the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations including whether they are distinct; (iii) determine the transaction price, including uncertainties related to variable consideration; (iv) allocate the transaction price to the performance obligations based on the stand-alone selling prices; and (v) recognize revenue when or as the Company satisfies each performance obligation and when collectability is probable. +The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods and services transferred to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of Topic 606, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. +The Company has entered into a number of collaboration and licensing agreements. Promised deliverables within these agreements may include: (i) grants of licenses, or options to obtain licenses, to the Company’s intellectual property, (ii) research and development services, (iii) drug product manufacturing, and (iv) participation on joint research and/or development committees. The terms of these agreements typically include one or more of the following types of payments to the Company: +• non-refundable, upfront license and platform technology access fees; +• research, development and regulatory milestone payments; +• research support, development and other payments; and +• royalties and commercial milestone payments. +If the expectation at contract inception is such that the period between payment by the licensee and the completion of related performance obligations will be one year or less, the Company assumes that the contract does not have a significant financing component. +102 +Table of Contents +When applying the revenue recognition criteria of ASC 606 to license and collaboration agreements, the Company may be required to apply significant judgment when evaluating whether contractual obligations represent distinct performance obligations including understanding the nature and significance of the contractual obligations and their standalone selling prices, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration, and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time. The accounting for the modification to existing contracts with customers arising from licensing and collaboration arrangements requires management to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance obligations remaining in the amended collaboration agreement. These judgments are discussed in more detail in the following paragraphs for each type of payment received by the Company under the terms of the license and collaborations agreements. +Non-refundable, upfront license and platform technology access fees +If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, the Company uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly. +Research, development and regulatory milestone payments +At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. When it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. The probability of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a significant risk that the Company may not earn all of the milestone payments from each of its strategic partners. +Research and development milestones in the Company’s collaboration agreements may include some, but not necessarily all, of the following types of events: +• completion of preclinical research and development work leading to selection of product candidates; +• initiation of Phase 1, Phase 2 and Phase 3 clinical trials; and +• achievement of certain other technical, scientific or development criteria. +Regulatory milestone payments may include the following types of events: +• filing of regulatory applications for marketing approval in the United States, Europe or Japan, including Investigational New Drug (“IND”) applications and Biologics License Application (“BLA”); and +• marketing approval in major markets, such as the United States, Europe or Japan. +Research support, development and other payments +Payments by the licensees in exchange for research and development activities performed by the Company on behalf of the licensee are recognized as revenue upon performance of such activities at rates consistent with prevailing market rates. Payments for research and development supplies provided are recognized as revenue upon delivery of the supplies. +103 +Table of Contents +Supply of clinical trial drugs and comparator drugs +Amounts receivable by the Company for the provision of drugs to licensee or to clinical trials on behalf of licensee are recognized in revenue at a point in time when title to drugs has transferred to the licensee, which generally occurs upon shipment or delivery, depending on contractual terms. +Royalties and commercial milestone payments +For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee. The Company started recognizing royalty income during the year ended December 31, 2024. The Company's commercial partner is obligated to report its net product sales and resulting royalty due to the Company within 60 days from the end of each quarter. The Company accrues royalty revenue based on historic product sales, royalty receipts and other relevant information as available and recognizes any adjustment when it receives royalty reports from its commercial partner in the subsequent period. +Contract assets and liabilities +Contract assets are mainly comprised of accrued revenue for which one of more performance obligations has been completed but not yet billed, which includes amounts billed and currently due from customers. +Contract liabilities are mainly comprised of deferred revenues. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated financial statements. Amounts not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue. +Modifications of contracts with customers +The Company accounts for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the addition of promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the Company’s stand-alone selling price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to the existing contract, either prospectively or through a cumulative catch-up adjustment. The Company accounts for a contract modification prospectively if the remaining goods or services are distinct from the goods or services transferred before the modification, but the consideration for those goods or services does not reflect their stand-alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to remaining goods or services are recognized as a cumulative catch-up adjustment. +Cash Equivalents +The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include guaranteed investment certificates (“GICs”) acquired from financial institutions and money market funds which are recorded at cost plus accrued interest. +Investments +Marketable Securities +The Company's investments include high credit quality investment grade debt securities which comprise investments in U.S. Treasury notes and corporate debt securities. The Company classifies all of its investment grade debt securities as available-for-sale (note 5). Marketable securities also include GICs with original maturities of greater than 90 days. These investments are recorded at cost plus accrued interest, which approximates their fair value. +Unrealized fair value gains and losses for investments classified as available-for-sale are recorded through other comprehensive income (loss) in stockholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of (loss) income with a corresponding allowance for credit losses, limited to the amount that the fair value is below the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to +104 +Table of Contents +recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of (loss) income with no corresponding allowance for credit losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income (expense), based on the specific identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income. +Marketable securities with remaining maturities of less than one year from the balance sheet date are classified as short-term investments and greater than one year from the balance sheet date are classified as long-term investments. +Equity Securities +The Company’s long-term investments include equity securities acquired for strategic purposes or in connection with licensing and collaboration agreements. As the Company's investments in equity securities do not have readily determinable fair value, they are carried at cost, less any impairment, including any adjustments resulting from observable price changes. +Accounts Receivable and Expected Credit Losses +Accounts receivable are recorded at invoiced amounts, net of any allowance for expected credit losses. The allowance for expected credit losses is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. +The Company evaluates the collectability of accounts receivable on a regular basis based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future collections experience. Expected credit losses on our accounts receivable were immaterial as at December 31, 2024 and 2023. +Financial Instruments +The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the fair value hierarchy. +Fair Value Measurements +The Company measures certain financial instruments and other items at fair value. +To determine fair value, the Company uses a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows: +• Level 1 inputs are unadjusted quoted market prices for identical instruments available in active markets. +• Level 2 inputs are inputs other than Level 1 prices, such as prices for a similar asset or liability that are observable either directly or indirectly. If the asset or liability has a contractual term, the input must be observable for substantially the full term. An example includes quoted market prices for similar assets or liabilities in active markets. +• Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assessment about market assumptions that would be used to price the asset or liability. +Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. +The Company’s financial instruments consist of cash and cash equivalents, short-term and long-term investments in marketable and other securities, accounts receivable, accounts payable and accrued liabilities, contingent consideration, finance and operating lease obligations, and other long-term liabilities. +The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. All marketable securities are classified as available-for-sale and are recorded at fair value. As at December 31, 2024, long-term investments in equity securities of private entities are accounted for as available for sale at their fair values. Other long-term liabilities for contingent consideration related to business acquisitions are recorded at fair value on the acquisition date and are adjusted quarterly for changes in fair value. Changes in the fair value of contingent consideration liabilities can result from changes in anticipated milestone payments and +105 +Table of Contents +changes in assumed discount periods and rates. These inputs are unobservable in the market and therefore categorized as level 3 inputs as defined above. +Concentration of Credit Risk +Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term and long-term marketable securities and accounts receivable. Cash and cash equivalents and investments in marketable securities are invested in accordance with the Company’s cash investment policy with the primary objective being the preservation of capital and maintenance of liquidity. The cash investment policy includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company limits its exposure to credit loss by placing its cash and cash equivalents and investments with high credit quality financial institutions. +At December 31, 2024, the maximum exposure to credit risk for accounts receivable was $ 55,815 , 95 % of which was from Jazz Pharmaceuticals Ireland Limited or Jazz Pharmaceuticals, Inc. (subsidiaries of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) (December 31, 2023: $ 19,477 85 % of which was from Jazz Pharmaceuticals Ireland Limited) and all accounts receivable are due within the next 12 months. As at December 31, 2024 and December 31, 2023, the Company has recognized nominal amounts of provision for expected credit losses in relation to accounts receivable. +Liquidity Risk +Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s short-term cash requirements are primarily to settle its financial liabilities, which consist primarily of accounts payable and accrued liabilities falling due within 45 days and current portion of lease obligations falling due within the next 12 months, with medium term requirements to invest in property and equipment and research and development. The Company’s principal sources of liquidity to settle its financial liabilities are cash, cash equivalents, short-term and long-term investments, collection of accounts receivable relating to research collaboration and license agreements and additional public equity offerings as required. The Company believes that these principal sources of liquidity are sufficient to fund its operations for at least the next 12 months. +Foreign Currency Risk +The Company incurs certain operating expenses in currencies other than the U.S. dollar and accordingly is subject to foreign exchange risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange risk and therefore assumes the risk of future gains or losses in its consolidated statements of (loss) income. At December 31, 2024, the Company’s net monetary liabilities denominated in Canadian dollars were $ 3,464 (C$ 4,982 ) (December 31, 2023: $ 1,392 (C$ 1,844 )). +The operating results and financial position of the Company are reported in U.S. dollars in the Company’s consolidated financial statements. The fluctuation of the U.S. dollar relative to the Canadian dollar and other foreign currencies will have an impact on the reported balances for net assets, net loss and stockholders’ equity in the Company’s consolidated financial statements. +Deferred Financing Fees +Deferred financing fees consist of amounts charged by underwriters, attorneys, accountants and printers that are directly attributable to future financing transactions that are probable to occur. These costs are deferred and subsequently charged against the gross proceeds of the related financing transaction upon closing of such transaction. +Segment Information +The Company operates and manages its business in one segment, which is the discovery, development and commercialization of next-generation multifunctional biotherapeutics. Operating segments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker (“CODM”), in deciding how to allocate resources and assessing performance. +Property and Equipment +Property and equipment are recorded at cost net of accumulated depreciation. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in earnings. Repairs and maintenance costs are expensed as incurred. +106 +Table of Contents +The Company records depreciation using the straight-line method over the estimated useful lives of the property and equipment as follows: +Asset Class Rate +Computer hardware 3 years +Office equipment 3 years +Furniture and fixtures 5 years +Laboratory equipment 7 years +Leasehold improvements Shorter of the lease term or useful life +Property and equipment acquired or disposed of during the year are depreciated proportionately for the period they are in use. +Leases +The Company accounts for leases in accordance with ASC 842 Leases ( “ ASC 842 ” ). The Company determines if an arrangement contains a lease at inception. Right-of-use ( “ ROU ” ) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from that lease. For leases with a term greater than 12 months, ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes the option to extend the lease when it is reasonably certain the Company will exercise that option. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. In the case the implicit rate is not available, the Company uses its incremental borrowing rate based on information available at the lease commencement date, to determine the present value of lease payments. +Patents and Intellectual Property Costs +Costs incurred to acquire patents and to prosecute and maintain intellectual property rights are expensed as incurred to general and administrative expense due to the uncertainty surrounding the drug development process and the uncertainty of future benefits. Patents and intellectual property acquired from third parties are capitalized and amortized over the remaining life of the patent, if related to approved products or if there are alternative future uses for the underlying technology. No patent or intellectual property costs have been capitalized to date. +Impairment of Long-Lived Assets +The Company assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset or group of assets. If carrying value exceeds the sum of undiscounted cash flows, the Company then determines the fair value of the underlying asset. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the estimated fair value of the asset or asset group. As of December 31, 2024 and 2023, the Company determined that there were no indicators of impairment of long-lived assets. +Government Grants and Credits +Government grants are recognized where there is reasonable assurance that the grant will be received and all associated conditions will be complied with. Reimbursements of eligible research and development expenditures pursuant to government assistance programs are recorded as reductions of research and development costs when the related costs have been incurred and there is reasonable assurance regarding collection of the claim. +Grant claims not settled by the balance sheet date are recorded as receivables, provided their receipt is probable. The determination of the amount of the claim, and hence the receivable amount, requires management to make calculations based on its interpretation of eligible expenditures in accordance with the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies. The Company has used its best judgment and understanding of the related program agreements in determining the receivable amount. +The Company participates in SR&ED and Research Tax Credit Programs, two federal tax incentive programs that encourage Canadian and U.S. businesses to conduct research and development in Canada and in United States, respectively. The benefits of investment tax credits for scientific research and development expenditures are recognized in the year the qualifying +107 +Table of Contents +expenditure is made provided there is reasonable assurance of recoverability. The refundable portion of investment tax credits are recorded as reductions to research and development expenditures. +Research and Development Costs +Research and development costs are expensed as incurred and include costs that the Company incurs for its own and for the Company’s strategic partners’ research and development activities. These costs primarily consist of expenses incurred under agreements with contract research organizations on the Company’s behalf, investigative sites and consultants that conduct the Company’s clinical trials, the cost of acquiring and manufacturing clinical trial materials and other allocated expenses, the cost of acquired research patents and intellectual property that do not meet the requirements for capitalization, employee related expenses, including salaries and benefits, stock-based compensation expense, and costs associated with nonclinical activities and regulatory approvals. +Clinical Trial Expense Accruals +Clinical trial expenses represent a significant component of research and development expenses and the Company outsources a significant portion of these activities to third party contract research organizations. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs and other trial-related vendor costs. As part of preparing the consolidated financial statements, the Company estimates accrued liabilities for services that have been performed by clinical research organizations or investigator sites but have not yet been invoiced to the Company. When making these estimates, the Company uses operational and contractual information from third party service providers and operational data from internal personnel. +Income Taxes +The Company accounts for income taxes using an asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the extent of a valuation allowance. The recognition of uncertain tax positions is evaluated based on whether it is considered more likely than not that the position taken, or expected to be taken, on a tax return will be sustained upon examination through litigation or appeal. For those positions that meet the recognition criteria, they are measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. +Stock-Based Compensation +The Company recognizes stock-based compensation expense on equity and liability classified stock-based awards granted to employees, directors, and certain consultants. The Company measures the cost of such awards based on the fair value of the award, net of estimated forfeitures, and recognizes stock-based compensation expense in the consolidated statements of (loss) income and comprehensive (loss) income on a straight-line basis over the requisite service period. The requisite service period generally equals the vesting period of the awards. The fair values of stock option awards are estimated using the Black-Scholes option pricing model which uses various inputs including estimated fair value of the Company’s underlying common stock at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of the Company’s common stock. The Company applies an estimated forfeiture rate derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, adjustments to compensation expense may be required in future periods. The fair value of restricted stock units (“RSU”) is measured using the per share fair value of the Company’s common stock on the dates of grant. +Equity classified awards are measured using their grant date fair value. Liability classified awards are initially measured using their grant date fair value and are subsequently remeasured at fair value at each balance sheet date until exercised or cancelled, with changes in fair value recognized as compensation cost (ASC 718 awards) or other (expense) income (ASC 815 awards) for the period, while fair value changes below the grant date fair value of the original awards are recorded in additional paid-in capital. +Under ASC 718 Compensation—Stock Options (“ASC 718”), warrants or stock options with exercise price which is not denominated in: (a) the currency of a market in which a substantial portion of the Company’s equity securities trades, (b) the currency in which the individual’s pay is denominated, or (c) the Company’s functional currency, are required to be classified as liabilities. For awards accounted for under ASC 815 Derivatives and Hedging (“ASC 815”), any warrant or option that +108 +Table of Contents +provides for an exercise price which is not denominated in the Company’s functional currency is required to be classified as a liability. +The Company has an employee stock purchase plan which is considered compensatory. Accordingly, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the requisite service period. +Business Combinations and Goodwill +Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. If the Company’s interest in the fair value of the acquiree’s net identifiable assets exceeds the cost of the acquisition, the excess is recognized in earnings or loss immediately. Transaction costs that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. +Goodwill is evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present (note 6). As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit that includes the goodwill is less than its carrying value, then a quantitative impairment test would be prepared to compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value. +Acquired In-Process Research and Development (IPR&D) and Definite-lived Intangible Assets +Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. IPR&D is classified as an indefinite-lived intangible asset and is not amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. All research and development costs incurred subsequent to the acquisition of IPR&D are expensed as incurred. Indefinite-lived intangible assets are reviewed for impairment on an annual basis or more frequently if an indicator of impairment is present. The Company may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. +Definite-lived intangible assets include computer software and a research license and are amortized on a basis which reflects the pattern in which the economic benefits are consumed. Amortization begins when the assets are put into use. If there is an event indicating that the carrying value of a definite-lived intangible asset may be impaired, then the Company will perform an impairment test. When an impairment test is performed, if the carrying value exceeds the recoverable value, based on the sum of undiscounted future cash flows, then such asset is written down to its fair value. +The Company records amortization using the straight-line method over the estimated useful lives of the definite-lived intangible assets as follows: +Asset Class Rate +Software 3 years +Licensing agreements Shorter of the licensing term or useful life +Net income (loss) per share +Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the year, including the treatment of Exchangeable Shares and pre-funded warrants. Diluted net income (loss) per share attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options and warrants. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the year, including potential dilutive shares of common stock assuming the dilutive effect of outstanding instruments. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and warrants. ASC 260 Earnings Per +109 +Table of Contents +Share requires an adjustment to the numerator for any income or loss related to liability classified warrants and stock options, if dilutive, if they are presumed to be share settled. +3. Recent Accounting Pronouncements +Recent accounting pronouncements adopted +In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The change in the standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The changes improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The guidance will be effective for annual reporting periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted and the standard should be applied retrospectively. The Company has adopted this accounting pronouncement on the accompanying financial statements as of and for the year ended December 31, 2024 (note 16). +Recent accounting pronouncements not yet adopted +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, with the option for retrospective application. The Company is currently evaluating the impact of adoption of the standard on its consolidated financial statements. +In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting – Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses. The standard update improves the disclosures about a public business entity’s expenses by requiring more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) included within income statement expense captions. The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard updates are to be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact of adoption of the standard update on its consolidated financial statements. +110 +Table of Contents +4. Net (Loss) Income per Share +Net (loss) income per share for the years ended December 31, 2024, 2023 and 2022 was as follows: +Year Ended December 31, +2024 2023 2022 +Numerator : +Net (loss) income attributable to common stockholders: +Basic $ ( 122,695 ) $ ( 118,674 ) $ 124,341 +Adjustment for change in fair value of liability classified stock options 140 — ( 231 ) +Diluted $ ( 122,555 ) $ ( 118,674 ) $ 124,110 +Denominator: +Weighted-average common stock outstanding: +Basic 75,846,681 68,863,010 65,194,775 +Adjustment for dilutive effect of equity classified stock options and RSUs — — 53,535 +Adjustment for dilutive effect of liability classified stock options 32,057 — 874 +Diluted 75,878,738 68,863,010 65,249,184 +Net (loss) income per common share – basic $ ( 1.62 ) $ ( 1.72 ) $ 1.91 +Net (loss) income per common share – diluted $ ( 1.62 ) $ ( 1.72 ) $ 1.90 +Weighted average number of shares of common stock used in the basic and diluted earnings per share calculations include Exchangeable Shares and the pre-funded warrants issued in connection with the Company’s June 2019, January 2020 and January 2022 offerings and December 2023 private placement as the warrants were exercisable at any time for nominal cash consideration. The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share for the years ended December 31, 2024 and 2023 as the effect would be antidilutive. +5. Cash, Cash Equivalents and Marketable Securities +The following table summarizes the Company's marketable securities as of December 31, 2024: +December 31, 2024 +Amortized Cost +Unrealized Gain (Loss) +Fair Value +Short-term marketable securities: +Contractual maturity of one year or less: +Guaranteed investment certificates (“GICs”) and mutual funds +$ 37,166 $ — $ 37,166 +U.S. Treasury notes 71,500 72 71,572 +Corporate debt securities 50,993 ( 58 ) 50,935 +159,659 14 159,673 +Long-term marketable securities: +Contractual maturity of one to three years: +U.S. Treasury notes 14,979 2 14,981 +Corporate debt securities 65,461 ( 153 ) 65,308 +Contractual maturity of three to four years: +Corporate debt securities 18,295 ( 156 ) 18,139 +98,735 ( 307 ) 98,428 +$ 258,394 $ ( 293 ) $ 258,101 +111 +Table of Contents +The following table summarizes the Company's marketable securities as of December 31, 2023: +December 31, 2023 +Amortized Cost +Unrealized Gain (Loss) +Fair Value +Short-term marketable securities: +Contractual maturity of one year or less: +GICs $ 75,066 $ — $ 75,066 +U.S. Treasury notes 46,416 136 46,552 +Corporate debt securities 94,900 252 95,152 +216,382 388 216,770 +Long-term marketable securities: +Contractual maturity of one to three years: +Corporate debt securities 70,181 ( 321 ) 69,860 +Contractual maturity of three to four years: +Corporate debt securities 12,081 ( 11 ) 12,070 +82,262 ( 332 ) 81,930 +$ 298,644 $ 56 $ 298,700 +The following tables present information about the Company’s assets that are measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques used to determine such fair value: +December 31, +2024 December 31, +2023 +Level 1 Level 2 Level 3 +Total +Level 1 Level 2 Level 3 +Total +Cash and cash equivalents: +Cash +$ 34,620 $ 23,126 +Cash equivalents: +Money market funds +$ 16,398 $ — $ — $ 16,398 $ 64,247 $ — $ — $ 64,247 +GICs +15,085 — — 15,085 70,184 — — 70,184 +31,483 — — 66,103 134,431 — — 157,557 +Marketable securities: +GICs and mutual funds +37,166 — — 37,166 75,066 — — 75,066 +U.S. Treasury notes +86,553 — — 86,553 46,552 — — 46,552 +Corporate debt securities — 134,382 — 134,382 — 177,082 — 177,082 +123,719 134,382 — 258,101 121,618 177,082 — 298,700 +$ 155,202 $ 134,382 $ — $ 324,204 $ 256,049 $ 177,082 $ — $ 456,257 +6. IPR&D and Goodwill +Acquired IPR&D +In-process research and development assets (“IPR&D”) acquired in the 2016 Kairos Therapeutics Inc. (“Kairos”) business combination were classified as indefinite-lived intangible assets and were not amortized until their classification as definite-lived assets. During the year ended December 31, 2024, the Company determined that the fair value of IPR&D, which was estimated using an income approach, was less than its carrying value. Accordingly, the Company recorded an impairment charge of $ 17,287 . The impairment was a result of the Company's decision to discontinue the zanidatamab zovodotin clinical +112 +Table of Contents +development program which utilized the acquired technology represented by the IPR&D assets. As of July 1, 2024, the Company classified the remaining assets as definite-lived and commenced amortization. +The following table summarizes the carrying value of IPR&D, net of impairment: +Acquired +IPR&D Accumulated +Impairment +Accumulated +Amortization +Net +Balance at December 31, 2021 $ 20,700 $ ( 3,072 ) $ — $ 17,628 +Change during the period — — — — +Balance at December 31, 2022 $ 20,700 $ ( 3,072 ) $ — $ 17,628 +Change during the period — — — — +Balance at December 31, 2023 $ 20,700 $ ( 3,072 ) $ — $ 17,628 +Change during the period — ( 17,287 ) ( 341 ) ( 17,628 ) +Balance at December 31, 2024 $ 20,700 $ ( 20,359 ) $ ( 341 ) $ — +Goodwill +The Company performed its annual impairment test of goodwill as of December 31, 2024 and concluded that no impairment existed. As part of the evaluation of the recoverability of goodwill, the Company identified only one reporting unit to which the total carrying amount of goodwill has been assigned. As at December 31, 2024, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, a quantitative impairment test was not required. +7. Property and Equipment +Property and equipment consist of the following: +December 31, +2024 2023 +Computer hardware $ 2,815 $ 2,464 +Furniture and fixtures 2,408 2,976 +Office equipment 1,736 2,142 +Laboratory equipment 13,331 11,807 +Leasehold improvements 15,190 20,992 +Construction in progress — 122 +Property and equipment $ 35,480 $ 40,503 +Less accumulated depreciation ( 17,830 ) ( 20,656 ) +Property and equipment, net $ 17,650 $ 19,847 +Depreciation expense on property and equipment for the years ended December 31, 2024, 2023 and 2022 was $ 4,188 , $ 7,462 and $ 6,220 , respectively. +113 +Table of Contents +8. Intangible Assets +Intangible assets consist of the following: +December 31, +2024 2023 +Research licenses $ 14,936 $ 14,936 +Computer software 10,670 7,878 +Costs for in-progress software implementations +— 1,717 +Intangible assets 25,606 24,531 +Less accumulated amortization ( 21,030 ) ( 16,875 ) +Intangible assets, net $ 4,576 $ 7,656 +Amortization expense on intangible assets for the years ended December 31, 2024, 2023 and 2022 was $ 4,496 , $ 2,702 and $ 1,015 , respectively. +At December 31, 2024, amortization expense on capitalized intangible assets is estimated to be as follows for the next five years: +Amortization expense +2025 $ 3,936 +2026 427 +2027 213 +Thereafter +— +$ 4,576 +9. Liabilities +Accounts payable and accrued liabilities consisted of the following: +December 31, +2024 2023 +Trade payables $ 3,903 $ 6,212 +Accrued research and development expenses 43,114 26,661 +Goods and services tax payable +1,250 — +Employee compensation and related accruals +6,222 6,153 +Fair value of liability classified stock options +1,264 960 +Accrued legal, professional fees and other +4,085 4,436 +Liability for contingent consideration (note 15) +— 1,570 +Total $ 59,838 $ 45,992 +Other long-term liabilities consisted of the following: +December 31, +2024 2023 +Liability from in-licensing agreements $ 447 $ 747 +Liability for contingent consideration (note 15) +— 308 +Finance lease liability (note 14) +28 92 +Other 448 554 +Total $ 923 $ 1,701 +114 +Table of Contents +10. Stockholders’ Equity +a. Equity Offerings +2023 Private Placement +On December 28, 2023, the Company completed a private placement pursuant to which the Company sold 5,086,521 pre-funded warrants to purchase 5,086,521 shares of common stock at $ 9.8299 per pre-funded warrant. The Company received gross proceeds of $ 50,000 and net proceeds were $ 49,862 , after expenses. +2023 ATM financing +On June 16, 2023, the Company sold 3,350,000 shares of common stock pursuant to the Company's at-the-market sale program, at $ 8.12 per common share. Net proceeds were $ 26,233 after underwriting commissions and offering expenses. +2022 Public Offering +On January 31, 2022, the Company closed a public offering pursuant to which the Company sold 11,035,000 common shares, including the sale of 1,875,000 common shares to the underwriters upon their full exercise of their over-allotment option, at $ 8.00 per common share and 3,340,000 pre-funded warrants (note 10d) in lieu of common shares at $ 7.9999 per pre-funded warrant. Net proceeds were $ 107,534 , after underwriting discounts, commissions and offering expenses. +b. Authorized Share Capital and Preferred Stock +The Company’s authorized share capital consists of 1,000,000,000 shares of stock, consisting of (i) 900,000,000 shares of common stock, par value $ 0.00001 per share, and (ii) 100,000,000 shares of preferred stock, par value $ 0.00001 per share. +In connection with the Plan of Arrangement, the Company issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of the Company’s preferred stock, par value $ 0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding (the “Special Voting Preferred Stock”), enabling the Share Trustee to exercise voting rights for the benefit of the Exchangeable Shareholders. +Immediately prior to the completion of the Redomicile Transactions, there were 61,699,387 Zymeworks BC common shares issued and outstanding. In connection with the consummation of the Plan of Arrangement, 60,274,854 shares of Common Stock and 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. As of December 31, 2024, there were 570,637 Exchangeable Shares held by former Zymeworks BC shareholders (December 31, 2023: 651,219 ). The Company will issue shares of its common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by ExchangeCo, when ExchangeCo redeems Exchangeable Shares from the holder, or when CallCo purchases Exchangeable Shares from the Exchangeable Shareholder under CallCo’s overriding call rights. These Exchangeable Shares and the Special Voting Preferred Stock, when taken together, are simil ar in substance to the Company’s common stock and are treated as such in calculation of basic net (loss) income per share. +c. Stock Repurchase Program +On August 1, 2024, the board of directors of the Company authorized a stock repurchase program (the “Repurchase Program”), whereby the Company may repurchase up to $ 60,000 of the Company’s outstanding common stock, par value $ 0.00001 per share. As part of the Repurchase Program, the Company adopted an accounting policy whereby the par value of each share is deducted from common stock and the remainder of the repurchase price is debited to accumulated deficit. +During the year ended December 31, 2024, the Company repurchased 2,545,402 shares of its common stock for a cost of $ 30,000 , and incurred commission expense of $ 51 , under the Repurchase Program, which have been recorded against accumulated deficit. The Company’s share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act of $ 152 . During the year ended December 31, 2024, the Company retired all 2,545,402 shares repurchased. These shares were returned to the status of authorized and unissued shares. +115 +Table of Contents +The following table presents the Company’s Repurchase Program activity: +Total number of shares purchased +Average price paid per share +Approximate value of shares purchased +Year Ended December 31, 2024 +2,545,402 $ 11.79 $ 30,000 +d. Pre-Funded Common Share Warrants +In connection with the public offerings completed on June 24, 2019, January 27, 2020, January 31, 2022 and private placement completed on December 28, 2023 (note 10a), the Company issued a total of 13,668,482 pre-funded warrants which granted holders of warrants the right to purchase up to 13,668,482 common shares or shares of the Company, at an exercise price of $ 0.0001 per share. +The pre-funded warrants are exercisable by the holders at any time on or after the original issue date. The pre-funded warrants do not expire unless they are exercised or settled in accordance with the pre-funded warrant agreement. As the pre-funded warrants meet the condition for equity classification, proceeds from issuance of the pre-funded warrants, net of any transaction costs, are recorded in additional paid-in capital. Upon exercise of the pre-funded warrants, the historical costs recorded in additional paid-in capital along with exercise price collected from holders will be recorded in common shares. As the amounts required to exercise the warrants are nominal, these instruments are considered in the calculation of basic net (loss) income per share. +On August 23, 2022, October 25, 2022, October 27, 2022 and October 19, 2023, a total of 8,581,961 pre-funded warrants were exercised in exchange for issuance of 8,581,868 common shares. As a result of the December 28, 2023 private placement, as of December 31, 2024, there were 5,086,521 pre-funded warrants outstanding (December 31, 2023: 5,086,521 ). +e. Adoption of a Shareholder Rights Plan +On June 9, 2022, the board of directors authorized and declared a dividend distribution of one right (each, a “Right”) for each outstanding common share of the Company to shareholders of record as of the close of business on June 21, 2022. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Share, of the Company, at an exercise price of $ 74.00 , subject to adjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement (the “Rights Plan”), dated as of June 9, 2022, between the Company and Computershare Trust Company, N.A., as rights agent. +In general terms, the Rights Plan works by imposing a significant penalty upon any person or group that acquires 10 percent or more (or 20 percent or more in the case of certain institutional investors who report their holdings on Schedule 13G) of the common shares without the approval of the board of directors. As a result, the overall effect of the Rights Plan and the issuance of the Rights may be to render more difficult or discourage a merger, amalgamation, arrangement, take-over bid, tender or exchange offer or other business combination involving the Company that is not approved by the board of directors. However, neither the Rights Plan nor the Rights should interfere with any merger, amalgamation, arrangement, take-over bid, tender or exchange offer or other business combination approved by the board of directors. The issuance of Rights does not affect reported earnings per share. +On October 12, 2022, Zymeworks Inc. (a Delaware corporation) and Computershare Trust Company, N.A., as rights agent, entered into a Preferred Stock Rights Agreement (the “New Rights Plan”) and on October 13, 2022, the board of directors of Zymeworks Inc. (a Delaware corporation) declared a dividend distribution of one right (each, a “Right”) for each share of common stock outstanding at 12:01 a.m. (Pacific Time) on October 13, 2022 (the “Record Date”) and for each share of common stock that becomes outstanding, including any shares of common stock issued in connection with the Redomicile Transactions and as consideration for the Exchangeable Shares, as applicable, between the Record Date and the earlier of the Distribution Date (as defined in the New Rights Plan) and the expiration of the Rights. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Participating Preferred Stock, par value $ 0.00001 per share, of the Company (“Series B Preferred Stock”) at an exercise price of $ 74.00 per one one-thousandth of a share of Series B +116 +Table of Contents +Preferred Stock, subject to adjustment. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights Plan. +On June 8, 2023 the New Rights Plan expired by its terms. Upon effectiveness of the Company's filing of a Certificate of Elimination with the Secretary of State of the State of Delaware on June 12, 2023, the shares that were previously designated as Series B Preferred Stock resumed the status of authorized but unissued shares of preferred stock of the Company. +f. Stock-Based Compensation +In connection with Redomicile Transactions in 2022, Zymeworks BC. assigned to the Company, and the Company assumed, all of Zymeworks BC’s rights and obligations under each of the stock-based compensation plans, as described below, and such plans became the Company’s stock-based compensation plans, with each outstanding award assumed by the Company and deemed exchanged for equivalent awards of the Company, except that the security issuable upon exercise or settlement, as applicable, will be shares of common stock of the Company rather than common shares of Zymeworks BC. +Original Stock Option Plan +On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). The total number of options outstanding is not to exceed 20 % of the issued common shares of the Company. Options granted under the Original Plan are exercisable at various dates over their 10 -year life. The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. Upon the effectiveness of the Company’s New Plan described below, no further options were issuable under the Original Plan. However, all outstanding options granted under the Original Plan remain outstanding, subject to the terms of the Original Plan and the applicable grant documents, until such outstanding options are exercised or they terminate or expire by their terms. +New Plan and Inducement Plan +On April 10, 2017, the Company’s shareholders approved a new stock option plan, which became effective immediately prior to the consummation of the Company’s initial public offering (“IPO”). This plan allows for the grant of options, and also permitted the Company to grant incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code, to its employees, until the shares reserved for issuance of ISOs were depleted. On June 7, 2018, the Company’s shareholders approved an amendment and restatement of this plan (this plan, as amended and restated, the “New Plan”), which includes an article that allows the Company to grant restricted shares, RSU and other share-based awards, in addition to stock options. As of December 31, 2024, 5,196,630 shares of common stock were available for future award grants under the New Plan (December 31, 2023: 4,594,639 shares of common stock). +On January 5, 2022, the board of directors approved the Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan (the “Inducement Plan”) and reserved 750,000 of the Company’s common shares for issuance pursuant to equity awards granted thereunder. On July 19, 2024, the board of directors approved an amendment and restatement of the Inducement Plan, which increased the number of shares of the Company’s common stock available for future issuance pursuant to equity awards granted under the Inducement Plan by 700,000 shares. As a result of this increase, a total of 1,450,000 shares will have been available for issuance pursuant to equity awards granted under the Inducement Plan since the inception of the Inducement Plan in January 2022. As of December 31, 2024, 390,000 shares of common stock were available for future award grants under this plan (December 31, 2023: 50,000 ). +117 +Table of Contents +RSUs +The following table summarizes the Company’s RSU activity under the New Plan: +Number of RSUs Weighted- +average grant +date fair value +($) +Outstanding, December 31, 2022 227,223 17.36 +Granted 864,100 8.03 +Vested and settled ( 100,949 ) 18.69 +Forfeited ( 218,961 ) 10.65 +Outstanding, December 31, 2023 771,413 8.63 +Granted 957,750 10.56 +Vested and settled ( 225,004 ) 8.76 +Forfeited ( 210,189 ) 10.75 +Outstanding, December 31, 2024 1,293,970 9.69 +As of December 31, 2024, there was $ 3,415 of unamortized RSU expense that will be recognized over a weighted average period of 1.40 years. +Stock Options +The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan: +Number +of Options Weighted- +Average +Exercise Price +(C$) Weighted- +Average +Exercise Price +($) Weighted- +Average +Contractual +Term +(years) Aggregate +intrinsic value +(C$) Aggregate +intrinsic value +($) +Outstanding, December 31, 2022 2,147,141 19.02 14.03 6.29 1,460 1,078 +Granted — — — +Expired ( 29,158 ) 18.29 13.55 +Exercised ( 339,230 ) 11.31 8.44 +Forfeited ( 289,275 ) 25.20 18.76 +Outstanding, December 31, 2023 1,489,478 19.59 14.39 5.50 2,987 2,255 +Granted — — — +Expired ( 58,902 ) 32.37 23.46 +Exercised ( 224,042 ) 11.23 8.20 +Forfeited ( 123,699 ) 21.85 16.11 +Outstanding, December 31, 2024 1,082,835 20.36 14.15 4.73 6,485 4,509 +December 31, 2024 +Exercisable 1,042,393 21.31 14.81 4.29 5,360 3,724 +Vested and expected to vest 1,073,006 20.46 14.22 4.68 6,374 4,429 +118 +Table of Contents +The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan: +Number +of Options Weighted- +Average +Exercise Price +($) Weighted- +Average +Contractual +Term +(years) Aggregate +intrinsic value +($) +Outstanding, December 31, 2022 5,565,145 17.10 7.86 1,928 +Granted 2,691,325 8.25 +Expired — — +Exercised ( 302,052 ) 7.39 +Forfeited ( 1,885,176 ) 19.39 +Outstanding, December 31, 2023 6,069,242 12.97 7.67 9,213 +Granted 3,135,500 11.15 +Expired — — +Exercised ( 735,864 ) 9.57 +Forfeited ( 1,137,794 ) 16.34 +Outstanding, December 31, 2024 7,331,084 12.01 7.97 30,459 +December 31, 2024 +Exercisable 3,183,796 14.05 6.34 12,552 +Vested and expected to vest 6,699,796 12.14 7.63 27,875 +During the year ended December 31, 2024, the Company received cash proceeds of $ 8,857 (2023: $ 5,006 and 2022: $ 255 ) from stock options exercised. The stock options outstanding at December 31, 2024 expire at various dates from January 1, 2025 to December 9, 2034. +A summary of the non-vested stock option activity and related information of the Company’s stock options granted in Canadian dollars is as follows: +Number of +options Weighted-average grant +date fair value +(C$) Weighted- +average grant +date fair value +(US$) +Non-vested, December 31, 2023 279,755 10.65 8.04 +Options granted — — — +Options vested ( 138,798 ) 12.77 8.87 +Options forfeited and cancelled ( 39,990 ) 11.75 8.16 +Non-vested, December 31, 2024 100,967 7.31 5.08 +A summary of the non-vested stock option activity and related information of the Company’s stock options granted in U.S. dollars is as follows: +Number of +options Weighted- +average grant +date fair value +(US$) +Non-vested, December 31, 2023 3,137,583 5.93 +Options granted 3,135,500 6.91 +Options vested ( 1,494,951 ) 6.31 +Options forfeited and cancelled ( 630,844 ) 5.85 +Non-vested, December 31, 2024 4,147,288 6.65 +119 +Table of Contents +The estimated fair values of options granted to officers, directors, employees and consultants are amortized over the relevant vesting periods. Stock-based compensation expense for equity classified instruments, as well as the financial statement impact of the amortization and periodic revaluation of liability classified instruments (note 2), are recorded in research and development expense and general and administration expense as follows: +Year Ended December 31, +2024 2023 2022 +Research and development expense +$ 8,382 $ 2,404 $ 2,393 +General and administrative expense +$ 9,041 $ 5,316 $ 1,209 +Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $ 5,813 for the year ended December 31, 2024 (2023: $ 3,369 and 2022: $ 913 ). +For the year ended December 31, 2024, stock-based compensation expense of $ 16,716 was recorded in additional paid-in capital and $ 1,076 was recorded in the liability classified stock options and ESPP liability accounts (2023: $ 8,196 in additional paid-in capital and recovery of $ 630 in liability classified stock options and ESPP liability accounts, 2022: $ 9,516 in additional paid-in capital and recovery of $ 3,261 in liability classified stock options and ESPP liability accounts). +The estimated fair value of stock options granted under the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: +Year ended December 31, +2024 2023 2022 +Dividend yield 0 % 0 % 0 % +Expected volatility 64.5 % 68.1 % 77.2 % +Risk-free interest rate 4.04 % 3.94 % 2.12 % +Expected average life of options 6.00 years 5.89 years 5.93 years +Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has calculated the expected volatility using the volatility of its own stock for the years ended December 31, 2024 and 2023 while also using stocks of several public entities of similar complexity and stage of development for the year ended December 31, 2022. +Risk-Free Interest Rate — This rate is from the Government of Canada and U.S. Federal Reserve marketable bonds for the month prior to each option grant during the year, having a term that most closely resembles the expected life of the option. +Expected Term — This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years . The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the contractual term. +The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at December 31, 2024 and 2023 are as follows: +December 31, +2024 December 31, +2023 +Dividend yield 0 % 0 % +Expected volatility 45.8 % 50.6 % +Risk-free interest rate 2.90 % 3.80 % +Expected average option term 0.85 years 0.91 years +Number of liability classified stock options outstanding 272,330 442,198 +The total intrinsic value of stock options exercised during the years ended December 31, 2024, 2023 and 2022 was $ 2,242 , $ 758 and $ 53 respectively. At December 31, 2024, the unamortized compensation expense related to unvested options was $ 11,993 . The remaining unamortized compensation expense as of December 31, 2024 will be recognized over a weighted-average period of 1.7 years. +120 +Table of Contents +g. Employee Stock Purchase Plan (“ESPP”) +The ESPP, as amended, allows eligible employees to acquire common shares at a discounted purchase price of the lesser of (i) 85 % of the market price of a common share on the first day of the applicable purchase period and (ii) 85 % of the market price of a common share on the purchase date. The ESPP qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are United States taxpayers. +As this plan is considered compensatory, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of (loss) income and comprehensive (loss) income on a straight-line basis over the requisite service period. For the year ended December 31, 2024, the Company recorded compensation expense of $ 370 (2023: $ 387 , 2022: $ 424 ) in research and development expense and general and administrative expense accounts. As of December 31, 2024, the total amount contributed by ESPP participants and not yet settled is $ 577 (December 31, 2023: $ 384 ). +11. Research, Collaboration and Licensing Agreements +Revenue recognized from the Company’s strategic partnerships is summarized as follows: +Year ended December 31, +2024 2023 2022 +Jazz: +Milestone revenue $ 25,000 $ — $ — +Recognition of licensing and technology transfer fee — — 375,000 +Development support payments +2,835 52,619 20,671 +Drug supply for ongoing studies +19,228 25,662 3,610 +Credit note for amendment of program — ( 20,100 ) — +Other drug supply +15,464 13,350 — +Royalties +100 — — +Atreca: +Recognition of licensing fee — — 5,000 +BeiGene: +Milestone revenue 8,000 — — +Drug supply +3,009 1,080 194 +Development support payments +— 537 6,234 +GSK: +Milestone revenue 2,500 — — +Research and development support and other payments 168 2,864 1,773 +$ 76,304 $ 76,012 $ 412,482 +Contract Assets and Liabilities +As at December 31, 2024, contract assets from research, collaboration and licensing agreements were $ 0.1 million, which is presented within accounts receivable (December 31, 2023: nil which is presented within accounts receivable) and contract liabilities were $ 40.2 million (December 31, 2023: $ 36.6 million). As at December 31, 2024 and 2023, $ 25.6 million and $ 3.7 million respectively, of the contract liabilities is classified as short term. Contract liabilities relate to deferred revenue from the BeiGene and Jazz agreements described below. +Jazz Collaboration Agreement +Original Jazz Collaboration Agreement: +On October 18, 2022, the Zymeworks BC entered into a License and Collaboration Agreement (the "Jazz Collaboration Agreement") with Jazz Pharmaceuticals Ireland Limited ("Jazz"), under which Jazz will have development and commercialization rights of zanidatamab throughout the world, but excluding the People’s Republic of China, Australia, New Zealand, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Hong Kong, Taiwan, Macau, Mongolia, South Korea, +121 +Table of Contents +Brunei Darussalam, Cambodia, Indonesia, Papua New Guinea, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste, and Vietnam. +Under the Jazz Collaboration Agreement, the Company received a $ 50.0 million upfront payment upon delivery of licenses and technology transfer to Jazz as well as the receipt of United States Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR”) Clearance (“Initial Technology Transfer”). A further payment of $ 325.0 million was received following Jazz's decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01 (“BTC Data Transfer”). The Company considered the fair value of performance obligations based on the Company’s best estimate of their relative stand-alone selling prices, and allocated $ 375.0 million of the transaction price to the Company’s performance obligations in relation to the delivery of licenses, the Initial Technology Transfer and BTC Data Transfer under the Jazz Collaboration Agreement. +Development and commercial licenses, the Initial Technology and BTC Data Transfers were considered to be a single performance obligation. The consideration of $ 50.0 million allocated to this performance obligation was recognized as revenue in November 2022, upon delivery of these performance obligations and receipt of the HSR Clearance. Remaining consideration of $ 325.0 million was recognized as revenue upon completion of BTC Data Transfer to Jazz and Jazz’s decision to continue the Jazz Collaboration agreement, in December 2022. +Deliverables of development work performed by the Company, continuing technology transfer, participation in the Joint Steering Committee (“JSC”), and transfer of first BLA together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be recognized as revenue over time as these activities are completed. +Remaining deliverables of Manufacturing Technology Transfer, Development Drug Supply, Commercial Drug Supply were considered individually distinct and the revenue related to these deliveries are to be recognized upon completion of future deliveries to Jazz. +Amendment of Jazz Collaboration Agreement: +On April 25, 2023, Zymeworks BC, a subsidiary of the Company, Zymeworks Biopharmaceuticals Inc. (“ZBI”), a subsidiary of Zymeworks BC, Zymeworks Zanidatamab Inc. (“ZZI”), a subsidiary of ZBI formed in December 2022 focused on the Company’s development program for zanidatamab, and Jazz Pharmaceuticals, Inc. (“Jazz Inc.”), entered into a Stock and Asset Purchase Agreement (the “Transfer Agreement”). Under the Transfer Agreement, (i) Jazz Inc. acquired from ZBI 100 % of the issued and outstanding capital stock of ZZI, (ii) Jazz Inc. engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and (iii) Zymeworks BC and ZBI transferred to Jazz Inc. or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that work on the Program (as defined below). In addition, Jazz Inc. acquired from Zymeworks BC and ZBI certain contracts related to the Program, organizational documents and other records of ZZI, certain regulatory filings related to the Program, certain other books, records and other files, documents and information related to the Program, and certain employment records of service providers to be employed by Jazz Inc. and its affiliates following the Closing (as defined below). Subject to the terms and conditions of the Transfer Agreement, Jazz Inc. assumed certain liabilities that arise following the Closing related to the acquired assets and the Program, including with respect to transferred service providers. +Zymeworks BC and Jazz Pharmaceuticals Ireland Limited (an affiliate of Jazz Inc.) (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) amended and restated the license and collaboration agreement dated October 18, 2022 by and between Zymeworks BC and Jazz (the “Original Jazz Collaboration Agreement”) (as amended the “Amended Jazz Collaboration Agreement”) to reflect the transfer of responsibility for the Program. Under the Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously disclosed, was unchanged, except that the costs of the Program (including ongoing costs related to the transferred service providers) incurred following the Closing was directly borne by Jazz instead of being incurred by Zymeworks BC and charged back to Jazz for reimbursement, though Zymeworks BC will remain eligible for reimbursement of certain costs for activities where Zymeworks BC maintains responsibility under the Amended Jazz Collaboration Agreement. As part of the amendments to the Amended Collaboration Agreement, the Company agreed to provide a credit note to Jazz of $ 20.1 million, which has been recognized as a reduction to revenue for the year ended December 31, 2023. “Program” refers to (i) ongoing clinical trials in certain sites in South Korea that are the responsibility of Zymeworks BC under the Original Jazz Collaboration Agreement and (ii) clinical trials for zanidatamab, other than the studies referenced in (i), initiated by Zymeworks BC in the Territory (as defined in the Original Jazz Collaboration Agreement) prior to the execution of the Original Jazz Collaboration Agreement. +122 +Table of Contents +The consummation of the transactions contemplated by the Transfer Agreement, including the execution of the Amended Jazz Collaboration Agreement, occurred in May 2023 (the “Closing”). In connection with the Closing, the parties entered into a transition services agreement pursuant to which Zymeworks BC and ZBI provide to Jazz Inc. and Jazz Inc. provides to Zymeworks BC and ZBI certain services to support the transfer of the acquired assets and the Program on a transitional basis. +In November 2024, the Company recognized milestone revenue of $ 25.0 million from Jazz in relation to the FDA approval of Ziihera® (zanidatamab-hrii) for the treatment of HER2+ BTC. As at December 31, 2024, the Company is eligible to receive up to $ 525.0 million in certain regulatory milestone payments (of which $ 25.0 million of milestone revenue has been recognized but not received as of December 31, 2024) and up to $ 862.5 million in potential commercial milestone payments. The Company is eligible to receive tiered royalties between 10 % and 20 % on Jazz’s annual net sales, with customary reductions in specified circumstances. No commercial milestone payments have been recognized to date. +As at December 31, 2024, contract liabilities under the Amended Jazz Collaboration Agreement include $ 7.3 million received in relation to drug supply provided to Jazz. +Collaboration and License Agreements with BeiGene, Ltd. (“BeiGene”) +On November 26, 2018, the Company entered into three concurrent agreements with BeiGene whereby the Company granted BeiGene royalty-bearing exclusive licenses for the research, development and commercialization of its bispecific therapeutic candidates, zanidatamab (formerly known as “ZW25”) ( as amended on March 29, 2021 and August 10, 2021, collectively “Zanidatamab Agreement”) and zanidatamab zovodotin (formerly known as “ZW49”) ( as amended on May 25, 2020 and June 2, 2021, collectively “Zanidatamab Zovodotin Agreement”) in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. In addition, the Company also granted BeiGene a worldwide, royalty-bearing, antibody sequence pair-specific license to research, develop and commercialize globally three bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms, which agreement expired in November 2023. +Pursuant to these agreements, the Company received an upfront payment of $ 60.0 million for the totality of the rights described. The Company considered the fair value of performance obligations based on the Company’s best estimate of their relative stand-alone selling prices, and allocated $ 40.0 million of the transaction price to the license and collaboration agreements for zanidatamab and zanidatamab zovodotin and $ 20.0 million to the Company’s performance obligations under the research and licensing agreement for Azymetric and EFECT platforms. +Original License and Collaboration Agreements for Zanidatamab and Zanidatamab Zovodotin +In relation to the Zanidatamab Agreement, the Company identified the following promised goods and services at the inception of the BeiGene agreement that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing technology transfer, participation in the Joint Steering Committee (“JSC”) and other sub-committees, manufacturing technology transfer, provision of development supply, provision of commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the licenses and initial technology transfer are distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-committees’ activities are also distinct together. Remaining deliverables were individually determined to be distinct. +Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance obligation. The consideration of $ 7.1 million allocated to this performance obligation was recognized as revenue over a two-month period during which the delivery of the license and transfer of the relevant technology occurred. Deliverables of continuing technology transfer and participation in the JSC and other sub-committees together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be recognized as revenue over time as these activities are completed. Remaining deliverables are considered individually distinct and the revenue will be recognized as delivery or transfer of future rights to BeiGene occurs. +In March 2020, BeiGene dosed the first patient in a two-arm Phase 1b/2 trial evaluating zanidatamab in combination with chemotherapy as a first-line treatment for patients with metastatic HER2+ breast cancer and in combination with chemotherapy and BeiGene’s PD-1-targeted antibody tislelizumab as a first-line treatment for patients with metastatic HER2+ GEA. The Company recognized revenue of $ 5.0 million in relation to this milestone. In November 2020, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-BTC-01 study . The Company recognized revenue of $ 10.0 million in relation to this milestone. In December 2021, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-GEA-01 study and the Company recognized revenue of $ 8.0 million in relation to this milestone. +123 +Table of Contents +In relation to the Zanidatamab Zovodotin Agreement, the Company identified the following promised goods and services at the inception of the BeiGene agreement that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing technology transfer, participation in the JSC and other sub-committees, manufacturing technology transfer, provision of development supply, provision of commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the licenses and initial technology transfer together were distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-committees’ activities were also distinct together. Manufacturing technology transfer, provision of development supply and provision of commercial supply were individually determined to be distinct. +Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance obligation while continuing technology transfer and participation in the JSC and other sub-committees together were considered as a single performance obligation. Remaining deliverables were considered individually distinct. +Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab Zovodotin and Amendment of BeiGene License and Collaboration Agreement Regarding Zanidatamab: +On September 18, 2023, Zymeworks BC and BeiGene entered into a Termination Agreement (the “Termination Agreement”) relating to the Zanidatamab Zovodotin Agreement . The Termination Agreement does not terminate the Zanidatamab Agreement (as defined below). +Pursuant to the Termination Agreement, the Zanidatamab Zovodotin Agreement is terminated, effective as of September 18, 2023, and is no longer in effect, except that the termination does not relieve the parties from obligations under the Zanidatamab Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeiGene intellectual property with respect to zanidatamab zovodotin. +Under the Zanidatamab Zovodotin Agreement, no performance obligations were completed by the Company as of December 31, 2024 as the initial transfer of technologies and relevant know-how was not going to start until the earlier of completion of the Company’s Phase-1 clinical studies for zanidatamab zovodotin or completion of dose escalation studies. Accordingly, no revenue was recognized from the Zanidatamab Zovodotin Agreement to date. +In connection with the entry into the Termination Agreement, on September 18, 2023, Zymeworks BC and BeiGene also entered into the Third Amendment to License and Collaboration Agreement (the “Amendment”) relating to the Zanidatamab Agreement. Pursuant to the Amendment, Zymeworks BC is eligible to receive development and commercial milestone payments of up to $ 164.0 million, together with tiered royalties up to 19.5 % of net sales in BeiGene territories increasing up to 20 % when cumulative amounts forgone as a result of a royalty reduction of 0.5 % reaches a cap in the low double-digit millions of dollars. Pursuant to the Amendment, the remaining provisions of the Zanidatamab Agreement remain unchanged. +The Termination Agreement and the Amendment did not have any financial impact on the Company's financial statements as of and for the year ended December 31, 2024, other than allocation of consideration and performance obligations under the Zanidatamab Zovodotin Agreement to Zanidatamab Agreement. As of December 31, 2024, the Company has received $ 32.9 million of the upfront fees from the Zanidatamab Agreement of which, $ 18.3 million is recorded as deferred revenue in current liabilities and $ 14.6 million as long-term deferred revenue on the Company’s consolidated balance sheet (December 31, 2023: $ 32.9 million from the Zanidatamab Agreement and Zanidatamab Zovodotin Agreement recorded as long-term deferred revenue). Amounts not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue. +In June 2024, the Company recognized $ 8.0 million of milestone revenue from BeiGene in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC. +2020 Research and License Agreement with Merck +In July 2020, the Company entered into a new licensing agreement with Merck granting Merck a worldwide, royalty-bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field using the Company’s Azymetric and EFECT platforms. The Company is eligible to receive up to $ 419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $ 502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +124 +Table of Contents +Licensing and Collaboration Agreement with Celgene Corporation & Celgene Alpine Investment Co. LLC (formerly “Celgene” and now a Bristol- Myers Squibb company, “BMS”) +On December 23, 2014, the Company entered into an agreement with Celgene (now “BMS”) to research, develop and commercialize bispecific antibodies generated through the use of the Company’s Azymetric platform. The Company will apply its Azymetric platform in combination with BMS’s proprietary targets to create novel bispecific antibodies for which BMS has an option to develop and commercialize a certain number of products (“Commercial License Option”). +Upon the execution of the Agreement, the Company received an upfront payment of $ 8.0 million. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period and the Company received an expansion fee of $ 4.0 million. In June 2020, the Company’s existing collaboration agreement with BMS was amended to expand the license grant to include the use of the Company’s EFECT platform for the development of therapeutic candidates and to extend the research term. The amendment included an upfront expansion fee of $ 12.0 million paid to the Company and all other financial terms were unchanged. The Company’s performance obligations in relation to the upfront fee were met on the date of amendment. Accordingly, the upfront payment was recognized as revenue during the year ended December 31, 2020. As of December 31, 2024, BMS had exercised one commercial license option and the Company received a $ 7.5 million option payment, but in 2023 BMS stopped development of such program. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period. As at December 31, 2024, BMS remains eligible to exercise its one remaining option and the Company remains eligible to receive up to $ 320.5 million for the two remaining programs (or $ 164.0 million not including the one program for which BMS stopped development in 2023), comprised of a commercial license option payment of $ 7.5 million for the one remaining program, development milestone payments of up to $ 101.5 million per program, and commercial milestone payments of up to $ 55.0 million per program. In addition, the Company is eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +2015 Collaboration and License Agreement with GlaxoSmithKline Intellectual Property Development Ltd. (“GSK”) +On December 1, 2015, the Company entered into a collaboration and license agreement with GSK for the research, development, and commercialization of up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of the Company’s EFECT and Azymetric platforms. The Company and GSK will collaborate to further develop the Company’s EFECT platform through the design, engineering, and testing of novel engineered Fc domains tailored to induce specific antibody-mediated immune responses. +At the conclusion of the research collaboration, both GSK and the Company will have the right to develop and commercialize monoclonal and bispecific antibody candidates that incorporate the Company’s optimized immune-modulating Fc domains. +Under the terms of the agreement, GSK will have the right to develop a minimum of four products across multiple disease areas, and the Company will be eligible to receive up to $ 1.1 billion, including research, development, and commercial milestones of up to $ 110.0 million for each product. In addition, the Company is eligible to receive tiered sales royalties in the low single digits on net sales of products. Under this agreement, the Company is sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. Furthermore, the Company will have the right to develop up to four products, free of royalties, using the new intellectual property arising from the collaboration and after a period of time, to grant licenses to such +intellectual property for development of additional products by third parties without any royalty or milestone payment to GSK. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on GSK’s performance. +No development or commercial milestone payments or royalties have been received to date. +2016 Platform Technology Transfer and License Agreement with GSK +On April 21, 2016, the Company entered into a platform technology transfer and license agreement with GSK for the research, development, and commercialization of up to six bispecific antibodies enabled using the Company’s Azymetric platform. Each of the two agreements with GSK were negotiated independently and the deliverables covered by the respective contracts utilize different therapeutic platforms and are unrelated to one another. Accordingly, the Platform Technology and License Agreement with GSK has been accounted for as a new arrangement. In May 2019, this agreement was expanded to provide GSK access to the Company’s unique heavy-light chain pairing technology under the Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. +125 +Table of Contents +The Company is eligible to receive up to $ 1.1 billion in milestone and other payments. From contract inception to December 31, 2024, the Company has received an upfront technology access fee payment of $ 6.0 million. In July 2024, the Company recognized $ 2.5 million of milestone revenue from GSK in relation to the sequence pair nomination by GSK under the 2016 agreement between the Company and GSK. The Company is also eligible to receive research milestone payments of up to $ 35.0 million, development milestone payments of up to $ 182.5 million and commercial milestone payments of up to $ 867.0 million. In addition, the Company is entitled to receive tiered royalties in the low to mid-single digits on product sales. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on GSK’s performance. +No commercial milestone payments or royalties have been received to date. +2016 Collaboration Agreement with Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”) +On September 26, 2016, the Company and Daiichi Sankyo entered into a collaboration and cross license agreement which was amended on September 25, 2018, July 2, 2021, and June 6, 2022 (collectively, the “2016 Daiichi Collaboration Agreement”) for the research, development, and commercialization of one bispecific antibody enabled using the Company’s Azymetric and EFECT platforms. Additionally, the Company was able to license immuno-oncology antibodies from Daiichi Sankyo, with the right to research, develop and commercialize multiple products globally in exchange for royalties on product sales. Under the agreement, Daiichi Sankyo had the option to develop and commercialize a single bispecific immuno-oncology therapeutic. +From contract inception to the termination of 2016 Daiichi Collaboration agreement as defined below, the Company has received an upfront technology access fee payment of $ 2.0 million and research and commercial option related payments totaling $ 4.5 million. +Termination of the 2016 Daiichi Sankyo Collaboration Agreement +In March 2023, Zymeworks BC and Daiichi Sankyo terminated the 2016 Daiichi Collaboration Agreement and is no longer in effect, except that the termination does not relieve the parties from obligations under the 2016 Daiichi Collaboration Agreement that have accrued prior to the termination or provisions of the 2016 Daiichi Collaboration Agreement expressly indicated in the 2016 Daiichi Collaboration Agreement or the Termination and License Agreement to survive the termination. The termination of the 2016 Daiichi Collaboration Agreement did not have any financial impact during the year ended December 31, 2023. +2018 Licensing Agreement with Daiichi Sankyo +In May 2018, the Company entered into a second license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products. Under the agreement, Daiichi Sankyo will be solely responsible for the research, development, manufacturing and commercialization of the products. +Under the terms of the agreement, the Company was eligible to receive up to $ 484.7 million in various milestone and other payments. From contract inception to December 31, 2024, the Company has received an upfront technology access fee payment of $ 18.0 million. The Company remains eligible to receive development milestone payments totaling up to $ 63.4 million and commercial milestone payments of up to $ 170.0 million. In addition, the Company is eligible to receive tiered royalties ranging from the low single digits up to 10 % on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be reduced. +No development or commercial milestone payments or royalties have been received to date. +Collaboration and License Agreement with Janssen Biotech, Inc. (“Janssen”) +On November 13, 2017, the Company entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Janssen a worldwide, royalty-bearing, antibody group-specific exclusive license to research, develop and commercialize certain products. Janssen also has the option to develop two additional bispecific antibodies under this agreement subject to a future option payment. Under the agreement, Janssen will be solely +126 +Table of Contents +responsible for the research, development, manufacturing and commercialization of the products. +The Company was originally eligible to receive up to $ 1.45 billion in various license and milestone payments. From contract inception to December 31, 2024, the Company has received an upfront payment of $ 50.0 million and development milestones totaling $ 8.0 million with two bispecific antibodies initiating clinical trials. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. As a result, the Company remains eligible to receive development milestone payments of up to $ 86.0 million and commercial milestone payments of up to $ 373.0 million ($ 43.0 million and $ 186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). In addition, the Company is eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. Janssen has the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to buy down the royalty relating to such product by one percentage point with a payment of $ 10.0 million. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on Janssen’s performance. +No commercial milestone payments or royalties have been received to date. +Research and License Agreement with LEO Pharma A/S (“LEO”) +On October 23, 2018, the Company entered into a research and license agreement with LEO. The Company granted LEO a worldwide, royalty-bearing, antibody sequence pair-specific exclusive license to research, develop and commercialize two bispecific antibodies, generated through the use of the Company’s Azymetric and EFECT platforms, for dermatologic indications. The Company will retain rights to develop antibodies resulting from this collaboration in all other therapeutic areas. The Company and LEO are jointly responsible for certain research activities, with the Company’s cost to be fully reimbursed by LEO. Each party is solely responsible for the development, manufacturing, and commercialization of their own products. +Pursuant to this agreement, the Company received an upfront payment of $ 5.0 million. No development or commercial milestone payments or royalties have been received to date. +Termination of LEO Research and License Agreement +On October 27, 2023, Zymeworks BC received written notice from LEO Pharma A/S (“LEO”), stating that LEO elected to terminate, in its entirety, the Research and License Agreement. In accordance with the terms of the Research and License Agreement, the termination of such agreement was effective on January 25, 2024. The termination of the LEO Research and License Agreement did not have any financial impact during the year ended December 31, 2023. +License Agreement with Iconic Therapeutics, Inc. (“Iconic”) +On May 13, 2019, the Company entered into a license agreement with Iconic to develop and commercialize an ADC (ICON-2) targeting tissue factor generated through the use of the Company’s ZymeLink platform. Under the terms of this agreement, the Company granted Iconic a worldwide, royalty-bearing, antibody sequence-specific, exclusive license to develop and commercialize certain products. Iconic is responsible for the development, manufacturing, and commercialization of the products. +Pursuant to this agreement, the Company was initially eligible to receive development and commercial milestone payments and tiered royalties on worldwide net sales. From contract inception to December 31, 2023, the Company has received $ 1.0 million in milestone payments. +In December 2020, Exelixis, Inc. (“Exelixis”) exercised an option under an existing agreement with Iconic to license ICON-2 (also known as XB002) and under the Company’s agreement with Iconic, the Company received $ 4.0 million accordingly, a share of the $ 20.0 million option fee paid to Iconic by Exelixis. In December 2021, under an amendment between Iconic and Exelixis, the Company recognized $ 5.0 million as a share of the one-time fee received by Iconic in exchange for all future milestones owing to Iconic from Exelixis. The Company will continue to be eligible to receive future royalties on the ICON-2 program pursuant to the agreement with Iconic. Iconic and its partners are responsible for the development, manufacturing, and commercialization of the products. +127 +Table of Contents +Atreca +In April 2022, the Company entered into a licensing agreement with Atreca, Inc. (“Atreca”), granting Atreca a worldwide, royalty-bearing license to research, develop and commercialize novel ADCs. The Company is eligible to receive up to $ 210.0 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $ 540.0 million in commercial milestone payments, as well as tiered royalties on worldwide sales. The Company's performance obligations in relation to the research license fee of $ 5.0 million were met in April 2022. Accordingly, the research license fee was recognized as revenue during the year ended December 31, 2022. There are no active programs under development pursuant to this agreement. +12. Other Income (Expense), net +Other income (expense), net consists of the following: +Year ended December 31, +2024 2023 2022 +Foreign exchange gain (loss) +$ 776 $ ( 1,185 ) $ 1,152 +Other ( 218 ) 291 ( 42 ) +$ 558 $ ( 894 ) $ 1,110 +13. Income Taxes +a. Income tax expense is comprised of the following: +Year Ended December 31, +2024 2023 2022 +Current income tax expense +$ ( 5,393 ) $ ( 189 ) $ ( 8,953 ) +Deferred income tax (expense) recovery +( 691 ) 757 ( 1,940 ) +Income tax (expense) recovery +$ ( 6,084 ) $ 568 $ ( 10,893 ) +Current income tax recovery expense for the years ended December 31, 2024, 2023 and 2022 arose from the operations of the Company as well as its wholly owned subsidiaries in Canada, in the United States, in Ireland and in Singapore, as well as withholding taxes paid by the Company abroad in 2024, 2023 and 2022. +b. Income tax expense varies from the amounts that would be computed by applying the expected U.S. statutory income tax rate of 21 % (2023: 21 % and 2022: 21 %) to income (loss) before income taxes as shown in the following table: +Year Ended December 31, +2024 2023 2022 +Computed taxes at United States statutory income tax rate $ 24,466 $ 25,041 $ ( 28,429 ) +Non-deductible expenses ( 10,508 ) ( 2,696 ) ( 9,745 ) +Difference between domestic and foreign tax rate 5,360 5,976 ( 8,365 ) +Adjustments to prior year 524 48,724 ( 826 ) +Change in valuation allowance ( 28,882 ) ( 78,668 ) 33,526 +Change in recognition and measurement of tax positions +( 38 ) ( 14 ) — +Changes due to SR&ED and research credits 3,102 2,661 3,238 +Other ( 108 ) ( 456 ) ( 292 ) +Income tax (expense) recovery +$ ( 6,084 ) $ 568 $ ( 10,893 ) +128 +Table of Contents +c. Deferred income tax assets and liabilities result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets and liabilities are as follows: +December 31, +2024 December 31, +2023 +Deferred tax assets: +Non-capital losses carried forward $ 177,660 $ 162,545 +Deferred revenue 10,852 9,893 +Share issuance costs +1,360 2,972 +Property and equipment 71 291 +Intangible assets 4,539 1,902 +Research and development deductions and credits 50,415 44,635 +Contingent consideration 7 111 +Stock options 8,388 5,936 +Operating lease liability 4,761 6,596 +Other 195 465 +$ 258,248 $ 235,346 +Deferred tax liabilities: +Property and equipment ( 174 ) ( 231 ) +IPR&D — ( 4,760 ) +Operating lease right-of-use assets ( 4,294 ) ( 4,531 ) +Outside basis difference in foreign subsidiary ( 2,429 ) ( 2,125 ) +Stock options +( 2,333 ) ( 1,177 ) +Other +( 176 ) ( 186 ) +$ ( 9,406 ) $ ( 13,010 ) +248,842 222,336 +Less: valuation allowance ( 249,218 ) ( 222,021 ) +Net deferred tax (liabilities) assets $ ( 376 ) $ 315 +Deferred tax assets $ 4,385 $ 3,615 +Deferred tax liabilities ( 4,761 ) ( 3,300 ) +Net deferred tax (liabilities) assets $ ( 376 ) $ 315 +The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criterion changes, the valuation allowance is adjusted accordingly. +d. At December 31, 2024, the Company has net operating losses carried forward for tax purposes in Canada, which are available to reduce taxable income of future years of approximately $ 658.0 million (December 31, 2023: $ 597.2 million) expiring commencing 2035 through 2044. +At December 31, 2024, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of approximately $ 108.6 million (December 31, 2023: $ 99.1 million) available to reduce taxable income of future years in Canada, with no expiry. At December 31, 2024, the Company has approximately $ 25.0 million (December 31, 2023: $ 21.7 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2029 through 2044, and has approximately $ 0.9 million (December 31, 2023: $ 0.4 million) of research tax credits available to offset U.S. federal taxes payable expiring commencing in 2042 through 2044. +129 +Table of Contents +e. The investment tax credits and non-capital losses for income tax purposes expire as follows: +Expiry date Investment tax credits Research tax +credits Non-capital losses +2029 $ 1,169 $ — $ — +2030 1,242 — — +2031 1,424 — — +2032 1,248 — — +2033 1,277 — — +2034 1,701 — — +2035 1,080 — 3,961 +2036 867 — 24,578 +2037 1,587 — 10,625 +2038 1,485 — — +2039 1,818 — 81,253 +2040 1,903 — 146,611 +2041 2,222 — 192,924 +2042 1,777 445 41,793 +2043 1,934 — 100,086 +2044 2,232 425 56,164 +$ 24,966 $ 870 $ 657,995 +f. A reconciliation of total unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022 are as follows: +Year Ended December 31, +2024 2023 2022 +Balance, beginning of year $ 3,077 $ 3,063 $ 3,063 +Increases related to prior year tax positions — — — +Increases related to current year tax positions 38 14 — +Balance, end of year $ 3,115 $ 3,077 $ 3,063 +Included in the balance of unrecognized tax benefits at December 31, 2024, 2023 and 2022 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations. Recognition of these potential benefits would result in a deferred tax asset in the form of net operating loss carry-forward, which would be subject to a valuation allowance based on conditions existing at the reporting date. +The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income tax expense on the consolidated statements of (loss) income and comprehensive (loss) income. +The Company currently files income tax returns in Canada, the United States, the United Kingdom, Ireland and Singapore, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, management is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2024 remain subject to Canadian income tax examinations. Tax years ranging from 2021 to 2024 remain subject to U.S. income tax examinations. Tax years ranging from 2022 to 2024 remain subject to United Kingdom income tax examinations. Tax years 2023 to 2024 remains subject to Ireland and Singapore income tax examinations. +130 +Table of Contents +14. Leases +The lease for the Company’s office and laboratory spaces in Vancouver, British Columbia, which was entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. In addition, the Company leases office spaces in Bellevue, Washington and in Redwood City, California with lease terms expiring between December 2024 and August 2027. In addition, the Company has commitments for future operating lease payments of $ 804 under a lease agreement for office space which will commence on January 1, 2025, with an expiry date of June 30, 2026, that is not included in the table below. None of the optional extension periods have been included in the determination of the right-of-use assets or the lease liabilities for operating leases as the Company did not consider it reasonably certain that the Company would exercise any such options. +The Company also leases office equipment under capital lease agreements. +The balance sheet classification of the Company’s lease liabilities was as follows: +December 31, +2024 December 31, +2023 +Operating lease liabilities: +Current portion $ 2,740 $ 4,261 +Long-term portion 15,738 22,369 +Total operating lease liabilities $ 18,478 $ 26,630 +Finance lease liabilities: +Current portion included in other current liabilities 28 30 +Long-term portion included in other long-term liabilities 28 92 +Total finance lease liabilities 56 122 +Total lease liabilities $ 18,534 $ 26,752 +Weighted average remaining lease term: +Operating leases +6.4 years 6.7 years +Weighted average discount rate: +Operating leases in U.S. dollars +5.4 % 3.6 % +Operating leases in Canadian dollars +4.8 % 4.8 % +Cash paid for amounts included in the measurement of operating lease liabilities for fixed lease payments for the year ended December 31, 2024 was $ 4,152 and was included in net cash used in operating activities in the consolidated statement of cash flows. In addition, on April 4, 2024, the Company terminated its long-term facility lease in Seattle, pursuant to which the Company paid $ 6,075 as a termination fee. +As of December 31, 2024, the maturities of the Company’s operating lease liabilities were as follows: +Operating +leases +Within 1 year $ 3,544 +1 to 2 years 3,517 +2 to 3 years 3,345 +3 to 4 years 2,972 +4 to 5 years 2,669 +Thereafter 5,381 +Total operating lease payments 21,428 +Less: +Imputed interest ( 2,950 ) +Operating lease liabilities $ 18,478 +131 +Table of Contents +The cost components of the operating leases were as follows: +Year Ended December 31, +2024 2023 2022 +Lease expenses: +Operating lease expense $ 2,447 $ 7,292 $ 6,609 +Variable lease expense 1,969 1,637 1,186 +Termination of long-term facility lease in Seattle, net +1,033 — — +$ 5,449 $ 8,929 $ 7,795 +During the year ended December 31, 2024, the Company did no t recognize any impairment losses on its right-of-use assets (2023: nil and 2022: nil ). +15. Commitments and Contingencies +Commitments +The Company has entered into research collaboration agreements with strategic partners in the ordinary course of operations that may include contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements. Pursuant to the agreements, the Company is obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and royalty payments based on net sales. The maximum amount of potential future indemnification is unlimited, however, the Company currently holds commercial and product liability insurance that limits the Company’s liability and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to indemnification obligations for any period presented in the consolidated financial statements. +In connection with the Company’s 2016 Kairos acquisition, the Company may be required to make future payments of up to an +aggregate of C$ 8,500 , consisting of (i) a C$ 2,500 payment when the first patient is dosed in the first Phase 2 trial and (ii) a C$ 6,000 payment when the first patient is dosed in the first Phase 3 trial, to CDRD Ventures Inc. (“CVI”) upon the direct achievement of certain development milestones for products incorporating certain Kairos intellectual property (such as zanidatamab zovodotin or other product candidates using our ZymeLink technology). In addition, CVI is eligible to receive low single-digit royalty payments from the Company on the net sales of such products. For out-licensed products and technologies incorporating certain Kairos intellectual property, the Company may also be required to pay CVI a mid-single digit percentage of certain future revenue. As of December 31, 2024, the contingent consideration had an estimated fair value of nil , which has been recorded within liabilities on the Company’s consolidated balance sheet (December 31, 2023: $ 1,878 ) (note 9). The contingent consideration was calculated using a probability weighted assessment of the likelihood of the milestones being met, a probability adjusted discount rate that reflects the stage of the development and time to complete the development. Contingent consideration is a financial liability and measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded within research and development expenses in the consolidated statement of loss (income). +132 +Table of Contents +The following table presents the changes in fair value of the Company’s liability for contingent consideration: +Liability at +the beginning +of the period +Increase (decrease) in +fair value of +liability for +contingent +consideration +Amounts paid or transferred to payables Liability at end +of the period +Year ended December 31, 2024 $ 1,878 ( 1,878 ) — $ — +Year ended December 31, 2023 $ 1,248 630 — $ 1,878 +The following tables present information about the Company’s liability for contingent consideration measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation technique used to determine such fair value: +December 31, +2024 Level 1 Level 2 Level 3 +Liability for contingent consideration +$ — — — $ — +Total $ — $ — $ — $ — +December 31, +2023 Level 1 Level 2 Level 3 +Liability for contingent consideration +$ 1,878 — — $ 1,878 +Total $ 1,878 $ — $ — $ 1,878 +The Company used the following assumptions to estimate fair value of contingent consideration liability as of December 31, 2024 and 2023: +December 31, +2024 December 31, +2023 +Weighted assessment of the likelihood of the milestones 0.0 % 33.5 % +Weighted average estimated period for achievement of milestones +0 years 0.92 years +Discount rate 17.0 % 17.0 % +Contingencies +From time to time, the Company may be subject to various legal proceedings and claims related to matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred. +16. Business Segments +The Company operates and manages its business in a single reportable segment, which is the discovery, development and commercialization of next-generation multifunctional biotherapeutics (the “biotherapeutics segment”). +The biotherapeutics segment revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding, milestone payments and royalties earned under collaboration and license agreements and is managed on a consolidated basis. +The accounting policies of the biotherapeutics segment are the same as those described in the summary of significant accounting policies. +The Company’s Chief Operating Decision Maker ("CODM”) is the Chair of the Board of Directors and Chief Executive Officer. The CODM assesses performance for the biotherapeutics segment and decides how to allocate resources to our +133 +Table of Contents +development pipeline based on the results of our strategic planning, with segment (loss) income being used to monitor performance against the budgeted costs of that strategy. The measure of segment assets is reported on the balance sheet as total consolidated assets. +Revenue and net income for the Company's biotherapeutics segment are shown below: +Year Ended December 31, +2024 2023 2022 +Revenue from research and development collaborations +$ 76,304 $ 76,012 $ 412,482 +Segment expenses: +Zanidatamab 11,939 44,751 117,342 +ZW171 7,151 10,686 1,900 +ZW191 8,379 11,714 909 +ZW220 13,824 1,585 162 +ZW251 8,103 686 259 +Zanidatamab zovodotin 6,595 8,046 4,834 +Expense for other preclinical and research programs 17,389 7,819 7,050 +Salaries and benefits 50,678 49,931 75,220 +Other research and development expense 17,949 19,128 19,057 +Other general and administrative expense 29,522 40,823 43,971 +Total segment expenses +171,529 195,169 270,704 +Segment (loss) income +( 95,225 ) ( 119,157 ) 141,778 +Reconciling items: +Depreciation and amortization ( 8,684 ) ( 10,164 ) ( 7,235 ) +Stock-based compensation expense +( 17,792 ) ( 8,102 ) ( 4,015 ) +Change in contingent consideration +1,878 ( 630 ) — +Impairment ( 17,287 ) — — +Interest income 19,941 19,705 3,596 +Other income (expense), net 558 ( 894 ) 1,110 +Income tax (expense) recovery, net +( 6,084 ) 568 ( 10,893 ) +Net (loss) income +$ ( 122,695 ) $ ( 118,674 ) $ 124,341 +17. Subsequent even t +In January 2025, the Company achieved a $ 14.0 million cash research milestone associated with a clinical milestone under the Company ’ s 2016 platform technology transfer and license agreement with GSK. +134 +Table of Contents +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +As of the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operating effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Any such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. +Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation of our disclosure controls and procedures as of December 31, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level. +Management’s Annual Report on Internal Control over Financial Reporting +Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. +The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of our internal control over financial reporting as at December 31, 2024. In making its assessment, management used the criteria set forth in the internal control – integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework) to evaluate the effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2024. +Attestation Report of Independent Registered Public Accounting Firm +This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. For so long as we are not classified as an “accelerated filer” or “large accelerated filer” pursuant to SEC rules, we will continue to be exempt from the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. +Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f) of the Exchange Act, adopted or terminated a “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K. +135 +Table of Contents +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Board of Directors +The following table sets forth the names, ages and positions of the members of our board of directors as of February 28, 2025. +Name Age Position(s) +Kenneth Galbraith +62 +Chief Executive Officer, President and Chair of the Board of Directors +Carlos Campoy (1)(2) +60 +Director +Alessandra Cesano (2)(4) +64 +Director +Troy M. Cox (1) +60 +Director +Nancy Davidson (3)(4) +71 +Director +Neil Gallagher (3)(4) +60 +Director +Susan Mahony (3) +60 +Director +Derek J. Miller (1)(2) +54 +Director +Kelvin Neu (4) +51 +Director +Oleg Nodelman (2) +48 +Director +Scott Platshon (3) +33 +Director +________________________ +(1) Member of the audit committee. +(2) Member of the nominating and corporate governance committee. +(3) Member of the compensation committee. +(4) Member of the research and development committee. +There are no family relationships among any of the directors or executive officers. +Kenneth Galbraith +Mr. Galbraith is 62 years old and has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President since June 2023 and previously served as our President from January 2022 to August 2022, and served as our interim Chief Financial Officer from April 2024 to September 2024. Mr. Galbraith was a Managing Director at Five Corners Capital, Inc., which he founded in 2013, from February 2021 until January 2022. He served as Executive in Residence at Syncona Investment Management Limited (“SIML”, a subsidiary of Syncona Limited, a company that builds a portfolio of life sciences businesses), from April 2021 until January 2022. He has served as an advisor to SIML since May 2023 and as a director of SIML since November 2024, including as Chair since February 2025. He served as Chief Executive Officer of Liminal BioSciences Inc. (formerly Prometic Life Sciences Inc.), a publicly held company, from April 2019 to November 2020, continuing as an advisor to that company from November 2020 to February 2021. He also served as Chief Executive Officer of Fairhaven Pharmaceuticals Inc. from June 2017 to April 2019. Mr. Galbraith has served as a director of several publicly held companies, including MacroGenics, Inc. from July 2008 until January 2022, Profound Medical Corp. from January 2017 to May 2023, and Celator Pharmaceuticals, Inc. from July 2008 to October 2013. He has also served as a director of several privately held companies. Previously, he joined Ventures West Capital in 2007 and founded Five Corners Capital Inc. in 2013 to manage the continued operations of the Ventures West Investment Funds. Mr. Galbraith has over 35 years of experience serving as an executive, director, investor and adviser to companies in the biotechnology, medical device, pharmaceutical and healthcare sectors. Mr. Galbraith received his B.Comm. from the University of British Columbia. +136 +Table of Contents +Based on Mr. Galbraith’s depth of experience in the biotechnology industry, ranging from executive officer to director roles, the board of directors believes Mr. Galbraith has the appropriate set of skills to serve as a member of our board of directors. +Carlos Campoy +Mr. Campoy is 60 years old and has served as a member of our board of directors since June 2023. Mr. Campoy served as Chief Financial Officer of CytomX Therapeutics, Inc. from March 2020 through September 2022. Prior to CytomX Therapeutics, Mr. Campoy served as the Chief Financial Officer of Alder BioPharmaceuticals, Inc., a public biopharmaceutical company acquired in October 2019 by Lundbeck A/S, from December 2018 to November 2019. During his time at Alder BioPharmaceuticals, Mr. Campoy led the finance organization and readied the company for commercial launch of its lead program, eptinezumab. Prior to Alder BioPharmaceuticals, Mr. Campoy was a partner at Think Forwards, a boutique financial consulting firm, from September 2017 to December 2018. Prior to his position at Think Forwards, Mr. Campoy held the role of vice president of finance at Allergan plc from July 2014 to November 2016. Prior to joining Allergan, Mr. Campoy held senior financial leadership positions at Eli Lilly and Company from 1996 to 2014, including Chief Financial Officer of Eli Lilly Japan K.K. Mr. Campoy is NACD Directorship Certified® and holds a Certified Management Accountant (CMA) designation. Mr. Campoy received his M.B.A. in Finance and Decision Information Systems from Indiana University and his B.S. in Management from Faculdade de Ciências Contábeis e de Administração de Empresas de Tupã (FACCAT), in São Paulo, Brazil. +The board of directors believes that Mr. Campoy is qualified to serve on our board of directors because of his extensive strategic and financial leadership experience in the pharmaceutical and biotechnology sectors. +Alessandra Cesano +Dr. Cesano is 64 years old and has served as a member of our board of directors since February 2024. Dr. Cesano has served as the Chief Medical Officer of ESSA Pharma Inc., a pharmaceutical company developing therapies for the treatment of prostate cancer, since July 2019. Previously, Dr. Cesano was the Chief Medical Officer of NanoString Technologies, Inc., a biotechnology company that develops translational research tools, from July 2015 to July 2019, where she focused on development of translational and diagnostic multi-plexed assays for the characterization and measurement of mechanisms of immune response and resistance. Prior to NanoString, Dr. Cesano was Chief Medical Officer at Cleave Biosciences, Inc., a biopharmaceutical company focusing on protein therapies for the treatment of cancer and neurodegenerative diseases, and before that she served as Chief Medical Officer and Chief Operations Officer at Nodality, Inc., where she built and led the Research & Development group, while providing the overall clinical vision for the organization. Dr. Cesano has also held various management positions at Amgen Inc., Biogen Inc. (formerly Biogen Idec) and SmithKline Beecham Pharmaceuticals, where she helped to advance various oncology drugs through late-stage development and FDA approvals. She currently serves as associate editor for the Biomarker section of the Journal for ImmunoTherapy of Cancer and co-chair of the Society for Immunotherapy of Cancer (SITC) regulatory committee. She has been an author on more than 140 publications. Dr. Cesano has served as a director at Puma Biotechnology, Inc. since July 2022 and as a director of Summit Therapeutics Inc. since November 2022. Dr. Cesano received an M.D. summa cum laude, a board certification in oncology and a Ph.D. in Tumor Immunology from the University of Turin, Italy. +The board of directors believes that Dr. Cesano is qualified to serve on our board of directors because of her extensive experience in biotechnology research and development and oncology. +Troy M. Cox +Mr. Cox is 60 years old and has served as a member of our board of directors since June 2019. Mr. Cox served as Chief Executive Officer of Foundation Medicine, Inc. from February 2017 through February 2019, as a member of Foundation Medicine’s board of directors from February 2017 until July 2018, and in the additional role of President of Foundation Medicine from February 2018 until July 2018. Prior to Foundation Medicine, Mr. Cox served as Senior Vice President, Sales & Marketing at Genentech, Inc. from February 2010 until February 2017. Before joining Genentech, Mr. Cox served as President at UCB S.A. Prior to UCB BioPharma, Mr. Cox held senior commercial leadership roles with Sanofi-Aventis and Schering-Plough. Mr. Cox served on the board of directors of SomaLogic, Inc. from September 2021 until January 2024 and as executive chair of the board of SomaLogic from October 2022 to March 2023. He has served on the board of directors of Standard BioTools Inc. since January 2024 and on the board of directors of SOPHiA GENETICS SA since July 2019. Mr. Cox received a B.B.A. in finance from the University of Kentucky and an M.B.A. from the University of Missouri. +The board of directors believes Mr. Cox’s nearly three decades of proven leadership and expertise in the global, strategic and operational aspects of the biopharmaceutical industry qualifies him to serve on our board of directors. +137 +Table of Contents +Nancy Davidson +Dr. Davidson is 71 years old and has served as a member of our board of directors since December 2023. Dr. Davidson has served as the Executive Vice President, Clinical Affairs, since April 2022, and as the Raisbeck Chair for Collaborative Cancer Research, since July 2019, of Fred Hutchinson Cancer Center. In addition, Dr. Davidson has served as a Professor, since December 2016, and previously served as the Senior Vice President, since December 2016 to August 2023, of Fred Hutchinson Cancer Center Clinical Research Division. At the University of Washington School of Medicine, Dr. Davidson served as Head of the Division of Medical Oncology from December 2016 to August 2023 and as a Professor since December 2016. Previously, Dr. Davidson served as the President and Executive Director of the Seattle Cancer Care Alliance from December 2016 to April 2022. Dr. Davidson also held various positions at the University of Pittsburgh from February 2009 to December 2016, including as the Director of the University of Pittsburgh Cancer Institute. Dr. Davidson has served as Adjunct Professor of Oncology at The Johns Hopkins School of Medicine since February 2009. Dr. Davidson is also a member of the scientific advisory boards of many foundations and cancer centers and a member of various organizations, including the American Society of Clinical Oncology and the American Association for Cancer Research. She has received many awards, honors, and appointments, including the Brinker International Award for Breast Cancer Research, the Rosalind E. Franklin Award for Women in Science from the National Cancer Institute (2008), and election to the National Academy of Medicine (2011) and the American Academy of Arts and Sciences (2019). She has also been listed among Thomson Reuters Highly Cited Researchers (2014-2015). Dr. Davidson holds an M.D. from the Harvard Medical School and a B.A. in Molecular Biology from Wellesley College. She completed her residency in Internal Medicine at University of Pennsylvania and Johns Hopkins Hospital and a medical oncology fellowship at the National Cancer Institute. +The board of directors believes that Dr. Davidson is qualified to serve on our board of directors because of her extensive knowledge and experience in the field of oncology, and as an experienced researcher and clinician. +Neil Gallagher +Dr. Gallagher is 60 years old and has served as a member of our board of directors since April 2024. Dr. Gallagher has served as the President, Head of Research & Development at Syndax Pharmaceuticals, Inc., since April 2023. From January 2020 to April 2023, he served as the Chief Medical Officer, Vice President, Head of Development at AbbVie Inc. From November 2017 to December 2019, Dr. Gallagher served as the Head of Global Oncology Development at AbbVie. Prior to joining AbbVie, he served as Head of Development for Oncology and Inflammation at Amgen from May 2016 to October 2017 and spent a decade at Novartis Oncology. Earlier in his career, he was a Medical Science Director at AstraZeneca and later Director of Clinical Development at Astex Therapeutics. Dr. Gallagher completed his Fellowship in Gynecological Oncology at the Institute for Cancer Studies, University of Birmingham, UK and received his medical degree from Trinity College, Dublin. +The board of directors believes that Dr. Gallagher is qualified to serve on our board of directors because of his experience in the pharmaceutical and biotechnology sectors and in drug development in the oncology field. +Susan Mahony +Dr. Mahony is 60 years old and has served as a member of our board of directors since June 2019 and as Lead Independent Director of our board of directors since December 2023. Dr. Mahony is an executive with over 30 years of experience in pharmaceutical and life sciences companies. Dr. Mahony served as Senior Vice President of Eli Lilly and Company and President of Lilly Oncology from February 2011 until August 2018. She joined Lilly in 2000, holding senior leadership positions in product development, marketing, human resources, and general management. Prior to joining Lilly, Dr. Mahony served in sales and marketing roles in Europe for over a decade for Schering-Plough, Amgen, and Bristol-Myers Squibb. Dr. Mahony has served on the board of directors of Assembly Biosciences, Inc. since December 2017 and on the board of directors of Axsome Therapeutics, Inc. since October 2023. She previously served on the board of directors of Horizon Therapeutics Public Limited Company from August 2019 to October 2023 (acquired by Amgen Inc.) and on the board of directors of Vifor Pharma from May 2019 until August 2022 (acquired by CSL Limited). Dr. Mahony received a B.Sc. and a Ph.D. from Aston University and an M.B.A. from London Business School. Dr. Mahony is NACD Directorship Certified®. +Based on Dr. Mahony’s extensive experience in management at public pharmaceutical companies, together with her experience serving on the board of directors of public and private companies, our board of directors concluded that she should serve as a director due to our business focus and strategy. +138 +Table of Contents +Derek J. Miller +Mr. Miller is 54 years old and has served as a member of our board of directors since April 2023. Mr. Miller has been a leader in the biotechnology and pharmaceutical sector for more than 25 years with experience in corporate development, business development and global commercial strategy. He is an independent commercial and business development consultant for pre-clinical and clinical-stage companies in oncology and rare diseases, and currently serves as Chief Executive Officer of a cell and gene therapy imaging startup venture, spun out from the University of Pennsylvania. From May 2018 to November 2019, he served as Chief Business Officer of Aro Biotherapeutics, a spin-out of Janssen Pharmaceuticals, leading numerous strategic and operational initiatives including a transformative collaboration with Ionis with potential revenues of up to $1.4 billion. Mr. Miller also previously served as Chief Business Officer of Celator Pharmaceuticals where he led the development of their pipeline and business development strategy, resulting in its acquisition by Jazz Pharmaceuticals in 2016 for cash proceeds of approximately $1.5 billion. Prior to Celator Pharmaceuticals, Mr. Miller held a variety of marketing, sales and market access roles with Genentech, Centocor and GSK. Mr. Miller is a member of the Board of Trustees for the Eastern Pennsylvania Chapter of the Leukemia and Lymphoma Society and serves as a mentor for the Villanova School of Business. He received an M.B.A. from Villanova University and Bachelor of Arts and Science degree from the University of Delaware. Mr. Miller is NACD Directorship Certified®. +The board of directors believes that Mr. Miller is qualified to serve on our board of directors because of his extensive experience in the biotechnology and pharmaceutical sector, including experience in corporate development, business development and global commercial strategy. +Kelvin Neu +Dr. Neu is 51 years old and has served as a member of our board of directors since March 2020. Dr. Neu is Founder and Chief of Herringbone, a life sciences innovation practice established in January 2022. Dr. Neu is also Co-Founder and Director of QDX Pte. Ltd. (established in February 2024), and Co-Founder and Chair of QDX Technologies Pte. Ltd. (established in September 2023). QDX and QDX Technologies work in the area of computational drug discovery. Previously, Dr. Neu was a Partner at Baker Bros. Advisors LP, a registered investment adviser, where he worked from 2004 until January 2021. Dr. Neu previously served on the board of directors of IGM Biosciences from 2019 to 2021, Prelude Therapeutics from 2016 to 2021, Idera Pharmaceuticals, Aquinox Pharmaceuticals and XOMA Corporation. Dr. Neu holds an M.D. from the Harvard Medical School-MIT Health Sciences and Technology program, and spent three years in the Immunology Ph.D. program at Stanford University as a Howard Hughes Medical Institute Fellow. Dr. Neu holds an A.B. (summa cum laude) from Princeton University, where he was awarded the Khoury Prize for graduating first in his department of Molecular Biology. +The board of directors believes that Dr. Neu is qualified to serve on our board of directors because of his extensive investment and leadership experience, knowledge of our industry, and educational background in biology and biotechnology. +Oleg Nodelman +Mr. Nodelman is 48 years old and has served as a member of our board of directors since February 2025. Since October 2013, Mr. Nodelman has served as the Founder and Portfolio Manager of EcoR1 Capital LLC, a biotech-focused investment advisory firm established in 2013, and one of our principal stockholders. Previously, Mr. Nodelman served as a Portfolio Manager at BVF Partners from 2001 to 2012. Mr. Nodelman earned a B.S.F.S. in Science and Technology from Georgetown University, School of Foreign Service in 1999. Mr. Nodelman has served on the board of Galapagos NV since October 2024 and AnaptysBio since April 2021. He previously served on the board of directors of Prothena Corporation plc from December 2019 to December 2024, Nuvation Bio Inc. from February 2021 to December 2023 and Panacea Acquisition Corp. II from April 2020 to February 2021. On December 13, 2024, the Enforcement Committee of the Autorité des Marchés Financiers (“AMF”), the entity that regulates the French financial markets, fined Mr. Nodelman and EcoR1 Capital LLC (the “Fund”) €3.0 million and €7.0 million, respectively, for violations of applicable market abuse regulations and failures to comply with reporting obligations for holders that exceed or fall below ownership of five percent of an issuer’s equity capital that is listed on Euronext Paris. Mr. Nodelman and the Fund disagree with the AMF’s ruling and, in February 2025, submitted an appeal, which they intend to vigorously pursue. +The board of directors believes that Mr. Nodelman is qualified to serve on our board of directors because of his extensive investment and leadership experience, in addition to his knowledge of our industry. +139 +Table of Contents +Scott Platshon +Mr. Platshon is 33 years old and has served as a member of our board of directors since February 2024. Mr. Platshon has served as a Partner at EcoR1 Capital since December 2020. Mr. Platshon was also a Principal at EcoR1 Capital from December 2017 to December 2020, and has been with EcoR1 Capital since October 2015. Prior to joining EcoR1 Capital, Mr. Platshon served as an analyst at Aquilo Partners, a San Francisco life-sciences investment bank, from September 2014 to September 2015. Mr. Platshon has served on the board of directors of Kumquat Biosciences Inc. since February 2021 (prior to that he was a board observer since August 2019) and Ajax Therapeutics, Inc. since May 2021, and previously served on the board of directors of Terremoto Biosciences from October 2023 to December 2024. Mr. Platshon received his B.S. in Bioengineering from Stanford University. As previously disclosed, pursuant to the securities purchase agreement with certain institutional accredited investors affiliated with EcoR1 Capital, LLC (collectively, “EcoR1”), we agreed that EcoR1 would have the right to nominate one of its partners as a member of our board of directors, with such nomination right terminating upon the earliest of the effective date of such appointment and January 1, 2026. Pursuant to this nomination right, Mr. Platshon was designated by EcoR1 as its nominee for the board of directors’ consideration for appointment to the board of directors and was appointed to the board of directors on February 22, 2024. +The board of directors believes that Mr. Platshon is qualified to serve on our board of directors because of his extensive investment and leadership experience, in addition to his knowledge of our industry. +Executive Officers +The following table sets forth the names, ages and positions of our executive officers as of February 28, 2025 . +Name Age Position(s) +Kenneth Galbraith +62 +Chief Executive Officer, President and Chair of Board of Directors +Leone Patterson +62 +Executive Vice President, Chief Business Officer and Chief Financial Officer +Paul A. Moore, Ph.D. +58 +Chief Scientific Officer +Jeffrey Smith +65 +Chief Medical Officer +There are no family relationships among any of the directors or executive officers. +The following is biographical information for our executive officers, other than Mr. Galbraith, whose biographical information is included above. +Leone Patterson +Ms. Patterson joined Zymeworks in September 2024 and serves as our Executive Vice President, Chief Business Officer and Chief Financial Officer. Ms. Patterson served as Chief Financial Officer and Business Officer of Tenaya Therapeutics, Inc. from June 2021 until August 2024. Prior to joining Tenaya Therapeutics, Inc., Ms. Patterson joined Adverum Biotechnologies, Inc., a public clinical-stage gene therapy company, in June 2016 as the Chief Financial Officer and also served as Chief Executive Officer from May 2018 to June 2020, director from October 2018 to June 2020, and President from July 2020 to June 2021. Ms. Patterson has held various senior positions at Diadexus, Inc., Transcept Pharmaceuticals, Inc., NetApp, Inc., Exelixis, Inc., Novartis AG, Chiron (acquired by Novartis AG), and KPMG. Ms. Patterson currently serves on the board of directors and as the chair of the audit committee of Nkarta, Inc., a publicly traded biotechnology company. She previously served as a member of the board of directors of Eliem Therapeutics, Inc. from March 2021 to December 2024 and Adverum Biotechnologies, Inc. from October 2018 to June 2020, both publicly traded biotechnology companies, and as a member of the board of directors of Oxford Biomedica (UK) Limited from March 2023 to December 2024, a publicly traded contract development and manufacturing organization focuses on cell and gene therapy. Ms. Patterson holds a B.S. in Business Administration and Accounting from Chapman University and an Executive M.B.A. from St. Mary’s College. Ms. Patterson is also a Certified Public Accountant (inactive status). +Paul A. Moore +Dr. Moore joined Zymeworks in July 2022 and serves as our Chief Scientific Officer. Dr. Moore has more than 25 years of US-based experience in biologics drug discovery and development in biotechnology research. His career efforts have led to the discovery and development of a range of FDA-approved and clinical-stage biologics for patients with difficult-to-treat cancers and autoimmune conditions. Prior to joining Zymeworks, Dr. Moore served as Vice President, Cell Biology, and Immunology +140 +Table of Contents +at MacroGenics from April 2008 to July 2022, leading a team of approximately 50 researchers engaged in the discovery, preclinical validation and clinical development of antibody-based therapeutics, including bispecific antibodies and antibody drug conjugates. Among the portfolio supported by Dr. Moore were FDA-approved Margenza (margetuximab-cmkb) for treatment of HER2+ breast cancer, Zynyz (retifanlimab-dlwr) for treatment of Merkel cell carcinoma and Tzield (teplizumab-mzwv) to delay onset of type I diabetes. Prior to joining MacroGenics, Dr. Moore was Director of Cell Biology at Celera from May 2005 to April 2008, where he oversaw research leveraging proteomic-based discoveries to validate novel cancer targets suitable for antibody-based therapeutics. Dr. Moore began his industrial career at Human Genome Sciences (HGS), holding several titles within research culminating in Director of Lead Product Development, where he managed various genomic-based target discovery programs including efforts that led to the discovery, development, approval, and commercialization of Benlysta (belimumab) for the treatment of systemic lupus erythematosus. Dr. Moore has an extensive research record co-authoring over 75 peer-reviewed manuscripts and is a named co-inventor on over 50 issued US patents. Dr. Moore holds a Ph.D. in Molecular Genetics from the University of Glasgow, performed post-doctoral work at the Roche Institute of Molecular Biology in Nutley, New Jersey, and also holds a degree in Biotechnology from the University of Strathclyde. +Jeffrey Smith +Dr. Smith joined Zymeworks in January 2023 as Senior Vice President, Early Stage Development and was promoted to Executive Vice President and Chief Medical Officer in January 2024. He is based at our European hub in Dublin, Ireland. Dr. Smith has held many senior positions within the pharmaceutical industry. Previously, Dr. Smith served as the Managing Director of Alder Biopharmaceuticals Inc. in Dublin, Ireland from March 2017 to October 2019, and as Senior Vice President, Translational Medicine at Alder Biopharmaceuticals Inc. in Seattle, USA from 2012 to March 2017. Dr. Smith was responsible for the clinical development (phase I - III) of eptinezumab (anti-CGRP antibody for migraine) and clazakizumab (anti-IL-6 antibody for rheumatoid arthritis and cancer cachexia). Dr. Smith was also a founder of Alder Biopharmaceuticals Inc. (founded 2004). Dr. Smith received his M.B. B.S. and M.D. from the University of London, UK and is a Fellow of the Royal College of Physicians in London. +Although we have not adopted specific targets for women and other diverse candidates in executive positions, the board of directors has always considered diversity as an important aspect of its decision making when recommending appointments for individuals to serve as executive officers. +Governance +Code of Conduct and Ethics +Our board of directors has adopted corporate governance guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for our governance. It also has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to members of our board of directors, our executive officers and all of our employees. Several standing committees (audit, compensation, nominating and corporate governance, and research and development) assist our board of directors in carrying out its responsibilities. Each standing committee operates under a written charter adopted by our board of directors. The full text of our Code of Conduct is posted on our website at www.zymeworks.com . We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of the Code of Conduct by posting such information on the website address and location specified above. Paper copies of the Code of Conduct, as well as our governing documents (including our certificate of incorporation and bylaws) may be obtained upon request by writing to: Corporate Secretary, Zymeworks Inc., 108 Patriot Drive, Suite A, Middletown, Delaware 19709. +Audit Committee +Our audit committee currently consists of Mr. Campoy, Mr. Cox and Mr. Miller. Mr. Campoy serves as the chair of our audit committee. Our board of directors has determined that each of Mr. Campoy and Mr. Cox is an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC, and possesses financial sophistication, as defined under the rules of the Nasdaq Global Select Market. The members of our audit committee are “independent” for audit committee purposes, as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and have sufficient knowledge in financial and auditing matters to serve on the audit committee. +The principal purposes of our audit committee are to: +• assist our board of directors in its oversight of: +◦ the quality, audit and integrity of our financial statements and related information; +141 +Table of Contents +◦ the independence, qualifications, appointment and performance of our external auditor; +◦ our disclosure controls and procedures, internal control over financial reporting, and management’s responsibility for assessing and reporting on the effectiveness of such controls; +◦ the organization and performance of any applicable internal audit function, if any; +◦ our compliance with applicable legal and regulatory requirements; and +◦ our enterprise risk management processes, including risks and exposures associated with cybersecurity, information security and privacy matters; +• periodically review and discuss with management, the adequacy and effectiveness of the Company’s cybersecurity, information and technology security, and data protection programs, procedures and policies; +• review, with the Company’s counsel, on a regular basis, any reports of whistleblowing, including all reports made to the Company’s anonymous and confidential helpline pursuant to our Whistleblower Policy; and +• prepare the report required by SEC rules to be included in our proxy statement for the annual meeting of stockholders, and for performing other duties and responsibilities as are enumerated in or consistent with the audit committee’s charter. +Our board of directors has established a written charter setting forth the purpose, composition, authority and responsibility of our audit committee, consistent with the rules of Nasdaq and the SEC, a current copy of which is available on our website at www.zymeworks.com . Our audit committee has access to all of our books, records, facilities and personnel and may request any information about us as it may deem appropriate. It also has the authority in its sole discretion and at our expense to retain and set the compensation of outside legal, accounting or other advisors as necessary to assist in the performance of its duties and responsibilities. Both our independent auditors and internal financial personnel regularly meet privately with the audit committee and have unrestricted access to this committee. +Our audit committee held four meetings during the year ended December 31, 2024 . +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than 10% of our common stock, file reports of ownership and changes in ownership with the SEC. Based on our review of such filings and written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2024, all directors, executive officers and greater than 10% stockholders complied with all Section 16(a) filing requirements applicable to them, with the exception of the Form 4 due December 23, 2024 but filed by EcoR1 Capital, LLC on December 26, 2024. +Insider Trading Policy +We have adopted an insider trading policy (the “Insider Trading Policy”) that governs the purchase, sale, and other dispositions of our securities by directors, officers, employees, and other personnel that we determine should be subject to our Insider Trading Policy (such as certain contractors and consultants) and that is reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable stock exchange listing requirements. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the fiscal year ended December 31, 2024. In addition, with regard to our company’s trading in its own securities, it is our policy to comply with the federal securities laws and the applicable exchange listing requirements. +Item 11. Executive Compensation +Discussion of Executive Compensation Practices +This section describes our executive compensation philosophy and how we implemented it through our 2024 compensation program for our named executive officers. The named executive officers for 2024 are: +• Kenneth Galbraith, Chief Executive Officer, President and Chair of the Board of Directors; +• Leone Patterson, Executive Vice President, Chief Business Officer and Chief Financial Officer; and +• Paul Moore, Ph.D., Chief Scientific Officer. +142 +Table of Contents +This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and projections regarding future compensation programs. Actual compensation programs adopted in the future may differ materially from the various planned programs summarized in this discussion. +In the paragraphs that follow, we provide an overview and analysis of our compensation program and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions. +2024 Advisory Vote on Executive Compensation +At our 2024 annual general meeting, we conducted an advisory vote on named executive officer compensation. At that meeting, 93.33% of the votes cast on the advisory vote proposal were supportive of our named executive officer compensation program as disclosed in our 2024 proxy statement. Our next advisory vote on named executive officer compensation will be held at our 2025 annual general meeting. +The compensation committee reviewed the advisory vote results in the context of our overall compensation philosophy and programs, and based on the level of support, determined that no significant changes to our compensation policies and programs were necessary. The compensation committee will continue to consider the results from future stockholder advisory votes on named executive officer compensation and other relevant market developments affecting named executive officer compensation in order to determine whether any subsequent changes to our named executive officer compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes or to address market developments. We frequently engage in stockholder outreach and discuss a wide range of topics, including discussions regarding compensation-related matters. We take our say-on-pay vote results seriously and will continue to consider the feedback we receive from stockholders and use such feedback to inform the compensation committee’s deliberations and decisions with respect to our executive compensation practices. +Overview of Compensation Program +Compensation Philosophy +The goal of our compensation program is to attract, retain and motivate our employees and executives, including our named executive officers. The compensation committee is responsible for setting our executive compensation and reviewing and approving, or recommending to the board of directors for approval, the Company’s annual corporate performance objectives applicable to executive and other Company bonus programs. In considering executive compensation, the compensation committee strives to ensure that our total compensation is competitive within the industry in which we operate and supports our overall strategy and corporate objectives. The combination of base salary, annual incentives and long-term incentives that we provide our executives is designed to accomplish this. +Compensation Objectives +The objectives of our executive compensation program are to: +• attract and retain highly qualified executive officers who have a history of proven success; +• align the interests of executive officers with our stockholders’ interests and with the execution of our business strategy; +• motivate and reward our executive officers through competitive pay practices and an appropriate mix of short- and long-term incentives; +• evaluate and reward executive performance on the basis of achievement of program development goals and key financial measurements which we believe closely correlate to long-term stockholder value; and +• tie compensation awards directly to program development goals and key financial measurements with evaluations based on achieving and overachieving predetermined objectives. +Role of the Compensation Committee +During 2024, the compensation committee’s work included the following: +• Competitive Compensation Review – The compensation committee reviewed compensation practices and policies with respect to our executives against Zymeworks’ peer group of companies (as further described below), in order to allow +143 +Table of Contents +us to place our compensation practices for these positions in a market context. This reference exercise included a review of base salary, total cash compensation and total direct compensation. +• Executive Compensation – The compensation committee reviewed the corporate goals and objectives applicable to the compensation of the Company’s executives and evaluated the executives’ performance in light of those goals and objectives. Based on this review and evaluation, the compensation committee approved the 2024 compensation for the Company’s executives, including each of the named executive officers. +• Short- and Long-Term Incentive Plans – The compensation committee administers the Company’s incentive compensation plans and equity-based plans with respect to the Company’s executives, including the named executive officers. +• Succession Planning – The compensation committee reviewed the succession plan for the Chief Executive Officer and other executive officers. +In reaching its decisions, the compensation committee may consider input from management and other factors that the compensation committee considers appropriate. Decisions made by the compensation committee are the responsibility of the compensation committee and may reflect factors and considerations other than the information and/or recommendations provided by management. +Independent Compensation Consultant +In 2024, the compensation committee retained the Human Capital Solutions practice at Aon plc, as an independent consultant to the compensation committee to conduct competitive reviews and assessments of Zymeworks’ executive compensation program and recommend go-forward strategies. The compensation committee made the decision to retain Aon in its sole discretion and was directly responsible for the appointment, compensation and oversight of Aon’s work. The compensation committee is involved in and approves the adoption of the following procedures during Aon’s assessments: +• establishing the public company peer group used in the executive compensation assessment; +• reviewing the detailed assessment of Zymeworks’ executive compensation program versus the market; +• reviewing and approving executive pay mix; +• reviewing the assessment of Zymeworks’ board of directors compensation program versus the market; and +• reviewing and approving the non-executive equity compensation program. +The compensation committee utilizes these strategies when contemplating future executive compensation matters. +In 2024, Aon was retained to review the salaries, bonuses and equity plan levels and participation of executive employees, as well as equity plan levels and participation of employees below the executive level. Zymeworks’ management did not make or recommend such engagements and all such other services were approved by the compensation committee. Except as discussed below, Aon did not perform other services to the Company other than as a compensation consultant. The compensation committee determined Aon to be independent after evaluating the factors required under the applicable listing standard. +In addition to Aon’s services related to determining or recommending the amount or form of executive and non-employee director compensation, management has engaged Aon to perform unrelated broad-based compensation services and risk brokerage services (which included global risk in Canada and the United States). In 2024, fees paid to Aon for these unrelated broad-based compensation and risk brokerage services did not exceed $120,000 in the aggregate. The compensation committee was informed about these services. +Peer Companies and Use of Market Data +We compare our executive compensation program to those of a group of peer companies (North American biotechnology companies of a similar size and stage of development). The first step in the process is that the compensation committee, with the support of Aon and management, reviews trends in biotechnology compensation practices and reviews and approves the list of peer companies used for benchmarking. As part of its analysis in 2023 related to 2024 compensation, Aon collected and analyzed compensation information from a comparative group of biotechnology companies, or peer group, approved by the compensation committee. The compensation committee evaluates the criteria used in establishing the peer group at least annually. The compensation committee seeks input from management in addition to Aon to ensure the peer group is consistent with our current business objectives and strategy. +144 +Table of Contents +The list of peer companies is approved based on various factors including industry classification, market capitalization, headcount and stage of development. In September 2023, with assistance from Aon, the compensation committee approved a peer group consisting of publicly traded, pre-commercial biopharmaceutical companies: +• with an emphasis on oncology companies and a focus on companies in Phase 2 and Phase 3 clinical trials; +• with market capitalizations generally between $200 million and $1.5 billion (based on the Company’s then-current 30-day average market capitalization of approximately $495 million); +• with generally between 100 and 700 employees; and +• that are located in Canada and the United States, with a focus on companies headquartered in biotechnology hub markets. +Based on these criteria, in September 2023, the compensation committee approved the following peer group set forth below and used this peer group to inform compensation decisions for 2024 : +Adaptimmune Therapeutics plc +Gossamer Bio, Inc. +REGENXBIO Inc. +Alector, Inc. IGM Biosciences, Inc. +Relay Therapeutics (1) +AnaptysBio, Inc. +Iteos Therapeutics (1) +Repare Therapeutics Inc. +Atara Biotherapeutics, Inc. Kura Oncology, Inc. +Replimune Group, Inc. +Bicycle Therapeutics (1) +MacroGenics, Inc. +Sutro Biopharma, Inc. +C4 Therapeutics +Mersana Therapeutics, Inc. +Xencor (1) +Cogent Biosciences (1) +NGM Biopharmaceuticals, Inc. +________________________ +(1) Added to the peer group in September 2023. The following companies were deleted from the peer group approved in September 2023: CytomX Therapeutics, Inc., Jounce Therapeutics, Inc., Poseida Therapeutics, Inc., Precision Biosciences and Silverback Therapeutics, Inc. +Our compensation committee uses comparative data from our peer group as a reference when setting and adjusting executive compensation, but it does not target our overall program or any particular element of compensation to be at a particular percentile compared to our peers. Rather, our compensation committee uses a range of peer group data for each executive position for which data is available, along with an assessment of each executive’s performance, criticality and tenure, to ensure that our executive compensation program and its constituent elements are and remain competitive in relation to our peers. +Components of Compensation Package +In 2024, our executive compensation program consisted of three major components: +• base salary; +• annual cash bonuses based on a comparison of corporate performance to pre-set goals and objectives; and +• long-term incentives, which in 2024, consisted of grants of stock options and restricted stock units. +In making 2024 compensation decisions, our compensation committee believed that each component of executive compensation must be evaluated and determined with reference to competitive market data, individual and Company-wide performance, our recruiting and retention goals, internal equity and consistency, and other information it deems relevant. As it evaluated executive compensation in 2024, the compensation committee believed that in the biopharmaceutical/biotechnology industry, long-term incentives such as stock options and restricted stock units are a primary motivator in attracting and retaining executives, in addition to salary and cash incentive bonuses. +The primary components of our 2024 executive compensation program are described in more detail below. +Base Salary +Annual base salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within Zymeworks. This compensation component helps us to attract and retain highly qualified executives who have a history of proven success. In determining whether to increase the base salary for a particular executive, our compensation committee in discussions with our Chief Executive Officer (for executives other than the Chief Executive Officer) considers a variety of factors, including performance, length of service and criticality of role. The determination of +145 +Table of Contents +base salary affects the amount of an executive’s cash bonus. The table below shows the base salaries of our named executive officers for 2024: +Name and Principal Position +2024 Base Salary +($) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors (1) +655,000 +Leone Patterson, Executive Vice President, Chief Business Officer and Chief Financial Officer (2) +485,000 +Paul Moore, Chief Scientific Officer +495,000 +________________________ +(1) Mr. Galbraith served as our President, Chief Executive Officer and Chair of our board of directors throughout 2024. Mr. Galbraith also served as our interim Chief Financial Officer, principal financial officer and principal accounting officer from March 31, 2024 until September 1, 2024. +(2) Ms. Patterson has served as our Executive Vice President, Chief Business Officer and Chief Financial Officer since September 1, 2024. +Cash Bonus +The cash bonus component is designed to provide our named executive officers with annual cash incentive awards based on achievement of certain goals and objectives. The awards represent pay at risk – they result in payment only if and to the extent certain goals and objectives are met – and do not affect decisions regarding other components of compensation. This compensation component motivates and rewards our named executive officers for outstanding performance. In addition, we occasionally provide sign-on bonuses to newly hired executives in order to induce them to join the Company. To this end, the Company provided Ms. Patterson with a $50,000 sign-on bonus, which is subject to repayment in full if, prior to September 1, 2025, Ms. Patterson voluntarily leaves the Company for any reason or is terminated by us for cause (as defined in her employment agreement with us). +Annual cash incentive compensation for our named executive officers is paid pursuant to the Company’s Executive Incentive Compensation Plan, which provides the compensation committee discretion to make changes to performance targets and bonus targets, to decrease, increase or eliminate bonuses and to change other terms and conditions related to annual incentive compensation, in each case as the compensation committee deems appropriate to meet the overarching retention and incentive goals associated with our executive bonus program. +Named executive officers are eligible to receive an amount targeted at a pre-determined percentage of their base salary established at the beginning of each year. The compensation committee set annual target bonuses for each of Mr. Galbraith and Dr. Moore in January 2024, and for Ms. Patterson in July 2024 at the time of her acceptance of the offer to become the Company’s Executive Vice President, Chief Business Officer and Chief Financial Officer, as follows: +Name and Principal Position +2024 Target Bonus (% of Base Salary) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors (1) +60% +Leone Patterson, Executive Vice President, Chief Business Officer and Chief Financial Officer (2) +45% +Paul Moore, Chief Scientific Officer +45% +________________________ +(1) Mr. Galbraith served as our President, Chief Executive Officer and Chair of our board of directors throughout 2024. Mr. Galbraith also served as our interim Chief Financial Officer, principal financial officer and principal accounting officer from March 31, 2024 until September 1, 2024. +(2) Per Ms. Patterson’s employment agreement with the Company, Ms. Patterson was eligible to receive an annual bonus for 2024 that was prorated for the six-month period from July 1, 2024 through December 31, 2024. +At the beginning of each year, the compensation committee approves, or recommends that the board of directors approve, performance targets that are tied to the level of achievement of corporate and/or individual goals, and the compensation committee approves the weighting assigned to each goal. For 2024, the corporate and individual weighting was 100% corporate and 0% individual for all named executive officers. Achievement of corporate goals was a precondition for payment of bonuses with respect to 2024. Our compensation committee believed that this mix was appropriate in order to incentivize our management team to achieve our key corporate objectives. +After the end of the year, the compensation committee determines the performance bonus payable to each named executive officer based on the results achieved as compared to the performance targets established for a particular year. Depending on +146 +Table of Contents +level of achievement, named executive officers may earn up to 150% of their respective target bonuses. There is no minimum bonus payable. +2024 Company Corporate Goals and Achievement +In December 2023, the board of directors (with input from members of the compensation committee) approved, and in January 2024, the members of the compensation committee updated, corporate goals for 2024 that were grouped into six main categories: (i) zanidatamab via the Jazz Partnership, (ii) zanidatamab via the BeiGene Partnership, (iii) early R&D (clinical), (iv) early R&D (preclinical), (v) ADVANCE and (vi) financing and partnerships. In addition, the leadership team had a seventh stretch goal relating to achievement of standards relating to corporate culture. +In January 2025, the compensation committee reviewed our performance against the corporate goals under the 2024 bonus plan, and determined that these goals were achieved at the 91.5% level. Additional detail on these goals and the assessed achievement is set forth in the table below: +147 +Table of Contents +2024 Corporate Goal Category +Key Elements of Goal Target Weight of Goal Assessed Achievement +Zanidatamab via the Jazz Partnership +Receive BLA approval of zanidatamab for the treatment of second-line BTC and recognize corresponding $25 million milestone payment. +20% for base goals; an additional 7% for stretch goals +23% +Advance clinical trials of zanidatamab, including: +• complete enrollment of HERIZON-GEA-01; +• first patient enrolled in Phase 3 confirmatory trial for zanidatamab in first-line BTC; +• no material disruption to clinical drug supply of zanidatamab for any studies being conducted by Jazz; +• GMP inspection readiness; and +• start FDA interactions for a third indication. +Presentation of data. +First commercial sale of zanidatamab for second-line BTC. +Zanidatamab via the BeiGene Partnership +Advance clinical trials of zanidatamab, including: +• no material disruption to clinical drug supply of zanidatamab for any studies being conducted by BeiGene; and +• GMP inspection readiness. +5% for base goals; an additional 3% for stretch goals +5% +Recognition of revenue. +First commercial sale of zanidatamab for second-line BTC. +Receive approval of zanidatamab for the treatment of second-line BTC outside of China. +Early R&D (clinical) +Advance various clinical trials of early-stage candidates, including: +• dose escalation cohort completion; +• first patient dosed; and +• no material disruption to clinical drug supply. +35% for base goals; an additional 19% for stretch goals +36% +Successful interactions with U.S. and non-U.S. regulators, including IND submissions for ZW171 and ZW191. +Early R&D +(preclinical) +Goals relating to toxicology studies, including those relating to manufacturing and initiation or completion of non-human primate GLP studies. +10% for base goals; an additional 2% for stretch goals +12% +Selection of fifth IND candidate (ZW209). +ADVANCE +Goals relating to preclinical development of potential product candidates. +5% for base goals; an additional 5.5% for stretch goals +5.5% +Financing and Partnership +Securing additional financing, including through non-dilutive methods as well as related stretch goals. +25% for base goals; an additional 13.5% for stretch goals +—% +People +Achievement of standards relating to corporate culture. +Stretch goal up to 10% +10.0% +Total +100% for base goals; bonuses capped at 150% +91.5% +148 +Table of Contents +The Company performed well against its 2024 corporate goals with respect to (i) zanidatamab via the Jazz Partnership, (ii) zanidatamab via the BeiGene Partnership, (iii) early R&D (clinical), (iv) early R&D (preclinical), and (v) ADVANCE, as well as its people/corporate culture goal. The Company did not achieve its 2024 corporate goals with respect to financing and partnerships, given changes in the competitive landscape and financial markets impacting the timing of potential partnerships and financing opportunities. Given the Company’s strong overall performance against its 2024 corporate goals, the compensation committee determined that these goals were achieved at the 91.5% level and approved 2024 bonuses for our named executive officers as follows: +Name and Principal Position +2024 Bonus +($) (1) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors +359,595 +Leone Patterson, Executive Vice President, Chief Business Officer and Chief Financial Officer +99,849 (2) +Paul Moore, Chief Scientific Officer +203,816 +________________________ +(1) Bonus amounts for all named executive officers are determined in U.S. dollars, and the table above reflects this determination in U.S. dollars. However, the 2024 bonus for Dr. Moore was paid in Canadian dollars (C$293,251) and the 2024 bonus for Mr. Galbraith was paid in British pounds (GBP 282,990), in each case based on conversion rates in effect at the time of payment. +(2) Per Ms. Patterson’s employment agreement with the Company, Ms. Patterson was eligible to receive an annual bonus for 2024 that was prorated for the six-month period from July 1, 2024 through December 31, 2024. +Long-Term Incentives +Our Amended and Restated Stock Option and Equity Compensation Plan (the “Equity Compensation Plan”) authorizes us to make grants to eligible recipients of stock options, restricted stock, restricted stock units and other share-based awards, to attract, retain, motivate and reward qualified directors and employees and to enable and encourage such directors and employees to acquire shares of common stock as long-term investments. +The Company granted a mix of stock options and restricted stock units to Mr. Galbraith and Dr. Moore in January 2024. The compensation committee believes this approach aligns the interests of our executives (including those of our named executive officers) with our stockholders’ interests by rewarding for improvements in stock price over a period of time. The Company issues stock options and restricted stock units to reward for future performance and appreciation. Because stock options only have value if our stock price increases relative to the stock option’s exercise price, we consider them to be an important performance-based tool that encourages our named executive officers to focus on driving increases to stockholder value. Restricted stock units play an important role in our executive compensation program because they provide some value even during periods of stock price or market volatilities, provide retention incentives during the vesting period, and reinforce a culture of ownership. By granting restricted stock units, the Company can also reduce the dilutive effect of the equity incentive awards in the form of stock options, which benefits our stockholders over time. In addition, the vesting feature of our stock awards contributes to executive retention by providing an incentive to our executives to remain employed by us during the vesting period. For 2024, we determined that annual grants to Mr. Galbraith and Dr. Moore in the form of an approximately 50/50 value mix of stock options and restricted stock units was most appropriate to reflect the continued change in the market and the evolution of our compensation program away from an options-only approach. The compensation committee evaluates the long-term incentive programs for each year, and the appropriate mix of equity awards to grant to our executive officers for the applicable year. In future years or for particular executives, the compensation committee may approve a different mix of equity awards if it determines necessary or appropriate to achieve our compensation objectives. +After considering its compensation objectives and negotiations with Ms. Patterson regarding her joining the Company, the compensation committee approved an initial award of stock options for Ms. Patterson shortly after her commencement of employment with the Company. The compensation committee believed that awarding Ms. Patterson’s initial equity grant solely in the form of options, consistent with its past practice with respect to the hiring of executives, would provide Ms. Patterson with strong incentives to increase stockholder value, and that given her role as our Chief Business and Financial Officer, this was appropriate for her new hire award. For 2025, the compensation committee has granted Ms. Patterson’s annual equity awards in a combination of options and restricted stock units in the same proportions as our other named executive officers, to balance the performance-based incentives of stock options, with the retention, reward and culture of ownership benefits of restricted stock units. +For the stock options, the option exercise price may not be less than the closing price of our common stock on the date of grant. For the 2024 stock option grants to our named executive officers, 25% of the granted options is scheduled to vest on the first anniversary of grant date (subject to continued service and any applicable acceleration of vesting provisions in their +149 +Table of Contents +employment agreements, as described below). On the last day of each month thereafter, a further 1/36 th of the total number of remaining granted options is scheduled to vest. These options are subject to any applicable acceleration provisions in the Equity Compensation Plan or in the named executive officer’s employment agreement. +Each restricted stock unit represents the right to receive one share of our common stock upon vesting of that unit, without the payment of an exercise price or other cash consideration for the issued shares of common stock. For the 2024 restricted stock unit grants to Mr. Galbraith and Dr. Moore, 1/3 rd of the restricted stock units are scheduled to vest on each anniversary of the grant date (subject to the named executive officer’s continued service and subject to any applicable acceleration provisions in the Equity Compensation Plan or in the named executive officer’s employment agreement). +The following table shows information regarding stock option and restricted stock unit grants to each of our named executive officers made during the year ended December 31, 2024: +Name +Grant Date +Restricted Stock Units Granted +(#) (1) +Stock Options Granted +(#) (2) +Exercise Price of Stock Options +($/Sh) (3) +Grant Date Fair Value of Stock and Option Awards ($) (4) +Kenneth Galbraith +1/5/2024 +— +300,000 10.56 1,985,672 +1/5/2024 +200,000 +— +— +2,112,000 +Leone Patterson +9/1/2024 +— +360,000 11.73 2,590,403 +Paul Moore +1/5/2024 +— +90,000 10.56 595,702 +1/5/2024 +60,000 +— +— +633,600 +________________________ +(1) Restricted stock units vest in three equal annual installments beginning on January 5, 2025, subject to the recipient’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(2) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36 equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(3) The exercise price of the stock options is the closing price of the Company’s stock on the Nasdaq on the grant date. +(4) The amounts set forth in this column reflect the grant date fair value for restricted stock unit awards and stock option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “ Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation ” and Note 10(f) “ Notes to Consolidated Financial Statements – Stockholders’ Equity – Stock-Based Compensation ” included in this Annual Report on Form 10-K for our year ended December 31, 2024. +Previous grants are taken into account when considering new option and restricted stock unit grants, as well as other factors such as market data, retention and incentive considerations, internal equity, Company performance and prior and expected future individual contributions. Decisions regarding long-term incentives do not affect decisions regarding other components of compensation. +Benefits and Perquisites +Other compensation to our named executive officers primarily consists of participation in our broad-based employee benefit plans. Named executive officers are eligible to participate in all our employee benefit plans, in each case on the same basis as other employees in the entity in which they are employed, including a retirement savings plan for those employed in Canada, a 401(k) plan for those employed in the United States, and pension plans for those employed in Ireland and the UK. Our named executive officers also are eligible to participate in our employee stock purchase plan on the same terms as our other eligible employees. +Currently, we do not view perquisites or other personal benefits as a material component of our executive compensation program. However, we do provide certain perquisites to our named executive officers in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make them more efficient and effective, and for recruitment and retention purposes. +150 +Table of Contents +In addition, consistent with our philosophy regarding personal benefits, and as further described in “ Executive Compensation –Executive Employment Arrangements and Potential Payments upon Termination or Change in Control, ” to encourage and facilitate Dr. Moore’s relocation to Canada, we provide him with certain reimbursements for relocation expenses, as well as a gross-up to make sure such payments are tax neutral to him, tax equalization payments to neutralize any increase in his taxes as a result of his relocation, and tax preparation assistance for two years following his relocation. In addition, prior to Dr. Moore’s relocation to Canada in 2023, we provided certain housing benefits to him to facilitate his ability to spend time at our Vancouver location. The compensation committee believes these benefits were appropriate to enable a smooth relocation for Dr. Moore and to allow him to keep his focus on the business rather than on the costs and burdens of the relocation. +We also provide certain personal benefits to Mr. Galbraith, which were negotiated as part of Mr. Galbraith’s initial January 2022 employment agreement and subsequent amendments, including the most recent amendment in January 2024. These benefits were provided in order to induce him to initially join and later to remain with the Company and to increase his ability to work efficiently. These benefits include certain housing, travel, relocation, and certain tax equalization and gross-up benefits, as described in “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” In late 2022 and again in January 2024, we amended Mr. Galbraith’s employment agreement to extend the time period for certain benefits, as described in “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” The compensation committee approved the extension of these benefits as it believed that doing so would assist Mr. Galbraith in the continued performance of his duties and continue to aid in his efficiency. +In the future, we may continue to provide perquisites or other personal benefits in circumstances where we believe it is appropriate to assist an individual named executive officer in the performance of his or her duties, to make him or her more efficient and effective, and for recruitment, motivation or retention purposes. +Anti-Hedging Policy +Under the terms of our Insider Trading Policy , all directors, officers, employees, as well as any other personnel that we determine should be subject to our Insider Trading Policy (such as certain contractors and consultants), any person or entity an insider controls, exercises substantial influence over, serves as a trustee or in a similar fiduciary capacity of or is otherwise involved with, in connection with securities trading or investment decisions and an insider’s spouse, partner, parents, children, dependents and other family members or roommates, are prohibited from purchasing financial instruments (including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds) designed to hedge or offset a decrease in the market value of our securities. Any person covered by our Insider Trading Policy is prohibited from pledging Zymeworks securities as collateral for any loan, in margin accounts or as part of pledging transactions, regardless of whether such person is in possession of non-public material information. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. +Potential Payments upon Termination or Change in Control +Certain of our executives, including each of our named executive officers, are parties to employment agreements with us which set forth conditions of employment and the payments that will be made upon termination of their employment. Additional discussion of the employment agreements with our named executive officers is set forth below under “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” We believe that these protections are necessary to provide our valuable named executive officers with incentives to forgo other employment opportunities and to maintain continued focus and dedication to their responsibilities to maximize stockholder value, including if there is a potential transaction that could involve a change in control, without undue concern that the officer will be terminated and lose his or her income and benefits. We believe the level of severance and change in control benefits provided is appropriate and is necessary to attract and retain key employees. +151 +Table of Contents +Summary Compensation Table +The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the years ended December 31, 2024 and December 31, 2023. We do not have non-qualified deferred compensation. +Name and Principal Position Year +Salary +($) (1) +Bonus ($) (1) +Stock Awards +($) (2) +Option Awards +($) (2) +Non-Equity Incentive Plan Compensation +($) (1)(3) +All Other Compensation +($) (1) +Total ($) +Kenneth Galbraith, CEO, President & Chair (4) +2024 654,833 — 2,112,000 1,985,672 361,652 139,459 +(5) +5,253,616 +2023 625,452 — 1,144,000 1,194,627 321,651 89,146 +(6) +3,374,876 +Leone Patterson, Exec. VP, Chief Business Officer & CFO (7) +2024 161,667 50,000 — 2,590,403 99,849 6,063 +(8) +2,907,982 +Paul Moore, CSO (9) +2024 494,683 — 633,600 595,702 214,102 48,716 +(10) +1,986,803 +2023 465,784 — 412,000 397,571 182,120 224,762 +(11) +1,682,237 +________________________ +(1) Salary, bonus, non-equity incentive plan compensation (cash bonus with respect to corporate goal achievement) and amounts in the “All Other Compensation” column for all named executive officers are determined in U.S. dollars. However, 2024 cash compensation amounts, and a portion of 2023 cash compensation amounts, for Dr. Moore were paid in Canadian dollars and have been converted to U.S. dollars for the purposes of the table. For 2024 and 2023, respectively, the U.S. dollar per Canadian dollar exchange rates used for such conversions were 0.7301 and 0.7410, which were the average annual Bank of Canada exchange rates for 2024 and 2023, respectively. Cash compensation amounts for Mr. Galbraith were paid in British pounds and have been converted to U.S. dollars for the purposes of the table. For 2024 and 2023 the U.S. dollar per British pound exchange rates used for such conversions were 1.2780 and 1.2437, which were the average annual Bank of Canada exchange rates for 2024 and 2023, respectively. +(2) The amounts set forth in these columns reflect the aggregate grant date fair value for restricted stock unit awards and option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation” and Note 10(f) “Notes to Consolidated Financial Statements – Shareholders’ Equity – Stock-Based Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2024. +(3) The amounts reflect the dollar value of incentive bonuses paid in 2025 and 2024 for performance during 2024 and 2023, respectively, as discussed further above under “ Executive Compensation – Components of Compensation Package – Cash Bonus .” +(4) Mr. Galbraith has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President since June 2023 and previously served as our President from January 2022 to August 2022. Mr. Galbraith also served as our interim Chief Financial Officer, principal financial officer and principal accounting officer from March 31, 2024 until September 1, 2024. +(5) Of the total amount for 2024, (i) $53,969 represents accommodation benefits, (ii) $6,390 represents Company contributions to a defined contribution pension plan, (iii) $14,516 represents private health insurance premiums, (iv) $701 represents life insurance premiums through our group ex tended benefit plan, (v) $30,853 represents airfare for immediate family members in accordance with the terms of Mr. Galbraith’s employment agreement, (vi) $30,000 represents an estimated tax equalization payment (which includes $16,000 for estimated tax gross-up) in connection with taxation attributable to the performance of work outside the UK, and (vii) $3,030 represents reimbursement for tax preparation services. +(6) Of the total amount for 2023, (i) $53,260 represents accommodation benefits, (ii) $6,547 represents Company contributions to a defined contribution pension plan, (iii) $746 represents life insurance premiums through our group extended benefit plan, (iv) $17,593 represents airfare for immediate family members in accordance with the terms of Mr. Galbraith’s employment agreement, and (v) $11,000 represents an estimated tax equalization payment (which includes $6,000 for estimated tax gross-up) in connection with taxation attributable to the performance of work outside the UK. +(7) Ms. Patterson has served as our Executive Vice President, Chief Business Officer and Chief Financial Officer since September 1, 2024. In 2024, she received a $50,000 sign-on bonus and options to purchase 360,000 shares of common stock. +(8) Represents Company contributions of $6,063 to our 401(k) plan. +(9) Dr. Moore has served as our Chief Scientific Officer since July 2022. +(10) Of the total amount for 2024, (i) $44,283 represents a tax equalization payment for 2023 paid in 2024, and (ii) $4,433 represents life insurance premiums through our group extended benefit plan. +(11) Of the total amount for 2023, (i) $41,496 represents accommodation benefits (which benefits ceased in connection with Dr. Moore's relocation to Vancouver in 2023), (ii) $163,115 represents relocation expenses (which includes $77,334 for tax gross-up), (iii) $19,800 represents Company contributions to our 401(k) plan, and (iv) $351 represents life insurance premiums through our group extended benefit plan. +152 +Table of Contents +Clawback Policy +In November 2023, we adopted a compensation recovery policy (the “Clawback Policy”) in accordance with the SEC and Nasdaq requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. This policy provides for the non-discretionary recovery of excess incentive-based compensation from current and former executive officers in the event of an accounting restatement, whether or not the executive officer was at fault for the restatement, in accordance with the SEC and Nasdaq requirements. +In addition, as a public company subject to Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to prepare an accounting restatement due to our material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, our Chief Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or incentive-based or equity-based compensation they received from us during the 12-month period following the first public issuance or filing with the SEC of the financial document incorporating such financial reporting requirement, as well as profits realized from the sale of securities during that 12-month period. +Outstanding Equity Awards at 2024 Year End +The following table lists all outstanding equity awards granted in U.S. dollars under the Equity Compensation Plan and our Inducement Stock Option and Equity Compensation Plan (the “Inducement Plan”) held by our named executive officers as of December 31, 2024: +Option Awards Stock Awards +Name +Grant Date +Number of Securities Underlying Unexercised Options +(#) +Exercisable (1) +Number of Securities Underlying Unexercised Options +(#) +Unexercisable (1) +Option Exercise Price +($) +Option Expiration Date +Number of Shares or Units of Stock That Have Not Vested +(#) (2) +Market Value of Shares or Units of Stock That Have Not Vested +($) (2)(3) +Kenneth Galbraith 1/15/2022 375,000 125,000 14.97 1/14/2032 — — +12/22/2022 — — — — 100,000 +(4) +1,464,000 +1/5/2023 107,500 107,500 8.00 1/4/2033 — — +1/5/2023 — — — — 95,334 1,395,690 +1/5/2024 — 300,000 10.56 1/4/2034 — +1/5/2024 — — — — 200,000 2,928,000 +Leone Patterson +9/1/2024 — 360,000 11.73 8/31/2034 — — +Paul Moore 7/18/2022 125,000 75,000 5.82 7/17/2032 — — +1/5/2023 38,750 38,750 8.00 1/4/2033 — — +1/5/2023 — — — — 34,334 502,650 +1/5/2024 — 90,000 10.56 1/4/2034 — — +1/5/2024 — — — — 60,000 878,400 +________________________ +(1) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36 equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(2) Unless otherwise noted, restricted stock units vest in three equal annual installments on each of the first, second, and third anniversaries of the date of grant, subject to the holder’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(3) Market value of restricted stock units that have not vested is based on the closing price of the Company’s common shares on Nasdaq on December 31, 2024, which was $14.64 per share. +(4) These restricted stock units vest on the third anniversary of the date of grant, subject to the holder’s continued service. Pursuant to the terms of Mr. Galbraith’s grant agreement with respect to these restricted stock units, (i) if Mr. Galbraith’s employment is terminated by the Company without cause, 100% of the restricted stock units will fully vest, and (ii) if on or within twelve months following a change of control (as defined in Mr. Galbraith’s employment agreement) or within three months prior to a change of control, Mr. Galbraith’s employment with the Company terminates due to his resignation for good reason, 100% of the restricted stock units will fully vest, in each case of (i) and (ii) subject to Mr. Galbraith having entered into a valid and enforceable settlement agreement with the Company on terms satisfactory to the +153 +Table of Contents +Company. These restricted stock units also are subject to the applicable acceleration of vesting provisions described for Mr. Galbraith under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +Pension Benefits +We do not have any qualified or non-qualified defined benefit pension plans. +Defined Contribution Plans +Registered Retirement Savings Plan +Our executive officers resident in Canada are eligible, along with all other employees resident in Canada, to participate in our registered retirement savings plan (“RRSP”) matching program. Under this program, we match the amount contributed by each employee into a group RRSP plan, up to a pre-determined percentage of annual salary. We match employee contributions to the group RRSP up to 6.0% of annual salary. Generally, company matching contributions will not exceed 50% of the maximum annual RRSP dollar limit as specified by the Canada Revenue Agency in any given year. +401(k) Plan +Our executive officers resident in the United States are eligible, along with all other U.S.-based employees, to participate in a 401(k) matching program. Under this program, we match the amount contributed by each employee into a 401(k) plan, up to a predetermined percentage of annual salary. We match employee contributions to a 401(k) plan up to 6.0% of annual salary, with company matching contributions not to exceed the annual personal and Age 50 Catch Up contribution limit (if applicable) set by the Internal Revenue Service, or the IRS, in any given year. +Group Personal Pension Plan +Our executive officers resident in the UK are eligible, along with all other employees resident in the UK, to participate in our group personal pension (“GPP”) plan matching program. Under this program, we match the amount contributed by each employee into a GPP plan, up to a pre-determined percentage of annual salary. We match employee contributions to a GPP plan up to 6.0% of annual salary. Generally, company matching contributions will not exceed 50% of the maximum annual plan dollar limit set by His Majesty’s Revenue and Customs, or HMRC, in any given year. +Non-qualified Deferred Compensation +We do not have any non-qualified defined contribution plans or other deferred compensation plans. +Executive Employment Arrangements and Potential Payments upon Termination or Change in Control +Executive Employment Arrangements +Key provisions of the employment agreements that were in effect as of December 31, 2024, for our named executive officers are described below. +Kenneth Galbraith . In connection with Mr. Galbraith’s appointment as President and Chief Executive Officer in January 2022, Mr. Galbraith entered into an employment agreement with us (the “Original Agreement”), on December 30, 2022, Zymeworks BC and Zymeworks Management Inc., our subsidiaries, and Mr. Galbraith entered into an amendment to the Original Agreement (the “First Amendment”), and on January 3, 2024, Zymeworks BC and Mr. Galbraith entered into a second amendment (the “Second Amendment” and the Original Agreement, as amended by the First Amendment and the Second Amendment, the “Galbraith Employment Agreement”). The Galbraith Employment Agreement does not have a specific term. The Second Amendment established Mr. Galbraith’s principal place of employment as the UK, or another location as agreed upon between the parties, which removes the requirement for Mr. Galbraith to relocate to Vancouver, British Columbia or Seattle, Washington, and incorporated certain extensions of compensation and benefit provisions, as described below. +Pursuant to the Galbraith Employment Agreement, Mr. Galbraith is entitled to the following compensation and benefits: +• An annual base salary of $600,000, with eligibility to earn an annual discretionary bonus of up to 60% of his annual base salary, based upon the achievement of certain Company goals determined by the board of directors. Mr. Galbraith’s current annual base salary is $655,000 and his target annual discretionary bonus remains at 60% of his annual base salary; +154 +Table of Contents +• Options, which were granted to Mr. Galbraith in 2022, to purchase 500,000 of our common shares at an exercise price per share equal to the fair market value on the date of grant (the “Inducement Options”). 25% of the Inducement Options vest and become exercisable on the one-year anniversary of the date of grant, and thereafter 1/36th of the remaining Inducement Options will vest on the last day of each month, until all of the Inducement Options have vested, subject to Mr. Galbraith’s continued service; +• Eligibility to participate in our employee benefit plans, policies and arrangements that, in the aggregate, are reasonably consistent with other executive officers generally, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +• Enrollment in a qualifying pension scheme under the UK Pensions Act 2008; +• Prior to the Second Amendment, the Galbraith Employment Agreement provided for reimbursement of relocation expenses up to a maximum gross amount of $300,000, grossed up for the impact of any tax withholding, for reasonable moving expenses incurred by Mr. Galbraith and his immediate family during relocation from Mr. Galbraith’s primary residence to Vancouver, British Columbia or Seattle, Washington if he relocated on or before July 15, 2024 (under the Original Agreement, this related to a relocation within the first eighteen months of employment), with the total amount reimbursed under this provision required to be repaid if Mr. Galbraith’s employment had terminated within three years (two years under the Original Agreement) following the effective date of employment. The Second Amendment removed the requirement to relocate, and deleted this provision regarding relocation expenses; +• Temporary housing for Mr. Galbraith in Vancouver, British Columbia, grossed up for the impact of any tax withholding. The First Amendment had provided for this benefit through the earlier of Mr. Galbraith’s relocation or July 15, 2024, and under the Original Agreement, this was through the earlier of Mr. Galbraith’s relocation or the date that is 18 months following the effective date of employment; +• Reimbursement of reasonable travel and living expenses when traveling from his home to Vancouver, British Columbia or Seattle, Washington for his employment duties, as well as reimbursement or Company payment for reasonable airfare and lodging expenses for Mr. Galbraith and his immediate family for one trip per calendar year to Vancouver, British Columbia or Seattle, Washington, as applicable (under the Original Agreement, this related to trips that occurred prior to the end of 2023 under the Original Agreement, and under the First Amendment, to trips that occurred prior to the end of 2024); +• A tax equalization payment if Mr. Galbraith is subject to income taxation or other taxation outside of the UK during the period of his employment, grossed up for the impact of any tax withholding, and tax preparation services; +• If we terminate Mr. Galbraith’s employment during his first three years of employment, then Mr. Galbraith will be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Mr. Galbraith’s employment, Mr. Galbraith will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Mr. Galbraith will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan; +• In the event of termination on death or disability, as defined in our long-term disability plan or policy then in effect with respect to him, Mr. Galbraith, or his estate, will receive (x) a lump sum payment equal to the difference between (1) eighteen months of base salary plus target annual cash bonus as of the date of death or disability and (2) the amount that Mr. Galbraith or his estate will receive as a result of death or disability under our applicable insurance policies in effect as of the date of termination, (y) group extended health and dental benefits continuation for his surviving family members for eighteen months (or lump sum payment for the premium costs of such benefits in lieu thereof), and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants made to Mr. Galbraith as of the date of death or disability; +• If Mr. Galbraith’s employment is terminated by us without cause on or within twelve months following, or within three months prior to, a change of control (as defined in the Galbraith Employment Agreement), Mr. Galbraith will be eligible to receive (x) a lump sum payment of eighteen months of base salary and 100% of target annual cash bonus as of the date of termination, (y) group extended health and dental benefits continuation as of the date of termination for eighteen months (or lump sum payment for the premium costs of such benefit plans in lieu thereof) and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Mr. Galbraith entering into a valid settlement agreement with us; and +155 +Table of Contents +• In addition, the Galbraith Employment Agreement requires Mr. Galbraith, among other things, not to compete, either directly or indirectly, with us while employed by us and for up to six months following the termination of his employment with us. The Galbraith Employment Agreement also requires Mr. Galbraith not to solicit our employees or consultants to terminate their relationship with us while he is employed by us and for up to one year following the termination of his employment with us. +On March 31, 2024, Mr. Galbraith was appointed interim Chief Financial Officer and continued in his roles as Chair of the board of directors, President and Chief Executive Officer and assumed the duties of principal financial officer and principal accounting officer, without any changes to his compensatory arrangements. In connection with Ms. Patterson’s start date, Mr. Galbraith resigned from the positions of interim Chief Financial Officer and as principal financial officer and principal accounting officer of the Company, effective September 1, 2024. The compensatory and other material terms of Mr. Galbraith’s employment with the Company were unchanged in connection with his appointment and subsequent resignation as interim Chief Financial Officer, principal financial officer and principal accounting officer. +Leone Patterson . On July 19, 2024, our subsidiary ZBI entered into an employment agreement with Ms. Patterson, which became effective September 1, 2024, setting forth the terms and conditions of her employment as Executive Vice President, Chief Business Officer and Chief Financial Officer of the Company (the “Patterson Employment Agreement”). The Patterson Employment Agreement does not have a stated term. +Pursuant to the Patterson Employment Agreement, Ms. Patterson is entitled to the following compensation and benefits: +• An annual base salary of $485,000, with eligibility to earn an annual discretionary bonus of up to 45% of her annual base salary, based upon the achievement of certain Company goals determined by the board of directors. With respect to 2024, Ms. Patterson was eligible to receive a pro-rated bonus for the six-month period from July 1, 2024 through December 31, 2024; +• Eligibility to participate in Company employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +• Signing bonus of $50,000, which will be repayable in full to ZBI within 30 days of Ms. Patterson’s employment termination date if her employment is terminated for Cause (as defined in the Patterson Employment Agreement) or by Ms. Patterson for any reason, in either case, within one year of the effective date of the Patterson Employment Agreement; +• Options, which were granted to Ms. Patterson in 2024, to purchase 360,000 of our common shares at an exercise price per share equal to the fair market value on the date of grant. 25% of the Options vest and become exercisable on the one-year anniversary of the date of grant, and thereafter 1/36th of the remaining Options will vest on the last day of each month, until all of the Options have vested, subject to Ms. Patterson’s continued service through the applicable vesting date; +• If we terminate Ms. Patterson’s employment without cause during her first three years of employment, then Ms. Patterson will be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of her employment, if we terminate Ms. Patterson’s employment without cause, Ms. Patterson will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Ms. Patterson will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan. Such payments will be subject to Ms. Patterson entering into a valid separation and release agreement with us; +• If Ms. Patterson’s employment is terminated by us without cause on or within twelve months following a change of control (as defined in the Patterson Employment Agreement), Ms. Patterson will be eligible to receive as severance (x) eighteen months continued base salary following termination, (y) group extended health and dental benefits as of the date of termination for eighteen months, and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Ms. Patterson entering into a valid separation and release agreement with us. +In addition, if any of the payments or benefits provided for under the Patterson Employment Agreement employment agreement or otherwise payable to Ms. Patterson would constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the related excise tax, she would be entitled to receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, +156 +Table of Contents +whichever results in the greater amount of after-tax benefits to her. The Patterson Employment Agreement does not require us to provide any tax gross-up payments to her. +Paul Moore . On July 18, 2022, the Company and our subsidiary ZBI entered into an employment agreement with Dr. Moore setting forth the terms and conditions of his employment as Chief Scientific Officer of the Company (the “Initial Employment Agreement”). In connection with Dr. Moore’s planned relocation from the United States to Canada, the Company and our subsidiary Zymeworks BC entered into an amended and restated employment agreement with Dr. Moore in July 2023 (the “Moore Employment Agreement”) that supersedes and replaces the Initial Employment Agreement. The Moore Employment Agreement does not have a stated term. +Pursuant to the Moore Employment Agreement, Dr. Moore is entitled to the following compensation and benefits: +• An annual base salary of $465,000, with eligibility to earn an annual discretionary bonus of up to 45% of his annual base salary, based upon the achievement of certain Company goals determined by the board of directors. Dr. Moore’s current annual base salary is $495,000 and his target annual discretionary bonus remains at 45% of his annual base salary; +• Eligibility to participate in our employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +• Reimbursement of relocation expenses up to a maximum of $200,000, grossed-up to offset the impact of any taxes on such payment, for reasonable and customary moving expenses that Dr. Moore incurs within eighteen months of his July 18, 2022 start date in connection with his relocation to the Vancouver, British Columbia metropolitan area, as contemplated in the Initial Employment Agreement. +• A tax equalization payment if Dr. Moore is subject to income taxation in Canada in a given year equal to the difference between (i) the sum of total Canadian taxes plus any U.S. federal, state and local income taxes, that Dr. Moore is or would be obligated to pay for an applicable tax year, and (ii) the amount of U.S. federal, state and local tax liability had Dr. Moore worked in the United States for the entire tax year. Any tax equalization payment will be grossed-up to offset the impact of taxes on such payment. +• Provision of tax preparation support or reimbursement of up to $5,000 per year for additional tax preparation expenses of Dr. Moore for a period of two years from his July 18, 2022 start date. +• If we terminate Dr. Moore’s employment without cause during his first three years of employment, then Dr. Moore will be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Dr. Moore’s employment without cause, Dr. Moore will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Dr. Moore will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan. Such payments will be subject to Dr. Moore entering into a valid separation and release agreement with us; +• If Dr. Moore’s employment is terminated by us without cause on or within twelve months following a change of control (as defined in the Moore Employment Agreement), Dr. Moore will be eligible to receive as severance (x) eighteen months continued base salary following termination, (y) group extended health and dental benefits as of the date of termination for eighteen months, and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Dr. Moore entering into a valid separation and release agreement with us; and +• In addition, the Moore Employment Agreement requires Dr. Moore, among other things, not to compete, either directly or indirectly, with us while employed by us and for up to six months following the termination of his employment with us. The Moore Employment Agreement also requires Dr. Moore not to solicit our employees to terminate their relationship with us while he is employed by us and for up to one year following the termination of his employment with us. +In addition, if any of the payments or benefits provided for under the Moore Employment Agreement employment agreement or otherwise payable to Dr. Moore would constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the related excise tax, he would be entitled to receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, whichever +157 +Table of Contents +results in the greater amount of after-tax benefits to him. The Moore Employment Agreement does not require us to provide any tax gross-up payments to him. +Equity Compensation Plan Information +Under our Original Plan, upon a transaction in which equity securities representing more than 66 2/3% of our common stock are sold (a “substantial sale”), if the purchaser offers to buy out options, the options must be sold to the purchaser at a purchase price equal to (x) the price per share in the transaction (calculated in accordance with the terms of the Original Plan) minus the exercise price per share, multiplied by (y) the number of shares then exercisable under the option. If the option holders do not sell their options to the purchaser, such options will terminate upon completion of the substantial sale. +Under our Equity Compensation Plan and our Inducement Plan, in connection with a change of control (as defined in the applicable plan), our board of directors or the committee to which our board of directors has delegated authority to administer the applicable plan (either, the “Administrator”) has the right to provide for the conversion or exchange of any outstanding awards into or for options, rights or other securities in any entity participating in or resulting from a change of control, cash or other property. If we enter into an agreement for a transaction that, if completed, would result in a change of control, or otherwise become aware of a pending change of control, we will give written notice to the award holders regarding the potential change of control and a description of the effect of the change of control on outstanding awards at least seven (7) days prior to the closing of change of control. +Under our Equity Compensation Plan and Inducement Plan, the Administrator may, in its discretion, accelerate the vesting and/or expiration date of any or all outstanding awards in connection with the change of control to provide that such designated awards shall be fully vested and any options not exercised within the specified period will be terminated after the completion of the change of control. If the change of control would also result in a capital reorganization, arrangement, amalgamation or reclassification of our share capital (and if the vesting and expiration of the awards has not been accelerated as contemplated by the prior sentence), upon completion of the change of control, the number and kind of shares subject to outstanding awards and, if applicable, the exercise price per share of options shall be appropriately adjusted (including by substituting the awards for awards with respect to securities in any successor entity to us) in such manner as the Administrator considers equitable to prevent substantial dilution or enlargement of the rights granted to Award holders. The Administrator also may make changes to the terms of the awards or the Equity Compensation Plan or Inducement Plan to the extent necessary or desirable to comply with any rules, regulations or policies of any stock exchange on which any of our securities may be listed, provided that the value of previously granted awards and the rights of award holders are not materially adversely affected by any such changes. In addition, in the event of a potential change of control, the Administrator may, in its sole discretion, modify the terms of the plan and/or the awards to assist the participants to tender into a take-over bid or other transaction leading to a change of control, including the authority to allow participants to conditionally exercise options. +The Company’s Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information +During 2024, we granted stock options to employees, including our named executive officers. We do not take material nonpublic information into account in determining the timing of such awards . Further, we have not timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation. We typically grant annual equity awards (including stock options) to our executive officers and non-executive employees early in the first quarter of each year. For equity awards to executive officers in connection with their hire date, such grants are typically made on the date of the commencement of their employment. For equity awards to non-executive employees in connection with their hire date, such grants are typically made on a pre-determined date in the month following the commencement of their employment. We have never granted stock appreciation rights to any employees or other service providers. +During fiscal year 2024, the Company awarded options to certain of our named executive officers in the period beginning four business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a report on Form 8-K that disclosed material nonpublic information, and ending one business day after such filing or furnishing. The following table provides information concerning each such award: +158 +Table of Contents +Name Grant Date +Number of Securities Underlying the Award +Exercise Price of the Award ($/Sh) +Grant Date Fair Value of the Award ($) (1) +Percentage Change in the Closing Market Price of the Securities Underlying the Award between the Trading Day Ending Immediately Prior to the Disclosure of Material Nonpublic Information and the Trading Day Beginning Immediately Following the Disclosure of Material Nonpublic Information +Kenneth Galbraith 1/5/2024 300,000 10.56 1,985,672 ( 1.03 )% +Paul Moore 1/5/2024 90,000 10.56 595,702 ( 1.03 )% +________________________ +(1) The amounts set forth in this column reflect the aggregate grant date fair value for option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation” and Note 10(f) “Notes to Consolidated Financial Statements – Shareholders’ Equity – Stock-Based Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2024. +Director Compensation Table +The following table presents the compensation awarded to, earned by or paid to our directors (other than Mr. Galbraith, whose compensation is provided in the Summary Compensation Table above) for the year ended December 31, 2024. Mr. Nodelman is not included in the table below as he did not join the board of directors until 2025. We do not currently have director compensation in the form of share-based awards (other than stock options), non-equity incentive plan compensation or non-qualified deferred compensation. +Name +Fees Earned or Paid in Cash ($) +Option Awards +($) (1)(2) +All Other Compensation +Total +($) +Carlos Campoy 65,000 241,472 — 306,472 +Alessandra Cesano (3) +46,750 763,477 — 810,227 +Troy M. Cox 50,000 241,472 — 291,472 +Nancy Davidson 53,500 241,472 — 294,972 +Neil Gallagher (4) +35,125 662,283 — 697,408 +Kenneth Hillan (5) +6,667 +(9) +— — 6,667 +Susan Mahony 73,125 241,472 — 314,597 +Derek J. Miller 60,000 +(10) +241,472 — 301,472 +Kelvin Neu (6) +55,000 241,472 — 296,472 +Scott Platshon (7) +— — — — +Hollings C. Renton (8) +55,000 — — 55,000 +________________________ +(1) The amounts set forth in this column reflect the aggregate grant date fair value for option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “ Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation ” and Note 10(f) “ Notes to Consolidated Financial Statements – Stockholders’ Equity Stock-Based Compensation ” included in this Annual Report on Form 10-K for our year ended December 31, 2024. +(2) As of December 31, 2024, directors held the following number of options to purchase Company common shares: (i) Mr. Campoy, 118,000; (ii) Dr. Cesano, 105,000; (iii) Mr. Cox, 141,000; (iv) Dr. Davidson, 105,000; (v) Dr. Gallagher, 105,000; (vi) Mr. Hillan, 93,675; (vii) Dr. Mahony, 141,000; (viii) Mr. Miller, 118,000; (ix) Dr. Neu, 102,000; (x) Mr. Platshon, nil; and (xi) Mr. Renton, 121,425. +(3) Dr. Cesano joined the Company’s board of directors in February 2024. +(4) Dr. Gallagher joined the Company’s board of directors in April 2024. +(5) Dr. Hillan ceased serving on the Company’s board of directors in February 2024. +(6) Dr. Neu joined the Company’s board of directors in March 2020. Dr. Neu was an employee of Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr. Neu’s employment by Baker Brothers Advisors LP, the options granted to him in 2020 were, and will continue to be, beneficially owned by Baker Bros. Advisors LP. +(7) Mr. Platshon joined the Company’s board of directors in February 2024. Mr. Platshon waived his entitlement to cash and equity compensation otherwise payable to him pursuant to the Company’s non-employee director compensation policy. +(8) Dr. Renton ceased serving on the Company’s board of directors in December 2024. +(9) Due to a clerical error, Dr. Hillan received $2,667 less than he was entitled to under the Company’s non-employee director compensation policy. This inadvertent underpayment will be corrected by paying Dr. Hillan the outstanding amount owed to him. +159 +Table of Contents +(10) Due to a clerical error, Mr. Miller received $417 more than he was entitled to under the Company’s non-employee director compensation policy. This inadvertent overpayment will be corrected by withholding such overpaid amounts from the amounts he will be owed for service as a director in 2025. +Director Compensation +The written charter of our compensation committee provides that the compensation committee will review compensation for members of our board of directors on at least an annual basis, taking into account their responsibilities and time commitment and information regarding the compensation paid at peer companies. The compensation committee will make recommendations to our board of directors with respect to changes to our approach to director compensation as it considers appropriate. +From time to time, the compensation committee works with Aon to update prior competitive assessments of our board of director compensation program. +In November 2023, the compensation committee worked with Aon to again update prior competitive assessments of our board of director compensation program. Based on these findings, in November 2023, the compensation committee recommended certain changes to the non-employee director compensation program. +In December 2023, the board of directors approved, following its annual assessment of the director compensation program and including its consideration of the input and recommendations from the compensation committee, the following changes to the cash and equity compensation of non-employee directors (as amended, the “Amended and Restated Director Compensation Policy”), which changes adjust the director compensation program to more closely align with the non-employee director compensation practices of the Company’s peer group: +• The annual cash retainer fee for service as a member of the board of directors and for service as lead independent director was maintained at the 2023 level at $40,000 and $65,000, respectively. +• Beginning January 1, 2024, the annual cash retainer fee for service as chair of the audit committee was increased from $15,000 to $20,000, the annual cash retainer fee for service as a member of the audit committee was increased from $7,500 to $10,000, the annual cash retainer fee for service as chair of the compensation committee was increased from $12,000 to $15,000, the annual cash retainer fee for service as a member of the compensation committee was increased from $6,000 to $7,500, the annual cash retainer fee for service as chair of the nominating and corporate governance committee was increased from $8,500 to $10,000, the annual cash retainer fee for service as a member of the nominating and corporate governance committee was increased from $4,250 to $5,000.The annual cash retainer fee for service as chair of the research and development committee was maintained at $15,000 and the annual cash retainer fee for service as a member of the research and development committee was maintained at $6,000; +• Effective immediately, the initial option grants for new non-employee directors, to be granted on or about the time of the director joining the board of directors, were increased from options to purchase 50,000 shares of Company common stock to options to purchase 74,000 shares of Company common stock, with the vesting schedule remaining as 1/36th of the shares subject to the option vesting on each monthly anniversary of the grant date, subject to the director’s continued service; and +• Effective immediately, the annual equity grant to continuing non-employee directors, to be granted at or about the time of our annual meeting of stockholders, was increased from options to purchase 25,000 shares of Company common stock to 37,000 shares, with the vesting schedule remaining 100% of the shares subject to the option vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s continued service through such date. +In December 2024, the board of directors, upon advice from its independent compensation consultants and recommendation from the compensation committee following its annual assessment of the board of directors’ compensation program, approved the following changes to the cash and equity compensation of non-employee directors, which changes adjust the board of directors’ compensation program to more closely align with the non-employee director compensation practices of the Company’s peer group. +• Beginning January 1, 2025, the annual cash retainer fee for service as a member of the research and development committee will be increased from $6,000 to $7,500 with all other annual cash retainers for the Board and its committees remaining unchanged; +• Effective immediately, the initial option grants for any new non-employee directors, to be granted on or about the time of the director joining the Board, was reduced from options to purchase 74,000 shares of Company common stock to options to purchase 62,000 shares of Company common stock, with the vesting schedule remaining as 1/36th of the +160 +Table of Contents +shares subject to the option vesting on each monthly anniversary of the grant date, subject to the optionee’s continued service; and +• Effective immediately, the annual equity grant to continuing non-employee directors, to be granted at or about the time of the Company’s annual meeting of stockholders, was reduced from options to purchase 37,000 shares of Company common stock to options to purchase 31,000 shares of Company common stock, with the vesting schedule remaining 100% of the shares subject to the option vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s continued service through such date. +Following the recommendation of the compensation committee, the board of directors also determined to not implement stock ownership guidelines at this time. No other changes to board of director compensation were made for 2024. +Cash Compensation for Directors +In 2024, we provided the below annual cash retainer fees for service on our board of directors and committees. The fees for service on committees are in addition to the annual retainer fees for service on the board of directors. +Effective January 1, 2024 +Effective January 1, 2025 +Amount +($) +Amount +($) +Board of Directors: +Member +40,000 +40,000 +Lead Independent Director +65,000 +65,000 +Audit Committee: +Member +10,000 +10,000 +Chair +20,000 +20,000 +Compensation Committee: +Member +7,500 +7,500 +Chair +15,000 +15,000 +Nominating and Corporate Governance Committee: +Member +5,000 +5,000 +Chair +10,000 +10,000 +Research and Development Committee: +Member +6,000 +7,500 +Chair +15,000 +15,000 +Cash retainer fees were amended in December 2024 as discussed above. +Equity Compensation for Directors +Beginning December 2024, new non-employee directors will be granted an initial option grant to purchase 62,000 shares of common stock, to be granted on or about the time such director joins the board of directors, with a vesting schedule of 1/36th of the options vesting on each monthly anniversary of the grant date, subject to the optionee’s continued service through such date. +In addition, non-employee directors will be granted an annual option grant to purchase 31,000 shares of common stock, to be granted at or about the time of the Company’s annual meeting of stockholders, with a vesting schedule of 100% of the options vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s continued service through such date. +Pursuant to amendments approved by the board of directors in December 2024, upon cessation of a non-employee director’s continued service, each outstanding stock option held by such director is subject to (i) pro rata acceleration of vesting of options granted as annual equity awards in connection with the 2024 annual meeting of stockholders for directors departing after the 2024 annual meeting of stockholders, but at or before our 2025 annual meeting of stockholders, with the pro rata acceleration +161 +Table of Contents +determined based on the number of full or partial months served as a non-employee director on and after the 2024 annual meeting of stockholders date. +In addition, the post-termination exercise period for vested options held by departing directors is extended to three years following the director’s cessation of service (or, if earlier, upon the expiration of the option). +Expense Reimbursement +Each member of our board of directors is also entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending board meetings and meetings for any committee on which he or she serves. These amounts are not included in the table above. +Risk Management +As part of its normal practice, the compensation committee evaluates the risk-taking incentives created by our compensation programs, policies and practices and has concluded that such programs, policies and practices are not reasonably likely to have a material adverse effect on the Company. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Equity Compensation Plan Information +The following table sets forth summary information relating to our Equity Compensation Plan, employee share purchase plan, as amended (the “ESPP”), the Original Plan and the Inducement Plan as of December 31, 2024 : +Plan Category +Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) +Weighted average exercise price of outstanding options, warrants, and rights (2) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) +(a) +(b) +(c) +Equity compensation plans approved by security holders +Equity Compensation Plan 8,340,034 +$15.28 (3) +5,196,630 (4) +ESPP — — 2,320,096 +Original Plan 307,855 +C$17.86 (5) +— +Equity compensation plans not approved by security holders +Inducement Plan 1,060,000 $12.36 390,000 +________________________ +(1) Includes restricted stock units. +(2) Does not include restricted stock units, which do not have an exercise price. +(3) Stock options granted under the Equity Compensation Plan are granted with exercise prices in U.S. dollars. Previously, stock options granted under the Equity Compensation Plan were granted with exercise prices in both Canadian and U.S. dollars. As of December 31, 2024, there were 7,046,064 outstanding stock options under the Equity Compensation Plan, consisting of 774,980 stock options with a weighted average exercise price of C$17.69 ($12.91 based on the U.S. dollar per Canadian dollar exchange rate of 0.7301, which was the average annual Bank of Canada exchange rate for 2024) and 6,271,084 stock options with a weighted average exercise price of $11.46. +(4) The original maximum number of common shares reserved for issuance under the Equity Compensation Plan as of June 7, 2018, was 5,686,097. Beginning in 2019 and ending in 2028, this maximum number is automatically increased on the first day of each calendar year by 4.0% of the number of outstanding shares on the last day of the immediately preceding calendar year (or such lesser number of shares as our board of directors may determine prior to the start of the applicable calendar year). +(5) Stock options granted under the Original Plan were granted with exercise prices in Canadian dollars. As of December 31, 2024, there were 307,855 outstanding stock options under the Original Plan, with a weighted average exercise price of C$17.86 ($13.04 based on the U.S. dollar per Canadian dollar exchange rate of 0.7301, which was the average annual Bank of Canada exchange rate for 2024). +162 +Table of Contents +Inducement Plan +Our Inducement Plan was adopted by our board of directors in January 2022, and was amended and restated in October 2022 and July 2024. The Inducement Plan was adopted without stockholder approval pursuant to the NYSE listing rules related to inducement plans, which were the rules applicable at the time of the initial adoption of the Inducement Plan, and which are substantially similar to the Nasdaq rules related to inducement plans that currently apply to the Inducement Plan. The Inducement Plan allows for the grant of options, restricted stock, restricted stock units and other share-based awards. The terms of the Inducement Plan are substantially similar to those of the Equity Compensation Plan, including with respect to treatment of awards in connection with a change of control, as described above. However, in accordance with the exemption requirements under Nasdaq rules, awards under the Inducement Plan may only be made to employees of our Company or our subsidiaries to whom the grant of the award is a material inducement to the individual’s entering into employment with us in accordance with such rules. +Share Ownership +The table below indicates information as of February 28, 2025, regarding the beneficial ownership of our common stock for: +• each person who is known by us to beneficially own more than 5% of our common stock; +• each named executive officer; +• each of our directors; and +• all executive officers and directors as a group. +In accordance with SEC rules, for the purposes of calculating percent ownership, as of February 28, 2025, (i) 69,576,883 shares of common stock were issued and outstanding, and, (ii) for any individual who beneficially owned shares represented by Exchangeable Shares, warrants, options, or restricted stock units that were exercisable or scheduled to vest within sixty days of February 28, 2025, those shares were treated as if outstanding for that person, but not for any other person. Unless otherwise indicated in the footnotes to the table, and subject to community property laws where applicable, the following persons have sole voting and investment control with respect to the shares beneficially owned by them. To our knowledge, except as noted in the table below, no person or entity was the beneficial owner of more than 5% of the voting power of our common stock as of February 28, 2025. +Except as otherwise indicated, the address of each of the persons in this table is 108 Patriot Drive, Suite A, Middletown, Delaware 19709 . +163 +Table of Contents +Name and Address of Beneficial Owner Common Stock Beneficially Owned Percentage of Shares Beneficially Owned +Total Voting Percentage † +5% and Greater Stockholders: +EcoR1 Capital, LLC +15,720,161 (1) +22.59% (2) +22.41% (2) +Morgan Stanley +4,842,464 (3) +6.96% 6.90% +Redmile Group, LLC +4,840,463 (4) +6.96% 6.90% +BVF Partners L.P. +4,607,935 (5) +6.62% 6.57% +BlackRock, Inc. +3,923,328 (6) +5.64% 5.59% +Rubric Capital Management LP +3,917,331 (7) +5.63% 5.58% +Directors and Named Executive Officers: +Carlos Campoy +66,166 (8) +* +* +Alessandra Cesano +28,777 (9) +* +* +Troy M. Cox +117,500 (10) +* +* +Nancy Davidson +32,888 (11) +* +* +Kenneth Galbraith +701,740 (12) +1.00% +* +Neil Gallagher +24,666 (13) +* +* +Susan Mahony +110,000 (14) +* +* +Derek J. Miller +70,333 (15) +* +* +Paul Moore +232,552 (16) +* +* +Kelvin Neu +71,000 (17) +* +* +Oleg Nodelman +15,720,161 (18) +22.59% (18) +22.41% (18) +Scott Platshon +— +— +— +Leone Patterson +— — — +All Directors, Executive Officers: +— +All current executive officers and directors as a group (14 persons) (19) +17,318,548 24.37% 22.58% +________________________ +* Less than one percent +† Percentage of total voting power represents voting power with respect to all outstanding shares of our common stock and the voting rights of the Exchangeable Shares exercised via the share of our special voting preferred stock, as a single class. Each holder of our common stock is entitled to one vote per outstanding share, and each holder of an Exchangeable Share is entitled to voting rights equivalent to one vote per Exchangeable Share on all matters submitted to our stockholders for a vote. The common stock and the special voting preferred stock (exercising the voting rights of the Exchangeable Shares) vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by our certificate of incorporation or bylaws. +(1) Consists of (i) 14,733,109 shares of common stock held by EcoR1 Capital Fund Qualified, L.P. (“Qualified Fund”) and (ii) 987,052 shares of common stock held by EcoR1 Capital Fund, L.P. (“Capital Fund”). In addition, Qualified Fund holds 4,818,462 shares of common stock issuable upon the exercise of pre-funded warrants and Capital Fund holds 268,059 shares of common stock issuable upon the exercise of pre-funded warrants. Qualified Fund, Capital Fund and other private investment funds managed by EcoR1 Capital, LLC (collectively, “EcoR1”) are prohibited from exercising such pre-funded warrants, if as a result of such exercise, EcoR1 would beneficially own more than 19.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise. EcoR1 is managed by EcoR1 Capital, LLC (“EcoR1 LLC”). Oleg Nodelman, the manager of EcoR1 LLC, has shared voting control and investment discretion over the securities reported herein that are held by EcoR1. As a result, Mr. Nodelman may be deemed to have beneficial ownership of the securities that are held by EcoR1. The address of these entities and this individual is 357 Tehama Street #3, San Francisco, California 94103. Mr. Nodelman and Scott Platshon, a Partner of EcoR1, are members of the board of directors of the Company. +(2) In December 2023, the Company entered into a securities purchase agreement with funds affiliated with EcoR1 for the sale of an aggregate of 5,086,521 pre-funded warrants to purchase 5,086,521 shares of common stock, $0.00001 par value per share, in a private placement. Each pre-funded warrant will be exercisable at an exercise price equal to $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrant and will be exercisable at any time on or after the closing date, subject to a post-exercise beneficial ownership limitation of 19.99%. For purposes of calculating the Percentage of Shares Beneficially Owned and the Total Voting Percentage, the calculations do not include the 5,086,521 pre-funded warrants to purchase 5,086,521 shares of our common stock. +(3) Based on a Schedule 13G/A filed February 9, 2024, consists of 4,842,464 shares of common stock held by Morgan Stanley as of December 31, 2023. The address for this entity is 1585 Broadway, New York, NY, 10036. +(4) Based on a Schedule 13G/A filed February 14, 2025, consists of 4,840,463 shares of common stock held as of December 31, 2024 by certain private investment vehicles managed by Redmile Group, LLC, including 3,470,727 shares of common stock held by Redmile Biopharma Investments III, L.P. (collectively, “Redmile”), and may be deemed beneficially owned by Redmile as investment manager of such private investment vehicles and by Jeremy C. Green as the principal of Redmile. The address for this entity is One Letterman Drive +164 +Table of Contents +Building D, Suite D3-300, San Francisco, CA 94129, and the address for this individual is c/o Redmile Group LLC, 45 W. 27th Street, Floor 11, New York, NY 10001. +(5) Based on a Schedule 13G/A filed November 14, 2024, consists of 2,392,283 shares of common stock held by Biotechnology Value Fund, L.P. (“BVF”), 1,919,991 shares of common stock held by Biotechnology Value Fund II, L.P. (“BVF2”), 212,898 shares of common stock held by Biotechnology Value Trading Fund OS LP (“Trading Fund OS”), and 82,763 shares of common stock held in a certain BVF Partners L.P. managed account, each as of September 30, 2024. BVF I GP LLC (“BVF GP”), as the general partner of BVF, may be deemed to beneficially own the 2,392,283 shares of common stock beneficially owned by BVF as of September 30, 2024. BVF II GP LLC (“BVF2 GP”), as the general partner of BVF2, may be deemed to beneficially own the 1,919,991 shares of common stock beneficially owned by BVF2 as of September 30, 2024. BVF Partners OS Ltd (“Partners OS”), as the general partner of Trading Fund OS, may be deemed to beneficially own the 212,898 shares of common stock beneficially owned by Trading Fund OS as of September 30, 2024. BVF GP Holdings LLC (“BVF GPH”), as the sole member of each of BVF GP and BVF2 GP, may be deemed to beneficially own the 4,312,274 shares of common stock beneficially owned in the aggregate by BVF and BVF2 as of September 30, 2024. BVF Partners L.P. (“Partners”), as the investment manager of BVF, BVF2 and Trading Fund OS, and the sole member of Partners OS, may be deemed to beneficially own the 4,607,935 shares of common stock beneficially owned in the aggregate by BVF, BVF2 and Trading Fund OS and, including 82,763 Shares held in certain BVF Partners L.P. managed account, as of September 30, 2024. BVF Inc., as the general partner of Partners, may be deemed to beneficially own the 4,607,935 Shares beneficially owned by Partners as of September 30, 2024. Mark N. Lampert, as a director and officer of BVF Inc., may be deemed to beneficially own the 4,607,935 Shares beneficially owned by BVF Inc. as of September 30, 2024. The address for BVF, BVF GP, BVF2, BVF2 GP, BVF PHH, Partners, BVF Inc. and Mark Lampert is is 44 Montgomery Street, 40th Floor, San Francisco, CA 94104. The address for Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY-1104, Cayman Islands. +(6) Based on a Schedule 13G filed January 29, 2024, consists of 3,923,328 shares of common stock held by BlackRock, Inc., as of December 31, 2023. The address for this entity is 50 Hudson Yards, New York, NY 10001. +(7) Based on a Schedule 13G filed November 13, 2024, consists of 3,917,331 shares of common stock held, as of September 30, 2024, by certain investment funds and/or accounts for which Rubric Capital Management LP ( “ Rubric Capital ” ) serves as investment adviser. David Rosen is the Managing Member of Rubric Capital Management GP, LLC, the general partner of Rubric Capital. The address of each of Rubric Capital and Mr. Rosen is 155 East 44th Street, Suite 1630, New York, NY 10017. +(8) Consists of 66,166 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(9) Consists of 28,777 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(10) Consists of 7,500 shares of common stock and 110,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(11) Consists of 32,888 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(12) Consists of 80,803 shares of common stock and 620,937 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(13) Consists of 24,666 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(14) Consists of 110,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(15) Consists of 70,333 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(16) Consists of 23,333 shares of common stock and 209,219 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. +(17) Consists of 71,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 28, 2025. Dr. Neu was an employee of Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr. Neu’s employment by Baker Brothers Advisors LP, options granted to him in 2020 were, and will continue to be, beneficially owned by Baker Bros. Advisors LP. +(18) Consists of the shares of common stock and pre-funded warrants described in footnotes 1 and 2 above. Mr. Nodelman joined our Board in February 2025, and disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. +(19) Dr. Smith is not a named executive officer, but he is a current executive officer. Therefore, Dr. Smith’s ownership is reflected in the total shares beneficially owned by the current executive officers and directors as a group. +Item 13. Certain Relationships and Related Transactions and Director Independence +Certain Relationships and Related Transactions +Other than as discussed below and the compensation arrangements discussed under “ Executive Compensation – Discussion of Executive Compensation Practices ,” since January 1, 2023, there have not been any transactions to which we are a party, nor are there any proposed transactions to which we would be a party, with related parties and which we are required to disclose pursuant to the rules of the SEC. +On March 16, 2020, we entered into a registration rights agreement with Baker Brothers Life Sciences, L.P. and 667, L.P., requiring us, upon request delivered by such persons and subject to certain terms and conditions, to register the resale of the shares of our common stock held by them. Dr. Neu, who joined our board of directors in March 2020, served as an employee of Baker Bros. Advisors L.P., which serves as an investment adviser to Baker Brothers Life Sciences, L.P. and 667, L.P., until January 2021. +On June 16, 2023, EcoR1 purchased an aggregate of 3,350,000 shares of common stock at $8.12 per share under our at-the-market sales agreement, dated as of November 9, 2022, with Cantor Fitzgerald & Co. We received gross proceeds of $27.2 +165 +Table of Contents +million and net cash proceeds of $26.2 million, after underwriting commissions and offering expenses. EcoR1 beneficially owned more than 5% of our shares of common stock prior to this purchase. +On December 28, 2023, EcoR1 purchased an aggregate of 5,086,521 pre-funded warrants to purchase 5,086,521 shares of our common stock in a private placement. The per share purchase price for the pre-funded warrants was $9.8299, for an aggregate purchase price of approximately $50 million. In connection with the private placement, we entered into a registration rights agreement with EcoR1 requiring us to register the resale of the shares of our common stock issuable upon exercise of the pre-funded warrants. In addition, we agreed that EcoR1 would have the right to nominate one of its partners as a member of our board of directors, subject to specified conditions. On February 22, 2024, our board of directors appointed Mr. Scott Platshon as a member of our board of directors. EcoR1 beneficially owned more than 5% of our shares of common stock prior to this purchase. Under the registration rights agreement, we agreed to file a registration statement covering the resale by EcoR1 of their registrable securities upon the earlier of March 15, 2024 and the first business day following the date that we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. We agreed to use commercially reasonable efforts to cause such registration statement or final prospectus, as applicable, to be declared effective as soon as practicable, but no later than the later of April 29, 2024 and the 123rd calendar day following the closing date, and to keep such registration statement effective for a period that will terminate upon the earliest of (i) the date that all registrable securities covered by such registration statement or final prospectus, as applicable, have been sold, (ii) the date that all registrable securities covered by such registration statement or final prospectus, as applicable, may be sold without the requirement for us to be in compliance with the current public information required under Rule 144 as to such registrable securities and without volume or manner-of-sale restrictions and (iii) two (2) years after the date of the securities purchase agreement. The registration statement filed pursuant to the registration rights agreement became automatically effective upon filing on March 7, 2024. +Indebtedness of Directors, Executive Officers and Employees +None of our directors, executive officers, employees, former directors, former executive officers or former employees, and none of their associates, is indebted to us or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided by us. +Policy Regarding Related Party Transactions +We have adopted a formal, written policy regarding related person transactions. This written policy regarding related person transactions provides that a related person transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships), in which we are a participant and in which a related person has, had or will have a direct or indirect material interest and in which the aggregate amount involved exceeds $120,000. For purposes of this policy, a related person means any of our executive officers and directors (including director nominees), in each case at any time since the beginning of our last fiscal year, or holders of more than 5% of any class of our voting securities and any member of the immediate family of, or person sharing the household with, any of the foregoing persons. +Our audit committee has the primary responsibility for reviewing and approving, ratifying or disapproving related person transactions. In determining whether to approve, ratify or disapprove any such transaction, our audit committee will consider, among other factors, (1) whether the transaction is fair to us and on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (2) the extent of the related person’s interest in the transaction, (3) whether there are business reasons for us to enter into such transaction, (4) whether the transaction would impair the independence of any of our outside directors and (5) whether the transaction would present an improper conflict of interest for any of our directors or executive officers. +The policy grants standing pre-approval of certain transactions, including (1) certain compensation arrangements for our directors or executive officers, (2) transactions with another company, other than an acquisition by us of that company, at which a related person’s only relationship is as a non-executive employee, director or beneficial owner of less than 10% of that company’s shares, provided that the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of such company’s total annual revenues and the transaction is on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (3) charitable contributions by us to a charitable organization, foundation or university at which a related person’s only relationship is as a non-executive employee or director, provided that the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of such organization’s total annual receipts, (4) transactions where a related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis and (5) any indemnification or advancement of expenses made pursuant to our organizational documents or any agreement. In addition to our policy, our audit committee charter provides that our audit committee shall review and approve or disapprove any related person transactions. +166 +Table of Contents +Interests of Management and Others in Material Transactions +Other than as described elsewhere in this Annual Report on Form 10-K, there are no material interests, direct or indirect, of any of our directors or executive officers, any stockholder that beneficially owns, or controls or directs (directly or indirectly), more than 5% of any class or series of our outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in any transaction since January 1, 2023 that has materially affected or is reasonably expected to materially affect us or our subsidiaries. +Director Independence +Under the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s board of directors. In addition, the listing standards of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. +Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act, and the Nasdaq listing rules. Compensation committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act. +The board of directors has determined that all directors, except Mr. Galbraith, meet the independence requirements under the Nasdaq listing standards, and qualify as “independent directors” under the Nasdaq listing standards. Mr. Galbraith is not considered independent by virtue of being our Chief Executive Officer and President. The board of directors also determined that Mr. Campoy, Mr. Cox and Mr. Miller, who comprise our audit committee, and Dr. Davidson, Dr. Mahony, Dr. Gallagher and Mr. Platshon, who comprise our compensation committee, each satisfy the independence standards for those committees established by applicable SEC rules and the Nasdaq listing standards, and Mr. Campoy, Dr. Cesano, Mr. Miller and Mr. Nodelman, who comprise our nominating and corporate governance committee, are independent. In making these determinations, the board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them, including those described in the section titled “ – Certain Relationships and Related Transactions .” +As part of the board of directors’ determination that Mr. Miller satisfied the independence requirements under the Nasdaq listing standards and qualifies as an independent director, the board of directors considered the consulting agreement (the “Consulting Agreement”) we entered into in May 2022 with Derek J Miller Consulting LLC, a limited liability company owned by Mr. Miller. Pursuant to the Consulting Agreement, Mr. Miller provided certain consulting services to us, including but not limited to providing advice regarding development of corporate strategy, including corporate messaging, pipeline and technology platform strategies, business development, licensing, investor activities and related matters. In October 2023, we entered into a Termination of Consulting Agreement and Further Amended and Restated Statement of Work #1 with Derek J Miller Consulting LLC, which provided for, among other things, the termination of the Consulting Agreement effective as of November 30, 2023. In total, we paid Mr. Miller an aggregate of approximately $36,000 for such consulting services, of which (i) approximately $22,000 was paid for services rendered prior to Mr. Miller’s appointment to the board of directors and (ii) approximately $14,000 was paid for services rendered after Mr. Miller joined the board of directors. +There are no family relationships among any of our directors, director nominees or executive officers . +167 +Table of Contents +Item 14. Principal Accounting Fees and Services +Principal Independent Accountant Fees and Services +KPMG LLP (“KPMG”) has served as our independent registered public accounting firm since June 24, 2015. +Aggregate fees billed by our independent auditors, KPMG, for the years ended December 31, 2024 and December 31, 2023, are detailed in the table below: +2024 2023 +($) (5) +($) (5) +Audit Fees (1) +$ 751,846 $ 775,096 +Audit Related Fees (2) +— — +Tax Fees (3) +561,115 507,300 +All Other Fees (4) +— — +Total Fees Paid $ 1,312,961 $ 1,282,396 +________________________ +(1) Fees for audit service on an accrued basis. +(2) Fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit of the financial statements. +(3) Fees for professional services rendered for tax compliance, tax advice and tax planning, which include fees of $272,731 for tax compliance in 2024 (2023: $126,486). +(4) All other fees billed by the auditor for products and services not included in the foregoing categories. +(5) Canadian dollar amounts have been converted to U.S. dollars for the purposes of the table. For 2024 and 2023, the U.S. dollar per Canadian dollar exchange rates used for such conversions were 0.7301 and 0.7410, which were the average annual Bank of Canada exchange rates for 2024 and 2023, respectively. +Pre-approval Policies and Procedures +Our audit committee has established a policy of reviewing, in advance, and either approving or not approving, all audit, audit-related, tax and other non-audit services that our independent registered public accounting firm provides to us. This policy requires that all services received from independent registered public accounting firms be approved in advance by the audit committee or a delegate of the audit committee. The audit committee has delegated pre-approval responsibility to the chair of the audit committee with respect to audit and permissible non-audit services and any associated fees. All services that KPMG provided to us in 2024 and 2023 have been pre-approved by our audit committee. +Our audit committee has determined that the provision of the services as set out above is compatible with the maintaining of KPMG’s independence in the conduct of their auditing functions. +168 +Table of Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a)(1) Financial Statements—The financial statements included in Item 8 are filed as part of this Annual Report on Form 10-K. +(a)(2) Financial Statement Schedules—All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this Annual Report on Form 10-K. +(a)(3) Exhibits—The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below. +(b) Exhibits—The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. +EXHIBITS INDEX +Exhibit No. Description +2.1 +Restated and Amended Transaction Agreement, dated August 18, 2022, by and among Zymeworks BC Inc., the Company, Zymeworks Callco ULC and Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +2.2 +Plan of Arrangement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +2.3 +Exchangeable Share Support Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks CallCo ULC, and Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +2.4 +Voting and Exchange Trust Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks Callco ULC, Zymeworks ExchangeCo Ltd. and the Share Trustee (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +3.1 +Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +3.2 +Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 15, 2023). +3.3 +Certificate of Elimination of Series B Participating Preferred Stock of Zymeworks Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2023). +3.4 +Certificate of Designations of Special Voting Stock of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +4.1 +Description of Capital Stock. +4.2 +Specimen common stock certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +4.3 +Registration Rights Agreement, dated December 23, 2023, by and among the Company and the Purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2023). +4.4 +Form of Pre-Funded Warrant (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2023). +10.1† +Collaboration Agreement, effective as of December 23, 2014, by and among Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 10.22 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.2† +First Amendment to Collaboration Agreement, effective as of May 29, 2017, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K furnished to the SEC on July 18, 2017 and deemed filed under the Exchange Act). +169 +Table of Contents +Exhibit No. Description +10.3* +Second Amendment to Collaboration Agreement, effective as of March 31, 2020, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +10.4* +Third Amendment to Collaboration Agreement, dated June 22, 2020, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 5, 2020). +10.5* +Letter Agreement, effective April 20, 2021, by and between Zymeworks BC Inc. and Celgene Corporation and Celgene Alpine Investment Co. LLC. (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.6* +Fourth Amendment to Collaboration Agreement, dated August 4, 2021, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2021). +10.7† +Collaboration and License Agreement, effective as of December 1, 2015, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.23 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.8† +Side Letter Agreement effective as of January 11, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.9* +First Amendment to Collaboration and License Agreement, effective as of April 30, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.10* +Side Letter Agreement effective as of September 30, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited. (incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.11* +Side Letter Agreement effective as of February 20, 2020, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited. (incorporated by reference to Exhibit 99.6 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.12* +Fifth Amendment to Collaboration and License Agreement, effective as of March 30, 2020, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.11 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on February 24, 2021). +10.13† +Platform Technology Transfer and License Agreement, effective as of April 21, 2016, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.24 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.14* +First Amendment to Platform Technology Transfer and License Agreement between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited, dated May 14, 2019 (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on May 17, 2019). +10.15* +Letter Agreement, effective June 4, 2021, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.7 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.16† +Collaboration and License Agreement, effective as of November 13, 2017, by and between Zymeworks BC Inc. and Janssen Biotech, Inc., (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K furnished to the SEC on November 24, 2017 and deemed filed under the Exchange Act). +10.17† +First Amendment to the Collaboration and License Agreement, effective as of January 14, 2019, by and between Zymeworks BC Inc. and Janssen Biotech, Inc. (incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.18† +License Agreement, effective as of May 14, 2018, by and between Zymeworks BC Inc. and Daiichi Sankyo Company, Limited (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on May 18, 2018). +170 +Table of Contents +Exhibit No. Description +10.19* +Termination and License Agreement by and between Zymeworks BC Inc. and Daiichi Sankyo Co., Ltd., effective as of February 28, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2023). +10.20† +License and Collaboration Agreement, effective as of November 26, 2018, by and between Zymeworks BC Inc. and BeiGene Ltd. (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2018). +10.21* +First Amendment to Collaboration Agreement, effective March 29, 2021, by and between Zymeworks BC Inc. and BeiGene, Ltd. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021). +10.22* +Second Amendment to License and Collaboration Agreement, dated August 10, 2021, by and between Zymeworks BC Inc. and BeiGene Ltd. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2021). +10.23* +Third Amendment License and Collaboration Agreement by and between Zymeworks BC Inc. and BeiGene, Ltd., dated September 18, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 21, 2023). +10.24* +Letter Agreement, effective October 7, 2020, by and between Zymeworks BC Inc. and BeiGene, Ltd. (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.25 +Indenture of Lease dated as of January 25, 2019, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 10.29 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.26 +Notice and Acknowledgement of Exercise of Expansion Option under Lease, dated as of June 27, 2019, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +10.27 +Lease Expansion and Modification Agreement, dated as of April 16, 2020, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +10.28 +Third Lease Modification Agreement, dated February 17, 2021, by and between Zymeworks BC Inc. and 5th & Main Partnership (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021). +10.29 +Fourth Lease Modification Agreement, dated May 7, 2021, by and between Zymeworks BC Inc. and 5th and Main Partnership (incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.30 +Lease Amending Agreement, dated April 1, 2022, by and between Zymeworks BC Inc. and 130 E 4th Partnership (incorporated by reference to Exhibit 10.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2022). +10.31 +Notice of Assignment of Lease, dated January 1, 2022 from 5th & Main Partnership, 2000 Main Holdings Inc. and Mount Pixel Projects Limited Partnership to Zymeworks BC Inc. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2022). +10.32 +Direction to Tenants, dated July 9, 2024, from 130 E 4th(2) Partnership, 130 E 4th Property Inc., and 114 East 4th Avenue, LLC to Tenants of 114 East 4th Avenue, Vancouver, BC (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 31, 2024). +10.33# +Employment Agreement by and between Zymeworks BC Inc. and Kenneth Galbraith, dated January 5, 2022 (incorporated by reference to Exhibit 10.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on January 5, 2022). +10.34# +Amendment to Employment Agreement, dated as of December 30, 2022, by and among Kenneth Galbraith, Zymeworks BC Inc. and Zymeworks Management Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2022). +10.35# +Amendment #2 to Employment Agreement, dated as of January 3, 2024, by and among Kenneth Galbraith and Zymeworks BC Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 5, 2024). +171 +Table of Contents +Exhibit No. Description +10.36# +Employment Agreement by and between Zymeworks Pharmaceuticals Limited and Jeffrey Smith, dated January 3, 2023 (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +10.37# +Letter, dated January 5, 2024, from Zymeworks Inc. to Jeffrey Smith (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +10.38 # +Employment Agreement between Zymeworks Biopharmaceuticals Inc. and Leone Patterson, dated July 19, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 25, 2024). +10.39# +Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023). +10.40# +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.73 to the Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.41# +Amended and Restated Employment Agreement by and between Zymeworks BC Inc., the Company and Paul Moore, dated July 14, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.42 +Notice of Articles of ExchangeCo (incorporated by reference to Exhibit 10.79 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.43 +Articles of ExchangeCo (incorporated by reference to Exhibit 10.80 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.44# +Amended and Restated Inducement Stock Option and Equity Compensation Plan (and forms of award agreements thereunder) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 25, 2024). +10.45# +Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder) and UK Sub-Plan to the Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2024) . +10.46# +Second Amended and Restated Employee Stock Option Plan of the Company (and forms of agreements thereunder) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +10.47# +Amended and Restated Employee Stock Purchase Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +10.48 +Sales Agreement, dated August 2, 2024, by and between the Company and TD Securities (USA) LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 2, 2024). +10.49* +Amended and Restated License and Collaboration Agreement, dated May 15, 2023, by and between Zymeworks BC Inc. and Jazz Pharmaceuticals Ireland Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2023). +10.50*, + +Stock and Asset Purchase Agreement, dated April 25, 2023, by and between Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc . (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.51*, + +Amendment No. 1 to Stock and Asset Purchase Agreement, dated May 15, 2023, by and between Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.52 +Securities Purchase Agreement, dated December 23, 2023, by and among the Company and the Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2023). +19.1 +I nsider Trading Policy . +172 +Table of Contents +Exhibit No. Description +21.1 +Subsidiaries of the Company (incor p orated by ref erence to Exhibit 21.1 to the Company ’ s Annual Report on Form 10-K filed with the SEC on March 6, 2024) . +23.1 +Consent of KPMG LLP, an Independent Registered Public Accounting Firm. +31.1 +Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. +31.2 +Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. +32.1 +Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2 +Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +101 +The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as at December 31, 2024 and 2023, (ii) Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the years ended December 31, 2024, 2023 and 2022, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 and (vi) Notes to Consolidated Financial Statements. +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +___________ +† The Company has omitted portions of the referenced exhibit pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Exchange Act. +* Certain portions of this exhibit (indicated by “[…***…]”) have been omitted in accordance with Item 601(b)(10) of Regulation S-K because the omitted information is not material and the Company customarily and actually treats such omitted information as private or confidential. +# Indicates management contract or compensatory plan. ++ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but a copy will be furnished supplementally to the SEC upon request. +Item 16. Form 10-K Summary +Not applicable. +173 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Dated: March 5, 2025 +ZYMEWORKS INC. +By: /s/ Kenneth Galbraith +Name: Kenneth Galbraith +Title: +Chair of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth Galbraith, and Leone Patterson, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with Exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof. +174 +Table of Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Kenneth Galbraith Chair of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) March 5, 2025 +Kenneth Galbraith +/s/ Leone Patterson +Executive Vice President, Chief Business and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) +March 5, 2025 +Leone Patterson +/s/ Troy M. Cox +Director +March 5, 2025 +Troy M. Cox +/s/ Alessandra Cesano +Director +March 5, 2025 +Alessandra Cesano +/s/ Susan Mahony +Director +March 5, 2025 +Susan Mahony +/s/ Kelvin Neu +Director +March 5, 2025 +Kelvin Neu +/s/ Carlos Campoy +Director +March 5, 2025 +Carlos Campoy +/s/ Derek Miller +Director +March 5, 2025 +Derek Miller +/s/ Nancy Davidson +Director +March 5, 2025 +Nancy Davidson +/s/ Scott Platshon +Director +March 5, 2025 +Scott Platshon +/s/ Neil Gallagher +Director +March 5, 2025 +Neil Gallagher +/s/ Oleg Nodelman +Director +March 5, 2025 +Oleg Nodelman +175 \ No newline at end of file diff --git a/raw/filings/0001937653/2024/0001937653-25-000014/filing_metadata.csv b/raw/filings/0001937653/2024/0001937653-25-000014/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..581dace07b0234d33466c00d90f4f561b9b6b2b9 --- /dev/null +++ b/raw/filings/0001937653/2024/0001937653-25-000014/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001937653,ZYME,Zymeworks Inc.,2024,10-K,2025-03-05,2024-12-31,2025-03-05T21:12:30.000Z,0001937653-25-000014,zyme-20241231.htm,10-K,14362290,1,1,https://www.sec.gov/Archives/edgar/data/1937653/000193765325000014/zyme-20241231.htm,https://www.sec.gov/Archives/edgar/data/1937653/000193765325000014/ diff --git a/raw/filings/0001937653/2024/0001937653-25-000014/item1.txt b/raw/filings/0001937653/2024/0001937653-25-000014/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..d56330f0095a72732959bebfd39d1fca4301dcaf --- /dev/null +++ b/raw/filings/0001937653/2024/0001937653-25-000014/item1.txt @@ -0,0 +1,283 @@ +Item 1. Business +Overview +Zymeworks is a clinical-stage biotechnology company developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases such as cancer, autoimmune and inflammatory diseases (“AIID”). Zymeworks’ complementary therapeutic platforms and fully integrated drug development engine provide the flexibility and compatibility to precisely engineer and develop highly differentiated antibody-based therapeutic candidates from preclinical candidate screening through to registrational clinical trials. +We believe our strategic development priorities position us as thought leaders in our therapeutic areas of interest, driven by a patient-centric approach, scientific innovation, and operational excellence. Our research and development strategy centers on three key pillars: +• Target Selection: Our data-driven target strategy is informed by target expression, target biology (including internalization rate), tumor biology, clinical precedence and differentiation to prior therapeutic programs. For example, mesothelin (“MSLN”), folate receptor-⍺ (“FR⍺”) and sodium-dependent phosphate transporter 2b (“NaPi2b”) are each expressed at higher levels than other targets pursued in ovarian cancer or non-small cell lung cancer (“NSCLC”). +• Therapeutic Modality: By utilizing our proprietary platforms and in-house expertise, we have the ability to take a modality-agnostic approach to drug development for our selected targets. We are therefore able to tailor the therapeutic modality – whether antibody drug conjugates (“ADCs”), bispecific T cell engagers (“TCEs”), or trispecific T cell engagers (“TriTCEs”) – with the goal of maximizing efficacy for each target. +• Patient-Centric: We integrate patient needs and biological diversity into every stage of development, helping to ensure that our therapies have the potential to improve both survival outcomes and quality of life. As we advance our mission, we aim to deliver life-changing therapies while creating value for all stakeholders. +Our protein engineering expertise and proprietary structure-guided molecular modeling capabilities enable our therapeutic platforms. Together with our access to both internal and external antibody discovery and generation technologies, we have established a fully integrated drug development engine and toolkit capable of rapidly delivering a steady pipeline of next-generation product candidates in oncology and AIID. +Our first internally developed product candidate, zanidatamab, is a novel bispecific antibody that targets two distinct domains of the human epidermal growth factor receptor 2 (“HER2”). Through rigorous scientific investigation, innovative protein engineering, and our proprietary Azymetric bispecific platform technology, we developed the unique binding mechanism of zanidatamab which enables it to bind to two extracellular sites on HER2. Zanidatamab’s unique binding properties result in multiple mechanisms of action that may enable it to address unmet need in patient populations with HER2-expressing cancers. We have entered into separate agreements with BeiGene, Ltd. (“BeiGene”) and Jazz Pharmaceuticals Ireland Limited (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”), granting to each of BeiGene and Jazz exclusive rights to develop and commercialize zanidatamab in different territories. Zanidatamab is currently being evaluated in multiple global clinical trials as a potential best-in-class treatment for patients with HER2-expressing cancers. +The FDA granted accelerated approval of Ziihera® (zanidatamab-hrii) 50mg/mL for injection for intravenous use for the treatment of adults with previously-treated, unresectable or metastatic HER2-positive (“HER2+”) (IHC 3+) second-line biliary tract cancer (“BTC”). Ziihera® is the first and only dual HER2-targeted bispecific antibody approved for HER2+ BTC in the U.S. A Biologics License Application (“BLA”) submitted by our partner, BeiGene, has also been accepted for review by the Center for Drug Evaluation (the “CDE”) of the National Medical Products Administration (the “NMPA”) in China, and the European Medicines Agency (the “EMA”) has validated our partner Jazz’s marketing authorization application for zanidatamab in second-line BTC. With initial uptake in BTC in the United States, we look forward to reporting on the outcomes of pending regulatory actions in the European Union and China as early as 2Q-2025 with our partners Jazz Pharmaceuticals and BeiGene, as well as the top-line results from the HERIZON-GEA-01 study of Ziihera® expected in 2H-2025. Zanidatamab is also under development for multiple HER2-expressing indications. For additional information regarding these agreements with BeiGene and Jazz, see the section titled “Strategic Partnerships and Collaborations” below.  +7 +Table of Contents +Wholly-Owned Pipeline +Our wholly-owned programs include novel ADC and multispecific antibody therapeutics (“MSAT”) candidates, such as TCEs, focusing on highly-expressed targets which provide opportunities for benchmarking in preclinical development and expected clinical differentiation. Our ADC candidates exploit our proprietary topoisomerase 1 inhibitor (“TOPO1i”) payload, ZD06519, while exploring alternate mechanisms of action for longer-term development and leveraging validated peptide-cleavable linkers and stochastic conjugations. With potential for enhanced activity compared to combination therapy, our current MSAT candidates are developed with 2+1 bispecific or trispecific (with co-stimulation or checkpoint inhibition) TCE engineering. These approaches are designed to optimize tumor cell engagement and enhance T cell activation to increase anti-tumor activity while also minimizing cytokine release and off-tumor toxicities. +Solid Tumors in Oncology: Antibody Drug Conjugates (ADCs) +ZW191: A clinical-stage ADC that targets FRα-expressing tumors including ovarian cancer, endometrial cancer, and NSCLC, is built using our novel, bystander active, TOPO1i payload technology, ZD06519. The FRα-targeting monoclonal antibody incorporated in ZW191 was selected based on compelling internalization characteristics to enable targeting of high, mid, and low levels of FRα expression. A drug-antibody-ratio (“DAR”) of eight was selected due to the restricted expression profile of FRα in normal tissues and to enhance our ability to deliver payload to tumors with lower levels of FRα. FRα is a clinically validated target, found in approximately 75% of high-grade serous ovarian carcinomas, 50% of endometrial cancers, and in 70% of NSCLC. Preclinical data demonstrate strong ZW191 activity across a range of FRα-expressing patient-derived xenografts, including models with low levels of FRα. The ability to target lower levels of FRα is in part due to the DAR-eight format and the observed superior internalization, payload delivery, and tissue penetration derived from the ZW191 monoclonal antibody compared to other FRα monoclonal antibodies used in ADCs currently or previously in development. In a good laboratory practices (“GLP”) toxicology study, ZW191 achieved a highest non-severely toxic dose (“HNSTD”) in non-human primates of 60 mg/kg, which presents a compelling profile and enables the expectation of potentially achieving an efficacious dose level in the Phase 1 clinical trial. We are optimistic about the prospects of ZW191 and we believe the design features and preclinical profile support the potential of ZW191 to target cancers with lower levels of FRα. This would allow ZW191 to potentially unlock efficacy for both ovarian cancer patients who are unable to receive Elahere, as it is only approved in FRα-high platinum-resistant ovarian cancer (“PROC”), and other indications including endometrial and NSCLC which typically express lower levels of FRα. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW191, registered under NCT06555744 on clinicaltrials.gov. The study aims to enroll 145 participants with advanced solid tumors, including ovarian, endometrial, and non-small cell lung cancers, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW191. +ZW251: A potential first-in-class ADC molecule designed for the treatment of glypican 3 (“GPC3”)-expressing hepatocellular carcinoma (“HCC”), incorporates the same Zymeworks proprietary bystander-active TOPO1i payload utilized in ZW191 (anti-FRα) and ZW220 (anti-NaPi2b), ZD06519. The GPC3-targeting monospecific antibody incorporated in ZW251 was selected based on favorable binding and internalization properties to enable targeting of a range of GPC3-expressing tumors. A DAR of four was selected for this program as a lower DAR potentially could unlock a broader range of dose levels, a potential benefit as HCC patients are commonly challenged by impairment of liver function as a result of chronic liver disease and cirrhosis. GPC3, a glycosylphosphatidylinositol (“GPI”)-anchored cell surface oncofetal antigen, is over-expressed in most HCC patients (>75%), and displays minimal normal adult tissue expression, making it an appealing ADC target. In preclinical studies, anti-tumor activity for ZW251 was observed in multiple patient-derived xenograft models of HCC reflecting a range of GPC3 over-expression. In non-GLP non-human primate studies, ZW251 was tolerated at doses up to 120 mg/kg, suggesting the potential for high doses in humans. We are encouraged by published research demonstrating the potential of targeting GPC3 with an antibody in HCC patients as evidenced by tumor localization of iodine radio-labeled condrituzumab, a clinical-stage anti-GPC3 monoclonal antibody, and believe that ADC-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC. We expect to submit an IND to commence Phase 1 clinical studies for ZW251 by mid-2025, with equivalent non-U.S. applications to be submitted thereafter. +ZW220: An ADC that targets NaPi2b-expressing NSCLC and ovarian cancer, is built, like ZW191, using our proprietary bystander active TOPO1i payload technology, ZD06519. The strong and persistent bystander effect of the ZD06519 payload that we have observed in preclinical studies may help overcome NaPi2b heterogeneity across different cancers. The NaPi2b-targeting monospecific antibody incorporated in ZW220 was selected based on a favorable binding profile and enhanced internalization properties to enable targeting of both Napi2b-high and NaPi2b-low expressing tumors. Distinct from ZW191, ZW220 utilizes a DAR-four format paired with mutations in the fragment crystallizable (“Fc”) region to attenuate binding to Fc-gamma family receptors. These features were incorporated in ZW220 with the goal of minimizing potential toxicities associated with expression of NaPi2b in normal lung tissue. NaPi2b is expressed in approximately 83% of ovarian (serous) +8 +Table of Contents +cancer, 81% of endometrial cancer, and 77% of adenocarcinoma NSCLC. Preclinical data demonstrate that ZW220 is active in models of ovarian cancer and NSCLC with strong anti-tumor activity observed in patient-derived xenograft models and growth inhibition observed in three-dimensional spheroid models. ZW220 is tolerated at high doses in non-GLP animal studies with a maximum tolerated dose (“MTD”) ≥90 mg/kg in non-human primates and ≥200 mg/kg in rats, suggesting the potential for high doses in humans. NaPi2b is a compelling ADC target, and we believe the design of ZW220 may overcome some of the challenges encountered with other NaPi2b-targeted ADCs, including Lifa-V, UpRi, and XMT-1592, and may potentially provide a safe and meaningful benefit to patients with NaPi2b-expressing tumors. We have made the decision to pause the preparations for the commencement of a Phase 1 study of ZW220 to help facilitate the accelerated development of ZW251. However, we believe ZW220 remains a highly differentiated, IND-ready asset with strong clinical, commercial, and partnership potential. +Solid Tumors in Oncology: Multispecific Antibody Therapeutics (MSATs) +ZW171: A clinical-stage multispecific antibody built using our Azymetric platform, is a novel 2 + 1 format TCE targeting MSLN-expressing cancers. ZW171 has a unique geometry, with two single-chain fragment variable arms targeting MSLN and one Fab arm targeting the cluster of differentiation 3 protein (“CD3”) component of the T cell receptor, to redirect the body’s natural immune system to fight cancer cells. Preclinical data demonstrated in vivo anti-tumor activity, with engagement in high-expressing cells but not low-expressing cells, mitigating the risk of on-target, off-tumor toxicities. MSLN has strong expression in ovarian cancer (~84%), with moderate to strong expression in NSCLC (~36%), making it an appealing target for therapeutic development with our proprietary TCE technology. In preclinical studies, ZW171 has demonstrated potent preferential killing of tumor cells expressing relatively medium to high thresholds of MSLN while sparing cell line models representative of normal tissue MSLN expression, demonstrating reduced potential for on-target-off tumor toxicity. Incorporation of a low affinity anti-CD3 binding domain further mitigates the risk of peripheral T cell activation and cytokine release syndrome. Preclinical data demonstrated that ZW171 exhibits greater anti-tumor activity compared to benchmark in MSLN-expressing tumor models and is well tolerated in cynomolgus monkeys up to 30 mg/kg. We are actively recruiting patients in the global Phase 1, open-label, multicenter study of ZW171, registered under NCT06523803 on clinicaltrials.gov. The study aims to enroll 160 adult patients with advanced MSLN-expressing cancers in North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW171. +ZW209: A novel TriTCE targeting Delta-like ligand 3 (“DLL3”)-expressing tumor cells, is designed using our clinically validated Azymetric and EFECT platforms. By leveraging obligate cis-T cell binding and conditional cluster of differentiation 28 (“CD28”) engagement, this potentially first-in-class molecule has been designed to prevent unintended T cell activation, while enabling tumor-targeted cytotoxicity. The innovative design has demonstrated differentiated long-term cytotoxicity in vitro at low E:T (effector to target) ratios, with enhanced T cell proliferation and survival, offering significant potential to increase durability of responses in DLL3-expressing cancers. We expect to submit an IND to commence Phase 1 clinical studies for ZW209 in 1H-2026, with equivalent non-U.S. applications to be submitted thereafter. +Autoimmune and Inflammatory Diseases (AIID) +ZW1528: Our first program in AIID, is a novel IL-4R⍺ x IL-33 bispecific molecule designed to address respiratory inflammation such as mixed-type chronic obstructive pulmonary disease (“COPD”) by inhibiting multiple pathways. By blocking three cytokines (IL-4, IL-13 and IL-33) in a single biologic, ZW1528 offers a unique approach to inhibit clinically validated pathways. The bispecific antibody is designed to provide complete, prolonged IL-4R⍺ blockade with simultaneous blockade of IL-33. Based on non-clinical in vitro studies, the bispecific can independently suppress IL-13, IL-4 and IL-33 driven cell signaling equivalent to that achieved with anti-IL-4R⍺ monoclonal antibody (“mAb”) or anti-IL-33 clinical benchmarks mAbs. Furthermore, in preclinical studies, ZW1528-mediated blockade of cytokine-driven activation of human epithelial cells was superior to that achieved with mAbs targeting either IL-4R⍺ or IL-33, indicating potential benefits of dual blockade. Additionally, preclinical studies with human peripheral blood mononuclear cells (“PBMCs”) demonstrate ZW1528 provides blockade of IL-33 mediated effects beyond that achievable with an anti-IL33 benchmark mAb. With native Immunoglobulin G (“IgG”)-like geometry, ZW1528 demonstrates the potential for high manufacturability and incorporates half-life extending Fc modifications. We expect to submit an IND to commence Phase 1 clinical studies for ZW1528 in 2H-2026, with equivalent non-U.S. applications to be submitted thereafter. +Continued Pipeline Development +We continue to develop and advance additional product candidates in multiple different product formats for selected therapeutic indications in solid tumors, hematological cancers, and AIID, with further potential IND applications in 2027 and beyond. With +9 +Table of Contents +these candidates, we intend to continue innovating with increased novelty in targets and unique mechanisms of action through bispecific or biparatopic ADCs, dual-payload ADCs, multi-specific immune cell engagers and immune-oncology.  +Our Proprietary Therapeutic Platforms +Our expertise in protein engineering has enabled the development of our proprietary therapeutic platforms, a complementary suite of highly tailored biologics solutions. Our therapeutic platforms can be used alone or in combination to develop multifunctional fit-for-purpose biotherapeutics with bispecific capabilities (Azymetric), targeted cytotoxin payload delivery and linker technologies (drug conjugate platforms), finely tuned immune function modulation (EFECT), and tumor-specific immune co-stimulation (ProTECT). The modular design and ease of use of our therapeutic platforms allow for the design and evaluation of multiple candidates with different formats to determine the optimal therapeutic combination early in development. We continue to leverage these therapeutic platforms to expand our pipeline of next-generation multispecific and ADCs that we believe could represent significant improvements to the standard of care in multiple cancer types and other serious diseases. +Azymetric Multispecific Antibody Platform +The Azymetric multispecific antibody platform is our foundation platform, which can produce either the backbone of our ADCs or be the base of our multispecific therapeutics that can be combined with both our TriTCE technology and our ProTECT platform to develop potential best-in-class trispecifics. The FDA approval of zanidatamab in 2024 provides validation of our proprietary Azymetric technology and capabilities for design and development of novel medicines. The Azymetric platform consists of a library of proprietary amino acid substitutions that enable the transformation of monospecific antibodies into bispecific or trispecific antibodies, which gives them the ability to simultaneously bind two non-overlapping epitopes. The Azymetric platform enables the development of biotherapeutics with dual-targeting of receptors/ligands and simultaneous blockade of multiple signaling pathways, increasing tumor-specific targeting and efficacy while reducing toxicities and the potential for drug resistance. In preclinical studies, the dual targeting of Azymetric antibodies has demonstrated synergistic activity relative to the application of an equivalent dose of the corresponding monospecific antibodies. Azymetric multispecifics can also be engineered to enhance internalization of the antibody into the tumor cell and consequently increase the delivery of cytotoxins. Azymetric multispecifics retain the desirable drug-like qualities of monoclonal antibodies, including long half-life, stability and low immunogenic potential, which increases their probability of success. Azymetric multispecifics are also compatible with standard manufacturing processes with high production yields and purity. +The Azymetric platform is the foundation for the development of trispecific and trivalent antibodies. Our complementary suite of technologies can incorporate multiple targets and mechanisms of action within a single antibody-based therapeutic. To achieve efficacy and durability in a difficult tumor microenvironment, we have developed a TriTCE strategy that integrates checkpoint inhibition (“TriTCE-CPI”) and costimulatory technologies (“TriTCE-costim”). TriTCE-CPI technology is designed to navigate suppressive tumor microenvironments and enhance the activity of TCEs through incorporation of a checkpoint pathway binder to restore and enhance T cell engagement and overcome secondary resistance to provide durable responses. TriTCE-costim technology can increase T cell fitness, activation and proliferation via tumor-dependent T cell co-stimulation. Further, TCE technologies can integrate with ProTECT, a technology built to mask an antibody arm to improve selectivity to minimize off-target, and mitigate on-target, adverse events. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including both topoisomerase and microtubulin inhibiting toxins), stable linkers, and conjugation technologies that are compatible with and complementary to our product candidates and enable delivery of cytotoxins directly to target cells. We believe that our platforms provide multiple competitive advantages over existing ADC approaches, including optimized activity and tolerability profiles through increased drug delivery to target cells with reduced off-target effects, as well as improved pharmacokinetics and stability. Our drug conjugate platforms can be used in conjunction with our other therapeutic platforms to potentially increase safety and efficacy as compared to existing ADC platforms. +Our TOPO1i ADC platform is one of several proprietary Zymeworks linker-payload platforms. TOPO1i-based technologies have shown meaningful clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets. Our novel camptothecin ZD06519 (FD1) has been specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-7 and C-10 positions of the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug-linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a free molecule and as an antibody conjugate, which include moderate free payload potency (~1 nanomolar +10 +Table of Contents +(“nM”)), low hydrophobicity, strong bystander activity, robust plasma stability, and high-monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive efficacy in multiple cell-derived xenograft models and noteworthy tolerability in healthy mice, rats, and non-human primates. +EFECT Antibody Effector Function Modulation Platform +The EFECT platform consists of sets of modifications to the Fc region of antibodies that enable the selective modulation of recruited cytotoxic immune cells for diverse therapeutic applications. This allows us to rationally tailor the selective enhancement or suppression of immune effector function to optimize product candidates. +ProTECT Tumor-Specific Immune Co-stimulation Platform +The ProTECT platform is a novel conditionally active antibody technology that can simultaneously increase the tolerability and efficacy for therapeutics, thereby potentially enhancing therapeutic window and clinical utility. Functional, natural immunomodulatory heterodimers are introduced to sterically block antigen binding outside the tumor, enabling therapeutics with limited activity in normal healthy tissue, avoiding on-target, off-tumor toxicities. Once in the tumor microenvironment, specific proteases cleave and release one half of the functional block activating both the targeting antibody and the immunomodulatory function. The resulting activated multifunctional therapeutic enables immune modulation in concert with antigen binding, which enables an overall increase in the therapeutic window through selective tumor activity and enhanced potency. +Strategic Partnerships and Collaborations +Our novel product candidates, together with our combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutics. +Thr ough c ollaboration agreements with Jazz and BeiGene relating to our programs for zanidatamab and zanidatamab zovodotin, we have received $446.0 million through December 31, 2024 in the form of non-refundable upfront payments and milestone payments. In addition, through these partnerships with Jazz and BeiGene with respect to zanidatamab, as of December 31, 2024, we remain eligible to receive up to $1.55 billion in potential regulatory, development and commercial milestone payments, as well as tiered royalties on potential future product sales, pending receipt of applicable regulatory approvals. These partnerships have provided us with a significant source of non-dilutive funding and provide for additional future funding for our lead asset, zanidatamab. These partnerships also leverage our partners’ commercial infrastructure, helping accelerate the development and expanding the potential reach of our lead product candidates. +Product Partnerships +Jazz +In October 2022, we entered into a license and collaboration agreement with Jazz (“Original Jazz Collaboration Agreement”; as amended in April 2023, “Amended Jazz Collaboration Agreement” and collectively with the Original Jazz Collaboration Agreement, the “Jazz Collaboration Agreement”). Under the Jazz Collaboration Agreement, Jazz is solely responsible for all development and commercialization rights for zanidatamab throughout the world, excluding existing Asia-Pacific territories (other than Japan) already governed by Zymeworks BC’s agreement with BeiGene (“Territory”). +As part of our collaboration, we granted to Jazz certain exclusive and non-exclusive licenses, under our intellectual property, to research, develop, manufacture, and commercialize pharmaceutical products containing or incorporating zanidatamab or certain related antibodies excluding ADCs (such antibodies, collectively, “Licensed Antibodies”, and such pharmaceutical products, “Licensed Products”). +Jazz also granted us certain licenses, under Jazz’s intellectual property, to develop, commercialize, and manufacture the Licensed Antibodies and Licensed Products including to make and have made such antibodies for incorporation into zanidatamab zovodotin for development and commercialization purposes. +11 +Table of Contents +During the Term (as defined below), Jazz and its affiliates are prohibited from performing any clinical development of, or commercialization of, any pharmaceutical product containing a bispecific antibody directed to the ECD2 and ECD4 domains of HER2 in the Territory, other than Licensed Products. During the Term, Zymeworks BC and its affiliates are prohibited from (i) performing any preclinical development (except for certain independent, internal preclinical development by Zymeworks BC or its affiliates) or clinical development of, or commercializing, any pharmaceutical product that is directed to HER2 in the Territory (each, a “Zymeworks Competing Product”), other than Licensed Products and (ii) using clinical data resulting from certain clinical trials regarding zanidatamab that were being conducted or initiated by Zymeworks BC (the “Program”) to perform any pre-clinical development or clinical development, or commercialization of, any pharmaceutical product that is directed to HER2; provided that zanidatamab zovodotin is excluded from each restriction. Zymeworks BC retains the right to grant third parties rights to apply any of Zymeworks BC’s platforms to derive or generate, without any assistance from Zymeworks BC, antibodies directed to any biological target where Zymeworks BC is not aware of the identity of any such target, and Zymeworks BC retains the right to fulfill its obligations under agreements with its existing platform partners; provided, however, that Zymeworks BC cannot generate, or grant development or commercialization licenses to, Zymeworks Competing Products in new platform-based agreements entered into after the effective date of the Original Jazz Collaboration Agreement. +Jazz is required to use commercially reasonable efforts to develop and obtain regulatory approval for a Licensed Product in certain major market countries for the treatment of certain diseases. Jazz will be the holder of regulatory approvals and regulatory submissions for Licensed Products in the Territory. +Zymeworks BC will continue to supply zanidatamab and Licensed Product to certain clinical sites pursuant to the terms of the Jazz Collaboration Agreement. +Jazz shall be solely responsible for commercializing the Licensed Products in the Territory and use commercially reasonable efforts to commercialize in each specified major market country each Licensed Product that obtains regulatory approval in such country. Jazz shall conduct such commercialization at its sole cost and expense. +Under the Jazz Collaboration Agreement, as of December 31, 2024 we have received (i) a non-refundable $50.0 million upfront payment following receipt of HSR Clearance and delivery of licenses and technology transfer to Jazz and (ii) a further payment of $325.0 million following Jazz’s decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01, in addition to our delivery of other data, analyses and other information. As of December 31, 2024, we were also eligible to receive up to an aggregate of $525.0 million in certain regulatory milestones payments and up to an aggregate of $862.5 million in potential commercial milestone payments. As a result of the FDA’s approval of Ziihera®, $ 25.0 million of regulatory milestone revenue was recognized in November 2024, and we received this $25.0 million milestone payment in the first quarter of 2025. W e are eligible to receive tiered royalties between 10% and 20% on annual net sales of Licensed Products in the Territory, with customary reductions in specified circumstances. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country basis until the latest of (i) ten years after the first commercial sale of such Licensed Product in such country, (ii) the expiration of the last valid licensed patent claim within the licensed Zymeworks BC intellectual property covering such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity of such Licensed Product in such country. +The term of the Amended Jazz Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the royalty term for such Licensed Product in such country (the “Term”). The Amended Jazz Collaboration Agreement contains customary termination rights for Jazz and us, including the right for Jazz to terminate the agreement in its sole discretion with advance notice to us. We may also terminate the Amended Jazz Collaboration Agreement if Jazz or its affiliates file or initiate a patent challenge against us. +In May 2023, we also entered into a stock and asset purchase agreement with Jazz Pharmaceuticals, Inc. ( “ Jazz Inc. ” ) (as amended, the “Transfer Agreement”) to provide for a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz Inc. by transferring certain assets, contracts and employees associated with the clinical trials for zanidatamab to Jazz Inc. and its affiliates. +Pursuant to the Transfer Agreement, at the closing thereunder , (i) Jazz acquired from Zymeworks Biopharmaceuticals Inc. ( “ ZBI ”) 100% of the issued and outstanding capital stock of Zymeworks Zanidatamab Inc. ( “ ZZI ”, a subsidiary of ZBI); (ii) Jazz engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and the Company transferred to Jazz or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that worked on the Program; (iii) Jazz and its affiliates acquired from Zymeworks BC and ZBI and their affiliates the Acquired Assets (as defined in the Transfer Agreement); and (iv) Jazz and its affiliates assumed certain liabilities arising following the closing under the Transfer Agreement related to the Acquired Assets and the Program, including with respect to the transferred service providers, in each case subject to the terms and conditions of the Transfer Agreement. No shares of the Company’s common stock were sold by the Company or acquired by Jazz Inc. and its affiliates in connection with such transactions under the Transfer Agreement. +12 +Table of Contents +BeiGene +In November 2018, we entered into agreements with BeiGene whereby we granted BeiGene royalty-bearing exclusive licenses for the research, development, and commercialization of zanidatamab and zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia, and New Zealand (such agreement relating to z anidatamab, as amended, the “Zanidatamab Agreement,” and such agreement relating to zanidatamab zovodotin, the “Zovodotin Agreement”). In September 2023, Zymeworks BC and BeiGene entered into a termination agreement relating to the Zovodotin Agreement (the “Termination Agreement”). +For the research, development and commercialization licenses to zanidatamab and zanidatamab zovodotin, we received an upfront payment of $40.0 million. Under the Zanidatamab Agreement, as of December 31, 2024 we have received milestone payme nts of $31.0 million, including an $8.0 million milestone payment received from BeiGene in July 2024 in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC. As of December 31, 2024, we remain eligible to receive development and commercial milestone payments of u p to $164.0 million, together with tiered royalties of up to 19.5% of net sales in BeiGene territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit million s of dollars. +Under the Zanidatamab Agreement, Zymeworks and BeiGene are collaborating on certain global clinical studies and both Zymeworks and BeiGene will independently conduct other clinical studies in their own respective territories. Each of Zymeworks and BeiGene are responsible for all of the development and commercialization costs in their own territories. Unless earlier terminated, the Zanidatamab Agreement will terminate on a licensed product-by-product and country-by-country basis upon the expiration of the royalty term in such country for such licensed product. The Zanidatamab Agreement may be terminated by BeiGene upon prior written notice or by either party upon the other party’s bankruptcy or uncured material breach. +As noted above, the Zovodotin Agreement was terminated under the Termination Agreement. The Termination Agreement does not relieve us or BeiGene from obligations under the Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeiGene intellectual property with respect to zanidatamab zovodotin. +Platform Partnerships +In addition to the payments we have received through our collaboration agreements with Jazz and BeiGene relating to zanidatamab and zanidatamab zovodotin, as of December 31, 2024, we have received approximately $183.5 million in the form of non-refundable upfront and milestone payments from platform partnership and collaboration agreements. We continue to have revenue-generating strategic partnerships and collaborations with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms with the following pharmaceutical companies: Celgene Corporation and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company, “BMS”), GlaxoSmithKline Intellectual Property Development Limited (“GSK”), Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”), Janssen Biotech, Inc. (“Janssen”), and Merck Sharp & Dohme Research GmbH (“Merck”). As of December 31, 2024, we remain eligible to receive up to $1.03 billion in preclinical and development milestone payments and up to $3.08 billion in commercial milestone payments, as well as tiered royalties on potential future product sales, pending regulatory approval. It is possible, however, that our strategic partners’ programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets using our platforms. +13 +Table of Contents +The table below summarizes the stage of each of our platform partners’ most advanced publicly disclosed program. +BMS +In December 2014, we entered into a collaboration agreement with Celgene (now BMS) to research, develop and commercialize bispecific antibodies generated through the use of our Azymetric platform. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. Under the terms of the agreement, we granted BMS a right to exercise options to worldwide, royalty-bearing, antibody sequence pair-specific exclusive licenses to research, develop and commercialize certain licensed products. We received an upfront payment of $8.0 million and an expansion fee of $4.0 million . As of December 31, 2024, BMS had exercised one commercial license option and we received a $7.5 million option payment, but in 2023 BMS stopped development of such program. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period . As at December 31, 2024, BMS remains eligible to exercise its one remaining option, and we remain eligible to receive up to $320.5 million for the two remaining programs (or $164.0 million not including the one program for which BMS stopped development in 2023), comprised of a commercial license option payment of $7.5 million for the one remaining program, development milestone payments of up to $101.5 million per program, and commercial milestone payments of up to $55.0 million per program. In addition, we are eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +In June 2020, our existing collaboration agreement with BMS was amended to expand the license grant to include the use of our EFECT platform for the development of therapeutic candidates and to extend the research term. We received an upfront expansion fee of $12.0 million and all other financial terms were unchanged. +The agreement contains customary termination rights for BMS and us, including the right of BMS to terminate the agreement in its entirety or on a product-by-product basis in its sole discretion with advance notice to us. The agreement will terminate on a product-by-product and country-by-country basis upon the later of the expiration of the last-expiring patent related to the BMS licensed product, or ten years after the first commercial sale of the BMS licensed product in such a country. If BMS does not exercise its option for the commercial license, the agreement will terminate on a product-by-product basis for which the option was not exercised. +GSK +In December 2015, we entered into a collaboration and license agreement with GSK to research, develop and commercialize up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of our EFECT and Azymetric platforms. Under the terms of the agreement, we granted GSK a worldwide, royalty-bearing antibody target-exclusive license to new intellectual property generated to the EFECT platform under this collaboration and a non-exclusive license to the Azymetric platform to research, develop and commercialize future licensed products. We are eligible to receive up to $1.1 billion, including research, development and commercial milestone payments of up to $110.0 million for each product. In addition, we are eligible to receive tiered royalties in the low single digits on net sales of products. No development or commercial milestone payments or royalties have been received as of December 31, 2024. We retained the right to develop up to four products, free of royalties, using the new intellectual property generated in this collaboration, and after a period of time, to grant licenses to such intellectual property for development of additional products by third parties. Under this agreement, we are sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. After the conclusion of the research period, each party will be solely responsible for the further research, development, manufacturing and commercialization of its own respective +14 +Table of Contents +products. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate on the earlier of (i) the end of the research period if GSK does not elect to advance one or more products incorporating intellectual property generated under the research period for further research and development or (ii) on a product-by-product and country-by-country basis upon the latter of the product being no longer covered by a patent related to the GSK licensed product, or ten years after the first commercial sale of the GSK licensed product in such a country. +In April 2016, we entered into a platform technology transfer and license agreement with GSK to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. Under the terms of this 2016 agreement, we granted GSK a worldwide, royalty-bearing antibody sequence pair-specific exclusive license to research, develop and commercialize licensed products. In May 2019, this agreement was expanded to provide GSK access to Zymeworks’ unique heavy-light chain pairing technology under the Azymetric platform. Under the expanded agreement, we are eligible to receive up to $1.1 billion in milestone and other payments. As of December 31, 2024, we have received an upfront technology access fee payment of $6.0 million and a milestone payment of $2.5 million in relation to a sequence pair nomination by GSK. As of December 31, 2024, we remain eligible to receive research milestone payments of up to $35.0 million, development milestone payments of up to $182.5 million and commercial milestone payments of up to $867.0 million. In addition, we are eligible to receive tiered royalties in the low to mid-single digits on product sales. GSK bears all responsibility and costs associated with research, development and commercialization of products generated using the Azymetric platform. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. Termination provisions allow for GSK to terminate the agreement or specific antibody sequence pairs due to an incurable material breach by us, and under specific conditions, GSK shall have certain rights to continue the research, development, and commercialization of products with their license payment, milestone, and royalty obligations reduced by 50%. +Daiichi Sankyo +2016 Agreement +In September 2016, we entered into a collaboration and cross-license agreement (“Collaboration and Cross License Agreement”) with Daiichi Sankyo to research, develop and commercialize one bispecific antibody generated through the use of our Azymetric and EFECT platforms. Under this agreement, we received an upfront technology access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million. Under this agreement, w e also gained non-exclusive rights to develop and commercialize up to three products (revised to up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies, with royalties in the low single digits to be paid to Daiichi Sankyo on sales of such products. +In March 2023, we entered into a termination and license agreement (the “Termination and License Agreement”) relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the Termination and License Agreement, we granted to Daiichi Sankyo a non-exclusive, worldwide, royalty-free right and license, with the right to sublicense, to certain intellectual property to perform additional research in accordance with the terms of the Termination and License Agreement during the term of the Termination and License Agreement, which is from February 28, 2023 until the earlier of (i) the day that we receive written notice from Daiichi Sankyo confirming that Daiichi Sankyo has completed such additional research and (ii) August 27, 2025, unless earlier terminated (including by advance written notice to us from Daiichi Sankyo). The Termination and License Agreement has no impact on our separate license agreement with Daiichi Sankyo, which we entered into in 2018, as described below. +2018 Agreement +In May 2018, we entered into a license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of our Azymetric and EFECT platforms. This agreement did not alter or amend the initial 2016 agreement. Under the terms of this 2018 agreement, we granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $484.7 million in various milestone and other payments. As of December 31, 2024, we have received an upfront technology access fee payment of $18.0 million, and we remain eligible to receive development milestone payments totaling up to $63.4 million and commercial milestone payments of up to $170.0 million. In addition, we are eligible to receive tiered royalties ranging from the low single digits up to 10% on product sales. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for +15 +Table of Contents +Daiichi Sankyo and us, including the right for Daiichi Sankyo to terminate the rights to our therapeutic platforms in its sole discretion with advance notice to us. The agreement shall terminate, with respect to Daiichi Sankyo’s licenses, on a product-by-product basis, with the last payment obligation for the respective product. +Janssen +In November 2017, we entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric and EFECT platforms. Under the terms of the agreement, we granted Janssen a worldwide, royalty-bearing, antibody sequence group-specific exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $1.45 billion in various license and milestone payments. As of December 31, 2024, we have received an upfront payment of $50.0 million and development milestones totaling $8.0 million in connection with the initiation of clinical trials of two bispecific antibodies. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. As a result, we remain eligible to receive development milestone payments of up to $86.0 million and commercial milestone payments of up to $373.0 million ($43.0 million and $186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). In addition, we are eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. Janssen has the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to buy down the royalty relating to such product by one percentage point with a payment of $10.0 million. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on Janssen’s performance. Janssen is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for Janssen and us, including the right for Janssen to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate, on a product-by-product basis, on the expiry of the royalty term for the product. +Other Collaborations - Merck +We have collaborated with Merck since 2011. In July 2020, we entered into a new licensing agreement with Merck granting Merck a worldwide, royalty- bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field usin g our Azymetric and EFECT platforms. We are eligible to receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +Intellectual Property +Our business success will depend significantly on our ability to: +• secure, maintain and enforce patent and other proprietary protection for our core technologies, inventions and know-how; +• obtain and maintain licenses to key third-party intellectual property owned by such third parties; +• preserve the confidentiality of our trade secrets; and +• operate without infringing upon valid, enforceable third-party patents and other rights. +We seek to secure and maintain patent protection for the composition of matter, manufacturing processes and methods of use for our drug candidates and for our underlying protein engineering capabilities and therapeutic platforms including Azymetric, EFECT, ZymeCAD and ProTECT. We also utilize trade secrets, careful monitoring and limited disclosure of our proprietary information where patent protection is not appropriate. We also protect our proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and assignment of inventions prior to their engagement. We intend to continue to expand our intellectual property holdings by seeking patent protection for new compositions of matter, new features and applications of our core therapeutic platforms, and innovative new therapeutic platforms, in the United States and other jurisdictions. We also intend to supplement internal innovation through in-licensing of new technologies and compositions of matter as appropriate. We intend to take advantage of any available data exclusivity, market exclusivity, patent term adjustment and patent term extensions. +We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we identify any such disclosures, evaluate them and take appropriate courses of action. +16 +Table of Contents +As of December 31, 2024, our patent portfolio includes more than 40 patent families related to our therapeutic antibody product (zanidatamab), our preclinical and clinical stage product candidates, and our therapeutic platform technologies. As of December 31, 2024, from these patent families we have more than 260 issued patents, 36 of which are U.S. patents. Additional patent families in our patent portfolio relate to other earlier stage potential product candidates or platforms that we do not consider material to our business at this time. +Therapeutic Antibody Portfolio +Our therapeutic antibody patent portfolio is directed to specific compositions of matter, methods of using and compositions used in manufacturing our approved products and product candidates . +Approved Product +Zanidatamab: As of December 31, 2024, we own U.S. and foreign patents and patent applications directed to compositions of matter of zanidatamab, compositions used in the manufacture of zanidatamab, and methods of using zanidatamab. Issued patents and patent applications, if granted, directed to compositions of matter of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to compositions used in the manufacture of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to methods of using zanidatamab are anticipated to expire between 2034 and 2042, absent any patent term adjustments or extensions. +Zanidatamab is also protected by our patent families directed to Azymetric Fc, as described below. +Clinical Stage Product Candidates +ZW191: As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW191, compositions used in the manufacture of ZW191, and methods of using ZW191. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW191 is also protected by a patent family directed to our TOPO1i technology. +ZW171: As of December 31, 2024, we own patent applications filed in the United States and internationally under the Patent Cooperation Treaty (“PCT”) directed to compositions of matter of ZW171, compositions used in the manufacture of ZW171, and methods of using ZW171. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW171 is also protected by patent families relating to Azymetric Fc. +L ead Preclinical Product Candidates +ZW251: As of December 31, 2024, we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW251 and methods of using ZW251. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW251 is also protected by a patent family directed to our TOPO1i technology. +ZW209: As of December 31, 2024, we own U.S. provisional patent applications directed to compositions of matter of ZW209, compositions used in the manufacture of ZW209, and methods of using ZW209. If converted to non-provisional applications and granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. +ZW1528: As of December 31, 2024, we own U.S. provisional patent applications directed to compositions of matter of ZW1528, compositions used in the manufacture of ZW1528 and methods of using ZW1528. If converted to non-provisional applications and granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. +ZW220: As of December 31, 2024, we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW220, compositions used in the manufacture of ZW220, and methods of using ZW220. If granted, these patent applications are anticipated to expire between 2043 and 2044, absent any patent term adjustments or extensions. ZW220 is also protected by a patent family directed to our TOPO1i technology. +Therapeutic Platform Technology Portfolio +Our therapeutic platform technology portfolio includes biological formats and variants thereof, including the Azymetric platform, our drug conjugate platforms (including our TOPO1i technology), the EFECT platform, and specific applications, manufacturing methods and assays related to the platform constructs and underlying computational chemistry. +17 +Table of Contents +Azymetric +We own patents and patent applications relating to the Azymetric platform for engineering Fc and Fab constructs for the development of bispecific antibodies. +Azymetric Fc: As of December 31, 2024, we own U.S. and foreign patents and patent applications directed to our Azymetric Fc platform. Patents and patent applications, if granted, directed to compositions of matter of engineered antibody Fc regions, methods of engineering antibody Fc regions to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fc regions are expected to expire between 2031 and 2033, absent any adjustments or extensions. +Azymetric Fab : As of December 31, 2024, we own U.S and foreign patents and patent applications directed to our Azymetric Fab platform. Patents and patent applications, if granted, directed to compositions of matter, methods of engineering antibody Fabs to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fabs are expected to expire between 2033 and 2036 absent any adjustments or extensions. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including TOPO1i), stable linkers, and conjugation technologies that are compatible with and complementary to our antibody product candidates and enable delivery of cytotoxins directly to target cells. +TOPO1i Platform: As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to novel TOPO1i compounds (including ZD06519), TOPO1i-linker compositions and antibody-TOPO1i conjugates. If granted, these patent applications are expected to expire in 2042, absent any adjustments or extensions. +EFECT +As of December 31, 2024, we own U.S and foreign patents and patent applications directed to engineering Fc constructs with modulated FcγR-binding and Fc effector function, including compositions of matter and methods of making Fc constructs with altered FcγR-binding and Fc effector function, and compositions of matter and methods of making Fc constructs that lack FcγR-binding. These patents and patent applications, if granted, are expected to expire between 2031 and 2042, absent any adjustments or extensions. +ProTECT +As of December 31, 2024, we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter, methods of making and methods of using conditionally active antibody constructs comprising immunomodulatory ligands and their cognate receptors derived from the immunoglobulin superfamily (such as PDL1 and PD1) fused to the antibody variable heavy and light chain region termini. If granted, these patent applications are expected to expire in 2041, absent any adjustments or extensions. +Computational Chemistry +As of December 31, 2024, we own U.S and foreign patents and patent applications directed to computational and algorithmic advances incorporated into our ZymeCAD TM platform, including advances in general molecular modeling, conformational dynamics, docking, distal mutations, and molecular packing, as well as parallelization and graphical data analysis. These patents and patent applications, if granted, are expected to expire between 2026 and 2042, absent any adjustments or extensions. +Technology Licensing and In-Licensed Intellectual Property +Daiichi Sankyo +As noted above under “ Strategic Partnerships and Collaborations – Platform Partnerships – Daiichi Sankyo – 2016 Agreement, ” in September 2016, we entered into the Collaboration and Cross License Agreement with Daiichi Sankyo under which we gained non-exclusive rights to develop and commercialize up to three products (up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies. In March 2023, we entered into the Termination and License Agreement relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration +18 +Table of Contents +and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products, such as ZW171 and ZW209, using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the surviving terms of the Collaboration and Cross License Agreement , pending receipt of regulatory approval, we may be required to make future low single-digit royalty payments on the net sales of such products. +Phanes +In November 2021, we entered into a lic ense agreement with Phanes Therapeutics, Inc. (“Phanes”). Phanes granted Zymeworks an exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable, royalty-bearing license to research, develop, commercialize, and otherwise exploit certain antibody products incorporating proprietary Phanes binders in the field of oncology. In December 2023, this license agreement was partially terminated only with respect to a specific set of such products. All other rights and obligations under this license agreement remain in full force and effect. +Under the license agreement, we may be required to make future payments to Phanes upon the direct achievement of certain clinical development milestones for products, such as ZW251, that incorporate certain Phanes intellectual property. In addition, subject to receipt of regulatory approval, we may be required to make future payments to Phanes upon direct achievement of certain commercial milestones and certain sales milestones, as well as up to low single-digit royalty payments on net sales of such products. +ProBioGen +In February 2016, we entered into a master services and master license agreement with ProBioGen AG ( “ ProBioGen ” ). ProBioGen provided certain development and manufacturing services and granted us a non-exclusive, worldwide, sublicensable license to research, develop, manufacture and commercialize our product candidates (which include Ziihera® (zanidatamab-hrii)) using ProBioGen’s platforms, including their proprietary GlymaxX technology for generating afucosylated antibodies. This license includes certain additional non-exclusive patent rights sub-licensed by ProBioGen. Licensing terms include preclinical, clinical and commercial milestones. In connection with the first commercial sale of Ziihera®, we expect to pay to ProBioGen €3.95 million for achievement of the first commercial sale milestone. In addition, subject to achievement of certain commercial sales thresholds of Ziihera®, we are required to make additional future payments to ProBioGen. +Chugai +In June 2020, we entered into a patent license agreement with Chugai Pharmaceuticals Co., Ltd (“Chugai”). Chugai granted Zymeworks a non-exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable license under certain patents to research, develop, manufacture and commercialize certain antibody products covered by such patents. Under the license agreement, we are required to pay an immaterial annual fee for so long as there is a valid claim within the licensed patents covering certain antibody products. +Manufacturing +We rely on third-party contract manufacturing organizations to provide manufacturing, linker-toxin conjugation, and fill-finish services in order to generate all of the therapeutic antibody supply required for our clinical studies and other research and development activities. To retain focus on our expertise in developing new product candidates, we do not currently plan to develop or operate in-house manufacturing capacity. Our multispecific therapeutic antibody and ADC candidates require standard chemistry, manufacturing and control (“CMC”) processes typical of those required for monoclonal antibody manufacturing. We therefore expect to continue to be able to develop product candidates that can be manufactured in a cost-effective fashion by our network of qualified third-party contract manufacturing organizations. +Through our contract manufacturing organizations, we currently have sufficient supply of our product candidates to carry out ongoing and planned preclinical studies. For zanidatamab, we also have sufficient current good manufacturing practices (“cGMP”)-grade supply to continue ongoing clinical trials. Our strategic partners are responsible for the commercial manufacture of zanidatamab. For our clinical stage product candidates, we have sufficient cGMP-grade supply to complete our ongoing clinical trials. For ZW251, our preclinical stage product candidate for which we expect to submit an IND in mid-2025, we expect to have sufficient cGMP-grade supply, through additional manufacturing runs, to commence clinical trials. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty +19 +Table of Contents +pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may be able to access rare families and identify targets before we do. +Many of the companies against which we compete or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, recruiting patients for clinical trials, and by acquiring technologies complementary to, or necessary for, our programs. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience and price, the effectiveness of alternative products, the level of competition and the availability of coverage, and adequate reimbursement from government and other third-party payors. +Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products. +Zanidatamab is being developed for patients with solid tumors that express HER2, including patients with tumors expressing low levels of HER2. Competing approved HER2-targeted therapies include F. Hoffmann-La Roche Ltd.’s Herceptin, Perjeta, Phesgo, and Kadcyla as well as Novartis Pharmaceuticals Corporation’s Tykerb, Puma Biotechnology, Inc.’s Nerlynx, AstraZeneca PLC / Daiichi Sankyo’s Enhertu, Seagen Inc.’s Tukysa, MacroGenics, Inc.’s Margenza, Jiangsu HengRui Medicine Co., Ltd.’s Pyrotinib, Pfizer’s disitamab, Alphamab’s anbenitamab, BioNTech’s trastuzumab pamirtecan, Boehringer’s Zongertinib, Bayer’s BAY2927088 and various trastuzumab biosimilars, as well as other candidates in late-stage development. +ZW191 is being developed for patients with solid tumors that express FRα. Competing approved FRα -targeted therapies include ImmunoGen/AbbVie’s Elahere. ADCs under development include Sutro’s Luveltamab tazevibulin, Eisai’s Farletuzumab ecteribulin, Coherent Bio’s CBP-1008, Bio-Thera’s BAT8006, ProfoundGenmab’s PRO1184, AstraZeneca’s AZD5335, Eli Lilly’s MBK-103, Multitude’s AMT-151 and ImmunoGen/AbbVie’s IMGN151. +ZW171 is being developed for patients with solid tumors that express MSLN. TCEs under development include Amgen’s AMG 305, Janssen’s JNJ-79032421, RemeGen’s RC88, and Light Chain Bio’s NI-1801. +ZW251 is being developed for patients with solid tumors that express GPC3. Competing GPC3-targeted ADCs include Lepu/Miracogen’s MRG006 and BioCity’s BC2027. Alternative approaches targeting GPC3 include cell therapies, TCEs, radioconjugates and monoclonal antibodies exemplified by AstraZeneca’s AZD5851 (C-CAR031), Legend Biotech’s LB2101, Sotio’s BOXR1030, Eureka Therapeutics’ ECT204, CARsgen’s CT011; AstraZeneca’s AZD9793 & Keymed’s CM350; BMS’ RYZ801; and Roche’s codrituzumab. +The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our product candidates are effective. No regulatory agency has made any such determination that any of our product candidates are effective for use by the general public for any indication. +Government Regulation +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our ADC product candidates are comprised of both a drug product and a biologic +20 +Table of Contents +product, and will therefore be subject to regulation in the United States as combination products. If marketed individually, each component would be subject to different regulatory pathways and would require approval of independent marketing applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our ADCs, we believe that the primary mode of action is attributable to the biologic component of the product. Thus, our product candidates are regulated as therapeutic biologics, with the FDA’s Center for Drug Evaluation and Research having primary jurisdiction over premarket development. Our antibody therapeutics, including MSATs, are regulated as biologics by the FDA. +Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local and foreign statutes and regulations. Our product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. +U.S. Biological Products Development Process +The process required by the FDA before a biologic may be marketed in the United States generally involves the following: +• completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests and preclinical animal trials and applicable requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations, including GLP; +• submission to the FDA of an IND application, which must become effective before human clinical trials may begin; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as current good clinical practice (“cGCP”) regulations and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or noncompliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. +• submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity; +• potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and +• FDA review and approval, or licensure, of the BLA. +Human clinical trials are typically conducted in sequential phases that may overlap or be combined: +• Phase 1. The biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labelling. +During all phases of clinical development, regulatory agencies require extensive reporting, monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. +A sponsor, an institutional review board (“IRB”) or independent ethics committee, the FDA or other regulatory or monitoring authorities may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk, failure to conduct the clinical trial in accordance with regulatory +21 +Table of Contents +requirements or clinical protocols, failure to demonstrate a benefit from using the investigational drug, changes in government regulations or administrative actions. +Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to submit a summary of the results of their clinical trials after completion of a trial, unless an extension or a certification permitting delayed submission is obtained from the government. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the biological product. When a BLA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed. Upon accepting the BLA for filing, the FDA will conduct an in-depth review of the BLA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the product candidate. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed. +The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. In particular, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track designated products, sponsors may have a higher number of interactions with the FDA and may be eligible for “rolling review” where review of sections of a Fast Track product’s New Drug Application or BLA is initiated before the full New Drug Application or BLA application is complete. The FDA has granted two Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing gastroesophageal adenocarcinomas (“GEA”) in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. +The FDA also may designate a product as a Breakthrough Therapy if it is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically important endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as a Breakthrough Therapy, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products designated as a Breakthrough Therapy by the FDA can also be eligible for accelerated approval. The FDA has granted Breakthrough Therapy designation for zanidatamab in HER2 gene-amplified BTC patients who have received prior systemic chemotherapy. In December 2022, the Consolidated Appropriations Act, 2023, including the Food and Drug Omnibus Reform Act (“FDORA”), was signed into law. FDORA made several changes to the FDA’s authorities and its regulatory framework, including, among other changes, reforms to the accelerated approval pathway, such as requiring the FDA to specify conditions for post-approval study requirements and setting forth procedures for the FDA to withdraw a product on an expedited basis for non-compliance with post-approval requirements. +Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at a company’s request or by the FDA’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug or other elements to assure safe use, depending on what the FDA considers necessary for the safe use of the drug. +Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and cGCP requirements. +22 +Table of Contents +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the applicant interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor (for example, requiring labeling changes) or major (for example, requiring additional clinical trials). Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States at the time of the request for orphan designation. If a sponsor demonstrates that a drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants Orphan Drug Designation to the product for that use. The FDA has granted zanidatamab Orphan Drug Designation for the treatment of BTC and GEA. +The benefits of Orphan Drug Designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. However, the FDA Reauthorization Act, which was enacted in 2017, requires, among other things, that certain orphan drugs for cancer be tested for children. The government has also increased focus on the potential misuse of the orphan drug approval process to increase the price of orphan drugs. +In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition. In January 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the agency will continue tying the scope of orphan drug exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain approval of a drug for new uses or indications within the same orphan designated disease or condition that have not yet been approved. It is unclear how future litigation, legislation, agency decisions, and administrative actions will impact the scope of the orphan drug exclusivity. +Further, in June 2024, the U.S. Supreme Court overruled the Chevron doctrine, which gives deference to regulatory agencies’ statutory interpretations in litigation against federal government agencies, such as the FDA, where the law is ambiguous. This Supreme Court decision may invite various stakeholders to bring lawsuits against the FDA to challenge longstanding decisions and policies, which could lead to uncertainties in the industry. Changes in the leadership of the FDA and other federal agencies under the new Presidential administration may lead to new policies and changes in the regulations that may impact our clinical development plans. +Post-Approval Requirements +Even if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with cGMP. Adverse events reported after approval of a drug can result in additional restrictions on the use of a marketed product or requirements for additional post-marketing studies or clinical trials. +23 +Table of Contents +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP requirements. Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacture or promotion of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as significant administrative, civil or criminal sanctions. +Biosimilars and Exclusivity +The 2010 Patient Protection and Affordable Care Act (“PPACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. +Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as the first interchangeable for biologic products. +Canadian Review and Approval Process +In Canada, our biologic product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the rules and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and government review and approval of experimental results prior to giving approval to sell drug products, including biologic drug products. Regulators also typically require that rigorous and specific standards such as cGMP, GLP and cGCP are followed in the manufacture, testing and clinical development, respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. +The principal steps required for drug approval in Canada are as follows: +Preclinical Toxicology Studies and Clinical Trials +Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance with applicable laws and GLP. +In Canada, the process of conducting clinical trials with a new drug cannot begin until a Clinical Trial Application (“CTA”) is submitted and the required number of days has lapsed without objection from Health Canada. Biological drugs carry additional risks, as compared to traditional small-molecule drugs, associated with complexity and variability in manufacturing that can contribute to increased lot-to-lot variation of the final product, and with the potential for adventitious agents. Therefore, the content requirements for the quality information for biological drugs to be used in clinical trials are different from those for standard small-molecule pharmaceutical drugs (for example, the inclusion of information on manufacturing facilities is required for biological drugs). In addition, it is necessary to have more stringent controls on the release of biologic drug lots used in authorized clinical trials. +24 +Table of Contents +Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards (“REBs”), instead of IRBs, are used to review and approve clinical trial plans. Human clinical trials are typically conducted in three sequential phases, as discussed above in the context of government regulation in the United States. +The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into Canada are also subject to regulation by Health Canada relating to their labeling and distribution. Progress reports detailing the results of the clinical trials must generally be submitted at least annually to Health Canada and/or the applicable REBs, and more frequently if serious adverse events occur. +New Drug Submission +Upon successful completion of Phase 3 clinical trials, the company sponsoring a new drug then assembles all the preclinical and clinical data and other testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission (“NDS”). The NDS is then reviewed by Health Canada for approval to market the drug. +The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Biologic drugs, such as our candidates, differ from standard small-molecule drugs in that applicants must include more detailed chemistry and manufacturing information. This is necessary to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired microorganism. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Health Canada may not grant approval of an NDS on a timely basis, or at all. +Even if Health Canada approves a product candidate, it may limit the approved indications for use of the product candidate, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms. +Biologic products in particular are monitored post-approval by being placed on a lot-release schedule tailored to their potential risk, manufacturing, testing and inspection history as of the date of this report. With higher-risk biologics, each lot is tested before being released for sale in Canada. Moderate-risk biologics are periodically tested at the discretion of Health Canada while manufacturers of low-risk biologics usually only need to contact Health Canada regarding lots being sold or for providing certification of complete and satisfactory testing. Products are carefully scrutinized before they are placed in any level of the lot-release process, and the testing regime for a biologic may be altered at any time. On December 17, 2022, the Minister of Health in Canada published proposed amendments to the Food and Drug Regulations, and several of the amendments relate to biologic drugs. The purpose of the amendments is to modernize the biologics regulatory regime by repealing outdated requirements and replacing them with those that reflect current safety practices. Proposed amendments include enabling Health Canada to require certain labelling statements for safety reasons on a case-by-case basis, and clarifying the Minister’s authority to consider information or material obtained during on-site evaluations. Other proposed amendments include clarifying the record retention expectations for market authorization holders, and providing a general framework to minimize the potential for contamination of drugs, active ingredients and biological source material between processes. The proposed amendments are still in draft form. +Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing, product labeling or regulatory notification may be required. +Canadian Biosimilars and Exclusivity +The term biosimilar is used by Health Canada to describe a biologic drug that enters the market subsequent to a version previously authorized in Canada and with demonstrated similarity to a reference biologic drug. Accordingly, a biosimilar (previously known in Canada as a subsequent entry biologic or SEB) will in all instances be a subsequent entrant onto the Canadian market. +Based on Health Canada guidance documents, a biosimilar can rely in part on prior information regarding safety and efficacy that is deemed relevant due to the demonstration of similarity to the reference biologic drug and which influences the amount +25 +Table of Contents +and type of original data required. Generic drugs are chemically derived products that are pharmaceutically equivalent to innovative drugs, whereas biosimilars are products of a biologic nature that are similar to innovative biologics. According to Health Canada, it is not currently possible to demonstrate that two biologic drugs are pharmaceutically equivalent, and therefore the regulatory approval process for generics and biosimilars is different: biosimilars are approved using the standard NDS pathway with some allowances made for reduced safety and efficacy information set out in guidance documents, while generic drugs are approved using an abbreviated new drug submission pathway set out in guidance and law. In part because it continues to be set out only in guidance and not law, the pathway for receiving biosimilar approval is somewhat in flux and subject to some uncertainty. +As discussed above, all biosimilars enter the market subsequent to a biologic drug product previously approved in Canada and to which the biosimilar is considered similar. As such, biosimilars are subject to existing laws and regulations outlined in the Patented Medicines (Notice of Compliance) Regulations and the Food and Drug Regulations , and related guidance documents. +Similar to the Hatch-Waxman Amendments in the United States, Canada has the Patented Medicines (Notice of Compliance) Regulations, which require a company that files a drug submission that references a patented product to address any relevant patents listed on the Patent Register prior to being able to receive approval from Health Canada. The Canadian regime is similar to the U.S. regime, but a number of distinctions do exist. +Like the United States, Canada also has data protection in addition to patent protection, but again differences exist between the two jurisdictions. For example, Canada’s data protection applies to “innovative drugs” (i.e., a drug that contains a medicinal ingredient not previously approved in a drug by the Minister of Health and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph) and, where it exists, lasts for eight years in most (but not all) circumstances. In general biologics can be considered innovative drugs but biosimilars are not. +Additional Regulation +In addition to the foregoing, provincial, state and federal U.S. and Canadian laws regarding environmental protection and hazardous substances affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +Government Regulation Outside of the United States and Canada +In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. +Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the EU, in January 2022, the Clinical Trials Regulation (CTR) repealed the Clinical Trials Directive (EC) No. 2001/20/EC and national implementing legislation in the EU Member States. The CTR harmonizes the processes for assessment and supervision of clinical trials throughout the EU. From January 2023 onwards, clinical trial sponsors must apply to start a new clinical trial via the Clinical Trials Information System (CTIS), and beginning January 2025, any trials approved under the Clinical Trials Directive that continue running need to comply with the CTR and their sponsors must have recorded information on them in CTIS. National regulators in the EU Member States and EU/EEA countries use the CTIS. +The requirements and process governing the conduct of clinical studies, product licensing, coverage, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. +Pharmaceutical Coverage, Pricing and Reimbursement +Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on pricing and the availability of coverage and adequate reimbursement from third-party payors. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if +26 +Table of Contents +they determine that the product or therapy was not medically appropriate or necessary. Third-party payors may attempt to control costs by limiting coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication, requiring pre-approval of coverage for new or innovative drug therapies before they will reimburse healthcare providers who use such therapies, and by limiting the amount of reimbursement for particular procedures or drug treatments. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. The Medicare and Medicaid programs are often used as models by private payors and other governmental payors to develop their coverage and reimbursement policies for drugs and biologics. However, one third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the product, or will provide coverage at an adequate reimbursement rate. +The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products to obtain third-party payor coverage, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably. +In international markets, pricing, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably. +Healthcare Reform +The United States and some other jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Only high-expenditure single-source drugs that have been approved for at least seven years (11 years for single-source biologics) can qualify for negotiation, with the negotiated price taking effect two years after the selection year. For 2026, the first year in which negotiated prices become effective, the Centers for Medicare & Medicaid Services (“CMS”) selected ten high-cost Medicare Part D drugs in 2023, negotiations began in 2024, and the negotiated maximum fair price for each drug has been announced. CMS has selected 15 additional Medicare Part D drugs for negotiated maximum fair pricing in 2027. For 2028, up to an additional 15 drugs, which may be covered under either Medicare Part B or Part D, will be selected, and for 2029 and subsequent years, up to 20 additional Part B or Part D drugs will be selected. The impact of these legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the Trump administration on us and the pharmaceutical industry as a whole is unclear. +We expect that the PPACA, as well as reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in +27 +Table of Contents +payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once regulatory approval is obtained. +Other Healthcare Laws and Compliance Requirements +In the United States, the research, manufacturing, distribution, sale and promotion of drug products are subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state attorneys general, and other state and local government agencies. +If our operations are found to be in violation of any of the U.S. federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. We may also be subject to additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement with a governmental entity to resolve allegations that we have violated these laws. To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-approval requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Sales and Marketing +As a clinical-stage biopharmaceutical company, we do not currently possess the commercial infrastructure required to launch and market our product candidates. For zanidatamab, we have entered into a development and commercialization agreement with BeiGene whereby BeiGene is responsible for certain clinical development activities and all commercial activities in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. For zanidatamab, under the Amended Jazz Collaboration Agreement, Jazz is responsible for all development and commercial activities with respect to the Licensed Products in the Territory. There are no other agreements granting commercialization rights to zanidatamab or any of our other product candidates. +To access the sales, marketing and distribution capacity required to market our drug candidates, we plan to selectively establish additional partnerships with biotechnology and pharmaceutical companies having established commercial capabilities in relevant indications. The timing and nature of such agreements will be determined by market size and complexity, access to pre-commercial and commercial infrastructure and our resource availability for developing a commercial organization. For product candidates targeting patient populations that can be serviced by a small, specialized commercial effort, we may seek out co-development and co-promotion agreements granting commercialization rights to an established commercial partner in some jurisdictions while allowing us to build these capabilities in other jurisdictions. We also evaluate opportunities to retain rights further into development for certain drug candidates, providing flexibility around future commercialization strategies. This approach includes the potential to retain commercial rights in one or more geographic jurisdictions, allowing us the option to independently commercialize and launch product(s) in the future. +Human Capital Resources +As of December 31, 2024, we had 286 employees, including 280 full-time employees, 203 of whom were primarily engaged in research and development activities and 53 of whom hold an M.D. or Ph.D. degree. 192 of our full-time employees were based in Canada, 75 were based in the United States, and 13 were based in Singapore, Ireland and United Kingdom (the “ UK ” ) combined. +Our ability to achieve our mission is dependent upon attracting and retaining the right talent. We seek to provide what we consider to be a competitive mix of compensation and benefits for all our employees, including participation in our equity programs. +We believe everyone belongs at Zymeworks and we are committed to providing equal opportunities for our employees. This means ensuring we have good representation in our workforce from within the communities in which we operate, conducting training to remove biases in our processes and activities, and respecting all employees’ rights, cultures, diversity, and dignity. +28 +Table of Contents +We consider our employees to be an essential driver of our business and key to our future prospects and believe that we have a good relationship with our employees. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement. +Corporate History +Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”). Zymeworks Inc. was incorporated under the laws of the State of Delaware in June 2022. Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709, and our telephone number is (302) 274-8744. Our predecessor, now named Zymeworks BC Inc., was originally incorporated on September 8, 2003 under the Canada Business Corporations Act under the name “Zymeworks Inc.” On October 22, 2003, our predecessor was registered as an extra-provincial company under the Company Act (British Columbia), the predecessor to the Business Corporations Act (British Columbia) (“BCBCA”). Our predecessor continued to British Columbia under the BCBCA on May 2, 2017. +Available Information +This Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as appropriate, with the SEC and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website, www.zymeworks.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the Canadian regulatory authorities. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this document is an inactive textual reference. +Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca. +29 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001937653/2024/0001937653-25-000014/item13.txt b/raw/filings/0001937653/2024/0001937653-25-000014/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..4b2d3e749eb2b03899dfbc6ac082c882b5e3dc40 --- /dev/null +++ b/raw/filings/0001937653/2024/0001937653-25-000014/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +165 \ No newline at end of file diff --git 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+(Exact name of registrant as specified in its charter) +_________________________ +Delaware +88-3099146 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification Number) +108 Patriot Drive — Suite A +Middletown , Delaware 19709 +(Address of principal executive offices, including zip code) +Registrant’s telephone number, including area code: ( 302 ) 274-8744 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.00001 par value per share ZYME The Nasdaq Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None +_________________________ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company ☒ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒ +The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common shares on the last business day of its most recently completed second fiscal quarter, as reported on the Nasdaq Stock Market LLC, was approximately $ 649.5 million. +The number of outstanding shares of common stock of the registrant, $0.00001 par value per share, as of February 26, 2026 was 73,749,607 . +DOCUMENTS INCORPORATED BY REFERENCE +None . +Table o f Contents +ZYMEWORKS INC. +FORM 10-K +For the Fiscal Year Ended December 31, 2025 +Table of Contents +PART I +7 +Item 1. +Business +7 +Item 1A. +Risk Factors +33 +Item 1B. +Unresolved Staff Comments +71 +Item 1C . +Cybersecurity +71 +Item 2. +Properties +72 +Item 3. +Legal Proceedings +72 +Item 4. +Mine Safety Disclosures +72 +PART II +73 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +73 +Item 6. +Reserved +74 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operation +75 +Item 7A. +Quantitative and Qualitative Disclosure About Market Risk +86 +Item 8. +Financial Statements and Supplementary Data +87 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +128 +Item 9A. +Controls and Procedures +128 +Item 9B. +Other Information +128 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +128 +PART III +129 +Item 10. +Directors, Executive Officers and Corporate Governance +129 +Item 11. +Executive Compensation +135 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +155 +Item 13. +Certain Relationships and Related Transactions and Director Independence +157 +Item 14. +Principal Accounting Fees and Services +160 +PART IV +161 +Item 15. +Exhibits, Financial Statement Schedules +161 +Item 16. +Form 10-K Summary +165 +SIGNATURES +166 +Table o f Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K includes “forward-looking statements” or information within the meaning of applicable securities legislation, including Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements can often be identified by the use of terminology such as “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to, statements about: +• the size of our addressable markets and our or our strategic partners’ ability to commercialize product candidates; +• the achievement of advances in and expansion of our therapeutic platforms and antibody engineering expertise; +• the likelihood of our or our strategic partners’ product candidate development and clinical trial progression, initiation or success; +• the receipt of milestone and royalty revenue from existing or potential new partnerships; +• the evolution of our business strategy related to anticipated and potential future milestones and royalty streams and existing and potential new partnerships; +• our ability to compound long-term stockholder value; and +• our and our strategic partners’ ability to predict and manage government regulation. +All forward-looking statements, including, without limitation, those related to our examination of historical operating trends, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include: +• our ability to manage the evolution of our business strategy effectively; +• the absence of material adverse changes in our industry or the global economy; +• our ability to understand and predict trends in our industry and markets; +• our ability to enter into and maintain good business relationships with our strategic partners; +• our ability to comply with and navigate current and future regulatory standards, policies and programs, some of which are rapidly changing; +• our ability to protect our intellectual property rights; +• our continued compliance with third-party license terms and the non-infringement of third-party intellectual property rights; +• our ability to manage and integrate any acquisitions we may pursue; +• our ability to identify, successfully compete for and acquire attractive royalty-generating assets; +• the availability of suitable acquisition or in-licensing opportunities or strategic partners that are consistent with the evolution of our business strategy; +• our continued ability to receive milestones and royalties from current and future collaborations; +• our ability to retain key personnel; and +• our ability to raise sufficient debt, equity, or non-dilutive financing to support our strategy and business objectives. +We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those referred to in the +3 +Table o f Contents +section titled “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements: +• the potential success of our royalty-driven asset aggregation strategy; +• the potential disruption of our business and dilution of our shareholdings associated with acquisitions, joint ventures and other business development transactions; +• our ability to acquire favorable assets and progress them through preclinical and clinical development; +• our and our strategic partners’ discretion to discontinue or reprioritize the development of any of our product candidates; +• our ability to achieve milestones and receive associated milestone payments and royalties pursuant to the terms of our collaboration agreements, including the Amended Jazz Collaboration Agreement (as defined below); +• our ability to maintain existing and future strategic partnerships; +• our ability to realize the anticipated benefits of our strategic partnerships; +• our ability to secure future strategic partners; +• our ability to satisfy obligations and realize expected benefits under our financing arrangements, which may depend on future royalties and other factors that are subject to uncertainty; +• our ability to face significant competition, including biosimilar products, as well as competition for potential acquisitions and other business development transactions we may pursue; +• our or our strategic partners’ ability to obtain regulatory approval for product candidates without significant delays; +• the predictive value of our or our strategic partners’ current or planned clinical trials; +• delays with respect to the development and commercialization of our or our strategic partners’ product candidates, which may cause increased costs or delay receipt of product revenue; +• our or any of our strategic partners’ ability to enroll subjects in clinical trials and thereby complete trials on a timely basis; +• the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States; +• our ability to achieve milestones and receive associated milestone payments and royalties pursuant to the terms of our collaboration agreements, including the Amended Jazz Collaboration Agreement (as defined below); +• the extent to which our business may be adversely affected by pandemics or other health crises; +• global economic and political conditions, a s well as social and political unrest in the locations where our or our strategic partners’ clinical trials are held, and the related impact on our business and the markets generally; +• unanticipated tax consequences in connection with the Redomicile Transactions (as defined below); +• the possibility that the Fast Track and Breakthrough Therapy designations for any of our or our strategic partners’ product candidates may not expedite regulatory review or approval; +• the U.S. Food and Drug Administration’s (the “FDA”) refusal to accept data from trials we or our strategic partners conduct outside the United States; +• disruptions at the FDA and other government agencies caused by funding shortages, global health concerns or changes implemented by the current U.S. Presidential administration; +• changes in regulations and customs, tariffs and trade barriers; +• the potential for our or our strategic partners’ product candidates to have undesirable side effects; +• the likelihood of broad market acceptance of our or our strategic partners’ product candidates; +• the ability to obtain Orphan Drug Designation or exclusivity for some or all of our or our strategic partners’ product candidates; +• our and our strategic partners’ ability to commercialize products outside of the United States; +• the outcome of reimbursement decisions by third-party payors relating to our or our strategic partners’ products; +4 +Table o f Contents +• our expectations with respect to the market opportunities for any product that we or our strategic partners develop; +• our and our strategic partners’ ability to pursue product candidates that may be profitable or have a high likelihood of success; +• our ability to use and expand our therapeutic platforms to build a pipeline of product candidates; +• our and our strategic partners’ ability to meet the requirements of ongoing regulatory review; +• the threat of product liability lawsuits against us or any of our strategic partners; +• changes in product candidate manufacturing or formulation that may result in additional costs or delay; +• the potential for non-U.S. governments to impose strict price controls; +• the risk of security breaches and incidents or data loss, which could compromise sensitive business or health information; +• current and future legislation that may increase the difficulty and cost of commercializing our or our strategic partners’ product candidates; +• economic, political, regulatory and other risks associated with international operations; +• our exposure to legal and reputational penalties as a result of any of our current and future relationships with various third parties; +• our and our strategic partners’ ability to comply with export control and import laws and regulations; +• our history of significant losses since inception; +• the potential dilution to our stockholders associated with any future financings; +• restrictions on our ability to seek financing, which may be imposed by future debt; +• unstable market and economic conditions; +• currency fluctuations and changes in currency exchange rates; +• our or a third party’s ability to successfully develop any companion diagnostic tests for our product candidates without significant delays; +• our and our strategic partners’ reliance on third-party manufacturers to produce our product candidate supplies and on other third parties to monitor and transport bulk drug substance and drug product; +• our and our strategic partners’ reliance on third parties to oversee clinical trials of our product candidates and, in some cases, maintain regulatory files for those product candidates; +• risks related to the manufacture of product candidates and difficulties in production; +• our and our strategic partners’ reliance on third parties for various operational and administrative aspects of our business including our reliance on third parties’ cloud-based software platforms; +• our and our strategic partners’ reliance on the performance of independent clinical investigators and contract research organizations (“CROs”); +• our ability to operate without infringing the patents and other proprietary rights of third parties; +• our ability to obtain and enforce patent protection for our or our strategic partners’ product candidates and related technology; +• our patents could be found invalid or unenforceable if challenged; +• our intellectual property rights may not necessarily provide us with competitive advantages; +• our potential involvement in expensive and time-consuming patent lawsuits; +• the risk that the duration of our patents will not adequately protect our competitive position; +• our ability to obtain protection under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”) and similar non-U.S. legislation; +• our ability to protect the confidentiality of our proprietary information; +• our ability to comply with procedural and administrative requirements relating to our patents; +5 +Table o f Contents +• the risk of claims challenging the inventorship of our patents and other intellectual property; +• our dependency on the abilities of third parties to assert and defend our intellectual property rights for some of our or our strategic partners’ product candidates; +• patent reform legislation and court decisions can diminish the value of patents in general, thereby impairing our ability to protect our or our strategic partners’ products or product candidates; +• our ability to protect our intellectual property rights throughout the world; +• that we and our strategic partners will require FDA approval for any proposed product candidate names and any failure or delay associated with such approval which may adversely affect our anticipated milestone or royalty revenues; +• our election to rely on certain reduced reporting and disclosure requirements available to smaller reporting companies may make our common stock less attractive to investors; +• the risk of employee misconduct including noncompliance with regulatory standards and insider trading; +• our and our strategic partners’ ability to market products in a manner that does not violate the law and subject us to civil or criminal penalties; +• potential adverse effects to our business from any non-compliance with laws regulating the protection of the environment and health and human safety; +• our ability to retain key executives and attract and retain qualified personnel; +• our ability to manage the evolution of our business strategy; +• our exposure to potential securities class action litigation; and +• the possibility that our share price and trading volume could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business. +Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by law. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. +In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. +We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Our registered trademarks include Azymetric, Zymeworks, ZymeCAD, EFECT, ZymeLink and ProTECT. The other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this Annual Report on Form 10-K are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames. +We express all amounts in this Annual Report on Form 10-K in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars. +6 +Table o f Contents +PART I +Item 1. Business +Overview +Zymeworks is a global biotechnology company managing a portfolio of licensed healthcare assets and developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat conditions, including cancer, inflammation, and autoimmune disease. We believe our asset and royalty aggregation strategy differentiates us from other biotechnology companies because it provides us with an opportunity to optimize future milestone and royalty cash flows and selectively invest in high-quality assets while retaining the flexibility to return capital to stockholders. +Our Strategy +Our strategy is focused on compounding long-term stockholder value through a combination of royalty growth, strategic acquisitions, and internal innovation, supported by disciplined capital allocation and a strengthened financial foundation through expected milestone payments and royalties from existing commercial partners. We pursue this strategy by discovering or acquiring and developing a diversified portfolio of preclinical or clinical healthcare assets while also evaluating strategic partnership opportunities to transfer certain costs and risks related to clinical development a nd/or commercialization to our strategic partners and secure the right to receive potential future royalty and milestone revenues. The following elements collectively support the execution of our strategy. +Proprietary Technology Platforms and R&D Engine +We seek to leverage our expertise in protein engineering and drug chemistry to discover and develop next-generation antibody-based therapeutics to address significant unmet medical needs, particularly in hard-to-treat diseases. Our proprietary structure-guided molecular modeling, combined with internal antibody discovery and generation technologies, supports a fully integrated drug development engine capable of efficiently advancing a pipeline of innovative product candidates. +Our pipeline of multifunctional therapeutics is supported by our multispecific antibody therapeutics (“MSATs”) and antibody-drug conjugates (“ADCs”) technology platforms, which enable the development of novel therapeutics in cancer, inflammation, and autoimmune disease and create opportunities for new partnerships. +Strategic Partnerships and Risk-Sharing +Partnerships and collaborations are central to our strategy as a potential source of funding for ongoing research and development while also reducing reliance on internal capital for later-stage clinical development of partnered assets. These arrangements enable risk sharing, particularly in late-stage development, and support disciplined R&D investment, which can reduce the need to use future milestone and royalty payments to fund planned operations. +Royalty Portfolio and Cash Flow Generation +Through our asset and royalty aggregation strategy, we seek to optimize future cash flows from a growing portfolio of licensed products and product candidates, including Ziihera (zanidatamab-hrii) and pasritamig. As partnered therapies advance through late-stage development and commercialization, we expect to grow durable and predictable cash flows that can be deployed by us in order to seek attractive risk-adjusted returns for stockholders. +Stockholder Returns and Capital Allocation Discipline +Our capital allocation strategy is focused on balancing investment in long-term growth with returning capital to stockholders. As our royalty portfolio matures and generates excess capital beyond the needs of our operations and strategic investments, we maintain the flexibility to opportunistically allocate capital to stock repurchases. We view stock repurchases as a potential tool to strategically reduce our share count and enhance total stockholder return over time, while continuing to prioritize investments that can help support sustainable value creation. Decisions regarding capital returns are evaluated within the context of our liquidity position, future cash flow outlook, and overall strategic objectives. +Strategic Acquisitions +We intend to evaluate and selectively acquire programs, technologies, product candidates and/or companies with high-quality assets or partnerships that align with our strategic objectives. By applying our scientific expertise, development capabilities, and +7 +Table o f Contents +operational efficiencies, we seek to enhance asset value and generate new royalty streams. In evaluating acquisition opportunities, we consider multiple factors, including: +• Strategic fit; +• Royalty potential; +• Differentiated assets or platform; +• Potential to address an unmet medical need; +• Adequate intellectual property protection; and +• Favorable cash or tax attributes. +Royalty and Milestone Opportunities +Zanidatamab (Ziihera) +We maintain a portfolio of partnered programs that leverage our technology platforms and scientific expertise while enabling risk-sharing and the potential for near-term milestone and royalty-based returns. +Zanidatamab, our first internally developed product candidate to receive regulatory approval, illustrates the execution of this partnership-based approach. Ziihera (zanidatamab-hrii), a bispecific antibody targeting HER2-expressing tumors developed using our Azymetric platform, has demonstrated positive late-stage clinical results and achieved regulatory approvals for the treatment of HER2-positive (“HER2+”) (IHC 3+) biliary tract cancer (“BTC”) in multiple jurisdictions including the United States, China, Europe and Canada. We have entered into separate collaboration and license agreements with BeOne Medicines Ltd. (formerly BeiGene, Ltd. and, together with its affiliates, “BeOne”) and Jazz Pharmaceuticals Ireland Limited, a subsidiary of Jazz Pharmaceuticals plc (collectively with their affiliates, “Jazz”), granting each partner exclusive rights to develop and commercialize zanidatamab in different territories. Jazz intends to complete the supplementary biologic license application (“sBLA”) submission for zanidatamab in the first quarter of 2026 for the treatment of first-line HER2+ locally advanced or metastatic gastroesophageal adenocarcinoma (“GEA”) under the real-time oncology review program in the United States, where zanidatamab has been granted Breakthrough Therapy Designation for patients with HER2+ GEA. Additionally, zanidatamab is currently being evaluated in multiple global clinical trials for treatment of broader HER2-expressing indications including neoadjuvant populations, breast cancer, and other HER2-expressing cancers. Our partnerships with Jazz and BeOne reflect our strategy of advancing internally discovered programs through collaborations that share development risk while preserving the potential for long-term royalty and milestone revenues. +In addition to $53.0 million already received for regulatory approval of Ziihera in BTC, we are entitled to receive up to $440.0 million in near-term milestone payments from Jazz and BeOne related to approvals of Ziihera in GEA in the United States, Europe, Japan and China as follows: U.S. - $250.0 million; EU - $100.0 million; Japan - $75.0 million; China - $15.0 million. We also expect that royalty revenue from Ziihera sales will increase as potential regulatory approvals are obtained in global markets for GEA. +We also have the potential to receive milestone payments related to future regulatory approvals in a third indication totaling $89.0 million, collectively, from Jazz and BeOne. For Jazz this includes a $50.0 million milestone payment upon regulatory approval of zanidatamab from the FDA in a third indication and a $25.0 million milestone payment upon regulatory approval of zanidatamab from the European Commission in a third indication. For BeOne this includes $4.0 million payable upon first patient dosed with zanidatamab in a third registrational study in the territory and $10.0 million upon approval of zanidatamab by a regulatory authority for the third indication in the territory. +In addition, we could be eligible to receive future commercial milestones and increased royalties as additional indications of Ziihera are developed, approved and commercialized by Jazz and BeOne. Under our collaboration agreement with Jazz, we are eligible to receive tiered royalties of ten to high teens percentages on global (outside of Asia (other than Japan), Australia and New Zealand) annual net sales of Ziihera up to $2.0 billion and 20% on annual net sales above $2.0 billion. Under the collaboration agreement with BeOne, we are eligible to receive tiered royalties of mid-single to mid-double digit percentages on annual net sales of Ziihera in Asia (other than Japan), Australia and New Zealand up to $1.0 billion and 19.5% on annual net sales above $1.0 billion (with royalty rates increasing by 0.5% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars). +8 +Table o f Contents +Pasritamig (JNJ-78278343) +Pasritamig is a first-in-class, bispecific T cell engager (“TCE”) targeting human kallikrein 2 (“KLK2”), and was engineered using Zymeworks’ Azymetric platform. Pasritamig has demonstrated promising safety and antitumor activity in Phase 1 clinical trials. In September 2025, Johnson & Johnson Innovative Medicine (formerly Janssen Inc., “J&J”) announced the initiation of multiple Phase 3 clinical trials evaluating pasritamig as both monotherapy and in combination regimens in castration resistant prostate cancer. +Platform Partnerships +In 2025, we earned $69.9 million in milestone payments, an option exercise fee and a research period extension fee from collaboration partners Celgene Corporation and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company, “BMS”), GlaxoSmithKline Intellectual Property Development Limited (“GSK”), Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”), J&J, Merck Sharp & Dohme Research GmbH (“Merck”), primarily related to legacy platform collaboration agreements, as well as from BeOne related to our zanidatamab collaboration agreement. For additional information regarding these agreements, see the section titled “Strategic Partnerships and Collaborations” below. +Royalty Pharma Loan Arrangement +On March 2, 2026, Zymeworks BC entered into a sale agreement (the “Sale Agreement”) with Zymeworks Royalty Limited Partnership (the “Subsidiary”), a special purpose entity newly formed by Zymeworks BC and by its general partner Zymeworks General Partner ULC (“Zymeworks GP”) , under which Zymeworks BC sold to the Subsidiary 30% of future royalty payments (not to exceed 120% of the maximum amount payable (excluding indemnification and other similar obligations) by the Subsidiary under the Loan Agreement (as defined below) related to Ziihera receivable under the Jazz Collaboration Agreement and Zanidatamab Agreement (each as defined below, and together, the “Covered Agreements”) at a purchase price of $250.0 million (such Ziihera-related assets and rights sold to the Subsidiary, the “Royalty Interest”). +Following the sale and transfer of the Royalty Interest, the Subsidiary entered into a Loan Agreement (the “Loan Agreement”), dated March 2, 2026, with Royalty Pharma Development Funding, LLC (“Royalty Pharma”) as administrative agent and lender, pursuant to which the lenders party to the Loan Agreement made a term loan to the Subsidiary (the “Loan”) in an aggregate principal amount of $250.0 million (the “Loan Amount”), that bears interest at a fixed rate and matures on December 31, 2042 (the “Maturity Date”). Under the terms of the Loan Agreement, the amount payable to the lenders no later than the Maturity Date is approximately $481.3 million, provided that if the Loan is repaid in full on or before December 31, 2033, the amount payable to the lenders is $412.5 million, in each case inclusive of all applicable interest, yield protection premiums, early redemption fees, exit fees and other amounts payable under the Loan Agreement (excluding indemnification and similar obligations). Any amount borrowed and repaid by Subsidiary may not be reborrowed. +We will retain 70% of royalties on Ziihera annual net sales, with full royalty rights reverting to us once the Loan and other amounts payable under the Loan Agreement to Royalty Pharma have been repaid in full. All earned regulatory and commercial milestone payments under the Covered Agreements will be retained by us. For additional information regarding this arrangement, see the section titled “Liquidity and Capital Resources” under Part II. Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” below. +Wholly-Owned Pipeline +Our wholly-owned programs include novel ADC and MSAT candidates, such as TCEs, focusing on highly-expressed targets which provide opportunities for benchmarking in preclinical development and expected clinical differentiation. Our ADC candidates exploit our proprietary topoisomerase 1 inhibitor (“TOPO1i”) payload, ZD06519, while exploring alternate mechanisms of action for longer-term development and leveraging validated peptide-cleavable linkers and stochastic conjugations. With potential for enhanced activity compared to combination therapy, our current MSAT candidates (ZW209 and ZW1528) include trispecific TCEs (“TriTCE”) incorporating conditional co-stimulation to enhance immune-mediated killing of cancer cells, and multi-cytokine blockers for treatment of autoimmune and inflammatory diseases. Our TriTCE molecules are carefully designed to optimize tumor cell engagement and enhance T cell activation to increase anti-tumor activity while also minimizing cytokine release and off-tumor toxicities. +9 +Table o f Contents +Solid Tumors in Oncology: Antibody-Drug Conjugates (ADCs) +ZW191: A clinical-stage ADC that targets folate receptor alpha (“FRα”)-expressing tumors including ovarian cancer, endometrial cancer, and non-small cell lung cancer (“NSCLC”), is built using our novel, bystander-active, TOPO1i payload technology, ZD06519. The FRα-targeting monoclonal antibody incorporated in ZW191 was selected based on compelling internalization characteristics to enable targeting of high, mid, and low levels of FRα expression. A drug-antibody-ratio (“DAR”) of eight was selected due to the restricted expression profile of FRα in normal tissues and to enhance our ability to deliver payload to tumors with lower levels of FRα. FRα is a clinically validated target, found in approximately 75% of high-grade serous ovarian carcinomas, 50% of endometrial cancers, and in 70% of NSCLC. Preclinical data demonstrate strong ZW191 activity across a range of FRα-expressing patient-derived xenografts, including models with low levels of FRα. The ability to target lower levels of FRα is in part due to the DAR-eight format and the observed superior internalization, payload delivery, and tissue penetration derived from the ZW191 monoclonal antibody compared to other FRα monoclonal antibodies used in ADCs currently or previously in development. In a good laboratory practices (“GLP”) toxicology study, ZW191 achieved a highest non-severely toxic dose (“HNSTD”) in non-human primates of 60 mg/kg, which presents a compelling profile and enables the expectation of potentially achieving an efficacious dose level in the Phase 1 clinical trial. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW191, registered under NCT06555744 on clinicaltrials.gov. The study aims to enroll approximately 145 participants with advanced solid tumors, including ovarian, endometrial, and non-small cell lung cancers, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW191. In October 2025, we presented initial clinical data from the Phase 1 trial. Based on the preliminary efficacy data and the tolerable safety profile observed, we have initiated dose optimization in ovarian cancer to further evaluate ZW191’s clinical activity and safety to help inform the product candidate’s registrational strategy. +ZW251: A potential first-in-class clinical-stage ADC molecule designed for the treatment of glypican 3 (“GPC3”)-expressing hepatocellular carcinoma (“HCC”), incorporates the same Zymeworks proprietary bystander-active TOPO1i payload utilized in ZW191 (anti-FRα) and ZW220 (anti-NaPi2b), ZD06519. The GPC3-targeting monospecific antibody incorporated in ZW251 was selected based on favorable binding and internalization properties to enable targeting of a range of GPC3-expressing tumors. A DAR of four was selected for this program as a lower DAR potentially could unlock a broader range of dose levels, a potential benefit as HCC patients are commonly challenged by impairment of liver function as a result of chronic liver disease and cirrhosis. GPC3, a glycosylphosphatidylinositol (“GPI”)-anchored cell surface oncofetal antigen, is over-expressed in most HCC patients (>75%), and displays minimal normal adult tissue expression, making it an appealing ADC target. In preclinical studies, anti-tumor activity for ZW251 was observed in multiple patient-derived xenograft models of HCC reflecting a range of GPC3 over-expression. In GLP toxicology studies performed in non-human primates, ZW251 achieved a highest non-severely toxic dose (“HNSTD”) of 100 mg/kg, suggesting the potential for high doses in humans. We are encouraged by published research demonstrating the potential of targeting GPC3 with an antibody in HCC patients as evidenced by tumor localization of iodine radio-labeled condrituzumab, a clinical-stage anti-GPC3 monoclonal antibody, and believe that ADC-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC. In July 2025, we announced that the investigational new drug (“IND”) application for ZW251 was cleared by the FDA. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW251, registered under NCT07164313 on clinicaltrials.gov. The study aims to enroll approximately 100 participants with advanced solid tumors, including HCC, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ZW251. +ZW220: An ADC that targets NaPi2b-expressing NSCLC and ovarian cancer, is built, like ZW191, using our proprietary bystander active TOPO1i payload technology, ZD06519. The strong and persistent bystander effect of the ZD06519 payload that we have observed in preclinical studies may help overcome NaPi2b heterogeneity across different cancers. The NaPi2b-targeting monospecific antibody incorporated in ZW220 was selected based on a favorable binding profile and enhanced internalization properties to enable targeting of both Napi2b-high and NaPi2b-low expressing tumors. Distinct from ZW191, ZW220 utilizes a DAR-four format paired with mutations in the fragment crystallizable (“Fc”) region to attenuate binding to Fc-gamma family receptors. These features were incorporated in ZW220 with the goal of minimizing potential toxicities associated with expression of NaPi2b in normal lung tissue. NaPi2b is expressed in approximately 83% of ovarian (serous) cancer, 81% of endometrial cancer, and 77% of adenocarcinoma NSCLC. Preclinical data demonstrate that ZW220 is active in models of ovarian cancer and NSCLC with strong anti-tumor activity observed in patient-derived xenograft models and growth inhibition observed in three-dimensional spheroid models. ZW220 is tolerated at high doses in non-GLP animal studies with a maximum tolerated dose (“MTD”) ≥90 mg/kg in non-human primates and ≥200 mg/kg in rats, suggesting the potential for high doses in humans. NaPi2b is a compelling ADC target, and we believe the design of ZW220 may overcome some of the challenges encountered with other NaPi2b-targeted ADCs, including Lifa-V, UpRi, and XMT-1592, and may potentially provide a safe and meaningful benefit to patients with NaPi2b-expressing tumors. We have paused the preparations for the +10 +Table o f Contents +commencement of a Phase 1 study of ZW220 to help facilitate the accelerated development of ZW251. However, we believe ZW220 remains a highly differentiated, IND-ready asset with strong clinical, commercial, and partnership potential. +Solid Tumors in Oncology: Multispecific Antibody Therapeutics (MSATs) +ZW209: A novel TriTCE targeting Delta-like ligand 3 (“DLL3”)-expressing tumor cells, is designed using our clinically validated Azymetric and EFECT platforms. By leveraging obligate cis-T cell binding and conditional cluster of differentiation 28 (“CD28”) engagement, this potentially first-in-class molecule has been designed to prevent unintended T cell activation, while enabling tumor-targeted cytotoxicity. The innovative design has demonstrated differentiated long-term cytotoxicity in vitro at low E:T (effector to target) ratios, with enhanced T cell proliferation and survival, offering significant potential to increase durability of responses in DLL3-expressing cancers. We expect to submit an IND to commence Phase 1 clinical studies for ZW209 in 2026, with equivalent non-U.S. applications to be submitted thereafter. +Autoimmune and Inflammatory Diseases (AIID) +ZW1528: Our first program in AIID, is a novel IL-4R⍺ x IL-33 bispecific molecule designed to address respiratory inflammation such as mixed-type chronic obstructive pulmonary disease (“COPD”) by inhibiting multiple pathways. By blocking three cytokines (IL-4, IL-13, and IL-33) in a single biologic, ZW1528 offers a unique approach to inhibit clinically validated pathways. The bispecific antibody is designed to provide complete, prolonged IL-4R⍺ blockade with simultaneous blockade of IL-33. Based on non-clinical in vitro studies, the bispecific can independently suppress IL-4, IL-13, and IL-33 driven cell signaling equivalent to that achieved with anti-IL-4R⍺ monoclonal antibody (“mAb”) or anti-IL-33 clinical benchmarks mAbs. Furthermore, in preclinical studies, ZW1528-mediated blockade of cytokine-driven activation of human epithelial cells was superior to that achieved with mAbs targeting either IL-4R⍺ or IL-33, indicating potential benefits of dual blockade. Additionally, preclinical studies with human peripheral blood mononuclear cells (“PBMCs”) demonstrate ZW1528 provides blockade of IL-33 mediated effects beyond that achievable with an anti-IL33 benchmark mAb. With native Immunoglobulin G (“IgG”)-like geometry, ZW1528 demonstrates the potential for high manufacturability and incorporates half-life extending Fc modifications. We expect to submit a non-U.S. regulatory filing to commence Phase 1 clinical studies for ZW1528 in 2026. +Continued Pipeline Development +Going forward, we currently expect to focus our ADVANCE research efforts primarily on multispecific antibody and engineered-cytokine platforms. We anticipate that these activities will be partially supported through early-stage partnerships and collaborations. ZW1528 is currently expected to be the first ADVANCE program to enter clinical studies in 2026. We also intend to continue disseminating scientific findings through peer-reviewed publications and data presentations across our preclinical and clinical programs, as appropriate. +With respect to our ADC portfolio, we currently expect to continue conducting Phase 1 clinical studies for ZW191 and ZW251 during 2026. We also intend to advance our other ongoing ADC research programs, including potential clinical development of ZW220, ZW327, and ZW418, a biparatopic PTK7-targeting ADC incorporating a novel pan-RAS inhibitor payload, only if and when partnerships, collaborations, and/or other sources of external funding become available. +We intend to continue innovating with increased novelty in targets and unique mechanisms of action through bispecific or biparatopic ADCs, dual-payload ADCs, multi-specific immune cell engagers and immune-oncology, subject to strategic priorities, and the availability of resources. +Our Proprietary Therapeutic Platforms +Our expertise in protein engineering has enabled the development of our proprietary therapeutic platforms, a complementary suite of highly tailored biologics solutions. Our therapeutic platforms can be used alone or in combination to develop multifunctional fit-for-purpose biotherapeutics with bispecific capabilities (Azymetric), targeted cytotoxin payload delivery and linker technologies (drug conjugate platforms), finely tuned immune function modulation (EFECT), and tumor-specific immune co-stimulation (ProTECT). The modular design and ease of use of our therapeutic platforms allow for the design and evaluation of multiple candidates with different formats to determine the optimal therapeutic combination early in development. We continue to leverage these therapeutic platforms to expand our pipeline of next-generation multispecific and ADCs that we believe could represent significant improvements to the standard of care in multiple cancer types and other serious diseases. +11 +Table o f Contents +Azymetric Multispecific Antibody Platform +The Azymetric multispecific antibody platform is our foundation platform, which can produce either the backbone of our ADCs or be the base of our multispecific therapeutics that can be combined with both our TriTCE technology and our ProTECT platform to develop potential best-in-class trispecifics. The FDA approval of zanidatamab in 2024 provides validation of our proprietary Azymetric technology and capabilities for design and development of novel medicines. The Azymetric platform consists of a library of proprietary amino acid substitutions that enable the transformation of monospecific antibodies into bispecific or trispecific antibodies, which gives them the ability to simultaneously bind two non-overlapping epitopes. The Azymetric platform enables the development of biotherapeutics with dual-targeting of receptors/ligands and simultaneous blockade of multiple signaling pathways, increasing tumor-specific targeting and efficacy while reducing toxicities and the potential for drug resistance. In preclinical studies, the dual targeting of Azymetric antibodies has demonstrated synergistic activity relative to the application of an equivalent dose of the corresponding monospecific antibodies. Azymetric multispecifics can also be engineered to enhance internalization of the antibody into the tumor cell and consequently increase the delivery of cytotoxins. Azymetric multispecifics retain the desirable drug-like qualities of monoclonal antibodies, including long half-life, stability and low immunogenic potential, which increases their probability of success. Azymetric multispecifics are also compatible with standard manufacturing processes with high production yields and purity. +The Azymetric platform is the foundation for the development of trispecific and trivalent antibodies. Our complementary suite of technologies can incorporate multiple targets and mechanisms of action within a single antibody-based therapeutic. To achieve efficacy and durability in a difficult tumor microenvironment, we have developed a TriTCE strategy that integrates checkpoint inhibition (“TriTCE-CPI”) and costimulatory technologies (“TriTCE-costim”). TriTCE-CPI technology is designed to navigate suppressive tumor microenvironments and enhance the activity of TCEs through incorporation of a checkpoint pathway binder to restore and enhance T cell engagement and overcome secondary resistance to provide durable responses. TriTCE-costim technology can increase T cell fitness, activation and proliferation via tumor-dependent T cell co-stimulation. Further, TCE technologies can integrate with ProTECT, a technology built to mask an antibody arm to improve selectivity to minimize off-target, and mitigate on-target, adverse events. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including both topoisomerase and microtubulin inhibiting toxins), stable linkers, and conjugation technologies that are compatible with and complementary to our product candidates and enable delivery of cytotoxins directly to target cells. We believe that our platforms provide multiple competitive advantages over existing ADC approaches, including optimized activity and tolerability profiles through increased drug delivery to target cells with reduced off-target effects, as well as improved pharmacokinetics and stability. Our drug conjugate platforms can be used in conjunction with our other therapeutic platforms to potentially increase safety and efficacy as compared to existing ADC platforms. +Our TOPO1i ADC platform is one of several proprietary Zymeworks linker-payload platforms. TOPO1i-based technologies have shown meaningful clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets. Our novel camptothecin ZD06519 (FD1) has been specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-7 and C-10 positions of the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug-linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a free molecule and as an antibody conjugate, which include moderate free payload potency (~1 nanomolar (“nM”)), low hydrophobicity, strong bystander activity, robust plasma stability, and high-monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive efficacy in multiple cell-derived xenograft models and noteworthy tolerability in healthy mice, rats, and non-human primates. +EFECT Antibody Effector Function Modulation Platform +The EFECT platform consists of sets of modifications to the Fc region of antibodies that enable the selective modulation of recruited cytotoxic immune cells for diverse therapeutic applications. This allows us to rationally tailor the selective enhancement or suppression of immune effector function to optimize product candidates. +ProTECT Tumor-Specific Immune Co-stimulation Platform +The ProTECT platform is a novel conditionally active antibody technology that can simultaneously increase the tolerability and efficacy for therapeutics, thereby potentially enhancing therapeutic window and clinical utility. Functional, natural +12 +Table o f Contents +immunomodulatory heterodimers are introduced to sterically block antigen binding outside the tumor, enabling therapeutics with limited activity in normal healthy tissue, avoiding on-target, off-tumor toxicities. Once in the tumor microenvironment, specific proteases cleave and release one half of the functional block activating both the targeting antibody and the immunomodulatory function. The resulting activated multifunctional therapeutic enables immune modulation in concert with antigen binding, which enables an overall increase in the therapeutic window through selective tumor activity and enhanced potency. +Strategic Partnerships and Collaborations +Our novel product candidates, together with our combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutics. +Thr ough c ollaboration agreements with Jazz and BeOne relating to our programs for zanidatamab and zanidatamab zovodotin, we have received an aggregate of $491.0 million through December 31, 2025 in the form of non-refundable upfront payments and milestone payments. In addition, through these partnerships with Jazz and BeOne with respect to zanidatamab, as of December 31, 2025, we remain eligible to receive up to $1.51 billion in potential regulatory, development and commercial milestone payments, as well as tiered royalties on potential future product sales, pending receipt of applicable regulatory approvals.Under our collaboration agreement with Jazz, we are eligible to receive tiered royalties of ten to high teens percentages on global (outside of Asia (other than Japan), Australia and New Zealand) annual net sales of Ziihera up to $2.0 billion and 20% on annual net sales above $2.0 billion. Under the collaboration agreement with BeOne, we are eligible to receive tiered royalties of mid-single to mid-double digit percentages on annual net sales of Ziihera in Asia (other than Japan), Australia and New Zealand up to $1.0 billion and 19.5% on annual net sales above $1.0 billion (with royalty rates increasing by 0.5% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars). +These partnerships have provided us with a significant source of non-dilutive funding and provide for additional future direct funding by our strategic partners for our lead asset, zanidatamab. These partnerships also leverage our strategic partners’ commercial infrastructure, helping accelerate the development and expanding the potential reach of our lead product candidates. +The information included in the table below presents a summary of key aspects of our collaboration and licensing agreements as of December 31, 2025. +________________________ +(1) Current stage and therapeutic indication reflects the current preclinical, clinical or commercial stage of development for the most advanced program under the partnership, as applicable. +13 +Table o f Contents +(2) Figures reflect all potential future milestone payments under the applicable agreement, including, but not limited to, the lead asset. See further discussion of each partnership below. +(3) Tiered royalties of up to 19.5% of annual net sales in BeOne territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars. +Product Partnerships +Jazz +In October 2022, we entered into a license and collaboration agreement with Jazz (“Original Jazz Collaboration Agreement”; as amended in April 2023, “Amended Jazz Collaboration Agreement” and collectively with the Original Jazz Collaboration Agreement, the “Jazz Collaboration Agreement”). Under the Jazz Collaboration Agreement, Jazz is solely responsible for all development and commercialization rights for zanidatamab throughout the world, excluding existing Asia-Pacific territories (other than Japan) already governed by Zymeworks BC Inc.’s (“Zymeworks BC”) agreement with BeOne (“Territory”). +As part of our collaboration, we granted to Jazz certain exclusive and non-exclusive licenses, under our intellectual property, to research, develop, manufacture, and commercialize pharmaceutical products containing or incorporating zanidatamab or certain related antibodies excluding ADCs (such antibodies, collectively, “Licensed Antibodies,” and such pharmaceutical products, “Licensed Products”). +Jazz also granted us certain licenses, under Jazz’s intellectual property, to develop, commercialize, and manufacture the Licensed Antibodies and Licensed Products including to make and have made such antibodies for incorporation into zanidatamab zovodotin for development and commercialization purposes. +During the Term (as defined below), Jazz and its affiliates are prohibited from performing any clinical development of, or commercialization of, any pharmaceutical product containing a bispecific antibody directed to the ECD2 and ECD4 domains of HER2 in the Territory, other than Licensed Products. During the Term, Zymeworks BC and its affiliates are prohibited from (i) performing any preclinical development (except for certain independent, internal preclinical development by Zymeworks BC or its affiliates) or clinical development of, or commercializing, any pharmaceutical product that is directed to HER2 in the Territory (each, a “Zymeworks Competing Product”), other than Licensed Products and (ii) using clinical data resulting from certain clinical trials regarding zanidatamab that were being conducted or initiated by Zymeworks BC (the “Program”) to perform any pre-clinical development or clinical development, or commercialization of, any pharmaceutical product that is directed to HER2; provided that zanidatamab zovodotin is excluded from each restriction. Zymeworks BC retains the right to grant third parties rights to apply any of Zymeworks BC’s platforms to derive or generate, without any assistance from Zymeworks BC, antibodies directed to any biological target where Zymeworks BC is not aware of the identity of any such target, and Zymeworks BC retains the right to fulfill its obligations under agreements with its existing platform partners; provided, however, that Zymeworks BC cannot generate, or grant development or commercialization licenses to, Zymeworks Competing Products in new platform-based agreements entered into after the effective date of the Original Jazz Collaboration Agreement. +Jazz is required to use commercially reasonable efforts to develop and obtain regulatory approval for a Licensed Product in certain major market countries for the treatment of certain diseases. Jazz will be the holder of regulatory approvals and regulatory submissions for Licensed Products in the Territory. +Zymeworks BC will continue to supply zanidatamab and Licensed Product to certain clinical sites pursuant to the terms of the Jazz Collaboration Agreement. +Zanidatamab ( Ziihera) received accelerated approval from the FDA in November 2024 for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera related to the accelerated approval. In July 2025, Zymeworks’ partner, Jazz, announced that the European Commission granted conditional marketing authorization of zanidatamab for the treatment of adults with unresectable locally advanced HER2+ (IHC 3+) BTC. In January 2026, the New Drug Submission for Ziihera was approved by Health Canada for the treatment of adults with previously treated, unresectable locally advanced or metastatic HER2+ (IHC 3+) BTC, as monotherapy. Ziihera’s market authorization in Canada has been issued with conditions, pending the results of trials to verify its clinical benefit. O ur strategic partner Jazz expects to complete the sBLA submission for zanidatamab in the first quarter of 2026 for first-line HER2+ locally advanced or metastatic GEA under the real-time oncology review program in the United States, where zanidatamab has been granted Breakthrough Therapy Designation for patients with HER2+ GEA. +14 +Table o f Contents +Jazz is solely responsible for commercializing the Licensed Products in the Territory and is required to use commercially reasonable efforts to commercialize in each specified major market country each Licensed Product that obtains regulatory approval in such country. Jazz is required to conduct such commercialization at its sole cost and expense. Under the Jazz Collaboration Agreement, as of December 31, 2025 we have received (i) a non-refundable $50.0 million upfront payment following receipt of HSR Clearance and delivery of licenses and technology transfer to Jazz, (ii) a further payment of $325.0 million following Jazz’s decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01, in addition to our delivery of other data, analyses and other information, and (iii) a milestone payment of $25.0 million in relation to FDA approval of Ziihera (zanidatamab-hrii) for the treatment of HER2+ BTC. As of December 31, 2025, we remain eligible to receive up to an aggre gate of $500.0 million in certain regulatory milestones payments and up to an aggregate of $862.5 million in potential co mmercial milestone payments. W e are also eligible to receive tiered royalties between 10% and 20% on annual net sales of Licensed Products in the Territory, with customary reductions in specified circumstances. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country basis until the latest of (i) ten years after the first commercial sale of such Licensed Product in such country, (ii) the expiration of the last valid licensed patent claim within certain Zymeworks BC intellectual property covering such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity of such Licensed Product in such country. The term of the Amended Jazz Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the royalty term for such Licensed Product in such country (the “Term”). The Amended Jazz Collaboration Agreement contains customary termination rights for Jazz and us, including the right for Jazz to terminate the agreement in its sole discretion with advance notice to us. We may also terminate the Amended Jazz Collaboration Agreement if Jazz or its affiliates file or initiate a patent challenge against us. +In May 2023, we also entered into a stock and asset purchase agreement with Jazz Pharmaceuticals, Inc. ( “ Jazz Inc. ” ) (as amended, the “Transfer Agreement”) to provide for a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz Inc. by transferring certain assets, contracts and employees associated with the clinical trials for zanidatamab to Jazz Inc. and its affiliates. +Pursuant to the Transfer Agreement, at the closing thereunder , (i) Jazz acquired from Zymeworks Biopharmaceuticals Inc. ( “ ZBI ”) 100% of the issued and outstanding capital stock of Zymeworks Zanidatamab Inc. ( “ ZZI, ” a subsidiary of ZBI); (ii) Jazz engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and the Company transferred to Jazz or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that worked on the Program; (iii) Jazz and its affiliates acquired from Zymeworks BC and ZBI and their affiliates the Acquired Assets (as defined in the Transfer Agreement); and (iv) Jazz and its affiliates assumed certain liabilities arising following the closing under the Transfer Agreement related to the Acquired Assets and the Program, including with respect to the transferred service providers, in each case subject to the terms and conditions of the Transfer Agreement. No shares of the Company’s common stock were sold by the Company or acquired by Jazz Inc. and its affiliates in connection with such transactions under the Transfer Agreement. +BeOne +In November 2018, we entered into agreements with BeOne whereby we granted BeOne royalty-bearing exclusive licenses for the research, development, and commercialization of zanidatamab and zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia, and New Zealand (such agreement relating to z anidatamab, as amended or modified, the “Zanidatamab Agreement,” and such agreement relating to zanidatamab zovodotin, the “Zovodotin Agreement”). In September 2023, Zymeworks BC and BeOne entered into a termination agreement relating to the Zovodotin Agreement (the “Termination Agreement”). +For the research, development and commercialization licenses to zanidatamab and zanidatamab zovodotin, we received an upfront payment of $40.0 million. Under the Zanidatamab Agreement, as of December 31, 2025 we have received milestone payme nts of $51.0 million, including $28.0 million in milestone payments received from BeOne in relation to the acceptance by the Center for Drug Evaluation ( “ CDE ”) of the National Medical Products Administration ( “ NMPA ”) in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC and subsequent approval of this BLA. As of December 31, 2025, we remain eligible to receive development and commercial milestone payments of u p to $144.0 million, together with tiered royalties of up to 19.5% of annual net sales in BeOne territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit million s of dollars. In May 2025, BeOne announced that the NMPA in China granted conditional approval of zanidatamab for the treatment of patients with previously treated, unresectable or metastatic HER2+ (IHC3+) BTC. Under the Zanidatamab Agreement, Zymeworks and BeOne are collaborating on certain global clinical studies and both Zymeworks and BeOne will independently conduct other clinical studies in their own respective territories. Each of Zymeworks and BeOne are responsible for all of the development and commercialization costs in +15 +Table o f Contents +their own territories. Unless earlier terminated, the Zanidatamab Agreement will terminate on a licensed product-by-product and country-by-country basis upon the expiration of the royalty term in such country for such licensed product. The Zanidatamab Agreement may be terminated by BeOne upon prior written notice or by either party upon the other party’s bankruptcy or uncured material breach. +As noted above, the Zovodotin Agreement was terminated under the Termination Agreement. The Termination Agreement does not relieve us or BeOne from obligations under the Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeOne intellectual property with respect to zanidatamab zovodotin. +Platform Partnerships +In addition to the payments we have received through our collaboration agreements with Jazz and BeOne relating to zanidatamab and zanidatamab zovodotin, as of December 31, 2025, we have received $233.4 million in the form of non-refundable upfront and milestone payments from platform partnership and collaboration agreements. We continue to have revenue-generating strategic partnerships and collaborations with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms with the following pharmaceutical companies: BMS, GSK, Daiichi Sankyo, J&J, and Merck. As of December 31, 2025, we remain eligible to receive up to $0.98 billion in preclinical and development milestone payments and up to $3.08 billion in commercial milestone payments, as well as tiered royalties on potential future product sales, pending regulatory approval. It is possible, however, that our strategic partners’ programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets using our platforms. +BMS +In December 2014, we entered into a collaboration agreement with Celgene (now BMS) to research, develop and commercialize bispecific antibodies generated through the use of our Azymetric platform. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. Under the terms of the agreement, we granted BMS a right to exercise options to worldwide, royalty-bearing, antibody sequence pair-specific exclusive licenses to research, develop and commercialize certain licensed products. We received an upfront payment of $8.0 million and an expansion fee of $4.0 million . As of December 31, 2025, BMS had exercised two commercial license options and we have received $15.0 million of option payments in total, but in 2023 BMS stopped development of one program. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period . As at December 31, 2025, we remain eligible to receive up to $313.0 million for the two remaining programs (or $156.5 million not including the one program for which BMS stopped development in 2023), comprised of development milestone payments of up to $101.5 million per program and commercial milestone payments of up to $55.0 million per program. In addition, we are eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +In June 2020, our existing collaboration agreement with BMS was amended to expand the license grant to include the use of our EFECT platform for the development of therapeutic candidates and to extend the research term. We received an upfront expansion fee of $12.0 million and all other financial terms were unchanged. +The agreement contains customary termination rights for BMS and us, including the right of BMS to terminate the agreement in its entirety or on a product-by-product basis in its sole discretion with advance notice to us. The agreement will terminate on a product-by-product and country-by-country basis upon the later of the expiration of the last-expiring patent related to the BMS licensed product, or ten years after the first commercial sale of the BMS licensed product in such a country. If BMS does not exercise its option for the commercial license, the agreement will terminate on a product-by-product basis for which the option was not exercised. +GSK +In December 2015, we entered into a collaboration and license agreement with GSK to research, develop and commercialize up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of our EFECT and Azymetric platforms. +16 +Table o f Contents +Under the terms of the agreement, we granted GSK a worldwide, royalty-bearing antibody target-exclusive license to new intellectual property generated with the EFECT platform under this collaboration and a non-exclusive license to the Azymetric platform to research, develop and commercialize future licensed products. We are eligible to receive up to $1.1 billion, including research, development and commercial milestone payments of up to $110.0 million for each product. In addition, we are eligible to receive tiered royalties in the low single digits on net sales of products. No development or commercial milestone payments or royalties have been received as of December 31, 2025. We retained the right to develop up to four products, free of royalties, using the new intellectual property generated in this collaboration, and after a period of time, to grant licenses to such intellectual property for development of additional products by third parties. Under this agreement, we are sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. After the conclusion of the research period, each party will be solely responsible for the further research, development, manufacturing and commercialization of its own respective products. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate on the earlier of (i) the end of the research period if GSK does not elect to advance one or more products incorporating intellectual property generated under the research period for further research and development or (ii) on a product-by-product and country-by-country basis upon the latter of the product being no longer covered by a patent related to the GSK licensed product, or ten years after the first commercial sale of the GSK licensed product in such a country. +In April 2016, we entered into a platform technology transfer and license agreement with GSK to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. Under the terms of this 2016 agreement, we granted GSK a worldwide, royalty-bearing antibody sequence pair-specific exclusive license to research, develop and commercialize licensed products. In May 2019, this agreement was expanded to provide GSK access to Zymeworks’ unique heavy-light chain pairing technology under the Azymetric platform. Under the expanded agreement, we are eligible to receive up to $1.1 billion in milestone and other payments. As of December 31, 2025, we have received an upfront technology access fee payment of $6.0 million and $16.5 million of milestones in total. As of December 31, 2025, we remain eligible to receive research milestone payments of up to $35.0 million, development milestone payments of up to $168.5 million and commercial milestone payments of up to $867.0 million. In addition, we are eligible to receive tiered royalties in the low to mid-single digits on product sales. GSK bears all responsibility and costs associated with research, development and commercialization of products generated using the Azymetric platform. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. Termination provisions allow for GSK to terminate the agreement or specific antibody sequence pairs due to an incurable material breach by us, and under specific conditions, GSK shall have certain rights to continue the research, development, and commercialization of products with their license payment, milestone, and royalty obligations reduced by 50%. +Daiichi Sankyo +2016 Agreement +In September 2016, we entered into a collaboration and cross-license agreement (“Collaboration and Cross License Agreement”) with Daiichi Sankyo to research, develop and commercialize one bispecific antibody generated through the use of our Azymetric and EFECT platforms. Under this agreement, we received an upfront technology access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million. Under this agreement, w e also gained non-exclusive rights to develop and commercialize up to three products (revised to up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies, with royalties in the low single digits to be paid to Daiichi Sankyo on sales of such products. +In March 2023, we entered into a termination and license agreement (the “Termination and License Agreement”) relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the Termination and License Agreement, we granted to Daiichi Sankyo a non-exclusive, worldwide, royalty-free right and license, with the right to sublicense, to certain intellectual property to perform additional research in accordance with the terms of the Termination and License Agreement during the term of the Termination and License Agreement, which expired in August 2025. The Termination and License Agreement has no impact on our separate license agreement with Daiichi Sankyo, which we entered into in 2018, as described below. +17 +Table o f Contents +2018 Agreement +In May 2018, we entered into a license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of our Azymetric and EFECT platforms. This agreement did not alter or amend the initial 2016 agreement. Under the terms of this 2018 agreement, we granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $484.7 million in various milestone and other payments. As of December 31, 2025, we have received an upfront technology access fee payment of $18.0 million, and $3.1 million in development milestone payments. We remain eligible to receive development milestone payments totaling up to $60.3 million and commercial milestone payments of up to $170.0 million. In addition, we are eligible to receive tiered royalties ranging from the low single digits up to 10% on product sales. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for Daiichi Sankyo and us, including the right for Daiichi Sankyo to terminate the rights to our therapeutic platforms in its sole discretion with advance notice to us. The agreement will terminate, with respect to Daiichi Sankyo’s licenses, on a product-by-product basis, with the last payment obligation for the respective product. +J&J +In November 2017, we entered into a collaboration and license agreement with J&J to research, develop and commercialize up to six bispecific antibodies generated through our Azymetric and EFECT platforms. Under the terms of the agreement, we granted J&J a worldwide, royalty-bearing, antibody sequence group-specific exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $1.45 billion in various license and milestone payments. +As of December 31, 2025, we have received an upfront payment of $50.0 million and development milestones totaling $33.0 million, which included $8.0 million in connection with the initiation of clinical trials of two bispecific antibodies and $25.0 million related to clinical progress of pasritamig entering into a Phase 3 trial in metastatic castration-resistant prostate cancer. Pasritamig (JNJ-78278343) is a first-in-class, bispecific T-cell engager targeting human kallikrein 2 (KLK2), engineered using Zymeworks’ Azymetric platform. J&J has deprioritized the development of the other bispecific antibody, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. +As a result, we remain eligible to receive up to $18.0 million in additional development milestone payments and up to $186.5 million in commercial milestone payments relating to pasritamig. We remain eligible to receive up to $43.0 million in additional development milestone payments and up to $186.5 million in commercial milestone payments with respect to the other bispecific antibody which has been deprioritized by J&J. +In addition, we are eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on J&J’s performance. J&J is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for J&J and us, including the right for J&J to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate, on a product-by-product basis, on the expiry of the royalty term for the product. +Other Collaborations - Merck +We have collaborated with Merck since 2011. In July 2020, we entered into a new licensing agreement with Merck granting Merck a worldwide, royalty- bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field usin g our Azymetric and EFECT platforms. We are eligible to receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +18 +Table o f Contents +Intellectual Property +Our business success will depend significantly on our ability to: +• secure, maintain and enforce patent and other proprietary protection for our core technologies, inventions and know-how; +• obtain and maintain licenses to key third-party intellectual property owned by such third parties; +• preserve the confidentiality of our trade secrets; and +• operate without infringing upon valid, enforceable third-party patents and other rights. +We seek to secure and maintain patent protection for the composition of matter, manufacturing processes and methods of use for our drug candidates and for our underlying protein engineering capabilities and therapeutic platforms including Azymetric, EFECT, ZymeCAD and ProTECT. We also utilize trade secrets, careful monitoring and limited disclosure of our proprietary information where patent protection is not appropriate. We also protect our proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and assignment of inventions prior to their engagement. We intend to continue to expand our intellectual property holdings by seeking patent protection for new compositions of matter, new features and applications of our core therapeutic platforms, and innovative new therapeutic platforms, in the United States and other jurisdictions. We also intend to supplement internal innovation through in-licensing of new technologies and compositions of matter as appropriate. We intend to take advantage of any available data exclusivity, market exclusivity, patent term adjustment and patent term extensions. +We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we identify any such disclosures, evaluate them and take appropriate courses of action. +As of December 31, 2025, our patent portfolio includes more than 30 patent families related to our therapeutic antibody product (zanidatamab), our preclinical, clinical stage, and additional product candidates, and our therapeutic platform technologies. As of December 31, 2025, from these patent families we have more than 275 issued patents, 29 of which are U.S. patents. Additional patent families in our patent portfolio relate to other earlier stage potential product candidates or platforms that we do not consider material to our business at this time. +Therapeutic Antibody Portfolio +Our therapeutic antibody patent portfolio is directed to specific compositions of matter, methods of using and compositions used in manufacturing our approved products and product candidates . +Approved Product +Zanidatamab: As of December 31, 2025 , we own U.S. and foreign patents and patent applications directed to compositions of matter of zanidatamab, compositions used in the manufacture of zanidatamab, and methods of using zanidatamab. Issued patents and patent applications, if granted, directed to compositions of matter of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to compositions used in the manufacture of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to methods of using zanidatamab are anticipated to expire between 2034 and 2042, absent any patent term adjustments or extensions. In January 2025, an application was submitted to the USPTO for the extension of the patent term of U.S. patent number 10,000,576 directed to compositions of matter of zanidatamab. This application is currently under review by the USPTO and FDA. +Zanidatamab is also protected by our patent families directed to Azymetric Fc, as described below. +Clinical Stage Product Candidates +ZW191: As of December 31, 2025 , we own a U.S. patent and patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW191, compositions used in the manufacture of ZW191, and methods of using ZW191. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. We also own U.S. provisional patent applications directed to additional methods of using ZW191. If converted to non-provisional patent applications and granted, these applications are anticipated to expire in 2046, absent any patent term adjustments or extensions. ZW191 is also protected by a patent family directed to our TOPO1i technology. +19 +Table o f Contents +ZW251: As of December 31, 2025 , we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW251 and methods of using ZW251. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW251 is also protected by a patent family directed to our TOPO1i technology. +L ead Preclinical Product Candidates +ZW209: As of December 31, 2025 , we own patent applications filed internationally under the Patent Cooperation Treaty (“PCT”) and in foreign jurisdictions directed to compositions of matter of ZW209, compositions used in the manufacture of ZW209, and methods of using ZW209. If granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. ZW209 is also protected by patent families relating to Azymetric Fc and Azymetric Fab. +ZW1528: As of December 31, 2025 , we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW1528, compositions used in the manufacture of ZW1528 and methods of using ZW1528. If granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. ZW1528 is also protected by patent families relating to Azymetric Fc and Azymetric Fab. +Additional Product Candidates +ZW220: As of December 31, 2025 , we own patent applications filed internationally under the PCT, and in the United States and foreign jurisdictions, directed to compositions of matter of ZW220, compositions used in the manufacture of ZW220, and methods of using ZW220. If granted, these patent applications are anticipated to expire between 2043 and 2044, absent any patent term adjustments or extensions. ZW220 is also protected by a patent family directed to our TOPO1i technology. +ZW327: As of December 31, 2025 , we own U.S. provisional patent applications directed to compositions of matter of ZW327, compositions used in the manufacture of ZW327, and methods of using ZW327. If converted and granted, these applications are anticipated to expire in 2046, absent any patent term adjustments or extensions. ZW327 is also protected by a patent family directed to our TOPO1i technology. +Therapeutic Platform Technology Portfolio +Our therapeutic platform technology portfolio includes biological formats and variants thereof, including the Azymetric platform, our drug conjugate platforms (including our TOPO1i technology), the EFECT platform, and specific applications, manufacturing methods and assays related to the platform constructs and underlying computational chemistry. +Azymetric +We own patents and patent applications relating to the Azymetric platform for engineering Fc and Fab constructs for the development of bispecific antibodies. +Azymetric Fc: As of December 31, 2025, we own U.S. and foreign patents and a U.S. patent application directed to our Azymetric Fc platform. Patents and patent applications, if granted, directed to compositions of matter of engineered antibody Fc regions, methods of engineering antibody Fc regions to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fc regions are expected to expire between 2031 and 2033, absent any patent term adjustments or extensions. +Azymetric Fab : As of December 31, 2025, we own U.S and foreign patents and patent applications directed to our Azymetric Fab platform. Patents and patent applications, if granted, directed to compositions of matter, methods of engineering antibody Fabs to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fabs are expected to expire between 2033 and 2036 absent any patent term adjustments or extensions. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including TOPO1i), stable linkers, and conjugation technologies that are compatible with and complementary to our antibody product candidates and enable delivery of cytotoxins directly to target cells. +20 +Table o f Contents +TOPO1i Platform: As of December 31, 2025, we own patent applications filed in the United States and foreign jurisdictions directed to novel TOPO1i compounds (including ZD06519), TOPO1i-linker compositions and antibody-TOPO1i conjugates. If granted, these patent applications are expected to expire in 2042, absent any patent term adjustments or extensions. +EFECT +As of December 31, 2025, we own U.S and foreign patent applications directed to engineering Fc constructs with modulated FcγR-binding and Fc effector function, including compositions of matter and methods of making Fc constructs with altered FcγR-binding and Fc effector function, and compositions of matter and methods of making Fc constructs that lack FcγR-binding. These patent applications, if granted, are expected to expire between 2041 and 2042, absent any patent term adjustments or extensions. +ProTECT +As of December 31, 2025, we own patent applications filed in the United States and foreign jurisdictions and patents in foreign jurisdictions directed to compositions of matter, methods of making and methods of using conditionally active antibody constructs comprising immunomodulatory ligands and their cognate receptors derived from the immunoglobulin superfamily (such as PDL1 and PD1) fused to the antibody variable heavy and light chain region termini. These patents and, if granted, patent applications are expected to expire in 2041, absent any patent term adjustments or extensions. +Computational Chemistry +As of December 31, 2025, we own U.S and foreign patents and patent applications directed to computational and algorithmic advances incorporated into our ZymeCAD platform, including advances in general molecular modeling, conformational dynamics, and computational workflows. These patents and patent applications, if granted, are expected to expire between 2034 and 2042, absent any patent term adjustments or extensions. +Technology Licensing and In-Licensed Intellectual Property +Daiichi Sankyo +As noted above under “ Strategic Partnerships and Collaborations – Platform Partnerships – Daiichi Sankyo – 2016 Agreement, ” in September 2016, we entered into the Collaboration and Cross License Agreement with Daiichi Sankyo under which we gained non-exclusive rights to develop and commercialize up to three products (up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies. In March 2023, we entered into the Termination and License Agreement relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products, such as ZW209, using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the surviving terms of the Collaboration and Cross License Agreement , pending receipt of regulatory approval, we may be required to make future low single-digit royalty payments on the net sales of such products. +Phanes +In November 2021, we entered into a lic ense agreement with Phanes Therapeutics, Inc. (“Phanes”). Phanes granted Zymeworks an exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable, royalty-bearing license to research, develop, commercialize, and otherwise exploit certain antibody products incorporating proprietary Phanes binders in the field of oncology. In December 2023, this license agreement was partially terminated only with respect to a specific set of such products. All other rights and obligations under this license agreement remain in full force and effect. +Under the license agreement, we may be required to make future payments to Phanes upon the direct achievement of certain clinical development milestones for products, such as ZW251, that incorporate certain Phanes intellectual property. In addition, subject to receipt of regulatory approval, we may be required to make future payments to Phanes upon direct achievement of certain commercial milestones and certain sales milestones, as well as up to low single-digit royalty payments on net sales of such products. +21 +Table o f Contents +ProBioGen +In February 2016, we entered into a master services and master license agreement with ProBioGen AG ( “ ProBioGen ” ). ProBioGen provided certain development and manufacturing services and granted us a non-exclusive, worldwide, sublicensable license to research, develop, manufacture and commercialize our product candidates (which include Ziihera (zanidatamab-hrii)) using ProBioGen’s platforms, including their proprietary GlymaxX technology for generating afucosylated antibodies. This license includes certain additional non-exclusive patent rights sub-licensed by ProBioGen. Licensing terms include preclinical, clinical and commercial milestones. In connection with the first commercial sale of Ziihera, we paid to ProBioGen €3.95 million for achievement of the first commercial sale milestone, which amount was reimbursed by Jazz. In addition, subject to achievement of certain commercial sales thresholds of Ziihera, we are required to make additional future payments to ProBioGen. +Chugai +In June 2020, we entered into a patent license agreement with Chugai Pharmaceuticals Co., Ltd (“Chugai”). Chugai granted Zymeworks a non-exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable license under certain patents to research, develop, manufacture and commercialize certain antibody products covered by such patents. Under the license agreement, we are required to pay an immaterial annual fee for so long as there is a valid claim within the licensed patents covering certain antibody products. +Manufacturing +We rely on third-party contract manufacturing organizations to provide manufacturing, linker-toxin conjugation, and fill-finish services in order to generate all of the therapeutic antibody supply required for our clinical studies and other research and development activities. To retain focus on our expertise in developing new product candidates, we do not currently plan to develop or operate in-house manufacturing capacity. Our multispecific therapeutic antibody and ADC candidates require standard chemistry, manufacturing and control (“CMC”) processes typical of those required for monoclonal antibody manufacturing. We therefore expect to continue to be able to develop product candidates that can be manufactured in a cost-effective fashion by our network of qualified third-party contract manufacturing organizations. +Through our contract manufacturing organizations, we currently have sufficient supply of our product candidates to carry out ongoing and planned preclinical studies. For zanidatamab, we also have sufficient current good manufacturing practices (“cGMP”)-grade supply to continue ongoing clinical trials. Our strategic partners are responsible for the commercial manufacture of zanidatamab. For our clinical stage product candidates, we have sufficient cGMP-grade supply to complete our ongoing clinical trials. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that we or our strategic partners successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +With respect to our healthcare asset aggregation strategy, we face competition from other companies, funds and other investment vehicles seeking to aggregate royalties or provide alternative financing to biotechnology companies. These competitors may have a lower cost of capital or access to greater amounts of capital and thereby may be able to successfully acquire assets that we are also targeting for acquisitions. There is a limited number of suitable and attractive acquisition or partnering opportunities available in the market, and competition to acquire such assets may be intense. +With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may be able to access rare families and identify targets before we do. +Many of the companies against which we compete or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our +22 +Table o f Contents +competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, recruiting patients for clinical trials, and by acquiring technologies complementary to, or necessary for, our programs. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience and price, the effectiveness of alternative products, the level of competition and the availability of coverage, and adequate reimbursement from government and other third-party payors. +Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we or our strategic partners may obtain approval, which could result in our competitors establishing a strong market position before we or our partnered product candidates are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products. +Zanidatamab is being developed for patients with solid tumors that express HER2, including patients with tumors expressing low levels of HER2. Competing approved HER2-targeted therapies include F. Hoffmann-La Roche Ltd.’s Herceptin, Perjeta, Phesgo, and Kadcyla as well as Novartis Pharmaceuticals Corporation’s Tykerb, Puma Biotechnology, Inc.’s Nerlynx, AstraZeneca PLC / Daiichi Sankyo’s Enhertu, Seagen Inc.’s Tukysa, MacroGenics, Inc.’s Margenza, Jiangsu HengRui Medicine Co., Ltd.’s pyrotinib, Pfizer’s disitamab vedotin, Alphamab’s anbenitamab and anbenitamab repodetecan, BioNTech’s trastuzumab pamirtecan, Boehringer’s zongertinib, Bayer’s sevabertinib and various trastuzumab biosimilars, as well as other candidates in late-stage development. +ZW191 is being developed for patients with solid tumors that express FRα. Competing approved FRα -targeted therapies include AbbVie’s Elahere. Key FRα-targeted ADCs under development include Genmab’s Rina-S, AstraZeneca’s AZD5335, Eli Lilly’s sofetabart mipitecan (LY4170156) and AbbVie’s IMGN151 and ABBV901. +ZW251 is being developed for patients with solid tumors that express GPC3. Competing GPC3-targeted ADCs include Lepu/Miracogen’s MRG006 and BioCity’s BC2027. Alternative approaches targeting GPC3 include cell therapies, TCEs, radioconjugates and monoclonal antibodies exemplified by AstraZeneca’s AZD5851 (C-CAR031), Legend Biotech’s LB2101, Sotio’s BOXR1030, Eureka Therapeutics’ ECT204, CARsgen’s CT011; AstraZeneca’s AZD9793 & Keymed’s CM350; BMS’ RYZ801; and Roche’s codrituzumab. +ZW1528 is being developed for patients with respiratory inflammation, targeting IL-4R⍺ and IL-33 receptors. Competing development-stage therapies with a similar profile include AK139, the IL-4Ra/ST2 bispecific from Akeso Bio. +ZW209 is being developed for patients with solid tumors that express DLL3. Competing approved DLL3-targeted therapies include Amgen’s IMDELLTRA (tarlatamab). Key DLL3-targeted TCEs under development include Boehringer Ingelheim’s BI 764532, Merck’s gocatamig (MK-6070, formerly HPN328), Chugai/Roche’s ALPS12 (RG6524), Qilu’s QLS31904 and Zelgen’s alveltamig (ZG006). Alternative approaches targeting DLL3 include ADCs, radioconjugates and bispecific antibodies, such as Zai Labs’ zocilurtatug (ZL-1310), Roche/Innovent’s IBI3009, IDEAYA Biosciences’ IDE849, Phanes Therapeutics’ Peluntamig (PT217) and Abdera’s ABD-147. +The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our product candidates are effective. No regulatory agency has made any such determination that any of our product candidates are effective for use by the general public for any indication. +Government Regulation +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our ADC product candidates are comprised of both a drug product and a biologic product, and will therefore be subject to regulation in the United States as combination products. If marketed individually, each component would be subject to different regulatory pathways and would require approval of independent marketing applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction +23 +Table o f Contents +over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our ADCs, we believe that the primary mode of action is attributable to the biologic component of the product. Thus, our ADC product candidates are regulated as therapeutic biologics, with the FDA’s Center for Drug Evaluation and Research having primary jurisdiction over premarket development. Our antibody therapeutics, including MSATs, are also regulated as therapeutic biologics by the FDA’s Center for Drug Evaluation and Research. +Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local and foreign statutes and regulations. Our product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. +U.S. Biological Products Development Process +The process required by the FDA before a biologic may be marketed in the United States generally involves the following: +• completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests and preclinical animal trials and applicable requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations, including GLP; +• submission to the FDA of an IND application, which must become effective before human clinical trials may begin; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as current good clinical practice (“cGCP”) regulations and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or noncompliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. +• submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity; +• potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and +• FDA review and approval, or licensure, of the BLA. +Human clinical trials are typically conducted in sequential phases that may overlap or be combined: +• Phase 1. The biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labelling. +During all phases of clinical development, regulatory agencies require extensive reporting, monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. +A sponsor, an institutional review board (“IRB”) or independent ethics committee, the FDA or other regulatory or monitoring authorities may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk, failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, failure to demonstrate a benefit from using the investigational drug, changes in government regulations or administrative actions. +24 +Table o f Contents +Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to submit a summary of the results of their clinical trials after completion of a trial, unless an extension or a certification permitting delayed submission is obtained from the government. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the biological product. When a BLA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed. Upon accepting the BLA for filing, the FDA will conduct an in-depth review of the BLA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the product candidate. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed. +The FDA is authorized to designate certain products for expedited programs if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. In particular, the FDA may designate a product for Fast Track designation if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track designated products, sponsors may have a higher number of interactions with the FDA and may be eligible for “rolling review” where review of sections of a Fast Track product’s New Drug Application or BLA is initiated before the full New Drug Application or BLA application is complete. The FDA has granted two Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing gastroesophageal adenocarcinoma in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. +The FDA also may designate a product as a Breakthrough Therapy if it is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically important endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as a Breakthrough Therapy, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. The FDA has granted Breakthrough Therapy designation for zanidatamab in HER2 gene-amplified BTC patients who have received prior systemic chemotherapy. Products designated as a Breakthrough Therapy by the FDA can also be eligible for accelerated approval. In December 2022, the Consolidated Appropriations Act, 2023, including the Food and Drug Omnibus Reform Act (“FDORA”), was signed into law. FDORA made several changes to the FDA’s authorities and its regulatory framework, including, among other changes, reforms to the accelerated approval pathway, such as requiring the FDA to specify conditions for post-approval study requirements and setting forth procedures for the FDA to withdraw a product on an expedited basis for non-compliance with post-approval requirements. +Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at a company’s request or by the FDA’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug or other elements to assure safe use, depending on what the FDA considers necessary for the safe use of the drug. +Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and cGCP requirements. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA +25 +Table o f Contents +may interpret data differently than the applicant interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor (for example, requiring labeling changes) or major (for example, requiring additional clinical trials). Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. The FDA’s “real time” release of newly issued Complete Response Letters associated with withdrawn or abandoned applications, if applicable to any of our product candidates, can materially impact our competitive advantage and intellectual property. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States at the time of the request for orphan designation. If a sponsor demonstrates that a drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants Orphan Drug Designation to the product for that use. The FDA has granted zanidatamab Orphan Drug Designation for the treatment of BTC and GEA. +The benefits of Orphan Drug Designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. However, the FDA Reauthorization Act, which was enacted in 2017, requires, among other things, that certain orphan drugs for cancer be tested for children. The government has also increased focus on the potential misuse of the orphan drug approval process to increase the price of orphan drugs. +In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition. In January 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order. The Consolidated Appropriations Act of 2026, signed into law in February 2026, codified this longstanding FDA interpretation of the Orphan Drug Act, allowing the FDA to approve multiple versions of the same orphan drug for different subindications and subpopulations. +Further, in June 2024, the U.S. Supreme Court overruled the Chevron doctrine, which gives deference to regulatory agencies’ statutory interpretations in litigation against federal government agencies, such as the FDA, where the law is ambiguous. This Supreme Court decision may invite various stakeholders to bring lawsuits against the FDA to challenge longstanding decisions and policies, which could lead to uncertainties in the industry. Changes in the leadership of the FDA and other federal agencies under the new Presidential administration may lead to new policies and changes in the regulations that may impact our clinical development plans. +Post-Approval Requirements +Even if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with cGMP. Adverse events reported after approval of a drug can result in additional restrictions on the use of a marketed product or requirements for additional post-marketing studies or clinical trials. +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP requirements. Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for +26 +Table o f Contents +compliance with cGMP requirements and other laws. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacture or promotion of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as significant administrative, civil or criminal sanctions. +Biosimilars and Exclusivity +The 2010 Patient Protection and Affordable Care Act (“PPACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. +Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as the first interchangeable for biologic products. +Canadian Review and Approval Process +In Canada, our biologic product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the rules and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and government review and approval of experimental results prior to giving approval to sell drug products, including biologic drug products. Regulators also typically require that rigorous and specific standards such as cGMP, GLP and cGCP are followed in the manufacture, testing and clinical development, respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. +The principal steps required for drug approval in Canada are as follows: +Preclinical Toxicology Studies and Clinical Trials +Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance with applicable laws and GLP. +In Canada, the process of conducting clinical trials with a new drug cannot begin until a Clinical Trial Application (“CTA”) is submitted and the required number of days has lapsed without objection from Health Canada. Biological drugs carry additional risks, as compared to traditional small-molecule drugs, associated with complexity and variability in manufacturing that can contribute to increased lot-to-lot variation of the final product, and with the potential for adventitious agents. Therefore, the content requirements for the quality information for biological drugs to be used in clinical trials are different from those for standard small-molecule pharmaceutical drugs (for example, the inclusion of information on manufacturing facilities is required for biological drugs). In addition, it is necessary to have more stringent controls on the release of biologic drug lots used in authorized clinical trials. +Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards (“REBs”), instead of IRBs, are used to review and approve clinical trial plans. Human clinical trials are typically conducted in three sequential phases, as discussed above in the context of government regulation in the United States. +The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into Canada are also subject to regulation by Health +27 +Table o f Contents +Canada relating to their labeling and distribution. Progress reports detailing the results of the clinical trials must generally be submitted at least annually to Health Canada and/or the applicable REBs, and more frequently if serious adverse events occur. +New Drug Submission +Upon successful completion of Phase 3 clinical trials, the company sponsoring a new drug then assembles all the preclinical and clinical data and other testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission (“NDS”). The NDS is then reviewed by Health Canada for approval to market the drug. +The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Biologic drugs, such as our candidates, differ from standard small-molecule drugs in that applicants must include more detailed chemistry and manufacturing information. This is necessary to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired microorganism. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Health Canada may not grant approval of an NDS on a timely basis, or at all. +Even if Health Canada approves a product candidate, it may limit the approved indications for use of the product candidate, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms. +Biologic products in particular are monitored post-approval by being placed on a lot-release schedule tailored to their potential risk, manufacturing, testing and inspection history as of the date of this report. With higher-risk biologics, each lot is tested before being released for sale in Canada. Moderate-risk biologics are periodically tested at the discretion of Health Canada while manufacturers of low-risk biologics usually only need to contact Health Canada regarding lots being sold or for providing certification of complete and satisfactory testing. Products are carefully scrutinized before they are placed in any level of the lot-release process, and the testing regime for a biologic may be altered at any time. In December 2022, the Minister of Health in Canada published proposed amendments to the Food and Drug Regulations, and several of the amendments relate to biologic drugs. The purpose of the amendments is to modernize the biologics regulatory regime by repealing outdated requirements and replacing them with those that reflect current safety practices. Proposed amendments include enabling Health Canada to require certain labelling statements for safety reasons on a case-by-case basis, and clarifying the Minister’s authority to consider information or material obtained during on-site evaluations. Other proposed amendments include clarifying the record retention expectations for market authorization holders, and providing a general framework to minimize the potential for contamination of drugs, active ingredients and biological source material between processes. The proposed amendments were finalized in 2024, and the provisions relating to biologic drugs were brought into force on July 1, 2025. In June 2025, Health Canada opened a consultation for stakeholders and interested parties to submit comments on new draft biosimilar submission guidance. The consultation closed in September 2025, and the timeline for implementation or further revisions to this new guidance is unknown. +Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing, product labeling or regulatory notification may be required. +Canadian Biosimilars and Exclusivity +The term biosimilar is used by Health Canada to describe a biologic drug that enters the market subsequent to a version previously authorized in Canada and with demonstrated similarity to a reference biologic drug. Accordingly, a biosimilar (previously known in Canada as a subsequent entry biologic or SEB) will in all instances be a subsequent entrant onto the Canadian market. +Based on Health Canada guidance documents, a biosimilar can rely in part on prior information regarding safety and efficacy that is deemed relevant due to the demonstration of similarity to the reference biologic drug and which influences the amount and type of original data required. Generic drugs are chemically derived products that are pharmaceutically equivalent to innovative drugs, whereas biosimilars are products of a biologic nature that are similar to innovative biologics. According to Health Canada, it is not currently possible to demonstrate that two biologic drugs are pharmaceutically equivalent, and therefore the regulatory approval process for generics and biosimilars is different: biosimilars are approved using the standard NDS +28 +Table o f Contents +pathway with some allowances made for reduced safety and efficacy information set out in guidance documents, while generic drugs are approved using an abbreviated new drug submission pathway set out in guidance and law. In part because it continues to be set out only in guidance and not law, the pathway for receiving biosimilar approval is somewhat in flux and subject to some uncertainty. +As discussed above, all biosimilars enter the market subsequent to a biologic drug product previously approved in Canada and to which the biosimilar is considered similar. As such, biosimilars are subject to existing laws and regulations outlined in the Patented Medicines (Notice of Compliance) Regulations and the Food and Drug Regulations , and related guidance documents. +Similar to the Hatch-Waxman Amendments in the United States, Canada has the Patented Medicines (Notice of Compliance) Regulations, which require a company that files a drug submission that references a patented product to address any relevant patents listed on the Patent Register prior to being able to receive approval from Health Canada. The Canadian regime is similar to the U.S. regime, but a number of distinctions do exist. +Like the United States, Canada also has data protection in addition to patent protection, but again differences exist between the two jurisdictions. For example, Canada’s data protection applies to “innovative drugs” (i.e., a drug that contains a medicinal ingredient not previously approved in a drug by the Minister of Health and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph) and, where it exists, lasts for eight years in most (but not all) circumstances. In general biologics can be considered innovative drugs but biosimilars are not. +Additional Regulation +In addition to the foregoing, provincial, state and federal U.S. and Canadian laws regarding environmental protection and hazardous substances affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +Government Regulation Outside of the United States and Canada +In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the EU, in January 2022, the Clinical Trials Regulation (CTR) repealed the Clinical Trials Directive (EC) No. 2001/20/EC and national implementing legislation in the EU Member States. The CTR harmonizes the processes for assessment and supervision of clinical trials throughout the EU. Clinical trial sponsors must apply to start a new clinical trial via the Clinical Trials Information System (CTIS), and any trials approved under the Clinical Trials Directive that continue running need to comply with the CTR and their sponsors must have recorded information on them in CTIS. National regulators in the EU Member States and EU/EEA countries use the CTIS. +The requirements and process governing the conduct of clinical studies, product licensing, coverage, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. +Pharmaceutical Coverage, Pricing and Reimbursement +Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on pricing and the availability of coverage and adequate reimbursement from third-party payors. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Third-party payors may attempt to control costs by limiting coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication, requiring pre-approval of coverage for new or innovative drug therapies before they will reimburse healthcare providers who use such therapies, and by limiting the amount of reimbursement +29 +Table o f Contents +for particular procedures or drug treatments. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. The Medicare and Medicaid programs are often used as models by private payors and other governmental payors to develop their coverage and reimbursement policies for drugs and biologics. However, one third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the product, or will provide coverage at an adequate reimbursement rate. +The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products to obtain third-party payor coverage, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably. +In international markets, pricing, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability or our partners’ ability to sell our products profitably. +Healthcare Reform +The United States and some other jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Only high-expenditure single-source drugs that have been approved for at least seven years (11 years for single-source biologics) can qualify for negotiation, with the negotiated price taking effect two years after the selection year. Various industry stakeholders have initiated lawsuits against the federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. Further, the current administration has issued executive orders focused on decreasing prescription drug prices, including directing the Secretary of HHS to establish a mechanism through which U.S. patients can buy drugs directly from manufacturers who sell at a most-favored-nation price and directing the U.S. Trade Representative and Secretary of Commerce to take action to ensure foreign countries are not engaged in practices that purposefully and unfairly undercut market prices and drive price hikes in the United States. In November 2025, the Centers for Medicare & Medicaid Services announced a voluntary initiative called the GENEROUS Model to introduce the option of most-favored-nation pricing to the Medicaid program, whereby a drug manufacturer may voluntarily offer supplemental rebates to participating state Medicaid programs for a manufacturer’s covered outpatient drugs. Government agreements with pharmaceutical companies and other measures that use most-favored-nation pricing targets for prescription drugs or that increase generic and biosimilar drug entry sooner than expected can have a material adverse effect on our industry, ability to set adequate pricing for new drugs to recover research and development costs, ability to attract potential investors and potential buyers in the future, or the pricing of our approved product in the United States and in foreign countries. The impact of these and future legislative, executive, and administrative actions implemented by the government on us and the pharmaceutical industry as a whole is unclear. +30 +Table o f Contents +We expect that the PPACA, as well as reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once regulatory approval is obtained. +Other Healthcare Laws and Compliance Requirements +In the United States, the research, manufacturing, distribution, sale and promotion of drug products are subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state attorneys general, and other state and local government agencies. +If our operations are found to be in violation of any of the U.S. federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. We may also be subject to additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement with a governmental entity to resolve allegations that we have violated these laws. To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-approval requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Sales and Marketing +As a clinical-stage biopharmaceutical company, we do not currently possess the commercial infrastructure required to launch and market our product candidates. For zanidatamab, we have entered into a development and commercialization agreement with BeOne whereby BeOne is responsible for certain clinical development activities and all commercial activities in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. For zanidatamab, under the Amended Jazz Collaboration Agreement, Jazz is responsible for all development and commercial activities with respect to the Licensed Products in the Territory. There are no other agreements granting commercialization rights to zanidatamab or any of our other product candidates. +To access the sales, marketing and distribution capacity required to market our drug candidates, we plan to selectively establish additional partnerships with biotechnology and pharmaceutical companies having established commercial capabilities in relevant indications. The timing and nature of such agreements will be determined by many factors, including market size and complexity, as well as access to pre-commercial and commercial infrastructure. In addition, as part of our revised corporate strategy, we do not currently intend to commercialize any of our product candidates on our own, though we retain the flexibility to reevaluate this intention if we believe doing so is in our and our stockholders’ best interests. +Human Capital Resources +As of December 31, 2025, we had 264 full-time employees, 204 of whom were primarily engaged in research and development activities and 60 of whom hold an M.D. or Ph.D. degree. 184 of our full-time employees were based in Canada, 66 were based in the United States, and 14 were based in Singapore, Ireland and United Kingdom (the “UK”) combined. +Our ability to achieve our mission is dependent upon attracting and retaining the right talent. We seek to provide what we consider to be a competitive mix of compensation and benefits for all our employees, including participation in our equity programs. +We believe everyone belongs at Zymeworks and we are committed to providing equal opportunities for our employees. This means ensuring we have good representation in our workforce from within the communities in which we operate, conducting training to remove biases in our processes and activities, and respecting all employees’ rights, cultures, diversity, and dignity. +31 +Table o f Contents +We consider our employees to be an essential driver of our business and key to our future prospects and believe that we have a good relationship with our employees. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement. +Corporate History +Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”). Zymeworks Inc. was incorporated under the laws of the State of Delaware in June 2022. Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709, and our telephone number is (302) 274-8744. Our predecessor, now named Zymeworks BC Inc., was originally incorporated on September 8, 2003 under the Canada Business Corporations Act under the name “Zymeworks Inc.” On October 22, 2003, our predecessor was registered as an extra-provincial company under the Company Act (British Columbia), the predecessor to the Business Corporations Act (British Columbia) (“BCBCA”). Our predecessor continued to British Columbia under the BCBCA on May 2, 2017. +Available Information +This Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as appropriate, with the SEC and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website, www.zymeworks.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the Canadian regulatory authorities. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this document is an inactive textual reference. +Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca. +32 +Table o f Contents +Item 1A. Risk Factors. +You should carefully consider the following risk factors, in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results and financial condition could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements.” The risks below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations, and/or prospects. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part. +Summary of Risk Factors +Below is a summary of the principal factors that make an investment in shares of our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC, before making an investment decision regarding shares of our common stock. +• Our adoption of a royalty-driven asset aggregation strategy is unproven and may not be successful. +• Strategic transactions could disrupt our business, cause dilution to our stockholders and otherwise harm our business. +• Our long-term prospects depend upon successfully discovering or acquiring favorable assets and progressing the assets through preclinical and clinical development. +• We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates. +• If our partnered product candidates do not meet regulatory and commercial milestones, or experience significant delays in doing so, our results of operations will be materially adversely affected. +• We depend on our collaborative relationships with Jazz, BeOne and J&J to further develop and commercialize zanidatamab and other product candidates, and if our relationships are not successful or are terminated, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab and other product candidates, which could have a material adverse effect on our business. +• Our existing strategic partnerships are important to our business, and future strategic partnerships will likely also be important to us. If we are unable to maintain our strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected. +• The outcome of clinical trials is inherently uncertain, and current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States. +• If clinical trials for product candidates are prolonged, delayed or stopped, we may be unable to successfully partner our product candidates, or obtain regulatory approval and commercialize product candidates on a timely basis, or at all, which could require us to incur additional costs and delay our receipt of any product revenue. +• Undesirable side effects from product candidates may delay or prevent marketing approval or, if approved, require withdrawal from the market, inclusion of safety warnings, or otherwise limit sales. +• We face significant competition, and if any competitors develop and market products that are more effective, safer and/or less expensive than our partnered product candidates, our ability to generate revenue will be negatively impacted. +• If zanidatamab or any current or future partnered product candidate that receives regulatory approval in the future does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, revenue generated from commercialization efforts will be materially and adversely impacted. +• Current and future healthcare regulations and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. +33 +Table o f Contents +• If any product liability lawsuits are successfully brought against us or any of our strategic partners, we may incur substantial liabilities and commercialization efforts of zanidatamab or any other approved partnered products may need to be limited. +• If we, our strategic partners or any of our third-party manufacturers encounter manufacturing difficulties, supply of product candidates for clinical trials or any approved products for patients could be delayed or prevented. +• We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one product approved for commercial sale, and, as of December 31, 2025, we have not received any revenue or profit from product sales, other than the receipt of royalties relating to sales of zanidatamab. We may never achieve or sustain profitability. +• We rely on third -party manufacturers to produce our product candidates and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product. We and our strategic partners may encounter difficulties with respect to these activities that could delay or impair our or our strategic partners’ ability to initiate or complete our clinical trials or commercialize products. +• We and our strategic partners rely on third parties to monitor, support, conduct and oversee clinical trials of product candidates and, in some cases, to maintain regulatory files for those product candidates. Our partnered product candidates may not receive regulatory approval or be successfully commercialized if we or our strategic partners are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us. +• If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed. +• If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected. +• Tax law changes could adversely affect our business and financial condition. +• Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. +• Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders. +• Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock. +Risk Factors +Risks Related to Our Business +Our adoption of a royalty-driven asset aggregation strategy is unproven and may not be successful. +We are evolving our business strategy to help enhance long-term stockholder value through thoughtful capital allocation, while continuing to pursue meaningful impact on patient outcomes through our research and development efforts. We believe that, if we can successfully implement this royalty-driven asset aggregation strategy through continued partnering as well as potential acquisitions, the anticipated royalty and milestone revenues could serve as both a longer-term funding source for our continued research and development operations and as a foundation from which to grow our self-contained royalty income over the longer term. There can be no assurance that we will be successful or will achieve the intended results. +Our new strategy requires revisions to multiple facets of our business, including our organizational structure, operations, personnel and tax planning. Our new strategy may also result in delays and disruptions to existing research and development efforts, increased costs, loss of key personnel and diversion of management’s attention, any of which could materially adversely affect our business. +Even if we successfully implement our new strategy, we cannot be certain that anticipated royalty and milestone revenues will be sufficient to appropriately fund and advance our research and development pipeline or enhance long-term stockholder value. +34 +Table o f Contents +Strategic transactions could disrupt our business, cause dilution to our stockholders and otherwise harm our business. +We actively evaluate various strategic transactions, and we may acquire other businesses, products, product candidates, milestone payments and royalty streams, programs or technologies as well as pursue strategic alliances, joint ventures, investments in complementary businesses, out-licensing and in-licensing agreements, divestitures or other transactions. As part of our royalty-driven asset aggregation strategy, we plan to look for opportunities to augment our development pipeline with external programs and product candidates, as well as other opportunistic investments that may bolster our royalty-driven cash flows. Suitable acquisition or in-licensing opportunities on acceptable prices, terms and conditions may be limited. These transactions could be material to our financial condition and operating results and expose us to many risks, including: +• disruption in our relationships with existing strategic partners or suppliers as a result of such a transaction; +• unanticipated liabilities related to acquired companies; +• difficulties integrating acquired personnel, technologies, operations, products, product candidates or programs into our existing business; +• retention of key employees; +• diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges; +• risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals; +• increases in our expenses and reductions in our cash available for operations and other uses; and +• possible write-offs or impairment charges relating to acquired businesses. +We face intense competition from larger, better-resourced companies in acquiring or in-licensing promising assets. We also face competition from other companies, funds and investment vehicles seeking to aggregate royalties or provide alternative financing to biotechnology companies. These competitors may have a lower cost of capital or access to greater amounts of capital and thereby may be able to successfully acquire assets that we are also targeting for acquisitions. There is a limited number of suitable and attractive acquisition or partnering opportunities available in the market, and competition to acquire such assets may be intense. In order to compete successfully in the current business climate, we may have to pay higher prices for assets than may have been paid historically, which may make it more difficult for us to realize an adequate return on any acquisition. Any future acquisitions or dispositions could result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition or reputation. We cannot predict the number, timing or size of any future strategic alliances, joint ventures, investments, acquisitions, divestitures or other strategic transactions, or the effect that any such transactions might have on our operating results. +Our long-term prospects depend upon successfully discovering or acquiring favorable assets and progressing the assets through preclinical and clinical development. +Our investments in internally-developed or acquired assets may not yield promising product candidates, and even if such candidates advance into clinical studies, the historical failure rate of biopharmaceutical product candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care, other unpredictable variables and the other factors discussed under “ Risks Relating to Development of Product Candidates – The outcome of clinical trials is inherently uncertain, and current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States .” Results from preclinical testing or early clinical trials of our product candidates may not predict outcomes in later-stage clinical trials by us or future strategic partners. +Successful development of our current and future product candidates is uncertain, and we may discontinue or reprioritize the development of any of our product candidates at any time, at our discretion. +Before advancing any of our product candidates into later stage development either alone or with a strategic partner, we must first conduct, at our own expense, extensive preclinical tests and early clinical trials to demonstrate the safety and potential efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Additionally, the results from nonclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in subsequent human clinical trials of that product candidate. There is a high failure rate for drugs proceeding through clinical studies. For example, in September 2025, +35 +Table o f Contents +we announced the decision to discontinue the clinical development program of ZW171 based on completion of the planned cohorts of the dose escalation portion of the Phase 1 trial of ZW171 in patients with ovarian cancer and non-small cell lung cancer. After completing the planned dose escalation cohorts and establishing a maximum tolerated dose, we determined that further dose evaluation in the trial would be unlikely to support a benefit-risk profile consistent with the desired monotherapy target product profile. In addition, management may elect to discontinue development of certain product candidates to accommodate a shift in corporate strategy, despite positive clinical results. Based on our operating results and business strategy, among other factors, we may discontinue the development of any of our product candidates under development or reprioritize our focus on other product candidates at any time and at our discretion. +Because we have limited financial and managerial resources, we focus on research programs, therapeutic platforms and product candidates that we identify for specific indications. As a result, we may forgo or delay pursuit of opportunities with other therapeutic platforms or product candidates or for other indications that later prove to have greater commercial potential. +We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates. +We may not be able to develop product candidates that are safe and effective. Although we expect that our therapeutic platforms will allow us to develop further product candidates, they may not prove to be successful at doing so. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including due to being shown to have harmful side effects or other characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance. If we do not continue to successfully develop product candidates, we will face difficulty in obtaining product revenue or in securing additional partnerships and generating additional milestone and royalty revenues in future periods, which could result in significant harm to our financial position and adversely affect our stock price. +Our product candidates, including partnered product candidates, are still in preclinical or clinical development. If we or our strategic partners do not obtain regulatory approval of our product candidates, or experience significant delays in doing so, our business will be materially adversely affected. +Receipt of regulatory approval and commercialization of any approved product candidates depends on many factors, including: +• successfully completing clinical trials that demonstrate the pre-specified efficacy endpoints and acceptable safety profile of the product candidate in the indication for which approval is sought; +• preparation and submission to the appropriate regulatory authorities of an application for marketing approval that includes substantial evidence of safety, purity and potency from results of nonclinical testing and clinical trials; +• establishing adequate commercial manufacturing arrangements and maintaining a consistent, quality supply of product or establishing our own commercial manufacturing capabilities or reliable arrangements with third-party contract manufacturers; +• potential pre-approval audits of nonclinical sites, clinical trial sites, and third-party manufacturing sites that generated the data and product in support of the marketing application; and +• launching commercial sales, marketing and distribution operations. +Many of these factors are wholly or partially beyond our or our strategic partners’ control, including clinical advancement, the regulatory submission process and changes in the competitive landscape. If our product candidates do not achieve one or more of these factors in a timely manner, we or our strategic partners could experience significant delays or an inability to develop the product candidates, which could adversely affect our results of operations. Excluding zanidatamab, which has been licensed to our strategic partners for commercialization and further regulatory approvals, our other product candidates are in preclinical or clinical development, and neither we nor our strategic partners have submitted any marketing application, or received marketing approval, for the other product candidates in our portfolio, and such product candidates may never be able to achieve such regulatory approval. In addition, although Jazz is developing zanidatamab for regulatory approval in additional indications, such regulatory approval may never be achieved. +Our business may become subject to economic, political, regulatory and other risks associated with international operations . +Economic downturns, a volatile business environment, or large-scale unpredictable market conditions, including a prolonged government shutdown or geopolitical events, may materially and adversely impact our business, financial condition and stock +36 +Table o f Contents +price, including making any necessary debt or equity financing more difficult, more costly and more dilutive, and reducing opportunities for additional partnering or strategic transactions. +We have physical operations and personnel in North America, Europe and Asia, and some of our suppliers and collaborative and clinical trial relationships are located outside the United States. Our future results could be harmed by a variety of factors, including: +• economic instability or weakness, including inflation, reduced growth, diminished credit availability, weakened consumer confidence or increased unemployment; +• insta bility in the international geopolitical environment; +• sociopolitical instability in particular non-U.S. economies and markets; +• differing regulatory requirements for drug approvals in non-U.S. countries; +• potentially reduced protection for intellectual property rights; +• difficulties in compliance with non-U.S. laws and regulations; +• c hanges in U.S. or non-U.S. customs laws and regulations, tariffs and trade barriers, including any changes that nations may impose as a result of political tensions; +• changes in non-U.S. currency exchange rates and currency controls; +• fluctuations in the U.S. dollar, particularly a weakening of the U.S. dollar against other currencies; +• trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments; +• restrictions on cross-border data exchanges; +• differing reimbursement regimes, including price controls; +• negative consequences from changes in tax laws; +• workforce uncertainty in countries where labor unrest is more common than in the United States; +• production shortages resulting from any events affecting raw material supply or manufacturing capabilities outside the United States; +• business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters; and +• supply and other disruptions resulting from the impact of public health epidemics on our strategic partners, third-party manufacturers, suppliers and other third parties upon which we rely. +In particular, there is currently significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs, treatment of intellectual property, taxes, and other limitations on cross-border operations, including the provision of services and the exchange of data. The U.S. government has made and continues to make significant changes in U.S. trade policy and may continue to take actions that could negatively impact U.S. trade. For example, the President recently signed into law the National Defense Authorization Act of 2026, which includes Section 851 regarding “prohibition on contracting with certain biotechnology providers” (the “BIOSECURE Act”), which restricts federal government contracts, grants, and loans from being issued to companies that use biotechnology equipment or services from any designated “biotechnology company of concern,” as part of such companies’ performance of those agreements with the U.S. government. Once fully implemented through issuance of regulations, the BIOSECURE Act may ultimately limit certain U.S. biotechnology companies (such as ours) from using equipment or services produced or provided by Chinese biotechnology companies that meet the designation criteria of the new law, or certain affiliated entities. In addition, even if we do not seek any covered federal government contracts, grants or loans, commercial partners, government agencies, or other third parties may view our business less favorably if we contract with entities that ultimately become biotechnology companies of concern. +As another example, the U.S. Department of Justice’s Data Security Program places limitations on U.S. companies’ ability to enter into (and in some cases prohibits) certain contracts involving transfers of sensitive personal data to business partners located in China, or with other specified links to China and other designated countries. The rule further requires U.S. persons to obtain from certain foreign counterparties contractual commitments to refrain from engaging in subsequent transfers of sensitive personal data to entities located in China or with other specified links to China and other designated countries. This +37 +Table o f Contents +new rule will impact our ability to contract not just with Chinese companies but also with foreign entities in general, potentially requiring us to extract promises related to compliance with this new rule. +The United States has recently enacted significant new tariffs on many countries. For example, between April 2025 and February 2026, the U.S. government imposed global “reciprocal” tariffs affecting most U.S. trading partners and between February 2025 and February 2026 the U.S. government imposed additional “fentanyl-related” tariffs targeting goods from Canada, Mexico, and China. These additional U.S. tariffs were implemented under authorities asserted in the International Emergency Economic Powers Act (“IEEPA”) and rescinded on February 24, 2026, following a Supreme Court decision invalidating the use of IEEPA to authorize these tariffs. The availability, timing, and amount of any related refunds associated with payments of these duties remain uncertain and subject to further legal, regulatory, and administrative action. Beginning February 24, 2026, the U.S. government implemented a new, global “temporary import surcharge” of 10% on many of the same products affected by the prior reciprocal tariffs, under authorities provided for in Section 122 of the Trade Act of 1974, supplementing existing non-IEEPA tariff measures. For example, additional tariffs have been recently imposed under Section 232 and Section 301 tariff measures, and additional trade-related investigations by the U.S. government are in progress and could result in the imposition of additional tariffs as well. There has been ongoing action, discussion, negotiation, commentary and litigation regarding these and potential further changes to U.S. trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, have caused and may continue to cause significant volatility in global financial markets and may have a material adverse effect on global economic conditions and global trade. Additionally, these developments could weaken the U.S. dollar against other currencies, which may adversely affect our business, including as a result of increased costs for goods and services denominated in other currencies. These effects may also negatively impact our strategic partners. Any of these factors could depress economic activity, restrict our access to third-party services, and disrupt the supply chain for our product candidates. For example, the early-stage clinical supplies for our internal pipeline are currently sourced from China, and while we are actively monitoring tariffs and evaluating other locations for future clinical product requirements, our mitigation efforts may not be successful, and our business may be adversely affected. We also run a portion of our global clinical studies and utilize clinical trial sites in non-U.S. locations; we cannot predict how these non-U.S. locations may be impacted by tariffs or a broader trade war. If we or our strategic partners are unable to obtain or use services from existing providers, source supplies of product candidates or approved drugs, or export or sell approved products at competitive prices, our business, liquidity, financial condition, and/or results of operations could be materially and adversely affected. The Department of Commerce has initiated an investigation into imports of pharmaceuticals and pharmaceutical products. If a threat is determined to exist, the current U.S. Presidential administration could impose new and/or additional pharmaceutical-specific tariffs or take other actions. While we cannot predict the outcome of this investigation, if additional tariffs are imposed, it could materially increase our costs and complicate our supply chain for the manufacture and importation of our product candidates. +Our business has been in the past and may in the future be adversely affected by public health outbreaks and pandemics. +Public health outbreaks and pandemics could cause us to experience disruptions that could significantly impact our current and planned clinical trials, preclinical research and other business activities, including operational challenges, difficulty in recruiting patients or staff, regulatory delays, supply chain disruptions and shortages, and other disruptions. Public health outbreaks, pandemics, and related disruptions could disrupt global financial markets, reduce our ability to access capital, negatively affect our liquidity, and increase financial market volatility, which could adversely impact the value of our common stock. +Risks Relating to Our Partnerships +We depend on our collaborative relationships with Jazz, BeOne and J&J to further develop and commercialize zanidatamab and other product candidates, and if our relationships are not successful or are terminated, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab and other product candidates, which could have a material adverse effect on our business. +Under the terms of our May 2023 Amended and Restated License and Collaboration Agreement with Jazz (the “Amended Jazz Collaboration Agreement”), Jazz has development and commercialization rights for zanidatamab throughout the world, excluding certain territories already covered by our agreement with BeOne. We depend on Jazz to develop and commercialize zanidatamab in the territories covered by the Amended Jazz Collaboration Agreement, and the success or commercial viability of zanidatamab is largely beyond our control. Any future financial returns to us depend on achievement of regulatory and commercialization milestones, plus a share of any revenue from sales. Therefore, our success, and any associated financial returns to us and our investors, will depend in significant part on Jazz’s performance under the Amended Jazz Collaboration Agreement. We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Jazz, including: +• adverse decisions by Jazz regarding the development and commercialization of zanidatamab; +38 +Table o f Contents +• Jazz’s ability to manufacture, directly or through third parties, commercially required quantities of zanidatamab in a timely manner or at all; +• Jazz’s compliance with ongoing post-marketing obligations, including completion of the confirmatory trial for zanidatamab; +• possible disagreements as to the timing, nature and extent of development plans, including clinical trials or regulatory approval strategy; +• loss of significant rights if we fail to meet our obligations under the agreement; +• changes in key management personnel at Jazz; +• possible disagreements with Jazz regarding the agreement, for example, with regard to ownership of intellectual property rights or program costs and reimbursement matters; and +• Jazz may not perform its obligations as expected. +In November 2024, Jazz announced the FDA granted accelerated approval for Ziihera for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera related to the accelerated approval. If the confirmatory trial fails to demonstrate a clinical benefit, the FDA may remove Ziihera from the market, which would negatively impact our ability to earn milestone payments and royalties from Jazz. In addition, although Jazz is developing zanidatamab for regulatory approval in additional indications, such regulatory approval may never be achieved. If additional indications are not approved, our ability to achieve additional milestone payments and royalties on sales of zanidatamab will be materially and negatively impacted. We depend on Jazz to provide certain information to us regarding the zanidatamab program, and any delay by Jazz in fulfilling its information-sharing obligations under the Amended Jazz Collaboration Agreement could impact our understanding of the status of the zanidatamab program and result in delays or inaccuracies in our disclosures. Decisions by Jazz to emphasize other drug candidates currently in its portfolio ahead of zanidatamab or to add competitive agents to its portfolio could result in a decision to terminate the Amended Jazz Collaboration Agreement, and we may be responsible for paying any remaining costs of ongoing or future clinical trials or be delayed in or unable to effectively develop and/or commercialize zanidatamab, which could have a material adverse effect on our business. +In November 2018, we entered into a License and Collaboration Agreement with BeOne granting BeOne an exclusive license for the research, development, and commercialization of zanidatamab in Asia (excluding Japan, but including the People’s Republic of China, South Korea and other countries), Australia, and New Zealand. In November 2017, we entered into a collaboration and license agreement with J&J to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric and EFECT platforms, and in September 2025, we recognized a $25.0 million development milestone payment from J&J related to clinical progress of pasritamig entering into a Phase 3 trial in metastatic castration-resistant prostate cancer. We face similar risks with respect to our relationship with BeOne and J&J as we do with Jazz and will face similar risks with any future collaboration partners. +Our existing strategic partnerships are important to our business, and future strategic partnerships will likely also be important to us. If we are unable to maintain our strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected. +A key aspect of our strategy is to pursue partnering and other strategic collaborations that enable us to transfer certain costs and risks related to later-stage development and/or commercialization to our strategic partners. If we successfully enter into these types of transactions, we expect to be able to enhance our capital efficiency by deploying resources that may have otherwise been spent on later-stage clinical development and/or commercialization across other areas of our business; however, we may not be able to identify suitable partners or enter into agreements on terms acceptable to us. Even if we are able to secure additional partnering arrangements, there can be no assurance that these arrangements will be successful, which could materially harm our business, financial condition and results of operations. If we elect to progress product candidates internally, our capabilities for later stage drug development and/or commercialization of produ ct candidates, if approved, is limited. We have entered into strategic partnerships with other companies that we believe can provide later stage development and potentially commercialization capabilities, including our collaboration and license agreements with Jazz, BeOne, BMS, GSK, Daiichi Sankyo, J&J and Merck. Our existing strategic partnerships, and any future strategic partnerships we enter into, may pose risks, including: +• strategic partners have significant discretion in determining the efforts and resources that they will apply to these partnerships; +39 +Table o f Contents +• strategic partners may not perform their obligations as expected; +• strategic partners may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the partners’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; +• strategic partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; +• strategic partners could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the strategic partners believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than our product candidates; +• product candidates discovered in collaboration with us may be viewed by our strategic partners as competitive with their own product candidates or products, which may cause strategic partners to cease to devote resources to the commercialization of our product candidates; +• a strategic partner with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product candidates; +• disagreements with strategic partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; +• we may be dependent on strategic partners to provide certain information to us regarding the development of product candidates, and any delay by our strategic partners to full information-sharing obligations could impact our understanding of such development, as well as result in potential delays or inaccuracies in our disclosures; +• strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; +• strategic partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; +• strategic partnerships may be terminated for the convenience of the partner and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates (for example, each of our collaboration and license agreements with Jazz, BeOne, BMS, GSK, Daiichi Sankyo, J&J and Merck may be terminated for convenience upon the completion of a specified notice period); +• we may elect to enter into additional licensing or collaboration agreements to partner our product candidates in territories we currently retain, and in the event we grant exclusive rights to such strategic partners, we would be precluded from potential commercialization of our product candidates within the territories in which we have a partner; and +• strategic partners may not have the ability or the development capabilities to perform their obligations as expected, including as a result of the impact of a pandemic or epidemic on our strategic partners’ operations or business. +If our strategic partnerships do not result in the successful development and commercialization of product candidates or if one of our strategic partners terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under our strategic partnership agreements, our development or acquisition of our therapeutic platforms and product candidates could be delayed and we may need additional resources to develop or acquire product candidates and our therapeutic platforms. +We face significant competition in seeking new strategic partners. +We expect to collaborate with additional pharmaceutical and biotechnology companies for later-stage development and potential commercialization of our products candidates. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner’s evaluation of a number of factors. These factors may include the +40 +Table o f Contents +design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product candidate to patients, the potential of competing products, uncertainty regarding our ownership of technology, industry and market conditions generally, and whether alternative product candidates or technologies for similar indications may be more attractive than a collaboration with us. Strategic partnerships are complex and time-consuming to negotiate and document. In addition, there have been and may continue to be a significant number of business combinations among large pharmaceutical companies that have resulted in and may in the future result in a reduced number of potential strategic partners. In addition, as part of our recently adopted strategy, our expectation is that we will seek partnerships at an earlier stage to transfer certain risks and costs of later-stage development and/or commercialization to our strategic partners. As a result of this approach, we may have difficulty successfully partnering our pre-clinical or early clinical stage product candidates, as strategic partners often require additional proof of concept data before in-licensing a product candidate. Even if strategic partners are willing to in-license our pre-clinical or early clinical stage product candidates, the economic terms of any such agreements may be less favorable than if we continued clinical development on our own and sought to partner at a later time. We may have to curtail the development of a product candidate, reduce or delay one or more of our other development programs, or increase our expenditures and undertake development or commercialization activities at our own expense if we do not enter into agreements with suitable strategic partners. In such cases, we may need to obtain additional expertise and capital, which may not be available to us on acceptable terms or at all. If we fail to enter into strategic partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our therapeutic platforms, and our business may be materially and adversely affected. +Risks Relating to Development of Product Candidates +The outcome of clinical trials is inherently uncertain, and current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States. +There is an extremely high rate of attrition from the failure of product candidates proceeding through preclinical studies and clinical trials. To obtain regulatory approval for commercial sales, we or our strategic partners will be required to demonstrate with substantial evidence, through well-controlled clinical trials, that the product candidates are safe and effective for use in a diverse population. These clinical trials involve significant expense and may produce negative or inconclusive results, and we or our strategic partners may decide, or regulators may require us or our strategic partners, to conduct additional clinical or preclinical testing. For example, if the FDA does not accept the data from any clinical trials conducted outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or halt development of any future product candidates. Moreover, there can be significant variability in safety or efficacy results between different preclinical studies and clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Patients treated with a product candidate also may experience side effects or adverse events that are unrelated to the product candidate but may still impact the success of the clinical trial. The inclusion of patients with significant co-morbidities in clinical trials may result in adverse medical events, including deaths, due to underlying conditions or other therapies or medications that such patients may be using. Any of these events could prevent us or our strategic partners from obtaining regulatory approval or achieving or maintaining market acceptance and impair the ability to commercialize the product candidates. If we or our strategic partners develop a product candidate for which there are no commercially available diagnostic tests for identifying the appropriate patient population to ensure safe and effective use of such candidate, the FDA may require us or our strategic partners to develop a companion diagnostic plan in conjunction with clinical development and regulatory approval for a product candidate. Lack of a reliable commercially available companion diagnostic can introduce uncertainties in the regulatory process for our or our strategic partners’ product candidates. Success in preclinical studies or early-stage clinical trials does not guarantee that future clinical trials or registrational clinical trials will be successful, as product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable regulatory authorities outside the United States, despite having progressed through preclinical studies and initial clinical trials. Product candidates that have shown promising results in early clinical trials may suffer significant setbacks in subsequent clinical trials or registrational clinical trials. Interim results of a clinical trial do not necessarily predict final results. Regulatory delays or rejections may occur for various reasons, including changes in regulatory policy. +41 +Table o f Contents +If clinical trials for product candidates are prolonged, delayed or stopped, we may be unable to successfully partner our product candidates, or obtain regulatory approval and commercialize product candidates on a timely basis, or at all, which could require us to incur additional costs and delay our receipt of any product revenue. +The commencement or completion of ongoing or planned clinical trials could be substantially delayed, prevented or suspended by many factors, including: +• further discussions with the FDA or other regulatory agencies, or untimely or unfavorable feedback regarding the scope or design of our clinical trials, or any delay or failure to obtain approval or agreement to commence a clinical trial in any of the countries where enrollment is planned; +• inability to obtain sufficient funds required for a clinical trial; +• clinical holds on, or other regulatory objections to, a new or ongoing clinical trial; +• delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including due to a facility manufacturing any of our product candidates or any of their components being ordered by the FDA or non-U.S. health authorities to temporarily or permanently shut down due to violations of cGMP regulations or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process; +• delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or contract research organizations (“CROs”), the terms of which can be subject to extensive negotiation, may vary significantly among different sites or CROs and may need to be renegotiated in the event of changes in regulatory requirements; +• challenges or delays in recruiting and enrolling patients, or failure of patients to complete the clinical trial or be lost to follow-up; +• unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths, or failure to demonstrate a benefit from using a product candidate; +• termination of our clinical trials by one or more clinical trial sites; +• inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols; +• inability to monitor patients adequately during or after treatment by us or our CROs; +• our CROs or clinical study sites failing to comply with the trial protocol or regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a study; +• the inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial; and +• third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or non-U.S. health authorities for violations of applicable regulatory requirements. +Termination or delays in completing any clinical trial of our product candidates will delay our ability to generate product revenue, whether through partnering or otherwise, increase our costs, slow down product development, and jeopardize our ability to generate revenue. Even if trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA or non-U.S. health authorities will interpret the results as we or our strategic partners do, and more trials could be required before we or our strategic partners submit the product candidates for approval. We cannot guarantee that the FDA or non-U.S. health authorities will view any of the product candidates as having adequate safety and efficacy profiles even if favorable results are observed in these clinical trials, and we or our strategic partners may receive unexpected or unfavorable feedback from the FDA or non-U.S. health authorities regarding satisfaction of safety, purity and potency (including clinical efficacy), amongst other factors. If the results of the trials are not satisfactory to the FDA or non-U.S. health authorities for support of a marketing application, approval of the product candidates may be significantly delayed, or we or our strategic partners may be required to expend significant additional resources, which may not be available, to conduct additional trials in support of potential approval of the product candidates. Any failure or significant delay in commencing or completing clinical trials could adversely affect our or our strategic partners’ ability to obtain regulatory approval and negatively impact our expected product or royalty and milestone revenue. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and efficacy for each desired indication. The BLA must also include significant information regarding the manufacturing controls for the product. The novel nature a product candidate may introduce uncertain, complex, expensive and lengthy challenges that could impact regulatory approval. Even if we or our strategic partners complete clinical testing and receive approval of any +42 +Table o f Contents +regulatory filing for product candidates, the FDA or non-U.S. health authorities may approve our product candidates for a more limited indication or a narrower patient population than we originally requested. Moreover, even if regulatory approval is obtained for an indication, there is no guarantee that additional indications will be approved, which could materially limit the commercial potential of any approved product. For example, while Jazz intends to seek approval of zanidatamab in additional indications, we cannot be certain that such approvals will be obtained. If additional indications are not approved, our ability to achieve additional milestone payments and royalties on sales of zanidatamab will be materially and negatively impacted. +If we, or any of our strategic partners, are unable to enroll patients in clinical trials, we will be unable to complete these trials on a timely basis or at all. +Factors affecting enrollment in clinical trials include the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled subjects will drop out before completion, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. These factors impacting enrollment can be further complicated for trials involving product candidates for the treatment of rare diseases, which have limited pools of patients from which to draw for clinical testing. If we, or any of our strategic partners that perform clinical tests for our product candidates, are unable to enroll a sufficient number of patients to complete clinical testing, we or our strategic partners will be unable to gain marketing approval for such product candidates and our business will be harmed. Additionally, projections of addressable patient populations that may benefit from treatment with our product candidates, including our partnered product candidates, are based on estimates, which, if inaccurate, could materially impact our business. +The design or execution of clinical trials may not support regulatory approval. +The design or execution of a clinical trial can determine whether its results will support regulatory approval, and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We cannot guarantee that any clinical trials we or our strategic partners may conduct will demonstrate efficacy and safety sufficient for regulatory approval. Further, the FDA and comparable non-U.S. regulatory authorities have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for any product candidate. Such product candidates may not be approved even if they achieve their primary endpoints in any Phase 3 clinical trials or registration trials. The FDA or other non-U.S. regulatory authorities may disagree with the trial design and our or our strategic partners’ interpretation of data from preclinical studies and clinical trials. Regulatory authorities may change requirements for the approval of a product candidate after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. In addition, any of these authorities may approve a product candidate for fewer or more limited indications than requested or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we or our strategic partners believe would be necessary or desirable for the successful commercialization of our product candidates. +Interim, preliminary or top-line data may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we or our strategic partners may publish interim, preliminary or top-line data from clinical trials. Interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or top-line data previously published. As a result, interim, preliminary and top-line data should be viewed with caution until the final data is available. Adverse differences between interim, preliminary or top-line data and final data could significantly harm our or our strategic partners’ reputation and business prospects. Moreover, preliminary, interim and top-line data are subject to the risk that one or more of the clinical outcomes may materially change as more patient data become available when patients mature on study, patient enrollment continues or as other ongoing or future clinical trials with a product candidate further develop. The information we or our strategic partners choose to publicly disclose regarding a particular study or clinical trial is based on more extensive information, and you or others may not agree with what we or our strategic partners determine is the material or +43 +Table o f Contents +otherwise appropriate information to include in the disclosure. Any information we or our strategic partners determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our or our strategic partners’ business. +The Fast Track and Breakthrough Therapy designations received for zanidatamab may not result in faster development, regulatory review or approval process. +The FDA has granted Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing GEA in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. While the FDA granted accelerated approval for Ziihera for injection for intravenous use for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC, these Fast Track designations do not ensure that zanidatamab will experience a faster development, regulatory review or approval process compared to conventional FDA procedures or that zanidatamab will ultimately obtain regulatory approval for additional indications. The FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from the zanidatamab clinical development program. The FDA also granted Breakthrough Therapy designation for zanidatamab for treatment of patients with previously treated HER2 gene-amplified locally advanced/unresectable or metastatic BTC. Designation as a Breakthrough Therapy is within the discretion of the FDA and the FDA may decide to rescind a Breakthrough Therapy designation if it believes that a designated product candidate no longer meets the conditions for qualification of this program. If a clinical development program is suspended, terminated, or put on clinical hold due to unexpected adverse events or other issues, including clinical supply issues, the benefits associated with the Fast Track or Breakthrough Therapy designations may not be realized by us or our strategic partners. Furthermore, Fast Track designation does not change the standards for approval, and the designation alone does not guarantee qualification for the FDA’s priority review procedures. Zanidatamab was granted Breakthrough Therapy designation from the CDE in China for treating patients with BTC who have failed prior systemic therapies. In May 2025, the NMPA in China granted conditional approval of zanidatamab for the treatment of patients with previously treated, unresectable or metastatic HER2+ BTC. As with designation by the FDA, the Breakthrough Therapy designation by the CDE is not a guarantee that zanidatamab will experience a faster development regulatory review or approval process or that it will ultimately receive regulatory approval for additional indications. +Development of product candidates in combination with other therapies could expose us to additional risks. +We or our strategic partners may evaluate product candidates in combination with one or more other therapies that have not yet been approved for marketing by the FDA, EMA or comparable regulatory authorities. We or our strategic partners will not be able to market and sell any product candidate in combination with any such unapproved therapies that do not ultimately obtain marketing approval. If the FDA, EMA or other comparable regulatory authorities do not approve or revoke their approval of these other therapies, or if issues arise with the therapies we or our strategic partners choose to evaluate in combination with any other product candidate, we or our strategic partners may be unable to obtain approval of or successfully market such product candidates. Additionally, if the third-party providers of therapies or therapies in development with which zanidatamab or other product candidates are approved for use are unable to produce sufficient quantities for clinical trials or for commercialization of product candidates, or if the cost of combination therapies is prohibitive, our or our strategic partners’ development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects. +Disruptions at the FDA and other government agencies could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified product candidates from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business. +The ability of the FDA to review and clear or approve new product candidates can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. In addition, the current U.S. Presidential administration has issued certain policies and Executive Orders directed towards reducing employee headcount and costs associated with U.S. administrative agencies, including the FDA, and it remains unclear the degree to which these efforts may limit or otherwise adversely affect the FDA’s ability to conduct routine activities. If funding shortages, staffing limitations or other factors hinder or prevent the FDA from conducting regular inspections, reviews or other regulatory activities, there could be a significant impact on the ability of the FDA to timely review and process our regulatory submissions, which could have a material impact on our business. +44 +Table o f Contents +Undesirable side effects from product candidates may delay or prevent marketing approval or, if approved, require withdrawal from the market, inclusion of safety warnings, or otherwise limit sales. +Unforeseen side effects from any product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. As product candidates are evaluated in clinical trials, the results of such clinical trials may show that the product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings, limited patient populations or potential product liability claims. Even if we or our strategic partners believe that clinical trials and preclinical studies demonstrate the safety and efficacy of our product candidates, only the FDA and other comparable regulatory agencies may ultimately make such determination. If we, or partners or others later identify undesirable or unacceptable side effects caused by zanidatamab or other product candidates that receive marketing approval: +• regulatory authorities may require the approved product to be taken off the market; +• regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies, or impose a risk evaluation and mitigation strategy that includes restrictions and conditions on product distribution, prescribing and/or dispensing; +• regulatory authorities may require changes to the way the product is administered, additional clinical trials or revisions to the labeling of the product; +• regulatory authorities may place limitations on how a product may be promoted; +• sales of the product may decrease significantly; +• we or our strategic partners may be subject to litigation or product liability claims; and +• our or our strategic partners’ reputation may suffer. +Any of these events could prevent the achievement or maintenance of market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating revenues directly through sales or through partnering or otherwise. +Risks Relating to Receipt of Product Revenue and Royalty and Milestone Revenue +We face significant competition, and if any competitors develop and market products that are more effective, safer and/or less expensive than our product candidates, our ability to generate revenue will be negatively impacted. +The life sciences industry is highly competitive and subject to rapid and significant technological change. Competitors in the United States and internationally include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of these competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we and potentially our strategic partners do. Large pharmaceutical companies in particular have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we and potentially our strategic partners do and may also have products that have been approved or are in late stages of development and collaborative arrangements in our or our strategic partners’ target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we and our strategic partners develop obsolete. As a result of these factors, competitors may succeed in obtaining patent protection or FDA approval or discovering, developing and commercializing products in our and our strategic partners’ field before we do. Specifically, there are a large number of companies developing or marketing treatments for cancer and AIID, including many major pharmaceutical and biotechnology companies. These treatments consist both of small-molecule drug products, as well as biologics that work by using various antibody therapeutic platforms to address specific targets. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us and our strategic partners in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. The commercial opportunity for our product candidates could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any products that we or our strategic partners may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly, which could result in our competitors establishing a strong market position before we or our partnered products are able to enter the market. In addition, +45 +Table o f Contents +the biopharmaceutical industry is characterized by rapid technological change. If we or our strategic partners fail to stay at the forefront of technological change, we and our strategic partners may be unable to compete effectively. Technological advances or products developed by our competitors may render our or our strategic partners’ technologies or product candidates obsolete, less competitive or not economical. We expect that current and future product candidates will compete with biosimilar versions of already approved products, and even if additional product candidates achieve marketing approval, they may be challenged to achieve a price premium over competitive biosimilar products and will compete for market share with them. The Biologics Price Competition and Innovation Act of 2009, which is included in the 2010 Patient Protection and Affordable Care Act (“ PPACA ”) , authorized the FDA to approve similar versions of innovative biologics, commonly known as biosimilars. Under the PPACA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biologic product or “reference product.” Manufacturers may not submit an application for a biosimilar to the FDA until four years following approval of the reference product, and the FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if our product candidates, if approved, are deemed to be reference products eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. Additionally, from time to time, there are proposals to repeal or modify the PPACA, including proposals that could significantly shorten the exclusivity period for biologics. +We or our strategic partners may be unable to obtain orphan drug exclusivity in specific indications for zanidatamab or for future product candidates. If our competitors are able to obtain orphan product exclusivity for their products in specific indications, we or our strategic partners may not be able to have competing partnered products approved in those indications by the applicable regulatory authority for a significant period of time. +The FDA granted Orphan Drug Designation to zanidatamab for the treatment of BTC and gastric cancer, including cancer of the gastroesophageal junction, the EMA granted Orphan Drug Designation to zanidatamab for the treatment of gastric cancer and BTC, and we or our strategic partners may seek Orphan Drug Designation for zanidatamab or other product candidates for additional indications in the future. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. Generally, if a product candidate with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the “same drug,” as defined under the FDA orphan drug regulation, for the same indication for that time period. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity peri od can be reduced to six years if a product no longer meets the criteria for Orphan Drug Designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. The loss of Orphan Drug Designation could have a negative effect on the successful commercialization of our product candidates. Aside from the orphan drug exclusivity for zanidatamab, even if we or our strategic partners obtain orphan drug exclusivity for other product candidates that receive an Orphan Drug Designation in the future, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Further, in the United States, after an orphan drug is approved, the FDA can subsequently approve the “same drug” for the same condition submitted by a competitor if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. If we or our strategic partners are unable to manufacture sufficient supply of a product to meet the needs of patients, the FDA can withdraw orphan exclusive marketing rights or approve another marketing application for the “same drug” product before the expiration of the exclusivity period. Further, notwithstanding the court’s decision in Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), in January 2023, the FDA published a notice in the Federal Register to clarify that while the FDA complied with the court’s order in Catalyst, the F DA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order. The Consolidated Appropriations Act of 2026, signed into law in February 2026, codified this longstanding FDA interpretation of the Orphan Drug Act, allowing the FDA to approve multiple versions of the same orphan drug for different subindications and subpopulations. +Even if we or our strategic partners obtain FDA approval of any of our product candidates, we or they may never obtain approval or commercialize such product candidates outside of the United States, which would negatively impact our product or royalty and milestone revenue. +In order to market any products outside of the United States, we or our strategic partners must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. +46 +Table o f Contents +Seeking non-U.S. regulatory approvals could result in significant delays, difficulties and costs and may require additional preclinical studies or clinical trials, which would be costly and time consuming and potentially disincentivize us or our strategic partners from seeking such non-U.S. approvals. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. If we or our strategic partners fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our products’ target market will be reduced, and our ability to earn product or royalty and milestone revenue will be harmed. +If zanidatamab or any current or future partnered product candidate that receives regulatory approval in the future does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, revenue generated from commercialization efforts will be materially and adversely impacted. +The commercial success of zanidatamab or any current or future product candidate will depend upon their acceptance among physicians, patients and the medical community. The degree of market acceptance depends on a number of factors, including: +• limitations or warnings contained in the approved labeling; +• changes in the standard of care for the targeted indications; +• limitations in the approved clinical indications; +• demonstrated clinical safety and efficacy compared to other products; +• sales, marketing and distribution support; +• availability of coverage and the extent of access and reimbursement from managed care plans and other third-party payors; +• timing of market introduction and perceived effectiveness of competitive products; +• availability of alternative therapies at similar or lower cost; +• the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations; +• whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular diseases; +• whether the product can be used effectively with other therapies to achieve higher response rates; +• adverse publicity about the product or favorable publicity about competitive products; +• convenience and ease of administration of the product; and +• potential product liability claims. +If zanidatamab or any current or future product candidate that is approved does not achieve an adequate level of acceptance by physicians, patients and the medical community, sales may be negatively affected and materially and adversely impact the revenues we receive whether through royalties or otherwise. +Current and future healthcare regulations and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. +The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Many countries require approval of the sale price of a drug before it can be marketed. In most cases, the pricing review period begins after marketing or product licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control after initial approval is granted. As a result, a product may receive regulatory approval in a particular country, but then be subject to price regulations that delay commercial launch of the product, negatively impacting the revenues generated from sales in that country and consequently negatively affecting our revenues through royalties or otherwise. In many countries, particularly those in the EU, prescription drug pricing and reimbursement is subject to governmental control. In countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, regulators may require a clinical trial that compares the cost-effectiveness of the product candidate under review to other available therapies. Successful commercialization of any products also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other third-party payors. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that +47 +Table o f Contents +can require provision to the payor of supporting scientific, clinical and cost-effectiveness data for the product under review. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process, with no assurance that coverage and adequate reimbursement will be obtained. There may also be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved. We expect pricing pressures in connection with the sale of any approved products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. In August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Further, the current U.S. Presidential administration has issued executive orders focused on decreasing prescription drug prices, including directing the Secretary of the U.S. Department of Health and Human Services (“HHS”) to establish a mechanism through which U.S. patients can buy drugs directly from manufacturers who sell at a most-favored-nation price and directing the U.S. Trade Representative and Secretary of Commerce to take action to ensure foreign countries are not engaged in practices that purposefully and unfairly undercut market prices and drive price hikes in the United States. Government agreements with pharmaceutical companies that use most-favored-nation pricing targets for prescription drugs, including the use of international pricing reference to set drug prices in the United States, or that increase generic and biosimilar drug entry sooner than expected, can have a material adverse effect on our industry and our ability to recognize product or royalty and milestone revenues. We cannot predict the full impact of the executive orders focused on reducing prescription drug prices or increasing domestic drug manufacturing capacity, or other measures that may be implemented related to drug pricing, drug supply chain and manufacturing in the United States. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. Approved products might not be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payors, an adequate level of reimbursement might not be available for such products, and third-party payors’ reimbursement policies might adversely affect any future approved products profitability. +Even if our product candidates receive regulatory approval, we or our strategic partners will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. +Any regulatory approvals that our product candidates receive may be subject to limitations on the approved indicated uses for which the product may be marketed or subject to certain conditions of approval, and may contain requirements for potentially costly post-approval trials, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the marketed product. For example, in November 2024 the FDA granted accelerated approval for Ziihera for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC, in May 2025, the NMPA in China granted conditional approval for zanidatamab for the treatment of patients with previously treated, unresectable or metastatic HER2+ BTC, and in July 2025, the European Commission granted conditional marketing authorization of Ziihera for the treatment of adults with unresectable locally advanced or metastatic HER2+ BTC. However, continued approval for these indications is contingent upon verification and description of clinical benefits in confirmatory trials. For any approved product, we and our strategic partners will be subject to ongoing regulatory obligations and extensive oversight by regulatory authorities, including with respect to manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-approval information and reports, as well as continued compliance with cGMP and good clinical practice (“GCP”), for any clinical trials that we or our strategic partners conduct after approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things, restrictions on manufacturing of the product, withdrawal of the product from the market, voluntary or mandatory recalls or imposition of civil or criminal penalties. It is unclear how our industry and our clinical programs will be impacted by pending legislation and new policies and regulations implemented under the current U.S. Presidential administration and the new FDA commissioner. +If any product liability lawsuits are successfully brought against us or any of our strategic partners, we may incur substantial liabilities and commercialization efforts of zanidatamab or any other approved products may need to be limited. +We and our strategic partners face an inherent risk of product liability lawsuits related to the testing of product candidates in seriously ill patients, and face an even greater risk as a result of commercialization of any approved product candidates. Product liability claims may be brought against us or our strategic partners by participants enrolled in clinical trials, patients, health care +48 +Table o f Contents +providers or others using, administering or selling any current or future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claims may result in: +• decreased demand for any current or future approved products, product recalls or a change in the indications for which they may be used; +• injury to our and our strategic partners’ reputation; +• limitations placed on promotional activities; +• withdrawal of clinical trial participants, termination of clinical trial sites or entire trial programs; +• increased regulatory scrutiny; +• significant litigation costs and substantial monetary awards to, or costly settlement with, patients or other claimants; +• diversion of management and scientific resources from our business operations; and +• the inability to commercialize approved products. +We may need to have in place increased product liability coverage as we or our strategic partners begin the commercialization of any product candidates. Insurance coverage is becoming increasingly expensive, and we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of operations. Patients with cancer and other diseases we or our strategic partners may target are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to zanidatamab or our or our strategic partners’ product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end the opportunity to receive or maintain regulatory approval to market zanidatamab or other product candidates, or require suspension or abandonment of commercialization efforts. Even in circumstances in which we do not believe that an adverse event is related to zanidatamab or our or our strategic partners’ product candidate, the investigation into the circumstance may be time-consuming or inconclusive, and may result in reputational harm. These investigations may interrupt sales efforts, delay regulatory approval process in other countries, or impact and limit the type of regulatory approvals zanidatamab or product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations. +If we, our strategic partners or any of our third-party manufacturers encounter manufacturing difficulties, supply of product candidates for clinical trials or any approved products for patients could be delayed or prevented. +Manufacturing difficulties and supply chain risks may delay or prevent the availability of product candidates for our and our strategic partners’ development efforts or, following receipt of marketing approval, for commercialization of approved products. The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques, process and quality controls. Manufacturers of biologic products often encounter difficulties in production and sourcing, particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing processes (including the absence of contamination), in light of variations and supply constraints of key components. These problems include logistics and shipping, difficulties with production costs and yields, quality control, including consistency, stability, purity and efficacy of the product, product testing, operator error and availability of qualified personnel, as well as compliance with applicable federal, state and non-U.S. regulations. Prolonged uncertainty in trade relationships could result in supply chain disruptions, delayed shipments, or increased operational complexity, which could also adversely affect our business, results of operations and cash flows. While we are evaluating steps to mitigate any impacts of new or increased tariffs or other impacts resulting from changes in trade policy, our ability to do so may be limited by operational and supply chain constraints, especially in the short term. We and our third-party manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures relating to these laws comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury, and any related liability, resulting from medical or hazardous materials. In addition, manufacturing methods and formulation changes for product candidates advancing towards commercialization carry the risk that such product candidates may perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. While such changes are common and intended to help optimize processes and results during the development process, any of +49 +Table o f Contents +these changes could increase costs, cause delays and impact our or our strategic partners’ ability to commence product sales, affecting our product revenue or royalty and milestone revenue. +Risks Related to Our Financial Position and Need for Additional Capital +We have incurred significant losses since inception and anticipate that at least over the short-term we will continue to incur losses. We have only one product approved for commercial sale, and, as of December 31, 2025, we have not received any revenue or profit from product sales, other than the receipt of royalties relating to sales of zanidatamab. We may never achieve or sustain profitability. +We have incurred significant losses since our inception. Our net losses for the years ended December 31, 2025, 2024 and 2023 were $81.1 million, $122.7 million and $118.7 million, respectively. As of December 31, 2025, our accumulated deficit was $953.2 million. Our revenue as of December 31, 2025 has been primarily revenue from the license of our proprietary therapeutic platforms for the development of product candidates by others or revenue from our strategic partners. We anticipate that at least over the short-term we will not be net income positive on a regular basis as we continue our research and development of our product candidates and implement our recently announced strategy. In addition, inflationary pressure could adversely impact our financial results. The net losses and negative cash flows incurred as of December 31, 2025, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ deficit and working capital. The amount of future net losses as well as our ability to become net income positive will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue, including through the receipt of royalties from our strategic partners and the successful implementation of our recently announced strategy. Because of the numerous risks and uncertainties associated with pharmaceutical product development as well as our asset aggregation strategy, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Historically, we have devoted substantially all of our financial resources and efforts to developing our proprietary therapeutic platforms, identifying potential product candidates and conducting preclinical studies and clinical trials. Zanidatamab is the only product candidate developed with our therapeutic platforms that has received regulatory approval, and we and our strategic partners are still developing other product candidates. To become and remain profitable, we and our strategic partners must succeed in developing and commercializing product candidates with significant market potential. This will require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing and acquiring product candidates, securing partnerships and either directly or through our strategic partners advancing through later stage clinical development, regulatory approval and the manufacturing, marketing and selling of those product candidates that obtain regulatory approval. We may never succeed in these activities and may never generate revenue from product sales, royalties, milestones or otherwise that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or co ntinue our operations. +We may require additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development programs or operations. +We are focused on the development of our early-stage product candidates, acquisition of additional early-stage assets and general discovery efforts. D eveloping pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We intend to evaluate various partnering, collaboration and other strategic transactions that may enable us to raise additional funding or transfer certain costs and risks related to later-stage development and/or commercialization to our strategic partners. If we successfully enter into these types of transactions, we expect to be able to enhance our capital efficiency by deploying resources that may have otherwise been spent on later-stage clinical development across other areas of our business; however, we may not be able to identify suitable partners or enter into agreements on terms acceptable to us. Even if we are able to secure additional strategic arrangements, there can be no assurance that these arrangements will be successful, which could materially harm our business, financial conditions and results of operations. For example, if we raise additional funds through borrowings, we may be obligated to repay the principal and interest of the loan from certain of our royalty payments and/or use our royalties as collateral for such borrowings, which may subject us to covenants that restrict our activities or other unfavorable terms and conditions. Our future funding requirements will depend on many factors, including: +• the number and characteristics of other product candidates that we pursue; +• the scope, progress, timing, cost and results of research, preclinical development, and clinical trials; +• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights; +50 +Table o f Contents +• our ability to hire when needed additional management, scientific and medical personnel; +• our need to implement additional internal systems and infrastructure, including financial and reporting systems; and +• the economic and other terms, timing of and success of our existing strategic partnerships, and any collaboration, asset monetization, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements. +Until we can generate a sufficient amount of revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through a combination of public and private equity offerings, debt financings, asset monetization, strategic partnerships and grant funding. +The terms of our loan agreement impose certain restrictions on our activities, and failure by us or our subsidiaries to fulfill applicable obligations under the loan agreement may cause the repayment obligations to accelerate. +Pursuant to the terms of the Sale Agreement and Loan Agreement with Royalty Pharma, we and our subsidiaries are restricted from taking certain actions with respect to the Jazz Collaboration Agreement and the Zanidatamab Agreement with BeOne (collectively, the “Covered Agreements”), including (i) entering into any contracts, or amending, modifying or waiving provisions of any contracts, relating to the royalties receivable under the Covered Agreements that would undermine the Royalty Interest or reasonably be expected to result in a material adverse effect, (ii) taking actions that would, or would give the right to an applicable counterparty to, terminate a Covered Agreement or certain material in-license agreements covering Ziihera, or amending, modifying, waiving any provision, providing any consent or taking any action under any Covered Agreement that would reduce any Royalty Interest payments or reasonably be expected to result in a material adverse effect, without the prior written consent of the Subsidiary and Royalty Pharma, (iii) selling, transferring, disposing of or encumbering its interests in applicable Ziihera-specific intellectual property, Ziihera, a Covered Agreement or certain material in-license agreements covering Ziihera, or entering into monetization or similar transactions with respect to Zymeworks BC’s retained royalty interests under any Covered Agreement, except, in each case, without certain assumption and other arrangements protective to Royalty Pharma’s interests, and (iv) permitting Covered Agreement counterparties to acquire more than 50% of Zymeworks BC’s retained royalty interests under any Covered Agreement without certain assumption and other arrangements protective to Royalty Pharma’s interests, in addition to being subject to other customary covenants. Additionally, under the Loan Agreement, if certain events of default occur, including the termination of a Covered Agreement or a change of control of us as well as other customary events of default, Royalty Pharma may terminate the Loan Agreement and demand immediate payment of an amount equal to the outstanding principal amount of the loan plus all applicable fees, premiums and accrued and unpaid interest thereon and exercise all rights and remedies available under or pursuant to the Loan Agreement. For additional information regarding this arrangement, see the section titled “Liquidity and Capital Resources” under Part II. Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” below. +If we or our subsidiaries are unable to comply with the covenants or other obligations under the Sale Agreement and the Loan Agreement, or if an event of default were to occur and our loan becomes accelerated, we could be required to prepay the entire loan or lose control over assets or rights held by the Subsidiary and provided as collateral to Royalty Pharma. While the loan is non-recourse against us or Zymeworks BC, a failure to comply with the covenants or other obligations under the Sale Agreement and the Loan Agreement, including an event of default, could cause our business, financial condition, results of operations and reputation to be materially harmed. +Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights. +Raising additional funds through partnerships, collaborations, strategic alliances, or licensing arrangements with third parties, may require us to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect our stockholders’ rights as common stockholders. For example, in August 2024, we entered into the Cowen Sales Agreement with TD Cowen as sales agent to sell shares of our common stock from time to time through an “at-the-market” equity offering program, subject to a maximum aggregate dollar amount registered pursuant to a prospectus supplement. As part of the ongoing management of our operations and related funding needs, we evaluate various financing vehicles, including “at-the-market” equity offering programs, and may enter into similar “at-the-market” equity offering programs in the future, as well as other financing transactions. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures, repurchasing our common stock, or declaring dividends. We cannot assure that we will be able to +51 +Table o f Contents +obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or otherwise scale back our operations. +Risks Related to Our Dependence on Third Parties +We rely on third -party manufacturers to produce our product candidates and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product. We and our strategic partners may encounter difficulties with respect to these activities that could delay or impair our or our strategic partners’ ability to initiate or complete our clinical trials or commercialize products. +We do not currently own or operate any manufacturing facilities. We work with multiple third-party contract manufacturers to produce sufficient quantities of materials required for the manufacture of our product candidates for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards. If we are unable to arrange for such third-party manufacturing sources, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business. The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. The process of manufacturing our product candidates is susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the third-party manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. All of our engineered antibodies are manufactured in accordance with cGMP by utilizing cells that are stored in a cell bank. We have one master cell bank and one working cell bank for zanidatamab and one master cell bank for each of ZW191, ZW209, ZW220 and ZW251. Should any cell bank be lost in a catastrophic event, it is possible that we could lose part of a cell bank and have our manufacturing potentially impacted by the need to replace the cell bank. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Furthermore, reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third party for regulatory compliance and quality control and assurance, volume production, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to manufacture our product candidates in accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to us. In addition, the FDA, EMA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar non-U.S. standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain state and non-U.S. agencies. They are also subject to periodic unannounced inspections by the FDA, state and other non-U.S. authorities. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our strategic partners, may result in restrictions on the product or on the manufacturing or laboratory facility, including marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the drug from the market. We may have little to no control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in development of any of our or our strategic partners’ product candidates. In addition to third-party manufacturers, we rely on other third parties to store, monitor and transport bulk drug substance and drug product. If we are unable to arrange for such third-party sources, or fail to do so on commercially reasonable terms, we may not be able to successfully supply sufficient product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business. +52 +Table o f Contents +We and our strategic partners rely on third parties to monitor, support, conduct and oversee clinical trials of product candidates and, in some cases, to maintain regulatory files for those product candidates. Our product candidates may not receive regulatory approval or be successfully commercialized if we or our strategic partners are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us. +We and our strategic partners rely on entities outside of our or their control, which may include academic institutions, CROs, hospitals, clinics and other third-party strategic partners, to monitor, support, conduct and oversee preclinical studies and clinical trials of our or our strategic partners’ current and future product candidates. If we or our strategic partners are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we or our strategic partners may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner anticipated. In addition, there is no guarantee that these third parties will devote adequate time and resources to our or our strategic partners’ studies or perform as required by contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding the product candidates. These third parties, in turn, may face their own constraints in obtaining the resources and personnel needed to perform the work for which they are engaged. If these third parties fail to meet expected deadlines, fail to transfer any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or contractual obligations, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our or our strategic partners’ product candidates may be extended or delayed with additional costs incurred, or data from the clinical trials may be rejected by the FDA, EMA or other regulatory agencies. Ultimately, we and our strategic partners are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and reliance on third parties does not relieve us or our strategic partners of regulatory responsibilities. We, our strategic partners and our CROs are required to comply with GCP regulations and guidelines enforced by the FDA, the competent authorities of the member states of the EU and comparable non-U.S. regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we, our strategic partners or any of our CROs fail to comply with applicable GCP regulations, the clinical data generated in the clinical trials may be deemed unreliable and submission of marketing applications may be delayed or the FDA may require us or our strategic partners to perform additional clinical trials before approving marketing applications. Upon inspection, the FDA could determine that any of our or our strategic partners’ clinical trials fail or have failed to comply with applicable GCP regulations. Moreover, our business may be implicated if any of our or our strategic partners’ CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. If any of our or our strategic partners’ clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in the ongoing clinical trials unless we or our strategic partners are able to transfer the care of those patients to another qualified clinical trial site. If our or our strategic partners’ relationship with any CRO is terminated, we or our strategic partners, as applicable, may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. Switching or adding CROs or other suppliers can involve substantial cost and require extensive management time and focus, and there is a natural transition period when a new CRO or supplier commences work. As a result, delays may occur, which can materially impact the ability to meet desired clinical development timelines. If we or our strategic partners are required to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable replacement could materially and adversely impact our business or our product or royalty and milestone revenue. +We rely on third parties for various operational and administrative aspects of our business, including for certain cloud- based software platforms, which impact our financial, operational and research activities. If any of these third parties fail to provide timely, accurate and ongoing service or if the cloud-based platforms suffer outages that we are unable to mitigate, our business may be adversely affected. +We currently rely upon third-party consultants and contractors to provide certain operational and administrative services, including external financial, legal, information technology, clinical and research consultation. The failure of any of these third parties to provide accurate and timely service may adversely impact our business operations. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, or increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs until an equivalent provider could be found, if at all, or we could develop internal capabilities, if ever. If we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial performance. Further, our operations depend on the continuing and efficient operation of our information technology and communications systems and infrastructure, and specifically on “cloud-based” platforms. These platforms are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks, floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate +53 +Table o f Contents +attempts to harm the systems. The occurrence of a natural or intentional disaster, any decision to close a facility we are using without adequate notice, or an unanticipated problem at our cloud-based virtual server facility, could result in harmful interruptions in our service, resulting in adverse effects to our business. +Risks Related to Our Intellectual Property +Our success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. +Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our and our strategic partners’ ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. For example, certain patents and patent applications held by third parties cover Fab and Fc region engineering methods for bispecific antibodies, and antibodies having mutations in Fab heavy and light chain regions and Fc regions to generate correctly paired bispecific antibodies. In addition, we are aware of certain third-party patents and patent applications that generally encompass topoisomerase 1 inhibitors. If our or our strategic partners’ product candidates or products are covered by any claims of these patents or patents that may issue from these applications, and if licenses for them are not available on commercially reasonable terms or at all, we or our strategic partners are unable to invalidate or render unenforceable those patents, or we or our strategic partners are unable to reengineer such product candidates or products, our business could be materially harmed. There is no assurance that there are not third-party patents or patent applications of which we are aware, but which we do not believe are relevant to our business, which may, nonetheless, ultimately be found to limit our or our strategic partners’ ability to make, use, sell, offer for sale or import future approved products or impair our and our strategic partners’ competitive position. Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us and our strategic partners from developing product candidates using our technology. Our failure to obtain a license to any patent covering any technology that we or our strategic partners require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any patent covering any technology that we or our strategic partners require may also materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation. In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights are commonplace. Any such lawsuits and proceedings could be costly and could affect our results of operations and divert the attention of our management and scientific personnel. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. There is a risk that a court would decide that we or our strategic partners are infringing a third party’s patents and would order us or our strategic partners to stop the activities or stop the manufacture, use, or sale of any product covered by the patents. In that event, we or our strategic partners may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court would order us or our strategic partners to pay third-party damages or some other monetary award, depending upon the jurisdiction. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed, and we may be required to cease using the technology at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business. +If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed. +Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we have licensed from third parties. Therefore, our owned or in-licensed patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our current and future product candidates in the United States or in other countries. Moreover, the patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the +54 +Table o f Contents +subject of much litigation. The issuance of a patent does not ensure that it is valid or enforceable. Third parties may challenge the validity, enforceability or scope of our issued patents, and such patents may be narrowed, invalidated, circumvented, or deemed unenforceable. In addition, changes in law may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. If our patents are narrowed, invalidated or held unenforceable, third parties may be able to commercialize our technology or products and compete directly with us and our strategic partners without payment to us. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and such prior art could potentially invalidate one or more of our patents or prevent a patent from issuing from one or more of our pending patent applications. There is also no assurance that there is not prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. Additionally, recent reforms and changes at U.S. government agencies and those of non-U.S. jurisdictions could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications, and the maintenance, enforcement, or defense of our issued patents. For example, the ability of the U.S. Patent and Trademark Office (“USPTO”) and other applicable patent authorities to properly administer their functions is highly dependent on the levels of funding available to the agency and their ability to retain key personnel and fill key leadership appointments, among various factors. Termination of employees or delays in replacing or hiring for key positions could significantly impact the ability of the USPTO and other applicable patent authorities to fulfill their functions and could greatly impact our ability to timely and adequately prosecute or maintain our patent applications and our ability to timely and adequately maintain, enforce, or defend our issued patents. Furthermore, even if our patents are unchallenged, they may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of other countries may not allow us to protect our inventions with patents to the same extent as U.S. law. Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the issuance, validity, enforceability, scope and commercial value of our patents in the United States and in other countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. +Our patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged. +Any of our intellectual property rights could be challenged or invalidated despite measures we take to obtain patent and other intellectual property protection with respect to our product candidates and proprietary technology. These challenges could be initiated in the courts or administratively in various patent offices. For example, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable or file an administrative action to invalidate our patent. In patent litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material information from the USPTO or the applicable non-U.S. counterpart, or made a misleading statement, during prosecution. A litigant or the USPTO itself could challenge our patents on this basis even if we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith. The outcome following such a challenge is unpredictable. With respect to challenges to the validity of our patents, there might be invalidating prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The cost of defending such a challenge, and any resulting loss of patent protection, could have a material adverse impact on one or more of our product candidates and our business. Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly to defend and could require us to pay substantial damages, cease the use, manufacture, or sale of certain products or enter into a license agreement and pay royalties (which may +55 +Table o f Contents +not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel. +Our intellectual property rights will not necessarily provide us with competitive advantages. +The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: +• others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we or our strategic partners own or have exclusively licensed; +• others may independently develop similar or alternative technologies without infringing our intellectual property rights; +• issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; +• we may obtain patents for certain compounds many years before we or our strategic partners obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of our patents may be limited; +• our competitors might conduct research and development activities in countries where we do not have patent rights and use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• we may fail to develop additional proprietary technologies that are patentable; +• the laws of certain countries may not protect our intellectual property rights to the same extent as U.S. law, or we may fail to apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and +• the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product candidates for one or more indications. +Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business. +We may become involved in lawsuits to protect or enforce our patents and trade secrets, which could be expensive, time consuming and unsuccessful. +Third parties may seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our product candidates. In these circumstances, we may need to defend or assert our patents, including by filing lawsuits alleging patent infringement. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our and our strategic partners’ business objectives. After they have issued, our patents and any patents that we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our or our partnered product candidates, other companies may be better able to develop products that compete with ours, which could adversely affect our or our strategic partners’ competitive business position, and adversely affect our revenues. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us: +• we or our strategic partners may initiate litigation or other proceedings against third parties to enforce our patent or trade secret rights; +56 +Table o f Contents +• third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us; +• third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our strategic partners and/or licensors to participate in such proceedings to defend the validity and scope of our patents; +• there may be a challenge or dispute regarding inventorship or ownership of patents or trade secrets currently identified as being solely or co-owned by us or by a licensor who has granted a license to us; +• the USPTO may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our strategic partners and/or licensors to participate in an interference proceeding to determine the priority of invention, which could jeopardize our patent rights; or +• third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement. +These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. Adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. There is a risk that a court or administrative body would decide that our patents are invalid, unenforceable or not infringed or trade secrets not misappropriated by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents or trade secrets could limit our ability to assert our patents or trade secrets against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. We may not be able to prevent, alone or with our licensors or licensees, infringement or misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example: +• others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents; +• others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents; +• we might not have been the first to make the inventions covered by patents or pending patent applications; +• we might not have been the first to file patent applications for these inventions; +• any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or +• we may not develop additional proprietary technologies that are patentable or that afford meaningful trade secret protection. +Patent terms may be inadequate to protect our competitive position on our or our partnered products or product candidates for an adequate amount of time. +Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our or our partnered products or product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilars. +57 +Table o f Contents +Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us or our strategic partners with sufficient rights to exclude others from commercializing products similar or identical to ours. Further, judicial decisions in the United States raised questions regarding the award of patent term adjustment (“PTA”) for patents in families where related patents have issued without PTA. Thus, it cannot be said with certainty how PTA will be viewed in the future and whether patent expiration dates may be impacted. +If we do not obtain protection under the Hatch-Waxman Amendments and similar legislation in other countries for extending the term of patents covering each of our or our partnered products or product candidates, our business may be materially harmed. +Depending upon the timing, duration and conditions of FDA marketing approval of our or our partnered product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process, subject to the limitation that the total remaining patent term after approval cannot exceed 14 years. However, we may not receive an extension if we or our strategic partners fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we or our strategic partners request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. +If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected. +In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. For example, we treat our confidential and proprietary computational technologies, including unpatented know-how and other proprietary information, as trade secrets. We enter into confidentiality agreements with our employees, consultants, strategic partners and others upon the commencement of their relationships with us. These agreements provide that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. We cannot guarantee that we have entered into such agreements with each party that has or may have had access to, or houses or hosts, our trade secrets or proprietary information or that has been involved in the development of intellectual property. Further, despite such agreements, such inventions or confidential information may become disclosed or assigned to third parties. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in such technology or know-how or in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, that individual’s assignee, or a third party. Such assignment or license may not be available on commercially reasonable terms or at all. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems and cloud storage sources, but such security measures may be breached, including through cyber-hacking or cyberattacks, and we may not have adequate remedies for any breach. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or +58 +Table o f Contents +independently developed by a competitor, or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and competitive position could be harmed. Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Such trade secrets or other proprietary information could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. In July 2025, the FDA announced its intent to increase transparency by publicly releasing portions of Complete Response Letters (“CRLs”) issued to drug and biologic sponsors. While the FDA has stated that confidential information will be protected, it remains unclear how such disclosures will be implemented. Because CRLs often contain specific observations about study design, clinical endpoints, chemistry, manufacturing, and controls (“CMC”) data, or other proprietary information, any public release could unintentionally disclose information that competitors may use to infer proprietary aspects of our or our strategic partners’ product candidates or platform technologies. This could compromise the confidentiality of our trade secrets and know-how or facilitate third-party efforts to design around or challenge the validity, enforceability, or scope of our patents, or accelerate the development of generics and biosimilars. If we are required to modify or limit the information shared with the FDA to mitigate such risks, it could increase costs, slow our regulatory interactions, or delay product approval timelines. +Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to the USPTO and various non-U.S. patent offices at various points over the lifetime of our patents or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these fees when due. Additionally, the USPTO and various non-U.S. patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. +We may be subject to claims challenging the inventorship of our patents and other intellectual property. +Although we are not currently experiencing any claims challenging the inventorship or ownership of our patents, we may in the future be subject to claims that former employees, strategic partners or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. For example, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. +Patent protection and patent prosecution for some of our or our partnered product candidates may be dependent on, and the ability to assert patents and defend them against claims of invalidity may be maintained by, third parties. +There may be times when certain patents that relate to our or our partnered product candidates or any approved products are controlled by our licensees or licensors. Although we may, under such arrangements, have rights to consult with our strategic partners on actions taken as well as back-up rights of prosecution and enforcement, we have in the past and may in the future relinquish rights to prosecute and maintain patents and patent applications within our portfolio as well as the ability to assert +59 +Table o f Contents +such patents against infringers. If any current or future licensee or licensor with rights to prosecute, assert or defend patents related to our product candidates fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner that adversely affects such coverage, our and our strategic partners’ ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. +Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products. +The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or found to be enforceable in our patents, in our strategic partners’ patents or in third-party patents. U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this has created uncertainty with respect to the validity, scope and value of patents, once obtained. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act (“AIA”), was signed into law. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties disclosing or claiming the same invention. A third party that has filed, or files a patent application in the USPTO after March 16, 2013, but before us, could be awarded a patent covering a given invention, even if we had made the invention before it was made by the third party. This requires us to be cognizant of the time from invention to filing of a patent application. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in non-U.S. jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or strategic partners may obtain in the future. For example, the U.S. Supreme Court held in Amgen v. Sanofi (2023) that a functionally claimed genus was invalid for failing to comply with the enablement requirement of the Patent Act. As such, any of our patent rights with functional claims may be vulnerable to third-party challenges seeking to invalidate these claims for lacking enablement or adequate support in the specification. +We may not be able to protect our intellectual property rights throughout the world. +Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. As a result, we periodically review our patents and patent applications in light of our objectives and products to determine whether to continue prosecution and maintenance or to allow certain patents or patent applications to lapse. In addition, the laws of some countries do not protect intellectual property rights to the same extent as U.S. law. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our current or future products, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. U.S. Supreme Court cases have narrowed the scope of what is considered patentable subject matter, for example, in the areas of software and diagnostic methods involving the association between treatment outcome and biomarkers. This could impact our ability to patent certain aspects of our technology in the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in jurisdictions other than the United States. The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in non-U.S. jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. The requirements for patentability may differ in certain countries, which may make it more difficult for us to obtain sufficient claim scope to protect our products in those jurisdictions. India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those +60 +Table o f Contents +countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Geo-political actions could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors or licensees and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors or licensees. For example, in March 2025, the Chinese government issued regulations for implementation of the 2021 Anti-Foreign Sanctions Act. These regulations expand the Chinese government’s ability to seize certain assets, including intellectual property, of foreign entities in response to foreign sanctions, including those by the United States. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. In addition, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary patent system was introduced in June 2023, which will significantly impact European patents, including those granted before the introduction of this system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which is subject to the jurisdiction of the Unitary Patent Court (the “ UPC ” ). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC are potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. +We use open source software in connection with our internal research and development programs, which could negatively affect our ability to develop products and subject us to litigation or other actions. +We use open source software in connection with our internal research and development programs. The terms of many open source licenses have not been interpreted by U.S. or non-U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to use this software. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software, or claiming that software we developed using such open source software is a derivative work of open source software and demanding the release of portions of our source code, or otherwise seeking to enforce the terms of the applicable open source license. Litigation could be costly for us to defend, have a negative effect on our financial condition and results of operations or require us to devote additional research and development resources to change our platform and offerings. If we were to combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. If we inappropriately use open source software, or if the license terms for open source software that we use change, we may be required to re-engineer our platform, incur additional costs, discontinue the use of some or all of our platform or take other remedial actions. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, because open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. Many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and if not properly addressed, could have an adverse effect on our business, financial condition and results of operations. +Risks Related to Additional Legal and Compliance Matters +Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, insider trading, and noncompliance with our policies and procedures. +We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Conduct and Business Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. In addition, employees may become subject of allegations of gender discrimination and other misconduct that are not in compliance with our policies and +61 +Table o f Contents +procedures, which, regardless of the ultimate outcome, may result in adverse publicity that could materially harm our brand, reputation and business. +Our business and current and future relationships with customers and third-party payors in the United States and elsewhere will be subject, directly or indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings. +Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of zanidatamab and any product candidates for which we or our strategic partners obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers, third-party payors, and other entities may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we conduct clinical research on product candidates. We may also be subject to transparency laws, such as the Sunshine Act, and federal and state privacy laws, as well as comparable or similar state and non-U.S. laws and regulations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. Any failure or perceived failure by us to comply with such laws, regulations, or case law may result in governmental investigations or enforcement actions, litigation, claims and other proceedings, harm our reputation, and could result in significant liability as well as exclusion from participation in government healthcare programs such as Medicare and Medicaid. If any of the physicians or other providers or entities with whom we expect to do business, including our strategic partners, is found not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business. +Tax law changes could adversely affect our business and financial condition. +We are subject to income taxes in the United States and various non-U.S. jurisdictions. Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including enactment of new income, sales, use or other tax laws, statutes, rules, regulations, or ordinances or changes or modifications in existing tax laws, statutes, rules, regulations, or ordinances, or the interpretation of the same. For example, the recently enacted U.S. federal tax legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBB Act”) has made many significant changes to the U.S. tax laws. We are currently evaluating the full impact of the OBBB Act on us. Future guidance from the Internal Revenue Service and other tax authorities with respect to current tax laws may affect us, and certain aspects of current tax laws could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to such legislation or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of non-U.S. earnings, and the deductibility of expenses under past or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future tax expense. +If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected. +Our research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by certain jurisdictions in which we operate to cover costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations. +62 +Table o f Contents +We are subject to export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations that can harm our business. +We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. §201 , the U.S. Travel Act, the USA PATRIOT Act, the UK Bribery Act 2010, the Proceeds of Crime Act 2002, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We currently engage third parties for clinical trials outside of the United States and we may in the future engage third parties to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violation of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, loss of export or import privileges, debarment, tax reassessments, litigation, reputational harm, and other consequences. Our failure, or that of our third-party manufacturers, to comply with applicable regulations could require replacing current third parties and result in supply delays, clinical holds, sanctions such as fines, injunctions, civil penalties, suspension or withdrawal of approvals, license revocations, seizures or recalls, operating restrictions, or criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business, financial condition, results of operations and growth prospects. +Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. +We and our service providers, including CROs, collect, store and otherwise process petabytes of sensitive data, including legally protected health information, personal information, intellectual property and proprietary business information owned or controlled by ourselves or our strategic partners. We face four primary risks relative to protecting this critical information: loss of access risk, inappropriate disclosure risk, inappropriate modification risk, and the risk of being unable to adequately monitor our controls over the first three risks. Although we take measures designed to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and those that our CROs and other third-party service providers may use, have in the past been subject to, and may be vulnerable to, cyber-attacks, malicious code, outages, or other security incidents, including those caused by inadvertent or intentional actions by employees, contractors, business partners, or other third parties. Any such incident or other matter could compromise systems and networks used in our business and lead to operational outages, interruptions, and unauthorized access to or loss of our data (including trade secrets or other confidential information, intellectual property, proprietary business information, and personal information) or data that is maintained or otherwise processed on our behalf, or other assets, which could result in financial, legal, business and reputational harm to us. Any such event, or the perception that such an event has occurred, could result in legal claims, demands and litigation or governmental investigations or other proceedings, liability under laws and regulations, including those that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and regulatory penalties and other liabilities. Despite our efforts to improve security measures, our systems or those of our third-party service providers may still be vulnerable to security breaches, incidents, outages, interruptions, compromises, or vulnerabilities. We expect to continue to incur additional expenses on such matters, whether in response to actual or perceived security breaches or incidents, compromises, outages, interruptions, vulnerabilities or otherwise. Any loss, destruction, alteration, disclosure or dissemination of, or prevention of access, damage or unauthorized access to, our data or other data that is processed or maintained on our behalf could also disrupt our operations (including our ability to conduct our analyses, pay providers, conduct research and development activities, collect, process and prepare company financial information, provide information about any future products and manage the administrative aspects of our business) and damage our reputation, any of which could adversely affect our business. HIPAA imposes certain requirements relating to the privacy, security, transmission and breach reporting of individually identifiable health information. Prosecutors increasingly are using HIPAA-related theories of liability against drug manufacturers and their agents and we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. Furthermore, HIPAA regulations impose specific reporting requirements to regulators, individuals impacted by the breach, and, in some cases, the media. Issuing such notifications can be costly, time and resource intensive, and can generate significant negative publicity. In addition to HIPAA, other applicable data privacy and security obligations may require us to +63 +Table o f Contents +notify relevant stakeholders of any security breaches or incidents that result in the unauthorized disclosure of personal information. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse impacts. The loss, corruption or unavailability of clinical trial data could delay our or our strategic partners’ regulatory approval efforts and significantly increase our costs to recover or reproduce the data, and we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, so similar events relating to their computer systems or their collection, storage or processing of data could also have a material adverse effect on our business. +We are subject to stringent and changing obligations related to privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm and other adverse business consequences. +Various U.S. state laws relating to the protection of personal information (including health and other data of patients, research subjects, and other individuals) may be more rigorous than, or impose additional requirements beyond those required by, HIPAA, and may increase our compliance obligations and costs. Many other privacy and security laws have been proposed at the federal level and in other states, certain of which impose obligations similar to the California Consumer Privacy Act (“CCPA”), which became effective in January 2020 and gives Californian consumers expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA allows for statutory fines for noncompliance as well as a limited private right of action in connection with certain data breaches. Other privacy and security laws address specific subject matter, such as Washington’s My Health, My Data Act, which, among other things, provides for a private right of action. While exemptions to some of these laws may apply to portions of our business, these laws’ enactment and evolving interpretations may increase our compliance costs and potential liability. These or other proposed or enacted laws relating to privacy and security could similarly increase our compliance obligations and costs in the future. We may also subject to laws and regulations in non-U.S. countries covering privacy and security and the protection of health-related and other personal information. For example, the European Economic Area (“EEA”), the UK and Switzerland have stringent privacy and data protection laws that impose significant compliance obligations. The General Data Protection Regulation 2016/679 (“GDPR”) applies to the processing of personal information and imposes numerous requirements, including high standards for consent, enhanced disclosures , strengthened individual rights, data breach notifications, limitations on retention and use, and additional obligations for third-party processors. The GDPR provides for fines of up to the greater of €20.0 million or 4% of total worldwide annual turnover , as well as other administrative penalties and also permits relief and recovery under national and local laws. The UK has implemented similar legislation, referred to as the UK GDPR, with comparable fines, and has enacted the UK Data (Use and Access) Act 2025 (“DUAA”), which introduced targeted amendments and increased compliance complexity. The European Commission has renewed the UK’s adequacy decision through December 2031 after assessing the DUAA. The GDPR and laws in Switzerland and the UK generally restrict the transfer of personal information to countries outside the EEA, Switzerland, and the UK, such as the United States. We are not certified under the EU-U.S. Data Privacy Framework, and instead rely on other data transfer tools such as the EU standard contractual clauses (“EU SCCs”) and the UK addendum to the EU SCCs to transfer personal information to third countries outside the EEA and the UK, taking into consideration related obligations. To the extent we transfer personal information from other jurisdictions to the United States, we may not be able to implement or maintain an appropriate data transfer mechanism to continue such transfers. The U.S. Department of Justice also has issued rules regarding certain bulk sensitive personal data transfers. The interpretation of data transfer requirements, regulatory guidance and opinions, and other developments relating to cross-border data transfer may require us to implement additional contractual and technical safeguards for any personal information transferred out of the EEA, Switzerland, the UK, the United States, or other regions, which may increase compliance costs, lead to increased regulatory scrutiny or liability, and may require additional contractual negotiations, which may adversely impact our business, financial condition, and operating results. The EU has enacted numerous laws and regulations addressing cybersecurity, including substantial revisions to its Network and Information Security directive that EU member states are required to reflect in national law, and requirements for hosting health data will vary by jurisdiction within EEA countries and the UK, and we may be or become subject to other national healthcare regulations or regulatory requirements. The interpretation and application of consumer, health-related and privacy, data protection and security laws in the United States, the EEA, Switzerland, the UK and elsewhere are often uncertain, contradictory and in flux. Any failure or perceived failure to comply with federal, state or non-U.S. laws or regulations, contractual or other legal obligations related to privacy or security may result in claims, warnings, communications, requests or investigations from individuals, supervisory authorities or other legal or regulatory authorities in relation to our processing of personal information, and regulatory investigations or other proceedings. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. +64 +Table o f Contents +We may be subject to certain costs and inefficiencies as a result of our 2022 Redomicile Transactions. +We became a Delaware corporation in October 2022 as a result of the Redomicile Transactions. In connection with the Redomicile Transactions, we agreed to use reasonable efforts to effect certain steps following the Redomicile Transactions, including the reorganization of certain subsidiaries. For business reasons, certain of these steps were not completed. While we are managing any tax and operational implications resulting from our current organizational structure, and we may pursue additional reorganizations in the future, certain tax and operational implications may persist. In addition, we incurred non-recurring costs associated with the Redomicile Transactions, and the associated reorganization of our corporate structure may result in additional and unforeseen expenses in the future. While it is expected that benefits of the Redomicile Transactions will offset these costs over time, this net benefit may not be achieved. These combined factors could adversely affect our business, financial condition and results of operations. +Risks Related to Employee Matters +Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. +We are highly dependent on key members of our senior management team, including Kenneth Galbraith, the Chair of our board of directors, President, Chief Executive Officer, and interim Chief Financial Officer, Mark Hollywood, our Chief Operating Officer, Paul A. Moore, our Chief Scientific Officer, Sabeen Mekan, our Chief Medical Officer, and other key members of our senior management, scientific and clinical teams. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. The loss of the services of our key senior managers and employees could impede the achievement of our research, development and strategic objectives and seriously harm our ability to successfully implement our business strategy. Retention and any future recruitment of qualified scientific, technical and clinical personnel, as well as recruitment and retention of personnel with experience in successfully identifying and executing business development transactions, including in-licensing and acquisition transactions, will also be critical to our success. Intense competition for attracting key skill-sets and the impact of inflationary pressure on wages may limit our ability to attract, retain and motivate key personnel on acceptable terms. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development strategy, as well as helping us to identify strategic opportunities. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our business strategy will be limited. +As we advance our development and partnering plans and strategies, we may need to modify our organization, and we may experience difficulty in managing such change, which could disrupt our operations. +As of December 31, 2025, we ha d 264 full-ti me employees. As we advance our development and partnering plans and strategies in the future, we anticipate that we may need to modify our employee base. Such changes may impose significant added responsibilities on members of management, and our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing any modification of our employee base. We may not be able to effectively manage a modification of our operations, which may result in weaknesses in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity amongst remaining employees. Any organizational modification could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively manage any needed organizational modifications, our expenses may be higher than expected, our ability to generate or grow revenue could be reduced and we may not be able to implement our business strategy. +Risks Related to Our Common Stock +Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders. +Investors should consider an investment in our common stock as risky and invest only if they can withstand a significant loss and wide fluctuations in the market value of their investment. Investors may be unable to sell their common stock at or above the price they paid for such stock due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. Factors that may cause the market price of our common stock to fluctuate include: +• results and timing of our or our strategic partners’ clinical trials and clinical trials of our competitors’ products; +• failure or discontinuation of any of our or our strategic partners’ development programs; +65 +Table o f Contents +• the success of our strategic partnerships and our ability to enter into future partnerships; +• our ability to achieve milestones and receive associated milestone and royalty payments pursuant to the terms of our strategic partnerships; +• issues in manufacturing our or our partnered product candidates or future approved products; +• regulatory developments or enforcement in the United States and other countries with respect to our or our partnered product candidates or our competitors’ products; +• competition from existing products or new products or technologies that may emerge; +• developments or disputes concerning patents or other proprietary rights; +• announcements by us, our strategic partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; +• actions taken by industry or securities analysts that cover our company or common stock, including changes in estimates or recommendations, inaccurate or unfavorable research or a decision to drop coverage; +• general market fluctuations in the valuation of companies in the biotechnology industry or otherwise perceived by investors to be comparable to us; +• instances of stockholder activism, including unsolicited takeover proposals or proxy contests; +• public concern over our or our partnered product candidates or any future approved products; +• litigation; +• future sales of our common stock or the perception that such sales could occur; +• stock price and volume fluctuations attributable to inconsistent trading volume levels of our common stock; +• additions or departures of key personnel; +• our ability to execute on our key strategic priorities, including our recently adopted business strategy; +• changes in the structure of health care payment systems in the United States or other countries; +• failure of zanidatamab or our or our partnered product candidates, if approved, to achieve commercial success; +• economic and other external factors or other disasters or crises; +• changes in customs laws and regulations, tariffs and trade barriers, or the perception that any of them could occur; +• period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements; +• our ability to effectively address environmental, social, and governance matters affecting our business that are a focus of certain investors, environmental activists, the media, and governmental and nongovernmental organizations; +• purchases under our share repurchase program; and +• other factors that may be unanticipated or out of our control. +The stock market in general, and the stock of biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies, which has resulted in increased volatility and decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments, may negatively affect the market price of our common stock, regardless of our actual operating performance. Securities class action litigation has often been brought against companies following a decline in the market price of their securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business. The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a material adverse effect on the market price of our common stock. +66 +Table o f Contents +An active trading market for our common stock may not be sustained. +If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their stock without depressing the market price for the common stock or sell their common stock at or above the prices at which they acquired their common stock or sell their common stock at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling common stock and may impair our ability to acquire other companies or technologies by using our common stock as consideration. We may fail to meet the continued listing requirements of the Nasdaq Stock Market LLC (“Nasdaq”). If Nasdaq delists our shares of common stock from trading on its exchange, we could face significant material adverse consequences, including significant impairment of liquidity of our common stock, limited availability of market quotations, limited news and analyst coverage, and a loss of confidence of our strategic partners, employees and others. +Our management team has broad discretion to use the net proceeds from our financing activities as well as funds received pursuant to our strategic collaborations, and its investment of these proceeds may not yield a favorable return. They may invest the proceeds in ways with which our stockholders disagree. +Our management team has broad discretion in the applicatio n of the proceeds we receive from our financing activities and from our strategic collaborations, and we could spend or invest the proceeds in ways with which our stockholders disagree. Accordingly, stockholders will need to rely on our management team’s judgment with respect to the use of these proceeds. The failure by management to apply these funds effectively could negatively affect our ability to operate and grow our business. We cannot specify with certainty all of the particular uses for the net proceeds received from our fundraising efforts or for funds received pursuant to our strategic collaborations and our actual expenditures will depend upon numerous factors. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. +We do not anticipate paying cash dividends for the foreseeable future, and accordingly, stockholders must rely on stock appreciation for any return on their investment. +We have never paid any dividends on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our business and do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be the sole source of gain on investment in our common stock for the foreseeable future. Investors seeking cash dividends should not invest in our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon many factors, and, as a result, future dividends payable to investors are not guaranteed. +Our principal stockholders, in aggregate, could exert substantial influence over us which could delay or prevent a change in corporate control or result in the entrenchment of management or the board of directors. +Our principal stockholders, being our stockholders that beneficially own 5% or more of our common stock, together with their affiliates and related persons, in aggregate, o wned approximately 43.8% of our outstanding common stock as of December 31, 2025. Our directors and executive officers together with their respective affiliates owned, in the aggregate, approximately 31.7% of our outstanding common stock as of December 31, 2025. Our principal stockholders, if acting together (with or without our directors and executive officers), may have the ability to exert substantial influence over the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger or sale of all or substantially all of our assets. In addition, our principal stockholders, if acting together (with or without our directors and executive officers), may have the ability to exert substantial influence over the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common stock by: +• delaying, deferring, or preventing a change in control; +• entrenching our management or the board of directors; +• impeding a merger, takeover, or other business combination involving us; or +• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. +67 +Table o f Contents +We qualify as a smaller reporting company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to such companies could make our common stock less attractive to investors. +We qualify as a “smaller reporting company,” as defined under the Exchange Act. In addition, we are a “non-accelerated filer” as defined under the Exchange Act. For as long as we continue to be a smaller reporting company or a non-accelerated filer, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies or non-accelerated filers, as applicable, including an exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. Opting to forego an attestation to the effectiveness of our internal control over financial reporting from our independent registered public accounting firm may have a detrimental impact on our ability to maintain the adequacy of our internal control over financial reporting, and any failure to maintain adequacy, or inability to produce accurate financial statements or other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. As a result of our decision to rely on certain of these disclosure exemptions, the information we provide stockholders will be different than the information that is available with respect to other public companies and some investors may find our shares of common stock less attractive, which may result in a less active trading market for our common stock and the market price of our common stock may be more volatile. +If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. +Under the Sarbanes-Oxley Act of 2002, we are required to establish and maintain effective internal control over financial reporting and adequate disclosure controls and procedures. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. If, during the evaluation and testing process of our internal controls, we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses in our internal controls over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. Furthermore, if we cannot provide reliable financial reports or prevent fraud, including as a result of remote working by our employees, our business and results of operations would likely be materially and adversely affected. +Holders of our Exchangeable Shares are subject to additional risks. +Pursuant to the Redomicile Transactions, certain holders of common shares of our predecessor company exchanged their common shares for exchangeable shares (“Exchangeable Shares”) in the capital of our subsidiary Zymeworks ExchangeCo Ltd. (“ExchangeCo”). Exchangeable Shares are exchangeable at the option of the holder for shares of our common stock. Exchangeable Shares are subject to additional risks, including: +• The Exchangeable Shares are not and will not be listed on any stock exchange. There is no market through which the Exchangeable Shares may be sold, and holders may not be able to sell their Exchangeable Shares. +• Holders of Exchangeable Shares who request an exchange may not receive shares of our common stock until a period of time after the applicable request is received. During this period, the market price of our common stock may increase or decrease. Any such increase or decrease would affect the value of the consideration to be received by such a holder of Exchangeable Shares upon a subsequent sale of shares of our common stock received in the exchange. +68 +Table o f Contents +• Exchangeable Shares may be subject to different tax consequences under Canadian law depending on whether the Exchangeable Shares are disposed of in a redemption or an acquisition by one of our subsidiaries, and such transaction may not be within the control of the holder. +• The tax treatment of Exchangeable Shares for non-Canadian tax purposes, including U.S. federal income tax purposes, is uncertain. +Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock. +Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of Zymeworks more difficult or delay or prevent changes in control of its management. Among other things, these provisions: +• authorize our board of d irectors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval; +• permit only the board of directors to establish the number of directors and fill vacancies and newly created directorships on the board, provided that the board of directors’ ability to increase the size of the board and fill vacancies and newly created directorships will be subject to the restrictions in our amended and restated certificate of incorporation and amended and restated bylaws; +• establish that members of our board of directors serve in one of three staggered terms of three years each; +• provide that our directors may only be removed by the affirmative vote of at least 66 2/3% of the voting power of the shares cast on such proposal; +• permit stockholders to only take actions at a duly called annual or special meeting and not by written consent; +• require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings; +• not provide for cumulative voting rights in the election of directors; +• provide that special meetings of Zymeworks’ stockholders may be called only by the board of directors, the chairperson of the board of directors, Zymeworks’ chief executive officer, president or the secretary upon request from holders of no less than 20% of our outstanding voting stock, subject to the limitations and requirements set forth in our amended and restated bylaws; and +• require a super-majority vote of stockholders to amend some of the provisions described above. +Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a period of three years following the date on which the stockholder became an “interested stockholder” unless certain conditions are met. These provisions, alone or together, could delay, discourage or prevent a transaction involving a change in control of Zymeworks. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause Zymeworks to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of common stock, and could also affect the price that some investors are willing to pay for our common stock. +69 +Table o f Contents +Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between Zymeworks and its stockholders, and also provide that the federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit our stockholders’ ability to choose the judicial forum for disputes with Zymeworks or its directors, officers, stockholders or employees. +Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, stockholders, officers or other employees to Zymeworks or our stockholders, (3) any action arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware), except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction. This provision does not apply to any action brought to enforce a duty or liability created by the Exchange Act and the rules and regulations thereunder. Section 22 of the Securities Act establishes concurrent jurisdiction for federal and state courts over Securities Act claims. Accordingly, both state and federal courts have jurisdiction to hear such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be deemed to have notice of and consented to the foregoing bylaw provisions. Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our current or former directors, officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and other employees. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provisions. The enforceability of similar exclusive forum provisions in other companies’ organizational documents have been challenged in legal proceedings, and, while certain courts have determined these provisions are enforceable, it is possible that a court of law could rule that these types of provisions are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find either exclusive forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur significant additional costs associated with resolving such action in other jurisdictions, which could harm our financial condition and results of operations. +There can be no assurance that we will repurchase additional shares of our common stock or that we will repurchase shares at favorable prices. +In November 2025, our board of directors approved the 2025 Repurchase Program, pursuant to which we are authorized to repurchase up to $125.0 million of our common stock from time to time through open market transactions, or other means in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act. As of December 31, 2025, we have repurchased 431,217 shares of our common stock under the 2025 Repurchase Program. The timing, number of shares repurchased, and prices paid for any additional shares of stock repurchased under this program will depend on general business and market conditions as well as corporate and regulatory limitations, prevailing stock prices, and other considerations. Our 2025 Repurchase Program may be suspended or discontinued at any time, and does not obligate us to acquire any additional shares of common stock. Our ability to make share repurchases will depend upon market conditions, cash balances and future capital requirements, results of operations, financial condition, compliance with applicable legal requirements and other factors that we may deem relevant and which may be beyond our control. In addition, we can provide no assurance that we will repurchase stock at favorable prices. As a result, there can be no guarantee around the timing of our share repurchases. Any failure to repurchase additional shares of stock, a reduction in the frequency of repurchases, or the completion of our 2025 Repurchase Program could have a negative effect on our reputation, investor confidence in us and our stock price. The existence of our 2025 Repurchase Program could cause our stock price to be higher than it otherwise would be and could potentially reduce the market liquidity for our stock. Although our 2025 Repurchase Program is intended to enhance long-term stockholder value, there is no assurance that it will do so because the market price of our common stock may decline below the levels at which we repurchase shares, and short-term stock price fluctuations could reduce the effectiveness of the program. Additionally, as part of our evolving business strategy, we intend to evaluate opportunities to return capital to our stockholders through additional +70 +Table o f Contents +potential share repurchases. However, there can be no assurance that implementation of our evolving business strategy will generate sufficient cash flows from royalties, milestones and other sources to enable such additional share repurchases and, as a result, our stockholders may not realize enhanced long-term stockholder value. Any use of our cash resources to repurchase our common stock will reduce the amount of cash we have available for investment in other parts of our business and we may not deploy our resources in a way that enhances stockholder value. +Item 1B. Unresolved Staff Comments. +Not applicable. +Item 1C. Cybersecurity. +Our board of directors is responsible for overseeing our risk management program, and cybersecurity is a critical element that has been integrated into our overall risk management program . Management is responsible for the day-to-day administration of our risk management program and our cybersecurity policies, processes, and practices. +We aim to incorporate industry practices throughout our cybersecurity program. Our cybersecurity strategy focuses on implementing effective and efficient controls, technologies, and other processes to assess, identify, and manage cybersecurity risks. Our cybersecurity program is informed by applicable industry standards and is assessed regularly by independent third-party auditors. +Cybersecurity Risk Management and Strategy +Our cybersecurity risk management strategy focuses on several areas: +• Identification and Escalation: We have implemented a cross-functional approach to assessing, identifying and managing cybersecurity threats and incidents. Our program includes controls and procedures to identify, classify and escalate certain cybersecurity incidents to provide management visibility and obtain direction from management. +• Technical Safeguards: We implement technical safeguards that are designed to protect our information systems from cybersecurity threats, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence, as well as outside audits. +• Incident Response and Recovery Planning: We have established and maintain an incident response plan and a business continuity and disaster recovery plan designed to address our response to a cybersecurity incident. +• Third-Party Risk Management: We use a risk‑based approach to identify, assess, and oversee cybersecurity threats associated with third parties, including vendors, service providers, external system users, and other organizations whose systems could impact our business. This oversight also includes outside auditors and consultants who may access or advise on our cybersecurity systems. +• Education and Awareness: We provide regular, mandatory training for all employees regarding cybersecurity threats as a means to equip our employees with tools to make employees aware of and to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes, and practices. +We, like any company operating in the current environment, have experienced cybersecurity incidents in the past. However, we have not experienced a cybersecurity event that was determined to be material. For additional information regarding whether any risks from cybersecurity threats are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, see Item 1A, “Risk Factors,” of this Annual Report on Form 10-K, including the risk factor titled “ Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. ” +Governance +Our board of directors, in coordination with the audit committee of our board of directors, oversees our risk management program, including the management of cybersecurity threats. Our board of directors and our audit committee receive prompt +71 +Table o f Contents +and timely information regarding cybersecurity risks, as well as ongoing updates regarding any such risk, from senior management. +Our Director of Information Technology , who has over 18 years’ experience with cybersecurity at public and private companies, in coordination with senior management, works collaboratively across our company to implement a program designed to protect our information systems from cybersecurity threats and to promptly respond to cybersecurity incidents in accordance with our incident response and recovery plans. To facilitate the success of our cybersecurity program, a cross-functional team throughout our company addresses cybersecurity threats and responds to cybersecurity incidents. Through ongoing communications with this team, the Director of Information Technology and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Audit Committee when appropriate. +Item 2. Properties. +Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709. We maintain physical operations and personnel in Canada, the United States, Ireland and Singapore. +Our Vancouver offices are located in a single building containing office and laboratory space at 114 East 4th Avenue, Suite 800, Vancouver, British Columbia, Canada, V5T 1G4. The lease for our Vancouver location, which we entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. +Our primary U.S. office is located in Bellevue, Washington at 777 108th Avenue NE, Suite 1700, Bellevue, Washington, 98004. This lease will expire in July 2029. +We also have an office in Redwood City, California at 555 Twin Dolphin Drive, Suite 360, Redwood City, California, 94065. The lease for this location, which we entered into in November 2023, has an expiration date in August 2027, with one five-year extension option. +Our Ireland office is located in Dublin at Digital Office Centre - Dublin Airport, Office 104, Balheary Demense, Balheary Road, Swords, Dublin, Ireland. The original license to occupy this space, which we entered into in December 2022, had an original expiration date in November 2023, but automatically renewed until November 2024. In December 2024, we entered into a new license to occupy this space with a term that expired in November 2025, which automatically renews for subsequent 12-month terms unless we provide two months ’ prior written notice that we do not want to renew. +Our Singapore office is located at #01-08 Science Park 1, 2 Science Park Drive, Singapore, 118222. The license to occupy this space, which we entered into in March 2023, has a term that expired in April 2025, which automatically renews for subsequent six-month periods unless we provide six months’ prior written notice that we do not want to renew. +In addition, a significant number of employees work remotely. Our executive officers and directors are located in several jurisdictions, including the United States, Canada, Ireland and the UK. Our personnel in the UK have access to a co-working space in the UK. +We believe that our existing facilities are adequate for our immediate and currently anticipated needs. We believe that, should it be needed, additional space can be leased to accommodate any future growth. +Item 3. Legal Proceedings +From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. As of December 31, 2025, we are not a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. +Item 4. Mine Safety Disclosures +Not applicable. +72 +Table o f Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock, $0.00001 par value per share, is traded on Nasdaq under the symbol “ZYME.” Prior to December 16, 2022, our common stock was traded on the NYSE under the symbol “ZYME.” +Holders +As of February 26, 2026, we had 72 stockholders of record holding our common stock. A substantially greater number of holders of Zymeworks’ common stock are “street name” or beneficial holders whose shares of record are held by banks, brokers, and other financial institutions. +Dividends +We have never paid any dividends on our common stock or any of our other securities. We currently intend to retain any future earnings to finance the growth and development of our business, and we do not anticipate that we will declare or pay any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, restrictions under any future indebtedness and other factors the board of directors deems relevant. +Performance Graph +As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, and pursuant to Instruction 6 to Item 201(e) of Regulation S-K, we are not required to provide the stock performance graph. +Recent Sales of Unregistered Securities +Except as previously disclosed, we di d not sell securities without registration under the Securities Act during the fiscal year ended December 31, 2025. +Issuer Repurchases of Equity Securities +On August 1, 2024, our board of directors authorized a stock repurchase program ( “ 2024 Repurchase Program ”) , whereby we could repurchase up to $60.0 million of our outstanding common stock. As of October 31, 2024, we completed the initial $30.0 million of the 2024 Repurchase Program, consisting of the repurchase of 2,545,402 shares at an average price per share of $11.79 (exclusive of commission expense and estimated e xcise tax). As of November 10, 2025, we completed the remaining $30.0 million of the 2024 Repurchase Program, consisting of the repurchase of 1,856,907 shares at an average price per share of $16.15 (exclusive of commission expense and estimated excise tax). +On November 16, 2025, our board of directors authorized a new stock repurchase program (the “2025 Repurchase Program”), whereby we may repurchase up to $125.0 million of our outstanding common stock. As of December 31, 2025, we repurchased an aggregate of $11.2 million, consisting of 431,217 shares at an average price per share of $25.94 (exclusive of commission expense and estimated excise tax). +73 +Table o f Contents +In the fourth quarter of 2025, shares of common stock purchased under the authorizations consisted of the following: +Period +Total number of shares purchased +Average price paid per share (1) +Total number of shares purchased as part of publicly announced plans or programs +Dollar value of shares that may yet be purchased under publicly announced plans or programs (in millions) +October 1, 2025 - October 31, 2025 +410,735 17.16 410,735 7.3 +November 1, 2025 - November 30, 2025 +478,043 18.21 478,043 123.6 +December 1, 2025 - December 31, 2025 +371,013 26.25 371,013 113.8 +1,259,791 $ 20.24 1,259,791 $ 113.8 +________________________ +(1) Average price paid per share excludes commission expense and estimated excise tax. +Item 6. Reserved +74 +Table o f Contents +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and the Exchange Act. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this Annual Report on Form 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K. The discussion regarding our financial condition and results of operations for fiscal 2024 as compared to fiscal 2023 has been omitted from this Annual Report on Form 10-K and is incorporated by reference from our Annual Report on 10-K for the fiscal year ended December 31, 2024, filed with the SEC and with the securities commissions in all provinces and territories of Canada on March 5, 2025, under the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +Overview +Zymeworks is a global biotechnology company managing a portfolio of licensed healthcare assets and developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat conditions, including cancer, inflammation, and autoimmune disease. We believe our asset and royalty aggregation strategy differentiates us from other biotechnology companies because it provides us with an opportunity to optimize future milestone and royalty cash flows and selectively invest in high quality assets while retaining the flexibility to return capital to stockholders. +We commenced operations in 2003 and have since devoted substantially all of our resources to research and development activities including developing our therapeutic platforms, identifying and developing potential product candidates and undertaking preclinical studies and clinical trials. Additionally, we have supported our research and development activities with general and administrative support, as well as by raising capital, conducting business planning and protecting our intellectual property. Other than the receipt of royalties on sales of zanidatamab and regulatory milestone payments relating to the regulatory approval of zanidatamab, we have not generated any revenue related to product approvals or the sale of approved products as of December 31, 2025, and, other than the anticipated receipt of additional royalties and potential regulatory milestone payments relating to future regulatory decisions and sales of zanidatamab, we do not expect to do so until such time as we or our strategic partners’ obtain regulatory approval and commercialize one or more of our product candidates. We cannot be certain of the timing or success of approval of our product candidates. +Since our initial public offering (“IPO”) in 2017, we have funded our operations primarily through follow-on public offerings, and private placements including the issuance of pre-funded warrants, and payments received under our license and collaboration agreements. Payments received or receivables from our license and collaboration agreements include upfront fees, milestone and royalty payments, as well as research support and reimbursement payments. Prior to our IPO, we also received financing from private equity placements and the issuance of convertible debt, which was subsequently converted into equity securities, and a credit facility. From inception to December 31, 2025, we received $1,026.3 million, net of equity issuance costs, from these sources of financing including proceeds from exercises of stock options and employee stock purchase plans. As of December 31, 2025, we had $270.6 million of cash resources consisting of cash, cash equivalents and marketable securities. +Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our existing cash and cash equivalents and marketable securities as of December 31, 2025, will enable us to fund our operating expenditures and capital expenditure requirements for at least the next twelve months from the date of this Annual Report on Form 10-K is filed with the SEC. +We reported a net loss of $81.1 million for the year ended December 31, 2025, and through December 31, 2025, we had an accumulated deficit of $953.2 million. We expect to continue to incur operating losses in the near to medium term as we execute our strategic plan announced in 2025 (as discussed further in the section titled “Recent Developments” below), which emphasizes disciplined capital allocation, focused research and development investment, advancement of partnered programs, and active management of our royalty and asset portfolio. Our operating expense outlook reflects a multi-year planning framework designed to align spending with defined strategic priorities, including pipeline progression, technology platform advancement, and value-enhancing business development activities. We are prioritizing investments where we believe risk-adjusted returns are most attractive and expect operating expenses to be managed within this structured framework. +75 +Table o f Contents +Recent Developments +Wholly-Owned Programs +In January 2026, we announced our R&D priorities for 2026 and beyond, including our intention to continue conducting Phase 1 clinical studies for ZW191 and ZW251 in 2026. Advancement of other ADC programs, including potential clinical development of ZW220, ZW327, and ZW418, will be contingent on the availability of partnerships, collaborations, and/or external funding. We also announced that beyond 2026, we expect to focus our ADVANCE research efforts on multispecific antibody and engineered-cytokine platforms, funded partially with early-stage partnerships and collaborations. INDs for multispecific programs, ZW209 and ZW1528, remain on track for submission in 2026. We anticipate that development of wholly-owned preclinical candidates from our multispecific antibody portfolio should provide for one planned IND filing per annum commencing in 2028. +Partnered Programs +Zanidatamab +In November 2025, together with our partners Jazz and BeOne, we announced positive topline results from the Phase 3 HERIZON-GEA-01 trial supporting Ziihera as the potential HER2-targeted agent-of-choice and new standard of care in first-line HER2+ locally advanced or metastatic GEA regardless of PD-L1 status. The full results were subsequently presented at the American Society of Clinical Oncology’s Gastrointestinal Cancers Symposium in January 2026, where: +• Ziihera plus tislelizumab and chemotherapy and Ziihera plus chemotherapy showed a clinically meaningful and statistically significant prolongation of progression-free survival (PFS) with approximately 35% reduction in the risk of disease progression or death versus trastuzumab and chemotherapy; +• Ziihera plus tislelizumab and chemotherapy demonstrated a statistically significant and clinically meaningful overall survival (OS) benefit with a median OS of more than two years (26.4 months); and +• At this first interim analysis, Ziihera plus chemotherapy showed a median OS of more than two years, with a strong trend toward statistical significance, favoring Ziihera plus chemotherapy versus trastuzumab plus chemotherapy. An additional planned OS interim analysis for Ziihera plus chemotherapy is currently expected in mid-2026. +Based on these data, our partner Jazz expects to complete the sBLA submission for zanidatamab in the first quarter of 2026 for the treatment of first-line HER2+ locally advanced or metastatic GEA under the real-time oncology review program in the United States where zanidatamab has been granted Breakthrough Therapy Designation for patients with HER2+ GEA. Jazz has also submitted these data for inclusion in the National Comprehensive Cancer Network Guidelines (NCCN Guidelines). Upon regulatory review, Jazz expects a potential commercial launch for zanidatamab in 1L HER2+ GEA to take place in the second half of 2026. +In January 2026, Jazz updated enrollment guidance for EmpowHER-303 in which they expect to complete enrollment in the first half of 2027, with a top-line data readout later in 2027 or in early 2028. The EmpowHER-BC-303 study is a randomized clinical trial comparing zanidatamab plus physician’s choice of chemotherapy against trastuzumab plus physician’s choice of chemotherapy for the treatment of patients with metastatic HER+ breast cancer . Jazz is also pursuing collaborations with partners to combine zanidatamab with novel therapies. For example, the Phase 1 Beamion-BCGC1 trial (NCT06324357) in combination with Boehringer Ingelheim’s zongertinib was recently initiated to explore the combination in metastatic HER2+ breast cancer, along with other potential tumor types. +In January 2026, the New Drug Submission (“NDS”) for Ziihera was approved by Health Canada for the treatment of adults with previously treated, unresectable locally advanced or metastatic HER2-positive (IHC 3+) biliary tract cancer, as monotherapy. Ziihera’s market authorization has been issued with conditions, pending the results of trials to verify its clinical benefit. Subsequently, in February 2026 zanidatamab (Ziihera) was approved by the UK’s Medicines and Healthcare products Regulatory Agency (MHRA) for the treatment of biliary tract cancer. +In addition to $53.0 million already received for Ziihera (zanidatamab) in biliary tract cancer, Zymeworks is entitled to receive up to $440.0 million in milestone payments from Jazz and BeOne related to approvals of Ziihera in GEA in United States, Europe, Japan and China. Zymeworks also has the potential to receive milestone payments related to future regulatory approvals in a third indication totaling $89.0 million, collectively, from Jazz and BeOne. For Jazz this includes a $50.0 million milestone payment upon regulatory approval of zanidatamab from the FDA in a third indication and a $25.0 million milestone payment upon regulatory approval of zanidatamab from the European Commission in a third indication. For BeOne, this +76 +Table o f Contents +includes $4.0 million payable upon first patient dosed with zanidatamab in a third registrational study in the territory and $10.0 million upon approval of zanidatamab by a regulatory authority for the third indication in the territory. +Our royalty revenue from Jazz and BeOne was $1.0 million and $2.8 million in the three months and the year ended December 31, 2025, respectively, driven primarily by net product sales of Ziihera by Jazz. +Pasritamig +In 2025, our partner J&J initiated two Phase 3 trials studying pasritamig as monotherapy in late-line metastatic castration-resistant prostate cancer (mCRPC) and pasritamig in combination with docetaxel in participants with metastatic castration-resistant prostate cancer (KLK2-PASenger). +In February 2026, J&J presented new clinical data on pasritamig at the 2026 American Society of Clinical Oncology Genitourinary annual meeting as follows: +• Poster - 171: Safety and efficacy of pasritamig (PAS) + docetaxel (DOCE) in participants with metastatic castration-resistant prostate cancer (mcrPc): Initial results of a phase 1b study. +• Poster - 172: Phase 1 safety, efficacy, pharmacokinetics (PK) and pharmacodynamics (PD) of pasritamig in Asian population with metastatic castration-resistant prostate cancer (mCRPC). +Other Matters +As of November 10, 2025, we completed the remaining $30.0 million of our previously approved repurchase program approved in 2024 for 1,856,907 shares of our common stock at an average price per share of $16.15 (exclusive of commission expense and estimated excise tax). +In November 2025, our board of directors authorized a new share repurchase program providing the ability to repurchase up to $125.0 million in shares of our common stock. Through February 26, 2026, we have utilized approximately $62.5 million of this approved repurchase program to acquire 2,580,415 shares of our common stock at an average price per share of $24.22 (exclusive of commission expense and estimated excise tax). +Also in November 2025, we announced the evolution of our business strategy as a global biotechnology company managing a portfolio of licensed healthcare assets and developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases, including cancer, inflammation, and autoimmune disease. +In January 2026, we announced leadership appointments and transitions to align with the evolution of our corporate strategy, including the following changes: +• Brian N. Cherry appointed to our board of directors. +• Mark Hollywood promoted to Executive Vice President and Chief Operating Officer. +• Dr. Jeffrey Smith, Executive Vice President and Chief Medical Officer, retired and Dr. Sabeen Mekan promoted to Senior Vice President and Chief Medical Officer. +• Leone Patterson, Chief Financial and Business Officer, and Daniel Dex, General Counsel, departed during the first quarter of 2026. The Company has commenced searches for a permanent Chief Financial Officer and for a General Counsel. Kenneth Galbraith has assumed the role of interim Chief Financial Officer on an interim basis. +In March 2026, we entered into a $250.0 million loan arrangement with Royalty Pharma. For additional information regarding this arrangement, see the section titled “Liquidity and Capital Resources” below. +Financial Operations Overview +Revenue +Our revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding, milestone payments and royalties earned under collaboration and license agreements. We expect that collaboration revenue from our strategic partnerships will be our primary source of revenue for the foreseeable future. +77 +Table o f Contents +Operating Expenses +Our operating expenses consist primarily of research and development expenses and general and administrative expenses. Personnel costs, including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate certain indirect expenses associated with our facilities, information technology, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee. +Research and Development Expense +Research and development expenses consist of expenses incurred in performing research and development activities such as conducting clinical trials and preclinical research studies, technical and manufacturing operations, regulatory affairs and other indirect expenses in support of advancing our product candidates and therapeutic platforms. Research and development expenses include third-party program costs, internal personnel costs and other indirect costs as follows: +• fees paid to CROs, consultants, subcontractors and other third-party vendors for work performed for our clinical trials, preclinical studies and regulatory activities; +• fees paid to third-party manufacturers to produce our product candidate supplies; +• amounts paid to vendors and suppliers for laboratory supplies; +• fees, milestone payments and other expenses incurred in connection with license agreements and amendments; +• employee-related expenses such as salaries and benefits and stock-based compensation; +• depreciation of laboratory equipment, computers and leasehold improvements; and +• overhead expenses such as facilities, information technology and other allocated items. +It is difficult to determine with certainty the duration and completion costs of our current or future clinical trials and preclinical programs of our product candidates, or if, when or to what extent we will generate revenue other than zanidatamab royalties from the commercialization and sale of any of our product candidates that obtain regulatory approval. We or our strategic partners may never succeed in achieving regulatory approval for any of our current or future product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of clinical trials and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential. As part of our recently announced strategy, we will continue to seek out partnerships and collaborations. If we are successful, over the next several years, we anticipate that our annual research and development expenses, excluding stock-based compensation expense, will trend lower. +General and Administrative Expense +General and administrative expenses consist of salaries, benefits and stock-based compensation costs for employees in our executive, finance, legal, intellectual property, business development, human resources and other support functions, as well as legal and professional fees, business insurance, facilities and information technology costs and other expenses. We anticipate over the next several years that our annual general and administrative expenses, other than stock-based compensation expense, will trend lower as we continue to pursue our strategic plan. +Other Income (Expense) +Other income (expense) primarily consists of interest income and foreign exchange gain (loss). +Critical Accounting Policies and Significant Judgments and Estimates +Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that are inherently uncertain that affect the amounts +78 +Table o f Contents +reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an ongoing basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenue and expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate. +For a summary of our significant accounting policies, see Note 2 to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.” We consider the following accounting policies to be critical to an understanding of our financial condition and results of operations because these policies require the most subjective or complex judgments on the part of management in their application. There have been no material changes to our critical accounting policies during the year ended December 31, 2025. +Revenue Recognition +Our revenue arrangements with partners often include multiple components – such as licenses, milestones, development activities, and drug supply – that require significant judgment to evaluate under Accounting Standards Codification (“ASC”) Topic 606. The most subjective areas involve: +• Determining distinct performance obligations in complex collaboration agreements; +• Estimating variable consideration, including the probability of achieving development and regulatory milestones; and +• Assessing contract modifications, which may change performance obligations or transaction consideration. +These judgments affect the timing and amount of revenue recognized, and changes in assumptions (e.g., milestone probability, development timelines, or partner plans) could materially impact results. Additional detail about our revenue accounting policies is provided in Note 2 - Revenue Recognition of our consolidated financial statements. +Research and Development Costs and Related Accrued Expenses +Research and development costs are expensed as incurred and include costs that we incur for our own and for our strategic partners’ research and development activities. These costs primarily consist of employee-related expenses, including salaries and benefits, expenses incurred under agreements with CROs on our behalf, costs associated with investigative sites and consultants that conduct our clinical trials, the cost of acquiring and manufacturing clinical trial materials and other allocated expenses, share-based compensation expense, and costs associated with nonclinical activities and regulatory approvals. +Clinical trial expenses represent a significant component of research and development expenses and we outsource a significant portion of these activities to third-party CROs. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs and other trial-related vendor costs. As part of preparing the consolidated financial statements, we estimate accrued liabilities for services that have been performed by clinical research organizations or investigator sites but have not yet been invoiced to us. When making these estimates, we use operational and contractual information from third party service providers and operational data from internal personnel. +Stock-Based Compensation +We recognize stock-based compensation expense on certain stock-based awards granted to employees and members of the board of directors based on their estimated fair values using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires assumptions for various inputs to measure fair value, including expected term of the awards, underlying share price volatility, forfeiture rates, risk-free interest rate and expected dividend yields of our common stock. Management uses judgment to determine the inputs to the Black-Scholes option pricing model and changes in these assumptions could have a material impact to the fair value calculations and the amount and timing of stock-based compensation expense recognized in earnings. Further details on valuation methodologies are presented in Note 2 - Stock-Based Compensation and Note 10 Shareholders’ Equity of our consolidated financial statements. +Recent Accounting Pronouncements +A summary of recent accounting pronouncements is presented in Note 3 - Recent Accounting Pronouncements of our Annual Consolidated Financial Statements for the year ended December 31, 2025 within this Annual Report on Form 10-K. +79 +Table o f Contents +Results of Operations for the Years Ended December 31, 2025, 2024 and 2023 +Revenue +Year Ended December 31, +(dollars in millions) 2025 2024 2023 +Change 2025 – 2024 +Revenue from research and development collaborations $ 106.0 $ 76.3 $ 76.0 $ 29.7 39 % +Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements. +Total revenue increased by $29.7 million in 2025 compared to 2024, due to higher revenue recognized across multiple partnered programs. The increase was driven mainly by achievement of significant clinical and regulatory milestones and exercise of an option under our collaborations with J&J, BeOne, GSK, Daiichi Sankyo, and BMS, which collectively contributed the majority of the year‑over‑year growth. +This growth was partially offset by a decline in development‑support and drug‑supply revenue from Jazz, reflecting the transition of responsibility for certain zanidatamab clinical activities to Jazz under our amended agreements. As Jazz continues to assume these activities, we expect development‑support revenue from Jazz to continue decreasing, while royalty revenue from Jazz and BeOne is expected to grow over time as commercial sales of Ziihera increase. +Research and Development Expense +Year Ended December 31, +(dollars in millions) 2025 2024 2023 +Change 2025 – 2024 +Third-party research and development program expenses: +Zanidatamab $ (1.8) $ 11.9 $ 44.8 $ (13.7) (115) % +Zanidatamab zovodotin 0.3 6.6 8.0 (6.3) (95) % +ZW171 9.7 7.1 10.7 2.6 37 % +ZW191 12.1 8.4 11.7 3.7 44 % +ZW220 +2.9 13.8 1.6 (10.9) (79) % +ZW251 +11.3 8.1 0.7 3.2 40 % +Other preclinical and research programs 31.1 17.4 7.8 13.7 79 % +65.6 73.3 85.3 (7.7) (11) % +Unallocated departmental research and development expenses: +Salaries and benefits 35.0 33.7 33.3 1.3 4 % +Stock-based compensation expense 13.3 8.7 2.4 4.6 53 % +Other unallocated expenses 23.1 18.9 22.6 4.2 22 % +Research and development expense +$ 137.0 $ 134.6 $ 143.6 $ 2.4 2 % +Research and development expense increased by $2.4 million in 2025 compared to 2024. The year‑over‑year change primarily reflects a shift in program mix as lower spending on late‑stage and discontinued programs was offset by higher investment in early‑stage clinical studies and preclinical pipeline activities. +R&D costs for zanidatamab declined following reduced clinical support provided to Jazz after BLA approval in 2024 and a change in estimate related to historical clinical trial accruals for studies transferred to Jazz, which were finalized upon receipt of CRO confirmations. Expenses for zanidatamab zovodotin also decreased as the program was discontinued. Spending for ZW220 decreased as a majority of preclinical development activities were completed and we paused further development of this program. +These decreases were partially offset by increased investment in our earlier‑stage programs and research platform. +80 +Table o f Contents +R&D expenses increased for ZW251, ZW191, and ZW171 (through the date of discontinuation), reflecting clinical trial progress, clinical drug supply costs, and study start‑up activities. Other preclinical and research program expenses increased primarily due to IND‑enabling toxicology and GMP manufacturing activities for ZW209 and ZW1528. These programs are included within “Other preclinical and research programs” in the table above. +Unallocated departmental expenses also increased year over year. Stock‑based compensation rose primarily due to higher grant‑date fair values in 2025 resulting from an increase in our stock price. Other unallocated expenses increased due to the absence of a prior‑year benefit related to the reversal of a contingent liability provision recognized in 2024 after the discontinuation of the zanidatamab zovodotin program, as well as higher consulting and rent costs. +Following the May 2023 transfer of development responsibility for zanidatamab to Jazz, we expect R&D expenses associated with this program to remain lower than prior periods. We will continue to incur costs for activities for which we retain responsibility under the Amended Jazz Collaboration Agreement, and we expect to recognize reimbursements from Jazz for these activities as revenue from research and collaborations. +General and Administrative Expense +Year Ended December 31, +2025 2024 2023 +Change 2025 – 2024 +(dollars in millions) +Salaries and benefits $ 16.1 $ 17.0 $ 17.0 $ (0.9) (5) % +Stock-based compensation expense +14.8 9.1 5.3 5.7 63 % +Professional fees, consulting and business insurance 18.3 19.3 29.1 (1.0) (5) % +Other general and administrative expenses 12.3 16.1 19.0 (3.8) (24) % +General and administrative expense $ 61.5 $ 61.5 $ 70.4 $ — — % +General and administrative expenses were consistent year-over-year at $61.5 million in both 2025 and 2024, as increases in certain components were offset by decreases in others. +The largest driver of the year‑over‑year increases was stock‑based compensation expense, which increased primarily due to higher grant‑date fair values in 2025 resulting from an increase in our stock price. We also incurred higher amortization expense related to additional information technology systems implemented. +These increases were offset by lower salaries and benefits due to reduced headcount, reduced consulting fees and a reduction of other general and administrative expenses, including a decrease in rent expense following the termination of our long‑term Seattle facility lease in 2024, a decrease in depreciation and amortization expenses, and lower software subscription costs and other information technology‑related expenses. +Impairment on Acquired In-Process Research and Development (IPR&D) +Year Ended December 31, +2025 2024 2023 +Change 2025 – 2024 +(dollars in millions) +Impairment on acquired IPR&D $ — $ 17.3 $ — $ (17.3) NM +During the year ended December 31, 2024, we recorded an impairment charge of $17.3 million as a result of our decision to discontinue the zanidatamab zovodotin clinical development program which utilized the technology represented by acquired IPR&D assets. +81 +Table o f Contents +Other Income, net +Year Ended December 31, +2025 2024 2023 +Change 2025 – 2024 +(dollars in millions) +Other income, net $ 12.8 $ 20.5 $ 18.8 $ (7.7) (38) % +Other income, net decreased by $7.7 million in 2025 compared to 2024. Other income, net for 2025 included $13.4 million of interest income and $0.6 million of foreign exchange loss. Other income, net for 2024 included $19.9 million of interest income and $0.8 million of foreign exchange gains, partially offset by other miscellaneous charges. The year-over-year decrease in interest income was primarily due to a reduction in cash, cash equivalents and marketable securities during the period. +Income Tax +Year Ended December 31, +2025 2024 2023 +Change 2025 – 2024 +(dollars in millions) +Current income tax expense +$ (0.4) $ (5.4) $ (0.2) $ 5.0 93 % +Deferred income tax (expense) recovery +(0.9) (0.7) 0.8 (0.2) (29) % +Income tax (expense) recovery +$ (1.4) $ (6.1) $ 0.6 $ 4.7 77 % +Income tax expense decreased by $4.7 million in 2025 compared to 2024, primarily due to a decrease in U.S. taxes under the Subpart F income rules partially offset by an increase in deferred income tax expense due to changes in net deferred tax assets and liabilities and the valuation allowance in respect of these. +Liquidity and Capital Resources +Sources of Liquidity +Since our IPO in 2017, we have funded our operations primarily through follow-on public offerings and private placements (including the issuance of pre-funded warrants), loans, as well as from upfront fees, milestone payments, and research support payments generated from our strategic collaborations and licensing agreements. As part of our recently announced asset and royalty aggregation strategy, we anticipate that funds used in operations will increasingly be derived from royalty and milestone payments that we receive through our strategic collaboration and licensing agreements. We also evaluate other sources of capital to finance our operations, including through debt financings, asset monetization, strategic partnerships, grant funding, and public and private equity offerings. +In August 2024, we entered into a sales agreement (the “Cowen Sales Agreement”) with TD Securities (USA) LLC. (“TD Cowen”) to sell shares of our common stock subject to a maximum aggregate dollar amount registered pursuant to an applicable prospectus supplement, from time to time, through an “at-the-market” equity offering program under which TD Cowen acts as our sales agent. Sales of shares of common stock through TD Cowen, if any, will be made by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act. As of the date of this report, no shares of our common stock have been sold under the Cowen Sales Agreement. As part of the ongoing management of our operations and related funding needs, we evaluate various financing vehicles, including “at-the-market” equity offering programs, and may enter into similar “at-the-market” equity offering programs in the future, as well as other financing transactions depending on our capital needs and the then-available terms of any such financings. +In December 2023, we completed a private placement pursuant to which we sold 5,086,521 pre-funded warrants at a price of $9.8299 per pre-funded warrant. We received gross proceeds of $50.0 million, and net proceeds were $49.9 million, after expenses. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrants. In June 2025, these pre-funded warrants were fully exercised on a net exercise basis resulting in the issuance of 5,086,480 shares of common stock. +Royalty Pharma Loan Arrangement +On March 2, 2026, Zymeworks BC entered into the Sale Agreement with the Subsidiary, pursuant to which Zymeworks BC sold to the Subsidiary 30% of future royalty payments (not to exceed 120% of the maximum amount payable by the Subsidiary +82 +Table o f Contents +under the Loan Agreement (excluding indemnification and other similar obligations) related to Ziihera (zanidatamab-hrii) receivable under the Covered Agreements at a purchase price of $250.0 million. Under the Sale Agreement, Zymeworks BC is restricted from taking certain actions with respect to the Covered Agreements, including (i) entering into any contracts, or amending, modifying or waiving provisions of any contracts, relating to the royalties receivable under the Covered Agreements that would undermine the Royalty Interest or reasonably be expected to result in a material adverse effect, (ii) taking actions that would, or would give the right to an applicable counterparty to, terminate a Covered Agreement or certain material in-license agreements covering Ziihera, or amending, modifying, waiving any provision, providing any consent or taking any action under any Covered Agreement that would reduce any Royalty Interest payments or reasonably be expected to result in a material adverse effect, without the prior written consent of the Subsidiary and Royalty Pharma, (iii) selling, transferring, disposing of or encumbering its interests in applicable Ziihera-specific intellectual property, Ziihera, a Covered Agreement or certain material in-license agreements covering Ziihera, or entering into monetization or similar transactions with respect to Zymeworks BC’s retained royalty interests under any Covered Agreement, except, in each case, without certain assumption and other arrangements protective to Royalty Pharma’s interests, and (iv) permitting Covered Agreement counterparties to acquire more than 50% of Zymeworks BC’s retained royalty interests under any Covered Agreement without certain assumption and other arrangements protective to Royalty Pharma’s interests, in addition to being subject to other customary covenants. +The Sale Agreement also includes customary indemnification obligations by us and Zymeworks BC in favor of the Subsidiary and Royalty Pharma. The obligations of the parties under the Sale Agreement terminate automatically upon the payment in full of the Loan and the other obligations under the Loan Agreement. +Following the sale and transfer of the Royalty Interest, the Subsidiary entered into the Loan Agreement with Royalty Pharma as administrative agent and lender (in the capacity as lender under the Loan Agreement, the “Lender” and together with such other lenders party to the Loan Agreement from time to time the “Lenders”), pursuant to which the Lenders made a term loan to the Subsidiary in an aggregate principal amount of $250.0 million, that bears interest at a fixed rate and matures on December 31, 2042. Under the terms of the Loan Agreement, the amount payable to the Lenders no later than the Maturity Date is approximately $481.3 million, provided that if the Loan is repaid in full on or before December 31, 2033, the amount payable to the Lenders is $412.5 million, in each case inclusive of all applicable interest, yield protection premiums, early redemption fees, exit fees and other amounts payable under the Loan Agreement (excluding indemnification and similar obligations). Any amount borrowed and repaid by Subsidiary may not be reborrowed. +We will retain 70% of royalties on Ziihera annual net sales, with full royalty rights reverting to us once the Loan and other amounts payable under the Loan Agreement to Royalty Pharma have been repaid in full. All earned regulatory and commercial milestone payments under the Covered Agreements will be retained by us. +Under our collaboration agreement with Jazz, we are eligible to receive tiered royalties of ten to high teens percentages on global (outside of Asia (other than Japan), Australia and New Zealand) annual net sales of Ziihera up to $2.0 billion and 20% on annual net sales above $2.0 billion. Under the collaboration agreement with BeOne, we are eligible to receive tiered royalties of mid-single to mid-double digit percentages on annual net sales of Ziihera in Asia (other than Japan), Australia and New Zealand up to $1.0 billion and 19.5% on annual net sales above $1.0 billion (with royalty rates increasing by 0.5% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars). +In connection with entering into the Loan Agreement, (i) the Subsidiary entered into a security agreement with Royalty Pharma, whereby the Subsidiary granted a security interest in all of its assets (the “Collateral”) in favor of Royalty Pharma, and (ii) Zymeworks BC and Zymeworks GP entered into a pledge and security agreement with Royalty Pharma, whereby Zymeworks BC and Zymeworks GP pledged their respective equity interests in the Subsidiary, with Zymeworks BC also pledging its equity in Zymeworks GP. If certain events of default occur, including the termination of the Jazz Agreement or the BeOne Agreement and a change of control of the Company, as well as other customary events of default, the administrative agent may terminate the Loan Agreement and demand immediate payment of an amount equal to the outstanding principal amount of the Loan plus all applicable fees, premiums and accrued and unpaid interest thereon and exercise all rights and remedies available under or pursuant to the Loan Agreement. The Loan Agreement includes certain customary affirmative and negative covenants applicable to the Subsidiary, including restrictions on the incurrence of additional indebtedness, creation of liens, asset transfers, mergers, dividends and certain transactions with affiliates. In addition, the Subsidiary is subject to covenants designed to limit its activities primarily to holding and administering its rights and obligations under certain transaction agreements including the Loan Agreement and the Sale Agreement, and the Subsidiary may not amend or terminate the Sale Agreement without the Lenders’ consent. +The Loan Agreement also contains other customary terms and conditions, including representations and warranties, as well as indemnification obligations in favor of Royalty Pharma. The payment obligations under the Loan Agreement are limited to the Subsidiary, and the Lenders have no recourse under the Loan Agreement against the Company or Zymeworks BC or any assets other than the Collateral and Zymeworks BC’s equity interest in Zymeworks GP and the Subsidiary, and Zymeworks GP’s equity interests in the Subsidiary +83 +Table o f Contents +We intend to use the net cash received from this arrangement to support our ongoing stock repurchase program and fund potential strategic acquisitions, as well as for working capital and other general corporate purposes. +As of December 31, 2025, we had $270.6 million of cash, cash equivalents, and marketable securities, comprised of $41.2 million in cash and cash equivalents and $229.4 million in marketable securities. +Cash Flows +The following table represents a summary of our cash flows for the years ended December 31, 2025, 2024 and 2023: +Year Ended +December 31, +2025 2024 2023 +(dollars in millions) +Net cash (used in) provided by: +Operating activities $ (33.0) $ (110.1) $ (118.3) +Financing activities (18.6) (20.4) 81.9 +Investing activities 26.7 38.8 (207.3) +Effect of exchange rate changes on cash and cash equivalents — 0.3 0.4 +Net (decrease) increase in cash and cash equivalents $ (24.9) $ (91.5) $ (243.4) +Operating Activities +In 2025, cash used in operating activities was $33.0 million as opposed to $110.1 million cash used in operating activities in 2024. The reduction in net cash used in operating activities was primarily due to milestone revenues received during 2025 and positive changes in working capital accounts compared to 2024. +Financing Activities +Net cash used in financing activities in 2025 included $41.7 million used for our repurchase programs, partially offset by net proceeds of $16.9 million from stock option exercises, $5.0 million from a private placement, and $1.4 million from the issuance of shares of common stock under our employee stock purchase plan. Net cash used in financing activities in 2024 included $30.1 million used for our repurchase program, partially offset by net proceeds of $8.9 million from stock option exercises and $0.9 million from the issuance of shares of common stock under our employee stock purchase plan. +Investing Activities +Net cash provided by investing activities in 2025 was primarily related to redemptions, net of purchases, of investments in marketable securities of $29.0 million partially offset by cash outflows of $2.4 million for the acquisition of property and equipment in our office and laboratory spaces in Canada and the United States and software implementation. Net cash provided by investing activities in 2024 was primarily related to redemptions, net of purchases, of investments in marketable securities of $41.8 million partially offset by cash outflows of $3.1 million for the acquisition of property and equipment in our office and laboratory spaces in Canada and the United States and software implementation. +Funding Requirements +Our revenue through December 31, 2025 has been primarily revenue from the license of our proprietary therapeutic platforms for the development of product candidates. We anticipate that at least over the short-term we will not be net income positive on a regular basis as we continue our research and development of our product candidates and implement our recently announced strategy. In addition, inflationary pressure could adversely impact our financial results. Our funding requirements in the short-term and long-term will consist of the operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations including future minimum lease payments under non-cancelable operating leases as presented in Note 14 - Leases and other commitments and contingencies as presented in Note 15 - Commitments and Contingencies to the annual consolidated financial statements. Because of the inherent risks and uncertainties associated with the development of our product candidates and the successful implementation of our recently announced strategy, it is difficult to predict the amounts of capital outflows and operating expenditures associated with our current and anticipated clinical trials and preclinical studies. +84 +Table o f Contents +Although it is difficult to predict our funding requirements, based on our current operating plan, we anticipate that our existing cash and cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months from the date this Annual Report on Form 10-K is filed with the SEC. This anticipated runway excludes the impact of any regulatory milestone payments we are entitled to receive in connection with additional regulatory approvals for zanidatamab, as well as the proceeds from our recently announced loan arrangement with Royalty Pharma. We have based our cash runway estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses, capital expenditures and our cash runway. The successful development of our product candidates and the achievement of milestones by our strategic partners is uncertain. In addition, as part of our recently announced strategy, we intend to evaluate and potentially consummate various acquisitions and other strategic transactions, the magnitude and timing of which are uncertain. As a result of the foregoing, it is difficult to predict the actual funds we will require to fund our planned operations. See Item 1A, “Risk Factors – Risks Relating to Our Business,” “Risk Factors – Risks Relating to Development of our Product Candidates,” and “Risk Factors –Risks Related to Our Financial Position and Need for Additional Capital.” +Additionally, on August 1, 2024, our board of directors authorized the 2024 Repurchase Program, under which we were authorized to repurchase up to $60.0 million of our common stock. As of November 10, 2025, we completed the entire $60.0 million of the 2024 Repurchase Program. On November 16, 2025, our board of directors authorized the 2025 Repurchase Program, whereby we were authorized to repurchase up to $125.0 million of our outstanding common stock. As of December 31, 2025, we repurchased 431,217 shares of our common stock under the 2025 Repurchase Program. As of February 26, 2026, we have repurchased 2,580,415 shares of our common stock under the 2025 Repurchase Program, and there is $62.5 million of remaining capacity under the 2025 Repurchase Program. The shares may be repurchased from time to time in open market transactions, or other means in accordance with Rule 10b5-1 of the Exchange Act and Rule 10b-18 of the Exchange Act. The timing, number of shares repurchased, and prices paid for any additional shares of the stock repurchased under this program will depend on general business and market conditions as well as corporate and regulatory limitations, prevailing stock prices, and other considerations. The 2025 Repurchase Program may be suspended or discontinued at any time and does not obligate us to acquire any additional shares of common stock. +We will need substantial additional funding to support our continuing operations and pursue our long-term business plans. Accordingly, our future funding requirements will depend on many factors, including but not limited to: +• the number and characteristics of other product candidates that we pursue; +• the scope, progress, timing, cost and results of research, preclinical development, and clinical trials; +• the magnitude and frequency of any strategic transactions we engage in to build out our pipeline or enhance our royalty aggregation strategy; +• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights; +• our ability to hire when needed additional management, scientific and medical personnel; +• our need to implement additional internal systems and infrastructure, including financial and reporting systems; and +• the economic and other terms, timing of and success of our existing strategic partnerships, and any collaboration, asset monetization, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements. +If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and strategic transactions, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize, either alone or with our strategic partners, or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. A deterioration in the equity or credit markets may make any necessary debt or equity financing more difficult, more costly and more dilutive. +85 +Table o f Contents +Segment Reporting +We view our operations and manage our business in one segment, which is the Management of a portfolio of licensed healthcare assets and development of novel multifunctional biotherapeutics. +Outstanding Share Data +Our authorized share capital consists of 1,000,000,000 shares of stock, consisting of 900,000,000 shares of common stock, par value $0.00001 per share, and 100,000,000 shares of preferred stock, par value 0.00001 per share. As of February 26, 2026, 73,749,607 shares of common stock were issued and outstanding. In addition, as of February 26, 2026, we had 4,348,106 shares of common stock issuable pursuant to 4,348,106 exercisable outstanding stock options, 4,745,976 shares of common stock issuable pursuant to 4,745,976 outstanding options that were not exercisable at that date, and 2,269,795 shares of common stock issuable upon vesting of outstanding time-based restricted stock units and performance stock units. +In connection with the Plan of Arrangement (as defined in Note 1 - Nature of Operations of our annual consolidated financial statements as of and for the year ended December 31, 2025 within this Annual Report on Form 10-K), we issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of our preferred stock, par value $0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding, enabling the Share Trustee to exercise voting rights for the benefit of the holders of Exchangeable Shares. In connection with the consummation of the Plan of Arrangement, 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. We will issue shares of our common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by ExchangeCo, when ExchangeCo redeems Exchangeable Shares from the holder, or when Zymeworks CallCo ULC (“CallCo”) purchases Exchangeable Shares from the holder of Exchangeable Shares under CallCo’s overriding call rights. Unless redeemed earlier in accordance with their terms, any Exchangeable Shares that remain outstanding on the seventh anniversary of the effectiveness of our Redomicile Transactions will be redeemed on such seventh anniversary, subject to any extension approved by the directors of ExchangeCo. For additional information and the meaning of defined terms referenced in this paragraph, please see Note 1 - Nature of Operations and Note 10b - Authorized Share Capital and Preferred Stock of our consolidated financial statements as of and for the year ended December 31, 2025, within this Annual Report on Form 10-K. +As of February 26, 2026, 873,649 Exchangeable Shares have been exchanged on a one-to-one basis for 873,649 shares of our common stock and 550,884 Exchangeable Shares are held by former Zymeworks BC shareholders and are exchangeable on a one-to-one basis, subject to adjustment, for up to 550,884 shares of our common stock. +Item 7A. Quantitative and Qualitative Disclosure About Market Risk +As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk. +86 +Table o f Contents +Item 8. Financial Statements and Supplementary Data +Zymeworks Inc. +Index to Consolidated Financial Statements +Year ended December 31, 2025 +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 85 ) +88 +Consolidated Balance Sheets as at December 31, 202 5 and 202 4 +90 +Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2025, 2024 and 202 3 +91 +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025, 2024 and 2023 +92 +Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023 +93 +Notes to the Consolidated Financial Statements +94 +87 +Table o f Contents +REPORT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +To the Stockholders and Board of Directors of +Zymeworks Inc. +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of Zymeworks Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of loss and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Revenue recognition from drug supply for ongoing studies from Jazz Pharmaceuticals Ireland Limited (Jazz) +As discussed in Note 11 to the consolidated financial statements, the Company recognized revenue from Jazz related to drug supply for ongoing studies of $6,548 thousand for the year ended December 31, 2025. As discussed in Note 2, amounts receivable by the Company for the provision of drugs to clinical trials on behalf of the customer are recognized in revenue at a point in time when title to drugs has transferred to the customer, which generally occurs upon shipment or delivery, depending on contractual terms. +88 +Table o f Contents +We identified the sufficiency of audit evidence relating to revenue recognition from drug supply for ongoing studies with Jazz as a critical audit matter. Subjective auditor judgment was required to evaluate the sufficiency of audit evidence obtained related to the Company’s revenue from drug supply for ongoing studies because of the involvement of clinical research support organizations in tracking and fulfilment of the drugs provided across multiple locations. +The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and implementation of internal controls over the Company’s revenue recognition process. We obtained a confirmation from the customer of the total invoices billed by the Company related to goods and services, including drug supply for ongoing studies, for the year ended December 31, 2025 and agreed the amount confirmed for drug supply for ongoing studies to the Company’s records of the quantity and amount of drugs invoiced to the customer. We assessed the recorded revenue by selecting a sample of revenue transactions and comparing the amounts recognized for consistency with relevant underlying proof of delivery. We evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of the procedures performed, including the appropriateness of the nature and extent of such evidence. +/s/ KPMG LLP +Chartered Professional Accountants +We have served as the Company’s auditor since 2015. +Vancouver, Canada +March 2, 2026 +89 +Table o f Contents +ZYMEWORKS INC. +Consolidated Balance Sheets (Expressed in thousands of U.S. dollars except share data) +December 31, +2025 2024 +Assets +Current assets: +Cash and cash equivalents $ 41,157 $ 66,103 +Short-term marketable securities (note 5) +187,640 159,673 +Accounts receivable 4,638 55,815 +Prepaid expenses and other current assets 15,332 18,860 +Total current assets 248,767 300,451 +Long-term marketable securities (note 5) +41,787 98,428 +Long-term prepaids and other assets +6,674 8,919 +Deferred tax asset (note 13) +4,707 4,385 +Property and equipment, net (note 7) 15,502 17,650 +Operating lease right-of-use assets (note 14) +15,724 16,666 +Intangible assets, net (note 8) 1,350 4,576 +Goodwill (note 6) 12,016 12,016 +Total assets $ 346,527 $ 463,091 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable and accrued liabilities (note 9) $ 36,346 $ 59,838 +Income tax payable (note 13) +83 128 +Current portion of operating lease liability (note 14) +3,471 2,740 +Deferred revenue and other consideration (note 11) +2,418 25,588 +Total current liabilities 42,318 88,294 +Long-term portion of operating lease liability (note 14) +14,796 15,738 +Deferred revenue (note 11) +14,606 14,607 +Other long-term liabilities (note 9) 278 923 +Deferred tax liability (note 13) +6,028 4,761 +Total liabilities 78,026 124,323 +Stockholders’ equity: +Common shares, $ 0.00001 par value; 900,000,000 authorized shares of common stock at December 31, 2025 and December 31, 2024 ( 74,638,413 and 68,964,319 shares issued and outstanding at December 31, 2025 and 2024, respectively (note 10b). +1,105,176 1,015,618 +Preferred shares, $ 0.00001 par value; 100,000,000 authorized shares of preferred stock, out of which, one share of preferred stock is a share of Special Voting Preferred Stock and outstanding as of December 31, 2025 and December 31, 2024 (note 10b). +— — +Exchangeable shares, no par value, 553,184 issued and outstanding shares at December 31, 2025 (December 31, 2024: 570,637 ) (note 10b). +7,938 8,188 +Additional paid-in capital 114,626 152,249 +Accumulated other comprehensive loss ( 6,079 ) ( 6,952 ) +Accumulated deficit ( 953,160 ) ( 830,335 ) +Total stockholders’ equity 268,501 338,768 +Total liabilities and stockholders’ equity $ 346,527 $ 463,091 +Related party transactions (note 10a and 10d) +Research collaboration and licensing agreements (note 11) +Commitments and contingencies (note 15) +Subsequent event (note 17) +The accompanying notes are an integral part of these financial statements +90 +Table o f Contents +ZYMEWORKS INC. +Consolidated Statements of Loss and Comprehensive Loss +(Expressed in thousands of U.S. dollars except share and per share data) +Year Ended December 31, +2025 2024 2023 +Revenue: +Research and development collaborations (note 11) +$ 105,965 $ 76,304 $ 76,012 +Operating expenses: +Research and development 137,000 134,621 143,619 +General and administrative 61,514 61,506 70,446 +Impairment on IPR&D (note 6) +— 17,287 — +Total operating expenses 198,514 213,414 214,065 +Loss from operations +( 92,549 ) ( 137,110 ) ( 138,053 ) +Other income: +Interest income 13,354 19,941 19,705 +Other (expense) income, net (note 12) +( 559 ) 558 ( 894 ) +Total other income, net 12,795 20,499 18,811 +Loss before income taxes +( 79,754 ) ( 116,611 ) ( 119,242 ) +Income tax (expense) recovery (note 13) ( 1,376 ) ( 6,084 ) 568 +Net loss +$ ( 81,130 ) $ ( 122,695 ) $ ( 118,674 ) +Other comprehensive income (loss): +Unrealized income (loss) on available for sale securities, net of tax of nil (note 5) +873 ( 349 ) 56 +Total other comprehensive income (loss) +873 ( 349 ) 56 +Comprehensive loss +$ ( 80,257 ) $ ( 123,044 ) $ ( 118,618 ) +Net loss per common share (note 4): +Basic $ ( 1.08 ) $ ( 1.62 ) $ ( 1.72 ) +Diluted $ ( 1.08 ) $ ( 1.62 ) $ ( 1.72 ) +Weighted-average common stock outstanding (note 4): +Basic 75,404,897 75,846,681 68,863,010 +Diluted 75,413,396 75,878,738 68,863,010 +The accompanying notes are an integral part of these financial statements +91 +Table o f Contents +ZYMEWORKS INC. +Consolidated Statements of Changes in Stockholders’ Equity (Note 1) (Expressed in thousands of U.S. dollars except share data) +Preferred stock Exchangeable shares Common stock Accumulated +deficit Accumulated +other +comprehensive +loss Additional +paid-in +capital Total +stockholders' +equity +Shares Amount Shares Amount Shares Amount +Balance at December 31, 2022 1 $ — 1,424,533 $ 20,442 63,059,501 $ 886,322 $ ( 558,763 ) $ ( 6,659 ) $ 151,614 $ 492,956 +Issuance of common stock on exercise of stock options (note 10e) +— — — — 641,129 6,958 — — ( 1,736 ) 5,222 +Issuance of common stock through employee stock purchase plan (note 10f) +— — — — 111,911 955 — — — 955 +Issuance of common stock upon vesting of restricted stock units ("RSUs") (note 10e) +— — — — 100,949 1,887 — — ( 1,887 ) — +Issuance of common stock upon exercise of pre-funded warrants (note 10d) +— — — — 2,079,193 63,775 — — ( 63,775 ) — +Issuance of common stock for retracted exchangeable shares — — ( 773,314 ) ( 11,097 ) 773,314 11,097 — — — — +Issuance of common stock in connection with At-The-Market ("ATM") sale (note 10a) — — — — 3,350,000 26,233 — — — 26,233 +Private placement (note 10a and 10d) — — — — — — — — 49,862 49,862 +Stock-based compensation — — — — — — — — 8,196 8,196 +Net loss — — — — — — ( 118,674 ) — — ( 118,674 ) +Other comprehensive income — — — — — — — 56 — 56 +Balance at December 31, 2023 1 $ — 651,219 $ 9,345 70,115,997 $ 997,227 $ ( 677,437 ) $ ( 6,603 ) $ 142,274 $ 464,806 +Issuance of common stock on exercise stock options (note 10e) +— — — — 959,906 13,952 — — ( 4,770 ) 9,182 +Issuance of common stock through employee stock purchase plan (note 10f) +— — — — 128,232 1,311 — — — 1,311 +Issuance of common stock upon vesting of RSUs (note 10e) +— — — — 225,004 1,971 — — ( 1,971 ) — +Issuance of common stock for retracted exchangeable shares +— — ( 80,582 ) ( 1,157 ) 80,582 1,157 — — — — +Stock-based compensation — — — — — — — — 16,716 16,716 +Purchase and retirement of common stock (10c) — — — — ( 2,545,402 ) — ( 30,051 ) — — ( 30,051 ) +Excise tax on repurchase of common stock — — — — — — ( 152 ) — — ( 152 ) +Net income — — — — — — ( 122,695 ) — — ( 122,695 ) +Other comprehensive loss +— — — — — — — ( 349 ) — ( 349 ) +Balance at December 31, 2024 1 $ — 570,637 $ 8,188 68,964,319 $ 1,015,618 $ ( 830,335 ) $ ( 6,952 ) $ 152,249 $ 338,768 +Issuance of common stock on exercise of stock options (note 10e) +— — — — 1,742,689 27,308 — — ( 9,561 ) 17,747 +Issuance of common stock through employee share purchase plan (note 10f) +— — — — 139,976 1,881 — — — 1,881 +Issuance of common stock upon vesting of RSUs (note 10e) +— — — — 560,620 5,269 — — ( 5,269 ) — +Issuance of common stock upon exercise of pre-funded warrants (note 10d) +— — — — 5,086,480 49,862 — — ( 49,862 ) — +Issuance of common stock for retracted exchangeable shares +— — ( 17,453 ) ( 250 ) 17,453 250 — — — — +Private placement for issuance of common stock (note 10a) +— — — — 415,000 4,988 — — — 4,988 +Stock-based compensation — — — — — — — — 27,069 27,069 +Purchase and retirement of common stock (10c) +— — — — ( 2,288,124 ) — ( 41,695 ) — — ( 41,695 ) +Net loss — — — — — — ( 81,130 ) — — ( 81,130 ) +Other comprehensive income +— — — — — — — 873 — 873 +Balance at December 31, 2025 1 $ — 553,184 $ 7,938 74,638,413 $ 1,105,176 $ ( 953,160 ) $ ( 6,079 ) $ 114,626 $ 268,501 +The accompanying notes are an integral part of these financial statements +92 +Table o f Contents +ZYMEWORKS INC. +Consolidated Statements of Cash Flows +(Expressed in thousands of U.S. dollars) +Year Ended December 31, +2025 2024 2023 +Cash flows from operating activities: +Net loss +$ ( 81,130 ) $ ( 122,695 ) $ ( 118,674 ) +Items not involving cash: +Depreciation of property and equipment (note 7) 3,669 4,188 7,462 +Amortization of intangible assets (note 8) 4,056 4,496 2,702 +Stock-based compensation (note 10e) +28,034 17,792 8,102 +Amortization and impairment of operating lease right-of-use assets 3,385 2,509 7,141 +Impairment of acquired IPR&D (note 6) — 17,287 — +Deferred income tax expense (recovery) (note 13) 945 691 ( 757 ) +Change in fair value of contingent consideration liability (note 15) +— ( 1,878 ) 630 +Change in fair value of investments in equity instruments — — 667 +Unrealized foreign exchange loss (gain) +532 ( 1,481 ) ( 31 ) +Changes in non-cash operating working capital: +Accounts receivable 51,200 ( 36,359 ) 13,922 +Prepaid expenses and other current assets 6,509 ( 2,489 ) 4,295 +Accounts payable and accrued liabilities ( 23,648 ) 14,321 ( 44,789 ) +Operating lease liabilities ( 3,342 ) ( 8,313 ) ( 3,663 ) +Deferred revenue and other consideration ( 23,170 ) 3,555 3,699 +Income taxes payable ( 45 ) ( 1,682 ) 970 +Net cash used in operating activities +$ ( 33,005 ) $ ( 110,058 ) $ ( 118,324 ) +Cash flows from financing activities: +Proceeds from issuance of common stock under at-the-market program and from public offerings, net of issuance costs (notes 10a) — — 26,233 +Private placement (note 10a) 4,988 — 49,862 +Issuance of common stock on exercise of stock options (note 10e) +16,904 8,857 5,006 +Issuance of common stock through employee stock purchase plan (note 10f) +1,425 930 820 +Purchases of common stock for retirement (note 10c) +( 41,695 ) ( 30,051 ) — +Deferred financing fees ( 181 ) ( 174 ) ( 53 ) +Net cash (used in) / provided by financing activities +$ ( 18,559 ) $ ( 20,438 ) $ 81,868 +Cash flows from investing activities: +Purchases of marketable securities ( 196,061 ) ( 283,743 ) ( 553,249 ) +Proceeds from marketable securities 225,076 325,565 350,073 +Acquisition of property and equipment ( 1,521 ) ( 1,991 ) ( 2,474 ) +Acquisition of intangible assets ( 831 ) ( 1,075 ) ( 1,603 ) +Net cash provided by / (used in) investing activities +$ 26,663 $ 38,756 $ ( 207,253 ) +Effect of exchange rate changes on cash and cash equivalents ( 45 ) 286 354 +Net change in cash and cash equivalents ( 24,946 ) ( 91,454 ) ( 243,355 ) +Cash and cash equivalents, beginning of year 66,103 157,557 400,912 +Cash and cash equivalents, end of year $ 41,157 $ 66,103 $ 157,557 +Supplemental cash flow information: +Net cash paid during the year for income taxes +$ 1,350 $ 3,179 $ 165 +Supplemental disclosure of non-cash investing and finance items: +Leased assets obtained in exchange for operating lease liabilities $ 2,443 $ 644 $ 1,900 +Issuance of common stock upon exercise of pre-funded warrants (note 10d) +49,862 — — +Purchases of common stock not settled +464 — — +Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities — — 122 +The accompanying notes are an integral part of these financial statements +93 +Table o f Contents +ZYMEWORKS INC. +Notes to the Consolidated Financial Statements +(Expressed in thousands of U.S. dollars except share and per share data) +1. Nature of Operations +Zymeworks Inc. together with its subsidiaries (collectively the “Company” or “Zymeworks”) is a global biotechnology company managing a portfolio of licensed healthcare assets and developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases, including cancer, inflammation, and autoimmune disease. Zymeworks BC Inc. (“Zymeworks BC”), (previously known as “Zymeworks Inc.”) was incorporated on September 8, 2003 under the laws of the Canada Business Corporations Act. On October 22, 2003, the Company was registered as an extra-provincial company under the Company Act (British Columbia). On May 2, 2017, the Company continued under the Business Corporations Act (British Columbia). +Since its inception, the Company has devoted substantially all of its resources to research and development activities, including developing its therapeutic platforms and identifying and developing potential product candidates by undertaking preclinical studies and clinical trials. The Company supports these activities through general and administrative support, as well as by raising capital, conducting business planning and protecting its intellectual property. +On October 13, 2022, the Company completed an internal reorganization transaction resulting in a Delaware incorporated entity becoming the listed company (the “Redomicile Transactions”). Prior to the Redomicile Transactions, the shares of Zymeworks BC Inc. (formerly known as Zymeworks Inc.) were publicly listed. +To effect the Redomicile Transactions, the Company conducted a share exchange, pursuant to which holders of the Company’s common shares exchanged their common shares in the Company for shares of common stock of Zymeworks Inc. (formerly known as Zymeworks Delaware Inc.) or, at their election with respect to all or a portion of their common shares in the Company and subject to applicable eligibility criteria and an overall cap, exchangeable shares (the “Exchangeable Shares”) in the capital of a newly formed indirect subsidiary of Zymeworks Inc. A special meeting of Company security holders was held on October 7, 2022 to approve the Redomicile Transactions. The Redomicile Transactions were governed by a transaction agreement dated July 14, 2022, as restated and amended on August 18, 2022 (the “Restated and Amended Transaction Agreement”), by and among the Company and its direct or indirect subsidiaries Zymeworks Inc., Zymeworks CallCo ULC (“CallCo”) and Zymeworks ExchangeCo Ltd., (“ExchangeCo”) including a plan of arrangement included as Exhibit A to the Restated and Amended Transaction Agreement (the “Plan of Arrangement”). +2. Summary of Significant Accounting Policies +Basis of Presentation +The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Zymeworks Inc. and its wholly owned subsidiaries, Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Pharmaceuticals Limited (Ireland), Zymeworks Lifesciences Pte. Ltd. (Singapore), Zymeworks CallCo ULC, Zymeworks ExchangeCo Ltd., Zymeworks Managemen t Inc. (including this entity's branch in the United Kingdom) and Zymeworks Zanidatamab Inc. (refer to note 11). All inter-company accounts and transactions have been eliminated on consolidation. +All amounts expressed in the consolidated financial statements of the Company and the accompanying notes thereto are expressed in thousands of U.S. dollars, except for share and per share data and where otherwise indicated. References to “$” are to U.S. dollars and references to “C$” are to Canadian dollars. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. +Foreign Currency +The functional currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are remeasured at the approximate exchange rate prevailing on the date of the transaction. At period end, monetary assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars using exchange rates in effect at the balance sheet date. Resulting foreign exchange gains and losses are reflected in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. +94 +Table o f Contents +Use of Estimates +The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, most notably those related to revenue recognition including estimated timing of completion of performance obligations required to meet revenue recognition criteria, accrual of expenses including clinical and preclinical study expense accruals, stock-based compensation, valuation allowance for deferred taxes, measurement of contingent consideration liabilities, and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates. +Revenue Recognition +Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with ASC 606, the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. +The Company applied ASC 606 to all revenue arrangements to date. For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company applies the revenue recognition model under ASC 606 to part or all of the arrangements, when deemed appropriate. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company determines which elements of the arrangement are within the scope of ASC 808 and which elements are within the scope of ASC 606, which may require application of judgment. +In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations including whether they are distinct; (iii) determine the transaction price, including uncertainties related to variable consideration; (iv) allocate the transaction price to the performance obligations based on the stand-alone selling prices; and (v) recognize revenue when or as the Company satisfies each performance obligation and when collectability is probable. +The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in exchange for the goods and services transferred to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of Topic 606, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. +The Company has entered into a number of collaboration and licensing agreements. Promised deliverables within these agreements may include: (i) grants of licenses, or options to obtain licenses, to the Company’s intellectual property, (ii) research and development services, (iii) drug product manufacturing, and (iv) participation on joint research and/or development committees. The terms of these agreements typically include one or more of the following types of payments to the Company: +• non-refundable, upfront license and platform technology access fees; +• research, development and regulatory milestone payments; +• research support, development and other payments; and +• royalties and commercial milestone payments. +If the expectation at contract inception is such that the period between payment by the licensee and the completion of related performance obligations will be one year or less, the Company assumes that the contract does not have a significant financing component. +When applying the revenue recognition criteria of ASC 606 to license and collaboration agreements, the Company may be required to apply significant judgment when evaluating whether contractual obligations represent distinct performance obligations including understanding the nature and significance of the contractual obligations and their standalone selling prices, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration, and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time. The accounting for the modification to existing contracts with customers arising from licensing and collaboration arrangements requires management to apply significant judgment when evaluating whether the modification to financial terms +95 +Table o f Contents +is related to distinct performance obligations remaining in the amended collaboration agreement. These judgments are discussed in more detail in the following paragraphs for each type of payment received by the Company under the terms of the license and collaborations agreements. +Non-refundable, upfront license and platform technology access fees +If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, the Company uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly. +Research, development and regulatory milestone payments +At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. When it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. The probability of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently, there is a significant risk that the Company may not earn all of the milestone payments from each of its strategic partners. +Research and development milestones in the Company’s collaboration agreements may include some, but not necessarily all, of the following types of events: +• completion of preclinical research and development work leading to selection of product candidates; +• initiation of Phase 1, Phase 2 and Phase 3 clinical trials; and +• achievement of certain other technical, scientific or development criteria. +Regulatory milestone payments may include the following types of events: +• filing of regulatory applications for marketing approval in the United States, Europe or Japan, including Investigational New Drug (“IND”) applications and Biologics License Application (“BLA”); and +• marketing approval in major markets, such as the United States, Europe, Japan or China. +Research support, development and other payments +Payments by the licensees in exchange for research and development activities performed by the Company on behalf of the licensee are recognized as revenue upon performance of such activities at rates consistent with prevailing market rates. Payments for research and development supplies provided are recognized as revenue upon delivery of the supplies. +Supply of clinical trial drugs and comparator drugs +Amounts receivable by the Company for the provision of drugs to licensee or to clinical trials on behalf of licensee are recognized in revenue at a point in time when title to drugs has transferred to the licensee, which generally occurs upon shipment or delivery, depending on contractual terms. +Royalties and commercial milestone payments +For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to +96 +Table o f Contents +which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee. The Company started recognizing royalty income during the year ended December 31, 2024. The Company's commercial partner is obligated to report its net product sales and resulting royalty due to the Company within 60 days from the end of each quarter. The Company accrues royalty revenue based on historic product sales, royalty receipts and other relevant information as available and recognizes any adjustment when it receives royalty reports from its commercial partner in the subsequent period. +Contract assets and liabilities +Contract assets are mainly comprised of accrued revenue for which one of more performance obligations has been completed but not yet billed, which includes amounts billed and currently due from customers. +Contract liabilities are mainly comprised of deferred revenues. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated financial statements. Amounts not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue. +Modifications of contracts with customers +The Company accounts for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the addition of promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the Company’s stand-alone selling price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to the existing contract, either prospectively or through a cumulative catch-up adjustment. The Company accounts for a contract modification prospectively if the remaining goods or services are distinct from the goods or services transferred before the modification, but the consideration for those goods or services does not reflect their stand-alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to remaining goods or services are recognized as a cumulative catch-up adjustment. +Cash Equivalents +The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include guaranteed investment certificates (“GICs”) acquired from financial institutions and money market funds which are recorded at cost plus accrued interest, which approximates their fair value. +Investments +Marketable Securities +The Company's investments include high credit quality investment grade debt securities which comprise investments in U.S. Treasury notes and corporate debt securities. The Company classifies all of its investment grade debt securities as available-for-sale (note 5). Marketable securities also include GICs with original maturities of greater than 90 days. These investments are recorded at cost plus accrued interest, which approximates their fair value. +Unrealized fair value gains and losses for investments classified as available-for-sale are recorded through other comprehensive income (loss) in stockholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of (loss) income with a corresponding allowance for credit losses, limited to the amount that the fair value is below the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of (loss) income with no corresponding allowance for credit losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income (expense), based on the specific identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income. +Marketable securities with remaining maturities of less than one year from the balance sheet date are classified as short-term investments and greater than one year from the balance sheet date are classified as long-term investments. +97 +Table o f Contents +Accounts Receivable and Expected Credit Losses +Accounts receivable are recorded at invoiced amounts, net of any allowance for expected credit losses. The allowance for expected credit losses is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. +The Company evaluates the collectability of accounts receivable on a regular basis based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future collections experience. Expected credit losses on our accounts receivable were immaterial as at December 31, 2025 and 2024. +Financial Instruments +The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the fair value hierarchy. +Fair Value Measurements +The Company measures certain financial instruments and other items at fair value. +To determine fair value, the Company uses a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows: +• Level 1 inputs are unadjusted quoted market prices for identical instruments available in active markets. +• Level 2 inputs are inputs other than Level 1 prices, such as prices for a similar asset or liability that are observable either directly or indirectly. If the asset or liability has a contractual term, the input must be observable for substantially the full term. An example includes quoted market prices for similar assets or liabilities in active markets. +• Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assessment about market assumptions that would be used to price the asset or liability. +Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. +The Company’s financial instruments consist of cash and cash equivalents, short-term and long-term investments in marketable and other securities, accounts receivable, accounts payable and accrued liabilities, contingent consideration, finance and operating lease obligations, and other long-term liabilities. +The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. All marketable securities are classified as available-for-sale and are recorded at fair value. +Concentration of Credit Risk +Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term and long-term marketable securities and accounts receivable. Cash and cash equivalents and investments in marketable securities are invested in accordance with the Company’s cash investment policy with the primary objective being the preservation of capital and maintenance of liquidity. The cash investment policy includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company limits its exposure to credit loss by placing its cash and cash equivalents and investments with high credit quality financial institutions. +At December 31, 2025, the maximum exposure to credit risk for accounts receivable was $ 4,638 , 37 % of which was from Jazz Pharmaceuticals Ireland Limited or Jazz Pharmaceuticals, Inc. (subsidiaries of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) (December 31, 2024: $ 55,815 , 95 % of which was from Jazz Pharmaceuticals Ireland Limited) and all accounts receivable are due within the next 12 months. As at December 31, 2025 and December 31, 2024, the Company has recognized nominal amounts of provision for expected credit losses in relation to accounts receivable. +98 +Table o f Contents +Liquidity Risk +Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s short-term cash requirements are primarily to settle its financial liabilities, which consist primarily of accounts payable and accrued liabilities falling due within 45 days and current portion of lease obligations falling due within the next 12 months, with medium term requirements to invest in property and equipment and research and development. The Company’s principal sources of liquidity to settle its financial liabilities are cash, cash equivalents, short-term and long-term investments, collection of accounts receivable relating to research collaboration and license agreements and additional public and private equity offerings as required. The Company believes that these principal sources of liquidity are sufficient to fund its operations for at least the next 12 months. +Foreign Currency Risk +The Company incurs certain operating expenses in currencies other than the U.S. dollar and accordingly is subject to foreign exchange risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange risk and therefore assumes the risk of future gains or losses in its consolidated statements of (loss) income. At December 31, 2025, the Company’s net monetary assets denominated in Canadian dollars were $ 4,337 (C$ 5,946 ) (December 31, 2024: $ 3,464 (C$ 4,982 ) net monetary liabilities). +The operating results and financial position of the Company are reported in U.S. dollars in the Company’s consolidated financial statements. The fluctuation of the U.S. dollar relative to the Canadian dollar and other foreign currencies will have an impact on the reported balances for net assets, net loss and stockholders’ equity in the Company’s consolidated financial statements. +Segment Information +The Company operates and manages its business in one segment, which is the Management of a portfolio of licensed healthcare assets and development of next-generation multifunctional biotherapeutics. Operating segments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker (“CODM”), in deciding how to allocate resources and assessing performance. +Property and Equipment +Property and equipment are recorded at cost net of accumulated depreciation. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in earnings. Repairs and maintenance costs are expensed as incurred. +The Company records depreciation using the straight-line method over the estimated useful lives of the property and equipment as follows: +Asset Class Rate +Computer hardware 3 years +Office equipment 3 years +Furniture and fixtures 5 years +Laboratory equipment 7 years +Leasehold improvements Shorter of the lease term or useful life +Property and equipment acquired or disposed of during the year are depreciated proportionately for the period they are in use. +Leases +The Company accounts for leases in accordance with ASC 842 Leases ( “ ASC 842 ” ). The Company determines if an arrangement contains a lease at inception. Right-of-use ( “ ROU ” ) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from that lease. For leases with a term greater than 12 months, ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes the option to extend the lease when it is reasonably certain the Company will exercise that option. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. In the case the implicit rate is not available, the Company uses its incremental borrowing rate based on information available at the lease commencement date, to determine the present value of lease payments. +99 +Table o f Contents +Patents and Intellectual Property Costs +Costs incurred to acquire patents and to prosecute and maintain intellectual property rights are expensed as incurred to general and administrative expense due to the uncertainty surrounding the drug development process and the uncertainty of future benefits. Patents and intellectual property acquired from third parties are capitalized and amortized over the remaining life of the patent, if related to approved products or if there are alternative future uses for the underlying technology. No patent or intellectual property costs have been capitalized to date. +Government Grants and Credits +Government grants are recognized where there is reasonable assurance that the grant will be received and all associated conditions will be complied with. Reimbursements of eligible research and development expenditures pursuant to government assistance programs are recorded as reductions of research and development costs when the related costs have been incurred and there is reasonable assurance regarding collection of the claim. +Grant claims not settled by the balance sheet date are recorded as receivables, provided their receipt is probable. The determination of the amount of the claim, and hence the receivable amount, requires management to make calculations based on its interpretation of eligible expenditures in accordance with the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies. The Company has used its best judgment and understanding of the related program agreements in determining the receivable amount. +The Company participates in SR&ED and Research Tax Credit Programs, two federal tax incentive programs that encourage Canadian and U.S. businesses to conduct research and development in Canada and in United States, respectively. The benefits of investment tax credits for scientific research and development expenditures are recognized in the year the qualifying expenditure is made provided there is reasonable assurance of recoverability. The refundable portion of investment tax credits are recorded as reductions to research and development expenditures. +Research and Development Costs +Research and development costs are expensed as incurred and include costs that the Company incurs for its own and for the Company’s strategic partners’ research and development activities. These costs primarily consist of expenses incurred under agreements with contract research organizations on the Company’s behalf, investigative sites and consultants that conduct the Company’s clinical trials, the cost of acquiring and manufacturing clinical trial materials and other allocated expenses, the cost of acquired research patents and intellectual property that do not meet the requirements for capitalization, employee related expenses, including salaries and benefits, stock-based compensation expense, and costs associated with nonclinical activities and regulatory approvals. +Clinical Trial Expense Accruals +Clinical trial expenses represent a significant component of research and development expenses and the Company outsources a significant portion of these activities to third party contract research organizations. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs and other trial-related vendor costs. As part of preparing the consolidated financial statements, the Company estimates accrued liabilities for services that have been performed by clinical research organizations or investigator sites but have not yet been invoiced to the Company. When making these estimates, the Company uses operational and contractual information from third party service providers and operational data from internal personnel. For the year ended December 31, 2025, the Company recorded a change in estimate of $ 6,676 related to historical zanidatamab clinical trial accruals associated with studies that were transferred to Jazz (note 11). These clinical trial accruals reflected management's estimate of costs incurred prior to the Zymeworks BC collaboration agreement with Jazz. As the underlying studies were substantially completed by 2025 and clinical research organizations (“CRO”) confirmations were obtained in the fourth quarter of 2025, the Company determined that these accrual amounts are no longer expected to be invoiced. This adjustment resulted in a reduction of research and development expenses for the year. +Income Taxes +The Company accounts for income taxes using an asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the extent of a valuation allowance. The recognition of uncertain tax positions is evaluated based on whether it is considered more likely than not that the position taken, or expected to be taken, on a tax return will be sustained upon examination through +100 +Table o f Contents +litigation or appeal. For those positions that meet the recognition criteria, they are measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. +Stock-Based Compensation +The Company recognizes stock-based compensation expense on equity and liability classified stock-based awards granted to employees, directors, and certain consultants. The Company measures the cost of such awards based on the fair value of the award, net of estimated forfeitures, and recognizes stock-based compensation expense in the consolidated statements of (loss) income and comprehensive (loss) income on a straight-line basis over the requisite service period. The requisite service period generally equals the vesting period of the awards. The fair values of stock option awards are estimated using the Black-Scholes option pricing model which uses various inputs including estimated fair value of the Company’s underlying common stock at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of the Company’s common stock. The Company applies an estimated forfeiture rate derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, adjustments to compensation expense may be required in future periods. The fair value of restricted stock units (“RSU”) is measured using the per share fair value of the Company’s common stock on the dates of grant. +Equity classified awards are measured using their grant date fair value. Liability classified awards are initially measured using their grant date fair value and are subsequently remeasured at fair value at each balance sheet date until exercised or cancelled, with changes in fair value recognized as compensation cost (ASC 718 awards) or other (expense) income (ASC 815 awards) for the period, while fair value changes below the grant date fair value of the original awards are recorded in additional paid-in capital. +Under ASC 718 Compensation—Stock Options (“ASC 718”), warrants or stock options with exercise price which is not denominated in: (a) the currency of a market in which a substantial portion of the Company’s equity securities trades, (b) the currency in which the individual’s pay is denominated, or (c) the Company’s functional currency, are required to be classified as liabilities. For awards accounted for under ASC 815 Derivatives and Hedging (“ASC 815”), any warrant or option that provides for an exercise price which is not denominated in the Company’s functional currency is required to be classified as a liability. +The Company has an employee stock purchase plan which is considered compensatory. Accordingly, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the requisite service period. +Stock Repurchases +As part of its stock repurchase programs, the Company adopted an accounting policy whereby the par value of each share is deducted from common stock and the remainder of the repurchase price is debited to accumulated deficit. +Business Combinations and Goodwill +Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. If the Company’s interest in the fair value of the acquiree’s net identifiable assets exceeds the cost of the acquisition, the excess is recognized in earnings or loss immediately. Transaction costs that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. +Goodwill is evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present (note 6). As part of the impairment evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit that includes the goodwill is less than its carrying value, then a quantitative impairment test would be prepared to compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value. +101 +Table o f Contents +Acquired In-Process Research and Development (IPR&D) and Definite-lived Intangible Assets +Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. IPR&D is classified as an indefinite-lived intangible asset and is not amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. All research and development costs incurred subsequent to the acquisition of IPR&D are expensed as incurred. Indefinite-lived intangible assets are reviewed for impairment on an annual basis or more frequently if an indicator of impairment is present. The Company may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. +Definite-lived intangible assets include computer software and a research license and are amortized on a basis which reflects the pattern in which the economic benefits are consumed. Amortization begins when the assets are put into use. If there is an event indicating that the carrying value of a definite-lived intangible asset may be impaired, then the Company will perform an impairment test. When an impairment test is performed, if the carrying value exceeds the recoverable value, based on the sum of undiscounted future cash flows, then such asset is written down to its fair value. +The Company records amortization using the straight-line method over the estimated useful lives of the definite-lived intangible assets as follows: +Asset Class Rate +Software 3 years +Licensing agreements Shorter of the licensing term or useful life +Net income (loss) per share +Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the year, including the treatment of Exchangeable Shares and pre-funded warrants. Diluted net income (loss) per share attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options and warrants. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the year, including potential dilutive shares of common stock assuming the dilutive effect of outstanding instruments. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and warrants. ASC 260 Earnings Per Share requires an adjustment to the numerator for any income or loss related to liability classified warrants and stock options, if dilutive, if they are presumed to be share settled. +3. Recent Accounting Pronouncements +Recent accounting pronouncements adopted +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, with the option for retrospective application. The Company has adopted this accounting pronouncement on the accompanying financial statements prospectively to the current annual period. Prior period disclosures have not been adjusted to reflect the new disclosure requirements. See note 13 Income Taxes in the accompanying notes to the consolidated financial statements for further detail. +Recent accounting pronouncements not yet adopted +In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting – Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses. The standard update improves the disclosures about a public business entity’s expenses by requiring more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) included within income statement expense captions. The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard updates are to be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact of adoption of the standard update on its consolidated financial statements. +102 +Table o f Contents +4. Net Loss per Share +Net loss per share for the years ended December 31, 2025, 2024 and 2023 was as follows: +Year Ended December 31, +2025 2024 2023 +Numerator : +Net loss attributable to common stockholders: +Basic $ ( 81,130 ) $ ( 122,695 ) $ ( 118,674 ) +Adjustment for change in fair value of liability classified stock options ( 196 ) 140 — +Diluted $ ( 81,326 ) $ ( 122,555 ) $ ( 118,674 ) +Denominator: +Weighted-average common stock outstanding: +Basic 75,404,897 75,846,681 68,863,010 +Adjustment for dilutive effect of liability classified stock options 8,499 32,057 — +Diluted 75,413,396 75,878,738 68,863,010 +Net loss per common share – basic +$ ( 1.08 ) $ ( 1.62 ) $ ( 1.72 ) +Net loss per common share – diluted +$ ( 1.08 ) $ ( 1.62 ) $ ( 1.72 ) +Weighted average number of shares of common stock used in the basic and diluted earnings per share calculations include Exchangeable Shares and the pre-funded warrants issued in connection with the Company’s offerings and private placements as the warrants were exercisable at any time for nominal cash consideration. The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share for the years ended December 31, 2025, 2024 and 2023 as the effect would be antidilutive. +5. Cash, Cash Equivalents and Marketable Securities +The following table summarizes the Company's marketable securities as of December 31, 2025: +December 31, 2025 +Amortized Cost Unrealized Gain (Loss) Fair Value +Short-term marketable securities: +Contractual maturity of one year or less: +Guaranteed investment certificates (“GICs”) and mutual funds +$ 21,920 $ — $ 21,920 +U.S. Treasury notes 41,263 36 41,299 +Corporate debt securities 124,272 149 124,421 +187,455 185 187,640 +Long-term marketable securities: +Contractual maturity of one to three years: +Corporate debt securities 41,388 399 41,787 +41,388 399 41,787 +$ 228,843 $ 584 $ 229,427 +103 +Table o f Contents +The following table summarizes the Company's marketable securities as of December 31, 2024: +December 31, 2024 +Amortized Cost +Unrealized Gain (Loss) +Fair Value +Short-term marketable securities: +Contractual maturity of one year or less: +GICs $ 37,166 $ — $ 37,166 +U.S. Treasury notes 71,500 72 71,572 +Corporate debt securities 50,993 ( 58 ) 50,935 +159,659 14 159,673 +Long-term marketable securities: +Contractual maturity of one to three years: +Corporate debt securities 65,461 ( 153 ) 65,308 +Contractual maturity of three to four years: +Corporate debt securities 18,295 ( 156 ) 18,139 +98,735 ( 307 ) 98,428 +$ 258,394 $ ( 293 ) $ 258,101 +The unrealized losses on the Company’s available-for-sale securities as of December 31, 2025 and 2024 were not material and were caused by fluctuations in market values and interest rates as a result of the economic environment. The Company concluded that an allowance for credit losses was unnecessary as of December 31, 2025 and 2024 because the decline in the market value was attributable to changes in market conditions and not credit quality, and that it is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. There was no material realized gain or loss on available-for-sale securities in the periods presented. +The following tables present information about the Company’s assets that are measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques used to determine such fair value: +December 31, +2025 December 31, +2024 +Level 1 Level 2 Level 3 +Total +Level 1 Level 2 Level 3 +Total +Cash and cash equivalents: +Cash +$ 8,968 $ 34,620 +Cash equivalents: +Money market funds +$ 32,189 $ — $ — $ 32,189 $ 16,398 $ — $ — $ 16,398 +GICs +— — — — 15,085 — — 15,085 +32,189 — — 41,157 31,483 — — 66,103 +Marketable securities: +GICs and mutual funds +21,920 — — 21,920 37,166 — — 37,166 +U.S. Treasury notes +41,299 — — 41,299 86,553 — — 86,553 +Corporate debt securities — 166,208 — 166,208 — 134,382 — 134,382 +63,219 166,208 — 229,427 123,719 134,382 — 258,101 +$ 95,408 $ 166,208 $ — $ 270,584 $ 155,202 $ 134,382 $ — $ 324,204 +104 +Table o f Contents +6. IPR&D and Goodwill +Acquired IPR&D +In-process research and development assets (“IPR&D”) acquired in the 2016 Kairos Therapeutics Inc. (“Kairos”) business combination were classified as indefinite-lived intangible assets and were not amortized until their classification as definite-lived assets. During the year ended December 31, 2024, the Company determined that the fair value of IPR&D, which was estimated using an income approach, was less than its carrying value. Accordingly, the Company recorded an impairment charge of $ 17,287 . The impairment was a result of the Company's decision to discontinue the zanidatamab zovodotin clinical development program which utilized the acquired technology represented by the IPR&D assets. As of July 1, 2024, the Company classified the remaining assets as definite-lived and commenced amortization, which was fully amortized as of December 31, 2024. +The following table summarizes the carrying value of IPR&D, net of impairment: +Acquired +IPR&D Accumulated +Impairment +Accumulated +Amortization +Net +Balance at December 31, 2022 $ 20,700 $ ( 3,072 ) $ — $ 17,628 +Change during the period — — — — +Balance at December 31, 2023 $ 20,700 $ ( 3,072 ) $ — $ 17,628 +Change during the period — ( 17,287 ) ( 341 ) ( 17,628 ) +Balance at December 31, 2024 $ 20,700 $ ( 20,359 ) $ ( 341 ) $ — +Goodwill +The Company performed its annual impairment test of goodwill as of December 31, 2025 and concluded that no impairment existed. As part of the evaluation of the recoverability of goodwill, the Company identified only one reporting unit to which the total carrying amount of goodwill has been assigned. As at December 31, 2025, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, a quantitative impairment test was not required. +7. Property and Equipment +Property and equipment consist of the following: +December 31, +2025 2024 +Computer hardware $ 3,233 $ 2,815 +Furniture and fixtures 1,850 2,408 +Office equipment 1,674 1,736 +Laboratory equipment 13,838 13,331 +Leasehold improvements 15,243 15,190 +Construction in progress 540 — +Property and equipment $ 36,378 $ 35,480 +Less accumulated depreciation ( 20,876 ) ( 17,830 ) +Property and equipment, net $ 15,502 $ 17,650 +Depreciation expense on property and equipment for the years ended December 31, 2025, 2024 and 2023 was $ 3,669 , $ 4,188 and $ 7,462 , respectively. +105 +Table o f Contents +8. Intangible Assets +Intangible assets consist of the following: +December 31, +2025 2024 +Research licenses $ 14,936 $ 14,936 +Computer software 11,501 10,670 +Intangible assets 26,437 25,606 +Less accumulated amortization ( 25,087 ) ( 21,030 ) +Intangible assets, net $ 1,350 $ 4,576 +Amortization expense on intangible assets for the years ended December 31, 2025, 2024 and 2023 was $ 4,056 , $ 4,496 and $ 2,702 , respectively. +At December 31, 2025, amortization expense on capitalized intangible assets is estimated to be as follows for the next five years: +Amortization expense +2026 $ 703 +2027 490 +2028 157 +Thereafter +— +$ 1,350 +9. Liabilities +Accounts payable and accrued liabilities consisted of the following: +December 31, +2025 2024 +Trade payables $ 4,403 $ 3,903 +Accrued research and development expenses 19,225 43,114 +Goods and services tax payable +425 1,250 +Employee compensation and related accruals +8,828 6,222 +Fair value of liability classified stock options +844 1,264 +Accrued legal, professional fees and other +2,621 4,085 +Total $ 36,346 $ 59,838 +Other long-term liabilities consisted of the following: +December 31, +2025 2024 +Liability from in-licensing agreements $ 278 $ 447 +Finance lease liability (note 14) +— 28 +Other — 448 +Total $ 278 $ 923 +106 +Table o f Contents +10. Stockholders’ Equity +a. Equity Offerings +2025 Private Placement +On August 10, 2025, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) for a private placement with Mr. Gregory A. Ciongoli following his appointment as a director of the Company. Pursuant to the Stock Purchase Agreement, Mr. Ciongoli agreed to purchase 415,000 shares of common stock, $ 0.00001 par value per share, of the Company for an aggregate purchase price of $ 4,988 . +2023 Private Placement +On December 28, 2023, the Company completed a private placement pursuant to which the Company sold 5,086,521 pre-funded warrants to purchase 5,086,521 shares of common stock at $ 9.8299 per pre-funded warrant. The Company received gross proceeds of $ 50,000 and net proceeds were $ 49,862 , after expenses. +2023 ATM financing +On June 16, 2023, the Company sold 3,350,000 shares of common stock pursuant to the Company's at-the-market sale program, at $ 8.12 per common share. Net proceeds were $ 26,233 after underwriting commissions and offering expenses. +b. Authorized Share Capital and Preferred Stock +The Company’s authorized share capital consists of 1,000,000,000 shares of stock, consisting of (i) 900,000,000 shares of common stock, par value $ 0.00001 per share, and (ii) 100,000,000 shares of preferred stock, par value $ 0.00001 per share. +In connection with the Plan of Arrangement, the Company issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of the Company’s preferred stock, par value $ 0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding (the “Special Voting Preferred Stock”), enabling the Share Trustee to exercise voting rights for the benefit of the Exchangeable Shareholders. +Immediately prior to the completion of the Redomicile Transactions, there were 61,699,387 Zymeworks BC common shares issued and outstanding. In connection with the consummation of the Plan of Arrangement, 60,274,854 shares of Common Stock and 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. As of December 31, 2025, there were 553,184 Exchangeable Shares held by former Zymeworks BC shareholders (December 31, 2024: 570,637 ). The Company will issue shares of its common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by ExchangeCo, when ExchangeCo redeems Exchangeable Shares from the holder, or when CallCo purchases Exchangeable Shares from the Exchangeable Shareholder under CallCo’s overriding call rights. These Exchangeable Shares and the Special Voting Preferred Stock, when taken together, are simil ar in substance to the Company’s common stock and are treated as such in calculation of basic net (loss) income per share. +c. Stock Repurchase Programs +2024 Repurchase Program +On August 1, 2024, the board of directors of the Company authorized a stock repurchase program (the “2024 Repurchase Program”), whereby the Company may repurchase up to $ 60,000 of the Company’s outstanding common stock, par value $ 0.00001 per share. +During the year ended December 31, 2024, the Company repurchased 2,545,402 shares of its common stock for a cost of $ 30,000 , and incurred commission expense of $ 51 , under the 2024 Repurchase Program, which have been recorded against accumulated deficit. The Company’s share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act of $ 152 . During the year ended December 31, 2024, the Company retired all 2,545,402 shares repurchased. These shares were returned to the status of authorized and unissued shares. +During the year ended December 31, 2025, the Company completed the 2024 Repurchase Program by repurchasing 1,856,907 shares of its common stock for a cost of $ 29,997 and incurred commission expense of $ 37 , which have been recorded against +107 +Table o f Contents +accumulated deficit. Excise tax was estimated as nil . The Company retired all 1,856,907 shares repurchased. These shares were returned to the status of authorized and unissued shares. +The following table presents the Company’s 2024 Repurchase Program activity: +Total number of shares purchased +Average price paid per share +Approximate value of shares purchased +Year Ended December 31, 2024 +2,545,402 $ 11.79 $ 30,000 +Year Ended December 31, 2025 +1,856,907 $ 16.15 $ 29,997 +2025 Repurchase Program +On November 16, 2025, the board of directors of the Company authorized a new stock repurchase program (the “2025 Repurchase Program”), whereby the Company may repurchase up to $ 125,000 of the Company’s outstanding common stock, par value $ 0.00001 per share. +During the year ended December 31, 2025, the Company repurchased 431,217 shares of its common stock for a cost of $ 11,188 , incurred an obligation to purchase common stock for a cost of $ 464 which had not been settled by December 31, 2025, and incurred commission expense of $ 9 , under the 2025 Repurchase Program, which have been recorded against accumulated deficit. Excise tax was estimated as nil . The Company retired all 431,217 shares repurchased. These shares were returned to the status of authorized and unissued shares. +The following table presents the Company’s 2025 Repurchase Program activity: +Total number of shares purchased +Average price paid per share +Approximate value of shares purchased +Year Ended December 31, 2025 +431,217 $ 25.94 $ 11,188 +d. Pre-Funded Common Share Warrants +In connection with the public offerings completed on June 24, 2019, January 27, 2020, January 31, 2022 and private placement completed on December 28, 2023 (note 10a), the Company issued a total of 13,668,482 pre-funded warrants which granted holders of warrants the right to purchase up to 13,668,482 common shares or shares of the Company, at an exercise price of $ 0.0001 per share. +The pre-funded warrants are exercisable by the holders at any time on or after the original issue date. The pre-funded warrants do not expire unless they are exercised or settled in accordance with the pre-funded warrant agreement. As the pre-funded warrants meet the condition for equity classification, proceeds from issuance of the pre-funded warrants, net of any transaction costs, are recorded in additional paid-in capital. Upon exercise of the pre-funded warrants, the historical costs recorded in additional paid-in capital along with exercise price collected from holders will be recorded in common shares. As the amounts required to exercise the warrants are nominal, these instruments are considered in the calculation of basic net (loss) income per share. +On August 23, 2022, October 25, 2022, October 27, 2022 and October 19, 2023, a total of 8,581,961 pre-funded warrants were exercised in exchange for issuance of 8,581,868 common shares. +On June 26, 2025, 5,086,521 pre-funded warrants were exercised in full in exchange for 5,086,480 shares of common stock by EcoR1, which is a related party due to its beneficial ownership of the Company’s outstanding shares of common stock, and as of December 31, 2025 there were no pre-funded warrants outstanding (December 31, 2024: 5,086,521 ). +e. Stock-Based Compensation +In connection with Redomicile Transactions in 2022, Zymeworks BC. assigned to the Company, and the Company assumed, all of Zymeworks BC’s rights and obligations under each of the stock-based compensation plans, as described below, and such plans became the Company’s stock-based compensation plans, with each outstanding award assumed by the Company and +108 +Table o f Contents +deemed exchanged for equivalent awards of the Company, except that the security issuable upon exercise or settlement, as applicable, will be shares of common stock of the Company rather than common shares of Zymeworks BC. +Original Stock Option Plan +On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). The total number of options outstanding is not to exceed 20 % of the issued common shares of the Company. Options granted under the Original Plan are exercisable at various dates over their 10 -year life. The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. Upon the effectiveness of the Company’s New Plan described below, no further options were issuable under the Original Plan. However, all outstanding options granted under the Original Plan remain outstanding, subject to the terms of the Original Plan and the applicable grant documents, until such outstanding options are exercised or they terminate or expire by their terms. +New Plan and Inducement Plan +On April 10, 2017, the Company’s shareholders approved a new stock option plan, which became effective immediately prior to the consummation of the Company’s initial public offering (“IPO”). This plan allows for the grant of options, and also permitted the Company to grant incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code, to its employees, until the shares reserved for issuance of ISOs were depleted. On June 7, 2018, the Company’s shareholders approved an amendment and restatement of this plan (this plan, as amended and restated, the “New Plan”), which includes an article that allows the Company to grant restricted shares, RSU and other share-based awards, in addition to stock options. As of December 31, 2025, 5,023,809 shares of common stock were available for future award grants under the New Plan (December 31, 2024: 5,196,630 shares of common stock). +On January 5, 2022, the board of directors approved the Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan (the “Inducement Plan”) and reserved 750,000 of the Company’s common shares for issuance pursuant to equity awards granted thereunder. On July 19, 2024, the board of directors approved an amendment and restatement of the Inducement Plan, which increased the number of shares of the Company’s common stock available for future issuance pursuant to equity awards granted under the Inducement Plan by 700,000 shares. As a result of this increase, a total of 1,450,000 shares will have been available for issuance pursuant to equity awards granted under the Inducement Plan since the inception of the Inducement Plan in January 2022. As of December 31, 2025, 390,000 shares of common stock were available for future award grants under this plan (December 31, 2024: 390,000 ). +RSUs +The following table summarizes the Company’s RSU activity under the New Plan: +Number of RSUs Weighted- +average grant +date fair value +($) +Outstanding, December 31, 2023 771,413 8.63 +Granted 957,750 10.56 +Vested and settled ( 225,004 ) 8.76 +Forfeited ( 210,189 ) 10.75 +Outstanding, December 31, 2024 1,293,970 9.69 +Granted 1,398,697 14.29 +Vested and settled ( 560,620 ) 9.40 +Forfeited ( 184,463 ) 11.59 +Outstanding, December 31, 2025 1,947,584 12.90 +As of December 31, 2025, there was $ 7,512 of unamortized RSU expense that will be recognized over a weighted average period of 1.52 years. +109 +Table o f Contents +Stock Options +The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan: +Number +of Options Weighted- +Average +Exercise Price +(C$) Weighted- +Average +Exercise Price +($) Weighted- +Average +Contractual +Term +(years) Aggregate +intrinsic value +(C$) Aggregate +intrinsic value +($) +Outstanding, December 31, 2023 1,489,478 19.59 14.39 5.50 2,987 2,255 +Granted — — — +Expired ( 58,902 ) 32.37 23.46 +Exercised ( 224,042 ) 11.23 8.20 +Forfeited ( 123,699 ) 21.85 16.11 +Outstanding, December 31, 2024 1,082,835 20.36 14.15 4.73 6,485 4,509 +Granted — — — +Expired ( 28,707 ) 39.94 28.75 +Exercised ( 444,397 ) 13.43 9.69 +Forfeited ( 37,619 ) 18.32 13.31 +Outstanding, December 31, 2025 572,112 24.89 18.17 4.31 8,327 6,081 +December 31, 2025 +Exercisable 553,766 25.45 18.58 4.25 7,811 5,701 +Vested and expected to vest 570,277 24.95 18.21 4.31 8,276 6,040 +The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan: +Number +of Options Weighted- +Average +Exercise Price +($) Weighted- +Average +Contractual +Term +(years) Aggregate +intrinsic value +($) +Outstanding, December 31, 2023 6,069,242 12.97 7.67 9,213 +Granted 3,135,500 11.15 +Expired — — +Exercised ( 735,864 ) 9.57 +Forfeited ( 1,137,794 ) 16.34 +Outstanding, December 31, 2024 7,331,084 12.01 7.97 30,459 +Granted 2,467,225 14.21 +Expired ( 63,994 ) 30.59 +Exercised ( 1,298,292 ) 9.63 +Forfeited ( 619,746 ) 14.99 +Outstanding, December 31, 2025 7,816,277 12.71 7.47 109,157 +December 31, 2025 +Exercisable 3,763,060 12.78 6.29 53,695 +Vested and expected to vest 7,078,461 12.68 7.34 99,302 +During the year ended December 31, 2025, the Company received cash proceeds of $ 16,904 (2024: $ 8,857 and 2023: $ 5,006 ) from stock options exercised. The stock options outstanding at December 31, 2025 expire at various dates from November 9, 2026 to December 9, 2035. +110 +Table o f Contents +A summary of the non-vested stock option activity and related information of the Company’s stock options granted in Canadian dollars is as follows: +Number of +options Weighted-average grant +date fair value +(C$) Weighted- +average grant +date fair value +(US$) +Non-vested, December 31, 2024 100,967 7.31 5.08 +Options granted — — — +Options vested ( 72,760 ) 8.02 5.85 +Options forfeited and cancelled ( 9,861 ) 5.64 4.12 +Non-vested, December 31, 2025 18,346 5.42 3.95 +A summary of the non-vested stock option activity and related information of the Company’s stock options granted in U.S. dollars is as follows: +Number of +options Weighted- +average grant +date fair value +(US$) +Non-vested, December 31, 2024 4,147,288 6.65 +Options granted 2,467,225 8.76 +Options vested ( 2,086,563 ) 6.72 +Options forfeited and cancelled ( 474,733 ) 6.36 +Non-vested, December 31, 2025 4,053,217 7.84 +The estimated fair values of options granted to officers, directors, employees and consultants are amortized over the relevant vesting periods. Stock-based compensation expense for equity classified instruments, as well as the financial statement impact of the amortization and periodic revaluation of liability classified instruments (note 2), are recorded in research and development expense and general and administration expense as follows: +Year Ended December 31, +2025 2024 2023 +Research and development expense +$ 12,849 $ 8,382 $ 2,404 +General and administrative expense +$ 14,687 $ 9,041 $ 5,316 +Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $ 10,727 for the year ended December 31, 2025 (2024: $ 5,813 and 2023: $ 3,369 ). +For the year ended December 31, 2025, stock-based compensation expense of $ 27,069 was recorded in additional paid-in capital and $ 887 was recorded in the liability classified stock options and ESPP liability accounts (2024: $ 16,716 in additional paid-in capital and recovery of $ 211 in liability classified stock options and ESPP liability accounts, 2023: $ 8,196 in additional paid-in capital and recovery of $ 630 in liability classified stock options and ESPP liability accounts). +The estimated fair value of stock options granted under the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: +Year ended December 31, +2025 2024 2023 +Dividend yield 0 % 0 % 0 % +Expected volatility 63.1 % 64.5 % 68.1 % +Risk-free interest rate 4.32 % 4.04 % 3.94 % +Expected average life of options 6.05 years 6.00 years 5.89 years +Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has calculated the expected volatility using the volatility of its own stock. +111 +Table o f Contents +Risk-Free Interest Rate — This rate is from the Government of Canada and U.S. Federal Reserve marketable bonds for the month prior to each option grant during the year, having a term that most closely resembles the expected life of the option. +Expected Term — This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years . The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the contractual term. +The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at December 31, 2025 and 2024 are as follows: +December 31, +2025 December 31, +2024 +Dividend yield 0 % 0 % +Expected volatility 55.3 % 45.8 % +Risk-free interest rate 2.56 % 2.90 % +Expected average option term 0.90 years 0.85 years +Number of liability classified stock options outstanding 64,402 272,330 +The total intrinsic value of stock options exercised during the years ended December 31, 2025, 2024 and 2023 was $ 14,152 , $ 2,242 and $ 758 respectively. At December 31, 2025, the unamortized compensation expense related to unvested options was $ 13,051 . The remaining unamortized compensation expense as of December 31, 2025 will be recognized over a weighted-average period of 1.8 years. +f. Employee Stock Purchase Plan (“ESPP”) +The ESPP, as amended, allows eligible employees to acquire common shares at a discounted purchase price of the lesser of (i) 85 % of the market price of a common share on the first day of the applicable purchase period and (ii) 85 % of the market price of a common share on the purchase date. The ESPP qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are U.S. taxpayers. +As this plan is considered compensatory, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of (loss) income and comprehensive (loss) income on a straight-line basis over the requisite service period. For the year ended December 31, 2025, the Company recorded compensation expense of $ 498 (2024: $ 370 , 2023: $ 387 ) in research and development expense and general and administrative expense accounts. As of December 31, 2025, the total amount contributed by ESPP participants and not yet settled is $ 670 (December 31, 2024: $ 577 ). +112 +Table o f Contents +11. Research, Collaboration and Licensing Agreements +Revenue recognized from the Company’s strategic partnerships is summarized as follows: +Year ended December 31, +2025 2024 2023 +Jazz: +Milestone revenue $ — $ 25,000 $ — +Development support payments +5,616 2,835 52,619 +Drug supply for ongoing studies +6,548 19,228 25,662 +Credit note for amendment of program — — ( 20,100 ) +Other drug supply +2,103 15,464 13,350 +Royalties +2,481 100 — +BeOne Medicines Ltd. (previously known as BeiGene, Ltd.) (“BeOne”): +Milestone revenue 20,000 8,000 — +Recognition of deferred revenue 18,334 — — +Drug supply +762 3,009 1,080 +Development support payments +— — 537 +Royalties 271 — — +Johnson & Johnson Innovative Medicine (previously known as Janssen Biotech, Inc.) (“J&J”): +Milestone revenue +25,000 — — +GlaxoSmithKline Intellectual Property Development Ltd. (“GSK”): +Milestone revenue +14,000 2,500 — +Bristol-Myers Squibb (“BMS”): +Option exercise fee 7,500 — — +Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”): +Milestone revenue +3,100 — — +Merck Sharp & Dohme LLC (“Merck”) +Research period extension fee +250 — — +Research and development support and other payments — 168 2,864 +$ 105,965 $ 76,304 $ 76,012 +Contract Assets and Liabilities +As at December 31, 2025, contract assets from research, collaboration and licensing agreements were $ 2.8 million, which is presented within accounts receivable (December 31, 2024: $ 0.1 million which is presented within accounts receivable) and contract liabilities were $ 17.0 million (December 31, 2024: $ 40.2 million). As at December 31, 2025 and 2024, $ 2.4 million and $ 25.6 million respectively, of the contract liabilities is classified as short term. Contract liabilities relate to deferred revenue from the BeOne and Jazz agreements described below. +113 +Table o f Contents +Jazz Collaboration Agreement +Original Jazz Collaboration Agreement: +On October 18, 2022, the Zymeworks BC entered into a License and Collaboration Agreement (the "Jazz Collaboration Agreement") with Jazz Pharmaceuticals Ireland Limited ("Jazz"), under which Jazz will have development and commercialization rights of zanidatamab throughout the world, but excluding the People’s Republic of China, Australia, New Zealand, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Hong Kong, Taiwan, Macau, Mongolia, South Korea, Brunei Darussalam, Cambodia, Indonesia, Papua New Guinea, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste, and Vietnam. +Under the Jazz Collaboration Agreement, the Company received a $ 50.0 million upfront payment upon delivery of licenses and technology transfer to Jazz as well as the receipt of United States Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR”) Clearance (“Initial Technology Transfer”). A further payment of $ 325.0 million was received following Jazz's decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01 (“BTC Data Transfer”). The Company considered the fair value of performance obligations based on the Company’s best estimate of their relative stand-alone selling prices, and allocated $ 375.0 million of the transaction price to the Company’s performance obligations in relation to the delivery of licenses, the Initial Technology Transfer and BTC Data Transfer under the Jazz Collaboration Agreement. +Development and commercial licenses, the Initial Technology and BTC Data Transfers were considered to be a single performance obligation. The consideration of $ 50.0 million allocated to this performance obligation was recognized as revenue in November 2022, upon delivery of these performance obligations and receipt of the HSR Clearance. Remaining consideration of $ 325.0 million was recognized as revenue upon completion of BTC Data Transfer to Jazz and Jazz’s decision to continue the Jazz Collaboration agreement, in December 2022. +Deliverables of development work performed by the Company, continuing technology transfer, participation in the Joint Steering Committee (“JSC”), and transfer of first BLA together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be recognized as revenue over time as these activities are completed. +Remaining deliverables of Manufacturing Technology Transfer, Development Drug Supply, Commercial Drug Supply were considered individually distinct and the revenue related to these deliveries are to be recognized upon completion of future deliveries to Jazz. +Amendment of Jazz Collaboration Agreement: +On April 25, 2023, Zymeworks BC, a subsidiary of the Company, Zymeworks Biopharmaceuticals Inc. (“ZBI”), a subsidiary of Zymeworks BC, Zymeworks Zanidatamab Inc. (“ZZI”), a subsidiary of ZBI formed in December 2022 focused on the Company’s development program for zanidatamab, and Jazz Pharmaceuticals, Inc. (“Jazz Inc.”), entered into a Stock and Asset Purchase Agreement (the “Transfer Agreement”). Under the Transfer Agreement, (i) Jazz Inc. acquired from ZBI 100 % of the issued and outstanding capital stock of ZZI, (ii) Jazz Inc. engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and (iii) Zymeworks BC and ZBI transferred to Jazz Inc. or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that work on the Program (as defined below). In addition, Jazz Inc. acquired from Zymeworks BC and ZBI certain contracts related to the Program, organizational documents and other records of ZZI, certain regulatory filings related to the Program, certain other books, records and other files, documents and information related to the Program, and certain employment records of service providers to be employed by Jazz Inc. and its affiliates following the Closing (as defined below). Subject to the terms and conditions of the Transfer Agreement, Jazz Inc. assumed certain liabilities that arise following the Closing related to the acquired assets and the Program, including with respect to transferred service providers. +Zymeworks BC and Jazz Pharmaceuticals Ireland Limited (an affiliate of Jazz Inc.) (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) amended and restated the license and collaboration agreement dated October 18, 2022 by and between Zymeworks BC and Jazz (the “Original Jazz Collaboration Agreement”) (as amended the “Amended Jazz Collaboration Agreement”) to reflect the transfer of responsibility for the Program. Under the Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously disclosed, was unchanged, except that the costs of the Program (including ongoing costs related to the transferred service providers) incurred following the Closing was directly borne by Jazz instead of being incurred by Zymeworks BC and charged back to Jazz for reimbursement, though Zymeworks BC will remain eligible for reimbursement of certain costs for activities where Zymeworks BC maintains responsibility under the Amended Jazz Collaboration Agreement. As part of the amendments to the Amended Collaboration Agreement, the Company agreed to provide a credit note to Jazz of $ 20.1 million, which has been recognized as a reduction to +114 +Table o f Contents +revenue for the year ended December 31, 2023. “Program” refers to (i) ongoing clinical trials in certain sites in South Korea that are the responsibility of Zymeworks BC under the Original Jazz Collaboration Agreement and (ii) clinical trials for zanidatamab, other than the studies referenced in (i), initiated by Zymeworks BC in the Territory (as defined in the Original Jazz Collaboration Agreement) prior to the execution of the Original Jazz Collaboration Agreement. +The consummation of the transactions contemplated by the Transfer Agreement, including the execution of the Amended Jazz Collaboration Agreement, occurred in May 2023 (the “Closing”). In connection with the Closing, the parties entered into a transition services agreement pursuant to which Zymeworks BC and ZBI provide to Jazz Inc. and Jazz Inc. provides to Zymeworks BC and ZBI certain services to support the transfer of the acquired assets and the Program on a transitional basis. +In November 2024, the Company recognized milestone revenue of $ 25.0 million from Jazz in relation to the FDA approval of Ziihera (zanidatamab-hrii) for the treatment of HER2+ BTC. As at December 31, 2025, the Company is eligible to receive up to $ 500.0 million in certain regulatory milestone payments and up to $ 862.5 million in potential commercial milestone payments. The Company is eligible to receive tiered royalties between 10 % and 20 % on Jazz’s annual net sales, with customary reductions in specified circumstances. No commercial milestone payments have been recognized to date. +As at December 31, 2025, contract liabilities under the Amended Jazz Collaboration Agreement include $ 2.4 million received in relation to drug supply provided to Jazz. +Collaboration and License Agreements with BeOne, Ltd. (“BeOne”) +On November 26, 2018, the Company entered into three concurrent agreements with BeOne whereby the Company granted BeOne royalty-bearing exclusive licenses for the research, development and commercialization of its bispecific therapeutic candidates, zanidatamab (formerly known as “ZW25”) ( as amended on March 29, 2021 and August 10, 2021 and as otherwise modified, collectively “Zanidatamab Agreement”) and zanidatamab zovodotin (formerly known as “ZW49”) ( as amended on May 25, 2020 and June 2, 2021, collectively “Zanidatamab Zovodotin Agreement”) in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. In addition, the Company also granted BeOne a worldwide, royalty-bearing, antibody sequence pair-specific license to research, develop and commercialize globally three bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms, which agreement expired in November 2023. +Pursuant to these agreements, the Company received an upfront payment of $ 60.0 million for the totality of the rights described. The Company considered the fair value of performance obligations based on the Company’s best estimate of their relative stand-alone selling prices, and allocated $ 40.0 million of the transaction price to the license and collaboration agreements for zanidatamab and zanidatamab zovodotin and $ 20.0 million to the Company’s performance obligations under the research and licensing agreement for Azymetric and EFECT platforms. +Original License and Collaboration Agreements for Zanidatamab and Zanidatamab Zovodotin +In relation to the Zanidatamab Agreement, the Company identified the following promised goods and services at the inception of the BeOne agreement that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing technology transfer, participation in the Joint Steering Committee (“JSC”) and other sub-committees, manufacturing technology transfer, provision of development supply, provision of commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the licenses and initial technology transfer are distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-committees’ activities are also distinct together. Remaining deliverables were individually determined to be distinct. +Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance obligation. The consideration of $ 7.1 million allocated to this performance obligation was recognized as revenue over a two-month period during which the delivery of the license and transfer of the relevant technology occurred. Deliverables of continuing technology transfer and participation in the JSC and other sub-committees together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be recognized as revenue over time as these activities are completed. Remaining deliverables are considered individually distinct and the revenue will be recognized as delivery or transfer of future rights to BeOne occurs. +In March 2020, BeOne dosed the first patient in a two-arm Phase 1b/2 trial evaluating zanidatamab in combination with chemotherapy as a first-line treatment for patients with metastatic HER2+ breast cancer and in combination with chemotherapy and BeOne’s PD-1-targeted antibody tislelizumab as a first-line treatment for patients with metastatic HER2+ GEA. The Company recognized revenue of $ 5.0 million in relation to this milestone. In November 2020, BeOne dosed the first patient in +115 +Table o f Contents +South Korea in the pivotal HERIZON-BTC-01 study . The Company recognized revenue of $ 10.0 million in relation to this milestone. In December 2021, BeOne dosed the first patient in South Korea in the pivotal HERIZON-GEA-01 study and the Company recognized revenue of $ 8.0 million in relation to this milestone. +In relation to the Zanidatamab Zovodotin Agreement, the Company identified the following promised goods and services at the inception of the BeOne agreement that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing technology transfer, participation in the JSC and other sub-committees, manufacturing technology transfer, provision of development supply, provision of commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the licenses and initial technology transfer together were distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-committees’ activities were also distinct together. Manufacturing technology transfer, provision of development supply and provision of commercial supply were individually determined to be distinct. +Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance obligation while continuing technology transfer and participation in the JSC and other sub-committees together were considered as a single performance obligation. Remaining deliverables were considered individually distinct. +Termination of BeOne License and Collaboration Agreement Regarding Zanidatamab Zovodotin and Amendment of BeOne License and Collaboration Agreement Regarding Zanidatamab: +On September 18, 2023, Zymeworks BC and BeOne entered into a Termination Agreement (the “Termination Agreement”) relating to the Zanidatamab Zovodotin Agreement . The Termination Agreement does not terminate the Zanidatamab Agreement (as defined below). +Pursuant to the Termination Agreement, the Zanidatamab Zovodotin Agreement is terminated, effective as of September 18, 2023, and is no longer in effect, except that the termination does not relieve the parties from obligations under the Zanidatamab Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeOne intellectual property with respect to zanidatamab zovodotin. +Under the Zanidatamab Zovodotin Agreement, no performance obligations were completed by the Company as the initial transfer of technologies and relevant know-how was not going to start until the earlier of completion of the Company’s Phase-1 clinical studies for zanidatamab zovodotin or completion of dose escalation studies. Accordingly, no revenue was recognized from the Zanidatamab Zovodotin Agreement to date. +In connection with the entry into the Termination Agreement, on September 18, 2023, Zymeworks BC and BeOne also entered into the Third Amendment to License and Collaboration Agreement (the “Amendment”) relating to the Zanidatamab Agreement. Pursuant to the Amendment, Zymeworks BC is eligible to receive development and commercial milestone payments of up to $ 144.0 million, together with tiered royalties up to 19.5 % of annual net sales in BeOne territories increasing up to 20 % when cumulative amounts forgone as a result of a royalty reduction of 0.5 % reaches a cap in the low double-digit millions of dollars. Pursuant to the Amendment, the remaining provisions of the Zanidatamab Agreement remain unchanged. +The Termination Agreement and the Amendment did not have any financial impact on the Company's financial statements , other than allocation of consideration and performance obligations under the Zanidatamab Zovodotin Agreement to Zanidatamab Agreement. As of December 31, 2025, $ 14.6 million of the upfront fees is recorded as long-term deferred revenue on the Company’s consolidated balance sheet (December 31, 2024: $ 18.3 million as deferred revenue in current liabilities and $ 14.6 million as deferred revenue in long-term deferred revenue). Amounts not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue. +In June 2024, the Company recognized $ 8.0 million of milestone revenue from BeOne in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC. In May 2025, the Company recognized $ 20.0 million in non-refundable milestone revenue from BeOne upon approval of the BLA for zanidatamab for second-line treatment of HER2+ BTC by the NMPA in China. The Company also recognized $ 18.3 million of deferred revenue in relation to achievement of this milestone. +2020 Research and License Agreement with Merck +In July 2020, the Company entered into a new licensing agreement with Merck granting Merck a worldwide, royalty-bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field using the Company’s Azymetric and EFECT platforms. The Company is eligible to receive up to $ 419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $ 502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +116 +Table o f Contents +Licensing and Collaboration Agreement with Celgene Corporation & Celgene Alpine Investment Co. LLC (formerly “Celgene” and now a Bristol- Myers Squibb company, “BMS”) +On December 23, 2014, the Company entered into an agreement with Celgene (now “BMS”) to research, develop and commercialize bispecific antibodies generated through the use of the Company’s Azymetric platform. The Company will apply its Azymetric platform in combination with BMS’s proprietary targets to create novel bispecific antibodies for which BMS has an option to develop and commercialize a certain number of products (“Commercial License Option”). +Upon the execution of the Agreement, the Company received an upfront payment of $ 8.0 million. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period and the Company received an expansion fee of $ 4.0 million. In June 2020, the Company’s existing collaboration agreement with BMS was amended to expand the license grant to include the use of the Company’s EFECT platform for the development of therapeutic candidates and to extend the research term. The amendment included an upfront expansion fee of $ 12.0 million paid to the Company and all other financial terms were unchanged. The Company’s performance obligations in relation to the upfront fee were met on the date of amendment. Accordingly, the upfront payment was recognized as revenue during the year ended December 31, 2020. As of December 31, 2025, BMS had exercised two commercial license options and the Company received $ 15.0 million of option payments in total, but in 2023 BMS stopped development of one of these programs. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period. As at December 31, 2025, the Company remains eligible to receive up to $ 313.0 million for the two remaining programs (or $ 156.5 million not including the one program for which BMS stopped development in 2023), comprised of development milestone payments of up to $ 101.5 million per program, and commercial milestone payments of up to $ 55.0 million per program. In addition, the Company is eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +2015 Collaboration and License Agreement with GlaxoSmithKline Intellectual Property Development Ltd. (“GSK”) +On December 1, 2015, the Company entered into a collaboration and license agreement with GSK for the research, development, and commercialization of up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of the Company’s EFECT and Azymetric platforms. The Company and GSK will collaborate to further develop the Company’s EFECT platform through the design, engineering, and testing of novel engineered Fc domains tailored to induce specific antibody-mediated immune responses. +At the conclusion of the research collaboration, both GSK and the Company will have the right to develop and commercialize monoclonal and bispecific antibody candidates that incorporate the Company’s optimized immune-modulating Fc domains. +Under the terms of the agreement, GSK will have the right to develop a minimum of four products across multiple disease areas, and the Company will be eligible to receive up to $ 1.1 billion, including research, development, and commercial milestones of up to $ 110.0 million for each product. In addition, the Company is eligible to receive tiered sales royalties in the low single digits on net sales of products. Under this agreement, the Company is sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. Furthermore, the Company will have the right to develop up to four products, free of royalties, using the new intellectual property arising from the collaboration and after a period of time, to grant licenses to such +intellectual property for development of additional products by third parties without any royalty or milestone payment to GSK. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on GSK’s performance. +No development or commercial milestone payments or royalties have been received to date. +2016 Platform Technology Transfer and License Agreement with GSK +On April 21, 2016, the Company entered into a platform technology transfer and license agreement with GSK for the research, development, and commercialization of up to six bispecific antibodies enabled using the Company’s Azymetric platform. Each of the two agreements with GSK were negotiated independently and the deliverables covered by the respective contracts utilize different therapeutic platforms and are unrelated to one another. Accordingly, the Platform Technology and License Agreement with GSK has been accounted for as a new arrangement. In May 2019, this agreement was expanded to provide GSK access to the Company’s unique heavy-light chain pairing technology under the Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. +117 +Table o f Contents +The Company is eligible to receive up to $ 1.1 billion in milestone and other payments. From contract inception to December 31, 2025, the Company has received an upfront technology access fee payment of $ 6.0 million. In July 2024, the Company recognized $ 2.5 million of milestone revenue from GSK in relation to the sequence pair nomination by GSK under the 2016 agreement between the Company and GSK. Furthermore, in January 2025, the Company recognized $ 14.0 million of milestone revenue associated with a clinical milestone. As of December 31, 2025, the Company is also eligible to receive research milestone payments of up to $ 35.0 million, development milestone payments of up to $ 168.5 million and commercial milestone payments of up to $ 867.0 million. In addition, the Company is entitled to receive tiered royalties in the low to mid-single digits on product sales. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on GSK’s performance. +No commercial milestone payments or royalties have been received to date. +2016 Collaboration Agreement with Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”) +On September 26, 2016, the Company and Daiichi Sankyo entered into a collaboration and cross license agreement which was amended on September 25, 2018, July 2, 2021, and June 6, 2022 (collectively, the “2016 Daiichi Collaboration Agreement”) for the research, development, and commercialization of one bispecific antibody enabled using the Company’s Azymetric and EFECT platforms. Additionally, the Company was able to license immuno-oncology antibodies from Daiichi Sankyo, with the right to research, develop and commercialize multiple products globally in exchange for royalties on product sales. Under the agreement, Daiichi Sankyo had the option to develop and commercialize a single bispecific immuno-oncology therapeutic. +From contract inception to the termination of 2016 Daiichi Collaboration agreement as defined below, the Company has received an upfront technology access fee payment of $ 2.0 million and research and commercial option related payments totaling $ 4.5 million. +Termination of the 2016 Daiichi Sankyo Collaboration Agreement +In March 2023, Zymeworks BC and Daiichi Sankyo terminated the 2016 Daiichi Collaboration Agreement and is no longer in effect, except that the termination does not relieve the parties from obligations under the 2016 Daiichi Collaboration Agreement that have accrued prior to the termination or provisions of the 2016 Daiichi Collaboration Agreement expressly indicated in the 2016 Daiichi Collaboration Agreement or the Termination and License Agreement to survive the termination. The termination of the 2016 Daiichi Collaboration Agreement did not have any financial impact during the year ended December 31, 2023. +2018 Licensing Agreement with Daiichi Sankyo +In May 2018, the Company entered into a second license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products. Under the agreement, Daiichi Sankyo will be solely responsible for the research, development, manufacturing and commercialization of the products. +Under the terms of the agreement, the Company was eligible to receive up to $ 484.7 million in various milestone and other payments. At inception, the Company received an upfront technology access fee payment of $ 18.0 million. In March 2025, the Company recognized $ 3.1 million of milestone revenue from Daiichi Sankyo following the first patient dosed in a clinical trial related to the 2018 license agreement between the Company and Daiichi Sankyo. As of December 31, 2025, the Company remains eligible to receive development milestone payments totaling up to $ 60.3 million and commercial milestone payments of up to $ 170.0 million. In addition, the Company is eligible to receive tiered royalties ranging from the low single digits up to 10 % on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be reduced. +No development or commercial milestone payments or royalties have been received to date. +Collaboration and License Agreement with Janssen Biotech, Inc. (“Janssen”) +On November 13, 2017, the Company entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Janssen a worldwide, royalty-bearing, antibody group-specific +118 +Table o f Contents +exclusive license to research, develop and commercialize certain products. Janssen also has the option to develop two additional bispecific antibodies under this agreement subject to a future option payment. Under the agreement, Janssen will be solely responsible for the research, development, manufacturing and commercialization of the products. +The Company was originally eligible to receive up to $ 1.45 billion in various license and milestone payments. From contract inception to December 31, 2025, the Company has received an upfront payment of $ 50.0 million and development milestones totaling $ 33.0 million which included $ 8.0 million in connection with the initiation of clinical trials of two bispecific antibodies and $ 25.0 million related to clinical progress of pasritamig entering into a Phase 3 trial in metastatic castration-resistant prostate cancer. Pasritamig is a first-in-class, bispecific T-cell engager targeting human kallikrein 2 (KLK2), engineered using Zymeworks’ Azymetric platform. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. As a result, the Company remains eligible to receive development milestone payments of up to $ 61.0 million and commercial milestone payments of up to $ 373.0 million ($ 18.0 million and $ 186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). In addition, the Company is eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term bein g, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. Janssen has the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to buy down the royalty relating to such product by one percentage point with a payment of $ 10.0 million. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on Janssen’s performance. +No commercial milestone payments or royalties have been received to date. +Research and License Agreement with LEO Pharma A/S (“LEO”) +On October 23, 2018, the Company entered into a research and license agreement with LEO. The Company granted LEO a worldwide, royalty-bearing, antibody sequence pair-specific exclusive license to research, develop and commercialize two bispecific antibodies, generated through the use of the Company’s Azymetric and EFECT platforms, for dermatologic indications. The Company will retain rights to develop antibodies resulting from this collaboration in all other therapeutic areas. The Company and LEO are jointly responsible for certain research activities, with the Company’s cost to be fully reimbursed by LEO. Each party is solely responsible for the development, manufacturing, and commercialization of their own products. +Pursuant to this agreement, the Company received an upfront payment of $ 5.0 million. No development or commercial milestone payments or royalties have been received to date. +Termination of LEO Research and License Agreement +On October 27, 2023, Zymeworks BC received written notice from LEO Pharma A/S (“LEO”), stating that LEO elected to terminate, in its entirety, the Research and License Agreement. In accordance with the terms of the Research and License Agreement, the termination of such agreement was effective on January 25, 2024. The termination of the LEO Research and License Agreement did not have any financial impact during the year ended December 31, 2023. +12. Other Income (Expense), net +Other income (expense), net consists of the following: +Year ended December 31, +2025 2024 2023 +Foreign exchange (loss) gain $ ( 610 ) $ 776 $ ( 1,185 ) +Other 51 ( 218 ) 291 +$ ( 559 ) $ 558 $ ( 894 ) +119 +Table o f Contents +13. Income Taxes +Loss before provision for income taxes was as follows: +Year Ended December 31, +2025 +United States +$ ( 16,809 ) +Foreign +( 62,945 ) +Loss before income taxes +$ ( 79,754 ) +Income tax expense is comprised of the following: +Year Ended December 31, +2025 +Current tax provision: +Federal 482 +State ( 15 ) +Foreign ( 898 ) +Total current tax expense ( 431 ) +Deferred tax provision: +Federal ( 845 ) +State — +Foreign ( 100 ) +Total deferred tax expense +( 945 ) +Provision for income taxes +$ ( 1,376 ) +Year Ended December 31, +2024 2023 +Current income tax expense $ ( 5,393 ) $ ( 189 ) +Deferred income tax (expense) recovery ( 691 ) 757 +Income tax (expense) recovery $ ( 6,084 ) $ 568 +Current income tax expense for the years ended December 31, 2025, 2024 and 2023 arose from the operations of the Company and its wholly owned subsidiaries in Canada, in the United States, in Ireland and in Singapore, as well as withholding taxes paid by the Company abroad in 2025, 2024 and 2023. +A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows: +120 +Table o f Contents +Year Ended December 31, +2025 +$ Percent +U.S. Federal statutory income tax rate 16,748 21.0 % +State & local income tax, net of federal income tax effect (1) +( 15 ) — % +Foreign tax effects +Canada +Tax rate differential ( 3,980 ) ( 5.0 ) % +Provincial tax rate differential +7,642 9.6 % +Changes in valuation allowance ( 15,682 ) ( 19.7 ) % +Effect of cross-border laws ( 1,921 ) ( 2.4 ) % +SR&ED Tax Credits 2,971 3.7 % +Stock Based Compensation ( 4,065 ) ( 5.1 ) % +Other 91 0.1 % +United Kingdom +Stock Based Compensation 1,047 1.3 % +Other ( 16 ) — % +Other foreign jurisdictions ( 208 ) ( 0.2 ) % +Enactment of new tax laws — — % +Effect of cross-border laws +Foreign Base Company Income ( 2,006 ) ( 2.5 ) % +Other — — % +Tax Credits 635 0.8 % +Changes in valuation allowance ( 3,237 ) ( 4.1 ) % +Non-taxable or non-deductible items ( 122 ) ( 0.2 ) % +Changes in unrecognized tax benefits ( 97 ) ( 0.1 ) % +Other 839 1.1 % +Effective Income Tax Rate ( 1,376 ) ( 1.7 ) % +(1) State taxes in New York, New Jersey, and Texas made up the majority of the tax effect in this category for the year ended December, 31 2025. +A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows: +Year Ended December 31, +2024 2023 +Computed taxes at United States statutory income tax rate $ 24,466 $ 25,041 +Non-deductible expenses ( 10,508 ) ( 2,696 ) +Difference between domestic and foreign tax rate 5,360 5,976 +Adjustments to prior year 524 48,724 +Change in valuation allowance ( 28,882 ) ( 78,668 ) +Change in recognition and measurement of tax positions +( 38 ) ( 14 ) +Changes due to SR&ED and research credits 3,102 2,661 +Other ( 108 ) ( 456 ) +Income tax (expense) recovery $ ( 6,084 ) $ 568 +121 +Table o f Contents +Deferred income tax assets and liabilities result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets and liabilities are as follows: +December 31, +2025 December 31, +2024 +Deferred tax assets: +Non-capital losses carried forward $ 199,946 $ 177,660 +Deferred revenue 4,596 10,852 +Share issuance costs +666 1,360 +Property and equipment — 71 +Intangible assets 5,271 4,539 +Research and development deductions and credits 57,097 50,415 +Stock options 7,724 8,388 +Operating lease liability 4,657 4,761 +Other 42 202 +$ 279,999 $ 258,248 +Deferred tax liabilities: +Property and equipment ( 243 ) ( 174 ) +Operating lease right-of-use assets ( 4,024 ) ( 4,294 ) +Outside basis difference in foreign subsidiary ( 2,414 ) ( 2,429 ) +Stock options +— ( 2,333 ) +Other +( 182 ) ( 176 ) +$ ( 6,863 ) $ ( 9,406 ) +273,136 248,842 +Less: valuation allowance ( 274,457 ) ( 249,218 ) +Net deferred tax (liabilities) assets $ ( 1,321 ) $ ( 376 ) +Deferred tax assets $ 4,707 $ 4,385 +Deferred tax liabilities ( 6,028 ) ( 4,761 ) +Net deferred tax (liabilities) assets $ ( 1,321 ) $ ( 376 ) +In evaluating the ability to realize the net deferred tax assets, all available positive and negative evidence was considered, including the Company's past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The change in the valuation allowance from December 31, 2024 to December 31, 2025 primarily relates to loss carryforward attributes sustained in the current reporting period that are not more-likely-than-not to be realized. +At December 31, 2025, the Company has net operating losses carried forward for tax purposes in Canada, which are available to reduce taxable income of future years of approximately $ 737.0 million (December 31, 2024: $ 658.0 million) expiring commencing 2035 through 2045. +At December 31, 2025, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of approximately $ 121.0 million (December 31, 2024: $ 108.6 million) available to reduce taxable income of future years in Canada, with no expiry. At December 31, 2025, the Company has approximately $ 28.0 million (December 31, 2024: $ 25.0 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2039 through 2045, and has approximately $ 1.1 million (December 31, 2024: $ 0.9 million) of research tax credits available to offset U.S. federal taxes payable expiring commencing in 2042 through 2045. +122 +Table o f Contents +A reconciliation of total unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 are as follows: +Year Ended December 31, +2025 2024 2023 +Balance, beginning of year $ 3,115 $ 3,077 $ 3,063 +Gross increases related to prior year tax positions 2,364 — — +Gross decreases to tax positions in prior periods — — — +Gross increases to current period tax positions 97 38 14 +Gross decreases due to settlements with taxing authorities — — — +Gross decreases due to statute of limitations lapse — — — +Balance, end of year $ 5,576 $ 3,115 $ 3,077 +Included in the balance of unrecognized tax benefits at December 31, 2025, 2024 and 2023 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations. Recognition of these potential benefits would result in a deferred tax asset in the form of net operating loss carry-forward, which would be subject to a valuation allowance based on conditions existing at the reporting date. +The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income tax expense on the consolidated statements of loss and comprehensive loss. +The Company currently files income tax returns in Canada, the United States, the United Kingdom, Ireland and Singapore, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, management is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2025 remain subject to Canadian income tax examinations. Tax years ranging from 2022 to 2025 remain subject to U.S. income tax examinations. Tax years ranging from 2022 to 2025 remain subject to United Kingdom income tax examinations. Tax years 2023 to 2025 remains subject to Ireland and Singapore income tax examinations. +The amounts of cash income taxes paid by the Company were as follows: +Year Ended December 31, +2025 +Federal $ 213 +State 17 +Foreign +Ireland 72 +United Kingdom 1,030 +All other foreign 18 +Income taxes, net of amounts refunded $ 1,350 +14. Leases +The lease for the Company’s office and laboratory spaces in Vancouver, British Columbia, which was entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. In addition, the Company leases office spaces in Bellevue, Washington and in Redwood City, California with lease terms expiring between August 2027 and July 2029. None of the optional extension periods have been included in the determination of the right-of-use assets or the lease liabilities for operating leases as the Company did not consider it reasonably certain that the Company would exercise any such options. +123 +Table o f Contents +The Company also leases office equipment under capital lease agreements. +The balance sheet classification of the Company’s lease liabilities was as follows: +December 31, +2025 December 31, +2024 +Operating lease liabilities: +Current portion $ 3,471 $ 2,740 +Long-term portion 14,796 15,738 +Total operating lease liabilities $ 18,267 $ 18,478 +Finance lease liabilities: +Current portion included in other current liabilities — 28 +Long-term portion included in other long-term liabilities — 28 +Total finance lease liabilities — 56 +Total lease liabilities $ 18,267 $ 18,534 +Weighted average remaining lease term: +Operating leases +5.2 years 6.4 years +Weighted average discount rate: +Operating leases in U.S. dollars +5.9 % 5.4 % +Operating leases in Canadian dollars +4.8 % 4.8 % +Cash paid for amounts included in the measurement of operating lease liabilities for fixed lease payments for the year ended December 31, 2025 was $ 4,270 (2024: $ 4,152 ) and was included in net cash used in operating activities in the consolidated statement of cash flows. In addition, on April 4, 2024, the Company terminated its long-term facility lease in Seattle, pursuant to which the Company paid $ 6,075 as a termination fee. +As of December 31, 2025, the maturities of the Company’s operating lease liabilities were as follows: +Operating +leases +Within 1 year $ 4,285 +1 to 2 years 4,015 +2 to 3 years 3,658 +3 to 4 years 5,362 +4 to 5 years 2,709 +Thereafter 2,935 +Total operating lease payments 22,964 +Less: +Imputed interest ( 4,697 ) +Operating lease liabilities $ 18,267 +124 +Table o f Contents +The cost components of the operating leases were as follows: +Year Ended December 31, +2025 2024 2023 +Lease expenses: +Operating lease expense $ 3,355 $ 2,447 $ 7,292 +Variable lease expense 2,257 1,969 1,637 +Termination of long-term facility lease in Seattle, net +— 1,033 — +$ 5,612 $ 5,449 $ 8,929 +During the year ended December 31, 2025, the Company recognized $ 316 of impairment losses on its right-of-use assets (2024: nil and 2023: nil ). +15. Commitments and Contingencies +Commitments +The Company has entered into research collaboration agreements with strategic partners in the ordinary course of operations that may include contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements. Pursuant to the agreements, the Company is obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and royalty payments based on net sales. The maximum amount of potential future indemnification is unlimited, however, the Company currently holds commercial and product liability insurance that limits the Company’s liability and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to indemnification obligations for any period presented in the consolidated financial statements. +In connection with the Company’s 2016 Kairos acquisition, the Company may be required to make future payments of up to an +aggregate of C$ 8,500 , consisting of (i) a C$ 2,500 payment when the first patient is dosed in the first Phase 2 trial and (ii) a C$ 6,000 payment when the first patient is dosed in the first Phase 3 trial, to CDRD Ventures Inc. (“CVI”) upon the direct achievement of certain development milestones for products incorporating certain Kairos intellectual property (such as zanidatamab zovodotin or other product candidates using our ZymeLink technology). In addition, CVI is eligible to receive low single-digit royalty payments from the Company on the net sales of such products. For out-licensed products and technologies incorporating certain Kairos intellectual property, the Company may also be required to pay CVI a mid-single digit percentage of certain future revenue. As of December 31, 2025, the contingent consideration had an estimated fair value of nil , (December 31, 2024: nil ) (note 9). +The following table presents the changes in fair value of the Company’s liability for contingent consideration: +Liability at +the beginning +of the period +Increase (decrease) in +fair value of +liability for +contingent +consideration +Amounts paid or transferred to payables Liability at end +of the period +Year ended December 31, 2025 $ — — — $ — +Year ended December 31, 2024 $ 1,878 ( 1,878 ) — $ — +Contingencies +From time to time, the Company may be subject to various legal proceedings and claims related to matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred. +125 +Table o f Contents +16. Business Segments +The Company operates and manages its business in a single reportable segment, which is the Management of a portfolio of licensed healthcare assets and development of novel multifunctional biotherapeutics (the “biotherapeutics segment”). +The biotherapeutics segment revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding, milestone payments and royalties earned under collaboration and license agreements and is managed on a consolidated basis. +The accounting policies of the biotherapeutics segment are the same as those described in the summary of significant accounting policies. +The Company’s Chief Operating Decision Maker ("CODM”) is the Chair of the Board of Directors and Chief Executive Officer. The CODM assesses performance for the biotherapeutics segment and decides how to allocate resources based on the results of our strategic planning, with segment (loss) income being used to monitor performance against the budgeted costs of that strategy. The measure of segment assets is reported on the balance sheet as total consolidated assets. +Revenue and net income for the Company's biotherapeutics segment are shown below: +Year Ended December 31, +2025 2024 2023 +Revenue from research and development collaborations +$ 105,965 $ 76,304 $ 76,012 +Segment expenses: +Zanidatamab ( 1,828 ) 11,939 44,751 +ZW171 9,672 7,151 10,686 +ZW191 12,129 8,379 11,714 +ZW220 2,922 13,824 1,585 +ZW251 11,304 8,103 686 +Zanidatamab zovodotin 364 6,595 8,046 +Expense for other preclinical and research programs 31,114 17,389 7,819 +Salaries and benefits 51,023 50,678 49,931 +Other research and development expense 20,581 17,949 19,128 +Other general and administrative expense 25,474 29,522 40,823 +Total segment expenses +162,755 171,529 195,169 +Segment loss +( 56,790 ) ( 95,225 ) ( 119,157 ) +Reconciling items: +Depreciation and amortization ( 7,725 ) ( 8,684 ) ( 10,164 ) +Stock-based compensation expense +( 28,034 ) ( 17,792 ) ( 8,102 ) +Change in contingent consideration +— 1,878 ( 630 ) +Impairment — ( 17,287 ) — +Interest income 13,354 19,941 19,705 +Other income (expense), net ( 559 ) 558 ( 894 ) +Income tax (expense) recovery, net +( 1,376 ) ( 6,084 ) 568 +Net (loss) income +$ ( 81,130 ) $ ( 122,695 ) $ ( 118,674 ) +126 +Table o f Contents +17. Subsequent even t +On March 2, 2026, Zymeworks BC entered into a sale agreement (the “Sale Agreement”) with Zymeworks Royalty Limited Partnership (the “Subsidiary”) a special purpose entity newly formed by Zymeworks BC and by its general partner Zymeworks General Partner ULC (“Zymeworks GP”). Under the Sale Agreement, Zymeworks BC sold to the Subsidiary a 30 % interest in future royalties from the license agreements with Jazz Pharmaceuticals Ireland Limited (“Jazz”) and BeOne Medicines Ltd. (“BeOne”) relating to Ziihera (zanidatamab‑hrii), not to exceed 120 % of the maximum amount payable (excluding indemnification and other similar obligations) by the Subsidiary under the Loan Agreement (defined below) (such 30 % interest, the “Transferred Royalty Interest”). +Following the transfer, the Subsidiary entered into a loan agreement (the “Loan Agreement”) with Royalty Pharma Development Funding, LLC (“Royalty Pharma”), acting as administrative agent and lender, pursuant to which the Subsidiary borrowed $ 250.0 million in a non‑recourse, secured term loan (the “Loan”). The loan bears fixed interest and matures on December 31, 2042. Under the terms of the Loan Agreement, the amount payable to Royalty Pharma no later than the Maturity Date is approximately $ 481.3 million, provided that if the Loan is repaid in full on or before December 31, 2033, the amount payable to the Lenders is $ 412.5 million, in each case inclusive of all applicable interest, yield protection premiums, early redemption fees, exit fees and other amounts payable under the Loan Agreement (excluding indemnification and similar obligations). Amounts repaid may not be reborrowed. +The Loan Agreement is fully non‑recourse to Zymeworks BC and Zymeworks Inc. and is secured solely by the Subsidiary’s assets, including the Transferred Royalty Interest, related rights under the Sale Agreement, and the deposit account used to receive royalty payments. +The Sale Agreement and Loan Agreement contain customary covenants and restrictions, including certain transfers, additional indebtedness, and related matters. In the event of certain defaults, such as termination of either Covered Agreement, specified breaches, or a change of control of the Company, Royalty Pharma may declare all outstanding principal, accrued interest, and applicable fees immediately due and enforce its rights against the collateral securing the loan. +127 +Table o f Contents +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +As of the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and interim Chief Financial Officer, evaluated the design and operating effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Any such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. +Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation of our disclosure controls and procedures as of December 31, 2025, our Chief Executive Officer and interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level. +Management’s Annual Report on Internal Control over Financial Reporting +Our management, with the participation of our Chief Executive Officer and interim Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. +The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of our internal control over financial reporting as at December 31, 2025. In making its assessment, management used the criteria set forth in the internal control – integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework) to evaluate the effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2025. +Attestation Report of Independent Registered Public Accounting Firm +This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting. For so long as we are not classified as an “accelerated filer” or “large accelerated filer” pursuant to SEC rules, we will continue to be exempt from the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. +Changes in Internal Control Over Financial Reporting +There were no changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f) of the Exchange Act, adopted or terminated a “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K. +128 +Table o f Contents +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +Board of Directors +The following table sets forth the names, ages and positions of the members of our board of directors as of February 28, 2026. +Name Age Position(s) +Kenneth Galbraith +63 +Chief Executive Officer, President, interim Chief Financial Officer and Chair of the Board of Directors +Carlos Campoy (1) +61 +Director +Alessandra Cesano (2) +65 +Director +Brian N. Cherry (4) +51 +Director +Gregory A. Ciongoli (1)(2) +50 +Director +Robert E. Landry (1)(3) +62 +Director +Susan Mahony (3) +61 +Director +Kelvin Neu +52 +Director +Oleg Nodelman (2)(3) +49 +Director +________________________ +(1) Member of the audit committee. +(2) Member of the nominating and corporate governance committee. +(3) Member of the compensation committee. +(4) Mr. Cherry has been appointed as a member of the Company’s audit committee, effective immediately following the filing of this Annual Report on Form 10-K with the Securities and Exchange Commission. +There are no family relationships among any of the directors or executive officers. +Kenneth Galbraith +Mr. Galbraith is 63 years old and has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President since June 2023 and previously served as our President from January 2022 to August 2022. Mr. Galbraith has served as our interim Chief Financial Officer since January 2026 and previously served as our interim Chief Financial Officer from April 2024 to September 2024. Mr. Galbraith was a Managing Director at Five Corners Capital, Inc., which he founded in 2013, from February 2021 until January 2022. He served as Executive in Residence at Syncona Investment Management Limited (“SIML,” a subsidiary of Syncona Limited, a company that builds a portfolio of life sciences businesses), from April 2021 until January 2022. He has served as an advisor to SIML since May 2023 and as a director of SIML since November 2024, including as Chair since February 2025. He served as Chief Executive Officer of Liminal BioSciences Inc. (formerly Prometic Life Sciences Inc.), a publicly held company, from April 2019 to November 2020, continuing as an advisor to that company from November 2020 to February 2021. He also served as Chief Executive Officer of Fairhaven Pharmaceuticals Inc. from June 2017 to April 2019. Mr. Galbraith has served as a director of several publicly held companies, including MacroGenics, Inc. from July 2008 until January 2022, Profound Medical Corp. from January 2017 to May 2023, and Celator Pharmaceuticals, Inc. from July 2008 to October 2013. He has also served as a director of several privately held companies. Previously, he joined Ventures West Capital in 2007 and founded Five Corners Capital Inc. in 2013 to manage the continued operations of the Ventures West Investment Funds. Mr. Galbraith has over 35 years of experience serving as an executive, director, investor and adviser to companies in the biotechnology, medical device, pharmaceutical and healthcare sectors. Mr. Galbraith received his B.Comm. from the University of British Columbia. +129 +Table o f Contents +Based on Mr. Galbraith’s depth of experience in the biotechnology industry, ranging from executive officer to director roles, the board of directors believes Mr. Galbraith has the appropriate set of skills to serve as a member of our board of directors. +Carlos Campoy +Mr. Campoy is 61 years old and has served as a member of our board of directors since June 2023. Mr. Campoy also serves as a member of the board of directors of Hunter Industries Inc. Mr. Campoy served as Chief Financial Officer of CytomX Therapeutics, Inc. from March 2020 through September 2022. Prior to CytomX Therapeutics, Mr. Campoy served as the Chief Financial Officer of Alder BioPharmaceuticals, Inc., a public biopharmaceutical company acquired in October 2019 by Lundbeck A/S, from December 2018 to November 2019. During his time at Alder BioPharmaceuticals, Mr. Campoy led the finance organization and readied the company for commercial launch of its lead program, eptinezumab. Prior to Alder BioPharmaceuticals, Mr. Campoy was a partner at Think Forwards, a boutique financial consulting firm, from September 2017 to December 2018. Prior to his position at Think Forwards, Mr. Campoy held the role of vice president of finance at Allergan plc from July 2014 to November 2016. Prior to joining Allergan, Mr. Campoy held senior financial leadership positions at Eli Lilly and Company from 1996 to 2014, including Chief Financial Officer of Eli Lilly Japan K.K. Mr. Campoy is NACD Directorship Certified and holds a Certified Management Accountant (CMA) designation. Mr. Campoy received his M.B.A. in Finance and Decision Information Systems from Indiana University and his B.S. in Management from Faculdade de Ciências Contábeis e de Administração de Empresas de Tupã (FACCAT), in São Paulo, Brazil. +The board of directors believes that Mr. Campoy is qualified to serve on our board of directors because of his extensive strategic and financial leadership experience in the pharmaceutical and biotechnology sectors. +Alessandra Cesano +Dr. Cesano is 65 years old and has served as a member of our board of directors since February 2024. Dr. Cesano has served as an advisor to General Catalyst, a venture capital investment firm, since February 2025. Dr. Cesano served as the Chief Medical Officer of ESSA Pharma Inc., a pharmaceutical company developing therapies for the treatment of prostate cancer, from July 2019 to May 2025. Previously, Dr. Cesano was the Chief Medical Officer of NanoString Technologies, Inc., a biotechnology company that develops translational research tools, from July 2015 to July 2019, where she focused on development of translational and diagnostic multiplexed assays for the characterization and measurement of mechanisms of immune response and resistance. Prior to NanoString, Dr. Cesano was Chief Medical Officer at Cleave Biosciences, Inc., a biopharmaceutical company focusing on protein therapies for the treatment of cancer and neurodegenerative diseases, and before that she served as Chief Medical Officer and Chief Operations Officer at Nodality, Inc., where she built and led the Research & Development group, while providing the overall clinical vision for the organization. Dr. Cesano has also held various management positions at Amgen Inc., Biogen Inc. (formerly Biogen Idec) and SmithKline Beecham Pharmaceuticals, where she helped to advance various oncology drugs through late-stage development and FDA approvals. She currently serves as associate editor for the Biomarker section of the Journal for ImmunoTherapy of Cancer and co-chair of the Society for Immunotherapy of Cancer (SITC) regulatory committee. She has been an author on more than 140 publications. Dr. Cesano has served as a director at Puma Biotechnology, Inc. since July 2022 and as a director of Summit Therapeutics Inc. since November 2022. Dr. Cesano received an M.D. summa cum laude, a board certification in oncology and a Ph.D. in Tumor Immunology from the University of Turin, Italy. +The board of directors believes that Dr. Cesano is qualified to serve on our board of directors because of her extensive experience in biotechnology research and development and oncology. +Brian N. Cherry +Mr. Cherry is 51 years old and has served as a member of our board of directors since January 2026. Mr. Cherry has spent more than 25 years investing in and helping build businesses across a wide range of industries including healthcare, industrials, business services, financial services and consumer products. He has led buyout and growth equity investments in companies totaling over $25 billion in enterprise value. Since 2024, Mr. Cherry has served as the Founder and Principal of Flyway Holdings, a family office investment platform. Previously, Mr. Cherry was a Managing Partner at Oak Hill Capital, a private equity firm, from 2014 until 2024. His board experience includes positions with more than ten private companies and philanthropic organizations, including the U.S. Air Force Academy Foundation, and the Undergraduate Financial Aid Leadership Council at the University of Pennsylvania. Mr. Cherry earned his BA from Princeton University and his MBA from The Wharton School at the University of Pennsylvania. +The board of directors believes that Mr. Cherry is qualified to serve on our board of directors because of his extensive investment and leadership experience. +130 +Table o f Contents +Gregory A. Ciongoli +Mr. Ciongoli is 50 years old and has served as a member of our board of directors since August 2025. Mr. Ciongoli is currently the Founder and Managing partner at Adiumentum Capital Management, a Boston-based investment firm, and has served in that role since March 2024. Mr. Ciongoli has also served on the board of directors of Atara Biotherapeutics since September 2024, including as board chair since September 2025. Mr. Ciongoli served as a Public Group Investing Partner at the Baupost Group from 2007 to 2024. Mr. Ciongoli has served on the board of directors of Pelotero Corp. since March 2020, 33 rd Team since September 2022, and Wavebreak Therapeutics since August 2017, and served as a board observer at Viasat Inc. from October 2018 to May 2023. In addition, Mr. Ciongoli previously served as a board observer at Idenix Pharmaceuticals, Intarcia Therapeutics, Keryx Biopharmaceuticals, Orexigen Therapeutics and Translate Bio. Earlier in his career, Mr. Ciongoli held the position of Director in the Event-Driven Equity Group at Sowood Capital Management from 2005 to 2007 and worked as an Investment Analyst at Vinik Asset Management from 2003 to 2005 and at Thomas H. Lee Partners from 1999 to 2001. Mr. Ciongoli began his career as a Financial Analyst in the Healthcare Investment Banking Group at Goldman, Sachs & Co. from 1997 to 1999. Mr. Ciongoli also serves as the Chair of the Advisory Board for the James Madison Program in American Ideals and Institutions at Princeton University, and is actively involved in a number of local not-for-profit organizations. Mr. Ciongoli earned a Master in Business Administration degree from Harvard Business School in June 2003 and earned his Bachelor of Arts degree from the Woodrow Wilson School of Public and International Affairs at Princeton University in 1997. +The board of Directors believes that Mr. Ciongoli is qualified to serve on our board of Directors because of his extensive strategic leadership experience in the pharmaceutical sector. +Robert E. Landry +Mr. Landry is 62 years old and has served as a member of our board of directors since August 2025. Mr. Landry served as the Executive Vice President and Chief Financial Officer at Regeneron Pharmaceuticals, Inc., from September 2013 to January 2024. Prior to his time at Regeneron, Mr. Landry served from January 1988 to August 2013 as the Senior Vice President, Treasurer, Senior Vice President, Finance, and in other various corporate roles at Pfizer (formerly Wyeth). Mr. Landry started his career at Coopers & Lybrand, now PricewaterhouseCoopers LLP. Mr. Landry also currently serves on the board of directors of Cytokinetics, Inc., a late-stage biopharmaceutical company. Mr. Landry is a Certified Public Accountant in New York (inactive) and attended the University of Notre Dame, where he earned a B.B.A. in accounting in 1986. +The board of directors believes that Mr. Landry is qualified to serve on our board of directors because of his extensive financial and leadership experience, in addition to his knowledge of our industry. +Susan Mahony +Dr. Mahony is 61 years old and has served as a member of our board of directors since June 2019 and as Lead Independent Director of our board of directors since December 2023. Dr. Mahony is an executive with over 30 years of experience in pharmaceutical and life sciences companies. Dr. Mahony served as Senior Vice President of Eli Lilly and Company and President of Lilly Oncology from February 2011 until August 2018. She joined Lilly in 2000, holding senior leadership positions in product development, marketing, human resources, and general management. Prior to joining Lilly, Dr. Mahony served in sales and marketing roles in Europe for over a decade for Schering-Plough, Amgen, and Bristol-Myers Squibb. Dr. Mahony has served on the board of directors of Assembly Biosciences, Inc. since December 2017, on the board of directors of Axsome Therapeutics, Inc. since October 2023, and on the board of directors of Catalent, Inc. since February 2025. She previously served on the board of directors of Horizon Therapeutics Public Limited Company from August 2019 to October 2023 (acquired by Amgen Inc.) and on the board of directors of Vifor Pharma from May 2019 until August 2022 (acquired by CSL Limited). Dr. Mahony received a B.Sc. and a Ph.D. from Aston University and an M.B.A. from London Business School. Dr. Mahony is NACD Directorship Certified. +Based on Dr. Mahony’s extensive experience in management at public pharmaceutical companies, together with her experience serving on the board of directors of public and private companies, our board of directors concluded that she should serve as a director due to our business focus and strategy. +Kelvin Neu +Dr. Neu is 52 years old and has served as a member of our board of directors since March 2020. Dr. Neu is Founder and Chief of Herringbone, a life sciences innovation practice established in February 2022. Dr. Neu is also Co-Founder and Director of QDX Pte. Ltd., and QDX Technologies Pte. Ltd. (which work in the area of computational drug discovery) and XBI +131 +Table o f Contents +Biosciences LLC (a therapeutics development company). Previously, Dr. Neu was a Partner at Baker Bros. Advisors LP, a registered investment adviser, where he worked from 2004 until 2021. Dr. Neu previously served on the board of directors of IGM Biosciences from 2019 to 2021, Prelude Therapeutics from 2016 to 2021, Idera Pharmaceuticals, Aquinox Pharmaceuticals and XOMA Corporation. Dr. Neu holds an M.D. from the Harvard Medical School-MIT Health Sciences and Technology program, and spent three years in the Immunology Ph.D. program at Stanford University as a Howard Hughes Medical Institute Fellow. Dr. Neu holds an A.B. (summa cum laude) from Princeton University, where he was awarded the Khoury Prize for graduating first in his department of Molecular Biology. +The board of directors believes that Dr. Neu is qualified to serve on our board of directors because of his extensive investment and leadership experience, knowledge of our industry, and educational background in biology and biotechnology. +Oleg Nodelman +Mr. Nodelman is 49 years old and has served as a member of our board of directors since February 2025. Since October 2013, Mr. Nodelman has served as the Founder and Portfolio Manager of EcoR1 Capital LLC, a biotech-focused investment advisory firm established in 2013, and one of our principal stockholders. Previously, Mr. Nodelman served as a Portfolio Manager at BVF Partners from 2001 to 2012. Mr. Nodelman earned a B.S.F.S. in Science and Technology from Georgetown University, School of Foreign Service in 1999. Mr. Nodelman has served on the board of Galapagos NV since October 2024, AnaptysBio since April 2021, and Aktis Oncology since March 2021. He previously served on the board of directors of Prothena Corporation plc from December 2019 to December 2024, Nuvation Bio Inc. from February 2021 to December 2023 and Panacea Acquisition Corp. II from April 2020 to February 2021. On December 13, 2024, the Enforcement Committee of the Autorité des Marchés Financiers (“AMF”), the entity that regulates the French financial markets, fined Mr. Nodelman and EcoR1 Capital LLC (the “Fund”) €3.0 million and €7.0 million, respectively, for violations of applicable market abuse regulations and failures to comply with reporting obligations for holders that exceed or fall below ownership of five percent of an issuer’s equity capital that is listed on Euronext Paris. Mr. Nodelman and the Fund disagree with the AMF’s ruling and, in February 2025, submitted an appeal, which they intend to vigorously pursue. +The board of directors believes that Mr. Nodelman is qualified to serve on our board of directors because of his extensive investment and leadership experience, in addition to his knowledge of our industry. +Executive Officers +The following table sets forth the names, ages and positions of our executive officers as of February 28, 2026 . +Name Age Position(s) +Kenneth Galbraith +63 +Chief Executive Officer, President, interim Chief Financial Officer and Chair of Board of Directors +Paul A. Moore, Ph.D. +59 +Chief Scientific Officer +Mark Hollywood +57 +Executive Vice President and Chief Operating Officer +Sabeen Mekan, M.D. +46 +Senior Vice President and Chief Medical Officer +There are no family relationships among any of the directors or executive officers. +The following is biographical information for our executive officers, other than Mr. Galbraith, whose biographical information is included above. +Paul A. Moore +Dr. Moore joined Zymeworks in July 2022 and serves as our Chief Scientific Officer. Dr. Moore has more than 25 years of US-based experience in biologics drug discovery and development in biotechnology research. His career efforts have led to the discovery and development of a range of FDA-approved and clinical-stage biologics for patients with difficult-to-treat cancers and autoimmune conditions. Prior to joining Zymeworks, Dr. Moore served as Vice President, Cell Biology, and Immunology at MacroGenics from April 2008 to July 2022, leading a team of approximately 50 researchers engaged in the discovery, preclinical validation and clinical development of antibody-based therapeutics, including bispecific antibodies and antibody drug conjugates. Among the portfolio supported by Dr. Moore were FDA-approved Margenza (margetuximab-cmkb) for treatment of HER2+ breast cancer, Zynyz (retifanlimab-dlwr) for treatment of Merkel cell carcinoma and Tzield (teplizumab-mzwv) to delay onset of type I diabetes. Prior to joining MacroGenics, Dr. Moore was Director of Cell Biology at Celera from May 2005 to April 2008, where he oversaw research leveraging proteomic-based discoveries to validate novel cancer targets +132 +Table o f Contents +suitable for antibody-based therapeutics. Dr. Moore began his industrial career at Human Genome Sciences (HGS), holding several titles within research culminating in Director of Lead Product Development, where he managed various genomic-based target discovery programs including efforts that led to the discovery, development, approval, and commercialization of Benlysta (belimumab) for the treatment of systemic lupus erythematosus. Dr. Moore has an extensive research record co-authoring over 75 peer-reviewed manuscripts and is a named co-inventor on over 50 issued US patents. Dr. Moore holds a Ph.D. in Molecular Genetics from the University of Glasgow, performed post-doctoral work at the Roche Institute of Molecular Biology in Nutley, New Jersey, and also holds a degree in Biotechnology from the University of Strathclyde. +Mark Hollywood +Mr. Hollywood joined Zymeworks in March 2019 as Senior Vice President, Technical and Manufacturing Operations, was promoted to Executive Vice President and Head of Technical and Manufacturing Operations in January 2023, and became our Executive Vice President and Chief Operating Officer in January 2026. Mr. Hollywood has over 25 years of experience in the biopharmaceutical industry, most recently as Vice President and Head of ZymoGenetics (a Bristol-Myers Squibb company), where he oversaw biologics development, manufacturing, quality, and supply chain operations. He joined ZymoGenetics in 2010 and led technical operations for a portfolio of clinical and commercial products, and was responsible for building and managing a multi-host drug substance manufacturing facility. Mr. Hollywood has a wealth of experience in operations management, having held positions of increasing responsibility in process science, manufacturing, quality, and regulatory compliance at organizations including Amgen, Dendreon and Centeon (a Rhone-Poulenc Rorer and Hoescht company). Mr. Hollywood has a Bachelor of Science degree in Biological Sciences from Western Illinois University. +Sabeen Mekan +Dr. Mekan joined Zymeworks in April 2025 as Senior Vice President of Clinical Development. Dr. Mekan was promoted to Senior Vice President and Chief Medical Officer in February 2026. Dr. Mekan previously served as Executive Director, Global Development Lead for the lung and gastrointestinal cancer franchises with Gilead Sciences based in the U.S. Prior to Gilead, she was the Senior Medical Director, Oncology R&D at Daiichi Sankyo U.S. responsible as global clinical development lead for two antibody-drug conjugates. She began her pharmaceutical career as a Medical Director with Bristol-Myers Squibb with a focus on immune-oncology. Before joining the pharmaceutical industry, she served as an Assistant Professor at Hofstra North Shore LIJ School of Medicine and Attending Hematologist/Oncologist at North Shore Long Island Jewish Hospital in New York City. Dr. Mekan completed her residency in Internal Medicine at the University of Cincinnati, OH, and a fellowship in Hematology and Oncology at the Staten Island University Hospital of Northshore-LIJ Health System (now Northwell Health). She is board-certified in Internal Medicine, Oncology and Hematology and has authored numerous publications. +Governance +Code of Conduct and Ethics +Our board of directors has adopted corporate governance guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for our governance. It also has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to members of our board of directors, our executive officers and all of our employees. Several standing committees (audit, compensation, and nominating and corporate governance) assist our board of directors in carrying out its responsibilities. Each standing committee operates under a written charter adopted by our board of directors. The full text of our Code of Conduct is posted on our website at www.zymeworks.com . We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of the Code of Conduct by posting such information on the website address and location specified above. Paper copies of the Code of Conduct, as well as our governing documents (including our certificate of incorporation and bylaws) may be obtained upon request by writing to: Corporate Secretary, Zymeworks Inc., 108 Patriot Drive, Suite A, Middletown, Delaware 19709. +Audit Committee +Our audit committee currently consists of Mr. Campoy, Mr. Ciongoli and Mr. Landry. Mr. Campoy serves as the chair of our audit committee. Our board of directors has determined that each of Mr. Campoy and Mr. Landry is an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC, and possesses financial sophistication, as defined under the rules of the Nasdaq Global Select Market. The members of our audit committee are “independent” for audit committee purposes, as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and have sufficient knowledge in financial and auditing matters to serve on the audit committee. +133 +Table o f Contents +The principal purposes of our audit committee are to: +• assist our board of directors in its oversight of: +◦ the quality, audit and integrity of our financial statements and related information; +◦ the independence, qualifications, appointment and performance of our external auditor; +◦ our disclosure controls and procedures, internal control over financial reporting, and management’s responsibility for assessing and reporting on the effectiveness of such controls; +◦ the organization and performance of any applicable internal audit function, if any; +◦ our compliance with applicable legal and regulatory requirements; and +◦ our enterprise risk management processes, including risks and exposures associated with cybersecurity, information security and privacy matters; +• periodically review and discuss with management, the adequacy and effectiveness of the Company’s cybersecurity, information and technology security, and data protection programs, procedures and policies; +• review and monitor compliance with our Code of Conduct; +• review, approve and monitor related party transactions involving directors, executive officers or beneficial owners of more than 5% of any class of our voting securities; +• review, with the Company’s counsel, on a regular basis, any reports of whistleblowing, including all reports made to the Company’s anonymous and confidential helpline pursuant to our Whistleblower Policy; and +• prepare the audit committee report required by SEC rules to be included in our proxy statement for the annual meeting of stockholders, and perform other duties and responsibilities as are enumerated in or consistent with the audit committee’s charter. +Our board of directors has established a written charter setting forth the purpose, composition, authority and responsibility of our audit committee, consistent with the rules of Nasdaq and the SEC, a current copy of which is available on our website at www.zymeworks.com . Our audit committee has access to all of our books, records, facilities and personnel and may request any information about us as it may deem appropriate. It also has the authority in its sole discretion and at our expense to retain and set the compensation of outside legal, accounting or other advisors as necessary to assist in the performance of its duties and responsibilities. Both our independent auditors and internal financial personnel regularly meet privately with the audit committee and have unrestricted access to this committee. +Our audit committee held five meetings during the year ended December 31, 2025 . +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires that our directors and executive officers, and persons who own more than 10% of our common stock, file reports of ownership and changes in ownership with the SEC. Based on our review of such filings and written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2025, all directors, executive officers and greater than 10% stockholders complied with all Section 16(a) filing requirements applicable to them. +Insider Trading Policy +We have adopted an insider trading policy (the “Insider Trading Policy”) that governs the purchase, sale, and other dispositions of our securities by directors, officers, employees, and other personnel that we determine should be subject to our Insider Trading Policy (such as certain contractors and consultants) and that is reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable stock exchange listing requirements. A copy of our Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In addition, with regard to our company’s trading in its own securities, it is our policy to comply with the federal securities laws and the applicable exchange listing requirements. +134 +Table o f Contents +Item 11. Executive Compensation +Discussion of Executive Compensation Practices +This section describes our executive compensation philosophy and how we implemented it through our 2025 compensation program for our named executive officers. The named executive officers for 2025 are: +• Kenneth Galbraith, our Chief Executive Officer, President, Chair of the Board of Directors and interim Chief Financial Officer; +• Paul A. Moore, Ph.D., our Chief Scientific Officer; and +• Jeffrey Smith, M.D., our former Executive Vice President and Chief Medical Officer. +This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and projections regarding future compensation programs. Actual compensation programs adopted in the future may differ materially from the various planned programs summarized in this discussion. +In the paragraphs that follow, we provide an overview and analysis of our compensation program and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions. +2025 Advisory Vote on Executive Compensation +At our 2025 annual general meeting, we conducted an advisory vote on named executive officer compensation. At that meeting, 94.06% of the votes cast on the advisory vote proposal were supportive of our named executive officer compensation program as disclosed in our 2025 proxy statement. Our next advisory vote on named executive officer compensation will be held at our 2026 annual general meeting. +The compensation committee reviewed the advisory vote results in the context of our overall compensation philosophy and programs, and based on the level of support, determined that no significant changes to our compensation policies and programs were necessary to address the results of the stockholder advisory vote. The compensation committee will continue to consider the results from future stockholder advisory votes on named executive officer compensation and other relevant market developments affecting named executive officer compensation to determine whether any subsequent changes to our named executive officer compensation programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes or to address market developments. We frequently engage in stockholder outreach and discuss a wide range of topics, including discussions regarding compensation-related matters. We take our say-on-pay vote results seriously and will continue to consider the feedback we receive from stockholders and use such feedback to inform the compensation committee’s deliberations and decisions with respect to our executive compensation practices. +Overview of Compensation Program +Compensation Philosophy +The goal of our compensation program is to attract, retain and motivate our employees and executives, including our named executive officers. The compensation committee is responsible for setting our executive compensation and reviewing and approving, or recommending to the board of directors for approval, the Company’s annual corporate performance objectives applicable to executive and other Company bonus programs. In considering executive compensation, the compensation committee strives to ensure that our total compensation is competitive within the industry in which we operate and supports our overall strategy and corporate objectives. The combination of base salary, annual incentives and long-term incentives that we provide our executives is designed to accomplish this. +Compensation Objectives +The objectives of our executive compensation program are to: +• attract and retain highly qualified executive officers who have a history of proven success; +• align the interests of executive officers with our stockholders’ interests and with the execution of our business strategy; +135 +Table o f Contents +• motivate and reward our executive officers through competitive pay practices and an appropriate mix of short- and long-term incentives; +• evaluate and reward executive performance on the basis of achievement of corporate goals and key financial measurements which we believe closely correlate to long-term stockholder value; and +• tie compensation awards directly to corporate goals and key financial measurements with evaluations based on achieving and overachieving predetermined objectives. +Role of the Compensation Committee +During 2025, the compensation committee’s work included the following: +• Competitive Compensation Review – The compensation committee reviewed compensation practices and policies with respect to our executives against Zymeworks’ peer group of companies (as further described below), in order to allow us to place our compensation practices for these positions in a market context. This reference exercise included a review of base salary, total cash compensation and total direct compensation. +• Executive Compensation – The compensation committee reviewed the corporate goals and objectives applicable to the compensation of the Company’s executives and evaluated the executives’ performance in light of those goals and objectives. Based on this review and evaluation, the compensation committee approved the 2025 compensation for the Company’s executives, including each of the named executive officers. +• Short- and Long-Term Incentive Plans – The compensation committee administers the Company’s incentive compensation plans and equity-based plans with respect to the Company’s executives, including the named executive officers. +• Succession Planning – The compensation committee reviewed the succession plan for the Chief Executive Officer and other executive officers. +In reaching its decisions, the compensation committee may consider input from management and other factors that the compensation committee considers appropriate. Decisions made by the compensation committee are the responsibility of the compensation committee and may reflect factors and considerations other than the information and/or recommendations provided by management. +Independent Compensation Consultant +In 2025, the compensation committee retained the Talent Solutions practice at Aon plc, as an independent consultant to the compensation committee to conduct competitive reviews and assessments of Zymeworks’ executive compensation program and recommend go-forward strategies. The compensation committee made the decision to retain Aon in its sole discretion and was directly responsible for the appointment, compensation and oversight of Aon’s work. The compensation committee is involved in and approves the adoption of the following procedures during Aon’s assessments: +• establishing the public company peer group used in the executive compensation assessment; +• reviewing the detailed assessment of Zymeworks’ executive compensation program versus the market; +• reviewing and approving executive pay mix; +• reviewing the assessment of Zymeworks’ board of directors compensation program versus the market; and +• reviewing and approving the non-executive equity compensation program. +The compensation committee utilizes these strategies when contemplating future executive compensation matters. +In 2025, Aon was retained to review the salaries, bonuses and equity plan levels and participation of executive employees, as well as equity plan levels and participation of employees below the executive level. Zymeworks’ management did not make or recommend such engagements and all such other services were approved by the compensation committee. Except as discussed below, Aon did not perform other services to the Company other than as a compensation consultant. The compensation committee determined Aon to be independent after evaluating the factors required under the applicable listing standard. +In addition to Aon’s services related to determining or recommending the amount or form of executive and non-employee director compensation, management has engaged Aon to perform unrelated broad-based compensation services and risk brokerage services (which included global risk in Canada and the United States). In 2025, fees paid to Aon for these unrelated +136 +Table o f Contents +broad-based compensation and risk brokerage services did not exceed $120,000 in the aggregate. The compensation committee was informed about these services. +Peer Companies and Use of Market Data +We compare our executive compensation program to those of a group of peer companies (North American biotechnology companies of a similar size and stage of development). The first step in the process is that the compensation committee, with the support of Aon and management, reviews trends in biotechnology compensation practices and reviews and approves the list of peer companies used for benchmarking. As part of its analysis in 2024 related to 2025 compensation, Aon collected and analyzed compensation information from a comparative group of biotechnology companies, or peer group, approved by the compensation committee. The compensation committee evaluates the criteria used in establishing the peer group at least annually. The compensation committee seeks input from management in addition to Aon to ensure the peer group is consistent with our current business objectives and strategy. +The list of peer companies is approved based on various factors including industry classification, market capitalization, headcount and stage of development. In September 2024, with assistance from Aon, the compensation committee approved a peer group consisting of publicly traded, pre-commercial biopharmaceutical companies: +• with an emphasis on developmental stage companies with Phase 3 clinical trials and companies with pending new drug applications (“NDAs”) or BLAs; +• with market capitalizations generally between $200 million and $2.0 billion (based on the Company’s then-current 30-day average market capitalization of approximately $744 million); +• with generally between 100 and 800 employees; and +• that are located in Canada and the United States, with a focus on companies headquartered in biotechnology hub markets. +Based on these criteria, in September 2024, the compensation committee approved the following peer group set forth below and used this peer group to inform compensation decisions for 2025 : +Alector, Inc. +Erasca (1) +Relay Therapeutics +AnaptysBio, Inc. IGM Biosciences, Inc. +Replimune Group, Inc. +Arcus Biosciences (1) +Immunome (1) +Sutro Biopharma, Inc. +Bicycle Therapeutics +Iteos Therapeutics +Syndax Pharmaceuticals (1) +C4 Therapeutics +Kura Oncology, Inc. Xencor +Cogent Biosciences +MacroGenics, Inc. +Cullinan Therapeutics (1) +REGENXBIO Inc. +________________________ +(1) Added to the peer group in September 2024. The following companies were deleted from the peer group approved in September 2024: Adaptimmune Therapeutics plc, Atara Biotherapeutics, Inc., Gossamer Bio, Inc., Mersana Therapeutics, Inc., NGM Biopharmaceuticals, Inc. and Repare Therapeutics Inc. +Our compensation committee uses comparative data from our peer group as a reference when setting and adjusting executive compensation, but it does not target our overall program or any particular element of compensation to be at a particular percentile compared to our peers. Rather, our compensation committee uses a range of peer group data for each executive position for which data is available, along with an assessment of each executive’s performance, criticality and tenure, to ensure that our executive compensation program and its constituent elements are and remain competitive in relation to our peers. +Components of Compensation Package +In 2025, our executive compensation program consisted of three major components: +• base salary; +• annual cash bonuses based on a comparison of corporate performance to pre-set goals and objectives; and +• long-term incentives, which in 2025, consisted of grants of stock options and time-based restricted stock units. +137 +Table o f Contents +In making 2025 compensation decisions, our compensation committee believed that each component of executive compensation must be evaluated and determined with reference to competitive market data, individual and Company-wide performance, our recruiting and retention goals, internal equity and consistency, and other information it deems relevant. As it evaluated executive compensation in 2025, the compensation committee believed that in the biopharmaceutical/biotechnology industry, long-term incentives such as stock options and restricted stock units are a primary motivator in attracting and retaining executives, in addition to salary and cash incentive bonuses. +The primary components of our 2025 executive compensation program are described in more detail below. +Base Salary +Annual base salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within Zymeworks. This compensation component helps us to attract and retain highly qualified executives who have a history of proven success. In determining whether to increase the base salary for a particular executive, our compensation committee in discussions with our Chief Executive Officer (for executives other than the Chief Executive Officer) considers a variety of factors, including performance, length of service and criticality of role. The determination of base salary affects the amount of an executive’s cash bonus. The table below shows the base salaries of our named executive officers for 2025: +Name and Principal Position +2025 Base Salary +($) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors (1) +655,000 +Paul A. Moore, Chief Scientific Officer +495,000 +Jeffrey Smith, Former Chief Medical Officer (2) +485,000 +________________________ +(1) Mr. Galbraith has also served as our interim Chief Financial Officer, principal financial officer and principal accounting officer since January 2026. +(2) Dr. Smith retired from his position as our Executive Vice President and Chief Medical Officer effective January 31, 2026. +Cash Bonus +The cash bonus component is designed to provide our named executive officers with annual cash incentive awards based on achievement of certain goals and objectives. The awards represent pay at risk – they result in payment only if and to the extent certain goals and objectives are met – and do not affect decisions regarding other components of compensation. This compensation component motivates and rewards our named executive officers for outstanding performance. In addition, we occasionally provide sign-on bonuses to newly hired executives in order to induce them to join the Company. +Annual cash incentive compensation for our named executive officers is paid pursuant to the Company’s Executive Incentive Compensation Plan, which provides the compensation committee discretion to make changes to performance targets and bonus targets, to decrease, increase or eliminate bonuses and to change other terms and conditions related to annual incentive compensation, in each case as the compensation committee deems appropriate to meet the overarching retention and incentive goals associated with our executive bonus program. +Named executive officers are eligible to receive an amount targeted at a pre-determined percentage of their base salary established at the beginning of each year. The compensation committee set annual target bonuses for each of Mr. Galbraith, Dr. Moore and Dr. Smith in January 2025 as follows: +Name and Principal Position +2025 Target Bonus (% of Base Salary) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors (1) +60% +Paul A. Moore, Chief Scientific Officer +45% +Jeffrey Smith, Former Chief Medical Officer (2) +45% +________________________ +(1) Mr. Galbraith has also served as our interim Chief Financial Officer since January 2026. +(2) Dr. Smith retired from his position as our Executive Vice President and Chief Medical Officer effective January 31, 2026. +138 +Table o f Contents +At the beginning of each year, the compensation committee approves, or recommends that the board of directors approve, performance targets that are tied to the level of achievement of corporate and/or individual goals, and the compensation committee approves the weighting assigned to each goal. For 2025, the corporate and individual weighting was 100% corporate and 0% individual for all named executive officers. Achievement of corporate goals was a precondition for payment of bonuses with respect to 2025. Our compensation committee believed that this mix was appropriate in order to incentivize our management team to achieve our key corporate objectives. +After the end of the year, the compensation committee determines the performance bonus payable to each named executive officer based on the results achieved as compared to the performance targets established for a particular year. Depending on level of achievement, named executive officers may earn up to 150% of their respective target bonuses. There is no minimum bonus payable. +2025 Company Corporate Goals and Achievement +In December 2024, the board of directors (with input from members of the compensation committee) approved, and in January 2025, the members of the compensation committee updated, corporate goals for 2025 that were grouped into five main categories: (i) Ziihera, (ii) Finance and Partnerships, (iii) Clinical Development, (iv) Pre-Clinical Development and (v) Talent. +In January 2026, the compensation committee reviewed our performance against the corporate goals under the 2025 bonus plan, and determined that these goals were achieved at the 87.75% level. Additional detail on these goals and the assessed achievement is set forth in the table below: +2025 Corporate Goal Category +Key Elements of Goal Target Weight of Goal Assessed Achievement +Ziihera +1L GEA topline data announced by our partner Jazz +10% for base goals +10.00% +Recognition of $20.0 million milestone for late-line BTC in China from our partner BeOne +Finance and Partnerships +Securing additional financing, including through partnerships and other non-dilutive methods, as well as related stretch goals +25% for base goals; an additional 24.5% for stretch goals +6.75% +Clinical Development +Advance various clinical trials of early-stage candidates, including: (i) dose escalation cohort completion; (ii) first patient dosed; (iii) IND approvals; and (iv) related stretch goals +45% for base goals; an additional 16.25% for stretch goals +47.50% +Preclinical Development +Goals relating to: (i) toxicology studies, including those relating to initiation or completion of non-human primate GLP studies; (ii) candidate selection; and (iii) related stretch goals +15% for base goals; an additional 9% for stretch goals +21.00% +Talent +Goals relating to: (i) employee retention; and (ii) achievement of standards relating to corporate culture. +5% for base goals +2.50% +Total +100% for base goals; bonuses capped at 150% +87.75% +The Company performed well against its 2025 corporate goals with respect to Ziihera, Clinical Development and Pre-Clinical Development. The Company did not fully achieve its 2025 corporate goals with respect to Finance and Partnerships, given various factors, including changes in the competitive landscape and financial markets impacting the timing of potential partnerships and financing opportunities. While the Company performed well in its Talent retention goals, we did not fully meet +139 +Table o f Contents +our Talent goals related to maintaining and enhancing our corporate culture and this will be a continued focus for us in the future. Given the Company’s strong overall performance against its 2025 corporate goals, the compensation committee determined that these goals were achieved at the 87.75% level and approved 2025 bonuses for our named executive officers as follows: +Name and Principal Position +2025 Bonus +($) (1) +Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors +344,858 +Paul A. Moore, Chief Scientific Officer +195,463 +Jeffrey Smith, Former Chief Medical Officer +191,514 +________________________ +(1) Bonus amounts for all named executive officers are determined in U.S. dollars, and the table above reflects this determination in U.S. dollars. However, the bonus amount for Mr. Galbraith was paid in British pounds, the bonus amount for Dr. Moore was paid in Canadian dollars and the bonus amount for Dr. Smith was paid in Euros. The U.S. dollar figures reported in the Summary Compensation Table under the column header titled “Non-Equity Incentive Plan Compensation” vary from the figures in the table above due to the impact of foreign currency conversions. For additional information on foreign currency conversion rates, see “ – Summary Compensation Table .” +Long-Term Incentives +Our Amended and Restated Stock Option and Equity Compensation Plan (the “Equity Compensation Plan”) authorizes us to make grants to eligible recipients of stock options, restricted stock, restricted stock units and other share-based awards, to attract, retain, motivate and reward qualified directors and employees and to enable and encourage such directors and employees to acquire shares of common stock as long-term investments. +The Company granted a mix of stock options and time-based restricted stock units to Mr. Galbraith, Dr. Moore and Dr. Smith in January 2025. The compensation committee believes this approach aligns the interests of our executives (including those of our named executive officers) with our stockholders’ interests by rewarding for improvements in stock price over a period of time. The Company issues stock options and restricted stock units to reward for future performance and appreciation. Because stock options only have value if our stock price increases relative to the stock option’s exercise price, we consider them to be an important performance-based tool that encourages our named executive officers to focus on driving increases to stockholder value. Time-based restricted stock units play an important role in our executive compensation program because they provide some value even during periods of stock price or market volatilities, provide retention incentives during the vesting period, and reinforce a culture of ownership. By granting restricted stock units, the Company can also reduce the dilutive effect of the equity incentive awards in the form of stock options, which benefits our stockholders over time. In addition, the vesting feature of our stock awards contributes to executive retention by providing an incentive to our executives to remain employed by us during the vesting period. For 2025, we determined that annual grants to Mr. Galbraith, Dr. Moore, and Dr. Smith based on an approximately 50/50 value mix of stock options and time-based restricted stock units was most appropriate to reflect the continued change in the market and the evolution of our compensation program away from an options-only approach. The compensation committee evaluates the long-term incentive programs for each year, and the appropriate mix of equity awards to grant to our executive officers for the applicable year. In future years or for particular executives, the compensation committee may approve a different mix of equity awards if it determines necessary or appropriate to achieve our compensation objectives. +For the stock options, the option exercise price may not be less than the closing price of our common stock on the date of grant. For the 2025 stock option grants to our named executive officers, 25% of the granted options is scheduled to vest on the first anniversary of grant date (subject to continued service and any applicable acceleration of vesting provisions in their employment agreements, as described below). On the last day of each month thereafter, a further 1/36 th of the total number of remaining granted options is scheduled to vest. These options are subject to any applicable acceleration provisions in the Equity Compensation Plan or in the named executive officer’s employment agreement. +Each restricted stock unit represents the right to receive one share of our common stock upon vesting of that unit, without the payment of an exercise price or other cash consideration for the issued shares of common stock. For the 2025 restricted stock unit grants to Mr. Galbraith, Dr. Moore and Dr. Smith, 1/3 rd of the restricted stock units are scheduled to vest on each anniversary of the grant date (subject to the named executive officer’s continued service and subject to any applicable acceleration provisions in the Equity Compensation Plan or in the named executive officer’s employment agreement). +140 +Table o f Contents +The following table shows information regarding stock option and restricted stock unit grants to each of our named executive officers made during the year ended December 31, 2025: +Name +Grant Date +Restricted Stock Units Granted +(#) (1) +Stock Options Granted +(#) (2) +Exercise Price of Stock Options +($/Sh) (3) +Grant Date Fair Value of Stock and Option Awards ($) (4) +Kenneth Galbraith +1/10/2025 +— +288,000 13.22 2,366,565 +1/10/2025 +192,000 +— +— +2,538,240 +Paul A. Moore +1/10/2025 +— +79,000 13.22 649,162 +1/10/2025 +53,000 +— +— +700,660 +Jeffrey Smith +1/10/2025 +— +79,000 13.22 649,162 +1/10/2025 +53,000 — — 700,660 +________________________ +(1) Restricted stock units vest in three equal annual installments beginning on January 10, 2026, subject to the recipient’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(2) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36 equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(3) The exercise price of the stock options is the closing price of the Company’s stock on the Nasdaq on the grant date. +(4) The amounts set forth in this column reflect the grant date fair value for restricted stock unit awards and stock option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 - “ Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation ” and Note 10(e) - “ Notes to Consolidated Financial Statements – Stockholders’ Equity – Stock-Based Compensation ” included in this Annual Report on Form 10-K for our year ended December 31, 2025. +Previous grants are taken into account when considering new option and restricted stock unit grants, as well as other factors such as market data, retention and incentive considerations, internal equity, Company performance and prior and expected future individual contributions. Decisions regarding long-term incentives do not affect decisions regarding other components of compensation. +In January 2026, the compensation committee recommended, and our board of directors approved, certain changes to our equity compensation mix to further enhance the direct alignment of executive compensation with stockholders’ interests. These changes included adding performance RSUs to the continuing named executive officers’ compensation to focus executives on long-term value creation through the achievement of stock price performance. The vesting of the performance-based RSU is based upon achievement of performance conditions tied to certain cumulative total stockholder return goals, and certain total stockholder return goals relative to companies in the Nasdaq Biotech Index over a three-year performance period, and which generally require the executive officer’s continued service to us through the three-year period. In addition, we revised the vesting schedule of 2026 time-based RSU grants to a four-year schedule, with 25% of the RSUs vesting on each anniversary of the grant date, which strengthens the retention power of our equity program. +Benefits and Perquisites +Other compensation to our named executive officers primarily consists of participation in our broad-based employee benefit plans. Named executive officers are eligible to participate in all our employee benefit plans, in each case on the same basis as other employees in the entity in which they are employed, including a retirement savings plan for those employed in Canada, a 401(k) plan for those employed in the United States, and pension plans for those employed in Ireland and the UK. Our named executive officers also are eligible to participate in our employee stock purchase plan on the same terms as our other eligible employees. +Currently, we do not view perquisites or other personal benefits as a material component of our executive compensation program. However, we do provide certain perquisites to our named executive officers in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make them more efficient and effective, and for recruitment and retention purposes. +141 +Table o f Contents +In addition, consistent with our philosophy regarding personal benefits, and as further described in “ Executive Compensation –Executive Employment Arrangements and Potential Payments upon Termination or Change in Control, ” to encourage and facilitate Dr. Moore’s relocation to Canada, we provide him with tax equalization payments to neutralize any increase in his taxes as a result of his relocation, and tax preparation assistance for two years following his relocation. The compensation committee believes these benefits were appropriate to enable a smooth relocation for Dr. Moore and to allow him to keep his focus on the business rather than on the costs and burdens of the relocation. +We also provide certain personal benefits to Mr. Galbraith, which were negotiated as part of Mr. Galbraith’s initial January 2022 employment agreement and subsequent amendments, including the most recent amendment in January 2024. These benefits were provided in order to induce him to initially join and later to remain with the Company and to increase his ability to work efficiently. These benefits include certain housing, travel, relocation, and certain tax equalization and gross-up benefits, as described in “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” In late 2022 and again in January 2024, we amended Mr. Galbraith’s employment agreement to extend the time period for certain benefits, as described in “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” The compensation committee approved the extension of these benefits as it believed that doing so would assist Mr. Galbraith in the continued performance of his duties and continue to aid in his efficiency. +In the future, we may continue to provide perquisites or other personal benefits in circumstances where we believe it is appropriate to assist an individual named executive officer in the performance of his or her duties, to make him or her more efficient and effective, and for recruitment, motivation or retention purposes. +Anti-Hedging Policy +Under the terms of our Insider Trading Policy , all directors, officers, employees, as well as any other personnel that we determine should be subject to our Insider Trading Policy (such as certain contractors and consultants), any person or entity an insider controls, exercises substantial influence over, serves as a trustee or in a similar fiduciary capacity of or is otherwise involved with, in connection with securities trading or investment decisions and an insider’s spouse, partner, parents, children, dependents and other family members or roommates, are prohibited from purchasing financial instruments (including, for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds) designed to hedge or offset a decrease in the market value of our securities. Any person covered by our Insider Trading Policy is prohibited from pledging Zymeworks securities as collateral for any loan, in margin accounts or as part of pledging transactions, regardless of whether such person is in possession of non-public material information. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. +Potential Payments upon Termination or Change in Control +Certain of our executives, including each of our named executive officers, are parties to employment agreements with us which set forth conditions of employment and the payments that will be made upon termination of their employment. Additional discussion of the employment agreements with our named executive officers is set forth below under “ Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” We believe that these protections are necessary to provide our valuable named executive officers with incentives to forgo other employment opportunities and to maintain continued focus and dedication to their responsibilities to maximize stockholder value, including if there is a potential transaction that could involve a change in control, without undue concern that the officer will be terminated and lose his or her income and benefits. We believe the level of severance and change in control benefits provided is appropriate and is necessary to attract and retain key employees. +142 +Table o f Contents +Summary Compensation Table +The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the years ended December 31, 2025 and December 31, 2024. We do not have non-qualified deferred compensation. +Name and Principal Position Year +Salary +($) (1) +Stock Awards +($) (2) +Option Awards +($) (2) +Non-Equity Incentive Plan Compensation +($) (1)(3) +All Other Compensation +($) (1) +Total ($) +Kenneth Galbraith, CEO, President & Chair (4) +2025 656,763 2,538,240 2,366,565 340,990 710,622 +(7) +6,613,180 +2024 654,833 2,112,000 1,985,672 361,652 378,000 +(8) +5,492,157 +Paul A. Moore, CSO (5) +2025 495,834 700,660 649,162 194,579 307,955 +(9) +2,348,190 +2024 494,683 633,600 595,702 214,102 48,716 +(10) +1,986,803 +Jeffrey Smith , Former Chief Medical Officer (6) +2025 488,196 700,660 649,162 183,488 29,292 +(11) +2,050,798 +________________________ +(1) Salary, bonus, non-equity incentive plan compensation (cash bonus with respect to corporate goal achievement) and amounts in the “All Other Compensation” column for all named executive officers are determined in U.S. dollars. However, cash compensation amounts for Mr. Galbraith were paid in British pounds and have been converted to U.S. dollars for the purposes of the table. For 2025 and 2024 the U.S. dollar per British pound exchange rates used for such conversions were 1.3180 and 1.2780, based on the average annual Bank of Canada exchange rates for U.S. dollar and British pound for 2025 and 2024, respectively. Cash compensation amounts for Dr. Moore were paid in Canadian dollars and have been converted to U.S. dollars for the purposes of the table. For 2025 and 2024, respectively, the U.S. dollar per Canadian dollar exchange rates used for such conversions were 0.7155 and 0.7301, which were the average annual Bank of Canada exchange rates for 2025 and 2024, respectively. Cash compensation amounts for Dr. Smith were paid in Euros and have been converted to U.S. dollars for the purposes of the table. For 2025, the U.S. dollar per Euro exchange rate used for the conversions was 1.1292, based on the average annual Bank of Canada exchange rates for U.S. dollar and Euro for 2025. +(2) The amounts set forth in these columns reflect the aggregate grant date fair value for restricted stock unit awards and option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 - “Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation” and Note 10(e) - “Notes to Consolidated Financial Statements – Shareholders’ Equity – Stock-Based Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2025. +(3) The amounts reflect the dollar value of incentive bonuses paid in 2026 and 2025 for performance during 2025 and 2024, respectively, as discussed further above under “ Executive Compensation – Components of Compensation Package – Cash Bonus .” +(4) Mr. Galbraith has also served as our interim Chief Financial Officer since January 2026. +(5) Dr. Moore has served as our Chief Scientific Officer since July 2022. +(6) Dr. Smith retired from his position as our Executive Vice President and Chief Medical Officer effective January 31, 2026. +(7) Of the total amount for 2025, (i) $54,477 represents accommodation benefits, (ii) $6,590 represents Company contributions to a defined contribution pension plan, (iii) $789 represents life insurance premiums through our group extended benefit plan, (iv) $14,223 represents airfare for immediate family members in accordance with the terms of Mr. Galbraith’s employment agreement, (v) $621,582 represents an est imated tax gross-up in connection with taxation attributable to the performance of work outside the UK, and (vi) $12,960 represents reimbursement for tax prep aration services. +(8) Of the total amount for 2024, (i) $53,969 represents accommodation benefits, (ii) $6,390 represents Company contributions to a defined contribution pension plan, (iii) $14,516 represents private health insurance premiums, (iv) $701 represents life insurance premiums through our group extended benefit plan, (v) $30,853 represents airfare for immediate family members in accordance with the terms of Mr. Galbraith’s employment agreement, ( vi) $268,541 represents an estimated tax gross-up in connection with taxation attributable to the performance of work outside the UK, a nd (vii) $3,030 represents reimbursement for tax preparation services. +(9) Of the total amount for 2025, (i) $307,079 represents a tax equalization payment (which includes $164,287 for estimated tax gross-up) for 2024 paid in 2025, and (ii) $876 represents life insurance premiums through our group extended benefit plan. +(10) Of the total amount for 2024, (i) $44,283 represents a tax equalization payment for 2023 paid in 2024, and (ii) $4,433 represents life insurance premiums through our group extended benefit plan. +(11) This represents pension contributions. +Clawback Policy +In November 2023, we adopted a compensation recovery policy (the “Clawback Policy”) in accordance with the SEC and Nasdaq requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. This policy provides for the non-discretionary recovery of excess incentive-based compensation from current and former executive officers in the event of an accounting restatement, whether or not the executive officer was at fault for the restatement, in accordance with the SEC and Nasdaq requirements. +143 +Table o f Contents +In addition, as a public company subject to Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to prepare an accounting restatement due to our material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, our Chief Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or incentive-based or equity-based compensation they received from us during the 12-month period following the first public issuance or filing with the SEC of the financial document incorporating such financial reporting requirement, as well as profits realized from the sale of securities during that 12-month period. +Stock Ownership Guidelines +In September 2025, the board of directors adopted stock ownership guidelines for the Company’s non-management directors (other than those representing or affiliated with greater than ten percent stockholders) (the “Outside Director Stock Ownership Guidelines”). In December 2025, the board of directors adopted stock ownership guidelines for the Company’s executive officers (the “Executive Officer Stock Ownership Guidelines” and, together with the Outside Director Stock Ownership Guidelines, the “Stock Ownership Guidelines”). The purpose of the Stock Ownership Guidelines is to further align the interests of the Company’s leadership with the long-term interests of stockholders and further promote the Company’s commitment to sound corporate governance. +The Outside Director Stock Ownership Guidelines require covered directors in office at the time of its adoption to achieve beneficial ownership of at least 10,000 shares of common stock by September 2028 (the “Target Director Ownership”). The board of directors set the Target Director Ownership as a reasonable ownership position in light of the directors’ cash compensation and the then-current value of the Company’s common stock. The compensation committee will review the Target Director Ownership from time to time and, for directors who subsequently join the board of directors, set the applicable ownership target to be achieved within three years from their election or appointment. Mr. Cherry is the only director currently serving who was not on the board of directors at the time of adoption of the Outside Director Stock Ownership Guidelines. He is required to achieve beneficial ownership of at least 10,000 shares by January 2029. +The Executive Officer Stock Ownership Guidelines require the covered executives to achieve beneficial ownership of at least (i) for the CEO, 100,000 shares of common stock, and (ii) for all other executive officers, 25,000 shares of common stock, in each case, by December 2028 (the “Target Executive Officer Ownership”). The board of directors set the Target Executive Officer Ownership as a reasonable ownership position in light of the executives’ cash compensation and the then-current value of the Company’s common stock. The compensation committee will review the Target Executive Officer Ownership from time to time and, for new executives, confirm the applicable beneficial ownership target to be achieved within three years from the time of their appointment. Mr. Hollywood became an executive officer in January 2026 and Dr. Mekan became an executive officer in February 2026; they are required to achieve beneficial ownership of at least 25,000 shares by January 2029 and February 2029, respectively. +Directors and executive officers subject to the Stock Ownership Guidelines are expected to retain all shares received (net of shares withheld or sold to cover tax withholding obligations, if any) pursuant to their service as directors or executive officers, as applicable, until the Target Ownership is achieved. In determining beneficial ownership, the Stock Ownership Guidelines take into account the following: (i) shares owned outright, including shares owned jointly with a spouse/domestic partner or separately by a spouse/domestic partner and/or children that share such director’s or executive officer’s, as applicable, household; and (ii) shares owned through trusts or entities owned and controlled by, or for the benefit of, such director or executive officer, as applicable, or his or her spouse/domestic partner and/or children that share such director’s or executive officer’s, as applicable, household. Vested or unvested stock options and unvested restricted stock units, whether time-based or performance-based, will not be included in the determination of beneficial ownership. +The compensation committee has responsibility for the management and interpretation of the Stock Ownership Guidelines and for ensuring compliance with its terms. The compensation committee may also amend, defer or waive compliance for specific participants, or amend or terminate the Stock Ownership Guidelines as a whole. +144 +Table o f Contents +Outstanding Equity Awards at 2025 Year End +The following table lists all outstanding equity awards granted in U.S. dollars under the Equity Compensation Plan and our Inducement Stock Option and Equity Compensation Plan (the “Inducement Plan”) held by our named executive officers as of December 31, 2025: +Option Awards Stock Awards +Name +Grant Date +Number of Securities Underlying Unexercised Options +(#) +Exercisable (1) +Number of Securities Underlying Unexercised Options +(#) +Unexercisable (1) +Option Exercise Price +($) +Option Expiration Date +Number of Shares or Units of Stock That Have Not Vested +(#) (2) +Market Value of Shares or Units of Stock That Have Not Vested +($) (2)(3) +Kenneth Galbraith 1/15/2022 500,000 — 14.97 1/14/2032 — — +1/5/2023 161,250 53,750 8.00 1/4/2033 — — +1/5/2023 — — — — 47,668 1,255,098 +1/5/2024 150,000 150,000 10.56 1/4/2034 — — +1/5/2024 — — — — 133,334 3,510,684 +1/10/2025 — 288,000 13.22 1/9/2035 — — +1/10/2025 — — — — 192,000 5,055,360 +Paul A. Moore +7/18/2022 175,000 25,000 5.82 7/17/2032 — — +1/5/2023 58,125 19,375 8.00 1/4/2033 — — +1/5/2023 — — — — 17,168 452,033 +1/5/2024 45,000 45,000 10.56 1/4/2034 — — +1/5/2024 — — — — 40,000 1,053,200 +1/10/2025 — 79,000 13.22 1/9/2035 — — +1/10/2025 — — — — 53,000 1,395,490 +Jeffrey Smith +1/5/2023 141,000 47,000 8.00 1/4/2033 — — +1/5/2024 45,000 45,000 10.56 1/4/2034 — — +1/5/2024 — — — — 40,000 1,053,200 +1/10/2025 — 79,000 13.22 1/9/2035 — — +1/10/2025 — — — — 53,000 1,395,490 +________________________ +(1) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36 equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(2) Restricted stock units vest in three equal annual installments on each of the first, second, and third anniversaries of the date of grant, subject to the holder’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “ Executive Employment Arrangements and Potential Payments upon Termination or Change in Control .” +(3) Market value of restricted stock units that have not vested is based on the closing price of the Company’s common stock on Nasdaq on December 31, 2025, which was $26.33 per share. +Pension Benefits +We do not have any qualified or non-qualified defined benefit pension plans. +Defined Contribution Plans +Registered Retirement Savings Plan +Our executive officers resident in Canada are eligible, along with all other employees resident in Canada, to participate in our registered retirement savings plan (“RRSP”) matching program. Under this program, we match the amount contributed by each employee into a group RRSP plan, up to a pre-determined percentage of annual salary. We match employee contributions to the group RRSP up to 6.0% of annual salary. +145 +Table o f Contents +401(k) Plan +Our executive officers resident in the United States are eligible, along with all other U.S.-based employees, to participate in a 401(k) matching program. Under this program, we match the amount contributed by each employee into a 401(k) plan, up to a predetermined percentage of annual salary. We match employee contributions to a 401(k) plan up to 6.0% of annual salary, with company matching contributions not to exceed the annual personal and Age 50 Catch Up contribution limit (if applicable) set by the Internal Revenue Service, or the IRS, in any given year. +Group Personal Pension Plan +Our executive officers resident in the UK are eligible, along with all other employees resident in the UK, to participate in our group personal pension (“GPP”) plan matching program. Under this program, we match the amount contributed by each employee into a GPP plan, up to a pre-determined percentage of annual salary. We match employee contributions to a GPP plan up to 6.0% of annual salary. +Personal Retirement Savings Account +Our executive officers resident in Ireland are eligible, along with all other employees resident in Ireland, to participate in our Personal Retirement Savings Account (“PRSA”) matching program. Under this program, we match the amount contributed by each employee into a PRSA, up to a pre-determined percentage of annual salary. We match employee contributions to a PRSA up to 6.0% of annual salary. +Non-qualified Deferred Compensation +We do not have any non-qualified defined contribution plans or other deferred compensation plans. +Executive Employment Arrangements and Potential Payments upon Termination or Change in Control +Executive Employment Arrangements +Key provisions of the employment agreements that were in effect as of December 31, 2025, for our named executive officers are described below. +Kenneth Galbraith . In connection with Mr. Galbraith’s appointment as President and Chief Executive Officer in January 2022, Mr. Galbraith entered into an employment agreement with us (the “Original Agreement”), on December 30, 2022, Zymeworks BC and Zymeworks Management Inc., our subsidiaries, and Mr. Galbraith entered into an amendment to the Original Agreement (the “First Amendment”), and on January 3, 2024, Zymeworks BC and Mr. Galbraith entered into a second amendment (the “Second Amendment” and the Original Agreement, as amended by the First Amendment and the Second Amendment, the “Galbraith Employment Agreement”). The Galbraith Employment Agreement does not have a specific term. The Second Amendment established Mr. Galbraith’s principal place of employment as the UK, or another location as agreed upon between the parties, which removes the requirement for Mr. Galbraith to relocate to Vancouver, British Columbia or Seattle, Washington, and incorporated certain extensions of compensation and benefit provisions, as described below. +Pursuant to the Galbraith Employment Agreement, Mr. Galbraith is entitled to the following compensation and benefits: +• An annual base salary of $600,000, with eligibility to earn an annual discretionary bonus of up to 60% of his annual base salary, based upon the achievement of certain Company goals determined by the board of directors. Mr. Galbraith’s current annual base salary is $655,000 and his target annual discretionary bonus for 2026 is 75% of his annual base salary; +• Options, which were granted to Mr. Galbraith in 2022, to purchase 500,000 shares of our common stock at an exercise price per share equal to the fair market value on the date of grant (the “Inducement Options”). 25% of the Inducement Options vest and become exercisable on the one-year anniversary of the date of grant, and thereafter 1/36th of the remaining Inducement Options will vest on the last day of each month, until all of the Inducement Options have vested, subject to Mr. Galbraith’s continued service; +• Eligibility to participate in our employee benefit plans, policies and arrangements that, in the aggregate, are reasonably consistent with other executive officers generally, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +146 +Table o f Contents +• Enrollment in a qualifying pension scheme under the UK Pensions Act 2008; +• Prior to the Second Amendment, the Galbraith Employment Agreement provided for reimbursement of relocation expenses up to a maximum gross amount of $300,000, grossed up for the impact of any tax withholding, for reasonable moving expenses incurred by Mr. Galbraith and his immediate family during relocation from Mr. Galbraith’s primary residence to Vancouver, British Columbia or Seattle, Washington if he relocated on or before July 15, 2024 (under the Original Agreement, this related to a relocation within the first eighteen months of employment), with the total amount reimbursed under this provision required to be repaid if Mr. Galbraith’s employment had terminated within three years (two years under the Original Agreement) following the effective date of employment. The Second Amendment removed the requirement to relocate, and deleted this provision regarding relocation expenses; +• Temporary housing for Mr. Galbraith in Vancouver, British Columbia, grossed up for the impact of any tax withholding. The First Amendment had provided for this benefit through the earlier of Mr. Galbraith’s relocation or July 15, 2024, and under the Original Agreement, this was through the earlier of Mr. Galbraith’s relocation or the date that is 18 months following the effective date of employment; +• Reimbursement of reasonable travel and living expenses when traveling from his home to Vancouver, British Columbia or Seattle, Washington for his employment duties, as well as reimbursement or Company payment for reasonable airfare and lodging expenses for Mr. Galbraith and his immediate family for one trip per calendar year to Vancouver, British Columbia or Seattle, Washington, as applicable (under the Original Agreement, this related to trips that occurred prior to the end of 2023, and under the First Amendment, to trips that occurred prior to the end of 2024); +• A tax equalization payment if Mr. Galbraith is subject to income taxation or other taxation outside of the UK during the period of his employment, grossed up for the impact of any tax withholding, and tax preparation services; +• If we terminate Mr. Galbraith’s employment during his first three years of employment, then Mr. Galbraith will be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Mr. Galbraith’s employment, Mr. Galbraith will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Mr. Galbraith will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan; +• In the event of termination on death or disability, as defined in our long-term disability plan or policy then in effect with respect to him, Mr. Galbraith, or his estate, will receive (x) a lump sum payment equal to the difference between (1) eighteen months of base salary plus target annual cash bonus as of the date of death or disability and (2) the amount that Mr. Galbraith or his estate will receive as a result of death or disability under our applicable insurance policies in effect as of the date of termination, (y) group extended health and dental benefits continuation for his surviving family members for eighteen months (or lump sum payment for the premium costs of such benefits in lieu thereof), and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants made to Mr. Galbraith as of the date of death or disability; +• If Mr. Galbraith’s employment is terminated by us without cause on or within twelve months following, or within three months prior to, a change of control (as defined in the Galbraith Employment Agreement), Mr. Galbraith will be eligible to receive (x) a lump sum payment of eighteen months of base salary and 100% of target annual cash bonus as of the date of termination, (y) group extended health and dental benefits continuation as of the date of termination for eighteen months (or lump sum payment for the premium costs of such benefit plans in lieu thereof) and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Mr. Galbraith entering into a valid settlement agreement with us; and +• In addition, the Galbraith Employment Agreement requires Mr. Galbraith, among other things, not to compete, either directly or indirectly, with us while employed by us and for up to six months following the termination of his employment with us. The Galbraith Employment Agreement also requires Mr. Galbraith not to solicit our employees or consultants to terminate their relationship with us while he is employed by us and for up to one year following the termination of his employment with us. +In January 2026, Ms. Leone Patterson ceased to serve in the positions of Executive Vice President, Chief Business Officer and Chief Financial Officer , including as principal financial officer and principal accounting officer. In connection with Ms. Patterson’s separation, Mr. Galbraith was appointed interim Chief Financial Officer and continued in his roles as Chair of the Board, President and Chief Executive Officer and assumed the duties of principal financial officer and principal accounting +147 +Table o f Contents +officer. The compensatory and other material terms of Mr. Galbraith’s employment with the Company were unchanged in connection with his appointment as interim Chief Financial Officer, principal financial officer and principal accounting officer. +Paul A. Moore . On July 18, 2022, the Company and our subsidiary ZBI entered into an employment agreement with Dr. Moore setting forth the terms and conditions of his employment as Chief Scientific Officer of the Company (the “Initial Employment Agreement”). In connection with Dr. Moore’s planned relocation from the United States to Canada, the Company and our subsidiary Zymeworks BC entered into an amended and restated employment agreement with Dr. Moore in July 2023 (the “Moore Employment Agreement”) that supersedes and replaces the Initial Employment Agreement. The Moore Employment Agreement does not have a stated term. +Pursuant to the Moore Employment Agreement, Dr. Moore is entitled to the following compensation and benefits: +• An annual base salary of $465,000, with eligibility to earn an annual discretionary bonus of up to 45% of his annual base salary, based upon the achievement of certain Company goals determined by the board of directors. Dr. Moore’s current annual base salary is $525,000 and his target annual discretionary bonus remains at 45% of his annual base salary; +• Eligibility to participate in our employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +• Reimbursement of relocation expenses up to a maximum of $200,000, grossed-up to offset the impact of any taxes on such payment, for reasonable and customary moving expenses that Dr. Moore incurs within eighteen months of his July 18, 2022 start date in connection with his relocation to the Vancouver, British Columbia metropolitan area, as contemplated in the Initial Employment Agreement. +• A tax equalization payment if Dr. Moore is subject to income taxation in Canada in a given year equal to the difference between (i) the sum of total Canadian taxes plus any U.S. federal, state and local income taxes, that Dr. Moore is or would be obligated to pay for an applicable tax year, and (ii) the amount of U.S. federal, state and local tax liability had Dr. Moore worked in the United States for the entire tax year. Any tax equalization payment will be grossed-up to offset the impact of taxes on such payment. +• Provision of tax preparation support or reimbursement of up to $5,000 per year for additional tax preparation expenses of Dr. Moore for a period of two years from his relocation to the Vancouver, British Columbia metropolitan area. +• If we terminate Dr. Moore’s employment without cause during his first three years of employment, then Dr. Moore will be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Dr. Moore’s employment without cause, Dr. Moore will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Dr. Moore will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan. Such payments will be subject to Dr. Moore entering into a valid separation and release agreement with us; +• If Dr. Moore’s employment is terminated by us without cause on or within twelve months following a change of control (as defined in the Moore Employment Agreement), Dr. Moore will be eligible to receive as severance (x) eighteen months continued base salary following termination, (y) group extended health and dental benefits as of the date of termination for eighteen months, and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Dr. Moore entering into a valid separation and release agreement with us; and +• In addition, the Moore Employment Agreement requires Dr. Moore, among other things, not to compete, either directly or indirectly, with us while employed by us and for up to six months following the termination of his employment with us. The Moore Employment Agreement also requires Dr. Moore not to solicit our employees to terminate their relationship with us while he is employed by us and for up to one year following the termination of his employment with us. +In addition, if any of the payments or benefits provided for under the Moore Employment Agreement employment agreement or otherwise payable to Dr. Moore would constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the related excise tax, he would be entitled to receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, whichever +148 +Table o f Contents +results in the greater amount of after-tax benefits to him. The Moore Employment Agreement does not require us to provide any tax gross-up payments to him. +Jeffrey Smith . Prior to Dr. Smith’s retirement, Dr. Smith was subject to an employment agreement with our subsidiary Zymeworks Pharmaceuticals Limited dated January 3, 2023 (the “Smith Employment Agreement”). The Smith Employment Agreement set forth the terms and conditions of his employment as our then Senior Vice President, Early-Stage Development. Dr. Smith was subsequently promoted to Executive Vice President and Chief Medical Officer in January 2024. The Smith Employment Agreement did not have a stated term. Effective January 31, 2026, Dr. Smith retired from his position as Executive Vice President and Chief Medical Officer of the Company and his employment terminated effective January 31, 2026. In January 2026, Dr. Smith entered into a severance agreement (the “Smith Severance Agreement”) and a consultancy agreement (the “Smith Consultancy Agreement”), each described in greater detail below. +The Smith Employment Agreement provided for the following compensation and benefits to Dr. Smith: +• An annual base salary of $425,000, with eligibility to earn an annual discretionary bonus of up to 35% of his annual base salary, based upon the achievement of certain Company goals determined by the board of directors. With respect to 2025, Dr. Smith’s annual base salary was $485,000 and he was eligible to earn a discretionary bonus of up to 45% of his annual base salary; +• Eligibility to participate in Company employee benefit plans, policies and arrangements; +• An annual contribution of €2,500 towards Dr. Smith’s membership in a health insurance program; +• In the event of termination of Dr. Smith’s employment without cause during his first three years of employment, then Dr. Smith would be eligible to receive twelve months of notice or the equivalent of nine month’s base salary plus three months’ notice as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of his employment, in the event of termination of Dr. Smith’s employment without cause, Dr. Smith would have been eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of fifteen months plus three months’ notice. Any such payments would have been subject to Dr. Smith entering into a valid separation and release agreement with us; and +• In the event of termination of Dr. Smith’s employment by us without cause on or within twelve months following a change of control (as defined in the Smith Employment Agreement), Dr. Smith would be eligible to receive as severance (x) eighteen months continued base salary following termination, or the equivalent of fifteen months of base salary plus three months’ notice, and (y) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Any such payments would have been subject to Dr. Smith entering into a valid separation and release agreement with us. +On January 6, 2026, Zymeworks Pharmaceuticals Limited and Dr. Smith entered into the Smith Severance Agreement providing for a release of claims by Dr. Smith in exchange for certain benefits, including continued payment of Dr. Smith’s current base salary for twelve months following his termination date. On January 31, 2026, Zymeworks Pharmaceuticals Limited and Dr. Smith entered into the Smith Consultancy Agreement, providing for Dr. Smith’s receipt of a retainer fee equal to $10,000 per month (exclusive of any value added tax) in exchange for up to fifteen hours per month of services as an outside advisor on strategic planning and guidance. Dr. Smith will also be entitled to continued vesting of his equity awards during the term of the Consultancy Agreement per the pre-existing terms of such equity awards. The Smith Consultancy Agreement will terminate on January 31, 2027 unless earlier terminated pursuant to its terms. +Chief Financial Officer Employment Arrangements +Leone Patterson . Prior to Ms. Patterson’s separation from employment with us, Ms. Patterson was subject to an employment agreement with our subsidiary ZBI dated July 19, 2024 and effective September 1, 2024 (the “Patterson Employment Agreement”). The Patterson Employment Agreement set forth the terms and conditions of her employment as Executive Vice President, Chief Business Officer and Chief Financial Officer of the Company and did not have a stated term. In January 2026, Ms. Patterson was removed from her position as Executive Vice President, Chief Business Officer and Chief Financial Officer of the Company and her employment was terminated without cause effective January 31, 2026. Ms. Patterson and ZBI entered into a separation agreement and release (the “Patterson Separation Agreement”) on February 1, 2026 that contained a release of claims in favor of the Company and requires Ms. Patterson’s compliance with certain ongoing covenants, and which provides Ms. Patterson with the severance and payments described under the Patterson Employment Agreement that apply in connection with a termination without cause, as described in greater detail below. +149 +Table o f Contents +The Patterson Employment Agreement provided for the following compensation and benefits for Ms. Patterson: +• An annual base salary of $485,000, with eligibility to earn an annual discretionary bonus of up to 45% of her annual base salary, based upon the achievement of certain Company goals determined by the board of directors; +• Eligibility to participate in Company employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to membership in certain professional associations and professional development; +• Signing bonus of $50,000, which would have been repayable in full to ZBI within 30 days of Ms. Patterson’s employment termination date if her employment had been terminated for Cause (as defined in the Patterson Employment Agreement) or by Ms. Patterson for any reason, in either case, within one year of the effective date of the Patterson Employment Agreement; +• Options, which were granted to Ms. Patterson in 2024, to purchase 360,000 shares of our common stock at an exercise price per share equal to the fair market value on the date of grant. 25% of the Options vested and become exercisable on the one-year anniversary of the date of grant, and thereafter 1/36th of the remaining Options vested on the last day of each month, until Ms. Patterson’s separation; +• In the event of termination of Ms. Patterson’s employment without cause during her first three years of employment, then Ms. Patterson would be eligible to receive twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined notice and base salary. Commencing in the fourth year of her employment, in the event of termination of Ms. Patterson’s employment without cause, Ms. Patterson would have been eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Ms. Patterson also became eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit plan. Any such payments would have been subject to Ms. Patterson entering into a valid separation and release agreement with us; +• In the event of termination of Ms. Patterson’s employment by us without cause on or within twelve months following a change of control (as defined in the Patterson Employment Agreement), Ms. Patterson would be eligible to receive as severance (x) eighteen months continued base salary following termination, (y) group extended health and dental benefits as of the date of termination for eighteen months, and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Any such payments would have been subject to Ms. Patterson entering into a valid separation and release agreement with us. +In addition, if any of the payments or benefits provided for under the Patterson Employment Agreement or otherwise payable to Ms. Patterson would constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the related excise tax, she would have been entitled to receive either full payment of such payments and benefits or such lesser amount that would result in no portion of the payments and benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to her. The Patterson Employment Agreement did not require us to provide any tax gross-up payments to her. +On February 1, 2026, ZBI an d Ms. Patterson entered into the Patterson Separation Agreement providing for severance payments and benefits consistent with the terms of the Patterson Employment Agreement, in exchange for a release of claims by Ms. Patterson and compliance with certain ongoing covenants, including: +• Continued payment of Ms. Patterson’s current base salary for twelve months following her separation date; and +• Reimbursement of premiums for continued group health coverage under COBRA for twelve months following the separation date, or until Ms. Patterson obtains health insurance coverage through another employer. +Equity Compensation Plan Information +Under our Original Plan, upon a transaction in which equity securities representing more than 66 2/3% of our common stock are sold (a “substantial sale”), if the purchaser offers to buy out options, the options must be sold to the purchaser at a purchase price equal to (x) the price per share in the transaction (calculated in accordance with the terms of the Original Plan) minus the exercise price per share, multiplied by (y) the number of shares then exercisable under the option. If the option holders do not sell their options to the purchaser, such options will terminate upon completion of the substantial sale. +Under our Equity Compensation Plan and our Inducement Plan, in connection with a change of control (as defined in the applicable plan), our board of directors or the committee to which our board of directors has delegated authority to administer +150 +Table o f Contents +the applicable plan (either, the “Administrator”) has the right to provide for the conversion or exchange of any outstanding awards into or for options, rights or other securities in any entity participating in or resulting from a change of control, cash or other property. If we enter into an agreement for a transaction that, if completed, would result in a change of control, or otherwise become aware of a pending change of control, we will give written notice to the award holders regarding the potential change of control and a description of the effect of the change of control on outstanding awards at least seven (7) days prior to the closing of change of control. +Under our Equity Compensation Plan and Inducement Plan, the Administrator may, in its discretion, accelerate the vesting and/or expiration date of any or all outstanding awards in connection with the change of control to provide that such designated awards shall be fully vested and any options not exercised within the specified period will be terminated after the completion of the change of control. If the change of control would also result in a capital reorganization, arrangement, amalgamation or reclassification of our share capital (and if the vesting and expiration of the awards has not been accelerated as contemplated by the prior sentence), upon completion of the change of control, the number and kind of shares subject to outstanding awards and, if applicable, the exercise price per share of options shall be appropriately adjusted (including by substituting the awards for awards with respect to securities in any successor entity to us) in such manner as the Administrator considers equitable to prevent substantial dilution or enlargement of the rights granted to Award holders. The Administrator also may make changes to the terms of the awards or the Equity Compensation Plan or Inducement Plan to the extent necessary or desirable to comply with any rules, regulations or policies of any stock exchange on which any of our securities may be listed, provided that the value of previously granted awards and the rights of award holders are not materially adversely affected by any such changes. In addition, in the event of a potential change of control, the Administrator may, in its sole discretion, modify the terms of the plan and/or the awards to assist the participants to tender into a take-over bid or other transaction leading to a change of control, including the authority to allow participants to conditionally exercise options. +The Company’s Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information +During 2025, we granted stock options to employees, including our named executive officers. We do not take material nonpublic information into account in determining the timing of such awards . Further, we have not timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation. We typically grant annual equity awards (including stock options) to our executive officers and non-executive employees early in the first quarter of each year. For equity awards to executive officers in connection with their hire date, such grants are typically made on the date of the commencement of their employment. For equity awards to non-executive employees in connection with their hire date, such grants are typically made on a pre-determined date in the month following the commencement of their employment. We have never granted stock appreciation rights to any employees or other service providers. +Director Compensation Table +The following table presents the compensation awarded to, earned by or paid to our directors (other than Mr. Galbraith, whose compensation is provided in the Summary Compensation Table above) for the year ended December 31, 2025. Mr. Cherry is not included in the table as he did not become a director until January 2026. We do not currently have director compensation in the form of share-based awards (other than stock options and restricted stock units), non-equity incentive plan compensation or non-qualified deferred compensation. +151 +Table o f Contents +Name +Fees Earned or Paid in Cash ($) +Option Awards +($) (1)(2)(3) +All Other Compensation +Total +($) +Carlos Campoy 65,000 — — 65,000 +Alessandra Cesano +51,875 — — 51,875 +Gregory A. Ciongoli (4) +22,500 463,154 485,654 +Troy M. Cox (5) +33,333 — — 33,333 +Nancy Davidson (6) +50,417 174,474 — 224,891 +Neil Gallagher (6) +50,417 227,743 — 278,160 +Robert E. Landry (7) +22,083 +463,154 — 485,237 +Susan Mahony 80,000 — — 80,000 +Derek J. Miller (6) +55,000 +(8) +49,129 — 104,129 +Kelvin Neu (9) +53,750 — — 53,750 +Oleg Nodelman (10) +— — — — +Scott Platshon (11) +— — — — +________________________ +(1) For directors Gregory A. Ciongoli and Robert E. Landry, the amounts set forth in this column reflect the aggregate grant date fair value for option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 - “ Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation ” and Note 10(e) - “ Notes to Consolidated Financial Statements – Stockholders’ Equity Stock-Based Compensation ” included in this Annual Report on Form 10-K for our year ended December 31, 2025. +(2) As of December 31, 2025, directors and former directors held the following number of options to purchase Company common shares: (i) Mr. Campoy, 118,000; (ii) Dr. Cesano, 105,000; (iii) Mr. Ciongoli, 62,000; (iv) Mr. Cox, 133,500; (v) Dr. Davidson, 105,000; (vi) Dr. Gallagher, nil; (vii) Mr. Landry, 62,000; (viii) Dr. Mahony, 141,000; (ix) Mr. Miller, nil; (x) Dr. Neu, 102,000; (xi) Mr. Nodelman, nil; and (xii) Mr. Platshon, 167,000. Mr. Platshon also holds 111,111 restricted stock units. Mr. Platshon ’ s options and restricted stock units were granted pursuant to the Platshon Employment Agreement described under Item 13, “Certain Relationships and Related Transactions and Director Independence – Certain Relationships and Related Transactions.” +(3) The Company made annual awards under the Company’s Amended and Restated Director Compensation Policy (discussed below) in January 2026. Due to the date in which they were made, these awards are not reported in this table and will be reported as compensation in 2026. +(4) Mr. Ciongoli joined the Company’s board of directors effective August 10, 2025. +(5) Mr. Cox resigned from the Company’s board of directors effective August 9, 2025. +(6) In November 2025, Dr. Nancy Davidson, Dr. Neil Gallagher, and Mr. Derek Miller submitted their resignations from their positions as members of our board of directors, including from any committee thereof, effective as of November 6, 2025. In recognition of their valuable service, the board of directors accelerated 28,778 option awards held by Dr. Davidson, 34,495 option awards held by Dr. Gallagher and 8,334 option awards held by Mr. Miller. Under ASC Topic 718, the acceleration was treated as a modification of the terms of outstanding option awards. The “Option Awards” column includes the incremental fair value of the modified award equal to $174,474, $227,743 and $49,129, for Dr. Davidson, Dr. Gallagher and Mr. Miller respectively, computed as of the modification date, compared with the fair value of the award immediately prior to the modification, computed in accordance with ASC Topic 718. +(7) Mr. Landry joined the Company’s board of directors effective August 10, 2025. +(8) Due to a clerical error, in 2024 Mr. Miller received $417 more than he was entitled to under the Company’s non-employee director compensation policy. This inadvertent overpayment was subsequently corrected by withholding such overpaid amounts from the amounts he was owed for service as a director in 2025. +(9) Dr. Neu joined the Company’s board of directors in March 2020. Dr. Neu was an employee of Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr. Neu’s employment by Baker Brothers Advisors LP, the options granted to him in 2020 were, and will continue to be, beneficially owned by Baker Bros. Advisors LP. +(10) Mr. Nodelman joined the Company’s board of directors in February 2025. Mr. Nodelman waived his entitlement to cash and equity compensation otherwise payable to him pursuant to the Company’s non-employee director compensation policy. +(11) Mr. Platshon waived his entitlement to cash and equity compensation otherwise payable to him pursuant to the Company’s non-employee director compensation policy. Mr. Platshon resigned from the Company’s board of directors effective November 16, 2025. Following his resignation, Mr. Platshon was appointed Acting Chief Investment Officer of the Company. The terms of his employment are described under Item 13, “Certain Relationships and Related Transactions and Director Independence – Certain Relationships and Related Transactions. ” +Director Compensation +The written charter of our compensation committee provides that the compensation committee will review compensation for members of our board of directors on at least an annual basis, taking into account their responsibilities and time commitment and information regarding the compensation paid at peer companies. The compensation committee will make recommendations to our board of directors with respect to changes to our approach to director compensation as it considers appropriate. +152 +Table o f Contents +From time to time, the compensation committee works with Aon to update prior competitive assessments of our board of director compensation program. +Board Annual Assessment of Non-Employee Director Compensation +In December 2024, the board of directors, upon advice from its independent compensation consultants and recommendation from the compensation committee following its annual assessment of the board of directors’ compensation program, approved certain changes to the cash and equity compensation of non-employee directors, which changes adjust the board of directors’ compensation program to more closely align with the non-employee director compensation practices of the Company’s peer group as described below. +In September 2025, the board of directors adopted stock ownership guidelines for our non-management directors (other than those representing or affiliated with greater than ten percent stockholders). The Stock Ownership Guidelines are discussed above under “– Stock Ownership Guidelines .” +In January 2026, the board of directors, upon advice from its independent compensation consultants and recommendation from the compensation committee following its annual assessment of the board of directors’ compensation program, approved certain changes to the cash and equity compensation of non-employee directors, to adjust the board of directors’ compensation program to further align with the non-employee director compensation practices of the Company’s peer group at that time. +Cash Compensation for Directors +Beginning January 1, 2025, the annual cash retainer fee for service as a member of the research and development committee was increased from $6,000 to $7,500, with all other annual cash retainers for the board of directors and its committees remaining unchanged. Beginning January 1, 2026, the annual cash retainer fee for service on the board of directors increased from $40,000 to $45,000 and the additional annual cash retainer fee for service as Lead Independent Director increased from $25,000 to $30,000. +Specifically, in 2025, we provided, and for 2026, we provide the below annual cash retainer fees for service on our board of directors and committees. The fees for service on committees are in addition to the annual retainer fees for service on the board of directors. +Effective January 1, 2025 +Effective January 1, 2026 +Amount +($) +Amount +($) +Board of Directors: +Member +40,000 +45,000 +Lead Independent Director +65,000 +75,000 +Audit Committee: +Member +10,000 +10,000 +Chair +20,000 +20,000 +Compensation Committee: +Member +7,500 +7,500 +Chair +15,000 +15,000 +Nominating and Corporate Governance Committee: +Member +5,000 +5,000 +Chair +10,000 +10,000 +Research and Development Committee: (1) +Member +7,500 — +Chair +15,000 +— +________________________ +(1) The research and development committee was dissolved in November 2025. +153 +Table o f Contents +Equity Compensation for Directors +In 2025, new non-employee directors were granted an initial option grant to purchase 62,000 shares of common stock, (reduced from 2024 levels, which provided for options to purchase 74,000 shares) on or about the time such director joined the board of directors, with the same vesting schedule as in place for 2024 new non-employee director initial options, of 1/36th of the options vesting on each monthly anniversary of the grant date, subject to the optionee’s continued service through such date. +No annual option grants were made to non-employee directors during 2025. Prior to changes made in January 2026, non-employee directors were also entitled to receive an annual option grant to purchase 31,000 shares of common stock (reduced from 2024 levels, which provided for options to purchase 37,000 shares), to be granted at or about the time of the Company’s annual meeting of stockholders, with the same vesting schedule as in place for 2024 continuing non-employee director annual options, of 100% of the options vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s continued service through such date. However, as the Company’s annual meeting of stockholders took place on December 30, 2025, the non-employee directors did not receive these grants and instead received annual grants in January 2026 pursuant to the revised formulation described below. +Pursuant to amendments approved by the board of directors in December 2024, upon cessation of a non-employee director’s continued service in 2025, each outstanding stock option held by such director was subject to (i) pro rata acceleration of vesting of options granted as annual equity awards in connection with the 2024 annual meeting of stockholders for directors departing after the 2024 annual meeting of stockholders, but at or before our 2025 annual meeting of stockholders, with the pro rata acceleration determined based on the number of full or partial months served as a non-employee director on and after the 2024 annual meeting of stockholders date. +In addition, the post-termination exercise period for vested options held by such departing directors was extended to three years following the director’s cessation of service (or, if earlier, upon the expiration of the option or pursuant to the change of control, liquidation, dissolution, merger or similar provisions of the equity plan under which the option was granted). +Further, in November 2025, in connection with the then-pending resignations from the board of directors by Drs. Davidson and Gallagher and Mr. Miller, the board of directors approved the acceleration of vesting of the remaining unvested portions of their initial option grants, which had been granted in December 2023, April 2024 and April 2023, respectively. The post-termination exercise period of these options was also extended to three years following the director’s cessation of service (or, if earlier, upon the expiration of the option or pursuant to the change of control, liquidation, dissolution, merger or similar provisions of the equity plan under which the option was granted). +Beginning January 2026, new non-employee directors will be granted, on or about the time such director joins the board of directors, an initial equity award consisting of (A) an option grant to purchase 23,000 shares of common stock, with a vesting schedule of 1/36th of the total shares of common stock underlying such option vesting on each monthly anniversary of the grant date, subject to the non-employee director’s continued service through the applicable vesting date, and (B) a grant of 15,400 restricted stock units with a vesting schedule of 1/3 of the restricted stock units vesting on each annual anniversary of the grant date, subject to the non-employee director’s continued service through the applicable vesting date. This represents a change from the approach in 2025, during which new non-employee directors were entitled to an initial option to purchase 62,000 shares of Company common stock, as described above. +In addition, in January 2026, non-employee directors were granted an annual equity award consisting of (A) an option grant to purchase 11,500 shares of common stock, with a vesting schedule of 100% of the total shares of common stock underlying such option vesting on the one-year anniversary of the grant date, subject to the non-employee director’s continued service through the applicable vesting date; and (B) a grant of 7,700 restricted stock units with a vesting schedule of 100% of the restricted stock units vesting on the one-year anniversary of the grant date, subject to the non-employee director’s continued service through the applicable vesting date. This represents a change from the approach in place for 2025, which had provided for an annual option to purchase 31,000 shares of Company common stock; as described above, non-employee directors did not receive any annual grants in 2025 and instead received equity awards in January 2026 as described in this paragraph. +In adopting the changes for non-employee director grants, beginning in January 2026, our compensation committee worked with its independent compensation consultant to assess the appropriate market data comparison, mix of equity award types, the number of shares underlying equity awards for both new and continuing non-employee directors, and the other terms and conditions applicable to such awards. +154 +Table o f Contents +The post-termination exercise period for vested options held by departing directors is three years following the director’s cessation of service (or, if earlier, upon the expiration of the option). +Expense Reimbursement +Each member of our board of directors is also entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending board meetings and meetings for any committee on which he or she serves. These amounts are not included in the table above. +Risk Management +As part of its normal practice, the compensation committee evaluates the risk-taking incentives created by our compensation programs, policies and practices and has concluded that such programs, policies and practices are not reasonably likely to have a material adverse effect on the Company. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Equity Compensation Plan Information +The following table sets forth summary information relating to our Equity Compensation Plan, employee share purchase plan, as amended (the “ESPP”), the Original Plan and the Inducement Plan as of December 31, 2025 : +Plan Category +Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) +Weighted average exercise price of outstanding options, warrants, and rights (2) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) +(a) +(b) +(c) +Equity compensation plans approved by security holders +Equity Compensation Plan 9,210,809 +$12.93 (3) +5,023,809 (4) +ESPP — — 2,599,120 +Original Plan 65,164 +C$22.31 (5) +— +Equity compensation plans not approved by security holders +Inducement Plan 1,060,000 $12.14 390,000 +________________________ +(1) Includes 1,947,584 restricted stock units under the Equity Compensation Plan. +(2) Does not include restricted stock units, which do not have an exercise price. +(3) Stock options granted under the Equity Compensation Plan are granted with exercise prices in U.S. dollars. Previously, stock options granted under the Equity Compensation Plan were granted with exercise prices in both Canadian and U.S. dollars. As of December 31, 2025, there were 7,263,225 outstanding stock options under the Equity Compensation Plan, consisting of 506,948 stock options with a weighted average exercise price of C$25.22 ($18.05 based on the U.S. dollar per Canadian dollar exchange rate of 0.7155, which was the average annual Bank of Canada exchange rate for 2025) and 6,756,277 stock options with a weighted average exercise price of $12.80. +(4) The original maximum number of common shares reserved for issuance under the Equity Compensation Plan as of June 7, 2018, was 5,686,097. Beginning in 2019 and ending in 2028, this maximum number is automatically increased on the first day of each calendar year by 4.0% of the number of outstanding shares on the last day of the immediately preceding calendar year (or such lesser number of shares as our board of directors may determine prior to the start of the applicable calendar year). +(5) Stock options granted under the Original Plan were granted with exercise prices in Canadian dollars. As of December 31, 2025 there were 65,164 outstanding stock options under the Original Plan, with a weighted average exercise price of C$22.31 ($15.96 based on the U.S. dollar per Canadian dollar exchange rate of 0.7155, which was the average annual Bank of Canada exchange rate for 2025). +Inducement Plan +Our Inducement Plan was adopted by our board of directors in January 2022, and was amended and restated in October 2022 and July 2024. The Inducement Plan was adopted without stockholder approval pursuant to the NYSE listing rules related to inducement plans, which were the rules applicable at the time of the initial adoption of the Inducement Plan, and which are +155 +Table o f Contents +substantially similar to the Nasdaq rules related to inducement plans that currently apply to the Inducement Plan. The Inducement Plan allows for the grant of options, restricted stock, restricted stock units and other share-based awards. The terms of the Inducement Plan are substantially similar to those of the Equity Compensation Plan, including with respect to treatment of awards in connection with a change of control, as described above. However, in accordance with the exemption requirements under Nasdaq rules, awards under the Inducement Plan may only be made to employees of our Company or our subsidiaries to whom the grant of the award is a material inducement to the individual’s entering into employment with us in accordance with such rules. +Share Ownership +The table below indicates information as of February 26, 2026, regarding the beneficial ownership of our common stock for: +• each person who is known by us to beneficially own more than 5% of our common stock; +• each named executive officer; +• each of our directors; and +• all executive officers and directors as a group. +In accordance with SEC rules, for the purposes of calculating percent ownership, as of February 26, 2026, (i) 73,749,607 shares of common stock were issued and outstanding, and, (ii) for any individual who beneficially owned shares represented by Exchangeable Shares, warrants, options, or restricted stock units that were exercisable or scheduled to vest within sixty days of February 26, 2026, those shares were treated as if outstanding for that person, but not for any other person. Unless otherwise indicated in the footnotes to the table, and subject to community property laws where applicable, the following persons have sole voting and investment control with respect to the shares beneficially owned by them. To our knowledge, except as noted in the table below, no person or entity was the beneficial owner of more than 5% of the voting power of our common stock as of February 26, 2026. +Except as otherwise indicated, the address of each of the persons in this table is 108 Patriot Drive, Suite A, Middletown, Delaware 19709 . +Name and Address of Beneficial Owner Common Stock Beneficially Owned Percentage of Shares Beneficially Owned +Total Voting Percentage † +5% and Greater Stockholders: +EcoR1 Capital, LLC +22,970,388 (1) +31.15% 30.92% +Rubric Capital Management LP +5,750,000 (2) +7.80% 7.74% +BVF Partners L.P. +3,938,641 (3) +5.34% 5.30% +Directors and Named Executive Officers: +Carlos Campoy +113,833 (4) +* +* +Alessandra Cesano +84,444 (5) +* +* +Brian N. Cherry +1,916 (6) +* +* +Gregory A. Ciongoli +507,277 (7) +* +* +Kenneth Galbraith +1,160,280 (8) +1.55% +* +Robert E. Landry +13,777 (9) +* +* +Susan Mahony +141,000 (10) +* +* +Paul A. Moore +374,278 (11) +* +* +Kelvin Neu +102,000 (12) +* +* +Oleg Nodelman +22,970,388 (13) +31.15% 30.92% +Jeffrey Smith +254,770 (14) +* * +All Directors, Executive Officers: +All current executive officers and directors as a group (12 persons) (15) +25,999,356 34.27% 32.13% +________________________ +* Less than one percent +† Percentage of total voting power represents voting power with respect to all outstanding shares of our common stock and the voting rights of the Exchangeable Shares exercised via the share of our special voting preferred stock, as a single class. Each holder of our common stock +156 +Table o f Contents +is entitled to one vote per outstanding share, and each holder of an Exchangeable Share is entitled to voting rights equivalent to one vote per Exchangeable Share on all matters submitted to our stockholders for a vote. The common stock and the special voting preferred stock (exercising the voting rights of the Exchangeable Shares) vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by our certificate of incorporation or bylaws. +(1) Consists of (i) 21,582,563 shares of common stock held by EcoR1 Capital Fund Qualified, L.P. (“Qualified Fund”) and (ii) 1,387,825 shares of common stock held by EcoR1 Capital Fund, L.P. (“Capital Fund”). Qualified Fund, Capital Fund and other private investment funds are managed by EcoR1 Capital, LLC (“EcoR1 LLC” and, collectively with Qualified Fund, Capital Fund and such other private investment funds, “EcoR1”). Oleg Nodelman, the manager of EcoR1 LLC, has shared voting control and investment discretion over the securities reported herein that are held by EcoR1. As a result, Mr. Nodelman may be deemed to have beneficial ownership of the securities that are held by EcoR1. The address of these entities and this individual is 357 Tehama Street #3, San Francisco, California 94103. Mr. Nodelman is a member of the board of directors of the Company. +(2) Based on a Schedule 13G/A filed February 13, 2026, consists of 5,750,000 shares of common stock held, as of December 31, 2025, by certain investment funds and/or accounts for which Rubric Capital Management LP serves as investment adviser. The address for this entity is 155 East 44th Street, Suite 1630, New York, NY 10017. +(3) Based on a Schedule 13G/A filed November 14, 2025, consists of 2,045,162 shares of common stock held by Biotechnology Value Fund, L.P. (“BVF”), 1,601,489 shares of common stock held by Biotechnology Value Fund II, L.P. (“BVF2”), 212,898 shares of common stock held by Biotechnology Value Trading Fund OS LP (“Trading Fund OS”), and 79,092 shares of common stock held in a certain BVF Partners L.P. managed account, each as of September 30, 2025. BVF Partners L.P., as the investment manager of BVF, BVF2 and Trading Fund OS, and the sole member of BVF Partners OS Ltd., the general partner of Trading Fund OS, may be deemed to beneficially own the 3,938,641 shares of common stock as of September 30, 2025. The address for this entity is 44 Montgomery Street, 40th Floor, San Francisco, CA 94104. +(4) Consists of 113,833 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(5) Consists of 84,444 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(6) Consists of 1,916 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(7) Consists of 488,500 share of common stock held directly, 5,000 shares of common stock held by 4 Arrows Holdings, LLC, for which Mr. Ciongoli is the manager, and 13,777 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. Mr. Ciongoli exercises sole voting and dispositive power of the shares held by 4 Arrows Holdings, LLC, and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. +(8) Consists of 226,842 shares of common stock and 933,438 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(9) Consists of 13,777 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(10) Consists of 141,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(11) Consists of 48,497 shares of common stock and 325,781 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(12) Consists of 102,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. Dr. Neu was an employee of Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr. Neu’s employment by Baker Brothers Advisors LP, options granted to him in 2020 were, and will continue to be, beneficially owned by Baker Bros. Advisors LP. +(13) Consists of the shares of common stock described in footnote 1 above. Mr. Nodelman joined our board of directors in February 2025, and disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. +(14) Consists of 26,708 shares of common stock and 228,062 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 26, 2026. +(15) Dr. Smith is a named executive officer in this Annual Report on From 10-K, but he is not a current executive officer given that he retired effective January 31, 2026. Therefore, Dr. Smith’s ownership is not reflected in the total shares beneficially owned by the current executive officers and directors as a group. Mr. Hollywood and Dr. Mekan are not named executive officers, but they are current executive officers. Therefore, Mr. Hollywood’s ownership and Dr. Mekan’s ownership are reflected in the total shares beneficially owned by the current executive officers and directors as a group. +Item 13. Certain Relationships and Related Transactions and Director Independence +Certain Relationships and Related Transactions +Other than as discussed below and the compensation arrangements discussed under “ Executive Compensation – Discussion of Executive Compensation Practices ,” since January 1, 2024, there have not been any transactions to which we are a party, nor are there any proposed transactions to which we would be a party, with related parties and which we are required to disclose pursuant to the rules of the SEC. +On December 28, 2023, EcoR1 purchased an aggregate of 5,086,521 pre-funded warrants to purchase 5,086,521 shares of our common stock in a private placement. The per share purchase price for the pre-funded warrants was $9.8299, for an aggregate purchase price of $50.0 million. In connection with the private placement, we entered into a registration rights agreement with EcoR1 requiring us to register the resale of the shares of our common stock issuable upon exercise of the pre-funded warrants. In addition, we agreed that EcoR1 would have the right to nominate one of its partners as a member of our board of directors, subject to specified conditions. On February 22, 2024, our board of directors appointed Mr. Scott Platshon as a member of our board of directors. EcoR1 beneficially owned more than 5% of our shares of common stock prior to this purchase. Under the +157 +Table o f Contents +registration rights agreement, we agreed to file a registration statement covering the resale by EcoR1 of their registrable securities upon the earlier of March 15, 2024 and the first business day following the date that we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. We agreed to use commercially reasonable efforts to cause such registration statement or final prospectus, as applicable, to be declared effective as soon as practicable, but no later than the later of April 29, 2024 and the 123rd calendar day following the closing date, and to keep such registration statement effective for a period that terminated on the second anniversary of the date of the securities purchase agreement. The registration statement filed pursuant to the registration rights agreement became automatically effective upon filing on March 7, 2024. +On June 26, 2025, we entered into an amendment to the outstanding pre-funded warrants issued to EcoR1 on December 28, 2023. Oleg Nodelman, the manager of EcoR1 Capital LLC, is now and was at the time of the amendment a member of our board of directors. Scott Platshon, a partner at EcoR1 Capital LLC, was at the time of the amendment a member of our board of directors. The amendment removed the limitation on exercise contained in Section 12 of the pre-funded warrants, which prohibited the exercise of the pre-funded warrants if, after giving effect or immediately prior to such exercise, a purchaser, together with its affiliates and any other persons whose beneficial ownership of shares of our common stock would be aggregated with such purchaser for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 19.99% of the total number of issued and outstanding shares of our common stock or voting power following such exercise. On June 26, 2025, EcoR1 net exercised the pre-funded warrants in full to acquire 5,086,521 shares of our common stock at an exercise price of $0.0001 per share. We issued the shares pursuant to the exercise on June 27, 2025. +On August 10, 2025, we entered into a stock purchase agreement for a private placement with Mr. Ciongoli following his appointment as a director. Pursuant to the stock purchase agreement, Mr. Ciongoli agreed to purchase 415,000 shares of our common stock for an aggregate purchase price of $5.0 million. The per share purchase price of $12.02 represented the consolidated closing bid price of a share of our common stock on the Nasdaq on August 8, 2025. There were no underwriting discounts or commissions associated with the private placement. The private placement closed on August 12, 2025. +On November 18, 2025, we entered into an employment agreement (the “Platshon Employment Agreement”) with Scott Platshon, who served as a member of our board of directors from February 22, 2024 to November 16, 2025. The Platshon Employment Agreement provides the following compensation and benefits for Mr. Platshon’s part-time role as Acting Chief Investment Officer: (a) an annual base salary of $70,500; (b) an award of 167,000 options to purchase shares of common stock, which are scheduled to vest as to 25% of the options on the one-year anniversary of the Platshon Employment Agreement, with 1/36 of the remaining options vesting on the last day of each month thereafter; (c) an award of 111,111 RSUs, which are scheduled to vest as to 1/3 on each anniversary of the Platshon Employment Agreement. The Platshon Employment Agreement will terminate on the earlier of the effective date of termination by either party or the first anniversary of the Platshon Employment Agreement. If Mr. Platshon remains employed through the one-year anniversary of the Platshon Employment Agreement and, as of such date, we have not extended the terms of his employment, then he will immediately forfeit all options and RSUs that are outstanding and unvested as of such date. If Mr. Platshon remains employed through the one-year anniversary of the Platshon Employment Agreement, and as of such date, (i) we have not extended the terms of his employment but (ii) we and Mr. Platshon have entered into a consulting agreement, then effective as of immediately following such first anniversary, Mr. Platshon will forfeit 50% of the unvested shares subject to his options and RSUs (with such forfeiture taken pro-rata from each remaining tranche), and the remaining unvested shares subject to his options and RSUs will continue to vest over the remaining schedule of such awards, subject to Mr. Platshon’s continued service. If Mr. Platshon is terminated without cause (as defined in the Platshon Employment Agreement) prior to the first anniversary of the Platshon Employment Agreement, then he will be entitled to full vesting acceleration of the unvested and outstanding portions of the options and RSUs that would have vested had he remained an employee through such first anniversary, subject to the execution of a general release of claims by Mr. Platshon. +Indebtedness of Directors, Executive Officers and Employees +None of our directors, executive officers, employees, former directors, former executive officers or former employees, and none of their associates, is indebted to us or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or understanding provided by us. +Policy Regarding Related Party Transactions +We have adopted a formal, written policy regarding related person transactions. This written policy regarding related person transactions provides that a related person transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships), in which we are a participant and in which a related person has, had or will have a direct or indirect material interest and in which the aggregate amount involved exceeds $120,000. For purposes of this policy, a +158 +Table o f Contents +related person means any of our executive officers and directors (including director nominees), in each case at any time since the beginning of our last fiscal year, or holders of more than 5% of any class of our voting securities and any member of the immediate family of, or person sharing the household with, any of the foregoing persons. +Our audit committee has the primary responsibility for reviewing and approving, ratifying or disapproving related person transactions. In determining whether to approve, ratify or disapprove any such transaction, our audit committee will consider, among other factors, (1) whether the transaction is fair to us and on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (2) the extent of the related person’s interest in the transaction, (3) whether there are business reasons for us to enter into such transaction, (4) whether the transaction would impair the independence of any of our outside directors and (5) whether the transaction would present an improper conflict of interest for any of our directors or executive officers. +The policy grants standing pre-approval of certain transactions, including (1) certain compensation arrangements for our directors or executive officers, (2) transactions with another company, other than an acquisition by us of that company, at which a related person’s only relationship is as a non-executive employee, director or beneficial owner of less than 10% of that company’s shares, provided that the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of such company’s total annual revenues and the transaction is on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (3) charitable contributions by us to a charitable organization, foundation or university at which a related person’s only relationship is as a non-executive employee or director, provided that the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of such organization’s total annual receipts, (4) transactions where a related person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis and (5) any indemnification or advancement of expenses made pursuant to our organizational documents or any agreement. In addition to our policy, our audit committee charter provides that our audit committee shall review and approve or disapprove any related person transactions. +Interests of Management and Others in Material Transactions +Other than as described elsewhere in this Annual Report on Form 10-K, there are no material interests, direct or indirect, of any of our directors or executive officers, any stockholder that beneficially owns, or controls or directs (directly or indirectly), more than 5% of any class or series of our outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in any transaction since January 1, 2024 that has materially affected or is reasonably expected to materially affect us or our subsidiaries. +Director Independence +Under the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s board of directors. In addition, the listing standards of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent. Under the Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. +Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act, and the Nasdaq listing rules. Compensation committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act. +The board of directors has determined that all directors, except Mr. Galbraith, meet the independence requirements under the Nasdaq listing standards, and qualify as “independent directors” under the Nasdaq listing standards. Mr. Galbraith is not considered independent by virtue of being our Chief Executive Officer, President and interim Chief Financial Officer. The board of directors also determined that Mr. Campoy, Mr. Ciongoli and Mr. Landry, who comprise our audit committee, and Mr. Landry, Dr. Mahony and Mr. Nodelman, who comprise our compensation committee, each satisfy the independence standards for those committees established by applicable SEC rules and the Nasdaq listing standards, and Dr. Cesano, Mr. Ciongoli and Mr. Nodelman, who comprise our nominating and corporate governance committee, are independent. In making these determinations, the board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them, including those described in the section titled “ – Certain Relationships and Related Transactions .” Further, under its charter, our compensation committee may delegate all or a portion of its duties and responsibilities to a subcommittee of the committee. In particular, the committee may delegate the approval of certain transactions to a subcommittee consisting +159 +Table o f Contents +solely of members of the compensation committee who are “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act. +There are no family relationships among any of our directors, director nominees or executive officers . +Item 14. Principal Accounting Fees and Services +Principal Independent Accountant Fees and Services +KPMG LLP (“KPMG”) has served as our independent registered public accounting firm since June 24, 2015. +Aggregate fees billed by our independent auditors, KPMG, for the years ended December 31, 2025 and December 31, 2024, are detailed in the table below: +2025 2024 +($) (5) +($) (5) +Audit Fees (1) +$ 896,432 $ 751,846 +Audit Related Fees (2) +— — +Tax Fees (3) +214,514 561,115 +All Other Fees (4) +— — +Total Fees Paid $ 1,110,946 $ 1,312,961 +________________________ +(1) Fees for audit service on an accrued basis. +(2) Fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit of the financial statements. +(3) Fees for professional services rendered for tax compliance, tax advice and tax planning, which include fees of $76,087 for tax compliance in 2025 (2024: $272,731). +(4) All other fees billed by the auditor for products and services not included in the foregoing categories. +(5) Canadian dollar amounts have been converted to U.S. dollars for the purposes of the table. For 2025 and 2024, the U.S. dollar per Canadian dollar exchange rates used for such conversions were 0.7155 and 0.7301, which were the average annual Bank of Canada exchange rates for 2025 and 2024, respectively. +Pre-approval Policies and Procedures +Our audit committee has established a policy of reviewing, in advance, and either approving or not approving, all audit, audit-related, tax and other non-audit services that our independent registered public accounting firm provides to us. This policy requires that all services received from independent registered public accounting firms be approved in advance by the audit committee or a delegate of the audit committee. The audit committee has delegated pre-approval responsibility to the chair of the audit committee with respect to audit and permissible non-audit services and any associated fees. All services that KPMG provided to us in 2025 and 2024 have been pre-approved by our audit committee. +Our audit committee has determined that the provision of the services as set out above is compatible with the maintaining of KPMG’s independence in the conduct of their auditing functions. +160 +Table o f Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a)(1) Financial Statements –The financial statements included in Item 8 are filed as part of this Annual Report on Form 10-K. +(a)(2) Financial Statement Schedules – All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this Annual Report on Form 10-K. +(a)(3) Exhibits – The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below. +(b) Exhibits – The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. +EXHIBITS INDEX +Exhibit No. Description +2.1 +Restated and Amended Transaction Agreement, dated August 18, 2022, by and among Zymeworks BC Inc., the Company, Zymeworks Callco ULC and Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +2.2 +Plan of Arrangement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +2.3 +Exchangeable Share Support Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks CallCo ULC, and Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +2.4 +Voting and Exchange Trust Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks Callco ULC, Zymeworks ExchangeCo Ltd. and the Share Trustee (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +3.1 +Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +3.2 +Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 15, 2023). +3.3 +Certificate of Elimination of Series B Participating Preferred Stock of Zymeworks Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2023). +3.4 +Certificate of Designations of Special Voting Stock of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +4.1 +Description of Capital Stock. +4.2 +Specimen common stock certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.1† +Collaboration Agreement, effective as of December 23, 2014, by and among Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 10.22 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.2† +First Amendment to Collaboration Agreement, effective as of May 29, 2017, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K furnished to the SEC on July 18, 2017 and deemed filed under the Exchange Act). +10.3* +Second Amendment to Collaboration Agreement, effective as of March 31, 2020, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +161 +Table o f Contents +Exhibit No. Description +10.4* +Third Amendment to Collaboration Agreement, dated June 22, 2020, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 5, 2020). +10.5* +Letter Agreement, effective April 20, 2021, by and between Zymeworks BC Inc. and Celgene Corporation and Celgene Alpine Investment Co. LLC. (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.6* +Fourth Amendment to Collaboration Agreement, dated August 4, 2021, by and between Zymeworks BC Inc., Celgene Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2021). +10.7† +Collaboration and License Agreement, effective as of December 1, 2015, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.23 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.8† +Side Letter Agreement effective as of January 11, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.9* +First Amendment to Collaboration and License Agreement, effective as of April 30, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.10* +Side Letter Agreement effective as of September 30, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited. (incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.11* +Side Letter Agreement effective as of February 20, 2020, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited. (incorporated by reference to Exhibit 99.6 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on March 2, 2020). +10.12* +Fifth Amendment to Collaboration and License Agreement, effective as of March 30, 2020, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.11 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed with the SEC on February 24, 2021). +10.13† +Platform Technology Transfer and License Agreement, effective as of April 21, 2016, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.24 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3, 2017). +10.14* +First Amendment to Platform Technology Transfer and License Agreement between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited, dated May 14, 2019 (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on May 17, 2019). +10.15* +Letter Agreement, effective June 4, 2021, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.7 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.16† +Collaboration and License Agreement, effective as of November 13, 2017, by and between Zymeworks BC Inc. and Janssen Biotech, Inc., (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K furnished to the SEC on November 24, 2017 and deemed filed under the Exchange Act). +10.17† +First Amendment to the Collaboration and License Agreement, effective as of January 14, 2019, by and between Zymeworks BC Inc. and Janssen Biotech, Inc. (incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.18† +License Agreement, effective as of May 14, 2018, by and between Zymeworks BC Inc. and Daiichi Sankyo Company, Limited (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on May 18, 2018). +10.19* +Termination and License Agreement by and between Zymeworks BC Inc. and Daiichi Sankyo Co., Ltd., effective as of February 28, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2023). +162 +Table o f Contents +Exhibit No. Description +10.20† +License and Collaboration Agreement, effective as of November 26, 2018, by and between Zymeworks BC Inc. and BeiGene Ltd. (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2018). +10.21* +First Amendment to Collaboration Agreement, effective March 29, 2021, by and between Zymeworks BC Inc. and BeiGene, Ltd. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021). +10.22* +Second Amendment to License and Collaboration Agreement, dated August 10, 2021, by and between Zymeworks BC Inc. and BeiGene Ltd. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2021). +10.23* +Third Amendment License and Collaboration Agreement by and between Zymeworks BC Inc. and BeiGene, Ltd., dated September 18, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 21, 2023). +10.24* +Letter Agreement, effective October 7, 2020, by and between Zymeworks BC Inc. and BeiGene, Ltd. (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.25 +Indenture of Lease dated as of January 25, 2019, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 10.29 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019). +10.26 +Notice and Acknowledgement of Exercise of Expansion Option under Lease, dated as of June 27, 2019, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +10.27 +Lease Expansion and Modification Agreement, dated as of April 16, 2020, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020). +10.28 +Third Lease Modification Agreement, dated February 17, 2021, by and between Zymeworks BC Inc. and 5th & Main Partnership (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021). +10.29 +Fourth Lease Modification Agreement, dated May 7, 2021, by and between Zymeworks BC Inc. and 5th and Main Partnership (incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021). +10.30 +Lease Amending Agreement, dated April 1, 2022, by and between Zymeworks BC Inc. and 130 E 4th Partnership (incorporated by reference to Exhibit 10.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2022). +10.31 +Notice of Assignment of Lease, dated January 1, 2022 from 5th & Main Partnership, 2000 Main Holdings Inc. and Mount Pixel Projects Limited Partnership to Zymeworks BC Inc. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2022). +10.32 +Direction to Tenants, dated July 9, 2024, from 130 E 4th(2) Partnership, 130 E 4th Property Inc., and 114 East 4th Avenue, LLC to Tenants of 114 East 4th Avenue, Vancouver, BC (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 31, 2024). +10.33# +Employment Agreement by and between Zymeworks BC Inc. and Kenneth Galbraith, dated January 5, 2022 (incorporated by reference to Exhibit 10.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on January 5, 2022). +10.34# +Amendment to Employment Agreement, dated as of December 30, 2022, by and among Kenneth Galbraith, Zymeworks BC Inc. and Zymeworks Management Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2022). +10.35# +Amendment #2 to Employment Agreement, dated as of January 3, 2024, by and among Kenneth Galbraith and Zymeworks BC Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 5, 2024). +10.36# +Employment Agreement by and between Zymeworks Pharmaceuticals Limited and Jeffrey Smith, dated January 3, 2023 (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +163 +Table o f Contents +Exhibit No. Description +10.37# +Letter, dated January 5, 2024, from Zymeworks Inc. to Jeffrey Smith (incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +10.38 # +Employment Agreement between Zymeworks Biopharmaceuticals Inc. and Leone Patterson, dated July 19, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 25, 2024). +10.39# +Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2023). +10.40# +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.73 to the Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.41# +Amended and Restated Employment Agreement by and between Zymeworks BC Inc., the Company and Paul Moore, dated July 14, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.42 +Notice of Articles of ExchangeCo (incorporated by reference to Exhibit 10.79 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.43 +Articles of ExchangeCo (incorporated by reference to Exhibit 10.80 to Amendment No. 1 to the Company’s Registration Statement on Form S-4 filed with the SEC on August 19, 2022). +10.44# +Amended and Restated Inducement Stock Option and Equity Compensation Plan (and forms of award agreements thereunder) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 25, 2024). +10.45# +Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder) and UK Sub-Plan to the Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2024) . +10.46# +Second Amended and Restated Employee Stock Option Plan of the Company (and forms of agreements thereunder) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +10.47# +Amended and Restated Employee Stock Purchase Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022). +10.48 +Sales Agreement, dated August 2, 2024, by and between the Company and TD Securities (USA) LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 2, 2024). +10.49* +Amended and Restated License and Collaboration Agreement, dated May 15, 2023, by and between Zymeworks BC Inc. and Jazz Pharmaceuticals Ireland Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2023). +10.50*, + +Stock and Asset Purchase Agreement, dated April 25, 2023, by and between Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.51*, + +Amendment No. 1 to Stock and Asset Purchase Agreement, dated May 15, 2023, by and between Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023). +10.52* +Fifth Amendment to Collaboration Agreement, effective March 3, 2025, by and between Zymeworks BC Inc. and Celgene Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2025). +10.53* +First Amendment to Research License and Commercial Option Agreement, effective July 7, 2025, by and among Merck Sharp & Dohme LLC, Intervet International B.V., and Zymeworks BC Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2025). +164 +Table o f Contents +Exhibit No. Description +10.54 +Stock Purchase Agreement, dated August 10, 2025, by and between the Company and Gregory Ciongoli (in corporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2025). +10.55* +Three - Party Royalty Payment Agreement by and among Zymewo rks BC Inc., Be One Medicines Ltd., a nd BeOne Pharmaceutical (Su zhou) Co., Ltd. , dated October 30, 2025. +10.56# +Employment Agreement by and between Mark Hollywood and Zyme works Biopharmaceuticals I nc., effective as of March 25, 20 19. +10.57# +Employment Agreement by and between Dr. Sabe en Mekan and Zymeworks Biopharmaceuticals Inc., effective as of April 21, 2025. +10.58# +Severance Agreement, Consultancy Agreement, and A ssignment and N ovation Agreement by and among Zymeworks Pharmaceuticals Limited, Zymeworks BC I nc., and Jeffrey Smith dated January 31, 2026. +10.59#, + +Separation Agreement and Release, by and between Leone Patterson and Zymeworks Biopharmaceuticals , Inc. , dated February 1, 2026. +19.1 +Insider Trading Policy. +21.1 +Subsidiaries of the Company . +23.1 +Consent of KPMG LLP, an Independent Registered Public Accounting Firm. +31.1 +Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. +31.2 +Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. +32.1 +Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2 +Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2024). +101 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, formatted in Inline XBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as at December 31, 2025 and 2024, (ii) Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the years ended December 31, 2025, 2024 and 2023, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025, 2024 and 2023, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023 and (vi) Notes to Consolidated Financial Statements. +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +___________ +† The Company has omitted portions of the referenced exhibit pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Exchange Act. +* Certain portions of this exhibit (indicated by “[…***…]”) have been omitted in accordance with Item 601(b)(10) of Regulation S-K because the omitted information is not material and the Company customarily and actually treats such omitted information as private or confidential. +# Indicates management contract or compensatory plan. ++ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but a copy will be furnished supplementally to the SEC upon request. +Item 16. Form 10-K Summary +Not applicable. +165 +Table o f Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Dated: March 2, 2026 +ZYMEWORKS INC. +By: /s/ Kenneth Galbraith +Name: Kenneth Galbraith +Title: +Chair of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth G al braith as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with Exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof. +166 +Table o f Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Kenneth Galbraith +Chair of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) +March 2, 2026 +Kenneth Galbraith +/s/ Alessandra Cesano +Director +March 2, 2026 +Alessandra Cesano +/s/ Susan Mahony +Director +March 2, 2026 +Susan Mahony +/s/ Kelvin Neu +Director +March 2, 2026 +Kelvin Neu +/s/ Carlos Campoy +Director +March 2, 2026 +Carlos Campoy +/s/ Gregory A. Ciongoli +Director +March 2, 2026 +Gregory A. Ciongoli +/s/ Robert E. Landry +Director +March 2, 2026 +Robert E. Landry +/s/ Brian N. Cherry +Director +March 2, 2026 +Brian N. Cherry +/s/ Oleg Nodelman +Director +March 2, 2026 +Oleg Nodelman +167 \ No newline at end of file diff --git a/raw/filings/0001937653/2025/0001937653-26-000015/filing_metadata.csv b/raw/filings/0001937653/2025/0001937653-26-000015/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..65135d6277269391924b6e558119394e140e67f2 --- /dev/null +++ b/raw/filings/0001937653/2025/0001937653-26-000015/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001937653,ZYME,Zymeworks Inc.,2025,10-K,2026-03-02,2025-12-31,2026-03-02T11:28:07.000Z,0001937653-26-000015,zyme-20251231.htm,10-K,16316856,1,1,https://www.sec.gov/Archives/edgar/data/1937653/000193765326000015/zyme-20251231.htm,https://www.sec.gov/Archives/edgar/data/1937653/000193765326000015/ diff --git a/raw/filings/0001937653/2025/0001937653-26-000015/item1.txt b/raw/filings/0001937653/2025/0001937653-26-000015/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..7705ddd99de70a640610cedb29d30b6bb4ed0951 --- /dev/null +++ b/raw/filings/0001937653/2025/0001937653-26-000015/item1.txt @@ -0,0 +1,325 @@ +Item 1. Business +Overview +Zymeworks is a global biotechnology company managing a portfolio of licensed healthcare assets and developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat conditions, including cancer, inflammation, and autoimmune disease. We believe our asset and royalty aggregation strategy differentiates us from other biotechnology companies because it provides us with an opportunity to optimize future milestone and royalty cash flows and selectively invest in high-quality assets while retaining the flexibility to return capital to stockholders. +Our Strategy +Our strategy is focused on compounding long-term stockholder value through a combination of royalty growth, strategic acquisitions, and internal innovation, supported by disciplined capital allocation and a strengthened financial foundation through expected milestone payments and royalties from existing commercial partners. We pursue this strategy by discovering or acquiring and developing a diversified portfolio of preclinical or clinical healthcare assets while also evaluating strategic partnership opportunities to transfer certain costs and risks related to clinical development a nd/or commercialization to our strategic partners and secure the right to receive potential future royalty and milestone revenues. The following elements collectively support the execution of our strategy. +Proprietary Technology Platforms and R&D Engine +We seek to leverage our expertise in protein engineering and drug chemistry to discover and develop next-generation antibody-based therapeutics to address significant unmet medical needs, particularly in hard-to-treat diseases. Our proprietary structure-guided molecular modeling, combined with internal antibody discovery and generation technologies, supports a fully integrated drug development engine capable of efficiently advancing a pipeline of innovative product candidates. +Our pipeline of multifunctional therapeutics is supported by our multispecific antibody therapeutics (“MSATs”) and antibody-drug conjugates (“ADCs”) technology platforms, which enable the development of novel therapeutics in cancer, inflammation, and autoimmune disease and create opportunities for new partnerships. +Strategic Partnerships and Risk-Sharing +Partnerships and collaborations are central to our strategy as a potential source of funding for ongoing research and development while also reducing reliance on internal capital for later-stage clinical development of partnered assets. These arrangements enable risk sharing, particularly in late-stage development, and support disciplined R&D investment, which can reduce the need to use future milestone and royalty payments to fund planned operations. +Royalty Portfolio and Cash Flow Generation +Through our asset and royalty aggregation strategy, we seek to optimize future cash flows from a growing portfolio of licensed products and product candidates, including Ziihera (zanidatamab-hrii) and pasritamig. As partnered therapies advance through late-stage development and commercialization, we expect to grow durable and predictable cash flows that can be deployed by us in order to seek attractive risk-adjusted returns for stockholders. +Stockholder Returns and Capital Allocation Discipline +Our capital allocation strategy is focused on balancing investment in long-term growth with returning capital to stockholders. As our royalty portfolio matures and generates excess capital beyond the needs of our operations and strategic investments, we maintain the flexibility to opportunistically allocate capital to stock repurchases. We view stock repurchases as a potential tool to strategically reduce our share count and enhance total stockholder return over time, while continuing to prioritize investments that can help support sustainable value creation. Decisions regarding capital returns are evaluated within the context of our liquidity position, future cash flow outlook, and overall strategic objectives. +Strategic Acquisitions +We intend to evaluate and selectively acquire programs, technologies, product candidates and/or companies with high-quality assets or partnerships that align with our strategic objectives. By applying our scientific expertise, development capabilities, and +7 +Table o f Contents +operational efficiencies, we seek to enhance asset value and generate new royalty streams. In evaluating acquisition opportunities, we consider multiple factors, including: +• Strategic fit; +• Royalty potential; +• Differentiated assets or platform; +• Potential to address an unmet medical need; +• Adequate intellectual property protection; and +• Favorable cash or tax attributes. +Royalty and Milestone Opportunities +Zanidatamab (Ziihera) +We maintain a portfolio of partnered programs that leverage our technology platforms and scientific expertise while enabling risk-sharing and the potential for near-term milestone and royalty-based returns. +Zanidatamab, our first internally developed product candidate to receive regulatory approval, illustrates the execution of this partnership-based approach. Ziihera (zanidatamab-hrii), a bispecific antibody targeting HER2-expressing tumors developed using our Azymetric platform, has demonstrated positive late-stage clinical results and achieved regulatory approvals for the treatment of HER2-positive (“HER2+”) (IHC 3+) biliary tract cancer (“BTC”) in multiple jurisdictions including the United States, China, Europe and Canada. We have entered into separate collaboration and license agreements with BeOne Medicines Ltd. (formerly BeiGene, Ltd. and, together with its affiliates, “BeOne”) and Jazz Pharmaceuticals Ireland Limited, a subsidiary of Jazz Pharmaceuticals plc (collectively with their affiliates, “Jazz”), granting each partner exclusive rights to develop and commercialize zanidatamab in different territories. Jazz intends to complete the supplementary biologic license application (“sBLA”) submission for zanidatamab in the first quarter of 2026 for the treatment of first-line HER2+ locally advanced or metastatic gastroesophageal adenocarcinoma (“GEA”) under the real-time oncology review program in the United States, where zanidatamab has been granted Breakthrough Therapy Designation for patients with HER2+ GEA. Additionally, zanidatamab is currently being evaluated in multiple global clinical trials for treatment of broader HER2-expressing indications including neoadjuvant populations, breast cancer, and other HER2-expressing cancers. Our partnerships with Jazz and BeOne reflect our strategy of advancing internally discovered programs through collaborations that share development risk while preserving the potential for long-term royalty and milestone revenues. +In addition to $53.0 million already received for regulatory approval of Ziihera in BTC, we are entitled to receive up to $440.0 million in near-term milestone payments from Jazz and BeOne related to approvals of Ziihera in GEA in the United States, Europe, Japan and China as follows: U.S. - $250.0 million; EU - $100.0 million; Japan - $75.0 million; China - $15.0 million. We also expect that royalty revenue from Ziihera sales will increase as potential regulatory approvals are obtained in global markets for GEA. +We also have the potential to receive milestone payments related to future regulatory approvals in a third indication totaling $89.0 million, collectively, from Jazz and BeOne. For Jazz this includes a $50.0 million milestone payment upon regulatory approval of zanidatamab from the FDA in a third indication and a $25.0 million milestone payment upon regulatory approval of zanidatamab from the European Commission in a third indication. For BeOne this includes $4.0 million payable upon first patient dosed with zanidatamab in a third registrational study in the territory and $10.0 million upon approval of zanidatamab by a regulatory authority for the third indication in the territory. +In addition, we could be eligible to receive future commercial milestones and increased royalties as additional indications of Ziihera are developed, approved and commercialized by Jazz and BeOne. Under our collaboration agreement with Jazz, we are eligible to receive tiered royalties of ten to high teens percentages on global (outside of Asia (other than Japan), Australia and New Zealand) annual net sales of Ziihera up to $2.0 billion and 20% on annual net sales above $2.0 billion. Under the collaboration agreement with BeOne, we are eligible to receive tiered royalties of mid-single to mid-double digit percentages on annual net sales of Ziihera in Asia (other than Japan), Australia and New Zealand up to $1.0 billion and 19.5% on annual net sales above $1.0 billion (with royalty rates increasing by 0.5% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars). +8 +Table o f Contents +Pasritamig (JNJ-78278343) +Pasritamig is a first-in-class, bispecific T cell engager (“TCE”) targeting human kallikrein 2 (“KLK2”), and was engineered using Zymeworks’ Azymetric platform. Pasritamig has demonstrated promising safety and antitumor activity in Phase 1 clinical trials. In September 2025, Johnson & Johnson Innovative Medicine (formerly Janssen Inc., “J&J”) announced the initiation of multiple Phase 3 clinical trials evaluating pasritamig as both monotherapy and in combination regimens in castration resistant prostate cancer. +Platform Partnerships +In 2025, we earned $69.9 million in milestone payments, an option exercise fee and a research period extension fee from collaboration partners Celgene Corporation and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company, “BMS”), GlaxoSmithKline Intellectual Property Development Limited (“GSK”), Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”), J&J, Merck Sharp & Dohme Research GmbH (“Merck”), primarily related to legacy platform collaboration agreements, as well as from BeOne related to our zanidatamab collaboration agreement. For additional information regarding these agreements, see the section titled “Strategic Partnerships and Collaborations” below. +Royalty Pharma Loan Arrangement +On March 2, 2026, Zymeworks BC entered into a sale agreement (the “Sale Agreement”) with Zymeworks Royalty Limited Partnership (the “Subsidiary”), a special purpose entity newly formed by Zymeworks BC and by its general partner Zymeworks General Partner ULC (“Zymeworks GP”) , under which Zymeworks BC sold to the Subsidiary 30% of future royalty payments (not to exceed 120% of the maximum amount payable (excluding indemnification and other similar obligations) by the Subsidiary under the Loan Agreement (as defined below) related to Ziihera receivable under the Jazz Collaboration Agreement and Zanidatamab Agreement (each as defined below, and together, the “Covered Agreements”) at a purchase price of $250.0 million (such Ziihera-related assets and rights sold to the Subsidiary, the “Royalty Interest”). +Following the sale and transfer of the Royalty Interest, the Subsidiary entered into a Loan Agreement (the “Loan Agreement”), dated March 2, 2026, with Royalty Pharma Development Funding, LLC (“Royalty Pharma”) as administrative agent and lender, pursuant to which the lenders party to the Loan Agreement made a term loan to the Subsidiary (the “Loan”) in an aggregate principal amount of $250.0 million (the “Loan Amount”), that bears interest at a fixed rate and matures on December 31, 2042 (the “Maturity Date”). Under the terms of the Loan Agreement, the amount payable to the lenders no later than the Maturity Date is approximately $481.3 million, provided that if the Loan is repaid in full on or before December 31, 2033, the amount payable to the lenders is $412.5 million, in each case inclusive of all applicable interest, yield protection premiums, early redemption fees, exit fees and other amounts payable under the Loan Agreement (excluding indemnification and similar obligations). Any amount borrowed and repaid by Subsidiary may not be reborrowed. +We will retain 70% of royalties on Ziihera annual net sales, with full royalty rights reverting to us once the Loan and other amounts payable under the Loan Agreement to Royalty Pharma have been repaid in full. All earned regulatory and commercial milestone payments under the Covered Agreements will be retained by us. For additional information regarding this arrangement, see the section titled “Liquidity and Capital Resources” under Part II. Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” below. +Wholly-Owned Pipeline +Our wholly-owned programs include novel ADC and MSAT candidates, such as TCEs, focusing on highly-expressed targets which provide opportunities for benchmarking in preclinical development and expected clinical differentiation. Our ADC candidates exploit our proprietary topoisomerase 1 inhibitor (“TOPO1i”) payload, ZD06519, while exploring alternate mechanisms of action for longer-term development and leveraging validated peptide-cleavable linkers and stochastic conjugations. With potential for enhanced activity compared to combination therapy, our current MSAT candidates (ZW209 and ZW1528) include trispecific TCEs (“TriTCE”) incorporating conditional co-stimulation to enhance immune-mediated killing of cancer cells, and multi-cytokine blockers for treatment of autoimmune and inflammatory diseases. Our TriTCE molecules are carefully designed to optimize tumor cell engagement and enhance T cell activation to increase anti-tumor activity while also minimizing cytokine release and off-tumor toxicities. +9 +Table o f Contents +Solid Tumors in Oncology: Antibody-Drug Conjugates (ADCs) +ZW191: A clinical-stage ADC that targets folate receptor alpha (“FRα”)-expressing tumors including ovarian cancer, endometrial cancer, and non-small cell lung cancer (“NSCLC”), is built using our novel, bystander-active, TOPO1i payload technology, ZD06519. The FRα-targeting monoclonal antibody incorporated in ZW191 was selected based on compelling internalization characteristics to enable targeting of high, mid, and low levels of FRα expression. A drug-antibody-ratio (“DAR”) of eight was selected due to the restricted expression profile of FRα in normal tissues and to enhance our ability to deliver payload to tumors with lower levels of FRα. FRα is a clinically validated target, found in approximately 75% of high-grade serous ovarian carcinomas, 50% of endometrial cancers, and in 70% of NSCLC. Preclinical data demonstrate strong ZW191 activity across a range of FRα-expressing patient-derived xenografts, including models with low levels of FRα. The ability to target lower levels of FRα is in part due to the DAR-eight format and the observed superior internalization, payload delivery, and tissue penetration derived from the ZW191 monoclonal antibody compared to other FRα monoclonal antibodies used in ADCs currently or previously in development. In a good laboratory practices (“GLP”) toxicology study, ZW191 achieved a highest non-severely toxic dose (“HNSTD”) in non-human primates of 60 mg/kg, which presents a compelling profile and enables the expectation of potentially achieving an efficacious dose level in the Phase 1 clinical trial. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW191, registered under NCT06555744 on clinicaltrials.gov. The study aims to enroll approximately 145 participants with advanced solid tumors, including ovarian, endometrial, and non-small cell lung cancers, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ascending doses of ZW191. In October 2025, we presented initial clinical data from the Phase 1 trial. Based on the preliminary efficacy data and the tolerable safety profile observed, we have initiated dose optimization in ovarian cancer to further evaluate ZW191’s clinical activity and safety to help inform the product candidate’s registrational strategy. +ZW251: A potential first-in-class clinical-stage ADC molecule designed for the treatment of glypican 3 (“GPC3”)-expressing hepatocellular carcinoma (“HCC”), incorporates the same Zymeworks proprietary bystander-active TOPO1i payload utilized in ZW191 (anti-FRα) and ZW220 (anti-NaPi2b), ZD06519. The GPC3-targeting monospecific antibody incorporated in ZW251 was selected based on favorable binding and internalization properties to enable targeting of a range of GPC3-expressing tumors. A DAR of four was selected for this program as a lower DAR potentially could unlock a broader range of dose levels, a potential benefit as HCC patients are commonly challenged by impairment of liver function as a result of chronic liver disease and cirrhosis. GPC3, a glycosylphosphatidylinositol (“GPI”)-anchored cell surface oncofetal antigen, is over-expressed in most HCC patients (>75%), and displays minimal normal adult tissue expression, making it an appealing ADC target. In preclinical studies, anti-tumor activity for ZW251 was observed in multiple patient-derived xenograft models of HCC reflecting a range of GPC3 over-expression. In GLP toxicology studies performed in non-human primates, ZW251 achieved a highest non-severely toxic dose (“HNSTD”) of 100 mg/kg, suggesting the potential for high doses in humans. We are encouraged by published research demonstrating the potential of targeting GPC3 with an antibody in HCC patients as evidenced by tumor localization of iodine radio-labeled condrituzumab, a clinical-stage anti-GPC3 monoclonal antibody, and believe that ADC-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC. In July 2025, we announced that the investigational new drug (“IND”) application for ZW251 was cleared by the FDA. We are currently recruiting patients in an ongoing global Phase 1, open-label, multicenter study of ZW251, registered under NCT07164313 on clinicaltrials.gov. The study aims to enroll approximately 100 participants with advanced solid tumors, including HCC, across North America, Europe, and the Asia-Pacific region. The study is designed to evaluate the safety, tolerability, pharmacokinetics, and preliminary anti-tumor activity of ZW251. +ZW220: An ADC that targets NaPi2b-expressing NSCLC and ovarian cancer, is built, like ZW191, using our proprietary bystander active TOPO1i payload technology, ZD06519. The strong and persistent bystander effect of the ZD06519 payload that we have observed in preclinical studies may help overcome NaPi2b heterogeneity across different cancers. The NaPi2b-targeting monospecific antibody incorporated in ZW220 was selected based on a favorable binding profile and enhanced internalization properties to enable targeting of both Napi2b-high and NaPi2b-low expressing tumors. Distinct from ZW191, ZW220 utilizes a DAR-four format paired with mutations in the fragment crystallizable (“Fc”) region to attenuate binding to Fc-gamma family receptors. These features were incorporated in ZW220 with the goal of minimizing potential toxicities associated with expression of NaPi2b in normal lung tissue. NaPi2b is expressed in approximately 83% of ovarian (serous) cancer, 81% of endometrial cancer, and 77% of adenocarcinoma NSCLC. Preclinical data demonstrate that ZW220 is active in models of ovarian cancer and NSCLC with strong anti-tumor activity observed in patient-derived xenograft models and growth inhibition observed in three-dimensional spheroid models. ZW220 is tolerated at high doses in non-GLP animal studies with a maximum tolerated dose (“MTD”) ≥90 mg/kg in non-human primates and ≥200 mg/kg in rats, suggesting the potential for high doses in humans. NaPi2b is a compelling ADC target, and we believe the design of ZW220 may overcome some of the challenges encountered with other NaPi2b-targeted ADCs, including Lifa-V, UpRi, and XMT-1592, and may potentially provide a safe and meaningful benefit to patients with NaPi2b-expressing tumors. We have paused the preparations for the +10 +Table o f Contents +commencement of a Phase 1 study of ZW220 to help facilitate the accelerated development of ZW251. However, we believe ZW220 remains a highly differentiated, IND-ready asset with strong clinical, commercial, and partnership potential. +Solid Tumors in Oncology: Multispecific Antibody Therapeutics (MSATs) +ZW209: A novel TriTCE targeting Delta-like ligand 3 (“DLL3”)-expressing tumor cells, is designed using our clinically validated Azymetric and EFECT platforms. By leveraging obligate cis-T cell binding and conditional cluster of differentiation 28 (“CD28”) engagement, this potentially first-in-class molecule has been designed to prevent unintended T cell activation, while enabling tumor-targeted cytotoxicity. The innovative design has demonstrated differentiated long-term cytotoxicity in vitro at low E:T (effector to target) ratios, with enhanced T cell proliferation and survival, offering significant potential to increase durability of responses in DLL3-expressing cancers. We expect to submit an IND to commence Phase 1 clinical studies for ZW209 in 2026, with equivalent non-U.S. applications to be submitted thereafter. +Autoimmune and Inflammatory Diseases (AIID) +ZW1528: Our first program in AIID, is a novel IL-4R⍺ x IL-33 bispecific molecule designed to address respiratory inflammation such as mixed-type chronic obstructive pulmonary disease (“COPD”) by inhibiting multiple pathways. By blocking three cytokines (IL-4, IL-13, and IL-33) in a single biologic, ZW1528 offers a unique approach to inhibit clinically validated pathways. The bispecific antibody is designed to provide complete, prolonged IL-4R⍺ blockade with simultaneous blockade of IL-33. Based on non-clinical in vitro studies, the bispecific can independently suppress IL-4, IL-13, and IL-33 driven cell signaling equivalent to that achieved with anti-IL-4R⍺ monoclonal antibody (“mAb”) or anti-IL-33 clinical benchmarks mAbs. Furthermore, in preclinical studies, ZW1528-mediated blockade of cytokine-driven activation of human epithelial cells was superior to that achieved with mAbs targeting either IL-4R⍺ or IL-33, indicating potential benefits of dual blockade. Additionally, preclinical studies with human peripheral blood mononuclear cells (“PBMCs”) demonstrate ZW1528 provides blockade of IL-33 mediated effects beyond that achievable with an anti-IL33 benchmark mAb. With native Immunoglobulin G (“IgG”)-like geometry, ZW1528 demonstrates the potential for high manufacturability and incorporates half-life extending Fc modifications. We expect to submit a non-U.S. regulatory filing to commence Phase 1 clinical studies for ZW1528 in 2026. +Continued Pipeline Development +Going forward, we currently expect to focus our ADVANCE research efforts primarily on multispecific antibody and engineered-cytokine platforms. We anticipate that these activities will be partially supported through early-stage partnerships and collaborations. ZW1528 is currently expected to be the first ADVANCE program to enter clinical studies in 2026. We also intend to continue disseminating scientific findings through peer-reviewed publications and data presentations across our preclinical and clinical programs, as appropriate. +With respect to our ADC portfolio, we currently expect to continue conducting Phase 1 clinical studies for ZW191 and ZW251 during 2026. We also intend to advance our other ongoing ADC research programs, including potential clinical development of ZW220, ZW327, and ZW418, a biparatopic PTK7-targeting ADC incorporating a novel pan-RAS inhibitor payload, only if and when partnerships, collaborations, and/or other sources of external funding become available. +We intend to continue innovating with increased novelty in targets and unique mechanisms of action through bispecific or biparatopic ADCs, dual-payload ADCs, multi-specific immune cell engagers and immune-oncology, subject to strategic priorities, and the availability of resources. +Our Proprietary Therapeutic Platforms +Our expertise in protein engineering has enabled the development of our proprietary therapeutic platforms, a complementary suite of highly tailored biologics solutions. Our therapeutic platforms can be used alone or in combination to develop multifunctional fit-for-purpose biotherapeutics with bispecific capabilities (Azymetric), targeted cytotoxin payload delivery and linker technologies (drug conjugate platforms), finely tuned immune function modulation (EFECT), and tumor-specific immune co-stimulation (ProTECT). The modular design and ease of use of our therapeutic platforms allow for the design and evaluation of multiple candidates with different formats to determine the optimal therapeutic combination early in development. We continue to leverage these therapeutic platforms to expand our pipeline of next-generation multispecific and ADCs that we believe could represent significant improvements to the standard of care in multiple cancer types and other serious diseases. +11 +Table o f Contents +Azymetric Multispecific Antibody Platform +The Azymetric multispecific antibody platform is our foundation platform, which can produce either the backbone of our ADCs or be the base of our multispecific therapeutics that can be combined with both our TriTCE technology and our ProTECT platform to develop potential best-in-class trispecifics. The FDA approval of zanidatamab in 2024 provides validation of our proprietary Azymetric technology and capabilities for design and development of novel medicines. The Azymetric platform consists of a library of proprietary amino acid substitutions that enable the transformation of monospecific antibodies into bispecific or trispecific antibodies, which gives them the ability to simultaneously bind two non-overlapping epitopes. The Azymetric platform enables the development of biotherapeutics with dual-targeting of receptors/ligands and simultaneous blockade of multiple signaling pathways, increasing tumor-specific targeting and efficacy while reducing toxicities and the potential for drug resistance. In preclinical studies, the dual targeting of Azymetric antibodies has demonstrated synergistic activity relative to the application of an equivalent dose of the corresponding monospecific antibodies. Azymetric multispecifics can also be engineered to enhance internalization of the antibody into the tumor cell and consequently increase the delivery of cytotoxins. Azymetric multispecifics retain the desirable drug-like qualities of monoclonal antibodies, including long half-life, stability and low immunogenic potential, which increases their probability of success. Azymetric multispecifics are also compatible with standard manufacturing processes with high production yields and purity. +The Azymetric platform is the foundation for the development of trispecific and trivalent antibodies. Our complementary suite of technologies can incorporate multiple targets and mechanisms of action within a single antibody-based therapeutic. To achieve efficacy and durability in a difficult tumor microenvironment, we have developed a TriTCE strategy that integrates checkpoint inhibition (“TriTCE-CPI”) and costimulatory technologies (“TriTCE-costim”). TriTCE-CPI technology is designed to navigate suppressive tumor microenvironments and enhance the activity of TCEs through incorporation of a checkpoint pathway binder to restore and enhance T cell engagement and overcome secondary resistance to provide durable responses. TriTCE-costim technology can increase T cell fitness, activation and proliferation via tumor-dependent T cell co-stimulation. Further, TCE technologies can integrate with ProTECT, a technology built to mask an antibody arm to improve selectivity to minimize off-target, and mitigate on-target, adverse events. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including both topoisomerase and microtubulin inhibiting toxins), stable linkers, and conjugation technologies that are compatible with and complementary to our product candidates and enable delivery of cytotoxins directly to target cells. We believe that our platforms provide multiple competitive advantages over existing ADC approaches, including optimized activity and tolerability profiles through increased drug delivery to target cells with reduced off-target effects, as well as improved pharmacokinetics and stability. Our drug conjugate platforms can be used in conjunction with our other therapeutic platforms to potentially increase safety and efficacy as compared to existing ADC platforms. +Our TOPO1i ADC platform is one of several proprietary Zymeworks linker-payload platforms. TOPO1i-based technologies have shown meaningful clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets. Our novel camptothecin ZD06519 (FD1) has been specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-7 and C-10 positions of the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug-linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a free molecule and as an antibody conjugate, which include moderate free payload potency (~1 nanomolar (“nM”)), low hydrophobicity, strong bystander activity, robust plasma stability, and high-monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive efficacy in multiple cell-derived xenograft models and noteworthy tolerability in healthy mice, rats, and non-human primates. +EFECT Antibody Effector Function Modulation Platform +The EFECT platform consists of sets of modifications to the Fc region of antibodies that enable the selective modulation of recruited cytotoxic immune cells for diverse therapeutic applications. This allows us to rationally tailor the selective enhancement or suppression of immune effector function to optimize product candidates. +ProTECT Tumor-Specific Immune Co-stimulation Platform +The ProTECT platform is a novel conditionally active antibody technology that can simultaneously increase the tolerability and efficacy for therapeutics, thereby potentially enhancing therapeutic window and clinical utility. Functional, natural +12 +Table o f Contents +immunomodulatory heterodimers are introduced to sterically block antigen binding outside the tumor, enabling therapeutics with limited activity in normal healthy tissue, avoiding on-target, off-tumor toxicities. Once in the tumor microenvironment, specific proteases cleave and release one half of the functional block activating both the targeting antibody and the immunomodulatory function. The resulting activated multifunctional therapeutic enables immune modulation in concert with antigen binding, which enables an overall increase in the therapeutic window through selective tumor activity and enhanced potency. +Strategic Partnerships and Collaborations +Our novel product candidates, together with our combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutics. +Thr ough c ollaboration agreements with Jazz and BeOne relating to our programs for zanidatamab and zanidatamab zovodotin, we have received an aggregate of $491.0 million through December 31, 2025 in the form of non-refundable upfront payments and milestone payments. In addition, through these partnerships with Jazz and BeOne with respect to zanidatamab, as of December 31, 2025, we remain eligible to receive up to $1.51 billion in potential regulatory, development and commercial milestone payments, as well as tiered royalties on potential future product sales, pending receipt of applicable regulatory approvals.Under our collaboration agreement with Jazz, we are eligible to receive tiered royalties of ten to high teens percentages on global (outside of Asia (other than Japan), Australia and New Zealand) annual net sales of Ziihera up to $2.0 billion and 20% on annual net sales above $2.0 billion. Under the collaboration agreement with BeOne, we are eligible to receive tiered royalties of mid-single to mid-double digit percentages on annual net sales of Ziihera in Asia (other than Japan), Australia and New Zealand up to $1.0 billion and 19.5% on annual net sales above $1.0 billion (with royalty rates increasing by 0.5% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars). +These partnerships have provided us with a significant source of non-dilutive funding and provide for additional future direct funding by our strategic partners for our lead asset, zanidatamab. These partnerships also leverage our strategic partners’ commercial infrastructure, helping accelerate the development and expanding the potential reach of our lead product candidates. +The information included in the table below presents a summary of key aspects of our collaboration and licensing agreements as of December 31, 2025. +________________________ +(1) Current stage and therapeutic indication reflects the current preclinical, clinical or commercial stage of development for the most advanced program under the partnership, as applicable. +13 +Table o f Contents +(2) Figures reflect all potential future milestone payments under the applicable agreement, including, but not limited to, the lead asset. See further discussion of each partnership below. +(3) Tiered royalties of up to 19.5% of annual net sales in BeOne territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars. +Product Partnerships +Jazz +In October 2022, we entered into a license and collaboration agreement with Jazz (“Original Jazz Collaboration Agreement”; as amended in April 2023, “Amended Jazz Collaboration Agreement” and collectively with the Original Jazz Collaboration Agreement, the “Jazz Collaboration Agreement”). Under the Jazz Collaboration Agreement, Jazz is solely responsible for all development and commercialization rights for zanidatamab throughout the world, excluding existing Asia-Pacific territories (other than Japan) already governed by Zymeworks BC Inc.’s (“Zymeworks BC”) agreement with BeOne (“Territory”). +As part of our collaboration, we granted to Jazz certain exclusive and non-exclusive licenses, under our intellectual property, to research, develop, manufacture, and commercialize pharmaceutical products containing or incorporating zanidatamab or certain related antibodies excluding ADCs (such antibodies, collectively, “Licensed Antibodies,” and such pharmaceutical products, “Licensed Products”). +Jazz also granted us certain licenses, under Jazz’s intellectual property, to develop, commercialize, and manufacture the Licensed Antibodies and Licensed Products including to make and have made such antibodies for incorporation into zanidatamab zovodotin for development and commercialization purposes. +During the Term (as defined below), Jazz and its affiliates are prohibited from performing any clinical development of, or commercialization of, any pharmaceutical product containing a bispecific antibody directed to the ECD2 and ECD4 domains of HER2 in the Territory, other than Licensed Products. During the Term, Zymeworks BC and its affiliates are prohibited from (i) performing any preclinical development (except for certain independent, internal preclinical development by Zymeworks BC or its affiliates) or clinical development of, or commercializing, any pharmaceutical product that is directed to HER2 in the Territory (each, a “Zymeworks Competing Product”), other than Licensed Products and (ii) using clinical data resulting from certain clinical trials regarding zanidatamab that were being conducted or initiated by Zymeworks BC (the “Program”) to perform any pre-clinical development or clinical development, or commercialization of, any pharmaceutical product that is directed to HER2; provided that zanidatamab zovodotin is excluded from each restriction. Zymeworks BC retains the right to grant third parties rights to apply any of Zymeworks BC’s platforms to derive or generate, without any assistance from Zymeworks BC, antibodies directed to any biological target where Zymeworks BC is not aware of the identity of any such target, and Zymeworks BC retains the right to fulfill its obligations under agreements with its existing platform partners; provided, however, that Zymeworks BC cannot generate, or grant development or commercialization licenses to, Zymeworks Competing Products in new platform-based agreements entered into after the effective date of the Original Jazz Collaboration Agreement. +Jazz is required to use commercially reasonable efforts to develop and obtain regulatory approval for a Licensed Product in certain major market countries for the treatment of certain diseases. Jazz will be the holder of regulatory approvals and regulatory submissions for Licensed Products in the Territory. +Zymeworks BC will continue to supply zanidatamab and Licensed Product to certain clinical sites pursuant to the terms of the Jazz Collaboration Agreement. +Zanidatamab ( Ziihera) received accelerated approval from the FDA in November 2024 for the treatment of adults with previously treated, unresectable or metastatic HER2+ (IHC 3+) BTC. Jazz is conducting the confirmatory trial for Ziihera related to the accelerated approval. In July 2025, Zymeworks’ partner, Jazz, announced that the European Commission granted conditional marketing authorization of zanidatamab for the treatment of adults with unresectable locally advanced HER2+ (IHC 3+) BTC. In January 2026, the New Drug Submission for Ziihera was approved by Health Canada for the treatment of adults with previously treated, unresectable locally advanced or metastatic HER2+ (IHC 3+) BTC, as monotherapy. Ziihera’s market authorization in Canada has been issued with conditions, pending the results of trials to verify its clinical benefit. O ur strategic partner Jazz expects to complete the sBLA submission for zanidatamab in the first quarter of 2026 for first-line HER2+ locally advanced or metastatic GEA under the real-time oncology review program in the United States, where zanidatamab has been granted Breakthrough Therapy Designation for patients with HER2+ GEA. +14 +Table o f Contents +Jazz is solely responsible for commercializing the Licensed Products in the Territory and is required to use commercially reasonable efforts to commercialize in each specified major market country each Licensed Product that obtains regulatory approval in such country. Jazz is required to conduct such commercialization at its sole cost and expense. Under the Jazz Collaboration Agreement, as of December 31, 2025 we have received (i) a non-refundable $50.0 million upfront payment following receipt of HSR Clearance and delivery of licenses and technology transfer to Jazz, (ii) a further payment of $325.0 million following Jazz’s decision to continue the collaboration after readout of the top-line clinical data from HERIZON-BTC-01, in addition to our delivery of other data, analyses and other information, and (iii) a milestone payment of $25.0 million in relation to FDA approval of Ziihera (zanidatamab-hrii) for the treatment of HER2+ BTC. As of December 31, 2025, we remain eligible to receive up to an aggre gate of $500.0 million in certain regulatory milestones payments and up to an aggregate of $862.5 million in potential co mmercial milestone payments. W e are also eligible to receive tiered royalties between 10% and 20% on annual net sales of Licensed Products in the Territory, with customary reductions in specified circumstances. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country basis until the latest of (i) ten years after the first commercial sale of such Licensed Product in such country, (ii) the expiration of the last valid licensed patent claim within certain Zymeworks BC intellectual property covering such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity of such Licensed Product in such country. The term of the Amended Jazz Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the royalty term for such Licensed Product in such country (the “Term”). The Amended Jazz Collaboration Agreement contains customary termination rights for Jazz and us, including the right for Jazz to terminate the agreement in its sole discretion with advance notice to us. We may also terminate the Amended Jazz Collaboration Agreement if Jazz or its affiliates file or initiate a patent challenge against us. +In May 2023, we also entered into a stock and asset purchase agreement with Jazz Pharmaceuticals, Inc. ( “ Jazz Inc. ” ) (as amended, the “Transfer Agreement”) to provide for a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz Inc. by transferring certain assets, contracts and employees associated with the clinical trials for zanidatamab to Jazz Inc. and its affiliates. +Pursuant to the Transfer Agreement, at the closing thereunder , (i) Jazz acquired from Zymeworks Biopharmaceuticals Inc. ( “ ZBI ”) 100% of the issued and outstanding capital stock of Zymeworks Zanidatamab Inc. ( “ ZZI, ” a subsidiary of ZBI); (ii) Jazz engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and the Company transferred to Jazz or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that worked on the Program; (iii) Jazz and its affiliates acquired from Zymeworks BC and ZBI and their affiliates the Acquired Assets (as defined in the Transfer Agreement); and (iv) Jazz and its affiliates assumed certain liabilities arising following the closing under the Transfer Agreement related to the Acquired Assets and the Program, including with respect to the transferred service providers, in each case subject to the terms and conditions of the Transfer Agreement. No shares of the Company’s common stock were sold by the Company or acquired by Jazz Inc. and its affiliates in connection with such transactions under the Transfer Agreement. +BeOne +In November 2018, we entered into agreements with BeOne whereby we granted BeOne royalty-bearing exclusive licenses for the research, development, and commercialization of zanidatamab and zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia, and New Zealand (such agreement relating to z anidatamab, as amended or modified, the “Zanidatamab Agreement,” and such agreement relating to zanidatamab zovodotin, the “Zovodotin Agreement”). In September 2023, Zymeworks BC and BeOne entered into a termination agreement relating to the Zovodotin Agreement (the “Termination Agreement”). +For the research, development and commercialization licenses to zanidatamab and zanidatamab zovodotin, we received an upfront payment of $40.0 million. Under the Zanidatamab Agreement, as of December 31, 2025 we have received milestone payme nts of $51.0 million, including $28.0 million in milestone payments received from BeOne in relation to the acceptance by the Center for Drug Evaluation ( “ CDE ”) of the National Medical Products Administration ( “ NMPA ”) in China of the BLA for zanidatamab for second-line treatment of HER2+ BTC and subsequent approval of this BLA. As of December 31, 2025, we remain eligible to receive development and commercial milestone payments of u p to $144.0 million, together with tiered royalties of up to 19.5% of annual net sales in BeOne territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low double-digit million s of dollars. In May 2025, BeOne announced that the NMPA in China granted conditional approval of zanidatamab for the treatment of patients with previously treated, unresectable or metastatic HER2+ (IHC3+) BTC. Under the Zanidatamab Agreement, Zymeworks and BeOne are collaborating on certain global clinical studies and both Zymeworks and BeOne will independently conduct other clinical studies in their own respective territories. Each of Zymeworks and BeOne are responsible for all of the development and commercialization costs in +15 +Table o f Contents +their own territories. Unless earlier terminated, the Zanidatamab Agreement will terminate on a licensed product-by-product and country-by-country basis upon the expiration of the royalty term in such country for such licensed product. The Zanidatamab Agreement may be terminated by BeOne upon prior written notice or by either party upon the other party’s bankruptcy or uncured material breach. +As noted above, the Zovodotin Agreement was terminated under the Termination Agreement. The Termination Agreement does not relieve us or BeOne from obligations under the Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeOne intellectual property with respect to zanidatamab zovodotin. +Platform Partnerships +In addition to the payments we have received through our collaboration agreements with Jazz and BeOne relating to zanidatamab and zanidatamab zovodotin, as of December 31, 2025, we have received $233.4 million in the form of non-refundable upfront and milestone payments from platform partnership and collaboration agreements. We continue to have revenue-generating strategic partnerships and collaborations with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms with the following pharmaceutical companies: BMS, GSK, Daiichi Sankyo, J&J, and Merck. As of December 31, 2025, we remain eligible to receive up to $0.98 billion in preclinical and development milestone payments and up to $3.08 billion in commercial milestone payments, as well as tiered royalties on potential future product sales, pending regulatory approval. It is possible, however, that our strategic partners’ programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets using our platforms. +BMS +In December 2014, we entered into a collaboration agreement with Celgene (now BMS) to research, develop and commercialize bispecific antibodies generated through the use of our Azymetric platform. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. Under the terms of the agreement, we granted BMS a right to exercise options to worldwide, royalty-bearing, antibody sequence pair-specific exclusive licenses to research, develop and commercialize certain licensed products. We received an upfront payment of $8.0 million and an expansion fee of $4.0 million . As of December 31, 2025, BMS had exercised two commercial license options and we have received $15.0 million of option payments in total, but in 2023 BMS stopped development of one program. BMS’s right to exercise options on eight programs expired in 2024 after the conclusion of BMS’s research period . As at December 31, 2025, we remain eligible to receive up to $313.0 million for the two remaining programs (or $156.5 million not including the one program for which BMS stopped development in 2023), comprised of development milestone payments of up to $101.5 million per program and commercial milestone payments of up to $55.0 million per program. In addition, we are eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products derived from the agreement for those product candidates that BMS elected to exercise its commercial license option. As BMS’s research period has concluded, BMS is solely responsible for the research, development, manufacturing and commercialization of the products. +In June 2020, our existing collaboration agreement with BMS was amended to expand the license grant to include the use of our EFECT platform for the development of therapeutic candidates and to extend the research term. We received an upfront expansion fee of $12.0 million and all other financial terms were unchanged. +The agreement contains customary termination rights for BMS and us, including the right of BMS to terminate the agreement in its entirety or on a product-by-product basis in its sole discretion with advance notice to us. The agreement will terminate on a product-by-product and country-by-country basis upon the later of the expiration of the last-expiring patent related to the BMS licensed product, or ten years after the first commercial sale of the BMS licensed product in such a country. If BMS does not exercise its option for the commercial license, the agreement will terminate on a product-by-product basis for which the option was not exercised. +GSK +In December 2015, we entered into a collaboration and license agreement with GSK to research, develop and commercialize up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of our EFECT and Azymetric platforms. +16 +Table o f Contents +Under the terms of the agreement, we granted GSK a worldwide, royalty-bearing antibody target-exclusive license to new intellectual property generated with the EFECT platform under this collaboration and a non-exclusive license to the Azymetric platform to research, develop and commercialize future licensed products. We are eligible to receive up to $1.1 billion, including research, development and commercial milestone payments of up to $110.0 million for each product. In addition, we are eligible to receive tiered royalties in the low single digits on net sales of products. No development or commercial milestone payments or royalties have been received as of December 31, 2025. We retained the right to develop up to four products, free of royalties, using the new intellectual property generated in this collaboration, and after a period of time, to grant licenses to such intellectual property for development of additional products by third parties. Under this agreement, we are sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities assigned to it during the research period. After the conclusion of the research period, each party will be solely responsible for the further research, development, manufacturing and commercialization of its own respective products. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate on the earlier of (i) the end of the research period if GSK does not elect to advance one or more products incorporating intellectual property generated under the research period for further research and development or (ii) on a product-by-product and country-by-country basis upon the latter of the product being no longer covered by a patent related to the GSK licensed product, or ten years after the first commercial sale of the GSK licensed product in such a country. +In April 2016, we entered into a platform technology transfer and license agreement with GSK to research, develop and commercialize up to six bispecific antibodies generated through the use of our Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement. Under the terms of this 2016 agreement, we granted GSK a worldwide, royalty-bearing antibody sequence pair-specific exclusive license to research, develop and commercialize licensed products. In May 2019, this agreement was expanded to provide GSK access to Zymeworks’ unique heavy-light chain pairing technology under the Azymetric platform. Under the expanded agreement, we are eligible to receive up to $1.1 billion in milestone and other payments. As of December 31, 2025, we have received an upfront technology access fee payment of $6.0 million and $16.5 million of milestones in total. As of December 31, 2025, we remain eligible to receive research milestone payments of up to $35.0 million, development milestone payments of up to $168.5 million and commercial milestone payments of up to $867.0 million. In addition, we are eligible to receive tiered royalties in the low to mid-single digits on product sales. GSK bears all responsibility and costs associated with research, development and commercialization of products generated using the Azymetric platform. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance notice to us. Termination provisions allow for GSK to terminate the agreement or specific antibody sequence pairs due to an incurable material breach by us, and under specific conditions, GSK shall have certain rights to continue the research, development, and commercialization of products with their license payment, milestone, and royalty obligations reduced by 50%. +Daiichi Sankyo +2016 Agreement +In September 2016, we entered into a collaboration and cross-license agreement (“Collaboration and Cross License Agreement”) with Daiichi Sankyo to research, develop and commercialize one bispecific antibody generated through the use of our Azymetric and EFECT platforms. Under this agreement, we received an upfront technology access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million. Under this agreement, w e also gained non-exclusive rights to develop and commercialize up to three products (revised to up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies, with royalties in the low single digits to be paid to Daiichi Sankyo on sales of such products. +In March 2023, we entered into a termination and license agreement (the “Termination and License Agreement”) relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the Termination and License Agreement, we granted to Daiichi Sankyo a non-exclusive, worldwide, royalty-free right and license, with the right to sublicense, to certain intellectual property to perform additional research in accordance with the terms of the Termination and License Agreement during the term of the Termination and License Agreement, which expired in August 2025. The Termination and License Agreement has no impact on our separate license agreement with Daiichi Sankyo, which we entered into in 2018, as described below. +17 +Table o f Contents +2018 Agreement +In May 2018, we entered into a license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through the use of our Azymetric and EFECT platforms. This agreement did not alter or amend the initial 2016 agreement. Under the terms of this 2018 agreement, we granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $484.7 million in various milestone and other payments. As of December 31, 2025, we have received an upfront technology access fee payment of $18.0 million, and $3.1 million in development milestone payments. We remain eligible to receive development milestone payments totaling up to $60.3 million and commercial milestone payments of up to $170.0 million. In addition, we are eligible to receive tiered royalties ranging from the low single digits up to 10% on product sales. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for Daiichi Sankyo and us, including the right for Daiichi Sankyo to terminate the rights to our therapeutic platforms in its sole discretion with advance notice to us. The agreement will terminate, with respect to Daiichi Sankyo’s licenses, on a product-by-product basis, with the last payment obligation for the respective product. +J&J +In November 2017, we entered into a collaboration and license agreement with J&J to research, develop and commercialize up to six bispecific antibodies generated through our Azymetric and EFECT platforms. Under the terms of the agreement, we granted J&J a worldwide, royalty-bearing, antibody sequence group-specific exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to $1.45 billion in various license and milestone payments. +As of December 31, 2025, we have received an upfront payment of $50.0 million and development milestones totaling $33.0 million, which included $8.0 million in connection with the initiation of clinical trials of two bispecific antibodies and $25.0 million related to clinical progress of pasritamig entering into a Phase 3 trial in metastatic castration-resistant prostate cancer. Pasritamig (JNJ-78278343) is a first-in-class, bispecific T-cell engager targeting human kallikrein 2 (KLK2), engineered using Zymeworks’ Azymetric platform. J&J has deprioritized the development of the other bispecific antibody, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. +As a result, we remain eligible to receive up to $18.0 million in additional development milestone payments and up to $186.5 million in commercial milestone payments relating to pasritamig. We remain eligible to receive up to $43.0 million in additional development milestone payments and up to $186.5 million in commercial milestone payments with respect to the other bispecific antibody which has been deprioritized by J&J. +In addition, we are eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. The Company determined that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on J&J’s performance. J&J is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement contains customary termination rights for J&J and us, including the right for J&J to terminate the agreement in its sole discretion with advance notice to us. The agreement will terminate, on a product-by-product basis, on the expiry of the royalty term for the product. +Other Collaborations - Merck +We have collaborated with Merck since 2011. In July 2020, we entered into a new licensing agreement with Merck granting Merck a worldwide, royalty- bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field usin g our Azymetric and EFECT platforms. We are eligible to receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales. +18 +Table o f Contents +Intellectual Property +Our business success will depend significantly on our ability to: +• secure, maintain and enforce patent and other proprietary protection for our core technologies, inventions and know-how; +• obtain and maintain licenses to key third-party intellectual property owned by such third parties; +• preserve the confidentiality of our trade secrets; and +• operate without infringing upon valid, enforceable third-party patents and other rights. +We seek to secure and maintain patent protection for the composition of matter, manufacturing processes and methods of use for our drug candidates and for our underlying protein engineering capabilities and therapeutic platforms including Azymetric, EFECT, ZymeCAD and ProTECT. We also utilize trade secrets, careful monitoring and limited disclosure of our proprietary information where patent protection is not appropriate. We also protect our proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and assignment of inventions prior to their engagement. We intend to continue to expand our intellectual property holdings by seeking patent protection for new compositions of matter, new features and applications of our core therapeutic platforms, and innovative new therapeutic platforms, in the United States and other jurisdictions. We also intend to supplement internal innovation through in-licensing of new technologies and compositions of matter as appropriate. We intend to take advantage of any available data exclusivity, market exclusivity, patent term adjustment and patent term extensions. +We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we identify any such disclosures, evaluate them and take appropriate courses of action. +As of December 31, 2025, our patent portfolio includes more than 30 patent families related to our therapeutic antibody product (zanidatamab), our preclinical, clinical stage, and additional product candidates, and our therapeutic platform technologies. As of December 31, 2025, from these patent families we have more than 275 issued patents, 29 of which are U.S. patents. Additional patent families in our patent portfolio relate to other earlier stage potential product candidates or platforms that we do not consider material to our business at this time. +Therapeutic Antibody Portfolio +Our therapeutic antibody patent portfolio is directed to specific compositions of matter, methods of using and compositions used in manufacturing our approved products and product candidates . +Approved Product +Zanidatamab: As of December 31, 2025 , we own U.S. and foreign patents and patent applications directed to compositions of matter of zanidatamab, compositions used in the manufacture of zanidatamab, and methods of using zanidatamab. Issued patents and patent applications, if granted, directed to compositions of matter of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to compositions used in the manufacture of zanidatamab are anticipated to expire in 2034, absent any patent term adjustments or extensions. Issued patents and patent applications, if granted, directed to methods of using zanidatamab are anticipated to expire between 2034 and 2042, absent any patent term adjustments or extensions. In January 2025, an application was submitted to the USPTO for the extension of the patent term of U.S. patent number 10,000,576 directed to compositions of matter of zanidatamab. This application is currently under review by the USPTO and FDA. +Zanidatamab is also protected by our patent families directed to Azymetric Fc, as described below. +Clinical Stage Product Candidates +ZW191: As of December 31, 2025 , we own a U.S. patent and patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW191, compositions used in the manufacture of ZW191, and methods of using ZW191. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. We also own U.S. provisional patent applications directed to additional methods of using ZW191. If converted to non-provisional patent applications and granted, these applications are anticipated to expire in 2046, absent any patent term adjustments or extensions. ZW191 is also protected by a patent family directed to our TOPO1i technology. +19 +Table o f Contents +ZW251: As of December 31, 2025 , we own patent applications filed in the United States and foreign jurisdictions directed to compositions of matter of ZW251 and methods of using ZW251. If granted, these patent applications are anticipated to expire in 2043, absent any patent term adjustments or extensions. ZW251 is also protected by a patent family directed to our TOPO1i technology. +L ead Preclinical Product Candidates +ZW209: As of December 31, 2025 , we own patent applications filed internationally under the Patent Cooperation Treaty (“PCT”) and in foreign jurisdictions directed to compositions of matter of ZW209, compositions used in the manufacture of ZW209, and methods of using ZW209. If granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. ZW209 is also protected by patent families relating to Azymetric Fc and Azymetric Fab. +ZW1528: As of December 31, 2025 , we own patent applications filed internationally under the PCT and in foreign jurisdictions directed to compositions of matter of ZW1528, compositions used in the manufacture of ZW1528 and methods of using ZW1528. If granted, these applications are anticipated to expire in 2045, absent any patent term adjustments or extensions. ZW1528 is also protected by patent families relating to Azymetric Fc and Azymetric Fab. +Additional Product Candidates +ZW220: As of December 31, 2025 , we own patent applications filed internationally under the PCT, and in the United States and foreign jurisdictions, directed to compositions of matter of ZW220, compositions used in the manufacture of ZW220, and methods of using ZW220. If granted, these patent applications are anticipated to expire between 2043 and 2044, absent any patent term adjustments or extensions. ZW220 is also protected by a patent family directed to our TOPO1i technology. +ZW327: As of December 31, 2025 , we own U.S. provisional patent applications directed to compositions of matter of ZW327, compositions used in the manufacture of ZW327, and methods of using ZW327. If converted and granted, these applications are anticipated to expire in 2046, absent any patent term adjustments or extensions. ZW327 is also protected by a patent family directed to our TOPO1i technology. +Therapeutic Platform Technology Portfolio +Our therapeutic platform technology portfolio includes biological formats and variants thereof, including the Azymetric platform, our drug conjugate platforms (including our TOPO1i technology), the EFECT platform, and specific applications, manufacturing methods and assays related to the platform constructs and underlying computational chemistry. +Azymetric +We own patents and patent applications relating to the Azymetric platform for engineering Fc and Fab constructs for the development of bispecific antibodies. +Azymetric Fc: As of December 31, 2025, we own U.S. and foreign patents and a U.S. patent application directed to our Azymetric Fc platform. Patents and patent applications, if granted, directed to compositions of matter of engineered antibody Fc regions, methods of engineering antibody Fc regions to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fc regions are expected to expire between 2031 and 2033, absent any patent term adjustments or extensions. +Azymetric Fab : As of December 31, 2025, we own U.S and foreign patents and patent applications directed to our Azymetric Fab platform. Patents and patent applications, if granted, directed to compositions of matter, methods of engineering antibody Fabs to preferentially form heterodimers, and methods of making heterodimers comprising engineered Fabs are expected to expire between 2033 and 2036 absent any patent term adjustments or extensions. +Drug Conjugate Platforms +Our drug conjugate platforms are a suite of proprietary cytotoxins (including TOPO1i), stable linkers, and conjugation technologies that are compatible with and complementary to our antibody product candidates and enable delivery of cytotoxins directly to target cells. +20 +Table o f Contents +TOPO1i Platform: As of December 31, 2025, we own patent applications filed in the United States and foreign jurisdictions directed to novel TOPO1i compounds (including ZD06519), TOPO1i-linker compositions and antibody-TOPO1i conjugates. If granted, these patent applications are expected to expire in 2042, absent any patent term adjustments or extensions. +EFECT +As of December 31, 2025, we own U.S and foreign patent applications directed to engineering Fc constructs with modulated FcγR-binding and Fc effector function, including compositions of matter and methods of making Fc constructs with altered FcγR-binding and Fc effector function, and compositions of matter and methods of making Fc constructs that lack FcγR-binding. These patent applications, if granted, are expected to expire between 2041 and 2042, absent any patent term adjustments or extensions. +ProTECT +As of December 31, 2025, we own patent applications filed in the United States and foreign jurisdictions and patents in foreign jurisdictions directed to compositions of matter, methods of making and methods of using conditionally active antibody constructs comprising immunomodulatory ligands and their cognate receptors derived from the immunoglobulin superfamily (such as PDL1 and PD1) fused to the antibody variable heavy and light chain region termini. These patents and, if granted, patent applications are expected to expire in 2041, absent any patent term adjustments or extensions. +Computational Chemistry +As of December 31, 2025, we own U.S and foreign patents and patent applications directed to computational and algorithmic advances incorporated into our ZymeCAD platform, including advances in general molecular modeling, conformational dynamics, and computational workflows. These patents and patent applications, if granted, are expected to expire between 2034 and 2042, absent any patent term adjustments or extensions. +Technology Licensing and In-Licensed Intellectual Property +Daiichi Sankyo +As noted above under “ Strategic Partnerships and Collaborations – Platform Partnerships – Daiichi Sankyo – 2016 Agreement, ” in September 2016, we entered into the Collaboration and Cross License Agreement with Daiichi Sankyo under which we gained non-exclusive rights to develop and commercialize up to three products (up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies. In March 2023, we entered into the Termination and License Agreement relating to the Collaboration and Cross License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products, such as ZW209, using Daiichi Sankyo’s proprietary immune-oncology antibodies. Under the surviving terms of the Collaboration and Cross License Agreement , pending receipt of regulatory approval, we may be required to make future low single-digit royalty payments on the net sales of such products. +Phanes +In November 2021, we entered into a lic ense agreement with Phanes Therapeutics, Inc. (“Phanes”). Phanes granted Zymeworks an exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable, royalty-bearing license to research, develop, commercialize, and otherwise exploit certain antibody products incorporating proprietary Phanes binders in the field of oncology. In December 2023, this license agreement was partially terminated only with respect to a specific set of such products. All other rights and obligations under this license agreement remain in full force and effect. +Under the license agreement, we may be required to make future payments to Phanes upon the direct achievement of certain clinical development milestones for products, such as ZW251, that incorporate certain Phanes intellectual property. In addition, subject to receipt of regulatory approval, we may be required to make future payments to Phanes upon direct achievement of certain commercial milestones and certain sales milestones, as well as up to low single-digit royalty payments on net sales of such products. +21 +Table o f Contents +ProBioGen +In February 2016, we entered into a master services and master license agreement with ProBioGen AG ( “ ProBioGen ” ). ProBioGen provided certain development and manufacturing services and granted us a non-exclusive, worldwide, sublicensable license to research, develop, manufacture and commercialize our product candidates (which include Ziihera (zanidatamab-hrii)) using ProBioGen’s platforms, including their proprietary GlymaxX technology for generating afucosylated antibodies. This license includes certain additional non-exclusive patent rights sub-licensed by ProBioGen. Licensing terms include preclinical, clinical and commercial milestones. In connection with the first commercial sale of Ziihera, we paid to ProBioGen €3.95 million for achievement of the first commercial sale milestone, which amount was reimbursed by Jazz. In addition, subject to achievement of certain commercial sales thresholds of Ziihera, we are required to make additional future payments to ProBioGen. +Chugai +In June 2020, we entered into a patent license agreement with Chugai Pharmaceuticals Co., Ltd (“Chugai”). Chugai granted Zymeworks a non-exclusive, worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable license under certain patents to research, develop, manufacture and commercialize certain antibody products covered by such patents. Under the license agreement, we are required to pay an immaterial annual fee for so long as there is a valid claim within the licensed patents covering certain antibody products. +Manufacturing +We rely on third-party contract manufacturing organizations to provide manufacturing, linker-toxin conjugation, and fill-finish services in order to generate all of the therapeutic antibody supply required for our clinical studies and other research and development activities. To retain focus on our expertise in developing new product candidates, we do not currently plan to develop or operate in-house manufacturing capacity. Our multispecific therapeutic antibody and ADC candidates require standard chemistry, manufacturing and control (“CMC”) processes typical of those required for monoclonal antibody manufacturing. We therefore expect to continue to be able to develop product candidates that can be manufactured in a cost-effective fashion by our network of qualified third-party contract manufacturing organizations. +Through our contract manufacturing organizations, we currently have sufficient supply of our product candidates to carry out ongoing and planned preclinical studies. For zanidatamab, we also have sufficient current good manufacturing practices (“cGMP”)-grade supply to continue ongoing clinical trials. Our strategic partners are responsible for the commercial manufacture of zanidatamab. For our clinical stage product candidates, we have sufficient cGMP-grade supply to complete our ongoing clinical trials. +Competition +The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that we or our strategic partners successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. +With respect to our healthcare asset aggregation strategy, we face competition from other companies, funds and other investment vehicles seeking to aggregate royalties or provide alternative financing to biotechnology companies. These competitors may have a lower cost of capital or access to greater amounts of capital and thereby may be able to successfully acquire assets that we are also targeting for acquisitions. There is a limited number of suitable and attractive acquisition or partnering opportunities available in the market, and competition to acquire such assets may be intense. +With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may be able to access rare families and identify targets before we do. +Many of the companies against which we compete or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our +22 +Table o f Contents +competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, recruiting patients for clinical trials, and by acquiring technologies complementary to, or necessary for, our programs. +The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience and price, the effectiveness of alternative products, the level of competition and the availability of coverage, and adequate reimbursement from government and other third-party payors. +Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we or our strategic partners may obtain approval, which could result in our competitors establishing a strong market position before we or our partnered product candidates are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products. +Zanidatamab is being developed for patients with solid tumors that express HER2, including patients with tumors expressing low levels of HER2. Competing approved HER2-targeted therapies include F. Hoffmann-La Roche Ltd.’s Herceptin, Perjeta, Phesgo, and Kadcyla as well as Novartis Pharmaceuticals Corporation’s Tykerb, Puma Biotechnology, Inc.’s Nerlynx, AstraZeneca PLC / Daiichi Sankyo’s Enhertu, Seagen Inc.’s Tukysa, MacroGenics, Inc.’s Margenza, Jiangsu HengRui Medicine Co., Ltd.’s pyrotinib, Pfizer’s disitamab vedotin, Alphamab’s anbenitamab and anbenitamab repodetecan, BioNTech’s trastuzumab pamirtecan, Boehringer’s zongertinib, Bayer’s sevabertinib and various trastuzumab biosimilars, as well as other candidates in late-stage development. +ZW191 is being developed for patients with solid tumors that express FRα. Competing approved FRα -targeted therapies include AbbVie’s Elahere. Key FRα-targeted ADCs under development include Genmab’s Rina-S, AstraZeneca’s AZD5335, Eli Lilly’s sofetabart mipitecan (LY4170156) and AbbVie’s IMGN151 and ABBV901. +ZW251 is being developed for patients with solid tumors that express GPC3. Competing GPC3-targeted ADCs include Lepu/Miracogen’s MRG006 and BioCity’s BC2027. Alternative approaches targeting GPC3 include cell therapies, TCEs, radioconjugates and monoclonal antibodies exemplified by AstraZeneca’s AZD5851 (C-CAR031), Legend Biotech’s LB2101, Sotio’s BOXR1030, Eureka Therapeutics’ ECT204, CARsgen’s CT011; AstraZeneca’s AZD9793 & Keymed’s CM350; BMS’ RYZ801; and Roche’s codrituzumab. +ZW1528 is being developed for patients with respiratory inflammation, targeting IL-4R⍺ and IL-33 receptors. Competing development-stage therapies with a similar profile include AK139, the IL-4Ra/ST2 bispecific from Akeso Bio. +ZW209 is being developed for patients with solid tumors that express DLL3. Competing approved DLL3-targeted therapies include Amgen’s IMDELLTRA (tarlatamab). Key DLL3-targeted TCEs under development include Boehringer Ingelheim’s BI 764532, Merck’s gocatamig (MK-6070, formerly HPN328), Chugai/Roche’s ALPS12 (RG6524), Qilu’s QLS31904 and Zelgen’s alveltamig (ZG006). Alternative approaches targeting DLL3 include ADCs, radioconjugates and bispecific antibodies, such as Zai Labs’ zocilurtatug (ZL-1310), Roche/Innovent’s IBI3009, IDEAYA Biosciences’ IDE849, Phanes Therapeutics’ Peluntamig (PT217) and Abdera’s ABD-147. +The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our product candidates are effective. No regulatory agency has made any such determination that any of our product candidates are effective for use by the general public for any indication. +Government Regulation +Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our ADC product candidates are comprised of both a drug product and a biologic product, and will therefore be subject to regulation in the United States as combination products. If marketed individually, each component would be subject to different regulatory pathways and would require approval of independent marketing applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction +23 +Table o f Contents +over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our ADCs, we believe that the primary mode of action is attributable to the biologic component of the product. Thus, our ADC product candidates are regulated as therapeutic biologics, with the FDA’s Center for Drug Evaluation and Research having primary jurisdiction over premarket development. Our antibody therapeutics, including MSATs, are also regulated as therapeutic biologics by the FDA’s Center for Drug Evaluation and Research. +Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local and foreign statutes and regulations. Our product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. +U.S. Biological Products Development Process +The process required by the FDA before a biologic may be marketed in the United States generally involves the following: +• completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests and preclinical animal trials and applicable requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations, including GLP; +• submission to the FDA of an IND application, which must become effective before human clinical trials may begin; +• performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as current good clinical practice (“cGCP”) regulations and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or noncompliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. +• submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity; +• potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and +• FDA review and approval, or licensure, of the BLA. +Human clinical trials are typically conducted in sequential phases that may overlap or be combined: +• Phase 1. The biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. +• Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. +• Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labelling. +During all phases of clinical development, regulatory agencies require extensive reporting, monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. +A sponsor, an institutional review board (“IRB”) or independent ethics committee, the FDA or other regulatory or monitoring authorities may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk, failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, failure to demonstrate a benefit from using the investigational drug, changes in government regulations or administrative actions. +24 +Table o f Contents +Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to submit a summary of the results of their clinical trials after completion of a trial, unless an extension or a certification permitting delayed submission is obtained from the government. +U.S. Review and Approval Processes +After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the biological product. When a BLA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be resubmitted with the supplemental information, and review of the application is delayed. Upon accepting the BLA for filing, the FDA will conduct an in-depth review of the BLA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the product candidate. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed. +The FDA is authorized to designate certain products for expedited programs if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. In particular, the FDA may designate a product for Fast Track designation if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For Fast Track designated products, sponsors may have a higher number of interactions with the FDA and may be eligible for “rolling review” where review of sections of a Fast Track product’s New Drug Application or BLA is initiated before the full New Drug Application or BLA application is complete. The FDA has granted two Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing gastroesophageal adenocarcinoma in combination with standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. +The FDA also may designate a product as a Breakthrough Therapy if it is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically important endpoints, such as substantial treatment effects observed early in clinical development. For products that have been designated as a Breakthrough Therapy, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. The FDA has granted Breakthrough Therapy designation for zanidatamab in HER2 gene-amplified BTC patients who have received prior systemic chemotherapy. Products designated as a Breakthrough Therapy by the FDA can also be eligible for accelerated approval. In December 2022, the Consolidated Appropriations Act, 2023, including the Food and Drug Omnibus Reform Act (“FDORA”), was signed into law. FDORA made several changes to the FDA’s authorities and its regulatory framework, including, among other changes, reforms to the accelerated approval pathway, such as requiring the FDA to specify conditions for post-approval study requirements and setting forth procedures for the FDA to withdraw a product on an expedited basis for non-compliance with post-approval requirements. +Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at a company’s request or by the FDA’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to ensure that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or dispense the drug or other elements to assure safe use, depending on what the FDA considers necessary for the safe use of the drug. +Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and cGCP requirements. +Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA +25 +Table o f Contents +may interpret data differently than the applicant interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor (for example, requiring labeling changes) or major (for example, requiring additional clinical trials). Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. The FDA’s “real time” release of newly issued Complete Response Letters associated with withdrawn or abandoned applications, if applicable to any of our product candidates, can materially impact our competitive advantage and intellectual property. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Orphan Drug Designation +The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals in the United States at the time of the request for orphan designation. If a sponsor demonstrates that a drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants Orphan Drug Designation to the product for that use. The FDA has granted zanidatamab Orphan Drug Designation for the treatment of BTC and GEA. +The benefits of Orphan Drug Designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically superior to the product with exclusivity. However, the FDA Reauthorization Act, which was enacted in 2017, requires, among other things, that certain orphan drugs for cancer be tested for children. The government has also increased focus on the potential misuse of the orphan drug approval process to increase the price of orphan drugs. +In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition. In January 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order. The Consolidated Appropriations Act of 2026, signed into law in February 2026, codified this longstanding FDA interpretation of the Orphan Drug Act, allowing the FDA to approve multiple versions of the same orphan drug for different subindications and subpopulations. +Further, in June 2024, the U.S. Supreme Court overruled the Chevron doctrine, which gives deference to regulatory agencies’ statutory interpretations in litigation against federal government agencies, such as the FDA, where the law is ambiguous. This Supreme Court decision may invite various stakeholders to bring lawsuits against the FDA to challenge longstanding decisions and policies, which could lead to uncertainties in the industry. Changes in the leadership of the FDA and other federal agencies under the new Presidential administration may lead to new policies and changes in the regulations that may impact our clinical development plans. +Post-Approval Requirements +Even if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with cGMP. Adverse events reported after approval of a drug can result in additional restrictions on the use of a marketed product or requirements for additional post-marketing studies or clinical trials. +Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP requirements. Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for +26 +Table o f Contents +compliance with cGMP requirements and other laws. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacture or promotion of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as significant administrative, civil or criminal sanctions. +Biosimilars and Exclusivity +The 2010 Patient Protection and Affordable Care Act (“PPACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. +Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as the first interchangeable for biologic products. +Canadian Review and Approval Process +In Canada, our biologic product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the rules and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and government review and approval of experimental results prior to giving approval to sell drug products, including biologic drug products. Regulators also typically require that rigorous and specific standards such as cGMP, GLP and cGCP are followed in the manufacture, testing and clinical development, respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources. +The principal steps required for drug approval in Canada are as follows: +Preclinical Toxicology Studies and Clinical Trials +Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance with applicable laws and GLP. +In Canada, the process of conducting clinical trials with a new drug cannot begin until a Clinical Trial Application (“CTA”) is submitted and the required number of days has lapsed without objection from Health Canada. Biological drugs carry additional risks, as compared to traditional small-molecule drugs, associated with complexity and variability in manufacturing that can contribute to increased lot-to-lot variation of the final product, and with the potential for adventitious agents. Therefore, the content requirements for the quality information for biological drugs to be used in clinical trials are different from those for standard small-molecule pharmaceutical drugs (for example, the inclusion of information on manufacturing facilities is required for biological drugs). In addition, it is necessary to have more stringent controls on the release of biologic drug lots used in authorized clinical trials. +Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards (“REBs”), instead of IRBs, are used to review and approve clinical trial plans. Human clinical trials are typically conducted in three sequential phases, as discussed above in the context of government regulation in the United States. +The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into Canada are also subject to regulation by Health +27 +Table o f Contents +Canada relating to their labeling and distribution. Progress reports detailing the results of the clinical trials must generally be submitted at least annually to Health Canada and/or the applicable REBs, and more frequently if serious adverse events occur. +New Drug Submission +Upon successful completion of Phase 3 clinical trials, the company sponsoring a new drug then assembles all the preclinical and clinical data and other testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission (“NDS”). The NDS is then reviewed by Health Canada for approval to market the drug. +The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Biologic drugs, such as our candidates, differ from standard small-molecule drugs in that applicants must include more detailed chemistry and manufacturing information. This is necessary to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired microorganism. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Health Canada may not grant approval of an NDS on a timely basis, or at all. +Even if Health Canada approves a product candidate, it may limit the approved indications for use of the product candidate, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms. +Biologic products in particular are monitored post-approval by being placed on a lot-release schedule tailored to their potential risk, manufacturing, testing and inspection history as of the date of this report. With higher-risk biologics, each lot is tested before being released for sale in Canada. Moderate-risk biologics are periodically tested at the discretion of Health Canada while manufacturers of low-risk biologics usually only need to contact Health Canada regarding lots being sold or for providing certification of complete and satisfactory testing. Products are carefully scrutinized before they are placed in any level of the lot-release process, and the testing regime for a biologic may be altered at any time. In December 2022, the Minister of Health in Canada published proposed amendments to the Food and Drug Regulations, and several of the amendments relate to biologic drugs. The purpose of the amendments is to modernize the biologics regulatory regime by repealing outdated requirements and replacing them with those that reflect current safety practices. Proposed amendments include enabling Health Canada to require certain labelling statements for safety reasons on a case-by-case basis, and clarifying the Minister’s authority to consider information or material obtained during on-site evaluations. Other proposed amendments include clarifying the record retention expectations for market authorization holders, and providing a general framework to minimize the potential for contamination of drugs, active ingredients and biological source material between processes. The proposed amendments were finalized in 2024, and the provisions relating to biologic drugs were brought into force on July 1, 2025. In June 2025, Health Canada opened a consultation for stakeholders and interested parties to submit comments on new draft biosimilar submission guidance. The consultation closed in September 2025, and the timeline for implementation or further revisions to this new guidance is unknown. +Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing, product labeling or regulatory notification may be required. +Canadian Biosimilars and Exclusivity +The term biosimilar is used by Health Canada to describe a biologic drug that enters the market subsequent to a version previously authorized in Canada and with demonstrated similarity to a reference biologic drug. Accordingly, a biosimilar (previously known in Canada as a subsequent entry biologic or SEB) will in all instances be a subsequent entrant onto the Canadian market. +Based on Health Canada guidance documents, a biosimilar can rely in part on prior information regarding safety and efficacy that is deemed relevant due to the demonstration of similarity to the reference biologic drug and which influences the amount and type of original data required. Generic drugs are chemically derived products that are pharmaceutically equivalent to innovative drugs, whereas biosimilars are products of a biologic nature that are similar to innovative biologics. According to Health Canada, it is not currently possible to demonstrate that two biologic drugs are pharmaceutically equivalent, and therefore the regulatory approval process for generics and biosimilars is different: biosimilars are approved using the standard NDS +28 +Table o f Contents +pathway with some allowances made for reduced safety and efficacy information set out in guidance documents, while generic drugs are approved using an abbreviated new drug submission pathway set out in guidance and law. In part because it continues to be set out only in guidance and not law, the pathway for receiving biosimilar approval is somewhat in flux and subject to some uncertainty. +As discussed above, all biosimilars enter the market subsequent to a biologic drug product previously approved in Canada and to which the biosimilar is considered similar. As such, biosimilars are subject to existing laws and regulations outlined in the Patented Medicines (Notice of Compliance) Regulations and the Food and Drug Regulations , and related guidance documents. +Similar to the Hatch-Waxman Amendments in the United States, Canada has the Patented Medicines (Notice of Compliance) Regulations, which require a company that files a drug submission that references a patented product to address any relevant patents listed on the Patent Register prior to being able to receive approval from Health Canada. The Canadian regime is similar to the U.S. regime, but a number of distinctions do exist. +Like the United States, Canada also has data protection in addition to patent protection, but again differences exist between the two jurisdictions. For example, Canada’s data protection applies to “innovative drugs” (i.e., a drug that contains a medicinal ingredient not previously approved in a drug by the Minister of Health and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph) and, where it exists, lasts for eight years in most (but not all) circumstances. In general biologics can be considered innovative drugs but biosimilars are not. +Additional Regulation +In addition to the foregoing, provincial, state and federal U.S. and Canadian laws regarding environmental protection and hazardous substances affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations. +Government Regulation Outside of the United States and Canada +In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the EU, in January 2022, the Clinical Trials Regulation (CTR) repealed the Clinical Trials Directive (EC) No. 2001/20/EC and national implementing legislation in the EU Member States. The CTR harmonizes the processes for assessment and supervision of clinical trials throughout the EU. Clinical trial sponsors must apply to start a new clinical trial via the Clinical Trials Information System (CTIS), and any trials approved under the Clinical Trials Directive that continue running need to comply with the CTR and their sponsors must have recorded information on them in CTIS. National regulators in the EU Member States and EU/EEA countries use the CTIS. +The requirements and process governing the conduct of clinical studies, product licensing, coverage, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. +Pharmaceutical Coverage, Pricing and Reimbursement +Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on pricing and the availability of coverage and adequate reimbursement from third-party payors. These third-party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Third-party payors may attempt to control costs by limiting coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication, requiring pre-approval of coverage for new or innovative drug therapies before they will reimburse healthcare providers who use such therapies, and by limiting the amount of reimbursement +29 +Table o f Contents +for particular procedures or drug treatments. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. The Medicare and Medicaid programs are often used as models by private payors and other governmental payors to develop their coverage and reimbursement policies for drugs and biologics. However, one third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the product, or will provide coverage at an adequate reimbursement rate. +The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products to obtain third-party payor coverage, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and to operate profitably. +In international markets, pricing, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, that our products will be considered cost effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that third-party payors’ reimbursement policies will not adversely affect our ability or our partners’ ability to sell our products profitably. +Healthcare Reform +The United States and some other jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Only high-expenditure single-source drugs that have been approved for at least seven years (11 years for single-source biologics) can qualify for negotiation, with the negotiated price taking effect two years after the selection year. Various industry stakeholders have initiated lawsuits against the federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. Further, the current administration has issued executive orders focused on decreasing prescription drug prices, including directing the Secretary of HHS to establish a mechanism through which U.S. patients can buy drugs directly from manufacturers who sell at a most-favored-nation price and directing the U.S. Trade Representative and Secretary of Commerce to take action to ensure foreign countries are not engaged in practices that purposefully and unfairly undercut market prices and drive price hikes in the United States. In November 2025, the Centers for Medicare & Medicaid Services announced a voluntary initiative called the GENEROUS Model to introduce the option of most-favored-nation pricing to the Medicaid program, whereby a drug manufacturer may voluntarily offer supplemental rebates to participating state Medicaid programs for a manufacturer’s covered outpatient drugs. Government agreements with pharmaceutical companies and other measures that use most-favored-nation pricing targets for prescription drugs or that increase generic and biosimilar drug entry sooner than expected can have a material adverse effect on our industry, ability to set adequate pricing for new drugs to recover research and development costs, ability to attract potential investors and potential buyers in the future, or the pricing of our approved product in the United States and in foreign countries. The impact of these and future legislative, executive, and administrative actions implemented by the government on us and the pharmaceutical industry as a whole is unclear. +30 +Table o f Contents +We expect that the PPACA, as well as reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once regulatory approval is obtained. +Other Healthcare Laws and Compliance Requirements +In the United States, the research, manufacturing, distribution, sale and promotion of drug products are subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state attorneys general, and other state and local government agencies. +If our operations are found to be in violation of any of the U.S. federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. We may also be subject to additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement with a governmental entity to resolve allegations that we have violated these laws. To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-approval requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Sales and Marketing +As a clinical-stage biopharmaceutical company, we do not currently possess the commercial infrastructure required to launch and market our product candidates. For zanidatamab, we have entered into a development and commercialization agreement with BeOne whereby BeOne is responsible for certain clinical development activities and all commercial activities in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand. For zanidatamab, under the Amended Jazz Collaboration Agreement, Jazz is responsible for all development and commercial activities with respect to the Licensed Products in the Territory. There are no other agreements granting commercialization rights to zanidatamab or any of our other product candidates. +To access the sales, marketing and distribution capacity required to market our drug candidates, we plan to selectively establish additional partnerships with biotechnology and pharmaceutical companies having established commercial capabilities in relevant indications. The timing and nature of such agreements will be determined by many factors, including market size and complexity, as well as access to pre-commercial and commercial infrastructure. In addition, as part of our revised corporate strategy, we do not currently intend to commercialize any of our product candidates on our own, though we retain the flexibility to reevaluate this intention if we believe doing so is in our and our stockholders’ best interests. +Human Capital Resources +As of December 31, 2025, we had 264 full-time employees, 204 of whom were primarily engaged in research and development activities and 60 of whom hold an M.D. or Ph.D. degree. 184 of our full-time employees were based in Canada, 66 were based in the United States, and 14 were based in Singapore, Ireland and United Kingdom (the “UK”) combined. +Our ability to achieve our mission is dependent upon attracting and retaining the right talent. We seek to provide what we consider to be a competitive mix of compensation and benefits for all our employees, including participation in our equity programs. +We believe everyone belongs at Zymeworks and we are committed to providing equal opportunities for our employees. This means ensuring we have good representation in our workforce from within the communities in which we operate, conducting training to remove biases in our processes and activities, and respecting all employees’ rights, cultures, diversity, and dignity. +31 +Table o f Contents +We consider our employees to be an essential driver of our business and key to our future prospects and believe that we have a good relationship with our employees. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement. +Corporate History +Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”). Zymeworks Inc. was incorporated under the laws of the State of Delaware in June 2022. Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709, and our telephone number is (302) 274-8744. Our predecessor, now named Zymeworks BC Inc., was originally incorporated on September 8, 2003 under the Canada Business Corporations Act under the name “Zymeworks Inc.” On October 22, 2003, our predecessor was registered as an extra-provincial company under the Company Act (British Columbia), the predecessor to the Business Corporations Act (British Columbia) (“BCBCA”). Our predecessor continued to British Columbia under the BCBCA on May 2, 2017. +Available Information +This Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as appropriate, with the SEC and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website, www.zymeworks.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the Canadian regulatory authorities. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this document is an inactive textual reference. +Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca. +32 +Table o f Contents \ No newline at end of file diff --git a/raw/filings/0001937653/2025/0001937653-26-000015/item13.txt b/raw/filings/0001937653/2025/0001937653-26-000015/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..bde3792bc8432406760409a8f5b0683719a5a80e --- /dev/null +++ b/raw/filings/0001937653/2025/0001937653-26-000015/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +157 \ No newline at end of file diff --git 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+(I.R.S. +Employer +Identification No.) +205 +W. 37th Street +New +York , NY 10018 +N/A +(Address +of principal executive offices) +(zip +code) +203 - 998-5540 +(Issuer’s +Telephone Number, Including Area Code) +Securities +registered pursuant to Section 12(b) of the Act: +Title +of Each Class +Trading +Symbols +Name +of Each Exchange on Which Registered +Units, +each consisting of one ordinary share and one right +ATMVU +The +Nasdaq Stock Market LLC +Ordinary +Shares, par value $0.0001 per share +ATMV +The +Nasdaq Stock Market LLC +Rights, +each right entitling the holder thereof to one-tenth of one ordinary share +ATMVR +The +Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 +during the past 15 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject +to such filing requirement for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T during the preceding 15 months (or for such shorter period that the registrant was required to submit such files). +Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer +☐ +Accelerated +filer +☐ +Non-accelerated +filer +☒ +Smaller +reporting company +☒ +Emerging +growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +The +aggregate market value of the Registrant’s ordinary shares outstanding, other than shares held by persons who may be deemed affiliates +of the Registrant, as of the last day of the Registrant’s most recently completed second fiscal quarter was $ 58,622,752 . +As +of April 14, 2025, there were 3,854,856 ordinary shares, par value $ 0.0001 issued and outstanding. +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +annual report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial +Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act +and Section 21E of the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including +the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” +“may,” “will,” “potential,” “projects,” “predicts,” “continue,” +or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that +actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating +to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current +or historical facts. These statements are based on management’s current expectations, but actual results may differ materially +due to various factors, including, but not limited to our: +● +our +ability to complete our initial business combination; +● +our +expectations around the performance of the prospective target business or businesses; +● +our +success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business +combination; +● +our +officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or +in approving our initial business combination, as a result of which they would then receive expense reimbursements; +● +our +potential ability to obtain additional financing to complete our initial business combination; +● +the +ability of our officers and directors to generate a number of potential acquisition opportunities; +● +our +public securities’ potential liquidity and trading; +● +the +lack of a market for our securities; +● +the +use of proceeds not held in the trust account or available to us from interest income on the trust account balance; +● +the +trust account not being subject to claims of third parties; or +● +our +financial performance following our Initial Public Offering. +The +forward-looking statements contained in this Form 10-K are based on our current expectations and beliefs concerning future developments +and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. +These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions +that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. +These risks and uncertainties include, but are not limited to, those factors described in the section of this Form 10-K entitled “Risk +Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual +results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update +or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required +under applicable securities laws. +By +their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that +may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that +our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ +materially from those made in or suggested by the forward-looking statements contained in this annual report. In addition, even if our +results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the +forward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments +in subsequent periods. +i +ALPHAVEST +ACQUISITION CORP +FORM +10-K +TABLE +OF CONTENTS +PART I +1 +Item +1. +Business. +1 +Item +1A. +Risk Factors. +10 +Item +1B. +Unresolved Staff Comments. +62 +Item +1C. +Cybersecurity +62 +Item +2. +Properties. +62 +Item +3. +Legal Proceedings. +62 +Item +4. +Mine Safety Disclosures. +62 +PART II +63 +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +63 +Item +6. +[Reserved]. +64 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations. +64 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk. +68 +Item +8. +Financial Statements and Supplementary Data. +68 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +68 +Item +9A. +Controls and Procedures. +68 +Item +9B. +Other Information. +68 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +68 +PART III +69 +Item +10. +Directors, Executive Officers and Corporate Governance. +69 +Item +11. +Executive Compensation. +76 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +77 +Item +13. +Certain Relationships and Related Transactions, and Director Independence. +78 +Item +14. +Principal Accountant Fees and Services. +81 +PART +IV +Item +15. +Exhibit and, Financial Statement Schedules. +82 +Item +16. +Form 10-K Summary. +83 +ii +PART +I +ITEM +1. BUSINESS +In +this Annual Report on Form 10-K (the “Form 10-K”), references to the “Company” and to “we,” “us,” +and “our” refer to AlphaVest Acquisition Corp. +General +AlphaVest +Acquisition Corp is a blank check company incorporated on January 14, 2022, as a Cayman Islands exempted company for the purpose of effecting +a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses +(a “Business Combination”). We may pursue an acquisition or a business combination with a target in any business or industry +that can benefit from the expertise and capabilities of our management team. Our efforts in identifying prospective target businesses +will not be limited to a particular geographic region, although we intend to primarily focus on businesses in Asia. We have generated +no revenues to date and we do not expect that we will generate operating revenues at the earliest until we consummate our Business Combination. +The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early +stage and emerging growth companies. +On +February 7, 2022, our AlphaVest Holding, LP (our “Sponsor”) acquired 1,725,000 Ordinary Shares (the “Founders Shares”) +for an aggregate purchase price of $25,000, which represented 20% of our issued and outstanding shares after our initial public offering +(as defined below). On April 18, 2023, the Sponsor transferred an aggregate of 1,035,000 Founder Shares to Peace Capital Limited. +We +also issued an aggregate of 125,000 Founder Shares to EarlyBirdCapital, Inc. (the “EBC Founder Shares”) on July 11, 2022 +for an aggregate purchase price of $1,750. The EBC Founder Shares were deemed to be underwriters’ compensation by FINRA pursuant +to Rule 5110 of the FINRA Manual. The EBC Founder Shares cannot be sold, transferred or assigned (except to the same permitted transferees +as the Founder Shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the Founder +Shares must agree to, each as described herein) until the consummation of an initial business combination. +As +of the year ended December 31, 2024, the Company had not yet commenced any operations. All activity for the year ended December 31, 2024 +relates to the Company’s formation and the initial public offering (the “Initial Public Offering” or “IPO”) +and identifying a target for a Business Combination. The Company will not generate any operating revenues until after the completion +of its Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the +proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. +The +registration statement for the Company’s Initial Public Offering was declared effective on December 19, 2022 (the “Registration +Statement”). On December 22, 2022 the Company consummated the Initial Public Offering of 6,000,000 units (the “Units” +and, with respect to the shares of Ordinary Shares included in the Units sold, the “Public Shares”), at $10.00 per Unit, +generating gross proceeds of $60,000,000. Unit consists of one ordinary share of the Company, par value $0.0001 per share (the “Ordinary +Shares”) and one right (the “Rights”), with each Right entitling the holder thereof to receive one-tenth of one Ordinary +Share. Additionally, on December 29, 2022, the underwriters fully exercised the over-allotment option and the closing of the issuance +and sale of the additional Units. The total aggregate issuance by the Company of 900,000 Units at a price of $10.00 per Unit resulted +in total gross proceeds of $9,000,000. +Simultaneously +with the closing of the Initial Public Offering, the Company consummated the sale of private sale of 365,000 units (the “Private +Placement Units”) to the Sponsor at a purchase price of $10.00 per Private Placement Unit, and 25,000 Private Placement Units to +EarlyBirdCapital, Inc. (“EBC”) generating gross proceeds to the Company of $3,900,000. In connection with the underwriter’s +exercise of their over-allotment option, on December 29, 2022, the Company sold 7,904 Private Placement Units to the Sponsor, at a purchase +price of $10.00 per Private Purchase Unit, and an additional 2,596 Private Placement Units to EBC, at a purchase price of $10.00 per +Private Purchase Unit, generating additional gross proceeds to the Company of $405,000. +1 +Of +the proceeds the Company received from the Initial Public Offering and the sale of the Private Placement Units, $ 70,380,000 +($10.20 per public share) was initially deposited into a U.S.-based trust account at Bank of America with American Stock Transfer +& Trust Company, acting as trustee, with approximately $550,000 being used to pay fees and expenses in connection with the closing +of the Initial Public Offering, including underwriting commissions, and an estimated $650,000 being available for working capital following +the Initial Public Offering. Except with respect to interest earned on the funds held in the trust account that may be released to the +Company to pay its tax obligations, the proceeds from the Initial Public Offering and the sale of the Private Placement Units that are +deposited in the trust account will not be released from the trust account until the earliest to occur of (a) the completion of our initial +business combination, (b) the redemption of any public shares properly submitted in connection with a shareholder vote to amend our amended +and restated articles of association (i) to modify the substance or timing of our obligation to allow redemption in connection with our +initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination within 24 +months from the closing of our Initial Public Offering (or up to 33 months, if we extend the time to complete a business combination) +or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial business combination activity and (c) +the redemption of our public shares if we are unable to complete our business combination within 24 months from the closing of our Initial +Public Offering (or up to 33 months, if we extend the time to complete a business combination), subject to applicable law. +On +August 11, 2023, the Company entered into a business combination agreement (the “Business Combination Agreement”) with AV +Merger Sub, a Cayman Islands exempted company and a direct wholly owned subsidiary of AlphaVest (“Merger Sub”), and Wanshun +Technology Industrial Group Limited, a Cayman Islands exempted company (“Wanshun”). Pursuant to the terms of the Business +Combination Agreement, a business combination between the Company and Wanshun will be effected through the merger of Merger Sub with +and into Wanshun, with Wanshun surviving the merger as a wholly owned subsidiary of the Company. The Board has unanimously (i) approved +and declared advisable the Business Combination Agreement and the related transactions and (ii) resolved to recommend the approval and +adoption of the Business Combination Agreement and the related transactions to the shareholders of the Company. +At +an extraordinary general meeting of shareholders held on December 21, 2023 (the “Meeting”), the Company adopted the Company’s +Second Amended and Restated Memorandum and Articles of Association (the “Second Amended and Restated Memorandum and Articles of +Association”) reflecting the extension of the date by which the Company must consummate a business combination from December 22, +2023 (the “Termination Date”) up to ten (10) times, the first extension comprised of three months, and the subsequent nine +(9) extensions comprised of one month each (each an “Extension”) up to December 22, 2024 (i.e., for a period of time ending +up to 24 months after the consummation of its Initial Public Offering for a total of twelve (12) months after the Termination Date (assuming +a business combination has not occurred). The Company also entered into an amendment (the “Trust Agreement Amendment”) to +the Investment Management Trust Agreement, dated as of December 19, 2022, with Continental Stock Transfer & Trust Company (as amended, +the “Trust Agreement”). Pursuant to the Trust Agreement Amendment, the Company has extended the date by which it has to complete +a business combination from the Termination Date up to ten (10) times, with the first extension comprised of three months, and the subsequent +nine (9) extensions comprised of one month each from the Termination Date, or extended date, as applicable, to December 22, 2024 by providing +five days’ advance notice to the trustee prior to the applicable Termination Date, or extended date, and depositing into the Trust +Account $55,000 for each monthly extension (the “Extension Payment”) until December 22, 2024 (assuming a business combination +has not occurred) in exchange for a non-interest bearing, unsecured promissory note payable upon the consummation of a business combination. +In +connection with the shareholders’ vote at the Meeting, holders of 2,174,171 Ordinary Shares of the Company exercised their right +to redeem such shares (the “Redemption”) for a pro rata portion of the funds held in the Trust Account. As a result, approximately +$ 23,282,935.83 (approximately $10.71 per share) was removed from the Trust Account to pay such holders and approximately $50,608,334.49 +remains in the Trust Account. Following the Redemption, the Company has 7,006,329 Ordinary Shares outstanding. +On +December 21, 2023, the Company exercised its first extension by depositing $165,000 into the Trust Account to extend the deadline to +complete the business combination from December 22, 2023 to March 22, 2024. Also on December 21, 2023, the Company entered into a non-interest +bearing promissory note with the Sponsor for $165,000, which was used to fund the first extension. The Company subsequently exercised +the remaining nine one-month extensions by depositing $55,000 per one-month extension into the Trust Account, extending the deadline +to complete the business combination to December 22, 2024. +2 +On +December 18, 2024, the Company held a special meeting, at which time the Company adopted an Amendment to the Second Amended and Restated +Memorandum and Articles of Association, as amended, reflecting (i) the extension of the date by which the Company must consummate a business +combination from the Termination Date up to nine (9) Extensions comprised of one month each up to September 22, 2025 (i.e., for a period +of time ending up to 33 months after the consummation of its initial public offering for a total of nine (9) months after the Termination +Date (assuming a business combination has not occurred) and (ii) the deletion of the limitation that the Company shall not redeem public +shares to the extent that such redemption would cause the Company’s net tangible assets to be less than $5,000,001. +As of the date of this filing, an aggregate of $880,000 was deposited into +trust account to extend the business combination period to April 22, 2025. +Since +our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. +Our +Management Team +For +more information on the experience and background of our management team, see the section entitled “Management.” +Business +Strategy +We +will seek to capitalize on the strength of our management team. Our team consists of experienced financial services, accounting, and +legal professionals, and senior operating executives of companies operating in multiple jurisdictions. Collectively, our officers and +directors have decades of experience in mergers and acquisitions and in operating companies. We believe that their prior accomplishments +and current activities will be critical in identifying attractive acquisition opportunities, and that, in turn, the businesses that we +identify will be able to benefit from accessing the U.S. capital markets and the expertise and network of our management team. However, +there is no assurance that we will complete an initial business combination. +There +is no restriction on the geographic location of the targets that we can pursue, although we intend to initially focus on target businesses +in Asia. In particular, we intend to focus our search for an initial business combination target on private companies in Asia that have +compelling economics, clear paths to positive operating cash flow, significant assets, and successful management teams that are seeking +access to the U.S. public capital markets. +As +an emerging market, Asia has experienced remarkable growth. The Asian economy has experienced sustained expansion in recent years. We +believe that Asia is entering a new era of economic growth, which we expect will result in attractive initial business combination opportunities +for us. We believe the growth will primarily be driven by private sector expansion, technological innovation, increasing consumption +by the middle class, structural economic and policy reforms and demographic changes, particularly in China. +Acquisition +Criteria +Our +management team intends to focus on creating shareholder value by leveraging its experience in the management, operation, and financing +of businesses to improve the efficiency of operations while implementing strategies to scale revenue organically and/or through acquisitions. +We have identified the following general criteria and guidelines, which we believe are important in evaluating prospective target businesses. +While we intend to use these criteria and guidelines in evaluating prospective businesses, we may deviate from these criteria and guidelines +should we see justification to do so. +3 +● +Strong +Management Team that Can Create Significant Value for Target Business . We will seek to identify companies with strong and experienced +management teams that will complement the operating and investment abilities of our management team. We believe we can provide a +platform for the existing management team to leverage the experience of our management team. We also believe that the operating expertise +of our management team is well suited to complement many potential targets’ management teams. +● +Revenue +and Earnings Growth Potential . We will seek to acquire one or more businesses that have the potential for significant revenue +and earnings growth through a combination of both existing and new product development, increased production capacity, expense reduction +and synergistic follow-on acquisitions resulting in increased operating leverage. +● +Potential +for Strong Free Cash Flow Generation . We will seek to acquire one or more businesses that have the potential to generate strong, +stable, and increasing free cash flow, particularly businesses with predictable revenue streams and definable low working capital +and capital expenditure requirements. We may also seek to prudently leverage this cash flow in order to enhance shareholder value. +● +Benefit +from Being a Public Company . We intend to only acquire a business or businesses that will benefit from being publicly traded +and which can effectively utilize access to broader sources of capital and a public profile that are associated with being a publicly +traded company. +These +criteria do not intend to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, +to the extent relevant, on these general guidelines as well as other considerations, factors, and criteria that our Sponsor and management +team may deem relevant. +Initial +Business Combination +We +will have up to 24 months from the closing of our Initial Public Offering to consummate an initial business combination. However, if +we anticipate that we may not be able to consummate our initial business combination within 24 months, we may, by resolution of our Board +of Directors and if requested by our Sponsor, extend the period of time we will have to consummate an initial business combination up +to nine times, each by an additional one month (for a total of up to 33 months from the closing of our Initial Public Offering), provided +that, pursuant to the terms of our Second Amended and Restated Memorandum and Articles of Association, as amended, and the Trust Agreement, +entered into between us and Continental Stock Transfer & Trust Company on December 19, 2022, as amended on December 21, 2023, in +order for the time available for us to consummate our initial business combination to be extended, our Sponsor or their affiliates or +designees, upon five days’ advance notice prior to the applicable deadline, must deposit into the trust account $55,000 for each +month in an extension, on or prior to the date of the applicable deadline. Our public shareholders will not be entitled to vote or redeem +their shares in connection with any such extension. In the event that our Sponsor elects to extend the time to complete an initial business +combination, pay the additional amounts per each extension, and deposit the applicable amount of money into trust, our Sponsor will receive +a non-interest bearing, unsecured promissory note in the amount of any such deposit, which will not be repaid in the event that we are +unable to close an initial business combination unless there are funds available outside the trust account to do so. In the event that +we receive notice from our Sponsor five days prior to the applicable deadline of their intent to effect an extension, we intend to issue +a press release announcing such intention at least three days prior to the applicable deadline. In addition, we intend to issue a press +release the day after the applicable deadline announcing whether or not the funds had been timely deposited. Our Sponsor and its affiliates +or designees are not obligated to fund the trust account to extend the time for us to complete our initial business combination. If we +are unable to consummate our initial business combination within such time period, we will, as promptly as possible but not more than +10 business days thereafter, redeem 100% of our outstanding public shares for a pro rata portion of the funds held in the trust account, +including a pro rata portion of any interest earned on the funds held in the trust account and not previously released to us to pay our +taxes, and then seek to dissolve and liquidate. However, we may not be able to distribute such amounts as a result of claims of creditors +which may take priority over the claims of our public shareholders. In the event of our dissolution and liquidation, the Private Placement +Units will expire and be worthless. +4 +Our +initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least +80% of the assets held in the trust account (excluding income interest earned on the Trust Account and released to us to pay taxes) at +the time of the agreement to enter into the initial business combination. If our board is not able to independently determine the fair +market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or another independent +entity that commonly renders valuation opinions with respect to the satisfaction of such criteria. +The +net proceeds of our Initial Public Offering and the sale of the Private Placement Units released to us from the trust account upon the +closing of our initial business combination may be used as consideration to pay the sellers of a target business with which we complete +our initial business combination. If our initial business combination is paid for using equity or debt securities, or not all of the +funds released from the trust account are used for payment of the consideration in connection with our initial business combination or +used for redemption of our public shares, we may use the balance of the cash released to us from the trust account following the closing +for general corporate purposes, including for maintenance or expansion of operations of the post-transaction businesses, the payment +of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies +or for working capital. +In +addition, we may be required to obtain additional financing in connection with the closing of our initial business combination to be +used following the closing for general corporate purposes as described above. There is no limitation on our ability to raise funds through +the issuance of equity or equity-linked securities or through loans, advances or other indebtedness in connection with our initial business +combination, including pursuant to forward purchase agreements or backstop agreements we may enter into following consummation of our +Initial Public Offering. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously +with the completion of our initial business combination. We have granted EBC a right of first refusal under certain circumstances for +a period commencing from the consummation of our Initial Public Offering until the consummation of our initial business combination (or +the liquidation of the trust account in the event that we fail to consummate our initial business combination within the prescribed time +period) to act as book running manager, placement agent and/or arranger for all financings where we seek to raise equity, equity-linked, +debt or mezzanine financings relating to or in connection with an initial business combination. We are otherwise not a party to any arrangement +or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise. None +of our Initial Shareholders are required to provide any financing to us in connection with or after our initial business combination. +We may also obtain financing prior to the closing of our initial business combination to fund our working capital needs and transaction +costs in connection with our search for and completion of our initial business combination. +Our +Acquisition Process +We +intend to utilize the expertise of our managements’ respective platforms to evaluate potential targets’ strengths, weaknesses, +and to identify the relative risk and return profile of any potential target for our initial business combination. +Each +of our officers and directors presently has contractual obligations to other entities, and any of them in the future may have additional +fiduciary or contractual obligations to other entities including other special purpose acquisition companies, or “SPACs” +pursuant to which such officer or director is or will be required to present an initial business combination opportunity. Accordingly, +if any of our officers or directors becomes aware of an initial business combination opportunity which is suitable for an entity to which +he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations +to present such opportunity to such entity. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, provides that we renounce our interest in any corporate +opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity +as a director or officer of our company and such opportunity is one that we are legally and contractually permitted to undertake and +would otherwise be reasonable for us to pursue. +Our +officers have agreed that they will not become an officer or director of any other special purpose acquisition company that has publicly +filed a registration statement for its initial public offering unless and until we enter into a definitive agreement regarding our initial +business combination or we have failed to complete our initial business combination within 24 months from the closing of our Initial +Public Offering (or up to 33 months, if we extend the time to complete an initial business combination). +5 +Competition +In +identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from +other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged +buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive +experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess +greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our +available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, +our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available +to us for our initial business combination and may not be viewed favorably by certain target businesses. This may place us at a competitive +disadvantage in successfully negotiating an initial business combination. +Facilities +We +currently maintain our executive offices at 205 W. 37th Street, New York, NY 10018. The cost for our use of this space is included in +the $10,000 per month fee we will pay to our Sponsor for office space, utilities and secretarial and administrative services. We consider +our current office space adequate for our current operations. +Employees +We +currently have two officers and do not intend to have any full-time employees prior to the completion of our initial business combination. +Members of our management team are not obligated to devote any specific number of hours to our matters, but they intend to devote as +much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time +that any such person will devote in any time period will vary based on whether a target business has been selected for our initial business +combination and the current stage of the business combination process. +Periodic +Reporting and Financial Information +Our +Units, Ordinary Shares and Rights are registered under the Exchange Act and have reporting obligations, including the requirement that +we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports +will contain financial statements audited and reported on by our independent registered public auditors. +We +will provide shareholders with audited financial statements of the prospective target business as part of the tender offer materials +or proxy solicitation materials sent to shareholders to assist them in assessing the target business. These financial statements may +be required to be prepared in accordance with, or be reconciled to, U.S. GAAP or IFRS, depending on the circumstances and the historical +financial statements may be required to be audited in accordance with PCAOB standards. These financial statement requirements may limit +the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time +for us to disclose such financial statements in accordance with federal proxy rules and complete our initial business combination within +the prescribed time frame. While this may limit the pool of potential business combination candidates, we do not believe that this limitation +will be material. +We +are required to evaluate our internal control procedures for the fiscal year ending December 31, 2024 as required by the Sarbanes-Oxley +Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth +company, will we be required to have our internal control procedures audited. A target business may not be in compliance with the provisions +of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity +to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We +filed a Registration Statement on Form 8-A with the SEC on December 16, 2022 to voluntarily register our securities under Section 12 +of the Exchange Act. As a result, we will be subject to the rules and regulations promulgated under the Exchange Act. We have no current +intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation +of our initial business combination. +6 +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, +we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies +that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic +reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and +shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive +as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In +addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended +transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other +words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise +apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We +will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of +the completion of our Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which +we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that are held by non-affiliates equals +or exceeds $700,000,000 as of the prior June 30 th , and (2) the date on which we have issued more than $1.0 billion in non- +convertible debt during the prior three-year period. +Additionally, +we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take +advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. +We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our Ordinary Shares +held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues +equaled or exceeded $100 million during such completed fiscal year or the market value of our Ordinary Shares held by non-affiliates +equals or exceeds $700,000,000 as of the end of that year’s second fiscal quarter. +Legal +Proceedings +There +is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team +in their capacity as such. +7 +Risk +Factors Summary +We +are a newly incorporated company that has conducted no operations and has generated no revenues. Until we complete our initial business +combination, we will have no operations and will generate no operating revenues. In making your decision whether to invest in our securities, +you should take into account not only the background of our management team, but also the special risks we face as a blank check company. +Since +we may initiate a business combination with target company operating in China, you may be subject to additional risk factors. These include +significant regulatory, liquidity, and enforcement risks. For example, we face risks arising from the legal system in China, including +risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance +notice. In addition, the Chinese government may intervene or influence our operations at any time or exert more control over offerings +conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or +the value of our Ordinary Shares. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted +overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue +to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For a detailed description +of the risks relating to acquiring and operating a target business in China, see Please see “Risks Related to Our Possible Business +Combination in China” and “Risks Related to Acquiring and Operating a Business Outside of the United States” for more +information. +You +should carefully consider these and the other risks set forth in the section entitled “Risk Factors” of this Form 10-K. Such +risks include, but are not limited to: +Risks +Related to our Search for, Consummation of, or Inability to Consummate, a Business Combination +● +Our +public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete +our initial business combination even though a majority of our public shareholders do not support such a combination. +● +If +we seek shareholder approval of our initial business combination, our Initial Shareholders have agreed to vote their Founder Shares +and private shares in favor of such initial business combination, regardless of how our public shareholders vote. +● +Your +only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of +your right to redeem your shares from us for cash, unless we seek shareholder approval of the initial business combination. +● +The +ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to +complete the most desirable initial business combination or optimize our capital structure. +● +The +requirement that we complete our initial business combination within 24 months from the closing of our IPO (or up to 33 months, if +we extend the time to complete an initial business combination) may give potential target businesses leverage over us in negotiating +an initial business combination and may decrease our ability to conduct due diligence on potential initial business combination targets +as we approach our dissolution deadline. +● +We +may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all operations +except for the purpose of winding up. +● +You +will not have any rights or interests in funds from the trust account, except under certain limited circumstances. +● +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, +and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Ordinary Shares, you will lose the +ability to redeem all such shares in excess of 15% of our Ordinary Shares. +● +Because +of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us +to complete our initial business combination and our Rights will expire worthless. +● +We +may seek acquisition opportunities in industries or sectors which may be outside of our management’s area of expertise. +● +Although +we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we +may enter into our initial business combination with a target that does not meet such criteria and guidelines. +● +Because +we are not limited to a particular industry, sector, or any specific target businesses with which to pursue our initial business +combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +● +Our +ability to complete a business combination may be impacted by the fact that our Sponsor’s major shareholder, Pengfei Zheng, +is a non-U.S. person, and a majority of our officers and directors are located in, or have significant ties to, China. This may make +us a less attractive partner to potential target companies outside the PRC, thereby limiting our pool of acquisition candidates and +making it harder for us to complete an initial business combination with a non-China-based target company. For example, we may not +be able to complete an initial business combination with a U.S. target company since such initial business combination may be subject +to U.S. foreign investment regulations and review by a U.S. government entity, such as the Committee on Foreign Investment in the +United States (CFIUS), or ultimately prohibited. +8 +Risks +Related to Our Securities +● +We +may issue additional Ordinary Shares or preference shares to complete our initial business combination or under an employee incentive +plan after completion of our initial business combination, which would dilute the interest of our shareholders and likely present +other risks. +● +The +grant of registration rights to our Initial Shareholders may make it more difficult to complete our initial business combination, +and the future exercise of such rights may adversely affect the market price of our Ordinary Shares. +Risks +Related to Our Management +● +Our +officers and directors may allocate their time to other businesses and may become officers or directors of any other special purpose +acquisition companies, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs +and whether to present potential target to us instead of to our competitors. This conflict of interest could have a negative impact +on our ability to complete our initial business combination. +● +Our +Initial Shareholders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +● +We +are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage +of certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies, this could +make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +Post +Business Combination Risks +● +Our +management may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance +that, upon loss of control of a target business, new management will possess the skills, qualifications, or abilities necessary to +profitably operate such business. +● +We +may seek acquisition opportunities with an early-stage company, a financially unstable business or an entity lacking an established +record of revenue or earnings. +Risks +Related to Acquiring and Operating a Business Outside of the United States +● +Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted. +● +Many countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption and inexperience, which may adversely impact our results of operations and financial condition. +● +We may face additional and distinctive risks if we acquire a business in certain industries, such as technology. +● +If we effect our initial business combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements and we may not be able to enforce our legal rights. +● +PRC regulations relating to offshore investment activities by PRC residents may limit our ability to inject capital in our Chinese subsidiaries and Chinese subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws. +● +Certain +existing or future U.S. laws and regulations may restrict or eliminate our ability to complete an initial business combination with +certain companies, particularly those target companies in China. +● +If +we effect an initial business combination with a company located outside of the United States, the laws applicable to such company +will likely govern all of our material agreements and we may not be able to enforce our legal rights. +● +Changes +in the policies, regulations, rules, and the enforcement of laws of the PRC government may occur quickly with little advance notice +and could have a significant impact upon our ability to operate profitably in the PRC. +● +The +Chinese government may intervene in and influence the manner in which our post-combination entity must conduct its business activities +in ways that we cannot expect when we enter into a definitive agreement with a target company with major operation in China which +could result in a material change in our operations of the combined company and/or the value of our securities, and could significantly +limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities +to significantly decline or become worthless. If the Chinese government establishes some new policies, regulations, rules, or laws +affecting the industries that our post-combination entity is in, it may materially and adversely affect our operations and the value +of our Ordinary Shares. +● +Chinese +government agencies may exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based +issuers. +● +In +light of recent events indicating greater oversight by the CAC over data security, particularly for companies seeking to list on +a foreign exchange, some internet and technology companies may not be willing to list on a U.S. exchange or enter into a definitive +business combination agreement with us. Further, we may also have to avoid an initial business combination with a company with more +than one million users’ personal information in China due to the limited timeline for us to complete a business combination. +9 +ITEM +1A. RISK FACTORS +You +should carefully consider the following risks and other information in this Form 10-K in evaluating us and our capital stock. Any of +the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could +materially and adversely affect our business, financial condition or results of operations, and could, in turn, impact the trading price +of our capital stock. +Risks +Related to our Search for, Consummation of, or Inability to Consummate, a Business Combination +We +are a Cayman Islands exempted company with no operating history and no revenues, and you have no basis on which to evaluate our ability +to achieve our business objective. +We +are a Cayman Islands exempted company with no operating results, and we will not commence operations until obtaining funding through +our Initial Public Offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our +business objective of completing our initial business combination with one or more target businesses. We have no plans, arrangements +or understandings with any prospective target business concerning a business combination and may be unable to complete our business combination. +If we fail to complete our business combination, we will never generate any operating revenues. +Our +independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about +our ability to continue as a “going concern.” +As +of December 31, 2024, we had a working capital deficiency of $1,745,636. Further, we expect to incur significant costs +in pursuit of our acquisition plans. Management’s plans to address this need for capital through our Initial Public Offering are +discussed in the section of this Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results +of Operations.” Our plans to raise capital and to consummate our initial business combination may not be successful. These factors, +among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere +in this Form 10-K do not include any adjustments that might result from our inability to consummate our Initial Public Offering or our +inability to continue as a going concern. +Our +public shareholders may not be afforded an opportunity to vote on our proposed business combination, which means we may complete our +initial business combination even though a majority of our public shareholders do not support such a combination. +We +may not hold a shareholder vote to approve our initial business combination unless the business combination would require shareholder +approval under applicable law or stock exchange listing requirements or if we decide to hold a shareholder vote for business or other +legal reasons. Except as required by law, the decision as to whether we will seek shareholder approval of a proposed business combination +or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based +on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to +seek shareholder approval. Accordingly, we may complete our initial business combination even if holders of a majority of our public +shares do not approve of the business combination we complete. +If +we seek shareholder approval of our initial business combination, our Initial Shareholders have agreed to vote in favor of such initial +business combination, regardless of how our public shareholders vote. +Unlike +many other blank check companies in which the Initial Shareholders agree to vote their Founder Shares in accordance with the majority +of the votes cast by the public shareholders in connection with an initial business combination, our Initial Shareholders have agreed +to vote their Founder Shares and private shares, as well as any public shares purchased during or after our Initial Public Offering, +in favor of our initial business combination. +As +a result, in addition to our Initial Shareholders’ Founder Shares, we would do not need any of the 3,854,856 public shares outstanding +to be voted in favor of an initial business combination in order to have our initial business combination approved (assuming all outstanding +shares are voted and the EBC Founder Shares are voted in favor of a business combination). Our Founder Shares and private shares will +represent 55.2% of our outstanding Ordinary Shares immediately following the Redemptions. Accordingly, if we seek shareholder approval +of our initial business combination, it is more likely that the necessary shareholder approval will be received than would be the case +if our Initial Shareholders agreed to vote their Founder Shares and private shares in accordance with the majority of the votes cast +by our public shareholders. +10 +Your +only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your +right to redeem your shares from us for cash, unless we seek shareholder approval of the business combination. +At +the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of one or more +target businesses. Since our board of directors may complete a business combination without seeking shareholder approval, public shareholders +may not have the right or opportunity to vote on the business combination, unless we seek such shareholder vote. Accordingly, if we do +not seek shareholder approval, your only opportunity to affect the investment decision regarding a potential business combination may +be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our +tender offer documents mailed to our public shareholders in which we describe our initial business combination. +The +ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business +combination targets, which may make it difficult for us to enter into a business combination with a target. +We +may seek to enter into a business combination transaction agreement with a prospective target that requires as a closing condition that +we have a minimum net worth or a certain amount of cash. If too many public shareholders exercise their redemption rights, we would not +be able to meet such closing condition and, as a result, would not be able to proceed with the business combination. Prospective targets +will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us. +The +ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete +the most desirable business combination or optimize our capital structure. +At +the time we enter into an agreement for our initial business combination, we will not know how many shareholders may exercise their redemption +rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted +for redemption. If our business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase +price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account +to meet such requirements, or arrange for third-party financing. In addition, if a larger number of shares are submitted for redemption +than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account +or arrange for third-party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence +of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business +combination available to us or optimize our capital structure. +The +ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability +that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +If +our business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price or requires +us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. +If our initial business combination is unsuccessful, you would not receive your pro rata portion of the trust account until we liquidate +the trust account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such +time our shares may trade at a discount to the pro rata amount per share in the trust account. In either situation, you may suffer a +material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are +able to sell your shares in the open market. +11 +As +the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may +be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in +our inability to find a target or to consummate an initial business combination. +In +recent years and especially since the fourth quarter of 2020, the number of special purpose acquisition companies that have been formed +has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial business +combination, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as +well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require +more time, more effort and more resources to identify a suitable target and to consummate an initial business combination. +In +addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available +targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets +companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry +sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate +targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and +consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable +to our investors altogether. +Changes +in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and +complete an initial business combination. +In +recent years, the market for directors and officers liability insurance for special purpose acquisition companies has changed. The premiums +charged for such policies have generally increased and the terms of such policies have generally become less favorable. There can be +no assurance that these trends will not continue. +The +increased cost and decreased availability of directors and officers liability insurance could make it more difficult and more expensive +for us to negotiate an initial business combination. In order to obtain directors and officers liability insurance or modify its coverage +as a result of becoming a public company, the post-business combination entity will likely need to incur greater expense, accept less +favorable terms or both. However, any failure to obtain adequate directors and officers liability insurance could have an adverse impact +on the post-business combination’s ability to attract and retain qualified officers and directors. +In +addition, even after we were to complete an initial business combination, our directors and officers could still be subject to potential +liability from claims arising from conduct alleged to have occurred prior to the initial business combination. As a result, in order +to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to +any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination +entity, and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors. +Our +Sponsor has the right to extend the term we have to consummate our initial business combination up to 33 months from the closing of our +Initial Public Offering without providing our shareholders with a corresponding redemption right. +We +will have up to 24 months from the closing of our Initial Public Offering to consummate an initial business combination. However, if +we anticipate that we may not be able to consummate our initial business combination within 33 months, we may, by resolution of our Board +of Directors, if requested by our Sponsor, extend the period of time we will have to consummate an initial business combination up to +nine times, each by an additional one month (for a total of up to 33 months from the closing of our Initial Public Offering), provided +that, pursuant to the terms of our Second Amended and Restated Memorandum and Articles of Association, as amended, and the Trust Agreement +to be entered into between us and Continental Stock Transfer & Trust Company on December 22, 2022, as amended on December 18, 2024, +in order for the time available for us to consummate our initial business combination to be extended, our Sponsor or their affiliates +or designees, upon five days’ advance notice prior to the applicable deadline, must deposit into the trust account $55,000 for +each month in an extension, on or prior to the date of the applicable deadline. Our public shareholders will not be entitled to vote +or redeem their shares in connection with any such extension. +12 +In +the event that our Sponsor elects to extend the time to complete a business combination, pay the additional amounts per each extension, +and deposit the applicable amount of money into trust, our Sponsor will receive a non-interest bearing, unsecured promissory note equal +to the amount of any such deposit and payment that will not be repaid in the event that we are unable to close a business combination +unless there are funds available outside the trust account to do so. In the event that we receive notice from our Sponsor five days prior +to the applicable deadline of their intent to effect an extension, we intend to issue a press release announcing such intention at least +three days prior to the applicable deadline. In addition, we intend to issue a press release the day after the applicable deadline announcing +whether or not the funds had been timely deposited. Our Sponsor and its affiliates or designees are not obligated to fund the trust account +to extend the time for us to complete our initial business combination. If we are unable to consummate our initial business combination +within such time period, we will, as promptly as possible but not more than 10 business days thereafter, redeem 100% of our outstanding +public shares for a pro rata portion of the funds held in the trust account, including a pro rata portion of any interest earned on the +funds held in the trust account and not previously released to us to pay our taxes, and then seek to dissolve and liquidate. However, +we may not be able to distribute such amounts as a result of claims of creditors which may take priority over the claims of our public +shareholders. In the event of our dissolution and liquidation, the Rights and Private Placement Units will expire and be worthless. +The +requirement that we complete our initial business combination within the prescribed time frame may give potential target businesses leverage +over us in negotiating a business combination and may decrease our ability to conduct due diligence on potential business combination +targets as we approach our dissolution deadline, which could undermine our ability to complete our business combination on terms that +would produce value for our shareholders. +Any +potential target business with which we enter into negotiations concerning a business combination will be aware that we must complete +our initial business combination within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period +of time to consummate our business combination, within 33 months from the closing of our Initial Public Offering (as further described +in our Registration Statement). Consequently, such target business may obtain leverage over us in negotiating a business combination, +knowing that if we do not complete our initial business combination with that particular target business, we may be unable to complete +our initial business combination with any target business. This risk will increase as we get closer to the timeframe described above. +In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would +have rejected upon a more comprehensive investigation. +We +may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all operations +except for the purpose of winding up and we would redeem our public shares and liquidate, in which case our public shareholders may only +receive $10.20 per share, or less than such amount in certain circumstances, and our Rights will expire worthless. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, provides that we must complete our initial business combination +within 24 months from the closing of our Initial Public Offering, or we may, but are not obligated to, extend the period of time to consummate +our business combination up to nine times by an additional one month each time, for a total of up to 33 months (as further described +in our Registration Statement). We may not be able to find a suitable target business and complete our initial business combination within +such time period. Our ability to complete our initial business combination may be negatively impacted by general market conditions, volatility +in the capital and debt markets and the other risks described herein. If we have not completed our initial business combination within +such time period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but +not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount +then on deposit in the trust account, including interest earned on the funds held in the trust account and not previously released to +us to pay our taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, +which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further +liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, +subject to the approval of our remaining shareholders and our board of directors, dissolve and liquidate, subject in each case to our +obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such case, our +public shareholders may only receive $10.20 per share or less in certain circumstances, and our Rights will expire worthless. In certain +circumstances, our public shareholders may receive less than $10.20 per share on the redemption of their shares. See “ — +If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount +received by shareholders may be less than $10.20 per share ” and other risk factors in this section. +13 +If +we seek shareholder approval of our initial business combination, our Initial Shareholders and their affiliates may elect to purchase +Ordinary Shares or Rights from public shareholders, which may influence a vote on a proposed business combination and reduce the public +“float” of our Ordinary Shares or Rights. +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our Sponsor, directors, executive officers, advisors or any of their affiliates may purchase +public shares or Rights in privately negotiated transactions or in the open market either prior to or following the completion of our +initial business combination, although they are under no obligation or duty to do so. Any price paid for such securities may be less +than the amount a public shareholder would receive if it elected to redeem its shares in connection with our initial business combination. +Such a purchase may include a contractual acknowledgment that such shareholder, although still the record holder of our shares is no +longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, +executive officers, advisors or any of their affiliates purchase shares in privately negotiated transactions from public shareholders +who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections +to redeem their shares. It is intended that, if Rule 10b-18 would apply to purchases by our Sponsor, directors, executive officers, advisors +or any of their affiliates, then such purchases will comply with Rule 10b-18 under the Exchange Act, to the extent it applies, which +provides a safe harbor for purchases made under certain conditions, including with respect to timing, pricing and volume of purchases. +Additionally, +at any time at or prior to our initial business combination, subject to applicable securities laws (including with respect to material +nonpublic information), our Sponsor, directors, executive officers, advisors or any of their affiliates may enter into transactions with +investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of our initial business +combination or not redeem their public shares. However, they have no current commitments, plans or intentions to engage in such transactions +and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase +public shares or Rights in such transactions. +The +purpose of any such transactions could be to (1) increase the likelihood of obtaining shareholder approval of the business combination +by purchasing shares from holders that would have voted against a proposed transaction (as those shares would no longer be voted on the +proposed transaction), (2) reduce the number of Rights outstanding and/or increase the likelihood of approval on any matters submitted +to the Rights holders for approval in connection with our initial business combination or (3) satisfy a closing condition in an agreement +with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, +where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion +of our initial business combination that may not otherwise have been possible. +In +addition, if such purchases are made, the public “float” of our securities may be reduced and the number of beneficial holders +of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities +on a national securities exchange. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the +extent such purchasers are subject to such reporting requirements. Additionally, in the event our Sponsor, directors, executive officers, +advisors or their affiliates were to purchase shares or Rights from public shareholders, such purchases would be structured in compliance +with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, through adherence to the following: +● +our +registration statement/proxy statement filed for our business combination transaction would disclose the possibility that our Sponsor, +directors, executive officers, advisors or any of their affiliates may purchase shares or Rights from public shareholders outside +the redemption process, along with the purpose of such purchases; +14 +● +if +our Sponsor, directors, executive officers, advisors or any of their affiliates were to purchase shares or Rights from public shareholders, +they would do so at a price no higher than the price offered through our redemption process; +● +our +registration statement/proxy statement filed for our business combination transaction would include a representation that any of +our securities purchased by our Sponsor, directors, executive officers, advisors or any of their affiliates would not be voted in +favor of approving the business combination transaction; +● +our +Sponsor, directors, executive officers, advisors or any of their affiliates would not possess any redemption rights with respect +to our securities or, if they do acquire and possess redemption rights, they would waive such rights; and +● +we +would disclose in a Form 8-K, before our security holder meeting to approve the business combination transaction, the following material +items: +○ +the +amount of our securities purchased outside of the redemption offer by our Sponsor, directors, executive officers, advisors or any +of their affiliates, along with the purchase price; +○ +the +purpose of the purchases by our Sponsor, directors, executive officers, advisors or any of their affiliates; +○ +the +impact, if any, of the purchases by our Sponsor, directors, executive officers, advisors or any of their affiliates on the likelihood +that the business combination transaction will be approved; +○ +the +identities of our security holders who sold to our Sponsor, directors, executive officers, advisors or any of their affiliates (if +not purchased on the open market) or the nature of our security holders (e.g., 5% security holders) who sold to our Sponsor, directors, +executive officers, advisors or any of their affiliates; and +○ +the +number of our securities for which we have received redemption requests pursuant to our redemption offer. +In +addition, if such purchases are made, the public “float” of our Ordinary Shares or public rights and the number of beneficial +holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of our +securities on a national securities exchange. +See +“Proposed Business - Permitted Purchases of Our Securities” for a description of how our Sponsor, directors, +executive officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. +If +a shareholder fails to receive notice of our offer to redeem our public shares in connection with our business combination, or fails +to comply with the procedures for tendering its shares, such shares may not be redeemed. +We +will comply with the tender offer rules or proxy rules, as applicable, when conducting redemptions in connection with our business combination. +Despite our compliance with these rules, if a shareholder fails to receive our tender offer or proxy materials, as applicable, such shareholder +may not become aware of the opportunity to redeem its shares. In addition, the tender offer documents or proxy materials, as applicable, +that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures +that must be complied with in order to validly tender or redeem public shares. For example, we may require our public shareholders seeking +to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender +their certificates to our transfer agent prior to the date set forth in the tender offer documents mailed to such holders, or up to two +business days prior to the vote on the proposal to approve the business combination in the event we distribute proxy materials, or to +deliver their shares to the transfer agent electronically. In the event that a shareholder fails to comply with these or any other procedures, +its shares may not be redeemed. +15 +You +will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your +investment, therefore, you may be forced to sell your public shares or Rights, potentially at a loss. +Our +public shareholders will be entitled to receive funds from the trust account only upon the earliest to occur of: (i) our completion of +an initial business combination, and then only in connection with those public shares that such shareholder properly elected to redeem, +subject to the limitations described in our Registration Statement, (ii) the redemption of any public shares properly submitted in connection +with a shareholder vote to amend our Second Amended and Restated Memorandum and Articles of Association, as amended, (A) to modify the +substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of our +public shares if we do not complete our initial business combination within 24 months from the closing of our Initial Public Offering, +or if we decide to extend the period of time to consummate our business combination, within 33 months from the closing of our Initial +Public Offering (as further described in our Registration Statement) or (B) with respect to any other provision relating to shareholders’ +rights or pre-initial business combination activity and (iii) the redemption of our public shares if we are unable to complete an initial +business combination within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to +consummate our business combination, within 33 months from the closing of our Initial Public Offering (as further described in our Registration +Statement), subject to applicable law and as further described herein. In addition, if we are unable to complete an initial business +combination within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate +our business combination, within 33 months from the closing of our Initial Public Offering (as further described in our Registration +Statement) for any reason, compliance with Cayman Islands law may require that we submit a plan of dissolution to our then-existing shareholders +for approval prior to the distribution of the proceeds held in our trust account. In that case, public shareholders may be forced to +wait beyond the 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate +our business combination, beyond the 33 months from the closing of our Initial Public Offering (as further described in our Registration +Statement) before they receive funds from our trust account. In no other circumstances will a public shareholder have any right or interest +of any kind in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares or Rights, +potentially at a loss. +You +will not be entitled to protections normally afforded to investors of many other blank check companies. +Since +the net proceeds of our Initial Public Offering and the sale of the Private Placement Units are intended to be used to complete an initial +business combination with a target business that has not been selected, we may be deemed to be a “blank check” company under +the United States securities laws. However, because we will have net tangible assets in excess of $5,000,000 upon the successful completion +of our Initial Public Offering and the sale of the Private Placement Units and will file a Current Report on Form 8-K, including an audited +balance sheet demonstrating this fact, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, +such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means +our units will be immediately tradable as opposed to companies subject to Rule 419. Moreover, if our Initial Public Offering were subject +to Rule 419, that rule would prohibit the release of any interest earned on funds held in the trust account to us unless and until the +funds in the trust account were released to us in connection with our completion of an initial business combination. +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, +and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Ordinary Shares, you will lose the ability +to redeem all such shares in excess of 15% of our Ordinary Shares. +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our Second Amended and Restated Memorandum and Articles of Association, as amended, provides +that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in +concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights +with respect to more than an aggregate of 15% of the shares sold in our Initial Public Offering, which we refer to as the “Excess +Shares.” However, our Second Amended and Restated Memorandum and Articles of Association, as amended, does not restrict our shareholders’ +ability to vote all of their shares (including Excess Shares) for or against our business combination. Your inability to redeem the Excess +Shares will reduce your influence over our ability to complete our business combination and you could suffer a material loss on your +investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with +respect to the Excess Shares if we complete our business combination. As a result, you will continue to hold that number of shares exceeding +15% and, in order to dispose of such shares, would be required to sell your share in open market transactions, potentially at a loss. +16 +Because +of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete +our initial business combination. If we are unable to complete our initial business combination, our public shareholders may receive +only approximately $10.20 per share on our redemption of our public shares, or less than such amount in certain circumstances, and our +Rights will expire worthless. +We +expect to encounter intense competition from other entities having a business objective similar to ours, including private investors +(which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing +for the types of businesses we intend to acquire. Many of these entities are well-established and have extensive experience in identifying +and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these +competitors possess greater technical, human and other resources or more local industry knowledge than we do and our financial resources +will be relatively limited when contrasted with those of many of these competitors. As a result, our ability to compete with respect +to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent +competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. +Furthermore, +because we are obligated to pay cash for the Ordinary Shares which our public shareholders redeem in connection with our initial business +combination, target companies will be aware that this may reduce the resources available to us for our initial business combination. +This may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to complete our +initial business combination, our public shareholders may receive only approximately $10.20 per share, or less in certain circumstances, +on the liquidation of our trust account and our Rights will expire worthless. In certain circumstances, our public shareholders may receive +less than $10.20 per share upon our liquidation. See “ — If third parties bring claims against us, the proceeds held in +the trust account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per share ” +and other risk factors in this section. +If +the net proceeds of our Initial Public Offering and the sale of the Private Placement Units not being held in the trust account are insufficient +to allow us to operate for at least the next 24 months from the closing of our Initial Public Offering, or if we decide to extend the +period of time to consummate our business combination, the next 33 months from the closing of our Initial Public Offering (as further +described in our Registration Statement), we may be unable to complete our initial business combination, in which case our public shareholders +may only receive $10.20 per share, or less than such amount in certain circumstances, and our Rights will expire worthless. +The +funds available to us outside of the trust account may not be sufficient to allow us to operate for at least the next 24 months from +the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, the +next 33 months from the closing of our Initial Public Offering (as further described in our Registration Statement), assuming that our +initial business combination is not completed during that time. We believe that, upon the closing of our Initial Public Offering, the +funds available to us outside of the trust account will be sufficient to allow us to operate for at least the next 24 months from the +closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, the next +33 months from the closing of our Initial Public Offering (as further described in our Registration Statement); however, we cannot assure +you that our estimate is accurate. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants +to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” +provision (a provision in letters of intent or merger agreements designed to keep target businesses from “shopping” around +for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business +combination, although we do not have any current intention to do so. If we entered into a letter of intent or merger agreement where +we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as +a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect +to, a target business. If we are unable to complete our initial business combination, our public shareholders may receive only approximately +$10.20 per share or less in certain circumstances on the liquidation of our trust account and our Rights will expire worthless. In certain +circumstances, our public shareholders may receive less than $10.20 per share upon our liquidation. See “ — If third parties +bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by shareholders +may be less than $10.20 per share ” and other risk factors in this section. +17 +If +the net proceeds of our Initial Public Offering and the sale of the Private Placement Units not being held in the trust account are insufficient, +it could limit the amount available to fund our search for a target business or businesses and complete our initial business combination +and we will depend on loans from our Initial Shareholders or management team to fund our search for a business combination, to pay our +taxes and to complete our initial business combination. If we are unable to obtain these loans, we may be unable to complete our initial +business combination. +Of +the net proceeds of our Initial Public Offering and the sale of the Private Placement Units, only approximately $650,000 will be available +to us initially outside the trust account to fund our working capital requirements. In the event that our offering expenses exceed our +estimate of $550,000 (excluding underwriting discount), we may fund such excess with funds not to be held in the trust account. In such +case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the +event that the offering expenses are less than our estimate of $550,000 (excluding underwriting discount), the amount of funds we intend +to be held outside the trust account would increase by a corresponding amount. If we are required to seek additional capital, we would +need to borrow funds from our Initial Shareholders or their affiliates to operate, or we may be forced to liquidate. None of our Initial +Shareholders nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would +be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. +We do not expect to seek loans from parties other than our Initial Shareholders or an affiliate of our Initial Shareholders as we do +not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds +in our trust account but in the event that we seek loans from any third parties, we will obtain a waiver against any and all rights to +seek access to funds in our trust account. If we are unable to obtain these loans, we may be unable to complete our initial business +combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we +will be forced to cease operations and liquidate the trust account. Consequently, our public shareholders may only receive approximately +$10.20 per share on our redemption of our public shares, and our Rights will expire worthless. In certain circumstances, our public shareholders +may receive less than $10.20 per share on the redemption of their shares. See “ — If third parties bring claims against +us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by shareholders may be less +than $10.20 per share ” and other risk factors in this section. +We +do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete +a business combination with which a substantial majority of our shareholders do not agree. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, does not provide a specified maximum redemption threshold. +As a result, we may be able to complete our business combination even though a substantial majority of our public shareholders do not +agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial business combination and +do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, have entered into privately +negotiated agreements to sell their shares to our Initial Shareholders, advisors or their affiliates. In the event the aggregate cash +consideration we would be required to pay for all Ordinary Shares that are validly submitted for redemption plus any amount required +to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to +us, we will not complete the business combination or redeem any shares, all Ordinary Shares submitted for redemption will be returned +to the holders thereof, and we instead may search for an alternate business combination. +18 +If +third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received +by shareholders may be less than $10.20 per share. +Our +placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all +vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving +any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, +such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims +against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar +claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim +against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims +to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter +into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would +be significantly more beneficial to us than any alternative. Making such a request of potential target businesses may make our acquisition +proposal less attractive to them and, to the extent prospective target businesses refuse to execute such a waiver, it may limit the field +of potential target businesses that we might pursue. +Examples +of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant +whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would +agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, +there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, +any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption +of our public shares, if we are unable to complete our business combination within the prescribed timeframe, or upon the exercise of +a redemption right in connection with our business combination, we will be required to provide for payment of claims of creditors that +were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount +received by public shareholders could be less than the $10.20 per share initially held in the trust account, due to claims of such creditors. +Our Sponsor has agreed that it will be liable to us if and to the extent any claims by a vendor for services rendered or products sold +to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds +in the trust account to below (i) $10.20 per public share or (ii) such lesser amount per public share held in the trust account as of +the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest +which may be withdrawn to pay taxes. This liability will not apply with respect to any claims by a third party who executed a waiver +of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of our +Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed +waiver is deemed to be unenforceable against a third party, then our Sponsor will not be responsible to the extent of any liability for +such third-party claims. We have not independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations +and believe that our Sponsor’s only assets are securities of our company. We have not asked our Sponsor to reserve for such indemnification +obligations. Therefore, we believe it is unlikely that our Sponsor would be able to satisfy those obligations. As a result, if any such +claims were successfully made against the trust account, the funds available for our initial business combination and redemptions could +be reduced to less than $10.20 per public share. In such event, we may not be able to complete our initial business combination, and +you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors +are required to indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +Our +independent directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount +of funds in the trust account available for distribution to our public shareholders. +In +the event that the proceeds in the trust account are reduced below the lesser of (i) $10.20 per public share or (ii) such lesser amount +per share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust +assets, in each case net of the interest which may be withdrawn to pay taxes, and our Sponsor asserts that it is unable to satisfy its +obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether +to take legal action against our Sponsor to enforce its indemnification obligations. +While +we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification +obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so if, for +example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if +the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these +indemnification obligations, the amount of funds in the trust account available for distribution to our public shareholders may be reduced +below $10.20 per share. +19 +If, +after we distribute the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy +petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board may be +exposed to claims of punitive damages. +If, +after we distribute the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy +petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor +and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy +court could seek to recover all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached +its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by +paying public shareholders from the trust account prior to addressing the claims of creditors. +If, +before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy +petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our +shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be +reduced. +If, +before distributing the proceeds in the trust account to our public shareholders, we file a bankruptcy petition or an involuntary bankruptcy +petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy +law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. +To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our shareholders +in connection with our liquidation may be reduced. +Our +shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption +of their shares. +If +we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment +if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall +due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. +Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad +faith, thereby exposing themselves and our company to claims, by paying public shareholders from the trust account prior to addressing +the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and +officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were +unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable for a fine +of approximately $18,000 and imprisonment for five years in the Cayman Islands. +Because +we are not limited to a particular industry, sector, or any specific target businesses with which to pursue our initial business combination, +you will be unable to ascertain the merits or risks of any particular target business’ operations. +We +may seek to complete a business combination with an operating company in any industry or sector or geographical location. However, we +will not, under our Second Amended and Restated Memorandum and Articles of Association, as amended, be permitted to complete our business +combination with another blank check company or similar company with nominal operations. Because we have not yet selected or approached +any specific target business with respect to a business combination, there is no basis to evaluate the possible merits or risks of any +particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. To the +extent we complete our business combination, we may be affected by numerous risks inherent in the business operations with which we combine. +For example, if we combine with a financially unstable business or an entity lacking an established record of revenues or earnings, we +may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. Although +our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we +will properly ascertain or assess all the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, +some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will +adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable +to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any shareholders +who choose to remain shareholders following the business combination could suffer a reduction in the value of their shares. Such shareholders +are unlikely to have a remedy for such reduction in value. +20 +Past +performance by our management team, our advisors and our Initial Shareholders may not be indicative of future performance of an investment +in us. +Information +regarding performance by, or businesses associated with our management team and our Initial Shareholders and their affiliates is presented +for informational purposes only. Past performance by our management team and our Initial Shareholders is not a guarantee either (i) that +we will be able to locate a suitable candidate for our initial business combination or (ii) of success with respect to any business combination +we may consummate. The majority of our officers, directors and advisors have not had management experience with special purpose acquisition +corporations in the past. You should not rely on the historical record of our management team’s, our advisors’ or our Initial +Shareholders’ respective performance as indicative of our future performance of an investment in us or the returns we will, or +are likely to, generate going forward. Furthermore, an investment in us is not an investment in our Initial Shareholders or their affiliates. +We +may seek acquisition opportunities in industries or sectors which may be outside of our management’s area of expertise. +We +will consider a business combination outside of our management’s area of expertise if a business combination candidate is presented +to us and we determine that such candidate offers an attractive acquisition opportunity for our company. Although our management will +endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately +ascertain or assess all the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove +to be less favorable to investors in our Initial Public Offering than a direct investment, if an opportunity were available, in a business +combination candidate. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s +expertise may not be directly applicable to its evaluation or operation, and the information contained in our Registration Statement +regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. +As a result, our management may not be able to adequately ascertain or assess all the significant risk factors. Accordingly, any shareholders +who choose to remain shareholders following our business combination could suffer a reduction in the value of their shares. Such shareholders +are unlikely to have a remedy for such reduction in value. +Although +we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may +enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target +business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria +and guidelines. +Although +we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business +with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial +business combination with a target that does not meet some or all of these criteria and guidelines, such combination may not be as successful +as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective +business combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise +their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to +have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by law, or +we decide to obtain shareholder approval for business or other legal reasons, it may be more difficult for us to attain shareholder approval +of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable to complete +our initial business combination, our public shareholders may receive only approximately $10.20 per share, or less in certain circumstances, +on the liquidation of our trust account and our Rights will expire worthless. In certain circumstances, our public shareholders may receive +less than $10.20 per share on the redemption of their shares. See “ — If third parties bring claims against us, the proceeds +held in the trust account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per share ” +and other risk factors in this section. +21 +We +may seek acquisition opportunities with an early-stage company, a financially unstable business or an entity lacking an established record +of revenue or earnings, which could subject us to volatile revenues or earnings or difficulty in retaining key personnel. +To +the extent we complete our initial business combination with an early-stage company such as a pre-revenue entity with a limited operating +history, a financially unstable business, or an entity lacking an established record of revenues or earnings, we may be affected by numerous +risks inherent in the operations of the business with which we combine. These risks include investing in a business without a proven +business model and with limited historical financial data, a lack of revenues or earnings and difficulties in obtaining and retaining +key personnel. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we may +not be able to properly ascertain or assess all the significant risk factors and we may not have adequate time to complete due diligence. +Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those +risks will adversely impact a target business. +We +are not required to obtain an opinion from an independent investment banking firm or from an independent accounting firm, and consequently, +you may have no assurance from an independent source that the price we are paying for the business is fair to our company from a financial +point of view. +Unless +we complete our business combination with an affiliated entity or our board cannot independently determine the fair market value of the +target business or businesses, we are not required to obtain an opinion from an independent investment banking firm or from another independent +entity that commonly renders valuation opinions that the price we are paying is fair to our company from a financial point of view. If +no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value +based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy solicitation or +tender offer materials, as applicable, related to our initial business combination. +Resources +could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate +and acquire or merge with another business. If we are unable to complete our initial business combination, our public shareholders may +receive only approximately $10.20 per share, or less than such amount in certain circumstances, on the liquidation of our trust account +and our Rights will expire worthless. +We +anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, +disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, +attorneys, and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for +the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, +we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event +will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire +or merge with another business. If we are unable to complete our initial business combination, our public shareholders may receive only +approximately $10.20 per share on the liquidation of our trust account and our Rights will expire worthless. In certain circumstances, +our public shareholders may receive less than $10.20 per share on the redemption of their shares. See “ — If third parties +bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by shareholders +may be less than $10.20 per share ” and other risk factors in this section. +22 +We +may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete +our business combination and give rise to increased costs and risks that could negatively impact our operations and profitability. +If +we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers +to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make +it more difficult for us, and delay our ability, to complete our initial business combination. With multiple business combinations, we +could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence +investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations +and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, +it could negatively impact our profitability and results of operations. +We +may have a limited ability to assess the management of a prospective target business and, as a result, may complete our initial business +combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company, +which could, in turn, negatively impact the value of our shareholders’ investment in us. +When +evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the +target business’s management may be limited due to a lack of time, resources, or information. Our assessment of the capabilities +of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications, or abilities +we suspected. Should the target’s management not possess the skills, qualifications, or abilities necessary to manage a public +company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any shareholders +who choose to remain shareholders following the business combination could suffer a reduction in the value of their shares. Such shareholders +are unlikely to have a remedy for such reduction in value. +The +officers and directors of an acquisition candidate may resign upon completion of our initial business combination. The departure of a +business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be ascertained +at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated +with the acquisition candidate following our initial business combination, it is possible that members of the management of an acquisition +candidate will not wish to remain in place. +We +may attempt to complete our initial business combination with a private company about which little information is available, which may +result in a business combination with a company that is not as profitable as we suspected, if at all. +In +pursuing our acquisition strategy, we may seek to complete our initial business combination with a privately held company. Very little +public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential +initial business combination on the basis of limited information, which may result in a business combination with a company that is not +as profitable as we suspected, if at all. +We +may only be able to complete one business combination with the proceeds of our Initial Public Offering and the sale of the Private Placement +Units, which will cause us to be solely dependent on a single business which may have a limited number of products or services. This +lack of diversification may negatively impact our operations and profitability. +Of +the net proceeds from our Initial Public Offering and the sale of the Private Placement Units, and after giving effect to the Redemptions, +up to $51,108,60 will be available to complete our business combination and pay related fees and expenses. +We +may complete our business combination with a single target business or multiple target businesses simultaneously or within a short period +of time. However, we may not be able to complete our business combination with more than one target business because of various factors, +including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with +the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined +basis. By completing our initial business combination with only a single entity, our lack of diversification may subject us to numerous +economic, competitive, and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible +spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations +in different industries or different areas of a single industry. In addition, we intend to focus our search for an initial business combination +in a single industry. Accordingly, the prospects for our success may be: +● +solely +dependent upon the performance of a single business, property, or asset, or +● +dependent +upon the development or market acceptance of a single or limited number of products, processes, or services. +23 +This +lack of diversification may subject us to numerous economic, competitive, and regulatory developments, any or all of which may have a +substantial adverse impact upon the particular industry in which we may operate subsequent to our business combination. +Our +ability to complete a business combination may be impacted by the fact that our Sponsor’s major shareholder, Pengfei Zheng, is +a non-U.S. person, and a majority of our officers and directors are located in, or have significant ties to, China. This may make us +a less attractive partner to potential target companies outside the PRC, thereby limiting our pool of acquisition candidates and making +it harder for us to complete an initial business combination with a non-China-based target company. For example, we may not be able to +complete an initial business combination with a U.S. target company since such initial business combination may be subject to U.S. foreign +investment regulations and review by a U.S. government entity, such as the Committee on Foreign Investment in the United States (CFIUS), +or ultimately prohibited. +Our +Sponsor, AlphaVest Holding LP, is currently controlled by Mr. Pengfei Zheng, owns approximately 55.2% of our outstanding shares. In addition, a majority of our directors and officers are located in, or have significant ties +to, China. As a result, we may be a less attractive partner to potential target companies outside the PRC, thereby limiting our pool +of acquisition candidates. This would impact our search for a target company and make it harder for us to complete an initial business +combination with a non-China-based target company. For example, we may not be able to complete an initial business combination with a +U.S. target company since such initial business combination may be subject to U.S. foreign investment regulations and review by a U.S. +government entity. Certain federally licensed businesses in the United States, such as broadcasters and airlines, may be subject to rules +or regulations that limit foreign ownership. In addition, CFIUS is an interagency committee authorized to review certain transactions +involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national +security of the United States. We may be considered a “foreign person” under such rules and regulations and any proposed +business combination between us and a U.S. business engaged in a regulated industry or which may affect national security could be subject +to such foreign ownership restrictions and/or CFIUS review. +The +scope of CFIUS was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) to include certain +non-passive, non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying +U.S. business. FIRRMA and subsequent implementing regulations that are now in force also subject certain categories of investments to +mandatory filings. If our potential initial business combination with a U.S. business falls within the scope of foreign ownership restrictions, +we may be unable to consummate a business combination with such business. +In +addition, if our potential business combination falls within CFIUS’s jurisdiction, we may be required to make a mandatory filing, +determine to submit a voluntary notice to CFIUS, or proceed with the initial business combination without notifying CFIUS and then bear +the risk of CFIUS intervention, before or after closing the initial business combination. CFIUS may decide to block or delay our initial +business combination, impose conditions to mitigate national security concerns with respect to such initial business combination or order +us to divest all or a portion of a U.S. business of the combined company if we had proceeded without first obtaining CFIUS clearance. +The foreign ownership limitations, and the potential impact of CFIUS, may limit the attractiveness of a transaction with us or prevent +us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our stockholders. +As a result, the pool of potential targets with which we could complete an initial business combination may be limited and we may be +adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign ownership +issues. +Moreover, +the process of government review, whether by CFIUS or otherwise, could be lengthy. Because we only have 24 months (or 33 months if we +extend the period of time to consummate a business combination) to complete our initial business combination, our failure to obtain any +required approvals within the requisite time period may prevent us from completing the transaction and require us to liquidate. If we +liquidate, our public shareholders may only receive $10.20 per share initially, and our Rights will expire worthless. Our public shareholders +may also lose the potential investment opportunity in a target company and the opportunity of realizing future gains on such investments +through any price appreciation in the combined company. +24 +Risks +Related to Our Securities +NASDAQ +may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities +and subject us to additional trading restrictions. +Our +Units, Ordinary Shares and Rights are listed on NASDAQ. We cannot assure you that our securities will continue to be listed on NASDAQ +in the future or prior to our initial business combination. In order to continue listing our securities on NASDAQ prior to our initial +business combination, we must maintain certain financial, distribution and share price levels. Generally, we must maintain a minimum +amount in shareholders’ equity (generally $10,000,000) and a minimum number of holders of our securities (generally 400 public +holders). Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with NASDAQ’s +initial listing requirements, which are more rigorous than NASDAQ’s continued listing requirements, in order to continue to maintain +the listing of our securities on NASDAQ. For instance, our share price would generally be required to be at least $4.00 per share and +our shareholders’ equity would generally be required to be at least $30 million and we would be required to have a minimum of 400 +round lot holders of our securities. We cannot assure you that we will be able to meet those initial listing requirements at that time. +If +NASDAQ delists our securities from trading on its exchange and we are not able to list our securities on another national securities +exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material +adverse consequences, including: +● +a +limited availability of market quotations for our securities; +● +reduced +liquidity for our securities; +● +a +determination that our Ordinary Shares is a “penny stock” which will require brokers trading in our Ordinary Shares to +adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our +securities; +● +a +limited amount of news and analyst coverage; and +● +a +decreased ability to issue additional securities or obtain additional financing in the future. +The +National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the +sale of certain securities, which are referred to as “covered securities.” Because our Units and eventually our Ordinary +Shares and Rights are listed on NASDAQ, our Units, Ordinary Shares and Rights will be covered securities. Although the states are pre-empted +from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion +of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a +particular case. Additionally, certain state securities regulators view blank check companies unfavorably and might use these powers, +or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer +listed on NASDAQ, our securities would not be covered securities and we would be subject to regulation in each state in which we offer +our securities. +We +may issue additional Ordinary Shares or preference shares to complete our initial business combination or under an employee incentive +plan after completion of our initial business combination. Any such issuances would dilute the interest of our shareholders and likely +present other risks. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, authorizes the issuance of up to 200,000,000 +Ordinary Shares, par value $0.0001 per share and 2,000,000 preference shares, par value $0.0001 per share. As of April 14, +2025, there are 3,854,856 Ordinary Shares issued and outstanding. As a result, there will be 196,145,144 unissued Ordinary Shares +available for issuance, which amount does not take into account the Ordinary Shares reserved for issuance upon exercise of any +outstanding Rights. There are no preference shares issued and outstanding. +25 +We +may issue a substantial number of additional Ordinary Shares or preference shares to complete our initial business combination or under +an employee incentive plan after completion of our initial business combination (although our Second Amended and Restated Memorandum +and Articles of Association, as amended, provides that we may not issue securities that can vote with ordinary shareholders on matters +related to our pre-initial business combination activity). However, our Second Amended and Restated Memorandum and Articles of Association, +as amended, provides, among other things, that prior to our initial business combination, we may not issue additional shares of capital +share that would entitle the holders thereof to: (i) receive funds from the trust account; or (ii) vote as a class with our public shares +(a) on any initial business combination or (b) to approve an amendment to our Second Amended and Restated Memorandum and Articles of +Association, as amended, to (x) extend the time we have to consummate a business combination beyond 24 months from the closing of our +Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, beyond 33 months from the +closing of our Initial Public Offering (as further described in our Registration Statement or (y) amend the foregoing provisions, unless +(in connection with any such amendment to our Second Amended and Restated Memorandum and Articles of Association, as amended) we offer +our public shareholders the opportunity to redeem their public shares. These provisions of our Second Amended and Restated Memorandum +and Articles of Association, as amended, like all provisions of our Second Amended and Restated Memorandum and Articles of Association, +as amended, may be amended with the approval of our shareholders. However, our executive officers and directors have agreed, pursuant +to a written agreement with us, that they will not propose any amendment to our Second Amended and Restated Memorandum and Articles of +Association, as amended to (A) modify the substance or timing of our obligation to provide for the redemption of our public shares in +connection with an initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination +within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business +combination, within 33 months from the closing of our Initial Public Offering (as further described in our Registration Statement) or +(B) with respect to any other material provision relating to shareholders’ rights or pre-initial business combination activity, +unless we provide our public shareholders with the opportunity to redeem their Ordinary Shares upon approval of any such amendment at +a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest +shall be net of taxes payable), divided by the number of then outstanding public shares. +The +issuance of additional Ordinary Shares or preference shares: +● +may +significantly dilute the equity interest of investors in our Initial Public Offering; +● +may +subordinate the rights of holders of Ordinary Shares if preference shares are issued with rights senior to those afforded our Ordinary +Shares; +● +could +cause a change of control if a substantial number of our Ordinary Shares are issued, which may affect, among other things, our ability +to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and +directors; and +● +may +adversely affect prevailing market prices for our Units, Ordinary Shares and/or Rights. +We +may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely +affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. +Although +we have no commitments as of the date of our Registration Statement to issue any notes or other debt securities, or to otherwise incur +outstanding debt following our Initial Public Offering, we may choose to incur substantial debt to complete our business combination. +We have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest +or claim of any kind in or to the monies held in the trust account. As such, no issuance of debt will affect the per-share amount available +for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including: +● +default +and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt +obligations; +26 +● +acceleration +of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants +that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; +● +our +immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; +● +our +inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such +financing while the debt security is outstanding; +● +our +inability to pay dividends on our Ordinary Shares; +● +using +a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends +on our Ordinary Shares if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general +corporate purposes; +● +limitations +on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; +● +increased +vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; +● +limitations +on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution +of our strategy; and +● +other +disadvantages compared to our competitors who have less debt. +The +grant of registration rights to our Initial Shareholders may make it more difficult to complete our initial business combination, and +the future exercise of such rights may adversely affect the market price of our Ordinary Shares. +Pursuant +to an agreement to be entered into concurrently with the issuance and sale of the securities in our Initial Public Offering, our Initial +Shareholders (including EBC and its designees) and their permitted transferees can demand that we register their Founder Shares and EBC +Founder Shares. In addition, holders of our Private Placement Units and their permitted transferees can demand that we register the Private +Placement Units and/or the underlying securities, and holders of units that may be issued upon conversion of working capital loans may +demand that we register such units and/or underlying securities. We will bear the cost of registering these securities. The registration +and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market +price of our Ordinary Shares. In addition, the existence of the registration rights may make our initial business combination more costly +or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined +entity or ask for more cash consideration to offset the negative impact on the market price of our Ordinary Shares that is expected when +the Ordinary Shares and Private Placement Units owned by our Initial Shareholders or holders of our working capital units or their respective +permitted transferees are registered. +In +order to complete our initial business combination, we may seek to amend our Second Amended and Restated Memorandum and Articles of Association, +as amended, or other governing instruments, including our rights agreement, in a manner that will make it easier for us to complete our +initial business combination but that our shareholders or Rights holders may not support. +In +order to complete a business combination, blank check companies have, in the recent past, amended various provisions of their charters +and governing instruments, including their rights agreement. For example, blank check companies have amended the definition of business +combination, increased redemption thresholds, changed industry focus and, with respect to their Rights, amended their rights agreement, +respectively, to require the Rights to be exchanged for cash and/or other securities. We cannot assure you that we will not seek to amend +our charter or other governing instruments or change our industry focus in order to complete our initial business combination. +27 +Our +Initial Shareholders paid an aggregate of $25,000 for the Founder Shares, or approximately $0.14 per Founder Share. As a result of this +low initial price, our Initial Shareholders stand to make a substantial profit even if an initial business combination subsequently declines +in value or is unprofitable for our public shareholders. +As +a result of the low acquisition cost of our Founder Shares, our Initial Shareholders could make a substantial profit even if we select +and consummate an initial business combination with an acquisition target that subsequently declines in value or is unprofitable for +our public shareholders. Thus, such parties may have more of an economic incentive for us to enter into an initial business combination +with a riskier, weaker-performing or financially unstable business, or an entity lacking an established record of revenues or earnings, +than would be the case if such parties had paid the full offering price for their Founder Shares. +We +may amend the terms of the Rights in a manner that may be adverse to holders with the approval by the holders of at least a majority +of the then outstanding Rights. +Our +Rights will be issued in registered form under a rights agreement between Continental Stock Transfer & Trust Company, as rights agent, +and us. The rights agreement provides that the terms of the Rights may be amended without the consent of any holder to cure any ambiguity +or correct any defective provision. The rights agreement requires the approval by the holders of at least a majority of the then outstanding +Rights in order to make any change that adversely affects the interests of the holders of the Rights. +Our +Private Placement Units, Founder Shares and EBC Founder Shares may have an adverse effect on the market price of our Ordinary Shares +and make it more difficult to complete our business combination. +Simultaneously +with the closing of our Initial Public Offering, we issued to 430,500 Private Placement Units to our Sponsor and EBC. Our Initial Shareholders +currently own 1,725,000 Founder Shares. EBC and its designees currently own 125,000 EBC Founder Shares. In addition, if our Initial Shareholders +or their affiliates make any working capital loans, up to $150,000 of such loans may be converted into working capital units, at the +price of $10.00 per unit at the option of the lender. Such working capital units would be identical to the Private Placement Units sold +in the private placement. +To +the extent we issue Ordinary Shares to complete a business combination, the potential for the issuance of a substantial number of additional +Ordinary Shares upon conversion rights of up to $150,000 working capital loans could make us a less attractive acquisition vehicle to +a target business. Any such issuance will increase the number of issued and outstanding Ordinary Shares and reduce the value of the Ordinary +Shares issued to complete the business combination. Therefore, our Private Placement Units and Founder Shares may make it more difficult +to complete a business combination or increase the cost of acquiring the target business. +The +private rights included in the Private Placement Units are identical to the public rights sold as part of the units in our Initial Public +Offering except that the private rights (including the Ordinary Shares issuable upon exercise of the private rights) will not be transferable, +assignable or saleable until the completion of our initial business combination (except as described herein). +The +determination of the offering price of our Units and the size of our Initial Public Offering is more arbitrary than the pricing of securities +and size of an offering of an operating company in a particular industry. You may have less assurance, therefore, that the offering price +of our Units properly reflects the value of such Units than you would have in a typical offering of an operating company. +Prior +to our Initial Public Offering there has been no public market for any of our securities. The public offering price of the Units and +the terms of the Rights were negotiated between us and the underwriters. In determining the size of our Initial Public Offering, management +held customary organizational meetings with the underwriters with respect to the state of capital markets, generally, and the amount +the underwriters believed they reasonably could raise on our behalf. Factors considered in determining the size of our Initial Public +Offering, prices and terms of the Units, including the Ordinary Shares, the Rights underlying the Units, include: +● +the +history and prospects of companies whose principal business is the acquisition of other companies; +28 +● +prior +offerings of those companies; +● +our +prospects for acquiring an operating business; +● +a +review of debt to equity ratios in leveraged transactions; +● +our +capital structure; +● +an +assessment of our management and their experience in identifying operating companies; +● +general +conditions of the securities markets at the time of our Initial Public Offering; and +● +other +factors as were deemed relevant. +Although +these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities of an operating +company in a particular industry since we have no historical operations or financial results. +Because +we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous +initial business combination with some prospective target businesses. +The +federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance +tests include target historical and/or pro forma financial statement disclosure. We will include the same financial statement disclosure +in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements +may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States +of America, or “GAAP”, or international financial reporting standards as issued by the International Accounting Standards +Board, or “IFRS”, depending on the circumstances and the historical financial statements may be required to be audited in +accordance with the standards of the Public Company Accounting Oversight Board (United States), or “PCAOB”. These financial +statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide +such financial statements in time for us to disclose such financial statements in accordance with federal proxy rules and complete our +initial business combination within the prescribed time frame. +Risks +Related to Our Management +Our +ability to successfully complete our initial business combination and to be successful thereafter will be totally dependent upon the +efforts of members of our management team, some of whom may join us following our initial business combination. The loss of such people +could negatively impact the operations and profitability of our post-combination business. +Our +ability to successfully complete our business combination is dependent upon the efforts of members of our management team. The role of +members of our management team in the target business, however, cannot presently be ascertained. Although some members of our management +team may remain with the target business in senior management or advisory positions following our business combination, it is likely +that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals +we engage after our initial business combination, we cannot assure you that our assessment of these individuals will prove to be correct. +These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to +expend time and resources helping them become familiar with such requirements. +In +addition, the officers and directors of an acquisition candidate may resign upon completion of our initial business combination. The +departure of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination +business. The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be +ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain +associated with the acquisition candidate following our initial business combination, it is possible that members of the management of +an acquisition candidate will not wish to remain in place. The loss of key personnel could negatively impact the operations and profitability +of our post-combination business. +29 +Members +of our management team may negotiate employment or consulting agreements with a target business in connection with a particular business +combination. These agreements may provide for them to receive compensation following our business combination and as a result, may cause +them to have conflicts of interest in determining whether a particular business combination is the most advantageous. +Members +of our management team may be able to remain with the Company after the completion of our business combination only if they are able +to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously +with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments +and/or our securities for services they would render to us after the completion of the business combination. The personal and financial +interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the +ability of such individuals to remain with us after the completion of our business combination will not be the determining factor in +our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any members +of our management team will remain with us after the completion of our business combination. We cannot assure you that any members of +our management team will remain in senior management or advisory positions with us. The determination as to whether any members of our +management team will remain with us will be made at the time of our initial business combination. +Our +officers and directors may allocate their time to other businesses and may become officers or directors of other special purpose acquisition +companies, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs and whether to present +a target to us instead of our competitors. This conflict of interest could have a negative impact on our ability to complete our initial +business combination. +Our +officers and directors have fiduciary responsibility to dedicate substantially all their business time to their respective affairs and +their respective portfolio companies. However, this responsibility does not require any of our officers or directors to commit his or +her full time to our affairs in particular, which may result in a conflict of interest in allocating their time between our operations +and our search for a business combination and their other businesses, including other business endeavors for which he or she may be entitled +to substantial compensation. Furthermore, our officer and directors may become an officer or director of another special purpose acquisition +company with a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act even before +we enter a definitive agreement regarding our initial business combination. We do not intend to have any full-time employees prior to +the completion of our initial business combination. In addition, each of our officers and certain of our directors are employed by or +affiliated with our Initial Shareholders, which makes investments in securities or other interests of or relating to companies in industries +we may target for our initial business combination. Our independent directors also serve as officers or board members for other entities. +If our officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs +in excess of their current commitment levels, it could limit their ability to devote time to our affairs; or if they have fiduciary duty +to present a target company to our competitor instead of us, which may have a negative impact on our ability to complete our initial +business combination. +Certain +of our officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business activities +similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating their time and determining +to which entity a particular business opportunity should be presented. +Following +the completion of our Initial Public Offering and until we consummate our initial business combination, we intend to engage in the business +of identifying and combining with one or more businesses. Our officers and directors are, and may in the future become, affiliated with +entities (such as operating companies or investment vehicles) that are engaged in a similar business. +Our +officers and directors also may become aware of business opportunities which may be appropriate for presentation to us and the other +entities in the future to which they owe certain fiduciary or contractual duties, including our Initial Shareholders’ affiliates. +Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. +These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation +to us. Our Second Amended and Restated Memorandum and Articles of Association, as amended, provides that we renounce our interest in +any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his +or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake +and would otherwise be reasonable for us to pursue. +30 +Our +Initial Shareholders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +We +have not adopted a policy that expressly prohibits our Initial Shareholders or their respective affiliates from having a direct or indirect +pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or +have an interest. We do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities +of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. +We +may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated +with our Initial Shareholders which may raise potential conflicts of interest. +In +light of the involvement of our officers and directors with other entities, we may decide to acquire one or more businesses affiliated +with our Initial Shareholders or their respective affiliates. Our officers and directors also serve as officers and board members for +other entities. Such entities may compete with us for business combination opportunities. Our Initial Shareholders are not currently +aware of any specific opportunities for us to complete our business combination with any entities with which they are affiliated, and +there have been no preliminary discussions concerning a business combination with any such entity or entities. Although we will not be +specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined +that such affiliated entity met our criteria for a business combination as set forth in the section of our Registration Statement entitled +“Proposed Business — Sources of Target Businesses” and such transaction was approved by a majority of our independent +directors. Despite our agreement to obtain an opinion from an independent investment banking firm or from another independent entity +that commonly renders valuation opinions, regarding the fairness to our company from a financial point of view of a business combination +with one or more domestic or international businesses affiliated with our Initial Shareholders or their respective affiliates, potential +conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public +shareholders as they would be absent any conflicts of interest. +Since +our Initial Shareholders will lose their entire investment in us if our business combination is not completed, a conflict of interest +may arise in determining whether a particular business combination target is appropriate for our initial business combination. +On +February 7, 2022, our Sponsor acquired 1,725,000 Founder Shares for an aggregate purchase price of $25,000. On July 11, 2022, EBC acquired +125,000 EBC Founder Shares for an aggregate purchase price of $1,750. On April 18, 2023, our Sponsor transferred an aggregate of 1,035,000 +Founder Shares to Peace Capital Limited. Prior to the initial investment in the Company of $25,000 by our Sponsor, the Company had no +assets, tangible, or intangible. The number of Founder Shares issued was determined based on the expectation that such Founder Shares +would represent 20% of the outstanding shares after our Initial Public Offering (excluding the private shares and the EBC Founder Shares). +The Founder Shares will be worthless if we do not complete an initial business combination. In addition, our Sponsor purchased an aggregate +of 402,904 Private Placement Units at a price of $10.00 per unit (approximately $4,029,040 in the aggregate) in a private placement that +closed simultaneously with the closing of our Initial Public Offering. EBC purchased an aggregate of 27,596 Private Placement Units at +a price of $10.00 per unit (approximately $275,960 in the aggregate) in a private placement that closed simultaneously with the closing +of our Initial Public Offering. The Founder Shares and Private Placement Units will be worthless if we do not complete an initial business +combination. Our Initial Shareholders have agreed (A) to vote any shares owned by them in favor of any proposed business combination +and (B) not to redeem any Founder Shares or private shares in connection with a shareholder vote to approve a proposed initial business +combination. In addition, we may obtain loans from our Initial Shareholders. The personal and financial interests of our Initial Shareholders +may influence their motivation in identifying and selecting a target business combination, completing an initial business combination, +and influencing the operation of the business following the initial business combination. +31 +In +order to complete our initial business combination, we may seek to amend our Second Amended and Restated Memorandum and Articles of Association, +as amended, or other governing instruments, including our rights agreement, in a manner that will make it easier for us to complete our +initial business combination but that our shareholders or rights holders may not support. +In +order to complete a business combination, blank check companies have, in the recent past, amended various provisions of their charters +and governing instruments, including their rights agreement. For example, blank check companies have amended the definition of business +combination, increased redemption thresholds, changed industry focus and, with respect to their Rights, amended their rights agreement +to require the Rights to be exchanged for cash and/or other securities. We cannot assure you that we will not seek to amen our charter +or other governing instruments or change our industry focus in order to complete our initial business combination. +The +provisions of our Second Amended and Restated Memorandum and Articles of Association, as amended, that relate to our pre-business combination +activity (and corresponding provisions of the agreement governing the release of funds from our trust account) may be amended with the +approval of holders of two-thirds of our Ordinary Shares, which is a lower amendment threshold than that of some other blank check companies. +It may be easier for us, therefore, to amend our Second Amended and Restated Memorandum and Articles of Association, as amended, and +the Trust Agreement to facilitate the completion of an initial business combination that some of our shareholders may not support. +Some +other blank check companies have a provision in their charter which prohibits the amendment of certain of its provisions, including those +which relate to a company’s pre-business combination activity, without approval by a certain percentage of the company’s +shareholders. In those companies, amendment of these provisions requires approval by between 90% and 100% of the company’s public +shareholders. Our Second Amended and Restated Memorandum and Articles of Association, as amended, provides that any of its provisions +(including, without limitation, the provisions related to pre-business combination activity (including the requirement to deposit proceeds +of our Initial Public Offering and the private placement of units into the trust account and not release such amounts except in specified +circumstances, and to provide redemption rights to public shareholders as described herein)) may be amended if approved by holders of +two-thirds of our Ordinary Shares entitled to vote thereon, subject to applicable provisions of the Cayman Islands law, or the Companies +Act, or applicable stock exchange rules, and corresponding provisions of the Trust Agreement governing the release of funds from our +trust account may be amended if approved by holders of two-thirds of our Ordinary Shares entitled to vote thereon. We may not issue additional +securities that can vote on amendments to our Second Amended and Restated Memorandum, as amended, and Articles of Association or in our +initial business combination. Our Initial Shareholders, who will collectively beneficially own 20% of our Ordinary Shares upon the closing +of our Initial Public Offering (excluding the private shares and the EBC Founder Shares and assuming our Initial Shareholders do not +purchase public units in our Initial Public Offering), will participate in any vote to amend our Second Amended and Restated Memorandum +and Articles of Association, as amended, and/or Trust Agreement and will have the discretion to vote in any manner they choose. As a +result, we may be able to amend the provisions of our Second Amended and Restated Memorandum and Articles of Association, as amended, +which govern our pre-business combination behavior more easily than some other blank check companies, and this may increase our ability +to complete a business combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our +Second Amended and Restated Memorandum and Articles of Association, as amended. +Our +Initial Shareholders have agreed, pursuant to a letter agreement with us, that they will not propose any amendment to our Second Amended +and Restated Memorandum and Articles of Association, as amended, (i) that would modify the substance or timing of our obligation to allow +redemption in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial +business combination within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to +consummate our business combination, within 33 months from the closing of our Initial Public Offering (as further described in our Registration +Statement), or (ii) with respect to any other material provision relating to shareholders’ rights or pre-initial business combination +activity, unless we provide our public shareholders with the opportunity to redeem their Ordinary Shares upon approval of any such amendment +at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which +interest shall be net of taxes payable), divided by the number of then outstanding public shares. These agreements are contained in a +letter agreement that we have entered into with our Initial Shareholders. Our shareholders are not parties to, or third-party beneficiaries +of, these agreements and, as a result, will not have the ability to pursue remedies against our Initial Shareholders for any breach of +these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject +to applicable law. +32 +We +may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target +business, which could compel us to restructure or abandon a particular business combination. +Although +we believe that the net proceeds of our Initial Public Offering and the sale of the Private Placement Units will be sufficient to allow +us to complete our initial business combination, because we have not yet selected any prospective target business we cannot ascertain +the capital requirements for any particular transaction. If the net proceeds of our Initial Public Offering and the sale of the Private +Placement Units prove to be insufficient, either because of the size of our initial business combination, the depletion of the available +net proceeds in search of a target business, the obligation to repurchase for cash a significant number of shares from shareholders who +elect redemption in connection with our initial business combination or the terms of negotiated transactions to purchase shares in connection +with our initial business combination, we may be required to seek additional financing or to abandon the proposed business combination. +We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves +to be unavailable when needed to complete our initial business combination, we would be compelled to either restructure the transaction +or abandon that particular business combination and seek an alternative target business candidate. If we are unable to complete our initial +business combination, our public shareholders may receive only approximately $10.20 per share plus any pro rata interest earned on the +funds held in the trust account (and not previously released to us to pay our taxes) on the liquidation of our trust account and our +Rights will expire worthless. In addition, even if we do not need additional financing to complete our business combination, we may require +such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material +adverse effect on the continued development or growth of the target business. None of our officers, directors, or shareholders is required +to provide any financing to us in connection with or after our initial business combination. If we are unable to complete our initial +business combination, our public shareholders may only receive approximately $10.20 per share on the liquidation of our trust account, +and our Rights will expire worthless. In certain circumstances, our public shareholders may receive less than $10.20 per share on the +redemption of their shares. See “ — If third parties bring claims against us, the proceeds held in the trust account could +be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per share ” and other risk factors +in this section. +Our +Initial Shareholders and other insiders may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner +that you do not support. +After +the closing of our Initial Public Offering, our Initial Shareholders ,and taking into account the Redemptions, will own Founder Shares +representing 55.2% of our issued and outstanding Ordinary Shares (excluding the private shares and the EBC Founder Shares). Simultaneously +with the closing of our Initial Public Offering, we issued in 430,500 Private Placement Units to our Sponsor and EBC. In addition, if +our Initial Shareholders or their designated parties make any working capital loans, up to $150,000 of such loans may be converted into +working capital units, at the price of $10.00 per unit at the option of the lenders. Such working capital units would be identical to +the Private Placement Units sold in the private placement. Accordingly, our Initial Shareholders along with any designated parties may +exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments +to our Second Amended and Restated Memorandum and Articles of Association, as amended, and approval of major corporate transactions. +If our Initial Shareholders purchase any units in our Initial Public Offering or if they purchase any additional Ordinary Shares in the +aftermarket or in privately negotiated transactions, this would increase their control. Factors that would be considered in making such +additional purchases would include consideration of the current trading price of our Ordinary Shares. In addition, our board of directors, +whose members were elected by certain of our Initial Shareholders, is and will be divided into three classes, each of which will generally +serve for a term of three years with only one class of directors being elected in each year. We may not hold an annual meeting of shareholders +to elect new directors prior to the completion of our business combination, in which case all of the current directors will continue +in office until at least the completion of the business combination. If there is an annual meeting, as a consequence of our “staggered” +board of directors, only a minority of the board of directors will be considered for election and our Initial Shareholders, because of +their ownership position, will have considerable influence regarding the outcome. +33 +Post +Business Combination Risks +Our +management may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance +that, upon loss of control of a target business, new management will possess the skills, qualifications, or abilities necessary to profitably +operate such business. +We +may structure a business combination so that the post-transaction company in which our public shareholders own shares will own less than +100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-transaction +company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires an interest in the target +sufficient for the post-transaction company not to be required to register as an investment company under the Investment Company Act. +We will not consider any transaction that does not meet such criteria. Even if the post-transaction company owns 50% or more of the voting +securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post business +combination company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could +pursue a transaction in which we issue a substantial number of new Ordinary Shares in exchange for all of the outstanding capital share +of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number +of new Ordinary Shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Ordinary +Shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in +a single person or group obtaining a larger share of the company’s share than we initially acquired. Accordingly, this may make +it more likely that our management will not be able to maintain our control of the target business. We cannot provide assurance that, +upon loss of control of a target business, new management will possess the skills, qualifications, or abilities necessary to profitably +operate such business. +Subsequent +to the completion of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment +or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, +which could cause you to lose some or all of your investment. +Even +if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will surface +all material issues that may be present inside a particular target business, that it would be possible to uncover all material issues +through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later +arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment +or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected +risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though +these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature +could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate +net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue +of our obtaining post-combination debt financing. Accordingly, any shareholders who choose to remain shareholders following the business +combination could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction +in value. +34 +We +may face general risks related to our business combination with any company. +Any +business combination with another company entails special considerations and risks. If we are successful in completing a business combination +with a target business, we may be subject to, and possibly adversely affected by, the following risks: +● +an +inability to compete effectively in a highly competitive environment with many incumbents having substantially greater resources; +● +an +inability to manage rapid change, increasing consumer expectations and growth; +● +an +inability to build strong brand identity and improve subscriber or customer satisfaction and loyalty; +● +a +reliance on proprietary technology to provide services and to manage our operations, and the failure of this technology to operate +effectively, or our failure to use such technology effectively; +● +an +inability to deal with our subscribers’ or customers’ privacy concerns; +● +an +inability to attract and retain subscribers or customers; +● +an +inability to license or enforce intellectual property rights on which our business may depend; +● +any +significant disruption in our computer systems or those of third parties that we would utilize in our operations; +● +an +inability by us, or a refusal by third parties, to license content to us upon acceptable terms; +● +potential +liability for negligence, copyright, or trademark infringement or other claims based on the nature and content of materials that +we may distribute; +● +competition +for advertising revenue; +● +competition +for the leisure and entertainment time and discretionary spending of subscribers or customers, which may intensify in part due to +advances in technology and changes in consumer expectations and behavior; +● +disruption +or failure of our networks, systems, or technology as a result of computer viruses, “cyber-attacks,” misappropriation +of data or other malfeasance, as well as outages, natural disasters, terrorist attacks, accidental releases of information or similar +events; +● +an +inability to obtain necessary hardware, software, and operational support; and +● +reliance +on third-party vendors or service providers. +Any +of the foregoing could have an adverse impact on our operations following a business combination. +Our +success will ultimately depend upon market acceptance of our products and services, our ability to develop and commercialize existing +and new products and services and generate revenues, and our ability to identify new markets for its technology. +Ultimately, +our success will depend on the acceptance of our products and services in the target markets. We are faced with the risk that the marketplace +will not be receptive to our products and services over competing products and that we will be unable to compete effectively. We will +face challenges of developing (or acquiring externally-developed) technology solutions that are adequate and competitive in meeting the +requirements of next-generation design challenges. +We +cannot assure investors that the products and services of the company with which we conduct a business combination, or any future products +and services will gain broad market acceptance. If the market for our products and services fails to develop or develops more slowly +than expected, or if any of the services and standards supported by us do not achieve or sustain market acceptance, our business and +operating results would be materially and adversely affected. +If +we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations and payment +methods, demand for product enhancements, new product features, and changing business needs, requirements or preferences, our products +may become less competitive. +Regardless +of our business combination target’s industry, it will likely be subject to ongoing technological change, evolving industry standards, +changing regulations, and changing customer needs, requirements, and preferences. The success of our business will depend, in part, on +our ability to adapt and respond effectively to these changes on a timely basis, including launching new products and services. The success +of any new product and service, or any enhancements, features, or modifications to existing products and services, depends on several +factors, including the timely completion, introduction, and market acceptance of such products and services, enhancements, modifications, +and new product features. If we are unable to enhance our products or develop new products that keep pace with technological and regulatory +change and changes in customer preferences and achieve market acceptance, or if new technologies emerge that are able to deliver competitive +products and services at lower prices, more efficiently, more conveniently, or more securely than our products, our business, operating +results and financial condition would be adversely affected. Furthermore, modifications to our existing platform, products, or technology +will increase our research and development expenses. Any failure of our products and services to operate effectively could reduce the +demand for our services, result in customer dissatisfaction and adversely affect our business. +35 +Technology +platforms may not operate properly or as we expect it to operate. +Technology +platforms are expensive and complex, their continuous development, maintenance and operation may entail unforeseen difficulties including +material performance problems or undetected defects or errors. We may encounter technical obstacles, and it is possible that we may discover +additional problems that prevent our technology from operating properly. If our platform does not function reliably, we may not be able +to provide any products or services. Errors could also cause customer dissatisfaction with us, which could cause customers to stop purchasing +or working with us. Any of these eventualities could result in a material adverse effect on our business, results of operations and financial +condition. +New +or changing technologies, could cause a disruption in our business model, which may materially impact our results of operations and financial +condition. +If +we fail to anticipate the impact on our business of changing technology, our ability to successfully operate may be materially impaired. +Our business could also be affected by potential technological changes. Such changes could disrupt the demand for products from current +customers, create coverage issues or impact the frequency or severity of losses, or reduce the size of the ultimate market, causing our +business to decline. We may not be able to respond effectively to these changes, which could have a material effect on our results of +operations and financial condition. +We +may seek acquisition opportunities with an early-stage company, a financially unstable business or an entity lacking an established record +of revenue or earnings. +To +the extent we complete our initial business combination with an early-stage company, a financially unstable business or an entity lacking +an established record of sales or earnings, we may be affected by numerous risks inherent in the operations of the business with which +we combine. These risks include investing in a business without a proven business model and with limited historical financial data, volatile +revenues or earnings, intense competition, and difficulties in obtaining and retaining key personnel. Although our officers and directors +will endeavor to evaluate the risks inherent in a particular target business, we may not be able to properly ascertain or assess all +of the significant risk factors and we may not have adequate time to complete due diligence. Furthermore, some of these risks may be +outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target +business. +Risks +Related to Acquiring and Operating a Business Outside of the United States +We +may effect a business combination with a company located outside of the United States and if we do, we would be subject to a variety +of additional risks that may negatively impact our business operations and financial results . +If +we consummate a business combination with a target business located outside of the United States, we would be subject to any special +considerations or risks associated with companies operating in the target business’ governing jurisdiction, including any of the +following: +● +rules +and regulations or currency redemption or corporate withholding taxes on individuals; +● +tariffs +and trade barriers; +● +regulations +related to customs and import/export matters; +● +longer +payment cycles than in the United States; +● +inflation; +● +economic +policies and market conditions; +● +unexpected +changes in regulatory requirements; +● +challenges +in managing and staffing international operations; +36 +● +tax +issues, such as tax law changes and variations in tax laws as compared to the United States; +● +currency +fluctuations; +● +challenges +in collecting accounts receivable; +● +cultural +and language differences; +● +protection +of intellectual property; and +● +employment +regulations. +We +cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations might +suffer. +Because +of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted. +Managing +a business, operations, personnel or assets in another country is challenging and costly. Any management that we may have (whether based +abroad or in the U.S.) may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, +legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing +cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may +negatively impact our financial and operational performance. +If +social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, or policy changes or enactments +occur in a country in which we may operate after we effect our initial business combination, it may result in a negative impact on our +business. +Political +events in another country may significantly affect our business, assets or operations. Social unrest, acts of terrorism, regime changes, +changes in laws and regulations, political upheaval, and policy changes or enactments could negatively impact our business in a particular +country. +Many +countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption +and inexperience, which may adversely impact our results of operations and financial condition. +Our +ability to seek and enforce legal protections, including with respect to intellectual property and other property rights, or to defend +ourselves with regard to legal actions taken against us in a given country, may be difficult or impossible, which could adversely impact +our operations, assets or financial condition. +Rules +and regulations in many countries are often ambiguous or open to differing interpretation by responsible individuals and agencies at +the municipal, state, regional and federal levels. The attitudes and actions of such individuals and agencies are often difficult to +predict and inconsistent. +Delay +with respect to the enforcement of particular rules and regulations, including those relating to customs, tax, environmental and labor, +could cause serious disruption to operations abroad and negatively impact our results. +If +we effect a business combination with a company located outside of the United States, the laws applicable to such company will likely +govern all of our material agreements and we may not be able to enforce our legal rights. +If +we effect a business combination with a company located outside of the United States, the laws of the country in which such company operates +will govern almost all of the material agreements relating to its operations. We cannot assure you that the target business will be able +to enforce any of its material agreements or that remedies will be available in this new jurisdiction. The system of laws and the enforcement +of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability +to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities +or capital. Additionally, if we acquire a company located outside of the United States, it is likely that substantially all of our assets +would be located outside of the United States and some of our officers and directors might reside outside of the United States. As a +result, it may not be possible for investors in the United States to enforce their legal rights, to effect service of process upon our +directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our +directors and officers under Federal securities laws. +37 +If +relations between the United States and foreign governments deteriorate, it could cause potential target businesses or their goods and +services to become less attractive. +The +relationship between the United States and foreign governments could be subject to sudden fluctuation and periodic tension. For instance, +the United States may announce its intention to impose quotas on certain imports. Such import quotas may adversely affect political relations +between the two countries and result in retaliatory countermeasures by the foreign government in industries that may affect our ultimate +target business. Changes in political conditions in foreign countries and changes in the state of U.S. relations with such countries +are difficult to predict and could adversely affect our operations or cause potential target businesses or their goods and services to +become less attractive. Because we are not limited to any specific industry, there is no basis for investors in our Initial Public Offering +to evaluate the possible extent of any impact on our ultimate operations if relations are strained between the United States and a foreign +country in which we acquire a target business or move our principal manufacturing or service operations. +If +any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in the U.S. +If +you are a U.S. holder of our Ordinary Shares, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive +them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, +if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income +as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign +currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is +in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into +U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive. +If +our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend time +and resources becoming familiar with such laws, which could lead to various regulatory issues. +Following +our initial business combination, certain members of our management team will likely resign from their positions as officers or directors +of the company and the management of the target business at the time of the business combination will remain in place. Management of +the target business may not be familiar with United States securities laws. If new management is unfamiliar with our laws, they may have +to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory +issues, which may adversely affect our operations. +The +economic, political, and social conditions, as well as government policies, of the country in which our potential target’s operations +are located could affect our business. The economy in such target’s country may differ greatly from the economies of most developed +countries in many respects. Such country’s economic growth may be uneven, both geographically and among various sectors of the +economy, and such growth may not be sustained in the future. If in the future such target’s country’s economy experiences +a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand +for spending in certain industries could materially and adversely affect the ability of that target business to become profitable after +our initial business combination. +Currency +policies may cause a target business’ ability to succeed in the international markets to be diminished. +In +the event we acquire a non-U.S. target, all revenues and income would likely be received in a foreign currency, the dollar equivalent +of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value +of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. +Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business +or, following consummation of our initial business combination, our financial condition and results of operations. Additionally, if a +currency appreciates in value against the dollar prior to the consummation of our initial business combination, the cost of a target +business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction. +38 +Many +of the economies in Asia are experiencing substantial inflationary pressures which may prompt the governments to take action to control +the growth of the economy and inflation that could lead to a significant decrease in our profitability following our initial business +combination. +There +is no restriction in the geographic location of targets that we can pursue, although we intend to initially focus on target businesses +in Asia. In the event that our target business is in Asia, while many of the economies in Asia have experienced rapid growth over the +last two decades, they currently are experiencing inflationary pressures. As governments take steps to address the current inflationary +pressures, there may be significant changes in the availability of bank credits, interest rates, limitations on loans, restrictions on +currency conversions and foreign investment. There also may be imposition of price controls. If prices for the products of our ultimate +target business rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect +on our profitability. If these or other similar restrictions are imposed by a government to influence the economy, it may lead to a slowing +of economic growth. Because we are not limited to any specific industry, the ultimate industry that we operate in may be affected more +severely by such a slowing of economic growth. +Many +industries in Asia are subject to government regulations that limit or prohibit foreign investments in such industries, which may limit +the potential number of acquisition candidates. +Governments +in many Asian countries have imposed regulations that limit foreign investors’ equity ownership or prohibit foreign investments +altogether in companies that operate in certain industries. As a result, the number of potential acquisition candidates available to +us may be limited or our ability to grow and sustain the business, which we ultimately acquire will be limited. +If +a country in Asia enacts regulations in industry segments that forbid or restrict foreign investment, our ability to consummate our initial +business combination could be severely impaired. +Many +of the rules and regulations that companies face concerning foreign ownership are not explicitly communicated. If new laws or regulations +forbid or limit foreign investment in industries in which we want to complete our initial business combination, they could severely impair +our candidate pool of potential target businesses. Additionally, if the relevant central and local authorities find us or the target +business with which we ultimately complete our initial business combination to be in violation of any existing or future laws or regulations, +they would have broad discretion in dealing with such a violation, including, without limitation: +● +levying +fines; +● +revoking +our business and other licenses; +● +requiring +that we restructure our ownership or operations; and +● +requiring +that we discontinue any portion or all of our business. +Any +of the above could have an adverse effect on our company post-business combination and could materially reduce the value of your investment. +Corporate +governance standards in Asia may not be as strict or developed as in the United States and such weakness may hide issues and operational +practices that are detrimental to a target business. +General +corporate governance standards in some countries are weak in that they do not prevent business practices that cause unfavorable related +party transactions, over-leveraging, improper accounting, family company interconnectivity and poor management. Local laws often do not +go far enough to prevent improper business practices. Therefore, shareholders may not be treated impartially and equally as a result +of poor management practices, asset shifting, conglomerate structures that result in preferential treatment to some parts of the overall +company, and cronyism. The lack of transparency and ambiguity in the regulatory process also may result in inadequate credit evaluation +and weakness that may precipitate or encourage financial crisis. In our evaluation of a business combination we will have to evaluate +the corporate governance of a target and the business environment, and in accordance with United States laws for reporting companies +take steps to implement practices that will cause compliance with all applicable rules and accounting practices. Notwithstanding these +intended efforts, there may be endemic practices and local laws that could add risk to an investment we ultimately make and that result +in an adverse effect on our operations and financial results. +39 +We +may face additional and distinctive risks if we acquire a business in certain industries, such as technology. +Business +combinations with businesses in certain industries, such as technology, may involve special considerations and risks. If we complete +our initial business combination with a technology business, we will be subject to the following risks, any of which could be detrimental +to us and the business we acquire: +● +If +we are unable to keep pace with evolving technology and changes in the technology services industry, our revenues and future prospects +may decline; +● +Any +business or company we acquire could be vulnerable to cyberattack or theft of individual identities or personal data; +● +Difficulties +with any products or services we provide could damage our reputation and business; +● +A +failure to comply with privacy regulations could adversely affect relations with customers and have a negative impact on business; +● +We +may not be able to protect our intellectual property and we may be subject to infringement claims; and +● +We +and any business or company we acquire may not be able to adapt to the complex and evolving regulatory environment for financial +technology services in China. +Any +of the foregoing could have an adverse impact on our operations following a business combination. However, our efforts in identifying +prospective target businesses will not be limited to technology businesses. Accordingly, if we acquire a target business in another industry, +these risks will likely not affect us and we will be subject to other risks attendant with the specific industry in which we operate +or target business which we acquire, none of which can be presently ascertained. +If +we effect our initial business combination with a business located in the in the People’s Republic of China, the laws applicable +to such business will likely govern all of our material agreements and we may not be able to enforce our legal rights. +If +we effect our initial business combination with a business located in the PRC, the laws of the country in which such business operates +will govern almost all of the material agreements relating to its operations, including any contractual arrangements through which we +acquire control of target business as described above. We cannot assure you that we or the target business will be able to enforce any +of its material agreements or that remedies will be available in this jurisdiction. The system of laws and the enforcement of existing +laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. In addition, the judiciary +in the PRC is relatively inexperienced compared to others in enforcing corporate and commercial law, leading to a higher than usual degree +of uncertainty as to the outcome of any litigation. In addition, to the extent that our target business’s material agreements are +with governmental agencies in the PRC, we may not be able to enforce or obtain a remedy from such agencies due to sovereign immunity, +in which the government is deemed to be immune from civil lawsuit or criminal prosecution. The inability to enforce or obtain a remedy +under any of our future agreements could result in a significant loss of business, business opportunities or capital. +If +we effect our initial business combination with a business located in the PRC, we may be subject to certain risks associated with acquiring +and operating businesses in the PRC. +We +may be subject to certain risks associated with acquiring and operating a business in the PRC in our search for a business combination +and operation of any target business with which we ultimately consummate a business combination. +First, +certain rules and regulations concerning mergers and acquisitions by foreign investors in the PRC may make merger and acquisition activities +by foreign investors more complex and time consuming, including, among others: +● +the +requirement that the Ministry of Commerce of the PRC (the “MOFCOM”) be notified in certain circumstances in advance of +any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise or any concentration of +undertaking if certain thresholds are triggered; +40 +● +the +authority of certain government agencies to have scrutiny over the economics of an acquisition transaction and requirement for consideration +in a transaction to be paid within stated time limits; and +● +the +requirement for mergers and acquisitions by foreign investors that raise “national defense and security” concerns and +mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national +security” concerns to be subject to strict review by the MOFCOM. +Complying +with these and other requirements could be time-consuming, and any required approval processes, including obtaining approval from the +MOFCOM or its local counterparts, may delay or inhibit our ability to complete such transactions, which could affect our ability to acquire +PRC-based businesses. A business combination we propose may not be able to be completed if the terms of the transaction do not satisfy +aspects of the approval process and may not be completed, even if approved, if they are not consummated within the time permitted by +the approvals granted. +In +addition, the PRC currently prohibits and/or restricts foreign ownership in certain “important industries,” including telecommunications, +food production and heavy equipment. There are uncertainties under certain regulations whether obtaining a majority interest through +contractual arrangements will comply with regulations prohibiting or restricting foreign ownership in certain industries. There is no +assurance that the PRC government will not apply restrictions in other industries. In addition, there can be restrictions on the foreign +ownership of businesses that are determined from time to time to be in “important industries” that may affect the national +economic security or those having “famous brand names” or “well-established brand names.” Subject to the review +and approval requirements of the relevant agencies and the various percentage ownership limitations that exist from time to time, acquisitions +involving foreign investors and parties in the various restricted categories of assets and industries may nonetheless sometimes be consummated +using contractual arrangements with permitted local parties. If we choose to effect a business combination that employs the use of these +types of control arrangements, these contractual arrangements may not be as effective in providing us with the same economic benefits, +accounting consolidation or control over a target business as would direct ownership due to limited implementation guidance provided +with respect to such regulations. If the government of the PRC finds that the agreements we entered into to acquire control of a target +business through contractual arrangements with one or more operating businesses do not comply with local governmental restrictions on +foreign investment, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to +significant penalties or be forced to relinquish our interests in those operations. +If +we effect our initial business combination with a business located in the PRC, a substantial portion of our operations may be conducted +in the PRC, and a significant portion of our net revenues maybe derived from customers where the contracting entity is located in the +PRC. Accordingly, our business, financial condition, results of operations, prospects and certain transactions we may undertake may be +subject, to a significant extent, to economic, political and governmental and legal developments, laws and regulations in the PRC. For +instance, all or most of our material agreements may be governed by PRC law and we may have difficulty in enforcing our legal rights +because the system of laws and the enforcement of existing laws in PRC may not be as certain in implementation and interpretation as +in the United States. In addition, contractual arrangements we enter into with potential future subsidiaries and affiliated entities +or acquisitions of offshore entities that conduct operations through affiliates in the PRC may be subject to a high level of scrutiny +by the relevant PRC tax authorities. We may also be subject to restrictions on dividend payments after we consummate a business combination +and if we rely on dividends and other distributions from our operating company to provide us with cash flow and to meet our other obligations. +Contractual +arrangements we enter into with potential future subsidiaries and affiliated entities or acquisitions of offshore entities that conduct +operations through affiliates in the PRC may be subject to a high level of scrutiny by the relevant tax authorities. +Under +the laws of the PRC, arrangements and transactions among related parties may be subject to audit or challenge by the relevant tax authorities. +If any of the transactions we enter into with potential future subsidiaries and affiliated entities are found not to be on an arm’s-length +basis, or to result in an unreasonable reduction in tax under local law, the relevant tax authorities may have the authority to disallow +any tax savings, adjust the profits and losses of such potential future local entities and assess late payment interest and penalties. +A finding by the relevant tax authorities that we are ineligible for any such tax savings, or that any of our possible future affiliated +entities are not eligible for tax exemptions, would substantially increase our possible future taxes and thus reduce our net income and +the value of a shareholder’s investment. In addition, in the event that in connection with an acquisition of an offshore entity +that conducted its operations through affiliates in the PRC, the sellers of such entities failed to pay any taxes required under local +law, the relevant tax authorities could require us to withhold and pay the tax, together with late-payment interest and penalties. The +occurrence of any of the foregoing could have a negative impact on our operating results and financial condition. +PRC +regulations relating to offshore investment activities by PRC residents may limit our ability to inject capital in our Chinese subsidiaries +and Chinese subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our +PRC resident beneficial owners to liability and penalties under PRC laws. +In +July 2014, the State Administration of Foreign Exchange of the PRC, or “SAFE” promulgated the Circular on Relevant Issues +Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special +Purpose Vehicles, or “SAFE Circular 37”. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate +entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register with +SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable +to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. Under SAFE Circular +37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore +special purpose vehicles, or SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC +resident who is a direct or indirect shareholder of an SPV, is required to update its filed registration with the local branch of SAFE +with respect to that SPV, to reflect any material change, including, among other things, any major change of a PRC resident shareholder, +name or term of operation of the SPVs, or any increase or reduction of the SPVs’ registered capital, share transfer or swap, merger +or division. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration +with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously +filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital +reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions +into its subsidiary in China. On February 13, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration +Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign +exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under +SAFE Circular 37, will be filed with qualified banks instead of SAFE or its branches. The qualified banks will directly examine the applications +and accept registrations under the supervision of SAFE. +We +cannot provide assurance that our shareholders that are PRC residents comply with all of the requirements under SAFE Circular 37 or other +related rules. Failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations +may subject us to fines and legal sanctions, restrict our cross-border investment activities, limit the ability of our wholly foreign-owned +subsidiary in China to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us, and +we may also be prohibited from injecting additional capital into the subsidiary. Moreover, failure to comply with the various foreign +exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange +restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected. +Furthermore, +as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, +it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, +amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval +process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, +which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, +we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete +the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our +acquisition strategy and could adversely affect our business and prospects. +41 +Compliance +with the PRC Antitrust law may limit our ability to effect our initial business combination. +The +PRC Antitrust Law became effective on August 1, 2008. The government authorities in charge of antitrust matters in China are the Antitrust +Commission and other antitrust authorities under the State Council. The PRC Antitrust Law regulates (1) monopoly agreements, including +decisions or actions in concert that preclude or impede competition, entered into by business operators; (2) abuse of dominant market +position by business operators; and (3) concentration of business operators that may have the effect of precluding or impeding competition. +To implement the Antitrust Law, in 2008, the State Council formulated the regulations that require filing of concentration of business +operators, pursuant to which concentration of business operators refers to (1) merger with other business operators; (2) gaining control +over other business operators through acquisition of equity interest or assets of other business operators; and (3) gaining control over +other business operators through exerting influence on other business operators through contracts or other means. In 2009, the Ministry +of Commerce, to which the Antitrust Commission is affiliated, promulgated the Measures for Filing of Concentration of Business Operators +(amended by the Guidelines for Filing of Concentration of Business Operators in 2014), which set forth the criteria of concentration +and the requirement of miscellaneous documents for the purpose of filing. The business combination we contemplate may be considered the +concentration of business operators, and to the extent required by the Antitrust Law and the criteria established by the State Council, +we must file with the antitrust authority under the PRC State Council prior to conducting the contemplated business combination. If the +antitrust authority decides not to further investigate whether the contemplated business combination has the effect of precluding or +impeding competition or fails to make a decision within 30 days from receipt of relevant materials, we may proceed to consummate the +contemplated business combination. If antitrust authority decides to prohibit the contemplated business combination after further investigation, +we must terminate such business combination and would then be forced to either attempt to complete a new business combination or we would +be required to return any amounts which were held in the trust account to our shareholders. When we evaluate a potential business combination, +we will consider the need to comply with the Antitrust Law and other relevant regulations which may limit our ability to effect an acquisition +or may result in our modifying or not pursuing a particular transaction. Since our business combination period is within 24 months from +the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, within +33 months from the closing of our Initial Public Offering (as further described in our Registration Statement), and the approval process +may take a period longer than we expect before we enter into a definitive agreement with a target company, we may be unable to complete +a business combination within 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time +to consummate our business combination, within 33 months from the closing of our Initial Public Offering (as further described in our +Registration Statement). +Exchange +controls that exist in the PRC may restrict or prevent us from using the proceeds of our Initial Public Offering to acquire a target +company in PRC and limit our ability to utilize our cash flow effectively following our initial business combination. +SAFE +promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement +of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant +Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested +Enterprises, or SAFE Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening +the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification and Regulation of the Issues +Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow +and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated +such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment +of banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated +registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle +that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used +for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in +the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing +the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some +of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated +registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans +to non-associated enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. +42 +As +such, Circular 19 and Circular 16 may significantly limit our ability to transfer the proceeds of our Initial Public Offering to a PRC +target company and the use of such proceeds by the PRC target company. In addition, following our initial business combination with a +PRC target company, we will be subject to the PRC’s rules and regulations on currency conversion. In the PRC, the SAFE regulates +the conversion of the Renminbi into foreign currencies. Currently, Foreign Invested Enterprises (“FIEs”) are required to +apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs.” Following our initial business combination, +we will likely be an FIE as a result of our ownership structure. With such registration certificates, which need to be renewed annually, +FIEs are allowed to open foreign currency accounts including a “basic account” and “capital account.” Currency +conversion within the scope of the “basic account,” such as remittance of foreign currencies for payment of dividends, can +be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account,” including +capital items such as direct investment, loans and securities, still require approval of the SAFE. +We +cannot assure you the PRC regulatory authorities will not impose further restrictions on the convertibility of the Renminbi. Any future +restrictions on currency exchanges may limit our ability to use the proceeds of our Initial Public Offering in an initial business combination +with a PRC target company and the use our cash flow for the distribution of dividends to our shareholders or to fund operations we may +have outside of the PRC. +Our +initial business combination may be subject to national security review by the PRC government, and we may have to spend additional resources +and incur additional time delays to complete any such business combination or be prevented from pursuing certain investment opportunities. +On +February 3, 2011, the PRC government issued a Notice Concerning the Establishment of Security Review Procedure on Mergers and Acquisitions +of Domestic Enterprises by Foreign Investors, or “Security Review Regulations”, which became effective on March 5, 2011. +The Security Review Regulations cover acquisitions by foreign investors of a broad range of PRC enterprises if such acquisitions could +result in de facto control by foreign investors and the enterprises are relating to military, national defense, important agriculture +products, important energy and natural resources, important infrastructures, important transportation services, key technologies, and +important equipment manufacturing. The scope of the review includes whether the acquisition will impact the national security, economic +and social stability, and the research and development capabilities on key national security related technologies. Foreign investors +should submit a security review application to the Department of Commerce for its initial review for contemplated acquisition. If the +acquisition is considered to be within the scope of the Security Review Regulations, the Department of Commerce will transfer the application +to a joint security review committee within five business days for further review. The joint security review committee, consisting of +members from various PRC government agencies, will conduct a general review and seek comments from relevant government agencies. The +joint security review committee may initiate a further special review and request the termination or restructuring of the contemplated +acquisition if it determines that the acquisition will result in significant national security issue. +The +Security Review Regulations will potentially subject a large number of mergers and acquisitions transactions by foreign investors in +China to an additional layer of regulatory review. Currently, there is significant uncertainty as to the implication of the Security +Review Regulations. Neither the Department of Commerce nor other PRC government agencies have issued any detailed rules for the implementation +of the Security Review Regulations. If, for example, our potential initial business combination is with a target company operating in +the PRC in any of the sensitive sectors identified above, the transaction will be subject to the Security Review Regulations, and we +may have to spend additional resources and incur additional time delays to complete any such acquisition. There is no guarantee that +we can receive such approval in a timely manner, and we may also be prevented from pursuing certain investment opportunities if the PRC +government considers that the potential investments will result in a significant national security issue. If obtained, since our business +combination period is 24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate +our business combination, 33 months from the closing of our Initial Public Offering (as further described in our Registration Statement), +and the approval process may take a period longer than we expect before we enter into a definitive agreement with a target company, we +may be unable to complete a business combination within 24 months from the closing of our Initial Public Offering, or if we decide to +extend the period of time to consummate our business combination, within 33 months from the closing of our Initial Public Offering (as +further described in our Registration Statement). +43 +Our +initial business combination may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, +and we may have to spend additional resources and incur additional time delays to complete any such business combination or be prevented +from pursuing certain investment opportunities. +Our +initial business combination may be subject to PRC laws relating to the collection, use, sharing, retention, security, and transfer of +confidential and private information, such as personal information and other data. These laws continue to develop, and the PRC government +may adopt other rules and restrictions in the future. Non-compliance could result in penalties or other significant legal liabilities. +Pursuant +to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, +2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure +operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases +internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. +Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. +Recently, +the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued +the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which was available to the public on July 6, 2021. These +opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings +by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory +systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data +privacy protection. Moreover, the State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, +not yet effective) on July 10, 2021, which requires operators with personal information of more than 1 million users who want to list +abroad to file a cybersecurity review with the CAC. As these opinions and the draft measurers were recently issued, official guidance +and interpretation of these two remain unclear in several respects at this time. +If, +for example, our potential initial business combination is with a target business operating in the PRC and if the enacted version of +the draft measures mandates clearance of cybersecurity review and other specific actions to be completed by the target business, we may +face uncertainties as to whether such clearance can be timely obtained, or at all, and incur additional time delays to complete any such +acquisition. Cybersecurity review could also result in negative publicity with respect to our initial business combination and diversion +of our managerial and financial resources. There is no guarantee that we can receive such approval in a timely manner, and we may also +be prevented from pursuing certain investment opportunities if the PRC government considers that the potential investments will result +in a significant national security issue. If obtained, since our business combination period is 24 months from the closing of our Initial +Public Offering, or if we decide to extend the period of time to consummate our business combination, 33 months from the closing of our +Initial Public Offering (as further described in our Registration Statement), and the approval process may take a period longer than +we expect before we enter into a definitive agreement with a target company, we may be unable to complete a business combination within +24 months from the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, +within 33 months from the closing of our Initial Public Offering (as further described in our Registration Statement). +44 +In +light of recent events indicating greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign +exchange, some internet and technology companies, may not be willing to list on a U.S. exchange or enter into a definitive business combination +agreement with us. Further, we may also have to avoid a business combination with a company with more than one million users’ personal +information in China due to the limited timeline for us to complete a business combination. +Companies +in China are subject to various risks and costs associated with the collection, use, sharing, retention, security, and transfer of confidential +and private information, such as personal information and other data. This data is wide ranging and relates to our investors, employees, +contractors and other counterparties and third parties. If we decide to initiate a business combination with a company in China, our +compliance obligations include those relating to the Data Protection Act (As Revised) Cayman Islands and the relevant PRC laws in this +regard. Non-compliance could result in penalties, delays affecting our ability to timely consummate a business combination, or other +significant legal liabilities. +These +PRC laws apply not only to third-party transactions, but also to transfers of information between a holding company and its subsidiaries. +These laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. These laws may have a material +adverse affect on companies in the PRC being willing to complete a business combination with us, may make it more difficult for us to +identify a PRC based company with which to consummate a business combination, and may materially narrow the selection of companies available +in the PRC from which we could otherwise complete a business combination without material adverse affects in the absence of the CAC data +security restrictions, rules, and regulations. +If +we make equity compensation grants to persons who are PRC citizens, they may be required to register with the State Administration of +Foreign Exchange of the PRC (“SAFE”). We may also face regulatory uncertainties that could restrict our ability to adopt +equity compensation plans for our directors and employees and other parties under PRC laws. +On +April 6, 2007, SAFE issued the Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership +Plan or Stock Option Plan of An Overseas Listed Company, also known as Circular 78. It is not clear whether Circular 78 covers all forms +of equity compensation plans or only those which provide for the granting of share options. For any plans which are so covered and are +adopted by a non-PRC listed company, such as our company in the event we consummate a business combination with a PRC Target Company, +Circular 78 requires all plan participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation +in the subject plan. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time +consuming. +Upon +consummation of business combination with a PRC Target Company, we may adopt an equity incentive plan and make share option grants under +the plan to our officers, directors and employees, whom may be PRC citizens and be required to register with SAFE. If it is determined +that any of our equity compensation plans are subject to Circular 78, failure to comply with such provisions may subject us and participants +of our equity incentive plan who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation +to our PRC employees. In that case, our ability to compensate our employees and directors through equity compensation would be hindered +and our business operations may be adversely affected. +Enhanced +scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue +in the future. +The +PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, +equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular +698, which became effective in January 2008, and a Circular 7 in replacement of some of the existing rules in Circular 698, which became +effective in February 2015. +Under +Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC +“resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, +being the transferor, may be subject to PRC corporate income tax, if the indirect transfer is considered to be an abusive use of company +structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at +a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident +enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable +adjustment to the taxable income of the transaction. +45 +In +February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced +a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect +transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer +of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable +commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public +securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated +to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring +the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being +the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority +such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the +overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring +PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC corporate income tax, and the transferee or other +person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer +of equity interests in a PRC resident enterprise. +We +face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions +involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue +such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC +subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject +to filing obligations or being taxed, under Circular 59 or Circular 698 and Circular 7, and may be required to expend valuable resources +to comply with Circular 59, Circular 698 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed +under these circulars, which may have a material adverse effect on our financial condition and results of operations. +The +PRC tax authorities have the discretion under SAT Circular 59, Circular 698 and Circular 7 to make adjustments to the taxable capital +gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If we are considered +a non-resident enterprise under the PRC corporate income tax law and if the PRC tax authorities make adjustments to the taxable income +of the transactions under SAT Circular 59 or Circular 698 and Circular 7, our income tax costs associated with such potential acquisitions +will be increased, which may have an adverse effect on our financial condition and results of operations. +The +Chinese government may intervene in and influence the manner in which our post-combination entity must conduct its business activities +in ways that we cannot expect when we enter into a definitive agreement with a target company with major operation in China, which could +result in a material change in our operations of the combined company and/or the value of our securities, and could significantly limit +or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly +decline or become worthless. If the Chinese government establishes some new policies, regulations, rules, or laws affecting the industries +that our post-combination entity is in, it may materially and adversely affect our operations and the value of our Ordinary Shares. +The +Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through +regulation and state ownership. Our post-combination entity’s ability to operate in China may be harmed by changes in its laws +and regulations, including those relating to taxation, environmental regulations, land use rights, property, and other matters. The central +or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would +require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, +government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally +planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic +conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. +46 +For +example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: +DIDI) and two days later ordered that the company’s app be removed from smartphone app stores. On July 24, 2021, the General Office +of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further +Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which +foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from +this sector. +As +such, the post-combination entity’s business segments may be subject to various government and regulatory interference in the provinces +in which they operate. The post-combination entity could be subject to regulation by various political and regulatory entities, including +various local and municipal agencies and government sub-divisions. We and our post-combination entity may incur increased costs necessary +to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. +Furthermore, +it is uncertain when and whether we and our post-combination entity will be required to obtain permission from the PRC government to +list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although we +are currently not required to obtain permission from any of the PRC federal or local government and have not received any denial to list +on the U.S. exchange, our post-combination operations could be adversely affected, directly or indirectly, by existing or future laws +and regulations relating to our business or industry. +PRC +laws and regulations governing our post-combination entity’s business operations are sometimes vague and uncertain and any changes +in such laws and regulations may impair our ability to operate profitably. +There +are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, +the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. +The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement +may involve substantial uncertainty. The effectiveness and interpretation of newly enacted laws or regulations, including amendments +to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently +adopted or interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect +existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing +or new PRC laws or regulations may have on our post-combination entity’s business. +The +PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil +law system may be cited for reference but have limited precedential value. Since these laws and regulations are relatively new and the +PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the +enforcement of these laws, regulations and rules involves uncertainties. +In +1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The +overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign +investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may +not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and +regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing +statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the +level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability +to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous +legal actions or threats in attempts to extract payments or benefits from us. +Furthermore, +the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or +at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime +after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs +and diversion of resources and management attention. +47 +From +time to time, our post-combination entity may have to resort to administrative and court proceedings to enforce our legal rights. However, +since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual +terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection our +post-combination entity enjoys than in more developed legal systems. Furthermore, the PRC legal system is based in part on government +policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, +we and our post-combination entity may not be aware of our violation of these policies and rules until sometime after the violation. +Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and +procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect +our business and impede our post-combination entity’s ability to continue its operations. +Changes +in the policies, regulations, rules, and the enforcement of laws of the PRC government may occur quickly quick with little advance notice +and could have a significant impact upon our ability to operate profitably in the PRC. +Our +post-combination entity may conduct most of our operations and most of our revenue is generated in the PRC. Accordingly, economic, political, +and legal developments in the PRC will significantly affect our post-combination entity’s business, financial condition, results +of operations and prospects. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects +on economic conditions in the PRC and the ability of businesses to operate profitably. Our post-combination entity’s ability to +operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations +or their interpretation, particularly those dealing with the Internet, including censorship and other restriction on material which can +be transmitted over the Internet, security, intellectual property, money laundering, taxation and other laws that affect our post-combination +entity’s ability to operate its business. +The +Chinese government may intervene in or influence a PRC company’s business operations at any time or exert more oversight and control +over offerings conducted overseas and foreign investment in China-based issuers. This could result in a material change in a PRC company’s +business operations post business combination and/or the value of its securities. Additionally, governmental and regulatory interference +could significantly limit or completely hinder a target company’s ability to offer or continue to offer securities to investors +post business combination and cause the value of such securities to significantly decline or be worthless. +Statements +by the Chinese government in 2021 have indicated an intent to exert more oversight and control over offerings that are conducted overseas +and/or foreign investments in China-based issuers. The PRC has proposed new rules in 2021 that would require companies collecting or +holding large amounts of data to undergo a cybersecurity review prior to listing in foreign countries, a move that would significantly +tighten oversight over large China-based internet companies. On November 14, 2021, the CAC publicly solicited opinion on the Regulation +on Network Data Security Management (Consultation Draft), which stipulated that data processors that undertake data processing activities +using internet networks within China are required to apply for cybersecurity review if it conducts data processing activities that will +or may have an impact on China’s national security. The review is mandatory if the data processor controls more than 1 million +users’ personal information and intends to be listed in a foreign country, or if the data processor seeks to be listed in Hong +Kong. As of the date of this Form 10-K, the Draft Regulation on Network Data Security Management has not been formally adopted. On December +28, 2021, the CAC, jointly with 12 departments under the State Council, implemented the Measures for Cybersecurity Review, which became +effective on February 15, 2022. According to the Measures for Cybersecurity Review, operators of critical information infrastructure +purchasing network products and services, and data processors carrying out data processing activities that affect or may affect China’s +national security, are required to conduct a cybersecurity review. Operators, including operators of critical information infrastructure +and data processors, who control more than 1 million users’ personal information must report to the Cyber Security Review Office +for a cybersecurity review if it intends to be listed in a foreign country. +48 +On +June 10, 2021, the Standing Committee of the PRC National People’s Congress, or SCNPC, promulgated the PRC Data Security Law, which +took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying +out data activities and introduces a data classification and hierarchical protection system based on the importance of data in economic +and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests +of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security +Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions +on certain data and information. On August 20, 2021, the SCNPC adopted the Personal Information Protection Law, which took effect as +of November 1, 2021. The Personal Information Protection Law includes the basic rules for personal information processing, the rules +for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations +of personal information processors, and the responsibilities for collection, processing, and use of personal information. +Because +laws, regulations, or policies in the PRC could change rapidly in the future, any future action by the PRC government expanding the categories +of industries, persons and companies whose foreign securities offerings are subject to review by the CSRC or the CAC could significantly +limit or completely hinder our ability to offer or continue to offer securities to investors and could cause the value of such securities +to significantly decline or be worthless. Since none of our officers and directors has engaged in data activities or the processing of +personal information in China, we believe our officers and directors are in full compliance with the regulations and policies that have +been issued by the CAC to date. +Even +if we do not undertake an initial business combination with any entity that is based or located in or that conducts its principal business +operations in China (including Hong Kong and Macau), our potential target may, or its customers, vendors or business partners may, collect +or generate data in China. Given that the PRC authorities have significant discretion in interpreting and applying the relevant cybersecurity +and data laws and regulations, there is a risk that any potential target business of ours may be subject to cybersecurity review or other +regulatory actions even though it is not based or located in and does not conduct its principal business operations in China; and in +the event of such a review, our consummation of a business combination could be materially delayed. To avoid such risk, we may avoid +completing an initial business combination with such a target business and instead pursue other opportunities, which may limit the pool +of attractive targets. As a result, our search for a target company may be adversely affected. +The +PRC governmental authorities may take the view now or in the future that an approval from them is required for an overseas offering by +a company affiliated with Chinese businesses or persons or a business combination with a target business based in and primarily operating +in China. +The +M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the +purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such +special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website +procedures specifying documents and materials required to be submitted to it by special purpose vehicles seeking CSRC’s approval +of overseas listings. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules and the CSRC +approval requirement to offshore special purpose vehicles. +Moreover, +except for emphasizing the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision +over overseas listings by Chinese companies, the Opinions, which was made available to the public on July 6, 2021, also provides that +the State Council will revise provisions regarding the overseas issuance and listing of shares by companies limited by shares and will +clarify the duties of domestic regulatory authorities. +49 +On +December 24, 2021, the State Council published the draft Administrative Provisions on the Overseas Issuance and Listing of Securities +by Domestic Companies (Draft for Comments) (the “Administrative Provisions”), and the CSRC published the draft Measures for +Record-filings of the Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments) (the “Administrative +Measures”), for public comment. Pursuant to Article 2 of the Administrative Provisions, domestic enterprises that (i) offer shares, +depository receipts, convertible notes or other equity securities overseas, or (ii) list securities on an overseas stock exchange, must +complete record-filing procedures and report the relevant information to the CSRC. The CSRC shall determine the record-filing method. +Pursuant to the Article 2 of the Administrative Measures, domestic enterprises that directly or indirectly offer or list securities on +an overseas stock exchange shall file with the CSRC within three business days after submitting their initial public offering and/or +listing application documents. The requested filing documents include but are not limited to: (1) a filing report and related undertakings; +(2) regulatory opinions, filing or approval documents issued by the relevant authorities (if applicable); (3) security review opinions +issued by the relevant authorities, if applicable; (4) a PRC legal opinion; and (5) a prospectus. +On +December 27, 2021, the NDRC and the MOFCOM jointly promulgated the Special Administrative Measure (Negative List) for the Access of Foreign +Investment (2021 Version), or the Negative List, which became effective on January 1, 2022. According to Article 6 of the Negative List, +domestic enterprises engaging in businesses in which foreign investment is prohibited shall obtain approval from the relevant authorities +before offering and listing their shares on an overseas stock exchange. In addition, certain foreign investors shall not be involved +in the operation or management of the relevant enterprise, and shareholding percentage restrictions under relevant domestic securities +investment management regulations shall apply to such foreign investors. +Based +on our understanding of the current PRC laws and regulations in effect at the time of this Form 10-K, no prior permission is required +under the M&A Rules, the Opinions or the Negative List from any PRC governmental authorities (including the CSRC) for consummating +our Initial Public Offering by our company, given that: (a) the CSRC currently has not issued any definitive rule or interpretation concerning +whether offerings like ours under this Form 10-K are subject to the M&A Rules; and (b) our company is a blank check company incorporated +in the Cayman Islands rather than China and currently the company conducts no business in China. However, there remains some uncertainty +as to how the M&A Rules, the Opinions, or the Administrative Provisions and the Administrative Measures, if enacted, will be interpreted +or implemented in the context of an overseas offering or if we decide to consummate the business combination with a target business based +in and primarily operating in China. If the CSRC or another PRC governmental authority subsequently determines that its approval is needed +for our Initial Public Offering, or a business combination with a target business based in and primarily operating in China, we may face +approval delays, adverse actions or sanctions by the CSRC or other PRC governmental authorities. In any such event, these governmental +authorities may delay our Initial Public Offering or a potential business combination, impose fines and penalties, limit our operations +in China, or take other actions that could materially adversely affect our business, financial condition, results of operations, reputation +and prospects, as well as the trading price of our securities. +As +of the date of this Form 10-K, we have not received any inquiry, notice, warning, sanctions or regulatory objection to our Initial Public +Offering from the CSRC or any other PRC governmental authorities. +Our +company is a blank check company incorporated under the laws of the Cayman Islands. We currently do not hold any equity interest in any +PRC company or operate any business in China. Therefore, we are not required to obtain any permission from any PRC governmental authorities +to operate our business as currently conducted. If we decide to consummate our business combination with a target business based in and +primarily operating in China, the combined company’s business operations in China through its subsidiaries are subject to relevant +requirements to obtain applicable licenses from PRC governmental authorities under relevant PRC laws and regulations. +If +we select a business combination target that operates in the PRC, the approval of the China Securities Regulatory Commission (the “CSRC”), +the Cybersecurity Review Office (“CRO”), the Central Cyberspace Affairs Commission and/or other PRC authority may be required +for our initial business combination under PRC law. +The +Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”) requires overseas +special purpose vehicles that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an +overseas stock exchange through acquisitions of PRC domestic companies using shares of such special purpose vehicles or held by their +shareholders as considerations to obtain the approval of the CSRC, prior to the listing and trading of such special purpose vehicle’s +securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required +for our initial business combination, it is uncertain whether it would be possible for us to obtain the approval. Any failure to obtain +or delay in obtaining CSRC approval for our initial business combination would subject us to sanctions imposed by the CSRC and other +PRC regulatory agencies. +50 +Additionally, +on July 10, 2021, the Cybersecurity Administration of China released a draft of the revised Cybersecurity Review Measures for public +consultation until July 25, 2021 (the “2021 Measures”). The 2021 Measures apply to any business operator that holds the personal +information of more than one million users when it intends to seek a foreign listing. Upon receipt of an application, if the CRO decides +to conduct a review, the CRO will complete a preliminary review and send recommendations to a designated body of members of the network +security review mechanism and certain government departments for further consideration. The CSRC has been added in the 2021 Measures +to the list of mainland Chinese authorities that are to be involved in formulating the national network security review mechanism. This +means that the CSRC can instruct the CRO to obtain approval from the Central Cyberspace Affairs Commission to conduct a cybersecurity +review of any proposed foreign public offering of a mainland Chinese operator where the capital markets regulator considers the listing +affects or is likely to affect China’s national security. The proposed rules might impact the timetable of our initial business +combination and the certainty of our initial business combination, if the target company we have identified is subject to the 2021 Measures +or the final Cybersecurity Review Measures. +Further +regulations or regulatory actions in the PRC could affect the timetable and closing certainty of our Initial Public Offering and/or our +initial business combination. +Further, +on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council of +the PRC jointly issued the “Opinion on Strictly Punishing Illegal Securities Activities according to Law” (《关于依法从严打击证券违法活动的意见》) +(the “Opinion”). The Opinion specifies the target of upgrading the securities law-enforcement and judicial systems by 2022 +and 2025, including effectively curbing the frequent occurrence of major illegal and criminal cases, as well as making notable advances +in the transparency, standardization and credibility in the securities law-enforcement and judicial system. In particular, Clause 5 of +the Opinion is entitled “Further Enhancing Cross-Border Regulatory Oversight, Enforcement and Judicial Cooperation.” The +Opinion may require or facilitate further regulations or regulatory actions applicable to Chinese companies seeking to be listed overseas, +including in the U.S., which regulations could be applicable to our Initial Public Offering, our initial business combination or the +target company we identify and impact the timetable and closing certainty of our Initial Public Offering and/or our initial business +combination. +The +M&A Rules and certain other People’s Republic of China regulations establish complex procedures for some acquisitions of Chinese +companies by foreign investors, which could make it more difficult for us to pursue an acquisition in China. +The +M&A Rules and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements +that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some +instances that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC +domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified in advance of any concentration of undertaking +if certain thresholds are triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 +specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers +and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” +concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including +by structuring the transaction through a proxy or contractual control arrangement. In the future, we may acquire a complementary business. +Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, +and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our +ability to complete such transactions, which could affect our ability to complete our initial business combination. +51 +Substantial +uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact our ability +to pursue an acquisition in China. +On +March 15, 2019, the PRC National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 +and replaces the trio of existing laws regulating foreign investment in the PRC, namely, the Sino-Foreign Equity Joint Venture Enterprise +Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, together with their implementation +rules and ancillary regulations and become the legal foundation for foreign investment in the PRC. Meanwhile, the Implementation Regulation +of the Foreign Investment Law and the Measures for Reporting of Information on Foreign Investment came into effect as of January 1, 2020, +which clarified and elaborated the relevant provisions of the Foreign Investment Law. +The +Foreign Investment Law sets out the basic regulatory framework for foreign investments and proposes to implement a system of pre-entry +national treatment with a negative list for foreign investments, pursuant to which (i) foreign entities and individuals are prohibited +from investing in the areas that are not open to foreign investments, (ii) foreign investments in the restricted industries must satisfy +certain requirements under the law, and (iii) foreign investments in business sectors outside of the negative list will be treated equally +with domestic investments. The Foreign Investment Law also sets forth necessary mechanisms to facilitate, protect and manage foreign +investments and proposes to establish a foreign investment information reporting system, through which foreign investors or foreign-invested +enterprises are required to submit initial report, report of changes, report of deregistration and annual report relating to their investments +to the Ministry of Commerce, or MOFCOM, or its local branches. +If, +after our initial business combination, substantially all of our assets will be located in China and substantially all of our revenue +will be derived from our operations there, our results of operations and prospects and trading prices of our securities will be subject, +to a significant extent, to the economic, political and legal policies, developments and conditions in China as well as litigation and +publicity surrounding China-based companies listed in the United States. +The +economic, political and social conditions, as well as government policies, of China could affect our business. The economies in Asia +differ from the economies of most developed countries in many respects. For the most part, such economies have grown at a rate in excess +of the United States; however, (1) such economic growth has been uneven, both geographically and among various sectors of the economy +and (2) such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows +at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain +industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial +business combination and if we effect our initial business combination, the ability of that target business to become profitable. +We +believe that litigation and negative publicity surrounding companies with operations in China that are listed in the United States have +negatively impacted stock prices for these companies. Various equity-based research organizations have published reports on China-based +companies after examining their corporate governance practices, related party transactions, sales practices and financial statements, +and these reports have led to special investigations and listing suspensions on U.S. national exchanges. Any similar scrutiny of our +assets and operation, in China, if any, regardless of its lack of merit, could result in a diversion of management resources and energy, +potential costs to defend ourselves against rumors, decreases and volatility in the trading price of our securities, and increased directors +and officers insurance premiums and could have an adverse effect upon our business, including our results of operations, financial condition, +cash flows and prospects. +China’s +economic, political and social conditions, as well as changes in any government policies, laws, and regulations, could have a material +adverse effect on our business. +A +substantial portion of our operations may be conducted in China, and a significant portion of our net revenues may be derived from customers +where the contracting entity is located in China. Accordingly, our business, financial condition, results of operations, prospects, and +certain transactions we may undertake may be subject, to a significant extent, to economic, political, and legal developments in China. +China’s +economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level +of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant +growth in the past two to three decades, growth has been uneven, both geographically and among various sectors of the economy. Demand +for target services and products depends, in large part, on economic conditions in China. Any slowdown in China’s economic growth +may cause our potential customers to delay or cancel their plans to purchase our services and products, which in turn could reduce our +net revenues. +52 +Although +China’s economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government +continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises +significant control over China’s economic growth through allocating resources, controlling the incurrence and payment of foreign +currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. +Changes in any of these policies, laws and regulations could adversely affect the economy in China and could have a material adverse +effect on our business. +The +PRC government has implemented various measures to encourage foreign investment and sustainable economic growth and to guide the allocation +of financial and other resources. However, we cannot assure you that the PRC government will not repeal or alter these measures or introduce +new measures that will have a negative effect on us. China’s social and political conditions may change and become unstable. Any +sudden changes to China’s political system or the occurrence of widespread social unrest could have a material adverse effect on +our business and results of operations. +We +may face additional and distinctive risks if we acquire a financial technology business. +Business +combinations with financial technology businesses may involve special considerations and risks. If we complete our initial business combination +with a financial technology business, we will be subject to the following risks, any of which could be detrimental to us and the business +we acquire: +● +If +the company or business we acquire provides products or services which relate to the facilitation of financial transactions, such +as funds or securities settlement system, and such product or service fails or is compromised, we may be subject to claims from both +the firms to whom we provide our products and services and the clients they serve; +● +If +we are unable to keep pace with evolving technology and changes in the financial services industry, our revenues and future prospects +may decline; +● +Our +ability to provide financial technology products and services to customers may be reduced or eliminated by regulatory changes; +● +Any +business or company we acquire could be vulnerable to cyberattack or theft of individual identities or personal data; +● +Difficulties +with any products or services we provide could damage our reputation and business; +● +A +failure to comply with privacy regulations could adversely affect relations with customers and have a negative impact on business; +● +We +may not be able to protect our intellectual property and we may be subject to infringement claims; and +● +We +and any business or company we acquire may not be able to adapt to the complex and evolving regulatory environment for financial +technology services in China. +Any +of the foregoing could have an adverse impact on our operations following a business combination. However, our efforts in identifying +prospective target businesses will not be limited to financial technology businesses. Accordingly, if we acquire a target business in +another industry, these risks will likely not affect us and we will be subject to other risks attendant with the specific industry in +which we operate or target business which we acquire, none of which can be presently ascertained. +53 +If +we merge with a China-based operating company, then PRC regulation on loans to, and direct investment in, PRC entities by offshore holding +companies and governmental control in currency conversion may delay or prevent us from making loans to or making additional capital contributions +to our PRC entity, if any, which could materially and adversely affect our liquidity and our ability to fund and expand our business. +We +are an exempted company incorporated in the Cayman Islands with limited liability structured as a blank check company and may conduct +our operations in China through a PRC entity. As permitted under PRC laws and regulations, we may make loans to our PRC entity subject +to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our PRC entity. +Furthermore, loans by us to our PRC entity to finance its activities cannot exceed the difference between their respective total project +investment amount and registered capital or 2.5 times of their net worth and capital contributions to our PRC entity will be subject +to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System and registration +with other governmental authorities in China. +The +SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement +of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant +Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested +Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration +of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration +of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted +from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used +for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred +to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested +enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated +capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear +whether the SAFE will permit such capital to be used for equity investments in the PRC in actual practice. The SAFE promulgated the Notice +of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital +Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes +the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company +to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated enterprises. Violations of +SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly +limit our ability to transfer any foreign currency we hold, including the net proceeds from our Initial Public Offering, to our PRC entity, +which may adversely affect our liquidity and our ability to fund and expand our business in the PRC. +In +light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding +companies, and the fact that the PRC government may at its discretion restrict access to foreign currencies for current account transactions +in the future, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government +approvals on a timely basis, if at all, with respect to future loans by us to our PRC entity or with respect to future capital contributions +by us to our PRC entity. If we merge with a China-based operating company, and if we fail to complete such registrations or obtain such +approvals, our ability to use the proceeds from our Initial Public Offering and to capitalize or otherwise fund our PRC operations may +be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. +If +we successfully consummate a business combination with a target business with primary operations in the PRC, we will be subject to restrictions +on dividend payments following consummation of our initial business combination. +After +we consummate our initial business combination, we may rely on dividends and other distributions from our operating company to provide +us with cash flow and to meet our other obligations. Current regulations in China would permit our operating company in China to pay +dividends to us only out of its accumulated distributable profits, if any, determined in accordance with Chinese accounting standards +and regulations. +54 +In +addition, our operating company in China will be required to set aside at least 10% (up to an aggregate amount equal to half of its registered +capital) of its accumulated profits each year. Each of our PRC subsidiaries as a foreign invested enterprise, is also required to further +set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined +at its discretion. Such cash reserve may not be distributed as cash dividends. In addition, if our operating company in China incurs +debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments +to us. +In +addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable +to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties +or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises +are incorporated. +Governmental +control of currency conversion may limit our ability to utilize our net revenue effectively and affect the value of your investment. +Following +our initial business combination with a PRC target company, we will be subject to the PRC’s rules and regulations on currency conversion. +In the PRC, the SAFE regulates the conversion of the Renminbi into foreign currencies. The PRC government imposes controls on the convertibility +of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. +Under +PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and +service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain +procedural requirements. Under existing exchange restrictions, without prior approval of SAFE, cash generated from PRC subsidiaries in +China may be used to pay dividends. +However, +approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency +and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government +may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control +system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not pay dividends in +foreign currencies to our shareholders. +PRC +regulatory authorities could impose further restrictions on the convertibility of the Renminbi. Any future restrictions on currency exchanges +may limit our ability to use the proceeds of our Initial Public Offering in an initial business combination with a PRC target company +and the use our cash flow for the distribution of dividends to our shareholders or to fund operations we may have outside of the PRC. +If +we merge with a China-based operating company, then there are significant uncertainties under the PRC Enterprise Income Tax Law relating +to the withholding tax liabilities of the PRC entity, and dividends payable by the PRC entity to our offshore entity may not qualify +for certain treaty benefits. +Under +the PRC Enterprise Income Tax Law (“PRC EIT Law”) and its implementation rules, if following our initial business combination +we are a non-resident enterprise, that is, an enterprise lawfully incorporated pursuant to the laws of a foreign country (region) that +has an office or premises established in China with no actual management functions performed in China, or an enterprise that has income +derived from or accruing in China although it does not have an office or premises in China, will be subject to a withholding tax rate +of 10%. Under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in +Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certain conditions to utilize the benefits under a tax treaty. +These conditions include: (1) the taxpayer must be the beneficial owner of the relevant dividends, and (2) the corporate shareholder +to receive dividends from the PRC entity must have continuously met the direct ownership thresholds during the 12 consecutive months +preceding the receipt of the dividends. Further, under Announcement of the State Administration of Taxation on Issues Relating to “Beneficial +Owner” in Tax Treaties, which took effect on April 1, 2018, a “Beneficial Owner” shall mean a person who has ownership +and control over the income and the rights and property from which the income is derived. To determine the “beneficial owner” +status of a resident of the treaty counterparty who needs to take advantage of the tax treaty benefits, a comprehensive analysis shall +be carried out, taking into account actual conditions of the specific case. +55 +Entitlement +to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other +countries or regions is subject to Announcement of State Taxation Administration on Promulgation of the Administrative Measures on Non-resident +Taxpayers Enjoying Treaty Benefits, or Circular 35. Circular 35 provides that non-resident enterprises are not required to obtain pre-approval +from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding +agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply +the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject +to post-tax filing examinations by the relevant tax authorities. +In +addition, in response to the persistent capital outflow in China and the RMB’s depreciation against the U.S. dollar in the fourth +quarter of 2016, the People’s Bank of China and SAFE promulgated a series of capital control measures in early 2017, including +stricter vetting procedures for domestic companies to remit foreign currency for overseas investments, dividends payments and shareholder +loan repayments. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process +may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation +on the ability of us to pay dividends or make other kinds of payments to us following our initial business combination could materially +and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or +otherwise fund and conduct our business. +U.S. +laws and regulations, including the Holding Foreign Companies Accountable Act and Accelerating Holding Foreign Companies Accountable +Act, may restrict or eliminate our ability to complete a business combination with certain companies. +Future +developments in U.S. laws may restrict our ability or willingness to complete certain business combinations with companies. For instance, +the recently enacted Holding Foreign Companies Accountable Act (“HFCAA”) would restrict our ability to consummate a business +combination with a target business unless that business met certain standards of the PCAOB and would require delisting of a company from +U.S. national securities exchanges if the PCAOB is unable to inspect its public accounting firm for three consecutive years. The HFCAA +also requires public companies to disclose, among other things, whether they are owned or controlled by a foreign government, specifically, +those based in China. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act +(“AHFCAA”), which, if signed into law, would amend the HFCAA and require the SEC to prohibit an issuer’s securities +from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three +consecutive years. +The +documentation we may be required to submit to the SEC proving certain beneficial ownership requirements and establishing that we are +not owned or controlled by a foreign government in the event that we use a foreign public accounting firm not subject to inspection by +the PCAOB or where the PCAOB is unable to completely inspect or investigate our accounting practices or financial statements because +of a position taken by an authority in the foreign jurisdiction could be onerous and time-consuming to prepare. HFCAA mandates the SEC +to identify issuers of SEC-registered securities whose audited financial reports are prepared by an accounting firm that the PCAOB is +unable to inspect due to restrictions imposed by an authority in the foreign jurisdiction where the audits are performed. If such identified +issuer’s auditor cannot be inspected by the PCAOB for three consecutive years, the trading of such issuer’s securities on +any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. +On +March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements +of the HFCAA. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under +a process to be subsequently established by the SEC. On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House +of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions +under the HFCAA from three years to two. +On +November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable +Act. Rule 6100 provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether it is unable to inspect +or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or +more authorities in that jurisdiction. +56 +On +December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding +Foreign Companies Accountable Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit +report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or +investigate completely because of a position taken by an authority in foreign jurisdictions. +On +December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered +public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by Chinese authorities in those +jurisdictions. The PCAOB made its determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its +responsibilities under the HFCAA. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject +to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. +On +August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance +of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered +in mainland China and Hong Kong completely, consistent with U.S. law. The Statement of Protocol gives the PCAOB sole discretion to select +the firms, audit engagements and potential violations it inspects and investigates and put in place procedures for PCAOB inspectors and +investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed. In +addition, the Statement of Protocol grants the PCAOB direct access to interview and take testimony from all personnel associated with +the audits the PCAOB inspects or investigates. While significant, uncertainties still exist as to how the Statement of Protocol will +be implemented and whether the applicable parties will comply with the framework. +Our +auditor UHY LLP is headquartered in New York, NY, and was not identified in the PCAOB’s report as a firm subject to the PCAOB’s +determination. However, if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of +a position taken by an authority in a foreign jurisdiction (including, without limitation, PRC government), we will be required by the +HCFAA and, if enacted, the AHFCAA, to delist from Nasdaq because the PCAOB is unable to conduct inspections on such auditor, and our +securities are unable to be listed on another securities exchange by the time of such potential delisting, then such a delisting would +substantially impair your ability to sell or purchase our securities when you wish to do so, and the risk and uncertainty associated +with a potential delisting would have a negative impact on the price of our securities. +In +the event that we complete a business combination with a company with substantial operations in a foreign jurisdiction and any of the +legislative actions or regulatory changes discussed above were to proceed in ways that are detrimental to issuers based in that jurisdiction, +it could cause us to fail to be in compliance with U.S. securities laws and regulations, we could cease to be listed on a U.S. securities +exchange, and U.S. trading of our shares could be prohibited. Any of these actions, or uncertainties in the market about the possibility +of such actions, could adversely affect our prospects to successfully complete a business combination, our access to the U.S. capital +markets and the price of our shares. +Other +developments in U.S. laws and regulatory environment, including but not limited to executive orders such as Executive Order (E.O.) 13959, +“Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies,” may further restrict +our ability to complete a business combination with certain businesses. +57 +General +Risk Factors +Unanticipated +changes in our effective tax rate or challenges by tax authorities could harm our future results. +We +may become subject to income taxes in various other jurisdictions in the future. Our effective tax rate could be adversely affected by +changes in the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates, in certain non-deductible +expenses as a result of acquisitions, in the valuation of our deferred tax assets and liabilities, or in federal, state, local or non-U.S. +tax laws and accounting principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. +Increases in our effective tax rate would adversely affect our operating results. In addition, we may be subject to income tax audits +by various tax jurisdictions throughout the world. The application of tax laws in such jurisdictions may be subject to diverging and +sometimes conflicting interpretations by tax authorities in these jurisdictions. Although we believe our income tax liabilities are reasonably +estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions +in any period could have a material impact on the results of operations for that period. +Because +we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to +protect your rights through the U.S. federal courts may be limited. +We +are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service +of process within the United States upon our directors or executive officers, or enforce judgments obtained in the U.S. courts against +our directors or officers. +Our +corporate affairs will be governed by our Second Amended and Restated Memorandum and Articles of Association, as amended, the Companies +Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. We will also be subject +to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority +shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the +common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent +in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding +on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands +law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, +the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, may have more fully +developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate +a shareholders derivative action in a federal court of the United States. +Because +our Chairman of the Board and two of our directors are residents of China, you may face difficulties in protecting your interests, and +your ability to protect your rights through the U.S. Federal courts may be limited. +Our +Chairman of the Board, Pengfei Zheng, and two of our directors, Shu Wang and Li (Helen) Wei, are residents of China. China has no arrangement +for the reciprocal enforcement of judgments with the United States. PRC courts may only recognize and enforce foreign judgments in accordance +with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made +or on principles of reciprocity between jurisdictions. This is reflected in a number of bilateral treaties signed by China, which provide +that lack of jurisdiction of the judgment court can be a ground for refusal. Further, a foreign judgment cannot be recognized and enforced +in China if a Chinese court has rendered a judgment on the same subject matter or recognized and enforced another foreign judgment or +arbitral award on the same subject matter. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a +foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws +or national sovereignty, security, or public interest. China has no treaties or other forms of written arrangement with the United States +that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it may be difficult for investors to effect +service of process within the United States upon us or our Chairman and our directors who are residents of China, or to enforce judgments +in China (including Hong Kong and Macau) that are obtained in U.S. courts against us or such individuals, including judgments predicated +upon the civil liability provisions of the securities laws of the United States or any state thereof. Even with proper service of process, +the enforcement of judgments obtained in U.S. courts or foreign courts based on the civil liability provisions of the U.S. federal securities +laws would be extremely difficult given the PRC Civil Procedures Law and the lack of a treaty or principles of reciprocity providing +for the recognition and enforcement of U.S. judgments. Furthermore, there would be added costs and issues with bringing an original action +in foreign courts to enforce liabilities based on the U.S. federal securities laws against us or our officers and directors, and they +still may be fruitless. +58 +Changes +in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results +of operations. +We +are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply +with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, +time consuming and costly. +Those +laws and regulations and their interpretation and application may also change from time to time and those changes could have a material +adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, +as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our +initial business combination and results of operations. +On +March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions +involving SPACs and private operating companies; amending the financial statement requirements applicable to transactions involving shell +companies; effectively limiting the use of projections in SEC filings in connection with proposed business combination transactions; +increasing the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs +could become subject to regulation under the Investment Company Act of 1940. +On +January 24, 2024, the SEC adopted the final rules (the “SPAC Final Rules”), which became effective on July 1, 2024. Certain +of the procedures that AlphaVest, a potential business combination target, or others may determine to undertake in connection with the +SPAC Final Rules, or pursuant to the SEC’s views, may increase the costs and time of negotiating and completing an initial business +combination, and may constrain the circumstances under which we could complete an initial business combination. The need for compliance +with the SPAC Final Rules may cause us to liquidate the funds in the Trust Account or liquidate the Company at an earlier time than we +might otherwise choose. +We +are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of +certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies, this could make +our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We +are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage +of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth +companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the +Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and +exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden +parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. +We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including +if the market value of our Ordinary Shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case +we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities +less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance +on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading +market for our securities and the trading prices of our securities may be more volatile. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such +extended transition period, which means that when a standard is issued or revised and it has different application dates for public or +private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new +or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth +company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of +the potential differences in accounting standards used. +59 +Additionally, +we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take +advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. +We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our Ordinary Shares +held by non-affiliates exceeds $250 million as of the end of the prior June 30 th , or (2) our annual revenues exceeded $100 +million during such completed fiscal year and the market value of our Ordinary Shares held by non-affiliates exceeds $700 million as +of the prior June 30 th . To the extent we take advantage of such reduced disclosure obligations, it may also make comparison +of our financial statements with other public companies difficult or impossible. +If +we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements +and our activities may be restricted, which may make it difficult for us to complete our business combination. +If +we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including: +● +restrictions +on the nature of our investments; and +● +restrictions +on the issuance of securities, each of which may make it difficult for us to complete our business combination. +In +addition, we may have imposed upon us burdensome requirements, including: +● +registration +as an investment company; +● +adoption +of a specific form of corporate structure; and +● +reporting, +record keeping, voting, proxy and disclosure requirements and other rules and regulations. +In +order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must +ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities +do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our +total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and +complete a business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to +buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to +be a passive investor. +60 +We +do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held +in the trust account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) +of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 +promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the Trust +Agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these +instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and +selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” +within the meaning of the Investment Company Act. Our Initial Public Offering is not intended for persons who are seeking a return on +investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the +earliest to occur of: (i) the completion of our primary business objective, which is a business combination; (ii) the redemption of any +public shares properly submitted in connection with a shareholder vote to amend our Second Amended and Restated Memorandum and Articles +of Association, as amended, to modify (A) the substance or timing of our obligation to allow redemption in connection with our initial +business combination or to redeem 100% of our public shares if we do not complete our initial business combination within 24 months from +the closing of our Initial Public Offering, or if we decide to extend the period of time to consummate our business combination, within +33 months from the closing of our Initial Public Offering (as further described in our Registration Statement)or (B) with respect to +any other provision relating to shareholders’ rights or pre-initial business combination activity; or (iii) absent a business combination, +our return of the funds held in the trust account to our public shareholders as part of our redemption of the public shares. If we do +not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject +to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have +not allotted funds and may hinder our ability to complete a business combination. If we are unable to complete our initial business combination, +our public shareholders may receive only approximately $10.20 per share on the liquidation of our trust account and our Rights will expire +worthless. In certain circumstances, our public shareholders may receive less than $10.20 per share on the redemption of their shares. +See “ — If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share +redemption amount received by shareholders may be less than $10.20 per share ” and other risk factors in this section. +Notwithstanding +the foregoing, as indicated above, on January 24, 2024, the SEC adopted the SPAC Final Rules, which became effective on July 1, 2024, +relating to, among other items, the extent to which SPACs could become subject to regulation under the Investment Company Act of 1940. +The SEC’s proposed rules would provide a safe harbor for companies like our company from the definition of “investment company” +under Section 3(a)(1)(A) of the Investment Company Act, provided that they satisfy certain conditions that limit a company’s duration, +asset composition, business purpose and activities. The duration component of the proposed safe harbor rule would require the company +to file a Current Report on Form 8-K with the SEC announcing that it has entered into an agreement with the target company (or companies) +to engage in an initial business combination no later than 33 months after the effective date of the company’s registration statement +for its initial public offering. The company would then be required to complete its initial business combination no later than 33 months +after the effective date of its registration statement for its initial public offering. These rules, if adopted, whether in the form +proposed or in revised form, may materially adversely affect our ability to negotiate and complete our initial business combination and +may increase the costs and time related thereto. +Compliance +obligations under the Sarbanes-Oxley Act may make it more difficult for us to complete our initial business combination, require substantial +financial and management resources, and increase the time and costs of completing an acquisition. +Section +404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report +on Form 10-K for the year ending December 31, 2024. Only in the event we are deemed to be a large accelerated filer or an accelerated +filer will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control +over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent +registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank +check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public +companies because a target company with which we seek to complete our business combination may not be in compliance with the provisions +of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to +achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +Provisions +in our Second Amended and Restated Memorandum and Articles of Association, as amended, may inhibit a takeover of us, which could limit +the price investors might be willing to pay in the future for our Ordinary Shares and could entrench management. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, contains provisions that may discourage unsolicited takeover +proposals that shareholders may consider to be in their best interests. These provisions include a staggered board of directors and the +ability of the board of directors to designate the terms of and issue new series of preference shares, which may make the removal of +management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices +for our securities. +61 +We +may not hold an annual meeting of shareholders until after the consummation of our initial business combination, which could delay the +opportunity for our shareholders to elect directors. +In +accordance with NASDAQ corporate governance requirements, we are not required to hold an annual meeting until no later than one year +after our first fiscal year end following our listing on NASDAQ. There is no requirement under the Companies Act for us to hold annual +or general meetings to appoint directors until we hold an annual general meeting, public shareholders may not be afforded the opportunity +to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being +appointed in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year +term. In addition, as holders of our Ordinary Shares, our public shareholders will not have the right to vote on the appointment of directors +until after the consummation of our initial business combination. In addition, prior to our initial business combination, only holders +of the Founder Shares have the right to vote on the appointment of directors, including in connection with the completion of our initial +business combination. Accordingly, you may not have any say in the management of our company prior to the consummation of an initial +business combination. +ITEM +1B. UNRESOLVED STAFF COMMENTS +Not +applicable. +ITEM +1C. CYBERSECURITY +We +are a special purpose acquisition company with no business operations. Since our IPO, our sole business activity has been identifying +and evaluating suitable acquisition transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk. +We +have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. Our management is generally +responsible for assessing and managing any cybersecurity threats. If and when any reportable cybersecurity incident arises, our management +shall promptly report such matters to our board of directors for further actions, including regarding the appropriate disclosure, mitigation, +or other response or actions that the board deems appropriate to take. +As +of the date of this report, we have not encountered any cybersecurity incidents since our IPO. +ITEM +2. PROPERTY +We +currently maintain our executive offices at 205 W. 37th Street, New York, NY 10018. The cost for our use of this space +is included in the $10,000 per month fee we will pay to TenX Global Capital LP, an affiliate of our Sponsor, for office space, utilities +and secretarial and administrative services. We consider our current office space adequate for our current operations. +ITEM +3. LEGAL PROCEEDINGS +None. +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +62 +PART +II +ITEM +5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Market +Information +Our +Units, Ordinary Shares, and Rights are each traded on the Nasdaq Global Market (“Nasdaq”) under the symbols “ATMVU,” +“ATMV,” and “ATMVR” respectively. Our units commenced public trading on December 23, 2022, and our Ordinary Shares +and Rights commenced separate trading on January 25, 2023. +Holders +As +of April 14, 2025, we had one holder of record of our Ordinary Shares, one holders of record of our Units, and one holder of record +of our Rights. +Dividends +We +have not paid any cash dividends on our Ordinary Shares to date and do not intend to pay cash dividends. The payment of cash dividends +in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition and will +be within the discretion of our board of directors. Further, if we incur any indebtedness, our ability to declare dividends may be limited +by restrictive covenants we may agree to in connection therewith. +Securities +Authorized for Issuance Under Equity Compensation Plans +None. +Unregistered +Sale of Equity Securities +On +September 28, 2021, our Sponsor acquired 1,437,500 Founder Shares for an aggregate purchase price of $25,000. On January 8, 2022, our +Sponsor acquired an additional 287,500 Founder Shares for no additional consideration, resulting in our Sponsor holding an aggregate +of 1,725,000 Founder Shares. Concurrent with the closing of the Initial Public Offering, our Sponsor sold to Chardan or its designees +132,825 of these Founder Shares at a purchase price of $2.00 per share and an aggregate purchase price of $265,650. +Simultaneously +with the closing of the IPO, pursuant to the Private Placement Unit Purchase Agreement, the Company completed the private sale of 365,000 +Private Placement Units to the Sponsor and 25,000 Private Placement Units to EBC at a purchase price of $10.00 per Private Placement +Unit, generating gross proceeds to the Company of $3,900,000. The Private Placement Units are identical to the Units sold in the IPO. +No underwriting discounts or commissions were paid with respect to such sale. The issuance of the Private Placement Units was made pursuant +to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. No underwriting discounts +or commissions were paid with respect to such sale. The issuance of the Private Placement Units was made pursuant to the exemption from +registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. On December 29, 2022, simultaneously with the sale +of the over-allotment Units, the Company consummated the private sale of an additional 37,904 Private Placement Units to the Sponsor +and 2,596 Private Placements to EBC, generating additional gross proceeds of $405,000. +On +April 18, 2023, the Sponsor transferred an aggregate of 1,035,000 Founder Shares to Peace Capital Limited. +Use +of Proceeds +On +December 22, 2022, the Company consummated the initial public offering of 6,000,000 Units (the “Units” and, with respect +to the Ordinary shares included in the Units sold, the “Public Shares”), including 900,000 Units that were issued pursuant +to the underwriters’ exercise of their over-allotment option in full on December 29, 2022, at $10.00 per Unit, generating gross +proceeds of $73,305,000. +63 +Simultaneously +with the closing of the initial public offering, we consummated the sale of 365,000 Private Placement Units to the Sponsor and 25,000 +Private Placement Units to EBC at a purchase price of $10.00 per Private Placement Unit, generating gross proceeds to the Company of +$3,900,000. On December 29, 2022, simultaneously with the sale of the over-allotment Units, the Company consummated the private sale +of an additional 37,904 Private Placement Units to the Sponsor and 2,596 Private Placements to EBC, generating additional gross proceeds +of $405,000. +The +underwriter was paid a cash underwriting discount of $0.20 per Unit, or $1,725,000 in the aggregate upon the closing of the Initial Public +Offering. +On +June 3, 2022, we issued an unsecured promissory note to our Sponsor (the “Promissory Note”), pursuant to which we could +borrow up to an aggregate of $150,000 to cover expenses related to the initial public offering. On April 11, 2024, we amended and restated the Promissory Note with AlphaVest Holding LP to extend the maturity date +to the earlier of: (i) September 12, 2024 or (ii) promptly after the date of the consummation of the business combination. The Promissory +Note expired on September 12, 2024. +Transaction +costs related to the issuances described above amounted to $3,734,629 consisting of $1,725,000 of underwriting fees, and $2,009,629 of other offering costs. After deducting the underwriting discounts and commissions and offering expenses, the +total net proceeds from the initial public offering and the sale of the Private Placement Units $71,030,000 (or $10.20 per share sold +in the initial public offering) was placed in the Trust Account. +Redemptions +On +December 21, 2023, a special meeting of the stockholders was held to extend the date by which the Company must consummate a business +combination. In connection with this meeting, the stockholders of record were provided the opportunity to exercise their redemption rights. +Holders of 2,174,171 Ordinary Shares properly exercised their rights to redeem their shares for cash at a redemption price of approximately +$10.71 per share, for an aggregate redemption amount of approximately $ 23,282,935.83. Following the redemptions, the Company has 7,006,329 +Ordinary Shares outstanding. +On +December 18, 2024, a special meeting of the stockholders was held to extend the date by which the Company must consummate a business +combination. In connection with this meeting, the stockholders of record were provided the opportunity to exercise their redemption rights. +Holders of 3,151,473 Ordinary Shares properly exercised their rights to redeem their shares for cash at a redemption price of approximately +$11.41 per share, for an aggregate redemption amount of approximately $35,956,676. Following the redemptions, the Company has 3,854,856 +Ordinary Shares outstanding. +Repurchases +None. +ITEM +6. [RESERVED] +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +References +to the “Company,” “our,” “us” or “we” refer to AlphaVest Acquisition Corp. The following +discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the audited +financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” +of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking +statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. +Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results +may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth +under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” “Item 1A. Risk Factors” +and elsewhere in this Annual Report on Form 10-K. +64 +Overview +We +were incorporated in the Cayman Islands on January 14, 2022 for the purpose of effecting a merger, capital stock exchange, asset acquisition, +stock purchase, reorganization or similar business combination with one or more businesses. While we intend to focus our search on businesses +in Asia, we are not limited to a particular industry or geographic region for purposes of consummating an initial business combination. +We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive +discussions, directly or indirectly, with any business combination target. We intend to effectuate our initial business combination using +cash from the proceeds of this offering and the private placement of the private units, the proceeds of the sale of our securities in +connection with our initial business combination, our shares, debt or a combination of cash, stock and debt. +We +expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete +a Business Combination will be successful. +Results +of Operations +We +have not generated any revenues to date, and we will not be generating any operating revenues until the closing and completion of our +initial Business Combination. Our entire activity up to December 31, 2024 has been related to our formation, the Initial Public Offering +and, since the closing of the Initial Public Offering, and a search for a Business Combination target. We have, and expect to continue +to generate income in the form of interest income and unrealized gains on investments held in the Trust Account. We expect to continue +to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), +as well as for due diligence expenses in connection with the search for a Business Combination target. +We +have neither engaged in any operations nor generated any revenues to date. Following the IPO, we will not generate any operating revenues +until after completion of our initial business combination. We generate income in the form of interest income on cash and cash equivalents +after the IPO. After the IPO, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, +accounting and auditing compliance), as well as expenses as we conduct due diligence on prospective business combination candidates. +We expect our expenses to increase substantially in connection with the search for a Business Combination target. +For +the year ended December 31, 2024, we had a net income of $1,710,959, which consists of interest earned on marketable securities held +in Trust Account and bank interest income of $2,674,096, offset by formation and operating costs of $870,821 and unrealized loss on the +investment of $92,316. +For +the year ended December 31, 2023, we had a net income of $2,904,174, which consists of interest earned on marketable securities held +in Trust Account and bank interest income of $3,580,492, offset by formation and operating costs of $676,318. +Liquidity, +Capital Resources, and Going Concern +On +December 22, 2022, we consummated the Initial Public Offering of 6,000,000 Units and, with respect to the ordinary shares included in +the Units sold, the Public Shares at $10.00 per Unit, generating gross proceeds of $60,000,000. Simultaneously with the closing of the +Initial Public Offering, we consummated the sale of 390,000 Private Units at a price of $10.00 per Private Unit in a private placement +to the Sponsor and EBC (365,000 private units to Sponsor and 25,000 private units to EBC), generating gross proceeds of $3,900,000. +On +December 29, 2022, EBC fully exercised their over-allotment option, resulting in an additional 900,000 Units issued for an aggregate +amount of $9,000,000. In connection with the EBC’s full exercise of their over-allotment option, the Company also consummated the +sale of an additional 40,500 Private Units at $10.00 per Private Unit, generating total proceeds of $405,000. +65 +Following +the full exercise of over-allotment option, and the sale of the Private Units, an amount of $70,380,000 ($10.20 per Unit) was placed +in the trust account. The funds held in the Trust Account may be invested in U.S. government securities with a maturity of 185 days or +less or in any open-ended investment company that holds itself out as a money market fund selected by us. We intend to use substantially +all of the funds held in the trust account, including any amounts representing interest earned on the trust account, to complete our +initial business combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete +our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations +of the target business or businesses, make other acquisitions and pursue our growth strategies. +As +of December 31, 2024, we had marketable securities held in the trust account of $18,000,701 consisting of U.S. government securities with a maturity of 185 days or less. Interest income on the balance +in the trust account may be used by us to pay taxes. Through December 31, 2024, we have not withdrawn any interest earned from the trust +account. +As +of December 31, 2024, we had cash of $4,215. We will use these funds primarily to complete the business combination. This includes conducting +ongoing due diligence, obtaining necessary regulatory and shareholder approvals, preparing required filings and disclosures, structuring +and negotiating transaction terms, and covering costs related to legal, financial, and other advisory services. +In +order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, +our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds on a +non-interest bearing basis as may be required. If we complete our initial business combination, we would repay such loaned amounts. In +the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account +to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Other than as described above, +the terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect +to such loans. +If +our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination +are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial +business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination or because +we become obligated to redeem a significant number of our Public Shares upon completion of our initial business combination, in which +case we may issue additional securities or incur debt in connection with such business combination. In addition, we are targeting businesses +larger than we could acquire with the net proceeds of the IPO and the sale of the Private Units, and may as a result be required to seek +additional financing to complete such proposed initial business combination. Subject to compliance with applicable securities laws, we +would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete +our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate +the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional +financing in order to meet our obligations. +There +is no assurance that our plans to consummate a business combination will be successful within the combination period. As a result, there +is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial +statements are issued or are available to be issued. +As +of December 31, 2024, we had cash of $4,215 and a working capital deficit of $1,745,636. We have incurred and expect to continue to incur +significant professional costs to remain as a public traded company and to incur transaction costs in pursuit of a Business Combination. +In connection with our assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) +2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we believe that these +conditions raise substantial doubt about our ability to continue as a going concern. In addition, if we are unable to complete a Business +Combination within the Combination Period and such period is not extended, there will be a liquidation and subsequent dissolution. As +a result, we have determined that such additional condition also raises substantial doubt about our ability to continue as a going concern. +The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty. +66 +Off-Balance +Sheet Financing Arrangements +We +have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2024. We do not +participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable +interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered +into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other +entities, or purchased any non-financial assets. +Related +Party Transactions +Please +refer to Financial Statement Note 5 - Related Parties. +Other +Contractual Obligations +We +do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities reflected on our balance +sheet. +Registration +Rights +The +holders of the Founder Shares, EBC founder shares, Private Placement Units will be entitled to registration rights pursuant to a registration +rights agreement dated July 11, 2023 requiring the Company to register such securities for resale. Subject to certain limitations set +forth in such agreement, the holders of these securities will be entitled to make up to three demands, excluding short form registration +demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights +with respect to registration statements filed subsequent to completion of a Business Combination and rights to require the Company to +register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides +that the Company will not be required to effect or permit any registration or cause any registration statement to become effective until +the securities covered thereby are released from their lock-up restrictions. The Company will bear the expenses incurred in connection +with the filing of any such registration statements. +Business +Combination Marketing Agreement +We +have engaged EBC as an advisor in connection with its Business Combination to assist in holding meetings with the Company stockholders +to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors +that are interested in purchasing its securities in connection with its initial Business Combination and assist with press releases and +public filings in connection with the Business Combination. The Company will pay EBC a service fee for such services upon the consummation +of its initial Business Combination in an amount equal to 3.5% of the gross proceeds of the IPO. In addition, the Company will pay EBC +a service fee in an amount equal to 1.0% of the total consideration payable in the initial Business Combination if it introduces the +Company to the target business with whom it completes an initial Business Combination and the amount will be payable in cash and is due +at the closing date of the initial Business Combination. +Critical +Accounting Estimates +The +preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United +States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure +of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual +results could materially differ from those estimates. We have not identified any critical accounting policies or estimates. +Recent +Accounting Standards +Management +does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect +on our consolidated financial statements. +67 +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We +are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise +required under this item. +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +This +information appears following Item 15 of this Report and is incorporated herein by reference. +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. +None. +ITEM +9A. CONTROLS AND PROCEDURES +Evaluation +of Disclosure Controls and Procedures +As +required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, +evaluated, as of December 31, 2024, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) +and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures +were effective as of December 31, 2024, to provide reasonable assurance that information required to be disclosed by us in reports filed +or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and +forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as +appropriate to allow timely decisions regarding required disclosures. +We +believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives +of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of +fraud or error, if any, within a company have been detected. +Management’s +Report on Internal Controls Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined +in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal control over financial +reporting. Our internal control over financial reporting is a process designed under the supervision of our President and our Chief Financial +Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability +of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted +accounting principles. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of +any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, +or that the degree of compliance with the policies or procedures may deteriorate. +Our +management, including our President and Chief Financial Officer, has conducted an assessment regarding the effectiveness of our internal +control over financial reporting as of December 31, 2024, based on the framework established in Internal Control - Integrated Framework +(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the criteria described +above, management has concluded that our internal control over financial reporting was effective as of December 31, 2024. +Changes +in Internal Control over Financial Reporting +There +were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange +Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal +control over financial reporting. +ITEM +9B. OTHER INFORMATION +None . +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not +applicable. +68 +PART +III +ITEM +10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT +Directors +and Executive Officers +Our +current directors and executive officers are as follows: +Name +Age +Position +Pengfei +Zheng +37 +Chairman +of the Board of Directors +Yong +(David) Yan +51 +Chief +Executive Officer and Director +Song +(Steve) Jing +52 +Chief +Financial Officer +Shu +Wang +37 +Independent +Director +Li +(Helen) Wei +54 +Independent +Director +Jiangang +Luo +56 +Independent +Director +Pengfei +Zheng , our Chairman of the Board of Directors, is an experienced executive in the finance industry with significant experience +in capital raising and project management. Mr. Zheng has been serving as the Chairman of Peace Capital Limited, a company principally +engaged in private equity investment and asset management, since November 2021. Mr. Zheng is the founder and President of Shenzhen Guoxing +Capital, a company that specializes in investments and management, since June 2015. Mr. Zheng received his bachelor’s degree in +Computer Science and Technology from Xiangtan University, China in 2009. Mr. Zheng was selected to serve on the Board of Directors due +to his public company and capital raising experience. +Yong +(David) Yan , our Chief Executive Officer, has been a partner at the Shanghai-based V-Stone Capital since January 2014, where +he oversees fund raising and private equity investments in FinTech, BlockChain, Big Data, Healthcare and other areas. Prior to joining +V-Stone Capital, Dr. Yan was the General Manager and CIO of Hubei Hongtai Industrial Investment Fund, a private equity fund of funds. +Previously, Dr. Yan was a Managing Director of Fosun Group, one of the largest private conglomerates in China, where he was in charge +of investments in the financial sectors, such as online financial platform, securitization and fin-tech, as well as building an in-house +P2P platform. Prior to joining the Fosun Group, Dr. Yan was the General Manager of New Product Development at Lufax, one of the world’s +largest fintech companies, owned by PingAn Group. Prior to moving to China in early 2014, Dr. Yan worked on Wall Street for almost 15 +years, including 10 years at Credit Suisse, as the head of research of the global structured product market. Dr. Yan also worked at other +financial firms such as Merrill Lynch. Dr. Yan is the ex-President of TCFA (The Chinese Finance Association) in New York. He is also +a Vice President of Zhongguancun Private Equity & Venture Capital Association (ZVCA) in Beijing. Mr. Yan holds a Ph.D. in Finance +from the University of Alabama and is a CFA charter holder. Dr. Yan was selected to serve on the Board of Directors due to his fund raising +and private equity experience. +Song +(Steve) Jing , our Chief Financial Officer, is a seasoned international finance and management executive. He has in-depth knowledge +of global capital markets and broad management experience in capital markets operation, finance management, investment, and acquisitions +across multiple cultures. From 2019 to 2021, Mr. Jing served as Chief Financial Officer of Guolian Securities, a mid-sized securities +firm. From 2016 to 2018, Mr. Jing served as Deputy Chief Financial Officer of China Renaissance, a leading boutique Chinese investment +bank. From 2011 to 2016, Mr. Jing served as Executive Director of Finance, Business Development, and Investment of CITIC Securities. +From 2006 to 2010, Mr. Jing served as Vice President of Global Principal Investment (Hedge Fund Investment Unit) of Merrill Lynch & +Co., Inc., where he managed the firm’s hedge fund investment portfolio and analyzed hedge fund performance and operations. From +2002 to 2006, he served as Vice President of Strategy, Planning, and Business Development of Merrill Lynch & Co., where he was responsible +for strategic analysis, financial forecasting, and business solutions. Mr. Jing has a B.S. in Economics and Finance from Pennsylvania +State University and an M.B.A. in Finance and Accounting from the William E. Simon Graduate School of Business Administration of the +University of Rochester. +69 +Shu +Wang , our director, is an experienced professional with over ten years of experience in accounting and auditing. Since January +2021, Mr. Wang has served as the Partner at Zhongshenzhonghuan Accounting Firm (Shenzhen Branch), which is one of the top ten accounting +firms in China. From 2016 to 2020, Mr. Wang served as Partner at the Gongzhengtianye Accounting Firm (Shenzhen Branch), where Mr. Wang +oversaw the auditing of multiple leading domestic companies in China, including China Gas Holding (00384.HK), China Nepstar, a large +drugstore retail chain in China, and Shenzhen Qiwu Interactive Technology Co. Ltd., one of the top unicorn companies in China. Mr. Wang +received a degree from Jiamusi University in China. Mr. Wang is a CICPA charter holder. Mr. Wang was selected to serve on the Board of +Directors due to his accounting and auditing experience. +Li +(Helen) Wei , our director, has served as Professor of Practice at the Shanghai Advanced Institute of Finance (SAIF) of Shanghai +Jiaotong University, and as Assistant Director of the Shanghai Advanced Institute for Financial Research since July 2021. Dr. Wei also +serves as a director of AlphaTime Acquisition Corp, a similarly structured blank check company that has filed for an initial public offering. +Before SAIF, Dr. Wei served in many senior roles in domestic and global financial institutions, including Senior Partner of Kunyuan Asset +Management from January 2018 to November 2020, Managing Director of Alternative Investment at Citic Securities International from 2013 +to 2016, Director of the Global Market at Deutsche Bank from 2010 to 2012, Director of Institutional Investment Group at Citigroup from +2008 to 2010 and Officer & Managing Director of the NYSE Group from 2004 to 2008. In addition to her industry work, Dr. Wei has also +served as an adjunct professor at Tsinghua PBCSF since 2018. Before industry practice, Dr. Wei had been an assistant professor of finance +at Iowa State University, the first senior financial advisor for the Shanghai Stock Exchange and the senior advisor for the Tel Aviv +Stock Exchange. Dr. Wei received her Ph.D. in finance from the University of Utah and MS and BS from Tsinghua University Beijing. Dr. +Wei was selected to serve on the Board of Directors due to her experience in domestic and financial institutions. +Jiangang +Luo, our director, has been the manager of Cleantech Global Limited, an investment consulting firm, since 2014, and the president +of Prime Science & Technology, Inc., a computer/software consulting and IT outsourcing company, since 2006. Since 2021, he has also +been the president of PNE Limited Partner LLC and Luo & Long General Partner LLC, which are special purpose vehicles that were established +for the sole purpose of investing in Princeton NuEnergy, a US based cleantech company. He has also served as Chief Executive Officer +of Bowen Acquisition Corporation, a blank check company, since March 2023. From 2011 to 2016, he served as managing partner of Faith +Asset Management LLC, a global investment firm focused on the clean energy sector. From 2000 to 2006, he worked for Oracle as a Principal +Consultant. Before 2000, he worked as a senior information system professional in various Fortune 500 companies including China Resources +Group and Liz Claiborne. Mr. Luo also served as an executive for many non-profit organizations such as Chairman of the Tsinghua Alumni +Association in New York and President of New Jersey Chinese Computer Professionals Society. Mr. Luo is a member of Tsinghua Entrepreneur +& Elite Club. He has invested in many cleantech/fintech companies over the last 10 years. Mr. Luo received degrees in Applied Mathematics +and Computer Science from Tsinghua University, a Computer Science Masters degree from New Jersey Institute of Technology and a masters +degree in Computational Mathematics from Tsinghua University. +Number +and Terms of Office of Officers and Directors +We +currently have four directors. Our board of directors is divided into three classes with only one class of directors being elected in +each year and each class (except for those directors appointed prior to our first annual meeting of shareholders) serving a three-year +term. The term of office of the first class of directors, consisting of Li (Helen) Wei and Jiangang Luo, will expire at our first annual +meeting of shareholders. The term of office of the second class of directors, consisting of Yong (David) Yan, will expire at the second +annual meeting of shareholders. The term of office of the third class of directors, consisting of Pengfei Zheng and Shu Wang, will expire +at the third annual meeting of shareholders. We may not hold an annual meeting of shareholders until after we consummate our initial +business combination. +Our +officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms +of office. Our board of directors is authorized to appoint persons to the offices set forth in our Second Amended and Restated Memorandum +and Articles of Association, as amended, as it deems appropriate. Our Second Amended and Restated Memorandum and Articles of Association, +as amended, provide that our officers may consist of one or more Chairmen of the Board, one or more Chief Executive Officers, a President, +a Chief Financial Officer, Vice Presidents, Secretary, Treasurer, Assistant Secretary, and such other offices as may be determined by +the board of directors. +70 +Director +Independence +NASDAQ +listing standards require that a majority of our board of directors be independent, subject to certain phase-in provisions. An “independent +director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual +having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise +of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that each of Shu Wang, +Li (Helen) Wei and Jiangang Luo are “independent directors” as defined in the NASDAQ listing standards and applicable SEC +rules. We are utilizing the phase-in exception provided by NASDAQ and will add a third independent director within the phase-in period +as required by NASDAQ. Our independent directors will have regularly scheduled meetings at which only independent directors are present. +Officer +and Director Compensation +None +of our officers or directors has received any cash compensation for services rendered to us. Other than as described elsewhere in this +Form 10-K, no compensation of any kind, including finder’s and consulting fees, will be paid to our Initial Shareholders or any +of their respective affiliates, for services rendered prior to or in connection with the completion of our initial business combination, +although we may consider cash or other compensation to officers or advisors we may hire subsequent to our Initial Public Offering to +be paid either prior to or in connection with our initial business combination. In addition, our officers, directors, or any of their +respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as +identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review +on a quarterly basis all payments that were made to our Initial Shareholders or their affiliates. +After +the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting +or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in +the tender offer materials or proxy solicitation materials furnished to our shareholders in connection with a proposed business combination. +We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of +management. It is unlikely the amount of such compensation will be known at the time of the proposed business combination, because the +directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to +be paid to our officers will be determined, or recommended to the board of directors for determination, either by a compensation committee +constituted solely by independent directors or by a majority of the independent directors on our board of directors. +Following +a business combination, to the extent we deem it necessary, we may seek to recruit additional managers to supplement the incumbent management +team of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers +will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Committees +of the Board of Directors +Our +board of directors has two standing committees: an audit committee and a compensation committee. Subject to phase-in rules and a limited +exception, the rules of NASDAQ and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely +of independent directors, and the rules of NASDAQ require that the compensation committee of a listed company be comprised solely of +independent directors. +Audit +Committee +Shu +Wang, Li (Helen) Wei and Jiangang Luo serve as members of our audit committee, with Shu Wang serving as the Chairman of the audit committee. +Under the NASDAQ listing standards and applicable SEC rules, we are required to have at least three members of the audit committee, all +of whom must be independent. Each such person meets the independent director standard under NASDAQ listing standards and under Rule 10-A-3(b)(1) +of the Exchange Act. +Each +member of the audit committee is financially literate and our board of directors has determined that Shu Wang and Jiangang Luo qualifies +as an “audit committee financial expert” as defined in applicable SEC rules. +71 +We +adopted an audit committee charter, which will detail the principal functions of the audit committee, including: +● +the +appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent +registered public accounting firm engaged by us; +● +pre-approving +all audit and permitted non-audit services to be provided by the independent auditors or any other registered public accounting firm +engaged by us, and establishing pre-approval policies and procedures; +● +reviewing +and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence; +● +setting +clear hiring policies for employees or former employees of the independent auditors; +● +setting +clear policies for audit partner rotation in compliance with applicable laws and regulations; +● +obtaining +and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal +quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, +of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years +respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; +● +reviewing +and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC +prior to us entering into such transaction; and +● +reviewing +with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including +any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues +regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated +by the Financial Accounting Standards Board, the SEC or other regulatory authorities. +Compensation +Committee +Li +(Helen) Wei, Shu Wang and Jiangang Luo serve as members of our compensation committee, with Li (Helen) Wei serving as the chairman of +the compensation committee. Under the NASDAQ listing standards and applicable SEC rules, we are required to have at least two members +of the compensation committee, all of whom must be independent. Each such person meets the independent director standard under NASDAQ +listing standards applicable to members of the compensation committee. +72 +We +adopted a compensation committee charter, which will detail the principal functions of the compensation committee, including: +● +reviewing +and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, +evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the +remuneration (if any) of our Chief Executive Officer based on such evaluation; +● +reviewing +and approving on an annual basis the compensation of all of our other officers; +● +reviewing +on an annual basis our executive compensation policies and plans; +● +implementing +and administering our incentive compensation equity-based remuneration plans; +● +assisting +management in complying with our proxy statement and annual report disclosure requirements; +● +approving +all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees; +● +if +required, producing a report on executive compensation to be included in our annual proxy statement; and +● +reviewing, +evaluating, and recommending changes, if appropriate, to the remuneration for directors. +Notwithstanding +the foregoing, as indicated above, other than reimbursement of expenses, no compensation of any kind, including finders, consulting or +other similar fees, will be paid to any of our existing shareholders, officers, directors or any of their respective affiliates, prior +to, or for any services they render in order to complete the consummation of a business combination although we may consider cash or +other compensation to officers or advisors we may hire subsequent to our Initial Public Offering to be paid either prior to or in connection +with our initial business combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the +compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into +in connection with such initial business combination. +The +charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, +legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such +adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the +compensation committee will consider the independence of each such adviser, including the factors required by NASDAQ and the SEC. +Director +Nominations +We +do not have a standing nominating committee. In accordance with Rule 5605(e)(2) of the NASDAQ Rules, a majority of the independent directors +may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors +can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing +nominating committee. As there is no standing nominating committee, we do not have a nominating committee charter in place. +The +board of directors will also consider director candidates recommended for nomination by our shareholders during such times as they are +seeking proposed nominees to stand for election at the next annual meeting of shareholders (or, if applicable, a special meeting of shareholders). +Our shareholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our +Second Amended and Restated Memorandum and Articles of Association, as amended. +We +have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. +In general, in identifying and evaluating nominees for director, our board of directors considers educational background, diversity of +professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent +the best interests of our shareholders. +73 +Compensation +Committee Interlocks and Insider Participation +None +of our officers currently serves, and in the past year have not served, as a member of the compensation committee of any entity that +has one or more officers serving on our board of directors. +Code +of Ethics +We +adopted a Code of Ethics applicable to our directors, officers and employees. Copies of our Code of Ethics and our audit and compensation +committee charters are filed as exhibits to our Registration Statement. You will be able to review these documents by accessing our public +filings at the SEC’s web site at www.sec.gov . In addition, a copy of the Code of Ethics will be provided without charge +upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report +on Form 8-K. +Conflicts +of Interest +Except +as disclosed herein, we do not believe any conflict currently exists between us and our Initial Shareholders, and affiliates of our Initial +Shareholders may compete with us for acquisition opportunities. If such entities decide to pursue an opportunity, we may be precluded +from procuring such opportunity. In addition, investment ideas generated within our Initial Shareholders may be suitable for both us +and for an affiliate of Initial Shareholders and may be directed to such entity rather than to us. Neither our Initial Shareholders nor +members of our management team who are also employed by or affiliated with our Initial Shareholders will have any obligation to present +us with any opportunity for a potential business combination of which they become aware, unless presented to such member specifically +in his or her capacity as an officer or director of the company. Our Initial Shareholders and/or our management team, in their capacities +as employees or affiliates of our Initial Shareholders or in their other endeavors, may be required to present potential business combinations +to future Initial Shareholders’ affiliates or third parties, before they present such opportunities to us. +Each +of our officers and directors presently has, and any of them in the future may have additional, fiduciary, or contractual obligations +to other entities pursuant to which such officer or director is or will be required to present business combination opportunities to +such entity. Accordingly, in the future, if any of our officers or directors becomes aware of a business combination opportunity which +is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary +or contractual obligations to present such opportunity to such entity. We do not believe, however, that any fiduciary duties or contractual +obligations of our officers arising in the future would materially undermine our ability to complete our business combination. Our Second +Amended and Restated Memorandum and Articles of Association, as amended, provides that we renounce our interest in any corporate opportunity +offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director +or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be +reasonable for us to pursue. +Our +officers may not become an officer or director of any other special purpose acquisition company that publicly files a registration statement +for its initial public offering before we enter into a definitive agreement regarding our initial business combination or we have failed +to complete our initial business combination within 24 months from the closing of our Initial Public Offering (or up to 33 months, if +we extend the time to complete a business combination as described in our Registration Statement). +74 +Potential +investors should also be aware of the following other potential conflicts of interest: +● +None +of our officers or directors is required to commit his or her full time to our affairs and, accordingly, may have conflicts of interest +in allocating his or her time among various business activities. +● +In +the course of their other business activities, our officers and directors may become aware of investment and business opportunities +which may be appropriate for presentation to us as well as the other entities with which they are affiliated. Our management may +have conflicts of interest in determining to which entity a particular business opportunity should be presented. +● +Our +Initial Shareholders have agreed to waive their redemption rights with respect to any Founder Shares, private shares and any public +shares held by them in connection with the consummation of our initial business combination. Additionally, our Initial Shareholders +have agreed to waive their redemption rights with respect to any Founder Shares and private shares held by them if we fail to consummate +our initial business combination within 24 months from the closing of our Initial Public Offering (or up to 33 months, if we extend +the time to complete a business combination as described in our Registration Statement). If we do not complete our initial business +combination within such applicable time period, the proceeds of the sale of the Private Placement Units held in the trust account +will be used to fund the redemption of our public shares, and the Private Placement Units and underlying securities will be worthless. +The Founder Shares will not, subject to certain exceptions, be transferred, assigned, sold or released from escrow until six months +after the date of the consummation of our initial business combination, or earlier, if, subsequent to our initial business combination, +we consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders +having the right to exchange their shares for cash, securities or other property. Since members of our management may directly or +indirectly own Ordinary Shares and Rights following our Initial Public Offering, our officers and directors may have a conflict of +interest in determining whether a particular target business is an appropriate business with which to complete our initial business +combination. +● +Our +officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention +or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect +to our initial business combination. +● +Our +Initial Shareholders may have a conflict of interest with respect to evaluating a business combination and financing arrangements +as we may obtain loans from our Initial Shareholders or an affiliate of our Initial Shareholders to finance transaction costs in +connection with an intended initial business combination. Up to $150,000 of such loans may be convertible into working capital units +at a price of $10.00 per unit at the option of the lender. Such working capital units would be identical to the Private Placement +Units sold in the private placement. +The +conflicts described above may not be resolved in our favor. +In +general, officers and directors of a corporation incorporated under the laws of Cayman Islands are required to present business opportunities +to a corporation if: +● +the +corporation could financially undertake the opportunity; +● +the +opportunity is within the corporation’s line of business; and +● +it +would not be fair to our company and its shareholders for the opportunity not to be brought to the attention of the corporation. +Accordingly, +as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business +opportunities meeting the above-listed criteria to multiple entities. Furthermore, our Second Amended and Restated Memorandum and Articles +of Association, as amended, provides that we renounce our interest in any corporate opportunity offered to any director or officer unless +such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity +is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent +the director or officer is permitted to refer that opportunity to us without violating another legal obligation. +75 +We +are not prohibited from pursuing an initial business combination with a company that is affiliated with our Initial Shareholders or any +affiliate of them, subject to certain approvals and consents. In the event we seek to complete our initial business combination with +such a company, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or from +another independent entity that commonly renders valuation opinions, that such an initial business combination is fair to our company +from a financial point of view. +In +the event that we submit our initial business combination to our shareholders for a vote, our Initial Shareholders have agreed to vote +any Founder Shares and private shares held by them and any public shares purchased during or after the offering in favor of our initial +business combination. +Limitation +on Liability and Indemnification of Officers and Directors +Cayman +Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification +of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public +policy, such as to provide indemnification against willful default, willful neglect, civil fraud or the consequences of committing a +crime. Our Second Amended and Restated Memorandum and Articles of Association, as amended, provides for indemnification of our officers +and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through +their own actual fraud, willful default or willful neglect. We entered into agreements with our directors and officers to provide contractual +indemnification in addition to the indemnification provided for in our Second Amended and Restated Memorandum and Articles of Association, +as amended. We expect to purchase a policy of directors’ and officers’ liability insurance that insures our officers and +directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations +to indemnify our officers and directors. +Our +officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, +and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, +any services provided to us and will not seek recourse against the trust account for any reason whatsoever (except to the extent they +are entitled to funds from the trust account due to their ownership of public shares). Accordingly, any indemnification provided will +only be able to be satisfied by us if (i) we have sufficient funds outside of the trust account or (ii) we consummate an initial business +combination. +We +believe that these provisions, the insurance, and the indemnity agreements are necessary to attract and retain talented and experienced +officers and directors. +Insofar +as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us +pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy +as expressed in the Securities Act and is therefore unenforceable. +ITEM +11. EXECUTIVE COMPENSATION +Executive +Compensation +None +of our officers or directors have received or, prior to our initial business combination, will receive any cash compensation for services +rendered to us. Commencing on the date that our securities are first listed on the Nasdaq through the earlier of consummation of our +initial business combination and our liquidation, we will reimburse our Sponsor for office space, utilities and secretarial and administrative +services provided to us. In addition, our Sponsor, officers and directors, or any of their respective affiliates, will be reimbursed +for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and +performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were +made to our Sponsor, officers, directors or our or any of their affiliates. +After +the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting, +management or other compensation from the combined company. Additionally, certain directors may receive additional compensation in the +form of equity interests of the Sponsor for their services. All compensation will be fully disclosed to shareholders, to the extent then +known, in the tender offer materials or proxy solicitation materials furnished to our shareholders in connection with a proposed business +combination. It is unlikely the amount of such compensation will be known at the time, because the directors of the post-combination +business will be responsible for determining executive officer and director compensation. Any compensation to be paid to our officers +after the completion of our initial business combination will be determined by a compensation committee constituted solely by independent +directors. +We +are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment. The +existence or terms of any such employment or consulting arrangements may influence our management’s motivation in identifying or +selecting a target business, and we do not believe that the ability of our management to remain with us after the completion of our initial +business combination should be a determining factor in our decision to proceed with any potential business combination. +76 +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS +Unless +otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all Ordinary +Shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the Private Placement Units +as these units are not exercisable within 60 days of the date of this Form 10-K. +The +following table is based on 3,854,856 Ordinary Shares outstanding at April 14, 2025. Unless otherwise indicated, it is believed that +all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by +them. +Name +and Address of Beneficial Owner (1) +Number +of Shares +Beneficially +Owned +Approximate +Percentage of Outstanding Ordinary shares +AlphaVest +Holding LP (2) +851,162 +22.1 % +Peace +Capital Limited (3) +1,276,742 +33.1 % +Pengfei +Zheng (2) +2,127,324 +55.2 % +Yong +(David) Yan (4) +— +— +Song +(Steve) Jing (4) +— +— +Shu +Wang +— +— +Li +(Helen) Wei (4) +— +— +Jiangang +Luo +— +— +EarlyBirdCapital, +Inc. +125,000 +3,24 % +All +executive officers and directors as a group (6 individuals) (4) +2,127,904 +55.2 % +Mizuho +Financial Group, Inc. (5) +560,368 +14.54 % +Meteora +Capital, LLC (6) +318,697 +8.27 % +Wolverine +Asset Management, LLC (7) +200,000 +5.19 % +(1) +Unless +otherwise noted, the business address of each of the following entities or individuals is c/o AlphaVest Acquisition Corp, 420 Lexington +Avenue, Room 2446, New York NY 10170. +(2) +Our +Sponsor is the record holder of Founder Shares reported herein. Mr. Zheng is the sole director and shareholder of Peace Capital Limited, +which owns 62.5% of the sponsor entity. Accordingly, he is deemed to be the beneficial owner of such shares. This includes the 345,000 +Ordinary Shares, which TenX Global Capital LP holds through our Sponsor. +(3) +Peace +Capital Limited is the record holder of the Founder Shares reported herein. Pengfei Zheng +is the sole director and shareholder of Peace Capital Limited. Accordingly, he is deemed +to be the beneficial owner of such shares. +(4) +Does +not include any shares indirectly owned by this individual as a result of his or her partnership interest in our Sponsor. +(5) +According +to a Schedule 13G filed with the SEC on November 14, 2024, Mizuho Financial Group, Inc. owns 560,368 Ordinary Shares. +(6) +According +to a Schedule 13G filed with the SEC on November 14, 2024, Meteora Capital, LLC owns 365,298 Ordinary Shares. +(7) +According +to a Schedule 13G filed with the SEC on October 15, 2024, Wolverine Asset Management, LLC owns 445,598 Ordinary Shares. +77 +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +Founder +Shares +On +February 7, 2022, our Sponsor acquired 1,725,000 Founder Shares for an aggregate purchase price of $25,000. These Founder Shares include +an aggregate of up to 225,000 Founder Shares that are subject to forfeiture to the extent that the underwriters’ over-allotment +option is not exercised in full or in part, so that the Founder Shares will represent 20% of our issued and outstanding shares after +this offering (excluding the private shares and the EBC Founder Shares). On December 29, 2022, EBC exercised its over-allotment option +in full resulting in no SPAC Founder Shares being forfeited. +We +also issued an aggregate of 125,000 EBC Founder Shares to EBC on July 11, 2022 for an aggregate purchase price of $1,750. The EBC Founder +Shares cannot be sold, transferred or assigned (except to the same permitted transferees as the Founder Shares and provided the transferees +agree to the same terms and restrictions as the permitted transferees of the Founder Shares must agree to, each as described herein) +until the consummation of an initial business combination. +On +April 18, 2023, the Sponsor transferred an aggregate of 1,035,000 Founder Shares to Peace Capital Limited. +Private +Placement +Simultaneously +with the closing of the IPO, the Company completed the sale of 365,000 Private Placement Units to our Sponsor at a purchase price of +$10.00 per Private Placement Unit, and 25,000 Private Placement Units to EBC at a purchase price of $10.00 per Private Placement Unit, +generating gross proceeds to the Company of $3,900,000 for all Private Units. Simultaneously with the closing of the Overallotment, the +Company completed the private sale of an additional 37,904 Private Placement Units at a purchase price of $10.00 per Private Placement +Unit, and an additional 2,596 Private Placement Unit to EBC, at a purchase price of $10.00 per Private Placement Unit, generating additional +gross proceeds to the Company of $405,000. If the Company does not complete a Business Combination within the Combination Period, the +proceeds from the sale of the Private Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements +of applicable law) and the Private Placement Units will expire worthless. +Service +Arrangements +On +December 22, 2022, we entered into an administrative services agreement with our Sponsor, pursuant to which the Sponsor agreed to make +available to the Company certain general and administrative services, including office space, utilities and administrative services, +as the Company may require from time to time. The Company has agreed to pay to TenX Global Capital LP, an affiliate of the Sponsor, $10,000 +per month for such administrative services. For the year ended December 31, 2024, the Company incurred and paid $120,000 in such fees. +Conflicts +of Interest +Certain +of our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations +to other entities pursuant to which such officer or director is or will be required to present business combination opportunities to +such entity. Accordingly, in the future, if any of our officers or directors becomes aware of a business combination opportunity which +is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary +or contractual obligations to present such opportunity to such entity. We do not believe, however, that any fiduciary duties or contractual +obligations of our officers arising in the future would materially undermine our ability to complete our Business Combination. +78 +Promissory +Note +On +June 3, 2022, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the +Company could borrow up to an aggregate of $150,000 to cover expenses related to the Initial Public Offering. On April 11, 2024, the Company amended and restated the Promissory Note with AlphaVest Holding LP to extend the maturity +date to the earlier of: (i) September 12, 2024 or (ii) promptly after the date of the consummation of the business combination. The Promissory +Note expired on September 12, 2024. As of December 31, 2024 and 2023, $0 was outstanding. +On +December 21, 2023, the Company issued a promissory note to Alphavest Holding LP, one of the Sponsors, pursuant to which the Company could +borrow an aggregate of $165,000 (the “Extension Note”) to cover expenses in connection with the extension of Business Combination +Period. Principal of this Extension Note may be drawn down from time to time prior to the Maturity Date upon written request from the +Company. On April 15, 2024, the Company amended and restated the Extension Note to increase the principal amount to $715,000 and extend +the maturity date to the earlier of (i) September 12, 2024 or (ii) promptly after the date of the consummation of the business combination. +On October 25, 2024, the Company amended and restated the Extension Note with AlphaVest Holding LP to extend the maturity date to promptly +after the date of the consummation of the business combination. +On +March 12, 2024, the Company issued a promissory note to TenX Global Capital LP (the “Promissory Note 1”), pursuant to which +the Company could borrow up to an aggregate of $400,000. The entire unpaid principal balance of this Note shall be payable on the earlier +of: (i) September 12, 2024 (six (6) months from the issuing of this Note) or (ii) promptly after the date on which Maker consummates +an initial business combination (a “Business Combination”) (such earlier date, the “Maturity Date”) (as described +in its initial public offering prospectus dated December 19, 2022 (the “Prospectus”)). On October 21, 2024, the Company amended +and restated Promissory Note 1 to extend the maturity date to the earlier of: (i) December 12, 2024 or (ii) promptly after the date of +the consummation of the business combination. As of December 31, 2024, $287,046 was outstanding. On January 6, 2025, the Company entered +into the second amended and restated promissory note to extend the maturity date to promptly after the date of the consummation of the +business combination. +On +May 2, 2024, the Company issued a promissory note to AMC (defined below) (the “Extension Note 2”), pursuant to which the +Company could borrow an aggregate of $440,000 to cover expenses in connection with the extension of Business Combination Period. The +Extension Note 2 bears no interest. The entire unpaid principal balance of this Note shall be payable on the earlier of: (i) December +12, 2024 or (ii) promptly after the date on which Maker consummates an initial business combination. Upon receiving due notification +by the Company of the closing of a business combination, AMC shall convert the unpaid principal balance under Extension Note 2 into a +number of shares of non-transferable, non-redeemable, Ordinary Shares of the Company equal to: (x) the principal amount of this Extension +Note 2 being converted, divided by (y) the conversion price of Ten Dollars ($10.00), rounded up to the nearest whole number of shares, +with such conversion to be effective immediately prior to the closing the such business combination. As of December 31, 2024, $440,000 +was outstanding. On January 6, 2025, the Company amended and restated Extension Note 2 to extend the maturity date to promptly after +the date of the consummation of the business combination. On March 25, 2025, the Company further amended and restated Extension Note 2 to extend the principal amount of the +note to $935,000. +On +May 2, 2024, the Company issued a promissory note to AMC (the “Promissory Note 2”), pursuant to which the Company could borrow +up to an aggregate of $126,000. The Promissory Note 2 bears no interest. The entire unpaid principal balance of this Promissory Note +2 shall be payable on the earlier of: (i) December 12, 2024 or (ii) promptly after the date on which Maker consummates an initial business +combination. Upon receiving due notification by the Company of the closing of a business combination, AMC shall convert the unpaid principal +balance under Promissory Note 2 into a number of shares of non-transferable, non-redeemable, Ordinary Shares of the Company equal to: +(x) the principal amount of this Promissory Note 2 being converted, divided by (y) the conversion price of Ten Dollars ($10.00), rounded +up to the nearest whole number of shares, with such conversion to be effective immediately prior to the closing the such business combination. +As of December 31, 2024, $126,000 was outstanding. On January 6, 2025, the Company amended and restated Promissory Note 2 to extend +the maturity date to promptly after the date of the consummation of the business combination. +On +October 11, 2024, the Company issued a promissory note to AMC (the “Promissory Note 3”), pursuant to which the Company could +borrow up to an aggregate of $100,000. The entire unpaid principal balance of this Promissory Note 3 shall be payable on the earlier +of: (i) December 31, 2024 or (ii) promptly after the date on which Maker consummates an initial business combination. Upon receiving +due notification by the Company of the closing of a business combination, potential target shall convert the unpaid principal balance +under Promissory Note 3 into a number of shares of non-transferable, non-redeemable, Ordinary Shares of the Company equal to: (x) the +principal amount of this Promissory Note 3 being converted, divided by (y) the conversion price of Ten Dollars ($10.00), rounded up to +the nearest whole number of shares, with such conversion to be effective immediately prior to the closing the such business combination. +As of December 31, 2024, $57,449 was outstanding. On January 6, 2025, the promissory note was amended and restated to (i) extend the +maturity date to promptly after the date the business combination is consummated, and (ii) increase the principal amount to $200,000. +On April 13, 2025, the Company further amended and restated the promissory note to extend the principal amount of the note to $350,000. +79 +Registration +Rights +The +holders of Founders Shares and Private Placement Units will be entitled to registration rights pursuant to a registration rights agreement +signed on December 22, 2022. The holders of these securities are entitled to make up to three demands, excluding short form demands, +that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect +to registration statements filed subsequent to our completion the Company’s initial business combination. The Company will bear +the expenses incurred in connection with the filing of any such registration statements. +No +compensation of any kind, including finder’s and consulting fees, will be paid by the company to our Sponsor, executive officers +and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of an initial +business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities +on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit +committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or our or their affiliates. +In +addition, in order to finance transaction costs in connection with an intended initial business combination, our Sponsor or an affiliate +of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest +basis. If we complete an initial business combination, we would repay such loaned amounts. In the event that the initial business combination +does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds +from our trust account would be used for such repayment. Up to $150,000 of such loans may be convertible into Units, or working capital +units, at a price of $10.00 per unit at the option of the lender. The working capital units would be identical to the Private Placement +Units sold in the private placement. Except as set forth above, the terms of such loans, if any, have not been determined and no written +agreements +Policy +for Approval of Related Party Transactions +The +audit committee of our board of directors adopted a policy setting forth the policies and procedures for its review and approval or ratification +of “related party transactions.” A “related party transaction” is any consummated or proposed transaction or +series of transactions: (i) in which the company was or is to be a participant; (ii) the amount of which exceeds (or is reasonably expected +to exceed) the lesser of $120,000 or 1% of the average of the company’s total assets at year-end for the prior two completed fiscal +years in the aggregate over the duration of the transaction (without regard to profit or loss); and (iii) in which a “related party” +had, has or will have a direct or indirect material interest. “Related parties” under this policy include: (i) our directors, +nominees for director or executive officers; (ii) any record or beneficial owner of more than 5% of any Class of our voting securities; +(iii) any immediate family member of any of the foregoing if the foregoing person is a natural person; and (iv) any other person who +maybe a “related person” pursuant to Item 404 of Regulation S-K under the Exchange Act. Pursuant to the policy, the audit +committee will consider (i) the relevant facts and circumstances of each related party transaction, including if the transaction is on +terms comparable to those that could be obtained in arm’s-length dealings with an unrelated third party, (ii) the extent of the +related party’s interest in the transaction, (iii) whether the transaction contravenes our code of ethics or other policies, (iv) +whether the audit committee believes the relationship underlying the transaction to be in the best interests of the company and its stockholders +and (v) the effect that the transaction may have on a director’s status as an independent member of the board and on his or her +eligibility to serve on the board’s committees. Management will present to the audit committee each proposed related party transaction, +including all relevant facts and circumstances relating thereto. Under the policy, we may consummate related party transactions only +if our audit committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy. The policy does +not permit any director or executive officer to participate in the discussion of, or decision concerning, a related person transaction +in which he or she is the related party. +80 +Director +Independence +Nasdaq +listing standards require that a majority of our board of directors be independent. An “independent director” is defined +generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship +which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment +in carrying out the responsibilities of a director. Our board of directors has determined that Li Wei and Shu Wang are “independent +directors” as defined in Nasdaq listing standards and applicable SEC rules. Our independent directors have regularly scheduled +meetings at which only independent directors are present. +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. +The +firm of UHY LLP, or UHY, currently acts as our independent registered public accounting firm. The following is a summary of fees paid +to UHY for services rendered. +Audit +Fees . Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and +services that are normally provided by UHY in connection with regulatory filings. The aggregate fees billed by UHY for professional services +rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective +periods and other required filings with the SEC for the year ended December 31, 2024 and 2023 totaled $128,575 and $112,867, respectively. +Audit-Related +Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance +of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest +services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. The +aggregate fees billed by UHY for the review of our registration statements and other regulatory documents filed with SEC for the year +ended December 31, 2024 and 2023 totaled $9,960 and $0, respectively. +Tax +Fees . For the year ended December 31, 2024 and 2023, our independent registered public accounting firms did not render services to +us for tax compliance, tax advice and tax planning. +All +Other Fees . For the year ended December 31, 2024 and 2023, there were no fees billed for products and services provided by our independent +registered public accounting firm other than those set forth above. +81 +ITEM +15. EXHIBITS, FINANCIAL STATEMENTS, AND SCHEDULES +(a) +The +following documents are filed as part of this report: +Exhibit +No. +Description +1.1* +Underwriting Agreement, dated December 19, 2022, by and between the Company and EarlyBirdCapital, Inc., as representative of the underwriters. (incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +2.1* +Business Combination Agreement, dated as of August 16, 2024 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 22, 2024). +3.1* +Memorandum and Articles of Association. (incorporated by reference to Exhibit 3.1 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +3.2* +Amended and Restated Memorandum and Articles of Association. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +3.3* +Second Amended and Restated Memorandum and Articles of Association (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on December 28, 2023). +3.4* +Amendment to the Second Amended and Restated Memorandum and Articles of Association, dated December 18, 2024. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 19, 2024). +4.1* +Specimen Unit Certificate. (incorporated by reference to Exhibit 4.1 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +4.2* +Specimen Ordinary Share Certificate. (incorporated by reference to Exhibit 4.2 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +4.3* +Specimen Rights Certificate(incorporated by reference to Exhibit 4.3 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +4.4* +Rights Agreement, dated December 19, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as rights agent. (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +4.5* +Description of Securities (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2023). +10.1* +Promissory Note, dated June 3, 2022, issued to AlphaVest Management LLC. (incorporated by reference to Exhibit 10.1 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +10.2* +Letter Agreement, dated December 19, 2022, by and among the Company, its executive officers, its directors and AlphaVest Holding LP. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.3* +Investment Management Trust Agreement, dated December 19, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as trustee. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.4* +Registration Rights Agreement, dated December 19, 2022, by and among the Company, AlphaVest Holding, LP and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.5* +Securities Subscription Agreement, between the Registrant and the Sponsor dated February 7, 2022. (incorporated by reference to Exhibit 10.5 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +10.6* +Securities Subscription Agreement, between the Registrant and EarlyBirdCapital, Inc. dated July 11, 2022. (incorporated by reference to Exhibit 10.6 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +10.7* +Private Placement Unit Purchase Agreement, dated December 19, 2022, by and between the Company and AlphaVest Holding LP (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.8* +Private Placement Units Purchase Agreement, dated December 19, 2022, by and between the Company and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.9* +Form of Indemnity Agreement. (incorporated by reference to Exhibit 10.9 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +10.10* +Administrative Services Agreement, dated December 19, 2022, by and between the Company and AlphaVest Holding, LP. (incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.11* +Share Escrow Agreement, dated December 19, 2022, by and among the Company, Continental Stock Transfer & Trust Company and the Initial Shareholders party thereto. (incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022). +10.12* +A Business Combination Marketing Agreement, dated December 19, 2022, by and between the Company and EarlyBirdCapital, Inc. (incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K, filed with the SEC on December 22, 2022) +82 +10.13* +Amendment to the Investment Management Trust Agreement, dated December 21, 2023, by and between AlphaVest Acquisition Corp and Continental Stock Transfer & Trust Company. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on December 28, 2023). +10.14* +Form of Sponsor Support Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on August 22, 2024). +10.15* +Form of Transaction Support Agreement (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on August 22, 2024). +10.16* +Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on August 22, 2024). +10.17* +Amendment to the Investment Management Trust Agreement, dated December 18, 2024, by and between AlphaVest Acquisition Corp and Continental Stock Transfer & Trust Company. (incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 19, 2024). +10.18 +Amended and Restated Promissory Note dated January 6, 2025 by and between AlphaVest Acquisition Corp and TenX Global Capital LP. +10.19 +Amended and Restated Promissory Note dated January 6, 2025 by and between AlphaVest Acquisition Corp and AMC Corporation. +10.20 +Amended and Restated Promissory Note dated January 6, 2025 by and between AlphaVest Acquisition Corp and AMC Corporation. +10.21 +Amended and Restated Promissory Note dated January 6, 2025 by and between AlphaVest Acquisition Corp and AMC Corporation. +10.22* +Termination, dated as of March 18, 2024, delivered by AlphaVest Acquisition Corp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 25, 2024). +10.23 +Second Amended and Restated Promissory Note dated March 25, 2025 by and between AlphaVest Acquisition Corp and AMC Corporation. +10.24 +Second Amended and Restated Promissory Note dated April 15, 2025 by and between AlphaVest Acquisition Corp and AMC Corporation. +14.1* +Form of Code of Ethics. (incorporated by reference to Exhibit 14.1 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022). +19.1 +Insider Trading Policy +21.1** +List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 16, 2024) +31.1** +Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2** +Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1*** +Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 +32.2*** +Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 +97.1* +AlphaVest Acquisition Corporation Clawback Policy. (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K for the year ended December 13, 2023, filed with the SEC on April 16, 2024. +101.INS** +Inline +XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within +the inline XBRL document) +101.SCH** +Inline +XBRL Taxonomy Extension Schema +101.CAL** +Inline +XBRL Taxonomy Extension Calculation Linkbase +101.DEF** +Inline +XBRL Taxonomy Extension Definition Linkbase +101.LAB** +Inline +XBRL Taxonomy Extension Label Linkbase +101.PRE*104** +Inline +XBRL Taxonomy Extension Presentation Linkbase +Cover +Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +* +Previously +filed. +** +Filed +herewith. +*** +Furnished herewith. +Item +16. FORM 10-K SUMMARY +None. +83 +SIGNATURES +Pursuant +to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Form 10-K to be signed on its behalf +by the undersigned, thereunto duly authorized, in the Cayman Islands, on the 14th day of April, 2025. +ALPHAVEST +ACQUISITION CORP +By: +/s/ +Yong (David) Yan +Name: +Yong +(David) Yan +Title: +Principal +Executive Officer +Pursuant +to the requirements of the Securities Act of 1933, as amended, this Annual Report has been signed below by the following persons in the +capacities and on the dates indicated. +Signature +Position +Date +/s/ +Yong (David) Yan +Principal +Executive Officer and Director +April 14, +2025 +Yong +(David) Yan +(Principal +Executive Officer) +/s/ +Song (Steve) Jing +Principal +Financial Officer +April 14, +2025 +Song +(Steve) Jing +(Principal +Financial Officer and Principal Accounting Officer) +/s/ +Pengfei Zheng +Pengfei +Zheng +Chairman +April 14, +2025 +84 +ALPHAVEST +ACQUISITION CORP +INDEX +TO THE FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB # 1195 ) +F-2 +Financial +Statements: +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements of Changes in Stockholders’ Deficit +F-5 +Statements of Cash Flows +F-6 +Notes to the Financial Statements +F-7 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and +Shareholders +of AlphaVest Acquisition Corp +Opinion +on the Financial Statements +We +have audited the accompanying balance sheets of AlphaVest Acquisition Corp (the Company) as of December 31, 2024, and 2023, and the related +statements of operations, changes in shareholders’ deficit, and cash flows for each of the years in the two-year period ended December +31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present +fairly, in all material respects, the financial position of the Company as of December 31, 2024, and 2023, and the results of its operations +and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally +accepted in the United States of America. +Substantial +Doubt about the Company’s Ability to Continue as a Going Concern +The +accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to +the financial statements, the Company has no revenue, its business plan is dependent on the completion of a business combination and +the Company must liquidate if the business combination is not consummated within a specific period. These conditions raise substantial +doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described +in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of +this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the +United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the +financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were +we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an +understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of +the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ UHY LLP +We have served as the Company’s auditor since 2022. +New York, New York +April 14, 2025 +F- 2 +ALPHAVEST +ACQUISITION CORP +BALANCE +SHEETS +December 31, 2024 +December 31, 2023 +ASSETS +Current Assets: +Cash +$ 4,215 +$ 28,560 +Prepaid expenses +3,789 +34,573 +Total Current Assets +8,004 +63,133 +Marketable securities held in trust account +18,000,701 +50,880,604 +Cash held in trust escrow account +55,000 +- +Total Assets +$ 18,063,705 +$ 50,943,737 +LIABILITIES, REDEEMABLE ORDINARY SHARES, AND SHAREHOLDERS’ DEFICIT +Current Liabilities: +Accounts payable and accrued offering costs and expenses +$ 488,308 +$ 213,118 +Other payable +125,000 +- +Due to related party +9,837 +9,837 +Promissory notes – third party +507,046 +- +Promissory notes – related party +623,449 +165,000 +Promissory notes +623,449 +165,000 +Total Current Liabilities +1,753,640 +387,955 +Total Liabilities +1,753,640 +387,955 +Commitments and contingencies +- +- +Ordinary shares subject to possible redemption ( 1,574,356 +shares at $ 11.47 +and 4,725,829 shares at $ 10.77 +per share as of December 31, 2024 and 2023, respectively) +18,055,701 +50,880,604 +Shareholders’ Deficit: +Preferred shares, $ 0.0001 +par value; 2,000,000 +shares authorized; none +issued and outstanding as of December 31, 2024 and 2023, respectively +- +- +Ordinary shares, $ 0.0001 par value; 200,000,000 shares authorized; 2,280,500 shares issued and outstanding as of December 31, 2024 and 2023, respectively +228 +228 +Additional paid-in capital +- +- +Accumulated deficit +( 1,745,864 ) +( 325,050 ) +Total Shareholders’ Deficit +( 1,745,636 ) +( 324,822 ) +T otal Liabilities, Redeemable Ordinary Shares, and Shareholders’ Deficit +$ 18,063,705 +$ 50,943,737 +The +accompanying notes are an integral part of these financial statements. +F- 3 +ALPHAVEST +ACQUISITION CORP +STATEMENTS +OF OPERATIONS +2024 +2023 +For the Year Ended December 31, +2024 +2023 +Formation and operating costs +$ 870,821 +$ 676,318 +Loss from operations +( 870,821 ) +( 676,318 ) +Other Income: +Interest income on investments held in trust account +2,674,089 +3,580,311 +Unrealized loss on investments held in trust account +( 92,316 ) +- +Bank interest income +7 +181 +Total other income +2,581,780 +3,580,492 +Net income +$ 1,710,959 +$ 2,904,174 +Weighted average ordinary shares outstanding, ordinary shares subject to possible redemption +4,622,502 +6,870,217 +Basic and diluted net income per share, ordinary shares subject to redemption +$ 0.47 +$ 0.45 +Weighted average ordinary shares outstanding, ordinary shares, non-redeemable +2,280,500 +2,280,500 +Basic and diluted net loss per share, ordinary shares, non-redeemable +$ ( 0.21 ) +$ ( 0.09 ) +The +accompanying notes are an integral part of these financial statements. +F- 4 +ALPHAVEST +ACQUISITION CORP +STATEMENTS +OF CHANGES IN SHAREHOLDERS’ DEFICIT +FOR +THE YEAR ENDED DECEMBER 31, 2024 +Ordinary shares +Amount +Additional paid-in capital +Accumulated deficit +Total +shareholders’ deficit +Balance as of January 1, 2024 +2,280,500 +$ 228 +$ - +$ ( 325,050 ) +$ ( 324,822 ) +Accretion for ordinary shares subject to redemption amount (interest income) +- +- +- +( 2,581,773 ) +( 2,581,773 ) +Accretion for ordinary shares subject to redemption amount (extension deposit) +- +- +- +( 550,000 ) +( 550,000 ) +Net income +- +- +- +1,710,959 +1,710,959 +Balance as of December 31, 2024 +2,280,500 +$ 228 +$ - +$ ( 1,745,864 ) +$ ( 1,745,636 ) +FOR +THE YEAR ENDED DECEMBER 31, 2023 +Ordinary shares +Amount +Additional paid-in capital +Accumulated deficit +Total +shareholders’ equity (deficit) +Balance as of January 1, 2023 +2,280,500 +$ 228 +$ 596,893 +$ ( 42,578 ) +$ 554,543 +Balance +2,280,500 +$ 228 +$ 596,893 +$ ( 42,578 ) +$ 554,543 +Accretion for ordinary shares subject to redemption amount (interest income) +- +- +( 596,893 ) +( 3,021,646 ) +( 3,618,539 ) +Accretion for ordinary shares subject to redemption amount (extension deposit) +- +- +- +( 165,000 ) +( 165,000 ) +Net income +- +- +- +2,904,174 +2,904,174 +Balance as of December 31, 2023 +2,280,500 +$ 228 +$ - +$ ( 325,050 ) +$ ( 324,822 ) +Balance +2,280,500 +$ 228 +$ - +$ ( 325,050 ) +$ ( 324,822 ) +The +accompanying notes are an integral part of these financial statements. +F- 5 +ALPHAVEST +ACQUISITION CORP +STATEMENTS +OF CASH FLOWS +2024 +2023 +For the Year Ended December 31, +2024 +2023 +Cash flows from operating activities: +Net income +$ 1,710,959 +2,904,174 +Adjustments to reconcile net income to net cash used in operating activities: +Trust investment income +( 2,674,089 ) +( 3,580,311 ) +Unrealized loss on investments held in trust account +92,316 +- +Changes in operating assets and liabilities: +Prepaid expense +122,423 +80,578 +Accounts payable and accrued offering costs and expenses +590,780 +( 34,916 ) +Other payable +125,000 +- +Promissory note – related party +19,620 +- +Promissory note – third party +43,646 +- +Net cash provided by (used in) operating activities +30,655 +( 630,475 ) +Cash flows from investing activities: +Cash deposited to trust account +( 495,000 ) +( 165,000 ) +Cash deposited to trust escrow account +( 55,000 ) +- +Cash withdrawn from trust account in connection with redemption +35,956,676 +23,282,936 +Net cash provided by investing activities +35,406,676 +23,117,936 +Cash flows from financing activities: +Proceeds from promissory note – related party +55,000 +165,000 +Proceeds from promissory note – third party +440,000 +- +Redemption of ordinary shares +( 35,956,676 ) +( 23,282,936 ) +Net cash used in financing activities +( 35,461,676 ) +( 23,117,936 ) +Net change in cash +( 24,345 ) +( 630,475 ) +Cash at beginning of period +28,560 +659,035 +Cash at end of period +$ 4,215 +28,560 +Supplemental disclosure of noncash investing and financing activities +Accretion for ordinary shares subject to redemption amount +$ 3,131,773 +$ 3,580,311 +Accrued expenses converted to promissory note– related party +$ 267,426 +$ - +Accrued expenses converted to promissory note – third party +$ 48,164 +$ - +Prepaid expenses paid by promissory note – third party +$ 91,639 +$ - +The +accompanying notes are an integral part of these financial statements. +F- 6 +ALPHAVEST +ACQUISITION CORP +NOTES +TO UNAUDITED FINANCIAL STATEMENTS +NOTE +1 - ORGANIZATION AND BUSINESS OPERATIONS +AlphaVest +Acquisition Corp (the “Company”) was incorporated in the Cayman Islands on January 14, 2022. The Company was formed for the +purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination +with one or more businesses (the “Business Combination”). +The +Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early +stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth +companies. +As +of December 31, 2024, the Company had not commenced any operations. All activity through December 31, 2024 relates to the Company’s +formation and the initial public offering (“IPO”), which is described below, and subsequent to the IPO, identifying a target +company for a Business Combination. The Company will not generate any operating revenues until after the completion an initial Business +Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived +from the IPO. The Company has selected December 31 as its fiscal year end. +The +registration statement for the Company’s IPO (the “Registration Statement”) was declared effective on December 19, +2022. On December 22, 2022, the Company consummated the IPO of 6,000,000 units, (“Units” and, with respect to the ordinary +shares included in the Units being offered, the “Public Shares”), generating gross proceeds of $ 60,000,000 , which is described +in Note 3, and the sale of 390,000 Units (the “Private Placement Units”) at a price of $ 10.00 per Private Placement Unit +in private placements to AlphaVest Holding LP (the “Sponsor”) that was closed simultaneously with the IPO. +Following +the closing of the IPO on December 22, 2022, an amount of $ 61,200,000 ($ 10.20 per Unit) from the net proceeds of the sale of the Units +in the IPO and the Private Placement (as defined in Note 4) was placed in the trust account. The funds held in the trust account may +be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as +amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that +holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as +determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the trust account, +as described below. +On +December 29, 2022, EarlyBirdCapital, Inc. (“EBC”) fully exercised their over-allotment option, resulting in an additional +900,000 Units issued for an aggregate amount of $ 9,000,000 . In connection with EBC’s full exercise of their over-allotment option, +the Company also consummated the sale of an additional 40,500 Private Units at $ 10.00 per Private Unit, generating total proceeds of +$ 405,000 . +The +Company will have until the last Extended Date, September 22, 2025 to consummate a Business Combination (the “Combination Period”). +However, if the Company has not completed a Business Combination within the Combination Period, the Company will (i) cease all operations +except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem +100 % of the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, +including interest earned and not previously released to us to pay our taxes, if any (less up to $ 100,000 of interest to pay dissolution +expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish the rights +of the Public Shareholders as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly +as reasonably possible following such redemption, subject to the approval of the Company’s remaining Public Shareholders and its +Board of Directors, liquidate and dissolve, subject in each case to the Company’s obligations under Cayman Islands law to provide +for claims of creditors and the requirements of other applicable law. +F- 7 +Extension +On +December 21, 2023, the Company held a special meeting of shareholders, at which the Company’s shareholders approved (i) an amendment +to the Company’s amended and restated certificate of incorporation (the “Extension Amendment”) and (ii) an amendment +(the “Trust Agreement Amendment”) to the Investment Management Trust Agreement, dated December 19, 2022, with Continental +Stock Transfer & Trust Company. Pursuant to the Trust Agreement Amendment, the Company has extended the date by which it has to complete +a business combination from December 22, 2023 (the “Termination Date”) up to 10 times, with the first extension comprised +of three months, and the subsequent 9 extensions comprised of one month each from the Termination Date, or extended date, as applicable, +to December 22, 2024. In connection with the shareholders’ vote at the special meeting, an aggregate of 2,174,171 shares with redemption +value of approximately $ 23,282,936 (approximately $ 10.71 per share) of the Company’s ordinary +shares were tendered for redemption. +On +December 18, 2024, the Company held another extraordinary general meeting (the “ 2024 Extraordinary General Meeting ”) +at which the shareholders of the Company voted on three proposals: (i) a proposal, by special resolution, to amend the Company’s +Second Amended and Restated Memorandum and Articles of Association to (a) extend the date by which the Company must consummate a business +combination up to nine (9) times from December 22, 2024 to September 22, 2025 (the “ Revised Termination Date ”), each +by an additional one (1) month, for a total of up to nine (9) months, assuming a business combination has not occurred, and (b) delete +the provision (the “ Redemption Limitation ”) that the Company shall not redeem public shares to the extent that such +redemption would cause the Company’s net tangible assets to be less than $ 5,000,001 ; (ii) a proposal, by ordinary resolution, to +further amend the Trust Agreement to effectuate the foregoing extension and depositing into the Trust Account $ 55,000 per one-month extension +two (2) days prior to such extension (assuming a business combination has not occurred) in exchange for a non-interest bearing, unsecured +promissory note payable upon the consummation of a business combination; and (iii) a proposal, by ordinary resolution, to adjourn the +2024 Extraordinary General Meeting, to a later date or dates, if necessary. In connection with the shareholders’ vote at the 2024 +Extraordinary General Meeting, shareholders of 3,151,473 ordinary shares of the Company exercised their right to redeem such shares (the +“ 2024 Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, approximately $ 35,956,676 +(approximately $ 11.41 per share) was removed from the Trust Account to pay such holders and approximately $ 17,962,587 remained in the +Trust Account. Following the 2024 Redemptions, the Company had 3,854,856 ordinary shares outstanding. +On +May 2, 2024, the Company issued a promissory note to a potential target, pursuant to which the Company could borrow an aggregate of $ 440,000 +(the “Extension Note 2”) to cover expenses in connection with the extension of Business Combination Period. Principal of +this Extension Note 2 may be drawn down from time to time prior to the Maturity Date upon written request from the Company. On January +6, 2025, the promissory note was amended and restated to extend the maturity date to promptly after the date the business combination +is consummated. On March 25, 2025, the promissory note was further amended to increase the principal amount to $ 935,000 . +As +of April 14, 2025, an aggregate of $ 880,000 was deposited into trust account and trust escrow account to extend the business combination +period to April 22, 2025. +Proposed +Business Combination +On +August 11, 2023, the Company (at and after the Merger Effective Date, “PubCo”) entered into a business combination agreement +(the “Business Combination Agreement”) with AV Merger Sub, a Cayman Islands exempted company and a direct wholly owned subsidiary +of the Company (“Merger Sub”), and Wanshun Technology Industrial Group Limited, a Cayman Islands exempted company (“Wanshun”). +On +March 18, 2024, the Company delivered to Wanshun a Notice of Termination of Business Combination (the “Termination”), in +which the Business Combination Agreement was terminated pursuant to Section 8.1(e) of the Business Combination Agreement. The termination +of the Business Combination Agreement is effective as of March 18, 2024. +F- 8 +For +additional information regarding the Transactions, the Business Combination Agreement, Notice of Termination of Business Combination +and Wanshun, see the most recent Annual Report on Form 10-K and Current Reports on Form 8-K filed by the Company with the SEC on August +14, 2023, August 17, 2023 and March 25, 2024. +On +May 2, 2024, the Company issued a promissory note to AMC (defined below) (the “Extension Note 2”), pursuant to which the +Company could borrow an aggregate of $ 440,000 to cover expenses in connection with the extension of Business Combination Period. The +Extension Note 2 bears no interest. The entire unpaid principal balance of this Note shall be payable on the earlier of: (i) December +12, 2024 or (ii) promptly after the date on which Maker consummates an initial business combination. Upon receiving due notification +by the Company of the closing of a business combination, AMC shall convert the unpaid principal balance under Extension Note 2 into a +number of shares of non-transferable, non-redeemable, ordinary shares of the Company equal to: (x) the principal amount of this Extension +Note 2 being converted, divided by (y) the conversion price of Ten Dollars ($ 10.00 ), rounded up to the nearest whole number of shares, +with such conversion to be effective immediately prior to the closing the such business combination. On January 6, 2025, the promissory +note was amended and restated to extend the maturity date to promptly after the date the business combination is consummated. On March +25, 2025, the promissory note was further amended to increase the principal amount to $ 935,000 . As of December 31, 2024 and 2023, $ 440,000 +and $ 0 were outstanding, respectively. +On +May 2, 2024, the Company issued a promissory note to AMC (the “Promissory Note 2”), pursuant to which the Company could borrow +up to an aggregate of $ 126,000 . The Promissory Note 2 bears no interest. The entire unpaid principal balance of this Promissory Note +2 shall be payable on the earlier of: (i) December 12, 2024 or (ii) promptly after the date on which Maker consummates an initial business +combination. Upon receiving due notification by the Company of the closing of a business combination, AMC shall convert the unpaid principal +balance under Promissory Note 2 into a number of shares of non-transferable, non-redeemable, ordinary shares of the Company equal to: +(x) the principal amount of this Promissory Note 2 being converted, divided by (y) the conversion price of Ten Dollars ($ 10.00 ), rounded +up to the nearest whole number of shares, with such conversion to be effective immediately prior to the closing the such business combination. +On January 6, 2025, the promissory note was amended and restated to extend the maturity date to promptly after the date the business +combination is consummated. As of December 31, 2024 and 2023, $ 126,000 and $ 0 were outstanding, respectively. +On +August 16, 2024, the Company entered into a business combination agreement (the “Merger Agreement”) with AV Merger Sub, wholly +owned subsidiary of the Company (“Merger Sub”), and AMC Corporation, a Washington corporation (“AMC”). Upon the +terms and subject to the conditions of the Merger Agreement, an in accordance with applicable law, Merger Sub will merge with AMC, with +AMC surviving the merger as a wholly owned subsidiary of the Company. +On October 11, 2024, the Company issued a +third non-interest-bearing promissory note to AMC (the “Promissory 3”) pursuant to which the Company could borrow up to +an aggregate of $ 100,000 +to cover the Company’s working capital requirements. The promissory note is due and payable on the earlier of: (i) December +31, 2024, or (ii) promptly after the date on which the business combination is consummated. On January 6, 2025, the promissory note +was amended and restated to (i) extend the maturity date to promptly after the date the business combination is consummated, and +(ii) increase the principal amount to $ 200,000 . +On April 13, 2025, the Company further amended and restated the promissory note to extend the principal amount of the note to $ 350,000 . As of December 31, 2024, $ 57,449 was outstanding. +Going +Concern Consideration and Management Liquidity Plans +As +of December 31, 2024, the Company had cash of $ 4,215 and working capital deficit of $ 1,745,636 . Subsequent to the consummation of the +IPO, the Company expects to continue to incur significant professional costs to remain as a publicly traded company and to incur significant +transaction costs in pursuit of the consummation of a Business Combination. The Company expects that it will need additional capital +to satisfy its needs for paying these costs. Although certain of the Company’s initial shareholders or their affiliates may loan +the Company funds, there’s no guarantee that the Company will receive such funds. +In +connection with the Company’s assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) +2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management +believes that the Company will not have sufficient working capital to meet its needs through the earlier of the consummation of the initial +Business Combination or one year from the issuance date of this financial statements. There is no assurance that the Company’s +plan to consummate a business combination will be successful. If a Business Combination is not consummated by the relevant period, there +will be a mandatory liquidation and subsequent dissolution. As a result, there is substantial doubt about the entity’s ability +to continue as a going concern within one year after the date that the financial statements are issued or are available to be issued. +The financial statement does not include any adjustments that might result from the outcome of the uncertainty. +F- 9 +On +September 13, 2024, the Company received a written notice (the “Notice”) from the Listing Qualifications Department of The +Nasdaq Stock Market LLC notifying the Company that the Company is not in compliance with Nasdaq Listing Rule 5450(a)(2) (the “Minimum +Total Holders Rule”), which requires the Company to have at least 400 total holders for continued listing on the Nasdaq Global +Market. The Notice stated that the Company had 45 calendar days, or until October 28, 2024, to submit a plan to regain compliance with +the Minimum Total Holders Rule. In connection with this Notice, the Company determined to voluntarily transfer the listing of its securities +from the Nasdaq Global Market to the Nasdaq Capital Market, which has a lower holder requirement. On November 12, 2024, the Company received +notification that its voluntary application to transfer the listing of its ordinary shares, units, and rights from the Nasdaq Global +Market to the Nasdaq Capital Market was approved by the Listing Qualifications Department of the Nasdaq Stock Market LLC. The Company’s +securities began trading on the Nasdaq Capital Market at the opening of trading on November 14, 2024. Notwithstanding the foregoing, +there can be no assurance that the Company will be able to continue to satisfy all the requirements for continued listing on Nasdaq. +If the Company’s securities were delisted prior to the consummation of the Business Combination, it could negatively impact the +Company’s ability to consummate such Business Combination for the reasons described below. +NOTE +2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary and are presented +in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and +pursuant to the rules and regulations of the SEC. All intercompany accounts and transactions are eliminated upon consolidation. +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities +Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take +advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic +reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and +shareholder approval of any golden parachute payments not previously approved. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of +such extended transition period which means that when a standard is issued or revised and it has different application dates for public +or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies +adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which +is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult +or impossible because of the potential differences in accounting standards used. +Use +of Estimates +The +preparation of the financial statement in conformity with US GAAP requires the Company’s management to make estimates and assumptions +that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial +statement. +F- 10 +Making +estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of +a condition, situation or set of circumstances that existed at the date of the financial statement, which management considered in formulating +its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ +significantly from those estimates. +Cash +and cash equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company had a cash balance of $ 4,215 and $ 28,560 as of December 31, 2024 and 2023, respectively. +Investments +Held in Trust Account +The +Company’s portfolio of investments held in the trust account is comprised of investments only in U.S. government securities with +a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which +invest only in direct U.S. government treasury obligations. The Company’s investments held in the trust account are classified +as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains +and losses resulting from the change in fair value of investments held in trust account are included in interest earned on marketable +securities held in trust account in the accompanying statements of operations. The estimated fair value of investments held in the trust +account is determined using available market information. As of December 31, 2024 and 2023, the trust account had balance of $ 18,000,701 +and $ 50,880,604 , respectively. The interest earned from the trust account totaled $ 2,581,773 and $ 3,580,311 for the year ended December +31, 2024 and 2023, respectively , which were fully reinvested +into the trust account as earned and unrealized gain on investments and therefore presented as an adjustment to the operating activities +in the Statement of Cash Flows. +Cash +held in Trust Escrow Account +As +of December 31, 2024, the Company had $ 55,000 in cash held in the trust escrow account which not yet been deposited to Trust Account. +Once deposited, the full amount will be invested in U.S. government securities with a maturity of 185 days or less or in money market +funds. +Income +Taxes +The +Company follows the asset and liability method of accounting for income taxes under ASC 740, “ Income Taxes .” Deferred +tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial +statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are +measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to +be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period +that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected +to be realized. +ASC +740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions +taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be +sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits +as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 +and 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material +deviation from its position. +There +is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, +income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statement. +F- 11 +Net +Income (Loss) per Ordinary Shares +The +Company complies with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. The statements of operations include +a presentation of income (loss) per redeemable share and income (loss) per non-redeemable share following the two-class method of income +per share. In order to determine the net income (loss) attributable to both the redeemable shares and non-redeemable shares, the Company +first considered the undistributed income (loss) allocable to both the redeemable shares and non-redeemable shares and the undistributed +income (loss) is calculated using the total net loss less any dividends paid. The Company then allocated the undistributed income (loss) +ratably based on the weighted average number of shares outstanding between the redeemable and non-redeemable shares. Any remeasurement +of the accretion to redemption value of the common shares subject to possible redemption was considered to be dividends paid to the public +shareholders. As of December 31, 2024, the Company did not have any dilutive securities and other contracts that could, potentially, +be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted income (loss) per +share is the same as basic income (loss) per share for the period presented. +The +net income (loss) per share presented in the statements of operations is based on the following: +SCHEDULE +OF NET INCOME (LOSS) PER SHARE +Redeemable +Non-Redeemable +Redeemable +Non-Redeemable +For the Year Ended December 31, +2024 +2023 +Redeemable +Non-Redeemable +Redeemable +Non-Redeemable +Particulars +Shares +Shares +Shares +Shares +Basic and diluted net income/(loss) per share: +Weighted-average shares outstanding +4,622,502 +2,280,500 +6,870,217 +2,280,500 +Ownership percentage +67 % +33 % +75 % +25 % +Numerators: +Allocation of net loss including accretion of temporary equity +( 951,429 ) +( 469,385 ) +( 631,513 ) +( 209,624 ) +Interest earned on investment held in trust account +2,581,773 +- +3,580,311 +- +Accretion of temporary equity to redemption value (extension deposit) +550,000 +- +165,000 +- +Allocation of net income/(loss) +2,180,344 +( 469,385 ) +3,113,798 +( 209,624 ) +Denominators: +Weighted-average shares outstanding +4,622,502 +2,280,500 +6,870,217 +2,280,500 +Basic and diluted net income/(loss) per share +0.47 +( 0.21 ) +0.45 +( 0.09 ) +Concentration +of Credit Risk +Financial +instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, +which, at times, may exceed the Federal Depository Insurance Coverage of $ 250,000 . The Company has not experienced losses on these accounts +and management believes the Company is not exposed to significant risks on such accounts. +Fair +Value of Financial Instruments +The +fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “ Fair Value +Measurement ,” approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature. +F- 12 +Ordinary +Shares Subject to Possible Redemption +The +Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance enumerated in ASC 480 “ Distinguishing +Liabilities from Equity ”. Ordinary shares subject to mandatory redemption is classified as a liability instrument and is measured +at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within +the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) +are classified as temporary equity. At all other times, ordinary shares is classified as stockholders’ equity. The Company’s +ordinary shares feature certain redemption rights that are considered by the Company to be outside of the Company’s control and +subject to the occurrence of uncertain future events. Accordingly, at December +31, 2024 and 2023, the ordinary shares subject to possible redemption in the amount of $ 18,055,701 +and $ 50,880,604 , respectively, are presented as temporary equity, outside of the shareholders’ equity section of the Company’s +balance sheet. +At +December 31, 2024, the ordinary shares reflected in the balance sheets are reconciled in the following table: +SCHEDULE +OF INITIAL PUBLIC OFFERING PROCEEDS TO COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION +Ordinary Shares subject to possible redemption, December 31, 2023 +$ 50,880,604 +Less: +Withdrawn in connection with redemption +( 35,956,676 ) +Plus: +Accretion for ordinary shares subject to redemption (income earned on investment held in trust account) +2,581,773 +Accretion for ordinary shares subject to redemption (extension deposit) +550,000 +Ordinary shares subject to possible redemption, December 31, 2024 +$ 18,055,701 +Convertible +Promissory Note +The +Company adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) +2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own +Equity (Subtopic 815-40) (“ASU 2020-06”) and accounts for its convertible promissory notes as debt (liability) on the balance +sheet. The Company’s assessment of the embedded conversion feature (see Note 1 - Organization and Business Operations) considers +the derivative scope exception guidance under ASC 815 pertaining to equity classification of contracts in an entity’s own equity. +The conversion feature of these promissory notes meets the definition of a derivative instrument. However, bifurcation of conversion +feature from the debt host is not required because the conversion feature meets ASC 815 scope exception, as the promissory notes are +convertible in shares of the Company’s common stock which is considered indexed to the Company’s own stock and classified +in stockholders’ equity. +Recent +Accounting Standards +In November 2023, the FASB issued ASU 2023-07, Segment +Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require disclosures, on an annual and +interim basis, of significant segment expenses that are regularly provided to the chief operating officer decision maker (“CODM”), +as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The ASU requires that +a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment +profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all +annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide +all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal +years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption +permitted. This was effective for the Company during the year ended December 31, 2024, +and did not have a material impact to the financial statements. +Management +does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect +on the Company’s financial statements. +NOTE +3 - INITIAL PUBLIC OFFERING +Pursuant +to the IPO, the Company sold 6,000,000 Units at a price of $ 10.00 per Unit. Each Unit consists of one share of ordinary shares and one +right to receive one-tenth (1/10) of one ordinary shares upon the consummation of the Company’s initial business combination one +right (“Public Right”). Ten Public Rights will entitle the holder to one share of ordinary shares (see Note 7). We will not +issue fractional shares and only whole shares will trade, so unless you purchase units in multiple of tens, you will not be able to receive +or trade the fractional shares underlying the rights. On December 29, 2022, EBC fully exercised their over-allotment option, resulting +in an additional 900,000 Units issued for an aggregate amount of $ 9,000,000 . See Note 1 for further details. +NOTE +4 - PRIVATE PLACEMENTS +Simultaneously +with the closing of the IPO, the Company consummated the private sale of 390,000 Private Placement Units. Each Unit consists of one share +of ordinary shares and one right to receive one-tenth (1/10) of one share of ordinary shares upon the consummation of the Company’s +initial business combination (“Private Right”). The proceeds from the sale of the Private Placement Units were added to the +net proceeds from the IPO held in the trust account. If the Company does not complete a Business Combination within the Combination Period, +the proceeds from the sale of the Private Placement Units held in the trust account will be used to fund the redemption of the Public +Shares (subject to the requirements of applicable law). The Private Placement Units (including the underlying securities) will not be +transferable, assignable, or salable until the completion of a Business Combination, subject to certain exceptions. +F- 13 +In +connection with EBC’s full exercise of their over-allotment option, the Company also consummated the sale of an additional 40,500 +Private Units at $ 10.00 per Private Unit, generating total proceeds of $ 405,000 . +NOTE +5 - RELATED PARTIES +On +February 7, 2022, the sponsor received 1,725,000 of the Company’s ordinary shares in exchange for $ 25,000 paid for deferred offering +costs borne by the founder. Up to 225,000 of such founder shares are subject to forfeiture to the extent that EBC’s over-allotment +is not exercised in full. As a result of EBC’s election to fully exercise their over-allotment option on December 29, 2022, no +founder shares are currently subject to forfeiture. +On +April 18, 2023, AlphaVest Holding LP, one of our sponsors, transferred an aggregate of 1,035,000 founder shares to Peace Capital Limited, +our other sponsor. +The +Sponsors have agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur +of: (A) six months after the completion of the initial Business Combination and (B) the date on which we complete a liquidation, merger, +share exchange, reorganization or other similar transaction after our initial business combination that results in all of our public +shareholders having the right to exchange their ordinary shares for cash, securities or other property. +As +of December 31, 2024 and 2023, the amounts due to related parties were $ 516,883 and $ 174,837 , respectively, which is expected to be settled +upon the consummation of the business combination. +Administrative +Services Agreement +Commencing +on the date the Units are first listed on the Nasdaq, the Company has agreed to pay TenX Global Capital LP a total of $ 10,000 per month +for office space, utilities and secretarial and administrative support. Upon completion of the Initial Business Combination or the Company’s +liquidation, the Company will cease paying these monthly fees. For the year ended December 31, 2024 and 2023, the Company incurred $ 120,000 +in fees respectively for these services with $ 0 and $ 96,129 paid, respectively. +Promissory +Notes - Related Party +On +June 3, 2022, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the +Company could borrow up to an aggregate of $ 150,000 to cover expenses related to the IPO. On April 11, 2024, the Company amended and +restated the Promissory Note with AlphaVest Holding LP to extend the maturity date to the earlier of: (i) September 12, 2024 or (ii) +promptly after the date of the consummation of the business combination. The Promissory Note expired on September 12, 2024. As of December +31, 2024 and 2023, $ 0 was outstanding. +On +December 21, 2023, Alphavest Holding LP, one of the Sponsor, agreed to loan the Company $ 165,000 (as amended and restated, the “Extension +Note”) to cover expenses in connection with extensions of Business Combination Period. The Extension Note is unsecured, interest-free +and payable on the earlier of: (i) March 22, 2024 or (ii) promptly after the date on which the Company consummates a Business Combination +(such earlier date, the “Maturity Date”). The Company may request, from time to time, up to $ 715,000 in drawdowns under this +Extension Note to be used for extension payments related to the Company’s Business Combination. Principal of this Extension Note +may be drawn down from time to time prior to the Maturity Date upon written request from the Company. On April 15, 2024, the Company +amended and restated the Extension Note with AlphaVest Holding LP to increase the principal amount to $ 715,000 extend the maturity date +to the earlier of: (i) September 12, 2024 or (ii) promptly after the date of the consummation of the business combination. On October +25, 2024, the promissory note was further amended and restated to extend the maturity date to promptly after the date the business combination +is consummated. As of December 31, 2024 and 2023, $ 220,000 +and $ 165,000 were outstanding respectively. +F- 14 +On +March 12, 2024, the Company issued a promissory note to TenX Global Capital LP (the “Promissory Note 1”), pursuant to which +the Company could borrow up to an aggregate of $ 400,000 . The entire unpaid principal balance of this Note shall be payable on the earlier +of: (i) September 12, 2024 (six (6) months from the issuing of this Note) or (ii) promptly after the date on which Maker consummates +an initial business combination (a “Business Combination”) (such earlier date, the “Maturity Date”) (as described +in its initial public offering prospectus dated December 19, 2022 (the “Prospectus”)). On +October 21, 2024, the Company amended and restated the Promissory Note with AlphaVest Holding LP to extend the maturity date to the earlier +of: (i) December 12, 2024 or (ii) promptly after the date of the consummation of the business combination. On January 6, 2025, the promissory +note was further amended and restated to extend the maturity date to promptly after the date the business combination is consummated. +As of December 31, 2024 and 2023, $ 287,046 and $ 0 were outstanding, respectively. +Website +Service +On +February 22, 2024 and 2023, the Company has agreed to pay TenX Global Capital LP a total of $ 537 and $ 784 for annual website service, +respectively. For the year ended December 31, 2024 and 2023, the Company incurred $ 559 and $ 784 in fees for these services, respectively. +NOTE +6 - COMMITMENTS AND CONTINGENCY +Registration +Rights +The +holders of the Founder Shares, ordinary shares issued to EBC, Private Placement Units and Units that may be issued upon conversion of +Working Capital Loans (and all underlying securities) will be entitled to registration rights pursuant to a registration rights agreement +signed prior to or on the effective date of Proposed Public Offering requiring the Company to register such securities for resale. The +holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that the Company +register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration +statements filed subsequent to completion of a Business Combination and rights to require the Company to register for resale such securities +pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not be required +to effect or permit any registration or cause any registration statement to become effective until the securities covered thereby are +released from their lock-up restrictions. The Company will bear the expenses incurred in connection with the filing of any such registration +statements. +Underwriting +Agreement +The +Company and EBC signed an engagement letter which was amended on September 15, 2022, pursuant to which, the Company will grant EBC 45-day +option from the date of Proposed Public Offering to purchase up to 900,000 additional Units to cover over-allotments, if any, at the +Proposed Public Offering price less the underwriting discounts and commissions. On December 29, 2022, EBC fully exercised the over-allotment. +EBC was paid a cash underwriting discount of $ 1,725,000 in the aggregate. +Business +Combination Marketing Agreement +The +Company has engaged EBC as an advisor in connection with its Business Combination to assist in holding meetings with the Company stockholders +to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors +that are interested in purchasing its securities in connection with its initial Business Combination and assist with press releases and +public filings in connection with the Business Combination. The Company will pay EBC a cash fee for such services upon the consummation +of its initial business combination in an amount equal to 3.5 % of the gross proceeds of the IPO, or $ 2,415,000 in aggregate. In addition, +the Company will pay EBC a cash fee in an amount equal to 1.0 % of the total consideration payable in the initial Business Combination +if it introduces the Company to the target business with whom it completes an initial Business Combination. +F- 15 +NOTE +7 - SHAREHOLDERS’ EQUITY +Preference +Shares - The Company is authorized to issue 2,000,000 preference shares with a par value of $ 0.0001 per share with such designations, +voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of December +31, 2024, there were no shares of preference shares issued or outstanding. +Ordinary +Shares - The Company is authorized to issue 200,000,000 ordinary shares with a par value of $ 0.0001 per share Holders of ordinary +shares are entitled to one vote for each share . +On +February 7, 2022, the Sponsor received 1,725,000 shares of the Company’s ordinary +shares in exchange for $ 25,000 paid for deferred offering costs borne by the Founder. Out of the +1,725,000 ordinary shares, an aggregate of up to 225,000 ordinary shares were subject to forfeiture to the extent that the over-allotment +option is not exercised in full or in part so that the number of Founder Shares will equal 20 % of the Company’s issued and outstanding +ordinary shares after the Public Offering (excluding Private Shares). +On +July 11, 2022, EBC received an aggregate of 125,000 ordinary shares (“EBC Founder Shares”) for an aggregate purchase price +of $ 1,750 , or approximately $ 0.014 per share. The Company estimated the fair value of the EBC founder shares to be $ 1,812 based upon +the price of the founder shares issued to the Sponsor. The holders of the EBC founder shares have agreed not to transfer, assign or sell +any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their conversion rights +(or right to participate in any tender offer) with respect to such shares in connection with the completion of a Business Combination +and (ii) to waive their rights to liquidating distributions from the trust account with respect to such shares if the Company fails to +complete a Business Combination within the Combination Period. +On +December 22, 2022, the Sponsor and EBC received an aggregate of 390,000 private units ( 365,000 private units purchased by the Sponsor +and 25,000 private units purchased by EBC) at a price of $ 10.00 per unit for a total purchase price of $ 3,900,000 in a private placement. +On +December 29, 2022, as a result of the EBC’s election to fully exercise their over-allotment option, the Sponsor and EBC received +additional 40,500 private units on a pro rata basis ( 37,904 private units purchased by the Sponsor and 2,596 private units purchased +by EBC) at a price of $ 10.00 per unit. +As +of December 31, 2024 +and 2023, there were 2,280,500 ordinary shares issued and outstanding, excluding 1,574,356 and 4,725,829 +ordinary shares subject to possible redemption which are presented as temporary equity as +of December 31, 2024 and 2023, respectively. +Rights +- Except in cases where the Company is not the surviving company in a business combination, each holder of a right will automatically +receive one-tenth (1/10) of one share of ordinary shares upon consummation of a Business Combination. The Company will not issue fractional +shares in connection with an exchange of rights. Fractional shares will either be rounded down to the nearest whole share or otherwise +addressed in accordance with the applicable provisions of Cayman law. In the event the Company is not the surviving company upon completion +of the Business Combination, each holder of a right will be required to affirmatively convert his, her or its rights in order to receive +the one-tenth (1/10) of one ordinary shares underlying each right upon consummation of the Business Combination. If the Company is unable +to complete a Business Combination within the required time period and the Company redeems the public shares for the funds held in the +trust account, holders of rights will not receive any of such funds for their rights and the rights will expire worthless. +F- 16 +NOTE +8 - FAIR VALUE MEASUREMENTS +The +Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each +reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. +The +fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would +have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction +between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company +seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable +inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is +used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and +liabilities: +Level +1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which +transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. +Level +2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets +or liabilities and quoted prices for identical assets or liabilities in markets that are not active. +Level +3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. +The +following table presents information about the Company’s assets that are measured at fair value on a recurring basis at December +31, 2024 and 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. At +December 31, 2024, the Company has recognized the unrealizes loss of $ 92,316 . +SCHEDULE +OF ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS +Date +Trading Securities +Level +Fair Value +December 31, 2024 +Marketable securities held in the trust account +1 +$ 18,000,701 +December 31, 2023 +Marketable securities held in the trust account +1 +$ 50,880,604 +NOTE +9 - SUBSEQUENT EVENTS +The +Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements +were issued. Based upon this review, the Company identified the following subsequent events that require disclosure in the financial +statements. +On +January 6, 2025, Promissory Note 1, Promissory Note 2, and Extension Note 2 were further amended and restated to extend the maturity +date to promptly after the date the business combination is consummated. Promissory Note 3 was amended and restated to (i) extend +the maturity date to promptly after the date the business combination is consummated, and (ii) increase the principal amount to +$ 200,000 . +On March 25, 2025, Extension Note 2 was further amended to increase the principal amount to $ 935,000 . On April 13, 2025, the Company further amended and restated the +Promissory Note to extend the principal amount of the note to $ 350,000 . +F- 17 \ No newline at end of file diff --git a/raw/filings/0001937891/2024/0001641172-25-004572/filing_metadata.csv b/raw/filings/0001937891/2024/0001641172-25-004572/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..184481f2d45c258ea48e680617fce800b7eaea3d --- /dev/null +++ b/raw/filings/0001937891/2024/0001641172-25-004572/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001937891,AMCI,AMC Robotics Corp,2024,10-K,2025-04-14,2024-12-31,2025-04-14T20:15:37.000Z,0001641172-25-004572,form10-k.htm,,5172480,1,1,https://www.sec.gov/Archives/edgar/data/1937891/000164117225004572/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1937891/000164117225004572/ diff --git a/raw/filings/0001937891/2024/0001641172-25-004572/item1.txt b/raw/filings/0001937891/2024/0001641172-25-004572/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..911dbdf928bd77b675bf4871317c5b20d77c1bbb --- /dev/null +++ b/raw/filings/0001937891/2024/0001641172-25-004572/item1.txt @@ -0,0 +1,492 @@ +ITEM +1. BUSINESS +In +this Annual Report on Form 10-K (the “Form 10-K”), references to the “Company” and to “we,” “us,” +and “our” refer to AlphaVest Acquisition Corp. +General +AlphaVest +Acquisition Corp is a blank check company incorporated on January 14, 2022, as a Cayman Islands exempted company for the purpose of effecting +a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses +(a “Business Combination”). We may pursue an acquisition or a business combination with a target in any business or industry +that can benefit from the expertise and capabilities of our management team. Our efforts in identifying prospective target businesses +will not be limited to a particular geographic region, although we intend to primarily focus on businesses in Asia. We have generated +no revenues to date and we do not expect that we will generate operating revenues at the earliest until we consummate our Business Combination. +The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early +stage and emerging growth companies. +On +February 7, 2022, our AlphaVest Holding, LP (our “Sponsor”) acquired 1,725,000 Ordinary Shares (the “Founders Shares”) +for an aggregate purchase price of $25,000, which represented 20% of our issued and outstanding shares after our initial public offering +(as defined below). On April 18, 2023, the Sponsor transferred an aggregate of 1,035,000 Founder Shares to Peace Capital Limited. +We +also issued an aggregate of 125,000 Founder Shares to EarlyBirdCapital, Inc. (the “EBC Founder Shares”) on July 11, 2022 +for an aggregate purchase price of $1,750. The EBC Founder Shares were deemed to be underwriters’ compensation by FINRA pursuant +to Rule 5110 of the FINRA Manual. The EBC Founder Shares cannot be sold, transferred or assigned (except to the same permitted transferees +as the Founder Shares and provided the transferees agree to the same terms and restrictions as the permitted transferees of the Founder +Shares must agree to, each as described herein) until the consummation of an initial business combination. +As +of the year ended December 31, 2024, the Company had not yet commenced any operations. All activity for the year ended December 31, 2024 +relates to the Company’s formation and the initial public offering (the “Initial Public Offering” or “IPO”) +and identifying a target for a Business Combination. The Company will not generate any operating revenues until after the completion +of its Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the +proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end. +The +registration statement for the Company’s Initial Public Offering was declared effective on December 19, 2022 (the “Registration +Statement”). On December 22, 2022 the Company consummated the Initial Public Offering of 6,000,000 units (the “Units” +and, with respect to the shares of Ordinary Shares included in the Units sold, the “Public Shares”), at $10.00 per Unit, +generating gross proceeds of $60,000,000. Unit consists of one ordinary share of the Company, par value $0.0001 per share (the “Ordinary +Shares”) and one right (the “Rights”), with each Right entitling the holder thereof to receive one-tenth of one Ordinary +Share. Additionally, on December 29, 2022, the underwriters fully exercised the over-allotment option and the closing of the issuance +and sale of the additional Units. The total aggregate issuance by the Company of 900,000 Units at a price of $10.00 per Unit resulted +in total gross proceeds of $9,000,000. +Simultaneously +with the closing of the Initial Public Offering, the Company consummated the sale of private sale of 365,000 units (the “Private +Placement Units”) to the Sponsor at a purchase price of $10.00 per Private Placement Unit, and 25,000 Private Placement Units to +EarlyBirdCapital, Inc. (“EBC”) generating gross proceeds to the Company of $3,900,000. In connection with the underwriter’s +exercise of their over-allotment option, on December 29, 2022, the Company sold 7,904 Private Placement Units to the Sponsor, at a purchase +price of $10.00 per Private Purchase Unit, and an additional 2,596 Private Placement Units to EBC, at a purchase price of $10.00 per +Private Purchase Unit, generating additional gross proceeds to the Company of $405,000. +1 +Of +the proceeds the Company received from the Initial Public Offering and the sale of the Private Placement Units, $ 70,380,000 +($10.20 per public share) was initially deposited into a U.S.-based trust account at Bank of America with American Stock Transfer +& Trust Company, acting as trustee, with approximately $550,000 being used to pay fees and expenses in connection with the closing +of the Initial Public Offering, including underwriting commissions, and an estimated $650,000 being available for working capital following +the Initial Public Offering. Except with respect to interest earned on the funds held in the trust account that may be released to the +Company to pay its tax obligations, the proceeds from the Initial Public Offering and the sale of the Private Placement Units that are +deposited in the trust account will not be released from the trust account until the earliest to occur of (a) the completion of our initial +business combination, (b) the redemption of any public shares properly submitted in connection with a shareholder vote to amend our amended +and restated articles of association (i) to modify the substance or timing of our obligation to allow redemption in connection with our +initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination within 24 +months from the closing of our Initial Public Offering (or up to 33 months, if we extend the time to complete a business combination) +or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial business combination activity and (c) +the redemption of our public shares if we are unable to complete our business combination within 24 months from the closing of our Initial +Public Offering (or up to 33 months, if we extend the time to complete a business combination), subject to applicable law. +On +August 11, 2023, the Company entered into a business combination agreement (the “Business Combination Agreement”) with AV +Merger Sub, a Cayman Islands exempted company and a direct wholly owned subsidiary of AlphaVest (“Merger Sub”), and Wanshun +Technology Industrial Group Limited, a Cayman Islands exempted company (“Wanshun”). Pursuant to the terms of the Business +Combination Agreement, a business combination between the Company and Wanshun will be effected through the merger of Merger Sub with +and into Wanshun, with Wanshun surviving the merger as a wholly owned subsidiary of the Company. The Board has unanimously (i) approved +and declared advisable the Business Combination Agreement and the related transactions and (ii) resolved to recommend the approval and +adoption of the Business Combination Agreement and the related transactions to the shareholders of the Company. +At +an extraordinary general meeting of shareholders held on December 21, 2023 (the “Meeting”), the Company adopted the Company’s +Second Amended and Restated Memorandum and Articles of Association (the “Second Amended and Restated Memorandum and Articles of +Association”) reflecting the extension of the date by which the Company must consummate a business combination from December 22, +2023 (the “Termination Date”) up to ten (10) times, the first extension comprised of three months, and the subsequent nine +(9) extensions comprised of one month each (each an “Extension”) up to December 22, 2024 (i.e., for a period of time ending +up to 24 months after the consummation of its Initial Public Offering for a total of twelve (12) months after the Termination Date (assuming +a business combination has not occurred). The Company also entered into an amendment (the “Trust Agreement Amendment”) to +the Investment Management Trust Agreement, dated as of December 19, 2022, with Continental Stock Transfer & Trust Company (as amended, +the “Trust Agreement”). Pursuant to the Trust Agreement Amendment, the Company has extended the date by which it has to complete +a business combination from the Termination Date up to ten (10) times, with the first extension comprised of three months, and the subsequent +nine (9) extensions comprised of one month each from the Termination Date, or extended date, as applicable, to December 22, 2024 by providing +five days’ advance notice to the trustee prior to the applicable Termination Date, or extended date, and depositing into the Trust +Account $55,000 for each monthly extension (the “Extension Payment”) until December 22, 2024 (assuming a business combination +has not occurred) in exchange for a non-interest bearing, unsecured promissory note payable upon the consummation of a business combination. +In +connection with the shareholders’ vote at the Meeting, holders of 2,174,171 Ordinary Shares of the Company exercised their right +to redeem such shares (the “Redemption”) for a pro rata portion of the funds held in the Trust Account. As a result, approximately +$ 23,282,935.83 (approximately $10.71 per share) was removed from the Trust Account to pay such holders and approximately $50,608,334.49 +remains in the Trust Account. Following the Redemption, the Company has 7,006,329 Ordinary Shares outstanding. +On +December 21, 2023, the Company exercised its first extension by depositing $165,000 into the Trust Account to extend the deadline to +complete the business combination from December 22, 2023 to March 22, 2024. Also on December 21, 2023, the Company entered into a non-interest +bearing promissory note with the Sponsor for $165,000, which was used to fund the first extension. The Company subsequently exercised +the remaining nine one-month extensions by depositing $55,000 per one-month extension into the Trust Account, extending the deadline +to complete the business combination to December 22, 2024. +2 +On +December 18, 2024, the Company held a special meeting, at which time the Company adopted an Amendment to the Second Amended and Restated +Memorandum and Articles of Association, as amended, reflecting (i) the extension of the date by which the Company must consummate a business +combination from the Termination Date up to nine (9) Extensions comprised of one month each up to September 22, 2025 (i.e., for a period +of time ending up to 33 months after the consummation of its initial public offering for a total of nine (9) months after the Termination +Date (assuming a business combination has not occurred) and (ii) the deletion of the limitation that the Company shall not redeem public +shares to the extent that such redemption would cause the Company’s net tangible assets to be less than $5,000,001. +As of the date of this filing, an aggregate of $880,000 was deposited into +trust account to extend the business combination period to April 22, 2025. +Since +our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. +Our +Management Team +For +more information on the experience and background of our management team, see the section entitled “Management.” +Business +Strategy +We +will seek to capitalize on the strength of our management team. Our team consists of experienced financial services, accounting, and +legal professionals, and senior operating executives of companies operating in multiple jurisdictions. Collectively, our officers and +directors have decades of experience in mergers and acquisitions and in operating companies. We believe that their prior accomplishments +and current activities will be critical in identifying attractive acquisition opportunities, and that, in turn, the businesses that we +identify will be able to benefit from accessing the U.S. capital markets and the expertise and network of our management team. However, +there is no assurance that we will complete an initial business combination. +There +is no restriction on the geographic location of the targets that we can pursue, although we intend to initially focus on target businesses +in Asia. In particular, we intend to focus our search for an initial business combination target on private companies in Asia that have +compelling economics, clear paths to positive operating cash flow, significant assets, and successful management teams that are seeking +access to the U.S. public capital markets. +As +an emerging market, Asia has experienced remarkable growth. The Asian economy has experienced sustained expansion in recent years. We +believe that Asia is entering a new era of economic growth, which we expect will result in attractive initial business combination opportunities +for us. We believe the growth will primarily be driven by private sector expansion, technological innovation, increasing consumption +by the middle class, structural economic and policy reforms and demographic changes, particularly in China. +Acquisition +Criteria +Our +management team intends to focus on creating shareholder value by leveraging its experience in the management, operation, and financing +of businesses to improve the efficiency of operations while implementing strategies to scale revenue organically and/or through acquisitions. +We have identified the following general criteria and guidelines, which we believe are important in evaluating prospective target businesses. +While we intend to use these criteria and guidelines in evaluating prospective businesses, we may deviate from these criteria and guidelines +should we see justification to do so. +3 +● +Strong +Management Team that Can Create Significant Value for Target Business . We will seek to identify companies with strong and experienced +management teams that will complement the operating and investment abilities of our management team. We believe we can provide a +platform for the existing management team to leverage the experience of our management team. We also believe that the operating expertise +of our management team is well suited to complement many potential targets’ management teams. +● +Revenue +and Earnings Growth Potential . We will seek to acquire one or more businesses that have the potential for significant revenue +and earnings growth through a combination of both existing and new product development, increased production capacity, expense reduction +and synergistic follow-on acquisitions resulting in increased operating leverage. +● +Potential +for Strong Free Cash Flow Generation . We will seek to acquire one or more businesses that have the potential to generate strong, +stable, and increasing free cash flow, particularly businesses with predictable revenue streams and definable low working capital +and capital expenditure requirements. We may also seek to prudently leverage this cash flow in order to enhance shareholder value. +● +Benefit +from Being a Public Company . We intend to only acquire a business or businesses that will benefit from being publicly traded +and which can effectively utilize access to broader sources of capital and a public profile that are associated with being a publicly +traded company. +These +criteria do not intend to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, +to the extent relevant, on these general guidelines as well as other considerations, factors, and criteria that our Sponsor and management +team may deem relevant. +Initial +Business Combination +We +will have up to 24 months from the closing of our Initial Public Offering to consummate an initial business combination. However, if +we anticipate that we may not be able to consummate our initial business combination within 24 months, we may, by resolution of our Board +of Directors and if requested by our Sponsor, extend the period of time we will have to consummate an initial business combination up +to nine times, each by an additional one month (for a total of up to 33 months from the closing of our Initial Public Offering), provided +that, pursuant to the terms of our Second Amended and Restated Memorandum and Articles of Association, as amended, and the Trust Agreement, +entered into between us and Continental Stock Transfer & Trust Company on December 19, 2022, as amended on December 21, 2023, in +order for the time available for us to consummate our initial business combination to be extended, our Sponsor or their affiliates or +designees, upon five days’ advance notice prior to the applicable deadline, must deposit into the trust account $55,000 for each +month in an extension, on or prior to the date of the applicable deadline. Our public shareholders will not be entitled to vote or redeem +their shares in connection with any such extension. In the event that our Sponsor elects to extend the time to complete an initial business +combination, pay the additional amounts per each extension, and deposit the applicable amount of money into trust, our Sponsor will receive +a non-interest bearing, unsecured promissory note in the amount of any such deposit, which will not be repaid in the event that we are +unable to close an initial business combination unless there are funds available outside the trust account to do so. In the event that +we receive notice from our Sponsor five days prior to the applicable deadline of their intent to effect an extension, we intend to issue +a press release announcing such intention at least three days prior to the applicable deadline. In addition, we intend to issue a press +release the day after the applicable deadline announcing whether or not the funds had been timely deposited. Our Sponsor and its affiliates +or designees are not obligated to fund the trust account to extend the time for us to complete our initial business combination. If we +are unable to consummate our initial business combination within such time period, we will, as promptly as possible but not more than +10 business days thereafter, redeem 100% of our outstanding public shares for a pro rata portion of the funds held in the trust account, +including a pro rata portion of any interest earned on the funds held in the trust account and not previously released to us to pay our +taxes, and then seek to dissolve and liquidate. However, we may not be able to distribute such amounts as a result of claims of creditors +which may take priority over the claims of our public shareholders. In the event of our dissolution and liquidation, the Private Placement +Units will expire and be worthless. +4 +Our +initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least +80% of the assets held in the trust account (excluding income interest earned on the Trust Account and released to us to pay taxes) at +the time of the agreement to enter into the initial business combination. If our board is not able to independently determine the fair +market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or another independent +entity that commonly renders valuation opinions with respect to the satisfaction of such criteria. +The +net proceeds of our Initial Public Offering and the sale of the Private Placement Units released to us from the trust account upon the +closing of our initial business combination may be used as consideration to pay the sellers of a target business with which we complete +our initial business combination. If our initial business combination is paid for using equity or debt securities, or not all of the +funds released from the trust account are used for payment of the consideration in connection with our initial business combination or +used for redemption of our public shares, we may use the balance of the cash released to us from the trust account following the closing +for general corporate purposes, including for maintenance or expansion of operations of the post-transaction businesses, the payment +of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies +or for working capital. +In +addition, we may be required to obtain additional financing in connection with the closing of our initial business combination to be +used following the closing for general corporate purposes as described above. There is no limitation on our ability to raise funds through +the issuance of equity or equity-linked securities or through loans, advances or other indebtedness in connection with our initial business +combination, including pursuant to forward purchase agreements or backstop agreements we may enter into following consummation of our +Initial Public Offering. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously +with the completion of our initial business combination. We have granted EBC a right of first refusal under certain circumstances for +a period commencing from the consummation of our Initial Public Offering until the consummation of our initial business combination (or +the liquidation of the trust account in the event that we fail to consummate our initial business combination within the prescribed time +period) to act as book running manager, placement agent and/or arranger for all financings where we seek to raise equity, equity-linked, +debt or mezzanine financings relating to or in connection with an initial business combination. We are otherwise not a party to any arrangement +or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise. None +of our Initial Shareholders are required to provide any financing to us in connection with or after our initial business combination. +We may also obtain financing prior to the closing of our initial business combination to fund our working capital needs and transaction +costs in connection with our search for and completion of our initial business combination. +Our +Acquisition Process +We +intend to utilize the expertise of our managements’ respective platforms to evaluate potential targets’ strengths, weaknesses, +and to identify the relative risk and return profile of any potential target for our initial business combination. +Each +of our officers and directors presently has contractual obligations to other entities, and any of them in the future may have additional +fiduciary or contractual obligations to other entities including other special purpose acquisition companies, or “SPACs” +pursuant to which such officer or director is or will be required to present an initial business combination opportunity. Accordingly, +if any of our officers or directors becomes aware of an initial business combination opportunity which is suitable for an entity to which +he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations +to present such opportunity to such entity. +Our +Second Amended and Restated Memorandum and Articles of Association, as amended, provides that we renounce our interest in any corporate +opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity +as a director or officer of our company and such opportunity is one that we are legally and contractually permitted to undertake and +would otherwise be reasonable for us to pursue. +Our +officers have agreed that they will not become an officer or director of any other special purpose acquisition company that has publicly +filed a registration statement for its initial public offering unless and until we enter into a definitive agreement regarding our initial +business combination or we have failed to complete our initial business combination within 24 months from the closing of our Initial +Public Offering (or up to 33 months, if we extend the time to complete an initial business combination). +5 +Competition +In +identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from +other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged +buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive +experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess +greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our +available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, +our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available +to us for our initial business combination and may not be viewed favorably by certain target businesses. This may place us at a competitive +disadvantage in successfully negotiating an initial business combination. +Facilities +We +currently maintain our executive offices at 205 W. 37th Street, New York, NY 10018. The cost for our use of this space is included in +the $10,000 per month fee we will pay to our Sponsor for office space, utilities and secretarial and administrative services. We consider +our current office space adequate for our current operations. +Employees +We +currently have two officers and do not intend to have any full-time employees prior to the completion of our initial business combination. +Members of our management team are not obligated to devote any specific number of hours to our matters, but they intend to devote as +much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time +that any such person will devote in any time period will vary based on whether a target business has been selected for our initial business +combination and the current stage of the business combination process. +Periodic +Reporting and Financial Information +Our +Units, Ordinary Shares and Rights are registered under the Exchange Act and have reporting obligations, including the requirement that +we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports +will contain financial statements audited and reported on by our independent registered public auditors. +We +will provide shareholders with audited financial statements of the prospective target business as part of the tender offer materials +or proxy solicitation materials sent to shareholders to assist them in assessing the target business. These financial statements may +be required to be prepared in accordance with, or be reconciled to, U.S. GAAP or IFRS, depending on the circumstances and the historical +financial statements may be required to be audited in accordance with PCAOB standards. These financial statement requirements may limit +the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time +for us to disclose such financial statements in accordance with federal proxy rules and complete our initial business combination within +the prescribed time frame. While this may limit the pool of potential business combination candidates, we do not believe that this limitation +will be material. +We +are required to evaluate our internal control procedures for the fiscal year ending December 31, 2024 as required by the Sarbanes-Oxley +Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth +company, will we be required to have our internal control procedures audited. A target business may not be in compliance with the provisions +of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity +to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We +filed a Registration Statement on Form 8-A with the SEC on December 16, 2022 to voluntarily register our securities under Section 12 +of the Exchange Act. As a result, we will be subject to the rules and regulations promulgated under the Exchange Act. We have no current +intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation +of our initial business combination. +6 +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, +we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies +that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic +reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and +shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive +as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In +addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended +transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other +words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise +apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We +will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of +the completion of our Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which +we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that are held by non-affiliates equals +or exceeds $700,000,000 as of the prior June 30 th , and (2) the date on which we have issued more than $1.0 billion in non- +convertible debt during the prior three-year period. +Additionally, +we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take +advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. +We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our Ordinary Shares +held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues +equaled or exceeded $100 million during such completed fiscal year or the market value of our Ordinary Shares held by non-affiliates +equals or exceeds $700,000,000 as of the end of that year’s second fiscal quarter. +Legal +Proceedings +There +is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team +in their capacity as such. +7 +Risk +Factors Summary +We +are a newly incorporated company that has conducted no operations and has generated no revenues. Until we complete our initial business +combination, we will have no operations and will generate no operating revenues. In making your decision whether to invest in our securities, +you should take into account not only the background of our management team, but also the special risks we face as a blank check company. +Since +we may initiate a business combination with target company operating in China, you may be subject to additional risk factors. These include +significant regulatory, liquidity, and enforcement risks. For example, we face risks arising from the legal system in China, including +risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance +notice. In addition, the Chinese government may intervene or influence our operations at any time or exert more control over offerings +conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or +the value of our Ordinary Shares. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted +overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue +to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For a detailed description +of the risks relating to acquiring and operating a target business in China, see Please see “Risks Related to Our Possible Business +Combination in China” and “Risks Related to Acquiring and Operating a Business Outside of the United States” for more +information. +You +should carefully consider these and the other risks set forth in the section entitled “Risk Factors” of this Form 10-K. Such +risks include, but are not limited to: +Risks +Related to our Search for, Consummation of, or Inability to Consummate, a Business Combination +● +Our +public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete +our initial business combination even though a majority of our public shareholders do not support such a combination. +● +If +we seek shareholder approval of our initial business combination, our Initial Shareholders have agreed to vote their Founder Shares +and private shares in favor of such initial business combination, regardless of how our public shareholders vote. +● +Your +only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of +your right to redeem your shares from us for cash, unless we seek shareholder approval of the initial business combination. +● +The +ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to +complete the most desirable initial business combination or optimize our capital structure. +● +The +requirement that we complete our initial business combination within 24 months from the closing of our IPO (or up to 33 months, if +we extend the time to complete an initial business combination) may give potential target businesses leverage over us in negotiating +an initial business combination and may decrease our ability to conduct due diligence on potential initial business combination targets +as we approach our dissolution deadline. +● +We +may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all operations +except for the purpose of winding up. +● +You +will not have any rights or interests in funds from the trust account, except under certain limited circumstances. +● +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, +and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Ordinary Shares, you will lose the +ability to redeem all such shares in excess of 15% of our Ordinary Shares. +● +Because +of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us +to complete our initial business combination and our Rights will expire worthless. +● +We +may seek acquisition opportunities in industries or sectors which may be outside of our management’s area of expertise. +● +Although +we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we +may enter into our initial business combination with a target that does not meet such criteria and guidelines. +● +Because +we are not limited to a particular industry, sector, or any specific target businesses with which to pursue our initial business +combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +● +Our +ability to complete a business combination may be impacted by the fact that our Sponsor’s major shareholder, Pengfei Zheng, +is a non-U.S. person, and a majority of our officers and directors are located in, or have significant ties to, China. This may make +us a less attractive partner to potential target companies outside the PRC, thereby limiting our pool of acquisition candidates and +making it harder for us to complete an initial business combination with a non-China-based target company. For example, we may not +be able to complete an initial business combination with a U.S. target company since such initial business combination may be subject +to U.S. foreign investment regulations and review by a U.S. government entity, such as the Committee on Foreign Investment in the +United States (CFIUS), or ultimately prohibited. +8 +Risks +Related to Our Securities +● +We +may issue additional Ordinary Shares or preference shares to complete our initial business combination or under an employee incentive +plan after completion of our initial business combination, which would dilute the interest of our shareholders and likely present +other risks. +● +The +grant of registration rights to our Initial Shareholders may make it more difficult to complete our initial business combination, +and the future exercise of such rights may adversely affect the market price of our Ordinary Shares. +Risks +Related to Our Management +● +Our +officers and directors may allocate their time to other businesses and may become officers or directors of any other special purpose +acquisition companies, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs +and whether to present potential target to us instead of to our competitors. This conflict of interest could have a negative impact +on our ability to complete our initial business combination. +● +Our +Initial Shareholders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +● +We +are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage +of certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies, this could +make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +Post +Business Combination Risks +● +Our +management may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance +that, upon loss of control of a target business, new management will possess the skills, qualifications, or abilities necessary to +profitably operate such business. +● +We +may seek acquisition opportunities with an early-stage company, a financially unstable business or an entity lacking an established +record of revenue or earnings. +Risks +Related to Acquiring and Operating a Business Outside of the United States +● +Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted. +● +Many countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption and inexperience, which may adversely impact our results of operations and financial condition. +● +We may face additional and distinctive risks if we acquire a business in certain industries, such as technology. +● +If we effect our initial business combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements and we may not be able to enforce our legal rights. +● +PRC regulations relating to offshore investment activities by PRC residents may limit our ability to inject capital in our Chinese subsidiaries and Chinese subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws. +● +Certain +existing or future U.S. laws and regulations may restrict or eliminate our ability to complete an initial business combination with +certain companies, particularly those target companies in China. +● +If +we effect an initial business combination with a company located outside of the United States, the laws applicable to such company +will likely govern all of our material agreements and we may not be able to enforce our legal rights. +● +Changes +in the policies, regulations, rules, and the enforcement of laws of the PRC government may occur quickly with little advance notice +and could have a significant impact upon our ability to operate profitably in the PRC. +● +The +Chinese government may intervene in and influence the manner in which our post-combination entity must conduct its business activities +in ways that we cannot expect when we enter into a definitive agreement with a target company with major operation in China which +could result in a material change in our operations of the combined company and/or the value of our securities, and could significantly +limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities +to significantly decline or become worthless. If the Chinese government establishes some new policies, regulations, rules, or laws +affecting the industries that our post-combination entity is in, it may materially and adversely affect our operations and the value +of our Ordinary Shares. +● +Chinese +government agencies may exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based +issuers. +● +In +light of recent events indicating greater oversight by the CAC over data security, particularly for companies seeking to list on +a foreign exchange, some internet and technology companies may not be willing to list on a U.S. exchange or enter into a definitive +business combination agreement with us. Further, we may also have to avoid an initial business combination with a company with more +than one million users’ personal information in China due to the limited timeline for us to complete a business combination. +9 \ No newline at end of file diff --git a/raw/filings/0001937891/2024/0001641172-25-004572/item13.txt b/raw/filings/0001937891/2024/0001641172-25-004572/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..8e0329287a88b0bd562fc8258d367006b481425b --- /dev/null +++ b/raw/filings/0001937891/2024/0001641172-25-004572/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence. +78 \ No newline at end of file diff --git a/raw/filings/0001937891/2025/0001493152-26-018144/filing.txt b/raw/filings/0001937891/2025/0001493152-26-018144/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..f7d5f03a21a048b8cb644ab8d8b1dd1143e17f93 --- /dev/null +++ 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+One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES +EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2025 +or +☐ +TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 +For +the transition period from ________to__________ +Commission +file number 001-41574 +AMC +ROBOTICS CORPORATION +(Exact +Name of Registrant as Specified in its Charter) +Delaware +41-3041844 +(State +of Incorporation) +(I.R.S. +Employer ID No.) +12 +East 49 th Street , Suite +1805 +New +York , New York 10017 +(Address +of Principal Executive Offices) +Registrant’s +telephone number, including area code: (734) 709-5127 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of Each Class +Trading +Symbol(s) +Name +of Each Exchange on Which Registered +Common +Stock, par value $0.0001 per share +AMCI +The +Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(g) of the Act : +None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. +Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been +subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, +or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller +reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit reports. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The registrant consummated its initial business combination in December 2025. Accordingly, the combined company’s +securities were no t publicly traded at that time. +As +of April 20, 2026, 22,595,363 shares of the registrant’s Common Stock were outstanding. +DOCUMENTS +INCORPORATED BY REFERENCE +None . +TABLE +OF CONTENTS +PART I +Item +1. +Business +1 +Item +1A. +Risk Factors +7 +Item +1B. +Unresolved Staff Comments +23 +Item +1C. +Cybersecurity +23 +Item +2. +Property +25 +Item +3. +Legal Proceedings +25 +Item +4. +Mine Safety Disclosures +25 +PART II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +26 +Item +6. +[Reserved] +26 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +27 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +39 +Item +8. +Financial Statements and Supplementary Data +40 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +41 +Item +9A. +Controls and Procedures +41 +Item +9B. +Other Information +42 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +42 +Item +10. +Directors and Executive Officers of the Registrant +42 +Item +11. +Executive Compensation +46 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +48 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +49 +Item +14. +Principal Accounting Fees and Services +59 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +60 +Item +16. +Form 10-K Summary +60 +i +Table of Contents +FREQUENTLY +USED TERMS +Unless +otherwise stated or the context otherwise requires, as used in this Annual Report on Form 10-K: +● “AMC +Washington” means AMC Corporation, a Washington corporation and wholly-owned subsidiary +of the Company since the consummation of the Business Combination; +● “Business +Combination” means the Domestication, Merger and the other transactions contemplated by the Business Combination Agreement and +the other agreements entered into by AMC Washington and AlphaVest Acquisition Corp (“AlphaVest”, “AlphaVest +Acquisition Corp” or “SPAC”) in connection with the Business Combination; +● “Business +Combination Agreement” means the Business Combination Agreement, by and among AlphaVest, +AMC Washington and Merger Sub; +● “Bylaws” +means the bylaws of the Company; +● “Charter” +means the certificate of incorporation of the Company; +● “Closing” +means the closing of the Business Combination; +● “Closing +Date” means December 9, 2025, the date on which the Closing occurred; +● “Code” +means the Internal Revenue Code of 1986, as amended; +● “Common +Stock” means shares of common stock, par value $0.0001 per share, of the Company; +● “Company”, +“AMC,” “we,” “us”, “our” or other similar phrases means AlphaVest Acquisition Corp, a Cayman +Islands exempted company, prior to the Business Combination and AMC Robotics Corporation, a Delaware corporation, after the Business Combination; +● “DGCL” +means the Delaware General Corporation Law, as amended; +● “Domestication” +means the deregistration of AlphaVest as an exempted company in the Cayman Islands and the +transfer by way of continuation of AlphaVest as a Delaware corporation, as part of the Business Combination; +● “Exchange +Act” means the Securities Exchange Act of 1934, as amended; +● “Founder +Shares” means the shares of common stock of AlphaVest acquired by certain of the Selling Securityholders +prior to AlphaVest’s initial public offering which became shares of Common Stock upon +the Domestication; +● “GAAP” +means generally accepted accounting principles in the United States; +● “IRS” +means the Internal Revenue Service; +● “JOBS +Act” means the Jumpstart Our Business Startups Act of 2012, as amended; +● “Merger +Sub” means AV Merger Sub Inc., a Washington corporation and wholly-owned subsidiary +of AlphaVest prior to the Business Combination; +● “Merger” +means the merger of Merger Sub with and into AMC Washington on the Closing Date, with AMC +Washington being the surviving corporation of the Merger and becoming a wholly owned subsidiary +of the Company; +● “Nasdaq” +means the Nasdaq Stock Market LLC; +● “Organizational +Documents” means the Company’s Certificate of Incorporation and Bylaws; +● “PIPE +Agreements” means those certain securities purchase agreements executed by the PIPE +Investors in connection with the PIPE Financing; +● “PIPE +Financing” means the private financing of 800,000 shares of Common Stock at $10.00 per +share for aggregate gross proceeds of $8,000,000 consummated simultaneously with the Closing +of the Business Combination; +● “PIPE +Investors” means the investors that participated in the PIPE Financing; +● “PRC” +means the People’s Republic of China; +● “SEC” +means the United States Securities and Exchange Commission; and +● “Securities +Act” means the Securities Act of 1933, as amended. +ii +Table of Contents +FORWARD-LOOKING +STATEMENTS +The +Company makes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act +in this Annual Report on Form 10-K and in documents incorporated by reference herein. All statements, other than statements of present +or historical fact included in or incorporated by reference in this Annual Report on Form 10-K, regarding the Company’s future +financial performance, as well as the Company’s strategy, future operations, future operating results, financial position, estimated +revenues, and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you +can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” +“believe,” “estimate,” “intend,” “project,” “budget,” “forecast,” +“anticipate,” “plan,” “may,” “will,” “could,” “should,” “predict,” +“potential,” and “continue” or similar words. Forward-looking statements are predictions, projections and other +statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. +You should read statements that contain these words carefully because they: +● discuss +future expectations; +● contain +projections of future results of operations or financial condition; or +● state +other “forward-looking” information. +All +forward-looking statements included herein attributable to the Company or any person acting on the Company’s behalf are expressly +qualified in their entirety by the cautionary statements contained or referred to in this section. These cautionary statements are being +made pursuant to federal securities laws with the intention of obtaining the benefits of the “safe harbor” provisions of +such laws. Except to the extent required by applicable laws and regulations, the Company undertakes no obligations to update these forward-looking +statements to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated +events. +There +may be events in the future that the Company is not able to predict accurately or over which it has no control. The section in this Annual +Report on Form 10-K entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and +Results of Operations” and the other cautionary language discussed in this Annual Report on Form 10-K provide examples of risks, +uncertainties and events that may cause actual results to differ materially from the expectations described by the Company in such forward-looking +statements. These examples include: +● the +Company’s inability to raise sufficient capital to execute its business plan; +● the +size, demands and growth potential of the markets for the Company’s products and services +and the Company’s ability to serve those markets; +● the +degree of market acceptance and adoption of the Company’s products and services; +● the +Company’s ability to attract and retain customers; +● the +Company’s success in retaining or recruiting officers, key employees or directors; +● the +impact of the regulatory environment and complexities with compliance related to such environment; +and +● factors +relating to the business, operations and financial performance of the Company and its subsidiaries. +The +foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other risk factors +included herein. Forward-looking statements reflect current views about the Company’s plans, strategies and prospects, which are +based on information available as of the date of this Annual Report on Form 10-K. Except to the extent required by applicable law, the +Company undertakes no obligation (and expressly disclaims any such obligation) to update or revise the forward-looking statements whether +as a result of new information, future events or otherwise. +Forward-looking +statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ +materially from these statements. Therefore, you should not place undue reliance on those statements. +You +are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report +on Form 10-K. +iii +Table of Contents +PART +I +Item +1. Business +Overview +AMC’s +mission is to make the world a safer place through the use of high-quality, affordable and accessible vision AI technology. The Company +currently sells smart hardware products designed for residential and commercial use, including smart cameras, driving recorders, action +cameras and Retina K cameras. As of the date of this report, AMC’s operations are primarily focused on the sale of hardware products, +and it does not currently provide integrated security products or subscription-based services directly to end users. +In +addition to its current product offerings, AMC is in the early stages of developing additional hardware products and technology capabilities, +including IoT-enabled devices, AI-based features, wearable devices and AI robotics. These initiatives are intended to support potential +future applications across commercial and industrial use cases; however, such products and capabilities remain under development and +have not yet been commercialized. Our goal is to make the world a safer place. Through the use of high-quality, affordable and accessible +vision AI technology, we strive to help save lives, empower businesses to succeed and ultimately make the world a safer place. +Products +As +evidenced by the award-winning “YI” brand that we sell, we are seeking to be a leader in the research and development of +video imaging and vision technologies for enterprise and consumer applications. +AMC’s +primary products are security cameras sourced from suppliers in Asia and distributed through e-commerce platforms across the United States, +Canada and Europe. AMC’s product portfolio includes cameras designed for residential homes and small businesses, such as the YI +Dome Guard, Home Camera and Outdoor Camera. +AMC +intends to expand its product offering in the future to include additional AI-based intelligent devices such as wearable devices, including +AI glasses, drones and AI robots, as well as related functionality and features for these products. +Sales +AMC +has two primary revenue streams: (1) product sales, including sales through e-commerce platforms and to related parties, and (2) revenue +sharing arrangements with its related party, Kami, related to cloud-based services and intelligent information services, including video +storage, image analysis and alert and detection functionalities. +With +respect to its product sales, AMC historically sold its products through Amazon across the United States, Canada, and Europe. The Amazon +online stores for the respective regions operated under the entities Ants, Shanghai Xiaoyun Technology Limited (“Xiaoyun”), +and Kunshan Yishijue Technology Limited (“Yishijue”). These entities authorized AMC to utilize their Amazon accounts free +of charge for a duration of five years, starting from October 21, 2021 and expiring on October 20, 2026 (hereinafter referred to as the +“Authorization Agreement”). +Ants +is 95% owned by Mr. Da. Until April 2022, revenues collected from Amazon customers were paid into Ants’ virtual bank account on +PingPong, a cross-border payments platform. However, commencing in April 2022, AMC acquired control of the payments platform and revenues +are now paid directly to AMC. Effective as of January 9, 2025, the ownership of Amazon store North America has been successfully transferred +to AMC from Ants. +Yishijue +has no business operations other than owning an Amazon online store in Europe. Xiaoyun was founded to provide services for patent applications +and intellectual property management. There are two nominal individuals who hold shares of Yishijue and Xiaoyun on behalf of Mr. Da and +Mr. Da controls the primary economic activities of Yishijue and Xiaoyun, such as the authorization or transfer of the Amazon stores to +AMC. +Historically, +Xiaoyun and Yishijue operated as variable interest entities (“VIEs”) and assumed the associated risks and rewards, +making AMC the primary beneficiary. AMC did not own any equity interests in the VIEs. Instead, AMC was regarded as the primary +beneficiary of the VIEs for accounting purposes and consolidated the financial results of the VIEs under U.S. GAAP. In August 2024, +AMC and the two VIEs entered into separate business transfer agreements. Under these agreements, Xiaoyun and Yishijue agreed to +transfer all of their ownership in the Amazon online stores to AMC, including, but not limited to, the ownership of the store, +business operation rights, customer resources, operational data, technical data, brand usage rights, intellectual property rights +(such as trademarks, patents, copyrights, if applicable), and other assets and rights related to the operation of the Amazon online +stores in exchange for an aggregate payment of RMB30,000 for each entity. Once the stores were successfully transferred to AMC, +Xiaoyun and Yishijue would no longer be VIEs. However, in December 2025, AMC determined +that, based on limited transaction volume through these stores, it would transition its sales channel to its own or other third-party platforms and is no longer utilizing the stores from Xiaoyun and Yishijue. +AMC +does not currently generate revenue from directly providing software solutions or subscription-based services. Instead, the Company earns +revenue through (i) product sales and (ii) revenue-sharing arrangements with related-party service providers, including Kami, which provide +cloud-based services such as video storage and related functionality to end users. +1 +Table of Contents +With +respect to Kami, AMC has entered into a revenue-sharing agreement pursuant to which AMC receives a percentage of revenues generated from +the services provided. The revenue-share schedule is as follows: +Annual +subscription periods +Percentage +basis +Inception +through +June +30, 2025 +From +July 1, 2025 +Onwards +First +year during which an end user starts the cloud service subscription from Kami +30% +30% +Second +year during which an end user continues the cloud service +15% +30% +Third +year and thereafter during which an end user continues the service subscription from Kami +0% +30% +AMC +recognizes its revenue share when Kami receives subscription payments from users acquired through AMC’s camera sales. The +agreement includes standard commercial terms, service obligations, and confidentiality provisions. The agreement also contains +provisions for termination by either party with a notice period of 30 days. For the fiscal years ended December 31, 2025 and 2024, +Kami accounted for approximately 48% and 27% of AMC’s revenue, respectively, and represented 78 % and 68% of its accounts +receivable at December 31, 2025 and 2024, respectively. +AMC +recognizes revenue from its revenue-sharing arrangements when the underlying service provider earns and collects consideration from +end users or third-party platforms associated with the Company’s products. For cloud-based subscription services, revenue is +recognized when the service provider receives subscription payments from users referred by the Company. For intelligent information +service arrangements, revenue is recognized when Kami generates monetization revenue from third-party platforms and +reports the Company’s contractual share. +Platforms +The +Company is in the early stages of developing next-generation technology platforms intended to enhance the functionality of its hardware +products. These platforms are expected to incorporate AI-based capabilities, including data processing, application interfaces and improved +user interaction features. However, these platforms are still under development and are not currently commercially available. +Technology +Advantages +The +Company is evaluating certain technologies that may differentiate its products from competing solutions, including: +● Dual +Chip Design – A multi-processor architecture designed to enable switching between +performance and low-power modes, which may improve power efficiency and battery life. +● Artificial +Intelligence Capabilities – The use of machine learning, natural language processing, +computer vision, and predictive analytics to support functionalities such as monitoring, +automation, and data analysis. These capabilities are expected to be supported primarily +by third-party technologies. +● Third-Party +AI Integration – The integration of external AI components, such as pre-trained +models and software libraries, to support system functionality and scalability. +● 22nm +Semiconductor Design – A chip design based on a 22nm process that may provide cost +efficiencies, improve thermal performance, and reduced current leakage. +● Edge +Computing (Under Evaluation) – The Company is assessing technologies that enable +data processing at or near the device level to potentially reduce latency; however, no active +development initiatives are currently in place. +● Interface +and System Enhancements – The Company is evaluating improvements in hardware and +software interfaces, including compatibility with external systems and applications, to enhance +usability. +2 +Table of Contents +Strategy +& Positioning +We +intend to maintain our market position and expand into new market opportunities by continuing to develop and deploy innovative technologies +and by expanding our ecosystem of partners. Our key go-to-market strategies include: +Narrow +Targeted Niche +The Company focuses on a targeted niche market characterized by specific application requirements, which allows it +to tailor its hardware and software solutions to those use cases. By concentrating on defined customer segments and limited functionality, +the Company seeks to differentiate its offerings through customization, cost efficiency, and integration with third-party technologies. +Larger technology providers may prioritize broader, mass-market applications, and as a result may not focus on specialized use cases targeted +by the Company. +Focus +We +seek to solve only one or two core user needs within the niche using affordable hardware and scalable manufacturing. By focusing on these +needs, we believe we can maximize our position in the market. +Invest +in Our Platforms +The +Company is evaluating the development of software functionality intended to enhance the performance and usability of its hardware products, +including features related to video processing, data management and user interface improvements. At this time, the Company does not operate +a standalone platform and any such capabilities remain in the early stages of assessment and development. +The +Company may invest in expanding product features and related technology capabilities for its camera products in residential and commercial +markets. As vision AI technologies continue to evolve and more devices become connected, the Company intends to explore opportunities +to integrate its products with third-party systems and applications; however, these initiatives are preliminary and there can be no assurance +as to their timing or successful implementation. +Channel +Expansion +In +addition to the existing channels we have built, we intend to continue to develop partnerships in areas such as shopping mall management, +parking lots, senior care management, building construction and other related areas. +Pursue +Selective Strategic Acquisitions +We +may selectively pursue future acquisitions of businesses, technologies, or products that complement our platforms or align with our overall +growth strategy. Such acquisitions could expand our team and/or technology portfolio to help us add new features to our platforms, accelerate +the pace of our innovation or help us access attractive markets. +Manufacturing +and Sourcing +AMC +does not directly manufacture any of its products. Instead, all physical products are sourced from related party suppliers. AMC works +closely with these suppliers to ensure key standards such as product quality, compliance and timely delivery. +3 +Table of Contents +AMC +does not currently develop software or technology features internally. Any software functionality associated with its products is provided +by third-party partners or service providers. +Research +and Development +We +invest resources in research and development to enhance our platforms and applications, support our technology infrastructure, develop +new capabilities and conduct quality assurance testing. We expect to invest in continued research and development efforts to expand the +capabilities of our technology. Our research and development of new products and services is a multidisciplinary effort across our product +management, program management, software engineering, device engineering, quality engineering, configuration management and network operations +teams. +AMC +is evaluating research and development initiatives primarily focused on robotics-related technologies and enhancements to its hardware +products. These efforts are at an early stage and are intended to support potential future product development and innovation. +The +Company’s research and development activities are limited in scope and primarily consist of evaluating design concepts, engaging +with third-party partners and assessing potential technologies. The Company has not yet committed to a definitive development timeline +or commercialization plan, and there can be no assurance as to the timing or successful implementation of these initiatives. +Foreign +Operations +To +date, AMC’s business is mainly located in the United States. However, it sells products in the United Kingdom and certain European +countries. Additionally, to a lesser extent, AMC conducts certain operations in China, including sourcing materials and providing services +through its relationships with China-based suppliers and affiliates. AMC also historically benefited from its partnerships with Xiaoyun +and Yishijue, which are headquartered and operated in China. However, in December 2025, AMC determined that, based on limited transaction +volume through these stores, it would transition its sales channel to its own or other third-party platforms and is no longer utilizing +the stores from Xiaoyun and Yishijue. +Competitive +Environment +The +market in which we operate is fragmented, competitive and constantly evolving. We expect competition to continue from existing +competitors as well as potential new market entrants in the interactive security, video monitoring and intelligent automation +markets. Our current competitors include providers of other technology platforms in interactive security, including Alarm.com, +Google Nest, Blink by Amazon, Avigilon, Alula, Eagle Eye Networks Inc., Eufy by Anker and Honeywell International Inc. +Many +of our competitors have long operating histories, greater name recognition and large customer bases. We expect to encounter new competitors +as we enter new markets as well as increased competition. In addition, there may be new technologies that are introduced that reduce +demand for our products or make them obsolete. Our current and potential competitors may also establish cooperative relationships among +themselves or with third parties and rapidly acquire significant market share. Increased competition could also result in price reductions +and loss of market share, any of which could result in lower revenue and negatively affect our ability to grow our business. We believe +the principal competitive factors in the security surveillance market include the following: +● simplicity +and ease of use; +● ability +to offer persistent awareness, control, and intelligent automation; +● breadth +of features and functionality provided; +● flexibility +of the products and ability to personalize for the individual consumer; +● compatibility +with a wide selection of third-party devices; +● pricing, +affordability, and accessibility; +● sales +reach and local installation and support capabilities; and +● brand +awareness and reputation. +We +believe we compete favorably with respect to these factors. Additionally, we believe our AI-based software platforms and edge computing +products will help further differentiate us from competitors. Nevertheless, our competitors may have substantially greater financial, +technical and other resources, greater brand recognition, larger sales and marketing budgets and broader distribution channels than we +do. As a result, we may not compete effectively. +4 +Table of Contents +Our +Intellectual Property +The +Company has filed certain patent and trademark applications related to its technology and branding, which are in various stages of review +and approval, and there can be no assurance that any such applications will be granted. The Company’s ability to compete depends +in part on its ability to protect its proprietary technology and intellectual property rights, and it relies on a combination of patent, +trademark, copyright and trade secret laws, as well as license agreements, confidentiality agreements and other contractual protections. +Our +Human Capital Resources +The +Company has a limited number of full-time employees and engages outsourced contractors to support its operations, including sales and +marketing and general and administrative functions. The Company also engages consultants and temporary personnel from time to time. None +of the Company’s employees is covered by collective bargaining agreements, and management considers its relationships with its +personnel to be good. +We +believe attracting, motivating and retaining talent at all levels is critical to continue our success. By improving employee retention +and engagement, we believe we are also improving our ability to support our service provider partners and protect the long-term interests +of our stockholders. We invest in our employees through benefits and various health and wellness initiatives and offer competitive compensation +packages, ensuring fairness in internal compensation practices. +Government +Regulations +Our +business, operations and service provider partners are subject to various U.S. federal, state and local consumer protection laws, licensing +regulation and other laws and regulations, and to similar laws and regulations in the other countries in which we operate. Compliance +with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations or competitive +position. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining +to global trade, business acquisitions, consumer protection, and taxes, could have a material impact on our business in subsequent periods. +In +particular, we are subject to the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Foreign Corrupt Practices +Act of 1977, as amended, the U.S. Travel Act, and possibly other anti-bribery laws, including those that comply with the OECD Convention +on Combating Bribery of Foreign Public Officials in International Business Transactions and other international conventions. Anti-corruption +laws are interpreted broadly and prohibit our company from authorizing, offering, or providing directly or indirectly improper payments +or benefits to recipients in the public or private-sector. Certain laws could also prohibit us from soliciting or accepting bribes or +kickbacks. Our company has direct government interactions and in several cases uses third-party representatives, including dealers, for +regulatory compliance, sales and other purposes in a variety of countries. These factors increase our anti-corruption risk profile. We +can be held liable for the corrupt activities of our employees, representatives, contractors, partners and agents, even if we did not +explicitly authorize such activity. +We +are also subject to data privacy and security laws, anti-money laundering laws (such as the USA PATRIOT Act), and import/export laws +and regulations in the United States and in other jurisdictions. +We +are also subject to certain foreign regulations based on the jurisdictions we operate in, including laws in the PRC such as the PRC Labor +Contract Law. +Refer +to “Risk Factors” for a discussion of the potential impacts related to the governmental regulations applicable to us. +Corporate +Information +AMC +Robotics Corporation (formerly known as AlphaVest Acquisition Corp) was incorporated in the Cayman Islands on January 14, 2022. AMC Washington +was incorporated under the laws of the State of Washington on October 21, 2021. On December 9, 2025, the parties consummated the +Business Combination, including the Domestication of the Company whereby the Company became a Delaware corporation. +Historically, AMC maintained contractual arrangements +with Xiaoyun and Yishijue through VIEs, which enabled AMC to control and consolidate their financial results. Under the VIE structure, +AMC held effective control over the VIE’s primary economic activities and assumed the associated risks and benefits from the economic +rewards through contractual arrangements, making AMC the primary beneficiary for accounting purposes. Through authorization agreements, +AMC was able to operate the Amazon store UK and Amazon store Europe free of charge for a duration of 5 years, starting from October 21, +2021, which are owned by Xiaoyun and Yishijue, respectively. Through these contractual arrangements, AMC bore all risks of loss and was +entitled to all benefits derived from Yishijue and Xiaoyun. In December +2025, AMC determined that, based on limited transaction volume through these stores, it would transition its sales channel to its own +or other third-party platforms and is no longer utilizing the stores from Xiaoyun and Yishijue. +5 +Table of Contents +Implications +of Being an Emerging Growth Company and Smaller Reporting Company +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, +we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies +that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation +requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations +regarding executive compensation in their periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding +advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +The +JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards +until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the +JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting +standards as required when they are adopted for public companies. As a result, our operating results and financial statements may not +be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. +The +Company will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following December 31, 2030, +(b) in which it has total annual gross revenue of at least $1.235 billion, or (c) in which the combined company is deemed to be a large +accelerated filer, which means the market value of the combined Company’s common equity that is held by non-affiliates exceeds +$700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which the Company +has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging +growth company” have the meaning associated with it in the JOBS Act. +We +are also a “smaller reporting company,” and we will continue to be a “smaller reporting company” if either (i) +the market value of our stock held by non-affiliates is less than $250.0 million as of the last business day of our second fiscal quarter +or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock +held by non-affiliates is less than $700.0 million as of the last business day of our second fiscal quarter. If we are a smaller reporting +company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements +that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two +most recent fiscal years of audited financial statements and only two years of management’s discussion and analysis of financial +condition and results of operations disclosures and, similar to emerging growth companies, smaller reporting companies have reduced disclosure +obligations regarding executive compensation. +Market +Price, Ticker Symbols and Dividend Information +Market +Price and Ticker Symbols +Our +Common Stock is currently listed on Nasdaq under the symbol “AMCI.” On April 10, 2026, the closing price of our Common Stock +was $6.25. +Holders +As +of April 20, 2026, there were 22,595,363 shares of Common Stock issued and outstanding held of record by 36 holders. +The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders +whose Common Stock are held of record by banks, brokers and other financial institutions. +Dividend +Policy +We +have not paid any cash dividends on our capital stock to date. We may retain future earnings, if any, for future operations, expansion +and debt repayment and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends +in the future will be made at the discretion of the board of directors and will depend on, among other things, our results of operations, +financial condition, cash requirements, contractual restrictions and other factors that the board of directors may deem relevant. In +addition, our ability to pay dividends may be limited by any outstanding preferred stock and covenants of any existing and future outstanding +indebtedness. We do not anticipate declaring any cash dividends to holders of Common Stock in the foreseeable future. As a result, you +may not receive any return on an investment in our Common Stock unless you sell your Common Stock for a price greater than that which +you paid for it. +6 +Table of Contents +Item +1A. Risk Factors +You +should carefully consider the following risk factors, together with all of the other information included elsewhere in this Annual Report +on Form 10-K. The value of your investment in the Company will be subject to the significant risks affecting the Company and inherent +to the industry in which it operates. The risk factors described below disclose material and other risks, are not intended to be exhaustive +and are not the only risks faced by the Company. Additional risks not currently known to us or that we currently deem to be immaterial +also may materially adversely affect the business, financial condition, results of operations and cash flows in future periods of the +Company. The occurrence of any of these events could cause the trading price of our Common Stock to decline, perhaps significantly, and +you therefore may lose all or part of your investment. The following discussion should be read in conjunction with the financial statements +and notes to the financial statements included herein. +It +may be difficult to evaluate our business prospects, and our operating results may fluctuate. +Our +operating results may fluctuate because of a variety of factors, many of which are outside of our control. Fluctuations in our results +of operations may be due to a number of factors, including: +● Fluctuations +with respect to the portion of our revenue attributable to sharing agreement from related party, versus hardware and other +sales; +● fluctuations +in demand, including due to seasonality, for our products; +● changes +in pricing by us in response to competitive pricing actions; +● the +ability of our hardware vendors to continue to manufacture high-quality products and to supply +sufficient products to meet our demands; +● the +timing and success of introductions of new products, products or upgrades by us or our competitors; +● changes +in our business and pricing policies or those of our competitors; +● our +ability to control costs, including our operating expenses and the costs of the hardware +we purchase; +● the impact of tariffs, trade restrictions, or changes in international trade policies, including increased import +duties on components or finished goods, which may increase our cost of hardware, disrupt our supply chain, or require us to adjust pricing +or sourcing strategies; +● competition, +including entry into the industry by new competitors and new offerings by existing competitors; +● our +ability to successfully manage any future acquisitions of businesses; +● issues +related to introductions of new or improved products such as shortages of prior generation +products or short-term decreased demand for next generation products; +● the +amount and timing of expenditures, including those related to expanding our operations, increasing +research and development, introducing new products or paying litigation expenses; +● the +ability to effectively manage growth within existing and new markets domestically and abroad; +● the +strength of regional, national and global economies; and +● the +impact of natural disasters or manmade problems. +Our +operating results may fluctuate due to seasonality. +Our +quarterly and annual operating results have fluctuated in the past and likely will fluctuate in the future. The demand for our products +is driven largely by the demand for the end-product applications that are powered by our products which can vary on seasonality. We expect +high demand from our customers in holiday seasons such as the third and fourth quarters in a year compared to lower demand in the first +and second quarters in a year. +We +have a history of net losses. +We +have a history of net losses. The Company incurred a net loss of $24,817,342 for the year ended December 31, 2025, and had net +losses in 2024 and 2023. We have historically funded our operations and capital needs primarily through borrowings from a related +party, Ants Technology (HK) Limited (“Ants”). There can be no assurance that AMC will be successful in achieving its +strategic plans, that AMC’s future capital raises will be sufficient to support its ongoing operations, or that any additional +financing will be available in a timely manner or with acceptable terms, if at all. If AMC is unable to raise sufficient financing +or events or circumstances occur such that AMC does not meet its strategic plans, it would have a material adverse effect on +AMC’s financial position, results of operations, cash flows, and ability to achieve its intended business +objectives. +7 +Table of Contents +Failure +to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material +adverse effect on our business and stock price. +In +connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2025 and 2024, we and +our independent registered public accounting firm identified four material weaknesses in our internal control over financial reporting. +A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility +that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. +The +material weaknesses that have been identified for AMC are as follows: +(1) +Lack of Experienced Accounting Team — AMC lacks qualified in-house accounting staff and resources with adequate knowledge of +U.S. GAAP. A third-party consulting firm has been engaged to prepare financial statements and footnote disclosures in accordance +with U.S. GAAP. +(2) +Lack of Duty Segregations — The Company separates the duties at certain areas, but there is only one person responsible for +various functions of the Company, including processing payments and Human Resource functions. All other individuals involved in +these processes are engaged through independent contractor roles. +(3) +Lack of sufficient inventory management process and control system — AMC does not have a sufficient inventory management +process or control system. +(4) +Lack of proper approval for related party transactions — AMC lacks a formal approval process for related party +transactions. +To +remediate our material weaknesses, we have begun and will continue to: (1) hire additional qualified accounting staff with appropriate +knowledge and experience in U.S. GAAP and SEC financial reporting requirements, while strengthening period-end financial reporting controls +and procedures; (2) establish an ongoing program to provide adequate training for financial reporting and accounting personnel, particularly +on U.S. GAAP and SEC requirements; (3) assign clear roles and responsibilities to accounting staff and the management team to establish +segregation of duties and improve inventory processes; and (4) implement a thorough review and approval process for related party transactions. +However, +we cannot assure that we will remediate our material weaknesses in a timely manner, or at all. If we fail to implement and maintain effective +internal controls to remediate the material weaknesses over financial reporting, we may be unable to accurately report our results of +operations, meet our reporting obligations or prevent fraud. As a result, investors may lose confidence in the accuracy and completeness +of our financial reports and the price of our Common Stock could be negatively affected. We could also become subject to investigations +by the SEC, Nasdaq or other regulatory authorities, which could require additional financial and management resources. In addition, if +we fail to remedy any material weakness, our financial statements could be inaccurate and we could face restricted access to capital +markets. +We +are exposed to risks relating to price fluctuations of hardware cost. +Prices +of hardware have a significant impact on our cost of sales. In 2025, costs of hardware accounted for 78% of the final price sold in the +market for the period, as compared to 81% in 2024. Parts and accessories for our products primarily include lenses, lithium +batteries, infrared sensors and integrated chips. The current or expected supply of our key hardware parts and accessories may fluctuate +depending on a number of factors beyond our control, including but not limited to the availability of resources in the supplier market, +market demand, market disruptions, natural disasters and other factors. Government tariffs that are imposed may also impact the availability +and cost of our key hardware parts and accessories. We may not be able to obtain stable, high-quality parts and accessories at reasonable +prices. If prices rise, it would have a material adverse effect on our operating results. +8 +Table of Contents +The +markets in which we participate are highly competitive and many companies, including large technology companies, are actively targeting +the home automation, security monitoring and video monitoring markets. If we are unable to compete effectively with these companies, +our sales and profitability could be adversely affected. +We +compete in several markets, including home automation, security monitoring and video monitoring. The markets in which we participate +are highly competitive and competition may intensify in the future. +Our +ability to compete depends on a number of factors, including: +● our +platform and products’ functionality, performance, ease of use, reliability, availability +and cost effectiveness relative to that of our competitors’ products; +● our +success in utilizing new and proprietary technologies to offer products and features previously +not available in the marketplace; +● our +success in identifying new markets, applications and technologies; +● our +ability to attract and retain partners; +● our +name recognition and reputation; +● our +ability to recruit software engineers and sales and marketing personnel; and +● our +ability to protect our intellectual property. +Consumers +may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. In the +event a consumer decides to evaluate a new product or a solution, the consumer may be more inclined to select one of our competitors +whose product offerings are broader than those that we offer. +Aggressive +business tactics by our competitors may reduce our revenue. +Increased +competition in the markets in which we compete may result in aggressive business tactics by our competitors, including: +● selling +at a discount; +● offering +products similar to our platform and products on a bundled basis at lower prices; +● announcing +competing products combined with extensive marketing efforts; +● providing +financing incentives to consumers; and +● asserting +intellectual property rights irrespective of the validity of the claims. +Our +service providers may switch and offer the products and services of competing companies, which would adversely affect our sales and profitability. +Competition from other companies may also adversely affect our negotiations with service providers and suppliers, including, in some +cases, requiring us to lower our prices. Opportunities to take market share using innovative products, services and sales approaches +may also attract new entrants to the field. We may not be able to compete successfully with the offerings and sales tactics of other +companies, which could result in the loss of service providers offering our platform and products and, as a result, our revenue and profitability +could be adversely affected. +If we fail to compete successfully against our current and future competitors, or if our current or future competitors employ +aggressive business tactics, including those described above, demand for our platforms and products could decline, we could +experience cancellations of our services to consumers, or we could be required to reduce our prices or increase our +expenses. +We +receive a substantial portion of our revenue from a limited number of service providers, and the loss of, or a significant reduction +in, orders from one or more of our major service providers would result in decreased revenue and profitability. +Our +success is highly dependent upon establishing and maintaining successful relationships with a variety of service providers. We generally +enter into agreements with our service providers outlining the terms of our relationship, including service provider pricing commitments, +maintenance and support requirements. These contracts typically have an initial term of three years, with subsequent renewal terms. While +we have developed a network of service providers, we receive a substantial portion of our revenue from a limited number of service providers. +For the fiscal year ended December 31, 2025, one customer, Kami Vision Incorporated (“Kami”), a related party to AMC, contributed +approximately 52% of AMC’s revenue and accounted for 79% of AMC’s accounts receivable at December 31, 2025. The loss of one +or more key service provider, a reduction in sales through any major service provider, the inability of any customer to fulfill +its financial obligations or the inability or unwillingness of any of our major service provider to pay for our products reduce our revenue +and could impair our profitability. Additionally, this concentration exposes AMC to potential collection risks and could increase its +vulnerability to any economic downturns or operational disruptions affecting key customers. +9 +Table of Contents +Mergers +or other strategic transactions involving our competitors could weaken our competitive position, which could adversely affect our ability +to compete effectively and harm our results of operations. +Our +industry is highly fragmented, and we believe it is likely that some of our existing competitors will consolidate or be acquired. In +addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships +with systems integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative +relationship could adversely affect our ability to compete effectively and lead to pricing pressure and our loss of market share and +could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our business, +results of operations and financial condition. +A +significant decline in subscriber retention, renewal rates, or usage of services provided by our business partners would have an adverse +effect on our business, financial condition and operating results. +A +significant portion of our revenue is derived from arrangements with related-party service providers, including SaaS and platform-based +services offered by such provider. Our revenue is therefore dependent, in part, on the number of active subscribers to these services +and their level of usage of platform features. Subscribers may elect to terminate or reduce their use of such services at any time. If +the related party service provider is unable to attract, retain, or expand their subscriber base, or if subscriber engagement declines, +our revenue and ability to grow could be adversely affected. +We +do not control the contractual relationship between the related party service provider and their subscribers, and we do not independently +determine renewal rates. As a result, we have limited visibility into, and ability to influence, subscriber retention and renewal trends. +Accordingly, we may not be able to accurately predict future trends in renewals, usage, or churn associated with these services. +Subscribers +may choose not to renew their contracts or may reduce usage for a variety of reasons, including dissatisfaction with the service, pricing +considerations, reduced discretionary spending, or a belief that competing services provide better value. In addition, subscriber behavior +may be affected by factors outside of our or our business partners’ control, such as changes in economic conditions, relocation, +or the dissolution of a business. +A +significant decline in subscriber retention, renewal rates, or usage levels associated with this related party services would have an +adverse effect on our business, financial condition, and operating results. +If +we are unable to develop new products, sell our platform and products into new markets or further penetrate our existing markets, our +revenue may not grow as expected. +Our +ability to increase sales will depend in large part on our ability to enhance and improve our platform and products, introduce new products +in a timely manner, sell into new markets and further penetrate our existing markets. The success of any enhancement or new solution +or service depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new products, +the ability to maintain and develop relationships with service providers, the ability to attract, retain and effectively train sales +and marketing personnel and the effectiveness of our marketing programs. Any new product or service we develop or acquire may not be +introduced in a timely or cost-effective manner, and may not achieve the broad market acceptance necessary to generate significant revenue. +Any new markets into which we attempt to sell our platform and products, including new vertical markets and new countries or regions, +may not be receptive. Our ability to further penetrate our existing markets depends on the quality of our platform and products and our +ability to design our platform and products to meet consumer demand. +We +rely on wireless carriers to provide access to wireless networks through which we provide our wireless alarm, notification and intelligent +automation services, and any interruption of such access would impair our business. +We +rely on wireless carriers to provide access to wireless networks for machine-to-machine data transmissions, which are an integral +part of our services. Our wireless carriers may suspend wireless service to expand, maintain or improve their networks. Any +suspension or other interruption of services would adversely affect our ability to provide our services to our service providers and +subscribers and may adversely affect our reputation. In addition, the inability to maintain our existing contracts with our wireless +carriers or enter into new contracts with such wireless carriers could have a material adverse effect on our business, financial +condition and results of operations. +10 +Table of Contents +Any +security incident, other technology disruption, or failure to comply with laws and regulations relating to privacy and processing of +personal information could result in damage to AMC’s brand and reputation, material financial penalties, and legal liability, any +of which could negatively impact our business, results of operations and financial condition. +AMC’s +business involves the use of computers in substantially all aspects of its business operations. AMC also uses mobile devices, social +networking and other online activities to connect with its employees, suppliers, manufacturers, distributors, customers and +consumers. As AMC pursues new initiatives that grow its operations, including acquisitions, AMC may also be required to expand and +improve its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. +Security incidents can take a variety of forms and are constantly evolving due to the increasing sophistication of threat actors, +each of which increases the difficulty of detecting and successfully defending against them. If AMC fails to assess, identify, and +respond to cybersecurity risks associated with the expansion and evolution of its business or the increasing sophistication of +hackers, AMC may become increasingly vulnerable to such risks. +While +AMC believes that it has implemented reasonable measures to prevent security incidents, there can be no assurances that such measures +will be effective to protect AMC’s information technology systems and/or the relevant personal or sensitive information it processes. +As an early-stage company, AMC’s resources to invest in data security protection are limited, and AMC may not be sufficiently protected +against security incidents. AMC may not have sufficient resources to adequately investigate and remediate any vulnerabilities related +to security incidents, or to prevent them. +In +addition to breach notification laws that may be triggered by security incidents or access or exfiltration of personal information by +unauthorized persons, AMC may also be contractually required to notify customers or other counterparties of a security incident. Maintaining +industry standard safeguards and, if needed, addressing a security incident may be costly. Complying with the numerous and complex regulations +in the event of a data security breach would be potentially expensive, and resource-intensive and failure to comply could subject us +to regulatory scrutiny and potential liability, including fines, penalties, or litigation. In addition, the theft, destruction, loss, +misappropriation, or release of personal information or intellectual property, or interference with AMC’s information technology +systems or the technology systems of third parties on which it relies, could result in business disruption, reputational harm, violation +of privacy laws, loss of customers, potential liability and competitive disadvantage, all of which could have a material adverse impact +on AMC’s business, financial condition or results of operations. +We +may require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all. +We +intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, +including the need to develop new features or enhance our products, improve our operating system or acquire complementary businesses +and technologies. Our capital requirements will depend on many factors, including, but not limited to: +● technological +advancements; +● market +acceptance of our products and product enhancements, and the overall level of sales of our +products; +● R&D +expenses; +● our +relationships with our customers and suppliers; +● our +ability to control costs; +● sales +and marketing expenses; +● enhancements +to our infrastructure and systems and any capital improvements to our facilities; +● potential +acquisitions of businesses and product lines; and +If +we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow +or support our business and to respond to business challenges could be limited. +11 +Table of Contents +The +technology employed in our products may become obsolete, and we may need to incur significant capital expenditures to update our products +for changes in technology. +Our +industry is characterized by rapid technological innovation. Our platform and products interact with the hardware and software technology +of systems and devices located at our subscribers’ properties. We may be required to modify or change our products or products +to adapt to new technologies or changes in existing technologies in response to changing market conditions, consumer preferences or industry +standards, which could require significant capital expenditures. For example, many of our products are currently working on platforms +that rely on 3G/4G wireless technology. As 5G wireless technology becomes more prevalent, it may require changes to our products or products. +It is also possible that one or more of our competitors could develop a significant technical advantage that allows them to provide additional +or superior quality products or services, or to lower their price for similar products or services, which could put us at a competitive +disadvantage. Our inability to adapt to changing technologies, market conditions or consumer preferences in a timely manner could materially +and adversely affect our business, financial condition, cash flows or results of operations. +If +we are unable to continue to utilize the “Yi” brand name, it could materially and adversely affect our business, financial +condition and results of operations. +We +currently utilize the “Yi” brand name in almost all of the products we sell. We have been granted permission by Shanghai +Xiaoyi Technology Co., Ltd., the owner of the “Yi” brand name, to utilize such name in all of our products in our online +sales through October 22, 2026. We cannot assure you that we will be able to extend this arrangement beyond such date. If we are unable +to maintain this arrangement in the future and lose the ability to utilize the “Yi” brand name, it could materially and adversely +affect our business, financial condition and results of operations. +We +depend on our suppliers, and the loss of any key supplier could materially and adversely affect our business, financial condition and +results of operations. +Our +hardware products depend on the quality of components that we procure from related-party suppliers. Reliance on suppliers, as well as +industry supply conditions, generally involves several risks, including the possibility of defective parts, which can adversely affect +the reliability and reputation of our platform and products, and a shortage of components and reduced control over delivery schedules +and increases in component costs, which can adversely affect our profitability. We have two related parties from which we procure hardware +on a purchase order basis. If these suppliers are unable to continue to provide a timely and reliable supply, we could experience interruptions +in delivery of our platform and products to service providers, which could have a material adverse effect on our business, financial +condition and results of operations. If we were required to find alternative sources of supply, qualification of alternative suppliers +and the establishment of reliable supplies could result in delays and a possible loss of sales, which could have a material adverse effect +on our business, financial condition and results of operations. +Disruptions +in the supply chain for AMC’s products could negatively impact AMC’s business. +AMC’s business has +in the past been impacted by supply chain disruptions, particularly a short supply of security cameras. To address this challenge, +AMC in the past purchased Ants’ remaining inventory of security cameras, which allowed it to meet customer demand without +significant interruptions to its operations or revenue. While the disruption posed challenges, AMC’s proactive measures helped +mitigate immediate risks to customer satisfaction and market position. AMC has implemented several strategies to address supply +chain risks going forward, including diversifying its supplier base by expanding partnerships with multiple suppliers to reduce +reliance on any single source, and seeking to better manage its inventory by increasing the amount of parts and accessories +purchased when placing purchase orders. These mitigation efforts, while effective in addressing short-term supply chain disruptions, +introduced certain other risks, including product quality and reliability risks dealing with new suppliers and higher costs to +increase inventory levels. Although AMC will seek to mitigate these risks such as by conducting rigorous quality assurance +processes, there can be no assurance that AMC will be successful in these efforts. If it is not, it could have a material adverse +effect on AMC’s business. +AMC +faces inflationary pressures which could negatively impact its business. +To +date, recent inflationary pressures have not had a material impact on AMC’s business and operations. However, such pressures could +increase over time and if they did, it could have a material impact on AMC’s business and operations. For instance, to date, the +costs associated with procuring AMC’s hardware, raw materials and third-party services have not increased materially as AMC’s +main suppliers are located in PRC where inflation has been controlled in the past year. If inflation were to increase in these locations, +it could negatively impact AMC’s business. +12 +Table of Contents +Furthermore, inflationary pressures in the logistics sector, including higher fuel and +transportation costs, could increase and further negatively impact the cost of delivering AMC’s products and products. The United +States government has also recently imposed higher tariffs on products from the PRC, which could increase the prices of our products +and services and could negatively impact our business. If AMC is unable to implement successful strategies to offset such inflationary +pressures and/or tariffs, it could have a material adverse effect on its business and operations. +Growth +of our business will depend on market awareness and a strong brand, and any failure to develop, maintain, protect and enhance our brand +would hurt our ability to retain or attract subscribers. +We +believe that building and maintaining market awareness, brand recognition and goodwill in a cost-effective manner is critical to our +overall success in achieving widespread acceptance of our existing and future products and is an important element in attracting new +service providers and subscribers. An important part of our business strategy is to increase service provider and consumer awareness +of our brand and to provide marketing leadership, services and support to our service provider network. This will depend largely on our +ability to continue to provide high-quality products, and we may not be able to do so effectively. While we may choose to engage in a +broader marketing campaign to further promote our brand, this effort may not be successful. Our efforts in developing our brand may be +hindered by the marketing efforts of our competitors and our reliance on our service providers and strategic partners to promote our +brand. If we are unable to cost-effectively maintain and increase awareness of our brand, our business, results of operations and financial +condition could be harmed. +Our +strategy includes pursuing acquisitions, and our potential inability to successfully integrate newly-acquired technologies, assets or +businesses may harm our financial results. +We +believe part of our growth will be driven by acquisitions of other companies or their technologies, assets and businesses. Any acquisitions +we complete will give rise to risks, including: +● incurring +higher than anticipated capital expenditures and operating expenses; +● failing +to assimilate the operations and personnel or failing to retain the key personnel of the +acquired company or business; +● failing +to integrate the acquired technologies, or incurring significant expense to integrate acquired +technologies into our platform and products; +● diverting +our management’s attention and other company resources; +● failing +to maintain uniform standards, controls and policies; +● incurring +significant accounting charges; +● impairing +relationships with employees, service providers or subscribers; +● finding +that the acquired technology, asset or business does not further our business strategy, that +we overpaid for the technology, asset or business or that we may be required to write off +acquired assets or investments partially or entirely; +● failing +to realize the expected synergies of the transaction; +● being +exposed to unforeseen liabilities and contingencies that were not identified prior to acquiring +the company; and +Fully +integrating an acquired technology, asset or business into our operations may take a significant amount of time. We may not be +successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not successfully avoid +or overcome the risks or problems related to any such acquisitions, our results of operations and financial condition could be +harmed. Acquisitions also could impact our financial position and capital requirements, or could cause fluctuations in our quarterly +and annual results of operations. Acquisitions could include significant goodwill and intangible assets, which may result in future +impairment charges that would reduce our stated earnings. We may incur significant costs in our efforts to engage in strategic +transactions and these expenditures may not result in successful acquisitions. +13 +Table of Contents +To +carry out our business plan, we may face the challenge that we are short of human capital resources. +In +our business plan, we are planning to launch new products which require intensive investment of human capital resources. We currently +employ only a small group of people and rely on the outsourced human capital that we work with. The lack of human resources has potential +to impact the development of our business plan and delay the launch of our new products. +Evolving +government and industry regulation and changes in applicable laws relating to the Internet and data privacy may increase our expenditures +related to compliance efforts or otherwise limit the products we can offer, which may harm our business and adversely affect our financial +condition. +As +internet commerce continues to evolve, federal, state or foreign agencies have adopted and could in the future adopt regulations covering +issues such as user privacy and content. We are particularly sensitive to these risks because the Internet is a critical component of +our business model. In addition, taxation of products or services provided over the Internet or other charges imposed by government agencies +or by private organizations for accessing the internet may be imposed. Any regulation imposing greater fees for Internet use or restricting +information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, +which could harm our business. +Changes +in international trade policies, tariffs and treaties affecting imports and exports may have a material adverse effect on our operations. +There +have recently been significant changes to international trade policies and tariffs affecting imports and exports. Any significant increases +in tariffs on goods or materials or other changes in trade policy could negatively affect our operations. +Recently, +the U.S. has implemented a range of new tariffs and increases to existing tariffs. In response to the tariffs announced by the U.S., +other countries have imposed, are considering imposing, and may in the future impose new or increased tariffs on certain exports from +the United States. There is currently significant uncertainty about the future relationship between the United States and other countries +with respect to trade policies, taxes, government regulations and tariffs. We cannot predict whether, and to what extent, current tariffs +will continue or trade policies will change in the future. Such changes could have a material adverse effect on our operations. +We +rely on the performance of our senior management and highly skilled personnel, and if we are unable to attract, retain and motivate well-qualified +employees, our business and results of operations could be harmed. +We +believe our success depends on the efforts and talents of senior management and key personnel. Our future success depends on our continuing +ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and +we may incur significant costs to attract them. In addition, the loss of any of our senior management or key personnel could interrupt +our ability to execute our business plan, as such individuals may be difficult to replace. If we do not succeed in attracting well-qualified +employees or retaining and motivating existing employees, our business and results of operations could be harmed. +Our +business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade +problems such as terrorism or global or regional economic, political and social conditions. +A +significant natural disaster, such as an earthquake, fire or a flood, or a significant power outage could harm our business, results +of operations and financial condition. Natural disasters could affect our hardware vendors. Further, if a natural disaster occurs in +a region from which we derive a significant portion of our revenue, such as metropolitan areas in North America, consumers in that +region may delay or forego purchases of our platform and products from service providers in the region, which may harm our results +of operations for a particular period. In addition, terrorist acts or acts of war could cause disruptions in our business or the +business of our hardware vendors, service providers, subscribers or the economy as a whole. More generally, these geopolitical, +social and economic conditions could result in increased volatility in worldwide financial markets and economies that could harm our +sales. Given our concentration of sales during the third and fourth quarters, any disruption in the business of our hardware vendors +and service providers that impacts sales during the third or fourth quarter could have a greater impact on our annual results. All +of the aforementioned risks may be augmented if the disaster recovery plans for us, our service providers and our suppliers prove to +be inadequate. To the extent that any of the above results in delays or cancellations of orders, or delays in the manufacture, +deployment or shipment of our platform and products, our business, financial condition and results of operations would be +harmed. +14 +Table of Contents +Downturns +in general economic and market conditions and reductions in spending may reduce demand for our platform and products, which could harm +our revenue, results of operations and cash flows. +Our +revenue, results of operations and cash flows depend on the overall demand for our platform and products. Concerns about the systemic +impact of a potential widespread recession, energy costs, geopolitical issues, the availability and cost of credit and the global housing +and mortgage markets have contributed to increased market volatility, decreased consumer confidence and diminished growth expectations +in the U.S. economy. The current unstable general economic and market conditions have been characterized by a dramatic decline in consumer +discretionary spending and have disproportionately affected providers of products that represent discretionary purchases. While the decline +in consumer spending has recently moderated, these economic conditions could still lead to continued declines in consumer spending over +the foreseeable future, and may have resulted in a resetting of consumer spending habits that may make it unlikely that such spending +will return to prior levels for the foreseeable future. +During +weak economic times, the available pool of service providers may decline as the prospects for home building and home renovation projects +diminish, which may have a corresponding impact on our growth prospects. In addition, there is an increased risk during these periods +that one of our service providers will file for bankruptcy protection, which may harm our reputation, revenue, profitability and results +of operations. Likewise, consumer bankruptcies can detrimentally affect the business stability of our service providers. Prolonged economic +slowdowns and reductions in new home construction and renovation projects may result in diminished sales of our platform and products. +Further worsening, broadening or protracted extension of the economic downturn could have a negative impact on our business, revenue, +results of operations and cash flows. +Failure +to comply with laws and regulations could harm our business. +We +conduct our principal business operations in the United States. We are subject to regulation by various federal, state and local agencies, +including, but not limited to, agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product +safety, environmental laws, consumer protection laws, federal securities laws and tax laws and regulations. +We +are subject to the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Foreign Corrupt Practices Act of 1977, as +amended, the U.S. Travel Act, and possibly other anti-bribery laws, including those that comply with the OECD Convention on Combating +Bribery of Foreign Public Officials in International Business Transactions and other international conventions. Anti-corruption laws +are interpreted broadly and prohibit our company from authorizing, offering, or providing directly or indirectly improper payments or +benefits to recipients in the public or private-sector. Certain laws could also prohibit us from soliciting or accepting bribes or kickbacks. +Our company has direct government interactions and in several cases uses third-party representatives, including dealers, for regulatory +compliance, sales and other purposes in a variety of countries. These factors increase our anti-corruption risk profile. We can be held +liable for the corrupt activities of our employees, representatives, contractors, partners and agents, even if we did not explicitly +authorize such activity. Although we have implemented policies and procedures designed to ensure compliance with anti-corruption laws, +there can be no assurance that all of our employees, representatives, contractors, partners, and agents will comply with these laws and +policies. +We +are also subject to data privacy and security laws, anti-money laundering laws (such as the USA PATRIOT Act), and import/export laws +and regulations in the United States and in other jurisdictions. +Our +business operates in a regulated industry. +Our +business, operations and service providers are subject to various U.S. federal, state and local consumer protection laws, licensing +regulation and other laws and regulations. Our advertising and sales practices and that of our service provider network are subject +to regulation by the U.S. Federal Trade Commission, or the FTC, in addition to state consumer protection laws. The FTC and the +Federal Communications Commission have issued regulations that place restrictions on, among other things, unsolicited automated +telephone calls to residential and wireless telephone subscribers by means of automatic telephone dialing systems and the use of +prerecorded or artificial voice messages. If our service providers were to take actions in violation of these regulations, such as +telemarketing to individuals on the “Do Not Call” registry, we could be subject to fines, penalties, private actions or +enforcement actions by government regulators. Although we have taken steps to insulate ourselves from any such wrongful conduct by +our service providers, and to require our service providers to comply with these laws and regulations, no assurance can be given +that we will not be exposed to liability as result of our service providers’ conduct. Further, to the extent that any changes +in law or regulation further restrict the lead generation activity of our service providers, these restrictions could result in a +material reduction in subscriber acquisition opportunities, reducing the growth prospects of our business and adversely affecting +our financial condition and future cash flows. In addition, most states in which we operate have licensing laws directed +specifically toward the monitored security services industry. Our business relies heavily upon cellular telephone service to +communicate signals. Cellular telephone companies are currently regulated by both federal and state governments. Changes in laws or +regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, +failure to comply with any such applicable laws or regulations could result in substantial fines or revocation of our operating +permits and licenses, including in geographic areas where our services have substantial penetration, which could adversely affect +our business and financial condition. Further, if these laws and regulations were to change or if we fail to comply with such laws +and regulations as they exist today or in the future, our business, financial condition and results of operations could be +materially and adversely affected. +15 +Table of Contents +If +we fail to protect our intellectual property and proprietary rights adequately, our business could be harmed. +We +believe that our proprietary technology is essential to establishing and maintaining our position in the market that we operate. We seek +to protect our intellectual property through confidentiality, non-compete and non-disclosure agreements, domain names and other measures, +some of which afford only limited protection. We also rely on patent, trademark, trade secret and copyright laws to protect our intellectual +property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology or +to obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate or our +competitors may independently develop similar or superior technology, or design around our intellectual property. In addition, the laws +of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. Intellectual +property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors +to capture market share. Our failure or inability to adequately protect our intellectual property and proprietary rights could harm our +business, financial condition and results of operations. +Risks +related to Foreign Operations +If +AMC is deemed to be a China-based company, it could have a significant impact on AMC’s business operations and the value of its +securities. +Based +on AMC’s jurisdiction of incorporation, financial makeup and business operations, AMC is not considered a China-based company. +However, because it conducts certain operations in the PRC, it is possible that the PRC government could seek to deem AMC as a China-based +issuer. If AMC were to be deemed to be a China-based issuer and become subject to PRC regulation and oversight, it could have a material +adverse effect on its business operations and the value of its securities. +The +PRC legal system is based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but do +not have binding authority. As PRC legal system is evolving rapidly, the interpretations of many laws, regulations and rules may contain +inconsistencies and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available +to AMC. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published +on a timely basis or at all. As a result, AMC may not be aware of its violation of such policies and rules until sometime after the violation. +AMC cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing +laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties, including +any inability to enforce AMC’s contracts, together with any development or interpretation of PRC law that is adverse to AMC, could +materially and adversely affect AMC’s business and operations and limit the legal protections available and other foreign investors, +including you. +In +the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in +general. The overall effect of legislation over the past five decades has significantly increased the protections afforded to +various forms of foreign or private-sector investment in China. However, many of these laws, regulations and legal requirements are +relatively new and still evolving and uncertainties remain as to the interpretation and application of PRC laws and regulations +including, but not limited to, the laws and regulations governing AMC’s business and the enforcement and performance of +AMC’s business arrangements in certain circumstances. The laws and regulations are sometimes vague and may be subject to +future changes, and their official interpretation and enforcement could be unpredictable. The effectiveness and interpretation of +newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and AMC’s business +may be affected if it relies on laws and regulations which are subsequently adopted or interpreted in a manner different from its +current understanding of these laws and regulations. AMC cannot predict what effect the interpretation of existing or new PRC laws +or regulations may have on its business. Although AMC has taken measures to comply with the laws and regulations applicable to its +business operations and to avoid conducting any non-compliant activities under these laws and regulations, the PRC governmental +authorities may promulgate new laws and regulations that may affect AMC’s operations. AMC cannot rule out the possibility that +there might be future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the +interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. Failure to comply with such +evolving laws and regulations may subject AMC to material sanctions or penalties imposed by the governmental authorities. +16 +Table of Contents +The +PRC government may exercise certain oversight over the conduct of AMC’s business, and may influence AMC’s operations, which +could result in changes in AMC’s operations. Changes in China’s economic or social conditions or government policies could +have a material adverse effect on AMC, and the surviving combined business after the combination, and their business, results of operations, +financial condition, and the value of AMC securities. +Since +AMC conducts certain of its operation in and some of its assets are located in PRC, the PRC government may seek to influence and exert +control over AMCs operations which could result in a material change in its operations and/or the value of AMC’s securities. In +addition, AMC’s results of operations and financial condition may be influenced to a significant degree by the economic and social +conditions in the PRC. +The +PRC government may be authorized by the laws and regulations to exercise significant control and take regulatory actions over the conduct +of AMC’s business, and the regulations to which we are subject may change rapidly and with little advance notice. Like many other +jurisdictions, new laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance +or any associated inquiries or investigations or any other government actions may: +● Delay +or impede AMC’s development, +● Result +in negative publicity or increase AMC’s product cost and operating costs, +● Require +significant management time and attention, and +● Subject +AMC to remedies, administrative penalties and even criminal liabilities that may adversely +affect AMC’s business. +The +promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise +unfavorably impact the ability or manner in which AMC conducts its business and could require AMC to change certain aspects of its business +to ensure compliance, which could reduce revenues, increase costs, require AMC to obtain additional licenses, permits, approvals or certificates, +or subject AMC to additional liabilities. To the extent any new or more stringent measures are required to be implemented, AMC’s +business, financial condition and results of operations could be adversely affected. +AMC +may experience delays and/or failures in obtaining and renewing relevant PRC governmental approvals, licenses, permits or others required +for its operation conducted in PRC. +AMC +is required to obtain various approvals, permits, licenses and certificates with respect to the portion of its operations in the PRC, +including, for example, planning permits, certificates for passing environmental assessments, certificates for passing fire control assessments. +Generally, such approvals, licenses, permits, certificates or inspections are only issued, renewed or completed after certain conditions +have been satisfied. AMC cannot assure that it will not encounter obstacles that delay it in obtaining or completing, or result in its +failure to obtain or complete, the required approvals or inspections. In the event that AMC encounters significant delays in obtaining +or renewing the necessary government approvals or fails to timely complete the inspection, AMC will not be able to continue its normal +operations and its business, financial condition and results of operations may be adversely affected. +The +enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect AMC’s operations. +The +Standing Committee of the National People’s Congress enacted the Labor Contract Law in 2008, and amended it on December 28, +2012. The Labor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, +probationary periods, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of +employees, severance, and collective bargaining to enhance previous PRC labor laws. In the event that AMC decides to terminate the +labor relationships with some of its employees or otherwise change its employment or labor practices, the Labor Contract Law and its +implementation rules may limit its ability to effect those changes in a desirable or cost-effective manner, which could adversely +affect its business and results of operations. +17 +Table of Contents +Additional +Regulations under PRC Law Relating to Data Security and Confidentiality and Archives Management may subject us to additional compliance +requirements in the future. +Recently, +the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council of the PRC (the +“State Council”) jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, +or the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration +over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. The Opinions +proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents +facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. +On +February 24, 2023, the CSRC and several other administrations jointly released the revised Provisions on Strengthening Confidentiality +and Archiving Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which came into +effect on March 31, 2023. The Archives Rules apply to both overseas direct offerings and overseas indirect offerings. The Archives Rules +provides that, among other things, (i) in relation to the overseas listing activities of PRC domestic enterprises, the PRC domestic enterprises +are required to strictly comply with the relevant requirements on confidentiality and archives management, establish a sound confidentiality +and archives system, and take necessary measures to discharge their confidentiality and archives management responsibilities; (ii) if +a PRC domestic enterprise is required to publicly disclose or provide to any securities companies or other securities service providers +or overseas regulators or individuals, any materials that contain state secrets or government work secrets (where there is ambiguity +or dispute on whether it is state secret or government work secret, a request shall be submitted to the competent government authority +for determination), during the course of its overseas offering or listing, the PRC domestic enterprise shall apply for approval from +competent authorities and file with the secrecy administrative department at the same level; and (iii) working papers produced in China +by securities companies and other securities service institutions, who provide such PRC domestic enterprises with securities services +during their overseas issuance and listing, should be stored in the PRC, and the transmission of any such working papers to recipients +outside China must be approved following the applicable PRC regulations. +Any +failure or perceived failure by PRC domestic companies to comply with the above confidentiality and archives administration requirements +under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent +authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime. +Recent +greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact +our business. +On +December 28, 2021, the Cyberspace Administration of China, or the CAC and several other administrations jointly issued the revised Measures +for Cybersecurity Review, or the Revised Review Measures, which became effective and replaced the existing Measures for Cybersecurity +Review on February 15, 2022. According to the Revised Review Measures, if an “online platform operator” that is in possession +of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based +on a set of Q&A published on the official website of the CAC in connection with the issuance of the Revised Review Measures, an official +of the CAC indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing +application with non-PRC securities regulators. After the receipt of all required application materials, the authorities must determine, +within ten business days thereafter, whether a cybersecurity review will be initiated, and issue a written notice to the relevant applicant +of its determination. If a review is initiated and the authorities conclude after such review that the listing will affect national security, +the listing of the relevant applicant will be prohibited. Given the recency of the issuance of the Revised Review Measures, there is +a general lack of guidance and substantial uncertainties exist with respect to its interpretation and implementation. +On +December 28, 2021, 13 governmental departments of the PRC, including the CAC, jointly promulgated the Cybersecurity Review Measures, +which became effective on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information +infrastructure operators (the “CIIOs”) that intend to purchase Internet products and services, net platform operators +engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the +Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential +national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review +Measures require that an online platform operator which possesses the personal information of at least one million users must apply +for a cybersecurity review by the CAC if it intends to be listed in foreign countries. +18 +Table of Contents +Additionally, +the PRC Cybersecurity Law requires companies to implement certain organizational, technical and administrative measures and other necessary +measures to ensure the security of their networks and data stored on their networks. Specifically, the Cybersecurity Law provides that +China adopts a multi-level protection scheme (“MLPS”), under which network operators are required to perform obligations +of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data +from being disclosed, stolen or tampered. Under the MLPS, entities operating information systems must have a thorough assessment of the +risks and the conditions of their information and network systems to determine the level to which the entity’s information and +network systems belong-from the lowest Level 1 to the highest Level 5 pursuant to a series of national standards on the grading and implementation +of the classified protection of cybersecurity. The grading result will determine the set of security protection obligations that entities +must comply with. Entities classified as Level 2 or above should report the grade to the relevant government authority for examination +and approval. +On +November 14, 2021, the CAC released the Regulations on Network Data Security Management (draft for public comments), which provide that +if a data processor that processes personal data of more than one million users intends to list in a foreign country, it must apply for +a cybersecurity review. Pending the finalization, adoption, enforcement and interpretation of these new measures and regulations, we +cannot rule out the possibility that the measures and regulations may be enacted, interpreted or implemented in ways that will negatively +affect us. +The +PRC Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress, or the SCNPC, on June +10, 2021 and took effect on September 1, 2021, imposes data security and privacy obligations on entities and individuals carrying out +data activities. Further, the PRC Data Security Law introduces a data classification and hierarchical protection system based on the +importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or +legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired +or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national +security and imposes export restrictions on certain data and information. On July 30, 2021, the State Council promulgated the Regulations +on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. +The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity +Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator +of the critical information infrastructure in time after the identification of certain critical information infrastructure. +On +August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, +which took effect on November 1, 2021. As the first systematic and comprehensive law specifically for the protection of personal information +in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained +to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information +operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s +rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual +may file a lawsuit with a People’s Court. +As +of the date of this Annual Report on Form 10-K, AMC has not received any notice from any authorities identifying it as a critical +information infrastructure operator or requiring it to go through cybersecurity review or network data security review by the CAC. +AMC’s operations and listing are not expected to be affected by, or subject to, cybersecurity review by the CAC under the +Cybersecurity Review Measures, given that it is not (i) a network platform operator engaging in data processing activities that +affect or may affect national security; (ii) a critical information infrastructure operator purchasing cyber products or services +that affect or may affect national security; or (iii) a network platform operator with personal information data of more than one +million users. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft +will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, +rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration +Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, AMC expects to take all +reasonable measures and actions to comply and to minimize the adverse effect of such laws on it. AMC cannot guarantee, however, that +it will not be subject to cybersecurity review and network data security review in the future. During such reviews, AMC may be +required to suspend its operations or experience other disruptions to operations. Cybersecurity review and network data security +review could also result in negative publicity with respect to AMC and diversion of its managerial and financial resources, which +could materially and adversely affect its business, financial conditions, and results of operations. +19 +Table of Contents +Uncertainties +exist with respect to how the PRC Foreign Investment Law may impact the viability of AMC’s current corporate structure and operations. +Laws +regulating foreign investment in PRC include Foreign Investment Law of the People’s Republic of China, or the PRC Foreign Investment +Law, effective from January 1, 2020, and the Regulation for Implementing the Foreign Investment Law of the People’s Republic of +China, or the FIE Implementing Regulation, effective from January 1, 2020. The PRC Foreign Investment Law specifies that foreign investments +shall be conducted in line with the “negative list” to be issued or approved to be issued by the State Council. While AMC +does not operate in an industry that is currently subject to foreign investment restrictions or prohibition in PRC, it is uncertain whether +its industry will be named in an updated “negative list” to be issued in the future. If its industry is added to the “negative +list” or if the PRC regulatory authorities otherwise decide to limit foreign ownership in its industry, there could be a risk that +AMC would be unable to do regular business with its suppliers in PRC. If any new laws and/or regulations on foreign investments in PRC +are promulgated and implemented, such changes could have an impact on AMC’s current business and operations. In such event, despite +its efforts to restructure to comply with the then applicable PRC laws and regulations in order to continue its operations in PRC, AMC +may experience material changes in its operations. +There +are procedural requirements for foreign regulatory bodies to conduct investigations or inspections of AMC’s operations in China. +According +to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator can directly conduct +investigations or evidence collection activities within the PRC. Pursuant to the Data Security Law, no organization or individual within +the territory of the PRC may provide foreign judicial or law enforcement authorities with data stored within the territory of the PRC +without the approval of the competent authorities of the PRC. Accordingly, without Chinese government approval, no entity or individual +in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct +investigation or evidence discovery conducted by overseas regulators which could present legal and other obstacles to obtaining information +needed for investigations and litigation conducted outside of China. Furthermore, as of the date of this Annual Report on Form 10-K, +there have not been implementing rules or regulations regarding the application of Article 177, and, accordingly, it cannot be concluded +as to how it will be interpreted, implemented or applied by relevant government authorities. As such, there are also uncertainties as +to the procedures and requisite timing for the overseas securities regulatory agencies to conduct investigations and collect evidence +within the territory of the PRC. +Although +the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country +or region, such as the United States, which could allow such authorities to conduct investigations or evidence discovery, there is no +assurance that any such mechanism will be adopted or be effective. Accordingly, there is no guarantee that requests from U.S. federal +or state regulators or agencies to investigate or inspect AMC’s operations will be honored. If the U.S. securities regulatory agencies +are unable to conduct such investigations or evidence discovery processes, there exists a risk that such regulatory agencies may determine +to suspend or de-register AMC’s registration with the SEC and may also delist AMC’s securities from trading markets within +the United States. +Fluctuations +in the value of the Renminbi may materially adversely affect your investment. +The +value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in economic +conditions in China and by China’s foreign exchange policies. With the development of the foreign exchange market and progress +towards interest rate liberalization and Renminbi internationalization, the PRC government may announce further changes to the exchange +rate system, and the Renminbi may appreciate or depreciate significantly against the U.S. dollar. It is difficult to predict how market +forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar. +Significant +revaluation of the Renminbi may materially adversely affect investors’ investment. For example, to the extent that AMC needs +to convert U.S. dollars received from its business activities or financing activities in the U.S. market into Renminbi for the +operations such as paying for its purchase of parts and accessories from its suppliers or its employees in China, appreciation of +the Renminbi against the U.S. dollar would decrease the Renminbi amount that AMC would have received from the conversion. +20 +Table of Contents +The +hedging options available in China may not be sufficient to reduce AMC’s exposure to exchange rate fluctuations. As of the date +of this Annual Report on Form 10-K, AMC has not entered into any material hedging transactions to reduce its exposure to foreign currency +exchange risk. While AMC may enter into hedging transactions in the future, the availability and effectiveness of these hedges may be +limited, and AMC may not be able to adequately hedge their exposure. +General +risks applicable to AMC +Our +Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware is the sole and exclusive forum +for certain stockholder litigation matters, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes +with AMC or its directors, officers, employees or stockholders. +The +Charter provides that, unless AMC consents in writing to the selection of an alternative forum, the Court of Chancery of the State of +Delaware shall to the fullest extent permitted by law be the sole and exclusive forum for any AMC stockholder (including a beneficial +owner) to bring (i) any derivative action or proceeding brought on behalf of AMC, (ii) any action asserting a claim of breach of a fiduciary +duty owed by any director, officer or other employee to AMC or AMC’s stockholders, (iii) any action asserting a claim against AMC, +its directors, officers or employees arising pursuant to any provision of the DGCL or the Organizational Documents, or (iv) any action +asserting a claim against AMC, its directors, officers or employees governed by the internal affairs doctrine. Notwithstanding the foregoing, +the exclusive forum clause will not apply to any claim as to which the Court of Chancery determines that there is an indispensable party +not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of +the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum +other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. Furthermore, the federal +district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of +action arising under the Securities Act or the Exchange Act. Any person or entity purchasing or otherwise acquiring any interest in shares +of AMC’s capital stock shall be deemed to have notice of and consented to the forum provisions in the Charter. Notwithstanding +the foregoing, investors cannot waive compliance with the U.S. federal securities laws and rules and regulations promulgated thereunder. +The +choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes +with AMC or any of its directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. +Alternatively, if a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable in +an action, AMC may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, +operating results and financial condition. +Geopolitical +conditions, including international conflicts, trade disputes and direct or indirect acts of war or terrorism, could have an adverse +effect on our operations and financial results. +Since +we operate on a global basis, our operations could be disrupted by geopolitical conditions, including international conflicts such +as the Russia-Ukraine, Israel-Hamas and US-Iran conflicts, trade disputes, international boycotts and sanctions, political and +social instability, acts of war, terrorist activity or other similar events. From time to time, we could have a large investment in +a particular asset type, a large revenue stream associated with a particular customer or industry, or a large number of customers +located in a particular geographic region. A discrete event impacting a specific asset type, customer, industry, or region in which +we have a concentrated exposure could negatively impact our results of operations. +21 +Table of Contents +Anti-takeover +provisions in our organizational documents could make an acquisition of AMC more difficult. +The +Organizational Documents contain provisions that may delay or prevent a change of control, discourage bids at a premium over the price +of the Common Stock, adversely affect the price of the Common Stock, and adversely affect the voting and other rights of our stockholders. +These provisions include: (i) advance notice procedures for seeking to bring business before each annual meetings of stockholders or +for nominating candidates for director, (ii) permitting the board to issue additional shares of common stock and to issue shares of preferred +stock without the approval of stockholders, with such rights, preferences and privileges as they may designate; (iii) dividing the board +into classes; (iv) prohibiting actions by written consent of stockholders in lieu of a meeting; and (v) prohibiting stockholders from +calling a special meeting. In addition, the board may adopt a stockholder rights plan upon such terms and conditions as it deems expedient +in the interests of AMC. +The +rights of holders of the Common Stock may be impaired by the possible future issuance of preferred stock. +The +board has the right, without approval of the holders of the Common Stock, to issue preferred stock with voting, dividend, conversion, +liquidation and other rights which could adversely affect the voting power and equity interest of the holders of the Common Stock, which +could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing +a change-of-control. The possible negative impact on takeover attempts could adversely affect the price of the Common Stock. Although +there is no present intention to issue any additional preferred stock, AMC may issue preferred stock in the future without further approval +of the holders of the Common Stock. +We +are a controlled company under Nasdaq rules. +Entities +controlled by Sean Da own approximately 83% of the Common Stock. Accordingly, for the foreseeable future, Mr. Da controls AMC +and its corporate affairs. As a result, Mr. Da, through such entities, has the ability to determine all matters requiring approval by +stockholders, including the election of directors, amendments of organizational documents, and approval of major corporate transactions, +such as a change in control, merger, consolidation, or sale of assets. Similarly, he has the ability to prevent the approval of any action +submitted to the stockholders by other stockholders. If Mr. Da does not provide any requisite approval or consent allowing AMC to take +any such action when requested, it will not be able to engage in the related activities and, as a result, its business and its operating +results may be harmed. +Due +to the ownership by Mr. Da of the Common Stock, AMC is currently considered a “controlled company” under the Nasdaq rules. +This allows AMC to avoid complying with certain of the Nasdaq corporate governance rules, including the rules that require the company +to have a board comprised of at least 50% independent directors, to have board nominations either selected, or recommended for the board’s +selection, by either a nominating committee comprised solely of independent directors or by a majority of the independent directors and +to have officer compensation determined, or recommended to the board for determination, either by a compensation committee comprised +solely of independent directors or by a majority of the independent directors. As of the date of this Annual Report on Form 10-K, AMC +has not taken advantage of any of these exemptions. If AMC determines to rely on any certain of these exemptions from the corporate governance +requirements of Nasdaq in the future, investors may not have the same protections afforded to stockholders of companies that are subject +to all of the Nasdaq corporate governance requirements. +AMC +is an emerging growth company within the meaning of the Securities Act, and if AMC takes advantage of certain exemptions from disclosure +requirements available to “emerging growth companies”, this could make AMC’s securities less attractive to investors +and may make it more difficult to compare AMC’s performance with other public companies. +AMC +is an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. For as long as +AMC continues to be an emerging growth company, AMC may take advantage of exemptions from various reporting requirements that are +applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor +attestation requirements of Section 404 of the Sarbanes-Oxley Act. AMC could be an emerging growth company for up to five years, +although AMC could lose that status sooner if its revenues exceed $1.235 billion, if AMC issues more than $1 billion in +non-convertible debt in a three-year period, or if it becomes a large accelerated filer, as defined under the Exchange Act. We +cannot predict if investors will find AMC securities less attractive because the company relies on these exemptions. If some +investors find AMC securities less attractive as a result, there may be a less active trading market for AMC securities, and the +price of AMC securities may be more volatile. +22 +Table of Contents +It +is not expected that AMC will pay dividends in the foreseeable future after the Business Combination. +It +is expected that AMC will retain most, if not all, of its available funds and any future earnings to fund the development and growth +of its business. As a result, it is not expected that AMC will pay any cash dividends in the foreseeable future. The AMC Board has complete +discretion as to whether to distribute dividends. Even if the AMC Board decides to declare and pay dividends, the timing, amount and +form of future dividends, if any, will depend on the future results of operations and cash flow, capital requirements and surplus, AMC’s +financial condition, contractual restrictions and other factors deemed relevant by the AMC Board. +AMC’s +management team has limited experience managing a public company. +Most +of the members of AMC’s management team have limited or no experience in managing a publicly traded company, interacting with public +company investors, and complying with the increasingly complex laws and regulations pertaining to public companies. AMC’s management +team may not successfully or efficiently manage AMC’s transition to being a public company subject to significant regulatory oversight +and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new +obligations and constituents will require significant attention from AMC’s senior management and may divert their attention away +from the day-to-day management of its business, which could adversely affect AMC’s business, financial condition, and operating +results. +AMC’s +securities could be delisted, which could limit investors’ ability to make transactions in AMC’s securities and subject AMC +to additional trading restrictions. +AMC’s +Common Stock is listed on Nasdaq. If AMC fails in the future to meet the continued listing requirements and is subsequently delisted +from such exchange, AMC could face significant material adverse consequences, including: +● a +limited availability of market quotations for its securities; +● a +limited amount of news and analyst coverage for AMC; and +● a +decreased ability to issue additional securities or obtain additional financing in the future. +AMC +may be involved in legal or other proceedings arising out of their operations from time to time and may face reputational risks and significant +liabilities as a result. +AMC +may be involved from time to time in disputes with various parties involved in its operations, including but not limited to its +suppliers, employees, and logistics service providers. These disputes may lead to legal or other proceedings, including threatened +proceedings, which may result in damages to its reputation, substantial costs and diversion of AMC’s resources and +management’s attention. +In +addition, AMC may encounter additional compliance issues in the course of operations, which may subject AMC to administrative proceedings +and unfavorable results, and result in liabilities and delays relating to its production or product launch schedules. AMC cannot assure +as to the outcome of such legal proceedings, and any negative outcome may materially and adversely affect its business, financial condition +and results of operations. +Item +1B. Unresolved Staff Comments +None +Item +1C. Cybersecurity +We +maintain processes for assessing, identifying and managing material risks from cybersecurity threats to our business. These processes +apply to our internal information systems, connected products, software, data, third-party service providers and certain aspects of our +supply chain and business operations. Our business involves the use of computers, mobile devices, online platforms and other information +technologies in substantially all aspects of our operations, including communications with employees, suppliers, manufacturers, distributors, +customers and consumers. As a result, cybersecurity risk is an important part of our overall risk management activities. +23 +Table of Contents +Our +cybersecurity risk management processes are designed to address risks that may arise from unauthorized access to systems or data, theft, +destruction, loss, misappropriation or release of personal information or intellectual property, ransomware and other malware, phishing +and other social engineering, software vulnerabilities, misuse of credentials, failures of third-party hosted environments or applications, +and disruptions affecting the information technology systems of third parties on which we rely. These processes also reflect that security +incidents can take a variety of forms and continue to evolve as threat actors become more sophisticated. +As +part of these processes, we use a combination of safeguards and procedures that may include user access controls, monitoring and logging, +device and endpoint protections, vulnerability identification and remediation, incident response and escalation procedures, employee +awareness measures, and third-party diligence and oversight, as appropriate for our size and operations. Because we are an early-stage +company with limited personnel and resources, our cybersecurity processes are designed to be proportionate to our current business and +organizational structure. At the same time, our limited resources may affect the scope and speed of our ability to investigate, remediate +and prevent vulnerabilities and security incidents. +We +also consider cybersecurity matters in connection with the development, deployment and support of our products and products. Our business +depends in part on connected products, software functionality, wireless communications and evolving technologies, +and we may be required to expand and improve our information technologies as our business grows. These factors may increase our technological +presence and corresponding exposure to cybersecurity risk. In addition, because we rely on wireless carriers and other third-party service +providers in aspects of our business, interruptions, failures or security issues affecting those parties could adversely affect our operations, +services and reputation. +We +rely on third parties in several aspects of our business, including technology, logistics, communications and product sourcing, and we +consider third-party and supply-chain exposures as part of our cybersecurity risk management processes. Our dependence on suppliers and +other external counterparties may increase our exposure to operational disruptions, technology failures and other incidents outside our +direct control. We also consider broader business continuity risks that could affect us or the third parties on which we depend, including +natural disasters, power outages, geopolitical events, trade disputes, terrorism and other disruptions. +Our +business is also subject to privacy, data security and related laws and regulations in the United States and other jurisdictions. In +addition to breach notification requirements that may be triggered by a security incident, we may be contractually required to notify +customers or other counterparties of certain incidents. Maintaining safeguards and responding to an actual or suspected security incident +may be costly and resource-intensive and could subject us to regulatory scrutiny, litigation, fines, penalties, remediation costs, reputational +harm and business interruption. We therefore consider legal and regulatory developments relating to privacy, data security and the processing +of personal information as part of our cybersecurity risk management processes. +Because +we conduct certain operations in the PRC and have PRC-related suppliers, our cybersecurity and data-related risk management processes +also take into account certain PRC laws, regulations and regulatory developments. These include the PRC Cybersecurity Law, the PRC Data +Security Law, the Personal Information Protection Law, the Cybersecurity Review Measures and the multi-level protection scheme, or MLPS. +These laws and regulations may impose obligations relating to network security, data handling, personal information protection, classification +and protection of data, and potential cybersecurity review requirements. We monitor these developments as part of our overall compliance +and risk management activities because changes in PRC laws, regulations, interpretations or enforcement practices could impose additional +obligations on us, our subsidiaries, suppliers or business partners, or could disrupt our operations. +As +of the date of this Annual Report on Form 10-K, we have not received any notice from PRC authorities identifying us as a critical +information infrastructure operator or requiring us to undergo a cybersecurity review or network data security review by the CAC. +However, the interpretation and enforcement of PRC laws and regulations remain uncertain, and future developments could affect our +business, operations and compliance obligations. +24 +Table of Contents +Cybersecurity +oversight is part of our overall risk oversight framework. Our board of directors oversees major business risks, including material cybersecurity +risks, and management is responsible for the day-to-day assessment and management of those risks. Management’s oversight involves +coordination among personnel responsible for information technology, operations, product development, finance and legal or compliance +matters, as appropriate. Material cybersecurity matters are escalated to senior management and, where appropriate, to the board of directors. +This framework reflects our size, organizational structure and stage of development. +As +of the date of this Annual Report on Form 10-K, we are not aware of any cybersecurity incident that has materially affected, or is reasonably +likely to materially affect, the Company, including our business strategy, results of operations or financial condition. However, there +can be no assurance that our processes and measures will be effective to prevent all cybersecurity threats or incidents. Any security +incident, other technology disruption, or failure to comply with privacy, data security or related laws and regulations could harm our +brand and reputation, disrupt our operations, subject us to regulatory scrutiny or legal liability, and materially adversely affect our +business, results of operations and financial condition. +Item +2. Properties +We +do not currently own any material real property. We lease office space in New York City under a non-cancellable 39-month lease agreement +that expires in 2027. In addition to our leased office space, we rely on third parties for important aspects of our operations, including +suppliers, manufacturers, distributors and online sales channels. AMC has disclosed that suppliers of its products and certain operations +are located in China, and that it sells products through Amazon across the United States, Canada and Europe. As a result, our business +is not dependent on owned manufacturing facilities, and our operational footprint includes third-party facilities and infrastructure +used in sourcing, distribution and fulfillment. We believe our existing office space and the third-party facilities and infrastructure +on which we rely are adequate for our current needs. We expect to evaluate our property needs on an ongoing basis in light of the growth +of our business and operations. +Item +3. Legal Proceedings +From +time to time, the Company may become involved in claims, suits, investigations or other proceedings arising in the ordinary course of +business. As of the date of this Annual Report on Form 10-K, the Company is not a party to any material pending legal proceedings, and, +to the Company’s knowledge, no such material proceedings are threatened against it. +The +Company may in the future be subject to litigation or regulatory proceedings, including in connection with its business, intellectual +property, commercial relationships, product activities, privacy and data matters, employment matters, securities matters or other disputes. +Item +4. Mine Safety Disclosures +Not +Applicable. +25 +Table of Contents +Part +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market +Information +Our +common stock is listed on the Nasdaq Capital Market under the symbol “AMCI.” Prior to the consummation of the business combination +pursuant to which AMC Robotics became a publicly traded company, the securities of our predecessor entity traded under a different name +and ticker symbol. Following the closing of the business combination, our common stock began trading on the Nasdaq Capital Market under +the ticker symbol “AMCI.” +The +market price of our common stock may be volatile and subject to significant fluctuations in response to a number of factors, including +those described in Item 1A. Risk Factors of this Annual Report on Form 10-K. +Holders +As +of April 20, 2026, there were approximately 36 holders of record of our common stock. Because many of our shares are held +by brokers or other nominees on behalf of beneficial owners, the actual number of beneficial holders of our common stock is greater than +the number of record holders. +Dividend +Policy +We +have not declared or paid any cash dividends on our common stock since our inception. We currently intend to retain any future earnings +to fund the development and growth of our business. Accordingly, we do not anticipate paying cash dividends on our common stock in the +foreseeable future. +The +payment of any future dividends will be at the discretion of our board of directors and will depend upon our financial condition, results +of operations, capital requirements, contractual restrictions, business prospects and other factors that our board of directors may deem +relevant. +Recent +Sales of Unregistered Securities +During +the fiscal year ended December 31, 2025, we issued shares of our common stock and other securities in connection with the consummation +of our business combination and related transactions. These securities were issued in reliance on exemptions from registration under +the Securities Act of 1933, as amended (the “Securities Act”), including Section 4(a)(2) of the Securities Act and Regulation +D promulgated thereunder. The securities issued in these transactions were issued to accredited investors or other persons who were eligible +to receive such securities in transactions not involving a public offering. The recipients represented their intent to acquire the securities +for investment purposes and not with a view to distribution, and the securities were issued with appropriate legends and subject to applicable +transfer restrictions. Additional information regarding these transactions is included in our filings with the Securities and Exchange +Commission, including the Current Reports on Form 8-K and other filings relating to the business combination. +Issuer +Purchases of Equity Securities +Neither +we nor any affiliated purchaser repurchased any shares of our common stock during the fiscal year ended December 31, 2025. +Item +6. [Reserved] +26 +Table of Contents +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +Forward-Looking +Statements +References +to the “Company,” “our,” “us” or “we” refer to AMC Robotics Corporation. The following +discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the audited +financial statements and the related notes included in “Item 8. Financial Statements and Supplementary Data” of this Annual +Report on Form 10-K. +Certain +information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ +materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Cautionary +Note Regarding Forward-Looking Statements and Risk Factor Summary,” “Item 1A. Risk Factors,” and elsewhere in this +Annual Report on Form 10-K. +Overview +Our +Company and our Business Overview +AMC +Robotics Corporation became publicly listed through the Business Combination with AlphaVest Acquisition Corp. in December 2025. Prior to the Business Combination, AMC Corporation, which was incorporated in the State of +Washington on October 21, 2021, was the predecessor operating entity and conducted substantially all of the Company’s business +activities. As the Business Combination was accounted for as a reverse recapitalization, AMC Corporation is considered the +accounting acquirer, and its historical financial statements form the basis of the Company’s consolidated financial +statements. +The +Company distributes security cameras through e-commerce platforms across the United States, Canada, and Europe. Its product portfolio +includes cameras designed for residential homes and small businesses, such as the YI dome guard, home camera, and outdoor camera. +The +online stores on these e-commerce platforms in the aforementioned regions were owned by Ants, Xiaoyun, and Yishijue. Pursuant to the Authorization +Agreements, these entities have authorized the Company to utilize their e-commerce platform accounts free of charge until October 20, +2026. The Authorization Agreements with Xiaoyun and Yishijue will continue until the existing inventory of the Company’s products +has been sold, at which time the agreements will be terminated. +Xiaoyun +and Yishijue are variable interest entities (VIEs), through contractual arrangements, holds effective control over their primary economic +activities, assumes the associated risks and benefits from the economic rewards, making AMC Corporation the primary beneficiary. On December +1, 2025, AMAC Corporation terminated its contractual arrangements with Xiaoyun and Yishijue, which resulted in the loss of control over +the VIE and, accordingly, the deconsolidation of the VIEs. +Recent +Development and Future Objectives +Business +Combination +AMC +Corporation entered into the Business Combination Agreement with SPAC on August 16, 2024. In December 2025, the Company completed a business +combination with AlphaVest Acquisition Corp. (the “Business Combination”), as a result of which AMC Corporation became a +wholly owned subsidiary of AMC Robotics Corporation. The transaction was accounted for as a reverse recapitalization, with AMC Corporation +deemed the accounting acquirer for financial reporting purposes. +27 +Table of Contents +Private +Investment in Public Equity (“PIPE”) Financing +In +connection with the Business Combination, the Company consummated a PIPE financing that generated gross proceeds of $8,000,000, which +closed concurrently with the Business Combination. As part of the PIPE financing, the Company issued 2,240,000 PIPE warrants to investors. +Update +of Revenue Stream +In +2025, the Company’s revenue composition changed, with a decrease in product sales and the introduction of a new revenue stream +derived from a revenue-sharing arrangement with its related party, Kami Vision. Under this arrangement, the Company is entitled to 30% +of the revenue generated from intelligent information services provided by Kami Vision. +Outlook +of the business models +The +Company intends to maintain its recurring revenue streams from existing product sales while gradually transitioning its business focus +toward the development and deployment of autonomous robotic systems and intelligent security solutions. Management expects that this +shift in business model will result in improved revenue margins and support the long-term growth and success of the Company’s operations. +Executive +Summary of Financial Performance +(in USD) +2025 +2024 +$ change +% Change +Total Revenue +5,980,847 +10,200,957 +(4,220,110 ) +(41 )% +Cost of Revenue +(3,127,699 ) +(9,544,977 ) +6,417,278 +(67 )% +Gross Profit +2,853,148 +655,980 +2,197,168 +335 % +Operating Loss +(505,166 ) +(2,553,974 ) +2,048,808 +80 % +Net Income (Loss) +(24,817,342 ) +(776,960 ) +(24,040,382) +(3,094 )% +Cash and Cash Equivalents +7,004,601 +358,887 +6,645,714 +1,852 % +The +Company’s financial performance for the year ended December 31, 2025 reflects a fundamental shift in operating strategy and financial +profile, transitioning from a revenue-driven model to a margin and efficiency driven model. +The +41% decline in revenue was primarily attributable to a deliberate reduction in lower-margin product sales and a contraction in e-commerce +volume. While this decline reduced top-line growth, it was accompanied by a disproportionately larger reduction in cost of revenue (67%), +indicating improved cost discipline and reduced exposure to inventory-related inefficiencies. +As +a result, gross profit increased by approximately $2.2 million, and gross margin expanded significantly from 6% in 2024 to 48% in 2025. +This margin expansion reflects a combination of (i) reduced inventory impairment, (ii) improved procurement and cost controls, and (iii) +a higher contribution from revenue-sharing and service-based revenue streams. +Operating +losses decreased by approximately $2.0 million, driven primarily by improved gross profitability and reduced discretionary spending, +particularly in sales and marketing. Despite modest increases in general and administrative expenses associated with public company readiness, +overall cost structure improved. +For the year ended December 31, 2025, the Company reported a net loss of $24,817,342, compared to a net loss of $776,960 +for the year ended December 31, 2024. The increase in net loss was primarily attributable to a non-cash loss of $25,549,272 recognized +from the change in fair value of the PIPE warrant liability. This loss resulted from the remeasurement of the warrant liability at fair +value in accordance with ASC 815 and was significantly impacted by changes in the Company’s stock price and the contractual terms +of the warrants, including reset and anti-dilution features that increased the number of underlying shares. Excluding the impact of this +non-cash fair value adjustment, the Company’s operating results improved compared to the prior year, driven by higher gross margins +and reduced operating losses. +28 +Table of Contents +Liquidity +improved significantly, with cash increasing by approximately $6.6 million, primarily due to proceeds from the SPAC transaction and related +financing activities. This enhanced liquidity enabled the Company to reduce outstanding obligations and improve its working capital position. +Overall, +2025 represents a transition year in which the Company prioritized profitability, cost efficiency, and balance sheet strength over revenue +growth. +Results +of Operations +The +Company’s results of operations for 2025 were characterized by declining revenue but significantly improved profitability, driven +by changes in revenue composition, cost structure, and operational discipline. +The +most significant drivers of the year-over-year changes include: +● A +shift away from inventory-intensive product sales toward higher-margin revenue-sharing arrangements +● A +substantial reduction in inventory impairment and excess stock +● Improved +cost alignment with revenue levels, particularly in logistics and marketing +● Continued +reliance on related-party transactions as a key component of both revenue and profitability +These +changes reflect a broader strategic repositioning of the Company toward a more sustainable and capital-efficient operating model. +Revenue +Revenue Component +2025 +2024 +$ Change +% Change +Product revenue +2,346,474 +7,439,899 +(5,093,425 ) +(68 )% +Product revenue – related party +515,756 +6,270 +509,486 +8,126 % +Revenue share – related party +3,118,617 +2,754,788 +363,829 +13 % +Total Revenue +5,980,847 +10,200,957 +(4,220,110 ) +(41 )% +The +decline in total revenue was primarily driven by a $5.1 million decrease in product revenue, reflecting reduced sales volume and a strategic +decision to scale back lower-margin product lines. This reduction indicates a shift away from revenue generated through high inventory +turnover toward a more selective and margin-focused sales approach. +Product +revenue from related parties increased significantly, although it remains a relatively small component of total revenue. This increase +reflects expanded transactions within affiliated entities and may indicate evolving commercial arrangements. +Revenue +from related parties includes amounts derived from revenue-sharing arrangements associated with cloud services and intelligent information +services, which were introduced in 2025. Revenue from these arrangements increased significantly during the period and became the largest +contributor to total revenue. This shift reflects the Company’s increasing reliance on collaborative revenue models, which generally +involve lower cost structures and reduced working capital requirements. +The +introduction of intelligent information services in 2025 represents a strategic diversification into service-based revenue streams. Although +this revenue stream is currently not material relative to total revenue, management expects it to provide higher margins and recurring +revenue potential over the long term. +Overall, +the change in revenue composition reflects a transition toward lower-volume but higher-quality revenue streams, which is consistent with +the Company’s focus on improving profitability. +29 +Table of Contents +Cost +of Revenue and Gross Profit +2025 +2024 +$ Change +Cost of Revenue +(3,127,699 ) +(9,544,977 ) +6,417,278 +Gross Profit +2,853,148 +655,980 +2,197,168 +Gross Margin +48 % +6 % +42 pts +The +$6.4 million reduction in cost of revenue significantly exceeded the decline in revenue, resulting in a substantial increase in gross +profit and margin. +A +key driver of this improvement was the reduction in inventory impairment losses, which declined from approximately $1.3 million in 2024 +to approximately $0.16 million in 2025. This change reflects improved inventory management practices, including better alignment of procurement +with demand and reduced exposure to obsolete inventory. +In +addition, lower product sales volume resulted in reduced product cost, E-commerce platform expenses, and logistics and fulfillment costs +were more effectively aligned with sales activity. +The +resulting increase in gross margin from 6% to 48% reflects a structural improvement in the Company’s cost profile, driven by both +operational efficiencies and a higher proportion of revenue from higher-margin activities. +This +margin expansion is a critical indicator of improved business sustainability and profitability. +Operating +Expenses +Expense Category +2025 +2024 +$ Change +% Change +General & Administrative +2,687,250 +2,190,635 +496,615 +23 % +Sales & Marketing +612,992 +2,026,051 +(1,413,059 ) +(70 )% +Research & Development +58,072 +255,414 +(197,342 ) +(77 )% +Credit Loss (Reversal) +- +(1,262,146 ) +1,262,146 +(100 )% +Total Operating Expenses +3,358,314 +3,209,954 +148,360 +5 % +General +and administrative expenses increased by approximately $0.5 million, primarily due to incremental costs associated with becoming a public +company. These include audit fees, legal expenses, compliance costs, and corporate governance infrastructure. These costs are expected +to remain elevated as the Company continues to operate as a public entity. +Sales +and marketing expenses decreased significantly by approximately $1.4 million, reflecting a reduction in promotional activities and a +more disciplined approach to customer acquisition. This decrease suggests improved efficiency in marketing spend and a strategic shift +toward profitability rather than growth. +Research +and development expenses declined as the Company reduced investment in new product development and focused on optimizing existing offerings. +While this supports short-term cost control, it may impact long-term innovation. +The +absence of the prior-year credit loss reversal of $1.3 million contributed to the increase in operating expenses on a comparative basis. +Excluding this non-recurring item, operating expenses would have decreased year over year. +Overall, +the Company demonstrated improved cost discipline, with operating expenses more closely aligned with revenue levels, contributing to +a significant reduction in operating losses. +30 +Table of Contents +Other +Income (Expense) +2025 +2024 +$ Change +Other income – related party +1,217,586 +1,779,528 +(561,942 ) +Other income (expense), net +39,675 +31,577 +8,098 +Interest income +14,413 +675 +13,738 +Interest expense – related party +- +(18,999 ) +18,999 +Loss from the change of the FV of Warrant Liability +(25,549,272 ) +- +(25,549,272 ) +Interest expense +(24,616 ) +(7,943 ) +(16,673 ) +Loss on deconsolidation +(5,310 ) +- +(5,310 ) +Total Other Income (loss), Net +(24,307,524 ) +1,784,838 +(26,092,362 ) +For +the year ended December 31, 2025, total other income (loss) was a loss of $24,307,524, compared to total other income of $1,784,838 for +the year ended December 31, 2024. The change was primarily attributable to the recognition of a non-cash loss of $25,549,272 from the +change in fair value of the PIPE warrant liability, which is presented as a separate line item in other income (loss) in the current +year. This loss arose from the remeasurement of the warrant liability at fair value in accordance with ASC 815 and was significantly +impacted by changes in the Company’s stock price and the contractual terms of the warrants, including reset and anti-dilution features +that increased the number of underlying shares. +Excluding +the impact of the fair value adjustment on the warrant liability, other income remained relatively consistent period over period, primarily +consisting of other income from related parties of $1,217,586 in 2025 compared to $1,779,528 in 2024, as well as other miscellaneous +income and interest income. Interest expense was $24,616 for the year ended December 31, 2025, compared to $26,942 (including related +party interest) for the prior year. The Company also recognized a nominal loss on deconsolidation of $5,310 in 2025. +Liquidity +and Capital Resources +Liquidity +Overview +As +of December 31, 2025, the Company had cash and cash equivalents of approximately $7.0 million, compared to approximately $0.4 million +as of December 31, 2024, representing an increase of approximately $6.6 million. This significant improvement in liquidity was primarily +attributable to proceeds received from the Business Combination with AlphaVest Acquisition Corp. and related PIPE financing, as discussed +in Note 1 – Organization and Nature of Business. +Working +capital improved materially during 2025, driven by both increased cash balances and a reduction in outstanding liabilities, particularly +related-party obligations (see Note 8 – Related Party Transactions). The Company used a portion of financing proceeds to settle +historical payables and strengthen its balance sheet. +The +Company’s liquidity position is influenced by several key factors: +● Operating +performance, including gross margin and expense management +● Working +capital dynamics, particularly receivables and payables involving related parties +● Access +to external financing, including equity financing and capital markets transactions +● Inventory +management, which affects cash tied up in operations +Despite +achieving net income in 2025, the Company generated negative operating cash flows due to significant working capital outflows, primarily +related to settlement of prior obligations and timing of related-party transactions. +Management +believes that the Company’s current cash position, together with expected operating cash flows, will be sufficient to meet its +working capital requirements and capital expenditure needs for at least the next twelve months. However, the Company’s future liquidity +will depend on its ability to sustain profitability, manage working capital efficiently, and maintain access to capital markets if needed. +31 +Table of Contents +Cash +Flow Analysis +2025 +2024 +$ Change +Net cash (used in)/provided by operating activities +(5,555,840 ) +568,455 +(6,124,295 ) +Net cash provided by (used in) investing activities +15,862 +(188,822 ) +204,684 +Net cash provided by (used in) financing activities +12,179,965 +(148,819 ) +12,328,784 +Operating +Activities +Net cash used in operating activities was approximately $5.5 million for the year ended December 31, 2025, compared +to net cash provided by operating activities of approximately $0.6 million for the year ended December 31, 2024. +The Company reported a net loss of $24,817,342 for the year ended December 31, 2025, which was primarily attributable +to a non-cash loss of $25,549,272 from the change in fair value of the PIPE warrant liability. This non-cash charge, recorded in accordance +with ASC 815, did not impact operating cash flows and therefore is added back in the reconciliation from net loss to net cash used in +operating activities. +Excluding the impact of this non-cash fair value adjustment, operating cash flows were primarily affected by changes +in working capital, including the following: +● Reduction +in accounts payable to related parties (~$8.5 million) +This represents a significant use of cash and reflects the settlement of historical obligations. +While this reduced liquidity in the current period, it strengthened the Company’s balance +sheet and reduced future obligations. +● Increase +in accounts receivable from related parties (~$1.9 million) +This increase reflects timing differences between revenue recognition and cash collection, +particularly for revenue-sharing arrangements. This represents a temporary use of cash and +introduces credit and concentration risk. +● Decrease +in inventory (~$2.5 million) +This reduction provided a source of cash and reflects improved inventory management, reduced +procurement, and lower exposure to excess stock. +● Changes +in other working capital accounts, including prepaid expenses and accrued liabilities, which +partially offset the above impacts. +Overall, +the negative operating cash flow in 2025 should be viewed in the context of balance sheet restructuring and normalization of working +capital, rather than deterioration in underlying operating performance. +Investing +Activities +Net +cash provided by investing activities was approximately $16,000 in 2025, compared to net cash used of approximately $0.2 million +in 2024. +Investing +activities primarily consisted of transactions related to promissory notes and other financial assets, including issuance, repayment, +or collection of notes receivable. These transactions are not indicative of the Company’s core operating activities but reflect +capital allocation decisions and financing arrangements. +The +increase in cash provided by investing activities in 2025 suggests a net recovery or liquidation of financial assets, which contributed +positively to liquidity. +The +Company did not incur significant capital expenditures during the period, reflecting its asset-light business model. +Financing +Activities +Net +cash provided by financing activities was approximately $12.2 million in 2025, compared to net cash used of approximately $0.1 million +in 2024. +32 +Table of Contents +The +primary drivers of financing cash inflows in 2025 include: +● Proceeds +from the SPAC trust account +● PIPE +financing and equity issuances +● Capital +contributions and recapitalization adjustments +These +inflows significantly enhanced the Company’s liquidity and enabled: +● Repayment +of related-party liabilities +● Strengthening +of working capital +● Reduction +of financial risk associated with prior obligations +In +contrast, financing activities in 2024 were minimal and primarily consisted of small-scale debt repayments or related-party financing. +The +Company’s reliance on equity financing in 2025 reflects its transition to a public company and reduced dependence on related-party +funding. +Capital +Resources +The +Company’s capital resources consist primarily of cash generated from financing activities and, to a lesser extent, operating cash +flows. +As +of December 31, 2025, the Company had limited third-party debt obligations, resulting in minimal exposure to interest rate risk and no +significant near-term debt maturities. Historically, the Company relied on related-party financing to support operations; however, this +reliance has decreased significantly following the Business Combination. +The +Company’s capital structure improved materially during 2025 as a result of: +● Increased +equity capitalization +● Reduction +of related-party liabilities +● Improved +liquidity and working capital +The +Company’s capital requirements are driven primarily by: +● Working +capital needs (inventory, receivables, payables) +● Operating +expenses, including public company costs +● Potential +investments in product development and service expansion +Management +expects that future capital requirements will be met through a combination of existing cash, operating cash flows, and, if necessary, +additional financing. +The +Company currently does not maintain a revolving credit facility or other committed borrowing arrangements. While this reduces financial +leverage, it may limit flexibility in managing short-term liquidity needs. +Contractual +Obligations and Commitments +The +Company’s contractual obligations consist primarily of lease obligations, and other operating liabilities, +as disclosed in Note 12 - Lease and Note 17 – Commitments and Contingencies. +33 +Table of Contents +Lease +Obligations (ASC 842) +The +Company has operating lease arrangements for office space and facilities. As of December 31, 2025, lease liabilities totaled approximately +$110,000, representing future minimum lease payments. These obligations are relatively modest and do not represent a significant liquidity +burden. +Purchase +Commitments +The +Company may enter into purchase commitments with suppliers in the normal course of business. These commitments are generally short-term +in nature and are aligned with expected sales demand. The Company has reduced its reliance on large inventory purchases, thereby limiting +exposure to long-term procurement commitments. +Related +Party Obligations +Historically, +the Company had significant obligations to related parties; however, during 2025, these obligations were substantially reduced through +settlement using proceeds from financing activities (see Note 8). As a result, outstanding related-party obligations are no longer a +significant component of contractual commitments. +Other +Commitments and Contingencies +The +Company may be subject to contingencies, including legal or contractual matters, in the ordinary course of business. Management does +not believe that any such matters will have a material adverse effect on the Company’s financial position. +Overall +Liquidity Assessment +The +Company’s liquidity position improved significantly in 2025 as a result of financing activities and balance sheet restructuring. +While operating cash flows were negative due to working capital adjustments, these outflows were largely non-recurring and associated +with the settlement of prior obligations. +The +Company’s current liquidity, combined with improved profitability and reduced leverage, provides a stronger financial foundation. +However, future liquidity will depend on the Company’s ability to: +● Sustain +positive operating performance +● Effectively +manage working capital +● Maintain +access to external financing, if needed +Management +believes the Company is well-positioned to meet its near-term obligations and support its ongoing operations and strategic initiatives. +Critical +Accounting Policies and Estimates +The +preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates +and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures. These +estimates are based on historical experience, current conditions, and various other assumptions that management believes are reasonable +under the circumstances. +Because +of the inherent uncertainty involved in making these estimates, actual results could differ materially from those estimates. The Company’s +most critical accounting policies are those that involve significant judgment and have a material impact on the financial statements. +34 +Table of Contents +Revenue +Recognition (ASC 606) +The +Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers , when control of goods or services +is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled. +A +significant area of judgment involves determining whether the Company acts as a principal or an agent in its revenue arrangements, particularly +in transactions involving: +● E-commerce +platform sales +● Related-party +revenue-sharing arrangements (see Note 8 – Related Party Transactions) +This +assessment requires evaluation of factors such as control over goods or services, inventory risk, pricing discretion, and responsibility +for fulfillment. +If +the Company is determined to be the principal, revenue is recognized on a gross basis; if the Company is an agent, revenue is recognized +on a net basis. Changes in this assessment could materially affect reported revenue and cost of revenue. +In +addition, revenue-sharing arrangements require judgment in identifying performance obligations and determining the appropriate allocation +of transaction price. Variability in contract terms or interpretation could impact the timing and amount of revenue recognized. +Inventory +Valuation (ASC 330) +Inventory +is stated at the lower of cost or net realizable value. Cost is determined using standard costing methods, which approximate actual costs. +The +Company evaluates inventory for excess quantities, obsolescence, and slow-moving items. This evaluation requires significant judgment +regarding: +● Forecasted +demand +● Product +lifecycle and technological obsolescence +● Pricing +trends and competitive conditions +In +2024, the Company recorded significant inventory impairment charges due to excess and slow-moving inventory. In 2025, improved inventory +management practices resulted in substantially lower impairment. +However, +future changes in demand patterns, product innovation cycles, or market conditions could result in additional write-downs. Inventory +valuation remains a highly sensitive estimate that directly impacts gross margin. +Allowance +for Expected Credit Losses (ASC 326) +The +Company accounts for expected credit losses under ASC 326, Current Expected Credit Losses (CECL) . The allowance is estimated using +a loss-rate methodology based on: +● Historical +credit loss experience +● Current +economic conditions +● Forward-looking +information +35 +Table of Contents +A +significant portion of the Company’s accounts receivable is due from related parties (see Note 8 ), which introduces concentration +risk. +Management +evaluates collectability on an ongoing basis and considers factors such as: +● Financial +condition of counterparties +● Payment +history +● Contractual +terms +Although +historical losses have been limited, any deterioration in the financial condition of related parties or changes in business relationships +could result in increased credit loss provisions. +Warranty +Liabilities +The +Company provides warranties on certain products and recognizes a liability for estimated warranty costs at the time of sale. +Warranty +liabilities are estimated based on: +● Historical +claim rates +● Product +failure trends +● Estimated +repair or replacement costs +These +estimates require judgment and may be affected by changes in product design, manufacturing quality, or customer usage patterns. Actual +warranty costs may differ from estimates, resulting in adjustments to warranty expense in future periods. +Variable +Interest Entity (VIE) Consolidation (ASC 810) +The +Company evaluates its involvement with variable interest entities in accordance with ASC 810, Consolidation . A VIE is consolidated +if the Company is determined to be the primary beneficiary, which requires: +1. Power +to direct the activities that most significantly impact the VIE’s economic performance, +and +2. Exposure +to potentially significant economic benefits or losses +This +evaluation requires significant judgment, particularly in assessing contractual arrangements and decision-making authority. +Historically, +the Company consolidated certain VIEs that held e-commerce platform accounts. In December 2025, the Company terminated the underlying +contractual arrangements and deconsolidated these entities (see Note 1). +Changes +in contractual arrangements, ownership structure, or operational control could result in future consolidation or deconsolidation events, +which may materially impact the Company’s financial statements. +Related +Party Transactions (ASC 850) +The +Company engages in significant transactions with related parties, including revenue-sharing arrangements, product sourcing, and financing +activities (see Note 8 – Related Party Transactions). +Accounting +for related-party transactions requires judgment in determining: +● Appropriate +revenue recognition treatment +36 +Table of Contents +● Classification +of transactions +● Measurement +and presentation +Because +these transactions may not be conducted on an arm’s-length basis, there is an increased risk of misstatement if terms are not properly +evaluated. +The +Company monitors related-party balances and transactions to ensure proper recognition and disclosure. +Forward +Purchase Agreement +Prior +to the Business Combination, AlphaVest entered into a Forward Purchase Agreement (“FPA”) with Harraden Circle Investments +and its affiliated entities (“Harraden”) to support post-closing liquidity and capital structure stability. Under this arrangement, +Harraden agreed to acquire shares from existing shareholders at the redemption price and may subsequently sell such shares in the open +market over a defined period. +At +closing, the Company funded an aggregate prepayment of approximately $6.68 million to facilitate Harraden’s participation in the +arrangement. The structure of the FPA allows Harraden to retain certain economic benefits from the resale of shares, subject to contractual +pricing mechanisms, including volume-weighted average price and reset provisions. Importantly, Harraden is not required to return the +full proceeds from share sales, and any unsold shares are expected to be returned to the Company at maturity. +During +2025, Harraden completed partial settlements and early terminations under the FPA, resulting in cash proceeds to the Company of approximately +$4.3 million. As of December 31, 2025, a portion of the arrangement remains outstanding, with Harraden continuing to hold shares associated +with the FPA. +From +a liquidity perspective, the FPA provided near-term funding at the time of the Business Combination but also introduced variability in +future cash flows due to its settlement mechanics and linkage to market prices. The remaining balance associated with the FPA is reflected +as a reduction of stockholders’ equity, consistent with its financing nature and the Company’s assessment of the arrangement. +Management +continues to monitor the impact of the FPA on the Company’s capital structure and liquidity, including potential future settlements, +share returns, and market-related adjustments. While the arrangement supported the completion of the Business Combination, its complex +terms and market-dependent outcomes may affect period-to-period comparability of equity and cash flows. +Income +Taxes (ASC 740) +The +Company accounts for income taxes under ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities +for temporary differences between financial reporting and tax bases. +Management +evaluates the realizability of deferred tax assets, including net operating loss carryforwards, and establishes a valuation allowance +when it is more likely than not that such assets will not be realized. +This +assessment requires judgment regarding: +● Future +taxable income +● Timing +of reversals of temporary differences +● Tax +planning strategies +Changes +in these assumptions could result in adjustments to valuation allowances and income tax expense. +Sensitivity +of Estimates and Judgments +The +Company’s financial results are particularly sensitive to changes in estimates related to: +● Revenue +recognition (principal vs. agent) +● Inventory +valuation and impairment +● Collectability +of related-party receivables +● VIE +consolidation conclusions +A +change in any of these assumptions could materially affect reported revenue, gross profit, net income, and financial position. +For +example: +● A +change in principal vs. agent conclusion could significantly alter reported revenue and cost +of revenue +● A +modest increase in inventory obsolescence assumptions could materially reduce gross margin +● Delays +in collection of related-party receivables could increase credit loss provisions +Management +continuously reviews these estimates and assumptions and adjusts them as necessary based on evolving business conditions. +Recently +Issued Accounting Pronouncements +For +a discussion of our new or recently adopted accounting pronouncements, see Note 2, Recent issued accounting pronouncements, to our consolidated +financial statements included elsewhere in this annual report. +37 +Table of Contents +Management +does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect +on the consolidated financial statements and notes thereto included elsewhere in this annual report. +Non-GAAP +Financial Measures +EBITDA +is a non-GAAP financial measure defined as net income (loss) before interest expense, income taxes, depreciation, and amortization. The +Company uses EBITDA as a supplemental measure to evaluate its operating performance and to facilitate period-to-period comparisons by +excluding items that are not directly related to core operations. +Adjusted +EBITDA is defined as EBITDA further adjusted to exclude non-cash and non-recurring items that management believes are not indicative +of the Company’s core operating performance. For the year ended December 31, 2025, such adjustments primarily include the loss +from the change in fair value of the PIPE warrant liability of $25,549,272 and the loss related to deconsolidation. The change in fair +value of the PIPE warrant liability is a non-cash item arising from the remeasurement of derivative liabilities in accordance with ASC +815 and is significantly impacted by changes in the Company’s stock price and warrant terms, including reset features. +Management +believes that EBITDA and Adjusted EBITDA provide useful supplemental information to investors regarding the Company’s operating +performance; however, these measures have limitations and should not be considered in isolation or as a substitute for net income (loss) +or other financial measures prepared in accordance with U.S. GAAP. +For the years ended December 31 +2025 +2024 +Net income (loss) +(24,817,342 ) +(776,960 ) +Add: Interest expense +24,616 +7,943 +Add: Income tax expense +4,651 +7,824 +Add: Depreciation and amortization +- +- +EBITDA +(24,788,075 ) +(761,193 ) +Add: Loss from change in fair value of PIPE warrant liability +25,549,272 +- +Add: Loss on deconsolidation +5,310 +- +Adjusted EBITDA +766,507 +(761,193 ) +Off-Balance +Sheet Arrangements +As +of December 31, 2025, the Company does not have any material off-balance sheet arrangements as defined under Item 303 of Regulation S-K. +Historically, +the Company utilized variable interest entities (VIEs) to conduct certain e-commerce operations. These VIEs were consolidated in prior +periods; however, following the termination of contractual arrangements in December 2025, the Company deconsolidated these entities. +As a result, the Company no longer has exposure to the assets, liabilities, or operations of these entities beyond any residual contractual +relationships. +The +Company does not have any material guarantees, retained interests in transferred assets, special purpose entities, or undisclosed commitments +that would be considered off-balance sheet arrangements. +Management +believes that the absence of significant off-balance sheet arrangements reduces the Company’s exposure to contingent liabilities +and enhances transparency in its financial reporting. +Quantitative +and Qualitative Disclosures About Market Risk +The +Company is exposed to certain market risks in the normal course of business, including foreign currency risk, interest rate risk, and +general economic risk. +Foreign +Currency Risk +A +portion of the Company’s transactions are denominated in currencies other than the U.S. dollar, particularly Renminbi (RMB). As +a result, fluctuations in exchange rates may affect revenue, cost of revenue, and operating expenses when translated into U.S. dollars. +A +strengthening of the U.S. dollar relative to foreign currencies may reduce reported revenue and margins, while a weakening of the U.S. +dollar may have the opposite effect. The Company does not currently use derivative instruments to hedge foreign currency risk. +Interest +Rate Risk +The +Company’s exposure to interest rate risk is limited due to the absence of significant interest-bearing debt. Interest income is +earned on cash balances, and changes in interest rates may affect the amount of interest income recognized. However, this exposure is +not considered material. +Concentration +Risk +The +Company is exposed to concentration risk due to its reliance on related-party transactions for both revenue and procurement. Changes +in the financial condition or operating performance of these related parties could materially affect the Company’s results. +Sensitivity +Analysis +A +hypothetical 10% change in foreign exchange rates would not have a material impact on the Company’s financial position based on +current exposure levels; however, this may change as the Company expands its international operations. +38 +Table of Contents +Inflation +and Economic Conditions +The +Company’s operations are subject to the impact of inflation and broader economic conditions, which may affect both costs and demand. +Cost +Impacts +Inflation +may increase the cost of components, manufacturing, logistics, and labor. These cost increases may not be fully recoverable through price +adjustments, particularly in a competitive market environment where pricing pressure is significant. +Demand +Impacts +The +Company’s products are generally considered discretionary consumer purchases. As a result, economic downturns, reduced consumer +confidence, or higher interest rates may negatively impact demand for the Company’s products. +Supply +Chain Considerations +Global +supply chain conditions, including component availability and shipping costs, may also affect the Company’s ability to procure +inventory and maintain margins. +The +Company actively monitors these factors and seeks to mitigate their impact through pricing strategies, cost management initiatives, and +supply chain optimization. +Conclusion +The +Company’s results for the year ended December 31, 2025 reflect a significant transformation in its business model and financial +profile. +While +total revenue declined compared to the prior year, the Company achieved substantial improvements in gross margin and operating efficiency. +This improvement was driven by a strategic shift away from lower-margin, inventory-intensive operations toward higher-margin revenue +streams, including revenue-sharing arrangements and service-based offerings. +The +Company also strengthened its liquidity position through the completion of the SPAC transaction and related financing activities, enabling +it to reduce reliance on related-party financing and improve its overall capital structure. +Despite +these improvements, the Company continues to face risks and uncertainties, including reliance on related-party transactions, exposure +to e-commerce platform dynamics, and sensitivity to macroeconomic conditions. Future performance will depend on the Company’s ability +to sustain margin improvements, diversify revenue streams, and manage working capital efficiently. +Management +believes that the Company is well-positioned to pursue its strategic objectives, supported by improved financial flexibility, a more +efficient operating model, and opportunities for growth in higher-margin service offerings. +ITEM +7A. Quantitative and Qualitative Disclosures about Market Risk +Not +required for smaller reporting companies. +39 +Table of Contents +Item +8. Financial Statements and Supplementary Data +INDEX +TO FINANCIAL STATEMENTS +Financial +Statements: +Report of Independent Registered Public Accounting Firm (PCAOB ID: 1195 ) +F-1 +Consolidated Balance Sheets +F-2 +Consolidated Statements of Operations and Comprehensive Income (Loss) +F-3 +Consolidated Statements of Changes in Stockholders’ Equity (Deficits) +F-4 +Consolidated Statements of Cash Flows +F-5 +Notes to Consolidated Financial Statements +F-6 +40 +Table of Contents +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and +Stockholders +of AMC Robotics Corporation +Opinion +on the Consolidated Financial Statements +We +have audited the accompanying consolidated balance sheets of AMC Robotics Corporation (the “Company”) as of December 31, +2025 and 2024, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ +equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively +referred to as the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present +fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations +and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally +accepted in the United States of America. +Emphasis +of Matter - Related Party Transactions +As +discussed in Note 8 to the consolidated financial statements which indicates that the Company has significant related party transactions +involving revenue, cost, operating expenses, accounts receivable, other receivable, prepayment, note receivable and accounts payable +with multiple related parties. The Company’s revenue from related parties was approximately $3.6 million and $2.8 million for the +year ended December 31, 2025, and 2024, respectively, or approximately 61% and 27%, respectively, of total revenue of the Company. +Basis +for Opinion +These +consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion +on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance +with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part +of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether +due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. +We believe that our audits provide a reasonable basis for our opinion. +/s/ +UHY LLP +We +have served as the Company’s auditor since 2023. +New +York, New York +April +20, 2026 +F- 1 +Table of Contents +AMC +ROBOTICS CORPORATION +CONSOLIDATED +BALANCE SHEETS +December 31, +December 31, +2025 +2024 +ASSETS +Current assets +Cash and cash equivalents +$ 7,004,601 +$ 358,887 +Accounts receivable +427 +54,302 +Accounts receivable - related party +2,065,890 +190,168 +Accounts receivable +2,065,890 +190,168 +Inventories, net +1,069,465 +3,555,876 +Prepaid expenses +355,467 +100,912 +Other receivable +- +125,000 +Other receivable - related party, net +475,909 +1,959,842 +Other receivable +475,909 +1,959,842 +Advance to suppliers +3,677 +5,049 +Advance to suppliers – related party +21,387 +Advance to suppliers +21,387 +Prepayment - related party (current) +60,000 +- +Prepayment +60,000 +- +Deferred offering cost +- +233,339 +Promissory note receivable +- +623,449 +Note receivable - stockholder +- +15,862 +Total current assets +11,056,823 +7,222,686 +Right-of-use asset +101,221 +- +Other non-current assets +7,697 +- +Prepayment - related party +6,845 +126,965 +TOTAL ASSETS +$ 11,172,586 +$ 7,349,651 +LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICITS) +Current liabilities +Accounts payable - related party +$ - +$ 8,543,243 +Accrued and other liabilities +592,822 +219,815 +Tax payable +6,627 +6,673 +Other payable - related party +- +6,269 +Short term bank loan +- +821,982 +Lease liability - current +57,349 +- +Warranty liabilities - current portion +30,023 +69,010 +Total current liabilities +686,821 +9,666,992 +Lease liability - noncurrent +52,753 +- +Warranty liabilities - noncurrent +6,810 +14,274 +TOTAL LIABILITIES +746,384 +9,681,266 +Stockholders’ equity (deficits) +Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 22,595,363 and 18,000,000 shares issued and outstanding as of December 31, 2025 and December 31, 2024 +2,260 +1,800 +Additional paid-in capital +37,653,029 +142,899 +Retained earnings (Accumulated deficits) +( 27,229,088 ) +( 2,470,588 ) +Accumulated other comprehensive loss +- +( 5,726 ) +Total stockholders’ equity (deficits) +10,426,202 +( 2,331,615 ) +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICITS) +$ 11,172,586 +$ 7,349,651 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 2 +Table of Contents +AMC +ROBOTICS CORPORATION +CONSOLIDATED +STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) +2025 +2024 +Years ended +December 31, +2025 +2024 +REVENUES +Product revenue +$ 2,346,474 +$ 7,439,899 +Product revenue - related party +515,756 +6,270 +Revenue share – related party +3,118,617 +2,754,788 +Total Revenues +5,980,847 +10,200,957 +COST OF REVENUES +E-commerce platform expenses +( 670,405 ) +( 2,039,708 ) +Product cost - related party +( 2,223,113 ) +( 6,002,463 ) +Delivery and freight cost +( 71,144 ) +( 176,451 ) +Inventory impairment losses +( 163,037 ) +( 1,326,355 ) +Total Cost of Revenues +( 3,127,699 ) +( 9,544,977 ) +Gross Profit +2,853,148 +655,980 +OPERATING EXPENSES +General and administrative expenses +( 2,687,250 ) +( 2,190,635 ) +Reversal for credit losses - related party +- +1,262,146 +Sales and marketing expenses +( 612,992 ) +( 2,026,051 ) +Research and development expenses +( 58,072 ) +( 255,414 ) +Total Operating Expenses +( 3,358,314 ) +( 3,209,954 ) +LOSS FROM OPERATIONS +( 505,166 ) +( 2,553,974 ) +OTHER INCOME (EXPENSES) +Other income - related party +1,217,586 +1,779,528 +Other income, net +39,675 +31,577 +Interest income +14,413 +675 +Loss on deconsolidation +( 5,310 ) +- +Loss from the change of the FV of Warrant Liability +( 25,549,272 ) +- +Interest expense - related party +- +( 18,999 ) +Interest expense +( 24,616 ) +( 7,943 ) +Total Other Income (loss), Net +( 24,307,524 ) +1,784,838 +INCOME (LOSS) BEFORE INCOME TAX +( 24,812,691 ) +( 769,136 ) +Income tax expense +( 4,651 ) +( 7,824 ) +NET INCOME (LOSS) +$ ( 24,817,342 ) +$ ( 776,960 ) +Other comprehensive income +- +273 +TOTAL COMPREHENSIVE INCOME (LOSS) +$ ( 24,817,342 ) +$ ( 776,687 ) +NET INCOME (LOSS) PER SHARE: BASIC +$ ( 1.36 ) +$ ( 0.04 ) +NET INCOME (LOSS) PER SHARE: DILUTED +$ ( 1.36 ) +$ ( 0.04 ) +WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC +18,289,571 +18,000,000 +WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED +18,289,571 +18,000,000 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +Table of Contents +AMC +ROBOTICS CORPORATION +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICITS) +Number of Shares +Amount * +Paid-in +Capital +Accumulated +Deficits +Income / (Loss) +Total +Common stock* +Additional +Accumulated Other Comprehensive +Number of Shares +Amount +Paid-in +Capital +Accumulated +Deficits +Income / (Loss) +Total +Balance at January 1, 2024 +18,000,000 +$ 1,800 +$ 142,899 +$ ( 1,693,628 ) +$ ( 5,999 ) +$ ( 1,554,928 ) +Net loss +- +- +- +( 776,960 ) +- +( 776,960 ) +Other comprehensive income +- +- +- +- +273 +273 +Balance at December 31, 2024 +18,000,000 +$ 1,800 +$ 142,899 +$ ( 2,470,588 ) +$ ( 5,726 ) +$ ( 2,331,615 ) +Balance +18,000,000 +$ 1,800 +$ 142,899 +$ ( 2,470,588 ) +$ ( 5,726 ) +$ ( 2,331,615 ) +Reverse recapitalization / AlphaVest Public shares +1,416,002 +142 +5,132,227 ** +- +5,132,369 +PIPE shares issued +800,000 +80 +7,999,920 +- +- +8,000,000 +AlphaVest Initial Stockholders +2,323,528 +232 +( 232 ) +- +- +- +FPA subscription receivable +- +- +( 1,678,678 ) +- +- +( 1,678,678 ) +Reclassification of warrant liability to equity +- +- +25,549,272 +- +- +25,549,272 +Shares underlying sponsor’s convertible notes +55,833 +6 +558,320 +- +- +558,326 +VIE deconsolidation +- +- +( 50,699 ) +58,842 +5,726 +13,869 +Net income +- +- +- +( 24,817,342 ) +- +( 24,817,342 ) +Net income (loss) +- +- +- +( 24,817,342 ) +- +( 24,817,342 ) +Balance at December 31, 2025 +22,595,363 +$ 2,260 +$ 37,653,029 +$ ( 27,229,088 ) +$ - +$ 10,426,202 +Balance +22,595,363 +$ 2,260 +$ 37,653,029 +$ ( 27,229,088 ) +$ - +$ 10,426,202 +* Par value of common stock, additional paid-in capital and share data have been retroactively restated to give effect to reverse recapitalization that +is discussed in Note 1. +** This include the total +proceeds from the trust account, net with deferred offering cost, FPA proceeds, and other adjustments related with reverse merge. +See Note 1 for details. +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +Table of Contents +AMC +ROBOTICS CORPORATION +CONSOLIDATED +STATEMENTS OF CASH FLOWS +2025 +2024 +Years ended +December 31, +2025 +2024 +CASH FLOWS FROM OPERATING ACTIVITIES +Net income (loss) +$ ( 24,817,342 ) +$ ( 776,960 ) +Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities: +(Reversal) for credit losses - related party +- +( 1,262,146 ) +Loss from the change of the FV of Warrant Liability- +25,549,272 +- +Provision (reversal) for warranty +( 45,993 ) +40,724 +Inventory impairment losses +163,037 +1,326,355 +Non-cash lease expenses +78,154 +- +Changes in operating assets and liabilities: +Accounts receivable +53,875 +39,774 +Accounts receivable - related party +( 1,875,722 ) +247,029 +Inventories, net +2,323,374 +176,547 +Prepaid expenses +( 254,555 ) +( 17,341 ) +Other receivable +- +( 125,000 ) +Other receivable - related party, net +1,483,933 +651,435 +Advance to suppliers +( 3,677 +) +- +Advance to suppliers – related party +( 16,338 ) +37 +Other non-current assets +( 7,697 ) +- +Due from stockholder +- +548,759 +Prepayment - related party +60,120 +1,244 +Accounts payable +- +( 479 ) +Accounts payable - related party +( 8,543,243 ) +( 255,579 ) +Accrued and other liabilities +373,007 +23,996 +Tax payable +( 46 ) +( 12,082 ) +Other payable - related party +( 6,269 ) +1,935 +Warranty liabilities - current portion +7,006 +( 32,060 ) +Warranty liabilities - noncurrent +( 7,464 ) +( 7,733 ) +Lease liability +( 69,272 ) +- +Net cash provided by / (used in) operating activities +$ ( 5,555,840 ) +$ 568,455 +CASH FLOWS FROM INVESTING ACTIVITIES +Issuance of note receivable – stockholder +- +( 552,217 ) +Repayment of note receivable - stockholder +15,862 +986,844 +Repayment of promissory note +- +( 623,449 ) +Net cash provided by (used in) investing activities +$ 15,862 +$ ( 188,822 ) +CASH FLOWS FROM FINANCING ACTIVITIES +Deferred offering cost +( 593,140 ) +( 233,339 ) +Capital contribution +5,000,000 +80,000 +Capital contribution from SPAC +2,971,033 +- +Payments related to FPA arrangement +( 6,681,818 ) +- +Proceeds from FPA settlement +4,305,872 +- +Proceeds from PIPE shares issued +8,000,000 +- +Proceeds from short term loan +- +821,982 +Proceeds from note payable - related party +- +1,353,700 +Repayment of note payable - related party +( 821,982 ) +( 2,171,162 ) +Net cash provided by (used in) financing activities +$ 12,179,965 +$ ( 148,819 ) +Effect of changes of foreign exchange rate on cash and cash equivalent +5,726 +273 +Net increase in cash and cash equivalents +6,645,714 +231,087 +Cash and cash equivalents - beginning of the period +358,887 +127,800 +Cash and cash equivalents - end of the period +$ 7,004,601 +$ 358,887 +Supplemental Cash Flow Disclosures +Cash paid for interest expenses +$ 17,605 +$ 24,453 +Cash paid for income taxes +$ - +$ 42,768 +NON-CASH INVESTING AND FINANCING ACTIVITIES +Non-cash activity from deconsolidation of VIEs +$ 58,843 +- +Non-cash reclassification of SPAC accumulated deficit to APIC +$ 6,886,461 +- +Right-of-use asset obtained in exchange for lease obligation +$ 168,418 +$ - +Unpaid deferred offering cost +$ 225,000 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +Table of Contents +AMC +ROBOTICS CORPORATION +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +1. +ORGANIZATION +AND BUSINESS BACKGROUND +Organization +and Business +The +Company and its subsidiaries and consolidated entities as of December 31, 2025 are as follows: +SCHEDULE +OF COMPANY AND ITS SUBSIDIARIES AND CONSOLIDATED ENTITIES +Company +Name +Date +of Incorporation +Place +of Incorporation +Ownership +Interest +Principal +Activities +AMC +Robotics Corporation (F/K/A AlphaVest Acquisition Corp.) +January +14, 2022 +Delaware, +USA +— +Public +holding company +AMC +Corporation +October +21, 2021 +Washington, +USA +100% +Sale +of security camera products +Shanghai +Xiaoyun Technology Limited +July +16, 2020 +China +VIE +(1) +E-commerce +platform account holding +Kunshan +Yishijue Technology Limited +January +11, 2021 +China +VIE +(1) +E-commerce +platform account holding +(1) The +Company was the primary beneficiary and historically consolidated these entities as Variable Interest Entities (“VIEs”), +as defined in ASC 810 as entities in which equity investors lack a controlling financial interest, but terminated the contractual arrangements +with Shanghai Xiaoyun Technology Limited and Kunshan Yishijue Technology Limited on December 1, 2025 and, accordingly, deconsolidated +these entities as of that date. +AMC +Corporation (“AMC” or the “Predecessor”) was incorporated in the State of Washington on October 21, 2021. The +Company designs and sells residential and small-business security camera products, including YI dome guard, home camera, and outdoor +camera devices, which are sourced from suppliers in Asia and sold primarily through e-commerce platforms in the United States, Canada, +and Europe. +On +December 9, 2025, AMC completed a business combination with AlphaVest Acquisition Corp., a special purpose acquisition company. Following +the transaction, the surviving public entity was renamed AMC Robotics Corporation (the “Company” or the “Successor”). +AMC became a wholly owned subsidiary of AMC Robotics Corporation. Unless otherwise indicated, references to the “Company” +refer to AMC Robotics Corporation and its consolidated subsidiaries. +Reverse +Recapitalization and Basis of Presentation +On +December 9, 2025, the Company consummated a business combination with AlphaVest Acquisition Corp., a special purpose acquisition company +(the “SPAC” or “AlphaVest”). The transaction was accounted for as a reverse recapitalization in accordance with +ASC 805-40, with AMC determined to be the accounting acquirer. +Under +this method of accounting, the transaction is accounted for as a reverse recapitalization and is treated as a capital transaction rather +than a business combination. Accordingly, the assets and liabilities of AlphaVest were recognized at their historical carrying values, +with no goodwill or identifiable intangible assets recorded. AlphaVest’s historical equity accounts were eliminated and the equity +structure was retroactively adjusted to reflect that of the combined company. The net assets received from AlphaVest were recognized +as a capital contribution, with the offset recorded within additional paid-in capital (“APIC”). +F- 6 +Table of Contents +As +a result, the consolidated financial statements represent a continuation of AMC’s historical financial statements. The equity structure +has been retroactively adjusted to reflect the legal capital structure of AMC Robotics Corporation, and all issued and outstanding shares +and capital contributions have been restated for all periods presented. In connection with the Business Combination and related transactions: +● The +Company issued 1,416,002 +shares upon the conversion of outstanding public rights of AlphaVest in connection with the reverse recapitalization. These shares +represent the remaining shares underlying such public rights and were accounted for as part of the equity restructuring, resulting +in an increase to additional paid-in capital of $ 5,132,227 . The Company recognized net cash proceeds from the SPAC trust account in connection with the Business Combination, +which are reflected within additional paid-in capital as part of the reverse recapitalization. +● The +Company completed a PIPE financing, issuing 800,000 +shares together with 2,240,000 PIPE warrants for gross proceeds of $ 8,000,000 . +● The +Company issued 2,323,528 shares in connection with the reverse recapitalization representing +the conversion of AlphaVest’s sponsor and founder shares, underwriter shares, private +placement shares, as well as the shares underlying sponsor rights and EBC rights. These shares +were issued as part of the equity restructuring and were accounted for as a reclassification +within stockholders’ equity, with no net impact on total stockholders’ equity. +● The +Company issued 55,833 shares related to the conversion of sponsor convertible notes, resulting +in an increase to additional paid-in capital of $ 558,320 . +As +a result of the Business Combination and related transactions, total shares outstanding increased from 18,000,000 shares as of January +1, 2025 to 22,595,363 shares as of December 31, 2025. +The +detailed impact of these transactions on stockholders’ equity is presented in Note 14 – Stockholders’ Equity and the +Consolidated Statement of Changes in Stockholders’ Equity (Deficit). +Variable +Interest Entities +Historically, +the Company conducted certain e-commerce operations through contractual arrangements with: +● Shanghai +Xiaoyun Technology Limited (“Xiaoyun”), and +● Kunshan +Yishijue Technology Limited (“Yishijue”). +These +entities held e-commerce platform accounts and authorized the Company to operate the online stores pursuant to authorization agreements. +Xiaoyun and Yishijue had no substantive operations other than holding the authorized stores. +Based +on the nature and purpose of these entities and the related contractual arrangements, the Company determined that Xiaoyun and Yishijue +were variable interest entities (“VIEs”), and that the Company was the primary beneficiary. Accordingly, the Company consolidated +Xiaoyun and Yishijue during the periods in which it held a controlling financial interest. +Ants +Technology (HK) Limited (“Ants”) was not considered a VIE, as it engaged in substantive independent business activities and +was not designed to pass variability to the Company. +Termination +of VIE Arrangements and Deconsolidation +On +December 1, 2025 (the “Effective Date”), the Company completed the transfer of ownership and operational control of the e-commerce +platform accounts from Shanghai Xiaoyun Technology Limited (“Xiaoyun”) and Kunshan Yishijue Technology Limited (“Yishijue”) +to the Company and terminated the related authorization agreements. As a result, the Company no longer held variable interests in these +entities and ceased to be their primary beneficiary under ASC 810. +F- 7 +Table of Contents +Accordingly, +Xiaoyun and Yishijue were deconsolidated as of the Effective Date. The consolidated financial statements for the year ended December +31, 2024 continue to include these entities, as the Company was the primary beneficiary during that period. +Upon +deconsolidation, the Company derecognized the following carrying amounts of assets and liabilities: +● Total +assets derecognized: $ 7,085 +● Total +liabilities derecognized: $ ( 16,011 ) +● Net +liabilities derecognized: $ ( 8,926 ) +The +Company also derecognized cumulative translation adjustments of $ 6,091 associated with these entities. As a result of the deconsolidation, +the Company recognized a loss of $ 5,310 , which is presented in other income (expense) in the consolidated statements of operations +for the year ended December 31, 2025. +The +Company did not retain any equity interest in Xiaoyun or Yishijue upon deconsolidation. Accordingly, no retained interest was measured +at fair value. +Following +the deconsolidation, the Company does not have any continuing involvement with Xiaoyun or Yishijue, nor does it have any obligation to +provide financial support or absorb losses from these entities. As of December 31, 2025, the Company has no continuing exposure to loss +related to these entities. +The +deconsolidation did not result in significant cash inflows or outflows and has been reflected as a non-cash transaction in the +consolidated statement of cash flows. +2. +SUMMARY +OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the +United States of America (“U.S. GAAP”) and in conformity with the rules and regulations of the Securities and Exchange +Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidy and VIEs, and all +intercompany balances and transactions have been eliminated in consolidation. The accounting policies applied are consistent with +those of the prior year, and the consolidated financial statements reflect all normal recurring adjustments necessary for the fair +presentation of the Company’s financial position as of December 31, 2025 and 2024, and the results of its operations and cash +flows for the years then ended. Par value of common stock, additional paid-in capital and share data have been retroactively restated to give +effect to reverse recapitalization. +F- 8 +Table of Contents +The +Company’s fiscal year-end date is December 31. +Principles +of Consolidation +The +consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and its consolidated VIEs. A +subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. The financial statements +of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intra-group +assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated +in consolidation. +Use +of Estimates +The +preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management +to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and +liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Management +makes these estimates using the best information available at the time the estimates are made; however actual results could differ from +those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, allowance for credit losses, +valuation of inventory, estimated replacement rates to calculate warranty liabilities and warranty expenses. +Foreign +Currency and foreign currency translation +The +Company’s reporting currency is the U.S. dollar (“USD”). The functional currency of AMC Robotics Corporation is +USD, while the functional currency of its former variable interest entities (“VIEs”) was Renminbi (“RMB”). +The VIEs were deconsolidated effective December 1, 2025 and were consolidated from January 1, 2024 through November 30, 2025; +accordingly, foreign currency translation applies to the VIEs’ results for that period. For the year ended December 31, 2024, +the VIEs were consolidated for the full year. Transactions denominated in currencies other than the functional currency are +translated at exchange rates prevailing on the transaction dates, with resulting gains and losses recorded in other income +(expense). Assets and liabilities are translated at period-end exchange rates at the period, while revenues and expenses are translated at +average exchange rates, with translation adjustments recorded in accumulated other comprehensive income. The impact of foreign +currency exchange on the Company’s consolidated financial statements was not significant for the periods presented, primarily +due to the deconsolidation of the VIEs during 2025. +SCHEDULE +OF FOREIGN CURRENCY TRANSLATION +Period ended November 30, 2025 +Balance sheet, except for equity accounts +¥ 7.0751 +RMB to $ 1 USD +Income statement and cash flows +¥ 7.1300 +RMB to $ 1 USD +Year ended December 31, 2024 +Balance sheet, except for equity accounts +¥ 7.2994 +RMB to $ 1 USD +Income statement and cash flows +¥ 7.1887 +RMB to $ 1 USD +Cash +and Cash Equivalents +Cash +consists of cash on deposit with financial institutions that is unrestricted as to withdrawal or use. Cash equivalents include highly +liquid investments with original maturities of three months or less at the time of purchase. +For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original +maturity of three months or less when purchased to be cash equivalents. Cash equivalents +primarily consist of investments in money market funds. +As +of December 31, 2025 and 2024, the Company had cash and cash equivalent balances of $ 7,004,601 and $ 358,887 , respectively. Cash equivalents +include investments in money market funds with original maturities of three months or less . +F- 9 +Table of Contents +The +Company maintains its cash balances with financial institutions in the United States. These balances may, at times, exceed federally +insured limits of $ 250,000 per +depositor per financial institution provided by the Federal Deposit Insurance Corporation (“FDIC”). A portion of these balances, +including amounts held in money market accounts, was not insured by the FDIC. The Company has not experienced any losses on these accounts +and management believes the Company is not exposed to significant credit risk on such balances. +Accounts +receivable and Accounts receivable- related party +Accounts +receivable is stated at the amount the Company expects to collect from customers through e-commerce platforms. Accounts receivable—related +party represents amounts due from Kami Vision Incorporated (“Kami”) for revenue-sharing arrangements. Refer to Note 8—Related +Party Balances and Transactions. +The +Company evaluates expected credit losses on accounts receivable using a loss-rate method in accordance with ASC 326. This method considers +historical loss experience, current conditions, and reasonable and supportable forecasts, including macroeconomic factors such as inflation, +real GDP growth, unemployment rates, and industry trends. +As +of December 31, 2025 and 2024, no allowance for credit losses was recorded for accounts receivable and accounts receivable—related +party, as the Company’s historical loss experience has been insignificant and the risk of non-collection is considered remote. +The Company writes off receivable balances when all collection efforts have been exhausted and recovery is deemed unlikely. To date, +the Company has not experienced material uncollectible accounts receivable and accounts receivable—related party. +Other receivable- related party, net +Other +receivables – related party primarily consists of receivable from Kami for marketing subsidy and receivable from Ants. The +balances presented on the consolidated balance sheets are net of allowance for credit losses. Refer to Note 8 “Related party +balances and transactions”. In connection with the assessment of current expected credit loss under ASC Topic 326, Measurement +of Credit Losses on Financial Instruments (ASU 2016-13), the Company recorded reversal for credit losses of +$ 1,262,146 against receivables due from Ants during the year ended December 31, 2024, using the loss-rate method. Refer +to the above section of “Accounts receivable and Accounts receivable- related party” for details about the loss-rate +method, and to Note 8 – “Provision for Credit Losses – Related Party” for information regarding the reversal +and provision for credit losses related to Ants Technology (HK) Limited. +Inventories, +net +The +inventory costs include the product costs and the freight-in costs. Product costs are based on the purchase price using the moving average +cost method. On a monthly basis, product costs are recalculated based upon the average product cost per unit. Freight-in costs are allocated +to each product using the average freight-in cost per unit. +Inventories +are stated at lower of cost or net realizable value. The Company evaluates inventories on a quarterly basis for potential net realizable +value adjustments, reducing the carrying value of inventories that exceed their estimated net realizable value. Where there is evidence +that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical +deterioration, obsolescence, changes in price levels, or other causes, the inventories are written down to net realizable value. Net +realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Any excessive +spoilage is recorded as current period charges. +During +the years ended December 31, 2025 and 2024, 100 % of inventories, were purchased from related parties, Senslab HK Limited and its subsidiary +Senslab Technology Co., Ltd (collectively referred to as “Senslab”). Refer to Note 13 “Concentration Risk” for +purchases from each supplier under Supplier Concentration . AMC Robotics Corporation has secured favorable payment terms +with Senslab, extending the payment period from 60 days to 180 days. +F- 10 +Table of Contents +Deferred +Offering Costs +Costs +directly attributable to the Business Combination are accounted for as deferred offering costs in accordance with ASC 340-10-S99-1 and +SEC Staff Accounting Bulletin Topic 5A. These costs primarily consist of legal, advisory, and other professional fees directly attributable +to the Business Combination and are recorded as deferred assets prior to the closing of the transaction. Costs that are not directly +attributable to the Business Combination, including audit, accounting, and financial reporting expenses, are expensed as incurred. +Upon +consummation of the Business Combination, deferred offering costs are reclassified to additional paid-in capital as a reduction of the +proceeds from the transaction. If the Business Combination had not been completed, such costs would have been expensed upon the termination of such Business Combination. +As +of December 31, 2024, the Company had deferred offering costs of $ 233,339 +related to the Business Combination. During the year ended December 31, 2025, the Company incurred additional deferred offering +costs of $ 818,140 +in connection with the transaction. Upon the closing of the Business Combination on December 9, 2025, total deferred offering costs +of $ 1,051,479 were +reclassified to additional paid-in capital as a reduction of proceeds from the reverse recapitalization. Accordingly, no deferred +offering costs remained on the consolidated balance sheet as of December 31, 2025. The total amount of $ 225,000 deferred offering +cost incurred in 2025 was paid in 2026, which presented as non-cash financing activities in the consolidated statement of cash +flows. +Proceeds +from Business Combination (de-SPAC) +The Company received net proceeds of $ 8,907,380 after the redemption. These proceeds were further adjusted for transaction costs, +Forward Purchase Agreement (“FPA”)–related impacts, deferred offering costs, and other equity adjustments, partially +offset by the elimination of the SPAC’s accumulated deficit. +After +giving effect to these items, the net impact recorded to additional paid-in capital was approximately $ 5.1 million. See Note 14 for a +detailed reconciliation of the Business Combination and related equity adjustments. +Forward +Purchase Agreement +Prior +to the Business Combination, AlphaVest entered into a Forward Purchase Agreement (“FPA”) with Harraden Circle Investments +and its affiliated entities (collectively, “Harraden”). Pursuant to the FPA and subject to its terms and conditions, Harraden +agreed to purchase up to 500,000 public shares of AlphaVest (the “Recycled Shares”) from existing shareholders prior to the +Business Combination at the applicable redemption price. In connection with this arrangement, the Company agreed to issue 50,000 additional +shares to Harraden as commitment shares, representing 10 % of the Recycled Shares. +At +the closing of the Business Combination, the Company funded a prepayment amount of approximately $ 6.68 million to Harraden, calculated +based on the Recycled Shares together with the commitment shares and the applicable redemption price. This prepayment was intended to +facilitate Harraden’s acquisition and/or holding of the Company’s common stock, which Harraden may resell to third-party +investors over a period of up to 12 months following the Business Combination. At the maturity date, Harraden is required to return +any unsold shares to the Company; however, Harraden is not obligated to repay the prepayment amount previously received. +The +FPA is structured as a prepaid forward transaction in which Harraden may acquire, hold, sell, or otherwise transfer shares, and the ultimate +settlement amount is determined based on contractual pricing mechanisms, including volume-weighted average price (“VWAP”) +and reset price provisions. Harraden is not required to remit the full proceeds from any sales of shares and retains the economic upside +above the contractual pricing thresholds. +Transaction +Activity +During +the year ended December 31, 2025, the Company funded an aggregate prepayment amount of approximately $ 6.68 million under the FPA with +redemption price of $ 12.09 . Approximately 90% of the total amount was initially recorded as a prepaid asset, while the remaining 10% +primarily represents the redemption value associated with the commitment shares, along with related transaction costs. +During +2025, Harraden executed partial settlements and early terminations under the FPA, including: +● +Early +termination notices in December 2025 covering an aggregate of approximately 358,981 shares +● +Settlement +amounts calculated based on a contractual reset price of approximately $ 12.27 per share, resulting in aggregate cash payments to +the Company of approximately $ 4.3 million +● +The +50,000 commitment shares were identified as commitment shares and were not subject to early termination provisions under the FPA +As +of December 31, 2025, Harraden held 141,019 shares of the Company’s common stock associated with the FPA, which may be held in +street name and therefore not reflected in the Company’s registered shareholder list +The +Company evaluated the Forward Purchase Agreement (“FPA”) under applicable accounting guidance, including ASC 480 and ASC +815, with consideration of key contractual terms such as variable share settlement provisions, reset features, optional early termination +rights, and the absence of an obligation for Harraden to return the full proceeds from the resale of shares. +F- 11 +Table of Contents +In +addition, the Company determined and recorded that the prepaid amount related to the Recycled Shares, together with associated legal +fees and commission fees of approximately $ 697,000 , +represents financing costs. Accordingly, such amounts were expensed prior to the closing of the Business Combination and +subsequently recorded as a reduction to additional paid-in capital upon closing. +The +arrangement also includes a prepaid forward component, with settlement dependent on future share prices and the actions of the counterparty. +As of December 31, 2025, the Company recorded approximately $ 1.69 million as a reduction to the equity account, representing the portion +of the arrangement for which the Company has not yet received the related economic benefits. Under the terms of the agreement, any unsold +shares are required to be returned to the Company at maturity. +Private +Investment in Public Equity (“PIPE”) Financing and PIPE Warrants +In +connection with the closing of the Business Combination on December 9, 2025 (the “Closing Date”), the Company entered into +securities purchase agreements (the “PIPE Agreements”) with certain investors (the “PIPE Investors”), pursuant +to which the Company issued an aggregate of 800,000 shares of common stock at a purchase price of $ 10.00 per share, for gross proceeds +of $ 8,000,000 (the “PIPE Financing”). The PIPE Financing was consummated concurrently with the Closing and was accounted +for as an equity issuance in accordance with ASC 505, with proceeds recorded within common stock and additional paid-in capital (“APIC”). +In +connection with the PIPE Financing, the Company issued warrants to purchase shares of its common stock (the “PIPE Warrants”). +At the Closing Date, the PIPE Warrants represented the right to acquire an aggregate of 2,240,000 shares of common stock, with an exercise +price of approximately $ 10.00 per share, subject to adjustment. The PIPE Warrants include provisions under which the exercise price and +the number of shares issuable upon exercise are subject to adjustment based on a reference stock price, as defined in the warrant agreements, +determined on the reset date of December 30, 2025. As a result of these provisions, the exercise price was adjusted and the total number +of shares underlying the PIPE Warrants increased to 5,576,301 shares upon the reset event. +The +Company evaluated the PIPE Warrants for classification as either equity or liability instruments in accordance with ASC 480, Distinguishing +Liabilities from Equity , and ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity . The Company +determined that the PIPE Warrants failed the indexation guidance under ASC 815-40 due to provisions that introduce variability in the +number of shares deliverable upon settlement and are not inputs solely based on the Company’s own stock. Accordingly, the PIPE +Warrants were recorded at fair value upon issuance as a derivative liability. +The +PIPE Warrant liability was initially recognized at fair value on the issuance date and was remeasured at fair value at each reporting +date, with changes in fair value recognized in the consolidated statements of operations. For the year ended December 31, 2025, the Company +recognized a loss of $ 25,549,272 related to the change in fair value of the PIPE Warrant liability, which is presented within other income +(expense) in the consolidated statements of operations. The increase in the number of underlying shares from 2,240,000 to 5,576,301 during +the period contributed to the increase in the fair value of the warrant liability. +Upon +the occurrence of the reset event on December 30, 2025, the terms of the PIPE Warrants became fixed, including a fixed exercise price +and a determinable number of shares issuable upon exercise. Accordingly, the PIPE Warrants met the criteria for equity classification +under applicable accounting guidance and were reclassified from derivative liabilities to equity in the amount of $ 30,558,129 . The reclassification +was recorded at the fair value of the PIPE Warrants as of the reclassification date. +The +fair value of the PIPE Warrants was estimated using a Black-Scholes option pricing model and was subsequently updated at each reset date +to reflect changes in exercise price, number of shares, and the Company’s stock price. The stock price inputs used in the valuation +were approximately $ 10.30 at issuance, $ 8.76 at the initial reset date, and approximately $ 6.16 and $ 5.48 at the December 9, 2025 and +December 30, 2025 reset dates, respectively, reflecting the corresponding fair value measurements at those dates. Significant assumptions +included expected volatility of approximately 30.0 % , risk-free interest rates ranging from approximately 3.6 % to 3.7 % , a dividend yield +of 0 % , and an expected term of approximately 4.9 years. Due to the use of significant unobservable inputs, the PIPE Warrant liability +was classified as a Level 3 measurement within the fair value hierarchy. +Revenue +The +Company generated revenues of $ 5,980,847 and $ 10,200,957 for the years ended December 31, 2025 and 2024, respectively. +SCHEDULE +OF REVENUE +Years ended +December 31, +2025 +2024 +Revenues +Product revenue +$ 2,346,474 +$ 7,439,899 +Product revenue - related party +515,756 +6,270 +Revenue share – related party +2,895,956 +2,754,788 +Intelligent Information Service – related party +222,661 +- +Total revenues +$ 5,980,847 +$ 10,200,957 +The +Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers . Revenue is recognized when control +of promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to +be entitled. The Company applies the five-step model to each of its revenue streams, as described below. Revenue is reported net of value +added taxes. +Revenue +Recognition +Product +Revenue +The +Company generates product revenue from both third-party customers and related parties, including Kami and ZKCam Technology Limited. +F- 12 +Table of Contents +For +product sales via e-commerce platforms, primarily Amazon, as well as direct sales to customers, contracts are established through customer orders. The Company +has a single performance obligation to deliver products to customers. The transaction price is the fixed sales price, net of promotional +discounts offered on the platforms. As there is a single performance obligation, the transaction price is fully allocated to product +delivery. +Revenue +is recognized at a point in time when control of the products transfers to the customer, which is generally upon shipment. E-commerce +platforms facilitate shipping and collection; however, the Company retains control of the products prior to transfer. +For +product sales to related parties, including Kami and ZKCam, the terms are generally consistent with those of third-party transactions. +The Company recognized the revenue from product sales - related party at a point in time when control of the products is transferred to the related party customer, which is generally +upon shipment or delivery, depending on the contractual terms. +Payments +are typically received within 3 to 14 days after shipment for e-commerce sales or based on agreed terms for related party transactions. +As payments are not generally received in advance, no deferred revenue is recorded. +Revenue +Share – Related Party (Kami) +The revenue sharing arrangements with its related +party, Kami, related to cloud-based services and intelligent information services. +Cloud-based services +The +Company enters into a revenue sharing agreement with Kami, under which the Company refers customers to Kami’s cloud-based services, +including video storage, image analysis and alert-based features. The Company’s performance obligation is to provide referral services, +and it does not control the underlying services provided by Kami. +Revenue +is recognized when an end user referred by the Company subscribes to Kami’s cloud services and makes a payment. Kami provides the +Company with a monthly statement summarizing the revenue share generated from customers referred by the Company. The Company recognizes +revenue in the period in which the underlying subscription revenue is earned by Kami and reported to the Company. +Under +the original agreement, the Company was entitled to 30% of subscription revenues for new customers during the first year of subscription, +15% during the second year, and no revenue share thereafter. Effective July 1, 2025, the Company entered into an amended agreement with +Kami, under which the Company is entitled to 30% of subscription revenues for new customers referred by the Company during the first +three years of their recurring subscriptions. In accordance with ASC 606-10-25-12, this modification is not accounted for as a separate +contract, as it does not increase the scope of the contract nor does the pricing reflect standalone selling prices for additional goods +or services. Accordingly, the modification is accounted for prospectively and did not result in any adjustment to revenue previously +recognized. +The +transaction price for the revenue share is based on fixed contractual percentages of subscription revenues earned by Kami from referred +customers and does not include variable consideration or non-cash consideration. The Company has concluded that it acts as an agent in +this arrangement and therefore recognizes revenue on a net basis representing its share of the consideration received. +Intelligent information services +Beginning +in the fourth quarter of 2025, the Company generated revenue from arrangements with related parties associated with intelligent information +services. These arrangements are linked to products previously sold by the Company, where the Company enables access to downstream data-related +monetization channels developed and operated by its business partners. +The +Company does not control the underlying services provided to end users and does not have an ongoing obligation to perform services after +the initial enablement. Accordingly, the Company’s role is limited to facilitating access to these arrangements, and it participates +in a share of revenues generated by its business partners. +Revenue +is recognized when the underlying services are delivered by the business partners to end users and the related consideration is earned +and becomes determinable. The Company recognizes revenue on a net basis, representing its share of the amounts received, consistent with +its conclusion that it acts as an agent in these arrangements. +F- 13 +Table of Contents +Product +Return Policy +The Company has a product return policy that permits +e-commerce platform customers in North America to return products within 30 days from the date of purchase. For items purchased during +the holiday season from October to December, the return period is extended until the end of January in the following year. For customers +in Europe, the return period for e-commerce platforms is 30 days from the date of purchase. Within these specified periods, the Company +offers a full refund for returned products, provided the return criteria are met. +The Company recognizes revenues adjusted +for returns based upon the e-commerce platform statements, which reflect the actual refunds for returns. The Company reviews the subsequent +statements after the reporting date and adjusts revenue for returns related to sales in the reporting period accordingly. For returns +occurring during the reporting period, adjustments are made in the month of the return. During the years ended December 31, 2025 and +2024, the Company’s revenue was not significantly impacted by returns due to the short-term free return policy. +For +revenue sharing derived from related party arrangements with Kami, including revenue sharing from cloud-based service and intelligent information service, there are no product return rights or refund obligations applicable to the Company. These revenues are based on +subscription or service usage by end users of Kami’s platform and are recognized based on amounts reported by Kami. As such, +no returns or refund estimates are recorded for these revenue streams. +Product +Warranty +The Company provides standard product +warranties to customers who purchase products through e-commerce platforms. For customers in North America, the Company offers a one-year +warranty from the date of purchase covering replacement of malfunctioning products. For customers in Europe, the warranty period extends +to two years from the date of purchase. +These warranties are assurance-type warranties +as defined under ASC 606 and do not provide services beyond assuring that the product complies with agreed-upon specifications. Accordingly, +the warranties are not accounted for as separate performance obligations. The estimated costs of fulfilling warranty obligations are +accrued at the time of sale and recorded as warranty liabilities, with a corresponding adjustment to sales and marketing expenses. +Gross +versus Net Revenue Presentation +The +Company evaluates whether it acts as a principal or agent in accordance with ASC 606. +For +product sales via e-commerce platforms, the Company acts as a principal and recognizes revenue on a gross basis, as it controls the products +prior to transfer to customers, bears inventory risk, sets pricing, and is responsible for fulfillment. +For +revenue sharing arrangements with Kami, including both cloud-based service and intelligent information service, the Company acts +as an agent, as it does not control the underlying services provided to end users and has no ongoing performance obligation after +the initial enablement. Accordingly, revenue is recognized on a net basis, representing the Company’s share of the +consideration generated from end users. +Cost +of revenues +Cost +of revenues includes cost of products, e-commerce platform fees, delivery and freight costs, and inventory impairment loss. The Company +expenses cost of revenues in conjunction with sales as incurred. The Company incurred cost of revenues of $ 3,127,699 and $ 9,544,977 for +the years ended December 31, 2025 and 2024, respectively. +General +and administrative expenses +General +and administrative expenses primarily consist of costs for consulting fee, payroll expenses, storage fees, and professional fees. +The Company has expensed all general and administrative expenses costs as incurred. For the years ended December 31, 2025 and 2024, +the Company incurred general and administrative expenses of $ 2,687,250 +and $ 2,190,635 +respectively. +Sales +and marketing expenses +Sales +and marketing expenses primarily consist of costs for the promotion of business brand and product marketing and warranty expenses. The +Company expensed all marketing and advertising costs as incurred. For the years ended December 31, 2025 and 2024, the Company incurred +sales and marketing expenses of $ 612,992 and $ 2,026,051 , respectively. +Provision +for credit losses +The +Company determines expected credit losses using the loss-rate method, applying estimated loss rates to the balances of accounts receivable, +other receivables, and related party receivables. +F- 14 +Table of Contents +For +the year ended December 31, 2025, the Company recorded no provision for credit losses. For the year ended December 31, 2024, the Company +recorded a net reversal of credit losses of $ 1,262,146 , primarily reflecting the recovery of amounts previously reserved in prior periods. +As +of December 31, 2025 and 2024, the allowance for credit losses was not material. +Warranty +expenses +Sales +of products via the e-commerce platforms include warranties to customers that replace malfunctional products. These standard warranties +are assurance type warranties and do not offer any services in addition to the assurance that the product will continue working as specified +for one or more years. Therefore, warranties are not considered separate performance obligations in the arrangement. Instead, the expected +cost of warranties is accrued as an expense in accordance with authoritative guidance. +Other +income/(expense) +Other +income – related party consists of subsidy income received from Kami to support the Company’s marketing campaigns on e-commerce +platforms. For the years ended December 31, 2025 and 2024, the Company recognized other income – related party of $ 1,217,586 and +$ 1,779,528 , respectively. Please refer to Note 8 – Related Party Balances and Transactions for further details. +Other +income from non-related parties primarily consists of income from the resale of returned or replaced products and foreign exchange gains. +Other expenses primarily consist of donation expenses. For the years ended December 31, 2025 and 2024, the Company recognized +net other income of $ 39,675 and $ 31,577 , respectively. +Comprehensive +loss +The +Company applies ASC 220, Comprehensive Income, with respect to reporting and presentation of comprehensive loss and its components in +a full set of financial statements. Comprehensive loss is defined to include all changes in equity of the Company during a period arising +from transactions and other events and circumstances except those resulting from investments by stockholders and distributions to stockholders. +For the periods presented, the Company’s comprehensive loss includes net loss and other comprehensive loss, which primarily consists +of the foreign currency translation adjustments. +Income +taxes +The +Company accounts for income taxes in accordance with ASC 740, Income Taxes . The provision for income taxes is determined using +the asset and liability approach, under which deferred tax assets and liabilities are recognized for the future tax consequences of differences +between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates expected to apply +in the periods in which those differences are expected to reverse. +Valuation +allowances are recorded to reduce deferred tax assets when it is more likely than not that such assets will not be realized. In assessing +the need for a valuation allowance, management considers all available positive and negative evidence, including historical operating +results, projections of future taxable income, and the expected timing of reversal of existing temporary differences. Based on this assessment, +the Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2025 and 2024. +The +Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained upon +examination. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense. As of December +31, 2025 and 2024, the Company had no material uncertain tax positions. The Company’s tax returns remain subject to examination +by taxing authorities for all years since inception. +F- 15 +Table of Contents +Net +income (loss) per share +Basic net income (loss) per share is +calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common +stock outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential dilutive +shares of common stock outstanding during the period using the treasury stock method or if-converted method, as applicable. +For the year ended December 31, 2025, +the Company reported a net loss of $ 24,817,342 , primarily attributable to a non-cash loss from the change in fair value of the PIPE warrant +liability. As a result of the net loss, all potentially dilutive securities, including outstanding warrants, were considered anti-dilutive +and were therefore excluded from the computation of diluted net loss per share. Accordingly, basic and diluted net loss per share were +the same for the year ended December 31, 2025. +For the year ended December 31, 2024, the Company also reported +a net loss, and similarly, all potentially dilutive securities were excluded from the calculation of diluted net loss per share as their +inclusion would have been anti-dilutive. +Fair +value measurements +The +Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), +with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy +that prioritizes the input used in measuring fair value as follows: +● +Level +1 : Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets; +● +Level +2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments +in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant +inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets +or liabilities. +● +Level +3 : Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants +would use in pricing the asset or liability. +The +carrying values of cash, accounts receivable, advance to suppliers, other current assets, accounts payable, accrued liabilities, and +other current liabilities approximate fair value due to the short-term nature of these instruments. Pursuant to ASC 820 and ASC 825, +the fair value of cash is determined based on Level 1 inputs. +During +the year ended December 31, 2025, the Company had financial liabilities measured at fair value related to PIPE Warrants, +which were classified as Level 3 within the fair value hierarchy due to the use of unobservable inputs. These liabilities were reclassified +to equity during the year. As of December 31, 2025, the Company did not have any Level 2 or Level 3 financial assets or liabilities. +The +following table presents a roll forward of the Company’s Level 3 financial liabilities (PIPE Warrant liability) for the year ended +December 31, 2025: +SCHEDULE OF ROLL FORWARD OF LEVEL 3 FINANCIAL LIABILITIES (PIPE WARRANT LIABILITY) +Description +Amount ($) +Beginning balance, January 1, 2025 +- +Initial recognition at Closing Date (December 9, 2025) +13,798,400 +Change in fair value of PIPE Warrant liability (December 30, 2025) +16,759,729 +Reclassification to equity (December 30, 2025) +( 30,558,129 ) +Ending balance, December 31, 2025 +- +The +fair value of the PIPE Warrants was determined using a valuation model incorporating significant unobservable inputs and was classified +as Level 3 within the fair value hierarchy. +Segment +reporting +ASC +280 Disclosures about Segments of an Enterprise and Related Information , establishes standards for reporting information about +operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical +areas, business segments and major customers in financial statements for details on the Company’s business segments. Operating +segments are defined as components of an enterprise which engage in business activities from which they may earn revenues and incur expenses, +and about which separate financial information is available that is evaluated regularly by the chief operating decision maker, which +is the company’s chief executive officer (CEO), in deciding how to allocate resources and in assessing performance. Reportable +segments are defined as an operating segment that either (a) exceeds 10% of revenue, or (b) reported profit or loss in absolute amount +exceeds 10% of profit of all operating segments that did not report a loss or (c) exceeds 10% of the combined assets of all operating +segments. AMC Robotics Corporation has Amazon online accounts in the U.S., Canada, and Europe. Revenue from the Canadian Amazon online +store does not exceed 10% of the total revenue. Therefore, AMC Robotics Corporation has determined that it has 2 two +primary operating segments (1) North America and (2) Europe. Given that the two VIEs, Xiaoyun and Yishijue, are headquartered +and operated in China, the consolidated financial statements are bifurcated into three segments: +(1) North America, (2) Europe, and (3) China. +F- 16 +Table of Contents +Recently +issued accounting pronouncements +In +October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure +Update and Simplification Initiative. ASU 2023-06 modifies the disclosure or presentation requirements of a variety of Topics in the +Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Because of +the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. Many of the amendments allow +users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject +to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For +entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements +with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions +on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from +Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective +two years later. The amendments in this update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not +removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed +from the Codification and will not become effective for any entity. The Company is currently evaluating the potential impact this standard +will have on its consolidated financial statements and related disclosures. +In December 2023, the Financial Accounting +Standards Board issued ASU 2023-09, Improvements to Income Tax Disclosures , which enhances the transparency of income tax disclosures. +The standard is effective for the Company for annual periods beginning after December 15, 2024. The Company elected to prospectively +adopt the guidance in ASU 2023-09 for the year ended December 31, 2024. +On +November 4, 2024, the FASB issued ASU 2024-03, which requires disaggregated disclosure of income statement expenses for public business +entities (PBEs). ASU 2024-03 adds ASC 220-40 to require a footnote disclosure about specific expenses by requiring PBEs to disaggregate, +in a tabular presentation, each relevant expense caption on the face of the income statement that includes any of the following natural +expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, +depletion, and amortization (DD&A) recognized as part of oil- and gas-producing activities or other types of depletion expenses. +The tabular disclosure would also include certain other expenses, when applicable. The ASU does not change or remove existing expense +disclosure requirements; however, it may affect where that information appears in the footnotes to the financial statements. ASU 2024-03 +shall be effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting +periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The +Company is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures. +In +July 2025, the Financial Accounting Standards Board issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement +of Credit Losses for Accounts Receivable and Contract Assets , which amends the guidance in ASC 326. The amendments simplify the measurement +of expected credit losses for accounts receivable and contract assets by permitting entities to use a practical expedient based on historical +loss rates, adjusted for current conditions and reasonable and supportable forecasts. +The +amendments in this update are effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal +years. Early adoption is permitted. +The +Company is currently evaluating the impact of ASU 2025-05 on its consolidated financial statements and does not expect the adoption of +this guidance to have a material impact. +Other +accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material +impact on the consolidated financial statements upon adoption. We do not discuss recent standards that are not anticipated to have an +impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures. +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities +Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take +advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic +reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and +stockholder approval of any golden parachute payments not previously approved. +F- 17 +Table of Contents +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting +standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements +that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of +such extended transition period which means that when a standard is issued or revised and it has different application dates for public +or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies +adopt the new or revised standard. As a result, the Company’s financial statements may not be comparable to those of public companies +that are not emerging growth companies and that are required to comply with new or revised accounting standards on earlier effective +dates. +3. +ACCOUNTS +RECEIVABLE +Accounts +receivable represent amounts due from customers arising in the ordinary course of business, primarily related to revenues generated from +e-commerce platform sales and service arrangements. +As +of December 31, 2025 and 2024, accounts receivable were $ 427 and $ 54,302 , respectively. The outstanding balances primarily relate to +receivables from third-party e-commerce platforms and customers for completed transactions. +The +Company evaluates accounts receivable for expected credit losses in accordance with ASC 326 using a loss-rate method based on historical +collection experience, current conditions, and reasonable and supportable forecasts. As of December 31, 2025 and 2024, all accounts receivable +were aged less than 180 days. +Based +on this assessment, the Company determined that an allowance for credit losses was not material as of December 31, 2025 and 2024. +4. +INVENTORIES +- NET +As +of December 31, 2025 and 2024, the Company had inventory balances of $ 1,069,465 and $ 3,555,876 , consisting of the following: +SCHEDULE +OF INVENTORY NET +December 31, +December 31, +2025 +2024 +Purchased goods +$ 1,274,700 +$ 4,238,942 +Freight-in costs +63,025 +114,980 +Inventory +1,337,725 +4,353,922 +Less: inventory impairment +( 268,260 ) +( 798,046 ) +Inventory, net +$ 1,069,465 +$ 3,555,876 +For +the year ended December 31, 2025, the Company recognized an inventory impairment provision of $ 163,037 , as the inventory cost exceeded +its net realizable value, and recorded a reduction of $ 692,823 for inventories that were removed, sold, or replaced under warranty. For +the year ended December 31, 2024, the Company recognized an inventory impairment provision of $ 1,326,355 . The movement of inventory impairment +provisions for the years ended December 31, 2025 and 2024 is summarized as follows: +SCHEDULE +OF INVENTORY IMPAIRMENT PROVISIONS +Years ended +December 31, +2025 +2024 +Balance at the beginning of the year +$ 798,046 +$ - +Addition +163,037 +1,326,355 +Deletion +( 692,823 ) +( 528,309 ) +Balance at the end of the year +$ 268,260 +$ 798,046 +F- 18 +Table of Contents +5. +PREPAID +EXPENSES +As of December 31, 2025 and 2024, the +Company had prepaid expenses of $ 354,878 and $ 100,912 , respectively. These balances primarily consisted of prepaid federal and state +income taxes and other routine prepaid operating expenses. The increase in prepaid expenses as of December 31, 2025 compared to the prior +year was primarily attributable to higher prepaid tax balances and timing of payments for operating expenses. +6. +OTHER +RECEIVABLE +As +of December 31, 2025 and 2024, the Company had other receivable balances of $ 0 and $ 125,000 , respectively. +As +of December 31, 2024, the balance consisted of a $ 70,000 fairness opinion valuation fee and a $ 55,000 extension fee paid by the Company +on behalf of the special purpose acquisition company (“SPAC”) in connection with the proposed Business Combination. +On +December 9, 2025, upon the completion of the reverse merger and Business Combination, all receivable balances related to amounts paid +by the Company on behalf of the SPAC were eliminated against the SPAC’s corresponding payable balances as part of the transaction. +Accordingly, no other receivable balance remained outstanding as of December 31, 2025. +The +Company does not expect to incur credit losses related to other receivables. +7. +PROMISSORY +NOTE RECEIVABLE +The +Company entered into multiple non-interest-bearing promissory note arrangements with AlphaVest Acquisition Corp. (the “SPAC”) +to fund costs associated with extending the SPAC’s business combination period and to support its working capital requirements. +Promissory +Note 1 +On +May 2, 2024, the Company issued a promissory note to the SPAC (“Promissory Note 1”), allowing the SPAC to borrow up to an +aggregate of $ 440,000 . The note bears no interest and was originally payable on the earlier of (i) December 12, 2024 or (ii) promptly +after the date on which the SPAC consummates an initial business combination. +On +January 6, 2025, the note was amended and restated to extend the maturity date to promptly after the date the business combination is +consummated. On March 25, 2025, the note was further amended to increase the principal amount to $ 935,000 . +● Outstanding +balance as of December 31, 2024: $ 440,000 +● Outstanding +balance as of December 31, 2025: $ 0 +Promissory +Note 2 +On +May 2, 2024, the Company issued a second promissory note to the SPAC (“Promissory Note 2”), allowing the SPAC to borrow up +to an aggregate of $ 126,000 . The note bears no interest and was originally payable on the earlier of (i) December 12, 2024 or (ii) promptly +after the date on which the SPAC consummates an initial business combination. +On +January 6, 2025, the note was amended and restated to extend the maturity date to promptly after the date the business combination is +consummated. +● Outstanding +balance as of December 31, 2024: $ 126,000 +● Outstanding +balance as of December 31, 2025: $ 0 +Promissory +Note 3 +On +October 11, 2024, the Company issued a third non-interest-bearing promissory note to the SPAC (“Promissory Note 3”), allowing +the SPAC to borrow up to $ 100,000 to support working capital requirements. The note was originally due on the earlier of (i) December +31, 2024 or (ii) promptly after the date the business combination is consummated. +On +January 6, 2025, the note was amended and restated to: +● (i) +extend the maturity date to promptly after the date the business combination is consummated, +and +● (ii) +increase the principal amount to $ 200,000 . +On +April 13, 2025, the Company further amended the note to increase the principal amount to $ 350,000 . +● Outstanding +balance as of December 31, 2024: $ 57,449 +● Outstanding +balance as of December 31, 2025: $ 0 +F- 19 +Table of Contents +Aggregate +Activity and Settlement +During +the year ended December 31, 2025, the SPAC drew additional amounts under promissory notes. The total outstanding balance under all promissory +notes immediately prior to the closing of the Business Combination was $ 2,117,929 . +In +connection with the closing of the Business Combination on December 9, 2025, $ 678,449 of the outstanding balance was repaid in cash. +The remaining balance was settled through a combination of (i) an offset against amounts payable to AlphaVest of $ 1,272,419 and (ii) +payments of transaction-related expenses, which were recorded as a reduction to additional paid-in capital. +Upon +completion of the reverse recapitalization, all intercompany promissory note balances between the Company and the SPAC, including promissory +note receivable and payable balances, were eliminated in consolidation. +As +of December 31, 2025 and 2024, the Company’s promissory note receivable balances were $ 0 and $ 623,449 , respectively. +Credit +Risk +The +promissory notes were issued to the SPAC in connection with the business combination transaction. Upon completion of the Business Combination, +the receivable balances were eliminated through the reverse recapitalization accounting. +Accordingly, +the Company does not expect to incur credit losses related to these promissory notes. +8. +RELATED +PARTY BALANCES AND TRANSACTIONS +The +Company engages in transactions with related parties in the normal course of business. The principal related parties with which the Company +had transactions during the years ended December 31, 2025 and 2024 are as follows: +Name +Relationship +with the Company +Sean +Da +CEO +and Board Chair, and majority stockholder +Senslab +HK Limited (hereinafter referred to as “Senslab HK”) +Affiliate +of Sean Da +Senslab +Technology Co., Ltd (hereinafter referred to as “Senslab SH”) +Affiliate +of Sean Da +Ants +Technology (HK) Limited (hereinafter referred to as “Ants”) +Affiliate +of Sean Da +Kami +Vision Incorporated (hereinafter referred to as “Kami”) +Affiliate +of Sean Da +Yunyizhilian +Information Technology Co., Ltd (hereinafter referred to as “Yunyizhilian”) +Entity +under common control with Mr. Sean Da. +Shanghai Xiaoyun Technology Co., Ltd. (hereinafter referred to as “Xiaoyun”) +Formerly VIE +ZKCam +Co., Ltd. (“ZKCam”) +Minority +Stockholder of the Company +F- 20 +Table of Contents +Impact +of Related Party Transactions on Operations +During +the years ended December 31, 2025 and 2024, related party transactions had the following impact on income (loss) before income tax: +SCHEDULE +OF RELATED PARTY TRANSACTIONS +2025 +2024 +Related Party Transactions +Impact on pre-tax income (loss) +Income Statement +Years ended +December 31, +2025 +2024 +Revenue share – related party (Kami) +$ 3,118,617 +$ 2,754,788 +Product revenue - related party (Kami) +3,833 +6,270 +Product revenue - related party (ZKCam) +511,922 +- +Product cost - related party (Senslab) +( 2,223,113 ) +( 6,002,463 ) +(Provision)/reversal for credit losses (Ants) +- +1,262,146 +General and administrative expenses - Consulting fee-related party (Kami) +( 234,912 ) +( 334,317 ) +General and administrative expenses - Stockholder’s business travel expense (Sean) +( 91,655 ) +- +General and administrative expenses - Financial consulting fee (Ants) +( 60,000 ) +( 60,000 ) +Other income - Marketing incentive subsidy income (Kami) +1,217,586 +1,779,528 +Interest expense (Ants) +- +( 18,999 ) +Total impact on pre-tax loss +$ 2,242,278 +$ ( 613,047 ) +% of pre-tax income (loss) +306 % +80 % +F- 21 +Table of Contents +Related +Party Balances +As +of December 31, 2025 and 2024, balances with related parties were as follows. +Related Party Transactions +As of December 31, 2025 +Balance Sheet +Ants +Senslab SH +Senslab HK +Xiaoyun +ZKCam +Kami +Sean Da +Total +Accounts receivable - related party +$ +$ - +$ - +$ 433,888 +$ 1,632,002 +$ - +$ 2,065,890 +Other receivable - related party, net +4,872 +26,406 +4,035 +- +- +440,596 +475,909 +Including: +- +- +- +- +Other receivable - related party +4,872 +26,406 +4,035 +- +- +440,596 +475,909 +Advance to suppliers – related party +21,387 +- +- +21,387 +Prepayment - related party +66,844 +- +- +- +- +- +66,844 +Related Party Transactions +As of December 31, 2024 +Balance Sheet +Ants +Senslab SH +Senslab HK +Kami +Sean Da +Yunyizhilian +Total +Accounts receivable - related party +$ - +$ - +$ - +$ 190,168 +$ - +$ - +$ 190,168 +Other receivable - related party, net +1,790,009 +- +- +169,833 +- +- +1,959,842 +Including: +- +- +Other receivable - related party +1,790,009 +- +- +169,833 +- +- +1,959,842 +Note receivable - stockholder +- +- +- +- +15,862 +- +15,862 +Prepayment - related party +126,965 +- +- +- +- +- +126,965 +Accounts payable - related party +- +6,258,235 +2,285,008 +- +- +- +8,543,243 +Other payable - related party +- +- +- +- +- +6,269 +6,269 +F- 22 +Table of Contents +Specifically, +transactions with each related party presented in the above tables are as follows: +Senslab +HK Limited and Senslab Technology Co., Ltd +Balance +% of Total Liability +Balance +% of Total Liability +December 31, +December 31, +2025 +2024 +Balance +% of Total Assets +Balance +% of Total Assets +Advance to suppliers - related party (Senslab HK) +$ 21,387 +1 % +$ - +- % +Other receivable - related party (Senslab SH) +26,406 +1 % +- +- % +Total +$ 47,793 +1 % +$ - +- % +Balance +% of Total Liability +Balance +% of Total Liability +December 31, +December 31, +2025 +2024 +Balance +% of Total Liability +Balance +% of Total Liability +Accounts payable - related party (Senslab HK) +$ - +- % +$ 2,285,008 +24 % +Accounts payable - related party (Senslab SH) +- +- % +6,258,235 +65 % +Total +$ - +- % +$ 8,543,243 +89 % +Sean +Da, the Company’s majority stockholder, owns approximately 38 % of Senslab Technology Co., Ltd. (“Senslab SH”), which +owns 100 % of Senslab HK Limited (“Senslab HK”). Both entities are therefore considered related parties of the Company. +Historically, +the Company procured security cameras from Senslab HK. Senslab HK purchased the products from Senslab SH and exported them to the Company. +Beginning in the fourth quarter of 2023, after Senslab SH obtained import and export trade approval, the Company also began purchasing +security cameras directly from Senslab SH. +During +the years ended December 31, 2025 and 2024, the Company purchased security cameras from Senslab HK in the amounts of $ 0 and $ 539,068 , +respectively. During the same periods, purchases from Senslab SH totaled $ 186,005 and $ 6,347,602 , respectively. The significant decrease +in purchases from related party suppliers in 2025 was primarily due to a shift in the Company’s business model toward higher-margin +revenue streams, including revenue sharing and intelligent information services, which reduced the Company’s reliance on product +sales and corresponding inventory purchases. +As +of December 31, 2025 and 2024, accounts payable due to Senslab HK were $ 0 and $ 2,285,008 , respectively. Accounts payable due to Senslab +SH were $ 0 and $ 6,258,235 , respectively. +As +of December 31, 2024, total accounts payable to Senslab HK and Senslab SH aggregated $ 8,543,243 , representing approximately 89 % of the +Company’s total liabilities. During 2025, the Company settled all outstanding balances payable to Senslab HK and Senslab SH. Accordingly, +as of December 31, 2025, there were no outstanding accounts payable balances due to either entity. +The +settlement of these balances during 2025 significantly reduced the Company’s concentration of liabilities with related-party suppliers +compared to the prior year. +Ants +Technology (HK) Limited +Balance +% of Total Asset +Balance +% of Total Asset +December 31, +December 31, +2025 +2024 +Balance +% of Total Asset +Balance +% of Total Asset +Prepayment - related party +$ 66,844 +1 % +$ 126,965 +2 % +Other receivable - related party, net +4,872 +0 % +1,790,009 +24 % +Allowance for credit losses +- +- +% +- +- % +Total +$ 71,716 +1 % +$ 1,916,974 +26 % +F- 23 +Table of Contents +The +Amazon online store for the North America region historically operated under Ants Technology (HK) Limited (hereinafter referred to as +“Ants”). Ants authorized the Company to utilize its Amazon account free of charge for a period of five years, commencing +on October 21, 2021 (hereinafter referred to as the “Authorization Agreement”). +In +January 2025, the Company terminated the Authorization Agreement early and assumed ownership and control of the Amazon online store from +Ants. Ants transferred to the Company all of its ownership interests in the Amazon online store, including, but not limited to, ownership +of the shop, business operation rights, customer resources, operational and technical data, brand usage rights, intellectual property +rights (such as trademarks, patents, and copyrights, if applicable), and other assets and rights related to the operation of the Amazon +online store. +Sean +Da, the Company’s majority stockholder, owns 95 % of Ants. +Prepayment +– Related Party +Upon +signing the Authorization Agreement, the Company agreed to sell Ants’ remaining camera inventories and reimburse certain costs +incurred by Ants on its behalf. To facilitate these payments, the Company prepaid Ants $ 359,192 in 2022. +The +prepayment is amortized based on (i) revenue collected from the sale of Ants’ inventories, (ii) reimbursements of costs incurred +by Ants, and (iii) financial consulting fees payable to Ants beginning January 1, 2025 for bookkeeping support services at a monthly +rate of $ 5,000 . +For +the year ended December 31, 2025, the Company recognized $ 60,000 of financial consulting fees. Revenue collected from the sale of Ants’ +inventories was not material for the years presented. +As +of December 31, 2025 and 2024, the remaining prepayment balance was $ 66,844 +and $ 126,965 , +respectively. +Other +receivable – related party (Ants) +As +of December 31, 2025 and 2024, the Company had gross “other receivable – related party” balances due from Ants of $ 4,872 +and $ 1,790,009 , +respectively . The substantial decrease in 2025 primarily reflects settlement and collection of outstanding balances from prior +periods. +F- 24 +Table of Contents +The +following table presents the movement of “other receivable – related party” balances due from Ants: +SCHEDULE +OF OTHER RECEIVABLE - RELATED PARTY +2025 +2024 +Years +ended +December +31, +2025 +2024 +Balance +at the beginning of the period +$ +1,790,009 +$ +1,768,473 +Amazon +Payments Ants Received (1) +- +( 346,458 +) +Repayment +from Ants (1) +( 1,790,009 ) +- +Inventory +Transfer /(Procurement) (2) +4,872 +427,994 +Financial +Consulting (3) +- +( 60,000 +) +Balance +at the end of the period +$ +4,872 +$ +1,790,009 +(1) +Prior to April 2022, Ants collected payments from Amazon customers on behalf of the Company. Beginning in April 2022, the Company +obtained direct access to the third-party cross-border payment platform and began receiving customer payments directly. Accordingly, +amounts previously held by Ants were repaid to the Company. During the years ended December 31, 2025 and 2024, Ants repaid $ 1,790,009 +and $ 346,458 , respectively. +(2) +Inventory-related +movements reflect transfers and procurement arrangements between the Company and Ants. During the years ended December 31, 2025 and 2024, +such activities resulted in net increases of $ 4,872 and $ 427,994 , respectively, to the related-party receivable balance. +(3) +The +Company engaged employees of Ants to provide bookkeeping and financial consulting services. Financial consulting fees totaled $ 60,000 +for the year ended December 31, 2024 and were recorded as reductions of the related-party receivable +balance. +Provision +for credit losses – related party +The +Company recorded a provision for credit losses of $ 1,262,146 during the year ended December 31, 2023 related to amounts due from Ants. +During the fourth quarter of 2024, the Company reversed the full $ 1,262,146 allowance previously recorded, as collectability improved +and subsequent settlement activity supported recovery of the outstanding balance. +During +the year ended December 31, 2025, Ants remitted substantial payments and other settlements were completed, significantly reducing the +outstanding related-party receivable balance. As a result of these collections and settlements, management concluded that no allowance +for credit losses was required as of December 31, 2025. +Accordingly, +the allowance for credit losses was $ nil as of both December 31, 2025 and 2024. The carrying value of “other receivable – +related party” due from Ants was $ 4,872 and $ 1,790,009 as of December 31, 2025 and 2024, respectively. +The +following table presents the movement of the allowance for credit losses: +SCHEDULE +OF ALLOWANCE FOR CREDIT LOSSES +2025 +2024 +Years ended +December 31, +2025 +2024 +Balance at beginning of the period +$ - +$ 1,262,146 +Provision for credit loss +- +- +Reversal of credit loss previously recorded +- +( 1,262,146 ) +Balance at the end of the period +$ - +$ - +F- 25 +Table of Contents +Note +payable – related party +On +January 1, 2023, the Company entered into a revolving loan agreement with Ants to borrow up to $ 1,200,000 during the period from January +1, 2023 through December 31, 2024. The loan was unsecured and bore interest at a daily rate not exceeding 0.041%. The outstanding balance +and any accrued interest were payable on demand. +As +of December 31, 2025 and December 31, 2024, the Company had no outstanding principal balance or accrued interest under this loan agreement. +For the years ended December 31, 2025 and 2024, the Company incurred $ nil and $ 18,999 of interest expense, respectively, related to this +loan agreement. +Kami +Vision Incorporated +Sean +Da, the Company’s majority stockholder, also serves as Chief Executive Officer of Kami Vision Incorporated +(“Kami”) and holds approximately 80 % +ownership of Kami . Accordingly, transactions between the Company and Kami are considered related-party +transactions. +Revenue-Sharing +Arrangement – Cloud Services +In +October 2021, the Company entered into a revenue-sharing agreement with Kami related to cloud-based services associated with the Company’s +products. These services include storage of recorded video data, image analysis, and alert and intelligent detection services provided +to end users. +Under +the arrangement, the Company refers customers to Kami and is entitled to a portion of the subscription revenues generated from those +customers. +On +July 1, 2025, the Company entered into an amended agreement with Kami to revise the revenue-sharing percentages applicable to subscription +revenues from referred customers. The amended terms apply prospectively and do not affect revenue recognized prior to the modification +date. +SCHEDULE +OF ANNUAL SUBSCRIPTIONS REVENUES +Annual +subscription periods +Percentage +basis +Inception +through +June +30, 2025 +From +July 1, 2025 Onwards +First +year during which an end user starts the cloud service subscription from Kami +30 % +30 % +Second +year during which an end user continues the cloud service +15 % +30 % +Third +year and thereafter during which an end user continues the service subscription from Kami +0 % +30 % +For +the year ended December 31, 2025 and 2024, the Company recognized revenue of $ 2,895,956 and +$ 2,754,788 , respectively, from this revenue-sharing arrangement. +Revenue-sharing +arrangement - Intelligent Information Service Agreement +On +October 1, 2025, the Company entered into a revenue-sharing arrangement related with Kami. +Under +the arrangement, Kami operates an artificial intelligence-driven information distribution platform and related application, which utilizes +hardware products sold by the Company to generate monetization opportunities. Kami manages all aspects of the platform operations, including +content distribution, pricing, bidding processes, and relationships with third-party traffic or content providers. +The +Company does not operate the platform or application, does not control the underlying services provided to end users, and does not have +any ongoing performance obligations after the sale of its hardware products. Instead, the Company is contractually entitled to receive +30% of net monetization revenue generated by Kami from users associated with the Company’s products. Net monetization revenue represents +gross receipts collected by Kami from third-party platforms, less applicable platform fees and related charges. +The +Company concluded that it acts as an agent in this arrangement, as it does not control the services provided to end users, does not determine +pricing, and does not receive gross consideration from third-party platforms. Accordingly, revenue is recognized on a net basis equal +to the Company’s contractual share of monetization revenue in accordance with ASC 606. +For +the year ended December 31, 2025, the Company recognized $ 222,661 of revenue under this agreement. +F- 26 +Table of Contents +Accounts +receivable – related party +Balance +% +of Total Asset +Balance +% +of Total Asset +December 31, +December 31, +2025 +2024 +Balance +% +of Total Asset +Balance +% +of Total Asset +Accounts receivable - related party +$ 1,632,002 +13 % +$ 190,168 +3 % +Other receivable - related +party, net +- +- % +169,833 +2 % +Total +$ 1,632,002 +13 % +$ 360,001 +5 % +Accounts +receivable – related party primarily represent amounts due from Kami under the Company’s +revenue-sharing arrangements, including the Intelligent Information Service Agreement described above. These balances represent the Company’s +contractual share of monetization revenues earned but not yet remitted by Kami as of the respective reporting dates. +Other +receivable – related party as of December 31, 2024 primarily related to amounts due from Ants under prior operating arrangements. These balances were substantially settled during the year ended December 31, 2025, resulting in no +outstanding balance as of December 31, 2025. +The +increase in accounts receivable – related party as of December 31, 2025 compared to December 31, 2024 primarily reflects increased +monetization activities under arrangements with Kami and the timing of settlements. +Subscription +Receivable – Related Party +In +June 2025, the Company entered into a subscription agreement with Kami Vision Incorporated (“Kami”), pursuant to which Kami +subscribed for 228,571 shares of the Company’s common stock for a total purchase price of $ 5,000,000 . +The +Company received the full subscription proceeds during 2025, and the transaction was recorded within stockholders’ equity. Accordingly, +no subscription receivable was outstanding as of December 31, 2025. +Other +Receivable – Related Party and Marketing Incentive Subsidy Income +The +Company entered into market promotion subsidy agreements with Kami effective January 1, 2024 and January 1, 2025, respectively. Under +these agreements, Kami agreed to provide an annual subsidy of up to $ 2 million for each of the years 2024 and 2025 to support the Company’s +marketing activities related to Kami’s cloud services. +The +subsidy amounts are determined based on agreed marketing activities performed and are invoiced periodically by the Company to Kami. As +these amounts are not generated from the Company’s primary revenue-producing activities, they are recognized as other income, with +the related receivable recorded as “other receivable – related party.” +For +the years ended December 31, 2025 and 2024, the Company recognized marketing incentive subsidy income of $ 1,217,586 and $ 1,779,528 , respectively. +As +of December 31, 2025 and 2024, the Company had other receivable – related party balances of $ nil and $ 169,833 , respectively. The +decrease in 2025 primarily reflects the collection of outstanding balances from Kami. +PIPE +Financing Funds +In +September 2025, the Company received $ 4,000,000 from Kami Vision Incorporated (“Kami”) in connection with the PIPE financing. +The funds were received prior to the closing of the Business Combination and were subject to completion of the transaction. Accordingly, +the Company recorded the amount as a liability within “PIPE financing proceeds received in advance.” +Upon +the closing of the Business Combination in December 2025, the PIPE financing was completed and total proceeds of $ 5,500,000 from Kami +were received. The total amount of $ 5,500,000 includes previously recorded advance, together with additional proceeds received at closing, +was reclassified to stockholders’ equity (common stock and additional paid-in capital). +In connection with the PIPE financing, +the Company also issued warrants to purchase shares of its common stock (the “PIPE Warrants”) to Kami. The PIPE Warrants +issued to Kami represent the right to acquire 1,540,000 shares of common stock, based on the terms of the PIPE financing. +F- 27 +Table of Contents +Product +revenue – related party +To +promote adoption of Kami’s cloud subscription services, Kami launched a promotional campaign beginning in the third quarter of +2024 under which customers received a complimentary security camera upon subscribing to Kami’s cloud services. As part of this +promotion, Kami purchased security cameras from the Company. +For +the years ended December 31, 2025 and 2024, product revenue – related party from Kami totaled $ 3,833 and $ 6,270 , respectively. +The decline in 2025 reflects reduced promotional procurement activity following the initial launch of the promotional campaign in 2024. +Consulting +fee +The +Company engaged certain employees of Kami Vision Incorporated (“Kami”) to provide services as contractors. For the years +ended December 31, 2025 and 2024, the Company paid Kami consulting service fees of $ 234,911 and $ 334,317 , respectively. These amounts +were recorded within general and administrative expenses in the consolidated statements of operations. +There +were no outstanding balances payable to Kami related to consulting services as of December 31, 2025 or 2024. +Sean +Da +As +of December 31, 2025 and 2024, amounts due from the Company’s majority stockholder were $ 440,596 and $ 15,862 , respectively, and +are included within “other receivable – related party” in the consolidated balance sheets. These balances primarily +represent advances made for business travel and related expenditures incurred on behalf of the Company. +As +of December 31, 2024, the balance of $ 15,862 represented a note receivable from the stockholder, which was fully repaid during the year +ended December 31, 2025. +Beginning +in January 2025, the Company made advance payments to the Company’s majority stockholder, Sean Da, to cover business travel and +other operating expenditures incurred on behalf of the Company. These advances are recorded within “other receivable – related +party” until the related expenses are substantiated and recognized in the Company’s financial statements. +For +the year ended December 31, 2025, business travel expenses of $ 91,665 were incurred on behalf of the Company and recognized +as operating expenses. As of December 31, 2025, the remaining balance of $ 440,596 represents unsubstantiated or unused advances and is +included in “other receivable – related party.” The total balance of $ 440,596 was fully collected in April 2026. +Balance +% +of Total Asset +Balance +% +of Total Asset +December 31, +December 31, +2025 +2024 +Balance +% +of Total Asset +Balance +% +of Total Asset +Subscription receivable - stockholder +$ - +0 % +$ - +0 % +Note receivable – stockholder +- +0 % +15,862 +0 % +Other receivable – related party +440,596 +0 % +- +0 % +Total +$ 440,596 +0 % +$ 15,862 +0 % +F- 28 +Table of Contents +Yunyizhilian +Information Technology Co., Ltd +Balance +% +of Total Liability +Balance +% +of Total Liability +December 31, +December 31, +2025 +2024 +Balance +% +of Total Liability +Balance +% +of Total Liability +Other payable +- related party +$ - +0 % +$ 6,269 +0 % +Yunyizhilian +Information Technology Co., Ltd. (“Yunyizhilian”) is affiliated with Ants Technology (HK) Limited (“Ants”), which +is a related party of the Company. +Amounts +due to Yunyizhilian arose from related-party operating and working capital arrangements. The balance outstanding as of December 31, 2024 +primarily represented a short-term, non-interest-bearing working capital advance. +The +Company evaluated and recorded the related-party payable balance as of December 31, 2025 based on the underlying books and records. +ZKCam +Technology Limited +Balance +% +of Total Liability +Balance +% +of Total Liability +December 31, +December 31, +2025 +2024 +Balance +% +of Total Assets +Balance +% +of Total Assets +Accounts receivable +- related party +$ 433,888 +3 % +$ - +0 % +ZKCam Technology Limited (“ZKCam”) is an affiliate of the Company. During the year ended December 31, +2025, the Company entered into transactions with ZKCam in the ordinary course of business, primarily consisting of the sale of products. +For the year ended December 31, 2025, product revenue recognized from ZKCam totaled $ 511,922 , compared to $ 0 for the year ended December +31, 2024. +Amounts due from ZKCam primarily arose from these product sales and represent trade receivables generated in the +normal course of business. As of December 31, 2025, the outstanding balance due from ZKCam was $ 433,888 , which is included in accounts +receivable – related party in the consolidated balance sheets. These receivables are unsecured, non-interest-bearing, and due on +demand. The Company evaluates the collectability of related party receivables on an ongoing basis and believes the outstanding balance +as of December 31, 2025 is fully collectible. +There was no balance outstanding as of +December 31, 2024. The Company evaluated and recorded the related-party receivable balance as of December 31, 2025 based on the underlying +books and records. Management assesses the collectability of related-party receivables on an ongoing basis and believes the outstanding +balance as of December 31, 2025 is fully recoverable. +Shanghai +Xiaoyun Technology Co., Ltd . +Balance +% +of Total Liability +Balance +% +of Total Liability +December 31, +December 31, +2025 +2024 +Balance +% +of Total Assets +Balance +% +of Total Assets +Other receivable +- related party +$ 4,035 +3 % +$ - +0 % +Shanghai +Xiaoyun Technology Co., Ltd. (“Xiaoyun”) was previously a variable interest entity (“VIE”) of the Company and +was deconsolidated in December 2025 when the Company ceased to meet the criteria for consolidation. +F- 29 +Table of Contents +Following +the deconsolidation, Xiaoyun is considered a related party of the Company. +Amounts +due from Xiaoyun primarily arose from transactions in the ordinary course of business subsequent to deconsolidation. The balance outstanding +as of December 31, 2025 represents trade receivables, is non-interest-bearing, and is due on demand. +There +was no balance outstanding as of December 31, 2024. +The +Company evaluated and recorded the related-party receivable balance as of December 31, 2025 based on the underlying books and records. +Management assesses collectability on an ongoing basis and believes the amount is recoverable as of December 31, 2025. +9. +ACCRUED +AND OTHER LIABILITIES +As +of December 31, 2025 and 2024, total accrued expenses and other liabilities were $ 592,822 and $ 219,815 , respectively. +Accrued +expenses and other liabilities primarily consist of short-term operational obligations, including credit card payables, attorney fees +payable, audit fees payable, other professional fees payable, and other miscellaneous accrued expenses. +The +increase in accrued expenses and other liabilities from $ 219,815 as of December 31, 2024 to $ 592,822 as of December 31, 2025 primarily +reflects the professional service accruals and insurance premiums during 2025. +SCHEDULE +OF ACCRUED AND OTHER LIABILITIES +December 31, +December 31, +2025 +2024 +Credit card payable +$ - +$ 53,240 +Insurance premium +187,198 +- +Attorney fees payable +- +56,957 +Audit fees payable +33,033 +71,532 +Other professional fees payable +24,682 +Other payable +372,591 +13,404 +Total +accrued expenses and other liabilities +$ 592,822 +$ 219,815 +10. +SHORT +TERM BANK LOAN +On +November 4, 2024, Xiaoyun (a variable interest entity previously consolidated by the Company) obtained a short-term bank loan from +Hongkong and Shanghai Banking Corporation Limited (“HSBC”) in the amount of RMB 6 +million (approximately $ 821,982 ). +The loan was collateralized by revenues generated from the UK Amazon store, had a six-month term, and bore interest at an annual +rate of 8 %. +The +loan proceeds were used by Shanghai Xiaoyun Technology Limited (“Xiaoyun”), a formerly consolidated variable interest entity, +to fund payments to Senslab, a related-party supplier, for inventory procurement associated with the Company’s operations prior +to the Business Combination. +F- 30 +Table of Contents +As +a result, balances arose between Xiaoyun and the Company reflecting the funding and settlement of operating activities. These balances +were eliminated upon consolidation in the Company’s consolidated financial statements. +In +April 2025, Xiaoyun repaid the RMB 6 million loan in full, including accrued interest, to HSBC. The repayment was funded through operating +cash flows and settlements with the Company. +Accordingly: +● As +of December 31, 2025, the Company had no outstanding short-term bank loan balance. +● As +of December 31, 2024, the Company reported a short-term bank loan balance of $ 821,982 . +11. +WARRANTY +LIABILITIES +The +Company estimates warranty liabilities based on historical product replacement rates, expected future claims, and estimated shipping +and handling costs per unit. Management periodically reassesses the adequacy of the warranty reserve and adjusts the provision as necessary +based on actual claims experience and updated assumptions. +During +the year ended December 31, 2025, the Company recorded a net reversal of warranty expense of $ 45,993 , reflecting updated estimates of +expected warranty claims based on historical experience, recent claim trends, and a reassessment of expected future obligations. +In +estimating warranty liabilities, the Company considers historical claim rates, product-specific performance, and applicable warranty +terms, including extended warranty periods for certain markets. For products sold in Europe, which are subject to a two-year warranty +period, the Company’s estimate incorporates expected claims over the remaining coverage period through 2027. +Warranty +claim costs incurred during the year were $ 458 . +As +of December 31, 2025, the total warranty liability was $ 36,833 , of which $ 30,023 was classified as current and $ 6,810 as non-current. +During +the year ended December 31, 2024, the Company recorded warranty expense of $ 40,724 and incurred warranty claim costs of $ 39,793 . As of +December 31, 2024, the total warranty liability was $ 83,284 , of which $ 69,010 was classified as current and $ 14,274 as non-current. +SCHEDULE +OF WARRANTY LIABILITY +2025 +2024 +December +31, +2025 +2024 +Balance +at the beginning of the year +$ +83,284 +$ +82,353 +Provision +(reversal) for warranties, net +( 45,993 +) +40,724 +Warrant +costs incurred +( 458 +) +( 39,793 +) +Balance +at the end of the year +$ +36,833 +$ +83,284 +Including: +Current +portion +$ +30,023 +$ +69,010 +Non-current +portion +$ +6,810 +$ +14,274 +F- 31 +Table of Contents +12. +LEASE +The Company determines if an arrangement +is a lease at inception. Lease agreements under which the Company is a lessee are evaluated to classify the lease as a finance or operating +lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based on the present value of lease +payments over the lease term. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities +represent the Company’s obligation to make lease payments arising from the lease. As most leases do not provide an implicit interest +rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. +Leases with an initial term of 12 months +or less are not recorded on the Company’s consolidated balance sheets. The Company recognizes lease expense for these leases on +a straight-line basis over the lease term. The Company accounts for lease components and non-lease components as a single lease component. +The +Company leased an office in New York City with a 39 -month term and an option to renew. Payments for this office space include fixed rental +payments and do not consist of any variable lease payments that depend on an index or a rate. +In +accordance with ASC 842, lease expense for the year ended December 31, 2025 was $ 67,198 . Lease expense for the year ended December 31, +2024 was $ nil , as the lease commenced in August 2024 and lease expense for 2024 was not material. +The +components of operating lease expense for the years ended December 31, 2025 and 2024 were as follows: +SCHEDULE +OF LEASE COST +Operating +Lease Expense +2025 +2024 +Years +Ended +December +31, +2025 +2024 +Operating lease expense +$ 78,154 +$ - +Right-of-Use +Assets and Lease Liabilities +December 31, +December 31, +2025 +2024 +Operating +lease right-of-use assets +$ 101,221 +$ - +Short-term operating lease liabilities +( 57,349 ) +- +Long-term operating lease +liabilities +( 52,753 ) +- +Total +operating leased liabilities +$ ( 110,102 ) +$ - +Weighted-Average +Lease Term and Discount Rate +December 31, +December 31, +2025 +2024 +Weighted average lease term +1.9 +- +Weighted average discount rate +5.49 % +- +Supplemental +Cash Flow Information +2025 +2024 +December 31, +December 31, +2025 +2024 +Amounts included in the +measurement of lease liabilities: +Non-cash lease +expense +$ 78,154 +$ - +Supplemental noncash information: +Right-of-use asset obtained in exchange for +lease obligations +$ 168,418 +$ - +F- 32 +Table of Contents +Future +Minimum Lease Payments +The +following table summarizes the Company’s future lease payments under the operating lease as of December 31, 2025 : +SCHEDULE +OF FUTURE MINIMUM LEASE PAYMENTS +Future lease +commitments +Commitments +2026 +$ 61,575 +2027 +53,879 +Total Lease Payments +$ 115,454 +Less: imputed interest 　 +( 5,352 ) +Less: prepayments 　 +- +Present value of lease liabilities +$ 110,102 +Current portion of obligations under operating +leases +57,349 +Obligations under operating leases, non-current +52,753 +13. +CONCENTRATION +RISK +SCHEDULE +OF CONCENTRATION RISK +Customer +Concentration +The +Company’s revenues are concentrated among a limited number of customers. The following customer accounted for 10% or more of total +revenues for the years ended December 31, 2025 and 2024: +Years ended +December +31, +2025 +2024 +Kami Vision Incorporated +52 % +27 % +As +of December 31, 2025 and 2024, the following customer accounted for 10% or more of total accounts receivable: +December 31, +December 31, +2025 +2024 +Kami Vision Incorporated +79 % +82 % +ZKCam Technology Limited +21 +% +- +% +The +loss of this customer or a significant reduction in purchases by this customer could have a material adverse effect on the Company’s +business, financial condition, and results of operations. +Supplier +Concentration +The +Company relies on a limited number of suppliers for its inventory purchases. The following suppliers accounted for 10% or more of total +purchases for the years ended December 31, 2025 and 2024: +Years ended +December +31, +2025 +2024 +Senslab Technology Co., Ltd (related +party) +0 % +92 % +Senslab HK Limited (related party) +100 % +8 % +Third-party supplier +0 % +0 % +F- 33 +Table of Contents +As +of December 31, 2025 and 2024, the following suppliers accounted for 10% or more of total accounts payable: +December 31, +December 31, +2025 +2024 +Senslab Technology Co., Ltd (related +party) +0 % +73 % +Senslab HK Limited (related party) +0 % +27 % +The +decrease in supplier concentration in accounts payable as of December 31, 2025 reflects the settlement of outstanding balances with related-party +suppliers during the year. +Inventory +Storage Concentration +As +of December 31, 2025 and 2024, substantially all of the Company’s inventory was stored at third-party logistics facilities. +14. +STOCKHOLDERS’ +EQUITY +Reverse +Recapitalization +During +the year ended December 31, 2025, the Company consummated a Business Combination with AlphaVest Acquisition Corp. (“AlphaVest”), +which was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method, the Company is deemed the accounting +acquirer, and the transaction is treated as a capital reorganization. +Accordingly, +the historical financial statements of the Company became those of the combined entity, and the net assets of AlphaVest were recorded +at historical cost, with no goodwill or intangible assets recognized. The excess of net assets received was recorded in additional paid-in +capital (“APIC”). +Proceeds +and Equity Impact from Business Combination +The +following table summarizes the net assets contributed by AlphaVest and the related impact on equity: +SCHEDULE +OF PROCEEDS AND EQUITY IMPACT FROM BUSINESS COMBINATION +Description +Amounts($) +Trust assets +11,538,424 +Less: Redemptions +( 2,631,044 ) +Net trust cash +8,907,380 +Less: SPAC transaction costs +( 4,606,996 ) +Less: FPA impact and related adjustments +( 697,268 ) +Less: FPA settlement reclassification (equity +to asset) +( 4,305,872 ) +Less: AMC deferred offering costs +( 1,051,479 ) +Add: SPAC accumulated deficit elimination +6,886,461 +Net impact recorded to APIC +5,132,227 +PIPE +Financing +In connection with the closing of the +Business Combination on December 9, 2025, the Company entered into securities purchase agreements with certain investors (the “PIPE +Investors”), pursuant to which the Company issued an aggregate of 800,000 shares of common stock at a purchase price of $ 10.00 +per share, for gross proceeds of $ 8,000,000 . The proceeds from the PIPE financing were recorded as an increase to stockholders’ +equity. +In connection with the PIPE financing, the Company also issued warrants to purchase shares of its common stock (the +“PIPE Warrants”). The PIPE Warrants were initially recognized as a liability and subsequently reclassified to stockholders’ +equity during the year ended December 31, 2025 upon the occurrence of certain conditions that resulted in the warrants meeting the criteria +for equity classification. As of December 31, 2025, there was no remaining PIPE Warrant liability. +The accounting treatment of the PIPE +financing and related PIPE Warrants is further described in Note 2 – Summary of Significant Accounting Policies. +Forward +Purchase Agreement (FPA) +Prior +to the Business Combination, AlphaVest entered into a Forward Purchase Agreement (“FPA”) with certain investors (the “Purchasers”). +The FPA was evaluated under applicable accounting guidance, including ASC 480 and ASC 815. +The +details are further described in Note 2 – Summary of Significant Accounting Policies. +F- 34 +Table of Contents +Share +Issuances +As +a result of the Business Combination and related transactions, the Company’s shares of common stock outstanding changed as follows: +SCHEDULE +OF BUSINESS COMBINATION AND RELATED TRANSACTION +Description +Shares +Balance at January 1, 2025 +18,000,000 +Reverse recapitalization / AlphaVest public +stockholders +1,416,002 +PIPE shares issued +800,000 +AlphaVest initial stockholders +2,323,528 +Shares underlying sponsor convertible notes +55,833 +Balance at December 31, 2025 +22,595,363 +Other +Equity Adjustments +Additional +equity adjustments recorded during the year primarily relate to sponsor-related share issuances, settlement of Forward Purchase Agreement +(“FPA”) arrangements, and the deconsolidation of variable interest entities. These transactions did not impact the shares of common stock +outstanding but were recorded within additional paid-in capital or accumulated deficit, as applicable. +15. +SEGMENT +REPORTING +The +Company determines its reportable operating segments using the “management approach” in accordance with ASC 280, Segment +Reporting. Under this approach, operating segments are based on the internal reporting structure used by the Company’s chief operating +decision maker (“CODM”) to allocate resources and assess operating performance. +The +Company’s Chief Executive Officer serves as the CODM and evaluates segment performance primarily based on segment revenue and segment +net income (loss). +The +Company operates online stores on e-commerce platforms with separate platform accounts serving North America and Europe. Accordingly, +the Company has identified two 2 primary operating segments: (1) North America and (2) Europe. Revenue generated through these e-commerce +platforms is the primary performance indicator because the Company’s business model is based on selling products through online +marketplace stores. +In +addition, the Company previously consolidated two variable interest entities (“VIEs”), Xiaoyun and Yishijue, which operated +in China. As a result, for purposes of geographic presentation, the Company presents financial information for three geographic areas: +North America, Europe, and China . No revenue was generated from China during the year ended December 31, 2025. +F- 35 +Table of Contents +Segment +revenues are directly attributed to the geographic region in which the sales are generated. Cost of revenues and operating expenses are +allocated based on the relative proportion of revenue generated by each segment. Interest income and interest expense are allocated based +on the use of underlying assets or liabilities within each segment. +Other +segment expenses primarily include Amazon storage fees, employee medical insurance expenses, software subscription fees, and business +license and permit expenses. These costs are not material individually and are therefore not presented separately. +SCHEDULE +OF SEGMENT REPORTING +North +America +Europe +China +Total +North +America +Europe +China +Total +Years ended +Years ended +December +31, +December +31, +2025 +2024 +North +America +Europe +China +Total +North +America +Europe +China +Total +REVENUES +Product revenue +$ 1,558,592 +787,882 +- +2,346,474 +$ 5,454,400 +$ 1,985,499 +$ - +$ 7,439,899 +Product revenue - related +party +387,136 +128,620 +- +515,756 +6,270 +- +- +6,270 +Revenue share – related +party +1,968,655 +927,301 +- +2,895,956 +2,020,232 +734,556 +- +2,754,788 +Intelligent Information service +151,364 +71,297 +- +222,661 +- +- +- +- +Total Revenues +4,065,747 +1,915,100 +5,980,847 +7,480,902 +2,720,055 +- +10,200,957 +Less: +Cost of Revenue: +E-commerce platform expenses +455,738 +214,667 +- +670,405 +1,495,826 +543,882 +- +2,039,708 +Product cost +1,511,260 +711,853 +- +2,223,113 +4,401,924 +1,600,539 +- +6,002,463 +Delivery and freight cost +48,364 +22,781 +- +71,145 +129,401 +47,050 +- +176,451 +Inventory +impairment losses +110,832 +52,205 +- +163,037 +972,686 +353,669 +- +1,326,355 +Total Cost of Revenue +2,126,193 +1,001,506 +- +3,127,699 +6,999,837 +2,545,140 +- +9,544,977 +Gross Profit +1,939,554 +913,594 +- +2,853,148 +481,065 +174,915 +- +655,980 +Less: +Operating Expenses: +Marketing and advertising +416,708 +196,284 +- +612,992 +1,455,946 +529,382 +- +1,985,328 +Consulting fee +159,691 +75,220 +- +234,911 +400,619 +145,665 +- +546,284 +Warranty expense +- +- +- +- +29,865 +10,859 +- +40,724 +Payroll expenses +197,470 +93,014 +- +290,484 +246,716 +89,706 +- +336,422 +Professional fees +1,032,481 +486,332 +- +1,518,813 +674,159 +245,124 +- +919,283 +Travel and entertainment +43,659 +20,564 +- +64,223 +483 +176 +- +659 +(Reversal)/provision for +credit losses - related party +- +- +- +- +( 925,599 ) +( 336,547 ) +- +( 1,262,146 ) +Office expenses +14,857 +6,998 +- +21,855 +6,472 +2,353 +- +8,825 +Sales tax +20,029 +9,435 +- +29,464 +47,217 +17,168 +- +64,385 +State B&O tax +21 +9 +- +30 +5,509 +- +- +5,509 +Other segment expenses +398,048 +187,494 +585,542 +204,954 +75,786 +217 +280,957 +Plus: +Other Income/(Expenses): +Marketing campaign +827,708 +389,878 +- +1,217,586 +1,305,022 +474,506 +- +1,779,528 +Interest income +9,798 +4,615 +- +14,413 +674 +- +2 +676 +Loss on deconsolidation +( 3,610 ) +( 1,700 ) +- +( 5,310 ) +- +- +- +- +Interest expense +( 16,734 ) +( 7,882 ) +- +( 24,616 ) +( 19,616 ) +- +( 7,326 ) +( 26,942 ) +Loss from the change of the FV of Warrant Liability +( 17,368,256 ) +( 8,181,016 ) +( 25,549,272 ) +- +- +- +- +Other income +- +- +- +- +40,384 +14,684 +0 +55,068 +Other expense +26,971 +12,704 +- +39,675 +( 17,227 ) +( 6,264 ) +- +( 23,491 ) +Less: +Income +tax +( 4,651 ) +- +( 4,651 ) +7,824 +- +- +7,824 +Segment +Net Income (Loss) +$ ( 16,872,183 ) +( 7,945,157 ) +- +( 24,817,342 ) +$ ( 571,434 ) +$ ( 196,039 ) +$ ( 9,487 ) +$ ( 776,960 ) +F- 36 +Table of Contents +The +following table presents total assets by segment as of December 31, 2025 and 2024. +North +America +Europe +China +Total +North +America +Europe +China +Total +December +31, 2025 +December +31, 2024 +North +America +Europe +China +Total +North +America +Europe +China +Total +TOTAL +SEGMENT ASSETS +$ 7,595,063 +$ 3,577,523 +$ - +$ 11,172,586 +$ 5,388,357 +$ 1,959,205 +$ 2,089 +$ 7,349,651 +16. +TAXATION +The +Company’s income tax expenses for the years ended December 31, 2025 and 2024 are as follows. The two VIEs have no income taxes +during the years ended December 31, 2025 and 2024. +SCHEDULE +OF INCOME TAX EXPENSES +2025 +2024 +Years ended +December +31, +2025 +2024 +Current tax provision +$ 4,651 +$ 7,824 +Deferred tax provision +- +- +Total provision for +income taxes +$ 4,651 +$ 7,824 +Income +Tax +AMC +Corporation was incorporated in the State of Washington in the United States and is subject to U.S. federal and state income taxation. +For the year ended December 31, 2025, the Company incurred $ 4,651 in state income tax and $ 0 in federal income tax. For the year ended +December 31, 2024, the Company incurred $ nil in federal income tax and $ 7,824 in state income tax. +The +Company’s two variable interest entities (“VIEs”), Xiaoyun and Yishijue, were incorporated in the People’s Republic +of China (“PRC”). Under the PRC Enterprise Income Tax Law (“EIT Law”), PRC entities are subject to enterprise +income tax at a statutory rate of 25 %. Neither VIE incurred income tax expense for the period ended December 1, 2025 (date of termination +of VIEs) or for the year ended December 31, 2024 due to operating losses and the existence of full valuation allowances against deferred +tax assets. +The +tax jurisdictions of AMC Corporation and its VIEs are located in the United States and the PRC. The Company is not subject to income +tax in Europe or Canada, as it does not maintain taxable nexus in those jurisdictions. +F- 37 +Table of Contents +The +following table reconciles the U.S. federal statutory income tax rate to the Company’s effective tax rate for the years ended December +31, 2025 and 2024: +SCHEDULE +OF FEDERAL STATUTORY INCOME TAX RATE +2025 +2024 +Years ended +December +31, +2025 ($) +(000s) +2025 +(%) +2024 +(%) +Expected tax at 21% +$ +( 5,211 +) +21.00 % +21.00 % +State and Local Taxes, Net of Federal Benefit +$ +5 +( 0.02 )% +2.62 % +Foreign Tax Effects: +China - Foreign rate differential +$ +0.00 +0.00 % +( 0.26 )% +Effect of Changes in Tax Laws or Rates Enacted in the Current Period +$ +0.00 +0.00 % +0.00 % +Effect of Cross Border Tax Laws +FDII deduction +$ +0.00 +0.00 % +Tax Credits +R&D Tax Credits +$ +( 3 +) +0.01 % +3.34 % +Changes in Valuation Allowance +$ +( 153 +) +0.61 % +( 27.06 )% +Change in Warrant Valuation +$ +5,365 +( 21.62 )% +- +Nontaxable or Non-deductible items: +Penalties +$ +2 +0.00 % +( 0.46 )% +Other non-deductible expenses +$ +0.00 +0.00 % +0.00 % +Changes in Unrecognized Tax Benefits +$ +0.00 +0.00 % +0.00 % +Other Adjustments: +Impact of Annual ETR and +Q4 loss impact +$ +0.00 +0.00 % +0.00 % +Effective +tax rate +$ +5 +0.02 % +( 0.71 )% +Deferred +Tax +As discussed in Note 2, “Summary of Significant Accounting Policies”, the Company has elected to prospectively +adopt the guidance in ASU 2023-09 for the year ended December 31, 2024. The following table presents a reconciliation of income taxes +computed at the statutory federal income tax rate to the effective tax rate implied by the accompanying Statements of Operations for the +years ended December 31, 2025 and 2024, in accordance with ASU 2023-09. +As +of December 31, 2025 and 2024, the Company and its two variable interest entities (“VIEs”) had no net deferred tax assets +due to a full valuation allowance recorded against deferred tax assets. +In +assessing the realizability of deferred tax assets, management evaluates whether it is more likely than not that some portion or all +of the deferred tax assets will not be realized. The realization of deferred tax assets depends upon the generation of sufficient future +taxable income during the periods in which temporary differences become deductible and net operating loss carryforwards may be utilized. +Management considers available evidence, including historical operating results, projected future taxable income, the reversal of existing +taxable temporary differences, and feasible tax planning strategies. +Based +on this evaluation, management determined that it was more likely than not that the deferred tax assets would not be realized as of December +31, 2025 and 2024, and therefore recorded a full valuation allowance against the deferred tax assets in those periods. +The +components of deferred tax assets are as follows: +SCHEDULE +OF DEFERRED TAX ASSETS +2025 +2024 +December 31, +December 31, +2025 +2024 +Deferred tax asset attributable to: +Tax effect of net operating losses +carried forward +$ 290,635 +$ 127,579 +Section 174 costs, net (1) +66,522 +125,323 +Warranty liabilities +9,295 +19,797 +Inventory reserve +67,431 +315,285 +Tax credits +66,716 +61,832 +State tax +( 18,793 ) +( 18,863 ) +Lease Liability +27,784 +- +Right of Use Asset +(25,543 +) +- +Deferred tax assets +484,047 +630,953 +Less: valuation allowance +( 484,047 ) +( 630,953 ) +Deferred +tax assets, net +$ - +$ - +(1) +IRC +Section 174 Research and Development (R&D) Expense Capitalization : +The Company is subject to U.S. research and experimental (“R&E”) expense rules under IRC Section +174. Prior to the enactment of the One, Big, Beautiful Bill Act (“OBBBA”) in 2025, R&E expenditures were required to be +capitalized and amortized over five years for domestic research activities and fifteen years for foreign research activities, resulting +in temporary differences and corresponding deferred tax assets. +The OBBBA, enacted in 2025, restores the immediate deductibility of domestic R&E expenditures for tax purposes +beginning in tax years after enactment. As a result, domestic R&E costs incurred in 2025 and thereafter are fully expensed as incurred +for tax purposes, eliminating the creation of new deferred tax assets related to domestic R&E capitalization. The requirement to capitalize +and amortize foreign R&E expenditures remains unchanged. +Deferred tax assets related to previously capitalized domestic R&E expenditures continue to be amortized over +their remaining recovery periods. The Company has evaluated the impact of this legislative change and adjusted its deferred tax balances +accordingly. The enactment reduces future temporary differences associated with domestic R&E expenditures and may result in the reversal +of existing deferred tax assets over time. The impact of the OBBBA on the Company’s deferred tax assets and income tax provision +for the year ended December 31, 2025 was not material. +The enactment +of the OBBBA is not expected to have a material impact on the Company’s effective tax rate due to the Company’s valuation +allowance position. +F- 38 +Table of Contents +Uncertain +Tax Positions +The +Company may have uncertain tax positions arising from the establishment of state income tax nexus through inventories held in various +U.S. states under Fulfillment by Amazon (“FBA”) arrangements. Amazon stores the Company’s inventory in multiple states +prior to shipment to end customers. These inventory locations may constitute “stock of goods” and create state income tax +nexus, potentially subjecting the Company to state income tax filing obligations. +In addition, the Company engages in significant related-party transactions. Such transactions are subject to transfer +pricing rules under U.S. and applicable foreign tax laws, including Section 482 of the Internal Revenue Code, which require that intercompany +transactions be conducted at arm’s length. The Company maintains transfer pricing documentation intended to support that such transactions +are conducted at arm’s length. Transfer pricing determinations involve judgment and are subject to potential challenge by taxing +authorities, which could result in adjustments to income allocation among jurisdictions and the assessment of additional taxes, interest, +and penalties. The Company evaluates its transfer pricing positions under the more-likely-than-not recognition threshold described below. +In +accordance with ASC 740, the Company recognizes the impact of an uncertain income tax position only if it is more likely than not that +the position will be sustained upon examination by the relevant taxing authority. The amount recognized is measured as the largest benefit +that has a greater than 50 percent likelihood of being realized upon settlement. Tax positions that do not meet the more-likely-than-not +recognition threshold are not recorded. +The Company did not recognize any interest or penalties related to uncertain tax positions for the years ended December +31, 2025 and 2024. +For +the years ended December 31, 2025 and 2024, the Company did not record additional liabilities related to uncertain state income tax +positions or transfer pricing matters. +Gross +Unrecognized Tax Benefits +The +following table presents the aggregate changes in the balance of gross unrecognized tax benefits: +SCHEDULE +OF UNRECOGNIZED TAX BENEFITS +2025 +2024 +Years ended +December +31, +2025 +2024 +Beginning balances +$ 6,627 +$ 6,627 +Increases related to current +year tax positions +- +- +Ending balances +$ 6,627 +$ 6,627 +The +Company classifies interest and penalties related to income taxes as a component of income tax expense. As of December 31, 2025 and 2024, +there were no accrued interest or penalties associated with unrecognized tax benefits. +There +are currently no ongoing examinations by federal, state, or foreign taxing authorities. Management does not expect the balance of unrecognized +tax benefits to change materially within the next twelve months. Although the Company believes it has adequately provided for reasonably +foreseeable outcomes related to tax matters, actual results may differ from management’s estimates. +Statute +of limitation +The statute of limitations for US federal tax return and most states is 3 to 4 years . From this guidance the Company +has open tax years subject to examination is 2022 – 2024 for both federal and state purposes. However, for states for which the +Company has an uncertain tax position, the statute of limitation will not expire since returns for those states were never filed. +As +of December 31, 2025, the income tax returns of the Company’s PRC VIEs for the years 2021 through 2025 remain subject to examination +by the PRC tax authorities. +F- 39 +Table of Contents +17. +COMMITMENTS +AND CONTINGENCIES +In +the ordinary course of business, the Company may be subject to various commitments and contingencies, including contractual obligations +and potential legal matters. +The +Company evaluates such matters in accordance with ASC 450, Contingencies , and records a liability when it is probable that a loss +has been incurred and the amount of the loss can be reasonably estimated. If a loss is reasonably possible but not probable, or if the +amount cannot be reasonably estimated, the Company discloses the nature of the contingency. +As +of December 31, 2025 and 2024, the Company was not subject to any material pending or threatened litigation, claims, or assessments, +and did not have any material commitments or contingencies that required accrual or disclosure in the consolidated financial statements. +18. +SUBSEQUENT +EVENTS +In +accordance with ASC Topic 855 “ Subsequent Events ”, which establishes general standards of accounting for and disclosure +of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or +transactions that occurred after December 31, 2025 up until the date that the Company issued these financial statements. +Establishment +of Subsidiary +On +January 5, 2026, the Company established a wholly owned subsidiary in Vietnam, AMCV Company Limited, to support manufacturing and operational +activities related to the Company’s robotics products. The subsidiary had not commenced material operations as of the date of issuance +of these financial statements. +Warrants Exercise +Subsequent to December 31, 2025, the Company received and accepted a warrant exercise notice from a holder of its outstanding PIPE warrants. On March 17, 2026, a warrant holder exercised warrants to purchase an aggregate of 5,000 shares of the Company’s common stock at the contractual exercise price per share. The Company received proceeds of approximately $ 20,085 and issued the corresponding shares in accordance with the terms of the applicable warrant agreement. +Management evaluated this event in accordance +with ASC 855 and determined that the warrant exercise represents a non-recognized subsequent event, as it relates to conditions arising +after the balance sheet date. Accordingly, no adjustment has been made to the consolidated financial statements as of December 31, 2025. +F- 40 +Table of Contents +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item +9A. Controls and Procedures +Evaluation +of Disclosure Controls and Procedures +Our +management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of +our disclosure controls and procedures as of December 31, 2025, as required by Rules 13a-15(b) and 15d-15(b) under the Securities Exchange +Act of 1934, as amended. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports +that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the +SEC’s rules and forms and that such information is accumulated and communicated to management, including our Principal Executive +Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. +Based +on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures +were not effective as of December 31, 2025 because of the material weaknesses in internal control over financial reporting described +below. +Management’s +Annual Report on Internal Control over Financial Reporting +Management +is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and +15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, +our Principal Executive Officer and Principal Financial Officer and effected by our board of directors, management and other personnel +to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external +purposes in accordance with U.S. GAAP. +Management +assessed the effectiveness of our internal control over financial reporting as of December 31, 2025 using the criteria set forth in Internal +Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on +this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2025 because +material weaknesses existed. +The +material weaknesses that have been identified for AMC are as follows: +● Lack +of Experienced Accounting Team — AMC lacks qualified in-house accounting staff +and resources with adequate knowledge of U.S. GAAP. A third-party consulting firm has been +engaged to prepare financial statements and footnote disclosures in accordance with U.S. +GAAP. +● Lack +of Duty Segregations — The Company separates the duties at certain areas, but there +is only one person responsible for various functions of the Company, including processing +payments and Human Resource functions. All other individuals involved in these processes +are engaged through independent contractor roles. +● Lack +of sufficient inventory management process and control system — AMC does not have +a sufficient inventory management process or control system. +● Lack +of proper approval for related party transactions — AMC lacks a formal approval +process for related party transactions. +AMC +also disclosed that, as a private company, it did not have an internal audit function, which contributed to the overall assessment of +its control environment. +These +material weaknesses could result in misstatements of account balances or disclosures that would not be prevented or detected on a timely +basis. Accordingly, management concluded that the Company did not maintain effective internal control over financial reporting as of +December 31, 2025. +Remediation +Plan +We +have begun to take, and intend to continue taking, steps to remediate the material weaknesses described above. Our remediation efforts +include strengthening our finance and accounting function, enhancing review and approval procedures, formalizing policies and procedures, +and improving the design and documentation of controls over financial reporting and related party transactions. However, the material +weaknesses cannot be considered remediated until the applicable controls have been designed, implemented, operated for a sufficient period +of time, and management has concluded, through testing, that such controls are operating effectively. This remediation process will require +additional time and expense. +Changes +in Internal Control over Financial Reporting +Except +for the remediation efforts described above, there were no changes in our internal control over financial reporting during the quarter +ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial +reporting. +Attestation +Report of the Registered Public Accounting Firm +This +Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial +reporting because we are an emerging growth company and a smaller reporting company, and therefore are exempt from the requirement to +include such report. +41 +Table of Contents +Item +9B. Other Information +During the quarter ended December +31, 2025, no director or officer adopted or terminated any (i) “Rule 10b5-1 trading arrangement,” as defined in +Item 408(a) of Regulation S-K intending to satisfy the affirmative defense conditions of Rule 10b5–1(c) or (ii) “non-Rule +10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K; and (ii) there was no information that was required to +be disclosed on a Current Report on Form 8-K during such quarter that was not so disclosed. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not +applicable. +Item +10. Directors, Executive Officers and Corporate Governance +The +following persons are the members of our board of directors and our executive officers as of the date of this Annual Report: +Name +Age +Position +Executive +Officers +Shengwei (Sean) Da +56 +Chief Executive Officer, Chairman +and Director +Min Ma +45 +VP, Finance +Directors +Hongfei Zhang +61 +Director +Dahe (Taylor) Zhang +47 +Director +Yong (David) Yan +52 +Director +Shengwei +(Sean) Da +Shengwei +Da has served as Chairman and Chief Executive Officer of AMC Robotics effective as of the Closing Date. Mr. Da is the founder of AMC +and the “YI” brand and has served as its Chairman of the Board of Directors since its formation in October 2021. Prior to +founding AMC, he founded Kami, a provider of AI-based care services for seniors both at home and at assisted living facilities, in 2019, +where he also served as Executive Chairman. From April 2014 to January 2021, Mr. Da served as Chairman and Chief Executive Officer at +YI Technology, Inc., a provider of internet protocol cameras. Additional experience includes serving as Engineering Director at Intersil +from December 2009 to August 2011, Chief Technology Officer at Rock Semiconductor from 2005 to December 2009, and Staff Design Engineer +at Analog Device in the Power Management Group from 2002 to 2005. Early in Mr. Da’s career, he held the role of Member of Technical +Staff in the High Speed Data Converter Group at Maxim Integrated Products from June 2000 to May 2002. Mr. Da holds a Ph.D. in Electrical +Engineering from the University of California, Davis and a BSEE from Tsinghua University in China. +Min +Ma +Min +Ma has served as VP, Finance, of AMC Robotics effective as of the Closing Date. Mr. Ma has been VP, Finance, of AMC since March 2024. +He is a seasoned executive with over 20 years of experience at the intersection of venture capital, finance, and technology. He brings +a track record of strategic investment, operational leadership, and innovation across high-growth technology sectors. Most recently, +from January 2019 to October 2023, Mr. Ma served as Chief Financial Officer and a member of the founding team at Chowbus, a technology-driven +SaaS company revolutionizing restaurant services. Prior to that, from January 2018 to December 2018, he served as Executive Director +at Fosun International, where he led investments in early-stage technology companies, helping to identify and scale transformative startups. +Prior to Fosun, he held the position of Vice President at Fidelity Investments, focusing on private equity investments in the technology +domain, where he drove capital deployment strategies and portfolio value creation. Mr. Ma holds an MBA from the Kellogg School of Management +at Northwestern University. +Hongfei +Zhang +Hongfei +Zhang has served as a member of the board of directors since the Closing Date. Mr. Zhang has experience in several sectors including +quantitative finance and securities. Mr. Zhang has served as Managing Partner at KIG Capital Advisors, a financial services and direct +investment firm focusing on US-China cross border opportunities, since 2011. While at KIG, Mr. Zhang has been overseeing private equity +and venture capital investments in technology, biotech, and consumer sectors, with interests in ESG, crypto, and Web3. From 2001 to 2011, +he was Chief Risk Officer at Dexia Financial Products, managing risk, derivatives, and asset/liability functions. Previously, he held +roles as Vice President at Deutsche Bank focused on risk analytics, and Director of Investment at Nationwide, where he developed early +insurance hedging strategies. Mr. Zhang received a BS in Applied Mathematics from Tsinghua University and doctorate in Mathematics from +Delft University of Technology. +42 +Table of Contents +Dahe +(Taylor) Zhang +Dahe +(Taylor) Zhang has served as a member of the board of directors since the Closing Date. Mr. Zhang has served as managing director at +Ascendant Global Advisor, Inc since 2018. He has also served as Chief Financial Officer of Cayson Acquisition Corp, a blank check company +(Nasdaq: CAPN), since May 2024. He previously served as Chief Financial Officer and Executive Director of TenX Keane Acquisition, a blank +check company (Nasdaq: TENK), from March 2021 to August 2024 when the company successfully consummated its initial business combination +with Citius Oncology Inc (Nasdaq: CTOR), a platform to develop and commercialize novel targeted oncology therapies. In December 2025, +Citius Oncology launched LYMPHIR, approved by the FDA for the treatment of adults with relapsed or refractory Stage I–III CTCL +who had had at least one prior systemic therapy. From May 2009 to December 2021, Mr. Zhang served as Chief Financial Officer and executive +director of XD Plastics Company Limited (“XD”), where he oversaw XD’s major financial and capital market matters, including +exchange listing, direct equity financing from international prominent institutional investors and a global bond offering. During his +tenure at XD, its revenue grew at CAGR of 56% and exceeded US$1 billion in six years after its listing. From May 2008 to March 2009, +Mr. Zhang served as Chief Financial Officer of Advanced Battery Technologies, Inc. Mr. Zhang received a bachelor’s degree in mechanical +and electronic engineering from Beijing Technology and Business University and an M.B.A. from University of Florida. +Dr. +Yong (David) Yan +Yong +(David) Yan has served as a member of the board of directors since the Closing Date. Mr. Yan, AlphaVest’s Chief Executive Officer +until closing of the Business Combination, has been a partner at the Shanghai-based V-Stone Capital since January 2014, where he oversees +fund raising and private equity investments in FinTech, BlockChain, Big Data, Healthcare and other areas. Prior to joining V-Stone Capital, +Dr. Yan was the General Manager and CIO of Hubei Hongtai Industrial Investment Fund, a private equity fund of funds. Previously, Dr. +Yan was a Managing Director of Fosun Group, one of the largest private conglomerates in China, where he was in charge of investments +in the financial sectors, such as online financial platform, securitization and fin-tech, as well as building an in-house P2P platform. +Prior to joining the Fosun Group, Dr. Yan was the General Manager of New Product Development at Lufax, one of the world’s largest +fintech companies, owned by PingAn Group. Prior to moving to China in early 2014, Dr. Yan worked on Wall Street for almost 15 years, +including 10 years at Credit Suisse, as the head of research of the global structured product market. Dr. Yan also worked at other financial +firms such as Merrill Lynch. Dr. Yan is the ex-President of TCFA (The Chinese Finance Association) in New York. He is also a Vice President +of Zhongguancun Private Equity & Venture Capital Association (ZVCA) in Beijing. Mr. Yan received a Ph.D. in Finance from the University +of Alabama and is a CFA charter holder. +Controlled +Company Exemption +Sean +Da, through entities he controls, holds a majority of the voting power of the Company’s Common Stock and as a result, the Company +is a “controlled company” within the meaning of applicable rules of Nasdaq. Under these rules, a company of which more than +50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” +and may elect not to comply with certain corporate governance requirements, including the requirements (a) that a majority of the board +consists of independent directors; (b) for an annual performance evaluation of the nominating and corporate governance and compensation +committees; (c) that the controlled company has a nominating and corporate governance committee that is composed entirely of independent +directors with a written charter addressing the committee’s purpose and responsibilities; and (d) that the controlled company has +a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose +and responsibility. The Company currently satisfies all of Nasdaq’s corporate governance requirements and has not taken advantage +of any of the exemptions available to it as a controlled company. If the Company determines in the future to avail itself of any of the +corporate governance exemptions available to controlled companies, our stockholders may not have the same protections afforded to stockholders +of companies that are subject to all of the Nasdaq corporate governance requirements. In the event that the Company ceases to be a “controlled +company” and its Common Stock continues to be listed on Nasdaq, it will be required to comply with these provisions within the +applicable transition periods. +43 +Table of Contents +Role +of Board in Risk Oversight +One +of the key functions of the board of directors is to oversee our risk management process. The board of directors does not +currently have a standing risk management committee, but administers this oversight function directly through the board of directors +as a whole, as well as through various standing committees of the board of directors that address risks inherent in their respective +areas of oversight. In particular, the board of directors is responsible for monitoring and assessing strategic risk exposure and the +board of directors’ Audit Committee has the responsibility to consider and discuss the Company’s major financial risk exposures +and the steps management takes to monitor and control such exposures, including guidelines and policies to govern the process by which +risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements. The +Company’s Compensation Committee also assesses and monitors whether the Company’s compensation plans, policies and programs +comply with applicable legal and regulatory requirements. +Director +Independence +The +Company adheres to the listing rules of Nasdaq in affirmatively determining whether a director is independent. Nasdaq listing standards +generally define an “independent director” as a person, other than an executive officer of a company or any other individual +having a relationship which, in the opinion of the issuer’s board of directors, would interfere with the exercise of independent +judgment in carrying out the responsibilities of a director. +The +board of directors has determined that each of the directors, other than Mr. Da, qualifies as an independent director, as defined under +the listing rules of Nasdaq, and that the board of directors consists of a majority of “independent directors,” as defined +under the rules of the SEC and Nasdaq listing rules relating to director independence requirements. Although the board of directors presently +consists of a majority independent directors, there can be no assurance that the Company will not avail itself of the exemption for controlled +companies in the future, which would remove this requirement. +Committees +of the Board of Directors +We +have a standing Audit Committee, Compensation Committee and Nominating and Governance Committee. Each committee operates under a charter +that has been approved by the board of directors. The committees have the composition and responsibilities described below. +Audit +Committee +Yong +(David) Yan, Dahe (Taylor) Zhang and Hongfei Zhang are currently the members of the Audit Committee. The Audit Committee meets Nasdaq +audit committee composition requirements. Each member of the Audit Committee is financially literate. The board of directors of the Company +has determined that of Hongfei Zhang qualifies as an “audit committee financial expert” as defined by the SEC. +The +functions of the Audit Committee include, among other things: +● +appointing, +compensating, retaining, evaluating, terminating and overseeing AMC’s independent registered public accounting firm; +● +discussing +with AMC’s independent registered public accounting firm their independence from management; +● +reviewing, +with AMC’s independent registered public accounting firm, the scope and results of their audit; +● +approving +all audit and permissible non-audit services to be performed by AMC’s independent registered public accounting firm; +● +overseeing +the financial reporting process and discussing with management and AMC’s independent registered public accounting firm the +quarterly and annual financial statements that AMC files with the SEC; +● +overseeing +AMC’s financial and accounting controls and compliance with legal and regulatory requirements; +● +reviewing +AMC’s policies on risk assessment and risk management; +● +reviewing +related person transactions; and +● +establishing +procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing +matters. +44 +Table of Contents +The +composition and function of the Audit Committee complies with all applicable requirements of the Sarbanes-Oxley Act, all applicable SEC +rules and regulations and all applicable Nasdaq listing rules. We will comply with future requirements of the SEC, Nasdaq or other applicable +authority to the extent they become applicable to our company. +The +Audit Committee has established a procedure whereby complaints or concerns regarding accounting, internal controls or auditing matters +may be submitted anonymously to the Audit Committee by email. +Compensation +Committee +Yong +(David) Yan, Dahe (Taylor) Zhang and Hongfei Zhang are currently the members of the Compensation Committee. The Board has determined +that each of the members of the Compensation Committee satisfies the independence requirements of Nasdaq and is a non-employee director, +as defined in Rule 16b-3 promulgated under the Exchange Act. +The +functions of the Compensation Committee include, among other things: +● +reviewing +and approving the corporate goals and objectives, evaluating the performance of and reviewing and approving the compensation of our +Chief Executive Officer, and the Chief Executive Officer may not be present during voting or deliberations on his or her compensation; +● +overseeing +an evaluation of the performance of and reviewing and setting or making recommendations to the Board regarding the compensation of +our other executive officers; +● +reviewing +and approving or making recommendations to the Board regarding our incentive compensation and equity-based plans, policies and programs; +● +reviewing +and approving all employment agreement and severance arrangements for our executive officers; +● +making +recommendations to the Board regarding the compensation of our directors; and +● +retaining +and overseeing any compensation consultants. +The +Compensation Committee may also, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other +advisor and is directly responsible for the appointment, compensation and oversight of the work of any such advisor. However, before +engaging or receiving advice from a compensation consultant, external legal counsel or any other advisor, the Compensation Committee +will consider the independence of each such advisor, including the factors required by Nasdaq and the SEC. +The +composition and function of the Compensation Committee complies with all applicable requirements of the Sarbanes-Oxley Act and all applicable +SEC and Nasdaq rules and regulations. The Company will comply with future requirements of the SEC, Nasdaq or other applicable authority +to the extent they become applicable to the Company. The Company maintains the Compensation Committee in accordance with the rules of +Nasdaq notwithstanding the general availability of an exemption from those rules for controlled companies. There can be no assurance +that the Company will not avail itself of the exemption for controlled companies in the future. +Nominating +and Governance Committee +Yong +(David) Yan, Dahe (Taylor) Zhang and Hongfei Zhang are currently the members of the Nominating and Corporate Governance Committee. The +board of directors has determined that each of the members of the Compensation Committee satisfies the independence requirements of Nasdaq. +45 +Table of Contents +The +Nominating and Governance Committee assists the Board by identifying and recommending individuals qualified to become members of the +board of directors. The Nominating and Corporate Governance Committee is responsible for evaluating the composition, size and governance +of the board of directors and its committees and making recommendations regarding future planning and the appointment of directors to +the committees, establishing a policy for considering stockholder nominees to the board of directors , reviewing the corporate governance +principles and making recommendations to the board of directors regarding possible changes; and reviewing and monitoring compliance with +our Code of Business Conduct and Ethics. +The +Company maintains the Nominating and Corporate Governance Committee in accordance with the rules of Nasdaq notwithstanding the general +availability of an exemption from those rules for controlled companies. There can be no assurance that the Company will not avail itself +of the exemption for controlled companies in the future. +Code +of Business Conduct and Ethics +The +board of directors has adopted a Code of Business Conduct and Ethics that applies to all of its directors, officers and employees, including +its principal executive officer, principal financial officer and principal accounting officer. In the event the Company makes any amendments +to, or grants any waiver from, a provision of the code that applies to its principal executive officer, principal financial officer or +principal accounting officer that requires disclosure under applicable SEC or Nasdaq rules, the Company will disclose such amendment +or waiver and reasons therefore in a Current Report on Form 8-K as required by SEC rules. +Indemnification +Agreements +On +the Closing Date, the Company entered into indemnification agreements with each executive officer and director of the Company. The indemnification +agreements provide that, subject to limited exceptions specified therein, the Company will indemnify its directors and officers for certain +expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or +proceeding arising out of their services as one of the Company’s directors or officers or any other company or enterprise to which +the person provides (or provided) services at the Company’s request. +Insider +Trading Policy +We +have an insider trading policy governing the purchase, sale, and other dispositions of our securities that applies to our directors, +officers, employees, and consultants. The policy generally prohibits the purchase, sale or trade of our securities with the knowledge +of material nonpublic information. We believe our insider trading policy is reasonably designed to promote compliance with insider trading +laws, rules and regulations, and listing standards applicable to our company. +Item +11. Executive Compensation +This +section discusses the material components of the executive compensation program for the Company’s named executive officers (“NEOs”) +who are identified in the Summary Compensation Table below. This discussion contains forward-looking statements that are based on the +Company’s current plans, considerations, expectations, and determinations regarding future compensation programs and related target +milestones for the Company’s future results of operations. +46 +Table of Contents +Summary +Compensation Table +The +following table presents information regarding the total compensation awarded to, earned by and paid to the Company’s NEOs for +services during 2025 and 2024. +Name +and Principal Position +Year +Salary +($) +Bonus +($) +All +Other +Compensation +($) +Total +($) +Sean Da +2025 +- +- +- +- +Chairman +2024 +- +- +- +- +Narrative +Disclosure to the Summary Compensation Table +Employment +Arrangements with Named Executive Officer +Mr. +Da serves as AMC’s Chairman and Chief Executive Officer and is employed on an at-will basis. Mr. Da does not have a written employment +agreement with the Company and his compensation is determined from time to time by the Board of Directors. +During +2025, Mr. Da did not receive a base salary or cash bonus from the Company. The Company may reimburse Mr. Da for reasonable business expenses +incurred in connection with his services. Any future compensation arrangements, including salary, bonus or equity-based compensation, +will be determined by the Board of Directors based on the Company’s financial condition, operating results and other relevant factors. +Annual +Bonus Compensation +For +the fiscal years ended December 31, 2025 and 2024, AMC did not maintain any cash-based annual bonus plan. +Equity-Based +Incentives +For +the fiscal year ended December 31, 2024, AMC did not provide equity-based incentives to the named executive officer. Since +consummation of the Business Combination, AMC has had the 2025 Incentive Plan in effect and may make grants of awards under such +plan. No such awards have been granted as of the date of this Annual Report. +Additional +Narrative Disclosure +Retirement +Benefits +AMC +does not provide a pension plan for employees and the named executive officer did not participate in a nonqualified deferred compensation +plan during the fiscal years ended December 31, 2025 and 2024. +Health/Welfare +Plans +AMC +intends to provide the following benefits to the named executive officers on the same basis provided to all of employees, pending approval +from the Compensation Committee: +● +health +insurance; and +● +a +health savings account. +2025 +Incentive Plan +We +are authorized to grant equity awards to eligible officers, directors, employees and consultants following consummation of the Business +Combination. The purpose of the 2025 Incentive Plan is to provide incentives to attract, retain and motivate eligible persons whose present +and potential contributions are important to our success by offering them an opportunity to participate in our future performance through +the grant of equity awards. +47 +Table of Contents +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The +following table sets forth information regarding the beneficial ownership of the Company’s Common Stock by: +● +each +person who is known to be the beneficial owner of more than 5% of the Common Stock; +● +each +executive officer and director; and +● +all +executive officers and directors, as a group. +Beneficial +ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security +if he, she or it possesses sole or shared voting or investment power over that security, including options, rights and convertible notes +that are currently exercisable or exercisable within 60 days. +Unless +otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities +named in the table have sole voting and investment power with respect to their beneficially owned Common Stock. +Name +of Beneficial Owner (1) +Number +of +Shares +% +of Common Stock +Directors and Executive +Officers +Shengwei (Sean) Da +20,883,707 (2) +83.2 % +Min Ma +- +Hongfei Zhang +- +Dahe (Taylor) Zhang (3) +557,232 +2.2 % +Yong (David) Yan) +- +All executive officers +and directors as a group (5 persons) +21,440,939 +85.4 % +5% of Greater Stockholders +- +Peace Capital Limited (4) +1,322,916 +5.3 % +Pengfei Zheng (5) +1,322,916 +5.3 % +(1) +Unless +otherwise noted, the business address of each of the following entities and individuals is c/o AMC Robotics Corporation, 12 East +49 th Street, Suite 1805, New York, New York 10017. +(2) +Represents +(i) 16,000,000 shares held by trusts controlled by Mr. Da and (ii) 1,050,000 shares and 3,833,707 shares issuable upon exercise of +warrants held by Kami Vision Incorporated, of which Mr. Da is executive chairman and 80% owner. +(3) +AlphaVest +Holding LP is the record holder of founder shares reported herein. AlphaVest Management LLC is the managing member of AlphaVest Holding +LP and Dahe (Taylor) Zhang is the manager of AlphaVest Management LLC. Accordingly, Mr. Zhang is deemed to be the beneficial owner +of such shares. +(4) +Peace +Capital Limited is the record holder of the shares reported herein. Pengfei Zheng is the sole director and stockholder of Peace Capital +Limited. Accordingly, he is deemed to be the beneficial owner of such shares. The business address of Peace Capital Limited is Flat/Rm. +806 08/F, OfficePlus @Prince Edward, 794-802 Nathan Road, KLN, Hong Kong. +(5) +Includes +shares held by Peace Capital Limited. Pengfei Zheng is deemed to be the beneficial owner of such shares. The business address of +Pengfei Zheng is Flat/Rm. 806 08/F, OfficePlus @Prince Edward, 794-802 Nathan Road, KLN, Hong Kong. +48 +Table of Contents +Equity +Compensation Plan Information +Plan +Category +Number +of securities to be issued upon exercise of outstanding options, warrants and rights +Weighted-average +exercise price of outstanding options, warrants and rights +Number +of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first +column) +Equity compensation plans approved +by security holders +— +— +1,129,770 +Equity compensation plans not approved by security +holders +— +— +— +Total +— +— +1,129,770 +(1) +On September 5, 2025, our stockholders approved our 2025 Incentive Equity Plan. Under this plan, 1,129,770 shares of Common Stock are +reserved for issuance in accordance with the plan’s terms to eligible employees, officers, directors and consultants. As of December +31, 2025, no awards had been made under the 2025 Plan. +Item +13. Certain Relationships and Related Transactions, and Director Independence +The +Company engages in transactions with related parties in the normal course of business. The principal related parties with which the Company +had transactions during the years ended December 31, 2025 and 2024 are as follows: +Name +Relationship +with the Company +Sean +Da +CEO +and Board Chair, and majority stockholder +Senslab +HK Limited (hereinafter referred to as “Senslab HK”) +Affiliate +of Sean Da +Senslab +Technology Co., Ltd (hereinafter referred to as “Senslab SH”) +Affiliate +of Sean Da +Ants +Technology (HK) Limited (hereinafter referred to as “Ants”) +Affiliate +of Sean Da +Kami +Vision Incorporated (hereinafter referred to as “Kami”) +Affiliate +of Sean Da +Yunyizhilian +Information Technology Co., Ltd (hereinafter referred to as “Yunyizhilian”) +Entity +under common control with Mr. Sean Da. +Shanghai Xiaoyun Technology Co., Ltd. (hereinafter referred to as “Xiaoyun”) +Formerly VIE +ZKCam +Co., Ltd. (“ZKCam”) +Minority +Stockholder of the Company +49 +Table of Contents +Impact +of Related Party Transactions on Operations +During +the years ended December 31, 2025 and 2024, related party transactions had the following impact on income (loss) before income tax: +Related Party Transactions +Impact on pre-tax income (loss) +Income Statement +Years ended +December 31, +2025 +2024 +Revenue share – related party (Kami) +$ 3,118,617 +$ 2,754,788 +Product revenue - related party (Kami) +3,833 +6,270 +Product revenue - related party (ZKCam) +511,922 +- +Product cost - related party (Senslab) +(2,223,113 ) +(6,002,463 ) +(Provision)/reversal for credit losses (Ants) +- +1,262,146 +General and administrative expenses - Consulting fee-related party (Kami) +(234,912 ) +(334,317 ) +General and administrative expenses - Stockholder’s business travel expense (Sean) +(91,655 ) +- +General and administrative expenses - Financial consulting fee (Ants) +(60,000 ) +(60,000 ) +Other income - Marketing incentive subsidy income (Kami) +1,217,586 +1,779,528 +Interest expense (Ants) +- +(18,999 ) +Total impact on pre-tax loss +$ 2,242,278 +$ (613,047 ) +% of pre-tax income (loss) +306 % +80 % +50 +Table of Contents +Related +Party Balances +As +of December 31, 2025 and 2024, balances with related parties were as follows. +Related Party Transactions +As of December 31, 2025 +Balance Sheet +Ants +Senslab SH +Senslab HK +Xiaoyun +ZKCam +Kami +Sean Da +Total +Accounts receivable - related party +$ +$ - +$ - +$ 433,888 +$ 1,632,002 +$ - +$ 2,065,890 +Other receivable - related party, net +4,872 +26,406 +4,035 +440,596 +475,909 +Including: +- +- +- +- +Other receivable - related party +4,872 +26,406 +4,035 +440,596 +475,909 +Advance to suppliers – related party +21,387 +21,387 +Prepayment - related party +66,844 +- +- +- +- +66,844 +Related Party Transactions +As of December 31, 2024 +Balance Sheet +Ants +Senslab SH +Senslab HK +Kami +Sean Da +Yunyizhilian +Total +Accounts receivable - related party +$ - +$ - +$ - +$ 190,168 +$ - +$ - +$ 190,168 +Other receivable - related party, net +1,790,009 +- +- +169,833 +- +- +1,959,842 +Including: +- +- +Other receivable - related party +1,790,009 +- +- +169,833 +- +- +1,959,842 +Note receivable - stockholder +- +- +- +- +15,862 +- +15,862 +Prepayment - related party +126,965 +- +- +- +- +- +126,965 +Accounts payable - related party +- +6,258,235 +2,285,008 +- +- +- +8,543,243 +Other payable - related party +- +- +- +- +- +6,269 +6,269 +51 +Table of Contents +Specifically, +transactions with each related party presented in the above tables are as follows: +Senslab +HK Limited and Senslab Technology Co., Ltd +December 31, +December 31, +2025 +2024 +Balance +% of Total Assets +Balance +% of Total Assets +Advance to suppliers - related party (Senslab HK) +$ 21,387 +1 % +$ - +- % +Other receivable - related party (Senslab SH) +26,406 +1 % +- +- % +Total +$ 47,793 +1 % +$ - +- % +December 31, +December 31, +2025 +2024 +Balance +% of Total Liability +Balance +% of Total Liability +Accounts payable - related party (Senslab HK) +$ - +- % +$ 2,285,008 +24 % +Accounts payable - related party (Senslab SH) +- +- % +6,258,235 +65 % +Total +$ - +- % +$ 8,543,243 +89 % +Sean +Da, the Company’s majority stockholder, owns approximately 38% of Senslab Technology Co., Ltd. (“Senslab SH”), which +owns 100% of Senslab HK Limited (“Senslab HK”). Both entities are therefore considered related parties of the Company. +Historically, +the Company procured security cameras from Senslab HK. Senslab HK purchased the products from Senslab SH and exported them to the Company. +Beginning in the fourth quarter of 2023, after Senslab SH obtained import and export trade approval, the Company also began purchasing +security cameras directly from Senslab SH. +During +the years ended December 31, 2025 and 2024, the Company purchased security cameras from Senslab HK in the amounts of $0 and $539,068, +respectively. During the same periods, purchases from Senslab SH totaled $186,005 and $6,347,602, respectively. +As +of December 31, 2025 and 2024, accounts payable due to Senslab HK were $0 and $2,285,008, respectively. Accounts payable due to Senslab +SH were $0 and $6,258,235, respectively. +As +of December 31, 2024, total accounts payable to Senslab HK and Senslab SH aggregated $8,543,243, representing approximately 89% of the +Company’s total liabilities. During 2025, the Company settled all outstanding balances payable to Senslab HK and Senslab SH. Accordingly, +as of December 31, 2025, there were no outstanding accounts payable balances due to either entity. +Ants +Technology (HK) Limited +December 31, +December 31, +2025 +2024 +Balance +% of Total Asset +Balance +% of Total Asset +Prepayment - related party +$ 66,844 +1 % +$ 126,965 +2 % +Other receivable - related party, net +4,872 +0 % +1,790,009 +24 % +Allowance for credit losses +- +- % +- +- % +Total +$ 71,716 +1 % +$ 1,916,974 +26 % +52 +Table of Contents +The +Amazon online store for the North America region historically operated under Ants Technology (HK) Limited (hereinafter referred to as +“Ants”). Ants authorized the Company to utilize its Amazon account free of charge for a period of five years, commencing +on October 21, 2021 (hereinafter referred to as the “Authorization Agreement”). +In +January 2025, the Company terminated the Authorization Agreement early and assumed ownership and control of the Amazon online store from +Ants. Ants transferred to the Company all of its ownership interests in the Amazon online store, including, but not limited to, ownership +of the shop, business operation rights, customer resources, operational and technical data, brand usage rights, intellectual property +rights (such as trademarks, patents, and copyrights, if applicable), and other assets and rights related to the operation of the Amazon +online store. +Sean +Da, the Company’s majority stockholder, owns 95% of Ants. +Prepayment +– Related Party +Upon +signing the Authorization Agreement, the Company agreed to sell Ants’ remaining camera inventories and reimburse certain costs +incurred by Ants on its behalf. To facilitate these payments, the Company prepaid Ants $359,192 in 2022. +The +prepayment is amortized based on (i) revenue collected from the sale of Ants’ inventories, (ii) reimbursements of costs incurred +by Ants, and (iii) financial consulting fees payable to Ants beginning January 1, 2025 for bookkeeping support services at a monthly +rate of $5,000. +For +the year ended December 31, 2025, the Company recognized $60,000 of financial consulting fees. Revenue collected from the sale of Ants’ +inventories was not material for the years presented. +As +of December 31, 2025 and 2024, the remaining prepayment balance was $66,844 +and $126,965 , +respectively. +Other +receivable – related party (Ants) +As +of December 31, 2025 and 2024, the Company had gross “other receivable – related party” balances due from Ants of $4,872 +and $1,790,009, respectively, before allowance for credit losses of $nil and $nil. +53 +Table of Contents +The +following table presents the movement of “other receivable – related party” balances due from Ants: +Years +ended +December +31, +2025 +2024 +Balance +at the beginning of the period +$ +1,790,009 +$ +1,768,473 +Amazon +Payments Ants Received (1) +- +(346,458 +) +Repayment +from Ants (1) +(1,790,009) +- +Inventory +Transfer /(Procurement) (2) +4,872 +427,994 +Financial +Consulting (3) +- +(60,000 +) +Balance +at the end of the period +$ +4,872 +$ +1,790,009 +(1) +(1) +Prior to April 2022, Ants collected payments from Amazon customers on behalf of the Company. Beginning in April 2022, the Company +obtained direct access to the third-party cross-border payment platform and began receiving customer payments directly. Accordingly, +amounts previously held by Ants were repaid to the Company. During the years ended December 31, 2025 and 2024, Ants repaid $1,790,009 +and $346,458, respectively. +(2) +Inventory-related +movements reflect transfers and procurement arrangements between the Company and Ants. During the years ended December 31, 2025 and 2024, +such activities resulted in net increases of $4,872 and $427,994, respectively, to the related-party receivable balance. +(3) +The +Company engaged employees of Ants to provide bookkeeping and financial consulting services. Financial consulting fees totaled +$60,000 for the year ended December 31, 2024 and were recorded as reductions of the related-party receivable +balance. +Provision +for credit losses – related party +The +Company recorded a provision for credit losses of $1,262,146 during the year ended December 31, 2023 related to amounts due from Ants. +During the fourth quarter of 2024, the Company reversed the full $1,262,146 allowance previously recorded, as collectability improved +and subsequent settlement activity supported recovery of the outstanding balance. +During +the year ended December 31, 2025, Ants remitted substantial payments and other settlements were completed, significantly reducing the +outstanding related-party receivable balance. As a result of these collections and settlements, management concluded that no allowance +for credit losses was required as of December 31, 2025. +Accordingly, +the allowance for credit losses was $nil as of both December 31, 2025 and 2024. The carrying value of “other receivable – +related party” due from Ants was $4,872 and $1,790,009 as of December 31, 2025 and 2024, respectively. +The +following table presents the movement of the allowance for credit losses: +Years ended +December 31, +2025 +2024 +Balance at beginning of the period +$ - +$ 1,262,146 +Provision for credit loss +- +- +Reversal of credit loss previously recorded +- +(1,262,146 ) +Balance at the end of the period +$ - +$ - +54 +Table of Contents +Note +payable – related party +On +January 1, 2023, the Company entered into a revolving loan agreement with Ants to borrow up to $1,200,000 during the period from January +1, 2023 through December 31, 2024. The loan was unsecured and bore interest at a daily rate not exceeding 0.041%. The outstanding balance +and any accrued interest were payable on demand. +As +of December 31, 2025 and December 31, 2024, the Company had no outstanding principal balance or accrued interest under this loan agreement. +For the years ended December 31, 2025 and 2024, the Company incurred $nil and $18,999 of interest expense, respectively, related to this +loan agreement. +Kami +Vision Incorporated +Sean +Da also serves as Chief Executive Officer of Kami and holds approximately 80% ownership of Kami. +Revenue-Sharing +Arrangement – Cloud Services +In +October 2021, the Company entered into a revenue-sharing agreement with Kami related to cloud-based services associated with the Company’s +products. These services include storage of recorded video data, image analysis, and alert and intelligent detection services provided +to end users. +Under +the arrangement, the Company refers customers to Kami and is entitled to a portion of the subscription revenues generated from those +customers. +On +July 1, 2025, the Company entered into an amended agreement with Kami to revise the revenue-sharing percentages applicable to subscription +revenues from referred customers. The amended terms apply prospectively and do not affect revenue recognized prior to the modification +date. +Annual +subscription periods +Percentage +basis +Inception +through +June +30, 2025 +From +July 1, 2025 Onwards +First +year during which an end user starts the cloud service subscription from Kami +30% +30% +Second +year during which an end user continues the cloud service +15% +30% +Third +year and thereafter during which an end user continues the service subscription from Kami +0% +30% +For +the year ended December 31, 2025, the Company recognized revenue of $2,895,956 from this revenue-sharing arrangement. +Revenue-sharing +arrangement - Intelligent Information Service Agreement +On +October 1, 2025, the Company entered into a revenue-sharing arrangement related with Kami. +Under +the arrangement, Kami operates an artificial intelligence-driven information distribution platform and related application, which utilizes +hardware products sold by the Company to generate monetization opportunities. Kami manages all aspects of the platform operations, including +content distribution, pricing, bidding processes, and relationships with third-party traffic or content providers. +The +Company does not operate the platform or application, does not control the underlying services provided to end users, and does not have +any ongoing performance obligations after the sale of its hardware products. Instead, the Company is contractually entitled to receive +30% of net monetization revenue generated by Kami from users associated with the Company’s products. Net monetization revenue represents +gross receipts collected by Kami from third-party platforms, less applicable platform fees and related charges. +For +the year ended December 31, 2025, the Company recognized $222,661 of revenue under this agreement. +55 +Table of Contents +Accounts +receivable – related party +December 31, +December 31, +2025 +2024 +Balance +% +of Total Asset +Balance +% +of Total Asset +Accounts receivable - related party +$ 1,632,002 +13 % +$ 190,168 +3 % +Other receivable - related +party, net +- +- % +169,833 +2 % +Total +$ 1,632,002 +13 % +$ 360,001 +5 % +Accounts +receivable – related party primarily represent amounts due from Kami under the Company’s +revenue-sharing arrangements, including the Intelligent Information Service Agreement described above. These balances represent the Company’s +contractual share of monetization revenues earned but not yet remitted by Kami as of the respective reporting dates. +Other +receivable – related party as of December 31, 2024 primarily related to amounts due from Ants under prior operating arrangements. These balances were substantially settled during the year ended December 31, 2025, resulting in no +outstanding balance as of December 31, 2025. +The +increase in accounts receivable – related party as of December 31, 2025 compared to December 31, 2024 primarily reflects increased +monetization activities under arrangements with Kami and the timing of settlements. +Subscription +Receivable – Related Party +In +June 2025, the Company entered into a subscription agreement with Kami, pursuant to which Kami +subscribed for 228,571 shares of the Company’s common stock for a total purchase price of $5,000,000. +The +Company received the full subscription proceeds during 2025, and the transaction was recorded within stockholders’ equity. Accordingly, +no subscription receivable was outstanding as of December 31, 2025. +Other +Receivable – Related Party and Marketing Incentive Subsidy Income +The +Company entered into market promotion subsidy agreements with Kami effective January 1, 2024 and January 1, 2025, respectively. Under +these agreements, Kami agreed to provide an annual subsidy of up to $2 million for each of the years 2024 and 2025 to support the Company’s +marketing activities related to Kami’s cloud services. +The +subsidy amounts are determined based on agreed marketing activities performed and are invoiced periodically by the Company to Kami. As +these amounts are not generated from the Company’s primary revenue-producing activities, they are recognized as other income, with +the related receivable recorded as “other receivable – related party.” +For +the years ended December 31, 2025 and 2024, the Company recognized marketing incentive subsidy income of $1,217,586 and $1,779,528, respectively. +As +of December 31, 2025 and 2024, the Company had other receivable – related party balances of $nil and $169,833, respectively. The +decrease in 2025 primarily reflects the collection of outstanding balances from Kami. +PIPE +Financing Funds +In +September 2025, the Company received $4,000,000 from Kami in connection with the PIPE Financing. +The funds were received prior to the closing of the Business Combination and were subject to completion of the transaction. Accordingly, +the Company recorded the amount as a liability within “PIPE financing proceeds received in advance.” +Upon +the closing of the Business Combination in December 2025, the PIPE financing was completed and total proceeds of $5,500,000 from Kami +were received. The total amount of $5,500,000 includes previously recorded advance, together with additional proceeds received at closing, +was reclassified to stockholders’ equity (common stock and additional paid-in capital). +In connection with the PIPE financing, the Company also issued warrants to purchase shares of its common stock (the +“PIPE Warrants”) to Kami. The PIPE Warrants issued to Kami represent the right to acquire 1,540,000 shares of common stock, +based on the terms of the PIPE financing. +56 +Table of Contents +Product +revenue – related party +To +promote adoption of Kami’s cloud subscription services, Kami launched a promotional campaign beginning in the third quarter of +2024 under which customers received a complimentary security camera upon subscribing to Kami’s cloud services. As part of this +promotion, Kami purchased security cameras from the Company. +For +the years ended December 31, 2025 and 2024, product revenue – related party from Kami totaled $3,833 and $6,270, respectively. +The decline in 2025 reflects reduced promotional procurement activity following the initial launch of the promotional campaign in 2024. +Consulting +fee +The +Company engaged certain employees of Kami to provide services as contractors. For the years +ended December 31, 2025 and 2024, the Company paid Kami consulting service fees of $234,911 and $334,317, respectively. These amounts +were recorded within general and administrative expenses in the consolidated statements of operations. +There +were no outstanding balances payable to Kami related to consulting services as of December 31, 2025 or 2024. +Sean +Da +As +of December 31, 2025 and 2024, amounts due from Mr. Da were $440,596 and $15,862, +respectively, and are included within “other receivable – related party” in the consolidated balance sheets. These +balances primarily represent advances made for business travel and related expenditures incurred on behalf of the +Company. +As +of December 31, 2024, the balance of $15,862 represented a note receivable from the stockholder, which was fully repaid during the year +ended December 31, 2025. +Beginning +in January 2025, the Company made advance payments to Mr. Da to cover business +travel and other operating expenditures incurred on behalf of the Company. These advances are recorded within “other +receivable – related party” until the related expenses are substantiated and recognized in the Company’s financial +statements. +For +the year ended December 31, 2025, business travel expenses of $91,665 were incurred on behalf of the Company and recognized +as operating expenses. As of December 31, 2025, the remaining balance of $440,596 represents unsubstantiated or unused advances and is +included in “other receivable – related party.” +December 31, +December 31, +2025 +2024 +Balance +% +of Total Asset +Balance +% +of Total Asset +Subscription receivable - stockholder +$ - +0 % +$ - +0 % +Note receivable – stockholder +- +0 % +15,862 +0 % +Other receivable – related party +440,596 +0 % +- +0 % +Total +$ 440,596 +0 % +$ 15,862 +0 % +57 +Table of Contents +Yunyizhilian +Information Technology Co., Ltd +December 31, +December 31, +2025 +2024 +Balance +% +of Total Liability +Balance +% +of Total Liability +Other payable +- related party +$ - +0 % +$ 6,269 +0 % +Yunyizhilian +Information Technology Co., Ltd. (“Yunyizhilian”) is affiliated with Ants Technology (HK) Limited (“Ants”), which +is a related party of the Company. +Amounts +due to Yunyizhilian arose from related-party operating and working capital arrangements. The balance outstanding as of December 31, 2024 +primarily represented a short-term, non-interest-bearing working capital advance. +The +Company evaluated and recorded the related-party payable balance as of December 31, 2025 based on the underlying books and records. +ZKCam +Technology Limited +December 31, +December 31, +2025 +2024 +Balance +% +of Total Assets +Balance +% +of Total Assets +Accounts receivable +- related party +$ 433,888 +3 % +$ - +0 % +ZKCam +Technology Limited (“ZKCam”) is an affiliate of the Company. During the year ended December 31, 2025, the Company entered into transactions with ZKCam in the ordinary course +of business, primarily consisting of the sale of products. For the year ended December 31, 2025, product revenue recognized from ZKCam +totaled $511,922, compared to $0 for the year ended December 31, 2024. +Amounts +due from ZKCam primarily arose from these product sales and represent trade receivables generated in the normal course of business. +As of December 31, 2025, the outstanding balance due from ZKCam was $433,888, which is included in accounts receivable – +related party in the consolidated balance sheets. These receivables are unsecured, non-interest-bearing, and due on +demand. The Company evaluates the collectability of related party receivables on an ongoing basis and believes the outstanding +balance as of December 31, 2025 is fully collectible. +There +was no +balance outstanding as of December 31, 2024. The Company evaluated and recorded the related-party receivable balance as of December 31, 2025 based on the underlying +books and records. Management assesses the collectability of related-party receivables on an ongoing basis and believes the outstanding +balance as of December 31, 2025 is fully recoverable. +Shanghai +Xiaoyun Technology Co., Ltd . +December 31, +December 31, +2025 +2024 +Balance +% +of Total Assets +Balance +% +of Total Assets +Other receivable +- related party +$ 4,035 +3 % +$ - +0 % +Shanghai +Xiaoyun Technology Co., Ltd. (“Xiaoyun”) was previously a variable interest entity (“VIE”) of the Company and +was deconsolidated in December 2025 when the Company ceased to meet the criteria for consolidation. +58 +Table of Contents +Following +the deconsolidation, Xiaoyun is considered a related party of the Company. +Amounts +due from Xiaoyun primarily arose from transactions in the ordinary course of business subsequent to deconsolidation. The balance outstanding +as of December 31, 2025 represents trade receivables, is non-interest-bearing, and is due on demand. +There +was no balance outstanding as of December 31, 2024. +The +Company evaluated and recorded the related-party receivable balance as of December 31, 2025 based on the underlying books and records. +Management assesses collectability on an ongoing basis and believes the amount is recoverable as of December 31, 2025. +Related Person Transactions Policy +The +Company’s board of directors has adopted a written related person transaction policy that establishes the procedures for the review, +approval and ratification of related person transactions. Subject to certain exceptions set forth in Item 404 of Regulation S-K, the +policy applies to any transaction, arrangement or series of transactions in which the Company (including its subsidiaries) is a participant +and in which a related person has a direct or indirect material interest. +Related +person transactions include, among other things, the purchase or sale of goods or services, transfers of real or personal property, use +of Company assets, provision of services, borrowing or lending arrangements, guarantees or other financial transactions, and employment +arrangements involving related persons or their immediate family members. +Under +the policy, all related person transactions are reviewed by the audit committee, which evaluates whether the transaction is in, or not +inconsistent with, the best interests of the Company and its stockholders. In making this determination, the audit committee considers +all relevant facts and circumstances, including the nature of the related person’s interest, the materiality of the transaction, +the business purpose and terms of the transaction, whether the transaction is on terms comparable to those available to unaffiliated +third parties, whether the transaction is in the ordinary course of business, the potential for conflicts of interest, and the overall +fairness of the transaction. +All +related person transactions must be approved or ratified by the audit committee in accordance with the policy. +Director +Independence +The +Company’s board of directors has determined that Hongfei Zhang, Dahe (Taylor) Zhang and Yong (David) Yan each qualify as independent +directors under the listing standards of The Nasdaq Stock Market. Under these standards, a director is considered independent if he or +she is not an officer or employee of the Company or its subsidiaries and does not have a relationship that, in the opinion of the board +of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. +The +Company’s independent directors meet in executive session on a periodic basis without the presence of management. +Item +14. Principal Accounting Fees and Services +The +following is a summary of fees paid or to be paid to UHY LLP for services rendered. +Audit +Fees +During +the fiscal years ended December 31, 2025 and 2024, audit fees paid to UHY LLP were $542,529 and $448,001, respectively. +59 +Table of Contents +Audit-Related +Fees +During +the fiscal years Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance +of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest +services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We +paid UHY LLP audit-related fees for the years ended December 31, 2025 and 2024, were $334,968 and 85,474, respectively. +Tax +Fees +We did not pay UHY LLP any tax fees for the years ended December 31, 2025 and 2024. +Pre-Approval +Policy +Our +audit committee was formed in connection with the consummation of our business combination with AlphaVest. As a result, the audit committee +did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were +approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has +and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees +and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the +audit committee prior to the completion of the audit). +Item +15. Exhibits and Financial Statement Schedules +(a) +Financial Statements and Financial Statement Schedules +Financial +Statements +The +financial statements required to be filed as part of this Annual Report on Form 10-K are listed in the Index to Consolidated Financial +Statements included in Part II, Item 8 of this report. +Financial +Statement Schedules +All +financial statement schedules have been omitted because they are not required, are not applicable, or the required information is included +in the consolidated financial statements or the notes thereto. +Exhibits +The +exhibits listed in the Exhibit Index immediately following the signature page are filed or incorporated by reference as part of this +Annual Report on Form 10-K. +Exhibit +No. +Description +2.1 +Business Combination Agreement (incorporated by reference to Exhibit A to the Company’s definitive proxy statement dated September 2, 2025) +2.2 +Amendment to Business Combination Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 1, 2025) +3.1 +Form of Certificate of Domestication of AlphaVest Acquisition Corp (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +3.2 +Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +3.3 +Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +4.1 +Specimen Common Stock Certificate of Company (incorporated by reference to Exhibit 4.5 to Company’s Registration Statement filed on Form S-4, File No. 333-283183 filed on August 4, 2025) +4.2 +Description of Securities (filed herewith) +10.1 +Lock-up Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of AlphaVest Acquisition Corp. filed with the SEC on August 22, 2024) +10.2 +Form of Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +10.3 +Form of Indemnification Agreement. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +10.4 +Form of private placement purchase Agreement. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +10.5 +Form of private placement registration rights agreement (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +10.6 +Form of private placement warrant (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on December 15, 2025) +14 +Code of Ethics (incorporated by reference to Exhibit 14.1 to our Registration Statement (No. 333-268188) filed with the SEC on December 13, 2022) +19.1 +Insider Trading Policy (filed herewith) +31.1 +PEO Section 302 Certification +31.2 +PFO Section 302 Certification +32.1 +PEO Section 906 Certification +32.2 +PFO Section 906 Certification +101.INS +Inline +XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within +the Inline XBRL document +101.SCH +Inline +XBRL Taxonomy Extension Schema Document +101.CAL +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +Inline +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +Inline +XBRL Taxonomy Extension Labels Linkbase Document +101.PRE +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover +Page Interactive Data File (embedded within the Inline XBRL document). +Item +16. Form 10-K Summary +None. +60 +Table of Contents +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed +on its behalf by the undersigned, thereunto duly authorized. +AMC ROBOTICS CORPORATION +By: +/s/ Shengwei Da +Shengwei (Sean) Da +Chief Executive Officer and Chairman of the Board +(Principal Executive Officer) +Date: April 20, 2026 +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Shengwei Da +Shengwei +(Sean) Da, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) +April +20, 2026 +/s/ +Min Ma +Min +Ma, VP Finance (Principal Financial and Accounting Officer) +April +20, 2026 +/s/ +Hongfei Zhang +Hongfei +Zhang, Director +April +20, 2026 +/s/ +Dahe Zhang +Dahe +(Taylor) Zhang, Director +April +20, 2026 +/s/ +Yong Yan +Yong +(David) Yan, Director +April +20, 2026 +61 \ No newline at end of file diff --git a/raw/filings/0001937891/2025/0001493152-26-018144/filing_metadata.csv b/raw/filings/0001937891/2025/0001493152-26-018144/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..dabf23cabf20a32807bf2055feacea2864be90b4 --- /dev/null +++ b/raw/filings/0001937891/2025/0001493152-26-018144/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001937891,AMCI,AMC Robotics Corp,2025,10-K,2026-04-20,2025-12-31,2026-04-20T21:31:03.000Z,0001493152-26-018144,form10-k.htm,10-K,11230163,1,1,https://www.sec.gov/Archives/edgar/data/1937891/000149315226018144/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1937891/000149315226018144/ diff --git a/raw/filings/0001937891/2025/0001493152-26-018144/item1.txt b/raw/filings/0001937891/2025/0001493152-26-018144/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..35a3d9a0abc397920699b5286f61e92202f60ae1 --- /dev/null +++ b/raw/filings/0001937891/2025/0001493152-26-018144/item1.txt @@ -0,0 +1,362 @@ +Item +1. Business +Overview +AMC’s +mission is to make the world a safer place through the use of high-quality, affordable and accessible vision AI technology. The Company +currently sells smart hardware products designed for residential and commercial use, including smart cameras, driving recorders, action +cameras and Retina K cameras. As of the date of this report, AMC’s operations are primarily focused on the sale of hardware products, +and it does not currently provide integrated security products or subscription-based services directly to end users. +In +addition to its current product offerings, AMC is in the early stages of developing additional hardware products and technology capabilities, +including IoT-enabled devices, AI-based features, wearable devices and AI robotics. These initiatives are intended to support potential +future applications across commercial and industrial use cases; however, such products and capabilities remain under development and +have not yet been commercialized. Our goal is to make the world a safer place. Through the use of high-quality, affordable and accessible +vision AI technology, we strive to help save lives, empower businesses to succeed and ultimately make the world a safer place. +Products +As +evidenced by the award-winning “YI” brand that we sell, we are seeking to be a leader in the research and development of +video imaging and vision technologies for enterprise and consumer applications. +AMC’s +primary products are security cameras sourced from suppliers in Asia and distributed through e-commerce platforms across the United States, +Canada and Europe. AMC’s product portfolio includes cameras designed for residential homes and small businesses, such as the YI +Dome Guard, Home Camera and Outdoor Camera. +AMC +intends to expand its product offering in the future to include additional AI-based intelligent devices such as wearable devices, including +AI glasses, drones and AI robots, as well as related functionality and features for these products. +Sales +AMC +has two primary revenue streams: (1) product sales, including sales through e-commerce platforms and to related parties, and (2) revenue +sharing arrangements with its related party, Kami, related to cloud-based services and intelligent information services, including video +storage, image analysis and alert and detection functionalities. +With +respect to its product sales, AMC historically sold its products through Amazon across the United States, Canada, and Europe. The Amazon +online stores for the respective regions operated under the entities Ants, Shanghai Xiaoyun Technology Limited (“Xiaoyun”), +and Kunshan Yishijue Technology Limited (“Yishijue”). These entities authorized AMC to utilize their Amazon accounts free +of charge for a duration of five years, starting from October 21, 2021 and expiring on October 20, 2026 (hereinafter referred to as the +“Authorization Agreement”). +Ants +is 95% owned by Mr. Da. Until April 2022, revenues collected from Amazon customers were paid into Ants’ virtual bank account on +PingPong, a cross-border payments platform. However, commencing in April 2022, AMC acquired control of the payments platform and revenues +are now paid directly to AMC. Effective as of January 9, 2025, the ownership of Amazon store North America has been successfully transferred +to AMC from Ants. +Yishijue +has no business operations other than owning an Amazon online store in Europe. Xiaoyun was founded to provide services for patent applications +and intellectual property management. There are two nominal individuals who hold shares of Yishijue and Xiaoyun on behalf of Mr. Da and +Mr. Da controls the primary economic activities of Yishijue and Xiaoyun, such as the authorization or transfer of the Amazon stores to +AMC. +Historically, +Xiaoyun and Yishijue operated as variable interest entities (“VIEs”) and assumed the associated risks and rewards, +making AMC the primary beneficiary. AMC did not own any equity interests in the VIEs. Instead, AMC was regarded as the primary +beneficiary of the VIEs for accounting purposes and consolidated the financial results of the VIEs under U.S. GAAP. In August 2024, +AMC and the two VIEs entered into separate business transfer agreements. Under these agreements, Xiaoyun and Yishijue agreed to +transfer all of their ownership in the Amazon online stores to AMC, including, but not limited to, the ownership of the store, +business operation rights, customer resources, operational data, technical data, brand usage rights, intellectual property rights +(such as trademarks, patents, copyrights, if applicable), and other assets and rights related to the operation of the Amazon online +stores in exchange for an aggregate payment of RMB30,000 for each entity. Once the stores were successfully transferred to AMC, +Xiaoyun and Yishijue would no longer be VIEs. However, in December 2025, AMC determined +that, based on limited transaction volume through these stores, it would transition its sales channel to its own or other third-party platforms and is no longer utilizing the stores from Xiaoyun and Yishijue. +AMC +does not currently generate revenue from directly providing software solutions or subscription-based services. Instead, the Company earns +revenue through (i) product sales and (ii) revenue-sharing arrangements with related-party service providers, including Kami, which provide +cloud-based services such as video storage and related functionality to end users. +1 +Table of Contents +With +respect to Kami, AMC has entered into a revenue-sharing agreement pursuant to which AMC receives a percentage of revenues generated from +the services provided. The revenue-share schedule is as follows: +Annual +subscription periods +Percentage +basis +Inception +through +June +30, 2025 +From +July 1, 2025 +Onwards +First +year during which an end user starts the cloud service subscription from Kami +30% +30% +Second +year during which an end user continues the cloud service +15% +30% +Third +year and thereafter during which an end user continues the service subscription from Kami +0% +30% +AMC +recognizes its revenue share when Kami receives subscription payments from users acquired through AMC’s camera sales. The +agreement includes standard commercial terms, service obligations, and confidentiality provisions. The agreement also contains +provisions for termination by either party with a notice period of 30 days. For the fiscal years ended December 31, 2025 and 2024, +Kami accounted for approximately 48% and 27% of AMC’s revenue, respectively, and represented 78 % and 68% of its accounts +receivable at December 31, 2025 and 2024, respectively. +AMC +recognizes revenue from its revenue-sharing arrangements when the underlying service provider earns and collects consideration from +end users or third-party platforms associated with the Company’s products. For cloud-based subscription services, revenue is +recognized when the service provider receives subscription payments from users referred by the Company. For intelligent information +service arrangements, revenue is recognized when Kami generates monetization revenue from third-party platforms and +reports the Company’s contractual share. +Platforms +The +Company is in the early stages of developing next-generation technology platforms intended to enhance the functionality of its hardware +products. These platforms are expected to incorporate AI-based capabilities, including data processing, application interfaces and improved +user interaction features. However, these platforms are still under development and are not currently commercially available. +Technology +Advantages +The +Company is evaluating certain technologies that may differentiate its products from competing solutions, including: +● Dual +Chip Design – A multi-processor architecture designed to enable switching between +performance and low-power modes, which may improve power efficiency and battery life. +● Artificial +Intelligence Capabilities – The use of machine learning, natural language processing, +computer vision, and predictive analytics to support functionalities such as monitoring, +automation, and data analysis. These capabilities are expected to be supported primarily +by third-party technologies. +● Third-Party +AI Integration – The integration of external AI components, such as pre-trained +models and software libraries, to support system functionality and scalability. +● 22nm +Semiconductor Design – A chip design based on a 22nm process that may provide cost +efficiencies, improve thermal performance, and reduced current leakage. +● Edge +Computing (Under Evaluation) – The Company is assessing technologies that enable +data processing at or near the device level to potentially reduce latency; however, no active +development initiatives are currently in place. +● Interface +and System Enhancements – The Company is evaluating improvements in hardware and +software interfaces, including compatibility with external systems and applications, to enhance +usability. +2 +Table of Contents +Strategy +& Positioning +We +intend to maintain our market position and expand into new market opportunities by continuing to develop and deploy innovative technologies +and by expanding our ecosystem of partners. Our key go-to-market strategies include: +Narrow +Targeted Niche +The Company focuses on a targeted niche market characterized by specific application requirements, which allows it +to tailor its hardware and software solutions to those use cases. By concentrating on defined customer segments and limited functionality, +the Company seeks to differentiate its offerings through customization, cost efficiency, and integration with third-party technologies. +Larger technology providers may prioritize broader, mass-market applications, and as a result may not focus on specialized use cases targeted +by the Company. +Focus +We +seek to solve only one or two core user needs within the niche using affordable hardware and scalable manufacturing. By focusing on these +needs, we believe we can maximize our position in the market. +Invest +in Our Platforms +The +Company is evaluating the development of software functionality intended to enhance the performance and usability of its hardware products, +including features related to video processing, data management and user interface improvements. At this time, the Company does not operate +a standalone platform and any such capabilities remain in the early stages of assessment and development. +The +Company may invest in expanding product features and related technology capabilities for its camera products in residential and commercial +markets. As vision AI technologies continue to evolve and more devices become connected, the Company intends to explore opportunities +to integrate its products with third-party systems and applications; however, these initiatives are preliminary and there can be no assurance +as to their timing or successful implementation. +Channel +Expansion +In +addition to the existing channels we have built, we intend to continue to develop partnerships in areas such as shopping mall management, +parking lots, senior care management, building construction and other related areas. +Pursue +Selective Strategic Acquisitions +We +may selectively pursue future acquisitions of businesses, technologies, or products that complement our platforms or align with our overall +growth strategy. Such acquisitions could expand our team and/or technology portfolio to help us add new features to our platforms, accelerate +the pace of our innovation or help us access attractive markets. +Manufacturing +and Sourcing +AMC +does not directly manufacture any of its products. Instead, all physical products are sourced from related party suppliers. AMC works +closely with these suppliers to ensure key standards such as product quality, compliance and timely delivery. +3 +Table of Contents +AMC +does not currently develop software or technology features internally. Any software functionality associated with its products is provided +by third-party partners or service providers. +Research +and Development +We +invest resources in research and development to enhance our platforms and applications, support our technology infrastructure, develop +new capabilities and conduct quality assurance testing. We expect to invest in continued research and development efforts to expand the +capabilities of our technology. Our research and development of new products and services is a multidisciplinary effort across our product +management, program management, software engineering, device engineering, quality engineering, configuration management and network operations +teams. +AMC +is evaluating research and development initiatives primarily focused on robotics-related technologies and enhancements to its hardware +products. These efforts are at an early stage and are intended to support potential future product development and innovation. +The +Company’s research and development activities are limited in scope and primarily consist of evaluating design concepts, engaging +with third-party partners and assessing potential technologies. The Company has not yet committed to a definitive development timeline +or commercialization plan, and there can be no assurance as to the timing or successful implementation of these initiatives. +Foreign +Operations +To +date, AMC’s business is mainly located in the United States. However, it sells products in the United Kingdom and certain European +countries. Additionally, to a lesser extent, AMC conducts certain operations in China, including sourcing materials and providing services +through its relationships with China-based suppliers and affiliates. AMC also historically benefited from its partnerships with Xiaoyun +and Yishijue, which are headquartered and operated in China. However, in December 2025, AMC determined that, based on limited transaction +volume through these stores, it would transition its sales channel to its own or other third-party platforms and is no longer utilizing +the stores from Xiaoyun and Yishijue. +Competitive +Environment +The +market in which we operate is fragmented, competitive and constantly evolving. We expect competition to continue from existing +competitors as well as potential new market entrants in the interactive security, video monitoring and intelligent automation +markets. Our current competitors include providers of other technology platforms in interactive security, including Alarm.com, +Google Nest, Blink by Amazon, Avigilon, Alula, Eagle Eye Networks Inc., Eufy by Anker and Honeywell International Inc. +Many +of our competitors have long operating histories, greater name recognition and large customer bases. We expect to encounter new competitors +as we enter new markets as well as increased competition. In addition, there may be new technologies that are introduced that reduce +demand for our products or make them obsolete. Our current and potential competitors may also establish cooperative relationships among +themselves or with third parties and rapidly acquire significant market share. Increased competition could also result in price reductions +and loss of market share, any of which could result in lower revenue and negatively affect our ability to grow our business. We believe +the principal competitive factors in the security surveillance market include the following: +● simplicity +and ease of use; +● ability +to offer persistent awareness, control, and intelligent automation; +● breadth +of features and functionality provided; +● flexibility +of the products and ability to personalize for the individual consumer; +● compatibility +with a wide selection of third-party devices; +● pricing, +affordability, and accessibility; +● sales +reach and local installation and support capabilities; and +● brand +awareness and reputation. +We +believe we compete favorably with respect to these factors. Additionally, we believe our AI-based software platforms and edge computing +products will help further differentiate us from competitors. Nevertheless, our competitors may have substantially greater financial, +technical and other resources, greater brand recognition, larger sales and marketing budgets and broader distribution channels than we +do. As a result, we may not compete effectively. +4 +Table of Contents +Our +Intellectual Property +The +Company has filed certain patent and trademark applications related to its technology and branding, which are in various stages of review +and approval, and there can be no assurance that any such applications will be granted. The Company’s ability to compete depends +in part on its ability to protect its proprietary technology and intellectual property rights, and it relies on a combination of patent, +trademark, copyright and trade secret laws, as well as license agreements, confidentiality agreements and other contractual protections. +Our +Human Capital Resources +The +Company has a limited number of full-time employees and engages outsourced contractors to support its operations, including sales and +marketing and general and administrative functions. The Company also engages consultants and temporary personnel from time to time. None +of the Company’s employees is covered by collective bargaining agreements, and management considers its relationships with its +personnel to be good. +We +believe attracting, motivating and retaining talent at all levels is critical to continue our success. By improving employee retention +and engagement, we believe we are also improving our ability to support our service provider partners and protect the long-term interests +of our stockholders. We invest in our employees through benefits and various health and wellness initiatives and offer competitive compensation +packages, ensuring fairness in internal compensation practices. +Government +Regulations +Our +business, operations and service provider partners are subject to various U.S. federal, state and local consumer protection laws, licensing +regulation and other laws and regulations, and to similar laws and regulations in the other countries in which we operate. Compliance +with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations or competitive +position. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining +to global trade, business acquisitions, consumer protection, and taxes, could have a material impact on our business in subsequent periods. +In +particular, we are subject to the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Foreign Corrupt Practices +Act of 1977, as amended, the U.S. Travel Act, and possibly other anti-bribery laws, including those that comply with the OECD Convention +on Combating Bribery of Foreign Public Officials in International Business Transactions and other international conventions. Anti-corruption +laws are interpreted broadly and prohibit our company from authorizing, offering, or providing directly or indirectly improper payments +or benefits to recipients in the public or private-sector. Certain laws could also prohibit us from soliciting or accepting bribes or +kickbacks. Our company has direct government interactions and in several cases uses third-party representatives, including dealers, for +regulatory compliance, sales and other purposes in a variety of countries. These factors increase our anti-corruption risk profile. We +can be held liable for the corrupt activities of our employees, representatives, contractors, partners and agents, even if we did not +explicitly authorize such activity. +We +are also subject to data privacy and security laws, anti-money laundering laws (such as the USA PATRIOT Act), and import/export laws +and regulations in the United States and in other jurisdictions. +We +are also subject to certain foreign regulations based on the jurisdictions we operate in, including laws in the PRC such as the PRC Labor +Contract Law. +Refer +to “Risk Factors” for a discussion of the potential impacts related to the governmental regulations applicable to us. +Corporate +Information +AMC +Robotics Corporation (formerly known as AlphaVest Acquisition Corp) was incorporated in the Cayman Islands on January 14, 2022. AMC Washington +was incorporated under the laws of the State of Washington on October 21, 2021. On December 9, 2025, the parties consummated the +Business Combination, including the Domestication of the Company whereby the Company became a Delaware corporation. +Historically, AMC maintained contractual arrangements +with Xiaoyun and Yishijue through VIEs, which enabled AMC to control and consolidate their financial results. Under the VIE structure, +AMC held effective control over the VIE’s primary economic activities and assumed the associated risks and benefits from the economic +rewards through contractual arrangements, making AMC the primary beneficiary for accounting purposes. Through authorization agreements, +AMC was able to operate the Amazon store UK and Amazon store Europe free of charge for a duration of 5 years, starting from October 21, +2021, which are owned by Xiaoyun and Yishijue, respectively. Through these contractual arrangements, AMC bore all risks of loss and was +entitled to all benefits derived from Yishijue and Xiaoyun. In December +2025, AMC determined that, based on limited transaction volume through these stores, it would transition its sales channel to its own +or other third-party platforms and is no longer utilizing the stores from Xiaoyun and Yishijue. +5 +Table of Contents +Implications +of Being an Emerging Growth Company and Smaller Reporting Company +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, +we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies +that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation +requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations +regarding executive compensation in their periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding +advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +The +JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards +until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the +JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting +standards as required when they are adopted for public companies. As a result, our operating results and financial statements may not +be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. +The +Company will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following December 31, 2030, +(b) in which it has total annual gross revenue of at least $1.235 billion, or (c) in which the combined company is deemed to be a large +accelerated filer, which means the market value of the combined Company’s common equity that is held by non-affiliates exceeds +$700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which the Company +has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging +growth company” have the meaning associated with it in the JOBS Act. +We +are also a “smaller reporting company,” and we will continue to be a “smaller reporting company” if either (i) +the market value of our stock held by non-affiliates is less than $250.0 million as of the last business day of our second fiscal quarter +or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock +held by non-affiliates is less than $700.0 million as of the last business day of our second fiscal quarter. If we are a smaller reporting +company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements +that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two +most recent fiscal years of audited financial statements and only two years of management’s discussion and analysis of financial +condition and results of operations disclosures and, similar to emerging growth companies, smaller reporting companies have reduced disclosure +obligations regarding executive compensation. +Market +Price, Ticker Symbols and Dividend Information +Market +Price and Ticker Symbols +Our +Common Stock is currently listed on Nasdaq under the symbol “AMCI.” On April 10, 2026, the closing price of our Common Stock +was $6.25. +Holders +As +of April 20, 2026, there were 22,595,363 shares of Common Stock issued and outstanding held of record by 36 holders. +The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders +whose Common Stock are held of record by banks, brokers and other financial institutions. +Dividend +Policy +We +have not paid any cash dividends on our capital stock to date. We may retain future earnings, if any, for future operations, expansion +and debt repayment and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends +in the future will be made at the discretion of the board of directors and will depend on, among other things, our results of operations, +financial condition, cash requirements, contractual restrictions and other factors that the board of directors may deem relevant. In +addition, our ability to pay dividends may be limited by any outstanding preferred stock and covenants of any existing and future outstanding +indebtedness. We do not anticipate declaring any cash dividends to holders of Common Stock in the foreseeable future. As a result, you +may not receive any return on an investment in our Common Stock unless you sell your Common Stock for a price greater than that which +you paid for it. +6 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001937891/2025/0001493152-26-018144/item13.txt b/raw/filings/0001937891/2025/0001493152-26-018144/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..a4752d8ac17e5cdad5b1ca047ebde5ab72da848e --- /dev/null +++ b/raw/filings/0001937891/2025/0001493152-26-018144/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +49 \ No newline at end of file